Tuesday, March 27, 2012

 

Article: Costly Ignorance


My latest article in Republica today (March 27) is on the recent Nepali financial crisis. The direct Republica link is here. The unedited version of the article is below:


Recent Liquidity Crisis in Nepal: Predictable, Avoidable and Not Over Yet

There are feelings among those involved in the Nepali financial market that the recent liquidity crisis—that started in the late 2009 and lasted until late 2011—is over. That is a dangerous feeling to have because the crisis is not over, yet. It would be foolish to assume the crisis as being over simply on the basis of a slightly buoyed confidence among the banks and financial institutions (BFIs). Although there has been a rise in market transactions among the BFIs, overall confidence among core financial market consumers—those buying and selling real estate—is still very low.

The worst feeling to come out of the recent Nepali liquidity crisis is that there were warning signs, in the early 2009, about a possible crisis in the financial sector. However, neither the BFIs nor Nepal Rastra Bank (NRB) seemed bothered by the impending loom. Together, the BFIs and the NRB ignored the signs.

First, historical data from all over the world shows that liquidity creation right before any liquidity crisis is always high. Money supply had a decreasing trend after the Nepalese economy was liberalized after the democracy in 1990. After 2001, however, the data shows an increasing trend. The increase kept happening right up until the end of 2009, after which the liquidity crisis hit the Nepalese financial system hard. So, literature review suggests that the recent crisis was predictable. The question then becomes: Why did nobody, especially the NRB researchers, predict it?

Second, the BFIs themselves had been forecasting net losses from their outstanding loans. The forecasted capital levels were continually on a decline, and the BFIs were increasingly worried about not meeting the NRB set standard in this regard. Delinquencies were on the rise since 2007. If these internal problems were not the signs for an impending liquidity crisis, I don’t know what were. Unlike natural disasters, liquidity crisis does not come suddenly. It comes out of a systemic and compounding failure of the financial market and its overseer. The BFIs and the NRB should shoulder the responsibility for the recent crisis. It was their own making, and the reason it lasted as long as it lasted was due to their inability in seeing it coming in advance as well as their inefficiency and incapability in solving it swiftly after it arrived.

Third, even if the BFIs were lying and covering up their losses, the financial market as a whole should have known of such cover-ups. After all, increasing charge offs and delinquencies as well as decreasing profit and capital levels are not hidden information. These are publicly available data to anybody and everybody who seeks them. So, those working in the financial market as well as those monitoring the financial market (i.e. the NRB) should have been aware that the BFIs were fudging their books. The recent liquidity crisis was, therefore, a slap in the face to those who claim to know the Nepalese financial market and those who claim to monitor it.

Fourth, when the crisis hit our financial market, initially, there was no response to halt this crisis. The BFIs went about their business, crossing their fingers, hoping that the liquidity “crunch” would not transform into a crisis. The NRB looked the other way hoping that the market would correct itself. That was a mistake. Eventually, after two years of crisis, the NRB decided to raise the insured deposit amounts. Although they should have done this as soon as the crunch hit the market, the NRB’s step should be viewed in terms of “better late than never”.

With all these signs foretelling the severity of the crisis, the concerned authorities did not actively seek to halt or mitigate the crisis. As a result, the market suffered for over two years. The worst affected were those involved in the real estate sector. As a result of the liquidity crisis, house and land sales all over the country, especially in the Kathmandu valley, have all but died out.

However, the past is past. Instead of ruing over the crisis, we should think about potentially avoiding any future liquidity crisis. What can be done? First, and foremost, the NRB should increase, improve and fulfill its duties as a monitor of the financial market. Simply granting licenses to open up new banks is not its sole duty. It needs to monitor, evaluate and investigate the BFIs for any wrongdoings. Anyone found guilty needs to be punished, and not bailed out. Bail outs should happen only if, absolutely, necessary.

