NATIONAL 4 - (Spotlight Weekly)

‘Despite The Gloom, The Fundamentals Of The Economy Are Still Sound’

— Dr. RAM SHARAN MAHAT

Finance Minister Dr. RAM SHARAN MAHAT is one of the prominent second-generation leaders of the ruling Nepali Congress. Dr. Mahat, who is also a member of the party's central committee, spoke to KESHAB POUDEL on critical economic and political issues of the day. Excerpts:

How do you assess the overall economic performance of the country?

The economic picture at this particular moment is not good. But the fundamentals of the economy are still sound. If you look at the performance over the last two years, all indicators including the growth of Gross Domestic Product, export and inflation rate have been favorable. The inflation rate this year has been the lowest in many years. In recent years, exports have also made a phenomenal growth. The overall GDP growth rate has been around 6 percent. These are quite good indicators. However, the situation at this time is not very good. This is because of both internal and external reasons. Internally, the security situation has not been good because of the problems created by the Maoist activities and because of the unfortunate incident at the Royal Palace on June 1. The Maoists are extorting money. They have burned down a liquor factory and are provoking workers with unnecessary demands. Threats, extortion and intimidation are creating chaos in the investment climate. That is the most worrisome part. In the aftermath of the terrorist attacks in New York and Washington DC on September 11, things have worsened further. Tourist arrivals have gone down suddenly when it was in the process of recovery. Hotels and travel agencies are receiving cancellations. Tourism revenue is down. Last month's overall revenue collection was lower than the same period last year. At the same time, expenditure for security and other purposes is increasing.

The tourism industry has suffered badly and exports have declined. It is reported that billions of rupees have been withdrawn and flown out of the country. In such a situation, how do you hope to meet your budget proposals?

Definitely, the situation is bad. If the present trend continues, it would be difficult to meet the budget proposals and we would have to revise our estimates. I hope that the situation will improve. I am optimistic that things will return to normal. If the pressure on security expenditure increases and the decline of revenue collection continues, then we would need to review our budgetary expenditure. We may come out with something different. It is, however, too early to come to conclusions now.

In such a dismal economic situation, isn't it paradoxical that new banks are being opened in Nepal? There is justifiable curiosity in the minds of the people as to why they are coming. What do you say?

The fact that new banks are coming indicates hope for the future. Nobody is going to waste their money if there is no hope and confidence for future. Opening a bank means a minimum capital investment of Rs 500 million. The central bank has new statutory norms and regulations on capital cover, capital adequacy ratio and so many things. The banks may not be as profitable as they have been in the past. Even in the present situation, people are coming up with big amounts of money in the banking sector. This means the present phase is perceived as temporary. The economy has a better future.

What is the state of programs initiated to improve the two largest commercial banks? Isn't the pace too slow?

It has been slow for technical and other reasons. Earlier there were problems with management, trade unions and boards. Now we have a problem because the financial bids that have been opened look outrageously high. They are two times higher than the original estimate. It would not be easy for us to take such amount of money in the form of loan to provide expatriate service. The cost of technical service is outrageously high. These are problems we have with respect to management contract of Rastriya Banijya Bank and Nepal Bank Limited. Other aspects of financial reform have taken place already. Prudential norms have been applied. Other measures are being implemented.

What is the government doing to use money lying idle in the banks?

The whole problem is confidence in the economy. One of the objectives of my budget is to revive confidence in the economy and create a proper investment climate, which will encourage investors to borrow from the bank and start investing. Again, recent events have put a damper on our efforts. We are nevertheless making efforts to bring about improvement and I am sure that there will be revival of business confidence very soon.

How do you see the problem of unsettled accounts? Why isn't the government making efforts to recover the money?

The government has been doing its best to reduce unsettled accounts. If you look at the Auditor-General's report, you can see certain improvements in the pattern.

How do you see Nepal's foreign debt, which has been increasing every year. Doesn't the government need to do something serious about it?

The national debt has increased, but it is a natural phenomenon of any developing country. Our capacity to repay debt has also increased. We will repay approximately 15 billion rupees in debt this year. We have been paying on time, including interest and service. We are a good client. Our debt servicing as a percentage of our export earnings is still low compared to those of other developing countries. The settled figures this year as a ratio of total outstanding unsettled figures has gone increased. It is at a manageable level.

Which sector of economy will be affected the most by the recent terrorist attacks in the United States?

Tourism has already been affected. Now our exports will be affected, as you know the United States is the largest buyer in the global marketplace. Particularly, our garment industry will be badly hit. We are having problems in competing with products from Africa and other countries in the US market. It would be more difficult as confidence among consumers is very low at this moment. When consumer spending goes down, it will affect the whole economy. Both consumer and investment confidence have suffered. It will affect most aspects of our modern sector.

Does this mean the government is fully aware of the situation and is taking steps to safeguard the public interest?

Of course, we have been taking every step possible to prevent any unusual or catastrophic situation in the economic sector. The government is aware of the risks and we are taking necessary precautionary measures.

After the terrorist attacks in the United States, security has been stepped up all over the world. It is strange that the Nepalese government has not come out with specific programs. How can you assure the people about their security?

