Finance adviser blames central bank for excess liquidity

Holiday Report

Dr Mashiur Rahman, finance adviser to the Prime Minister said two things seems to mainly responsible for the increased cash surplus in the banking system. These are the low rate of statutory liquidity requirements (SLR) for the Islamic banking and the central bank's refinancing programmes.
   The country's central bank - the Bangladesh Bank (BB) - has slashed the SLR for the Islamic banks operating in Bangladesh to 10 per cent as compared to 18 per cent for other commercial banks.
   While participating in a discussion meeting arranged by the Economic Reporters' Forum (ERF) last Saturday, Dr Rahman has also pointed out that it has remained unclear why the Bangladesh Bank is further injecting money into the banking sector through its refinancing facility although the country's banking system is awash with almost US$ 4.0 billion in excess liquidity. "The cause of excess liquidity in the banking system needs to be investigated," he said and added: "the central bank is buying dollars on the one hand and refinancing banks on the other. The whole process remains unclear."
   As of April 2009, excess liquidity stood at Tk 277 billion (Tk 27,700 crore) up from Tk 129 billion in June last year, according to data available from the central bank. The Bangladesh Bank says it can extract as much as Tk 24 billion from the banking system by increasing the SLR by 0.5 per cent while economists warned that surplus cash in the banking system poses threat to the economy as it may lead to politically-directed leading.
   According to Dr. Rahman said banks following the Shariah law can take interest and invest that income in welfare programmes for the poor. To prove this point, he said: "The Islamic Development Bank keeps deposits in the western banks. And its interest income is spent on waqf and other welfare programmes across the world."
   The finance adviser said Bangladesh has escaped the initial shocks from the global recession as its economy was not closely linked to the global economy. But he warned that the economy would be hurt if the recession deepened and prolonged further. He said, to offset the impact of global crisis the government's main strategy is to stimulate domestic demand and create jobs.
   On the question policy, the finance adviser said a bold and prudent step is needed to develop the country's coal mines including the controversial Phulbari project to boost power generation. Because, he said bank loans with zero per cent interest rates would not help Bangladesh attract private investments unless it boosted power generation.
   President of Foreign Investors' Chamber of Commerce and Industry Waliur Rahman Bhuiyan said domestic impediments, such as basic infrastructure like power shortage are responsible for lukewarm response from private investments in Bangladesh. He said Bangladesh should not expect much from foreign investors as they are "very cautious" about investments, hurt by the global crisis.
   Mr Bhuiyan said the government should not invest much rather it should help and encourage private sector to invest massively.
   Chairman of Multimode Group Abdul Awal Mintoo, Managing Director of NCC Bank Ltd Nurul Amin and President of Bangladesh Economic Association Kazi Kholiquzzam Ahmed, among others, addressed the discussion meeting on the state of the economy. ERF President Nazmul Ahsan presided.

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A syndicated loan of Taka 130 crore has been arranged by the Standard Chartered Bank for the ACME Specialised Pharmaceuticals Limited. The facility will set up a state of the art pharmaceutical factory by the ACME Group in a bid to lift the country's pharmaceutical industry to a higher standard.
   An agreement has been signed Tuesday between the ACME Specialised Pharmaceuticals Limited and the Lead Agent of the syndicated loan Standard Chartered Bank Tuesday at a local hotel. Sixteen other participating banks - AB Bank Limited, Bank Asia Limited, Bank Alfalah Limited, BRAC Bank Limited, Citibank N.A., Commercial Bank of Ceylon Plc, Dhaka Bank Limited, Dutch-Bangla Bank Limited, Eastern Bank Limited, IFIC Bank Limited, Mercantile Bank Limited, National Bank Limited, One Bank Limited, Southeast Bank Limited, Standard Bank Limited, Saudi-Bangladesh Industrial and Agricultural Investment Company Limited also signed the agreement.
   The ACME Group's Managing Director Mizanur Rahman Sinha and Deputy Managing Director Dr. Jabil R Sinha highlighted their success story in Bangladesh and spoke about their commitment to the country.
   The ACME Group began its journey in 1954 when the late Hamidur Rahman Sinha established ACME Laboratories. The Group slowly diversified its business into printing, food & beverages etc.
   The new Taka 215 crore manufacturing unit of ACME Laboratories - ACME Specialised Pharmaceuticals Limited - plans to go into production next year. Located at Dhamrai, the ACME SPL, in addition to other drugs, will produce anti-cancer and anti-AIDS drugs for the local market, now almost fully dependent on imports of such drugs.
   Cancer resistant drugs are now being manufactured by one or two local companies while cancer patients are on the rise in Bangladesh, according to industry people. "This new unit will help enhance our supply capacity to both local and international market by more than 20 percent from the very first year of production," said Mizanur Rahman Sinha, Acme's managing director.
   Sinha said the new unit of his pharmaceutical conglomerate, which has a track record of producing a wide range of medicines across the therapeutic spectrum for both human and animal health, also targets exports of its produces to rich nations including USA and UK, Sinha added.
   Presently, Acme medicines are exported to 11 countries with around 55 percent of such growth a year.
   "We are trying very hard to ensure meeting international compliance, while constructing the new unit. At the same time, we are strictly maintaining the regulations of the exporting countries," he added.
   Of the total fund being invested in the new plant, Tk 130 crore will come from a syndicated loan, raised by Standard Chartered Bank as lead arranger.
   "We put emphasis on ensuring good health for all by manufacturing ethical drugs of the highest quality at affordable prices and reaching out those even to the remotest areas by proper distribution network," said Mizanur Rahman Sinha.
   Common people often fail to get access to anti-cancer drugs because of their unavailability in the local market, he pointed out.
   During FY2008-09, ACME Laboratories recorded a Tk 400 crore sales in domestic market, while it posted Tk $1.2 million exports.
   "Experiencing a success in the domestic market, ACME started its first international operation by exporting medicines to Bhutan in 1995," said Sinha, adding: "The volume of sales has increased significantly with an average growth rate of 50 percent every year."
   Among the medicines exported, antibiotic, anti-hypertensive, anti-ulcerant and vitamin are remarkable. South-East Asia, Africa, Middle East and the EU are among the Acme's export destinations. Myanmar, Nepal, Sri Lanka, Pakistan, Afghanistan, the Philippines, Hong Kong and Vietnam are the countries where it exports regularly.

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After a meeting with visiting World Bank vice president for South Asia, Isabel M Guerrero, Bangladesh Finance Minister AMA Muhith said last week that the WB was unwilling to invest in road construction because of corruption.
   "I requested World Bank for greater assistance on road projects because infrastructure is important for us," the finance minister told reporters.
   "They say corruption takes place in the sector. I told them, 'You have links to this too in that it was you who approved past projects", Muhith said.
   The bank has pledged $3 billion in assistance to Bangladesh over the next three years.
   The bank was eager to work for the development of the southern region, he said.
   "They have agreed to fund the excavation of river Gorai and showed interest to fund the development of Mongla port.
   "The World Bank will also assist in reforming of sea or river channels. But we have not submitted any project proposal to them yet."
   Muhith said the multilateral donor agency supported reforms of the public procurement system.
   They also discussed information technology, social safety net, rural development and power projects.
   WB interim country director Robert Floyd was also present in the meeting.
   Guerrero arrived in Bangladesh on Monday on a five-day visit.

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