Rebuilding The State

The Ministry of Peace and Reconstruction has unveiled projects to accelerate the process of rebuilding infrastructure and assets destroyed during the conflict. The post-conflict reconstruction projects to be executed in three years include a larger gamut of schemes aimed at enhancing peace and reconciliation, institutional strengthening for democracy and promoting self-help enterprises to generate jobs for those affected by the conflict. The ministry has rightly come up with a package of schemes and programmes that are directed at reconstructing the Nepali state which was severely hit by the conflict during the past 10 years. The impact of the conflict was acute and multidimensional. In the decade-long conflict, physical infrastructure worth billions of rupees, including telecommunication towers, bridges, office buildings and historic monuments, was destroyed. More consequential and far-reaching damage was done to the state institutions at different levels. The elections to the national parliament and local bodies were halted because of the conflict. The national bureaucracy was hit and its capacity to function and deliver services was severely weakened and retarded. The destruction of the local government institutions, including village development committees, municipalities and district development committees, was severe, and this impeded the process for providing services to the people. The damage done to national institutions does have a long-term impact than the destruction caused to the physical assets and infrastructure. The post-conflict reconstruction design, presented on behalf of the government, has its focus on different areas, including rebuilding the hardware and software of the Nepali state. This should be appreciated. The government should accelerate the process of reconstruction and rehabilitation by mobilising both national and international resources. Since the international community is all willing to extend support in rebuilding the Nepali state, the political parties are under an obligation to create an environment so that resources can be mobilised to repair and rehabilitate infrastructure damaged and destroyed during the conflict. The priority should, therefore, go to maintaining and strengthening political stability by providing momentum to peace building and the democratisation process in the country. It is in this respect that the political stakeholders should demonstrate their commitment and fulfil the aspirations of the people with regard to peace and democracy.

Source: The Rising Nepal, November 27, 2007

Overcoming Poverty

Lok Nath Bhusal

Indeed, time has come to put the poverty alleviation agenda at the heart of the development debate and action for since a long time, poverty has been a major hurdle to prosperity. Broadly, poverty is a human situation in which people lack what they need to possess - economic well-being, political awareness and social inclusion - for their meaningful and dignified existence in the society. Therefore, it embraces the whole gamut of economic, political and social dimensions; not necessarily only their incomes but capabilities as a whole.

Policy failures

For advanced economies, poverty is generally a relative concept whereas it is an absolute one for developing countries like Nepal. People hate poverty and wish to come out, but some unfortunate ones are destined to live under the shadow of poverty and suffer it. This situation is basically attributed to the failure of state policies and their proper implementation. Since poverty is one of the major reasons for socio-economic instability, the state must make systematic interventions to fight against this socio-economic ill. First, the current subsistence agriculture must be transformed into a competitive and wealth-yielding business to tackle the poverty systematically. Our agricultural productivity is the lowest in South Asia. Over two thirds of the economically active population works for agriculture, but its contribution to the GDP is a mere 40 percent. Hence, majority of the poor people come from agriculture. Again, the Economic Survey 2005/06 reveals that in the last fiscal year, the entire production of food crops was adversely affected due to the vagaries of the weather - drought. Indeed, farmers should be able to receive extra income, and conventional agricultural practices must be by more profitable techniques and marketisation of agro-products through the development of physical infrastructures.

A Green Revolution through the use of high-yielding varieties, expansion of irrigation facilities and availability of reasonably-priced chemical fertiliser, comprehensive land reforms and expansion of extension services must materialise. Furthermore, economic development throughout the world suggests that rapid industrialisation must be supported by a strong agriculture sector as the latter has backward and forward linkages to the development of the former. In the context of Nepal, since the agriculture sector is the topmost contributor to the GDP, positive state intervention is most crucial and urgently required to successfully compete with other countries, especially India. This is why farmers of the developed countries are enriched by the state, and much of the trade impasse is concentrated around reducing agriculture subsidies provided by the state.Second, disparity in the distribution of income and resources must be reduced to uplift the penniless population. Our average per capita income has risen to US$ 311, but it is an understatement of the degree of income inequality; averages have great significance in statistics, but they can be dangerous. For example, there have been frequent reports that 20 per cent of the population captures 80 per cent of Nepal's resources whereas the remaining 80 per cent population is stuck with 20 percent of the national income. This has been largely supported by the Nepal Living Standard Survey (NLSS) conducted by the Central Bureau of Statistics.

Alarmingly, the Gini ratio, which measures the inequality in the income distribution, was 0.34 for the first NLSS carried out in 1995/96. But this jumped to 0.41 in the second NLSS of 2003/04, suggesting an economically more asymmetric society. Moreover, there are colossal income gaps between the rural and urban population and the people working in the formal/organised and informal/unorganised sector. Clearly, this is a threat to a civilised society. Hence, the state must ensure a more equal and inclusive society through a progressive tax system so that those who can afford pay more, and thus help freeing the poor people from poverty.Third, enhancing social and political consciousness among the people is an equally important determinant in effectively tackling poverty. So far, age-old laws and conventions based on the feudal system and with ill-intention have been able to suppress the people in the name of religion, race, caste, ethnicity and gender. Social change has been terribly slow due to strongly grounded vested conventions designed to promote the elite. As a result, the so-called lower caste people, minorities, various ethnic communities and women have been deprived of their social rights. Consequently, poverty has been hovering around them. However, overcoming such a situation through ethnic autonomy as proposed by some political forces is more likely to aggravate the situation rather than truly addressing the issue.

Precisely, the politics of ethnic autonomy cannot be justified in the 21st century. In fact, it must be realised that the unprecedented economic success made recently by Japan and South Korea has been largely attributed to their homogonous society. Precisely, in developed societies we do not observe informal institutions such as caste, race and ethnicity. This reflects that the ultimate cure to the problem is social transformation, not the autonomy based on ethnicity. Clearly, ethnicity unknowingly invites disintegration which has been proved as a major barrier to rapid socio-economic development. As a solution to these maladies, we need to decentralise, delegate the central power and resources to the people and make them responsible to understand their local problems and to identify alternative local solutions. For this, the notion of home-rule and local government as a fundamental right must be ensured in the upcoming interim constitution. Also, promotion of human rights, building strong communities and strengthening civil society organisations and local bodies are very crucial engagements required to improve the demand side of the equation. Such an unequivocal and inclusive social and democratic political system helps to reduce the poverty in a sustainable manner.

Challenges

Finally, poverty mitigation has been the single goal of the Tenth plan and all our development efforts for quite a long time. However, the progress made so far has not been very satisfactory. Agricultural, economic and socio-political challenges must be overcome to eradicate the extreme poverty. More aggressive state intervention in the form of crafting and implementing pro-poor programmes is extremely desirable to maintain socio-economic stability and national prosperity. Given the recent political developments, the poor population is likely to decrease significantly in the next couple of years. For this, it is quite understandable that an economic agenda, one that particularly focusses on the above issues, must go simultaneously with the ongoing political transition.

Source: The Rising Nepal, August 23, 2007

West Seti Must Be For Nepalese Too

Dr. Trilochan Upreti

William Bulti-tude, Managing Director of Australia's Snowy Mountain Engineering Corp (SMEC), has reportedly said that the construction of the 760 megawatt West Seti Hydroelectricity Project will start in November 2007. This means three months earlier than the original plan to initiate the project by January 2008.

