Need for a shield against financial contagion

The capital market of Bangladesh has seen its worst in recent times. In the frontier of multivariate assumptions and perceptions, we believe that there are lessons to be learned from the mistakes and more importantly, reforms have to be initiated to avoid a financial contagion.

The term financial contagion was first coined in July 1997, when the currency crisis (better known as the Asian Crisis) in Thailand quickly spread through East Asia. The term derived through its medical inference, talks about small shocks that initially affects particular sectors of the economy or financial intermediaries but eventually affects the entire economy.

We would like to bring in context certain events of the Asian Crisis that affected the emerging economies in 1997. We will similarise certain events of the crisis with the Bangladeshi stockmarket in terms of money flow and policy phenomena.

This is necessary for two reasons. Firstly, Bangladesh has been identified as an emerging economy for the next decade and therefore, learning from the development of previous emerging economies and reformation is to our benefit.

Secondly, the Bangladesh stockmarket has already faced such recession and the economy has started to show a phenomenon that was common to the pre-crisis events of those economies.

Furthermore, we will put forward some of the extra ordinary policy and project reformations that have taken place in countries like Thailand and Malaysian stockmarket for the betterment of their whole economy. The intent is to shield Bangladesh from a stockmarket debacle in the future because of flawed vision and policy. The next decade of economic growth has to be facilitated by the capital market, not hindered by it.

Being labelled as an emerging economy is a positive note for all of us. But the question will remain as to whether we are prepared to handle the growth process or not. Without dynamic management of regulations, the economy can easily suffer as the stockmarket has suffered from policy wise inertia. In such cases, Bangladesh will not be the first or a unique case either. Countries like Thailand, Malaysia, Indonesia, Philippines and South Korea faced the Asian Crisis in 1997 for similar reasons while playing the role of emerging economies in those times. In the early 90s, when these countries enjoyed GDP growth of 8 percent-12 percent, they were called by the International Monetary Fund (IMF) as 'Asian Miracles'. In those times, there were certain events that can be considerable, although we should keep in mind that these are cursory descriptions rather than a fully comprehensive analysis.