Immediately after the incidents in the United States, the cabinet pissued instructions to strengthen security agencies. This was an important precautionery decision to prevent untoward incidents. The Home Ministry has taken necessary measures and security forces have been mobilized. The Ministry has not made public the details of what they are doing. This is understandable because of security reasons.

Don't you think it is necessary to inform the people about such measures?

Certain matters are confidential. All security details cannot be made public. They are kept secret in the interest of the people. I am confident the country is in a position to prevent any untoward incident.

The Deuba government is accused of being too soft in dealing with the Maoists. What is the reason?

As you know, Prime Minister Sher Bahadur Deuba came to power on a pledge of reconciliation with the Maoists and he promised he would bring the Maoists to the negotiating table. It is, therefore, natural for the government to show a soft attitude toward the Maoists. However, this does not mean the government is really soft in dealing with the Maoist problem. It may have been seen as soft. On the fundamental issues, Prime Minister Deuba and the government cannot be soft.

You have also served as foreign minister. Don't you think our relations with India are not up to the mark? The Indians have already stationed thousands of troops along the border. What impact will this have on Nepal? Why hasn't the government come out with a strong reaction on some of the negative policies of India toward Nepal?

Let me clarify certain things. First, I don't agree with your contention that relations with India are bad. There have been many positive developments in the relations between the two countries. For the first time, the government of India, particularly Foreign Minister Jaswant Singh, has come out openly against the Maoists. This is something we have been demanding for a long time. When I was foreign minister, I, for the first time at the government level, mentioned that the Maoists were enjoying sanctuary in India. They were being trained there and held conference on Indian soil. Many Maoist leaders stay in India. I had alerted the Indian foreign minister to this situation. This is the first time in so many years that the Indian foreign minister has publicly spoken about Maoist terrorism in Nepal. I take this in a very positive sense. As far as the stationing of Indian troops along the border is concerned, I am sure the prime minister, who is also holding the defense portfolio, must have been briefed on the matter. If the whole purpose of this deployment is to prevent criminal activities and stop infiltration of Maoists and the transfer of the arms, it has a positive side. It must be seen in the right perspective. Since I am not fully knowledgeable in the subject, I don't want to comment on it. But it certainly has some positive signs.

If the Maoists are getting sanctuary in India as well as permission to hold rallies and conferences, doesn't this mean they are receiving Indian support?

New Delhi at that time argued that India is a big democracy and, therefore, could not prevent rallies and meetings. The Maoists were even allowed to organize demonstrations in front of the Royal Nepalese Embassy in New Delhi. Indian officials claimed that was their democratic right, too. Our complaint

was that the Maoists were launching terrorist acts inside Nepal, killing a large number of people and looting arms from police and destroying their posts, extorting money and creating havoc in Nepal. We clearly told Indian officials that the activities of the Maoists are terrorist in nature. I think Indian officials have now fully realized that this is a terrorist problem. This is the reason why they are taking measures to stop them. I was told that there were some arrests in West Bengal state recently. I am pleased by these developments.

There is a growing feeling that the Nepali Congress with its weak leadership is incapable of ruling. Don't you think your party can produce honest and strong leadership?

The Nepali Congress has many strong and honest leaders. I don't subscribe to the view [that it is incapable of governing]. Maybe we have not been able to perform in accordance with the expectations of the people. We have failed. Compared to other major parties, Nepali Congress is still the best party.

Will you be able to provide strong and capable leadership in the Nepali Congress?

Of course, I will give effective and capable leadership in the Nepali Congress, but I am not in a hurry for the leadership race right now. I have time and I can wait.

‘We Must Work Shoulder To Shoulder To Save The Tourism Industry’

— JAI DEWAN

JAI DEWAN is the managing director of the Zenith Travels, which is the General Sales Agent (GSA) of Qatar Airways, among others. A young and dynamic entrepreneur, Dewan was recently elected president of Nepal Association of Travel Agents (NATA). He spoke to KESHAB POUDEL and SANJAYA DHAKAL on the issues confronting the tourism sector. Excerpts:

In the aftermath of the terrorist attacks in the United States, how do you see the future of tourism in Nepal?

Not only the incident in the United States, but also events that occurred here, such as the June 1 royal massacre, will hamper tourist arrivals here. The peak season this year has just started and I am in constant touch with my colleagues in the travel trade. They are receiving many cancellations. I am not in a position to provide you with specific percentages, maybe the tourism board will come up with the figures. Some say they are receiving 20 percent cancellations, others say 15 percent. We need to sit together to arrive at definite figures.

You have just been elected president of NATA, indeed, at difficult time. What will be your priorities?

The election at NATA coincided with these incidents. So I will have to face whatever comes.

How would you describe the situation of tourism in Nepal?

At the moment, because of these series of incidents, we are going through difficult times. There are a lot of people involved in the travel trade directly or indirectly. Be it hotels or small tea-stalls, all will be affected if the tourism sector suffers. We are all sailing in the same ship. If it sinks, we will all be drowned. So, to quote American President George Bush, we have to work shoulder to shoulder. This is the time to work shoulder to shoulder in order to save the tourism industry.

