Evolving global order brings risks, opportunities for Bangladesh: Prof Wahiduddin

Professor Wahiduddin Mahmud, a noted economist and former adviser to a caretaker government, has said the evolving geopolitical landscape presents a significant challenge for less developed countries: balancing the political interests of their governments with upholding global humanitarian values, while simultaneously striving for optimal economic integration. 

The changing geopolitical landscape means the challenge for less developed countries will be to align the political interests of their ruling regimes with upholding global humanitarian values, while also securing maximum global economic benefits, said Professor Wahiduddin Mahmud.

Speaking at a public lecture session of the three-day Annual BIDS Conference on Development at a hotel in the capital on Saturday, he said, "Navigating external economic policies in an increasingly complex global order will not be easy for the less developed countries." 

"A main challenge is how to conduct economic diplomacy to have an appropriate balance between the industrialised West and the emerging China bloc, which now includes Russia as well," he said.

The renowned economist, in his lecture titled "Evolving Global Order and Geo-economics: Implications for Less Developed Countries", said, "The more a regime has legitimacy in the eye of its people through popular mandate, perhaps the more will be its capacity to achieve such alignment of the country's interests with those of the ruling regime itself."

A main challenge is how to conduct economic diplomacy to have an appropriate balance between the industrialised West and the emerging China bloc, which now includes Russia as well.

Professor Wahiduddin Mahmud

"Concomitantly, an authoritarian and repressive regime will feel more constrained to do so," he said, adding that a politically weak government was also more likely to succumb to the pressures of foreign governments and the multinational companies backed by them to accept exploitative economic deals.

Highlighting China's loans to developed countries, he said the easy access came with the risk of becoming indebted, which in turn would mean the affected country would be expected to support China in international forums.

Wahiduddin Mahmud said China was trying to offer a development model to the developing world, which was a mix of market liberalisation and state control, and in which priority was given to economic growth over the Western concept of democratic values. 

"This China model may appear attractive to developing countries with authoritarian regimes, particularly those with soured relationships with the US and other Western democracies," he said.

He noted that less developed countries had higher stakes in their relationships with industrialised democracies, given the numerous advantages — trade preferences, foreign aid and concessional loans, among others.

He said the changing geopolitical situation had resulted in global tensions which ultimately impacted less developed countries.

"The fallout of the West's economic sanctions against Russia in the wake of the ongoing Ukraine-Russia war has been all too visible," he said, adding that its disruptive impact was evident by the domestic inflation stoked by global price spikes, especially in fuel prices.

"The lesson for these countries is to make contingency plans for meeting such global market crises such as by building adequate foreign reserves," he said.

Highlighting the "US-initiated" trade war with China, he said the escalating confrontation meant other countries were hit indirectly through weaker demand for their exports, either through supply chains or in response to weaker global economic growth. 

"It is noteworthy that, despite the trade war, the US and China remain the largest trading partners of each other. Some developing countries may indeed take advantage of the diversion of US trade and investment away from China, provided there are enough skills and a favourable investment climate," he said.

Wahiduddin Mahmud said the global economy and trade were being governed by neo-liberal trade, which focused on trade openness and market orientation for the last 75 years. But the trend of globalisation has slowed in the last couple of years, with the re-emergence of protectionism and economic nationalism. 

"The scenario has become more complicated by the recent tilt towards nationalist trade policies in the industrialised countries, especially in the US, resulting mainly from the resentment of the alleged impact of trade openness on labour displacement within those countries," said the economist.

"Many economists, however, argue that the blame should be put on the lack of appropriate compensating measures within the domestic economies of those countries, and not on the liberalisation of imports from developing countries," he said.

Terming the rise of economic nationalism in the industrialised West "ironic", he pointed out that the trade rules negotiated under the World Trade Organization were "largely in favour of the industrialised countries."

"The rise of economic nationalism in the US in particular is reflected in its lack of enthusiasm even for any multilateral economic agreements. The present Biden administration is showing only lukewarm response to the proposal for a much less comprehensive Asia-Pacific trade deal called the Indo-Pacific Economic Framework (IPEF)," he said.

Instead, American policy in Asia was now focused on limited bilateral deals that support President Biden's industrial policy, which seeks to boost domestic manufacturing, he said.

Using a localised context, he highlighted how Bangladesh, despite its LDC status, was denied duty-free excess for its main export item, namely, ready-made garments, in the US market.

He emphasised implementing core human rights, labour standards, governance and other sustainable development conventions to retrieve GSP facilities in the US market, avail duty-free excess for its main export item RMGs and also GSP+ facilities in the EU after the graduation from the LDCs.

Wahiduddin Mahmud also suggested raising the efficiency of industries across both export-oriented and import-substituting to go for trade agreements with reciprocal tariff concessions rather than seeking one-sided trade preferences.

External pressure mounting

Professor Dr Selim Raihan, executive director of the South Asian Network on Economic Modeling (Sanem), said Bangladesh did not experience much external pressure or much external engagement in the last 50 years of development. But the country is becoming a battleground of major players.

He also said that Bangladesh's preparations to engage with the major trading partners are very slow and weak to meet the challenges after the LDC graduation. The government failed to sign or implement any major FTA.

Policy Research Institute (PRI) Chairman Dr Zaidi Sattar chaired the session. He identified high tariffs as one of the major barriers to signing FTAs. 

He said Bangladesh's readiness regarding FTAs is very weak at a time when Vietnam has gone ahead aggressively to sign bilateral and regional FTAs.

"High tariff is the first barrier. Intellectual property rights, labour standards and human rights, and investment climate come later," he said, identifying high tariff as a major barrier behind lower export diversification.

Zaidi Sattar said the import-substituting industries are getting more support compared with the cash subsidy for export.

"There is an anti-export bias of policy incentives which results in no progress in export diversification while the duty-free import of inputs provides a level playing field in the international market for the RMG sector," he said.

"The domestic market remained much more profitable because of high protection. Entrepreneurs have a lower interest in exporting their products from Bangladesh," Zaidi added.