SAARC Development Fund

South Asian Association for Regional Corporation's (SAARC) 15th annual meeting has just concluded in Sri Lankan capital Colombo. With the eight members countries (India, Nepal, Pakistan, Bhutan, Sri Lanka, Maldives, Bangladesh, and Afghanistan), it is the largest regional bloc in the world in terms of population. It has new "observer" members likes the US, the EU, China, South Korea, Japan, Mauritius, and Iran (now Myanmar and Australia as well). Usually, the meeting is overshadowed by bitter diplomatic ties between India and Pakistan. The meeting is usually a gathering of heads of state, without any substantial outcome. Nevertheless, it provides a very useful forum for the countries to discuss the most common issues plaguing the region with the highest number of people below $1 a day.

This time the meeting decided to establish a SAARC Development Fund (SDF), with an initial capital of $300 million. Bhutan has offered tax breaks and other diplomatic level incentives to host headquarter of SDF. Though the initial capital, which is just a commitment and has yet to be realized in real terms, is very small, the leaders have rightly identified maternal and child health, women empowerment, and teacher's training as a priority. Teacher absentee is one of the most pressing problems in the education sector in South Asia. More here.

It needs to be seen how effective and fruitful the Colombo declaration would be in terms of increasing regional trade, reducing poverty, facilitating energy cooperation and trade, and cooperation in the fight against the threat of terrorism. The people are yet to feel the effect of SAFTA, the free trade agreement among the seven (plus Afghanistan added last year) countries.

Though I am skeptical of great strides in economic cooperation due to SAARC agreements, I am hopeful that it would be one of the most important regional blocs in the world in the coming years. Why? Because of India's growing economic and political power in the international arena, because of the availability of the only forum where the bitter ties between India and Pakistan can be resolved, because of the importance of fighting terrorism in Afghanistan and Pakistan, because of the highest number of people under $1 a day, because of the political development in Nepal, where terrorism was put to rest through political reconciliation-a reminder to the world that victory over insurgency is best achieved through political means, not through military might, and because of increasing interest of the most powerful countries to associate with SAARC as observers (imagine what the US, Australia, Iran, and Myanmar have to with a regional bloc in South Asia!).

Sliding towards Socialism

I have always been skeptical about the Maoists' ability to steer the economy towards a path of success because of their anti-market behavior(I have been always critical of their planned land reform program). Now, they have agreed to form a government and have a 50 point common minimum agenda. And, there are a lot of commissions:

...In the program, the Maoists pledged to form a peace and reconstruction commission, a truth and reconciliation commission, a state restructuring commission, a commission on disappearances and a land reforms commission. It has vowed to make necessary arrangements for monitoring past peace accords through the peace and reconstruction commission.

Besides, the program proposed an administration reforms commission, a youth commission and a powerful Muslim commission.

...The Maoists proposed a model of economic activity through the partnership of government, cooperatives and the private sector. It pledged to formulate immediate short-term, mid-term and long-term plans for development and give priority to agriculture, hydropower, tourism, human resources and infrastructure.

The Maoists have proposed to categorize hydel projects for purposes of investment. "Small and medium-size projects will be run through internal investment and big and export-oriented projects through foreign investment," the proposed program stated.

...The Maoists propose to attract foreign investment in industrialization and development for the benefit of the country. The party pledged dual citizenship for Non-Resident Nepalis to attract their investment in national development.

The Maoist program proposed revolutionary land reforms to end feudal ownership of  land and establish access of peasants to the land.

The program also proposed that primary health care, employment and education up to high-school will be made part of the fundamental rights of the people. The party proposed to reduce the age criteria for senior citizens to 70 from existing 75 for purposes of the old age allowance. It pledged an increment in the allowance amount for widows and old people.

 

Food crisis in Nepal

Sky News has a good series of articles, some of them focusing on a typical Nepali household, about the impact of rising food prices (HT: Deepak's Diary).

24 Hours of A Nepalese Diet (the reporter experiences firsthand how it feels to live in a typical Nepali household)

Life Below The Breadline in Nepal

Lush Land Where Millions Need Aid

This one makes me homesick:

...There's no running water either, so Anju has to wash the vegetables in rather murky water from a container. Quite a bit has gone into the cooking too. I notice that the dal, which Anju complains has become so expensive lately, was thoroughly diluted.

Markets at work (if you try to destabilize equilibrium by charging more, demand will decrease!):

...I work in the shop with my wife Anju. We sell food and basic household items. But business is slow now. People can't afford to buy much with the increased prices. We have a profit margin of around 3%. If we charged more money, we wouldn't sell anything. I don't want to lose my customers.

And, signs of more people being pushed below the poverty line by rising food prices:

...Its costs about 300 rupees ($5) to put a basic meal together for the family. And that's the same amount we earned working in shop all day. The worrying thing is that prices are increasing daily. I don't know how we'll manage if this trend continues. Maybe we won't be able to stay in the city. At least in the village we could grow our own food. But prices are high there too now.