Do you have any plan to cope with the situation?

In fact, we have already started working. There are lot of incidents that are beyond our control. But that does not mean we should keep quiet. We have to take initiatives together whereby we can be successful. We cannot afford to sit idle. We, at the association, sat together last time and we are working with the government to negotiate some sort of package, especially for the aviation sector. Nepal being a land-locked country, air access is of vital importance to tourism sector. We discussed at length and have come up with a proposal requesting the government to give some kind of concession to aviation in fields like navigation, landing fee and other charges. These will be for the time being, say, for five-six months. This was what the government of Sri Lanka did few months ago when a number of their planes were blown off by terrorists. They waived the landing and navigation fees in order to help the airlines sail through the troubling times. Now, the insurance surcharge for airplanes has gone up, resulting in an increase in operating cost for airlines. In order to ease their pain, this is what we are planning. We have already drafted the proposal and submitted it to the Ministry of Tourism, Culture and Civil Aviation. We are also trying to encourage the minister to persuade the government to offer such package. I am confident that this will bring about positive change to a certain extent.

You must have made some promises to colleagues who elected you as president of NATA. What are you plans to revitalize this sector?

I would not say that the previous executive body of the NATA did not perform. They have performed since the beginning. But there is room to do more. The agenda we have is to continue with what the previous executive body did. We may add one or two points but the overall objective remains the same. So far, we have not been able to meet our objectives. We will work in that direction. Presently, the most pressing problem confronting us is that all travel agencies are finding it difficult to sustain in the market because they have not been able to retain commission they get from airlines. Travel agencies are being exploited. Legally it is not wise to share commission with clients. A similar situation existed in Sri Lanka a couple of years back, which they later resolved with the help of the government. We would also like to do that here. Once we get together and stop sharing commissions, all the travel agencies will operate comfortably. The second challenge before us is to strengthen the NATA. There are 600 travel agencies registered in the country but only 177 are the members of NATA. We would like to expand our membership so that our voice will become stronger.

What form of government intervention is necessary to pull the industry out of its problems?

The government cannot afford to keep quiet. That is why we are submitting the proposal. I would like to cite an example of Sri Lanka again. After the incident, they offered concessions to tourists also. Every tourist arriving was given 15 to 20 percent discounts on everything � hotel stay, shopping and so on. These things attract visitors. When Thailand was in recession, things became very cheap. Consequently, a number of tourists flocked there at that time because they thought it was a good time to visit the country. That is why the government should be active. The private sector, too, should come up with ideas through which we can revive the industry.

The governments of the United States and other western countries are advising their citizens against traveling in this region for security reasons. In this situation, how should travel entrepreneurs here work to lure tourists?

This is the main problem because tourists, at the end of the day, check their own government, their own embassies before visiting a country. Anyway, I would not go so far as to say that the western governments are discouraging their people from traveling. Just the other day, I saw on CNN President George Bush urging Americans to fly and travel. That was quite encouraging. We just hope they come out and travel.

The government and the private sector have been talking about attracting Chinese tourists for quite a long time. There is also talk of a formal agreement with the Chinese in this regard. Could you elaborate on this?

In fact, we are trying to expedite this process. We were not so active to attract the Chinese tourists because of the absence of a formal agreement. Once the signing is completed, we can start promoting Nepal in China. The Chinese market, indeed, looks very promising for us. The signing ceremony was delayed because of one thing or the other. Now there is going to be a trade show in late October in Kunming where we expect the formal agreement will be signed.

You are also the secretary-general of the Board of Airlines. Do you have any plan to promote Nepal in the international sector?

The Board of Airlines does not do that but the individual carriers operating into Nepal are already doing it. We are all aware that marketing is very expensive. The government and the private sector cannot afford it. But airlines have significant contribution in selling Nepal through their network all over the world � take, for example, Thai, which is selling Thai's Nepal and PIA as PIA's Nepal. They are the ones who can do the extensive marketing for our industry and the nation.

What role has Qatar Airways been playing to contribute to the tourism sector in Nepal?

Although I would not like to blow my own trumpet, I have to say that Qatar Airways has been playing a significant role in promoting the tourism sector since Visit Nepal Year 1998. The year coincided with Lufthansa pulling out of Nepal. So there was a gap between Europe and Nepal, which we bridged. Qatar Airways has been gradually increasing the frequency of its flights to Nepal. Now we operate daily flights. We would very much like to increase the frequency even further. But that is subject to the approval from the government. We were supposed to increase flights since last June but were unable to get permission. The situation, now, is different, but even in season like this we will be operating extra flights in October. That is already in our schedule. If you ask me the question how the airlines are doing, I would reply they are doing very well. But if you ask hoteliers how they are doing, they will say it is disappointing. People are bound to get confused by such conflicting claims. But the simple reason why this is a reality is because our hotel-room capacity far exceeds our air-seat capacity. We have a smaller air-seat capacity than the hotel-rooms we are offering. In fact, my message to the government is that Nepal being a land-locked country, our only access is through the air and we have to encourage more airlines to operate here. This would also help strike a balance in the air-seat and hotel-room capacity levels.