Sunday, June 20, 2010

Economic discourse & accountability in Nepal

My latest op-ed/column is about the need for economic discourse and accountability in Nepal. There is a severe lack of discussion about economic issues. The way the economy is heading right now will define the way of life of the Nepalese people. The better the economy performs, the better will be the lives of the citizens.

The (uncertain, baffling, and ever-prolonging) political deliberations going on right now will mean nothing if the economy comes to a grinding halt or becomes dysfunctional. Since the people do not discuss economic issues as widely as it should have been, there is hardly any accountability. Furthermore, the talking heads and commentators rarely discuss these issues. They either do not understand what is going on or they can’t find experts to plainly explain what is going on in the economy. Hence, people do not judge political parties (including elected representatives) and their policies based on their pre-election commitment versus post-election delivery. More and more people need to discuss economic issues as they do with political issues.

Economic Discourse & Accountability

The macroeconomic health of our economy is in a terrible shape. This dire warning is repeatedly trumpeted in the media and public sphere by politicians, economists, and commentators. Sadly, a majority of the population is unable to make much sense of it. Nevertheless, this issue will continue to pop up until we find a way to fix the Rs 22 billion hole in the country’s balance of payments (BoP), which basically is an accounting record of all the monetary transactions between Nepal and the rest of the world. Rather than incessantly drumbeat possible causes of the BoP crisis, let me discuss one issue rarely highlighted by talking heads and commentators: Economic accountability and its relation to our economic woes.

The gloomy economic conditions we are in right now are self-inflicted. It is a product of deficient as well as defective economic policies abetted by a political culture that is infected by corruption and a lack of accountability. With so much analysis and reporting going on about the BoP deficit, double-digit inflation rate and wobbly monetary situation, hardly any analyst has clearly explained how these economic conditions relate to a citizen’s consumption and living habits. How does it affect the lives and livelihoods of people residing in, say, Darchula, Rukum, Syangja, Sarlahi, and Solukhumbu? The failure to effectively convey this message has discouraged the public from actively discussing the very economic issues that will affect their lives and livelihoods in all possible ways. This is fostering a lack of accountability and scot-free pillaging of taxpayers’ rupees by the politicians.

Economic accountability is effective when citizens consciously demand one from their elected representatives. One way to induce this is through the dissemination of actionable analysis and interpretation of policies that can be easily comprehended by the public. The public demand for accountability is strong when they are aware of the way their tax rupees are spent by their leaders.

The people need to know how a particular economy policy to counter the BoP deficit would affect their disposable income, consumption, and livelihoods. If this is explained in plain language, then the people from all walks of lives will start discussing why the BoP crisis emerged in the first place. Then they will potentially start demanding explanations from their elected officials. The media, economic analysts and commentators could play a catalytic role in facilitating this process.

Unfortunately, the virtual absence of conversation about economic issues and the lack of demand for accountability by the public is a testament to the fact the media, analysts and commentators have not done an effective job in interpreting economic policies and conveying its impact on the citizens. For instance, there needs to be a wider discussion about the impact of land reform policy proposed by UCPN (Maoist), who wants to get away with private ownership of land and institute cooperative-style ownership. The people need to know how it will impact production, productivity, employment and economic growth.

Likewise, they also need to know if reverting back to import substituting policies, as recently suggested by Finance Minister Surendra Pandey, will help narrow the BoP deficit, or exacerbate it. Likewise, the public has to be furnished with answers to why they have to live under 54 hours of power cuts every week despite millions of rupees ‘invested’ in developing hydropower and in maintaining the bloated, inefficient bureaucracy of Nepal Electricity Authority. They also need to know why aid dollars and domestic tax rupees are wasted without any result in sight from the Melamchi Water Supply Project. The people need to know the impact of busting the real estate bubble in their lives and livelihoods. Moreover, they should be made aware of the costs of bandas, and its affect on their income and productivity.

The citizens should be explained the position of each political party on key economic issues. So far, no political party has clearly identified their core economic principles and policies, their intended policy prescriptions to the most pressing economic issues, and their strategy in kick-starting the jammed growth engine. If the public knows the position of each party on all major economic issues, then they will automatically judge the performance of their elected representatives on the basis of post-election achievement versus pre-election promises. There will be citizen-led pressure on the leaders to deliver results, not just empty promises.

The civil society and think tanks in Kathmandu have to do a better job in analyzing and explaining how a specific economic policy affects particular regions, industrial clusters, and livelihoods. The think tanks should play a vital role in stimulating discussion about the pros and cons of any economic policy before they are voted in the parliament. Meanwhile, the government needs to promote an open battle of ideas and ideals so that the final policy prescription is well analyzed by analysts and acceptable to a majority of the citizens.

The more discussion there is about economic policies at the policy level, in the media, and in the public sphere, the finer would be the eventual policy agendas. This would contribute a whole lot in terms of making our leaders accountable to the people. A failure to do so is already reflected in the inconsistent, incongruent, and impractical policies in the recently introduced Industrial Policy 2010.

To ensure economic accountability, there has to be an extensive discussion of economic issues in the public sphere. The media, analysts and commentators have to effectively break down the multidimensional impact of economic policies in the simplest form. This will help people associate economic policies with their lives, leading to exchange of ideas and ideals at individual, society, community and national levels. There is no better path to accountability than the one where citizens actively demand such from their elected representatives.

[Published in Republica,June 16, 2010, pp.7]

Keynesian perspectives last week

Krugman explains "That 30's Feeling": “Many economists, myself included, regard this turn to austerity as a huge mistake. It raises memories of 1937, when F.D.R.’s premature attempt to balance the budget helped plunge a recovering economy back into severe recession.”

Robert Skidelsky is not happy with the British government’s decision to slash spending and asks "Who governs?" : financial markets or government. “ These propositions are a re-run of the famous “Treasury view” of 1929. By contrast, Keynes argued that demand can fall short of supply, and that when this happened, government vice turned into virtue. In a slump, governments should increase, not reduce, their deficits to make up for the deficit in private spending. Any attempt by government to increase its saving (in other words, to balance its budget) would only worsen the slump. This was his “paradox of thrift”. The current stampede to thrift shows that the re-conversion to Keynes in the wake of the financial collapse of 2008 was only skin-deep: the first story remains deeply lodged in the minds of economists and politicians.”

Krugman wonders why Greenspan is regretting that deficits have not yet increased interest rates. Krugman explains: “deficits in the face of a liquidity trap don’t drive up interest rates and don’t cause inflation — lends credence to the Keynesian view.”