Attracting encroachments to national sovereignty by rapacious Washington-connected multinational corporations and the meddling attentions of their powerful home country; stunting reform and economic development at every turn; breeding economic dependency; firmly controlled by foreign companies and giving little beneficiation to the country of production; upending and undermining political institutions; and not even sustainable.
These are ringing accusations which bring to mind one natural resource –oil. Certainly not the banana. This is somewhat understandable; oil more readily lends itself to the vilification touted in these bleak and cynical claims, and it has been the subject of visible conflict, with allegedly oil-motivated American interludes into Kuwait, Iraq and Libya being all too well known and well televised.
Nonetheless, it is one of the blights of modern political economic analysis, including those with a bent for “resource curse” theory, that in their discussion of the interaction of forces that have resulted in the paradoxical plights of some resource-rich countries, they tend to overlook one of the most important culprits, or perhaps better understood as a catalyst in a larger political process; the innocuous banana. And yet, perhaps just as much as oil, this energy source has been the fons et origo of many social, political and economic malaise in many underdeveloped countries who possess them.
This inevitable interaction with politics is only more obvious when we consider the economic significance of this product; bananas are the world’s fourth most consumed food crop, after rice, wheat and corn, with some 350 billion bananas consumed every year. Figures of this magnitude rarely rack up by market forces alone and nominally hint at a set of vested political and economic hands at work.
In this brief article, a slice of the long and storied history of the politically-derived banana’s impact on the economies of numerous states which were in possession of it, particularly regarding Latin America, the Caribbean and sub-Saharan Africa through the prism of the unholy alliances between big corporations and dictators, as well as the battle for market access.
Unholy Alliances: Dictators and Corporations
The South American country of Ecuador rarely finds itself on the top 3 list of any global rankings. Yet it occupies that very spot when it comes to world production of the banana. Some 18% of the bananas traded worldwide during the 1970s and 1980s originated from Ecuador, and this number expanded to 30% in the 1990s. Banana production and trade in Ecuador gives direct employment to an estimated 380 000 people. This tells something about the history and geography of this fruit on two particular points; why Ecuador and why now? The road to this present-day reality is an interesting and entangled one through which we gain insights into the nature of globalization as a performative process and its structures with implications far beyond Latin America.
In order to flourish, banana plants require rich soil, combined with 9 to 12 months of sunshine along with constant, heavy rains of to 80 to 200 inches a year. This is a demand level unmatchable by artificial irrigation if the given plantation is to compensate for the production costs and still have the ability to sell at the low price for which the banana is known. This gives us an important clue as to the Ecuadorian presence among the top producers in the world. But that is only a partial aspect on a bigger picture.
For one, how did the bananas get to Latin America, when they are said to be native to the tropics of South and Southeast Asia, and are likely to have been first domesticated in Papua New Guinea? And how did one particular variety of this fruit, the Cavendish, conquer the world market when there are thousands all across the world? The answer to these questions are political and are to be found in the early half of the nineteenth century.
The mass production of the banana such as we know today commenced specifically in the year 1834 and saw an explosion in the late 1880s and from the beginning reaped political consequences. Prior to the 1870s most of the land that bananas were grown on in the Caribbean had been previously used to grow sugar, and indeed before then bananas were virtually unknown in the United States. But this quickly changed and just 30 years later, Americans (then totaling at 70 million people) were consuming over 16 million bunches a year. Like all rapid expansions and enormous profits, this came at a high cost, and perhaps none bore it more than the producing populations.
The odyssey started in 1871 and, indicative of those twists of fate with which history is so littered, not with anything to do with agriculture but the construction of a railroad in Costa Rica overseen by an ambitious23 years-old Minor Keith, born in New York. The mega project sees hundreds lose their lives, including the lives of Keith’s two brothers. Bur Mr. Keith is undaunted. While building the railroad in Costa Rica he was also hatching a far grander plan. As construction made progress, he ordered the planting of bananas on the land easements to either side of the tracks. The bananas flourished and once the railroad was brought to completion it was possible to economically transport the bananas to Americans who were beginning to acquire a taste for the exotic fruit. By the next decade, Keith owned three banana companies. Keith then joined up with a Cape Cod sailor, Lorenzo Baker, and a Boston businessman, Andrew Preston. The three raised the necessary capital to establish the Boston Fruit Company. By 1899, the Boston Fruit Company and the United Fruit Company (UFCO) emerged – and in their wake formed the largest banana company in the world, with plantations all over Latin America and the Caribbean, including Colombia, Costa Rica, Cuba, Jamaica, Nicaragua, Panama and Santo Domingo. The company also owned 112 miles of railroad linking the plantations with ports. To complete their Charter company-like set up, and in order to protect their interests, they also owned some eleven steamships, known as the Great White Fleet and an additional 30 other ships under lease.
