Dialogue DB Final 1

8/6/2019 Dialogue DB Final 1

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THEONGOINGGLOBALFINANCIALMELTDOWNTHEONGOINGGLOBALFINANCIALMELTDOWN

ANDLESSONSFORBANGLADESHANDLESSONSFORBANGLADESH

PresentationbyPresentationby

Dr.Dr.DebapriyaDebapriya BhattacharyaBhattacharyaPermanent

Representative

and

Ambassador

ofBangladesh

tothe

UN

Permanent

Representative

and

Ambassador

ofBangladesh

tothe

UN

Office,

Office,

WTOandotherInternationalOrganizationsinGenevaandViennaWTOandotherInternationalOrganizationsinGenevaandVienna


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Butbeforeallthat MeetMRS.JONES

Debapriya:GlobalFinancialMeltdown 4


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I.TheFinancialMeltdown:ADiagnostics

First:Whydidthecurrentfinancialcrisisbecomea

globalone?

USfinancialinstitutionsforwardedbadmortgagestoforeignbanks,foreignbankseventuallyconfronteddeterioratingbalancesheets.

FinancialcrisiscausedaneconomicslowdownforUSeconomy decreasedUSdemandforforeigngoods+declineindemandduetofallindollar.

Persistenceofglobaleconomicimbalancesexacerbatesnegativeeffectsofthefinancialcrisisontherealeconomy.

LargecurrentaccountdeficitmirroredbylargecurrentaccountsurplusofChina.

FallingdemandbytheUSisyettobebalancedbyan

increasingdemandofsurpluseconomies.



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Second:Couldwehaveseenthecrisiscoming? Internationalfinancialinstitutions,particularlyIMFhavefailedto

foreseeandpreventoutbreakofmajorfinancialcrisis,andthus wasunabletoserviceitsmandate.

TheFinancialStabilityForum foundedfollowingtheAsianfinancialcrisistodetectonsetoffinancialinstability failedtofulfillitsobjective.

Wheydidtheyfail?Because:i. Theyhaveastrongbeliefintheselfcorrectingmechanismsofthe

market,theyareblindtomarketfailures,andreluctantaboutstrongermarketregulation

ii. Theyfocusedonreformingmarketsindebtor(developing)countries,butwasobliviousabouttransparencyandreforminthefinancialmarketsofcreditor(developed)countries

Result:

They

failed

to

detect

difficulties

associated

with

US

housing

marketDebapriya:GlobalFinancialMeltdown 6


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Third:Didwehaveearlywarningsignals? Criticalmacroeconomicliteraturehasrepeatedlystatedthat

theremustbesomethingwrongwithafinancialmarketthat

endsupincrisiseveryfiveyear. Beyondgeneralwarningitwasdifficulttodetectthecurrent

financialcrisisasfinancialinstrumentslackedtransparency.

In2006 tipoftheicebergemerged:Between2004/2006,US

interestraterosefrom1%to5.35% housingmarketbegantosuffer pricesfallingandriseindefaultingmortgages defaultonsubprimeloansreachesrecordlevel.

InApril2007,subprimeloancrisisbecomeevident estimatedlossesbetween$50billionto$100billion.

NewCenturyFinancialfiledforChapter11,butitinfecteddebtpurchasingbanksaroundtheworld.Forinstance,BearStearns.



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Fourth: Could the crisis have been as severe if it had

not coincided with other crises, especially rise of

commodityprices?

Risingcommoditypriceshardlyaffectedthemagnitude

ofthefinancialcrisis,butdefinitelyimpededitseffectiveresolution.

Upwardpressureonproducer/consumerpriceshaspromptedmanycentralbankstotightenmonetarypolicytoavoidinflation.

Itwashastyandcounterproductiveforinvestmentandrealeconomy.



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Fifth:Wasthecrisisencouragedbyalackofliquidity,solvencyand/orconfidence?

