Culprits get perverse incentive from repeated banking scams: Salehuddin

Khawaza Main Uddin | Update:

Salehuddin AhmedBangladesh is no longer any unviable state but the fruits of its development are yet to reach the commoners, according to former governor of Bangladesh Bank Salehuddin Ahmed.

He feels the country’s main development priority should be to build an equity-based, welfare-oriented and inclusive society and regrets absence of all three - equity, welfare and inclusiveness.

A former managing director of microfinance development organisation PKSF, who is now a faculty at Brac University, Salehuddin says the country has not been able to reap what is widely called demographic dividends in view of predominance of young population in Bangladesh, as, he points out, “we have not taken conscious policy decisions.”

He has observed that governance, which has been plagued by the culture of impunity, is the country’s biggest crisis and that transparency and accountability are missing.

“Scams are taking place in the banking sector one after another and everyone knows who is doing what and how. But we see procrastination in the name of investigation. As a result, those who commit crimes get what I often call perverse incentive,” he said in an exclusive interview with Prothom Alo. Its full text is given below:

Prothom Alo: What do you think are the development needs of Bangladesh today?

Salehuddin Ahmed: Bangladesh has come a long way; especially, we see some positive macroeconomic indicators although I may have something else to say about such indexes. What we need most now is taking the fruits of development to the commoners - something which is not happening indeed. Only a limited number of people is taking advantage of this development. The masses are getting very less. The ones who once did not have a single car now have 10. Now, we need to focus on not merely economic development but also social development. Our main aim should be to build an equity-based, welfare-oriented and inclusive society.

Prothom Alo: How would you define the major challenges facing the country?

Salehuddin Ahmed: Look at our society -- all three - equity, welfare and inclusiveness -- are absent. Our challenge will be to go forward by consolidating our achievements so far. We have to rethink about our development, change our old development model and adopt new one for attaining accelerated development. We are talking about transition from lower middle income country to upper middle income country status and from developing country to developed country. But these are nothing but certain indexes, which does not reflect our real needs.  The more challenging task for us is to address social inequality and unless we can remedy the existing social deprivation, it will not be any healthy development.

Prothom Alo: Who, according to you, are the key drivers of Bangladesh’s development and how far has the country benefitted from demographic dividends? Could you please elaborate?

Salehuddin Ahmed: It is no longer a basket case; nor do we belong to any unviable state. More than 160 million people are living on a small landmass - that itself is a huge challenge. No other country faces this kind of challenge. So, we are a model of development: If Bangladesh can solve so much problems, others should do it.

If we think about our development drivers, I would say the highest contributions have come from the farmers, workers, businessmen and the common people. I often say, no matter whether there is good governance or a government at all, the people - the individuals - on their own initiatives would be trying to change their fortunes by applying their creativity. The government says it has done many things for farmers and workers but I think, they have done much more with their own enterprising attitude.

In terms of sectors, the most important sector is our agriculture. We have been able to add value to this sector as reflected in food autarky and self-sufficiency in livestock and fisheries. If any sector has developed single-handedly it is agriculture, in a broader sense. Without it, we might not have been able to come here. I think, the most significant technological intervention has taken place in agriculture and it is agricultural scientists who made it. The second most important driver is the export sector. The government, too, has provided incentives such as back-to-back L/C (letters of credit) and bonded warehouse facilities, for the growth of, say, readymade garments industry, now worth US$30 billion. As a result we have earned foreign exchange and the sector has created a lot of employment opportunities. It has contributed to women empowerment - if not absolute employment, they have at least access to cash.

Another most important sector is remittances and I call those who earn remittances as unsung hero. We don’t praise them but they are the heroes. For remittance earners, we got rid of significant portion of unemployment and without overseas employment, we would have seen social unrest. These remittance earners - the workers - send 90 per cent of their money but not the white-collar jobholders sitting in America.

Our services sector is also contributing to growth and the sector includes hospitality, IT and outsourcing. Manufacturing is contributing as well. It involves textiles, home textiles and leather. Our ceramics is one of the finest in the world and so is our plastic industry. Some of agro-processed goods are also good; recently I saw products of Pran in Fiji. In fact, private investors have played important role in our development and exports have been diversified to some extent. The SMEs (small and medium enterprises) have contributed to our growth. It is more labour-intensive, more employment-generating. They have produced goods that have substituted imports. I remember we used to buy plastic goods while visiting Bangkok but many of those items are now available in Bangladesh. There are criticisms about giving them cash incentives but I think that has been useful. What they now need is to raise productivity, efficiency and also quality of the products. Some items are still being imported and if quality of our goods is good, they will not be imported any more. These are the key drivers of our economic growth.