While it is true that having excessive liquidity in their hands hurts the bottom line of our BFIs, they should also realize that having too little has a tendency to put them out of business. The NRB cannot come rescuing every single bank that goes bankrupt. It has its own criteria and limits. Therefore, BFIs should have enough short-term quickly liquidable assets at their disposal. They can use such assets to ease the liquidity crunch if one presents itself in the coming future.

Also, the proverbial “don’t put all your eggs in the same basket” saying applies to our BFIs as well. Nepali real estate sector received as high as 70 percent of all loans made out by our banks. Therefore, the recent liquidity crisis occurred due to our BFI’s inability to recoup their loans from this sector. Diversifying the portfolio of investments can save them if one of our economic sectors suffers from a crisis. The losses can always be recouped from other stronger sectors if the portfolio is diverse. Until our BFIs learn this lesson, there is always another liquidity crisis looming in our horizon.

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# posted by Mukesh Khanal @ 9:41 AM 0 Comments

Friday, March 23, 2012

 

What Helen Keller saw from the top of the Empire State building


Helen Keller describes what she saw from the top of the Empire State building in the following letter she wrote to an enquirer. (Source: Letters of Note)

January 13, 1932

Dear Dr. Finley:

After many days and many tribulations which are inseparable from existence here below, I sit down to the pleasure of writing to you and answering your delightful question, "What Did You Think 'of the Sight' When You Were on the Top of the Empire Building?"

Frankly, I was so entranced "seeing" that I did not think about the sight. If there was a subconscious thought of it, it was in the nature of gratitude to God for having given the blind seeing minds. As I now recall the view I had from the Empire Tower, I am convinced that, until we have looked into darkness, we cannot know what a divine thing vision is.

Perhaps I beheld a brighter prospect than my companions with two good eyes. Anyway, a blind friend gave me the best description I had of the Empire Building until I saw it myself.

Do I hear you reply, "I suppose to you it is a reasonable thesis that the universe is all a dream, and that the blind only are awake?" Yes – no doubt I shall be left at the Last Day on the other bank defending the incredible prodigies of the unseen world, and, more incredible still, the strange grass and skies the blind behold are greener grass and bluer skies than ordinary eyes see. I will concede that my guides saw a thousand things that escaped me from the top of the Empire Building, but I am not envious. For imagination creates distances and horizons that reach to the end of the world. It is as easy for the mind to think in stars as in cobble-stones. Sightless Milton dreamed visions no one else could see. Radiant with an inward light, he send forth rays by which mankind beholds the realms of Paradise.

But what of the Empire Building? It was a thrilling experience to be whizzed in a "lift" a quarter of a mile heavenward, and to see New York spread out like a marvellous tapestry beneath us.

There was the Hudson – more like the flash of a sword-blade than a noble river. The little island of Manhattan, set like a jewel in its nest of rainbow waters, stared up into my face, and the solar system circled about my head! Why, I thought, the sun and the stars are suburbs of New York, and I never knew it! I had a sort of wild desire to invest in a bit of real estate on one of the planets. All sense of depression and hard times vanished, I felt like being frivolous with the stars. But that was only for a moment. I am too static to feel quite natural in a Star View cottage on the Milky Way, which must be something of a merry-go-round even on quiet days.

I was pleasantly surprised to find the Empire Building so poetical. From every one except my blind friend I had received an impression of sordid materialism – the piling up of one steel honeycomb upon another with no real purpose but to satisfy the American craving for the superlative in everything. A Frenchman has said, in his exalted moments the American fancies himself a demigod, nay, a god; for only gods never tire of the prodigious. The highest, the largest, the most costly is the breath of his vanity.

Well, I see in the Empire Building something else – passionate skill, arduous and fearless idealism. The tallest building is a victory of imagination. Instead of crouching close to earth like a beast, the spirit of man soars to higher regions, and from this new point of vantage he looks upon the impossible with fortified courage and dreams yet more magnificent enterprises.

