Role of International Cooperation in Nepal’s Development

Remarks by Kul Chandra Gautam
Nepal Intellectual Forum,
Pokhara, 17 December 2011

I am delighted to join you all at this Nepal Intellectual Forum. I take this as a great opportunity to meet and interact with the intellectuals of Pokhara and Western Nepal. It is like coming back home to me, as I am also originally from this part of the country.

Today, I have been asked to share with you some views on the “Role of International Cooperation in Nepal’s Development”.
But before doing so, let me share with you a few thoughts on the role of “intellectuals” in our, or any other, society.

Role of Intellectuals

I have seen in your brochure that the objective of the Nepal Intellectual Forum is to develop a multidisciplinary forum of intellectuals for understanding and solving social, economic and political problems of both national and international significance, by bringing varied capabilities of research scholars in one place, and harnessing a congenial environment for debate, discussion and problem solving.

That is certainly a very commendable and worthwhile objective.
An intellectual is usually known as a person who uses his or her knowledge, intelligence and analytical reasoning to make broad statements or policy recommendations on contemporary social and political matters.

There seem to be three main types of intellectuals in the world – the academic intellectuals, the public intellectuals, and the ideological intellectuals. These are not strict categories, and I suppose sometimes, some of us are a hybrid of all these three types.

An academic intellectual is usually someone who is a specialist or expert in a particular field, and who articulates certain policy prescriptions based on that expertise, sometimes backed up by sound research and study.

An ideological intellectual is someone who tends to marshal theories, arguments and evidence derived from studies and analytical research usually in support of his or her preferred ideological convictions.

In that sense, ideologically-inclined intellectuals tend to be like spin-doctors or publicists, who cozy up to their ideological soul-mates, and are prepared to justify even terrible atrocities or utopian visions.

Marxist intellectuals, for example, believe that all knowledge is existentially based, and that intellectuals cannot help but act as spokesmen for different social class and particular interest groups.

Certain capitalist intellectuals tend to overlook great inequalities in society as a passing phenomenon believing that the triumph of free-markets will eventually maximize the public good.

We have seen in authoritarian regimes of both the Fascist and Communist types how ideologically-aligned intellectuals have often tried to justify the existence of concentration camps or the gulags, violent conflicts and genocide, citing some grand historic purpose or vision, and accusing their critics of being agents of feudals, capitalists, imperialists, the CIA or KGB or other nasty intelligence services.

Then, there are a third group of intellectuals, who are often called the public intellectuals. The public intellectuals generally synthesize academic ideas and research findings and relate them to wider contemporary socio-political issues.

The role of the public intellectual is to address and respond to the problems of his or her society, as the voice of the people who maybe effectively voiceless.

A public intellectual must try to be bold and fearless, and prepared to take politically unpopular stands, when necessary.

As the French philosopher Jean Paul Sartre said, public intellectuals often represent the moral conscience of their age, their task being to observe the political and social situation of the moment, and to speak out—freely—in accordance with their conscience.

Unlike ideological intellectuals, public intellectuals must strive to be non-partisan, while subscribing to what are now considered increasingly accepted universal values of human rights, democracy and liberty.

They must connect scholarly research with public policy, and be prepared to convey information through multiple mediums, in a way that is accessible to the public.

Unfortunately, I have noticed that there is an acute shortage of public intellectuals in Nepal today. Most of our intellectuals tend to be either the academic types or of the ideological variety.

Today, the atmosphere of partisanship and hyper-politicization in Nepal is such that even the few truly public intellectuals are often branded or presumed to be ideologically-partisan.

I sincerely hope that this Nepal Intellectual Forum will be able to retain and promote some degree of genuinely public intellectual character.

It is in that spirit that I would like to share with you some observation on the “Role of International Cooperation in Nepal’s Development”.
But let me caution you that my presentation today is not based on any in-depth research or deep knowledge, but based simply on my general observation and impression of developments in Nepal compared to some other countries in similar circumstances.

So please forgive me if you find my presentation rather superficial from an intellectual perspective.

Trends in foreign aid in Nepal

We all know that the history of foreign aid in Nepal is quite long, and that we rely heavily on international cooperation for our development.

