The needs of a global player

Despite a lot of constraints and the pervasive existence of the “approval Raj,” the Bangladesh Bank has offered a lot of sympathy and “hand-holding” to the growing private sector in Bangladesh.

Starting from allowing back-to-back import L/Cs for apparel exports, it continued with export retention quotas, holding foreign exchange for overseas business development, loans from foreign bilateral and multilateral agencies, parent company loans, issuance of repatriation guarantee, travel quotas, special quotas for treatment abroad, quotas for studying abroad, remittance of foreign consultants fees and technical fees, to repatriation of foreign direct investment and investment in traded securities in the bourses.

In fact, most Bangladesh Bank officials are busy processing approval requests for various private sector entities on a day-to-day basis. Even after 43 years of independence, almost every third inward or outward remittance requires central bank clarification, or consent, or approval.

While individual remittance has gone through reasonable reforms or liberalisation, enterprise-level inward and outward inflow still remains an issue which warrants a lot of filtering, making the outward flows still quite cumbersome.

After independence, we inherited a devastated economy with a very low foreign exchange reserve. Therefore, we appreciated the slow pace of reforms in the foreign exchange regime. In 2001, our net foreign exchange reserve dropped to lower than $1bn.

Central Bank Governor Mohammed Farashuddin contacted his many counterparts in the Middle East to provide some foreign currency liquidity support to take care of increasing commodity imports and imports for exports. The foreign exchange man Kazemi requested all global banks operating locally to put in some foreign currency deposits with the central bank.

The good thing was, despite all the challenges, our trade was happening, and L/Cs were opened, routed, and confirmed through the global banks. Where L/Cs were being opened and settlement-monitoring was heightened, Bangladesh Bank didn’t follow the route of RBI, such as putting up a 300% cash margin for opening L/Cs or “no export, no import” commandments.

Bangladesh Bank is still trying to hand-hold private enterprises through quick disposal of their FCY inflow-outflow requests.

This is taking a lot of their time in the absence of clear guidelines. Emerging realities also don’t allow them to take shelter under existing guidelines for foreign exchange transactions or relevant core risk management guidelines. Development partners, especially the IMF, have been talking of the further liberalisation of the current account transactions and updating the archaic Foreign Exchange Regulation Act (FERA) 1947.

Although it looks vulgar for an independent country like Bangladesh to chalk out its growth path to a middle income country with this 1947 cross border transaction rule, the reality tells us that we don’t know when our distinguished members of the parliament could approve a new foreign exchange regulation act, suited more to the dreams of a forward-looking and emerging trading nation.

The 1947 act is not allowing Bangladesh Bank’s “very helpful officials” to do much in tending to emerging issues in international trade and remittance flows. They have been issuing prudential guidelines to: Increase travel quota, creating space within the student quota, remittance of withdrawal proceeds by a foreign investor, expansion of the EDF program, and extension of the deferred payment for usance L/Cs or increasing the space for e-wallets.

They have issued almost 25 circulars in this regard in recent times. Our foreign exchange reserve is on its way to $25bn, yet a traveler can’t deposit more than $5,000 on his/her return to his/her account if not declared at the airport, or easily buy tickets for overseas travels.

Remitting a single dollar outside the country for investment abroad still raises a lot of eyebrows. Establishing the local representative office or agency by the global corporations is still a tough exercise.

The consular section at the local US embassy reportedly increased the issuance of non-immigrant visas manifold.

When I asked the consular head the reasons behind the move, she promptly replied: “Bangladesh’s economy is growing at a steady pace; its entrepreneurship is growing fast, they need to connect with their US counterparts for their exports and raw materials or capital equipment sourcing; there are more and more Bangladeshi students qualifying for good US colleges and universities; more Bangladeshi graduates are making their presence felt in the US professional world, and these realities are convincing us to facilitate their entry to the US for our own interest.”

The whole world has started to accept Bangladesh as a global player in its chosen field. Buyers want our capacity to increase, to see our performance improve, for out workers’ productivity to go up, and entrepreneurs to reduce their costs. Nothing can happen if our regulatory regime does not become more friendly and helpful.

Even if the regulators are helpful, they can’t do much without the right tools and guidelines.

We need to change, revise, and upgrade our foreign exchange rules. It has to happen fast. Bangladesh not only requires continuous liberalisation in current account transactions, time has come to think about capital account convertibility in order for us to be ahead of our peers.