16 June, 2021

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Taka-Rupee Swap: A Deal Between Pride & Shame

By Ameer Ali

Dr. Ameer Ali

CBSL will swap by the end of July this year, 49.5 billion of its depreciated rupee equivalent to US$250 million dollars, with Bangladesh Bank. Lending and borrowing are part of ordinary life, whether for an individual, institution or country, and there is nothing shameful about currency swaps, which in other words are a type of loan. Earlier, Sri Lanka had similar swaps for much larger amounts with India and China. The one with India was reported to have been settled, while the one with China is not yet, and whether it would be eventually converted into a medium or long-term loan, given the predatory benevolence of China, also remains a strong possibility. If so, it will come at a higher price. However, the currency swap deal with Bangladesh is of historic significance for two important reasons.

Firstly, the fact that Bangladesh has become a lending nation for the first time in its forty-year history as an independent nation, is a reflection of its proud record of economic transformation. Having been discriminated, exploited and ill-treated by the government of a disjointed Pakistan since 1947, Bangladesh, when it achieved independence after the savagery of the Pakistani army in 1971, emerged as a textbook case of Third World poverty and underdevelopment. The country was buried under a “poverty curtain”, a title used to describe such economies by the Pakistani economist, Mahbub Ul Haq. In contrast, Sri Lanka, when gifted with independence in 1948, popped out as one of the richer and economically promising nations, second in rank only to Japan in Asia. After forty years of prudent management of its economy, Bangladesh, with $45 billion in its coffers has now become a lender to Sri Lanka which, through profligacy, squander, corruption and mismanagement of natural resources has allowed its foreign reserves dwindle to mere $4.5 billion almost equivalent to the country’s debt repayment obligations for this year. Sri Lanka has been demoted already by the World Bank to a low middle income country and downgraded by several international lending institutions as less credit worthy. Given this contrasting performance between the two countries, the currency swap between taka and rupee represents a deal between pride and shame.                

Secondly, the taka-rupee currency swap, like the one with India, also reflects the willingness of members of the South Asian Association of Regional Co-operation (SAARC) to help each other in times of economic difficulties. At the same time, it is also, in a sense, a slap at India by Sri Lanka for not forthcoming to facilitate Prime Minister Mahinda Rajapaksa’s telephone request for another currency swap of $1.1 billion, to which PM Modi had initially agreed in principle. However, Sri Lanka’s current foreign policy strategy of playing one against the other between China and India and expecting to maximize benefits from both the regional giants has obviously earned the wrath of New Delhi. How India is going to react is not yet clear.

Be that as it may, it is a long-term suicidal path for Sri Lanka to go on begging for more loans to settle the ones already incurred. True, Covid-19 has compounded the country’s economic difficulties, but so too in other countries. According to President GR’s advisors, he is said to be leading the economy along an ‘alternate path’ without publicly spelling out the details of that path. So far none of his advisors, including the Governor of Central Bank, has shown the blueprint of this path or model. Sudden import bans in the name of self-sufficiency reflect more of the President’s thought bubbles than any systemic economic strategy. They have created difficulties for consumers as well as producers. The Chinese built Colombo Port City is now being advertised by ministers as a one stop financial hub and a turning point in the country’s economic development. In all probability this city will become another Hambantota and almost a no-go economic zone for most Sri Lankans.

In the meantime, there is total policy confusion regarding the management and control of the raging virus. The President’s rabid reluctance to receive advice from professional experts and his dependence on politicized henchmen/women for policy directions in this area are destined to increase the number of Covid victims and deaths in days to come. His readiness not to allow the economy to collapse because of the pandemic and willingness to take unpopular decisions, though has economic and political rationale, yet they should not come at the expense of liberal democratic and humanitarian values. In the absence of those values such pronouncements only reflect a ruler’s despotic aspirations and an unpreparedness to accept his or her un-infallibility. This is the current predilection of Gotabaya Rajapaksa which is manifested in the multiple problems facing the nation. No currency swap can overcome this.

