Nepal's Current Eco- Politico Scenario

By   TILAK  RAWAL

With the sole exception of remittance windfall which has also reportedly contributed to the reduction in poverty by 11 percentage points between 1996 and 2004, there is hardly anything to draw solace from in the conflict- torn economy of Nepal. Signs of major imbalances in the economy are vividly manifested by the growth rate of population (2.25 percent) which is higher than the rate at which economy grew (2.0 percent) last year: the result being a net decline in per capita income. Further, the long subdued inflation(less than 4 percent) is on the rise (about 5 percent) threatening to seriously complicate the lives of already miserable Nepalese. What is wished in the periodic development plans and annual plans(budget) cannot be actualized and the expected outcome, be it rate of growth, incremental capital output ratio(ICOR) or spending money allocated under development head each year, has remained wishful thinking of those concerned. The economy did contract by 0.5 percent in 2058\59. To our utter disappointment, ICOR has increased from 4.3 to 8 percent.

Most governments do take resort to providing fiscal stimulus and adoption of flexible monetary policy, by central banks, to help economies in problem. Japan, for example, has taken resort to both measures: it has cut interest rates heavily and has embarked upon huge public spending program to help the ailing economy of Japan. In case of Nepal, resource constrained as the government is, it has not been able to come up with a fiscal stimulus {tax cut and subsidy} package for the ailing commerce and industrial sector of the economy worth mentioning. The central bank (NRB), permitted by economic fundamentals, did make an effort to provide some relief to the ailing industries through cuts in refinance rate, bank rate, export credit, CRR requirement and special refinance package for sick industries. When CRR was cut one more time from 6 to 5 percent 2061\ 62, additional Rs 2 billion was injected into the economy. Further, refinance rate for sick industries was lowered again to 1.5 percent from 2 with a provision that commercial banks will charge the sick units a rate not higher than 4.5 percent.

Moreover, NRB also succeeded in getting approved from Chinese authorities its proposal on partial convertibility of Yuan to help us get more Chinese tourists for our almost empty hotels. In terms of outcome, however, there was no room to be satisfied as the efforts made in providing benefits were outweighed by the cost of continuing conflict. On the budgetary front, development expenditure remained unspent; up to 32 percent of the money allocated remained unspent in a particular year (2058). Last fiscal year, development expenditure amounted to Rs 25 billion and the year before it was 23 billion. In view of the implementation failure in the past and the changed political scenario which has not been taken positively by many donors, the current budget estimates on expenditure (37 billion capital and 75 billion regular expenditure) and foreign assistance (in the tune of Rs. 33 billion: 18.6 billion grants; and 14.5 billion loan) are looked at skeptically.

The intention here is not to blame a particular institution or an individual for the lackluster performance of the economy at a time when on- going conflict has already appeared as a major impediment to growth and prosperity. It is also not an attempt to veil the issues pertaining to corruption, inaction and mismanagement that are still rampant in our society. This is just an effort to suggest that unless peace is restored nothing meaningful can happen because the economy of Nepal is being adversely affected by non- economic factors: for prosperity therefore solution lies elsewhere, outside of economic sphere.

In the last couple of months, security forces inflicted grave injury on the Maoist in an unprecedented manner as is evident by the debacles they suffered at the hands of government forces in places like Ganeshpur, Sukhar and Khara. After these clashes, many of us were tempted to conclude that the Maoists would not be in a position to launch new offensive. Some even thought that these setbacks would force them into unilateral declaration of ceasefire and eventual arms decommissioning. The recent battle at Pili in Kalikot, however, significantly boosted the depressed morale of the Maoists and also indicated that they are not something to be brushed aside with ease. Looking at the nature of the war and the current difficult situation that the security force has to work under, it looks like the armed conflict will continue for some more years delivering more injurious blows to the already crippled economy and further encouraging mass exodus of people from rural to urban areas. Undoubtedly, the object of the current war is not to give it continuity but to end it at the soonest possible time, the corroboration of which is found in the recent observation of general Thapa, Chief of Army,   that the army was deployed constitutionally to defeat the Maoists and bring them to the mainstream politics. Nobody in Nepal would be offended if peace is achieved through non- lethal ways: the broader object being restoration of peace. HM the King, for example, after dissolving the parliament on the recommendation of then PM Mr. Deuba, had him removed, a bit unceremoniously, for failing to hold elections, restoring peace, in the stipulated time. It may be recalled that Deuba was removed in Ashad of 2059 when he sought additional time of one more year for holding elections, reportedly on the advice of other political leaders. Each successive prime minister appointed thereafter under article 127 of the constitution, including Mr. Deuba a second time, was given time for elections and restoration of peace. These governments, then accused of being without any executive power by leaders of parties not participating in those governments, failed to deliver the goods paving way for the move on February 1,2005: formation of a government headed by the King as mentioned in the royal proclamation. It may be recalled that each of these governments  during their respective tenure claimed to have full executive authority and repeatedly assured all concerned that they would organize elections on time as desired by the King. All members of these governments, consisting of different party representatives, had a unified voice on the issue of holding elections, with the sole exception of the last Deuba government when Deuba repeatedly assured people about elections while his deputy Mr. Adhikari of UML went on record several times expressing his apprehensions about holding elections. There was a time when on a particular day the two were found giving conflicting opinion on the issue of elections, much to the disappointment and bewilderment of the common man on the street: Deuba telling people that the dates for the election would be announced soon and Adhikari telling his furious party cadres that there was no question of holding elections. Even if there was a tacit agreement between the two, as reported by a section of the media, to give conflicting views on the issue of election, it did not do them and their parties any good.  It seems PM Deuba    genuinely wanted elections to be held because he carried with him the bitter experience of his earlier sacking when he sought time extension for election.

