Where have all the garments gone?

Where have all the garments gone?
Republica, 23-Feb-2010
Mallika Shakya

Ms. Shakya is Postdoctoral Research Fellow at Oxford Department of International Development/Contemporary South Asia Studies

Many tourists and Non-Resident Nepalis (NRNs) returned this winter to yearn for bygone tranquility and a rustic rural charm. An industry ethnographer, I came to see what happened of an industry that once employed over 150,000 Nepali men and women, and made a third of our total exports.

Alas! The hustle and bustle of garment cutting, sewing, washing, packing and trucking seems now to have halted forever. Apparently, not a single piece of garment got exported from Nepal to the United States in the past few months. No more clusters of sari-clad women will now squat in winter sun to ‘finish’ sewn clothes while sharing gossips about gods and demons and in-laws; there will be no hurried setting-up of assembly lines; no more shop floor gaffs on whether Nepali gods are more powerful than Indian in protecting their wailing industry from being annihilated.

The industry is simply gone with the wind. Nepalis are known for their enduring abilities to let go and move on, and I am doubtful if there will be any digging of its garment past. A stubborn researcher, I say we need a post-mortem.

The policy myths about how it was a losing battle even before it started raises more questions than answers: The first myth about the Nepali garment industry is that it is an ‘Indian’ industry and hence Nepali policymakers need not worry about its misfortunes.

Yes, many Indian capitalists and workers crossed the border in the 1970s as the US passed a bill under Multi-Fiber Arrangement (MFA) that allowed it to buy less from bigger countries China and India so smaller countries like Nepal could have a market share. In the following three decades, however, Nepalis have learned and mastered the skill of garment-making such that Indians owned less than 10 percent of the garment factories in 2001.

Bemoaning India has been a popular Nepali basibiyalo but where is the acknowledgement when a massive Nepalisation does take place right under our nose?

The second myth is that, post-MFA, it is a lot more expensive to manufacture garments in Nepal than, say, in Bangladesh, let alone in China. And it takes longer to import inputs and export outputs from Kathmandu – a daylong drive from the nearest port. Why should Nepal subsidize an industry that has no comparative advantage?

True, but let us not equate costs and time with competitiveness which is a lot more complex phenomenon. Take the example of Thailand vs China – it costs almost twice as much to produce in Thailand than in China yet a major garment buyer Nike continues to source from the Thai factories.

Why? China is all about large scales and fast assembly lines but Thailand availed itself to a new production method ‘lean manufacturing system’ (following Toyota production model) that allows Nike earn more brownie points on labor and product standards, and hence the profit mark-ups. What Nike seeks from the Thai government is some help with the public goods needed for lean manufacturing, e.g., workers’ training and regulations for maintaining the certification of standards.

The third and fourth myths have to do with this ever elusive notion of ‘market’. Few garment factories closed down in Nepal for shortage of purchase orders or rejection from buyers. Several closed because their production could not make it to the port – thanks to never-ending bandas in Kathmandu and Tarai.

Many more closed because the new labor unions would not let them run production. The so called MFA was only a tip of the iceberg—the industry wasted away to the State indifference, donor cynicism and a complex apparatus of political aggression at all levels.

The fifth myth is that there is very little value added in garment-making. Really? Employing 150,000 workers for the whole decade should surely count more than the alternatives now pursued by the businessmen made redundant from the garment industry, i.e. to indulge in real estate speculation or retailing of luxury goods to sponge on remittance money.
Bygones. Let us not whine over spilled milk.

It is understandable that subsidizing is not a solution. Economists in Nepali and donor ministries seem too busy beautifying macroeconomic theories of how the ‘market’ knows best even if that means turning a blind eye on glaring evidence. Not much has been said about the whole saga of market failures that have to do with the micro foundations of competitiveness – public goods like skills, information, technology, innovation, physical infrastructure, and the overall business environment.

The garment businessmen have now moved on to new areas – the young and the bright who had embraced a garment career in the 1980s are now seasoned businessmen harnessing their entrepreneurship elsewhere. Some have been recruited into garment management positions in India, East Asia, Middle East, and the US.

Many have gone on to contribute to buzzing garment industries elsewhere. Women workers who could not follow their peer have either transformed themselves into seamstresses and tailors, or moved on to other jobs, or just simply sat home. It sounds like one of those familiar stories where the people are winning but the country has lost.

My only plea is: We have lost this industry; let us not lose the lessons. Let us at least have the moral courage and intellectual honesty to acknowledge that this industry was one of the few momentous entrepreneurial movements that Nepal had witnessed amid the ongoing political and economic chaos.

Global Perspective: First-hand Perspectives on the Global Economy

Global Perspective: First-hand Perspectives on the Global Economy
Lauder Global Business 2 Insight Report 2010
Wharton Business School

In this special report, students from the Joseph H. Lauder Institute of Management & International Studies analyze some of the most exciting economic, business and technology developments helping to shape today's world.

The articles offer new perspectives on the ever-changing global economy, including the growth of consumer markets in Brazil, Egypt and China, and the impact of the crisis on French luxury goods. The green economy’s growth worldwide is captured in articles on organic products in Germany, solar energy in Senegal and Japan’s eco-tech industry. The rise of the Russian gambling industry, sustainable tourism in Egypt and high-end gastronomy in Spain illustrate new frontiers in the leisure business. China’s coming of age is captured in articles on the development of its venture capital and mutual fund industries, enhanced awareness of social corporate responsibility, and the growth of second- and third-tier cities. New developments in infrastructure and financial services are reflected in pieces on the mobile Internet in Latin America, the rise to prominence of Spanish infrastructure management companies, and a new form of transparent, customer-driven banking.

Taken together, the 16 articles offer perspectives on a range of dynamic economies and identify existing opportunities for conducting business within specific cultural, political and institutional contexts. The articles are part of the Lauder Global Business Insight program.

Download the report in PDF Format (4.3MB)

NEPSE standstill on second day

NEPSE is on a free-fall. NepaliEconomy.com argued that 486 is a critical level to hold. NEPSE has breached that level. If NEPSE does not bounce back quickly, then from technical standpoint it heading towards 400 i.e another 25% decline. The decline thus far seems orderly so there is no need for the government to intervene. The government should absolutely avoid making policies just to pop up the market.

It is very difficult to do any kind of proper analysis on NEPSE because of lack of data. Basic information such as daily volume or P/E are not available. If stock market investment is a game of dart, then investing in NEPSE is a game of bow-and-arrow.

Also compare NEPSE to BSE (Bombay Stock Exchange). BSE picked up in early 2009 like the rest of the world, NEPSE didn't.

NEPSE standstill on second day
TKP, 22-Feb-10

Stock market remained idle in the second consecutive trading day on Monday as the investors refrained from making transactions protesting the government's apparent apathy towards reviving the falling market.

General Manager of Nepal Stock Exchange (NEPSE) Shankar Man Singh confirmed that the stock market saw no transaction like on Sunday.

Although Nepal Rastra Bank (NRB) eased existing provisions regarding the margin lending (loan against share), in a bid to address the investors' demand, the agitating investors decided to budge from their stand saying the central bank move was inadequate. Even after the central bank issued the new directive on margin lending on Monday, General Investors Association, Nepal (GIAN), Nepal Investors Forum and Nepal Securities Investors Association held a collective meeting deciding to continue agitation.

The central bank has allowed the banks not to call margin (requirement of investors to deposit money in the lender bank up to the level of margin the share price decreases) until the share price decreases up to 10 percent. Earlier, the banks were required to call margin if the share price decreased by a minimum amount.

Likewise, NRB has also eased the renewal of the margin lending. The investors can extend loan repayment period up to one year by paying 25 percent principal in addition to regular interests. Earlier, the investors were required to pay 50 percent interest to get renewal of remaining loan amount. The investors have been demanding renewal of all loan amounts without paying principal. Likewise, they are demanding NRB to allow banks to provide up to 70 percent loans against the average value of shares.

But, Deepak Karki, president of GIAN said the NRB move was inadequate and the government must address other number of other demands that the latter can address immediately.

The government must stop 19 percent promoters' shares to come to market as public shares, take concrete step towards extending NEPSE outside Kathmandu and take some move towards recognising 10 percent capital gain tax as final tax among others, according to Karki. "We will withdraw agitation only if the government addresses the issues that can be addressed immediately," added Karki.