*Dr. Ameer Ali, School of Business & Governance, Murdoch University, Western Australia

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Latest comments

  • 7
    2

    Sri Lanka is handling the issue of high loan repayments correctly by moving to BOOT & BOT model. Changing the LRT project to BOT project is a wise move. We need currency swaps to tide over the current loan repayments. Collapse of the agricultural economy by the ill considered ban on imports of fertilizer will create more chaos.

  • 10
    2

    Just see how well Socialist Bangladesh is doing. They do not have much involvement with China and utilize BRIC, a socialist bank state that strives to uphold the livehoods of its constituents. Their Masses worked hard at manual labour in surrounding rich countries like Singapore. Their government care fully consolidated their wealth and built up conscientiously from the scrap heap bottom, whilst also taxing their 0.001% appropriately. They didn’t go around waving fists and shouting Ape Rata. Their nationalism was intrinsic and cooperative. And now Bangladesh is loaning us their money. How like them we could have been.

    • 4
      10

      Socialist Bangladesh!
      BRIC, a socialist bank state!
      Any more news?

        • 4
          0

          SJ,
          Directly from your link:
          One of the main concerns which were raised about these investments was that of Bangladesh falling into the same debt trap like Sri Lanka. But unlike Sri Lanka, the majority of the external debt Bangladesh owes is to multilateral financial institutions, and loans granted by China accounts for only 6 percent of its total debt, according to a lead economist from the World Bank.

          • 0
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            rtf
            My comment was about your claim that “They do not have much involvement with China”
            What people consider as debt traps is a matter of opinion.
            What involvement B’desh has with PRC is a matter of fact.
            Fact check before you put finger to keyboard.

            • 0
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              Yes, they do not have much involvement with Chinese debt traps and Chinese White Elephant projects. Everything they borrow from other places is carefully thought of.

              • 0
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                rtf
                If they “do not have much involvement with Chinese debt traps” does it say that the the debts owed to China (6% of total debt) is no debt trap?
                *
                White elephants are not externally imposed. They are local dreams that others to fulfill.

      • 4
        4

        S.J,
        When I was in Grade 2, we had a subject called “Reading and Comprehension”.
        I suspect Ramona has done a lot of Reading but not much Comprehension.

        • 3
          0

          OC…..quips and retorts……how typical…..sigh….

          • 0
            2

            Ramona,
            I do feel your pain.

            • 1
              1

              But you shouldn’t leave so many openings . It’s too tempting.

        • 0
          1

          OC
          One needs neither to be liked on CT, as long as one does not tread on some toes.

          • 1
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            Bangladesh is a pretty chaotic and overcrowded country.
            https://youtu.be/AnYsa_c4GxU
            Unlike Sri Lanka, it makes no pretences of welfarism, free healthcare, etc. No fancy highways. Ancient transport system. BUT it has much more money than us.

            • 0
              0

              Bangladesh never had a universal health care system. Sri Lanka on the other hand had it since the 1930s. The countries of the Indian continent never cared for their masses, but finally as Bangladesh is coming into its own, it is striving to be true to its people.

              Bangladesh is advancing towards universal health care at a fast rate. Bangladeshi government is certainly utilizing Chinese funds and funds from other countries for good purposes. Sri Lanka on the other hand, and the government health care seems to be deteriorating.

              Sri Lanka was egalitarian and traditional Buddhistic in the 1930s. But its attempts to turn capitalistic have disenfranchised our Masses. Bangladesh was caste driven (Indian cultural norms even if most are Muslim), but it is now committed to Islamic egalitarianism.

              • 0
                0

                Were the two British Georges and an Edward in between Buddhists?
                When was Bangladesh caste driven? It was founded only 50 years ago.
                Can you elaborate on Islamic egalitarianism. Is it another kind of socialism?

                • 0
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                  SJ,
                  It was the Lankan Buddhists who gave those kings the idea universal health coverage. Yeah….the Hindu culture extended all over the Indian landmass, even into Bangladesh before it was formed into a country. Took them this long to realize they were actually Islamists. They took heart when they saw their people suffer in in the hot sun to build buildings and roads in other places. I saw this in Singapore: Thin small Bangaleshi worker drilling with a powerful electric drill, a concerted pathway…….the man was so shaken up but he persisted with it for many hours with no ear, head, or body protection. Can you imagine what it was like for our workers especially in the Middle East? Bangladeshi were Islamic and thus Socialistic enough to care for each other. But our Lankans never really notice these things, do they. No, they are in ga-ga land substantiating their Bengali genes.

