Nepal's biggest Hindu festival Dasain
was preceded by the first post-1990 constitutional dismissal of the sitting
elected Prime Minister and his government. The Prime Minister's supposed
failure was his acceptance of his government's inability to hold the scheduled
elections under peaceful conditions due to the threat of the Maoist insurgency.
The persisting inequality, particularly between the urban and the rural
areas, has caused the insurgency to grow in terms of geographical spread,
ferocity of attacks and rural hold in spite of a year of emergency that
allowed for the Royal Nepal Army to take them on. As if to add salt to
the bleeding political wounds, the 'homogeneous' economic prescriptions
of the Bretton Woods institutions for the Nepalese economy overlook the
economic basis for insurgency- inequality and poverty. Instability, inequality,
insurgency and the IMF-WB form a cobweb in which the concerns of the ordinary
Nepali citizens are tied down and lost.
For a country that has moved from one political confrontation to another
since 1990, political uncertainty in Nepal today is a result of the struggle
for power between the mainstream political parties, within political parties,
between the mainstream political parties and the Maoists, and now between
the multi-party political system and the monarchy.
The 1990's saw all main political parties unite to start a 'People's Movement'
to agitate successfully to replace King Birendra's Panchayat system with
the multi-party political system. The functioning of the democratic system
has so far resulted in 3 general elections, 7 governments and 6 Prime
Ministers, with a scheduled general election this November. This uncertainty
of the political system was worsened by the continuous infighting and
feuds within both the ruling and opposition parties. The Nepali Congress
had the long running feud between its two main rivals, Girija Prasad Koirala
and Sher Bahadur Deuba result in the latter being dismissed from the party
when he was the Prime Minister. He in turn refused to quit the Prime Minister's
post with a majority of the cabinet and formed an interim government.
The communist opposition (a coalition) was not too far behind in their
ideological and personal feuds, which was further complicated with the
confusion within their leadership to respond to the growing popularity
of the Maoists that was eroding their traditional vote banks. The confused
strategies of the government, ranging from force to peace talks, to tackle
the increasing presence of Maoists all over the country has resulted in
divisions both within and between parties and an increased instability
in the political atmosphere. Adding to this instability was the fourth
of October dismissal of Prime Minister Sher Bahadur Deuba and his government
for the first time in the 12 years of Nepal's multi-party political system.
In a week's time, contrary to the promise of the King to consult all political
parties, a loyal monarchist was appointed as Prime Minister without any
consultation with any political party. The continuing instability in the
political system has by now become the norm rather than the exception
in Nepal.
Political instability has an adverse impact on the economic development
prospects of any country and its citizens whose economic policy making
and planning are central government based. This is the same with Nepal.
Centralised policy making and planning, frequent changes in governments
and leaders at the central government has created non-continuity in developmental
programmes and policies with adverse effects on poverty and inequality,
particularly in the distant regions of the country. The recent instability
in government and frequent changes of principal personnel in central organisations
such as the National Planning Commission added to the problem of confusion
in priority and choice of projects. Further, weak infrastructure resulted
in cutting of large parts of the country and with it large sections of
the heterogeneous Nepali population from the small developmental efforts
attempted.
Disaggregated at the regional and the sub-regional level, the HDI values
in the Nepal Human Development Report (NHDR) 2001 highlight significant
differences in welfare and human capabilities. The HDI for the urban areas
(0.616) far outstrips that for rural areas (0.446), where more than 80%
of the population lives, because of far better access to services, resources,
and opportunities. Clearly, Nepal's development is urban biased and this
bias explains the persistence of poverty in rural areas. The report also
evaluates development in terms of ecological divisions and development
regions. The human development in the hills is far higher than the mountain
and the Tarai regions, in part because many large prosperous cities and
towns are located in the hills. Among the development regions, the highest
HDI (0.493) is found in the central region, followed closely by the central
(0.484) and the western regions (0.479). This is mainly because the most
of Nepal's trading centers and productive economic services are concentrated
here.
In terms of Income Poverty (calculated by the Nepal Living Standards Survey
as a head count index of poverty), 44 per cent of the country's rural
households-88 per cent of Nepal's total population- and 23 per cent of
its urban households appear to fall below the poverty line. According
to NHDR, the incidence of poverty might have increased from 33 per cent
in 1977 to 42 per cent in 1995/96. Over these two decades, poverty incidences
held steady in urban areas, suggesting that it's worsening took place
largely in the rural areas. Moreover, the NHDR shows that a comparison
of the 1984/85 and 1995/96 data indicates that nationwide poverty rose
slightly from 41.4 per cent to 44.6 per cent in 1995/96, rural poverty
increased while urban poverty diminished.
