Thoughts on Economics Vol. 18, No.

05

Global Financial Crisis: Likely Impact on Bangladesh

[Abstract: Th curr nt !inancial crisis that originat " in th #nit " $tat s an" %uic&ly s'r a" to Euro' an" Asia coul" b a global crisis soon. R c&l ss l n"ing by ban&s an" !inancial institutions an" slac& r gulatory syst m ( r at th root o! th crisis, (hich is ' rha's th gra) st sinc th *r at + 'r ssion o! th 1,-0s. Ami" a s ) r cr "it crunch, th rich conomi s ha) nt r " into a " ' r c ssion. ./0 conomists 'r "ict th global conomic gro(th to !all !rom 5.12 in 3004 to -.,2 in 3008, an" to -.02 n 5t y ar. Billions o! "ollars 'um' " by th rich an" th m rging conomi s to bail out th "istr ss " ban&s or to boost th ir conomi s ha) !ail " to sto' th rot. Bangla" sh is a''ar ntly immun !rom th crisis, its conomy not b ing ) ry tightly lin& " (ith th r st o! th (orl". .t has b n n6oying a r lati) ly h althy gro(th o! 5'orts, in"ustrial acti)ity an" r mittanc s. 7 t, a 'rolong " r c ssion in th rich countri s may caus a slo("o(n in 5'orts, in!lo(s o! r mittanc s, !or ign ai" an" 0+., th r by hurting *+8 gro(th. ./0 has sai" that *+8 gro(th in Bangla" sh this y ar (ill b lo( r 9 5.52 inst a" o! th o!!icially 'ro6 ct " 1.52, i! th global r c ssion ling rs. Bangla" sh 'olicy ma& rs (ill n " to stay al rt to th 'ossibility o! th conomy b ing hit by th global slum' an" a"o't a''ro'riat mitigating m asur s.: Introduction Th #nit " $tat s conomy is no( 5' ri ncing a s ) r cr "it crunch ;!alling a)ailability o! cr "it<, (hich is th most s rious !inancial crisis sinc th *r at + 'r ssion o! th 1,-0s. Th crisis that originat " !rom 'lunging hous 'ric s an" stoc& 'ric " clin s in th #$ has alr a"y s'r a" to Euro' an" Asia, an" is 5' ct " to b global soon. /any conomists, inclu"ing ./0 5' rts, b li ) that th #$ conomy has nt r " a r c ssion that might b long r than usual, thro(ing many countri s into a " ' slum'. Th ./0 has alr a"y (arn " that (orl" conomic gro(th (ill slo( substantially this y ar an" b slo( r in th n 5t y ar. Th slo(ing "o(n o! conomic gro(th in th #$, Euro' , =a'an, an" th r lati) ly mor a")anc " " ) lo'ing countri s o! Asia cannot but a!! ct " ) lo'ing countri s ls (h r in t rms o! lo( r gro(th in
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A !orm r 8ro! ssor o! Economics at th #ni) rsity o! +ha&a.

*lobal 0inancial ?risis @@@@@@..

th ir 5'orts, an" in!lo(s o! !or ign "ir ct in) stm nt, ai", an" (or& r r mittanc s. This 'a' r a""r ss s issu s r lat " to th crisis an" s &s ans( rs to th !ollo(ing %u stions: Ahat th crisis is all about an" (hat ar its caus sB Ahat m asur s ha) b n a"o't " to !ac th crisis, an" to (hat !! ctB Ahat ar th l ssons !or !inancial institutions an" go) rnm ntsB Co( "o s th crisis a!! ct Bangla" sh an" (hat shoul" b th 'olicy r s'ons to a)oi" or minimiD th im'act o! th crisisB

Origin of the Crisis Th crisis in th global !inancial mar& ts that b cam mani! st in August 3004 is th by'ro"uct o! " ) lo'm nts sinc 3001 (h n th #$ conomy (as 5' ri ncing a s ) r r c ssion. To 'r ) nt a !urth r slo("o(n in th conomy a!t r th $ 't mb r 3001 t rrorist attac&s, th #$ 0 " ral R s r) b gan cutting int r st rat s to ncourag borro(ing, (hich s'urr " both consum'tion an" in) stm nt s' n"ing in th country. At on stag , th 0 " ral !un"s rat cam "o(n to as lo( as 1 ' rc nt. $uch a lo( rat o! int r st (as n ) r 5' ri nc " in th country sinc th r gim o! 8r si" nt Ni5on. At th sam tim , in som !ast gro(ing countri s li& ?hina as also in th /i""l East, sa)ings incr as " consi" rably, r sulting 'artly !rom high conomic gro(th an" 'artly !rom incr as " !u l 'ric s. Th s sa)ings ( r chann l " mainly to th #$, gr atly incr asing th li%ui"ity o! #$ ban&s. Abun"ant li%ui"ity an" lo( int r st rat s incr as " th t n" ncy to s' n" by #$ consum rs an" in) stors. This t n" ncy (as ) ry high in th housing s ctor. Th #$ A"ministration also 'lay " a big 'art as it ncourag " mortgag com'ani s to 5'an" !inancing o! Ea!!or"abl housingF. 8r si" nt BushGs s' ch to th ?ongr ss aroun" that tim about th )irtu s o! hom o(n rshi' cr at " !r nDy among Am ricans to buy hous s, chi !ly (ith borro( " !un"s. Hong b !or th y ( r !ormally ta& n o) r, th t(o mortgag giants, 0anni /a an" 0r ""i /ac, ha" an im'licit go) rnm nt guarant . Ibtaining housing loans (as also ) ry asy. A 1,,5 #$ Act allo( " ) ry lib ral t rms !or ban&sG mortgag l n"ing. Th slac& r gulatory syst m ncourag " aggr ssi) l n"ing by ban&s an" !inancial institutions. Th y ga) mortgag loans to hom buy rs (ithout ch c&ing th ir sol) ncy status. Hoans ( r gi) n to ' o'l (ith no incom , no

