Sadly, Nepal has been reduced to a virtual ‘aid colony’ with strategic ideas emanating extraneously

Prof. Madhukar S.J.B.Rana, Former Finance minister, Nepal

Mr Madhukar S.J.B.Rana is currently Professor, South Asian Institute of Management. He served as Finance Minister (2005) as well as Senior Economic Adviser (2003-04) and Chief Economic Advisor (1983-84) at Ministry of Finance. He also served as Special Advisor (1996-98), Ministry of Foreign Affairs and Advisor on Trade (1975-78), Ministry of Industry and Commerce. He was Executive Director, Centre for Economic Development and Administration, Tribhuvan University (1978-79) and Associate Professor (1971-73). He was A/General Manager, National Trading Ltd (1973-75). 

With UN he has worked as Senior Regional Programme Manager, UNDP, Nepal (1995) and Senior Regional Transit-Transport Economist, UNCTAD (1979-82) in Lao PDR and Afghanistan.

He started his career as Manpower Economist with the Federal Govt. of Canada (1967-69) Dept. of Manpower & Immigration and then joined the Nipissing University as Lecturer in Economics and concurrently Cambrian College of Applied Arts and Technology as Associate Teaching Master in Economics, Industrial Relations and Statistics.

He did post graduate studies in international relations, development economics and economics (public finance) from the Graduate School of Advanced International Studies, Geneva University (1962-64); Manchester University, U.K. (1964-66) and McMaster University, Ontario, Canada (1966-67) respectively. He attended a summer course on policy for public enterprises at Harvard University (1973) as well the Brookings Institution for their seminar on North-South Dialogue sponsored by the Stare Dept (1978).

Last week at a diplomatic reception, we approached this Nepali scholar of international standing for an interview to which he agreed. Below the results: Editor

TGQ1: As a noted intellectual, how have you, Mr. Rana, been evaluating the unfolding political events? More so after the Maoists joined the government some three months back. Is the country heading towards normalcy or do you see topsy-turvy road ahead still? Your opinion please.

Mr. Rana: It is a very uncertain and fluid situation. Made more difficult by the lack of a national identity to help bind us together; and to project ourselves amidst the international community.

Look at the total absence of proper diplomatic representation at the ambassadorial level in most countries which further erodes our national presence in the overseas’ corridors of power and the United Nations. 

Nepal has no national anthem. It is no more the secular Hindu state. All political institutions are ad interim. There is no rule of law. Power politics reigns supreme.

Look at how fast and furiously the interim Constitution was amended. Where is the parliamentary debate? Whips have been ordered disallowing   MPs to vote with their conscience even as there is no opposition bench to speak of.

And fundamental institutions of state like the army, police and armed police force are being destabilized along with the supreme judiciary and the civil service.

The politics of spoils in the posting of public servants is negating the very concept of a neutral, merit-oriented national civil and security bureaucracy and thus further undermining the rule of law.

There is creeping encroachment of the freedom of press through muscle power as the right to dissent, the essence of democracy, is being attacked.

The suspension of the Governor of the central bank for pent-up charges of corruption will severely erode whatever autonomy was nurtured by the NRB from formulating monetary and foreign exchange policies independently, based on its very own assessment of the state of the national economy.    

And a dangerous political vacuum exists in the Terai districts which are fraught with several simultaneous mutinies on account of caste, race, religion, gender and geographic exclusion. It needs to be underscored that continuing to raise expectations with populist slogans is utterly self-defeating as the disillusionment, anger and angst of our youth will lead to more violence.

Only a politics of peace and reconciliation based on truth and non-violence, rather than the politics of revenge and brute force, intimidation and extortion will usher national stability.

With continued deterioration of the macro economy, I am afraid I foresee what you call a ‘topsy-turvy’ road ahead in the immediate future. Our politicians should take heed of what the British socialist, Aneurin Bevan, wisely said that there is no freedom without economic surplus.     

TGQ2: The general impression among the Nepal’s independent intellectuals has been that Nepal currently is undergoing through tremendous “extraneous” political pressures more especially from our southern neighbor? Do you subscribe to this view or see some iota of truth? Is it that any State in transition has to remain prepared for such interferences, if any? How you look at these pertinent questions? Your remarks please!

