Sunday, September 30, 2007

Dominique Strauss-Kahn: New IMF chief

Dominique Strauss-Kahn, the new head of the International Monetary Fund (IMF), faces the daunting task of redefining a 185-nation institution increasingly seen as irrelevant.
The Frenchman won, as expected, the IMF executive board's 'consensus' nod on Friday, setting the business-friendly socialist on track to lead the IMF at a critical juncture for its survival.
The 58-year-old former French finance minister pledged to immediately get down to work on reforms at the IMF when he takes office as managing director on November 1.
He will succeed Rodrigo Rato of Spain, the shortest-serving managing director in IMF history. Rato, who took office in May 2004, surprisingly announced in June that he was stepping down in October for personal reasons.
Strauss-Kahn has promised to fulfill 'at least' a five-year mandate to carry through reforms to redefine the IMF and resolve a financial crisis due to a steep decline in the demand for loans, whose interest payments help pay for operations.

Strauss-Kahn has been a member of the French National Assembly and is Professor of Economics at the Institut d’Etudes Politiques de Paris. He served as Minister of the Economy, Finance and Industry from June 1997 to November 1999. He also served as Minister of Industry and International Trade from 1991-1993. Between 1993 and 1997, Strauss-Kahn joined the private sector as a corporate lawyer.
Since 2000, Strauss-Kahn has taught economics at the Institut d’Etudes Politiques de Paris and he has been a visiting professor at Stanford University. He holds a PhD in economics from the University of Paris. He is married with four children.
Tosovsky and Strauss-Kahn were interviewed by the IMF Board in Washington in September. In his September 20 statement to the Board, Strauss-Kahn said the IMF was at a crossroads. Its very existence as the major institution providing financial stability to the world might be at stake, and rebuilding its relevance and legitimacy would be a hard task.

Saturday, September 29, 2007

21st commercial bank comes into operation

Finance Minister Dr Ram Sharan Mahat inaugurated Prime Commercial Bank Ltd, the 21st commercial bank in the capital on 28 September.
“Banks should extend their services to rural areas,” Mahat said adding that in proportion to increasing number of banks, the economy is not expanded and only finance sector is attracting more investment currently. “If it continues, it may not be sustained,” he said.
Speaking on the occasion, Krishna Bahadur Manandhar, acting governor of the Nepal Rastra Bank (NRB) said thatnew banks are coming as per government’s policy.Given the size of economy and the low gross domestic production (GDP), experts claim that the banks are overcrowded.
“But in the open market policy they cannot be stopped,” Manandhar said adding that those who cannot compete in the free market will close down.Prime Commercial bank has more than 359 promoters from different walks of life.Its authorised capital is Rs 1.5 billion, issue capital one billion rupees and paid up capital is700 million. It has the largest paid up capital among the commercial banks.
Narayan Das Manandhar, a seasoned banker and chief executive officer (CEO) of the bank said that Prime bank is the first bank which has largest paid up capital.
“We are bringing some more innovative banking products and services to offer to our clients soon,” he said announcing the starting of its services of ATMs, Internet banking, SMS banking and evening counter from today.
Narendra Bajracharya, chairman of the bank, on the occasion said that Prime is committed to prudential banking norms, financial transparency and good corporate governance.
“We are planning to invest on hydro, agro, infrastructure, road, communication-based industries,” Bajracharya said adding that it will bring some new packages for the SMEs also.
“Due to lack of opportunity for big investment, Nepali banks are concentrating on retail lending only,” Radhesh Pant, managing director of Bank of Kathmandu and president of Nepal Bankers’ Association said adding that after 2010, foreign banks will come to Nepal and local banks have to compete with them.
“Thus local banks should build competitiveness in skilled manpower, modern technology and they should be efficient in management,” he added.
The banks that have professional management team have registered tremendous growth. Thus professional management of banks is a key to compete with the foreign banks.

