Foreign Aid and the making of Democracy in Nepal

Edited by:

Prabhash Devkota

Jan Goossenaerts

Language Edited by: Melody Smith (US)

Cover Photos: Alliance for Aid Monitor Nepal

Editorial and production support by: Wikinetix (Belgium)

Typeset at Leanpub (Canada) where electronic version is for sale

Printed at: Express Colour, Kathmandu

Publication initiative and printing Support by:

ActionAid International Nepal, Lazimpat, Kathmandu

Publisher:

Alliance for Aid Monitor Nepal

Third Floor, Kala Mandir Bhawan

Kupondole, Lalitpur.

P.O. Box 2719

Tel: +977-1-5011069

E-mail: info@aidmonitor.org.np

www.aidmonitor.org.np

© Copyright: 2013, Alliance for Aid Monitor Nepal and ActionAid International Nepal

All rights reserved. Except for brief quotations used for purposes of review or scholarly citation, no part of this publication may be reproduced or transmitted in any form or by any means without permission in writing from Alliance for Aid Monitor Nepal or ActionAid International Nepal. Use and dissemination of articles is encouraged; however, reproduced copies may not be used for commercial purposes.

Printed in Nepal

Price NRs. 350 (print, in Nepal)

ISBN 978-9937-2-7288-9 (print)

First Edition 2013 (2070 BS)

ISBN 978-9937-2-7289-6 (e-book, published via Leanpub https://leanpub.com/)

---

Contents

	Preface	iv
	Prof. Dr. Keshab Raj Khadka
	Some words	vi
	Bimal Kumar Phnuyal
	List of abbreviations	viii
	Introduction	xii
1	Aid and Democracy in Nepal	1
	Himalaya SJB Rana
2	Aid Politics and Democracy	3
	Bharat Pokharel
3	Challenges of Statebuilding and the Consequences of External Forces in Nepal	19
	Chandra D. Bhatta
4	Poverty Alleviation Status in South Asia during 1990-2015 and Options	35
	Dr Y B Thapa
5	Deepening Democracy at the Local Level	43
	Dwarika N. Dhungel, Mahendra Raj Sapkota and Pradyumna Prasad Regmi
6	Community Forestry: A Model of Grassroot Democracy - Nepal’s own Innovation and the Role of Development Aid	73
	Dr Bharat K Pokharel
7	External Forces and International Cooperation in the Context of current Constitutional Instability and Development in Nepal	87
	Ganesh Dutta Bhatta
8	Foreign Aid in Nepal’s Democracy Struggle	99
	Uddhab Pyakurel, PhD
9	Politics of Informal Economy in Nepal	107
	Dev Raj Dahal
10	Fiscal Policy Issues in Nepal	115
	Prof. Dr. Madan Kumar Dahal
11	Foreign Aid and Democratization in Nepal: Culture of Dependency	129
	Prof. Meena Vaidya Malla, Ph.D
12	Strong Legal Regime, a Necessity for Effectiveness of Foreign Aid	139
	Kashi Raj Dahal
13	Foreign Aid and Democracy	145
	Dr. Govind Prasad Kusum
14	Foreign Aid: a Hot Button Issue	153
	Prof. Dr. Sohan Kumar Karna
15	Does Foreign Aid cause Gross Domestic Product? Empirical Evidence	179
	Dr. Kamal Raj Dhungel

16	Donor Obligation for Public Sector Reform in Nepal	187
	Ganesh P. Adhikari, PhD and Prabhash Devkota
17	Civil Society as a Democracy-Building Project in Nepal	199
	Tara Dahal
18	Democracy and Foreign Aid – Disconnect between Democratic Aspirations and Free-Market Policy Prescriptions	207
	Meena Acharya
19	Aid Effectiveness and Country Ownership: Need of Democratic Governance in Nepal	227
	Vidyadhar Mallik
20	A Survey on the Impact of Foreign Aid on Democracy in Nepal	233
	Jan Goossenaerts, PhD and Prabhash Devkota
21	Contributors	245

Preface

This study covering foreign aid direct investment in Nepal within the last 5 decades was conducted with an aim to bring some critical issues around aid politics and its direct link up with democracy, democracy making in Nepal, the role of foreign aid as a positive or negative catalyst of democracy, and issue based impacts on health, education, forestry amongst others. Moreover, the aim of the study was to initiate a discourse on aid governance and politics from the larger arena of Political Economy and to find the gaps in the democratizing of our institutions, the institutionalization of democracy from the family to the country system. AAMN believes that in democratic systems and governance there is the political space of the unheard, neglected and socially excluded. There are marginalized, women, Dalit, indigenous who should also enjoy the dignified life. Growing dissatisfaction with the development models the country is going through and the realization of vast gaps between haves and have nots made AAMN and its likeminded to think over the polity minutely. The likeminded of our network realized that something has to be done outright as time for it is in our forefront, the country is in transition. Nepal, has a politically federal democratic government without having any indicators of democracy. AAMN conducted a series of interactions with the likeminded about what exactly can be prescribed in this deteriorating time. AAMN published several e-bulletins that seek to promote a wider discourse on the subject. It created pressure among many stakeholders. Even the government high officials choose the sensitive topics. No one hesitated on saying that a knowledge initiative was needed as part of a wider discourse. So the network and likeminded institutions promised to address the topics within their area of work and intellectuals/think tanks became ready to write their papers, with in return a minimal remuneration for stationary. ActionAid International Nepal financed the initiative and publication; and AAMN generated a small supporting fund. The efforts of many people delivered the book that is in your hand today. AAMN wants to make sure it continues its journey. On the road we are walking and where many individuals from foreign nations also walk together with us. In the meantime we want to accept the reality that the book may not be of the standard of your choice but we say proudly that it is better than the previous one. Similarly the challenge of improvement is always there so we promise for that. In this series AAMN is publishing another book as the first one reaches your hand. All together 35 papers were contributed to our study, and if compiled in one volume that would have been bulky and not user-friendly so we decided to make part two with thematic papers.

Personally AAMN expresses its sincere thanks and gratitude to the country director of ActionAid International Nepal Mr. Bimal Kumar Phnuyal whose regular suggestions and advices have enriched our study and the resulting book, similarly to Ganga Duttaa Awasthi, Dwarika Nath Dhungel, Dev Raj Dahal, and the entire team of AAMN. Jan Goossenaerts and Melody Smith, and the authors became strong pillars of our initiative. The continuous efforts of Prabhash Devkota in completing the complete task are highly recognized and AAMN expects his energetic efforts in future endeavors too.

Our special thanks go to all the other unseen hands that make it happen. Many authors have conducted focus group discussions, interviews and surveys - so all the respondents and participants are deeply thanked. Overall the contribution of Mr. Birkha Pun of AAMN became instrumental to make it happen.

Prof. Dr. Keshab Raj Khadka

Chair-person Alliance for Aid Monitor Nepal

November, 2013

Some words

Has ‘development aid’ worked for a developing country like Nepal to prosper; added value towards democratization of its governing institutions; contributed to empower the marginalized sections of its population; and, enabled to stand as a responsible member of the international community in the contemporary world? These are some of the most basic and pertinent questions to be deliberated upon in the present context of ‘Aid and Development’ discourse in Nepal. Experiences across the world show that any particular ‘aid-package’ in itself cannot be termed ‘good’ or ‘bad’, unless we evaluate the impacts of those aid packages in the light of above four questions. ActionAid, internationally, has been advocating for ‘Real Aid’, which can positively respond to above key questions, with the aim of progressively reducing ‘aid dependency’ on the part of developing countries; as well as engaging with bilateral and multilateral development agencies to devise transparent, accountable and effective aid governing mechanisms both at donor and host country level.

First of all, ‘development aid’ must be looked at from the perspective and spirit of ‘international cooperation’, rather than through the typical conventional lens of ‘donor-recipient’ charity attitude. The historical global level report prepared by the remarkable group of international statesmen and leaders led by Willy Brandt, the former German Chancellor, back in 1980, called “North-South: A Programme for Survival” had stated that ‘To help conquer poverty and hunger and to create a more just and a more effective international economic system, fundamental structural changes must be made in the markets in which developing countries are suppliers – of commodities, of manufacturers, of labour – and in which they are customers – for capital and technology”. The report also highlighted that such changes were also required in the mechanisms and institutions which generate and distribute international finance, investment and liquidity. It has been absolutely clear that “Aid is means, and not an end in itself”. A bad ‘aid-package’ even exacerbates the social, political and economic environment of a recipient country, at the same time giving bad experience to the resource providing agency or country. Therefore, there is a huge need for deeper deliberations on dominant models of aid mechanisms, development effectiveness of such aided projects, and their overall impacts amongst policy makers, international development partners, academics, civil society actors and social movements in the present context of Nepal. We hope that this publication will add some positive value towards that direction.

The book has tried to draw and analyze the linkage of aid within various aspects of people’s lives. The policy analysis and the evidences from grounded reality have been presented coherently which will be helpful to understand the macro and micro context of aid politics. An idea behind these efforts is of course to map out the given context, contribute to deepen the discourse on aid at different levels, and to explore more progressive modalities of aid paradigms. The chapters seem to have raised pertinent questions around aid effectiveness and democracy, politics of informal economy, culture of dependency, fiscal policy issues, poverty alleviation and contextual innovations etc. I hope, this will be a useful document for social thinkers, academia, policy makers and human rights activists in understanding the pros and cons of ongoing foreign-aided development practices.

We are very much thankful to expose the fact that, this is an outcome of constructive collaboration of ActionAid International Nepal (AAIN) and Alliance for Aid Monitor Nepal (AAMN) in grounding the aid discourse. AAMN has established itself as a vibrant common platform and resource organization on the aid sector. I would appreciate the efforts made by all the paper contributors who supported from equal footage in shaping articles for this book. My special gratitude goes to AAMN, especially to Mr. Prabhash Devkota and his team, and also to Dr Keshav Khadka for his guidance and leadership to AAMN. I would also like to convey my special thanks to all AAIN colleagues, especially to Mr. Govinda Prasad Acharya and team for their regular support and engagement. Finally, I would like to remember all those who have contributed from their respective capacities to make this great achievement.

Bimal Kumar Phnuyal

Country Director
ActionAid International Nepal

November, 2013

List of Abbreviations

AAA	Accra Agenda of Actions
ADB	Asian Development Bank
AIC	Akaike Information Criteria
AMP	Aid Management Platform
AMMAA	Agreement on Monitoring of the Management of Arms and Armed Personnel
APTA	Asia-Pacific Trade Agreement
BIMSTEC	Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation
BPfA	Beijing Platform for Action
CA	Constituent Assembly
CAC	Citizen Awareness Center
CASU	Constituent Assembly Support Unit
CRB	Central Revenue Board
CBOs	Community Based Organizations
CBS	Central Bureau of Statistics
CEDAW	Committee on the Elimination of Discrimination against Women
CFUGs	Community Forestry User Group
CIAA	Commission for Investigation of Abuse of Authority
CPN-UML	Communist Party of Nepal- United Marxist and Leninist
COFSUN	Community Forestry Supporter Networks Nepal
CPA	Comprehensive Peace Agreement
CSF	Countercyclical Support Fund
CSOs	Civil Society Organizations
DANIDA	Danish International Development Agency
DANIDA/HUGOU	Danish International Development Agency/Human Rights and Good Governance Advisory Unit
DC	District Council
DDC	District Development Committee
DDP	District Development Plan
DFID	Department for International Development
DIMC	Decentralization Implementation Monitoring Committee
DOF	Department of Forests
DPs	Development Partners
EC	European Commission
EFA	Education for All
EPZ	Export Promotion Zones
ESCAP	United Nations Economic and Social Commission for Asia and the Pacific
ESP	Enabling State Programme
EU	European Union
FA	Foreign Aid
FACD	Foreign Aid Co-ordination Division
FAO	Food and Agriculture Organization of the United Nations
FECOFUN	Federation of Community Forestry Users Nepal
FDI	Foreign Direct Investment
FSSS	Financial Sector Strategy Statement
FY	Fiscal Year
GAAP	Governance Accountability Action Plan
GCF	Gross Capital Formation
GESI	Gender Equality and Social Inclusion Policy
GDP	Gross Domestic Product
GNI	Gross National Income
GON	Government of Nepal
GRP	Governance Reform Programme
HCR	Head Count Ratio
HKH	Hindu Kush Himalaya
ICA	Investment Climate Assessment
ICOR	Incremental Capital Output Ratio
IDA	International Development Assistance
IFAD	International Fund for Agricultural Development
IFC	International Financial Cooperation
IGEG	Inter-Governmental Expert Group
IIDEA	International Institute for Democratic and Electoral Assistance
ILO	International Labour Organization
IMF	International Monetary Fund
INGOs	International Non Governmental Organizations
IPCs	Integrated Planning Committees
IPL	Income Poverty Line
IPFC	Integrated Plan Formulation Committee
ISN	Interim Strategy Note
JICA	Japan International Cooperation Agency
LGCDP	Local Governance and Community Development Programme
LGBs	Local Governance Bodies
LGP	Local Governance Programme
LSGA	Local Self Governance Act
LSGR	Local Self Governance Rule
MC	Municipal Council
MC	Management Committee
MDGs	Millennium Development Goals
MoAC	Ministry of Agriculture and Cooperatives
MoF	Ministry of Finance
MoFALD	Ministry of Federal Affairs and Local Development
MoWR	Ministry of Water Resources
MPFS	Master Plan for the Forestry Sector
MTEF	Medium Term Expenditure Framework
NAG	Nepal Aid Group
NC	Nepali Congress
NDF	Nepal Development Forum
NDCM	Nepal Donor Consultation Meeting
NEFIN	Nepal Federation of Indigenous Nationalities
NGOs	Non Governmental Organizations
NORAD	Norwegian Agency for Development Cooperation
NPC	National Planning Commission
NPL	National Poverty Line
NRB	Nepal Rastra Bank
ODA	Official Development Assistance
OECD-DAC	Organization for Economic Co-operation and Development- Development Assistance Committee
OGA	Office of the Auditor General
OPEC	Organization of the Petroleum Exporting Countries
PD	Paris Declaration on Aid Effectiveness
PDS	Peace and Development Strategy
PDDP	Participatory District Development Programme
PERC	Public Expenditure Review Commission
PMO	Prime Minister’s Office
PPP	Public Private Partnership
PRGF	Poverty Reduction Growth Facility
PRSC	Poverty Reduction Support Credit
PRSP	Poverty Reduction Strategy Paper
PSC	Public Service Commission
REFLECT	Regenerated Freirean Literacy through Empowering Community Technique
ROSA	Rest of South Asia
SAARC	South Asian Association for Regional Cooperation
SAB	South Asian Bank
SAFTA	South Asian Free Trade Area
SDC	Swiss Agency for Development and Cooperation
SDF	SAARC Development Fund
SDGs	Sustainable Development Goals
SEZs	Special Economic Zones
SMEs	Small and Medium Enterprises
SNV	Netherlands Development Organization
SWAPs	Sector-Wide Approaches
TA	Technical Assistance
TER	Tax Effort Ratio
TYIP	Three Year Interim Plan
TYIDP	Three Year Interim Development Plan
UCPN-Maoist	United Communist Party of Nepal-Maoist
UC	User’s Committee
UNCTAD	United Nations Conference on Trade and Development
UNDP	United Nations Development Programme
UNESCO	United Nations Educational, Scientific and Cultural Organization
UNFPA	United Nations Population Fund
UNMIN	United Nations Mission in Nepal
UNS	United Nations Systems
UNSCR	United Nations Security Council Resolution
WCF	Ward Citizen Forum
VAT	Value Added Tax
VCDP	Vulnerable Communities Development Programme
VDC	Village Development Committee
VLCF	Village Level Citizen Forum
WB	World Bank
WFS	World Food Summit
WHO	World Health Organization
WTO	World Trade Organization

Introduction

In the political and development climate that Nepal currently experiences, an in-depth analysis of the political economy of the country can make a valuable contribution. If policymakers and development planners hope to meet the expectations of the Nepalese citizens they will need to understand the problems and their causes as fully as possible. Democracy and development failures have been very common in countries that have gone through major political conflicts and governance transitions and are ethnically rich and diverse. Being land-locked also implies particular challenges as a country wishes to join the global economy.

The June 2013 Nepal Democracy Survey jointly conducted by the Nepal chapter of State of Democracy in South Asia, and International Institute for Democracy and Electoral Assistance (Sweden) shows that respondents overwhelmingly (94%) approved of a system of government led by the people’s elected representatives, yet they have a certain level of frustration and disillusionment due to the expiration of the Constituent Assembly (CA) without promulgating a new constitution and due to the present state of state of affairs which is perceived as ‘undemocratic’ by 47% of the respondents. Other favorable signals from the survey include (i) the respondents’ understanding of democracy, their awareness of the major national agendas and their participation in public affairs; (ii) the perceived improvement in the condition of the excluded groups (acknowledged by 72% of the surveyed citizens) with an overwhelming majority (80–98%) of citizens surveyed listing women, Dalits, Janajatis, Madheshis and Muslims, along with people from backward regions as groups deserving preferential treatment from the government; and (iii) the attitudes towards identity, state restructuring, federalism and governance, where opinions on dividing topics show more convergence and less division than in the 2007 survey.

For several reasons these favorable signals should not make donors, policy makers and the elected representatives complacent.

Regarding the institutional foundations of a democratic Nepal the CA-II is likely to address the constitution drafting in a more favorable climate as also political parties are more committed to multi-party competition and accepted democratic values and norms, and as polarized opinions and expectations on solving all problems simply by restructuring the state and introducing federalism have slowly made room for a more realistic and multi-faceted agenda for discussion. On the other hand the challenge to draft a constitution amidst the various forces, democracy gaps and issues remains an enormous challenge.

Only after the constitutional question has been resolved, empowered and legitimate national government and local government units can fully dedicate themselves to addressing the most important national and local problems regarding basic amenities essential to meet family needs (most important local: 81%; national: 43%) and economic issues (local: 10%; national: 32%). The June 2013 Nepal Democracy Survey shows that respondents of the survey have high expectations regarding the family needs that government should address: employment (most important for 21%; highest rate by Madheshi community: 26%; and highly educated: 25%), water (19%; senior 60+: 25%, Pahadi: 23%), roads (18%; Madheshi ethnicity: 22%; Madheshi community: 21%), education (16%; highly educated: 22%; Madheshi: 21%), electricity (13%; excluded groups: 14%) and health care (13%; highly educated: 16% and women: 14%).

For delivering on these expectations, the Government of Nepal will continue to need foreign aid. And that foreign aid will have to meet effectiveness criteria to the fullest extent.

Alongside having delivered many genuine contributions to Nepal’s development, many of these are also acknowledged in the papers of this volume, foreign aid has also failed in many instances, with reduced effectiveness as a result. Several trends of the past decades must be reviewed by donors. Democracy and aid failures may result from a variety of interacting factors. When conducting their next aid-effectiveness review, policy makers and donors need to understand problems as fully as possible and discover the root-causes that underlie those problems and the mechanisms that feed vicious circles draining development resources.

Before introducing the themes addressed by the contributors to this volume, let us first note that foreign aid’s impact on the development of democracy in recipient countries is generally difficult to achieve. The key policy messages of (OECD Development Assistance Committee, 2011) start by stating that: “There is increasing recognition that much of this support (donors spending over $10 billion annually on governance support of which accountability is a common component)has made inaccurate assumptions about the nature of democratic and institutional transitions. This has translated into commitments to Western models and technical approaches that use blueprints, templates and best practice approaches”.

Context and evidence

Each paper in this volume has been written by a close observer of foreign aid and/or democracy in Nepal and makes a contribution to the in-depth understanding of a theme.

Together the papers address background, evidence and recommendations via varying themes. Well aware of their area of expertise, and the piecemeal bit of evidence each can bring to the “foreign aid and democracy problem solving” mission, the contributors have avoided the “prescription before diagnosis” trap, and rather have proposed recommendations on the basis of the evidence they have presented in their papers.

Using the metaphor of a puzzle, it is not surprising that these pieces do not fit together neatly. Yet, any reader of this volume, and anyone interested in a peaceful and prosperous future of Nepal may like to know which institutional decisions of the forthcoming legislature, and which foreign aid decisions by donors would best (i) reflect awareness of the integral evidence and (ii) take into consideration the integral recommendations put forward by experts and observers.

To facilitate such a wish for comprehension we have made an effort to fit the pieces together as well as we could within the little time available, and indicate in which paper is which evidence and which kind of recommendations. In this introduction, for the clarity of the emerging collaborative diagnostic and prescriptive hypotheses we have separated the diagnosis-related evidence from the prescription-related recommendations. After all, each paper will bring its own train of reasoning connecting both aspects. Contradictions in the evidence would indicate errors, and these should be corrected. Where recommendations diverge, decision makers and donors should further analyze the supporting evidence and the issues at hand. Even convergent recommendations should be handled with care, yet very strong arguments had better be present when putting these aside.

We have ordered papers in accordance with their thematic focus or the major area of evidence they address.

On the Historical and political context of foreign aid to Nepal

A first set of papers address the historical and political context of foreign aid to Nepal

In “Aid and Democracy in Nepal,” Himalay Shumsher J.B. Rana, a long retired senior governance and development practitioner, offers a general and succinct description of the results of multilateral and bilateral technical assistance to Nepal. He challenges the Nepalese administrators to channel foreign aid to the development of Nepal, which is sustainable and protective of the country’s deteriorating environment.

In “Aid Politics and Democracy,” Bharat Pokharel draws together observations and conclusions from the realms of development studies, political science, international relations and economics concerning the roles of foreign aid in politics. The author concludes that Nepal’s foreign aid policies need to be put into the perspective provided by the aid practices, both past and present, of Western industrialized nations, as well as the context of Nepal’s own domestic political forces.

In “Challenges of State Building and the consequences of External forces in Nepal,” Chandra D. Bhatta explains and analyzes internal and external factors that are at the origin of a current political process that seems incapable to bridge the “sovereignty gap, the authority gap, and the legitimacy gap” in post-conflict Nepal.

In “Poverty alleviation Status in South Asia during 1990-2015 and options,” Y B Thappa, a former member of the National Planning Commission of Nepal, compares the poverty trends in Nepal with those in other South Asian countries. The paper offers an assessment of the Millennium Development Goals (MDGs) and the the SAARC Development Goals (SDGs) indicators’ livelihood pillars. Then it turns to the member-states’ approaches to economic growth and their inclusive development activities. The study concludes with some methods to augment the regional resources, products and services for achieving targets of poverty alleviation, economic growth and endowment enrichment.

Democratic institutions at the local level

Two papers focus on the experience with democratic institutions at the local level. This experience may offer a partial explanation for the high rates of respondents’ understanding of democracy, their awareness of the major national agendas and their participation in public affairs as observed in the 2013 Nepal Democracy Survey.

In “Deepening Democracy at the local level” Dwarika Nath Dhungel, Mahendra Raj Sapkota and Pradyumna Prasad Regmi describe the working of the local governance bodies that have been very familiar for the Nepalese people for more than five decades: the Village Development Committee (VDC) in rural areas, the municipalities in urban areas, and the District Development Committee at the district level.

In “Community forestry: A model of grassroot democracy - Nepal’s own innovation and the role of development aid” Bharat K Pokharel provides an analysis of Nepal’s community forestry at the grassroot level from which one can learn the concepts, processes, methods and tools related to local democracy for resource governance. The paper describes some opportunities to transform Nepali society by capitalising the best practices of community level democracy.

Evaluating the contribution of foreign aid to democracy in Nepal

Many of the papers in this volume provided evidence and analysis regarding the contribution of foreign aid to democracy in Nepal.

As an input for a diagnostic hypothesis regarding which aspects of foreign aid need improvement in order to put in motion the virtuous circles of inclusive development and democracy in Nepal, we summarize analysis and evidence from the papers by classifying it with respect to these four “consensus” common principles:

• Focus on results: public sector and development investments and efforts must have a lasting impact on eradicating poverty and reducing inequality, on sustainable development, and on enhancing developing countries’ capacities, aligned with the priorities and policies of developing countries themselves. Under this heading we also pay attention to failures and to undesired effects of foreign aid.
• Inclusive development partnerships: Openness, trust, and mutual respect and learning lie at the core of effective partnerships in support of development goals, recognising the different and complementary roles of all actors.
• Ownership of development priorities by the target constituency: Partnerships for development are much more likely to succeed if they are led by the target constituency, reflecting their collective value orientations, and implementing approaches that are tailored to country-足specific situations and needs.
• Transparency and accountability to each other: Mutual accountability and accountability to the intended beneficiaries of our co-足operation, as well as to our respective citizens, organisations, constituents and shareholders, is critical to delivering results. Transparent practices form the basis for enhanced accountability.

Failures, undesired effects and results

Failures

In his paper “External forces and international cooperation in the context of current constitutional instability and development in Nepal” Ganesh Dutta Bhatta summarizes the history of constitutional law in Nepal before describing the failure of the Constitution assembly and a constitution drafting process in which major international interests were involved directly or indirectly. The author offers a detailed analysis of the weaknesses in the mobilization of international aid in this failed constitution drafting process.

Uddhab Pyakurel in “Foreign Aid in Nepal’s Democracy Struggle” mentions that a Finance Ministry official admitted recently that there had been no progress in enforcing international aid guidelines. Though international agreements made by donors were aimed at making foreign aid more efficient, coordinated, and effective through increased donor engagement with government agencies, parliament, and civil society, the author calls it unfortunate that no one witnesses a ray of hope in Nepal.

Devraj Dahal in “Politics of Informal Economy” indicates that in the context of growing youth population, declining public budget, rural push of poverty and foreign pull of opportunity, the Nepalese state often lagged in providing a supportive policy framework for their productive employment. Naturally, this population has to engage in informal sectors. Informal sector continues to grow in direct proportion to the decline of formal economy owing to the elites interest in privatization and denationalization of industries and de-regulation import laws, negative effects of the global economic crisis, protracted political instability and the democratic deficits in the country.

In “Fiscal Policy Issues in Nepal,” Madan Kumar Dahal describes the fiscal situation in Nepal and compares it with that in other South Asian countries. He then addresses the major problems in Nepal’s fiscal policy including the poor implementation of revenue policies, an extremely limited tax base due to erosion in the legal based and the numerous tax shelters, huge leakages in tax collection due to a lack of transparency and simplicity in procedures; and the lack of computerized tax systems, records of property (land and building) and business transactions with the Inland Revenue Department.

Undesired effects

Meena Vaidya Malla in “Foreign Aid and Democratization in Nepal: Culture of Dependency” addresses the culture of economic and psychological dependency that Foreign Aid has induced in Nepal: Nepal’s historical economic dependency on foreign aid has now transcended into the social and political aspects: the political actors substantively interact with and depend more upon the donors than their domestic constituency. The donors have bypassed the state sovereignty in policy decisions in the name of engaging civil society and grassroots organizations. The dependency thus imbues governance with the values of status quo and, consequently, makes it unresponsive to citizens’ concern. If this situation continues, the condition of nation and citizens are sure to worsen and political culture and behaviour to suit the present democratic polity hardly develops.

Kashi Raj Dahal, in “A strong legal regime, a necessity for the effectiveness of foreign aid” first summarizes observations from international experts who are critical about the effectiveness of foreign aid in many receiving countries. The latter are often getting poorer and poorer in spite of receiving more foreign aid. This is also the situation in Nepal which has a low capacity to utilize the aid it receives. A lasting impact on eradicating poverty and reducing inequality is unlikely as political interference and corruption have severely debilitated the poverty relief efforts in Nepal. Another results-eroding factor is that donor countries and INGOs provide assistance based on their vested interest, which do not necessarily coincide with the sovereignty, integrity, national interest, and the greater welfare of the people.

Results, but…

Govind Prasad Kusum in “Foreign Aid and Democracy” addresses the donor communities’ role in establishing peace and restoring public properties in post conflict Nepal. He notes that the promotion of economic growth and the reduction of poverty is only partially successful due to the poor performance of the country’s bureaucracy and corruption.

Sohan Kumar Karna in “Foreign Aid: a hot button issue” gives a detailed overview of the impact of foreign aid on the Nepalese economy, the magnitude and trend over the past decades of grants and loans, the evolution of foreign aid commitment and disbursement, and a sector wise composition of foreign aid. He notes that almost all the highways and communication networks, public industrial enterprises, agricultural and rural development projects, and development institutions are the result of foreign aid.

In “Does Foreign Aid cause Gross Domestic Product? Empirical evidence” Kamal Raj Dhungel describes the fiscal policy trap in which poverty leads to low public investments and low public investments reinforce poverty. At the beginning, aid in the form of grants played an important role in the construction of infrastructure projects and establishment of some of the key basic industries. But foreign assistance in the form of grants has been changing over time. Grant at large is being replaced by loans as bilateral donors are gradually changing into multilateral. In this context, the author investigates the causal relationship between GDP and foreign aid in the short and long run. After the peace process started in 2006, Nepal has received more foreign aid than ever. Unfortunately the foreign aid has not been utilized in any of development activities but rather in solving political disagreements. This has led to a lack of opportunities in the country. Businesses hesitate to invest as the future is uncertain and the risk is high. The author concludes that more than anything the country needs stability. Aid that is not delivering this, as more aid implies greater economic imbalance and higher debt, is not working for Nepal. Without prosperity from economic activities it is impossible to achieve growth. Foreign aid (in its past forms) is not the answer to the growth of Nepal.

Research in 2011 about the Efficiency of Development Actors in Good Governance by Ganesh P. Adhikari and Prabhash Devkota is reported about in “Donor Obligation for Public Sector Reform in Nepal.” It shows that respondents considered local authorities as the best performer and donors as the least performer in demonstrating good governance. The lowest level of donor efficiency indirectly indicates that turn-key projects executed by donor agencies are not effective in terms of good governance, particularly from the recipient’s perspective.

Inclusive development partnerships

Meena Vaidya Malla in “Foreign Aid and Democratization in Nepal: Culture of Dependency” laments that a large number of populations are economically, socially and politically excluded from the mainstream of development. They have physically participated in political and development process but neither they are able to put their view nor are their voices heard. Periodic development plans spanning a period of six decades have failed to make a significant change in the living standard of people. Over the past decade, the inequality between rich and poor has increased considerably. Any country whose democracy is installed without acquiring economic prosperity is likely to risk falling prey to its enemies, the worst being increasing poverty and decreasing participation.

Uddhab Pyakurel in “Foreign Aid in Nepal’s Democracy Struggle” indicates that in spite of Nepal being one of the most agriculture-dominated economies in Asia, the agriculture and rural sector continue to be neglected by the government. The vulnerability and rising poverty levels are worst in the more remote areas where development efforts have been ineffective or nonexistent. Owing to low productivity and the deteriorating rural economy coupled with lack of employment, Nepalese people increasingly depend on remittances from relatives working abroad. The dependency on development aid is because of the country’s inability to raise sufficient domestic revenue and because of a lack of necessary resources, especially its incapacity in harnessing its natural resources.

Devraj Dahal in “Politics of Informal Economy” raises that the informal economy is the biggest employer of the Nepal’s workforce, yet it is deliberately excluded from statistical monitoring, protection and regulation by the state authorities. This exposes the informal sectors and their workforce to multidimensional vulnerabilities to the abuse of their rights, absence of entitlements, remuneration, paid leisure, maternity leave, health and safety, pension and adequate living wage for sustainable livelihood. This author writes about the “urban bias” in development policies and resource allocation of the donors, the state, employers and even labor unions as development is seen until recently as improved economic growth, not the amelioration of structural injustice through liberation, entitlements and fairer justice for individuals, communities and the state.

Ownership of development priorities by the target constituency

In “Community forestry: A model of grassroot democracy - Nepal’s own innovation and the role of development aid” Bharat K Pokharel recognizes that the encounter between change agents and traditional forces, social structure and feudal organisational culture tends to hinder the change process that is taking place in terms of the practice of sustainable management of forest resources, inclusive, pro-poor and gender responsive forest governance at the grassroot level. Although community forestry is a model of grassroot democracy and local governance, a foundation for the transformation of Nepali society from the bottom, it faces many challenges because it has to operate within the forestry sector, the larger government’s bureaucratic set up and within a difficult national context of unstable transitional political environment and feudal social structure.

In “Deepening Democracy at the local level” Dwarika Nath Dhungel, Mahendra Raj Sapkota and Pradyumna Prasad Regmi describe the activities related to demand-strengthening and citizen empowerment, especially the marginalized sections of the society in the planning process of the LGBs, are the important components of this program. The Ward Citizen Forum (WCF) and the Citizen Awareness Center (CAC) are institutional arrangements made at the VDC and Municipality under this component. The WCF and CAC have been dealt with in the context of the planning process of the LGBs.

Govind Prasad Kusum in “Foreign Aid and Democracy” raises (i) that the democratic system is too weak to handle the modalities of aid, a situation which creates comforts for corruption and fraudulence; and (ii) Aid conditionalities reduce the space for national political decision making and its proper implementation; and (iii) the ineffective monitoring system of the Government creates a congenial environment to the INGOs to play with policy lacunas.

In “Aid Effectiveness and Country Ownership: Need of Democratic Governance in Nepal” Vidyadhar Mallik focuses on the origin of this principle and how it has been addressed in Nepal’s foreign aid policy. Surveys conducted in the context of the monitoring of the Paris Declaration show limited progress in Nepal and highlight major challenges in aid effectiveness. The author describes the impact on development effectiveness and public financial management and corruption of the present situation in Nepal without elected institutions, and without properly working accountability structures and judiciary.

Tara Dahal in “Civil Society as a Democracy-Building Project in Nepal” claims that the bulk of Nepalese civil societies bear the potential to carry out an impulse of virtuous society to democratize, civilize and reduce social, economic and political gaps across various sections of people through righteous public action. The plurality of civil society in Nepal reflects the diversity of Nepalese societies’ needs and conditions and, therefore, multi-dimensional level of action from advocacy, education, communication to relief, livelihood, rehabilitation and relationship-building measures. Yet, owing to the inability of the Nepali state to enforce security, the rule of law and protect the rights of citizens, the international donor community treats it as a fragile state and designed its aid policies accordingly.

Meena Acharya in “Democracy and Foreign Aid – disconnect between democratic aspirations and free-market policy prescription” answers four questions in the context of 60 years of Nepals political history since 1951. To the question whether the volume of foreign aid changed with the system of governance in the country, the answer is that available information does not show any such connection. On the questions whether the institutional and policy packages that accompanied the aid flow were democratically discussed, their fitness and sustainability evaluated in the specific country context, and whether the aid packages and the policy recommendations matched the needs and aspiration of the people in the country, the answer is that until about the late 1990s, foreign aid packages were rarely contextualized to Nepal’s political or economic realities, nor did they match the needs and aspirations of the people. The answer to the question whether the economic packages introduced were discussed by the political representatives and voted by the people in Nepal is that until the late 1990’s these were not discussed or voted by the people or by their political representatives. Though the situation has started to change with MDGs, PRSP, and Aid Effectiveness Agenda, the policies and programs are still based on the assumption of the primary role of the private sector as the engine of growth, and an unsustainable model of capitalist or social democratic models, which themselves are facing multiple crises.

Transparency and accountability to each other

Govind Prasad Kusum in “Foreign Aid and Democracy” contrasts the external and internal, hidden, intention of donors and laments that the latter threatens the security and weakens the governments of developing countries, including Nepal.

Vidyadhar Mallik conjectures that any efforts by the development partners (donors) for capacity building or supply side strengthening ultimately support and strengthen only petty interests of unaccountable bureaucrats and hand-picked politicians while fear of investments in demand side/voice mobilization with grass-root level communities constantly keep weakening the initiatives of community organizations and that of civil society.

The Way forward

The survey on the impact of foreign aid on democracy in Nepal by the editors of this volume was based on the contents of OECD DAC studies on the topic. The survey results show that respondents were rather supportive of the range of topics that were proposed as enablers for democratic and institutional transitions:

• Make support to the accountability system long-term
• Promote citizen access to media and mobile technologies as well as citizens’ media literacy
• Ensure that accountability support efforts strengthen the parliament
• Ensuring local ownership of development aid projects
• Ensure that accountability support efforts complement one another
• Encourage links between media institutions and the rest of civil society
• Support independent, sustainable, and capable local media
• Technical assistance to political parties
• International elections assistance

Our authors go a long way in translating these rather generic propositions into more concrete recommendations.

Democratic values

The below key recommendations should be considered as inputs for a prescriptive hypothesis for improving the contribution of foreign aid to democracy in Nepal.

The Ward Citizen Forum (WCF) and the Citizen Awareness Center (CAC) described in Dhungel’s paper are institutional arrangements made at the VDC and Municipality that should be further strengthened in an approach to more inclusive determination of development priorities. Nearly all Nepalese people are familiar with their local governance bodies.

In “Community forestry: A model of grassroot democracy - Nepal’s own innovation and the role of development aid” Bharat K Pokharel proposes the community forestry institutions as a model of grassroot democracy and local governance, a foundation for the transformation of Nepali society from the bottom. Here society has experience with the encounter between change agents and traditional forces, social structure and feudal organisational culture, and this experience has yielded champions which could support replicating the experience in other areas of the Nepalese society.

Vidyadhar Mallik calls for two compacts guided by the principles of a democratically owned ‘peace and development’ strategy:

• a first one between the government of Nepal and society at large represented by plethora of civil society organizations, intelligentsia, media, NGOs, local governments, community organizations like Ward Citizen Forums (WCFs) and Community Awareness Centers (CACs), PAF – COs, local peace committees, forestry user groups, irrigation user groups, school and hospital management committees, rights bodies, human rights institutions, women and children organizations and their associations/federations; and
• a second one between the development partners/donors and the government of Nepal.

In the present transition, development partners/donors should encourage, engage and actively support (with enough funding and capacity building) dialogues and deliberations between the government and society at large, including community based grass-root institutions: the fear of ‘demand mobilization’ should give way to more such exercise for voice and choice mobilization of communities till the elections of local and national governments are held and Nepal stabilizes with a new popular constitution.

Govind Prasad Kusum calls upon political groups to work for the underpinnings of democracy in a cohesive manner.

Institutional foundations

Devraj Dahal in “Politics of Informal Economy” raises that there is a need to bridge the gap between development theory and contextual knowledge and its outcome for human development.

Tara Dahal in “Civil Society as a Democracy-Building Project in Nepal” request civil society to create the favorable conditions for Nepal’s society and the state to adapt to universalistic norms and act to abolish the tradeoff between political power where leaders indulge in life-and-death-struggle and democratic values that moderate their appetites to move to extreme directions incubating the source of violence and vicious conflicts.

Specifically for the constitution drafting process Ganesh Dutta Bhatta calls for a proper evaluation of all the weaknesses of the past constitution assembly and the formulation of policies and guidelines that help the foreign aid for the drafting of a future constitution become more transparent, effective and accountable. He calls for being cautious for those people and organizations that might again be active to grab the international aid and use it against the Nepal’s dream of creating a democratic constitution through elected members from the constituent assembly.

In “Fiscal Policy Issues in Nepal,” Madan Kumar Dahal describes a strategy for taxation with the purpose to speed up reforms in the tax system and improve the tax administration ensuring a competitive tax structure primarily to attract FDI for sustaining a high level of economic growth, and promote indigenous investment in cooperation with private sector for reducing absolute poverty. His paper contains detailed reform recommendations.

Govind Prasad Kusum advices the Government of Nepal to send skilled negotiators to foreign aid negotiations, they must take care of how far the conditionalities are compatible with the national interest. If the terms and conditions set forth by donors are against the public interest, against government policy and against national security, such aid must be rejected.

The government should have a master plan on how the country can be sustained financially and economically.

Involve the informal and private sector

Devraj Dahal in “Politics of Informal Economy’’ calls for an inclusion of the informal sector. He conjectures that a sustainable solution of the problem of informal sector lies in the legislation of proper laws, building of participatory culture whereby societal interests prevail over private greed and gain, reinvesting of economic surplus on production process, promotion of subcontracting with intermediary and large business, strengthening of inter-sectoral linkages, legal protection and encouragement of workers to become shareholders of the business enterprise and low-cost cooperatives.

Sohan Kumar Karna in “Foreign Aid: a hot button issue” emphasizes several challenges both for donors and recipients. In spite of reported huge aid inflows, there remains a large gap between the need and aid availability due to mis-targeting, emergency situations, aid diplomacy and unfair trade. Donors’ political and economic interests coupled with their disharmonising aid policies have made aid inadequate, inefficient and ineffective. But provided the recipients ensure good governance, aid has immense potentiality. Nepal’s absorptive capability should be strengthened beyond the government by involving the private sector.

Ever since the government began to receive aid, the capacity to utilize the committed amount of aid productively continues to remain as a crucial problem. This shows low absorptive capacity resulted in political instability, lack of commitment of ruling authorities, bureaucratic delays and absence of institutionalization of development administration, corruption and lack of proper management of development projects.

Also Uddhab Pyakurel in “Foreign Aid in Nepal’s Democracy Struggle” points at the inability to utilize aid as the key obstacle in addressing people’s expectations for a better life through aid-oriented priority projects. Encouraging the private sector to handle foreign aid resources, with the government functioning as a facilitator, may bring about an increase in the efficiency of foreign aid. This would increase the efficiency of aid disbursement by reducing the tendency of aid to strengthen the government sector and curbing the government behaviour of using foreign aid to pursue socially non optimal agenda. The government should streamline its institutions, prepare personnel (both through training of its staff and through spending in the social sector to equip the population in providing skilled manpower), ensure an open environment for entrepreneurship and commit itself to maintaining a healthy economic climate. Such actions that strengthen the private sector and bolster macroeconomic management will not only pay dividends in an increased willingness of the donor countries to disburse more capital in the form of foreign aid, but also increase the effectiveness of the institutions and process that determine the efficiency of foreign aid already disbursed.

Priorities and the role of foreign aid

Research about the necessity of donor-support for various issues of democratic governance by Ganesh P. Adhikari and Prabhash Devkota shows a top three of strengthening local authority strengthening civil society organizations, and controlling corruption. As to the kind of donor-support that is appropriate for civil service reform in these areas, when given the options policy advice, financial support and technical assistance. More than fifty percent of respondents were in favor of each of the three kinds of donor-support for corruption control (56.9%, 57.3% and 50.2%). In the case of strengthening local authority and citizen-centered service delivery, nearly 83 and 69 percent respondents respectively were in favor of financial support.

Meena Vaidya Malla in “Foreign Aid and Democratization in Nepal: Culture of Dependency” concludes that aid, should, primarily be used as catalyst-sometimes to help generate other resources or gain access to them-sometimes to help create domestic capacity or manage conflicts resulting from various forms of unsustainable development. At this juncture, what is required is special focus on aid policy which creates social harmony, political stability and peace-the preconditions for democratization in Nepal.

The role of donors

Govind Prasad Kusum calls upon donors to take into consideration the country’s vulnerable situation, and pay greater attention to the myriad factors that contribute to and underpin transition, and even more complicated, consolidation. The country needs a huge amount of resources to achieve poverty reduction alongside democracy strengthening by investing in people’s health, education, food and infrastructure, including in rural areas as was also confirmed in the June 2013 Nepal Democracy Survey.

Meena Acharya in “Democracy and Foreign Aid – disconnect between democratic aspirations and free-market policy prescription” calls for the adoption of a more holistic economic model, which takes into account both market and non-market activities, is socially more sensitive and is based on environmentally more sustainable resource use.

Further refinement of diagnostic and prescriptive hypotheses

We conclude our introductory chapter with the hope that this volume will provoke further analysis in support of sound and responsive decision making and aid delivery that better meets the consensus common principles of effective aid, in Nepal and in other countries in transition.

This book is published both in print form in Nepal, and as an e-book via leanpub for readers around the world.

We welcome our reader’s views and comments on the papers and on this introduction. These can be sent to us directly, or posted on the social media platforms. Using Spundge we will curate comments or links posted on Google+, Facebook, Twitter and other social platforms if they are tagged with #nepalmaprajatantra (Democracy in Nepal) or #nepalmabaidesiksahayog (Foreign Aid in Nepal)

On the basis of those comments, and additional canvassing of the related literature and evidence we hope to review and strengthen the diagnostic hypothesis and the derived recommendations. Also we want to hear from you if you have implemented recommendations, and with what effect.

Prabhash Devkota

Jan Goossenaerts

1. Aid and Democracy in Nepal

Himalaya SJB Rana

Internationally, aid for strengthening and sustaining democracy commenced after the end of the Second World War with the Marshall Plan for the reconstruction of Europe. Establishment of the International Bank for Reconstruction and Development (later known as the World Bank), the International Monetary Fund and subsequently the Asian Development Bank followed soon after. As a complementary measure, United Nations and Specialized Agencies launched technical assistance/cooperation programmes for capacity and institution building in developing countries, later venturing into pre-investment assistance. Side by side, bilateral aid programmes like USAID were launched in many developing countries like Nepal. Foreign aid appeared in the development scenario of Nepal after the advent of democracy in February 1951.

My active involvement in the governance of Nepal has been mainly in the financial sector as the first Finance Secretary and the first Governor of the Nepal Rastra Bank (Central Bank) for altogether some ten years in the 1950s. Then, for some twenty-four years I worked in the development sector of the United Nations in numerous capacities including Resident Representative of the United Nations Development Programme in three countries. I retired from UN service in 1986, some twenty-seven years back. I regard myself as a date expired development practitioner. As such, my short piece on the subject will be of a general nature unlike scholastic articles focusing on different facets of aid in Nepal contributed by eminent authors.

In my view Nepal’s non-alignment policy and international relations did not influence Nepali politics and infrastructure development, as foreign aid was received both from the First World and Second World countries. Sir Ivor Jennings then mainly drafted the constitution promulgated and accepted by all democratic political parties. The Westminster Model recommended by him was in many respects similar to the model enshrined in the constitution of India. As far as I know the Government of India was consulted, but there was no pressure from the South on the salient features of the King Mahendra Constitution.

Multilateral and bilateral technical assistance to Nepal have greatly contributed to laying an appropriate foundation for and improving the governance in Nepal in tune with democracy. During the last six decades, hundreds of Nepalese administrators and technicians have participated in observation and training programmes in developed countries. Due credit has not been given by the development rapporteurs to the notable result that Nepalese administrators and technicians are now capable to conceive, plan and implement projects and programs and deliver good governance to people as well as their counterparts in the neighboring countries.

Concurrently, grants and concessional loans from multilateral development banks and friendly countries for infrastructure and other projects during sixty years have immensely facilitated the growth of the country’s economy. Initially, quite a few factories were assembled and some arterial highways were constructed under the aegis of the Russian, Chinese, Swiss and Indian bilateral aid at a notably low cost. Then followed numerous projects in the power, telecom, industry and other sectors funded by the World Bank, ADB, Japanese, German and other bilateral aid. The cost of implementing these projects tended to be high not only due to the comparatively high remuneration and payments made to the foreign consultants and contractors but also to the Nepalese commission agents – a new breed that emerged and has been growing and thriving. The latter development is one dark spot in the annals of aid to Nepal.

Indian-Chinese relations have moved from adversarial to negotiating mode. USA, as the number one donor, promoting democracy in order to contain communism, delivered massive aid to Nepal from the fifties to mid-seventies in various sectors. Their interest in Nepal then flagged and revived as a component of countering terrorism. The USSR delivered sizable aid to Nepal in the fifties and sixties following the state visit of King Mahendra, as counterpart to aid from USA. However, the USSR was unable to continue matching aid from USA in the years that followed.

After the re-instatement of multi-party democracy in Nepal, aid to the social sector from INGOs has remarkably increased. Their role in highlighting the need of greater equity and inclusiveness in the Nepalese society is welcome. However, there are complaints that their unbridled activities have promoted ethnic divisions and unrest in Nepalese society. As such, their role should be monitored by the Government in the interest of national amity.

For decades, foreign aid focused on infrastructure development, augmenting agricultural and industrial production and capacity and institution building. Of late, protection of environment has appeared as one of the main concerns. It is high time that the sociological impact should also be taken into consideration.

I do not agree with commentates tended to regard aid as evil. Foreign aid became donor driven to some extent and unwittingly fostered a new breed of commission agents, not to speak of the lordly living style of aid officials, both foreign and national. If the recipient government has well defined national priorities and manages to channel aid to such priorities foreign aid can make a yeoman’s contribution to socio-economic development of the country. Certainly, most countries can survive without foreign aid like North Korea. But socio-economic growth will be accelerated with judicious utilization of foreign aid.

In conclusion I would say that foreign aid makes significant contribution to the socio-economic development of a country where development programmes are clearly chalked out and aid is channeled to such programmes. The challenge to our administrators is to channel foreign aid to development of Nepal, which is sustainable and protective of our deteriorating environment.

2. Aid Politics and Democracy

Bharat Pokharel

Abstract Many authors have argued ‘aid’ has failed, and global politics are rapidly changing the contours of international development. This article draws together observations and conclusions from the realms of development studies, political science, international relations and economics written over the last five decades, concerning the roles of foreign aid in politics. Additionally, this should provide a comprehensive understanding of the patterns of foreign aid policies emerging donors – particularly developing countries – could take, and it highlights possible methods and theoretical lenses through which emerging economies’ foreign relations with other developing countries could be analyzed.

2.1 Introduction

Aid is at least as ideological today as it was 50 years ago. There has been a shift in the ideology of conditionality in the last 25 years. Poor countries are somewhat less likely to be told simply that ‘private is good, public bad’. Instead they will be lectured about the need for ‘good governance’, and the requirement to ‘root out corruption’. This has been used as an excuse to explain the failure of neo-liberal policies, and as a stick with which to impose further neo-liberal measures.

The perceived failure of aid promulgated in the popular media, the expected failure of many aid recipient nations to attain their Millennium Development Goals, the apparent failure of the military and development missions in Afghanistan and Iraq to quell terrorism and bring about socio-economic development, and the deepening global recession tightening national budgets have caused many governments to re-evaluate their development assistance programs and priorities (Bearce & Tirone, 2009; Wright & Winters, 2010; Boone, 1996). Political parties leaning more to the political right are, in many countries, demanding a reduction in foreign aid expenditures in light of their own nation’s struggling economies and welfare systems (Morgenthau, 1962). The fiscal questioning of foreign aid has further led to the questioning of aid’s political roles and its value within and benefits to national governmental frameworks, calling for it to justify its continued existence and its budgetary demands (Burnell, 1997; Burnside & Dollar, 2000; Lancaster, 2008).

It is in response to these new circumstances that the politics of aid needs to be reevaluated. This paper draws together observations and conclusions from the realms of development studies, political science, international relations and economics, written over the last fifty years, concerning the roles of foreign aid in politics (Dollar, 2006; Lundborg, 1998; Mason, 1964; Mourmouras & Rangazas, 2009; Svensson, 1999; Tarp, 2000). This time period was chosen as it saw: (i) the birth of the modern incarnation of foreign aid; (ii) post-war reconstruction in the centers of pre-war wealth and power; (iii) former colonies gaining their independence; and (iv) the geo-strategic ideological battle of the Cold War (Headey, 2008; Griffin, 1991).The broad time period in which and concerning which publications contained in this compilation were written should allow recurring and emerging trends to become apparent, leading to an increased understanding of how current global circumstances, and domestic political forces, can and will shape the future political roles of foreign aid. Additionally, this should provide a comprehensive understanding of the patterns of foreign aid policies that emerging donors could take and highlight possible methods and theoretical lenses through which a more thorough investigation in donor’s foreign relations with other developing countries could be analyzed (White, & McGillivray, 1992; Woods, 2005).

2.2 Domestic Origins of Foreign Aid

A natural starting point for an investigation into the politics of aid is to consider the domestic determinants of foreign aid. Foreign aid policies are, like domestic and foreign policies, formulated in consideration of domestic political realities and the context international circumstances. This means that as domestic political situations change and the international context changes, foreign aid policies are reformulated to adapt to the new set of conditions (Black, 1968; Riddell, 2008). There are a number of factors within domestic political contexts that can influence the ways in which foreign aid policies are formulated and reformulated. Lancaster (2007:18) calls these the domestic political forces which she defines as falling into four categories:

• Ideas: Lancaster argues that the most fundamental “ideas” shaping aid are “worldviews”, the values shared by a given society based on their culture, religion and/or ideology. These worldviews are the origins of the norms and principled beliefs of a society.
• Political institutions: According to Lancaster these form the “rules of the political games” (2007: 18). She analyzes the electoral rules, role of legislatures, role of local governments and semi-public entities, the political system (parliamentary and presidential) and the effects these have on shaping the purposes of foreign aid.
• Interests: These, she argues, broadly fall into three different groups, namely: 1) commercial interest groups, 2) NGOs and public interest groups, 3) as well as groups that have religious, ethnic or otherwise associations with specific foreign countries.
• Organization of aid refers to the way that aid is managed within the government structure, particularly whether there is a dedicated development ministry, or whether it is a department within another ministry or ministries. She argues that the organization of aid has a strong influence on the purposes of aid.

Lancaster argues that as the international situation changes, and the domestic political forces react, purposes of aid change as well. She (2007) states that the traditional purposes of foreign aid include: diplomatic, developmental, commercial, cultural, and aid for humanitarian relief. She adds that more recent purposes of foreign aid include: promoting economic and social transitions, promoting democracy, addressing global issues (such as the environment and HIV/AIDS), and mitigating and managing post-conflict transitions.

The current authors believe that the interaction of these domestic political forces can be represented as depicted in figure 1.

In her compilation of case studies Lancaster analyzes the US, Japanese, French, German, and Danish models of foreign aid policy determination using the above described framework. Her findings suggest that foreign aid can only be understood through the lenses of both constructivism and realism. She argues that although foreign aid was initially a realist response to the Cold War, by the end of the century the notion that more affluent states have an obligation to provide aid to less-well-off states has become a widely unchallenged norm. Interestingly, Lancaster notes that acceptance of the aid-for-development norm is dependent on whether the aid-giving nation’s socio-economic condition is sufficiently healthy that foreign aid allocations are not seen to be sacrificing the needs of the poor at home.

These authors believe that the figure below, based on Lancaster’s framework, provides a simplified yet adequate representation of the interaction of domestic political forces and their further interaction with other members of the international system:

Goldstein and Keohane (1993) investigate the influence of ideas on policy through a compilation of essays on different aspects and forms of ideas and their influence on policy formation and practice. They categorize ideas as being: world views, principled beliefs, and causal beliefs. The authors define principled beliefs as consisting of the normative ideas used to determine right from wrong (Goldstein & Keohane 1993: 9). They further define causal beliefs as beliefs concerning cause-effect relationship, based on the shared consensus of recognized elites (Goldstein & Keohane 1993: 10). Goldstein and Keohane argue that principled or causal beliefs affect policy formulation when these have become ingrained in political institutions and provide ‘road-maps’ to assist actors in policy formulation in strategic situations where there is no unique equilibrium. They conclude that it is the combination of interests and ideas that has causal weight in the explanation of actions.

In a similar vein Cingranelli (1993) analyzes the effects of different moral positions on the relations of the US with the Third World through an historical analysis. He states that foreign policy formulation in the US is guided by a political culture composed of the values of: individualism, capitalism, civilian control of the government, rule of law, political equality and democracy. The author further identifies four moral positions prevalent in American politics based on who the political leaders are willing to be held responsible by and whose interests these leaders should promote. He categorizes these positions as: nationalist, exceptionalist, progressive, and radically progressive, although the latter position has less of a voice due to its similarity to the Marxist moral position. He also analyzes Marxism as a moral position taken in relations with the Third World. The author states that different presidential administrations cannot be classified as falling solely within these four categories, rather their positions will, on average, tend to fall in one category, though their positions will vary in relation to different issues.

