And in its shock, the inflation of the country may not be at a tolerable level. Again as there is no declared clear policy of priority over opening LCs for import, the way the businesses try and lobby for buying dollars from banks, that is not ensuring the good use of foreign reserve receipt.

The production materials, which add value the most, should get priority for import. It is not that it would have to be raw materials for export earning readymade garments. Production of export-alternate items also directly saves the foreign currency.

The suggestions organisations like IMF or World Bank randomly provides for reforms may not be applicable in many cases. For example, if the price of a dollar is left to the market completely, it is difficult to say where the price will reach

In 2002, Bangladesh adopted a policy supported by IMF-backed policy for freely exchanging taka with foreign currency in the current account of foreign transactions. The decision was timely in liberalising the economy.

According to the policy, any businessman can import in the market price of dollars as much as he wants. Bangladesh Bank can indirectly influence the exchange rate of taka-dollar releasing and moping dollars in the market.

But the exchange rate now could not be maintained through offloading dollars in the market due to the fear over the forex reserve. In this situation, a middle ground of slightly controlling imports on the priority basis and slight coordination of dollar price can be adopted temporarily. But it needs the exercise of independent authority by the Bangladesh Bank and monitor the foreign exchange market as per its discretion.

Besides, the IMF will no doubt propose a fully market-based exchange rate now. It should be considered that during the East Asian financial crisis of 1998, only Malaysia ignored IMF advice and temporarily reintroduced controls on foreign exchange and emerged from that crisis almost unscathed. However, it was mainly about the capital account of foreign transactions.

There has also been a major debate over interest rates. The Bangladesh Bank wants to keep interest rates high ostensibly in the interest of keeping businesses healthy, but perhaps actually under pressure from traders. It is true that controlling the money supply by raising interest rates will not do much to reduce the current high inflation in the country, but low interest on deposits encourages unproductive spending instead of keeping money in banks.

Apart from this, the influential people will bag most of the loans if the upper ceiling of loan interest is not hiked as per the demands. On the other hand, other businesses will not get the loan for even more productive projects. As a result, the loan will not be utilised. It is the IMF logic behind making the interest rate market oriented that is supported by economic theories too.

But the lender doesn’t consider a problem for a corrupt financial sector like us: that is, it is not a matter of concern, whether the loan interest rate is high, for those influential and unscrupulous business magnets who apply for the loan, knowing that they will be loan defaulter, the deadline of loan repayment will be extended several times and the interest will be rebated eventually.

So, it is true that they will have a zeal for taking loans with high interest.

In the given circumstance, there is a risk in withdrawing interest rate from deposit and loan. However, considering the high inflation, there are enough reasons behind increasing the interest rate in these areas.

Apart from that if the upper ceiling of interest isn’t allowed to rise in comparison to demand, influential people will take away most of the loan while other traders won’t get loan even for more productive projects.

For this, best use of the loan won’t be ensured. And this is the IMF's rationale behind market-based liberalisation of interest rates, which is supported by economic theories as well.

However, another setback of a corrupted sector like ours isn’t considered here. Many influential or corrupt businessmen who take loans with the intention of defaulting or know that even if the loan has to be repaid, the repayment period can be extended several times with interest waivers.

To them, it does not matter how high the interest rate of the loan is. Therefore, they will be the one most interested in taking loans against high interest rates.

Under such conditions there looms a risk of deposit and loan interest rates being deregulated entirely, but there’s also a strong argument for raising these interest rates, especially in consideration of the current high inflation.

* Wahiduddin Mahmud is an economist and adviser to a former caretaker government