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		'Article' => array(
			'id' => '1009',
			'article_category_id' => '37',
			'title' => '‘Seven Percent Growth Rate Possible’',
			'sub_title' => '',
			'summary' => null,
			'content' => '<p>
	<strong style="font-size: 12px;">Can Nepal Achieve 7 per cent&nbsp;<span style="font-size: 12px;">Economic Growth Rate?</span></strong></p>
<p>
	‘Seven percent growth rate possible’</p>
<p>
	<span style="font-size: 12px;">Nepal’s economy has every possibility to grow by 7 per cent in the next fiscal provided that there is political stability in the country and the government makes policy changes to encourage the private sector.</span><span style="font-size: 12px;">The government should focus on providing a stable policy environment, integrating growth of the industrial and service sector and making investments in domestic production to displace imports.</span><span style="font-size: 12px;">Similarly, there is a need to boost our agricultural production. However, we should be able to create markets for our agricultural products.&nbsp;</span></p>
<address>
	<strong>Dr Posh Raj Pandey</strong></address>
<address>
	<strong>Executive Chairman</strong></address>
<address>
	<strong>South Asian Watch on Trade, Economics and Environment (SAWTEE)</strong></address>',
			'published' => true,
			'created' => '2013-05-23',
			'modified' => '2013-05-23',
			'keywords' => 'Seven percent growth rate possible',
			'description' => 'Nepal’s economy has every possibility to grow by 7 per cent in the next fiscal provided that there is political stability in the country and the government makes policy changes to encourage the private sector.',
			'sortorder' => '884',
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			'id' => '1008',
			'article_category_id' => '37',
			'title' => '‘Need For Political Consensus On Fundamental Issues Of Development’',
			'sub_title' => '',
			'summary' => null,
			'content' => '<p>
	<strong style="font-size: 12px;">Can Nepal Achieve 7 per cent&nbsp;<span style="font-size: 12px;">Economic Growth Rate?</span></strong></p>
<p>
	‘Need For Political Consensus On Fundamental Issues Of Development’</p>
<p>
	<span style="font-size: 12px;">Nepal needs a growth rate of around 4-5 per cent in the agriculture sector and 9-10 per cent in other sectors if the country’s GDP is to grow by around 7 per cent. Development is basically a political process.&nbsp;</span><span style="font-size: 12px;">Therefore, it is crucial that the major political parties reach a consensus on the fundamental issues of development. Liberalisation is needed for the growth of organised industrial trade and business.&nbsp;</span><span style="font-size: 12px;">We also need to enhance our productivity and introduce modern technologies to our agriculture sector.</span></p>
<address>
	<strong>Dr Badri Prasad Shrestha</strong></address>
<address>
	<strong>Former Finance Minister</strong></address>',
			'published' => true,
			'created' => '2013-05-23',
			'modified' => '2013-05-23',
			'keywords' => 'Need For Political Consensus on Fundamental Issues of Development',
			'description' => 'Nepal needs a growth rate of around 4-5 per cent in the agriculture sector and 9-10 per cent in other sectors if the country’s GDP is to grow by around 7 per cent. Development is basically a political process.',
			'sortorder' => '883',
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			'id' => '1007',
			'article_category_id' => '37',
			'title' => '‘Nepal Has The Potential To Achieve 7% Growth Rate’',
			'sub_title' => '',
			'summary' => null,
			'content' => '<p>
	<strong style="font-size: 12px;">Can Nepal Achieve 7 per cent&nbsp;<span style="font-size: 12px;">Economic Growth Rate?</span></strong></p>
<p>
	‘Nepal has the potential to achieve 7% growth rate’</p>
<p>
	<span style="font-size: 12px;">Nepal actually does have the potential to achieve a seven percent economic growth rate or more, like our two immediate neighbours – India and China. But in the present situation of political instability and uncertainty, it seems an almost impossible target. The World Bank has estimated Nepal’s economic growth to be not more than 3.8 per cent in the current fiscal year.&nbsp;</span></p>
<p>
	We must focus on our major sectors such as agriculture, tourism, water resource etc if we are to attain speedy economic growth. We must increase our domestic production significantly if we are to achieve such a high growth rate. Increased domestic production will not only help reduce the ever-rising imports of several products but will also help us earn foreign currency by increased exports. Likewise, we must also be able to develop our education, health and social sectors.&nbsp;</p>
<p>
	Finally, the government should create an investment-friendly environment by introducing matching policies and ensuring the security of investment – foreign as well as domestic.&nbsp;</p>
<address>
	<strong>Narayanraj Tiwari</strong></address>
<address>
	<strong>Former Finance Secretary</strong></address>',
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			'created' => '2013-05-23',
			'modified' => '2013-05-23',
			'keywords' => 'Nepal Has The Potential To Achieve 7% Growth Rate',
			'description' => 'Nepal actually does have the potential to achieve a seven percent economic growth rate or more, like our two immediate neighbours – India and China.',
			'sortorder' => '882',
			'image' => null,
			'article_date' => '0000-00-00 00:00:00',
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		'Article' => array(
			'id' => '1006',
			'article_category_id' => '37',
			'title' => '‘Focus On Tourism, Productivity And Exports’',
			'sub_title' => '',
			'summary' => null,
			'content' => '<p>
	<strong style="font-size: 12px;">Can Nepal Achieve 7 per cent&nbsp;<span style="font-size: 12px;">Economic Growth Rate?</span></strong></p>
<p>
	‘Focus On Tourism, Productivity And Exports’</p>
<p>
	<span style="font-size: 12px;">Nepal has the prospects for large-scale investment. Foreign investment is important for the development of sectors such as hydropower, tourism, transport, railway, agriculture and other bigger projects. We need to speedily develop bigger hydropower projects to address the energy crisis. Without tackling the energy crisis, we cannot really expect a healthy economic growth rate. Both the public and the private sectors should invest to increase production. We also need rapid industrialization which will create new employment opportunities. Nepal has tremendous possibilities of tourism development. Nepal should basically target Chinese and Indian tourists. In the last fiscal year, more than 10 million Chinese and Indian tourists went for outbound travel. If we can attract only 10 per cent of it, we will have one million more tourists. Nepal should make serious attempts to achieve this. Nepal should make long-term strategies to reduce imports and increase exports by increasing the domestic production of goods and services. Nepal should focus on increasing the export of commodities like, carpet, herbs, ginger, tea and Pashmina, among others.</span></p>
<div>
	<address>
		<strong>Jaya Mukunda Khanal&nbsp;</strong></address>
	<address>
		<strong>Secretary</strong></address>
	<address>
		<strong>Ministry of Agriculture Development</strong></address>
</div>',
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			'created' => '2013-05-23',
			'modified' => '2013-05-23',
			'keywords' => 'Focus On Tourism, Productivity And Exports',
			'description' => 'Nepal has the prospects for large-scale investment. Foreign investment is important for the development of sectors such as hydropower, tourism, transport, railway, agriculture and other bigger projects. We need to speedily develop bigger hydropower projects to address the energy crisis.',
			'sortorder' => '881',
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	(int) 4 => array(
		'Article' => array(
			'id' => '987',
			'article_category_id' => '37',
			'title' => 'Economic Policy’s Narrative Imperative',
			'sub_title' => '',
			'summary' => null,
			'content' => '<p>
	<strong>By Kemal Derviş</strong></p>
<p>
	<span style="font-size: 12px;">The best advice I received when taking up policymaking responsibilities in Turkey more than a decade ago was to take “a lot of time and care to develop and communicate the ‘narrative’ to support the policy program that you want to succeed.” The more that economic policy is subject to public debate – that is, the more democracy there is – the more important such policy narratives are.</span></p>
<p>
	The crisis faced by the European Union and the eurozone is a telling example of the need for a narrative that explains public policy and generates political support for it. A successful narrative can be neither too complicated nor simplistic. It must capture the imagination, address the public’s anxieties, and generate realistic hope. Voters often sense cheap populism.</p>
<p>
	European Central Bank President Mario Draghi provided such a narrative to the financial markets last July. He said that the ECB would do everything necessary to prevent the disintegration of the euro, adding simply: “Believe me, it will be enough.”</p>
<p>
	With that sentence, Draghi eliminated the perceived re-denomination tail risk that was highest in the case of Greece, but that was driving up borrowing costs in Spain, Italy, and Portugal as well. It was not a populist message, because the ECB does indeed have the firepower to buy enough sovereign bonds on the secondary market to put a ceiling on interest rates, at least for many months.</p>
<p>
	Central bankers, more generally, are typically able to provide short- or medium-term narratives to financial markets. US Federal Reserve Board Chairman Ben Bernanke provided his own by pledging that US short-term interest rates would remain very low, and the Bank of Japan’s new chairman, Haruhiko Kuroda, has just provided another by saying that he will double the money supply so that inflation reaches 2%.</p>
<p>
	While central bankers can provide such narratives to financial markets, it is political leaders who must provide the overall socioeconomic messages that encourage long-term real investment, electoral support for reform, and hope for the future. Central bank alchemy, to borrow a term from the US journalist Neil Irwin’s new book, has its limits.</p>
<p>
	Europe, in particular, needs a narrative of long-term hope that will trigger a real recovery. France is coming closer to the danger zone, and even Germany’s annual GDP growth is falling well below 1% per year. In the meantime, the easing of sovereign interest-rate spreads provides little comfort to the growing army of unemployed in southern Europe, where youth unemployment has reached dramatic heights – close to 60% in Greece and Spain, and almost 40% in Italy.</p>
<p>
	The narrative should address three essential questions. How can the European model of strong social solidarity and security be reformed, but endure? How can economic growth be revived and sustained throughout the EU? And how can Europe’s institutions function with enhanced legitimacy to accommodate countries that share the euro and others that retain their national currencies?</p>
<p>
	For starters, a revolution is required in the organization of work, learning, and leisure. Social solidarity, essential to European identity, can and must include longer work lives, but also more work-sharing, adult learning, and shorter average work weeks (particularly close to retirement).&nbsp;</p>
<p>
	Such flexibility requires the consent of all: employees must adjust to changing requirements; employers must re-organize their enterprises to allow more work-sharing, work from home, and learning intervals; and governments must overhaul taxes, income support, and regulation to promote a “flex-solidarity revolution” that encourages personal choice and responsibility, while remaining committed to social cohesion. This can lead to a better future for all, with citizens gaining better access to adult education, having more free time to pursue personal interests, and remaining productive and occupationally engaged far longer into their healthy lives.</p>
<p>
	Europe does not need Asia’s rates of economic growth. It can secure decent jobs and prosperity, with a sustained annual growth rate of around 2%. To achieve that, German voters should be told not that their country’s resources will forever flow to Spain, but that their wages can rise at twice the rate of the recent past without risking inflation or a current-account deficit, because Germany has the world’s largest external surplus.</p>
<p>
	Service-sector industries throughout the EU must be opened up. The countries with stronger fiscal positions should take the lead in a major pan-European skill-upgrading program. The number of pan-European scholarships should be doubled. School programs everywhere should aim to educate trilingual citizens.</p>
<p>
	Moreover, a full European banking union with shared resources for resolution should be created without further delay. The European Investment Bank, which received a significant capital increase in 2012, should add a large investment-support program for medium-size enterprises to its current operations, with a subsidy financed from the European budget to encourage first-time job takers for a limited period. Jobs and training for young people must be the centerpiece for the new growth pact, and projects must move ahead in “crisis mode,” rather than according to business as usual.</p>
<p>
	Finally, while monetary union obviously requires greater sharing of sovereignty, there should also be a “greater Europe” that includes the United Kingdom and others. This implies two-tier institutions that can accommodate both types of countries: the “euro-ins” and those that prefer to preserve their monetary sovereignty in a larger Europe built around a vibrant single market and common democratic values.</p>
<p>
	These interconnected visions can and must be realized if Europe is to thrive again. Together, they form a compelling narrative that European leaders must begin to articulate.</p>
<p>
	<span style="font-size:10px;">Kemal Derviş, former Minister of Economic Affairs of Turkey and former Administrator for the United Nations Development Program (UNDP), is Vice-President of the Brookings Institution.</span></p>
<p>
	<span style="font-size:10px;">Copyright: Project Syndicate, 2013.</span></p>',
			'published' => true,
			'created' => '2013-05-22',
			'modified' => '2013-05-22',
			'keywords' => 'Economic Policy’s Narrative Imperative, Economy and Policy, New Business Age',
			'description' => 'For starters, a revolution is required in the organization of work, learning, and leisure. Social solidarity, essential to European identity, can and must include longer work lives, but also more work-sharing, adult learning, and shorter average work weeks.',
			'sortorder' => '864',
			'image' => null,
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	(int) 5 => array(
		'Article' => array(
			'id' => '940',
			'article_category_id' => '37',
			'title' => 'Why Are Most Domestic Airlines Running In Loss?',
			'sub_title' => '',
			'summary' => null,
			'content' => '<p style="text-align: justify;">
	<strong>By Akhilesh Tripathi</strong></p>
<p style="text-align: justify;">
	Leaving a few as exceptions, most domestic private sector airlines in Nepal are not in sound financial health. In fact, a majority of them have always been struggling for survival. The list of Nepali private airlines closed down so far is a long one, carrying well over a dozen names of which a few grounded their fleet and downed their shutters after flying in the Nepali sky for as long as a decade. Examples are Necon Air and Cosmic Air. Their contemporaries &nbsp;such as Skyline Air, Shangril-Lai Air, Mountain Air, Nepal Airways, Lumbini Air, Everest Air – to name a few – were also closed down.&nbsp;</p>
<p style="text-align: justify;">
	Many – five dozen to be exact - haven’t started their operations despite receiving the Airline Operator’s Certificate (AOC) from the Civil Aviation Authority of Nepal (CAAN) many years ago. They are airlines on paper only. Understandably, the biggest deterrent for them is the collapse of several airlines in the past. There is no doubt that the present of the domestic aviation industry has improved, but not enough. A few airlines are really doing well – but they are oonly a few. Others are in the red, according to a highly-placed source at CAAN. Recently, two airlines have been in problems – Agni Air and Guna Air. The latter was acquired by Simirik Air, a helicopter service provider, which rebranded it as Simrik Airlines and launched its domestic flights. &nbsp;</p>
<p style="text-align: justify;">
	The Number One airline (Buddha Air) at present is far ahead the Number Two (Yeti Airlines) in terms of the number of passengers carried as well as the profit made annually. And there is always a stiff competition among a couple of other private airlines for the Number Three position in the domestic aviation market which has all together 15 private airlines (nine fixed-wing and six rotary-wing) in operation at present. Of the total 1.6 million domestic air passengers in 2012, the Number One airline carried more than 800,000 and also made, according to knowledgeable sources, more than Rs 4 billion in profit. The remaining Rs 3 billion of the annual business was shared by the remaining 14 airlines. That speaks volumes about how profitable some of them might just be!</p>
<p style="text-align: justify;">
	Ever since the country adopted a liberal aviation policy in 1992, the number of companies seeking and receiving AOC has been rising year on year. However, sustainability has been a major problem for them. “Four of the nine fixed-wing airlines and three of the six rotary-wing airlines operational at present are in profit. Others are in loss,” reveals the CAAN source.&nbsp;</p>
<p style="text-align: justify;">
	<strong>Why?</strong></p>
<p style="text-align: justify;">
	Why civil aviation is yet to become a profitable business for a majority of the private airlines operational at present? Is the number of airlines more than the market can actually sustain? Why so many airlines have failed? And why do others face the risk of failure? Nubiz sought answers to these questions from four experts of Nepal’s aviation industry: T R Manandhar (Director General of CAAN), Saral Shamser Rana (Deputy Marketing Director of Yeti Airlines), Manoj Karki (Managing Director of Goma Airlines) and Pradeep Shrestha (CEO of Air Kasthamandap). This is how they answered these questions:</p>
<div style="text-align: justify;">
	<strong>‘Airlines should go for mergers’</strong></div>
<div style="text-align: justify;">
	<strong><br />
	</strong></div>
<div>
	<div style="text-align: justify;">
		Yes, it’s true that several airlines have closed down, mainly because of financial reasons, in the past. We have also heard complaints that the number of airlines is more than the market can actually sustain. Therefore, the government has made the Airline Operator’s Certificate Requirements (AOCR) more stringent a couple of months back. Now, no AOC will be issued unless the airline procures the aircraft. Though we have adopted a liberal aviation policy, we don’t encourage companies to enter the aviation industry at the moment, unless they have serious, long-term plans supported by adequate capital base. There are three airlines operating scheduled flights on the trunk routes at present. Two more, Namaste Air and Blue Airways, have applied for scheduled domestic operations on the trunk routes; they are in the process of procuring aircraft.&nbsp;</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		The main reason why so many domestic airlines collapsed and why many others are incurring a loss is low capital base and lack of long-term planning. Everyone planning an airline company should be clear that it requires huge investments and the operating cost is also very high which means the promoters need deep pockets. The airlines which are operating chartered flights to the remote areas are in loss. That’s why we have started building paved runways at airports in the rural areas. Currently, paved runways are under construction at over half a dozen such airports. Similarly, we are also installing modern aviation tools and technologies such as Tower Console, VOR, CCR, Met equipment, PAPI Light etc at various airports.</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		I seriously feel that the existing airlines should go for mergers among themselves. This will increase their capital base and fleet and lower the operational cost to some extent. What the experience shows is many airlines collapsed after they faced accidents. So, they must pay proper attention to all the safety measures in order to avoid accidents. There is lack of skilled technical and expert human resource. For example, there is a limited supply of captains and engineers. So, airlines often ‘hunt’ such human resource from among themselves which ultimately affects the operation of those airlines which lose such human resource. The demand of airline service will not increase by any significant degree unless there is a considerable growth in tourist arrivals.</div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: right;">
		T R Manandhar</div>
	<div style="text-align: right;">
		Director General</div>
	<div style="text-align: right;">
		CAAN</div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: justify;">
		<strong>‘Only an aviation expert should run an airline’</strong></div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: justify;">
		Very few investors have grasped the aviation business in Nepal properly. An airline cannot be run like most other businesses. Without the experience and knowledge about the costs involved, the turnaround times and expenses that are actually incurred, one will never see a sustainable business. You need an aviation expert to run an aviation business, not just one with the capital to finance it.</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		The variables in the market, the trends and patterns are unpredictable. A factor such as weather can make or break a season for an airline. Working with the correct promotions team, at the right prices and focusing on the long run is crucial to succeed. The competition is also fierce, and has in the past brought about the closure of various airlines. Seeking opportunities to work together for mutual benefit is rare; rather it’s the opposite and many are out there to bring others down.&nbsp;</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		The lack of training and experience amongst the teams within the airline is another cause for the downfall. Crew should not be rushed to senior positions just to fill up spaces or to meet some compliance. It is one of the reasons why the accident rate in Nepal is higher than in most places on earth and that directly leads to my next point - insurance premium: loss of one, borne by many. There might be many variable costs in the running of an airline but a primary fixed cost beside the loan is the insurance premium. Whether you fly or not, you always have to pay it. It’s a cost that can bring a company down and it does not take into account a bad season.</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		The reasons can be endless, however this is not a struggle only faced in Nepal. Richard Branson, founder of Virgin Airlines, on his advice to become a millionaire, said, “The easiest way to become a millionaire is to first become a billionaire and then start an airline!” However, with the backing of investors and good leadership, Nepali aviation can reach greater heights.&nbsp;</div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: right;">
		Capt Pradeep Shrestha</div>
	<div style="text-align: right;">
		Chief Executive Officer</div>
	<div style="text-align: right;">
		Air Kasthamandap</div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: justify;">
		<strong>‘Many airlines enter the market without proper market study’</strong></div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: justify;">
		The airlines have to take huge loans from banks as the investment cost is very high. In the past, some companies entered the aviation market only for the sake of it, making the supply higher than the demand. This caused unhealthy competition leading to sustainability problems at the end. The survival of airlines in Nepal is very challenging, especially for those flying to the remote areas where the runways are really bad; other several airport facilities are simply absent. The operating cost is very high. For example, a single servicing of the engine costs around Rs 700,000 to 1 million. Many airlines enter the market without studying the opportunities available.</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		Airlines flying to the remote areas have additional challenges. The cost of operating flights in the remote areas is comparatively high. The government should fix the number of flights and the rates for remote areas based on the flow of passengers and the operational cost of the flights. The government can help the airlines flying to the rural areas in terms of fuel costs and VAT and other taxes. However, increasing the tourist arrivals is one sure way to make aviation a profitable business for domestic airlines. More tourists means more opportunities for the airlines to make money. The government should make the issuance of AOC more stringent so that there is a balance between demand and supply. Airlines such as Yeti Airlines, Buddha Air, Simrik Air etc seem to have a profitable business. But they have taken huge loans for which the interest is also quite high. However, they have been able to stand out in the market because of proper planning, professional and efficient service, good market strategy, adequate investment and operating capital.&nbsp;</div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: right;">
		Saral Shamser Rana</div>
	<div style="text-align: right;">
		Deputy Marketing Director</div>
	<div style="text-align: right;">
		Yeti Airlines</div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: justify;">
		<strong>‘Airlines fail miserably in financial risk management’</strong></div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: justify;">
		The major reason behind the collapse of most domestic airlines in the past is the failure to manage the financial risks. Managerial shortcomings, lack of aircraft matching the country’s geography, lack of enough support from the government and the then aviation policy could be the other reasons. However, it is commendable that the private sector has continued to support the domestic aviation industry despite these odds.</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		Aircraft matching the country’s difficult geography are a must for an airline. Skilled manpower is another prerequisite. As there is lack of enough skilled human resource, one airline has to often ‘steal’ talents and experienced human resource from the others. The airfares have not increased according to the hike in the aviation fuel prices in recent times. Operating flights in the remote areas entails even higher costs. Hence, profit becomes even more challenging for these airlines. The operating cost of an airline is very high. And it takes at least a few years before an airline can expect profits. So the promoters need to have deep pockets as well as patience and long-term plans before jumping into the market.</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		Experience has shown that if someone wants to run an airline, then s/he should focus on the airline only. Diverting the income from the airline to other investments may cause problems, especially in the beginning years. We have already seen the fall of several companies which invested the income from aviation into other sectors. The promoters should have enough capital to meet all financial problems that could crop up in the future.&nbsp;</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		Also, the government needs to revise the aviation policy. The number of passengers has been on a constant rise in flights to the major urban destinations. However, it is difficult for the airlines flying to the rural areas to get enough passengers while the risks of flying are also high in these areas.</div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: right;">
		Manoj Karki</div>
	<div style="text-align: right;">
		Managing Director</div>
	<div style="text-align: right;">
		Goma Air</div>
</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Nepal’s Civil Aviation: Some Facts</strong></div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: justify;">
		The Nepali private sector entered the domestic air transport after the adoption of Liberal Aviation Policy in 1992. Nepal Airways was the first private airline to start scheduled domestic flights in Nepal (1992). It got the Airline Operator’s Certification from the Civil Aviation Authoruty of Nepal (CAAN) in Feb 1992. Necon Air followed suit in September 1992. In 2001 two other local airlines – Shangri-La Air and Karnali Air merged with Necon which operated flights to all major domestic destinations. It also had flights to Patna and Varanasi in India before being closed down in 2003.</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		Domestic operation by jet aircraft commenced in 2004 by Cosmic Air. Some 75 private airlines have received AOC from CAAN but only 15 of them are operational at present – nine fixed-wing and 6 rotor-wing airlines. Over a dozen which came into operation after 1992 have closed down so far. Nine fixed-wing airlines operational at present - Nepal Airlines (government-owned), Buddha Air, Yeti Airlines, Sita Air, Tara Air, Air Kasthamandap, Makalu Air, Goma Air, Simrik Airlines (Guna Air has been renamed as Simrik Airlines after it was recently acquired by Simrik Air, a helicopter company) and Agni Air (AOC still valid but flights grounded at present). The domestic civil aviation industry is said to be growing at 10-12 per cent per anum.Private investment in civil aviation is estimated above Rs 11 billion.</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		Six rotor-wing airlines operational at present are:&nbsp;</div>
	<ul>
		<li style="text-align: justify;">
			Buddha, Yeti and Simrik are the three airlines operating mountain flights at present.</li>
		<li style="text-align: justify;">
			NAC, Sita Air and Tara Air are the airlines flying to the rural areas</li>
		<li style="text-align: justify;">
			Air Kasthamandap launched a test flight to the Syangboche Airport, the highest-altitude airport in Nepal (3780m) on March 18, 2013. &nbsp;</li>
		<li style="text-align: justify;">
			Air Kasthamandap, Makalu Air and Goma Air, three new players in the aviation market, have single-engine aircraft and don’t have scheduled flights. They operate chartered and cargo flights, mostly to the rural areas.</li>
		<li style="text-align: justify;">
			Namaste Airlines has applied for permission for domestic flights.</li>
	</ul>
</div>
<div style="text-align: justify;">
	 </div>',
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			'created' => '2013-04-17',
			'modified' => '2013-05-23',
			'keywords' => 'Why Are Most Domestic Airlines Running In Loss?',
			'description' => 'Leaving a few as exceptions, most domestic private sector airlines in Nepal are not in sound financial health. In fact, a majority of them have always been struggling for survival.',
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		'Article' => array(
			'id' => '893',
			'article_category_id' => '37',
			'title' => 'Debate Of The Month: Is The Reality Sector Really Picking Up?',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="background:#f9f5a1;padding:3px;">
	<p>
		<strong>Nepali Real Estate at a Glance</strong></p>
	<ul>
		<li>
			Over 400 institutional real estate entrepreneurs across the country; 147 of them registered at Nepal Land and Housing Development Association&nbsp;</li>
		<li>
			From laymen to professionals like doctors and engineers are in this business</li>
		<li>
			The door for organised housing in Nepal opened after the 1995 Collective Housing Act allowed private ownership of apartment units</li>
		<li>
			The investment of banking and financial institutions (BFIs) in real estate and housing stands at around Rs 150 billion; Private sector promoters and builders have invested another Rs 250 billion</li>
		<li>
			The real estate market in Nepal grew significantly after the 1990 political change. It registered impressive growth even during the Maoist insurgency until the late 2008 when it started to slow down.</li>
		<li>
			According to the latest data, commercial banks have given about Rs 68 billion in real estate loans, which is 10.4 percent of the total loans issued by them. Commercial banks’ total lending to the realty sector reached its peak in Jan 2011 to almost Rs 99 billion or 20 per cent of their total lending.</li>
		<li>
			Now, most of the commercial banks which were overtly exposed to the real estate sector have brought down their exposure to below 25 percent level. At the same time, outflow of home loans of up to Rs 10 million has been picking up, with the total amount expanding from Rs 30.83 billion in October 2011 to almost Rs 40 billion by the end of 2012. Several development banks and finance companies are yet to overcome their real estate loan problem.&nbsp;</li>
		<li>
			It is, however, said that a fairly large portion of loans extended to the real estate sector is in the guise of overdraft and term loans, indicating that the problems of the real estate sector in Nepal could be far from over.</li>
	</ul>
</div>
<p style="text-align: justify;">
	We all know that Nepal’s real estate sector has been in an ailing state for more than the past three years. The real estate and housing industry witnessed a speedy growth (which many say was an unnatural growth), until the Nepal Rastra Bank (NRB), regulator of the country’s financial market, suddenly restricted banks’ lending to the sector in September 2010. NRB not only put a ceiling on real estate loans but also made it mandatory for real estate buyers to declare their income source for purchase of property worth more than Rs 5 million.&nbsp;</p>
<p style="text-align: justify;">
	Many bankers and real estate players compared this NRB move with a driver’s attempt to stop at once a car speeding along at 80 miles an hour. “When you press on the brakes to stop such a car at once, it is almost always doomed to crash. This is what happened to Nepal’s real estate and housing sector,” complain many bankers. According to them, maybe what happened to the country’s real estate industry over the past three years cannot be called a crash, but the industry was hit really, really hard.</p>
<p style="text-align: justify;">
	But it seems things have started to change now, for the better. After a three-year long slump, Nepal’s real estate and housing sector has shown some signs of improvement of late. Many analysts and industry insiders are still hesitant to call it the beginning of a recovery but even they admit that cautious optimism has replaced the general mood of doom and gloom prevalent in the industry as early as even a few months ago.&nbsp;</p>
<p style="text-align: justify;">
	Looking at the market at present, it is apparent that the genuine, long-term developers have survived the slump, while those who joined the fray just for fast cash have, perhaps, been combed out. Meanwhile, the NRB, too, has adopted a bit flexible approach to the sector in this period which the private sector stakeholders deem as inadequate. Similarly, there have been reports that real estate and housing borrowers who had the banks’ doors shut for them until recently have started getting scrutinized entries into the banks.&nbsp;</p>
<p style="text-align: justify;">
	There are some other signs as well that indicate that the realty sector might have started to climb up. According to real estate entrepreneurs and housing developers, this business has growth by 33 per cent in the first half of the current fiscal year, compared to the same period the previous year.&nbsp;</p>
<p style="text-align: justify;">
	Government revenue from this sector, too, has increased by nearly Rs 370 million in the first six months of this FY, compared to the same period the previous FY. Given these developments, Nubiz asked some of the major players of Nepal’s realty sector, bankers and regulators whether the sector has really started to witness a revival? Here is what they had to say: &nbsp;&nbsp;</p>
<p style="text-align: center;">
	<strong><span style="font-size: 14px;">‘There are positive signs’</span></strong></p>
<div style="float:left; width: 210px;margin-left:10px;">
	<img align="left" alt="Ichchha Raj Tamang" height="283" src="http://newbusinessage.com/ckfinder/userfiles/Images/march2013_debate_of_the_month_ichchha.jpg" style="margin:0 10px 0 0;" width="208" />
	<address>
		<strong>Ichchha Raj Tamang</strong></address>
	<address>
		<strong>President</strong></address>
	<address>
		<strong>Nepal Land and Housing Developers’ Association (NLHDA)</strong></address>
</div>
<p style="text-align: justify;">
	<span style="font-size: 12px;">This sector was doing very well. We all know that. But then some banks started speculative lending which was followed by others. This provoked the NRB to take stringent measures in the real estate and housing. The NRB, too, should not have implemented that decision at once. Anyway, the combined effect was that the realty sector faced a long slump.&nbsp;</span></p>
<p style="text-align: justify;">
	However, we have seen some positive signs for the realty sector in the first half of the current fiscal year. Statistics show that this sector has grown by 33 per cent in the first six months of the current fiscal year than the same period of the previous fiscal year. We hear that government revenue from the sale of land and houses has gone up in the first six months of this fiscal year. That is another indicator that the sector might have started picking up. Banks, too, have started new home loans at lower interest rates. Though they appear hesitant to invest in the housing apartments, their lending to individuals for land and houses, and loans to multi-storied commercial business complexes being built around Kathmandu have increased in recent months.&nbsp;</p>
<p style="text-align: justify;">
	These are good signs for the realty sector. The other important thing is this market has already witnessed almost the rock-bottom situation. This situation could not continue forever; it had to show the signs of revival. That is what has perhaps started to happen.&nbsp;</p>
<div>
	 </div>
<div>
	 </div>
<div>
	 </div>
<div>
	 </div>
<div>
	 </div>
<div>
	 </div>
<div>
	 </div>
<div>
	<span style="font-size:16px;"><b style="font-size: small; text-align: justify;"><br />
	</b></span></div>
<div>
	<span style="font-size:16px;"><b style="font-size: small; text-align: justify;"><br />
	</b></span></div>
<div style="text-align: center;">
	<span style="font-size:16px;"><b style="font-size: small; text-align: justify;">‘Market activity has increased’</b></span></div>
<div>
	 </div>
<div style="float:left; width: 210px;margin-left:10px;">
	<img alt="Bhesh Raj Lohani" height="291" src="http://newbusinessage.com/ckfinder/userfiles/Images/march2013_debate_of_the_month_bhesh.jpg" style="margin:0 10px 0 0;" width="208" />
	<address>
		<strong>Bhesh Raj Lohani</strong></address>
	<address>
		<strong>Secretary</strong></address>
	<address>
		<strong>Nepal Land and Housing Developers’ Association (NLHDA)</strong></address>
</div>
<p style="text-align: justify;">
	<span style="font-size: 12px;">In the first six months of the current fiscal year, the government has collected Rs 2.27 billion in revenue from the sale of land and houses. The figure was only Rs 1.9 billion in the first six months of the previous fiscal year. It is true that the increased tax rates have contributed to this growth but the number of land and house transactions has also increased this year. The sales of low-priced land and houses have particularly gone up.</span></p>
<p style="text-align: justify;">
	Banks have lowered their interest rates for loans from as high as 17 per cent last year to around 10 per cent recently. Remittance inflow has grown; this too has helped the real estate business. The NRB, too, has adopted somewhat liberal policies for the real estate sector, especially after the sector fell into a deep crisis from which it is struggling to come out now. There are scores of middle-class families who need houses and apartments as their permanent residences. Stand-alone houses are still bigger attractions for Nepalis than the apartments. Recent experiences, too, have shown that.</p>
<p style="text-align: justify;">
	If the current growth rate continues, then we can expect more investment in this sector by the end of this fiscal year. The realty business was stagnant for almost three years. Many buyers were waiting for the prices to come down. And the prices have indeed come down significantly, compared to three years ago. So, market activities have surely increased.</p>
<p style="text-align: justify;">
	 </p>
<p style="text-align: justify;">
	 </p>
<p style="text-align: justify;">
	 </p>
<p style="text-align: justify;">
	 </p>
<p style="text-align: justify;">
	 </p>
<p style="text-align: justify;">
	 </p>
<p style="text-align: center;">
	<span style="font-size: 14px;"><b>‘Real estate is gradually improving’</b></span></p>
<div style="float:left; width: 210px;margin-left:10px;">
	<p style="text-align: justify;">
		<img alt="Bhaskar Mani Gyawali" height="291" src="http://newbusinessage.com/ckfinder/userfiles/Images/march2013_debate_of_the_month_bhaskar.jpg" style="margin:0 10px 0 0;" width="202" /></p>
	<address>
		<address style="text-align: justify;">
			<b>Bhaskar Mani Gyawali</b></address>
		<address style="text-align: justify;">
			<b>Spokesperson</b></address>
		<address style="text-align: justify;">
			<b>Nepal Rastra Bank</b></address>
		<div style="text-align: justify;">
			 </div>
	</address>
</div>
<p style="text-align: justify;">
	We have observed that Nepal’s realty sector has shown a gradual improvement over the past few months. The improvement has not been as expected. But what I can say is the country’s real estate sector has seen its worst; things will only improve from here. Actually this process has already started. As the regulator, NRB has done all it could, to help banks recover their loans to this sector. NRB’s directives issued from time to time have helped the real estate sector to overcome the crisis it has been in for more than the past three years.</p>
<p style="text-align: justify;">
	Speculative pricing by some real estate players and speculative lending by some banks is mainly to blame for the realty slump in Nepal. The only solution to the problems in the real estate and housing sector is that real estate owners and housing developers should be ready to sell their property at minimal profits, sometimes without any profit and in some cases even at certain amount of loss. Otherwise, the interest of the bank will keep rising and they will be sinking deeper and deeper in the problem. If this is done, 75 per cent problems of the real estate and housing sector will be automatically resolved.&nbsp;</p>
<p style="text-align: justify;">
	In recent months, banks have started issuing new home and land loans at lower interest rates. This is good sign. Government revenue from the sale of land and houses, too, has witnessed almost one-third growth in the first half of this fiscal year compared to the same period the last fiscal year. This also shows that the real estate business might have started to pick up. I am sure that the situation will improve further in the days to come. &nbsp; &nbsp; &nbsp; &nbsp;</p>
<p>
	 </p>
<p>
	 </p>
<p>
	 </p>
<p style="text-align: center;">
	<span style="font-size: 14px;"><b><br />
	</b></span></p>
<p style="text-align: center;">
	<span style="font-size: 14px;"><b>‘We can’t really say that the revival has started’</b></span></p>
<div style="float:left; width: 210px;margin-left:10px;">
	<img alt="Anil Shah, Mega Bank" height="299" src="http://newbusinessage.com/ckfinder/userfiles/Images/march2013_debate_of_the_month_anil(1).jpg" style="margin:0 10px 0 0;" width="202" />
	<address>
		<address>
			<address>
				<b>Anil Shah</b></address>
			<address>
				<b>CEO</b></address>
			<address>
				<b>Mega Bank</b></address>
			<div>
				 </div>
		</address>
		<div>
			 </div>
	</address>
</div>
<p style="text-align: justify;">
	 </p>
<p>
	Given the current situation, we can’t really say that the realty sector has shown improvements. However, the good thing is the downward spiral has stopped. Some big apartment companies are still in problems. In fact, it is these companies that are responsible for delaying the recovery. So, the reality is the improvement in this sector is definitely not as expected. The banks, too, are not very willing to invest in this sector, especially in the apartments.</p>
<p>
	The buyers, too, are not interested in the apartments. However, now the banks are not compelled to put home loans up to Rs 10 million under real estate loans; the NRB has shown this much flexibility. This relaxation has surely helped the banks, which have invested nearly Rs 150 billion in the real estate sector, and also the real estate promoters.</p>
<p>
	We can’t really say that a revival has started in the realty sector. We’d better wait for some more time and see how things unfold. Meanwhile, the NRB did not say a word about the real estate sector in the mid-term review of the Monetary Policy for the current fiscal year. It must have disappointed the entire sector as well as the banks which have a sizeable investment in this sector.</p>
<div>
	 </div>',
			'published' => true,
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			'modified' => '2013-05-23',
			'keywords' => 'Debate Of The Month: Is The Reality Sector Really Picking Up?',
			'description' => 'We all know that Nepal’s real estate sector has been in an ailing state for more than the past three years. The real estate and housing industry witnessed a speedy growth (which many say was an unnatural growth), until the Nepal Rastra Bank (NRB), regulator of the country’s financial market, suddenly restricted banks’ lending to the sector in September 2010.',
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		'Article' => array(
			'id' => '862',
			'article_category_id' => '37',
			'title' => 'Global Economy Outlook  For 2013: Figures & Beyond!',
			'sub_title' => '',
			'summary' => null,
			'content' => '<p style="text-align: justify;">
	<strong>By Sandip Nepal</strong></p>
<p style="text-align: justify;">
	The year 2012 remained gloomy for the entire seven billion plus world population in terms of economic growth and prosperity. With world economic leaders like the USA, Eurozone and China not acquiring the ‘expected status’ for the year, i.e. 2012, amidst spiking issues like unemployment, inflation and debt crisis regimes, prospects for 2013 do not look encouraging at this point of time.</p>
<p style="text-align: justify;">
	Concerned over the ongoing austerity measures, high unemployment rate and lower business confidence combined with weak market sentiments in core global economies like the USA and Eurozone, the World Bank (WB) has lowered its forecast for 2013. Market analysts and global institutions, pioneering in economic forecasts, are coming up with new lowered growth forecasts for the current year in line with lower than expected manufacturing and trade indicators coming from both sides of the Atlantic. The world economy was initially expected to grow by 3 percent in 2013. However, the new growth forecast based on the current and prospect scenario has come out to be 2.4 per cent, lowered by 60 basis points from the initial forecast.&nbsp;</p>
<p style="text-align: justify;">
	Similarly, amidst reduced global growth, market analysts and economists from around the world have lowered their growth forecast for the ‘land of the rising sun,’ i.e., Japan, US and the more vigilant economy, the Eurozone. It is believed that the second year of contraction in the Eurozone will have a tremendous impact on the global economy and could act as a reverse-catalyst in the global economic atmosphere, measured by Global Purchasing Managers’ Index or any other global index. Having inter-twined relationship with economic superpowers &nbsp;such as China, Eurozone and the US, emerging economies like India, Brazil, Mexico and other East-Asian economies fear that they cannot remain unaffected by the contraction in the economic environment of the world’s economic hubs. However, developing economies from around the globe are expected to expand at the rate of above 5.5 per cent in 2013.</p>
<p style="text-align: justify;">
	The World Bank has already warned against the fragility and vulnerability of the global economy in the remaining months of 2013. On the other hand, the report has also emphasized that the magnitude of economic downside will be at decreasing rate compared to recent precursor years. If we turn back and scrutinize 2012, European measures, reforms and policies to cushion the financial/debt crisis in the single economic bloc have not been able to provide economic surge or even correction to the ongoing recession. At a time when financial and political agendas have not been facilitating economic improvement in the single currency bloc, issues related to spending cuts and tax hikes in the US, diplomatic tensions between Japan and China affecting trade environment, and ‘not so good’ manufacturing and industrial indicators coming from the US and China are feared to cloud whatever little optimism remains for &nbsp;the ongoing year.</p>
<p style="text-align: justify;">
	<strong>Global Economic Growth Forecast for 2013</strong></p>
<p>
	<strong><img align="left" alt="Economy and policy February 2013" height="230" src="http://www.newbusinessage.com/ckfinder/userfiles/Images/economy_policy_feb2013.jpg" style="margin: 0 10px 0 0; " width="250" /></strong></p>
<p style="text-align: justify;">
	Considering the gloom in the world economic regimes in 2012 and the grayish ongoing global economic performance, the US in 2013 is forecasted to grow by 1.9 per cent. With political tensions mounting between two core Asian economies, Japan and China, amid affected Japanese trade in automobiles and related industries, and with contraction in one of the largest export sectors, the Japanese economy is expected to witness a meager growth of only 0.7 per cent in 2013. Unlike the economies mentioned above, the Chinese economy with its improving manufacturing sector, satisfactory flow of Foreign Direct Investment and export data has been projected to grow by an attractive 8.4 per cent in 2013, though the figure is 20 basis points lower than the previous projection for the year. Further, increasing Chinese appetite for FDI outflow also exhibits the magnitude of its economy. Moving on to emerging economies, the growth rates for India, Brazil and Mexico have been projected to be 6.1, 3.4 and 3.3 percent, respectively. With economies like the Eurozone and the USA not really supporting these emerging economies, these expected growth rates could be deemed satisfactory.</p>
<p style="text-align: justify;">
	<strong>Nepali Economy in 2013 and Global Influence</strong></p>
<p style="text-align: justify;">
	Nepali exports have seen a decline in recent months, thanks to the economic slowdown in the Euro Area and a mild US economy. Nepali industries like, garment, herbs, handicraft, carpet, metal-wood and other related sectors are hit hard by the global meltdown. Combined with the international pessimism, ‘below-par’ agricultural and industrial performance is also contributing to drag the economy towards austerity. In line with the current and forecasted economic indicators, the WB has forecasted Nepal’s economic growth rate to be 3.8 per cent for fiscal year 2012-13, which is 80 basis points lower than the actual economic growth rate for fiscal year 2011-12.</p>
<p style="text-align: justify;">
	The key issues contributing to lowered growth forecast could be attributed to the ongoing constitutional crisis, poor investment environment (in terms of FDirectI) and infrastructural bottlenecks in the country. Besides the ongoing political instability and poor market sentiments, inadequate and inefficient public expenditure, too, has been hampering the economic outlook, which, in turn, may further contribute to downgrading the current forecasted growth rate. Remittance, working as a key source of financing, incorporates around 22 per cent of the national Gross Domestic Product (GDP). At this point of economic junction, as remittance has been facilitating to finance imports, covering trade deficits with counterparts, the year ahead could also see an optimistic inflow of funds, taking into account the numbers of Nepalis working abroad, especially in the Gulf countries.</p>
<p style="text-align: justify;">
	With the WB having already lowering Nepal’s growth forecast for fiscal year 2012-13 and remittance acting as an economic catalyst, it’s political leaders and government authorities who could possibly look into the matter and plug the loopholes in the operating environment, eventually facilitating, promoting and simplifying investment grounds for national and international market participants. Only time would tell what the government would do to address the situation and improve the country’s GDP growth rate, lower dependency on remittance and international debts for the year and henceforth.</p>
<p style="text-align: justify;">
	<strong>The author is Assistant Manager, Research &amp; Development Department, Mercantile Exchange Nepal Limited, Nepal.</strong></p>',
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			'description' => 'Concerned over the ongoing austerity measures, high unemployment rate and lower business confidence combined with weak market sentiments in core global economies like the USA and Eurozone, the World Bank (WB) has lowered its forecast for 2013.',
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<p class="MsoNormal">
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&quot;Myriad Pro&quot;"><img alt="" border="1" height="181" hspace="10" src="http://newbusinessage.com/ckfinder/userfiles/Images/ecomony_featured.gif" vspace="10" width="338" /><br />
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	<span class="A29"><span style="font-size:15.0pt;line-height:
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mso-hansi-theme-font:minor-latin;mso-bidi-font-family:&quot;Myriad Pro&quot;">Cartels may be overt or covert as the producers and suppliers of goods and services can have a tacit understanding or open agreement to fix the market price, allocate market, increase prices and decrease the quality of the goods and services.</span></span></p>
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	<span class="A29"><span style="font-size:15.0pt;line-height:
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59.0pt">A </span></span><span style="font-size:10.0pt;mso-bidi-font-family:
&quot;Myriad Pro&quot;;color:#211D1E">cartel is generally understood as the arrangement among producers and suppliers of goods and services to control the production, sales and price so as to restrict competition and obtain monopoly or oligopoly in the market. On the other hand, a syndicate is a self organizing group of individuals, companies or entities formed to transact some specific business or promote their common interests. Cartels may be overt or covert as the producers and suppliers of goods and services can have a tacit understanding or open agreement to fix the market price, allocate market, increase prices and decrease the quality of the goods and services. Such practices are generally considered as the worst forms of anti-competitive behaviour and condemned by the laws of various countries.</span> <br />
	<br />
	<img align="left" alt="" border="1" height="349" hspace="10" src="http://newbusinessage.com/ckfinder/userfiles/Images/ecomony.gif" style="margin:10px;padding:10px;" vspace="10" width="221" /></p>
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	<span style="font-size:10.0pt;mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">Competition is the cornerstone of open and liberalized economy as the anti-competitive behaviour of the enterprises, industries or traders take a toll on the economic performances of a country by promoting inefficient firms, producers and distributors and punishing the efficient ones. Consumers are compelled to pay higher prices and use low quality goods and services in a situation of anti-competitive markets. In view of this, countries have developed their own competition laws in order to prevent unhealthy business practices. The United States of America has enacted two such basic laws, called anti-trust laws. Named the Sherman Act and the Clayton Act, these are enforceable by the Department of Justice and Federal Trade Commission. Similarly, the European Union has provisions under the Treaty of Rome to maintain fair competition and Australia has its Trade Practices Act 1974. In India, the Monopolies and Restrictive Trade Practices Act was brought out in 1969 and later replaced by the Competition Act in 2002. The Indian Competition Act is quite comprehensive and has provision to constitute the Competition Commission and the Competition Appellate Tribunal among others. The objectives of the act have been defined as: to prevent practices having adverse effect on competition, promote and sustain competition in markets, protect the interest of consumers and ensure freedom of trade carried out by other participants in the market.</span> <br />
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	<span style="font-size:10.0pt;
mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">The Competition Promotion and Market Protection Act (CPMPA) was passed by the Parliament of Nepal in 2006 and the Government of Nepal came up with the relevant regulations in 2009. The act basically defines the anti-competitive practices and dealings, and prohibits the anti-competitive agreements between two or more parties with the intention to limit or control competition. Such anti-competitive agreements may be in the form of fixing the sales or purchase price, limiting the quantity of production or sales, market allocation, creating barriers for market entry to the producers and suppliers of similar goods and services, determining the terms and conditions of sales, imposing quota and applying syndicate system in transport and distribution of services. Similarly, the act prohibits the abuse of dominant position by a producer or distributor or their conglomerates with the intent of controlling competition. Besides, merger and acquisition of enterprises with a takeover of more than 50 per cent share and acquisition of more than 40 per cent market share are the prohibited behaviours that have the effect of creating monopoly in the market. Bid rigging, exclusive dealing, market restrictions, tied selling and misleading advertisements are other anti-competitive practices and offences under the competition act.</span> </p>
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	<span style="font-size:10.0pt;
mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">Cartels and syndicates are the anti-competitive agreements according to section 3 of the CPMP Act. Such an agreement may be in the written form or as a tacit understanding which is difficult to prove by the document but can be judged from the behaviour and resultant outcomes of such dealings. Let us look at some representative cases in the context of Nepal.</span> <br />
	<br />
	<img align="left" alt="" border="1" height="349" hspace="10" src="http://newbusinessage.com/ckfinder/userfiles/Images/opec.gif" style="margin:10px;padding:10px;" vspace="10" width="221" /><span style="font-size:10.0pt;mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">Transportation services are a prime example of the most-hit sector by cartels and syndicates. The transporters are usually smart enough to make a hefty profit through the application of syndicates. First, they bond together within the umbrella of their associations that culminates into the federation redoubling the institutional strength to protect and persuade the vested interest of transport operators around the country. Such strength can yield dominant positions in the market collectively and the abuse of such position is imminent. Price fixation, particularly regarding plying on minor roads, application of higher charges on services, queue and rotational system in operation, use of old and worn out vehicles and overload in cargo transportation are some elements associated with the syndicate behaviour of the transporters. The transporters deter the entry of new transport equipments through physical threat or assault in case somebody dared to enter their market or put heavy syndicate charges for such entry. This has put the consumers in worse conditions as they need to pay higher transportation charges, meet with frequent road accidents, and travel in crowded sitting positions in the buses. This sort of practice rewards inefficiency and discourages firms to provide services in an environment of open and healthy competition.</span> </p>
<p class="MsoNormal">
	<span style="font-size:10.0pt;mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">Transportation of petroleum products and their distribution is another sector affected by hardcore cartels and syndicates. Different associations that are in existence demonstrate the collective anti-competitive behaviour of their members. Such a behaviour usually include the pressure or demand for increasing profit margin, cheating in the measurement of volume and weight, raising barriers to the entry of new traders and dealers etc. It was noted that one of the demands of LPG Bottlers Association during their recent strike was against the government’s plan for granting license for a glass bottling plant. Moreover, these associations often exert pressure through the means of strikes, lock-outs and interruptions in services to make the government accept their demands. Any compromise with the demands based on such unlawful means of threat and violence by the associations and its members would reduce the efficiency of the economy and harm the interests of the common consumers.</span> </p>
<p class="MsoNormal">
	<span style="font-size:10.0pt;mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">The third cartel group belongs to the distributors and wholesalersof fruits, vegetables and meat products. These are organized groups and have their own associations while their upstream and downstream stakeholders in the supply chain do not have strong enough associations to offset their unruly behaviour. Hence, the farmers are fetching low prices on their products on the one hand and the consumers are forced to pay higher prices at the other to the hefty benefit of those middlemen. A market survey done at the Kalimati Vegetable Market shows that the price paid by the consumers for some vegetable products are 10 times higher than the price paid by the middlemen to the farmers for the same vegetables. This shows the intensity of unfair trade practices, much to the chagrin of law enforcing authorities.</span> </p>
<p class="MsoNormal">
	<span style="font-size:10.0pt;
mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">Cartel groups in Nepal are found in other sectors as well. For example, there are tacit understanding and clandestine agreements among the importers and distributors of food grains in order to fix price and control supply and raise the price particularly during the festive season of Dashain and Tihar. Sugar industries collude to pay less to the farmers against purchase of canes and fix high prices of sugar for sales to the end consumers with a bigger price arbitrage, while manufacturing industries like cement, noodles and water pipes sell their product at the identical price as a result of tacit understanding among the manufacturers.</span> </p>
<p class="MsoNormal">
	<span style="font-size:10.0pt;
mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">Cartel is globalizing as well along with the globalization of economies. The famous example of international cartel is the Organization of Petroleum Exporting Countries (OPEC) which has been increasing the world prices of petroleum products at various times by imposing the production quota and fixing of prices. Besides, cartels are noticed in the international production system for steel, fertilizers, rice and other commodities.</span> </p>
<p class="MsoNormal">
	<span style="font-size:10.0pt;
mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">Thus, in a situation of cartel, producers and suppliers control the production and supply to maintain an artificially high price. This kind of behaviour is supported by a situation where there is less number of suppliers but large number of customers in the markets, market demand is not too variable and individual firms output can be easily monitored by the cartel organizations. The organized behavior of such cartels is pronounced in the syndicated system. The ultimate effect of these anti-competitive practices is that the efficient firms lose to the inefficient firms or suppliers as there are no incentives for bringing down the cost and increasing the quality of goods and services. In such a situation of duopoly or oligopoly, all the firms within the cartel groups benefit by sharing the market without the need of improving efficiencies in production or supply.</span> </p>
<p class="Pa8" style="text-align:justify">
	<span style="font-size:10.0pt;
mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">Perfect competition is an ideal situation that is hard to achieve in any economy. However, it should be the ultimate goal and direction to move forward which can be stepped upon by gradually building on the legal, institutional and human resources base for defying the anti-competitive behaviour. Reining the cartel and syndicate requires comprehensive and concerted approaches from all stakeholders and the effectiveness of law enforcement agencies. The most important factor is the requisition of political will and commitment to establish a competitive and healthy market that could be the precursor to increased trade and foreign direct investment in the country. Many developing countries including Nepal are mired by the dilemma of politics protecting the cartels and syndicates as those who are engaged in anti-competitive practices dole out substantial money to the political parties and their leaders. </span></p>
<p class="MsoNormal">
	 </p>
<p class="MsoNormal">
	<strong>&nbsp;</strong></p>
<p class="Pa27" style="margin-top:5.0pt">
	<strong><span style="font-size:8.0pt;mso-bidi-font-family:
&quot;Myriad Pro&quot;;color:#211D1E">Ojha is a Former Secretary, Government of Nepal. The views expressed in the article are personal of the author. </span></strong></p>
<p class="Pa27" style="margin-top:5.0pt">
	 </p>
<p class="MsoNormal">
	<span style="font-size:15.0pt;line-height:115%;mso-bidi-font-family:
&quot;Myriad Pro&quot;;color:#211D1E">&nbsp;</span></p>
<p class="MsoNormal">
	 </p>',
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			'keywords' => '',
			'description' => 'Cartels may be overt or covert as the producers and suppliers of goods and services can have a tacit understanding or open agreement to fix the market price, allocate market, increase prices and decrease the quality of the goods and services.',
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	(int) 9 => array(
		'Article' => array(
			'id' => '517',
			'article_category_id' => '37',
			'title' => 'Prolonged Economic Crisis: By Achyut Wagle A Case For Democratic Capitalism',
			'sub_title' => '',
			'summary' => null,
			'content' => '<p style="text-align: justify;">
	<span style="font-size:12px;"><img align="right" alt="economy" border="1" height="209" hspace="5" src="http://newbusinessage.com/ckfinder/userfiles/Images/achyut wagle.jpg" style="width: 160px; height: 209px;margin:10px;padding:10px;" vspace="5" width="160" />When the USA was frantically trying to come out of perhaps the worst economic recession in modern times, the Eurozone reeled under even more serious cycle of economic meltdown. Angry verbal exchanges between British Prime Minister David Cameron and French President Nicholas Sarkozy in Brussels meeting on 23rd October and apparently crestfallen Sarkozy coming out of a meeting with German Chancellor Angela Merkel a couple of days earlier are surmiseable indications of the fact that the days of economic certainties in the world are still beyond horizon. The reportedly emerging consensus among the Eurozone leaders might find some solace for now. In fact, they have no alternative to evolving such consensus, but the days of worries of world economy wouldn't be over just by such isolated moves of bail-outs or write-offs unless the very cause(s) of these problems are addressed at the root. The most repeated statement of the present day economists and economic analysts is: Even if the USA and the Eurozone&nbsp; specifically Greece, Italy, Portugal, Ireland or Iceland -- came out from the current mess by some means, the world will not be the same again. Then, how would the new world look like? Nobody has a definitive answer. But, there is no alternative to finding out not only a convincing answer to this question but a workable framework to save the world from such too frequent and highly pervasive economic crises. Both, such frameworks and answers, can be devised by reviewing the past and taking unconventional strategies that suit to the present-day realities. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;"><strong>1. Oversight Failures :</strong> When the subprime crisis was at its height in the US in 2008, Eurozone leaders were proudly boasting the robustness of their conservative supervisory regime of the financial system and were not subscribing the idea that their financial systems were not immune to similar- inbred if not contagious- crises. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">The series of these crises have now exposed the fact the exiting supervisory and regulatory framework worldover has become virtually dysfunctional and a new one encompassing the contemporary, and if possible future, trends is not yet in place. Even worst, no meaningful homework has begun to that end, so far. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">The movement of funds aided by mainly three distinct features-- the exponential growth in information technology, wider transport connectivity and high movement of people and new tools of trade in the money market like derivatives future-- have far outpaced the efficiency, jurisdiction and reform of both global and national financial systems oversight regimes. International flow of funds through legal channels, i.e. more or less detectable by any form of the regulatory radar, is less than 4 to 5 percent of the total estimated global transfers. On the legal side of the transfers, estimated value of world merchandise exports in 2010 was US $13.36 trillion and world commercial services exports in the same period was $3.64 trillion (Source WTO secretariat website and calculated on projected 10% rise in 2010 from 2009 actuals of world merchandise exports equivalent to $12.15 trillion and world commercial services exports $3.31 trillion). <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">Similarly, according to an estimate by the World Bank, officially-recorded remittance flows in 2010 was about US$440 billion worldwide. And, crossborder investments in capital markets and real estate combined was to the tune of $330 billion. With all these transfers put together, even in exaggerated terms, the recorded total transfers of funds across the globe would hardly cross the $ 20 trillion mark. On the contrary, according to the Bank for International Settlements (BIS), amount of derivatives transactions stood at $601 trillion in December 2010, up from $583 trillion six months earlier. It was at the record level of $684 trillion in June 2008. Interest rate contracts form more than 75 percent of the derivatives futures transactions. (As reported in The Economist, May 31, 2011) The figures presented by the Daily Finance, a subsidiary portal of AOL, is even more appalling. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">It says, One of the biggest risks to the world's financial health is the $1.2 quadrillion (one quadrillion is 1,000 billion) derivatives market. It's complex, it's unregulated, and it ought to be of concern to world leaders that its notional value is 20 times the size of the world economy Apart from these monetary-side regulatory gaps, fiscal regulation is also facing new challenges as the national boundaries are gradually becoming irrelevant partly by the sweep of globalization and partly made so by design, particularly in case of Eurozone, with the introduction of common currency, the Euro. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">With the introduction of the common currency, the national-level supervisory/regulatory authorities have become redundant and the national accounts failed to present the true picture of the economy as many crossborder transactions take place unrecorded. The window of currency conversion that used serve also as the basis of record of cash flows across the border is automatically out of practice. The forceful homogenization of the currencies of weaker and stronger economies has prompted unhindered and unregulated capital flights from weaker to stronger economies, breeding even graver crisis situations in weaker nations. Greece is the latest striking example. <img align="right" alt="ecomony" border="1" height="346" hspace="5" src="http://newbusinessage.com/ckfinder/userfiles/Images/fig.jpg" style="margin:10px;padding:10px;" vspace="5" width="504" /><br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">Such capital flight is but natural phenomena, because weaker economy also meant less rate of return on investment, lesser degree of security and higher degree of unpredictability. And, common currency has facilitated it in a great deal. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;"><strong>2. The Political-Economy Issue:</strong> With the crisis aggravated more on every passing day, and resolution of it nowhere in sight, a number of ecopolitical issues have also come to fore. The worldwide fever of Capture Wall Street has created a new debate on possible collapse of capitalism. The advocates of egalitarian welfare state seem happy that the old good days of state-sponsored social safety model of economy would return soon. In the virtual mayhem, the virtues of both democracy and capitalism are pushed behind the dark shadow, a true concern for the future of the world economy and polity. In name of addressing the crisis, the electorates are kept completely aloof in taking the economic decisions that affect their lives the most. Their elected representatives are equally helpless as the common man on street, like in the case of Greece again, or their representatives like in the US take the decisions on the issues never mentioned in their election manifestoes, thus acting on democratically unmandated domain. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">These factors in due course are likely to raise more excruciating questions on the very rationale of election and their leaders authority to rule. This would certainly take way some beauties from the democracy. Another important question here is: has capitalism really failed? Or, are mere consumerism and irrational greed at the peril? The differentiation is not easy. But the fact is, it is not the capitalism that has failed but all the problems, perhaps without exception, are borne out of sheer anti-capitalistic and antidemocratic moves of the economies and their leaders at the helm. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">One of the greatest beauties of capitalism is the Economic Darwinism. The state must let the companies of whatever size that are already or become unable to compete in the market, fail. But, the problems multiplied to take the world at present situation when powerful economies set wrong precedent by bailing out ailing banks and companies at the expense of the tax-payers money. And, in the process, the decision makers did it without taking such important issues to the public through polls or referendum, which compromised the very tenets of the democracy. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">The ongoing global economic crisis, however, should be able to ignite a new debate on necessity of democratic capitalism as new future eco-political model. This new philosophy must not only be able to force the governments to act according to the principles of democracy and/or capitalism in isolation, but should establish it as a united theory where these two are treated as inseparable elements in future ecopolitical governance. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;"><strong>3. The Future:</strong> The hypothesis of democratic capitalism is certainly useful to resolve the present crisis. Even more, this paradigm-shift would prove more appropriate as the shifting of economic might from West to East, from democratic to authoritarian country. Observing at the difficulty in resolving current crisis even in the highly transparent economies like the US and Europe, one can easily think of gravity of situation when similar problem arise in secretive but the second largest economic powerhouse like China. The simultaneous emphasis on democracy as that only ensures transparency and, respect to the ideals of capitalism that promotes free competition in any odd situation, can only in unison make the future world safer to live and do the business in business-like fashion.</span></p>',