Further in terms in of human poverty, as defined in the NHDR 2001, the
Human Poverty Index (HPI) is twice in the rural areas (41.4) than in the
urban areas (23.9). The HPI according to ecological and developmental
regions show a divergence but not large enough as one shown by the urban-rural
divide. Evaluating the data on HDI, Income Poverty and HPI, for the ecological
and developmental regions, one finds the inequality expressing itself
as a case of urban-rural inequality than any other possible divides.
The six-year old Maoist insurgency has emerged and grown on the backs
of pervasive poverty and increasing inequality. As mentioned above, most
of the poor live in rural areas- many based on subsistence agriculture-
and the income disparities between them and those in the Katmandu valley
are large and widening. The mid- and far-western hills and mountain regions
show a poverty incidence of 72 per cent, as compared with Katmandu Valley's
4 per cent. These are the same regions where the Maoist influence is the
strongest.
Close to 90 per cent of the 20 million people of Nepal are peasants. They
suffer from semi-feudal oppression resulting in lack of land to work on
and extreme poverty and hunger. The conditions force them to travel outside
the country for jobs in order to survive. Besides the landlords, the Nepalese
ruling class consists of bureaucratic capitalists closely linked and subservient
to the international capitalist system, with no concern whatsoever of
the resulting stagnant Nepalese economy. In other words, the structural
realities within the Nepalese economy were the main reason for persistent
poverty till the 1980's. But with overall poverty getting worse in the
1980's, with poverty levels remaining more or less constant in the urban
areas, there must certainly have been another dynamic characteristic in
the economy other than the already prevalent structural rigidities of
the economy and society. This dynamic was the economic reform package
adopted in the 1980's under the supervision of the Bretton Woods institutions.
The negative impact of the reform package on poverty and development is
explained later in the analysis.
The Nepalese economy has a per capita income of around US $210, with most
of the national income being accounted for by consumption (the total consumption
to GDP ratio is 86) allowing for a dismissal savings rate of 14 per cent.
But by IMF standards, it is a stable economy!! Exports grew at an average
annual rate of 22.3 per cent in the last three years whereas imports registered
a negative growth of 2.9 per cent. Foreign loans grew at a low average
annual rate of 1.3 per cent. Further, debt servicing (at less than 5 per
cent of current deposits) is not a burden and inflation is not an issue
at 4 per cent.
But the economic basis of the 1996 Maoist insurgency was founded not just
on the pattern of unequal and exploitative ownership of land and capital
but also on the economic reforms initiated in the 1980's and 1990's that
worsened the economic conditions for a majority of the Nepalese population.
The economic reforms involved de-licensing, increased privatization and
foreign participation. Fiscal expenditures were geared towards enhancing
the role of the private sector and the free market forces.
More elaborately, as in several developing countries, the planning process
of the country became inextricably linked to the logic of the Bretton
Woods institutions (which are identical to all countries irrespective
of their individual particularities)- Stabilization and Structural adjustment.
The economic reforms and structural adjustment policies did not recogonise
the agricultural sector's structural realities. In an economy, which has
large non-monetised segments and where subsistence agriculture is the
norm rather than the exception, the removal of fertilizer subsidy and
privatization was hardly the most appropriate policies for stimulating
growth. Trade liberalization along with low agricultural growth and productivity,
resulted in Nepal being reduced to the status of a food importer from
one that who had its food demands domestically met.
Given, the mountainous and hilly terrain, improvement of the transport
network was indeed essential for both stimulating manufacturing and for
improving the marketability of agricultural produce. The obvious solution
was a vigorous state-led infrastructure development, which was curtailed
by the need to maintain a low fiscal deficit to satisfy the demands of
economic reforms. It is ironic in the context of Nepal's stable economic
conditions, that the logic of 'Bretton Woods' prevented the state from
playing a more active economic role. Removal of fertilizer subsidy, privatization
of agricultural markets, lowering the fiscal deficit, expansion of exports
and trade liberalization, all in the form of economic reforms initiated
by the Bretton Woods institutions, worsened the economic situation in
Nepal and further worsened the urban-rural divide.
Pre-1990 Nepal too was poor and characterised by a large and worsening
poverty and inequality of substantial proportion, due to both the structural
rigidities as well as the economic reforms. In 1976/77, the poverty incidence
in terms of subsistence consumption and subsistence income was 60 per
cent and 119 per cent higher in rural areas than in urban areas respectively.
Yet the 'People's War' had to wait till 13 February 1996.Why? The pre-1990
single party Panchayat system that worked on the nomination by the monarchy,
denied the common people of Nepal a political system of democratic representation.