Thoughts on Economics

6ob, or no collat ral 5c 't th hous on (hich th mortgag (as gi) n. Th y loos n " ) n th 'rimary con"itions o! loan gi)ing, allo(ing lo( int r st rat s an" asi r sch "ul s o! r 'aym nt in th initial y ars o! th loan, (hich ma" mortgag s in 5' nsi) an" ncourag " ' o'l to borro( an" buy hous s. Th " man" !or hous s thus incr as ", an" (ith that th 'ric o! hous s also ros . B t( n 1,,4 an" 3001, hous 'ric s in th #nit " $tat s ros by 13J ' rc nt. As hous 'ric s ros , many ' o'l start " to buy a""itional hous s as 'ro!itabl in) stm nt. Buying a""itional hous s also b cam asi r b caus as th hous 'ric s ros , th hom o(n r coul" g t a""itional loans against th sam hous . As mor an" mor loans ( r asily a)ailabl !rom ban&s an" !inancial institutions, n ( hous s b gan to b built in r s'ons to incr as " " man", th r by cr ating a bubbl in th housing mar& t. A signi!icant !inancial inno)ation o! th tim (as th cr ation by comm rcial ban&s o! attracti) !inancial " ri)ati) s against th mortgag loans, (hich ar &no(n as mortgag Kbas " s curiti s ;/B$< or collat raliD " " bt obligations ;?+Is<. Luit int r stingly, th !inancial inno)ation "i" not occur in a )acuum but in r s'ons to inc nti) s cr at " by go) rnm nts. /any o! th n (K!angl " instrum nts b cam 'o'ular among ban&s b caus th y got aroun" !inancial r gulations, such as rul s on ban&sG ca'ital a" %uacy. Ban&s cr at " o!!Kbalanc Ksh t ) hicl s b caus that allo( " th m to carry l ss ca'ital. Th mar& t !or cr "itK" !ault s(a's nabl " th m to con) rt ris&y ass ts, (hich (oul" " man" a lot o! ca'ital, into su''os "ly sa! on s, (hich "i" not. Th s arti!icial 'a' r s curiti s ( r tra" " in th s con"ary mar& t. Harg in) stm nt ban&s ( r ma6or in) stors in th s s curiti s. As hom 'ric s ( r incr asing, th s ban&s "i" n ) r 'ro' rly ass ss th ris&s associat " (ith th s s curiti s. Th y ( r ho'ing that hous 'ric s (oul" n ) r !all. .n th ) nt o! any loan " !ault, th y (oul" sim'ly ta& 'oss ssion o! th hous ;!or closur < an" r cou' th loan by s lling th hous . .n) stm nts in housing incr as " so gr atly that by 3001 th su''ly o! hous s !ar 5c " " " man". As a r sult, hous 'ric s 'lung ". At th sam tim , as th conomy (as r gist ring r co) ry, th & y int r st rat (as also rais ". 0rom 1 ' rc nt in 300J, int r st rat s ( r rais " to as high as 5.35 ' rc nt in 3001.Ah n th a"6ustabl int r st rat s on mortgag loans ( r r s t high r in 3004, it (as !oun" that many hom buy rs "i" not ha) th ca'acity to r 'ay th loans. Hoan " !aults incr as " gr atly in numb r an" )olum , an" th l n"ing institutions su!! r " h a)y loss s as a r sult. 0or closur acti)ity incr as " "ramatically. Th situation so cr at " b cam (hat is &no(n as Esub

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'rim crisisF or th crisis o! th lo(K%uality mortgag loans, (hich trigg r " th global !inancial crisis through 3004 an" 3008. Co( ) r, as hous 'ric s b gan !alling aroun" th n" o! 3001 an" loan " !aults incr as ", th )alu o! ?+I s curiti s start " !alling !ast. Th bubbl burst in August 3004. Ass ts o! com'ani s li& 0anni /a , 0r ""i /ac, =.8. /organ, A.* tc ( r ba"ly " 'l t ". .n) stm nt ban&s that ( r 'rimary in) stors in th s s curiti s ( r th ma6or los rs. In a!t r anoth r, th s ban&s b gan to b insol) nt. Buy rs o! ?+I s curiti s ( r not con!in " in th #$ alon . /any Euro' an ban&s an" in) stors also bought th s s curiti s an" su!! r " hug loss s !rom th mar& t colla's . B caus o! th 'light o! th !inancial institutions, th ir ban&ru'tci s, an" th r c ssionary tr n" in th conomy, th g n ral ' o'l rush " to (ith"ra( th ir ban& " 'osits an" in) st in gol", oil an" oth r commo"iti s, as ( ll as in th n arly ris&K!r #$ go) rnm nt tr asury bills. A s ) r li%ui"ity crisis thus m rg ". .n) stm nt ban&s that "i" not ha) acc ss to 'rimary " 'osits ( r a!! ct " th most by th cr "it crunch. *ra"ually, th crisis s'r a" to mutual !un"s, h "g !un"s, an" ) n to comm rcial ban&s. As soon as th 'oor stat o! th ban&s an" !inancial institutions b cam )i" nt, shar hol" rs o! th s com'ani s b cam scar " an" start " s lling th ir shar s. Th 'anic sal s l " to (i" s'r a" !alls in shar 'ric s. In 3, $ 't mb r 3008, th +o( =on s .n"ustrial A) rag 'lumm t " 448 'oints. Aall $tr t loss s on that singl "ay ( r o) r M1.3 trillion. Th !inancial crisis has ha" s rious a") rs !! cts on th #$ conomy. 8lunging hous 'ric s r "uc " th )alu o! hom o(n rsG ass ts. Th y ( r !orc " to cut "o(n th ir consum'tion s' n"ing, (hich in r c nt tim s (as th "ri)ing !orc b hin" #$ conomic gro(th. Th " clin in consum r " man" l " to lo( r 'ro"uction, cuts in m'loym nt, an" cr at " a slum' in th #$ conomy. Th un m'loym nt rat climb " to a 1JKy ar high in Ictob r 3008, (ith 10.1 million ' o'l out o! (or&. Th 'ot ntially cri''ling 'robl m no( is th shortKt rm cr "it mar& ts, (h r ban&s ar hoar"ing (hat ) r cash th y ha) in an !!ort to g t out o! th crisis. Hoans to busin ss s an" ) n b t( n ban&s ha) "ri " u'. Th " clin in cr "it !lo(s has a!! ct " ) ry busin ss that n "s cr "it. Th r al s ctor has su!! r " th most !rom th cr "it crunch. Th ma6or conc rn in th #$ is no( to 'r ) nt th migration o! th crisis !rom th Aall $tr t to th /ain $tr t ;r al s ctor< (h r th 'ain has b gun to b ! lt. Th go) rnm nt an" th 0 " ar !ocusing on & 'ing mon y !lo(ing in th cr "it syst m, an" th r by limiting layo!!s, shut"o(ns an" ban&ru'tci s.

