Piercing the Veil of Neoliberal Prosperity
In the early hours of August 5, a military chopper left Bangabhaban in the heart of Dhaka. Its cargo was Sheikh Hasina, hurriedly fleeing with her sister to a military base near Delhi. The unceremonious exit marked the end of the reign of the longest-serving female world leader, and plunged the nation of 160 million into chaos.
Many parallels have been drawn between the series of events that led to the removal of Bangladesh’s strongwoman and the popular revolt in Sri Lanka two years prior, when its own despotic dynasty was forced to flee amid an economic crisis. Strikingly, both countries are part of the South Asian region- home to a quarter of the planet and a tenth of the global economy- and the crises were exacerbated by remarkably similar macroeconomic conditions.
The Russian invasion of Ukraine in early 2022 triggered a global energy and inflation crisis, the effects of which were acutely felt in South Asia, with its deep integration into global commodity and debt markets. Large, mostly externally-held debt has been a source of chronic instability, and was compounded by the region's heavy reliance on energy imports priced in dollars. As oil and gas prices surged and the US Federal Reserve hiked interest rates to stave off inflationary pressures, the region’s currencies began to rapidly devalue.
This vicious cycle compounded inflation and squeezed precious foreign exchange reserves, contracting imports of both consumer discretionaries and industrial inputs, slowing aggregate economic growth. The resulting surge in unemployment and runaway consumer prices fueled widespread discontent, which the region’s weak democratic institutions were ill-suited to handle. The political ramifications of these series of economic crises were famously characterised by Columbia University professor Adam Tooze as “The South Asian Polycrisis”.
The Forgotten Nation
Bangladesh is a country often overlooked in the international collective imagination. Even as chaos and revolution rocked the world’s 8th largest country, few headlines were made in media houses and publications outside the subcontinent. The first student revolution of the 21st century, a “Gen Z Revolution” of sorts, garnered minimal international attention or solidarity, and caused little excitement amongst political pundits, influencers and western socialites.
While news of geopolitical turmoil is easily submerged in an era of global resurgence in political instability, Bangladesh has a history of being forgotten by the international community. Now as half a century ago during its time of independence, Bangladesh was very much present in the global political landscape and a product of its times.
The late 1960s were a period of student activism and protest globally, but nowhere was this more the case than in Bangladesh. While standard accounts of the period tend to focus on college campuses in the west, Bangladesh witnessed the most concentrated spirit of youth political energy of the times. The epicenter of this movement was Dhaka University, galvanized by the brutal assassination of Asad uz Zamman, a well-known student political activist.
The dissension stemmed from the erstwhile East Pakistan’s continued economic and political exploitation - economic structures inherited from colonial rule filled the coffers of the Pakistani state with the earnings of East Pakistan, one of the region’s great export engines. This was enforced with social and cultural repression, the restriction of Bengali political representation and even the Bengali language.
The “gross neglect, callous and utter indifference” of the Pakistani leadership to a deadly cyclone and famine galvanised political opposition, and the military junta’s refusal to recognise the democratic election of 1971, won by a Bengali candidate, caused uproar in East Pakistan. The harsh reprisal against student protestors had a mobilising effect on the movement and created an international scale to the mourning. The student community was deeply and personally affected by the gruesome deaths of popular and prominent members of their campus.
While estimates of the number of victims of the Bengali genocide are disputed, what is undeniable are the vast and deliberate massacres that ensued. The mass killings directed at the political opposition and the Hindu minority of East Pakistan were described on the spot and in global media as genocide, as comparisons to the Holocaust were widely drawn. As summarised by the Holocaust Memorial Museum-
“The genocide began with massacres in the capital, Dhaka, on March 25, 1971, and soon spread to the rest of Bangladesh. The army had premade lists of targets, including members of the Bengali nationalists, intellectuals, and Hindus. The army believed that mass violence would terrorize what they saw as a racially inferior population into subservience, especially if Bengali elites were killed, but instead faced popular resistance that was put down with violence. Young men were targeted as potential sources of resistance and women and girls were raped as a way to destroy Bengali families. Despite a denunciation of the violence by the US consul general in Dhaka, Archer Blood, known as “the Blood Telegram,” the Nixon administration refused to intervene. A local guerilla movement gained support from India and was able to force a Pakistani surrender in December of 1971. By this time, about three million people had been killed and millions more had become refugees in Bangladesh or India. When the army realized it was likely to lose, it targeted prominent individuals seen as a potential leadership for the new state of Bangladesh.”
