Why does this bash script not work?

Keyboard Maestro's Execute a Shell Script action provides a vanilla shell instance, uncontaminated by the settings in Terminal.app, and decorated with environment variables corresponding to KM variable names and values.

Terminal.app has a particular configuration of $PATH and other environment variables, which typically constitute dependencies for particular scripts.

See:

https://wiki.keyboardmaestro.com/action/Execute_a_Shell_Script#Forum

and

Post by CCStone

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