Talking about reforms in Bangladesh is not a new topic. There have long been demands to free the banking sector from political influence, modernise tax administration, ensure accountability in state-owned enterprises, and make government decision-making more efficient and transparent.
Economists, businessmen, and development organisations have all been advocating for these reforms. Yet, in practice, it seems that reform initiatives frequently stall, are delayed, or falter midway through.
The question is, why? Many seek an explanation for Bangladesh's failure in reforms by pointing to a lack of political will. However, recent experiences suggest otherwise. The interim government, by issuing a large number of ordinances in a short period, demonstrated that a lack of willingness is not the primary problem, but rather, the issue runs deeper.
Incidents such as the looting in the banking sector, resistance to NBR reorganisation, the failure to modernise Chittagong port, and conflicts surrounding the July Charter all point toward a common reality. Initially, some institutions become tools for protecting the interests of particular groups. Later, beneficiaries of that system build resistance against reforms.
Ultimately, various political, legal, and intellectual narratives lend legitimacy to the existing system. Thus, the greatest obstacle to reform is often not a lack of goodwill but rather a clash of power, interests, and ideas.
When institutions turn into instruments of looting
A glance at Bangladesh's banking sector makes the issue clear. Over the past decade and a half, the banking system has not just been an economic institution; it has gradually transformed into a system that rewards political loyalty. Individuals and groups close to power have easily secured loans, rescheduled them repeatedly, and, in many cases, have defaulted without consequences. Meanwhile, the independence and effectiveness of regulatory bodies have continually eroded.
Here, the problem is not just corruption. The problem lies in the creation of an institutional environment where looting has become the most lucrative behaviour. For influential borrowers, defaulting on loans becomes rational, and for bankers, following political directives becomes safer than adhering to rules.
As a result, a powerful class of beneficiaries emerges, whose interests become inextricably tied to the existing system. At that point, reform is no longer a matter of principle; it becomes a matter of power. Corruption ceases to be an anomaly; it becomes the norm.
The veto power within the state
The conflict surrounding NBR reforms further clarifies this reality. For most modern countries, the tasks of tax policy formulation and tax collection are handled by separate institutions. The International Monetary Fund has long advised Bangladesh on such reforms.
When the interim government finally initiated this change, many assumed it was merely an administrative reform. However, events unfolded differently. Immediately following the reform's announcement, a segment of NBR vigorously resisted. Strikes, protests, and disruptions at the port created a situation that forced the government to retreat.
This incident revealed an important truth. The state may be powerful against citizens but often weak against organised interest groups within itself.
While the government can enact laws and issue ordinances, implementing changes becomes difficult without the consent of these entrenched interest groups within an institution. The NBR incident illustrated that reform is ultimately a political, not just an administrative question, and at the centre of that politics is the distribution of power.
A broader coalition against reform
The NBR incident showed how an internal state group can halt reforms. The Chittagong port experience showed how resistance strengthens when interests of various groups converge.
Chittagong port is Bangladesh's main gateway for foreign trade. To reduce longstanding inefficiency and high costs, the interim government took steps to modernise its operations. Economically, it was a rational reform. But soon, the issue transformed from an economic question into a political one. Labour unions feared losing their influence. Some bureaucrats were afraid of losing authority. Middlemen and business groups did not want change. When issues of national sovereignty and foreign influence joined in, the anti-reform stance became stronger.
Hence, it became clear: no matter how inefficient a system is, if it benefits a sufficient number of groups, a powerful defensive ring forms around it. The Chittagong port case showed that the biggest obstacle to reform is often not technical, but political.
Where is the alliance for reform?
The July Charter experience took the same problem to the national level. The interim government had proposed an ambitious framework for restructuring various state institutions. But ultimately, the initiative did not progress. This was because there was organised strength in opposition to reform, but no strong political coalition in favour of it.
Reform always creates winners and losers. But those who stand to lose power, influence, or special privileges usually organise quickly, while those who would benefit from a more effective state and improved institutions in the long term often remain isolated. This is what happened in the case of the July Charter.
However, the story doesn't end there. The referendum on the July Charter showed that public support doesn't always translate into political power. Even though the majority of voters supported the reform, the central debate pivoted to another question—the constitutional validity of the referendum.
Many constitutional experts argued that there is no provision for referendum in the existing constitution, so the public opinion expressed through it has no constitutional standing. This is a legal argument, but it also raises a profound political question: When there is a conflict between the direct will of the people and the existing constitutional process, which is more fundamental—the will of the people or the constitutional structure designed to embody that will?
In democratic systems, the ultimate source of constitutional legitimacy is the people. Yet, the July Accord experience showed that reform not only encounters obstacles of power and interest but also often stalls on questions of legitimacy and ideas.
The politics of ideas is also important
The picture that emerges from this discussion primarily revolves around the politics of power and interest. But that alone doesn't explain the whole matter. Institutions persist not only because of power, control, or incentives; people's beliefs, ideas, and political narratives also play a role.
A recurring theme in Bangladesh's recent reform debates is that discussions about the economic or administrative efficacy of a reform quickly shift to other questions.
The modernisation of Chittagong port became an issue of national sovereignty, administrative reform was seen as an attack on bureaucracy, and the July Charter turned into a struggle for political authority. As a result, what the reform would actually achieve often gets sidelined.
Why reforms repeatedly stall
Bangladesh's recent experience points to a larger reality. Initially, some institutions develop in ways that make them more effective at protecting the interests of special groups than serving the public interest.
Subsequently, beneficiaries of that system build resistance to reforms. In the end, various political, legal, and intellectual narratives legitimise the existing system.
Thus, an institutional trap forms. In this trap, everyone is aware of the problems, but solutions progress slowly. Everyone understands the weaknesses of the banking sector, but no banking reform takes place. Everyone talks about increasing the tax-GDP ratio, but tax administration reform gets blocked. Everyone wants to see a more effective state, but resistance also rises against the necessary changes to build such a state.
The challenge for Bangladesh is not just creating good policies. The challenge is to build political and social coalitions in favour of reform while questioning those ideas and narratives that repeatedly protect the existing system.
Because, in the end, changing institutions is not merely a technical task; it's a battle of power, interests, and ideas. Just as the power of vested interests is an obstacle to reform, so are the ideas that legitimise that power. Without addressing both, the rhetoric of reform will grow, but the institutional trap will remain intact.
#Zahid Hussain is a former lead economist at the World Bank's Dhaka office.
*The opinions expressed are the author’s own.
#This article, originally published in Prothom Alo print and online editions, has been rewritten in English by Rabiul Islam