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TITLE:  BANGLADESH ECONOMIC POLICY AND TRADE PRACTICES
DATE:  FEBRUARY 1994
AUTHOR:  U.S. DEPARTMENT OF STATE

                            BANGLADESH

                     Key Economic Indicators
            (Millions of taka unless otherwise noted)


                                  FY91 /1   FY92      FY93 
Income, Production,
 and Employment

Real GDP (1985 prices)            514,442   534,820   557,800
Real GDP Growth (pct.)               3.40      3.96      4.30
GDP (current prices)              834,392   903,287   954,500
By Sector: /2
  Agriculture                     300,596   316,723   334,648
  Energy and Water                 11,201    14,011    14,795
  Manufacturing                    72,801    82,571    87,241
  Construction                     47,261    53,466    56,411
  Financial Services               16,299    17,793    18,804
  Other Services 3/               386,122   418,603   442,315
Net Exports of
  Goods and Services              -59,767   -53,512     n/a
Real Per Capita GDP (taka)          4,466     4,540     4,629
Labor Force (000's)                52,200    54,300     n/a


Money and Prices
 (annual percent growth unless noted)

Money Supply (M2, billion taka)   250.9     285.3     285.5
Base Interest Rate (pct.) 9/        9.75      9.0       7.0
Personal Saving Rate (pct.)         3.0       3.8       3.8
Retail Prices 4/                    8.95      5.09      1.37
Wholesale Prices                    n/a       n/a       n/a
Consumer Price Index 4/           689.30    724.40    734.30
Exchange Rate (Taka per $)
  Official (end-December)         35.79     38.58     39.00


Balance of Payments and Trade
 (millions of U.S. dollars)

Total Exports (FOB)                1,670     1,901     2,130
  Exports to U.S.                    524       832       518 5/
Total Imports (CIF)                3,470     3,457     3,538
  Imports from U.S.                  179       189       129
Aid from U.S. 6/                     140       135      73.5
Aid from Other Countries 7/        1,733     1,611     1,572
External Public Debt 8/           10,690    11,157    12,605
Debt Service Payments 8/             568.8     535.5     505.6
Gold and FOREX Reserves              998     1,631     2,082
Trade Balance                     -1,800    -1,556    -1,408
  Balance with U.S.                 -345     -643.5     -389 5/


Notes:

1/  The Bangladesh fiscal year is July 1 - June 30.
2/  FY93 sectoral data is estimated on the basis of sectoral
    GDP contribution of FY92.
3/  Figures are for all services.
4/  Inflation figures are based on General Price Index.
5/  Figures are based on U.S. Department of Commerce January 1
    - July 31 period.
6/  Figures are for the October 1 - September 30 fiscal year.
7/  Figures are for total foreign assistance disbursements.
8/  Figures are based on Bangladesh Government, Economic
    Relations Division.
9/  Average annual Central Bank rate.



1.  General Policy Framework

    Bangladesh is a one of the world's poorest, most densely
populated, and least developed nations.  With 120 million
people and a GDP of $24 billion in Bangladeshi fiscal year
1992-93 (FY93), per capita income was just over $200.  Many
factors have inhibited the growth of Bangladesh's
overwhelmingly agricultural economy.  These include frequent
cyclones and floods, government interference with the economy,
a rapidly growing labor force which cannot be absorbed by
agriculture, a low level of industrialization, underdeveloped
energy resources, and inefficient power supplies.  A major
policy objective -- feeding the rapidly growing population --
is supported by significant U.S. grain exports to Bangladesh
under PL-480 programs and commercial sales.

    Given more respite from natural disasters and major
political unrest, Bangladeshi's democratically elected
government continued to take some halting steps towards
economic reform in FY93.  Changes in Bangladesh's tax and
tariff regimes, the liberalization of the foreign exchange
regime, including a declaration of taka convertibility on the
current account, have made markets more open.  The macroeconomy
appears healthy, with record low inflation, bulging foreign
exchange reserves, and a reduced current account deficit. 
Another bumper rice crop and spectacular growth in the garment
export industry are expected to push economic growth up from
4.3 percent to around five percent this year.

