INTELLIGENCE MEMORANDUM ECONOMIC PROSPECTS FOR BANGLADESH

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001700030006-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 13
• Document Creation Date: December 22, 2016
• Document Release Date: January 18, 2011
• Sequence Number: 6
• Publication Date: January 1, 1972
• Content Type: IM

Sanitized Copy Approved for
Release 2011 /01 /18
CIA-RDP85T00875R0017000
Sanitized Copy Approved for
Release 2011/01/18:
CIA-RDP85T00875R0017000
 25X1
Secret
DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
Economic Prospects for Bangladesh
Secret
ER IM 72-6
January 1972
Copy No.
76
Sanitized Copy Approved for Release 2011/01/18: CIA-RDP85T00875R001700030006-1
 Sanitized Copy Approved for Release 2011/01/18: CIA-RDP85T00875R001700030006-1
WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title
18, sections 793 and 794, of,the US Code, as amended.
Its transmission or revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law.
GROUP I
1XCLU0-.D rHOM AUTOMATIC
DDN N IIADINO AND
OD LANNIFICATIOH
Sanitized Copy Approved for Release 2011/01/18: CIA-RDP85T00875R001700030006-1
 Sanitized Copy Approved for Release 2011/01/18: CIA-RDP85T00875R001700030006-1
SECRET
CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
January 1972
INTELLIGENCE MEMORANDUM
ECONOMIC PROSPECTS FOR BANGLADESH
Introduction
1. The new nation of Bangladesh, with 65 million to 70 million
inhabitants and 10 million ex-residents who may return from India, faces
formidable economic problems. It is the world's eighth most populous
nation and one of the poorest, with an average per capita output of roughly
$65 annually. During its 24 years as the East Wing of. Pakistan, output
grew slowly and living standards stagnated. The area, also known as East
Bengal, has been unable to grow enough food for its people for more than
a decade. The civil war that began in March and last month's war with
India have left the transport and distribution system in ruins, and extensive
reconstruction will be necessary before normal economic activity can
resume. This memorandum reviews the econorry's characteristics and
economic prospects.
Discussion
Background
2. Bangladesh largely lacks the human, institutional, and physical
resources needed for significant economic progress. It has a predominantly
agricultural economy, with the industrial sector - mainly jute processing
and tea estates - accounting for only about 9% of gross domestic product
in 1970. With an area the size of Arkansas but 40 times as many people,
Bangladesh is frightfully overcrowded. Population growth of about 3%
annually continues to intensify pressure on the land and makes it difficult
to maintain - much less improve - living covditions.
Note: This memorandum was prepared by the Office of Economic Research
and coordinated within the Directorate of .ntell,gence.
SECRET
25X1
Sanitized Copy Approved for Release 2011/01/18: CIA-RDP85T00875R001700030006-1
 Sanitized Copy Approved for Release 2011/01/18: CIA-RDP85T00875R001700030006-1
SECRET
3. The country is mostly a flat, alluvial plain with rich soil and a
favorable crop-growing climate, but agriculture is handicapped by hydrologic
extremes and devastating storms. Three of the world's largest rivers - the
Ganges, Brahmaputra, and Meghna - flow through Bangladesh. Large areas
are flooded annually, sometimes causing extensive crop and property
damage. In October or November the rains stop, the land drains, and the
rivers shrink. By February, drought generally has set in, and irrigation is
required until May for good crop growth. This marked hydrologic cycle
necessitates' both flood control and irrigation works to realize the land's
full potential.
4. Improvement in water control has been slow. Little progress has
been made in flood control because it is extremely expensive and requires
large government-directed projects. Much of the rice area has some form
of irrigation, but it usually receives too much water in the wet season for
the new high-yield seed varieties. The number of 1owlift pumps used to
water fields when streams are low increased from about 6,500 in 1968
to some 18,000 in 1970, but the portion of the rice land irrigated with
pumps nevertheless remains small.
5. Because of population growth, per capita foodgrain availability
generally has been lower in recent years than in the early 1960s despite
increased production and imports. Between fiscal year (FY) 1961 * and FY
1971, foodgrain production increased by 16%, to 11.2 million metric tons,
and imports rose from 590,000 to 1.6 million tons (see Table 1). Population
jumped by nearly 40% during this period, however, and foodgrain
availability per capita dropped from some 430 to 390 pounds annually.
Production in FY 1971 was hurt by heavy monsoon rains in August 1970
that brought the worst flooding since 1954 and by a cyclone and tidal
wave in November that inundated much of the coastal area.
6. Industrial growth averaging 7% annually since 1950 reflects mainly
development of jute manufacturing, now the largest industry in employment
and production. The industry has developed entirely since, British India's
partition, which separated the jute manufacturing plants in India from the
jute fields in East Bengal. Most jute operations have been owned and
managed by West Pakistanis. More than half of the raw jute crop was
processed domestically in FY 1971, and nearly all jute manufact'.ires were
sold abroad or to West Pakistan.