Energy vs. revenue

Baltitude has been quoted as saying that SMEC is willing to consider providing free energy to Nepal instead of cash, if the government asks for it. He also said that, legally, SMEC is under no obligation to provide free energy to Nepal because the existing agreement is to provide Nepal 10 per cent of the revenue generated by the project. It is also said that the government has not yet formally requested SMEC to provide 10 per cent of energy instead of cash. However, Baltitude has been misinformed. The government is not in a dilemma because the Natural Resources Committee of the legislature-parliament has instructed the government to get 10 per cent of the energy instead of cash from SMEC.Bultitude had also revealed that it was not economically feasible to provide energy to Nepal from the West Seti Project itself, and, therefore, a different project would have to be identified for that purpose because the West Seti is being built to export power to India. SMEC has already initiated a Power Purchase Agreement with the Power Trading Corporation of India for a period of 25 years at 4.95 US cents per unit.

Pursuant to the policy of involving the private sector in generating energy, and SMEC having showed its interest in the West Seti, a MOU was signed between the two 13 years ago. In the MOU, SMEC had promised to provide Nepal at least 10 per cent of the total hydro-electricity to be produced and exported to India from the project. This provision was changed in 1998, whereby, in lieu of the 10 per cent energy, 10 per cent of the revenue was to be provided to the Nepal government. This provision was again replaced by a provision of providing 10 per cent energy instead of 10 per cent revenue. Thus, the presiding water resources ministers have been inconsistent on the policy of energy versus revenue, whereas the need of the country for energy has not changed at all. Thus the ministers, who agreed to the option of revenue against energy, had not decided the matter considering the better option for Nepal. It is an allegation from the side of the people at this juncture of time.West Seti Hydro Ltd. (WSH) has also conducted a meeting with some 28 parliamentarians representing the far-western region, where the topic of the discussion was about energy versus money. It is also reported by the WSH that in the event the project moves ahead as it is today, Nepal would obtain an estimated financial return of US$ 1.12 billion (Nepalese Rupees 73 billion), inclusive of royalty, tax and bonus from the project over the 30-year period. The total cost of the project is US$ 1.2 billion, and 1,579 families would have to be resettled for the construction of the project. This project, if commenced on time and no out of control situation emerges during the implementation stage, will be completed by 2012, five years from now.

Regarding the investment in the project, the WSH's investment would be 26 per cent, Asian Development 15 per cent, China National Machinery Import and Export Corporation 15 per cent, Government of Nepal 15 per cent, for which it has acquired US$ 2 million from the ADB and Special Purpose Vehicle investment will be 14 per cent. The profit of the company has not been made transparent to the media and public. However, the government would not be prohibited from the huge profit generated by the project. This is the first test case of hydropower development by private investors with the aim of exporting power to India. Those who think that this is the only natural resource bestowed on us by nature and that it should be utilised for the optimum benefit of the country wish for its success so as to open up a flood of private investors for making a prosperous Nepal from the huge royalty and other benefits from large water projects. A recent World Bank study suggests that Nepal could get annually US$ 6-10 billion from its water resources development, if a holistic, integrated and prudent use of Nepalese water resources is carried out.

There are a few issues that have to be resolved. For example, the rehabilitation and resettlement of 1,600 displaced families should be undertaken in accordance with international standards and norms. Water withdrawal rights of the local people in this basin must be protected for the past as well as future use. For it to happen, any such plan should be made with wider consultation and consent of the people likely to be displaced, and the basic tenet of it is that their life and livelihood should be better off than the present level. In terms of employment, housing, property, cultural and religious rights, their mode of life should be strengthened and preserved. Therefore, the social, environmental and resettlement policy must be people-friendly and highly beneficial to the displaced families, which is yet to be finalised and accepted by the local community. The local people and the institutions should also get proper benefit from the project, and water entitlement and right of the upper riparian people should also be well defined and protected so that present and future use for drinking and irrigation facilities of the people is safeguarded. This will prevent potential disputes with local institutions and the federal entity, if it is established after the election of the constituent assembly.

Unless a full guarantee of the local interests is safeguarded and local institutions and people are happy, this project cannot move forward. Therefore, the developer should be prudent and liberal to protect and preserve the interests of the local people, and ensure that no adverse effect on the environment and livelihood of the people of the surrounding districts of the project is caused in any way. The legal, constitutional, socio-economic and technical issues and loopholes should be dealt with in a better way for ensuring the broader benefit of the local people. If SMEC is successful in its objective, then many private investors would queue up to invest billions of dollars in many hydropower projects in Nepal.

Trade balance

Nepal's rapid economic acceleration and development depend upon water resources development. If we are able to develop 4,000 megawatts of hydroelectricity and export them to India, then our Rs. 55 billion trade deficit would be balanced. Bhutan has been exporting around 2000 megawatts at the moment and will export an additional two thousand megawatts in the foreseeable future, giving a big boost to its economy. Once the smooth export of West Seti power is resolved, then the prospects of Nepal's development in the hydropower sector will also be opened.

Source: The Rising Nepal, August 22, 2007

National Urbanisation Policy : Proper Implementation Needed

Rajesh Man KC

Unplanned and unmanaged urbanisation has become a matter of global concern. Nepal in this regard is no exception. Rapid urban growth without proper management has created urban environmental problems, triggering health and other social problems in the cities. MigrationThe migration of people from the rural to the urban areas is growing rapidly due to the scarcity of employment opportunities and absence of physical infrastructure and law and order in the rural areas. As a consequence, major cities, including Kathmandu, are facing environmental degradation. Mainly, unplanned construction of buildings, increasing environmental pollution, haphazard exploitation of natural resources and the depletion of fertile lands and forest resources are some of the major consequences of unplanned urbanisation.

In this connection, major industrial cities like Birgunj, Biratnagar, Dharan, Pokhara and Kathmandu are facing the risk of environment pollution. And due to the increasing environmental degradation in these cities, should a natural calamity strike, the devastation would be unimaginable. The major cities are growing in such an unsystematic manner that in the event of an earthquake in a city like Kathmandu, there would not even be a safe place to run for cover. Geologists are repeatedly warning that if a disastrous incident like an earthquake of 1934 were to occur in Kathmandu, over 75 per cent of the houses in the capital would be destroyed, besides unimaginable loss of lives and property. However, it would be wise and appropriate to initiate effective preventive measures rather than to worry about such disastrous incidents. Indeed, most of the building structures in Kathmandu may appear beautiful, but physically they are neither secure nor sustainable. This is because most of such buildings are constructed in an unsystematic manner, using low qualitative construction materials and built without properly consulting good engineers or technologists. Instead, old Nepali style buildings constructed with appropriate or indigenous technology using locally available resources as well as raw materials seem more durable, reliable and sustainable.

Thus, the haphazard construction of buildings has resulted in unsafe houses, increasing population pressure, piles of garbage and highly polluting vehicles plying on the narrow lanes and roads of the cities. Also adversely affecting the environment of Kathmandu has been the pollution from the brick kilns, garment and carpet factories.A recent study has shown that increasing air pollution and piles of garbage in the major cities of Kathmandu have given rise to respiratory diseases and heart problems. So if environmental degradation is to continue in the same manner, and urgent preventive measures are not taken, most of the inhabitants of Kathmandu would be affected by fatal diseases.Although the cities are facing environmental problems, the migration of people from the rural areas to the cities has not stopped. Migration has only increased because of the growing violence in different parts of the country. It may be recalled here that the recently published UN report has revealed that the urbanisation process in Nepal is the fastest in South Asian countries. The report adds that the present urbanisation process in Nepal is increasing at the ratio of 4.4 per cent whereas it is 2.2 per cent in Sri Lanka, the lowest in South Asia.

