SCENESETTER FOR YOUR VISIT TO BANGLADESH

UNCLAS SECTION 01 OF 03 DHAKA 000330

SIPDIS

SENSITIVE

STATE FOR EB/AMBASSADOR GROSS, DOC FOR A/S GALLAGHER

E.O. 12958: N/A
TAGS: OVIP ETTC PGOV BG
SUBJECT: SCENESETTER FOR YOUR VISIT TO BANGLADESH


1. (SBU) We welcome your visit as an excellent opportunity to
advance our bilateral economic agenda and specifically the
importance of telecommunications for economic growth,
modernization, and diversification. The last senior USG
economic official to visit Bangladesh was A/USTR Ashley
Wills, who came in August 2003 to pursue our now pending
Trade and Investment Framework Agreement and to discuss the
recently terminated petition to withdraw Bangladesh's GSP
benefits because of EPZ labor standards (see below). Science
and Technology Minister Khan has assured us that he is
personally committed to making your visit a success.


2. (SBU) You will find your Bangladeshi interlocutors:

-- Eager to convince you that, contrary to a recent article
in the New York Times, Bangladesh is a moderate, democratic
country, with a robust economy that is open to foreign
investment and new technology.

-- Focused on the South Asian Association for Regional
Cooperation (SAARC) heads of government summit scheduled for
February 6-7, a massive logistical undertaking for the BDG.
Official pre-summit meetings begin February 1.

-- Promoting Bangladesh as a cheaper IT alternative to India,
provided obvious telecommunication bottlenecks are overcome.

Country Overview and Bilateral Backdrop
--------------


3. (SBU) Bangladesh is a predominantly Muslim country of 140
million people living in an area slightly smaller than Iowa.
Since independence from Pakistan in 1971, it has made
significant socio-economic advances, including almost halving
its mortality and population growth rates and becoming nearly
self-sufficient in rice production. The take-off of the
textile sector in the 1980s employed, and empowered, several
million women. Free of major sectarian or ethnic divides,
Bangladesh has a long, if sometimes frayed, tradition of
religious and political tolerance. It is the world's leading
contributor to UN peacekeeping operations, with more than
8,000 troops deployed to 12 countries.


4. (SBU) Since the return of democracy in 1991, Bangladesh
has had three relatively free and fair national elections.
However, the enmity between the leaders of the two major
political parties, the Awami League (AL) and the ruling
Bangladesh Nationalist Party (BNP),degrades democratic
institutions and practices. Corruption is rampant, law and
order is poor, governance is weak, due process is unreliable,
and infrastructure is grossly inadequate.


5. (SBU) U.S.-Bangladeshi relations are traditionally warm,
with even Islamists noting the leadership role USG aid played
in rebuilding Bangladesh after its devastating war of
independence. However, virtually all Bangladeshis oppose
U.S. actions in Iraq; many view the war on terror as
anti-Muslim. More positively, in 2004, the BDG ended a
13-year bilateral impasse by passing legislation to extend
international labor standards to the EPZ's. It also launched
a major, continuing effort to combat trafficking in persons,
earning USG reassessment of its performance from
sanction-threatening Tier III to Tier II watch list. USG
objectives in Bangladesh include boosting Bangladesh's
counter-terrorism capabilities and performance, promoting
credible elections in 2007, improving the deteriorating human
rights situation (including attacks on religious minorities
and more than 100 extra-judicial killings by police in the
past seven months),and supporting economic reform and export
diversification.


6. (SBU) The U.S. is Bangladesh's biggest trading partner,
taking 35 percent of its garment exports, and, at $1.4
billion, its biggest foreign investors. A record 80
companies are set to participate in the 2005 U.S. Trade Show
sponsored by the Bangladesh American Chamber of Commerce and
the Embassy. Also, in partnership with the U.S. and
Bangladeshi private sectors and the BDG, the Embassy is
organizing a Bangladesh road show this spring to Baltimore,
Houston, and St. Louis to promote bilateral trade and
investment.