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			'modified' => '2012-09-20',
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			'description' => 'The reportedly
emerging
consensus
among the
Eurozone leaders
might find some
solace for now.',
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	(int) 10 => array(
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			'id' => '444',
			'article_category_id' => '37',
			'title' => 'Trading Gold For Silver: Our HR Position? (September 2011)',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="border-width: medium medium 1pt; border-style: none none solid; border-color: -moz-use-text-color -moz-use-text-color rgb(134, 55, 59); padding: 0in 0in 3pt;">
	<div>
		<strong><span style="font-size: 14px;"><img align="left" alt="trading" border="1" height="197" hspace="10" src="http://newbusinessage.com/ckfinder/userfiles/Images/rajan pradhan.jpg" style="width: 153px; height: 197px;margin:10px;padding:10px;" vspace="10" width="153" />By Rajan Pradhan</span></strong></div>
</div>
<div style="margin-bottom: 0.0001pt; text-align: justify; vertical-align: middle;">
	<span style="font-size: 14px;">Long serpentine queues in Kathmandu are no more a subject of curiosity to us. The endless lines of cars at gasoline stations, people crowding around water tankers, devotees pushing into shrines and investors interested in IPO lined up in front of commercial institutions are most common scenes one can see every day. However, the one I saw a few months back looked quite unusual. The mass gathered there were only the youngsters probably from late teens to people in their thirties. Their facial expressions carried pronounced signs of pain, desperation and anxiety. I could easily see the “Do or Die” atmosphere there. Letter in the day, I came to know the swarm there was of the aspirant applicants eager to work in Korea. It went on for days perhaps reminding us of human exodus we see quite often on news from around the world.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">With the tank in my car almost dry due to ongoing rationing of petroleum products, I found no other means of relaxing on a Saturday than lazing at home which gave me a chance to chitchat with my brother-like figures who has been close to us for decades. I found him so excited that day; he believed he had a plan well in place for his future. He finally got hold of a recruiter who had promised him a job in a company in Dubai - a job which gives him a remuneration of over Rs 12,000 a month with free accommodation! </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><img align="left" alt="trading" border="1" height="232" hspace="10" src="http://newbusinessage.com/ckfinder/userfiles/Images/eco.jpg" style="margin:10px;padding:10px;" vspace="10" width="400" />I congratulated and wished him all the success but could not help crunching some numbers - quietly within myself. He would be bearing a total cost of about Rs 100,000 for air tickets and charges due to the manpower company. He would probably need additional two thousand rupees every month to cover cost for food and other supplies on top of what he would get from the company. A two year of work would perhaps fetch him an income of about Rs 290,000- the saving being about five to six thousand rupees a month which is about eighty dolors a month. I tried not believing it but could not ignore the fact that he would send such eighty- dolor back home not only to buy a plot of land in Kathmandu for himself but also to buy our petrol from abroad to fill up our cars. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Back home, it is more of a challenge not only to get hold of good professionals but also to get dedicated non-skilled labour in abundance. It was like a real manhunt, while searching for an engineer for one of my recent hotel expansion projects. The contractor for the same project has already got his site engineer changed the fourth time in just over nine months. The void in our labor market has already become obvious. We will perhaps spend many of our 80-dollar remitted to us to buy our skilled manpower and services back from abroad. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">The disappearing political borders are now given to us in an international market under a trend of globalisation. The fact that around 30 per cent of our 5.6 million households depends on earnings from overseas jobs while its contribution to our gross domestic production (GDP) is 23.4 per cent cannot be undermined. However, getting paid in silver for lending out our brains and hands and then buying them back paying in gold is certainly not a wise way of handling our human resources.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">A labor in Kathmandu earns about Rs 400 a day today whereas a skilled labor makes over Rs 700 a day - which is almost Rs 12,000 a month even if he gets work for 15 days a month. The majority of people who aspire hard to get a job abroad are not skilled but if trained even for a short span of time, they can be skilled enough to earn at home as much as they would earn abroad. Even if one decides to go abroad, their average income would certainly improve from the present average of Rs 14,000 a month. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Awareness among for vocational and short-term training progrmmes and more importantly commitment from our planners and rulers are what we need today to add value and competitiveness to our work force.&nbsp;Venturing for such a noble cause will give us tangible and immediate returns for sure - inflow of remittance will grow, unemployment will reduce and balance of payment will improve. Perhaps we will then be trading our silver for gold not our gold for silver!! <br />
	<br />
	</span></div>
<div>
	<span style="font-size: 14px;"><i><span style="line-height: 115%;">(Pradhan is Director Business Development &amp; Projects at Soaltee Hotel Limited.)<br />
	<br />
	</span></i></span></div>',
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			'description' => 'Long serpentine queues in Kathmandu are no more a subject of curiosity to us. The endless lines of cars at gasoline stations, people crowding............',
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	(int) 11 => array(
		'Article' => array(
			'id' => '433',
			'article_category_id' => '37',
			'title' => 'Monetary Policy And Question Of Financial Stability (august 2011)',
			'sub_title' => '',
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			'content' => '<div style="margin-bottom: 0.0001pt; line-height: 120%; vertical-align: middle;">
	<strong><span style="font-size: 14px;"><i><span style="line-height: 120%;">By Nara Bahadur Thapa</span></i></span></strong></div>
<div style="margin-bottom: 0.0001pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; vertical-align: middle;">
	<span style="font-size: 14px;">Recent global financial crisis has once again ignited the debate on the role of monetary policy in ensuring financial stability. Taking a cue from international trend, emerging financial distress in Nepal has added pressure on using monetary policy instruments for securing financial stability. The question asked is: should financial stability be in the domain of monetary policy or should it be pursued as an objective of regulatory policy? Although the debate remains still inconclusive, views on either side of the debate have sharpened.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Undoubtedly, safeguarding financial stability has become an increasingly dominant objective in economic policy. Hence, it is argued that monetary policy should also take care of it. In light of this, besides maintaining price stability and supporting economic growth, Monetary Policy often has the task of preserving financial stability. Monetary variables such as the quantum of money, bank credit, liquidity and the level of interest rates are used to attain monetary policy objectives.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">These monetary variables - the quantum of money, bank credit, liquidity and the level of interest rates - affect financial stability in one way or the other. This is the basis of the argument that monetary policy should be used to safeguard financial stability. In this context, it should be noted that the NRB Act 2002 does not state financial stability as an objective of monetary policy. Monetary policy objectives, as enshrined in the NRB Act 2002, are maintaining low and stable rate of inflation and the external sector stability. These two objectives are supposed to ensure the sustainable development of the economy. Nevertheless, the Act does indicate that the role of the central bank in promoting banking and financial stability as well as developing a secure, healthy and efficient domestic payment system. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">We should seek the answer to the question as to why the law of the central bank has not assigned the financial stability as an objective of monetary policy. This implies that the NRB Act has visualized instruments that can be used to ensure monetary and financial stability differently.&nbsp;&nbsp; </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	<strong><span style="font-size: 14px;">Financial architecture </span></strong></div>
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	<span style="font-size: 14px;">The way monetary policy is conducted and financial stability is pursued should be discussed in the context of the financial architecture that exists at the global as well as the domestic level. The current international financial architecture is rooted in the McKinnon-Shah hypothesis (1973) that argues for the removal of financial repression and the introduction of financial deregulation. The major elements of financial deregulation are: (i) the elimination of credit controls, (ii) the deregulation of interest rates, (iii) free entry into the banking sector/financial services industry, (iv) central bank autonomy, (v) private ownership of banks and (vi) liberalization of international capital flows.</span></div>
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	<span style="font-size: 14px;">International organizations such as International Monetary Fund (IMF) and the World Bank supported the McKinnon-Shaw hypothesis and in the process encouraged member nations to adopt liberal financial policies. Many developing countries including Nepal deregulated their financial sector. Even in the USA, the comprehensive regulations introduced in 1933 in the wake of the Great Depression in the form of the Glass-Steagall Act which had ensured financial stability were removed in 1999, ushering in a complete deregulation of the financial sector. The Glass-Steagal Act kept different types of financial institutions separate and dictated the activities they could and could not engage in. It was argued that Glass-Steagall Act prevented banks from diversifying risk. Following this, an agreement was reached at the global level for the international financial architecture. </span></div>
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	<span style="font-size: 14px;"><b>&nbsp;</b></span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><b><span style="color: black;">The major elements of which are: </span></b></span></div>
<div style="margin: 0in 0in 0.0001pt 9pt; text-align: justify; text-indent: -9pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><span style="color: black;">i.&nbsp;Simple rules for monetary and fiscal policy would&nbsp;guarantee macro stability,</span></span></div>
<div style="margin: 0in 0in 0.0001pt 9pt; text-align: justify; text-indent: -9pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><span style="color: black;">ii. Deregulation and privatization would unleash growth and prosperity,</span></span></div>
<div style="margin: 0in 0in 0.0001pt 9pt; text-align: justify; text-indent: -9pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><span style="color: black;">iii.Financial markets would channel resources to the most productive areas and polish themselves effectively, and</span></span></div>
<div style="margin: 0in 0in 0.0001pt 9pt; text-align: justify; text-indent: -9pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><span style="color: black;">iv. The rising tide of globalization would lift all economies.</span></span></div>
<div style="margin: 0in 0in 0.0001pt 9pt; text-align: justify; text-indent: -9pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">The agreement on these elements spearheaded by the IMF and the World Bank is known as the Washington Consensus. The spirit is that the adoption of standards and codes on macro-financial policies, transparency, good corporate governance and internationally designed accounting and auditing rules would ensure financial stability. Given these standards, it was thought that market would ensure financial stability. With no restriction on the portfolio, free entry and exit of financial institutions could ensure the dynamic financial stability. There was no need for government intervention, including financial bailout. In keeping with this framework, Lehman Brothers was allowed to fail in September 2008.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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	<span style="font-size: 14px;">With the economic liberalization initiated in the mid-1980s, the Nepali financial system has experienced significant developments. The NRB Act 2002 aims at consolidating the foundation for the new domestic financial architecture. The new NRB Act provides an autonomous central bank answerable to parliament. The Act curtails the unlimited lender of last resort (LOLR) facility for both the government of Nepal and the banking sector as the facility has a danger of creating a perpetual financial instability.</span></div>
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	<strong><span style="font-size: 14px;">Prudential regulation and supervision for financial stability</span></strong></div>
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	<span style="font-size: 14px;">Now the question that arises is: What instruments does the NRB Act 2002 envisage to ensure financial stability? The current international financial architecture underscores the importance of prudential regulation and supervision for achieving financial stability. The NRB Act 2002, BAFIA 2004, Debt Recovery Act (DRA) 2002 and Credit Information Bureau (CIB) underpin the new domestic financial architecture. The NRB Act 2002 grants the autonomy to the central bank aimed at strengthening the banking supervision. The BAFIA lays down the framework for banks to operate. The DRA establishes creditors rights. The CIB offers a venue for information sharing among banks with a view to help reduce non-performing loans (NPL). This is key to ensure financial stability over the period. </span></div>
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	<strong><span style="font-size: 14px;">The case for the use of monetary policy for financial stability</span></strong></div>
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	<span style="font-size: 14px;">The recent global crisis showed that prudential regulation and supervision alone did not guarantee financial stability. Hence, a case is made for using monetary policy in support of financial stability. In the wake of the recent global crisis, the IMF urged member nations to use monetary policy as the first line of defense. </span></div>
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Given the importance of financial sector stability for the overall functioning of macro economy in general and the transmission mechanism of monetary policy in particular, the NRB is cognizant of the role of monetary policy in attaining financial stability in recent years. Accordingly, monetary policy instruments have been used in support of financial stability. For instance, the bank rate, which was as high as 9 percent some years ago, was gradually reduced to 5.5 percent. Currently, it is 7 percent. Recently, the penal rate of 3 percent has been added to it for the LOLR facility to banks. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Besides the bank rate, concessional refinancing rates have been lowered to 1.5 percent for exporters, sick industries, small and medium scale industries and targeted people for foreign employment.&nbsp;The NRB has been making a provision for refinancing banks for their sick industry loans over the last several years. The objective is to help financial institutions and thereby achieve financial stability.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">The cut in CRR has been consistently and systematically aimed at reducing the financial intermediation cost. The argument in this case is that monetary policy in no way should be a factor responsible for a higher financial intermediation cost measured in terms of interest rate spread. For this reason, CRR has been systematically reduced from 12 percent a few years ago to the current level of 5.5 percent. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">A system of flexible open market operations aimed at modulating liquidity has been put in place since 2004/05. Open market monetary instruments such as sale, purchase, repo and reverse repo auctions are being used either to inject or drain liquidity from the system.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">A system of standing liquidity facility (SLF) has been introduced for counterparties. The purpose of the SLF is to provide a safety valve for domestic payments system. Under this facility, counterparties can make an automatic and hassle - free access to funds from the central bank.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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	<strong><span style="font-size: 14px;">The case against overly use of monetary policy for financial stability</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">There are counter arguments for overly use of monetary policy for financial stability. First, it is argued that the mixed role of the central bank, namely securing banking stability and maintaining monetary stability, at times, creates policy tensions. For example, the use of accommodative monetary stance aimed at supporting financial stability could be counterproductive to price and external stability in the face of pressures on inflation front and a deficit in country's BOP position. As such, the central bank faces policy tensions of using soft interest rate policy for securing financial stability or hard interest rate policy for keeping inflation low and maintaining external stability.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Second, as per Tinbergin's rule (one instrument - one target), monetary policy, which is one instrument, can not be used for two policy goals - monetary stability and financial stability.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">&nbsp;Third, rescuing financial institutions by way of soft interest rate policy or the protracted use of quantitative easing through the LOLR facility will only prolong financial imbalances, posing risks to financial stability over the medium term. This will only postpone financial distress leading to a bursting of financial crisis in some points of time in the future. In this context, Greenspan's prolonged low interest rate policy is cited as one of the causes of the financial crisis in the US in 2008.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Fourth, it is argued that the expectation of monetary authorities stepping in to defuse a crisis undermines market discipline and creates moral hazard problem in that it weakens the incentive for market participants to act prudently.</span></div>
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Fifth, as Greenspan argued, the cleaning up the mess after the bubble bursts would be technically easier and less interfering with the market and more cost effective. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Back home in Nepal, it is argued that excessive monetary injection by way of repo and SLF lending helped perpetuate low interest rate regime in the past. This encouraged banks to indulge in financial excesses, leading to the recent financial distress in Nepal, including a deficit in country's BOP. It must be noted that the deficit in BOP during the last two years is not on account of the government budgetary imbalances, it is due to the private sector excesses and imbalances.&nbsp;</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Of the various facts of financial stability, the question of monetary policy taking care of real estate and share prices has remained controversial. The question often asked is as to what should be the role of monetary policy in keeping these prices stable. This question is asked because stock market developments generate wealth effects, which have monetary policy implications. Likewise, stock market developments have implication for NPA level and, at times, threaten banking sector stability. Foreign portfolio investment in stocks has implication for external stability, for a greater volatility in share prices causes a sudden capital outflow, leading to BOP and exchange rate crises. Since foreign portfolio investment in the Nepalese stock market does not exist, this kind of tension does not arise in Nepal as for now. The consensus so far reached is that monetary authorities should be watchful of these prices. However, it is argued that monetary policy should not be overly used in containing these prices.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	<strong><span style="font-size: 14px;">Macro prudential regulation</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Micro prudential regulation does not make a distinction between growth enhancing credit and speculative ones. The consensus is also not to use monetary policy overly for financial stability. Hence, the focus has now shifted on macro prudential regulation.&nbsp;It is argued that macro prudential regulation is needed to deal with the issue of pro-cyclicality and build defenses against emerging structural vulnerability in the financial sector. Pro-cyclicality and structural vulnerability are manifested in terms of real estate bubbles, common exposure to asset price bubbles, excessive leverage and low level of liquidity. To deal with these problems, macro prudential measures such as capital ratios, capital buffers, dynamic (forward looking) provisioning, liquidity ratios and prudent collateral valuation are applied. According to Blanchard, in case, excessive leverage emerges, regulatory capital ratio should be raised. If liquidity is low, regulatory liquidity ratio should be increased. If housing prices are rising, loan-to-value (LTV) ratio should be lowered. If stock prices are rising, margin requirements (haircuts) should be raised. In the wake of emerging financial distress, the NRB has introduced a number of macro prudential measures. For example, sectoral loan limit for housing sector is capped at 25 percent and real estate at 10 percent. C-D ratio for banks and financial institutions is fixed at 80 percent. The LTV ratio for shares has been fixed at 60 percent. Similarly, the LTV ratio has been fixed at 60 percent for both real estate and housing.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Although macro prudential regulation could act as the first line of defense and be an important element of new financial architecture in the wake of the recent global financial crisis, there is a possibility of strong political pressure against the use of it. In the US, the delay in adopting the Volcker plan which aims at separating functions of different financial institutions is an example of it. Back home in Nepal, the strong pressure for the removal of LTV ratio for shares and strong lobby for the relaxation of capping real estate and housing loans are cases in point. This suggests that the existing domestic financial architecture will remain intact, implying that only micro prudential norms and market discipline will remain instruments for financial stability. There will be growing demand for the excessive use of monetary policy for securing financial stability. However, the latter will not help safeguard the long term financial stability. If it is used, it will be only at the peril of macroeconomic stability. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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	<strong><span style="font-size: 14px;">Tentative conclusions</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">There is no doubt that financial stability is a public good which must be secured through preventive and remedial measures. Micro - macro prudential and deposit insurance measures can be applied to maintain financial stability. Keeping monetary conditions at an appropriate level is also key to securing financial stability. For example, easy liquidity conditions would encourage banks to take excessive risks by overindulging in lending. This happened in Nepal in the recent past. Likewise, overly tight liquidity conditions would lead to financial distress. Both of these monetary conditions should be avoided.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Therefore, going forward, the NRB will, in due course of time, appropriately streamline monetary operations. For example, there are ample instruments for the injection of liquidity. However, there are few to drain it. Sale and reverse repo auctions fall short of draining liquidity due to various reasons. Hence, the NRB will seek rationale in introducing standing deposit facility for banks as and when situation warrants.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">The creation of standing deposit facility entails bearing financial costs by the central bank. Therefore, it requires strengthening the financial position of the central bank. It is especially important in relation to the growing size of counterparties and liquidity that would be needed to drain. One way of improving financial position of the central bank for the operation of deposit facility is increasing its paid up capital from the current three billion rupees to five billion rupees. This will help the NRB to absorb possible losses arising from monetary operations.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">The exchange rate and the interest rate are the fundamental macro variables. As the current exchange rate regime as being used as the nominal anchor for macroeconomic management, there is no question of disturbing it at this stage. Therefore, given the depth and breadth of the domestic financial sector development so far, the interest rate is slowly emerging as key policy variable for macro-financial management. In this context, a need has been felt for using short term interest rate instead of the quantity of liquidity as an operating target. The NRB will pursue this in due course of time.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">The role of monetary policy becomes crucial when preventive measures fail to ensure financial stability. Therefore, the role of monetary policy should come at the remedial stage. This is the market failure stage. When this stage comes, as the past intervention indicates, the NRB is extremely cautious to distinguish between those having solvency problem and those with liquidity problem. The LOLR facility should be provided to those solvent but with liquidity problem. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Given the current financial architecture, the NRB's intervention will take place only when market fails to ensure financial stability. Therefore, the NRB intervention, for that matter, will come with strings such as merger, management change, improvement in corporate governance etc. If financial institutions with solvency problem are systemic, the government should intervene by way of either injecting capital or guaranteeing deposits. Otherwise as per the spirit of the current domestic financial architecture, such financial institutions should be liquidated.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">In case, the financial distress continues and additional LOLR facility is called for, Nepal will have to negotiate for the IMF program. This will be inevitable to deal with the possible adverse impact of LOLR facility on international reserves and BOP.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	<strong><span style="font-size: 14px;">Summing up</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">The kind of domestic financial architecture we have chosen is key to consider the role of monetary policy for financial stability. If we were to adopt liberal licensing policy and allow banks to have portfolio of their choice, micro prudential, self regulation and market discipline should be key for financial stability. The focus of monetary policy should be on inflation, BOP and foreign exchange. These are crucial areas for attaining macroeconomic stability including financial stability. The role of monetary policy should be marginal and come at the remedial stage. Those financial institutions which cannot survive on their own under the liberal framework of financial architecture should be allowed to disappear. If we were to seek a larger role of monetary policy in ensuring financial stability we will have to be willing to change the current financial architecture including readiness to adopt macro prudential regulation. Given the existing framework of the financial architecture, any lobbying for political interference for the change in monetary policy is construed as an attack on professionalism and autonomy of the central bank. This does not bode well for market discipline, a crucial element for financial stability either.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div>
	<span style="font-size: 14px;"><i><span style="line-height: 115%;">(Thapa is the Chief Manager at Biratnagar Office of Nepal Rastra Bank (NRB). He was earlier the Director of Research Department at NRB's central office in Baluwatar, Kathmandu. He also spent two years between 2008 and 2010 as Advisor to the Executive Director at International Monitory Fund (IMF), Washington DC, prior to returning to Nepal.)<br />
	<br />
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	</span></i></span></div>',
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			'description' => 'Recent global financial crisis has once again ignited the debate on the role of monetary policy in ensuring financial stability. Taking a cue from international trend, emerging financial distress.......',
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		'Article' => array(
			'id' => '432',
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			'title' => 'Monetary Policy2011/12:Hard To Realise The Promises (august 2011)',
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			'content' => '<div style="margin-bottom: 0.0001pt; line-height: 120%; vertical-align: middle; text-align: justify;">
	<span style="font-size:12px;"><strong><i><span style="line-height: 120%;">By Hom Nath Gaire<br />
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	</span></i></strong></span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; vertical-align: middle;">
	<span style="font-size:12px;">The Monetary Policy for the fiscal year 2011/12 has made an attempt to be balanced with the expansionary fiscal policy of the government of Nepal despite fears of inflationary pressure, apart from reducing the Cash Reserve Ratio (CRR) by 50 basis points to five per cent. At the same time, NRB, the country's monetary authority, has accepted the ground reality that the monetary management of the economy is getting tough due to high inflation and unfavourable external sector accompanied by the deepening liquidity crisis in the financial system of the country.&nbsp;</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">To ease the liquidity situation in the economy, the policy has reduced CRR by 0.5 percentage point to five per cent. The policy document said, The revised CRR is estimated to instantly release around Rs 4 billion in the financial system.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">This fiscal year too, the policy has targeted seven per cent inflation. To support the fiscal policy aim of&nbsp;five per cent growth rate, the central bank is planning to increase the broad money supply by 12.5 per cent but the policy is ignoring its implications on general price level. However, NRB has attributed rising consumer price to supply constraints, defending its failure to contain the inflation to seven percent according to the target of its last year's monetary policy.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">According to the central bank data, the broad money supply including the balance sheet of commercial banks, development banks and finance companies enlarged by 7.3 per cent but the consumer price increased by an average of around 10 per cent in the last fiscal year's first 10 months. The 7 per cent target of consumer inflation for the current fiscal year is a big challenge due to the adverse impact of expansionary fiscal policy on which the government is planning to finance the capital as well as the recurrent expenditure through deficit financing. The overall macroeconomic policies have to be revisited as the Monetary Policy could not achieve inflation and Balance of Payment (BoP) target, the policy accepted, Apart from that managing liquidity and maintaining financial stability is an immense challenge for effective execution of the policy.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">According to the policy, BoP that was Rs 11.67 billion deficit in the first 10 months of the fiscal year, has however, recorded an unexpected surplus of around Rs 1 billion by the end of 2010-11, attributing surprise surplus to foreign grants and aids released in the eleventh month.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">For the current fiscal year, the Monetary Policy has targeted Rs 5 billion BoP surplus. In such unpredictable and volatile cash flow situation, the BOP target for the current fiscal year may also be hard to realise. Because, as the Monetary Policy has brought no change in the bank rate, refinancing rate and Statutory Liquidity Ratio (SLR), the debt servicing of the private sector may remain higher and the production of exportable goods will be affected adversely, which in turn will result in wider trade deficit and unfavorable BoP. However, the central bank has stated that refinancing will be revised according to liquidity need. This alone may not be sufficient to meet the demand for credit in the productive sector and boost the exports. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">The foreign exchange policy for individuals has become more as a Nepali willing to visit abroad can get foreign exchange up to $2,500 for once or a maximum of $5000 in a fiscal year, revising the facility from last fiscal year's $2,000 and $4,000 respectively. Similarly, NRNs can open foreign currency bank accounts and special arrangements will be made for Nepalis to open NOSTRO accounts in foreign countries. Likewise, the policy allowed the banks to exchange foreign currency up to $1,000 provided the beneficiary supplies credible source of foreign exchange with identity. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">The policy has increased provision of deprived sector lending to 3.5 per cent and asked banks and financial institutions (BFIs) to raise this ratio by 0.5 percentage point for two years. This provision will be helpful in directing lending towards productive sector as well as deprived sector and supportive to achieve the economic growth of 5 percent, revealed the policy. The targeted economic growth is also hard to achieve in the situation of deteriorating investment climate and low investor confidence due to government's tilt towards a socialist economic system. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">According to the monetary policy, the deposit mobilisation of BFIs will be increased at the rate of 13 percent by the end of the current fiscal year and will add around Rs 100 billion to the country's banking system. To achieve this target, the policy tries to address the crisis of trust in the banking system by extending deposit insurance up to Rs 200,000 to commercial banks as well so that small depositors feel safe. Earlier, the deposit insurance was mandatory only for the B and C class BFIs. By the end of last fiscal year, the deposits of BFIs increased 8.2 per cent to Rs 788.72 billion and the foreign exchange reserve increased by a mere Rs 2 billion to Rs 270 billion from a fiscal year ago's Rs 268 billion.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="text-align: justify;">
	<span style="font-size:12px;"><span style="line-height: 115%;">Apart from encouraging BFIs to open branches in select nine districts, where there is less access to formal source of finance, the policy directed BFIs to include a collateral-free loan of up to Rs 200,000 for the study of technical education under deprived sector lending.<br />
	<br />
	<br />
	</span></span></div>',
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			'title' => 'Poverty, Inequality And Growth-some Lessons',
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	<span style="font-size:12px;"><i><span style="line-height: 120%;"><img align="left" alt="economy" border="1" height="129" hspace="5" src="http://newbusinessage.com/ckfinder/userfiles/Images/kamal raj.jpg" style="margin:10px;padding:10px;" vspace="5" width="100" />By Dr Kamal Raj Dhungel<br />
	<br />
	</span></i></span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">The liberalisation policy in china is in effect since the end of 1970s. India has followed the same path since the beginning of 1990s. This resulted in tremendous progress, sustained growth and increased wealth in both China and India. Both the countries were characterised by mass poverty before the period of economic reform.&nbsp;Today, China has reduced the number of people under poverty to mere 2.8 per cent down from 64 per cent in 1981. Similar is the case of India. According to the government estimate, approximately 28 per cent of population is living below the poverty line down from 51 per cent in 1977/78. It reveals that people have tasted the fruits of economic progress resulting from economic reforms.&nbsp;</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">Let's now look at the context of poverty reduction in China and India. The liberalisation of their economies have instigated tremendous progress, sustained growth and increased wealth with rapid industrialisation. They are achieving high economic growth rate above 9 per cent per annum. It has produced multiplier effect in their economies. They are investing their resources in the construction of infrastructure and establishment and promotion of basic industries. The private sector investment has been mushrooming. This has created sufficient employment opportunities within the country to the increased size of labour force. This provides opportunities to the poor people to improve their living condition and hence both countries have met the goal of poverty reduction in the same momentum though the degree and extent of it is different. Income, health and education of the people are gradually improving which results in the improvement of the human development index. Nepal's estimated incidence of poverty is at 30.9 per cent today down from 45 per cent in the mid 1990s. In terms of poverty reduction, al the three countries under consideration have the same trend over the same period of time. China and India have adequate reason to explain how poverty there has come down as they are achieving rapid economic growth rate.&nbsp;But in Nepal poverty has surprisingly come down when its economic growth rate is deteriorating. This makes the people doubt at the authenticity of the poverty reduction data. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">Nepal also has the same story of economic liberalisaiton but with different outcomes. Policy of liberalisation has been initiated since the middle of 1980s albeit it has been gaining momentum only after 1990. As an effect of this policy, a large number of public enterprises were dismantled in the name of privatisation. They had produced basic goods like shoes, sugar, agricultural tools, clothes and paper etc. In the past, these industries made a significant contribution in the economy in terms of consumption, income and employment. But today they have vanished. It means those industries whose management had been transferred to the private sector are not in operation currently.&nbsp;The demand of the goods produced by these industries is being fulfilled by imports. The numbers of persons employed in these industries have become unemployed.&nbsp;Some of them have either migrated to foreign countries in search of employment. Others have remained unemployed. There is no doubt that liberalisation can play an important role in economic development. It can attract, promote and encourage private sector investment, both foreign and domestic in the development of overall economy, particularly in the manufacturing sector.&nbsp;But the manner in which Nepal has been exercising economic policy reform seems clearly unsustainable and making gloomy environment for private investment.&nbsp;Instead, it encourages opening up a large number of cosy dance restaurants in different urban centres of Nepal through private sector investment.&nbsp;Similar is the case of investment of private sector in education and health as private schools, colleges and nursing homes including private hospitals are mushrooming. They provide service only to a small fraction of population who are wealthier.&nbsp;It creates discrimination among the citizens in terms of social service. Clearly, the nation has been producing two categories of future manpower: a superior workforce which graduates from private schools and an inferior one that graduates from public schools. Majority of students who graduate from private schools are migrating to developed countries. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><img align="left" alt="Real GDP growth rate during 2006-10" border="1" height="197" hspace="5" src="http://newbusinessage.com/ckfinder/userfiles/Images/groth rate.jpg" style="width: 318px; height: 197px;margin:10px;padding:10px;" vspace="5" width="318" />The failure of economic policy particularly after 1990 is reflected in the overall progress of the Nepali economy. In the initial stages of liberalisation, the growth rate of Nepali economy was encouraging to some extent. But it became disappointing gradually. The trend of Nepal's economic growth rate is not only disappointing but also humiliating (see chart ). The fruit of this growth did not reach people who were the main pillars in restoring democracy in 1990 and beyond. It means the distribution of national income among its citizens has been skewed.&nbsp;Since the decade of 1990s, corruption has become rampant. Anti-corruption mechanisms have been made ineffective. The living standard of the richest 10 per cent has been increasing over the years while that of the rest is deteriorating.<br />
	<br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">&nbsp;The present economic growth rate, as seen in the chart, is declining over the years. It is barely enough to feed the population which is growing at the rate of 2.24 per cent per year. For the mass of people, hunger is routine, malnutrition rife, employment insecure, social security non-existent, health care expensive and livelihoods under threat. Youths are migrating to foreign countries and are supposed to send remittance by putting their lives at risk. As expected, remittance plays a vital role in providing livelihood to the people of Nepal. This is also giving an opportunity to the elite of Nepal to set up large number of banking businesses. But its contribution to economic growth seems insignificant. Today, Nepali people are experiencing banking business next door to their residence.&nbsp;It indicates that the growth of monetary sector (particularly of the institutions dealing with money) in recent years have been increasing while the growth rate of real sector is declining.&nbsp;It seems there is a weak association between the growth of monetary and real sectors. Practically speaking, for a healthy and balanced economic development, there should be a strong correlation between them. In addition, private sector investment has been growing in the construction of large apartments and residential buildings and opening up of departmental stores. This provides a major market for investment by the banks. This shows that the current trend of economic activities in which the investments are pouring is not sustainable.&nbsp;These activities would sustain for a longer period only when the country achieves high economic growth.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">The ways in which our national income has been distributed irrespective of its shape and size among the citizens stands to cause devastating consequences. It can create social tensions and make the rich even richer. The unjust distribution of the fruits of democracy during 1990s has left us a great liability whose effect of course had been spreading all over the country. The nation has already lost over 13,000 lives. Despite such a huge loss of lives, the inequality today is still rising. The income gap between the rich and poor is more intense.&nbsp;Gini index with value between 0 and 1 (0 for perfect equality and 1 for perfect inequality) is used to measure the inequality in the distribution of income and wealth. At present, Nepal's Gini index a gauge of income gap, is 0.47. This index of 0.4 percent is considered a warning line Exceeding this mark signifies that the biggest part of the wealth cake is enjoyed by a minority. If the Gini index points below 0.2, income distribution is highly balanced, between 0.2 and 0.3 is a relatively balanced distribution, 0.4 and 0.5 means that the distribution is being largely spread &nbsp;and if it reaches 0.5, then, distribution is highly unbalanced. Nepal’s Gini index is nearly 0.5 and it means the biggest part of the nation's income goes to only a few. It is because of the lack of equal access to opportunities. Opportunities inside the country are rare. Whatever opportunities are thesre inside the country, they are available only to those who are related with the powerful. Opening up the opportunities in most public sectors like police, military and civil service are not going to help as even such opportunities open other avenues for the powerful people for corruption. It indicates that the powerful and influential persons have hijacked opportunities, benefits, public spaces, shared resources, economic rights and political processes.<br />
	<br />
	<br />
	</span></div>
<div>
	<span style="font-size:12px;"><i><span style="line-height: 115%;">(Dr Dhungel is a Professor of Economics at Tribhuvan University, Kathmandu. He can be reached via email at </span></i><a href="mailto:kamal.raj.dhungel@gmail.com"><i><span style="line-height: 115%;">kamal.raj.dhungel@gmail.com</span></i></a><i><span style="line-height: 115%;">)</span><br />
	</i></span></div>
<div>
	<span style="font-size:12px;"><i>&nbsp;</i></span></div>',
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			'title' => 'Road Map For Development',
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	<strong><span style="font-size:12px;"><span color:="" franklin="" gothic="" style="line-height: 115%;"><br />
	BRIGHT ECONOMIC FUTURE OF NEPAL</span></span></strong></p>
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	 </p>
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	<strong><span style="font-size:12px;"><i><span color:="" letter-spacing:="" lucida="" style="line-height: 120%;">By Janardan Dev Pant<br />
	<br />
	</span></i></span></strong></p>
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	<span style="font-size:12px;"><b><span aldine401="" color:="" letter-spacing:="">N</span></b><span aldine401="" color:="" letter-spacing:="">epal's political parties and policymakers are making financial mistakes that have left the people in poverty, serious financial stress and feeling of helplessness. Nepal is experiencing immense challenges in transforming its social and business environment. Such transformation requires departure from outdated modes of providing dogmatic directions.&nbsp; Everybody is suggesting that the need of the hour is good governance, awareness about and understanding of global and national economic business environment, strategic thinking and choices, formulation and implementation of proper policies, effective communication, digitization, and management of available human talent.&nbsp; These all require an overall understanding of the fast paced changes of both the external and internal environment.</span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">We have achieved lots of good things.&nbsp; We have produced world class engineers, doctors, lawyers and bankers by liberalizing education, telecommunications and banking. Majority of them are working in the USA, Canada, UK and Australia due to the absence of right environment in Nepal. Due to this migration of talent, all the achievement made in the education sector has been useless in raising the living standards of 85 per cent Nepalis.&nbsp; Common people are undergoing extreme socio-economic hardships without hope of any immediate relief.&nbsp; This situation must not be allowed to continue.&nbsp; </span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">Nepal's market-oriented reform started in 1991 implied that those who lack the purchasing power will be marginalised.&nbsp; People without money are as good as non-existent in the sort of market economy prevailing today.&nbsp; It is the state's responsibility to take care of such citizens.&nbsp; Failure to take care of such Nepalis, who are about 85 per cent of the country's population, is the key failure of Nepal's economic liberalization.The main reason behind this failure is our inability to use our existing resources properly. That is what is forcing us to live in poverty, serious financial stress and feeling of helplessness.&nbsp; </span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">This article is about a proposal to get out of this mess and achieve growth through the use of hydropower. </span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
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	<strong><span style="font-size: 12px;"><span color:="" franklin="" gothic="" letter-spacing:="">Setting the Goal<br />
	<br />
	</span></span></strong></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">The first step in embarking on a journey is to set a goal. Let's set the goal as:&nbsp; Nepal's per capita income US$ 2,500 by 2017 and US$ 50,000 by 2040.&nbsp; This goal is specific, measurable, achievable, realistic and time bound.&nbsp; With this goal in mind, I would like to draw a number of policy prescriptions to achieve this goal. These policies can promote investment, create jobs and wealth, and consumer spending which will give us double digit growth and eradicates poverty so that Nepal will be transformed from least developed county to developed country by 2040.</span></span></p>
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	 </p>
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	<strong><span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></strong></p>
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	<strong><span style="font-size: 12px;"><span color:="" franklin="" gothic="" letter-spacing:="">Bench Mark<br />
	<br />
	</span></span></strong></p>
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	 </p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">We must benchmark with our comparator countries to achieve best practices and gain efficiencies.&nbsp; Our core competencies are hydropower and tourism.&nbsp; The comparator countries in this respect are Bhutan and Laos. They too are landlocked, have mountainous terrain and plentiful water resources.&nbsp; But they have succeeded to produce and export large volume of hydroelectricity to their neighbors.&nbsp; We can learn many things from 1070 MW Nam Theun Hydropower Project of Laos and 1020 MW Tala Hydroelectric Project of Bhutan. We have to learn from them and achieve the above stated goal. But we have to revise and refine those models to suit our specific environment.&nbsp; For example, they are exporting power whereas we have market for power within the country itself. <br />
	<br />
	</span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">Supply creates its own demand, said the famous economist JB Say.&nbsp; He is perfectly right in his statement, at least in Nepal where the pent up demand for electricity is huge. If we start construction of various hydroelectricity projects immediately as per our model, our per capita income will reach around US $50,000 by 2040 with double digit economic growth every year.&nbsp; By that time our rate of per person electricity use will reach around 150 times from today's 70 units per head.&nbsp; As we are going to consume here in Nepal all the electric power that we are going to produce, the policy of exporting power must be stopped immediately.&nbsp; Power exporting policy will hold back our fast track economic growth.&nbsp;&nbsp;&nbsp; </span></span></p>
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	 </p>
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	<strong><span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;&nbsp;&nbsp; </span></span></strong></p>
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	<strong><span style="font-size: 12px;"><span color:="" franklin="" gothic="" letter-spacing:="">Liberalizing Hydropower</span></span></strong></p>
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	 </p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">This is the time that the government needs to think about liberalizing hydropower sector, just like it liberalized banking, telecommunications and education which unleashed the banking, communication and education revolution.&nbsp; We have to rehabilitate to Nepal Electricity Authority (NEA) to match our development strategy because NEA is already a sick unit.&nbsp; We are experiencing a severe energy crisis. We are already without electricity 14 hours a day and this duration is getting longer. But with the hydropower potential we have, it does not have to be that way. Presently, peak power demand of integrated Nepal power system is around 967 MW and power supply is around 400 MW.&nbsp; The deficit can be met easily with a few projects. <br />
	<br />
	</span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;But the existing power purchase rates make the power projects commercially unfeasible due to high rates of interest that the banks are charging.&nbsp; Therefore, it is suggested that the power purchase rates be revised upward, immediately.&nbsp; When the market interest rates rises further, the power purchase rates should be raised accordingly. Similarly, when the interest rate cools down, the power purchase rates should be lowered accordingly. </span></span></p>
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	<span style="font-size: 12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:=""><br />
	</span></span></p>
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	<strong><span style="font-size: 12px;"><span color:="" franklin="" gothic="" letter-spacing:="">Cost of Hydropower<br />
	<br />
	</span></span></strong></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">The cost of hydropower is highly site specific, and depends on different factors, including hydrologic characteristics, site accessibility, and distance from transmission line.&nbsp;&nbsp; However, hydropower is the cheapest way to generate electricity in Nepal. The 456 MW Upper Tamakoshi hydropower project is estimated to cost Rs 35.29 billion, if the project is completed by FY 2014-15 as scheduled.&nbsp; That means it costs about Rs 77.39 million per MW.&nbsp; On that basis, we can say, at today's rate, a typical hydropower project in Nepal can cost somewhere between Rs 80 million and Rs 150 million per installed MW.&nbsp;&nbsp;&nbsp; </span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp; </span></span></p>
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	<strong><span style="font-size:12px;"><span color:="" franklin="" gothic="" letter-spacing:="">Means of Financing<br />
	<br />
	</span></span></strong></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">One major obstacle often cited in Nepal's hydropower development is the lack of finance. But in reality, it is no big deal for us to raise the money.&nbsp; The project can be financed through a mix of debt and equity arranged through a public-private partnership.&nbsp; The people of Nepal can arrange the resources on their own to produce at least 2,360 MW of electricity if the leaders extend some help.&nbsp; <br />
	<br />
	</span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">First of all, Nepal Government has to create Nepal Development Company Limited (NDCL) as a sovereign wealth fund holding company.&nbsp; Then the government should sell 40 per cent shares it holds in the Nepal Telecommunication Company Ltd (NTC). This will yield around Rs 24 billion and that amount should be invested as the seed money of NDCL.&nbsp; With this money, NDCL can promote many subsidiary public limited companies in the same manner as Nepal Electricity Authority has promoted Chilime Hydropower Company Limited.&nbsp; The equity participation in these subsidiaries is proposed at 51% from NDCL, 25% from national or international strategic partner, 24% from the general public.&nbsp; Subsidiaries should be managed by the strategic partners so as to ensure efficiency and customer satisfaction.&nbsp; NDCL can also promote East-West Electric Railway Ltd and many North-South cable car companies in similar modality of raising the fund. <br />
	<br />
	<br />
	</span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;Nepal Telecom has been seeking strategic partner as it is losing 10 per cent of its profit growth every four months to the private telecom service providers.&nbsp; Nepal Telecom on its second annual general meeting held on March 29, 2010 has passed a resolution to sell minority shares to international telecommunications operator.&nbsp; But nothing has been done on this line till now. People believe that this delay is due to financial influence of other telecom service providers on our political leaders and government authorities.&nbsp; Further, it is also widely believed that if Nepal Telecom cannot bring foreign telecommunications operator through bidding as a strategic partner, Nepal Telecom too will face the same fate as that of Janakpur Cigarette Factory and Nepal Airlines Corporation.&nbsp; <br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">The paid-up capital of Nepal Telecom is Rs 15 billion, of which Nepal Government holds 91.50%.&nbsp;&nbsp; If the Government can sale 40% share in Nepal Telecom through international bidding, at the rate of minimum Rs 400 per share, the proceeds will be a minimum of Rs 24 billion.&nbsp; Assuming that this Rs 24 billion will be the 25% equity from NDCL's side, and that Rs 72 billion will be available as loan from various lenders, the total funds available will be Rs 96 billion.&nbsp; This will be sufficient to set up projects to generate hydroelectricity of 960 MW, assuming, on the basis of calculations above, that Rs 100 million will be required to install one MW capacity for hydroelectricity.&nbsp;&nbsp;&nbsp; </span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">Similarly, Nepal Army Welfare Fund has billions in its account.&nbsp; If it invests Rs 5 billion as equity in hydropower projects, it can get 75% of the project as loan and the total available amount will be Rs 20 billion.&nbsp; This amount is sufficient to install 200 MW capacity of hydroelectricity on the same assumptions as above.Then is the Employees Provident Fund. It is no big deal for this institution to invest Rs 10 billion as equity for hydropower generation. That will attract loans to make the total fund of Rs 40 billion.&nbsp; This is sufficient for installing a generation capacity of 400 MW.&nbsp;&nbsp; <br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">Then, we can easily assume that 100,000 Nepali citizens will come forward to invest Rs 200,000 per person. That will generate a total equity amount of Rs 20 billion which will attract a loan so that the total amount will be Rs 80 billion.&nbsp; From this amount, we can install a capacity of R 800 MW. The equity can be raised by issuing preferred redeemable increased dividend equity shares (PRIDES) to the general people.&nbsp; PRIDES, according to Investopedia, are securities consisting of a forward contract to purchase the issue's underlying security and an interest bearing deposit.&nbsp; Interest payments are made at regular intervals, and conversion into the underlying security is mandatory at maturity.&nbsp; PRIDES allow investors to earn stable cash flows while still participating in the capital gains of an underline stock.&nbsp; This is possible because these products are valued along the same lines as the underlying security. <br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">Micro-finance institutions, Banks and Co-operatives can give loans to purchase these PRIDES issued by NDCL or its subsidiaries to the Nepalis who have low or no income. Such loan can be issued against the collateral of PRIDES.&nbsp; This will bring positive impact on distribution of benefits from national resources to the low income people.&nbsp; This will ensure that the economic development does not marginalize the poor. <br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">We can get loan from various financial institutions located in Nepal, China, India or global institutions such as Agence Francaise de Development, European Investment Bank, Nordic Investment Bank etc. China's foreign exchange reserves have reached US$ 2.4 trillion making it by far the largest holder of foreign exchange reserve in the world. China was holding US$ 906 billion in US treasury bonds as of October, 2010.&nbsp; We should request China to invest some of that amount in Nepal's infrastructure development, such as hydropower. They should agree because the return will be higher in our projects.</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></strong></p>
<p class="MsoNormal" style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	<strong><span style="font-size: 12px;"><span color:="" franklin="" gothic="" letter-spacing:="">Infrastructure-Transmission Line<br />
	<br />
	</span></span></strong></p>
<p class="MsoNormal" style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	 </p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">Hydropower development depends on the power transmission to carry the power from the power project site to the consumer. On January 5, 2007 NEA signed an MOU to construct Butwal-Gorakhpur, Duhabi-Purnia, Dhalkebar-Mujaffarpur and Anarmani-Siligudi 220 KV transmission lines for power trade between Nepal and India. But if we have to develop Nepal's hydropower and consume this within Nepal, NEA has to start constructing East-West 400 KV, North-South 132 KV, and North-South 220 KV transmission lines along the corridors of North-South major rivers, where it is feasible.&nbsp; NEA will make profit from wheeling charges received from power producers.<br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">These transmission lines are essential to solve the present problem of power deficit.&nbsp; No investor will be interested to invest in power project without transmission line. Therefore, for Nepal, transmission line construction is not an option but compulsion. If NEA is not able to construct these transmission lines, the private sector can be invited to do it under Build-Own-Operate-Transfer (BOOT) contracts.&nbsp; The private sector can be allowed to operate such transmission lines for 30 years after which it has to transfer ownership to the government-owned NDCL. <br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">The responsibility to distribute electricity should be given to the local government units, such as the District Development Committees or Municipalities or to the proposed federal states.&nbsp; With this arrangement, the present problem of leakage of electricity will be stopped. At present, the electricity leakage is 26 per cent according to NEA.&nbsp; </span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:=""><br />
	&nbsp;</span></span></strong></p>
<p class="MsoNormal" style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	<strong><span style="font-size: 12px;"><span color:="" franklin="" gothic="" letter-spacing:="">Market<br />
	<br />
	</span></span></strong></p>
<p class="MsoNormal" style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	 </p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">The concept of supply creates its own demand is applicable in our case.&nbsp; There is scope of exponential increase in the supply of electric power in Nepal because there is also a very high scope for exponential increase in the demand for electric power.&nbsp; The data provided in the Table-1 is a conservative estimate.&nbsp; This does not include major hydropower projects initiated by NEA and foreign investors. NDCL can immediately start Construction of electric railway system such as Mechi-Mahakali, Raxaul-Hetauda-Kulekhani-Kathmandu and Kathmandu valley metro system.&nbsp; The estimated construction cost is Rs 500,000 per meter for double track railway. It goes up to Rs 1,000,000 if tunnel construction is also required. </span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">NDCL can also immediately start construction of cable car system from various points of east-west electric railway up to the hilly and Himalayan region to the market centres and tourist attractions including various reservoirs to be created by hydro dams.&nbsp; </span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">Meanwhile, we can benefit from the fast growth in the economies of our two neighbours. We share our northern border (1415 kms) with China which is not only the most populous country in the world with 1.34 billion people, but also the worlds second largest economy after the United States.&nbsp; It is the world's fastest growing major economy, with average annual growth rates of 10% for the past 30 years.&nbsp;&nbsp; China's middle class population, that has an annual income of at least US$ 17,000, has now reached more than 100 million. China's per capita income (nominal) is US$ 4,283.&nbsp; Similarly, our southern neighbor India with which we share a common border of 1,850 Kms, is the second most populous country in the world with 1.2 billion people.&nbsp; India too is one of the fastest growing economies in the world and its per capita income (nominal) is US$ 1,124.&nbsp; </span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">If we can attract even one per cent of the population of our two neighboring countries as tourists in Nepal, that will give tremendous economic growth to our economy as well. That requires construction of various electric train lines, international airports, cable car systems and recreational centres. Development of hydropower will help in all these. For example, water can be used for creating recreational facilities. Most importantly, if Nepal has good infrastructure, its geographical location makes it very suitable to be international financial center.</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></strong></p>
<p class="MsoNormal" style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	<strong><span style="font-size: 12px;"><span color:="" franklin="" gothic="" letter-spacing:="">Determined Government<br />
	<br />
	</span></span></strong></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">One frequently cited problem in Nepal's development and investment is the political uncertainty. However, there are examples, such as Singapore, China and South Korea, that a determined government can build an advanced country from scratch in a short period of time. That means our politicians have to start learning.<br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">Presently, our leaders or political parties are focused on the 301-game trying to make sure that they have 301 members of the Constituent Assembly on their side at any cost. That has to change. Over the past 35 years, we have seen rapid pace of technological change in our physical environment.&nbsp; Innovations such as cellular telephones, laser surgery, computers, electronic banking and new electronic trading techniques have materially affected the way people live.&nbsp; These technologies are easily transferable.&nbsp; Our politicians should keep themselves aware about these technological changes.&nbsp; That is required because the politicians should be able to optimize the use of the country's resources, promote excellence in the delivery of services and enhance competitiveness in line with our strategic visions, by keeping economic policy, institutions and bureaucracy above politics.<br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;Politicians should be given growth challenges in numerical terms.&nbsp; They must be given a target such as 12.3 percent growth rate per annum in our gross domestic product (GDP).&nbsp; Why 12.3 per cent? Our population growth rate is 2.3 per cent per annum.&nbsp; So, we need 2.3 per cent annual rate of GDP growth to take care of population increase. Another 5 percent growth rate is required to provide increased standard of living to the people, and another 5 percent is needed to provide increased momentum in the subsequent years.&nbsp; It is an achievable target and this must be the duty of the Prime Minister to achieve this. It makes no sense to continue hiring the Chief Executive Officer of the country without giving him or her a target to achieve. <br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;The type of economic growth that we will achieve with this model will not only eradicate poverty from Nepal in a short period of time, but will lift the country to the group of developed countries by 2040.&nbsp; </span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></strong></p>
