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Wednesday, April 8, 2020 10:54:01 PM
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Bailout by banks necessary but trustworthy monitoring system to be found

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The Association of Bankers on Tuesday decided to call upon the central bank to take more policy measures to allow them to implement the lion's share of the Tk 72,500 crore bailout package efficiently amidst the ongoing pandemic situation. Of the rescue package, banks will have to provide Tk 50,000 crore in loans from their own resources to small, medium and large businesses. Unfortunately a majority of the banks have been hit hard by the liquidity crunch as a good number of individual and corporate clients are withdrawing funds on a regular basis due to the ongoing economic fallout from the pandemic. The banking sector, which is already struggling with heaving soured loans, will face a good amount of defaulted loans in the days ahead as the capacity of many clients to pay back credits is eroding.
Both the government and the BB would have to monitor the implementation of the bailout package strictly or else the habitual defaulters with strong political links would siphon off money from the programme. So this remains the main drawback of the bailout--that the money would go to those politically connected or powerful who would use this as an opportunity to siphon of even more money from the public and the state coffers. But will this strict monitoring exist in reality? Both the BB and some of the private and public banks have been unable to constrain their ability to give out bad in normal times--and these times are far from normal. Can they restrain the impulse to give out loans to the politically connected? It seems difficult to see how they can prevent themselves from doing so. The bailout should not be a bailout for the rich and the politically influential--which it may easily end up being. We must remember that it's the people's money which is being used to help the businesses--the government can't magically print banknotes as it sees fit.
Bailout is essential but trustworthy monitoring arrangement possible under present conditions that is in doubt.

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