‘… the culture of bureaucracy must change towards a managerial civil service.’
Madhukar SJB Rana, former Finance Minister of Nepal, gives his views on the future of a vibrant South Asian economy in this exclusive interview to Southasia. Madhukar SJB Rana is currently a Professor at the South Asian Institute of Management; Member, Ac
How diverse is the South Asian economy today and how do you see its growth in the coming years?
The South Asian economy is insufficiently diversified with more intra-country competition for the few global market exports. It needs to be more grounded on a manufacturing base to cater to the employment needs of the nearly 1.3 billion South Asians as reliance on the service sector will not provide full employment security to the vast rural masses, who moved out of agriculture.
Given the ageing of the Chinese population, and the rapid rise in the cost of its human capital, I see huge potential for South Asia to be the next global manufacturing hub of the world, if we can let the Chinese “flying geese” industries to be located in South Asia with its favorable demographic dividend and massive entrepreneurial aptitudes among its emergent middle classes.
How important a role can major economies in South Asia like India, Pakistan, Bangladesh, Nepal and Sri Lanka play in promoting other regional economies?
In-depth studies by the Asian Development Bank’s regional integration scholars (refer to Pan Asian Integration Edited by Pradumna B Rana; Ganesha Wignaraja and Joseph Francois, ADB 2009) have shown that immense benefits will accrue if South Asia will start to integrate with East Asia (ASEAN, North East Asia) and the Central Asian Republics. The estimated gains to Asia by 2017 could be as much as the current GDP of France! But this requires that India and Pakistan get their act together to solve outstanding issues over Kashmir and the emergent issues over Afghanistan following NATO’s withdrawal.
Following the announcement of India’s ‘new neighborhood policy’ (the so called Gujral doctrine) in 1996 new hopes arose for SAARC integration using the route of sub-regional cooperation between Bangladesh, Bhutan, India’s North East states and Nepal in the form of the South Asian Growth Quadrangle (SAGQ).
Beyond the ASEAN and CAR regions, I feel that Bangladesh, Pakistan, Nepal and Sri Lanka can play a vital role to bring in China –at least its provinces like Xinjiang, Tibet, Gansu, Qinghai, Sichuan and Yunnan, which
will find it more accessible to use the ports of the Bay of Bengal than the eastern seaboard of China.
What in your opinion is the major problem that hinders smooth economic functions in the developing economies like ours?
Bad governance in manifestations such as politics of money power and muscle power; criminalization of politics; vote banking based on tribes, castes and creeds, and the near total lack of an independent specialized bureaucracy that can check and balance rampant politicization of institutions. However, the culture of bureaucracy must change towards a managerial civil service.
You are credited with bringing about reforms in the finance industry during your tenure as the finance minister of Nepal. Can you tell us more about it?
I was Finance Minster in 2005-the civil war years at its peak; when the government was headed by King Gyanendra. I was able to convince the private sector to accept VAT as the mainstay of our fiscal administration by accepting its rise from 10% to 13% which they had vehemently opposed when the previous government attempted to raise it. It was necessary to finance the intended defense budget, (which must be credited with bringing the Maoists to seek soft landing by renouncing people’s war) as the donors began to withdraw or withhold development funding and even put pressure on the multilateral agencies to dilly dally.
The private sector was assured a lead role for economic growth in a true spirit of public private and community (people) participation not just over projects and programs but, indeed, also sector policies and plans. Our government subscribed to the market mechanism and sought to be a liberal economy with full scope for SMEs as its true foundation.
The previous governments had already endorsed the SAP and E-SAP agreements being promoted by the IMF and World Bank but failed to formulate the necessary acts for liberalization of the financial sector like Bankruptcy Act, Securitization Act etc. In all, a total of five outstanding acts were promulgated by ordinance to deepen financial sector reforms. I believe I had helped Nepal’s central bank to be an independent monetary authority by appointing the Governor and Deputy Governors on the basis of merit and drawn from within the Nepal Rastra Bank itself. Last, but not least, it was envisaged that the Ministry would be responsible not simply for finance but also economy by integrating itself with industry, commerce and supplies and corporate affairs. The idea was to move the finance, trade, investment and commerce bureaucracies towards the vision of a managerial civil service.
Coming to the Nepalese economy, where do you think the country is heading with the recent the political crisis and a developing human development index?
The economy is in a crisis mode held afloat by the remittance economy. Without remittances it would have collapsed to put peace and the (illiberal) democracy itself at risk. The policy to go global on the labor market front was introduced by Foreign Minister Dr. Prakash C Lohani in 1996. I am proud to have served as Special Adviser then: since, we note now, that it was primarily responsible to reduce the level of absolute poverty from 42% to 31% in 2004-05 and now, as per the provisional census, to just 13% in 2011 !
How successful has international financial assistance been in alleviating poverty and bringing about long-lasting development in
It has been successful in social development but a miserable failure when it comes to poverty alleviation let alone eradication. It has exasperated inequality class wise, caste wise and region wise. Now they come up with the new doctrine of ‘inclusive development’ after ignoring the agricultural sector, community development and rural infrastructure development, especially rural roads, rural irrigation and rural electrification.
