Saturday, April 19, 2008

Maoists, price distortion, and economy

The Kathmandu Post has a nice editorial about the need for the Maoists to face the reality and get hit by the forces of market. The Maoists are vociferous against any decrease in fuel subsidies and increase in fuel prices. The country has been reeling under fuel shortages, whose reason range from strikes to subsidies to colossal deficit in NOC's balance sheet to IOC's unwillingness to supply fuel without NOC clearing its outstanding dues to mismanagement and corruption. The main reason why the NOC is running in deficit and debt and is not able to pay dues to the IOC is because of huge price distortion. Any attempt to up fuel prices was met by violent riots and closures, mainly initiated by the Maoists. Now, the real test for the Maoists have come. They have won the election with a landslide victory and when they take over the government, it will be interesting to see how they deal with the pressure from IMF, WB, and the donor agencies to reduce price distortions. They got to realize that populist agenda can bring them in power but it cannot rectify the distortions in the market. Meanwhile,I am wondering from where they would find money to break-even the balance sheet of NOC, which is already at a loss of over Rs 3 billion.

Good paragraph from The Kathmandu Post:

Why should the Nepali Congress and the UML remain out of the government? First, the people have rejected them. Second, the Maoists will never be completely exposed in public otherwise. The people should get to understand that even the Maoists cannot stop taking the overdue action of raising the price of petroleum. Both the people and the Maoists have to realize that price rises are not under anybody’s control. The only way to fight inflation is economic growth and job creation. Third, the political parties should go to the people and reform their grassroots structure. They will have enough time for that purpose, if they refrain from joining the government. This is also an opportunity for the parties to weigh their colleagues and find out who are really committed to democratic principles and who are opportunists.

More on fuel crisis in Nepal here, here, here, and here.

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