Reform banking sector

Banking sector reform is an overdue agenda. However, the government seems as indifferent as ever to act, notwithstanding its rhetoric in favour of  second phase financial sector reform.

The government's reluctance is understandable: it has neither worked out a modality for reforming state-owned banks nor has it adequate financial resources to intervene. Investigation by an international audit firm has placed

the net negative worth of these banks in the range of 10 to 15 billion rupees. Government inaction has not only increased the state-owned bank's problems but it will also affect private banks. Private banks are no more safe. This is apparent from their bloating non-performing assets. Absence of standard accounting practices and auditing guidelines makes it even more difficult to asses their real financial status. Some private banks are reporting their profits by capitalizing on the accrued interest and restructuring their bad loans, which will only aggravate the problem in the long run.       

All these problems in the banking sector-private and public-are never self-curing ones. It is, therefore clear that the government will only postpone, and perhaps worsen the problem by failing to act in time.

The government should, therefore, initiate concrete action before it is too late. One critical area for intervention could be a crackdown on defaulters. However, the government should not act in haste without strengthening the legal framework as there is every chance that the "real" defaulters will be acquitted by law, if tried under the current flawed-legal framework.

Addressing the woes of state-owned banks will solve half the problems. In the past, it has so happened that the regulatory body failed to enforce laws and regulations in private banks simply because it could not do the same with

public sector banks. Enforcing laws and regulations requires a strong regulatory body, which is unfortunately missing at present. Leave aside the banking sector professional's allegations; central bank officials themselves admit that the central regulatory body is too weak to play the role of a true custodian of the banking system. Improving  the professional capability of the central bank is crucial but making it a totally and truly independent body is paramount for banking sector reform. Unless the central bank is insulated from political intervention, the intricate nexus between businessmen and politicians will find ways to play dirty with the banking sector.

A comprehensive package for banking sector reform should also include review of past policies. The sector was liberalized and joint venture banks were welcomed with the assumption that their entry would bring in up-to-date management and induce the same in local counterparts. But the results are depressing in many cases. The country ended up inviting banks which were almost bankrupt back in their home countries. The government made the mistake of not being selective about the foreign banks it gave license to. It should not repeat such mistakes in future when the country fully liberalizes the banking sector by inviting foreign banks under hundred percent equity participation.

Gold imports and implications

By Sushil R Mathema

The budget for 2000/2001 has scrapped the previous provision on gold and  silver imports under the personal effects regulation. Instead, a new  arrangement has been made to regulate and improvise the import of these  precious metals through Nepal Rastra Bank. When the country pursued a liberal policy after 1991, the country's  trade policy was much directed towards import rather than export. The importance of liberal and open import policy was perceived only after the government embarked on promotion of export of woollen   carpets by adopting open import policy for raw wool imports effective  from January 28, 1987. Subsequently, the first ever liberal policy on  gold imports was introduced in 1992/93 through the then budget speech  with the arrangement Nepalese citizens staying abroad for a period of three months with an eligible earning source were   permitted to bring 1.5 kg of gold and this provision was doubled for  those who stayed for six months or above. This led to substantial gold imports worth 7148.2 million rupees into the country in  1993/94.  The question has been repeatedly raised in learned circles whether   a developing country with a meagre per capita income of around US  $ 210 per annum needs such huge amounts of gold import? People were of  the opinion that if such huge imports are needed not for meeting the domestic demand then it should have been used in making gold jewelleries for  export purpose. Time and again, it has been observed that Nepal  still has to go a long way to export gold ornaments. The association of gold traders in 1996/97 had estimated that   the national genuine demand for gold amounts to around nine metric tonnes   worth  5.4 billion rupees. This works out to 13.1 percent of the total   amount of gold imported into the country from third countries during  the first nine months of 1999/2000. That is, more than 85 percent of the  imported total gold, in fact, has exceeded the country's real domestic  demand. It has informally been often argued that Nepal has been  used as transit for unofficial gold imports to India. This  signifies the assertion made elsewhere, though not officially, that   two-thirds of the imported gold are re-exported to India. However, the  pure gold export from Nepal to India is illegal.    In a bid to stabilise gold prices and forbid smuggling, India opted for  gradual liberalization of gold imports, which began in late 1980's. The  deregulation of gold imports in 1992 and institutional arrangement made  in 1997 for importing gold are successive efforts of the liberal gold  import policy adopted by India. With the recent launching of Gold   Deposit Scheme by State Bank of India to bring into productive use a  part of country's 13,000 tonnes of gold stocks is expected to be useful  for further import of gold through the official channel. The immediate impact of liberal gold imports policy in India has,  however, dubious effect in the trade portfolio of Nepal.