Saturday, September 22, 2007

Is Nepse heading towards 1000 mark

Greed is more dangerous than market fundamentals. At least, for the current stock market, which is defying all the market fundamentals and is propelled by the greed of bonus shares and dividends.
Due to investors’ over confidence, the stock market has defied all odds - like current political turmoil and uncertainty - and posted a 42.04 points or 5.02 per cent growth on Thursday, which in itself is a record in a single day trading in Nepal’s stock trading history. Market capitalisation has also reached Rs 242.474 billions, which is yet another record.
The sole secondary market, Nepal Stock Exchange (Nepse) index, opened at 837.92 points and closed at 879.96 points on Thursday. The 400 points Nepse — just 10 months ago — is it seems heading towards 1000 mark, if the current trend continues. But given the size of the economy of Nepal, can it be sustainable?
The sensitive index has also posted a rise of 12.79 points or 5.87 per cent to 230.56 points. Total traded amount registered was Rs 135573185.00 for today.
“Few shares and high demand is a major reason behind the growth,” says Rabindra Bhattarai, a stock analyst adding that the high expectations of investors have also propelled the stock market this week.
This week, some of the banks like Standard Chartered Bank have announced bonus shares and dividends raising investors’ expectations even higher.
However, market watchers are not convinced with the recent ‘growth’ because they suspectinside trading, manipulation and desire for short-term gain — in the growth in the share prices — by some of the investors.
The current growth is not justified by market fundamentals like the number of shares transacted in a day in comparison to growth and Profit Earning (PE) ratio, they claim. Siddhartha Bank’s PE ratio is 48, whereas Laxmi Bank’s PE ratio is 73 and Machhapuchhre Bank’s is at 88, according to their unaudited report.
Rising share prices of banks, which even have negative net worth, leaves room for more speculations that there is a major foul-play on.“Finance companies that provide loans to buy shares in the secondary market are yet another force behind the growth,” says Mahesh Pundit, an investor.
“Low investment opportunities have also fuelled growth in stock prices,” says Rabindra Pradhan, a stock broker. Stocks have become a major investment portfolio in recent days as other available investment opportunities like real estate and gold are not so lucrative.
“This growth should have encouraged other companies to float their shares, which is not happening,” says Pradhan adding that the sooner other companies float their shares, the better it would be for the stability of the stock market.
However, some stock pundits predict market to cool down from next week as all major banks are closing their books and buyers, who buy shares after book-close, will not get any dividends and bonus shares.
The banking sub-index — led by Standard Chartered Bank’s growth of Rs 600, Nabil Bank Ltd’s Rs 275, Nepal Investment Bank Ltd’s Rs 252 and Himalayan Bank Ltd’s Rs 205 per share today — posted a 61.40 points or 6.48 per cent growth.
The Nepse, where more financial institutions and commercial banks’ shares are transacted, has imposed the circuit breaker on the trading of shares of Nepal Investment Bank, Himalayan Bank and Siddhartha Bank as their shares posted a growth of more than 10 per cent in a day.

Thursday, September 20, 2007

Nepse sets new record

Nepali shares jumped to a new high on Wednesday with the Nepse index surging past 837 points mark — a new record in the Nepse’s 14-year long history — buoyed by the bonus shares and cash dividend by some of the banks to increase their paid up capital according to the Nepal Rastra Bank’s (NRB) directives.
The sole secondary market, Nepal Stock Exchange (Nepse) floor opened at 827.74 points today morning and increased by 10.18 points to register 837.92 at the closing of the day.
The earlier high was 831 points two weeks ago. In the last 10 months, the Nepse index posted more than a double growth without any market rationale.

Sunday, September 16, 2007

Ben Bernanke, Federal Reserve chief

The professor who can save America from depression. He made his name on the campus; now Federal Reserve chief Ben Bernanke must pluck his country from the economic abyss.

Ben Bernanke, the Federal Reserve chairman, is like a man who, after spending a lifetime playing with train sets, finally gets to drive the real thing - only to find it hurtling towards the edge of a cliff. Having honed his reputation in Ivy League classrooms, analysing the links between central banks and the real world, Bernanke now has the challenge of guiding the US economy through its most serious crisis for many years.

On September 18, under extraordinary scrutiny, Bernanke and his colleagues on the Fed's decision-making board will hold their regular meeting to set interest rates. Investors on Wall Street and around the world, and politicians in Washington, are pinning their hopes on the 53-year-old former Princeton professor preventing the world's biggest economy from heading into recession.

"One of Bernanke's main claims to academic fame is his study of the Great Depression, and how the failure to respond to the collapse of financial institutions turned a market crash into a bad economic problem," says Andrew Scott, of London Business School. "From that point of view, he's a fantastic person to have in charge."

In Bernanke's analysis, the Fed was to blame for the Depression, for failing to realise the enormousness of the situation facing it. He won't want today's Fed to make that mistake - and is almost certain to heed Wall Street's squeals this week by cutting rates, perhaps by as much as half a percentage point. But, with many of the respected blue chip financial institutions lumbered with billions of dollars of toxic mortgage debts, bundled up in illiquid and fearsomely complex packages, the fallout from the credit crunch will be felt for many months, whatever Bernanke's response.

