Editorial [ The Kathmandu Post (Nepal)]

Malicious attempt

The Koirala government arrested Kantipur daily editor Yubraj Ghimire, Kantipur Publications (Pvt) Ltd managing director Kailash Sirohiya and director Binod Raj Gyawali the other day. The reason was that the daily had published an opinion piece by Maoist leader Dr Babu Ram Bhattarai, in which he talked about conspiracy behind the recent killings of King Birendra and his entire family. The charge labelled against the Kantipur officials and editor Ghimire is sedition. Now that action has been joined, so to speak, we will have to await a court ruling to find out whether an act of sedition was in fact involved. But there is legitimate ground for suspecting Koirala’s motives in moving against Kantipur. Is it that the media cannot act as an open forum and publish an opinion piece by a Maoist leader, that too at a time when the government itself has been trying to hold a political dialogue with the insurgents?
This is not the first time that Maoist leaders have broken out in print and everyone who reads newspapers in this country knows the thrust of what they have to say. No action was taken against the newspapers involved then.

Against this background, one rather suspects that the action being taken against Kantipur now is in retaliation for exposure of corruption in high places by that daily and its English language sister publication. The two papers have been very critical of Koirala’s involvement in several corruption cases — right from the Dhamija scam to the still unresolved Lauda mess. A few months ago also, while addressing a group of journalists in Biratnagar, Koirala had lashed out openly against Kantipur. Since then, there have been attempts on the part of the Koirala government to malign that daily. If the Koirala government felt that "sedition" or violation of basic constitutional tenets was involved in the publication of the Babu Ram’s article, it could have ordered the arrest of the editor alone, and not the publishers. Editorial freedom at a newspaper means that the editor generally has a free hand in deciding what goes onto the pages of that periodical. A mass circulation newspaper cannot function efficiently otherwise. This possibly malicious attempt by Koirala not only concerns Kantipur in particular but also the media in general. We cannot deny that such attempts will not be repeated against other national media. The fourth estate has played an important role in strengthening democratic values in this country, particularly after the restoration of democracy. Unfortunately, the Koirala government does not seem to appreciate that except in lip service. Koirala has to respect the freedom of the press even if Kantipur makes life difficult for him from time to time as a result of his involvement in several corruption cases.

New framework for monetary policy

By Sushil R Mathema

To bring in domestic as well as external stability has been the prime objective of monetary policy of the central banks/monetary authorities in many of the developing as well as developed countries. As a conventional rule, many central banks and monetary authorities anchor their monetary policy framework either on interest rate or exchange rate and follow monetary targeting as a whole. However, during the last decade, with the increased liberalization and globalization of the world economy and the experience of the East Asian crisis after 1997 many of the developed countries were drawn to rethink the framework of monetary policy in terms of whether one can continue monetary targeting to sustain the stance of monetary policy for attaining domestic stability in the economy. The growing concern that demand for money in recent years has not exhibited stable relations due to various factors such as financial reforms adopted under liberal policy and also volatile capital flows has given birth to an alternative idea of switching over to inflation targeting. Moreover, the move towards central bank independence and the growing consensus that multiple objectives are not to be achieved through the policy stance of the central bank also assisted in choosing inflation targeting as the new framework of monetary policy.

As to a new framework of monetary policy, countries such as New Zealand, Canada, the United Kingdom, Finland, Sweden, Australia and Spain have already adopted inflation targeting for the conduct of monetary policy in their respective economies. The reason seems to be very simple; their experience with monetary targeting or a fixed exchange rate have proved unsatisfactory over time. Typically, it is understandable that the high inflation observed in many countries even in the time of the Asian crisis is viewed as a grave problem faced by these countries against the desired path for the economy. The countries therefore adopted inflation targeting after considering a consensus on achieving a certain level deemed to be most desirous. But equally, another argument in the offing is whether all countries should march to inflation targeting or there is another option for countries which have a historical record of low inflation.