Stokke (1989) also describes how aid policies are formulated through the interaction of the external environment with a country’s domestic environment, norms, interests and traditions. His compilation of analyses regarding the foreign aid policies of five Western middle powers[1] seeks to identify the extent to which different outcomes of foreign aid policy formulation can be explained with reference to the basic values and ideologies predominant in the nations under analysis, which, for the nations in question, he defined as being generally varieties of humane internationalism. In the context of foreign aid policy Stokke argues humane internationalism implies: the recognition of the responsibility of developed nations to assist the Third World, a belief that a more just world is in the long-term interests of developed countries, and an understanding that this is not in the disinterest of their own national economic and social welfare policies. Stokke analyzes the foreign aid policies of these five Western middle powers in relation to variations of this ideology, and concludes that there has been a general move towards liberal internationalism in these five nations within the period of study. Liberal internationalism, according to Stokke’s definition shares the core concepts of humane internationalism, and adds to it a commitment to an open and multilateral trading system as well the realist internationalism notion that nations ought to pursue economic and political self-interest in the short- and long-term. A number of authors have looked more specifically at certain aspects of domestic politics which influence foreign aid policy. Thérien and Noël (2000), for example, look at the influence of political parties on foreign aid. Their findings suggest that the impact of political ideologies on foreign aid goes beyond the mere support for or opposition to foreign aid policies, but that a political party which remains in power for a longer period of time is able to make its own particular concepts of social justice central to the political debates of their nation (Thérien & Noël 2000). The centrality of these conceptions of social justice in political debates, the authors argue, shapes the formulation of foreign aid policies and priorities. Moreover, alongside the influence of political parties on foreign aid expenditures, the authors also identify the significant roles played by welfare institutions and social spending in determining foreign aid spending. These findings reflect those from their earlier study (Noël & Thérien, 1995), which proposes that the institutionalization of socialist welfare principles at the domestic level shapes the nature and practices of a nation’s foreign aid policy, arguing that states with more institutionalized welfare principles at the domestic level are more likely to provide foreign aid and development assistance and to base the provision of aid on similar principles.

Thérien (2002) has further argued that evolution of foreign aid is the result of an ongoing conflict between the political Right and Left regarding aid policies. This conflict, he argues, is based on the relative importance each attaches to the issues of cost-benefit analysis and moral principles. According to Thérien the Right is seen to be more concerned with the results of the former while the Left is more concerned with the latter. He states that these differences have often led the Right to decry foreign aid as wasteful, ineffective, and inefficient, and to argue that poverty alleviation is ultimately not the obligation of the international community but of each individual state. In contrast, Thérien adds, the Left believes that aid to poor countries is a moral obligation, it argues that the benefits are larger than the costs, and it is concerned about inadequate levels of aid.

Milner and Tingley (2010), Hopkins, Raymond F. (2000), Mosley, Paul (1985), analyze whether there are any systematic political economy factors which shape foreign aid policies. They find that domestic politics and the distributional consequences of aid have an influence on foreign aid. Notable factors influencing the support for aid, according to their findings, are the economic characteristics and the right-left ideological disposition of voting districts. The authors find that for economic aid votes which have domestic distributional consequences, districts which are better endowed with capital are more supportive of economic aid, while those better endowed with labor are less supportive.

In a separate article dealing with the effects of the economic ideology of US governments on foreign aid Tingley (2010) finds that economic ideology plays an important role in determining aid allocations. He suggests that progressively more conservative governments commit progressively less of their GDP to foreign aid efforts than more liberal governments. This, Tingley states, is especially the case with aid allocations to poorer countries and multilateral organizations, which he purports indicates that conservative governments attach higher importance to trade and geopolitics than to development assistance.

An even deeper look into the workings of foreign aid appropriations procedures was taken by Irwin (2000). His findings provide a deeper understanding of the importance of person-to-person negotiations and personal favors, consensus building, issues coalitions, key legislative actors, and public-private issue management. Irwin states that foreign aid proponents have grown adept at using a variety of means and steps in order to achieve legislative success, and finds that respondents generally believed that people rather than procedure was the most important determinant of legislative success for aid policy decisions.

Chong and Gradstein (2008) analyze the factors which influence popular support for foreign aid based on World Values Surveys. Importantly, they find that satisfaction with own government performance and individual incomes has a positive influence on the support for foreign aid. Additionally, Chong and Gradstein find that richer more egalitarian governments provide higher levels of aid, while inefficient governments provide lower levels. Finally, the authors argue that whereas recipients’ economic conditions do not affect aid levels, their levels of corruption, inequality, political leaning and tax systems do.

Nelson (1968) gives a comprehensive insight into the aid allocation and program planning procedures in the US during the Cold War period. Although his study was performed around four decade ago, these procedures and considerations seem to have changed little, as evidenced by more recent studies, although their general emphasis might have changed with the end of the Cold War. Nelson identifies the steps as: identifying US objectives in the recipient country, assessing the situation and trends in the recipient country, evaluating the role of other donors in the recipient country, selecting specific goals, and devising the most important and appropriate measures to achieve these goals.

Putnam (1988) applies a “two-level games” approach which recognizes the efforts of central decision makers to simultaneously reconcile both domestic and international imperatives in order to analyze the linkages between domestic politics and diplomacy. His findings highlight a number of significant features of these linkages, among which are the effects on international pressures on the domestic political arena, the finding that domestic political cleavages actually cultivate international cooperation, and the divergence of interests between a national leader and the people for whom he is negotiating.

Murshed (2003) analyzes the strategic interaction in aid donor processes through principal-agent models and through endogenous policy determination. In his analysis legislators are considered as the principals and the aid agencies executing the wishes of the principals are considered the agents. His findings suggest that agents’ motivation is improved when their efforts are seen to be taken into account by the principals. Furthermore, Murshed finds that when principals with divergent interests, e.g. commercial, strategic, and developmental interests, interact with the same agent, their interests are best served if their efforts are combined and their interests harmonized. The author also notes the influence of powerful lobbies on aid policy.

2.3 Motivations for Foreign Aid

Related to the analysis of the influence of domestic political forces on foreign aid is the analysis of the motivations for providing foreign aid. The analysis of the motivations for (bilateral) foreign aid also includes analysis of government executive objectives and geo-strategic concerns. As is evidenced in, for example, Stokke (1989), Lancaster (2007), Pratt (1989), Hook (1995, 1996), Claessens et al, (2009), Fleck and Kilby (2010), foreign aid is deployed for a number of reasons and in pursuit of a number of goals. Whether it be to present an image in the international community of generous nation or to appease commercial interest groups domestically, whether it be for humanitarian and moral reasons or in the interests of national security and regional dominance, whether it be to encourage the recipient nation to adopt more democratic forms of government and respect human rights or stimulate regime change, foreign aid is always deployed for a reason or a mixture of reasons (Drury, Olson & Van, 2005; Smith, 1989; Lebovic & Voeten, 2009; Poe, 1990).

An early analysis of the donor interest[2] and recipient needs models of donor aid provision motivation was conducted by Maizels and Nissanke (1984). They find that while aid from multilateral institutions is provided on a recipients’ needs basis, bilateral aid from different donors is provided to greater or lesser degrees in support of their own political, economic and security interests. In the periods they studied the authors find that there were shifts in the relative emphasis on donor interest in aid allocation, with trends towards more consideration for recipient needs during the early and mid-1970s, with a reversal of these trends in the latter half of the decade. The authors attribute this trend to shifts in bilateral aid budgets during the 1970s away from donor interest, and an increased emphasis on multilateral sources. Maizels and Nissanke state that the reversal of this trend is explained by two factors. Firstly, donor contributions to multilateral organizations were cut during the 1970s. Secondly, a number of donors, most notably the US, have been more overtly using bilateral aid as a foreign policy instrument, or tying their aid allocations to their export orders (O’Leary, 1967).

A later study by Berthélemy (2005) also concerning the donor interest and recipient needs models of donor aid provision motivation confirms Maizels and Nissanke’s findings that donor interests take precedence in the aid allocations of certain nations. He finds that while most donors provide at least some of their aid to their most significant trading partners, they do so to varying degrees, and most provide at least part of their aid to the neediest recipients. Furthermore, Berthélemy (2005) indicates that on average aid is provided to recipients with better governance indicators, for example, the absence of violent conflict or more democratic political and economic systems. He identifies Austria, Denmark, Ireland, Norway, and Switzerland as being more altruistic than other donors, while Australia, France, Italy, Japan and the US are more egotistic (Davies 2007).

Through a comparative analysis of the foreign aid policies of the US, France, Japan and Sweden Hook (1995) finds that there is a strong relationship between national interest and foreign aid. Additionally, he compares performances of these countries to the humanitarian objectives institutionalized in the OECD-DAC, of which all are members. He concludes that US foreign aid policy is dominated by national security concerns, while France is concerned more with maintaining colonial relationships and influence, Sweden provides most of its aid to its own domestic world views, and Japan’s foreign aid policy is driven more by commercial interests. Hook argues that Japan’s security interests are protected by America, Sweden is neutral, and France has security agreements with la Francophonie therefore these three countries had little need for security considerations in their foreign aid policies. Hook draws on Holsti’s typology to categorize the roles these donors thus play in the international system, identifying France as an “active independent,” Japan as a “regional-subsystem collaborator,” Sweden as a “mediator,” and the US as a “bloc leader” (Hook 1995: 156). Hook further analyses the differing influences of the domestic politics in the nations under study, on their foreign aid policies. He finds that in the US domestic politics are very important because of the lack of public support for foreign aid, while Sweden enjoyed high levels of public support as their aid policies project their own social values and their political system is one based on the principle of consensus.

Sogge (2002) dedicates a large study to analyzing the nature of the act of foreign aid provision. He identifies in the foreign aid relationship inseparable acts of giving and taking. While also noting the commercial, strategic and humanitarian motives of aid, Sogge states that donor nations also benefit from the brain drain and capital flight from the South to the North, Northern trade barriers and dumping in the South. He concludes that foreign aid is not deployed in proportion to the levels of poverty of the recipient, and these insignificant levels of aid flows should be seen in the context of huge flows from poor to rich (Sogge 2002: 36).

2.4 Cold War & Post-Cold War Politics of Aid

Although the Cold War clearly had an influence on the nature of foreign aid relations, the strategic and security interests of aid played a greater or lesser role for different nations. Unsurprisingly, strategic and security interests played the dominant role in US aid provision during this period (Lebovic 2005; Bandyopadhyay & Wall, 2007). Other countries, however, were more concerned with commercial interests or maintaining dominant relations with former colonies.

Guess (1986) takes a closer look at US aid provision (including military aid) to Latin America, Asia and the Middle East during the Cold War. His comprehensive and in-depth study, shows the effects of different forms of aid packages to a variety of regimes in achieving their goals. Guess also analyzes the domestic political processes of foreign aid, and how these shape the formulation of aid packages, including the effects of Congressional distrust of the executive and the influence of the different responsibilities of different governmental departments in the formulation and implementation of foreign aid. Guess conducts his analysis through the Bureaucratic Role Conflict model. He argues that while foreign aid is planned and funded like most US domestic policies, it differs from these as it has both a domestic and an international component. He states that foreign aid has often lacked its own political base due to the fact that its clients are abroad, as a result it has been moved around by conflicting pressures from all directions, most often in response to the perception of military threats.

Black (1968) analyzed the foreign aid strategy of the US at the height of the Cold War. He investigates the political, economic, defense, and humanitarian rationales for foreign aid provision during this period. He concludes that the political rationale for the US is clearly the dominant one during this period of ideological battle with Soviet and Chinese Communism. He argues that Communist aid is “different” from US aid as it is part of the Communist geo-strategy for achieving world domination. Black finds that other countries in the “Free World” have similar rationales to that of the US, though they are more limited in scope and often place a greater emphasis on trade. An interesting study by Goldman (1967) analyzes Soviet foreign aid during a similar period. He concludes that Soviet aid was provided for a number of reasons, including: economic interests, especially during the earlier stages in postwar Communist Europe; humanitarian motives, as the Soviet government felt a certain sympathy for nations that had suffered under colonial and imperial rule; and political self-interest. Although these motives were often mixed, Goldman observes that there was a general dominance, as in the US, of the political motives.

During the Cold War McKinlay (1978) and McKinlay and Little (1977, 1978 1979) conducted research into British, French, German, and US aid relationships with the Third World. A comparative analysis of the findings of the separate studies is presented in McKinlay (1979). McKinlay relates their findings on the nature of aid relationships to the concept of imperialism in which any nation maintains direct or indirect political or economic control or dominance over another. He attributes this to the structure of the international system, rather than domestic structures, in which there are high levels of competition due to a lack of a basic normative order and collective goal formulation and actions in the international system. McKinlay argues that this differs from the domestic orders in which there are extensive formal and informal regulatory frameworks, which in turn create a basic normative order. He argues that the asymmetries within the relatively unregulated international environment encourage dominant nations to promote their own interests and maintain dominance through the use of control strategies. The author identifies two forms of imperialism active within this essentially unmoderated international framework in which asymmetries encourage dominant actors to promote their own national interests and maintain dominance through the use of control strategies such as foreign aid. The first form, McKinlay argues, is political imperialism which is driven by concern for national security, therefore control strategies are employed to enhance national security. The second form identified by McKinlay is economic imperialism which is driven by trade and investment concerns, where control strategies are employed in order to enhance the actor’s material well-being. The author concludes by emphasizing that there are, however, important differences among donors on which interests are promoted and how systematically and comprehensively developed the foreign policy of their aid relationship is (McKinlay 1979: 450).

Hook’s (1996) compilation of case studies regarding the patterns and practices of foreign aid provision during the Cold War and toward the new millennium, similarly, finds that there was a lack of a common goal for aid donors immediately after the Cold War. However, he notes that there is a general transnational trend towards promoting sustainable development, coming out of the ‘two-level game’ of domestic politics and the international situation. He further discusses the implications of this for recipients, as well as the ‘development paradox’ which, he argues, is the inability of the planet to sustain the development of all nations if current development patterns persist. Hook states that most foreign aid programs were launched in the context of superpower rivalry and decolonization, and this context provided the justification to domestic constituents for foreign aid expenditures. As many aid budgets were reduced at the end of the Cold War, Hook observes, plans to implement UN programs for sustainable development were cut back. During this period, he continues, governments faced difficulties justifying and legitimizing large-scale aid expenditures that were not directly related to their own perceived national interests in the post-Cold War period. The author finds that aid flows in this immediate post-Cold War period were generally towards strategic allies of the US, former colonies of France and Britain, and Japanese trading partners, as well as former Soviet bloc transitions states and highly indebted middle-income countries Hook observes that the political meddling of the major superpowers in the world’s poorest states during the Cold War, has frequently been replaced by indifference and neglect after its end. He argues that recipients often have to continue to align their economic, political and security interests with wealthy donors, as they had to during the Cold War. This expanded political economy of the aid regime, he posits, has assured its longevity, although he states that there is still a lack of coherent collective action to protect the global commons.

Boschini and Olofsgard (2007) confirm Griffin’s fears, and Hook’s findings, in their analysis of foreign aid during and after the Cold War. After testing the argument that the reduction of aggregate aid levels was due to the end of the Cold War, they too, conclude that aid budgets were cut with the end of Cold War, although they find no clear impact on aid allocation. They find that these results are consistent across the 17 donor countries panel analysis. The authors also argue that countries considered to be of strategic importance receive higher levels of aid, not only during the Cold War period, but also in the 1990s.

2.5 Donor Influence on International Financial Institutions

Another important aspect of foreign aid policy is the influence a number of donor countries exert on the International Financial Institutions such as the IMF, the World Bank and regional development banks. As these institutions play an increasingly important role in aid policies and financial disbursements, a number of governments have attempted to exert pressure on them in order to pursue their own national foreign policy strategies (Alesina & Dollar, 2000; Beenstock, 1980).

Investigating IMF conditionality agreements, Kang (2007) observes that conditions attached to loans varied both qualitatively and quantitatively, this is despite the IMF’s official economic rules meant to determine conditionality. Kang notes that the five biggest contributors to the IMF (namely the US, the UK, Japan, Germany and France) all exert influence upon the IMF in order to determine IMF conditionality that is not in accordance with official IMF economic rules, in order to promote their own strategic agendas in developing countries. He argues that this influence allows countries with national characteristics that are considered important to the five biggest contributors to enjoy easier borrowing conditionality than those that do not have such national characteristics. Kang concludes that the failure of IMF loan conditionality to address the economic problems of certain recipients can be attributed, at least in part, to the political economic processes within IMF which have led to conditionalities not appropriate to the situation.

Taking a political-economy analysis approach to study IMF lending practices Barro and Lee (2005) identify a number of variables that explained the probability of IMF loan approval, the size of IMF loans and the frequency of participation in IMF lending programs. The authors find probability and size of IMF loans to be larger if a country has a higher level of political and economic proximity to the US and other major Western European countries, if it has a bigger quota, and if it has more nationals working on the IMF staff. Barro and Lee proceed to analyze the effects of this political economy of recipient selection, suggesting that, in general, participation in IMF loan programs is bad for economic growth.

Vreeland (2004) similarly investigates the impact of politics on IMF arrangements and thereby IMF conditionality. He finds that in IMF agreements signed with countries which are favored by the US, conditionality is not very strict or it is not strictly enforced. US influence over IMF lending policies is driven by both political and economic motives, to gain or maintain political support from recipients and to protect financial interests. Vreeland further analyzes a number of aspects of the domestic politics in IMF loan recipient countries with regard to IMF conditionality and the leveraging ability of the IMF in these countries.

Analyzing US influence over the World Bank in the period 1986 to 2002, Fleck and Kilby (2006b) find that US influence over the World Bank is characterized by evolving rather than stable relationships, due to the changing interests and policies of different presidential administrations and varying economic and political situations. They indentify two US interests that have a significant connection to World Bank lending allocations when the period under study (1968-2002) is considered as a whole, namely trade and geopolitical interests (Fleck & Kilby 2006). Concerning trade Fleck and Kilby find that, all else being equal, the greater a country’s share of US exports, the higher the levels of World Bank funds that country receives. With regard to geopolitical considerations, the authors find that countries favored in US bilateral aid allocations were also allocated higher levels of World Bank funds.

Wade (2002) provides an in-depth analysis of the political workings of the World Bank, and the influence exerted on it by the US government in part through the US Treasury. Wade does this through the analysis of two cases where the US exerted pressure to influence the statements made by incumbents in important ideas-controlling positions in the World Bank. Namely statements by the chief economist Joseph Stiglitz, who was fired, and director of the World Development Report 2000 Ravi Kanbur, who resigned. Wade demonstrates that the US is able to exert its influence through the administrative machinations of the Bank in order achieve its objectives (i.e. to have Stiglitz fired, and the WDR rebalanced) while appearing to act with procedural appropriateness (Wade 2002). However, he does identify a certain degree of autonomy for the Bank and limits to the US’s influence upon the organization.

A similar investigation into the influence of donors on IFIs was conducted by Kilby (2006) which focused on the regional Asian Development Bank. He concludes that there is significant donor influence on the Asian Development Bank, most notably by the US and Japan. Kilby argues that even when the cases of China and India are excluded, donor trade interests and geopolitical interests have a greater influence than humanitarian interests.

Aid is used to shape the countries which receive it. In 1980 the World Bank began ‘adjustment lending’ - loans with strings. ‘From that moment the Bank and the IMF cracked the whip. With adjustment lending came the stark choice: transform your economy or there will be no more foreign aid. It was a threat the poorest countries found hard to resist’ (Svensson, 2000b). Between 1980 and 1998 the IMF and World Bank made 958 adjustment loans. Much has been written on the disaster caused by the neo-liberal policies demanded as the price of aid.

2.6 Human Rights, Corruption & the Environment

A more recent development in foreign aid allocation policy, since the end of the Cold War, is its use (at least in government rhetoric) to promote respect for human rights, reduce corruption, and, more recently, to assist in matters relating to the environment. Not only is the priority of human rights in foreign aid allocation part of the rhetoric of many donors, such as the US, in some nations, like the aforementioned, it is legally required that human rights are given priority over economic and military interests (Apodaca & Stohl 1999). However, US legislation allows for special circumstances in which there can be some deviation from this law. Apodaca and Stohl (1999), therefore, studied the relative importance of human rights in US foreign aid allocations. Their findings suggest that human rights concern considerations do play an important role in whether or not a country receives US foreign aid and in determining the levels of aid allocated, with poor human rights performers receiving less US bilateral economic aid than nations with better human rights records. Nevertheless, the authors observed that national security considerations trumped human rights considerations in countries perceived to be vital to US national security, these received aid regardless of human rights performance (Hook, 1998).

Neumayer (2003b) investigates the relationship between human rights considerations and foreign aid allocations. His study on the foreign aid allocations of the 21 OECD-DAC members differentiates between civil/political rights and personal integrity rights. Neumayer finds that respect for civil/political rights is an important determinant for most donor countries in decisions on whether or not to provide aid to a recipient, however, personal integrity rights play a much less significant role. One significant finding, Neumayer suggests, is that when both aspects of human rights are taken together, the like-minded countries’ foreign aid provision is, as far as concern for human rights is concerned, not better than that of other donors.

On a similar topic Alesina and Weder (2002) investigated whether or not less corrupt governments received more foreign aid. They found no evidence of negative impact of corruption on foreign aid in their broad country analysis. However, their findings do suggest differences among donors with Scandinavian donors rewarding less corrupt recipients while the US is more concerned with form of governance (democracy) than with quality of governance.

A more recent form of aid provision is environmental aid. Figaj (2010) investigates the determinants of environmental aid allocation. Her conclusions, though not complete, indicate that 1) poverty and environmental variables are determinants of whether a country received environmental aid or not, 2) aid levels are determined by economic and environmental issues. Figaj finds no evident differences between bilateral and multilateral environmental aid. She also finds no evidence that political variables play a role in environmental aid allocation considerations, however, economic considerations do indicate a concern for financial viability. She attributes this to the fact that most environmental aid is in the form of loans which need to be paid back by recipients.

This has to be set against the target of 0.7 percent of gross national income (GNI) that all these countries signed up to when they adopted the Pearson Report and passed United Nations resolution 1522 in 1970. Having failed to achieve that, these same countries again voted at the Rio UN conference on the environment in 1992 to achieve 0.7 percent ‘as soon as possible’. Ten years later the Monterrey conference reiterated the call for countries to ‘make concrete efforts towards the target of 0.7 percent’. An Action Aid survey in May 2005 suggested that declared aid figures are bogus. It found that 61 percent of aid flows were phantom, and that Britain, the US, Germany, Italy, France, Canada and Japan spend 0.07 percent of GNI on genuine aid (actionaidusa.org). The failure to meet declared aid targets means, according to Oxfam, that 45 million more children will die between now and 2015, and nearly 250 million more people in sub-Saharan Africa will be living on less than $1 a day. The history of failed aid initiatives reads very much like the history of failed debt plans. And equally the reason has never been a lack of finance but a lack of political will. Today none of the G7 countries reach the 0.7 percent target. The US is the least generous in terms of aid, contributing just 0.14 percent of its GNI.

2.7 The Moral Dimension of Foreign Aid

A number of publications deal with the humanitarian motivation for foreign aid provision (not to be confused with humanitarian aid or disaster relief), or the motivation for foreign aid provision which is based on a perceived moral obligation for richer countries to assist poorer ones. Stokke (1989) and Lancaster (2007), for example, attribute this to certain nations’ particular values, norms and traditions. Moreover, humanitarian and moral rhetoric can be employed to justify foreign aid to the general public, although, in some instances it might be provided with less altruistic motivations.

Lumsdaine (1993) provides a more in-depth investigation into the role of morality as a motivation for foreign aid, drawing comparisons among different donors in the period 1949-1989. He further tracks the evolution of foreign aid in light of morality as a determinant. He concludes that changes in domestic political orientations and the constantly changing ethical concerns of the publics can change the character of the international politics, for example, through the institutionalization of various standards and best practices in the OECD-DAC. Lumsdaine argues that any explanation of foreign aid cannot be based solely on political and economic rationales, but must also provide a central place to the humanitarian and egalitarian beliefs of the aid donors.

Hattori (2003) similarly provides an investigation into the moral dimension of foreign aid. He argues that donations given to multilateral grant-giving organizations form part of the ‘ethical core’ of a broader process of the institutionalization of foreign aid. He claims that this institutionalization process is part of the collective effort of former colonizing countries in the postwar period, and that the key organization in this endeavor is the OECD-DAC. He argues that DAC has taken the role of ‘moral bookkeeper’ encouraging the use of foreign aid as virtuous practice. Hattori concludes that this increased ethical discourse and public scrutiny have created the incentive for donors to conform their foreign aid practices to these beneficent standards, and further discusses the implications of this on the international order.

An earlier study on the relation between aid and ideology was conducted by Imbeau (1988). The author develops a conceptualization of international aid-giving behavior based on the notion of a bounded rationality that involves the interaction between objective and subjective factors (Imbeau 1988: 3). From this he deduces four hypotheses to explain different levels of aid expenditures: instrumental, humanitarian, ideological and incremental. He analyzes these hypotheses across 17 OECD donors in the years 1966, 1971, 1976 and 1981 using a regression model. Imbeau concludes that the best predictors of aid as a percentage of GNP, during the periods of study, are the instrumental and ideological hypotheses, the former with a lagged value dependent variable and the latter without. He finds that the humanitarian hypothesis’ explanatory value is insignificant. Imbeau defines ideology as “an organized set of values and goals about the development of a society” (Imbeau 1988: 24). These values and goals, he argues, influence policy, and due to their ingrained nature in a polity, they are more or less constant when considered within 20 year periods. The author argues that it has been shown that in order to gain a reliable picture of foreign policy decision making, it is necessary to simultaneously assess the relationship between objective and subjective factors (such attitudes and values), and foreign policy behavior. The G8 countries give half as much, as a proportion of the incomes, as they did in the 1960s. From 0.48 percent of their combined national incomes of the richest countries in 1960-65, aid had fallen to just 0.34 percent in 1980-85 and 0.24 percent in 2003.

2.8 Conclusion

As has become apparent from this brief introduction on a few of the aspects of the aid politics and democracy, foreign aid is a complex issue. Foreign aid is used to serve a multitude of purposes and any given donor’s foreign aid policy composition changes periodically. The basic lack of funding for aid is only the beginning of the debate, since aid does not mean the rich handing over the wealth they have looted for use as the people of the poorer countries democratically decide. It has always been used by the world’s great powers as a political weapon, a method of rewarding useful allies and of punishing those who dare to question the global order. It has been, and still is, linked to the interests of the donors. It is clear that a lot is known about the history and politics of foreign aid provided by Western industrialized nations. Although there is only a limited literature on Nepal’s foreign aid policies, these need to be put into the perspective provided by the aid practices, both past and present, of Western industrialized nations, as well as the context of Nepal’s own domestic political forces.

References

Alesina, A. & Dollar, D. 2000. Who Gives Foreign Aid to Whom and Why? in Journal of Economic Growth, Vol. 5, No. 1, pp. 33-63.

Alesina, A. & Weder, B. 2002. Do Corrupt Governments Receive Less Foreign Aid?, in American Economic Review, Vol. 92, No. 4, pp. 1126–1137.

Apodaca, C. & Stohl, M. 1999. United States Human Rights Policy and Foreign Assistance, in International Studies Quarterly, Vol. 43, No. 1, pp. 185–98, Blackwell Publishing.

Bandyopadhyay, S. & Wall, H. 2007. The Determinants of Aid in the Post Cold-War Era, in Federal Reserve Bank of St. Louis Review, Vol. 89, No. 6, pp. 533–547.

Barro, R. J. & Lee, J. 2005. IMF Programs: Who is Chosen and What are the Effects?, in Journal of Monetary Economics, Vol. 52, pp. 1245-1269.

Bearce, D. H. & Tirone, D. C. 2009. Foreign Aid Effectiveness and the Strategic Goals of Donor Governments, in The Journal of Politics, Vol. 72, No. 3, pp. 837-851, Cambridge University Press.

Beenstock, M. 1980. Political Econometry of Official Development Assistance,” in World Development, Vol. 8, No. 2, pp. 137-44, Elsevier Science, Ltd.

Berthélemy, J. C. 2005. Bilateral Donors’ Interests vs Recipients’ Development Motives in Aid Allocation: Do All Donors Behave the Same?, in Review of Development Economics, Vol. 10, No. 2, pp. 179-194.

Black, L. D. 1968. The Rationale – Why Foreign Aid?, in Black, Lloyd D., The Strategy of Foreign Aid, pp. 13-21, Princeton: D. Van Nostrand.

Boone, P. 1996. Politics and the Effectiveness of Foreign Aid, in European Economic Review, Vol. 40, No. 2, pp. 289–329.

Boschini, A. & Olofsgard, A. 2007. Foreign Aid: An Instrument for Fighting Communism?, in Journal of Development Studies, Vol. 43, No. 4, pp. 622-648.

Bueno & Smith, A. 2007. Foreign Aid and Policy Concessions, in Journal of Conflict Resolution, Vol. 51, No. 2, pp. 251-284.

Burnell, P. 1997. The Changing Politics of Foreign Aid – Where to Next? in Politics, Vol. 17, No. 2, pp. 117-125, Political Studies Association.

Burnside, C. & Dollar, D. 2000. Aid, policies and growth, in American Economic Review, Vol. 90, No. 4, pp. 847–868.

Burnside, C. & Dollar, D. 2004. Aid, Policies, and Growth: Revisiting the Evidence, World Bank Policy Research Working Paper No. 2834.

Chong, A. & Gradstein, M. 2008. What Determines Foreign Aid? The Donor’s Perspective, in Journal of Development Economics, Vol. 87, No. 1, pp. 1–13.

Christian Aid 2004, The Politics of Poverty: Aid in the New Cold War, ISBN 0904379639.

Cingranelli, D. L. 1993. Ethics, American Foreign Policy and the Third World. New York: St. Martin’s Press.

Claessens, S., Cassimon, D. & Van C. B. 2009. Evidence on Changes in Aid Allocation Criteria, in The World Bank Economic Review, Vol. 23, No. 2, pp. 185-208.

Dollar, D. & Levin, V. 2006. The Increasing Selectivity of Foreign Aid, 1984–2003, in World Development, Vol. 34, No. 12, pp. 2034–2046.

Drury, A. C., Olson, R. S., & Van B. D. A. 2005. The Politics of Humanitarian Aid: U.S. Foreign Disaster Assistance, 1964–1995, in Journal of Politics, Vol. 67, No. 2, pp. 454–473.

Easterly, W. 2003. Can Foreign Aid Buy Growth? in Journal of Economic Perspectives, Vol. 17, No. 3, pp. 23–48.

Figaj, M. 2010. Who Gets Environmental Aid? The Characteristics of Global Environmental Aid Distribution, in Environmental Economics and Policy Studies, Vol. 12, pp. 97-114.

Fleck, R. K. & Kilby, C. 2006. World Bank Independence: A Model and Statistical Analysis of US Influence, in Review of Development Economics, Vol. 10, No. 2, pp. 224-240.

Fleck, R. K. & Kilby, C. 2010. Changing Aid Regimes? US Foreign Aid from the Cold War to the War on Terror, in Journal of Development Economics, Vol. 91, pp. 185-197.

Goldman, M. 1967. Soviet Foreign Aid. New York: Praeger.

Goldstein, J. & Keohane, R. (eds.). 1993. Ideas and Foreign Policy: Beliefs, Institutions, and Political Change. Ithaca, N.Y.: Cornell University Press.

Griffin, K. 1991. Foreign Aid After the Cold War, in Development and Change, Vol. 22, No. 4, pp. 645–85.

Guess, G. M. 1986. The Political Economy of US Foreign Aid: Past and Present, in Guess, George, The Politics of United States Foreign Aid, pp. 1-51, UK and Australia: Croom Helm Ltd.

Hattori, T. 2003. The Moral Politics of Foreign Aid, in Review of International Studies, Vol. 29, pp. 229-247.

Headey, D. 2008. Geopolitics and the Effect of Foreign Aid on Economic Growth: 1970-2001, in Journal of International Development, Vol. 20, No. 2, pp. 161-180.

Hook, S. W. 1995. The Comparative Record, in Hook, Steven W., National Interest and Foreign Aid. Boulder, pp. 143-165, Colo.: Lynne Rienner.

Hook, S. W. 1996. Foreign Aid and the Illogic of Collective Action, in Hooks, Steven W. (ed.), Foreign Aid Toward the Millennium. Boulder, pp. 227-237, CO: Lynne Rienner Publishers.

Hook, S. W. 1998. Building Democracy’ through Foreign Aid: The Limitations of United States Political Conditionalities, 1992-96, in Democratization, Vol. 5, No. 3, pp. 156-80.

Hopkins, R. F. 2000. Political Economy of Foreign Aid, in Tarp, Finn (ed.) (2000), Foreign Aid and Development: Lessons Learnt and Directions for the Future, pp. 423-449, London and New York: Routledge.

Imbeau, L. 1988. Aid and Ideology, in European Journal of Political Research, Vol. 16, No. 1, pp. 3-28.

Irwin, L. G. 2000. Dancing the Foreign Aid Appropriations Dance: Recurring Themes in the Modern Congresses, in Public Budgeting & Finance, Vol. 20, No. 2, pp. 30-48.

Kang, S. 2007. Agree to Reform? The Political Economy of Conditionality Variation in International Monetary Fund Lending, 1983-1997, in European Journal of Political Research, Vol. 46, pp. 685-720.

Kilby, C. 2006. Donor Influence in Multilateral Development Banks: The Case of the Asian Development Bank, in The Review of International Organizations, Vol. 1, No. 2, pp. 173-195.

Lancaster, C. 2007. Conclusions and Conjectures, in Lancaster, Carol, Foreign Aid: Diplomacy, Development, Domestic Politics, pp. 212-226, Chicago: The University of Chicago Press.

Lancaster, C. 2008. Foreign Aid in the Twenty-First Century: What Purposes?, in Picard, Louis A., Groelsema, Robert and Buss, Terry F. (eds.), Foreign Aid and Foreign Policy: Lessons for the Next Half Century, pp. 39-50, New York: M. E. Sharpe, Inc.

Lebovic, J. H. 2005. Donor Positioning: Development Assistance from the U.S., Japan, France, Germany, and Britain, in Political Research Quarterly, Vol. 58, No. 1, pp. 119-126.

Lebovic, J. H. & Voeten, E. 2009. The Cost of Shame: International Organizations and Foreign Aid in the Punishing of Human Rights Violators, in Journal of Peace Research, Vol. 46, No. 1, pp. 79-97.

Lumsdaine, D. H. 1993. Do Moral Mater in International Politics?, in Lumsdaine, David H., Moral Vision in International Politics: The Foreign Aid Regime 1949–1989, pp. 3-29, Princeton, NJ: Princeton University Press.

Lundborg, P. 1998. Foreign Aid and International Support as a Gift Exchange, in Economics and Politics, Vol. 10, No. 2, pp. 127-141, Oxford: Blackwell Publishers.

Maizels, A. & Nissanke, M. K. 1984. Motivations for Aid to Developing Countries, in World Development, Vol. 12, No. 9, pp. 879-900.

Mason, E. S. 1964. Foreign Aid and Foreign Policy, New York: Harper.

McKinlay, R. D. 1978. The German Aid Relationship: A Test of the Recipient Need and the Donor Interest Models of the Distribution of German Bilateral Aid, 1961-1970, in European Journal of Political Research, Vol. 6, No.3, pp. 235-257.

McKinlay, R. D. 1979. The Aid Relationship: A Foreign Policy Model and Interpretation of the Distributions of Official Bilateral Economic Aid of the United States, the United Kingdom, France, and Germany, 1960-1970, in Comparative Political Studies, Vol. 11, No. 4, pp. 411-463.

McKinlay, R. D. & Little, R. 1977. A Foreign Policy Model of US Bilateral Aid Allocation, in World Politics, Vol. 30, No. 1, pp. 58-86.

McKinlay, R. D., & Little, R. 1979. The U.S. Aid Relationship: A Test of the Recipient Need and Donor Interest Models, in Political Studies, Vol. 27, No. 2, pp. 236-50.

Milner, H. V., & Tingley, D. 2010. The Political Economy of US Foreign Aid: American Legislators and the Domestic Politics of Aid, in Economics and Politics, Vol. 22, No. 2, pp. 200-232.

Morgenthau, H. J. 1962. A Political Theory of Foreign Aid, in The American Political Science Review, Vol. 56, No. 2, pp. 301-309.

Mosley, P. 1985. The Political Economy of Foreign Aid: A Model of the Market for a Public Good, in Economic Development and Cultural Change, Vol. 33, No. 2, pp. 373-393.

Mourmouras, A. & Rangazas, P. 2009. Foreign Aid with Voracious Politics, in IMF Staff Papers, Vol. 56, pp. 786-810.

Murshed, S. M. 2004. Strategic Interaction and Donor Policy Determination, in International Review of Economics and Finance, Vol. 13, No. 3, pp. 311-323.

Nelson, J. M. 1968. Aid, Influence, and Foreign Policy, New York: MacMillan.

Neumayer, E. 2003. Do Human Rights Matter in Bilateral Aid Allocation? A Quantitative Analysis of 21 Donor Countries, in Social Science Quarterly, Vol. 84, No. 3, pp. 650–666.

Noël, A. & Thérien, J. 1995. From Domestic to International Justice: The Welfare State and Foreign Aid, in International Organization, Vol. 49, No. 3, pp. 523–553.

O’Leary, M. K. 1967. The Politics of American Foreign Aid, New York: Atherton Press.

Picard, L. A., Groelsema, R., & Buss, T. F. (eds.). 2008. Foreign Aid and Foreign Policy: Lessons for the Next Half Century, New York: M. E. Sharpe, Inc.

Poe, S. C. 1990. Human Rights and US Foreign Aid: A Review of Quantitative Studies and Suggestions for Future Research, in Human Rights Quarterly, Vol. 12, No. 4, pp. 499-512.

Pratt, C. 1989. Humane Internationalism: Its Significance and Its Variants, in Pratt, Cranford (ed.), Internationalism Under Strain: The North-South Policies of Canada, the Netherlands, Norway, and Sweden, pp. 3-23, Toronto, Buffalo and London: University of Toronto Press.

Putnam, R. D. 1988. Diplomacy and Domestic Politics: The Logic of the Two-Level Games, in International Organization, Vol. 42, No. 3, pp. 427-460.

Riddell, R. C. 2008. Does Foreign Aid Really Work?, Oxford: Oxford University Press.

Smith, R. M. 1989. Morality, Humanitarianism, and Foreign Policy: A Purposive View, in Loescher, Gil J. and Nichols, Bruce (eds.), pp. 41-60, The Moral Nation: Humanitarianism and US Foreign Policy Today, Notre Dame: University of Notre Dame Press.

Sogge, D. 2002. When Money Talks, What Does It Tell Us?, in Sogge, David, Give and Take: What’s the Matter with Foreign Aid?, pp. 140-165, London & New York: Zed Books.

Sogge, D. 2002. The Aid Regime and Power Agendas, in Sogge, David, Give and Take: What’s the Matter with Foreign Aid?, pp. 40-64, London & New York: Zed Books.

Stokke, O. 1989. The Determinants of Aid Policies: General Introduction, in Stokke, Olav (ed.), Western Middle Powers and Global Poverty: The Determinants of the Aid Policies of Canada, Denmark, the Netherlands, Norway and Sweden, pp. 9-32, Uppsala, Sweden: The Scandinavian Institute of African Studies.

Svensson, J. 1999. Aid, Growth and Democracy, in Economics and Politics, Vol. 11, No. 3, pp. 275-97.

Svensson, J. 2000. When is Foreign Aid Policy Credible? Aid Dependence and Conditionality, in Journal of Development Economics, Vol. 61, pp. 61-84.

Taffet, J. 2007. Foreign Aid as Foreign Policy: The Alliance for Progress in Latin America, New York and London: Routledge Taylor & Francis Group.

Tarp, F. (ed.). 2000. Foreign Aid and Development: Lessons Learnt and Directions for the Future, London and New York: Routledge.

Thérien, J. 2002. Debating Foreign Aid: Right Versus Left, in Third World Quarterly, Vol. 23, No. 3, pp. 449-66.

Thérien, J., & Noël, A. 2000. Political Parties and Foreign Aid, in American Political Science Review, Vol. 94, No. 1, pp. 151-162.

Tingley, D. 2010. Donors and Domestic Politics: Political Influences on Foreign Aid Effort, in The Quarterly Review of Economics and Finance, Vol. 50, pp. 40-49.

Vreeland, J. R. 2004. The International and Domestic Politics of IMF Programs, paper prepared for the Reinventing Bretton Woods Committee and World Economic Forum conference on The Fund’s Role in Emerging Markets: Reassessing the Adequacy of its Resources and Lending Facilities, Amsterdam, November 18-19, 2004.

Wade, R. H. 2002. US Hegemony and the World Bank: The Fight Over People and Ideas, in Review of International Political Economy, Vol. 9, No. 2, pp. 215-243.

White, H., & McGillivray, M. 1992. Descriptive Measures of the Allocation of Development Aid, Institute of Social Studies Working Paper No. 125, The Hague: Institute of Social Studies.

Woods, N. 2005. The Shifting Politics of Foreign Aid, in International Affairs, Vol. 81, No. 2, pp. 393-411.

Wright, J., & Winters, M. 2010. The Politics of Effective Foreign Aid, in Annual Review of Political Sceince, Vol. 13, pp. 61-80.

Act!onAid, 2011. Real Aid 3 – Ending Aid Dependency.

---

[1] Canada, Denmark, the Netherlands, Norway and Sweden.

[2] This includes, for example, donor self-interest with regard to political, economic or national security considerations.

3. Challenges of Statebuilding and the Consequences of External Forces in Nepal

Chandra D. Bhatta

3.1 Introduction

Statebuilding has become a buzzword in Nepal and discussion on the same theme is gaining momentum. Seminars, conferences, and publications relating to statebuilding are underway. The slogan of making ‘new Nepal’ and ‘rastra nirman’ anchored at the political discourse is the manifestation of such initiatives. Nonetheless, these slogans have not moved beyond political rhetoric as no effort has been made to increase outreach of the state institutions in society. In contrast, successive post-2006 governments’ disowned national symbols, national dress code, and cancelled national unification day (Nepal, 2013: 7). They have also failed to win people’s confidence partly because underlying causes of 10 years of Maoist insurgency remained unresolved and partly it has generated more losers than winners[1]. The unstable political environment and the weak state institutions have disillusioned people as the state has failed to fulfill its core functions[2]. By and large, the current political process has made little effort to bridge the “sovereignty gap, authority gap, and legitimacy gap” (Lockhart and Ghani, 2009). Among other internal factors, external factors have become more decisive in Nepal’s state affairs thus putting the statebuilding[3] process at bay. This began with the political process that took off in 2006 when large numbers of international agencies doled out a huge amount of money on it. Truly speaking, the framework for the 2006 political process was designed outside of Nepal and its heavy dependence on aid for multiple purposes has made it easily swayed to external pressure. Sadly, given the amount of money spent - the post-conflict recovery is not satisfactory. Political aid in recent years has been used to impose alien values and negate the ones on which the Nepali state has been built upon. This has produced multiple power centres in society making it difficult for political parties to forge common consensus among them to address key political issues. A fundamental question one may raise here is on the very nature of the aid spent for the political purposes by the donors. An important question one may also ask at this juncture is: does external assistance always contribute positively towards the statebuilding process or has it been a mere tool to expand spheres of geopolitical influence? If it does, what are the conditions for that? These questions need to be carefully looked into since the donor supported developmental policies after 1990s (the neoliberal policies) and political agendas (the inclusive democracy) after 2006 have pushed Nepal toward political chaos[4]. Neoliberal policies inundated Nepal with NGOs who promoted a ‘rights-based’ society. Later, these very thematic International NGOs harped on agendas such as inclusion/exclusion which now have become carrot for some and stick for others. Part of the blame should go to Nepali rulers who are found to have been interpreting/implementing policies of the state to their suitability and accepted everything that was loaded on them – be it internal or external – and part with external forces who have advertently or inadvertently created leverages at the different layers of society and used foreign aid as soft power to secure their interest and ideology. This paper is concerned with post-2006 political events that occurred in Nepal. Two issues have dominated the statebuilding narrative: the peace process and the constitutional process. These issues were later hijacked by the external agencies and Nepal lost its sovereign power in determining politics, policies, and the law[5] and reverted beyond the 1923 situation[6]. Foreign policy, which should have been used to rescue from such a security dilemma could not act due to some obvious reasons. Against this background, this article attempts to explain the extent of external pressure vis-à-vis the state-building process in Nepal. The paper argues that, among many other factors, statebuilding in Nepal suffers both “because of and despite” its geo-strategic location and purposes proactive foreign policy as the balancing force.

3.2 Conceptual Framework

How do external factors influence statebuilding in post-conflict societies? How does it influence international relations between the aid receiving Southern countries and aid providing Northern countries/agencies? Equally important is to understand statebuilding and analyse the influence of external agencies in the process. Statebuilding, for the purpose of this study, has been primarily defined as a political process that leads to the establishment of state institutions capable enough to maintain raison d’être of the state, enhance state-society relations and expand its authority/outreach internally and externally. Francis Fukuyama (2004) argues that the creation of new governmental institutions and the strengthening of existing ones is essential for state building. Various de facto replacements of the state – NGOs, donors, international organisations, civil society groups - are either inadequate or undesirable or both to perform the state’s core functions, argue other scholars. Statebuilding initiatives have received scant attention in Nepal’s policy making circles. The extant debate that is hovering around different layers of society has become problematic, as it has only strengthened the capacity of the non-state actors (Bhatta, 2011: 139-42). The new social contract has failed to evolve to come up with a common national identity. Similarly, the “old political class” has been abolished and the “new political class” has not been able to win people’s confidence[7]. Top-political leaders from major political parties have been publically slapped by their own cadres owing to a lack of responsiveness[8]. Recentle the former King Gyanendra stated that Nepali political leaders are not self-directed but parichalit (mobilized) from outside. The incumbent Prime Minister has also said that the political key of resignation lies somewhere else and ‘we –leaders’ are just gotis (pawns). One can take these as classic examples of erosion of confidence in them.

Involvement of external actors in statebuilding, by and large, in post-conflict states is on the rise. Generally, two types of international involvement have been observed: (a) in agreement with the state and its agencies and, b) independent international agencies that autonomously purport to extend help in their own images. Indeed, the signing of the 12-point understanding in Delhi in November 2005 and the Comprehensive Peace Agreement of 2006, opened the floodgates for international agencies. Interestingly, international agencies did not come alone; they also brought their own agendas of state restructuring with them. Such free-floating environment and weak state institutions have brought Nepal into the ‘regional geopolitical and global political economy’ limelight. One can argue that many issues that have log jammed the current political process surely have not been Nepali in origin. A serious question that arises here and is also asked frequently by international media is: who precisely is ruling Nepal particularly after 2006? External engagement in statebuilding, in the case of Nepal, could be seen as working in various forms through multiple channels such as:

• Inter-governmental organisations
• Powerful Northern nations
• So called neutral Scandinavian nations
• Immediate neighbours
• International agencies

Taking all these factors as dependent variables vis-à-vis with internal agencies - this paper examines to what extent external initiatives on statebuilding have affected its five central dimensions such as: the endogenous political processes that drive statebuilding, the legitimacy of the state in society; the relations between the state and society; the expectations of the society from the state; and the capacity of the state to perform its core functions. This essay dwells on two different schools of thought concerning the statebuilding process, each of which reflects different sociological understandings of the state. The first one, an ‘institutional approach’ closely related to the Weberian conception of the state, focuses on the importance of institution building and does not necessarily give emphasis on concomitant nation-building efforts. The second, a ‘legitimacy approach’ influenced by Durkheimian sociology, recognizes the need to consolidate central state institutions, but puts more emphasis on the importance of socio-political cohesion in the process (Lemay-Hebert, 2009). This article discusses the role of the external actors/assistance and their relevance in state building processes and endeavours in Nepal within these concepts. Our hypothesis is that Nepal has been receiving cooperation (both in cash and kind) from international community/agencies despite the neo-realist scholar’s claim that international anarchic system prevents such cooperation. However, in spite of cooperation/assistance over the years the situation here has shown no sign of improvement. Evidences demonstrate how powerful countries/agencies have been exerting power through aid/assistance and are molding political and developmental agendas to their terms and conditions. This suggests that there are fundamental gaps in theory and practice when it comes to the point of external initiatives for statebuilding wherein aid also sets foreign policy doctrines. This paper begins with a discussion on statebuilding from outside explaining the role of different actors involved in the political process. While in the second part, issues that impinged on Nepal’s political process and factors that evoked external actors to be active in Nepal’s internal affairs are discussed. By doing actor and issue analysis, an endeavour will be made as to how one reinforces the other in the whole process.

3.3 State-building from outside

Statebuilding from outside has become a frequent phenomenon and one could notice involvement of multiple agencies in the process. This initiative, however, has failed to serve positively in the post-conflict countries earning sizeable criticism primarily for three reasons. First, external actors’ involved in the process do not appreciate local values and political dynamics and try to impose their own agendas which is seen as outright foreign intervention[9]. Second, unfortunately, many of these agencies who do not promote self-help are not neutral in their approach. At many times they are found to have been pitting one group against the other. Impartiality and neutrality – the two key elements with regard to the question of external involvement are also missing (Crocker, 1996). Third, external agencies do not necessarily work with real stakeholders and align with national priorities.

In the context of Nepal, the United Nations Mission in Nepal (UNMIN), donors, INGOs, and neighbouring and other friendly countries are among those involved in the process. UNMIN was invited by the Government of Nepal in 2007 and was established under United Nations Security Council Resolution (UNSCR) 1740 with a limited mandate[10]. During the course of time it has, however, received severe criticism from the Nepali government, people, and also from Nepal’s immediate neighbours. UNMIN’s role in building up trust between the Nepalese Army and the Maoist combatants in the initial phase should be seen as a positive example of international cooperation. There are two schools of thought that led to the disgraceful exit of UNMIN from Nepal. One school views its role in internal politics wherein it has been squarely blamed for consolidating the agendas of United Communist Party of Nepal Maoist (UCPN-Maoist) as a considerable discrepancy was noticed during the registration process of ex-combatants (Bleie and Shrestha, nd:15-16). This triggered some sort of fear among other political parties particularly with NC and UML, who even termed it spokesperson of the Maoists alone. Likewise, UNMIN was also suspected by Nepal’s apprehensive neighbours of consolidating the Western interest (strategic and cultural) in the region[11]. Another school believes that, for all these reasons, both China and India wanted its miserable failure in Nepal so that it would never dream of hovering around issues like Kashmir and Tibet[12]. In addition to UNMIN, many other international agencies have come up who also have their own agendas, recipes and played covert and overt roles in social transformation. Equally important is to reflect on the role of immediate neighbours. While China certainly has increased its influence in South Asia and consolidated its position in Nepal through trade and investment[13] it has, certainly not been imposing any political agenda as such. In fact, China wants a politically stable Nepal and reiterates that it is entirely for the Nepalese people to prepare their Constitution without outside involvement[14]. India, on the other side, seems to have been maintaining upper hand after the signing of 12-point understanding in New Delhi in 2005 and has been playing a key role. Its effort, however, has not been successful. Moreover, unlike in the past, today there are no political forces, including Madhesi parties[15] in Nepal, which India could truly believe (Ghimire, 2012; Jha, 2012: 7). Maoists, who India has embraced in the past, have now become its Trojan horse.

With Nepal becoming a regional geopolitical centre in South Asia, many refer to Himalayan Asia (South Asia plus China), as ‘Asian Balkans’ (Datta-Ray, 1992). India, which used to enjoy a privileged position since 1950s in Nepal, is losing its upper hand for two obvious reasons: first, it takes Nepal for granted and adopted a regime-centric policy, and second, many other actors have arrived with whom India could not strike a balance. However, all is not well with this increased presence of international actors. One scholar argues that significant presence of the Western agencies in all spheres has received over time subsequent allegations for inciting social unrest and deconstructing its Sanskritik worldview (Dahal, 2011: 35). Yet, others are using Nepal as a platform for anti-China activities[16] by embracing Nepali human rights organisations and civil society activists[17]. Such a geopolitical battle has certainly coincided with the interests of both China and India in Nepal although the latter have a different take on Tibet.

Still, somewhat paradoxically, very few donors have contributed towards state building projects. Nepal’s partners in development and peace which includes large number of multilateral and bilateral agencies have shifted their focus to advocacy related programmes as they see Nepali society as part of the problem and have developed their long-term action plans of social engineering to undo, what they refer to, as ‘historical injustices’[18]. The social engineering project initiated by the donors has generated serious antipathy. Public frustration against this could be observed even in rural Nepal where people have realised that large amounts of money spent under various headings such as human rights, federalism, inclusion/exclusion project, and other sensitising programmes by the donors have become elite sports and are only exacerbating different types of conflict in society and demolishing the stock of historically formed social capital[19]. Donors are also blamed for distorting the process of natural evolution/gradual change of institutions and social forces. It appears that as a recipient country, Nepal has little choice how to spend the money received through aid since there are many political strings attached to it. Increased dependency on aid has certainly decreased its sovereignty. The Enabling State Programme (ESP) of the British Department for International Development (DFID) has foreseen the challenges when it was established but the earlier goals have been discontinued. DFID has been blamed for supporting the programme of particular groups, community, and region without respecting diversity and considering its implications in the local community[20]. Nepal Development Forum sustained the spirit of engaging a fragile state, but public policies were not attuned to such policies to overcome the security and order deficit (Bhatta, 2008). One critique argues that donors in Kathmandu have always produced recipes for development, conflict resolution, arms management, security sector reform, transitional justice, and many more without looking outside the ‘bubble’ or searching for stories in the remote villages of Nepal, asking local people the future direction of their country (Denskus 2007: 659). Such policies always risk thwarting the state building process from below and donors’ contribution in post-conflict recovery becomes questionable.

Multilateral and bilateral donor agencies, for their part, are also charged for prompting a parallel economy. Their increased support remained focused on promoting a ‘dual public sector’ (OECD, 2012) rather than promoting a ‘virtual’ one. Nepal’s larger economy is operating beyond the state mechanism and around 46 percent is unaccounted for and spent outside the budgetary framework[21] posing a serious threat in internal and external security of the state. In a country like Nepal, where the informal economy is dominant and lies outside the budgetary framework, it provides ample space for non-state and external agencies to work as per their wishes which might be detrimental for the long-term political stability.

Yet, another problem that lies with donors’ effort in enabling the state is that they are much too dependent on the work of NGOs and civil society who are neither stakeholders nor stake-builders. They expect too much from them and spend a large amount of money in taming urban-based NGOs and CSOs without understanding their nature, composition, and accountability factor. Moreover, too often, donors equate civil society with NGOs and vice versa. These NGOs and CSOs do bring skills, technology, and resources but do not necessarily expand the civic sphere that promotes social capital and strengthens public sphere which is crucial for citizens’ participation in state-building from the bottom-up. NGOs and CSOs have raised social expectations of society beyond what the state can reasonably meet thus damaging state building processes by negatively portraying state legitimacy. Such acts only create opportunities for external forces to sell their policy packages which do not necessarily address challenges of the post-conflict politics. Moreover, many of these organisations are partisan and elitist in nature and may not necessarily understand the needs of the society to recover.