<p class="MsoNormal">
	<strong><span style="font-size: 12px;"><span aldine401="" color:="" letter-spacing:="" style="line-height: 115%;">&nbsp;<i>(Pant is Director of Nepal Investment Bank Ltd and Chairman of Quantum Capital Ltd.&nbsp; He can be contacted at janardanpant@gmail.com)</i></span></span></strong></p>
<p class="MsoNormal">
	 </p>
<p class="MsoNormal">
	<strong><br />
	</strong></p>
<p class="MsoNormal">
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			'title' => '‘Seven Percent Growth Rate Possible’',
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			'content' => '<p>
	<strong style="font-size: 12px;">Can Nepal Achieve 7 per cent&nbsp;<span style="font-size: 12px;">Economic Growth Rate?</span></strong></p>
<p>
	‘Seven percent growth rate possible’</p>
<p>
	<span style="font-size: 12px;">Nepal’s economy has every possibility to grow by 7 per cent in the next fiscal provided that there is political stability in the country and the government makes policy changes to encourage the private sector.</span><span style="font-size: 12px;">The government should focus on providing a stable policy environment, integrating growth of the industrial and service sector and making investments in domestic production to displace imports.</span><span style="font-size: 12px;">Similarly, there is a need to boost our agricultural production. However, we should be able to create markets for our agricultural products.&nbsp;</span></p>
<address>
	<strong>Dr Posh Raj Pandey</strong></address>
<address>
	<strong>Executive Chairman</strong></address>
<address>
	<strong>South Asian Watch on Trade, Economics and Environment (SAWTEE)</strong></address>',
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			'created' => '2013-05-23',
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			'keywords' => 'Seven percent growth rate possible',
			'description' => 'Nepal’s economy has every possibility to grow by 7 per cent in the next fiscal provided that there is political stability in the country and the government makes policy changes to encourage the private sector.',
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			'summary' => null,
			'content' => '<p>
	<strong style="font-size: 12px;">Can Nepal Achieve 7 per cent&nbsp;<span style="font-size: 12px;">Economic Growth Rate?</span></strong></p>
<p>
	‘Need For Political Consensus On Fundamental Issues Of Development’</p>
<p>
	<span style="font-size: 12px;">Nepal needs a growth rate of around 4-5 per cent in the agriculture sector and 9-10 per cent in other sectors if the country’s GDP is to grow by around 7 per cent. Development is basically a political process.&nbsp;</span><span style="font-size: 12px;">Therefore, it is crucial that the major political parties reach a consensus on the fundamental issues of development. Liberalisation is needed for the growth of organised industrial trade and business.&nbsp;</span><span style="font-size: 12px;">We also need to enhance our productivity and introduce modern technologies to our agriculture sector.</span></p>
<address>
	<strong>Dr Badri Prasad Shrestha</strong></address>
<address>
	<strong>Former Finance Minister</strong></address>',
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			'created' => '2013-05-23',
			'modified' => '2013-05-23',
			'keywords' => 'Need For Political Consensus on Fundamental Issues of Development',
			'description' => 'Nepal needs a growth rate of around 4-5 per cent in the agriculture sector and 9-10 per cent in other sectors if the country’s GDP is to grow by around 7 per cent. Development is basically a political process.',
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			'title' => '‘Nepal Has The Potential To Achieve 7% Growth Rate’',
			'sub_title' => '',
			'summary' => null,
			'content' => '<p>
	<strong style="font-size: 12px;">Can Nepal Achieve 7 per cent&nbsp;<span style="font-size: 12px;">Economic Growth Rate?</span></strong></p>
<p>
	‘Nepal has the potential to achieve 7% growth rate’</p>
<p>
	<span style="font-size: 12px;">Nepal actually does have the potential to achieve a seven percent economic growth rate or more, like our two immediate neighbours – India and China. But in the present situation of political instability and uncertainty, it seems an almost impossible target. The World Bank has estimated Nepal’s economic growth to be not more than 3.8 per cent in the current fiscal year.&nbsp;</span></p>
<p>
	We must focus on our major sectors such as agriculture, tourism, water resource etc if we are to attain speedy economic growth. We must increase our domestic production significantly if we are to achieve such a high growth rate. Increased domestic production will not only help reduce the ever-rising imports of several products but will also help us earn foreign currency by increased exports. Likewise, we must also be able to develop our education, health and social sectors.&nbsp;</p>
<p>
	Finally, the government should create an investment-friendly environment by introducing matching policies and ensuring the security of investment – foreign as well as domestic.&nbsp;</p>
<address>
	<strong>Narayanraj Tiwari</strong></address>
<address>
	<strong>Former Finance Secretary</strong></address>',
			'published' => true,
			'created' => '2013-05-23',
			'modified' => '2013-05-23',
			'keywords' => 'Nepal Has The Potential To Achieve 7% Growth Rate',
			'description' => 'Nepal actually does have the potential to achieve a seven percent economic growth rate or more, like our two immediate neighbours – India and China.',
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		'Article' => array(
			'id' => '1006',
			'article_category_id' => '37',
			'title' => '‘Focus On Tourism, Productivity And Exports’',
			'sub_title' => '',
			'summary' => null,
			'content' => '<p>
	<strong style="font-size: 12px;">Can Nepal Achieve 7 per cent&nbsp;<span style="font-size: 12px;">Economic Growth Rate?</span></strong></p>
<p>
	‘Focus On Tourism, Productivity And Exports’</p>
<p>
	<span style="font-size: 12px;">Nepal has the prospects for large-scale investment. Foreign investment is important for the development of sectors such as hydropower, tourism, transport, railway, agriculture and other bigger projects. We need to speedily develop bigger hydropower projects to address the energy crisis. Without tackling the energy crisis, we cannot really expect a healthy economic growth rate. Both the public and the private sectors should invest to increase production. We also need rapid industrialization which will create new employment opportunities. Nepal has tremendous possibilities of tourism development. Nepal should basically target Chinese and Indian tourists. In the last fiscal year, more than 10 million Chinese and Indian tourists went for outbound travel. If we can attract only 10 per cent of it, we will have one million more tourists. Nepal should make serious attempts to achieve this. Nepal should make long-term strategies to reduce imports and increase exports by increasing the domestic production of goods and services. Nepal should focus on increasing the export of commodities like, carpet, herbs, ginger, tea and Pashmina, among others.</span></p>
<div>
	<address>
		<strong>Jaya Mukunda Khanal&nbsp;</strong></address>
	<address>
		<strong>Secretary</strong></address>
	<address>
		<strong>Ministry of Agriculture Development</strong></address>
</div>',
			'published' => true,
			'created' => '2013-05-23',
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			'keywords' => 'Focus On Tourism, Productivity And Exports',
			'description' => 'Nepal has the prospects for large-scale investment. Foreign investment is important for the development of sectors such as hydropower, tourism, transport, railway, agriculture and other bigger projects. We need to speedily develop bigger hydropower projects to address the energy crisis.',
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		'Article' => array(
			'id' => '987',
			'article_category_id' => '37',
			'title' => 'Economic Policy’s Narrative Imperative',
			'sub_title' => '',
			'summary' => null,
			'content' => '<p>
	<strong>By Kemal Derviş</strong></p>
<p>
	<span style="font-size: 12px;">The best advice I received when taking up policymaking responsibilities in Turkey more than a decade ago was to take “a lot of time and care to develop and communicate the ‘narrative’ to support the policy program that you want to succeed.” The more that economic policy is subject to public debate – that is, the more democracy there is – the more important such policy narratives are.</span></p>
<p>
	The crisis faced by the European Union and the eurozone is a telling example of the need for a narrative that explains public policy and generates political support for it. A successful narrative can be neither too complicated nor simplistic. It must capture the imagination, address the public’s anxieties, and generate realistic hope. Voters often sense cheap populism.</p>
<p>
	European Central Bank President Mario Draghi provided such a narrative to the financial markets last July. He said that the ECB would do everything necessary to prevent the disintegration of the euro, adding simply: “Believe me, it will be enough.”</p>
<p>
	With that sentence, Draghi eliminated the perceived re-denomination tail risk that was highest in the case of Greece, but that was driving up borrowing costs in Spain, Italy, and Portugal as well. It was not a populist message, because the ECB does indeed have the firepower to buy enough sovereign bonds on the secondary market to put a ceiling on interest rates, at least for many months.</p>
<p>
	Central bankers, more generally, are typically able to provide short- or medium-term narratives to financial markets. US Federal Reserve Board Chairman Ben Bernanke provided his own by pledging that US short-term interest rates would remain very low, and the Bank of Japan’s new chairman, Haruhiko Kuroda, has just provided another by saying that he will double the money supply so that inflation reaches 2%.</p>
<p>
	While central bankers can provide such narratives to financial markets, it is political leaders who must provide the overall socioeconomic messages that encourage long-term real investment, electoral support for reform, and hope for the future. Central bank alchemy, to borrow a term from the US journalist Neil Irwin’s new book, has its limits.</p>
<p>
	Europe, in particular, needs a narrative of long-term hope that will trigger a real recovery. France is coming closer to the danger zone, and even Germany’s annual GDP growth is falling well below 1% per year. In the meantime, the easing of sovereign interest-rate spreads provides little comfort to the growing army of unemployed in southern Europe, where youth unemployment has reached dramatic heights – close to 60% in Greece and Spain, and almost 40% in Italy.</p>
<p>
	The narrative should address three essential questions. How can the European model of strong social solidarity and security be reformed, but endure? How can economic growth be revived and sustained throughout the EU? And how can Europe’s institutions function with enhanced legitimacy to accommodate countries that share the euro and others that retain their national currencies?</p>
<p>
	For starters, a revolution is required in the organization of work, learning, and leisure. Social solidarity, essential to European identity, can and must include longer work lives, but also more work-sharing, adult learning, and shorter average work weeks (particularly close to retirement).&nbsp;</p>
<p>
	Such flexibility requires the consent of all: employees must adjust to changing requirements; employers must re-organize their enterprises to allow more work-sharing, work from home, and learning intervals; and governments must overhaul taxes, income support, and regulation to promote a “flex-solidarity revolution” that encourages personal choice and responsibility, while remaining committed to social cohesion. This can lead to a better future for all, with citizens gaining better access to adult education, having more free time to pursue personal interests, and remaining productive and occupationally engaged far longer into their healthy lives.</p>
<p>
	Europe does not need Asia’s rates of economic growth. It can secure decent jobs and prosperity, with a sustained annual growth rate of around 2%. To achieve that, German voters should be told not that their country’s resources will forever flow to Spain, but that their wages can rise at twice the rate of the recent past without risking inflation or a current-account deficit, because Germany has the world’s largest external surplus.</p>
<p>
	Service-sector industries throughout the EU must be opened up. The countries with stronger fiscal positions should take the lead in a major pan-European skill-upgrading program. The number of pan-European scholarships should be doubled. School programs everywhere should aim to educate trilingual citizens.</p>
<p>
	Moreover, a full European banking union with shared resources for resolution should be created without further delay. The European Investment Bank, which received a significant capital increase in 2012, should add a large investment-support program for medium-size enterprises to its current operations, with a subsidy financed from the European budget to encourage first-time job takers for a limited period. Jobs and training for young people must be the centerpiece for the new growth pact, and projects must move ahead in “crisis mode,” rather than according to business as usual.</p>
<p>
	Finally, while monetary union obviously requires greater sharing of sovereignty, there should also be a “greater Europe” that includes the United Kingdom and others. This implies two-tier institutions that can accommodate both types of countries: the “euro-ins” and those that prefer to preserve their monetary sovereignty in a larger Europe built around a vibrant single market and common democratic values.</p>
<p>
	These interconnected visions can and must be realized if Europe is to thrive again. Together, they form a compelling narrative that European leaders must begin to articulate.</p>
<p>
	<span style="font-size:10px;">Kemal Derviş, former Minister of Economic Affairs of Turkey and former Administrator for the United Nations Development Program (UNDP), is Vice-President of the Brookings Institution.</span></p>
<p>
	<span style="font-size:10px;">Copyright: Project Syndicate, 2013.</span></p>',
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			'created' => '2013-05-22',
			'modified' => '2013-05-22',
			'keywords' => 'Economic Policy’s Narrative Imperative, Economy and Policy, New Business Age',
			'description' => 'For starters, a revolution is required in the organization of work, learning, and leisure. Social solidarity, essential to European identity, can and must include longer work lives, but also more work-sharing, adult learning, and shorter average work weeks.',
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			'title' => 'Why Are Most Domestic Airlines Running In Loss?',
			'sub_title' => '',
			'summary' => null,
			'content' => '<p style="text-align: justify;">
	<strong>By Akhilesh Tripathi</strong></p>
<p style="text-align: justify;">
	Leaving a few as exceptions, most domestic private sector airlines in Nepal are not in sound financial health. In fact, a majority of them have always been struggling for survival. The list of Nepali private airlines closed down so far is a long one, carrying well over a dozen names of which a few grounded their fleet and downed their shutters after flying in the Nepali sky for as long as a decade. Examples are Necon Air and Cosmic Air. Their contemporaries &nbsp;such as Skyline Air, Shangril-Lai Air, Mountain Air, Nepal Airways, Lumbini Air, Everest Air – to name a few – were also closed down.&nbsp;</p>
<p style="text-align: justify;">
	Many – five dozen to be exact - haven’t started their operations despite receiving the Airline Operator’s Certificate (AOC) from the Civil Aviation Authority of Nepal (CAAN) many years ago. They are airlines on paper only. Understandably, the biggest deterrent for them is the collapse of several airlines in the past. There is no doubt that the present of the domestic aviation industry has improved, but not enough. A few airlines are really doing well – but they are oonly a few. Others are in the red, according to a highly-placed source at CAAN. Recently, two airlines have been in problems – Agni Air and Guna Air. The latter was acquired by Simirik Air, a helicopter service provider, which rebranded it as Simrik Airlines and launched its domestic flights. &nbsp;</p>
<p style="text-align: justify;">
	The Number One airline (Buddha Air) at present is far ahead the Number Two (Yeti Airlines) in terms of the number of passengers carried as well as the profit made annually. And there is always a stiff competition among a couple of other private airlines for the Number Three position in the domestic aviation market which has all together 15 private airlines (nine fixed-wing and six rotary-wing) in operation at present. Of the total 1.6 million domestic air passengers in 2012, the Number One airline carried more than 800,000 and also made, according to knowledgeable sources, more than Rs 4 billion in profit. The remaining Rs 3 billion of the annual business was shared by the remaining 14 airlines. That speaks volumes about how profitable some of them might just be!</p>
<p style="text-align: justify;">
	Ever since the country adopted a liberal aviation policy in 1992, the number of companies seeking and receiving AOC has been rising year on year. However, sustainability has been a major problem for them. “Four of the nine fixed-wing airlines and three of the six rotary-wing airlines operational at present are in profit. Others are in loss,” reveals the CAAN source.&nbsp;</p>
<p style="text-align: justify;">
	<strong>Why?</strong></p>
<p style="text-align: justify;">
	Why civil aviation is yet to become a profitable business for a majority of the private airlines operational at present? Is the number of airlines more than the market can actually sustain? Why so many airlines have failed? And why do others face the risk of failure? Nubiz sought answers to these questions from four experts of Nepal’s aviation industry: T R Manandhar (Director General of CAAN), Saral Shamser Rana (Deputy Marketing Director of Yeti Airlines), Manoj Karki (Managing Director of Goma Airlines) and Pradeep Shrestha (CEO of Air Kasthamandap). This is how they answered these questions:</p>
<div style="text-align: justify;">
	<strong>‘Airlines should go for mergers’</strong></div>
<div style="text-align: justify;">
	<strong><br />
	</strong></div>
<div>
	<div style="text-align: justify;">
		Yes, it’s true that several airlines have closed down, mainly because of financial reasons, in the past. We have also heard complaints that the number of airlines is more than the market can actually sustain. Therefore, the government has made the Airline Operator’s Certificate Requirements (AOCR) more stringent a couple of months back. Now, no AOC will be issued unless the airline procures the aircraft. Though we have adopted a liberal aviation policy, we don’t encourage companies to enter the aviation industry at the moment, unless they have serious, long-term plans supported by adequate capital base. There are three airlines operating scheduled flights on the trunk routes at present. Two more, Namaste Air and Blue Airways, have applied for scheduled domestic operations on the trunk routes; they are in the process of procuring aircraft.&nbsp;</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		The main reason why so many domestic airlines collapsed and why many others are incurring a loss is low capital base and lack of long-term planning. Everyone planning an airline company should be clear that it requires huge investments and the operating cost is also very high which means the promoters need deep pockets. The airlines which are operating chartered flights to the remote areas are in loss. That’s why we have started building paved runways at airports in the rural areas. Currently, paved runways are under construction at over half a dozen such airports. Similarly, we are also installing modern aviation tools and technologies such as Tower Console, VOR, CCR, Met equipment, PAPI Light etc at various airports.</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		I seriously feel that the existing airlines should go for mergers among themselves. This will increase their capital base and fleet and lower the operational cost to some extent. What the experience shows is many airlines collapsed after they faced accidents. So, they must pay proper attention to all the safety measures in order to avoid accidents. There is lack of skilled technical and expert human resource. For example, there is a limited supply of captains and engineers. So, airlines often ‘hunt’ such human resource from among themselves which ultimately affects the operation of those airlines which lose such human resource. The demand of airline service will not increase by any significant degree unless there is a considerable growth in tourist arrivals.</div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: right;">
		T R Manandhar</div>
	<div style="text-align: right;">
		Director General</div>
	<div style="text-align: right;">
		CAAN</div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: justify;">
		<strong>‘Only an aviation expert should run an airline’</strong></div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: justify;">
		Very few investors have grasped the aviation business in Nepal properly. An airline cannot be run like most other businesses. Without the experience and knowledge about the costs involved, the turnaround times and expenses that are actually incurred, one will never see a sustainable business. You need an aviation expert to run an aviation business, not just one with the capital to finance it.</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		The variables in the market, the trends and patterns are unpredictable. A factor such as weather can make or break a season for an airline. Working with the correct promotions team, at the right prices and focusing on the long run is crucial to succeed. The competition is also fierce, and has in the past brought about the closure of various airlines. Seeking opportunities to work together for mutual benefit is rare; rather it’s the opposite and many are out there to bring others down.&nbsp;</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		The lack of training and experience amongst the teams within the airline is another cause for the downfall. Crew should not be rushed to senior positions just to fill up spaces or to meet some compliance. It is one of the reasons why the accident rate in Nepal is higher than in most places on earth and that directly leads to my next point - insurance premium: loss of one, borne by many. There might be many variable costs in the running of an airline but a primary fixed cost beside the loan is the insurance premium. Whether you fly or not, you always have to pay it. It’s a cost that can bring a company down and it does not take into account a bad season.</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		The reasons can be endless, however this is not a struggle only faced in Nepal. Richard Branson, founder of Virgin Airlines, on his advice to become a millionaire, said, “The easiest way to become a millionaire is to first become a billionaire and then start an airline!” However, with the backing of investors and good leadership, Nepali aviation can reach greater heights.&nbsp;</div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: right;">
		Capt Pradeep Shrestha</div>
	<div style="text-align: right;">
		Chief Executive Officer</div>
	<div style="text-align: right;">
		Air Kasthamandap</div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: justify;">
		<strong>‘Many airlines enter the market without proper market study’</strong></div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: justify;">
		The airlines have to take huge loans from banks as the investment cost is very high. In the past, some companies entered the aviation market only for the sake of it, making the supply higher than the demand. This caused unhealthy competition leading to sustainability problems at the end. The survival of airlines in Nepal is very challenging, especially for those flying to the remote areas where the runways are really bad; other several airport facilities are simply absent. The operating cost is very high. For example, a single servicing of the engine costs around Rs 700,000 to 1 million. Many airlines enter the market without studying the opportunities available.</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		Airlines flying to the remote areas have additional challenges. The cost of operating flights in the remote areas is comparatively high. The government should fix the number of flights and the rates for remote areas based on the flow of passengers and the operational cost of the flights. The government can help the airlines flying to the rural areas in terms of fuel costs and VAT and other taxes. However, increasing the tourist arrivals is one sure way to make aviation a profitable business for domestic airlines. More tourists means more opportunities for the airlines to make money. The government should make the issuance of AOC more stringent so that there is a balance between demand and supply. Airlines such as Yeti Airlines, Buddha Air, Simrik Air etc seem to have a profitable business. But they have taken huge loans for which the interest is also quite high. However, they have been able to stand out in the market because of proper planning, professional and efficient service, good market strategy, adequate investment and operating capital.&nbsp;</div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: right;">
		Saral Shamser Rana</div>
	<div style="text-align: right;">
		Deputy Marketing Director</div>
	<div style="text-align: right;">
		Yeti Airlines</div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: justify;">
		<strong>‘Airlines fail miserably in financial risk management’</strong></div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: justify;">
		The major reason behind the collapse of most domestic airlines in the past is the failure to manage the financial risks. Managerial shortcomings, lack of aircraft matching the country’s geography, lack of enough support from the government and the then aviation policy could be the other reasons. However, it is commendable that the private sector has continued to support the domestic aviation industry despite these odds.</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		Aircraft matching the country’s difficult geography are a must for an airline. Skilled manpower is another prerequisite. As there is lack of enough skilled human resource, one airline has to often ‘steal’ talents and experienced human resource from the others. The airfares have not increased according to the hike in the aviation fuel prices in recent times. Operating flights in the remote areas entails even higher costs. Hence, profit becomes even more challenging for these airlines. The operating cost of an airline is very high. And it takes at least a few years before an airline can expect profits. So the promoters need to have deep pockets as well as patience and long-term plans before jumping into the market.</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		Experience has shown that if someone wants to run an airline, then s/he should focus on the airline only. Diverting the income from the airline to other investments may cause problems, especially in the beginning years. We have already seen the fall of several companies which invested the income from aviation into other sectors. The promoters should have enough capital to meet all financial problems that could crop up in the future.&nbsp;</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		Also, the government needs to revise the aviation policy. The number of passengers has been on a constant rise in flights to the major urban destinations. However, it is difficult for the airlines flying to the rural areas to get enough passengers while the risks of flying are also high in these areas.</div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: right;">
		Manoj Karki</div>
	<div style="text-align: right;">
		Managing Director</div>
	<div style="text-align: right;">
		Goma Air</div>
</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Nepal’s Civil Aviation: Some Facts</strong></div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: justify;">
		The Nepali private sector entered the domestic air transport after the adoption of Liberal Aviation Policy in 1992. Nepal Airways was the first private airline to start scheduled domestic flights in Nepal (1992). It got the Airline Operator’s Certification from the Civil Aviation Authoruty of Nepal (CAAN) in Feb 1992. Necon Air followed suit in September 1992. In 2001 two other local airlines – Shangri-La Air and Karnali Air merged with Necon which operated flights to all major domestic destinations. It also had flights to Patna and Varanasi in India before being closed down in 2003.</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		Domestic operation by jet aircraft commenced in 2004 by Cosmic Air. Some 75 private airlines have received AOC from CAAN but only 15 of them are operational at present – nine fixed-wing and 6 rotor-wing airlines. Over a dozen which came into operation after 1992 have closed down so far. Nine fixed-wing airlines operational at present - Nepal Airlines (government-owned), Buddha Air, Yeti Airlines, Sita Air, Tara Air, Air Kasthamandap, Makalu Air, Goma Air, Simrik Airlines (Guna Air has been renamed as Simrik Airlines after it was recently acquired by Simrik Air, a helicopter company) and Agni Air (AOC still valid but flights grounded at present). The domestic civil aviation industry is said to be growing at 10-12 per cent per anum.Private investment in civil aviation is estimated above Rs 11 billion.</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		Six rotor-wing airlines operational at present are:&nbsp;</div>
	<ul>
		<li style="text-align: justify;">
			Buddha, Yeti and Simrik are the three airlines operating mountain flights at present.</li>
		<li style="text-align: justify;">
			NAC, Sita Air and Tara Air are the airlines flying to the rural areas</li>
		<li style="text-align: justify;">
			Air Kasthamandap launched a test flight to the Syangboche Airport, the highest-altitude airport in Nepal (3780m) on March 18, 2013. &nbsp;</li>
		<li style="text-align: justify;">
			Air Kasthamandap, Makalu Air and Goma Air, three new players in the aviation market, have single-engine aircraft and don’t have scheduled flights. They operate chartered and cargo flights, mostly to the rural areas.</li>
		<li style="text-align: justify;">
			Namaste Airlines has applied for permission for domestic flights.</li>
	</ul>
</div>
<div style="text-align: justify;">
	 </div>',
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		'Article' => array(
			'id' => '893',
			'article_category_id' => '37',
			'title' => 'Debate Of The Month: Is The Reality Sector Really Picking Up?',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="background:#f9f5a1;padding:3px;">
	<p>
		<strong>Nepali Real Estate at a Glance</strong></p>
	<ul>
		<li>
			Over 400 institutional real estate entrepreneurs across the country; 147 of them registered at Nepal Land and Housing Development Association&nbsp;</li>
		<li>
			From laymen to professionals like doctors and engineers are in this business</li>
		<li>
			The door for organised housing in Nepal opened after the 1995 Collective Housing Act allowed private ownership of apartment units</li>
		<li>
			The investment of banking and financial institutions (BFIs) in real estate and housing stands at around Rs 150 billion; Private sector promoters and builders have invested another Rs 250 billion</li>
		<li>
			The real estate market in Nepal grew significantly after the 1990 political change. It registered impressive growth even during the Maoist insurgency until the late 2008 when it started to slow down.</li>
		<li>
			According to the latest data, commercial banks have given about Rs 68 billion in real estate loans, which is 10.4 percent of the total loans issued by them. Commercial banks’ total lending to the realty sector reached its peak in Jan 2011 to almost Rs 99 billion or 20 per cent of their total lending.</li>
		<li>
			Now, most of the commercial banks which were overtly exposed to the real estate sector have brought down their exposure to below 25 percent level. At the same time, outflow of home loans of up to Rs 10 million has been picking up, with the total amount expanding from Rs 30.83 billion in October 2011 to almost Rs 40 billion by the end of 2012. Several development banks and finance companies are yet to overcome their real estate loan problem.&nbsp;</li>
		<li>
			It is, however, said that a fairly large portion of loans extended to the real estate sector is in the guise of overdraft and term loans, indicating that the problems of the real estate sector in Nepal could be far from over.</li>
	</ul>
</div>
<p style="text-align: justify;">
	We all know that Nepal’s real estate sector has been in an ailing state for more than the past three years. The real estate and housing industry witnessed a speedy growth (which many say was an unnatural growth), until the Nepal Rastra Bank (NRB), regulator of the country’s financial market, suddenly restricted banks’ lending to the sector in September 2010. NRB not only put a ceiling on real estate loans but also made it mandatory for real estate buyers to declare their income source for purchase of property worth more than Rs 5 million.&nbsp;</p>
<p style="text-align: justify;">
	Many bankers and real estate players compared this NRB move with a driver’s attempt to stop at once a car speeding along at 80 miles an hour. “When you press on the brakes to stop such a car at once, it is almost always doomed to crash. This is what happened to Nepal’s real estate and housing sector,” complain many bankers. According to them, maybe what happened to the country’s real estate industry over the past three years cannot be called a crash, but the industry was hit really, really hard.</p>
<p style="text-align: justify;">
	But it seems things have started to change now, for the better. After a three-year long slump, Nepal’s real estate and housing sector has shown some signs of improvement of late. Many analysts and industry insiders are still hesitant to call it the beginning of a recovery but even they admit that cautious optimism has replaced the general mood of doom and gloom prevalent in the industry as early as even a few months ago.&nbsp;</p>
<p style="text-align: justify;">
	Looking at the market at present, it is apparent that the genuine, long-term developers have survived the slump, while those who joined the fray just for fast cash have, perhaps, been combed out. Meanwhile, the NRB, too, has adopted a bit flexible approach to the sector in this period which the private sector stakeholders deem as inadequate. Similarly, there have been reports that real estate and housing borrowers who had the banks’ doors shut for them until recently have started getting scrutinized entries into the banks.&nbsp;</p>
<p style="text-align: justify;">
	There are some other signs as well that indicate that the realty sector might have started to climb up. According to real estate entrepreneurs and housing developers, this business has growth by 33 per cent in the first half of the current fiscal year, compared to the same period the previous year.&nbsp;</p>
<p style="text-align: justify;">
	Government revenue from this sector, too, has increased by nearly Rs 370 million in the first six months of this FY, compared to the same period the previous FY. Given these developments, Nubiz asked some of the major players of Nepal’s realty sector, bankers and regulators whether the sector has really started to witness a revival? Here is what they had to say: &nbsp;&nbsp;</p>
<p style="text-align: center;">
	<strong><span style="font-size: 14px;">‘There are positive signs’</span></strong></p>
<div style="float:left; width: 210px;margin-left:10px;">
	<img align="left" alt="Ichchha Raj Tamang" height="283" src="http://newbusinessage.com/ckfinder/userfiles/Images/march2013_debate_of_the_month_ichchha.jpg" style="margin:0 10px 0 0;" width="208" />
	<address>
		<strong>Ichchha Raj Tamang</strong></address>
	<address>
		<strong>President</strong></address>
	<address>
		<strong>Nepal Land and Housing Developers’ Association (NLHDA)</strong></address>
</div>
<p style="text-align: justify;">
	<span style="font-size: 12px;">This sector was doing very well. We all know that. But then some banks started speculative lending which was followed by others. This provoked the NRB to take stringent measures in the real estate and housing. The NRB, too, should not have implemented that decision at once. Anyway, the combined effect was that the realty sector faced a long slump.&nbsp;</span></p>
<p style="text-align: justify;">
	However, we have seen some positive signs for the realty sector in the first half of the current fiscal year. Statistics show that this sector has grown by 33 per cent in the first six months of the current fiscal year than the same period of the previous fiscal year. We hear that government revenue from the sale of land and houses has gone up in the first six months of this fiscal year. That is another indicator that the sector might have started picking up. Banks, too, have started new home loans at lower interest rates. Though they appear hesitant to invest in the housing apartments, their lending to individuals for land and houses, and loans to multi-storied commercial business complexes being built around Kathmandu have increased in recent months.&nbsp;</p>
<p style="text-align: justify;">
	These are good signs for the realty sector. The other important thing is this market has already witnessed almost the rock-bottom situation. This situation could not continue forever; it had to show the signs of revival. That is what has perhaps started to happen.&nbsp;</p>
<div>
	 </div>
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	 </div>
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	 </div>
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	 </div>
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	 </div>
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	 </div>
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	 </div>
<div>
	<span style="font-size:16px;"><b style="font-size: small; text-align: justify;"><br />
	</b></span></div>
<div>
	<span style="font-size:16px;"><b style="font-size: small; text-align: justify;"><br />
	</b></span></div>
<div style="text-align: center;">
	<span style="font-size:16px;"><b style="font-size: small; text-align: justify;">‘Market activity has increased’</b></span></div>
<div>
	 </div>
<div style="float:left; width: 210px;margin-left:10px;">
	<img alt="Bhesh Raj Lohani" height="291" src="http://newbusinessage.com/ckfinder/userfiles/Images/march2013_debate_of_the_month_bhesh.jpg" style="margin:0 10px 0 0;" width="208" />
	<address>
		<strong>Bhesh Raj Lohani</strong></address>
	<address>
		<strong>Secretary</strong></address>
	<address>
		<strong>Nepal Land and Housing Developers’ Association (NLHDA)</strong></address>
</div>
<p style="text-align: justify;">
	<span style="font-size: 12px;">In the first six months of the current fiscal year, the government has collected Rs 2.27 billion in revenue from the sale of land and houses. The figure was only Rs 1.9 billion in the first six months of the previous fiscal year. It is true that the increased tax rates have contributed to this growth but the number of land and house transactions has also increased this year. The sales of low-priced land and houses have particularly gone up.</span></p>
<p style="text-align: justify;">
	Banks have lowered their interest rates for loans from as high as 17 per cent last year to around 10 per cent recently. Remittance inflow has grown; this too has helped the real estate business. The NRB, too, has adopted somewhat liberal policies for the real estate sector, especially after the sector fell into a deep crisis from which it is struggling to come out now. There are scores of middle-class families who need houses and apartments as their permanent residences. Stand-alone houses are still bigger attractions for Nepalis than the apartments. Recent experiences, too, have shown that.</p>
<p style="text-align: justify;">
	If the current growth rate continues, then we can expect more investment in this sector by the end of this fiscal year. The realty business was stagnant for almost three years. Many buyers were waiting for the prices to come down. And the prices have indeed come down significantly, compared to three years ago. So, market activities have surely increased.</p>
<p style="text-align: justify;">
	 </p>
<p style="text-align: justify;">
	 </p>
<p style="text-align: justify;">
	 </p>
<p style="text-align: justify;">
	 </p>
<p style="text-align: justify;">
	 </p>
<p style="text-align: justify;">
	 </p>
<p style="text-align: center;">
	<span style="font-size: 14px;"><b>‘Real estate is gradually improving’</b></span></p>
<div style="float:left; width: 210px;margin-left:10px;">
	<p style="text-align: justify;">
		<img alt="Bhaskar Mani Gyawali" height="291" src="http://newbusinessage.com/ckfinder/userfiles/Images/march2013_debate_of_the_month_bhaskar.jpg" style="margin:0 10px 0 0;" width="202" /></p>
	<address>
		<address style="text-align: justify;">
			<b>Bhaskar Mani Gyawali</b></address>
		<address style="text-align: justify;">
			<b>Spokesperson</b></address>
		<address style="text-align: justify;">
			<b>Nepal Rastra Bank</b></address>
		<div style="text-align: justify;">
			 </div>
	</address>
</div>
<p style="text-align: justify;">
	We have observed that Nepal’s realty sector has shown a gradual improvement over the past few months. The improvement has not been as expected. But what I can say is the country’s real estate sector has seen its worst; things will only improve from here. Actually this process has already started. As the regulator, NRB has done all it could, to help banks recover their loans to this sector. NRB’s directives issued from time to time have helped the real estate sector to overcome the crisis it has been in for more than the past three years.</p>
<p style="text-align: justify;">
	Speculative pricing by some real estate players and speculative lending by some banks is mainly to blame for the realty slump in Nepal. The only solution to the problems in the real estate and housing sector is that real estate owners and housing developers should be ready to sell their property at minimal profits, sometimes without any profit and in some cases even at certain amount of loss. Otherwise, the interest of the bank will keep rising and they will be sinking deeper and deeper in the problem. If this is done, 75 per cent problems of the real estate and housing sector will be automatically resolved.&nbsp;</p>
<p style="text-align: justify;">
	In recent months, banks have started issuing new home and land loans at lower interest rates. This is good sign. Government revenue from the sale of land and houses, too, has witnessed almost one-third growth in the first half of this fiscal year compared to the same period the last fiscal year. This also shows that the real estate business might have started to pick up. I am sure that the situation will improve further in the days to come. &nbsp; &nbsp; &nbsp; &nbsp;</p>
<p>
	 </p>
<p>
	 </p>
<p>
	 </p>
<p style="text-align: center;">
	<span style="font-size: 14px;"><b><br />
	</b></span></p>
<p style="text-align: center;">
	<span style="font-size: 14px;"><b>‘We can’t really say that the revival has started’</b></span></p>
<div style="float:left; width: 210px;margin-left:10px;">
	<img alt="Anil Shah, Mega Bank" height="299" src="http://newbusinessage.com/ckfinder/userfiles/Images/march2013_debate_of_the_month_anil(1).jpg" style="margin:0 10px 0 0;" width="202" />
	<address>
		<address>
			<address>
				<b>Anil Shah</b></address>
			<address>
				<b>CEO</b></address>
			<address>
				<b>Mega Bank</b></address>
			<div>
				 </div>
		</address>
		<div>
			 </div>
	</address>
</div>
<p style="text-align: justify;">
	 </p>
<p>
	Given the current situation, we can’t really say that the realty sector has shown improvements. However, the good thing is the downward spiral has stopped. Some big apartment companies are still in problems. In fact, it is these companies that are responsible for delaying the recovery. So, the reality is the improvement in this sector is definitely not as expected. The banks, too, are not very willing to invest in this sector, especially in the apartments.</p>
<p>
	The buyers, too, are not interested in the apartments. However, now the banks are not compelled to put home loans up to Rs 10 million under real estate loans; the NRB has shown this much flexibility. This relaxation has surely helped the banks, which have invested nearly Rs 150 billion in the real estate sector, and also the real estate promoters.</p>
<p>
	We can’t really say that a revival has started in the realty sector. We’d better wait for some more time and see how things unfold. Meanwhile, the NRB did not say a word about the real estate sector in the mid-term review of the Monetary Policy for the current fiscal year. It must have disappointed the entire sector as well as the banks which have a sizeable investment in this sector.</p>
<div>
	 </div>',
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			'description' => 'We all know that Nepal’s real estate sector has been in an ailing state for more than the past three years. The real estate and housing industry witnessed a speedy growth (which many say was an unnatural growth), until the Nepal Rastra Bank (NRB), regulator of the country’s financial market, suddenly restricted banks’ lending to the sector in September 2010.',
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			'id' => '862',
			'article_category_id' => '37',
			'title' => 'Global Economy Outlook  For 2013: Figures & Beyond!',
			'sub_title' => '',
			'summary' => null,
			'content' => '<p style="text-align: justify;">
	<strong>By Sandip Nepal</strong></p>
<p style="text-align: justify;">
	The year 2012 remained gloomy for the entire seven billion plus world population in terms of economic growth and prosperity. With world economic leaders like the USA, Eurozone and China not acquiring the ‘expected status’ for the year, i.e. 2012, amidst spiking issues like unemployment, inflation and debt crisis regimes, prospects for 2013 do not look encouraging at this point of time.</p>
<p style="text-align: justify;">
	Concerned over the ongoing austerity measures, high unemployment rate and lower business confidence combined with weak market sentiments in core global economies like the USA and Eurozone, the World Bank (WB) has lowered its forecast for 2013. Market analysts and global institutions, pioneering in economic forecasts, are coming up with new lowered growth forecasts for the current year in line with lower than expected manufacturing and trade indicators coming from both sides of the Atlantic. The world economy was initially expected to grow by 3 percent in 2013. However, the new growth forecast based on the current and prospect scenario has come out to be 2.4 per cent, lowered by 60 basis points from the initial forecast.&nbsp;</p>
<p style="text-align: justify;">
	Similarly, amidst reduced global growth, market analysts and economists from around the world have lowered their growth forecast for the ‘land of the rising sun,’ i.e., Japan, US and the more vigilant economy, the Eurozone. It is believed that the second year of contraction in the Eurozone will have a tremendous impact on the global economy and could act as a reverse-catalyst in the global economic atmosphere, measured by Global Purchasing Managers’ Index or any other global index. Having inter-twined relationship with economic superpowers &nbsp;such as China, Eurozone and the US, emerging economies like India, Brazil, Mexico and other East-Asian economies fear that they cannot remain unaffected by the contraction in the economic environment of the world’s economic hubs. However, developing economies from around the globe are expected to expand at the rate of above 5.5 per cent in 2013.</p>
<p style="text-align: justify;">
	The World Bank has already warned against the fragility and vulnerability of the global economy in the remaining months of 2013. On the other hand, the report has also emphasized that the magnitude of economic downside will be at decreasing rate compared to recent precursor years. If we turn back and scrutinize 2012, European measures, reforms and policies to cushion the financial/debt crisis in the single economic bloc have not been able to provide economic surge or even correction to the ongoing recession. At a time when financial and political agendas have not been facilitating economic improvement in the single currency bloc, issues related to spending cuts and tax hikes in the US, diplomatic tensions between Japan and China affecting trade environment, and ‘not so good’ manufacturing and industrial indicators coming from the US and China are feared to cloud whatever little optimism remains for &nbsp;the ongoing year.</p>
<p style="text-align: justify;">
	<strong>Global Economic Growth Forecast for 2013</strong></p>
<p>
	<strong><img align="left" alt="Economy and policy February 2013" height="230" src="http://www.newbusinessage.com/ckfinder/userfiles/Images/economy_policy_feb2013.jpg" style="margin: 0 10px 0 0; " width="250" /></strong></p>
<p style="text-align: justify;">
	Considering the gloom in the world economic regimes in 2012 and the grayish ongoing global economic performance, the US in 2013 is forecasted to grow by 1.9 per cent. With political tensions mounting between two core Asian economies, Japan and China, amid affected Japanese trade in automobiles and related industries, and with contraction in one of the largest export sectors, the Japanese economy is expected to witness a meager growth of only 0.7 per cent in 2013. Unlike the economies mentioned above, the Chinese economy with its improving manufacturing sector, satisfactory flow of Foreign Direct Investment and export data has been projected to grow by an attractive 8.4 per cent in 2013, though the figure is 20 basis points lower than the previous projection for the year. Further, increasing Chinese appetite for FDI outflow also exhibits the magnitude of its economy. Moving on to emerging economies, the growth rates for India, Brazil and Mexico have been projected to be 6.1, 3.4 and 3.3 percent, respectively. With economies like the Eurozone and the USA not really supporting these emerging economies, these expected growth rates could be deemed satisfactory.</p>
<p style="text-align: justify;">
	<strong>Nepali Economy in 2013 and Global Influence</strong></p>
<p style="text-align: justify;">
	Nepali exports have seen a decline in recent months, thanks to the economic slowdown in the Euro Area and a mild US economy. Nepali industries like, garment, herbs, handicraft, carpet, metal-wood and other related sectors are hit hard by the global meltdown. Combined with the international pessimism, ‘below-par’ agricultural and industrial performance is also contributing to drag the economy towards austerity. In line with the current and forecasted economic indicators, the WB has forecasted Nepal’s economic growth rate to be 3.8 per cent for fiscal year 2012-13, which is 80 basis points lower than the actual economic growth rate for fiscal year 2011-12.</p>
<p style="text-align: justify;">
	The key issues contributing to lowered growth forecast could be attributed to the ongoing constitutional crisis, poor investment environment (in terms of FDirectI) and infrastructural bottlenecks in the country. Besides the ongoing political instability and poor market sentiments, inadequate and inefficient public expenditure, too, has been hampering the economic outlook, which, in turn, may further contribute to downgrading the current forecasted growth rate. Remittance, working as a key source of financing, incorporates around 22 per cent of the national Gross Domestic Product (GDP). At this point of economic junction, as remittance has been facilitating to finance imports, covering trade deficits with counterparts, the year ahead could also see an optimistic inflow of funds, taking into account the numbers of Nepalis working abroad, especially in the Gulf countries.</p>
<p style="text-align: justify;">
	With the WB having already lowering Nepal’s growth forecast for fiscal year 2012-13 and remittance acting as an economic catalyst, it’s political leaders and government authorities who could possibly look into the matter and plug the loopholes in the operating environment, eventually facilitating, promoting and simplifying investment grounds for national and international market participants. Only time would tell what the government would do to address the situation and improve the country’s GDP growth rate, lower dependency on remittance and international debts for the year and henceforth.</p>
<p style="text-align: justify;">
	<strong>The author is Assistant Manager, Research &amp; Development Department, Mercantile Exchange Nepal Limited, Nepal.</strong></p>',
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<p class="MsoNormal">
	<span class="A14"><span style="font-family:&quot;Calibri&quot;,&quot;sans-serif&quot;;
mso-ascii-theme-font:minor-latin;mso-hansi-theme-font:minor-latin;mso-bidi-font-family:
&quot;Myriad Pro&quot;"><img alt="" border="1" height="181" hspace="10" src="http://newbusinessage.com/ckfinder/userfiles/Images/ecomony_featured.gif" vspace="10" width="338" /><br />
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<p>
	 </p>
<p class="MsoNormal">
	<span class="A29"><span style="font-size:15.0pt;line-height:
115%;font-family:&quot;Calibri&quot;,&quot;sans-serif&quot;;mso-ascii-theme-font:minor-latin;
mso-hansi-theme-font:minor-latin;mso-bidi-font-family:&quot;Myriad Pro&quot;">Cartels may be overt or covert as the producers and suppliers of goods and services can have a tacit understanding or open agreement to fix the market price, allocate market, increase prices and decrease the quality of the goods and services.</span></span></p>
<p class="MsoNormal">
	<span class="A29"><span style="font-size:15.0pt;line-height:
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	<span class="A4"><span style="font-size:
59.0pt">A </span></span><span style="font-size:10.0pt;mso-bidi-font-family:
&quot;Myriad Pro&quot;;color:#211D1E">cartel is generally understood as the arrangement among producers and suppliers of goods and services to control the production, sales and price so as to restrict competition and obtain monopoly or oligopoly in the market. On the other hand, a syndicate is a self organizing group of individuals, companies or entities formed to transact some specific business or promote their common interests. Cartels may be overt or covert as the producers and suppliers of goods and services can have a tacit understanding or open agreement to fix the market price, allocate market, increase prices and decrease the quality of the goods and services. Such practices are generally considered as the worst forms of anti-competitive behaviour and condemned by the laws of various countries.</span> <br />
	<br />
	<img align="left" alt="" border="1" height="349" hspace="10" src="http://newbusinessage.com/ckfinder/userfiles/Images/ecomony.gif" style="margin:10px;padding:10px;" vspace="10" width="221" /></p>
<p class="MsoNormal">
	<span style="font-size:10.0pt;mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">Competition is the cornerstone of open and liberalized economy as the anti-competitive behaviour of the enterprises, industries or traders take a toll on the economic performances of a country by promoting inefficient firms, producers and distributors and punishing the efficient ones. Consumers are compelled to pay higher prices and use low quality goods and services in a situation of anti-competitive markets. In view of this, countries have developed their own competition laws in order to prevent unhealthy business practices. The United States of America has enacted two such basic laws, called anti-trust laws. Named the Sherman Act and the Clayton Act, these are enforceable by the Department of Justice and Federal Trade Commission. Similarly, the European Union has provisions under the Treaty of Rome to maintain fair competition and Australia has its Trade Practices Act 1974. In India, the Monopolies and Restrictive Trade Practices Act was brought out in 1969 and later replaced by the Competition Act in 2002. The Indian Competition Act is quite comprehensive and has provision to constitute the Competition Commission and the Competition Appellate Tribunal among others. The objectives of the act have been defined as: to prevent practices having adverse effect on competition, promote and sustain competition in markets, protect the interest of consumers and ensure freedom of trade carried out by other participants in the market.</span> <br />
	 </p>
<p class="MsoNormal">
	<span style="font-size:10.0pt;
mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">The Competition Promotion and Market Protection Act (CPMPA) was passed by the Parliament of Nepal in 2006 and the Government of Nepal came up with the relevant regulations in 2009. The act basically defines the anti-competitive practices and dealings, and prohibits the anti-competitive agreements between two or more parties with the intention to limit or control competition. Such anti-competitive agreements may be in the form of fixing the sales or purchase price, limiting the quantity of production or sales, market allocation, creating barriers for market entry to the producers and suppliers of similar goods and services, determining the terms and conditions of sales, imposing quota and applying syndicate system in transport and distribution of services. Similarly, the act prohibits the abuse of dominant position by a producer or distributor or their conglomerates with the intent of controlling competition. Besides, merger and acquisition of enterprises with a takeover of more than 50 per cent share and acquisition of more than 40 per cent market share are the prohibited behaviours that have the effect of creating monopoly in the market. Bid rigging, exclusive dealing, market restrictions, tied selling and misleading advertisements are other anti-competitive practices and offences under the competition act.</span> </p>
<p class="MsoNormal">
	<span style="font-size:10.0pt;
mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">Cartels and syndicates are the anti-competitive agreements according to section 3 of the CPMP Act. Such an agreement may be in the written form or as a tacit understanding which is difficult to prove by the document but can be judged from the behaviour and resultant outcomes of such dealings. Let us look at some representative cases in the context of Nepal.</span> <br />
	<br />
	<img align="left" alt="" border="1" height="349" hspace="10" src="http://newbusinessage.com/ckfinder/userfiles/Images/opec.gif" style="margin:10px;padding:10px;" vspace="10" width="221" /><span style="font-size:10.0pt;mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">Transportation services are a prime example of the most-hit sector by cartels and syndicates. The transporters are usually smart enough to make a hefty profit through the application of syndicates. First, they bond together within the umbrella of their associations that culminates into the federation redoubling the institutional strength to protect and persuade the vested interest of transport operators around the country. Such strength can yield dominant positions in the market collectively and the abuse of such position is imminent. Price fixation, particularly regarding plying on minor roads, application of higher charges on services, queue and rotational system in operation, use of old and worn out vehicles and overload in cargo transportation are some elements associated with the syndicate behaviour of the transporters. The transporters deter the entry of new transport equipments through physical threat or assault in case somebody dared to enter their market or put heavy syndicate charges for such entry. This has put the consumers in worse conditions as they need to pay higher transportation charges, meet with frequent road accidents, and travel in crowded sitting positions in the buses. This sort of practice rewards inefficiency and discourages firms to provide services in an environment of open and healthy competition.</span> </p>
<p class="MsoNormal">
	<span style="font-size:10.0pt;mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">Transportation of petroleum products and their distribution is another sector affected by hardcore cartels and syndicates. Different associations that are in existence demonstrate the collective anti-competitive behaviour of their members. Such a behaviour usually include the pressure or demand for increasing profit margin, cheating in the measurement of volume and weight, raising barriers to the entry of new traders and dealers etc. It was noted that one of the demands of LPG Bottlers Association during their recent strike was against the government’s plan for granting license for a glass bottling plant. Moreover, these associations often exert pressure through the means of strikes, lock-outs and interruptions in services to make the government accept their demands. Any compromise with the demands based on such unlawful means of threat and violence by the associations and its members would reduce the efficiency of the economy and harm the interests of the common consumers.</span> </p>
<p class="MsoNormal">
	<span style="font-size:10.0pt;mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">The third cartel group belongs to the distributors and wholesalersof fruits, vegetables and meat products. These are organized groups and have their own associations while their upstream and downstream stakeholders in the supply chain do not have strong enough associations to offset their unruly behaviour. Hence, the farmers are fetching low prices on their products on the one hand and the consumers are forced to pay higher prices at the other to the hefty benefit of those middlemen. A market survey done at the Kalimati Vegetable Market shows that the price paid by the consumers for some vegetable products are 10 times higher than the price paid by the middlemen to the farmers for the same vegetables. This shows the intensity of unfair trade practices, much to the chagrin of law enforcing authorities.</span> </p>
<p class="MsoNormal">
	<span style="font-size:10.0pt;
mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">Cartel groups in Nepal are found in other sectors as well. For example, there are tacit understanding and clandestine agreements among the importers and distributors of food grains in order to fix price and control supply and raise the price particularly during the festive season of Dashain and Tihar. Sugar industries collude to pay less to the farmers against purchase of canes and fix high prices of sugar for sales to the end consumers with a bigger price arbitrage, while manufacturing industries like cement, noodles and water pipes sell their product at the identical price as a result of tacit understanding among the manufacturers.</span> </p>
<p class="MsoNormal">
	<span style="font-size:10.0pt;
mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">Cartel is globalizing as well along with the globalization of economies. The famous example of international cartel is the Organization of Petroleum Exporting Countries (OPEC) which has been increasing the world prices of petroleum products at various times by imposing the production quota and fixing of prices. Besides, cartels are noticed in the international production system for steel, fertilizers, rice and other commodities.</span> </p>
<p class="MsoNormal">
	<span style="font-size:10.0pt;
mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">Thus, in a situation of cartel, producers and suppliers control the production and supply to maintain an artificially high price. This kind of behaviour is supported by a situation where there is less number of suppliers but large number of customers in the markets, market demand is not too variable and individual firms output can be easily monitored by the cartel organizations. The organized behavior of such cartels is pronounced in the syndicated system. The ultimate effect of these anti-competitive practices is that the efficient firms lose to the inefficient firms or suppliers as there are no incentives for bringing down the cost and increasing the quality of goods and services. In such a situation of duopoly or oligopoly, all the firms within the cartel groups benefit by sharing the market without the need of improving efficiencies in production or supply.</span> </p>
<p class="Pa8" style="text-align:justify">
	<span style="font-size:10.0pt;
mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">Perfect competition is an ideal situation that is hard to achieve in any economy. However, it should be the ultimate goal and direction to move forward which can be stepped upon by gradually building on the legal, institutional and human resources base for defying the anti-competitive behaviour. Reining the cartel and syndicate requires comprehensive and concerted approaches from all stakeholders and the effectiveness of law enforcement agencies. The most important factor is the requisition of political will and commitment to establish a competitive and healthy market that could be the precursor to increased trade and foreign direct investment in the country. Many developing countries including Nepal are mired by the dilemma of politics protecting the cartels and syndicates as those who are engaged in anti-competitive practices dole out substantial money to the political parties and their leaders. </span></p>
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	 </p>
<p class="MsoNormal">
	<strong>&nbsp;</strong></p>
<p class="Pa27" style="margin-top:5.0pt">
	<strong><span style="font-size:8.0pt;mso-bidi-font-family:
&quot;Myriad Pro&quot;;color:#211D1E">Ojha is a Former Secretary, Government of Nepal. The views expressed in the article are personal of the author. </span></strong></p>
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	 </p>
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	<span style="font-size:15.0pt;line-height:115%;mso-bidi-font-family:
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			'description' => 'Cartels may be overt or covert as the producers and suppliers of goods and services can have a tacit understanding or open agreement to fix the market price, allocate market, increase prices and decrease the quality of the goods and services.',
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	(int) 9 => array(
		'Article' => array(
			'id' => '517',
			'article_category_id' => '37',
			'title' => 'Prolonged Economic Crisis: By Achyut Wagle A Case For Democratic Capitalism',
			'sub_title' => '',
			'summary' => null,
			'content' => '<p style="text-align: justify;">
	<span style="font-size:12px;"><img align="right" alt="economy" border="1" height="209" hspace="5" src="http://newbusinessage.com/ckfinder/userfiles/Images/achyut wagle.jpg" style="width: 160px; height: 209px;margin:10px;padding:10px;" vspace="5" width="160" />When the USA was frantically trying to come out of perhaps the worst economic recession in modern times, the Eurozone reeled under even more serious cycle of economic meltdown. Angry verbal exchanges between British Prime Minister David Cameron and French President Nicholas Sarkozy in Brussels meeting on 23rd October and apparently crestfallen Sarkozy coming out of a meeting with German Chancellor Angela Merkel a couple of days earlier are surmiseable indications of the fact that the days of economic certainties in the world are still beyond horizon. The reportedly emerging consensus among the Eurozone leaders might find some solace for now. In fact, they have no alternative to evolving such consensus, but the days of worries of world economy wouldn't be over just by such isolated moves of bail-outs or write-offs unless the very cause(s) of these problems are addressed at the root. The most repeated statement of the present day economists and economic analysts is: Even if the USA and the Eurozone&nbsp; specifically Greece, Italy, Portugal, Ireland or Iceland -- came out from the current mess by some means, the world will not be the same again. Then, how would the new world look like? Nobody has a definitive answer. But, there is no alternative to finding out not only a convincing answer to this question but a workable framework to save the world from such too frequent and highly pervasive economic crises. Both, such frameworks and answers, can be devised by reviewing the past and taking unconventional strategies that suit to the present-day realities. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;"><strong>1. Oversight Failures :</strong> When the subprime crisis was at its height in the US in 2008, Eurozone leaders were proudly boasting the robustness of their conservative supervisory regime of the financial system and were not subscribing the idea that their financial systems were not immune to similar- inbred if not contagious- crises. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">The series of these crises have now exposed the fact the exiting supervisory and regulatory framework worldover has become virtually dysfunctional and a new one encompassing the contemporary, and if possible future, trends is not yet in place. Even worst, no meaningful homework has begun to that end, so far. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">The movement of funds aided by mainly three distinct features-- the exponential growth in information technology, wider transport connectivity and high movement of people and new tools of trade in the money market like derivatives future-- have far outpaced the efficiency, jurisdiction and reform of both global and national financial systems oversight regimes. International flow of funds through legal channels, i.e. more or less detectable by any form of the regulatory radar, is less than 4 to 5 percent of the total estimated global transfers. On the legal side of the transfers, estimated value of world merchandise exports in 2010 was US $13.36 trillion and world commercial services exports in the same period was $3.64 trillion (Source WTO secretariat website and calculated on projected 10% rise in 2010 from 2009 actuals of world merchandise exports equivalent to $12.15 trillion and world commercial services exports $3.31 trillion). <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">Similarly, according to an estimate by the World Bank, officially-recorded remittance flows in 2010 was about US$440 billion worldwide. And, crossborder investments in capital markets and real estate combined was to the tune of $330 billion. With all these transfers put together, even in exaggerated terms, the recorded total transfers of funds across the globe would hardly cross the $ 20 trillion mark. On the contrary, according to the Bank for International Settlements (BIS), amount of derivatives transactions stood at $601 trillion in December 2010, up from $583 trillion six months earlier. It was at the record level of $684 trillion in June 2008. Interest rate contracts form more than 75 percent of the derivatives futures transactions. (As reported in The Economist, May 31, 2011) The figures presented by the Daily Finance, a subsidiary portal of AOL, is even more appalling. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">It says, One of the biggest risks to the world's financial health is the $1.2 quadrillion (one quadrillion is 1,000 billion) derivatives market. It's complex, it's unregulated, and it ought to be of concern to world leaders that its notional value is 20 times the size of the world economy Apart from these monetary-side regulatory gaps, fiscal regulation is also facing new challenges as the national boundaries are gradually becoming irrelevant partly by the sweep of globalization and partly made so by design, particularly in case of Eurozone, with the introduction of common currency, the Euro. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">With the introduction of the common currency, the national-level supervisory/regulatory authorities have become redundant and the national accounts failed to present the true picture of the economy as many crossborder transactions take place unrecorded. The window of currency conversion that used serve also as the basis of record of cash flows across the border is automatically out of practice. The forceful homogenization of the currencies of weaker and stronger economies has prompted unhindered and unregulated capital flights from weaker to stronger economies, breeding even graver crisis situations in weaker nations. Greece is the latest striking example. <img align="right" alt="ecomony" border="1" height="346" hspace="5" src="http://newbusinessage.com/ckfinder/userfiles/Images/fig.jpg" style="margin:10px;padding:10px;" vspace="5" width="504" /><br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">Such capital flight is but natural phenomena, because weaker economy also meant less rate of return on investment, lesser degree of security and higher degree of unpredictability. And, common currency has facilitated it in a great deal. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;"><strong>2. The Political-Economy Issue:</strong> With the crisis aggravated more on every passing day, and resolution of it nowhere in sight, a number of ecopolitical issues have also come to fore. The worldwide fever of Capture Wall Street has created a new debate on possible collapse of capitalism. The advocates of egalitarian welfare state seem happy that the old good days of state-sponsored social safety model of economy would return soon. In the virtual mayhem, the virtues of both democracy and capitalism are pushed behind the dark shadow, a true concern for the future of the world economy and polity. In name of addressing the crisis, the electorates are kept completely aloof in taking the economic decisions that affect their lives the most. Their elected representatives are equally helpless as the common man on street, like in the case of Greece again, or their representatives like in the US take the decisions on the issues never mentioned in their election manifestoes, thus acting on democratically unmandated domain. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">These factors in due course are likely to raise more excruciating questions on the very rationale of election and their leaders authority to rule. This would certainly take way some beauties from the democracy. Another important question here is: has capitalism really failed? Or, are mere consumerism and irrational greed at the peril? The differentiation is not easy. But the fact is, it is not the capitalism that has failed but all the problems, perhaps without exception, are borne out of sheer anti-capitalistic and antidemocratic moves of the economies and their leaders at the helm. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">One of the greatest beauties of capitalism is the Economic Darwinism. The state must let the companies of whatever size that are already or become unable to compete in the market, fail. But, the problems multiplied to take the world at present situation when powerful economies set wrong precedent by bailing out ailing banks and companies at the expense of the tax-payers money. And, in the process, the decision makers did it without taking such important issues to the public through polls or referendum, which compromised the very tenets of the democracy. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">The ongoing global economic crisis, however, should be able to ignite a new debate on necessity of democratic capitalism as new future eco-political model. This new philosophy must not only be able to force the governments to act according to the principles of democracy and/or capitalism in isolation, but should establish it as a united theory where these two are treated as inseparable elements in future ecopolitical governance. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;"><strong>3. The Future:</strong> The hypothesis of democratic capitalism is certainly useful to resolve the present crisis. Even more, this paradigm-shift would prove more appropriate as the shifting of economic might from West to East, from democratic to authoritarian country. Observing at the difficulty in resolving current crisis even in the highly transparent economies like the US and Europe, one can easily think of gravity of situation when similar problem arise in secretive but the second largest economic powerhouse like China. The simultaneous emphasis on democracy as that only ensures transparency and, respect to the ideals of capitalism that promotes free competition in any odd situation, can only in unison make the future world safer to live and do the business in business-like fashion.</span></p>',