In 1901, Guatemalan dictator, Manuel Estrada Cabrera granted to UFCO the exclusive right to transport postal mail between Guatemala and the United States. Thus came UFCO’s first entry into Guatemala in whose wake the country would be held custody to a fruit company. Ruled by a conservative dictator who would be a puppet to the UFCO, Keith judged Guatemala to have “an ideal investment climate”. He formed the Guatemalan Railroad Company as a subsidiary of UFCO and capitalized it at $40-million. Other countries in Central and South America also fell prey to the UFCO, which they called or “El Pulpo” (the Octopus), but no other state felt the weight of the UFCO more than Guatemala.
Why was Guatemala such an ideal investment climate for the UFCO? “Guatemala was chosen as the site for the company’s earliest development activities,” a former United Fruit executive once explained, “because at the time we entered Central America, Guatemala’s government was the region’s weakest, most corrupt and most pliable.”In Guatemala, United Fruit gained control of virtually all means of transport and communications. United Fruit charged a tariff on every item of freight that moved in and out of the country via Puerto Barrios. As if that were not enough, the company also managed to exempt itself from virtually all taxes in Guatemala for 99 years.
In 1944, the people of Guatemala overthrew the right-wing dictator then in power, Jorge Ubico, and held their first ever true elections. The man they elected president was Dr. Juan Jose Arevalo, a socialist. A new constitution was drawn up, partly based on the American version. At this time, in the highly class-divided Guatemala, only 2.2% of the population owned over 70% of the country’s land. Only 10% of the land was available for 90% of the population, most of whom were native Indians.
Most of the land held by the large landowners was unused. Jacobo Arbenz who succeeded Arevalo in another free election continued the reform process. Arbenz proposed to redistribute some of the unused land and make it available for the 90% to farm. This greatly unsettled the UFCO; the United Fruit was one of the big holders of unused land in Guatemala. The pressure mounted heavily against the UFCO and finally the company made its pleas and called on officials in the US government, including President Eisenhower and Secretary of State John Foster Dulles (whose former New York law firm, Sullivan and Cromwell, was a representative of the company), saying that Guatemala had turned communist and was susceptible to Soviet Union influence.
Fortunately for the fruit conglomerate, almost every major American official involved had a family or business connection to the company itself(Allen Dulles, head of the Central Intelligence Agency, had served on UFCO’s board of trustees while Ed Whitman, the company’s top public relations officer, was married to Ann Whitman, President Eisenhower’s private secretary). Thus with great zeal, the U.S. State Department and United Fruit, enlisting the talents of the PR genius Edward Bernays (a nephew of the pioneering psychoanalyst Sigmund Freud), embarked on a major public relations campaign to convince the American people and the rest of the US government that Guatemala was a Soviet “satellite”.
Upon Bernays’ suggestion, the company also arranged and offered to pay for the expenses of journalists who traveled to Guatemala to learn United Fruit’s side of the story, and some of the biggest outlets (and particularly The New York Times and The New York Herald Tribune) published accounts favorable to the UFCO.
The campaign was a resounding success and in 1954, with consent manufactured, the CIA engineered a coup, code-named “Operation PBSUCCESS”. The CIA set up a clandestine radio station to carry propaganda, jammed all Guatemalan stations, and hired skilled American pilots to bomb strategic points in Guatemala City. The U.S. replaced the democratically-elected government of Guatemala with another right-wing dictator that would again bend to UFCO’s will. The propaganda machine, meanwhile, portrayed the operation to the American audience as the removal of an unpopular leader and the ushering in of liberty and democracy; this has an eerily familiarity when looked at through the prism of America’s 2003 invasion of Iraq.