Nepal has one metropolitan city, three sub-metropolitan cities and 58 municipalities, occupying 14 per cent of the total population. According to the 1981 census, Kathmandu Valley had occupied 5 per cent of the total land of Nepal. But in 2001, it had increased to 7 per cent. It shows that the population pressure on Kathmandu is rapidly increasing. And due to the increasing population pressure, the population of Kathmndu Valley has crossed 2.5 million. Obviously, it is not bad or inappropriate for the urban areas to expand, given that the bulk of the population lives in the rural areas. But under the pretext of urbanisation, we cannot undermine the importance of historical and cultural monuments or deplete the forest resources or other natural resources. Hence, it may not be good to expand the urban areas as it only makes them prone to natural disasters or calamities. Code of conductSo it is urgent that we enforce laws and a code of conduct regarding development and construction of buildings in the towns. In this connection, a National Urbanisation Policy has been formulated with a view to managing and systematising the existing urbanisation process and making the metropolitan cities clean, secure and prosperous.

Source: The Rising Nepal, July 26

Cater To Rural Areas

Following the announcement of the date for elections to the constituent assembly, debate on restructuring of the state has gathered speed and momentum. Colloquiums and symposiums have been organized to elicit opinions on issues involved on the subject and clarify how different approaches and perspectives on state restructuring relate and contradict each other. The forums organized to promote discussions on the issues relevant to state restructuring are very important because it is only through these type of interactions and dialogues that the different views clash and find way out to arrive at convergence and consensus. The subject of state restructuring is connected to the question of election to the constituent assembly . Moreover, it is a very critical subject for which the Nepalese people should have their free and meaningful participation . In order that the Nepalese people have sufficient space to contribute to discussions on the subject, forums should be created at different levels from the centre down to the local level. The making of the constitution through popularly elected the constituent assembly is premised upon the notion that the ordinary people participate in the process and endorse the provisions enshrined in the basic law of the land.

However, when it is found that many forums and discussions are concentrated in the accessible and urban areas of the country, very limited opportunities exist for ordinary people to vent and express their views and opinions. As has been emphasized time and again, the constituent assembly has been a much vaunted methodology and process for making the constitution by means of an unhindered and unchecked participation of the people. But, unless people are empowered to intervene and provide inputs in the process and substance of the constitution making popular participation and endorsement would be utterly lacking . Moreover, the question of state restructuring is a theme for which all Nepalese should exercise their agency to shape and define the elements of the new Nepali state. For this to happen and gain new thrust and dimension, it is necessary that the debates and discussion that are limited to the cities and some urban areas of the country be allowed to reach out to the rural areas of the country.

Source: The Rising Nepal, July 9, 2007

Foreign aid: Can it work for new Nepal?

Bishwambher Pyakuryal

Following the implementation of Foreign Aid Policy, 2002, grants have exceeded loans, projects have been prioritised, Poverty Reduction Fund has been established and Nepal has been receiving Poverty Reduction Support Credit. Similarly, aid has started to flow according to government priorities, though it is questionable if these are government’s independent priorities.The quality of aid has improved to some extent, especially after promulgation of the act. However, there are serious problems with management of such aid, including lack of proper recording, impractical conditionality and lack of transparency. A recent aid effectiveness study conducted by B P Bhattarai shows that both bilateral and multilateral aid can be effective in the long run. However, relationship between aid and per capita GDP has been found to be negative in both aggregate and disaggregated forms in the short-run, implying that the country suffers from lack of absorptive capacity and high aid volatility. This study can be complemented with other findings from the ADB, which show that while macro-policy environment and quality of governance have a direct bearing on poverty reduction, aid effectiveness is not critically contingent on them.Effectiveness rather differs under different environments, with differing quality of governance. On an average, aid is effective when it is moderate in volume. It becomes ineffective when its size exceeds the absorptive capacity of the target country. A cross-country empirical analysis by the World Bank conducted under Stephen Knack reveals that a high level of aid erodes institutional quality, increases rent-seeking and corruption, and therefore, has an adverse impact on growth.

It is recognised that aid helps economic growth in developing countries with sound policies and high quality public institutions. The problem lies with the compatibility of policy choice under different structural settings in conflict-prone countries like Nepal. Linking internationally practiced macroeconomic policies in assistance strategies without restructuring the institutional framework has backfired on development missions in Nepal.In fact, aid rarely manages to get things done which the countries could do themselves. Even with incredibly high aid inflows, poor countries are just as poor now as they were a decade ago. In most cases, aid has only fostered corruption and irresponsible policy-making. This is indeed the case with Nepal.

In Nepal, foreign assistance has not contributed to growth, especially with regard to its ability to supplement savings, foreign exchange and government revenues. The country’s failure to reduce aid and foreign borrowing by closing resource gaps has also not facilitated economic policy autonomy. The new government faces the challenge of reducing debt burden and increasing revenue by properly managing resource allocation under the proposed federal structure. Analysis of fiscal impact under a federal state should be our priority. Attention should go towards making aid money accessible to the poor, providing safe drinking water to villagers and guaranteeing poor children primary education.As external assistance has not been able to make a significant contribution to Nepal’s integration process, advocates of liberalisation have been disappointed. With billions of outstanding debt under the reform programme, Nepal has made a poor showing in public finance, price and supply situation, money and banking, international trade, transport and communications, agriculture and tourism, and social services. There is a big question mark on enhancing the competitive edge of Nepal’s development projects.A crucial determinant of competitiveness is productivity of key inputs. It is the key to improving national economic well-being by attracting domestic and foreign investors to the local economy. Nepal’s competitive advantage in lower wages is offset by low labour productivity. Out of 200 countries, the majority of Nepal’s indices in one of the top priority sectors, viz tourism, fall way behind other countries.

Nepal is characterised by red light in infrastructure, technology, human resources, openness and social index. This is the reason why revolutionary leaders in new Nepal should carefully assess trade-offs between assets and liabilities created by external assistance.Emerging from the ‘poverty trap’ does not necessarily mean a push for larger aid. It is also no guarantee that aid will increase productivity by bridging the ‘financing gap’. An increase in foreign aid and debt relief has not eliminated poverty in Africa. As much as 39% of Africa’s capital is believed to be held by those outside the continent. This clearly shows that investment depends upon the rate of return and increased bank lending. The need of the hour is to create an environment for investment where rates of return are higher than debt.

Source: The Himalayan Times, July 6, 2007

Why Institutional Reforms Count

Lok Nath Bhusal

Being a resource scarce economy, Nepal's future course of development critically hinges on the realisation of the commitments made in the Millennium Development Goals by the development partners. Drawn from the Millennium Declaration of September 2000, the MDGs are a groundbreaking international development agenda for the 21st century. With the aim of bringing peace, security and development to all people, especially people from the developing countries, the MDGs, having eight goals and 48 indicators, outline major development priorities to be achieved by 2015 by the UN member states.

Achievements and shortcomingsIndeed, on the part of developing economies like Nepal, achievement of the first seven goals - eradicating extreme poverty and hunger, achieving universal primary education, promoting gender equality and empowering women, reducing child mortality, improving maternal health, combatting HIV/AIDS, malaria and other diseases, and ensuring environmental sustainability - largely depend on the accomplishment of the eighth goal: developing a Global Partnership for Development. This is because in most of the developing economies, there is a wide gap between revenue and expenditure. Nepal's MDGs Progress Report 2005 states that external assistance totalling US$ 7.6 billion is necessary to meet the first seven goals. Obviously, increased focus on debt relief and development cooperation through more effective aid is crucial to financing development. Having said that, the present article outlines major achievements and shortcomings in the area of institutional reforms in Nepal essential to attract foreign aid. Nepal initiated the reform process in the early 90s in order to integrate its economy with the rest of the world. As a precondition for increased foreign assistance, Nepal's commitment to an open economy, good governance and poverty reduction are some of the major achievements. This is apparent from the objectives and strategies of the three successive plans following the 1990 political change. These plans have clearly allowed market-based economic growth, set poverty reduction as the single goal and unveiled a systematic arrangement to institute good governance.

