Views of a Nepali Economist

Paul Krugman writes in the New York Times:

Fundamentally, the right wants the Fed to obsess over inflation, when the truth is that we’d be better off if the Fed paid less attention to inflation and more attention to unemployment. Indeed, a bit more inflation would be a good thing, not a bad thing.

This past December, I wrote an article in Republica about the International Monetary Fund arguing that their rigid stance on controlling inflation is not a productive stance. I wrote:

[...] no matter what the cause of any macroeconomic problem in a country in any corner of the world, the IMF’s most common solution is to ask countries to reduce inflation. The Fund has to realize that all diseases do not have the same cure. Macroeconomic conditions and problems in different countries are diverse and varied. For an organization that boasts of many eminent scholars, researchers and bureaucrats, the IMF’s repeated inflationary stance makes it look like a one-trick pony.

Reducing inflation does not solve all systemic macroeconomic problems. You need inflation to achieve economic growth. If inflation really hampered macroeconomic stability and economic growth to the extent that the IMF policymakers think, why are high inflation countries like India, China, and Bangladesh achieving almost double digit economic growth while low inflation countries in Europe along with Japan and the United States growing below 3 percent?

Krugman goes on to write in his column:

Now, the Fed has, by law, a dual mandate: It’s supposed to be concerned with full employment as well as price stability. And while we more or less have price stability by the Fed’s definition, we’re nowhere near full employment. So this says that the Fed is doing too little, not too much. Indeed, some Fed officials — notably Charles Evans, the president of the Chicago Fed — have tried to make exactly that case.

 To be sure, more aggressive Fed policies to fight unemployment might lead to inflation above that 2 percent target. But remember that dual mandate: If the Fed refuses to take even the slightest risk on the inflation front, despite a disastrous performance on the employment front, it’s violating its own charter. And, beyond that, would a rise in inflation to 3 percent or even 4 percent be a terrible thing? On the contrary, it would almost surely help the economy.

Krugman feels that the rise in inflation is not always bad thing, and that a "good" increase in inflation today would actually be beneficial to the American economy because:

[...] large parts of the private sector continue to be crippled by the overhang of debt accumulated during the bubble years [...] modest inflation would, however, reduce that overhang — by eroding the real value of that debt — and help promote the private-sector recovery we need. Meanwhile, other parts of the private sector (like much of corporate America) are sitting on large hoards of cash; the prospect of moderate inflation would make letting the cash just sit there less attractive, acting as a spur to investment — again, helping to promote overall recovery.

Labels: IMF, inflation, krugman, paul

. Vegetable prices drop in Kathmandu

Thanks to rise in production and end of festivals, price of most of the vegetables has gone down

Maoist affiliated union causes popular Fire and Ice pizza restaurant to shut down

...the management was forced to close down the restaurant after the Maoist affiliated All Nepal Hotel Workers´ Association started a dispute over appointment of a new restaurant manager...members of the association along with its president manhandled some employees and misbehaved with the management

NRB caps Class B‚ C chief executives' salary

The central bank has directed the financial institutions — except class A commercial banks — to determine the remuneration for their CEOs based on the institution’s financial indicators...The central bank has asked the financial institutions to fix the salary of CEO based on the financial institutions’ business size, size of lending and deposits, size of operating profit, return on capital among others in the last three years.

Trade deficit up to Rs 330.34 billion

The total exports is still less than six times (Rs 64.56 billion from total merchandise) the import of Rs 394.90 billion

...the share of India in Nepal’s total trade increased to 66.4 per cent in 2010-11 compared to 59.1 per cent a fiscal year ago

...overall Balance of Payment (BoP) that had remained in deficit till the ten months ended with a ‘surprise’ Rs 2.93 billion surplus against a deficit of Rs 3.63 billion in a fiscal year...current account deficit shrank to Rs 11.91 billion from a deficit of Rs 28.14 billion a year ago...net transfer account registered a growth of 8.9 per cent to Rs 307.86 billion compared to that of a year ago...pension receipts rose by 12.2 per cent to Rs 28.99 billion...workers’ remittances increased by 9.4 per cent to Rs 253.55 billion...FDI of Rs 6.44 billion was recorded compared to the level of Rs 2.85 billion a fiscal year ago...capital transfer increased by 26.5 per cent to Rs 15.91 billion compared to the level of Rs 12.58 billion a fiscal ago...gross foreign exchange reserves increased by a mere 1.2 per cent to Rs 272.10 billion in mid-July from the level of Rs 268.91 billion as at mid-July 2010...Of total reserve, NRB’s reserves augmented by 3.8 per cent to Rs 213.09 billion in mid-July 2011 from a level of Rs 205.37 billion as at mid-July 2010...gross foreign exchange reserves in Us dollar terms increased by 6.2 per cent to $3.84 billion in mid-July...Based on the trend of import during the review year, the current level of reserves is sufficient for financing merchandise imports of 8.4 months and merchandise and service imports of 7.3 months