After his firm, Hubbard-Zemurray, experienced much success importing bananas from Latin and Central America and selling them in in New Orleans, Samuel Zemurray went to the Central American republic of Honduras to expand his company into banana production in the year 1910. Honduras was deemed well-suited for growing bananas due to its proximity to the equator. These were the seeds of what would eventuate into Cuyamel.
But Cuyamel did not enter unchartered territory and the turf was already spoken for. The main player seeking monopoly status in the Honduras banana market besides was Vaccaro Brothers and Company. But both the Vaccaro firm and Cuyamel were eclipsed by the much larger United Fruit Company. Before United Fruit entered Honduras as a direct producer in 1910, the firm participated in the Honduras market by proxy through investments in both Zemurray’s and Vaccaro Brothers’ companies. Before United developed plantations of its own in the cities of Trujillo and Tela, it owned 60% of Cuyamel and 50% of Vaccaro. Even though the three companies were competitive against each other, they maintained some respective distance, and even pursued joint efforts in advertising and increasing banana agricultural outputs in Honduras.
Nevertheless, competitiveness seeps through. Zemurray had played an active role in Honduran politics since he first arrived in the country. In 1910, the administration of President Miguel R. Dávila had given the Vaccaro Brothers’ Company land for railroad construction and prohibited any other companies from building a competing railroad within 12 miles of the Vaccaro line. This had long displeased Zemurray, and he detested the Dávila government, having provided encouragement and money to a failed coup in 1908 against Dávila.
These concessions by the Dávila regime to Vaccaro further enrage Zemurray. He makes a concerted effort now to remove the regime, and has an accomplice in the person of former President Manuel Bonilla. Zemurray supplied weapons and transportation for Bonilla to launch a coup against Dávila. President Dávila fled, and Bonilla once again assumed the presidency of the nation, owing in large part to the direct intervention of Zemurray.
Shortly before Bonilla ascended to the presidency, Zemurray in 1911 transformed his company from Hubbard-Zemurray into Cuyamel Fruit Company. He acquired 5,000 acres of land for agriculture along the Cuyamel River in the northwestern extremity of Honduras, near the Guatemalan border. The firm took its new name either from this river or from the town of Cuyamel nearby. As a repayment for his support, Bonilla also granted Zemurray a concession to build a railroad between the town of Cuyamel, by the coast, and Veracruz, in the interior.
There were no more coups in the country through the end of the decade, but Zemurray’s Cuyamel Fruit was in fierce competition with Vaccaro and United. Further, Cuyamel’s development of a previously empty strip of land along the Guatemala-Honduras border almost led to an outbreak of war between the two states, but this was halted by US mediation.This incident of near-war strained relations between pro-Honduras Cuyamel and pro-Guatemala United, and this tension would not fully cool off until the two companies became one in 1929, when following the October crash of international financial markets, Zemurray sold Cuyamel to United Fruit in exchange for stock and retired, making UFCO the giant discussed in prior sections.
The Banana Wars: The Battle for the Banana Market
Africa’s banana market is a paradoxical reality. In the lowland of the Congo basin, farmers grow a greater diversity of bananas than anywhere in the world.In countries such as Uganda, Burundi, and Rwanda per capita consumption has been estimated at 99 pounds per year, the highest in the world. Uganda itself is the second-largest producer of bananas in the world after India. It is, however, one of the smallest exporters, the crops being used mostly for domestic consumption.
West African countries produce nearly all of Africa’s banana exports. Production in this region has grown rapidly over the past 15 years, now accounting for around 4% of the world banana trade. The vast majority of these bananas are sold in Europe, mainly in France and the UK, where an estimated 2.5 billion tonnes of bananas are peeled annually. But the African access raises questions and a myriad of issues about the nature of the international political economy than meets the eye.
Since 1975, African and Caribbean countries had had a quota of bananas to import into the EU market, enabling them to sell to Europe as many as they wanted to support. The official reasoning for this was that the European Union (then known as the European Community) hoped, that this would enable the economies of such developing countries to grow independently, without depending on overseas aid. Some economists, however, question the logic behind this.