Nirmal Pradhan, an influential investor, said that NRB should be more flexible regarding allowing investors to get at least 60-75 percent loans against average share price to convince the investors for withdrawal of ongoing agitation.

NEPSE General Manager Singh however asked the investor to withdraw their protest programme by considering NRB move as a gesture to address their demands.

He said that NEPSE was playing the role of facilitators regarding the fulfillment of investors' demands and has delivered their demands to the concerned government agencies.

The investors stated agitation on last Friday by picketing the NEPSE office. As per the agitation schedule, they will not allow the transaction server of NEPSE to operate.

BoP Deficit & Remedies

One of the better columns on Nepal's Balance of Payment (BoP) problem. Couple of comments (a) in every year going back to 1975 (that's when NRB data become available), Nepal has suffered trade deficit (b) 85% Nepal's trade deficit is in the big 4-items machinery, fuel, mfg good and chemicals&drugs. Those items ex-fuel already have very high import tariffs; so Nepal may not be able to do much to curtail them. The solution is therefore to increase exports competitiveness (c) talking about exports competitiveness, NRs depreciation must be on the agenda. NRs160/IRs100 exchange has been intact since 1992 and that absolutely does not make sense given the relative growth of India and Nepal, and more importantly, ballooning trade deficit with India - between 2002-08 Nepal's trade deficit increased by Rs. 102 billion, and of that Rs. 75 billion increase was with India.

BoP deficit & remedies
Republica
Bhim Prasad Bhurtel
b.p.bhurtel@gmail.com

Presently, Nepal is witnessing a negative Balance of Payment (BoP) after more than seven years. A BoP is an accounting record of all monetary transactions between a country and the rest of the world. These transactions include payments for the country’s exports and imports of merchandise trade and service, financial capital and transfer payments for a specific period, usually a year, and is prepared in a single domestic currency for the country concerned. BoP deficit means the payment exceeding the receipts of any country to the external sector particularly in one year. A BoP deficit is a particularly serious issue for a supply-deficient economy like Nepal.

In the current fiscal year 2009/10, Nepal’s foreign trade deficit reached nearly 100 billion and the export-import ratio soared to 84:16. Previously, despite a huge trade deficit, the BoP situation was in favor of Nepal because of huge remittance inflow. According to Nepal Rastra Bank, in the last fiscal year, the total size of merchandise goods and service was 220 billion which was balanced by 210 billion of remittance inflow, 27 billion foreign loans and grants, 18 billion of transfer payments such as pensions and gratuity earned abroad. The BoP surplus was 41 billion during the last fiscal year.

However, in the first quarter of the current fiscal year, BoP deficit stood at 20 billion. Alternatively, it can be said that Nepal had to pay 20 billion more than its earnings from abroad. In other words, Nepal’s net foreign asset declined by 20 billion and the foreign currency reserve declined by 31 billion during the same quarter. This includes the increase in IMF quota by 6.28 billion and the 4 billion that declined due to exchange rate fluctuation. The merchandise trade deficit reached 96.21 billion, an increase of 48.9 percent, and the service sector deficit reached 5 billion.

CAUSES OF BOP DEFICIT
There are two primary reasons: Implicit and explicit. The implicit causes of BoP deficit are the decline in remittance inflow after the global financial meltdown and the recent Dubai crash, decline in export capacity and escalating import of goods, especially gold. Import records of the first quarter of the current fiscal records 12billion worth of petroleum imports, 8 billion worth of vehicles and spare parts and, surprisingly, 19.26 billion worth of gold.

The explicit causes are policy-related. The first inherent cause of BoP deficit is the perennial low economic growth despite an increase in aggregate demand and national income due to remittance inflow, as a result of which people have more disposable income to consume luxury and necessary goods. However, our economy suffers from supply deficiency as domestic products could not meet the larger section of aggregate domestic demand and supply depended heavily upon imported goods.

The second cause is the fixed exchange rate of the Indian and Nepali currencies and corresponding adjustment with the US Dollar. The trade deficit with India in the last fiscal year was 103 billion. Nepali currency was overvalued with dollar while it remained fixed with Indian currency for more than ninth months that resulted in imports becoming cheaper, which soared. On the other hand, exports became uncompetitive and fell.

Third, Nepal has a high marginal propensity to imports because we do not have comparative advantage in the production of manufactured goods due to lack of adequate infrastructure, the small economy of scale in production, lack of investment incentives, colossal energy crisis, low industrial productivity, political instability and perennial labor disputes. Therefore, increase in national income due to remittance inflow and the “cosmetic” growth in domestic product due to foreign aid and remittance are marinating the gross domestic consumption— it will eventually result in a big increase in imports.

Fourth, after joining World Trade Organization (WTO), Nepal now has to struggle to compete with developed countries due to mandatory provisions. This has caused a considerable decline in Nepal’s export, manufacturing and agriculture sector. For example, the garment and the carpet industry were seriously impacted after the enforcement of the Multi-Fiber Agreement and agro-export suffered because of Sanitary and Phyto-Sanitary Measures—this has led to a persistent deficit in the balance of trade. On top of it, we are flooded by the massive surge of foreign goods due to liberalization of international trade.

The fifth reason – recession in developed countries – also escalated Nepal’s trade deficit. Exports could not increase because Nepal’s main trading partners in North America, Europe and Japan experienced negative economic growth in 2008-9 and they imported less from abroad and obviously our exports too declined worsening the current account.
The sixth key reason for the BoP deficit in Nepal is the growing trend of studying abroad in the UK, USA, Canada, Australia and other countries. Similarly, capital flight also contributed to BoP deficit.

Last but not least, the foreign currency earning tourism sector has not fully revived due to political uncertainty and ultimately it contributed to the BoP deficit.

REMEDIES
The short-term measure should aim at immediate response measures such as controlling wayward gold import, currency devaluation and imposing extra duties on imported luxury goods to minimize total import.

Long-term remedies are more policy-based. The first is to develop the economy’s competitiveness by enhancing national production capacity to meet the aggregate domestic demand and thus overcome the problem of supply deficiency. The energy crisis should be tackled as soon as possible. Import of petroleum should be reduced through alternative energy, including promotion of bio-fuel. Second, as tourism is a key to increasing foreign reserve, its development will help to amortize the BoP deficit. Third, to tackle the ongoing gold hoarding caused by speculation, the portfolio investment opportunities should be created and the stock market should be made reliable.

Fourth, the import substitution industry such as pharmaceuticals should be promoted. Export industries should be provided heavy subsidizes to make them competitive domestically as well as dump goods abroad. Fifth, to improve and sustain remittance inflow, the quality of foreign-bound workers should be developed by implementing skill-development programs. If a skilled human resource can be sent abroad, even a small number of them can earn significant remittance. Sixth, some tariff and non-tariff protectionist measures should also be used to prevent the BoP deficits within the WTO framework for least developed countries.

Seventh, Nepali currency should be devaluated with Indian currency to correct the virtual strength of Nepali currency. Eighth, the exchange rate policy, export-import policy, industrial policy, fiscal policy and monetary policy should be used simultaneously. Ninth, the Nepal-India trade deficit being another key factor should be resolved. Nepal should take political as well as diplomatic initiatives to do so.

Lastly, to create a conducive environment for investment, the new constitution should address the overall grievances of the people within the stipulated time and end the chaotic transition phase as transition results in more panic than an economic recession. BoP will always favor Nepal only if we are able to execute these tasks effectively. Myopic policy measures won’t serve in the long term.

Global Prospective: IMF urges developing nations to consider capital controls

It looks like the IMF is finally abandoning the neoclassical orthodoxy aka Washington Consensus. When Malaysia imposed strict capital controls following the Asian crisis in 1997-8, the IMF and the US Treasury led by none other than Larry Summers (Deputy Treasury Secretary then) severely criticized the action. How much one's beliefs change in 10 years?

This news is important from Nepal's point of view because Nepal might seek IMF's aid if its Balance of Payment worsens. Hopefully that won't happen. However, there is silver lining to IMF's intervention if there is one. NepaliEconomy.com believes that only IMF can impose politically unpalatable, and in current circumstance politically impossible, economic reforms in Nepal.