Therefore, realist scholars like Morgenthau are right to claim that international institutions and international community do not necessarily promote peace, because such institutions and community are merely reflections of the ‘balance of power’ (Morgenthau, 1948) and maintain their own order rather than promoting freedom of the state which is precondition for the autonomy of citizens. Merely funding of non-state actors while marginalizing the state agencies risks the creation of political power outside the purview of the state. In the context of Nepal, by funding interest-based groups and NGOs, donors have created parallel multiple power structures. The classic example to this end is the formation of a caucus group in the recently dissolved Constituent Assembly. At this point, whether ‘democracy aid’ would contribute to statebuilding or will meet the same fate as the ‘developmental aid’ (development itself having taken a reverse gear) that Nepal has been receiving for the last fifty plus years in the long term is yet to be seen. What is evident now, conversely, is that externally promoted non-state actors are neither accountable to the state, nor to the society, these groups are already challenging the authority of state and its institutions (Bhatta, 2012). There is poverty in Nepal, though it’s not an absolute term, and there is a political instability – all these do not necessarily mean that the cultural sanctity of the nation should be destroyed, a culture that supports both diversity and tolerance.

3.4 Political Issues

The settlement of political issues is the most important step to push the statebuilding process ahead but it has become an uphill task in Nepal. The country is now going through its most uncertain phase since 1950 and the 12-point understanding has contributed to this uncertainty (Ghimire, 2012: 62-63) as none of the points mentioned in the understanding were implemented. Surprisingly, such points were implemented which are not part of the understanding such as secularism, federalism and republicanism (Regmi, 2012:7). Whose interest is being pursued is yet to be known. Recent statements of the Indian President Pranab Mukherjee, reported in the Indian Express, however; conform otherwise[22]. Earlier political leaders, such as Tanka Prasad Acharya, were hesitant even to hold election to the Constituent Assembly. Acharya was of the view that CA election would eventually undermine Nepal’s sovereignty and integrity in the long run (Fischer, 1997) and he seems to be proven correct. One can claim that these elements are not certainly in Nepal’s favour as this has already transformed Nepali conflict into other forms and multiple-actors have emerged with the passage of time. Such a double standard from the part of India, if it is true, reflects stark mismatch between idealism – which India advocates and realism – which it practices while dealing with Nepal. Taken together, this undermines a place for constructivism in its dealings with Nepal and invokes the Nepalese people to look beyond India. Practitioners, for their part, argue that Nepal has abandoned ‘special relations’ with India by calling for the revision of the 1950 treaty. For them, as a realist foreign policy, New Delhi has been supporting any person, political group, and political issues that best safeguards its security and economic interests in Nepal. With a weak national centre, India will continue to do so in the future, too (Sharma, 2012). From this thesis, one can claim that India seems to have adopted a ‘utilitarian’ policy in Nepal.

India’s influence in Nepal’s foreign and domestic policy continues to be pervasive, but within the last decade we have also witnessed the growing influence of other external powers, which has not been matched by our own capacity to deal with them accordingly (Khatri 2012: 77). During King Gyanendra’s rule, the Western powers, including the United States, were openly involved in bringing about political changes to Nepal, to the point where the then ambassadors from the United Kingdom, United States and India were accused by the royal government of then engaging in undiplomatic activities. As the peace-building process got underway in Nepal after 2006, the level of Western support for moving Nepal into a post-conflict society increased substantially but on their own terms (Khatri 2012: 77-78). Khatri (2012, 78) further goes on to argue that although all the political forces in Nepal insist that the peace-building process is a Nepali effort, the Western powers have continued to be involved in different forms by facilitating meetings, helping the integration and rehabilitation process, conducting dialogues, and setting agendas as well. But the international community has been less than tactful in handling a difficult situation, leading to demarche by governments and criticism by the media and public of gross interference in Nepal’s internal affairs. There were two such instances already in the first half of 2010 when, first, the UN Under-Secretary General, B. Lynn Pasco, came to Nepal to ‘lecture the natives’ on the flaws of the peace-building process, and then in May when one ambassador from the European Union asked the then Prime Minister Madhav Kumar Nepal to resign within 48 hours in order to make way for a national unity government (Khatri, 2010).

Informed analysts believe that in order to secure geopolitical interest, external agencies, including India, are supporting political groups for strategic alliance. Formation of various types of regional political forces is the case in point. The degree of external influence is such that external actors have created leverages across political parties, think-tanks, and societies. The vertical division of political forces on key issues such as federalism, form of governance and secularism[23] owes much to the role played by the external factors. Some are advocating for ethnic-based federalism while others are supporting federalism on the basis of regionalism such as one Madhes, one Pradesh. Yet, others have cautioned that federalism may not be suitable for Nepal. For example, China sees federalism largely a strategy to secure geopolitical interest by creating ‘buffer-state’ within the ‘state’ which was openly opposed by President Ram Baran Yadav. Conversely, what it does explain is that, attempts are being made to reflect their security interest in Nepal’s future political process which involves writing the constitution, and restructuring of the state.

“Geography matters” argues Kaplan (2012) and it is the most fundamental factor in the foreign policy (Spykman, 1942 cited in Kaplan 2012, p. 29-30). “The complexity of conflict in Nepal has inhibited flexibility but its geopolitics has become very difficult to project independent identity, increase its competitiveness and become an independent actor in international politics” (Dahal, 2011, 46). Impacts of the geopolitical battle are well reflected in domestic politics. Nepal’s geopolitical dilemma, by virtue of being landlocked, and juxtaposed between two rising neighbours – China and India have had an inevitable influence and have converging and diverging interests’ vis-à-vis other actors. China’s presence in Nepal is significant and is primarily directed in reducing the influence of other actors in Nepal’s internal affairs[24], to strike a balance with the Indian influence[25] and undo the repercussions of the Western efforts in destabilising it by using Tibetan refugees residing in Nepal[26] under the pretext of cultural freedom and autonomy. Smaller countries from Europe and the Scandinavian region are more interested in expanding their cultural values under the garb of inclusion/exclusion followed by the South Korean organizations. Americans, for their part, followed by the British have preference for strategic equilibrium. One may argue that Nepal’s strategic location, weak state institutions and absence of a national security doctrine and foreign policy in the constitution writing process have further generated a security dilemma for all. Factors like these have tempted many Kathmandu-based foreign missions to distribute money, arrange foreign trips, offer scholarships, projects, to the kith and kin of influential persons directly[27].

3.5 Crisis in Foreign Policy

The crisis in foreign policy and its subsequent consequences could be seen right from the Sugauli Treaty signed between the British East India Company and Nepal in 1816. Since then, in one way or the other, successive regimes in Kathmandu are experiencing external penetration. Part of the blame goes to the way Nepalese elites have been conducting its foreign policy and part with factors such as structural, geographical, and actors which are also mutually forcing Nepal to succumb to international pressure (Tolstrup, 2010). Over the years, the Nepali state has failed to strike a right foreign policy balance. During the Rana regime they became close with British India, offered troops to the British Army, and kept Nepal isolated from the international arena. Panchayati rulers, for their part, tried to maintain a certain balance in Nepal’s foreign policy but there were limits to their effort, and quite a few pitfalls. The tacking tactics (Rose, 1971) practiced during the Panchayat period have generated a lot of suspicions among its neighbours and well-wishers and are a classic example to this end. The democratic era starting from 1990 saw a flurry of democratic activities with political parties of various colors who conducted foreign policy in an erratic way, mostly to suit their partisan interests and interests of the world capitalist system. Foreign policy of the state, during this time, has been used by the rulers and elites to preserve personal gains rather than protect national interests. Regime-oriented foreign policy of this period could not build a ‘common voice’ on issues of vital national interests among political parties[28] despite the binding constitutional provisions for that purpose. In recent time, foreign policy was taken as political rhetoric by the political parties either to support/oppose some countries to get into the helm of political power or to push through personal/partisan agendas. Geographical location has a deep influence in setting Nepal’s foreign policy behaviour and there have been various readings and perceptions of political leaders based-on its geostrategic position. For Prithvi Narayan Shah Nepal was ‘yam between the two boulders, for Rana’s it was an ‘entrepote’, King Mahendra used ‘tacking-tactics’ based on its location, King Birendra called it a ‘link-country’ between China and India and floated the idea of a Zone of Peace to preserve its independence and unique identity (Sharma, 1986: 239-40). Based on these readings various principles were developed such as isolation, neutrality, equidistance, special relationship, and equiproximity to conduct foreign affairs. During 1990s there was a complete state of confusion; for some, human rights and democracy became main tenets of Nepal’s foreign policy. Responding to it, Dahal argues that this is simply confusing ends with means and has thus engendered a teleological fallacy (1998:43). King Gynanedra, during his reign, came up with a ‘transit state’ concept whereas leaders from the UCPN (Maoist) have coined two terms ‘vibrant bridge’ and ‘dynamite’ between the two Asian giants in recent times. Still for others, foreign policy is the extension of domestic policy which itself is a flawed concept in the context of Nepal for obvious reasons. When domestic policy is influenced by the external actors and there have been frequent changes of government, foreign policy derived from such a political process can neither become stable, nor national, nor will it serve the public purpose. Extension theory has relevance only for powerful nations for the expansion of markets and geopolitical interests (Dahal, 1998: 44).

If one reads between the lines, as opposed to the ‘vibrant bridge’ between China and India or ‘dynamite’ between them all other terms carry some sense of geo-strategic sensitivities and an active defensive approach. The latter terms are mere rhetoric and do not really hold much water. In contrast, these concepts grossly undermine the concept of ‘state’ as they simply treat state as an object of manipulation. Moreover, such terms appears to have been used primarily to discontinue the historical foreign policy doctrines developed by P.N. Shah that kept Nepal’s sovereignty intact. One seasoned diplomat timely reminds that today’s Nepal and especially the place it occupies in the globe is attributable to the courage, vision and diplomatic efforts of that generation of leaders and administrators. If we do not give credit where it is due we will also be failing in our duty and an act of decency (Thapa 2012: 7). Dahal (1998) also argues that by not understanding geostrategic importance and underrating the past foreign policy doctrines, Nepal has simply become a pawn in international affairs rather than an active player like during 1950s - 1960s. Political parties here, particularly the Maoists, have developed a trend over the time to disown history and discredit the work of earlier generations. It would be worthwhile to note that coining of radical slogans has become a common phenomenon in Nepal particularly with those who come from leftist side of the political spectrum. Ranting against imperialism and expansionism and at the same time signing of controversial agreements is part and parcel of their strategy and should be seen as a Faustian bargain with India[29] and others to get into the helm of power (Sharma, 2012). Such a behavior in conducting foreign policy has increased the scope of external influence wherein many of external actors work as ‘King Makers’ in national politics. As the regimes keep on changing, the degree of external influence is also increasing in proportion to the resulting crisis in nationalism[30].

Mismatch in policy formulation right after 1990s such as reducing subsidy in agriculture, adoption of deindustrialization process, heavy capital flight, and adoption of financial capitalism coupled with a tendency to acquire more aid for each and every purpose instead of pushing for indigenous development has reduced Nepal’s national capacity and increased dependency on aid. In addition to this, one such elite but influential non-stake-holding class, which B.P. Koirala called Bhuiphutta Barga (rootless class) has evolved over time, that thrives on internal political instability and always tries to create such conditions. This has compelled Nepal to work as the semi-peripheral state of the world capitalist core and prompted external agencies to seek more roles in national affairs. Narayan Khadka (2012: 6), a senior leader from the Nepali Congress party, believes that after 1950 when Nepali Congress waged movement against the Rana regime for the establishment of democracy, external forces surfaced in Nepal’s politics. He further argues that external forces today are institutionalised to such an extent that their influence could be seen in initiating regime change as well as forming the governments. The existence of pro-factors in each and every party who are working for outsiders, is the classic example to this end. Many people believe that external influence has increased with the abolition of the monarchy which has caused substantial erosion of state sovereignty[31] primarily because the extant political leaders are co-opted by the ‘pro-factors’ that is, many of them are either ‘pro-India’, ‘pro-China’ or ‘pro-West’ but not ‘pro-Nepal’. Nationalism, which should have brought all political forces together looks far from reality, as the majority of them are governed by ideology not the values and norms that broader society believes in. Given the rise of the ‘pro’ factors across political parties and gatekeeper elites who exist at every layer of society to create and facilitate opportunities for leverage - it is unlikely that the situation will change for the better. Political philosopher Immanuel Kant argues that too much of international interference subverts democracy and national self-determination of people (Reiss, 1970). Heavy influence of external forces coupled with ahistorical leaders have undermined the values of the Nepali state, the patterns of state-society relations and they have squandered the state building process in Nepal. The prevailing situation indicates that unless there is no strong national centre working to connect centripetal forces, the external influences are bound to steer the Nepalese into multi-directions.

3.6 Challenges ahead and way forward

Nepal’s ongoing political crisis, the Lig Lige race for political power and past experiences show that domestic political upheavals make this country vulnerable to external influence, the consequences of which we come to regret in later years (Khatri, 2012:77). Thapa (2012: 68) also argues that weak governance and growing conflicts have given room for external pressure, if not intervention. Under such conditions, politics and the foreign policy of the nation should have been shaped by keeping Nepal’s geostrategic importance, exposed geopolitical reality, and political and social forces that have emerged recently into consideration. Otherwise centrifugal forces are thought to have been externally induced to strike a strategic balance in their own favour and there are sufficient grounds to believe this thesis. For example, Madhes-based parties are thought to have been created by India while ethnic parties are financially supported by the west and their agencies[32]. In the days ahead, these forces will certainly pose serious challenges in charting out a balanced foreign policy and curtailing external influence. Some of their effects are now quite noticeable in different forms. The growth of centrifugal forces and weakening of the centripetal forces have brought erosion of national values and the heritage of the nation. Similarly, deterioration of the political core of the state and strengthening of its periphery could also be taken as part of this strategy, repercussions of which are well reflected in national politics as well as policy formulation. For example, Madhesi parties have drastically reduced the electoral-base of the Nepali Congress, whereas ethnic parties have weakened the strength of Communist Party of Nepal-United Marxist and Leninist (CPN-UML). In a country, where political parties, civil society groups, and market forces are heavily dependent on the outside world and the state performs its core functions with the help of foreign aid, it would be difficult to have an independent foreign policy image. What has become really worrisome for Nepal, is that India is distributing money unilaterally through its embassy mainly in Terai and the Chinese have also come up with the same proposal of distributing money in the districts adjoining the Himalayan region. Nonetheless, at the outset; such a situation was set by the political leaders of Nepal. Certainly, this will create a dilemma on national security and would usurp people’s loyalty (nationality) from the native state in the long-run. In the absence of these factors – it would become extremely difficult to push the statebuilding project ahead.

Against this backdrop, the Charter-based foreign policy that Nepal has been parroting, over the years, is not going to address all these exigencies. What would be the foreign policy nuances to interact with the outside world as well as to reduce undesirable external influences; protect its national, vital, and peripheral interests; and make it adaptable with the geostrategic shifts in the region? Nepal can neither afford to be isolated, as its larger economy relies on remittance[33] that comes from various parts of the world nor can it take an independent course unless national capacity is strengthened. More importantly, Nepal’s geopolitical importance will continue to increase and attract varied types of international actors. Its rich hydro potential, water resources, and location between the two fastest growing economies in the world, and the global shift of power politics toward Asia will have direct bearing on Nepal’s international relations. Nepal has become a political heartland to keep an eye on South Asia and beyond for many international actors. Tacking northward or southward as the occasion demands will have severe limitations on its utility (Rose, 1971: 287) and will work less with the arrival of varied types of actors in the region. Except the policy penetration brought about by the geographic location, one should not assume political correctness that what is good today will always remain good. Nor will today’s fixed concepts necessarily be valid for tomorrow’s possibly altered group realities (Baral, 2010: 185). Ironically, this brings to the fore a question: have new concepts changed Nepal’s strategic geography? The Arthashastra which is said to have been written by Kautilya, the advisor of Emperor Chandragupta Maurya dwells on political and diplomatic means [as well as military means] to achieve Artha, i.e., national interest. The important point that Kautilya counsels the monarch [the state] is to act according to circumstances and expand its sphere of influence (mandala) and protect its national interest accordingly. In that sense, we will have to be using Artha-styled realism as ‘pragmatism’ (Rangarajan 1962: 551-553) in conducting our foreign policy. Kautilya also suggests diplomacy as a best weapon for small states to protect them from the big ones who mostly rely on ‘power’ alone.

Striking a balanced relationship between India and China is important for Nepal’s political stability and economic prosperity. Nepal’s relationship with India is deep and extensive from every perspective. At the same time, Nepal has historical links with China. Unfortunately, India’s interest and involvement in national politics right after 1950 has created ambivalence in the relationship. New Delhi’s behavior to replace the existing regime in Kathmandu with the one considered more reliable by the Indian authorities has proved counterproductive (Rose, 1971: 291). Similarly, the political sanctuaries India provides to dissident Nepali political forces are contributing toward regime instability in Kathmandu which often give rise to a revival, albeit only occasionally, of what could be called a viceroy syndrome (Lohani, 2013: 4). Baburam Bhattarai, who has been largely perceived as India’s man in Nepal, also points out that the monopolizing capitalist elite of India are exploiting Nepalese people and the state through unequal treaties and agreements and underlines the need of reviewing and correcting these treaties and protect the nationalism (Bhattarai, 2013: 11). Whether this statement is merely for public consumption, which has always been the case, or not, is yet to be ascertained but what is true, though, is that India’s chaotic policy towards Nepal is fueling anti-India sentiment despite its heavy investment in Nepal. Why is that? There is a whole school of thought which believes that India does help Nepali people but gets feedback for the policy formulation largely from the conformists, lacking concrete assessment of objective reality, which ultimately creates trouble at the political level. There are many instruments which India has developed to streamline the relationship between the countries, for example, think-tanks, parliamentary committee on Nepal, and other specialists for this purpose but their inputs are either not heard or insufficient.

Those who held an alternative opinion, jump to the conclusion and view that part of the problem lays with the fact that these instruments are not autonomous and controlled by the bureaucrats and intelligence agencies that do not necessary reflect sentiment of the people on both sides of the state and their attachment with cultural heritage. Inputs they provide adopt the framework of containment rather than building up cohesive relationships. A mismatch results between a realist and normative approach while conducting policy towards Nepal. Such policy seems to have missed the point that a politically stable and democratic Nepal will help to strengthen its own security environment[34]. For Nepal, a prosperous and democratic India can become a major source of prosperity. Both countries should realise the fact that a near neighbor is better than a brother far off. Nepal has to strike a right balance while dealing with the ‘hegemonic power’ of India and the ‘supreme values’ of Bharat which enriches Nepal’s cultural values. It is the historical need for both countries to honour and regulate the closeness between them, since their roots, peoples, cultures, interests, needs, and destinies are intertwined (Duquesne, 2011:124-25). Having said this, the transformation of an age-old dependent relationship with India to constructive interdependence is the need of the hour.

All said, the challenge for Nepal is how best to craft foreign policy so that it can promote shared interest on the basis of sovereign equality and mutual respect with neighbouring countries, international actors, INGOs and others who have taken deep interest in Nepal for various reasons. The new dynamics brought about by all these forces have to be understood. Nepal, as a state, needs to have a strategy to defend the reason of the state, as well as its unique cultural heritages, which has not been the case at the moment.

3.7 Conclusion

Nepal’s experience reveals that when geopolitical goals contradict with statebuilding objectives primarily because the former becomes a major concern for the donors and neighbouring countries, the external initiative for statebuilding could not contribute positively and receives severe criticism. This suggests that donors must refrain from forming the society/state on their own image. Understanding of local dynamics of power is important as it will help to build up local power structures based-on the indigenous knowledge and would be more legitimate and sustainable with local ownership.

The regional strategic environment has forced many external agencies and neighbouring countries to view Nepal through the realist prism. From the above analysis we can conclude that actors and issues are entangled in the recursive relationship between internal and external factors. It appears that there is very little attempt on the part of external actors to improve state-society relations and restore the capacity of the Nepali state to perform its core functions. Assistance from the inter-governmental and international organisations also looks influenced by a similar bias. The exogenous forces have badly divided Nepali society along various fault-lines – such as political, ethnic, societal, religious, and regional. Such conflicts are likely to lead toward progressive dilution of sovereignty and national identities, weaken state institutions and effects of all these will be reflected on its foreign policy.

External assistance is necessary but it is never sufficient to establish institutions that are legitimate and sustainable (Ignatieff et al 2004: 17). Aid can only be effective to a larger extent when it is extended through proper diplomatic channels and a duly owned national political process (Crocker, 1996). Donors can positively contribute towards statebuilding when their actions are based on an understanding of prevailing patterns of legitimacy but they can do harm to the statebuilding when these patterns of legitimacy are poorly understood or ignored. The consequences of not understanding the shape of a political settlement – can lead donors often unknowingly to do harm to statebuilding and this is what exactly has been happening in Nepal. The situation can only improve when aid receiving and providing countries develop some regulatory framework. Unregulated aid has only served local elites, promoted clientalism, discredited donors, and at other times it has been used to work outside the framework of the state.

Foreign policy can be used as a tool of statebuilding like the late King Mahendra and others did. Mahendra’s intricate balance-cum-tacking act has not only produced a greater degree of discretion for his government in international affairs (Rose 1971: 287) but also promoted small state diplomacy effectively. Effective use of foreign policy can curtail strings attached to aid as well. Sadly, unlike political leaders of yesteryears – like B. P. Koirala, Ganesh Man Singh, Man Mohan Adhikari, and K. P. Bhattarai, who could and did oppose external interference, extant political leaders have very little courage to do so irrespective of their ideological position. The question that one may ask here is why Nepali leaders look outside for political blessings? S. D. Muni, Indian scholar on Nepal, asks why Nepali political leaders look upon India simply to form the government whereas no other South Asian states do so? He points out that the problem with Indian policy towards Nepal is that it has traditionally been approached by conflicting expectations’ of political support from Nepal: namely the expectations of the ruling regime as well as the opponents of the regime (Muni, 1996: 82). Similarly, why do Nepali intellectuals besmirch their own country? Why do civil society groups develop projects that harm their own society? Is it only the incentive factors that force them to go against their own nation? How should one understand influence that comes in such a way – defeatist mentality or lack of self-confidence? Under such a state of affairs it would be very difficult to use external assistance for statebuilding purposes. What Nepal needs to do, though, is decide prudently whether aid or independence or alternatively, how much aid at what cost or how much political independence or policy sovereignty/development. That said domestic self-sufficiency in economy would allow minimising undesirable external influence while internalising common humanitarian value of peaceful coexistence.

References and Endnotes

Baral, Lok Raj. 2010. ‘Nepal-India Relations Formal Treaty and Beyond’. Think India Quarterly. October-December, Vol. 13. No. 4.

Bhatta, C.D. 2011 ‘State-Civil Society Interface in Nepal’ in Anand Aditya (ed.), State-Civil Society Interface in Nepal: Renegotiating the Role Between the Private and the Political, Kathmandu: Pragya Foundation and Friedrich-Ebert-Foundation.

Bhatta, C. D. 2008. Challenges of State-building in Nepal, Friedrich-Ebert-Stiftung, Nepal Office.

Bhattarai, Baburam. 2013. ‘Issues of General Congress’, Greatway Magazine. Vol. 4. Issue. 4.

Crocker, C. 1996. ‘Lessons on Intervention’, in: Managing Conflict in the Post Cold War World: The Role of Intervention. Report of the Aspen Institute Conference, August 2-6, 1995. Colorado: Aspen Institute. pp. 77-88.

Bleie, Tone and Ramesh Shrestha. n.d. DDR in Nepal: Stakeholder Politics and the Implementation for Reintegration as a Process of Disengagement. Centre for Peace Studies. University of Tromso.

Dahal, Dev Raj. 2011. ‘The Art of Survival: Policy Choices for Nepal’. Dhaulagiri Journal of Sociology and Anthropology, vol.5.

Dahal, Dev Raj. 1998. ‘Geopolitics of Nepal: Survival Strategy of Small State’ in Anand Aditya (ed.), The Political Economy of Small States. Kathmandu: Nepal Foundation for Advanced Studies/Friedrich-Ebert-Stiftung, Nepal Office.

Datta-Ray, Sunanda K. 1992. ‘Juggling with the Himalayan Balkans’ New York Times. October 13.

Denskus, Tobias. 2007., ‘Peacebuilding does not build peace’, Development in Practice, vol. 17, no. 4-5, August, IDS, Sussex.

Duquesne, Isabelle. 2011. _NEPAL Zone of Peace: A Revised Concept for the Constitution._Kathmandu: L’Harmattan and Bhrikuti Academic Publications.

Fisher, James with Tanka Prasad Acharya and Rewanta Kumari Acharya. 1997. Living martyrs: individuals and revolution in Nepal, Oxford University Press (Oxford India Paperback).

Fukuyama, Francis. 2004. State-building: Governance and World Order in the 21st Century, London: Profile Books.

Gajurel, Deepak. 2010. ‘Political Deadlock in Nepal: Role of External Forces’. Paper presented at the seminar Telegraph Weekly/FES Media Seminar. Kathmandu. 19 December.

Galtung. J. 2003. ‘Transformation of conflict in Nepal: A Human Rights Perspective’ in Bipin Adhikari (ed), Conflict, Human Rights and Peace: Challenges before Nepal (Rishikesh Shaha Memorial Lectures 2003), pp. 108-132. Kathmandu: National Human Rights Commission.

Ghimire, Yubaraj. 2012. ‘Nepal: Dignifying Interdependence: Neighbourhood Views of India’. The Gateway House. Indian Council on World Affairs. Mumbai.

Ghimire, Yubaraj. 2012. ‘No Partner Left’. Indian Express. New Delhi. 25 December.

Ghani, Asharaf and Clare Lockhart. 2009. Fixing Failed States: A Framework for Rebuilding a Fractured World. Oxford University Press.

Ghani, Ashraf et al. 2006. ‘An Agenda for State-Building in the Twenty-First Century’, vol. 30, winter.

Jha, C.K. 2012. Rajanitik Uttarayan Dhilo Hunae Sanket’. Kantipur Daily. Kathmandu: Kantipur Publications. January 3. p. 7.

Kaplan, Robert D. 2012. The Revenge of Geography: What the map tells us about coming conflicts and the battle against fate. Random House. New York.

Khadka, Narayan. 2012. ‘Miyobinako Rajniti’. Kantipur daily. Kathmandu: Kantipur Publications. December 31, p. 6.

Khatri, Sridhar K. 2012. ‘Foreign Policy in the Changed Context of Nepal’. Briefing and Orientation Programme for newly designated Ambassadors of Nepal April 2-8, 2012. Paper presented a programme organised at the Ministry of Foreign Affairs, 3rd April, 2012. Kathmandu.

Khatri. Sridhar K. 2010. ‘Missed Opportunity-I&II’, The Kathmandu Post, March 16 and 17, 2010. Kathmandu.

Lemay-Hebert, N. 2009. ‘Statebuilding without Nationbuilding?’ Legitimacy, State Failure, and the Limits of the Institutionalist Approach’.Journal of Intervention and Statebuilding. Vol. 3. No. (March, 2009)

Lohani, Prakash C. 2013. ‘Shifting Paradigm: Nepal-India Relationship. _Republica National Daily. _January 5.

Rose, Leo. 1971. Nepal’s Strategy for Survival. Berkeley: University Of California Press

Morgenthau, Hans J. 1948. Politics Among Nations: The Struggle for Power and Peace, University of California.

Muni, S.D. 1996. India-Nepal: A Changing Relations. Delhi: Konark Publishers Pvt. Ltd.

Nepal, Gyan Mani. 2013 ‘Jana Nayak or Khala Nayak’ (People’s Leaders or Villains). Nagrik Daily. January 6. p.5.

Rangarajan, L.N. (ed.). 1992. The Arthashastra, New Delhi: Penguin Books.

Regime, Kumar. 2012. ‘Chudaiya Melmilapka Kadi’. Kantipur Daily. Kantipur Publications. 31st December.

Reiss, H.S. 1970. Kant: Political Writings, Cambridge University Press.

Sharma, M. 2012. ‘Faustian Bargain’ in Republica National Daily, September 06.

Sharma, Jagdish. 1986 (reprint 2006). Nepal Struggle for Existence. Kathmandu: Gorkhapatra Sansthan Press.

Spykman, Nicholas J. 1942. American’s Strategy in World Politics: The United States and Balance of Power, with a new introduction by Francis P. Sempa (New York: Harcourt, Brace, 1942), pp. xv, 41. 2007 Transaction editions.

Thapa, Bhek Bahadur. 2012. ‘Challenges of Nepal’s Foreign Policy’. A Report on Emerging Challenges of Nepal’s Foreign Policy National Level Seminars. Jointly organised by Friedrich-Ebert-Stiftung and Institute of Foreign Affairs. Kathmandu.

OECD. 2010. Conflict and Fragility: Do No Harm – International Support of Statebuilding. OECD.

Tolstrop, Jakob. 2010. ‘When Can External Actors’ Influence Democratization? Leverage, Linkages, and Gatekeeper Elites’, CDDRL Working Papers, Stanford University.

---

[1] Forty-point demand submitted by the Communist Party of Nepal (Maoist) in 1996 to the then government headed by Sher Bahadur Deuba of Nepali Congress (NC) clearly underlined the need of addressing all these grievances. But with the end of ten years of their insurgency, nothing has been done. Had those demands been addressed, the splinter group of the CPN (Maoist), now headed by Vaidya, would not have submitted seventy-point demand to the current government of Dr. Baburam Bhattarai.

[2] Ten functions of the state are: (1) legitimate monopoly on the means of violence (2)administrative control (3) management of public finances (4) investment in public finances (5) delineation of citizenship rights and duties (6) provision of infrastructure services (7) formation of the market (8) management of the state’s assets (including the environment, natural resources, and cultural) (9) international relations (including entering into international contracts and public borrowing) and (10) rule of law (taken from Ghani et al 2006:111).

[3] Statebuilding should also be understood as peacebuilding and the political process.

[4] The neoliberal policies used the rich to work against the poor and the inclusive democracy gave incentives to the poor to work against the rich.

[5] After the 12-point understanding all the political decisions were not made in Nepal. One analyst even accuses the UN for undermining Nepali sovereignty when its General Secretary Ban Ki Moon asked India to resolve the problems of Nepal. See for detail ‘Golden Middle Path in 1990 Constitution’, in People’s Review Weekly. 3-9 January, 2013, p. 2.

[6] Though Nepal has been an independent state from time immemorial but it was only in 1923 it was formally recognised as ‘sovereign state’ (by the British) and its policies as ‘sovereign policies’ with no external influence/involvement in their formulation.

[7] This is primarily because the ‘new social contract’ developed on the basis of 12-point understanding and beyond that federalism, secularism and republicanism, out rightly negates the historic values of Nepali society and in the same vein, unlike the monarchy the new political class has failed to rise above the partisan interest and has been attempting to discontinue the historical identity of the Nepali state.

[8] Jhala Nath Khanal from the CPN-UML, Prachanda from the UCPN (Maoist), and Sushil Koirala from the Nepali Congress have been attacked by their own party cadres.

[9] Declaration of Nepal as a secular state, which was not even the agenda of the movement, where 90 percent people practice Hinduism under the influence of outside forces has grossly undermined the values of Nepali society. It has also created fissures in societal groups as it was the uniting factors between the two communities – Pahadis and Madhesis.

[10] It is mandated to: (a) monitor the management of arms and armed personnel of the Nepal Army and the Maoist army, in line with the provisions of the Comprehensive Peace Agreement; (b) assist the parties through a Joint Monitoring Coordinating Committee in implementing the Agreement on Monitoring of the Management of Arms and Armed personnel (AMMAA) of both the Nepal Army and the Maoist army; (c) assist in the monitoring of ceasefire arrangements; and (d) provide technical support to the Election Commission in the planning, preparation and conduct of the election of a Constituent Assembly in a free and fair atmosphere.

[11] Many referred its then Head Ian Martin as the ‘Cultural Czar’ of the West. See Tarun Vijay ‘India must speak out’ in Times of India. 17 Apr 2008.

[12] Maila Baje. 2012, ‘Trilateral Reality Check’, in Nepali Notebook at www.nepalinote.blogpost.com. December, 03.

[13] Chinese grant alone is $31.75m per annum in 2012.

[14] Statement of the Chinese Premier Wen Jiabo during his visit to Nepal in January 2012.

[15] Chandra Kishore Jha, a Madhes-based journalist in his recent opinion peace argues that although Madhes-based parties are close to Delhi and have initiated a lot of developmental works in the region the Madhesi parties are now however shifting their earlier position toward Delhi.

[16] On October 16, 2011 Chinese Ambassador to Nepal Yang Houlan told Nepalese media that we have authentic information that our oldest and nearest friend Nepal is turning into a playground for anti-China activities. Some international and domestic forces are coordinating their activities against China.

[17] It would be worthwhile to quote here that Nepali human rights organisations are divided along different agendas. Some of them are engaged in fomenting free-Tibet movements while others are spreading cultural values under the garb of human rights. These agencies are funded accordingly by the International NGOs.

[18] The UNDP Office in Kathmandu itself is engaged in fomenting fault lines in society through its subsidiary agency called Centre for Constitutional Dialogue (now name changed).

[19] Statement made by one of the participant in Mainapokhari, Dolakha District at a seminar on statebuilding organised by FES on 23-24 November, 2012.

[20] Duncan stands behind aid for ethnic groups at www. http://www.ekantipur.com/the-kathmandu-post/2012/06/27/top-story/duncan-stands-behind-aid-for-ethnic-groups/236513.html accessed on 4th January, 2013.

[21] Conversation with former Vice Chairman of the National Planning Commission Prof. Guna Nidhi Sharma. December 28, 2012.

[22] See for detail Indian Express, ‘India wants Stability in Nepal’, 27 December, 2012. India has a long interest in putting Nepal under its sphere of influence (Sharma: 1986 (reprint, 2006) 213-14) and the post-CA election has provided such an opportunity. This precisely is the reason why India has increased its activities in domestic politics by floating agendas which are more in its own favour than in Nepal’s.

[23] Global Times in its June 12, 2012 edition reported that there has been highest level of international intervention in Nepal.

[24] In February 2009, the Chinese Government presented Nepal a draft of a proposal of Comprehensive Peace and Friendship Treaty identical to that of the 1950 Treaty signed between Nepal and India.

[25] Discussing the role of China and India Johan Galtung pointed out that while China is careful, a very careful actor, they seem generously guarding their borders, and look extremely self-centred. Their reference in the Nepalese affairs is nothing when compared with their southern neighbor (Galtung, 2003: p. 132, Rose, 1971: 288).

[26] Statement of the Chinese Ambassador to Nepal H.E. Mr. Yang Houlan speaking on the Nepal Council of World Affairs (statement also televised in Image Channel on 13th September, 2012 at nine o’clock news) in Kathmandu on 13th Sept, 2012.

[27] The classic example is that the high profile persons of society (who also have capacity to influence foreign policy) including top class bureaucrats (retired and serving), so called civil society leaders, and academicians are on the payrolls of donors/INGOs who have their own strategic agendas to fulfill. See Pokhrel Lai Sadhe Pach Lakh Ko Jagir (Pokherel is Awarded with job that pays him five lakhs, fifty thousand per month) for detail Tarun Rastriya Saptahik, November 26, 2012.

[28] The classic example is the Mahakali treaty that was signed with India where political parties were deeply divided on the nature and content of the treaty. The constitution of 1990 have explicitly mentioned that in order to endorse treaty or agreements of vital national importance there should be a two-third majority in the parliament.

[29] Signing of Bilateral Investment Promotion and Protection Agreement (BIPA) with India in 2011 by the Prime Minister Dr. Baburam Bhattarai (even India was not willing to do it given the murky political situation in Nepal) should also be seen from this perspective as some of its articles (art. f) are very controversial. See also Maoist top guns at odds over position on India at http://www.ekantipur.com/2013/02/05/top-story/maoist-top-guns-at-odds-over-position-on-india/366604.html. Accessed on February 05, 2012. Prime Minister Bhattarai even used the terms like ‘merging and sub-merging’ of Nepal either with India or China which also created controversy.

[30] This is because Nepali dissident forces have always taken shelter outside of Nepal and used movement against the regime. This has given space for external meddling in internal affairs. This precisely is the reason why Nepal’s sovereignty and nationalism comes at stake with every major political change starting from 1950 till 2006.

[31] Right from the time of Prithvi Narayan Shah Nepalese Monarchy played the role of safety valve of society against imperialism.

[32] It has been reported that India helped to form the Terai-Madesh Loktantrik Party (Gajurel 2010: 4) whereas DFID, International Institute for Democratic and Electoral Assistance (IIDEA) and others funded Nepal Federation of Indigenous Nationalities (NEFIN) to form ethnic parties in Nepal.

[33] Remittance contributed approximately 24 percent to national GDP.

[34] Though one can always question how would Nepal, a small country which is heavily dependent on India, pose a security threat to India. In fact, it could always be the other way round.

4. Poverty Alleviation Status in South Asia during 1990-2015 and Options

Dr Y B Thapa

4.1 Introduction

Poverty alleviation status in the SAARC-group of South Asian countries, namely Afghanistan, Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka, is fairly clear at the country level but the regional picture of poverty or corresponding strategy for improving livelihood of people is less obvious. So the present tries to assess poverty in SAARC region by examining the aggregate situation only. This assessment of poverty is related to targets of SAARC Secretariat (2004 and 2006) and propositions in UN HLPEP (2013) such as the Millennium Development Goals (MDGs)/SAARC Development Goals’ (SDGs) acceleration till 2015 and their follow up beyond 2015. Empirically, the functional inter-relationship among poverty/human nutrition, economic growth and development of factor endowments in Southern Asia (i.e., SAARC plus Myanmar, Tibet autonomous region/China, and Iran) are examined elsewhere such as Thapa (2013) and others, but what follows here is an assessment of institutional targets and progress in these directions.

The study begins with a review of population size, age, gender and dependency aspects in the region and then concentrates on the MDGs/SDGs’ livelihood indicators. It leads to a discussion on SAARC Member States’ approaches to economic growth and inclusive development activities. The study concludes with some methods to augment the regional resources, products and services for achieving targets of poverty alleviation, economic growth and endowment enrichment. It relies on the World Bank’s World Development Indicator 2013 dataset for analysis of ratio and indices.

4.2 Results and Discussion

People, labor force and livelihoods

Demographic setting, occupational patterns and sources of income and services are important premises for any poverty alleviation activities. The SAARC region had 1.65 billion people (25% of the world) in 2012 which is growing by 1.28% annually. During 2000-12, the share of female population increased from 48.3% to 48.5% of the total. Thus there are several women as unaccounted for if we assume an equality of population sizes by gender. Population in the economically active age group (16-64 year) has slowly risen from 60.3% to 64.5 %, population of children decreased from 35.5% to 30.4% and old age people also increased from 4.3% to 5.0% during this period. The share of rural areas in the population decreased slowly from 72.7% to 68.6% in total. The increase in the population of the working age group and that in urban areas is more conducive for poverty alleviation activities.

The occupational pattern of population by industry during 2000-10 gradually changed in that the employment share in agriculture decreased from 59.2% to 50.8%, that in industry went up from 15.5% to 22.4% and lastly that in the service sector slightly increased from 24.7% to 26.8% of the total. Such an occupational shift of labor force away from rural to urban area and from agriculture to industry and services has been much slower than one would expect for a rapid socio-economic transformation in the region.

In terms of income, the level and structure of gross domestic production (GDP) are the most important determinants for poverty alleviation works. The GDP per capita has increased rapidly during 2000-12. However, the share of gross valued-added (GVA) by industry during 2000-12 changed slightly as follows: the share of agriculture diminished from 20.7% to 15.5%, that of industry remained flat in the range of 22.3% to 22.7% of which, the share of manufacturing actually declined from 13.2% to 12.5% and finally the share of services significantly increased from 43.8% to 49.4% of the GVA in a decade. The stagnation in relative size of manufacturing activity in GVA would hamper creation of employment there, which is very valuable for sustainable reduction of poverty among the people. Agricultural growth rates are important also to support food and nutrition security of people, and bring price stability in the economy. The above demographic, occupational and economic trends would have mixed effects on the livelihoods and inclusiveness of social and economic development activities. A brief assessment of the SDG livelihood indicators’ targets and progress follows next.

Pillars of MDGs and SDGs, and Dynamics of Poverty

The MDGs (1990-2015)/SDGs (2005-15) have four pillars, namely livelihoods support, improvement in health care, educational development and environmental sustainability. In total, the SDGs have 22 goals and over 65 indicators. The livelihood pillar alone has about 30 indicators that cover a wide range of activities but these are difficult to monitor due to paucity of data. For example, the SDGs emphasize local good governance and delivery of justice for the poor, and livelihoods from ‘capability development’ perspectives. Unlike with UN with MDG indicators, the SAARC Secretariat leaves it up to its Member States to quantify the targets for SDG indicators in terms of the indicators’ milestones and end results till 2015.

The assessment here relies mostly on the international income poverty line of US 1.25 per capita daily (in US$ 2000 price at purchasing power party - PPP), and also uses the national poverty lines (based on expenditure approaches). We try to track livelihood indicators for 1990-2012 in terms the progress vis-a-vis targets by 2015. Thus, Figure 1(a) below presents the overall scenario of poverty reduction in the world, SAARC area and India. These results are to be interpreted in the light of commitment of UN agencies to poverty alleviations such as the targets of the World Food Summit 1996, MDGs (1990-2015), and emphasis of Rio (1992)+20 on sustainable development framework/ environmental issues. The WFS wanted to reduce by one-half the absolute number of people under poverty during 1990-2010, the MDG process revised the target as reducing the percent people under poverty by one-half during 1990-2015, and the Rio+20 process implies a shift of core agenda from poverty reduction to (environmentally) sustainable development activities. The SAARC’s SDGs try to reinforce the centrality of poverty reduction by aiming to reduce the absolute number of poor by one-half during 1990-2010.

Against above shift in paradigms from poverty to environment, the trends in Figure 1 (a) indicate some serious aspects as follows: (1) In the world, the number of poor people declined slowly from 1.90 billion to 1.25 billion during 1990-2010 and may come down to 1.10 billion by 2015 as compared to the target of letting 0.9 billion people remain poor. Thus after completing the UN MDG (1990-2015) process, we may well have over one billion people reeling under poverty amidst affluence in the society; (2) In SAARC area, the number of poor people decreased nominally from 611 million to 499 million during 1990-2010; (3) In India, the number of poor people declined from 464 million to 394 million during 1995-2010; (4) In SAARC area outside India, the number of poor people declined from 160 million to 105 million. Thus SAARC area continues to have two-fifth of world’s poor people. Here, the absolute number of poor people began to decline after 2005 and much is needed to accelerate this process.

The poverty head count ratios (HCR) in SAARC Member States, which are based on national poverty lines (NPLs of expenditure), are shown in Figure 1(b) since 1990. The expenditure approach assumes that if a household had managed to keep her consumption level above poverty line with borrowed, gifted or remitted income at the time of survey, it would be regarded as non-poor. All the SAARC countries have been able to lower the incidence of poverty during 1990-2010 except perhaps Afghanistan and Pakistan; in the latter case, political conflict and disasters like floods/earthquakes might have undermined attempts to reduce poverty. Based on the NPLs, the estimates by countries add up to show that incidence of poverty in the region decreased from 46.4% to 29.9% during 1999-2010. Likewise, the IPL based poverty HCR declined from 53.8% to 31.0% during this period. Nevertheless, poverty alleviation in the SAARC area remains behind MDGs/SDGs targets of halving the incidence of poverty by 2015. MDGs/SDGs do not say much about the fate of the remaining people under poverty!

The trends of some 30-indicators of livelihood in South Asia during 1990-2012 are assessed in Table 1. The first column presents livelihood goals and their respective indicators. The last column has targets that are based on this writer’s understanding of the government’s views. We list below some messages emerging from sets of indicators’ pathways during 1990-2012 in South Asia:

1) The hunger and poverty eradication goal (such as malnutrition of children, under-nutrition of population or calorie deficit in diets) are off-track as compared to targets;

2) The goal of halving proportion of people may have potential to be on-track as discussed in the foregoing sections;

3) The goal of adequate nutritional and dietary improvements (e.g., vitamin A and iodized salt) is under-performing;

4) On the goal of ensuring robust and pro-poor economic growth process, the Gini index of inequality has risen instead of fallen, the income/expenditure shares of the poorest 10% or 20% of people have fallen instead of rising, and the income share of the top 20% people have shut up rather than moderating. The reasons behind such contradictions are partly due to negative-growth of employment of women, negative growth of employment in agriculture and perhaps in manufacturing by industry;

5) Progress on the goal of strengthening connectivity of poor regions and poor as social groups has lagged behind schedule for all five selected indicators;

6) Progress on the goal of reducing institutional and social vulnerabilities of poor, women, and children has left much to be wanted for all indicators;

7) Database on the goal of ensuring access to affordable justice could not be measured here; and

8) The goal of pursuing effective participation of poor and women in anti-poverty policies is partly quantified here in terms of women law makers in the parliaments which are about 20% of total strength.

To conclude, the under-delivery of livelihood indicators may be due to constrains of supply such as inadequate economic growth, governance and accountability, or weaknesses in designing the economic plans and programme interventions.

Economic Growth that is Rapid, Broad-based, Inclusive and Sustainable

South Asia presently has the onus to reduce poverty by about 50 million annually plus new batch of poor people that the society would beget if we were to be near “Zero-Hunger” type of policy targets in the post-2015 decade. For this, we would need an economic growth process that is rapid, inclusive and sustainable. The South Asian gross national income (GNI) has indeed increased from US$ 446.9 to U$ 1,422.0 per capita during 2000-12. But such a rise of income has not been sufficient to reduce poverty as planned. So we need to conceptualize a process for improving the peoples’ welfare, economic growth and factors of production. Apparently, the elasticity of poverty alleviation with respect to economic growth rates has been low. So the production activities with high poverty alleviation-responsiveness like agriculture, small and medium enterprises, natural resources management, and other off-farm rural activities have stagnated or grew more slowly, but the other industries that are less responsiveness to poverty alleviation, namely extractive industry, high-end manufacturing, etc., have grown faster. This duality in the composition of economic growth calls for corrections in natural resource uses and production policy in relation to poverty alleviation targets. On the contrary, if a high economic growth is obtained with smaller growth in employment, its indirect cost can be high due to poverty or demand-constraints for final goods and diversion of funds to transfer programs, which will be at the cost of capital investments due to crowding out effects. So our preference is to maximize economic growth through employment-intensive methods and ensure international competitiveness by using improved technology.

Note: Based on WDI 2013 dataset. Data reported here are about the livelihood’s available/closest indicators. The following apply. (a) Figure under 1990 refers to 1991; (b) Figures under 1995 and 2000 refer to 1996 and 1999; (c)Population weighted; involved some interpolations, values outside data range assumed as equal to the adjacent value; (d) Figure under 2000 refers to 1999; (e) Figure under 2010 refers to 2009; (f) Agricultural value added is TAE basis except for 2011 and 2012; (g) Figure under 2010 refers to 2008; (h) Figure under 2000 refers to 2002; (i) Pertains to weighted average of Bangladesh, India, Nepal and Sri Lanka; (j) Figures under 1995 and 2005 refer to 1993 and 2006; (k) Figure under 1995 refers to 1997. (*) Figures with asterisk under year 2012 actually refer to 2011. TI is Indicative target as assumed by the author (or the reader may do so).

The South Asian national development plans generally pursue three-step recursive logic or functions (f) for economic growth, employment and poverty alleviation such as:

Poverty alleviation = f (Employment, social protection)

Employment = f (Economic growth, sectoral priority), and

Economic growth = f (Capital formation, technology)

Note: Data in last column refer year as (a) to 2009-11, and (b) to 2010. (/_) ICOR is on 5-year average ending at given year in the table. TAE is tri-annum average ending; HCR is head count ratio.

Some key findings about the above relationships in South Asia on a tri-annum average ending 2005 and 2012 are presented in Table 2; it has three blocks. The top block in rows deals with people, income and poverty; the middle block deals with factors affecting economic growth; and the last block deals with labor quality. The top rows indicate that a slowdown in population growth rate and high/robust economic growth rate have helped to improve the elasticity of poverty reduction with economic growth; this elasticity coefficient increased in absolute size from (-) 0.46 to (-) 1.08 for 2002-05 and 2008-10. That is effectiveness of economic growth in reducing poverty has increased. However, the economic growth rate itself has decelerated from 7.91% to 6.40% annually. The price inflation rate has accelerated from 6.43% to 9.21% during TAE 2005-2012. Thus, the real income of common people decreased and this minimized the poverty alleviation effects of economic development.

The primary factors affecting economic growth rate are labor, capital and natural resources. South Asia has witnessed a reduction in the growth of labor force from 2.7% to 1.1% annually and similarly labor force participation rate and unemployment rates too have decreased during TAE 2005 and 2012. Meanwhile the gross capital formation has increased from 29.1% to 35.9% of GDP with increase in incremental capital output ratio (ICOR) from 4.8 to 6.6 during as five-year average ending at 2005 and 2012. It appears that the economic production processes are faced with low employability of labor, decreased efficiency of capital, and increased scarcity of natural resource such as water and energy. We confine here to discuss more on labor force quality.

The strategy for employment-intensive economic growth would call for much more improvement in our labor force in terms of education, skills and entrepreneurial ability. For example, the proportion of labor force even without primary level of education has slowly decreased from 47.9% to 40.3% of total labor force during 2005-12. Labor force with tertiary education (i.e., above secondary level) was barely 9.8% of total labor till 2012. Thus one may note that the basic key for economic growth and poverty alleviation/human nutrition is increase in education of working class and households in South Asia.

4.3 Recommendations on Policy, Programmes and Agenda

The forgoing discussion on trends of poverty, pathways of MDGs/SDGs’ livelihood indicators, economic growth and primary factors/ natural resources throws up many recommendations for improving the economic productivity and peoples’ welfare. The relation of poverty reduction/human nutrition improvement with economic growth and the latter’s determinants have many implications on MDG/SDG acceleration and their refinements. The SAARC Secretariat (2013) has offered some way forward for improving food security of the poor and social inclusion. Aside from it, some of the priority areas for an inclusive economic growth process follows here. Firstly for easing the constraints to economic growth rates, we can develop regional energy and water resources under the existing international trade laws and investment agreements. Collaboration by stakeholders for building regional electricity grids, oil pipelines and gas pipelines, and augment water supplies are priority areas. The SAARC Regional Centers on Energy/Pakistan, on Forestry/Bhutan, and on Hydrology and Meteorology/India and others might play nodal roles in these areas.

Second, the national planning commissions in the region need to work regionally as well to usher the inter-country complementarities of common public goods and resource pooling for higher economic growth and larger social development goals. Third, development of labor force, both as a factor of economic production and target of social development, would usher their education, skills and entrepreneurial ability. So the educational institutions such as the South Asian University (SAU) may collaborate with national centers of excellence and open universities (say IGNOU and likes) for proper targeting of the courses, elites and common people across the region. Finally in terms of regional/sub-regional projects, the stakeholders might accord priority to the following subjects:

1) Rain harvesting and water storage in trans-boundary rivers’ upper catchment areas, and water sharing in lower basins;

2) Energy security involving oil/gas pipeline, electricity grid, load management and power supply-mix switching;

3) Highway/railway/river way/airway/costal way network and connectivity;

4) Mutual trade and investment co-operation for regional value-chain development;

5) Inter-country banking, finance, investment and insurance, travel and visa;

6) Poor peoples’ asset building programmes like micro-finance, micro-insurance, land development, community forestry, renewable energy, education and skill development;

7) Food and nutrition security legislation and intervention, agricultural growth, small and medium enterprise development;

8) Social protection programmes like Employment Guarantee Act, old age pension, and gender and social inclusion activity;

9) Urban poverty/slum improvement activity; and

10) Participation of poor and targeted people in state affairs and expeditious delivery of justice.

Among the above policy area and programme interventions, the SAARC institutions have already initiated some programmes such as the SAARC Decade on Plan of Action on Poverty Alleviation 2006-15, and declarations on the SAARC Social Charter, Women and Girl Child, the draft Charter on Democracy, etc. Furthermore SAARC has agreements in areas of trade, finance, science and technology etc. In order to translate these commitments into actions, SAARC institutions have programming committees comprising the Secretariat, Regional Centers, and Specialized Bodies. They can work through Inter-Governmental Expert Group (IGEG) committees such as meetings of Minister and Secretary in areas like poverty, MDGs/SDGs, finance, planning, trade, standards and likes.

South Asian regional initiatives, as indicated above, have remained inadequate in achieving the MDGs/SDGs regionally. Considering the paucity of capital in the region, it could be a pivotal contribution to transform the present SAARC Development Fund (SDF) into a full-fledged South Asia Development Bank and augment its resources from the Member States, and their Observer Countries/ Observer Agencies. Such a Bank may help to increase the rate of capital formation regionally in natural resource management, productivity and connectivity and thereby improve the elasticity of poverty reduction to GDP growth in both rural and urban areas. The forthcoming events such as SAARC Summits, UN’s General Assembly on post-2015 MDG Agenda and Rio+20 frameworks need to design better policy, agenda, institutions and accountability mechanisms for further addressing the South Asia’s backlog of socio-economic development and peoples’ prosperity as of 2015 and in the ensuing decade.

References

SAARC Secretariat, 2004. SAARC Plan of Action on Poverty Alleviations. Kathmandu

SAARC Secretariat, 2006. Taking SDGs Forward 2007-12. Kathmandu

SAARC Secretariat, 2013. Regional Poverty Profile 2009-10: Food Security Challenges for the Poor and Social Inclusions. Kathmandu

Thapa, Y. B. 2013. “Unlocking Welfare, Economic Growth and Factor Development Relations in Southern Asia 2005-‘25” (Mimeograph). Kathmandu: Renaissance Society Nepal. www.renaissance.org.np

UN, 2013. A New Global Partnership: Eradicate Poverty and Transform Economies through Sustainable Development: The Report of the High-Level Panel of Eminent Persons on the Post-2015 Development Agenda. New York

World Bank, 2013. World Development Indicators 2012 Dataset. Washington

5. Deepening Democracy at the Local Level

Dwarika N. Dhungel, Mahendra Raj Sapkota and Pradyumna Prasad Regmi

Abstract Local governance bodies (LGBs) have been part and parcel of the Nepalese people for more than five decades. For nearly all Nepa­lese people, the most familiar public organization is one of two local governance bodies, i.e. Village Development Committee (VDC) in rural areas or municipalities in urban areas and the District Development Committee at the district level. Since 1997 there has been no election to these bodies and upon completion of the five year term of the representatives elected in July 2002, are being run and managed by government employees. The government funding support to the LGBs has, however, been an increasing trend. Another major program, the Local Governance and Community Development Program (LGCDP) has been under implementation since 2008 with the support of a number of donors. Activities related to demand-strengthening and citizen empowerment, especially the marginalized sections of the society in the planning process of the LGBs, are the important components of this program. The Ward Citizen Forum (WCF) and the Citizen Awareness Center (CAC) are institutional arrangements made at the VDC and Municipality under this component. In this paper the WCF and CAC have been dealt with in the context of the planning process of the LGBs, on the basis of available literature and quick field study of two VDCs (one each from the district of Kathmandu and Bhaktapur) and one municipality of the Kavre district, all belonging to the central development region of the country, a limitation of the paper in itself.

