Monday, February 25, 2013
Deja-vu: Nepal's liquidity crisis returns
On January 31, I wrote an opinion piece in Kathmandu Post with the title "Lessons in finance" (that is the KPost link. Link to my blog piece is here). I wrote:
...[the] number that the NRB and BFIs report as the contribution of the financial industry to our economic growth is false. The actual contribution is much less.
This misleading figure is the reason why we suffer through liquidity crises every now and then. In our recent liquidity crisis, the level of profit and savings that BFIs showed to their shareholders was distorted due to the above mentioned fudging of facts. They actually did not earn the profit that they claimed to have earned.My concern is that Nepal's financial industry is not doing as great as it projects in its balance sheets. They have been busy fudging numbers and facts to appear "healthy" so the shareholders remain "happy". I ended my article saying:
If the current trend of high risk-taking in the Nepali financial sector continues, soon there will be another liquidity crisis worse than the last one. The reason the Nepali financial market has not yet fully recovered from that crisis is that the same risk-taking behavior continues even today.And, only a month later, today, the Kathmandu Post reports that there is now a "liquidity crisis" in progress, and banks are rushing to the Nepal Rastra Bank for cash. KPost writes:
A tight liquidity situation in the banking sector has prompted a number of banks to obtain standing liquidity facility (SLF) from the central bank for the first time in a year.
.........
“The first to obtain SLF was H&B Development Bank which has been hit hard by fraud committed by its employees,” said an NRB official. “Last week, Nabil Bank and the Bank of Asia also obtained the facility.”As I mention in my opinion piece, the crisis that is now brewing is the result of poor management in our BFIs. But, do the BFIs care? No, they don't because however they screw up, the central bank is there to help them with "public" money from retirement funds, pension funds, etc. I will let the central bank's representative explain it:
“Although the government should not give the money meant for pension distribution immediately, we released the amount now to address the recent tightness in the liquidity situation,” said finance secretary Shanta Raj Subedi.I have a phrase for that: moral hazard. As long as they face no punishment for their risky behavior, and instead get rescued by the hard-earned money of the public, the CEOs in our BFIs will continue to engage in risky behavior.
Labels: BFIs, liquidity crisis, nepal, NRB
Tuesday, February 19, 2013
Why federalism?
The following article was published in Republica on February 19 with the title "Why federalism?". The unedited version is below.
Why
federalism?
By:
Mukesh Khanal
Majority of Nepalis believe that Nepal should become a federal republic
with much decentralization of power. This belief is a result of the skepticism
that a central government cannot solve all of Nepal’s ills which results mainly
due to central government’s inability in resolving local and regional level problems.
A case study of Dang helps understand this skepticism better.
Dang
suffers from competition between farmers and the crusher industry over use of water resources. Farmers complain that
Dang’s crusher industry uses a disproportionate share of water. The industry is
blamed for running rivers dry because of which irrigation canals have dried up,
and Dang’s agriculture is hurting as a result. Also, of all districts in the
country, Dang has the highest concentration of cement factories. Locals report
that surrounding hills are being lost to these factories. Adding insult to
injury, these factories are accused of hiring mostly Indian laborers instead of
locals from Dang. This has created conflict and tension between locals and
businesses. Locals fear that this will only increase in coming days given huge
unemployment among local youths in Dang.
Locals
in Dang believe that these problems exist, and have been unresolved, due to
direct influence of national government at the local level with no veto power
in the hands of local government and local citizenry. Locals suggest that higher
powers in the central government pocket bribes from these industries, and grant
licenses to exploit the natural resources that rightfully belong to people in
Dang. As a result, operators of these businesses have not listened to local
people’s concerns and have been destroying local natural environment. Locals
understand that some hills would be lost to Dang’s cement and crusher
industries but they would not feel as bad if they helped generate more local
employment.
Land
and timber mafia in Dang have been active under the aegis of influential
national level actors in politics and in government. Productive agricultural
lands are being plotted and sold in
record numbers. Land mafia has been very active in capturing private and public
land. Land belonging to a local Sanskrit university has been captured by the
mafia. Land belonging to Swargadwari ashram and one belonging to the Sports
Ministry have been illegally captured by the mafia and are for sale. Similarly,
forests in Dang have been illegally cut down by the timber mafia in record
volumes.