Reduction, restructuring and rationalisation of import duties, elimination of most of the quantitative restrictions and import licensing requirements, interest rates deregulation, and introduction of full convertibility for current account transactions have been major reforms on the trade and financial fronts. Consequently, the unweighted average rate of protection has declined from 111 per cent in 1989 to 22 per cent in 1993, and to 14 per cent in 2002, clearly indicating a liberal economy. Furthermore, in terms of trade to GDP ratio, for 1984/85 it was 31.9 per cent whereas it was 50 per cent in 2003/04, suggesting Nepal to be the most open and trade dependant economy in South Asia. Likewise, a number of innovative approaches have been initiated to make the civil service responsive, efficient, accountable and inclusive to ensure good governance. Elimination of 7,334 vacant positions and putting a cap on recruiting class III and class IV non-gazetted staff have been carried out to right-sizing the bureaucracy.Likewise, institutional reforms in the central personnel agency, the Public Service Commission, Commission for the Investigation into Abuse of Authority (CIAA) and the National Vigilance Centre are underway to make the bureaucracy more efficient, accountable and corruption-free. Indeed, with the enactment of the Local Self-Governance Act 1999, Nepal has taken major strides towards decentralization and, thus, poverty reduction. As a result, the local bodies have improved their performance owing to their better preparedness with the periodic plans, technical capacity, operating systems and operational processes.

In order to upgrade the judicial capacity and resources for enhancing justice delivery, the judiciary has prepared a strategic plan to link it with the national planning process. The plan envisions a system of justice that is independent, competent, speedy, inexpensive, accessible, ethical and worthy of public trust. All these reforms are intended towards improving governance and, thus, making it more pro-poor. Eventually, these reform initiatives meet the basic conditions for global partnership for development.However, still a number of shortcomings in the realm of governance and economic and trade reforms still persist in creating a conducive environment for attracting more foreign aid. First, the sluggish progress in the piloted performance-based management system, owing to inadequate fulltime staff, poor management, funding and facilities in the change management units in the public institutions, has been a major setback to the reform process. Also, transfers, promotions and the distribution of other career development opportunities within the civil service have yet to be institutionalised. Second, in the past, the conflict has forced many VDC secretaries to abandon their posts, curtailing development activities, taking a toll of the decentralisation process. Also, despite the peace agreement, the local bodies have not been able to spend their development budget due to local level conflicts and lack of consensus.

Again, although theoretically politicians and bureaucrats seem to agree on greater decentralisation, in practice, the centre has always been reluctant to do away with its powers to carry out any meaningful decentralisation. Third, the lowly paid public servants and deteriorating ethics and integrity are major challenges to fighting rampant corruption.Essentially, judicial reforms and FDI inflow have a positive relationship. Additionally, on the economic fronts too, deregulation of state monopolies, privatisation and financial sector reforms have been disastrously slow. Again, our efforts at realising the notion that aid should promote trade have not materialised to the desired extent. Obviously, these shortcomings contain our potential for attracting more foreign resources.

Increased assistanceTo conclude, in an era of economic diplomacy, increased foreign assistance is extremely crucial for undertaking development activities in Nepal. Despite some achievements made in the economic and governance reforms for meeting the preconditions for such assistance, further deep-rooted reforms are required to benefit from foreign aid. Indeed, as part of a global development strategy, Nepal will be in a position to attract more aid and stride towards accelerated socio-economic development in the future. Broadly, such aid money should be spent on reconstruction, rehabilitation and infrastructure development, peace and meeting people's basic human rights, gender and social inclusion and better service delivery. Indeed, Nepal must work hard for better alignment of assistance strategies, increased budget support and harmonisation of assistance and procedures, and ultimately it must focus on better results.

Source: The Rising Nepal, July 4, 2007

Priorities For The Upcoming Budget

Amrit P. Shrestha

The budget communicates information about the priorities of the government. Each act in the budgetary process is important, not only for taking a specific decision (so much for this, less for that), but for the information conveyed to others who will alter their activities accordingly. The closest analogy to budgeting in the political arena is pricing in the market place. Price is the major signal to which people adapt in choosing what to buy and sell, produce and consume, undertake or abandon. These signals communicate more about what is valued than any other economic decision. While concentrating on the budget, we should not be thought of as abandoning the awe-inspiring multi-year plan, rather as seizing one opportunity to focus on an area of significant potential advance over current practices. The budget has to focus on those segments that need to be brought on track, like infrastructure development, agriculture and the social sector

Strategies:Our economy has been pushed into a downward spiral. Neither are the government agencies in the process of activating the development programmes nor are the politicians concerned. The overall scenario is disappointing, whether we talk about physical infrastructure or social activities. Our journey has just started, and compared to our neighbours, it is in the preliminary stage of development. The upcoming budget must address all of the multi dimensional parameters of the economy which are causing concern - highway networks, rural connectivity by roads/communication, power, drinking water, agriculture, irrigation, watershed development, provision of quality seeds, access to health/education and poverty alleviation. Every finance minister plans ahead to avoid any problems in the future by anticipating them. He tries to obtain a more desirable future by working towards it at the moment. Attention must be diverted to the United Nations Millennium Development Goals, which could be a guideline for achieving our own goals.When there is growth, there will be more tax revenue. Growth-oriented budget benefits a section of the population, and growth is also a part of investment. When investment is taking place, there is nothing to suggest that growth will not take place. Policies that serve to distribute income more equitably must, therefore, become as important as those designed to accelerate growth. The road to economic prosperity, self-sustaining growth and national well being, in other words, has been impeded by lack of capital and industry than by the whole configuration of social factors responsible for it.

With every announcement that reduces our taxes, we are happy while we fall sullen when taxes go up. However, the finance minister must try to reduce inflation, keeping it at a moderate rate of 4-5 per cent. Taming inflation without dampening growth, more effective delivery of social services and putting fresh impetus in the economy are other priorities. And policies have to be designed in a manner to enhance investment to lay a robust foundation for growth, and make investment avenues more attractive.Customs and excise duty cuts are disinflationary. The reduction in customs duty on key inputs would reduce the manufacturing cost and facilitate exports. Cutting import duties on industrial intermediates and raw materials will be incentives for the manufacturing sectors. And it would be a strong support for increasing the tax to GDP ratio. Unfortunately, Nepal has not been able to push with VAT. The tax has not played a significant role in enhancing economic process. The overall strategies have not helped achieve those targets as envisaged in November 1997.The tax rate has been increased time and again for nothing, and this does not get reflected in real revenue mobilisation. So the finance minister has to pay serious heed to increasing the tax base rather than increasing the tax rate. International experience tells us that the gradual lowering of the tax rate is an effective tool in achieving the desired goals rather than increasing it. Meanwhile, WTO norms have to be kept in mind while granting direct subsidies on agriculture and farm products.

This is also the right time to rewrite tax laws aimed at: improving the capacity to mobilise more revenue; combatting tax evasion; making the tax administration more professional/strong /job-oriented, and improving compliance and economic activity. Tax evasion provisions should be more stringent with tougher penalties. Budget allocation for infrastructure development and expansion of the IT sector, promotion of the concept of an International Financial Centre, and adoption of the private-public partnership (PPP) model should be a part of the basic development process.ChangeOne must accept that the budget is not the main vehicle for bringing about changes. One also knows by experience that financial assistance through internal and external source is a strong instrument for initiating such changes. All must, therefore, think from a long-term perspective rather than weighing the immediate pros and cons.

