Escalating conflict

Hundreds of Maoists rebels are trapped in an army encirclement around the village of Nuwagaun in Rolpa district. There is suspicion that some top flight Maoist leaders are also caught in the army noose. The Maoists in turn are holding captive almost 70 police personnel. This marks a watershed in army involvement in the anti-Maoist campaign. The government’s hitherto confused response to the Maoist menace has clearly been overtaken by events. Part of the reason for the sudden escalation is poor intelligence gathering. Given the Maoist modus operandi of using hundreds of their fighters to storm a given police outpost, it is incredible that the government usually has little inkling of what it has coming. The army is now reportedly building up for a decisive operation against the trapped insurgents, although that could mean anything from a negotiated settlement to a knock out punch. But with the Maoists reportedly using captive police personnel and local villagers as human shields, the government’s options might be rather limited. This raises a tricky question. The army should be given a free hand within a clear policy framework if it is get on with the job in a combat situation. No professional fighting force wants to keep looking back over its shoulders for bureaucratic blessings. On the other hand there are questions of human rights which might well get trampled upon in any operation of this nature. The best outcome would have been of course for matter to be settled through negotiations and talks. Some human rights activists are already headed for the trouble spot to try and make themselves useful. But once a war machine is set in motion things take on a logic of their own and civilian options become unrealistic.

Having said that it is not too early to start pondering what next after Nuwagaun. Nuwagaun, if worse somes to worst, may be a real setback for the Maoists. But a guerrilla war almost by definition is a protracted affair that avoids outright confrontation with conventional forces, but nibbles away at the edges and makes surgical strikes from time to time. The Maoists, if they are a real guerrilla force, will not wilt away after one Nuwagaun. The fight will continue, on their own terms. It will in all likelihood come to a war
of attrition, which means the government’s defence budget will simply balloon. That a negotiated settlement is the only real solution to the problem has often been said in this space as indeed elsewhere also. It bears repetition given the gravity of the situation. Whatever past hesitations and politicking, the government should now take the talks option absolutely seriously. Speaking of politicking, the attitude of the CPN-UML over the Maoist conflict has been rather unhelpful. When the Maoists attacked the police at various districts in the mid-west and inflicted casualties by the dozens, the CPN-UML lambasted the government for not coming up with any credible response. Now that the army has been sent in, these same elements are almost crying foul. The mainstream left seems more out to extract political mileage than to genuinely help the country seek a way out. That is not only downright cynical but also harmful to army morale. Such nitpicking was one of the reasons the army has been reluctant to go into an anti-Maoist mode.

Betrayed victims of a treacherous war

By Saubhagya Shah

The intensifying blows from the Maoist war are further exposing the fundamental contradictions of the Nepali state. While the partisans fighting for a communist republic are scoring new battlefield victories, the motley ruling alliance in Kathmandu sinking deeper and deeper in its cesspool of own confusion, corruption and treachery.

The Maoist war machine appears to have embarked on an unstoppable blitzkrieg across the country. Within the past two-week period they have struck at dozens of places, taken scores of policemen prisoners, captured government armoury and killed over 40 security personnel in a single night. The strategic implications of the recent Maoist offensive are far reaching. By launching major operations in Lamjung, Gulmi and Nuwakot the rebels have clearly expanded out of their old stronghold in the Mid-Western Region. Secondly, the ability of the Maoists to simultaneously strike in three districts the same night indicates a quantum leap in their military capability. It is clear that the rebels now enjoy a more or less unhindered mobility and operational capability in the Mid-West, Western and Central region that includes Kathmandu. They can now strike at will in the place and time of their choosing in most parts of Nepal.

Following the recent assaults, the democratic government in Kathmandu seems to be just as unwilling to deal with the Maoist insurgency and appears to have learnt nothing from the last six years of war. What is more perplexing is that while the Maoist campaign has gained quantitatively and qualitatively during the past couple of years, the government has become less and less clear about its own purpose and rationale in this conflict. The unfolding events make it clear that the inverse relationship between the exponential growth in Maoist power and the paralysis of the government in Kathmandu are intricately related in ways other than the conventional dynamics of war.

