Bangladesh is a developing country of South Asia with a GDP of 79.6 billion US$ in 2008 (MoF). In 2007 it was 68.4 billion US$ and in 1998 and 1988 it was 44.1 and 25.6 billion US$ (MoF) respectively. The average annual growth of GDP was 6.2, 6.4, 5.7 and 4.6 (Wikipedia) respectively. This shows us the picture of the growth of the economy of Bangladesh. Over the years, the economy of Bangladesh has expanded a lot. In the way of expansion, Bangladesh got help from different donor agencies, countries, NGOs etc. Among them the World Bank (WB), International Monetary Fund (IMF) and the World Trade Organization (WTO) are the three most important agencies in the development of the country’s economy. In fact, they are the core agencies in the economic development of Bangladesh.
Economic development is one dimension of the more inclusive concept of development. Development is both a process and a project. As a process, it refers to changes occurring in countries defined variously as undeveloped, underdeveloped, developing, emerging, and newly industrializing. It refers to the raising of the productive capacity of a country through the introduction of policies designed to enhance the productivity of land, labor and capital, raise standards of living and reduce or alleviate the poverty of the inhabitants of the country. At a minimum, economic development has a growth and a distributive dimension.
From the beginning WB, IMF and WTO are giving monetary and policy assistance to Bangladesh to form a well organized economy. In fact, Bangladesh is a member of WTO from its inception. In this assignment we’ll try to visualize the role of the three agencies in the economic development of Bangladesh.
The World Bank:
The World Bank is a vital source of financial and technical assistance to developing countries around the world. It evolved from the International Bank for Reconstruction and Development (IBRD) as facilitator of post-war reconstruction and development to the present day mandate of worldwide poverty alleviation.
It was established in 1944 and headquarter is situated in the Washington D. C.
The World Bank is like a cooperative, where its 187 member countries are shareholders. The shareholders are represented by a Board of Governors, who is the ultimate policy makers at the World Bank. Generally, the governors are member countries’ ministers of finance or ministers of development. They meet once a year at the Annual Meetings of the Boards of Governors of the World Bank Group and the International Monetary Fund.
The President of the World Bank, chairs meetings of the Boards of Directors and is responsible for overall management of the Bank. The Executive Directors make up the Boards of Directors of the World Bank. They normally meet at least twice a week to oversee the Bank’s business, including approval of loans and guarantees, new policies, the administrative budget, country assistance strategies and borrowing and financial decisions.
The World Bank operates day-to-day under the leadership and direction of the president, management and senior staff, and the vice presidents in charge of regions, sectors, networks and functions. Vice Presidents are the principal managers at the World Bank.
It is made up of two unique development institutions owned by 187 member countries: the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). The IBRD aims to reduce poverty in middle-income and creditworthy poorer countries, while IDA focuses on the world’s poorest countries.
Their work is complemented by that of the International Finance Corporation (IFC), Multilateral Investment Guarantee Agency (MIGA) and the International Centre for the Settlement of Investment Disputes (ICSID).
Purposes: Its mission is to fight poverty with passion and professionalism for lasting results and to help people help themselves and their environment by providing resources, sharing knowledge, building capacity and forging partnerships in the public and private sectors.
The functions that World Bank performs are as follows:
poverty reduction and the sustainable growth in the poorest countries, especially in Africa;
solutions to the special challenges of post-conflict countries and fragile states;
development solutions with customized services as well as financing for middle-income countries;
regional and global issues that cross national borders–climate change, infectious diseases, and trade;
greater development and opportunity in the Arab world;
Pulling together the best global knowledge to support development.
Role of World Bank in the economic development in Bangladesh:
The World Bank is the largest as well as the most influential lender to the country. It is the coordinator of aid donors in Bangladesh. Since Independence, it has lent $12.5 billion to the country and played a critical role in shaping the country’s institutions and policies. For these reasons, the role of the World Bank is singularly important in any discussion.
In the 1970s, during the initial phase of its operations, the World Bank concentrated largely on project lending for achieving food self-sufficiency, mobilizing domestic resources, improving social indicators, and enhancing project implementation. Even though over time the country attained varying degrees of success in all these areas, the pace of progress was slow in the 1970s.
During the next phase of its operations in the late 1980s, the World Bank focused on policy reforms to create an environment conducive to private sector development. These reforms were addressed at removing the distortions in trade, pricing, credit allocation, and interest rates.
During the current decade WB has emphasized a lot of sectors including strengthening the financial sector. Among these sectors there are transportation, water, sanitation & flood protection, health & social services, information & communication, public administration & law, finance, agriculture and industry & trade. A picture of the current lending situation in millions of US Dollars in the current fiscal year is given below:
Source: World Bank.