Views expressed by some distinguished personalities in the southern neighbour emphasized that monetary targeting is still relevant as stability has been observed in the demand for real money. Moreover, it was also argued that price stability should not be an end in itself. The ultimate goal of monetary policy is to develop a well functioning growing economy along with stable prices. In addition, the adoption of inflation targeting is associated with the problem of inflation bias and has hurt the growth process of the economy in many cases due to persistent subdued inflation.

Against the above backdrop, it would be worth looking at whether there is a possibility of expecting inflation targeting as the new framework of monetary policy in Nepal. Nepal’s monetary policy strategy is addressed towards indicative monetary targets. Monetary aggregates i.e., narrow money (M1) and broad money (M2) are the available monetary measures in Nepal. Empirical studies have supported M1 as the better intermediate target mainly because M1 shows a relatively stronger relationship with other economic variables including prices and income. Further empirical studies of demand for money reveals a stable relationship in the long run. But the main problem is whether the central bank has control over money supply as excess borrowing on account of expansionary fiscal policy may instigate loss of grip on money supply growth. Available statistics show that a significant difference has been noticed in the growths between money supply (M1) and consumer price index (CPI). M1 and CPI recorded a growth of 17.4% versus 7.8 % in 1997/98, 13.1% versus 11.3% in 1998/99 and 19.5% versus 3.3% in 1999/00. It is very clear this relationship does not show that the price movement is a purely monetary phenomenon. Thus inflation targeting is difficult to use in containing inflation.

Moreover, as mentioned above, there are certain constraints, which may discourage the process to move towards inflation targeting. Firstly in Nepal, inflation targeting is not done; headline inflation target comes implicitly. Change in National Urban Consumer Price Index (NUCPI) is used as the measure of inflation in Nepal, but this inflation has as mentioned earlier, not proved to be a purely monetary phenomenon. In fact, inflation in Nepal has been largely influenced by structural phenomenon such as supply shocks particularly Indian prices (wholesale price index of India).

Recently, a concept of core inflation for measuring and targeting inflation has emerged at a number of central banks for adopting inflation targeting. The advantage of measuring core inflation is that it is virtually free from supply shocks and is useful in deciding which price rise to ignore in setting monetary policy. On the other hand, headline inflation includes both permanent and transient components wherein the transient component arises from sudden shocks like price rise in crude oil. For this reason, countries or central banks, which have chosen inflation targeting as the new framework of monetary policy need to decide upon appropriate methodology to measure, core inflation. In most of the cases, they follow the procedure of identifying a list of commodities which are likely to be prone to supply shocks and compile the index by excluding such commodities from the basket with a view to capture more of demand related inflation.

In Nepal’s case, if we look at the basket of commodities used in CPI, of the 301 items, there are 23 administered price items the proportion of which thus stands at 16.1 percent in the whole basket. Similarly, Rice and its product component alone has a 14.16% weight in the total CPI. If we are to ignore the price movement of food-related items as well as administered price items from the headline inflation basket, it comes to around 30.26% weight of the total. This will eventually raise the issues as to what extent we really need to take out items for the purpose of measuring demand pull inflation.

That is, primary commodities have a strong influence on underlying inflation in Nepal as they form a sizable part of the household consumption basket and therefore, are crucial in the formation of price expectation. In addition, there are some other aspects which monetary authorities may have to further consider for switching over to inflation targeting. Firstly, the independence of monetary authorities has to be ascertained as assignment of target is closely linked to the independence of the central bank. No doubt, there has been a lot of talk of central bank independence in Nepal too. And Nepal Rastra Bank is also trying to conceptualize core inflation. But challenges may arise in defining the target as well as inflation forecast as inflation targeting necessitates sophisticated forecasting models which require advanced computer hardware and software. This could pose an important constraint for a developing country like Nepal. The mismatch of the monetary policy goal under an inflation targeting regime with the other policy goals such as full employment is viewed as another strong impediment for adopting inflation targeting. For example, it is necessary that growth target, the goal of full employment and, even more, fiscal policy should be supportive of inflation targeting which generally does not happen especially in developing countries.