The Maoist aura of invincibility rests on a combination of their exceptional capability for political organization, abundant supply of disillusioned youths, ideal guerrilla terrain and a blunt yet highly effective military tactic of overrunning a demoralized police outpost with overwhelming numbers under the cover of darkness. The favourable combination of these factors alone however does not fully explain the remarkable success the Maoist Communist Party have achieved within the past six years. The most potent weapon in the Maoist arsenal is their uncanny grasp of Nepali political psyche and their ability to exploit the pettiness, duplicity, treachery, and betrayal - the major currencies of Nepali politics - to perfection. Like a great game of flirtation, the Maoists have succeeded in convincing everyone - the NC government, its internal opposition, political parties, parliamentary communists and the intellectuals that they enjoy an exclusive insider deal with the rebels.

According to some news reports, some of the parties in parliament have already begun sharing joint political programs with the Maoists in remote districts even as they pontificate on multiparty democracy in the cities. So when the politicians and intellectuals bring out a perfunctory protest against the generic ‘violence’, it is less of a principled objection to what in essence is an undemocratic grab for power than a gripe of a spurned suitor who suspects a temporary infidelity with a political rival. Rather than honestly facing up to their commitment to defend the Constitution they created, the power elites in Kathmandu - the palace, political parties, the ultra left, reactionaries, intellectuals and the prime minister - are busy accusing each other of cavorting with the rebels while the country spirals out of control. The irony is that the mainstream political forces feel safer in the Maoist embrace than with each other, a mindset that the rebels have exploited to further divide and isolate their opponents.

The crucial factor in Kathmandu’s debacle in the ongoing guerrilla war is the absence of a honest resolve of successive governments to either defeat the Maoists militarily or to resolve the widening insurgency peacefully. In a war, the uncompromising determination to win is half of the victory. But the rebels have succeeded in separating the establishment from its will to rule. The government along with other political parties and intellectuals continue to entertain a deeply ambivalent views of the Maoists - as transient foes, potential allies or simply as enemies of one’s immediate enemy. The Maoist Communist Party has adroitly manipulated this greed and perfidy in the mainstream political forces. The end result of the seductive dance between the various political forces and the rebels has been to deny the Nepali state a coherent and credible response which is a precondition for resolving a communist insurgency of this magnitude. However tragic, the biggest Maoist victories so far have not been in the blood drenched outposts of Dunai, Dailekh or Ramechhap but in the way the Nepali state has been progressively disabled from within, a la Gorbachev.

Battered by the rebels, betrayed by the politicians, the rank and file of the demoralized Nepal Police alone stand between Maoist republic and a multiparty democracy and constitutional monarchy. As more and more hilltops are soaked with the blood of the forsaken police constables, one must wonder what has happened to those who swear by multiparty democracy and lay claim to its spoils and paternity? Suddenly, the Constitution of 1990 looks orphaned, it has no defenders. Like rats abandoning a sinking ship, the Kathmandu elites are busy ingratiating themselves with the advancing rebels. In a country where institutions and parties seek to outdo each other in expressing grief during public calamities, it is telling that no one finds it politically correct to offer even words of condolence, appreciation or sympathy to the dozens of policemen and their families who are being slaughtered daily defending the democratic privileges and pretensions of their political bosses and intellectual elites. What are the police fighting for and who is supposed to be leading them - the prime minister, the home minister, or the parliament? This is perhaps one of the greatest acts of political betrayal and cowardice in the kingdom’s history.

If the establishment in Kathmandu - the government, political parties, the army, civil society and intellectuals have made their separate peace with the rebels and have no issue with the Maoists, why keep on throwing the helpless police to the wolves in a faithless gesture of defence? Instead it might be in everybody’s interest just to toss away the pretension of a phony war and receive the Maoists in Singha Durbar. History has been witness to the fact that whether in 1950, 1960 or 1990 the political elites on all sides have always gotten along fine eventually. The least the ruling alliance can do is spare the general population the terror and the slaughter.