During the year  1993/94, the share of gold imports constituted 20.7 percent of the total  imports from third countries and as a result, trade balance deficit  increased significantly by 47.1 percent to 32.2 billion rupees in that  year. With further deregulation introduced in gold imports effective  from Nov 16, 1995 with the provision made to allow import of as much as  10 kg of gold for those staying abroad for more than a  month and import duty on such import at a nominal rate of 5 percent, the  gold imports of Nepal advanced tremendously by a significant rate of  138.2 percent to 30.5 billion rupees in 1996/97. It was only after  the advent of more liberal policy of India on gold imports in October  1997 that pseudo demand (as this is not the pure domestic demand) for  gold imports in Nepal declined by 47.4 percent to 16.05  billion rupees. Moreover, the following periods witnessed a continuous decline in the share of gold imports in total imports from third countries  plummeting from 44.4 percent in 1996/97 to 26.0 percent in 1997/98 to a low of 15.2 percent in 1998/99. During the periods, the  trade account deficit also improved with a decline by 13.5 percent to 61.3 billion rupees in 1997/98 followed by a record decline by 17.0 percent to 51.0 billion rupees in 1998/99.    However, the January 5, 1999 decision of India to increase import duty  on gold by 60 percent has again reversed the past course and exerted direct pressure to increase the import of gold to Nepal. As such, gold imports have been increasing since then and has registered a growth  of 16.5 percent in the first ten months of 1999/2000 to 6827.6 million rupees. Viewed from different perspectives, the tendency of a gradual  increase in gold import to Nepal could be attributed to several  factors among which the higher overhead costs to be borne by importers  in India might be a triggering factor to enhance quasi demand for gold import in Nepal. In all, it fairly suggests that the policy of Indian  government on gold imports does bear a strong weighted in determining  the magnitude of gold imports in Nepal.   With the above quick survey on gold import policy and subsequent  developments, it is being realized now that the  institutional arrangements made through the recent budget for gold  imports will definitely put a brake on the imports to meet quasi demand  for gold. That is, the arrangement to regulate and improvise the import  of gold through the channel of Nepal Rastra Bank (NRB) will help discourage smuggling of gold to India.

Moreover, it  will also ease out Nepal's trade balance deficit. Nevertheless, it is  obvious that revenue mobilization will be affected to some extent but  an affirmative policy like this would create conducive environment to  correct the macroeconomic fundamentals viewed in terms of long term  perspective. That is to say, apart from improving the trade account, it  will encourage productive spending and monetization of  available liquid assets. Moreover, much resource will be diverted towards  promoting investment in productive sectors. So, this new arrangement on gold imports could be cited as one of the effective measures to curb  illegal transaction. But it  calls for timely adjustment in the fiscal stance as the envisaged wide gap between revenue mobilization and prescribed  public expenditure has to be met through other prudent means. And, since in the context of Nepal, revenue mobilization policy has been gradually shifting from generating revenue through indirect taxes to direct  taxes over time, it also calls for giving least importance to the  import of gold over the country's real domestic demand.    The institutional arrangement made for gold import transaction through  Nepal Rastra Bank (NRB) seems, of rather short-term nature in the absence   of other reliable institutions to carry out the new regulation. A lot of   homework is therefore needed not only to develop regulatory mechanism  but also a suitable institutional base for the medium and longer term and NRB, for the time being also needs to be assigned clearly to act  as a regulatory trader or facilitator in gold import. Some people do have views that the anticipated regulation process could have been initiated through the active participation of the private sector in  the changed context of liberalization. In the recent context,  NRB requires to build up its structural frame and develop skilled  manpower to handle the new responsibility. The private  sector's involved in this field has already been experienced, so the NRB can act not as a conventional regulator but as a facilitator. One more option could be to regulate gold imports by  carrying out the import business through efficiently   run commercial banks and other reputed financial institutions as  practised in neighbouring countries.

