8/17/2019 Why governance matters (Himalayan Times)
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Why governance matters
ECONOMICS06
THE HIMALAYAN TIMES
S UN Y , FEBRUARY 24, 2013PERSPECTIVES
Siddharth Poddar
Singapore
Nepal has been a countryin transition for the lasttwo decades.
In thistimeframe, it has gone
from being an absolutemonarchy to a constitutionalmonarchy to a
republic.These are significantachievements in a short spanof time;
but in the process,Nepal has also suffered froman acute lack of
effectivedemocratic governance,which has translated intolack of
development.
The pursuit of inclusiveeconomic growth and sus-tainable human
developmentshould form the foundationfor policymaking in
thedeveloping world. One of the key factors underpinningthe
degree of success coun-tries have enjoyed in meetingdevelopment
challenges is
that of democratic gover-
nance, and the quality andlegitimacy of its institutions.Poor
governance eitherundermines the effectivenessof policies or
prevents policy-making altogether.
Today, Nepal is confrontedwith multiple challenges thatinclude,
but are not limitedto, stagnant economies, poorphysical and social
infra-structure, prevalence of poverty and lack of
invest-ment. These challenges canbe attributed to poor gover-nance
and weak institutionsthat are often struggling toestablish their
legitimacy.
Since 1990, Nepal has notseen a single governmentserve its
full-term in office.The extent of the politicalinstability comes to
lightwhen one considers thatNepal has had 18 differentgovernments
in the last 22years, excluding two periods
of direct rule by the king.
The culmination of the civ-il war in 2006 brought alongits own
set of governancechallenges which Nepal hasnot been able to cope
with ful-ly. The country has only hadan interim constitution
since2008. Its elected ConstituentAssembly also served as aninterim
government from2008 until May 2012 when itwas dissolved. Today,
Nepalhas a caretaker government.
Nepal achieved democracy,but not enough time wasinvested in
entrenching andsustaining the democraticadvances made. One
politicalcrisis after another furthereroded the legitimacy of
itsalready frail institutions.
As a result of these prob-lems, Nepal has sufferedfrom a
development deficit.The political parties have notbeen in a
position to investenough time, thought and
effort into creating a sound
development policy. In thefew instances that they have,they have
not remained ingovernment for long enoughto see the
implementationof these policies through.Successive governmentshave
spent significant timeand resources trying to en-sure their
longevity, and havenot focused on laying downpolicies that could
boostdevelopment in Nepal.
The last time Nepalicitizens had an opportunityto elect their
representativesto parliament was 14 yearsago in 1999. This has led
tosevere problems of account-ability and legitimacy.
Today, several people in thecountry query the legitimacyof the
Maoist-led caretakergovernment, and the legalityof its decisions is
beingquestioned.
The key problem is that
the senior leaders of the
major political parties — theMaoists, the Congress andthe CPN
(UML) — are notaccountable to the public.
For now, democratic gover-nance is all but absent ascitizens are
neither properlyrepresented in government,nor allowed to
participatein decision-making throughinstitutional frameworks.
Besides,there is little to noaccountability as politicianshave
not been faced withelectoral anxiety for the lastfive years. This
has all led toan acute legitimacy crisisfor the government, whichin
turn continues to impedeits performance.
(The author specialises in the
political economy of South
and Southeast Asia and is
a co-founder of StoneBench
Research and Communications.
He can be reached at
[email protected])
ACUTE LEGITIMACY CRISIS FOR THE GOVERNMENT
CONTINUES TO IMPEDE ITS PERFORMANCE
b u r n i n g b r i g h t
Ananta Raj LuitelKathmandu
With an offer to Chief Justice (CJ),Khil Raj Regmi to accept
premier-ship of an independent govern-ment to hold elections to
the
Constituent Assembly, a unique situationhas emerged where the
judiciary is beingproposed to handle politics.
Accepting or rejecting the offer may bethe personal choice of
the CJ, but itssignificance is not to be taken lightlybecause the
matter is serious. His successor failure would definitely matter
interms of independence of the judiciaryand the rule of law in the
country.
CJ Regmi may assume the post becausethe political parties have
almostunanimously offered him the role of chief executive as
an impartial andindependent institution. However, thisreflects that
the parties have failed tolead the nation and do not wish tosee
their opponents in the post.