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			'description' => 'The reportedly
emerging
consensus
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Eurozone leaders
might find some
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			'title' => 'Trading Gold For Silver: Our HR Position? (September 2011)',
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	<div>
		<strong><span style="font-size: 14px;"><img align="left" alt="trading" border="1" height="197" hspace="10" src="http://newbusinessage.com/ckfinder/userfiles/Images/rajan pradhan.jpg" style="width: 153px; height: 197px;margin:10px;padding:10px;" vspace="10" width="153" />By Rajan Pradhan</span></strong></div>
</div>
<div style="margin-bottom: 0.0001pt; text-align: justify; vertical-align: middle;">
	<span style="font-size: 14px;">Long serpentine queues in Kathmandu are no more a subject of curiosity to us. The endless lines of cars at gasoline stations, people crowding around water tankers, devotees pushing into shrines and investors interested in IPO lined up in front of commercial institutions are most common scenes one can see every day. However, the one I saw a few months back looked quite unusual. The mass gathered there were only the youngsters probably from late teens to people in their thirties. Their facial expressions carried pronounced signs of pain, desperation and anxiety. I could easily see the “Do or Die” atmosphere there. Letter in the day, I came to know the swarm there was of the aspirant applicants eager to work in Korea. It went on for days perhaps reminding us of human exodus we see quite often on news from around the world.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">With the tank in my car almost dry due to ongoing rationing of petroleum products, I found no other means of relaxing on a Saturday than lazing at home which gave me a chance to chitchat with my brother-like figures who has been close to us for decades. I found him so excited that day; he believed he had a plan well in place for his future. He finally got hold of a recruiter who had promised him a job in a company in Dubai - a job which gives him a remuneration of over Rs 12,000 a month with free accommodation! </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><img align="left" alt="trading" border="1" height="232" hspace="10" src="http://newbusinessage.com/ckfinder/userfiles/Images/eco.jpg" style="margin:10px;padding:10px;" vspace="10" width="400" />I congratulated and wished him all the success but could not help crunching some numbers - quietly within myself. He would be bearing a total cost of about Rs 100,000 for air tickets and charges due to the manpower company. He would probably need additional two thousand rupees every month to cover cost for food and other supplies on top of what he would get from the company. A two year of work would perhaps fetch him an income of about Rs 290,000- the saving being about five to six thousand rupees a month which is about eighty dolors a month. I tried not believing it but could not ignore the fact that he would send such eighty- dolor back home not only to buy a plot of land in Kathmandu for himself but also to buy our petrol from abroad to fill up our cars. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Back home, it is more of a challenge not only to get hold of good professionals but also to get dedicated non-skilled labour in abundance. It was like a real manhunt, while searching for an engineer for one of my recent hotel expansion projects. The contractor for the same project has already got his site engineer changed the fourth time in just over nine months. The void in our labor market has already become obvious. We will perhaps spend many of our 80-dollar remitted to us to buy our skilled manpower and services back from abroad. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">The disappearing political borders are now given to us in an international market under a trend of globalisation. The fact that around 30 per cent of our 5.6 million households depends on earnings from overseas jobs while its contribution to our gross domestic production (GDP) is 23.4 per cent cannot be undermined. However, getting paid in silver for lending out our brains and hands and then buying them back paying in gold is certainly not a wise way of handling our human resources.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">A labor in Kathmandu earns about Rs 400 a day today whereas a skilled labor makes over Rs 700 a day - which is almost Rs 12,000 a month even if he gets work for 15 days a month. The majority of people who aspire hard to get a job abroad are not skilled but if trained even for a short span of time, they can be skilled enough to earn at home as much as they would earn abroad. Even if one decides to go abroad, their average income would certainly improve from the present average of Rs 14,000 a month. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Awareness among for vocational and short-term training progrmmes and more importantly commitment from our planners and rulers are what we need today to add value and competitiveness to our work force.&nbsp;Venturing for such a noble cause will give us tangible and immediate returns for sure - inflow of remittance will grow, unemployment will reduce and balance of payment will improve. Perhaps we will then be trading our silver for gold not our gold for silver!! <br />
	<br />
	</span></div>
<div>
	<span style="font-size: 14px;"><i><span style="line-height: 115%;">(Pradhan is Director Business Development &amp; Projects at Soaltee Hotel Limited.)<br />
	<br />
	</span></i></span></div>',
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			'id' => '433',
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			'title' => 'Monetary Policy And Question Of Financial Stability (august 2011)',
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			'content' => '<div style="margin-bottom: 0.0001pt; line-height: 120%; vertical-align: middle;">
	<strong><span style="font-size: 14px;"><i><span style="line-height: 120%;">By Nara Bahadur Thapa</span></i></span></strong></div>
<div style="margin-bottom: 0.0001pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; vertical-align: middle;">
	<span style="font-size: 14px;">Recent global financial crisis has once again ignited the debate on the role of monetary policy in ensuring financial stability. Taking a cue from international trend, emerging financial distress in Nepal has added pressure on using monetary policy instruments for securing financial stability. The question asked is: should financial stability be in the domain of monetary policy or should it be pursued as an objective of regulatory policy? Although the debate remains still inconclusive, views on either side of the debate have sharpened.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Undoubtedly, safeguarding financial stability has become an increasingly dominant objective in economic policy. Hence, it is argued that monetary policy should also take care of it. In light of this, besides maintaining price stability and supporting economic growth, Monetary Policy often has the task of preserving financial stability. Monetary variables such as the quantum of money, bank credit, liquidity and the level of interest rates are used to attain monetary policy objectives.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">These monetary variables - the quantum of money, bank credit, liquidity and the level of interest rates - affect financial stability in one way or the other. This is the basis of the argument that monetary policy should be used to safeguard financial stability. In this context, it should be noted that the NRB Act 2002 does not state financial stability as an objective of monetary policy. Monetary policy objectives, as enshrined in the NRB Act 2002, are maintaining low and stable rate of inflation and the external sector stability. These two objectives are supposed to ensure the sustainable development of the economy. Nevertheless, the Act does indicate that the role of the central bank in promoting banking and financial stability as well as developing a secure, healthy and efficient domestic payment system. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">We should seek the answer to the question as to why the law of the central bank has not assigned the financial stability as an objective of monetary policy. This implies that the NRB Act has visualized instruments that can be used to ensure monetary and financial stability differently.&nbsp;&nbsp; </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	<strong><span style="font-size: 14px;">Financial architecture </span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">The way monetary policy is conducted and financial stability is pursued should be discussed in the context of the financial architecture that exists at the global as well as the domestic level. The current international financial architecture is rooted in the McKinnon-Shah hypothesis (1973) that argues for the removal of financial repression and the introduction of financial deregulation. The major elements of financial deregulation are: (i) the elimination of credit controls, (ii) the deregulation of interest rates, (iii) free entry into the banking sector/financial services industry, (iv) central bank autonomy, (v) private ownership of banks and (vi) liberalization of international capital flows.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">International organizations such as International Monetary Fund (IMF) and the World Bank supported the McKinnon-Shaw hypothesis and in the process encouraged member nations to adopt liberal financial policies. Many developing countries including Nepal deregulated their financial sector. Even in the USA, the comprehensive regulations introduced in 1933 in the wake of the Great Depression in the form of the Glass-Steagall Act which had ensured financial stability were removed in 1999, ushering in a complete deregulation of the financial sector. The Glass-Steagal Act kept different types of financial institutions separate and dictated the activities they could and could not engage in. It was argued that Glass-Steagall Act prevented banks from diversifying risk. Following this, an agreement was reached at the global level for the international financial architecture. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><b>&nbsp;</b></span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><b><span style="color: black;">The major elements of which are: </span></b></span></div>
<div style="margin: 0in 0in 0.0001pt 9pt; text-align: justify; text-indent: -9pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><span style="color: black;">i.&nbsp;Simple rules for monetary and fiscal policy would&nbsp;guarantee macro stability,</span></span></div>
<div style="margin: 0in 0in 0.0001pt 9pt; text-align: justify; text-indent: -9pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><span style="color: black;">ii. Deregulation and privatization would unleash growth and prosperity,</span></span></div>
<div style="margin: 0in 0in 0.0001pt 9pt; text-align: justify; text-indent: -9pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><span style="color: black;">iii.Financial markets would channel resources to the most productive areas and polish themselves effectively, and</span></span></div>
<div style="margin: 0in 0in 0.0001pt 9pt; text-align: justify; text-indent: -9pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><span style="color: black;">iv. The rising tide of globalization would lift all economies.</span></span></div>
<div style="margin: 0in 0in 0.0001pt 9pt; text-align: justify; text-indent: -9pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">The agreement on these elements spearheaded by the IMF and the World Bank is known as the Washington Consensus. The spirit is that the adoption of standards and codes on macro-financial policies, transparency, good corporate governance and internationally designed accounting and auditing rules would ensure financial stability. Given these standards, it was thought that market would ensure financial stability. With no restriction on the portfolio, free entry and exit of financial institutions could ensure the dynamic financial stability. There was no need for government intervention, including financial bailout. In keeping with this framework, Lehman Brothers was allowed to fail in September 2008.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">With the economic liberalization initiated in the mid-1980s, the Nepali financial system has experienced significant developments. The NRB Act 2002 aims at consolidating the foundation for the new domestic financial architecture. The new NRB Act provides an autonomous central bank answerable to parliament. The Act curtails the unlimited lender of last resort (LOLR) facility for both the government of Nepal and the banking sector as the facility has a danger of creating a perpetual financial instability.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	<strong><span style="font-size: 14px;">Prudential regulation and supervision for financial stability</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Now the question that arises is: What instruments does the NRB Act 2002 envisage to ensure financial stability? The current international financial architecture underscores the importance of prudential regulation and supervision for achieving financial stability. The NRB Act 2002, BAFIA 2004, Debt Recovery Act (DRA) 2002 and Credit Information Bureau (CIB) underpin the new domestic financial architecture. The NRB Act 2002 grants the autonomy to the central bank aimed at strengthening the banking supervision. The BAFIA lays down the framework for banks to operate. The DRA establishes creditors rights. The CIB offers a venue for information sharing among banks with a view to help reduce non-performing loans (NPL). This is key to ensure financial stability over the period. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	<strong><span style="font-size: 14px;">The case for the use of monetary policy for financial stability</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">The recent global crisis showed that prudential regulation and supervision alone did not guarantee financial stability. Hence, a case is made for using monetary policy in support of financial stability. In the wake of the recent global crisis, the IMF urged member nations to use monetary policy as the first line of defense. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Given the importance of financial sector stability for the overall functioning of macro economy in general and the transmission mechanism of monetary policy in particular, the NRB is cognizant of the role of monetary policy in attaining financial stability in recent years. Accordingly, monetary policy instruments have been used in support of financial stability. For instance, the bank rate, which was as high as 9 percent some years ago, was gradually reduced to 5.5 percent. Currently, it is 7 percent. Recently, the penal rate of 3 percent has been added to it for the LOLR facility to banks. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Besides the bank rate, concessional refinancing rates have been lowered to 1.5 percent for exporters, sick industries, small and medium scale industries and targeted people for foreign employment.&nbsp;The NRB has been making a provision for refinancing banks for their sick industry loans over the last several years. The objective is to help financial institutions and thereby achieve financial stability.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">The cut in CRR has been consistently and systematically aimed at reducing the financial intermediation cost. The argument in this case is that monetary policy in no way should be a factor responsible for a higher financial intermediation cost measured in terms of interest rate spread. For this reason, CRR has been systematically reduced from 12 percent a few years ago to the current level of 5.5 percent. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">A system of flexible open market operations aimed at modulating liquidity has been put in place since 2004/05. Open market monetary instruments such as sale, purchase, repo and reverse repo auctions are being used either to inject or drain liquidity from the system.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">A system of standing liquidity facility (SLF) has been introduced for counterparties. The purpose of the SLF is to provide a safety valve for domestic payments system. Under this facility, counterparties can make an automatic and hassle - free access to funds from the central bank.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	<strong><span style="font-size: 14px;">The case against overly use of monetary policy for financial stability</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">There are counter arguments for overly use of monetary policy for financial stability. First, it is argued that the mixed role of the central bank, namely securing banking stability and maintaining monetary stability, at times, creates policy tensions. For example, the use of accommodative monetary stance aimed at supporting financial stability could be counterproductive to price and external stability in the face of pressures on inflation front and a deficit in country's BOP position. As such, the central bank faces policy tensions of using soft interest rate policy for securing financial stability or hard interest rate policy for keeping inflation low and maintaining external stability.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Second, as per Tinbergin's rule (one instrument - one target), monetary policy, which is one instrument, can not be used for two policy goals - monetary stability and financial stability.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">&nbsp;Third, rescuing financial institutions by way of soft interest rate policy or the protracted use of quantitative easing through the LOLR facility will only prolong financial imbalances, posing risks to financial stability over the medium term. This will only postpone financial distress leading to a bursting of financial crisis in some points of time in the future. In this context, Greenspan's prolonged low interest rate policy is cited as one of the causes of the financial crisis in the US in 2008.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Fourth, it is argued that the expectation of monetary authorities stepping in to defuse a crisis undermines market discipline and creates moral hazard problem in that it weakens the incentive for market participants to act prudently.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Fifth, as Greenspan argued, the cleaning up the mess after the bubble bursts would be technically easier and less interfering with the market and more cost effective. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Back home in Nepal, it is argued that excessive monetary injection by way of repo and SLF lending helped perpetuate low interest rate regime in the past. This encouraged banks to indulge in financial excesses, leading to the recent financial distress in Nepal, including a deficit in country's BOP. It must be noted that the deficit in BOP during the last two years is not on account of the government budgetary imbalances, it is due to the private sector excesses and imbalances.&nbsp;</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Of the various facts of financial stability, the question of monetary policy taking care of real estate and share prices has remained controversial. The question often asked is as to what should be the role of monetary policy in keeping these prices stable. This question is asked because stock market developments generate wealth effects, which have monetary policy implications. Likewise, stock market developments have implication for NPA level and, at times, threaten banking sector stability. Foreign portfolio investment in stocks has implication for external stability, for a greater volatility in share prices causes a sudden capital outflow, leading to BOP and exchange rate crises. Since foreign portfolio investment in the Nepalese stock market does not exist, this kind of tension does not arise in Nepal as for now. The consensus so far reached is that monetary authorities should be watchful of these prices. However, it is argued that monetary policy should not be overly used in containing these prices.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	<strong><span style="font-size: 14px;">Macro prudential regulation</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Micro prudential regulation does not make a distinction between growth enhancing credit and speculative ones. The consensus is also not to use monetary policy overly for financial stability. Hence, the focus has now shifted on macro prudential regulation.&nbsp;It is argued that macro prudential regulation is needed to deal with the issue of pro-cyclicality and build defenses against emerging structural vulnerability in the financial sector. Pro-cyclicality and structural vulnerability are manifested in terms of real estate bubbles, common exposure to asset price bubbles, excessive leverage and low level of liquidity. To deal with these problems, macro prudential measures such as capital ratios, capital buffers, dynamic (forward looking) provisioning, liquidity ratios and prudent collateral valuation are applied. According to Blanchard, in case, excessive leverage emerges, regulatory capital ratio should be raised. If liquidity is low, regulatory liquidity ratio should be increased. If housing prices are rising, loan-to-value (LTV) ratio should be lowered. If stock prices are rising, margin requirements (haircuts) should be raised. In the wake of emerging financial distress, the NRB has introduced a number of macro prudential measures. For example, sectoral loan limit for housing sector is capped at 25 percent and real estate at 10 percent. C-D ratio for banks and financial institutions is fixed at 80 percent. The LTV ratio for shares has been fixed at 60 percent. Similarly, the LTV ratio has been fixed at 60 percent for both real estate and housing.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Although macro prudential regulation could act as the first line of defense and be an important element of new financial architecture in the wake of the recent global financial crisis, there is a possibility of strong political pressure against the use of it. In the US, the delay in adopting the Volcker plan which aims at separating functions of different financial institutions is an example of it. Back home in Nepal, the strong pressure for the removal of LTV ratio for shares and strong lobby for the relaxation of capping real estate and housing loans are cases in point. This suggests that the existing domestic financial architecture will remain intact, implying that only micro prudential norms and market discipline will remain instruments for financial stability. There will be growing demand for the excessive use of monetary policy for securing financial stability. However, the latter will not help safeguard the long term financial stability. If it is used, it will be only at the peril of macroeconomic stability. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	<strong><span style="font-size: 14px;">Tentative conclusions</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">There is no doubt that financial stability is a public good which must be secured through preventive and remedial measures. Micro - macro prudential and deposit insurance measures can be applied to maintain financial stability. Keeping monetary conditions at an appropriate level is also key to securing financial stability. For example, easy liquidity conditions would encourage banks to take excessive risks by overindulging in lending. This happened in Nepal in the recent past. Likewise, overly tight liquidity conditions would lead to financial distress. Both of these monetary conditions should be avoided.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Therefore, going forward, the NRB will, in due course of time, appropriately streamline monetary operations. For example, there are ample instruments for the injection of liquidity. However, there are few to drain it. Sale and reverse repo auctions fall short of draining liquidity due to various reasons. Hence, the NRB will seek rationale in introducing standing deposit facility for banks as and when situation warrants.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">The creation of standing deposit facility entails bearing financial costs by the central bank. Therefore, it requires strengthening the financial position of the central bank. It is especially important in relation to the growing size of counterparties and liquidity that would be needed to drain. One way of improving financial position of the central bank for the operation of deposit facility is increasing its paid up capital from the current three billion rupees to five billion rupees. This will help the NRB to absorb possible losses arising from monetary operations.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">The exchange rate and the interest rate are the fundamental macro variables. As the current exchange rate regime as being used as the nominal anchor for macroeconomic management, there is no question of disturbing it at this stage. Therefore, given the depth and breadth of the domestic financial sector development so far, the interest rate is slowly emerging as key policy variable for macro-financial management. In this context, a need has been felt for using short term interest rate instead of the quantity of liquidity as an operating target. The NRB will pursue this in due course of time.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">The role of monetary policy becomes crucial when preventive measures fail to ensure financial stability. Therefore, the role of monetary policy should come at the remedial stage. This is the market failure stage. When this stage comes, as the past intervention indicates, the NRB is extremely cautious to distinguish between those having solvency problem and those with liquidity problem. The LOLR facility should be provided to those solvent but with liquidity problem. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Given the current financial architecture, the NRB's intervention will take place only when market fails to ensure financial stability. Therefore, the NRB intervention, for that matter, will come with strings such as merger, management change, improvement in corporate governance etc. If financial institutions with solvency problem are systemic, the government should intervene by way of either injecting capital or guaranteeing deposits. Otherwise as per the spirit of the current domestic financial architecture, such financial institutions should be liquidated.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">In case, the financial distress continues and additional LOLR facility is called for, Nepal will have to negotiate for the IMF program. This will be inevitable to deal with the possible adverse impact of LOLR facility on international reserves and BOP.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	<strong><span style="font-size: 14px;">Summing up</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">The kind of domestic financial architecture we have chosen is key to consider the role of monetary policy for financial stability. If we were to adopt liberal licensing policy and allow banks to have portfolio of their choice, micro prudential, self regulation and market discipline should be key for financial stability. The focus of monetary policy should be on inflation, BOP and foreign exchange. These are crucial areas for attaining macroeconomic stability including financial stability. The role of monetary policy should be marginal and come at the remedial stage. Those financial institutions which cannot survive on their own under the liberal framework of financial architecture should be allowed to disappear. If we were to seek a larger role of monetary policy in ensuring financial stability we will have to be willing to change the current financial architecture including readiness to adopt macro prudential regulation. Given the existing framework of the financial architecture, any lobbying for political interference for the change in monetary policy is construed as an attack on professionalism and autonomy of the central bank. This does not bode well for market discipline, a crucial element for financial stability either.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div>
	<span style="font-size: 14px;"><i><span style="line-height: 115%;">(Thapa is the Chief Manager at Biratnagar Office of Nepal Rastra Bank (NRB). He was earlier the Director of Research Department at NRB's central office in Baluwatar, Kathmandu. He also spent two years between 2008 and 2010 as Advisor to the Executive Director at International Monitory Fund (IMF), Washington DC, prior to returning to Nepal.)<br />
	<br />
	<br />
	</span></i></span></div>',
			'published' => true,
			'created' => '2011-09-24',
			'modified' => '2012-09-20',
			'keywords' => '',
			'description' => 'Recent global financial crisis has once again ignited the debate on the role of monetary policy in ensuring financial stability. Taking a cue from international trend, emerging financial distress.......',
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	(int) 12 => array(
		'Article' => array(
			'id' => '432',
			'article_category_id' => '37',
			'title' => 'Monetary Policy2011/12:Hard To Realise The Promises (august 2011)',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="margin-bottom: 0.0001pt; line-height: 120%; vertical-align: middle; text-align: justify;">
	<span style="font-size:12px;"><strong><i><span style="line-height: 120%;">By Hom Nath Gaire<br />
	<br />
	<br />
	</span></i></strong></span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; vertical-align: middle;">
	<span style="font-size:12px;">The Monetary Policy for the fiscal year 2011/12 has made an attempt to be balanced with the expansionary fiscal policy of the government of Nepal despite fears of inflationary pressure, apart from reducing the Cash Reserve Ratio (CRR) by 50 basis points to five per cent. At the same time, NRB, the country's monetary authority, has accepted the ground reality that the monetary management of the economy is getting tough due to high inflation and unfavourable external sector accompanied by the deepening liquidity crisis in the financial system of the country.&nbsp;</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">To ease the liquidity situation in the economy, the policy has reduced CRR by 0.5 percentage point to five per cent. The policy document said, The revised CRR is estimated to instantly release around Rs 4 billion in the financial system.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">This fiscal year too, the policy has targeted seven per cent inflation. To support the fiscal policy aim of&nbsp;five per cent growth rate, the central bank is planning to increase the broad money supply by 12.5 per cent but the policy is ignoring its implications on general price level. However, NRB has attributed rising consumer price to supply constraints, defending its failure to contain the inflation to seven percent according to the target of its last year's monetary policy.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">According to the central bank data, the broad money supply including the balance sheet of commercial banks, development banks and finance companies enlarged by 7.3 per cent but the consumer price increased by an average of around 10 per cent in the last fiscal year's first 10 months. The 7 per cent target of consumer inflation for the current fiscal year is a big challenge due to the adverse impact of expansionary fiscal policy on which the government is planning to finance the capital as well as the recurrent expenditure through deficit financing. The overall macroeconomic policies have to be revisited as the Monetary Policy could not achieve inflation and Balance of Payment (BoP) target, the policy accepted, Apart from that managing liquidity and maintaining financial stability is an immense challenge for effective execution of the policy.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">According to the policy, BoP that was Rs 11.67 billion deficit in the first 10 months of the fiscal year, has however, recorded an unexpected surplus of around Rs 1 billion by the end of 2010-11, attributing surprise surplus to foreign grants and aids released in the eleventh month.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">For the current fiscal year, the Monetary Policy has targeted Rs 5 billion BoP surplus. In such unpredictable and volatile cash flow situation, the BOP target for the current fiscal year may also be hard to realise. Because, as the Monetary Policy has brought no change in the bank rate, refinancing rate and Statutory Liquidity Ratio (SLR), the debt servicing of the private sector may remain higher and the production of exportable goods will be affected adversely, which in turn will result in wider trade deficit and unfavorable BoP. However, the central bank has stated that refinancing will be revised according to liquidity need. This alone may not be sufficient to meet the demand for credit in the productive sector and boost the exports. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">The foreign exchange policy for individuals has become more as a Nepali willing to visit abroad can get foreign exchange up to $2,500 for once or a maximum of $5000 in a fiscal year, revising the facility from last fiscal year's $2,000 and $4,000 respectively. Similarly, NRNs can open foreign currency bank accounts and special arrangements will be made for Nepalis to open NOSTRO accounts in foreign countries. Likewise, the policy allowed the banks to exchange foreign currency up to $1,000 provided the beneficiary supplies credible source of foreign exchange with identity. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">The policy has increased provision of deprived sector lending to 3.5 per cent and asked banks and financial institutions (BFIs) to raise this ratio by 0.5 percentage point for two years. This provision will be helpful in directing lending towards productive sector as well as deprived sector and supportive to achieve the economic growth of 5 percent, revealed the policy. The targeted economic growth is also hard to achieve in the situation of deteriorating investment climate and low investor confidence due to government's tilt towards a socialist economic system. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">According to the monetary policy, the deposit mobilisation of BFIs will be increased at the rate of 13 percent by the end of the current fiscal year and will add around Rs 100 billion to the country's banking system. To achieve this target, the policy tries to address the crisis of trust in the banking system by extending deposit insurance up to Rs 200,000 to commercial banks as well so that small depositors feel safe. Earlier, the deposit insurance was mandatory only for the B and C class BFIs. By the end of last fiscal year, the deposits of BFIs increased 8.2 per cent to Rs 788.72 billion and the foreign exchange reserve increased by a mere Rs 2 billion to Rs 270 billion from a fiscal year ago's Rs 268 billion.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="text-align: justify;">
	<span style="font-size:12px;"><span style="line-height: 115%;">Apart from encouraging BFIs to open branches in select nine districts, where there is less access to formal source of finance, the policy directed BFIs to include a collateral-free loan of up to Rs 200,000 for the study of technical education under deprived sector lending.<br />
	<br />
	<br />
	</span></span></div>',
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			'created' => '2011-09-24',
			'modified' => '2012-09-20',
			'keywords' => '',
			'description' => 'The Monetary Policy for the fiscal year 2011/12 has made an attempt to be balanced with the expansionary fiscal policy of the government of Nepal despite fears of inflationary pressure, apart from reducing the Cash Reserve....',
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	(int) 13 => array(
		'Article' => array(
			'id' => '305',
			'article_category_id' => '37',
			'title' => 'Poverty, Inequality And Growth-some Lessons',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="margin-bottom: 0.0001pt; line-height: 120%; vertical-align: middle;">
	<span style="font-size:12px;"><i><span style="line-height: 120%;"><img align="left" alt="economy" border="1" height="129" hspace="5" src="http://newbusinessage.com/ckfinder/userfiles/Images/kamal raj.jpg" style="margin:10px;padding:10px;" vspace="5" width="100" />By Dr Kamal Raj Dhungel<br />
	<br />
	</span></i></span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">The liberalisation policy in china is in effect since the end of 1970s. India has followed the same path since the beginning of 1990s. This resulted in tremendous progress, sustained growth and increased wealth in both China and India. Both the countries were characterised by mass poverty before the period of economic reform.&nbsp;Today, China has reduced the number of people under poverty to mere 2.8 per cent down from 64 per cent in 1981. Similar is the case of India. According to the government estimate, approximately 28 per cent of population is living below the poverty line down from 51 per cent in 1977/78. It reveals that people have tasted the fruits of economic progress resulting from economic reforms.&nbsp;</span></div>
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	<span style="font-size:12px;">Let's now look at the context of poverty reduction in China and India. The liberalisation of their economies have instigated tremendous progress, sustained growth and increased wealth with rapid industrialisation. They are achieving high economic growth rate above 9 per cent per annum. It has produced multiplier effect in their economies. They are investing their resources in the construction of infrastructure and establishment and promotion of basic industries. The private sector investment has been mushrooming. This has created sufficient employment opportunities within the country to the increased size of labour force. This provides opportunities to the poor people to improve their living condition and hence both countries have met the goal of poverty reduction in the same momentum though the degree and extent of it is different. Income, health and education of the people are gradually improving which results in the improvement of the human development index. Nepal's estimated incidence of poverty is at 30.9 per cent today down from 45 per cent in the mid 1990s. In terms of poverty reduction, al the three countries under consideration have the same trend over the same period of time. China and India have adequate reason to explain how poverty there has come down as they are achieving rapid economic growth rate.&nbsp;But in Nepal poverty has surprisingly come down when its economic growth rate is deteriorating. This makes the people doubt at the authenticity of the poverty reduction data. </span></div>
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	<span style="font-size:12px;">Nepal also has the same story of economic liberalisaiton but with different outcomes. Policy of liberalisation has been initiated since the middle of 1980s albeit it has been gaining momentum only after 1990. As an effect of this policy, a large number of public enterprises were dismantled in the name of privatisation. They had produced basic goods like shoes, sugar, agricultural tools, clothes and paper etc. In the past, these industries made a significant contribution in the economy in terms of consumption, income and employment. But today they have vanished. It means those industries whose management had been transferred to the private sector are not in operation currently.&nbsp;The demand of the goods produced by these industries is being fulfilled by imports. The numbers of persons employed in these industries have become unemployed.&nbsp;Some of them have either migrated to foreign countries in search of employment. Others have remained unemployed. There is no doubt that liberalisation can play an important role in economic development. It can attract, promote and encourage private sector investment, both foreign and domestic in the development of overall economy, particularly in the manufacturing sector.&nbsp;But the manner in which Nepal has been exercising economic policy reform seems clearly unsustainable and making gloomy environment for private investment.&nbsp;Instead, it encourages opening up a large number of cosy dance restaurants in different urban centres of Nepal through private sector investment.&nbsp;Similar is the case of investment of private sector in education and health as private schools, colleges and nursing homes including private hospitals are mushrooming. They provide service only to a small fraction of population who are wealthier.&nbsp;It creates discrimination among the citizens in terms of social service. Clearly, the nation has been producing two categories of future manpower: a superior workforce which graduates from private schools and an inferior one that graduates from public schools. Majority of students who graduate from private schools are migrating to developed countries. </span></div>
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	<span style="font-size:12px;"><img align="left" alt="Real GDP growth rate during 2006-10" border="1" height="197" hspace="5" src="http://newbusinessage.com/ckfinder/userfiles/Images/groth rate.jpg" style="width: 318px; height: 197px;margin:10px;padding:10px;" vspace="5" width="318" />The failure of economic policy particularly after 1990 is reflected in the overall progress of the Nepali economy. In the initial stages of liberalisation, the growth rate of Nepali economy was encouraging to some extent. But it became disappointing gradually. The trend of Nepal's economic growth rate is not only disappointing but also humiliating (see chart ). The fruit of this growth did not reach people who were the main pillars in restoring democracy in 1990 and beyond. It means the distribution of national income among its citizens has been skewed.&nbsp;Since the decade of 1990s, corruption has become rampant. Anti-corruption mechanisms have been made ineffective. The living standard of the richest 10 per cent has been increasing over the years while that of the rest is deteriorating.<br />
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	<span style="font-size:12px;">&nbsp;The present economic growth rate, as seen in the chart, is declining over the years. It is barely enough to feed the population which is growing at the rate of 2.24 per cent per year. For the mass of people, hunger is routine, malnutrition rife, employment insecure, social security non-existent, health care expensive and livelihoods under threat. Youths are migrating to foreign countries and are supposed to send remittance by putting their lives at risk. As expected, remittance plays a vital role in providing livelihood to the people of Nepal. This is also giving an opportunity to the elite of Nepal to set up large number of banking businesses. But its contribution to economic growth seems insignificant. Today, Nepali people are experiencing banking business next door to their residence.&nbsp;It indicates that the growth of monetary sector (particularly of the institutions dealing with money) in recent years have been increasing while the growth rate of real sector is declining.&nbsp;It seems there is a weak association between the growth of monetary and real sectors. Practically speaking, for a healthy and balanced economic development, there should be a strong correlation between them. In addition, private sector investment has been growing in the construction of large apartments and residential buildings and opening up of departmental stores. This provides a major market for investment by the banks. This shows that the current trend of economic activities in which the investments are pouring is not sustainable.&nbsp;These activities would sustain for a longer period only when the country achieves high economic growth.</span></div>
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	<span style="font-size:12px;">The ways in which our national income has been distributed irrespective of its shape and size among the citizens stands to cause devastating consequences. It can create social tensions and make the rich even richer. The unjust distribution of the fruits of democracy during 1990s has left us a great liability whose effect of course had been spreading all over the country. The nation has already lost over 13,000 lives. Despite such a huge loss of lives, the inequality today is still rising. The income gap between the rich and poor is more intense.&nbsp;Gini index with value between 0 and 1 (0 for perfect equality and 1 for perfect inequality) is used to measure the inequality in the distribution of income and wealth. At present, Nepal's Gini index a gauge of income gap, is 0.47. This index of 0.4 percent is considered a warning line Exceeding this mark signifies that the biggest part of the wealth cake is enjoyed by a minority. If the Gini index points below 0.2, income distribution is highly balanced, between 0.2 and 0.3 is a relatively balanced distribution, 0.4 and 0.5 means that the distribution is being largely spread &nbsp;and if it reaches 0.5, then, distribution is highly unbalanced. Nepal’s Gini index is nearly 0.5 and it means the biggest part of the nation's income goes to only a few. It is because of the lack of equal access to opportunities. Opportunities inside the country are rare. Whatever opportunities are thesre inside the country, they are available only to those who are related with the powerful. Opening up the opportunities in most public sectors like police, military and civil service are not going to help as even such opportunities open other avenues for the powerful people for corruption. It indicates that the powerful and influential persons have hijacked opportunities, benefits, public spaces, shared resources, economic rights and political processes.<br />
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	<span style="font-size:12px;"><i><span style="line-height: 115%;">(Dr Dhungel is a Professor of Economics at Tribhuvan University, Kathmandu. He can be reached via email at </span></i><a href="mailto:kamal.raj.dhungel@gmail.com"><i><span style="line-height: 115%;">kamal.raj.dhungel@gmail.com</span></i></a><i><span style="line-height: 115%;">)</span><br />
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<div>
	<span style="font-size:12px;"><i>&nbsp;</i></span></div>',
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<p class="MsoNormal">
	<strong><span style="font-size:12px;"><span color:="" franklin="" gothic="" style="line-height: 115%;"><br />
	BRIGHT ECONOMIC FUTURE OF NEPAL</span></span></strong></p>
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	 </p>
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	<strong><span style="font-size:12px;"><i><span color:="" letter-spacing:="" lucida="" style="line-height: 120%;">By Janardan Dev Pant<br />
	<br />
	</span></i></span></strong></p>
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	<span style="font-size:12px;"><b><span aldine401="" color:="" letter-spacing:="">N</span></b><span aldine401="" color:="" letter-spacing:="">epal's political parties and policymakers are making financial mistakes that have left the people in poverty, serious financial stress and feeling of helplessness. Nepal is experiencing immense challenges in transforming its social and business environment. Such transformation requires departure from outdated modes of providing dogmatic directions.&nbsp; Everybody is suggesting that the need of the hour is good governance, awareness about and understanding of global and national economic business environment, strategic thinking and choices, formulation and implementation of proper policies, effective communication, digitization, and management of available human talent.&nbsp; These all require an overall understanding of the fast paced changes of both the external and internal environment.</span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">We have achieved lots of good things.&nbsp; We have produced world class engineers, doctors, lawyers and bankers by liberalizing education, telecommunications and banking. Majority of them are working in the USA, Canada, UK and Australia due to the absence of right environment in Nepal. Due to this migration of talent, all the achievement made in the education sector has been useless in raising the living standards of 85 per cent Nepalis.&nbsp; Common people are undergoing extreme socio-economic hardships without hope of any immediate relief.&nbsp; This situation must not be allowed to continue.&nbsp; </span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">Nepal's market-oriented reform started in 1991 implied that those who lack the purchasing power will be marginalised.&nbsp; People without money are as good as non-existent in the sort of market economy prevailing today.&nbsp; It is the state's responsibility to take care of such citizens.&nbsp; Failure to take care of such Nepalis, who are about 85 per cent of the country's population, is the key failure of Nepal's economic liberalization.The main reason behind this failure is our inability to use our existing resources properly. That is what is forcing us to live in poverty, serious financial stress and feeling of helplessness.&nbsp; </span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">This article is about a proposal to get out of this mess and achieve growth through the use of hydropower. </span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
<p class="MsoNormal" style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	<strong><span style="font-size: 12px;"><span color:="" franklin="" gothic="" letter-spacing:="">Setting the Goal<br />
	<br />
	</span></span></strong></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">The first step in embarking on a journey is to set a goal. Let's set the goal as:&nbsp; Nepal's per capita income US$ 2,500 by 2017 and US$ 50,000 by 2040.&nbsp; This goal is specific, measurable, achievable, realistic and time bound.&nbsp; With this goal in mind, I would like to draw a number of policy prescriptions to achieve this goal. These policies can promote investment, create jobs and wealth, and consumer spending which will give us double digit growth and eradicates poverty so that Nepal will be transformed from least developed county to developed country by 2040.</span></span></p>
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	 </p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></strong></p>
<p class="MsoNormal" style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	<strong><span style="font-size: 12px;"><span color:="" franklin="" gothic="" letter-spacing:="">Bench Mark<br />
	<br />
	</span></span></strong></p>
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	 </p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">We must benchmark with our comparator countries to achieve best practices and gain efficiencies.&nbsp; Our core competencies are hydropower and tourism.&nbsp; The comparator countries in this respect are Bhutan and Laos. They too are landlocked, have mountainous terrain and plentiful water resources.&nbsp; But they have succeeded to produce and export large volume of hydroelectricity to their neighbors.&nbsp; We can learn many things from 1070 MW Nam Theun Hydropower Project of Laos and 1020 MW Tala Hydroelectric Project of Bhutan. We have to learn from them and achieve the above stated goal. But we have to revise and refine those models to suit our specific environment.&nbsp; For example, they are exporting power whereas we have market for power within the country itself. <br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">Supply creates its own demand, said the famous economist JB Say.&nbsp; He is perfectly right in his statement, at least in Nepal where the pent up demand for electricity is huge. If we start construction of various hydroelectricity projects immediately as per our model, our per capita income will reach around US $50,000 by 2040 with double digit economic growth every year.&nbsp; By that time our rate of per person electricity use will reach around 150 times from today's 70 units per head.&nbsp; As we are going to consume here in Nepal all the electric power that we are going to produce, the policy of exporting power must be stopped immediately.&nbsp; Power exporting policy will hold back our fast track economic growth.&nbsp;&nbsp;&nbsp; </span></span></p>
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	 </p>
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	<strong><span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;&nbsp;&nbsp; </span></span></strong></p>
<p class="MsoNormal" style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	<strong><span style="font-size: 12px;"><span color:="" franklin="" gothic="" letter-spacing:="">Liberalizing Hydropower</span></span></strong></p>
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	 </p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">This is the time that the government needs to think about liberalizing hydropower sector, just like it liberalized banking, telecommunications and education which unleashed the banking, communication and education revolution.&nbsp; We have to rehabilitate to Nepal Electricity Authority (NEA) to match our development strategy because NEA is already a sick unit.&nbsp; We are experiencing a severe energy crisis. We are already without electricity 14 hours a day and this duration is getting longer. But with the hydropower potential we have, it does not have to be that way. Presently, peak power demand of integrated Nepal power system is around 967 MW and power supply is around 400 MW.&nbsp; The deficit can be met easily with a few projects. <br />
	<br />
	</span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;But the existing power purchase rates make the power projects commercially unfeasible due to high rates of interest that the banks are charging.&nbsp; Therefore, it is suggested that the power purchase rates be revised upward, immediately.&nbsp; When the market interest rates rises further, the power purchase rates should be raised accordingly. Similarly, when the interest rate cools down, the power purchase rates should be lowered accordingly. </span></span></p>
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	<span style="font-size: 12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:=""><br />
	</span></span></p>
<p class="MsoNormal" style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	<strong><span style="font-size: 12px;"><span color:="" franklin="" gothic="" letter-spacing:="">Cost of Hydropower<br />
	<br />
	</span></span></strong></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">The cost of hydropower is highly site specific, and depends on different factors, including hydrologic characteristics, site accessibility, and distance from transmission line.&nbsp;&nbsp; However, hydropower is the cheapest way to generate electricity in Nepal. The 456 MW Upper Tamakoshi hydropower project is estimated to cost Rs 35.29 billion, if the project is completed by FY 2014-15 as scheduled.&nbsp; That means it costs about Rs 77.39 million per MW.&nbsp; On that basis, we can say, at today's rate, a typical hydropower project in Nepal can cost somewhere between Rs 80 million and Rs 150 million per installed MW.&nbsp;&nbsp;&nbsp; </span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp; </span></span></p>
<p class="MsoNormal" style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	<strong><span style="font-size:12px;"><span color:="" franklin="" gothic="" letter-spacing:="">Means of Financing<br />
	<br />
	</span></span></strong></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">One major obstacle often cited in Nepal's hydropower development is the lack of finance. But in reality, it is no big deal for us to raise the money.&nbsp; The project can be financed through a mix of debt and equity arranged through a public-private partnership.&nbsp; The people of Nepal can arrange the resources on their own to produce at least 2,360 MW of electricity if the leaders extend some help.&nbsp; <br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">First of all, Nepal Government has to create Nepal Development Company Limited (NDCL) as a sovereign wealth fund holding company.&nbsp; Then the government should sell 40 per cent shares it holds in the Nepal Telecommunication Company Ltd (NTC). This will yield around Rs 24 billion and that amount should be invested as the seed money of NDCL.&nbsp; With this money, NDCL can promote many subsidiary public limited companies in the same manner as Nepal Electricity Authority has promoted Chilime Hydropower Company Limited.&nbsp; The equity participation in these subsidiaries is proposed at 51% from NDCL, 25% from national or international strategic partner, 24% from the general public.&nbsp; Subsidiaries should be managed by the strategic partners so as to ensure efficiency and customer satisfaction.&nbsp; NDCL can also promote East-West Electric Railway Ltd and many North-South cable car companies in similar modality of raising the fund. <br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;Nepal Telecom has been seeking strategic partner as it is losing 10 per cent of its profit growth every four months to the private telecom service providers.&nbsp; Nepal Telecom on its second annual general meeting held on March 29, 2010 has passed a resolution to sell minority shares to international telecommunications operator.&nbsp; But nothing has been done on this line till now. People believe that this delay is due to financial influence of other telecom service providers on our political leaders and government authorities.&nbsp; Further, it is also widely believed that if Nepal Telecom cannot bring foreign telecommunications operator through bidding as a strategic partner, Nepal Telecom too will face the same fate as that of Janakpur Cigarette Factory and Nepal Airlines Corporation.&nbsp; <br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">The paid-up capital of Nepal Telecom is Rs 15 billion, of which Nepal Government holds 91.50%.&nbsp;&nbsp; If the Government can sale 40% share in Nepal Telecom through international bidding, at the rate of minimum Rs 400 per share, the proceeds will be a minimum of Rs 24 billion.&nbsp; Assuming that this Rs 24 billion will be the 25% equity from NDCL's side, and that Rs 72 billion will be available as loan from various lenders, the total funds available will be Rs 96 billion.&nbsp; This will be sufficient to set up projects to generate hydroelectricity of 960 MW, assuming, on the basis of calculations above, that Rs 100 million will be required to install one MW capacity for hydroelectricity.&nbsp;&nbsp;&nbsp; </span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">Similarly, Nepal Army Welfare Fund has billions in its account.&nbsp; If it invests Rs 5 billion as equity in hydropower projects, it can get 75% of the project as loan and the total available amount will be Rs 20 billion.&nbsp; This amount is sufficient to install 200 MW capacity of hydroelectricity on the same assumptions as above.Then is the Employees Provident Fund. It is no big deal for this institution to invest Rs 10 billion as equity for hydropower generation. That will attract loans to make the total fund of Rs 40 billion.&nbsp; This is sufficient for installing a generation capacity of 400 MW.&nbsp;&nbsp; <br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">Then, we can easily assume that 100,000 Nepali citizens will come forward to invest Rs 200,000 per person. That will generate a total equity amount of Rs 20 billion which will attract a loan so that the total amount will be Rs 80 billion.&nbsp; From this amount, we can install a capacity of R 800 MW. The equity can be raised by issuing preferred redeemable increased dividend equity shares (PRIDES) to the general people.&nbsp; PRIDES, according to Investopedia, are securities consisting of a forward contract to purchase the issue's underlying security and an interest bearing deposit.&nbsp; Interest payments are made at regular intervals, and conversion into the underlying security is mandatory at maturity.&nbsp; PRIDES allow investors to earn stable cash flows while still participating in the capital gains of an underline stock.&nbsp; This is possible because these products are valued along the same lines as the underlying security. <br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">Micro-finance institutions, Banks and Co-operatives can give loans to purchase these PRIDES issued by NDCL or its subsidiaries to the Nepalis who have low or no income. Such loan can be issued against the collateral of PRIDES.&nbsp; This will bring positive impact on distribution of benefits from national resources to the low income people.&nbsp; This will ensure that the economic development does not marginalize the poor. <br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">We can get loan from various financial institutions located in Nepal, China, India or global institutions such as Agence Francaise de Development, European Investment Bank, Nordic Investment Bank etc. China's foreign exchange reserves have reached US$ 2.4 trillion making it by far the largest holder of foreign exchange reserve in the world. China was holding US$ 906 billion in US treasury bonds as of October, 2010.&nbsp; We should request China to invest some of that amount in Nepal's infrastructure development, such as hydropower. They should agree because the return will be higher in our projects.</span></span></p>
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	 </p>
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	<strong><span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></strong></p>
<p class="MsoNormal" style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	<strong><span style="font-size: 12px;"><span color:="" franklin="" gothic="" letter-spacing:="">Infrastructure-Transmission Line<br />
	<br />
	</span></span></strong></p>
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	 </p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">Hydropower development depends on the power transmission to carry the power from the power project site to the consumer. On January 5, 2007 NEA signed an MOU to construct Butwal-Gorakhpur, Duhabi-Purnia, Dhalkebar-Mujaffarpur and Anarmani-Siligudi 220 KV transmission lines for power trade between Nepal and India. But if we have to develop Nepal's hydropower and consume this within Nepal, NEA has to start constructing East-West 400 KV, North-South 132 KV, and North-South 220 KV transmission lines along the corridors of North-South major rivers, where it is feasible.&nbsp; NEA will make profit from wheeling charges received from power producers.<br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">These transmission lines are essential to solve the present problem of power deficit.&nbsp; No investor will be interested to invest in power project without transmission line. Therefore, for Nepal, transmission line construction is not an option but compulsion. If NEA is not able to construct these transmission lines, the private sector can be invited to do it under Build-Own-Operate-Transfer (BOOT) contracts.&nbsp; The private sector can be allowed to operate such transmission lines for 30 years after which it has to transfer ownership to the government-owned NDCL. <br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">The responsibility to distribute electricity should be given to the local government units, such as the District Development Committees or Municipalities or to the proposed federal states.&nbsp; With this arrangement, the present problem of leakage of electricity will be stopped. At present, the electricity leakage is 26 per cent according to NEA.&nbsp; </span></span></p>
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	 </p>
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	<strong><span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:=""><br />
	&nbsp;</span></span></strong></p>
<p class="MsoNormal" style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	<strong><span style="font-size: 12px;"><span color:="" franklin="" gothic="" letter-spacing:="">Market<br />
	<br />
	</span></span></strong></p>
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	 </p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">The concept of supply creates its own demand is applicable in our case.&nbsp; There is scope of exponential increase in the supply of electric power in Nepal because there is also a very high scope for exponential increase in the demand for electric power.&nbsp; The data provided in the Table-1 is a conservative estimate.&nbsp; This does not include major hydropower projects initiated by NEA and foreign investors. NDCL can immediately start Construction of electric railway system such as Mechi-Mahakali, Raxaul-Hetauda-Kulekhani-Kathmandu and Kathmandu valley metro system.&nbsp; The estimated construction cost is Rs 500,000 per meter for double track railway. It goes up to Rs 1,000,000 if tunnel construction is also required. </span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">NDCL can also immediately start construction of cable car system from various points of east-west electric railway up to the hilly and Himalayan region to the market centres and tourist attractions including various reservoirs to be created by hydro dams.&nbsp; </span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">Meanwhile, we can benefit from the fast growth in the economies of our two neighbours. We share our northern border (1415 kms) with China which is not only the most populous country in the world with 1.34 billion people, but also the worlds second largest economy after the United States.&nbsp; It is the world's fastest growing major economy, with average annual growth rates of 10% for the past 30 years.&nbsp;&nbsp; China's middle class population, that has an annual income of at least US$ 17,000, has now reached more than 100 million. China's per capita income (nominal) is US$ 4,283.&nbsp; Similarly, our southern neighbor India with which we share a common border of 1,850 Kms, is the second most populous country in the world with 1.2 billion people.&nbsp; India too is one of the fastest growing economies in the world and its per capita income (nominal) is US$ 1,124.&nbsp; </span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">If we can attract even one per cent of the population of our two neighboring countries as tourists in Nepal, that will give tremendous economic growth to our economy as well. That requires construction of various electric train lines, international airports, cable car systems and recreational centres. Development of hydropower will help in all these. For example, water can be used for creating recreational facilities. Most importantly, if Nepal has good infrastructure, its geographical location makes it very suitable to be international financial center.</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></strong></p>
<p class="MsoNormal" style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	<strong><span style="font-size: 12px;"><span color:="" franklin="" gothic="" letter-spacing:="">Determined Government<br />
	<br />
	</span></span></strong></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">One frequently cited problem in Nepal's development and investment is the political uncertainty. However, there are examples, such as Singapore, China and South Korea, that a determined government can build an advanced country from scratch in a short period of time. That means our politicians have to start learning.<br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">Presently, our leaders or political parties are focused on the 301-game trying to make sure that they have 301 members of the Constituent Assembly on their side at any cost. That has to change. Over the past 35 years, we have seen rapid pace of technological change in our physical environment.&nbsp; Innovations such as cellular telephones, laser surgery, computers, electronic banking and new electronic trading techniques have materially affected the way people live.&nbsp; These technologies are easily transferable.&nbsp; Our politicians should keep themselves aware about these technological changes.&nbsp; That is required because the politicians should be able to optimize the use of the country's resources, promote excellence in the delivery of services and enhance competitiveness in line with our strategic visions, by keeping economic policy, institutions and bureaucracy above politics.<br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;Politicians should be given growth challenges in numerical terms.&nbsp; They must be given a target such as 12.3 percent growth rate per annum in our gross domestic product (GDP).&nbsp; Why 12.3 per cent? Our population growth rate is 2.3 per cent per annum.&nbsp; So, we need 2.3 per cent annual rate of GDP growth to take care of population increase. Another 5 percent growth rate is required to provide increased standard of living to the people, and another 5 percent is needed to provide increased momentum in the subsequent years.&nbsp; It is an achievable target and this must be the duty of the Prime Minister to achieve this. It makes no sense to continue hiring the Chief Executive Officer of the country without giving him or her a target to achieve. <br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;The type of economic growth that we will achieve with this model will not only eradicate poverty from Nepal in a short period of time, but will lift the country to the group of developed countries by 2040.&nbsp; </span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></strong></p>
<p class="MsoNormal">
	<strong><span style="font-size: 12px;"><span aldine401="" color:="" letter-spacing:="" style="line-height: 115%;">&nbsp;<i>(Pant is Director of Nepal Investment Bank Ltd and Chairman of Quantum Capital Ltd.&nbsp; He can be contacted at janardanpant@gmail.com)</i></span></span></strong></p>
<p class="MsoNormal">
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			'title' => '‘Seven Percent Growth Rate Possible’',
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			'summary' => null,
			'content' => '<p>
	<strong style="font-size: 12px;">Can Nepal Achieve 7 per cent&nbsp;<span style="font-size: 12px;">Economic Growth Rate?</span></strong></p>
<p>