Whatemergedin2007asanapparentLIQUIDITYPROBLEMin

anobscurecornerofasophisticated,highlyleveragedandapparentlyriskfreefinancialmarkethasacquiredadimensionbeyondanypessimisticprognosis.

WeaknessoftheUShousingsectorisbeinggraduallyexposed

asnotonlyLIQUIDITYPROBLEMoftheUSfinancialmarkets,butalsoemergedasSOLVENCYPROBLEMofbanksandfinancialenterprisesinternationally(threatening,insomecases,solvencyofnationaleconomies).

ThecrisiscontinuestobereinforcedbyalackofCONFIDENCEandTRUST.Itisupto therescuepackagestorestoremarketconfidenceandtrustamongbanksandreviveinterbanklendingandtoincreaselendingtoprivatesector.



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Sixth:Wastheproblemcreatedbyweakregulationand

oversight?Atnationalorinternationallevel?

Theprincipalfactorthathasencouragedthecurrent(aswell

asprevious)financialcrisisistheattemptofthefinancialinvestorstomakedoubledigitprofits(CASINOMENTALITY!).Althoughmostenterprisesinrealeconomytendstohavesingledigitprofit.Itisnotpossibleforallfinancialinvestorstooutperformtheeconomyatalltimes. Infullspeculativeswing,uniformityofbehaviour ofallmarketparticipants (HERDMENTALITY!)createsmaniasandpanics.Ifexpectationsarenotcorrectedinatimelyfashion,itresults

inbubblesandburst,seriouslyaffectingrealeconomy.WearecurrentlywitnessingtheMotherofallbubblesandbusts.

Complexityoffinancialinstruments,andassociatedlackof

transparency,haspreventedtimelycorrectionsofexpectations.

10Debapriya:GlobalFinancialMeltdown


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By not spreading the risk in a transparent way, marketoperators chose ways to securitize risky assets. Credit

rating

agencies

failed

to

understand

these

products.

As

they were rarely traded, approximate value of thesestructuredfinancialproductswasnotknown.

Todays financial crisis has been facilitated by the

RELUCTANCEofcountriesaswellas internationalfinancialinstitutions to better regulate and monitor financialmarkets.ItwasbasedonirrationalcompetencywithrecentGLOBAL ECONOMIC TRENDS and FREE MARKET

ENGINEERING.

Outcome: A trillion dollar (non) worth of toxic waste

handed

down

to

the

tax

payers!



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II.TheFinancialMeltdown:TrackingtheEffects

First:Whatisthelikelyeffectoftheglobalfinancialcrisis?

ThecurrentcrisisrepresentsthelargestfinancialshocksincetheGreatDepression.IthasthepotentialtotriggeraDEEPGLOBALRECESSIONif

countercyclicalpoliciesarenotappliedinacoordinatedfashion.ButconsiderableUNCERTAINITYremainastoitsextentandscaleaswellaseffectonrealeconomy.

Butthefollowingareexpectedtohappen:

Deleveraging ofsecuritizedfinancialinstrumentswillstartaffectingnonhighriskassets leadingtoliquidityproblem.

Creditcrunchisimminentifbailoutpackagesfailtoabsorballbadloansandrestoresoundbalancesheets.

Ifrevivalofrealeconomyisdelayed,financialcostsofbailouts willcontinuetoincrease

EndoftheperiodofGreatModerationcausingsteepslowdown,if notworstrecessioninadvancedeconomics.

IMFWEO2008predictsonaverageazeronominalgrowthrateinG7countries.Debapriya:GlobalFinancialMeltdown 13


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Source: Economist Intelligence Unit and IBGE.

2005 2006 2007 2008

CIS 6.8 7.7 8.6 7.6

Africa 5.7 5.6 5.8 6.0

East Asia 7.5 7.9 8.1 7.2

South Asia 7.7 8.2 8.5 7.0

South-East Asia 5.7 6.0 6.4 5.4

West Asia 6.8 5.7 5.1 5.7Latin America and the Caribbean 4.9 5.6 5.7 4.6

Developing countries 6.6 7.1 7.3 6.4

Developed countries 2.4 2.8 2.5 1.6

Source: TDR 2008, table 1.1.

