NC convention : Retrospect and prospect

By Jal Singh

A11 years are on the 10th Nepali Congress General Convention slated to be held from January 19 -22, 2001 in Pokhara where 1,500 convention representatives will elect the Party President and the 18 Central Working Committee (CWC) members. Recently, the CWC of the governing Nepali Congress (NC) endorsed a draft to amend the party constitution that proposes electing half the members of this apex body. In the past only five members from each of the development regions plus the party president were elected while the remaining members were nominated by the party president. The draft also outlines an increase in the number of CWC members to 37 from the present 31. It also proposes to form a coordination committee in all five development regions including at least one woman General Convention member each from each of the zones.

From Kalbalgudi of Jhapa to Kathmandu and to Pokhara this year, much water has flowed down the river and with it has arisen the question of delegating the NC leadership to the young generation. But what does young generation literally mean? The present convention will categorically define and determine who are young who are old, it is expected. In the last few weeks, the Koirala camp has managed to get the required number of parliamentarians on its side, but the support may not last long. The manner in which the Deuba camp abstained from voting, giving Koirala a victory by default, also shows that Koirala will have a tough time ahead. In the last week, PM Koirala and NC President Koirala invited his party MPs for tea. The same evening, Koirala’s competitor and leader-in-waiting Sher Bahadur Deuba invited his loyalists for dinner. Now it seems that the stomach rather than brains and principles will rule the NC.

Even after a decade since the restoration of democracy in Nepal, the NC lacks vision and a clear-cut policy and strategy in order to achieve its objective. The reason seems to be a sad lacking in harmonious relationship between the agreed principles of socialism and democracy. This does not bode well for the party’s future. Considering the next general elections and the law and order situation in the country, the government and the CWC will need to think seriously about the relationship.

Prime Minister Koirala is standing on shaky ground. The reason can be attributed to the rivalry that has surfaced once again within the NC. In spite of the much touted unity in the party, it is wracked by infighting. Koirala has had to deal with criticisms all round. Koirala's own party members have spoken out against him time and again.

Time and again, Koirala has been accused of taking unilateral decisions, aggravating caste and communal feelings, of being obstinate and rigid, and functioning in a partisan way. Caste conflicts have been aggravated because of the personal rivalries for party leadership. It is charged that the Koirala government has been ignoring the interests of particular castes. This appears to be a dangerous trend. Because of disputes within the party, the enthusiasm for democracy can become diluted. There was an impression in certain sections that a situation similar to that of 1960 was gradually brewing within the party. However, differences seem to have subsided for a while. It is expected that at the 10th General Convention, they will come up again with force.

Just to recapitulate, as a result of BP Koirala’s call for a united struggle against the Rana regime, Akhil Bharatiya Nepal Rashtriya Congress was formed in Varanasi on October 31, 1946. The first convention of the party held in Calcutta from January 24-26 1947 dropped the words Akhil Bharatiya and renamed the party as "Nepali Rashtriya Congress". The party aimed at establishing a democratic and responsible government in Nepal after overthrowing the autocratic Rana rule. It also decided to launch a movement against the Ranas, but it was suppressed.

On the eve of the 10th General Convention, I would like to recall the Kalbalgudi Convention. During that occasion PM Koirala was attacked by the party supremo, expressing his feelings of anguish, and warning of his retirement from politics unless Koirala was removed from the government. Two conventions have been held since and the NC is still fighting over the issue of leadership. To be good does not merely mean to be obedient and harmless; goodness without ability is lame; and all virtue in the world will not save us if we lack intelligence. Ignorance is not bliss. Only intelligence can help us in shaping our fates. The Nepali Congress party should learn from this philosophy.

