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Cablegate: Bangladesh's Post-Cyclone Economy: Down but Not Out

VZCZCXRO5191
PP RUEHCI
DE RUEHKA #1903/01 3401112
ZNR UUUUU ZZH
P 061112Z DEC 07
FM AMEMBASSY DHAKA
TO RUEHC/SECSTATE WASHDC PRIORITY 5744
INFO RUEHLM/AMEMBASSY COLOMBO PRIORITY 8207
RUEHIL/AMEMBASSY ISLAMABAD PRIORITY 1938
RUEHKT/AMEMBASSY KATHMANDU PRIORITY 9415
RUEHNE/AMEMBASSY NEW DELHI PRIORITY 0347
RUEHCI/AMCONSUL KOLKATA PRIORITY 1053
RUEHBK/AMEMBASSY BANGKOK 8309
RUEHRO/AMEMBASSY ROME 0428
RUEKDIA/DIA WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEKJCS/SECDEF WASHDC
RHEHNSC/NSC WASHDC
RUEKDIA/JOINT STAFF WASHDC
RHHMUNA/USCINCPAC HONOLULU HI
RUEHGV/USMISSION GENEVA 0609
RUCNDT/USMISSION USUN NEW YORK 0059

UNCLAS SECTION 01 OF 02 DHAKA 001903

SIPDIS

SIPQIS

DEPT FOR SCA/FO AND SCA/PB
DCHA/OFDA FOR ROBERT THAYER
AID/W FOR AA MARK WARD AND ANE ANNE DIX
TREASURY FOR ELIZABETH WEISS AND SUSAN CHUN
DCHA/FFP FOR MATTHEW NIMS AND PAUL NOVICK
ROME FOR FODAG
BANGKOK FOR RDM/A TOM DOLAN, ROB BARTON
KATHMANDU FOR USAID/OFDA BILL BERGER AND SUE MCINTYRE

E.O. 12958: N/A
TAGS: BG EAID ECON EFIN ETRD EAGR PGOV PINR
SUBJECT: BANGLADESH'S POST-CYCLONE ECONOMY: DOWN BUT NOT OUT

REF: A) DHAKA 5871 B) DHAKA 1832

1. (SBU) Summary: Cyclone Sidr couldn,t have come at a worse
time for Bangladesh,s economy. When the storm hit on
November 15, Bangladesh already was suffering from weak
export markets, debilitating inflation, meager investment and
an agriculture industry reeling from severe monsoon flooding.
Economists, including the Asian Development Bank, believe
economic growth for the fiscal year that began in July will
fall below the previous year,s rate. The immediate task for
the Caretaker Government is to ensure food security in the
wake of widespread crop damage, to kedp prices from spiraling
much higher and to help millions of Sidr victims get back on
their feet. International relief already is focusing on these
areas and should help the Government maintain political
stability in the crucial one-year run-up to national
elections. End Summary.

2. (SBU) Even before Cyclone Sidr hit, Bangladesh,s
economy was in trouble. Exports fell by 5.4% in the first
quarter of fiscal year 2008 (July-September) from a year
earlier because of weakness in the woven garment and knitwear
markets. Imports during the same period rose by 26% on the
back of rising oil and food grain prices, darkening the
balance of payment outlook. Meanwhile, the government,s
anti-corruption calpaign depressed new investment by making
businessmen wary of any activity that could draw attention to
their wealth. And monsoon flooding that ravaged much of the
northern countryside in the summer wiped out much of the rice
crop. In a report released November 26, the Asian Development
Bank (ADB) predicted gross dolestic product growth of less
than 6 percent this fiscal year, compared with 6.5 percent
the year before and earlier government expectations of about
7 percent.