To begin with, if the EU is concerned with the development of these countries and to free markets, it makes no economic sense to continue to subsidize their agricultural lobby with up to 50-billion euros per year. Secondly, the EU would remove barriers to a vast array of agricultural products from Africa – as it stands only bananas can be sold into the EU market without barriers to entry, and indeed disincentives are provided as seen in the imposition of 30% tariffs to unprocessed coffee but 60% to processed (that is job-creating) coffee from Africa.
Secondly, banana and pineapple production in Africa are dominated by two American multinational companies Compagnie Fruitière/Dole (a descendent of the Cuyamel company dealt with above) and Del Monte.In any case, US multinationals which control the Latin American banana crop hold 67% of the EU market and the US itself does not export bananas to Europe. This perhaps displays the extent to which the removal of barriers to access are motivated by US-EU alliance and not developmental concerns regarding Africa. The Caribbean is a different story, however.
Despite this, however, the US filed a complaint against the EU for further with the World Trade Organization (WTO) and, in 1997, won. The EU was instructed to alter its rules as a result. The chief outcome of this deal had been to protect banana farmers in the Caribbean from competition from Latin America, whose bananas are cheaper because they are grown on largescale, mechanised plantations run by giant USbased corporations.
After the WTO ruling, the US government continued to argue that free trade in bananas had not been restored, while the EU argue it has changed its rules. The US has then imposed a retaliatory range of 100% import duties on European products, “encompassing everything from Scottish cashmere to French cheese” as the Guardian then put it.
The US government was allegedly pressurized by powerful US multinational companies which dominate the Latin American banana industry. “The Bill Clinton administration took the “banana wars” to the WTO within 24 hours of Chiquita Brands, a powerful, previously Republican supporting banana multinational, making a $500,000 donation to the Democratic Party” according to journalist Patrick Barkham.
The banana wars came to a conclusion only in 2009 with an agreement between the EU and Latin American countries. The December 2009 agreement involved the EU reducing its tariffs on imported bananas from 176 euros ($224; £140) per tonne to 114 euros per tonne within eight years.
The Future and Sustainability of the Banana: A Challenge of Globalization
Like oil, the banana is not only problematic in its production and sale, but it may also not have much of a future; at least not as we know it. Researchers have declared the Cavendish to be potentially unsustainable and at risk of “imminent death.” This threat stems from the Panama disease; a deadly root fungus from the island of Taiwan. And since all Cavendishes are clones, if the fungus can kill one banana shrub, it can kill them all.
Of course the Panama disease is nothing new. It was identified at least as early as the 1950s, when it wiped out the Cavendish’s predecessor, known as the ‘Gros Michel’, or Big Mike. When the Gros Michel banana succumbed to the fungus, the Cavendish was found to be immune, at least until the fungus mutated and started its attack all over again. Starting in the 1990s, the Panama fungus began to work its way across Asia and Africa once again. The oceans have proven effective barriers for now, “but when someone with the fungus on their shoe can cross an ocean in a few hours,” National Geographic magazine warns“oceans provide little protection.”
The history of the banana has been one of deep politicisation, therefore; implicating it in the unfavourable destinies of multitudes. But the banana, and for that matter oil itself, is merely one among many problematic resources to reap these economic histories and contemporary consequences. Indeed its trysts with dictators, lobbyists and tariffs at the behest of seemingly malevolent multinationals says more about the politicised nature of international trade than the resource in question. Indeed very few resources, if at all, could undergo similar examinations and emerge unscathed to some degree or another.
The Politico-Economic Crisis of Lebanon
Dubbed as a failed state. The Middle Eastern country, also known as the ‘Lebanese Republic’, is already leading towards a humanitarian crisis. The country is witnessing the worst financial crisis since the 1975-90 civil war. The financial catastrophe has done most of the damage as the country currently stands as one of the top 10 worst economic disasters witnessed over the past 150 years. If the economists are put true to their word, it means that Lebanon rates as the most dismal economic crash since the 19th century. As the state of Lebanon undergoes a significant political shift since last year, the social and economic fissures are subsequently broadening. A fragile democracy (for namesake) and a constant disequilibrium in the parliamentary stratosphere, have led to an economic depression that is rapidly expanding as the country fails to adopt a unified political stance and adhere to corrective measures to hold the toppling economy from a collapse.