What did I "see and hear" from the Empire Tower? As I stood there 'twixt earth and sky, I saw a romantic structure wrought by human brains and hands that is to the burning eye of the sun a rival luminary. I saw it stand erect and serene in the midst of storm and the tumult of elemental commotion. I heard the hammer of Thor ring when the shaft began to rise upward. I saw the unconquerable steel, the flash of testing flames, the sword-like rivets. I heard the steam drills in pandemonium. I saw countless skilled workers welding together that mighty symmetry. I looked upon the marvel of frail, yet indomitable hands that lifted the tower to its dominating height.

Let cynics and supersensitive souls say what they will about American materialism and machine civilization. Beneath the surface are poetry, mysticism and inspiration that the Empire Building somehow symbolizes. In that giant shaft I see a groping toward beauty and spiritual vision. I am one of those who see and yet believe.

I hope I have not wearied you with my "screed" about sight and seeing. The length of this letter is a sign of long, long thoughts that bring me happiness. I am, with every good wish for the New Year,

Sincerely yours,

Helen Keller

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Tuesday, March 20, 2012

 

Modesty of dress and Indian Culture: A letter


The following is an awesome satirical letter by Suchi Govindarajan. The direct link to Suchi's Facebook Note is here. I discovered this through the Himal SouthAsian website. With due attribution to Suchi, her entire letter is below.

Modesty of dress and Indian culture

by Suchi Govindarajan on Wednesday, February 29, 2012 at 11:59am

Sir/Madam,
I write to complain about the abysmal standards of modesty I am noticing in Indian society. All bad things--sensationalist TV, obscene movies, diabetes among elders, pickpocketing, dilution of coconut chutney in Saravana Bhavan--are a result of Evil Western Influences. However, to my surprise, in this issue of modesty, even the Great Indian Culture (we had invented Maths and pineapple rasam when westerners were still cavemen) seems to encourage this.

The problem, sir/madam, is that revealing attire is being worn. Deep-neck and sleeveless tops, exposed legs--and these are just the middle-aged priests! Some priests are even (Shiva Shiva!) doing away with the upper garment. And I am told some temple managements even encourage this.

But this is the worst thing. They are doing this in front of ladies and Gods, with no shame at all. Just the other day, I saw a priest without upper garments making an offering to God (which itself is shameful) and then coming out just like that to give prasadam to the ladies. The whole sanctity of the ceremony is spoilt. Plus, what evils may result if they speak to the ladies like that.

You have to worry about a society in which boys and men are allowed to dress this way.

The few who wear full dhoti and kurta are wearing some thin muslin material through which you can clearly see the outline of their underwear and banians and sometimes even read the name of the manufacturer. This is made worse because some young boys are following new fashions and wearing printed underwear in gaudy colours (Karmam Karmam).

Some more modest young people are wearing full pant with shirt and that is much better. However, this Evil Western Invention called zip is encouraging them to answer nature's call at the side of the road in full view of the public.

And what is this abomination called shorts? Is it really necessary that Indian boys need to play sports in which they have to show their legs? I think they can just stick to games like chess and cricket (it's not like they are doing well in other sports anyway). And swimming is another problem. We have a long tradition of bathing with clothes, why should they wear little Speedos just for this? I think it is just an excuse to show off their bodies.

But really, I would like to know what the parents of such boys are doing. Why are they not bringing up their sons correctly? Maybe all this is because of this trend of working fathers, who are neglecting their children for the sake of their careers. My biggest worry is that these boys and men will not be able to get married if they continue like this. Which mother-in-law would like to visit her daughter only to be given coffee by a son-in-law wearing a banian exposing his underarm hair? (And that too, Bru coffee since boys are not taught these days how to make good coffee.)

All this immodesty will also lead to other issues. Once boys realise it is alright to expose, you don't know where it will end. Boys will be out of control.

I propose that we start imposing dress codes on Indian boys and men straight away. A good strategy is to stereotype and call them names based on the way they dress. And also, any time a boy or man is sexually assaulted, we should completely forget about the attacker and instead ask questions like "Ah, but what was he wearing?"

