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Sermon On Economic Development

Issue 11, March 14, 2010

Siddhi B Ranjitkar

A mission of the International Monetary Fund (IMF) has come to Nepal for studying the economic status of Nepal, and has prescribed some policy bills to the Government of Nepal for improving the economic development in the country after the study the mission has done staying in Nepal for a few weeks. Speaking to the reporters at the Ministry of Finance in Kathmandu on March 8, 2010, Mission Chief Laura Papi has prescribed certain policy measures for improving the economic development in Nepal. However, if we take a look at the prescriptions and then if we take them all as prescribed might be suicidal.

Chief of Asia and Pacific Department of IMF Laura Papi has told the reporters at the press conference held at the Ministry of Finance that Nepal has huge potential for development but weak business environment, growing energy crisis, lack of infrastructures, lack of good governance, and the deteriorating labor relations are the main reasons why Nepalese economy would not improve immediately.

Any student of economy would say the same things as the Chief Papi has said because these are the basic prerequisites for the economic development of any country. In addition, this unfavorable environment for the economic development is not endemic to Nepal but common to almost all so-called developing countries. So, identification of the adverse economic indicators is not a new thing the IMF mission has done but has repeated the same old things Nepalese economists have been saying the need for improving the basic requisites for the development of the Nepalese economy for a long time.

The IMF mission has concluded that the financial sector is at risk. The mission has stated that the Nepalese government needs to appoint a governor that could make the Central Bank of Nepal capable to manage the financial sector of the Nepalese economy; the flexible monetary policy and the weak supervision system the central bank has followed in the past have been the main reasons for deteriorating economic indicators. So, the mission has stated that the government needs to take certain measures to save the financial sector from deteriorating.

The Central Bank of Nepal has been without a governor for about two months but the Government headed by Madhav Nepal has not been able to appoint a governor so far. Prime Minister Madhav Nepal is for appointing his own person to the governor of the Central Bank but his deputy Sujata Koirala has not been agreeing on what Madhav Nepal wants to do. For them their own man or woman is more important than the economy of Nepal.

Following the Nepal Rastra Bank Act, the government needs to appoint a new governor one month before the incumbent governor retires. However, these most notorious ministers have put their men and women above all the interest of the country.  What the IMF mission has to say about it unfortunately nothing.

The IMF mission has pointed out the weak export trade balance but the balance of payment has been favorable due to the remittances; however, the remittances have been decreasing adversely affecting the foreign currency reserve. Nepalese economists and businesspeople have been saying these things long time ago. So, such a high-level IFM mission has simply repeated those widely known economic adversities.

The IMF mission has said that the high flow of loans from the bank and financial institutions to the private companies is the weakness of the financial sector. The high flow of loans has increased the imports and has decreased the foreign currency reserve.

Again the flow of bank loans and the decrease in foreign currency reserve are the facts the IMF mission has found out but nothing new. However, the new thing is that the IFM mission has obviously prescribed for decreasing bank loans means to apply a break on the development activities. It does not make sense to keep the high foreign currency not using it for the development purposes. Increase in imports is the sign of increased development activities. Any mission should not prescribe any government for retarding the development activities.

If we don’t purchase the machine, tools and vehicles require for economic development and other consumable items required by the people then how we could improve our economic and financial situation, and then the lives of all citizenry. We cannot keep the high bank deposits of foreign currency doing nothing.

Recently, the Central Bank of Nepal in other words Nepal Rastra Bank has stopped the banks and financial institutions from lending for the purchase of property immediately curbing the development activities. Many housing companies have developed properties and then housing complexes and so on when the banks and financial institutions have provided them with loans. Now, everything has come to a complete halt. Is it what the IMF mission wants for Nepal?

Nobody should forget about the chain development actions of the loans for purchasing property. Property owners could buy beautiful houses, cars, and other luxurious things selling the piece of land they own. These activities have fueled the economic development but once the loans are denied then all activities have come to standstill. Is this what the IFM mission wants, if so, then do we need such a sermon on economic development?

In a mass rally held in Kathmandu on March 10, 2010, president of the Nepal Land and Housing Developers' Association (NLHDA) has said that the Central Bank of Nepal has wrongly punished the property developers for the severe liquidity crisis in the country; their businesses have been adversely affected by the limit imposed by the Central Bank on the commercial-bank loans to the property developers. President of NLHDA has also said that the property developers would look elsewhere for their investment if the current government fails in creating an environment conducive to their business. He has also said that the property developers have immensely contributed to the economic growth and creation of jobs in the country but the current government has restricted the loans to them squeezing their business.

The Nepalese business community has complained that running business has been incredibly difficult because of the government imposing several restrictions. For example, the Ministry of Finance has sent a circular making a person for taking loan of even of Rs 500,000 for building a house mandatory to show the source of incomes or assets to the government for paying back the loan. Businessmen question how they could run businesses when the administration has been only for harassing the sincere businesspersons rather than facilitating them to run the businesses and earn profits. How could the IMF mission miss such hard facts that have adversely affected the businesses?

The IMF mission has insisted on the fixed exchange rate for enabling the central bank to manage the liquidity. If the mission is talking about the fixed exchange rates of currencies other than Indian rupee then the IMF mission must be prescribing Nepal something unique. How the Central Bank of Nepal will manage the fixed exchange rates without drastically deteriorating the foreign currencies reserve when the Central Bank of India is floating the Indian currencies against all the foreign currencies except for Nepalese currency?

The IMF mission has recommended the Government of Nepal for restructuring the state-run banks and stopping issuing licenses for new banks for some time. The process of restructuring the state-run banks has been going on for some years if not a decade with the assistance of the multi-later international banks and donors. The restructuring of state-owned banks has made improvement in the performances in comparison to their past performances but they have to compete with the privately run banks.

