Monday, May 24, 2010

Nepal considers currency devaluation in medium term

Nepal considers currency devaluation in medium term
Financial Times, 24-May-2010
By Neil Fullick

Nepal is considering devaluing its currency because a decades-old peg with the Indian rupee is posing problems for its monetary policy and competitiveness, the central bank governor was quoted as saying.

Yuva Raj Khatiwada, the newly appointed governor, told the Financial Times in a report published on Monday that Nepal needed to reconsider the currency peg "in the medium term" because of the disparity between India's fast growing economy and that of its landlocked neighbour.

The peg holds the exchange rate at 1.6 Nepali rupees per one Indian rupee.

"We have been overly stressed to maintain the peg," Khatiwada said, noting that India's economy was growing at twice the rate of Nepal's economy.

The governor said that India's rupee was appreciating because of the country's economic strength and capital flows.

"Our currency is strengthening just because we have a peg to Indian currency," the FT quoted the governor as saying.

He said Nepal had no choice but to keep the peg in place in the short term to maintain price stability. He feared rampant speculation if Nepal's currency, which is fully convertible with the Indian rupee, was allowed to float, the FT said.

At least 60 percent of Nepal's trade is with India, which is also a big source of worker remittances for Nepal.

Wednesday, May 19, 2010

Global Prospective: Educational attainment in the world, 1950–2010

Educational attainment in the world, 1950–2010
Robert Barro, Jong-Wha Lee
18 May 2010

Empirical investigations of the role of human capital require accurate measures across countries and over time. This column describes a new dataset on educational attainment for 146 countries at 5-year intervals from 1950 to 2010. The new data, freely available online, use more information and better methodology than existing datasets. Among the many new results is that the rate of return to an additional year of schooling on output is quite high – ranging from 5% to 12%.

It is widely accepted that human capital, particularly attained through education, is crucial to economic progress. An increase in the number of well-educated people implies a higher level of labour productivity and a greater ability to absorb advanced technology from developed countries (Acemoglu 2009). Empirical investigations of the role of human capital require accurate and internationally-comparable measures of human capital across countries and over time.

Our earlier studies (1993, 1996, and 2001) constructed measures of educational attainment of the adult population for a broad group of countries. This column introduces a new data set (available at barrolee.com) providing improved estimates for 146 countries at 5-year intervals from 1950 to 2010. The data are disaggregated by sex and by 5-year age groups among the population aged 15 years and over (see Barro and Lee 2010).

The new data improve on our widely used earlier information by using more observations of censuses, surveys, and enrolment-rate figures and by employing better methodology. We use consistent census and survey data compiled from UNESCO, Eurostat, and other sources to provide benchmarks for school attainment by gender and age group. We use enrolment-rate data to fill in missing observations at 5-year intervals by forward and backward extrapolation from the benchmark statistics. As part of this analysis, we construct new estimates of mortality rates by age and education level. We also use estimates of completion ratios applicable to each country and level of schooling.

In 2010, the world population aged 15 and over had an average 7.8 years of schooling, increasing steadily from 3.2 years in 1950 and 5.3 years in 1980. The rise in average years of schooling from 1950 to 2010 was from 6.2 to 11.0 years in high-income countries and from 2.1 to 7.1 years in low-income countries. Thus in 2010 the gap between rich and poor countries in average years of schooling remained at 4 years, having narrowed by less than 1 year since 1960 (see Figure 1). In 2010 the level and distribution of educational attainment in developing countries are comparable to those of the advanced countries in the late 1960s.

We use the new data to estimate the relationship between education and output based on a production-function approach. Our findings confirm that schooling has a significantly positive effect on output. Our estimates of rates of return for an additional year of schooling range from 5% to 12%. These estimates control for the simultaneous determination of human capital and output by using the 10-year lag of parents‘ education as an instrumental variable for the current level of schooling. These estimates are close to typical Mincerian return estimates found in the labour literature.

Estimates of rates of return to education vary across regions (Figure 2). The estimates for the group of advanced countries, East Asia and the Pacific, and South Asia are the highest at 13.3%. In contrast, the estimated rates of return are only 6.6% in Sub-Saharan Africa and 6.5% in Latin America.

Results confirm that the rate of return to schooling varies across levels of education. The estimated rate of return is higher at the secondary (10.0%) and tertiary (17.9%) levels than at the primary level, which differs insignificantly from zero. The results imply that, on average, the wage differential between a secondary-school and a primary-school graduate is around 77% and that between a college and a primary-school graduate is around 240%.