This is the only way we can safeguard our society.

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# posted by Mukesh Khanal @ 2:06 PM 0 Comments

Monday, March 19, 2012

 

Break them down


My latest article in Republica is regarding South Asian trade. The direct Republica link is here. The original unedited version is below.


Intra-regional Trade in South Asia: We Can Do Better

Let me start this article with information that probably only a handful of South Asians know. Before the Second World War, the volume of trade between South Asian countries accounted for 20 percent of world trade. In 1950, that fell to 4 percent. By 1967, it fell further to 2 percent. By 2010, there was a slight improvement—a rise to 5 percent.

This apathy towards intra-regional trade in South Asia has resulted in our region growing at a slower rate than Sub-Saharan Africa. A decade ago, if anyone had told us that Sub-Saharan Africa would outpace our region in economic growth in 2012, we would have laughed. Yet, that is precisely what has happened. According to The Economist, in the ten years between 2002 and 2012, Sub-Saharan Africa grew faster than South Asia in “all” of those years, and grew faster than Asia in eight of those years.

When compared to regional trading blocs like the EU, North America and MERCOSUR, the SAARC region is inept in facilitating trade among its members. Even the African trading bloc COMESA (Common Market for Eastern and Southern Africa) has made more progress than our SAFTA has ever made, and has lifted many out of poverty through trade. So, what happened to us in the last sixty years? How did we go from a “global force” in trade to become a mere footnote?

There are many bottlenecks in facilitating trade in our region. A dominant political inertia has meant that our regional politicians are vehemently protective of their domestic industries. This has bought them short-term political popularity, but has hurt the economic growth of the region. The leaders in European countries realized a need for a unified market where labor and capital moved freely so that significant gains could be made from deregulation of trade barriers. However, our leaders clearly have no intention of proposing and negotiating such arrangements in our region.

Even after reading about the harmful effects of import substitution in our economics textbooks, our leaders revel in participating in such practices. All South Asian countries maintain sensitive lists of products on which there are either tariffs or import restrictions. To garner votes, our politicians provide subsidies to the labor-populated economic sectors like agriculture. These discrepancies, that our governments in the region have been creating, are the main reason why illegal cross-border trade and informal (underground) markets are flourishing in South Asia.

The members of SAARC, despite what the name suggests, are anything but cooperative when it comes to removing the trade barriers. An import quota system imposed by India since 2006 has all but destroyed the Sri Lankan vanaspati ghee industry. The irony is that the very reason why Sri Lankan vanaspati ghee industry grew was because of initial heavy capital investments by Indian investors. And, now, all that investment, cooperation and goodwill has been endangered due to India’s insistence on the quota on the product. 

There are many non-tariff barriers (NTBs) that hinder our regional trade. The highways linking South Asian markets are poor, to say the least. Letter of Credit (LoC) issued by Indian banks is not accepted in Pakistan, and vice versa. And, then there’s the vigilante factor. Indian custom law states that tea shipments from Nepal need to be tested only once every six months. Yet, last year, an Indian border agent refused to let Nepali tea shipments to pass through the Kakarbhitta checkpoint in Eastern Nepal because he insisted on testing those shipments “himself”. The insistence continued even after Nepali exporters showed him the test “certificate” given by the Indian government.

In light of all these problems, our region cannot accrue any gains from trade if we do not work towards addressing and solving these problems. In this regard, the media can play a significant role. The media should highlight significant trade agreements made by, and between, the member states of this region. For example, the BIPPA that Nepal and India recently signed. Our media should portray such regional dialogues and facilitations in a positive light. Yes, the details of the agreements could be debatable, but the importance should be given to the fact that the “dialogues” and “agreements” are happening in the region. The debatable details can always be fine-tuned, changed, or ironed out.

Also, the markets in our region should be interconnected. Transport infrastructure such as roads, highways and ports should be accessible to one another, should be well maintained, and safeguarded by mutual cooperation. SAARC regional trade will receive a boost if India allows Nepal and Bangladesh to use the Indian roads for a direct trade, without having to load and unload goods in the Nepal—India and India—Bangladesh border points.