When the politicians were unable todeliver on their promise and
improvethe political situation, the politicalleadership proposed
that the judiciaryhandle the complicated situation. But
this could directly or indirectly politicisethe judiciary and
raise doubts aboutthe level of trust.
Still, the move was not a total surprisebecause politicians have
already forcedthe judiciary to get favour from thepoliticians by
introducing parliamentaryhearing prior to the appointment
of Supreme Court justices. The appoint-ment has been
politicised though thesystem was introduced to make itaccountable
and conduct checks andbalances through impeachment process,as per
the Constitution.
The parliamentary hearing system isknown as the best practice in
the UnitedStates to correct the presidential nomi-nation. But
copying it improperly hasalready adversely affected our
judiciaryand various constitutional bodies.
Moreover, Sub-Clause (2) of Article 100of the Interim
Constitution states thatthe judiciary shall remain committed
inpursuing concepts, norms and values of the independent
judiciary and realisingthe spirit of democracy and the
people’smovements, which clearly reflectsinfluence of politics.
“Appointing CJ as prime minister ispushing the judiciary into
politicsbecause if the judiciary is involved in badpolitics, it
would definitely invite a horrif-ic situation — not only for the CJ
but thewhole judiciary,” Hari Krishna Karki,president of Nepal Bar
Association toldTHT Perspectives. “This would push theindependent,
impartial and apolitical
judiciary into scandal,”Karki added.
Justiceversus
politicsSECURING THE
INDEPENDENCE OF
JUDICIARY IS A MUST
legaleagle
Sandip NepalKathmandu
Is stock the most convenientcomponent of capital structurein
Nepal? Why almost everycompany — whether financial,
manufacturing, hydropower orfrom any other sector — prefercommon
equity over bonds ordebentures? Have investors, whosupply funds to
corporations,companies, inhaling funds fromthe market or regulatory
bodies,regulating the Nepali capitalmarket, ever thought about
therationale behind ‘common equi-ty-driven’ capital market?
In an attempt to scrutinise theroot causes of ongoing
capitalstructure regime, this articleshall scrupulously try to
identifythe possible underlying dynam-ics, eventually encouraging
com-panies to go for ‘stocks’, as a lastresort of raising capital
funds.
The investment environmentin Nepal has not been stable sincea
decade and comprises many un-foreseeable risks associated
withpolicy, political and regulatoryinstability, operating
environ-
ment, macro dynamics, et cetera.The sceptic financial
perfor-mance and health of companies,operating with higher degree
of business uncertainties, whichcould consequently affect
theirrepayment capacities, couldbe the triggering factor
forcompanies opting commonequity over bonds or debentures.
Considering such a volatile andrickety external operating
envi-ronment, it is very difficult forcompanies to project their
cashflows for a particular fiscal year.Thus, though they endeavour
togenerate profitability and eventu-ally aspire to distribute
divi-dends, due to volatile externali-ties, companies could be
inclined
towards stock,which does not enforce
them for yearly obligatorypayments in return for thecollected
capital funds.
If we look at obligationsor liabilities that compa-nies bear
towards com-mon stockholders, interms of liabilities, the
dividend payment is notmandatory and solely de-
pends on profitability andthe company’s dividend poli-cies.
Furthermore, as com-panies are not duty-bound
for dividend paymentsand neither is cumula-
tive, common equitycould have been themost preferred capi-tal
structure tool.
Now, under such sce-nario, who is to be blamed? Is itthe
regulators for not streamlin-ing mandatory benchmarks orproportion
for capital instru-ments, the government, for notbeing able to
provide an attrac-tive and trusted investment envi-ronment or the
stakeholders,pouring in money without rigor-
ous risk-return assessment?Minutely dissecting, the pay-
outs of many corporations, on anaverage, have been mostly
belowthe ongoing market interest rateon time deposits or even
savingsin some stances. In such ascenario, every company
wouldobviously opt for equity overbonds. In addition,the cash
flows,that is, annual agreed couponpayments on bonds, are
man-datory and legally enforceablein line with indentures.
Beyond legal complexities, lackof corporate expertise on bondsor
debentures, legal framework,level of market awarenessconcerning
bonds, propensityand attraction of investors, liq-uidity of
securities, capital ap-preciation issues, et cetera couldbe other
directly related factorsmotivating companies to choosestocks over
bonds or debentures.