Despite public indignation over western complicity in the mass atrocities, political establishments met the Bangladeshi cause with scepticism. Pakistan under military rule in the 1960s had been widely touted as a highly successful growth model, much as Bangladesh spent the 2000s and 2010s as the World Bank and International Monetary Fund’s poster child of poverty reduction and neoliberal prosperity. And just as the veil of prosperity was dramatically lifted by the actuality of famine and destitution, the myth of rapid development has been upended by the persistence of poverty and systemic corruption.
A 385 page white paper published in December by a committee of experts tasked by the interim government to examine the Bangladeshi economy has since found, using World Bank data measuring economic activity with light-intensity at night, that the real rate of annual growth was likely around 3% - well under the 7% long claimed by official statistics. The report estimated that the equivalent of 3.4% of 2024 GDP had been lost to corruption on an annual basis between 2009 and 2023, amounting to over 234 billion dollars. The graft ranged from stock market scams to drug-trafficking and involved a nexus of politicians, bureaucrats and businessmen.
The war in Ukraine had simply served as a catalyst for a macroeconomic crisis that owes its genesis to deep structural issues including low Foreign Direct Investments (FDI), inadequate public spending on health and education, a lack of economic or export diversification, poor tax revenues and a fragile banking sector. The global shock led to inflation jumping to 7.6% in 2022 and 9.5% in 2023, even as the official exchange depreciated by over 30% in 2023. The kerb market exchange rate was lower still, with margins deepened by tight import restrictions.
As the nation attempts to rebuild its institutions and restore economic growth, inflation remains high and investment has collapsed over months of political instability. The Asian Development Bank has slashed its growth forecasts and the World Bank estimates that half of all non-poor rural households are at risk of falling back into poverty.
The key source of instability in Hasina’s regime was high youth unemployment and lack of economic opportunity. Years of deep political dysfunction had created an entrenched clientelistic political structure in the job market. The initial protests were triggered by the imposition of an ostensibly bizarre jobs quota in the civil services to the descendants of “freedom fighters” in a country where over two-fifths of young people had no access to regular employment. Job opportunities for young educated Bangladeshis in virtually every sector ran through the apparatus of the Awami League. Its student wing, a murderous vigilante force called the Bangladesh Chhatra League, had absolute control on university campuses and on the streets.
Emboldened by a sham election earlier in the year, the party reacted to the dissent with remarkable brutality - hundreds of protestors were killed, thousands injured and tens of thousands charged. The reprisal galvanized the protestors and triggered further nationwide protests. The courts eventually reversed the quota but it was much too late - the public anger of students had boiled over.
The disconnected despot framed the opposition and protestors as “Razakars” - a slur for collaborators with Pakistan’s military occupation - and ordered a harsh military crackdown. Faced with the prospect of defending a decaying, unpopular regime, the military forsook its untenable position and allowed the protestors to form an interim government led by a revered microfinance pioneer, Muhammad Yunus.
The most immediate challenges in the breakdown of immediate state functioning, including law and order, were averted. However, the continued political instability, led by anti-Hindu and anti-blasphemy sentiment, undermines market stability and investment. Mass protest and political violence can hinder the construction of new institutions and undermine the legitimacy of the fragile interim government, and it remains to be seen how political parties and state institutions deal with the complex relationship between Islam and Bangladeshi nationalism.