Quarterly GDP growth rates, selected countries, annual percentage change, 20062008

GDP growth rates, selected country groups, 20062009

4

5

67

8

9

10

11

12

Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08

Brazil China India Russia



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Developingcountriesgetaffectedby:

Reducedworlddemandfortheirproducts

Diminisheddemandfortheirservicesandfallinremittances Increasedcostofborrowingthroughhigherspreadsand

higherrisksforrolloverofexistinggovernmentdebts.

PotentialdropinODA

ThequestionisnotWHETHER,butratherWHENandHOWthe

developingcountries

will

be

hit

by

the

crisis

emanating

from

theadvancedeconomies.



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Second:WhatisthenatureoftheTHREECHANNELSof

likelyeffects?

Trade

Privatecapitalflows

Officialdevelopmentassistance

AllthreearerelevantforBANGLADESH!BangladeshasaSmall

openeconomyismorepronetoexternalshocksincomparisontobiggerandmorediversifiedeconomies.



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TRADE:i. Deteriorationofforeignexchangeearningsdueto

slowdowninadvancedeconomies.ii. Increasedcostoffinancingaffectingsupplyside

expansion.

iii.CountrieslikeBangladeshwithhighshareofmanufacturesinitsexportbasketwillmorereadilyaffectedthancommodityexportingdevelopingcountries.Butwillalsodependon

(a)Incomeelasticityofdemandforexports

(b)Extentofdecoupling fromtraditional(crisisstricken)exportmarkets.



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PRIVATEFLOWS:GlobalFDIpeakedin2007andisforecastedtodecline,butwillremainrelativelystable.Uncertaintiesand

reducedbusinessconfidencewillbemoderatedby:i. Anumberofprivateequityfunds(PEFs)havebeen

establishedindevelopingcountries,butastheyrelyheavily

ondebtfinancingarelikelytoreduceinvestmentinshortterm.

ii. SovereignWealthFunds(SWFs)increasinglyinvestingthrough

FDI(includingGreenfieldFDI),insomecases,indevelopingcountries.Theywillnotgetaffectedinshortrun.



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iii. DevelopedcountriesTNCs (MNCs)maycontinuetoinvestbasedonretainedearnings.Buttheymay

engageinrepatriationofalargeshareoftheirprofits.iv. SouthernTNCs (MNCs)alsolargelyinvestbasedon

profitswhichishighatthismoment,butmaydeclineif

crisisisprotracted.v. Remittancesfromexpatriateworkersmayfallas

demandforimportedlabour declinesalongwith

recessioninadvancedeconomies.ButsourcesofBangladeshsremittancesaredecoupled fromdevelopedeconomies.



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OfficialDevelopmentAssistance(ODA):ThenetODAdeclinein2006/07alreadyposesalargeriskforMDGachievement.

Tensioninpreparing2009budgetsofdonorgovernmentsandpossiblecrowdingoutofresourcesforODA.

Strictfiscaldeficitlimitswillpotentiallyneedtoreschedule

theiraid

flowsLaggedresponseoffallinODAdisbursementisprobable

withincreaseduringcrisisperiod(particularlygrantdisbursement)

Noimmediatesharpdeclineinaidflowduetoitsstickiness,butprolongedslowdownindonorcountrieswillaffectODAdisbursement.



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Third:Whatarepossibleeffectsondifferentcountry

groupsandregions?

Theeffectswillvarysubstantiallyacrosstheglobedependingonsizeandstructureofthenationaleconomy,aswellaslevel

andnatureofglobalintegration(includingexposureto

financialmarketupheaval).

USA:Continuestodeclineinfinalquarterof2008andfirst

quarterof2009,stabilizesinsecondquarterof2009andthen

startprogressiverecovery.

