The International Monetary Fund's suspension of $100 million in loan payments to Bangladesh poses the first major test for newly elected President Abdus Sattar, who must convince an IMF team next week that this desperately poor country has gotten its economic house in order.
The IMF suspension in July came at the worst possible time for Bangladesh. It was still stunned by the assassination of its popular president, Ziaur Rahman, and its leaders were struggling to preserve fragile democratic institutions as observers feared political chaos or a military takeover.
Nonetheless, most representatives of the international aid organizations whose loans and grants keep Bangladesh going believe the IMF action was justified as a crackdown on this country for failing to control domestic borrowing to meet a big budget deficit. But many of them question the timing of the IMF action.
The IMF loan suspension provides a vivid illustration of how the fund's mandate to enforce economic responsibility clashes with what the poor nations it serves see as their political realities.
While the IMF sees itself as a nonpolitical organization dealing only with the harsh facts of international economic life, Third World nations say it is politically insensitive to their needs, imposing conditions on its loans that are too stringent.
Conditions attached to IMF loans have been blamed for food riots in Egypt in 1977 and for political instability in Turkey.
On the other hand, IMF officials contend that strict conditions are needed to make sure the poorer nations develop sound financial habits.
"Bangladesh must be made to observe financial discipline for its own good," said a representative of an international aid organization who is considered sympathetic to this country's problems. "But at this delicate moment, too much external pressure may not be appropriate."
While the IMF has been condemned here for its timing, it contends it had no choice because suspension of payments is automatic if loan conditions are not met.
The IMF also has come under increasing pressure from fiscal conservatives such as President Reagan to tighten its lending policies.
Nonetheless, the suspension has been extremely painful for Bangladesh, one of the world's poorest nations. It was forced to borrow $200 million -- twice the loss from the fund's payments -- on the international money market at commercial rates of 15 to 16 percent instead of the IMF's 3 percent.
Bangladesh received approval for the $1 billion, three-year loan from the IMF seven months before payments were suspended. It had gotten just $270 million before the cutoff.
There is a strong feeling here that Zia would have taken the necessary corrective action to satisfy the IMF and keep the loan money coming had he not been assassinated.
In the aftermath of his killing, the government had little ability to make hard economic decisions. It was widely believed through the summer that the result of Zia's assassination would be political chaos and possibly a military takeover that could have ended Bangladesh's fragile democracy.
Instead, Sattar, the 76-year-old vice president, left a hospital bed to become acting president. He guided Bangladesh through the election minefield, postponing the voting twice to ensure full participation by opposition parties and on Sunday won a landslide victory to become the full-fledged president.
"We shall be able to satisfy the IMF that everything is all right in Bangladesh," he told a victory press conference Monday.
The IMF appears willing to reinstate the loan, including the two missed payments, if it sees signs that Bangladesh has begun to exert fiscal discipline so it will not be forced this fiscal year to repeat the heavy domestic borrowing to meet its unexpected budget deficit.
The government had expected to be $107.4 million in the red at the end of the fiscal year in June and that was considered acceptable by the IMF. But the deficit turned out to be $268.5 million, which the IMF said was unacceptable.
Officials of the international aid organizations see few signs that Bangladesh has begun making the needed hard economic decisions, including preparing to raise prices for goods made by money-losing nationalized enterprises such as jute, steel and textile mills.
While set development projects have gone on as usual since Zia's death, neither the bureaucracy nor the political leadership was willing to make potentially unpopular decisions with the election pending.
The government has, however, tightened up on internal credit and slowed its foreign purchases, which are considered positive steps by the aid community.
Still needed, according to economic experts, are cuts in government spending, especially unprofitable public sector businesses, and further moves to improve the balance of payments by reducing imports and increasing exports. This is difficult since Bangladesh manufactures little, and the world market for its major product, jute, is depressed.
"The real aim of this policy is to make sure that Bangladesh maintains the momentum it has built up," said a representative of an aid organization. "They can easily lose that momentum, which is the greatest legacy of Zia, and it will take years to build it back up."
As an example of how far Bangladesh has come since Henry Kissinger warned a decade ago that it could become an "international basket case," Western analysts here cite its ability to build in six months storage facilities for 200,000 tons of rice that it had to buy from farmers to keep the prices up after an unexpectedly good harvest.
It cost the country $107.4 million for the rice purchases and the storage facilities, which was the deficit the IMF considered acceptable.