IMF urges developing nations to consider capital controls
WSJ, 19-Feb-2010
By BOB DAVIS

International Monetary Fund economists, reversing the fund's past opposition to capital controls, urged developing nations to consider using taxes and regulation to moderate vast inflows of capital so they don't produce asset bubbles and other financial calamities. It said emerging markets with controls in place had fared better than others in the global downturn.

The recommendation is the IMF's firmest embrace of capital controls and a reversal of advice it gave developing nations just three years ago. The IMF has long championed the free flow of capital, as a corollary to the free flow of trade, to help developing countries prosper. But the global financial crisis has prompted the fund to rethink long-held beliefs. It recently suggested the world might be better off with a higher level of inflation than central bankers now are targeting.

"We have tried to look at the evidence and tried to learn something from the current crisis," said Jonathan Ostry, the IMF's deputy director of research, who wrote "Capital Inflows: The Role of Controls" with five other IMF economists.

The IMF examined capital restrictions tried by Brazil, Chile, Malaysia and other countries, such as explicit taxes on capital inflows, requirements that a portion of foreign capital be held interest-free at the central bank, and various regulations to reduce foreign lending. The fund recommends that countries first look at whether traditional policies, such as allowing currencies to appreciate, will work to moderate capital inflows. Countries whose currencies are appropriately valued and that are wary of lowering interest rates to ward off inflows should look at "unconventional" measures, Mr. Ostry said.

Money is flooding into emerging markets, producing fears that asset bubbles are forming in China, South Korea, Taiwan, Singapore and elsewhere, particularly in real-estate markets. This year, about $722 billion in private capital is expected to flow to developing nations, a 66% increase over 2009 but far below the $1.28 trillion that flowed to emerging markets in 2007 before the financial crisis, according to the Institute of International Finance, a banking trade association.

Private investment generally helps growth, the IMF says, but a too-rapid increase can lead to a boom and then a bust. About six months ago, IMF economists started examining the ability of capital controls to limit financial damage. Countries that had controls in place before the global recession, they found, were much less likely to have suffered a sharp economic downturn. "The less risky financial structure meant you were less likely to undergo a credit boom-credit bust cycle," said Mr. Ostry.

The IMF says capital restrictions have tended to make it harder for investors to pull money from a country quickly, thus reducing financial fragility. It isn't clear whether the measures also reduce total capital entering the country, it said.

Before the crisis, a very different IMF gave very different advice. In a July 2007 speech in Bangkok, the IMF's managing director at the time, Rodrigo de Rato, advised nations that capital controls "rapidly become ineffective" and are easily circumvented.

The IMF now says that finding a way around restrictions increases costs for investors and acts as "sand in the wheels" of international capital. Columbia University economist Jagdish Bhagwati, who criticized IMF opposition to capital controls during the Asia crisis in the late 1990s, applauded the change. "Better late than never," he said. "This is so clearly an area where letting markets rip isn't a good idea."

Deploying restrictions to maintain undervalued currencies, the authors warned, would be undesirable:In that circumstance, money would flow to other countries, pushing up their currencies and making their exports less competitive internationally. The authors didn't mention any country in particular, but it is clear they were warning China. The IMF has labeled the yuan as undervalued, joining the U.S. and Europe in pressing China to let its currency rise.

BBC Nepali Service Speaks to NRN President Dev Man Hirachan

BBC Nepali Service's Ms. Rama Parajuli talks to NRN's President Mr. Dev Man Hirachan (देवमान हिराचनसंग) on a variety of topics including government's decision to give IDs to NRN and NRNs' investment in Nepal.

Global Prospective: The Greek Problem!

Global Prospective: The Greek Problem!
By NepaliEconomy.com

The biggest issue in the global financial market at this time is whether or not Greece is going to default on its sovereign debt. That depends on Germany. Germans are not keen on bailing out the profligate Greeks but German and Euro establishment may not have much choice. We'll see how the events unfold but the Greek 5-year CDS spread (355bp) implies 28% default probability over that period. The last time a sovereign defaulted was in 2002 when Argentina abrogated its obligations to international bondholders. How Greece and Europe deal with the problem will impact the Euro and the dollar. Any sharp movement in the dollar will have some consequence to Nepal's economy. So, what exactly is the Greek's debt problem? Why is it become so now?

Greek debt became the headline issues late last year when the finance minister announced that the country's deficit to GDP ratio for 2009 would be 12.7% instead of 6.0% originally forecast. This raised alarm bells amongst international investors because Greece needs to roll-over Euro 16 billion of its debt in April/May. As the focus on Greek finance intensified more nefarious activities started to come to light. Specifically, Greece was accused of consistently under-reporting its debt to the Eurostat, the European statistical agency by using complex derivative transactions. In actuality this was an open secret; in fact, an Italian academic Gustavo Piga wrote a paper on this exact topic back in 2002.

The genesis of the problem goes back to 2001 when Greece joined the Euro. In lieu of its entry, it had to abide by the Stability and Growth Pact (SGP) established in 1996. SGP set two important targets for member states: a debt to GDP ratio of less than 60% and a deficit to GDP ratio of less than 3%. At the time of entry, Greece was within the deficit limits but its debt was over 100%. In 2002, the European Commission pressured Greece to reduce its debt not just interest payments on those debt. In order to comply, Greece used cross-currency swaps in very innovative ways.

A cross-currency swap involves the exchange of payments denominated in one currency for payments denominated in another over fixed time period. Payments are based on a notional principal amount the value of which is fixed in exchange rate terms at the swap's inception. Like any derivatives, cross-currency swap can be used either as a hedging instrument (against exchange rate fluctuations) or as a speculative instrument (to bet on movements in currencies and yield curves). Cross-currency swaps do not change the size of debt (principal) at the beginning of the contract. At the end of the contract, debt value can change or not change based on nature of the contract. Swaps do alter periodic interest payments depending on the relative movements of exchange rates and interest rates in reference countries.

Swaps do not reduce the size of debt, just the costs of borrowing. So how were Greeks able to reduce debt using cross-currency swaps? The simple answer is because the Eurostat accountants allowed them to. ESA95, the accounting standards for government debt and deficit allowed "up-front swap payment" to reduce debt because it did not take into account the corresponding increase in payment at the end of the contract. Greece and Goldman Sachs took advantage of this accounting loophole to comply with EC's demands.

Starting 2002, Greece and Goldman Sachs entered into series of cross-currency swaps exchanging Greek's dollar-denominated and Yen-denominated debt for Euro-denominated debt. The transactions totaled about US$ 10 billion with tenor (maturity) of 15 to 20 years. Instead of using spot Euro/US$ and Euro/Yen exchange rates to swap debt, they used "off-market" rates whereby the reference Euro rates were lower than spot rates. This in effect was equivalent to one-time foreign exchange gains for Greece causing Goldman Sachs to make US$1 billion up-front payment followed by higher than otherwise periodic interest payments. As per ESA95, Greeks reported this up-front payment as a reduction in debt. The currency gain was going to reverse and Greeks were expected to payback Goldman Sachs at the end of the contract but they did not have to report that to the Eurostat. Goldman Sachs on the other hand hedged its exposure to the Greek transaction by taking off-setting positions with Frankfurt-based Deutsche Pfandbriefe Bank.

The bottom line is that Greece will not be able to roll-over its debt without some kind of international guarantee but what form that takes and who leads it (Germany or IMF) if at all is an open question. Lets see how this plays out!

Growth challenges of Nepal's economy

Growth challenges of Nepal's economy
Republica, 15-Feb-10
Tula Raj Basyal

Mr. Basyal is former Executive Director of the Nepal Rastra Bank and former Senior Economic Advisor of the Ministry of Finance

The available macroeconomic indicators signal impending setbacks to Nepal’s economic growth. The budget and the monetary policy had projected a 5.5 percent growth for 2009/10. However, the unfavorable monsoon reduced the growth prospects of the agriculture. During the first five months of the current fiscal year, strong growth in the banking sector’s credit for non-productive purposes and weak growth for productive purposes also evidence weaknesses in the growth outlook of the economy. Large reduction in the export and the massive increment in the merchandise trade deficit coupled with the current account balance turning into a deficit of Rs. 19.6 billion in comparison to a surplus of Rs. 10.7 billion recorded during the corresponding period in the previous year further evidence the weakening growth outlook.

