Irresponsible statements about banks

The Governor of Bangladesh Bank, Dr. Ahsan H. Mansur, made a straightforward statement: despite strong efforts, some banks cannot be saved. Why can’t they be saved? Because in some banks, 87% of the loans were taken by a single family, and this money will never be recovered. This kind of statement is not new. As soon as he took office as Governor, he started declaring that several banks were bankrupt. Panic ensued, and depositors rushed to withdraw their money. Branch managers had to shut their doors to control the chaos. Those with softer hearts tried to calm customers by consoling them.

The Governor stated that he would not give a single penny to these struggling banks. Depositors became even more anxious and alarmed. Later, realizing the situation, funds were injected into weak banks, but it was ineffective. Fear is not easy to dispel, and trust is hard to rebuild. However, no one talks about how a single family managed to take so much money from the banks or who facilitated it. Even if the S. Alam Group took loans under various names, it was not outright robbery at gunpoint. Despite irregularities in loan disbursement, there should have been collateral. If not, why not? Was there negligence in the Bangladesh Bank's offsite and onsite inspections? No one is addressing these concerns.

Recently, the Governor stated that it would take five to ten years for weak banks to recover. If the Governor continues making such remarks, instability will persist in the banking sector. Bangladesh Bank is the guardian of commercial and scheduled banks. Any erosion of trust makes depositors fear for their savings. Why the Governor is fueling the destruction of banks with such statements is unclear. Some believe he is simply speaking the truth, but not all truths should be disclosed. That is why high-ranking officials often take an oath to keep certain truths confidential. Former FBCCI president Abdul Awal Mintoo aptly remarked in the Governor’s presence, "Bangladesh Bank talks a little too much." He also urged the Governor to refrain from making statements such as “this bank is weak” or “that bank is failing.”

In December, the overall inflation rate stood at 10.89%. Even during the COVID-19 pandemic, inflation was lower. Upon assuming office, Dr. Mansur confidently claimed that inflation would be reduced to 3-4% within six months. Seeing Sri Lanka bring inflation down to 4%, he assumed it would be an easy task. Like many renowned economists during the Awami League era, he frequently appeared in the media, offering lessons on how to control inflation. CPD (Centre for Policy Dialogue) constantly highlighted the government’s failure to curb inflation during Awami League’s tenure. Despite the global economic challenges following COVID-19 and the Russia-Ukraine war, many countries managed to reduce inflation, but Bangladesh did not. Eminent economists blamed the Awami League government’s incompetence for this failure. However, those critics are no longer as vocal.

Why is the interim government and Bangladesh Bank unable to control inflation? Their explanation is that Awami League has destroyed everything. But if everything was destroyed, why was Bangladesh receiving so much global praise for its development? If Awami League had truly ruined everything, why did international institutions like the World Bank and IMF not hesitate to provide loans? Why is the interim government, which supposedly upholds good governance, not receiving the fourth installment of an approved Awami League-era loan? The economic advisor has given an explanation for this. Another excuse from the current policymakers is that real inflation was suppressed during Awami League’s tenure. However, who can guarantee that inflation is not still being manipulated?

The current economic advisor is an experienced person and has rightly stated that if global commodity prices do not fall, it will be difficult to reduce inflation in an import-dependent country. Bangladesh Bank has now revised its inflation reduction timeline, claiming that inflation will be brought down to 7-8% by June. The central bank has become so fixated on reducing inflation that GDP growth has taken a backseat. Initially, Bangladesh Bank believed that increasing the policy interest rate would lower inflation. But in a country that even imports sugar, relying solely on interest rates to curb inflation is unrealistic. Both the Governor and the Chief Economic Advisor once argued that printing and injecting Tk 60,000 crore into the market fueled inflation. Yet, the same printed money was later used to rescue the supposedly bankrupt banks identified by the Governor.

In its effort to control inflation, the interim government and Bangladesh Bank are choking economic growth. There is no investment, no job creation, and no plans to address the growing number of unemployed people. The only goal is to reduce the money supply, prevent people from holding cash, and curb purchasing power to bring down prices. This approach mirrors Afghanistan’s situation—where abundant goods exist, but people cannot afford them. Afghanistan’s currency value has increased, corruption has declined, and tax collection has improved, yet nearly 4 million people survive on just bread and tea due to rampant unemployment. The country has had no GDP growth in recent years. Afghanistan also imposed cash withdrawal limits, leading to long queues outside banks.

During winter, when vegetables are plentiful and cheap, people feel some relief. Bangladesh Bank must realize that in a stagnant economy, having or not having money in circulation makes no difference to unemployed people. Without jobs, how will the poor get money? The current Governor does not want investment, economic expansion, or GDP growth—he only wants to reduce prices. Hence, he is enforcing an extremely contractionary monetary policy with high interest rates. Due to political instability and excessive interest rates, industrial investments are drying up, factories are shutting down, and development activities are at a standstill. Many Awami League-era projects have halted midway. If this economic contraction continues, GDP growth will be worse than during the COVID-19 period. Even during the pandemic, Bangladesh’s GDP growth was 3.48%, but under the interim government, it is projected to be only 4%. Under the so-called "dictatorial" Awami League government, GDP growth exceeded 6% annually. Thus, it is wise to refrain from overemphasizing the “ruined economy” left by Awami League.

Due to the interim government’s strict policies, 14 out of 31 enterprises under Beximco Industrial Park have shut down. After Awami League’s fall, approved bank loans were withheld, causing a severe financial crisis for these companies. In addition, banks did not allow them to open LCs for raw material imports. Without banking and LC facilities, neither domestic nor international businesses can operate. As banking activities stalled, Beximco could not secure new orders or fulfill existing contracts. Furthermore, the Bangladesh Financial Intelligence Unit froze Beximco Group’s and its owners’ personal bank accounts. In short, the interim government and banks did everything necessary to shut down these factories. To punish Salman F. Rahman, 40,000 workers and their families have been made to suffer. Without production and business operations, how will Beximco repay its loans? If Beximco had received the same facilities as Bashundhara Group, so many factories would not have closed.

The interim government claims to be recovering laundered money, and the Governor has repeatedly pledged to bring it back. Yet, there has been no recent progress on this front. The "repatriation revolution" seems to have stalled. Money laundering is not limited to S. Alam or Salman F. Rahman—it involves thousands of businessmen, industrialists, bureaucrats, bankers, politicians, artists, journalists, lawyers, doctors, engineers, and even individuals whose professions cannot be named. Those who laundered bank loans are accountable since records exist. But those who laundered money through bribery and corruption remain untraceable.

Meanwhile, due to extreme focus on loan recovery, a widow was imprisoned over her late husband’s unpaid Brac Bank loan. Previously, farmers were dragged to police stations over certificate cases; now, Brac Bank is doing the same. Sir Fazle Hasan Abed dedicated his life to uplifting the poor, but his institution is now persecuting innocent women.

The economy is in distress, and excessive austerity will only worsen the crisis. The claim that "everything was destroyed in the past 15 years" cannot hold indefinitely. After all, judges are not just book-reading economists; they are also the hardworking people of Bangladesh.

Ziauddin Ahmed Former Executive Director, Bangladesh Bank