Like the developed world, we should integrate our equity markets, too. The bond markets in South Asia are very poorly developed, and they are not integrated. We should make efforts towards such integration because it would help the member states gain valuable access to capital. For example: if we had a regional bond market today, an entrepreneur or a business in Bangladesh, Sri Lanka or Pakistan could borrow and use the excess liquidity from the Nepali financial market. In today’s business climate, such initiatives are not only desirable, but also necessary.

Our region should also learn from the “China syndrome”. Essentially, it means that salary, income and standard of living also grow when an economy grows. Increasingly, the Chinese workers are seeking better and high-paying opportunities than that offered by manufacturing and agriculture. To counter such problems from ever occurring in our region, we should have a regional cooperation where labor flows freely between our countries in the same manner as goods and services. A smooth flow of intra-regional labor ensures that no industry in any of the member countries will suffer from shortage of labor—quantity or quality wise.

Finally, it is a fact that most trade agreements done in, and between, South Asian countries do not guarantee consumer rights because the agreements focus on the supply-side of trade. Because of this, protectionism reigns high in the region, which in turn marginalizes consumer welfare. In addition, there is a distinct lack of awareness among consumers in our region about what gains the consumers can make from various intra-regional trade agreements. The media, therefore, needs to play an advocacy role in the region to highlight, and ensure, such gains to consumers.

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# posted by Mukesh Khanal @ 12:05 PM 0 Comments

Friday, March 9, 2012

 

Links for March 9, 2012

One way in which Americans have always been exceptional has been in our support for education. First we took the lead in universal primary education; then the “high school movement” made us the first nation to embrace widespread secondary education. And after World War II, public support, including the G.I. Bill and a huge expansion of public universities, helped large numbers of Americans to get college degrees...
But now one of our two major political parties has taken a hard right turn against education, or at least against education that working Americans can afford. Remarkably, this new hostility to education is shared by the social conservative and economic conservative wings of the Republican coalition, now embodied in the persons of Rick Santorum and Mitt Romney.
 [...] Adjusted for inflation, state support for higher education has fallen 12 percent over the past five years, even as the number of students has continued to rise; in California, support is down by 20 percent....[...] tuition at public four-year colleges has risen by more than 70 percent over the past decade....[...] cash-strapped educational institutions have been cutting back in areas that are expensive to teach — which also happen to be precisely the areas the economy needs...engineering and computer science. [...]
 The conclusion of the researchers is:
We do not see proportionate reductions in either the headcount ratio or in the depth and severity measures. Poor regions are not catching up with richer regions fast enough, and more needs to be done to accelerate economic and social development in the lagging regions.





# posted by Mukesh Khanal @ 4:32 PM 0 Comments
 

How do women feel about being beaten by husbands?


The data from United Nations shows the views of women from various countries about getting beaten by their husbands. The complete list of the countries and the data is here.

The Economist has a nice little comparative chart, shown below (not visible if you are reading this in your email. Go to my blog khanalm.blogspot.com to see the chart).


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# posted by Mukesh Khanal @ 12:47 PM 1 Comments

Monday, March 5, 2012

 

Oh, the impunity!


The following article was published in today's Republica. Below is the "original" article that I wrote. Click here for the direct Republica link with heavily "edited" version.


Oh, the impunity!

If you want peace, understand war—Gautam Buddha
If you want peace, get ready for war—Adolf Hitler

Disdain and neglect of the rural poor by the urban ruling elite was a major reason for the emergence and success of the Maoist conflict. The Maoist insurgency was brutal, but it was borne out of frustration among several minorities in the hills, mountains, and rural Nepal in the mid-west and far-west. Ignorance of a large chunk of Nepali population by the educated and ruling elites led this large chunk to think that a revolution was needed to be heard. The revolution came, and went. However, unlike in other countries that have gone through civil conflicts, those responsible for crimes committed during the conflict have gone unpunished.

