East
Bengal—the eastern segment of Bengal,
a region that is today Bangladesh—was a prosperous region of South Asia until modern
times. It had the advantages of a mild, almost tropical climate, fertile soil,
ample water, and an abundance of fish, wildlife, and fruit. The standard of
living compared favorably with other parts of South Asia. As early as the
thirteenth century, the region was developing as an agrarian economy. It was
not entirely without commercial centers, and Dhaka in particular grew into an
important entrepôt during the Mughal Empire. The
British, however, on their arrival in the late eighteenth (18th) century, chose
to develop Calcutta,
now the capital city of West
Bengal, as their commercial and administrative center in South Asia.
The
development of East Bengal was thereafter limited to agriculture. The
administrative infrastructure of the late eighteenth and nineteenth centuries
reinforced East Bengal's function as the primary agricultural producer—chiefly
of rice, tea, teak, cotton, cane and jute—for processors and traders from
around Asia and beyond. After its independence from Pakistan, Bangladesh
followed a socialist economy by nationalizing all industries, proving to be a
critical blunder undertaken by Bangladesh's leaders. Education
policies of the British dating back from colonial era deprived education to
millions of Bangla peoples setting them back by decades. Some of the same
factors that had made East Bengal a prosperous region became disadvantages
during the nineteenth and twentieth century’s. As life expectancy increased,
the limitations of land and the annual floods increasingly became constraints
on economic growth. Preponderance on traditional agricultural methods became
obstacles to the modernization of agriculture. Geography severely limited the
development and maintenance of a modern transportation and communications
system.
The
partition of British India and the emergence of India and Pakistan in 1947 severely
disrupted the former colonial economic system that had preserved East Bengal
(now Bangladesh) as a producer of jute, rice and other agro commodities for the
rest of British India. East Pakistan had to build a new
industrial base and modernize agriculture in the midst of a population
explosion. The united government of Pakistan expanded the cultivated area and
some irrigation facilities, but the rural population generally became poorer
between 1947 and 1971 because improvements did not keep pace with rural
population increase. Pakistan's five-year plans opted for a development
strategy based on industrialization, but the major share of the development
budget went to West Pakistan, that is, contemporary Pakistan. The lack of
natural resources meant that East Pakistan was heavily dependent on imports,
creating a balance of payments problem. Without a substantial industrialization
program or adequate agrarian expansion, the economy of East Pakistan steadily
declined. Blame was placed by various observers, but especially those in East
Pakistan, on the West Pakistani leaders who not only dominated the government
but also most of the fledgling industries in East Pakistan.
Since
Bangladesh followed a socialist economy by nationalizing all industries after
its independence, a slow growth of experienced entrepreneurs, managers,
administrators, engineers, or technicians underwent. There were critical
shortages of essential food grains and other staples because of wartime
disruptions. External markets for jute had been lost because of the instability
of supply and the increasing popularity of synthetic substitutes. Foreign
exchange resources were minuscule, and the banking and monetary system was
unreliable.
Although
Bangladesh had a large work force, the vast reserves of under trained and
underpaid workers were largely illiterate, unskilled, and underemployed.
Commercially exploitable industrial resources, except for natural gas, were
lacking. Inflation, especially for essential consumer goods, ran between 300
and 400 percent. The war of independence had crippled the transportation
system. Hundreds of road and railroad bridges had been destroyed or damaged,
and rolling stock was inadequate and in poor repair. The new country was still
recovering from a severe cyclone that hit the area in 1970 and causes 250,000
deaths. India, by no means a wealthy country and without a tradition of giving
aid to other nations, came forward immediately with massive economic assistance
in the first months after the fighting ended. Between December 1971 and January
1972, India committed US$232 million in aid to Bangladesh, almost all of it for
immediate disbursement.
Bangladeshi
leaders slowly began to turn their attention to developing new industrial
capacity and rehabilitating its economy. The static economic model adopted by
these early leaders, however—including the nationalization of much of the
industrial sector—resulted in inefficiency and economic stagnation. Beginning
in late 1975, the government gradually gave greater scope to private sector
participation in the economy, a pattern that has continued. Many state-owned
enterprises have been privatized, with banking, telecommunication, aviation,
media, jute including a range of other vital sectors have been privatized.
Inefficiency in the public sector have been improving however at a gradual
pace, external resistance to developing the country's richest natural
resources, and power sectors including infrastructure have all contributed to
slowing economic growth. In the mid-1980s, there were encouraging signs of
progress. Economic policies aimed at encouraging private enterprise and
investment, privatizing public industries, reinstating budgetary discipline,
and liberalizing the import regime were accelerated. From 1991 to 1993, the
government successfully followed an enhanced structural adjustment facility
(ESAF) with the International Monetary Fund (IMF) but failed to follow through
on reforms in large part because of preoccupation with the government's
domestic political troubles. In the late 1990s the government's economic
policies became more entrenched, and some of the early gains were lost, which
was highlighted by a precipitous drop in foreign direct investment in 2000 and
2001. In June 2003 the IMF approved 3-year, $490-million plan as part of the
Poverty Reduction and Growth Facility (PRGF) for Bangladesh that aimed to
support the government's economic reform program up to 2006. Seventy million
dollars was made available immediately. In the same vein the World Bank
approved $536 million in interest-free loans.
Bangladesh
historically has run a large trade deficit, financed largely through aid
receipts and remittances from workers overseas. Foreign reserves dropped
markedly in 2001 but stabilized in the USD3 to USD4 billion ranges (or about 3
months' import cover). In January 2007, reserves stood at $3.74 billion, and
they increased to $5.8 billion by January 2008, in Nov 2009 it surpassed $10.0
billion according to the Bank of Bangladesh, the central bank. In addition
imports and aid-dependence of the country has systematically been reduced since
the beginning of 1990s.1