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How the Crisis id !pread" Th m lt"o(n in th !inancial syst m can b attribut " to th la5 mon tary 'olicy in th #nit " $tat s. #$ r gulators "i" not monitor th (ay th ban&s ( r 'ro)i"ing loans "uring th housingKboom ' rio". Th #$ authoriti s r la5 " rul s o! 'ro)i"ing Esub 'rim housing loansF ;no( &no(n as Eto5icF loans<, that amount " to about M3.1 trillion. Th com'licat " " bt 'ro"ucts built on th s loans ( r sol" to ban&s (orl"(i" , an" (h n borro( rs !ail " to r 'ay th loans, th ban&s or !inancial institutions coul" not r cou' th loan mon y b caus th 'ric o! th 'ro' rty (as too lo( or b caus th r (as no buy r. Th cr "it loss s on th mortgag s that !inanc " th s hous s an" on th 'yrami"s o! th com'l 5 an" arti!icial 'a' r s curiti s ar still mounting. Accor"ing to an ./0 ass ssm nt, th (orl"(i" loss s on Eto5ic ass tsF originating in th #$ (oul" r ach M1.J trillion, an" so !ar M410 billion has b n (ritt n o!! by th m. Th cul'rit is thus th Am rican mo" l o! " r gulation o! th !inancial s ctor, (hich (as blin" to, or ) n !acilitat ", th unbri"l " gro(th o! gr " an" " c 'tion o! 5 cuti) s o! larg !inancial institutions an" Aall $tr t mani'ulators. *r " o! th to' manag m nt o! !inancial institutions to 'oc& t !at bonus s moti)at " th m to l n" r c&l ssly to sub 'rim ;uns cur " highK ris&< borro( rs, 'articularly in housing, (ithout ass ssing th borro( rsG r 'aym nt ca'acity. Th in) stm nt ban&s "i" not car to ass ss th ris&s in)ol) " in th n (lyK" ) lo' " mortgag Kbac& " s curiti s an" ?+I " ri)ati) s. Nor (as th r any monitoring o! acti)iti s o! in) stm nt ban&s r gar"ing th ir ?+I transactions b caus , unli& comm rcial ban&s, th in) stm nt ban&s ( r not un" r th 6uris"iction o! #$ an" Euro' an c ntral ban&s. Th s ban&s conc al " th ris&s o! th arti!icial s curiti s conn ct " (ith th loans th y ma" r c&l ssly, an" (h n th mar& t !ail ", th ris&s ros to a 'oint (h r ban&s b cam insol) nt. .t must, ho( ) r, b conc " " that th ban& rsG rror "i" not li in )iolating th rul s that go) rn global ban&ing. Th truth is that th s rul s th ms l) s ar !la( " an" 'romot (hat has b n bran" " as E?asino ?a'italismF. Th rul s ar s t by th Basl ?ommitt o! Ban& $u' r)isors, r 'r s nting only 11 IE?+ countri s. Th EBasl ?ons nsusF "is!a)ours go) rnm nt r gulation o! ban&s an" a")ocat s Emar& t 'ric Kbas " s l!Kr gulationF. Th l sson " ri) " !rom th 'r s nt global !inancial crisis is that th r shoul" b

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structural chang s in th global !inancial syst m, inclu"ing strict 'ublic r gulation, ca'ital controls, an" coor"inat " mon tary 'olicy among countri s. Th cr "it crisis has cross " th Atlantic to Britain an" Euro' . Th migration o! th crisis is th r sult o! a hug incr as in !inancial globaliDation in r c nt y ars 9 basically sinc 1,,5. Th r st o! th (orl"Gs ass ts in th #$ ha) ris n !rom aroun" 10 ' rc nt in 1,80 to o) r 50 ' rc nt no(. .n th sam ' rio", th #$ ass ts abroa" as a ' rc ntag o! nonK#$ *+8 ha) ris n !rom 4 ' rc nt to J5 ' rc nt. Th global !inancial syst m no( is thus a lot mor tightly lin& ", incr asing th chanc s o! contagion among big conomi s. .n !act, many Euro' an ban&s an" in) stm nt an" ' nsion !un"s bought many o! th sam Eto5icF !inancial 'ro"ucts that san& th #$ !inancial institutions. #easures taken so far to o$ercome the Crisis I) r th 'ast ! ( months, many ban&s in #$ an" Euro' colla's ". /any mor ar in "istr ss. 8 o'l sG sa)ings ha) b n (i' " out. $toc& mar& ts ha) crash ". A)ailability o! cr "it, inclu"ing b t( n ban&s, has !roD n in all ma6or conomi s, 'utting a bra& on th (h ls o! conomic acti)ity. .n such a situation, go) rnm nts an" c ntral ban&s o! th crisisKri"" n countri s ha) mbar& " u'on r scu 'lans 'um'ing billions o! "ollars an" Euros into th mar& t. Th #$, British an" th Euro' an c ntral ban&s ha) so !ar 'um' " about M- trillion, an" mor in!usion is 'lann " !or th !utur . Th r scu 'ac&ag s inclu" : buying u' ba" mortgag s !rom ban&sN r ca'italiDation o! ban&s ; %uity in6 ction< to tha( th !roD n cr "it mar& tsN coor"inat " int r st rat cuts by c ntral ban&sN guarant ing all ban& " 'osits to shor u' con!i" nc in ban&sN an" gr at r acc ss by comm rcial ban&s to c ntral ban&sG !un"s as l n" r o! last r sort.

.n arly Ictob r 3008, littl mor than a y ar a!t r th !inancial storm struc& in August 3004, th #$ go) rnm nt ma" its most "ramatic int r) ntions in !inancial mar& ts sinc th 1,-0s. .t nationaliD " th countryGs t(o mortgag giants, 0anni /a an" 0r ""i /acN too& o) r A.*, th (orl"Gs larg st insuranc com'anyN in !! ct 5t n" " go) rnm nt " 'osit insuranc to M-.J trillion in mon yKmar& t !un"sN an" most "ramatic o! all, 'l "g " to ta& u' to

