FOOD INSECURITY GROWS

But GON and WFP continue to squabble

This Commentary was first published in the The Reporter Weekly

There will be slight increase in the number of food-insecure population in the country this year largely because of agriculture lean season, according to the United Nations World Food Program (WFP). The number of people hit acute food insecurity across the Mid and the Far Western Hill and Mountain (MFWHM), is estimated to be 0.48 million, and WFP is running out of  budget necessary to cope with the situation during the fiscal year 2011/12.The Government of Nepal (GoN) does not have a well-grounded program to address the problem either.

As per the WFP report, the total number of food insecure population in the country stands at 3.7 million spread across 38 out of 75 districts. The MFWHM districts have recorded a 2.7 per cent increase in population (July-September) compared to the corresponding period last year. While food insecurity may not have taken into its fold new population this year, the budgetary constraints of WFP may come as a handicap to do anything substantial there in need.

WFP is  suffering from the 51% budget deficit compared to the planned budget for this fiscal year 2011/12. "The budget deficit is due to the global financial crisis," WFP Nepal Office elaborated, "many donors reduced their contribution  and some stopped the fund for WFP." And that naturally will have its impact on the lives of food insecure people in the country. The UN agency works as per the emergency needs in member countries.

The WFP is coordinating with the Ministry of Local Development (MoLD) to help the food insecure population in Nepal. The Government of Nepal (GoN) hasn't been able to show any willingness to serve the food insecure population besides repeating the cliché of 'food distribution by Nepal Food Corporation (NFC)'.

However, government authorities in Nepal do not quite agree with the projection of the  WFP regarding the  food insecure population. They allege that the WFP is just multiplying the costs of food distribution. "The GoN won't give any additional budget to the WFP," one senior official at  the Ministry of Local Development said, adding “We are not going to repeat our past follies like giving  WFP the money we had got from the World Bank. " Nepalese authorities also claim that WFP just refuses to work ‘under our government’.

The World Bank says that the global food crisis has reached 'dangerous levels'.  “As  Nepal does not produce enough food to meet the domestic requirement, we have to import food from international market. This rising food prices will definitely lead us to some problem. GoN should acknowledge this fact and have to work towards advancing the food production situation in the 38 food deficit districts”, World Banks says.

But what is likely to create more crisis in a scenario of food scarcity is the rigid stance of the government not to give budget to the WFP. “Why can’t it ask the WFP to work more efficiently? But at the same time, WFP also must realize why donors are cutting or reducing their contribution to it when the food insecurity is increasing in many countries,” ask the WB officials.

CAPITAL FLIGHT AND NEPAL

This Commentary was first published in the The Reporter Weekly

"I am surprised to know this figure," Economist Dr. Madan Kumar Dahal said when I shared with him the total amount of illicit financial outflows from Nepal in the last decade ending 2009. The report-- 'Illicit Financial Flows from Developing Countries Over the Decade Ending 2009' –released recently says that total amount of illicit financial outflow from Nepal is estimated to be US $ 6.040 billion during the period.

Trade mispricing, proceeds of corruption and bribery are cited as the three major drivers of illicit financial outflow from Nepal by the report.  Available information suggest that the trade mispricing contributes 83 percent of total l outflows from Nepal. This study by Global Financial Integrity (GFI) tracks the amount of illegal capital flow from 157 countries. The GFI has ranked all the countries on the basis of volume of total illicit financial outflows and Nepal is placed 83rd.

The total illicit financial outflow from Nepal is around 7.25 percent of our Gross Domestic Production (GDP) compared to the same time period.  The amount of money thus lost is enough to run  almost two fiscal years if the amount is compared with that  of the  annual budget of  the government.

The  GFI has taken into account  the balance of payments (BoP), bilateral trade, and external debt data reported by member countries to the International Monetary Fund (IMF) and World Bank while preparing the report. Dr Dahal who is also an expert in Macro Economics, says that this report throws a challenge to the government to  trace the way, and destination of the capital flight and those responsible for it.  Senior officials from Ministry of Finance (MoF) and Nepal Rasrta Bank (NRB) were reluctant to be quoted.

The enactment of the Anti-Money Laundering Act-2008 and Anti-Money Laundering Regulations-2010 together with the establishment of Financial Information Unit (FIU) within the Nepal Rastra Bank (NRB) may be taken as attempts to deal with the problems of illicit financial outflows. But these acts, regulations and units do not appear as effective when Nepal is losing more due to trade-mispricing. The average contribution of trade-mispricing in Asia is just 53.9 percent where as in Nepal's case, the figure is well above -- 83 percent—the mark.

The illicit financial outflow has become a global problem that the governments from different countries are trying to address. But the same cannot be said about Nepal. While some  cases of anti-money laundering in the supreme court of Nepal  filed few months back have taken their own time, government bailing out the  VAT fraud case worth billions of rupees—of late by transferring the investigating officials en masse—makes its intentions clear.

GFI, an NGO based in Washington DC defines illicit financial flows as 'proceeds from both illicit activities such as corruption (bribery and embezzlement of  national wealth), criminal activity and the proceeds of licit business that become illicit when transported across borders in contravention of applicable laws and regulatory frameworks.  And it has its own impacts. The illicit capital flight doesn't only create the illegal problems, but also weakens the capacity of economic indicators of reflecting the situation.

Illicit Financial Outflow

The Economists wondered when I shared with them the amount of money that outflows illegally from the country. The Global Financial Integrity (GFI)’s report "Illicit Financial Flows from Developing Countries Over the Decade Ending 2009” says that US $ 6.040 billion outflows from Nepal illegally between 2000-2009. The amount of money that has been estimated in the report of GFI is almost equivalent to two fiscal years’ budget of Government of Nepal (GoN).

 

Bribing for Monsanto

The hybrid seeds of maize from the American multinational company Monsanto have been distributing in Nepal with the help of some handful of people. There are several news in different local media that United State Agency for International Development (USAID) is lobbying for the entry of this particular company in Nepal.