The era of foreign aid started in modern Nepal in 1952 when we joined the Colombo Plan. During the 1950s and 60s hundreds of Nepalis received Colombo Plan scholarships for higher education abroad. This helped build a cadre of technical professionals and administrators for Nepal’s civil service and development projects.

Until the mid-1960s, Nepal depended almost exclusively on bilateral aid for all development projects in the fields of agriculture, transportation, infrastructure, power generation, education, and health. The key donors at the beginning were USA and India, later joined by China and USSR, as all these countries were trying to influence countries like Nepal during the global Cold War.

Britain, Switzerland, Australia, New Zealand, and Japan became important donors in the second wave. Grants and technical assistance were the key form of aid in the 1950s and 60s.

It was in the 1970s that multilateral aid through UN agencies, and later the World Bank and Asian Development Bank began to play a prominent role, and Nepal started receiving loans as well as grants. By the end of the 1980s, the bulk of the grant aid and soft loans Nepal received were from multilateral sources.

The European Union and individual European countries, especially the Nordics started playing a more important role in the 1990s and especially in the first decade of 2000 with their interest in issues of conflict resolution, human rights and inclusive development.

The open atmosphere created by the introduction of multi-party democracy in 1990 also led to many international NGOs opening their shops, and supporting local NGOs that have become important players in Nepal’s development process.

It is safe to say that up to 1990, there probably was not a single major development project that was built in Nepal without some foreign aid.
With the opening up of the economy in the 1990s, we began to see the emergence of a more robust private sector and some foreign direct investment.

But in the past decade, conflict, insecurity, political instability and extremism have dissuaded the optimum growth of the private sector and FDI, or new forms of public-private partnerships that could really unleash Nepal’s immense development potential.

Has foreign aid been good or bad for Nepal?

When asked whether foreign aid has been helpful or harmful for Nepal’s development, we are generally likely to get very contrasting answers.
In line with the highly polarized and politicized nature of Nepal’s political discourse, it is likely that some “intellectuals” will claim that foreign aid has been a curse for Nepal; that it has been totally ineffective; that it has been massively wasted and misused; that it has led to corruption and made the rich richer and the poor poorer.

Many Nepalis speak very cynically about how foreign aid has led to mushrooming of “dollar-farming NGOs”, etc.

On the other hand, some other “intellectuals” are likely to argue that whatever development has happened in Nepal over the past couple of decades, it is mainly because of foreign aid; that without foreign aid, we could not survive, and that we would have continued to remain backward and primitive if we did not benefit from foreign largesse.

There are elements of truth in both these arguments, of course. But the whole truth probably lies in the not-so-dramatic assessment of foreign aid being neither a total failure, nor a grand success.

Is Nepal special or typical of LDCs?

We Nepalis like to think that Nepal is very exceptional – exceptionally beautiful, exceptionally poor, exceptionally corrupt, exceptionally deprived, or exceptionally deserving.

Every country has some distinguishing features, of course. And it is quite natural for us to think of our beloved homeland as being at the centre of the universe – with extraordinarily special features and unique circumstances.
But frankly, for someone who has seen and worked in dozens of countries around the world, Nepal is in fact quite typical of a low-income, least developed country (LDC).

Even our much vaunted ethnic, linguistic and geographic diversity is not so unique in the world. There are quite a few countries with such diversity.
I can think of only one abnormally “special” development in Nepal in the 21st century that we do not find anywhere else. Nepal is the only country in the world that has seen a significant rise in the appeal of Marxist-Leninist-Maoist ideology after the fall of the Berlin Wall and the collapse of communism in the ex-Soviet empire.

This merits a separate analysis which is beyond the scope of this paper.
Does Nepal receive too much aid or too little? Currently ODA amounts to about 6% of Nepal’s GNI compared to the average of 9% for the LDC group. The per capita ODA Nepal receives is about $25, slightly lower than the average for LDCs.

But over a longer-time frame, Nepal’s receipt of ODA has been roughly similar to that of other LDCs as a group.

In terms of overall budget, currently about 26 % of our total budget and over 60 % of development budget is funded through foreign aid, which is not too different from most other LDCs.