5.1 Context

Of the different levels of government, for the general citizenry of a country, it is the local level government[1] (for the purpose of this paper, the term ‘local governance bodies’ [LGBs] is used), that becomes much more important, mainly due to the fact that it is nearer to them. The LGBs are the ones through which citizens are empowered to take decisions or decide on matters affecting their day to day life. They are primarily seen as the controller of local life, creator of civic amenities and provider of certain types of services to the residents living within the areas of their jurisdiction. LGBs are, thus, the institutional framework through which the local people participate in the decision making process at the local level.

In addition, it is through the LGBs that the local people learn the first lesson on the art of management of state affairs. The local leaders of today are considered to be the future leaders of the country, and they are identified and trained through these bodies. Also, they act as a check on the excesses of the central government and provide ‘greater opportunities for accountable government’ (Olowu, 1999) in the country. Because of these very reasons, Olowu says LGBs ‘contribute to the success of democratic life…’

The policy framework through which the government empowers the LGBs to be a decision making body at the local level and accepts them as the local planning body, is the decentralization, i.e. devolutionary type of decentralization and not the administration deconcentration, i.e. the delegation of power from the central government departments to their field offices. In other words, it is through the devolutionary form of decentralization, the LGBs become the decision making body at the local level, for which provision is made either in the constitution of the country or through the enactment of a law by the parliament.

5.2 Local Government Bodies in Nepal

Nepal has a long history of local government systems. Its modern history began in BS 1976 (AD1919), when a government charter was issued to establish a municipality in Bhotahity, a locality within the Kathmandu metropolitan area. There is a nationwide network of LGBs: Village Development Committees (VDCs) in the rural areas, municipalities in the urban areas and District Development Committee (DDC) at the district level.

Presently, there are 3,915 VDCs, 58 municipalities (including one metropolitan and 3 Sub-metropolitan corporations), and 75 DDCs. They are institutionally linked with each other
(Chart 1).

The organizational structures of these bodies, their powers, functions and financial sources, their planning responsibilities, their administrative structure, personnel management system and relationship with the government of Nepal are prescribed by the Local Self Governance Act 1999 (LSGA), the Local Self Governance Rules, 1999 (LSGR) and Local Self Governance (Financial Administration) Rules 2007.

As per LSGA, these bodies are to be run by the elected office-bearers with the support of a secretary and other professional and administrative staff. The law prescribes for universal adult franchise for the election to the grass roots-level LGBs: VDC and municipality. In contrast, there is an indirect election system for the election to the district-level body, DDC. The tenure of the elected persons is five years, ending on July 15/16 of the fifth year.

From the point of view of organizational structure, the LSGA provides for two bodies, deliberative and executive organs, for each of the LGBs (Chart 1). In the case of the VDC, Village Council (VC) is the deliberative body and VDC is the executive body. In the case of the municipality, Municipal Council (MC) is the deliberative body and municipality is the executive body. In the same manner, in the case of the district level body, the District Council (DC) is the deliberative body and DDC is the executive body.

In addition, the LSGA has made a provision for an elected body at the settlement level, i.e. Ward level Committee at the VDC and municipality. It is to comprise of five members (Ward Chairperson and four others including one women), all to be elected by the voters falling within the respective ward[2] on the basis of universal adult franchise (Annex 1).

Functions and Powers

The functions to be performed by the LGBs are broad in nature and cover a wide range of activities. Sections 28, 94 and 189 of the LSGA lay down the functions, duties and powers of VDCs, municipalities and DDCs in detail. In the list, one would hardly find any activity that has been left out from the purview of these bodies. The list of responsibilities entrusted to them in the form of functions, duties and powers is very exhaustive. If the local bodies performed all the delineated functions, there would hardly be any functions left to the government ministries and department to perform at the local level.

As to the specific functions, the VDC has been entrusted with the responsibility of performing 48 types of functions under 11 headings[3]. For municipalities, 68 functions under nine headings[4] and 48 functions under 16 headings[5] to the DDC.

Resources and Planning Process

Along with the identification of the functions for each of the LGBs, the LGSA has identified sources of incomes too for the VDC, municipality and DDC. They include both the internal sources and external sources. The internal sources include taxes, service charges, fees and earning from sales, the external source mainly comprise grants from the government.

In order to undertake programs related to functional areas delineated by the LSGA, the LGBs have to prepare their periodic plans and based on such plans, each LGB has to prepare an annual program and budget by taking into account the resources that would be available (internal sources and government grants) and national priorities.

While preparing the annual program and budget, the LGBs have to follow a fourteen step planning process[6] prescribed by the government (Annex 2).

One of the main features of the 14 step planning process is that the actual planning process has to start from the settlement level in the case of the VDC and municipality, then moves on to the upper levels, i.e. ward level, village level, sub district level, district level and ultimately at the level of the national government.

The district level government and non government organizations (NGOs), mainly development related organizations, too, have to prepare their annual programs on these bases. It is the DDC that is to bring about coordination among the various district level programs (LGBs own, government supported, programs of government departments and programs of non government organizations) and gives them the shape of a district development plan (DDP) by integrating all such district level development programs.

Once the district level programs are finally approved, the LGBs implement the programs, mainly those which fall under their purview, through the user’s committees (UC), which are formed by the respective LGB from amongst the direct beneficiaries of the program concerned. The UC is also responsible for running, managing and maintaining the completed program/project.

In the performance of the delineated functions, the LGBs are provided managerial and technical support by the government employees, VDC Secretary, CEO and LDO and other staff (government or others directly hired by the LGBs).

5.3 Citizen’s Empowerment Initiatives: Ward Citizens Forum (WCF) and Citizen Awareness Centre (CAC)

It may be recalled that the country witnessed violent insurgency raised by the Communist Party of Nepal (Maoist), now United Community Party of Nepal (UCPN-Maoist)[7] for one decade (1996 to 2006) causing heavy losses in terms of lives and property. Although not in all 75 districts, the election to the LGBs, took place in 1997. The term of the elected office-bearers of these bodies expired in July 2002. Since then there has been no election to the LGBs due to a number of reasons, such as, security problems caused by the insurgency, un-willingness on the part of the then government to hold the elections and the transitional nature of the state after the end of insurgency[8]. Thus, for more than a decade, the LGBs have been run by government employees, Village Development Secretary, Agriculture or Livestock Assistant and local level government health employee in the case of the VDC, Chief Executive Officer (CEO) in the case of the Municipality and Local Development Officer (LDO) in the case of the DDC. All the powers provided by the LSGA to each of these bodies (Village Council and Village Development Committee, Municipal Council and municipality and District Council and District Development Committee) are being used by these government employees.

With the signing of the Comprehensive Peace Agreement (CPA) between the Government of Nepal (GoN) and the then insurgent, Communist Party of Nepal (Maoist) on November 8, 2006, the insurgency came to an end, the insurgents came into the national mainstream. A new interim constitution, The Interim Constitution of Nepal 2007 was prepared and promulgated on January 15, 2007, on the basis of this constitution, the election to the Constituent Assembly (CA) was held to write a new constitution[9]. Through its part 4, which deals with Responsibilities, Directive Principles and Policies of the State, the Interim Constitution declares that the State shall have, among others, the following responsibilities:

Upon the formal end of the decade old insurgency and signing of the CPA, the government and framing of a new constitution, the government decided to initiate some measures as per the Responsibilities, Directive Principles and Policies of the State and provide a peace dividend to the people. One of such measures, mainly related to the LGBs, was the implementation of Local Governance and Community Development Program (LGCDP) with the support of a number of donors[10].

The other important measure was the adoption of different policies, such as Gender Equality and Social Inclusion Policy (GESI) 2066 (2009 AD) by the GoN. This policy, among other things, aimed to associate the women and marginalized sections of the society in the planning process of the LGBs.

Since the LGBs do not have elected office bearers and is run by the government employees, the GESI made provision for the formation of a number of new bodies in the VDC and municipality in addition to the bodies provided for by the LSGA. One of the new bodies is the Ward Citizen Forum (WCF) to be established at the VDC and municipality level, the details of its composition have been provided by the GESI[11]. It is understood that the government prepared and adopted the GESI as a part of the implementation of the LGCDP.

The WCF has been given continuity by the VDC and Municipality Grants Operations Working Procedures, 2067 (2010) and VDC and Municipality Social Mobilization Manual, 2067 (2010). In addition to this body, the manual has also provided for a new body, Citizen Awareness Centre (CAC) in the VDC and Municipality level. The provision for new bodies, in addition to the bodies provided for by the LSGA, as per the officials of the Ministry of Federal Affairs and Local Development (MoFALD) (the current name of the then Ministry of Local Development [MoLD]) associated with the LGCDP, was made with a view to raise awareness and engage and involve local people, especially the poor and marginalized sections of the society in the planning process of the LGBs in a meaningful manner through a process of social mobilization.

In the absence of elected office bearers in the LGBs, the government decided to create an institutional mechanism with a view to raise the awareness and engage and involve the local stakeholders, especially the poor and marginalized sections of the society in the planning process of the LGBs in a meaningful manner through a process of social mobilization as one of the major components of the LGCDP. The provisions for these bodies seem to have been made as ad hoc arrangements till the election to the LGBs.

According to the MoFLD, all the Wards of all the VDCs (3,915) except in the Wards 120 VDCs have their WCFs. Likewise, 405 Wards of the 50 municipalities have their WCFs, however they are yet to be expanded in the Wards of the municipal corporation and sub municipal corporations. Regarding establishment of the Citizen Awareness Center (CAC), such centers have been established in 3,000 VDC, one such center in each VDC, and Wards of the municipalities.

Although provisions of such bodies have been made through specific policy decisions and guidelines without amending the provisions of the LSGA and LSGR, WCF and CAC, as claimed by the professionals associated with the LGCDP, they are to be considered as important contributions of the program in the context of the absence of the elected representatives at the LGBs and the increasing amount of grants going to these bodies. They also claim that the provisions for such bodies have been made to empower the people, especially the marginalized sections of the society, in the planning process of the LGBs.

These WCF and CAC are the subjects covered in this paper. To find out the actual workings of the WCFs and CACs, quick field trips of two VDCs (Sitapalia VDC of Kathmandu and Sipadole VDC of Bhakatapur districts) and Panauti Municipality of Kavre district, were undertaken (Annex 3). During the trips the information and data were collected from the concerned VDCs and municipalities discussions were held with the concerned officials and some of the members of the WCF and CAC (Annex 4). These VDCs and municipality located in the Kathmandu valley and adjoining district outside of the valley were selected mainly due to time and resource constraints. As such, this is the limitation of the paper.

WCF: Composition and Functions

As already indicated above that there has not been election to the LGBs since 2002 and they are being run by government employees. As such, no elected ward committee exists at the wards of the VDC/Municipality. So in order to engage and associate the residents, especially poor and excluded groups, who are living in a particular ward but have been unable to voice ward level priorities in the planning process of the concerned VDC/Municipality, the government through its executive decision decided to create an ad-hoc body, WCF with a provision for representation of the different groups and individuals in its composition. The VDC/Municipality Social Mobilization Manual 2010 prescribes its composition and functions. In accordance to which, the WCF would consists of 25 members, who would be representatives of poor and disadvantaged groups and different organizations. Table 1 shows the membership of WCF in the Wards of municipality and VDC as provided by The VDC/Municipality Social Mobilization Manual.

Table 1: Membership of the WCFs (Number of members)

S. No	Institutions/Individual Member	Municipality Ward	VDC Ward
1	Representation of Community organizations, (such as Forest Users Group, Saving Credit Cooperatives,local NGOs etc.)	4	4
2	Local groups (women, agriculture, livestock, club, local users’ Committees)	2	4
3	Women Representatives	2	2
4	Representatives of children Clubs/Children	3	2
5	Representative of Indigenous people/Janajati residing in the Ward	2	2
6	Representatives of Dalit residing in the Ward	2	2
7	Representative of the settlements in the Ward categorized as ultra poor based on power and poverty mapping	4	6
8	Representatives of Knowledgeable persons/well-to-do class living within the Ward	2	1
9	Representative of disabled persons	1	1
10	Representative of Citizen Awareness Center (CAC)	3	1
	Total	25	25

Source: Municipality Social Mobilization Manual, 2010/VDC Social Mobilization Manual, 2011

If any representatives from the above groups (community organizations, indigenous/janajati, Dalit, could not be available for representation in the WCF due to their absence in the respective ward, additional representatives from ultra poor basti/tole (settlements within the respective wards)_ could be included. Moreover, women representation of at least 33 per cent should also be ensured in the WCFs.

Each WCF will have a five member Management Committee (MC), including the Member Secretary. The committee members other than the member Secretary would be selected by the members of the WCF from amongst its members and at least 33 per cent should be the women members. The composition of the MC would be as follows:

I.	Convener	1
II.	Deputy Convener	1
III.	Members	2
IV.	Member secretary	1
	(Social mobilizer)
Total:		5

In addition, in case of municipality, Ward Secretary of the related Ward or the employee specified by the municipality to look after social mobilization would also be an invited member. However, in the case of the VDC, the VDC Secretary or her/his representative would be such an invited member.

The WC is to compulsorily meet once a month; and the WCF is to meet compulsorily once every three months. The member-secretary is to call the meeting upon the instruction of the Convener.

Roles and Functions of the WCF

As to the WCF, per the Social Mobilization Guideline 2010, it has the following roles:

1. to hold regular meetings to discuss issues relating to socio-economic development at the village/ward level;
2. to facilitate local situation analysis and identify the needs and priorities of disadvantaged groups;
3. to plan and prioritize projects and make budget recommendations for forwarding to the Integrated Planning Committees (IPCs);
4. to support CACs for their effective operations;
5. to attend review meetings of different programs including public and social audits conducted at the village/ward level; and
6. to coordinate with other government and NGO programs at local level

The major functions of the WCF, as per the VDC/ Municipality Social Mobilization Manual 2010, include creating an environment within the forum to clearly articulate the needs, voices, thoughts and issues of the poor and disadvantaged groups on a priority basis; creating the opportunity for these groups to have more access and participation in the planning process of the LGBs, i.e. identification of programs/projects to use benefits accruing from the implementation of the identified programs/projects. As such, the WCF is required to discuss, prioritize the programs/projects received from the local tole/basti (settlements within the ward) and recommend the prioritized ones to the LGBs for inclusion in the annual program. The WCF is required to facilitate the formation of the users’ committee (UC) for the implementation of the approved programs/projects and arrange capacity development program to the members of the UCs. In addition, WCF’s are supposed to organize public hearing programs on the implementation of the programs/projects by the UCs with a view to ensure and promote transparency in the activities of the respective LGBs and get the LGBs to address the issues raised in such meetings. (Detailed functions of the WCF are given Annex 5).

Citizen’s Awareness Centre (CAC): Formation and Weekly Class

This is the other body, as already mentioned, created by the government through executive decision with a view to raise awareness of the poorer sections of society and provide a forum for them to reflect their demands and needs in the planning process of the VDC/Municipality through WCFs. In other words, the provision for the CAC, as per the officials of the MoFALD and program officer for social mobilization and social facilitators of the Sitapaila and Sipadole VDCs and Panauti municipality, has been made by the government through the VDC/Municipality Social Mobilization Manual, 2010 and Social Mobilization Manual 2010, to strengthen the demand side capacity of the poorest section of the society in the planning process of the LGBs. It has been envisaged that at least one CAC would be established in each VDC/Municipality and awareness raising classes would be conducted for the participants in such centre (Social Mobilization Manual 2010).

The CAC, as indicated in the VDC/Municipality Social Mobilization Manual, 2010, is not a formal organization but a common platform of targeted groups, mainly disadvantaged, facilitated by the local facilitator through the organization of an orientation program for the targeted group. From the group, awareness raising classes would be organized for 20-30, mostly women. In such classes, environment, as per the manual, is created for participants to identify those issues that have an effect on their day to day life and measures to address them.

The CAC too, would have a 5-7 member management committee formed by the members from amongst them. It must be constituted in such a way that becomes inclusive in its composition. The management committee comprises of a Convener, Deputy Convener, 2-4 members and a member secretary (Social Mobilizer/Community Facilitator). The Ward Secretary of the related Ward or the staff looking after the social mobilization is the invited member.

The CAC members are supposed to attend a 2-hour weekly class at a fixed date, place and time decided by the group. In such classes, the members of CAC (i) exchange their happiness and sorrow ( sukha-dukha) with each other, (ii) explore and analyze issues related to their social exclusion and poverty through Regenerated Freirean Literacy through Empowering Community Technique (REFLECT) method/procedure[12], (iii) create pressure on policy makers to address their issues/problems through advocacy; and (iv) prioritize their necessities and demands and submit them to the WCF for submission to the VDC/municipality for inclusion in its annual plan/program. As the CAC is basically used, as per the program officers and social facilitators, to educate disadvantaged citizens about the village situation, planning process of the LGB and availability of the resources in the concerned LB etc and put their demands to the LGBs through WCF. The literacy classes are also conducted in the CAC, if required.

5.4 State of the Art

Our findings in relation to the WCF and CAC are given below:

Formation of the WCFs

The WCFs were found established in the VDCs (Sitapaila VDC of Kathmandu and Sipadole VDC of Bhaktapur) and Panauti municipality of Kavre. In Sitapaila and Sipadole VDCs, the WCFs were formed in all the 9 Wards of the VDC; whereas in the Panauti Municipality WCFs have been formed only in 6 Wards (2, 4, 7, 8, 9 and 10) of its 13 Wards. When asked with the officials of the municipality why WCFs have not formed in the remaining 7 wards, the answer was that ‘there was a plan to form in the current FY 2012-013, but could not be formed due to the non availability of the budget from the government’.

In addition to the formation of the WCFs, Management Committees (MCs) were also formed in all 9 Wards of Sitapaila and Sipadole VDCs and in 6 Wards of the Panauti municipality.

The WCFs, as per the officials of the concerned VDC/Municipality were formed with the technical support of local service providers (social mobilizers deputed by the local NGOs) as per the provision of the VDC/Municipality Social Mobilization Manual 2067 (2010).

As per its provisions, a letter was sent from the VDC/municipality to all stakeholders, including ward residents, VDC secretary, representatives of the political parties to attend the meeting to form the WCF. Also prior to forming the WCFs, the social mobilizers visited the households of the respective ward residents and informed them about the WCF, its roles and functions and requirements to form the WCF.

Then one day orientation programs at the wards for the residents were organized by the facilitators with the help of the officials of the VDC/municipality (i.e. VDC Secretary and municipality officials), to formally inform about the WCF and its roles and functions in the planning process of the LGBs.

People’s participation in such meetings ranged from minimum 40 to the maximum 65 people in the case of Siatpaila and Sipadole VDCs and ranged from a minimum 50 to the maximum 120 persons in the case of Panauti municipality.

The members for WCF were, as per the concerned officials, unanimously selected by the participants through consensus. Similarly their MC officials (the Convener, a Joint-Convener, a member-secretary and two members) were unanimously selected by the members of the WCFs. However, the Chairpersons of the WCFs’ working committees of Ward 8 and 9 of Panauti municipality were selected through election. The only Chairperson from among the six is a woman social worker.

There is a domination of ex-members in Convenorship of the WCFs in Panauti Municipality, out of 6 three are the former ward chairpersons (ward chairperson of ward no 2 in the WCF of the same ward from NC, ward chairperson of ward no 4 in the same WCF of the same ward from CPN UML, nominated member from CPN UML in the WCF of ward no 10). The Chairpersons of the WCFs of ward numbers 8 and 9 are the active members of the political parties, one representing NC and the other representing UCPN Maoist. Of these two, the one who is a NC member had sought the election for the ward chairperson of ward no 8, in whose WCF chairperson position he is holding. Both these Chairpersons were selected through election and not by consensus. The only Chairperson from among the six is a women social worker.

In Sipadole VDC, the WCFs were formed during Chaitra 2067 and Baisakh 2068 (March-April 2011). In addition to the WCFs, a Village Level Citizen Forum (VLCF) has been formed with 13 members, who were selected by the WCFs from amongst the members. The formation of this body, as per the social mobilizer, has improved and strengthened the bargaining capacity of the WCFs. It meets every month and also when required.

In Sitapaila VDC and Panauti municipality WCFs were formed recently during Asar 2069 (June-July 2012). Table 2 shows the date of formation of the WCFs.

Table 2: Formation Date of the WCFs

VDC/Municipality	Ward No.	Date of WCF Formation
Sipadole	1	2068/1/12 (25 April 2011)
	2	2068/1/10 (23 April 2011)
	3	2068/1/8 (21 April 2011)
	4	2067/12/16 (30 March 2011)
	5	2067/12/18 (1 April 2011)
	6	2068/01/6 (19 April 2011)
	7	2068/1/3 (16 April 2011)
	8	2067/12/27 (10 April 2011)
	9	2067/12/22 (5 April 2011)
Sitapaila	1-9	Asar 2069 (June-July 2012)
Panauti	2, 4, 7, 8, 9 and 10	Asar 2069 (June-July 2012)

Source: Sipadole and Sitapaila VDC and Panauti municipality

The WCF Members

The number of WCF members varied in different wards of the VDCs and municipality (Table 2). For example, if WCF of ward no. 7 of Sipadole VDC has 9 members, WCFs some wards of Sitapala VDC, and one Ward of Panauti municipality had the highest number of members, i.e. 25 members (Table 3).

Table 3 depicts that membership in the majority of WCFs of Sipadole VDC is less than what is prescribed by the VDC/Municipality Social Mobilization Manuals. This is s because the mapping of disadvantaged household was not yet completed at the time of formation of the WCFs. This is why, according to the Social Mobilizer of the Sipadole VDC, she was told to constitute the WCFs in her VDC even with fewer members than prescribed, in case the required number of members could not be met. Therefore, the number of WCF members in Sipadole was less than 25 members at the time of formation. Now that the mapping of disadvantaged households is continuing, members of the WCFs are being added. However, number of WCF members in the Wards of Sitapaila VDC and Panauti municipality was more or less as stipulated.

WCFs members do not have tenure. Of the members, only one female member has resigned voluntarily, on the grounds of pregnancy.

Table 3: WCF Members

VDC/Municipality	Ward No.	No. of Members
Sipadole	1	11
	2	14
	3	13
	4	13
	5	11
	6	13
	7	9
	8	12
	9	13
Sub-total		109
Sitapaila	1	25
	2	24
	3	25
	4	25
	5	23
	6	25
	7	21
	8	25
	9	22
Sub-total		215
Panauti	2	25
	4	22
	7	23
	8	20
	9	19
	10	20
Sub-total		129
Total		453

Source: Sipadole and Sitapaila VDCs and Panauti municipality

By gender, the number of members in the WCFs was found to be more or less equal. Of the 109 total members in Sipadole VDC, female members (57 members) outnumbered male members (52 members). Contrary to this, of the 205 total members in the Sitapaila VDC, female and male members were 97 and 118, respectively; similarly, in Panauti municipality, of the total 129 members, the number of male members was much higher with 75 compared to the number of female members with 54 (Chart 2, 3, 4 and 5; Table 4). In total, of the 453 members, the female and male members were 208 and 245, respectively. This shows that the women are more or less equally participating in the WCFs.

Table 4: WCF Members by Gender

VDC/Municipality	Ward No.	Female	Male	Total
Sipadole	1	8	3	11
	2	7	7	14
	3	6	7	13
	4	7	6	13
	5	4	7	11
	6	5	8	13
	7	5	4	9
	8	6	6	12
	9	9	4	13
Sub-total		57(52,29%)	52(47,71%)	109
Sitapaila	1	12	13	25
	2	9	15	24
	3	10	15	25
	4	10	15	25
	5	8	15	23
	6	15	10	25
	7	8	13	21
	8	13	12	25
	9	12	10	22
Sub-total		97(45,12%)	118(54,08%)	215
Panauti	2	12	13	25
	4	9	13	22
	7	12	11	23
	8	7	13	20
	9	6	13	19
	10	8	12	20
Sub-total		54 (41,86%)	75 (48,14%)	129
Total		208 (45,92%)	245 (54,08%)	453

Source: Sipadole and Sitapaila VDCs; and Panauti municipality

CAC Membership

In Sipadole VDC, the CAC is constituted in Ward 5 which is inhabited by the excluded and most disadvantaged Tamang community. The CAC is composed of all female members. The CAC in Sitapaila is formed in Ward 7 where mostly poor people are residing. The number of CAC members is 28. In Panauti municipality, CACs are constituted in all the Wards where the WCFs are formed. Table 5 provides the total membership of the CAC in Sipadole and Sitapaila VDC and the Wards of Panauti municipality.

Table 5: CAC Member by gender in VDCs and Panauti Municipality

VDC/Municipality	Ward No.	Female	Male	Total
Sipadole	5	29	-	29
Sitapaila	7	23	5	28
Panauti	2	41	6	47
	4	50	6	56
	7	31	4	35
	8	32	2	34
	9	30	3	33
	10	32	-	32
Sub-total		268	26	294

Source: Sipadole and Sitapaila VDC and Panauti municipality

Of the CAC members, 100 per cent are female in Sipadole, 82 per cent are female in Sitapaila, and 91 per cent are female in the Wards of Panauti municipality. In total, 91 per cent of the CAC members are female. Thus, the CACs are overwhelmed by the females in all the places.

Of the 6 CACs of the Panauti Municipality Management Committee’s Chairpersons, two are active members of the political parties UCPN Maoist and CPN UML. As to the chairpersons of remaining four, we were told that their active political party affiliation was not known.

Support Services to the WCFs and CACs

The WCFs and CAC are supposed to be provided with technical assistance by the social mobilizers, who are appointed and deputed by the local service providers, who are non-government organizations (NGOs), mostly district level ones and selected for the job by the concerned DDC through open competition[13]. The names of NGOs that are providing technical assistance to the VDCs and Municipality through their social mobilizers are given in the Table No. 4.

Each of the two service providers in Panauti provided one social mobilizer for each WCF, meaning three are provided by one and the rest by the other. All are from among the residents of the municipality. All but one has a minimum of +2 qualifications (12 class completed qualification), one has a bachelor’s degree. All are female and were provided training/orientation for 10 days on three occasions (3+5+2 days) by the respective NGOs.

The local service providers have provided the service of one facilitator each to Sipadole and Sitapaila VDC. As per the Social Mobilizer of Sipadole VDC, she was given basic training in social mobilization by the DDC Bhakatapur for three days to start the work. In addition, she was given intermittent training for another 15 days by the DDC/LGCDP on different subjects. Likewise, the social facilitator of Sitapaila VDC was also given the basic 3-day training, and intermittent training for another 12 days by the DDC/LGCDP Table 6 presents the names of the local service providers to the WCFs/CACs.

Table 6: Names of Non-government Organizations Providing Technical Assistance

S. N.	Name of the VDC/Municipality	Name of Non-government Organizations/Location
1.	Sitapaila VDC	Mahila Manch, Teku, Kathmandu
2.	Sipadole VDC	Right to Access Nepal, Lainchaur, Kathmandu
3.	Panauti Municipality	Community Improvement Forum,Banepa for Ward Nos: 2, 4, and 7
3.1.	Panauti Municipality	* Rim Rec-Focus JV, Banepa for WCFs of Wards 8, 9 10 of Panauti municipality for initial five months
		* Presently by: Forum for Wild Life Preserve (FOWLP), Banepa

Source: Concerned VDCs and Municipality

Training and Orientation to WCF members

As a part of providing technical assistance, the NGO provided the orientation trainings to the members of the WCF on local planning process of LGBs and information about the roles and responsibilities of the WCF members with the support of the municipality. The training was provided for two days. Similarly, WCF members of Panauti were taken to Helambu VDC of Sindhupalchowk district and Susma Kshyamabati VDC of Dolkha district on a study tour for three days

Likewise, two separate 3-day training programs were organized for the members of the WCFs and CAC of the Sipadole VDC on basic matters related to WCF and CAC, including the local planning process. The training was provided by the local service provider (Right to Access, Nepal). Similarly, Hetauda Cluster, the National Service Provider provided 3-day training to 40 participants (3 from each WCF [altogether 27 members from nine wards], representatives of the political parties and VDC) on basics of WCF and CAC. The training was given in the VDC building.

In Sitapaila VDC, the Convener and Joint Convener (or any other member in the absence of Joint Convener) of each WCF were provided with a one-day orientation on the roles and responsibilities of the WCF and its members.

Financial Support to the WCF/CAC

As per the Social Mobilizers of Sipadole and SItapaila VDC and Panauti Municipality, the CACs are provided annual grant of NRs. 30,000 to meet their expenses. In all the CACs, NRs. 15,000 of this amount was spent in stationary and other expenses including fees to resource persons. In Sipadole, how to use the remaining amount, as per the social mobilizer, was yet to be decided by the CAC members. In Sitapaila VDC, the remaining amount is distributed to the CAC members at the rate of NRs. 10/person/class for snacks and tea. In the case of the CAC of the Ward no 4 of Panauti municipality, NRs. 15,000 has been, as per the concerned social mobilizer, deposited in the name of the CAC members and the amount thus saved has already become NRs. 16,500 including the interest earned from savings.

Actual Functioning of the WCFs and CAC

As the WCFs in Sitapaila VDC and Panauti municipality were formed recently after the completion of the planning process for FY 2069/70 (2011/12), they did not have the chance to play their role in the planning exercise of their respective Wards. However, as per the concerned officials, they would be involved in the process for the programming of the next fiscal year 2013-014. For this, they have requested the residents of the Wards to submit their requirements. As such, it is too early to say whether programs and projects initiated, prioritized and submitted to the LGB by the WCFs of Sitapaila VDC and Panauti municipality would find a place in the annual program approved by their respective LGBs. But the municipality, as already indicated, has been unable to form the WCFs and CACs due to the unavailability of the budgetary allocation from the government.

Similarly, representation of the WCFs in the Integrated Plan Formulation Committee (IPFC) has been ensured but it is yet to be materialized since the WCFs were yet to nominate their representatives. As per the social mobilizers, one member of the WFC is to represent in the IPFC, but the WCFs were yet to nominate their representatives.

The WCFs conduct regular meeting in each 3 months or as required. However, as per the Manuals, its management committee meets once every month in all the wards. During the meetings, they discuss matters concerning the socio-economic development of the respective wards. The subjects included in the discussions are roads extension and improvement, drinking water, drainage system, skill development training, income generation programs, etc.

In Sipadole VDC, where the WCFs were formed earlier, they were involved in the planning process of the VDC for the fiscal current FY 2069/70 (2011/12). They were requested by the VDC to submit their programs for that fiscal year. The WCFs in return discussed the needs of the respective wards, identified projects and prioritized them for seeking support from the VDC. In the mean time, the VDC itself also made a public call to its residents to submit their demands bypassing WCFs. So, the VDC adopted two track approaches in its annual program planning exercise, i.e. sending requests letters to the WCFs to submit their programs for inclusion in the annual plan and making public notification for the projects or programs that could be included in the annual program.

Although about 90 percent of the programs/projects requested by the WCFs were, as per the social mobilier, accepted by the VDC, a lesser amount was allocated than required for the approved projects. Consequently, the WCFs were forced to undertake the program depending on the budget. For instance, NRs. 50,000 was allocated to a project for which NRs. 200,000 had been requested. As such, as indicated by Social Mobilizer, ‘whatever quantity of work could be accomplished with this amount was done. So, the budgetary allocation of the VDC was, as claimed by the social mobilizer, not tangible but only a Jhara Tarne Kam (just a satisfying tactic) of the VDC. Box 1 presents the major activities undertaken in the initiation of the WCFs.

Box 1: Activities Undertaken in the Initiation of WCFs in Sipadole VDC

One point to note here is that guidelines have been provided that the programs/projects should be initiated, prioritized and submitted to the concerned LGB through WCFs. But, the VDC/municipality is not, however, obliged to accept and approve the projects/programs submitted by them.

Regarding the participation of the WCFs members in the User’s Committee (UCs), they are not associated as the members of the WCFs but as individuals only. The WCF has been given membership in the Monitoring Committee (MC), however, the nomination, as per the discussants was made without the knowledge of the person(s), and when the person concerned was asked to put the signature in the monitoring report, the persons concerned refused to add their signatures.

Activities of the CACs

As mentioned earlier, the CAC are formed by including those residents of the wards who are none than the poor, and marginalized people living within the wards of the VDC/municipality. Main functions of the CACs are to raise the consciousness of its members through an awareness raising class, called REFLECT class, each week on a specified day for 2 hours on the subjects of their choice and to help members identify their needs and submit them to the concerned LGB and agency concerned for inclusion in their annual programs.

The REFLECT classes are normally held during the morning and almost all CAC members take part in such classes. In such classes, as per the social mobilizers, classes on sewing, embroidery, kitchen gardening, livestock keeping, health and sanitation and so on are arranged with the help of resource persons drawn from concerned government and non-government organizations. For instance, in Sipadole VDC, a one month embroidery classes were conducted for the CAC members with the support of VDC. Likewise, 5 days kitchen garden training was provided with the support of World Vision, seeds were procured from a local NGO named Divyankur (an organization supported by World Vision) and distributed to those who attended the class. Classes on livestock disease PPR was arranged through the village based government livestock technician.

Overall Achievements and Effectiveness of the WCFs and CACs

According to the available information, the WCFs[14] and CACs have emerged as effective bodies for local development initiatives. As per the VDC Secretary of the Sipadole VDC, the existence of WCFs has made it easier for the VDC to prioritize the programs/projects by the beneficiaries themselves. On the whole, as per discussants, the WCFs have contributed in the following manner. The WCF and CAC have:

I. helped to increase the awareness level of the ward residents and CAC members.

II. contributed to make the people more concerned about the development of their areas.

III. been very influential in raising the awareness level of women. As per the social mobilizers, women who used to be shy and hesitated to speak up of their minds in public place, now openly speak even of their family issues and have started demanding skill development and income generating programs.

IV. helped to improve the representation of people in the planning process of the VDC/municipality, annual progress review meetings, public hearing, and Ward meeting on various issues.

V. started taking interest in the programs of the VDC/municipality and giving suggestions and advice on the activities of the VDC/municipality.

VI. also started working as watchdogs in the quality of the VDC/municipality supported construction programs. The WCF members have started inquiring about the budget received by the VDC so as to make VDC transparent about the budget it receives.

For specific achievements of the studied VDCs and Panauti Municipality see Annex 6.

Regarding the specific achievements of the CAC, as per the concerned officials of the Panauti Municipality, the CACs have started claiming projects and they have, so far, put 8-9 demands related to: (i) capacity development, toilet construction, drinking water project, road, irrigation, literacy. Of which following our have been met:

I. Toilet construction (80 percent municipality grant+ 20 percent local contribution)

II. Training on the reuse of plastics

III. Provision for resource person for the class the effects of Durbysan (Addiction)

IV. Training on incense stick making

An example of the effectiveness of CAC in Sipadole VDC worth mentioning is presented in Box 2.

Box 2: Story of 55 Years Old Kanchhi Maya Tamang

5.5 Problems/Issues

The WCFs and CACs are yet another donor-driven approach of strengthening demand side activities “through local community led development with enabled active involvement of the citizens from all sections of the society” (LGCDP, 2008). The community led development is said to be “an approach where citizens and communities either individually or collectively, as active partners in the local governance process prioritize, implement, or fulfill their basic needs through collective action” (Ibid). WCF is a forum created under the social mobilization and community development component of the LGCDP.

Social mobilization in LGCDP was envisaged as one of the dominant components in strengthening the demand side to ensure meaningful community participation and critical engagement of citizens in the local governance process. Most of the LGCDP’s demand side activities including social mobilization have been implemented fairly recently. As such, with a view to create a pivotal body to address choices and voices of people, WCF was envisaged, as already indicated above, as an additional body, in addition to the bodies provided by the LSGA at the VDC and municipality. Furthermore, as a platform for dialogue for the poorest section of the society to discuss the matters of their concern and for raising their awareness, a body in the form of the CAC has also been envisaged at the VDC and municipality level.

As seen from the above, the WCFs and CACs have been engaged in increasing the participation of men and women from targeted/disadvantaged groups in the planning process of the LGBs and increasing their understanding of the different issues/topics of local and national importance. They have, based on the discussions at the VDCs and municipality and officials of the MoFALD, contributed to substantially enhancing the confidence of people. A much larger number than previously are now capable of asserting their rights with local body officials. However, our findings about these bodies and their activities show that they are facing the following problems/issues:

I. The WCF and CAC are not legally recognized institutions as they have been created without any legal basis. In other words, they have been established through a policy decision of the government and government-adopted guidelines but not on the basis of the LSGA, the only legal base with regard to the LGBs. Furthermore, it seems that these bodies are only ad hoc arrangements made to fill up the absence of the elected officials at the LGBs. It is not clear what will be the position of the WCF once election to the Ward Committees takes place.

II. Indeed WCFs and CACs seem to have raised the consciousness of the ward level stakeholders and poorer sections of society. Likewise, their capacity to demand more projects/programs seem to have increased but awareness raising activities have not been complemented by strengthening or increasing the demand meeting capacity of the VDC/municipality. Thus, although activation of CAC and WCF has encouraged VDC/municipality residents to vocalize their need resulting in the demand for a large number of projects, the supply side has failed to keep up increased demand. As such, there is a possibility of leading the members of WCF and CAC towards discontentment, which ultimately may move to repulsion against the system.

III. There is no binding legal reason for the WCF to accept the demands (programs/projects) submitted by the CACs. The WCFs can prepare their own list, which might not be accepted by the ward general discussions as it may decide its own list and submit it to the VDC/municipality. The VDC/municipality is not again obliged to accept the demands of the lists coming from the ward level general meeting. It is local politics, especially the local active political parties, that becomes the ultimate deciding factor in the final decision making process and plays an influential role in the final selection of the projects.

IV. As almost half of the Chairpersons of the WCFs in Panauti municipality are ex-ward chairpersons or nominated members, are aware of the legal provisions of the planning process and have started raising the issue that whether ‘they were people’s representatives in the planning process of the municipality’. Also they have raised the issue of the legal authenticity of the list submitted by the WCFs. Similarly, other line agencies are yet to recognize and respond to demands of the WCFs and CACs.

V. Those political parties which took interest in the formation of the WCFs, were successful in getting their people included as its members. Those who did not bother at the time of their formation are now challenging their existence as they have been formed as per the guidelines and not per the law and rules. In all 16 VDCs of the Bhaktapur district, as per our discussants, this is being raised during VDC Council meetings. Furthermore, it was stated that there is a feeling that the VDCs are not obliged to select projects submitted by the WCFs. It was also told to us that ‘the political parties do not have favorable feelings towards WCFs and the use of the NGOs in the social mobilization process. They think that they should have the power to decide on the WCF not the NGOs.’

VI. From the number of men and women participating in the WCF, except in Sipadole VDC, it seems that WCFs are gaining confidence among its beneficiaries; however, their real involvement in decision-making is far less. Their role is limited to prioritizing ward level projects and forwarding the list to the VDC/municipality. In actual fact, they have little influence in VDC /municipality’s priority setting or in influencing critical decisions.

VII. The WCF is to comprise of 25 members who may all participate in its meeting, but its final decisions are largely influenced and controlled by a working committee (5 to 7 members). These management committees are largely controlled by influential people. Only a few management committee conveners are women. Although co-conveners are more commonly women and this is typically, as per discussants, a showcase ‘inclusive headcount’ rather than to promote meaningful participation of women in the WCF.

VIII. In the formation process of WCF, as reflected in the Panauti municipality, settlements of the ward were not represented and only a few were invited or present. For this, there were, as per discussants, varied social reasons, personal ego, intolerance about the presence of some people, narrow-mindedness, etc. Moreover, it was also told that many people could not attend due to a very busy cultivating season. This raises the question about the capacity of the social mobilizers as well as the selection of time for the formation of WCF.

IX. Most WCF and CAC members were found ambiguous about their roles and functions

X. The social mobilizers, while earnest and hard-working, lack a better understanding of the transformative approach which is at the foundation of the social mobilization strategy. As such, they were found going through the implementation without adequate understanding of its fundamental rationale.

XI. The monthly salary of NRs. 7,000 to the social mobilizers is too low in view of the type of functions they are supposed to perform, as such one could raise doubt whether social mobilizers were really devoting their time and energy as envisaged. Similarly, the present training of the WCF and CAC members is insufficient to make them fully acquainted with the issues, such as social inclusion, gender mainstreaming and social mobilization etc.

XII. Training of the WCF members has not been adequate; likewise the training programs of the social mobilizers, as per our discussants, has not been sufficient. In the course of implementation of the LGCDP, a number of manuals and guidelines have been developed and they are also changed and replaced almost every year. The language and concepts used in such documents, such as the REFLECT Model are difficult to grasp and understand even for a knowledgeable and experienced professional. So it is doubtful whether and how much the social mobilizers and employees of the VDC and Municipality were able to understand and translate them. Furthermore, the employees of the VDC, which normally does not have more than two to three employees, and municipality are overloaded with the official work and in such context, the over flooding of the manuals and guidelines seem to have put them in a perplexed situation, although they claim that they have been able to put the prescribed procedure in practice. But one of the discussants clearly indicated that the capacity of the LGBs has been overstretched and that there is a rise in the corruption at the bodies.

XIII. Although the WCF claimed participation in monitoring of the development activities of the LGBs, the discussants told that they are not active in monitoring activity.

XIV. WCFs do not have their budget the local service providers as claimed by the social mobilizers have been providing: minute books, pens, stationeries, and diaries. But as per discussants of one VDC, it was told that logistic support to the WCFs and CACs are provided by the VDC. Also WCFs and CACs do not have the technical and financial capacity to undertake and support the project. Also, finding meeting places for the WCF and CAC have started to become a problem especially in those wards which do not have public buildings within their territories.

XV. The whole notion of WCFs and ACA has been at the dictation of donors and the government has also agreed to adopt this in the name of empowerment and social mobilization of the poor and marginalized, as it has not been able to hold elections to the local bodies. So these bodies are nothing but ad hoc arrangements made by the government to conceal its inability to hold local elections, Kaite__ byabastha (cunning decision of the government to conceal its inability or unwillingness to hold local elections). under the garb of empowerment and social mobilization. Once the local elections to the LGBs take place, these bodies are bound to be redundant.

5.6 Observations

I. First of all, the legal status of the WCF and CAC as well as their position after the local election should be made unambiguous. In the absence of such clarity, they will remain only as an institution under “kaite byabastha” to elude the local election, as stated by our discussants.

II. Capacity development of WCF should be strengthened as one time training for three members (present practice in the case of Sipadole VDC WCFs) has been considered not sufficient for the WCF members to perform their roles and functions effectively. Furthermore, the social mobilizers and local service providers with the responsibility of training CAC and WCF members need to be better prepared on issues of social exclusion and inclusion and gender mainstreaming.

III. Serious efforts should be taken to minimize the wide gap between demand and supply side aspects in relation to the relationship among CAC, WCF and LGBs as it may jeopardize the sustainability of the program. For this, efforts should be made to discourage dependency attitudes of the WCFs by increasing the awareness of their members on the constraint of outside resources, and making them focus on potential local resources. In addition, their skill enhancement in project prioritization would result in a rational approach towards determining demand.

5.7 Conclusion

To conclude, the provision for the WCF and CAC has been made by the government through its executive decision under the initiative of the LGCDP with a view to filling a gap – the absence of the elected representatives of the LGBs. They seem to have been successful in raising the consciousness of the poorer sections of the society, despite the fact that neither the LGBs are obliged to accept and included the projects prioritized and submitted by the WCFs and CAC in their annual programs nor are WCF and CAC members clear about their roles in the planning process of the LGBs. Furthermore, the conceptual framework accepted for the formation of these bodies is not easy to grasp, even for those who have been following the development of the LGBs in the country for a long time. So it is doubtful whether local service providers and social moblizers, who have to play an important role in the formation of the WCFs and CACs, were able to grasp the fundamentals of a conceptual framework upon which the detailed process was developed and prescribed, and whether it was followed in letter and spirit in the actual formation of the WCFs and CACs.

Finally the WCFs and CCAs are arrangements not provided by the LSGA. As such they are, unless included in the LSGA, redundant bodies once the elections to the LGBs take place. In such context, whether it was advisable on the part of the government to go for ad hoc bodies in the name of demand-strengthening capacity of the local people, especially the poorer and marginalized sections of the society and initiate through a donor driven program, LGCDP. Instead, the election to the local bodies should have taken place a long time back and social mobilization program for strengthening the demand making capacity of the poorer and marginalized sections of the society in the formal bodies of the LGBs should have been concurrently initiated. The need for bodies such as, WCF and CAC should have been addressed through the provision for such bodies in the formal law, LSGA that governs the functioning of the local governance bodies in the country.

Acknowledgement

The authors wish to thank Mr. Ganga Dutta Awasthi, Dr. Raghu Nath Shrestha and all others (Annex 4) for sharing their views and opinions on the subject and providing necessary information and documents. Special thanks are due to Social Mobilizers Ms. Sanjita Nepali Sitapaila VDC and Ms. Binita Basnet KC of Sipadole VDC as well as Mr. Bharat Banjara of the Panauti Municipality for their kind support in providing all required information and data through email and telephone. Also we would like to thank the Alliance for Aid Monitoring Nepal (AAMN) for providing transport support to the study team to undertake field trips, and especially thank Prabhash Devkota of the same organization for all his support and cooperation in the completion of this paper.

References

A. Public Documents

Ministry of Local Development, Hand Booklet for Social Mobilizers, undated

–, Municipality Grant Operation Working Procedure, 2067 (Nepali)

–, Municipality Social Mobilization Guidelines, 2067 (Nepali)

–, Social Mobilization Guidelines, 2010 (Nepali)

–, Village Development Committee (VDC) Social Mobilization Guidelines, 2067 (Nepali)

–,Village Development Committee (VDC), Grant Operation Working Procedure, 2067 (Nepali)

–, Gender Equality and Social Inclusion Policy, 2066 (Nepali)

Panauti Municipality: An Introduction, nd

Sipadole Village Development Committee Profile, 2011

Sitapaila Village Development Committee: Profile, 2010

B. Other Documents

Freedman, Jim, Basudev Neupane, Arun Adhikary, Mohan Mardan Thapa, Neeta Shrestha Thapa, Kabindra Man Pradhan, Sanjeev Pokharel, Kumar Keshar Bista, T. R. Raghunandan, 2012. Focused Evaluation Local Governance & Community Development Programme (LGCDP), Draft, 31 July

Golding L. 1970. Local Government, Teach yourself Books, St. Paul house, Warwick lane, London, UK.

Neupane, Basudev, 2011. LGCDP Social Mobilization Assessment of Implementation Status, May

Olowu Dele, 1999. Local Organizations and Development: The African Experience in Michael D. Mc Ginnis (Ed), Polycentric Governance and Development: Readings from the Workshop in Political Theory and Policy Analysis. The University of Michigan Press, Ann Arbor, USA.

Prof. Dutt (nd): Survey of Local Government in England and France, Malhotra Publishers, Jullundur city, India.

Robson, W.A. 1931. The Development of Local Government, London, UK.

Sachdeva, Pradeep (Ed) 1993. Revamping Urban Governments in India, Kitab Mahal, Allahabad, India.

Shrestha Tulsi N. 1996. The Concepts of Local Government and Decentralization, Ratna Pustak Bhandar, Kathmandu, Nepal.

5.8 Annexes

Annex 1 : Organizational Structure of Local Bodies

Village Council (VC): the deliberative body of the VDC, consists of a chairperson, vice-chairperson of the VDC, ward members (five: a ward chairperson, a woman ward member, three other ward members) of each ward (altogether nine wards in each VDC) and six persons, including one woman, nominated by the village council from amongst social workers, socially and economically disadvantaged groups, including ethnic/indigenous groups, living within the VDC, who are not represented in the village assembly.

Village Development Committee (VDC): The executive committee consists of a chairperson, vice-chairperson, nine ward members and two members, including one woman, nominated by the VDC from amongst the members of the council (Local Self-Governance Act 1999). There are altogether 35,217 village wards in the country (Source: Ministry of Local Development).

The VDCs could be classified into various categories, A, B, and C on the basis of population, geographical diversity and facilities relating to transportation, communications, education and health facilities and may make arrangement for the development of those VDCs which have low facilities available and are situated in an underdeveloped village development area, by making them affluent with means and facilities on the recommendations of the concerned DDC (LSGA Section 20). On the basis of this provision, the LSGR 1999 has developed detailed criteria to classify the VDCs into various criteria. As per of which, the government could classify a VDC into A category VDC having: a population of at least five thousand, motorable road to the centre or having an airport of the running condition within the range of eight miles from the centre, the facilities of telephone, post office and where at least fifty per cent of the population have the facility to use electricity service, a secondary school, and fifty per cent of the population literate, and a sub health post and where at least fifty per cent of the population have the facility to consume drinking water supplied through pipe line or tube well. A VDC could be declared as B Category VDC if that VDC had: minimum population of four thousand, a motorable road to the centre or an airport with running condition within the range of sixteen miles from the centre, a post office where at least twenty five per cent of the population have the facility to use electricity service, a secondary school and at least forty five per cent of the population literate, and a sub health post and where at least forty per cent of the population have the facility to consume drinking water supplied through pipe line or tube well. The VDC which do not fall under the classification of A and B (LSGR Regulations 4).

Municipal Council (MC): the deliberative body of the municipality, consists of a mayor, deputy mayor and ward committee members, including its chairperson, from each ward (each ward committee comprises one ward chairperson, one woman ward member and three other members) and no fewer than six persons and no more than twenty persons, including a woman nominated by the municipal council from amongst social workers and disadvantaged groups, ethnic/indigenous peoples living within the area of the municipality.

Municipality: the executive committee comprises a mayor, deputy mayor and ward chairperson of each ward and two members, including one woman member, nominated by the municipality from amongst the members of the municipal council (ibid). A municipality can have nine minimum wards where, as the maximum, it would depend upon the population and territory of the municipal area. Altogether 806 municipal wards exist in the country (Source: Ministry of Local Development).

If the heritage of a Municipality has been included in the World Heritage Conservation List, the LSGR provides that the government could declare such municipality as Cultural Municipality (Regulations 74).

District Council (DC): the deliberative body of the DDC, consists of a chairperson, deputy chairperson of each VDC in the district, mayor, deputy mayor of each municipality in the district, members of the DDC, members of the HoR and National Assembly from the district as ex-officio members and six persons, including one woman, nominated by the district council from amongst those social workers, disadvantaged groups, and ethnic/indigenous groups who are not represented in the district council.

The District Development Committee (DDC), the executive wing of the council, consists of a president and a vice-president elected by the elected members of each village council and municipal council in the district from amongst themselves, members of the HoR and the National Assembly within the district as ex-officio members and two nominated members, including one woman, by the DDC from amongst the members of the district council. In addition, it consists of members elected by the elected members of the village council and municipal council in each area of the district from amongst themselves at the rate of one member from each area (ibid). A district for the purpose of election is divided into 9 to 17 areas depending upon the size of the population and its territory. There are 927 areas in the country (Source: Ministry of Local Development).

As per LSGA, the government could classify the DDCs into various categories A, B, and C on the basis of geographical diversity and transportation, communications, education, and health facilities and make arrangement for the development of those DDCs which have low facilities available and are situated in an under developed district development area by making them affluent with means and facilities (Section 84). As per this provision, the government through a provision in the LSGR 1999 provides that the government could declare a DDC into A category DDC which has: the facility of motorable road upto the district head quarters for transportation in all seasons of a year, achieved the target fixed in the education sector by the national indicator aimed at the periodic plans, the facility of at least one hundred fifty telephone lines installed or have the facility of telephone provided in seventy five per cent VDCs in the district, and achieve the target fixed in the health sector by the national indicator aimed at periodic plan. A DDC that has at least any two of the infrastructures referred to in category A could be declared as B category DDC. The DDC have not been included in the classification A and B could be declared as C category DDC (Regulations 150).

