When I joined the central bank more than two years ago, I witnessed the proposal of big loan restructuring. One phrase economists care about is "moral hazards." The job of policymakers is not to change the whole economy, but to give the right signal through instruments like tax rate, interest rate, exchange rate, cash reserve ratio, etc.

When Milton Friedman urged policymakers to maintain a constant money growth, his intention was to give the right signal that the economy will enjoy price stability. When John Maynard Keynes advocated for greater governmental role in investment, his intention was not to keep the government in that role, as is the case in a socialist economy, but to signal private entrepreneurs to vigorously fill the investment gap.

What signal did we give through loan restructuring? The signal we gave to the super-rich was that they are allowed to continue plundering wealth the way they have been. However, we gave it a different name to segregate the default portfolio. The same rotten wine is now in two different bottles: loan classification and loan restructuring. The final sweet surprise is called loan write-off – an unfailing elixir to emulate a default practice for another project by siphoning off funds to another venture.

During my student life, I saw that political mastans devoured multiple meals in the Jagannath Hall canteen, but instructed the canteen manager to write the meal charges under different accounts: their top leader's name, party name, and occasionally, under their personal accounts. In all cases, the manager knew that the bills would never be paid off. Doesn't this resemble the behaviour of the super-wealthy default practitioners?

Thus, the signalling of the loan restructuring was bad and the habitual defaulters seized the opportunity instantly. The results have begun to surface right now: a big part of the rescheduled loans is jumping into the default bucket – a much anticipated outcome. The restructuring plan allowed for another 15 years of repayment. The applicant defaulters originally asked for 25 years – a quarter century, signalling a near eternity of their willful defiance to honour any obligation whatsoever. Thus, Tk. 16,000 crore was restructured.

However, loan restructuring has a contagion effect. Default loans increased from almost Tk. 51,000 crore in 2015 to roughly Tk. 62,000 crore in 2016. What a marvelous development just in one year! Now even SME loans are turning bad faster than before – the plague has gripped the city. Defaulting will soon turn into a national disease, unless the government takes a U-turn in its policy of indulgence and favouritism.   

The amount of restructured loans symbolises the tip of the iceberg. And more is coming. The trend is important as is the tendency that will remain uncorrectable as long as the signalling is wrong. I could not agree more with the then IMF mission chief who raised a valid question while commenting on the restructured loan facility in a review meeting at the central bank. He had asked how can the claim that big business were doing badly be proved when the country's economic growth was above six percent.

Our economy accelerated even further, reaching over seven percent growth rate, since loans of Tk. 500 crore were granted under this restructured system, but the fault line has begun to show as expected through the growth in default loans. Big businesses with restructured facilities are portraying an emerging Greece within the womb of a vibrant Bangladesh. That is a wrong signal. That does not reflect our economy's real strength.

Have we ever asked why the super-rich parties are defaulting repeatedly? Simply because it is rewarding. They somehow convince the people in power and get their way. The research and advocacy organisation Global Financial Integrity released a report of money laundering, and ridiculed the so-called honesty of the super-rich. The money laundered from Bangladesh in 12 years until 2014 was USD 56 billion, whereas the amount was only USD 2 billion from Pakistan. I did some math and found that Pakistani tycoons are at least 28 times more 'patriotic' than Bangladeshi plunderers. Should we not feel shame after witnessing this comparison?

Big businesses can fail usually when the whole economy plunges into a recession – technically the doldrums of a negative growth rate, which Bangladesh is not likely to witness at least in 30 years. Then what are the excuses? Did the big businesses not employ trained professionals to create the balance sheet and run the cash flow adequately enough to service the working capital? Did they not get enough signals to phase out some plants once they drain blood? They did. Yet, they desperately gambled on project after project with the definite conviction that the government will eventually bail them out.

That is enough to create moral hazards. Non-professionalism is not only becoming endemic among the existing defaulters but also among others who had been behaving responsibly so far. Policy favoritism spoils the future of professionalism – a word gradually losing its appeal in the banking sector. 

Even among policymakers, some people with hidden stakes argue that these big tycoons are big employers. Therefore, preventing them to continue their business by stopping rescheduling or restructuring facilities will likely ruin the fate of thousands of employees who cannot be made unemployed for the greater interest of the country. This is an example of crocodile tears – a lame excuse to justify the wrongdoings of the bank looters in a repeated fashion that will damage the base of future economic growth. Employees are held thus hostage by the defaulters.

If the government takes a strong, resolute stance, and establishes their position a couple of times, the trick of holding employees hostage will lose its traction. Moral hazards will diminish and the banking sector will receive a good signal. Otherwise, the way we are heading will simply ruin all remnants of minimum professionalism in the banking industry – the major sector of private investment and growth.

The writer is guest faculty of the Institute of Business Administration and the Institute of Disaster Management at Dhaka University.

E-mail: birupakshapaul@gmail.com