Our improved dataset on educational attainment should be helpful for a variety of empirical work. For example, our previous estimates have been used to study the linkages across countries between education and important economic and social variables, such as economic growth, fertility, income inequality, institutions, and political freedom. We anticipate that the new data will help to improve the reliability of these types of analyses.

Disclaimer: The views expressed in this article are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank or its Board of Governors or the governments they represent.

References
Acemoglu, Daron (2009), “Modern economic growth”, VoxEU.org, 27 February.
Barro, RJ and JW Lee (1993), “International Comparisons of Educational Attainment”, Journal of Monetary Economics, 32:363-394.
Barro, RJ and JW Lee (1996), “International Measures of Schooling Years and Schooling Quality”, American Economic Review, 86:218-223.
Barro, RJ and JW Lee (2001), “International Data on Educational Attainment: Updates and Implications”, Oxford Economic Papers, 53:541-563.
Barro, RJ and JW Lee (2010), “A New Data Set of Educational Attainment in the World, 1950-2010”, NBER Working Paper 15902, (accompanying data are available at www,barrolee.com).

Tuesday, May 18, 2010

NRB Data: Current Macroeconomic Situation

NRB Data: Current Macroeconomic Situation
Based on the Eight Months of Data for Fiscal Year 2009/10

Please click here to download the Excel file.

Monday, May 17, 2010

Nepal: a high altitude liquidity crunch

Nepal: a high altitude liquidity crunch
Financial Times, 17-May-2010
By James Lamont

One of the most striking things about Kathmandu, Nepal’s capital, is its real estate sector. Construction is rampant on the city’s edges as new suburbs push out towards the surrounding Himalayan mountains.

Teams of workers atop wooden scaffolding are transforming this ancient city, not so long ago the seat of a Hindu king, with three storey residential homes. So great is the boom in property that imported building materials are a big share in the mountain republic’s balance of payments.

And now the country’s banks are on a crisis footing.

The expansion, and sharply rising property prices, is not a sign of a healthy economy. The construction boom is fed by remittances by Nepalese workers sending money home from countries like Qatar, Malaysia and Thailand. These represent 22 per cent of GDP, and probably much more since only 1 per cent of remittances from neighbouring India go through official channels.

Much of these capital flows are by-passing Nepal’s banking system. Concerns over political instability, and the prospect of a Maoist-led government, have encouraged a flight to safety as economic growth falls. Likewise, a desire to avoid paying tax encourages a large informal economy of undeclared earnings.

Nepalese rather than putting their earnings in bank accounts are building houses, buying gold and depositing money in Indian bank accounts where they earn higher interest.

Nepal’s financial regulators are worried by the trend. They say the country’s banks are facing a severe liquidity crunch. They are encouraging local banks to offer more attractive savings rates to raise deposits and avert failure. Of particular worry is the number of banks for a small nation of about 23m people. There are 26 in total and many are owned by wealthy families with other business interests. As worrying is the proliferation of largely unregulated savings cooperatives about which much less is known.

Nepal is, of course, a long way from New York and on the fringes of the world’s financial system. It usually takes its economic cues from India, which sidestepped the global financial crisis thanks to its conservative regulatory approach. Nonetheless, two years after the fall of Lehman Brothers, Nepal stands on the threshold of its own banking crisis.

Yuva Raj Khatiwada, governor of Nepal’s central bank, has been in the job only two months and identifies bringing liquidity from the economy into the banking system as his top priority.

He has a mountain to climb, and knows it.

“Nepalese have the tradition of learning lessons late. We don’t have the habit of pro-activeness and even if we do react we do it in a belated way,” he says.

Friday, May 14, 2010

Everest climbers to get free Nepal visas

Everest climbers to get free Nepal visas
Reuters, 13-May-2010

Foreign mountaineers who have climbed Mount Everest and another peak will get free Nepali visas for two years, part of a scheme to boost tourism in the Himalayan nation, a senior government official said.

More than 4,000 climbers have scaled the 8,850 metre (29,035 feet) Everest summit since it was first climbed by New Zealander Sir Edmund Hillary and Tenzing Norgay Sherpa in 1953. Some 700 of these foreigners are said to be still alive.

"We will waive the visa fees for them to visit Nepal in 2010 and 2011 part of the Nepal Tourism Year plan," Ranjan Aryal, the most senior bureaucrat in the tourism ministry said.

Himalayan Nepal, home to eight of the world's 14 highest mountains, including Mount Everest, has designated 2011 as the year to boost tourism. It plans to receive one million visitors next year, up from nearly half a million now.

