Monday, March 21, 2011

Loan from Delhi raises billion dollar questions

The $1 billion loan agreement signed with India on August 7 begets some billion dollar questions: Whose interest will it serve and whether the fund was at all needed. Cynicism has exacerbated by the loan coming at a time when it is least needed; over $500 million of ADB, IMF and other source-loans lying idle in the government's coffer.
   Decoding the mindset of policy makers in Dhaka and Delhi has become a futile exercise since the coming to power of the AL-led regime in early 2009. While any definitive answers to such questions will remain unanswered for obvious reasons, a glance at the targeted projects where the borrowed money will be spent may provide some valuable clues to unearthing the real motive behind this unprecedented economic collaboration between the two South Asian neighbours.
   Whose interest?
   Of the 14 projects for which the predominance of the borrowed $1 billion is slated for spending, over 76 per cent of the fund is earmarked for the (1) construction of Ashugonj port and dredging of navigation route leading to Tripura border, (2) upgrading of railway tracks and purchase of railway locomotives and oil tankers to transport Indian goods across the border, (3) construction of bridges astride Indo-Bangladesh border, including over the Bhairab and the Feni river connection Tripura, (4) construction of Ramgar-Subrom land port and the connecting roads, and, (5) construction of Bheramara-Bahrampur 400 KV inter- connected lines at a cost of $150 million, to name but a few.
   The agreement stipulates that the pipeline projects must incur 85 per cent of the costs by procuring goods and services from India only, and, the consultants hired for advising must be from India too. That alone will divert back 90 per cent of the fund to India. Add to this .50 per cent penalty for non-completion of any project, 1.75 per cent annual interest and .5 percent commitment fee per annum. The entire venture has little or no value added dividend for Bangladesh, excepting an estimated $25 million or so that is expected to come annually from custom fee and the allied levies that are yet to be decided.
   Simply put: Delhi will plan, fund and complete all these strategically important projects inside Bangladesh with materials from India, to serve India's interest, while the cost incurred is a loan to Bangladesh which the country may not be able to pay off within the stipulated 20 years time frame. Besides, the loan's conditionality is so stringent that the negation of any future government to comply with the projects' completion will not absolve the nation from paying the interests and the penalties during the 20 years amortization period.
   As well, the 1.75 per cent interest is too high, compared with the loan transactions occurring at public and private levels anywhere in the world; due to the recession-battered prime landing rate being either zero, or at best one per cent in the leading economies of the world. More disturbing is the 20 years payment deadline, which covers only half of the payment time-line usually offered by major international financial institutions while the stipulated interest rate is seven times of what the IMF loan charges, .25 per cent at best.
   Why policy- shift?
   Despite that, our finance minister is on record for accusing the opposition BNP of lying, as the latter insisted on not to sign the loan accord in consideration of upholding national interest. The gala and the glittering of the signing ceremony had also dwarfed the potential of an economic and geopolitical disaster this particular loan is sure to bring upon our nation.
   The finance minister is not alone in touting the issue as an epoch - making economic bonanza. Prior to Dhaka consenting to inking the agreement, few in the nation took pain to study the economic and the arithmetical rationale for doing so, especially at a time when the decision to borrow from external sources marked a radical shift from existing policies which proved successful over the decades by reducing debt-dependency on external sources, often phenomenally.
   We also feel numb as none among the policy makers even bothered to ask, why Dhaka needed $1 billion credit from India when its debt-GDP ratio stood at all time high, over 32 per cent of the GDP, or well over $50 billion, of which public debt alone rose by over $2 billion since the coming to office of the AL-led regime in late 2008 (Source: CIA fact sheet). Bangladesh bank data also reveals, total government borrowing was Tk. 597.9 billion in FY 2007, out of which Tk. 522.0 billion (87 percent) came from domestic sources while the net flow of public borrowing from external sources remained nearly stagnant in FY06-07, and declined further subsequently.
   Deadly geopolitics
   Such compelling economic rationales aside, India's generosity remains questionable; the loan coming to Dhaka at a time when India itself is bleeding under a slew of catastrophic afflictions spurred by a lingering recession, accelerated centrifugal drives spearheaded by insurgents from Kashmir to Mizoram to Assam, and the widespread public discontent created by a combustive mix of mass unemployment and hyper inflation which Delhi seems totally unable to tackle.
   Some observers say, this is hardly a micro-managed regional bonhomie to bolster fraternity with a smaller neighbour in crisis. Faced with unprecedented domestic crisis, Delhi had to display some geopolitical acrobatics to deflect attention outward and the scheme fitted neatly with a Machiavellian design to turn Bangladesh into an economic and military hinterland that has been in the making since Delhi decided to join the US-led anti terror bandwagon in 2001.
   They say, ever since, Delhi has been on the driving seat in Dhaka while irritating silence and procrastination remained our national hallmark amidst the gradual but systematic enfeebling of the nation by (1) rendering the armed forces impotent, and, (2) bludgeoning the economy through orchestrated destruction of the main export sector, the RMG.
   This line of analysis jibes well with the desperation Delhi felt lately as it witnessed, helplessly, Nepal turning into a Maoist state, Sri Lanka drifting away toward China and the Pakistani success in checkmating Delhi in Afghanistan amidst successive Taliban victory in the battles against the India-allied NATO forces. They say as most of the earmarked projects involve land and marine connectivity between India's north east with the mainland via Bangladesh, our nation is being turned into a virtual India corridor. This constitutes serious compromises of our territorial integrity and sovereignty.