Building New Nepal
VOL. 05, NO. 15, February 10, 2012 (Magh 27, 2068)
Through Aid & Growth
By DEBESH ADHIKARI
US ambassador to Nepal Scott H. DeLisi might be making all the headlines as he is recently named as the new ambassador to Uganda by US president Barack Obama, and will soon leave the country, subject to confirmation by the United States Senate.
However, even after the decision by the US president, DeLisi is still continuing to improve relations between Nepal and the United States, and is making an effort for the betterment of the Nepalese people.
DeLisi recently spoke at the program ‘Last Thursdays’ organized by Entrepreneurs for Nepal and Samriddhi, and expressed his opinion about the development assistance by the United States to Nepal and the role that assistance is playing in fostering economic growth in Nepal.
The US ambassador stressed the role of private sector for the development of the country and kick starting the economy.
“Development may not create the jobs, but it is an essential precursor, a condition precedent, to building the enabling environment, developing the capacity, and nurturing the human resources that are essential to private sector-led economic growth,” said the US ambassador.
Economic growth has been Nepal’s greatest challenge for some time now and the country is lagging behind amid political instability and a lack of successful development policy to achieve it. “For some sixteen years this nation has been consumed, with first an insurgency, and then the post-insurgency political drama that still is ongoing. At the national level, despite progress and some degree of policy direction and leadership in various sectors, there is no coherent or broad vision of how political and social reform, development policy, and economic transformation tie together,” he said.
US Assistance to Nepal
United States has contributed much to Nepal for its development in the last six decades. “The reality is that our six decades of partnership with the Government of Nepal have not only been a pillar of our bilateral relationship, but our programs have, contributed significantly to Nepal’s socioeconomic development,” said DeLisi.
US assistance has a great role in eradicating Malaria in Terai. Likewise, as a result from the partnership with the US government, Nepal has decreased the death rate of mothers during or shortly after pregnancy by almost half between 1996 and 2006, and there has been similar achievement in reducing the death rate of children under five.
United States invested approximately $80 million (RS 6.4 billion) last via partnership with USAID. This assistance was targeted on key priority areas, including maternal and child health, agriculture, vocational education, anti-trafficking, and democracy and governance.
“We expect to make a similar financial commitment to Nepal’s development this year,” said the ambassador.
Although the contribution of Nepal for the global climate change is far less than half a percent, Nepal is still the 4th most-vulnerable country in the world to climate change. A $30 million USAID multi-year program in global climate change is being organized to reduce economic, environmental and humanitarian impact of the climate change along with the $ 6-8 million on Disaster Risk Reduction activities, according to the ambassador.
Similarly, United States is contributing in various other fields like agriculture, education, health etc. Some 70,000 young people have been trained under the Education for Income Generation (EIG) project, among them 84% of the graduates of its vocational education component are profitably employed, says the ambassador.
However, only the development assistance cannot do much good unless there are strong policies to back it up, along with a direction and a vision from the government. “We need the government to weigh the policy choices before it to ensure that development assistance can have a greater and more sustained impact on the nation’s future and on economic growth,” said DeLisi.
DeLisi also pointed out the current power crisis in the country and stated unless the power crisis is solved the US investments would be very difficult to lure. “Unless and until the government makes strategically considered policy choices to produce the energy that will fuel economic growth our efforts on the development front will not have the support they need to be broadly successful.”
Likewise, United States is also ready to build up on the already established development partnership, according to DeLisi. “The decision to bring the Peace Corps back to Nepal is important in itself and a clear signal of our ongoing commitment to bolster our already strong development partnership,” he said.
“We believe that our development assistance activities are an integral part of economic growth strategies for Nepal but, to be successful, we will all need to work together in defining and shaping the policy vision of the new Nepal.”
Meanwhile, the US ambassador believes that Nepal’s geographical location can be an asset rather than a liability and also stressed the need to get out of the sense of being a small island surrounded by two mighty oceans. “l was happy to hear Prime Minister Bhattarai recently recast Nepal’s position in the region as a bridge, leading to new destinations, rather than as the proverbial yam, waiting to get squashed between the two neighboring boulders.”
SOUTH ASIAN TRADE
Experts discuss the cost of economic non-cooperation to consumers in South Asia
By DEBESH ADHIKARI
Intra-regional trade in South Asia has been very low. Between 1995 and now, intra-regional trade in South Asia remained stagnant at around 5 percent of the total trade volume of the region. Due to this non-cooperation between the South Asian nations, billions of dollars are going out of the region.
Cuts International in association with The Asia Foundation and support from SAWTEE (South Asia Watch on Trade Economics and Environment) and other partners carried out a project titled ‘Cost of Economic Non-Cooperation to Consumers in South Asia’ to enquire into the potential benefits of increase in intra-regional trade to consumers in the region.