                  • 0
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                    This is a ‘malle pol’ response.

                  • 0
                    0

                    …concreted….*

            • 0
              0

              Old Codger, Bangladesh is chaotic and overcrowded country, but the truth is they extended the loan to not-so chaotic and overcrowded Sri Lanka. We are still a third-class country with a ego as big as a first-world country.

              • 0
                0

                Isn’t it curious that the very people who look down on Bangladesh get upset when Westerners call Sri Lanka a third-world country?

                • 0
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                  old codger

                  I am told Tamils/Sinhalese/Muslims always get offended if foreigners (in their own country) address them as Bangladeshis.
                  Worse they don’t even remember how Weeping widow aided and abetted Pakistan (Sri Lanka’s all weather friend) committing genocide, war crimes and crimes against humanity during the war in 1971.

                  Many stupid people including Dayan, …. believe it was a master stroke on the part of Weeping Widow.

    • 0
      2

      rtf: Are you sure that “$ 200 million” was not “Channeled” through Bangladesh by China?

      • 3
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        Simon,

        Even if so, Bangladesh is still in a position to loan it to us instead of keeping for themselves. Any project they do via another country, they produce results that are not White Elephants. What clever people.

        Sri Lanka on the other hand shamefully indulges in tribal politics and policies, e.g. Kandyan politicians indulging their own tribe and Southern politicians indulging theirs. Ridiculous undemocratic decisions with much wastage and overall lack of astute development has lead to our many White Elephants.

      • 0
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        Simon
        You have to wait until our super detectives come out with how China does these things.
        They can generate plenty of smoke when they want to see a fire.

    • 4
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      Dear Ramona:
      I think the following is a balanced review of Bangladesh’s economic relationship with China;
      https://m.dw.com/en/is-bangladesh-falling-into-a-chinese-debt-trap/a-49556829

      Supposedly Socialism is a constitutional pillar of Bangladesh. How’s that being upheld or being given prominence?

      BRICS Bank is good to partner with to shed western influence on some of the borrowings. It’s a feat for Bangladesh to have been invited to join the BRICS Bank. I don’t foresee such an invitation to SriLanka in the next 100 years!
      ->
      https://infobrics.org/post/32805
      ->
      https://www.thedailystar.net/business/news/dhaka-needs-pay-460m-join-new-development-bank-2049049

      Overall, my impression is that Bangladesh is playing all its cards with a backbone and sound strategy. China seems to court Bangladesh in an intimidating fashion at times but Bangladesh seems to be all strategy for the good of the nation;
      ->
      https://asia.nikkei.com/Politics/International-relations/Bangladesh-hits-back-after-China-envoy-warns-against-joining-Quad
      ->
      It’s reported as of late that Bangladesh has dropped China from 5 major projects;
      https://m.economictimes.com/news/international/world-news/china-borrows-from-brics-bank-bangladesh-to-drop-china-from-5-projects/articleshow/81368869.cms

      • 4
        0

        Sugandh,
        *
        Thanks for all the good info.
        *
        With the money they get from China (equity not debt),  Bangdalesh builds bridges and railroads for its Masses to travel on so the productivity of the country is enhanced. Compare that to stadiums and highways for cars for the Lankan 1%.
        *
        And they also have plenty of money to contribute to the BRIC’s NDB bank. All is due to the careful consolidation of the money of the hard work of their Masses. That’s what is called Socialism.

      • 3
        0

        Sugandh,
        Isn’t it curious that the very people who look down on Bangladesh get upset when Westerners call Sri Lanka a third-world country?

  • 0
    2

    So, if Bangaldesh is so good why don’t Ameer Ali do us a favor by settling down there permanently. Better yet, he provides his valuable and “esteemed” opinion in a Benagali forum.

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