Some of us are very concerned about Nepal’s borrowing habits. In recent years, Nepal’s external debt has been growing in absolute amounts.
But it turns out that in terms of Nepal’s debt service ratio as a percent of our exports, it has actually been going down thanks to the donor policy of reducing the debt burden of the LDCs.

Currently, Nepal’s debt service ratio is about 4% compared to the average of 3% for LDCs.

Nepal is doing better than most other LDCs in terms of our progress in such social indicators as reduction in maternal and child mortality, primary school enrolment, access to drinking water supply, coverage of immunization, etc.
We are one of the few LDCs that is on track to achieve most of the Millennium Development Goals by 2015.

But we are doing worse than many LDCs in economic growth and in attracting foreign direct investment.

On the whole, compared with many countries in sub-Saharan Africa, Haiti, Afghanistan, Myanmar, etc, Nepal is doing better.

Some countries in the world have actually gone backwards – i.e. they are far worse off today than they were a few decades ago. These include countries like Zimbabwe, Myanmar, North Korea, and many African countries.
Nepal has not gone backwards, but we have not progressed as fast as we could and should.

While Nepal’s development performance does not seem very exceptional compared to most other LDCs, if we expand our comparison to other developing countries, we are doing much worse than many.
Six decades ago, Nepal’s level of development was similar to that of Korea, with both countries’ per capita income around $100. Today our per capita income is about $500 whereas Korea’s is about $20,000.

Compared with many Southeast Asian countries, like Thailand, Malaysia, Indonesia, Vietnam, etc Nepal’s progress in development is very unsatisfactory.

Legacy of Panchayat and Aborted Promise of Infant Democracy
It is clear that the 30 years of the Panchayat regime was not only bad for democracy and political freedoms, but also for our economic development.
Following the restoration of multi-party democracy in 1990, along with greater political freedom, we began to see some rapid acceleration in socio-economic development.

The economic liberalization policy of the 1990s, opened up the Nepali economy. Certainly, the liberalization policy had its detractors and some real drawbacks. But it broke many fossilized monopolies and unleashed some creative competition.

The monopoly of Radio Nepal was broken and dozens of FM radio stations started broadcasting, giving people choice to hear multiple views and voices.

The monopoly of RNAC was broken, giving people a choice of many airlines with better service.

The monopoly of centralized issuance of passports by the Foreign Ministry in Kathmandu was broken, and people could get passports in their districts and explore the world.

The monopoly of a few State-controlled banks was broken, ending the era of having to stand in line for hours getting shoddy service to deposit or to withdraw your own money in the bank. New banks that opened subsequently became more customer-friendly and started providing modern and more efficient banking services.

Notable progress was made in expanding basic education and health services, telecommunications, roads and rural infrastructure.
Nepal achieved the highest economic growth in recent memory in the early 1990s, peaking at 7.9 percent growth in GDP in 1993-94.

This was the era when the so-called “License Raj” ended in India, allowing it to graduate from the infamous Hindu growth rate. And China achieved double digit growth with the blossoming of Deng Xiao Ping’s “socialist market economy” replacing Maoist autarky.

On the negative side, as in many other countries- in- transition that try to liberalize their economy fast, we began to see the development of crony capitalism, growth of corruption, and inequality.

Usually, with experience, after some trial and error, countries develop both political maturity and improved economic management, and some of the distortions of crony capitalism and immature democracy are sorted out.
Unfortunately, Nepal did not have that opportunity to sort out these distortions peacefully, because of the sudden and unexpected emergence of a violent Maoist insurgency in the mid-1990s.

This led to the bursting of the economic bubble, complete breakdown of law and order, and great political instability. And sadly, Nepal proved once again how politics tend to trump economics in our country.

Politics vs. economics

Worldwide experience shows that whether petty politics always trump over economics, or issues related to economic growth and social progress become genuine political priorities, tend to distinguish whether a country remains an LDC for a prolonged period or it graduates to becoming a developing, and eventually a developed, country.

Foreign aid alone usually does not change this national dynamic. But this dynamic hugely influences the impact of foreign aid.

Thus, many of the fast-growing Asian economic “Tigers” were able to better utilize foreign aid to develop their national capacity, and eventually to be able to reduce their aid dependency, and instead attract vast amounts of foreign investment, often in partnership with domestic industrialists and entrepreneurs.