The latest news has revealed that local contractors in Nepal are trying to push the seeds of Monsanto by bribing to the government officials in Nepal. This news has taken back to the 2009 when the Government of Nepal had to give money to the local farmers in the Terai region of Nepal when the seeds of Monsanto had cost the maize production hugely. The government had dispersed Rs 2 hundred million in the five districts of Terai region through the Ministry of Agriculture and Cooperative (MoAC). 

LOOKING THE OTHER WAY WHEN CRISIS LOOMS LARGE

This article was first published in the The Reporter Weekly

The last staff report of the International Monetary Fund (IMF) in November strongly recommended structural reform in the Nepali economy with emphasis on productivity and growth. In principle, it argues in favor of need for some changes made for the Nepali economy to move ahead, but neither the IMF nor the Government of Nepal   is clear about what really needs to be done immediately.

Structural reform for productivity and growth may not be a vague prescription, but  senior economists and officials here are quite unable to decipher , and interpret it differently.  "Banking sector risks have intensified as financial institutions proliferated in an environment of weak supervision," the staff report of IMF says. This line clearly shows the lack of efficiency on the CBN's part. Dipendra Bahadur Chhetri, Vice Chairman of National Planning Commission (NPC) and former Governor of the Central Bank of Nepal (CBN), says that the IMF's report has an implied meaning- the reengineering of CBN. Finance Secretary Krishna Hari Baskota does not agree with Chhetri.

Perhaps Baskota did not want to be caught in a controversy by making any statement about the recommendation of the IMF. He suggested that the Economic Affairs Division at Ministry of Finance (MoF) was a more competent body to respond to it.  But for one who has already worked  as a Revenue Secretary before moving to the helm of the Finance Ministry  about what the IMF recommendation implies, is unfathomable .

CBN Chief Yubraj  Khatiwada, who is an expert in monetary policy, has not given any statement on the IMF recommendation  either . However, he does not conceal his disagreement  that borderlines with disappointment with the  IMF team, according to a highly placed source in the GoN. The source said that one specific meeting with IMF team had been particularly rocky. The staff report of the IMF which is released annually after the Article IV consultation meeting with Nepal, is implicitly directed towards Dr Khatiwada and the institution he is leading. But others don’t see that unusual.

In the words of vice-chairman of NPC, there is ample room for improvement in the CBN--this is where the IMF is pointing. The efficiency of CBN can be increased if there is willingness from the leader of the institution. But this is being taken by some others as Chetri’s attempt to shirk his responsibility.

As IMF emphasizes on productivity and growth, something directly associated with the NPC that should make Chettri more thoughtful and introspective, instead of blaming the CBN's leadership.  At the same time, Finance Secretary Baskota needs to understand that he should have a clear take on issues raised by an international agency which is there to support Nepal when it is in a difficult situation.

Key technocrats in the three leading government institutions looking in there different directions, and not formulating a joint approach, to say it more precisely, reflects a situation of policylessness in the country in the given context.  This difference shows lack of a harmonious relationship among these institutions and their  leaders . Not being able to formulate a joint approach would mean their collective failure at a time when the nation faces a financial down turn.

Proposal from China for 4 Ports When India Delays

There are news in media that China has proposed to upgrade the ports in the border areas of two countries (Nepal & China). The agreement is about to be signed in the near future. This news has come out just after the Indian Envoy to Nepal Jayant Prasad’s words in the capital city Kathmandu about the Indian investment of almost $ 15 billion worth of in Nepal’s hydro sector. I am sketching this context to observe the competition between two giant economies in Nepal’s neighbor for something but economic advancement.

In the last week of November, Indian scholar S. D. Muni was in Kathmandu and he was sounding a bit aggressive when journalists questioned about what would be the Indian reaction if there was a huge amount of Chinese investment in Nepal. The preparation for signing the agreement to upgrade the ports in the border area of Nepal should be a lesson to India. The most important thing here is that Nepal has been suffering due to the congestion in the Kolkata and Haldia ports. Nepal has been constantly requesting for the facility of Bhisakhapatnam port since last more than a decade.

Nepal-India Petroleum Pipeline in News Again

The petroleum pipeline that has been talking time and again between Nepal and India—this was talked once again in the Inter-Governmental Committee meeting of two sides, which was held in the Delhi last week. This project had started almost one and half year back but couldn’t be materialized due to some irregularities in the Ministry of Commerce &Supply of Nepal then.The Indian Oil Corporation (IOC) had cancelled the Joint Venture proposal (which was in the verge of signing) by saying that the project wouldn’t work in the proper way.

This Project Won’t work in the Long-run 

The pipeline project might be good for the short run of Nepal’s petroleum market but in the long run this might be a problem. I am saying that because the petroleum market of Nepal should be liberalized for private sector--there must be the private sector’s involvement to enhance the quality of market and supply situation. The much talked private sector’s involvement is not happening due to hold of some bureaucratic hazards.  

IFIC Bank Will Have More Share in NB Bank

The International Finance Investment and Commerce Bank Bank Ltd (IFIC Bank) of Bangladesh has shown interest to invest more in the Nepal Bangladesh Bank in Nepal. The Central Bank of Bangladesh has principally provided the permission to IFIC Bank to invest more in the NB Bank in Nepal.

Survey Report of Nepal is Out

Ministry of Finance of Nepal Government has published the Country Survey Report, 2011 on Paris Declaration- 2005. This report shows some significant changes in the last three years from 2008-2011. The donor agencies in Nepal do not use the Country Procurement System (CPS) as much as they used to do in 2008. Only 37 percentage of their total annual budget used to be spent through the CPS in 2008 and now it has been increased by 19 % in the last three years and have reached to 56 percentage of their total annual budget.

AID AGENCY FLOUT GOVT RULE

Nepalese authorities say we are helpless

The aid industry in Nepal does not quite follow an easy route , and there are complex dynamics it associated with it. “In our case, it is like either we let them do whatever they want, or we decline the aid altogether”, a senior official in the Ministry of Finance told The Reporter.

What he implied was a disapproval of the way many aid agencies have conducted themselves in Nepal over a period of time. “ A few bilateral donors and their aid agencies apparently do not follow the Country Procurement System (CPS) that supervises  and keeps a tab on all procurement activities associated with the public sector.