Unfortunately, we have not yet been able to reap the demographic dividends and we have not taken conscious policy decisions. If we want to do that, we have to utilise the young people. We have not been able to expand the formal employment market. Most of our employment is in our informal market. We have to increase employment intensity in formal market. More labour is coming to the market but adequate employment cannot be created for the entrants. Our educated youths cannot go to the informal market. So, our unemployment involves mostly educated youths. As a result, we see human capital perishing, and they themselves are suffering from frustration. There is no security of life. We cannot draw demographic dividend because the already available human capital - be it skilled, non-skilled or semi-skilled - cannot be utilised. Also, there is a gap between the demand in the market and the skills of the workforce. We cannot often find skilled hand. For example, how many good wielders do we have? We face difficulties while searching for a technician for repairing our computers. There are people but not many skilled ones - this a paradox. So, we have to give relevant education. Sometimes supply of quality manpower creates its own demand; look at presence of many Sri Lankans in RMG (readymade garments) sector. We still don’t see much productive workforce in the market. However, we need to take required policy. Despite good score in human development index, our labour productivity is one of the lowest. Unless you can raise productivity, it will be tough to raise wages. If productivity increases, some apprehend there might be job cut but that’s not true. If productivity increases, our volume of production and line of production will also increase and that will create scope for more employment.

There are serious flaws in our policies, especially fiscal policies, tax and incentive policies. Our SME sector is still neglected. SME entrepreneurs face crisis of access to funding. Our bankers are still doing relationship banking which does not create new entrepreneurs. Their orientation needs to be changed; emphasis should not be given on collateral or assets. You as banker should focus on his/her capacity, credibility, productivity and track record and even cash flow. For instances, a woman who owns a beauty parlour has no problem in repaying loans for her cash flow. Similarly, we have hardly witnessed any policy reforms on the labour front. When (late finance minister) Saifur Rahman started liberalisation process, that encompassed RMG and all that. However, the issues of wages or insurances were not covered. Unless you ensure such welfare standards, productivity will not increase. Time has come to look into these issues.

Prothom Alo: In view of the state of education, the financial sector, state institutions, investment scenario and overall governance, what do you believe are the potential solutions?

Salehuddin Ahmed: We have governance crisis not just in financial sector. In any system, politicians will have to take policy decisions, not wholesale anti-people decisions; decisions may sometimes be one-sided though. Policies should be pragmatic but responsibility of implementing them lies with the institutions. In our context, regulators such as Bangladesh Bank, Securities and Exchange Commission, BTRC, and BERC --- these are not functioning well. Secondly, banks and market institutions, are not properly functioning, let me not talk about educational institutions and hospitals that have ruined. So, institutional weakness is a major crisis in our country. Botswana is an African country which once took the decision to attain institutional development. In our case, governance is the biggest crisis; transparency and accountability are missing. Scams are taking place in the banking sector one after another and everyone knows who are doing what and how. But we see procrastination in the name of investigation. As a result, those who commit crimes get what I often say perverse incentive. When nothing happens to the culprits, others are encouraged to do the same and it turns into financial contagion. Good people are then driven out as they are not recognised in such a system. It is high time that quick actions were taken. Look at the dilly-dally in the process of settlement of Bangladesh Bank’s cyber heist issue with the Philippines. The authorities didn’t even go to ADR (alternative dispute resolution). I advised them to sit with the Filipino authorities and ask them to fine RCBC an amount of Tk 600 crore (rest of US$81 million Bangladesh lost), take it and finish the case. The law minister is going and others are going - all are totally worthless initiative.  This is like palliative medicine, given to a cancer patient to reduce his/her pains. We don’t come up with visible punitive measures. The reason why I said this is that if some people are fired and sent to jail for such crimes, others respect laws and behave properly. In case of the UK’s Barclays bank scam, the chairman, the managing director and the high officials involved had all lost their jobs and the bank was fined US$10 billion. In the US, billionaires are jailed for wrongdoings, their properties confiscated and some die after coming out of the jail. In our country, if they come out of jail they do still have huge empire. The worst part of our governance is the culture of impunity. We will not be successful even if we address everything except improving governance. In project implementation, for instance, there is cost overrun and quality remains poor. The Dhaka-Chattogram highway has lost its shape in some places even before completion of the work. Can you imagine it will take place in another country? I visited Vietnam five times since 1985 and witnessed a sea change - Hanoi was then a city like Cumilla and now, it’s been world class. Foreign director investment the Vietnamese attract is much higher than ours - US1 billion as against $17-18 billion a year. They do what they say. Unless we address our governance, we will continue to see wastage of money, corruption and bad money driving good one. We will fail to capitalise on our potential. And our progress will be thwarted. Without improving governance no sector, including the private sector, will grow properly.