In Nepal, we have not managed to do that. On the contrary, in recent years we have scared off many potential foreign investors, because of radical trade union activism of the kind that actually does not serve the best interests of the workers and labourers.

This is a great pity, because Nepal can indeed be a very attractive destination for foreign direct investment, and joint ventures.

Not only do we have some fantastic potential for mutually beneficial foreign investment and joint-ventures in areas such as the development of agro-industry, hydro-power, tourism and other sectors, but our strategic location between China and India – the world’s fastest growing large economies – makes Nepal exceptionally attractive destination for investment.

As insecurity spread in rural areas during the period of conflict and insurgency and the national economy grounded to a halt, we saw the exodus of large number of Nepali youth going abroad as migrant labourers. And in the past decade we have developed a whole remittance-based economy.

At present, remittances from migrant labourers have surpassed foreign aid and investment combined. Remittances amount to more than 20% of Nepal’s GNI; much higher than in most other LDCs. Remittances have now become the backbone of our rural economy, far more important than government budget or foreign aid.

Once we have greater political stability and a more conducive environment to attract foreign direct investment or joint ventures, I would expect that quite a few of our migrant workers today will return home and constitute a huge pool of highly motivated labourers.

But this will happen only if we can ensure that our radical trade unions do not kill the goose that lays the golden egg.

Post-conflict Reconstruction and Development

As we look at the experience of other post-conflict countries, virtually all of them have relied on significant international cooperation for their reconstruction and development.

Nepal too needs and deserves such cooperation, and I am sure that once we put our political house in order with peace, stability and democracy under a new Constitution, we can count on significant international support.

If we are to seek and benefit from international cooperation, we need to get over some of our hang-ups about the utility of such cooperation.

We cannot send mixed messages begging for international cooperation on the one hand and spouting ultra-nationalistic slogans about self-reliance, foreign domination, foreign interference, etc.

In a democracy, people are, of course, free to voice their views. But we cannot have leaders of political parties signing aid, trade and investment agreements, and activists of their own sister organizations obstructing implementation of such agreements.

We now have enough experience to avoid some of the undesirable aspects of foreign aid, and maximize what is truly in our national interest.
For example, many Nepalis are skeptical about the need for high-cost expatriate technical advisors. There is also concern about lack of accountability on the part of donors and how they sometimes pick and choose local NGO partners bypassing the government.

There are worries about inadequate coordination among donors or between donors and concerned government ministries, and sometimes duplication of efforts.

All such issues need to be negotiated transparently in advance, rather than signing vague agreements in the beginning and complaining about them afterwards.

Enhancing aid effectiveness

The Paris Declaration on Aid Effectiveness, which has been adopted by all donor member countries of OECD/DAC, other multilateral donors, and the government of Nepal, specifically calls for open dialogue and mutual commitment by donors and recipient countries to ensure aid effectiveness.

As subsequently endorsed in the Accra Agenda for Action, and just last month in Busan, South Korea, the international community has agreed to put the developing country partner in the driver’s seat in the management of aid effectiveness. So we do not have to agree to all donor conditionalities if we feel they do not serve Nepal’s best interests.

But once agreements are reached, these must be honoured in good faith.
To conclude, it is my assessment that, on the whole, the role of international cooperation in Nepal’s development has been positive and beneficial for Nepal.

Most of the weaknesses and shortcomings identified are largely due to our own weakness either because we enter into agreements without doing enough home work, or we change our minds after already signing the agreements because of pressure from various local constituencies.

Under the Paris Declaration framework, there is plenty of opportunity for us to negotiate agreements, consult with concerned stakeholders, and fully protect Nepal’s national interest while ensuring mutual accountability of the donors as well as recipients for results.

I see the need for Nepal to rely heavily on international cooperation – in the form of ODA – for at least the next decade. But in the long-run, we should gradually move away from aid to trade and investment on a mutually beneficial basis.

Public intellectuals of Nepal must play a role in influencing our government policy on aid, trade and investment by offering sound advice, and countering the simplistic or partisan views of ideological intellectuals citing catchy slogans devoid of much substance.

I sincerely hope that members of the Nepal Intellectual Forum can gradually position themselves to play such an advocacy role for Nepal’s development.

Thank you.