Citing examples, he said  many donor agencies,  including the  United States International Development Agency (USAID), do not follow the CPS, i.e. the aid money it brings in here is spent without following norms set by the government, and these agencies have their way. Senior officials plead helpless on the issue.

“We don't have the right to ask any donor agency to procure under the norms of CPS", secretary at Abnindra Kumar Shrestha, Public Procurement Monitoring Office (PPMO) told The Reporter. “ Article 67 of the Public Procurement Act, 2006  gives  the freedom to donors not to comply with the CPS if the aid is not for budgetary support to the Government of Nepal.”  But it is found that  still a lot of aid intended for budgetary support flaunts CPS. Interestingly, the consultants hired with the help of World Bank had drafted the PPA, 2006.  Official version of the U S Embassy on the issue was not available although it had been approached.

“We are keen that aid agencies follow rules and demonstrate higher degree of transparency and accountability “, an official said , adding “this will also have positive impact in other sectors as this sector alone contributes to 26 per cent of our annual budget.”

“At times, they are very blunt to our mild objections. They simply ask us whether we want their support or not, and that is not the kind of decision that we can take at our level in the bureaucracy”, an official in the  Ministry of Finance said.

The latest Portfolio Performance Review of 2011/2012 has clearly stated that the CPS should be reformed to align it more with our needs and CPS system. But, it is far from being adhered to by the donors and their aid agencies. According to the guidelines, the donors should spend money by following our CPS and not by compelling the officials to accept their aid in its entirety with conditionality or forsake it.

Nepal Narrows Its Trade-Deficit with India

Nepal’s trade deficit with India has narrowed down by 1.6 percent in the first three months of FY 2011/12 compared to last years same period. Only very few products’ export, i.e. the export of zink, sheets, textiles, copper wire rod and cardamom have gone up according to the Government of Nepal’s revelation of a report last week. 

Indian Investment in Nepal’s Hydro Sector

The Indian investment in Nepal’s hydropower sector will definitely lead the country towards a better future. The Indian Ambassador to Nepal Jayant Prasad has said that there could be $ 15 billion worth of investment can be from India in the next five years. But he has given the stress to the ‘investment environment’. 

This statement from the Ambassador has come just around one month later of signing the Bilateral Investment Promotion & Protection Agreement between two countries. Pranav Mukharji, the former Ambassador to Nepal is in town when His Excellency Prasad is talking about the Indian investment in hydro sector of Nepal.

Local Bodies’ High Dependency in Nepal

The local bodies in Nepal have been highly dependent on foreign aid and government's budget. Sushil Ghimire, the secretary of Ministry of Local development has publicly admitted that the reason behind it is the lack of timely election in Nepal.The election in the local level is not happening since last 9 years--almost a decade. Officials and experts have claimed that this situation has been reflected into the dependency of local bodies. Previously, local bodies used to survive on their own by collecting the revenue in their levels.

This high dependency has led to the corruption and mismanagement of budget that goes to the local levels Nepal has been receiving the around 40 percent of total yearly budget as the foreign aid.

Nepal’s Merchandise Trade Rate Goes Up

Nepal Rastra Bank has published its quarterly report of last three months of FY 2011/12. This report says that Nepal’s international merchandise trade’s growth rate has gone up.

• Merchandise exports rose by 6.9 percent to Rs. 18.04 billion ($ 240.53 million) during the three months of FY 2011/12. Such exports had increased by 6.2 percent in the same period last year.

Nepal Gets $ 1 billion Remittance in 2 Years

Nepal has gained around $ 1 billion amount of remittance within two years (2009 to 2011). This amount is quite bigger than the total amount of foreign aid that comes to Nepal. In 2009 Nepal had gained $ 2.985 billion and now in this year the total amount of remittance that comes to Nepal is estimated to be $ 3.951 billion. This amount is 23 % of our total budget of Nepal’s yearly budget in 2011/2012.

This is quite interesting to see that the 23% of our total budget comes through the remittance but we hardly can see any significant uses of it in the development sector. The remittance has been a driving force for the sustainability of Nepali economy.

• Remittance flows to developing countries are expected to total $351 billion this year.
• Worldwide remittances, including those to high-income countries, will reach $406 billion for the current calendar year, according to a newly updated World Bank brief on global migration and remittances.
• The top recipients of officially recorded remittances, estimated for 2011, are India ($58 billion), China ($57 billion), Mexico ($24 billion), and the Philippines ($23 billion). Other large recipients include Pakistan, Bangladesh, Nigeria, Vietnam, Egypt and Lebanon.
• While the economic slowdown is dampening employment prospects for migrant workers in some high-income countries, global remittances, nevertheless, are expected to stay on a growth path and, by 2014, are forecast to reach $515 billion. Of that, $441 billion will flow to developing countries, according to the latest issue of the Bank’s Migration and Development Brief, released today at the fifth meeting of the Global Forum on Migration and Development in Geneva.

This is How USAID Functions!

Monsanto Controversy

An official release of the United States Agency for International Development’s Nepal office posted on its official website on September 13  had an eye-catching headline-  "USAID teams with the Ministry of Agriculture & Cooperatives and the Monsanto Company to enhance maize production in Nepal.” On November 18, USAID posted a status on its Facebook Page--almost opposite of its own version of the earlier release.  The three paragraph text says "No new programs have been entered into by the US Government with the Government of Nepal (GoN) to introduce hybrid maize seeds."

The days between the two postings amply demonstrates how things are done in Nepal, how much USAID cares about providing facts to the media and so on.

On September 13, USAID Nepal had organized a one-day workshop in the Hotel Himalaya which was inaugurated by  Agriculture & Cooperatives (MoAC) Umakant Jha. The USAID release that followed claimed that ‘secretary Jha appreciated the opportunity to work with USAID, particularly on this maize initiative.’ But, secretary Jha later publicly refuted it and said what was attributed to him was ‘baseless and completely wrong'.  "I was present in that workshop and there was a presentation on Monsanto,” Jha said, adding “I was just listening to the discussion but I have no idea about any partnership between MoAC and USAID to bring Monsanto in Nepal." Monsanto is an American multinational agricultural biotechnology corporation which is the leading producer of hybrid glyphosate and Genetically Engineered Seeds.