	‘Seven percent growth rate possible’</p>
<p>
	<span style="font-size: 12px;">Nepal’s economy has every possibility to grow by 7 per cent in the next fiscal provided that there is political stability in the country and the government makes policy changes to encourage the private sector.</span><span style="font-size: 12px;">The government should focus on providing a stable policy environment, integrating growth of the industrial and service sector and making investments in domestic production to displace imports.</span><span style="font-size: 12px;">Similarly, there is a need to boost our agricultural production. However, we should be able to create markets for our agricultural products.&nbsp;</span></p>
<address>
	<strong>Dr Posh Raj Pandey</strong></address>
<address>
	<strong>Executive Chairman</strong></address>
<address>
	<strong>South Asian Watch on Trade, Economics and Environment (SAWTEE)</strong></address>',
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			'created' => '2013-05-23',
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			'keywords' => 'Seven percent growth rate possible',
			'description' => 'Nepal’s economy has every possibility to grow by 7 per cent in the next fiscal provided that there is political stability in the country and the government makes policy changes to encourage the private sector.',
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			'title' => '‘Need For Political Consensus On Fundamental Issues Of Development’',
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			'summary' => null,
			'content' => '<p>
	<strong style="font-size: 12px;">Can Nepal Achieve 7 per cent&nbsp;<span style="font-size: 12px;">Economic Growth Rate?</span></strong></p>
<p>
	‘Need For Political Consensus On Fundamental Issues Of Development’</p>
<p>
	<span style="font-size: 12px;">Nepal needs a growth rate of around 4-5 per cent in the agriculture sector and 9-10 per cent in other sectors if the country’s GDP is to grow by around 7 per cent. Development is basically a political process.&nbsp;</span><span style="font-size: 12px;">Therefore, it is crucial that the major political parties reach a consensus on the fundamental issues of development. Liberalisation is needed for the growth of organised industrial trade and business.&nbsp;</span><span style="font-size: 12px;">We also need to enhance our productivity and introduce modern technologies to our agriculture sector.</span></p>
<address>
	<strong>Dr Badri Prasad Shrestha</strong></address>
<address>
	<strong>Former Finance Minister</strong></address>',
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			'created' => '2013-05-23',
			'modified' => '2013-05-23',
			'keywords' => 'Need For Political Consensus on Fundamental Issues of Development',
			'description' => 'Nepal needs a growth rate of around 4-5 per cent in the agriculture sector and 9-10 per cent in other sectors if the country’s GDP is to grow by around 7 per cent. Development is basically a political process.',
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			'title' => '‘Nepal Has The Potential To Achieve 7% Growth Rate’',
			'sub_title' => '',
			'summary' => null,
			'content' => '<p>
	<strong style="font-size: 12px;">Can Nepal Achieve 7 per cent&nbsp;<span style="font-size: 12px;">Economic Growth Rate?</span></strong></p>
<p>
	‘Nepal has the potential to achieve 7% growth rate’</p>
<p>
	<span style="font-size: 12px;">Nepal actually does have the potential to achieve a seven percent economic growth rate or more, like our two immediate neighbours – India and China. But in the present situation of political instability and uncertainty, it seems an almost impossible target. The World Bank has estimated Nepal’s economic growth to be not more than 3.8 per cent in the current fiscal year.&nbsp;</span></p>
<p>
	We must focus on our major sectors such as agriculture, tourism, water resource etc if we are to attain speedy economic growth. We must increase our domestic production significantly if we are to achieve such a high growth rate. Increased domestic production will not only help reduce the ever-rising imports of several products but will also help us earn foreign currency by increased exports. Likewise, we must also be able to develop our education, health and social sectors.&nbsp;</p>
<p>
	Finally, the government should create an investment-friendly environment by introducing matching policies and ensuring the security of investment – foreign as well as domestic.&nbsp;</p>
<address>
	<strong>Narayanraj Tiwari</strong></address>
<address>
	<strong>Former Finance Secretary</strong></address>',
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			'keywords' => 'Nepal Has The Potential To Achieve 7% Growth Rate',
			'description' => 'Nepal actually does have the potential to achieve a seven percent economic growth rate or more, like our two immediate neighbours – India and China.',
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			'summary' => null,
			'content' => '<p>
	<strong style="font-size: 12px;">Can Nepal Achieve 7 per cent&nbsp;<span style="font-size: 12px;">Economic Growth Rate?</span></strong></p>
<p>
	‘Focus On Tourism, Productivity And Exports’</p>
<p>
	<span style="font-size: 12px;">Nepal has the prospects for large-scale investment. Foreign investment is important for the development of sectors such as hydropower, tourism, transport, railway, agriculture and other bigger projects. We need to speedily develop bigger hydropower projects to address the energy crisis. Without tackling the energy crisis, we cannot really expect a healthy economic growth rate. Both the public and the private sectors should invest to increase production. We also need rapid industrialization which will create new employment opportunities. Nepal has tremendous possibilities of tourism development. Nepal should basically target Chinese and Indian tourists. In the last fiscal year, more than 10 million Chinese and Indian tourists went for outbound travel. If we can attract only 10 per cent of it, we will have one million more tourists. Nepal should make serious attempts to achieve this. Nepal should make long-term strategies to reduce imports and increase exports by increasing the domestic production of goods and services. Nepal should focus on increasing the export of commodities like, carpet, herbs, ginger, tea and Pashmina, among others.</span></p>
<div>
	<address>
		<strong>Jaya Mukunda Khanal&nbsp;</strong></address>
	<address>
		<strong>Secretary</strong></address>
	<address>
		<strong>Ministry of Agriculture Development</strong></address>
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			'description' => 'Nepal has the prospects for large-scale investment. Foreign investment is important for the development of sectors such as hydropower, tourism, transport, railway, agriculture and other bigger projects. We need to speedily develop bigger hydropower projects to address the energy crisis.',
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			'id' => '987',
			'article_category_id' => '37',
			'title' => 'Economic Policy’s Narrative Imperative',
			'sub_title' => '',
			'summary' => null,
			'content' => '<p>
	<strong>By Kemal Derviş</strong></p>
<p>
	<span style="font-size: 12px;">The best advice I received when taking up policymaking responsibilities in Turkey more than a decade ago was to take “a lot of time and care to develop and communicate the ‘narrative’ to support the policy program that you want to succeed.” The more that economic policy is subject to public debate – that is, the more democracy there is – the more important such policy narratives are.</span></p>
<p>
	The crisis faced by the European Union and the eurozone is a telling example of the need for a narrative that explains public policy and generates political support for it. A successful narrative can be neither too complicated nor simplistic. It must capture the imagination, address the public’s anxieties, and generate realistic hope. Voters often sense cheap populism.</p>
<p>
	European Central Bank President Mario Draghi provided such a narrative to the financial markets last July. He said that the ECB would do everything necessary to prevent the disintegration of the euro, adding simply: “Believe me, it will be enough.”</p>
<p>
	With that sentence, Draghi eliminated the perceived re-denomination tail risk that was highest in the case of Greece, but that was driving up borrowing costs in Spain, Italy, and Portugal as well. It was not a populist message, because the ECB does indeed have the firepower to buy enough sovereign bonds on the secondary market to put a ceiling on interest rates, at least for many months.</p>
<p>
	Central bankers, more generally, are typically able to provide short- or medium-term narratives to financial markets. US Federal Reserve Board Chairman Ben Bernanke provided his own by pledging that US short-term interest rates would remain very low, and the Bank of Japan’s new chairman, Haruhiko Kuroda, has just provided another by saying that he will double the money supply so that inflation reaches 2%.</p>
<p>
	While central bankers can provide such narratives to financial markets, it is political leaders who must provide the overall socioeconomic messages that encourage long-term real investment, electoral support for reform, and hope for the future. Central bank alchemy, to borrow a term from the US journalist Neil Irwin’s new book, has its limits.</p>
<p>
	Europe, in particular, needs a narrative of long-term hope that will trigger a real recovery. France is coming closer to the danger zone, and even Germany’s annual GDP growth is falling well below 1% per year. In the meantime, the easing of sovereign interest-rate spreads provides little comfort to the growing army of unemployed in southern Europe, where youth unemployment has reached dramatic heights – close to 60% in Greece and Spain, and almost 40% in Italy.</p>
<p>
	The narrative should address three essential questions. How can the European model of strong social solidarity and security be reformed, but endure? How can economic growth be revived and sustained throughout the EU? And how can Europe’s institutions function with enhanced legitimacy to accommodate countries that share the euro and others that retain their national currencies?</p>
<p>
	For starters, a revolution is required in the organization of work, learning, and leisure. Social solidarity, essential to European identity, can and must include longer work lives, but also more work-sharing, adult learning, and shorter average work weeks (particularly close to retirement).&nbsp;</p>
<p>
	Such flexibility requires the consent of all: employees must adjust to changing requirements; employers must re-organize their enterprises to allow more work-sharing, work from home, and learning intervals; and governments must overhaul taxes, income support, and regulation to promote a “flex-solidarity revolution” that encourages personal choice and responsibility, while remaining committed to social cohesion. This can lead to a better future for all, with citizens gaining better access to adult education, having more free time to pursue personal interests, and remaining productive and occupationally engaged far longer into their healthy lives.</p>
<p>
	Europe does not need Asia’s rates of economic growth. It can secure decent jobs and prosperity, with a sustained annual growth rate of around 2%. To achieve that, German voters should be told not that their country’s resources will forever flow to Spain, but that their wages can rise at twice the rate of the recent past without risking inflation or a current-account deficit, because Germany has the world’s largest external surplus.</p>
<p>
	Service-sector industries throughout the EU must be opened up. The countries with stronger fiscal positions should take the lead in a major pan-European skill-upgrading program. The number of pan-European scholarships should be doubled. School programs everywhere should aim to educate trilingual citizens.</p>
<p>
	Moreover, a full European banking union with shared resources for resolution should be created without further delay. The European Investment Bank, which received a significant capital increase in 2012, should add a large investment-support program for medium-size enterprises to its current operations, with a subsidy financed from the European budget to encourage first-time job takers for a limited period. Jobs and training for young people must be the centerpiece for the new growth pact, and projects must move ahead in “crisis mode,” rather than according to business as usual.</p>
<p>
	Finally, while monetary union obviously requires greater sharing of sovereignty, there should also be a “greater Europe” that includes the United Kingdom and others. This implies two-tier institutions that can accommodate both types of countries: the “euro-ins” and those that prefer to preserve their monetary sovereignty in a larger Europe built around a vibrant single market and common democratic values.</p>
<p>
	These interconnected visions can and must be realized if Europe is to thrive again. Together, they form a compelling narrative that European leaders must begin to articulate.</p>
<p>
	<span style="font-size:10px;">Kemal Derviş, former Minister of Economic Affairs of Turkey and former Administrator for the United Nations Development Program (UNDP), is Vice-President of the Brookings Institution.</span></p>
<p>
	<span style="font-size:10px;">Copyright: Project Syndicate, 2013.</span></p>',
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			'article_category_id' => '37',
			'title' => 'Why Are Most Domestic Airlines Running In Loss?',
			'sub_title' => '',
			'summary' => null,
			'content' => '<p style="text-align: justify;">
	<strong>By Akhilesh Tripathi</strong></p>
<p style="text-align: justify;">
	Leaving a few as exceptions, most domestic private sector airlines in Nepal are not in sound financial health. In fact, a majority of them have always been struggling for survival. The list of Nepali private airlines closed down so far is a long one, carrying well over a dozen names of which a few grounded their fleet and downed their shutters after flying in the Nepali sky for as long as a decade. Examples are Necon Air and Cosmic Air. Their contemporaries &nbsp;such as Skyline Air, Shangril-Lai Air, Mountain Air, Nepal Airways, Lumbini Air, Everest Air – to name a few – were also closed down.&nbsp;</p>
<p style="text-align: justify;">
	Many – five dozen to be exact - haven’t started their operations despite receiving the Airline Operator’s Certificate (AOC) from the Civil Aviation Authority of Nepal (CAAN) many years ago. They are airlines on paper only. Understandably, the biggest deterrent for them is the collapse of several airlines in the past. There is no doubt that the present of the domestic aviation industry has improved, but not enough. A few airlines are really doing well – but they are oonly a few. Others are in the red, according to a highly-placed source at CAAN. Recently, two airlines have been in problems – Agni Air and Guna Air. The latter was acquired by Simirik Air, a helicopter service provider, which rebranded it as Simrik Airlines and launched its domestic flights. &nbsp;</p>
<p style="text-align: justify;">
	The Number One airline (Buddha Air) at present is far ahead the Number Two (Yeti Airlines) in terms of the number of passengers carried as well as the profit made annually. And there is always a stiff competition among a couple of other private airlines for the Number Three position in the domestic aviation market which has all together 15 private airlines (nine fixed-wing and six rotary-wing) in operation at present. Of the total 1.6 million domestic air passengers in 2012, the Number One airline carried more than 800,000 and also made, according to knowledgeable sources, more than Rs 4 billion in profit. The remaining Rs 3 billion of the annual business was shared by the remaining 14 airlines. That speaks volumes about how profitable some of them might just be!</p>
<p style="text-align: justify;">
	Ever since the country adopted a liberal aviation policy in 1992, the number of companies seeking and receiving AOC has been rising year on year. However, sustainability has been a major problem for them. “Four of the nine fixed-wing airlines and three of the six rotary-wing airlines operational at present are in profit. Others are in loss,” reveals the CAAN source.&nbsp;</p>
<p style="text-align: justify;">
	<strong>Why?</strong></p>
<p style="text-align: justify;">
	Why civil aviation is yet to become a profitable business for a majority of the private airlines operational at present? Is the number of airlines more than the market can actually sustain? Why so many airlines have failed? And why do others face the risk of failure? Nubiz sought answers to these questions from four experts of Nepal’s aviation industry: T R Manandhar (Director General of CAAN), Saral Shamser Rana (Deputy Marketing Director of Yeti Airlines), Manoj Karki (Managing Director of Goma Airlines) and Pradeep Shrestha (CEO of Air Kasthamandap). This is how they answered these questions:</p>
<div style="text-align: justify;">
	<strong>‘Airlines should go for mergers’</strong></div>
<div style="text-align: justify;">
	<strong><br />
	</strong></div>
<div>
	<div style="text-align: justify;">
		Yes, it’s true that several airlines have closed down, mainly because of financial reasons, in the past. We have also heard complaints that the number of airlines is more than the market can actually sustain. Therefore, the government has made the Airline Operator’s Certificate Requirements (AOCR) more stringent a couple of months back. Now, no AOC will be issued unless the airline procures the aircraft. Though we have adopted a liberal aviation policy, we don’t encourage companies to enter the aviation industry at the moment, unless they have serious, long-term plans supported by adequate capital base. There are three airlines operating scheduled flights on the trunk routes at present. Two more, Namaste Air and Blue Airways, have applied for scheduled domestic operations on the trunk routes; they are in the process of procuring aircraft.&nbsp;</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		The main reason why so many domestic airlines collapsed and why many others are incurring a loss is low capital base and lack of long-term planning. Everyone planning an airline company should be clear that it requires huge investments and the operating cost is also very high which means the promoters need deep pockets. The airlines which are operating chartered flights to the remote areas are in loss. That’s why we have started building paved runways at airports in the rural areas. Currently, paved runways are under construction at over half a dozen such airports. Similarly, we are also installing modern aviation tools and technologies such as Tower Console, VOR, CCR, Met equipment, PAPI Light etc at various airports.</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		I seriously feel that the existing airlines should go for mergers among themselves. This will increase their capital base and fleet and lower the operational cost to some extent. What the experience shows is many airlines collapsed after they faced accidents. So, they must pay proper attention to all the safety measures in order to avoid accidents. There is lack of skilled technical and expert human resource. For example, there is a limited supply of captains and engineers. So, airlines often ‘hunt’ such human resource from among themselves which ultimately affects the operation of those airlines which lose such human resource. The demand of airline service will not increase by any significant degree unless there is a considerable growth in tourist arrivals.</div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: right;">
		T R Manandhar</div>
	<div style="text-align: right;">
		Director General</div>
	<div style="text-align: right;">
		CAAN</div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: justify;">
		<strong>‘Only an aviation expert should run an airline’</strong></div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: justify;">
		Very few investors have grasped the aviation business in Nepal properly. An airline cannot be run like most other businesses. Without the experience and knowledge about the costs involved, the turnaround times and expenses that are actually incurred, one will never see a sustainable business. You need an aviation expert to run an aviation business, not just one with the capital to finance it.</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		The variables in the market, the trends and patterns are unpredictable. A factor such as weather can make or break a season for an airline. Working with the correct promotions team, at the right prices and focusing on the long run is crucial to succeed. The competition is also fierce, and has in the past brought about the closure of various airlines. Seeking opportunities to work together for mutual benefit is rare; rather it’s the opposite and many are out there to bring others down.&nbsp;</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		The lack of training and experience amongst the teams within the airline is another cause for the downfall. Crew should not be rushed to senior positions just to fill up spaces or to meet some compliance. It is one of the reasons why the accident rate in Nepal is higher than in most places on earth and that directly leads to my next point - insurance premium: loss of one, borne by many. There might be many variable costs in the running of an airline but a primary fixed cost beside the loan is the insurance premium. Whether you fly or not, you always have to pay it. It’s a cost that can bring a company down and it does not take into account a bad season.</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		The reasons can be endless, however this is not a struggle only faced in Nepal. Richard Branson, founder of Virgin Airlines, on his advice to become a millionaire, said, “The easiest way to become a millionaire is to first become a billionaire and then start an airline!” However, with the backing of investors and good leadership, Nepali aviation can reach greater heights.&nbsp;</div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: right;">
		Capt Pradeep Shrestha</div>
	<div style="text-align: right;">
		Chief Executive Officer</div>
	<div style="text-align: right;">
		Air Kasthamandap</div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: justify;">
		<strong>‘Many airlines enter the market without proper market study’</strong></div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: justify;">
		The airlines have to take huge loans from banks as the investment cost is very high. In the past, some companies entered the aviation market only for the sake of it, making the supply higher than the demand. This caused unhealthy competition leading to sustainability problems at the end. The survival of airlines in Nepal is very challenging, especially for those flying to the remote areas where the runways are really bad; other several airport facilities are simply absent. The operating cost is very high. For example, a single servicing of the engine costs around Rs 700,000 to 1 million. Many airlines enter the market without studying the opportunities available.</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		Airlines flying to the remote areas have additional challenges. The cost of operating flights in the remote areas is comparatively high. The government should fix the number of flights and the rates for remote areas based on the flow of passengers and the operational cost of the flights. The government can help the airlines flying to the rural areas in terms of fuel costs and VAT and other taxes. However, increasing the tourist arrivals is one sure way to make aviation a profitable business for domestic airlines. More tourists means more opportunities for the airlines to make money. The government should make the issuance of AOC more stringent so that there is a balance between demand and supply. Airlines such as Yeti Airlines, Buddha Air, Simrik Air etc seem to have a profitable business. But they have taken huge loans for which the interest is also quite high. However, they have been able to stand out in the market because of proper planning, professional and efficient service, good market strategy, adequate investment and operating capital.&nbsp;</div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: right;">
		Saral Shamser Rana</div>
	<div style="text-align: right;">
		Deputy Marketing Director</div>
	<div style="text-align: right;">
		Yeti Airlines</div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: justify;">
		<strong>‘Airlines fail miserably in financial risk management’</strong></div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: justify;">
		The major reason behind the collapse of most domestic airlines in the past is the failure to manage the financial risks. Managerial shortcomings, lack of aircraft matching the country’s geography, lack of enough support from the government and the then aviation policy could be the other reasons. However, it is commendable that the private sector has continued to support the domestic aviation industry despite these odds.</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		Aircraft matching the country’s difficult geography are a must for an airline. Skilled manpower is another prerequisite. As there is lack of enough skilled human resource, one airline has to often ‘steal’ talents and experienced human resource from the others. The airfares have not increased according to the hike in the aviation fuel prices in recent times. Operating flights in the remote areas entails even higher costs. Hence, profit becomes even more challenging for these airlines. The operating cost of an airline is very high. And it takes at least a few years before an airline can expect profits. So the promoters need to have deep pockets as well as patience and long-term plans before jumping into the market.</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		Experience has shown that if someone wants to run an airline, then s/he should focus on the airline only. Diverting the income from the airline to other investments may cause problems, especially in the beginning years. We have already seen the fall of several companies which invested the income from aviation into other sectors. The promoters should have enough capital to meet all financial problems that could crop up in the future.&nbsp;</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		Also, the government needs to revise the aviation policy. The number of passengers has been on a constant rise in flights to the major urban destinations. However, it is difficult for the airlines flying to the rural areas to get enough passengers while the risks of flying are also high in these areas.</div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: right;">
		Manoj Karki</div>
	<div style="text-align: right;">
		Managing Director</div>
	<div style="text-align: right;">
		Goma Air</div>
</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Nepal’s Civil Aviation: Some Facts</strong></div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: justify;">
		The Nepali private sector entered the domestic air transport after the adoption of Liberal Aviation Policy in 1992. Nepal Airways was the first private airline to start scheduled domestic flights in Nepal (1992). It got the Airline Operator’s Certification from the Civil Aviation Authoruty of Nepal (CAAN) in Feb 1992. Necon Air followed suit in September 1992. In 2001 two other local airlines – Shangri-La Air and Karnali Air merged with Necon which operated flights to all major domestic destinations. It also had flights to Patna and Varanasi in India before being closed down in 2003.</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		Domestic operation by jet aircraft commenced in 2004 by Cosmic Air. Some 75 private airlines have received AOC from CAAN but only 15 of them are operational at present – nine fixed-wing and 6 rotor-wing airlines. Over a dozen which came into operation after 1992 have closed down so far. Nine fixed-wing airlines operational at present - Nepal Airlines (government-owned), Buddha Air, Yeti Airlines, Sita Air, Tara Air, Air Kasthamandap, Makalu Air, Goma Air, Simrik Airlines (Guna Air has been renamed as Simrik Airlines after it was recently acquired by Simrik Air, a helicopter company) and Agni Air (AOC still valid but flights grounded at present). The domestic civil aviation industry is said to be growing at 10-12 per cent per anum.Private investment in civil aviation is estimated above Rs 11 billion.</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		Six rotor-wing airlines operational at present are:&nbsp;</div>
	<ul>
		<li style="text-align: justify;">
			Buddha, Yeti and Simrik are the three airlines operating mountain flights at present.</li>
		<li style="text-align: justify;">
			NAC, Sita Air and Tara Air are the airlines flying to the rural areas</li>
		<li style="text-align: justify;">
			Air Kasthamandap launched a test flight to the Syangboche Airport, the highest-altitude airport in Nepal (3780m) on March 18, 2013. &nbsp;</li>
		<li style="text-align: justify;">
			Air Kasthamandap, Makalu Air and Goma Air, three new players in the aviation market, have single-engine aircraft and don’t have scheduled flights. They operate chartered and cargo flights, mostly to the rural areas.</li>
		<li style="text-align: justify;">
			Namaste Airlines has applied for permission for domestic flights.</li>
	</ul>
</div>
<div style="text-align: justify;">
	 </div>',
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			'created' => '2013-04-17',
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			'keywords' => 'Why Are Most Domestic Airlines Running In Loss?',
			'description' => 'Leaving a few as exceptions, most domestic private sector airlines in Nepal are not in sound financial health. In fact, a majority of them have always been struggling for survival.',
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		'Article' => array(
			'id' => '893',
			'article_category_id' => '37',
			'title' => 'Debate Of The Month: Is The Reality Sector Really Picking Up?',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="background:#f9f5a1;padding:3px;">
	<p>
		<strong>Nepali Real Estate at a Glance</strong></p>
	<ul>
		<li>
			Over 400 institutional real estate entrepreneurs across the country; 147 of them registered at Nepal Land and Housing Development Association&nbsp;</li>
		<li>
			From laymen to professionals like doctors and engineers are in this business</li>
		<li>
			The door for organised housing in Nepal opened after the 1995 Collective Housing Act allowed private ownership of apartment units</li>
		<li>
			The investment of banking and financial institutions (BFIs) in real estate and housing stands at around Rs 150 billion; Private sector promoters and builders have invested another Rs 250 billion</li>
		<li>
			The real estate market in Nepal grew significantly after the 1990 political change. It registered impressive growth even during the Maoist insurgency until the late 2008 when it started to slow down.</li>
		<li>
			According to the latest data, commercial banks have given about Rs 68 billion in real estate loans, which is 10.4 percent of the total loans issued by them. Commercial banks’ total lending to the realty sector reached its peak in Jan 2011 to almost Rs 99 billion or 20 per cent of their total lending.</li>
		<li>
			Now, most of the commercial banks which were overtly exposed to the real estate sector have brought down their exposure to below 25 percent level. At the same time, outflow of home loans of up to Rs 10 million has been picking up, with the total amount expanding from Rs 30.83 billion in October 2011 to almost Rs 40 billion by the end of 2012. Several development banks and finance companies are yet to overcome their real estate loan problem.&nbsp;</li>
		<li>
			It is, however, said that a fairly large portion of loans extended to the real estate sector is in the guise of overdraft and term loans, indicating that the problems of the real estate sector in Nepal could be far from over.</li>
	</ul>
</div>
<p style="text-align: justify;">
	We all know that Nepal’s real estate sector has been in an ailing state for more than the past three years. The real estate and housing industry witnessed a speedy growth (which many say was an unnatural growth), until the Nepal Rastra Bank (NRB), regulator of the country’s financial market, suddenly restricted banks’ lending to the sector in September 2010. NRB not only put a ceiling on real estate loans but also made it mandatory for real estate buyers to declare their income source for purchase of property worth more than Rs 5 million.&nbsp;</p>
<p style="text-align: justify;">
	Many bankers and real estate players compared this NRB move with a driver’s attempt to stop at once a car speeding along at 80 miles an hour. “When you press on the brakes to stop such a car at once, it is almost always doomed to crash. This is what happened to Nepal’s real estate and housing sector,” complain many bankers. According to them, maybe what happened to the country’s real estate industry over the past three years cannot be called a crash, but the industry was hit really, really hard.</p>
<p style="text-align: justify;">
	But it seems things have started to change now, for the better. After a three-year long slump, Nepal’s real estate and housing sector has shown some signs of improvement of late. Many analysts and industry insiders are still hesitant to call it the beginning of a recovery but even they admit that cautious optimism has replaced the general mood of doom and gloom prevalent in the industry as early as even a few months ago.&nbsp;</p>
<p style="text-align: justify;">
	Looking at the market at present, it is apparent that the genuine, long-term developers have survived the slump, while those who joined the fray just for fast cash have, perhaps, been combed out. Meanwhile, the NRB, too, has adopted a bit flexible approach to the sector in this period which the private sector stakeholders deem as inadequate. Similarly, there have been reports that real estate and housing borrowers who had the banks’ doors shut for them until recently have started getting scrutinized entries into the banks.&nbsp;</p>
<p style="text-align: justify;">
	There are some other signs as well that indicate that the realty sector might have started to climb up. According to real estate entrepreneurs and housing developers, this business has growth by 33 per cent in the first half of the current fiscal year, compared to the same period the previous year.&nbsp;</p>
<p style="text-align: justify;">
	Government revenue from this sector, too, has increased by nearly Rs 370 million in the first six months of this FY, compared to the same period the previous FY. Given these developments, Nubiz asked some of the major players of Nepal’s realty sector, bankers and regulators whether the sector has really started to witness a revival? Here is what they had to say: &nbsp;&nbsp;</p>
<p style="text-align: center;">
	<strong><span style="font-size: 14px;">‘There are positive signs’</span></strong></p>
<div style="float:left; width: 210px;margin-left:10px;">
	<img align="left" alt="Ichchha Raj Tamang" height="283" src="http://newbusinessage.com/ckfinder/userfiles/Images/march2013_debate_of_the_month_ichchha.jpg" style="margin:0 10px 0 0;" width="208" />
	<address>
		<strong>Ichchha Raj Tamang</strong></address>
	<address>
		<strong>President</strong></address>
	<address>
		<strong>Nepal Land and Housing Developers’ Association (NLHDA)</strong></address>
</div>
<p style="text-align: justify;">
	<span style="font-size: 12px;">This sector was doing very well. We all know that. But then some banks started speculative lending which was followed by others. This provoked the NRB to take stringent measures in the real estate and housing. The NRB, too, should not have implemented that decision at once. Anyway, the combined effect was that the realty sector faced a long slump.&nbsp;</span></p>
<p style="text-align: justify;">
	However, we have seen some positive signs for the realty sector in the first half of the current fiscal year. Statistics show that this sector has grown by 33 per cent in the first six months of the current fiscal year than the same period of the previous fiscal year. We hear that government revenue from the sale of land and houses has gone up in the first six months of this fiscal year. That is another indicator that the sector might have started picking up. Banks, too, have started new home loans at lower interest rates. Though they appear hesitant to invest in the housing apartments, their lending to individuals for land and houses, and loans to multi-storied commercial business complexes being built around Kathmandu have increased in recent months.&nbsp;</p>
<p style="text-align: justify;">
	These are good signs for the realty sector. The other important thing is this market has already witnessed almost the rock-bottom situation. This situation could not continue forever; it had to show the signs of revival. That is what has perhaps started to happen.&nbsp;</p>
<div>
	 </div>
<div>
	 </div>
<div>
	 </div>
<div>
	 </div>
<div>
	 </div>
<div>
	 </div>
<div>
	 </div>
<div>
	<span style="font-size:16px;"><b style="font-size: small; text-align: justify;"><br />
	</b></span></div>
<div>
	<span style="font-size:16px;"><b style="font-size: small; text-align: justify;"><br />
	</b></span></div>
<div style="text-align: center;">
	<span style="font-size:16px;"><b style="font-size: small; text-align: justify;">‘Market activity has increased’</b></span></div>
<div>
	 </div>
<div style="float:left; width: 210px;margin-left:10px;">
	<img alt="Bhesh Raj Lohani" height="291" src="http://newbusinessage.com/ckfinder/userfiles/Images/march2013_debate_of_the_month_bhesh.jpg" style="margin:0 10px 0 0;" width="208" />
	<address>
		<strong>Bhesh Raj Lohani</strong></address>
	<address>
		<strong>Secretary</strong></address>
	<address>
		<strong>Nepal Land and Housing Developers’ Association (NLHDA)</strong></address>
</div>
<p style="text-align: justify;">
	<span style="font-size: 12px;">In the first six months of the current fiscal year, the government has collected Rs 2.27 billion in revenue from the sale of land and houses. The figure was only Rs 1.9 billion in the first six months of the previous fiscal year. It is true that the increased tax rates have contributed to this growth but the number of land and house transactions has also increased this year. The sales of low-priced land and houses have particularly gone up.</span></p>
<p style="text-align: justify;">
	Banks have lowered their interest rates for loans from as high as 17 per cent last year to around 10 per cent recently. Remittance inflow has grown; this too has helped the real estate business. The NRB, too, has adopted somewhat liberal policies for the real estate sector, especially after the sector fell into a deep crisis from which it is struggling to come out now. There are scores of middle-class families who need houses and apartments as their permanent residences. Stand-alone houses are still bigger attractions for Nepalis than the apartments. Recent experiences, too, have shown that.</p>
<p style="text-align: justify;">
	If the current growth rate continues, then we can expect more investment in this sector by the end of this fiscal year. The realty business was stagnant for almost three years. Many buyers were waiting for the prices to come down. And the prices have indeed come down significantly, compared to three years ago. So, market activities have surely increased.</p>
<p style="text-align: justify;">
	 </p>
<p style="text-align: justify;">
	 </p>
<p style="text-align: justify;">
	 </p>
<p style="text-align: justify;">
	 </p>
<p style="text-align: justify;">
	 </p>
<p style="text-align: justify;">
	 </p>
<p style="text-align: center;">
	<span style="font-size: 14px;"><b>‘Real estate is gradually improving’</b></span></p>
<div style="float:left; width: 210px;margin-left:10px;">
	<p style="text-align: justify;">
		<img alt="Bhaskar Mani Gyawali" height="291" src="http://newbusinessage.com/ckfinder/userfiles/Images/march2013_debate_of_the_month_bhaskar.jpg" style="margin:0 10px 0 0;" width="202" /></p>
	<address>
		<address style="text-align: justify;">
			<b>Bhaskar Mani Gyawali</b></address>
		<address style="text-align: justify;">
			<b>Spokesperson</b></address>
		<address style="text-align: justify;">
			<b>Nepal Rastra Bank</b></address>
		<div style="text-align: justify;">
			 </div>
	</address>
</div>
<p style="text-align: justify;">
	We have observed that Nepal’s realty sector has shown a gradual improvement over the past few months. The improvement has not been as expected. But what I can say is the country’s real estate sector has seen its worst; things will only improve from here. Actually this process has already started. As the regulator, NRB has done all it could, to help banks recover their loans to this sector. NRB’s directives issued from time to time have helped the real estate sector to overcome the crisis it has been in for more than the past three years.</p>
<p style="text-align: justify;">
	Speculative pricing by some real estate players and speculative lending by some banks is mainly to blame for the realty slump in Nepal. The only solution to the problems in the real estate and housing sector is that real estate owners and housing developers should be ready to sell their property at minimal profits, sometimes without any profit and in some cases even at certain amount of loss. Otherwise, the interest of the bank will keep rising and they will be sinking deeper and deeper in the problem. If this is done, 75 per cent problems of the real estate and housing sector will be automatically resolved.&nbsp;</p>
<p style="text-align: justify;">
	In recent months, banks have started issuing new home and land loans at lower interest rates. This is good sign. Government revenue from the sale of land and houses, too, has witnessed almost one-third growth in the first half of this fiscal year compared to the same period the last fiscal year. This also shows that the real estate business might have started to pick up. I am sure that the situation will improve further in the days to come. &nbsp; &nbsp; &nbsp; &nbsp;</p>
<p>
	 </p>
<p>
	 </p>
<p>
	 </p>
<p style="text-align: center;">
	<span style="font-size: 14px;"><b><br />
	</b></span></p>
<p style="text-align: center;">
	<span style="font-size: 14px;"><b>‘We can’t really say that the revival has started’</b></span></p>
<div style="float:left; width: 210px;margin-left:10px;">
	<img alt="Anil Shah, Mega Bank" height="299" src="http://newbusinessage.com/ckfinder/userfiles/Images/march2013_debate_of_the_month_anil(1).jpg" style="margin:0 10px 0 0;" width="202" />
	<address>
		<address>
			<address>
				<b>Anil Shah</b></address>
			<address>
				<b>CEO</b></address>
			<address>
				<b>Mega Bank</b></address>
			<div>
				 </div>
		</address>
		<div>
			 </div>
	</address>
</div>
<p style="text-align: justify;">
	 </p>
<p>
	Given the current situation, we can’t really say that the realty sector has shown improvements. However, the good thing is the downward spiral has stopped. Some big apartment companies are still in problems. In fact, it is these companies that are responsible for delaying the recovery. So, the reality is the improvement in this sector is definitely not as expected. The banks, too, are not very willing to invest in this sector, especially in the apartments.</p>
<p>
	The buyers, too, are not interested in the apartments. However, now the banks are not compelled to put home loans up to Rs 10 million under real estate loans; the NRB has shown this much flexibility. This relaxation has surely helped the banks, which have invested nearly Rs 150 billion in the real estate sector, and also the real estate promoters.</p>
<p>
	We can’t really say that a revival has started in the realty sector. We’d better wait for some more time and see how things unfold. Meanwhile, the NRB did not say a word about the real estate sector in the mid-term review of the Monetary Policy for the current fiscal year. It must have disappointed the entire sector as well as the banks which have a sizeable investment in this sector.</p>
<div>
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			'modified' => '2013-05-23',
			'keywords' => 'Debate Of The Month: Is The Reality Sector Really Picking Up?',
			'description' => 'We all know that Nepal’s real estate sector has been in an ailing state for more than the past three years. The real estate and housing industry witnessed a speedy growth (which many say was an unnatural growth), until the Nepal Rastra Bank (NRB), regulator of the country’s financial market, suddenly restricted banks’ lending to the sector in September 2010.',
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			'article_category_id' => '37',
			'title' => 'Global Economy Outlook  For 2013: Figures & Beyond!',
			'sub_title' => '',
			'summary' => null,
			'content' => '<p style="text-align: justify;">
	<strong>By Sandip Nepal</strong></p>
<p style="text-align: justify;">
	The year 2012 remained gloomy for the entire seven billion plus world population in terms of economic growth and prosperity. With world economic leaders like the USA, Eurozone and China not acquiring the ‘expected status’ for the year, i.e. 2012, amidst spiking issues like unemployment, inflation and debt crisis regimes, prospects for 2013 do not look encouraging at this point of time.</p>
<p style="text-align: justify;">
	Concerned over the ongoing austerity measures, high unemployment rate and lower business confidence combined with weak market sentiments in core global economies like the USA and Eurozone, the World Bank (WB) has lowered its forecast for 2013. Market analysts and global institutions, pioneering in economic forecasts, are coming up with new lowered growth forecasts for the current year in line with lower than expected manufacturing and trade indicators coming from both sides of the Atlantic. The world economy was initially expected to grow by 3 percent in 2013. However, the new growth forecast based on the current and prospect scenario has come out to be 2.4 per cent, lowered by 60 basis points from the initial forecast.&nbsp;</p>
<p style="text-align: justify;">
	Similarly, amidst reduced global growth, market analysts and economists from around the world have lowered their growth forecast for the ‘land of the rising sun,’ i.e., Japan, US and the more vigilant economy, the Eurozone. It is believed that the second year of contraction in the Eurozone will have a tremendous impact on the global economy and could act as a reverse-catalyst in the global economic atmosphere, measured by Global Purchasing Managers’ Index or any other global index. Having inter-twined relationship with economic superpowers &nbsp;such as China, Eurozone and the US, emerging economies like India, Brazil, Mexico and other East-Asian economies fear that they cannot remain unaffected by the contraction in the economic environment of the world’s economic hubs. However, developing economies from around the globe are expected to expand at the rate of above 5.5 per cent in 2013.</p>
<p style="text-align: justify;">
	The World Bank has already warned against the fragility and vulnerability of the global economy in the remaining months of 2013. On the other hand, the report has also emphasized that the magnitude of economic downside will be at decreasing rate compared to recent precursor years. If we turn back and scrutinize 2012, European measures, reforms and policies to cushion the financial/debt crisis in the single economic bloc have not been able to provide economic surge or even correction to the ongoing recession. At a time when financial and political agendas have not been facilitating economic improvement in the single currency bloc, issues related to spending cuts and tax hikes in the US, diplomatic tensions between Japan and China affecting trade environment, and ‘not so good’ manufacturing and industrial indicators coming from the US and China are feared to cloud whatever little optimism remains for &nbsp;the ongoing year.</p>
<p style="text-align: justify;">
	<strong>Global Economic Growth Forecast for 2013</strong></p>
<p>
	<strong><img align="left" alt="Economy and policy February 2013" height="230" src="http://www.newbusinessage.com/ckfinder/userfiles/Images/economy_policy_feb2013.jpg" style="margin: 0 10px 0 0; " width="250" /></strong></p>
<p style="text-align: justify;">
	Considering the gloom in the world economic regimes in 2012 and the grayish ongoing global economic performance, the US in 2013 is forecasted to grow by 1.9 per cent. With political tensions mounting between two core Asian economies, Japan and China, amid affected Japanese trade in automobiles and related industries, and with contraction in one of the largest export sectors, the Japanese economy is expected to witness a meager growth of only 0.7 per cent in 2013. Unlike the economies mentioned above, the Chinese economy with its improving manufacturing sector, satisfactory flow of Foreign Direct Investment and export data has been projected to grow by an attractive 8.4 per cent in 2013, though the figure is 20 basis points lower than the previous projection for the year. Further, increasing Chinese appetite for FDI outflow also exhibits the magnitude of its economy. Moving on to emerging economies, the growth rates for India, Brazil and Mexico have been projected to be 6.1, 3.4 and 3.3 percent, respectively. With economies like the Eurozone and the USA not really supporting these emerging economies, these expected growth rates could be deemed satisfactory.</p>
<p style="text-align: justify;">
	<strong>Nepali Economy in 2013 and Global Influence</strong></p>
<p style="text-align: justify;">
	Nepali exports have seen a decline in recent months, thanks to the economic slowdown in the Euro Area and a mild US economy. Nepali industries like, garment, herbs, handicraft, carpet, metal-wood and other related sectors are hit hard by the global meltdown. Combined with the international pessimism, ‘below-par’ agricultural and industrial performance is also contributing to drag the economy towards austerity. In line with the current and forecasted economic indicators, the WB has forecasted Nepal’s economic growth rate to be 3.8 per cent for fiscal year 2012-13, which is 80 basis points lower than the actual economic growth rate for fiscal year 2011-12.</p>
<p style="text-align: justify;">
	The key issues contributing to lowered growth forecast could be attributed to the ongoing constitutional crisis, poor investment environment (in terms of FDirectI) and infrastructural bottlenecks in the country. Besides the ongoing political instability and poor market sentiments, inadequate and inefficient public expenditure, too, has been hampering the economic outlook, which, in turn, may further contribute to downgrading the current forecasted growth rate. Remittance, working as a key source of financing, incorporates around 22 per cent of the national Gross Domestic Product (GDP). At this point of economic junction, as remittance has been facilitating to finance imports, covering trade deficits with counterparts, the year ahead could also see an optimistic inflow of funds, taking into account the numbers of Nepalis working abroad, especially in the Gulf countries.</p>
<p style="text-align: justify;">
	With the WB having already lowering Nepal’s growth forecast for fiscal year 2012-13 and remittance acting as an economic catalyst, it’s political leaders and government authorities who could possibly look into the matter and plug the loopholes in the operating environment, eventually facilitating, promoting and simplifying investment grounds for national and international market participants. Only time would tell what the government would do to address the situation and improve the country’s GDP growth rate, lower dependency on remittance and international debts for the year and henceforth.</p>
<p style="text-align: justify;">
	<strong>The author is Assistant Manager, Research &amp; Development Department, Mercantile Exchange Nepal Limited, Nepal.</strong></p>',
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			'description' => 'Concerned over the ongoing austerity measures, high unemployment rate and lower business confidence combined with weak market sentiments in core global economies like the USA and Eurozone, the World Bank (WB) has lowered its forecast for 2013.',
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<p class="MsoNormal">
	<span class="A14"><span style="font-family:&quot;Calibri&quot;,&quot;sans-serif&quot;;
mso-ascii-theme-font:minor-latin;mso-hansi-theme-font:minor-latin;mso-bidi-font-family:
&quot;Myriad Pro&quot;"><img alt="" border="1" height="181" hspace="10" src="http://newbusinessage.com/ckfinder/userfiles/Images/ecomony_featured.gif" vspace="10" width="338" /><br />
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<p>
	 </p>
<p class="MsoNormal">
	<span class="A29"><span style="font-size:15.0pt;line-height:
115%;font-family:&quot;Calibri&quot;,&quot;sans-serif&quot;;mso-ascii-theme-font:minor-latin;
mso-hansi-theme-font:minor-latin;mso-bidi-font-family:&quot;Myriad Pro&quot;">Cartels may be overt or covert as the producers and suppliers of goods and services can have a tacit understanding or open agreement to fix the market price, allocate market, increase prices and decrease the quality of the goods and services.</span></span></p>
<p class="MsoNormal">
	<span class="A29"><span style="font-size:15.0pt;line-height:
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<p class="Default">
	<span class="A4"><span style="font-size:
59.0pt">A </span></span><span style="font-size:10.0pt;mso-bidi-font-family:
&quot;Myriad Pro&quot;;color:#211D1E">cartel is generally understood as the arrangement among producers and suppliers of goods and services to control the production, sales and price so as to restrict competition and obtain monopoly or oligopoly in the market. On the other hand, a syndicate is a self organizing group of individuals, companies or entities formed to transact some specific business or promote their common interests. Cartels may be overt or covert as the producers and suppliers of goods and services can have a tacit understanding or open agreement to fix the market price, allocate market, increase prices and decrease the quality of the goods and services. Such practices are generally considered as the worst forms of anti-competitive behaviour and condemned by the laws of various countries.</span> <br />
	<br />
	<img align="left" alt="" border="1" height="349" hspace="10" src="http://newbusinessage.com/ckfinder/userfiles/Images/ecomony.gif" style="margin:10px;padding:10px;" vspace="10" width="221" /></p>
<p class="MsoNormal">
	<span style="font-size:10.0pt;mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">Competition is the cornerstone of open and liberalized economy as the anti-competitive behaviour of the enterprises, industries or traders take a toll on the economic performances of a country by promoting inefficient firms, producers and distributors and punishing the efficient ones. Consumers are compelled to pay higher prices and use low quality goods and services in a situation of anti-competitive markets. In view of this, countries have developed their own competition laws in order to prevent unhealthy business practices. The United States of America has enacted two such basic laws, called anti-trust laws. Named the Sherman Act and the Clayton Act, these are enforceable by the Department of Justice and Federal Trade Commission. Similarly, the European Union has provisions under the Treaty of Rome to maintain fair competition and Australia has its Trade Practices Act 1974. In India, the Monopolies and Restrictive Trade Practices Act was brought out in 1969 and later replaced by the Competition Act in 2002. The Indian Competition Act is quite comprehensive and has provision to constitute the Competition Commission and the Competition Appellate Tribunal among others. The objectives of the act have been defined as: to prevent practices having adverse effect on competition, promote and sustain competition in markets, protect the interest of consumers and ensure freedom of trade carried out by other participants in the market.</span> <br />
	 </p>
<p class="MsoNormal">
	<span style="font-size:10.0pt;
mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">The Competition Promotion and Market Protection Act (CPMPA) was passed by the Parliament of Nepal in 2006 and the Government of Nepal came up with the relevant regulations in 2009. The act basically defines the anti-competitive practices and dealings, and prohibits the anti-competitive agreements between two or more parties with the intention to limit or control competition. Such anti-competitive agreements may be in the form of fixing the sales or purchase price, limiting the quantity of production or sales, market allocation, creating barriers for market entry to the producers and suppliers of similar goods and services, determining the terms and conditions of sales, imposing quota and applying syndicate system in transport and distribution of services. Similarly, the act prohibits the abuse of dominant position by a producer or distributor or their conglomerates with the intent of controlling competition. Besides, merger and acquisition of enterprises with a takeover of more than 50 per cent share and acquisition of more than 40 per cent market share are the prohibited behaviours that have the effect of creating monopoly in the market. Bid rigging, exclusive dealing, market restrictions, tied selling and misleading advertisements are other anti-competitive practices and offences under the competition act.</span> </p>
<p class="MsoNormal">
	<span style="font-size:10.0pt;
mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">Cartels and syndicates are the anti-competitive agreements according to section 3 of the CPMP Act. Such an agreement may be in the written form or as a tacit understanding which is difficult to prove by the document but can be judged from the behaviour and resultant outcomes of such dealings. Let us look at some representative cases in the context of Nepal.</span> <br />
	<br />
	<img align="left" alt="" border="1" height="349" hspace="10" src="http://newbusinessage.com/ckfinder/userfiles/Images/opec.gif" style="margin:10px;padding:10px;" vspace="10" width="221" /><span style="font-size:10.0pt;mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">Transportation services are a prime example of the most-hit sector by cartels and syndicates. The transporters are usually smart enough to make a hefty profit through the application of syndicates. First, they bond together within the umbrella of their associations that culminates into the federation redoubling the institutional strength to protect and persuade the vested interest of transport operators around the country. Such strength can yield dominant positions in the market collectively and the abuse of such position is imminent. Price fixation, particularly regarding plying on minor roads, application of higher charges on services, queue and rotational system in operation, use of old and worn out vehicles and overload in cargo transportation are some elements associated with the syndicate behaviour of the transporters. The transporters deter the entry of new transport equipments through physical threat or assault in case somebody dared to enter their market or put heavy syndicate charges for such entry. This has put the consumers in worse conditions as they need to pay higher transportation charges, meet with frequent road accidents, and travel in crowded sitting positions in the buses. This sort of practice rewards inefficiency and discourages firms to provide services in an environment of open and healthy competition.</span> </p>
<p class="MsoNormal">
	<span style="font-size:10.0pt;mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">Transportation of petroleum products and their distribution is another sector affected by hardcore cartels and syndicates. Different associations that are in existence demonstrate the collective anti-competitive behaviour of their members. Such a behaviour usually include the pressure or demand for increasing profit margin, cheating in the measurement of volume and weight, raising barriers to the entry of new traders and dealers etc. It was noted that one of the demands of LPG Bottlers Association during their recent strike was against the government’s plan for granting license for a glass bottling plant. Moreover, these associations often exert pressure through the means of strikes, lock-outs and interruptions in services to make the government accept their demands. Any compromise with the demands based on such unlawful means of threat and violence by the associations and its members would reduce the efficiency of the economy and harm the interests of the common consumers.</span> </p>
<p class="MsoNormal">
	<span style="font-size:10.0pt;mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">The third cartel group belongs to the distributors and wholesalersof fruits, vegetables and meat products. These are organized groups and have their own associations while their upstream and downstream stakeholders in the supply chain do not have strong enough associations to offset their unruly behaviour. Hence, the farmers are fetching low prices on their products on the one hand and the consumers are forced to pay higher prices at the other to the hefty benefit of those middlemen. A market survey done at the Kalimati Vegetable Market shows that the price paid by the consumers for some vegetable products are 10 times higher than the price paid by the middlemen to the farmers for the same vegetables. This shows the intensity of unfair trade practices, much to the chagrin of law enforcing authorities.</span> </p>
<p class="MsoNormal">
	<span style="font-size:10.0pt;
mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">Cartel groups in Nepal are found in other sectors as well. For example, there are tacit understanding and clandestine agreements among the importers and distributors of food grains in order to fix price and control supply and raise the price particularly during the festive season of Dashain and Tihar. Sugar industries collude to pay less to the farmers against purchase of canes and fix high prices of sugar for sales to the end consumers with a bigger price arbitrage, while manufacturing industries like cement, noodles and water pipes sell their product at the identical price as a result of tacit understanding among the manufacturers.</span> </p>
<p class="MsoNormal">
	<span style="font-size:10.0pt;
mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">Cartel is globalizing as well along with the globalization of economies. The famous example of international cartel is the Organization of Petroleum Exporting Countries (OPEC) which has been increasing the world prices of petroleum products at various times by imposing the production quota and fixing of prices. Besides, cartels are noticed in the international production system for steel, fertilizers, rice and other commodities.</span> </p>
<p class="MsoNormal">
	<span style="font-size:10.0pt;
mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">Thus, in a situation of cartel, producers and suppliers control the production and supply to maintain an artificially high price. This kind of behaviour is supported by a situation where there is less number of suppliers but large number of customers in the markets, market demand is not too variable and individual firms output can be easily monitored by the cartel organizations. The organized behavior of such cartels is pronounced in the syndicated system. The ultimate effect of these anti-competitive practices is that the efficient firms lose to the inefficient firms or suppliers as there are no incentives for bringing down the cost and increasing the quality of goods and services. In such a situation of duopoly or oligopoly, all the firms within the cartel groups benefit by sharing the market without the need of improving efficiencies in production or supply.</span> </p>
<p class="Pa8" style="text-align:justify">
	<span style="font-size:10.0pt;
mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">Perfect competition is an ideal situation that is hard to achieve in any economy. However, it should be the ultimate goal and direction to move forward which can be stepped upon by gradually building on the legal, institutional and human resources base for defying the anti-competitive behaviour. Reining the cartel and syndicate requires comprehensive and concerted approaches from all stakeholders and the effectiveness of law enforcement agencies. The most important factor is the requisition of political will and commitment to establish a competitive and healthy market that could be the precursor to increased trade and foreign direct investment in the country. Many developing countries including Nepal are mired by the dilemma of politics protecting the cartels and syndicates as those who are engaged in anti-competitive practices dole out substantial money to the political parties and their leaders. </span></p>
<p class="MsoNormal">
	 </p>
<p class="MsoNormal">
	<strong>&nbsp;</strong></p>
<p class="Pa27" style="margin-top:5.0pt">
	<strong><span style="font-size:8.0pt;mso-bidi-font-family:
&quot;Myriad Pro&quot;;color:#211D1E">Ojha is a Former Secretary, Government of Nepal. The views expressed in the article are personal of the author. </span></strong></p>
<p class="Pa27" style="margin-top:5.0pt">
	 </p>
<p class="MsoNormal">
	<span style="font-size:15.0pt;line-height:115%;mso-bidi-font-family:
&quot;Myriad Pro&quot;;color:#211D1E">&nbsp;</span></p>
<p class="MsoNormal">
	 </p>',
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			'description' => 'Cartels may be overt or covert as the producers and suppliers of goods and services can have a tacit understanding or open agreement to fix the market price, allocate market, increase prices and decrease the quality of the goods and services.',
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			'id' => '517',
			'article_category_id' => '37',
			'title' => 'Prolonged Economic Crisis: By Achyut Wagle A Case For Democratic Capitalism',
			'sub_title' => '',
			'summary' => null,
			'content' => '<p style="text-align: justify;">
	<span style="font-size:12px;"><img align="right" alt="economy" border="1" height="209" hspace="5" src="http://newbusinessage.com/ckfinder/userfiles/Images/achyut wagle.jpg" style="width: 160px; height: 209px;margin:10px;padding:10px;" vspace="5" width="160" />When the USA was frantically trying to come out of perhaps the worst economic recession in modern times, the Eurozone reeled under even more serious cycle of economic meltdown. Angry verbal exchanges between British Prime Minister David Cameron and French President Nicholas Sarkozy in Brussels meeting on 23rd October and apparently crestfallen Sarkozy coming out of a meeting with German Chancellor Angela Merkel a couple of days earlier are surmiseable indications of the fact that the days of economic certainties in the world are still beyond horizon. The reportedly emerging consensus among the Eurozone leaders might find some solace for now. In fact, they have no alternative to evolving such consensus, but the days of worries of world economy wouldn't be over just by such isolated moves of bail-outs or write-offs unless the very cause(s) of these problems are addressed at the root. The most repeated statement of the present day economists and economic analysts is: Even if the USA and the Eurozone&nbsp; specifically Greece, Italy, Portugal, Ireland or Iceland -- came out from the current mess by some means, the world will not be the same again. Then, how would the new world look like? Nobody has a definitive answer. But, there is no alternative to finding out not only a convincing answer to this question but a workable framework to save the world from such too frequent and highly pervasive economic crises. Both, such frameworks and answers, can be devised by reviewing the past and taking unconventional strategies that suit to the present-day realities. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;"><strong>1. Oversight Failures :</strong> When the subprime crisis was at its height in the US in 2008, Eurozone leaders were proudly boasting the robustness of their conservative supervisory regime of the financial system and were not subscribing the idea that their financial systems were not immune to similar- inbred if not contagious- crises. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">The series of these crises have now exposed the fact the exiting supervisory and regulatory framework worldover has become virtually dysfunctional and a new one encompassing the contemporary, and if possible future, trends is not yet in place. Even worst, no meaningful homework has begun to that end, so far. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">The movement of funds aided by mainly three distinct features-- the exponential growth in information technology, wider transport connectivity and high movement of people and new tools of trade in the money market like derivatives future-- have far outpaced the efficiency, jurisdiction and reform of both global and national financial systems oversight regimes. International flow of funds through legal channels, i.e. more or less detectable by any form of the regulatory radar, is less than 4 to 5 percent of the total estimated global transfers. On the legal side of the transfers, estimated value of world merchandise exports in 2010 was US $13.36 trillion and world commercial services exports in the same period was $3.64 trillion (Source WTO secretariat website and calculated on projected 10% rise in 2010 from 2009 actuals of world merchandise exports equivalent to $12.15 trillion and world commercial services exports $3.31 trillion). <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">Similarly, according to an estimate by the World Bank, officially-recorded remittance flows in 2010 was about US$440 billion worldwide. And, crossborder investments in capital markets and real estate combined was to the tune of $330 billion. With all these transfers put together, even in exaggerated terms, the recorded total transfers of funds across the globe would hardly cross the $ 20 trillion mark. On the contrary, according to the Bank for International Settlements (BIS), amount of derivatives transactions stood at $601 trillion in December 2010, up from $583 trillion six months earlier. It was at the record level of $684 trillion in June 2008. Interest rate contracts form more than 75 percent of the derivatives futures transactions. (As reported in The Economist, May 31, 2011) The figures presented by the Daily Finance, a subsidiary portal of AOL, is even more appalling. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">It says, One of the biggest risks to the world's financial health is the $1.2 quadrillion (one quadrillion is 1,000 billion) derivatives market. It's complex, it's unregulated, and it ought to be of concern to world leaders that its notional value is 20 times the size of the world economy Apart from these monetary-side regulatory gaps, fiscal regulation is also facing new challenges as the national boundaries are gradually becoming irrelevant partly by the sweep of globalization and partly made so by design, particularly in case of Eurozone, with the introduction of common currency, the Euro. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">With the introduction of the common currency, the national-level supervisory/regulatory authorities have become redundant and the national accounts failed to present the true picture of the economy as many crossborder transactions take place unrecorded. The window of currency conversion that used serve also as the basis of record of cash flows across the border is automatically out of practice. The forceful homogenization of the currencies of weaker and stronger economies has prompted unhindered and unregulated capital flights from weaker to stronger economies, breeding even graver crisis situations in weaker nations. Greece is the latest striking example. <img align="right" alt="ecomony" border="1" height="346" hspace="5" src="http://newbusinessage.com/ckfinder/userfiles/Images/fig.jpg" style="margin:10px;padding:10px;" vspace="5" width="504" /><br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">Such capital flight is but natural phenomena, because weaker economy also meant less rate of return on investment, lesser degree of security and higher degree of unpredictability. And, common currency has facilitated it in a great deal. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;"><strong>2. The Political-Economy Issue:</strong> With the crisis aggravated more on every passing day, and resolution of it nowhere in sight, a number of ecopolitical issues have also come to fore. The worldwide fever of Capture Wall Street has created a new debate on possible collapse of capitalism. The advocates of egalitarian welfare state seem happy that the old good days of state-sponsored social safety model of economy would return soon. In the virtual mayhem, the virtues of both democracy and capitalism are pushed behind the dark shadow, a true concern for the future of the world economy and polity. In name of addressing the crisis, the electorates are kept completely aloof in taking the economic decisions that affect their lives the most. Their elected representatives are equally helpless as the common man on street, like in the case of Greece again, or their representatives like in the US take the decisions on the issues never mentioned in their election manifestoes, thus acting on democratically unmandated domain. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">These factors in due course are likely to raise more excruciating questions on the very rationale of election and their leaders authority to rule. This would certainly take way some beauties from the democracy. Another important question here is: has capitalism really failed? Or, are mere consumerism and irrational greed at the peril? The differentiation is not easy. But the fact is, it is not the capitalism that has failed but all the problems, perhaps without exception, are borne out of sheer anti-capitalistic and antidemocratic moves of the economies and their leaders at the helm. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">One of the greatest beauties of capitalism is the Economic Darwinism. The state must let the companies of whatever size that are already or become unable to compete in the market, fail. But, the problems multiplied to take the world at present situation when powerful economies set wrong precedent by bailing out ailing banks and companies at the expense of the tax-payers money. And, in the process, the decision makers did it without taking such important issues to the public through polls or referendum, which compromised the very tenets of the democracy. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">The ongoing global economic crisis, however, should be able to ignite a new debate on necessity of democratic capitalism as new future eco-political model. This new philosophy must not only be able to force the governments to act according to the principles of democracy and/or capitalism in isolation, but should establish it as a united theory where these two are treated as inseparable elements in future ecopolitical governance. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;"><strong>3. The Future:</strong> The hypothesis of democratic capitalism is certainly useful to resolve the present crisis. Even more, this paradigm-shift would prove more appropriate as the shifting of economic might from West to East, from democratic to authoritarian country. Observing at the difficulty in resolving current crisis even in the highly transparent economies like the US and Europe, one can easily think of gravity of situation when similar problem arise in secretive but the second largest economic powerhouse like China. The simultaneous emphasis on democracy as that only ensures transparency and, respect to the ideals of capitalism that promotes free competition in any odd situation, can only in unison make the future world safer to live and do the business in business-like fashion.</span></p>',
