OPINION (Spotlight Weekly)

The Road To underdevelopment

By Basanta Lohani

Perhaps never before a Nepal Aid Group Meeting or what is now called Nepal Development Forum has been so non-transparent as has happened this time. People are not informed of anything about that meeting except what the finance minister has been parroting about the government's poverty alleviation program and second phase reform. As a measure of his success, he claims to have arranged an aid package of 142 billion rupees, an amount that is clearly beyond Nepal's ability to utilize if past experience means anything. These days, our energetic finance minister is busy in the preparation the annual budget expected to be presented in the parliament in the last week of May, one and half month earlier than the usual time, and also talking about saving and investment and its dynamics in terms of how each influences the other in propelling the country's economy.

Are we to believe that once we live in democracy no document regarding the financial matters or the deals of the meeting is to be made public? If not, then why are we deprived of our right to know the details in terms of projects, execution period, the terms of credit, our ability to pay back, and finally how the money to be invested is in line with our Ninth Plan and, thus, fulfils the country's needs and optimality conditions in increasing employment and income of the nation. Secondly, what the finance minister means to say by poverty alleviation is just not clear, though we hear so much of pro growth strategies for sustained poverty elimination. Third, what is this second phase financial reform and its relation to the achievements and failures of the first phase? All these have given enough scope to question the sanctity of this meeting in terms of Nepal's long term economic viability and independence. Is this meeting a stage for each actor to perform an well-orchestrated drama based on a script already prepared by the World Bank and accordingly fix what Nepal is getting as aid for a specific period? Is the job of the finance minister to be a consummate actor who is always ready to be a willing horse of the donor-laden programs? Let's see what the scenario is like

The emerging development scenario of the third world countries in the 1980s prompted the World Bank group and the International Monetary Fund (IMF) to come up with what has now become the economic gospel of a country like Nepal as 'structural adjustment' involving far reaching policy prescriptions. The need of this structural adjustment was perceived by these premier lending institutions of the world when the third world, particularly the Latin American countries, fell into the vicious debt trap caused by increasing import and falling export. This balance of payment crisis, as international monetary fund thought, was a direct fall out of 'inward looking economic rationales', commonly practiced by the third world countries as a part of their independence jubilation after the World War II. The export from these countries consisting mainly of agricultural goods fetched much less income because of low export elasticity in relation to what they had to pay for the import of manufactured goods having high value added markup. This was clearly in favor of the rich countries causing balance of payment crisis and, thus, exerting pressure on the exchange rate. The hike in the prices of the petroleum products added more hardship. All this only made the poor countries poorer. So the international monetary fund thought structural adjustment as the 'salvation program' for the poor.

What does structural adjustment mean? It means what neoclassical economics meant much earlier where competitive market is preferred for government intervention so that private enterprises can propel the economy to growth. At a conceptual level, it is designed to increase economic efficiency by making the economy more competitive and cost reductive through market mechanism so that the economy could be geared towards a gradual transformation from a traditionally agrarian to manufacturing and exporting economy. To this end, stability and reforms were the major thrust.

The components of stability included exchange rate evaluation, monitoring growth of money supply, investment efficiency, thrift on the part of government, better performance of public sector, production costs reducing wage policy and efficient revenue mobilization. Likewise, the reform front included programs for strengthening market mechanism to work as efficiently as possible to decide prices, wages and scarcity values of capital. To this end, government should stop fixing prices, granting subsidies and running business enterprises. Trade should be liberalized, government incentives restricted and delicensing be the practice. This is how a strong private sector could be built to work as a pivot of economic activities. This is how resources could flow to areas where it is most productive and, thus, economy runs on the basis of cost and efficiency. This is how liberalization, globalization and privatization have become the catchwords in Nepal.

Keeping reservations on the conceptual framework and more so when viewed from the point of our country's structural peculiarities, let's proceed on to see briefly what this whole exercise is like and its effect on the growth of our economy. By just looking at the light of an electric bulb, one can conclude whether the light is bright or dim without a voltage meter, same way, we can say, in plain, simple and all visible terms, that the economy has not stabilized. We need rigorous analysis only to measure its extent. Perhaps this is the period in our modern economic history when the investment has been far less efficient as never before especially where government is spending the money together with World Bank, Asian Development Bank or such agencies. This is more so because projects are identified not according to our need but according to what financing agencies deem fit for us. Second, component of 'composite corruption', starting from where the money is coming from to where the money is going to, has shot up devouring substantial portion of the investment. Just to cite a case, a donor financed Malekhu-Dhadhing road where the cost per kilometer of road is over 17 million rupees, which is outrageous from any Nepalese standard

Money supply, though it seems fairly dormant now, is likely to plague the economy when the utilization of foreign aid becomes increasingly less efficient. Besides, for every dollar coming inside, equivalent amount in rupees goes into circulation. Government deficit, which has crossed over 5 billion rupees, is horrifying to the extent that it has increased by 97 percent in the last seven months. Though the balance of payment surplus is sufficient to finance our nine months' import requirements, current account deficit is certainly a case of continued anxiety. Even this surplus is not a sustained one because it is due to remittances and foreign aid rather than a structural shift in the economy arising out of policy initiatives. In the long run, all this may have a spiral effect in exerting massive pressure on the fixed exchange rate with India. A situation may come when we may have to buy Indian currency by selling dollars or devalue our currency or do both to maintain the fixed exchange rate because this fixed parity itself is burdensome for Nepal amidst conflicting objectives.

