Tuesday, January 7, 2014

 

We have the political leadership we deserve


The following opinion piece was published in Republica on January 7. 2013 with the title "Like for like". The direct link to Republica is here.

Like for Like

Let us cut to the chase. We all know what they say about ‘politics’ in general, that it is a dirty game. In Nepal, politics is not just a dirty game. It is a filthy game. The players have bankrupt moralities, bulging bank accounts, no sense of obligation to those who got them elected, and no sense of ‘duty’ to serve or work for the greater good.

In recent times, a few facts have emerged out of Nepali political characteristics. When a constituent asked if he would ever step again in the constituency that elected him in Jhapa, UML leader Khadga Prasad Sharma Oli was quick to quip that he had been elected as an MP and not as a VDC secretary. If only Oli was as quick in actually doing the work he has been repeatedly elected to do, people in Jhapa would never have had to ask that question. Speaking of VDC secretaries, if Oli and his party worked even half as hard as a Nepali VDC secretary does these days in absence of elected local officials, they would have formed the new parliament by now. They barely got their PR list together after a month of the election results. We have no idea how long we should wait for them to form a government.

The politicians’ readymade quip for their less powerful constituents clearly shows the attitude they have towards the public. They see themselves as superior masters, and us as their subservient servants whose only job is to occasionally cast votes for them, and then shut up. Karl Marx was right when he said that the oppressed are allowed, once every few years, to decide which particular representative of the oppressing class will represent and repress them. It is ironic that Marxists and Leninists such as Oli enjoy Marx’s nightmare with glee.

One of the core responsibilities of a member of parliament is to “raise issues of his/her constituents”. Yes, the MP is involved in discussions and negotiations in the House, and in drafting laws and bills, but they also have an obligation to listen to the problems of people that elected them. How many times have Oli or other MPs from Jhapa raised the wild elephant issue in the parliament in order to find a solution? How about the supari crisis that farmers in Jhapa have been facing for the past few years? Community forests in Jhapa are being exploited by timber mafia while the public that takes care of the forests don’t get to consume its products. This has been a persistent issue for around two decades in Jhapa. How many times have MPs from Jhapa raised those issues in the parliament to seek solutions? It is one thing to make a smart quip to make your constituent look silly in front of the media, but entirely another to actually do what you were elected to do.

The second fact is that despite not listening to us, our politicians pretend to know us and our worries. They pretend to know what’s good for us. The Maoists deserve credit for raising issues of minorities and asking them to fight for equity and equality between all castes, classes and creeds in Nepal. However, the greed of political power got to them and they exploited the marginalized for their political gain, which I am sure they regret today. The leadership formed of upper-caste Brahmin men asked minority groups to follow them in the fight. Now, there is nothing wrong in upper-caste men leading minorities in their struggles. Many white Americans were involved in fighting for the rights of Black Americans in the 1960s. The feminist movement during the 1970s had many men as leaders and supporters. But, how many upper caste Brahmin men have led minority struggles and become wealthy in a span of six years?

The third fact is that the Rana oligarchy has returned in Nepal, and our political leaders are the New Ranas. Major parties create a High Level Political Committee, and this HLPC decides who becomes what, what is to be done, and who does that. Nepali political parties today have mastered the ‘cartel’ theory, second only to OPEC, the organization of petroleum exporting countries. The cartel of high ranking political leaderships has been making decisions as a group and deciding the fate of Nepali politics and democracy for some years now. In the past, they had decided on taking turns on which party gets the prime minister’s post. As a result of this oligarchic decision making, a person who lost from two different constituencies was able to become the prime minister. The same idea of taking turns is being floated again. Money from state coffers has been distributed to uncles, wives, nephews and sons for their vacation or mountaineering efforts. If this doesn’t remind us of the Ranas, I don’t know what will.

However, the fault lies in us. As the great George Carlin mentioned, these politicians did not come out of nowhere. They did not fall from the sky. They come from Nepali parents and families. They come from Nepali public and private schools, colleges and universities. And, not to mention, they are elected by Nepalis. We produced these politicians. We snatch money in the airport from our sisters who return from the Middle East, and then hand her over to the policeman, the protector, to rape her. We solicit bribes in broad daylight and are proud of it. We sweep our homes every morning and throw the dirt outside our walls because we are selfish and we want our homes clean but don’t care an ounce about our streets being dirty. So, the fault lies in us. We are selfish, amoral and greedy people, and we have got the political leaderships that we deserve—selfish, amoral and greedy.

