Tourism receives further shock
Arrival dips 14 pc in 10 months

By Gopal Tiwari

KATHMANDU, Nov 2 - Contrary to the expectation of tourism entrepreneurs that tourism industry would see a further growth in October, tourist arrivals by air fell more than 13 percent in October this year.

The double-digit decline is a severe blow to the industry during the peak season. According to statistics given by the Immigration Department at Tribhuvan International Airport (TIA) tourist arrivals by air declined by 13.86 percent till October compared to the corresponding period last year.

Commenting on the downward trend in tourist arrivals, Ashok Pokhrel, President of PATA-Nepal Chapter attributed the reasons for the low tourist arrivals due mainly to political instability and deteriorating environment in the Kathmandu Valley.

He suggested that the government resolve the problems at the earliest in order to revamp the tourism industry, one of the chief foreign exchange spinners.

The number of tourists who came by air during the same period last year was 57,894 while the figure this year during the corresponding period has gone down to 49,871. Worse still, Indian tourist arrivals in the same period plummeted by 34 percent.

Third country tourist arrivals in October went down by 8 percent compared to the corresponding period last year. A total of 45,458 tourists visited the kingdom in October last year, which has declined to 41,785 in the same period this year.

Indian tourist arrivals also declined by 34 percent compared to the previous year. Last year, Indian tourists arrival was recorded at 12,436 in the month of October while the number has gone down to 8,088 this year in the same month.

According to statistics, the tourist arrivals ending till October 2000 has been recorded at 300,828 while the number stood at 345,662 during the corresponding period last year, which is a 12.97 percent decline.

Tourist arrivals by air alone occupies 86 percent of all tourists visiting Nepal and the decline is going to hit severely the tourism sector as a whole.

Tourism industry alone generated US $ 168.1 million in 1999 and US $ 152.5 million in 1998 in the national economy. The sector alone contributes 4 percent to Gross Domestic Product (GDP) and employs more than two hundred thousand people.

Tourism entrepreneurs often blame Indian Airlines hijacking on December 24 last year and subsequent boycott of Kathmandu airport by Indian Airlines for five months for the downward trend in the tourism business.

Rupee slides, options not viable

By Ameet Dhakal

KATHMANDU, Nov 2 - As the Nepali rupee slides once again, dragged by the tumbling Indian currency, the debate over whether Nepal should divorce with fixed exchange rate regime vis-a-vis Indian currency comes back into the spotlight.  

The fixed exchange rate skeptics have once again begun, as they routinely   do during times of a depreciating rupee, to raise their voices against the pegged exchange rate. With a rising import bill, bloating debt servicing bill and the recent hike in domestic  prices of  petroleum products, this voice is winning more and more sympathizers.

Economic rationale, however, does not support the argument. No doubt, burdens of maintaining the status quo in the exchange rate regime with India are plenty. It is sad that as a central bank of a sovereign nation, Nepal Rastra Bank has little maneuvering space for monetary policy, independent of Reserve Bank of India's policy.

However, this constraint is imposed not only by a 'closed' (read fixed) exchange rate with India. A greater force that shapes NRB's monetary policy is the 'open' border with India.

The second flaw is that it overlooks a critical question, "Would the Nepali currency remain stable against the dollar if it were not pegged with Indian currency?" It would be naive to assume that the factors, chiefly the  uncertainty in the international money market reflected in the slide of major currencies against dollar, that have inflicted volatility in  India would not hit the Nepali shore. With a fixed exchange rate, the volatility comes via India; without it, that would come directly.

The major weakness of the opponents of the current exchange rate regime is that they overlook the risks of floating Nepali currency (NC) against Indian Currency (IC). Any objective analysis should be based on a comprehensive study of current burdens against probable risks.      

The first risk is that, with an open Indo-Nepal border, a relatively weak economy, free convertibility of Indian currency and the majority of businessmen having close links with India, the chance is that NC is likely to tumble against IC under free market operation. In such a case, Nepali businessmen are likely to substitute NC for IC, triggering a risk of permanent currency substitution as is often witnessed in many Latin American economies where the dollar circulates freely substituting local currencies. Once foreign currency rules domestic economy, NRB will lose the 'little maneuverability space' that it currently enjoys in its monetary policy.

The second risk is that even if the country manages to avoid currency substitution, it would increase price pressure in the already high-cost economy. With fluctuating exchange rate with Indian currency and chances of Nepali currency sliding further, businessmen would be required to maintain higher inventory, and therefore higher investment. This would only invite greater uncertainty in the market.

Similarly, uncertainty would dampen the prospect for already dwindling  foreign investment. Foreign investors wouldn't risk investing in an economy with a weakening currency and without capital account convertibility. 

The only alternative option that looks somewhat pragmatic is to experiment with a band system: to let NC, IC rate fluctuate within a range. Such a  system, however, would have its own limitations. The chance is that the exchange rate would always settle at the lowest end of the band, and the problem would remain as it is. Thus, unless Nepal has a strong economy, sufficient foreign exchange reserves (including that of IC) and a regulated border, fixed exchange rate with India fits in most with the economic imperatives. Breaking the status quo in exchange rate regime, whilst other factors remain the same would only be a jump out of the frying pan into the fire.

Barter continues between Nepal, Tibet

Post Report

KATHMANDU, Nov 2 - Even over three months of the implementation of the budgetary provision that requires trade between Nepal and Tibet to be conducted through the banking channel, cross border trade still continues through the barter system.

Finance Minister Mahesh Acharya in his budget speech for the current fiscal year had proposed to channelize trade between Nepal and Tibet through the banking system with an aim to curb illegal trade.

However, major turmoil in implementing the budgetary provision appeared when the Khasa branch of Bank of China refused to accept the bank drafts and letters of credit (LC) drawn by the Nepalese commercial banks.

Even though there have been several rounds of 'fruitful' negotiations between the top banking officials from both sides to solve the existing problems, the understanding, so far reached, is yet to be implemented.

"The problem of bank draft has not yet been solved. Some businessmen tried to exercise the new provision by taking bank drafts issued here, but refusal by the Chinese bank in Khasa to accept the drafts created problems," Keshav Bahadur Rayamajhi, General Secretary of Nepal Himalaya Border Trans Trade Association.

At a time when bank drafts are not being accepted, border trades are continuing using foreign currencies provided by Nepal Rastra Bank and the traditional barter system, he informed.

Krishna Bahadur Manandhar, Chief Controller of Foreign Exchange Department at NRB, said that not only a single LC has been issued for the purpose of import trade from Tibet and opined that under the present circumstances, border trade cannot be conducted through LC.

Due to the new arrangement, under which government makes foreign exchange equivalent to three thousand US dollars available to import goods, categorized in the Gazette issued on July 10, total trade has declined by almost 40 percent.

Department of Commerce (DC) has been issuing import/export license based on the agreement between the businessmen of the two sides. According Krishna Hari Baskota, Director General of DC, license equivalent Rs 1.87 billion has been issued for exports and to import goods equivalent to that amount by the end of mid-October.

Businessmen engaged in the border trade unanimously said that the current issuance of 3 thousand dollars is too little to continue their businesses. In addition, they lament that approaching DC five times to acquire import license worth fifteen thousand dollars is ridiculous.