    Government expenditures, composed primarily of current
expenditures and the Annual Development Program (ADP), stayed
under control for FY93.  Domestic revenues, buoyed by improved
tax revenue performance exceeded current expenditure once
again.  Increased revenues with restrained current expenditure
left a current revenue surplus of 25.5 billion taka.  This
surplus provides the government contribution to the country's
development budget called Annual Development Program (ADP). 
While most funding for the ADP will come from donor nations,
the finance ministry planned to maintain Bangladesh's
contribution at about 31 percent in FY94.  Tax revenues reached
a record high in FY93, although the rate of growth in
government revenues slowed to around 16 percent compared to 22
percent in FY92.

    The government has followed a tight stabilization program
since the beginning of 1991.  The growth of credit has
decelerated as the government has limited the use of credit by
public enterprises.  Private sector demand has been reduced in
recent years, first by political uncertainties and increasingly
by stricter credit requirements instituted as part of ongoing
financial sector reforms.

    In spite of achieving macroeconomic stability, Bangladesh's
microeconomic picture is not encouraging.  The state presence
in the economy continues to be far too large.  The government
made little progress in privatizing inefficient state-owned
industries or reducing the public payroll.  The level of
investment badly needed for job creation, from both the private
and public sectors, is among the lowest in Asia.

    Although investment measures were further liberalized by
allowing private sector investment in the energy and
telecommunication sectors, the investment climate continues to
be generally poor.  Bureaucratic bottlenecks, labor unrest and
a deteriorating law and order situation continued to discourage
domestic and foreign investors, keeping Bangladesh from
reaching the six to eight percent sustained economic growth
necessary to lift it out of poverty.  The Government of
Bangladesh hopes to boost GDP growth to an ambitious five
percent in FY94.  This will require another good rice crop, an
improvement in ADP implementation and foreign aid utilization
and significant progress in expanding the role of the private
sector.


2.  Exchange Rate Policy

    Following a path of progressive liberalization of foreign
exchange regulations, the Bangladesh Bank declared a number of
measures during FY93.  Floating foreign exchange rates are
fixed on a daily basis by commercial banks according to
worldwide cross rates.  The Bangladesh Bank also fixes rates,
which act as reference rates for the taka, based on a trade
weighted basket of currencies.  The government recently
declared the taka convertible for current account transactions.

    While the high level of hard currency reserves and a black
market rate very close to the official rate suggest that the
exchange rate is close to its equilibrium level, the taka's
market value is nonetheless bolstered by the large sums of
foreign exchange Bangladesh receives every year through aid
transfers and by a still very high level of effective tariffs
and quantitative restrictions on imports.  U.S. products and
services have only become generally more price competitive in
the Bangladesh market to the extent that the value of the U.S.
dollar has declined against competitor nations' currencies.

    Inbound and outbound foreign investment flows are too small
to affect the exchange rate.  Most foreign firms are able to
repatriate profits, dividends, royalty payments and technical
fees without difficulty, provided the appropriate documentation
is presented to the Bangladesh Bank.  Outbound foreign
investment by Bangladeshi nationals requires government
approval and must be in support of export activities. 
Bangladeshi travellers are limited by law to taking no more
than $2,500 out of the country per year.


3.  Structural Policies

    In its final year of the IMF's three-year ESAF program,
Bangladesh continued to meet or exceed the ESAF fiscal and
monetary targets.  After a steady rise from FY91 to FY92, the
money supply leveled out at near zero growth in FY93.  As was
the case in FY92, low effective demand for loans led to limited
growth in private sector credit, tending to dampen growth in
the money supply.  Moreover, the VAT continued to generate
higher than anticipated revenues for the government, with
collections up ten percent in real terms.  Government spending
has also been reined in through controls imposed on the level
of subsidies provided to several money-losing parastatals and
an attempt to shift greater central government resources
towards capital or development expenditures.  Gross inflation
is estimated at 1.37 percent, low by any standard.

