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Political Interference and Economic Turmoil in Bangladesh: The Cost of Accountability Absence

Political Interference and Economic Turmoil in Bangladesh: The Cost of Accountability Absence

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The degree to which the government should interfere in the economy or let it run freely is one of the contentious topics in economics. While economists may differ on the extent of government intervention, there is unanimous agreement on the detrimental impact of political meddling in economic matters, especially when it serves narrow political agendas.

Recent data about politics and economic blundering paints a troubling picture of Bangladesh’s economic landscape. The hyper-inclusion of business figures in the political sphere raises serious concerns about the integrity of governance and the success rate of economic policy. Notably, this parliament has a record number of businesspersons serving as MPs, and they’re holding positions in different ministries and standing committees. It is a record rise in the number of business people involved as parliamentarians. In the 11th parliament, there were 182 businesspersons in 300 seats, and in the 13th parliament, it has increased to 199, which is almost two-thirds of the total parliamentarians. Unsurprisingly, the parliament is regarded as a Parliament of Millionaires, as almost 90 percent of the lawmakers for the 12th parliament have assets worth more than Tk. 1 crore, according to the report provided by non-government organizationShushasoner Jonno Nagorik (SHUJAN) analyzing the affidavits of the MPs.

The National Parliament no longer resembles the house of the nation’s mainstream politicians but is rather more of a corporate institution. Additionally, it is detrimental to politics and the economy. Consequently, the heightened presence of business interests within the legislature raises the possibility of “conflict of interest,” undermining effective economic policymaking. This shift is already exerting significant ramifications on Bangladesh’s macroeconomic landscape, manifesting in inflationary pressures, liquidity crises in the banking sector, dwindling reserves, capital flight, stock market volatility, institutional failure, and other related challenges. Of particular concern are issues such as institutional collapse, stock market volatility, disruptions in the supply chain, and crises within the banking and financial sectors. Conversely, this trend appears to be bolstering the prospects of politicians who priorities business interests. The recent affidavits submitted by the nominee before the 12th National Poll paint a troubling picture of this reality.

Surge in wealth among politicians: Before the 12th National Poll, aspirants were required to submit affidavits to the Election Commission. Transparency International Bangladesh (TIB) subsequently conducted an analysis based on these affidavits, shedding light on the wealth of former Members of Parliament (MPs). This paints a harsh picture for Bangladesh, as among the candidates, 18 individuals possess wealth exceeding Tk 100 crore. Notable figures include Jute Minister Golam Dastagir Gazi, Prime Minister’s Private Industry and Investment Adviser Salman F Rahman, and AL nominee Abu Zafar Mohammad Shafi Uddin, whose wealth amounts to Tk 1,345.77 crore, Tk 315.76 crore, and Tk 306.68 crore, respectively. It conveys a negative message to the broader public. Some people are encouraged to enter politics to alter their financial situation and stay away from the formal revenue stream. For instance, it was stated that a Bangladesh Student League (BSL) leader from the Faridpur District had laundered Tk 2000 crore! While individuals are finding it more difficult to afford basic needs as a result of elevated inflation, political elites at all levels are holding excessive amounts of money. We may have a look at the most current figure that Transparency International Bangladesh (TIB) released based on the affidavits submitted by the aspirants. This comprehensive 15-year analysis captures the whole AL regime’s trajectory since 2009.

It is the only information about their official income that warrants more research. A common way for politicians to conceal their riches is to include significant assets in their spouses’ names. By the

way, what does this spike in their wealth signify if we just look at the data that is now available? If this growth coincided with the overall population’s rise in wealth, there was no reason to be alarmed. Their usual business and salary cannot account for this infusion of cash. However, there is a substantial discrepancy between the average and the overall population’s wealth growth. It demonstrates the worrisome economic disparity based on income. These kinds of incidents affect the formal channels of income and exacerbate economic disparity.

The wealth of politicians has increased capital flight, which is draining our economy, and most of the time, those who engage in this practice hold influential political positions. The Swiss National Bank (SNB), the central bank of Switzerland, released its annual report in June 2022. It states that deposits made by Bangladeshi nationals and banks with various Swiss banks saw a sharp increase of 55% to 871 million Swiss francs (CHF), or roughly Tk 8,266 crore, in 2021 compared to the previous year.

2017 4,564.69
2018 5,855.33
2019 5,722.47
2020 5,333.38
2021 8,265.79
Source: The Swiss National Bank (SNB)

This is the devasting scenario of capital flight from Bangladesh. According to Ambassador Nathalie Chuard of Switzerland to Bangladesh in August 2022, despite this dire situation, Bangladesh refrained from requesting information on these accounts held in Swiss banks. Although they indicated a desire to share information, our political leaders didn’t show any interest in this regard. Political concerns inside the political party had an impact on this choice. It is the only demography of Swiss banks; the holistic situation of these kinds of capital flight in the West is beyond thought. Bloomberg News, an international news agency headquartered in New York City, recently published a report about our former land minister, Saifuzzaman Chowdhury. They analyzed nearly 250 of his UK properties and found that almost 90 percent were classified as new-builds when bought, a valuable component in a UK housing market suffering severe shortages. According to the report, he has built up a UK real estate empire of more than 350 properties worth about £200 million. On December 26 last year, Transparency International Bangladesh (TIB), at a press conference, first raised the issue of a minister’s business abroad worth over Tk. 203 billion. Because of political complexities, TIB refrained from revealing the minister’s identity, but they expressed their willingness to offer proof upon request from government officials. Regretfully, no official government body expressed interest in the information or asked for it. Ultimately, the truth won out thanks to international media, which is not prestigious for the entire country. Another horrible scenario of the “Begum Para” of Toronto in Canada may stay beyond today’s discussion.

