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Loosen the regulatory system

  • Published at 03:44 am July 9th, 2017
Loosen the regulatory system
Despite a lot of constraints and somewhat love for the “Approval Raj,” the Bangladesh Bank has offered a lot of support and “hand-holding” to the growing private sector in Bangladesh. Starting from allowing back-to-back import L/Cs for apparel exports, it continued with export retention quotas, holding foreign exchange for overseas business development, loans from foreign bilateral and multilateral agencies, parent company loans, issuance of repatriation guarantee, increase of the travel quotas, special quotas for treatment abroad, remittance of tuition fees for studying abroad, remittance of foreign consultants fees and technical fees, repatriation of profit or dividend against foreign direct investment, and investment in traded securities in the bourses. In fact, most Bangladesh Bank officials are busy processing approval requests for various private sector entities on a day-to-day basis. Even after 45 years of independence, almost every third inward or outward remittance requires central bank clarification, or consent, or mostly approval. While individual remittance has gone through reasonable reforms or liberalisation, enterprise-level inward and outward inflow still remains an issue which warrants a lot of filtering, making the outward flows still quite complex and cumbersome. After independence, we inherited a war-torn economy with a very low foreign exchange reserve. Therefore, we appreciated the slow pace of reforms in the foreign exchange regime. In 2001, our net foreign exchange reserve dropped to lower than $1 billion. The then Governor of central bank contacted his many counterparts in the Middle East to provide some foreign currency liquidity support to take care of increasing commodity imports and imports for exports.
Nothing can happen if our regulatory regime does not become more friendly and helpful. Even if the regulators are helpful, they can’t do much without the right tools and guidelines
Known to be the foreign exchange man, Allah Malik Kazemi requested all global banks operating locally to put in some foreign currency deposits with the central bank. The good thing was, despite all the challenges, our trade was happening, and L/Cs were opened, routed, and confirmed through the global banks. Where L/Cs were being opened and settlement monitoring was heightened, Bangladesh Bank didn’t follow the route of RBI, such as putting up a 300% cash margin for opening L/Cs or “no export, no import” commandments. Bangladesh Bank is still trying to hand-hold private enterprises through quick disposal of their FCY inflow-outflow requests. This is taking a lot of their time in the absence of clear guidelines. Emerging realities also don’t allow them to take shelter under existing guidelines for foreign exchange transactions or relevant core risk management guidelines. Development partners, especially the IMF, have been talking of the further liberalisation of the current account transactions and updating the outdated Foreign Exchange Regulation Act (FERA) 1947. Although it looks very odd for an independent country like Bangladesh to chalk out its growth path to a middle income country with this 1947 cross border transaction rule, the reality tells us that we don’t know when our distinguished members of the parliament could approve a new foreign exchange regulation act, suited more to the dreams of a forward-looking and fast-growing trading nation. The archaic 1947 act is not allowing Bangladesh Bank’s “very helpful officials” to do much in attending to emerging issues in international trade and remittance flows. They have been issuing prudential guidelines to: Increase travel quota (though still miniscule against the increasing travel needs of the individual business person or professionals), creating space within the student quota, remittance of withdrawal proceeds by a foreign investor, expansion of the EDF program, and extension of the deferred payment for USANCE L/Cs or increasing the space for e-wallets. They have issued almost 50 circulars in this regard in recent times. Our foreign exchange reserve is on its way to $35bn, yet a traveler can’t deposit more than $5,000 on his/her return to his/her account if not declared at the airport, or easily buy tickets for overseas travels. Remitting a single dollar outside the country for investment abroad still raises a lot of eyebrows. Establishing the local representative office or agency by the global corporations is still a tough exercise. The consular section at the local US or European country embassies or Indian high commission reportedly increased the issuance of non-immigrant or business visas manifold. When I asked the US consular head the reasons behind the move, she promptly replied: “Bangladesh’s economy is growing at a steady pace; its entrepreneurship is growing fast, they need to connect with their US counterparts for their exports and raw materials or capital equipment sourcing or know-how purchases; there are more and more Bangladeshi students qualifying for good US colleges and universities; more Bangladeshi graduates are making their presence felt in the US professional world, and these realities are convincing us to facilitate their entry to the US for our own interest.” The whole world has started to accept Bangladesh as a global player in its chosen field. The buyers want our capacity to increase, see our performance improve, our workers’ productivity to go up, and entrepreneurs to reduce their business’ costs. Nothing can happen if our regulatory regime does not become more friendly and helpful. Even if the regulators are helpful, they can’t do much without the right tools and guidelines. We need to change, revise, and upgrade our foreign exchange rules. It also has to happen fast. Bangladesh not only requires continuous liberalisation in current account transactions, time is possibly ripe to start thinking about capital account convertibility in order for us to be ahead of our peers or competitors in the identified opportunity spaces.   Mamun Rashid is a leading banker and economic analyst in Bangladesh.