More than half of the Lebanese population has slumped below the poverty line as escalating inflation continues to reel the populace. The main cause underpinning such brutal inflation is the hyper-devaluation of the Lebanese pound. The currency was originally pegged at a fixed rate of 1500 Lebanese pounds to the US dollar. However, over the past three decades, the economic crunch has crippled the economic nucleus of Lebanon. According to World Bank estimates, the Lebanese pound has devalued by 95% and currently trades at 22000 Lebanese pounds to the US dollar in the black market – roughly 15 times above the official rate. The resultant inflation has driven the government to push the prices to unfathomable levels – even pushing necessities beyond the reach of an average citizen. The fact could be witnessed by the rapid increase in the price of bread – which was hiked by another 5% last month to value at 4000 Lebanese pounds per loaf.
The dire social crisis could be gauged by the fact that an average Lebanese family requires a spending worth five times the minimum wage mandated by the government just to afford basic food requirements. Most of the families can’t suffice to consume utilities such as medicine, gas, or electricity. Astounding research revealed that even hospitals dealing with the Covid outbreak are not afforded gas and electricity which has led to a hike in petroleum consumption due to heavy usage of generators. The resulting shortage of petroleum has driven rage across the country as businesses fail to thrive while multiple wings of the airports are rendered powerless. The recent World Bank report signified that the food prices have inflated by roughly 700% over the past two years – a swell of 50% in just under a month. The regional countries have shown concern as Lebanon is heading towards a health crisis with a strengthening Delta variant in the Middle East and no room for recovery.
The main cause of such a debilitating situation is primarily the rampant corruption in the echelons of the government followed by the instability that ensued last year. Following the catastrophic blast in Beirut’s port that claimed an estimated 200 lives, the government resigned in the aftermath of virulent protests across Lebanon. The political vacuum, however, further pushed the state into despair. The caretaker government, led by the former Prime Minister, Saad Hariri, failed to consolidate a government as ideological differences between the President and the Prime Minister continued to displace the essential debates of the country. The contention between President Michel Aon, a stout supporter of the Shite militant group Hezbollah, and Prime Minister Saad al-Hariri, a Sunni Centrist, caused the efforts to falter as the country continued to plunge into crisis without an elected government to handle the office.
Hariri drove the narrative that due to President’s strong ties with the Hezbollah, which is arguably supported by Iran, Lebanon has suffered a shuffle of power to entrust financial support to the militant group. The narrative caused institutions like IMF and the World Bank to hesitate in injecting desperately needed social stimulus into the country despite continual warnings of an impending humanitarian crisis by France and the United States. A political vacuum coupled with the destruction caused last year along with the prudence of global financial institutions to pivot the country have ultimately resulted in the chaos that describes the landscape of Lebanon today.
However, Hariri resigned last month after failing to form a government even after nine months. The resulting political thaw helped President Aon to appoint Najib Mikati, a lucrative businessman, and former prime minister, as an interim Prime Minister entrusted to form a mandated government in Lebanon.
With a renewed Cabinet support, something that Hariri rarely enjoyed, Mikati is expected to assuage the concerns of the IMF and support economic reforms with the help of states like France. The Paris conference, scheduled on 4th August, is now the focal point as Mikati plans to convince the French diplomats regarding his schemes to pull Lebanon out of the puddle. Prime Minister Mikati recently reflected on his aspirations: “I come from the world of business and finance and I will have a say in all finance-related decisions”. He further stated: “I don’t have a magic wand and can’t perform miracles … but I have studied the situation for a while and have international guarantees”. It is clear that Mikati envisages repairing the economy which is already long overdue.
Under the French plan aiding Mikati’s regime, he would need to enforce significant political reforms to gain international aid. The diplomats, however, envision a far graver reality. It is touted that the IMF would likely focus on two facets before granting any leverage to the Mikati-regime: political-social reforms and progress towards parliamentary elections. However, with grueling Covid cases springing into action, the road to recovery would probably be highly tensile.