(The author is the assistant
manager at the research and
development department of
Mercantile Exchange Nepal Limited.
The views expressed in this article are
entirely personal.He can be contacted
through r&[email protected])
WHAT ARE THE FACTORS MOTIVATING COMPANIES TO CHOOSE STOCKS OVER
BONDS OR DEBENTURES?
Common equity dusking bonds!
investosansar
ReutersBangalore
Whether the Indian gov-ernment will reduceborrowing in the
nextfiscal year is too closeto call, but economists
polled by Reuters say its resolveto cut spending and giveaways
innext week’s budget will reigniteinvestor confidence.
Finance Minister, P Chidam-baram will deliver the annualbudget
on February 28, his lastfull budget before the country
goes to the polls early next year.
Increased spending on socialwelfare and other benefits hasbeen
commonplace in Indianbudgets for many years. Butanalysts say the
tone of this bud-get will be different, steeringclear of populist
measures — even this close to an election.
“In view of this particular elec-tion, oddly enough, there may
bepolitical ground to be made onstressing that the government
iskeeping with its fiscal consolida-tion goal,” said Vishnu
Varathan,economist at Mizuho CorporateBank. Indeed, officials
involved
in budget preparations told
Reuters the Finance Ministryplans to slash the public
spendingtarget by up to 10 per cent in thenew fiscal year, which
wouldmake it the most austere budgetin recent times.
Chidambaram has alreadyslashed public expenditure in thecurrent
fiscal year to March bysome nine per cent from theoriginal target.
In the Reuterspoll, conducted between Febru-ary14 to 21, 19 of 23
economistsexpected the budget to help bringin foreign investment.
Almost asmany — 18 — predicted the focus
of Chidambaram’s budget speech
will be on slashing subsidies andgovernment handouts.
Eighteen said they expectspending cuts to mainly focuson fuel
subsidies and defence.India’s fuel subsidy bill swelledby almost 73
per cent in 2011-12,compared to the previous year,while defence
allocation rose 18per cent in the last budget.
The poll also predicted theFinance Ministry will axe spend-ing
on rural development andfood subsidies. “This will not bea common
man’s budget simplybecause there is very little roomfor that,” said
Jyotinder Kaur,economist at HDFC Bank.
India’s fiscal deficit targetnow stands at a revised 5.3 percent
of GDP this fiscal year.
Chidambaram has said hewants to get that down to 4.8 percent in
2013-14.
Economists in the poll weresplit on the chances of
overallgovernment borrowing in 2013-14being reduced from 5.7
trillionIndian rupees in 2012-13.
Once considered a rising starin Asia, the Indian economy haslost
its shine in recent years.Preliminary estimates releasedearlier
this month showedgrowth dwindled to an annualfive per cent rate in
the currentfiscal year to March.
If confirmed, that would bethe slowest growth rate thatAsia’s
third largest economy hasclocked in a decade. The poorperformance
is reflected inthe Indian rupee’s depreciation,as the current
account deficit has
widened due to weak exports
and slack inflows of foreigndirect investment.
The Indian currency has lost 18per cent against the dollar
sincethe start of 2011, though thedecline was limited to 3.5 per
centin 2012. The Indian rupee hasgained 1.2 per cent since the
startof this year. A weak global econo-my, particularly among
majortrading partners like the EuroZone, is partly to blame
forIndia’s poor performance lately.
But the government’s hesitan-cy implementing reforms toattract
foreign capital, and theballooning current accountdeficit has left
India vulnerable toa potential downgrade in its sov-ereign debt
credit rating to junkbond status. To arrest the slide ininvestment,
the governmentannounced major reforms latelast year that included,
amongothers, permission for global re-tailers to set up shop in
India andallowing foreign investment inaviation and
broadcasting.
“By and large we expectinvestor confidence to growrather than
ebb given that...theMinistry of Finance has got itssights set on
rather achievablegoals and have put a lot of clarityon the
direction they want policyto take,” added Mizuho Corporate
Bank’s Varathan.
Economist expect India to woo
foreign investorsRESOLVE TO CUT
SPENDING AND
GIVEAWAYS IN
NEXT WEEK’S
BUDGET WILLREIGNITE INVESTOR
CONFIDENCE