Joining hands against garbage

By Razen

It rarely happens in Nepal. But it happened. Hundreds of educated, intelligent, and wealthy professionals were putting their heads together to wipe out the crisis of garbage management.

They knew there was too much of "politics" over garbage. They were tired of politics. So they are determined to do something  outside politics.

Instead of talking, rallying or protesting they were really working. The group of organisers divided themselves into several volunteer groups and contributed as much as they could to answer those who talked and talked and talked.

The first group was made of Federation of Nepali Chamber of Commerce and Industries, Nepal Chambers of Commerce, Hotel Association of Nepal, Chefs' Association of Nepal and Restaurants and Bar Association. They took firm steps to drive those obstinate industries out of the valley. Now you cannot see a single carpet, garment, cement and quarry industry in the valley. Likewise, a meeting was also held which banned shopkeepers from throwing waste, plastic boxes, sacks, ropes etc on the streets. Restaurants and hotels will not throw away left-overs in the street and the butchers, fruitsellers would also stop littering the city with bones and fruit peels.

On the other hand, Nepal Association of Travel Agents, Trekking Agents Association of Nepal, Board of Airlines Representatives in Nepal-Nepal, Himalayan Rescue Association, Nepal Association of Rafting Agents, Nepal Mountaineering Agents, Nepal Association of Tour Operators, PATA Nepal Chapter and Tourist Guide Association of Nepal made another group to clean Kathmandu. The emergency meeting held Tuesday decided that they would make it compulsory for tourists (all from starred hotel to chapati brand of tourists) to take away cylinders, mountaineering equipment, sleeping bags, bottles, cans, tissue papers with them when they depart.

Likewise, other small groups or individuals also realised their responsibility to clean the city and vowed to fulfil them by any means.

House Keepers Association Nepal and Women Environment Protection Committee are jointly making a system to divide the garbage into five different categories so that recycling would be easier.

PABSON and National PABSON said that students of member schools would not have their lunch boxes in plastic bags in future rallies.

Thamel Tourism Development Board will make a rule that one firm will have only one sign board in Thamel and the firms will take care of the litter the visitors make in their shops. Similarly, the Handicraft Association of Nepal will also manage the litter the industries will produce.

In the same way, others like Lazimpat Club, Olympus Club, Nepal Incentive and Convention Association, the Explorers Group also made a resolution that rather than protesting the government as politicians do, they

 all will join hands to really clean the city from their side so that the government as well as KMC will not have to receive any more complains in the future.

Just imagine how beautiful our Kathmandu will be when all the garbage-making factors work together instead of creating a havoc by protesting against mismanagement.

None is above the state

By Kuldip Nayar

Many Indian newspapers had front- paged the same day a photo of a woman prostrating before Shiv Sena chief Bal Thackerey and the news of looting and stoning of shops by his sainiks. This is the Jekyll-Hyde countenance of politics in Maharashtra where people have lived in fear since the advent of a party called, the  Shiv Sena.

They kowtow to Thackerey to be left alone because he has an army of hoodlums to beat up any community, sect or a set of persons he does not like. And his 'activists' as he calls them, are on the rampage whenever they feel that the law is catching up with his mis-doings.

They have indulged in violence this time because Thackerey faces arrest following the indictment by Justice Sri Krishna Commission. It inquired into the riots during December 1992 and January 1993, in the wake of Babri masjid's demolition. The commission said how frenzy was whipped up by the "writings and directives issued by the Shiv Sena pramukh Bal Thackerey."

The recorded evidence showed that the killing of Muslims was well-planned. Their houses and shops were marked and all those engaged in the orgy knew the part they had to play. Thackerey's men were the main force behind the carnage.

Normally, he  would have been hauled up long ago. But the Shiv Sena-BJP government in Maharashtra and the BJP-led coalition at the Centre managed to protect him. When I asked Home Minister L K Advani in parliament a year and a half ago why no action had been taken on the Sri Krishna report, he had already-made alibi: since the state government had not accepted the report, the question of the central action did not arise. Probably, even now, the Congress-led Democratic Front government in Mumbai would have left the matter at that. But the Shiv Sena pressed for action against Samajwadi leader Abu Asim Azmi for his 'inflammatory' speech. It did not realise that it would reopen the pending case against Thackerey. Both had committed a similar offence--one a few months ago and another a few years ago.