During the five months, there has been a large balance of payments deficit (Rs. 19.6 billion) in comparison to a surplus of Rs. 22.8 billion during the comparable period last year. Consequently, the foreign exchange reserve position weakened, with the import capacity of the foreign exchange reserve falling to an equivalent of 7 months’ goods and services imports from a level of 8.3 months’ during the same period last year. Uncertain and unfriendly economic environment even raised the risks of capital flight. On cash basis, foreign loans available for the government further contracted. Recurrent expenditure during this period in comparison to the same period in the previous year increased by Rs. 13.3 billion while the capital expenditure rose by Rs. 0.65 billion only. Continued reduction in the growth of demand deposits coupled with the continued rise in the growth of currency in circulation signaled symptoms of reduced business confidence and weakened investment climate in the economy. In addition to such a modest scenario for this year, the growth challenges that the Nepali economy has been facing in the recent years have remained quite daunting, as outlined in Table 1.

The table indicates the unfavorable economic development environment has adversely affected Nepal’s overall economic growth and also the per capita income growth. Consequently, the envisaged socio-economic development outcomes have remained largely unattained and the prospects of materializing these outcomes in the near future also remain quite distant.

Along with the changes in the growth patterns, there have occurred significant changes in the structure of the gross domestic product (GDP), with the contribution of the agriculture and industry going down. Further, employment growth has been constrained and productivity of the capital employed reduced. Table 2 shows the incessant decrement of various sectors’ contribution to the GDP.

Higher consumption, unproductive investments, lower saving, and excessive trade deficit marked the period following the advent of the new millennium. These developments were associated with lower economic growth. This calls for initiating measures for controlling excessive consumption, increasing saving, making the investments productive, reducing the trade deficit, and expediting the economic growth. Ensuring incentives for channeling more resources toward strengthening the export, raising production and productivity, generating employment opportunities, and making optimal utilization of available resources would remain crucial to accelerating the economic growth and improving the soundness and efficiency of the economy on a sustainable basis.

NepaliEconomy.com Comments
All look good EXCEPT the last paragraph. I THINK THE AUTHOR MISUNDERSTANDS THE CONCEPT OF GDP. Higher consumption and lower savings (they mean the same thing because savings are the difference between disposable income & consumption - cannot have higher consumption and higher savings) are associated with higher GDP growth because "C" is part of "C+Y+X-M+G". Unproductive investment is also good for GDP (in the short run at least) because it boosts income and employment of brokers, construction workers etc. Yes, Nepal needs to export more because that'll increase X in the above equation. Whether productivity is good for GDP is a different question - look at the US now, it has record productivity but anemic GDP. Higher productivity is certainly good for profitability of companies.

News Roundup: St Valentine's Day Costing Kathmandu's Love Birds

Roundup of Nepali Economic and Business News for Feb 11-15
By NepaliEconomy.com
News Archive

St. Valentine's Day demand pushed up prices of red rose stem from Rs. 20 to as high as Rs. 150 in Kathmandu. As many 200,000 pieces of roses were sold to love-birds. Talking about roses, India's Bangalore-based Karuturi Global is the world largest producer of roses producing 555 million stems a year. Rose price is not the only thing going up. The latest inflation report shows 11.8 percent increase in January.

Nepal will reduce poverty to 21 percent of the population by 2015 as per Millennium Development Goals (MDG). In 2008 poverty rate stood at 25 percent, and in 2005, 31 percent. The definition of poverty is people living under less than US$1 a day.

Commerce Minister Rajendra Mahato is heading to Washington DC to lobby for Trade and Investment Framework Agreement (TIFA), which will gives preferential treatment to Nepal's exports. According to the US Census, US exports to Nepal in 2009 was US$13 million and import was just $131,000.

NEPSE's free fall has hit the pocketbooks of brokers. According to SEBON brokers' earnings has declined 28 percent to Rs. 107.34 million during 2008/09.

Nepal is benefiting from global growth. More than 203,ooo tourists visited Pokhara in 2009, up 9 percent. Pokhara only gets 25 percent of total tourists visiting Nepal. The demand for Nepalese workers in Saudi Arabia and Malaysia are starting to pickup and so are their salaries. New regulations for manpower companies are in offing. While unskilled labors are going abroad, skilled jobs are coming to Nepal looking for cheap and qualified workers. Currently 25 medical transcription companies employ 400 people and has turnover of US$3 million, and Transcube International is the big dog in that sector.

Illegal diversion of incoming calls is costing telecoms companies Rs. 1.5 billion a year. According to the police, illegal rackets of VOIP have been diverting international calls through their own unauthorized channels and masking them as local calls. They benefit from rebates from foreign based operators that originate calls. Following the crackdown, Nepal Telecom (NT) is seeing a big increase in revenue. NT has been recommended to outsource is non-core activities like Base Tower Stations (BTS) and operations and maintenance.

On the IPO news, Prime life is going public at Rs. 100 million.

A Technical Analysis of NEPSE: Heading to 400?

A Technical Analysis of NEPSE: Heading to 400?
By NepaliEconomy.com

NEPSE, the stock market index of Nepal is on a free fall. From the peak on August 31, 2008 to February 11, 2010, the index has declined 58%, from 1,175 to 497.

There are three phases of the decline.
• First, it declined rapidly from 1,175 to 630, which represents 50% retracement. It tested that level twice forming a double bottom, and started to move up.
• Second, it failed to break a strong resistance at 730, which represents (a) 200-day moving average (b) 38.2% retracement (c) previous support. Having failed to break that resistance, the trend reversed and the index headed down. In a technical analysis parlance, it formed a classic "bear flag".
• Third, it temporarily stalled at 530, which represents (a) 61.8% retracement (b) previous resistance. When it failed to hold that level bouncing off 50-day moving average, it continued on its downtrend.

The next level to watch is 486. If the index does not hold that level, then it is heading to 400.

The worst performing sectors between August 31, 2008 and February 11, 2010 were financials - development banks (-66%), finance companies (-58%) and commercial banks (-57%) (Table below).

In terms of market cap, 137 companies that were present on both September 16, 2008 and January 14, 2010 lost Rs. 134 billion in market value. The biggest loser in market cap terms was Nepal Telecom, the biggest company on NEPSE. It lost Rs. 46 billion. In relative terms, Nepal Share Market lost the most, losing 86% of its value (Table below).

Note
• NEPSE is supposed to be market cap weighted index but it does not seem so. Market cap has declined 27% between September 16, 2008 and January 14 but index declined twice that amount, not sure why?
• Volume data for NEPSE is not available. Volume and prices trends make technical analysis (TA) possible. Doing a TA without volume data is like walking on one leg.

BIG Cinemas opens at the NLIC City Center

BIG Cinemas opens
eKantipur, 11-Feb-10

Cine Star, a division of the Triveni Group, on Thursday launched three multiplexes BIG Cinemas at the NLIC City Centre, Kamalpokhari.

“Cine Star will be running these multiplexes under the name Big Cinemas with technical and managerial support of India’s Reliance MediaWorks’ Big Cinemas,” said Rajendra Aryal, a director of Cine Star.

The three multiplexes have a seating capacity of 280, 285 and 305 seats each. They have launched by screening three films from Bollywood, Hollywood and Nepal entitled My Name is Khan, Wolman and Pahilo Pahilo Maya.

Cine Star is planning to run five shows daily at the multiplexes. According to Aryal, the ticket rates will not go above Rs. 250. Reliance MediaWorks is a member of the Anil Dhirubhai Ambani Group.

Big Cinemas claimed that it would provide romance, drama, comedy and action-packed movies at its three contemporary screening rooms.

The theatre has a state-of-the-art projection and sound system (both DTS and Dolby digital) with a wall-to-wall screen. The auditoriums are designed with wide luxurious pushback seats with ample leg space.

Govind Sanghai, director of the company, said, “We aim to reinvent the multiplex experience for Nepal and provide world class amenities to our audiences.”

