OP-ED: Resilience will be sorely tested

Tactically speaking, the post-2008 recession decision by Europe’s banks of charging zero or negative interest was an experiment of sorts. 

With lending appetites low due to declining consumer spending, it put added pressure on businesses to roll their money and earn something rather than get no interest with idle funds. It was also complementary to the billions that governments poured into their economies. As matters improved, the zero-interest rates remained. A furious Donald Trump derided the chief of the Federal Reserve for not cutting interest rates.

The balance of power between banks and the government is required so that in times of crisis, moneys could be found to use. Trump couldn’t force the Fed nor could Europe’s leaders. These positions are purely focused on what’s economically rather than politically correct. As a result, governments around the world have been thrust into debt that would be unacceptable normally. 

These aren’t normal times. Europe and the US have seen a yo-yo tendency of consumer spending. The travel quarantine restrictions have caused misery to countries heavily dependent on tourism. People are buying more essentials than anything else. This has led to the Bank of England raising the question of whether it’s actually time to raise interest rates from zero given the fact that there’s slush money floating around, trapped in the quagmire of inefficient distribution. 

Whether this will be followed through and what impact there will be on the European economy should its banks follow suit will be interesting.

At the local level, following the government’s pressure, loans have been kept at 9% except with credit cards. Needless to say, the poor depositor is getting crushed. The quandary of kick-starting the economy so that more taxes can be raised and ensuring businesses have resources to pull through is a tough one. 

Banks have gone to the extent of reducing salaries and cutting costs, even those that were investments. The business borrowing hasn’t picked up, and consumers are being bombarded by offers ranging from loans against credit ceilings to partnering with a wide range of businesses that are eager to sell. Online sales are brisk, yet most manufacturers have seen output decline by 60% due to declining customer demand. 

The story does look different in shopping malls where jewellery, strangely enough, is in high demand. Compare that with lower purchases in food courts and clothing stores. 

Governments have to prioritize the health of the people. On the other hand, the economy can’t be allowed to go under. Structured economies have been propped up by stimulus packages and loans. Unstructured markets are feeling the pinch. Educational institutions are struggling to pay salaries, especially non-MPOs. 

Now that there is a directive not to collect any fees sans tuition, there’s a bit of certainty in all the confusion. The government was generous in stimulus packages for the ready-made garments sector. But with almost all pending orders being reinstated, their predicament has eased. The BGMEA did make a mess of providing a list of employees that qualified for the Tk3,000 per worker granted by the European Union. It’s creating another one for the future. 

They want the three-year payback of loans to be extended for five years, this despite the low interest and stipulation that this can be used only for worker-payments. It sounds suspiciously like loans that have to be written off. 

Consolidation is on and many of the outsourced factories have closed down. With payments for exports being delayed, the clouds continue to gather. The worrisome situation portends to basic essentials. Rice stocks are depleting rapidly what with the last crop procurement targets not being met. 

If sales prices don’t match costs and a little extra, why should the farmer sell to the government? Imports are being favoured and considered, and that will be met with resistance from the millers. That they and other commodity syndicates are making hay while the sun shines was initially met with mobile courts and fines. The wave has been impossible to push back. 

Millers’ and other distributors’ documents are not being checked. Any action is thus out of the question. What’s in it is the query: How do farmers, daily wage earners, and the low middle-class survive? 

To borrow from a cricket joke:

From ashes to ashes

Dust to dust

If corona doesn’t get you

Prices must! 

Mahmudur Rahman is a writer, columnist, broadcaster, and communications specialist.