Perforce, the state government had to make the decision. It gave the assurance that the police would prosecute both of them, Azmi and Thackerey, under 153 (a) of the Indian Penal Code, offence for promoting enmity between different groups on grounds of religion, race, place of birth, etc. However, after making the announcement, the state government developed cold feet.

The fear of the Shiv Sena made chief minister Vilasrao Deshmukh explain that there were no immediate plans to arrest Thackerey. The state police chief said that it was not necessary for them to take action against Thackerey straightaway.

By the time, the lord and the master, Thackerey was so furious even over equivocal authorities that he declared: should he be arrested, "the entire Hindustan" would be "up in flames." The threat worked. The chief minister got so scared that he had to flash on Doordarshan that people should not panic as there were no orders yet to arrest Thackerey. To pressmen, it was explained that the police would examine the implications of the case and consult lawyers before taking the next step. A lawful action got fizzled out by a single bark from Thackerey. The chief minister did not realise the price he was paying to buy peace.

Nor did he care about the demoralisation of law-abiding citizens. The chief minister's timid response had an effect on the authorities. They slowed down the action, although they went on putting up a brave face. Those who have read books on the rise of Hitler would find similarities in the way Thackerey is being lionised. But the state is not alone to blame. Advani called on him only the other day in Mumbai. Prime

Minister Atal Behari Vajpayee, according to the press, phoned him up when told that Thackerey had complained that the PM had never rung him up. What is decisive in the philosophy of persons like Thackerey is their attitude on the basic issue of respect for man. They have contempt for him. It is a caricature of democracy if someone is considered more than equal. Both Mumbai and New Delhi are guilty.

There is yet no explanation why the centre has kept quiet on Thackerey's challenge that the country would go up in flames if he was arrested. At least Vajpayee, who is not looking beyond the current term, should have spoken out against such an ultimatum. The minimum he could have done was to ask Industry Minister Manohar Joshi, belonging to Thackerey's party, to quit the cabinet. It would have sent a message. People would have known that none was above the country.

Advani's silence is understandable. He himself is facing prosecution on the demolition of the Babri masjid and he does not want to stoke the fires at this juncture. Moreover, he is a hard-liner, sharing most of Thackerey's philosophy of Hindu rashtriya. George Fernandes, Ram Vilas Paswan, Nitish Kumar, Mamata Banerjee and Sharad Yadav--all  five central ministers have no past to suggest that they have love for fascism. That they are blind to the BJP is understandable because they want to stay in power.

Discretion is the better part of valour. Still, the fact that there has not been even a murmur from their side is a shame and a blot on their credentials. The Shiv Sena chief has thrown down the gauntlet: you dare to arrest me. Is there anyone from among the National Democratic Alliance (NDA) partners to pick up the gauntlet? What about Andhra Pradesh chief minister Chandrababu Naidu, who is considered a strong man of the South? Will he dare to tell Vajpayee to bridle Thackerey? Naidu has voice, with 29 Lok Sabha members. If nobody has courage, at least Jammu and Kashmir chief minister Farooq Abdullah should register his protest because Thackerey has called him a "traitor."

It does not come as a surprise when the BJP says that "Thackerey should not be arrested under any circumstances." The thinking of the BJP tallies with that of  Shiv Sena. But the party makes a mockery of the law when it says that it is against "raking up an old event which is best buried and forgotten." Does murder cease to be murder if it is old? Ask the families, whose members were butchered, whether their wounds have been healed.

The NDA, ruling the country, should realise that if Thackerey gets away with his posture by threatening to disrupt trains, flights and normal life, many more demagogues will take birth. They too will assemble private armies to dare the established governments. Nobody is above the state. The government should be seen as acting. Thackerey's men have said that they will "take the issue to the streets and meet the challenge." The challenge they are talking about is the overthrowing of the democratically-elected government through violence. Any soft-peddling will be tantamount to compromising with such forces. They want to prove that power, not the law, is the ultimate arbiter. The Nazisn in Germany began in the same way. Everyone knows what happened to them.