Soon after Jha’s rebuttal, USAID officials told me that they had no idea what Jha ‘s statement in the media was all about, ‘ but the government of Nepal and USAID are working together to bring Monsanto in Nepal to distribute hybrid maize seeds. Stuti Basnyat, communication officer in the USAID said, "I don't know what secretary Jha told you but we are working towards having an agreement among USAID, GoN and Monsanto."

While the first release mentioned Monsanto five times, but the update in the Facebook less than two months later omitted the name . It simply talks about promoting hybrid seeds.

The two releases and the period in between have fuelled enough controversy , and there has been no convincing clarification issued from any side  Neither the GoN nor the USAID  have tried to explain how hybrid seeds are different  from the traditional ones.  Dragged into the controversy, the USAID now insists that it will only respond to an email query.  On the Nepal government side, Jha has been transferred to the Ministry of Industry, and many read his going against USAID has cost him earlier job. But the Ministry of Agriculture even without Jha refuses to bail out USAID.

Elaborating the genesis of the controversy, Dr. Hari Dahal,  MoAC Spokesperson  said that ‘ one official from USAID had come to the ministry with Monsanto proposal to discuss, but no concrete decision was taken’ . He also challenged the USAID to publicize the documents or evidence, if any, to suggest a deal was in the offing ‘Ministry of Agriculture is not as techno-savvy as USAID is, ‘but facts speak for themselves,’ MOAC officials say.

The current controversy somehow discredits the USAID that has been working in Nepal for the last six decades with substantial support to many developmental projects, and contributed a lot towards Nepal’s journey to a modern and developing country. But like some other bilateral donor agencies, USAID spending money directly in the name of development (bypassing the government)  has of late is also becoming an issue in the country.

In its the Facebook posting,  USAID  claims that  the US mission remains committed development partner to the GoN. While this is true in many ways,  the word ‘commitment’ can not bypass the existing rules of the government.  The development agency that  dismisses its official press release through a posting in the face-book is not a practice that can be called responsible. The episode may perhaps provoke many donors to review their similar approach , and perhaps it is also the time for the UN Resident office to take cognizance of this.

Majjom’s Livelihood

He was pulling the rikshwa with all his effort. He drove me from Ranja Airport to Tribhuvan Chowk, Nepalgunj and asked for one hundred and fifty rupees. 17 years old, Majjom was hesitant to share his story with me. I insisted.

He told me he has been driving rikshwa since last three years (which meant that he started to drive rikshwa from his fourteen!) I was stunned. I asked him why did he leave the school. He proved my question absolutely wrong. He said he does this means of livlihood in his off time only. Majjom goes to school in the day time and drives in morning, evening and only in off days. I gave him Rs 180 in total with Rs 30 as incentive for his zeal to make a better life. That was the only thing I could do!

I could smile with a thought that this generation is going to do ‘something’ to make a better Nepal. I am owed for Majjom’s  spirit to live and make things beautiful. The history of human civilization has been decorated by the economic activities of people.

Labor Market Can Advance ‘The Hope’

The rays of hope in the labor market of Nepal have appeared. The labor unions have agreed to formulate a new Labor Act which will help to normalize the situation of industrial sector in Nepal.

The draft of new Labor Act, the government prepared with the help of International Labor Organization (ILO) has been taken as a hope to normalize the labor issues in the industrial sector of Nepal.

One More time, lets talk about Vishakhapatnam Port

Nepal is one more time going to table the issue of Visakhapatnam port in the Inter-Governmental Committee (IGC) meeting with India . This issue has been discussed with India since more than a decade with India. The Indian Premier Dr. Manmohan Singh had agreed with his Nepali counterpart Dr. Baburam Bhattrai in latter's India visit last month. The IGC meeting is held in every six months between two countries' joint secretary level. This IGC meeting is going to be a small platform to see how much Indian side is positive to upgrade the Nepal's international and regional trade.

 

Weak Economic Diplomacy is a Constant Problem for Nepal's Regional and International Trade

Since more than a decade Nepal is constantly requesting with India to get facility of using the Visakhapatnam port for a better trade with the third countries. Almost in each of the bilateral meeting, Nepali side keeps the issue on table. India never says, 'No'. But till the date, India is not ready to materialize its words into action. One more time India has agreed to give the facility of using Visakhapatnam port during the premier Dr. Baburam Bhattari's visit in last month--October. Nepal is suffering from different problems, like congestion, in Kolkata and Haldiya ports.

In few many informal discussions, officials from Ministry of Commerce and Supply admit that Nepal is lacking the diplomatic effort to push India. This is just a reflection of Nepal-India trade issues. Keep in mind that, we have more than 50 years old Treaty of Trade and Transit with India.

Our Northern neighbor, China is constantly working on its part to upgrade the infrastructures in the border for more volume of trade between Nepal and China. In April 2010, China gave the zero-tariff treatment to the 3 hundred 61 products, which is almost 95 percent of Nepal's total products, to reduce the trade imbalance between two countries.

But where do we have the supply list, what China is expecting to import from Nepal? What China wants to export in Nepal, does china consider Nepal as a potential market for its quality products? Chinese Ambassador to Nepal Qui Guohong is emphasizing on establishing the Trade Areas and Special Economic Zones to vitalize the trade between two countries.

These two cases with our two neighboring countries show that both of them have their own economic diplomacy. What we lack here in Nepal is the sound economic diplomacy. We don't have a balanced approach to our neighbors when it comes to the economic diplomacy. There are enough cases of our unwillingness to maintain the balance. The Chinese pro-activeness in bilateral trade increment and India's cosmetic flavor in the political levels implicitly signify that Nepal do not have its own standard in the diplomatic level to enhance the trade.

The supply-side constraints of our country are understandable but what we are not acknowledging is the 'comfort-zone' of our diplomats towards widening the trade partners. This is the time to get one clear answer why Nepal is not being able to have a direct discussion with Bangladesh about the transit and at the same time why China gives grant to the military force of Nepal but any support to enhance the situation of industrial sector? These questions deserve the answers and answer is 'lack of economic diplomacy of country'.