To conclude, an inflation targeting framework for monetary policy is not necessarily appropriate for all countries. Because, there arises a constraint in serving the prerequisites for effective targeting such as a well developed financial system to allow for the effective operation of monetary policy, coordination between political institutions and policy goals and a strong inflation forecasting framework.

Sissy film-making

By Razen Manandhar

Film-making is an art but in the Nepali context, it is more business and glamour than art. Masala movies are always, or considered to be, block busters in Nepal. That is why we have some romance, bed scene, dishum-dhisum, and rape scenes on the silver screens in our country. Actually, this is the leading philosophy not only in our country but also a chronic disease in the whole of South Asia.

However, making films for children takes place once in a blue moon. Though they deserve more films for their development, they are almost always deprived of this right. You can easily find a film rated "Only for 18 year olds and above" but nobody has ever made a film "Only for those 14 years and below."

To fill this void, not one or two film people, but a whole international team from the seven South Asian countries — Bangladesh, Bhutan, Indian, Maldives, Nepal, Pakistan and Sri Lanka — unanimously designed a grand film for children.

This was a big team for making that film. Scores of technicians and social workers from each country held dozens of seminars in star hotels before the script was finally ready. Several western NGOs were also there to support the South Asian technicians. And the role of the financiers, who held the purse strings in their hands cannot be underestimated.

Well, a pair of children and young people was chosen for the leading roles. To add some ‘masala’ in the film, some other young people were also added. India is a big country so it got four actors and as Nepal was the location, it got chance to add one extra actor. Thus altogether there were 17 children to act in the ambitious children’s film.

As it was not going to be an ordinary film, the makers needed some extraordinary actors too. They did not invite Rajesh Hamal or Manisha Koirala because they are common names in show business. So they signed up big artistes like the ministers of their countries. You might be surprised, but the Minister of Foreign Affairs Chakra Prasad Bastola agreed to play a role in the film (This shows how much importance he gives to the happiness of children). Other grown up actors and actresses were ministers from all the countries concerned.

But, children are children. They should not be kept with grown up people. That is why, the little actors and actresses are kept at a small Hotel Narayani (where they had to do a lot of rehearsals too) while the grown up filmmakers are enjoying the lounges of Soaltee Hotel.

The most important thing the film critics found was the process of filmmaking. The whole project was actually managed by a network, consisting of big and small organisations. But as usual, the bigger section of the organiser overshadowed the other minor institutions and presented itself as the solo
organiser. The child actors heard the unfriendly whispers of the organising institutions but as loyal children, they hushed up.

Okay, the hero, a young master from Bhutan, delivered his grand dialogue. The director was happy that the first shot was okay and any retake was not necessary. The minister actor also acted well and delivered his reply dialogue in an elegant way.

There were more film journalists than actors and technical people. They all returned to their countries and wrote in their film magazines that the shooting was fantastic. Let’s wait for the film release impatiently.

Tourism and poverty alleviation

By Prakash A Raj

Arecent study made by the World Bank on poverty in Nepal found "while neighbouring countries made some headway against poverty", "Nepal has at best stood still". The study found that poverty rates were the same in 1995/96 as they were in 1976. Periodic plans formulated in recent years have envisaged using tourism as a means of poverty alleviation. The Eighth Plan was one such exercise. The long-term objective of the Ninth Plan was to bring the benefits of tourism to village level.

