Central bank: Putting it on track

By JAYA SHANKAR MAHARJAN

Developing a sound financial system, properly regulating that system, preventing probable crisis situations in it and bringing about macroeconomic stability have become the fundamental responsibilities of a central bank. Absence of autonomy and professionalism in the discharge of central banking functions coupled with inadequacy of the regulatory environment could lead to uncertainties and even crises in the financial system of a country as well as in the related economies of the economic region, if not the whole continent or the globe. This was clearly witnessed in the recent financial crisis, popularly known as the Asian crisis of 1997-98, which directly and seriously affected the financial system and economy stability of the ASEAN region. For a central bank, avoiding such crises is a fundamental responsibility as it is commonly believed that one of the critical factors behind the crisis was the absence of adequate central banking autonomy. This substantially reduced the efficiency and effectiveness of central banking functions and responsibilities.

Although established in 1950, Nepal Rastra Bank (NRB), the central bank of Nepal, has yet to modernise its operations, enhance its capability, and become a true leader in the monetary, regulatory, and supervisory functions that are the traditional trademarks of an effective central bank. Before 1984, there were only two commercial banks and two development banks working under the ownership and control of the government. Only during the eighties and nineties emerged a significant growth of commercial banking and other financial institutions in Nepal. However, the central bank’s capability and institutional improvements have not kept pace with the evolving regulatory and supervisory responsibilities that are in great need in Nepal at present. This situation needs to be corrected if the Nepalese financial environment is to be properly regulated and prudently directed. The new NRB Act has increased functional autonomy, objective responsibilities, organisational scope and institutional strength. So central banking functions should be discharged in a more sophisticated and sound manner.

Accordingly, Nepal has done significant homework to build a strong foundation for the financial system and also avoid the type of crisis that the Asian region encountered. Regarding recent development in the financial and banking sector, a new Nepal Rastra Bank Draft has already been passed by Parliament and is in the process of receiving the royal seal. The bill should provide more autonomy to the central bank in the spheres of monetary and financial sector policy formulation and effective implementation. The supervisory and oversight function of the central bank is then expected to be strengthened substantially. The Deposit-Taking Institutions Draft Act, which will encompass the regulation for all deposit-taking institutions like commercial banks, development banks and finance companies, is under formulation. Legislative reforms for improving the securities and capital markets are under way. In order to make loan recovery effective and reduce the share of Non-Performance Assets (NPA) in the banking system, the Debt Recovery Draft Act has also been passed by Parliament. Likewise, the International Financial Transactions Centre Act is regarded as an important beginning to make Nepal a hub of international financial activities. The directives issued to commercial banks and finance companies by NRB should help promote the institutional strengthening and financial consolidation of these institutions. The recent focus on indirect monetary instruments and prudential regulations and supervision in place of direct monetary controls is aimed at raising efficiency and prudence by the financial sector. Similarly, the flexible monetary policy stance recently adopted by the central bank is seen as a sound framework developed for promoting economic growth and expansion without disturbing the existing macroeconomic stability and financial intermediation achievements.

It may be noted that there are still many problems, challenges and structural shortcomings in the Nepalese financial sphere, rendering the financial intermediation process as well as the financial service delivery system inefficient, unproductive and least comprehensive. The central bank is criticized for its inadequate ability to improve the quality and sphere of monetary policy and to properly supervise and monitor the financial system. The large spread between deposit and lending rates, huge NPA level, inefficient working of government-owned banks and financial institutions, and the general weaknesses that characterized the central banking function require that the central banking capability and functional effectiveness be significantly enhanced.

For promoting the economic development and prosperity of Nepal, there is thus an urgent need for further developing the financial sector and making the financial regulatory environment effective. It is important that appropriate arrangements and systems are put into sound implementation in order to efficiently discharge the central banking responsibilities and make the financial system most efficient. There is need for promoting expertise and professionalism in the working of the central bank for developing and sustaining a financial and monetary system towards addressing the development problems of Nepal.