Supply Chain Management Disruption

Let’s take a closer look at our supply chain management. In the preceding year, our nation experienced record-breaking inflation, registering at 9.4%, with food inflation reaching double digits in certain months. Elevated inflation is eating up the consumer surplus holistically. In a recent seminar titled “Bi-annual Economic State and Future Outlook of the Bangladesh Economy: Private Sector Perspective” at the Dhaka Chamber of Commerce and Industry (DCCI), Mohammad Yunus, a research director of the Bangladesh Institute of Development Studies (BIDS), blamed extortion in the retail market as one of the key reasons for this higher inflation. A recent report in Prothom Alo also figured out the reality of the extortion of crores of takas per month by vegetable trucks only in Sylhet city. According to this report, about Tk 2 crore is being extorted every month from goods-laden trucks at the three entrances to the city, with Tk 2,000–5,000 charged from each vehicle. If traders and transport workers refuse to pay, they are reportedly beaten up and their goods looted. Some of the traders even alleged that police were involved in the process, as otherwise, it would not be possible to carry out such acts every night.

This is the sole documented instance within a singular city, whereas extrapolating the genuine scenario of the entire country is straightforward. Such political interference in the economy, entwined with non-economic factors, is responsible for macroeconomic policy failures in market regulation. Finally, the trade minister needs to concede their powerlessness in regulating the market due to the formidable influence of the syndicate, which fuels the unethical desire of the syndicate to manipulate the pricing of goods.

Institutional Fragility

Economists Daron Acemoglu and James Robinson, in their famous book ‘Why Nations Fail’, described the economic history of some countries and showed the reason behind the growth differences between two countries despite having the same resource base. Why do some countries get rich and others don’t? The book’s case studies and empirical data demonstrate how various extractive government institutions have historically contributed to economic growth by correcting for political regimes. Conversely, it also shows how the same government institutions, when subject to negative interference by the political regime, can stifle a country’s growth potential.

Let’s examine the institutional capability of Bangladesh. For instance, allegations of corruption against influential figures remain unresolved, contributing to a backlog of over 3,300 cases in various courts nationwide, as indicated in a recent report on the Anti-Corruption Commission’s (ACC) struggles. Furthermore, new cases continue to accumulate each month, exacerbating the backlog of unsolved cases. It’s particularly concerning given Bangladesh’s ranking as the 10th lowest in the latest Corruption Perceptions Index (CPI) by Transparency International (TI). Corruption erodes the benefits of development for the masses, exacerbating economic inequality in our country. This weakness is a direct result of the political pressure exerted on the ACC.

Another example can be drawn from the National Board of Revenue’s (NBR) capacity to collect taxes. The Bangladesh Economic Association (BEA) held a pre-budget discussion during which panelists noted that 87% of the wealthy and upper middle-class population avoid paying taxes. This raises questions about the efficacy of NBR’s abilities and policies. Is it unable to exercise its administrative authority due to pressure from influential political entities, or are there inherent limitations in its policies? Despite NBR’s primary responsibility being revenue collection, it falls short in this regard. Consequently, we are forced to bridge our budget deficit through domestic and foreign borrowing, further burdening the general populace. This serves as evidence of the NBR’s institutional fragility.

Another alarming instance arises from the Bangladesh Bank. Due to the influence of business-minded, politically powerful individuals, Bangladesh frequently finds itself unable to develop policies independently. Consequently, it struggles to reach stable decisions regarding policy rates, exchange rates, foreign exchange reserves, and corrective measures for the financial sector. There is consistently a discernible disparity between the policies adopted by the central bank and those recommended by economists. As a result, Bangladesh Bank Governor Abdur Rouf Talukder received a D grade in a ranking by the New York-based Global Finance magazine, attributed to high inflation and the devaluation of the taka.