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			'modified' => '2012-09-20',
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			'description' => 'The reportedly
emerging
consensus
among the
Eurozone leaders
might find some
solace for now.',
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	(int) 10 => array(
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			'article_category_id' => '37',
			'title' => 'Trading Gold For Silver: Our HR Position? (September 2011)',
			'sub_title' => '',
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			'content' => '<div style="border-width: medium medium 1pt; border-style: none none solid; border-color: -moz-use-text-color -moz-use-text-color rgb(134, 55, 59); padding: 0in 0in 3pt;">
	<div>
		<strong><span style="font-size: 14px;"><img align="left" alt="trading" border="1" height="197" hspace="10" src="http://newbusinessage.com/ckfinder/userfiles/Images/rajan pradhan.jpg" style="width: 153px; height: 197px;margin:10px;padding:10px;" vspace="10" width="153" />By Rajan Pradhan</span></strong></div>
</div>
<div style="margin-bottom: 0.0001pt; text-align: justify; vertical-align: middle;">
	<span style="font-size: 14px;">Long serpentine queues in Kathmandu are no more a subject of curiosity to us. The endless lines of cars at gasoline stations, people crowding around water tankers, devotees pushing into shrines and investors interested in IPO lined up in front of commercial institutions are most common scenes one can see every day. However, the one I saw a few months back looked quite unusual. The mass gathered there were only the youngsters probably from late teens to people in their thirties. Their facial expressions carried pronounced signs of pain, desperation and anxiety. I could easily see the “Do or Die” atmosphere there. Letter in the day, I came to know the swarm there was of the aspirant applicants eager to work in Korea. It went on for days perhaps reminding us of human exodus we see quite often on news from around the world.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">With the tank in my car almost dry due to ongoing rationing of petroleum products, I found no other means of relaxing on a Saturday than lazing at home which gave me a chance to chitchat with my brother-like figures who has been close to us for decades. I found him so excited that day; he believed he had a plan well in place for his future. He finally got hold of a recruiter who had promised him a job in a company in Dubai - a job which gives him a remuneration of over Rs 12,000 a month with free accommodation! </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><img align="left" alt="trading" border="1" height="232" hspace="10" src="http://newbusinessage.com/ckfinder/userfiles/Images/eco.jpg" style="margin:10px;padding:10px;" vspace="10" width="400" />I congratulated and wished him all the success but could not help crunching some numbers - quietly within myself. He would be bearing a total cost of about Rs 100,000 for air tickets and charges due to the manpower company. He would probably need additional two thousand rupees every month to cover cost for food and other supplies on top of what he would get from the company. A two year of work would perhaps fetch him an income of about Rs 290,000- the saving being about five to six thousand rupees a month which is about eighty dolors a month. I tried not believing it but could not ignore the fact that he would send such eighty- dolor back home not only to buy a plot of land in Kathmandu for himself but also to buy our petrol from abroad to fill up our cars. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Back home, it is more of a challenge not only to get hold of good professionals but also to get dedicated non-skilled labour in abundance. It was like a real manhunt, while searching for an engineer for one of my recent hotel expansion projects. The contractor for the same project has already got his site engineer changed the fourth time in just over nine months. The void in our labor market has already become obvious. We will perhaps spend many of our 80-dollar remitted to us to buy our skilled manpower and services back from abroad. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">The disappearing political borders are now given to us in an international market under a trend of globalisation. The fact that around 30 per cent of our 5.6 million households depends on earnings from overseas jobs while its contribution to our gross domestic production (GDP) is 23.4 per cent cannot be undermined. However, getting paid in silver for lending out our brains and hands and then buying them back paying in gold is certainly not a wise way of handling our human resources.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">A labor in Kathmandu earns about Rs 400 a day today whereas a skilled labor makes over Rs 700 a day - which is almost Rs 12,000 a month even if he gets work for 15 days a month. The majority of people who aspire hard to get a job abroad are not skilled but if trained even for a short span of time, they can be skilled enough to earn at home as much as they would earn abroad. Even if one decides to go abroad, their average income would certainly improve from the present average of Rs 14,000 a month. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Awareness among for vocational and short-term training progrmmes and more importantly commitment from our planners and rulers are what we need today to add value and competitiveness to our work force.&nbsp;Venturing for such a noble cause will give us tangible and immediate returns for sure - inflow of remittance will grow, unemployment will reduce and balance of payment will improve. Perhaps we will then be trading our silver for gold not our gold for silver!! <br />
	<br />
	</span></div>
<div>
	<span style="font-size: 14px;"><i><span style="line-height: 115%;">(Pradhan is Director Business Development &amp; Projects at Soaltee Hotel Limited.)<br />
	<br />
	</span></i></span></div>',
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			'description' => 'Long serpentine queues in Kathmandu are no more a subject of curiosity to us. The endless lines of cars at gasoline stations, people crowding............',
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	(int) 11 => array(
		'Article' => array(
			'id' => '433',
			'article_category_id' => '37',
			'title' => 'Monetary Policy And Question Of Financial Stability (august 2011)',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="margin-bottom: 0.0001pt; line-height: 120%; vertical-align: middle;">
	<strong><span style="font-size: 14px;"><i><span style="line-height: 120%;">By Nara Bahadur Thapa</span></i></span></strong></div>
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	<span style="font-size: 14px;">Recent global financial crisis has once again ignited the debate on the role of monetary policy in ensuring financial stability. Taking a cue from international trend, emerging financial distress in Nepal has added pressure on using monetary policy instruments for securing financial stability. The question asked is: should financial stability be in the domain of monetary policy or should it be pursued as an objective of regulatory policy? Although the debate remains still inconclusive, views on either side of the debate have sharpened.</span></div>
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	<span style="font-size: 14px;">Undoubtedly, safeguarding financial stability has become an increasingly dominant objective in economic policy. Hence, it is argued that monetary policy should also take care of it. In light of this, besides maintaining price stability and supporting economic growth, Monetary Policy often has the task of preserving financial stability. Monetary variables such as the quantum of money, bank credit, liquidity and the level of interest rates are used to attain monetary policy objectives.</span></div>
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	<span style="font-size: 14px;">These monetary variables - the quantum of money, bank credit, liquidity and the level of interest rates - affect financial stability in one way or the other. This is the basis of the argument that monetary policy should be used to safeguard financial stability. In this context, it should be noted that the NRB Act 2002 does not state financial stability as an objective of monetary policy. Monetary policy objectives, as enshrined in the NRB Act 2002, are maintaining low and stable rate of inflation and the external sector stability. These two objectives are supposed to ensure the sustainable development of the economy. Nevertheless, the Act does indicate that the role of the central bank in promoting banking and financial stability as well as developing a secure, healthy and efficient domestic payment system. </span></div>
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	<span style="font-size: 14px;">We should seek the answer to the question as to why the law of the central bank has not assigned the financial stability as an objective of monetary policy. This implies that the NRB Act has visualized instruments that can be used to ensure monetary and financial stability differently.&nbsp;&nbsp; </span></div>
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	<strong><span style="font-size: 14px;">Financial architecture </span></strong></div>
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	<span style="font-size: 14px;">The way monetary policy is conducted and financial stability is pursued should be discussed in the context of the financial architecture that exists at the global as well as the domestic level. The current international financial architecture is rooted in the McKinnon-Shah hypothesis (1973) that argues for the removal of financial repression and the introduction of financial deregulation. The major elements of financial deregulation are: (i) the elimination of credit controls, (ii) the deregulation of interest rates, (iii) free entry into the banking sector/financial services industry, (iv) central bank autonomy, (v) private ownership of banks and (vi) liberalization of international capital flows.</span></div>
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">International organizations such as International Monetary Fund (IMF) and the World Bank supported the McKinnon-Shaw hypothesis and in the process encouraged member nations to adopt liberal financial policies. Many developing countries including Nepal deregulated their financial sector. Even in the USA, the comprehensive regulations introduced in 1933 in the wake of the Great Depression in the form of the Glass-Steagall Act which had ensured financial stability were removed in 1999, ushering in a complete deregulation of the financial sector. The Glass-Steagal Act kept different types of financial institutions separate and dictated the activities they could and could not engage in. It was argued that Glass-Steagall Act prevented banks from diversifying risk. Following this, an agreement was reached at the global level for the international financial architecture. </span></div>
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	<span style="font-size: 14px;"><b>&nbsp;</b></span></div>
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	<span style="font-size: 14px;"><b><span style="color: black;">The major elements of which are: </span></b></span></div>
<div style="margin: 0in 0in 0.0001pt 9pt; text-align: justify; text-indent: -9pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><span style="color: black;">i.&nbsp;Simple rules for monetary and fiscal policy would&nbsp;guarantee macro stability,</span></span></div>
<div style="margin: 0in 0in 0.0001pt 9pt; text-align: justify; text-indent: -9pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><span style="color: black;">ii. Deregulation and privatization would unleash growth and prosperity,</span></span></div>
<div style="margin: 0in 0in 0.0001pt 9pt; text-align: justify; text-indent: -9pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><span style="color: black;">iii.Financial markets would channel resources to the most productive areas and polish themselves effectively, and</span></span></div>
<div style="margin: 0in 0in 0.0001pt 9pt; text-align: justify; text-indent: -9pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><span style="color: black;">iv. The rising tide of globalization would lift all economies.</span></span></div>
<div style="margin: 0in 0in 0.0001pt 9pt; text-align: justify; text-indent: -9pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">The agreement on these elements spearheaded by the IMF and the World Bank is known as the Washington Consensus. The spirit is that the adoption of standards and codes on macro-financial policies, transparency, good corporate governance and internationally designed accounting and auditing rules would ensure financial stability. Given these standards, it was thought that market would ensure financial stability. With no restriction on the portfolio, free entry and exit of financial institutions could ensure the dynamic financial stability. There was no need for government intervention, including financial bailout. In keeping with this framework, Lehman Brothers was allowed to fail in September 2008.</span></div>
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">With the economic liberalization initiated in the mid-1980s, the Nepali financial system has experienced significant developments. The NRB Act 2002 aims at consolidating the foundation for the new domestic financial architecture. The new NRB Act provides an autonomous central bank answerable to parliament. The Act curtails the unlimited lender of last resort (LOLR) facility for both the government of Nepal and the banking sector as the facility has a danger of creating a perpetual financial instability.</span></div>
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	<strong><span style="font-size: 14px;">Prudential regulation and supervision for financial stability</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Now the question that arises is: What instruments does the NRB Act 2002 envisage to ensure financial stability? The current international financial architecture underscores the importance of prudential regulation and supervision for achieving financial stability. The NRB Act 2002, BAFIA 2004, Debt Recovery Act (DRA) 2002 and Credit Information Bureau (CIB) underpin the new domestic financial architecture. The NRB Act 2002 grants the autonomy to the central bank aimed at strengthening the banking supervision. The BAFIA lays down the framework for banks to operate. The DRA establishes creditors rights. The CIB offers a venue for information sharing among banks with a view to help reduce non-performing loans (NPL). This is key to ensure financial stability over the period. </span></div>
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	<strong><span style="font-size: 14px;">The case for the use of monetary policy for financial stability</span></strong></div>
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	<span style="font-size: 14px;">The recent global crisis showed that prudential regulation and supervision alone did not guarantee financial stability. Hence, a case is made for using monetary policy in support of financial stability. In the wake of the recent global crisis, the IMF urged member nations to use monetary policy as the first line of defense. </span></div>
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Given the importance of financial sector stability for the overall functioning of macro economy in general and the transmission mechanism of monetary policy in particular, the NRB is cognizant of the role of monetary policy in attaining financial stability in recent years. Accordingly, monetary policy instruments have been used in support of financial stability. For instance, the bank rate, which was as high as 9 percent some years ago, was gradually reduced to 5.5 percent. Currently, it is 7 percent. Recently, the penal rate of 3 percent has been added to it for the LOLR facility to banks. </span></div>
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Besides the bank rate, concessional refinancing rates have been lowered to 1.5 percent for exporters, sick industries, small and medium scale industries and targeted people for foreign employment.&nbsp;The NRB has been making a provision for refinancing banks for their sick industry loans over the last several years. The objective is to help financial institutions and thereby achieve financial stability.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">The cut in CRR has been consistently and systematically aimed at reducing the financial intermediation cost. The argument in this case is that monetary policy in no way should be a factor responsible for a higher financial intermediation cost measured in terms of interest rate spread. For this reason, CRR has been systematically reduced from 12 percent a few years ago to the current level of 5.5 percent. </span></div>
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">A system of flexible open market operations aimed at modulating liquidity has been put in place since 2004/05. Open market monetary instruments such as sale, purchase, repo and reverse repo auctions are being used either to inject or drain liquidity from the system.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">A system of standing liquidity facility (SLF) has been introduced for counterparties. The purpose of the SLF is to provide a safety valve for domestic payments system. Under this facility, counterparties can make an automatic and hassle - free access to funds from the central bank.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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	<strong><span style="font-size: 14px;">The case against overly use of monetary policy for financial stability</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">There are counter arguments for overly use of monetary policy for financial stability. First, it is argued that the mixed role of the central bank, namely securing banking stability and maintaining monetary stability, at times, creates policy tensions. For example, the use of accommodative monetary stance aimed at supporting financial stability could be counterproductive to price and external stability in the face of pressures on inflation front and a deficit in country's BOP position. As such, the central bank faces policy tensions of using soft interest rate policy for securing financial stability or hard interest rate policy for keeping inflation low and maintaining external stability.</span></div>
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Second, as per Tinbergin's rule (one instrument - one target), monetary policy, which is one instrument, can not be used for two policy goals - monetary stability and financial stability.</span></div>
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">&nbsp;Third, rescuing financial institutions by way of soft interest rate policy or the protracted use of quantitative easing through the LOLR facility will only prolong financial imbalances, posing risks to financial stability over the medium term. This will only postpone financial distress leading to a bursting of financial crisis in some points of time in the future. In this context, Greenspan's prolonged low interest rate policy is cited as one of the causes of the financial crisis in the US in 2008.</span></div>
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	<span style="font-size: 14px;">Fourth, it is argued that the expectation of monetary authorities stepping in to defuse a crisis undermines market discipline and creates moral hazard problem in that it weakens the incentive for market participants to act prudently.</span></div>
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	<span style="font-size: 14px;">Fifth, as Greenspan argued, the cleaning up the mess after the bubble bursts would be technically easier and less interfering with the market and more cost effective. </span></div>
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	<span style="font-size: 14px;">Back home in Nepal, it is argued that excessive monetary injection by way of repo and SLF lending helped perpetuate low interest rate regime in the past. This encouraged banks to indulge in financial excesses, leading to the recent financial distress in Nepal, including a deficit in country's BOP. It must be noted that the deficit in BOP during the last two years is not on account of the government budgetary imbalances, it is due to the private sector excesses and imbalances.&nbsp;</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Of the various facts of financial stability, the question of monetary policy taking care of real estate and share prices has remained controversial. The question often asked is as to what should be the role of monetary policy in keeping these prices stable. This question is asked because stock market developments generate wealth effects, which have monetary policy implications. Likewise, stock market developments have implication for NPA level and, at times, threaten banking sector stability. Foreign portfolio investment in stocks has implication for external stability, for a greater volatility in share prices causes a sudden capital outflow, leading to BOP and exchange rate crises. Since foreign portfolio investment in the Nepalese stock market does not exist, this kind of tension does not arise in Nepal as for now. The consensus so far reached is that monetary authorities should be watchful of these prices. However, it is argued that monetary policy should not be overly used in containing these prices.</span></div>
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	<strong><span style="font-size: 14px;">Macro prudential regulation</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Micro prudential regulation does not make a distinction between growth enhancing credit and speculative ones. The consensus is also not to use monetary policy overly for financial stability. Hence, the focus has now shifted on macro prudential regulation.&nbsp;It is argued that macro prudential regulation is needed to deal with the issue of pro-cyclicality and build defenses against emerging structural vulnerability in the financial sector. Pro-cyclicality and structural vulnerability are manifested in terms of real estate bubbles, common exposure to asset price bubbles, excessive leverage and low level of liquidity. To deal with these problems, macro prudential measures such as capital ratios, capital buffers, dynamic (forward looking) provisioning, liquidity ratios and prudent collateral valuation are applied. According to Blanchard, in case, excessive leverage emerges, regulatory capital ratio should be raised. If liquidity is low, regulatory liquidity ratio should be increased. If housing prices are rising, loan-to-value (LTV) ratio should be lowered. If stock prices are rising, margin requirements (haircuts) should be raised. In the wake of emerging financial distress, the NRB has introduced a number of macro prudential measures. For example, sectoral loan limit for housing sector is capped at 25 percent and real estate at 10 percent. C-D ratio for banks and financial institutions is fixed at 80 percent. The LTV ratio for shares has been fixed at 60 percent. Similarly, the LTV ratio has been fixed at 60 percent for both real estate and housing.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Although macro prudential regulation could act as the first line of defense and be an important element of new financial architecture in the wake of the recent global financial crisis, there is a possibility of strong political pressure against the use of it. In the US, the delay in adopting the Volcker plan which aims at separating functions of different financial institutions is an example of it. Back home in Nepal, the strong pressure for the removal of LTV ratio for shares and strong lobby for the relaxation of capping real estate and housing loans are cases in point. This suggests that the existing domestic financial architecture will remain intact, implying that only micro prudential norms and market discipline will remain instruments for financial stability. There will be growing demand for the excessive use of monetary policy for securing financial stability. However, the latter will not help safeguard the long term financial stability. If it is used, it will be only at the peril of macroeconomic stability. </span></div>
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	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	<strong><span style="font-size: 14px;">Tentative conclusions</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">There is no doubt that financial stability is a public good which must be secured through preventive and remedial measures. Micro - macro prudential and deposit insurance measures can be applied to maintain financial stability. Keeping monetary conditions at an appropriate level is also key to securing financial stability. For example, easy liquidity conditions would encourage banks to take excessive risks by overindulging in lending. This happened in Nepal in the recent past. Likewise, overly tight liquidity conditions would lead to financial distress. Both of these monetary conditions should be avoided.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Therefore, going forward, the NRB will, in due course of time, appropriately streamline monetary operations. For example, there are ample instruments for the injection of liquidity. However, there are few to drain it. Sale and reverse repo auctions fall short of draining liquidity due to various reasons. Hence, the NRB will seek rationale in introducing standing deposit facility for banks as and when situation warrants.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">The creation of standing deposit facility entails bearing financial costs by the central bank. Therefore, it requires strengthening the financial position of the central bank. It is especially important in relation to the growing size of counterparties and liquidity that would be needed to drain. One way of improving financial position of the central bank for the operation of deposit facility is increasing its paid up capital from the current three billion rupees to five billion rupees. This will help the NRB to absorb possible losses arising from monetary operations.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">The exchange rate and the interest rate are the fundamental macro variables. As the current exchange rate regime as being used as the nominal anchor for macroeconomic management, there is no question of disturbing it at this stage. Therefore, given the depth and breadth of the domestic financial sector development so far, the interest rate is slowly emerging as key policy variable for macro-financial management. In this context, a need has been felt for using short term interest rate instead of the quantity of liquidity as an operating target. The NRB will pursue this in due course of time.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">The role of monetary policy becomes crucial when preventive measures fail to ensure financial stability. Therefore, the role of monetary policy should come at the remedial stage. This is the market failure stage. When this stage comes, as the past intervention indicates, the NRB is extremely cautious to distinguish between those having solvency problem and those with liquidity problem. The LOLR facility should be provided to those solvent but with liquidity problem. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Given the current financial architecture, the NRB's intervention will take place only when market fails to ensure financial stability. Therefore, the NRB intervention, for that matter, will come with strings such as merger, management change, improvement in corporate governance etc. If financial institutions with solvency problem are systemic, the government should intervene by way of either injecting capital or guaranteeing deposits. Otherwise as per the spirit of the current domestic financial architecture, such financial institutions should be liquidated.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">In case, the financial distress continues and additional LOLR facility is called for, Nepal will have to negotiate for the IMF program. This will be inevitable to deal with the possible adverse impact of LOLR facility on international reserves and BOP.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	<strong><span style="font-size: 14px;">Summing up</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">The kind of domestic financial architecture we have chosen is key to consider the role of monetary policy for financial stability. If we were to adopt liberal licensing policy and allow banks to have portfolio of their choice, micro prudential, self regulation and market discipline should be key for financial stability. The focus of monetary policy should be on inflation, BOP and foreign exchange. These are crucial areas for attaining macroeconomic stability including financial stability. The role of monetary policy should be marginal and come at the remedial stage. Those financial institutions which cannot survive on their own under the liberal framework of financial architecture should be allowed to disappear. If we were to seek a larger role of monetary policy in ensuring financial stability we will have to be willing to change the current financial architecture including readiness to adopt macro prudential regulation. Given the existing framework of the financial architecture, any lobbying for political interference for the change in monetary policy is construed as an attack on professionalism and autonomy of the central bank. This does not bode well for market discipline, a crucial element for financial stability either.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div>
	<span style="font-size: 14px;"><i><span style="line-height: 115%;">(Thapa is the Chief Manager at Biratnagar Office of Nepal Rastra Bank (NRB). He was earlier the Director of Research Department at NRB's central office in Baluwatar, Kathmandu. He also spent two years between 2008 and 2010 as Advisor to the Executive Director at International Monitory Fund (IMF), Washington DC, prior to returning to Nepal.)<br />
	<br />
	<br />
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			'description' => 'Recent global financial crisis has once again ignited the debate on the role of monetary policy in ensuring financial stability. Taking a cue from international trend, emerging financial distress.......',
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			'id' => '432',
			'article_category_id' => '37',
			'title' => 'Monetary Policy2011/12:Hard To Realise The Promises (august 2011)',
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	<span style="font-size:12px;"><strong><i><span style="line-height: 120%;">By Hom Nath Gaire<br />
	<br />
	<br />
	</span></i></strong></span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; vertical-align: middle;">
	<span style="font-size:12px;">The Monetary Policy for the fiscal year 2011/12 has made an attempt to be balanced with the expansionary fiscal policy of the government of Nepal despite fears of inflationary pressure, apart from reducing the Cash Reserve Ratio (CRR) by 50 basis points to five per cent. At the same time, NRB, the country's monetary authority, has accepted the ground reality that the monetary management of the economy is getting tough due to high inflation and unfavourable external sector accompanied by the deepening liquidity crisis in the financial system of the country.&nbsp;</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">To ease the liquidity situation in the economy, the policy has reduced CRR by 0.5 percentage point to five per cent. The policy document said, The revised CRR is estimated to instantly release around Rs 4 billion in the financial system.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">This fiscal year too, the policy has targeted seven per cent inflation. To support the fiscal policy aim of&nbsp;five per cent growth rate, the central bank is planning to increase the broad money supply by 12.5 per cent but the policy is ignoring its implications on general price level. However, NRB has attributed rising consumer price to supply constraints, defending its failure to contain the inflation to seven percent according to the target of its last year's monetary policy.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">According to the central bank data, the broad money supply including the balance sheet of commercial banks, development banks and finance companies enlarged by 7.3 per cent but the consumer price increased by an average of around 10 per cent in the last fiscal year's first 10 months. The 7 per cent target of consumer inflation for the current fiscal year is a big challenge due to the adverse impact of expansionary fiscal policy on which the government is planning to finance the capital as well as the recurrent expenditure through deficit financing. The overall macroeconomic policies have to be revisited as the Monetary Policy could not achieve inflation and Balance of Payment (BoP) target, the policy accepted, Apart from that managing liquidity and maintaining financial stability is an immense challenge for effective execution of the policy.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">According to the policy, BoP that was Rs 11.67 billion deficit in the first 10 months of the fiscal year, has however, recorded an unexpected surplus of around Rs 1 billion by the end of 2010-11, attributing surprise surplus to foreign grants and aids released in the eleventh month.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">For the current fiscal year, the Monetary Policy has targeted Rs 5 billion BoP surplus. In such unpredictable and volatile cash flow situation, the BOP target for the current fiscal year may also be hard to realise. Because, as the Monetary Policy has brought no change in the bank rate, refinancing rate and Statutory Liquidity Ratio (SLR), the debt servicing of the private sector may remain higher and the production of exportable goods will be affected adversely, which in turn will result in wider trade deficit and unfavorable BoP. However, the central bank has stated that refinancing will be revised according to liquidity need. This alone may not be sufficient to meet the demand for credit in the productive sector and boost the exports. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">The foreign exchange policy for individuals has become more as a Nepali willing to visit abroad can get foreign exchange up to $2,500 for once or a maximum of $5000 in a fiscal year, revising the facility from last fiscal year's $2,000 and $4,000 respectively. Similarly, NRNs can open foreign currency bank accounts and special arrangements will be made for Nepalis to open NOSTRO accounts in foreign countries. Likewise, the policy allowed the banks to exchange foreign currency up to $1,000 provided the beneficiary supplies credible source of foreign exchange with identity. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">The policy has increased provision of deprived sector lending to 3.5 per cent and asked banks and financial institutions (BFIs) to raise this ratio by 0.5 percentage point for two years. This provision will be helpful in directing lending towards productive sector as well as deprived sector and supportive to achieve the economic growth of 5 percent, revealed the policy. The targeted economic growth is also hard to achieve in the situation of deteriorating investment climate and low investor confidence due to government's tilt towards a socialist economic system. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">According to the monetary policy, the deposit mobilisation of BFIs will be increased at the rate of 13 percent by the end of the current fiscal year and will add around Rs 100 billion to the country's banking system. To achieve this target, the policy tries to address the crisis of trust in the banking system by extending deposit insurance up to Rs 200,000 to commercial banks as well so that small depositors feel safe. Earlier, the deposit insurance was mandatory only for the B and C class BFIs. By the end of last fiscal year, the deposits of BFIs increased 8.2 per cent to Rs 788.72 billion and the foreign exchange reserve increased by a mere Rs 2 billion to Rs 270 billion from a fiscal year ago's Rs 268 billion.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="text-align: justify;">
	<span style="font-size:12px;"><span style="line-height: 115%;">Apart from encouraging BFIs to open branches in select nine districts, where there is less access to formal source of finance, the policy directed BFIs to include a collateral-free loan of up to Rs 200,000 for the study of technical education under deprived sector lending.<br />
	<br />
	<br />
	</span></span></div>',
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			'title' => 'Poverty, Inequality And Growth-some Lessons',
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	<span style="font-size:12px;"><i><span style="line-height: 120%;"><img align="left" alt="economy" border="1" height="129" hspace="5" src="http://newbusinessage.com/ckfinder/userfiles/Images/kamal raj.jpg" style="margin:10px;padding:10px;" vspace="5" width="100" />By Dr Kamal Raj Dhungel<br />
	<br />
	</span></i></span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">The liberalisation policy in china is in effect since the end of 1970s. India has followed the same path since the beginning of 1990s. This resulted in tremendous progress, sustained growth and increased wealth in both China and India. Both the countries were characterised by mass poverty before the period of economic reform.&nbsp;Today, China has reduced the number of people under poverty to mere 2.8 per cent down from 64 per cent in 1981. Similar is the case of India. According to the government estimate, approximately 28 per cent of population is living below the poverty line down from 51 per cent in 1977/78. It reveals that people have tasted the fruits of economic progress resulting from economic reforms.&nbsp;</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">Let's now look at the context of poverty reduction in China and India. The liberalisation of their economies have instigated tremendous progress, sustained growth and increased wealth with rapid industrialisation. They are achieving high economic growth rate above 9 per cent per annum. It has produced multiplier effect in their economies. They are investing their resources in the construction of infrastructure and establishment and promotion of basic industries. The private sector investment has been mushrooming. This has created sufficient employment opportunities within the country to the increased size of labour force. This provides opportunities to the poor people to improve their living condition and hence both countries have met the goal of poverty reduction in the same momentum though the degree and extent of it is different. Income, health and education of the people are gradually improving which results in the improvement of the human development index. Nepal's estimated incidence of poverty is at 30.9 per cent today down from 45 per cent in the mid 1990s. In terms of poverty reduction, al the three countries under consideration have the same trend over the same period of time. China and India have adequate reason to explain how poverty there has come down as they are achieving rapid economic growth rate.&nbsp;But in Nepal poverty has surprisingly come down when its economic growth rate is deteriorating. This makes the people doubt at the authenticity of the poverty reduction data. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">Nepal also has the same story of economic liberalisaiton but with different outcomes. Policy of liberalisation has been initiated since the middle of 1980s albeit it has been gaining momentum only after 1990. As an effect of this policy, a large number of public enterprises were dismantled in the name of privatisation. They had produced basic goods like shoes, sugar, agricultural tools, clothes and paper etc. In the past, these industries made a significant contribution in the economy in terms of consumption, income and employment. But today they have vanished. It means those industries whose management had been transferred to the private sector are not in operation currently.&nbsp;The demand of the goods produced by these industries is being fulfilled by imports. The numbers of persons employed in these industries have become unemployed.&nbsp;Some of them have either migrated to foreign countries in search of employment. Others have remained unemployed. There is no doubt that liberalisation can play an important role in economic development. It can attract, promote and encourage private sector investment, both foreign and domestic in the development of overall economy, particularly in the manufacturing sector.&nbsp;But the manner in which Nepal has been exercising economic policy reform seems clearly unsustainable and making gloomy environment for private investment.&nbsp;Instead, it encourages opening up a large number of cosy dance restaurants in different urban centres of Nepal through private sector investment.&nbsp;Similar is the case of investment of private sector in education and health as private schools, colleges and nursing homes including private hospitals are mushrooming. They provide service only to a small fraction of population who are wealthier.&nbsp;It creates discrimination among the citizens in terms of social service. Clearly, the nation has been producing two categories of future manpower: a superior workforce which graduates from private schools and an inferior one that graduates from public schools. Majority of students who graduate from private schools are migrating to developed countries. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><img align="left" alt="Real GDP growth rate during 2006-10" border="1" height="197" hspace="5" src="http://newbusinessage.com/ckfinder/userfiles/Images/groth rate.jpg" style="width: 318px; height: 197px;margin:10px;padding:10px;" vspace="5" width="318" />The failure of economic policy particularly after 1990 is reflected in the overall progress of the Nepali economy. In the initial stages of liberalisation, the growth rate of Nepali economy was encouraging to some extent. But it became disappointing gradually. The trend of Nepal's economic growth rate is not only disappointing but also humiliating (see chart ). The fruit of this growth did not reach people who were the main pillars in restoring democracy in 1990 and beyond. It means the distribution of national income among its citizens has been skewed.&nbsp;Since the decade of 1990s, corruption has become rampant. Anti-corruption mechanisms have been made ineffective. The living standard of the richest 10 per cent has been increasing over the years while that of the rest is deteriorating.<br />
	<br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">&nbsp;The present economic growth rate, as seen in the chart, is declining over the years. It is barely enough to feed the population which is growing at the rate of 2.24 per cent per year. For the mass of people, hunger is routine, malnutrition rife, employment insecure, social security non-existent, health care expensive and livelihoods under threat. Youths are migrating to foreign countries and are supposed to send remittance by putting their lives at risk. As expected, remittance plays a vital role in providing livelihood to the people of Nepal. This is also giving an opportunity to the elite of Nepal to set up large number of banking businesses. But its contribution to economic growth seems insignificant. Today, Nepali people are experiencing banking business next door to their residence.&nbsp;It indicates that the growth of monetary sector (particularly of the institutions dealing with money) in recent years have been increasing while the growth rate of real sector is declining.&nbsp;It seems there is a weak association between the growth of monetary and real sectors. Practically speaking, for a healthy and balanced economic development, there should be a strong correlation between them. In addition, private sector investment has been growing in the construction of large apartments and residential buildings and opening up of departmental stores. This provides a major market for investment by the banks. This shows that the current trend of economic activities in which the investments are pouring is not sustainable.&nbsp;These activities would sustain for a longer period only when the country achieves high economic growth.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">The ways in which our national income has been distributed irrespective of its shape and size among the citizens stands to cause devastating consequences. It can create social tensions and make the rich even richer. The unjust distribution of the fruits of democracy during 1990s has left us a great liability whose effect of course had been spreading all over the country. The nation has already lost over 13,000 lives. Despite such a huge loss of lives, the inequality today is still rising. The income gap between the rich and poor is more intense.&nbsp;Gini index with value between 0 and 1 (0 for perfect equality and 1 for perfect inequality) is used to measure the inequality in the distribution of income and wealth. At present, Nepal's Gini index a gauge of income gap, is 0.47. This index of 0.4 percent is considered a warning line Exceeding this mark signifies that the biggest part of the wealth cake is enjoyed by a minority. If the Gini index points below 0.2, income distribution is highly balanced, between 0.2 and 0.3 is a relatively balanced distribution, 0.4 and 0.5 means that the distribution is being largely spread &nbsp;and if it reaches 0.5, then, distribution is highly unbalanced. Nepal’s Gini index is nearly 0.5 and it means the biggest part of the nation's income goes to only a few. It is because of the lack of equal access to opportunities. Opportunities inside the country are rare. Whatever opportunities are thesre inside the country, they are available only to those who are related with the powerful. Opening up the opportunities in most public sectors like police, military and civil service are not going to help as even such opportunities open other avenues for the powerful people for corruption. It indicates that the powerful and influential persons have hijacked opportunities, benefits, public spaces, shared resources, economic rights and political processes.<br />
	<br />
	<br />
	</span></div>
<div>
	<span style="font-size:12px;"><i><span style="line-height: 115%;">(Dr Dhungel is a Professor of Economics at Tribhuvan University, Kathmandu. He can be reached via email at </span></i><a href="mailto:kamal.raj.dhungel@gmail.com"><i><span style="line-height: 115%;">kamal.raj.dhungel@gmail.com</span></i></a><i><span style="line-height: 115%;">)</span><br />
	</i></span></div>
<div>
	<span style="font-size:12px;"><i>&nbsp;</i></span></div>',
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	<strong><span style="font-size:12px;"><span color:="" franklin="" gothic="" style="line-height: 115%;"><br />
	BRIGHT ECONOMIC FUTURE OF NEPAL</span></span></strong></p>
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	<strong><span style="font-size:12px;"><i><span color:="" letter-spacing:="" lucida="" style="line-height: 120%;">By Janardan Dev Pant<br />
	<br />
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	<span style="font-size:12px;"><b><span aldine401="" color:="" letter-spacing:="">N</span></b><span aldine401="" color:="" letter-spacing:="">epal's political parties and policymakers are making financial mistakes that have left the people in poverty, serious financial stress and feeling of helplessness. Nepal is experiencing immense challenges in transforming its social and business environment. Such transformation requires departure from outdated modes of providing dogmatic directions.&nbsp; Everybody is suggesting that the need of the hour is good governance, awareness about and understanding of global and national economic business environment, strategic thinking and choices, formulation and implementation of proper policies, effective communication, digitization, and management of available human talent.&nbsp; These all require an overall understanding of the fast paced changes of both the external and internal environment.</span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">We have achieved lots of good things.&nbsp; We have produced world class engineers, doctors, lawyers and bankers by liberalizing education, telecommunications and banking. Majority of them are working in the USA, Canada, UK and Australia due to the absence of right environment in Nepal. Due to this migration of talent, all the achievement made in the education sector has been useless in raising the living standards of 85 per cent Nepalis.&nbsp; Common people are undergoing extreme socio-economic hardships without hope of any immediate relief.&nbsp; This situation must not be allowed to continue.&nbsp; </span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">Nepal's market-oriented reform started in 1991 implied that those who lack the purchasing power will be marginalised.&nbsp; People without money are as good as non-existent in the sort of market economy prevailing today.&nbsp; It is the state's responsibility to take care of such citizens.&nbsp; Failure to take care of such Nepalis, who are about 85 per cent of the country's population, is the key failure of Nepal's economic liberalization.The main reason behind this failure is our inability to use our existing resources properly. That is what is forcing us to live in poverty, serious financial stress and feeling of helplessness.&nbsp; </span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">This article is about a proposal to get out of this mess and achieve growth through the use of hydropower. </span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
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	<strong><span style="font-size: 12px;"><span color:="" franklin="" gothic="" letter-spacing:="">Setting the Goal<br />
	<br />
	</span></span></strong></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">The first step in embarking on a journey is to set a goal. Let's set the goal as:&nbsp; Nepal's per capita income US$ 2,500 by 2017 and US$ 50,000 by 2040.&nbsp; This goal is specific, measurable, achievable, realistic and time bound.&nbsp; With this goal in mind, I would like to draw a number of policy prescriptions to achieve this goal. These policies can promote investment, create jobs and wealth, and consumer spending which will give us double digit growth and eradicates poverty so that Nepal will be transformed from least developed county to developed country by 2040.</span></span></p>
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	<strong><span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></strong></p>
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	<strong><span style="font-size: 12px;"><span color:="" franklin="" gothic="" letter-spacing:="">Bench Mark<br />
	<br />
	</span></span></strong></p>
<p class="MsoNormal" style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	 </p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">We must benchmark with our comparator countries to achieve best practices and gain efficiencies.&nbsp; Our core competencies are hydropower and tourism.&nbsp; The comparator countries in this respect are Bhutan and Laos. They too are landlocked, have mountainous terrain and plentiful water resources.&nbsp; But they have succeeded to produce and export large volume of hydroelectricity to their neighbors.&nbsp; We can learn many things from 1070 MW Nam Theun Hydropower Project of Laos and 1020 MW Tala Hydroelectric Project of Bhutan. We have to learn from them and achieve the above stated goal. But we have to revise and refine those models to suit our specific environment.&nbsp; For example, they are exporting power whereas we have market for power within the country itself. <br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">Supply creates its own demand, said the famous economist JB Say.&nbsp; He is perfectly right in his statement, at least in Nepal where the pent up demand for electricity is huge. If we start construction of various hydroelectricity projects immediately as per our model, our per capita income will reach around US $50,000 by 2040 with double digit economic growth every year.&nbsp; By that time our rate of per person electricity use will reach around 150 times from today's 70 units per head.&nbsp; As we are going to consume here in Nepal all the electric power that we are going to produce, the policy of exporting power must be stopped immediately.&nbsp; Power exporting policy will hold back our fast track economic growth.&nbsp;&nbsp;&nbsp; </span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;&nbsp;&nbsp; </span></span></strong></p>
<p class="MsoNormal" style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	<strong><span style="font-size: 12px;"><span color:="" franklin="" gothic="" letter-spacing:="">Liberalizing Hydropower</span></span></strong></p>
<p class="MsoNormal" style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	 </p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">This is the time that the government needs to think about liberalizing hydropower sector, just like it liberalized banking, telecommunications and education which unleashed the banking, communication and education revolution.&nbsp; We have to rehabilitate to Nepal Electricity Authority (NEA) to match our development strategy because NEA is already a sick unit.&nbsp; We are experiencing a severe energy crisis. We are already without electricity 14 hours a day and this duration is getting longer. But with the hydropower potential we have, it does not have to be that way. Presently, peak power demand of integrated Nepal power system is around 967 MW and power supply is around 400 MW.&nbsp; The deficit can be met easily with a few projects. <br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;But the existing power purchase rates make the power projects commercially unfeasible due to high rates of interest that the banks are charging.&nbsp; Therefore, it is suggested that the power purchase rates be revised upward, immediately.&nbsp; When the market interest rates rises further, the power purchase rates should be raised accordingly. Similarly, when the interest rate cools down, the power purchase rates should be lowered accordingly. </span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:=""><br />
	</span></span></p>
<p class="MsoNormal" style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	<strong><span style="font-size: 12px;"><span color:="" franklin="" gothic="" letter-spacing:="">Cost of Hydropower<br />
	<br />
	</span></span></strong></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">The cost of hydropower is highly site specific, and depends on different factors, including hydrologic characteristics, site accessibility, and distance from transmission line.&nbsp;&nbsp; However, hydropower is the cheapest way to generate electricity in Nepal. The 456 MW Upper Tamakoshi hydropower project is estimated to cost Rs 35.29 billion, if the project is completed by FY 2014-15 as scheduled.&nbsp; That means it costs about Rs 77.39 million per MW.&nbsp; On that basis, we can say, at today's rate, a typical hydropower project in Nepal can cost somewhere between Rs 80 million and Rs 150 million per installed MW.&nbsp;&nbsp;&nbsp; </span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp; </span></span></p>
<p class="MsoNormal" style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	<strong><span style="font-size:12px;"><span color:="" franklin="" gothic="" letter-spacing:="">Means of Financing<br />
	<br />
	</span></span></strong></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">One major obstacle often cited in Nepal's hydropower development is the lack of finance. But in reality, it is no big deal for us to raise the money.&nbsp; The project can be financed through a mix of debt and equity arranged through a public-private partnership.&nbsp; The people of Nepal can arrange the resources on their own to produce at least 2,360 MW of electricity if the leaders extend some help.&nbsp; <br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">First of all, Nepal Government has to create Nepal Development Company Limited (NDCL) as a sovereign wealth fund holding company.&nbsp; Then the government should sell 40 per cent shares it holds in the Nepal Telecommunication Company Ltd (NTC). This will yield around Rs 24 billion and that amount should be invested as the seed money of NDCL.&nbsp; With this money, NDCL can promote many subsidiary public limited companies in the same manner as Nepal Electricity Authority has promoted Chilime Hydropower Company Limited.&nbsp; The equity participation in these subsidiaries is proposed at 51% from NDCL, 25% from national or international strategic partner, 24% from the general public.&nbsp; Subsidiaries should be managed by the strategic partners so as to ensure efficiency and customer satisfaction.&nbsp; NDCL can also promote East-West Electric Railway Ltd and many North-South cable car companies in similar modality of raising the fund. <br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;Nepal Telecom has been seeking strategic partner as it is losing 10 per cent of its profit growth every four months to the private telecom service providers.&nbsp; Nepal Telecom on its second annual general meeting held on March 29, 2010 has passed a resolution to sell minority shares to international telecommunications operator.&nbsp; But nothing has been done on this line till now. People believe that this delay is due to financial influence of other telecom service providers on our political leaders and government authorities.&nbsp; Further, it is also widely believed that if Nepal Telecom cannot bring foreign telecommunications operator through bidding as a strategic partner, Nepal Telecom too will face the same fate as that of Janakpur Cigarette Factory and Nepal Airlines Corporation.&nbsp; <br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">The paid-up capital of Nepal Telecom is Rs 15 billion, of which Nepal Government holds 91.50%.&nbsp;&nbsp; If the Government can sale 40% share in Nepal Telecom through international bidding, at the rate of minimum Rs 400 per share, the proceeds will be a minimum of Rs 24 billion.&nbsp; Assuming that this Rs 24 billion will be the 25% equity from NDCL's side, and that Rs 72 billion will be available as loan from various lenders, the total funds available will be Rs 96 billion.&nbsp; This will be sufficient to set up projects to generate hydroelectricity of 960 MW, assuming, on the basis of calculations above, that Rs 100 million will be required to install one MW capacity for hydroelectricity.&nbsp;&nbsp;&nbsp; </span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">Similarly, Nepal Army Welfare Fund has billions in its account.&nbsp; If it invests Rs 5 billion as equity in hydropower projects, it can get 75% of the project as loan and the total available amount will be Rs 20 billion.&nbsp; This amount is sufficient to install 200 MW capacity of hydroelectricity on the same assumptions as above.Then is the Employees Provident Fund. It is no big deal for this institution to invest Rs 10 billion as equity for hydropower generation. That will attract loans to make the total fund of Rs 40 billion.&nbsp; This is sufficient for installing a generation capacity of 400 MW.&nbsp;&nbsp; <br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">Then, we can easily assume that 100,000 Nepali citizens will come forward to invest Rs 200,000 per person. That will generate a total equity amount of Rs 20 billion which will attract a loan so that the total amount will be Rs 80 billion.&nbsp; From this amount, we can install a capacity of R 800 MW. The equity can be raised by issuing preferred redeemable increased dividend equity shares (PRIDES) to the general people.&nbsp; PRIDES, according to Investopedia, are securities consisting of a forward contract to purchase the issue's underlying security and an interest bearing deposit.&nbsp; Interest payments are made at regular intervals, and conversion into the underlying security is mandatory at maturity.&nbsp; PRIDES allow investors to earn stable cash flows while still participating in the capital gains of an underline stock.&nbsp; This is possible because these products are valued along the same lines as the underlying security. <br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">Micro-finance institutions, Banks and Co-operatives can give loans to purchase these PRIDES issued by NDCL or its subsidiaries to the Nepalis who have low or no income. Such loan can be issued against the collateral of PRIDES.&nbsp; This will bring positive impact on distribution of benefits from national resources to the low income people.&nbsp; This will ensure that the economic development does not marginalize the poor. <br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">We can get loan from various financial institutions located in Nepal, China, India or global institutions such as Agence Francaise de Development, European Investment Bank, Nordic Investment Bank etc. China's foreign exchange reserves have reached US$ 2.4 trillion making it by far the largest holder of foreign exchange reserve in the world. China was holding US$ 906 billion in US treasury bonds as of October, 2010.&nbsp; We should request China to invest some of that amount in Nepal's infrastructure development, such as hydropower. They should agree because the return will be higher in our projects.</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></strong></p>
<p class="MsoNormal" style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	<strong><span style="font-size: 12px;"><span color:="" franklin="" gothic="" letter-spacing:="">Infrastructure-Transmission Line<br />
	<br />
	</span></span></strong></p>
<p class="MsoNormal" style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	 </p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">Hydropower development depends on the power transmission to carry the power from the power project site to the consumer. On January 5, 2007 NEA signed an MOU to construct Butwal-Gorakhpur, Duhabi-Purnia, Dhalkebar-Mujaffarpur and Anarmani-Siligudi 220 KV transmission lines for power trade between Nepal and India. But if we have to develop Nepal's hydropower and consume this within Nepal, NEA has to start constructing East-West 400 KV, North-South 132 KV, and North-South 220 KV transmission lines along the corridors of North-South major rivers, where it is feasible.&nbsp; NEA will make profit from wheeling charges received from power producers.<br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">These transmission lines are essential to solve the present problem of power deficit.&nbsp; No investor will be interested to invest in power project without transmission line. Therefore, for Nepal, transmission line construction is not an option but compulsion. If NEA is not able to construct these transmission lines, the private sector can be invited to do it under Build-Own-Operate-Transfer (BOOT) contracts.&nbsp; The private sector can be allowed to operate such transmission lines for 30 years after which it has to transfer ownership to the government-owned NDCL. <br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">The responsibility to distribute electricity should be given to the local government units, such as the District Development Committees or Municipalities or to the proposed federal states.&nbsp; With this arrangement, the present problem of leakage of electricity will be stopped. At present, the electricity leakage is 26 per cent according to NEA.&nbsp; </span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:=""><br />
	&nbsp;</span></span></strong></p>
<p class="MsoNormal" style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	<strong><span style="font-size: 12px;"><span color:="" franklin="" gothic="" letter-spacing:="">Market<br />
	<br />
	</span></span></strong></p>
<p class="MsoNormal" style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	 </p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">The concept of supply creates its own demand is applicable in our case.&nbsp; There is scope of exponential increase in the supply of electric power in Nepal because there is also a very high scope for exponential increase in the demand for electric power.&nbsp; The data provided in the Table-1 is a conservative estimate.&nbsp; This does not include major hydropower projects initiated by NEA and foreign investors. NDCL can immediately start Construction of electric railway system such as Mechi-Mahakali, Raxaul-Hetauda-Kulekhani-Kathmandu and Kathmandu valley metro system.&nbsp; The estimated construction cost is Rs 500,000 per meter for double track railway. It goes up to Rs 1,000,000 if tunnel construction is also required. </span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">NDCL can also immediately start construction of cable car system from various points of east-west electric railway up to the hilly and Himalayan region to the market centres and tourist attractions including various reservoirs to be created by hydro dams.&nbsp; </span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">Meanwhile, we can benefit from the fast growth in the economies of our two neighbours. We share our northern border (1415 kms) with China which is not only the most populous country in the world with 1.34 billion people, but also the worlds second largest economy after the United States.&nbsp; It is the world's fastest growing major economy, with average annual growth rates of 10% for the past 30 years.&nbsp;&nbsp; China's middle class population, that has an annual income of at least US$ 17,000, has now reached more than 100 million. China's per capita income (nominal) is US$ 4,283.&nbsp; Similarly, our southern neighbor India with which we share a common border of 1,850 Kms, is the second most populous country in the world with 1.2 billion people.&nbsp; India too is one of the fastest growing economies in the world and its per capita income (nominal) is US$ 1,124.&nbsp; </span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">If we can attract even one per cent of the population of our two neighboring countries as tourists in Nepal, that will give tremendous economic growth to our economy as well. That requires construction of various electric train lines, international airports, cable car systems and recreational centres. Development of hydropower will help in all these. For example, water can be used for creating recreational facilities. Most importantly, if Nepal has good infrastructure, its geographical location makes it very suitable to be international financial center.</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></strong></p>
<p class="MsoNormal" style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	<strong><span style="font-size: 12px;"><span color:="" franklin="" gothic="" letter-spacing:="">Determined Government<br />
	<br />
	</span></span></strong></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">One frequently cited problem in Nepal's development and investment is the political uncertainty. However, there are examples, such as Singapore, China and South Korea, that a determined government can build an advanced country from scratch in a short period of time. That means our politicians have to start learning.<br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">Presently, our leaders or political parties are focused on the 301-game trying to make sure that they have 301 members of the Constituent Assembly on their side at any cost. That has to change. Over the past 35 years, we have seen rapid pace of technological change in our physical environment.&nbsp; Innovations such as cellular telephones, laser surgery, computers, electronic banking and new electronic trading techniques have materially affected the way people live.&nbsp; These technologies are easily transferable.&nbsp; Our politicians should keep themselves aware about these technological changes.&nbsp; That is required because the politicians should be able to optimize the use of the country's resources, promote excellence in the delivery of services and enhance competitiveness in line with our strategic visions, by keeping economic policy, institutions and bureaucracy above politics.<br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;Politicians should be given growth challenges in numerical terms.&nbsp; They must be given a target such as 12.3 percent growth rate per annum in our gross domestic product (GDP).&nbsp; Why 12.3 per cent? Our population growth rate is 2.3 per cent per annum.&nbsp; So, we need 2.3 per cent annual rate of GDP growth to take care of population increase. Another 5 percent growth rate is required to provide increased standard of living to the people, and another 5 percent is needed to provide increased momentum in the subsequent years.&nbsp; It is an achievable target and this must be the duty of the Prime Minister to achieve this. It makes no sense to continue hiring the Chief Executive Officer of the country without giving him or her a target to achieve. <br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;The type of economic growth that we will achieve with this model will not only eradicate poverty from Nepal in a short period of time, but will lift the country to the group of developed countries by 2040.&nbsp; </span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></strong></p>
<p class="MsoNormal">
	<strong><span style="font-size: 12px;"><span aldine401="" color:="" letter-spacing:="" style="line-height: 115%;">&nbsp;<i>(Pant is Director of Nepal Investment Bank Ltd and Chairman of Quantum Capital Ltd.&nbsp; He can be contacted at janardanpant@gmail.com)</i></span></span></strong></p>
<p class="MsoNormal">
	 </p>
<p class="MsoNormal">
	<strong><br />
	</strong></p>
<p class="MsoNormal">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="" style="line-height: 115%;"><i><br />
	</i></span></span></p>',
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			'id' => '1009',
			'article_category_id' => '37',
			'title' => '‘Seven Percent Growth Rate Possible’',
			'sub_title' => '',
			'summary' => null,
			'content' => '<p>
	<strong style="font-size: 12px;">Can Nepal Achieve 7 per cent&nbsp;<span style="font-size: 12px;">Economic Growth Rate?</span></strong></p>
<p>
	‘Seven percent growth rate possible’</p>
<p>
	<span style="font-size: 12px;">Nepal’s economy has every possibility to grow by 7 per cent in the next fiscal provided that there is political stability in the country and the government makes policy changes to encourage the private sector.</span><span style="font-size: 12px;">The government should focus on providing a stable policy environment, integrating growth of the industrial and service sector and making investments in domestic production to displace imports.</span><span style="font-size: 12px;">Similarly, there is a need to boost our agricultural production. However, we should be able to create markets for our agricultural products.&nbsp;</span></p>
<address>
	<strong>Dr Posh Raj Pandey</strong></address>
<address>
	<strong>Executive Chairman</strong></address>
<address>
	<strong>South Asian Watch on Trade, Economics and Environment (SAWTEE)</strong></address>',
			'published' => true,
			'created' => '2013-05-23',
			'modified' => '2013-05-23',
			'keywords' => 'Seven percent growth rate possible',