EuroArea:Growthtofallfrom2.6%(2007)to1.3%(2008)to

0.2%(2009),beforereturningto1.4%(2010)



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China:Sofarthoughttoberelevanttothecrisis,newfiguresshowthatdemandforlabour slowingdownreflectingrelaxedexports.Butoveralldomesticdemandgrowthandinvestmentactivity

steady.OtheremergingeconomiesinAsia:Slowdownofgrowthfrom

9.25%(2007)to7.75%(2008)to7%(2009).Consumptionwillbeloweraffectedbystillhighpricesoffuelandfood.

Africa:Effectstobedeterminedbyevolutionofcommodityprices.CushionprovidedbyChinaandIndiamaynotlast.Whilecommoditypricesareexpectedtoremainabovehistoriclevels

andvolatile,butsharpdeclineisnotexcluded.Butlargedisparitybetweenoilexportingandnonoilexportingcountries.

LatinAmerica:Impacttobedeterminedbyinterplayofseveralfactorsgiventheirrelativelyadvancedfinancialintegrationandrelativelydiversifiedexportcomposition.



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Fourth:Howcandevelopingcountriesreducetheirexposureto

globaleconomicmeltdown?

Thefull

effects

offinancial

crisis

on

developing

countries

have

notyetbeenregistered.Lackofrealtimedataisaproblem.

Factorscontributingtorelativeresilienceofdevelopingeconomiestotheglobalfinancial:

i. Domesticdemandhasassuredamoreimportantroleingrowth

ii. Increaseinprimarycommoditypriceshasstrengthenedthe

externalaccountandreduceddependenceonforeigncapitaliii. Maintainingacompetitiverealexchangeratethrough

exchangeratemanagement



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Fifth: Are these factors true for BANGLADESH ?

Slowdown

in

past

12

months,

but

remain

strong

by

historic

standards.Decoupling takingplace?

WestAsiaandAfricaaswellasCISfeltlittleadverseeffects,East&SouthAsiaandLatinAmerica,CaribbeanandCentral&

EasternEuropemoreaffected.

LDCsaretobeaffectedmore,butgiventhetraderelationship.



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Sixth:Isdecoupling feasibleandmeaningfulfor

lowincomecountries?

Evidencetodateshowsthatemergingmarketeconomieswereabletodecoupletheirbusinesscycles fromadvancedeconomies,eventhoughtheyaremoreinterlinkedtodayin

comparisonto1990s. Butrecentslumpsinstockmarketinemergingeconomies

(alsoinBangladesh?)areaclearsignalthatthereisasomedichotomybetweentherealandfinancialsector,oratleasta

timelagbetweenthetwosetsofeffects.Theprospectofcontinuousconfidencecrisisinadvancedmarketseconomiesmightaffectfinancialsectorsinemergingmarkets.



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Therisksforlowincomecountriesareratherdifferentandsevere.Theirrealeconomydecouplinghasneverbeenstrong.

Largeexternaldemandshockswillimmediatelyhavereal

economyimpactastheycannotbecushionedbyinternaldemand.

Financialsectorsareweakandshallow,thuswillnotbeable

toaccommodate

large

external

shocks

and

substantial

increaseinborrowingcosts.

Globalboomofcommoditypriceshascometohalt.

DetrimentaleffectsinODAmayaccelerateeconomicslowdowninLDCs.

HowrelevantaretheseprospectforBANGLADESH?

Decouplingfromadvancedeconomiesnotfeasible,but

reorientationtoemergingeconomiesismeaningful.Debapriya:GlobalFinancialMeltdown 26


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III.TheFinancialMeltdown:CatalogingtheResponses

First:Werethereanygeneralpatterninresponses?

Governmentsacrosstheworldhavetakenmultipleeffortsto

mitigateimpactoffinancialcrisisinmainlyfourareas:i. Liquidity:

(a)Increasingshortandmediumtermliquidity ininterbank

markets,largelythroughcentralbanks directinvolvementinrefinancingoperationsofcommercialbanks.

