Government inefficiency leads to economic problems

The government's failure to fulfill its primary responsibility of prosecuting those who try to control others' life, liberty and property by force or fraud has led to a need for more institutions like regulators that have in turn created more problems, according to a renowned libertarian.
Countries with a strong banking regulation have eight times more chances of facing a banking crisis than in countries where there are less regulations, according to associate professor of Economics and Political Science at Hawaii Pacific University Ken Schoolland, who is on Nepal visit currently.
"Regulatory authorities — that are also government agencies — have created more room for market players to exercise monopoly," he said, adding that monopoly has created inefficiency leading them not to do their duty faithfully and efficiently.
The writer of the world famous book, The Adventures of Jonathan Gullible - A Free Market Odyssey, opined that governments around the world are inefficient because they enjoy monopoly.
Similarly, companies also try to destroy competition and create a monopoly in the market by doing some favour to the government, the free market guru said, adding that there is no better investment than to invest on a politician and the companies in return get some kind of favour like regulations.
"Regulation is an instrument for monopolists promoting crony capitalism in the name of free market giving more room for cartels," he added. "With more regulations, governments make cartel possible forcing consumers to suffer. When the government has no skin in the game, it's more secure and the companies ensure that they remain competent."
In a free market, players always worry about new entrants and remain competitive, the associate professor opined, adding that a free market provides choices to people leading to competition, innovation and choice. "However, one's choice should not injure another's."
Similarly, ethics is a key for market players as a free market does not mean robbing consumers with the help of politicians, Schoolland clarified.

The Philosophy of Liberty
My philosophy is based on the principle of self-ownership. You own your life. To deny this is to imply that another person has a higher claim on your life than you do. No other person, or group of persons, owns your life nor do you own the lives of others. You exist in time: future, present, and past. This is manifest in life, liberty, and the product of your life and liberty. The exercise of choices over life and liberty is your prosperity. To lose your life is to lose your future. To lose your liberty is to lose your present. And to lose the product of your life and liberty is to lose the portion of your past that produced it.
A product of your life and liberty is your property. Property is the fruit of your labour, the product of your time, energy, and talents. It is that part of nature that you turn to valuable use. And it is the property of others that is given to you by voluntary exchange and mutual consent. Two people who exchange property voluntarily are both better off or they wouldn't do it. Only they may rightfully make that decision for themselves.
At times some people use force or fraud to take from others without willful, voluntary consent. Normally, the initiation of force to take life is murder, to take liberty is slavery, and to take property is theft. It is the same whether these actions are done by one person acting alone, by the many acting against a few, or even by officials with fine hats and fancy titles.
You have the right to protect your own life, liberty, and justly acquired property from the forceful aggression of others. So you may rightfully ask others to help protect you. But you do not have a right to initiate force against the life, liberty, or property of others. Thus, you have no right to designate some person to initiate force against others on your behalf. — Ken Schoolland

World Bank links financing to results under new programme

The World Bank today approved a $60 million credit to help Nepal maintain and construct bridges on its Strategic Roads Network under the Programme-for-Results instrument.
"Through the new Programme-for-Results instrument, the World Bank support will contribute towards improving access for the population of Nepal, especially those living in remote areas," said World Bank Country Manager for Nepal Tahseen Sayed. "We hope it will also create greater economic opportunities for men and women."
The strategic roads network refers to roughly 10,800-km of national highways, feeder roads and other roads of national importance.
Supporting the vision behind Nepal’s Bridge Policy and Strategy of 2004 to provide 'safe, reliable and cost effective' bridges, the Bridges Improvement and Maintenance Programme will maintain 89 bridges, many over 35 years old, complete major and minor maintenance on over 300 bridges, and construct 121 new bridges.
The Programme will be financed through a new World Bank financing instrument called the Programme-for-Results that links disbursements of funds directly to the delivery of verifiable results. It is the first Programme-for-Results to be approved by the World Bank’s Board under IDA, the Bank’s concessional financing window. The bank will provide approximately 40 per cent of programme financing, with government providing the remaining 60 per cent.
The programme will support the strengthening of institutional systems and will develop transparent implementation arrangements, including linking disbursements to verification of results, third party monitoring, use of social accountability tools and technical audits.
"Three quarters of the bridges require urgent maintenance but the costs are estimated at under $250,000 per bridge,” said Task Team Leader at the World Bank Farhad Ahmed. "Similar estimates suggest that most of the new bridges will cost less than $1 million each."
The World Bank has funded six road projects in Nepal. By improving mobility and access, including in the poorest regions of western and far-western region, the projects are generating economic opportunities while reducing the vulnerability of excluded and marginalised groups.

