DHAKA, Jan 10, 2008 (AFP) -
When a state of emergency put an end to months of crippling strikes and street clashes a year ago, business leader Mir Nasir Hossain believed impoverished Bangladesh's economic prospects were about to improve.
"We were the first to greet the emergency because we thought it would boost up business," said Hossain, then president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI).
"We had been losing money every month. So when the emergency came, we thought the days of strikes and political unrest were finally over," he added.
The state of emergency was imposed on January 11, 2007, after elections planned for later that month were cancelled due to a bitter stand-off between the country's two main dynastic parties -- the Bangladesh Nationalist Party (BNP) of Khaleda Zia and the Awami League of Sheikh Hasina Wajed.
A military-backed interim government took power the next day pledging to clean up the country's graft-ridden politics.
But one year on, the arrest on corruption charges of many leading politicians with business links has left Hossain and other members of the business community with mixed feelings.
Business leaders say the caretaker government has curbed graft, implemented major tax and institutional reforms and improved infrastructure.
The emergency also put an end to the endless shutdowns, but the new government's corruption crackdown also created an atmosphere of fear causing investment to dry up, Hossain said.
At least 150 high-profile figures, including two former prime ministers -- Sheikh Hasina and Khaleda Zia -- have been arrested on graft allegations.
The situation was compounded by summer floods and a deadly cyclone in November which pushed inflation to the highest level in a decade.
"Now, instead of targeting nine to 10 percent growth, we are happy with over five percent. Inflation has crossed 10 percent and business confidence has been dented for a while," said economist Zaid Bakht.
In the year before the emergency, Bangladesh had been growing at a record 6.6 percent.
In December, the caretaker government cut its seven percent growth projection to less than six, blaming natural disasters. Inflation meanwhile hit 10.11 percent in August, the highest in a decade.
"The government targeted too many businessmen. The crackdown has slowed down investment sharply since none was willing to take a risk in new ventures or expand existing units," said Hossain.
Analysts said the economy was now going through its toughest time in years.
"All government policies to control prices have failed. Two major natural disasters in four months, the anti-graft crackdown and record oil and commodity prices have all compounded our woes," said Bakht of the Bangladesh Institute of Development Studies.
"It's a trying time for the Bangladesh economy. We have not been in such a tough time for years," he said.
Bakht said the country's economic fortunes would now largely depend on politics. The government has promised to return power to the political parties through fresh elections in late 2008.
Analysts, however, fear that any resumption of democratic politics will lead back to the same old problems.
They say last January's political stalemate occurred after corruption reached such proportions that neither party could afford to lose the election.
"The investors are sceptical about whether the election will be held in time or who is coming to power," said Bakht. "Uncertainty remains and that affects business confidence."