Term of the Members: Members of the local bodies are elected for a period of five years and their term comes to an on the last day Ashar of the fifth year (July 14/15)

Annex 2: 14-Step Planning Process

First step: Directives from the NPC and Government

Activities: Directives and information, budget ceiling for next year from sectoral ministries and NPC Participants: District level sectoral agencies Time Schedule: By the 2nd week of November

Second step: Review of Directives

Activities: Analysis and review of directives, policies, and guidelines estimated budget provided by sectoral Ministries/NPC. Participants: Sectoral Agencies, Chief, DDC Chairperson, Vice Chairperson and Members Time Schedule: By the 3rd week of November

Third step: Planning Workshop

Activities: (i) Dissemination of information on policies, objectives, programme resources, activities, available budget of sectoral ministries and allocation of estimated budget per VDC. (ii) Distribution of project request forms and orientation to fill the form to DC Chairperson, Vice-chairperson, Secretary and others. Participants: DDC Officials, Sectoral Agencies, Chief representative of Financial institutions, CBOs/NGOs, VDCs Chairperson and Vice Chairperson and Secretary Time Schedule: By the end of November

Fourth step: VDC Meeting

Activities: Analysis of programmes/projects to be carried out in ward/settlement level by VDC. Participants: VDC, DDC and Sectoral Agencies’ representatives Time Schedule: By the 2nd week of December

Fifth step: Settlement level plan selection workshop

Activities: (i) Assessment and analysis of the projects and programmes in a participatory way, which benefits the maximum no. of households (local resident/Core-User Groups). (ii) Fill forms at settlement level by communities with signature of the participants. Participants: Local residence I/NGOs, CO, UG/CS and Ward Chairperson and Members Time Schedule: By the 3rd week of December

Sixth step: Ward committee Meeting

Activities: Prioritization of programmes/projects received from the settlement level community level. Participants: Ward Chairperson, Members, COs and UG/CS Time Schedule: By the end of December

Seventh step: VDC meeting

Activities: (i) Prepare list of programme/projects received from the settlement level; (ii) Identify and finalize programmes/project. (iii) Prioritize programmes/projects, which VDC can implement on its own and which needs outside support with estimated budget and separate those to be done from VDC and requiring support from outside. Participants: VDC officials and Sectoral Agencies representative Time Schedule: By the 1st week of January

Eighth step: Village council Meeting

Activities: (i) Approve those programme/projects to be done through VDC resources. (ii) Identify those that require support from outside, prioritize them and forward to DDC for assistance. Participants: VDC council members Time Schedule: By the 2nd week of January

Ninth step: Ilaka level planning workshop

Activities: (i) Prioritize sectoral programme identified by VDC and Municipalities and forward them to DDCs sectoral committee. (ii) Ilaka member conduct Ilaka level planning workshop. Participants: Ilaka member, VDC Chairperson, Vice Chairperson, Ward Chairperson, Mayors and Deputy Mayors, Chief of Sectoral Agency, Chief of Financial Institutions and I/NGOs representatives Time Schedule: By the 1st week of February

Tenth step: Sectoral planning committee meeting

Activities: (i) Prioritize sectoral programme identified by VDC and Municipalities and forward them to DDC’s sectoral committees. (ii) Ilaka member conduct Ilaka level planning workshop. Participants: DDCs members, I/NGOs representative, sectoral committees’ members as per the nature of their work Time Schedule: By the 2nd week February

Eleventh step: Integrated plan formulation committee meeting

Activities: (i) Access and analyze the prioritized programmes/projects of different sectors. (ii) Incorporate prioritized project into different sectoral committees’ development plans and submit the draft to integrated plan formulation committee. Participants: DDC Chairperson, Vice- chair person, MPs of the district, sectoral committees’ chief and representative of I/NGOs Time Schedule: By the 3rd week of February

Twelfth step: District Development Committee

Activities: (i) Assess the District Development Plan in relation to government/NPC instruction, district periodic plan, resource map, environmental impact etc. (ii) Classify programme/projects separately between those to be done from the district and from the center. (iii) Prioritize programmes and projects on sectoral or geographic basis and submit the draft plan for the approval of the District Council. Participants: DDC Chairperson, Vice -Chairperson and members Time Schedule: By the 1st week of March|

Thirteenth step: District Council

Activities: Discuss the draft District Development Plan & approval of the District Development Plan. Participants: Members of District Council Time Schedule: By the 2nd week March

Fourteenth step: Implementation on of District Development Plan

Activities: (i) Forward the District Development Plan to MoLD and NPC. (ii) Forward the sectoral programme and project to sectoral Ministries. Participants: NPC, MoLD and Sectoral Ministries Time Schedule: By the end of March

Source: Ministry of Local Development (MoLD)

Annex 3: Brief Introduction of the VDCs and Municipality

Subject	Sipadole VDC	Sitapaila VDC	Panauti Municipality
Location	South-east of the	North-west of the	South-west of the
	district (east to	district (west to	district (bordering to
	Suryavinayak temple)	Swayambhu temple)	Banepa Municipality)
Office building	Own	Own	Own
Constituency No.	2	8	2
Area	8.43 sq. km		33.78 sq. km
Climate	Temperate	Temperate	Temperate
Ethnic groups	Brahman, Chhetri,	Brahman, Chhetri,	Chhetri, Newar, Brahman,
	Newar, Tamang, Kami,	Magar, Tamang, Newar,	Tamang, Magar, Pariyar,
	Sarki, Damai etc	Muslim, Kami, Rai,	Biswakarma etc.
		Gurung, Damai Sarki, etc.
Educational	Government:	Government:	Government:
institutions	Primary school -1,	Primary school -3,	Primary school - 7,
	Lower secondary	Lower secondary	Lower secondary school - 6,
	school -1,	school -1,	High school - 5
	High school -1.	High school -10	Higher secondary – 3
	Private schools - 3	Higher secondary - 1	Campus - 2
		Private schools - 22	Private schools - 15
Health institutions	1	1	Health post - 4
			Health center - 2
			Hospital - 2
Drinking water source	Piped water (93%)	Tap, Well	Tap, Spout, Well
Roads	Some black topped,	Some black topped,	Blacktopped - 19 km
	graveled and earthen.	graveled and earthen.	Graveled - 24 km
			Earthen - 104 km
			Brick - 13 km
Religious sites	Doleswore Mahadev	Aadeswore Mahadev,	Indreswore Mahadev,
		Sita ko Paila,	Sachi Tirtha, Triveni Ghat,
		Aadeswore Kunda,	Dhaneswore Mahadev,
		Monastries	Unmatta Bhairav, Brahamyani
			Temple, Gorakhnath Temple etc.
Rivers		Bhadramati, Manamati,	Punyamati
		Kalchaunde
Industry	Plastic, brick kiln	Concrete, Cold store,	Different industries - 18
		Plastic, Shoe	Shops and restaurants/tea
			shops - 1,200
Other important	Abundant	Adjacent to Kathmandu,	Dam of Khopasi
features	arable land	rapid urbanization	Hydro-electricity,
			Information Technology Park ,
			SOS Children Village

Source: Village Profile of Sipadole VDC, 2068; Village Profile of Sitapaila VDC, 2067; and Brochure of Panauti Municipality.

Annex 4: Officials met ( In alphabetical order )

1. Bharat Banjara, Program Officer, Panauti Municipality, Kavre
2. Binda Adhikari, Social Mobilizer, Ward No. 10, Panauti Municipality, Kavre
3. Binita Basnet KC, Social Mobilizer, Sipadole VDC, Bhaktapur
4. Eknayaran Aryal, Village Development Committee Secretary, Sitapaila VDC, Kathmandu
5. Gita Thapa, Social Mobilizer, Ward No.8, Panauti Municipality, Kavre
6. Gita Timilsina Dahal, Social Mobilizer, Ward No. 4, Panauti Municipality, Kavre
7. Keshav Banjara, Facilitator, Panuati Municipality , Kavre
8. Lalita Dhital, Social Mobilizer, Ward No. 7 Panauti Municipality, Kavre
9. Lekha Nath Bhattarai, Village Development Secretary, Sipadole VDC, Bhaktapur
10. Meera Giri, Social Mobilizer, Ward No. 9, Panauti Municipality, Kavre
11. Members of Ward Citizen Forums and Citizen Awareness Centres
12. Pankaj Adhikari, Facilitator, District Development Committee, Bhaktapur
13. Raghu Nath Shrestha, M&E Consultant, Ministry of Federal Affairs and Local Development , Singhdurbar
14. Sabina Shrestha, Social Mobilizer, Ward No 2, Panauti Municipality, Kavre
15. Sanjita Nepali, Social Mobilizer, Sitapaila VDC, Kathmandu
16. Sanjiv K.C. Administrative Assistant, Sitapaila VDC, Kathmandu
17. Subash Bhattarai, District Facilitator, District Development Committee, Kathmandu
18. Sudeb Kumar Pokharel, Executive Officer, Panuti Municipality, Kave District
19. Sita Kumari Karki, Computer Officer, District Development Committee, Kathmandu

Annex 5: Functions of WCF

1. To create environment in the WCF to clearly articulate the needs, priorities, voices, thoughts and issues of the poor and disadvantaged groups on priority basis,
2. To create opportunity to increase access and participation of poor in the use and consumption of local level government and non-government resources in each stage of plan formulation,
3. To regularly organize meetings at tole/basti level to discuss ward level socio-economic issues by fixing time, day and date by itself,
4. To facilitate the local situation analyses and to identify the needs and priorities of the poor groups,
5. To priorities the activities and the projects received from the local _tole/basti _ and to recommend the priority based programs for budget allocation,
6. In case the Ward Committees are not active, to recommend the programs to the Social Mobilization Committee for submission to the IPC,
7. To submit the priority programs/projects to the IPC through Ward Committee or Social Mobilization Committee and based on priority the IPC would submit these programs to VDC/municipality for approval,
8. By using the available grant or other budget, the feasibility of the projects should be evaluated based on priority by the VDC/municipality and submit the projects to VDC/municipality council for approval,
9. To facilitate to constitute the users’ committee for the implementation of the approved projects and to enhance the capacity of the participants of the REFLECT classes and users’ committee through providing required management training by the service provider, social mobilizer or community facilitator and CAC to ensure the implementation of the programs/activities,
10. To be active to execute the subjects of local interest and national priority in the Ward, tole/basti as campaign,
11. To organize mass meetings to execute such mechanism of transparency as public and social auditing, public hearing at the tole/basti level and to be active to coordinate with the related agencies to address the recommendations received from the public hearings,
12. To maintain coordination with the Social Mobilization Committee to execute and manage REFLECT classes and CAC to enhance the capacity of the representatives of the institutions based on tole/community for their empowerment, and
13. To assist the poor and excluded households to perform self-evaluation to carry out participatory impact evaluation of the completed projects/programs in the livelihoods.

Annex 6: Achievements of WCFs/CACs as Claimed by the Discussants

Panauti Municipality

1. Helped to improve the representation of the people’s in the planning process of the municipality: in the annual progress review, public hearing, ward meeting on various issues, recognized by the municipality in its functions
2. Have started taking interest in the programs of the municipality, started giving suggestions and advise on the activities of the municipality
3. Have started working as watchdog in the quality of the municipality supported program construction
4. Have started making their demands, those women who used to be shy in public place are now openly speaking their minds, including share of their family issues and demanding the skill development and income generating programs.

Sipadole VDC

1. All the conveners were invited to attend the Village Council meeting, a fact of their recognition
2. Have started finding out the budget amount coming to the VDC, making VDC transparent in the budget amount received.
3. Getting the contractor to re-do the black topping in certain stretch in the road linking Surya Vinayak to Dorlang bridge, which got damaged within two months of black topping due to the bad quality work done by the contractor. The WCF members got hold of the contractor, talked with him and pressurized to do the re black topping.
4. WCF and CAC have been successful to raise awareness but that is not backed by the financial support for these bodies to take up projects, as a result frustration might emerge as a problem among their members

Sitapaila VDC

1. The illiterate members of CACs have become literate after joining the REFLECT class.
2. The CAC members have been able to write their name.
3. The awareness level of the members has enhanced.
4. The members have started taking interest development of their area.
5. The members have realized the importance of citizenship certificate and vital registration (such as birth, marriage, and death registration).
6. Personal intimacy of the members has increased.

---

[1] As to the definitions and terms used for local self-governance bodies, scholars have used different definitions and terms. According to Golding (1970), local government is ‘the management of their own affairs by the people of the locality.’ Robson (1931) defines it as ‘a conception of a territorial, non-sovereign community possessing the legal right and the necessary organization to regulate its own affairs.’ This in turn presupposes the existence of local authority with power to act independently of external control as well as the participation of the local community in the administration of its own affairs’ (quoted by Shrestha 1996). According to K. Kenkatarangaiya, quoted by Sachadeva (1993), ‘local government is the administration of a locality–a village, a city or any other area smaller than the state–by a body representing the local inhabitants, possessing a fairly large amount of authority, raising at least a part of its own revenue through local taxation and spending its income on services which are regarded as local and therefore distinct from state and central services.’ Dutta (nd) defines: ‘local government is a political mechanism or contrivance to manage the matters concerning the inhabitants of a particular locality or district by the local population directly or through representatives chosen from their midst, out of the funds wholly or largely raised locally and acting in accordance with duties and powers conferred on them by competent political authority, generally the legislature.’

As to the terms used Dutta (nd) writes: ‘in general usage the terms local authority, local government unit, local body, local council, local unit, and even local administration are employed interchangeably.’ In the Nepalese context, too, in the Local Self Governance Act 1999 (LGSA), the term ‘local body’ is used. Whereas, the Interim Constitution of Nepal 2007 use the term ‘local authorities’.

[2] A ward is a settlement or group of settlements or locality or group of localities falling under the jurisdictions of a VDC or Municipality. Each VDC has nine wards, whereas the number of municipal wards varies from 9 to 35 wards, for example Kathmandu Metropolitan Council has 35 wards.

[3] The eleven subject areas are: agriculture, rural drinking water, construction and transport, education and sports, irrigation, soil erosion and river control, physical development, health, forest and environment, language and culture, tourism and cottage industry, and some others under the heading ‘miscellaneous’

[4] The headings under which these are mentioned are: finance, physical development, water resources, environment, and sanitation, education, sports and culture, works and transport, health, social welfare, industry and tourism and under the heading ‘miscellaneous’. In addition, 13 functions have been identified as optional functions.

[5] The subject headings are: agriculture, rural drinking water and settlement development, power, works and transport, land reforms and land management, women and disadvantaged people, forest and environment, education and sports, wage labour, irrigation, soil erosion control and river training, information and communication, language and culture, cottage industry, health and tourism.

[6] The planning process begins with the (1) directives on the budget ceiling for the coming year sent by the NPC and ministries. DDC officials (2) review the ceilings and organize (3) plan formulation workshops that are organized in the communities. These workshops discuss the policies, goals and resource availability, including estimates for each VDC. These workshops are also used to distribute program request forms and orient VDC officials in the task. The VDCs then hold (4) meetings on programs to be implemented at the ward/settlement level. Selections of programs takes place at the settlement level (5) involving the villagers, user committees and other community level organizations. This is where the forms for requesting programs are filled. The Ward Committees meet (6) to discuss the local requests. The VDC then meets (7) to prioritize programs, prepare resource estimates and select programs that can be done with the VDC budget and those that would need external support. The next step involves the Village Council (8). The Council approves the programs and those that can be done using VDC resources, and if they are within the VDC plans. It also approves the list of programs that need external assistance that is forwarded to the DDC. Plans from the VDCs are the basis for discussions at the Ilaka Level planning workshop (9). These workshops prioritize the sectoral programs requested by the VDCs and municipalities and are forwarded to the DDCs. The sectoral committees at the DDCs review the recommendations of the Ilakas (10), identify those that can be done at the district level and those that would need central support and send their recommendations to the Integrated Plan Formulation Committee. This committee reviews the recommendation, prioritizes, and develops and submits a draft district development plan to the DDC (11). The DDC meeting discusses the draft plan vis-á-vis the instructions from NPC and other government agencies, and resources and groups programs that can be implemented with local resources and those that need central government support. This draft plan is sent to the DDC Council (12). The DDC Council approves the final document (13). After approval the plan and programs approved by the Council are sent to the NPC, MoLD and sectoral ministries. The approved programs are included in the Red Book.

[7] The UCPN Maoist has now been spilt and the split-away faction is called CPN-Maoist. Thus there are two parties, UCPN Maoist and CPN-Maoist.

[8] First taking over the government from the political parties by the King, second, handing over of the power by the king to the political parties, third amendments to the then Constitution, Constitution of the Kingdom of Nepal 1990, fourth, framing of an interim constitution, Constitution of Nepal 2007 and doing away of the then constitution, fifth, election to the Constituent Assembly, and finally, transformation of the country from the Constitutional Monarchy-multi-party system to Federal Democratic Republic of Nepal. Despite the fact that the country elected a Constituent Assembly in 2008 for a period of two years, it worked for four years. But the country failed to get a new constitution and is in a constitution less situation. The political transition of the country has prolonged uncertainty as to when the election to the local bodies would take place.

[9] The Constituent Assembly (CA) elected in 2008 was supposed to write a new constitution for Nepal within two years as per the Interim Constitution of Nepal, could not complete the work and extended its life for another two years. Even after four years of existence, the CA failed to deliver the fruit due to the wrangling of the political parties on the nature of the polity and completed its term in May 2012. The country is still being run and managed as per the provisions of the Interim Constitution of Nepal 2007.

[10] The LGCDP is a four year program (16 July 2008 – 15 July 2012). A one-year no-cost extension has ensured that the program is extended for a fifth year from July 2012 to July 2013. It has also been learned that GoN and the development partners have formally agreed on the LGCDP II. The program, as claimed, aims to contribute towards poverty reduction through inclusive, responsive and accountable local governance and participatory community-led development. The program has five main components, which are: empowerment of citizens and communities for their active engagement with local governments and for strengthening downward accountability; funding to DDC, municipality and VDC-led local development; developing capacity of local governments for effective service delivery; providing policy support for decentralization and local governance; and promoting gender-sensitivity and social inclusion in local government affairs. With a view to achieve the above aims, according to the professionals involved with the program, a number of programs were implemented, which are broadly divided into (i) supply side related programs, (ii) demand side related programs, (iii) policy reforms support programs and (iv) capacity development programs. The donors involved in the program are: ADB, DANIDA, CIDA, DfID, UN System (UNDP, UNICEF, UNCDF, UNFPA, UNV etc.), Government of Norway, SDC, GTZ, JICA, World Bank and Government of Finland.

[11] As per the GESI Policy, each Ward of the VDC and municipality should have a WCF with 30 to 45 members, comprised of representatives of the different disadvantaged groups, community based organizations, right activists, children forums including other stakeholders such as non-government organizations (NGOs), organizations of women, children, Dalit and Indigenous people. At least 33 percent of its members should be women. If some residents were still left out, they should be mobilized to form a new group through the Social Mobilizer (SM) and its representation in the WCF should be ensured. The VDC Social Mobilization Manual 2011 (2068 BS) has also made it obligatory for the 33 percent of the women in the WCF.

[12] The REFLECT and power analysis involves the following steps: (i) Assess existing organization and groups; (ii) Establish Ward Citizen Committees; (iii) Identify existing resources; (iv) Select community facilitators; (v) Community needs analysis; (vi) Gender analysis; (vii) Poverty, exclusion and empowerment analysis; (viii) Disadvantaged household mapping; (ix) REFLECT process; (x) Form and reorganize community based organizations (CBOs) and Tole (settlement) Level Organizations (TLOs); (xi) Register CBOs and TLOs.

[13] Village Development Committee Social Mobilization Manual, 2068 (2011 AD)

[14] It may be recalled that under the LSGA, each of the Wards in each of the VDCs and municipalities, was to have a Ward Committee (WC) with five elected members, one of which was to be a woman and the other was Chairperson and the rest three as members. This body was supposed to act as the lowest level planning body, which was to discuss with the residents living in the different settlements of the respective ward, find out their needs to be reflected in the annual plan and budget of the VDC and Municipality concerned, prioritize them in discussions with the residents themselves, and submit the list of the projects/programs with order of priority to the VDC for consideration and inclusion in the annual plan and budget of the respective body. Whether, the whole process was followed or not is a matter of debate, in most cases the process was not followed in the selection of the projects and programs for the annual plan and budget by the VDCs and municipality, but at least the people’s representatives existed at the local level. One of them, the Ward Chairperson represented the residents of the ward in the VDC and VC or municipality or municipal council. But, as no elections to these bodies were held upon the expiry of the term of the representatives in 2002, citizens were devoid of a formal mechanism to raise their voices in the planning process of the LGBs. From this perspective the provision for the WCF could be considered as a voice raising mechanism. And such bodies have been formed in almost all the VDCs and municipalities.

6. Community Forestry: A Model of Grassroot Democracy - Nepal’s own Innovation and the Role of Development Aid

Dr Bharat K Pokharel

Abstract This paper provides an analysis of Nepal’s community forestry at the grassroot level from which one can learn the concepts, processes, methods and tools related to local democracy for resource governance. The paper offers some opportunities to transform Nepali society by capitalising the best practices of community level democracy. We however recognise the encounter between change agents and traditional forces, social structure and feudal organisational culture. The latter tends to hinder the change process that is taking place in terms of the practice of sustainable management of forest resources, inclusive, pro-poor and gender responsive forest governance at the grassroot level. This lays the foundation for the transformation of Nepali society from the bottom. The paper depicts many drivers for such transformation. These include: enabling environment - policy and legal reform in crafting appropriate institutional arrangements, secured community’s tenure rights, emergence of some champions in the forestry sector as change agents, and to some extent the limited support of development aid in the sector. The paper also highlights some of the challenges that Nepal’s community forestry sub sector faces. Although community forestry is a model of grassroot democracy and local governance, it faces many challenges because it has to operate within forestry sector and larger government’s bureaucratic set up and more importantly within difficult national context of unstable transitional political environment and feudal social structure which community forestry cannot change but adapt to the situation to survive and move forward.

6.1 Enabling environment for community forestry as a practice of local democracy - Appropriate institutional arrangement

Nepal’s community forestry has evolved and grown up with the principle of ‘practice first, policy second’ approach. The Master Plan for the Forestry Sector (see MoFSC, 1989) for example was formulated based on 11 years of practice of participatory forestry through local government. The MPFS recognized community forestry as the priority program with a visioning of a strong grassroot level institutional mechanism at the local level. A legislative framework was enacted only after 7 years of piloting the provisions of the master plan, followed by a clear forest regulation, guidelines and restructuring of forest sector organizations (see HMGN, 1993; HMGN, 1995; DOF, 2008). A new Terms of Reference of government staff was formulated transferring their role from ‘policing to participation’ and from ‘control to collaboration’. National forests nearby to the settlement were to be handed over to the locals as part of the process of devolving power of the government’s central authority to the local communities. Forest users have been made responsible for the preparation of their constitution (local rules) and forest management plan which are legally recognized by the government with no time limit of their tenure – a far reaching autonomous status. The period of the forest management plan however is kept for 5-10 years which is subject to renewal based on changed forest condition and users’ need. Local democracy is promoted in making decisions as discussion takes place at household and small group level whereas strategic decisions are made at the general assembly.

Formalization of Community Forest User Groups (CFUGs) and forest handover take place only after the mutual agreement following the decision of the general assembly in consensus and the decision of the forest authority on behalf of the state. The community bears all the cost of protection and management to ensure environmental sustainability, in return government ensures that all the benefits go to the community. The whole system is very simple and rules are made very easy to understand for ordinary users. Therefore the process is owned by forest users themselves. The ratio of the size of the group and the forest is kept manageable and determined by the customary rights and proximity of the households who could contribute for protection and management activities. The Community Forest User Group committee is not the decision making authority, it is simply a representative unit with limited responsibilities defined by the general rules, the later nevertheless is considered to be the main decision making body where decisions are to be made in consensus (against majority and minority vote).

Power sharing with the government is clear as groups are the managers and the users of the forest produce and the government is the owner of the land. A group has the right to plan and implement how to generate fund and reinvest on forest management, community development, and poverty reduction initiatives. Groups can raise fund, establish enterprises and reinvest on any purpose through assembly’s decision. Groups also can freely fix the price of produce, penalize members or reward them. Each group applies the principles of positive discrimination for women and disadvantaged households for equitable leadership and benefit sharing arrangement. A group can federate and establish networks. Groups have a legal right to make demand to acquire any type of national forests which are close to the settlement be it well stocked natural, degraded, pasture or plantation area. Handing over of forest area is determined on the basis of a group’s willingness to cooperate with each other, nearness to the forest, and the knowledge and capacity of users to manage forest resources.

6.2 Positive response of the appropriate institutional arrangement

The community forestry process not only survived during 12 years of political conflict in the country, but also significantly contributed as a vehicle of rural development at the time of the vacuum of local government (Pokharel and Paudel, 2005). In 15 years, community forestry has become one of the largest initiatives in the country. There are about 14337 CFUG formed, 80% of which are federated at village, district and national level. The federation is part of civil society and has an influential role in policy making processes at local, national and to some extent at the international level. A total of 23% of the country’s forests (1.219 mio ha) is handed over to the groups which covers about 38% of the rural population (1.647 mio families). The national average households per group is 115 with an average forest area for each group is 85 ha which comes around per capita forest 0.14 ha (DOF, 2009). There are about 52,000 grass root women leaders (1/3rd of the positions in the user group committees) and 5000 women leaders in various chapters in user group federations (½ of the leadership positions are reserved for women at village, sub district, district and national level federations). As a result of inclusive structure and local democratic processes, Nepal’s community forestry programme has begun to contribute to social and human development at the grassroot level, and to community infrastructure. The programme addresses, to some extent, poverty and equity issues by mobilizing local natural and human resources.

Overall improvement of forest quality has occurred even in forests nearby settlements of dense population in the middle hills, as a consequent improvement in landscape and biodiversity are evident (Branney and Yadav, 1998; Gautam et. al., 2002; DOF, 2005; Kandel, and Neupane, 2007; Nagendra et. al., 2008; Luitel et. al., 2009; Pokharel and Mahat, 2009). There is very little room for corruption as income and expenditure are to be made public in the general assembly and committee meetings regularly. If any committee, individual member or non-member is found guilty of misusing the rights and authority, they are punished by the groups and the misused funds and resources are recovered locally. Community Forest User Groups have been proven to be the vehicle for a cost effective way of community mobilization and many have now demonstrated a methodology to reach to the poorest and disadvantaged households. Written agreement and plans have been crafted between user groups and identified disadvantaged households which are being offered a package of various livelihoods assets (see examples in Box 1).

Box 1. Livelihood assets offered by user groups to their members

Source: Pokharel and Carter (2010).

In addition, community forestry has helped to institutionalize bottom up planning processes and inclusive governance in which the mechanism of participation of women, dalits, discriminated janajatis, poor and disadvantaged groups of people is ensured. Community forestry has now demonstrated the positive contribution of the forestry sector to forest development and beyond mainly in addressing poverty, gender and equity issues (Pokharel et. al. 2008). Through community forestry, the working relationships between the forest service and local people have been improved; involvement of young people in leadership positions is beginning to increase; the creation of income and community fund at local level and its mobilization as a rural bank are evident in almost all the groups throughout Nepal. More importantly it is found that many groups have been found to be able to deliver 16 various types of services at rural areas which are under the domain of various ministries beyond the mandate of forest ministry and department (see examples in Box below).

Box 2. User groups deliver at least 16 types of services to their members

6.3 Secured community’s tenure rights

The Forest Act of 1993 provided a clear legal basis to ‘hand-over’ national forest nearby to the settlement to CFUGs. Providing that certain conditions and procedures were followed, local communities can have secured tenure rights (to decide about the inclusion and the exclusion of their members, access, use and manage forests) except land ownership rights. According to the Forestry Act and the associated Forest Regulation, CFUGs are legal, autonomous and corporate bodies having full powers, authority and responsibility to protect, manage and utilise forest and other resources as per the decisions taken by their assemblies and according to their self-prepared constitutions and operational plans. Although all benefits from community forests would go to the respective CFUGs, the land legally remained part of the national forest and ownership will be of the state. Box 3 outlines the key features of the Forest Act and Regulation regarding the tenure rights of the CFUGs.

Box 3. CFUGs’ tenure rights

Source: Forest Act 1993 and Forest Regulation 1995

6.4 Forestry champions

In Nepal, forestry champions emerged from within and outside the forest service and contributed to innovate new approaches of practicing forestry, the response of which is found to be very positive in terms of improved forest condition, reversed rate of deforestation and degradation and in addressing the issues of inequity and poverty. These outcomes were primarily because of the devolution process that took place in the sub sector. The sub sector not only decentralised the power to its district units of central and local governments but also devolved forest management authority to the local community groups, the civil society. This further resulted in the growth of civil society organisation as federations and networks of users throughout the country emerged as new change agents from below. This has had profound implications on the forest sector governance in many fronts – in legal and constitutional spheres regarding the rights of the state and the civil society groups, organisational culture, partnership, working relationship and power negotiation between the state and the civil society. This partnership has created new opportunities for both the state and the civil society to democratise the sector as part of a transformation process in the new context of political restructuring and social movements. This has given a message to the political actors and the public that the forestry sector is not merely the icon of problems but it is one of very few sectors in Nepal which is a locus of innovative people and agencies of change which have brought positive change in the forest landscape and people’s local democracy at the grassroot level. This was made possible through the emerging epistemic networks, advocacy coalitions and change agents and progressive professionals within state organs and civil societies who seem to have beeen committed to transforming forest sector governance. It also demonstrates the complex interplay and encounters between the agency of change and respective social and political structures.

Good governance practices are demonstrated by civil society groups such as Federation of Community Forestry Users Nepal (FECOFUN) in terms of the mandatory inclusion of 50% women in leadership positions, the emergence of community forestry supporter organisations such as Community Forestry Supporter Networks Nepal (COFSUN) and the organisation of the grassroot women in natural resource management such as HIMAWANTI and dalit organisation in natural resource management such as DANAR. They all are now more actively engaged in political processes and their civil movements have now some demonstration effects to policy processes. Similarly, after community forestry processes, a cadre of progressive forest officials have emerged within he forest bureaucracy. Now, there are many forestry professionals in the Nepal Forest Service who have acted as change agents from within the system and have inspired other sectors to act as a vehicle of change from within bureaucracy. Similarly, there are various multi-stakeholder forums such as Forestry Sector Coordination Committees at the national, sub national and local levels which have been acting as a pool among central government, local government and community groups, non-government and private sector agencies. More importantly professional national NGOs are being established. Their professional capacity and research skills have been enhanced and their need for collaboration and partnership with international and local organisations have increasingly been realised. In addition, civil society led epistemic networks emerged and have begun to interface with political actors.

6.5 Development aid in community forestry sub sector

Who are the funding agencies of development aid for community forestry? Unlike the general perception of many, local communities are the main funding source. Large proportion of the cost of community forestry is borne by the local communities themselves. Of an estimated running cost of NRs 119,100 per year for a CFUG, 71% is self-funded by the CFUGs, 16% comes from donor agencies and 13% from the government (Pokharel et al. 2008). Therefore, the value of the CFUG contribution to sustain community forestry is more than two times higher than that of government and donors combined.

Donor investment (16% of the total) represents approximately NRs 18,600 per CFUG per annum. This is spent partially through government (‘red book’ funding) and the remainder directly with CFUGs for their capacity building. This sum includes expenditure on human resource development (scholarships and training of various types), infrastructure, vehicles and other recurrent costs. Government investment (13% of the total) represents about NRs 16,000 per CFUG per annum. This covers a limited programme of activities but the bulk is for staff salaries and expenses. It can be estimated that in middle hills districts, 60% of staff time is dedicated to the community forestry programme.

Annual investment of CFUG (71% of the total) represents about NRs 76,500 in labour costs (largely as opportunity costs) per CFUG. For the purpose of this calculation the shadow wage rate is assumed as NRs 100 per day. Investment in forest watchers is 365 person days per year; attendance at assemblies is 200 person days per year (each person spends 5-6 hours per assembly); attendance in committee meetings is 60 person days per year (each person spends at least 2-3 hours); 40 person days per year is spent for tole (hamlet) level meetings; 100 person days per year are spent for forest tending operations (all figures per CFUG). These estimates do not include costs that some CFUGs incur for nursery operations and plantation establishment. The total cost is equivalent to NRs 850 per ha of community forest per year (the average area per community forest is 90 ha. CFUGs’ further investment of NRS 8,000 per CFUG per annum comes through expenditure from their own cash funds. CFUGs spend around 25% of their cash funds on forest development activities - equivalent to NRs 2,500 per CFUG (per year). CFUGs spend a further 36% of their funds on community development activities like drinking water supply, school buildings, temples and trails. This is a further investment of NRs 5,500 per CFUG per year (Pokharel et al., 2005).

Table 1: Development aid to the community forestry programme by various development partners (Annual Budget and Average approximate figure in million US$)

Donor	Duration	Annual budget	Sub sector	No of Districts	Status
Finland	1985-1996	1.00	Institutional reform	NA	Continues
		4.0	Forest inventory
	2008-2011		Leasehold forestry	26
	2011-		Multi-stakeholders
UK	2001-2011	2.68	Community forestry	15	Continues
	2011 -		Multi-stakeholders
Denmark	1998-2005	4.05	Community forestry; Forestry training	38	Closed
Australia	1978-2002		Aforestation	2	Closed
	2003-2006	1.76	Community forestry
	2005-2011		Forest enterprise
USA	1997-2002	-	Community forestry	5	Continues
	2002-2008	1.05	Biodiversity
	2001-2006	1.06	Biodiversity	?
	2010-	6.00?	Hariyo Van
Switzerland	1975-1990	0.5	Agro-forestry	3	Continues
	1991-2011	1.00	Community Forestry
	2011-	1.00	Multi-stakeholders
Germany	1992-2004	1.00	Community forestry	3	Closed
IFAD	1993-2013	1.37	Leasehold forestry	26	Continues
The Netherlands	1993-2001		Collaborative forestry	8	Continues
	2001-2006
	2002-2011	1.21	Collaborative forestry
EU	1997-2003	3.75	Watershed		Closed
Japan	1999-2005	0.14	Watershed		Closed
	2005-		Forestry extension
UNDP	2000-2006	0.26	Biodiversity		Continues
	2006-2013		Biodiversity
IDA/The WB	1978-1988		Afforestation		Closed
	1989-1999	4.5?	Community forestry	38
Av per year		19.27

Source: Author’s compilation 2013

As a result, if CFUGs did not exist, government would have to find about NRs 18 million per year per district to compensate for CFUG members’ labour inputs and forest development activities. VDCs and other government providers would also have to fund other community infrastructure activities that are currently being undertaken by CFUGs. These figures indicate that CFUGs are moving towards financial sustainability and are making a significant contribution to the costs of local development.

Initially CFUGs were supported by donor funded projects mainly for three types of activities. First, to train forest staff in order to set up CFUGs through a social mobilization process; second, to enable CFUGs to prepare appropriate forest operational plans; and thirdly to provide training to CFUG members to build their capacity and ensure institutional, ecological and economical sustainability.

Following the royal coup in February 2005 many donors withdrew their financial support including in community forestry. During the last 15 years, there have been 12 major donors (see Table 1 below) which were supporting the forestry sector in 66 districts. Only 7 donors namely UK, Switzerland, Finland, USA, IFAD, the Netherlands and UNDP have extended their presence in forestry. Many CFUGs do not receive direct support from donors or government at all. Nevertheless they continue to function, practice local democracy – assemble, choose or remove their leaders, voice, agree disagree, debate, compromise, negotiate and manage forest by relying on their own knowledge and self-generated sources of income.

6.6 Challenges in community forestry

Despite big contributions of community forestry to promote and sustain grassroot democracy and restore forest resources (see Pokharel and Mahat, 2010 and photos below), the challenges remain in terms of its visible impact on poverty reduction, equity and access to resources from the part of the poorest and disadvantaged (Yadav et.al., 2008; McDermott et. al., 2009). Many of these challenges however are inherited by hierarchical social structure and the socio-political context, and not so much a weakness of community forestry itself.

Inequitable social structure of the Nepalese society is another challenge. Society is still highly inequitable and differentiated. The differentiation is historically rooted and is characterized by unequal access to and control over land resources between people of different economic and social groups. Landed class, who are mostly from advantaged caste and ethnic groups, dominate most of the economic and political affairs of the country resulting in continuous marginalization and exclusion of land poor, mostly the Dalits, women and indigenous ethnic groups. Kinship, connections and political constituencies shape the power relations which re-enforce hierarchical social structure. In addition, patriarchy results in the subordinated position of women, who, irrespective of their class and caste identity, are far behind in terms of control over means of production, access to opportunities and voices compared to men of the same economic and social groups. Though the country experienced several political changes during the last decade, exclusion and inequalities persist and many hierarchical institutions, especially the powerful informal networks, behavioral norms and expectations remain unchanged. To this respect, forestry sector cannot be seen in isolation and as exceptional, it is a small part of the whole system of Nepali society.

Economically, Nepal is still one of the poorest nations and an income gap persists between the rich and poor, between rural and urban households, and between men and women and so on. On average a Nepali lives with a per capita income of US$ 645. However more than half do not even have US$ 200 per capita income. While the country overall has witnessed progress in cutting poverty from 42 percent in 1996 to 31 percent in 2004, this development is not equitable. In nominal terms, the bottom 80 percent of the population earns only 47 percent of income while the richest 20 percent earns 53 percent of total income (CBS, 2004). Poverty and exclusion continues to be a rural phenomenon and substantial disparities exist across ecological zones, development regions, caste, ethnicity and gender. The average income for rural people is 2.7 times lower than the average income of urban people (CBS, 2004)

The country is now undergoing a period of political transition. The period represents both risks and opportunities. The major political events including the people’s movement of 2006 that led to the abolition of 240-year-old monarchy; the end of the decade long armed conflict; and the constituent assembly election 2008- all provided a critical opening of the debates on state restructuring, social and political inclusion, recognition and respect for social diversity and equitable share of benefits from development across the space, class, caste and gender. The Constituent Assembly (CA) held in April 2008 was much more inclusive in terms of social diversity than any previous legislative body. One third of its members were women, which according to United Nations, puts Nepal in 14th place in the league table of women’s representation in national elected bodies. Despite all these achievements, the Constitutional Assembly dissolved without pronouncing the constitution. The political process is in limbo. It was expected that it would pave the way for a complete socio-political transformation, which would also enable the forestry sector as well. Unfortunately the political negotiation process is not moving at the national level. There are no local governments. In many instances, grassroot level organisations such as CFUGs have to take the burden of the local governments. This will pose new challenges to local level democracy.

Although the political change has opened up space for the emergence of a large number of civil society organizations (CSOs) and allowed fostering of media as well as issue and social identity based networks, many have been active only in towns and urban areas. These organizations and networks have been influential in raising awareness on the disparities between social groups and in organising the excluded at the national level but the real interface takes place at the grassroot where CFUGs have to act as the representatives of CSOs. The issue and interest based groups, federations and networks are mainly involved in the struggle for equal rights and participation of all economic and social groups in state affairs (Geiser 2005), and they are largely concentrated at the city centres. In the absence of local governments, the real vehicle of the exercise of rights and people’s participation at the villages and settlements have been CFGUs since more than 70% of the country’s population are dependent on forests and almost half of it are legitimate members of the community based organizations, which are organized as civil society groups and continuously practicing democratic rights and performing duties of managing resources with full participation of its members (Pokharel and Carter, 2007). Therefore these organisations have become the building blocks of democracy and local level peace building. They however face many challenges as they have to be operated within the national framework of political transition and the larger bureaucratic culture of government organisations and the forest service with whom they have to interface on a day to day basis.

Despite many champions in the government forest service for example who innovated, piloted, helped the political actors in the post 90s in crafting a policy and legal framework favourable to community forestry and have been facilitating the process and the people to advance community forestry, Nepal’s forest service is still perceived largely by the public as top-down, bureaucratic and less inclusive.

Forestry champions also have to struggle with the traditional forces which are the believers of a centralised governing structure and functioning mechanism of the forest bureaucracy, a part and parcel of Nepali feudal bureaucratic system of governance. The indicators of such system for example are that almost 77% of the forest resource is still controlled by the central government authority without specified management plans. Despite attempts of some champions to redefine the roles and responsibilities of the forest service, the later suffers from multiple tasks and over burden with various responsibilities which are not only in their core competencies but also duplicate with different agencies such as judiciary, policing and patrolling, revenue collection, enterprise and business and so on. In result, there are delays in decision making. There is a power struggle between the progressive change agents in the forest service and the traditional forces, who believe in command and control approach of protected area management, traditional style of patrolling and policing to protect forest and biodiversity. These roles have ultimately ruined the public image of the forest service in general, and undermined the excellent work being performed by change agents from within the forest service. The sector administration also suffers from limited organizational preparedness especially to achieve the policy intentions of decentralization, inclusion and equitable access to resources. Unlike the community forestry sub sector, the forest service like any other government service continues to remain non-inclusive in structure. It lacks internalization of the concepts and processes of devolution, inclusion and equitable access to benefits for the local communities especially the most poor and disadvantaged groups which have remained among the policy intentions of the sector (Hobley, 1996). Rather, often the forest service like other bureaucratic services demonstrates resistance for a transformation required in the sector in line with the wider socio-political transformation process of the country especially transferring the ownership and tenure rights of the forest resources to local communities.

In the forestry sector, community forestry and other community based conservation management regimes are relatively progressive and people oriented, in result forest, watershed and biodiversity in community based areas are improving and well recognized by the public. However, the forestry sector largely is perceived by the public as ‘controller’ of the resources, and local people in many parts of the country especially in the Terai do not have adequate opportunities to take initiatives and ownership for the protection and management of forest resources. As a result the rate of degradation and deforestation in the Terai and some parts of inner Terai is increasing and local communities, especially the disadvantaged ones, are deprived of livelihood benefits from the local forest resources.

There are many forestry champions who have been both the inspiration and the products of community forestry approach. Many policy provisions in the sector plans, legislations, rules, regulations, orders and circulars are people centred. However legislative provisions hardly match with the attitudes of duty bearers. Many of the legal provisions contrast and contradict one another. There are various interactive forums crafted in the sector; meetings and sharing take place regularly in a participatory way, however changes in policy decisions are often taken at haste and suddenly at the central level without any informed consultations and without consensus. This makes the working environment for the collaborators confusing. There are long, medium and short term policy objectives defined in various government policy documents, however the short term vision gets priority while solving problems. There is a lack of clarity in the sector in terms of job descriptions, roles, responsibilities and authorities of various agencies, staff and stakeholders that make the forestry sector environment chaotic and unjust.

In the sector, forestry champions do see the importance of participation of stakeholders including forest users’ and their representatives in the policy processes. The main right holders are often invited in policy discussions, opinions are gathered and issues are analysed and published for public discourse and debate. However the traditional forces conspire and play from within, as a result policies are amended largely by some which are in power, rarely on the basis of the recommendations of the public consultations. People are not well notified about legal provisions, decisions, plans and business undertakings. The tradition of delaying actions is very common. Nepotism and sycophancy still prevail in the sector. Necessary documents and procedures for decision making are rarely made public. Notice is written in only one language in the government’s official document and notice board. Forest acts, laws and regulations don’t reach illiterate people, community and rural places and only the government officials and elites get to know about the government rules. Hesitation by both position holders at the central and local level to conduct public hearings and public auditing is persistent. Auditing is limited within a small circle mainly only among staff, co-workers and partners. As a result, learning based on mistakes or from best practices are lacking. Hence the repeating of similar kinds of mistakes prevails.

With the exception of some champions, most of the duty bearers in the sector seem accountable only towards their superiors and not to the general public. People with authority and power have not been performing their duties and responsibilities well. This has created an autocratic environment in the sector. A culture hesitant to listen to the voices and opinions of all class, caste, gender and regions. Status quo is not good but this sector lags behind in making changes. Many position holders of this sector tend to be less proactive, lethargic, less studious and less thoughtful. Decision makers lack the culture of learning from past experiences and analyzing them. They disregard the peaceful voice of minorities and response only after the aggressive mass makes protest creating anarchy. Many decisions are therefore made in haste and are later regretted. The sector lags behind in making amendments to unpractical decisions when approached through a proper theoretical argument but amendments are done at once if pressurized. This sector still suffers from the attitude of strict policies and regulations that solve the problems but position holders don’t bother to comply with them. Sycophancy and authoritarianism prevail.

Forestry champions have attempted to change the working mechanism and procedures. However, the traditional forces do want to continue the existing working procedures which are old fashioned. Hesitation exists among these traditional forces to change the procedures and rules that delay the decisions, instead additional conditions and steps are added without public opinions and consultations. As a result the sector’s ability to make decision and take actions effectively and efficiently are questioned.

Similarly, some aggressive civil society actors often exaggerate the issues for advocacy and lobbying, and do not seem to be aware of the fact that demand of “rights without responsibilities, duties, roles and contribution” is unsustainable. Without evidence, superficial knowledge and wrong assumptions of the traditional forces both within forest and outside forest service and increasingly also the unrealistic demands of the trade unions have fueled, like other sectors and sections of Nepali society, a system of anarchy and non-compliance to the existing norms and rules. As a result, many policies and legal frameworks exist on paper but not in practice.

6.7 Conclusion

Despite problems in country’s governance and organisational culture and many challenges, community forestry is moving towards achieving the objectives of improved ecological conditions and social and economic sustainability. With few exceptions, local democracy is flourishing and communities are practicing good governance in day to day spheres.

Community forestry is Nepal’s own innovation and a model of local governance at the grassroot level with its positive contribution to forest restoration. The state in transition should therefore learn from the principles and practices of grassroot level citizen groups that are practicing good governance and local democracy and are achieving outcomes. Through these practices citizen groups from the rural areas are exerting pressure and making a demand for change. Let us hope that politicians, who are the country’s policy makers and policy shapers learn lessons from community forestry to transform the country and that community forestry will bring prosperity without any foreign aid. If tenure rights of local communities are secured, there is no need of any development aid from outside, local communities will be able to manage forests sustainably and can generate fund by themselves not only to sustain but to contribute to the country’s prosperity.

6.8 Annex: Area and membership of CFUG in Nepal

Area and membership of Community Forest User Groups in Nepal

Fiscal Year	CFUGs (no)	Area Handed over (ha)	Member households (no)
Up to 1987	28	3025	3599
2044/045 1988	1	27	35
2045/046 1989	9	473	1625
2046/047 1990	41	2229	4856
2047/048 1991	77	5265	13282
2048/049 1992	340	27249	40708
2049/050 1993	710	56680	81555
2050/051 1994	1210	102651	142613
2051/052 1995	1598	148435	181607
2052/053 1996	1791	171999	217408
2053/054 1997	1606	138655	189467
2054/055 1998	1440	141241	174686
2055/056 1999	1178	105613	145141
2056/057 2000	1083	103104	129925
2057/058 2001	887	95989	101097
2058/059 2002	656	63255	92941
2059/060 2003	649	49494	79162
2060/061 2004	658	52037	79811
2061/062 2005	547	53458	70854
2062/063 2006	492	50891	65694
2063/064 2007	558	76095	85752
2064/065 2008	477	37446	50862
2065/066 2009	783	77685	98686
2066/067 2010	923	101725	130386
2067/068 2011	295	27907	47047
2068/069 2012	91	7092	7830
2069/070 2013	5	325	566
TOTAL	18133	1700048	2237195

Source: DOF, 2013; Author’s compilation

Acknowledgement

Some part of the text is drawn form B. K. Pokharel, P. Branney, M. Nurse, Y. B. Malla (2009) “Community forestry: Sustaining forests, livelihoods and democracy” and B.K. Pokharel and B. Rai Paudyal (2010) “Learning from community forestry to transform forest sector governance”. So we would like to acknowledge the contribution of the authors mentioned above.

References and bibliography

Branney, P. and Yadav, K.P. 1998. Changes in Community Forest Condition and Management 1994 -1998: Analysis of information from the Forest Resource Assessment Study and Socio-Economic Study of the Koshi Hills. Kathmandu:DFID.

Central Bureaucracy of Statistics (CBS). 2004. Statistical Year Book of Nepal. Kathmandu: NPC/CBS.

Department of Forests (DOF). 2008. Community Forestry National Operational Guidelines: Revised in 2008. Kathmandu:DOF.

Department of Forests (DOF). 2009. CFUG National Database. Kathmandu:DOF.

Department of Forests (DOF). 2005. Forest Cover Change Analysis of the Terai Districts (1990/91-2000/01). Kathamndu: DOF.

Gautam, A.P., Webb,E. and Elumnoh, E. 2002. GIS Assessment of Land Use/Land Cover Changes Associated with Community Forestry Implementation in the Middle Hills of Nepal. Mountain Research and Development, 22 (1), 63-69.

His Majesty’s Government of Nepal (HMGN). 1993. Forest Act 2049 (1993) Official Translation. Nepal: HMGN

His Majesty’s Government of Nepal (HMGN). 1995. Forest Rules 2051. Nepal: HMGN

Hobley, M. 1996. Participatory Forestry: the Process of Change in India and Nepal. London: Overseas Development Institute.

Kandel, B. and Neupane H.R. 2007. Identification of Root Causes of Forest Cover Change in the Terai Districts: Report submitted to CIFOR. Kathmandu: Environmental Research Institute.

Luintel H., H. Ojha, B. Rana, R. Subedi and H. Dhungana, 2009. Community forestry in Nepal: Promoting livelihoods, community development and the environment, LFP Kathmandu Nepal

McDermott, M.H and Schreckenberg, K. 2009. Equity in community forestry: insights from North and South The International Forestry Review 11 (2):157-170.

Ministry of Forests and Soil Conservation (MOFSC). 1989. Master Plan for the Forestry Sector. Nepal: MOFSC.

Nagendra, H. Pareeth, S. Sharma, B. Schweik, C.M. and Adhikari, K.R. 2008. Forest Fragmentation and Regrowth in an Institutional Mosaic of Community, Government and Private ownership in Nepal. Landscape Ecololgy 23:41-54.

Nepal Foresters’ Association (NFA). 2007. Democratization of the Forestry Sector. Kathmandu: NFA.

Pokharel,B.K. and Carter, J. 2010. Addressing Poverty and Promoting Good Governance: Community Forestry in Post Conflict Nepal In B.R.Upreti, S.R. Sharma, K.N. Pyakurel and S. Ghimire (Eds). The Remake of a State: Post Conflict Challenges and State Building in Nepal. NC CR North South. Kathmandu, Nepal. pp. 65-86.

Pokharel, B.K. and Rai Paudyal, B. 2010. Forestland Reform: Transfering State Property to Community Property in Post Conflict Nepal In In B.R.Upreti, S.R. Sharma, K.N. Pyakurel and S. Ghimire (Eds). The Remake of a State: Post Conflict Challenges and State Building in Nepal. NC CR North South. Kathmandu, Nepal. pp. 111-128.

Pokharel,B.K. and Mahat, A. 2010. Institutions Matter the Most: The Effect of Community Forestry on Forest Cover Change in Nepal. A Paper Presented at the Yale University at the Annual Conference of the International Society of Tropical Foresters in November 2009. New Heaven, USA. The Paper is to be published in the Insternational Journal of Sustanable Forestry in 2010. USA.

Pokharel B.K and Mahat A. 2009. Kathmandu to Jiri: A Photo Journey. (A Booklet that demonstrates the impact of community forestry to the landscape). Kathmandu:SDC.

Pokharel B.K., Branney, Nurse, M. & Malla, Y. 2008. Community forestry: sustaining forests, livelihoods and democracy. In Ojha et al (eds.) communities, forests and governance: policy and institutional innovations from Nepal. New Delhi. Adroit Publishers.

Pokharel, B. & Carter, J. 2007. Addressing chronic poverty and spatial poverty traps in Nepal’s middle hills: the Nepal Swiss Community Forestry Project. A paper prepared for the international workshop “Understanding and addressing spatial poverty traps: an international workshop” 29 March 2007, Spier Estate, Stellenbosch, South Africa.

Pokharel, B.K. & Paudel, D. 2005. Impacts of Armed Conflicts on Community Forest User Groups in Nepal : Can Community Forestry Service and Contribute to peace building at local level. European Tropical Forest Research Network (ETFRN) Issue No. 42. The Netherlands.

Yadav, B.D., Bigsby, H. and Macdonald, I. 2008. Who are controlling community forestry user groups in Nepal? Scrutiny of elite theory. Paper presented at the New Zealand Agricultural and Resource Economics Society Conference, August 28-19, 2008. Nelson, New Zealand.

7. External Forces and International Cooperation in the Context of Constitutional Instability and Development in Nepal

Ganesh Dutta Bhatta

7.1 Introduction

The Constitution is an act and a backbone for a government for implementing its programs and strategies to run the country. The Constitution helps to develop the political system of a country and manages all the major constitutional bodies including parliament, government and judiciary and maintains a power balance between them. It helps in delineating the relationship between a state and an individual, protects the basic rights of an individual and establishes the state’s responsibility towards its citizens. Therefore, we can take constitution building as a nation building initiative.

During the last six decades, Nepal has built, implemented and experienced six constitutions. The replacement of those constitutions was neither the reason to solve the national crisis nor it made any difference to solve political conflicts. If serious studies are not carried out on why the past constitutions of Nepal failed to address the country issues or why they were not properly exercised before looking for another one, we can assume for surely the one that is going to be formulated by the upcoming constitution assembly will face the similar fate. This practice of changing constitution so cheaply without its proper and right implementation has neither provided any political stability nor the goodwill of the country[1].

7.2 History of constitutional law in Nepal

A constitution can be written immediately, torn apart, it can be enforced and dissolve at any time. However, the constitutional system of a country will be developed through the proper practice of the constitution by relevant stakeholders. The constitution can be implemented but cannot survive without a development of a good system. We have evidences that even the constitution can be developed later with regards to an existing political system of a country. For example, we had single party political system but not a constitution. The United Kingdom has democratic political system but they don’t have a formal constitution. In this context, Nepal can be viewed as old and mature as a state but young and fragile in terms of changing political systems[2]

The upcoming constitution of Nepal will be a seventh as we have already got six constitutions during the last six decades of political instability. The reason behind such volatility is the conflict between traditional and modern schools of thought in the political arena, which will clearly surface again in the future constitution drafting process. We should be cautious.

After having five constitutions in the six decades long constitutional history, we got an ad-hoc constitution on 2063-10-1. The formulation, implementation and again reformulation of five constitutions during such a short period clearly depicts how we came across from an era of such a constitutional instability that has directly affected the political, social and economic life, the major three pillars of any country.

The first written constitution of Nepal was enforced by the then Shree Teen Padma Samsher Janga Bahadur Rana on 26th July 1948 (Magh 13, 2004) in the history of constitutional development of a country. This was followed by other constitution in 2007 BS, 2015 BS, 2019 BS, 2047 BS and 2063 BS. Similarly, King Prithvi Narayan Shah followed traditional norms, culture and Hindu ideology to run the country from his state integration till Kot Parwa of 1903 BS. When the Shree Teen Junga Bahadur Rana grabbed the power after Kot Parwa, the country was run in the will of elite Rana’s family, mainly in an autocratic manner.

Government of Nepal Legal Act, 2004 BS

Nepal Government Legal Act 2004 BS was the first written constitution of Nepal. Whatever the reason behind its promulgation, it established the theory that the country should be administered through a written constitution. The declaration of the then Shree Teen Padma Shamsher Rana to form a legal body of elected representative in order to design a political system of a country, was truly a first step in the history of Nepal to formulate a written constitution. In accordance with that declaration, a constitution drafting committee was formed on 12-02-2004 B.S. headed by Dr. Shree Prakash Gupta of India with few Nepalese as its members. It took ten months for the committee to draft a constitution and submit it to Padma Shamser Rana, who enforced/declared it as a “Nepal Government’s Legal Act 2004” on 13-10-2005. However, the circumstances like the exile of Padma Shamsher, the lack of commitment of the next prime minister Shree Teen Mohan Shamsher towards that national act, the unclear role of neighbouring India as well as people’s movement inside and outside of country for democracy became the hurdle to officially implement the first constitution.

Interim Political Bidhan of Nepal, 2007 BS

After the then King Tribhuwan went to Delhi on 26-07-2007, taking few days asylum at the Indian Embassy, the Rana regime felt uncomfortable with the developing political situation inside the country. In order to diffuse the internal political tension, the Rana regime decided to talk with the Indian counterpart and formed and sent a three members dialogue team with a three point proposal to India. The Indian side refused the proposal of the Rana’s and sent back a five point proposal instead for solving the political tension of that time. The five points proposal was accepted by the king Tribhuwan, politicians and all India based Nepalese political parties. Initially, the Rana regime rejected the proposals but the growing pressure let them down and finally agreed on it resulting in the postponement of the mass general strike from 01-11-2007. A meeting was held between the King, the Rana regime and Nepali Congress facilitated by India, with the outcome of forming of an interim government in Nepal.

After returning from India, the exiled king Tribhuwan declares that “from onwards, the politics and political system of a country will be governed by a constitution, formulated and endorsed by a group of peoples elected by the general public”. In order to institutionalize the royal declaration and diffuse Nepal Government Legal Act 2004, the ministry level cabinet declared Interim Political Bidhan 2007 on 29-12-2007 BS and remained in action till 01-11-2015, having a total of eight amendments.

However, this constitution was deemed unsuccessful to realize its objectives due to the lack of inter party political cooperation as well as inter party and foreign intimidation. Nepal was in total political turmoil for eight years after the implementation of Interim Political Bidhan 2007, mainly because of external interests.

Constitution of Kingdom of Nepal, 2015

After the constitution of 2007 failed to stand up in its main objectives, the late king Mahendra declared another constitution named “Constitution of Kingdom of Nepal 2015”. But that was in action for a very short period. The growing rifts between the late king Mahendra and the major political parties Nepal Congress led to the dissolution of the 2015 constitution and Nepal was left in vacuum without any constitution for two years until the Partyless Panchayat political system was enforced on 01-09-2019 BS.

Constitution of Nepal, 2019

The late king Mahendra enforced the Constitution of Nepal, 2019 on 01-09-2019 B.S. taking all the state power on himself, with the thought that the country’s political system should be compatible with the existing climate of the nation and that of the king’s active leadership. An amendment was made on this constitution on 01-09-2037 B.S. after the Janamat Sangraha/people’s mandate of 2036 B.S., incorporating some of the parliamentary basic system. However, the mass protest for full democracy during 2045 B.S., the same period when the country faces economic embargo from India, finally led to the dissolution of the Constitution of 2019 B.S. on 26-12-2046, after it had been in action for nearly 30 years. Thereafter, the constitution of 2047 was enforced, with the broader participation of the king, political parties and civil societies, making the king constitutional monarch.