7. The region is not self-sufficient in textiles and other basic consumer
goods, large quantities of which were imported from such industrial centers
as Calcutta before partition and from West Pakistan since then. The food
* Ending 30 June of the stated year.
SECRET
Sanitized Copy Approved for Release 2011/01/18: CIA-RDP85T00875R001700030006-1
 Sanitized Copy Approved for Release 2011/01/18: CIA-RDP85T00875R001700030006-1
Bangladesh: Foodgrain Production, Imports, and Availability
Thousand Metric Tons Foodgrain Availability
Production Imports
Total b/
Fiscal Other From West From Rest (Thousand Per Capita
Year Rice Foodgra~ns Total Pakistan of World Total Metric Tons) (Pounds)
1961 9,570
1962 9,620
1963 8,860
1964 10,620
1965 10,500
1966 10,500
1967 9,580
1968 11,170
1969 11,340
1970 12,110
1971 c/ 11,140
50 9,720
60 9,680
70 8,930
50 10,670
50 10,550
60
80
80
110
120
110
10,560
9,660
11 , 250
11,450
12,230
11,250
a. Ending 30 June of the stated year.
b. Excluding ckanges 'in stocks.
c. Prel1sinary estimates.
10 580
310 380
190 1,140
50 880
340 290
250 540
160
260
260
490
320
730
750
7 70
1,250
1,300
590 10,310 430
690 10,370 420
1,330 10,260 400
930 11,600 440
630 11,180 410
790 11,350 400
890
1,010
1,030
1,740
1,620
10,550
12,260
12,480
13,9/0
12,870
360
380
400
440
390
Sanitized Copy Approved for Release 2011/01/18: CIA-RDP85T00875R001700030006-1
 Sanitized Copy Approved for Release 2011/01/18: CIA-RDP85T00875R001700030006-1
SECRET
and beverage industries are poorly organized and managed, and their
productivity is generally low. The most modern industrial facilities include
some chemical plants, pulp and paper mills, a petroleum refinery, and a
steel mill that utilizes imported scrap.
8. Bangladesh's combined foreign and interwing trade has been in
deficit since 1964. The area typically has had substantial deficits in trade
with West Pakistan and, in addition, has had deficits in its foreign trade
since 1968' because of stagnating exports. About three-fourths of exports
consists of raw jute and jute manufactures (see Table 2). Imports embrace
foodgrains, other consumer goods, various industrial raw materials, and most
of the needed machinery and transport equipment.
9. The low educational level has been an important constraint on
economic development. The literacy rate is only 20% to 25%, and relatively
few students go beyond elementary school. In 1961, only one-sixth of the
literate population had more than six years of education. The educational
situation probably changed little during the 1960s because of shortages of
teachers and facilities as well as popular indifference.
10. Public finances have been handled primarily by the Pakistani
central government in Islamabad, and budget data for the region gene-ally
have not been available. In recent years, Islamabad's receipts from and
current expenditures in the East Wing probably have about balanced. As
part of Pakistan, however, the region had been receiving a substantial net
inflow of foreign aid, probably on the order of $150 million annually.
Consequences of the Fighting
11. The civil war that began last March slowed economic activity by
disrupting the internal transport system and reducing the capacity of the
port of Chittagong. Both the Pakistani army and the Bengali insurgents
inflicted heavy damage on transportation links, including the vital
Dacca-Chittagong rail line. In addition, civilian transport equipment was
confiscated extensively for military use. Heavy fighting at the port of
Chittagong early in the war and, subsequently, labor shortages and the
movement of army supplies held non-military dock activities well below
normal.
12. Despite the civil war's disruptions, foodgrain shortages were
averted because some private stocks were available and the refugee exodus
swelled from 5 million in June to about 10 million in November. Moreover,
about one million tons of foodgrains were offloaded at the ports between
March and November, most of it being shipped to food-deficit areas.