Related News
NLIC City Center Opens in Kamalpokhari (17-Jun-09)
NLIC City Center formally started (17-Jun-09)
NLIC opens City Center (17-Jun-09)

News Roundup: Upper Tamakoshi Financing Complete (Almost)

Roundup of Nepali Economic and Business News for Feb 5-10
By NepaliEconomy.com
News Archive

Financing for Rs. 33 billion 456-MW Upper Tamakoshi Hydroelectric Project (UTHEP) in Dolkha District is coming to a completion with Rastriya Beema Sansthan (RBS) investing Rs. 2 billion. Other investors include Employees Provident Fund (12 billion), Nepal Electric Authority (NEA) (9 billion), Nepal Telecom (6 billion) and Citizen Investment Trust (2 billion). If NEA is unable to raise additional Rs. 2 billion of the projected cost, the government will foot it. UTHEP is slated to be a relatively cheap producer at Rs. 120 million per MW compared to Rs. 150-160 million at its peers. The project is slated to start in June.

Maoists continue to play hardball on foreign investments. They threaten to shut down major hydro projects including West Seti and Arun-III. Power investors want NEA to increase power purchase agreement (PPA) from current Rs. 4 per unit during wet season (8 months) and Rs. 7 during dry season (4 months) given rising costs of doing business in Nepal.

Amid the so-called financial crisis, banks are reaping record profits. Nepal Credit and Commerce Bank posted Rs. 384 million profits in the first half of this fiscal year and Manakamana Development Bank Rs. 92.2 million. 50-year old state-owned Nepal Industrial Development Corporation (NIDC) is re-starting its operation as a Development bank.

Prices of essential commodities in Kathmandu are up on average by 20% over the past month due to lack of supply. There is global dimension to it but Nepali government seems oblivious. It is letting domestic producers export additional 400 tons of lentils. India is reciprocating by allowing exports of 50,000 tons of wheat to Nepal. Japanese government is giving half billion rupees to purchase food for food-deficit districts. Go figure!

Airfares are likely to go up as operating costs are rising. Landing prices are going up from current Rs. 300, aviation turbine fuel (ATF) going up Rs. 5 to Rs. 75 and fuel surcharge by Rs. 60 to Rs. 180 depending upon flight distance. Is it true that Nepalese pilots in domestic carriers earn Rs. 300,000 a month and Nepal Airlines only Rs. 45,000?

Labor-management woes closed 24 outlets belonging to Bakery Café, Hot Breads, Nepal Dairy and Jajoo Café for 5 days before opening on February 9 costing the owners Rs. 800,000 a day of business.

Finally a government bureaucrat, Narendra Man Shrestha, joint-secretary at the finance ministry is convicted of a corruption charges.

The Prabal Gurung Girl Is Sexy and Smart

The Prabal Gurung Girl Is Sexy and Smart
New York Magazine, 9-Feb-2010

New York magazine's fashion director, Harriet Mays Powell, paid a visit to Prabal Gurung's studio to talk about his cultural influences, his spring collection, and who the ideal Prabal girl is. Gurung, who is Nepalese, draws influence from the draping of saris. "If I can pinpoint one thing about the way that Nepalese women, or even in India, it's the way they drape their saris," he says. "If you look at my clothes, when it's like draping, it's always influenced by that." Prabal was also influenced by YSL's Rive Gauche perfume bottle. And what makes a girl a Prabal girl? "A beautiful girl with brains — that's a lethal combination." Find out more by watching the video.

Also checkout:
• Prabal Gurung in New York Times' preview of 2009 fall Fashion Week
• Prabal wins Int'l Fashion Award
• Prabal Gurung: In the fashion world

Prices of essential commodities up

Prices of essential commodities up
Republica, 6-Feb-10

The prices of major essential commodities have skyrocketed in the market in a month´s period. Consumers have faced a sharp rise in prices of staple food items such as pulses, sugar and edible oil over the period.

According to retailers, the price of sunflower oil soared to Rs 100 from Rs 90 per liter recorded a month ago. Likewise, mustard oil became dearer by Rs 15 over the period. Mustard oil is selling for Rs 105 per liter in the market.

Nirajan Neupane, owner of Kusheshwar Cold Store in Ghattekulo, said the prices of essential commodities have skyrocketed in the market as wholesalers are raising the prices every other day.

“The price of sugar has increased to Rs 90 from Rs 80 per kg. Likewise, iodized salt has become dearer by Rs 4 to Rs 15 per kg over the period,” Neupane added.

Prices of popular rice varieties such as Sona Mansuli, Jira Masino and Mansuli steam have also increased over the period by Rs 5 to Rs 15 per kg.

“Price of Mansuli rice has increased to Rs 45 per kg from Rs 30 recorded a month ago. Similarly, price of Jira Masino rice increased to Rs 56 from Rs 48 and Mansuli steam increased from Rs 35 to Rs 40 kg,” Neupane added.

The price of lentils, another popular food commodity, also saw a sharp rise over the period. Price of Rahar Dal increased to Rs 140 from Rs 130 while Musuro Dal became dearer by Rs 5 to Rs 105 per kg.

According to Nepal Retailers´ Association, price of Mung Dal too increased by Rs 10 to Rs 140 per kg over the period.

Ganga KC of New Khadya Store in Baneshwar said consumers were facing sharp rise in prices of essential commodities due to haphazard price rise by the wholesalers.

“Price of Mas Dal increased by Rs 25 to Rs 130 per kg over the period. There have been minor fluctuations in prices of all major commodities over the period,” he added.

Global Sugar Shortage May Turn ‘Acute’ in Third Quarter

Nepal is facing an acute sugar shortage as highlighed by 9 sugar-related news stories in the month of January alone (January 26, January 24, January 23, January 20, January 17, January 16, January 13, January 11 and January 7). It looks like the problem as a global dimension.

Global Sugar Shortage May Turn ‘Acute’ in Third Quarter
Bloomberg, 9-Feb-2010
By Thomas Kutty Abraham

A global sugar shortage, which drove prices to the highest level in three decades, may peak in the third quarter this year on demand from the U.S., Mexico, India and Pakistan, according to U.K.-based Tropix Capital Management.

“As we enter the second quarter, we enter the inter-crop period for South Brazil when export supply is minimal,” Sean Diffley, founder of the hedge fund and former head of sugar trading at ED&F Man Holdings Ltd., said by email. “Countries like Russia will return to the market in force. The acutest part of the deficit may not be apparent until the third quarter.”

India, China, Indonesia, Pakistan, Egypt and Russia are among countries planning to buy sugar to cool domestic prices, worsening a deficit that may reach 11.92 million tons in the year ending April 30, up from 8.32 million tons predicted in October, Kingsman SA said yesterday. The shortfall may be 5 million to 6 million tons this season, according to Tropix.

“The world stocks-to-use ratio should reach 20 year lows in the second half of this year,” said Diffley, who worked for 16 years at ED&F Man, one of the biggest sugar trader.

India, the biggest user, may need to import an extra 2.5 million to 3 million tons this season to meet a 7 million ton deficit, according to Kingsman. Pakistan, Asia’s third-biggest user, plans to purchase 1.25 million tons by June. The country “apparently bought 100,000 tons” from Cargill Inc. in the past few days, Michael McDougall, a Newedge USA senior vice president said yesterday in a report from an industry event in Dubai.

China Drought

China, the biggest consumer after India, may have a deficit of 3.3 million tons this year after drought and cold weather cut yields, the Guangxi Bulk Sugar Exchange Center said last month. Thailand, the second-biggest exporter, may produce 7.2 million tons in the year started in November, less than the forecast.

“There’s a real rationale to be invested in sugar, at least until March,” when the Brazilian harvest begins, Hussein Allidina, head of commodity research at Morgan Stanley, said in an interview in Dubai. Prices will extend gains as a deficit was expected to last through the season ending Sept. 30, he said.

Sugar output in Brazil, the top producer, may increase by as much as 4.4 million tons to 35.3 million tons in 2010-2011, as growers boost planting to take advantage of record prices, Plinio Nastari, president of research firm Datagro, said in an interview on Feb. 7 in Dubai. The global sugar market may have a surplus of 1.5 million tons next year, he said.

“The forward sugar curve already reflects the assumption that Brazilian production will rebound significantly,” Diffley said. “If we see another rainy harvesting period we may not see the surplus in 2010-11 that analysts are assuming is a given.”

