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Kathmandu Wednesday February 13, 2002 Falgun 01, 2058.
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Refinancing proposal
The Nepal Rastra Bank (NRB) has forwarded a
proposal to the Ministry of Finance for the final approval to revive tourism and
export-based industries which are going through turbulent times. This seems to be NRB’s
another attempt to provide financial assistance to sick industries and, thus, save them
from a complete collapse. The proposal states that the declared ailing industries —
hotels, pashmina, carpet, garment — will have access to subsidized soft loans to
restore their financial health. This is a new methodology which NRB has prepared to
measure the ailing hotels, pashmina, carpet, garment and other export oriented industries.
Such a methodology will identify financially weak hotels and industries seeking the
refinancing of loans, more importantly financial support from NRB. Will such financial
provisions really revive sick industries without any security being provided? If yes, how?
Has NRB done a study on how many sick industries are genuinely seeking financial
assistance? What are the factors that led to the downswing of the carpet, garment,
pashmina and tourism industries?
Last December, NRB introduced a
"flexible" monetary policy with a view to fostering economic activity. The idea
was to lower the refinancing rate and subsequently reduce the cost of capital so that bad
loans could be recovered. In order to justify its new measures, NRB cited the low
inflation rate and declining state of liquidity in the industrial sector. Can financial
institutions provide loans to sick industries at as low a rate as three percent? The
industrial sector has been crippled not due to any slow growth per se, but because of the
prevailing insecurity. The country has been witnessing a downswing in the carpet, garment,
pashmina and tourism industries ever since the Maoist insurgents launched the People’s
War. These industries have been the major foreign exchange earners of this country for a
long time. Besides, the domestic industries set up to manufacture consumer products have
shut down again as a result of deteriorating law and order in the country. Any financial
provisions in the absence of security may add only to the country’s economic woes.
The proposal that clearly outlines certain
criteria for the refinancing of loans to ailing industries may not bring immediate impact
on our country’s economy until and unless the government restores law and order. The
tourism industry of this country has declined by 8.2 percent as a result of internal
disturbances. Had the industrial sector maintained quality and done proper marketing, the
exports of carpet, garment and pashmina would not have dwindled rapidly. It is the low
quality of garment, carpet and pashmina, besides the Maoist insurgency, which led to the
decline in exports. It is also true that political heavy weights, policy-makers and
bureaucrats have tried to fulfil their personal interests while formulating policies.
Against this background, one naturally remains skeptical about the government’s
intention and current reform package. However, it is too early to jump to conclusions.
Given the country’s grim economic scenario, the current policy is one of the best
opportunities to give a new lease of life to key economic sectors. |