Constitution of Kingdom of Nepal, 2047

After the successful event of 2046 B.S. mass people protest movement, the ministerial cabinet decided to form a nine members constitution drafting committee headed by chief justice Biswha Nath Upadhya, with the objective to draft a constitution within a year and then hold an all party general election in the country. The cabinet approved the draft constitution and the late king Birendra endorsed the new democratic constitution “Constitution of the Kingdom of Nepal, 2047” on 23-07-2047. Though built on the broader consensus of the king, the political parties and civil society, this constitution also did not survive due to the Maoist insurgency and the second mass people protest movement. Consequently, the parliament re-established under the provision of this 2047 constitution dismissed the same constitution. This event was, to some extent, a sad day of Nepal’s history as it totally derailed the existing constitutional system established in the country with the sacrifice of people time and time again. We are still unaware how and why the so called good and exemplary constitution was vanished so easily[3].

Interim constitution of Nepal, 2063

The reinstated parliament after having the success of the 2nd mass people protest of 2062/63 immediately declared parliament declaration 2063 on its first meeting on 04-02-2063. That declaration regulated some important issues of the 2047 Constitution including the Royal Nepalese Army and Royal Palace. It also dismissed all the acts and rules of the 2047 Constitution that contradict with the parliament declaration with immediate effect.

In the mean time, a historical meeting was held between Nepal Government and Maoist representatives on 02-03-2063. The meeting decided to build an interim constitution based on the success of achieved loktantra from people’s movement of 2046 BS and 2062/63 BS. On the very same day, a committee was formed under the leadership of past judge of Apex Court Laxman Aryal, with a mandate to submit a draft of an interim constitution within 15 days to the government as well as Maoist leadership. However, a conflict rose immediately for lack of transparency in the committee formation process and non inclusiveness issues. This event led to the formation of a 16 members committee that prepared and submitted the draft interim constitution to the government and Maoist dialogue committee. The dialogue committee looked at and discussed the draft intensively and with the consent of major political figures of seven political parties and Maoist, the interim constitution 2063 was agreed on 01-09-2063. This agreed constitution was officially endorsed after passing through the then lower assembly.

It is very clear to all how the loktantra was established during the 2062/63 political change. The foundation of our current loktantra was from the auspicious of India, who mediated between the seven political parties and Maoist leaders in the Indian capital Delhi against the then King Gyanendra, inking the 12 points historic political agreement. Here, we failed again and begged external force to solve our internal problems, which is viewed by many scholars as the recurrence of 2007 B.S. event. Till now, we have the Interim Constitution of Nepal 2063 and will continue until the new full constitution is drafted by the Constituent Assembly. Almost 12 amendments were carried out on this interim constitution.[4]

Constitution assembly for drafting a full constitution

All the past constitutions of Nepal were declared by the state head except the interim constitution 2063, which was endorsed from interim parliament after the consensus between eight political parties. It is thought that the constitution made from constitution assembly represents the people elected from the election and represent people’s real voices. The constitution building process is as important as an element inside it. The constitution if prepared with broader participation and inclusiveness of people will help make national consensus and ultimately a stronger and long lasting.

Constitution assembly is considered as one of the most loktantrik process of making a constitution. The constitution is prepared with a broader participation of people’s representative and people themselves. If this does not happen, then the constitution we get from the assembly will become meaningless. The main reason behind putting so much emphasis on the constitution that is generated from the process of constituent assembly is that people are the supreme of all the law and if the constitution cannot be formed through peoples direct involvement, then that constitution cannot get that supreme power and character. Therefore, the main principle and importance behind the constituent assembly is that the constitution of a country should be built with the direct involvement of its people, which will only establish it as a supreme law of a nation. Constituent assembly gives emphasis on the dialogue, involvement and agreement with broader people in the process, thereby making the constituent building process long and expensive.

Constituent assembly in Nepal

Nepal entered the constituent assembly model after the success of the second mass people movement. It has the objectives of forming a loktantrik political system through making a new peoples oriented constitution through constituent assembly. However, the event of constituent assembly is not new for Nepal. It is linked with the then king Tribhuwan era. After Tribhuwan surrendered and went to Delhi, the Indian government put forth the five points proposal to the Rana regime mediator of which the first was the creation of a new constitution through a constituent assembly. Similarly, the 12 point agreement between seven political parties and the Maoists held in Delhi, of which the main agenda was building of a new constitution through a constituent assembly. This led to the broad belief in general Nepalese community that in reality, the issue of constituent assembly is not indigenous but imported from the outside. After the then King Gyanendra took power on 19-10-2061 B.S., the seven political parties inked a 6 points common political agreement on the necessity of a constituent assembly in the country. The success of 2nd mass protest immediately afterwards opened the door for the constituent assembly. The sankalpa proposal passed by the reinstated parliament on 19-01-2062 B.S. formally pushed the nation into the new practice of constituent assembly.

The events that lead to the eight point agreement between the Government and Maoists on 02-03-2063, the historic peace agreement, the declaration of the Interim Constitution 2063 and the signing of 23 points agreement between major political parties with the motto of constituent assembly as a main agenda finally drove the country into the constituent assembly election on 28-12-2064.

Constituent and legal process in the formulation of constitution

The constituent assembly election was held on chaitra of 2063. The first historic meeting of the assembly was commenced on 15-02-2065. The meeting announced that the constitution will be prepared within a period of two years, after which the president declare it within 14-02-2067. But the assembly meeting held on that very day revised the interim constitution for the eighth time to extend the assembly period citing the need for more time for writing the constitution. Afterwards, the interim constitution was revised again for the ninth, tenth and eleventh time to extend the assembly life for three, three and six months respectively where the apex court declared from its verdict that no more time is provided after 14-02-2069.

7.3 Major political issues of constitution assembly and the external interest

It is very common these days that a country will depend on other countries in one way or the other in many respects. However, when the major theme of the constitution is influenced by the external agents, it is likely that a conflict arises and we can’t expect such constitution to be a major force in protecting national interests. In the context of Nepal, if we fail to analyze the event that proved the interference of external forces and their possible effect in the future politics of Nepal, our constitutional process as a whole will be derailed.

Constitution assembly was and still is a medium of building the constitution in Nepal. The most vital and important political issues of constitution assembly was restructuring of state and this is still a case. The various political events of the past like indigenous and Madesh based unrest provided strong base for referendum but the direct and indirect interest of external forces is not a good sign and might make a long run impact in the preparation and proper implementation of our so called constitution. These external interests can be elaborated in the following way.

Constitution Assembly: constitution assembly was the product of the India’s facilitated mediation of 12 points agreement between seven political parties and the Maoist rebels. This historic agreement paved the way for having a constitution assembly and being Nepal as a republic state. However, there is a belief among commoners that as constitution assembly and federalism is mainly the interest of external forces, its objective was never to correct the derailed Nepal’s constitutional process and this is the single reason why our constitutional drafting process is becoming more and more complex. It is even said that the external forces that helped to set up the constitutional assembly here themselves played a role to dissolve it.

Federalism: Federalism is an important issue in the state restructure process. The concept of federalism has been established after Madesh Unrest though it was demanded by few indigenous and madesh based parties for a long time. In one of the questions put forth by a journalist, Girija Prasad Koirala, the then prime minister told that this unrest would stop immediately if he talks with Delhi. If we believe the article published in The Kantipur Daily, dated 8-02-2069 by Tul Narayan Sah, then the eight point agreement draft between the government and the Madesh based parties was prepared at the Indian Embassy[5]. This clearly shows that federalism and one madesh one pradesh demand was the real interest of outsiders rather than insiders. If the issues that had been raised by the outside forces becomes the pillar of our future constitution, then such constitution will not stand against the national interest.

Caste based politics: Ethnic communities come first in the demand of caste based federalism of a country. They might have their own justification and the state is also responsible for the ethnic based conflict to some extent. However, the way this ethnic unrest is moving ahead through the indirect help and coordination of INGOs, it is felt by the commoner that our national interest is been put in danger. According to the article published in Nepal Saptahik on 02-03-2067 by Khagendra Jung Gurung, the then prime minister of India Mrs. Indira Gandhi told that if India wants to intimidate Nepal then ethnic communities will be the main weapon to do so[6]. Therefore, if the ethnic unrest rise from their own internal strength then there is nothing to worry about but if it stems out from external forces as mentioned above, then it will not only harm Nepal but also the ethnic communities themselves. The movement designed by external agents will ultimately harm the constitutional process and it was evident that the constitution assembly was dissolved due to the demand of federal state based on ethnicity.

Dissolution of constitution assembly: the constitution assembly was dissolved after it failed to deliver the constitution in the anticipated four years duration. The twice attempts of India to dissolve the constitution assembly of Nepal was not successful. They already declared it as unsuccessful two years before the dissolution of the assembly. India established Dr. Baburam Bhattrai as a prime minister with their interest on commando army and dissolution of the assembly which Dr. Bhattrai easily did[7].

7.4 International support during constitution drafting process

The constitution drafting stage is an important political episode for every country where the constitution drafting is usually of an exclusive national interest. However, these days in Nepal, this process is being viewed with some unseen interest by neighbouring and other countries around the world. This is because human rights guarantee, protection of self decision right, enhancement and mainstreaming of ethnic community and their language, minority and marginalized population has become the international agenda[8].

In this context, Nepal cannot remain isolated from the world community and has to address their concerns properly in the preparation of people oriented constitution with the guarantee of human rights. The experience and exercise by other countries during the drafting of constitution will be an important lesson for Nepal to progress positively. The constitutional management of the issues like human rights, social-cultural diversity in the new constitution might be a concern of international audience. This is because the financial and other forms of support were provided by the international donor agencies working in Nepal and its natural to show interest on how the task is going ahead. This support helps the interaction among various constitutional experts and made the general people closer to the constitution drafting process.

The human rights and pro people democracy, the transformation of internal conflict are the main global concern for every country around the world. It is the general trend worldwide to increase the presence of common people in the constitution drafting and running the state by their own. This trend has been supported and monitored by the UN agency. The UN has played an important role for the countries that have been affected by the internal conflict and violence by facilitating in the constitution drafting and state restructuring process in the last two decades. However, this effort of international bodies including the UN has not been successful of which Nepal is recent evidence.

When the election for a constitutional assembly was very likely through the political changes in Nepal, then the international donor agencies were ready to support financially for the election and the constitution drafting process. Various international organizations including UN agencies sent their representative to monitor the constitution assembly election in Nepal. More than two dozen bilateral and multilateral donor agencies and organizations were actively involved for support from various angles during the constitution drafting process in Nepal. In 2006, UNDP launched a project called Support to Participatory Constitution Building in Nepal through the establishment of Constitution Assembly Support Unit (CASU). Denmark, Norway and UK were other partners for this endeavour.

Other major international agencies directly involving in the constitution drafting process were DFID, USAID, DANIDA/HUGOU, SDC, GTZ, CCO and JICA apart from international organization like International IDEA and Forum for Federation. INGOs like NDI, The Asia Foundation, German Foundation (FFS), ActionAid, CARE Nepal etc also help in the drafting of constitution in Nepal. Indirectly involved organizations include Ford Foundation, Konard Foundation and Open Society Institute[9].

Neighbouring countries China and India were not actively engaged during the constitution drafting process but it was clearly understood their hidden interest in the future state system as endorsed by the assembly. India was relatively active regarding the constitution of Nepal compared to China. India arranged various seminars and talk programs inviting leaders of major political parties and other relevant stakeholders. Though India was inactive during the drafting process, from behind the curtain, they were mobilizing pro Indian leaders and business personal for advocating their favour through using the international donor agencies. This behind the curtain activities of India also propels China showing its own interest in the Nepal’s internal political issues. There is a wide speculation that the pro Indian leaders and organizations actively engaged in the dissolution of Constituent Assembly after knowing the hidden interest as shown by the China in Nepal’s internal politics[10].

Everything has to start from the ground zero after the completion of constituent assembly election from the meeting place of elected member of constituent assembly to the proper regulation for running the assembly. International convention centre was selected as the constituent assembly building for conducting all the related activities. The financial aid from the UNDP along with other stakeholder like American and European allies were used to refurbish the venue making it friendlier to conduct meeting and other activities for the assembly. Physical facilities were improved including installation of recording instruments, microphones and televisions. Even the Asia Foundation facilitated in the preparation of Constitution Assembly Regulation 2065 in order to manage and run the assembly.

Citing these unusual situation of the country, a veteran young member of the assembly once said that we the Nepalese assembly members are using the venue gifted by China taking a bus ride available by India, watching television provided by the US, sitting on the chair and speaking through microphone donated by Europeans[11]. What he means is we are so parasitic to external force that the future constitution might not even be prepared based on such dependency. The international support received during constitution drafting varied on types and intervention like unilateral, bilateral and multilateral. The support those international agencies provided, knowing by themselves the importance of this major event, during the constitution drafting period such as advocacy, meeting, workshop and seminar on human right, ethnicity, gender or mainstreaming of lower caste people in constitution can be grouped as a unilateral support.

Organizations that did the mutual contract with the GoN for providing financial aid for the development and management of pro people democracy, guarantee of human rights and peace and constitution drafting mainly from America, Switzerland, Denmark, Norway, IDEA, and Forum for Federation can be grouped as bilateral support. Similarly, multilateral support are those for which two or more organizations come together for mutual contract with GoN for assisting in the preparation of constitution of Nepal like the one by UNDP, that has a consortium of various organizations. Switzerland and Germany played a vital role by providing appropriate knowledge and information through various workshops, trainings and foreign country visits of the members of the assembly.

7.5 Weakness in the mobilization of international aid

The two years duration of constituent assembly was extended two more years but it failed to provide democratic constitution to the Nepalese people. The constitution drafting process is governed by the country’s own historical and institutional practices. However, knowing the experience of other countries might help us to solve our disputed issues to some extent. But in reality, the constitution drafting task should be completed by the country itself which is not that easy. In the case of Nepal, many bilateral and multilateral donor organizations were directly engaged by providing the required financial and other form of support to make the constituent assembly a successful event by delivering the so awaited constitution to the people. But it all ruined as the assembly was suddenly dissolved without handover of constitution to the Nepalese people. Why did this all happen? There might be some internal issues responsible for this sad event but international support also could not deliver what it was supposed to do as is briefly summarized below.

The financial aid from the donor organization reached people and organizations that have very little experience in the issues of constituent assembly and constitution itself. Therefore, ineffective mobilization of such aid from inexperienced group resulted in the poor dissemination of information and hampered the constitution drafting process. If such aid would have been in the hands of people and organizations that were fully committed to make the constitution assembly a successful event and who had years of good experience, the scenario would have been different and we would have our constitution in hand today.

Most of the external aid that was meant for purely constitution was captured by people and organizations that did not have an in depth knowledge on the constitutional history and practices of Nepal, less commitment on the nation building agenda and who were prone to sell the national interest and security for the personal benefit. The international donor failed to realize these hidden interests of the aid recipient which later affected their own program objectives of getting a constitution for the people.

The majority of aid from the international agency who wants to see a politically stable and economically strong Nepal went in the hands of some filthy personnel. They misused large chunks of those generous aid in the name of various useless constitutional programs and causing the volatile political situation to further degrade while benefitting personally. The aid agency failed to control these unwanted activities even though they knew their money is being misused by some handful people and organizations[12].

Constitution is the major foundation of nation building and therefore, the constitution building process is taken as a nation building process. Only a constitution that has been built with the involvement and coordination of all political parties and relevant stakeholders can establish itself as an important pillar for nation building. Therefore, no one should launch activities that hamper the participation of general people and other stakeholders in the preparation of constitution. Contrary to this, some of the program like CASU and Field Based Constitutional Dialog that was launched by the UN and other donor agencies with the involvement of some opportunist local organisation was just for the sake of earning money with no real contribution to the development process of the constitution in Nepal. Those objectiveless programs made the constitution building process very weak on the one hand while facilitating the massive misuse of donor money on the other hand.

It was a well known fact that Nepal needs external monetary assistance after the successful holding of the constitution assembly election for the drafting of constitution. All the programs formulated to help the constitution assembly should be implemented through the proper coordination and partnership with government agencies. However, most of the international donor agency carried out their programs without proper partnership and coordination with the concerned government agencies which itself is not a good practice. These activities and characters shown by such donor organizations rather reduced the motivation of people and disturbed the congenial atmosphere.

Most of the programs ran through the aid of donor agencies during the constitution assembly period were based on unethical practices such as awarding the contract to familiar organizations with the motive of commission rather than based on the objective of facilitating the drafting of constitution. This type of trend rather dissatisfied many genuine people and organizations who had faith in multiparty democracy and who really wanted to devote their efforts for constitution drafting.

The donor organizations failed to make a right and timely evaluation of the organizations and people to whom they provided their money. They should have made their effort to know their background and intention, the transparency, effectiveness and mitabyai of the program they intend to implement, helpfulness of those programs in the drafting of democratic constitution, extent of familiarization to the basic value of constitution and whether the aid is used for or against the constitution making process. However, it did not happen and now it makes us believe that the donors threw their money randomly without assessing and monitoring the actual situation of the people and organization which later acted against rather than for the formulation of a new pro people constitution in Nepal.

A good example on how the external aid was misused during the constitution drafting period has been summarized as follows. A Kathmandu based national governmental organization (not named) prepared a program to organize a training program on federalism. The training was intended for the local organizations based in the different districts of Nepal. The primary aim was inviting them to participate in the training in Kathmandu and then mobilize them to the grass root people for the extension of the concept and practice of federalism to be inked in the constitution. However, they later altered the plan and kept the same old resource person engaged in the training at Kathmandu for the program to be held in the district. Only organisations who gave consent to this were awarded the project. In this way, huge sums of money were looted by some chunk of people of few organizations in the name of training and awareness program. The international donor body failed to regulate the monitoring of such fraudulent activities that occurred in front of their nose and eventually accrued huge financial losses.

There is another international organization that is actively involved and investing money for the strengthening of democracy, facilitating the constitution drafting process and advocating for the federalism structure in the country. However, most of the program has been awarded to the people and organizations who were relatives or very close to the people holding a good post or acting as an advisor in that organization. In other words, we can say it operates as a syndicate system which prohibits the genuine, able and needy people and organizations outside of the ring from getting a program. The point is that most of such organizations have adopted the syndicate system that will favour the production of elite people rather than helping in creating a congenial atmosphere for constitution drafting.

External forces are the main reason for the current political and constitutional instability in Nepal. These forces were and still are actively involved in creating various propaganda with an objective to institutionalize the instability in the country rather than drafting a constitution. The support of the donor agency to the people and organization who were demanding the unattainable issues like one madesh one Pradesh, samanupatik election system, federal state based on ethnicity, autonomous state with the power of political freedom and self inflict right has forced the common Nepalese people to fear these funding might take the country to the state of further political turmoil, decreasing their credibility.

The lack of transparency of the funding available during the constituent assembly period is also responsible for the misuse of such funding in many cases. No such practice was done to inform the public and other relevant stakeholders on who received the aid and for what particular program, how the money was invested in such program and what significance the program made to the constitution drafting. Due to the lack of coordination among donor agencies, there was a trend to approach for the same program from multiple donors, a form of malpractice visible in the society. Although it is written as non profitable in the organization’s constitution, there is a tendency of proprietors to occupy most of the senior post such as director, coordinator and advisor with the aim to receive handsome salaries. In the very short period, most of them were able to accumulate a huge sum of fortunes including a good bank balance, bungalow and a latest four wheel drive. This trend was even more noticeable for the people and organizations involved in projects for the constituent assembly during the last four years. The inability to be transparent about the financial aid granted for the purpose of constituent assembly related activities has made them a mode of earning money for some limited NGOs owners. Having said this, the aid is further important in the coming days but all should be cautious from now to make it more transparent and effective so that their impacts are positive and visible.

The financial aid granted from the donor agencies to put pressure for mainstreaming the marginalized community of the society in the constitution is laudable. However, the effort by those donors to create organizations like kakas by involving those marginalized members of the constituent assembly cannot be taken in a positive way. The support of so called donors to the madesh based organization for putting madeshis demand and to ethnic and marginalized community based organization for motivating to rise an issue of ethnic based federal state structure not only weakened the constitution drafting process but also inculcated negative attitudes on those marginalised populations towards the state. Finally, as the state failed to address the demand of such ethnic community that has been pushed by the donor agencies behind the curtain, the constituent assembly was put in the grave. It has been felt that such international donor agencies operating in Nepal tend to facilitate the opportunistic people and organizations that enjoy politics in the name of ethnic and madeshi communities. This sort of activities of the donor organizations has been blamed for contributing to weakening the national unity and division of the state.

7.6 Challenges faced during the constitution drafting process

The constitution drafting process of a country will entirely depend on the correct study of the overall economic, social, historic and geo-political situation. Apart from the major internal organizations and forces, the informed, active and effective roles played by other internal as well as external organizations are equally important in the constitution writing exercise for every country. The internal challenges faced by our country during the constitution assembly period can be summarised as follows.

State condition: Entire bodies of the government were fully characterised by state of lawlessness, agony and carelessness. The unity and cooperative feelings existed between different sectors, ethnicity were badly damaged. The people with a motive to destroy a country were fully active. The peace and security of the country was very weak. The issues national interest, security and long term programs had become a minor agenda in the political discussion between the national parties. General people hardly felt the presence of government in the state. The existence of such volatile situation meant further complexity in the constitution drafting process. It was the prime responsibility of the government and major political parties to improve that situation for the sake of creating a favourable environment for constituent assembly. But that did not happen and we could not get the long awaited constitution from the constituent assembly.

Structure and role of the constituent assembly: whatever the formal rules and procedure, the agreement between major political parties existing in the country on vital and sensitive issues is the main way out for the drafting of a constitution by the assembly. However, in the case of Nepal, such an agreement did not happen between the parties that represented the people in the constituent assembly. Not a single party had two third majorities in the assembly to formulate the policies on their own nor were the parties united on the sensitive issues of the country’s future political and constitutional system and structure. The members of the constituent assembly were not able to come forward against their party’s ego when it came to the issues of state sovereignty. The political relationship between the so called major parties always remained sour during the entire assembly period. In reality, the constituent assembly was formed without knowing the core value of constituent assembly and people oriented democratic constitution. The structure of the constituent assembly itself was not that appropriate for the constitution drafting process. If the situation remains the same again, we can expect less from the upcoming constituent assembly.

Weak and negative role played by political parties: After the major political haul, it was and still is the prime responsibility of major political parties of the country to establish political and constitutional stability. As no single party achieved two third majority, they never came up above party’s political stand when the assembly was heated up with sensible issues like ethnic state, one madesh one Pradesh, autonomous state, presidential and prime ministerial system etc. the parties were only fighting for the government rather than in a discussion on how to agree on the divided issues of the constitution so that assembly can declare a long awaited constitution in due time. If the leadership of the parties were strong and capable enough for fruitful dialogue with the agitating parties, then we should have a so called constitution in hand today. Hope this will not happen in the future.

Lack of pressure from international agencies: During the assembly period, Nepal expected an effective role from the international agencies so that a constitution is built and the volatile state of the country would end. Even though dozens of programs were launched by donor agencies for establishing peace and developing a constitution in Nepal, most of them are now evaluated as ineffective. Those programs only focused on the issues of some chunk of people from the elite society rather than campaigning for mainstreaming the issues of the common and marginalized population of society. The captures of international donation by some unwanted people who want to mobilize the money for their own vested interest rather than for building constitution were the major setback and hindered the process badly[13].

Roles and responsibilities of members and working modalities: the main reason behind the inactive assembly was the lack of commitment and strong role due to play by the major leaders of the assembly and its general members. Absence in most of the assembly meetings, involving more on the unnecessary functions outside the assembly, attending the assembly but doing minimum homework on the important political agendas and inability to rise up from the party’s stance on the important national issues hampered the constitution drafting process greatly and created negative thoughts by the general people regarding the need of the assembly as a whole. When some political parties spoke on behalf of federalism based purely on ethnicity, the patience of the people broke and they stepped into the road, shouting against such likely unwanted move of the assembly. It was not envisioned by the common people when they sent the political leader into the assembly through election and it could not be considered a good move from such a respected institution. The most saddened moment was when the so called leaders threw away vital issues of national interest and organized for dividing the country based on the ethnicity, which will never fit in the country where different caste people coexisted in peace and harmony respecting each other’s identity. We hope not to see this phenomenon again in the next assembly.

Finally, we should say that international agencies support in the form of generous aid for assisting the assembly to make a pro-people constitution is a laudable act. The economic as well as technical and physical help obtained from all the stakeholders after the election of the constitution assembly was in fact very helpful to make the assembly’s activities effective. Though the constitution drafting is the sovereign right of Nepal however the involvement of global communities in making the assembly tenure successful should not be overlooked. However, with so many efforts from all the corners, we were not able to get a long awaited constitution and it is indeed a matter of great sorrow. Now we have a uphill task of doing a proper evaluation of all the weaknesses of the past assembly and formulate policies and guidelines that help the foreign aid for the drafting of a future constitution become more transparent, effective and accountable. We should be cautious for those people and organizations that might again be active to grab the international aid and use it against Nepal’s dream of creating a democratic constitution through elected members from the constituent assembly.

Bibliography

Wheare, K.C. Modern Constitution, Oxford University Press, Bombay

Brazier, Rodney. 1991. Constitutional Reform, Glarendon Press Oxford, First Publication.

Agrawal, H. N. 1980. Nepal a study in Constitutional Change. Oxford and IBH Publication Co.

Bhuwan Lal Joshi and Leo E Rose. 2004. Democratic Innovation in Nepal, Mandala Publications, Kathmandu.

Gupta, Anirudha. 1993. Politics in Nepal 1950-60. Kalinga Publications, Delhi.

Watts, Ronald L. Comparing Federal System, Institute of International Relations, McGill Queen’s University Press, London.

Bipin Adhikari. 2013. The Status of Constitution Building in Nepal, Nepal Constitution Foundation, Kathmandu.

Prayag Raj Sharma. 2006. The State and Society in Nepal, Himal Books.

Nepal Interim Constitution, Kanun Kitab Byawastha Samiti, Kathmandu, 2063.

Bishweshar Prasad Koirala, Biography, Jagadamba Prakashan, 2055

Dr. Rajesh Gautam, Nepalko Prajatantrik Andolan ra Bidrohi Bharat Shamsher, Indreni Offset, Anamnagar 2061

Krishna Hayechu (editor), Nepali Rajyako naya Swarup ra Charitra, Nepal Samasamayik Adhyan Kendra, Kathmandu, 2068

Saroj Raj Adhikari, Chakrabhiwuma ChandraSurya, Sangrila Books, 2069, Kathmandu

Ramesh Parajuli (editor), Nepali Rastriya Chintan ra Abhibhaykti, Martin Chautari, 2068

Loktantrik Sambhidan ka Adharharu, Sarathi Adhyan tatha Anusandhan Kendra, 2065

Revati Raman Khanal, Nepalko Kanuni Itihas ko Ruprekha, Apollo Offset Pvt. Ltd. Chahabil, Kathmandu

Mukunda Regmi, Sambhaidhanik Bikas ra Nepal Adhirajyako Sambhidhan, 2047

---

[1] Sharma, Ganeshraj, Nepal ko Rajnitik Sambhaidhanik Avayas (karyapatra), 2054, Kathmandu

[2] Sharma Ganeshraj, Nepal ko Sambhaidhanik Paddati Avayas ra Parimarjan Kanun, Kanun Bhyawasai club, Kathmandu, 2057

[3] Sharma Ganeshraj, Sambhaidhanik Nikas ka Kehi Ghatak Bichalan, Himal Khabar Patrika, 2066

[4] Adhikari, Sarojsaroj, Chakrabhywuma Chandrasurya, page no 227

[5] Sah Tulnarayan, Madesh Andolan ma Bharat ko Bhumika, Kantipur, Jestha 9 2069

[6] Gurung Khagendra Jung, Indira Ghandilai Bethda, (Nepal 27 Asar, 2067)

[7] Adhikari Sarojraj, Chakrbhiwuma Chandrasurya,

[8] UNDP Human Development Report, 2004, Oxford University Press, New Delhi

[9] Khanal Krishna, Nepali Rajyako naya sworup ra chitra

[10] Khanal Gopal, Proxy Bar ma Kathmandu, Kantipur 26 sravan 2069

[11] Thapa Gagan, Kantipur, 7 Jestha, 2068

[12] Bhatta, Ganesh Datta, Sambhidan Nirman ma Datri Nikayako bhumika, Kartik 25 2067

[13] Gupta, Anirudha, Politics in Nepal 1950-60, p. 87, Kalinga Publication, Delhi, 1993

8. Foreign Aid in Nepal’s Democracy Struggle

Uddhab Pyakurel, PhD

8.1 Background

Nepal lies in the lap of Himalayas, which is a south Asian country between its two giant neighbors, India and China, is blessed with many attributes that are necessary for good living and civilized life. Nature has bestowed Nepalis with bountiful resources, especially water and unparalleled natural beauty with a varied climate and diverse lifestyle. However, today Nepal is known as one of the poorest countries in the world. The World Bank’s annual survey[1] of economic and social conditions around the world shows that Nepal is falling into the category of the world’s poorest countries, nearly all of them African. Even compared to the other Asian countries, Nepal is Asia’s poorest country, paralleling Haiti’s distinction in the Western Hemisphere[2]. Nepal is the only country in South Asia that has not experienced any significant improvement in micro and macroeconomic aspects.

Nepal has one of the most agricultural-dominated economies in Asia (the sector employs about 70% of the population and contributes 33% of GDP)[3]. Agriculture dominates rural livelihood, yet productivity is low (rice yields average less than two metric tons per hectare) and subsistence production pre-dominates. Long-term growth rates are sluggish. Production has failed to keep up with population growth, thus contributing to rising poverty levels. Vulnerability is worst in the more remote areas, where development efforts have been either ineffective or nonexistent. If we follow an observation by Nick Meynen[4], with an average income of less than one dollar a day, Nepal is the poorest country in South Asia. He cites an UNDP and argues that the poverty in Nepal has increased over the last three decades, especially in rural areas. Today, the poorest forty percent of Nepal is worse off than thirty years ago[5]. Added to these problems are some scholars’[6] views that the decade-long Maoist insurgency had a disastrous impact on rural economy; however, this loss has not been corrected by the government. Even after the coming of democracy in Nepal, the agriculture and rural sector continue to be neglected by the government. Owing to low productivity and deteriorating rural economy coupled with the lack of employment, Nepalis depend on a remittance economy that mainly supports the Nepal’s Balance of Payments (BOP) or external sector. This means that the remittance economy is supporting imports in the times when exports are declining in Nepal.

All such views of scholars bring us to the main question that whether or not foreign aid, which Nepal receives from abroad, has contributed anything to make things better for the country and its people. We hear many people in Nepal saying that without foreign aid, Nepal cannot survive as more than 60 percent of Nepal’s development budget comes from foreign aid[7]. It is said that Nepal needs to invest huge amounts of money in its development endeavors. Owing to its inability to raise sufficient domestic revenue and lack of necessary resources, especially its incapacity in harnessing existing natural resources, Nepal has to depend on the development aid provided by the donors. However, the Finance Ministry official admitted recently that there had been no progress in enforcing international aid guidelines. Though international agreements made by donors were aimed at making foreign aid more efficient, coordinated, and effective through increased donor engagement with government agencies, parliament, and civil society,[8] it is unfortunate that no one witnesses a ray of hope in Nepal. There is no doubt that foreign aid has contributed to the development of Nepal. However, the crucial issue is that whether or not foreign aid has been effectively used. That is why it is argued that the key obstacle in addressing people’s expectations for a better life through aid-oriented priority projects lies in an inability to utilize aid[9].

8.2 Foreign Aid in Nepal: An Overview

If we go through the history of foreign aid in Nepal, the donors began to show their interest in Nepal in the late 1940s right after the end of World War II[10]. However, the US government’s grant of Rs 22,000 in fiscal year 1951/52 under the Point IV program signed on January 23, 1951 was the beginning of foreign aid to Nepal[11]. Then, Nepal passed the Development Board Act in 1956 to allow the government to accept loans for its development needs. The prevailing view at the time was simple and optimistic: development would come quickly to the poorer areas of the world through the provision of capital by a few countries, supplemented by the judicious provision of technical know-how. Thus, from its modest appearance in the early 1950s, foreign aid has grown to form an integral part of the development process in Nepal. For the first five years, from 1951-1956, Nepal received Rs. 95 million in aid, all in the form of grants. Four decades later, in fiscal year 1994/95, total foreign aid receipts stood much higher at Rs. 12.3 billion. The budget, for fiscal year 1996/97, puts the estimated receipt of foreign aid at Rs. 20.3 billion or 35% of total government expenditure of Rs. 57.5 billion[12]. By fiscal year 2008/2009, about Rs. 48 billion in aid was committed to Nepal by development partners[13], whereas Nepal received Rs. 97 billion aid commitment by July 9, 2010. If we further break down the amounts, aid received in fiscal year 2010-2011 shows that grants represent 57 percent of disbursement, with loans standing at 24.3 percent and technical assistance (TA) at 18.5 percent.[14] Out of these amounts, 55 percent of disbursements reported by donors for fiscal year 2010/11 have been associated with activities which have a nationwide impact, either because they address policy or capacity issues at the central level (e.g. capacity development for a ministry), or because they are implemented in all districts of the country. On the other hand, 45 percent of disbursements have targeted specific regions or districts. A closer look at these disbursements provides an initial snapshot of the areas prioritized by foreign aid-funded projects. In absolute terms, the Central region remains the most targeted, followed by Mid Western, Far-Western, Eastern, and Western region.

Nepal gained the membership in the United Nations in 1955 and the World Bank and the IMF in 1961. However, it was only from the early 1970s that the multilateral lending agencies started their activities in the country. In other words, India and China were principal donors till the 1970s. After that, the World Bank, and Asian Development Bank have emerged as donors of importance. Similarly, Nepal also started receiving aid from Israel and Switzerland along with the US since the 1970s. Multilateral agencies belonging to the UN system and International Non-governmental Organizations (INGOs) are also lending a hand in Nepal’s development efforts. The loans and grants provided by these financial institutions have played an important role in funding Nepal to get through its financial difficulties. Over the years, other countries like Australia, Canada, Japan, Germany, New Zealand, Switzerland, Austria, Netherlands, France, Belgium, Norway, and Finland have provided aid to Nepal, mainly motivated by humanitarian impulses.[15] In fact, one finds the presence of the European Commission (EC) as a multilateral donor in Nepal only in 1992, followed by the EC-Nepal Cooperation Agreement in 1996, although formal diplomatic relations between the European Commission and Nepal were established in 1975.

8.3 Foreign Aid in Democracy Building in Nepal: An Assessment

What must be acknowledged is that there are many donors working in Nepal with their own objectives and goals. It is an open truth that the major target of the international community today is supporting democracy-building projects in Nepal. In other words, all donors, except India, China and Japan, want to invest their aid not in development infrastructures[16] but in “empowering” the people, especially the marginalized communities, i.e. women, Dalits, etc., in the name of “deepening democracy” in the country. In fact, EU countries, unlike other donors, have a distinct image as development partners of Nepal. Since opening the office of the Delegation of European Commission in Kathmandu in March 2002, the EC has actively promoted democracy in Nepal. It is stated that for the European Commission (EC) the primary concern of development cooperation is to ‘respect for human rights and democratic principles”. Its strategy for the year 2007–2013[17] identifies peace building and education as two key areas for its support. The EU stopped the support for poverty reduction and for integration of Nepal into the international community which used to be the two of three major areas the EC supported in the past. But the third component – consolidation of democracy – is retained in substance, if not in words. It has been argued that the EC’s focus in supporting education and peace building “ultimately serves Nepal’s national goal of restructuring the country as a federal democratic and inclusive republic[18]”.

If one traces the history of the early years of aid, Nepal received aid for industrialization along with transport, communication and other physical infrastructure. During the early 1990s, Nepal received sizeable foreign aid in transport, power, and communication followed by industry and commerce, and agriculture[19]. A year after Nepal implemented the eighth five year plan in 1992, the agriculture sector received highest share of foreign aid. But in the following years again transport, power and communication sectors continued to receive the highest share of foreign aid. This shows a divergence between national planning priority and actual areas of funding. Nepal continued to receive a larger share, though declining, on transport, power, and communication up to fiscal year 2003/2004. In fact, the industry and commerce sector has received a nominal share of foreign aid in recent years. Rather, social sector has been financed with its increasing share over the year, right from early 1990s until now, and after fiscal year 2003/2004, it has received the highest share of foreign aid in Nepal. Here, one finds divergent views of scholars and development experts. I.e. scholar Pyakurel argues: “overemphasis of political restructuring at the cost of economic restructuring by country’s political process is inexcusable with regards to strengthening aid utilization capacity”[20]. He says that at the policy level, foreign aid is not designed to integrate with priority developmental activities. For Acharya[21], low income countries like Nepal needs to compare foreign aid with development, rather than total expenditures. Foreign aid is the major source of financing development expenditures.

It is argued that it had a positive impact in Nepal’s drive for diversification and development without any strings attached. However, there are counter arguments as well. As Khanal argues, the aid provided by donors is often painful to Nepal because its conditionality deters subsidies in important commodities and demands financial sector reform at the cost of the general public. For Basnet[22], foreign aid and development projects are synonymous, as are elites and development. “Aid is feeding the interest of elite and rulers”, he states. He provides an example in which the U.S. Ford Foundation was interested in land reform in Nepal, and it sent consultants to meet King Mahendra requesting land reform, but the elites were not interested in it. “The donors are interested in agriculture, irrigation, and road but such aid benefits the upper classes though the aid is meant for development and poverty allviation. Those who till the land do not have land certificate but the owners have, so whatever money goes to land, it benefits the land owners only”, he further argues. Also, aid has been a crucial factor in supporting civil-society activism and movements, as well as development research. It is ironic to note that some of the most vibrant civic movements and community networking are actually funded and hence, driven by foreign aid[23]. For this reason, the development industry has shifted the accountability of civic activism and intellectual practice towards the funders, especially in a context where aid-giving is subject to multiple conditionalities, and always structured by the donor, through country ‘strategy papers’, strategic frameworks and programme ‘log frames’[24].

Also, direct involvement of the lNGOs without informing the government, which one often witnesses nowadays in rural areas, has posed difficulties in maintaining a uniform database system by the concerned authorities of the state and challenged the sovereign authority of the state[25]. Ghimire[26] makes an interesting argument that out of Rs. 100 foreign aid that the donors extend to Nepal, only Rs. 74 passes through the government budgetary system; that is, the government knows nothing about the remaining Rs. 26, which is probably directly executed by the donors. Of the total official development assistance that Nepal receives, 34 percent comes in the form of technical assistance. However, only 14 percent is coordinated, that is, pooled by donors. According to media reports, there are some donor agencies which put money directly into projects without going through governmental channels. Committees were formed to drive the program which made the decision to provide Rs. 1.27 billion directly to ‘Rupantaran’ Nepal. In fact, donor agencies in Nepal have been setting up offices in district headquarters and sometimes even at the local level, and are increasingly subcontracting development through an interconnected web of INGOs that undermine donors’ stated commitment to ‘country ownership’ and ‘use of country system’. Perhaps it may be due to the activities of donors that the Foreign Ministry has of late increased its scrutiny of international NGOs operating from Nepal, and has been telling donors that they should help Nepal in infrastructure and development, and move away from constitution, governance, and social justice sectors[27].

As far as impact is concerned, there are also divergent views. For example, Chaitanya Mishra states that foreign aid in health and education has had some beneficial effects but the gains have dissipated for want of an efficient local management structure. Similarly, Yadab Bastola[28] says that due to the poor monitoring of ‘Aid Effectiveness’ large scale funding is encouraging corruption in Nepal. According to him, a group of 14 foreign donors, chaired by the Asian Development Bank and Britain’s Department for International Development (DFID), is contributing around $200m over four years under a scheme called the Local Governance and Community Development Programme (LGCDP). Media have been reporting that both donor funds and government allocated for local bodies has been misused. Instead of strengthening the bases of local bodies. There were several news reports where most of the funds were misused in the name of fake projects in the Tarai and hilly regions. To some extent, donors also support the government’s unaccountable moves. Yadab Bastola further says that despite having information that the local budget is largely misused in the absence of elected peoples’ representatives, donors are investing the funds. It is also argued that the foreign aid now has become big business for NGOs, politicians and the government officials in Nepal[29].

Also, it is argued that foreign aid is determined by the agenda of the donors, be it peace building or empowerment of their target communities like Janajatis and Dalits, etc. For instance, the US, which was the first aid provider to Nepal, was interested in agriculture because it wanted to wave away the communist influence. Nepal is also viewed from a security perspective, because it adjoins two emerging superpowers, India and China. For instance, China’s interest in Nepal at present is concerned with Tibet’s safety from the outside world, while India’s strategic interest seems to be related to political and security concerns and particularly the water resources sector[30]. Chaulagain says that there is seemingly endless mismatch of priorities between the donors and government of Nepal. Many local NGOs working in the Mid Western and Far-Western regions started complaining that they were also paying “commissions” to the donors to bag projects. It is said that they cannot get the projects if commission is not paid to the donor. In a way it is like a “pre-paid bribe” for grants. Once the NGOs receive the fund from donors, they spend most of their time in policing the report instead of working in the community with the people. Funding agencies also fear that those NGOs who have more publicity, big offices with proper resources, spend most of the funds in administration without making it reach the community.

Why have aid agencies shifted their interests? If we follow the above discussion, it seems that international donors find themselves in a tricky position when dealing with the existing system of Nepal which is largely influenced by rampant corruption and bad governance. It has been repeatedly witnessed that Nepal’s dependence on aid has moved from the economic domain to political. Actually, foreign aid works effectively and efficiently only when the locus of power is cultivated within the people, and the leadership is able to tap that power from the people. Nepal´s tragic failure in growth and development largely reflects the utter failure of the successive generations of political leadership. Panday[31] views that the donors can transcend the state in policy decisions in the name of engaging civil society and grassroots communities. However, Hachhethu[32] argues that, frustrated by political instability, the poor state of accountability and responsibility of the political society (i.e., political parties, parliament and government) and more so the absence of local elected bodies since 2002, donors have diverted the funds for capacity building of non-state/government organizations and their activities. Panday[33] further argues that the donors have become partners who can autonomously take initiatives for reforming the host institutions such as parliament, judiciary, and the political parties at the center to the elected local bodies in the districts and villages. The political actors depend on the donors for policy inputs and for their legitimacy and sustenance. However, Nepal has failed to take benefit from this aid.

It is said that such aid targeted for developmental projects has been directed towards the political and strategic interests. Mishra[34] argues that development through foreign aid has become a metaphor for the maintenance and strengthening of the traditional native political structure. However, such a development is an effect of foreign aid, and not the cause of aid as some Nepalese like to argue. We see that aid is utilized for the sustenance and strengthening of a certain section of society, i.e. dominant leaders of political parties. Every party is using this time of transition for becoming more powerful and stronger than the other parties, and this is the reason that there is no consensus among the parties. They simply want to prolong the transitional period. As foreign money flows to Nepal, the politicians use it for their parties; that means sadly that, for Nepal, more foreign money and less democracy.

We know that the intention of donors for providing aid is for development and for democracy. It is often argued that such aid comes to Nepal due to humanitarian reasons, especially when one talks about the EU. Here we argue that this is not the reason. We have seen above that in the early years of foreign aid in Nepal, the US was interested in agriculture and land reform in Nepal, owing to its desire of keeping away the communist influence. The EU is also pumping money in Nepal for the same reason. To understand these phenomena, we need to look into the western world where there is a clash between the ideas of liberty, democracy, human rights, and Christianity on the one side, and communism and Zionism on the other side. Ideas such as liberal democracy, human rights, freedom of expression, and liberalism, etc., are the products of a western protestant society. One could argue that the donors, especially Westerners, poured funding into democracy projects, as if they feared a kind of authoritarianism, either by the communists or by King Gyanendra. It is also argued that Prachanda’s argument about his party’s “tacit” understanding with the King during the insurgency must have made Western donors more sensitive on the issue of democracy and liberal values. Since the EC and other Western donors have become visible recently, especially when the King sidelined the political parties and assumed all the power in 2005, the agreement seems to be valid. In such situations, where Nepal is without a parliament and constitution, it is natural for the western powers to be interested in Nepal’s democracy, and peace building.

In conclusion, it doesn’t matter whether it is for the purpose of countering communism and its influence in Nepal, pouring aid in democracy and peace in Nepal should be taken positively as it has helped many marginalized groups to understand their rights and assert them accordingly. What matters more is whether the funds coming from such donors as aid have been used to sustain and strengthen our democracy and development. In fact, Nepal’s political instability, massive corruption, unaccountable and nontransparent government mechanism are major constraints that often hinder the effectiveness of foreign aid. Nepal’s poverty and slow growth are not due to a lack of resources, but rather because there is no culture of democratic accountability and responsible political leadership. This can be addressed not by apolitical and technocratic development – driven primarily by aid – but rather by enabling people to hold their political leaders accountable. On the part of donors, challenges also remain as to how to deliver aid when local institutions are weak and corrupt. Foreigners, however well intentioned, cannot bring lasting social or economic change through any means including aid. The desire for change has to come from the Nepalese themselves; donors can only help. To win the people’s support, political parties have to launch the campaign for good governance and war against corruption and non-transparency. For that, there must be a strong foundation of the nation’s policies and law in the upcoming constitution.

Endnotes with references

[1] World Development Report, 2012, released last year.

[2] Nepal’s Relative Poverty, available at http://www.myrepublica.com/portal/index.php?action=news_details&news_id=42352, accessed on May 1, 2013.

[3] Isabelle Duquesne, Nepal: economy and the international donors, available at url1, accessed on May 1, 2013.

[4] Nick Meynen, The aid industry in Nepal. Available in http://www.mo.be/node/17890, accessed on March 1, 2013.

[5] Ibid

[6] i.e. Keshav AcharyaBehaviour of Foreign Aid over a quarter of century. Changing Paradigms of Aid effectiveness in Nepal, in Prabhash Devkota (ed.), Alliance for Aid Monitor Nepal, Lalitpur, Kathmandu, 2011.

[7] Bishal Bhattarai, Foreign aid revisited, The Kathmandu Post, April 16, 2009.

[8] Rabin Subedi, Politics of aid. http://nepalitimes.com/news.php?id=16530 ,Nepali Times Issue 478, 27 Nov.-3 Dec. 2009.

[9] Keshav Acharya, Behaviour of Foreign Aid over a quarter of century. Changing Paradigms of Aid effectiveness in Nepal, Prabhash Devkota (ed.), Alliance for Aid Monitor Nepal, Lalitpur, Kathmandu, 2011.

[9] Rabin Subedi, Politics of aid. http://nepalitimes.com/news.php?id=16530

[10] Rabindra Khanal, Donor’s Interest in Nepal, Paper Presented at a Seminar Organized by the Sangam Institute in coordination with the Central Department of Political Science.

[11] Chaitanya Mishra, Foreign Aid and Social Structure: Notes on intrastate relationship. Essays on the Sociology of Nepal, Fine Print Books, Kathmandu, 2007.

[12] Bikas Joshi, Foreign Aid in Nepal: What do the data show? available at url2, accessed on March 1, 2013.

[13] Bishwambher Pyakuryal, Foreign Assistance- a journey that didn’t take too far. Changing Paradigms of Aid effectiveness in Nepal, Prabhash Devkota, Alliance for Aid Monitor Nepal, Lalitpur, Kathmandu, 2011.

[14] Yam Prasad Chaulagain, August 2012. Official Development Assistance in Nepal: A Development Perspective, e-International Relations

[15] Rabindra Khanal, 2007. Donor’s Interest in Nepal http://www.telegraphnepal.com/national/2007-01-01/donors-interest-in-nepal, TelegraphNepal.com

[16] Researchers discussion with former Finance Minister Dr. Ram Sharan Mahat, July 12, 2012.

[17] Krishna Hachhethu, The European Union’s role in democracy building in Nepal, available at url3, accessed on March 1, 2013.

[18] ibid.

[19] Keshav Acharya, Behaviour of Foreign Aid over a quarter of century. Changing Paradigms of Aid effectiveness in Nepal, in Prabhash Devkota (ed.), Alliance for Aid Monitor Nepal, Lalitpur, Kathmandu, 2011.

[20] Bishwambher Pyakuryal, Foreign Assistance- a journey that didn’t take too far. Changing Paradigms of Aid effectiveness in Nepal, Prabhash Devkota, Alliance for Aid Monitor Nepal, Lalitpur, Kathmandu, 2011.

[21] Keshav Acharya, Behaviour of Foreign Aid over a quarter of century. Changing Paradigms of Aid effectiveness in Nepal, in Prabhash Devkota (ed.), Alliance for Aid Monitor Nepal, Lalitpur, Kathmandu, 2011.

[22] Jagat Basnet, Aid for Landreform or Land grabbing? Changing Paradigms of Aid effectiveness in Nepal, Prabhash Devkota, Alliance for Aid Monitor Nepal, Lalitpur, Kathmandu, 2011.

[23] Hermant R. Ojha, 2011. The developmentalisation of Nepal, url7, Himal Southasian.

[24] Ibid.

[25] Rabindra Khanal, Donor’s Interest in Nepal, Paper Presented at a Seminar Organized by the Sangam Institute in coordination with the Central Department of Political Science.

[26] Lal Shankar Ghimire, Performance and Effectiveness of Foreign Aid in Nepal, Nepal Economic Review 1(2)

[27] SUNIR PANDEY, The politics of foreign aid, http://nepalitimes.com/news.php?id=19592

[28] Yadab Bastola, Whither NGO Governance - Challenges of Aid Effectiveness in Nepal, available at url4, accessed on May 1, 2013.

[29] Ibid.

[30] Yam Prasad Chaulagain, Nepal and the problem of foreign aid. Available at url5, accessed on May 1, 2013.

[31] Devendra Raj Panday, Matching Democracy and Development Policymaking in an Aid-Dependent Country: An illustration from Nepal. Looking at Development and Donors: Essays from Nepal, Edited by Seira Tamang, Martin Chautari, Kathmandu, 2011.

[32] Krishna Hachhethu, The European Union’s role in democracy building in Nepal, available at url6, accessed on March 1, 2013.

[33] Devendra Raj Panday, Matching Democracy and Development Policymaking in an Aid-Dependent Country: An illustration from Nepal. Looking at Development and Donors: Essays from Nepal, Edited by Seira Tamang, Martin Chautari, Kathmandu, 2011.

[34]Chaitanya Mishra, Foreign Aid and Social Structure: Notes on intrastate relationship. Essays on the Sociology of Nepal, Fine Print Books, Kathmandu, 2007.

9. Politics of Informal Economy in Nepal

Dev Raj Dahal

9.1 Introduction

Informal economy has become a source of income for economically active poor many developing countries and Nepal. Informal economy involves those economic transactions that are not fully accounted, protected and regulated by the state authorities. This deliberate exclusion exposes informal sectors and their workforce to multidimensional vulnerabilities to the abuse of their rights, absence of entitlement, remuneration, paid leisure, maternity leave, health and safety, pension and adequate living wage for sustainable livelihood though this sector is the biggest employer of the nation’s workforce. The labor-capital ties in informal sector, except in the cases of those run by family members, are beleaguered by one-way dependency of workers and decision-making by the owner of capital and enterprise. For migrant Nepalese working abroad in informal labor market, they have to rely on the goodwill of their employers and are not entitled to many of universal labor rights. Those working as servants and slaves are in the heartbreaking perils expecting better hope only in the next life.

Informal sector in Nepal is huge and this space is mostly preoccupied by those at the bottom of development statistics—poor women, wage workers, dispossessed and those who stand between the capital and the labor. In the context of growing youth population, declining public budget, rural push of poverty and foreign pull of opportunity, the Nepalese state often lagged in providing a supportive policy framework for their productive employment. Naturally, this population has to engage in informal sectors. Informal sector continues to grow in direct proportion to the decline of formal economy owing to the elites interest in privatization and denationalization of 34 industries and de-regulation import laws, negative effects of global economic crisis, protracted political instability and democratic deficits in the country.

New technology has marginalized the real and formal economy by expanding the space of flexible and highly specialized symbolic economy with the growth of financial capitalism, banking business, service and technological sector production from craft-oriented specialization to computer service. Its decentralized nature fits well with the diverse needs of Nepalese people strewn in diverse topography and resource location having the resiliency to withstand the challenges of globalization. But, one can clearly see the “urban bias” in development policies and resource allocation of the donors, the state, employers and even labor unions as development is seen until recently improved economic growth, not amelioration of structural injustice through liberation, entitlements and fairer justice[1] for individuals, communities and the state. There is a need to bridge the gap between development theory and contextual knowledge and its outcome for human development. This paper poses fundamental questions about informal economy and narrates the characteristics of informal economy, upcoming challenges for this sector, status of Nepal’s informal sector, exigency of people-centered development and draws a short conclusion.

9.2 Fundamental Questions

The crucial questions are: How to provide property rights to the poor in an informal economy and expand labor market opportunities at home so that they become equal stakeholders of democracy, human rights and good governance? Is minimum wage sufficient to guarantee the basic rights of workers for their essential human needs and freedoms? Under the condition of liberalization and globalization where the roles of state have been downsized how can the government address the workers’ demand for social accountabilities in the vast informal sector? Does the private sector seem willing to undertake this responsibility? How to establish a complementarity of interest between informal and formal economies and workers and build solidarity through policy measures, concrete programs and collective action? What are the essential legal and practical measures to transcend local customary rules for the creation of efficient market for informal sector progress? Is there a possibility for small-scale informal sector entrepreneurs and workers to become joint enterprise holders able to compete in a competitive neighborhood and global economy? How far workers’ collective experience of neglect by the government helps them to act rationally in terms of maximizing profits and redeploying economic surplus for expanding the scale of political economy?

9.3 Characteristics

Informal economy is too diverse to compress into a single definition. In Nepal, it may be described as small-scale, decentralized, indigenous, agricultural sector, self-employed in artisan activities, street selling and causal and part-time works. Some informal economic sectors are owned by families and engaged in non-market networks of diversified production of public goods nourishing the livelihoods of a bulk of poor and ensuring their social and financial security. Skills and apprenticeships in such enterprises are provided by families themselves. For them, the scope of citizenship, access to and identification with the state is far-off. Other micro enterprises, employing less than ten persons, use local pools of knowledge, management, resources, workers, technology and market access and are considered economically very efficient in production, supply, pricing and appropriation of profits. By economizing the limited capital, their operations are near perfect competition, which helps to keep prices down so that poor people can afford to buy goods and services in the market.

The gradual shutting down of over 30 state-run industries in Nepal can be attributed to excessive rent-seeking, mismanagement, financial losses, bloated political bureaucracy, dislocation of politics and inflexibility of leadership in attitude change regarding the attainment of common good through suitable economic policies. The fatal attraction of post- 1990 governments to neo-liberal policies further created a disjunction between local development discourse and global imperatives that inescapably pushed Nepalese economy to informal sector growth. It has, therefore, stifled the prospect for a substitute for developing a low-cost way of creating employment. The innocent optimism of new republic has given way to sordid exhaustion of national economic strength. Exchange of political power for money strained the possibility for the investment in the modernization of informal sectors. The post-republic order corresponds to a state of nature where the struggle of informal sector workers for dignity continues to contest the utility of hegemonic discourse for the upliftment of the poor.