Political Overview
--------------


7. (SBU) The BNP ruling coalition includes two Islamist
parties, one of which is openly extremist and anti-Western.
BDG decision-making is centralized in the hands of Prime
Minister Khaleda Zia, her son and heir apparent, Tariq, and a
handful of confidants. They are increasingly focused on the
general election expected in early 2007 and in becoming the
first government in Bangladesh to win re-election. The
opposition Awami League has failed to generate popular
momentum for its one-point agenda of forcing the BNP, which
has a huge parliamentary majority, to hold early elections.
While the Awami League and its leftist partners might try to
generate demonstrations in the run-up to the SAARC summit to
embarrass the BDG, a long holiday season ending this week has
put a damper on political activity.


8. (SBU) In 2004, there were several high-profile incidents
of security concern, including: the seizure of a huge illicit
arms shipment at Chittagong port, a grenade attack that
seriously injured the British High Commissioner in the
provincial city of Sylhet, and the August 21 grenade assault
at an Awami League rally that killed 20, injured about two
hundred, and narrowly missed killing AL President Sheikh
Hasina. The BDG's inability or unwillingness to solve such
incidents fuels speculation that the perpetrators, Islamist
or otherwise, enjoy political protection.

Economic Trends
--------------


9. (SBU) The BDG continues to make steady if gradual
macro-economic progress. It has met the budget and financial
reform targets of its IMF structural reform program, and in
June it received the second tranche of its support fund.
Privatization, however, remains stalled. A new
Anti-Corruption Commission, created last year under donor
pressure, has gotten off to a shaky start with serious doubts
about its independence and capabilities.


10. (SBU) Bangladesh remains a poor country with per capita
annual income under $400. It is beset by periodic natural
disasters; last summer's exceptional flooding submerged
three-quarters of the country. The export economy is
over-depedendent on textiles, and economic growth rates in
recent years -- of 5 to 7 percent -- are respectable but
insufficient for eroding poverty levels.


11. (SBU) That said, there are bright spots. Parts of the
textile industry like knitwear may be well placed to compete
in the post-MFA era, and several infrastructure-related
sectors like telecommunications have the potential for strong
growth, in part because they are starting from such a low
base. In numerical terms, there is a large middle class that
in Dhaka is fueling a boom in affluent shopping centers,
restaurants, residential properties, and high-end automobile
dealers.


12. (SBU) The Bangladeshi business community recognizes that
Bangladesh's telecom constraints are severe and hinder IT
development, including Bangladeshi aspirations to compete
with India for call center contracts. Other handicaps for
Bangladesh are its generally inferior standards of education
and English-language skills.

Key Points
--------------


13. (SBU) BDG officials assert that Bangladesh is open for
investment, and that concerns about corruption, instability,
governance, and extremist Islamist influence are misplaced or
exaggerated by foreign (usually means Indian) media
reporting. We stress with Bangladeshis:

-- We want Bangladesh to succeed, economically and
politically.

-- Corruption is a big tax on growth, impedes investment, and
undermines confidence in economic decision-making. The issue
is not whether Bangladesh is more or less corrupt than
another country, but how corruption can be visibly and
effectively reduced.

-- Rule of law, including contract sanctity and the
reliability of due process, is also important. In that
context, human rights, and the behavior of government
officials like police, are also critical because they shape
perceptions of a country's potential as a productive partner.

Watch Out For
--------------


14. (SBU) Bangladeshis are apprehensive about the future of
their textile industry in a quota-free world. Many insist
the USG, for political or humanitarian reasons, should grant
Bangladeshi garments duty-free access to the U.S. market. We
note this is a sensitive political issue in the U.S., and
that Bangladesh should focus instead on export
diversification (e.g., the successful shrimp industry).
Moreover, we suggest, Bangladeshi exporters in general would
benefit greatly from reduced corruption and high
infrastructure costs.
THOMAS