(b)Grantinggovernmentguarantees tointerbankoperationsto

reducecounterpartrisks.(c)Governmentsestablishandwidendepositinsuranceschemes

toavoidbankrun.



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III.TheFinancialMeltdown:CatalogingtheResponses

ii. Solvency:

(d) Governmentsareincreasinglywillingtoinjectcapital

directlyintocorporationstherebyfacilitatingbank

restructuringprogramme inthefaceofsolvencycrisis.

(e) Governmentscommittobuybadassetstoeasefinancial

restructuringofbanks balancesheets.

iii. ConfidenceandTrust:Overturesandgestures(across

regions)ofpoliticalleadersandmarketregulatorstorestore

marketconfidence.



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III.ThefinancialMeltdown:CatalogingtheResponses

Second:

What

are

the

differences

between

EU

and

US

rescue

packages?

Inonewayorother,theUSandEuropeancountries,ledbythesocalledBritishModel alaGordonBrown,haveagreedtotackletheproblemsofliquidity,solvencyandconfidenceinvariousways onebeingmorecomprehensivethanotherwithdivergingemphasis.

UnitedStates: TheEmergencyEconomicStabilizationAct(3October2008)

putsmoreemphasisonpurchaseofdistressedassetsbuying$700billionworthofpackage.

FederalReservetoprovideliquiditytotheinterbankmarket whichremainedparalyzedinfearofcounterpostrisk.Fedwasanintegralpartofglobalratecut(3October2008)

involving7majorcentralbanksoftheworld.Debapriya:GlobalFinancialMeltdown 30


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EuropeanCountries:

On12October2008,agreedtofollowtheBritishmodeloffinancialrescuebywayof(i)liquidityprovisioningthrough

centralbanksandstateguaranteesforinterbankoperationsanddepositinsurances,(ii)capitalinjectionstorestructurefinancialinstitutions.

Asmaybeseen,purchaseoftoxicassets notthefocushere,ratheritisonliquidityinjection.UShaslateraddedontheprovisionofcapitalinjectiontodistressedbanks(14October2008)

Aselsewherenosystemrelevant bankwillbeallowedtofail,nodepositorwilllosemoney.Attheendof2009,thelifesupportsystemistobeswitchedoff.



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Third:Whataretheresponsesinemergingeconomies?

Brazil Tryingtostabilizecurrency(Real).SaoPaulostockExchangesuspendedtradingonoccasionsinoneweek.

China Joinedtheratecutoffensive.Secondsuchcutin3

weeks. India Unexpectedlycutitskeyinterestrates(20October)by

onepercentagepoint from9%to8%.

Mexico Sellingreservetopropupnationalcurrency(Peso).Proposed$4.4billionpackagetoboosteconomy.



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Fourth:Anyregionalresponsebydevelopingcountries?Asia:

ChiangMai(selfhelp)initiativeofpostAsiancrisis(1997/98)

reinforced

by

ASEAN+3

(China,

Japan

and

ROK)

will

have

a

meetingon2425October2008inBeijing.

AsianCrisisFundhamperedasWorldBankisnotreadytocontributeaclaimof10billion.Implementationofanearlier

decidedcurrencyswaysSchemeof#80billionisbeingaccelerated.

LatinAmerica:

InterAmericanDevelopmentBank(IDB)approvedrecord

volumeofloans. Settingupfastdisbursing$6billionliquidityfacility MoreliquidityfacilityfromCanadianDevelopment

Corporation(CDF) $1.5billionandLatinAmericanFundofReserve(FLAR) $1.8billion



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Fifth:Whatareappropriateresponsesatinternationallevel?

Fordiscouragingfinancialspeculation,countriesneedbettercoordinationofeconomicpoliciesincludingrulesandregulationsgoverningthemonetaryandexchangeratepolicies.

NEEDTOHAVEAFULLFLEDGEDMONETARYANDFINANCIALSYSTEM Theideaofcooperativeglobalmonetarysystemisascompellingastheideaofamultilateraltradingsystem.

