Weak Capital Market Bars Development: Muhith
Thursday, 16 July 2009

Investment will not see growth with a weak capital market, said finance minister Abul Maal Abdul Muhith on Thursday.

"We cannot increase investment if the strength and depth of the capital market is not developed," he said, addressing a seminar on 'Exchange Rate Management under Floating Regime in Bangladesh'.

"Two of our major limitations to economic development are, we cannot move forward with investment and cannot reduce bank interest on loans however hard we try," said Muhith.

"Inflation should be directly linked with the interest on bank loans. But the rate of interest stays the same here whether the inflation rate is two percent or 12."

"But it shouldn't be so. It's normal that loan rates will be reduced if the inflation rate is," he said.

The seminar was organised by Bangladesh Institute of Development Studies (BIDS).

Proposal for devaluing taka rejected

The keynote paper, presented jointly by BIDS researchers Monzur Hossain and Mansur Ahmed, recommended devaluing the taka to assist the export sector in the face of the global economic recession.

The finance minister, along with other discussants, rejected the proposal.

Muhith said, "When I took over as the finance minister, like others, I also thought to devalue the taka against the US dollar and some other currencies."

"But the then governor of the central bank, analysing the export-import factors, advised against it. I agreed with him."

Muhith said he was still of the view that it would be better to help the recession-affected export industry with stimulus packages rather than devaluation.

Former governor of the Bangladesh Bank Salehuddin Ahmed said devaluation could work adversely. "Import costs will increase, even inflation might rise."

"Rather we should pay attention on how to reduce the cost of business and the bank interest rates."

Salehuddin said the International Monetary Fund had advised devaluing the taka. "But I didn't agree considering the overall economic conditions of the country."

Local researchers should not make a suggestion such as the IMF's, the former governor added.

Chief executive of the Bangladesh Foreign Trade Institute, MA Taslim, said the exchange rate of our currency had been strong for the last four years.

"Balance of payment is positive, import cost is down and the remittance flow is also satisfactory."

"A negative impact on export revenue is not seen yet. I don't think that devaluation is essential at this point."

"But we should have a transparent policy on exchange rate," Taslim said.

Source: bdnews24.com

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