First, they came in the name of cooperatives and looted people, and I did not speak out because I had no deposits in cooperatives. Then they came in the name of appointment in regulators, and I did not speak out because I was not the finance minister, who is supposed to be more responsible for appointing regulators. And finally, they came for economy as cronies, and by then there was no one left to save the bleeding economy.
The rising cronyism in Nepal is bleeding the economy white. Yet, the government remains focused on clinging to power rather than addressing the people’s pressing economic concerns. And this is not a sudden crisis; Nepal’s economy has been in decline for almost two decades, ever since the Maoists entered the peace process in 2006 and subsequently became not only the part of the mainstream politics but also the part of government, and that too, repeatedly.
On November 21, 2006, the government led by the then Prime Minister Girija Prasad Koirala and Communist Party of Nepal (Maoist Center) – then known as Communist Party of Nepal (Maoist) – signed the Comprehensive Peace Accord (CPA). In less than 20 years after signing the CPA, Nepal has seen 16 different governments with political instability persisting.
While signing the peace accord in 2006, the political parties claimed that the political revolution in Nepal had ended and the time has come for an economic revolution. Every time, a new government enters Singha Durbar, it makes lofty promises of economic revolution. But at the end, only those in power benefit, while people’s lives remain neglected. Because the political parties are still clueless about, ‘how to do economic revolution?’ In this dilemma of political leaders, the economy has been hijacked by the cartels and syndicates like Thermal gun gang. The more political instability lingers, the greater will be their control in the governance, which will ultimately weaken the economy.
The 1990s economic policy
The liberal economic policy introduced by the then government led by Koirala after 1990’s democratic movement sustained Nepal for almost three decades. The policy, though frequently criticized and opposed by CPN (UML) and after Maoist Center, helped Nepal navigate through the worst days of a decade long Maoist armed insurgency also.
Despite security threats and uncertainties in those days, the private sector was not as dominated by cronies as it is today. The liberal economic policy provided Nepalis with the opportunities to exercise economic freedom, leading to the establishment of many companies and quite impressive inflow of foreign direct investment (FDI). But the policy has now become ineffective due to government’s backtracking and market distortions disguised as liberal market practices.
In the meantime, the successive governments have oscillated between free market economy and liberal economic policies without a clear direction. In free market economy, an economic system that determines the prices of goods and services by supply and demand, with minimal government intervention, individuals and businesses operate based on their own interests, competing freely to produce and sell goods. But liberal economy incorporates limited but necessary regulations, and government interventions to ensure fairness and correct market failures.
Nepal adopted liberal economic policy in the 1990s, albeit delayed and in some cases failed in establishing robust regulatory institutions. Without robust regulatory bodies and strictly adhering to the liberal economic principles, transitioning to a fully free-market economic system remains a challenge. And majority of Nepali political leaders, who have socialist schooling, have also become entangled in cronies at this very crossroads.
Politics makes strange bed-fellows
And one of the top architects of this increasing cronyism is the Thermal gun gang, which has not only engaged in policy hacking but also placing strategically its stoops in key regulatory institutions to seize control of the economy. It has also become easier for them, as most of the political leaders lack fundamental understanding of economics and liberalism.
Successive governments have failed to understand the strategies of cronies largely because most of the governments in last four decades have been led by the communist parties, or coalition governments involving the communist leaders, with socialist schooling.
The regulator bodies play crucial role in functioning of liberal economy. But elite capture of these regulatory bodies and policy hacking have not only hit the economy so hard but also defamed the government and old political parties lately. The public’s growing frustration with the traditional political parties and leaders due to such elite capture of economy has fueled the rise of pro-Monarchist sentiments and so-called new political parties that lack ideology but are driven by a thirst for power.
Member of Parliament of a new political party, Rastriya Swatantra Party (RSP), Dr Swarnim Wagle, speaking in the parliament last week, showed serious concerns on such elite capture of economy.
The government reluctance to start second-generation reform and its apathy toward economic issues have eroded Nepal’s economic foundations. It has further encouraged the private sector to compromise on corporate governance. When ethical business practitioners are penalized and fraudsters are rewarded, the private sector loses confidence. The government has, for the past few years, failed to meet its revenue targets, largely due to the declining business confidence of the private sector due to rising cronyism.
