POLITICAL CONDITIONS
Despite serious problems related to a dysfunctional political system, weak governance, and pervasive corruption, Bangladesh remains one of the few democracies in the Muslim world. Bangladeshis regard democracy as an important legacy of their bloody war for independence and vote in large numbers. However, the practice and understanding of democratic concepts is often shallow. The current government has banned all political activities and has yet to set a definite date for elections or its own departure from office. The Election Commission, however, announced an elections roadmap that promises national elections by December 2008. The army-backed government leaders have reiterated their commitment to handing over power to the elected representatives of the people as soon as the elections are held. The Chief of the Army Staff, General Moeen U. Ahmed, has asserted publicly neither he nor the Bangladesh military have any intentions to take over political power or declare martial law. Bangladesh is generally a force for moderation in international forums, and it is also a long-time leader in international peacekeeping operations. Its activities in international organizations, with other governments, and its regional partners to promote human rights, democracy, and free markets are coordinated and high profile. In May 2005, Bangladesh became a member of the United Nations Human Rights Council.

Bangladesh lies at the strategic crossroads of South and Southeast Asia. Potential terrorist movements and activities in or through Bangladesh pose a potentially serious threat to India, Nepal, Bhutan, and Burma, as well as Bangladesh itself. The Bangladesh Government routinely denies Indian allegations that Indian insurgents in northeast India operate out of Bangladesh and that extremist Islamist forces are overwhelming Bangladesh's traditionally moderate character. It also denies there is any international terrorist presence in Bangladesh. The Bangladesh Government, however, banned a number of Islamic extremist groups in recent years. In February 2002, the government banned Shahdat al Hiqma, in February 2005 it banned Jagrata Muslim Janata, Bangladesh (JMJB) and Jama'atul Mujahideen Bangladesh (JMB), and in October 2005 it banned Harkatul Jehad Al Islami (HUJI). Following the August 17, 2005 serial bombings in the country, the government launched a crackdown on extremists. In 2006, seven senior JMB leaders were sentenced to death for their role in the 2005 murder of two judges. Six of the seven were executed in March 2007; another leader was tried and sentenced to death in absentia in the same case. In May 2005, the Rapid Action Battalion (RAB) killed six alleged Indian rebels in a raid on a house near the border with India in north-eastern Maulvibazar district. In June 2006, army and RAB personnel killed 10 gunrunners, who media reports described as suspected Indian insurgents, in a remote forest in southeastern Rangamati Hill district. In March 2008, the U.S. Government listed Harkatul Jihadi Islami (HUJI)-Bangladesh a foreign terrorist organization. Given its size and location, a major crisis in Bangladesh could have important consequences for regional stability, particularly if significant refugee movements ensue.

ECONOMY
Although one of the world's poorest and most densely populated countries, Bangladesh has made major strides to meet the food needs of its increasing population, through increased domestic production augmented by imports. The land is devoted mainly to rice and jute cultivation, although wheat production has increased in recent years; the country is largely self-sufficient in rice production. Nonetheless, an estimated 10% to 15% of the population faces serious nutritional risk. Bangladesh's predominantly agricultural economy depends heavily on an erratic monsoonal cycle, with periodic flooding and drought. Although improving, infrastructure to support transportation, communications, and power supply is poorly developed. Bangladesh is limited in its reserves of coal and oil, and its industrial base is weak. The country's main endowments include its vast human resource base, rich agricultural land, relatively abundant water, and substantial reserves of natural gas.

Since independence in 1971, Bangladesh has received more than $30 billion in grant aid and loan commitments from foreign donors, about $15 billion of which has been disbursed. Major donors include the World Bank, the Asian Development Bank, the UN Development Program, the United States, Japan, Saudi Arabia, and west European countries. Bangladesh historically has run a large trade deficit, financed largely through aid receipts and remittances from workers overseas. Foreign reserves dropped markedly in 2001 but stabilized in the $3 to $4 billion range (or about 3 months' import cover). In January 2007, reserves stood at $3.74 billion, and they increased to $5.39 billion by January 2008, according to the Bank of Bangladesh, the central bank.