Thoughts on Economics

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M400 billion o! to5ic mortgag Kr lat " ass ts !rom ban&s, (hich (oul" ras " bts !rom th ir boo&s in ho' s that th y (oul" b abl to start l n"ing mor !r ly again. .n littl mor than thr ( &s, th #$ go) rnm nt 5'an" " its gross liabiliti s by mor that M1 trillion 9 almost t(ic as much as th cost so !ar o! th .ra% (ar. 0ollo(ing th !ootst 's o! th #$, Britain announc " a thr K'art multibillion "ollar bailout !or its b l agu r " ban&s. As 'art o! th bailout 'ac&ag , ight main ban&s 9 (hich inclu" ban&ing giants li& C$B?, Royal Ban& o! $cotlan", Hloy"s, an" $tan"ar" ?hart r " 9 (ill b 'art nationaliD ". Th British *o) rnm ntGs 'lan inclu" s O350 billion !or int rKban& loans to b tr at " as conting nt liabiliti s, an" a O50 billion !un" to buy 'r ! rr " shar s o! ban&s to boost th ir ca'ital. .n a""ition, th go) rnm nt rais " th l ) l th Ban& o! Englan" ma& s a)ailabl !or ban&s to borro( to at l ast O300 billion. *o) rnm nts o! .taly, $'ain, * rmany, N th rlan"s an" Russia ha) announc " similar r scu 'ac&ag s !or ban&s in th ir r s' cti) countri s. Th E?B 'um' " M100 billion into th ban&ing syst m. =a'anGs c ntral ban& 'um' " MJ0 billion into th To&yo /on y /ar& t, an" th =a'an *o) rnm nt a''ro) " an M18 billion m rg ncy bu"g t to stimulat th conomy. Among m rging conomi s, ?hina in th !irst ( & o! No) mb r 3008 announc " a massi) stimulus 'ac&ag (orth M581 billion. $i5 ma6or c ntral ban&s o! th (orl" 9 #$, #P, E?B, $( " n, $(itD rlan" an" ?ana"a 9 ha) r "uc " th ir l n"ing rat s. .nt r st rat s ha) also b n slash " in $outh Por a, Cong Pong, Australia, ?hina an" .n"ia. =a'an has not cut its int r st rat s b caus its b nchmar& rat (as alr a"y as lo( as 0.5 ' rc nt. Euro' an countri s an" th #$ ha) also mo) " to guarant ith r all ban& " 'osits or all ban& liabiliti s to shor u' custom r con!i" nc . $inga'or , Cong Pong, Australia an" N ( Q alan" in r c nt "ays ha) mo) " to guarant all ban& " 'osits. =a'an is consi" ring to guarant " 'osits o! u' to M100,000. Ahil massi) go) rnm nt int r) ntion costing trillions o! "ollars to su''ort an" bail out ban&s or boost th un" rlying conomi s is going on, th *K30 $ummit o! th (orl"Gs l a"ing conomic 'o( rs, host " by #$ 8r si" nt Bush on 1JK15 No) mb r 3008, consi" r " a"o'ting coo' rati) action 'lans by th rich an" th m rging nations to 'r ) nt th (orl" !rom tumbling into a " ' an" long lasting r c ssion. Impact of %escue #easures

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Th aggr ssi) actions that ar b ing ta& n by th #$ 0 " an" c ntral ban&s in Euro' an" Asia ar int n" " to stabiliD con!i" nc in th global !inancial syst m, but th ! ars ar not y t o) r. *lobally, ban&s alon ha) r 'ort " 6ust un" r M100 billion o! cr "itKr lat " loss s. .t is alr a"y cl ar that many mor (rit K"o(ns li ah a". Th " mis o! th in) stm nt ban&s as ( ll " l ) raging among h "g !un"s an" oth rs in th sha"o( ban&ing syst m 9 th mon y mar& ts, s curiti s " al rs an" th nonKban&ing !inancial institutions 9 (ill a"" to a global cr "it contraction o! many trillions o! "ollars. Th ./0Gs Ebas cas F is that Am rican an" Euro' an ban&s (ill sh " som M10 trillion o! ass ts, %ui)al nt to 1J.52 o! th ir stoc& o! ban& cr "it in 300,. .n Am rica o) rall cr "it gro(th (ill slo( to b lo( 12, "o(n !rom a 'ostK(ar annual a) rag o! ,2. That alon coul" "rag A st rn conomi sG gro(th rat s "o(n by 1.5 ' rc ntag 'oints. Th ./0 (arns o! an im' n"ing r c ssion, saying that (orl" conomic gro(th (ill slo( "o(n !rom 5.1 ' rc nt in 3004 to -., ' rc nt this y ar an" to -.0 ' rc nt in 300,. Th multiKbillion "ollar r scu 'ac&ag s an" int r st rat cuts ha) !ail " to li!t con!i" nc in th !inancial syst m. ?omm rcial ban&s that ha) r c i) " !un"s !rom th 0 " ! l h sitant to l n" th m. Th y ha) r !us " to l n" to ach oth r. ?r "it !lo(s ha) not incr as ". N r)ous in) stors, (ho ha) s n hous 'ric s an" %uity mar& ts tumbl an" int r st rat s !all, ar shi!ting th ir sa)ings to th ultimat sa! in) stm nt 9 gol". $om oth rs ar buying th n arly ris&K!r go) rnm nt tr asury bills. .n) stors ar thus conc rn " about th 5ac rbation o! th cr "it crunch an" th gloomy !or casts !or conomic gro(th. N ) rth l ss, all ho' s ar not lost y t. Ahat is ) ry im'ortant is that th rich conomi s ha) " ci" " to act in unison to sta) o!! th global conomic crisis. .n 'articular, th #nit " $tat s, th bigg st conomic 'o( r on arth, is 'r 'ar " to act, an" act " cisi) ly, (hich 'ro)i" s r asons !or o'timism. $o, too, "o s th r lati) str ngth o! th m rging mar& ts, 'articularly ?hina. .t is, o! cours , tru that th m rging conomi s ha) not r main " !ully immun !rom th crisis. Th ir stoc& mar& ts, too, ha) 'lung " an" many curr nci s ha) !all n shar'ly. But th com!orting thing is that "om stic " man" in much o! th m rging (orl", although slo(ing, has not colla's ". Th ./0 5' cts m rging conomi s, l " by ?hina, to gro( by 1.,2 in 3008 an" 1.12 in 300,. That (ill cushion th (orl" conomy although not su!!ici ntly to sa) it !rom r c ssion. Anoth r shortKt rm !illi' com s !rom th r c nt 'lung in commo"ity 'ric s, 'articularly oil, (hich (ill !r th ( a& an" !inancially str ss " rich conomi s !rom th (orri s o! in!lation that stimulus 'ac&ag s li& int r st rat cuts might g n rat .

