#80 8 - 14 February 2002 16 pages Rs 20 Why ride a 8-9-10 bike when you can ride a Bullet ? Nepal Peace Ride 2002 Kathmandu-Pokhara and back EXCLUSIVE Meiko Nishimizu which can be seen by the people.” Lukla flights to resume Vice President Martin Dinham The World Bank Director for Asia and the Pacific Lukla flights are Washington DfFID expected to resume over What they had to say “What should the government do now? UK the weekend after Nepali Times interviewed participants at the Nepal Act.” “The policies are good, but the key Maoists attacked the town Ram Sharan Mahat issue here is proper implementation. Development Forum on the last day of the close-door aid Finance Minister on 3 and 4 February. A meeting in Pokhara on Thursday. Selected soundbites: The poor people of Nepal, the donors group of about 100 and government here are really Maoists surrounded the Karen Turner In this difficult situation, we need impatient for evidence of basic Deputy Assistant Administrator “Everyone seems to want implementation town and looted Rs 2.2 decisive steps to really attack the root of services being delivered.” Asia and the Near East Bureau … this is a genuine demand. Implementation million from the Rastriya USAID, Washington the problems of the country, which is Jin-Koo Lee needs total political commitment. I am Banijya Bank branch. “No “What we have is an important frame- poverty and insufficient governance.” South Asia Department confident that we can make it happen.” one was hurt or har- work, but the government needs to Pharang Roy Asian Development Bank Manila assed. Everything is quiet demonstrate results now. Not three International Fund for Agriculture Tanja Kristine Hegge and Development (IFAD) Assistant Director General for Asia, “The government has comprehensive now,” Lukla’s VDC years from now, but within the next 12- Rome Ministry of Foreign Affairs economic reform plans, but implemen- chairman Funuru Sherpa 18 months. There needs to be some “With the ongoing conflict, the govern- Norway tation is slow. Agendas are well set told us by phone. The concrete visible evidence on the ground, “The key test is to actually reduce poverty, ment needs to win back the trust of the but there are questions about how we army is said to be particularly in the rural areas, where expand options for poor, and a government poorest people. For this we must bring the benefits to the grassroots guarding the town, and also airlifted out most of the significant poverty is.” that delivers development. ” demonstrate at least two or three simple level. People have to be able to feel some stranded trekkers. Trekking Paul Egger things that work. Making VDCs in Jochen Kenneweg the changes brought about by agencies in Kathmandu say tourists Head Asia Division Head South Asia Division, Federal charge of schools is a major step. The reforms.” have not cancelled their plans, and are Swiss Development Cooperation Ministry of Economic Cooperation Berne poor people have to feel that they are Germany waiting for flights to resume, while “Peace is the foremost goal now. once again taken seriously, it is about “Given Nepal’s limitations, it may be others have started trekking from Jiri Without peace there is no development, building trust…using the army is not the necessary to concentrate on implementa- Editorial p2 and Phaplu. no scope of development co-operation. answer.” tion in a few crucial areas for quick results FAQ about NDF From India, with love Last year on 14 February, Valley residents spent over Rs1 million on flowers. As Valentine’s Day ap- Something is rotten… proaches again, gift shops and florists rated in Ireland. If the central bank are stocking up for the big rush. And …with the state of commercial banking in Nepal. knows about the ownership of this because Nepali florists can’t meet local company it hasn’t told anyone as is demand, they import roses from as far BINOD○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○ BHATTARAI ○○○○○ required for companies listed in the away as Bangalore. Chameli in o, Nepali taxpayers will be paying $10 million to get Rastriya Banijya Bank and Nepal stock exchange. Pulchowk expects to surpass the 9,000 Bank Limited rescued by international consultants. But wait: if you thought these “There are few secrets in stems of red roses it sold last year— S parastatals were rotten you should take a sniff at Nepal’s commercial banking sector. Kathmandu,” one senior banker told most of it imported from India. Flora Non-performing assets, conflict of interest, murky offshore ownership, well-connected us. “And everyone pretends not to know Nepal has two flower farms in defaulters, loan swapping, political obstruction. You name it, Nepal’s private banking has it. what is happening. We have our heads in Kathmandu and one in Simara, but can Even the governor of the Nepal Rastra Bank, Tilak Rawal, admitted recently that the state the sand.” barely supply 600 stems of Dutch