Tourism accounts for 4 per cent of the gross domestic product but travel officials say political unrest, frequent general strikes and shutdowns of transportation and roads had hit the industry. Officials said nearly 200 foreigners who have climbed Mount Dhaulagiri, the world's seventh highest at 8,167 metres (26,794 feet), would also get free visa this year and in 2011 as Nepal marks the 50th anniversary this week of the first ascent of Dhaulagiri by a Swiss-Austrian expedition.

Climbers will also get a 50 per cent discount in climbing fees for Dhaulagiri for the rest of 2010 and all of next year as part of the celebrations, another official said. Each foreign climber has to pay $5,000 to the government as royalty for climbing Dhaulagiri.

Thursday, May 13, 2010

Food grain production drops

Food grain production drops
The Himalayan, 12-May-10

Due to drop in food grain production, over a million Nepalis are under the shadow of famine this year. Nepal is experiencing food shortage of 3,16,465 metric tonnes (MT) affecting over 1.6 million people this year, Ministry of Agriculture and Cooperative (MoAC) said today. Food deficit was around 1, 32,914 MT last year.

According to MoAC, food grains — rice, wheat, maize, millet and barley — production has decreased by 4.3 per cent to 7.76 million MT this year. Total food grains production was 8.11 million MT last year. Area of cultivation is also contracted by one per cent this year. Irregular monsoon and insufficient irrigation are blamed for the low production.

Production of rice — major crop in Nepal — has decreased by 11 per cent to 4.02 million MT this year, MoAC said. Nepali farmers had produced around 4.52 million MT of rice last year. Second major crop — maize — production has also declined by four per cent contracting the total production from last year’s 1.93 million MT to 1.85 million MT this year.

However, production of three crops — wheat, millet and barley — cultivated in summer has gone up. Barley production has jumped by 19 per cent followed by wheat (up by 16 per cent) and millet (up by two per cent). The ministry has assumed around 1.55 million MT wheat, 3,00,000 MT millet and 27,500 MT barley production this year. Last year, the quantity was 1.34 million MT, 2,93,000 MT and 23,000 MT respectively. MoAC has also identified six factors — irregular monsoon, poor irrigation facility, unavailability of fertiliser in cultivation season, shortage of hybrid seeds, settlement in cultivation areas and low investment in research and development — for low food production.

The ministry has expressed grave concern in irrespective growth of population to food production. “Gap between food production and population growth is widening and has created an alarming situation for food security,” it said.


NFC to buy 25,000 MT rice

Ministry of Commerce and Supply (MoCS) has directed Nepal Food Corporation (NFC) to buy 25,000 metric tonnes of rice from India to mitigate the impact of food shortage. The ministry has on Tuesday asked NFC to present purchase plan as soon as possible. “We are working on action plan,” said Hari Narayan Shah, general manager of NFC. “Details of the plan will be ready by next week. Prime Minister Madhav Kumar Nepal had asked Indian government to provide 2,00,000 MT of food grains to Nepal from Indian state entities during his New Delhi visit. Following the request, Indian government had approved supply of 50,000 MT of wheat and 25,000 MT of rice in the market price for Nepal for 2010.

Wednesday, May 12, 2010

International Airfares Drop By 35 Percent In Nepal

International Airfares Drop By 35 Percent In Nepal
Bernam.com, 12-May-10

With the number of airlines connecting Nepal to different global destinations is increasing, travel agencies said the airfares have dropped by more than 30 to 35 percent this year, Xinhua news agency cited local media reported on Wednesday.

These agencies said that the growing number of airlines and travellers and increased flight frequency had triggered a massive price war.

Managing Director of DK Travel Dipendra Kumar Sharma was quoted by The Kathmandu Post daily as saying, that competition between airlines and their increased flight frequency had ultimately benefitted Nepali passengers.

He said that class airlines operating in the Middle East had slashed the price of their tickets from 25,000-30,000 Nepali rupees(some US$352 to US$422) just one year ago to 16,000-18,000 rupees (US$225 to US$253).

Sharma said that Qatar Airways had upped its weekly frequency from 11 flights to 21 flights.

While, Bahrain Air has increased its three weekly flights to seven. Air Arabia now flies 11 times a week compared to thrice previously, and Gulf Air operates 13 weekly flights against nine weekly flights before.

Etihad Airways has increased its flight frequency to seven per week from four. Likewise, other airlines have started adding flights with the ongoing competition.

Shyam Raj Thapaliya, managing director of Osho World Travel Nepal, said that airfares to the United States, Europe and China have also dropped significantly.