			'description' => 'Nepal’s economy has every possibility to grow by 7 per cent in the next fiscal provided that there is political stability in the country and the government makes policy changes to encourage the private sector.',
			'sortorder' => '884',
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			'id' => '1008',
			'article_category_id' => '37',
			'title' => '‘Need For Political Consensus On Fundamental Issues Of Development’',
			'sub_title' => '',
			'summary' => null,
			'content' => '<p>
	<strong style="font-size: 12px;">Can Nepal Achieve 7 per cent&nbsp;<span style="font-size: 12px;">Economic Growth Rate?</span></strong></p>
<p>
	‘Need For Political Consensus On Fundamental Issues Of Development’</p>
<p>
	<span style="font-size: 12px;">Nepal needs a growth rate of around 4-5 per cent in the agriculture sector and 9-10 per cent in other sectors if the country’s GDP is to grow by around 7 per cent. Development is basically a political process.&nbsp;</span><span style="font-size: 12px;">Therefore, it is crucial that the major political parties reach a consensus on the fundamental issues of development. Liberalisation is needed for the growth of organised industrial trade and business.&nbsp;</span><span style="font-size: 12px;">We also need to enhance our productivity and introduce modern technologies to our agriculture sector.</span></p>
<address>
	<strong>Dr Badri Prasad Shrestha</strong></address>
<address>
	<strong>Former Finance Minister</strong></address>',
			'published' => true,
			'created' => '2013-05-23',
			'modified' => '2013-05-23',
			'keywords' => 'Need For Political Consensus on Fundamental Issues of Development',
			'description' => 'Nepal needs a growth rate of around 4-5 per cent in the agriculture sector and 9-10 per cent in other sectors if the country’s GDP is to grow by around 7 per cent. Development is basically a political process.',
			'sortorder' => '883',
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		'Article' => array(
			'id' => '1007',
			'article_category_id' => '37',
			'title' => '‘Nepal Has The Potential To Achieve 7% Growth Rate’',
			'sub_title' => '',
			'summary' => null,
			'content' => '<p>
	<strong style="font-size: 12px;">Can Nepal Achieve 7 per cent&nbsp;<span style="font-size: 12px;">Economic Growth Rate?</span></strong></p>
<p>
	‘Nepal has the potential to achieve 7% growth rate’</p>
<p>
	<span style="font-size: 12px;">Nepal actually does have the potential to achieve a seven percent economic growth rate or more, like our two immediate neighbours – India and China. But in the present situation of political instability and uncertainty, it seems an almost impossible target. The World Bank has estimated Nepal’s economic growth to be not more than 3.8 per cent in the current fiscal year.&nbsp;</span></p>
<p>
	We must focus on our major sectors such as agriculture, tourism, water resource etc if we are to attain speedy economic growth. We must increase our domestic production significantly if we are to achieve such a high growth rate. Increased domestic production will not only help reduce the ever-rising imports of several products but will also help us earn foreign currency by increased exports. Likewise, we must also be able to develop our education, health and social sectors.&nbsp;</p>
<p>
	Finally, the government should create an investment-friendly environment by introducing matching policies and ensuring the security of investment – foreign as well as domestic.&nbsp;</p>
<address>
	<strong>Narayanraj Tiwari</strong></address>
<address>
	<strong>Former Finance Secretary</strong></address>',
			'published' => true,
			'created' => '2013-05-23',
			'modified' => '2013-05-23',
			'keywords' => 'Nepal Has The Potential To Achieve 7% Growth Rate',
			'description' => 'Nepal actually does have the potential to achieve a seven percent economic growth rate or more, like our two immediate neighbours – India and China.',
			'sortorder' => '882',
			'image' => null,
			'article_date' => '0000-00-00 00:00:00',
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		'Article' => array(
			'id' => '1006',
			'article_category_id' => '37',
			'title' => '‘Focus On Tourism, Productivity And Exports’',
			'sub_title' => '',
			'summary' => null,
			'content' => '<p>
	<strong style="font-size: 12px;">Can Nepal Achieve 7 per cent&nbsp;<span style="font-size: 12px;">Economic Growth Rate?</span></strong></p>
<p>
	‘Focus On Tourism, Productivity And Exports’</p>
<p>
	<span style="font-size: 12px;">Nepal has the prospects for large-scale investment. Foreign investment is important for the development of sectors such as hydropower, tourism, transport, railway, agriculture and other bigger projects. We need to speedily develop bigger hydropower projects to address the energy crisis. Without tackling the energy crisis, we cannot really expect a healthy economic growth rate. Both the public and the private sectors should invest to increase production. We also need rapid industrialization which will create new employment opportunities. Nepal has tremendous possibilities of tourism development. Nepal should basically target Chinese and Indian tourists. In the last fiscal year, more than 10 million Chinese and Indian tourists went for outbound travel. If we can attract only 10 per cent of it, we will have one million more tourists. Nepal should make serious attempts to achieve this. Nepal should make long-term strategies to reduce imports and increase exports by increasing the domestic production of goods and services. Nepal should focus on increasing the export of commodities like, carpet, herbs, ginger, tea and Pashmina, among others.</span></p>
<div>
	<address>
		<strong>Jaya Mukunda Khanal&nbsp;</strong></address>
	<address>
		<strong>Secretary</strong></address>
	<address>
		<strong>Ministry of Agriculture Development</strong></address>
</div>',
			'published' => true,
			'created' => '2013-05-23',
			'modified' => '2013-05-23',
			'keywords' => 'Focus On Tourism, Productivity And Exports',
			'description' => 'Nepal has the prospects for large-scale investment. Foreign investment is important for the development of sectors such as hydropower, tourism, transport, railway, agriculture and other bigger projects. We need to speedily develop bigger hydropower projects to address the energy crisis.',
			'sortorder' => '881',
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	(int) 4 => array(
		'Article' => array(
			'id' => '987',
			'article_category_id' => '37',
			'title' => 'Economic Policy’s Narrative Imperative',
			'sub_title' => '',
			'summary' => null,
			'content' => '<p>
	<strong>By Kemal Derviş</strong></p>
<p>
	<span style="font-size: 12px;">The best advice I received when taking up policymaking responsibilities in Turkey more than a decade ago was to take “a lot of time and care to develop and communicate the ‘narrative’ to support the policy program that you want to succeed.” The more that economic policy is subject to public debate – that is, the more democracy there is – the more important such policy narratives are.</span></p>
<p>
	The crisis faced by the European Union and the eurozone is a telling example of the need for a narrative that explains public policy and generates political support for it. A successful narrative can be neither too complicated nor simplistic. It must capture the imagination, address the public’s anxieties, and generate realistic hope. Voters often sense cheap populism.</p>
<p>
	European Central Bank President Mario Draghi provided such a narrative to the financial markets last July. He said that the ECB would do everything necessary to prevent the disintegration of the euro, adding simply: “Believe me, it will be enough.”</p>
<p>
	With that sentence, Draghi eliminated the perceived re-denomination tail risk that was highest in the case of Greece, but that was driving up borrowing costs in Spain, Italy, and Portugal as well. It was not a populist message, because the ECB does indeed have the firepower to buy enough sovereign bonds on the secondary market to put a ceiling on interest rates, at least for many months.</p>
<p>
	Central bankers, more generally, are typically able to provide short- or medium-term narratives to financial markets. US Federal Reserve Board Chairman Ben Bernanke provided his own by pledging that US short-term interest rates would remain very low, and the Bank of Japan’s new chairman, Haruhiko Kuroda, has just provided another by saying that he will double the money supply so that inflation reaches 2%.</p>
<p>
	While central bankers can provide such narratives to financial markets, it is political leaders who must provide the overall socioeconomic messages that encourage long-term real investment, electoral support for reform, and hope for the future. Central bank alchemy, to borrow a term from the US journalist Neil Irwin’s new book, has its limits.</p>
<p>
	Europe, in particular, needs a narrative of long-term hope that will trigger a real recovery. France is coming closer to the danger zone, and even Germany’s annual GDP growth is falling well below 1% per year. In the meantime, the easing of sovereign interest-rate spreads provides little comfort to the growing army of unemployed in southern Europe, where youth unemployment has reached dramatic heights – close to 60% in Greece and Spain, and almost 40% in Italy.</p>
<p>
	The narrative should address three essential questions. How can the European model of strong social solidarity and security be reformed, but endure? How can economic growth be revived and sustained throughout the EU? And how can Europe’s institutions function with enhanced legitimacy to accommodate countries that share the euro and others that retain their national currencies?</p>
<p>
	For starters, a revolution is required in the organization of work, learning, and leisure. Social solidarity, essential to European identity, can and must include longer work lives, but also more work-sharing, adult learning, and shorter average work weeks (particularly close to retirement).&nbsp;</p>
<p>
	Such flexibility requires the consent of all: employees must adjust to changing requirements; employers must re-organize their enterprises to allow more work-sharing, work from home, and learning intervals; and governments must overhaul taxes, income support, and regulation to promote a “flex-solidarity revolution” that encourages personal choice and responsibility, while remaining committed to social cohesion. This can lead to a better future for all, with citizens gaining better access to adult education, having more free time to pursue personal interests, and remaining productive and occupationally engaged far longer into their healthy lives.</p>
<p>
	Europe does not need Asia’s rates of economic growth. It can secure decent jobs and prosperity, with a sustained annual growth rate of around 2%. To achieve that, German voters should be told not that their country’s resources will forever flow to Spain, but that their wages can rise at twice the rate of the recent past without risking inflation or a current-account deficit, because Germany has the world’s largest external surplus.</p>
<p>
	Service-sector industries throughout the EU must be opened up. The countries with stronger fiscal positions should take the lead in a major pan-European skill-upgrading program. The number of pan-European scholarships should be doubled. School programs everywhere should aim to educate trilingual citizens.</p>
<p>
	Moreover, a full European banking union with shared resources for resolution should be created without further delay. The European Investment Bank, which received a significant capital increase in 2012, should add a large investment-support program for medium-size enterprises to its current operations, with a subsidy financed from the European budget to encourage first-time job takers for a limited period. Jobs and training for young people must be the centerpiece for the new growth pact, and projects must move ahead in “crisis mode,” rather than according to business as usual.</p>
<p>
	Finally, while monetary union obviously requires greater sharing of sovereignty, there should also be a “greater Europe” that includes the United Kingdom and others. This implies two-tier institutions that can accommodate both types of countries: the “euro-ins” and those that prefer to preserve their monetary sovereignty in a larger Europe built around a vibrant single market and common democratic values.</p>
<p>
	These interconnected visions can and must be realized if Europe is to thrive again. Together, they form a compelling narrative that European leaders must begin to articulate.</p>
<p>
	<span style="font-size:10px;">Kemal Derviş, former Minister of Economic Affairs of Turkey and former Administrator for the United Nations Development Program (UNDP), is Vice-President of the Brookings Institution.</span></p>
<p>
	<span style="font-size:10px;">Copyright: Project Syndicate, 2013.</span></p>',
			'published' => true,
			'created' => '2013-05-22',
			'modified' => '2013-05-22',
			'keywords' => 'Economic Policy’s Narrative Imperative, Economy and Policy, New Business Age',
			'description' => 'For starters, a revolution is required in the organization of work, learning, and leisure. Social solidarity, essential to European identity, can and must include longer work lives, but also more work-sharing, adult learning, and shorter average work weeks.',
			'sortorder' => '864',
			'image' => null,
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			'homepage' => false,
			'breaking_news' => false,
			'main_news' => false,
			'in_scroller' => false,
			'user_id' => '0'
		)
	),
	(int) 5 => array(
		'Article' => array(
			'id' => '940',
			'article_category_id' => '37',
			'title' => 'Why Are Most Domestic Airlines Running In Loss?',
			'sub_title' => '',
			'summary' => null,
			'content' => '<p style="text-align: justify;">
	<strong>By Akhilesh Tripathi</strong></p>
<p style="text-align: justify;">
	Leaving a few as exceptions, most domestic private sector airlines in Nepal are not in sound financial health. In fact, a majority of them have always been struggling for survival. The list of Nepali private airlines closed down so far is a long one, carrying well over a dozen names of which a few grounded their fleet and downed their shutters after flying in the Nepali sky for as long as a decade. Examples are Necon Air and Cosmic Air. Their contemporaries &nbsp;such as Skyline Air, Shangril-Lai Air, Mountain Air, Nepal Airways, Lumbini Air, Everest Air – to name a few – were also closed down.&nbsp;</p>
<p style="text-align: justify;">
	Many – five dozen to be exact - haven’t started their operations despite receiving the Airline Operator’s Certificate (AOC) from the Civil Aviation Authority of Nepal (CAAN) many years ago. They are airlines on paper only. Understandably, the biggest deterrent for them is the collapse of several airlines in the past. There is no doubt that the present of the domestic aviation industry has improved, but not enough. A few airlines are really doing well – but they are oonly a few. Others are in the red, according to a highly-placed source at CAAN. Recently, two airlines have been in problems – Agni Air and Guna Air. The latter was acquired by Simirik Air, a helicopter service provider, which rebranded it as Simrik Airlines and launched its domestic flights. &nbsp;</p>
<p style="text-align: justify;">
	The Number One airline (Buddha Air) at present is far ahead the Number Two (Yeti Airlines) in terms of the number of passengers carried as well as the profit made annually. And there is always a stiff competition among a couple of other private airlines for the Number Three position in the domestic aviation market which has all together 15 private airlines (nine fixed-wing and six rotary-wing) in operation at present. Of the total 1.6 million domestic air passengers in 2012, the Number One airline carried more than 800,000 and also made, according to knowledgeable sources, more than Rs 4 billion in profit. The remaining Rs 3 billion of the annual business was shared by the remaining 14 airlines. That speaks volumes about how profitable some of them might just be!</p>
<p style="text-align: justify;">
	Ever since the country adopted a liberal aviation policy in 1992, the number of companies seeking and receiving AOC has been rising year on year. However, sustainability has been a major problem for them. “Four of the nine fixed-wing airlines and three of the six rotary-wing airlines operational at present are in profit. Others are in loss,” reveals the CAAN source.&nbsp;</p>
<p style="text-align: justify;">
	<strong>Why?</strong></p>
<p style="text-align: justify;">
	Why civil aviation is yet to become a profitable business for a majority of the private airlines operational at present? Is the number of airlines more than the market can actually sustain? Why so many airlines have failed? And why do others face the risk of failure? Nubiz sought answers to these questions from four experts of Nepal’s aviation industry: T R Manandhar (Director General of CAAN), Saral Shamser Rana (Deputy Marketing Director of Yeti Airlines), Manoj Karki (Managing Director of Goma Airlines) and Pradeep Shrestha (CEO of Air Kasthamandap). This is how they answered these questions:</p>
<div style="text-align: justify;">
	<strong>‘Airlines should go for mergers’</strong></div>
<div style="text-align: justify;">
	<strong><br />
	</strong></div>
<div>
	<div style="text-align: justify;">
		Yes, it’s true that several airlines have closed down, mainly because of financial reasons, in the past. We have also heard complaints that the number of airlines is more than the market can actually sustain. Therefore, the government has made the Airline Operator’s Certificate Requirements (AOCR) more stringent a couple of months back. Now, no AOC will be issued unless the airline procures the aircraft. Though we have adopted a liberal aviation policy, we don’t encourage companies to enter the aviation industry at the moment, unless they have serious, long-term plans supported by adequate capital base. There are three airlines operating scheduled flights on the trunk routes at present. Two more, Namaste Air and Blue Airways, have applied for scheduled domestic operations on the trunk routes; they are in the process of procuring aircraft.&nbsp;</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		The main reason why so many domestic airlines collapsed and why many others are incurring a loss is low capital base and lack of long-term planning. Everyone planning an airline company should be clear that it requires huge investments and the operating cost is also very high which means the promoters need deep pockets. The airlines which are operating chartered flights to the remote areas are in loss. That’s why we have started building paved runways at airports in the rural areas. Currently, paved runways are under construction at over half a dozen such airports. Similarly, we are also installing modern aviation tools and technologies such as Tower Console, VOR, CCR, Met equipment, PAPI Light etc at various airports.</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		I seriously feel that the existing airlines should go for mergers among themselves. This will increase their capital base and fleet and lower the operational cost to some extent. What the experience shows is many airlines collapsed after they faced accidents. So, they must pay proper attention to all the safety measures in order to avoid accidents. There is lack of skilled technical and expert human resource. For example, there is a limited supply of captains and engineers. So, airlines often ‘hunt’ such human resource from among themselves which ultimately affects the operation of those airlines which lose such human resource. The demand of airline service will not increase by any significant degree unless there is a considerable growth in tourist arrivals.</div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: right;">
		T R Manandhar</div>
	<div style="text-align: right;">
		Director General</div>
	<div style="text-align: right;">
		CAAN</div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: justify;">
		<strong>‘Only an aviation expert should run an airline’</strong></div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: justify;">
		Very few investors have grasped the aviation business in Nepal properly. An airline cannot be run like most other businesses. Without the experience and knowledge about the costs involved, the turnaround times and expenses that are actually incurred, one will never see a sustainable business. You need an aviation expert to run an aviation business, not just one with the capital to finance it.</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		The variables in the market, the trends and patterns are unpredictable. A factor such as weather can make or break a season for an airline. Working with the correct promotions team, at the right prices and focusing on the long run is crucial to succeed. The competition is also fierce, and has in the past brought about the closure of various airlines. Seeking opportunities to work together for mutual benefit is rare; rather it’s the opposite and many are out there to bring others down.&nbsp;</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		The lack of training and experience amongst the teams within the airline is another cause for the downfall. Crew should not be rushed to senior positions just to fill up spaces or to meet some compliance. It is one of the reasons why the accident rate in Nepal is higher than in most places on earth and that directly leads to my next point - insurance premium: loss of one, borne by many. There might be many variable costs in the running of an airline but a primary fixed cost beside the loan is the insurance premium. Whether you fly or not, you always have to pay it. It’s a cost that can bring a company down and it does not take into account a bad season.</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		The reasons can be endless, however this is not a struggle only faced in Nepal. Richard Branson, founder of Virgin Airlines, on his advice to become a millionaire, said, “The easiest way to become a millionaire is to first become a billionaire and then start an airline!” However, with the backing of investors and good leadership, Nepali aviation can reach greater heights.&nbsp;</div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: right;">
		Capt Pradeep Shrestha</div>
	<div style="text-align: right;">
		Chief Executive Officer</div>
	<div style="text-align: right;">
		Air Kasthamandap</div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: justify;">
		<strong>‘Many airlines enter the market without proper market study’</strong></div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: justify;">
		The airlines have to take huge loans from banks as the investment cost is very high. In the past, some companies entered the aviation market only for the sake of it, making the supply higher than the demand. This caused unhealthy competition leading to sustainability problems at the end. The survival of airlines in Nepal is very challenging, especially for those flying to the remote areas where the runways are really bad; other several airport facilities are simply absent. The operating cost is very high. For example, a single servicing of the engine costs around Rs 700,000 to 1 million. Many airlines enter the market without studying the opportunities available.</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		Airlines flying to the remote areas have additional challenges. The cost of operating flights in the remote areas is comparatively high. The government should fix the number of flights and the rates for remote areas based on the flow of passengers and the operational cost of the flights. The government can help the airlines flying to the rural areas in terms of fuel costs and VAT and other taxes. However, increasing the tourist arrivals is one sure way to make aviation a profitable business for domestic airlines. More tourists means more opportunities for the airlines to make money. The government should make the issuance of AOC more stringent so that there is a balance between demand and supply. Airlines such as Yeti Airlines, Buddha Air, Simrik Air etc seem to have a profitable business. But they have taken huge loans for which the interest is also quite high. However, they have been able to stand out in the market because of proper planning, professional and efficient service, good market strategy, adequate investment and operating capital.&nbsp;</div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: right;">
		Saral Shamser Rana</div>
	<div style="text-align: right;">
		Deputy Marketing Director</div>
	<div style="text-align: right;">
		Yeti Airlines</div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: justify;">
		<strong>‘Airlines fail miserably in financial risk management’</strong></div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: justify;">
		The major reason behind the collapse of most domestic airlines in the past is the failure to manage the financial risks. Managerial shortcomings, lack of aircraft matching the country’s geography, lack of enough support from the government and the then aviation policy could be the other reasons. However, it is commendable that the private sector has continued to support the domestic aviation industry despite these odds.</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		Aircraft matching the country’s difficult geography are a must for an airline. Skilled manpower is another prerequisite. As there is lack of enough skilled human resource, one airline has to often ‘steal’ talents and experienced human resource from the others. The airfares have not increased according to the hike in the aviation fuel prices in recent times. Operating flights in the remote areas entails even higher costs. Hence, profit becomes even more challenging for these airlines. The operating cost of an airline is very high. And it takes at least a few years before an airline can expect profits. So the promoters need to have deep pockets as well as patience and long-term plans before jumping into the market.</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		Experience has shown that if someone wants to run an airline, then s/he should focus on the airline only. Diverting the income from the airline to other investments may cause problems, especially in the beginning years. We have already seen the fall of several companies which invested the income from aviation into other sectors. The promoters should have enough capital to meet all financial problems that could crop up in the future.&nbsp;</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		Also, the government needs to revise the aviation policy. The number of passengers has been on a constant rise in flights to the major urban destinations. However, it is difficult for the airlines flying to the rural areas to get enough passengers while the risks of flying are also high in these areas.</div>
</div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: right;">
		Manoj Karki</div>
	<div style="text-align: right;">
		Managing Director</div>
	<div style="text-align: right;">
		Goma Air</div>
</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Nepal’s Civil Aviation: Some Facts</strong></div>
<div style="text-align: justify;">
	 </div>
<div>
	<div style="text-align: justify;">
		The Nepali private sector entered the domestic air transport after the adoption of Liberal Aviation Policy in 1992. Nepal Airways was the first private airline to start scheduled domestic flights in Nepal (1992). It got the Airline Operator’s Certification from the Civil Aviation Authoruty of Nepal (CAAN) in Feb 1992. Necon Air followed suit in September 1992. In 2001 two other local airlines – Shangri-La Air and Karnali Air merged with Necon which operated flights to all major domestic destinations. It also had flights to Patna and Varanasi in India before being closed down in 2003.</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		Domestic operation by jet aircraft commenced in 2004 by Cosmic Air. Some 75 private airlines have received AOC from CAAN but only 15 of them are operational at present – nine fixed-wing and 6 rotor-wing airlines. Over a dozen which came into operation after 1992 have closed down so far. Nine fixed-wing airlines operational at present - Nepal Airlines (government-owned), Buddha Air, Yeti Airlines, Sita Air, Tara Air, Air Kasthamandap, Makalu Air, Goma Air, Simrik Airlines (Guna Air has been renamed as Simrik Airlines after it was recently acquired by Simrik Air, a helicopter company) and Agni Air (AOC still valid but flights grounded at present). The domestic civil aviation industry is said to be growing at 10-12 per cent per anum.Private investment in civil aviation is estimated above Rs 11 billion.</div>
	<div style="text-align: justify;">
		 </div>
	<div style="text-align: justify;">
		Six rotor-wing airlines operational at present are:&nbsp;</div>
	<ul>
		<li style="text-align: justify;">
			Buddha, Yeti and Simrik are the three airlines operating mountain flights at present.</li>
		<li style="text-align: justify;">
			NAC, Sita Air and Tara Air are the airlines flying to the rural areas</li>
		<li style="text-align: justify;">
			Air Kasthamandap launched a test flight to the Syangboche Airport, the highest-altitude airport in Nepal (3780m) on March 18, 2013. &nbsp;</li>
		<li style="text-align: justify;">
			Air Kasthamandap, Makalu Air and Goma Air, three new players in the aviation market, have single-engine aircraft and don’t have scheduled flights. They operate chartered and cargo flights, mostly to the rural areas.</li>
		<li style="text-align: justify;">
			Namaste Airlines has applied for permission for domestic flights.</li>
	</ul>
</div>
<div style="text-align: justify;">
	 </div>',
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			'created' => '2013-04-17',
			'modified' => '2013-05-23',
			'keywords' => 'Why Are Most Domestic Airlines Running In Loss?',
			'description' => 'Leaving a few as exceptions, most domestic private sector airlines in Nepal are not in sound financial health. In fact, a majority of them have always been struggling for survival.',
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		'Article' => array(
			'id' => '893',
			'article_category_id' => '37',
			'title' => 'Debate Of The Month: Is The Reality Sector Really Picking Up?',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="background:#f9f5a1;padding:3px;">
	<p>
		<strong>Nepali Real Estate at a Glance</strong></p>
	<ul>
		<li>
			Over 400 institutional real estate entrepreneurs across the country; 147 of them registered at Nepal Land and Housing Development Association&nbsp;</li>
		<li>
			From laymen to professionals like doctors and engineers are in this business</li>
		<li>
			The door for organised housing in Nepal opened after the 1995 Collective Housing Act allowed private ownership of apartment units</li>
		<li>
			The investment of banking and financial institutions (BFIs) in real estate and housing stands at around Rs 150 billion; Private sector promoters and builders have invested another Rs 250 billion</li>
		<li>
			The real estate market in Nepal grew significantly after the 1990 political change. It registered impressive growth even during the Maoist insurgency until the late 2008 when it started to slow down.</li>
		<li>
			According to the latest data, commercial banks have given about Rs 68 billion in real estate loans, which is 10.4 percent of the total loans issued by them. Commercial banks’ total lending to the realty sector reached its peak in Jan 2011 to almost Rs 99 billion or 20 per cent of their total lending.</li>
		<li>
			Now, most of the commercial banks which were overtly exposed to the real estate sector have brought down their exposure to below 25 percent level. At the same time, outflow of home loans of up to Rs 10 million has been picking up, with the total amount expanding from Rs 30.83 billion in October 2011 to almost Rs 40 billion by the end of 2012. Several development banks and finance companies are yet to overcome their real estate loan problem.&nbsp;</li>
		<li>
			It is, however, said that a fairly large portion of loans extended to the real estate sector is in the guise of overdraft and term loans, indicating that the problems of the real estate sector in Nepal could be far from over.</li>
	</ul>
</div>
<p style="text-align: justify;">
	We all know that Nepal’s real estate sector has been in an ailing state for more than the past three years. The real estate and housing industry witnessed a speedy growth (which many say was an unnatural growth), until the Nepal Rastra Bank (NRB), regulator of the country’s financial market, suddenly restricted banks’ lending to the sector in September 2010. NRB not only put a ceiling on real estate loans but also made it mandatory for real estate buyers to declare their income source for purchase of property worth more than Rs 5 million.&nbsp;</p>
<p style="text-align: justify;">
	Many bankers and real estate players compared this NRB move with a driver’s attempt to stop at once a car speeding along at 80 miles an hour. “When you press on the brakes to stop such a car at once, it is almost always doomed to crash. This is what happened to Nepal’s real estate and housing sector,” complain many bankers. According to them, maybe what happened to the country’s real estate industry over the past three years cannot be called a crash, but the industry was hit really, really hard.</p>
<p style="text-align: justify;">
	But it seems things have started to change now, for the better. After a three-year long slump, Nepal’s real estate and housing sector has shown some signs of improvement of late. Many analysts and industry insiders are still hesitant to call it the beginning of a recovery but even they admit that cautious optimism has replaced the general mood of doom and gloom prevalent in the industry as early as even a few months ago.&nbsp;</p>
<p style="text-align: justify;">
	Looking at the market at present, it is apparent that the genuine, long-term developers have survived the slump, while those who joined the fray just for fast cash have, perhaps, been combed out. Meanwhile, the NRB, too, has adopted a bit flexible approach to the sector in this period which the private sector stakeholders deem as inadequate. Similarly, there have been reports that real estate and housing borrowers who had the banks’ doors shut for them until recently have started getting scrutinized entries into the banks.&nbsp;</p>
<p style="text-align: justify;">
	There are some other signs as well that indicate that the realty sector might have started to climb up. According to real estate entrepreneurs and housing developers, this business has growth by 33 per cent in the first half of the current fiscal year, compared to the same period the previous year.&nbsp;</p>
<p style="text-align: justify;">
	Government revenue from this sector, too, has increased by nearly Rs 370 million in the first six months of this FY, compared to the same period the previous FY. Given these developments, Nubiz asked some of the major players of Nepal’s realty sector, bankers and regulators whether the sector has really started to witness a revival? Here is what they had to say: &nbsp;&nbsp;</p>
<p style="text-align: center;">
	<strong><span style="font-size: 14px;">‘There are positive signs’</span></strong></p>
<div style="float:left; width: 210px;margin-left:10px;">
	<img align="left" alt="Ichchha Raj Tamang" height="283" src="http://newbusinessage.com/ckfinder/userfiles/Images/march2013_debate_of_the_month_ichchha.jpg" style="margin:0 10px 0 0;" width="208" />
	<address>
		<strong>Ichchha Raj Tamang</strong></address>
	<address>
		<strong>President</strong></address>
	<address>
		<strong>Nepal Land and Housing Developers’ Association (NLHDA)</strong></address>
</div>
<p style="text-align: justify;">
	<span style="font-size: 12px;">This sector was doing very well. We all know that. But then some banks started speculative lending which was followed by others. This provoked the NRB to take stringent measures in the real estate and housing. The NRB, too, should not have implemented that decision at once. Anyway, the combined effect was that the realty sector faced a long slump.&nbsp;</span></p>
<p style="text-align: justify;">
	However, we have seen some positive signs for the realty sector in the first half of the current fiscal year. Statistics show that this sector has grown by 33 per cent in the first six months of the current fiscal year than the same period of the previous fiscal year. We hear that government revenue from the sale of land and houses has gone up in the first six months of this fiscal year. That is another indicator that the sector might have started picking up. Banks, too, have started new home loans at lower interest rates. Though they appear hesitant to invest in the housing apartments, their lending to individuals for land and houses, and loans to multi-storied commercial business complexes being built around Kathmandu have increased in recent months.&nbsp;</p>
<p style="text-align: justify;">
	These are good signs for the realty sector. The other important thing is this market has already witnessed almost the rock-bottom situation. This situation could not continue forever; it had to show the signs of revival. That is what has perhaps started to happen.&nbsp;</p>
<div>
	 </div>
<div>
	 </div>
<div>
	 </div>
<div>
	 </div>
<div>
	 </div>
<div>
	 </div>
<div>
	 </div>
<div>
	<span style="font-size:16px;"><b style="font-size: small; text-align: justify;"><br />
	</b></span></div>
<div>
	<span style="font-size:16px;"><b style="font-size: small; text-align: justify;"><br />
	</b></span></div>
<div style="text-align: center;">
	<span style="font-size:16px;"><b style="font-size: small; text-align: justify;">‘Market activity has increased’</b></span></div>
<div>
	 </div>
<div style="float:left; width: 210px;margin-left:10px;">
	<img alt="Bhesh Raj Lohani" height="291" src="http://newbusinessage.com/ckfinder/userfiles/Images/march2013_debate_of_the_month_bhesh.jpg" style="margin:0 10px 0 0;" width="208" />
	<address>
		<strong>Bhesh Raj Lohani</strong></address>
	<address>
		<strong>Secretary</strong></address>
	<address>
		<strong>Nepal Land and Housing Developers’ Association (NLHDA)</strong></address>
</div>
<p style="text-align: justify;">
	<span style="font-size: 12px;">In the first six months of the current fiscal year, the government has collected Rs 2.27 billion in revenue from the sale of land and houses. The figure was only Rs 1.9 billion in the first six months of the previous fiscal year. It is true that the increased tax rates have contributed to this growth but the number of land and house transactions has also increased this year. The sales of low-priced land and houses have particularly gone up.</span></p>
<p style="text-align: justify;">
	Banks have lowered their interest rates for loans from as high as 17 per cent last year to around 10 per cent recently. Remittance inflow has grown; this too has helped the real estate business. The NRB, too, has adopted somewhat liberal policies for the real estate sector, especially after the sector fell into a deep crisis from which it is struggling to come out now. There are scores of middle-class families who need houses and apartments as their permanent residences. Stand-alone houses are still bigger attractions for Nepalis than the apartments. Recent experiences, too, have shown that.</p>
<p style="text-align: justify;">
	If the current growth rate continues, then we can expect more investment in this sector by the end of this fiscal year. The realty business was stagnant for almost three years. Many buyers were waiting for the prices to come down. And the prices have indeed come down significantly, compared to three years ago. So, market activities have surely increased.</p>
<p style="text-align: justify;">
	 </p>
<p style="text-align: justify;">
	 </p>
<p style="text-align: justify;">
	 </p>
<p style="text-align: justify;">
	 </p>
<p style="text-align: justify;">
	 </p>
<p style="text-align: justify;">
	 </p>
<p style="text-align: center;">
	<span style="font-size: 14px;"><b>‘Real estate is gradually improving’</b></span></p>
<div style="float:left; width: 210px;margin-left:10px;">
	<p style="text-align: justify;">
		<img alt="Bhaskar Mani Gyawali" height="291" src="http://newbusinessage.com/ckfinder/userfiles/Images/march2013_debate_of_the_month_bhaskar.jpg" style="margin:0 10px 0 0;" width="202" /></p>
	<address>
		<address style="text-align: justify;">
			<b>Bhaskar Mani Gyawali</b></address>
		<address style="text-align: justify;">
			<b>Spokesperson</b></address>
		<address style="text-align: justify;">
			<b>Nepal Rastra Bank</b></address>
		<div style="text-align: justify;">
			 </div>
	</address>
</div>
<p style="text-align: justify;">
	We have observed that Nepal’s realty sector has shown a gradual improvement over the past few months. The improvement has not been as expected. But what I can say is the country’s real estate sector has seen its worst; things will only improve from here. Actually this process has already started. As the regulator, NRB has done all it could, to help banks recover their loans to this sector. NRB’s directives issued from time to time have helped the real estate sector to overcome the crisis it has been in for more than the past three years.</p>
<p style="text-align: justify;">
	Speculative pricing by some real estate players and speculative lending by some banks is mainly to blame for the realty slump in Nepal. The only solution to the problems in the real estate and housing sector is that real estate owners and housing developers should be ready to sell their property at minimal profits, sometimes without any profit and in some cases even at certain amount of loss. Otherwise, the interest of the bank will keep rising and they will be sinking deeper and deeper in the problem. If this is done, 75 per cent problems of the real estate and housing sector will be automatically resolved.&nbsp;</p>
<p style="text-align: justify;">
	In recent months, banks have started issuing new home and land loans at lower interest rates. This is good sign. Government revenue from the sale of land and houses, too, has witnessed almost one-third growth in the first half of this fiscal year compared to the same period the last fiscal year. This also shows that the real estate business might have started to pick up. I am sure that the situation will improve further in the days to come. &nbsp; &nbsp; &nbsp; &nbsp;</p>
<p>
	 </p>
<p>
	 </p>
<p>
	 </p>
<p style="text-align: center;">
	<span style="font-size: 14px;"><b><br />
	</b></span></p>
<p style="text-align: center;">
	<span style="font-size: 14px;"><b>‘We can’t really say that the revival has started’</b></span></p>
<div style="float:left; width: 210px;margin-left:10px;">
	<img alt="Anil Shah, Mega Bank" height="299" src="http://newbusinessage.com/ckfinder/userfiles/Images/march2013_debate_of_the_month_anil(1).jpg" style="margin:0 10px 0 0;" width="202" />
	<address>
		<address>
			<address>
				<b>Anil Shah</b></address>
			<address>
				<b>CEO</b></address>
			<address>
				<b>Mega Bank</b></address>
			<div>
				 </div>
		</address>
		<div>
			 </div>
	</address>
</div>
<p style="text-align: justify;">
	 </p>
<p>
	Given the current situation, we can’t really say that the realty sector has shown improvements. However, the good thing is the downward spiral has stopped. Some big apartment companies are still in problems. In fact, it is these companies that are responsible for delaying the recovery. So, the reality is the improvement in this sector is definitely not as expected. The banks, too, are not very willing to invest in this sector, especially in the apartments.</p>
<p>
	The buyers, too, are not interested in the apartments. However, now the banks are not compelled to put home loans up to Rs 10 million under real estate loans; the NRB has shown this much flexibility. This relaxation has surely helped the banks, which have invested nearly Rs 150 billion in the real estate sector, and also the real estate promoters.</p>
<p>
	We can’t really say that a revival has started in the realty sector. We’d better wait for some more time and see how things unfold. Meanwhile, the NRB did not say a word about the real estate sector in the mid-term review of the Monetary Policy for the current fiscal year. It must have disappointed the entire sector as well as the banks which have a sizeable investment in this sector.</p>
<div>
	 </div>',
			'published' => true,
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			'modified' => '2013-05-23',
			'keywords' => 'Debate Of The Month: Is The Reality Sector Really Picking Up?',
			'description' => 'We all know that Nepal’s real estate sector has been in an ailing state for more than the past three years. The real estate and housing industry witnessed a speedy growth (which many say was an unnatural growth), until the Nepal Rastra Bank (NRB), regulator of the country’s financial market, suddenly restricted banks’ lending to the sector in September 2010.',
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		'Article' => array(
			'id' => '862',
			'article_category_id' => '37',
			'title' => 'Global Economy Outlook  For 2013: Figures & Beyond!',
			'sub_title' => '',
			'summary' => null,
			'content' => '<p style="text-align: justify;">
	<strong>By Sandip Nepal</strong></p>
<p style="text-align: justify;">
	The year 2012 remained gloomy for the entire seven billion plus world population in terms of economic growth and prosperity. With world economic leaders like the USA, Eurozone and China not acquiring the ‘expected status’ for the year, i.e. 2012, amidst spiking issues like unemployment, inflation and debt crisis regimes, prospects for 2013 do not look encouraging at this point of time.</p>
<p style="text-align: justify;">
	Concerned over the ongoing austerity measures, high unemployment rate and lower business confidence combined with weak market sentiments in core global economies like the USA and Eurozone, the World Bank (WB) has lowered its forecast for 2013. Market analysts and global institutions, pioneering in economic forecasts, are coming up with new lowered growth forecasts for the current year in line with lower than expected manufacturing and trade indicators coming from both sides of the Atlantic. The world economy was initially expected to grow by 3 percent in 2013. However, the new growth forecast based on the current and prospect scenario has come out to be 2.4 per cent, lowered by 60 basis points from the initial forecast.&nbsp;</p>
<p style="text-align: justify;">
	Similarly, amidst reduced global growth, market analysts and economists from around the world have lowered their growth forecast for the ‘land of the rising sun,’ i.e., Japan, US and the more vigilant economy, the Eurozone. It is believed that the second year of contraction in the Eurozone will have a tremendous impact on the global economy and could act as a reverse-catalyst in the global economic atmosphere, measured by Global Purchasing Managers’ Index or any other global index. Having inter-twined relationship with economic superpowers &nbsp;such as China, Eurozone and the US, emerging economies like India, Brazil, Mexico and other East-Asian economies fear that they cannot remain unaffected by the contraction in the economic environment of the world’s economic hubs. However, developing economies from around the globe are expected to expand at the rate of above 5.5 per cent in 2013.</p>
<p style="text-align: justify;">
	The World Bank has already warned against the fragility and vulnerability of the global economy in the remaining months of 2013. On the other hand, the report has also emphasized that the magnitude of economic downside will be at decreasing rate compared to recent precursor years. If we turn back and scrutinize 2012, European measures, reforms and policies to cushion the financial/debt crisis in the single economic bloc have not been able to provide economic surge or even correction to the ongoing recession. At a time when financial and political agendas have not been facilitating economic improvement in the single currency bloc, issues related to spending cuts and tax hikes in the US, diplomatic tensions between Japan and China affecting trade environment, and ‘not so good’ manufacturing and industrial indicators coming from the US and China are feared to cloud whatever little optimism remains for &nbsp;the ongoing year.</p>
<p style="text-align: justify;">
	<strong>Global Economic Growth Forecast for 2013</strong></p>
<p>
	<strong><img align="left" alt="Economy and policy February 2013" height="230" src="http://www.newbusinessage.com/ckfinder/userfiles/Images/economy_policy_feb2013.jpg" style="margin: 0 10px 0 0; " width="250" /></strong></p>
<p style="text-align: justify;">
	Considering the gloom in the world economic regimes in 2012 and the grayish ongoing global economic performance, the US in 2013 is forecasted to grow by 1.9 per cent. With political tensions mounting between two core Asian economies, Japan and China, amid affected Japanese trade in automobiles and related industries, and with contraction in one of the largest export sectors, the Japanese economy is expected to witness a meager growth of only 0.7 per cent in 2013. Unlike the economies mentioned above, the Chinese economy with its improving manufacturing sector, satisfactory flow of Foreign Direct Investment and export data has been projected to grow by an attractive 8.4 per cent in 2013, though the figure is 20 basis points lower than the previous projection for the year. Further, increasing Chinese appetite for FDI outflow also exhibits the magnitude of its economy. Moving on to emerging economies, the growth rates for India, Brazil and Mexico have been projected to be 6.1, 3.4 and 3.3 percent, respectively. With economies like the Eurozone and the USA not really supporting these emerging economies, these expected growth rates could be deemed satisfactory.</p>
<p style="text-align: justify;">
	<strong>Nepali Economy in 2013 and Global Influence</strong></p>
<p style="text-align: justify;">
	Nepali exports have seen a decline in recent months, thanks to the economic slowdown in the Euro Area and a mild US economy. Nepali industries like, garment, herbs, handicraft, carpet, metal-wood and other related sectors are hit hard by the global meltdown. Combined with the international pessimism, ‘below-par’ agricultural and industrial performance is also contributing to drag the economy towards austerity. In line with the current and forecasted economic indicators, the WB has forecasted Nepal’s economic growth rate to be 3.8 per cent for fiscal year 2012-13, which is 80 basis points lower than the actual economic growth rate for fiscal year 2011-12.</p>
<p style="text-align: justify;">
	The key issues contributing to lowered growth forecast could be attributed to the ongoing constitutional crisis, poor investment environment (in terms of FDirectI) and infrastructural bottlenecks in the country. Besides the ongoing political instability and poor market sentiments, inadequate and inefficient public expenditure, too, has been hampering the economic outlook, which, in turn, may further contribute to downgrading the current forecasted growth rate. Remittance, working as a key source of financing, incorporates around 22 per cent of the national Gross Domestic Product (GDP). At this point of economic junction, as remittance has been facilitating to finance imports, covering trade deficits with counterparts, the year ahead could also see an optimistic inflow of funds, taking into account the numbers of Nepalis working abroad, especially in the Gulf countries.</p>
<p style="text-align: justify;">
	With the WB having already lowering Nepal’s growth forecast for fiscal year 2012-13 and remittance acting as an economic catalyst, it’s political leaders and government authorities who could possibly look into the matter and plug the loopholes in the operating environment, eventually facilitating, promoting and simplifying investment grounds for national and international market participants. Only time would tell what the government would do to address the situation and improve the country’s GDP growth rate, lower dependency on remittance and international debts for the year and henceforth.</p>
<p style="text-align: justify;">
	<strong>The author is Assistant Manager, Research &amp; Development Department, Mercantile Exchange Nepal Limited, Nepal.</strong></p>',
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			'description' => 'Concerned over the ongoing austerity measures, high unemployment rate and lower business confidence combined with weak market sentiments in core global economies like the USA and Eurozone, the World Bank (WB) has lowered its forecast for 2013.',
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<p class="MsoNormal">
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&quot;Myriad Pro&quot;"><img alt="" border="1" height="181" hspace="10" src="http://newbusinessage.com/ckfinder/userfiles/Images/ecomony_featured.gif" vspace="10" width="338" /><br />
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	<span class="A29"><span style="font-size:15.0pt;line-height:
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mso-hansi-theme-font:minor-latin;mso-bidi-font-family:&quot;Myriad Pro&quot;">Cartels may be overt or covert as the producers and suppliers of goods and services can have a tacit understanding or open agreement to fix the market price, allocate market, increase prices and decrease the quality of the goods and services.</span></span></p>
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	<span class="A29"><span style="font-size:15.0pt;line-height:
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59.0pt">A </span></span><span style="font-size:10.0pt;mso-bidi-font-family:
&quot;Myriad Pro&quot;;color:#211D1E">cartel is generally understood as the arrangement among producers and suppliers of goods and services to control the production, sales and price so as to restrict competition and obtain monopoly or oligopoly in the market. On the other hand, a syndicate is a self organizing group of individuals, companies or entities formed to transact some specific business or promote their common interests. Cartels may be overt or covert as the producers and suppliers of goods and services can have a tacit understanding or open agreement to fix the market price, allocate market, increase prices and decrease the quality of the goods and services. Such practices are generally considered as the worst forms of anti-competitive behaviour and condemned by the laws of various countries.</span> <br />
	<br />
	<img align="left" alt="" border="1" height="349" hspace="10" src="http://newbusinessage.com/ckfinder/userfiles/Images/ecomony.gif" style="margin:10px;padding:10px;" vspace="10" width="221" /></p>
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	<span style="font-size:10.0pt;mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">Competition is the cornerstone of open and liberalized economy as the anti-competitive behaviour of the enterprises, industries or traders take a toll on the economic performances of a country by promoting inefficient firms, producers and distributors and punishing the efficient ones. Consumers are compelled to pay higher prices and use low quality goods and services in a situation of anti-competitive markets. In view of this, countries have developed their own competition laws in order to prevent unhealthy business practices. The United States of America has enacted two such basic laws, called anti-trust laws. Named the Sherman Act and the Clayton Act, these are enforceable by the Department of Justice and Federal Trade Commission. Similarly, the European Union has provisions under the Treaty of Rome to maintain fair competition and Australia has its Trade Practices Act 1974. In India, the Monopolies and Restrictive Trade Practices Act was brought out in 1969 and later replaced by the Competition Act in 2002. The Indian Competition Act is quite comprehensive and has provision to constitute the Competition Commission and the Competition Appellate Tribunal among others. The objectives of the act have been defined as: to prevent practices having adverse effect on competition, promote and sustain competition in markets, protect the interest of consumers and ensure freedom of trade carried out by other participants in the market.</span> <br />
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	<span style="font-size:10.0pt;
mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">The Competition Promotion and Market Protection Act (CPMPA) was passed by the Parliament of Nepal in 2006 and the Government of Nepal came up with the relevant regulations in 2009. The act basically defines the anti-competitive practices and dealings, and prohibits the anti-competitive agreements between two or more parties with the intention to limit or control competition. Such anti-competitive agreements may be in the form of fixing the sales or purchase price, limiting the quantity of production or sales, market allocation, creating barriers for market entry to the producers and suppliers of similar goods and services, determining the terms and conditions of sales, imposing quota and applying syndicate system in transport and distribution of services. Similarly, the act prohibits the abuse of dominant position by a producer or distributor or their conglomerates with the intent of controlling competition. Besides, merger and acquisition of enterprises with a takeover of more than 50 per cent share and acquisition of more than 40 per cent market share are the prohibited behaviours that have the effect of creating monopoly in the market. Bid rigging, exclusive dealing, market restrictions, tied selling and misleading advertisements are other anti-competitive practices and offences under the competition act.</span> </p>
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	<span style="font-size:10.0pt;
mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">Cartels and syndicates are the anti-competitive agreements according to section 3 of the CPMP Act. Such an agreement may be in the written form or as a tacit understanding which is difficult to prove by the document but can be judged from the behaviour and resultant outcomes of such dealings. Let us look at some representative cases in the context of Nepal.</span> <br />
	<br />
	<img align="left" alt="" border="1" height="349" hspace="10" src="http://newbusinessage.com/ckfinder/userfiles/Images/opec.gif" style="margin:10px;padding:10px;" vspace="10" width="221" /><span style="font-size:10.0pt;mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">Transportation services are a prime example of the most-hit sector by cartels and syndicates. The transporters are usually smart enough to make a hefty profit through the application of syndicates. First, they bond together within the umbrella of their associations that culminates into the federation redoubling the institutional strength to protect and persuade the vested interest of transport operators around the country. Such strength can yield dominant positions in the market collectively and the abuse of such position is imminent. Price fixation, particularly regarding plying on minor roads, application of higher charges on services, queue and rotational system in operation, use of old and worn out vehicles and overload in cargo transportation are some elements associated with the syndicate behaviour of the transporters. The transporters deter the entry of new transport equipments through physical threat or assault in case somebody dared to enter their market or put heavy syndicate charges for such entry. This has put the consumers in worse conditions as they need to pay higher transportation charges, meet with frequent road accidents, and travel in crowded sitting positions in the buses. This sort of practice rewards inefficiency and discourages firms to provide services in an environment of open and healthy competition.</span> </p>
<p class="MsoNormal">
	<span style="font-size:10.0pt;mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">Transportation of petroleum products and their distribution is another sector affected by hardcore cartels and syndicates. Different associations that are in existence demonstrate the collective anti-competitive behaviour of their members. Such a behaviour usually include the pressure or demand for increasing profit margin, cheating in the measurement of volume and weight, raising barriers to the entry of new traders and dealers etc. It was noted that one of the demands of LPG Bottlers Association during their recent strike was against the government’s plan for granting license for a glass bottling plant. Moreover, these associations often exert pressure through the means of strikes, lock-outs and interruptions in services to make the government accept their demands. Any compromise with the demands based on such unlawful means of threat and violence by the associations and its members would reduce the efficiency of the economy and harm the interests of the common consumers.</span> </p>
<p class="MsoNormal">
	<span style="font-size:10.0pt;mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">The third cartel group belongs to the distributors and wholesalersof fruits, vegetables and meat products. These are organized groups and have their own associations while their upstream and downstream stakeholders in the supply chain do not have strong enough associations to offset their unruly behaviour. Hence, the farmers are fetching low prices on their products on the one hand and the consumers are forced to pay higher prices at the other to the hefty benefit of those middlemen. A market survey done at the Kalimati Vegetable Market shows that the price paid by the consumers for some vegetable products are 10 times higher than the price paid by the middlemen to the farmers for the same vegetables. This shows the intensity of unfair trade practices, much to the chagrin of law enforcing authorities.</span> </p>
<p class="MsoNormal">
	<span style="font-size:10.0pt;
mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">Cartel groups in Nepal are found in other sectors as well. For example, there are tacit understanding and clandestine agreements among the importers and distributors of food grains in order to fix price and control supply and raise the price particularly during the festive season of Dashain and Tihar. Sugar industries collude to pay less to the farmers against purchase of canes and fix high prices of sugar for sales to the end consumers with a bigger price arbitrage, while manufacturing industries like cement, noodles and water pipes sell their product at the identical price as a result of tacit understanding among the manufacturers.</span> </p>
<p class="MsoNormal">
	<span style="font-size:10.0pt;
mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">Cartel is globalizing as well along with the globalization of economies. The famous example of international cartel is the Organization of Petroleum Exporting Countries (OPEC) which has been increasing the world prices of petroleum products at various times by imposing the production quota and fixing of prices. Besides, cartels are noticed in the international production system for steel, fertilizers, rice and other commodities.</span> </p>
<p class="MsoNormal">
	<span style="font-size:10.0pt;
mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">Thus, in a situation of cartel, producers and suppliers control the production and supply to maintain an artificially high price. This kind of behaviour is supported by a situation where there is less number of suppliers but large number of customers in the markets, market demand is not too variable and individual firms output can be easily monitored by the cartel organizations. The organized behavior of such cartels is pronounced in the syndicated system. The ultimate effect of these anti-competitive practices is that the efficient firms lose to the inefficient firms or suppliers as there are no incentives for bringing down the cost and increasing the quality of goods and services. In such a situation of duopoly or oligopoly, all the firms within the cartel groups benefit by sharing the market without the need of improving efficiencies in production or supply.</span> </p>
<p class="Pa8" style="text-align:justify">
	<span style="font-size:10.0pt;
mso-bidi-font-family:&quot;Myriad Pro&quot;;color:#211D1E">Perfect competition is an ideal situation that is hard to achieve in any economy. However, it should be the ultimate goal and direction to move forward which can be stepped upon by gradually building on the legal, institutional and human resources base for defying the anti-competitive behaviour. Reining the cartel and syndicate requires comprehensive and concerted approaches from all stakeholders and the effectiveness of law enforcement agencies. The most important factor is the requisition of political will and commitment to establish a competitive and healthy market that could be the precursor to increased trade and foreign direct investment in the country. Many developing countries including Nepal are mired by the dilemma of politics protecting the cartels and syndicates as those who are engaged in anti-competitive practices dole out substantial money to the political parties and their leaders. </span></p>
<p class="MsoNormal">
	 </p>
<p class="MsoNormal">
	<strong>&nbsp;</strong></p>
<p class="Pa27" style="margin-top:5.0pt">
	<strong><span style="font-size:8.0pt;mso-bidi-font-family:
&quot;Myriad Pro&quot;;color:#211D1E">Ojha is a Former Secretary, Government of Nepal. The views expressed in the article are personal of the author. </span></strong></p>
<p class="Pa27" style="margin-top:5.0pt">
	 </p>
<p class="MsoNormal">
	<span style="font-size:15.0pt;line-height:115%;mso-bidi-font-family:
&quot;Myriad Pro&quot;;color:#211D1E">&nbsp;</span></p>
<p class="MsoNormal">
	 </p>',
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			'keywords' => '',
			'description' => 'Cartels may be overt or covert as the producers and suppliers of goods and services can have a tacit understanding or open agreement to fix the market price, allocate market, increase prices and decrease the quality of the goods and services.',
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	(int) 9 => array(
		'Article' => array(
			'id' => '517',
			'article_category_id' => '37',
			'title' => 'Prolonged Economic Crisis: By Achyut Wagle A Case For Democratic Capitalism',
			'sub_title' => '',
			'summary' => null,
			'content' => '<p style="text-align: justify;">
	<span style="font-size:12px;"><img align="right" alt="economy" border="1" height="209" hspace="5" src="http://newbusinessage.com/ckfinder/userfiles/Images/achyut wagle.jpg" style="width: 160px; height: 209px;margin:10px;padding:10px;" vspace="5" width="160" />When the USA was frantically trying to come out of perhaps the worst economic recession in modern times, the Eurozone reeled under even more serious cycle of economic meltdown. Angry verbal exchanges between British Prime Minister David Cameron and French President Nicholas Sarkozy in Brussels meeting on 23rd October and apparently crestfallen Sarkozy coming out of a meeting with German Chancellor Angela Merkel a couple of days earlier are surmiseable indications of the fact that the days of economic certainties in the world are still beyond horizon. The reportedly emerging consensus among the Eurozone leaders might find some solace for now. In fact, they have no alternative to evolving such consensus, but the days of worries of world economy wouldn't be over just by such isolated moves of bail-outs or write-offs unless the very cause(s) of these problems are addressed at the root. The most repeated statement of the present day economists and economic analysts is: Even if the USA and the Eurozone&nbsp; specifically Greece, Italy, Portugal, Ireland or Iceland -- came out from the current mess by some means, the world will not be the same again. Then, how would the new world look like? Nobody has a definitive answer. But, there is no alternative to finding out not only a convincing answer to this question but a workable framework to save the world from such too frequent and highly pervasive economic crises. Both, such frameworks and answers, can be devised by reviewing the past and taking unconventional strategies that suit to the present-day realities. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;"><strong>1. Oversight Failures :</strong> When the subprime crisis was at its height in the US in 2008, Eurozone leaders were proudly boasting the robustness of their conservative supervisory regime of the financial system and were not subscribing the idea that their financial systems were not immune to similar- inbred if not contagious- crises. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">The series of these crises have now exposed the fact the exiting supervisory and regulatory framework worldover has become virtually dysfunctional and a new one encompassing the contemporary, and if possible future, trends is not yet in place. Even worst, no meaningful homework has begun to that end, so far. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">The movement of funds aided by mainly three distinct features-- the exponential growth in information technology, wider transport connectivity and high movement of people and new tools of trade in the money market like derivatives future-- have far outpaced the efficiency, jurisdiction and reform of both global and national financial systems oversight regimes. International flow of funds through legal channels, i.e. more or less detectable by any form of the regulatory radar, is less than 4 to 5 percent of the total estimated global transfers. On the legal side of the transfers, estimated value of world merchandise exports in 2010 was US $13.36 trillion and world commercial services exports in the same period was $3.64 trillion (Source WTO secretariat website and calculated on projected 10% rise in 2010 from 2009 actuals of world merchandise exports equivalent to $12.15 trillion and world commercial services exports $3.31 trillion). <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">Similarly, according to an estimate by the World Bank, officially-recorded remittance flows in 2010 was about US$440 billion worldwide. And, crossborder investments in capital markets and real estate combined was to the tune of $330 billion. With all these transfers put together, even in exaggerated terms, the recorded total transfers of funds across the globe would hardly cross the $ 20 trillion mark. On the contrary, according to the Bank for International Settlements (BIS), amount of derivatives transactions stood at $601 trillion in December 2010, up from $583 trillion six months earlier. It was at the record level of $684 trillion in June 2008. Interest rate contracts form more than 75 percent of the derivatives futures transactions. (As reported in The Economist, May 31, 2011) The figures presented by the Daily Finance, a subsidiary portal of AOL, is even more appalling. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">It says, One of the biggest risks to the world's financial health is the $1.2 quadrillion (one quadrillion is 1,000 billion) derivatives market. It's complex, it's unregulated, and it ought to be of concern to world leaders that its notional value is 20 times the size of the world economy Apart from these monetary-side regulatory gaps, fiscal regulation is also facing new challenges as the national boundaries are gradually becoming irrelevant partly by the sweep of globalization and partly made so by design, particularly in case of Eurozone, with the introduction of common currency, the Euro. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">With the introduction of the common currency, the national-level supervisory/regulatory authorities have become redundant and the national accounts failed to present the true picture of the economy as many crossborder transactions take place unrecorded. The window of currency conversion that used serve also as the basis of record of cash flows across the border is automatically out of practice. The forceful homogenization of the currencies of weaker and stronger economies has prompted unhindered and unregulated capital flights from weaker to stronger economies, breeding even graver crisis situations in weaker nations. Greece is the latest striking example. <img align="right" alt="ecomony" border="1" height="346" hspace="5" src="http://newbusinessage.com/ckfinder/userfiles/Images/fig.jpg" style="margin:10px;padding:10px;" vspace="5" width="504" /><br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">Such capital flight is but natural phenomena, because weaker economy also meant less rate of return on investment, lesser degree of security and higher degree of unpredictability. And, common currency has facilitated it in a great deal. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;"><strong>2. The Political-Economy Issue:</strong> With the crisis aggravated more on every passing day, and resolution of it nowhere in sight, a number of ecopolitical issues have also come to fore. The worldwide fever of Capture Wall Street has created a new debate on possible collapse of capitalism. The advocates of egalitarian welfare state seem happy that the old good days of state-sponsored social safety model of economy would return soon. In the virtual mayhem, the virtues of both democracy and capitalism are pushed behind the dark shadow, a true concern for the future of the world economy and polity. In name of addressing the crisis, the electorates are kept completely aloof in taking the economic decisions that affect their lives the most. Their elected representatives are equally helpless as the common man on street, like in the case of Greece again, or their representatives like in the US take the decisions on the issues never mentioned in their election manifestoes, thus acting on democratically unmandated domain. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">These factors in due course are likely to raise more excruciating questions on the very rationale of election and their leaders authority to rule. This would certainly take way some beauties from the democracy. Another important question here is: has capitalism really failed? Or, are mere consumerism and irrational greed at the peril? The differentiation is not easy. But the fact is, it is not the capitalism that has failed but all the problems, perhaps without exception, are borne out of sheer anti-capitalistic and antidemocratic moves of the economies and their leaders at the helm. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">One of the greatest beauties of capitalism is the Economic Darwinism. The state must let the companies of whatever size that are already or become unable to compete in the market, fail. But, the problems multiplied to take the world at present situation when powerful economies set wrong precedent by bailing out ailing banks and companies at the expense of the tax-payers money. And, in the process, the decision makers did it without taking such important issues to the public through polls or referendum, which compromised the very tenets of the democracy. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;">The ongoing global economic crisis, however, should be able to ignite a new debate on necessity of democratic capitalism as new future eco-political model. This new philosophy must not only be able to force the governments to act according to the principles of democracy and/or capitalism in isolation, but should establish it as a united theory where these two are treated as inseparable elements in future ecopolitical governance. <br />