Nepal has specifically three Commercial Ambassadors in India, Hongkong and Tibet. What our Commercial Ambassadors are doing over there and what is the reason behind government's initiation few months back to send the commercial ambassadors to Spain and Portugal? United States of America could have been one option to send the commercial ambassador or to any another country with which we have a significant volume of bilateral trade. The Trade and Investment Framework Agreement (TIFA) between Nepal and America, which happened this year, is one of the examples of Nepali side's recklessness while signing any agreement either it’s a bilateral one or a multilateral one. The TIFA is just a formality. Honorable ambassador to USA Dr. Shankar Sharma himself is a scholar of economic discipline but what happened while signing the agreement was embarrassing to any citizen of Nepal. Nepal has got not a single privilege from TIFA that other LDCs have not got already from USA.

Nepal entered into the World Trade Organization (WTO) membership in 2004. This forum is one of the most vibrant multilateral platforms for any country in the world. WTO negotiations are always stressful for country like Nepal which has the huge amount of trade with one country--India--with whom the WTO norms do not apply. Nepal's clear failure in economic diplomacy is not being able to revise the Treaty of Trade and Transit, 1960 with India.

Here arises a prominent question that why everything seems functioning and sound in the political level between Nepal and India but in diplomatic levels? This implies our failure on economic diplomacy. India's sound, favorable and supportive face is not the real, if it was it would have been ready to let Nepal and Bangladesh have a bilateral talk for their betterment. But it doesn't in practical term. Again it goes to the same bottle that we have very weak position in every way.

China's proactive approach to strengthen the bilateral trade is also within the circle of doubt. There are rooms which prove again that China's intention is not clear. It has given the zero-tariff treatment to Nepali products and at the same time helping to develop the dry port in Tatopani but this is just a rosy gift to Nepal. China has given the zero-tariff treatment for 4 thousand 7 hundred 21 products from different Least Developed Countries (LDCs). What China is doing with Nepal might be something but do we have any guts say no for that we don't need and tell them what our priorities are. We have the Currently, Nepal and China has Rs 36 billion trade and Nepal suffers Rs 32 billion trade imbalance.

Nepal needs to take decisive actions : IMF

In the IMF's latest notice http://www.imf.org/external/np/sec/pn/2011/pn11134.htm, it has strongly suggested Nepal to make a 'structural reform'. 'Nepal's central bank leadership is being more and more immature and taking very short term measures in the financial sector', blames Dipendra Bahadur Kshetry, the vice president of National Planning Commission http://www.npc.gov.np/.

By showing the inefficiency of Nepal's Central Bank, IMF has said that for the productivity and potential growth there should be the structural reform as soon as possible. Another point that the Nepal side should be aware is that IMF has asked it to take the 'decisive action' to balance the fragile situation of economic situation.  

खाद्यान्न अभाव कायमै

भोजराज पौडेल,काठमाडौं

विश्व खाद्य कार्यक्रम (डब्लूएफपी) ले यस वर्ष पनि नेपालमा खाद्यान्न अभाव कायम रहने जनाएको छ । प्रकाशन तयारीमा रहेको डब्लूएफपी प्रतिवेदनले नेपालमा सन् २००९ देखि ह्वात्तै बढेर गएको खाद्यान्न अभाव २०११ मा पनि कायम रहने देखाएको हो । सन् २००९ को तुलनामा २०१० मा खाद्यान्न अभाव १ सय ३९ प्रतिशतले बढेको थियो ।
“यस वर्ष अघिल्लो वर्षजति अभाव नहुने भए पनि सुधारका संकेत देखिएका छैनन्,” प्रतिवेदनमा भनिएको छ । यद्यपि उसले अभावको मात्रा भने बाहिर ल्याएको छैन ।
डब्लूएफपीको तथ्यांकअनुसार सन् २००९ मा १ लाख ३२ हजार मेट्रिक टन खाद्यान्न अभाव रहेकोमा सन् २०१० मा बढेर ३ लाख १६ हजार मेट्रिक टन पुगेको थियो ।
समयमा पानी परेका कारण केही निश्चित भूभागलाई छाडेर अन्य क्षेत्रमा उत्पादकत्व बढे पनि उत्पादनमा खासै सुधार नआउने डब्लूएफपीले जनाएको छ । गत वर्ष नेपालका झन्डै ४३ जिल्लामा खाद्यान्न अभाव थियो ।
सुदूरपश्चिममा देखिएको संकटको समस्या विस्तारै उर्वर मानिएको तराई भेगतर्फ पनि सरेको प्रतिवेदनले देखाएको छ । तराईका सप्तरी र धनुषा जिल्लामा २००९ को तुलनामा क्रमशः २८ र २० प्रतिशतले वर्षे बाली उत्पादन घटेको छ ।
प्रतिवेदनअनुसार सप्तरीमा २००९ मा १ लाख ६७ हजार मेट्रिक टन धान उत्पादन भएको थियो भने २०१० मा घटेर जम्मा १ लाख २० हजार ६ सय ११ मेट्रिक टन पुगेको थियो । त्यस्तै, धनुषामा २००९ मा १ लाख ५० हजार ४ सय ७७ मेट्रिक टन धान उत्पादन भएकोमा २०१० मा घटेर १ लाख २३ हजार ३ सय ५२ मेट्रिक टन उत्पादन भएको छ । समयमा वर्षा नहुँदा र व्यवस्थित सिँचाइ सुविधाको अभावमा धान उत्पादन घटेको डब्लूएफपीले जनाएको छ ।
समाचार एजेन्सी इन्टिग्रेटेड रिजनल इन्फर्मेसन नेटवक्र्स (आईआरआईएन अर्थात् इरिन) ले नेपालमा सिँचाइको अवस्था नाजुक भएकाले बाली उत्पादनमा ह्रास आएको समाचार सम्प्रेषण गरेको छ । विज्ञहरूको हवाला दिँदै उसले नेपालमा खाद्यान्न अभाव पूर्ति गर्न व्यवस्थित सिँचाइ अत्यावश्यक रहेको बताएको छ । यसका लागि सरकारले पहलकदमी गर्नुपर्ने इरिनले उल्लेख गरेको छ ।
सन् १९७० सम्म नेपाल खाद्यान्न निर्यात गर्ने मुलुकमा पथ्र्यो । त्यसयताका दशकमा नेपालले निरन्तर खाद्यान्न आयात गर्दै आएको छ । खाद्य असुरक्षाको जोखिम तथा आपतकालीन खाद्यान्न सुविधा उपलब्ध गराउने डब्लूएफपीले सन् १९६३ देखि नेपालमा काम गर्दै आएको छ ।
कृषि तथा सहकारी मन्त्रालयका अनुसार नेपालमा प्रतिहेक्टर २.५ टन बाली उत्पादन हुन्छ । सन् १९७० सम्म कुल जनसंख्याको दुईतिहाइ हिमाली तथा पहाडी भेगमा बसोबास गर्थे भने बाँकी एकतिहाई तराई क्षेत्रमा थिए । पहाडी तथा हिमाली भेगमा निरन्तर खाद्यान्न अभाव चुलिँदै गएपछि मानिसहरू क्रमशः तराई क्षेत्रमा बसाइसराइ गर्न बाध्य भएका छन् । उच्च जनसंख्या वृद्धिदर र असमान जनसंख्या वितरणका कारण तराई क्षेत्रमा समेत खाद्यान्न अभाव देखिएको छ ।