HM the King in the past had given others time for peace and elections and this time the monarch have embarked upon a 3- year time-bound program to restore much needed peace and to hold elections. A lot is being said about the intention behind the February 1 move. There is no dearth of politically charged people who suggest that democracy has been snatched away. But going through the proclamation of February 1 and the King's commitments to democracy and constitutional monarchy made on several occasions thereafter, people are also inclined to believe that the King as a guardian of the nation was left with no option but to embark on this risky venture. I hope the King does not fail in restoring the much needed peace and normalcy. During HM's visit to different parts of Nepal in the past and recently to far- western and mid- western Nepal, people did not talk much about tangible items such as drinking water facilities, roads and bridges construction , contrary to the usual practice during such visits - their urging was basically for restoration of peace. There cannot be two opinions that peace is a prerequisite to growth and development.

Serious differences between the current dispensation and the agitating parties have surfaced which should be cleared, preferably through dialogue, without inordinate delay. Hurling abuses at the monarch, making emotional speeches in favor of republican set-up, publishing derogatory and highly obnoxious material on monarchy and contemplating formation of an alliance with the rebel to further intensify the on- going agitation, by certain sections of some political parties, is not going to serve any useful purpose in the present time when peace and stability are much in demand and the supply of which is nowhere to be seen .Further, a  section of people are seen taking immense pleasure in throwing mud on political leaders for their  wrong doings in the past decade prompting leaders like Dr. Mahat of NC to come out with voluminous work in defense of democracy. Mahat's work consists of a good list of achievements in different sectors of the economy and also an honest confession of shortcomings of governments during the decade after 1990.  The business of mud slinging and accusations trading should stop. People on either side of the political divide, if there is any, should keep in mind that backtracking into an autocratic regime is not possible and the monarch who has reiterated his commitment to democracy umpteen times looks very clear about it.  Let us be clear that monarchy and democracy are not mutually exclusive: they have co- existed elsewhere and can co-exist in Nepal.

The terrible situation that the nation is in today warrants initiation of conciliatory efforts on the part of all those concerned including the Maoists, which have also made clear that revolutionary change in Nepal is not possible at the present point of time. In saying so, it appears they have taken into account the situation at home and attitude of our neighbors towards the burning issues engulfing Nepal today.  Hope what has been reported by the press on this subject is not false. The recent news of ceasefire declaration by the Maoists for a period of three months is music to the ears of Nepalese desperately wanting peace to observe the annual festivals of Dashain and Tihar. It may be mentioned that any semblance of peace gives us Nepalese great relief.  If the much desired coming to table of the Maoists takes place this time, it should be meaningful unlike the three futile exercises in the past.