	</span></p>
<p style="text-align: justify;">
	<span style="font-size:12px;"><strong>3. The Future:</strong> The hypothesis of democratic capitalism is certainly useful to resolve the present crisis. Even more, this paradigm-shift would prove more appropriate as the shifting of economic might from West to East, from democratic to authoritarian country. Observing at the difficulty in resolving current crisis even in the highly transparent economies like the US and Europe, one can easily think of gravity of situation when similar problem arise in secretive but the second largest economic powerhouse like China. The simultaneous emphasis on democracy as that only ensures transparency and, respect to the ideals of capitalism that promotes free competition in any odd situation, can only in unison make the future world safer to live and do the business in business-like fashion.</span></p>',
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			'modified' => '2012-09-20',
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			'description' => 'The reportedly
emerging
consensus
among the
Eurozone leaders
might find some
solace for now.',
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	(int) 10 => array(
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			'id' => '444',
			'article_category_id' => '37',
			'title' => 'Trading Gold For Silver: Our HR Position? (September 2011)',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="border-width: medium medium 1pt; border-style: none none solid; border-color: -moz-use-text-color -moz-use-text-color rgb(134, 55, 59); padding: 0in 0in 3pt;">
	<div>
		<strong><span style="font-size: 14px;"><img align="left" alt="trading" border="1" height="197" hspace="10" src="http://newbusinessage.com/ckfinder/userfiles/Images/rajan pradhan.jpg" style="width: 153px; height: 197px;margin:10px;padding:10px;" vspace="10" width="153" />By Rajan Pradhan</span></strong></div>
</div>
<div style="margin-bottom: 0.0001pt; text-align: justify; vertical-align: middle;">
	<span style="font-size: 14px;">Long serpentine queues in Kathmandu are no more a subject of curiosity to us. The endless lines of cars at gasoline stations, people crowding around water tankers, devotees pushing into shrines and investors interested in IPO lined up in front of commercial institutions are most common scenes one can see every day. However, the one I saw a few months back looked quite unusual. The mass gathered there were only the youngsters probably from late teens to people in their thirties. Their facial expressions carried pronounced signs of pain, desperation and anxiety. I could easily see the “Do or Die” atmosphere there. Letter in the day, I came to know the swarm there was of the aspirant applicants eager to work in Korea. It went on for days perhaps reminding us of human exodus we see quite often on news from around the world.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">With the tank in my car almost dry due to ongoing rationing of petroleum products, I found no other means of relaxing on a Saturday than lazing at home which gave me a chance to chitchat with my brother-like figures who has been close to us for decades. I found him so excited that day; he believed he had a plan well in place for his future. He finally got hold of a recruiter who had promised him a job in a company in Dubai - a job which gives him a remuneration of over Rs 12,000 a month with free accommodation! </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><img align="left" alt="trading" border="1" height="232" hspace="10" src="http://newbusinessage.com/ckfinder/userfiles/Images/eco.jpg" style="margin:10px;padding:10px;" vspace="10" width="400" />I congratulated and wished him all the success but could not help crunching some numbers - quietly within myself. He would be bearing a total cost of about Rs 100,000 for air tickets and charges due to the manpower company. He would probably need additional two thousand rupees every month to cover cost for food and other supplies on top of what he would get from the company. A two year of work would perhaps fetch him an income of about Rs 290,000- the saving being about five to six thousand rupees a month which is about eighty dolors a month. I tried not believing it but could not ignore the fact that he would send such eighty- dolor back home not only to buy a plot of land in Kathmandu for himself but also to buy our petrol from abroad to fill up our cars. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Back home, it is more of a challenge not only to get hold of good professionals but also to get dedicated non-skilled labour in abundance. It was like a real manhunt, while searching for an engineer for one of my recent hotel expansion projects. The contractor for the same project has already got his site engineer changed the fourth time in just over nine months. The void in our labor market has already become obvious. We will perhaps spend many of our 80-dollar remitted to us to buy our skilled manpower and services back from abroad. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">The disappearing political borders are now given to us in an international market under a trend of globalisation. The fact that around 30 per cent of our 5.6 million households depends on earnings from overseas jobs while its contribution to our gross domestic production (GDP) is 23.4 per cent cannot be undermined. However, getting paid in silver for lending out our brains and hands and then buying them back paying in gold is certainly not a wise way of handling our human resources.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">A labor in Kathmandu earns about Rs 400 a day today whereas a skilled labor makes over Rs 700 a day - which is almost Rs 12,000 a month even if he gets work for 15 days a month. The majority of people who aspire hard to get a job abroad are not skilled but if trained even for a short span of time, they can be skilled enough to earn at home as much as they would earn abroad. Even if one decides to go abroad, their average income would certainly improve from the present average of Rs 14,000 a month. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Awareness among for vocational and short-term training progrmmes and more importantly commitment from our planners and rulers are what we need today to add value and competitiveness to our work force.&nbsp;Venturing for such a noble cause will give us tangible and immediate returns for sure - inflow of remittance will grow, unemployment will reduce and balance of payment will improve. Perhaps we will then be trading our silver for gold not our gold for silver!! <br />
	<br />
	</span></div>
<div>
	<span style="font-size: 14px;"><i><span style="line-height: 115%;">(Pradhan is Director Business Development &amp; Projects at Soaltee Hotel Limited.)<br />
	<br />
	</span></i></span></div>',
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			'description' => 'Long serpentine queues in Kathmandu are no more a subject of curiosity to us. The endless lines of cars at gasoline stations, people crowding............',
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	(int) 11 => array(
		'Article' => array(
			'id' => '433',
			'article_category_id' => '37',
			'title' => 'Monetary Policy And Question Of Financial Stability (august 2011)',
			'sub_title' => '',
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			'content' => '<div style="margin-bottom: 0.0001pt; line-height: 120%; vertical-align: middle;">
	<strong><span style="font-size: 14px;"><i><span style="line-height: 120%;">By Nara Bahadur Thapa</span></i></span></strong></div>
<div style="margin-bottom: 0.0001pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; vertical-align: middle;">
	<span style="font-size: 14px;">Recent global financial crisis has once again ignited the debate on the role of monetary policy in ensuring financial stability. Taking a cue from international trend, emerging financial distress in Nepal has added pressure on using monetary policy instruments for securing financial stability. The question asked is: should financial stability be in the domain of monetary policy or should it be pursued as an objective of regulatory policy? Although the debate remains still inconclusive, views on either side of the debate have sharpened.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Undoubtedly, safeguarding financial stability has become an increasingly dominant objective in economic policy. Hence, it is argued that monetary policy should also take care of it. In light of this, besides maintaining price stability and supporting economic growth, Monetary Policy often has the task of preserving financial stability. Monetary variables such as the quantum of money, bank credit, liquidity and the level of interest rates are used to attain monetary policy objectives.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">These monetary variables - the quantum of money, bank credit, liquidity and the level of interest rates - affect financial stability in one way or the other. This is the basis of the argument that monetary policy should be used to safeguard financial stability. In this context, it should be noted that the NRB Act 2002 does not state financial stability as an objective of monetary policy. Monetary policy objectives, as enshrined in the NRB Act 2002, are maintaining low and stable rate of inflation and the external sector stability. These two objectives are supposed to ensure the sustainable development of the economy. Nevertheless, the Act does indicate that the role of the central bank in promoting banking and financial stability as well as developing a secure, healthy and efficient domestic payment system. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">We should seek the answer to the question as to why the law of the central bank has not assigned the financial stability as an objective of monetary policy. This implies that the NRB Act has visualized instruments that can be used to ensure monetary and financial stability differently.&nbsp;&nbsp; </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	<strong><span style="font-size: 14px;">Financial architecture </span></strong></div>
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	<span style="font-size: 14px;">The way monetary policy is conducted and financial stability is pursued should be discussed in the context of the financial architecture that exists at the global as well as the domestic level. The current international financial architecture is rooted in the McKinnon-Shah hypothesis (1973) that argues for the removal of financial repression and the introduction of financial deregulation. The major elements of financial deregulation are: (i) the elimination of credit controls, (ii) the deregulation of interest rates, (iii) free entry into the banking sector/financial services industry, (iv) central bank autonomy, (v) private ownership of banks and (vi) liberalization of international capital flows.</span></div>
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	<span style="font-size: 14px;">International organizations such as International Monetary Fund (IMF) and the World Bank supported the McKinnon-Shaw hypothesis and in the process encouraged member nations to adopt liberal financial policies. Many developing countries including Nepal deregulated their financial sector. Even in the USA, the comprehensive regulations introduced in 1933 in the wake of the Great Depression in the form of the Glass-Steagall Act which had ensured financial stability were removed in 1999, ushering in a complete deregulation of the financial sector. The Glass-Steagal Act kept different types of financial institutions separate and dictated the activities they could and could not engage in. It was argued that Glass-Steagall Act prevented banks from diversifying risk. Following this, an agreement was reached at the global level for the international financial architecture. </span></div>
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	<span style="font-size: 14px;"><b>&nbsp;</b></span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><b><span style="color: black;">The major elements of which are: </span></b></span></div>
<div style="margin: 0in 0in 0.0001pt 9pt; text-align: justify; text-indent: -9pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><span style="color: black;">i.&nbsp;Simple rules for monetary and fiscal policy would&nbsp;guarantee macro stability,</span></span></div>
<div style="margin: 0in 0in 0.0001pt 9pt; text-align: justify; text-indent: -9pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><span style="color: black;">ii. Deregulation and privatization would unleash growth and prosperity,</span></span></div>
<div style="margin: 0in 0in 0.0001pt 9pt; text-align: justify; text-indent: -9pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><span style="color: black;">iii.Financial markets would channel resources to the most productive areas and polish themselves effectively, and</span></span></div>
<div style="margin: 0in 0in 0.0001pt 9pt; text-align: justify; text-indent: -9pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><span style="color: black;">iv. The rising tide of globalization would lift all economies.</span></span></div>
<div style="margin: 0in 0in 0.0001pt 9pt; text-align: justify; text-indent: -9pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">The agreement on these elements spearheaded by the IMF and the World Bank is known as the Washington Consensus. The spirit is that the adoption of standards and codes on macro-financial policies, transparency, good corporate governance and internationally designed accounting and auditing rules would ensure financial stability. Given these standards, it was thought that market would ensure financial stability. With no restriction on the portfolio, free entry and exit of financial institutions could ensure the dynamic financial stability. There was no need for government intervention, including financial bailout. In keeping with this framework, Lehman Brothers was allowed to fail in September 2008.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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	<span style="font-size: 14px;">With the economic liberalization initiated in the mid-1980s, the Nepali financial system has experienced significant developments. The NRB Act 2002 aims at consolidating the foundation for the new domestic financial architecture. The new NRB Act provides an autonomous central bank answerable to parliament. The Act curtails the unlimited lender of last resort (LOLR) facility for both the government of Nepal and the banking sector as the facility has a danger of creating a perpetual financial instability.</span></div>
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	<strong><span style="font-size: 14px;">Prudential regulation and supervision for financial stability</span></strong></div>
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	<span style="font-size: 14px;">Now the question that arises is: What instruments does the NRB Act 2002 envisage to ensure financial stability? The current international financial architecture underscores the importance of prudential regulation and supervision for achieving financial stability. The NRB Act 2002, BAFIA 2004, Debt Recovery Act (DRA) 2002 and Credit Information Bureau (CIB) underpin the new domestic financial architecture. The NRB Act 2002 grants the autonomy to the central bank aimed at strengthening the banking supervision. The BAFIA lays down the framework for banks to operate. The DRA establishes creditors rights. The CIB offers a venue for information sharing among banks with a view to help reduce non-performing loans (NPL). This is key to ensure financial stability over the period. </span></div>
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	<strong><span style="font-size: 14px;">The case for the use of monetary policy for financial stability</span></strong></div>
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	<span style="font-size: 14px;">The recent global crisis showed that prudential regulation and supervision alone did not guarantee financial stability. Hence, a case is made for using monetary policy in support of financial stability. In the wake of the recent global crisis, the IMF urged member nations to use monetary policy as the first line of defense. </span></div>
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Given the importance of financial sector stability for the overall functioning of macro economy in general and the transmission mechanism of monetary policy in particular, the NRB is cognizant of the role of monetary policy in attaining financial stability in recent years. Accordingly, monetary policy instruments have been used in support of financial stability. For instance, the bank rate, which was as high as 9 percent some years ago, was gradually reduced to 5.5 percent. Currently, it is 7 percent. Recently, the penal rate of 3 percent has been added to it for the LOLR facility to banks. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Besides the bank rate, concessional refinancing rates have been lowered to 1.5 percent for exporters, sick industries, small and medium scale industries and targeted people for foreign employment.&nbsp;The NRB has been making a provision for refinancing banks for their sick industry loans over the last several years. The objective is to help financial institutions and thereby achieve financial stability.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">The cut in CRR has been consistently and systematically aimed at reducing the financial intermediation cost. The argument in this case is that monetary policy in no way should be a factor responsible for a higher financial intermediation cost measured in terms of interest rate spread. For this reason, CRR has been systematically reduced from 12 percent a few years ago to the current level of 5.5 percent. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">A system of flexible open market operations aimed at modulating liquidity has been put in place since 2004/05. Open market monetary instruments such as sale, purchase, repo and reverse repo auctions are being used either to inject or drain liquidity from the system.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">A system of standing liquidity facility (SLF) has been introduced for counterparties. The purpose of the SLF is to provide a safety valve for domestic payments system. Under this facility, counterparties can make an automatic and hassle - free access to funds from the central bank.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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	<strong><span style="font-size: 14px;">The case against overly use of monetary policy for financial stability</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">There are counter arguments for overly use of monetary policy for financial stability. First, it is argued that the mixed role of the central bank, namely securing banking stability and maintaining monetary stability, at times, creates policy tensions. For example, the use of accommodative monetary stance aimed at supporting financial stability could be counterproductive to price and external stability in the face of pressures on inflation front and a deficit in country's BOP position. As such, the central bank faces policy tensions of using soft interest rate policy for securing financial stability or hard interest rate policy for keeping inflation low and maintaining external stability.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Second, as per Tinbergin's rule (one instrument - one target), monetary policy, which is one instrument, can not be used for two policy goals - monetary stability and financial stability.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">&nbsp;Third, rescuing financial institutions by way of soft interest rate policy or the protracted use of quantitative easing through the LOLR facility will only prolong financial imbalances, posing risks to financial stability over the medium term. This will only postpone financial distress leading to a bursting of financial crisis in some points of time in the future. In this context, Greenspan's prolonged low interest rate policy is cited as one of the causes of the financial crisis in the US in 2008.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Fourth, it is argued that the expectation of monetary authorities stepping in to defuse a crisis undermines market discipline and creates moral hazard problem in that it weakens the incentive for market participants to act prudently.</span></div>
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Fifth, as Greenspan argued, the cleaning up the mess after the bubble bursts would be technically easier and less interfering with the market and more cost effective. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Back home in Nepal, it is argued that excessive monetary injection by way of repo and SLF lending helped perpetuate low interest rate regime in the past. This encouraged banks to indulge in financial excesses, leading to the recent financial distress in Nepal, including a deficit in country's BOP. It must be noted that the deficit in BOP during the last two years is not on account of the government budgetary imbalances, it is due to the private sector excesses and imbalances.&nbsp;</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Of the various facts of financial stability, the question of monetary policy taking care of real estate and share prices has remained controversial. The question often asked is as to what should be the role of monetary policy in keeping these prices stable. This question is asked because stock market developments generate wealth effects, which have monetary policy implications. Likewise, stock market developments have implication for NPA level and, at times, threaten banking sector stability. Foreign portfolio investment in stocks has implication for external stability, for a greater volatility in share prices causes a sudden capital outflow, leading to BOP and exchange rate crises. Since foreign portfolio investment in the Nepalese stock market does not exist, this kind of tension does not arise in Nepal as for now. The consensus so far reached is that monetary authorities should be watchful of these prices. However, it is argued that monetary policy should not be overly used in containing these prices.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	<strong><span style="font-size: 14px;">Macro prudential regulation</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Micro prudential regulation does not make a distinction between growth enhancing credit and speculative ones. The consensus is also not to use monetary policy overly for financial stability. Hence, the focus has now shifted on macro prudential regulation.&nbsp;It is argued that macro prudential regulation is needed to deal with the issue of pro-cyclicality and build defenses against emerging structural vulnerability in the financial sector. Pro-cyclicality and structural vulnerability are manifested in terms of real estate bubbles, common exposure to asset price bubbles, excessive leverage and low level of liquidity. To deal with these problems, macro prudential measures such as capital ratios, capital buffers, dynamic (forward looking) provisioning, liquidity ratios and prudent collateral valuation are applied. According to Blanchard, in case, excessive leverage emerges, regulatory capital ratio should be raised. If liquidity is low, regulatory liquidity ratio should be increased. If housing prices are rising, loan-to-value (LTV) ratio should be lowered. If stock prices are rising, margin requirements (haircuts) should be raised. In the wake of emerging financial distress, the NRB has introduced a number of macro prudential measures. For example, sectoral loan limit for housing sector is capped at 25 percent and real estate at 10 percent. C-D ratio for banks and financial institutions is fixed at 80 percent. The LTV ratio for shares has been fixed at 60 percent. Similarly, the LTV ratio has been fixed at 60 percent for both real estate and housing.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Although macro prudential regulation could act as the first line of defense and be an important element of new financial architecture in the wake of the recent global financial crisis, there is a possibility of strong political pressure against the use of it. In the US, the delay in adopting the Volcker plan which aims at separating functions of different financial institutions is an example of it. Back home in Nepal, the strong pressure for the removal of LTV ratio for shares and strong lobby for the relaxation of capping real estate and housing loans are cases in point. This suggests that the existing domestic financial architecture will remain intact, implying that only micro prudential norms and market discipline will remain instruments for financial stability. There will be growing demand for the excessive use of monetary policy for securing financial stability. However, the latter will not help safeguard the long term financial stability. If it is used, it will be only at the peril of macroeconomic stability. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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	<strong><span style="font-size: 14px;">Tentative conclusions</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">There is no doubt that financial stability is a public good which must be secured through preventive and remedial measures. Micro - macro prudential and deposit insurance measures can be applied to maintain financial stability. Keeping monetary conditions at an appropriate level is also key to securing financial stability. For example, easy liquidity conditions would encourage banks to take excessive risks by overindulging in lending. This happened in Nepal in the recent past. Likewise, overly tight liquidity conditions would lead to financial distress. Both of these monetary conditions should be avoided.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Therefore, going forward, the NRB will, in due course of time, appropriately streamline monetary operations. For example, there are ample instruments for the injection of liquidity. However, there are few to drain it. Sale and reverse repo auctions fall short of draining liquidity due to various reasons. Hence, the NRB will seek rationale in introducing standing deposit facility for banks as and when situation warrants.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">The creation of standing deposit facility entails bearing financial costs by the central bank. Therefore, it requires strengthening the financial position of the central bank. It is especially important in relation to the growing size of counterparties and liquidity that would be needed to drain. One way of improving financial position of the central bank for the operation of deposit facility is increasing its paid up capital from the current three billion rupees to five billion rupees. This will help the NRB to absorb possible losses arising from monetary operations.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">The exchange rate and the interest rate are the fundamental macro variables. As the current exchange rate regime as being used as the nominal anchor for macroeconomic management, there is no question of disturbing it at this stage. Therefore, given the depth and breadth of the domestic financial sector development so far, the interest rate is slowly emerging as key policy variable for macro-financial management. In this context, a need has been felt for using short term interest rate instead of the quantity of liquidity as an operating target. The NRB will pursue this in due course of time.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">The role of monetary policy becomes crucial when preventive measures fail to ensure financial stability. Therefore, the role of monetary policy should come at the remedial stage. This is the market failure stage. When this stage comes, as the past intervention indicates, the NRB is extremely cautious to distinguish between those having solvency problem and those with liquidity problem. The LOLR facility should be provided to those solvent but with liquidity problem. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">Given the current financial architecture, the NRB's intervention will take place only when market fails to ensure financial stability. Therefore, the NRB intervention, for that matter, will come with strings such as merger, management change, improvement in corporate governance etc. If financial institutions with solvency problem are systemic, the government should intervene by way of either injecting capital or guaranteeing deposits. Otherwise as per the spirit of the current domestic financial architecture, such financial institutions should be liquidated.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">In case, the financial distress continues and additional LOLR facility is called for, Nepal will have to negotiate for the IMF program. This will be inevitable to deal with the possible adverse impact of LOLR facility on international reserves and BOP.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	<strong><span style="font-size: 14px;">Summing up</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 14px;">The kind of domestic financial architecture we have chosen is key to consider the role of monetary policy for financial stability. If we were to adopt liberal licensing policy and allow banks to have portfolio of their choice, micro prudential, self regulation and market discipline should be key for financial stability. The focus of monetary policy should be on inflation, BOP and foreign exchange. These are crucial areas for attaining macroeconomic stability including financial stability. The role of monetary policy should be marginal and come at the remedial stage. Those financial institutions which cannot survive on their own under the liberal framework of financial architecture should be allowed to disappear. If we were to seek a larger role of monetary policy in ensuring financial stability we will have to be willing to change the current financial architecture including readiness to adopt macro prudential regulation. Given the existing framework of the financial architecture, any lobbying for political interference for the change in monetary policy is construed as an attack on professionalism and autonomy of the central bank. This does not bode well for market discipline, a crucial element for financial stability either.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div>
	<span style="font-size: 14px;"><i><span style="line-height: 115%;">(Thapa is the Chief Manager at Biratnagar Office of Nepal Rastra Bank (NRB). He was earlier the Director of Research Department at NRB's central office in Baluwatar, Kathmandu. He also spent two years between 2008 and 2010 as Advisor to the Executive Director at International Monitory Fund (IMF), Washington DC, prior to returning to Nepal.)<br />
	<br />
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	</span></i></span></div>',
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			'description' => 'Recent global financial crisis has once again ignited the debate on the role of monetary policy in ensuring financial stability. Taking a cue from international trend, emerging financial distress.......',
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		'Article' => array(
			'id' => '432',
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			'title' => 'Monetary Policy2011/12:Hard To Realise The Promises (august 2011)',
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			'content' => '<div style="margin-bottom: 0.0001pt; line-height: 120%; vertical-align: middle; text-align: justify;">
	<span style="font-size:12px;"><strong><i><span style="line-height: 120%;">By Hom Nath Gaire<br />
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	</span></i></strong></span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; vertical-align: middle;">
	<span style="font-size:12px;">The Monetary Policy for the fiscal year 2011/12 has made an attempt to be balanced with the expansionary fiscal policy of the government of Nepal despite fears of inflationary pressure, apart from reducing the Cash Reserve Ratio (CRR) by 50 basis points to five per cent. At the same time, NRB, the country's monetary authority, has accepted the ground reality that the monetary management of the economy is getting tough due to high inflation and unfavourable external sector accompanied by the deepening liquidity crisis in the financial system of the country.&nbsp;</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">To ease the liquidity situation in the economy, the policy has reduced CRR by 0.5 percentage point to five per cent. The policy document said, The revised CRR is estimated to instantly release around Rs 4 billion in the financial system.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">This fiscal year too, the policy has targeted seven per cent inflation. To support the fiscal policy aim of&nbsp;five per cent growth rate, the central bank is planning to increase the broad money supply by 12.5 per cent but the policy is ignoring its implications on general price level. However, NRB has attributed rising consumer price to supply constraints, defending its failure to contain the inflation to seven percent according to the target of its last year's monetary policy.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">According to the central bank data, the broad money supply including the balance sheet of commercial banks, development banks and finance companies enlarged by 7.3 per cent but the consumer price increased by an average of around 10 per cent in the last fiscal year's first 10 months. The 7 per cent target of consumer inflation for the current fiscal year is a big challenge due to the adverse impact of expansionary fiscal policy on which the government is planning to finance the capital as well as the recurrent expenditure through deficit financing. The overall macroeconomic policies have to be revisited as the Monetary Policy could not achieve inflation and Balance of Payment (BoP) target, the policy accepted, Apart from that managing liquidity and maintaining financial stability is an immense challenge for effective execution of the policy.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">According to the policy, BoP that was Rs 11.67 billion deficit in the first 10 months of the fiscal year, has however, recorded an unexpected surplus of around Rs 1 billion by the end of 2010-11, attributing surprise surplus to foreign grants and aids released in the eleventh month.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">For the current fiscal year, the Monetary Policy has targeted Rs 5 billion BoP surplus. In such unpredictable and volatile cash flow situation, the BOP target for the current fiscal year may also be hard to realise. Because, as the Monetary Policy has brought no change in the bank rate, refinancing rate and Statutory Liquidity Ratio (SLR), the debt servicing of the private sector may remain higher and the production of exportable goods will be affected adversely, which in turn will result in wider trade deficit and unfavorable BoP. However, the central bank has stated that refinancing will be revised according to liquidity need. This alone may not be sufficient to meet the demand for credit in the productive sector and boost the exports. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">The foreign exchange policy for individuals has become more as a Nepali willing to visit abroad can get foreign exchange up to $2,500 for once or a maximum of $5000 in a fiscal year, revising the facility from last fiscal year's $2,000 and $4,000 respectively. Similarly, NRNs can open foreign currency bank accounts and special arrangements will be made for Nepalis to open NOSTRO accounts in foreign countries. Likewise, the policy allowed the banks to exchange foreign currency up to $1,000 provided the beneficiary supplies credible source of foreign exchange with identity. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">The policy has increased provision of deprived sector lending to 3.5 per cent and asked banks and financial institutions (BFIs) to raise this ratio by 0.5 percentage point for two years. This provision will be helpful in directing lending towards productive sector as well as deprived sector and supportive to achieve the economic growth of 5 percent, revealed the policy. The targeted economic growth is also hard to achieve in the situation of deteriorating investment climate and low investor confidence due to government's tilt towards a socialist economic system. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">According to the monetary policy, the deposit mobilisation of BFIs will be increased at the rate of 13 percent by the end of the current fiscal year and will add around Rs 100 billion to the country's banking system. To achieve this target, the policy tries to address the crisis of trust in the banking system by extending deposit insurance up to Rs 200,000 to commercial banks as well so that small depositors feel safe. Earlier, the deposit insurance was mandatory only for the B and C class BFIs. By the end of last fiscal year, the deposits of BFIs increased 8.2 per cent to Rs 788.72 billion and the foreign exchange reserve increased by a mere Rs 2 billion to Rs 270 billion from a fiscal year ago's Rs 268 billion.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	</span></div>
<div style="text-align: justify;">
	<span style="font-size:12px;"><span style="line-height: 115%;">Apart from encouraging BFIs to open branches in select nine districts, where there is less access to formal source of finance, the policy directed BFIs to include a collateral-free loan of up to Rs 200,000 for the study of technical education under deprived sector lending.<br />
	<br />
	<br />
	</span></span></div>',
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			'title' => 'Poverty, Inequality And Growth-some Lessons',
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	<span style="font-size:12px;"><i><span style="line-height: 120%;"><img align="left" alt="economy" border="1" height="129" hspace="5" src="http://newbusinessage.com/ckfinder/userfiles/Images/kamal raj.jpg" style="margin:10px;padding:10px;" vspace="5" width="100" />By Dr Kamal Raj Dhungel<br />
	<br />
	</span></i></span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">The liberalisation policy in china is in effect since the end of 1970s. India has followed the same path since the beginning of 1990s. This resulted in tremendous progress, sustained growth and increased wealth in both China and India. Both the countries were characterised by mass poverty before the period of economic reform.&nbsp;Today, China has reduced the number of people under poverty to mere 2.8 per cent down from 64 per cent in 1981. Similar is the case of India. According to the government estimate, approximately 28 per cent of population is living below the poverty line down from 51 per cent in 1977/78. It reveals that people have tasted the fruits of economic progress resulting from economic reforms.&nbsp;</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">Let's now look at the context of poverty reduction in China and India. The liberalisation of their economies have instigated tremendous progress, sustained growth and increased wealth with rapid industrialisation. They are achieving high economic growth rate above 9 per cent per annum. It has produced multiplier effect in their economies. They are investing their resources in the construction of infrastructure and establishment and promotion of basic industries. The private sector investment has been mushrooming. This has created sufficient employment opportunities within the country to the increased size of labour force. This provides opportunities to the poor people to improve their living condition and hence both countries have met the goal of poverty reduction in the same momentum though the degree and extent of it is different. Income, health and education of the people are gradually improving which results in the improvement of the human development index. Nepal's estimated incidence of poverty is at 30.9 per cent today down from 45 per cent in the mid 1990s. In terms of poverty reduction, al the three countries under consideration have the same trend over the same period of time. China and India have adequate reason to explain how poverty there has come down as they are achieving rapid economic growth rate.&nbsp;But in Nepal poverty has surprisingly come down when its economic growth rate is deteriorating. This makes the people doubt at the authenticity of the poverty reduction data. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">Nepal also has the same story of economic liberalisaiton but with different outcomes. Policy of liberalisation has been initiated since the middle of 1980s albeit it has been gaining momentum only after 1990. As an effect of this policy, a large number of public enterprises were dismantled in the name of privatisation. They had produced basic goods like shoes, sugar, agricultural tools, clothes and paper etc. In the past, these industries made a significant contribution in the economy in terms of consumption, income and employment. But today they have vanished. It means those industries whose management had been transferred to the private sector are not in operation currently.&nbsp;The demand of the goods produced by these industries is being fulfilled by imports. The numbers of persons employed in these industries have become unemployed.&nbsp;Some of them have either migrated to foreign countries in search of employment. Others have remained unemployed. There is no doubt that liberalisation can play an important role in economic development. It can attract, promote and encourage private sector investment, both foreign and domestic in the development of overall economy, particularly in the manufacturing sector.&nbsp;But the manner in which Nepal has been exercising economic policy reform seems clearly unsustainable and making gloomy environment for private investment.&nbsp;Instead, it encourages opening up a large number of cosy dance restaurants in different urban centres of Nepal through private sector investment.&nbsp;Similar is the case of investment of private sector in education and health as private schools, colleges and nursing homes including private hospitals are mushrooming. They provide service only to a small fraction of population who are wealthier.&nbsp;It creates discrimination among the citizens in terms of social service. Clearly, the nation has been producing two categories of future manpower: a superior workforce which graduates from private schools and an inferior one that graduates from public schools. Majority of students who graduate from private schools are migrating to developed countries. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><img align="left" alt="Real GDP growth rate during 2006-10" border="1" height="197" hspace="5" src="http://newbusinessage.com/ckfinder/userfiles/Images/groth rate.jpg" style="width: 318px; height: 197px;margin:10px;padding:10px;" vspace="5" width="318" />The failure of economic policy particularly after 1990 is reflected in the overall progress of the Nepali economy. In the initial stages of liberalisation, the growth rate of Nepali economy was encouraging to some extent. But it became disappointing gradually. The trend of Nepal's economic growth rate is not only disappointing but also humiliating (see chart ). The fruit of this growth did not reach people who were the main pillars in restoring democracy in 1990 and beyond. It means the distribution of national income among its citizens has been skewed.&nbsp;Since the decade of 1990s, corruption has become rampant. Anti-corruption mechanisms have been made ineffective. The living standard of the richest 10 per cent has been increasing over the years while that of the rest is deteriorating.<br />
	<br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">&nbsp;The present economic growth rate, as seen in the chart, is declining over the years. It is barely enough to feed the population which is growing at the rate of 2.24 per cent per year. For the mass of people, hunger is routine, malnutrition rife, employment insecure, social security non-existent, health care expensive and livelihoods under threat. Youths are migrating to foreign countries and are supposed to send remittance by putting their lives at risk. As expected, remittance plays a vital role in providing livelihood to the people of Nepal. This is also giving an opportunity to the elite of Nepal to set up large number of banking businesses. But its contribution to economic growth seems insignificant. Today, Nepali people are experiencing banking business next door to their residence.&nbsp;It indicates that the growth of monetary sector (particularly of the institutions dealing with money) in recent years have been increasing while the growth rate of real sector is declining.&nbsp;It seems there is a weak association between the growth of monetary and real sectors. Practically speaking, for a healthy and balanced economic development, there should be a strong correlation between them. In addition, private sector investment has been growing in the construction of large apartments and residential buildings and opening up of departmental stores. This provides a major market for investment by the banks. This shows that the current trend of economic activities in which the investments are pouring is not sustainable.&nbsp;These activities would sustain for a longer period only when the country achieves high economic growth.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;">The ways in which our national income has been distributed irrespective of its shape and size among the citizens stands to cause devastating consequences. It can create social tensions and make the rich even richer. The unjust distribution of the fruits of democracy during 1990s has left us a great liability whose effect of course had been spreading all over the country. The nation has already lost over 13,000 lives. Despite such a huge loss of lives, the inequality today is still rising. The income gap between the rich and poor is more intense.&nbsp;Gini index with value between 0 and 1 (0 for perfect equality and 1 for perfect inequality) is used to measure the inequality in the distribution of income and wealth. At present, Nepal's Gini index a gauge of income gap, is 0.47. This index of 0.4 percent is considered a warning line Exceeding this mark signifies that the biggest part of the wealth cake is enjoyed by a minority. If the Gini index points below 0.2, income distribution is highly balanced, between 0.2 and 0.3 is a relatively balanced distribution, 0.4 and 0.5 means that the distribution is being largely spread &nbsp;and if it reaches 0.5, then, distribution is highly unbalanced. Nepal’s Gini index is nearly 0.5 and it means the biggest part of the nation's income goes to only a few. It is because of the lack of equal access to opportunities. Opportunities inside the country are rare. Whatever opportunities are thesre inside the country, they are available only to those who are related with the powerful. Opening up the opportunities in most public sectors like police, military and civil service are not going to help as even such opportunities open other avenues for the powerful people for corruption. It indicates that the powerful and influential persons have hijacked opportunities, benefits, public spaces, shared resources, economic rights and political processes.<br />
	<br />
	<br />
	</span></div>
<div>
	<span style="font-size:12px;"><i><span style="line-height: 115%;">(Dr Dhungel is a Professor of Economics at Tribhuvan University, Kathmandu. He can be reached via email at </span></i><a href="mailto:kamal.raj.dhungel@gmail.com"><i><span style="line-height: 115%;">kamal.raj.dhungel@gmail.com</span></i></a><i><span style="line-height: 115%;">)</span><br />
	</i></span></div>
<div>
	<span style="font-size:12px;"><i>&nbsp;</i></span></div>',
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			'title' => 'Road Map For Development',
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	<strong><span style="font-size:12px;"><span color:="" franklin="" gothic="" style="line-height: 115%;"><br />
	BRIGHT ECONOMIC FUTURE OF NEPAL</span></span></strong></p>
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	 </p>
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	<strong><span style="font-size:12px;"><i><span color:="" letter-spacing:="" lucida="" style="line-height: 120%;">By Janardan Dev Pant<br />
	<br />
	</span></i></span></strong></p>
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	<span style="font-size:12px;"><b><span aldine401="" color:="" letter-spacing:="">N</span></b><span aldine401="" color:="" letter-spacing:="">epal's political parties and policymakers are making financial mistakes that have left the people in poverty, serious financial stress and feeling of helplessness. Nepal is experiencing immense challenges in transforming its social and business environment. Such transformation requires departure from outdated modes of providing dogmatic directions.&nbsp; Everybody is suggesting that the need of the hour is good governance, awareness about and understanding of global and national economic business environment, strategic thinking and choices, formulation and implementation of proper policies, effective communication, digitization, and management of available human talent.&nbsp; These all require an overall understanding of the fast paced changes of both the external and internal environment.</span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">We have achieved lots of good things.&nbsp; We have produced world class engineers, doctors, lawyers and bankers by liberalizing education, telecommunications and banking. Majority of them are working in the USA, Canada, UK and Australia due to the absence of right environment in Nepal. Due to this migration of talent, all the achievement made in the education sector has been useless in raising the living standards of 85 per cent Nepalis.&nbsp; Common people are undergoing extreme socio-economic hardships without hope of any immediate relief.&nbsp; This situation must not be allowed to continue.&nbsp; </span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">Nepal's market-oriented reform started in 1991 implied that those who lack the purchasing power will be marginalised.&nbsp; People without money are as good as non-existent in the sort of market economy prevailing today.&nbsp; It is the state's responsibility to take care of such citizens.&nbsp; Failure to take care of such Nepalis, who are about 85 per cent of the country's population, is the key failure of Nepal's economic liberalization.The main reason behind this failure is our inability to use our existing resources properly. That is what is forcing us to live in poverty, serious financial stress and feeling of helplessness.&nbsp; </span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">This article is about a proposal to get out of this mess and achieve growth through the use of hydropower. </span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
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	<strong><span style="font-size: 12px;"><span color:="" franklin="" gothic="" letter-spacing:="">Setting the Goal<br />
	<br />
	</span></span></strong></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">The first step in embarking on a journey is to set a goal. Let's set the goal as:&nbsp; Nepal's per capita income US$ 2,500 by 2017 and US$ 50,000 by 2040.&nbsp; This goal is specific, measurable, achievable, realistic and time bound.&nbsp; With this goal in mind, I would like to draw a number of policy prescriptions to achieve this goal. These policies can promote investment, create jobs and wealth, and consumer spending which will give us double digit growth and eradicates poverty so that Nepal will be transformed from least developed county to developed country by 2040.</span></span></p>
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	 </p>
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	<strong><span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></strong></p>
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	<strong><span style="font-size: 12px;"><span color:="" franklin="" gothic="" letter-spacing:="">Bench Mark<br />
	<br />
	</span></span></strong></p>
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	 </p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">We must benchmark with our comparator countries to achieve best practices and gain efficiencies.&nbsp; Our core competencies are hydropower and tourism.&nbsp; The comparator countries in this respect are Bhutan and Laos. They too are landlocked, have mountainous terrain and plentiful water resources.&nbsp; But they have succeeded to produce and export large volume of hydroelectricity to their neighbors.&nbsp; We can learn many things from 1070 MW Nam Theun Hydropower Project of Laos and 1020 MW Tala Hydroelectric Project of Bhutan. We have to learn from them and achieve the above stated goal. But we have to revise and refine those models to suit our specific environment.&nbsp; For example, they are exporting power whereas we have market for power within the country itself. <br />
	<br />
	</span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">Supply creates its own demand, said the famous economist JB Say.&nbsp; He is perfectly right in his statement, at least in Nepal where the pent up demand for electricity is huge. If we start construction of various hydroelectricity projects immediately as per our model, our per capita income will reach around US $50,000 by 2040 with double digit economic growth every year.&nbsp; By that time our rate of per person electricity use will reach around 150 times from today's 70 units per head.&nbsp; As we are going to consume here in Nepal all the electric power that we are going to produce, the policy of exporting power must be stopped immediately.&nbsp; Power exporting policy will hold back our fast track economic growth.&nbsp;&nbsp;&nbsp; </span></span></p>
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	 </p>
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	<strong><span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;&nbsp;&nbsp; </span></span></strong></p>
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	<strong><span style="font-size: 12px;"><span color:="" franklin="" gothic="" letter-spacing:="">Liberalizing Hydropower</span></span></strong></p>
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	 </p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">This is the time that the government needs to think about liberalizing hydropower sector, just like it liberalized banking, telecommunications and education which unleashed the banking, communication and education revolution.&nbsp; We have to rehabilitate to Nepal Electricity Authority (NEA) to match our development strategy because NEA is already a sick unit.&nbsp; We are experiencing a severe energy crisis. We are already without electricity 14 hours a day and this duration is getting longer. But with the hydropower potential we have, it does not have to be that way. Presently, peak power demand of integrated Nepal power system is around 967 MW and power supply is around 400 MW.&nbsp; The deficit can be met easily with a few projects. <br />
	<br />
	</span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;But the existing power purchase rates make the power projects commercially unfeasible due to high rates of interest that the banks are charging.&nbsp; Therefore, it is suggested that the power purchase rates be revised upward, immediately.&nbsp; When the market interest rates rises further, the power purchase rates should be raised accordingly. Similarly, when the interest rate cools down, the power purchase rates should be lowered accordingly. </span></span></p>
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	<span style="font-size: 12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:=""><br />
	</span></span></p>
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	<strong><span style="font-size: 12px;"><span color:="" franklin="" gothic="" letter-spacing:="">Cost of Hydropower<br />
	<br />
	</span></span></strong></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">The cost of hydropower is highly site specific, and depends on different factors, including hydrologic characteristics, site accessibility, and distance from transmission line.&nbsp;&nbsp; However, hydropower is the cheapest way to generate electricity in Nepal. The 456 MW Upper Tamakoshi hydropower project is estimated to cost Rs 35.29 billion, if the project is completed by FY 2014-15 as scheduled.&nbsp; That means it costs about Rs 77.39 million per MW.&nbsp; On that basis, we can say, at today's rate, a typical hydropower project in Nepal can cost somewhere between Rs 80 million and Rs 150 million per installed MW.&nbsp;&nbsp;&nbsp; </span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp; </span></span></p>
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	<strong><span style="font-size:12px;"><span color:="" franklin="" gothic="" letter-spacing:="">Means of Financing<br />
	<br />
	</span></span></strong></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">One major obstacle often cited in Nepal's hydropower development is the lack of finance. But in reality, it is no big deal for us to raise the money.&nbsp; The project can be financed through a mix of debt and equity arranged through a public-private partnership.&nbsp; The people of Nepal can arrange the resources on their own to produce at least 2,360 MW of electricity if the leaders extend some help.&nbsp; <br />
	<br />
	</span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">First of all, Nepal Government has to create Nepal Development Company Limited (NDCL) as a sovereign wealth fund holding company.&nbsp; Then the government should sell 40 per cent shares it holds in the Nepal Telecommunication Company Ltd (NTC). This will yield around Rs 24 billion and that amount should be invested as the seed money of NDCL.&nbsp; With this money, NDCL can promote many subsidiary public limited companies in the same manner as Nepal Electricity Authority has promoted Chilime Hydropower Company Limited.&nbsp; The equity participation in these subsidiaries is proposed at 51% from NDCL, 25% from national or international strategic partner, 24% from the general public.&nbsp; Subsidiaries should be managed by the strategic partners so as to ensure efficiency and customer satisfaction.&nbsp; NDCL can also promote East-West Electric Railway Ltd and many North-South cable car companies in similar modality of raising the fund. <br />
	<br />
	<br />
	</span></span></p>
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	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;Nepal Telecom has been seeking strategic partner as it is losing 10 per cent of its profit growth every four months to the private telecom service providers.&nbsp; Nepal Telecom on its second annual general meeting held on March 29, 2010 has passed a resolution to sell minority shares to international telecommunications operator.&nbsp; But nothing has been done on this line till now. People believe that this delay is due to financial influence of other telecom service providers on our political leaders and government authorities.&nbsp; Further, it is also widely believed that if Nepal Telecom cannot bring foreign telecommunications operator through bidding as a strategic partner, Nepal Telecom too will face the same fate as that of Janakpur Cigarette Factory and Nepal Airlines Corporation.&nbsp; <br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">The paid-up capital of Nepal Telecom is Rs 15 billion, of which Nepal Government holds 91.50%.&nbsp;&nbsp; If the Government can sale 40% share in Nepal Telecom through international bidding, at the rate of minimum Rs 400 per share, the proceeds will be a minimum of Rs 24 billion.&nbsp; Assuming that this Rs 24 billion will be the 25% equity from NDCL's side, and that Rs 72 billion will be available as loan from various lenders, the total funds available will be Rs 96 billion.&nbsp; This will be sufficient to set up projects to generate hydroelectricity of 960 MW, assuming, on the basis of calculations above, that Rs 100 million will be required to install one MW capacity for hydroelectricity.&nbsp;&nbsp;&nbsp; </span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">Similarly, Nepal Army Welfare Fund has billions in its account.&nbsp; If it invests Rs 5 billion as equity in hydropower projects, it can get 75% of the project as loan and the total available amount will be Rs 20 billion.&nbsp; This amount is sufficient to install 200 MW capacity of hydroelectricity on the same assumptions as above.Then is the Employees Provident Fund. It is no big deal for this institution to invest Rs 10 billion as equity for hydropower generation. That will attract loans to make the total fund of Rs 40 billion.&nbsp; This is sufficient for installing a generation capacity of 400 MW.&nbsp;&nbsp; <br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">Then, we can easily assume that 100,000 Nepali citizens will come forward to invest Rs 200,000 per person. That will generate a total equity amount of Rs 20 billion which will attract a loan so that the total amount will be Rs 80 billion.&nbsp; From this amount, we can install a capacity of R 800 MW. The equity can be raised by issuing preferred redeemable increased dividend equity shares (PRIDES) to the general people.&nbsp; PRIDES, according to Investopedia, are securities consisting of a forward contract to purchase the issue's underlying security and an interest bearing deposit.&nbsp; Interest payments are made at regular intervals, and conversion into the underlying security is mandatory at maturity.&nbsp; PRIDES allow investors to earn stable cash flows while still participating in the capital gains of an underline stock.&nbsp; This is possible because these products are valued along the same lines as the underlying security. <br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">Micro-finance institutions, Banks and Co-operatives can give loans to purchase these PRIDES issued by NDCL or its subsidiaries to the Nepalis who have low or no income. Such loan can be issued against the collateral of PRIDES.&nbsp; This will bring positive impact on distribution of benefits from national resources to the low income people.&nbsp; This will ensure that the economic development does not marginalize the poor. <br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">We can get loan from various financial institutions located in Nepal, China, India or global institutions such as Agence Francaise de Development, European Investment Bank, Nordic Investment Bank etc. China's foreign exchange reserves have reached US$ 2.4 trillion making it by far the largest holder of foreign exchange reserve in the world. China was holding US$ 906 billion in US treasury bonds as of October, 2010.&nbsp; We should request China to invest some of that amount in Nepal's infrastructure development, such as hydropower. They should agree because the return will be higher in our projects.</span></span></p>
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	<strong><span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></strong></p>
<p class="MsoNormal" style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	<strong><span style="font-size: 12px;"><span color:="" franklin="" gothic="" letter-spacing:="">Infrastructure-Transmission Line<br />
	<br />
	</span></span></strong></p>
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	 </p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">Hydropower development depends on the power transmission to carry the power from the power project site to the consumer. On January 5, 2007 NEA signed an MOU to construct Butwal-Gorakhpur, Duhabi-Purnia, Dhalkebar-Mujaffarpur and Anarmani-Siligudi 220 KV transmission lines for power trade between Nepal and India. But if we have to develop Nepal's hydropower and consume this within Nepal, NEA has to start constructing East-West 400 KV, North-South 132 KV, and North-South 220 KV transmission lines along the corridors of North-South major rivers, where it is feasible.&nbsp; NEA will make profit from wheeling charges received from power producers.<br />
	<br />
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	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">These transmission lines are essential to solve the present problem of power deficit.&nbsp; No investor will be interested to invest in power project without transmission line. Therefore, for Nepal, transmission line construction is not an option but compulsion. If NEA is not able to construct these transmission lines, the private sector can be invited to do it under Build-Own-Operate-Transfer (BOOT) contracts.&nbsp; The private sector can be allowed to operate such transmission lines for 30 years after which it has to transfer ownership to the government-owned NDCL. <br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">The responsibility to distribute electricity should be given to the local government units, such as the District Development Committees or Municipalities or to the proposed federal states.&nbsp; With this arrangement, the present problem of leakage of electricity will be stopped. At present, the electricity leakage is 26 per cent according to NEA.&nbsp; </span></span></p>
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	 </p>
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	<strong><span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:=""><br />
	&nbsp;</span></span></strong></p>
<p class="MsoNormal" style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	<strong><span style="font-size: 12px;"><span color:="" franklin="" gothic="" letter-spacing:="">Market<br />
	<br />
	</span></span></strong></p>
<p class="MsoNormal" style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	 </p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">The concept of supply creates its own demand is applicable in our case.&nbsp; There is scope of exponential increase in the supply of electric power in Nepal because there is also a very high scope for exponential increase in the demand for electric power.&nbsp; The data provided in the Table-1 is a conservative estimate.&nbsp; This does not include major hydropower projects initiated by NEA and foreign investors. NDCL can immediately start Construction of electric railway system such as Mechi-Mahakali, Raxaul-Hetauda-Kulekhani-Kathmandu and Kathmandu valley metro system.&nbsp; The estimated construction cost is Rs 500,000 per meter for double track railway. It goes up to Rs 1,000,000 if tunnel construction is also required. </span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">NDCL can also immediately start construction of cable car system from various points of east-west electric railway up to the hilly and Himalayan region to the market centres and tourist attractions including various reservoirs to be created by hydro dams.&nbsp; </span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">Meanwhile, we can benefit from the fast growth in the economies of our two neighbours. We share our northern border (1415 kms) with China which is not only the most populous country in the world with 1.34 billion people, but also the worlds second largest economy after the United States.&nbsp; It is the world's fastest growing major economy, with average annual growth rates of 10% for the past 30 years.&nbsp;&nbsp; China's middle class population, that has an annual income of at least US$ 17,000, has now reached more than 100 million. China's per capita income (nominal) is US$ 4,283.&nbsp; Similarly, our southern neighbor India with which we share a common border of 1,850 Kms, is the second most populous country in the world with 1.2 billion people.&nbsp; India too is one of the fastest growing economies in the world and its per capita income (nominal) is US$ 1,124.&nbsp; </span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">If we can attract even one per cent of the population of our two neighboring countries as tourists in Nepal, that will give tremendous economic growth to our economy as well. That requires construction of various electric train lines, international airports, cable car systems and recreational centres. Development of hydropower will help in all these. For example, water can be used for creating recreational facilities. Most importantly, if Nepal has good infrastructure, its geographical location makes it very suitable to be international financial center.</span></span></p>
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	 </p>
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	<strong><span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></strong></p>
<p class="MsoNormal" style="margin: 11pt 0in 0.0001pt; vertical-align: middle;">
	<strong><span style="font-size: 12px;"><span color:="" franklin="" gothic="" letter-spacing:="">Determined Government<br />
	<br />
	</span></span></strong></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">One frequently cited problem in Nepal's development and investment is the political uncertainty. However, there are examples, such as Singapore, China and South Korea, that a determined government can build an advanced country from scratch in a short period of time. That means our politicians have to start learning.<br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">Presently, our leaders or political parties are focused on the 301-game trying to make sure that they have 301 members of the Constituent Assembly on their side at any cost. That has to change. Over the past 35 years, we have seen rapid pace of technological change in our physical environment.&nbsp; Innovations such as cellular telephones, laser surgery, computers, electronic banking and new electronic trading techniques have materially affected the way people live.&nbsp; These technologies are easily transferable.&nbsp; Our politicians should keep themselves aware about these technological changes.&nbsp; That is required because the politicians should be able to optimize the use of the country's resources, promote excellence in the delivery of services and enhance competitiveness in line with our strategic visions, by keeping economic policy, institutions and bureaucracy above politics.<br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;Politicians should be given growth challenges in numerical terms.&nbsp; They must be given a target such as 12.3 percent growth rate per annum in our gross domestic product (GDP).&nbsp; Why 12.3 per cent? Our population growth rate is 2.3 per cent per annum.&nbsp; So, we need 2.3 per cent annual rate of GDP growth to take care of population increase. Another 5 percent growth rate is required to provide increased standard of living to the people, and another 5 percent is needed to provide increased momentum in the subsequent years.&nbsp; It is an achievable target and this must be the duty of the Prime Minister to achieve this. It makes no sense to continue hiring the Chief Executive Officer of the country without giving him or her a target to achieve. <br />
	<br />
	<br />
	</span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;The type of economic growth that we will achieve with this model will not only eradicate poverty from Nepal in a short period of time, but will lift the country to the group of developed countries by 2040.&nbsp; </span></span></p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </p>
<p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="">&nbsp;</span></span></strong></p>
<p class="MsoNormal">
	<strong><span style="font-size: 12px;"><span aldine401="" color:="" letter-spacing:="" style="line-height: 115%;">&nbsp;<i>(Pant is Director of Nepal Investment Bank Ltd and Chairman of Quantum Capital Ltd.&nbsp; He can be contacted at janardanpant@gmail.com)</i></span></span></strong></p>
<p class="MsoNormal">
	 </p>
<p class="MsoNormal">
	<strong><br />
	</strong></p>
<p class="MsoNormal">
	<span style="font-size:12px;"><span aldine401="" color:="" letter-spacing:="" style="line-height: 115%;"><i><br />
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