Monday, May 10, 2010

NEPSE at rock-bottom

NepaliEconomy wrote in Februay 18, 2010 when NEPSE was hoovering around 500 that it could head to 400 if it didn't hold the critical 486 level. Well it didn't and we are seeing the results.

NEPSE at rock-bottom
TKP, 9-May-2010

The capital market witnessed a four-year low in its turnover on Sunday as share trading began after a week's break due to the Maoist general strike.

The market witnessed a turnover of just Rs. 9.6 million which is the lowest since May 27, 2007 when the share market had seen a turnover of just Rs. 3.05 million. A total of 30,536 shares were traded through 615 transactions on Sunday.

The volume of trading used to worth Rs. 20-25 million daily during the last few years.

NEPSE general manager Shanker Man Singh said that Sunday's turnover was pessimistic as it remained as low as when NEPSE depended manual work. "It is a sign of shattering confidence of investors amid the political instability," he said.

President of the Stockbrokers Association Nanda Kishore Mundada said that he hoped the turnover amount would go up within a few days. "The turnover decreased as a result of the hangover of the weeklong banda."

He, however, is not hopeful about the market rebounding. "I don't see any possibility of an immediate recovery of the NEPSE index," he said. NEPSE saw a decline of 6.26 points to 413.02 points on Sunday. All the sectors that witnessed trading of shares lost points.

Tuesday, May 04, 2010

Global Prospective: India's Maoists - Economic Grievance Causes Political Conflict

India's Dirty War
Forbes, 10-May-2010
By Megha Bahree

Early one morning last October police forces surrounded the residents of Gompad, a remote village in the state of Chhattisgarh in eastern India, and attacked. Sixteen people were killed, including an older couple and their 25-year-old daughter, who was stabbed in the head with a knife and had her breasts sliced off. Her 2-year-old son survived, but three of his fingers were chopped off. A neighbor who witnessed the massacre was shot in the leg as she tried to escape. What prompted the rampage? The cops suspected the villagers of sympathizing with Maoist insurgents, believing that some were informants. A criminal case has been filed by the survivors against the state.

Business as usual in this part of the world. The Indian government is trying to exterminate Maoists known as Naxalites and since 2004 have killed 1,300 of them; trapped in the crossfire, 2,900 villagers have also died.

The Naxalites have claimed their share of victims, too. A few months before the Gompad attack Vimal Meshram, a village head, was gunned down by Maoists in a market in the same district (Bastar). His crime: He was an outspoken supporter of a plant that Tata Steel, one of India's luminary companies, has been trying to build for the past five years . He is one of 1,650 or more people--villagers, police and police-backed vigilantes--who have been killed by Maoists, just in this district. In the bloodiest attack yet, 80 or more paramilitary troops were killed in early April as they tried to flush out Maoist rebels in the forests of Dantewada in Chhattisgarh.

This is India's dirty war: a brutal struggle over valuable real estate that pits the Naxalites against some of the nation's most powerful commercial interests. What began 43 years ago as a small but violent peasant insurrection in Naxalbari, a West Bengal village, is now a full-fledged conflict led by the banned Communist Party of India (Maoist) across 20 of the country's 28 states (see map below), affecting 223 districts. The fight is over land, much of it in the interior, that has rich deposits of coal and bauxite. On one side of the struggle are the rebels--perhaps 10,000 of them armed and out in the field every day, and a militia of 100,000 who can be called up on short notice. Driven by a violent ideology, the Naxalites claim to be fighting for the land rights of the poor, especially farmers and small indigenous tribes who know only an agrarian way of life. On the other side are the wealthy families behind Tata Steel, Jindal Steel & Power and Vedanta Resources (run by mining mogul Anil Agarwal), who want to develop the untapped resources. (The three companies rank 345, 1,131 and 923 on the Global 2000 list.) Caught in the middle of the conflict between Maoists and billionaires are thousands of villagers. (See: "My Family's Narrow Escape From India's Dirty War")

In principle there ought to be an economic answer to the economic question of whether a steel mill is a better use of land than a farm. If the mill is so valuable, why can't its owner offer the peasants an irresistible sum to leave? But here the market takes a back seat behind politics and thuggery.