While Mikati doesn’t stem from any particular political bloc unlike his failed predecessors, he was elected primarily by the backing of Hezbollah. A question emerges: would Mikati be able to navigate through the interests of an organization subjected as a terrorist fraction by most of the Western world. An organization that arguably serves as the primary reason why Lebanon stands as one of the highly indebted countries in the world. An organization that could be the decisive factor of whether financial support flows to Lebanon or sanctions cripple the economy further similar to Iran. The question stands: would Mikati refuse the dictation of Hezbollah and what would be the consequences. The situation is highly complex and time is running out. If Mikati fails, much like his predecessors, then not only Lebanon but the proximate region would feel the tremors of a ‘Social Explosion’.
Bangladesh-Myanmar Economic Ties: Addressing the Next Generation Challenges
Bangladesh-Myanmar relations have developed through phases of cooperation and conflict. Conflict in this case is not meant in the sense of confrontation, but only in the sense of conflict of interests and resultant diplomatic face-offs. Myanmar is the only other neighbor that Bangladesh has on its border besides India. It is the potential gateway for an alternative land route opening towards China and South-East Asia other than the sea. Historically, these two countries have geographic and cultural linkages. These two bordering countries, located in separate geopolitical regions, have huge possibilities in developing their bilateral economic relations. At the initial phase of their statehood, both countries undertook numerous constructive initiatives to improve their relations. Nevertheless, different bilateral disputes and challenges troubled entire range of cooperation. Subsequent to these challenges, Bangladesh and Myanmar have started negotiation process on key dubious issues. The economic rationales over political tensions in Bangladesh-Myanmar relations prevail with new prospects and opportunities.
Bangladesh-Myanmar relations officially began from 13 January 1972, the date on which Myanmar, as the sixth state, recognized Bangladesh as a sovereign nation. They signed several agreements on trade and business such as general trade agreement in 1973. The two countries later initiated formal trade relations on 05 September 1995. To increase demand for Bangladeshi products in Myanmar, Bangladesh opened trade exhibitions from 1995 to 1996 in Yangon, former capital of Myanmar. However, that pleasant bilateral economic relations did not last for long, rather was soon interrupted mainly by Myanmar’s long term authoritarian rule and isolationist economic policy. In the twenty-first century, Bangladesh-Myanmar relations are expected to move towards greater economic cooperation facilitated by two significant factors. First, the victory of Myanmar’s pro-democratic leader, Aung San Suu Kyi, in 2011 has considerably brought new dimensions in the relations. Although this relation is now at stake since the state power has been taken over by military. Second, the peaceful settlement of Bangladesh-Myanmar maritime dispute in 2012 added new dimension in their economic relations.
Bangladesh and Myanmar don’t share a substantial volume of trade and neither is in the list of largest trading partners. Bangladesh’s total export and import with Myanmar is trifling compared to the total export and import and so do Myanmar’s. But gradually the trades between the countries are increasing and the trend is for the last 5 to 6 year is upward especially for Bangladesh; although Bangladesh is facing a negative trend in Balance of Payment. In 2018-2019 fiscal year, Bangladesh’s total export to Myanmar was $25.11 million which is more than double from that of the export in 2011-12. Bangladesh imported $90.91 million worth goods and services from Myanmar resulting in $65 Million deficit in Balance of Payment in 2018-2019 fiscal year. For the last six or seven years, Bangladesh’s Balance of Payment was continuously in deficit in case of trade with Myanmar. The outbreak of COVID-19, closure of border for eight months and recent coup in Myanmar have a negative impact on the trade between the countries.
Bangladesh mainly imports livestock, vegetable products including onion, prepared foodstuffs, beverages, tobacco, plastics, raw hides and skin, leather, wood and articles of woods, footwear, textiles and artificial human hair from Myanmar. Recently, due to India’s ban on cattle export, Myanmar has emerged as a new exporter of live animals to Bangladesh especially during the Eid ul-Adha with a cheaper rate than India. On the hand, Bangladesh exports frozen foods, chemicals, leather, agro-products, jute products, knitwear, fish, timber and woven garments to Myanmar.
Unresolved Rohingya crisis, Myanmar’s highly unpredictable political landscape, lack of bilateral connectivity, shadow economy created from illegal activities, distrust created due to different insurgent groups, maritime boundary dispute, illegal drugs and arms smuggling in border areas, skeptic mindset of the people in both fronts and alleged cross border movement of insurgents are acting as stumbling block in bolstering economic relations between Bangladesh and Myanmar.