Thoughts on Economics

15

Conse&uences for e$eloping Countries Th global m lt"o(n an" th un'r c " nt " go) rnm nt int r) ntions in #$ an" Euro' in bailing out ban&s coul" ha) som un( lcom cons %u nc s !or th " ) lo'ing countri s. R scu 'ac&ag s in rich countri s (oul" l a" to massi) incr as s in th ir bu"g t " !icits an" ta5 s. Th #$ an" #P bu"g t " !icit (ill li& ly "oubl to 10 ' rc nt o! th ir *+8. Th r is an a''r h nsion that th gro(ing bu"g t " !icits in rich countri s (ill l a" to a slo("o(n o! o!!icial ai" to 'oor countri s. Th 13- billion "ollars 'um' " by th #$ *o) rnm nt to Am rican li! insuranc giant A.* alon (as 18 billion "ollars mor than th countryGs total annual ai" 'ac&ag !or 'oor countri s. Th sum is also t(ic th amount n " " to achi ) th int rnationally agr " goal to r "uc global 'o) rty by 3015. As go) rnm nts 'our billions o! "ollars an" Euros into th ir ban&s, it (ill b no sur'ris i! th ir s' n"ing on ai" !or 'oor countri s (ill !all "rastically. .t is also ) ry li& ly that out(ar" in) stm nt o! rich countri s (ill !all, too, an" th curb on labour immigration (ill b com strict r, a!! cting r mittanc !lo(s to 'oor countri s. Lessons for Financial Institutions and Go$ernments Th gr at l sson o! this !inancial crisis is that !inancial institutions (orl"(i" shoul" b car !ul to manag ris&s inh r nt in th ir l n"ing o' rations, in 'articular in th han"ling o! th n (ly " ) lo' " arti!icial !inancial " ri)ati) s. Th y shoul" ta& utmost caution in ma&ing loans, car !ully ass ssing th borro( rsG (orth an" r 'aym nt ca'acity. Th ban& 5 cuti) s shoul" b gui" " by a s ns o! thics an" morality in "ischarging th ir r s'onsibility as l n" rs an" shun th cultur o! gr " an" " c 'tion 'ractis " by thos in Aall $tr t cor'orations. 0or go) rnm nts th r ar t(o l ssons to l arn !rom th 'r s nt crisis. 0irst, th y shoul" r cogniD !inancial int rm "iation an" insuranc as ss ntial utiliti s in th mo" rn conomy. This r cognition calls !or a thorough r structuring o! th r gulations ' rtaining to th !inancial s ctor. R c nt ) nts ha) sho(n that in unr gulat " !inancial mar& ts, (ith sol r lianc on th !r Kmar& t i" ology, cris s ar in )itabl . 0or this r ason, th !inancial mar& t in g n ral an" in) stm nt ban&ing in 'articular n " strict r r gulation, mor att nti) su' r)ision, an" n ( o' rating rul s, in or" r to curb th unlimit " ris&Kta&ing by !inancial institutions. .t is s ns l ss to 'ut all !aith on th mar& ts, an", th n, (h n th crisis m rg s, to as& !or go) rnm nt

11

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int r) ntion (ith ta5'ay r mon y to a)oi" a total colla's o! th /ar& t. *r at r r gulation has its o(n 'robl m but it is in sca'abl , ) n i! it is im' r! ct. .t "o s not rais th issu o! moral haDar", a!t r all. Th s con" l sson is that go) rnm nts must try to insulat th r al conomy !rom th cons %u nc s o! !inancial instability. This can b achi ) " by com'r h nsi) insuranc o! all " 'osits in th ban&ing syst m. Is the Crisis more !erious than the Great epression of the'()*s" Th gra)ity o! th 'r s nt !inancial crisis is ac&no(l "g " in all %uart rs, but r scu m asur s ar un" r(ay in all ma6or conomi s to combat th crisis. Co( ) r, it (ill ta& tim !or th im'act o! th s m asur s to b !ully )isibl . .n any cas , anoth r *r at + 'r ssion li& th on o! th 1,-0s is unli& ly. A com'arison b t( n th 'r s nt crisis an" (hat ha'' n " in th 1,-0s r ) als th !ollo(ing: .n th 1,3, stoc& mar& t crash, +o( =on s .n"ustrial A) rag 'lung " J02 in 6ust t(o months, com'ar " to 332 o) r a y ar no(. #n m'loym nt rat in #$A ros to 352 by 1,--, as against only 1.12 to"ay. #$ *+8 shran& by about a thir" "uring th in 3004. arly 1,-0s but it ros -2

?8. ! ll by -02 b t( n 1,3, an"1,--, but it is rising no(. Cous 'ric s ! ll mor than -02 "uring th *r at + 'r ssion but only 112 to"ay. By 1,-J, som J02 o! all mortgag s ( r " lin%u nt as against only J2 to"ay. /or than ,000 ban&s !ail " in th 1,-0s, com'ar " (ith ! ( r than 30 o) r th 'ast cou'l o! y ars.

Th *r at + 'r ssion (as not caus " by th stoc& mar& t crash alon but by mon tary 'olicy blun" rs. .nst a" o! incr asing th cr "it !lo(, th 0 " ral R s r) in that ra r "uc " it by n arly --2. In th oth r han", th r ar no( automatic macro conomic stabiliD rs li& un m'loym nt insuranc , social s curity blan& t, ! " ral " 'osit insuranc , an" circuit br a& rs to & ' stoc&s !rom !alling too !ast, (hich stan" as sa! guar"s. /or o) r, th r is strong an"