It's no mystery why things have gotten worse. "India's boom period has coincided with maximum dissent and dissatisfaction in rural India," says Ajai Sahni, executive director for the Institute for Conflict Management, a New Delhi think tank. Over the last decade the Indian government has been trying by legal and other means to lock up the land for public projects like power plants and, more recently, for private enterprises like Tata. (Under the Indian constitution nontribal people are prohibited from directly acquiring land in certain parts of the country, so the government must obtain it on their behalf and sell it to the companies.) That trend has put the state more and more in conflict with the Maoist rebels, and it has ratcheted up paramilitary operations against them. The government has also squared off more frequently against those who have farmed the land for centuries, using various legal entitlements--and, villagers often claim, resorting to fraud or force--to gain possession of the property. Other times the state simply seizes the land, labeling any resistance rebel-inspired. Hundreds of thousands of people have been dispossessed and displaced. Many now live in what could become permanent refugee camps, where they are prey to both sides of the proxy war and easy converts to radicalism.

Dantewada in Bastar is the epicenter of Naxal activity, where the New Delhi government launched a "cleansing" operation last fall. It also happens to be 50 miles from the town of Jagdalpur, the site of a planned factory by Tata Steel that will produce 5 million tons a year, and close to iron ore mines that could feed the plant. For the past five years the government has been trying to acquire 5,050 acres across ten villages that will affect 1,750 landowners but has met with resistance even as it is being accused of bullying and pressure tactics. Tata washes its hands of those allegations. "Land acquisition is the government's job," says a spokesperson.

Acres of rice, chickpeas and lentils stretch to the horizon. Standing among rows of chickpeas on his 6 acres, Hidmo Mandavi, the village head, says Tata reps have been telling him and other farmers to sell the land and have offered them jobs in the new steel factory. "We're not engineers," he says. "We'll get jobs--but jobs where we'll be serving water to others or sweeping the floors. Right now we live like owners. Why should we become servants?"

Their defiance doesn't go down well, even in the world's largest democracy. The police have been breaking up gatherings of as few as five people. A couple of winters ago two busloads of villagers were on their way to meet the governor of Chhattisgarh to complain about being bullied into selling their land for the Tata plant when the police stopped their buses and hauled them off to jail. Mashre Mora, 46, a farmer in the nearby Dabpal village who refused to sell out, was arrested a third time after returning from a weekly village gathering where farmers discuss issues like water supply, crop infestation and disputes with their neighbors. Charge: disturbing the peace. That evening about 40 cops came to his house, broke the lock and dragged him out. "I've told them I won't give up my land," he says. "I'm uneducated and can't get a job in an office, so once the money runs out what will I do? I only have the support of my farming, I don't have anything else." (The police say they have no involvement in land acquisition and show up only to hunt Maoists.)

Some villagers have found their names on lists of people who have sold their land--even though they say they haven't. Kamal Gajbiya, 40, is a towering, muscular figure with a thick beard. A resident of Kumbli village, he owns 8 acres along with his brother, sister and mother, and has met the same fate as Mora. On each trip to prison, he says, people he thought were Tata reps, accompanied by government officials, asked him to part with his land. (In its blanket denial of abuses, Tata declined to address specific incidents.) "They said, 'We'll let you go; take the money,'" Gajbiya recalls. "I said, 'I'm a prisoner, and I cannot talk to you.'" Last May he found out his name and those of his sister and mother had been struck from the revenue records because they had supposedly sold their farms. Gajbiya filed complaints with the Ministry of Information before he finally received a copy of the records. He also got copies of letters from 1,750 farmers--all of whom had purportedly sold their land--stating their opposition to selling.

There's nothing subtle about the threats. A teacher, Retu Ram, was told he'd be transferred to another district if he didn't sell. That's what happened to a colleague. In another village, Banga Peeta Aito, a farmer of 60 or so, had been in prison for a month on charges of disturbing the peace. His sons were told that unless they agreed to take the check from Tata, their father would rot in jail. They finally accepted it--and their father was released the next day, they say.

Tata says it was invited in by the government of Chhattisgarh and that it is bringing economic opportunity to the area, a frequent claim made by corporations. "Although rich in mineral resources, Bastar is among the most backward regions of the country," says a Tata spokesperson. "[The plant] will give a fillip to all-round development in the region." The company, he adds, paid double the amount per acre set by the government; it plans to offer to exchange real estate, perhaps acre for acre for up to 2.5 acres of land lost, as well as technical training and jobs to one member from each affected family. Moreover, Tata says that 70% of the residents have accepted its offers and the rest are coming around. (Villagers dispute the assertion that the payments were generous and say there are still many holdouts.) "Youth of the area is in favor of industrialization, in which they see their future," says the spokesperson.

