revisiting reform

foreign exchange regime, we could

not abolish the Licence Raj. The
opening up of the foreign exchange
regime would ultimately pave the
way for economic reform. Then we
started working on opening up the
regime and mitigating the risks that
could emerge.
NRB was a crucial stakeholder.
When we initiated discussions on
opening up the foreign exchange
regime, there was reservation from
senior officials of the central bank.
Their concern was that the forex
reserves would be depleted.
Fortunately, NRB Governor Tripathi
and Deputy Governor Hiranya Lal
Bajracharya had the same vision as
us. Hence, we first decided to
go for partial convertibility. The government made the Nepali currency
convertible up to 65 percent in
the current account, then 75 percent
and subsequently went for full convertibility.
The NRB deputy governor closely
monitored how many import licences
were opened and how much foreign
exchange was issued by the commercial banks. We also used to visit the

Now when we talk of second

generation reforms, there is an
urgent need to strengthen
the administrative and governance
system. There should be an
environment enabling the regulatory
authority to be stringent
central bank twice a day to check the
flow of foreign currency. Initially, we
found that many import licences
were opened, but then things stabilised. The banks were ordered to send
the details of the import licences
issued by them daily to the central
bank. Contrary to the earlier assumptions of the central bank's senior officials, we saw foreign exchange
reserves actually going up. We were
of course relieved.
Then we moved to abolish the
Licence Raj, scrap the foreign
exchange auction for imports,
restructure tariffs and simplify
export procedures. A new industrial
policy was introduced, and
based on this, the government
brought out a new Industrial
Enterprise Act in 1992.
Another milestone was the introduction of the Foreign Investment
and Technology Act, which gave

20 Tuesday, November 18, 2014

money

thekathmandu post
assurances to foreign investors of
repatriation of profits and guarantees
against nationalisation.
Subsequently, the hydropower, aviation and telecom sectors were opened
up through new policies.
A change in government in 1995
slowed down the reform process. We
too resigned from the planning commission. The Nepali Congress came
to power again a number of times
after that, but it didn't push the
reform agenda with the same intensity as it had in the early 1990s. With
the country plunging into political
turmoil, perhaps the environment
was not favourable for reforms.
In the 1990s, we implemented policy reforms and brought new policies
and new Acts alright, but we didn't
have time to strengthen governance
in an institutional setup. Nobody
gave serious thought to this, which
resulted in weak governance.
Corruption increased, the decision-making process became lengthier, and political interference
increased in the bureaucracy.
The next phase
Now when we talk of second generation reforms, there is an urgent need
to strengthen the administrative and
governance system. There should be
an environment enabling the regulatory authority to be stringent.
In an open environment, the judiciary has an important role to play
apart from regulating agencies. Of
late, what we have been witnessing is
the decisions of regulating agencies
being quashed by the judiciary. This
does not help to build confidence
among foreign investors about
investing in Nepal. How effective and
impartial the judiciary is and whether its decisions are rule-based or not
are the issues that foreign investors
analyse before investing. They will
want to know if their investment will
be secure when something goes
wrong. If our judicial system doesn't
show impartiality, foreign investors
will say that arbitration should be
done in an international court.
Therefore, strengthening the judiciary and making it accountable
should be another area of focus.
Post-1990, a new enterprising business class emerged. They appeared
by cashing in on the opportunities
offered by the new policy. The issue
of access to capital is still a major
problem. Though we talked about
venture capital and making Nepal an
offshore banking centre, we could not
make it happen. Now the new
reforms must work for easy
access to capital for genuine entrepreneurship. n

The first
decade
1991
n

Nepali Congress government forms majority

government
n Mahesh Acharya's first budget speech talks of
economic reforms
n National Planning Commission re-constituted,
Ram Sharan Mahat appointed Vice-chairman

1992
n High Level Administration Reform Commission

formed
n Liberalisation begins
n Nepali currency made partially convertible in

current account
n Opening up the economy, a series of new acts

introduced, mainly Electricity Act 1992, Industrial

Enterprise Act, Foreign Investment and
Technology Transfer Act
n Insurance Act introduced. Insurance Board formed
to regulate insurance market
n Privatisation begins with the government selling
Bhrikuti Paper Mills and Harisiddhi Brick and Tiles
Factory to the private sector

1993
n Nepali currency made fully convertible in

current account
n Securities Board (SEBON) established
n Securities Exchange Center converted into the

Nepal Stock Exchange (NEPSE)

1994
n NEPSE opens its floor for stock trading

through brokers
n Privatisation Act brought in
n UML government introduces Build-Our-Village-by-

Ourselves programme
n Commercial email system begins, with Mercantile

Office Systems offering the service

1995
n World Bank withdraws from Arun-III hydropower

project

1996
n Civil Aviation Authority of Nepal (CAAN) estab-

lished
n First private sector hydropower project, Khimti's,

construction begins
Historic Nepal-India Trade Treaty signed

1997
n
n

Value Added Tax introduced

Nepal Telecommunication Authority (NTA)
established

1999
n

Nepal Telecom launches GSM mobile telephony