Mr. Rana: Sadly, Nepal has been reduced to a virtual ‘aid colony’ with strategic ideas emanating extraneously; and our extreme dependence on foreign aid has accelerated like never before.

India is deeply interested in political stability for its own national interest, so it pushes for electoral democracy --- no matter how compromised the elections to the constituent assembly (CA) and how illiberal the resultant democracy will be.

The Indian polity is used to functional anarchy. It may be manageable in a giant economy like theirs; but it could be disastrous for small economies faced with massive unemployment of the youth, which was one of the underlying causes for insurgency and terrorism.    

The Europeans seem to believe that democracy is a virtuous self-correcting, self-purifying force. That whether or not the Maoists change their political behaviour now does not matter. Since, what matters, is that they will have to do so after the CA elections when the reality of their electoral base will be reduced substantially.

Europeans assume that the Maoists will join parliamentary politics as a mainstream party, like the UML did. Unlike their ‘conversion’ of the UML, however, the CPN (Maoist) is a political party with arms and ammunitions intact and their people’s liberation army disguised as the Young Communist League.

India has been playing an active mediating role ever since mid 2006 with the connivance of the political parties. This role is becoming more and more proactive as seen from the unusual frequency of the trips of the Indian Ambassador Mukherjee to the Prime Minister’s residence for consultation as the tactical battles between parties do not conform to the strategy provided. 

TGQ3: You are considered to be a senior economist of the country. In what shape is country’s economy today? Given the rising expectations of various ethnic tribes, janajatis, dalits and other disadvantaged groups, what should the upcoming budget focus on primarily? As the country’s finance minister in the past, what would be your suggestions to the current finance minister to seriously look into in order that the positive impact of the budget trickles down to the needy ones? Your comments please.

Mr. Rana: The economy is facing stagflation. Output is stagnant since private investment is falling in the wake of the excess unused capacity in the industrial sector. The government fails to spend what is budgeted.

All this happens because the supply chain is disrupted with frequent bandhs to shut down business activities, governmental bureaus and transportation services. Not to mention the chronic discontinuities in the availability of electricity and petroleum products. People with fixed incomes are suffering as their pockets are being severely pinched by the rising inflation. It is the equivalent of a tax on these people.

The upcoming budget must focus primarily on macro-economic stability to ensure that

(a) inflation is under control;

(b) there is foreign exchange stability and

(c) there is strict control of speculation, hoarding and other business malpractices without which the tenuous political consensus will be aggravated towards a probable rupture with growing capital flight and loss in faith of the Nepali currency as the demand for Indian currency as the medium of  exchange in the Terai.  

As this is an election year so there will be strong temptations to garner vote banks through budgetary allocations in the name of gender, dalits, janajatis, disabled and what not.

My advice to the Finance Minister would be that he should shy away from this since he is limited with very little resources at his command, generated from internal revenue, to play this game. He should stick to economics with an eye on the plight of the ultra-poor and poor no matter what their caste, creed, race and where they are located.

He should seek to macro-manage the economy and not meso-manage or micro-manage it. Similarly, he should ensure that sectoral ministries are not allowed to create their vote banks.

Stability, efficiency in resource utilization and maximum mobilization of internal resources should be his priorities for this year. He should not target a GDP growth rate that is more than 3 % in real terms to be realistic.

With strict monitoring of expenditures and revenue and, not least, constant dialogue with the private sector, given the priorities as above stated, he might even achieve a better than 3% GDP growth rate.

Better to think and act in this positive manner than the business-as-usual practice of over-targeting and then blaming the weather and other external factors for the performance deficit.

The Budget I produced as Finance Minister for 2005-06 was to deal with the exigencies of civil war. Now that there is no war, he should give top most priority, for the cause of justice, for the resettlement and rehabilitation of the internally displaced people as a ‘peace dividend’.   

TGQ4: The recent comments made by Chinese Ambassador appear to have shaken some Capitals of the world near and far. A close look at what the Chinese envoy told some time back appears to suggest that China too would want some space in the politics of Nepal. Do you find such indications in his remarks? If China does so or expects so, how the other countries who have had a primary say in until last week in Nepal’s politics in the recent past would react? To be frank, how Delhi would digest the impending Chinese influence in Nepal? Your opinions please.