Source: The Rising Nepal, July 5, 2007

Action, action

Successive governments have formed too many commissions and committees to look into the long-ailing public corporations (PEs) and suggest measures for turning them into cost-effective or profitable ventures. But not much concrete action has been taken to that end. If all those reports were put together, they would fill many shelves. The latest report, an interim one, has come from the five-month-old Corporation Reform Suggestions Committee headed by former industry secretary Dr Bhola Chalise. Unsurprisingly, it has concluded that most of the PEs are in an unenviable state. It has categorised them as bad and very bad, and added that both the privatisation and reform process for the PEs have stalled. Therefore, it has recommended the formation of a corporation reform commission to adopt policy for reform. Though the existing privatisation committee has representation from the political parties and the private sector, little has come of it.

The justification for this commission and for reform, according to the report, comes from the belief that in the present fluid political atmosphere, full-scale privatisation cannot move forward. As the interim government represents eight parties with different views on how to pull the PEs out of red, a consensus on the PEs’ outright privatisation may indeed be difficult to achieve at this juncture. However, even the Maoists may not be averse to the idea of starting the process of selling the shares to the general public. The symptoms of the disease are more or less common to all PEs, and the disease was diagnosed long ago. What is really needed now is not more committees or commissions, but concrete remedial action to bring the ailing PEs back to health. In this context, the great majority of the corporations have no option but to privatise. The government and bureaucrats, who cannot run the ministries and departments properly, cannot be expected to run commercial, industrial or financial enterprises professionally.

In the past, many reform measures were announced to revitalise the PEs but none worked. It is therefore hard to believe that any new reform measure without changing their ownership structure will now be effective at turning the PEs around. One or two governments also sought to put vigour into the PEs by hiring their chief executives on performance contracts, but that came to almost nothing. Poor performance of the PEs has a lot to do with the failure to exact accountability. For instance, government bureaucrats who occupy important positions as chairmen or members of the boards of the PEs or members of recruitment committees are not held accountable for their performance there. There has not been a consensus among the political parties either on exactly what to do with the PEs. Any government that came to power lacked clear vision and willpower to introduce far-reaching reforms. It treated the PEs as employment mills. The interim government can no longer afford to waste time on commissions or reports. The need of the hour is action.

Source: The Himalayan Times, July 5, 2007

Tapping Nepal’s hydropower potential

Rajendra Bhandari

The parliamentary Natural Resources and Means Committee has been meeting to decide on what could be the turning point in terms of Nepal’s development. In this regard, the country’s huge hydropower potential has emerged as the strongest contender, as far as economic emancipation is concerned. Nepal, despite being a country rich in hydropower resources, has unfortunately been unable to utilise this asset to its advantage. It is estimated that less than 2% of its hydropotential is being tapped.However, realising this enormous possibility, positive steps are now being taken in the right direction. The government, after gaining and learning from past experiences, set up a bidding committee for hydropower projects with a comprehensive evaluation process to identify and select the most capable and feasible party. Some of these include 402 MW Arun 3, 300 MW Upper Karnali, and others totalling an approximate 2000 MW projects being processed by the government and private sectors collectively.

The Parliamentary Committee is now assessing the bidding process. Embroiled in a dynamic political environment, the process seems to be taking too long. The coalition has priorities changing from day to day. Meanwhile, the world is looking up to those in power to quickly take measures that will inculcate confidence in the investing community — be it national or international.This is what puts the Committee as well as the government in a position that will help them define the future of the economic progress of Nepal. An expeditious decision on the power projects will help send a signal to the world about the government’s seriousness of purpose in inviting investment that is important for Nepal’s development. But unending deliberations and a prolonged process may take Nepal right back to where it began.Nepal may even consider taking a leaf out of its neighbour’s book. Bhutan’s achievement in terms of hydropower development has helped establish it as the nation with the highest per capita income among SAARC countries. A remarkable feat considering that there is a two-fold increase in its GDP.

Nepal too can mobilise its huge water resources. Bearing in mind the similarities between the two countries in terms of geographical size, terrain and population, adopting a parallel strategy that can leverage hydropower resources to enhance national economy could well be Nepal’s ticket to prosperity, especially with the Indian economy promising to be a big market.The government has already got overwhelming response from the international community. The approach, process and criteria of selection looked much more apprehensive and credible. No wonder many good international parties have submitted their proposals this time. The selection committee must take a holistic approach towards the entire process and get out of small issues. Now, it is up to the government and the Parliamentary Committee to settle the bidding process and take a quick step towards economic independence.

Source: The Himalayan Times, June 28, 2007

Interim Plan

Following two days of 'intense' deliberations, the National Development Council, the apex policy-making body of the National Planning Commission (NPC), has finalized a concept paper of the three-year Interim Plan, to be implemented from mid-July. We congratulate the NPC for successfully completing its ritual of formulation of the plan, albeit with certain reservations
Let's first talk on the pros and cons of the plan. It is good that some of the goals of the plan, like achieving an average 5.5 percent economic growth, appears relatively realistic. We believe achieving the growth rate will not be a difficult task should conducive entrepreneurship prevail after the CA polls in November.

However, it is bad that the plan has incorporated some targets that are really ambitious, and difficult to achieve. Like, containing inflation at 5.6 percent seems unrealistic since we all know the government has very little influence on domestic inflation rate. For example, agriculture production, which has the largest weight in the basket of consumer index, is prone to unpredictable fluctuations due to erratic weather, so are its prices. Similarly, in no way can the future price of imported items like petroleum products and its consequent multiplier effects, be simply gauged.

Likewise, lowering incidence of poverty to 24 percent is something difficult to materialize. No doubt, we were able lower a remarkable 11 percentage points in the past. But, keep in mind that that happened in the period of seven years and the NPC this time aims lower poverty rate by seven percentage points within three years, that too at a time when the economy is showing no signs of recovery and growth rate remittance inflow is dwindling. We have reiterated many times in the past what the country lacks at the moment is not a good policy per se, but a sound entrepreneurial environment, which has been rapidly deteriorating in recent months.
Why has foreign investment dried up, and why is additional domestic investment constantly shrinking, despite the fact that borrowing rate is at its lowest and the economy is in excess liquidity condition? Because, the country has no investment environment at all.

Labor unrest, which often carries political agendas rather than labor interests, is at its height. Entrepreneurs have been compelled to compromise with forces outside factories, which has greatly inflated labor costs, thereby eroding competitiveness. We believe that the government should overhaul its failed internal security strategies and place a new and convincing one to improve the law and order situation.

Another important aspect we have raised is that the country desperately needs a powerful body to independently evaluate the implementation of the plan. The institution that formulates plan shouldn't be allowed to evaluate the progress of the implementation. It is shameful that the NPC wasn't able to bring mid-term evaluation of the Tenth Plan on time, which means that the institution failed in bringing timely corrections, which are vital to keep the plan on track by dealing with emerging challenges.

Source: The Kathmandu Post, June 27, 2007

Balancing act

Presentation of the national budget (2007-08), the first by the eight-party interim government, is only two weeks away. This budget will also mark the end of the 10th Five-Year Plan and commencement of the Three-Year Interim Plan. The upcoming budget is bound to be a tough balancing act, not only because of the fast-growing demands coming from the myriad groups, but also because of the different priorities of the various constituents of the government. Added to this will be the heavy burden of reconstruction and rehabilitation, plus the constituent assembly polls. Therefore, the upcoming budget will have to be substantially larger than the previous budget — it is expected to hover at around Rs.160 billion. As the average economic growth rate during the past several years (including this year’s estimated rate of 2.5 per cent) has barely kept pace with the population increase, the country has hardly grown in net terms.

This implies that the foreign aid component of the budget will have to swell. As issues of uplift of the disadvantaged communities and development of backward regions have come into sharp focus, these are likely to force the eight parties’, and therefore the government’s, special attention. There is also a pressing need to make bigger allocations for the social sector, particularly health and education, to make these services accessible to the under-privileged. The government is also under heavy pressure from other sectors such as industry and agriculture for more money, and even from its employees for pay hike. It may have to consider substantial grants for the local bodies where the elective vacancies may shortly be filled by nomination. Because, over the years, almost every sector of the national economy has suffered from huge problems emanating from the conflict and its effects, such special push for greater government attention is not unnatural.