‘Fundamental Backing’

Raw-sugar futures for March delivery gained as much as 2.6 percent to 27.28 cents a pound in after-hours electronic trading on ICE Futures U.S., and were at 27.27 cents at 2:44 p.m. Mumbai time. Prices fell 12 percent last week, the biggest weekly drop since October 2008.

“During the last great sugar bull-run, the market often paused for breath and consolidated for weeks before pushing sharply higher,” said Diffley. “We believe that sugar’s rally has a sound fundamental backing.”

Sugar had its biggest annual advance since 1974 last year as heavy rains and drought pared harvests in Brazil and India, the largest growers. Futures reached 30.4 cents on Feb. 1, the highest since January 1981.

“The last time around when prices rose above 30 cents, it stayed at that level for six months,” Jonathan Drake, head of sugar business at Cargill Inc. said in an interview. “Going by history, prices are going to stay high for at least six months. High prices will also be accompanied by greater volatility.”

Dr. Rawal and Professor Pyakuryal discuss Nepal's economy

Dr. Tilak Bahadur Rawal, a former Governor of Nepal Rastra Bank and Professor Bishwambher Pyakuryal of Tribhuvan University discuss the state of Nepal's economy in a BBC interview.

Obviously both are very pessimistic about the economic situation, but in my view, neither was able to explain the underlying economics in a clear and concise manner.

Energy Minister Mahat Defends Government's Policy

BBC Nepali Service interviewed Energy Minister Dr. Prakash Saran Mahat (प्रकाशशरण महत) on February 3, 2010 regarding load shedding and recent hike in electricity tariff.

Woes at Tribhuvan International Airport

Snailport
Congestion at Tribhuvan International Airport
NepaliTimes, Issue #488 (05-Feb-10 to 11-Feb-10)
Dewan Rai and Suvayu Dev Pant

Long gone are the days of booking travel on weekly outbound flights.

International aircraft arrivals increased by 8.41 per cent and domestic aircraft arrivals by 19.72 per cent in the first nine months of 2009 compared to the same period in 2008. Currently, 25 international airlines operate 35 flights a day and there are eight domestic airlines and five choppers. Kingfisher and Alpine Air will soon join that fleet and three other foreign airlines hope to follow suit.

Yet there have been no major additions to infrastructure. "Our airport doesn't meet the requirements for an international airport, so it is very difficult to accommodate all the tourists," says Amar Bahadur Shakya of the Civil Aviation Authority of Nepal (CAAN).

There is one runway at Tribhuvan International Airport (TIA), no arrow bridge to connect docked planes directly to the terminal, and seven internal bays - when 23-25 are necessary - for just three wide-body and four narrow-body aircraft. Aggravating the air traffic congestion is the fact that most airlines prefer the 10am-5pm time slot, largely because Nepal's terrain makes flying at night dangerous. Inevitably, there have been flight delays.

Congestion within the airport has also increased. The number of international passengers increased by 9.63 per cent and domestic passengers by 35.15 per cent in the first 10 months of 2009, compared to the year before. Although the airport was designed for only 1000 passengers daily, the actual turnover today is close to 2000. Likewise, the departure lounge was designed for 350 but sees up to 1000 passengers daily. Congestion at the air terminal may even have contributed to the death of a Korean woman, of a heart attack, three weeks ago.

Such problems were anticipated long ago, but officials have been slow to respond. A master plan drafted in 1996 was never executed. But there is more movement now. The airport will operate 24 hours a day, in light of Visit Nepal Year 2010, and offer discounts to airlines that operate outside of the 10am-5pm slot. A Visual Flight Rules system will be installed, along with improved lighting on the central runway, to make night-flying safer. The domestic terminal will be refurbished and an area will be set aside for choppers.

There will also be changes to airport infrastructure to make room for more passengers. TIA's Managing Director Dinesh Prasad Shrestha says, "With assistance from the Asian Development Bank, TIA will be realigning the immigration and hand baggage checking areas to accommodate more passengers waiting to board. The waiting lounge will be expanded as well." It is hoped these projects will be completed within two years.

But a total overhaul of the Air Traffic Management (ATM) system may be necessary further down the line. Most airports around the world use analog technology to enable the surveillance, supervision and navigation of air traffic. However, the volume such technology can handle is nearing saturation point in Nepal, leading to a rise in the risk of accidents. "We must digitise ATM and use satellites, which have a wider, bird's eye view of air traffic, have a much higher saturation point, and could eliminate the mistakes that analog technology causes," says ATM expert Niraj Aryal.

Nepal stands to gain more from such changes than other countries because its geography and weather - which cause most domestic air crashes - make analog technology unreliable. Though ATM authorities are looking into this possibility, it will require huge investments and careful coordination with foreign governments.

Perhaps we're better off getting the basics right first.

News Roundup: IMF intervening in Nepal?

Roundup of Nepali Economic and Business News for Feb 1-4
By NepaliEconomy.com

Liquidity crunch (not crisis) is forcing the government to seek IMF's help. NepaliEconomy.com is generally skeptical of the IMF's role in developing countries' economies - remember the Asian Crisis in the late 1990s. But this episode might be an exception because Nepal needs to make urgent economic reforms which are politically impossible. Only the IMF's intervention/pressure could make that possible. India benefited from the IMF's intervention when it went through its Balance of Payment (BoP) crisis in 1990/91. It was forced to liberalize its economy and the rest is history.

The impacts of liquidity crunch are everywhere,
• land developers in Pokhara are feeling the heat. There are anecdotes of distressed selling there. Is there a crisis in offing?
• Cooperatives are under microscope. According to Department of Cooperatives (DoC) the 6 largest savings and cooperatives in the country have less than 34 percent of their total loans in investment and they maintain 15 percent liquidity. This contradicts generally held views that cooperatives hold Rs. 70 billion deposits and two-thirds of their loans are in real estate. Go figure!
• One of the unsaid reasons for liquidity crunch was capital flight, and it was unsaid because of lack of evidence but not any more. Apparently Rs. 8 billion was illegally transferred from Himalaya Bank and Nepal Investment Bank to bank accounts in Hong Kong using wool import from Tibet as a ruse. This is an interesting story. To imports foreign goods Nepalese importers must have local banks issue drafts/telegraphic transfers (DTT) in foreign currency against payments in NRs or they can issue Letters of Credit (LC). Once the goods are imported they must show the banks within 180 days customs declaration forms (CFD) and Foreign Exchange Regulation Forms (FERF) to confirm their imports. The culprits apparently deposited the DTT in Hong Kong banks rather than in Tibetan banks and they forged CFD/FERF. Ummm!

At least the Asian Development Bank (ADB) is doing brisk business in Nepal. In 2009, it made a record US$347 million commitment. Its portfolio at the end of 2009 stood at US$1.13 billion.

Nepal wants to amend the 1974 Petroleum Supply Agreement with India which gave the Indian Oil Corporation (IOC) the monopoly over supply of petroleum products to Nepal through Nepal Oil Corporation (NOC). NOC estimates petroleum market in Nepal to grow from Rs. 48 billion in 2009 to Rs. 60 billion in 2010.

Rabindra Nepal argues in an OpEd to do away with Nepal Electric Authority's (NEA) monopoly in production and distribution of electricity, which he blames for gross inefficiency. NEA is probably the most bloated bureaucracy in Nepal. Electricity tariff is likely to go up, the first time in a decade, to help offset NEA's deficit.

Nepal Telecom (NT) wants to increase its domestic penetration from 17.5 percent to 60 percent by 2014 which will require investment of US$350 million and addition of 18 million new lines. NT has 3.48 million rural subscribers and they are likely to be the main beneficiaries.

The Mid-Hill Highway which connects 23 mid-hill districts is being widened to 2-lane roads at Rs. 20 million per km. Currently 6 districts (Solukhumbu, Dolpa, Humla, Mugu, Manang and Bajura) have no road connection but that will change in 3 years. This article has details on different mid-hill roads under construction.

Malaysia is seeking 100,000 Nepalese workers? Can it be true?

An Electoral History of Nepal

Compiled by NepaliEconomy.com

First Election: 1959
The first democratic election for national Parliament in Nepal's history took place on February 18, 1959. Nepali Congress (NC) won 74 of 109 seats, Gorkha Parishad won 19 and Communist Parties 9. 1.79 million or 44 percent of electorate voted in this first election.

