WB, IMF stop $500m loan

March 24, 2011

The World Bank and the International Monetary Fund have decided not to give the government over $500 million of budget support that they had planned to provide this financial year because of concerns over governance issues, including anti-corruption and telecom licensing, the World Bank has told New Age
These two concessionary loans or credits, given under highly favourable terms for the government, was to be the first tranche of a $1.75 billion support that the two international bodies had agreed to give the Bangladesh government over the next three years, with the IMF planning to provide a total of about $1 billion and the World Bank about $750 million in this period.
The World Bank will only give its first instalment, indicated to be between $150–300 million, after these issues have been resolved, Ellen Goldstein, its Bangladesh country director told New Age.
‘We are hopeful that overall progress [by the government] will allow agreement on the first instalment of the Poverty Reduction Support Credit series next fiscal year,’ she said.
Neither international body is saying that the government’s decision to remove Muhammad Yunus from his position as managing director of the Grameen Bank had any bearing on the delay but diplomats privy to the discussions have told New Age that the future governance of the Grameen Bank was certainly a factor, although not necessarily the decisive one.
‘The authorizing environment that the banks now operate in, with the Yunus issue, would not allow the banks to loan this money right now,’ the diplomat said, referring to the fact that each of the institutions needs to get its international board to agree to these loans. ‘The top officials are under a lot of pressure to respond to the Grameen Bank issue.’
The diplomat emphasised that the institutions are not just concerned about Yunus personally.
‘They are concerned that the Grameen Bank as an institution is protected from politicisation, that the money is safe, and that any new management and managing director are appointed professionally.’
AMA Muhith, the minister of finance, told New Age that he knew about the decisions by the World Bank and the IMF. ‘I had a discussion with the World Bank and they said that they were going to defer payment to the next year. There is nothing out of the ordinary with it.’
On March 2, 2011, the Bangladesh bank issued an order removing Muhammad Yunus from his position as managing director of the Grameen Bank claiming that he was past his retirement age.
While the government argues that it is following the legal process and rule of law, among the international community this action is widely viewed as arbitrary and capricious.
On Tuesday, the US assistant secretary Robert Blake Jr stated that his government was concerned about ‘the dampening effect [Yunus’s removal] will have on civil society in general and on the integrity and effectiveness of Grameen Bank in particular.’
The World Bank’s decision not to proceed with the loan may also have been affected by the timing of the Bangladesh Bank’s order which had sought Yunus’s removal as it was sent to the Grameen Bank’s chairman less than ten days after the World Bank’s executive board had approved a $1.2 billion concessional credit to Bangladesh, to help finance the construction of the Padma multipurpose bridge. This was the biggest ever concessional credit ever given by the World Bank.
The Padma bridge assistance, however, continues to remain a lever that the World Bank could use to influence the Bangladesh government as no loan agreement has yet been signed.
Economists who spoke to New Age differ about the impact which the IMF and the World Bank’s joint decision to delay provision of the budgetary support will have on the country’s economy.
Zaid Bakht, research director of the Bangladesh Institute of Development Studies, said that it may put Bangladesh in ‘some difficulty.’
‘Bangladesh is now having some balance of payment difficulties  as remittances have slowed down whilst at the same time there is a need to import a lot of food, and oil prices are very high. Any additional pressure on the financial front for Bangladesh makes things difficult.’
Mustafizur Rahman, executive director of the Centre for Policy Dialogue, however, told New Age that the decision would not be critical to Bangladesh’s finances as the country’s reserves are relatively healthy although it may have some ‘restricting’ effect.
‘If you ask me it will not be very significant for Bangladesh,’ he said.
He pointed out that that right now the government has a lower than expected budget deficit and it has underspent on its annual development programme.
Another economist emphasised that whatever the immediate financial consequences, the decision was likely to have an additional symbolic impact as it ‘shows a lack of confidence in Bangladesh’ which may have knock-on effects.
The two formal reasons the World Bank has given for blocking the provision this year of the budget support loan are the government’s policies towards telecommunications and anti-corruption.
Earlier this year, the Bangladesh Tele-
communications Regulatory Authority issued draft guidelines setting out how the four mobile companies, whose licences come to an end in November 2011, can renew their licences and what would be the level of fees they would need to pay.
This stated that for a 15-year licence, Grameenphone would have to pay an upfront fee of $ 756 million, Banglalink $412 million, Axiata (Robi) $413 million and City Cell would pay $86 million.
The World Bank is concerned that the proposed fees are far too high, threatening a sector that has been at the forefront of the country’s economic growth and which it considers essential for a successful digital Bangladesh.
Sanjay Kathuria, the World Bank’s lead economist, told New Age, ‘[T]he proposed fees… are very high by global standards and need to be benchmarked against comparable country renewals, or Bangladesh’s own recent experience.’
Ellen Goldstein, the World Bank country director, also added in a statement to New Age, ‘Revision of the renewal guidelines is needed to ensure they are transparent and fair for all operators, they follow international good practice and they result in licensing with clear and monitorable rights and obligations for operators in this dynamic sector.’
The World Bank is also critical of a number of aspects of the Anti-corruption Commission (Amendment) Bill 2011 which in late February was placed in the parliament and will shortly be scrutinised by a parliamentary committee.
The World Bank’s main concern is that the bill contains a provision that would require the Anti-Corruption Commission to take permission from the government before it took any proceedings against any magistrates, judges or public servants. Public servants could be widely defined to include politicians.
The government first sought the loans from the World Bank, known as the Poverty Reduction Support Credits, in a letter to the country director in December 2010.
The terms of the World Bank credits, given by its concessional lending arm, the International Development Association, are very advantageous to the government as they can be paid back over 40 years, have an interest rate or service charge of only 0.75 per cent and come with a 10-year grace period.
In addition, once conditions have been agreed with the World Bank, the government can use the money in whatever way it wishes.
The IMF’s money comes from its Extended Credit Facility which comes with similar terms as the money from the World Bank although it has to be paid back in a shorter period.
In recent months, the World Bank has been in discussions with the government about the details of these conditions, with the World Bank seeking policy commitments relating to ‘enhancing revenues and public investment, promoting transparency and good governance, facilitating private sector development, and improving sustainability in the energy sector.’
The detailed reasons why the IMF has decided not to provide its loan this year are not known as it has not responded to repeated requests from New Age for information.
It is, however, understood that the IMF is concerned that the Bangladesh government has not met particular targets it had previously agreed about its exchange rates, and the accumulation and use of reserves.
In a statement to New Age, Ellen Goldstein stated, ‘Recently, at the request of government, the World Bank agreed to postpone the first credit until next fiscal year in order to better assess progress on reforms relating to macroeconomic management, governance and anti-corruption and telecommunications policy and license renewal.
‘The World Bank is in a continuous dialogue with the authorities on these issues,’ she added.

 

Courtesy of New Age

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