Indeed heartening is Mr. K.P. Bhattarai's support for constitutional monarchy: the founding leader of NC party has gone on record several times expressing his support for the institution. His colleague and NC president Mr. G. P. Koirala, albeit inconsistent in his observations on monarchy, does not seem feeling strongly about his occasional deviation on issues related to monarchy. He even went to the extent of telling once that constitutional monarchy would not be made a subject of serious debate in the general convention of NC. Leaders of NC are found vacillating quite a bit on the question of monarchy, Ms. Shailaja standing solidly behind constitutional monarchy and leaders like R. C. Poudel and Narahari Acharya voicing their resentment against the institution. G.P. Koirala it seems will ultimately not take sides with those propagating a republican set- up in Nepal. Now elected president of NC for the third time with an overwhelming majority, .Koirala, still going strong at 82, is expected not to leave unbridled the propagators of a republican system in his party. This way he will be serving the interest of the nation and that of his party that should not suffer further fragmentation.  Propagators of a republican system are a small minority in NC as is evident by the number of votes (165) garnered by Narahari Acharya who suffered humiliating defeat at the hands of Koirala in the election for the post of NC president, The octogenarian leader would also do nice by paying proper attention to the issue of Shailaja's resignation from the central body of NC, immediately after being elected, citing cases of ideology and policy inconsistencies. Further, there are reports that NC election results have been lopsided with Far- Western Region, which has contributed to the formation of NC- led governments in a big way in the past, totally left out. Issues related to proper ethnic representation on the apex body of NC are also being raised

The Maoist have shown a reasonable level of flexibility on the issue of monarchy and UML stalwarts, I am sure, are not bitterly opposed to the institution of monarchy either. Constitutional monarchy in Nepal is not at all a subject of serious debate, let alone an issue to seek peoples' verdict on. Standing on some of these fundamentals, expeditious work towards obtaining peace  is expected of forces active in Nepal.

The bleeding of the nation and that of the economy has to stop, the attainment of which can be effected through restoration of peace and normalcy. Everyone should pray and contribute towards the attainment of peace and stability before they go extinct. The king while taking over power on February 1 has not taken resort to any kind of pretence stating clearly that the takeover of power is temporary and in the greater interest of Nepal. In fact, the need of the time is to cooperate and not quarrel over numerous issues some of which should not be debated. Only a conciliatory approach can pave way for prosperity and stability. Once the bleeding stops, then those responsible for managing the nation and its economy should take advantage of the generosity shown in recent times in certain cases by multilateral and bilateral donors to revive this conflict-torn economy. It may be stated that the G8 countries have decided to write off debt of poor African countries and the World Bank is going to double its annual assistance for Pakistan. India will be getting $ 9 billion in the next three years. In case of Nepal, however, a downgrading of status, from base to lower case is feared. Shall we be little serious about it? ADB has also decided to double its assistance to India. Likewise, a number of poor African countries benefited under the World Bank\IMF highly indebted poor countries initiatives (HIPIC). Millions of dollars were written off by these institutions in favor of poor nations to meet expenses on primary education, health care and HIV prevention. Nepal could not take advantage of the initiative as it could not meet the criteria laid down and our authorities could not convince the world bodies into revising the criteria.

Nepal should not lose too much time in taking benefit of the donor's generosity at a time when the global growth rate has been highly satisfactory. Let us also hope that the current hike in oil prices does not push the global economy into a state of recession unlike in the past: hike in oil prices created the last three global recessions.  We have also not been able to take advantage of the remarkable growth rates of the Chinese and Indian economies in the last couple of years. In addition to facilitating trade between China and India providing unrestricted transit facilities, Nepal should try to create an environment to welcome investment from both countries taking into account the deficiency of Tibet - food to construction materials - and that of bordering states of India - electricity to cheap edible items. In dealing with India, our largest trading partner, a particular issue in isolation should not be taken up or dealt with: basket approach or looking at the gamut of the problems should be the strategy. For example, if we have to concede something on the hydro power front, we should aim at being compensated on the trade and transit fronts. Nepal's relations with the two nations can not be reciprocal. Magnanimity and generosity of the nations emerging as major economic power of global status is expected. Replication of recent generosity of India to Afghanistan is expected elsewhere in South Asia. It may be mentioned that China is being taken as an engine of global growth side by side with the United States and level of its consumption of gas, textile exports and investment in US treasury bonds are said to have a direct bearing on global growth and level of inflation. Exports of cheap consumer items, mainly textile, from China may have contributed towards containing global inflation in a permissible level in recent years. There are ample signs that India could be an engine of regional growth before assuming the global status in couple of years.    Solid cases should be built for string- free assistance, preferably grant, from donors who will definitely rise to the occasion to heal the wounds of this economy. Peace and stability are going to be the major factors influencing the level of assistance in days to come. Let us hope wisdom prevails in all of us to do the right thing on the right time.

(Dr. Rawal is former governor of Nepal Rastra Bank)