Amidst
these exploits by land and timber mafia, locals in Dang feel helpless because
there is very little action that they can take except filing a complaint to
their local government. Local government is helpless because these mafias have
direct permission from national level politicians—and bureaucrats in Ministries—to
continue their shenanigans. A case against those that captured the land
belonging to the Sanskrit university has been registered with the central
government. Locals believe that resolution in that particular case would have
been quick and effective if local government had been given power to
adjudicate. As for other cases related to land and timber mafia, there is
silence from local government, local authorities and the department of
forestry.
Dang also suffers from exceptionally poor public service delivery. Nepal Electric
Authority (NEA) has been incompetent in providing electricity to dalit
communities and landless settlers. As a result, electricity is being stolen
with persisting disputes between NEA, dalits, landless settlers, and local
law-abiding community over the practice. Also, based on the policies
made at the central level, each farmer in Dang can only purchase 5 kg of
fertilizer from local government and cooperatives. Fertilizer dealers in Dang have been engaging
in illegal sale of fertilizers with farmers often having to pay two to three
times the actual price.
Members of a VDC with fertilizer shortage are not permitted to buy
fertilizers from a neighboring VDC that has a surplus. This rigid policy
devised by central government is hurting farmers in Dang, and has affected their
productivity and their livelihoods. As a result, some farmers in Dang committed
suicides this year. Locals believe that if the local government and local
citizenry had powers to determine their own policy and fate, farmers in Dang
would have fared better, not to mention numerous famers’ lives that would have
been saved. Amidst these problems, local government has remained silent because it is
powerless against central government’s policies.
Federalism and more decentralization do not ensure an across-the-board
increase in freedom in the local level, and may not necessarily result in more
development. That is determined by what functions of the central government are
decentralized and how effectively that decentralization is carried out. However,
education, health, counter-trafficking and social efforts become freer and much
more effective when decision making powers are decentralized to the most local
level. That will make local actors and advocates more effective in prevention
as well as cure to social ills. Similarly, resource allocation, public service
delivery and disaster response are more effective when decision making is
directed by local government with significant financial and logistical support from
central government.
As it stands today, under the rigid policies of central government,
Dang and its surrounding region are suffering. People are helpless as they have
no power and authority to go above and beyond the central government’s
policies. They feel that federalism—and subsequent devolution of powers to the
local or regional level under a federal state structure—is their only way of
choosing their own development agenda and fate. Not just Dang, but the entire
mid-west and far-west of Nepal have been neglected for years. Locals in the
mid-west and far-west of Nepal wait with patience for a federal state system to
relieve them of their sufferings.
Labels: Dang, federalism, local government
Saturday, February 9, 2013
Local elections ahead of national elections
Yesterday (Feb 8, 2013) the American ambassador in Nepal wrote an opinion piece in Kathmandu Post with the title "Nepal deserves elections" about the immediate need for national election. However, in the article published today (Feb 9, 2013) in Republica with the title "First things first", I argue that people in the ground demand local elections more than national elections. The unedited version of my article is below.
Local
elections before national election
By: Mukesh
Khanal
In 2056 BS, the Nepali government came up with a 14-step procedure for
devising local level development plans. Steps 1-8 occur at the village
development committee (VDC) level where local level stakeholders meet and
propose development plans. Steps 9-14 occur at the district development
committee (DDC) level where district level authorities assess the plans
forwarded by VDCs. This 14-step procedure is followed by government bureaucrats
regardless of whether the VDC or DDC have elected officials or not.
My interactions with local citizens, political actors and local
bureaucrats in Dhading, Gorkha and Chitwan this month has shown that in absence
of elected officials, VDC secretaries fulfill the roles of 57 different elected
officials while handling local level duties of 22 different ministries. In
addition, not every VDC has an appointed VDC secretary. So, the reality is that,
a VDC secretary has been burdened with duties of multiple VDCs in the district.
Sometimes, the VDCs are on opposite ends of the district, making the work of
the VDC secretary even more difficult. Given these, to say that many of our VDC
secretaries are overworked and overburdened would be an understatement. In
addition, the VDC secretaries have been blamed for incompetence, corruption and
enjoyment of excessive power. Some blames are justified while others aren’t.
To help these overburdened local level bureaucrats, in 2063 BS, the
national government devised a policy of All Party Mechanism (APM) in the local
levels. As a result, all 3915 VDCs and 58 municipalities got an APM under the
direction of central government. The basic idea of APM was promising. It would
fulfill the void of locally elected officials through mutual cooperation among
political parties at the local level. Political parties at VDC and municipality
levels would send their representatives to APMs, which would listen to people’s
demands and make decisions—budgetary and allocation—of local development.