roses of our banking sector was “terrible”. A donor representative involved in financial reform Another example: almost every bank a day. “Winter production is not enough told us: “Nepal has the weakest central bank in the developing world.” and financial institution here has reported to meet demand,” says manager DK The reason is not difficult to see: political interference. Especially since 1990, bankers Srivastava. Next year, Flora Nepal plans profits from the first year of operation. to triple production, which still won’t be with patronage could get away with getting anything they wanted approved by the regula- Even after the economic slowdown that enough to satisfy all the Valley’s lonely tor. Nepal Rastra Bank’s first governor, Himalaya Shumsher Rana said in a recent interview: began in early 2001, many showed hearts. But the Valentine in the Valley “Only three of 12 governors actually completed their five-year terms in its entire history profits. Asks one perplexed may be dampened a bit by the emer- because they were sacked for undefined exigencies.” auditor: “How can banks be in gency this year: rose sales aren’t so All this is now coming back to haunt the Nepal Rastra Bank, the national economy and profit when the industries rosy yet. the Nepali public. Till now, we had all thought it was only the Big Two (Rastriya they have invested in are all Banijya Bank and Nepal Bank Limited) that needed rescue. But it is becoming increas- reporting losses?” ingly evident that private banks may not be in much better shape. The central bank issued its ownership guidelines (“Directive 8") in mid-2001. Till Shovan Dev Panta, a 16-year banking veteran, and CEO of Nabil Bank, admitted as then it was a free-for-all: anyone, even those with interests in the industrial sector are Weekly Internet Poll # 20 Q. Should Nepal’s donors increase development aid ? much at a recent meeting on financial sector reform. “The financial sector is in an appalling allowed to own banks. Many promoters have borrowed from their own banks and not paid state,” he said, disclosing that the non-performing assets of private banks may be even back. “Here’s how the scam worked,” a Nepal Rastra bank official explained to us. “You higher than the central bank’s estimate of between 1.6 to 9 percent. This could grow if put in Rs50 million to promote a bank and then borrow Rs500 million from it. They are the economic downturn is not reversed. He added: “I am scared of what could be not opening banks to do banking, but to siphon loans for themselves.” In most cases ahead.” Nepal’s financial sector is made up of 13 commercial banks, 12 development the central bank is unable to nab promoters because they tend to be well-known banks, 49 finance companies, 34 financial co-operatives and 16 NGO-run financial co- “captains of industry” with connections that span the political specturm. In mid- operatives. Among commercial banks all except one, and three or so not-so-bad ones, are January 2002, Nepal Rastra Bank in fact ordered one private bank to stop taking said to be in trouble. All evidence gathered for this article point to the regulatory agency deposits precisely for this reason. not doing it job properly. None of the bankers, regulators and auditors we interviewed In the absence of ownership guidelines and less-than-transparent disclosures, some for this investigation wanted to discuss the record of specific banks. But there are some business families now have controlling interests in not one or two, but up to five banks indications of just how deep the malaise is. and financial institutions. Owners can therefore use one bank to guarantee a loan from For example, several years after the original promoters sold their stock in Nabil another, and both end up losing because the loans are mostly overvalued and seldom paid Bank, not even its shareholders officially know who actually owns the largest block of back. Cross-ownership also makes it easy to swap bad loans. The losers in the end are the company’s shares. The National Bank of Bangladesh purchased the 1.9 million shares, trusting Nepali depositers, the economy and investor confidence. Total votes: 554 but these were later transferred offshore to an entity called NB International Ltd incorpo- Go to p6 2 EDITORIAL 8 - 14 FEBRUARY 2002 NEPALI TIMES NATION 8 - 14 FEBRUARY 2002 NEPALI TIMES 3 Nepali Times is published by Himalmedia Pvt Ltd, Chief Editor: Kunda Dixit Editor: Anagha Neelakantan COMMENTARY by PUSHKAR GAUTAM Design: Kiran Maharjan [email protected], www.nepalitimes.com Advertising: Sunaina Shah [email protected] Subscription: Anil Karki [email protected] Sales: Sudan Bista [email protected] Sanchaya Kosh Building, Block A-4th Floor, Lalitpur GPO Box 7251, Kathmandu, Nepal Tel: 01-543333-7, Fax: 01-521013 ABOUT Printed at Jagadamba Press: 01-521393 FAQ NDF “Things don’t move, why?” If there was a prize for the most the day-to-day survival of the powerful.