Experts lambast govt for apathy to mend stock meltdown

May 26, 2011

Experts on Wednesday came down heavily on the government for taking no steps at all to stabilise the country’s capital market, blaming its foot-dragging over reforming the Securities and Exchange Commission and indifference to re-infuse investors with fresh confidence for the continued reign of volatility over the market for five long months.
They also held the Bangladesh Bank responsible for creating a fresh liquidity crisis which they termed a key factor leading the market to the recent meltdown.
Instead of taking action against the banks who had over-invested in the equities market in 2010, the central bank had simply compelled all the banks, without making any differentiation between the greedy and the fair groups, to meet the cash-reserve requirement and statutory liquidity ratio, the experts said. The BB did not even took a moment to consider the probable impacts on the securities market that would result as a consequence of imposing the regulations and thus gave rise to the present liquidity crunch.
They deplored the government’s utter failure or deliberate inaction to come up with a concrete course of action and implement it after submission of the probe report on the January’s stock market debacle.
The experts dubbed the government’s role following the submission of the probe report dubious and highly confusing as the report had recommended precise direction to and kinds of move to be taken to correct the flaws, crimes and manipulations of the market that had led to the bubble that burst.
‘It seems the government is in a dilemma about what it should do as a number of high-ups in the corridors of power are seen to feuding with one another,’ an analyst surmised. 
He categorically said, ‘The government high-ups are clearly divided on the stock market issue, not because they are trying to protect the small investors but because they have their own stakes in this case and agenda to serve.’
The experts also pointed out that the remarks the finance minister had made since the day the probe report was submitted were contradictory to one another and every one of them affected the market negatively.
The general index of Dhaka Stock Exchange has suffered a mammoth 1,250-point loss since the report-submission on April 7 till Wednesday.
Finance adviser to the immediate past interim government Mirza Azizul Islam remarked, ‘The government’s stance about the capital market issue is not clear at all.’
‘When the investors need from the government a clear direction about where the market is heading for, it keeps mum,’ he observed, adding, ‘Such silences have just given rise to rumours and baseless speculations, leading the market to further deterioration.’
The former finance adviser said, although a rumour that the government might impose capital gain tax and make taxpayer’s identification number mandatory for opening and maintaining beneficiary owner’s accounts had panicked the retail investors into making heavy sell-offs gone in the past few weeks, yet the government had not made any clear announcement on the issues.
Mirza Aziz, who was once a chairman of the SEC, said restructuring the SEC was taking too long, whereas, considering the present scenario it should be the top priority.
‘Reforming the SEC should be the top priority at the moment as the rest of the government measures and policy reforms would have to be carried out by the commission,’ he pointed out.
Slahuddin Ahmed Khan, a professor of finance at Dhaka University, said, ‘The Bangladesh Bank could not bar the commercial banks in time from getting over-exposed in the capital market and now, by taking a hard line against them, it was also worsening the situation in another way.’
He said, ‘Although the central bank is trying to justify its stance by pointing at the high rate of inflation but the money market hardly accounts for 10 per cent of the total inflation.’
He also explained that ‘The central bank cannot check inflation merely by adopting a stringent monetary policy as issues like the hike in food cost on the local market cannot be addressed by such policies.’
‘The central bank can take a flexible approach towards the commercial banks investing in the capital market for a while and subject to specific conditions as the market is now going through a severe liquidity crisis,’ suggested Mirza Aziz.
One of the analysts said, ‘Ultimately, investors bears the final brunt of the central bank barring the commercial banks from disbursing the profits they had pocketed from the capital market as dividends and by not compelling them to reinvest the profit taken away from the market.’            
AIMS Bangladesh Ltd managing director and chief executive officer Yawar Sayeed said, ‘It seems the whole issue is slipping out of the government’s grip because of its dilly-dallying in dealing with it.’
He also warned that ‘If things continue to remain this way, investors would never regain their confidence and the market would plunge into a deeper gloom and depression.’

 

Courtesy of New Age

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