    While Bangladesh has been able to meet the overarching
monetary and fiscal targets under the ESAF, progress on
sectoral reforms which have been supported by bilateral donors
and multilateral banks has been halting.  Long an easy source
of funds for preferred borrowers who did not feel obliged to
repay their loans, the banking sector in Bangladesh is
undergoing a wholesale reform effort under the Financial Sector
Reform Program (FSRP), supported by the U.S. Agency for
International Development (USAID) and the World Bank.  The FSRP
faces a daunting challenge in attempting to convert a
bureaucratically run, economically unresponsive, network of
nationalized banks into a useful source of capital for
entrepreneurs.  Insulation from market forces permitted the
banks to maintain administered interest rates and to ignore the
bottom line in providing and pricing banking services.  The
FSRP has made considerable progress in repricing banking
services and liberalizing interest rates.

    Key to the future solvency of the banking system, the World
Bank's jute reform package promises to restructure over one
billion dollars in jute debt owed to government-owned banks. 
Plans for jute reform were disrupted, however by the agreement
to a wage increase package for parastatal employees, which
raised the cost of layoffs.  Although the government proclaims
privatization of public sector industry as a major priority, it
has made little progress in selling off or shutting down losing
parastatal enterprises.  A recently established Privatization
Board so far appears ineffectual.  Among the several
intractable political issues involved in this effort is the
need to lay off excess workers and, in some cases, close down
whole plants, in the face of strong opposition from organized
labor.  Due to sustained pressure from donors involved in the
energy sector, slow improvements in the management and
efficiency of the national power utility are being made.

    The effect of the ESAF's tight fiscal and monetary
policies, coupled with a strong taka, has inhibited import
demand and helped constrain domestic private investment. 
Inadequate implementation of the Industrial Policy of 1991 by
various ministries and agencies has contributed to a stagnant 
investment picture, with an overall investment rate of around
ten percent of the GDP.  The impact of the much-publicized
Board of Investment remains to be seen.


4.  Debt Management Policies

    Assessed on the basis of outstanding principal,
Bangladesh's national debt was $12.61 billion as of June 1993,
up 13 percent from the previous year's level of $11.16
billion.  Given the fact that virtually all of the debt was
provided under highly concessional terms by bilateral and
multilateral donors, the net present value of the total
outstanding debt is significantly lower than its face value. 
Bangladesh currently owes approximately $1,219 million to the
U.S., primarily incurred under the older PL-480 Title I and III
food program.  In October 1991, the U.S. provided $293 million
in debt relief to Bangladesh in response to the country's
adherence to IMF/IBRD macroeconomic reforms.  Total medium- and
long-term debt servicing for FY93 was $506 million, 5.6 percent
lower than the previous year's amount of $536 million.


5.  Significant Barriers to U.S. Exports and Investment

    The government continues to liberalize its import regime 
by relaxing quantitative restrictions.  It has simplified
import procedures and rationalized tariffs.  The Bangladesh
government has established three general tariff categories for
most products: zero to 15 percent for raw materials, 30 percent
for intermediate goods, and 50 or 100 percent for finished
goods, resulting in very high levels of effective tariff
protection for final products.  Large vehicles, alcohol,
cigarettes and air-conditioners are some important exceptions
to this policy.  Tariffs on these products are well over 100
percent.  Bangladesh continues to raise relatively high shares
of its government revenue from customs duties.  Bangladesh is a
member or the General Agreement on Tariffs and Trade and is a
participant in the ongoing Uruguay Round.

    Bangladesh continues to engage in countertrade activities
with traditional countertrade partners such as China, Russia
and the Czech Republic.  However, countertrade has declined to
a small percentage of the value of Bangladesh's overall trade.

