At Capital Weekly 15 September 2008

Key themes in this issue are: Global Markets: • The bankruptcy of Lehman Brothers, the acquisition of Merrill Lynch by Bank of America and the collapse of AIG’s stock price are unprecedented and exceptional. • Following the nationalization of Fannie Mae/Freddie Mac and the Bear Stearns collapse, we are seeing the biggest challenge to global markets since the depression. • The US government was right to say no to a bailout given moral hazard risks. It seems likely AIG will be forced to merge and other brokerages will remain under pressure. • EM currencies are now under additional pressure having already fallen sharply on the collapse in oil and other commodity prices in the past few months. Bangladesh: • We believe that enthusiasm for the BBBF and PPP initiatives, make sense for a capital-starved economy where the public sector is also capacity constrained. • A responsibility for the Caretaker Government is not only to ensure the continuity of the BBBF and similar such institutions, but to facilitate and encourage greater ownership of economic policy issues by both major political parties. Special Focus on Bangladesh’s Aid Budget • Bangladesh receives in excess of USD 1.2bn in foreign aid. In two special focus articles this week we discuss how to get leverage from aid by targeting it to increase access to private sector flows. • Secondly we discuss the need for reform of technical assistance programs and the importance of local capacity building relative to reliance on foreign consultants.