Asia's Inflation Trap

Asia has an inflation problem. The sooner it comes to grips with its problem, the better. Unfortunately, the appropriate sense of urgency is missing.
Willingness to tackle inflation is impeded by Asia’s heavy reliance on exports and external demand. Fearful of a relapse of end-market demand in a still-shaky post-crisis world, Asian policymakers have been reluctant to take an aggressive stand for price stability. That needs to change – before it’s too late.
Excluding Japan, which remains mired in seemingly chronic deflation, Asian inflation rose to 5.3% in the 12 months ending in November 2010, up markedly from the 3.5% rate a year earlier. Trends in the region’s two giants are especially worrisome, with inflation having pierced the 5% threshold in China and running in excess of 8% in India. Price growth is worrisome in Indonesia (7%), Singapore (3.8%), Korea (3.5%), and Thailand (3%) as well.
Yes, sharply rising food prices are an important factor in boosting headline inflation in Asia. But this is hardly a trivial development for low-income families in the developing world, where the share of foodstuffs in household budgets – 46% in India and 33% in China – is 2-3 times the ratio in developed countries.
At the same time, there has been a notable deterioration in underlying “core” inflation, which strips out food and energy prices. Annual core inflation for Asia (excluding Japan) was running at a 4% rate in late 2010 – up about one percentage point from late 2009.
A key lesson from the Great Inflation of the 1970’s is that central banks can’t afford a false sense of comfort from any dichotomy between headline and core inflation. Spillover effects are inevitable, and once a corrosive increase in inflationary expectations sets in, it becomes all the more painful to unwind. The good news for Asia is that most of the region’s monetary authorities are, in fact, tightening policy. The bad news is that they have been generally slow to act.
Financial markets appear to be expecting a good deal more Asian monetary tightening – at least that’s the message that can be drawn from sharply appreciating Asian currencies, which seem to be responding to prospective moves in policy interest rates. Relative to the US dollar, an equal-weighted basket of 10 major Asian currencies (excluding Japan) has retraced the crisis-related distortions of 2008-2009 and has now returned to pre-crisis highs.
Export-led economies, of course, can’t take currency appreciation lightly – it undermines competitiveness and risks eroding the country’s share of the global market. It also invites destabilizing hot-money capital inflows. Given the tenuous post-crisis climate, with uncertain demand prospects in the major markets of the developed world, Asia finds itself in a classic policy trap, dragging its feet on monetary tightening while risking the negative impact of stronger currencies.
There is only one way out for Asia: a significant increase in real, or inflation-adjusted, policy interest rates. Benchmark policy rates are currently below headline inflation in India, South Korea, Hong Kong, Singapore, Thailand, and Indonesia. They are only slightly positive in China, Taiwan, and Malaysia.
The lessons of earlier battles against inflation are clear on one fundamental point: inflationary pressures cannot be contained by negative, or slightly positive, real short-term interest rates. The only effective anti-inflation strategy entails aggressive monetary tightening that takes policy rates into the restrictive zone. The longer this is deferred, the more wrenching the ultimate policy adjustment – and its consequences for growth and employment – will be. With inflation – both headline and core – now on an accelerating path, Asian central banks can’t afford to slip further behind the curve.
Asia has far too many important items on its strategic agenda to remain caught in a policy trap. This is especially true of China, whose government is focused on the pro-consumption rebalancing imperatives of its soon-to-be-enacted 12th Five-Year Plan.
So far, the Chinese leadership has adopted a measured approach to inflation. Its efforts focus mainly on increasing banks’ mandatory reserve ratios while introducing administrative measures to deal with food price pressures, approving a couple of token interest-rate hikes, and managing a modest upward adjustment in the currency.
The mix of Chinese policy tightening, however, needs to shift much more decisively toward higher interest rates. With the Chinese economy still growing at close to 10% per year, the government can afford to take more short-term policy risk in order to clear the way for its structural agenda.
Indeed, China’s dilemma is emblematic of one of developing Asia’s greatest challenges: the need to tilt the growth model away from external toward internal demand. That can’t happen without increased wages and purchasing power for workers. But, in an increasingly inflationary environment, any such efforts could fuel an outbreak of the dreaded wage-price spiral – the same lethal interplay that wreaked such havoc in the United States in the 1970’s. Asia can avoid this problem and get on with the heavy lifting of pro-consumption rebalancing only by nipping inflation in the bud.
Much is made of Asia’s Teflon-like resilience in an otherwise tough post-crisis climate. Led by China, the high-flying economies of developing Asia are increasingly viewed as the new and powerful engines of a multi-speed world. While the jury is out on whether there has really been such a seamless transition of global economic leadership, Asia must face up to the critical challenges that may come with this new role. Inflation, if not addressed now, could seriously compromise the region’s ability to meet those challenges.