To stimulate the sluggish economy should constitute a principal task of the government. Finance minister Dr Ram Sharan will also have to give the budget something of an “inclusive” character at a time of inclusive politics. The interim government’s Common Minimum Programme (CMP) could provide some common ground. Inclusiveness also means that the constituent parties should be widely consulted and the outcome should reflect their consensus. In view of the too many competing needs, much more than in the past years, and the limited resources, there is also a danger that the resources could be thinly scattered. Finance ministers in Nepal have not had to deliver on their promises, and their emphasis has been on making the budget sound impressive at the time of presentation. Just look at the development budget of every year and at the wide gap between promise and performance. Even the quantum of estimated foreign aid and actual disbursement may well differ. Besides, failure to cut down on wasteful expenditure and to crack down on financial corruption can send the best-laid plans haywire. This has been one of the weakest points of successive governments.

Source: The Himalayan Times, June 25, 2007

Upcoming Interim Plan Achieving Human Prosperity

Lok Nath Bhusal

Amid the ongoing political transition, the National Planning Commission (NPC), the apex planning authority, is trying its best to craft an Interim Plan (IP) for the next three years rather than go ahead with the 11th Five-Year Plan. The Interim Plan is expected to bridge the gap between the current 10th Plan and upcoming 11th Plan. Indeed, it is assumed that the election to the constituent assembly, parliamentary polls and the formation of a new government will take place in the next three years so that the new government is better placed to bring about the 11th Plan. The unique feature of this plan has been its participatory process of formulation as the major political parties are represented in the government and Planning Commission.

ExpectationsNo doubt, given the incompatible ideologies among the different political parties, it will not be easy for the NPC to formulate a quality Interim Plan by synchronising the differences. However, the NPC, with its inclusive formation, expertise and 50 years of planning experience, has been trying hard to bring about a consensus Interim Plan. Essentially, the Interim Plan would be an instrument towards making a modern, prosperous and just Nepal at a time when the country is undergoing a profound political and economic transition.Looking back, Nepal has implemented nine successive development plans, and the current 10th Plan is in its final year. Despite some achievements in the areas of infrastructure and human development, and poverty reduction, this has not been commensurate with the expectations. The Living Standards Survey 2003/04 concludes that absolute poverty has declined by 11 percentage points from 42 per cent to 31 per cent in the last 10 years due to increased agricultural and non-agricultural wages, urbanisation, increase in the active population, and the massive inflow of remittances. However, income inequality, as measured by the Gini Coefficient, has increased from 0.34 to 0.41. In addition, according to the Human Development Report 2006, Nepal has dropped to 138th position from its earlier 136th. However, the Demographic and Health Survey 2006 has revealed that the birth rate, infant and child mortality rate have improved significantly.

One of the most crucial issues has been the inequitable distribution of the fruits of development in the past. The socio-economic status of the dalits, Janajatis, women and people from the remote areas have not improved, and reforms have not been sufficient to address the aspirations of those marginalised groups. Despite the reduction in the overall level of poverty, there are mounting disparities across various ethnic groups. A study ?Unequal Citizens: Gender, Caste and Ethnic Exclusion in Nepal (GESA)?, carried out by the World Bank and DFID, has demonstrated that 47 per cent of the dalits, 44 per cent of various ethnic communities in the hilly region, and 41 per cent of Muslim households live below the poverty line. Obviously, these figures significantly surpass the national average of 31 per cent, 14 per cent for the Newars and 19 per cent for the Bahuns. As a result, majority of the people lacked the feeling that there exists a state favouring them. The major responsibility of the state is to institutionalise the achievements of the historic Jana Andolan II. The upcoming Interim Plan should be based on the people?s spirit expressed during the Jana Andolan, the declaration of the House of Representatives, various agreements signed on the political fronts, and the directive principles and the policies in the proposed constitution. However, according to a study jointly conducted by the National Planning Commission and UNDP, all MDGs are likely to be achieved by 2015 except the ones concerning Universal Primary Education and HIV/AIDS.

The recent political development has provided numerous opportunities for a brighter future. The settlement of the decade-long conflict has brought the political actors closer, opening the doors towards creating an inclusive political landscape. Moreover, a peaceful political environment, commitment to human rights, good governance and the establishment of a loktantric system of government have been very conducive to attracting foreign assistance both in the form of grants and direct investment. The friendly relationships with the giant economies of India and China, with their historic economic growth rates, can be good marketplaces for Nepalese exports, and, thus, ways to earn foreign currency. Indeed, this has created ample opportunities for Nepal?s rapid economic development and to creating an affluent society. Also, the existing cultural, linguistic and regional diversity, and hardworking people would be Nepal?s true human capital towards making a New Nepal.

Furthermore, the mounting tourism potential, if fully exploited, would be instrumental in earning foreign exchange and creating lots of employment opportunities. Likewise, the physical and social infrastructure, efforts and experiences towards good governance and decentralised system of governance made in the last 50 years have provided a solid basis for rapid development. Now the time has come to proceed with these achievements along with innovative ideas and new dynamics. The upcoming Interim Plan should come up with a long-term vision for creating a prosperous, modern and just Nepal. Indeed, prosperity would offset absolute poverty and ensure social empowerment and easy access to quality services. Similarly, a modern Nepal would bring improvements on the thinking of the people about the social, economic and financial status, ensuring the adoption of appropriate technologies and lifestyles. A just Nepal would bridge the gap between the affluent and poor people, and end the legal, social, economic, ethnic and geographical discrimination. Indeed, this would ensure inclusive development, social justice and good governance.

Human prosperityIn order to realise this long-term vision, the major goal of the Interim Plan should be to reducing poverty and attaining economic and human prosperity through good governance, social justice and inclusive development approaches. Essentially, the major goal of the Interim Plan should be to reduce absolute poverty through the creation of employment opportunities, inclusive growth, reconstruction, rehabilitation and reintegration. The major strategies should touch upon employment-oriented, broad-based and inclusive economic growth; good governance in development works and service delivery; emphasis on rural and urban infrastructure development; and adoption of a socially inclusive development approach. The upcoming meeting of the National Development Council will try to address these issues, and formally recommend the government of the approval of the Interim Plan.

Source: The Rising Nepal, June 25, 2007

Common ground

E conomists have expressed concern about the Nepali economy and one big source of it is the lack of clarity in the economic policy of the major political parties. They fear an economic drift. Political and business leaders occasionally call for a national consensus on economic development. At an interaction on ‘Industrialisation’ held in the capital on Tuesday, representatives of several political parties stressed the need for: a common vision for development, a common code of conduct for the sister organisations of the parties concerning industry, including bandhs and strikes, keeping the industry away from politics, a common minimum economic agenda of the parties, etc.

The existence of various political parties implies various policies on the economy and other sectors. But this should not form a barrier to the evolution of a broad common area of agreement on vital sectors, such as the economy, the use of principal natural resources (in Nepal’s context, water resources), foreign policy, and national security, how to maximise benefits from the country’s location between the fast developing giant neighbours and from other international economic ties. But, before the parties can develop such a consensual policy covering these areas, each needs to have a clear vision and a clear set of goals and objectives as to how it would steer the country with respect to those areas by itself if it came to power. Here, the parties have still to make their minds clear and let the people understand what they really want.One wonders how the Nepali Congress’s socialistic pattern of society meshes well with the policy of liberalisation and privatisation that are sweeping much of the world within the framework of globalisation. And how may one explain the gap between theparty’s policy and practice? The CPN-UML seems to be confused about its economic policy, as it struggles to balance between its communist brand and the present-day economic realities. The Maoists, who have yet to achieve full integration into the capitalistic pattern of economic management, have provided only a sketchy picture of the economic direction they will take, not a definite total picture of what they call a ‘mixed economy’. The confusion persists also as to whose policy the upcoming national budget will reflect. The Congress’s because the finance minister belongs to that party? Or, will it form a consensual document of the eight parties represented in the government? What about the three-year development plan being prepared by the National Planning Commission (NPC) for the interim period, whose length is still uncertain? Besides, as the NPC represents a hangover of the days of a regulated economy, is it not time its very role, and its very raison d’etre, were reconsidered in the new globalised context?