Hank Paulson, the US Treasury Secretary, has warned that the current turmoil will take longer to resolve than the market pain that followed the Russian debt default in the late 1990s, or the Latin American credit crisis in the 1980s.

Bernanke was appointed last year, after less than a year as chairman of George Bush's Council of Economic Advisers, which many observers had seen as probation for the Fed job. During his time at the White House he made few headlines - although the President was apparently much amused by his donnish penchant for wearing pale socks with dark suits.

Few observers could quibble with his impeccable academic CV, but there was some disquiet, on Wall Street at least, about his inflation-fighting credentials. He had been nicknamed 'helicopter Ben' after a speech in 2002 when he warned that the Fed should be alert to the risk of deflation, reminding his audience of Milton Friedman's proposal of a 'helicopter drop' of free cash, to keep prices from falling. This led some Fed-watchers to fret he was an interest-rate dove, more worried about deflation than inflation.

The other doubt expressed by investors was that as an academic, not a money man, he didn't possess the sure touch of his revered predecessor Alan Greenspan with either Wall Street or the White House.

(from Observer News Service By Heather Stewart)

Nepse sets another record, hits 813.77 points

Nepali shares closed at 813.77 points on the last day of the trading from the opening of 796.34 points on Sunday. On the first day of the trading, the sole secondary market index set a record by crossing 800 points mark for the first time in its 14-year long history, and posted 811.98 points. On the second day, the index registered 828.77 points. The Nepse index saw an increment of 12.12 points on the third day as it posted 833. 56 points.
However, the Nepse index could not continue its growth throughout the week as it posted 811.97 points on the fourth day. Finally, the Nepse index closed only 1.79 points higher on the last day of the trading from Sunday's closing, as one of the current market driver hydropower group registered a loss of 43.62 points.
"Buyers were cautious on the unnatural growth of share prices of the institutions that have negative net worth and profit earning (PE) ratio," said an analyst adding that the unnatural growth also forced Nepse to issue a cautious notice to the investors.
After an initial rally of over 800 points for the first time in its history, the secondary market started to slowdown. Commercial banks' group, the market leader, has posted only a marginal growth of 3.82 points in its index as it registered 910.37 points from the opening 906.55 points.
Similarly, the manufacturing group also posted a growth of 2.34 points this week as its index closed at 350.00 points from 347.66 points.
The hotel group, insurance group, finance group and development banks' group, all saw growth in their respective indices as they posted 280.95 points, 655.62 points, 527.45 points, 689.21 points from 277.79 points, 647.92 points, 511.98 points, and 675.94 points respectively.
Though sensitive index gained only 0.04 point in comparison to last week and posted a total of 208.97 points, it comprises 74.12 per cent of the total transactions.
The Nepse floor remained open for all the five days this week, where the shares of 25 companies saw regular transactions of their shares throughout the week. The government's bonds did not see any transaction this week, too.
Chilime Hydropower Company outshone all others this week in terms of the largest monetary value, as its shares worth Rs 125,610 exchanged hands at Nepse. However, Nepal Bangladesh Bank stood first in terms of transaction with 206 transactions.
Similarly, National Hydropower Company stood first in terms of the largest number of shares units traded for the week. The company's 12,5610 shares were traded this week.

Monday, September 3, 2007

What's obstructing private sector growth?

  • WTO is investigating on the US and Mexican allegations that China is providing illegal subsidies for a range of industries.
  • Future of Doha round of WTO talks is still uncertain because India, Brazil and other developing countries are accusing bigger economies of being protectionist.
  • When Nepal government decided to buy only Nepali products - to promote domestic industry and private sector as a whole -- even if it is 10 per cent more expensive than the imported ones, the decision could not be 'fully implemented' because of some unknown reasons.