NIC Bank, Bank of Asia Nepal to merge

The domestic financial sector will witness a merger between two commercial banks for the first time with the merger of NIC Bank and Bank of Asia Nepal (BoAN).
NIC Bank and BoAN signed a memorandum of understanding today for the proposd merger which is expected to be concluded by mid-January 2013. "Both the banks had been looking for a partner to merge with in both international and domestic banks but talks did not lead anywhere," said chief executive of NIC Bank Sashin Joshi.
He stressed that after the merger, the merged entity will be one of the largest commercial banks with the highest capital base exceeding Rs 5 billion. "This is first time that any two strong class 'A' financial institutions are going to merge, and the increased capital base will allow the bank to finance large projects on its own," he added.
The banks will apply for a Letter of Intent (LoI) at Nepal Rastra Bank (NRB) and after obtaining the LoI they will conduct Due Diligence Audit that will determine the share swap ratio between the banks.
The banks have yet to decide on the name after the merger. After the merger, the bank will have 65 branches and 69 ATMs with 36 branches of NIC and 37 branches of BoAN in operation.
Likewise, its customer base will exceed 225,000 with total deposits of Rs 34 billion and loans worth Rs 28 billion. "The merged bank will have about 90,000 shareholders and 800 employees," according to Joshi. "The bank will strive to retain all its employees as the expansion of the bank will require more manpower," he added.
The banks have already corresponded with Nepal Stock Exchange to halt trading to avoid any manipulation of share prices. NIC's shares were traded at Rs 486 and BoAN shares were traded at Rs 237 at the stock exchange today. BoAN earned a profit of Rs 117 million and NIC earned Rs 263 million by the third quarter of the current fiscal year.
Since the last couple of years, NRB has been encouraging financial institutions to consolidate as the Nepali financial system is not large enough to allow space for more than 200 financial institutions to conduct business without stepping on each other's toes. Due to the central bank's insistence on mergers, there are more than 26 financial institutions that have formally applied for an approval to merge from NRB.
The central bank has already given LoI to eight sets of financial institutions with six more to go. Most of the financial institutions seeking mergers belong to class 'C' and 'B' categories. Among the commercial banks, Machchhapuchhre Bank is opting for a merger with Standard Finance, and Global Bank's merger with IME Financial Institution and Lord Buddha Finance is almost complete.

Global IME Bank to start soon
KATHMANDU: The merged entity of Global Bank, IME Financial Institution and Lord Buddha Finance will start operations as Global IME Bank from July 9, according to the bank. After the merger, the bank will have a paid-up capital of around Rs 2.20 billion and will be able to fulfill the central bank's regulation. The merger was granted final approval last week. The bank and IME Financial Institution being promoted by IME Group was asked by the central bank to opt for a merger as it will be easier and send a positive message in the market.

