Macroeconomics and basic common sense

Stephen Moore writes an article 'Why Americans Hate Economics?' in the Wall Street Journal on some basic issues of U.S. govt's economic policies and how those policies puzzle others. With some specific example, he seriously questioned the ability of the Keynesian economics and blamed it for lacking basic common sense! lolz...

As usual, economists like Paul Krugman, David Glasner, Noah Smith and Stephen Williamson termed Moore's article as anti-intellectual, naive conservative and confused.

Necessity of New Banks

Here is the latest news on the development of government's steps to give permission for opening up more banks and financial institutions as published in today Prothom Alo.

Here is the link. 

It is already a news that neither Bangladesh Bank nor the Finance Ministry has agreed to give such permission. However, the finance minister already told journalists that he is in political pressure to do so and it would be a political decision rather economic decision if the permission is realized.

Report on the reaction of Bangladesh Bank
Report on the reaction of the Finance Minister

Without being a skeptical on the political motives, I am raising questions on the necessity of new banks in the current financial system of Bangladesh.  First, why the authority considers the necessity of news banks in the existing financial system (scope, both micro and macro)? Second, what will be the impact on money supply and the resulting implication on demand when the central bank has been struggling to control the growth of money supply? Third, is our regulatory authority is equipped enough to control such a big banking sector when we have seen recently that the central bank completely failed to control banks from their aggressive involvement in the stock market? Fourth, did we gauge the long-term implications of having a politically motivated financial system when we have the experience of high NPLs in the past and also of so much directed lending (even in the current financial system such as aggressive credit to the agriculture and SME sectors? I will rather put here a para (para 3, page 9) for your consideration from Fault Lines by Raghuram Rajan:

"This is not, of course, the first time in history when credit expansion has been used to assuage the concerns of a group that is being left behind, nor will it be the last. In fact, one does not even need to look outside the United States for examples. The deregulation and rapid expansion of banking in the United States in the early years of the twentieth century was in many ways a response to the Populist movement, backed by small and medium-sized farmers who found themselves falling behind the growing numbers of industrial workers and demanded easier credit. Excessive rural credit was one of the important causes of bank failure during the Great Depression"

Food Price Watch (August 2011)

The major messages of the latest Food Price Watch (August 2011) of the World Bank are as follows:

• Global prices of food in July 2011 remain significantly higher than their levels in July 2010 and close to the 2008 peak levels.
• Prospects for the overall supply of food have improved since April 2011, but several sources of uncertainty remain.
• Global stocks still remain alarmingly low. 

Here is the full report. 

Negative BOP after a decade!

The balance of payments (BoP) of Bangladesh became negative after a decade due to of a widening trade gap, lower growth of remittances and a deficit balance in the financial account!

Here is the news link from the Financial Express. 

Food inflation in July is 13.4%!!!

So, inflation keeps rising, reached to 11.0% in July 2011 (Inflation was 10.2% in June).
In rural areas, inflation was 11.1% and in urban areas, it was 10.7%.
Food inflation reached to 13.4%, while the same in rural areas was even higher at 13.5%.

Here is the news link from the Daily Amar Desh.

On the impact of higher inflation on the Bangladesh economy, I just quote a part (para 2, page 6) of the recent Monetary Policy Statement (MPS, July 2011) of the Bangladesh Bank -

"Empirical studies with cross country data find moderate inflation supportive up to a certain inflexion point, beyond which further rise in inflation starts hurting growth. A recent estimation by BB's PAU following methodology developed by Khan M S et al finds that this inflexion threshold for Bangladesh at around eight percent; although the adverse effect on growth may not always show up immediately."


According to the Bangladesh Bank's official findings, with 11.0% inflation rate, the current inflationary period is actually hurting the country's economic growth.

Prof. Taslim on Transit issue

Professor M.A. Taslim, for the first time, brings a few serious issues (or, expert opinions) related to the 'debated' transit deal with India in his two articles in today's Financial Express. As the current official transit discussion with India is based on the suggestions made by the committee headed by the Chairman of Bangladesh Tariff Commission (BTC), Mr. Taslim's view as the former Chairman of BTC will be interesting to know. Here are the pieces-

1. Transit: Some Issues

2.  Will transit to India enhance regional connectivity? 

Want to join WB-IMF's Annual Meeting?

If you are between 18-25 years old and actively engaged in youth and development activities, please apply to join (to be a Youth Delegate from South Asia!) the World Bank & IMF’s Annual Meetings from September 23-25, 2011 in Washington DC, USA.


This of course will be an unique opportunity for you. Only 3 days are left for the application! 


Here is the link for details. 

Christina Romer brings hope for Americans?

Christina Romer (an economics professor at the University of California, Berkeley, and the ex-chairwoman of President Obama’s Council of Economic Advisers) tells policymakers to learn the lessons of history, lessons that show the way out of the recession, and then act accordingly, in her article in the New York Times.


Here is the link.  

More concerns :-(

Business people and economists put more concerns over the possible adverse impact of the continued global economic recession on the Bangladesh economy.

Here is the report from the Financial Express.

Confused Economists

Well, just a few days back, I have posted an interview of Professor Taslim, where he explained why he thinks that the Bangladesh economy will be affected due to the current economic turmoil.

In today's Daily Star, a report says that economists (Mr. Ahsan Mansur, Executive Director, PRI and Mr. Zaid Bakht, Research Director, BIDS) do not see any big impact on Bangladesh exports for a volatile economic situation in the western world. Interestingly, real exporters are not that much hopeful like those economists. Here is the report link from the Daily Star. 

In today's Financial Express, economist Mr. Zaidi Sattar, Chairman, PRI says that -

'A double-dip US recession can not only halt the global recovery but potentially push the global economy back into recession. That would effectively undermine Bangladesh’s export performance, and cause remittances to dry up as well. With trade and remittance volumes approaching 50% of Bangladesh’s GDP, the adverse impact on growth, employment and poverty, is all but certain.'

Here is the column link from the Financial Express. 

Who is right and who is wrong?

So, economists need more preparation as well as coordination when making comments on serious issues.

Possible?

Exports grew by 28.7% in July

In the fear of US debt crisis and the continued economic crisis in America and Europe, exports grew significantly by 28.7%, year-on-year, in July 2011, though dropped from the 40.0% growth in June 2011. Garments exporters mentioned decline in number of orders from the US buyers in recent past.

Here is the news report from the Daily Star. 

US Debt Crisis: Impact on BD

In a short interview with the Daily Prothom Alo, Professor M. A. Taslim talked on the right policies that the Finance Ministry needs to follow in the wake of US Debt Crisis.

Here is the link of the interview. 

His words on budget balance based on government aggressive borrowing at the time of  'twin deficit' should be taken seriously, in my view. And, any suggestion from policy makers apart from what Mr. Taslim said should be taken cautiously.

In Defense of Government Borrowing

Mr. Ahsan Mansur, Executive Director, Policy Research Institute (PRI) covers government's record borrowing in FY2011 using proper statistics in his article in the Financial Express. He sees no harm in it!

Here is the article.

In Defense of Transit

Dr. Sadiq Ahmed, a former World Bank Economist and Vice Chairman, Policy Research Institute (PRI), talks extensively in favor of transit between Bangladesh and India with the Daily Star.

Here is the link.