It appears that the measures were introduced at the insistence of multilateral lending agencies. It was also similar to steps undertaken elsewhere in South Asia. This was also in response to extra-ordinary rise in crude oil prices over the last few weeks.

This time round, prices have gone up on an average by 14 percent, with octane by 18 percent. This has been the twenty-sixth increase in the price of oil products since 1972 and the eighth since the present government assumed power nearly four years ago. This was also the four such enhancement in price since the beginning of this year.

There are some interesting statistics that have emerged in the past few days. Out of 3.76 million metric tons of oil imported last year, diesel accounted for 2.3 million metric tons and kerosene for another 0.55 million metric tons, i.e., almost seventy-five percent. Furnace oil accounted for 0.31 million metric tons and the rest went for petrol and octane. The other significant aspects is that, despite the latest price hike, the government will continue to sell diesel and kerosene at a loss of Taka 12 per litre. This connotes substantial continuing subsidy.

It has also been revealed that during FY 2004-05, Bangladesh Petroleum Corporation sustained a loss of Taka 3,100 crore and that if prices had not been raised, this might have doubled given the steady rise in international fuel prices.

The other important factor that seems to have influenced the decision was the inexorable and steady rise in the volume of fuel consumption. Before FY 2004-05, it was increasing at about 10 percent per year. That was more or less consistent with the upsurge in economic activity. However, during the last year it rose by almost 18 percent. This was despite a significant rise in the use of CNG motorised vehicles both in the private and public transportation sectors.

This scenario has led to allegations that this extraordinary rise in consumption during the last FY was probably due to smuggling of fuel across the border. It has also been suggested that the difference in the rates of exchange and payment for informal trading have been contributory factors. The recent seizure of 300,000 litres of oil by coast guards at the Mongla Port has lent credence to such assumption.

The prices of diesel and kerosene have both been increased by 15 percent. Despite such an increase there will still be subsidy. However, the question that arises is whether such a step to balance the budget will eventually affect the agricultural sector.

I believe that effects of such an increase will be felt during the in-coming Boro season where farmers will be affected with regard to their irrigation needs. They will also have to incur extra costs for supplementary irrigation to rain-fed Aman cultivation.

There are 786,004 shallow pumps now in operation for irrigation across the country, of which only 54,392 are electricity driven. This price rise will definitely hurt the irrigation of winter paddy Boro crop by marginal farmers who constitute the largest segment within the agricultural sector. This latest decision will make things particularly that much more difficult for farmers using diesel pumps. They are already incurring 30 percent more expenditure than those using electricity-run pumps.

The Asian Development Bank in its latest report has already forecast erosion in growth in our economy. This is not good news.

Such regression will not be limited only to the rural sector. International rise in oil prices will affect our economy in more ways than one. It will lead to a pernicious cycle of higher price of products, higher wages, higher inflation and subsequently higher interest rates. It will affect producers, importers, exporters and consumers. Industrialists and trading houses, unwilling to suffer losses in profits will pass on the additional cost on to consumers, who are already suffering under high inflationary pressure (7.3 percent on a point to point basis for June). Such higher supply chain cost, including expensive loans, will offset exchange rate gains that had made our products cheaper for the international market.

Such a scenario is underlining once again the need to undertake more structural reforms to bolster productivity growth and also the necessity to identify alternative renewable energy sources -- wind power, bio-gas from crop wastes, exploitation of tidal or sea waves and solar energy.

The government in a knee-jerk reaction has not only raised the price of fuel but also taken the controversial step of a two-day weekend, halving of fuel for government vehicles and shorter shopping hours. One can understand the rise in oil prices but one fails to appreciate this decrease in the number of working days. As it is, our bureaucracy has become notorious for its lack of professionalism, corruption and poor governance. This extra day of holiday both within the government as well as in the financial sector will make things worse. It will only increase pressure on those associated with export-driven industry. They will now face greater delay in obtaining necessary clearance for the many regulatory measures built into our economic system. This will affect their obtaining of the required certificate of origin from the Export Promotion Bureau. This in turn will impact on general competitiveness, pricing, service and quality.

Similarly, halving of fuel for government officers is hardly a solution. The total volume consumed is insignificant compared to other factors. For example, the government may like to declare that henceforth, every Minister will travel economy class with excursion fares. It may also take steps to reduce the Cabinet by half. If the Caretaker Administration can run with ten members, there is no reason why we cannot have a smaller Cabinet. The number of cars allocated to Ministers should similarly be reduced from two to one. These are drastic steps but the time has come to initiate such measures.

Our government has to understand that international oil prices are not going to come down. The steep growth in demand for oil by China and by India in the coming years and lack of sufficient global refining capacity might keep prices over US Dollar 70 per barrel in the foreseeable future. The oil price dipped below dollar 68 a few days ago, but some analysts have predicted that it might rise. US dollar 100 per barrel is also on the horizon. There is no longer any time left for playing politics.

The crisis has to be discussed and considered from a bi-partisan spirit. A parliamentary technical committee needs to be set up to seriously analyse our expected growth, future demand for oil, alternative sources of energy and how best to move forward. While doing so, it needs to be remembered that the vast majority of our rural population live without electricity and are dependent on kerosene and candles.

One way out might be greater use of solar power as is being done in Nepal. Power generation through solar house system (SHS) has reportedly been already introduced in some rural areas of Bangladesh. It is understood that a 50-watt SHS can meet basic electricity needs of a rural household. However, the cost for installation of such units remains comparatively high. Nearly Taka 23,000 is required for installation of each unit. That is beyond the reach of the rural poor.

This environment friendly application could however be facilitated through credit extension by micro-credit financial institutions. In that case, such electricity could be used not only for domestic purposes but also for small economic units like poultry farming. Collective usage can also assist irrigation on a small scale. This potential will help in re-payment of loans.

Another urgent step should be the encouragement of wider usage of compressed natural gas (CNG) in vehicles. This could be facilitated by reducing the conversion cost through introduction of indigenous technology. There should also be reduction in the time taken to re-fuel CNG powered vehicles. Currently, it takes roughly one hour of waiting time. This needs to be brought down drastically. CNG should also be made available all over the country by having such re-filling stations on every highway.

The government also has to give increased emphasis on the extraction of our coal deposits. This will help in generating power. It will require investment in related capital-intensive infrastructure. However, money for this can be found from our own domestic private sector savings. Usage of pre-paid electricity meters will ensure that there is no 'systems-loss.' It will also guarantee return on investments. The government might even consider making dividends and profit accruing from such investment from the private sector tax-free.

The Bangladesh Bank, in consultation with scheduled banks, has already permitted them to keep open some of their branches on Saturday to facilitate foreign trade transactions. This will make possible opening of letters of credit and transfer of money. This will reduce the cost of doing business, ensure continuity of competitiveness and also promote trade and investment in the country. This has been a good step. We have to take similar practical measures with regard to other areas of our economic activity.

We are passing through a critical time. We need bold measures. That will be the only way to reduce the suffering of the common man and to contain inflation.

Muhammad Zamir is a former Secretary and Ambassador -- any response to [email protected]