In response to a recently published article in The Daily Star titled “The interim has failed to curb inflation and unemployment,” authored by Dr. Birupaksha Paul, an evaluation of the economic performance of the interim government has been presented. The assessment focuses on the conventional inflation-unemployment trade-off, suggesting that policy failure is responsible for the ongoing issues. However, it is crucial to note that the analysis overlooks key institutional factors and relies on outdated economic assumptions.
When the interim government assumed office, the country was facing widespread law and order disruptions, leading to challenges in enforcement, administrative paralysis, and disruptions in commerce, supply chains, and investor confidence, all of which hindered economic stabilization efforts.
The main critique of the article lies in its application of economic theory devoid of the contextual realities of Bangladesh’s economy. The assumption of normal macroeconomic conditions, where interest rates function smoothly, markets are competitive, and inflation and employment respond predictably to policy interventions, does not hold true for the current scenario. The existing economic landscape is characterized by deep financial sector issues, lack of accountability in liquidity management, dominance of cartelized supply chains, and weakened regulatory authority. Neglecting these inherited challenges can lead to a misinterpretation of current economic outcomes as solely policy failures.
The article heavily relies on the inflation-unemployment trade-off concept associated with the Phillips curve, which has lost empirical relevance in contemporary economies. In today’s economic environment, inflation and employment dynamics are shaped by various factors such as supply-side shocks, market concentration, and institutional failures, rather than just demand and labor market conditions. The presence of syndicates controlling essential commodities in Bangladesh has significantly impacted price formation, making traditional monetary policies less effective in addressing inflation.
Similarly, unemployment trends are no longer solely influenced by short-term monetary adjustments but are intertwined with investment confidence, regulatory stability, and credit availability. The article oversimplifies the relationship between interest rates and employment outcomes without considering the broader institutional challenges affecting job creation.
Furthermore, the article overlooks the compromised state of Bangladesh’s banking sector at the time the interim government took office. The assumption of a well-functioning banking system for effective monetary policy transmission is flawed, considering the prevailing liquidity mismanagement, weakened supervision, and lack of public trust in the financial sector.
It is essential to differentiate between crisis stabilization and policy optimization when evaluating the interim government’s performance. Interim administrations are tasked with addressing existing challenges and restoring basic functionality before implementing long-term strategies to improve economic indicators. The article’s failure to acknowledge the time lag in addressing structural distortions and its focus on short-term outcomes undermines the complexity of the economic situation.
In conclusion, while criticism of the interim government is valid, it must be based on a comprehensive understanding of the institutional context and contemporary economic dynamics. Using outdated economic models to assess a modern economy facing complex challenges is inadequate and may lead to misleading conclusions. A more nuanced evaluation considering the inherited economic issues and progress towards rebuilding foundational structures is necessary before making definitive judgments on economic performance.