The moveability of a supposedly immoveable object

• Miscellaneous
• 20th March 2011
• YC

I am sure you have heard of that rather amusing philosophical paradox, "What happens when an irresistible force meets an immoveable object?" We obviously do not know the answer to that paradox, but not because of lack of curiosity. Which leads me to query, what happens when a moveable object meets a resistible force? This is not a paradox; we actually do know the answer to this question. When a moveable object meets and greets a resistible force, a Nobel laureate gets dragged through the filth of a muddy political arena.

This Awami League government's attempt to belittle our only Nobel laureate, Dr. Mohammad Yunus, is very unedifying and leaves an unpalatable aftertaste. There are many dimensions to this saga. The legal issues are under the consideration of the High Court, while the government's political motivations are being prosecuted at the altar of public opinion, and rightly so. However, there is a third dimension to this drama that has not been highlighted so far.

Questions have to be asked about the Bangladesh Bank's role in this whole fiasco. After all, Finance Minister A.M.A. Muhith did say during his briefing to foreign ambassadors and donor agency representatives on March 3 (as reported by The Daily Star): "Bangladesh Bank performs a relatively minor role in supervision and audit of its operations ... But Grameen Bank essentially is a government institution governed by a unique law."

If the Bangladesh Bank (BB) performs a limited function in supervising an "essentially government institution" such as the Grameen Bank (GB), why did it send a "termination" letter to the Grameen Bank Board? Notwithstanding the limited authority vested in the BB to supervise GB, the BB quite clearly had no problems with GB's corporate governance practices over the past 10 years. So what has changed? Why is the BB involved now?

There is no need to speculate on why the BB had a change of heart. Finance Minister Muhith, the all-extraordinaire communicator that he is, has already informed us that the government had "requested" the BB to assess the legality of Dr. Yunus' continuation in his current position. BB subsequently complied with the government's request and issued a letter forcibly ousting Dr. Yunus.

In most economies around the world, there is a separation of powers between an executive body such as a ministry of finance, and an autonomous statutory body such as a central bank. The separation of powers ensures that no one public institution has a monopoly over the two main levers of economic policy, fiscal and monetary policy. Many economic studies have shown that the credibility of a central bank, derived from its effective and independent management of monetary policy, has a very significant impact on its ability to achieve low inflationary outcomes.

And by the way, economic literature also overwhelmingly demonstrates that low inflationary outcomes are very important to achieve strong and sustained long-term economic growth.

Central banks, not unlike the judiciary, are designed to be immoveable objects. Central banks are vested with the institutional capacity to resist the political cycle-driven myopia of governments.

And make no mistake about it, governments are not irresistible forces. That is why our constitution endows us with the right to pick up a pen in anger and express our thoughts. That is why you have the right to vote one party in and another out in an election. The BB is endowed with equally effective powers to oppose the executive bully pulpit in the greater interest of the Bangladesh public.

The BB, in complying with the government's attack on Dr. Yunus, has acted like a line ministry, not an autonomous statutory body. Its actions have diminished the public trust in its authority, and have desecrated its credibility to deliver on its mandate -- to maintain price stability, promote economic growth and job creation, and eradicate poverty.

The writer is a professional macroeconomist. He can be reached at wnofel@gmail.com.

Source: http://www.thedailystar.net/newDesign/news-details.php?nid=178328