Ultimately Bangladeshi civil society, mobilised by students, has toppled an oppressive and unpopular regime. The parallels to 1971 aren’t merely superficial- the formation of the state laid the foundations for the partisan, legal and social institutions that determined its political trajectory. Despite the weak enforcement of the rule of law, inclusive markets and democratic governance, the state established by a popular uprising led to the effectuation of a social contract that empowered the independence of dissent.
Thousands of kilometres away, the remainder of the Pakistani rump state held democratic elections in 1971. Immediately upended by a coup d’état, it forbode the formation of a subdued civil society incapable of similar organisation.
The Military State
Across the Middle East, Asia, Africa and Latin America, most countries in the developing world have experienced periods of military rule and subversions of civilian government by the armed forces. In the Post-war period, the nascent democratic institutions of many newly independent states lacked the material bases of consent necessary to legitimise their authority. This was often exacerbated by cold war tensions which fueled subversive political forces manifest through populist political sentiment and socio-economic instability.
By its apolitical, non-partisan nature, the security apparatus is not dependent on popular consent and generally viewed more favourably than democratically-accountable institutions. Social disruptions and economic shocks leave the armed forces often the sole state institution to escape popular delegitimisation, and creates a power vacuum conducive to exploitation by military strongmen. This phenomenon is most perspicuously exhibited by the state of Pakistan - a country that has spent nearly half its existence under military rule, with no elected administration ever completing a full term in power.
The political activism of the armed forces deeply integrated it into the economy, and in turn led to the corporatisation of the private sector to the military’s commercial interests. Every segment of the Pakistani economy, be it agricultural, manufacturing or service sectors are dominated by complex military business structures.
The National Logistics Corporation, the Army’s logistical arm, was transferred control of freight transport from Pakistan Railways, and continues to dominate the country’s cargo transport. The military-owned Frontier Works Organisation took over toll collection on all national highways, while the Special Communications Organisation dominates telecommunications in the country’s north and the Pakistan-administered territory in Kashmir.
The armed forces operate over fifty major companies, from education, banking, real estate and private security to cereal, cement and fertilizer manufacturing. They benefit from preferential access to state-subsidised inputs of production, public funds, national resources and government-funded contracts. The private sector’s inability to compete with the military crowded out investment and capital inflows, while a class of rent-seeking enterprises dependent on relations with the armed forces was reinforced.
The military-business nexus was complete by their clientelistic relationship with the political class. Since the return of civilian power in 2008, the military has largely maintained control over the political establishment, characterised by multiple high-profile tensions over plots of attempted coups.
In 2018 the military favoured the Pakistan Tehreek-e-Insaf, a party created by a political outsider and cricket superstar Imran Khan. He went on to overcome the cleavage of the two dynastic political forces that traditionally dominated Pakistani politics - the Pakistan Muslim League-Nawaz of the Sharif family and the Pakistan Peoples Party of the Bhutto family - and rode to power on a wave of populism and anti-incumbency with the backing of the military.
When the macroeconomic and energy crises of 2022 created devaluationary pressures and an inflationary spiral, Khan’s administration was already embattled by an islamist insurgency from the Pakistani Taliban. Emboldened by the American withdrawal and subsequent collapse of the Ashraf Ghani government in Kabul, the group launched suicide bombings and terror attacks across the country. The political landscape was beset by socioeconomic upheaval, and the military engineered his removal through a no-confidence motion in April.
The incoming interim government’s efforts to prop up the Rupee and to alleviate inflationary pressure left foreign exchange reserves depleted, with barely weeks of imports left. The national exchequer lurched from crisis to crisis as high-stakes bailout agreements were signed with the IMF to bring the country back from the brink of sovereign default. All the while Imran Khan, who remained Pakistan’s most popular politician, staged mass protests and demanded to be reinstated.
In early 2023, the PTI was dissolved and Khan was arrested, leading to an unprecedented wave of anger. Section 144 - an ordinance that banned public assemblies that “are deemed a threat to the public order” and has been used by the Pakistani state to silence protests and quash dissent - was imposed in the areas that witnessed collective dissent.