    The Industrial Policy of 1991 (revised in 1992) allowed
foreigners to have 100 percent ownership of businesses and
promise foreign investors equal treatment with domestic
capital.  Recently the government allowed foreign firms to
obtain working capital loans in taka from local banks.  Many of
the Industrial Policy's provisions have yet to be translated
into action.  However, the major exception is investment in the
country's only Export Processing Zone (EPZ), located in
Chittagong, Bangladesh's second largest urban center and
principal seaport.  Investment proposals for the EPZ are
processed quickly, and the EPZ administration is able to take
care of the investors' needs, from tax treatments to utility
hook-ups.  Investment proposals outside the EPZ can be delayed
in processing for years.


6.  Export Subsidies

    The Bangladesh government attempts to encourage export 
growth through measures such as ensuring duty-free status for
some imported inputs including capital machinery and providing
easy access to financing for exporters.  Ready made garments
producers are stimulated by bonded warehousing and back to back
letter of credit facilities.  Exporters are now allowed to
exchange 100 percent of their foreign currency earnings through
any authorized dealer.  Interest rate subsidies to exporters
financed by the Government were slightly reduced in 1991. 
Bangladesh has so far continued to resist domestic exporters'
demands for increased export subsidies.

    Jute exports have continued to decline due to erratic
supply and continuing competition from synthetics.  Government
efforts to prop up the industry have been expensive and
unsuccessful.

    Bangladesh's first export processing zone (EPZ), located
near the main port city of Chittagong, has 52 factories and has
attracted investment worth $137 million since its founding in
1983.  Five U.S. firms are currently operating in the EPZ,
including one garment factory and four specialized textile
manufacturers.  Projects in the EPZ benefit from duty-free
imports of capital goods and raw materials.  In June 1993, the
Government established a similar export processing zone in the
town of Savar, north of Dhaka and close to the international
airport.  So far 37 proposals for factories have been approved,
and three factories have already gone into production.  A third
EPZ is expected to open in two years in the southern city of
Khulna.


7.  Protection of U.S. Intellectual Property

    Bangladesh intellectual property law dates from the
colonial era and has many similarities with the current British
system.  The Patent and Design Act of 1911, as amended by the
Patent and Design Rule of 1933, the Trademark Act of 1940, and
the Copyright Ordinance of 1962 govern patents, trademarks, and
copyrights in Bangladesh.

    Drafts of new legislation have been produced by the legal
profession in some cases, these drafts are under review by
governmental committees, in one case, that of a new company 
law, since 1986.  Although the government has not given
intellectual property issue a high priority, Bangladesh has
been a member of the World Intellectual Property Organization 
(WIPO) in Geneva since 1985 and is represented on two of its
permanent committees.  Intellectual property infringement is
common, but is of limited significance for U.S. firms, with 
the possible exception of pharmaceutical products and audio and
video cassettes.


8.  Worker Rights

    a.   The Right of Association

    The Bangladesh constitution guarantees freedom of
association, the right to join unions, and, with government
approval, the right to form a union.  With the exception of
workers in the railway, postal, telegraph, and telephone
departments, state administration workers are forbidden to join
union.  Some workers have formed unregistered unions, however. 
The ban also applies to security-related government employees
such as in the military and police.  Bangladesh civil servants
forbidden to join unions, such as teachers or nurses, have
joined associations which perform functions similar to labor
unions.  Workers in Bangladesh's two EPZs have also skirted
prohibitions on forming unions by setting up associations.

    b.   The Right to Organize and Bargain Collectively

    The Government has stated that labor law restrictions on
freedom of association and formation of unions in the EPZs will
be lifted by 1997.  In the burgeoning garment industry, there
have been numerous complaints of workers being harassed and
fired in some factories for trying to organize workers.