Mr. Rana: The recent comments by Ambassador Zeng Xianglin is rather perplexing. However, I analyze it thus: China’s bearing in Nepal as drifted as the institution of monarchy has been marginalized. Monarchy was the anchor of their foreign policy on Nepal. Now they will seek new constituencies to protect their national interest. The issue is this: will it be the CPN (Mao) party?

The Chinese are weary of the influence that the US is gaining in Nepal and the likely massive encroachment in Nepal’s body politic by the international NGOs leading to, and after, the constituent assembly elections.

They perceive these developments as highly onerous that could lead to destabilization in Tibet, which is its strategic underbelly. Therefore, I would not be surprised if King Birendra’s concept of Nepal as a ‘zone of peace’ does not find currency once again.

This time around with both China and India supporting the concept as an opportune device to keep the Americans and Europeans out of Nepal as their spheres of interest too. 

TGQ5: As a minister during the Royal regime, how did you find the King? Was he an assertive political persona and the ministers a mere onlooker as has been given to understand by certain quarters? Did he listen to the ministers or simply bulldozed his personal ideas? If you recall, tell us any such event wherein he took your advice as regards the financial matters relating to the country? Your comments please!

Mr. Rana: To be very honest with you, I was deeply humbled and highly honored to be offered the position as Finance Minister at such as crucial hour in the kingdom’s tryst with destiny.

I believed it was my patriotic duty to serve the nation when it was being terrorized by an insurgency, on the one hand, and bullied and humiliated by donors using the banner of liberal democracy as a universal value.

While in reality they were experimenting, at our cost, with a model of how a ‘fragile state’ could continue with parliamentary democracy and fight terrorism with eventual success.

This experiment would be a glorious feather in their cap so that the likes of democracy under NATO in Afghanistan and under US-UK-Europe in Iraq would not have to be replicated in ‘crisis states’, ‘failing sates’ and ‘failed states’. It is anticipated that such states will be could substantial and they will endanger world peace and security as havens of terrorism and international smuggling of narcotics, arms, people, even baby nuclear bombs.  

Not to mention the destabilization that occurred through their funding of various civil society organs allied predominantly to political parties or simply alien ideologies for personal private benefit. Every self-respecting Nepali is cognizant of this fact.

The King does have an assertive personality. That does not mean that he is aggressive or domineering. He is always gracious. He is a very good listener and we were provided full freedom to speak our minds honestly. I believe that I did so with a clear conscience and with integrity on every occasion.

It is not ethical for ministers to pass the buck for decisions taken by the cabinet collectively. One should resign if one does not like a decision.

Well, as for His Majesty taking my advice I would say that in the broad paradigm of a ‘market economy’ that he promulgated when he took direct stewardship of the state in 2005, he accepted many of my advice. This can be easily verified in statement of aims, objectives and the economic strategy proposed for the 2005-2008.

His strategic vision of Nepal as a ‘transit economy’ was incorporated along with making Nepal as an international offshore financial centre to take advantage of our ‘new’ geographic location in space and time as a land-bridge economy between China and India and the re-emergence of Asia as the geo-strategic centre of the globe.

He consented to carry forward the economic reforms that was agreed to with the likes of the World Bank, Asian Development Bank and International Monetary Fund. More specifically, he agreed to speeding up the privatization process and deregulate the procurement, pricing and distribution of petroleum products by inviting the private sector. Several financial ordinances to strengthen the financial sector were passed. Two significant ordinances were in final stages, namely the Private Trust Act and Deemed University Act, which would have allowed the flowering of Nepal as the educational hub of South Asia. It was also agreed that a new concept of tourism—resident tourists, as in Thailand and Sri Lanka, would be introduced for foreigners to permanently reside in Nepal. Including in the policy package was objective to open the retail sector to foreign private investment.

On the development side, it was agreed that local communities would gradually get direct grants, in varying proportions depending on their level of per capita income, from the Ministry of Finance as matching grants for self-reliant community ventures in creating infrastructure to meet MDG targets.

Finally, VAT was enlarged and complete rationalization was intended in 3 years for it to be the mainstay of the Nepali tax system. In the same course of events, it was agreed that Nepal would move to being the country with the lowest tax burden on income and fixed assets as well as customs duties than in any other nation in South Asia. To arrest rampant graft and corruption, and professionalize the tax administration, it was agreed that by 2008 two autonomous Tax Authorities would be created—one for customs administration and another for all others taxes.

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