Nepali Times
Economic Sense
Reform 2.0


When Japanese Prime Minister Koizumi opted for elections everyone knew they would be a litmus test for further economic reforms in Japan. After his victory, all are expecting him to tackle his nation's $3 trillion in postal savings.

Economic reform is the order of the day. Everyone is talking about Thomas Friedman's book The World Is Flat, a treatise on demystifying the future global economy, which Friedman labels a 'flattened' one. The message for us is that if we do not embrace the waves of technological innovation, reforms and globalisation, we shall be left behind.

We can draw parallels from Gurucharan Das's India Unbound, which describes how that nation rejected reform to stick to Nehruvian mixed economy, making India suffer for many decades post independence. There are many other sad lessons to learn from the experiences of economies that do not reform. The message emerging from various parts of the world is very clear-reform, reform and more reform. And your ever-faithful Beed will keep harping on this till he is blue in the face.

Nepal's Reform 1.0 launched in 1991 succeeded gloriously but we squandered it in the mid-1990s when the political will required to support the changes dried up. In quest of power, various political alliances were formed and the power brokers' main objective became keeping political partners, and therefore the vote bank, happy. Thus, we never stopped trying to please labour unions or protection-seeking domestic businesses.

But reforms never result in easy political payoffs as they inevitably cost voters more for services and the business sycophants that fund elections lose their competitive edges. There is a school of thought that reforms happen best under authoritarian regimes, the so-called Singapore Model. Unfortunately, we have tried authoritarianism and it didn't work either.

If sceptics pre-February First gave the palace the benefit of the doubt in exchange for hoped-for sweeping economic reforms, they are in a dilemma today. The best way for the current regime to win popular support will be to take the reform agenda further. But we returned to protectionism, stalling critical legislation while issues like reviving the six-day work week dominated policy pronouncements. However, in our confusion on pursuing a 21st-century economic strategy, we lost it all.

The absence of reforms started hitting the government hard, revenues began shrinking and borrowings grew as multilateral donors, seeing no reforms, reduced their support. Today, after a long time, the government has started borrowing from the Central Bank to meet its expenses. Multilateral aid flows irrespective of regimes as long as a reform agenda is pursued. Aid continues to move into Pakistan!

We cannot miss the opportunities in this 'flattened' world, chances that will exist only if we continue to reform. The solution to the current Maoist impasse is neither political nor military-it has to be economic, the integration of all Nepalis in Nepal's economy. We are the world's 40th most populated country and with a market of one billion people to the north and a billion people to the south perhaps the moment is right for Nepal's own economic explosion. But we need Reform 2.0 to lead the way.

(11 JAN 2013 - 17 JAN 2013)