Government’s failure in fulfilling international commitment to hit foreign investment, aid inflow

On one hand the government is observing Nepal Investment year claiming to attract Rs 500 billion foreign investment and on the other, it is sitting on three important Bills that are key to attract foreign direct investment (FDI) in the country.
The government’s failure in fulfilling its international commitment in fighting flow of dirty money is going to cost the country dearly apart from the financial sector that is going to feel the heat the most.
"The government's failure in approving the three key Bills under the UN Conventions against Money Laundering will hit Nepal Investment Year 2012-13," said a source at the central bank.
The foreign investors would not be able to open their branches, let alone start new company, and those, who have already invested in Nepal could also pull back, he said, adding that the donors will also include more stringent conditionalities for aid and grants. Apart from the financial sector that will be hit hard as they cannot have any international transactions, in case of failure in approving the Bills — two of which are in the parliament and one in the cabinet — the country will lose its international markets as the cost of exports will go up making Nepal's exports expensive.
Once the International Cooperation Review Group (ICRG) under the Financial Action Task Force (FATF) — a global anti-money laundering agency — puts Nepal under 'high risk zone', the international communities’ could not defy its norms, according to finance secretary Krishnahari Baskota, who today asked parliament to expedite the process of passing the two Bills — Mutual Legal Assistance Bill and Extradition Bill — under the UN Convention that the country has last year ratified, would help the country fulfill its international commitment partially.
"If the two Bills under the UN Conventions are not passed by the parliament before the end of the Paris meeting that is going to be held on February 13-16, the country would face the risk of being blacklisted," he wrote in the letter to the parliament.
Apart from the UCPN-Maoist intra-party feud that delayed the approvals of the Bills, the central bank suspected resistence from those, who have been taking money 'illegally' out of the country. "If the country fulfills its commitment and approves all the remaining three Bills, the illegal outflow of money will be stopped and they could be brought to book any time," the central bank source added.
Earlier, Nepal had committed FATF to approve these Bills coupled with other reforms by December 2011, but the country — passing through transition phase — has not been able to keep its promise.
The chances of Nepal being blacklisted or degrading to the 'high-risk zone' from the current 'risk zone' is higher, if the government could not ratify all or two of the three Conventions through fast track.
The FATF has warned Nepal to walk the talk in fighting against the flow of dirty money or will be black listed, during a FATF/Asia-Pacific Regional Review group's face-to-face meeting in January last week in Sydney, Australia.