As a result, cartels and syndicates have infiltrated every sector of the economy, which contradicts the basic principles of liberal economy. There is something seriously wrong going on in Nepal because those, who were always opposed to the liberal economic policy, are now exploiting the policy under its guise in the past decades. And to no-one’s surprise, Thermal gun gang has become their closest ally.
It is no mystery how the infamous Thermal gun gang has such a strong hold on the government and political parties including Nepali Congress, CPN (UML), Maoist Center, even fringe parties, regional and splinter parties. The gang managed to appoint its minions as chiefs of the Securities Board of Nepal (SEBON) – after almost a year delaying for a certain person – in Nepal the Insurance Authority (NIA) by changing the criterion to favor its chosen candidate. Next, it is also planning to control the Nepal Stock Exchange (Nepse) – the frontline regulator – and even eyeing the appointment of the next governor of the central bank.
Just within a month, the tenure of incumbent governor of the central bank Maha Prasad Adhikari will end. And the Thermal gun gang has already started lobbying for a consensus candidate in a way that aligns with the interests of top-level leaders of all major parties to make the 18th governor of the Nepal Rastra Bank. Instead of an experienced and capable individual, who can lead the financial sector safely, if the government appoints yet another minion similar to recent appointments in the SEBON and the NIA, not only Nepal’s financial sector will suffer immensely but also the burden will fall upon ordinary citizens. The economy will be on the verge of collapse.
During a conversation with former Finance Minister Dr Ram Sharan Mahat at the Finance Ministry in his last tenure, somebody asked him, "You opened the economy, and most of the leftists are taking advantage of liberal economy, they don’t support the idea, rather oppose it, what is your take?"
He said, "That is the beauty of liberal economy, every Nepali, be it leftist, rightist or centrist, can take advantage of liberal economy, even though they don’t believe or oppose the idea. The ultimate goal is to make a prosperous Nepal and liberal economic policy can make Nepal prosperous."
However, he overlooked the market penetration that, under the guise of a liberal economy, distorted its ideology through the formation of cartels, syndicates, policy hacking, and ultimately, elite capture.
"In that case, the market will punish them," Dr Mahat used to say. Yes, of course, the market will punish them, but the market is punishing the Nepali citizens too, who want to live in Nepal, work in Nepal and want their brighter future in Nepal.
Today, the economy has been distorted in such a manner, that no one sees future in Nepal, except cronies. As a result, there is a mass exodus of youth, which calls for Nepali economy for a complete overhaul. If policy hacking and elite capture in regulatory institutions continue, Nepal risks facing the same economic crisis that Sri Lanka experienced a few years ago.
What does it mean?
It means there is an economic policy void. Speaking at the ‘First Prabhakar SJB Rana Memorial Lecture’ in Kathmandu, last week, Tara Management chairperson Siddhartha SJB Rana stated bluntly, "Nepal has no economic policy."
He is right. Our government lacks clear economic strategy. Are we backtracking the liberal economic policy of the 90s and reverting to a state-controlled system reminiscent of Panchayat era or genuinely committed to liberal economic policy? It is a million-dollar question. At times, it seems that the government is backtracking and wants to do everything by itself, and at other times, it’s so much open to the cartels like Thermal gun gang to thrive at the expense of the public. No wonder, the cronyism in Nepal is at an all-time high.
As the largest individual tax payer of the country, Siddhartha SJB Rana's opinion should be taken seriously. His businesses, alone contribute to more than 4 percent to the government tax revenue. The government must decide whether to listen to legitimate taxpayers or tax evaders as its choice will shape the future of Nepal’s economy.
"We seem to be caught in a vortex, a downward spiral of mal governance and cronyism," Rana warned, urging the government to introduce an economic roadmap. "The disheartening thing is, I think today, we are talking about possible change in our political system. Already starting to blame the Constitution, a piece of paper."
And without addressing Nepal’s economic challenges, blaming the Constitution or changing political system alone will not lead to anywhere. Federalism is the highest form of democratic system, and it can be strengthened further by practicing it religiously, not half-heartedly.
During his book "In Defense of Democracy" launch, someone requested the then Finance Minister Dr Ram Sharan Mahat, to write also a book on "In Defense of Liberalism", he just smiled. Had he written such a book, people, perhaps, would have better understood how the successive governments have been fostering cronyism in the name of liberal economy, how the likes of Thermal gun gang have captured regulatory institutions and hacked the policy, to only shoot the economy dead.
(Published in nepalkhabar.com -- https://en.nepalkhabar.com/news/detail/13066/)