Exchangeratedeviationscreateexternalitiesandmultilateral

repercussionsasisdone

by

tariff

and

export

subsidies.

Thus,

weneedtopromoteasystemwithacodeofconductfor..ofXRsystem willdiscouragecompetitivedevaluationaswellasoflargeglobaleconomicimbalances.



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INTHEABSENCEOFSTRONGERECONOMICPOLICIES,COUNTRIESTODEPLYOTHERTOOLSASSECONDBEST.ForExample,capitalcontrolsandothereconomicpoliciestodiscouragefinancialspeculationsaswellasreductioninexposuretofinancialcrisis.

NEEDFORGLOBALLYCOORDINATEDMEASURESTOIMPROVESYSTEMATICIMPACTOFNATIONALPOLICYMEASURES.

Temporaryfiscalsupporttostimulateeconomyandavoidrecession

Provisionofliquiditytoavoidcreditcrunch

Facilitateanorderlyunwindingofglobalimbalances

rebalancingofdomesticdemandwithsupportiveexchangerate

Tightenupregulationstodealwithsuchfinancialinnovationsassecuritizationandoffbalancesheetfinancing.



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Sixth:IstheBushinitiativegoingtomeetthedemandformultilateralcooperationandcoordination?

TheCurrentInitiative

BushSarkozyBarroso meetingon18Octoberproposedaseriesofglobalmeetingtodealwiththefinancialcrisis.

SecretaryGeneralBanKimoonbackedtheideaandproposed

to

hold

in

New

York. PresidentBushhasnowsettledfor15NovemberinWashingtonDC.

ScopeoftheInitiative

Mr.Bushtakesaratherrestrictedviewregardingmodernizationoftheinternationalfinancial.Hedoesnotseetheneedfortakingasystemicscrutinyabouttheroleofstate

andmarkets.Debapriya:GlobalFinancialMeltdown 36


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Mr.Sarkozy seemstohaveabroadervision.Hemaintainsthatinteralia,hedgefunds,taxhaveandfinancialinstitutionsoperatingwithoutsupervisionshouldberethought.

Whatsoever,thecurrentapproachremainslimitedintermsofitsscopeasfundamentalsystemicconcernsareyettoberecognizedupfront.Moreover,asexperiencewithG7+showsthatparticipationofemergingandmarginalstakeholdersare

limited.NopoorcountryamongthenewG20!AnotherBretton Wood?

Indeed,thecurrentfinancialcrisishasexposedthe

entrenchedtheoreticalandoperationalfaultlinesoftheBrettonWood approach. TherewouldbealsoseriousconflictofinterestinhavingeitheraUS/EUleadinitiativeofIMF/WBguidedprocess.Thenewmultilateralismwillfindamore

conduciveincubatorwithaUNpromotedeffort.Debapriya:GlobalFinancialMeltdown 37

III Th fi i l M ltd C t l i th R


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P S Al F Th G ld P h f CEO !


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P.S.AlmostForgot TheGoldenParachuteforCEOs!

TheformerCEOofthebankruptLehmanBrothers,Richard

FoldbecametheporterboyforWallStreetgreedtodayashe

defendedthe$484millionhereceivedinsalary,bonusesandstockoptionsince2000.

Thatis$5millionpermonthforrunningthecompanytobankruptcy!

Fourdaysbeforethefirmfiledforbankruptcy,Fold

recommendthattheboardgivethreedepartingexecutives

over$20millioninSpecialPayment.



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IV.TheFinancialMeltdown:ImplicationsforBangladesh

First:DoweknowhowBangladeshwillbeaffected?

It is tooearly to conclusivelyassess the impactonBangladeshas

theglobal

financial

crisis

continues

torage

across

the

world. We are yet to know the width/depth, latitude/longitude of the

crisis.

We do not have fuller understanding of the transmission

mechanism. Wedonothavetherealtimedatatoassessthesituation.