3. (SBU) The most politically senwitive economic issue has
been inflation, which before Cyclone Sidr already was on the
rise due to expensive imports and the summer flood-related
agricultural losses. Nationwide anti-government protests in
August were fueled in part by anger over inflation, which by
September had reached 10 percent year-on-year. Local media
has reported that prices for basic food have gone up even
more since, with some items spiking yet further immediately
after the cyclone pummeled Bangladesh,s southern cropland.
Abdur Rob, a wispy-bearded vegetable seller seated behind
moderately wized mounds of produce in a central Dhaka market,
held up a cucumber and said its price has climbed about 50
percent in the nearly two weeks since the cyclone. Pumpkins
weren,t available at all, he added. &Qeople are angry.8
Although the qdded inflapionary pressure from the cyclone may
be short-lived, one leading Bangladeshi economist, Mustafizur
Rahman, said he doesn,t see any respite for the overall
price picture.

4. (SBU) One big worry is grain: Will supply meet demand in
the coming months? Last year was disaster free, yet
Bangladesh still imported about 2.4 million metric tons of
rice and wheat, according to economists at the respected
Bangladesh think-tank Centre for Policy Dialogue (CPD). They
say this year,s flood and cyclone rice losses could exceed 2
million metric tons ) the Agriculture Ministry on December 1
put the loss at 1.4 million metric tons -- meaning a
potential need of 4 million tons or more of grain.
Bangladeshis hope a bumper &boro8 winter rice crop will
help meet the shortfall. But Uttam Kumar Deb, a senior
research fellow at CPD, believes the upcoming harvest won,t
be able to offset much more than 500,000 metric tons of the
loss. There,s simply not enough land, and production may lag

DHAKA 00001903 002 OF 002


if fertilizer isn,t readily available and diesel fuel prices
maje the cost of irrigation prohibitive. Availability and
high prices also will be issues on the international grain
markets.

5. (SBU) Rahman, who is the executive director of CPD, says
that Bangladesh,s foreign exchange reserves of $5.4 billion
) up nearly 50% from a year earlier ) are a &saving
grace8 for buying grain on the international market. He says
the government also has about 700,000 metric tons of grain in
storage. Concerned about food security in the coming months,
the Caretaker Government on November 27 appealed to
international donors to provide 500,000 tons of grain. During
a visit to Dhaka on Duc. 1, the Indian foreign minister
promised to ease rice export restrictions to make precisely
that amount available for purchase by Bangladesh. Other
countries also h`vu promised to provide food assistance; the
United States, for!example, already has pledged $15 million.

6. (SBU) There are other glimmers of positive economic news.
The ADB reported that from July through October workers,
remittances grew by 28.4% from a year earlier, which should
help improve the balance of payments outlook. So`too should a
perkier export market for ready-made garments (RMG). Although
RMG exports fell 7.4 percent in July-September from a year
earlier to $2.42 billion, Rahman said sales picked up in
September, and October and November order books looked good.
Neither Banglatesh,s garment factories nor its major
seaports were damaged by the cyclone. The government also is
showing a greater sensitivity to business concerns; most
recently it established the Bangladesh Better Businessmen
Forum for dialogue between government and executives to boost
confidence.

7. (SBU) Perhaps the most daunting task for the Caretaker
Government will be putting the economy of the cyclone-hit
areas back together again. Millions of people face losses of
homes, cropr and livestock; many had their livelihoods
destroyed. CPD is urging an expanded works program whereby
cyclone victims can help repair roads, bridges and other
infrastructure for food. Although much of the Caretaker
Government,s focus so far has been on providing emergency
relief ) it announced a. initial assistance package of
nearly $13 million, including about $5 million for rebuilding
destroyed houses -- The Chief Adviser on December 3 asked
donors for $1 billion for reconstruction. The money would be
used for roads, cyclone shelters embankments, reforestation
and schools.

8. (SBU) Comment: Relief and recovery from Cyclone Sidr will
be a major test for the Caretaker Government, which already
has its hands full instituting electorah reforms and
preparing for a national election ry the end of next year.
Helping the Caretaker Government ensure food security and
rebuild cyclone-devastated areas ) both already high
priorities for the U.S. Agency for International Development
-- will go along way toward maintaining the social stability
needed for a successful transition to an elected government
next year.
Pasi

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