Bangladesh Bank: Expectations from the new governor

Economist Ahsan H Mansur has been appointed as the 13th governor of Bangladesh Bank. We welcome the appointment of this former IMF (International Monetary Fund) official. He is a man of economics, but even so, the task ahead of his will not be easy. However, he has an understanding of the overall financial sector scenario. His is not clueless about what is to be done and when it is to be done.

The economy is in dire straits. The foreign exchange reserves have been plummeting steadily over the past two years. The dollar crunch has led to the local currency being devalued by over 30 per cent. For two years high inflation has made people's lives miserable. Default loans have mounted in leaps and bounds. Certain banks have been kept alive by special arrangement. It is Bangladesh Bank's responsibility to set things straight.

The former governor Abdur Rouf Talukder had been made finance secretary in July 2018. And in 2019 AHM Mustafa Kamal was made financial minister. With the outbreak of Covid in 2020, the finance minister was quite active. But within a short time the finance secretary became the main policymaker regarding the economy. AHM Mustafa Kamal was more or less the minister in absentia. Then in 2022 Abdur Rouf Talukder was made governor. Even as governor, he would take all economy-related decisions, he would run the finance ministry. He would make all the decisions solely, with the direct directives from the prime minister. But he could not resolve the economic crisis.

None of the 11 governors before Abdur Rouf Talukder was free of shortcomings. Some run the show with a firm fist, some could not break free of the bureaucratic mould, some were basking in their popularity. But no one of them was of any camp of any particular business group. But Abdur Rouf Talukder was the representative of certain particular business groups. Prominent among them was the S Alam Group. One of the major tasks of the governor was to fulfill his legitimate and illegitimate demands. Abdur Rouf Talukder also unlawfully provided all sorts of facilities to the pioneer of loan default in this country, Salman F Rahman. Chowdhury Nafis Sharafat, another powerful businessman during the Awami League rule, was also on this list.

These business groups who were extremely close to the former prime minister, would not only decide who was to be governor, but also who would be managing director of the various banks. Previously the deputy governor Sur Chowdhury and former executive director Shah Aman would be complicit with all the misdeeds of these businessmen. There are still certain officials in the central bank known as "S Alam's men". So if he is to establish good governance, the new governor needs to clear up his own house too.

In modern financial systems, controlling inflation is basically the responsibility of the central bank. No one has been able to come up with any alternative to effectively use the monetary policy to control inflation. That is why for the past two years or so, countries have aggressively used their monetary policies to successfully tackle inflation. But Bangladesh Bank made no changes in interest rates. Towards the end the former governor did make changes in the monetary policy to increase policy interest rates, but that was simply to meet IMF conditions. These decisions were taken too late and did not serve to decrease inflation.

Circumstances have changed. A former governor of Bangladesh Bank Salehuddin Ahmed is now the finance advisor. Under the circumstances, coordination is imperative among all departments involved in controlling inflation. At the same time, it is important to create transparency in adopting of all policies. A framework for accountability must be put in place. Three economists were recently inducted into Bangladesh Bank's monetary policy committee. In most countries of the world, including in neighbouring India, the deliberations of this committee are made public. If the efforts to control inflation fail, the governors are held accountable. So unless a legal framework of transparency and accountability is drawn up, the central bank governors in the future will become autocrats in their realms. We hope that the finance advisor and the governor together carry out these tasks.

The boards of directors in many banks are still carrying out their responsibilities and these banks are running well because of efficient CEOs. That is why the banking sector hasn't crashed. But overall, the state of the banking sector is shaky. Many banks have been kept alive on political considerations. The former Awami League government also introduced an unhealthy competition of bank grabbing. One loan scam followed on the heels of another. No one was punished. It would certainly be a feather in this government's hat if it could arrest Sheikh Abdul Hye Bachchu, the mastermind of the BASIC Bank scandal.

Another big task is to recover the loans from persons who have borrowed from banks in their own names and names of others, only to siphon off the funds overseas or use these for other purposes. There are many sound entrepreneurs in the country. They borrow, they repay their loans regularly. Then there are entrepreneurs whose main preoccupation is to take banks loans and misappropriate the money. It is because of them the default loans have increased to Tk 1 lakh 82 thousand crore. But Ahsan H Mansur himself had earlier said the actual amount of loan default is much higher, concealed in various ways.

What is hoped from him now is that he publishes an account of defaulted loans and a list of the defaulters. He must also abolish or amend all the policies that Awami League devised to provide all sorts of benefits and facilities to powerful loan defaulters. The governor and the government must send out the message that the government is committed to nab the money launderers and decrease the volume of default loans.

Eliminating the clan culture in banks is another task for the new governor. The Awami League government, in order to please the politically powerful, installed a system where three persons of the same family could remain on the board of a bank for nine consecutive years. This law needs to be revised. Another devious initiative in the banking sector is the Association of Bankers, comprising bank owners. This remained in the control of a handful of influential owners and they even introduced a system of paying "toll". Before making any demands, they would call upon the prime minister and hand over contributions for the "relief fund" and take photographs of the event. The banks were forced to pay money in this manner. If the members of this organisation themselves come up with self-criticism, it will make the governor's task easier. Then in future the interest rates won't be fixed sitting in a hotel. This is the central bank's work, let them do it.

During tough economic times in India, the former lead economist of IMF Raghuram Rajan was given charge of the Reserve Bank of India. He had been the government's chief economic advisor just before getting this position. He had written that when in the North Block, he saw one effort after the other to stabilise the Indian currency was falling flat, then he realised it was time to jump in. He said he wanted to give the message that there was a strong institution in India like the Reserve Bank that can take the reforms ahead, even if the parliament was not functioning and that the investors should not turn their banks to India.

Everyone hopes that Ahsan H Mansur will jump into the task of fixing the banking sector. And if he speedily forms a bank commission or task force, his job will be all the more easier.

*Shawkat Hossain is head of online, Prothom Alo

*This column appeared in the print and online edition of Prothom Alo and has been rewritten for the English edition by Ayesha Kabir