    Unions in Bangladesh are highly politicized.  Virtually all
the National Trade Union centers are affiliated with political
parties, including one with the ruling government party (BNP). 
Some unions are militant and engage in intimidation and
vandalism.  Illegal blockades of public transportation routes
by strikers occurred several times in 1993, with scattered
violence.  General strikes, or "hartals", continue to be used
by the political opposition to pressure the Government. 
Hartals cause significant economic and social disruption
through loss of work hours and production.  The Essential
Services Ordinance permits the Government to bar strikes for
three months in any sector deemed essential.  Mechanisms for
conciliation, arbitration, and labor court dispute resolution
were established under the Industrial Relations Ordinance of
1969.

    c.   Prohibition of Forced or Compulsory Labor

    The constitution prohibits forced or compulsory labor. The
Factories Act and Shops and Establishments Act, 1965, set up
inspection mechanisms to enforce laws against forced labor, but
resources for enforcement are slim.  These laws are not
rigorously enforced.

    d.   Minimum Age for Employment of Children

    Bangladesh has laws that prohibit labor by children.  The
Factories Act of 1965 bars children under the age of 15 from
working in factories.  In reality, enforcement of these rules
is inadequate.  According to United Nations estimates, about
one third of Bangladesh's population under the age of 18 is
working.  In a society as poor as Bangaladesh's, the extra
income obtained by children, however meager, is welcome and
sought after.  In anticipation of possible U.S. legislation
prohibiting the import of products made by child labor,
thousands of underage children employed in Bangladesh's garment
industry were fired in 1993.

    e.   Acceptable Conditions of Work

    Regulations regarding minimum wages, hours of work and
occupational safety and health are not strictly enforced.
Minimum wages set by law, vary depending on occupation, but are
generally ignored.  There is no national minimum wage. 
Instead, the Wage Commission sets wages industry-by-industry. 
In most cases, private sector employers ignore this wage 
increases, arguing that low labor productivity vitiates any
arguments for set wage.

    The law sets a standard 48-hour workweek with one day off
mandated.  A 60-hour workweek, inclusive of a maximum 12 hours
of overtime, is allowed.  Relative to the average standard of
living in Bangladesh, the average monthly wage could be
described as sufficient to support life but is not by any means
a good wage for a family.  The Factories Act of 1965 nominally
sets occupational health and safety standards.  The law is
comprehensive but appears to be largely ignored by many
Bangladeshi employers.

    f.   Rights in Sectors with U.S. Investment

    U.S. investment stock in Bangladesh is very small, totaling
less than $30 million.  It is concentrated in the
capitalization and physical assets of a life insurance company,
a commercial bank, a representative banking office, and a few
other service and manufacturing operations.  The manufacturing
firms with U.S. investment have unions and bargain
collectively.  Worker layoffs or the threat of
reductions-in-force can cause serious management-labor
disputes.  As far as can be determined, firms with U.S. capital
investment abide by the labor laws and the provisions of the 31
ILO conventions ratified by Bangladesh.  Similarly, these firms
respect the minimum age for the employment of children. 
According to both the Bangladesh government and representatives
of the firms, workers in firms with U.S. capital investment
generally earn a much higher salary than the minimum wage set
for each specific industry.  In some cases, workers in these
firms enjoy shorter working hours than those working in
comparable indigenous firms.


         Extent of U.S. Investment in Selected Industries

              U.S. Direct Investment Position Abroad
                on an Historical Cost Basis - 1992
                    (millions of U.S. dollars)

Category                               Amount

Petroleum                                            0
Total Manufacturing                                  D
    Food & Kindred Products                0
    Chemicals and Allied Products          D
    Metals, Primary & Fabricated           0
    Machinery, except Electrical           0
    Electric & Electronic Equipment        0
    Transportation Equipment               0
    Other Manufacturing                    0
Wholesale Trade                                      0
Banking                                              D
Finance and Insurance                                0
Services                                             0
Other Industries                                     0

TOTAL ALL INDUSTRIES                                 D


(D)-Suppressed to avoid disclosing data of individual companies

Source:  U.S. Department of Commerce, Bureau of Economic
Analysis.

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