Crimes were committed by both the parties in that conflict—the Maoists, and the Nepali State. Eight dalits who worked for a local landlord in Achham were beaten and their legs were crushed by the Maoists as a punishment for working for the landlord. Children and adults, alike, were kidnapped and forced to join the Maoist army. The Nepali Police kidnapped Hari Prasad Bolakhe from Banepa on 27 December 2003, and his remains were found two and a half years later in June 2006. Eyewitnesses had reported that the then District Police Officer, Khadga Bahadur Lama, was the one who had abducted Mr Bolakhe. 

Although the Nepal Police has shown initiatives, at times, in punishing their personnel, justice in Hari Prasad Bolakhe’s case is yet to come. For crimes committed during the conflict, the Nepal Police and Army are no different than the Maoists when it comes to punishing one of their own. In fact, national and international human rights monitoring agencies have repeatedly highlighted that of over 13000 people killed during the Maoist conflict, the majority were killed by the state’s security forces.

When the Comprehensive Peace Agreement (CPA) was signed between the Maoists and the Nepali government, there were agreements made on fulfilling Nepal’s internal as well as international human rights obligations. And, that meant the violators of human rights during the conflict ought to be brought to justice, and duly punished. However, that does not appear to be happening anytime soon. The Maoists and the government security forces have not been held accountable. And, so, the impunity reigns.

According to the International Criminal Court, the main goal of its Rome Statute is to put an end to impunity for those that were involved in the most serious crimes committed against humanity. Killing over 13000 people—no matter by whom, and for whatever reason—falls under this category.  The United Nations Commission on Human Rights defines impunity to be the “impossibility…of bringing the perpetrators of violations to account”.

Bringing the violators during the conflict to justice is not an “impossible” task in Nepal by any stretch of the definition. Clearly, what are lacking are the willingness, and a blatant neglect of the need, to do so. Several security Acts grant the security forces immunity from being convicted of human rights violations if they claim to have committed such violations while discharging their “duties”. Under the National Code, there is no provision for “independent inquiry” if security forces are charged of murder. Members of the security forces cannot be tried for perjury because they are “not obliged” to tell the truth under the National Code. Such lack of willingness from the State’s side is not limited to security forces; the above exemptions also apply to civil servants in government jobs. But, many civil servants are unaware of that.

A September 1999 study by The Asia Foundation suggested that impunity in Nepal is structural as well as cultural with the general populace apparently accepting impunity. However, this acceptance of cases of impunity could have more to do with structural absence of information and justice rather than a mere cultural acceptance of the phenomenon. The study highlighted that impunity was the highest in the highest levels of the bureaucracy and polity. The study also found that human rights organizations in Nepal were not very active in documenting impunity cases vis-à-vis human rights violations, and advocating against those violations. The situation in Nepal, today, has improved, but not by much.

The public is quickly blamed by many as being apathetic to impunity. However, it is not the apathy, but the “tied hands” that has hurt the public. There is only so much an average Nepali citizen can do to fight impunity. Also, much of the victim population is illiterate or ignorant of the avenues to seek justice against their perpetrators. So, in actuality, the apathy to impunity rests with the Nepali government that has done next to nil to reform the disingenuous Acts or to pursue criminal cases against those who perpetrated human rights violations during the conflict.  

The worst thing about this institutional apathy towards impunity, as well as its inability in punishing the perpetrators, is that it has a reinforcing effect. Apathy towards one case of impunity begets another case in return. The apathy towards Maoist and Army impunity has only encouraged other factions of Nepali society to pursue violent means. The blatant violation of human rights during the Madhes uprising was an example of that. The bombing in Babarmahal this Monday (Feb 27), and a gleeful admission by an ethno-political outfit for carrying that bombing, is only the latest chapter. As long as perpetrators of human rights injustice and violence have impunity, this will only keep going on. Oh, the impunity!

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