Informal sector does not mean that it is often backward based on what Karl Marx called “petty commodity trade” of independent producers (1972: 82) or modernization theorists dubbed “anti-development” due to its traditional method of production (Muenkner and Walter, 1996: 87). Development expert Goran Hyden calls informal sector an “economy of affection” (1983:15) because of its proximity to family, community and neighborhood, pro-poor, labor -intensive and environment-friendly nature. Lord Buddha long ago and Karl Marx later, referred to an economy based on the “need of society” than on the insatiable greed of individuals which has become a base of discourse of E. F. Schumacher in defense of “small is beautiful” (1999:5). An attentive society requires caring of the environment and the people. In a rapidly changing consumer markets, there is greater incentives on the flexibility, adaptability and innovation that only informal sector and small scale industries can provide. Referring to the enormous cost of human civilization incurred by capital-intensive and techno-centric development, Jeffrey Sachs said that creation of “mindful society” requires adopting the golden mean and going back to the ethics underlined by Gautam Buddha, Aristotle and Immanuel Kant who had advocated non-violent, ecologically and humanely sustainable economic policies. Informal economy can contribute better if the state provides sound policy framework to upgrade its technology, information, raw materials and market access for products and overcome three-fold deficit of its macro-economy—public budget, foreign trade and internal and external debt. A harmonious life cannot be possible without addressing these deficits and striking a balance between material and ethical basis of liberty and representative public order. Economic survival of democracy also requires a strong middle class who not only pays tax for social welfare benefits for the poor but also mediates the interest of society and allows reformist politics in the context of power shift.

9.4 Upcoming Challenges

The raw materials were basic fuels of agriculture-dominated society. Energy was the vital element of industrial revolution. And, information technology remains the motor of post-industrial development. In the industrial society, the state mediated the interest of the capital and the labor and managed production, exchange and distribution, international trade, commerce and communication. The most significant effect of information revolution is the globalization of capital, resource and energy-intensive political economy which is highly inflationary in nature. Ironically, the impacts of inflation in the life of poor are less calculated by mainstream economists. For the least developed countries like Nepal, unable to compete in the competitive market, this globalization process is undermining the historical “social contract” between the capital and the labor, inverted the historical convergence between the state, economy and citizenship and generated more poverty, unemployment and inequality. The government - shephered free market advertised by conformist intellectuals, media and private business empires and mainstream politicians has eroded the power of Nepali state to formulate and implement appropriate policies, laws and rights, weakened national economies and societies, the support base of the vulnerable population and the political capacity of trade union movement to compete for the “dignity of work” through the promotion of labor rights, citizenship rights and human rights embedded in the Interim Constitution 2007.

The corporate global world’s demands for “labor market flexibility,” aiming to reduce minimum wage and workers’ protection, is at conflict with the workers on welfare measures, science over climate change and environmental issues and art over the commercialization of spiritual and human life. It is recklessly commodifying nature, labor, education, health and culture. (Stiglitz, 2006: 17; Galbraith, 2006:23). As a result, all goods and services are reduced to their monetary values and made them to respond the code of price. Many of the demands are generated by men of inner circle of power without face through media advertisements. To check this trend, “the market forces require a stronger counterweight from an effective state” (Bofinger, 1999:3). Only then a system of inclusive politics beefed up by democratic redistribution of power and wealth can overcome the darker instincts of life, restore the balance of society and contributes to social justice and peace. But for Nepal linked to regional and global market there is a Catch-22 situation: brining social justice to markets requires the regulation of business institutions but the nexus of business-bureaucracy-political elites often escape democratic constraints on their wealth and political power.

Newly digitized symbolic economy has created a new social stratification producing multi-class workers, self-employed and dispossessed without solving the old division between capital and labor and altering the nature of wealth production, exchange and distribution. There is a neo-liberal “paradigm shift” first, in the nature of economy from real to symbolic and in the mode of wealth creation—production, circulation, distribution and investment within the country. Second, it has opened better labor market opportunities abroad under foreign rule than at home. It has provided global mobility of Nepal’s labor force in tune of over 3 million, emigration of 300,000 annually out of 450,000 youth force who annually enter into job market. Third, due to heavy jobs layoffs following closure of state industries, majority of labor force are forced to shift from organized to informal sector to satisfy their livelihoods. It is their remittance which has become lifeblood of Nepal’s development. But the migration of youth has also reduced the level of productivity of agriculture turning 3.5 million people food insecure and converting the nation from the net exporter of food grains to gross importer. Suddenly, small-scale entrepreneurs in Nepal are exposed to national and international competition with the effect of losing safety valve in deregulated and denationalized system of laws and corroded the source of income for the poor. Still, Nepalese economy is sputtering and is producing more losers of economic game. The employer’s recourse to flexible employment contracts has further lowered job security for the workers, undermined their positions and their unions in free collective bargaining restraining the rationalist program of reforming labor market relations and perverting the country’s historical traditions of golden mean in ethical business practices governed by shuva lav.

The expansion of social rights and the conception of social welfare state based on the fulfillment of human rights, core labor standards and social security have been well up beyond the capacity of the Nepali state to attain them. Especially, for women, artisan caste (Dalits), marginalized and geographically isolated people, only the informal sector continues to contribute to their food security in rural areas. It also provides job security in the marginal cash economy of urban areas and safety valve for the disaffected young population that make up the majority of the nations’ population. The role of national level unions is great in solidarity building, policy mediation and human development. Unfortunately, they are also seen unable to cope with the problem of workers’ layoff, deteriorating working condition, declining job market, growth of child labor, forced labor, denial of rights to workers, poor health and safety provisions and even appropriation of social security and social protection money by local government officials.

Informal sector is socially embedded, favorable to the production of “economic commons.” This shows that economy is not an isolated system where private sectors can free ride beyond corporate accountability—evasion of tax, bank defaulting, capital flight and building links to criminal source of money. This amoral trend will eventually minimize the resources for productive investment and intensify hunger, deadly disease, famine and resource conflicts (Dahal, 2011:45). Survival of informal sector economy rests on its own internal dynamics of human development and the environment which provides skills, raw materials, technology and markets. It is deeply rooted in local, national, regional and global power relations. In an informal economy, social aspect of transactions (kinship, language, localism and other affinity) provides necessary backward (agriculture) and forward (trade) linkages of the economy, garners broader forms of social capital and creates social safeguard for development that is fairly just, redistributive and sustainable. But, in Nepal, the government’s orientation to revenue rather than production-oriented development has weakened the linkage of informal with formal sector and undermined economic basis of the state to promote collective welfare. Owing to the slow entry of trade unions into informal, agricultural and small-scale entrepreneurs’ sectors existing at the unorganized realm, informal sector remains outside the sphere of “collective bargaining” in the domain of profit maximization, co-determination of policy that affects them and peaceful collective action. Democracy has given the informal sector workers political power whose conscious exercise can become attendant for their economic empowerment and reconciliation between the capital and the labor.

9.5 Nepal’s Informal Sector Workers

Informal sector in Nepal is defined as having family enterprise, unregistered or a registered company with 10 workers at work. In this informal sector, a trade union federation can be organized with 500 or more workers engaged in the same nature of work. In the case of self-employed workers and agricultural workers they were granted the right to unionize under an amended Act 1999. The association of 5000 agricultural workers, covering at least 20 districts and with a minimum of 100 members in each of the district is entitled to constitute a national federation in agricultural sector.

Nepal Living Standards Survey 2010-11 reveals the condition of Nepalese workers’ engagement in varied activities where 73.9 percent of workers are in agriculture and forestry sector followed by manufacturing 6.6 percent, wholesale, retail and trade 5.9 percent, construction 3.1 percent and rest of others are in mining and quarry, hotel and restaurants, transport and storage, financial intermediaries, real estate and renting, public administration and defense, education, health and social work and private and community works. Over 30 percent of its economically active population is totally unemployed. Nepal’s society, economy and politics are predominantly informal: society because of the predominance of “unwritten transcript” of society on the life of workers; economy because of vast unorganized sector living in subsistence economy, low production base, poor tax ratio, huge contribution of remittance, low human development and vicious poverty and structural injustice reinforcing multidimensional conflicts; and politics because of personalized dominance of leaders over the impersonal public institutions of the state and polity. When political leaders are comfortable with weak institutions and fear the development of depersonalized institutions, rules and processes of the state, it is hard to address the root causes of the poverty, create joint development projects between perpetrators and victims of conflict and generate sufficient political will in the democratic transition towards a constitutional state, democratic polity, transformational leadership and legal-rational legitimacy for governance springing from bottom up.

Out of population of 27 million about 90 per cent of the Nepalese work in the informal economic sector. Total workforce is 11.77 million. In organized sector 1.99m workers are employed while in informal sector the number is 9.78million. The average monthly minimum wage for workers is US $ 87.32 which is barely enough even for a small family given average annual inflation rate of 12 percent. Daily wage for industrial worker is $3.25 while for agricultural workers it is yet to be decided. The annual per capital income of $645 puts Nepal in the bracket of least developed country. Informal sector’s contribution to national economy is more than 50 percent. Poor working conditions, gender discrimination, lack of social protection, low productivity, hazardous work, non-recognition of work done, poor income, long working hours, unsafe working environment, meager benefits, no leave or holidays, inadequate social security benefits, and poor unionization to protect the rights of workers are the basic features of informal sector in Nepal. These challenges pose problem in unionizing the informal sector. Violent conflicts have further affected this sector causing the alienation youth force from its social roots and, consequently, depriving the society of its dynamic, critical masses of social and cultural transformation. New social movements have, therefore, precisely taken anti-institutional turn.

Low level of literacy, lack of modern skills for bulk of work force, poor nutrition and health facilities contribute to their low productivity. Investment in social sectors is, therefore, absolutely essential to improve the productivity of workforce. Likewise, high population growth relative to economic growth has increased demands for social services and basic infrastructures facilities while the quality and coverage of health services up to the village levels are grossly insufficient. Why did this happen? Obviously, problems were not seen through the eyes of people and policies were not conceptualized to attune to local needs and conditions. If economy does not work for the people, it will generate a dynamic tension between policy discourse, state institutions and social classes and politics ultimately loses its legitimacy to defend public and national interest.

Social deprivation remains very high in the country despite some improvement in health care, regular immunization campaign against communicable diseases, literacy and quantitative growth of education. Majority of people in both urban and rural areas are still without safe drinking water and sanitation and face rising pollution where polluters don’t pay. The costs have to be subsidized by the general society. Welfare outcome of the social expenditure of the government is highly skewed because of urban bias in planning and development. The working environment, medical facilities and conditions of work are so poor that they also militate against the protection and security of informal sector workers. Irresolution of root causes of violent conflict has decreased economic activities, reduced the value of workers and even flexibalized the working environment incubating the ruggedness of life. Without social competence economic efficiency cannot be achieved. Legal property rights do not exist for the poor in Nepal despite the constitutional recognition of the fact that sovereign power lies with the people. Political stasis at the top level of leadership defies the possibility to create self-governing polity at the grassroots level favorable for the modernization of informal sector economy.

9.6 Exigency of People-Driven Development

With the microfinance revolution and other positive efforts, attitude towards informal economy is slowly changing. There is recognition that these economic activities can become an entry point for fulfilling basic needs and freedom. It is expected to promote social and economic development and initiate silent social transformation of Nepali villages in line with gender, social and inter-generational equality. Ethical desire to lead good lives for oneself justifies a moral reason for concerns to others (Dworkin, 2011:1) where the role of state is vital. Nepali state is under “an obligation to provide all its citizens with equal opportunities in life, and to grant equal access to public goods—education and culture, health and natural resources, internal and external security” (Thierse, 2009:11). Sustainable solution of the problem of informal sector lies in the legislation of proper laws, building of participatory culture whereby societal interests prevail over private greed and gain, reinvesting of economic surplus on production process, promotion of subcontracting with intermediary and large business, strengthening of inter-sectoral linkages, legal protection and encouragement of workers to become shareholders of the business enterprise and low-cost cooperatives.

Informal sector economy has to respond to the legitimate aspirations of workers constituted as citizens and human beings and cluster around networks with like-minded enterprises for production, supplies and market services so that it can achieve financial stability, economies of scale and social support. Due to its closeness to society and local self-governance institutions, it can evenly distribute employment benefits to the people. But, the local self-government has the responsibility to offer training, financing and other services to this sector so that it can increase its productive functions. Only productive jobs can ensure them the necessary conditions of freedom, equity and dignity. Election of local bodies can reduce official corruption on the distribution of social security and social protection measures and implement citizen charter. Civil society, NGOs and private sectors can add the resources of modernization into their efforts to upscale the scale of political economy of informal sectors. The diversity of Nepal’s demography and topography offers various resources which can be synchronized and utilized through decentralized, labor-intensive and eco-sensitive policies.

9.7 Conclusion

Informal sector economy of Nepal holds tremendous potential to guarantee livelihood, mitigate poverty, reduce inequality and provide sustainable basis of democratic development if the state and private capital provide technology, resources, information and market access for its products. Implementation of the ILO Declaration on Fundamental Principles and Rights at Work has made important contribution to the new architecture of social and economic development. The ILO Convention N0 189 on Decent Work for Domestic Workers has yet to enter into effect. On this architecture extension of social security schemes, implementation of laws on fair wages and incomes and development of mechanisms by which workers in the informal economy can possibly be provided access to and control over productive assets and resources. The new solidarity of informal sector should be built on a system of global rule, designed around a single fundamental human right—the right to what Hannah Arendt calls “human condition” (Ree, 2006: 28). The role of state in redistributive justice is essential as market does not show equal concern to all (Dworkin, 2009: 470) citizens while civil society groups are relativized by their plural mandates. The challenge is to find ways to ensure the voice of workers in income generating activities through the constructive engagement of community with the state policy makers and increase livelihoods and small-scale business enterprises.

The cohesiveness of unions counts a lot to exert pressure for policy reforms, organization, solidarity, communication and collective action on behalf of its members and the society at large. Other issues are: implementation of minimum wage in all sectors, inter-movement solidarity of unions, contribution-based social security, reform in labor market, management of foreign jobs, elimination of child labor practices, rights-oriented campaign, collective bargaining, etc (Bhattarai, 2011: 51-55). It is also important to attract the attention of national policy makers on the plight of informal sector workers– Kamaiyas, child laborers, Dalits, dispossessed, domestic servants, conflict-victim groups and define a viable strategy of formulating an integrated approach to peace building. There is a need to make “taxation more progressive in order to offset the economic forces increasing inequality” (Stiglitz, 2006:20). The coordination of the roles of various social partners working to foster “decent work” in the informal sector of Nepal equally presupposes the expansion of the sphere of social and gender justice through equality of opportunity and right-based and procedural distribution of resources through laws that guarantees their livelihoods and freedoms. There is no hope of peaceful progress of Nepal if economy is divorced from democratic principles and profit is placed before good life of ordinary people. The morality of public interest provides suitable “framework condition” for the good life of all people-formal and informal ones and overcome the instinctive leadership desire for selfish ends with almost negative democratic outcome. Modernization of informal sectors is expected to alter structural conditions for the emancipation of Nepali people and transforming them into citizenship with equal rights and equal responsibilities.

References

Bhattarai, Purnachandra,2012. Trade Union Campaign and Labor Management, Workers News (Nepali), Special Issues, GEFONT.

Bofinger, Peter, 1999. “What Future Role for the State?” International Policy Analysis, FES, Berlin.

Dahal, Dev Raj, 2010. “Shaping Tomorrow’s Economy: Challenges and Choices for Nepal,” Vikas, Vol. 31. No. 1.

Dworkin, Ronald, 2011. “What is Good Life?,” The New York Review of Books, February 10.

Dworkin, Ronald, 2009. “Justice for Hedgehogs,” Boston University Law Review, Vol. 90.

Galbraith, James K. 2006. “Taming Predatory Capitalism,” The Nation, April 17.

Hyden, Goran, 1983. No Shortcuts to Progress: African Development Management in Perspective, Berkeley: University of California Press.

Lakoff, George, and Mark Johnson, 1999. Philosophy in the Flesh. The Embodied Mind and Its Challenges to Western Thought, New York: Basic Books.

Marx, Karl, 1972. “Forms of Private Property,” ed. Frederic L. Binder, Karl Marx: The Essential Writings, New York: Harper Torchbooks.

Muenkner, Hans-H. and Thomas Walter, 1996. “The Informal Sector: A Source of Income for the Poor,” eds. Ezzeldin Bakhit and others, Attacking the Roots of Poverty, Marburg: Marburg Consult for Self-Help Promotion, Germany.

Ree, Jonathan, 2006. “In Her Mind’s Eye,” The Nation, January 30.

Sachs, Jeffrey D. 2011. The Price of Civilization: Reawakening American Virtue and Prosperity, USA: Random House.

Schumacher, E. F. 1999. Small is Beautiful: Economics As If People Mattered, Dublin: Hartley and Marks Publishers.

Stiglitz, Joseph E. 2006. “A Progressive Response to Globalization,” The Nation, April 17.

Thierse, Wolfgang, 1999. “What Future Role for the State?” International Policy Analysis, FES, Berlin.

---

[1] A fair justice is relative to any number of models: “equality of distribution (one person, one object), equality of opportunity, procedural distribution, rights-based fairness, need-based fairness, scalar distribution, equal distribution of responsibility, equal distribution of power, etc (Lakoff and Johnson, 1999:297).

10. Fiscal Policy Issues in Nepal

Prof. Dr. Madan Kumar Dahal

10.1 Fiscal Policy: A Preamble

Fiscal policy refers to the interaction of government revenues and expenditures including internal and external borrowing - the public debt, which will determine the equilibrium level of national income. Arthur Smithies defined fiscal policy as “a policy under which the government uses its expenditure and revenue program to produce desirable effects and avoid undesirable effects on the national income, production, and employment.” Prof. Ackley Gardner defined fiscal policy as “it involves alterations in government expenditures for goods and services or the level of tax rates.” Harvey and Johnson defined that “fiscal policy refers to changes in government expenditure and taxation designed to influence the pattern and level of activity.” According to G. K. Shaw “Fiscal policy is to include any design to change the price level, composition or timing of government expenditure or to vary the burden, structure of frequency of the tax payment.”

UN defined that “fiscal policy is assigned the central task of wresting from the pitifully low output of underdeveloped countries, sufficient savings to finance economic development programs and to set stage for vigorous public investment activity.” In the views of the American Economic Association “Fiscal policy should mean the policy which concerns itself with aggregate effects of government expenditure and taxation on income, production and employment.” Otto Eckstein defined fiscal policy as “changes in taxation and expenditure which aim at short run goals of full employment, price level and stability.”

10.2 Global and Regional Fiscal Situations

Table 1 presents the fiscal situations in selected industrialized and developing economies. These show that industrialized nations have conspicuously higher debt/GDP ratio along with an increased tax revenue/GDP, and expenditure/GDP ratio in comparison to developing economies resulting in growing “fiscal cliff”.

Table 1: Fiscal Indicators: Debt, Tax Revenue and Expenditure to GDP Ratio in Selected Developed and Developing Economies (2011)

Country	Debt as % of GDP	Tax Revenue as % of GDP	Expenditure as % of GDP
Japan	229.77	28.3	37.1
Greece	160.10	30.0	46.8
Italy	120.11	42.6	48.8
Ireland	104.95	30.8	42.0
USA	102.94	26.9	38.9
Singapore	100.79	14.2	17.0
Canada	84.95	32.2	39.7
UK	82.50	39.0	47.3
Germany	81.51	40.6	43.7
India	68.05	17.7	27.2
Brazil	66.18	34.4	41.0
Malaysia	52.56	15.5	26.3
Nepal	34.07	10.9	19.7
China	25.84	17.0	20.8
Saudi Arabia	7.52	5.3	29.1

Source : Wikipedia, 2012.

Sustainability calculations suggest that preventing rising net debt ratios requires a fiscal adjustment of some 7. 0 percent of GDP in Japan, 2.5 percent to 3 percent of GDP in the United States, 1.5 percent of GDP in the United Kingdom, and about 1 percent of GDP in France and Germany. Several countries have employed countercyclical fiscal policy to ameliorate the impact of the global financial crisis. In Malaysia, Indonesia, the Philippines, and Singapore the findings point to a rich diversity in both the size and composition of fiscal stimulus and the challenges which are confronted. These include (I) embedding automatic stabilizing impulses through the provision of social safety nets; (ii) increasing tax revenues collected from personal and corporate taxes, by reducing labor market informality through improvements in the business environment; (iii) safeguarding fiscal sustainability; (iv) rebalancing growth by strengthening other sectors of the economy; (v) reducing expenditures on subsidies; and (vi) ensuring smooth and efficient budget execution.

10.3 Asian Policy Success

The Asian Development Bank (ADB) estimates that the fiscal stimulus measures taken by China, Malaysia, Singapore, and Viet Nam exceeded five percentage points of GDP in size, while those of Hong Kong, India, Japan, Korea, the Philippines, Taipei, China, and Thailand amounted to between two and five percentage points of GDP. The ADB itself contributed to these measures with disbursements of about $2.5 billion in total of special loans to support fiscal spending to Bangladesh, Indonesia, Kazakhstan and the Philippines from its Countercyclical Support Fund (CSF), which was introduced in last June.

These policies have clearly worked, as Asian economies rebounded strongly, growing at an annual average pace of 10.0 percent for the period from April through September 2012. This recovery was both earlier and far stronger than that seen in the US and Europe. To be sure, since the direct financial damage was much less than in the US and Europe and trend growth is higher, the fiscal imbalances in most of emerging Asia created as a result of the crisis have been considerably smaller than those of the developed economies. The recent fiscal developments in Greece and some other European nations should focus the minds of Asian policymakers on sustainability issues.

A number of questions need to be addressed. For example, what is the maximum debt level consistent with keeping the risks of debt management under control? What factors affect the primary surpluses required to achieve both debt sustainability and economic growth? In some countries such as China, structural measures to encourage household consumption need to be given a priority, particularly the strengthening of public social protection systems–including those for health, education, unemployment, and pensions–to reduce household needs for precautionary savings. Third, what are the relative merits of tax increases versus expenditure reductions? What areas of tax increases and expenditure reductions are most promising? What strategies have been most effective in implementing such adjustments? Do we need certain fiscal rules or institutions to achieve fiscal adjustments?

China’s expansionary policies have relied primarily on rapid growth of fixed investment and bank lending. Recent monetary tightening measures announced by the People’s Bank of China shows that the Chinese authorities are fully aware of these risks. Finally, we must explore the role of global and regional cooperation to balance fiscal adjustments against longer-term growth needs.

10.4 Critical Observations

The reasons for growing fiscal imbalance especially in developed economies are attributed to:

(1) Disequilibrium between supply and demand for exports and imports, savings and investments, and revenues and expenditures,

(2) Increasing social security contributions, and;

(3) Rising consumerism.

Table 2 provides a comparative scenario of macroeconomic indicators in South Asian countries and China. The data clearly refers to poor economic performance of Nepal, which is conspicuously trailing behind other countries in the South Asia region (Dahal, 2012).

Table 2: Macro-economic Indicators: Selected South Asian Countries and China, as of 2010

Country	Pop. (Est. in mln.)	GNI (in US$ bin.)	GNI per capita (US$)	Real GDP Growth (In %) 2012 (Est.)	Popn. Below national poverty line %	External Debt (US $ bln.) 2009	FDI net inflows (US $ mln.) 2009
Nepal	30.0	14.5	490	4.2	30.9	3.7	38.0
Bangladesh	164.0	104.5	640	5.9	40.0	23.8	674.0
Pakistan	173.0	182.5	1,050	3.4	22.3	53.7	2,387.0
India	1,171.0	1,566.6	1,340	6.9	27.5	237.7	34,577.0
Sri Lanka	20.0	46.7	2,290	7.5	15.2	17.2	404.0
China	1,338.0	5,700.0	4,260	8.2	***15.9	428.4	78,193.0

Source: World Development Report, 2012; *IMF: World Economic Outlook, April 2012 (Projection) - Afghanistan (7.2%) and Bhutan (7%). ** Survey year: Nepal (2004); Bangladesh (2005); Pakistan (2006); India (2005); Sri Lanka (2007); *** China (2005) - Population below $1.25 a day.

Note: Data may vary depending on the source.

Table 3 exhibits fiscal situations in Nepal comprising total revenue, total expenditure, fiscal deficit, foreign grant, budget deficit, and sources of deficit financing including domestic loan, foreign loan and cash balance. Although revenue/GDP ratio, expenditure/GDP ratio, fiscal and budget deficits, and foreign and domestic have increased over the years, economy witnessed a dismal performance.

Table 3: Status of Fiscal Situations in Nepal FY 2009/10 – 2011/12 (Rs. in billions)

Description	FY 2009/10 Actual	In % of GDP	FY 2010/11 (R.E.)	*In % of GDP	FY 2011/12 (B.E.)	**In % of GDP
Total Revenue	179.9	15.3	206.3	15.3	*247.7	15.5
Total Expenditure	259.7	22.2	306.3	22.7	384.9	23.5
Fiscal Deficit	-79.7	6.8	-100.0	7.4	-137.2	8.8
Foreign Grant	38.5	3.3	49.3	3.7	70.1	4.5
Budget Deficit	-41.2	3.5	-50.7	3.8	-67.1	4.2
Sources of Deficit Financing
Foreign Loan	11.2	0.9	14.9	1.1	29.7	1.9
Domestic Loan	29.9	2.6	33.7	2.5	37.4	2.4
Cash balance	-0.1	***N	-2.1	0.2	-	-

Source: Calculated from the data available in the Budget Speech, FY 2011/12, and, Economic Survey, FY 2011/12. * Including principal refund (Rs. 6 billion). ** Estimated. Note: Percentage distribution may vary due to estimated data. *** Negligible.

Table 4: Classification of Revenues, FY 2011/12

Code No	Revenue Headings	Total Revenue (Rs. in billions)	In % of Total Rev.	In % of GDP
11111-11136	Taxes on Income, Profit and Capital Gains	50.8	20.5	3.3
11311-11341	Taxes on Property including House and Land Registration	4.5	1.8	0.3
*1141-11454	Taxes on Goods and Services	110.8	44.7	7.1
	VAT	72.7	29.3	4.7
	Excise	30.0	12.1	1.9
	Others	8.1	3.3	0.5
11511-11562	Taxes on International Trade and Transactions (Customs Duties: Import and Export Duties including other taxes)	43.2	17.5	2.8
14111-14531	Non Tax Revenues	38.4	15.5	2.0
	Total Revenue	247.7	100.0	15.5

Note: Calculated by the author based on data available in the Budget Speech, FY 2011/12. *Estimated

Table 4 illustrates that the contribution of Value Added Tax (VAT) was estimated to be highest in the tax structure equal to 29.3 percent of total revenue and 4.7 percent of GDP followed by Income Tax (20.5 percent of total revenue and 3.3 percent of GDP), Customs Duties (17.5 percent of total revenue and 2.8 percent of GDP), Excise Duties (12.1 percent of total revenue and 1.9 percent of GDP), and Non-Tax Revenues (15.5 percent of total revenue and 2.0 percent of GDP). Taxes on income, profit, capital gains and property taxes (direct taxes) comprised of 22.3 percent of total revenue, while share of indirect taxes (VAT, Customs and Excise) went up to 62.2 percent of total revenue, and revenues through non-tax sources estimated to exceed 15.5 percent of total revenue during FY 2011/12.

Table 5 suggests that tax effort ratio (TER) in Nepal increased from 11.1 percent in FY 2000/01 to 15.5 percent in FY 2011/12, which is relatively higher in Nepal compared with other countries in South Asia region employing per capita GNP criterion.

Table 5: Recent Trends in Tax Effort Ratio, 2000/01 - 2011/12

Fiscal Year	GDP Rs. in billion	Total Revenue Rs. in billion	Total Revenue as % of GDP
2000/01	441.5	48.9	11.1
2001/02	459.4	50.4	11.0
2002/03	492.2	56.2	11.4
2003/04	536.7	62.3	11.6
2004/05	589.4	70.1	11.9
2005/06	654.0	72.3	11.1
2006/07	727.8	87.7	12.1
2007/08	815.6	107.6	13.2
2008/09	988.0	143.5	15.7
2009/10	1,171.9	179.9	15.3
*2010/11	1,346.8	206.3	15.3
**2011/12	1,548.8	247.7	15.5

Note: Calculation based on data available in the Economic Survey, July 2011. * Revised Estimates. ** Budget Estimates.

10.5 Fiscal Policy: Key Issues

Revenue policies are formulated on ad-hoc basis with poor implementation, and regulations and policies are frequently adjusted to changes in the government. The tax administration is centralized and there is no autonomy provided to particular tax authorities to devise tax policies and their implementation under one umbrella. There is often apprehension that tax officials are using more discretionary powers for tax assessment and, therefore, “all taxes are negotiable”. Tax rates on Customs Duties, VAT, and Income Tax, the premier taxes for internal revenue mobilization, are still relatively higher in terms of international comparison with respect to developing economies employing GNI per capita criterion.

The tax base is extremely limited due to erosion in the legal base and the prevalence of numerous tax shelters. For example, income from the agriculture sector does not fall under the jurisdiction of taxation on the ground that this is a subsistence sector, and relatively blanket exemptions, concessions and deductions have been provided to the industry sector. The tax structure is heavily dominated by indirect taxes, which are regressive by nature. The tax elasticity coefficient is below unity and tax effort ratio is relatively low while compared with countries in the South Asia region. Voluntary compliance is poor. The small number of taxpayers is attributed to a lack of education to taxpayers. Unfortunately, there is no system yet developed to conduct an annual survey of taxpayers and to prepare and update a roster of taxpayers.

The major problem of taxation in Nepal is how to identify the taxpayers and bring them into the tax-net. There are huge leakages in tax collection due to a lack of transparency and simplicity in procedures resulting in a high degree of corruption. Tax laws are rigid and complex – not fully compatible with the spirit of globalization and liberalization, and taxpayers are not familiar with existing tax laws and regulations. In addition, taxpayers suffer tremendously from an inadequate judicial protection provided to them by the government. Tax administration is inefficient coupled with low quality of human resources, an inadequate IT networking system, and relatively less incentives to employees under the revenue administration. There is no consolidated record of property (land and building) and business transactions with the Inland Revenue Department under MOF/GON (Dahal, 2009).

There is also a problem of collecting arrears and penalties against delinquency. Unfortunately, tax administration lacks a computerized integrated tax system. It is important that revenue mobilization and forecasting should be in conformity with expenditure requirements. Open border with India has contributed to growing trade deflection between the two countries resulting in, subsequently, loss of revenue from imports from India. With WTO, SAFTA and BIMST-EC provisions revenue from customs duties is likely to be slashed down and, therefore, there is a need to develop a prudent strategy to compensate loss of revenue from customs duties after 2017. Although revenues are buoyant, they remain inadequate to supplement capital expenditures with poor expenditure efficiency. In fact, there is a lack of political will and determination of the government to effectively devise, implement and regulate the tax policies.

10.6 Strategy for Taxation

Tax administration is tax policy (Bird, 1992). Limited administrative capacity is a binding constraint to tax reform in many developing countries, and so in Nepal. It is, therefore, imperative to speed up reforms in the tax system and improve the tax administration ensuring a competitive tax structure primarily to attract FDI for sustaining a high level of economic growth, and promote indigenous investment in cooperation with private sector for reducing absolute poverty.

The strategy should be to:

• Improving the “environment” by initiating a campaign for “taxpayer education” to convince taxpayers that taxes are the price paid for a civilized society. Thoroughgoing expenditure reform, increased use of devices such as earmarking and benefit taxes which link taxes and expenditures in some believable way, the devolvement of functional and financial responsibilities on local communities.
• Improving administration – the tax administration is often neglected and archaic in developing economies characterized by poor training, low status, inadequate salaries, and poor equipment. An obvious remedy is to tackle these and other organizational and procedural problems. Perhaps the oldest means of dealing with the pervasive administrative problem is to “privatize” tax collection, which is known as “tax farming”. However, no one would recommend the revival of tax farming today. The Task Force on the “Central Revenue Board (CRB)” in Nepal headed by Madan Kumar Dahal has recommended for providing an incentive package to its employees equivalent to 0.5 percent of the total revenue collection especially for boosting their morals and collecting more revenue (Dahal et al., 2009).
• Changing law – the best way to cope with the administrative problem is to design tax reforms in full recognition of the severe limitations imposed by administrative realities. The administrative dimension is central, not peripheral, to tax reform. Therefore, there is a need to design the basic legal structure of tax administration in the first place and thereafter a series of amendments would follow.

Studies on international comparison reveal that revenue losses for selected African countries are estimated to be within the range between 5.3 and 13.9 percent of total government revenue. No specific literature is available on the estimation of loss of revenue in future due to trade liberalization under WTO and SAFTA provisions in Nepal. So far no attempt has been made to analyze the nature and magnitude of revenue foregone by Nepal due to Nepal-India Trade Treaty 2002. However, efforts towards mobilizing additional revenues from different imposts such as VAT would not be adequate to substitute the loss of revenues as a result of the introduction of free trade. This might lead to adverse impact on the size of public expenditure on social services and recurrent expenditure, which are impossible to cut down. Therefore, fiscal reform is not only necessary but a precondition to successful trade liberalization to attract new investment and create employment opportunity. Thus, “a key concern for any government contemplating significant tariff reductions is how to recover from other sources the revenue loss that those reductions ultimately entail”.

Commitment to trade reform through a rules-based global trading system requires developing a strong broad-based tax regime to foster alternative sources of public revenue. “Optimizing the synergies between trade and fiscal reform are critical to overcoming development challenges. Implemented in tandem, they can transform the entire economic system to increase trade, attract investment, and reduce corruption and rent-seeking, leveling the playing field and laying the groundwork for equitable, poverty-reducing economic growth”.

10.7 Lessons Derived

Fiscal policy, in fact, refers to taxation policy (Goode, 1984). A lesson could be derived from the past experience that the shift to direct taxes from a massive domination of indirect taxes induced by trade liberalization is indicative of economic development. The average abstract hybrid of tax to GDP ratio is not adequate to explain the revenue implication of trade liberalization. Increase in revenue with lower incidence of taxation and without creating excess burden of taxation to taxpayers is significant in the context of resource mobilization from internal tax and non-tax sources. The tax system is considered to be perfect, which could raise elasticity of taxation by expanding its legal base and increasing voluntary compliance (Dahal, 2009). Improving tax administration is the key to higher revenues for developing economies suffering a “tax gap” - the difference between what is to be paid and what is actually collected.It is evident from the experiences of fast liberalizing countries that decline in trade tax revenues could be compensated through increasing revenues from domestic indirect taxation such as VAT, and by improving efficiency of tax administration. With sound macroeconomic stance such as low and predictable inflation and high GDP growth countries can progress toward fiscal stability even during fast liberalization.

10.8 Status of the Nepalese Economy

Economic growth rate confined to 3.6 percent, whereas inflation rate leveled at 9.9 percent during FY 2011/12. Gross Domestic Consumption/GDP ratio increased to 90.0 percent; Gross Domestic Savings/GDP ratio remained at 10 percent, and Gross Investment/GDP ratio increased to 32.8 percent during FY 2011/12. Revenue/GDP went up to 15.5 percent, while total expenditure/GDP ratio increased at the level of 23.5 percent of GDP during the same period. Capital expenditure/GDP ratio declined to 2.6 percent of GDP. FDI Declined from Rs. 10.5 billion to Rs. 7.14 billion in FY 2011/12. Trade deficit alarmingly increased to Rs. 387.41 billion in excess of the actual size of the budget for FY 2011/12. Balance of payments situation was at surplus by Rs. 127.70 billion during the period. The size of remittances marked 21.0 percent of GDP in FY 2011/12 (NRB, 2012).

Tax Policy during the 10th Plan, 2002-2007

The major objective of tax policy during the 10th Plan was to broaden the tax base for increasing flexibility of the revenue and to gradually reduce dependence on foreign assistance through maximum mobilization of the domestic sources (NPC, 2002). The quantitative targets envisaged in the 10th Plan document comprised as given below:

• The revenue/GDP ratio would level at 14 percent by the final year of the plan.
• The direct tax/GDP, indirect tax/GDP and non-tax/GDP ratios would target to remain at 3.5 percent, 8.7 percent and 2.8 percent respectively.
• Number of income tax payers would be increased to 250,000. Similarly, number of tax payers getting registration with the value added tax would be increased to 40,000.
• By the end of the plan, a minimum of 25 percent contribution from revenue surplus to development expenditure would be reached.

The 10th Plan inducted the policies comprising that: “All areas of income generations would be incorporated into the tax net. In the context of the foreign trade structure of the country, protection of industrial enterprises established within the country, accession to World Trade Organization and South Asian Free Market Management, necessary adjustments would be made concerning direct and indirect tax rates. An integrated information system would be established to support policy decisions on revenue. ‘Public-Private-Partnership (PPP)’ would be promoted to increase participation of the private sector on revenue policy formulation. The amount to be realized through the privatization of government enterprises would be used in liability clearance of the government corporations and in repaying the government loans. Services to be provided and products to be sold through the government would be valued on the basis of market price for increasing the share of non-tax revenue.

A revenue tribunal would be made active to make a quick settlement of tax cases for reducing the tax arrears. A permanent structure of the revenue police would be established to replace revenue patrolling and to check revenue leakage. Different awareness and promotional programs would be launched for bringing into the tax net the possible tax payers: those who have liability to pay tax but are not incorporated into the tax net. The institutional development of the Revenue Advisory Committee and its effectiveness would be emphasized to enhance participation of the private sector on revenue policy formulation, execution, monitoring and evaluation (NPC, 2002)”.

Revenue Policy during TYIDP, 2007-2010

The main features of revenue policy during the TYIDP, 2007-2010 (NPC, 2007) comprised that: (a) revenue/GDP ratio would reach 13.6 percent; (b) average annual growth rate of revenue would be 16.0 percent during the period; (c) tax collection procedure for VAT would be modernized; (d) an emphasis was laid on tax education for increasing voluntary compliance; (e) revenue administration would be made efficient, transparent and taxpayers-friendly; (f) Revenue Advisory Committee at MOF would be strengthened; (f) a streamlining of the tax system compatible with globalization especially with reference to WTO, SAFTA and BIMSTEC was emphasized; and (g) a policy of avoidance of double taxation with donor countries was inducted to attract FDI.

Revenue Policy during TYIDP, FY 2010/11 – 2012/13

The prime objectives of revenue policy during TYIDP, FY 210/11 - 2012/13 (NPC, 2010) contained that: (a) revenue/GDP ratio would level at 17.3 percent; and (b) the share of direct tax would mark 27.8 percent of total revenue at the end of plan period.

10.9 Impact of Fiscal Policy on Stability, Growth and Equity

Impact of Fiscal Policy on Stability

The rate of inflation had moderately increased over the years. It was at 9.6 percent in FY 2011/12 and further increased to 11.5 percent in August 2012. The balance of payments situation - a major indicator of stability was conspicuously positive by Rs. 127.70 in FY 2011/12.

Impact of Fiscal Policy on Growth

The impact of fiscal policy on growth could be visualized as follows:

• Some indicators such as GDP growth rate, revenue/GDP ratio, revenue surplus/capital expenditure ratio, and ratio of outstanding foreign loan to GDP should be considered to assess the impact of fiscal policy on growth.
• Unfortunately, average annual growth rate of GDP was confined to 3.5 percent during the last five years from 2007/08 to FY 2011/12.
• If fiscal policy would be contributing to growth, GDP growth rate would be sustained in upward trend; revenue-GDP ratio would increase, revenue surplus-development expenditure ratio would increase and outstanding foreign loan-GDP ratio would decline.
• These indicators did not justify that fiscal policy had been effective to contribute to economic growth in Nepal.

Table 6 represents a projection made by IMF with respect to growth rates in South Asian Economies and China for the period 2011-2017. Nepal’s growth rate is likely to limit at minimum 3.5 percent in 2017, which is a very alarming situation. Policy makers must derive lessons from this projection.

Table 6: Growth Rates: Selected SAARC Countries and China (Projections)

Countries	2011	2012	2017
Afghanistan	5.7	7.2	6.6
Bangladesh	6.1	5.9	7.3
Bhutan	5.9	7.0	4.0
India	7.2	6.9	8.1
Maldives	7.4	4.4	3.5
Nepal	3.5	4.2	3.9
Pakistan	2.4	3.4	3.5
Sri Lanka	8.2	7.5	6.2
China	9.2	8.2	8.5

Source: IMF, 2012.

Impact of Fiscal Policy on Equity

The impact of fiscal policy on equity could be summarized as follows:

In order to achieve the equity objective, the contribution of direct tax should be significant.

• The share of direct taxes was 21.0 percent of total revenue and 3.3 percent of GDP; while contribution of indirect taxes was as high as 62.5 percent of total revenue and 9.9 percent of GDP in FY 2011/12.
• The share of non-tax revenues was 19 percent of total revenue, and 2.8 percent of GDP during the period.
• On the expenditure side of fiscal policy, there were certain areas in which budgetary allocation had been made to support the poor. These were school education and primary health, subsidies to bank credit, old age pension, old age allowances, disabled and widow allowances, etc. But these provisions had not been able to bring remarkable results.
• Majority of population are still below the absolute poverty line; income and wealth are still concentrated with a limited number of people; the Human Development Indicator is still very weak. Thus, the socio-economic information did not give any indication of an improved scenario of income and wealth redistribution in the country.
• Fiscal policy in Nepal failed measurably to achieve its goals whether it was growth, stability and equity.
• In case of stability, the long open and unregulated border between India and Nepal neutralized the expansionary effect of fiscal policy.
• Whenever aggregate demand increases due to fiscal expansion, it is met from import.
• As a result, there is no pressure on price level. Although price stability has been maintained, it is not due to the fiscal reason rather it is attributed to the geophysical situation of Nepal.

10.10 Crosscutting Issues

Recent trends in government expenditures have shown adverse bearing on the Medium Term Expenditure Framework (MTEF) resulting in a bigger size of fiscal and budget deficits. In Nepal resource estimation is primarily based on past trends and intuition, which lacks scientific approach to forecasting. The long-term forecasting is essential to determine the size of surplus revenue to match counter-part funding to capital/development expenditures. Foreign aid lacks transparency and, therefore, it is difficult to be specific about the size and sources of external funding. The current and capital expenditures are estimated employing the supply side criterion without considering demand side. There is need to introduce performance budgeting to start with sample development projects in the Key Ministries (MOF, MOAC, Moshe, MOES, and MOWR). There is no interface between the government and political parties while formulating budget. And also there is a lack of a participatory approach to formulating budget at both grassroots and the center. The budget suffers from ineffectively prioritizing the projects with more than 85.0 percent programs being put under Priority 1.

There is a need to formulate budget for two consecutive years considering long-term prospects for external as well as internal funding. Under-spending of capital budget (development expenditures) is a crucial factor for diminutive growth. Since FY 2005/06 a separate heading for principal repayment has been created. This, in fact, was a part of current expenditure. The capital budget is heavily over programmed attributing to political pressure for accommodating new projects (PERC, 2000). Manipulation of the budget can be minimized with the induction of MTEF. It is unfortunate that there is a lack of consensus among political parties regarding prioritization in MTEF, for their modalities differs. Resources are often allocated on an incremental basis rather than by examining resource needs of programs/projects and with well-considered priorities. The MTEF has the advantage to move towards a high degree of transparency and openness regarding the prioritization process. Greater involvement of local communities is required to promote their ownership over the programs supported by public spending. Increasing demand for coordination between NPC and MOF, for current and capital budget is not well integrated even through MTEF. Interest rates on micro-credit are exorbitantly high (20-24.0 percent), and the cost of budget is not yet specified.

10.11 Reforms Initiated by the Government

The respective governments in the past initiated following reforms, which include:

Legislative Reform

• Introduction of VAT in 1997 covering a wide range of business keeping threshold at NRs. 2 millions;
• Introduction of a new income tax law in 2001 covering worldwide income into the tax net;
• Introduction of a new excise law in 2001 covering domestically manufactured and imported excisable goods and services;
• Amendment in customs act to introduce the General Agreement on Tariffs and Trade valuation system.

Institutional Reform

• VAT Department and Income Tax Department were merged into Inland Revenue Department.
• Twenty one district level frontline offices were established to administer the VAT, income tax, and excise duty;
• A Large Taxpayer Office was established in 2005 to administer the state-owned public enterprises, banks, finance companies and big houses whose annual turnover exceeds 150 million;
• Budget was proposed to establish a separate Excise Department to make excise administration more effective;
• A preliminary study was conducted to change current Inland Revenue Department into an autonomous body, namely, Revenue Authority Board;
• The Revenue Consultative Committee, a think-tank organization, was formed for policy advice;
• Rigorous training programs were conducted to make employees more capable and professional;
• VAT system was computerized and income tax system is under way to be computerized;
• Process and procedure are being rationalized; manuals, returns, formats, and enclosures are being simplified;
• The taxpayer education program is highly focused on by the government through different interaction programs, public notice in National Daily, website and home page design, consumer awareness programs through Lottery provision in VAT billing.
• Taxpayers’ Charter and grievance handling system in tax administration was introduced;

10.12 Public Finance Management: The Reform Agenda

Public Expenditure Reform

• Reforms in public expenditure management have been, without doubt, the most important for the successful implementation of PRSP. Critical actions in this area included prioritizing all development expenditures (through the MTEF) on the basis of PRSP priorities; and providing adequate funding for high priority activities.
• For this purpose, a realistic medium term expenditure framework was adopted, projects/programs were ranked into three categories, (P1, P2 and P3), and 190 projects/activities which were considered low priority were either dropped or merged.
• The objective of public expenditure reform has been to accelerate the delivery of benefits to the rural poor through better targeting of expenditures.

Tax Reform

• The tax reform agenda is aimed at improving domestic resource mobilization to help finance development activities.
• The tax reform program was initiated during the Ninth Plan and a number of important measures such as the introduction of the VAT, simplification of tax legislation, establishment of an Inland Revenue Department by merging the VAT and income tax departments, have been implemented.
• The Government intends to continue, and build on, these initiatives, by implementing the recommendations of the Fiscal Reform Taskforce, particularly by reducing exemptions and widening the tax base, strengthening tax administration and making it autonomous, periodically revising customs valuations, and making arrangements to reduce existing tax arrears.
• The ASYCUDA system has been introduced to a fourth customs entry point recently and now covers the bulk of imports. To discourage tax evasion, a special Enforcement Task Force has been established.
• The income tax regime has been converted fully into a self assessment/self-reporting system, backed up by selective audit on the basis of risk assessment.
• Notwithstanding this progress, there are continuing weaknesses in the tax system; for example, under-invoicing, lack of predictability of liabilities for tax payers and leakages. The reform program for the future is aimed at addressing these weaknesses.

10.13 Recommendations

The following recommendations have been made to improve fiscal situation, which are listed below:

• Increase the participatory approach both at the grassroots and the center while formulating budget.
• Develop an appropriate method for revenue forecasting inclusive of external borrowing, which will help bridging the gap between estimated and actual revenue mobilization.
• Streamline expenditure items by eliminating unproductive consumption expenditures.
• Improve transparency by inviting local institutions, private sector, donors, civil society and media each year for a dialogue on budget formulation.
• Strengthen the Revenue Consultative Committee by providing legal status.
• Introduce performance budgeting or zero-based budgeting to selective projects under key Ministries.
• Improve the efficiency of civil servants by providing them exposure to budgetary innovations and a dignified package of incentives.
• Need to devise competitive tax structure;
• Acts and Regulations to be reviewed and amended: House and Land Tax 1962; Stamp Duty act 1963; Lands Act 1964; Land Revenue Act 1978; Value Added Tax (VAT) 1996; Income Tax Act 2002; Excise Duty Act 2002; Customs Act 2007; Cooperatives Act 2009; Â and Investment Board Act 2010.
• The report submitted by the High Level Task Force headed by Madan Kumar Dahal on establishing “Central Revenue Board” to Ministry of Finance (MOF), Government of Nepal (GON) in 2009 should be implemented (Dahal, et al., 2009).

10.14 Conclusion

Fiscal policy is an effective instrument for resource mobilization in Nepal. Although revenues are buoyant, it is inadequate to supplement additional funding to capital expenditures that could yield a large degree of expenditure efficiency. The effects of fiscal policy on growth, stability and equity are neutral and, therefore, the dependency on foreign aid is alarmingly increasing with the protracted transition in Nepal. Democracy in Nepal is in turmoil with increasing risks and uncertainties, which is attributed to inefficiency, mounting corruption and poor governance. In Nepal it is said that “foreign aid is economic development and economic development is foreign aid”. However, economic growth rate has, unfortunately, been confined to a minimal 3.5 percent during the last five years. Therefore, this is an appropriate time to review the productivity of foreign aid. In least developed countries democracy is threatened in absence of robust growth with social justice, security and welfare.

10.15 Appendix: Nepal: Macroeconomic Indicators

Nepal: Macroeconomic Indicators, FY 2007/08 – FY 2011/12)

Description	2007-08	2008-09	2009-10	2010-11	2011-12
GDP at current prices (Rs. in billions)	815.7	988.3	1,193.7	1,369.4	1558.0
Real GDP (in basic price) Annual % change	5.8	3.9	4.3	3.5	4.6
Agriculture (Annual % change)	5.8	3.0	2.0	4.5	4.9
Industrial (Annual % change)	1.6	-0.6	4.1	2.9	1.6
Services (Annual % change)	7.3	6.0	5.8	3.6	5.1
Inflation rate (In %)	6.7	12.6	9.6	9.6	8.3
Broad money supply (M2) Annual % change	25.2	27.3	30.2	12.3	17.0
Gross consumption/ GDP	90.2	90.6	88.5	91.4	90.0
Gross domestic savings/GDP	9.8	9.4	11.5	8.6	10.0
Gross capital formation (investment)/GDP	30.3	31.7	38.3	32.5	32.8
Export/GDP	7.3	6.9	5.1	4.7	4.7
Import/GDP	27.2	28.8	31.4	28.9	29.2
Trade deficit/GDP	-19.9	-21.9	-26.3	-24.2	-24.5
Total revenue (% change)	22.7	33.3	25.4	11.0	20.5
Total expenditure (% change)	20.8	36.1	18.2	13.7	23.8
Revenue/GDP	13.2	14.5	15.1	14.6	15.7
Expenditure/GDP	19.8	22.2	21.8	21.6	23.5
Capital exp./GDP	6.6	7.4	7.6	7.9	2.6
Budget deficit/GDP	4.1	5.0	3.5	3.6	4.2
Debt servicing (P+I)/GDP	2.8	2.7	2.4	2.2	2.3
Grant &loan received/GDP	3.6	3.7	4.2	4.2	5.4
Total outstanding debt (Rs. in billions)	375.6	425.1	440.4	414.7	509.5
Per capita outstanding debt(Rs.)	14,771.0	16,416.0	16,673.0	15,576.0	18,867.0
Total outstanding debt/GDP	46.1	43.0	36.9	30.3	32.7
Total deposit (Rs. in billions)	N.A.	505.7	676.0	795.3	871.9
Total lending (Rs. in billions)	N.A.	358.51	495.2	622.6	713.0
Total deposit/GDP	N.A.	62.0	68.4	67.9	64.0
Total domestic credit/GDP	N.A.	43.9	50.1	53.1	52.0
Remittance income (Rs. in billions)	142.7	209.7	231.7	259.5	359.5
Remittance income/GDP	17.5	21.2	19.4	18.5	23.1
Current account balance/GDP	2.9	4.2	-2.4	-0.9	2.0
Balance of payments (Rs. in billions)	29.7	44.8	-3.3	2.2	127.7
Foreign exchange reserves (Rs. in billions)	212.6	286.5	268.9	272.2	439.5
Exchange rate US$	65.00	76.9	74.5	72.3	79.4

Source: Economic Survey, July 2012.

References

Bird, Richard, M. 1992. Tax Policy and Economic Development. The Johns Hopkins University Press.

Dahal, Madan K. 2009. “Taxation in Nepal: Structure: Issues and Reforms”, The Economic Journal of Nepal, Vol. 32, No. 1, Jan-March 2009, Issue No. 125.

Dahal, Madan K. 2011. “Nepalese Economy: Obsolescence, Underpinnings and Approaches to Sustainable Development”, The Economic Journal of Nepal, Vol. 34, No. 2, April-June 2011, Issue No. 134.

Dahal, Madan K. et al. 2009. A Report on “Establishing Central Revenue Board” Submitted to Ministry of Finance (MOF), Government of Nepal (GON).

Goode, Richard, 1984. Government Finance in Developing Countries. New Delhi: Tata-McGraw-hill Publishing Company Ltd.

IMF, 2012 April. World Economic Outlook. International Monetary Fund.

MOF/GON, 2011. Budget Speech, 2011/12. Ministry of Finance.

MOF/GON. Economic Survey (various years). Kathmandu: Ministry of Finance (MOF)/ Government of Nepal (GON).

NPC, 2002. The Tenth Five-Year Plan, 2002-07. National Planning Commission (NPC) /Government of Nepal (GON).

NPC, 2007. Three-Year Interim Development Plan, 2007/08- 2010/11. NPC/GON.

NPC, 2010. Three-Year Interim Development Plan , 2010/11- 2012/13. NPC/GON.

NRB, 2012. Macroeconomic Situations Annual Report, 2012. nrb.org.np

PERC, 2000. A Report on Public Expenditure Reforms Submitted by Public Expenditure Reforms Commission (PERC) to Ministry of Finance. PERC/MOF/GON.

World Bank, 2012. World Development Report. The International Bank for Reconstruction and Development/World Bank.

11. Foreign Aid and Democratization in Nepal: Culture of Dependency

Prof. Meena Vaidya Malla, Ph.D

11.1 Background

Foreign aid has played a pervasive role in the life of the people and on economic development of developing countries from colonial days to post cold war years to post-conflict peace building and state building states. Foreign aid flows from developed to developing countries have been hailed as the solution to global poverty. But in many developing countries foreign aid has imposed the knowledge, institutions and values of a dominant culture and made the people victim of aid. This means that most of the aid is not geared to fulfill saving, investment and foreign exchange gaps or to combat poverty, inequality and unemployment but to tie the receiving countries to the demand of donors. The result is mal development and disharmony between states and social classes. Nepal is not an exception to this phenomenon. Foreign Aid (FA) in Nepal forms an integral part of the overall policy of mobilizing resources. Today, Nepal is the largest recipient of foreign aid as a percentage of GNP in South Asia and the share of aid in GNP was 8 percent in 2003[1]. There are hardly any government’s development programs that do not consist partly of foreign aid. Development activities without foreign aid have now become totally unimaginable in the country. Changing development concepts and policies tied with the aid politics of creating a culture of dependency has engendered corruption and affected the national ability to plan development in a rational manner. In the light of these scenarios, the paper explains how foreign aid has played an important role in the movement for democracy and the inclusive development model of Nepal. Despite FA being directed towards achieving the national goal of poverty reduction, the paper at the same time explores how Nepal’s dependency on foreign aid has now transcended into the social and political horizon creating a culture of economic and psychological dependency.