Nepal’s past experience has shown that the plans, policies and programmes, though very attractive in their contents, are mostly under-implemented. One of the basic reasons for underachievement in the areas of socio-economic development in general and financial sector development and reform progress in particular is the least amount of attention accorded to the development of necessary strategies and policies for the effective implementation of stated plans and visions. In the light of this experience also, it has become essential that appropriate implementation arrangements be put into effect so as to transform the financial sector reform initiatives into concrete achievements. In the absence of such arrangements, howsoever fine the enactments, directives and regulations are the actual achievement against the expected goal and make the financial sector the development and regulatory system work as per expectation. It is important that the policies and programmes for implementing the central banking visions be properly selected and implemented so as to address, on a sustainable basis, the opportunities and challenges that the Nepalese financial system and central banking responsibilities currently entail.

Cute little package

By NABIN RAWAL

When we had just thought that politicking in the country had subsided with the prevailing state of affairs in the country, the hoi polloi were once again taken aback. This time around, the surprise came in a cute little package called the "Broader Democratic Alliance", which was formulated by none other than GP Koirala, who also happens to be the president of the ruling party. I guess this should be taken as an euphemism for the much used and abused word "national consensus", which has come to be "the word" in our politicians’ vocabulary in contemporary times. However, considering the politicking that has come to be a part and parcel of Nepal’s political scenario, anyone could deduce that something was brewing in the political scene. More so, with Koirala now restless to make it once again to the helms of affairs. And surely this time around, the politicking has come in the form of a "Broader Democratic Alliance". Oh yes! If I were to paraphrase what our former Prime Minister said, this noble vision of our initiator has been thrashed up not in a bid to take up power once again but to fill up the vacuum that has been created in the political realm after the imposition of the state of emergency. Indeed, in this time of exigency, it’s a great vision of our former prime minister for he has certainly hit the right chord in a country where there has been an utter dearth of "political visions" even after twelve years of "political exercise".

One thing for sure, Koirala certainly stands true to this English dictum: He is certainly down but by no means out. He certainly deserves appreciation since even in this age, where most of the people would be thinking of quitting, he has bounced back with such fervour, never known before to our political professionals. His resilience is certainly commendable by all means. But the thing that perplexes me is his claim that the present state of affairs has created a political vacuum. I don’t buy that claim, for the politicians are still making it to the front pages of every newspapers in the country and rightly so with the electronic media as well. We have a colossal ministerial cabinet to mind the services of the electorates. Even after all this, his claims of a political vacuum sounds hollow. But on second thoughts, I came to realize the veracity of his claim, for there is indeed a vacuum prevalent in the political sphere. The vacuum is none other than Koirala himself who for some queer reasons has not made it to the position where politics really counts. It’s the much sought after dreams of every political aspirants of this country. Moreover, with Koirala who is no stranger to the perks and privileges that accompany to the one in the top post, he certainly has all the legitimacy to allege that a "political vacuum" has been created. That is why he gets no respite even when one of his own party men is enjoying his stint at the coveted position. By the way, politicking now in the form of an alliance might just give him the ticket to make it to that echelon so as to fill the vacuum that has been created without his absence. Just keep your fingers crossed.

Challenges for human resource management

By RAJSHRI RAWAL PANT

Initiation and sustainability of human resource activities in an organisation face a large number of challenges, employee’s acceptance and cooperation being the major ones. Their cooperation is vital for the establishment of human resource in an organisation. Human Resource Management is solely concerned with managing and developing the internal workforce. However, sometimes the employees tend to misunderstand the real motive of human resource and feel that it exists merely to manipulate their working system. Besides, even management sometimes feels that human resource activities add unnecessary extra costs to the organisation. Such perceptions need to be changed and proved wrong. Hence, it is extremely important for human resource management to deliver results to ensure its sustainability.

In an organisation different functions have their own priority and core areas like finance, marketing etc have always taken the major priority. Such being the case, human resource should be able to position itself so that its importance can be felt and appreciated by the organisation. Many organisations feel the need for human resource only if there is high absenteeism, heavy employee turnover or other internal problematic situations. However, human resource is always needed whatever the ups and downs in the internal scenario of the organisation. The solution for such a situation can be obtained
by properly marketing the concepts and applications of Human Resource Management as and when needed.