At some time or the other, all big economies of the world have protected and are still protecting their private sector either in the name of quota or subsidy or tax-break. “In contrast, Nepali private sector is given a step-brotherly treatment,” blame industrialists.
As a result, even after seven decades of the existence of Biratnagar Jute Mill - the first industry established in Nepal in 1993 BS - industrialisation has headed nowhere in the country.
One reason behind lack of industrialisation is the private sector's indifference towards industrialisation, blames the government. Private sector's involvement in manufacturing has been negligible. In addition, those interested in industry could also not sustain in a long run as they could not create and promote market.
Nepal embarked on a periodic development planning exercise as early as 1956, but it failed to realise the importance of private sector and market- oriented policy till late 80s. After 1990, the perception changed as the government brought in a liberal policy giving much greater role to the private sector.
However, although open market policy gave a major role to the private sector, it could not really push forward the growth of the overall sector. No doubt, it helped industries like education and health, and the financial sector including banking, financial institutes and aviation and transport to grow.
In the ninth Five-Year Plan (2054-2059 BS), the production of export-oriented industries declined. From the industrialisation point of view, the ninth five-year plan was a complete disaster. Nepal was once almost self-sufficient in sugar. But now, more than 30 per cent of the total sugar demand is being met by imports. The private sector blames the government policy for the increasing dependency on import.
Given the size of its economy, Nepal can take advantage from the small-scale industries instead of big industries. The best thing Nepal can do to promote private sector is commercialisation of agriculture and promotion of industries like tea, coffee, jute, sugar, cigarette, dairy, leather-based products, herbs, in which Nepal has competitive advantage in comparison to India and China.
The private sector is small and it lacks competitiveness. Building its competitiveness can not only increase export, but also help displace import and narrow trade deficit with India and China, Nepal's two largest trade partners. After Nepal became a party to the global and regional trade regimes like WTO and SAFTA, it has become much more important for the private sector to build its competitiveness.
Private sector also needs to expand output capacity and improve its efficiency through adoption of innovative measures. “Traditional management system, and rent-seeking practice instead of innovation is hampering the growth of private sector,” says Dr Hemant Kumar Duwadi, private sector expert at the FNCCI, the umbrella body of private sector.
“Insecurity, unpredictability of situation, and increasing non-business risks are other serious hurdles,” he says adding that labour problem, implementation and inconsistent government policies, lack of basic infrastructures like road network and communication has also impeded growth of private sector. High cost and irregularity of electricity, red-tape, lack of market diversification and frequent bandhs have also hit private sector development hard.
Private sector development is also necessary to address the current problem of unemployment. Private sector is the largest employment provider. “We need to create half-a-million employment over the next few years,' says Rajendra Kumar Khetan, an industrialist. “Private sector has provided more than a million employment and only investment-friendly environment can create another half-a-million employment,” he adds.
Therefore, in order to create a favourable environment to achieve private sector-led growth, the government must focus on removing impediments to private sector development. An effective promotional package like Nepal brand or Nepal Inc is a must, especially for export-oriented industries.
“Nepali lokta paper and Nepal Tea are now exported under Nepal brand,” says Sameer Khanal, a private sector expert at GTZ, an INGO that is helping in identifying, creating, promoting, expanding and innovating the market.
Exports, led by carpets and garments, had once greatly expanded. But the growth could not be sustained. Thus, private sector development needs a long-term strategy. As a first step, the major actors must have a consensus on the role of the private sector.
Liberalisation in itself is not the end; it can enhance the capability of the private sector bringing capital, technology and knowledge, by which the overall objective of economic development could be achieved. But in Nepal's context, this is highly controversial.
Government has also encouraged the private sector to invest on infrastructure project under B-O-T and B-O-O-T schemes. However, it has remained only in papers. Apart from these, public private partnership approach has also been recognised and used as a beneficial approach to implement development activities and provide services to the people.
Economic diplomacy is also an important tool in open, global market but Nepal has failed in this as well. Unless a country is economically independent, it cannot survive as a sovereign nation. And private sector development is a key to economic independence. Sooner or later Nepal must come to a consensus on economic agenda for the private sector development. Private sector should be developed as a focal point for the entire economic activities and the role of government should be confined to that of policy-making, monitoring and facilitating only.

What's in Tenth Plan?
The core objectives of the Tenth Plan for the industrial sector is to accelerate the pace of industrialisation through increased participation of private sector and to create additional employment in both rural and urban areas to reduce poverty. The main strategies to achieve these objectives are:
Improving policies to attract domestic and foreign investment,
Strengthening the role of SMEs in national production and improving the overall industrial environment
Tariffs will be further rationalised, and existing policies and Acts relating to foreign investment and industrial development will be revised
Upgradation process of SMEs through technological improvements and policy of sub-contracting will be further accelerated
Incentives to improve backward linkages of industries will be continued
Information technology development will be given emphasis.
The effective implementation of these policies and activities during the Tenth Plan will help improve industrial competitiveness, expand industrial production and employment generation, and raise the contribution of the industrial sector to GDP.
Measures will also be taken to attract more foreign investment, along with appropriate technology, particularly in areas of comparative advantage in order to enhance competitiveness. As noted, policy and legal framework will be improved in line with the market economy; administrative mechanisms will be streamlined and made more efficient; and necessary physical infrastructure and human resource development will be undertaken. Ensuring macroeconomic stability (thereby assuring repatriatibility of capital and dividends) and a stable financial system will also help in this regard.

