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?