The lack of administrative authority is another issue plaguing Bangladesh. Their recent report shows that there were at least 14,106 reports of suspicious transactions and financial activities in FY2022-23, compared to FY2021-22. This is because they are the main organization responsible for fighting money laundering (ML), terrorist financing (TF), and the proliferation (PF) of weapons of mass destruction (WMD). If proper measures were implemented to address these incidents, the rate could have been significantly lower. While the BFIU possesses information on money laundering, defaulters, and mis-invoicing, its capacity to take action against alleged individuals is limited. From this perspective, one could infer that either the BFIU lacks the capability—both legally and logistically—to fulfil its mandate or that its authority is deliberately undermined due to political motives. Statements from the BFIU chief underscore the necessity of strong political will to combat money laundering, particularly when high-profile individuals are involved, further suggesting constraints on their effectiveness. In a scenario where money laundering is draining our economy, the inability to exert authority due to political pressure represents direct interference in the economy, leading to institutional failure that has far-reaching implications for the overall economy.
Crisis in the Banking Sector: Recently, we’ve witnessed a financial sector catastrophe unfold. Bangladeshi banks are grappling with issues related to nonperforming, classified, and default loans. While the liquidity crunch is identified as a primary factor in this catastrophe, the underlying catalyst for this crisis lies in the substantial volume of non-performing loans. People are taking out loans and not paying them back for a very long time, which is a worrying trend because regulatory authorities have limited power.

Bangladesh has now become the second-highest country in terms of non-performing loans in South Asia. The underlying reason behind these classified or non-performing loans is political influence, with many defaulters being influential figures. These individuals often acquire loans, leveraging their political power, and then use that influence to evade consequences for defaulting. According to recent data from the Bangladesh Bank, defaulted loans surged by 20.7% in 2023, breaking all records from previous fiscal years. The increase in bad loans is attributable to a rise in willful defaulters. Amid this comprehensive scenario, the Bangladesh government sought a loan from the International Monetary Fund (IMF), which imposed certain conditions for loan approval. One of the most imperative requirements among these conditions was the reform of the banking sector. Regrettably, it is not a matter of honor for us, as we should have undertaken these reforms for the benefit of our economy proactively rather than being compelled by external pressure. Now, we find ourselves obliged to reform the banking sector solely to meet the requirement of obtaining loans.

Moreover, the economy of Bangladesh is burdened with an excessive number of banks. Currently, there are 61 scheduled banks in Bangladesh operating under the full control and supervision of the Bangladesh Bank. Many of these banks are fledgling and lack a clear purpose beyond profit-making. Over time, they become stagnant and inert, which is incongruous with the economic landscape of Bangladesh. We simply cannot afford to accommodate such a large number of banks. Additionally, it’s noteworthy that most of the owners of newly established banks have political connections. Successive governments in the country have granted licenses to numerous banks based on political considerations, often overlooking their economic viability.
Nepotism is rampant on the boards of some banks, with relatives, children, and siblings filling positions. Such a scenario is detrimental to the banking sector’s integrity and efficacy. The poor performance and breaches seen in the economy are proof that political and business influences contribute to instability. Furthermore, political interference in the banking sector hampers the proper functioning of policy instruments designed to regulate the economy, as banks are the most crucial medium for applying economic policies.

Leading business groups and their political inclinations

Mushtaq Hossain’s study quoted Sobhan and Sen as saying, ‘A significant number of loanees appear to have been politicians at one time or another. However, political elites as such do not constitute a separate entrepreneurial group in the strictest sense because of the wide diversity of their socio-economic backgrounds. Political elites originate from almost every entrepreneurial group, starting with professionals and ending with industrialist-cum-traders. Political power is traded for public services and resources. Conversely, access to state resources is translated into a political resource to enhance the power of the beneficiary and, through him, the influence of the regime.’ - Ibid—p.68.

It is not new for a small number of families or business groups to control Bangladesh’s economy. In the latter half of the 1980s, more than a hundred family firms gradually emerged. Some of these were new, and some were old. Newcomers include Pran, Paradise, Orion, Summit, Bashundhara, Transcom, Toby, Dragon, PHP, and Rangos. These businessmen took political advantage to acquire huge amounts of bank loans, contracts, licences, etc. The list of the top 14 family business groups till 1980, both new and old, is as follows:

The alarming revelation is that by the year 2024, a significant portion of these major business groups will be directly or indirectly connected with politics, and some of the owners of these groups will hold important state roles. These scenarios give insight into the extent of political meddling in the market, which is progressively transforming Bangladesh into an oligarchic economic society, ensuring the monopoly power of these groups.

The rising Gini coefficients show that this situation is worsening income inequality. According to the “Household Income and Expenditure Survey-2022,” the income-related Gini Coefficient has surged to 0.499 in 2022 from 0.482 in 2016 and 0.458 in 2010. The Gini index measures the extent to which the distribution of income or consumption among individuals or households within an economy deviates from a perfectly equal distribution. A Gini index of 0 represents perfect equality, while an index of 1 implies perfect inequality.

This broad economic overview paints a concerning picture, indicating that we may soon find ourselves in a dire situation from which it will be exceedingly difficult to extricate ourselves if political interference in the economy persists at its current pace. Due to these processes, which exacerbate economic inequality and drain capital, our economy is undergoing a dramatic collapse from within.

Therefore, political interference in the economy must be halted to allow for the economy to recuperate and expand at its natural pace. Policies must be formulated and implemented with the overarching goal of promoting the general welfare of the populace.
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Md. Parvez Hasan
The author of this article, a seasoned economic and finance analyst, offers readers a unique perspective on Bangladesh’s economic and financial analysis
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