The crackdown was facilitated by the military establishment’s dominance of all facets of the political landscape. The Pakistani military and intelligence services were seemingly omnipresent forces guiding politics from behind the scenes. With a vast network of informants and spies woven through Pakistan’s urban centres, the Inter-Services Intelligence, or ISI, had become a surveillance state within a state, instilling a deep sense of paranoia in the public. Unlike in Bangladesh, the military was unrelenting, and Pakistani civil society was unable to organise to resist the punitive response.
Like other authoritarian states aligned with western strategic interests, Pakistan’s military sustains itself with American military aid. Just as the geopolitical necessities of controlling the Suez canal stifled western support for democratic movements in Egypt, Pakistan was seen as an essential bulwark against the expansion of Soviet influence into the Indian ocean. Despite Pakistan's support of militant Islamic forces, covert pursuit of nuclear weapons and facilitation of foreign terror attacks, this strategic calculus continued to shape relations following the end of the cold war, reinvigorated by the war on terror and renewed American interest in the region.
Capital investments were buoyed by China’s entry into the region. In the decade since 2015, Chinese investments in road, rail, port and energy infrastructure as part of the China-Pakistan Economic Corridor (CPEC), the flagship project of China’s Belt and Road Initiative, ballooned to over 62 billion dollars.
Foreign investment often compounded the risks of agreements jeopardized by instability, and the unstable commercial environment was exacerbated by substandard construction practices, illegitimate bidding, breached contracts, corruption and legal irregularities. Crime, extortion, terrorist attacks and mass expropriations triggered civil unrest, nationwide strikes and protests. The unrest led to the scaling back of the investment and debt restructuring.
An overlooked element of the kleptocratic political landscape is the opaque negotiation of contracts, which in the case of the CPEC involved no feasibility study or Environmental Impact Assessment, as per the Sustainable Development Policy Institute in Islamabad and the Social Policy and Development Centre in Karachi. A common feature of Chinese investment, the opacity was compounded by South Asia’s weak political institutions and culminated in popular backlash, the most striking example of which was the island nation of Sri Lanka.
The Looted Pearl
2024 was a year characterised by an unprecedented number of elections - over half the world’s population headed to the polls. The political landscape witnessed a level of anti-incumbency reminiscent of the oil shocks of the late 1970s, and incumbents the world over were punished by vengeful electorates.
From Britain and France to India and Japan and to Ghana and South Africa, culminating in the momentous American presidential elections, deteriorating macroeconomic conditions fomented a severe popular reaction and embattled political establishments were penalised harshly.
Nowhere was this sentiment as strongly manifest as in the Sri Lanka, where September’s election served as the most dramatic political upset in the country’s history. An overwhelming rejection of the old order catapulted Anura Kumara Dissanayake, a political outsider with a militant Marxist-Leninist past, into power.
The precursor to the crises elsewhere in the subcontinent, Sri Lanka’s political and economic malaise was long in the making. Its prolonged and brutal civil war, marred by allegations of massacres and ethnic cleansings, was ended in 2009 by an absolute military victory. The political landscape was conducive for the Sri Lankan conservatives, dominated by the kleptocratic Rajapaksa family, to effectively leverage a cleavage of religious and ethno-nationalistic majoritarianism.
Sri Lanka’s military ended the conflict with a disproportionately high level of influence. Opaque ties between the political establishment and the armed forces were complemented by mutual ties to China, whose military aid and support decisively helped end the war. China’s growing economic and political clout culminated in the port of Hambantota. As part of a campaign to revitalise the bastion of the Rajapaksa family in the island’s southern tip, China Huanqiu Contracting and Engineering Corporation was invited to expand operations in the region and facilitate the involvement of Chinese companies funded by the Export-Import Bank of China (China Exim).
