Economists warn about allowing local firms to borrow from foreign source

UNB, Dhaka :
Economists on Thursday urged the central bank to be cautious in allowing local enterprises to receive foreign loan.
They said frequent permission to local ventures to get foreign loans may create adverse effect in the economy in general and in the balance of payment in particular.
“The effect of foreign borrowings by local companies is yet not known to us, particularly its possible impacts on the balance of payments. Only those companies exporting their goods should be allowed to get the foreign loan,” said Dr Mustafizur Rahman, executive director of the Centre for Policy Dialogue.
He made the suggestion while addressing a seminar on the monetary policy announced recently by Bangladesh Bank.
Bangladesh Institute of Development Studies (BIDS) organized the seminar with its director general Dr MK Mujeri in the chair.
The economists also expressed concern about the growing non-performing loan (NPL) in the banking sector.
However, Bangladesh Bank governor Dr. Atiur Rahman defended the central bank policy on allowing local companies to receive foreign loans.
He said that only those companies, which are either involved in export business or produce import substitute goods, are getting such foreign loans.
In the current monetary policy, local companies are allowed to borrow from foreign sources to some extent after fulfilling certain conditions of the central bank.
The seminar was also addressed, among others, by former advisor of the caretaker government Dr Mirza Azizul Islam, former Bangladesh Bank governor Dr Salehuddin Ahmed, World Bank’s lead economist Zahid Hossain, Bangladesh Bank chief economist Dr Hasan Zaman, Policy Research Institute of Bangladesh’s executive director Dr Ahsan M Monsur and Dhaka University economics department chairman MA Taslim.
Dr Mustafizur Rahman said there is huge risk in taking foreign loan by the local companies as its interest rate fluctuates on the basis of London Interbank Offered Rate (LIBOR).
Dr Mirza Azizul Islam observed that the foreign loans may create problem in maintaining the balance of payment of the country.
Dr Ahsan Monsur, however, disagreed with the risks of the foreign loans and said it is the right of the local companies to borrow from foreign sources at lower rate when they are not getting such loan locally.
Dr Salehuddin Ahmed said the monetary policy is giving more concentration on containing inflation while other areas of the economy like investment promotion and employment generation are not getting due importance.
Dr Atiur Rahman said the main objective of the central bank’s monetary policy is to create a trend for sustainable economy, keeping stability of price and employment generation.
He said the central bank has been working on the aspiration of the government and to bring it into reality through the monetary policy.
“We don’t want to distribute money frequently, but we want a realistic economy and contain inflation,” he told the seminar.