Thoughts on Economics

14

conc rt " coo' ration among countri s to ti" o) r th crisis. A r c ssion has ' rha's s t in, but 'olicy ma& rs (orl"(i" ar stri)ing har" to ma& it l ss 'ain!ul an" short li) ". Impact on Bangladesh and the %e&uired +olicy %esponse Financial !ector: Th slo("o(n in th l a"ing conomi s is li& ly to a") rs ly a!! ct Bangla" shGs 5'orts, an" in!lo(s o! ai", 0+., an" (or& r r mittanc s to th country. Co( ) r, o) rall, th r is no r ason to 'anic. #nli& th rich r conomi s an" som o! th a")anc " " ) lo'ing countri s, th o) rall !inancial l ) rag in Bangla" sh is lo(. Th countryGs ban&ing syst m has no Eto5icF " ri)ati) in)ol) m nts. .t is, th r !or , highly unli& ly that 5t rnal shoc&s (ill incr as th ris& o! ass t %uality 'robl ms or 'r ci'itat a cr "it crunch in Bangla" sh. Co( ) r, to !or stall th occurr nc o! any !inancial crisis, th !inancial s ctor shoul" b 'ro' rly r gulat ". Ban&s an" !inancial institutions (ill n " to ta& n c ssary caution (hil 5t n"ing cr "it, by nsuring th %uality o! ass ts to a)oi" any !inancial ris&. Th y shoul" in) st mainly in th 'ro"ucti) s ctors inst a" o! l n"ing to nonK 'ro"ucti) s ctors, in 'articular consum r !inancing, (hich incr as " by o) r 1002 in th 'ast on y ar. Bangla" sh may also consi" r guarant ing ban& " 'osits as a " ! nsi) m asur . All ma6or countri s in Am rica, Euro' an" Asia ha) in r c nt "ays mo) " to guarant all th ir ban& " 'osits to shor u' in) stor con!i" nc . $uch guarant s may in"uc a shi!t o! " 'osits !rom Bangla" shGs ban&ing syst m to countri s ls (h r . Th r is, th r !or , a n " !or " ! nsi) action. .n a tim (h r th r is a lot o! unc rtainty, in) stor ris& a) rsion is ) ry high, an" th r is a lot o! n r)ousn ss, th r ar 'ossibiliti s to ha) contagion to ban&ing syst ms any(h r . Ban&s an" !inancial institutions in Bangla" sh (ill n " to strictly com'ly (ith th 5isting r gulations. Th y n " to b 5traKcautious in running th ir busin ss, ta&ing l ssons !rom th colla's globally. Th y shoul" also ta& a''ro'riat m asur s to o) rcom th )arious ailm nts o! th ban&ing s ctor such as ca'ital ina" %uacy, 'ro)ision short!all, " clining tr n" in loan r co) ry, an" th incr as in ba" loans. Th global !inancial crisis is not li& ly to ha) any a") rs !! ct on Bangla" sh Ban&Gs !or ign 5chang r s r) s, b caus th Ta&a is not !r ly con) rtibl !or ca'ital account transactions. /or o) r, Bangla" sh Ban& has ta& n s ) ral initiati) s to a)oi" any im'act o! th global !inancial turmoil on th !inancial s ctor. Th curr ncy com'osition o! its !or ign 5chang r s r) s has b n alt r " signi!icantly to 'rot ct th r al )alu o! th r s r) s. At 'r s nt only 50 ' rc nt o! th Bangla" sh Ban&sG r s r) s ar h l" in #$

18

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+ollar, an" th r st in oth r curr nci s. 0urth rmor , to a)oi" ris&s o! any 'ossibl loss s, both Bangla" sh Ban& an" comm rcial ban&s hol"ing r s r) s abroa" ha) (ith"ra(n !un"s !rom 'robl m ban&s that ( r m rg " or ta& n o) r or ar li& ly to b m rg " or ta& n o) r soon an" 'lac " th m in c ntral ban&s o! r s' cti) countri s. Th countryGs ca'ital mar& t "o s not at th mom nt ha) much r ason to 'anic ith r. 0or ign 'ort!olio in) stm nt in th country is %uit small. 0or ign in) storsG shar in th countryGs %uity mar& t is only 3.J8 ' rc nt. C nc , (ith"ra(al o! !un"s by !or ign in) stors (oul" not ha) any signi!icant im'act. In th contrary, as stoc& mar& t sourc s in"icat , !or ign 'ort!olio in) stors ar no( sho(ing int r st to in) st in th countryGs s con"ary mar& ts b caus th y !in" Bangla" sh an attracti) " stination o! in) stm nt as it has r main " una!! ct " by th 'r s nt global !inancial crisis. ,-port: Th 5'ort s ctor is 'ot ntially th most )uln rabl s ctor in Bangla" sh b caus th 5'ort o! r a"yma" garm nts, (hich accounts !or thr K!ourths o! th countryGs 5'ort arnings, " ' n"s ntir ly on #$ an" E# mar& ts. Th countryGs o) rall 5'orts ros by J3.852 "uring =uly an" August o! th curr nt !iscal, but a " ' an" 'rolong " r c ssion in #$ an" Euro' coul" r "uc consum r " man" in th s mar& ts, an" Bangla" shGs 5'orts to th s mar& ts, "ominat " by garm nts, might su!! r. 0rom 07300-K0J to 073004K08, Bangla" shGs R/* 5'orts gr ( at annual rat s b t( n 1J2 an" 312. Th ./0Gs 'r "iction is that b caus o! th global !inancial turmoil th s 5'orts may "ro' to ,2 this y ar, th lo( st ) r 5' ri nc " in th country. Co( ) r, Bangla" shGs garm nts 5'orts ar at th lo( n" o! th %uality chain, (hich ar unli& ly to b much in!lu nc " by !alling consum r incom s in rich countri s. /or o) r, in a r c ssionary situation, a goo" numb r o! rich country buy rs o! highK n" 'ro"ucts may s(itch to th lo(K n" R/* s gm nt (h r Bangla" sh has ac%uir " r 'utation as on o! th b st com' titors. .n a""ition, labour cost in som o! th ma6or com' ting countri s such as ?hina, .n"ia, Vi tnam an" ?ambo"ia has r c ntly gon u', (hich may shi!t buy rs !rom th s sourc s o! su''ly to Bangla" sh. N ) rth l ss, th go) rnm nt an" th garm nts in"ustry (ill n " to stay al rt to th 'ossibility o! garm nts 5'orts b ing hit by th global slum'. Right strat gi s (ill n " to b a"o't " to ta' (hat ) r o''ortuniti s th r curr ntly ar to rais 5'orts. R/* 5'ort rs may buil" a goo" ra''ort (ith !or ign buy rs to grab a high r int rnational mar& t shar . Th y shoul" !ocus

