Dr Regmi

Dr Dilliraman Regmi is a senior political figure who has made a substantial contribution to public life and to scholarship. He is also beset by a battery of ailments that require frequent and expensive medical treatment. Dr Regmi, founding president of the Nepali National Congress and a historian of repute, played a prominent role in the politics of Nepal when this country was taking its first uncertain steps along the path of democracy following the overthrow of the Rana regime in l95l. He served the country in various capacities including as foreign minister. He has also written voluminously on the history of medieval Nepal. His opus is a key part of the literature on that subject. Even in his old age he has set up a trust to which he has bequeathed his substantial assets including a rich collection of books. Through that trust he has been active as an advocate of peace. With the onset of advanced old age he has had to make frequent trips to Bangkok to avail himself of more sophisticated medical facilities. He has just left for the Thai capital again for treatment of heart and kidney problems after spending three weeks in hospital here. His condition had deteriorated further in recent days. For the medical attention he needs, Dr Regmi has had to rely heavily on his own resources. Not much help has been forthcoming from the government.

There are others in this country who have also made a notable contribution to the nation, and are now in difficulties. They do not have the personal resources that Dr Regmi can fortunately sometimes fall back upon, and languish in neglect by the authorities. Some of them die for lack of money to pay for medical treatment abroad. Some others live in poverty and hardship. The authorities do occasionally dole out largesse on ad hoc basis for particular individuals facing medical exigencies. But there are no funds specifically earmarked for the purpose and no mechanism in place to activate such funds. This is a country where medical insurance is still the exception rather than the norm, and where there is no social security safety net for the aged and the incapacitated. The allowances for the aged, the helpless and widows instituted by the late Man Mohan Adhikari when he was prime minister are only token in nature. The government should therefore come up with a scheme for helping those who have made an exceptional contribution to society and who now require expensive medical care or have other urgent needs. That would be far better than paying them rich tributes posthumously as we are wont to do.

How is Nepal paying for IC substitution ?

By Anita K Tuladhar

In a recent article "NRB to study magnitude of IC circulation" (January 2, TKP), some concerns were raised over the significant volume of Indian Currency (IC) substituting Nepalese Currency (NC) and the consequent loss of monetary control by Nepal Rastra Bank (NRN). What really is the implication of this currency substitution for Nepal’s economic autonomy? I would like to argue that it is not so much the loss of a monetary policy tool that we need to concern ourselves with as loss of the fiscal resources being transferred to India.

Why should Nepal not worry about losing control over such a valuable tool as monetary policy? Simply because, it has already been lost. As pointed out by Dr R D Pant in a recent follow-up letter to the editor, Nepal has already forfeited control over its monetary policy by virtue of having fixed its exchange rate with India in an environment of high capital mobility. The only policy consistent with a sustainable exchange rate peg with India is to align both inflation and interest rates with those of that country. Any attempt to try to control inflation and interest rates with an independent monetary policy comes at the cost of losing credibility over the exchange rate peg. The logic behind this fact is simple enough. If one can easily invest either in Nepal or in India (given non-existent or non-effective capital controls), then the returns have to be the same in the absence of any devaluation risks. Otherwise, all investments would simply go where the returns are higher. If money is flowing in only one direction, the exchange rate has to adjust to account for the changed demand and supply.

In fact, given the facts noted in the article mentioned above, it appears that conducting an independent monetary policy may very well be one of the main reasons behind the recent surge in demand for IC. This is because currency demand comes primarily from transaction demand, for purposes of trading goods or assets. NRB’s recent moves to try to lower interest rates in Nepal may have increased the relative demand for Indian assets, in the form of bank deposits, resulting in a high demand for IC holdings in this country. So, rather than being concerned about the inability of the central bank to conduct monetary policy, it is rather more important to see if the present trend towards currency substitution is a result of inconsistent monetary policy.

Loss of monetary control is not always a bad thing. Even though economic theory is very precise about the "impossible trinity" of fixed exchange rates, free capital mobility and independent monetary policy, many central banks still pursue all such policies in practice. Hence, in order to "tie the hands" of the central bank from undertaking inconsistent monetary policy, a number of countries have chosen to adopt more credible institutions. Some have adopted a currency board tying their currency either to the dollar or the Euro (Hong Kong, Argentina, Estonia, Lithuania, Bulgaria). Others have, as an ultimate measure of currency substitution, replaced their own currencies and adopted a single outside currency (such as the 12 member Eurozone, 15 member Franc zone in Africa, 7 member Eastern Caribbean Currency Area) or have adopted dollarization (Columbia, El Salvador, and Ecuador). These currency regimes are simply an extreme form of a fixed exchange rate regime with no room for controlling money supply.

Where monetary control does matter is, of course, if Nepal chooses to forsake the exchange rate peg - a hypothetical possibility that many governments resort to during crisis events. Time and again, we have seen countries float their currencies during domestic economic crises. The breakdown of the Exchange Rate Mechanism (ERM) in Europe due to severe domestic recessionary pressures and the Asian financial and banking crisis are but a few examples of change in exchange rate regimes in a crisis. Many countries then use interest rates, very controversially I might add, to revive the domestic economy. Under such circumstances, if there is a significant degree of currency substitution, monetary policy can be rendered an ineffective tool.