Moves Toward a Market Economy
Following the violent events of 1971 during the fight for independence, Bangladesh--with the help of large infusions of donor relief and development aid--slowly began to turn its attention to developing new industrial capacity and rehabilitating its economy. The static economic model adopted by its early leadership, however--including the nationalization of much of the industrial sector--resulted in inefficiency and economic stagnation. Beginning in late 1975, the government gradually gave greater scope to private sector participation in the economy, a pattern that has continued. A few state-owned enterprises have been privatized, but many, including major portions of the banking and jute sectors, remain under government control. Population growth, inefficiency in the public sector, resistance to developing the country's richest natural resources, and limited capital have all continued to restrict economic growth.

In the mid-1980s, there were encouraging, if halting, signs of progress. Economic policies aimed at encouraging private enterprise and investment, denationalizing public industries, reinstating budgetary discipline, and liberalizing the import regime were accelerated. From 1991 to 1993, the government successfully followed an enhanced structural adjustment facility (ESAF) with the International Monetary Fund (IMF) but failed to follow through on reforms in large part because of preoccupation with the government's domestic political troubles. In the late 1990s the government's economic policies became more entrenched, and some of the early gains were lost, which was highlighted by a precipitous drop in foreign direct investment in 2000 and 2001. In June 2003 the IMF approved 3-year, $490-million plan as part of the Poverty Reduction and Growth Facility (PRGF) for Bangladesh that aimed to support the government's economic reform program up to 2006. Seventy million dollars was made available immediately. In the same vein the World Bank approved $536 million in interest-free loans.

Efforts to achieve Bangladesh's macroeconomic goals have been problematic. The privatization of public sector industries has proceeded at a slow pace--due in part to worker unrest in affected industries--although on June 30, 2002, the government took a bold step as it closed down the Adamjee Jute Mill, the country's largest and most costly state-owned enterprise. The government also has proven unable to resist demands for wage hikes in government-owned industries. Access to capital is impeded. State-owned banks, which control about three-fourths of deposits and loans, carry classified loan burdens of about 50%.

The IMF and World Bank predict GDP growth over the next 5 years will be about 6.0%, well short of the 8%-9% needed to lift Bangladesh out of its severe poverty. The initial impact of the end of quotas under the Multi-Fiber Arrangement has been positive for Bangladesh, with continuing investment in the ready-made garment sector, which has experienced annual export growth of around 20%. Downward price pressure means Bangladesh must continue to cut final delivered costs if it is to remain competitive in the world market. Foreign investors in a broad range of sectors are increasingly frustrated with the politics of confrontation, the level of corruption, and the slow pace of reform. While investors view favorably recent steps by the interim government to address corruption, governance, and infrastructure issues, most believe it is too early to assess the long-term impact of these developments.

Agriculture
Most Bangladeshis earn their living from agriculture. Although rice and jute are the primary crops, maize and vegetables are assuming greater importance. Due to the expansion of irrigation networks, some wheat producers have switched to cultivation of maize which is used mostly as poultry feed. Tea is grown in the northeast. Because of Bangladesh's fertile soil and normally ample water supply, rice can be grown and harvested three times a year in many areas. Due to a number of factors, Bangladesh's labor-intensive agriculture has achieved steady increases in food grain production despite the often unfavorable weather conditions. These include better flood control and irrigation, a generally more efficient use of fertilizers, and the establishment of better distribution and rural credit networks. With 28.8 million metric tons produced in 2005-2006 (July-June), rice is Bangladesh's principal crop. By comparison, wheat output in 2005-2006 was 9 million metric tons. Population pressure continues to place a severe burden on productive capacity, creating a food deficit, especially of wheat. Foreign assistance and commercial imports fill the gap. Underemployment remains a serious problem, and a growing concern for Bangladesh's agricultural sector will be its ability to absorb additional manpower. Finding alternative sources of employment will continue to be a daunting problem for future governments, particularly with the increasing numbers of landless peasants who already account for about half the rural labor force.