In recent times, WB has approved a low-interest loan which amounts $6.1 billion. Of the $6.1 billion, $1.2 billion is allocated to the Padma Multipurpose Bridge mega-project. Along with the loan it suggested that Bangladesh should adopt a 9- to 12-year plan to address the problems with gas and power. At present the WB is working a lot of projects in different sectors. Among them the BD Private Sector Development Project, Bangladesh Padma Multipurpose Bridge Project, Employment Generation Program for the Poorest, Bangladesh Integrated Agricultural Development Project, Investment Promotion and Financing Facility, Rural Transport Improvement Additional Financing are mentionable. Beside these there are a lot of projects in the agriculture, finance, transportation sectors.
In fact, WB is the largest donor agency in the economic sector of Bangladesh. According to Zahid Hussain, a senior WB economist, “WB has lent Bangladesh $15 billion since 1972, or one-quarter of the aid the country received (The Daily Star).” It is the key agency in the economic development of Bangladesh.
International Monetary Fund:
The IMF, also known as the “Fund,” was conceived at a United Nations conference convened in Bretton Woods, New Hampshire, United States, in July 1944. The 44 governments represented at that conference sought to build a framework for economic cooperation that would avoid a repetition of the vicious circle of competitive devaluations that had contributed to the Great Depression of the 1930s.
It has 187 member countries and is situated in the Washington D. C.
The IMF is led by a Managing Director, who is head of the staff and Chairman of the Executive Board. He is assisted by a First Deputy Managing Director and two other Deputy Managing Directors. The Management team oversees the work of the staff, and maintains high-level contacts with member governments, the media, non-governmental organizations, think tanks, and other institutions.
The IMF’s Executive Board is responsible for selecting the Managing Director. Any Executive Director may submit a nomination for the position, consistent with past practice. When more than one candidate is nominated, as has been the case in recent years, the Executive Board aims to reach a decision by consensus.
The IMF’s primary purpose is to ensure the stability of the international monetary system—the system of exchange rates and international payments that enables countries (and their citizens) to transact with one other. This system is essential for promoting sustainable economic growth, increasing living standards, and reducing poverty.
The IMF’s main functions are divided into three parts:
The IMF oversees the international monetary system and monitors the financial and economic policies of its members.
II. Technical Assistance:
To assist mainly low- and middle-income countries in effectively managing their economies, the IMF provides practical guidance and training on how to upgrade institutions, and design appropriate macroeconomic, financial, and structural policies.
The IMF provides loans to countries that have trouble meeting their international payments and cannot otherwise find sufficient financing on affordable terms.
Role of IMF in the economic development of Bangladesh:
IMF has provided financial assistance to the country since its inception to ensure that economic development of the country goes on. IMF not only provides financial help but also helps to take different policies for the economic development of the country.
In every fiscal year, usually IMF visiting teams come to visit the country to assess the overall condition and give some suggestions for economic development and other reforms. During the current fiscal year IMF has agreed to help Bangladesh to grow its economy. For this an IMF team came to visit Bangladesh in December, 2010. It not only agreed to help grow the country’s economy but also to help to take different reforms. The IMF aid is meant to help Bangladesh bear the burden of costly institutional reforms that, in the immediate short-run, are bound to destabilize the current means by which the economy in Bangladesh functions (clientelism, etc). After the visit, the press release of IMF said, “Under a prospective IMF-supported program, the authorities aim to put Bangladesh on a higher growth trajectory, as necessary to accelerate poverty reduction and achieve middle income status by the next decade. Over the course of the program, balance of payments (BOP) needs are expected to intensify, mainly stemming from import-intensive investment in infrastructure and power sectors necessary to unleash growth. In IMF staff’s view, BOP pressures are expected to persist for some time, necessitating meaningful policy adjustment and reform. The IMF-supported program is expected to catalyze other financing.
“In this context, the authorities look to raise tax revenue by around three percentage points of GDP during the program period, building on momentum of recent tax administration reforms and factoring in passage and implementation of new VAT and income tax laws. They also plan to boost public and private investment by strengthening public financial management and operationalising a private-public partnership framework. Adequate spending in key priority social sectors and on targeted transfers to protect the vulnerable will continue. The authorities are also committed to further strengthening the financial sector and its oversight, improving monetary and exchange rate operations, and enhancing Bangladesh’s integration into the regional and global economy through a more open trade and investment regime (IMF press release)”.