Nobody discounts the overriding importance of the political process of peace and polls. But it does not have to exclude important work on other areas vital to the nation. And what better time than this interim period the political parties will have for building such a consensus.

Source: The Himalayan Times, June 14, 2007

Economic Scenario

THE overall economic scenario of the country seems to be in the right direction despite some negative trends in certain areas. According to an analysis report of the Nepal Rastra Bank, the central bank of Nepal, the balance of payment in the first nine months of the current fiscal year posted a surplus of 10.79 billion rupees. It is mainly due to increased inflow of remittances from Nepalese working abroad. This is a positive trend as Nepal now has a comfortable situation as far as foreign currency reserves and balance of payment are concerned, which was rare in the past. The adequate reserve in foreign currency has led to an appreciation of the rupee against some major foreign currencies. But remittance alone does not help consolidate the economy and balance of payment in the long run. The main engine for a sound foreign currency reserve, balance of payment and overall economic development is the export sector. However, the export sector does not appear to be in a healthy condition. The central bank's report states that the export sector has witnessed a continued downward slide. Exports in the first nine months of the current fiscal year saw a decline by 2.9 per cent.

This is by no means a positive symptom. But the other sectors have shown mixed results. The economy of the country had badly suffered due to the decade-long insurgency and conflict. But the situation changed, and economic activities started picking up after the success of Jana Andolan II that restored democracy and also paved the way for the peace process. The situation became more encouraging after a cease-fire between the government and the Maoists was announced and a national comprehensive peace treaty was signed. However, strikes and protests programmes continued at the call of different trade unions, political and ethnic groups. The agitation in the Terai has been long and has hit the economy and other sectors hard. The decline in exports is also mainly because of the frequent strikes in the Terai areas. However, the overall economic indicators have shown positive signs. The GDP growth rate is expected to do better. Past experience has shown that peace is the main requisite for economic and social development. Now the political process is underway to make the peace process a success and ensure state restructuring, which is expected to give a further boost to the economy. The national economy should be the concern of all the political parties irrespective of their ideology. Thus, there must be equal efforts from all sectors to expedite the economic activities and development. The national economy should not be a victim of personal and partisan interest. The ongoing peace process must be successful for sustainable economic development as well. We must understand that our prosperity is ensured only when the national economy booms and flourishes.

Source: The Rising Nepal, June 13, 2007

Bottoms up

The units of local self-governance — the 75 district development committees, some 4, 000 village development committees and 58 municipalities — have been without the people’s representatives for the past five years, including one year of the post-Jana Andolan 2 period. They have mostly been run by employees, except sporadically, in some of them, by people nominated to the elective posts by successive governments after the term of the elected bodies was allowed to lapse in 2002 by the Sher Bahadur Deuba government despite the legal provision for extension by a year. This was because Deuba did not want the CPN-UML, the then main Opposition, to continue to hold sway in about two-thirds of them. The failure to fill all the vacancies was due to the Maoist insurgency at that time. Now, at long last, the elective vacancies may soon be filled as the eight parties are reported to have reached an understanding on the matter, including a formula for the distribution of all the posts among them. The three major parties — the Nepali Congress, the CPN-UML and the CPN-Maoist — are to be treated as equals, the NC-D is to get half of any of the Big Three, and the remaining tiny constituents of the alliance will not have to draw a blank.

According to a report, all the local bodies are likely to be constituted in three phases, starting with the coming fiscal year. The government has prepared a set of directives for operating the local bodies in line with Article 139 of the Interim Constitution, which provides for the formation of the units of local government “to create a congenial atmosphere for the practice of the people’s sovereignty from the local level upwards ... to provide services to the people locally and to promote institutional development of democracy right from the local level up...” Decentralisation and devolution of powers have been emphasised. As there has been a national understanding on the question of providing greater autonomy to the local units, the practice of local governance in the interim period should reflect this consensus.

The eight-party look of the local units will inject optimism into the local people, giving the impression that democracy and peace are returning to the villages. The filling of all the elective posts through consensus-based nomination will activate service delivery, disrupted so often in so many places, to its full capacity, and is likely to make it efficient and transparent. In the past, after the elected bodies were allowed to die, most donors, particularly Scandinavian governments, were not pleased and had expressed their serious reservations about continuing aid aimed at strengthening local self-governance on the ground that the shape of the local bodies under active royal rule did not reflect a representative political arrangement. This had severely hampered work. The eight-party arrangements are expected to enhance accountability and credibility of local units, and greater willingness on the part of donors to help with expertise, money and material to promote democracy and decision-making at the grassroots.

Source: The Himalayan Times, June 10, 2007

What Would A Maoist Nepali Economy Be Like?

John Child

Maoist leaders' speeches at the annual Chambers of Commerce meeting contained comforting commitments but plenty of radical rhetoric too.

The 41st annual meeting of the Federation of Nepalese Chambers of Commerce and Industries opened this week with speeches from the usual slate of ministers and business leaders, but the agenda also included time for Maoist supremo Prachanda and number-two Dr. Baburam Bhattarai. The Maoists sought to calm fears by repeating earlier assurances that they are not anti-capitalist, that they do not intend to confiscate private property, and that they will not prohibit foreign investment.

But the reassurances came with a hefty dose of rhetoric at odds with the promises. Prachanda said that economic progress depends on doing away with 'rents and commissions' to foreign 'compradors.' Rent is a term from classic economics: It is the difference between income generated and cost incurred - the profit - from putting an additional unit of capital or labor into use. To Communists though, rent is 'unearned profit': In both the Soviet Union and Mao's China, that meant all private profits.

The word comprador also predates Marx but took on new meaning in Communist economics. Originally a term for a Chinese agent working with foreign traders as a business intermediary, Marx and Mao used the word to describe those who serve and profit from imperialism. Imperialism in Lenin's definition is 'the highest form of capitalism,' that of multinational corporations and international capital movements. Prachanda and Bhattarai also railed against 'feudal and reactionary interests' and 'foreigners and their commission agents who waged jihad against us' and 'looted the nation's assets.' Perhaps the words rent and comprador are just more Communist jargon. But if the Maoists mean what they say, their vision of the Nepali economy is quite different from today's picture.

The Maoists want 'national capitalists' but not 'foreign agents.' Many of the country's major business houses are Indian-owned; most of the commercial banks are foreign-run joint partnerships. Many in the audience must have wondered if they would be considered compradors, benefiting from the global economy. The Maoists want foreign investment, but Bhattarai explicitly ruled out education, health, communications, and transportation. Maoist water minister Yami's blocking of the Melamchi deal suggests that foreign involvement in public works is out too.
The Maoists say they approve of private property, but they have also called for legal limits on how much of it anyone can own, in the name of land reform. Profit is OK, but not 'unfair' profit. Foreign money may be acceptable in some areas, but not foreigners or their agents. No commissions means no corruption around investments, say the Maoists.

In his speech, Prachanda said that foreigners waged 'media war' on his party after they refused to take the commission offered for letting the Melamchi deal go through. To dramatize a commitment to good government, Maoist ministers signed over all their personal property to the party and pledged to accumulate none during their tenure. Anti-smuggling efforts by the YCL too are part of the Maoists' stated clean-up campaign.