The benefits delivered by human resource activities need to be highlighted and explained thoroughly so that its requirement is felt by everyone. The human resource department should be careful that its activities are not stagnant and limited. It should constantly try to develop strategies and find new avenues to enhance the internal environment of an organisation. As stated by Guru of Management Peter Drucker, challenges of all types should be driven by vision, not by problems. So, even if a human resource department is established to solve a certain problem, it should always have a clear vision where it will head in future and what its role will be in adding value to the company. Companies face the challenge of foresight as they constantly try to position themselves alongside their future growth possibilities. Hence, without a clear vision there will be no future as it alone guides and provides the building blocks for plans and actions.

In order to create a long-term vision, human resource professionals should engage in formulating strategies. One core activity of a human resource department is to guide the development of organisational capabilities that translate strategy into action. However, developing a vision would mean initiating changes for betterment, and changes are not always welcomed easily by the internal workforce. Implementation of changes are also one of the tough challenges faced by human resource managers.

In one of the article written by Jeannette Swist and Allan Ayer, managing change has been compared to an iceberg. A small part is visible, but a much greater portion is hidden. Most companies are able to identify and make changes to the visible part of the iceberg (strategy, technology, organisational structure, policies, procedures and financial resources), many have difficulty with the hidden part. These hidden issues are about human relationships and include values, attitudes, perceptions, feelings and informal interactions. Unless these relationships are addressed effectively, change implementers are headed towards failure. So change management is not a simple issue, it should be effected with utmost caution so that the organisational balance is not disrupted.

A big question might arise for the organisation concerning the real gain to it from investing in human capital. Hence, it is high time human resource started delivering results, which should be quantified. There is no doubt that today’s human resource professionals are continuing to strategically align their departments with their respective organisation’s objectives. Measuring and reporting the impact of human performance improvement projects adds considerable value to this important process.

In our country’s context, the working culture of our organisations can also create a challenge for human resource professionals in implementing their strategy. According to Webster, organisation culture is the "integrated pattern of human behaviour that includes thought, speech, action, and artifacts." An organisation needs to be interested in assessing its culture, if it wants to maximize its ability to attain strategic objectives.

The organisation must understand if the prevailing culture can support and drive the actions necessary to achieve its strategic goals. Cultural assessment can enable a company to analyse the gap between the current and the desired culture. Developing a picture of the ideal and then taking a realistic look at the gaps provides vital information that can be used to design interventions to close the gaps and bring specific elements of culture into line. If the competitive environment is changing fast, the organisational culture may also need to change. However, it may only need to change some of its practices and secondary values while keeping a few precious and non-negotiable core values intact.

Let us take a simple example how culture can come in conflict with human resource strategy. It is obvious that empowerment of employees is one of the important strategies of human resource management. However, in our country, the working culture is such that most employees tend to look up to their supervisors for work direction or for constant guidance in each phase of their work. On the other hand, even supervisors are too comfortable about empowering their employees as they feel that their authority and power has been diminished. Such conditions can bring hindrance in smoother application of human resource management.

The human resource department in an organisation should always try to create an opportunity for as many people as possible to participate in the process so that they feel that it is part of their hard work and will strive to make it successful. This will also ensure the long run sustainability of the function initiated by human resource. Strategic frameworks need to be built by identifying organisational value and culture, which would provide a foundation on which future plans can be made.

On the contrary, failure of human resource functions in an organisation will harm the employees in the long run. If an important human resource function like performance evaluation, training, reward or compensations or recruitment selection does not happen systematically, each and every employee as well as the organisation will be bound to bear the loss. Only a human resource department can
play the role of facilitator to develop employee motivation and enthusiasm towards work. No other functional department can think along these lines. Therefore, the significance of human resource in an organisation needs to be taken positively both by the employees and management.