IMF actually gives loans and aid to the country on the basis of some conditions. In most of the cases they put some conditions to the government. But these are put to raise the economic growth of the country in most of the cases. In the current fiscal year, IMF gave some conditions to get $1 billion budgetary help to the government. The conditions, the IMF gave, all were based on the budget speeches of the Finance minister during the last two years. One of the main conditions was that drafts of new VAT and income tax laws have to be placed in parliament by June and the government has to finalize the drafts prior to the IMF Board meeting and as a result the National Board of Revenue (NBR) posted the draft laws on its website to solicit public opinion. Another condition was the withdrawal of the ceiling on lending rate and reduction of loss incurred by three major state owned enterprises. Bangladesh Bank (BB) in 2009 capped the interest rate of 13 percent on loans of the commercial banks to encourage investment and cut the cost of business. The IMF said the ceiling should be phased out by March. Another major condition was to establish a monitoring framework for Bangladesh Petroleum Corporation, Bangladesh Chemical Industries Corporation and the Power Development Board to raise budget appropriation for covering projected loss. The government has in principle agreed to increase the prices. BB’s monetary policy statement released on 6th February, 2011 hinted at price hike of the products, which may in turn increase the prices of other non-food products. The conditions also included the recapitalization by December of the SCBs which have about TV 1200 crore capital deficit. Another major condition is to formulate a plan to clearly delineate the approval and implementation process of the annual development program.
Besides in a visit of an IMF team on April 13th 2010, IMF expressed the following on a press release, “Expenditures will need to be prioritized to ensure the necessary resources to resolve infrastructure bottlenecks. In this vein, direct and implicit subsidies should be better targeted to vulnerable groups to ensure adequate fiscal space in other areas and allow fuller cost recovery by service providers, notably in the power and energy sectors. Stronger efforts are also needed to streamline project approvals and implementation capacity and develop an effective framework for public-private partnerships in infrastructure development.
“In support of economic activity, monetary conditions remain relatively lax, but recent signs point to some tightening. Banks’ excess liquidity has been reduced substantially as a result of a pickup in lending. Stronger credit growth could also signal a return of confidence. However, core inflation appears to be on the rise, which bears close watch. Bangladesh Bank will need to continue monitoring conditions closely and be prepared to take early action, as necessary, to contain liquidity pressures. Improving the efficiency of financial markets remains vital for supporting the growth potential. In this regard, more flexible interest rates could help deepen the government bond market and spur financial sector development (IMF Press Release 2010).”
Beside this IMF teams often visited the country to assess the investment environment and suggested different policy reforms which were directly linked to the economy of the country. Most often these suggestions brought good results for the country’s economy. This shows a clear picture of how IMF contributes to the economic development of the country.
World Trade Organization:
The WTO is a place where the member governments go, to try to sort out the trade problems they face with each other. The WTO was born out of negotiations, and everything the WTO does is the result of negotiations. The bulk of the WTO’s current work comes from the 1986–94 negotiations called the Uruguay Round and earlier negotiations under the General Agreement on Tariffs and Trade (GATT). The WTO began life on 1 January 1995, but its trading system is half a century older. Since 1948, the General Agreement on Tariffs and Trade (GATT) had provided the rules for the system.
It is situated in Geneva, Switzerland. It consists of 153 member countries. The WTO is currently the host to new negotiations, under the “Doha Development Agenda” launched in 2001.
The WTO is run by its member governments. All major decisions are made by the membership as a whole, either by ministers (who meet at least once every two years) or by their ambassadors or delegates (who meet regularly in Geneva). Decisions are normally taken by consensus. In this respect, the WTO is different from the other international organizations such as the World Bank and International Monetary Fund. In the WTO, power is not delegated to a board of directors or the organization’s head.
So, the WTO belongs to its members. The countries make their decisions through various councils and committees, whose membership consists of all WTO members. Topmost is the ministerial conference which has to meet at least once every two years.
Day-to-day work in between the ministerial conferences is handled by three bodies:
The General Council
The Dispute Settlement Body
The Trade Policy Review Body
All three are in fact the same — the Agreement Establishing the WTO states they are all the General Council, although they meet under different terms of reference. Again, all three consist of all WTO members. They report to the Ministerial Conference.
Three more councils, each handling a different broad area of trade, report to the General Council:
The Council for Trade in Goods (Goods Council)
The Council for Trade in Services (Services Council)
The Council for Trade-Related Aspects of Intellectual Property Rights (TRIPS Council)
Each of the higher level councils has subsidiary bodies. The Goods Council has 11 committees dealing with specific subjects (such as agriculture, market access, subsidies, anti-dumping measures and so on).
It deals with the rules of trade between nations at a global or near-global level. It’s an organization for liberalizing trade. It’s a forum for governments to negotiate trade agreements. It’s a place for them to settle trade disputes. It operates a system of trade rules.