Nepal was a country closed to the outside world till the first half of 20th century. It was only in the 1970’s that Nepal became a destination of a substantial number of tourists in South Asia. There is a great regional variation in the number of tourists visiting Nepal. A few areas have received almost all of the tourists whereas some have received none. Almost all of 493,000 tourists visiting Nepal in 1999 spent a few days in Kathmandu. It was found that slightly over 100,000 visited Pokhara and 72,000 went to the Royal Chitwan National Park. The most popular trekking routes in the country in the Annapurna and Sagarmatha (Everest) areas received 65,000 and 23,000 trekkers respectively. It could be said that tourism in Nepal is largely restricted to a quadrangle made up of Kathmandu, Pokhara, Lumbini and Chitwan. The only area which received a substantial number of tourists outside this area was Sagarmatha National Park . The number of tourists visiting the backward mid western and far western hills is insignificant. Bardia did receive 2,543 tourists which was less than 1 percent of total numbers. As the area in the mid-western hills is being affected by Maoist insurgency, it is unlikely to attract a large number of western tourists to Dolpo and Shey Phoksundo National Park in spite of favourable publicity received as a result of the film Caravan in recent years. Almost all the districts of Karnali Zone have been affected by insurgency but the area in Humla, which is connected by trail to Mansarovar Lake, in Tibet has not yet been affected. Tourism in Nepal is likely to be restricted to certain areas of the country.

Let’s turn to the role of tourism in alleviating poverty and providing employment. Tourism contributed to 15% of total foreign exchange earnings and 36% of income received from export of goods in 1998. It also contributed 3.5% to GDP. It was estimated that tourism provided direct or indirect employment to 257,000 people in 1997.

Some studies have been made about the impact of tourism on poverty alleviation in Nepal. A study of tourism in Solukhumbu region done by IUCN in the shadow of Sagarmatha (Everest), the highest mountain peak in the world found that the area had become one of the wealthiest in Nepal. However, the benefits of tourism were largely restricted to the Khumbu region and to villages visited by tourists. It even concluded that disparity between the rich and the poor was increasing. It felt that left to market forces, income and community inequalities would widen. Ethnic groups living in the southern part of Solukhumbu district other than the Sherpas have benefited little from the advent of tourism. A study made by ICIMOD on income distribution in the Annapurna region found "many of the benefits from tourism go primarily to the small percentage of villagers who are lodge and restaurant owners. Porter guides and support staff often share in them, whereas the large percentage of subsistence farmers especially of the poor lower class do not directly benefit from tourism income. Due to lack of linkage between community and tourism development, benefits from tourism are confined primarily to lodge owners." A survey done by this scribe on the village of Sauraha just outside Royal Chitwan National Park found that none of the 54 lodges in the village were owned and managed at the same time by the indigenous Tharu people of the area. It would appear that such village tourism sites as Sirubari in Syangja district south of Pokhara have benefited the participating households and had a better impact upon income distribution. However, this is still to be verified by detailed studies.

The income distribution aspect of tourism development in Nepal needs to be studied in more detail. Has it contributed in widening the gap between the "haves" and "have-nots"? Is the "cut throat" competition among hotel and lodge owners in Pokhara and along the Annapurna trekking routes benefiting only the trekkers? It is now possible to rent a room in touristy Lakeside in Pokhara for as little as $2 a night. There are cheaper rooms available along the Annapurna trekking area.

There is a new thinking among some foreign donors like DFID (British Aid) and SNV (Dutch Aid) on "pro-poor tourism" which means tourism benefiting the poor. SNV is due to start poverty alleviation through a rural-based tourism programme. Its tourism related activities in Humla on the trail to Mount Kailash include tourism related economic activities such as camping sites, portering services, enterprise development and marketing. SNV has also started its Praja Community Development Programme north of Royal Chitwan National Park to benefit the backward Chepang community. This includes a tourism component. DFID is reported to be thinking about assisting in introduction of "pro-poor tourism in Solukhumbu area".

Tourism is one of the few resources in Nepal which enjoys a comparative advantage in view of potential for development of cultural as well as adventure tourism to an extraordinary degree. This is amply illustrated by the fact that Nepal contains two of UNESCO’s cultural and natural heritage of mankind sites and the popularity of such activities as trekking, mountaineering, rafting and wildlife safaris which were either unheard of or restricted till the beginning of the twentieth century. We need to formulate a strategy that will make tourism play a more active role in alleviating poverty in Nepal.