Thoughts on Economics

1,

on !ashions an" n ( " signs an" r gularly 'artici'at in & y int rnational !ashion sho(s in 8aris, Hon"on, /ilan an" N ( 7or&. Th r is a conc rn o) r th 'ossibility o! losing 5'ort com' titi) n ss to countri s (hos curr nci s ha) " 'r ciat " against th #$ "ollar in th (a& o! th !inancial crisis, (h r as Bangla" shGs 5chang rat has r main " stabl !or %uit som tim no(. Co( ) r, th r is y t no strong rational !or " lib rat " 'r ciation o! th Ta&a in lin (ith th curr nci s o! th s oth r countri s. + 'r ciation has many costs. .t (oul" rais im'ort costs, rais th 5t rnal " bt s r)ic bur" n, an" a"" to in!lationary 'r ssur . Th curr nt !inancial crisis has brought about a " clin in th (orl" 'ric s o! !u l an" !oo", (hich (ill contribut to lo( ring th countryGs in!lation rat . + 'r ciation o! th Ta&a (ill "ilut this a")antag . Th r !or , inst a" o! raising th 5chang rat , as o!t n insist " by R/* 5'ort rs, a gr at r !ocus shoul" b gi) n to tra" !acilitation m asur s, im'ro) m nts in 'ro"uct %uality, (or& r training to incr as labour 'ro"ucti)ity, an" so on. Th r shoul" also b m chanisms !or tim ly " li) ry, ch a' sourcing o! ra( mat rials, an" no hi& in utility 'ric s. Th s ar mor im'ortant !actors than any chang in 5chang rat in in!lu ncing 5'orts. .n or" r to rais 5'ort arnings, !!orts shoul" b int nsi!i " to "i) rsi!y 5'orts, both in t rms o! 'ro"uct an" " stination. N ( mar& ts shoul" b 5'lor " in th $outh ast Asian, th East Asian, an" in th n (Krich /i""l East rn countri s. As !or n ( 'ro"ucts, shi'buil"ing an" !oot( ar o!! r imm ns 'romis . Th r c nt r mo)al o! #$ *$8 !or Vi tnamGs !oot( ar 5'orts may s'ur !oot( ar 'ro"uction in Bangla" sh. Co( ) r, 'ro"uct " ) lo'm nt shoul" b att m't " in many oth r ar as that ha) actual or 'ot ntial " man" abroa". O . Inflows: I!!icial ai" !lo(s ar li& ly to com "o(n as a r sult o! th slo("o(n in gro(th in th "onor conomi s that ar "oling out larg amounts o! mon y to bail out th ir o(n !inancial institutions. ?uts in ai" (oul" mount a 'r ssur on Bangla" sh go) rnm ntGs bu"g t, a!! cting th ongoing 'o) rty all )iation !!orts, an" social sa! ty n t, h alth an" "ucation s ctor 'rogramm s. /obiliDation o! mor "om stic r sourc s through nhancing coll ction o! ta5 an" nonKta5 r ) nu s (ill b n " " to m t any short!all in ai" r c i'ts. Bangla" sh may also n gotiat go) rnm nt to go) rnm nt loans (ith " ) lo'ing countri s that n6oy larg curr nt account sur'lus s an" ha) accumulat " hug !or ign 5chang r s r) s ; .g., ?hina M1.8 trillion, Abu

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+habi M ,00 billion<. Th s countri s can "ir ct 'art o! th ir sur'lus s to stimulat conomic gro(th o! ca'italKstar) " countri s li& Bangla" sh, (hich o!! r !ar mor com' lling gro(th 'ros' cts than th #$ or Euro' an conomi s. F I and %emittances: Th 'r s nt global !inancial crisis in!lo(s !rom #$ an" Euro' . Alr a"y, th 0+. in!lo(s to th start " " clining. Th country shoul" th r !or r ly mor in) stm nt as a catalyst !or gro(th. 0+. shoul" b tr at su''l m nt to th countryGs r sourc s !or " ) lo'm nt, not th th conomy. I) rKr lianc on 0+. must b "on a(ay (ith, in) stm nt shoul" b ncourag " 6ust as much, may b mor . may hit 0+. country ha) on "om stic " only as a bac&bon o! an" "om stic

Th m'irical )i" nc on th 'oor countri sG gains !rom int gration (ith global ca'ital mar& ts is not ) ry r assuring ith r. An in!lu ntial Broo&ings stu"y in 3004 by Es(ar 8rasa", Raghu Ra6an an" Ar)in" $ubramanian sho( " that 'oor countri s that r li " on "om stic sa)ings to !inanc th ir in) stm nt gr ( !ast r than thos that r li " on !or ign mon y. Aor& r r mittanc s may also b a!! ct " by th crisis. N arly a thir" o! in(ar" r mittanc s curr ntly com !rom #$ an" Euro' , (hil about 10 ' rc nt com s !rom th /i""l East, an" th r st com s !rom countri s in East an" $outh ast Asia. A " ' an" 'rolong " r c ssion in th A st may hurt th /i""l KEast rn an" oth r countri s as ( ll (h r migrant (or& rs may los 6obs an" th r !or r mittanc s !rom th s countri s may " clin . *o) rnm nt (ill th r !or n " to & ' a constant )igil on man'o( r 5'orts an" r mittanc arnings, !acilitat migration o! (or& rs, an", through o!!icial contact, nsur continuity o! 6obs o! migrant (or& rs abroa". ,ffect on Inflation: Th obs r) " " clin in th 'ric s o! !u l, st l an" "ibl oils in th global mar& t in th (a& o! th !inancial crisis (ill h l' in!lation control !!orts in th country. *o) rnm nt shoul", ho( ) r, "ir ct its 'olici s to(ar"s raising 'ro"uction in th r al s ctors that (ill a""r ss th su''ly si" constraint, (hich is th ma6or caus o! in!lation. ,ffect on G + Growth: Bangla" shGs conomy is not as E" cou'l "F !rom th rich (orl"Gs tra)ails as is g n rally b li ) ". Th r ason is that Bangla" shGs 5'orts " ' n" almost totally on incom gro(th in #$ an" Euro' . A long an" 'rotract " r c ssion in th s countri s may, th r !or , l a" to a "ro' in Bangla" shGs 5'orts an" th r by a slo("o(n in o) rall conomic gro(th. Accor"ing to go) rnm nt 'ro6 ction, th conomy is 5' ct " to gro( by 1.5 ' rc nt in th curr nt !iscal. As 5'orts, in"ustrial acti)ity an" in(ar" r mittanc s ha) continu " to incr as ) n "uring th ' rio" o! th 'r s nt