Speaking of South Asian economies, do you think our people are imprisoned in the trap of international aid?
I feel we suffer from ‘aid colonization’ where our creativity and ingenuity, grounded consciously on our own civilizational heritage, are totally stymied. What’s worse, the aid paradigm keeps changing to confuse and devalue the local think thanks, who in most cases have been reduced to mere contract workers to garner local data for the new paradigm being bandied about.
A quote from Zambian economist Dambisa Moyo is worth noting: “ Between 1970 and 1998, when aid flows to Africa rose from 11% to a staggering 66%, roughly 600 million of Africa’s 1 billion people are now trapped in poverty.” In Nepal we have been able to bring it down to just 13% (2011) not because of aid but because of migration that basically was fuelled by the rise of Maoism and civil war. What an irony—a war dividend rather than a peace dividend!
Why do we find seething anger and skepticism in the general public about the World Bank and IMF’s loan structures and tax reforms?
It’s pretty obvious that the financial architecture based on the “Washington Consensus” by Churchill and Roosevelt is there to serve the interest of the North primarily. As early
as 1991 the SAARC Independent Commission on Poverty Alleviation (in which I was also a Member) had mentioned that the SAP and E-SAP strategies of the IMF and World Bank were like ‘walking on one leg’ since it had completely ignored the poor. And guess what? Come 2005, to add insult to injury, I was pressured to accept the so called HIPEC loans by the IMF based on their irrelevant experience of sub Saharan Africa, the IMF and World Bank believed that Nepal was en route to being another failed state.
These institutions are now archaic and highly plutocratic. It needs to be reformed as early as possible with the Asian renaissance and the rise of the BRIC+T nations (T for Turkey as a Eurasian power like Russia).
How can our governments implement public-friendly economic policies to help pay back?
South Asian nations must collectively bargain for debt write off and use all the proceeds to henceforth forgo aid and to help the poor with direct aid rather than going through INGOs, NGOs, central and local bureaucracies. Aid, sadly, has been generous gifts from the many poor in the North who are humane, humanitarian and well meaning. But it has been a shining example of gifts from the rich country’s poor to the poor country’s rich--to be stacked in foreign banks.
How important is public participation in this regard?
Public participation in the form of grass roots community participation is vital. Why can’t we empower local communities to design, implement, own and manage their own projects to meet the MDGs? Communities have been divided by the unwarranted intervention of political parties who seek to benefit themselves and their parties in the most decisive manner. Communities have to be made subjects and not objects of development: with maximum devolution of political and economic rights and responsibilities.
How can our governments curb spiraling inflation, inflationary borrowing and tax evasion and tighten up the fiscal policies?
In Nepal’s case spiraling inflation is due to cost push factors accounted for by external and internal forces. On the external front, it’s the energy crisis and as well as the inflation in India with whom we have a free trade cum fixed exchange regime. On the internal front, it’s due to the cartelization and syndication of markets which has meant that monopoly forces are at play causing inflation to be way above what it normally should be as compared to India –say at best 2-3 % more. These days it’s significantly more because of the oligopolistic forces in the political and economic markets.
Anti-money laundering laws forced on Nepal by the donors have resulted in banks and financial institutions facing severe liquidity crises just at a time when the real estate and stock markets have gone bust. It is a classic case of not knowing when to introduce a new legislation which has resulted in the acute liquidity crises and sky rocketing interest rates with fears of financial collapse, capital flight and people switching to holding Indian currency in the bordering areas. Here the central bank gave in to foreign pressures without doing their home work on its social costs, benefits and impact.
Fiscal policies have to be tightened up by having a universal VAT with no exceptions as now. For equity purposes we should have different rates of VAT for different commodities rather than a flat 13%.
Do you think South Asian economies have become resilient? What steps need to be taken to improve these economies?
Resilience of the South Asian economies have stalled because of the lack of political will to deepen financial and economic reforms as well as ushering in fundamental institutional, judicial , labor and electoral reforms to move from an illiberal democracy to a liberal one to safeguard peoples’ and consumers’ sovereignties. Civil society and media must act as watch dogs to countervail the excesses of parliamentary sovereignty from the rampant oligopolistic behavior of the political parties resulting in unimagined graft, corruption and money laundering into save havens abroad. Bringing back the laundered money should be foremost priority. Gandhian Anna Hazare’s attempt to have an all powerful Lokyukta Bill is an admirable Endeavour that deserves to be replicated in the rest of South Asia.
Investment in regional public goods such as Asian Highway, Asian Railway, South Asian Waterway linking all of South Asia major airports, modernizing ports and building dry ports, cold storage depots to facilitate multi modal transit and transshipment transport will benefit the region as well as each nation significantly. It also needs gas pipeline and energy grids.
South Asia needs to develop a Master Plan for Regional and Inter Regional Connectivity and move collectively to mobilize the huge FDI for this grand design. The current crises in U.S. and European economies present immense opportunities for a bold move now towards Pan Asia. This must be the ultimate vision for SAARC for the peace, prosperity, security and happiness of the globe. SAARC must move towards the formation of the Asian Infrastructure Fund, Asian Monetary Fund and expedite the trading of infrastructure bonds in local currencies through manifold financial innovations.