Stephen S. Roach, a member of the faculty of Yale University, is Non-Executive Chairman of Morgan Stanley Asia and author of The Next Asia.

Copyright: Project Syndicate, 2011.
www.project-syndicate.org

The Emerging- Market Growth Engine

The key role of emerging and developing countries – including India, China, and Brazil – in sustaining world economic growth was brought into sharp focus during the recent global crisis, and has been well documented. This trend is likely to continue in 2011 and beyond.
Indeed, the IMF expects that emerging and developing economies will grow by 6% in 2010 and 6.3% in 2011. Emerging-market economies have not only cushioned the global impact of the recent crisis, but have also helped industrialized countries reverse the recessionary trend of 2008-2009. But recovery remains fragile in the developed world, with unemployment remaining at crisis levels.
But, while emerging economies are proving to be drivers of global demand, the right mix of government initiatives and policies is still required to ensure that they continue to provide the impetus for faster world economic recovery in the short term and be the engines of sustainable growth in the medium and long term. There is also a strong need for supporting long-term capital flows to emerging economies to stimulate investment further, particularly in their infrastructure sectors, thereby injecting much-needed additional demand into the global economy.
In this regard, another important development is the increasing number of emerging-market middle-class consumers, their growing purchasing power, and thus their potential impact on global demand. According to one estimate, middle-class consumers in a dozen emerging economies today wield annual purchasing power totaling approximately $6.9 trillion.
Indeed, projections from McKinsey & Company suggest that the purchasing power of this rising middle class in emerging markets may rise to $20 trillion over the next decade – twice the current level of consumption in the United States. The four biggest emerging economies – Brazil, Russia, India, and China (the BRICs) – are large producers and consumers of goods and services, and will also be important in shaping the pace, direction, and sustainability of global economic growth.
Let me turn to India specifically. In the five years preceding the 2008-2009 crisis, the Indian economy grew at an average rate of nearly 9% annually. During the crisis, annual growth slowed, but only to 6.7%, reflecting the economy’s inherent resilience. The growth rate subsequently recovered to 7.4% in 2009-2010, and we expect 9% growth by 2011-12.
The strength of the Indian economy is underpinned by a high saving rate and robust investment. The government’s prompt action to counter the crisis – fiscal stimulus, growth packages, and monetary easing – proved effective. A sound financial and banking system with limited exposure to global markets, together with the importance of domestic consumption in sustaining demand, has also helped. But what distinguishes India from other emerging economies, in particular China and the Southeast Asian countries, is that domestic demand, rather than exports, is the primary driver of growth.
A return to high growth rates globally will require a broader revival of demand. Needless to say, this will occur only gradually, particularly in the developed countries. Thus, India’s high growth rates will have to remain dependent on strong domestic demand. In order to meet this challenge, we are focusing on investments in infrastructure sectors such as power, telecommunications, roads, ports, and airports.
While the public sector will continue to play an important role, given the massive investment required, substantial private investment – including foreign investment – would be needed to address India’s huge “infrastructure deficit” and the financing gap that accompanies it. A strategy of private-public partnership has been adopted to address the infrastructure challenge. At the same time, we need to invest in our human capital, supporting the development and upgrading of the workforce’s skills and capacity for innovation.
At its summit in Seoul in November, the G-20 firmly placed development at the core of its agenda. Indian Prime Minister Manmohan Singh, underlining the importance of infrastructure investment, made the following proposal, which several leaders endorsed: “Recycling surplus savings into investment in developing countries will not only address the immediate demand imbalance, it will also help to address developmental imbalances. In other words, we should leverage imbalances of one kind to redress imbalances of the other kind.”
As we head into the second decade of the century, innovative ideas like using global savings or surpluses to finance infrastructure in emerging and developing countries should be pursued seriously. Doing so would not only sustain the growth momentum of these economies, but would contribute to global recovery by generating much-needed additional demand in the developed countries.
While the emerging economies’ global role will inevitably grow in the coming years, this shift will need to be anchored in a cooperative partnership with the developed world. As for India, our resilient democratic values, ability to manage diversity, and strong economic fundamentals underpin our country’s current global posture.
By Nirupama Rao (Courtesy: Project Syndicate)