Roughly 400 miles north, the thickly forested area in Raigarh, Chhattisgarh gives way to black, as soot blankets shrubs, the road, everything. Jindal Steel & Power dominates the region with its steel plant, coal mines and a 1,000-megawatt coal-powered plant. Naveen Jindal, executive chairman and Member of Parliament (Congress Party), has transformed the company from a moderate performer into a star. (His mother, Savitri, is chairman of the holding company, O.P. Jindal Group, and ranks number 44 on the forbes billionaires list with an estimated net worth of $12.2 billion.) Naveen's is among the lowest-cost steel producers, thanks to supplies of iron ore and electric power and use of sponge iron, which takes cheap bituminous coal transported by a 4.2-mile-long pipeline instead of the more expensive imported anthracite. To keep up this cycle of growth, Jindal needs more land. That push has created strife.

Residents say they aren't allowed to voice their concerns at public hearings to decide whether Jindal can build an additional $2.4 billion, 2.4-gigawatt coal-fired power plant in the same region. At one such meeting in January 2008 seven people, including Harihar Patel, the Khamaria village head, were beaten by police; some were hospitalized for a week. "The company has a 'no objection' certificate okaying the project, but we never gave it," says Patel. "Most of these hearings are being forged," adds Ramesh Agrawal, who runs an Internet cafe that funds his efforts to pursue court cases against Jindal and to inform villagers about their legal rights. "[We] had no role in conducting the public hearing except for making a brief presentation about the project," says Jindal. "I believe some people wanted to create trouble and the police had to intervene to maintain peace."

Krishna Lal Sao doesn't seem like a troublemaker. In 2003, he says, Jindal Power dumped 1,100 truckloads of mud on his 2 acres of arable land before his crop was harvested. Sao, a police employee who farmed on the side, says fellow cops wouldn't let him register a complaint and harassed him to the point that he resigned in late 2005. In March 2007 a district court gave him title to his land and directed the police to restore his property. However, without his permission, Jindal put up a cooling tower and warehouse on that same acreage. Sao has given up and started a stationery store. Raghunath Choudhary lost his 5.5 acres, he says, after Jindal put a boundary wall around it in 2004. He tried to fight in court, to no avail. Choudhary blames both the 2007 suicide of his younger son and his wife's recent fatal heart attack on stressful circumstances caused by Jindal. A separate 1.5-acre plot, he says, fell to the company in October when it set up a mixing plant there. Now he and his remaining son are forced to farm someone else's land.

Jindal Steel says Sao's and Choudhary's land was acquired after the Chhattisgarh Industrial Development Corp. followed due process. The two farmers say their land was seized to develop a "greenbelt." (Today the belt consists of a cooling tower and warehouse.) Their review petitions were rejected by the High Court of Chhattisgarh. Naveen Jindal adds: "There is some initial resistance as villagers are obviously aspiring to obtain maximum prices for their land and other benefits."

Many villagers--some driven out by the Naxalites, others by police on orders from state officials--end up in refugee camps. Dornapal, in the heart of the conflict-riddled Bastar district, is one of 23 camps, containing 45,000 or more people, run by a state-backed civilian militia known as Salwa Judum (literally, "purification hunt"). Row after row of single-room mud huts with thatched roofs line the camp, punctuated by occasional piles of garbage and hand pumps, where women fill buckets and children (who should be in the camp's elementary school) bathe. There is no work for the farmers. A few may chance a day trip to check on the land they were forced from, even sneak sowing a crop. Most just hang out; the air is filled with the acrid smoke of bidis, the cheapest cigarettes.

Kathar Ganga arrived at Dornapal roughly five years ago. He says that Maoists held a meeting in his village and accused his son, then 20 years old and newly married, of being a police informant. They killed him in front of everyone. Another resident, Markam Joge, 21, earns $46 a month as a police officer for the Judum and supposedly protects the refugees. He's married and has a 5-year-old child. "I will raise my daughter here in the camp," he says. "I do miss my village, but now that I've picked up arms I can't go back."

Salwa Judum members aren't merely the protectors of the villagers, as they claim. "There is a complete collapse of the rule of law--with the root cause of violence in the area being the Salwa Judum and Naxal counterattacks," says Nandini Sundar, a sociology professor at the Delhi School of Economics. Some 15 miles from the Dornapal camp, deep in the forests and inaccessible even by mud road, is Naindra village, inhabited by an indigenous tribe. In 2006 the Salwa Judum raided the old part of Naindra and burned down homes before attacking new Naindra. Those who didn't escape, like Muchaki Ganga's father, were killed. "They slit his throat with a knife and left [his neck] hanging by a piece," he says. "I'm too scared to go to the police. They'd finish us off if we complained." Not so, says Amresh Mishra, superintendent of police for Dantewada. "There are many incidents where Naxals have done this and blamed it on Salwa Judum and the police."