Singing to the tune of Monsoon

By Surendra Phuyal

Monsoon clouds are getting darker and thicker high up in the sky. This could be an indication that we may have heavier downpours in the days to come. In fact, we will. Weathermen say monsoon rains too, just like our opposition party lawmakers and Maoist rebels, get more intense and torrential with the passage of time during monsoon. Preceded by pre-monsoon rains, the monsoon drops show up in the Himalayan kingdom in early June, get more frequent and incessant in July, and again slow down in August before coming to a near-halt in
September, or the beginning of the Dashain-Tihar season.

And with the downpours continuing across the length and breadth of Nepal, if not South Asia, our traffic police, just like pedestrians and motorcyclists, are having hard times these days. Yet people are coming out onto the streets, defying the cold- and nausea-causing drizzles, and crowding thoroughfares, shopping malls, cafes, restaurants and, of course, discos and pubs; our traffic police are having hard time chasing away stray cows and bulls, buffaloes, dogs and other animals and their guardians.

While senior traffic police officials say they are contemplating starting counselling classes for rules violators, the latter are continuing to run amok on the streets leaving our boys-in-blue angry and infuriated. And the over-exploited streets, much as the exhausted drivers of two- three- and four-wheelers and their traffic police brethren, heave a sigh of relief during bandh days like they did this past Friday. No rickshaw, no work, no money, no problem - and no tourist in Thamel, no hashish, no one rupee note.

Well, whatever the situation in Kathmandu’s busy thoroughfares, Nepali Hindus are now happy that the royal priests involved in searching new Kumari, the living Goddess of Nepal, have finally found the new Kumari. Now, four-year-old Preeti Shakya of Itumbahal, has become the new ‘living goddess’, and ascetics are of the hope that she will bestow her kind blessings on this trouble-ridden kingdom.

Wanna have a glimpse? Then keep your fingers crossed, and wait for upcoming Indra Jatra festival, which falls on September 1 this year, when she will be put on a traditional chariot that will go around the city with traditional music and dance. That is also the beginning of the autumn tourist season, upon which many cash-strapped purses and lockers are counting on. Now that Nepal has a new Kumari, many believe, her blessings will help heal the wounds, and correct things that have
gone wrong.

But with more heavy downpours and thunder showers looming large, along with the Maoist hydra that is spreading its tentacles thick and fast across the country. Indicators of prosperity such as Gross Domestic Product - and, yes, Gross National Happiness - Peace and Progress are still a far cry. And then there are the much-dreaded bandhs that have been crippling our economy.

Well, we can then take the (once-a-month) post-1990 phenomenon this way: they are having a positive impact on our city environments, public health and economy at large. So there are reasons to be hopeful and optimistic... No problem. Now, cheer up, for, Gaijatra, the festival of jokes and pranks and satires, is approaching nearer. Monsoon rains should not be a big problem.

Market-discarded industries and bank loans

By Surya Chandra Shrestha

There is a wrong notion in the coming fiscal year’s budget that market-discarded industries (MDIs) could be restructured by providing them financing facilities and privileges at terms and conditions that do not look sound. Although interest cost is a very important ingredient of the cost of production, taking recourse to more bank loans at favourable terms alone would not suffice to address the constraints that originate from the lower level of productivity, technological obsolescence, reduced market competitiveness, managerial drawback and entrepreneurship shortfalls. When the demand for industrial products falls on account of the price, quality, service and other competitiveness variables, the solution to such structural and market-related problems cannot be found in the provision of bank loans at reduced interest rates. When the product cycle is over as reflected in the stagnation of demand for the products, the solution would not be the issue of concessional financing. The current attempt to provide unviable financing facilities by the State to the MDIs, therefore, requires serious analysis, the purpose of this paper.

Nepal’s pursuance of economic liberalization policies during the 1990s has produced a beneficial impact on the growth rate of manufacturing industries and their share in the country’s GDP. For example, the average annual manufacturing GDP growth in the last 11 years (FY 1990/91-FY 2000/01) has been 10.4 percent, which is much larger than the agricultural GDP growth (2.6 percent), the non-agricultural growth (7 percent) and the overall GDP growth (5.1 percent). Even the financial sector growth (5.9 percent) represents almost half the manufacturing growth (10.4 percent) as noted above.