Consensus key to budget: NC chief Koirala

The government cannot even bring the 'special budget' without political consensus, forget about the full-fledged one," according to Nepali Congress president Shushil Koirala said.
"The political consensus will help bring the special budget for the regular expenses," he said, adding that Nepali Congress (NC) understands that the country should not be victimised for the 'ego' of political parties but there is no option to the political consensus before bringing the budget.
After the discussion with the private sector today at his residence, Koirala said that the NC has already started consultation with the political parties to find a common ground. "The private sector should also help convince 'other political parties' to forge consensus," he told the entrepreneurs.
"The government led by UCPN-Maoist is planning to bring full-fledged budget ignoring the two largest political parties NC and CPN-UML," Koirala said, adding that it is unacceptable.
The team of Federation of Nepalese Chambers of Commerce and Industry (FNCCI) led by president Suraj Vaidya told Koirala that the political consensus is a must but the country should not be victimised due to the political tug-of-war. "Let the politics take its course, we do not interfere in it but the economic agenda should also be addressed," he said, requesting the NC chief to forge political consensus soon.
The private sector is ready to help political parties forge consensus that could pave the way to full-fledged budget, he said. "We have even prepared and shared the common minimum economic agenda — that will help the political parties come to a meeting point on economic issues — with political parties."
However, the lingering uncertainty has been hitting the economy hard and the country is suffering, said Vaidya, who led the entrepreneurs’ team that included former FNCCI president Chandi Raj Dhakal, incumbent vice-presidents Pashupati Muraraka and Bhaskarraj Raj Karnikar, chairman of IME Group Chandra Dhakal, hotelier B K Shrestha, and entrepreneur Diwakar Golchha.
At a time, when there is only two weeks for the budget, the private sector has been actively involved in consultation with the political parties and urging them to forge consensus to bring the full-fledged budget. The government must bring the budget — either special or full-fledged — before the fiscal year ends on July 15 through ordinance as there is no parliament.
Similarly, the FNCCI team — in the meeting with the caretaker prime minister Dr Baburam Bhattarai today morning at his official residence — also shared the common minimum economic agenda and asked him to agree on it.
The government should agree on FNCCI-prescribed common minimum economic agenda to let the country move forward, Vaidya suggested the premier.
"The government should end the current political impasse and create investment-friendly environment," he said, adding that the political uncertainty has hit the economy. "Without economic growth and stability, the political stability is not possible," he added.
The government needs to create a separate mechanism that could look after economic agendas despite the change in guard of governments," Dr Bhattarai said, consoling the entrepreneurs that the budget will come on time.

Demand for workers in Gulf rises

Despite the regional political turmoil and the continuing global economic slowdown, demand for foreign workers remains high in the Gulf region, according to a study.
"Despite the political uprisings and civil unrest in some parts of the Middle East and North Africa, the region is still witnessing moderate growth, and in the Gulf countries there is an even stronger imperative to sustain economic growth and meet social needs," stated the study 'The Economic Impact of the Uprisings in the Middle East North Africa (MENA) Region,' sponsored by Western Union, a leader in money transfer and global payment services.
"We expect opportunities for international workers to remain strong and with that remittance flows from host to home countries," said Western Union’s senior vice president for the Middle East and Africa Jean-Claude Farah, adding that the Asia Pacific region has been a significant source of labour for Gulf countries –– led by Nepal, India, Philippines, Bangladesh, Indonesia, Sri Lanka, Malaysia and Thailand.
"The study should instill greater confidence in global workers seeking employment in these countries," said managing director and senior vice president of Asia Pacific Drina Yue.
The study added that economic forecasts for the Gulf Cooperation Council (GCC) countries are much better that those for the Middle East North Africa region as a whole, and in fact have been positive. The GCC countries comprise of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.
The study’s lead author Dr Ahmed Farouk Ghoneim, who is a professor of economics at Cairo University, said that real gross domestic production growth in the Gulf Cooperation Council was expected to remain strong despite short-term disturbances, from a base of 3.1 per cent to 20 per cent in 2011.
"The region’s countries have limited exposure to the international financial crisis," said Dr Ghoneim, adding, "In relative terms, the financial crisis and oil and food price increases have had only mild effects on Middle East North Africa economies, owing to their limited integration into the world economy."
"However, Gulf countries did face modest inflationary pressures from increased social spending," he said, "Within the Middle East North Africa region, labour markets are facing different types of problems, but migration and remittance constitute a common cure for high unemployment in some countries of the region and the need for workers to sustain growth in others."