After the houses were torched, Maoists came and gave the villagers clothes. The Judum returned twice more, set fire to the homes and abducted two boys and a girl who have never been seen since. The village was lately rebuilt by Himanshu Kumar, who has run an ashram and a nonprofit to teach literacy and basic hygiene in the heart of Naxal territory for the past 18 years. An ardent supporter of the tribals, he has recorded atrocities by the police, the Judum and the government. He has also supported perhaps 600 legal complaints against them, many still grinding through the court system. The cops are now trying to tag him as a Maoist. Kumar says there's an easy way out of this mess: "If you want peace, give the tribals schools, hospitals, ration shops--the Naxals will never interfere with any of this."

Not so easy, says Dilip Choudhary, Additional Secretary to the Home Ministry. The Maoists, he says, "have refused to respond to the simple call to give up violence"--the condition the government has set for talks.

Next door, in the state of Orissa, villagers have been fighting off a five-year push by South Korea's Pohong Iron & Steel Co. (Posco, number 137 in the Global 2000) to acquire 4,400 acres in order to build what would become the world's third-largest steel plant, producing 12 million tons a year. The resistance is headed by Abhay Sahoo, a leader of the leftist Congress Party of India--unlike the party of the Maoists, it is legal and largely supported by farmers and some labor unions. Farmers from four villages have barricaded and patrol all access roads to keep out police, government and company officials. The area is rich in cash crops, particularly cashew nuts and betel nut leaves that sell for 2 cents apiece. "[Everyone] from a 10-year-old boy to an 80-year-old man can earn at least $109 per month just from harvesting these leaves," says Sahoo. "If Posco is allowed in, this economy and livelihood will be destroyed as no company can employ so many people or pay as well."

Over the last couple of years, in two episodes, pro-Posco sympathizers have thrown homemade bombs at anti-Posco villagers, resulting in one death and multiple injuries. In January 2010 four Posco employees entered the villages to carry out a land survey and were captured by Sahoo's men. They were held the entire day and released only after they signed a letter promising not to return. "We told them this is a warning--come back at your own risk," says Sahoo, who has 37 police cases against him for his resistance and has served 10 1/2 months in prison on charges that include attempted murder and kidnapping. There are 150 or so cases against the villagers and warrants for 642 others hiding there. "If the state will create violence, retaliation is a must," says Sahoo.

The land belongs to the government, says a Posco spokesperson. Villagers, he adds, have encroached on it for at least a couple of generations. "India is in grave danger of losing the development race against China," he says. "India produces a twelfth of China's steel and wants to double this in the next two years but can't do that without such megaprojects."

On the western side of Orissa there is push-back against Vedanta Resources. Run by mining tycoon Anil Agarwal (number 113 among the FORBES billionaires, with an estimated fortune of $6.4 billion), Vedanta is trying to mine bauxite from the Niyamgiri Hills to produce aluminum. For generations the Dongria Kondh, an indigenous tribe of 8,000, has been has been living off the bounty of the thick forests--home to tigers, barking deer, elephants and bison, as well as to hardwoods like the flowering sal trees. The region also holds an estimated 2 billion tons of bauxite along a 300-mile belt. Mukesh Kumar, Vedanta Aluminum's chief operating officer, says the mining and land lease is with the state-owned Orissa Mining Corp., which plans to acquire just 1,800 acres of Niyamgiri and intends to mine only half of that. Because of tribal opposition, though, Vedanta has been able to build only an aluminum refinery nearby. Profits are minimal because it must import bauxite from other regions.

The refinery's emissions, along with the waste-disposal pond, may well be making life hazardous for residents. Last year villagers say nine people died of complications from tuberculosis and bronchitis; the government admits to only one. Kumar says the state is aware of the health problems and is investigating. In February Amnesty International issued a damning report on the refinery and the proposed mine--harsh enough that the Church of England and the Joseph Rowntree Charitable Trust sold their $5.7 million and $2.9 million investments, respectively, in Vedanta. "Local NGOs are anti-industry and instigating people," Kumar fumes. "This is not an agitation against a project but a movement against industry in Orissa."

That may be. The Dongrias still come to sell their wares at a weekly market in the heart of the forest, bearing lentils, rice, dried fish, tobacco, potatoes, ginger, turmeric and bananas. "Other than salt I get everything from these hills," says Ranga, a tribal member, through a translator. He earns his living with the ax that casually rests on one shoulder. But he's apparently prepared to use it in defense of his way of life. "We will kill with this," he says, gripping the handle. "We will not let the company come in here."