The public enterprises are the worst hit because they are virtually reduced to each minister's Birta (earning) to be exploited through their henchmen for money, pleasure and gratification. This explains why the general manager is changed almost simultaneously with the change of the minister. In RNAC alone, nineteen general mangers have been changed within ten years. The revenue is increasing at a diminishing rate because the base of smuggling induced revenue is thinning out with India opening up its market. The dwindling trend in government's income is the major cause of anxiety because of the government's propensity to spend more by resorting to overdraft facility from Nepal Rastra Bank, unleashing further instability conditions. The Asian Development Bank (ADB) may expect Nepal's growth rate in Gross Domestic Product to be between 5 to 6 percent for this year and may rationalize many things. But let us not forget that this type of growth rate Nepal has experienced many times as a product of weather cycle combined with sporadic factors. At one time, the growth even crossed 8 percent. This type of spontaneous growth, Nepal can have even without a government. When we talk of sustained growth, Nepal's Gross National Product when adjusted to population growth is increasing, in an average, at less than one percent per year.

On the reform front, the situation is all the more hopeless. It is so because we have dismantled the apparatus we had in the hope of building something better that we could not build. This way we have lost on both counts and have procreated more chaos and confusion in the management of our economy. The government will continue fixing prices, run its enterprises, grant subsidies, and give incentives because the government in the days to come will face more problems from the emerging social tensions and turmoil to do what it has agreed not to do with the World Bank. What is lucrative for politicians to do now is to sell some government owned enterprises like RNAC or Telecommunication Corporation because this can give them windfall personal gains the way Bansbari leather factory or Harisiddhi Brick Factory has given. This is how we Nepalese now are living in the midst of contradiction that has created a paradise for the looters where any government action becomes a part of liberalization, privatization or globalization.

This is the time our young finance minister, who seems to be more pepped up after the Paris meet, is talking so much about policy reforms. But does he realize that he had signed the same first phase reform document, prepared by the World Bank for the Panchayat regime, on the dotted line about nine years ago. We believe the second phase is its continuation. The irony is that he has fallen short of telling us about the new policy reforms in the same way he was unable to tell us then. Can we, the sovereign Nepalese people, have the right to know what are the conditionalities of the policy reforms that he is talking about? What is this second phase reform and when did the first phase end? Was the first phase framed on the basis of time, achievement, stage, economic sector or geographical region? In any case what are the details in terms of achievements, failures and the lessons we have learnt from the first phase which, as we understand, is over for reasons we do not know and with what corrective measures in the policy reforms do we embark on the so called second phase? These are questions that need clear cut answers, for the nation can not be taken for a ride in the name of people's mandate and good governance.

When the politicians in Nepal are all out for making fast buck, the conservative role of the government as envisaged in the concept of structural adjustment comes directly in a collision course. Even otherwise, the government has to fulfil the considerations of equity and social justice especially now when both poverty and aspirations of the people are rising. Thus, the government can not leave the growing income disparities to the disparities of talent and ambitions of the individuals when opportunities are becoming highly skewed. Development rationale, aimed at better delivery to the people at this point in time where we are today, presupposes the functioning of a government under an effective check and balance mechanism with a civil society that Is agile in terms of its watch dog responsibilities. This is precisely what is missing in Nepal at this point in time.

Efficiency and corruption have antagonistic relationship especially more in a traditional economy like ours having very limited resource base. This antagonistic relationship will give birth to faction within government as has happened in Nepal. This restricts significant economic activities geared towards better utilization of resources and distribution of income and wealth. This only eats up whatever little people have for their meals, pushing more and more people below the poverty line. The income disparity becomes too high because of the funneling of fund by the world's lending agencies for corruption induced activities. What is known as East Asian Crisis that involved 13 countries and one third of the world economy, is a classic example of this phenomenon where the financial health of the countries involved becomes more vulnerable over time because of over investment and lack of transparency traded for policy reforms. This finally finds its way out in terms of human fury spilling on the roads, capitalized by the politicians where hundreds of people die, millions worth of property gets destroyed for changing the government for a better day. But that better day has always been elusive as ever before, for the absolute poor who are hard pressed either way and are constantly used for political gains by those firing the shots.

It is believed that over 160 billions dollars bailout by IMF the way in Indonesia, Thailand, Philippines and South Korea, primarily to stop the contagious nature of the disease, will precipitate the recurrence of the similar debacle because it can not hit the economic contradictions, rather help them to grow in the name of policy reforms. This type of 'easing out' method for Nepal will breed enough inertia in the economy and corruption in the government and family owned conglomerates, postponing government's hard decisions mostly for next time. No amount of aid is going to help us this way without combating corruption. This is not likely to happen in the days to come because, for one, the nexus between the businessmen, criminals and politicians has grown to be very strong, and second, the control mechanism in the country is too fragile to touch this parasite.

Thus, the medicine that the World Bank and IMF have prescribed for the financial health of our country is causing more anxiety because of the unending dependency syndrome and corruption. Their experiment is manifesting bizarre economic ailments by eating up the vitality of the indigenous economy. The unceasing flow of fund pouring into the porous ground of corruption and mismanagement is increasing the parasitical dependency relation like that of a farmer and a moneylender of a feudalistic economy. No wonder more and more people of the third world are agitated against this treatment, be it Brazil or Indonesia who fear ceding their sovereignty. This is how Nepal is caught in this trap of dependency, unrest, social tensions, and polarized violence; all contributing to dangerously long instability conditions that could extend much beyond policy reforms. So our finance minister in this drama is only a small actor who has to deliver not the goods but the eloquent recitation from the donor prepared script. If this process continues for long, the road may lead us to underdevelopment if not anywhere.