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Sunday, January 5, 2014

 

Nepali Stock Bubble


Below is my observation of the Nepali Stock Market Bubble that we are experiencing currently.


Nepali Stock Bubble
By: Mukesh Khanal

Successful elections like the recent one in Nepal accomplish a number of things. They bring changes in government by ousting incumbents and bring opposition forces back in control of government. A renewed optimism spreads through the economy when the new government is presumed to be more democratic, free-market oriented, and investor friendly. As a result, the stock market rallies to record highs. The same has happened in Nepal according to Nepali media. Nepse, the Nepali stock market index, jumped by over 200 points on December 19 to reach 805.65 points, highest level in the last five years.

Recent unusually high stock index increments suggest that investors feel more confident to invest, and have started pouring in money into the economy. It means they have added more liquidity to an economy that is already going through a case of excess liquidity. Throughout this year, our economy has observed increasing liquidity. Nepal Rastra Bank (NRB) has already issued reverse repo five different times this past year to rein in excess liquidity. The NRB does this by selling treasury bills (t-bills), which are interest-paying promissory notes sold by NRB and bought by banks and financial institutions (BFIs) with the extra cash in their vaults. This way, the NRB absorbs or “mops” excess money supply from the market. However, the optimism that has been created among investors with recent election results has started to hurt the NRB’s efforts.

In addition to optimism from recent election results, there are four other reasons why excess liquidity has persisted throughout this past year. First, 0.2% return rates on t-bills are low while average interest charged on consumer borrowing in the market is around 4%-6%. Most BFIs are making this comparison and are deciding that they would rather wait for consumers to come asking for credit than invest in t-bills. However, consumer borrowing is at a much lower level than supply of liquidity. But, that doesn't mean t-bills are not selling; they're all sold out. However, that is not an indicator of good news. It shows the desperation among the BFIs. They don't know what to do with excess money in their vaults. So, they're buying the t-bills as the only remaining option.

Second, the financial market is still afraid of lending, in general, because it has only just recovered from a liquidity crisis that started in late 2009 and lasted for three years. The market could be practicing caution in identifying investment opportunities. They definitely do not wish to lend to real estate and housing markets which are going through a recession. 

Third, even if BFIs were in an investing mood, they are facing difficulty due to NRB’s new criteria: at least 20% of available liquidity in financial market has to be invested in “productive sector” in addition to 12% that have to be invested in hydro and agriculture. Our BFIs are so accustomed to lending their entire supply to housing and real estate that they are unable to identify which sectors are productive sectors. As a result, cash has stayed in their vaults instead of being invested.

Fourth, political instability has affected Nepal’s economic prospects as entrepreneurs and businesses have been reluctant to start new projects due to instability. As a result, they have not had the need to borrow funds. However, a semblance of political stability in the months to come may encourage them to start taking on new projects and risks. That would mean renewed demand for loans and borrowings which, in turn, would reduce excess liquidity from the market.

A general understanding among economists is that a return of risk-taking behavior among borrowers takes care of excess liquidity. If we achieve political stability in coming days, this risk-taking behavior will likely increase, and thus excess liquidity will be used up. So, why worry?
Rallying stock market is not a worry for developed economies that have low inflation. For them, increase in money supply due to rallying market increases the price of investment opportunities such as stocks, bonds and real estate without affecting prices of basic commodities such as rice, milk or vegetables. However, for a developing economy like ours, which already suffers from high inflation, a rallying stock market and subsequent increase in money supply will push prices of everything in the market higher. Everything—real estate and basic commodities—will become more expensive for consumers.

There is a second reason why we should be worried. Historical data shows that liquidity creation is always high right before a liquidity crisis. Money supply decreased after Nepali economy was liberalized in 1990. After 2001, it increased right up until the end of 2009 when a liquidity crisis hit our economy hard. Unusually rallying stock market this year is clearly a sign of another impending liquidity crisis. Some of this buoyancy will be corrected due to stabilizing remittance in the near future. Remittance has increased every passing year for last two decades, and is about 25% the size of GDP. However, because it is already huge, it will grow only marginally over the next few years, thus blunting some of its impact on money supply and the stock market. 

Any emerging economy like ours relies on cheap credit to undertake development activities. Risk takers today don’t have cheaper access to credit which, in turn, is hurting our economic progress. On top of that, we have a stock bubble in the making due to excess liquidity in our financial market. If history has taught us anything, we know the bubble is going to burst because fundamental values and principles of the financial market are going to assert themselves eventually. We have two options: the NRB should devise better monetary policies than what we have today, or we better get ready for our financial market to crash in 2016.

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