Expansionary vs Precautionary

Bangladesh Bank in the last few weeks, rejected IMF's advise on following a conservative economic policy. But as with most issues in Bangladesh, people say one thing and does another.

Why IMF wants a conservative policy

• High inflation
• Investor lack of confidence
• Liquidity crisis amongst banks
• Food crisis
• Natural gas crisis
• Political crisis
• Power crisis
• Global economic slowdown
• ACC witch hunt against the corrupt
• Exodus of the business community
• Labor unrest/strikes
• Call rate is too high and fluctuates too often

Why Bangladesh Bank wants expansionary policy

• Bangladesh is smart enough to deal with themselves (micro lending is enough to show the world)
• A stunt to show its power
• To convince the banks (and people) that there isn't any liquidity crisis

Why Call Rate is important
Call Rate reflects the rate which banks lend to each other. Although it hasn't been high consistently there are some points to note. It is limited to 20% by Bangladesh Bank, so if it hits 20% we will never know the seriousness of the issue. The call rate also reflects the amount of deposits and money that banks have between themselves to work with and to distribute. This depends on multiple factors such as deposits, cash, successful loan payments, and interest rates. It is sufficient to say when the call rates fluctuate the way they are doing now something is terribly wrong.

This means that Bangladesh Bank is not clear to its goals. It may want an expansionary policy (which causes the call rate to lower) but when its actions doesn't suggest what it is saying, the call rate spikes. This also means that the commercial banks don't know what is going on or what to expect. So it means they are also less reluctant to give out loans and stay conservative at times of uncertainly. This also leads to more conservative economy. So do you get my drift? No one is sure what to do and aren't doing what they are supposed to do.

Reality vs Desirability
On one hand Bangladesh Bank does not want to startle everyone by taking a conservative path. It doesn't want to make a bad situation worse by taking a skeptical view. But then again can it afford not to?

Citibank likes to pointlessly woo Bangladesh Bank

Something interesting popped up bangladeshcorporate.blogspot.com

I could not believe that Mamun Rashid would stoop so low [pictured left, on the right].

Decisive quote
"Citibank usually employs up-heel, pretty women who work as the corporate ambassadors while dealing with government counterparts and/or industry peers. It is heard that middle-aged or nearly old Bangladesh Bank officials sometimes find it really hard to say ‘no’ or behave impolitely to polished female fleet of Citibank N/A (Not Applicable huh?). So as the drooling eyes keep on relishing the eye candies, the deal gets sealed with a smile."

This procedure is pointless
All is fine, but as Grameenphone has shown us, Citibank does not need to go to this extent to get things done. It can be done cheaper. Just ask Anders Jensen, CEO of Grameenphone. GP made Bangladesh Bank redefine banking -to a point that GP is now becoming a full-fledged bank.

Grameephone aspirations to become a bank

Grameenphone, with swindling profits and huge competition (thank you Banglalink for ending GP's dictatorship) has set its eyes on banking.

First stage in this process was to convince Bangladesh Bank (this is usually easy to do, because all it takes is paying for a few foreign trips and money). Lo and behold the Governor of Bangladesh Bank, Salehuddin Ahmed (who hasn't really been neutral from the moment he stepped into office) [pictured left] now recommends that mobile remittance through SMS is the way forward.


The Lingo
GP terms this as mobile banking license. GP's lingo for these services are twisted to confuse the incumbents of Bangladesh Bank. But they all mean the same thing - a full fledged banking license. The currency of exchange will be the internationally renown GP talk-time, over the ever-so-secure SMS framework. These shortcomings are all accepeted if GP can send you abroad for free. Not to mention breaking all applicable anti money-laundering measures currently in place.

GP has gone ahead making as many enemies in the process as possible. None-the-less local banks are not happy.

More mobile licenses anyone?
Maybe local banks should apply for bank-mobile license? This license would allow them all to set up cell towers on all their branches to create a mesh network for a new cellphone company. But I am sure just to get even there will be even more mobile licenses issued because almost all high profile Bangladeshis are associated with a bank. GP could be digging their own grave.

Brac Bank's view
Brac Bank is also heavily invested in remittance. How this idea slipped through the influence that Rumi Ali in Bangladesh Bank is beyond me. Rumi Ali is the chairman of Brac Bank and has an astounding amount of influence in banking policies despite his sacking from Stan Chart. How these two NGO supported companies go head-to-head will be interesting.