Whither financial sector reforms?

According to press reports, Price, Waterhouse Cooper of Hongkong has been given the contract involving Tk 36 crores to renovate and restructure the working and management of Agrani Bank and then perhaps to sell it to private sector. Incidentally, the parent organisation of Price, Waterhouse and Cooper served as an auditor of now liquidated BCCI in England and year after year had given clean report on the working of that institution. Subsequently it was fined for neglect of its statutory duties. Its sister organisation in USA also came for censor of regulatory agencies for some audit lapses in some of the corporate scandals.

Earlier, in June 1990, the World Bank sanctioned a loan for $ 175 million to Bangladesh for the same purpose. The main aim of that loan was the same-pervasive reform of financial sector deficiency which was "constraining the growth of non-traditional exports of private sector, to respond to changing competitive sector." Along with this, a large component of $ 19.4 million grant was provided by USAID. One important element of the loan was to provide funds to Bangladesh government to enable it to inject money to nationalised banks for increasing their capital structure which was wiped off by their non-performing loans.

One would be curious to know what has been the performance of that loan? Where the money has gone? Why such a massive programme of training staff and increasing managerial expertise has not been able to do the job? Why massive capital was injected into the nationalised banks without first improving their managerial capacity? Why a new loan of the same type is now necessary once again? If Bangladesh government wants to find this out, it will be well advised to dig its old records and discover that in 1996, World Bank's own operation and Evaluation Wing declared the earlier loan as a failure, suffering from lack of proper sequences of measures, rated the programme as unsatisfactory and unlikely to be sustainable. If this is the case why this new programme? Who has certified now that this time measures are well thought-out, measures are properly sequenced and implementable, time frame is adequate and measures are sustainable?

The loan also includes a decision to ban the union activities by bank employees. It is understood, Bangladesh government is going to enact a law to this effect soon. Is not this right of the employees a fundamental one enjoined by our constitution and in a democratic society which Bangladesh claims to be? Should we take away the core labour rights of the people only in order to punish some recalcitrant and misguided labour leaders? Many people like me are wondering how the World Bank could ask the government to take such repressive measure only to enforce its reform programme?

It is also time to ask the World Bank to come out in the open on the success or failure of its various programmes and discuss publicly how the loss sustained by borrowing countries by implementing their wrongly crafted programme should be shared. While willy nilly taxpayers have to carry the load of such non-performing loans it is not understood why the World Bank should get away without even a "haircut". Why should we not write off such bad loans? Similarly, the government of Bangladesh should clarify why reforms of such magnitude touching the lives and livelihood of so many people have been undertaken without adequate public discussion either in the Parliament or outside even though Bangladesh claims to have an elected government. Where are the transparency and accountability which are supposed to be important ingredients of democracy? Did World Bank advise government to go public with the new reform programme?

The World Bank sometimes claims that it is "champion of change" and occasionally awards this honorific award to some adherents of its policy. But it is well known that all changes do not auger well. A child may, for a change, be asked to run when he has not even learnt even to walk properly. Similarly, for a change, workers are replaced by automation and with the help of computers and machines imported from abroad. Will this change be welcome and beneficial without simultaneously modernising other arms of the government? Are not these problems part of larger social and humanitarian issues? Furthermore, in the context of pervasive unemployment in the country now whether modernity at the cost of unemployment is preferable leaves room for debate. Changes per se do not bring modernity or progress or efficiency. On the contrary, they may be retrograde steps under certain circumstances. The public is not aware whether these considerations were carefully weighed by the World Bank officials when they crafted the programme.

Another problem with the World Bank seems to be its failure to realise how important it is to focus on implementation issues at the onset of the negotiations. There are already reports in the Press that the government is trying to drag its feet from reform measures already agreed upon after watching the backlash of public opinion and bank employees.

The entire effort of the World Bank to modernise economies and remove poverty reminds one of what Rousseau once said, "People should be forced to be free". Except as serving as a good example of oxymoron such prescription does not work in real world. This was tried in the Soviet Union for 73 years but eventually it came out unstuck. The current efforts by Western countries to mould the economies and political structures of the poor countries in the image of theirs through the instrumentalities of Brettonwoods institutions coupled with unilateral policy of mindless globalisation and free market is very likely to meet the same fate in course of time -- perhaps sooner than later. Signs are already on the horizon. Globalisation is losing heights and descending.

There are more and more open discussion for "more creative globalisation agenda" that supports universal basic education, fights abusive child labour and sweatshop, strengthens civil society watchdogs and independent monitors, and funds transition assistance to workers and small farms hurt by market opening, while insisting on codes of corporate conduct that support core labour rights. Free market concepts stand exposed to the public through large scale corporate scandals all over the world -- USA in particular. Nation states in the developed and developing nations are appearing once again.

This is the time when countries like Bangladesh should learn to manage their economies without getting addicted to foreign aid further and particularly with lesser recourse to World Bank and IMF for funds and technical assistance. The nations which will be trying to be self reliant are bound to suffer withdrawal symptoms and pain severity of which will be proportionate to the degree of dependence experienced earlier. But these hardships may be mitigated to some extent by following egalitarian measures not hitherto done.

Self sufficiency and freedom from bondage are rewards by themselves. Also there is no quick fix in economic development. It is a patient, drawn-out process involving wider participation of people. What is more important, it should be organic and not imposed from outside. We should try to find homegrown remedy as far as possible for our homegrown malady. Like Japan we can be modern without being western. Let us pause and cease to move like sleep walkers on the part charted by others. In economic development there is a term frequently used -- cost-benefit ratio. In our development effort let us always keep this in view so that our people do not bear the only cost while benefits accrue to others.

A K N Ahmed is a former Governor of Bangladesh Bank. This article is a portion of a larger paper by him titled "Foreign aid: Help or obstacles" to be published shortly.