Politics as such is ambition, politics is ego, politics is aggression and politics is violence. Some people even say that criminals and politicians are the same. If a criminal becomes successful, he also becomes a great leader. To some extent this seems to be true. But most of us do not accept this. A cursory review of history shows that the formation of the NC was mainly due to the atrocities of the Rana rulers in Nepal. Internal strife and dissension in the NC have been prevalent and become public in recent years. The NC, which has formed the government, was expected to give the country resolute, efficient and progressive governance.

Rifts within the NC after the formation of the government started with Koirala’s move to reorganize the Council of Ministers by sacking six ministers in December 1991. This brought a crisis in the party. At that time the then ruling party president said that he had learned about the reshuffle only the through the media.

Koirala again offered his resignation in February 1992, calling upon the second generation to lead the party, and an open rupture between the party and the government could then hardly be averted. The present premier is the ninth in ten years since the restoration of democracy in Nepal. Koirala now heads the government for the fourth time.

Former prime minister Deuba is contesting against Koirala for the coveted post of party president at the forthcoming General Convention. The manner in which personal differences and infighting among party leaders surfaced soon after the general elections, and the ousting of KP Bhattarai are not at all a healthy trend. An impression is growing that if the intra-party wrangling continues, it will not only encourage the forces of destabilization, either the Maoists or the communalities, but will also destroy the whole objective of social-economic reconstruction. The public will be disillusioned with democracy completely.

Koirala must have realized that he was standing against a formidable opponent. Koirala’s candidacy has created a controversy within the NC. Subsequently, he was not accepted as a consensus candidate. Deuba, who some say is the least remembered PM in Nepal, is struggling hard to take over the post of either party president or PM. What does Deuba have that Koirala doesn’t? Rather than giving fiery speeches he should look at himself in the mirror first, and assess his dealings while he was PM. Now it is alleged that the UNDP/Nepal office is influenced and inspired by the Deuba camp. This remains to be seen. Whether the claim is true or not, it is a matter to be investigated. The question of handling over party leadership to the second generation leaders has been rising .

Nation on lease, awaiting the highest bidder

In 1729, Jonathan Swift wrote "The Modest Proposal..." to alleviate poverty in Ireland. This essay is, perhaps, considered one of the most powerful pieces of writing in English literature.

Frustrated by British exploitation in Ireland, Swift proposed that Irish babies be served up at the dining tables of British lords to alleviate Irish poverty. His writing made history, frustration and anxiety providing emotive grounds for great literary works.

Coincidentally, I heard a similar proposal for the eradication of Nepali poverty last week but, this time, not by a great literary figure. They were youths sipping tea whilst the entire capital was swept by lawlessness during the anti-Hrithik frenzy.

I was waiting for my tea to arrive at a neighbouring table. I overheard the youths talking about the perpetual poverty gripping Nepal and her people. One suggested that our country should be leased to a developed country. All four agreed on the choice of the countries, the largest donors to Nepal - Britain, the US, Japan and Germany. They went on to discuss the duration of the hypothetical lease. One proposed 99 years, as in the case of Hong Kong to the British.

"But what sort of benefits would we Nepali people be entitled to if we leased our country, a country which has never before been colonised?" one of the participants fumbled. "You would learn the English language, management skills and law and order," the third replied. The fourth lamented the fact that Nepal had not been colonized by powerful nations in the past and came down heavily on our forefathers’ defence of Nepal against the British army.

The tea arrived. I wanted to preach the value of independence to them - a sovereignty that had never been threatened. But I checked myself and remained calm. I was shocked to learn that they harboured these views. I gulped down the cold tea and left the table. "Can’t we turn our nation to prosperity under our own steam?" I thought to myself all the way home. Maybe their ideas were surrealistic, Salvador Dali-style.

Next, images of our dear politicians and lawmakers popped into my head. Would they agree with these lads? Certainly not. Why? Because if Nepal was leased, they would no longer be able to lick the national coffer in the name of the people. Politicians would definitely condemn the lease idea as anti-nationalistic. If the Constitution were to allow this, they would be banished from this "ideal" kingdom for harbouring such unpatriotic views.