With respect to the share of manufacturing GDP in the overall GDP of the country, the manufacturing sector has registered significant growth. For example, the share of this sector in the GDP went up from 6.3 percent during FY 1990/91 to 9.5 percent during FY 2000/01, a gain of 3.2 percentage points. Of the nine sectoral components of the GDP, this gain of the manufacturing sector is the largest one during these 11 years. The second largest sectoral gainer has been community and social services, with its share in the GDP rising from 9.2 percent in FY 1990/91 to 11.8 percent in FY 2000/01, i.e., a gain of 2.6 percentage points. Following this is the transport, communications and storage sectors which, as a component of GDP, rose from 6.6 percent in FY 1990/91 to 8.5 percent in FY 2000/01. The gain of other sectors’ shares in GDP during the period has ranged between 0.1 percentage and 0.5 percentage points. On the whole, as a share of GDP, the agriculture sector has lost 9.4 percentage point which is exactly the gain of the non-agricultural sector during
these 11 years.

As noted above, this analysis clearly depicts the manufacturing sector as the biggest winner of the economic liberalization regime. The problem of this sector, however, lies in its inability to generate employment opportunities in consonance with the sector’s rising importance in the level and structure of the country’s GDP. Another problem that is associated with this sector in general is its inability to repay bank loans as per the agreed repayment schedule. While the manufacturing sector as a whole has gained tremendously during the liberalization period, some of this sector’s losers, especially those whose failure is due to inefficiency, unprofessionalism and reduced markets, have raised a hue and cry to get different privileges, facilities and exemptions from the state. If such facilities are in fact needed for the losers in this sector, then such facilities should have come not from the state but from this sector itself, given the advantage that it has gained over the years.

The banks in general and state-owned banks in particular have found that a powerful section of industrialists has not shown sincerity in repaying bank loans. This section is fond of producing very feasible industrial projects for obtaining large loans from the banks. However, at the time of paying taxes to the government, these same industrial undertakings show larger losses, for obviating their social responsibility of paying taxes. It is unfortunate that the sector which has gained so much from liberalization has proved itself the largest loan defaulter. In other words, this sector is most prominent in raising the level of non-performing assets (NPA) of the banking system.

At the same time, this sector is also found raising the bogey of sick industries by misrepresenting the actual causes of industrial sickness. One of such bogeys has been reflected in the government’s budget for the forthcoming year. It is mentioned there that different commercial and development banks would have to provide loans to these sick industries at a maximum interest rate of 7.5 percent. In addition, the overdue loans and interest will be rescheduled, penal and capital interest will be waived, interest liabilities frozen, concessions provided on outstanding tax liabilities and so on. Technical assistance would also be arranged as per necessity. Thus, on the one hand, the defaulting industries have been responsible for the already increased level of NPA while, on the other, they are attempting to further default on repayment commitments by raising the bogey of industrial sickness. This ploy of dishonest borrowers would transfer resources from other sectors of the economy to the already-developed manufacturing sector, an unjustified state action. This will also make the weak state-owned banking system weaker and the financing cost for other sectors dearer. On the whole, the development process will become unequitable and narrow-based.

The above considerations make us to reflect that while formulating state policies, it is fundamental that the evolving structure and developments taking place in the economy be seriously analyzed. Otherwise there is a danger of providing extra benefits to the resourceful at the cost of the relatively more deserving ones. Falling prey to lobbying groups and other vested interests being a very proximate possibility even among the enlightened, policy-making exercise based on objective, impartial and independent analysis would be of great significance if we are to avoid the mistakes and dangers of bad policy-making.

So, the remedy would be professional policy-making at the state level by respecting the norms and discipline of competitive markets. The loud noises of lobbying groups being always detrimental to better policy-making, it takes courage, conviction and training to sideline the purely selfish interests of the lobbyists and pursue sound development policies. Hence, the need is not to yield to the vested interests and waste scarce resources in uneconomic pursuits like the MDIs but to vigorously direct the national effort towards activities that are economically sustainable and socially beneficial.