Nov 6, 2011

Nepal's Economic Reforms- are there any stakeholders left?


Image Source: http://prarthanag.umwblogs.org
Initiating and sustaining the economic reform process is one of the major challenges being faced by the least developed countries around the world. With globalization permeating every corner of the world, no country can remain impervious to the global trends which change too frequently to be conducive for economic reforms. As evidenced by the experience many countries attempting reforms, reforms rarely enjoy broad public support. Economic reforms are generally initiated by crisis, driven by pressures and sustained by the support of few committed politicians or bureaucrats who feel a stake in the reforms. And it's no wonder that some of the major transformations of economies in the world have been under some forms of dictatorship. From Deng's China to Pinochet's Chile to Thatcher's Britain, economic reforms had to be carried out with an iron fist or as in New Zealand where major political parties has a consensus regarding the reforms. Added to this, political instability and communist uprisings in least developed countries like Nepal push economic reforms to almost impossibility. 

Nepal's brief flirting with liberalization and other economic reforms were thwarted by the Maoist uprising and political infighting within the then ruling party -Nepali Congress which not only undermined the benefits of liberalization but also helped smear the process itself. Post 2006 era has been even more depressing for Nepal's economic reform process. Political agendas have pushed back economic agendas further behind. Political bargaining have pervaded every national issues and economic perspectives on issues are missing. Besides political parties, other supposed stakeholders of the reforms such as private sector, bureaucracy, civil society and even the general public are also too busy in their own affairs to care about them. In this context, it would be interesting to analyze what are these stakeholders doing regarding the process and if there is any real stakeholder left?

Private Sector
As economic reforms bolster private sector through more freedom as well as competition, private sectors have a stake in the economic reforms. Nepal's private sector, however, except for paying lip-service, has contributed very little in pushing economic reforms forward. The anti-competitive practices present across all the sectors of the economy such as syndicates, cartels, collusive agreements not only undermine people's support for private sector but also generates hostility towards governments attempts to allow private sector a greater role in the economy. Nepalese private sector currently too divided and too engaged in crony capitalism, to be excited or supportive about the economic reform process. Status quo ensures the survival and profit of the major actors in private sector which translates into lukewarm, if any, support to economic reform process.

Political Parties
Nepal is yet to see a political party that truly advocates free markets and economic freedom out of principle. Most of the political parties see supporting some aspects of economic freedom as a compromise rather than political agendas. Giving leeway to private sector is seen as a compromise on party principles and generates criticisms from within and outside the party. A look at the top five major political parties of Nepal would present this miserable state. Two of the largest political parties are principally against liberalization and other economic reforms, another two thrive on purely ethnic agendas and haven't yet shown any clear stand or interest on national economic issues. Another one doesn't seem so much happy about the economic reforms it initiated and has once again brought forward  anti-market agendas in its political principles. Nepalese political parties seem to be on a “populist” race where everyone is trying to be more popular at the expense of the economy.

The Bureaucracy
A country's bureaucracy plays a vital role in directing and sustaining the economic reforms as seen by the economic reforms of Indonesia and Singapore. In case like ours where the political leadership doesn't seem to have any stake in economic reforms, bureaucracy's role becomes even more important. Nepalese bureaucracy, however, seems too busy in finding avenues for short-term gains and instant gratifications to have a stake in economic reforms. Very few bureaucrats intend to live in Nepal after their retirements and those who do are either disorganized or busy consulting the development industry.  The higher level bureaucracy which can have a serious impact in the national policies,  is either already too well-off or get so by the time of retirement  and has less incentive to push for the economic reforms.

Civil Society
In the post 2006 era, like every other sector, civil society too has fallen victim  to excessive politicization. Excessive politicization and political affiliations erode the very essence of independent civil society in a country. Our civil society is found carrying the same agendas the political parties are pushing forward and hence provide little or no contribution in pushing the economic reforms forward. An independent civil society is essential to the success of the reform process because it can actively promote equal access of every sector and class of the society to the benefit of the reforms. However, our civil society, due to its politicization is failing to act as a uniting force. Agendas picked up by civil society currently are less of national priorities than ideological agendas.

The General Public
Source: http://www.nepalmountainnews.com
Poor and middle classes of the society are another major stakeholders in the economic reform process. As seen in countries like India and China, liberalization and increased access to economic activities reduce absolute poverty rates significantly. Since they consist the majority of voters, they also can exert pressures on political parties to initiate reforms in the country. Benefited by the limited liberalization o the early 1990s, this segment of population is overwhelmingly engaged in foreign employment and improving living standards through remittance income. In fact there has been significant reduction in absolute poverty rates in the country , whose credit, in large part, goes to foreign employment and remittance incomes. This has encouraged even more people to opt for foreign employment. Nepal's over-dependence in remittance has begun showing the signs of what has been termed “Dutch Disease” in which a country goes through vicious cycle of running economy through remittance incomes which in turn lifts off the pressure to make economic reforms, which results in poor investment environment and little economic opportunities. Little economic opportunities force even more people to opt for foreign employment and brings in more remittances to run the economy. The findings of recent Nepal Living Standard Survey report suggests amid the political chaos and instability, poor are lifting themselves out of poverty. Poor are hence, slowing having less stake at the economic reforms.

In this context, any attempts at economic reform process, should take into consideration the question, if there are any stakeholders left for such reforms and who exactly is the stakeholder. Measures to hold all these actors for the reform is another necessary step that needs to be taken for a long term development of Nepal. Free, fair and regular elections would be very useful in making the political parties feel more stake in economic reforms whereas better mechanisms to curb corruption and devising a mechanism to tie up bureaucracy's remuneration with nation's economic performance could be an option for bureaucracy's stake in the reforms. More aware and demanding consumers could pressurize private sector to be more responsible and supportive of economic reforms. Meanwhile, emergence of an strong independent, non-political civil society could be the major milestone in energizing all these actors for economic reforms.

-Surath Giri
(Published in The Himalayan Times- Perspectives of November 6, 2011)