Bangladesh-Myanmar relations are yet to blossom in full swing. The agreement signed by Sheikh Hasina in 2011 to establish a Joint Commission for Bilateral Cooperation is definitely a proactive step for enhancing trade. People to people contact can be increased for building mutual confidence and trust. Frequent visit by business, civil society, military and civil administration delegates may be organized for better understanding and communication. Both countries may explore economic potential and address common interest for enhancing economic co-operation. In order to augment trade, both countries may ease visa restrictions, deregulate currency restrictions and establish smooth channel of financial transactions. Coastal shipping (especially cargo vessels between Chittagong and Sittwe), air and road connectivity may be developed to inflate trade and tourism. Bangladesh and Myanmar may establish “Point of Contact” to facilitate first-hand information exchange for greater openness. Initiative may be taken to sign Preferential Trade Agreement (PTA) within the ambit of which potential export items from both countries would be allowed to enter duty free. In recent year, Bangladesh was badly affected by many unilateral decisions of India such as onion crisis. Myanmar can serve as an alternative import source of crops and animals for Bangladesh to lessen dependence upon India.
Myanmar’s currency is highly devaluated for a long time due to its political turmoil and sanctions by the west. Myanmar can strengthen its currency value by escalating trade volume with Bangladesh. These two countries can fortify their local economy in boarder areas by establishing border haats. Cooperation between these two countries on “Blue Economy” may be source of strategic advantages mainly by exporting marine goods and service. Last but not the least, the peaceful settlement of maritime boundary disputes between Bangladesh and Myanmar in 2012 may be capitalized to add new dimension in their bilateral economic relations. Both nations can expand trade and investment by utilizing the Memorandum of Understanding on the establishment of a Joint Business Council (JBC) between the Republic of the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI) and the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI).
With the start of a new phase in Bangladesh-Myanmar relations, which has put the bilateral relations on an upswing, it is only natural that both sides should try to give a boost to bilateral trade. Bilateral trade is not challenge free but the issue is far easier to resolve than others. At the same time, closer economic ties could also help in resolving other bilateral disputes. For Myanmar, as it is facing currency devaluation and losing market, increased trade volume will make their economy vibrant. For Bangladesh, it is a good opportunity to use the momentum to minimize trade deficits and reduce dependency on any specific country.
The Monetary Policy of Pakistan: SBP Maintains the Policy Rate
The State Bank of Pakistan (SBP) announced its bi-monthly monetary policy yesterday, 27th July 2021. Pakistan’s Central bank retained the benchmark interest rate at 7% after reviewing the national economy in midst of a fourth wave of the coronavirus surging throughout the country. The policy rate is a huge factor that relents the growth and inflationary pressures in an economy. The rate was majorly retained due to the growing consumer and business confidence as the global economy rebounds from the coronavirus. The State Bank had slashed the interest rate by 625 basis points to 7% back in the March-June 2020 in the wake of the covid pandemic wreaking havoc on the struggling industries of Pakistan. In a poll conducted earlier, about 89% of the participants expected this outcome of the session. It was a leap of confidence from the last poll conducted in May when 73% of the participants expected the State Bank to hold the discount rate at this level.
The State Bank Governor, Dr. Raza Baqir, emphasized that the Monetary Policy Committee (MPC) has resorted to holding the 7% discount rate to allow the economy to recover properly. He added that the central bank would not hike the interest rate until the demand shows noticeable growth and becomes sustainable. He echoed the sage economists by reminding them that the State Bank wants to relay a breather to Pakistan’s economy before pushing the brakes. The MPC further asserted that the Real Discount Rate (adjusted for inflation) currently stands at -3% which has significantly cushioned the economy and encouraged smaller industries to grow despite the throes of the pandemic.