BP Koirala became the Prime Minister (PM) on May 27, 1959. While the PM was the head of the government, the supreme power resided with the King. The 1959 Constitution which the King promulgated himself one week before the election gave him the right, under Articles 55 and 56, to cancel/suspend the Constitution in cases of emergency. King Mahendra used that authority to banish BP Koirala's government on December 15, 1960.

On December 16, 1962 a new Panchayat Constitution written under Chairmanship of Rishikesh Shah was promulgated. The 1962 Constitution did not explicitly forbade political parties but the amended Constitution of 1967 did. Prior to 1967, banning of political parties was made possible by the Royal Ordinances of December 15, 1960 and later Control of Organization and Association Act. During this period Parliamentarians (MPs) were chosen indirectly. There were 125 members, elected from different segments of the society - Monarchy (16), Zonal Assemblies (90), Class Organizations (15) and Graduate Constituency (4). This electoral arrangement remained intact until 1981.

Although Rastriya Panchayat was nominally the Supreme legislative body of the country, it acted more like an advisory council to the King. The King had the pejorative to chose the PMs and ministers and to veto any laws. Implicitly that meant the Royals were above the law. The 1967 Constitution gave PMs a maximum of 5 year long tenure but in practice they were appointed and discharged at whim least they created an alternative center of power to the monarchy. During the first 20 years of the Panchayat system, there was rapid turnover of PMs - Tulsi Giri (Dec'60-Dec'63), Surya Bahadur Thapa (Dec'63-Feb'64), Tulsi Giri (Feb'64-Jan'65), Surya Bahadur Thapa (Jan'65-Apr'69), Kirti Nidhi Bista (Apr'69-Apr'70), Mahendra Bikram Shah (Apr'70-Apr'71), Kirti Nidhi Bista (Apr'71-Jul'73), Nagendra Prasad Risal (Jul'73-Dec'75), Tulsi Giri (Dec'75-Sep'77) and Kirti Nidhi Bista (Sep'77-May'79).

Second Election: 1980
In April-May 1979 (2036 BS), there were series of students protest against the Panchayat system. Instead of giving in to the protestors, the King announced on May 23, 1979 that he would hold a referendum to allow people to chose between Panchayat system and multi-party system.

Surya Bahadur Thapa was appointed the PM on May 30, 1979.

In a May 2, 1980 referendum, Panchayat system won with 54.7 percent of votes. Voter turnout was 4.2 million or 66 percent of eligible voters. In December 1980 the 1962 Constitution was amended for the third time, and it allowed (a) direct election of MPs (b) MPs to select a single candidate for the PM; hiterto, selection of the PM was the pejorative of the King.

Third Election: 1981
On May 9, 1981 election was held to elect 112 members of Rastriya Panchayat - 28 were nominated by the King. Since major political parties boycotted the election, the voter turnout was only about 52 percent.

Surya Bahadur Thapa retained his post as the PM following the election. The direct election of MPs and the selection of the PM by MPs took away the built-in patronage system and created factionalism and rivalry within the Pachas. This led to the downfall of PM Thapa in July 1983 following a no-confidence motion prompted by serious food crisis and charges of corruption.

Lokendra Bahadur Chand was appointed the PM on July 12, 1983 but was immediately hit with a no confidence motion, which he survived.

Fourth Election: 1986
On May 12, 1986 election was held again for 112 members of Rastriya Panchayat. Officially, the voter turnout was about 60 percent, and this despite Satyagraha or civil disobedience campaign by NC to disrupt the election. Results showed a huge turnover in MPs. Almost 40 percent of the incumbents lost their seats, and half of that, or around 20 percent of seats were won by reformists or opposition posing as independents.

Marich Man Singh Shrestha became the PM on June 15, 1986. On March 23, 1989 Nepal's trade and transit treaty with India expired, and India closed all the transit points but two. The country went through a severe economic crisis. This put enormous pressure on the Panchayat system.

The Panchayat era came to an end in 1990. On January 15, 1990 seven Communist parties united under the United Left Front (ULF) and formed an alliance with NC to bring an end to the Panchayat system. After two months of protests, strikes and mass demonstrations, the King succumbed. On April 15, he dissolved the transitional government under PM Lokendra Bahadur Chand who had replaced the hardliner PM Marich Man Singh Shrestha on April 6.

Krishna Prasad Bhattarai (KP Bhattarai), a NC leader, was appointed the PM and the head of interim government on April 19, 1990. That government constituted a 9-person Committee to draft a Constitution, and the Constitution was promulgated by King Birendra on November 9, 1990.

Fifth Election: 1991
On May 12, 1991 election for 205 member lower house of the Parliament was held. NC won the absolute majority with 110 seats followed by UML with 69 seats. The voter turnout was about 65 percent.

Girija Prasad Koirala (GP Koirala) became the Prime Minister on May 26, 1991. PM Koirala could not complete his full-term because of mutiny within his party. In July 1994, following the defeat of KP Bhattarai in a by-election, 35 MPs from his own party abstained in (or rather did not show up for) a parliamentary vote to approve the government's annual programs and policies. The government resigned and called for a mid-term election. This decision was challenged in the Supreme Court (SC) but SC sided with the Koirala government.

Sixth Election: 1994
On November 15, 1994 a mid-term election took place. UML became the largest party with 88 seats followed by NC with 83 seats.

UML leader Man Mohan Adhikari formed a minority government on November 30, 1994 but it did not last a year. The government tried to preclude its fall by calling a mid-term election but the SC rejected the petition - this decision was contradictory to its previous one in 1994. NC tabled and won a no-confidence motion against the government in September 1995 and the UML government fell.

Sher Bahadur Deuba (SB Deuba) became the PM on September 12 1995. He was the leader of NC's parliament party (PP) and his was a coalition government of NC, Rastriya Prajatantra Party (RPP) and Nepal Sadvavana Party (NSP). On February 4, 1996 the Maoists made 40-Point demand to the PM asking him to respond by February 17. But on February 13, the Maoists launched the "People's War" with attacks on police stations in Rukum, Rolpa, Gorkha and Sindhuli districts. Deuba government fell in March 1997 when several RPP MPs supported UML's no confidence motion against the government.

Lokendra Bahadur Chand became the PM on March 12, 1997 with the support of UML and NSP. This government lasted only 7 months. It fell when most of RPP MPs joined hands with NC against its own government.

Surya Bahadur Thapa became the PM on October 7, 1997 with the support of NC and NSP. The political turmoil took a toll on the parties and RPP split into RPP (C) and RRP (T) in January 1998 and UML into UML and ML in March 1998. NC became the largest party in the Parliament. Surya Bahadur Thapa resigned under pressure from re-surging NC.

GP Koirala became the PM on April 15, 1998 leading a minority government backed by UML. He announced plans to hold election in May 1999. However in August that year he was able to bring in ML to form a majority government but by December there was a fallout with ML. He resigned from the government but returned as the PM on December 25, 1998 with the support UML and NSP with promise of holding election in May 1999.

Seventh Election: 1999
General elections were held in two stages on May 3 and May 17, 1999. NC returned as a majority party with 113 seats. UML won 68 seats and the breakaway ML none.

KP Bhattarai became the PM for the second time (1990) on May 31, 1999. The intra-party scwabble between GP Koirala faction and KB Bhattarai-SB Deuba faction continued. On March 14, 2000 69 GP Koirala-affiliated NC MPs tabled no confidence motion against the PM with their PP for failing to uphold law and order. KP Bhattarai was forced to resign.

GP Koirala became the PM on March 20, 2000 after defeating SB Deuba on NC PP vote (69 vs. 43 with 1 invalid vote), the first ever for NC.

On June 1, 2001 there was a Royal Massacre. In a bizarre incident, Crown Prince Dipendra allegedly slaughtered his entire family - King, Queen, brother and sister - along with 5 other aunts and uncles before killing himself. Gynendra, who was out-of-town during the massacre ascended the throne on June 4, 2001.