Notwithstanding these facts, currency substitution can have significant costs for Nepal, but more from a fiscal standpoint than a monetary one. Notably, Nepal has to pay in the form of inflation tax. Money supply acts as a base for segniorage revenues, which are essentially a tax from inflation. Segniorage revenues accrue to the issuer of the currency. In a high inflation country such as ours, these can be substantial. With higher level of circulation of IC in Nepal, the revenues generated by the inflation tax, (which is borne by Nepalis no matter which currency they hold) accrues to India at the expense of the Nepalese government. Estimating the cost of this transfer is probably a more relevant measure of the true cost to Nepal today.

To conclude, the present increase in IC circulation is no doubt a cause for concern. And what is the economic cost of currency substitution? For one, Nepal is paying in the form of inflation tax. In terms of monetary autonomy, Nepal is losing control only to the extent that some day in the future the present exchange rate regime may be abandoned. Under the present exchange rate regime, Nepal does not have any monetary autonomy to lose. In fact, if policymakers believe that there does exist some autonomy and try to wield control over the money supply, Nepal will ultimately end up paying a much higher economic price than what IC substitution can conceivably cost.

(The author is a research scholar)

Wanna be a VIP ?

By Sushil Kumar Lamsal

Ever dreamt of being called a VIP? Or a politician? If you have ever harboured any such expectation - by mistake, of course - my honest advice to you would be: Arey Yaar, forget it! Aren’t you just fine the way you are already?

Undoubtedly, you will have your one hundred and three ( ‘three’ is deliberate) reasons for aspiring to be a member of that elite circle. For example, you will always be greeted with a 180 degree Namaskar; you will always be sought after by the media; you will always be oiled and greased by aspirants to important public posts; you will always be envied by the always-at-a-loss middle class and despised by the glittering upper class—inflate your ego, man, the despisers aren’t among your neighbours; you will always be considered for inaugurating a seminar—and sometimes also for a tea shop; you will always—you name it.

Besides, a VIP is always a heaven-sent man. He knows everything—he is a know-it-all and he happens to have travelled across the globe. Geography? He’s all well-versed in that discipline too. He can speak as freely of Chile as you and I would speak of Cholee. Damn you if you try to convince him that electricity can’t be exported to China by satellite. What do you know of scientific and technological development?

What hasn’t he done in life? He used to be a hawker, selling revolutionary newspapers; he used to be a labourer at such a horrible mill that you may as well forget Charles Dickens; he, in times of grim political atmosphere, was a guerilla too; he was a lawyer, suing corrupt leaders of the by gone era, though his memories of that time are rather blurred now a days. Don’t get alarmed, therefore, if he announces some day, at a women’s meet, "You might not have known, my dear ladies, that during difficult times in exile, I used to be a woman too!"

He is a ‘self-made’ man. (Anyway, Lord Bramha must be relieved of that responsibility!) Who didn’t try to marginalise his career and honour? But our hero stood firm in the face of the challenge. Besides, love of the people for him and the nation’s cry somehow did save him for the service of his country.

All these attributes are absolutely necessary if you ever even think of joining the cream of society. Make sure that you were born motherless-otherwise, how can you claim to be a self-made man? Make sure that you have travelled from Galgaliya to Siberia. And you must remember those days in Siberia when, in order to understand what your friend said, you had to gather his just-uttered words which had dropped frozen solid into your palms, and defrost them on the stove.

Do you still long to be enlisted in that coveted list of VIPs— very irritating persons?

Facts, not fiction

By Kuldip Nayar

I have no complaints against the comments made by the Pakistan Press on the Hamoodur Rahman Commission report, analysing Islamabad’s debacle at Bangladesh. Editorials and columns blame the army commanders for the "humiliation" when Pakistan surrendered following the sudden collapse of troops and their commanders.

My grievance is that the real cause has not been discussed. The Pakistan press does not go far enough to find out why chauvinism in the western part was so loud and blatant that it drowned the voice of dissent, difference and defiance in the east. Why was no accusing finger pointed at the politicians who, for their power and pelf, treated leaders in East Pakistan like dirt?

Since I have been a witness to that era and have met leaders of consequence at that time, I want to tell something, whatever its worth. People may still stick to their version but what I am presenting is facts, not fiction. I had interviewed Bangladesh founder Sheikh Mujibur Rahman and his finance minister Tajuddin on one hand, and General Mohammed Ayub and Zulfikar Ali Bhutto on the other. General Yahya Khan was not available but his vicious schemes were.

"Left to me," Ayub had said in an interview to me, "I would have told East Bengal in 1962, when a new constitution was introduced, that if they wanted to go they could do so. It was no use keeping them if they did not want to remain with us. In fact, once I had a plan to ask them straightaway whether they wanted to secede. Were they to say yes, that would have ended the problem then and there but certain things came in the way and I could not go ahead with my scheme."