Nepali citizens at local levels agree, in general, about these roles played by
APMs, except “listening to the people” part.
In absence of locally elected officials—and before the formation of
APMs—VDC secretaries were designated decision makers for local bodies. However,
once APMs came into existence, ensuring accountability at local level became
difficult. APMs deflected accountability issues to VDC secretaries, and vice
versa. One blamed the other for poor decision making regarding local projects
and needs. As a result, local budgets got misused and misappropriated with
nobody being held accountable for poor results. Budget allocated for women and
youth activities were spent on roads and teej
parties. This misuse has resulted due to a lack of clear breakdown of how
and where the allocated budgets can be used.
Local journalists report that even some supposed members of local
development committees are unaware of project and budget decisions made by such
committees. They also claim that a number of VDC secretaries have been found renting
rooms in district headquarters instead of staying in the VDCs that they serve.
This has continued despite government efforts to curb the practice by paying an
extra allowance of Rs 1500 each month to VDC secretaries as an incentive for
staying in their respective workplaces. These abuses, misuses and lack of
responsibility from local political actors and local bureaucrats show that
absence of locally elected officials has hurt local level progress in Nepal.
The most recent local level elections were held in 2054 BS, and tenure
of those elected officials ended in 2058 BS. So, there have been no local level
elected officials in Nepali VDCs and municipalities for over 11 years. Since a
bureaucrat is only interested and obliged to follow rules and regulations
specified by national government, local level bureaucrats may not be very
interested and invested in hearing the voices and identifying critical needs of
local citizenry. Local level bureaucrats are accountable not to the local
citizenry but to higher level officials in respective Ministries. The
government had hoped that formation of APMs would take care of this
bureaucratic hurdle by providing a mechanism at local level that actually
listened to what local citizenry had to say about local development needs and
formulated plans accordingly. However, when it was evident that there was
rampant corruption in the APMs, the government dissolved all APMs in 2068 BS.
It has become evident that we need locally elected officials to listen
to public concerns and needs, and to guide planning and decision making in local
level development processes. However, both local and national level political
actors today do not want local elections. Although APMs have now been
dissolved, local political actors from different parties—large and small—are
still informally engaged in local level development planning and decision
making processes. These local political actors, especially ones from smaller
political parties, stand to lose their share of corruption money that they
currently enjoy through informal APMs if there is an elected official handling
planning and decision making duties.
National level political leaders do not want local elections because
current system of informal APMs allows them to appoint handpicked local
political individuals into these APMs. This ensures that these individuals in
APMs are accountable and obedient to national level political leaders and not
to local citizenry. This system has allowed national level political leaders to
have a firm grip in local development process, the kind of grip that they have
never enjoyed before in their lifetime. If local elections are held, local
citizens could elect somebody unapproachable or a rogue politician not in
cahoots with national level leaders. That would disrupt the power stranglehold
that today’s national level political leaders enjoy at local levels. This fear has
made national level politicians not want local elections.
Locals blame that local bureaucrats do not hear the cause of locals and
do not worry much about local issues because most bureaucrats are not local
residents themselves. Add to that the nature of their tenure at a particular
locality—which varies from six months to a year—and locals feel that government
bureaucrats are not invested and interested in resolving local issues. However,
if there were locally elected officials present as decision makers, local
development process and planning would improve significantly because of
increasing accountability that locally elected officials are subjected to due
to the nature of their appointment through popular elections.
My interaction with locals in Dhading, Gorkha and Chitwan this month
suggests that Nepalis care more about local elections than national elections.
They believe that their access and reach to national level government and
policymakers have been lacking due to absence of locally elected officials.
They also believe that the level of corruption that has occurred in absence of
locally elected officials—and in APMs under the aegis of national level
political leaders—will reduce significantly if local citizens regain their
right to elect local officials.
Labels: election, nepal, peter bodde
Friday, February 8, 2013
I am Vikas
The following article was published in today's Kathmandu Post (Feb 8, 2013) with the title "I am Vikas". It is a response to Gyanu Adhikari's op-ed piece published on Jan 29, 213 with the title "Donor darlings". The unedited version of my response is below.
I
am Vikas
By:
Mukesh Khanal
I read Gyanu
Adhikari’s opinion piece titled “Donor darlings” on January
29 in The Kathmandu Post. While it hints
at a possible disconnect between donor and recipient mindsets and philosophies,
there are a number of issues on which I earnestly disagree. I am one of many
“Vikas” working in one of many INGOs in Nepal. I was educated in the west; returned
after completing my studies; worked for an NGO for a year and half; and left
that NGO for a job with an INGO where I have been working for over a year now. But,
that is where my similarities with the fictional “Vikas” end.