Thoughts on Economics

31

global conomic crisis, an" th 'ros' cts o! th coming Aman cro' also a'' ar bright, th 'ro6 ct " gro(th rat shoul" b asily achi ) ". Co( ) r, a 'rolong " r c ssion in th rich (orl" may still ha) a n gati) im'act on "om stic out'ut gro(th. ?onsi" ring th 'robabl !! cts o! th global !inancial turmoil on 5'orts an" r mittanc s, th ./0 has r c ntly sai" that Bangla" shGs *+8 gro(th may !all to 5.5 ' rc nt this y ar. Th Aorl" Ban& has (arn " o! a much lo( r gro(th rat 9 as lo( as J.8 ' rc nt, as it ! ars that th gro(th o! 5'orts an" r mittanc s (ill " c l rat signi!icantly. Ahil ( (ish th s 'ro6 ctions to go (rong, 'olicy ma& rs shoul" ta& not o! th s (arnings an" b 'r 'ar " to a"o't a stimulus 'ac&ag combining mon tary, !iscal an" s ctoral 'olici s to shor u' in) stor con!i" nc , (hich is n c ssary to boost 'ro"uction, m'loym nt an" conomic gro(th. ,ffect on Industry and ,mployment *lobal r c ssion may a!! ct Bangla" shGs 'ro"ucti) s ctors, in 'articular manu!acturing. 8ri)at s ctor m'loy rs may b !orc " to cut 6obs. To 'r ) nt that 'ossibility, th go) rnm nt may a"o't busin ssK!ri n"ly !iscal, mon tary, an" s ctoral 'olici s that (ill attract in) stm nt, boost 'ro"uction an" rais m'loym nt. I! !or most im'ortanc is th n " !or cutting int r st rat s. Th ./0Gs a")ic to Bangla" sh Ban& to tight n mon y su''ly an" rais int r st rat s on loans on th 'l a o! curbing in!lationary 'r ssur is un(arrant " an" illK6u"g ". .! !ollo( ", th ./0Gs a")ic (ill slo( "o(n in"ustrial gro(th, s%u D cr "it !or & y 'ro"ucti) s ctors such as garm nts, t 5til s, agricultur , an" $/Es. ?r "it (ill b costli r. R al s ctor 'ro"uction (ill " clin , an" inst a" o! curbing in!lationary 'r ssur , th int r st rat hi& (ill aggra)at it. .n!lation in th country is high "u to su''lyKsi" constraints, lac& o! go) rnm nt monitoring an" int r) ntion in th mar& t, high nonK 'ro"ucti) go) rnm nt 5' n"itur , an" global 'ric incr as . .nst a" o! containing in!lation, a tight mon y 'olicy as 'r scrib " by th ./0 (ill "iscourag longKt rm in) stm nt an" slo( "o(n conomic gro(th. .t is hy'ocritical on th 'art o! th ./0 to as& ( st rn countri s to cut int r st rat s, (h r th y ar alr a"y lo(, an" 'r ss " ) lo'ing countri s to rais int r st rat s (h r th y ar alr a"y ) ry high. .t is no( tim that Bangla" sh ta& th r s'onsibility o! !ormulating its o(n 'olici s conc rning 5chang rat chang s, in!lation control, int r st rat tc. inst a" o! abi"ing by th a")ic o! "onor ag nci s, (hich o!t n go s against th countryGs int r st.

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Bangla" sh (ill n " to " t rmin its o(n " ) lo'm nt strat gy (ithout any int r! r nc by oth rs. Th in"ustrial s ctor is on o! th t(o sourc s o! th countryGs !or ign 5chang arnings. Th oth r is r mittanc . .n th in"ustrial s ctor, th r ar t(o r lat " issu s. 0irst, to 'rot ct th in"ustrial s ctor, "i!! r nt ty' s o! in"ustrial assistanc 9 int r st rat cut ;alr a"y "iscuss "<, cash subsi"y tc. 9 (ill b n " ", (hich (ill bring "o(n 'ro"uction cost, ma& 5'orts com' titi) , an" thus 5'an" th siD o! th 5'ort mar& t. $ con"ly, th int r st o! (or& rs n "s to b sa! guar" " along (ith that o! th ntr 'r n urs. E!!orts (ill n " to b ma" to & ' th n gati) im'act o! th crisis on (or& rs as lo( as 'ossibl . Em'loy rs (ill n " to r !rain !rom r tr nching (or& rs. .! n c ssary, th y may r "uc (ag s to & ' (or& rs in th ir r gular 6ob. This ty' o! arrang m nt shoul", ho( ) r, b ma" through tri'artit "iscussion among (or& rs, m'loy rs an" th go) rnm nt. 0ollo(ing this tactic, it (as 'ossibl to minimiD 6ob r tr nchm nts in Por a an" Thailan" "uring th 1,,4K,8 Asian !inancial crisis. Concluding Obser$ations Bangla" sh conomy "o s not !ac any imm "iat thr at o! contagion o! th crisis. Th lo( l ) l o! its int gration (ith th int rnational conomy shi l"s th country !rom th global !inancial turmoil. Th country has b n n6oying r lati) ly goo" gro(th rat s, has a satis!actory l ) l o! !or ign 5chang r s r) s, an" lo( !iscal " !icit an" 5t rnal " bt. Co( ) r, in th 'r s nt "ays o! global int r" ' n" nc no country is com'l t ly insulat " !rom 5t rnal shoc&s. Th !inancial cris s ha) a (ay o! mo)ing ) ry !ast. Th r may b a su"" n shi!t in con!i" nc . Ah n con!i" nc is sha& n globally, countri s shoul" b al rt b caus un'r "ictabl things can su"" nly ha'' n ) n though conomic !un"am ntals ar soli". Iur 'olicy ma& rs shoul" th r !or r main )igilant an" car !ully (atch " ) lo'm nts in an" outsi" th country. Th y shoul" nsur that th !inancial an" th r al s ctors "o not 'anic. Th y n " to monitor ) ry chann l through (hich th global !inancial turmoil may cr ' into th conomy an" ta& a''ro'riat mitigating m asur s. To & ' th !inancial s ctor immun !rom 5t rnal shoc&s, c ntral ban& r gulations on ban&s an" !inancial institutions shoul" b strictly n!orc ". 8riority shoul" b gi) n to a""r ssing th 'r )ailing ban&ing s ctor " !ici nci s li& ca'ital short!all an" th incr as in th )olum o! classi!i "

Thoughts on Economics

3-

loans. Hi& (is , th )igilanc o! th $E? shoul" b incr as " to nsur smooth an" h althy o' ration o! th countryGs stoc& 5chang s. Th r is no alt rnati) to raising a""itional ta5 an" nonKta5 r ) nu s !or m ting 'ossibl short!alls in o!!icial ai". $imilarly, m'hasis shoul" b gi) n to g n rat mor "om stic in) stm nt alongsi" 'olicy !!orts to attract 0+.. To minimiD th !! ct o! th crisis on 5'orts, strong r !!orts (ill b n " " to "i) rsi!y 5'orts (ith r s' ct to both 'ro"ucts an" " stinations. A constant monitoring o! man'o( r 5'orts an" th in!lo( o! in(ar" r mittanc s (ill also b n c ssary. To 'r ) nt any a") rs !! ct on th manu!acturing s ctor, in) stm ntK!ri n"ly !iscal, mon tary an" s ctoral 'olici s (ill b n " ". To sa! guar" th int r st o! (or& rs against 6ob loss s, tri'artit consultations among m'loy rs, (or& rs an" go) rnm nt shall b n " " to minimiD 6ob r tr nchm nt in th 'ri)at s ctor.