Ginger farming all the rage among Kailali farmers

As much as 3,000 metric tons of ginger is produced from 500 hectares of land in the VDCs...ginger worth around Rs 100 million was supplied to India from hilly districts in the Far-Western Development Region last year

Rukum farmers reap rich rewards of asparagus farming

...each farmer has...earned Rs 150,000 to Rs 300,000 from the commercial asparagus farming every year

An interview with Surya Nepal's corporate vice president about whether or not their garment factory will repoen

Labels: exports, inflation, Kailali, labor unions, nepal rastra bank, Rukum, surya nepal

.
1. Nepal Rastra Bank's Governor, Dr Yubraj Khatiwada, advises the BFIs to regulate themselves.

This is very worrying to hear from the Governor. I agree, in general, about BFIs having to pay more heed in keeping their books and lending/borrowing practices balanced. But, asking the BFIs to "regulate" themselves is precisely the reason why de-regulated economies like the US and Europe suffered the financial crisis in 2007. The governor should be careful before dispensing such risky suggestions.

2. A nice article about inflationary expectations (using the US example)

3. Here's an excellent question: Is Nepal turning into a "constitutional anarchy"?

4. Surya Nepal shuts down its factory in Biratnagar that produces world famous brands--John Players and Springwood. Usually, I am a pro-union guy, but this incident shows how Nepalese tend to take the union concept to its extreme and hack our own legs.

5. 50,000th Bhutanese refugee leaves Nepal to settle overseas. Personally, I see a failure of Nepalese diplomats to talk with their Indian counterparts to solve this crisis. It's a shame. The Bhutanese should have been able to go back to where they belonged--in their own country, Bhutan. But, failure of Indian and Nepalese diplomats hurt these refugees for the last two decades.

6. ICRA to begin credit rating in Nepal

7. Nepal's credit rating. The world bank paper is here (PDF document).

Labels: Bhutan, central bank of nepal, credit rating, inflation, nepal rastra bank, refugees

.
1. Is Capitalism Dead?

2. Nepal Telecom plans to improve the service quality. Finally!

3. Government to provide jobs to unemployed Nepalese youths.
*All 14 zones will eventually have Employment Information Centers
*Currently, youths who have registered in Model EICs in Kathmandu and Biratnagar will be given jobs
*2332 youths from Kathmandu and 2000 from Biratnagar have applied for the scheme
*35,000 youths have registered for the program for 2011/12
*Rs 1 million has been allocated for current program

4. IMF urges Nepalese government to give more power to the Nepal Rastra Bank, the central bank, to handle sick banks

5. Relationship between Nepalese and Indian inflation

 

It is pretty clear that most of the time, Nepalese inflation always is a few points higher than Indian inflation. The primary reason for this is due to the fact that price of commodities--food or otherwise--consumed in Nepal come from or through India. Therefore, the Nepalese price for the same commodity is a few rupees higher than in India due to factors like transportation costs and retailers' profits. The other reason is also the pegging between NRs and IRs. Any rise in inflation in India has to be accompanied by a few percentage higher rise in inflation in Nepal to avoid any NRs flowing from Nepal into India. The reason why NRs flows to India in such cases is because higher inflation in India means higher interest rates in India to combat inflation. In such instances, if Nepalese interest rates remain low, people will take their money to India to take advantage of higher interest rates in India.

6. Sectoral Contribution to GDP


Like any developing nation, Nepalese agricultural contribution to GDP is declining while services is increasing. The recent surveys from 2010 and 2011 will probably show that agriculture is now only around 30 percent of GDP.

Labels: capitalism, central bank of nepal, GDP, IMF, inflation, nepal rastra bank, nepal telecom