According to the researchers, the study was conducted in selected cities of five major South Asian countries—Bangladesh, India, Nepal, Pakistan and Sri Lanka and included a rigorous meta-analysis of past studies on economic integration in South Asia.
“The objective of this project is to analyze the cost that consumers are paying due to non-cooperation of South Asian countries,” said Bipul Chatterjee, Deputy Executive Director, CUTS international.
“If five countries come together and make some changes in their trade policy and if we import from within the region, annual gain would be much more than one billion dollars,” he added.
There are a lot of problems hindering trade in the region. “Intra-regional trade liberalization is very low. There are a host of barriers for trade, from tariff barriers to non-tariff barriers,” said Minister for Commerce and Supplies Lekh Raj Bhatta.
He also stated that Nepal is committed to enhance the efficacy of regional trade.
There are many other regional economic blocs which are much younger than SAARC and are successful in raising regional trade to 50 percent or more. Long standing political tension and fragile diplomatic relations are cited as the main reasons behind lack of progress in implementing the South Asian Free Trade Agreement (SAFTA), states the report.
Likewise, big South Asian countries are maintaining a large number of products with high regional trade potential under their negative lists, keeping them out of bounds of preferential tariff rates under the SAFTA agreement.
“With an integration trade of 5 percent, it is an area that requires attention,” said Nick Langton, Country Representative, the Asia Foundation. “Trade in South Asia is highly politicized and comes with many baggages,” he added.
According to the report, through an algorithm process, a total of 355 product categories are identified from the sensitive lists of SAFTA members which have both high intra-regional trade potential and high prospects for improving consumer welfare. Trade in these categories at preferential rates would help South Asian consumers to save a minimum of about US dollars 2 billion per annum.
“The region has low level of economic integration. Now, it has reached the level of 1950. We have poor connectivity, infrastructure, there is lack of business and structural weakness exists,” said Poush Raj Pandey, Executive Chairman, SAWTEE.
“Along with the cost saving, intra-regional trade will generate many spillover , including expansion of production, generation of job opportunities, and improvement in competitiveness and productive efficiency. Above all, this scenario will help to raise the trade flow between South Asian borders to a minimum threshold level required for establishing trade channels with improved trade infrastructures and procedures,” states the project report.
“We have no doubt that this region can improve trade. The region has underperformed, work is needed to understand the problems,” said Edwin Laurent, Economic affairs division, commonwealth Secretariat.
The government decided to provide NRs 2 billion loan to Nepal Oil Corporation (NOC) on February 2. Minister for Commerce and Supplies Lekh Raj Bhatta said the supply of petroleum products will ease within a week. When NOC announced to pay NRs 1.60 billion to Indian Oil Corporation (IOC) on February 3, petroleum supply was expected to be normal for at least a month, but uncertainty looms.
Protests by 13 student unions forced the government to partially take back the hiked prices of petroleum products and provide an immediate relief package to the students, farmers and the poor, who will get 33 percent discounts on the LPG and kerosene.
With America and the European Union agreeing to slap an embargo on Iran´s oil exports, prices of petroleum products are predicted to sky rocket in the international market in the coming months. In such a scenario, the government is at a deadlock as it can neither increase the prices nor continue to subsidize petroleum products.
Prime Minister Dr. Baburam Bhattarai recently said that the country could not afford heavy subsidy in petroleum products without cutting the development budget.
According to NOC, the total estimated loss for February will be more than NRs 1.2 billion. NOC is already facing a cumulative loss of well over NRs 20 billion.
Despite the government’s announcement to provide loan to NOC, the Citizen Investment Trust (CIT), from which the government decided to provide Rs.2 billion, is reluctant to give any loan to the loss ridden NOC.
“We haven’t received any loans from the government, and we have got no idea about the Rs. 2 billon loan either,” said Suresh Kumar Agrawal, acting managing director of NOC. “If we receive Rs. 2 billion now, the scarcity will end within a week,” he added.
But, CIT does not trust the NOC, although the government itself is staying as the guarantor of the loan. “We cannot give away loans whenever the government says, to provide the loan of such a huge amount we need to have a board meeting and take a formal decision. We haven’t yet received any formal requests from the government,” said CIT Chairman, Chandra Mani Adhikari.
With the adamancy of Indian Oil Corporation (IOC), which itself is bearing loses, to provide petroleum products only on the basis of volume of payment it receives from NOC, smooth supply of petroleum products seems far away.
For how long will the government be able to subsidize petroleum products which are used by only 20 percent of the population? It is clear from the Prime Minister’s statement that it’s impossible to subsidize petroleum products without cutting development budgets of the rest 80 percent of the population.
The price rise in petroleum products is imminent for the smooth supply as government cannot continue subsidizing forever.
By Debesh Adhikari