Dr. Raza Baqir further went on to discuss the current account deficit staged last month. He added that the 11-month streak of the current account surplus was cut short largely due to the loan payments made in June. The MPC further explained that multiple factors including an impending expiration of the federal budget, concurrent payments due to lenders, and import of vaccines, weighed heavily down on the national exchequer. He further iterated that the State Bank expects a rise in exports along with a sustained recovery in the remittance flow till the end of 2021 to once again upend the current account into surplus. Dr. Raza Baqir assured that the current level of the current account deficit (standing at 3% of the GDP) is stable. The MPC reminded that majority of the developing countries stand with a current account deficit due to growth prospects and import dependency. The claims were backed as Dr. Raza Baqir voiced his optimism regarding the GDP growth extending from 3.9% to 5% by the end of FY21-22.
Regarding currency depreciation, Dr. Baqir added that the downfall is largely associated with the strengthening greenback in the global market coupled with high volatility in the oil market which disgruntled almost every oil-importing country, including Pakistan. He further remarked, however, that as the global economy is vying stability, the situation would brighten up in the forthcoming months. Mr. Baqir emphasized that the current account deficit stands at the lowest level in the last decade while the remittances have grown by 25% relative to yesteryear. Combined with proceeds from the recently floated Eurobonds and financial assistance from international lenders including the IMF and the World Bank, both the currency and the deficit would eventually recover as the global market corrects in the following months.
Lastly, the Governor State Bank addressed the rampant inflation in the economy. He stated that despite a hyperinflation scenario that clocked 8.9% inflation last month, the discount rates are deliberately kept below. Mr. Baqir added that the inflation rate was largely within the limits of 7-9% inflation gauged by the State Bank earlier this year. However, he further added that the State Bank is making efforts to curb the unrelenting inflation. He remarked that as the peak summer demand is closing with July, the one-way pressure on the rupee would subsequently plummet and would allow relief in prices.
The MPC has retained the discount rate at 7% for the fifth consecutive time. The policy shows that despite a rebound in growth and prosperity, the threat of the delta variant still looms. Karachi, Pakistan’s busiest metropolis and commercial hub, has recently witnessed a considerable surge in infections. The positivity ratio clocked 26% in Karachi as the national figure inched towards 7% positivity. The worrisome situation warrants the decision of the State Bank of Pakistan. Dr. Raza Baqir concluded the session by assuring that despite raging inflation, the State Bank would not resort to a rate hike until the economy fully returns to the pre-pandemic levels of employment and production. He further assuaged the concerns by signifying the future hike in the policy rate would be gradual in nature, contrast to the 2019 hike that shuffled the markets beyond expectation.
UNEP West Asia launches the State of Food Waste Report
Improved awareness, appropriate policies and a strong regulatory framework are needed to reduce food waste in West Asia, according to...
Tanzania’s Economic Growth by Transforming Its Tourism Sector
As Tanzania’s tourism sector recovers from the harsh effects of the COVID-19 (coronavirus) pandemic on businesses and employment, the latest...
Conflict, COVID, climate crisis, likely to fuel acute food insecurity in 23 ‘hunger hotspots’
Life-saving aid to families on the brink of famine is being cut off in several countries by fighting and blockades,...
Upholding Dharma by Mob lynching?
Label any Muslim a cow smuggler, accuse him of carrying beef and then lynch in the name of protecting religion....
New Skills Development Key to Further Improving Students’ Learning Outcomes
Learning outcomes in Russia would benefit significantly from a focus on teaching new skills that are tailored to the modern...
Belt & Road ABCs: Analysis of “One Belt – One Road” initiative
Understanding the foreign policy and geo-economic strategies of countries, especially in such a difficult time when national borders are closed...
The Politico-Economic Crisis of Lebanon
Dubbed as a failed state. The Middle Eastern country, also known as the ‘Lebanese Republic’, is already leading towards a...
Russia3 days ago
The other side of the Olympics
South Asia2 days ago
Pakistani PM’s Interview with PBS News Hours on Afghanistan Issues
Middle East3 days ago
Tunisia between Islamism and the ‘Delta variant’
Defense2 days ago
The Future of The Quadrilateral Security Dialogue (the QUAD) Grouping Explained
Science & Technology3 days ago
Is your security compromised due to “Spy software” know how
Green Planet2 days ago
Wildfires in Turkish tourist regions are the highest recorded
Americas2 days ago
Hardened US and Iranian positions question efficacy of parties’ negotiating tactics
Africa3 days ago
Criticism Highlights Russia’s Media Weakness in Africa