Industry and Investment
Fortunately for Bangladesh, many new jobs--1.8 million, mostly for women--have been created by the country's dynamic private ready-made garment industry, which grew at double-digit rates through most of the 1990s. The labor-intensive process of ship-breaking for scrap has developed to the point where it now meets most of Bangladesh's domestic steel needs. Other industries include sugar, tea, leather goods, newsprint, pharmaceutical, and fertilizer production. The country has done less well, however, in expanding its export base--garments account for more than three-fourths of all exports, dwarfing the country's historic cash crop, jute, along with leather, shrimp, pharmaceuticals, and ceramics.

Despite the country's politically motivated general strikes, poor infrastructure, and weak financial system, Bangladeshi entrepreneurs have shown themselves adept at competing in the global garments marketplace. Bangladesh exports significant amounts of garments and knitwear to the U.S. and the European Union (EU) market. As noted, the initial impact of the end of quotas on Bangladesh's ready-made garment industry has been positive. Downward price pressures, however, mean Bangladesh must continue to cut final delivered costs if it is to remain competitive in the world market.

The Bangladesh Government continues to court foreign investment, something it did fairly well in the 1990s in private power generation and gas exploration and production, as well as in other sectors such as cellular telephony, textiles, and pharmaceuticals. In 1989, the same year it signed a bilateral investment treaty with the United States, it established a board of investment to simplify approval and start-up procedures for foreign investors, although in practice the board has done little to increase investment. Bangladesh also has established export processing zones in Chittagong (1983), Dhaka (1994), Comilla (2000), Mongla (2001), Iswardi (2005), Uttara (2006), and Karnafully (2007).

The most important reforms Bangladesh should make to be able to compete in a global economy are to privatize state-owned enterprises (SOEs), deregulate and promote foreign investment in high-potential industries like energy and telecommunications, and take decisive steps toward combating corruption and strengthening rule of law.

DEFENSE
The Bangladesh Army, Navy, and Air Force are composed of regular military members. The 110,000-member, seven-division army is modeled and organized along British lines, similar to other armies on the Indian subcontinent. However, it has adopted U.S. Army tactical planning procedures, training management techniques, and noncommissioned officer educational systems. It also is eager to improve its peacekeeping operations capabilities and is working with the U.S. military in that area. The United States gave the Bangladesh Air Force four U.S. C-130 B transport aircraft in 2001 under the excess defense article (EDA) program. These aircraft will improve the military's disaster response and peacekeeping capabilities. The Bangladesh Navy is mostly limited to coastal patrolling, but in 2001 it paid to have an ULSAN-class frigate built in South Korea.

In addition to traditional defense roles, the military has been called on to provide support to civil authorities for disaster relief and internal security. Since the proclamation of the state of emergency on January 11, 2007, the military has played a central role in the formulation and execution of key government strategies, including the anti-corruption campaign and voter registration. The Bangladesh Air Force and Navy, with about 7,000 personnel each, perform traditional military missions. A Coast Guard has been formed, under the Home Affairs Ministry, to play a stronger role in the area of anti-smuggling, anti-piracy, and protection of offshore resources. Recognition of economic and fiscal constraints has led to the establishment of several paramilitary and auxiliary forces, including the 40,000-member Bangladesh Rifles; the Ansars and village defense parties organization, which claim 64 members in every village in the country; and a 5,000-member specialized police unit known as the armed police. In 2004, a new police unit called the Rapid Action Battalion (RAB) was constituted with personnel drawn from the military and different law enforcement agencies. The RAB's mandate includes combating criminal gangs and terrorism. The Bangladesh Rifles, under the authority of the home ministry, are commanded by army officers who are seconded to the organization.

In addition to in-country military training, some advanced and technical training is done abroad, including grant aid training in the United States. China, Pakistan, and Eastern Europe are the major defense suppliers to Bangladesh, but military leaders are trying to find affordable alternatives to Chinese equipment.

A 2,300-member Bangladesh Army contingent served with coalition forces during the 1991 Gulf War. As of September 2007, Bangladesh's 9,728 peacekeepers deployed around the world made it the second-largest troop contributor to international peacekeeping operations. Troops are deployed in Cote d'Ivoire, Liberia, Sudan, Congo, Ethiopia and Eritrea, Western Sahara, Georgia, Timor Leste, Kosovo, Sierra Leone, and Afghanistan.