The path to my
elite-ness is somewhat different than the one prescribed by “Donor darlings”. My
parents could not afford to send me to the best schools in Kathmandu due to
their limited income as public school teachers. Nevertheless, I did well in an
English medium school in Biratnagar, and did alright in my ISc in Dhulikhel. When
I decided to go west for my higher studies, my parents emptied their retirement
savings and sold the only piece of land they’d ever owned (bought with their savings
from over 15 years of public service). Additionally, they took loans from
friends and families at exorbitant rates because they had no collateral for taking
out bank loans. While studying in the west, I worked illegally washing dishes,
mopping floors, cleanings toilets, and flipping burgers to pay for my
accommodation and tuition fees. I understand that not many Nepali students get
the opportunity to study in the west. However, the mere fact that I did tells
only part of the story of how I got there and nothing more.
Upon completing my Master’s
in economics, I received two offers: a fully-sponsored PhD, and a job at a
multinational in Singapore. After some personal reflections, I decided to reject
both and returned to Nepal, fully aware of the opportunities in terms of remuneration
and lifestyle that I had given up.
I never considered myself
cut out for public service. Given my interests in research and academics, and given
my impression of Nepali bureaucracy, I knew I wouldn’t survive in public
service. Even if I did want to enter public service, there aren’t enough
opportunities there as is evidenced by thousands of applications for a handful
of advertised positions. And, private sector job growth is mostly in the
financial sector, in which I was unenthusiastic to work. I did not consider
becoming an entrepreneur—as some returnees have—because I do not believe I have
the pedigree, resources and ideas to pursue that lifestyle. I did elect to
teach—part time—because it is a medium for me to introduce the type of
pedagogical approach I had appreciated during my college days in the west.
In the end, I decided
to join a local non-governmental research organization. I do not know if that
was at the expense of an “Anju” who
also had a Master’s degree from a Nepali university. My decision to join this
particular organization was based on their engagement in economic and policy
research that contribute to the overall development of the country. I learnt
that most research in Nepal—academic or social—are donor funded. I realized
that this was not due to our lack of resources but due to our collective choice
to be engaged in philanthropy for religious purposes and not for secular pursuit
of knowledge. I agree, for various reasons, that donor funding is not the ideal
way to pursue research, but our choices are limited until we are able to fund
ourselves.
“Donor darlings”
rightly points to perhaps the lack of accountability among Nepali NGOs as well
as donor agencies. Of course, donors may have their own agendas when they spend
millions of dollars in Nepal’s development activities. At times, I struggle to
reconcile between the amount of money that is poured into Nepal in the name of
development and actual outcomes in terms of actual development. Personal doubts
aside, fact of the matter is, whether we like it or not, we have made a
conscious decision to function with foreign assistance. Also, we have to
realize that primary accountability of donor agencies is to their own taxpayers,
not ours. The best we can do is to put pressure on Nepal government to devise
policies and plans to make donors accountable to Nepali people, too. Maybe we
need to work more on that instead of criticizing the entire donor community.
I know that many people
question the intentions of donor-funded development assistance, and many more
question the ethical and moral boundaries of donor interventions and
activities. However, interventions and activities are constantly changed,
tweaked and even rejected based on the boundaries of operational philosophies.
Donors, NGOs, INGOs, and those who work in development are frequently disappointed
when they see their efforts bringing very little change. But, that little
change could be a consequence of poor program design and implementation, and
not necessarily the result of “evil” donor policies.
The premise of “Donor darlings”
op-ed piece fairly represents the emotions of some towards the development
sector and the people that are part of it. But, it is laden with far-fetched assumptions,
over-arching generalization, and simply a failure to take into perspective the
reality of development and development sector in Nepal. It is an opinion piece
and reads like one. A more in-depth analysis of political and socio-economic conditions
of Nepal that have led to the current situation, and perhaps some constructive
criticism, would help engage everybody in seeking a way out of this quagmire than
simply rant out preconceived opinions to get approval from fellow choir
members.
Labels: development, donor darlings, i am vikas, INGOs, NGOs
Wednesday, February 6, 2013
Links for Feb 6, 2013
- North Korea declares martial law and prepares for war
- China's air is very polluted
- South Korea leads in use of plastic surgeries
- The real Pirates of the Caribbean--now coming soon
- Japanese love of imperfect teeth
- Children should be allowed to fail
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