The port was built in two phases by the China Merchants Group, a Chinese state-owned enterprise with a 15-year commercial loan from China Exim. The opaque negotiation process, allegations of bribery of Sri Lankan officials and the exorbitant terms of the debt agreement initially came under minimal scrutiny. The project generated few local jobs as the loan terms stipulated that the contract be awarded to China Harbour Engineering Company, a Chinese state-owned enterprise, without provisions for the employment of local workers.
The Sri Lanka Ports Authority, unable to accumulate the loss of construction fees, created Hambantota International Ports Group (HIPG), a joint-venture with China Merchants Port, in which the latter was awarded an 85% stake, rights to exclusive access for the duration of a 99-year lease and a 15,000 acre Special Economic Zone.
Hambantota served as a powerful symbol of the establishment’s corruption and a violation of Sri Lankan sovereignty. Popular discontent began rising long before the Covid crisis of 2020 caused a dramatic reduction in foreign remittances and a sharp rise in the cost of imports. Deficit-financed import led growth created a structural dependence on remittances and weak Foreign Direct Investments. A major tax cut in 2019 further depleted the state’s reserves and worsened the fiscal climate.
In early 2022, following the global energy and food crisis triggered by the Russian invasion of Ukraine, volatile headline inflation spiked globally. In the dollar zone, rising interest rates compounded these pressures and created a vicious spiral. Emerging market countries like Sri Lanka attempted to counter the cycle of devaluation and inflation by sharply raising their own interest rates. This created risks of stagflation, but in the most extreme cases did little to stem the tide of capital outflows. In Sri Lanka, the rate of inflation rose to over 50%, and the country ran out of fuel for essential services.
Extreme austerity and conservation measures, including severe fuel restrictions, were insufficient to avoid default and in May 2022 Sri Lanka failed to make an interest payment on its foreign debt for the first time in its history. The default destroyed sovereign credibility and restricted the country from borrowing on international markets, forcing it to negotiate a bailout from the IMF that included the imposition of further austerity measures.
A series of protests erupted, and Gotabaya Rajapaksa dug in, refusing to resign and clamping down with authoritarian measures including curfews and restricting access to social media. By July, the protestors had occupied the president’s home in Colombo, and the Rajapaksa family was forced to flee the country. The popular unrest had forced a largely peaceful transfer of power. Unlike in Pakistan or Bangladesh, the political upheaval had manifested itself largely through a democratic system.
The Institutional Determinants of Development
The nations of South Asia make the unequivocal case that institutions drive countries’ economic success or failure, and that long-term economic growth is driven by institutions that promote fair legal systems and effective governments that safeguard the political landscape from rent-seeking, corruption and instability.
While the deep and systemic corruption of Hasina’s regime forced a nominally violent transfer of power, the stage is set for the rebuilding of institutions with greater transparency and accountability. In its quest for a more inclusive political climate, new opportunities and fairer economic policies, the interim government is beset by challenges. The new government must balance keeping the economy on track with poor working conditions, low productivity and a lack of diversification.
As the largest export market for Bangladesh’s garment industry, which employs 4.4 million people and generates 84% of the country’s export revenues, the EU plays a consequential role in the country’s economic future. European policy stands at the crossroads of compliance with the Sustainable and Circular Textile Strategy, to increase sustainability and traceability in supply chains, and facilitating sustainable economic growth. European engagement and partnership is necessary not only to secure financing for sustainable textile initiatives, but to strengthen partnerships on trade and investment that could accelerate reforms, protect workers’ rights, increase transparency and ensure environmentally responsible practices.
India contrastively has been reluctant to engage with the new political leadership in Dhaka. Seeing the Awami League as a bulwark against Islamism in the region, successive Indian administrations expanded trade, energy and military ties with Hasina’s government. India continues to host her in exile, which it is widely resented for by the Bangladeshi public.
Even as many in Bangladesh and the diaspora the world over rejoiced, policymakers in New Delhi were reeling from the collapse of a close political and strategic ally. The two countries share a porous 4000 kilometre border that has historically served as a haven for armed insurgents, most recently in India’s Northeast. When Hasina came to power in 2009, she cracked down on these ethnic militant groups and amicably settled several border disputes with India, fostering deep economic and political ties between the two countries.
