Drishtipat Blog

Photo: Shamokal: Army officer “discussing” price controls with the shop owners at Karwan Bazar.

Inflation can’t be brought down by force
New Age Editorial

The measures the military-driven interim government is now starting to employ to halt the rising prices of essential commodities signifies that it is serious about containing the inflationary trend. The government has decided to not only tighten its monetary policy, effectively reducing the amount of money circulating in the economy, but also employ the army-led joint forces to monitor markets through Ramadan. The government has also reduced import tariffs on a number of key commodities to encourage importers to level the market shortages that may be partly responsible for the rising prices. However, we believe, the sum total of all of these measures may not produce the desired result.
We feel that the key area where the government is still faltering is the lack of confidence that the private sector is still reeling from as a result of the arbitrary arrests and law and order measures of the past six months. For better or for worse, the reality is that the government relies largely on the private sector to ensure a smooth supply of essentials — food and non-food — to local markets. But the economy is yet to recover from the atmosphere of fear that gripped the economy from January onwards. Prices were already rising by January, what happened since has only compounded the problem. It is for this reason that the government’s plans to police markets with the barrel of a gun, i.e. the monitoring by joint forces, may actually backfire by creating more panic among retailers, wholesalers and importers.
Instilling business confidence will be the government’s key challenge in the coming months for more reasons than this. The worst-hit by the rapidly rising prices of food grains and other essential consumables are those who belong to the middle- and lower-income groups. The culture of fear has also eaten into the investor confidence, reducing domestic investments by 50 per cent in the past six months, compared to the figures for the last six months of 2006. Shrinking investments have meant a slowdown in job creation which has further cut into the potential purchasing power of middle- and low-income families. Now, with floods that inundated about a third of the country, eroding savings and coping capacities, and destroying crops, the impact of inflation could well have the makings of an economic disaster.
We feel that the state needs to take greater responsibility in ensuring the smooth functioning of markets, and in order to do this, the Trading Corporation of Bangladesh must play a greater role in compensating for shortages in the essentials market. We also feel that the government’s recent decision to tighten monetary policy is ill-advised, since this will only discourage investment and credit disbursement, further slowing the economy down. Lastly the government must do whatever needs to be done to earn back the confidence of the business community. It is yet to show any signs that it is considering the business community as a partner, and not the enemy, as is compulsory for the smooth functioning of any market system.