SECRET
Sanitized Copy Approved for Release 2011/01/18: CIA-RDP85T00875R001700030006-1
 Sanitized Copy Approved for Release 2011/01/18: CIA-RDP85T00875R001700030006-1
SECRET
Bangladesh: Interwing and
Foreign Trade, FY 1971
Million US $
Interwinca/
Foreign
Totala/
Exports
84.6
263.4
348.0
Jute, raw
0
105.3
105.3
Jute manufac
tures 12.8
136.3
149.1
Leather
2.3
9.0
11.3
Paper and pa
perboard 9.6
0
9.6
Tea
28.9
0
28.9
Other
31.0
12.8
43.8
Imports
145.0
330.9
475.9
Foodgrains
26.3
75.2
101.5
Cotton, raw
14.0
0.6
14.6
Chemicals, d
and fertili
rugs,
zers 5.7
62.7
68.4
Cotton texti
les 28.5
3.4
31.9
Machinery and
equipment
transport
4.4
68.8
73.2
7!uels
0
27.5
27.5
Animal and ve
oils
getable
2.4
23.4
25.8
Tobacco
15.9
0.1
16.0
Other
47.8
69.2
117.0
Balance
-60.4
-67.5
-127.9
a. Various studies indicate that the official rate of
the rupee -- 4.76 to the US $1 in FY 1971 -- overvalues
the rupee by about 100%. The Pakistani rupee in interning
trade thus has been converted to dollars at the rate of
9.5 to 1.
- 5 -
SECRET
Sanitized Copy Approved for Release 2011/01/18: CIA-RDP85T00875R001700030006-1
 Sanitized Copy Approved for Release 2011/01/18: CIA-RDP85T00875R001700030006-1
SECRET
13. The 1971 jute crop, harvested in August and September, was
about 20% smaller than the previous year's, mainly because of the civil
war. In March and April, when jute is normally planted, the insurgents
encouraged jute farmers to plant foodgrains instead (jute land generally
being suitable for rice cultivation). Their purpose was to reduce the earnings
of jute manufacturers and exporters - mostly West Pakistanis -- as well
as to increase the food supply.
14. Industrial activity virtually halted in the early months of fighting
and remained well below normal throughout the civil war. The jute
manufacturing industry, fo; example, reportedly was operating at only 50%
of capacity in November. Workers fled to the countryside or to India, and
many West Pakistani factory managers returned home.
15. Except fer emergency food imports, East Pakistan's foreign trade
as well as trade with the West Wing slowed dramatically. Exports to foreign
countries from March through November fell by about one-third and imports
by one-half from the previous year's levels. At the same time, exports to
the West Wing dropped by about one-fourth and imports by almost one-half.
16. Prices in East Pakistan climbed sharply in the early months of
the civil war but subsequently fell somewhat. By June, most commodity
prices in Dacca had stabilized at 20%-30% above pre-hostility levels. Greater
price rises were averted by the massive population exodus from urban areas
to the countryside and by the huge refugee movement to India.
17. India's invasion of East Pakistan on 3 December brought more
destruction and again drastically depressed economic activity. In the two
weeks of fighting, dock areas were bombed and several petroleum
installations destroyed. The retreating Pakistani army blew up bridges in
an attempt to slow the Indian advance, while the Indian air force tried
to cut off the Pakistani retreat by bombing bridges and ferries. Even greater
damage was prevented, however, by explicit Indian army orders to preserve
transport links when not detrimental to the war effort.
Prospects
18. Economic prospects for Bangladesh are grim both for the
immediate future and over the longer term, as indeed they long have been
for this region. Several months, at least, will be needed to restor? even
a semblance of economic normalcy. Some parts of an infrastructure that
was inadequate to begin with must be rebuilt. The probable return from
India of millions of refugees will further strain supplies of food and other
essentials. A moderately effective public administration will be difficult to
establish even with Indian assistance. Long-term development faces severe
SECRET
Sanitized Copy Approved for Release 2011/01/18: CIA-RDP85T00875R001700030006-1
 Sanitized Copy Approved for Release 2011/01/18: CIA-RDP85T00875R001700030006-1
SECRET
handicaps. Natural resources are few and financial reserves non-existent.
With most of the people already near the subsistence level, it is virtually
impossible to invest a larp_er share of output. Little slackening in the rapid
population growth can be expected for many years, barring famine. Some
scarce technical and managerial skills have been lost during the months of
fighting and incidental violence, and more will be lost with the departure
of most remaining West Pakistanis. It also remains to be seen whether the
government will be sufficiently stable and constructive in its economic
policies to make good use of such resources as the region has or can obtain
abroad.
19. The Bangladesh government clearly is going to be strapped for
cash -. especially during its first months. There probably was a heavy flight
of capital to West Pakistan throughout 197 1, and Islamabad recently has
taken several steps to keep funds in West Pakistan and foreign banks from
falling into Dacca's hands. The economic disarray arising from the fighting
makes normal tax collection difficult. At the same time, pressure for
increased government outlay will be great because of reconstruction and
refugee needs. Because the area is so poor, raising revenues for essential
public services and high-priority investment projects will remain a serious
problem. The government will, however, gain a significant new source of
funds as it implements the nationalization goals announced in early January.
The Food Grain Situation
20. Bangladesh will need large foodgrain imports in 1972 and over
the longer term probably faces greater food deficits than in recent years.