Concerning the recommendation of the IMF mission for stopping the issuing of licenses for running bank is shameful. We need a lot of banks for fast development. So, stopping the issuing of license for running banks does not make sense. In addition, majority of Nepalis have no access to banks, yet. Stopping licenses for opening new banks means denying the poor Nepalis access to banks and retarding the development activities.

The IMF mission has stated the central bank’s actions on setting limit on the ratio of loan to reserve, loan for property, on the ratio of property loan to the property price, and rearrangement of the legal ratio liquidity are the most appropriate ones. However, we have seen that these actions of the central bank have immediately adversely affected the development activities and cooled down the economy.

The IMF mission has concluded that political stability and improvement in security are the prerequisites for the development of the entire economic sectors. Every economic student says so. However, almost all developing countries have been suffering from the political instability and the security lapses.

Apparently, the IMF mission has not found anything about the current government of Madhav Nepal reinstating the subsidy on fertilizers costing the Nepalese taxpayers more than one billion rupees but the poor farmers have not received the subsidized fertilizers and have to buy the fertilizers at the market price. With the consistent pressure of the international community, the Nepalese Government had removed the subsidy on fertilizers as the subsidy distorted the fertilizer prices and benefited the rich farmers and increased the corruption at the state bureaucracy and at the political parties.

The IMF mission has missed how the Madhav administration has increased the price of sugar from Rs 60 to Rs 90 per kilogram hitting hard to the poor. Immediately after the government increased the price of sugar for benefiting the sugar mill owners and the Prime Minister and the concerned minister, the prices of sugar-related products have gone up, too. For example, the price of a cup of tea has gone up severely adversely affecting mostly the poor, as the income of the poor has not increased proportionally but the Prime Minister and his administration have reaped the benefits of the high price of sugar, as the government has the monopoly on buying and selling sugar.

Similarly, the IMF mission has simply said that the energy crisis Nepal has been facing but has not provided any remedy. The power outage for more than 16 hours a day has severely hit the industries, businesses, households and so on but the IMF mission has not prescribed for building thermal plants to immediately mitigate the power-cuts.

The prolonged power outage has severely adversely hit the industrial production at the Birgunj-Pathlaiya Industrial Corridor. The production has decreased by 80% due to the power outage imposed by the Nepal Electricity Authority (NEA). This production cut has caused a loss of more than Rs. 100 million a day. Last year, the power outage has caused the industrial production loss of Rs 700 billion. However, the business of inverters and batteries has flourished to Rs 3 billion thanks to the power-cut imposed by the NEA, last year.

The IFM mission has failed to notice that the Madhav administration has been preparing to recruit 16,000 additional policemen at the cost of billions of rupees. Certainly, such additional financial burden on the Nepalese people will adversely affect the economy but the IMF mission has not said anything about it.

The Madhav administration has not adjusted the price of gold to make it on a par with the price of gold in India letting flow of gold to India. This flow of gold has been draining the foreign currencies in Nepal. So, the government needs to increase the import duty on gold to make the price of gold almost equal to the price of gold in India. However, the IMF mission has missed this fact, too.

The Madhav administration has done nothing to build the Kathmandu-Hetauda fast track that would positively contribute to the fast economic development. This fast track would cut the traveling distance, time, fuel and wear and tear of machines and tires. The private businessmen have asked the permission for building it but the Madhav administration has been sleeping on such a crucial matter. The IMF has just closed eyes on such a vital matter.

The Madhav administration has not been able to do anything in running the Melamchi Drinking Project that also would have contributed to the socio-economic development of the Nepalese people particularly of the Kathmanduites. The IMF mission has no prescription for such a vital project.

Recently, Prime Minister Madhav Nepal has acknowledged that he has negotiated with the Indian government authorities when he was in an official visit to India to import arms and ammunitions. The armed police force has brought in those arms and ammunitions enraging the Maoist leaders and cadres. Thus, the Madhav administration has spent billions of rupees on purchasing the arms and ammunitions for killing innocent Nepalis wasting the most precious resources required for the socio-economic development of the country. The IFM mission has also failed in noticing such a vital economic matter.

The current government of Madhav Nepal has not been able to provide the people with three basic things such as peace, security and material prosperity. Madhav Nepal has not been able to complete the peace process. In fact, he has not even started off the peace process integrating the People’s Liberation Army with the Nepal Army. He has been resisting doing so through his Defense Minister. Consequently, his Minister for Peace has nothing to do concerning the peace process. Security has been a rare thing in Nepal. People get killed at the broad day light on a busy street but the police neither find the murderers nor arrest them, as the law-enforcement people have been involved in killing those people while Home Minister implements his special security plan. Madhav Nepal has been shamelessly continuing the office even though his Energy Minister did nothing to mitigate the increasing power outage, his Deputy Bijya Gacchedar holding the portfolio of physical planning and work has not been able to start off the Melamchi Drinking Water Project causing tremendous shortage of water in the Kathmandu Valley; he has not been able to start off the construction of the Kathmandu-Hetauda fast track, has not been in mood to assign the private company for constructing this fast track. Energy, water and road infrastructures are basic things for making material prosperity of the people. In this situation created by Madhav Nepal and his ministers, how could Nepalese people live in peace, security and prosperity? The IFM mission needed to say something about these things.

At the end of day, such a mission of the multi-lateral financial institution has wasted its time, energy and financial resources coming to Nepal and finding the things Nepalis have already found and prescribing the things that will kill the socio-economic development of Nepalis.

March 10, 2010.

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