Bangladesh was regarded as an economic success story up to the government’s fall – at least in the Western media and among mainstream economists. The IMF
IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.
When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.
As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).
The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
http://imf.org
was forecasting that Bangladesh’s GDP
GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
would soon exceed that of (tiny) Denmark or Singapore. Its GDP per person was already bigger than neighbouring India’s. The country’s average GDP growth over the past decade, according to government statistics, was around 6.6%. As late as April this year, the World Bank
World Bank
WB
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.
It consists of several closely associated institutions, among which :
1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;
2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;
3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.
As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.
reckoned that Bangladesh would grow by 5.6% this year, led by its highly successful garment industry, which relies on cheap labour sweat shops to gain market share
Share
A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings.
globally. It accounts for more than 80% of the country’s exports. The government was forecasting that by 2025, Bangladeshi factories would produce 10% of the world’s apparel.
But beneath the surface, the rise of the economy was based on faltering profitability for Bangladesh capital. The relative recovery in profitability after the global Great Recession of 2008-9 began to reverse from 2013, leading up to the pandemic slump in 2020.
The crisis came quickly this year. Within weeks of the World Bank’s’ optimistic April report, the reality emerged: the economy was deteriorating fast. Huge infrastructure projects were failing and eating into resources, riddled as they were by corruption. Rising interest
Interest
An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set.
costs on borrowing, higher inflation
Inflation
The cumulated rise of prices as a whole (e.g. a rise in the price of petroleum, eventually leading to a rise in salaries, then to the rise of other prices, etc.). Inflation implies a fall in the value of money since, as time goes by, larger sums are required to purchase particular items. This is the reason why corporate-driven policies seek to keep inflation down.
and falling export demand drove many companies into default with over $20bn in ‘non-performing loans’. The government handed out huge subsidies (billions) to private companies to ensure electricity coverage in the country. The rich shareholders prospered and took the opportunity to siphon their wealth out of the country; while remittances from Bangladeshis working abroad fell back.
In contrast to the rich, the majority of the country’s 170m people suffered. Most Bangladeshi garment workers are women (50-80%), while the better-paid factory supervisors tend to be men. Most of the women earn just a minimum wage — 8,000 taka, or about $80 per month. With rising food prices, that’s nowhere near enough. “All daily goods like rice, eggs, vegetables — everything is getting more expensive,” said Taslima Akhter, president of Bangladesh Garment Workers Solidarity, a labour group. “Also the price of gas for cooking [at home] and electricity [in factories]. So this is a big problem for workers and the industry.”
A BBS survey conducted in the middle of 2023 revealed that around 37.7 million people experienced moderate to severe food insecurity in the country. More than a quarter of families were taking out loans to cover the cost of daily necessities, including food. A survey by the South Asia Network on Economic Modeling, a think tank, showed that 28% of households resorted to borrowing money to survive. The average amount of loans per household in the country nearly doubled between 2016 to 2022.
Bangladesh had been registering increases in life expectancy for decades. In 2020, it reached 72.8 years, the highest to date. But since then, the pattern of growth has been broken. In 2021, there was a decline to 72.3 years onwards. The mortality rate for children under five years of age, newborns, and children under one year has increased.
There has been a drop in students at the secondary-school level and an increase of NETT (not in employment, education, or training) among the youth population. According to the BSVS-2023, the share of children between five and twenty-four years not in educational institutions has risen since the Covid-19 pandemic. In 2020, at the onset of the pandemic, 28% were out of educational institutions; by 2023, the share reached 41%! Around 40% were neither in school nor in employment, up 10% pts in eight years. The student protests that brought down the government were triggered by the job quota system that reserved 30% of government jobs for families of 1971 war veterans (mainly government families). Protesters demanded the replacement of the quota with a merit-based system.
In June 2024, the IMF admitted that “stubbornly high international commodity prices and continued global financial tightening have amplified macroeconomic vulnerabilities” Foreign exchange reserves declined sharply due to interventions to prop up the Bangladesh currency , the taka. FX reserves plummeted from $46bn in 2021 to just $19bn.
The taka fell over 20% against the US dollar, driving up the costs of servicing foreign debt. The external account went into deficit by up to 4% of GDP a year.
The government was forced to turn to the IMF for ‘relief’. The IMF approved a small package of $3.3bn in early 2023. Then this year that was raised to $4.7bn designed to relieve pressure on the FX. And the IMF handed over $1.1 bn in June.
But now all is in flux. After a brutal attempt to suppress the protests with the army and police killing over 300 people, Hasina finally fled the country. A temporary government has been formed under Nobel Peace Prize winning economist Muhammad Yunus to lead an interim government. But don’t expect any improvement under his administration (read this: 22793). Yunus will again turn to the IMF for support in return for which the IMF will impose severe austerity measures.
The Bangladesh economic crisis is being repeated across the Global South – in Kenya where riots have ensued to reverse IMF-demanded tax rise;in Pakistan where the government has turned for the seventh time to the IMF for funding; in Egypt which is on the brink of default;and in Nigeria, where hunger rules. And of course, Argentina.
And the IMF surcharges any debtor that fails to pay on time, which only makes loan repayment harder. The number of countries paying surcharges annually has nearly tripled in 5 years, from 8 in 2019 to 23 in 2024. Over the past six years, the IMF charged $7 billion in surcharges.
Through 2033, CEPR estimates that the IMF will charge approximately $13 billion in surcharges. Argentina alone will owe an estimated $6 billion, followed by Ukraine, with a debt of nearly $3 billion. On average, surcharges will represent 26% of all charges and interest levied on surcharge-paying countries. For some borrowers, such as Costa Rica and Ecuador, surcharges will represent even more.
In my next post, I shall discuss a new report by the World Bank which shows that the Global South is not just failing to ‘catch up’ with the Global North, but instead is falling further behind.