India’s divergent strategic assessments with the West were laid bare by disagreements with the Biden administration on the underlying instability and reliance on repression of Hasina’s regime. While these differences are unlikely to inhibit U.S-India strategic convergence, they are a crucial reminder that the West and India reside in different neighbourhoods, have different perceptions and interests, and underpin the crucial role of Europe in ensuring the advancement of good governance and functional democracy under the rule of relatively secular political forces.
What is certain is that South Asia will continue to play a consequential political, strategic and economic role in the international community. It is at the forefront of the fight against poverty and climate change. It is an engine of economic growth and a cautionary tale for the developing world. As the international political landscape continues to fragment and national institutions return, South Asia’s polycrisis serves not just as hope to lay the foundations of a stronger democratic future- it is a product of its times.
Bibliography:
Hindustan Times; HT News Desk. (2024, August 5). How and why did Sheikh Hasina flee Bangladesh? 10 points; https://www.hindustantimes.com/world-news/how-and-why-did-sheikh-hasina-flee-bangladesh-10-points-101722854061385.html
Chartbook; Tooze, A. (2024, September 4). Chartbook 315 Talking about Bangladesh. Or, rather, why aren’t we talking about Bangladesh? Substack.com; https://adamtooze.substack.com/p/chartbook-315-talking-about-bangladesh
BBC News; E. (2024, September 2). Sheikh Hasina poses a Bangladesh conundrum for India. Bbc.com; https://www.bbc.com/news/articles/cg4ypkpx1rqo
Adamtooze.com; Tooze, A. (2022, September 21). Chartbook #153: The South Asian Polycrisis – ADAM TOOZE; https://adamtooze.com/2022/09/21/chartbook-153-the-south-asian-polycrisis/
South Asia Multidisciplinary Academic Journal, 22; Christiansen, S. (2019). A Campus in Context: East Pakistan’s “Mass Upsurge” at Local, Regional, and International Scales; https://doi.org/10.4000/samaj.6491
BBC News; Perera, A. (2022, May 20). Sri Lanka: Why is the country in an economic crisis?; https://www.bbc.co.uk/news/world-61028138
The New York Times; Goldbaum, C. (2024, May 19). Are Those Mimes Spying on Us? In Pakistan, It’s Not a Strange Question; https://www.nytimes.com/2024/05/19/world/asia/pakistan-islamabad-golden-men.html
Carnegie Endowment for International Peace; Waseem, Z. (2024). Inside the Punitive State: Governance Through Punishment in Pakistan; https://carnegieendowment.org/research/2024/06/pakistan-punitive-state-terrorism-police?lang=en
The Daily Star; Raihan, S. (2024, January 8). What lies ahead for Bangladesh’s economy? ; https://www.thedailystar.net/opinion/views/news/what-lies-ahead-bangladeshs-economy-3514056
Carnegie Endowment for International Peace; Staniland, P. (2024). Bangladesh Is Well-Positioned to Build a New Political Area. Can It Seize the Moment? ; https://carnegieendowment.org/emissary/2024/10/bangladesh-hasina-government-politics-what-next?lang=en
Chartbook; Tooze, A. (2022a, April 6). Chartbook #108: Containing the global shockwave - the real battle to shape the post-crisis world economy. Substack.com; https://adamtooze.substack.com/p/chartbook-108-containing-the-global
Financial Times; Stacey, K. (2017, December 11). China signs 99-year lease on Sri Lanka’s Hambantota port; https://www.ft.com/content/e150ef0c-de37-11e7-a8a4-0a1e63a52f9c
The National Archives; Hoque, A. (n.d.). The Independence of Bangladesh in 1971; https://www.nationalarchives.gov.uk/education/resources/the-independence-of-bangladesh-in-1971/
Holocaust Museum Houston; hmh.org. (n.d.). [online]; https://hmh.org/education/bangladesh-1971/.
Comments