Saturday, May 01, 2010

New Roundup: Nepal is becoming a Weimar Republic

Roundup of Nepali Economic and Business News for Apr 11-Apr 30
By NepaliEconomy.com
News Archive

Economics takes back seat to politics in Nepal. Political polarization has come to a tipping point. The Maoists have commenced their nationwide indefinite general strike to force their political agenda on the government following the show of force during the May Day parade. The MK Nepal-led 22-party coalition government has so far refused to budge. How this political posturing will end is anyones' guess. Meanwhile the deadline to write a new constitution (May 12, 2010) is fast approaching but given the limited progress made thus far, the country will most likely end up in a constitutional limbo. There are great risks that extremist elements - both on the right and on the left - will try to take advantage of this fluid situation. Nepal looks eerily like the Weimar Republic, and if its ends like that, then we'll see a strong-man ruling the country in not so distant future.

The economic engine of the country continues to run despite harsh political backdrop but the going is not that great. ADB has issued a rather pessimistic forecast of Nepal's economy. It expects the economy to grow 3.5% in 2010 versus 4.7% in 2009 and 5.3% in 2008 on the back of poor monsoon. NepaliEconomy.com begs to differ on growth forecast (expects to be lower) and Nepalese meteorologist on weather forecast (think monsoon this year will be normal). To spur economic activity, the government is planning to issue new Industrial Policy to replace the Industrial Act of 1992. And Ministry of Finance (MoF) is proposing Rs. 300 billion budget.

Nepal Rastra Bank (NRB) and MoF are putting policies to restrict financial activities. NRB has put limits on multiple-ownership of banks. Promoters owning 2% or more of paid-up capital need NRB's permission to transfer ownership. Also anyone depositing more than Rs. 1 million has to provide proof of source of income. MoF is requiring land transactions of over Rs 5 million do be done through bank checks. MoF is also unveiling new policies to facilitate M&A of M&A financial companies. Nepal's regulators need to step-up their efforts given that a financial scandal involving Unity Life International has come to light.

On trade front, Nepal´s exports dropped 8 percent during the first eight months of the fiscal year 2009/10 and stood at just Rs 40.41 billion. All sectors were affected, carpets (-29%), garment (-25%) and pulse (-28%). Remittances flow was also muted (+9.9% or Rs. 144 billion) and the country suffered from Rs. 32.5 billion current account deficit. To support fragile exports, Nepal Rastra Bank (NRB) slashed exports refinance rate from 2.0% to 1.5%. Meanwhile, India is trying to limit exports of Nepalese tea, which amounted 6.5 million kg in the first 10 months of 2009. Tea production in Illam is being cut to half by drought and tea farmers want government subsidy. Talking about Nepal-India trade, Nepal plans to resume exports of stones to India in limited quantity which has been banned since January. A SAARC-wide trade framework would benefit Nepal's trade but the organization is more a talk-shop than where things get done. Just look at Nepal-Bangalesh trade, which stands at meagre Rs. 5.15 billion. Moreover, Bangladesh imposes a hefty 40% imports tax on Nepal's agriculture exports. But both countries are tying to facilitate more trading. There is a bright spot in otherwise dismal international trade news. A Nepali company has bagged a multi-million contract from a US company.

Despite political instability, entrepreneurs are gearing up for Visit Nepal Year 2011. Hoteliers in Chitwan and Pokhara are expanding capacities. Now you can fly from Manang to Jomson without stopping in Pokhara. And Kingfisher airlines is commencing Kathmandu-Delhi flight.

Lack of opportunities at home and V-shaped recovery in the global economy is causing outflow of Nepalese workers. In the first nine months of 2009/10, 202,794 (18.5% growth) left Nepal - that's 750 a day. Even Uganda is becoming an official labor destination (108th). But there is one sector in Nepal that is feeling the impact of this outward flow of labor and that is construction sector. Not all can leave Nepal or build houses like the rickshaws pullers; for them, the government is providing concessional micro-loans under its self-employment program.

National Planning Commission (NPC) under the new vice-chair Dr Jagdish Chandra Pokharel finalized investment component of Three-Year Plan that it will submit to National Development Council (NDC) for approval. It plans to invest Rs. 1 trillion (64% private and 36% public) to achieve 5-6% growth rate and generate 200K jobs a year. This comes on the heel of the news that the government has not been able to spend money it has been allocated - only 80% of development budget has been spent thus far.