Dr Bhattarai squandered economic legacy: Dr Mahat

Dr Ram Sharan Mahat, known for his liberal economic views speaks about the performance of the present finance minister, Dr Baburam Bhattarai, the first budget of Maoists that he presented and its implication.

Being an experienced finance minister how do you rate the performance of present finance minister?
Dr Mahat: Present finance minister is lucky to inherit such a healthy economy. No finance minister has been so fortunate. Nepal does not have any symptom of post-conflict economy. For example, last fiscal year's growth rate was 5.6 per cent, revenue growth was around 23 per cent, foreign exchange reserve was more than $3 billion, Balance of Payment situation was positive and cash surplus was about Rs 4.5 billion. Moreover, Maoists are at the helm at a time when the international petroleum prices are coming down. Last year, we had to spend more than Rs 5 billion for NOC subsidies. But instead of raising productivity and creating investment-friendly climate, the finance minister is squandering the resources in distributing programmes, strengthening and expanding their party organisation and pleasing his party cadres.

What do you mean by squandering the resources in distributing programmes?
Dr Mahat: Like various programmes of political nature; literacy campaign, allowances to co-operatives, employment generation programmes based on people's participation.

The major problem facing the country is unemployment. Government has begun programmes to create jobs. Isn't creating jobs something positive?
Dr Mahat: These programmes are being proposed without doing necessary groundwork and preparation, without doing proper feasibility study, without proper administrative infrastructure. So, ultimately these resources will be misused. Either they will not be spent or they will be misused. They will not create employment. The government will not be able to create jobs and the country will become poorer. National economy will not improve. The situation will deteriorate. To create employment, you have to create more investment opportunities. You have to create investment-friendly climate. The government must launch well thought-out public works programme, infrastructure development with proper institutional machinery, proper administration.

The government is trying to create conducive climate for investment and has assured the investors of their security. Don't you think that it is really trying hard?
Dr Mahat: But why is the private sector closing industries. The FNCCI statement says how one industry after another is closing down in the face of labour trouble, anarchic situation created by pro-Maoist organisations. Closure of domestic industries will not encourage private investment from outside. Instead there will be capital flight. Maoists and their sister organisations, trade unions and YCL, are creating this situation. They may talk of pro-investment policy but their action is anti-investment, anti-development and anti-growth. We have not seen any new investment in hydropower. Even the investors, who have committed to come to Nepal and invest feel insecure. The West Seti office was vandalised and padlocked. Our country's future depends on exploitation and development of hydropower. I hope the government will do everything possible to protect the interests of the investors. Nothing like that is happening. But I hope the situation will change.

Don't you think the government's claim is, in a way justified, as they are now accepting private sector's role in public-private partnership (PPP) model?
Dr Mahat: PPP is not a Maoist slogan. It is an internationally accepted model promoted by organisations like Asian Development Bank and the World Bank. There is nothing new about it. But again, where is the private sector coming? They must be able to attract private sector investment. PPP cannot materialise just because of a slogan. Just government slogan is not enough to encourage the PPP model of development. An investment-friendly climate is necessary, business-friendly government policy is a must.

Then why are they preaching PPP?
Dr Mahat: It is only a slogan. I don't think its their intention to mislead but they don't understand the reality of the model. Private investment does not come to your door-step just like that. You must create atmosphere, proper environment for that. Every country is offering attractive packages to invite and attract foreign investment. This is a competitive world. You must have competitive advantage to invite private investment. But what the Maoists are doing is just the opposite.

Moaists used to blame the earlier governments for making the country foreign-aid dependent. But the budget they presented has increased it. Don't you think they should have reduced it?
Dr Mahat: They used to say that they will reduce foreign aid dependence. They have blamed past governments for excessive dependence on foreign aid. But their own budget has proposed nearly 100 per cent growth in the foreign assistance. There is contradiction in what they are saying. They used to attack us for pursuing neo-liberal economic policies. Now, they go to World Bank and IMF and they say that they want to be under the IMF umbrella. The reality is they are pursuing our policies with the necessary commitment. On the other hand, their foreign aid estimation is also highly exaggerated.

What impact will the loan waiver programme have on the banking sector?
Dr Mahat: It is a and ill-conceived plan. First, it is principally wrong. It will penalise the honest borrower, who faithfully paid the loan back. It is a reward to those, who deliberately didn't pay the loans. But I don't rule out the loan-waiver to those, who genuinely suffered during insurgency. Their business was destroyed because of insurgency or natural calamities. Loan-waiver must be on selective basis, based on genuine suffering and cannot be done across the board. The budget has rewarded the dishonest and punished the honest. Secondly, the main source of small loans is micro-credit institutions not the Agriculture Development Bank, Nepal Bank or Rastriya Banijya Bank. If Dr Bhattarai genuinely wanted to give loan-waiver to small borrowers, he should have included micro-credit institutions. He has left out a large portion of the small borrowers because they borrowed from the micro-credit institutions. This will benefit those who are relatively better-off. Thirdly, the most objectionable part: he has declared the loan waiver with financial liabilities of more than Rs 9 billion. But he has not made necessary budgetary allocations, may be only Rs 400 million. More than Rs 8 billion has been left to future finance minister to pay back. Transferring the entire burden to the future governments for your purely populist and partisan programmes is not done. No finance minister in the past has been as irresponsible as Dr Bhattarai.
Fourthly, those who have borrowed from ADBN-Small Farmers' Development Programme have stopped paying back their loan. So, there is no liquidity. Banks can give fresh loans based on the payments made by the past government. Now, the past borrowers are not paying back loans and there is no fund. Even genuine borrowers have no access to bank loans. The implication of this is that they will have to borrow from the money-lenders, non-institutional sources at much higher rates. It will destroy micro-credit institutions, ADBN-Small Farmers' Development Programme due to lack of liquidity.

Those in the know blame Maoists of promoting crony-capitalism. Do you believe that?
Dr Mahat: I'm not sure but they seem to be going in that direction. But its too early to say that.

Do you really think that this budget is ambitious and unrealistic?

Dr Mahat: Every finance minister should be realistic and project realistic revenue target. These are inflated targets. The revenue target is overestimated by at least Rs 15 billion. Last year, we estimated the revenue growth of 18 per cent but we exceeded the target by more than four per cent. The revenue growth was about 22.3 per cent. Last year we met our capital expenditure target by 100 per cent. I hope Dr Bhattarai can also do the same. But his own cadres are protecting smuggling and leakage of revenue. In many places the revenue leakage is taking place under the protection of Maoists' sister organisations. They are trying to control the casinos through their cadres. Now the casinos do not pay any government revenue. There are huge unpaid taxes on account of casinos. If a tax officer goes there, there will be obstruction from the Maoist trade unions. As long as they serve the interests of their trade unions, everything is tolerable. There will be more economic trouble in the nation and culture of impunity will develop. Let Bhattarai repeat the past year's performance. I will be happy, if he can. My good wishes are with him!!!