Again, similar stuff:

A gardener living in the capital Kathmandu, Rajendra Bahadur Bista, 30, earns 5,000 Nepalese rupees a month (about £36). He spends 3,000 rupees from that to feed himself, his wife and two daughters, aged eight years and six months respectively.

"We eat less rice now, less bread and fewer vegetables," he tells me. "We had to cut back on other things, too, such as clothes."

 

Leaking customs and weak trade

That's the title of my Op-Ed published in today's The Kathmandu Post. The article basically centers on the argument that in order to realize potential gains from trade, just joining free trade blocs is not enough; the developing countries like Nepal should focus on fine-tuning trade facilitation to promote exports and reduce domestic inefficiencies. This requires taking care of institutions that help facilitate trade, which of course cannot be done overnight.

Almost after five years of sluggish growth, Nepal's economy has grown at over 5 percent this year. According to UN ESCAP's recent estimate, the real GDP growth rate is expected to be 4 percent in 2008, up from a low of 0.1 percent in 2002. Various factors like windfall growth in agricultural sector, tourism, and remittance helped push up the otherwise lagging economy.

Now, it is time to ponder on how to sustain this, or even achieve higher GDP growth rate, in the coming year(s). This growth rate won't be sustained if we continue to bank on tourism and agriculture - both are vulnerable to external factors like weather. No country has sustained such a growth rate even for a short time without fine-tuning and promoting trade, both export-oriented policies and policies aimed at reducing domestic inefficiencies. Nepal is already a member of regional and global trading blocs. However, the potential gains from trade have not yet been realized, at least when we look at the impact on the GDP growth rate.

Curiosity abound when we learn that despite being a member of many trading blocs, Nepal has not seen even a minimal impact on the GDP growth rate. Closer look at this puzzle divulges an uncomfortable fact that despite being one of the most open economies in South Asia, Nepal still has one of the most cumbersome and investor unfriendly trade facilitation procedures in the world - one of the constraints to realization of the potential gains from trade.

Procedural hassles and delays in clearing goods at the customs are not new things; businessmen and economists have been calling for reforms for a long time. Years of neglect from the state to reform governance and trade facilitation has severely impacted Nepal's trade standing in the world. Nepal's trade facilitation process is so slow and inefficient that, in every parameter for trade facilitation that the World Economic Forum (WEF) came up with in its recent publication The Global Trade Enabling Report 2008, it was ranked at the bottom position, along with countries like Chad and Burundi.

Read the full Op-Ed here.

Links of Interest

Jamie Diamond: Cutting aid would have dire consequences

85 Percent of Africa's Land Has No Titles

Stiglitz and Sen, Food and Morals: Reflections on intellectual cowardice (very fascinating discussion on why economists are so detached from reality, especially in the context of rising food prices)

Cell phones used to expedite work in government offices!

This is one novel use of cell phones. Forgoing ages old tradition of ringing bells in offices to communicate between different departments and to call caretakers, some officials in the Nepalese government jobs have been using cell phones. How? Well, by giving missed calls!

One missed call and the peon attends to the seniors to offer his service like serving tea, photocopying documents, printing and so on. The system of pushing call bell beneath senior officers' desks has been replaced by mobile phones.

Krishna Poudel, who works as a peon at the District Election Office, says, "Who needs buzzer system when there is mobile phone. With the help of mobile phone I can now hear my seniors call, no matter where I am."

Chief Returning Officer Mahesh Raj Timalsina is also happy with this practice. "We press the call bell and sometimes they do not hear it so it is better to give them a missed call instead," he says.

I don't know how efficient this system would be, but this is one novel use of cell phones! More here.

WTO should give developing countries policy space

Here is a piece from The Guardian. The writers from GADE blame the US's intransigence for collapse of the WTO talks and believe that the developing countries were right to walk away...well, it is everybody's fault for the failure, not only US's!:

...Rich-country negotiators, and even those from agricultural export powers like Brazil, expressed surprise that the issue that brought down the negotiations was something as seemingly arcane as the "special safeguard mechanism" - the right for developing country governments to raise tariffs in the event of sudden or large increases in imports that threaten to undermine domestic producers. They shouldn't have been. The measure is exactly the kind of "policy space" for development that the poorest countries have sought from this so-called development round.

...Cheap, subsidised imports of staple foods - markets the US and other developed countries dominate - flooded local markets, driving down prices and putting already-poor farmers out of business. Each country became more dependent on imported food, losing its capacity to produce its own. Then prices spiked, exposing the life-threatening danger of such policies.

Any government that wants to take the food security of its residents seriously needs precisely the kind of policy instruments India and China were demanding.

More stuff on the collapse of the WTO talks here in my earlier post.