Prothom Alo: What would ‘middle income country’ status mean in a political system devoid of pluralist democratic exercise and participatory elections? How optimistic or pessimistic are you about functional political economy in the coming years?

Salehuddin Ahmed: In my opinion, growth, per capita income and middle income country - are all just indexes. There is no point in keeping unstained faith in such indexes. Quality of life, underlying risk, vulnerability - no such thing is reflected there. We’ve become middle income country because per capita increases - is there any serious meaning of it? Still, 25 per cent people live below the poverty line. At least 40 million people are poor and many of who are even extremely poor who cannot take food regularly. We are graduating from LDC (least developed country) to developing country, what have we achieved? We are still vulnerable, and the people have no functional secondary healthcare facilities. We have challenges in exports and remittances, problem of unemployment, and quality of human resources. The Mujibnagar government spoke of self-rule and economic salvation - independence has been achieved but economic emancipation is yet to be attained. For economic development, we have to improve the social sector. Health, education and social security are the sectors where we have serious problems and do not spend much of budgetary money. In education, major portion of the allocations is spent on paying salaries and bonus. There is hardly any investment in education equipment, facilities for students and research. The same applies to the health sector. If one is seriously ill, s/he is bound to become poor.

We call education an equaliser. It’sa  major tool for graduation. My grandfather was a farmer and I would have been engaged in farming unless my father underwent education. Through social safety net, we give the people not only protection but also the ladder. We have allocations for social safety net but significant amount is spent on providing pensions and other benefits to government officers. Quality of our spending is a serious issue.

Prothom Alo: Where is the youth’s standing in Bangladesh society and the nation’s economic advancement and what would you recommend for the growth of the coming generations?

Salehuddin Ahmed: Unemployment among the educated youth is a major crisis. If you want to bring them to the mainstream development, good education and training must be provided to them. They have to be given leadership and management skills. You have to develop entrepreneurs as well, as all will not do job. They must be provided with access to finance. They will also be given business advice. Now, many youths are doing well in business and entrepreneurship. Many of them are doing business online. They often need startup capital but none is willing to give it. Alongside giving access to finance and business advice, it must be ensured that they are not unduly taxed. If such steps are taken, many youths will come out successful. In most cases, our educated youths do not want to engage them in jobs that require hard labour. The society is also responsible for this kind of culture. In western countries or in Singapore, a master craftsman is highly recognised in compared to a secretary. But in Bangladesh, an engineer will sit at the corner of a programme as the secretary who does not know anything about the technical subject, often shows his/her authority [in everything]. I once met a World Bank consultant who had no formal degree but was an expert in his field for his services for and expertise in the industry. It is unthinkable in our country, and we have to change our mindset. Any job is honourable. If remuneration is good, compensation is good and if someone is recognised in terms of dignity, the working atmosphere will improve.

Prothom Alo: What would you like to see as the development agenda for Bangladesh in an election year?

Salehuddin Ahmed: People irrespective of party will support politicians if programmes and projects are taken for the country’s overall development and welfare. Political advantage should not be misused in a way that you spend all money in your constituency and deprive the areas of other parties of due development projects. You have to come out of one-sided development. Budget should be meant for all and ADP (annual development programme) should be focussed on national development. Secondly, programmes and projects should be implemented within the given timeframe, otherwise, costs will escalate. Look at Padma Bridge project, cost of which has more than doubled by this time. Thirdly, quality of project implementation should be bettered. The finance minister spoke of entering into the development highway and I said one needs preparations to get onto a highway. A ramp is required for the highway. So, for entry onto the highway, you need three things - a car, a driver, and rules and regulations. Cars are the sectors that are contributing to economic growth. Drivers are the policymakers and bureaucracy. If they are not alright, there will be accidents and that is what is happening now. The third are the regulations that you need to follow. That means, you need to maintain transparency and accountability.

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