New Year's Hope Against Hope

The time has come for New Year’s resolutions, a moment of reflection. When the last year hasn’t gone so well, it is a time for hope that the next year will be better.
For Europe and the United States, 2010 was a year of disappointment. It’s been three years since the bubble broke, and more than two since Lehman Brothers’ collapse. In 2009, we were pulled back from the brink of depression, and 2010 was supposed to be the year of transition: as the economy got back on its feet, stimulus spending could smoothly be brought down.
Growth, it was thought, might slow slightly in 2011, but it would be a minor bump on the way to robust recovery. We could then look back at the Great Recession as a bad dream; the market economy – supported by prudent government action – would have shown its resilience.
In fact, 2010 was a nightmare. The crises in Ireland and Greece called into question the euro’s viability and raised the prospect of a debt default. On both sides of the Atlantic, unemployment remained stubbornly high, at around 10%. Even though 10% of US households with mortgages had already lost their homes, the pace of foreclosures appeared to be increasing – or would have, were it not for legal snafus that raised doubts about America’s vaunted “rule of law.”
Unfortunately, the New Year’s resolutions made in Europe and America were the wrong ones. The response to the private-sector failures and profligacy that had caused the crisis was to demand public-sector austerity! The consequence will almost surely be a slower recovery and an even longer delay before unemployment falls to acceptable levels.
There will also be a decline in competitiveness. While China has kept its economy going by making investments in education, technology, and infrastructure, Europe and America have been cutting back.
It has become fashionable among politicians to preach the virtues of pain and suffering, no doubt because those bearing the brunt of it are those with little voice – the poor and future generations. To get the economy going, some people will, in fact, have to bear some pain, but the increasingly skewed income distribution gives clear guidance to whom this should be: Approximately a quarter of all income in the US now goes to the top 1%, while most Americans’ income is lower today than it was a dozen years ago. Simply put, most Americans didn’t share in what many called the Great Moderation, but was really the Mother of All Bubbles. So, should innocent victims and those who gained nothing from fake prosperity really be made to pay even more?
Europe and America have the same talented people, the same resources, and the same capital that they had before the recession. They may have overvalued some of these assets; but the assets are, by and large, still there. Private financial markets misallocated capital on a massive scale in the years before the crisis, and the waste resulting from underutilization of resources has been even greater since the crisis began. The question is, how do we get these resources back to work?
Debt restructuring – writing down the debts of homeowners and, in some cases, governments – will be key. It will eventually happen. But delay is very costly – and largely unnecessary.
Banks never wanted to admit to their bad loans, and now they don’t want to recognize the losses, at least not until they can adequately recapitalize themselves through their trading profits and the large spread between their high lending rates and rock-bottom borrowing costs. The financial sector will press governments to ensure full repayment, even when it leads to massive social waste, huge unemployment, and high social distress – and even when it is a consequence of their own mistakes in lending. 
But, as we know from experience, there is life after debt restructuring. No one would wish the trauma that Argentina went through in 1999-2002 on any other country. But the country also suffered in the years before the crisis – years of IMF bailouts and austerity –from high unemployment and poverty rates and low and negative growth.
Since the debt restructuring and currency devaluation, Argentina has had years of extraordinarily rapid GDP growth, with the annual rate averaging nearly 9%from 2003 to 2007. By 2009, national income was twice what it was at the nadir of the crisis, in 2002, and more than 75% above its pre-crisis peak.
Likewise, Argentina’s poverty rate has fallen by some three-quarters from its crisis peak, and the country weathered the global financial crisis far better than the US did –unemployment is high, but still only around 8%. We could only conjecture what would have happened if it had not postponed the day of reckoning for so long – or if it had tried to put it off further.
So this is my hope for the New Year: we stop paying attention to the so-called financial wizards who got us into this mess – and who are now calling for austerity and delayed restructuring – and start using a little common sense. If there is pain to be borne, the brunt of it should be felt by those responsible for the crisis, and those who benefited most from the bubble that preceded it.

Joseph E. Stiglitz is University Professor at Columbia University and a Nobel laureate in Economics. His latest book, Freefall: Free Markets and the Sinking of the Global Economy, is available in French, German, Japanese, and Spanish.

Copyright: Project Syndicate, 2011.
www.project-syndicate.org

Deep Hole Economics

If there’s one piece of economic wisdom I hope people will grasp this year, it’s this: Even though we may finally have stopped digging, we’re still near the bottom of a very deep hole.
Why do I need to point this out? Because I’ve noticed many people overreacting to recent good economic news. What particularly concerns me is the risk of self-denying optimism — that is, I worry that policy makers will look at a few favorable economic indicators, decide that they no longer need to promote recovery, and take steps that send us sliding right back to the bottom.
So, about that good news: various economic indicators, ranging from relatively good holiday sales to new claims for unemployment insurance (which have finally fallen below 400,000 a week), suggest that the great post-bubble retrenchment may finally be ending.
We’re not talking Morning in America here. Construction shows no sign of returning to bubble-era levels, nor are there any indications that debt-burdened families are going back to their old habits of spending all they earned. But all we needed for a modest economic rebound was for construction to stop falling and saving to stop rising — and that seems to be happening. Forecasters have been marking up their predictions; growth as high as 4 percent this year now looks possible.
Hooray! But then again, not so much. Jobs, not G.D.P. numbers, are what matter to American families. And when you start from an unemployment rate of almost 10 percent, the arithmetic of job creation — the amount of growth you need to get back to a tolerable jobs picture — is daunting.
First of all, we have to grow around 2.5 percent a year just to keep up with rising productivity and population, and hence keep unemployment from rising. That’s why the past year and a half was technically a recovery but felt like a recession: G.D.P. was growing, but not fast enough to bring unemployment down.
Growth at a rate above 2.5 percent will bring unemployment down over time. But the gains aren’t one for one: for a variety of reasons, it has historically taken about two extra points of growth over the course of a year to shave one point off the unemployment rate.
Now do the math. Suppose that the U.S. economy were to grow at 4 percent a year, starting now and continuing for the next several years. Most people would regard this as excellent performance, even as an economic boom; it’s certainly higher than almost all the forecasts I’ve seen.
Yet the math says that even with that kind of growth the unemployment rate would be close to 9 percent at the end of this year, and still above 8 percent at the end of 2012. We wouldn’t get to anything resembling full employment until late in Sarah Palin’s first presidential term.
Seriously, what we’re looking at over the next few years, even with pretty good growth, are unemployment rates that not long ago would have been considered catastrophic — because they are. Behind those dry statistics lies a vast landscape of suffering and broken dreams. And the arithmetic says that the suffering will continue as far as the eye can see.
So what can be done to accelerate this all-too-slow process of healing? A rational political system would long since have created a 21st-century version of the Works Progress Administration — we’d be putting the unemployed to work doing what needs to be done, repairing and improving our fraying infrastructure. In the political system we have, however, Senator-elect Kelly Ayotte, delivering the Republican weekly address on New Year’s Day, declared that “Job one is to stop wasteful Washington spending.”
Realistically, the best we can hope for from fiscal policy is that Washington doesn’t actively undermine the recovery. Beware, in particular, the Ides of March: by then, the federal government will probably have hit its debt limit and the G.O.P. will try to force President Obama into economically harmful spending cuts.
I’m also worried about monetary policy. Two months ago, the Federal Reserve announced a new plan to promote job growth by buying long-term bonds; at the time, many observers believed that the initial $600 billion purchase was only the beginning of the story. But now it looks like the end, partly because Republicans are trying to bully the Fed into pulling back, but also because a run of slightly better economic news provides an excuse to do nothing.
There’s even a significant chance that the Fed will raise interest rates later this year — or at least that’s what the futures market seems to think. Doing so in the face of high unemployment and minimal inflation would be crazy, but that doesn’t mean it won’t happen.
So back to my original point: whatever the recent economic news, we’re still near the bottom of a very deep hole. We can only hope that enough policy makers understand that point.

By Paul Krugman
(Courtesy: The New York Times)