Their demands were stifled and their lives had to be led in subservience
to the monarchy.
But the post-1990 successful replacement of the single party Panchayat
system with the multi-party democracy through an all-party 'People's movement',
firmly established the expectations of a better life and equal opportunities
in the minds and hearts of the common citizens as their right, in both
the rural and urban areas. This was reflected by the incorporation of
these aspirations as the Directive Principles of State policy in the new
1990 constitution. But the instability at the center, the resulting lack
of continuity, direction and uniformity in developmental programmes, a
lack of political will to undo the grip of the feudalism, comprador and
bureaucratic capitalism on the Nepalese economy, economic reforms based
on the homogeneous prescriptions of the IMF-WB combine and an inadequate
infrastructure to link large parts of Nepal created a worsening developmental
divide between the rural and the urban areas. The Post-1990 revamped political
system failed to fulfill the aspirations of a more widespread and increased
economic growth and prosperity. The establishment of the '1990' multi-party
democracy created aspirations of true democracy, greater economic development
and equal opportunities. The failure to meet the same created a political-economic
situation where the extreme policy of capturing state power by force,
and thereby usher in economic development for all sections, of the Communist
Party of Nepal (Maoists) found a strong following, particularly in the
rural areas. The inability of the multi-party political system to sustain
high growth and productivity in general and, in agriculture in particular,
to bring down poverty and inequality, combined with the inflated expectations
of better life, saw the emergence of the extreme left as well as their
rapid acceptance over rural Nepal and among the poor in urban Nepal in
the mid-1990's. On the launch of the 'People's War', within 3 weeks 5000
actions had been taken in 65 districts out of a total of 75 districts
of the country. The major actions were that of painting slogans, distribution
of leaflets, torch light processions with a few chosen sabotage and punitive
actions destroying and seizing the properties of 'the capatalist-bourgeoise-feudal'
forces. The IMF staff report for the 2002 Article IV consultation, says
that 'as of November 2001, the Maoists had a presence in 60 out of 75
districts and in many places were the only form of government'. In many
districts of Nepal, particularly in the extreme eastern districts, the
far- and the mid-west districts, the Maoists are the only form of government
with the army/police restricted to the regional head quarters. In February
2002, after the Royal Nepal Army took over the fight with the rebels,
one of the bloodiest attacks was launched in Achham district. From April
2002 to today Katmandu has been continuously rocked by bombs, though with
minimal casualty for civilian life. The attacks across districts on the
army garrisons and police posts have continued unabated.
Economically it has resulted in a catch-22 situation for Nepal's poor.
While the Maoist insurgency has certainly emphasized the plight of the
poor of the far-flung areas of Nepal to the ruling elites in Katmandu,
the latter are in a situation where they can do very little as the control
lies very much in the hands of the Maoists. Further either side is not
willing to work together. In areas of no complete control, the commoner
gets caught in the crossfire between the government and the rebels with
detrimental effects on his already adverse economic situation. Further,
in areas where the Maoists have a presence, it accelerates an out flow
of resources and rural elites with their assets. The Maoist's demands
for donations from those making profits have reduced the incentive to
produce for profits. This further reduces the economic opportunities for
the poor who remain in the area. Implementation of development projects
and service delivery have also suffered in these areas as numerous donors
have closed down or moved projects to district centers due to increased
security risks and Maoist's demand for closure or forced donations.
Though the Maoists have set up a process for development with local involvement
in each region under their control, which is indeed a process of development
in sharp contrast to the centralized development plans and policy of the
Nepalese government, the inadequate capital available due to reasons mentioned
in the above paragraph, makes it a development process on a scale that
is not large enough to eliminate poverty and usher in substantial development.
Though the IMF and the World Bank are not to be solely blamed for the
poverty and inequality that existed or exists, they are to be squarely
blamed for the negative impacts of their homogeneous economic 'prescriptions'
on poverty and development. The economic prescriptions considered insurgency,
inequality and instability as mere irritants, that happened to be there
unrelated and by chance. Political-economic relations between inequality,
insurgency, instability and economic growth have to be understood before
any policy package is prescribed or implemented in Nepal.
Peace in Nepal would require economic growth at a very fast pace with
a broad spread of its benefits. At the same time, peace is required for
a faster economic growth. Steps towards peace and economic growth, development
and welfare for the common Nepalese would depend very much on the unfolding
political situation in Nepal. The present offer from the rebels for a
ceasefire is a positive step towards peace. But the dismissal of the Prime
Minister by the King is a step into the unknown. The common Nepalese has
to wait yet again for the recurring political uncertainty to die down
before their genuine economic concerns can be taken up.
October 18, 2002.
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