Ayub is not correct. Leaders in East Bengal did not favour secession. They were driven to that point. The attitude of high and mighty West Pakistan leaders did so. As far back as February 1966, Mujib spoke of the "neglect of East Pakistan." He wanted his part of the country to be treated at par. Lahore was the place where, during a meeting, he spelled out his six-point formula, which became the basis for a national struggle. Tajuddin told me at Dhaka that the six-point programme was the "beginning and we knew we would become independent one day."

The six points were:

(1) Establishment of a federation ‘on the basis of the Lahore Resolution’ and the parliamentary framework of government.

(2) transfer of all subjects to the federating states except defence and foreign affairs which the federal government would administer.

(3) two separate but freely convertible currencies for the two wings.

(4) vesting of tax provisions in the hands of the federating states with the central government receiving a fixed share.

(5) complete freedom in respect of foreign trade, including authority for the unit government to establish trade and commerce with foreign countries.

(6) authority for East Pakistan to set up its own military or parliamilitary forces.

On these six points the foundation of Bangladesh was laid. West Pakistan tried to show the East Bengalis "the hidden hand of India" in this. But the Bengalis had suffered exploitation and discrimination at the hands of their Muslim brethren from West Pakistan, not India.

A sign of West Pakistan’s desperation was the Agartala conspiracy case (Jan 1968) trumped up against Mujib. It was alleged that he was at the head of a secessionist plot, with weapons supplied by India via Agartala. To give ‘conspiracy’ content, Pakistan declared (Jan 1968) PN Ojha, first secretary to the Indian High Commission, persona non grata, accusing him of having attended a meeting of the ‘conspirators.’ It was true that Mujib had in 1965 crossed into India when he found the going difficult in East Pakistan. But New Delhi was never a party to his leaving Pakistan, and when the Indian government came to know of it, he was sent back.

The Pakistan government could not substantiate its case and had to release Mujib unconditionally. And after his release, Mujib could say justifiably that if ever there was a conspiracy it was "against me" and that the case was designed "to sabotage the just demands of East Pakistan." The Agartala trial made Mujib still taller. He became the quintessence of Bengali resentment against West Pakistan.

From then onwards, Mujib’s slogan was: "We want to be the brothers of West Pakistan, not its slaves." To critics who alleged that he was leading a secessionist movement, he would say: "The six points will be realised and Pakistan shall also remain." Tajuddin told me that the autonomy movement really began with the Agartala case. "We realised we could not live with West Pakistan," he said, adding, "when we found that the allegation of conspiracy with India did not pull us down in public esteem, we were emboldened."

In the National Assembly poll (Dec 17, 1970), Mujib’s Awami League won 167 seats in East Pakistan -- and this gave the party an absolute majority in the house of 313. The Awami League did not win any seat in West Pakistan, just like the People’s Party in East Pakistan. The people voted either as East Bengalis or as West Pakistanis. Mujib, who had swept the polls on the basis of the six-point programme, now pressed for provincial autonomy. But Yahya was not willing to part with power and Bhutto was looking over his shoulders.

Narrating the sequence of events of those days, Mujib told me how he was pushed to the brink where he had no alternative except to give a call for a free country, free Bangladesh. Tajuddin, who founded the emigre government of Bangladesh on April 10, 1971, and Kamal Hussain, the first Bangladesh Foreign Minister -- the two persons who held negotiations with Lieutenant General Peerzada, Yahya’s principal staff officer, for a settlement -- told me that West Pakistan was not sincere about parting with power.

Tajuddin said: "There was no disagreement on any point with Yahya’s negotiating team. On 24 December, two days before the Pakistan Army struck, we came to an understanding about the new constitution; only one or two minor points were left. When we pressed for their finalisation, Yahya’s men dilly-dallied and said that they would call us for the final meeting the next day. When no call came and when, despite our effort to get in touch with them, nothing happened we were sure that what our Bangabandhu (Mujib) had said to us was true. Indeed, Yahya had no plans to transfer power to East Bengal.

Mujib added that Yahya was willing to go to the extent of having a Commonwealth of Pakistan, with the eastern and western wings as its two units. Bhutto’s version was: The draft plan on which Yahya’s men and Mujib’s representatives worked envisaged withdrawal of martial law and transfer of power to the provinces without effecting a similar transfer of power to the central government.

The National Assembly was to be divided ab initio into two committees, one for West Pakistan and the other for Bangladesh. The committees were to prepare separate reports within a stipulated period and submit them to the National Assembly. The "two-committee proposal" contained the "seeds of two Pakistans." Hence it was not acceptable to the People’s Party.

In the Great Tragedy, Bhutto quotes Mujib as suggesting that "I (Bhutto) should become the Prime Minister of West Pakistan and he (Mujib) would look after East Pakistan... I replied that I would much rather be destroyed by the military than by history."