PM Koirala resigned on July 19, 2001 because of (a) Lauda scandal (b) his disagreement with the Army and the King over the deployment of Royal Nepal Army (RNA) against the Maoists (c) peace talks with the Maoists became impossible with Koirala at the helm. SB Deuba became the leader of NC PP beating Sushil Koirala (72 vs 40)

SB Deuba became the PM on July 26, 2001. He initiated peace talks with the Maoists in August and September but it failed in November because the government refused to entertain their demand that monarchy be replaced by a Constituent Assembly (CA). Maoists walked out and ended their 4-month long ceasefire.

On November 23, 2001 the Maoists attacked RNA for the first time killing 14 soldiers at Gorahi base in Dang District. On November 25, they attacked several parts of the country including Salleri, the district headquarter of Solokhumbu. Until then the Maoists rebellion had only targeted ill-equipped police. With the entry of RNA into the conflict, stakes as well as causaulties rose significantly. In the first 6 years of the conflict, about 2,100-3,000 had been killed, but in the next 4 years another 10,000 would lose their lives.

On November 26, 2001 Deuba government declared a State of Emergency for 3 months, which was extended by another 3 months in February 2002. When the renewal time came up again in May, Deuba government realized it did not have the support to extend it for another six months. To preclude a constitutional crisis PM Deuba dissolved the Parliament on May 22, 2002 and called for a new election. On May 27, 2002 the King announced mid-term election for November 13, 2002. This announcement caused a serious rift between GP Koirala and SB Deuba, and on June 18, 2002 the party split vertically into GP-led NC and SB-led NC (Democratic). Interestingly, on February 15, 2002 UML and ML re-merged into UML.

On October 4, 2002, the King invoked Article 127 of the Constitution to dismiss the PM and the Parliament. The purported reason was that the government was not able to hold the mid-election scheduled for November 13, 2002.

Lokendra Bahadur Chand became the PM for the fourth time (1983, 1990, 1997) on October 11, 2002. He did not last long because of the agitation by major political parties - NC, NC (D) and UML.

Surya Bahadur Thapa became the PM for the fifth time (1963, 1965, 1979, 1997) on June 3 2003. Political parties continued their agitation and that led to his downfall.

SB Deuba became the PM for the third time (1995, 2001) on June 2, 2004. He was re-instated with the support of UML, NSP and RPP (RPP-T and RPP-C had merged following 1999 election). This divided the political parties into those in the government and those outside. NC, which remained outside continued to protest against the government calling for the re-instatement of the Parliament.

On February 1, 2005 King Gynendra dismissed SB Deuba government for the second time and declared a State of Emergency. The King himself became the head of the government with the title Chairman of Council of Ministers. On February 14 two acolytes Tulsi Giri and Kirtinidhi Bista were appointed Vice-Chairmen.

On May 8, 2005 major parties including NC and UML formed Seven Party Aliance (SPA) and announced "common agreement and commitment" that called for the restoration of Parliament and holding of an election thereafter. SPA spearheaded agitation against the King's rule.

On November 22, 2005 SPA and the Maoists signed 12-Point Agreement in New Delhi. This brought together the two most powerful political forces in the country. Protest against the King's rule continued and surged ahead of February 8, 2006 local election. The SPA announced second Peoples' movement with 4-day nationwide general strike starting April 5. On April 9, SPA announced indefinite strike. On April 21, the King bent to the political pressure and asked SPA to form a government which it rejected. On August 24, after 19 days of protest, the King succumbed and re-instated the Parliament.

GP Koirala was elected the PM for the fourth time (1991, 1998, 2000) on April 25, 2006 by the re-instated Parliament. On May 18, the Parliament voted to strip most of the powers of the King.

On November 7, 2006 SPA and the Maoists signed 6-Point Agreement that formally ended the 10-Year Maoist insurgency. On November 21, they signed Comprehensive Peace Agreement.

On January 15, 2007, as per the Agreement, the Parliament that was elected in 1999, dismissed by King Gynendra in 2005 and reinstated in 2006 was dissolved and replaced by a 330-member Interim Parliament. It included members of SPA and the Maoists but not RPP because they did not participate in People's movement. An Interim Constitution was promulgated and it set the date for CA election for June 20, 2007.

The Interim Constitution did not fully take into account grievances of Tarai people. On January 16, 2007 Madhesi Jana Adhikar Forum (MJF) called for general strike in Tarai calling for the amendment to the Constitution. Unrests in Tarai flared up. Madeshi politicians affiliated with major parties (NC, UML and Maoists) started to coalesce around Mahesh-centric parties.

On March 9, 2007 the first amendment to the Interim Constitution gave in to Madheshis' demands that (a) Nepal would have a federal structure (b) reference to explicit numbers of CA seats were removed. Prior to the amendment, 205 were elected through first-past-the-post (FPTP) basis, 204 through proporational representation, and 16 were nominated by the Interim government.

On April 1, 2007 a new cabinet with 5 Maoists were sworn into office.

On June 13, 2007 the second amendment to the Interim Constitution postponed CA election to November and provided provision for the immediate removal of the King with two-thirds majority if he conspired to disrupt it.

On Septmber 18, 2007 the Maoists in the government resigned when their demands to make Nepal a Republic and to elect CA members through proportional representation were not met.

On September 25, 2007 NC and NC (D) re-merged into NC in preparation for CA election.

On December 28, 2007, the third amendment to the Interim Constitution made certain provisions (a) the deadline for CA election was moved from 15 December 2007 to 12 April 2008 (b) CA’s FPTP seats were increased to 240, proportional representation seats were increased to 335 and PM's nomination were increased to 26 (c) Nepal would be declared a "Republic" in the first sitting of CA with a simple majority.

On December 30, 2007 the Maoists re-joined the government with 5 Ministers and 2 State Ministers.

On February 9, 2008 MJF, SP and Tarai-Madhesh Loktantrik Party (TMLP) formed the United Democratic Madhesi Front.

Eighth Election: 2008
On April 10, 2008 election for 240 FPTP members of CA was held. About 60 percent of eligible voters participated. Maoists won 120 seats, NC 37, UML 33 and Madhesh Jana Adhikar Forum (MJF) 30. Combined with proportional representation seats, Maoists had 229, NC 115, UML 108 and MJF 54 in the 601-seat CA.

On May 28, 2008 the first session of CA made fourth amendment to the Interim Constitution whereby the 240 year-old monarchy was abolished. It also created ‘constitutional president’ and ‘executive prime minister’.

On June 11, 2008 King Gynendra left Narayanhiti Palace to spend his life as a commoner.

On July 13, 2008 the fifth amendment to the Interim Constitution allowed the formation and dismissal of government, President, Vice-President and Chairman and Deputy Chairman of CA through simple majority.

Ram Baran Yadav (RB Yadav) become the First President of Nepal on July 21, 2008 with the support of NC and UML in the second round of voting defeating Maoists supported Ram Raja Prasad Singh (308 vs 282).

On July 23, 2008 GP Koirala submitted his resignation to the newly sworn President RB Yadav.

Prachanda was voted as the PM defeating SB Deuba on August 15, 2008 (464 vs 113). He was sworn in 3 days later. He formed a coalition government with UML and MJF. He resigned on May 4, 2009 over his disagreement with the President over the dismissal of Army Chief Rukmangad Katuwal.

Madav Kumar Nepal was elected the PM on May 23, 2009 unopposed and sworn in on May 25 as the head of 22-party coalition government. This caused the split in the third largest party MJF into MJF and MJF (Loktantrik). MJF (L) led by Bijay Kumar Gachchhadar joined the government while MJF led by Upendra Yadav stayed in the opposition.

The new Constitution must be written before May 28, 2010 - two years after the first sitting of the CA - but at the current pace, it is a tall order. Mr. Surya Dhungel, a constitutional expert, has an OpEd piece on what could happen if the deadline is missed.

To be continued.

Bibliography

General
40-Point Demand Letter from Baburam Bhattari to PM Deuba (1996)
12-Point Agreement Between the Maoists and SPA (2005)
6-Point Agreement Between the Maoists and SPA (2006)
Comprehensive Peace Agreement Between the Maoists and SPA (2006)

Adhikari, Prakash and Timberlake, James D., 2007. Pursuing Democracy: Explaining Political Transitions in Nepal
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Brown, T. Louise, 1996. The challenge to democracy in Nepal : A political history
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Bajracharya, B.R., S.R. Sharma, S.R. Bakshi. ed., 1993. Political development in Nepal