For my part, I came round to the lads’ way of thinking. What’s wrong with leasing the nation if our government is trying to privatise state enterprises? After all, we would be rich 50 years down the line. We certainly won’t be rich in 50 years if we govern the country urselves. enterprises? After all, we would be rich 50 years down the line. We certainly won’t be rich in 50 years. This "ideal" kingdom for harbouring such unpatriotic views.all, we would be rich 50 years down the line. We certainly won’t be rich in 50 years if we govern the country urselves. enterprises? After all, we would be rich 50 years down the line. We certainly won’t be rich in 50 years. This "ideal" kingdom for .line. We certainly won’t be rich in 50 years. This "ideal" kingdom for harbouring such unpatriotic views.all, we would be rich 50 years down the line.

Do we have our monetary policy ?

By Basanta Lohani

Two learned economists of Nepal having a significant real world experience, Dr Mohan Man Saiju and Dr Raghav Dhoj Pant have come up with conflicting views about the use and effectiveness of monetary policy in Nepal. Dr Saiju, while talking to The Kathmandu Post on January 2, 2001 on the increasing transaction use of Indian currency in Nepal that is estimated to have exceeded even twenty five percent of the total money supply, has said: "Nepal Rastra Bank is slowly losing its control over the major economic variables such as inflation and interest rates." Likewise, Dr Pant on January 6, in a letter to the editor published in the same newspaper, has thus disputed Dr Saiju’s claim: "I feel that Dr Saiju, like a few of our professional economists, is not aware of what is popularly known as the ‘impossible trinity’ " because of which "... we can not have all three: free capital movement just like Nepal and India, a fixed exchange rate just like between Indian and Nepalese currency and an effective monetary policy." Thus the discussion boils on whether or not Nepal can have its independent monetary policy. To this end, let us take a cursory look at what monetary policy is all about.

Nepal Rastra Bank (NRB) as the Central Bank of Nepal is the foremost monetary institution responsible for regulating the monetary system for achieving the given policy goals of the country. It is required to achieve such goals influencing the use, composition and direction of money through what is called monetary policy. To this end, it constantly has to monitor and adjust the volume of money supply, the size of credit and the rate of interest. These adjustments are described as expansionary or contractionary and are normally linked to the rate of inflation, deflation, stagnation, or recession. Before getting down to expansionary or contractionary monetary policy and how it is related, a further quick look at money and credit is necessary. The Central Bank prints money while commercial banks create credit, many fold more money than what the central bank has supplied. These two together get inside the intricately interwoven artery of our economy and run it the way blood runs in the veins. The quantity and quality of blood, meaning all the constituents within healthy parameters, are essential for healthy life. So is money and credit. Thus, NRB is required to regulate the availability, cost and use of money depending upon the situation of the country’s economy for its healthy growth.

Like one’s heart pumps blood in and out depending upon the requirement of oxygen to the millions of body cells, so does a central bank to the economic health of a nation. The difference is that our body is a closed system while country’s economy is not, especially more so now when the world has become a global village. Alternatively, it pumps in more money in the market in case of need and that situation is called expansionary. Likewise, it pumps out excess money from the market and this process is described as contractionary when such excess creates problem to the overall health of the country. For a small and developing country like Nepal, NRB’s role in regulating the availability, use and cost of money and credit becomes all the more complicated because of six hundred miles of open boarder with our southern neighbour and the way Nepal’s economy is handled as a satellite economy of India, partly by economic compulsions and more by design and mismanagement. Besides, global changes have their own impact more through the changes in the Indian economy.