Yetapplyingouranalyticaltechniquesontheexistingknowledge

base,itcanbededucedthatintheglobalspectrumBangladeshliessomewherebetweentheemergingeconomiesandthelowincome

(nonoilexporting)countries. So itwillhaveamixofthepossibleimpactsofthebothsetsofcountries.



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Itwillbenotimmunefromthenegativespillovers.Thestockmarketgotaffected(possiblyduetoconfidencedeficit),beforetherealeconomy.

TheexternaldemanddependentnatureofBangladesheconomysupportsitpotentialareasofvulnerability

Revenuefrommerchandiseexports

Remittancesfromservicesexports(fromdeveloped)countries

Impactoftwootherareasremainmoreambiguous

Flowofforeignaid NetflowofFDI



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Duetolowerglobaldemand,pricesofoilwilldecline.Foodandothercommoditypricesremainsstable.Theremaybea

fallininflationrate. Growthslowdownisyettosetin.

THEREISANEEDTOSETUPACOMPETENTTASKFORCETO

ASSESSTHEEFFECTSANDIMPACTTODESIGNAN

ADJUSTMENTPACKAGEWITHBOTHSHORTANDMEDIUM

TERMPOLICYANDINSTITUTIONALMEASURES.



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Second:HowappropriatearetheimmediatestepstakenbytheBangladeshBank?

BangladeshBankhasactedswiftlyandintherightdirection.

BangladeshBankhasmoved250crore investmentfromdifferentforeignbanks.

BangladeshBankhasshifteditsreservefromevenleastrisky

foreignbanks BangladeshBankadvisedcommercialbankstobringback

theirinvestmentskeptinnostro accounts.

BUTTHEREAREMORETOBEDONEIMMEDIATELY

Scrutinizetheroleofcreditratingagencies.Havetheysolvedinformationproblemsandincreasedtransparency,orhavetheymadethemarketmoreopaque?



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Reviewthesophisticated(andexotic)financialproducts,e.g.derivativeinstrumentsandinterestswapswhicharepoorlyunderstoodbythemarket.Thecurrentregulatorystances

create

a

bias

against

simpler

financial

instruments

(i.e.

cash

instruments).

Addressmaturitymismatchesinnonbankingfinancialinstitutionsandlimitinvolvementofbankswithweakly

regulatedagencies. Focusonlimitingcreditdeteriorationlinkedtosecuritization.

Keepsomeloansonthebalancesheet.

Improvetransparencyofcorporategovernance,operationalmodalitiesandproductportfolioandfundmovementsofforeignbanks.Brandnamesarenomoreguarantees!

RememberENRONbankruptcyduetooffbalancesheetfinancing!




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NEEDFORMACROECONOMICPOLICYADJUSTMENT

i. TocompensatepossiblefallinexternaldemandforBangladeshsgoodsandservices,measuresneedstobetakentoaugmentdomesticdemand.

byreviewingpublicexpenditureportfoliotoaccelerateimplementationofinfrastructureprojects.

bystrengtheningcreditflowtobuildproductivecapacities,e.g.inagriculture,nonformactivities,smallandmediumenterprises.

ii. Takingadvantageofsoberingtrendininflation,expansionarymonetarypolicymaybepursued.

iii. Considerloweringinterestrateinlinewithinflationarytrend.



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iii. Activemanagementofexchangeratesothatitdoesnotfallvictimofensuingcompetitivedevaluation.

iv. Intensificationofexportmarketexplorationinemergingeconomieswhereeconomicslowdownwillbeless.

v. Consolidationoflabour marketsinthenonOECDcountries,particularlyinMiddleEastandSouthEastAsia.

vi. TOBUILDPUBLICINSTITUTIONALSTRUCTURETOSYSTEMATICALLYMONITORGLOBALTRENDSANDPROVIDEPOLICYFEEDBACK.

vii. ENCOURAGETHEPOLITICALPARTIESTOTALKABOUTTHEIRPOLICYPACKAGETODEALWITHTHENATIONALIMPLICATIONSOFGLOBALCRISIS.



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Dialogue DB Final 1