Factors contributing to low price competitiveness and productivity:
Inadequate mechanisms and incentives for firms to acquire new technology
Weak infrastructure
Unfavourable business climate

Diversification of export trade in terms of both destination and product.
Establishment of inter-linkages between trade and industry.
Equity in the distribution of benefits of liberalised trade policy between small and cottage industries, and large industries.
Maintaining balance between labour interest and private sector development.
Mobilisation of public resources for infrastructure development.
Stability and predictability of the policy environment.
High dependency on unorganised commercial sector.
Inadequacy in entrepreneurship and professional maturity.
Establishment of inter-industrial linkages.
Identification of private sector investment.
Establishment of standard accounting practices and transparency in business transaction.
Procedural simplification to minimise transaction cost.
Establishment of mechanism for risk management.
Transparency in the regulatory mechanism of the government.
Comprehensive tax reform to widen tax revenue.
Participation of worker and deprived section of the society in economic life through employment generation.
Stability and predictability of policy environment.
Establishment of standard accounting practices and transparency in business transaction.
Developing good corporate governance leading towards instilling professionalism in the private sector activities.

Private banks are on swing
One sector - within the private sector - that has seen tremendous growth in the post-1990 liberal economy period is the banking sector. For long, Nepal Bank Ltd (NBL) and Rastriya Banijya Bank (RBB) were the sole players in banking field.
When liberalisation opened the doors for private banks, they rushed to the market with new innovation that immediately caught the fancy of consumers. Currently, there are almost 77 financial institutions, two dozen development banks, and almost equal number of commercial banks.
To support and make the banking sector vibrant, the government also started financial sector reform programme in 2002. The objective of the programme was to develop a healthier financial sector which intermediates funds more efficiently and effectively for the benefit of all the segments of the society and in a manner that supports private sector development, increased investment, and faster growth.
“In a small country like Nepal, banks can play more vital role in private sector development and economic development as a whole,” says Radesh Pant, managing director of Bank of Kathmandu and president of Nepal Bankers' Association (NBA).
The sector has generated more than 10,000 employments. “Not only that the sector has multiple effects in creating more employment,” Pant says adding that most of the employment opportunity created by private sector is because of banks' investments.
Banking is probably the largest and best sector in the private sector at present. However, experts claim that commercial banks are over-crowded in a small economy like Nepal. “But it's a natural process,” Pant feels. “In a long term, they will build up their competence level, if they want to exist.”
With growth, the sector has also attracted competition not only from home but also from abroad. According to the WTO norms, After 2010, international banks can open their branch in Nepal. Nepali banks have to compete with the global banks then.
How can Nepali banks survive in such a tough competition? “The management needs to be more professional and have a long-term strategy. Five years down the line or ten years down the line, where they want to see themselves; will they be concentrating on SMEs or merchant banking or any other sectors,” clarifies Pant.
The competition will eventually force banks to go for Merger and Acquisition (M&A). But many a bankers are mentally not prepared for it. “Market will take care of everything,” he adds.
Vibrant banking sector not only helps itself, it also helps other private sector to develop. Now, all the financial institutions have to publish provisional financial statements within a month and audits are compliant with International Accounting Standards (IAS), which has also boosted the confidence of depositors.
The more professional central bank becomes, the more confidence can it build among investors and depositors. Thus, the financial sector reform programme has a major task of reengineering the NRB to make it more efficient in monitoring aspect.
Some bankers think that the NRB is unnecessarily strict. But whether people like it or not, it has to be more stricter to safeguard the interest of the investors, depositors and for the sound financial health of the country.
Only a well-regulated financial sector can facilitate sustained economic growth, fostering a robust and vibrant financial market. Revamping research and financial monitoring strength and enhancing the capacity of NRB, the regulatory authority, to oversee an operated banking system are prime objectives of the series of reforms. And boosting a supervision capacity of NRB is a must.