After the fuel and food price hikes, Bangladesh, like many other countries around the world, has faced various economic constraints like exchange rate fluctuation, foreign reserve crisis, etc. Although the crisis hasn’t affected our economy like our neighbouring countries, it surely needs undivided attention, critical observation, and calculated steps to tackle. To protect the emerging economy from decelerating further, the government has reached out to the International Monetary Fund for financial assistance with USD 4.5 Billion in loans over a 42-month period. Usually, IMF is known for setting austere conditions under unrealistic timelines for the borrower country. The good news for us is that this time, their conditions are almost similar to the policies in our 5 and 8-year plans that we hope to achieve anyway. Whether it was the right approach or not will be revealed with time. For now, we can only critically analyse the situation and consider as many perspectives as possible to avoid any mistakes and repay the loan as soon as possible.
From bailing out Mexico to handling the Asian crisis, IMF has given birth to a lot of economic histories around the world. Just like any other historical incident, every story has the other side of the coin. While the Washington-based institution remains a reliable financial institution to many countries, it has also been criticised for its austerity and the particular set of conditions that it imposes on every country. Economic expansion or shrinkage is a long-term and multi-variable process that can’t be pinned down with one success or failure story. We need to consider the obstacles that created the crisis and evaluate the sustainability of growth after the recovery. When we look at the countries that have taken help from IMF in the past, we see that either the development wasn’t sustainable or needed decades to recover from the constraint. In some cases, experts blame IMF for fueling the crisis or slowing the country’s growth with their set of rules. In some cases, IMF highlights the country’s internal issues that have created a massive setback in its own growth. Whatever the reason might be, in all of the cases, we received a different outcome tailored according to the country’s history, economic condition, politics, and other variables, while the IMF’s approach remains almost the same from year to year.
Around 30 years ago, India faced their worst economic crisis and depletion in its forex reserve. The causes were almost similar to ours: a gulf war, a fuel price hike, and a fall in remittance followed by double-digit inflation. Among all the recovery plans, they had also taken a 2 billion dollar loan from the IMF. The major structural reforms had some of the measures that the IMF usually imposes: cutting down subsidies on sugar, increasing corporate taxes, etc. However, most of their reform policies were customised to their country’s needs and backed by strong political support. Some of the trailblazing steps include allowing direct foreign investment, facilitating export, and easing the business environment. The reform package not only ended the crisis but also paved the way for a flourishing economy for India for the next 20 years. The major highlight of this historical incident was that the reform package was made solely by an Indian committee that only took help from the IMF to implement the revolutionary policies.
While the case in India turned out to be impressive, some other countries faced quite the opposite outcome. If we look at the Asian crisis in the 90s that affected Thailand, South Korea, the Philippines, Malaysia, and Indonesia, we will be able to find different reactions to the same IMF reform proposals in each country. The initial conditions included opening the country to more trade and investment, liberalising economies, reforming the corporate sector, etc. However, the high-interest rate in the country discouraged foreign investment. This contractionary monetary policy spread the economic recession to the neighbouring countries resulting in a massive crisis in the zone. The policies were suggested to increase interest rates, which it did, but the investors felt it wasn’t sustainable, and as a result, devaluation continued. Contractionary fiscal policies were suggested by tax increases and decreases in government spending which resulted in an economic recession. Moreover, the government in Thailand followed the reform ideas as soon as possible but was halted by their opposition parties and faced slower growth than predicted. This particular incident highlights that a democratic country will have limited freedom to implement reform ideas conditioned by foreign institutions, which was almost a similar case in Indonesia at that time. IMF’s contractionary policies incited political violence and severe backlash in a rather strong democratic country. Instead of attracting foreign investors to rescue an economy from recession, this incident led them deeper into the crisis.
Whether IMF rescued the countries or led them more into the crisis is a debatable question that is hard to dispute. It is visible that each country had its own economic and political situation that should have been taken into account every time. For Bangladesh, given the crisis period, the IMF loan is a catalyst to ensure the government’s existing economic reform plans with a credible global recognition comprising a stable economy of Bangladesh. The audit of the books and accounts of the country reaffirmed by IMF will strengthen Bangladesh’s passage to draw additional loans from World Bank and the Asian Development Bank for budget support.
Author- Afrina Asad