The refugee exodus, neglect of crops induced by the civil strife, and lack
of seed and fertilizer are expected to reduce the rice crop to 9 1/2 million
to 10 million tons in FY 1972, compared with. I 1 million the year before.
The full effect of the prospective reduction has not yet been felt, because
the winter crop (usually about 60% of annual output) is now being
harvested. As usual, the needs of districts that normally have deficits (see
the map) will have to be met partly by imports. Humanitarian concern
in foreign countries probably will assure that additional foodgrain supplies
arrive soon, and India could, if necessary, draw on its estimated 7-million-ton
stock to help meet emergency needs. In any case, effective distribution
of food supplies will be difficult even with the aid of Indian and United
Nations personnel already in the area. In the long run, only massive foreign
investment in water control systems promises to permit foodgrain
production to keep pace with population growth and, perhaps, narrow the
deficit.
SECRET
Sanitized Copy Approved for Release 2011/01/18: CIA-RDP85T00875R001700030006-1
 Sanitized Copy Approved for Release 2011/01/18: CIA-RDP85T00875R001700030006-1
SECRET
Export Outlook
21. In attempt;ng to maintain export earnings, Bangladesh will benefit
from its natural (although long neglected) trading relationship with eastern
India. Historically, East Bengal and the adjacent Indian state of 'West
Bengal - which includes Calcutta - formed a natural trading area. Before
the breakup of British India, East Bengal provided food for Calcutta's
population and raw materials for industry in exchange for manufactured
goods, fuels, and construction materials. Following partition and the
erection of tariff barriers, West Pakistan replaced West Bengal as the region's
major trading partner.* India can supply Bangladesh with various items
previously obtained from West Pakistan - such as cotton and tobacco -
together with certain types of machinery and transport equipment and
possibly coal, cement, and other construction materials. Conversely, India
probably can absorb at least some of the goods previously sold to West
Pakistan, which made up only one-fourth of the area's total foreign and
interwing sales in FY 1971. Among the best possibilities are paper, fish,
and raw jute.
22. Exports will be hampered at least temporarily by damage to
manufacturing plants, shortages of inputs, and changes in ownership and
management. The new government has already taken over the management
of almost half the jute mills and many other industrial firms. To facilitate
industrial and commercial recovery, Dacca may call on India for technical
and managerial assistance. Bangladesh would benefit considerably if New
Delhi responded, as seems likely.
23. The new nation's export earnings will be affected heavily not only
by how 'trade with India develops but also by trends in the world jute
market. To increase export earnings, traders have been shifting to jute
manufactures, but 40% of foreign exchange earnings in FY 1971 still came
from raw jute. Burlap exports have declined drastically in recent years in
the face of competition from synthetic and paper packaging, and a further
decline is in prospect. Bangladesh's mills have been adjusting to this shift
by converting to the manufacture of carpet backing, for which rising demand
is likely for the next several years, at least.
Import Requirements and Foreign Aid
24. Bangladesh needs sharply higher imports in the next year or two
in order to undertake pressing reconstruction and rehabilitation tasks. Even
to meet the most critical requirements, the area will have to obtain increased
- 8 -
SECRET
Sanitized Copy Approved for Release 2011/01/18: CIA-RDP85T00875R001700030006-1
 Sanitized Copy Approved for Release 2011/01/18: CIA-RDP85T00875R001700030006-1
SECRET
quantities of food, industrial materials, and equipment. Because export
earnings probably will remain below normal for some time, the area's foreign
aid requirements clearly will exceed the roughly $150 million it has been
receiving annually as a part of Pakistan. Indeed the new government in
Dacca announced in early January that it was seeking $2 billion in aid
for relief and reconstruction.
25. Considering its circumstances, chances are good that Bangladesh
will receive 'substantial aid, although it is impossible at present to determine
how much. Most major Western aid donors are likely to respond favorably
to aid requests because the need is great and a relatively conservative
government is in prospect. India and various Communist countries also are
possible aid sources, and a trade and technical assistance agreement with
the USSR already is under discussion. Bangladesh's independence does raise
some troublesome foreign aid issues, however. Aid to Pakistan that was
earmarked for the East Wing will have to be renegotiated with the Dacca
government. Moreover, Dacca is likely to disclaim all debts contracted by
Islamabad - including those incurred for aid to the East Wing -- and it
remains to be seen how creditors would react to such a declaration.
SECRET
Sanitized Copy Approved for Release 2011/01/18: CIA-RDP85T00875R001700030006-1
 Sanitized Copy Approved for Release 2011/01/18: CIA-RDP85T00875R001700030006-1
Bangladesh
Surplus and Deficit Food Districts
- District boundary
Surplus food district
Deficit food district
0 25 50 75 100 Mile.
0 25 50 75 100 Kilometers
Sanitized Copy Approved for Release 2011/01/18: CIA-RDP85T00875R001700030006-1