And, also the fact is that monetary policy as such is more effective in channelling economic activities for stability than in stimulating such activities because it can not spur investment on its own. Even on occasions to be effective for pushing up investment, employment and decreasing rate of inflation, it needs to be combined with tight fiscal policy after creating an investment-buoyant-environment. This is what is known as policy mix. Now let us bring in the veterans. Dr Saiju believes that NRB can have effective monetary policy and is worried because of the way it is losing its grip in "major economic variables such as inflation and interest rates." But Dr Pant confidently discards Saiju’s view point altogether saying Nepal can not have its effective monetary under the prevailing fixed exchange rate and capital movement. His strength is Mundell’s ‘impossible trinity’ about which he thinks Dr Saiju may not even be aware of. Let us venture to see what this ‘impossible trinity’ is all about.

This brings us to a 69-year-old Canadian of Columbia University Professor Robert A Mundell who became the 43rd economics laureate when he won the 1999 Nobel Prize in economics, "for his analysis of monetary and fiscal policy under different exchange rate regimes and his analysis of optimum currency areas." The Stockholm based Royal Swedish Academy of Sciences in its Nobel Prize citation release on October 13,1999 has further said: "His work on monetary dynamics and optimum currency areas has inspired generations of researchers ...and constitutes the core of teaching in international macroeconomics." The concept that he originated as ‘optimum currency areas’, as perhaps the world, for a single currency for reaping the advantage of lower transaction cost in trade and lessening the fluctuations in the relative prices, and believing that the high mobility of workers moving from slumming to booming areas between countries or regions would maintain the level of employment led to creating the common currency Euro for the European Union in the beginning of 1999. Euro is considered as the second most important currency in the tripolar currency world of American dollar, euro and Japanese yen of the unipolar world with multipolar regions.

In the days of 1960s when fixed exchange rate was the order of the day and thus almost all countries pegged their currencies against the US dollar and also when the world experienced limited international capital movements, young Mundell, then working with the International Monetary Fund, came up with two novel ideas. First, the concept of ‘optimum currency areas’ that he originated in 1961, and, second, he demonstrated, in 1963, the exchange rate regime where fixed exchange rate would strip monetary policy of its potency or effectiveness. These were later broadened and developed into what is now popularly known as the impossible or incompatible trinity. This concept was perhaps based on the experience of his own country Canada and how it gained the effectiveness of the monetary policy after allowing its currency to go floating against US dollar.

His efforts to find an answer to how monetary policy and fiscal policy would work together in a situation where capital could move in and move out freely between countries in response to the differences in the interest rate changes. He found the answer hinged on whether it was a case of fixed or floating exchange rate. In case of fixed exchange rate where the country keeps its currency constant to the value of another nation’s money, monetary policy loses its potency. Likewise, if it is floating where the value of its currency changes depending upon the demand and supply conditions, the country can have the effectiveness of its monetary policy. This concept developed in terms of free capital movement, fixed exchange rate and effective monetary policy has thus become the ‘impossible trinity’ because no country can have all three. It can only choose two out of three.

We have seen how Mundell has conceptualized as ‘impossible trinity’ where no government can hope to achieve all three objectives of free capital movement, a fixed exchange rate, and an effective monetary policy, and, thus, has asserted that monetary policy becomes impotent when a country keeps its currency constant to the value of another nation’s money. When this is the new found rule or a paradigm shift, where exactly are we in terms of effective monetary policy with the fixed exchange rate with India as posed by Dr Pant?

Does it mean that we have no control over money supply except adjusting to domestic liquidity where now, as it stands, Indian currency is meeting over twenty five percent of such demand? Does it mean that the rate of inflation is nothing more than an imported item from India like any other manufactured goods? Or could it be that this ‘impossible trinity’ does not apply in case of Nepal and, as Dr Saiju thinks, NRB is gradually losing its control for other reasons? Probably we can expect more discussion in this area.

Does it mean that we have no control over money supply except adjusting to domestic liquidity where now, as it stands, Indian currency is meeting over twenty five percent of such demand? Does it mean that the rate of inflation is nothing more than an imported item from India like any other manufactured goods? Or could it be that this ‘impossible trinity’.Does it mean that the rate of inflation is nothing more than an imported item from India like.

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