Peace is the singular goal of the day in Nepal. The political actors have shown much willingness to find compromises on contentious issues to move the peace process far. This is impressive. There is, however, a danger in this. Government leaders are acting as though there were walking on the eggshell, and bending backward to avoid causing any stir in the system that, in their view, may jeopardize the delicate political process. The problem is this extraordinary caution could lead to a situation in which a more solid peace is achieved formally but not much else happens. The expectations for peace dividends are high, but if few materialized, will the peace be lasting?
Peace dividends have to come in two forms: more jobs and better public services. Creating jobs require a better environment for private investment. Better public services require both improvements in the delivery system and more public resources. Even before the conflict intensified in 2001, Nepal was not doing terribly well on either front. Although some reforms have taken place since then, both the economic system and the governmental system still suffer from many problems. Therefore, peace by itself is unlikely to lead to rapid generation of new jobs or much better public services.
If anything, the thinking that this is not the time to take on difficult reforms has led to deeply worrying compromises. For instance, recognizing that overly rigid labor laws are a critical impediment to economic growth, there had been efforts to introduce greater flexibility in the labor laws and make Nepal a more attractive place for investment. But, this process has been all but suspended for the fear that trade unions may cause problems for the government. The lack of transparency in the Revenue Department in regard to corporate tax collection has been another important problem. The government has not taken any bold action to address it, perhaps because civil servants too can cause problems. Under these circumstances, it is hard to believe that the Nepali economy is poised to take off.
The government has also given in to many demands made by special interest groups. Recently, it has promised to make 16,000 temporary teachers permanent. Such compromises will limit the system’s ability to hire most qualified personnel for many years to come; it also limits the government’s ability to fund other priorities. Even bank defaulters are demanding lenient treatment. I am sure some businesses deserve sympathy because the intense political turmoil was not entirely anticipated. But, many were over-ambitious investments to begin with, and deserve no special treatments. The loans that are not recovered by the two largest banks, RBB and NBL, will likely have to be covered by the government, to protect the depositors. By delaying strong actions against defaulters, the government is limiting its future ability to finance development needs. Further, an environment that tolerates willful defaulters is hardly an attractive place for honest business people to invest. Many other important reforms that would make public services more effective are also stalled.
For these reasons, I see a danger of Nepal finding itself in a ‘peace trap.’ The ship Nepal may get through the political storm and find calm waters, but it may also find itself dead in the water. You can see the new destination on the distant shore, but the ship has little power to move forward… This is not where Nepal would want to find itself.
So, how can Nepal ready itself to reap the peace dividends that everyone is hoping for? Many things need to be done, but let me suggest a few ideas. This is not an exhaustive list. It is meant only to highlight obvious areas of priority and provoke more thinking.
Growth and creation of jobs: First, labor, employers, and government should agree on the critical importance of job creation and introducing more flexibility in the labor law. Trade unions argue they are all for it as long as there are adequate safety nets. It is a reasonable argument, certainly for the small number of existing workers. But, what about many who are unemployed? They have neither jobs (even insecure ones) nor safety nets. The situation demands greater pragmatism and rapid action. Labor can agree on introducing employment flexibility in a limited way without affecting the existing workers, e.g., in an Export Processing Zone, even while the longer-term issue of safety nets is being addressed. In return, employers can agree to some targets on the number of new jobs to be created. The government can promise more effective inspection of these new jobs so that the greater employment flexibility is not abused. Second, the government should make urgent efforts to make tax administration transparent. Third, the government should put in place the implementation arrangements for two important new legislations: the Secured Transactions Act and the Insolvency Act. They can make a big difference in business efficiency. Last but not least, Nepal must accelerate investments in basic infrastructure, power and transport in particular.
Better public service delivery: There are numerous important tasks. But, I would suggest focusing on two key areas: basic education and health care. In education, the government should reinvigorate the transfer of schools to community management. Evidence is overwhelming that communities generally manage schools far better than the government. Giving the communities the opportunity to be directly involved in improvement of the most important public service will be a peace dividend in itself. Another key issue would be to redeploy an estimated 16,000 surplus teachers to schools that have serious teacher shortages. In health, two obvious things should be done. Make sure all the positions for doctors (1,300) and nurses (2,000) are filled, and the personnel are actually present. These are not huge numbers. If the government cannot show the ingenuity to come up with an effective approach to make this happen, what credibility would it have as a public service provider? The government should also give the positions of auxiliary nurse midwives to about 1,000 women who have been properly trained and certified now. If the government is willing to consider making 16,000 temporary teachers permanent without open competition, surely it can give highly qualified women the positions they deserve.
Protecting and government resources and policy flexibility: First and foremost, the government should not willy-nilly give out benefits that are going to constrain its fiscal ability or agree to policy compromises that limit the scope for policy reforms in the future. Reviewing with utmost rigor any demand from interest groups for special benefits is central to this. Needless to say, it should also get tough on recovering loans from willful defaulters, and improve its revenue efforts.
I do not wish to minimize the political difficulties that Nepal’s leaders face. But, surely reaching any peace is not a satisfactory objective. The goal must be to reach a sustainable peace. For that, Nepali leaders have to look past the immediate political milestones, such as constituent assembly elections, and take some bold actions so that Nepal will be ready to deliver peace dividends. It may upset the existing order here and there and it may seem politically risky. If explained, however, I think the Nepali people will understand such needs. They will provide the real ‘people power’ to support the changes the new future demands.
Mr. Ken Ohashi is the World Bank Country Director for Nepal
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