The following are the main functions of WTO:
Administering WTO trade agreements
Forum for trade negotiations
Handling trade disputes
Monitoring national trade policies
Technical assistance and training for developing countries
Cooperation with other international organizations
Role of WTO in the economic development of Bangladesh:
WTO works for administering trade agreements for its member countries as well as for the developing countries. It ensures duty free and quota free market for developing countries and Bangladesh is one of the most beneficiaries of that. In fact Bangladesh receives the biggest benefit among the developing countries. The multilateral trading systems, GATT and WTO, have attained significant successes, which give overwhelming confidence to the countries promoting the ideals of free market and free trade. According to them, free trade can generate enormous economic growth and productivity. WTO has facilitated to talk about US duty-free access and free movement of natural persons to facilitate human resource exports to developed countries. Besides Bangladesh got the co-operation assurance from one of its neighboring countries, India in the WTO Geneva summit which increased the country’s opportunity to get co-operation from other developed countries. In the Geneva summit WTO also focused on the issue of increased capacity building in LDCs along with greater market access. At present, Bangladesh has a duty free access in the US market for 97% of its products which is again the result of WTO negotiations. Bangladesh is now enjoying a lot of facilities because of WTO. WTO has in fact developed itself as a developing-friendly organization. In the recent years WTO has taken some package and formula which can benefit Bangladesh to a large extent.
One of them is the 20-20-20 formula. The 20-20-20 Formula, proposed by WTO’s Pascal Lamy, appears to be a strategically positive approach as far as interests of the developing countries and LDCs are concerned. According to the formula (i) US was asked to limit farm subsidies to US$20 billion, (ii) EU was asked to accept the G-20 formula of cutting its farm subsidies to 54%, and (iii) developing countries such as India were asked to tap their industrial tariff at 20%. Besides, the Philippines has come up with a proposal to add a fourth ’20%’ (20-20-20-20) with the new percentage indicating the exemption of agricultural tariff lines as Special Products. However, the proposed 20-20-20 (and 20) formula appears to be a good point of departure for building possible outcome scenarios and identifying their complications for Bangladesh. Once these results are in hand, Bangladesh will be able to lend her goodwill to the pursuit for arriving at a consensus on formula, coefficient, derogation and subsidy reduction now being debated and discussed in different formal and informal forum of the WTO.
Another one is the Aid-for-trade package. The Aid for Trade (A4T) Task Force was established in February, 2006 with a mandate to provide Members with recommendations as regards how A4T “might contribute most effectively to the development dimension of the Doha Development Agenda.” The Task Force came up with its final recommendations at the General Council held during 27-28 July, satisfying the July deadline set by the Hong Kong Ministerial Conference. The recommendations (WTO Doc: WT/AFT/1), for both donors and recipients, stressed on the need for additional, predictable, and effective financing to enhance trade related supply-side capacity of the developing countries and the LDCs to better integrate into the multilateral trading system and benefit from liberalized trade and increased market access in both goods and services. Under the present circumstances, Bangladesh may explore, as advised by the WTO Task Force, the possibility of establishing a National Committee on Aid for Trade, which will be mandated to do the following.
(i) Identify Bangladesh’s trade related supply-side constraints and collaborate with the WTO and other concerned parties (i.e. donor agencies) to ensure a dedicated proportion of the proposed A4T package for LDCs and propose a modality for distribution among LDCs that takes into account the size of the economy; and
(ii) Design strategies to monitor whether there is a double or triple counting on account of resource commitments to MDGs and PRSP particularly in view of the fact that the “new resources” are not subject to traditional aid conditionalities.
In fact, WTO has opened the door for Bangladesh in the developed trade market. If the country can utilize the facilities, economic development is not far away for the country.
The three donor agencies mentioned above are all equally important for the economic development of Bangladesh. WB gives financial aid and takes different projects for the economic development of the country. IMF gives financial aid and at the same time helps to take different policies which helps the economic growth of the country. Finally, WTO helps to ensure duty free access to the world market which is the most necessary thing for the economic development. If Bangladesh can utilize these opportunities given by these donor agencies Bangladesh will be able to make its economy a developed one in near future. All Bangladesh should do is to make arrangements ready to ensure the proper use of the financial aids, suggestions and projects. Then it will be possible to achieve economic development in real scene. In fine, we can say that, these three agencies have great significance in the economic development of Bangladesh.
1. Modern economic theory-K. K. Dewett
2. Political Economy of Bangladesh-Prof Md. Zahirul Islam Shikdar
3. Wikipedia org.
9. Aid Effectiveness in Bangladesh: Is the glass half full or half empty-M. G. Quibria
10. Economic Development in Bangladesh: Recent Trends-Bob Pokrant