Reducing corruption and influence would certainly be good, but ongoing demands from the Maoists for 'donations' cost businesses as much as corruption does, and the lack of any accounting from the party for more than $15 million given to them by the government to support their troops in the cantonments doesn't bode well for transparency in a Maoist Nepal.
'We are still in the process of resolving political issues,' Prachanda told the business leaders. 'Therefore the country's modernization is a distant dream.' Those in his audience who took the rhetoric seriously may hope that Prachanda's dream remains far away, whether they consider themselves compradors or not.

Source: News Blaze, June 5, 2007

Curtain up or down

The row over Sitaram Prasain, a former chairman of a development bank accused of committing financial irregularities amounting to 280 million rupees, threatens to affect the relationship between Prime Minister Girija Prasad Koirala and the CPN-Maoist. The Young Communist League (YCL), the youth wing of the Maoists, had taken Prasain into custody on Sunday and made him public at the Open Air Theatre the next day, before handing him over to the Metropolitan Police at Hanuman Dhoka. The PM, responding to a complaint by an FNCCI delegation at Baluwatar on Monday, got into an angry mood and branded the YCL as “Young Criminal League” for its handling of Prasain, and declared, “I’ll spare nobody. Nobody is allowed to make a mockery of law and order”. But Krishna Bahadur Mahara, a Maoist minister and government spokesperson, yesterday replied by terming Koirala’s statements the result of a “criminal mindset”, and Sagar, chief of the YCL’s Valley Bureau, labelled Koirala as the PM of “a handful of corrupt and criminal people”, threatening to stage nationwide protests until he withdrew his comment.

But Prasain is not a person for Koirala and the Maoists to fight over. There is no doubt that Prasain’s case needs to be taken to its logical conclusion. But for that, the proceedings must be initiated. The Nepal Rastra Bank (NRB) was reported to have sent a letter nine months ago (on Bhadra 26, 2063 BS) to the police headquarters asking the latter to arrest Prasain. But the authorities did not act on it, and he was rather seen to be hobnobbing with senior police officials and political leaders. That led to public doubts that he enjoyed political and official protection. The extent of his offence can be determined only after the due process of law is completed, but his public image is far from glorious. That is why Koirala’s remarks might prove a liability to him, besides the fact that he has proved helpless in dealing with financial crimes.

Nobody except a competent authority has the right to sit in judgement and pronounce verdicts. But any member of the public can help the authorities by getting hold of the accused and handing him or her to the police, as such instances abound in the country. Besides, governments have promoted the slogan that every citizen is a policeman or policewoman without uniform. The PM’s charge against YCL puts him under an obligation either to withdraw his charge or to act against the YCL. In addition, it is the duty of the government to provide justice to the shareholders who had invested 700 million rupees in the ill-fated bank. Of course, the accused should receive a fair trial. Koirala would improve the government’s and his own reputation by seizing the initiative to crack down on financial corruption, an evil that has eaten so much into the body politic that the general people seem to despair of any good coming of any commitments of the political leaders. No government can create a new Nepal by showing helplessness in the face of financial scandals and irregularities.

Source: The Himalayan Times, June 6, 2007

Unfair deal

The promise of 10 percent free energy to Nepal from the 750-megawatt West Seti hydroelectric project, awarded to Australia's Snowy Mountain Engineering Corp (SMEC) a decade ago, has turned out to be a hoax. Clauses in the agreement between the government and SMEC, which was kept a secret from the public, deprive the country of any free energy, and even give rise to a distinct possibility of no benefit to Nepal at all. The government put West Seti project on fast track stating the project would provide 75 megawatts of free energy to Nepal. That was the original arrangement with SMEC, and that was what the government as well as the project's developer had been saying in public. However, a renegotiated deal does not require SMEC to give Nepal any free power. Instead, SMEC is required to pay the country in cash, that too only in the event it has money after paying back its debt participants, and bearing its operational cost. This is sheer treason.

SMEC took a decade to bring the storage-type project to the construction stage since signing a project agreement in 1997 to develop and operate the project for thirty years. In other words, SMEC got hold of the project without having the ability to fund it. A decade down the line, SMEC has convinced four countries and two international banks in areas of investment, construction, insurance, and transmission. It has also made an arrangement to sell all power generated from the project to India through PTC India Ltd. If Nepal is getting no free energy, and if the cash benefit is also uncertain, why is the government hell-bent on re-awarding the project to SMEC, despite the length of time it has spent without laying even the foundation stone for the project. Signing an agreement that will put at risk any benefit Nepal might get from a project is totally unacceptable. Therefore, the agreement the government has with SMEC is totally unfair.

The government, therefore, should initiate an impartial investigation to figure out officials involved in signing and renewing such suicidal agreement with SMEC. When it comes to deals on big infrastructure projects, Nepali officials have always failed in the negotiating table. This has to be ended once and for all. The least that the country demands is that our negotiators uphold national interest. A mistake that will leave Nepal regretting for thirty years is the last thing we need now. There is no question of re-awarding the project to the developer if Nepal's rightful benefit from the project is not ensured. The best way to ensure that benefit is through an arrangement for free power, and not through the tricky course of cash benefit.

Source: The Kathmandu Post, June 5, 2007

Maoist mayhem: Nepal's image takes a beating

KATHMANDU: After the Asian Development Bank washed its hands of a major development project, Nepal's image took another beating in the eyes of the world with 15 foreign governments condemning a Maoist attack on the US ambassador to Nepal and expressing concern about diplomats' safety. "The diplomatic corps of Nepal is deeply concerned by an upsurge in recent weeks of security incidents that have threatened foreign diplomats or otherwise impeded their work in the country," a statement signed by 15 embassies in Nepal said. "We condemn any and all attempts to harm, threaten, or interfere with foreign diplomats working in Nepal."

The 15 embassies include some of Nepal's biggest donors, like India, the US, Japan and European Union countries. While Pakistan, that allied itself with Gyanendra in 2005, when the monarch seized total power with the backing of the army, also joined in the condemnation, China, another supporter of the 15-month royal regime, however was conspicuous by its absence. It was an acutely embarrassing situation for the Nepal government that claims an improvement in the security situation and announced elections in November, when cadres of the youth wing of the Maoists, which is now the third largest party in the coalition government, attacked the UN vehicle carrying the American ambassador to Nepal, James Francis Moriarty.

The incident occurred on May 25 when the envoy, accompanied by the UN High Commissioner for Nepal's representative Abraham, who was returning from Jhapa district in eastern Nepal after a meeting with the Bhutanese refugees living there. Nepal's Diplomatic Corps said it was the government's role to ensure security and safety for diplomats. "Targeting or threatening diplomats on their countries' official business is unacceptable," the statement said. Besides the statement, a US official, who winded up his four-day visit to Nepal Saturday, has also expressed concerns about the attack and the activities of the Young Communist League of the Maoists.

US assistant secretary of state for democracy, human rights and labour, Barry R Lowenkron, who conveyed Washington's misgivings about the Maoists to Prime Minister Girija Prasad Koirala, foreign minister Shahana Pradhan and speaker Subhash Chandra Nembang, said one can't have both bullets and ballots. The Maoists and their sister organisations are still banned as terrorist organisations in the US and recently, a senior Maoist leader was denied visa to travel to New York. The government has also come under attack at home for failing to protect its own citizens. Nepal's supreme court on Friday asked the state to pay an interim compensation of NRS 200,000 to the kin of people killed in the custody of security forces, and NRS100,000 to the families of those missing since their arrest. Judges Khilaraj Regmi and Kalyan Shrestha gave the collective judgement after hearing petitions about 83 people missing during the Maoist "people's war".

Source: The Times of India, June 3, 2007