11.2 Foreign Aid, Economy and Democratization in Nepal

Economy, development and democracy are interrelated variables. The future of democracy depends on the future of economic development.[2] Economic factors have significant impact on democratization although not determinative. Foreign aid has become one of the most influential tools of economic development in Third World countries. There is little option for developing countries to prosper without aid. There are studies, which have clearly brought into focus the correlation between democracy, efficacy and personal satisfaction and the per capita GNPs of the countries. Based on the assumption that the Third World is poor because it lacks the capital necessary for making income-generating investments, mainstream economics literature suggests that aid can help developing countries by closing the financing gap that otherwise leaves them stuck in a poverty trap. So aid is portrayed as the necessary catalyst for investment that would in turn lead to growth and presumably initialize an upward path to economic development. Economic development certainly weakens traditionalism; raises standards of living, equitably distributes resources, increases social trust and confidence in the political system. This is reflected by Huntington in The Third Wave; Democratization in the Late Twentieth Century in which he implies the correlation between wealth and democracy that transition to democracy should occur primarily in countries at the middle levels of economic development (Huntingtio, 2010:60-69). This view also corroborates with the growing literature on democracy that elaborates on the correlation between the existence of democracy and variables like per capita, wealth, industrialization, urbanization and the level of education. As countries develop economically and move into this zone, they become prospects for democratization. The movement of countries into the middle income ranges of the economic transition zone thus led to changes in social structures, beliefs and culture that were conducive to the emergence of democracy.

But the present economic condition and policies in transitional Nepal hardly holds out any prospect of economic development and change in socio-political structure and culture. Foreign aid in Nepal has emphasized a lot the democratization of the country, and mainstreaming the deprived section of population in development process. The donor agencies have played an important role in the political movement for democracy and an inclusive development model. But, still a large number of populations are economically, socially and political excluded from the mainstream of development. They have physically participated in political and development process but neither they are able to put their view nor are their voices heard. Democratic theory asserts that if democracy excludes the major section of the population, it reverses the central focus of democracy. Foreign aid in this direction has been hardly successful to address this problem.

Nepal’s historical economic dependency on foreign aid has now transcended into the social and political aspects. Evaluating the worth of every successive government in terms of foreign aid inflow is one example of it. Moreover, political parties have used foreign aid and their relation with the donor community as a tool to get into power or to depose the opposition. Foreign aid has been an easy way for the rulers to stay in power and to suppress dissenting voices. The local level politician tries to bring more foreign aid funded projects into his/her constituencies in order to prove his/her political influence and credibility, and thus, to secure his/her political future. It means foreign aid has been a measuring rod to evaluate the creditability and legitimacy of the governing politician or political party.

With such culture, foreign aid has been unable to achieve its major objectives in Nepal. By principle, foreign aid helps to bridge the resource gaps in short term, so that in the long term, the developing countries would be able to mobilize their own resources for sustainable development. But in reality, Nepal could never mobilize its internal resources to meet the financial requirements of its development activities. Although foreign aid was started in the country in the 1950s with the first and foremost objective of economic and political stability, a regular inflow of millions of dollars for more than half a century, could neither meet its stated objective nor it could transform the socio-economic condition of the excluded and underprivileged people. Rather, the Maoist insurgency began and now Nepal has become politically as well as economically more unstable than ever before.

Nepal has gone through several periodic development plans spanning a period of six decades already. These plans failed to make a significant change in the living standard of people. Nepal’s total population with 29 million with a growth rate of 2.2 percent at present is passing through low-level equilibrium trap characterized by poverty and stagnation and a very critical state of political transition. With a per capita income of $568 (by the middle of 2010 as estimated by the Central Bureau of Statistics), economic growth is 3.6 percent. With Human poverty index value 32.1 percent and power purchasing parity $1.25 a day, Nepal ranks 144th among 182 countries in Nepal Human Development Report 2009. Agriculture contributes 32.5 percent, industry 16.6 percent and service 50.9 percent to GDP with unemployment rate 46 percent. A recent UNDP/Oxford University Report (2010) estimates that 65 percent of the population is below the poverty line. However, different sources of Nepal government claim that around 25 percent population is found to be below the national poverty level. The lack of investment, climate, poor capital expenditure, energy crisis, flood, labor disputes and round-the-year strikes, suppressed economic growth. Nepal is finding extremely difficult to break away from the vicious grip of economic stagnation arising out of a primitive agrarian structure that distributes poverty, more than it generates socio-economic development. So poverty, unemployment, population growth and environment degradation, are both the causes and consequences of underdevelopment, reinforcing a crisis of social integration of the majority poor in the national society.

Any country whose democracy is installed without acquiring economic development is likely to risk falling prey to its enemies. Its worst enemies are increasing poverty and decreasing participation. Both of these factors are favourable to centralization of wealth and power. It is because of this situation that Nepal’s present political turmoil emanates from its political background, slow pace of its economic development and government’s failure in fulfilling legitimate expectations of the people. With the culture of centralized politics, administration and persistent socio-economic rigidities, the distribution of political participation in the country is most restrictive for a democracy. The style of government has not changed. Democracy has not trickled down to the villages and rural areas where 88 percent of the people live. The attitude and behaviour of the people have not been changed towards their system and government. All these factors constitute a serious threat to young democracy. Lipset is correct while asserting that:

… the more well-to-do- a nation, the greater the chances that it will sustain democracy. Democratic culture can survive in poorer countries if they generate economic growth, if they manage to generate development, if they reduce inequality and if they have parliamentary institutions. When poor countries stagnate, whatever, democracies happen to spring up tend to die quickly, poverty breeds poverty and dictatorship. Most countries, returning to democracy usually go back to whatever situation they had in the past. (Lipset, 1981:140)

The above case is well fitted in the present context of Nepal where the opportunity for participation for many social groups still remains limited because of the concentration of political and economic power at the center. Dahal is right when he asserts that, when the state gives the vote to all and the economy gives the opportunity to only a few, conflicts become inevitable in state politics.” (Dahal, 1998:35) In theory, people are the center of attention in any development activity. However, in reality it is not so in Nepal. If this is the case, little can be achieved in building a foundation for democracy and development through foreign aid.

11.3 Structure of Foreign Aid in Nepal

Nepal’s development finance began receiving foreign aid from the 1st Five Year Plan, 1956-61.Since then a substantial portion of development expenditure somewhere about 55% per annum (5-6% of GDP) has been financed from foreign aid. The 2002 Foreign aid Policy came into effect following elaborate consultations with all stake holders including the development partners and it was adopted during the Nepal development Forum 2002. The guiding principles of the 2002 FP is to achieve self-reliance in the longer term by enhancing domestic resource mobilization while increasing quality and quantity of FA during short and medium term.

The structure of foreign aid in Nepal as at FY 2007/08 reflects that foreign grants constitute 61 percent, while foreign loan accounts for 39 percent of the total foreign aid during FY 2007/8. The extent of foreign aid comprising both grants and loan provided by ADB (21.9 percent), and IDA (22.9 percent) is the highest followed by education for all (EFA) - donors’ organization (8.7 percent), Japan (8 percent), Germany (6.5 percent) and India (6.2 percent). The contribution of DFID, UNDP, USAID, Denmark, Norway, Global Development Fund, IFAD, OPEC Fund, Saudi Development Fund, Swiss Development Cooperation, Finland, European Union (EU), and China ranges between 0.2 percent and 5.3 percent of total foreign aid available to Nepal. But it has been experienced that more foreign aid makes the country economically less free. World Economic Freedom report has ranked Nepal at 121 among the 141 global economies, i.e., the least free economy in the world. However, foreign loan has been playing a key role in the Nepali economy. The net outstanding foreign loan totalled Rs. 249,965.4 million in the fiscal year 2007-08 which further increased by 10.8 percent and reached Rs. 277,040.4 million in 2008-09. In the fiscal year 2007/08, 26.6 percent of total expenditure and almost 81.1 percent of Nepal’s annual capital expenditure were borne by foreign aid (Ghimire and Adhikari,2009:9). A new dimension of foreign aid’s contribution in Nepal has been on helping to restore and stabilize peace and democratic governance through peace-funding and other supporting activities in the aftermath of the decade-long (1996-2006) conflict.

The country currently faces a challenge of successfully coming out of the transition. Before 2002, aid related decisions were largely taken on an “ad-hoc” basis and on “good discretion.” When aid policy came in 2002 (Ministry of Finance, GoN, 2002) even then it could not incorporate aid into peace process and conflict dynamics. The need for effective aid policy is evident from Nepal’s heavy reliance on foreign aid for the government-executed development and construction works. But the most disconcerting evolution is that in Nepal, a government’s success is measured by its ability to generate foreign aid. Governments have found it easier to convince donors than to exploit domestic sources.

There is no doubt foreign aid has contributed to Nepal’s education, health, infrastructure development, agriculture, forestry, communication and complemented resource gaps in a number of other areas. FA has provided not only the scarce resources to Nepal but has shaped the entire development model of the country. All development approaches pursed by Nepal at different times such as industrialization to sustainable development, poverty reduction, fulfillment of basic needs to structural adjustment, import substitution to export oriented production and empowerment of women to social inclusion are the result of foreign aid. All the present outcome of development in the country is the result of foreign aid oriented development process.

11.4 Role of Foreign Aid

The role of foreign aid is very important for creation of the present day socio-economic infrastructure of the country and raising awareness among people. But at the same time, foreign aid has failed to eliminate rampant poverty and deprivation of the people. The credit for the present day physical infrastructure of the country goes entirely to the foreign aid. In 1951, a single airport existed in the country, there was only one bank, only 276 kilometers of roads, a capacity to produce a mere 1.1 megawatts of electricity, just 25 telephone lines and 6,200 hectares of irrigated land (CPWF, 1998). But today, the present achievements in road and civil aviation, means of communications (newspapers, radio and TV channels) and banking institution are really impressive. Likewise, the impressive progress in literacy rates and declining infant mortality rates to the emphasis on human rights and democracy, good governance including the concept of social induction are all direct or indirect outcomes of foreign aid. But, at present, Nepal is still one of the poorest countries of the world with very low per capita income.

The entire development process of the past, where foreign aid had a vital role, has enhanced the wealth and prosperity of the country but the inequality among people is widening and the dependency of the country is increasing. Nepal living standard Survey 2003/2004 has shown that the inequality between rich and poor has increased, as the value of Gini Coefficient[3] has increased to 41.4 in 2003/04 from 34.2 in 1995/96[4]. It is assumed that the value of Gini has further increased to 47.2 in 2008[5]. According to NISS 2003/04, the average per capita income of the richest 20 percent population is 10 times higher than that of the poorest 20 percent population. In addition to this, from individuals to the whole nation itself, an aid-dependency syndrome has increased unmistakably. Nepal has taken foreign aid even to make a systematic record of foreign aid inflow in the country. Theory of dependency contradicts with the theory of self-reliance. The main idea behind self-reliance theory is that every society relies on its own strength and resources determined by its members’ energy, its natural and cultural environment. The natural stage of development is the way of life, which the people escape when the dependency becomes unbearable. This is an attractive and humane approach to development (Hettne, 1984). The impact of foreign aid in Nepal is found having a paradoxical result.

11.5 Impact of Foreign Aid: Culture of Dependency

How far has development aid in Nepal reduced aid dependency for its long-run sustainable development? The bigger and perhaps more important question is to reflect upon the efficacy of foreign aid in supporting the domestic economy over a longer horizon. Our documented evidence on foreign aid dates back to 1950s, with a growing influence in the later decades penetrating all aspect of the Nepali society, economy, culture and politics. It is argued that foreign aid has reduced the pressures to generate its internal resources and become more accountable to its citizens. Foreign aid is the biggest single factor that is depriving Nepal of a sustainable independent future, because it discourages creativity and innovation in economic management. Nepal’s dependency is exhibited not only in generating its own wealth but also in its dependency on policy formulation and resource utilization. Aid policies and the emergence of conflict are linked. In Nepal and elsewhere the international community has not addressed this vulnerability in the development discourse. The impact of aid on situations of conflict and prevailing peace has become very critical in recent times. With the end of the cold war, many countries are involved in civil conflict rather than inter-country wars. Nepal also saw a decade of violent civil conflict. While the conflict partly succeeded to mobilize as well as capitalize on the general grievances and frustrations of the Nepali people aspiring for a dignified living, the same period also provided an opportunity to check the relationship between conflict and aid.

Almost 81.1 percent of Nepal’s annual capital expenditure is dependent on foreign aid. Nepal’s budget and financing requirement for the current phase of the Poverty Reduction Strategy Papers is only 20 percent with pledged donors amounting to almost 40 percent. This leaves a financing gap of between 40-50 percent for this programme period (The World Bank, 2006). The other South Asian countries like Bangladesh, Pakistan and India etc, at least by Asian standards have very low dependency ratio. Unless we become committed to undergo a comprehensive programme to wean ourselves off of the permanent intoxication as a result of our addiction to foreign aid and be prepared to carry out the difficult economic reforms that will provide the platform for sustainable economic growth, we will remain stuck in this chronic dependency for a long time. Poverty Reduction Strategy Papers (PRSP) though well-intentioned, entrench this aid dependency culture. A western diplomat once said “we like it when they take ownership of the programmers but we mean our programmers. We don’t like it if they start having their own ideas.” In such a scenario, it is certainly difficult for the recipient countries to device their own policy and programs without any conditionality. So the threat is not simply one of economic dependency, but of a form of ingrained social and psychological dependency as well. There increases the danger of developing a syndrome of being a “poor nation,” so that the people fail to cultivate a sense of pride and confidence in themselves.

Several Nepali authors have reflected on the question of whether external assistance acted as catalyst to upgrade the living standards of the population, something that might not have been feasible for Nepal to achieve otherwise. There is no debate on whether Nepal needs foreign aid or not, the prime concern is of raising its productivity through effective utilization of foreign aid. What the critics of aid fail to appreciate, however, is that it is not principally the presence of foreign aid that is corrupting, but fatalism and assertive values. In recent years, the major issues like ownership of donor-driven projects in recipient countries, engagement of national experts in lieu of foreign consultants to ensure cost effectiveness, transparency, and aid conditional ties have dominated the center-stage of development drama orchestrated through foreign aid. Pandey writes:

_… is governed by two contradictory processes- the democratic process and the imperatives of foreign aid. The first requires development policies to be mandated by the people of Nepal; this is what the constitution of the land says. The latter is thus governed by the demands of the aid system as it operates domestically and internationally. The two processes are in conflict, causing many other contradictions and incongruities to emerge in the host country and aggravating progress in development management. In short, politics and programmes are not implementing a sustained manner. Resources are not used effectively and efficiently and corruption spreads (Pandey, 1999-2002:1).

It shows that foreign aid in Nepal does not have a strong positive relation to the alleviation of poverty, inequality and social evils. But it has become an obstacle to any indigenous development effort often leading to the co-modification of culture and people where the society is continually subordinated to either the economy or the state. It is also being used as an abrasive tool to hit public sector enterprises. As a result, citizen’s loyalty to the political system is eroding with the economic crisis at hand and as ethnic tensions are rising. In the past, the domain of recipient – donor interactions and engagements was limited to inter-state or governmental-international financial frameworks. Today, the rules of the game have undergone profound changes. The donors today take pride and satisfaction from their ability to work not only with the national government but also with the local communities in the districts and villages directly. Aid money makes governments accountable to the donors rather than to its people. On the other side, the political actors substantively interact with and depend more upon the donors than their domestic constituency. So in such a situation, where the donors not the state become the principal interlocutor of the civil society, the state becomes disabled. Civil society drawing its sustenance increasingly from foreign aid is also handicapped psychologically and morally. In this sense, aid provides not just financial wherewithal but political legitimacy for the government. Political leaders lobby with the donor, not their government or political colleagues, for projects that are of interest to them (Pandey, 1999-2002:1).

The heavy reliance of the country on foreign aid and foreign experts and an uncritical adoption of the policy of conditional ties to international capital markets have locked the nations into external dependence and undermined the role of the state in domestic and foreign policy making. In this context, Dahal has remarked that: “… the unfolding of harsh culture of dependence, debt and inequality led to the dis-empowerment of citizens”(Dahal, 1999:2). The excessive reliance of the state on the external world for development has also weakened the prerogative of the parliament on public policy formation and consequently, stripped it of ownership of those policies. Pandey in his article, “ A successful story on failed development” has commented- “… due to our begging culture, we have suffered in building competence on- “negotiation skill and deriving permissible benefits”(Pandey, 1999:3). He further remarks: “Democracy is not and cannot be a “project” to be appraised, financed, implemented, monitored and evaluated at the behest of the external partners.”

The situation is reverse in present day Nepal. Policies come from abroad in the form of advice even when they are linked to conditional aid. The donor’s intervention in policy making has become further intensified with an increasing emphasis on governance. A number of donors now feel free to ignore the state authorities, when they find it necessary to do so, mustering support from the corruption of the government and the inefficiency of its policies. The donors have bypassed the state sovereignty in policy decisions in the name of engaging civil society and grassroots organizations. As a result, who is responsible for policy making in the country and who will be held accountable are questions that seem to have no answer at the moment. If foreign aid does not advance the cause of development and poverty alleviation, it has nothing to do with the condition of the grassroots people. It only encourages the culture of begging or a culture of dependency, or both.

The dependency thus imbues governance with the values of status quo and, consequently, makes it unresponsive to citizens’ concern. If this situation continues, the condition of nation and citizens are sure to worsen and political culture and behaviour to suit the present democratic polity hardly develops. Citizens are finding it difficult to settle with what democracy means to them, if the political process leads them to more dependency in psychological and economic terms. The purpose of foreign aid should be to liberate productive forces of society and enable the citizens to reap the benefits through their continuous participation and empowerment. With regard to Nepal’s dependence on foreign aid, the dependence is not only limited to the need of development. Rather social peace and even the survival of the nation also increasingly depend upon it. This dependency culture and more seriously, foreign aid creating a fatalistic mindset has been highlighted by Bista in his book Fatalism and Development. He demonstrates how growing foreign/development aid has been so influential in the foreign policy and cultural dynamics of Nepal (Bista, 1991:98).

Dependency and fatalistic mind set have been the overriding features of the socio-economic and political development of Nepal. He further quotes foreign aid donors as father –surrogates.

… _When this passive parental dependency is applied to foreign aid, the only active agent of development becomes the foreign party, who then must supply the resources, the administration, the imagination to plan and the motivation to make it all work. While Nepalese are slow to thank their foreign benefactors, they are quick to attribute blame to them for a host of real and imagined ills, while they themselves maintain a child- like innocence. This behaviour makes some foreign aid administrators and experts adopt an arrogant and condescending attitude towards their Nepali counterparts which in turn cause resentment towards foreign aid among some Nepali people. These various orientations to foreign aid with all their inconsistencies cannot form a positive receptacle for foreign efforts to support Nepalese development.” (Bista, 1991:98)

But current fatalistic beliefs have institutionalized the culture of dependency instead of generating its own process of growth addressing the needs of the people and raise the standard of living. The lack of intimacy with local problems went to the extent that foreigner after a brief visit could consider themselves authorities on Nepali problems to be quoted in the words of Gurung– “the elite culture that separates itself from the life of ordinary citizens also expresses a lack of faith in the nation’s plan.” (Bista, 1991:118) The scramble of enthusiastic donors has been the most striking feature of the post-1990 Nepal. In Nepal, the restoration of multiparty system and the development of NGO and INGO culture are intertwined. As of October 2010, the Social Welfare Council has recorded 31,000 NGOs in addition to 25,000 not affiliated to it. The NGOs and INGOs seem to become powerful to influence the government. What is more amazing is that both the donors and foreign embassies dole out funds without being routed through the Government of Nepal. NGOs’ role can be seen in the mobilization of people in many action–oriented projects especially at local development level. However, the state itself is increasingly becoming NGO-ized or INGO-ized as its own organs and agencies are dependent on foreign money.

A noted Nepali planner was of the view that implosion of ideas does become a matter of concern when one realizes the over exposure of Nepali intelligentsia to alien concepts in contrast to their ignorance of native reality (Gurung, 1989:293). The habitual dependence of planners, policy-makers and general intellectuals on outside has evoked self-doubt on their own self-confidence and lack of political will to develop the nation on its own resource and skills.

In a democratic country, any change in the government should be treated as a regular process, not something that obstructs development. The rising budget deficits, spiraling inflation, declining tax revenues, shrinking job market (both internal and external) and prevalence of protest politics has threatened to destabilize democratic transition. Indeed, political transition has a great impact on the economic management and institutional capabilities of a regime and that in turn, determines the fate of a democratic transition (Thapa, 2008:156). Nepali policy makers have not realized the fact that political equality can only be achieved through economic and social equality. Scholars of the democracy point out that success of a political system’s smooth transition to democracy depends on the strength of its national economy and ability of leaders to capture the golden mean of polity. It is argued that those with good economic performances provide stable social support to the regime and give it strong institutional control over the democratization process and provide the regime with a better prospects to transform to some kind of stable democracy in the long run.

11.6 Conclusion

The growing discontent with aid in the earlier years was that it has only increased bureaucratic control of the life of the people as development meant adopting the life-style and political culture of elites through their material prosperity, not the social transformation for enhancing life-choices of people. Bureaucratization of aid has diminished the potential of market economy, individual freedom and ability to reach to the needy people. From donor perspective, self-reliance is defined as one’s own efforts to achieve difficult goal; change the status –quo and promote development by and for oneself without depending on outside help. A poor country may not have critical amount of financial and human resources to run its basic functions in competitive world. Therefore, absolute self reliance may not be possible in the globalized world. However, it is imperative that developing countries utilize aid to achieve self reliance. A growing number of scholars are calling for greater selectivity in allocating aid to poor countries, because evidence seems to suggest that the “big push” theory of foreign aid can only have an impact after countries have already made substantial progress in reforming their policies and institutions.

Foreign aid is a temporary solution that is supposed to be provided for a short period of time so that in the long-run, the recipient countries recover and become self-dependent. But in reality, in case of Nepal the situation hardly came true. Even after six decades of continuous flow of foreign aid, the Nepalese are there where they were in the beginning. Moreover, the dependency syndrome has increased in such a way that even day to day activities have been unthinkable to run without foreign aid. It can be agreed that aid is not the prime mover of development. It has sometimes even been an impediment– but this need not be the case also. To use aid as a good reward for development may indeed be justified under certain circumstances, but often such circumstances itself can be met only with outside help. Aid, should, therefore, primarily be used as catalyst-sometimes to help generate other resources or gain access to them-sometime to help create domestic capacity or manage conflicts resulting from various forms of unsustainable development. At this juncture, what is required is special focus on aid policy which creates social harmony, political stability and peace-the preconditions for democratization in Nepal.

References

Acharya, Laxman, 2004. A Review of Foreign Aid in Nepal 2003, Kathmandu : Citizen’s Poverty Watch Forum and ActionAid Nepal.

Bista, Dor Bahadur, 1991. Fatalism and Development: Nepal’s Struggle for Modernization, Calcutta: Orient Longman.

CPWF, 1998. A review of foreign aid in Nepal, Kathmandu: Citizen’s Poverty Watch Forum.

CPWF, 1995. A Review of Foreign Aid in Nepal, Kathmandu: Citizen’s Poverty Watch Forum.

Dahal, Dev Raj, 1998. The State, Society and Development in Nepal, paper submitted to IIDS, Centre for Governance and Development Studies (GDS), Kathmandu.

— ,1999. “Nuggets of Nepali Political Culture,” The Telegraph Weekly, Kathmandu: Animesh Press, December.

Ministry of Finance, Government of Nepal. 2002. Foreign Aid Policy, Kathmandu.

Ghimire, Madhab and Adhikari, Samesh, 2009. “Foreign Aid and its Dynamics in Nepal: Lessons from the Future”, Sangam Journal Quarterly, Vol. 1, Issue 1, Kathmandu: Sangam Institute for Policy Analysis and Strategic Studies.

Gurung, Harka, 1989. Nepal: Dimensions of Development, Kathmandu: Awarta Press.

Hettne, Bjorn, 1984. Development Theory and the Third World, Publications of Swedish Agency for Research cooperation with Developing Countries.

Huntingtio, Samuel P. 2010. The Third Wave; Democratization in the Late Twentieth Century, New Delhi: Adarsh Books.

Lipset, Seymour Martin, 1981. Political Man: The Social Bases of Politics, Baltimore: John Hopkins University Press.

NESAC, 1998. Nepal Human Development Report, Kathmandu: Nepal South Asia Centre.

Pandey, Devendra Raj, 1999. “A Successful Story on Failed Development,” The Kathmandu Post, Kathmandu: Kantipur Publication, June 6.

—, 1999-2002. “Matching Democracy and Development Policy Making in an Aid-Dependent Country: An Illustration from Nepal,” Harvard Asia Quarterly, USA: Harvard University.

CBS, 2005. Poverty Trends in Nepal, 1995/96 to 2003/04, NPC, HMGN Nepal.

Thapa, Ganga B. 2008. “Nepal: From Authoritarianism to Democracy”, in Navnita Chadha Behera (ed.) International Relations in South Asia, New Delhi: SAGE Publications India.

The World Bank, 2006. World Development Report, Kathmandu.

---

[1] World Development indicators, 2005.

[2] Ibid.

[3] The Gini coefficient is a measure of the inequality of a distribution. The Gini coefficient can range from ) to 1; it is sometimes multiplied by 100 to range between 0 and 100. A low Gini coefficient indicates a more equal distribution, with 0 corresponding to complete equality, while higher Gini coefficients indicate more unequal distribution, with I corresponding to complete inequality.

[4] Poverty trends in Nepal (1995/96 to 2003/04), CBS (2005).

[5] http://www.Theodora.com/ on Nepal Economy, download on Nov 18 2010.

12. Strong Legal Regime, a Necessity for Effectiveness of Foreign Aid

Kashi Raj Dahal

12.1 Introduction

Foreign aid as a global good has been playing a crucial role in carrying out developmental and other activities around the world. Foreign aid, the transfer of money, goods, and services is believed to have started after World War II, when the United States provided aid to rebuild the economies of affected countries in Western Europe and to contain the Soviet expansion. Foreign aid took a much larger scope after the International Monetary Fund (IMF) and the World Bank were established in 1945 to help debt relief and economic expansion of underdeveloped nations. Today, foreign aid has been a crucial component in every developing nation’s arsenal.

Foreign aid comes in two different forms, namely humanitarian aid and development aid. Humanitarian aid is swift assistance given to people during and in aftermath of emergencies. Its primary purpose is to save lives, alleviate suffering, and protect human dignity at emergencies like wars and natural disasters. It differs from other forms of foreign assistance in the sense that it is supposed to be independent, impartial, short-term, and governed by principles of humanity. Its focus is primarily on relieving suffering caused by natural disaster or conflict, rather than alleviating causes of poverty or vulnerability. The provision of humanitarian aid consists of material relief (food, water, shelter, medicine, etc.), and logistical assistance (relief coordination, protection and support services).

Development aid refers to the assistance provided by government and other agencies to support socio-economic development of the receiving country. It differs from the humanitarian aid in the sense that its purpose is long term alleviation of poverty, rather than relieving suffering in the short term. Development aid is delivered through two sources. The major chunk of development aid comes from government sources, which are referred to as Official Development Assistance (ODA). The remaining portion of development aid comes in the form of Private Giving, which is basically aid made by private organizations such as NGOs, and charities.

Although the volume of foreign aid has been on an ever increasing trend, the receiving countries are getting poorer and poorer. This has led to much speculation about how effective aid programs really are. Thus, there are many schools of thought who do not approve the way the foreign aid has been disbursed and used around the world. They view the current state of foreign aid as having a negative impact on the growth rate of the economy, as well as the democratic stance of the receiving country.

12.2 Contemporary commentary on aid

There has been a plethora of literature which primarily focuses against aid. Critics argue that donors lack understanding of the situation and as a result aid does not provide maximum benefit to the recipient, and reflects the interests of the donor. For example, a report composed by the World Bank in 2006 stated that an estimated half of the funds donated towards health programs in sub-Saharan Africa did not reach the clinics and hospitals. Money is paid out to fake accounts, prices are increased for transport or warehousing, and drugs are sold to the black market. Another example is in Ghana, where approximately 80% of donations do not go towards their intended purposes. This type of corruption only adds to the criticism of aid, as it is not helping those who need it, and may be adding to the problem. However, there are some who believe that aid is seldom given from motives of pure altruism. For them it is often given as a means of supporting an ally in international politics. There are others who also believe that it may also be given with the intention of influencing the political process in the receiving nation. Whether one considers such aid helpful may depend on whether one agrees with the agenda being pursued by the donor nation in a particular case. During the conflict between communism and capitalism in the twentieth century, the champions of those ideologies - the former Soviet Union and the United States - each used aid to influence the internal politics of other nations, and to support their weaker allies. Perhaps the most notable example was the Marshall Plan by which the United States sought to pull European nations toward capitalism and away from communism. Aid to underdeveloped countries has sometimes been criticized as being more in the interest of the donor than the recipient, or even a form of neocolonialism.

There are other schools of thought who believe that foreign aid has been used for selfish reasons like defense support, market expansion, foreign investment, missionary enterprise, cultural extension and many more. In recent decades, aid by organizations such as the IMF and the World Bank has been criticized as being primarily a tool used to open new areas up to global capitalists, and being only secondarily, if at all, concerned with the well-being of the people in the recipient countries.

Besides criticism of motive, aid may be criticized simply on the grounds that it is not effective, i.e., it did not do what it was intended to do or help the people it was intended to help. This is essentially an economic criticism of aid. Statistical studies have produced widely differing assessments of the correlation between aid and economic growth, and no firm consensus has emerged to suggest that foreign aid generally does boost growth. Some studies find a positive correlation, but others find either no correlation or a negative correlation.

Economist William Easterly and others have argued that aid can often distort incentives in poor countries in various harmful ways. Aid can also involve inflows of money to poor countries that have some similarities to inflows of money from natural resources that provoke the Resource Course. Emergency funds from the International Monetary Fund (IMF) and World Bank, for instance, are linked to a wide range of free-market policy prescriptions that some argue interfere with a country’s sovereignty. Policy prescriptions from outsiders can do more harm as they might not fit the local environment. The IMF can be good at helping countries over a short problematic financial period, but for poor countries with long lasting issues it can cause harm. In his book The White Man’s Burden, Easterly argued that if the IMF only gave adjustment loans to countries that can repay it, instead of forgiving debts or lending repetitively even if conditions are not met, it would maintain its credibility.

Another reason behind the criticism against aid is the conditionalities that are being imposed upon aid recipient countries of the South America which is often called tied aid. The World Bank and the International Monetary Fund, as primary holders of developing countries’ debt, attach SAP conditionalities to loans which generally include the elimination of state subsidies and the privatization of state services and there are many examples around the world to substantiate these claims.

In their April 2002 publication, Oxfam Report revealed that aid tied to trade liberalization by the donor countries such as the European Union with the aim of achieving economic objective is becoming detrimental to developing countries. For example, the EU subsidizes its agricultural sectors at the expense of Latin America who must liberalize trade in order to qualify for aid. Latin America, which has a comparative advantage on agriculture, loses $4bn annually due to the EU farm subsidy policies.

Taken together, these factors have made aid ineffective. Hence, it is important to look at where aid goes. For example, only about one fifth of U.S. aid goes to countries classified by the OECD as least developed. This “pro-rich” trend is not unique to the United States. According to Collier, “the middle income countries get aid because they are of much more commercial and political interest than the tiny markets and powerlessness of the bottom billion.” What this means is that, at the most basic level, aid is not targeting the most extreme poverty. The basic criticism of aid is that it neither goes where it was intended nor helps those intended. For its effectiveness, scholars like Collier argue that aid should be given in line with the national priority of recipient countries and its people, not the priority of the donors.

Currently, donor institutions make proposals for aid packages to recipient countries. The recipient countries then make a plan for how to use the aid based on how much money has been given to them. Alternatively, NGO’s receive funding from private sources or the government, and then implement plans to end their specific issues. In the views of many scholars, this system is inherently ineffective. If we hope to eliminate poverty, we must reexamine how we distribute funding, and how we attack problems.

According to Sachs, we should redefine how we think of aid. The first step should be to learn what developing countries hope to accomplish and how much money they need to accomplish those goals. Goals should be made with the Millennium Development GOALS in mind for these furnish real metrics for providing basic needs. The “actual transfer of funds must be based on rigorous, country-specific plans that are developed through open and consultative processes, backed by good governance in the recipient countries, as well as careful planning and evaluation.” Easterly argues that for far too long, inefficient aid organizations have been funded, and that this is a problem. The current system of evaluation for most aid organizations is internal. Easterly claims that the process is biased because organizations have a large incentive to represent their progress in a positive light. What he proposes as an alternative is an independent auditing system for aid organizations. Before receiving funding, the organization would state their goals and how they expect to measure and achieve them. If they do not meet their goals, Easterly proposes we shift our funding to organizations that are successful. This would prompt organizations to either become efficient, or obsolete. For Sachs and others it is best to empower countries by utilizing their existing governments, rather than trying to circumnavigate them. He remarks that while the corruption argument is logically valid in that corruption harms the efficiency of aid, levels of corruption tend to be much higher on average for countries with low levels of GDP. He contends that this hurdle in government should not disqualify entire populations for much needed aid from the West. Also, Sachs contends that democratization is not an integral part of having efficient aid distribution. Rather than attach strings to our aid dollars, or only working with democracies or “good governments”, Sachs believes we should consider the type of government in the needy country as a secondary concern.

12.3 Foreign Aid in the context of Nepal

The role of foreign aid in the third world countries is particularly noteworthy and Nepal is no exception to this phenomenon. That said, however, the aid history in Nepal is relatively young but surprisingly within the very short span of time Nepal is heavily dependent on foreign aid for multiple purposes. Today, Nepal receives foreign aid from countries, international financial institutions, and inter-governmental organizations. Japan is Nepal’s largest bilateral aid donor whereas the World Bank and the Asian Development Bank are the largest multilateral donors. In recent years, it appears that donors have been reported as losing confidence in Nepal due to an increased impact of chronic political instability, interference, and corruption. As a result aid to Nepal has been coordinated through statutory bodies of the government and negotiated through the Nepal Development Forum.

Nepal has been a recipient of foreign assistance since 1952 when it joined the Colombo Plan for Cooperative, Economic, and Social Development in Asia and the Pacific. During the 1950s, many Nepalese received scholarships through the Colombo Plan to go to different countries for studies in technical and professional areas. Also during that time, all other aid was in the form of grants. The bulk of assistance was directed toward developing agriculture, transportation infrastructure, and power generation. Other areas targeted for assistance were communications, industry, education, and health. India and the United States each were responsible for more than one-third of all grants. Both countries established aid missions to Nepal and directed aid to special projects. With the passage of time, many other donors have come up who are involved in multiple activities for their alleged role in development.

Sources of foreign aid were numerous. Eleven UN agencies, seven multilateral lending agencies such as the World Bank and eight private agencies for example, the Ford Foundation had participated in aid programs. At least seventeen countries offered bilateral assistance. Under the auspices of World Bank, the Nepal Aid Group was created in 1976. By 1987 sixteen countries and six international agencies participated in the group. Nepal used to receive bulk of the foreign aid contributions from this group until 1990.

Most economic development projects were funded with external assistance on concessional terms. In the mid- to late 1980s, recorded aid disbursements averaged more than US$200 million annually–about 7 percent of GDP. More than 70 percent of the aid was in the form of grants; the remainder was in the form of concessional loans. A high percentage of technical assistance and direct aid payments were not documented. Much of the aid granted was underused.

By 1991, Nepal was receiving external assistance in the form of project aid, commodity aid, technical assistance, and program aid. Project aid funded irrigation programs, hydroelectric plants, and roads. Commodity assistance targets included fertilizers, improved seeds, and construction materials provided by donor aid agencies. Technical assistance covered services of experts to advise the government in training indigenous personnel to perform research in technological fields and resulted in the development of skilled labor. Program aid supported various projects, in particular the agricultural and health fields. What is true, by and large, is that dependency on aid is increasing by leaps and bounds.

12.4 The Shifting Paradigm

Ever since Nepal started planned development, it has been depending on aid funding by bilateral and multilateral donors for its developmental activities. The dependency on foreign aid and donors for multiple purposes seems to be increasing instead of decreasing as Nepal moved forward from one regime to another. What has become a major subject of concern is that today both development and politics have been heavily dependent on aid which was not the case earlier. In recent times more aid has been spent on politics than on development. Apparently the aid has dominated the political agendas to the interest of donors and it has generated great deal of antipathy against the very regime of aid. This is primarily because the agendas floated by the donors have failed to build-up a common national consensus and to push forward the country’s elongated peace process. Many believe that the role of donors is to be partly blamed as well for this tumultuous transition. This has forced government to introduce some changes in the aid disbursement mechanism and ask donors to work in line with the priority of the state.

In recent year’s foreign aid which primarily used to be spent on developmental work has now shifted towards other headings such as democracy building, human rights, conflict resolution, and many more. However, the shifting paradigm of aid in Nepal has earned sizeable number of critics. Many believe that the channeling of foreign aid in other headings has created more problems than solutions.

Although foreign aid to Nepal has been increasing every year, the country is going deeper and deeper into an economic slump and rampant poverty. According to Development Cooperation Report for fiscal year 2011-2012, the poverty afflicted regions received the lowest shares of the foreign aid. The central development region, which is the most developed region in the country, received the highest disbursement worth US$115.02 million, whereas the least developed region by far, the far-western development region, received the lowest disbursement of US$66.88 million. This clearly points to a need for a massive change in the way the aid is disbursed within the country, and also points to a much deeper problem in the political culture of the nation.

12.5 Conclusion

Foreign aid has been a key component of Nepalese socio-economic development. However, the full potential of the aid projects has not been actualized because of Nepal’s poor capacity to utilize aid. The political interference and corruption have severely debilitated the poverty relief efforts. In the absence of a strong legal regime, good governance, rule of law, culture of accountability, and political commitment, the aid becomes food for a massive level of corruption, and hence doesn’t get delivered to the sector or region that it is intended to. However, it is not always the recipient country’s fault. In some instances, donor countries and INGOs provide assistance based on their vested interest, which do not necessarily coincide with the sovereignty, integrity, national interest, and the greater welfare of the people. Thus, a mechanism which takes all these factors into consideration is required for effective utilization of aid and only then the true objective of the foreign aid: strengthening democracy, establishing rule of law, protecting human rights, promoting constitutionalism and good governance, and poverty alleviation, could become a reality. Nepal, which stands as a fragile state, requires donor’s assistance based on good faith and effective utilization of aid, to transform this morose political atmosphere into one of hope and promise.

References

Collier, Paul, 2007. The Bottom Billion: Why the poorest Countries are Failing and What Can Be Done About It. Oxford: Oxford University Press.

OECD Development Co-operation Report 2012 [online] http://www.oecd.org/dac/dcr2012.htm

Djankov, Simeon, Jose G. Montalvo, and Marta Reynal-Querol, 2006. “Does Foreign Aid Help?” Cato Journal 26.1.

Easterly, William, 2007. The White Man’s Burden. Oxford University Press.

“Foreign aid disbursement drops marginally.” The Himalayan Times April 17, 2013:13. Print.

Wikipedia: Foreign aid to Nepal.

Oxfam America. Smart Development: Why US foreign aid demands major reform. Oxfam America, Inc., Feb. 2008

“Poorest got the lowest amount of foreign aid; hydropower got peanuts.” The Kathmandu Post 17 April 2013:1. Print.

Sachs, Jeffrey, 2005. The End of Poverty. Penguin Group.

13. Foreign Aid and Democracy

Dr. Govind Prasad Kusum

Democracy does not guarantee equality of conditions-it only guarantees equality of opportunity. John Dryden

13.1 Introduction

Because of the ten year long armed conflict and the aftermath of political instability, the growth of the Nepalese economy has been intolerably hindered. The present average growth rate of 3.5 per cent cannot translate the national and internal challenges into greater opportunities. The revenue part of the government comprising of 15.3 per cent of GDP[1] is next to impossible to bridge the widening deficit budget gap. Remittances, the major source of national economy contributing to nearly 30 percent of GDP can never be a sustainable source because of its transitory nature. Industrial growth is poor contributing only 10 per cent in national economy. Predominated by agrarian economy characterized by low productivity and low yield, Nepal cannot sustain on the basis of its own agro-products; imports of food grains bridge the food deficit of the country. Poverty headcount Index was 25.16 percent and poverty gap index was 5.43 percent in the 2009/010 Fiscal Year.[2]

In this critical juncture of the national economy, no doubt Nepal does not have any second option except to accept foreign aid and use it for the overall development of the country i.e. socio- economic development and democracy strengthening. Nearly 40 donor agencies provide development assistance to Nepal in various social and economical sectors. Education, local development, health, road transportation, drinking water, electricity, economic reform, financial reform, agriculture, peace and reconstruction, irrigation, forest, constitutional bodies, women, children, social welfare and urban development are major areas of donor contributions’ that Nepal has received in the last several years.[3] Total share of foreign aid in Nepal’s national budget goes up to 30 percent on average.

Nepal receives foreign aid through three major lines of disbursement – namely grants, loans and technical assistance. Irrespective of grants – loans and technical assistance take up significant volume in the foreign aid basket.

Keeping in mind of the pivotal role played by foreign aid, the major issue of its proper utilization lies upon the shoulders of the Government of Nepal. How to use it? Where to use it? How to safeguard the national interest in a maximum number? These are some of the pertinent and fundamental questions while discoursing on the role and scope of foreign aid to strengthen democracy of a country.

13.2 Foreign Aid and Nepal

Foreign Aid can be defined as the transfer of money, goods and services from one country to another. Support and cooperation to developing countries through aid has become part and parcel of foreign policy of developed countries, mainly the USA, UK, Members of European Union, Japan, Australia and so on. Foreign aid as an important part of US foreign policy began during and following World War II when it was used primarily to help rebuild the economies of Western Europe and to help contain the Soviet expansion in the aftermath of World War II.[4] The International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (World Bank) as the two main multilateral financial institutions that would help with debt relief and economic development of developing and war-torn countries were established immediately after 1945 with the initiation of the US along with other countries.

In the history of foreign aid, the Marshall Plan of the US announced in 1947 by General George C Marshall, then US Secretary, is largely remembered for its ultimate goal of fighting against hunger, poverty, desperation and chaos, which are believed to be the real enemies of democracy. With foreign aid, the US expected to restrain communist expansion in the aid-recipient countries during the Cold War period and establish democracy based on freedom of speech. In later days, several donor institutions, such as USAID (US Government), DFID (UK Government), JICA (Japan Government), Asian Development Bank (ADB) and others came into existence. These institutions have provided aids in grants and loans to Nepal in the last couple of decades.

When we estimate equations for individual donors, we find striking differences in their allocation. After controlling for its special interest in Egypt and Israel, US aid targeted poverty, democracy and openness. The Nordic countries have a similar pattern that they do not have the same sharp focus on the Middle East. Japanese and French assistance on the other hand, has little relationship to poverty and democracy even after controlling for their strategic interests in former colonies and UN friends.[5]

Nepalis’ dependency on foreign aid is relatively higher and the country has been a recipient of foreign aid since 1952 when it joined the Colombo Plan for Cooperative, and Social Development in Asia and the Pacific. In the early days of Nepal’s independence, India and the US were mainly responsible for more than one-third of all grants.[6] In those days, the major chunk of foreign assistance was in the form of grants, mainly on a bilateral basis. Since the 1970s, multilateral assistance programs were started to play a key role in development planning, which accounted for more than 70 percent of total funding for development.

Foreign aid and democracy support have become increasingly interwoven and interconnected since World War II. Development agencies recognize the importance of governance and pro- people political practice through the protection of freedom of rights while democracy organizations address the challenge of helping democracy deliver the citizen’s socio-economic demands.

From the early 1960s to the late 1980s, in an era of superpower competition, strategic alliance was the most common condition for development assistance. Security imperatives dominated the choice of aid recipients. While the USSR (former) supported strategic allies, especially Marxist socialist countries, the US and other Western donors provided economic assistance to developing countries that helped contain Soviet influence and communism

After the end of the Cold War and the disintegration of the former USSR, the 1990s saw the rapid growth of democracy promotion as bilateral and multilateral donors reformulated their priorities for assistance, because the credible threats to the US and its allies from communist expansion in the third world seemed over and out.

No longer in grave need of strategic alliances in the developing world, donors became more closely involved in the domestic matters of weaker states. New guidelines and policy statements from the Americans, British, French, Germans and all other donor countries stipulated that funding allocation take into account on political liberalization.

Nepal as an aid recipient country also falls into the priority area of Westerners’ fund allocation strategy. That is the reason that the country received support in a sizeable manner immediately after the promulgation of Loktantra and the completion of signing the CPA between the Government of Nepal and the Maoist Party. In order to institutionalize the long lasting peace in the country, the government prioritized to administer the cantonments and Maoist combatants’ integration in Nepal Army as per their choice. Cantonment management and integration into the Nepal Army were the fundamental parts of strengthening Loktantra (democracy). [7] Despite the commitments and efforts of three consecutive governments led by different political parties since 2007, it took nearly five years to streamline these core issues of CPA. Ultimately, things were sorted out in a very cohesive manner adhering to the spirit of institutionalizing democracy in Nepal

Post-conflict Nepal received substantive aid to institutionalize the Loktantra. To materialize the Peace Process as per the Comprehensive Peace Agreement (CPA), donor countries and agencies supported Nepal with high priority and open-heartedly. Tens of thousands victims of the armed conflict were provided compensation in the form of relief packages by the government. Donor communities’ role in establishing peace in post conflict Nepal is commendable. The following table[8] unveils the scenario:

Table 1: Relief Expenditure to the victims up to 2010/11

Particular	Total no of victims	Relief amount provided to Victims (in number)	Relief amount provided in thousand(NRs)
Family of deceased	17828	13893	1389300
Family of disappeared persons	1452	1302	130200
Displaced persons	89171	25000	240144
Kidnapped persons	2985	1219	304475

The above figures are some of the indicators that give a glimpse as to how the Nepali Government received support from various donor agencies and spent to institutionalize the peace with the objective of erasing the scars of ten year long armed conflict.

Similarly, to restore the destroyed public properties, the government is spending a huge amount of donors’ money that has made the reconstruction possible. The following table[9] reflects the present status:

Table 2: Expenditure on Reconstruction

S No	Project	Total number of reconstructed projects (July 2011)
1	School Building	438
2	VDC building	602
3	Government offices at the headquarters	347
4	Ilaka level Government Offices	306
5	Police unit	107
6	Park and memorial	35
7	Other projects	771
	Total Project number	2606
	Total expenditure(In NRs)	6.301.758.000

Foreign aid as has been observed is partially successful at promoting growth and reducing poverty. One reason is the poor performance of the bureaucracy of the country. The second reason is corruption. Inefficient performance of the government machineries and wild corruption are the major hindrances of effective aid utilization in Nepal. Despite these realities, the above mentioned reconstruction programs are going smoothly because of the direct linkages of government and local stakeholders. Thus, linkages between aid and democracy create better environment for better performance and transform the projects into better tools of democracy.

Donors have their own portrayed priorities to assist Nepal. On the basis of their priorities, Nepal steps forward to work as per stipulated provisions, provided it complies with the government’s foreign aid policy. The Foreign Aid Policy of Nepal is a road map of acceptance and utilization of aid. While surveying the Monitoring Paris Declaration, the Ministry of Finance of the Government of Nepal highlighted the priorities of the Donors set forth. They are as follows:[10]

1. In principle, all donors working in Nepal prioritize aid effectiveness principles in their respective aid policy/strategy/programme for Nepal.
2. In practice, attitudes towards the aid effectiveness commitments vary significantly within the donor community, with two broad types of approach-one prioritizing the incremental in lamentation of the Paris Declaration (PD) in Nepal and the other focusing more on risks factors that pose threats to its implementation, especially when it comes to using country systems. The former is more in favor of following the essence or motive of the PD with needful customization to the Nepalis context, while the latter is more vocal in highlighting capacity deficiency and fiduciary risks that hinder implementation of the PD in Nepal.
3. Donors’ priorities are also supporting Nepal to meet its Millennium Development Goal (MDG) commitments along the priorities of the government.
4. Support for the strengthening of country systems is high on the agenda for donors in Nepal.
5. While most donors’ intention is to follow the government’s preferred policy to channel funds through budget support, DPs also require flexibility to use alternative aid instruments, whilst concrete reforms progress further.
6. ‘Division of labor’ issues are also becoming more and more prominent, not only at the sector level but also in terms of geographic coverage. The Donor Transparency Initiative has suggested priority actions for better coordination.
7. The demand for more effective mutual accountability mechanisms is also high among donors. They would like to see more regular and operational interaction on aid management and aid effectiveness issues, both at the national and sector levels.
8. Donors are also putting a lot of emphasis on strengthening financial reporting capacities.

13.3 Linkages between Aid and Democracy

Democracy is not just an end: it is also a means to improve domestic social, political and economic relations. After the promulgation of the Federal Republic of Nepal, aspirations of Nepali people expanded overwhelmingly. Democratic expectations have grown. They are inextricably linked with demands for better living conditions, including healthcare, education, job opportunities and access to national opportunities. In addition to this, women’s empowerment, and inclusiveness have become part and parcel of democratic life. Greater peace, prosperity and pluralism are the modern-day pillars of democracy. However, controversial means for promoting democracy and frequent mismatches between deeds and words have clouded appreciation of this truth. Some time-conflicting priorities are seen in democracy, but it should be understood that democracy promotion is not a panacea, because there has long been controversy about whether democracy enhances economic development.

Democracy not only talks about the citizens’ freedom such as freedom of speech, human rights and freedom of religion as the basic foundation of democratic political norms, but also it emphasizes poverty reduction, economic growth, social transformation and the human face of development. Superior rights for the few and inferior rights for many are structured into the subtle monopolization of land, technology, money and information. These highly insufficient subtle monopolies exist in many countries[11] of the world and are the drawbacks of strengthening democracy.

One thing that is crystal clear is that democracy affords all groups and segments of society equal access to justice and opportunity. Democracy supports pluralism. Pluralism prevents human assets including ethnic minorities, women, and disgruntled populations from being squandered. In recent years, Nepal has given a high priority to participation and inclusion issues. They are at the heart of the recent development strategies and participatory mechanisms have also been put in place at all levels.[12]

In order to strengthen democracy in Nepal, the livelihood of the Nepali people and the economy should be strengthened. Economic growth and democratic development are two sides of a coin. In the 1990s, Western donors embraced the idea that democracy and development can complement each other[13]. They should not be studied discretely because of their inter-linkages in nature.

Post-conflict Nepal asks for more aid to cope with the developing demands of people and democractic support. Post-conflict development aid helps promote political stability, guarantees of human rights and focus-specific rights of citizens such as freedom of expression. Adequate aid helps populations to secure minimum standard of living and restore key infrastructures. Technical assistance is needed for institutional development, adopting new legislation, enhancing the quality of governance and supporting civil society and democracy. However, foreign aid is a means to make democracy function but not the ends. The ends are a strong and functional democracy.

On the other hand, sometimes development aid may be deleterious to political stability. It can exacerbate conflict and instability in the country. There always remains a threat of public corruption with such developmental aid in a post conflict situation. It promotes a form of rentierism and corruption. It has a negative impact on the common people. Dollar ko kheti is a kind of negative connotation popularly used among the population.

In the context of Nepal, many donors believe that aid is instrumental to institutionalize the democratic political system of the country.[14] The aid is not for corruption. It is for ‘helping democracy deliver’. It is for good governance. Donors believe that through the assistance in sector development programs can promote the democratic functions based on rule of law. Impunity and transitional injustice hammer the inner heart and soul of democracy. If such unruly activities take place, donor communities never feel comfortable to assist the country. That is one of the reasons that series of terms and conditions are put forward while negotiating with them.

Upon the advent of the new Loktantra Nepal received assistance in various fields such as election for Constitutional Assembly, poverty reduction, good governance, human right protection, women empowerment, peace building and reconstruction, gender mainstreaming, inclusive development, empowering ethnic communities, health and education, strengthening capacity of CA Secretariat and so on. Humanitarian assistance is also one of the nugget areas bringing divergent societies into the mainstream of democratic consensus through which the beneficiaries can be convinced of the utility of democracy for development. Nepal received nearly 22 percent of total aid in the form of humanitarian assistance in 2011.

13.4 Donor Intent

Donors have two major intentions of granting aid to the recipient country like Nepal-external and internal. The external intention gives priority to assisting developing countries that make active efforts to pursue peace, democratization, protection of human rights and structural reform and development in the social and economic spheres. They are visible. They are tangible. They really become instrumental to develop the overall situation of the country.

Contrary to this, the internal intention is not visible. It is intangible. One can only sense and calculate the disguised form of such intention. This kind of intention is a threat to the security of a nation. It weakens the harmonious relations of society.

Since the end of the Cold War, the pattern of providing assistance to developing countries changed because of the democratic and economic reform agendas of Western countries. Bilateral aid was drastically reduced and funneled through the INGOs. Now, INGOs are responsible for offering aid and assistance to the local NGOs of the concerned country. The obvious and overt reason is to mobilize NGOs so that direct access to the beneficiaries would be established by minimizing bureaucratic hurdles and hassles. The covert strategy is basically different from what the general public visualizes. Under this strategy, local NGOs are heavily mobilized against the policies of the government. The hidden political or social or ethnic or religious conviction-related agendas are weakening the government. Several instances have surfaced in Africa and to a lesser extent also in Nepal.

Donors sometimes use aid leverage to pressure a developing country to carry out certain political and social reforms. Aid, despite being treated as ‘apolitical’, appears with an agenda of ‘political’ in its disguised form. But there is emerging realization and debate over how politics influence development outcomes and efforts are being made to address these concerns by donor agencies.[15]

In this particular juncture of the country’s vulnerable situation, donors should pay greater attention to the myriad factors that contribute to and underpin not only transition, but even more complicated long-term consolidation.

13.5 Some Challenges

There are two concerns in utilization of foreign aid for strengthening democracy in Nepal. First, there is a gap between policy and practice. In practice, policy implementation and its harmonization as said are sinking into oblivion. Ownership of policy guidelines tends to be narrowly defined as the executive arm of the government. Democratic systems on the ground level are too weak to handle the modalities of aid. In the last several years, no local political institutions have been in place creating a situation of pandemonium in ushering and functioning the democratic wings in a wider range. This kind of situation creates comforts for corruption and fraudulence.

Aid conditionalities also reduced the space for national political decision making and its proper implementation. Donors’ terms and conditions for policy changes sometimes do not fit for the socioeconomic condition of the country and undermine the role of democratic institutions.

There is a gap between the linkage of aid and democracy. Democratic ownership is lacking among the political parties; that is the reason that the Constitution Assembly could not deliver the new constitution within a stipulated time frame of four years and was dissolved. It all happened because of the power of politics. Had the political parties taken ownership of strengthening democracy, no such unprecedented incident could have occurred.

Sometimes aid resources are indirectly used to retain political control. Bribery, coercion and threats for the purpose of securing political loyalty are all a concern.

Weak negotiating skill kills the win-win approach of the recipient country. Many of the negotiations in the past were guided by the donors’ notations.

Business interests, security interests, and other political interests of the aid providing countries have grown preponderantly that impede the growth of democracy. Without serving the above said interests of aid providing communities/agencies/countries, foreign aid is not supposed to be allocated and released.

A double standard of donor agencies subverts the democratic system of the developing countries like ours. The ultimate objective of the donor countries in providing aid is to serve their internal stipulated interest.

INGOs, developed as the major donor agency in recent times, are supposed to provide aid to the developing countries through local NGOs, civil societies and local authorities. In most such cases, even the national treasury does not know how much money has been dispensed and allotted by the INGOs and donor communities in the account of local NGOs. This kind of situation rules out the sovereignty of a country. The ineffective monitoring system of the Government creates a congenial environment to the INGOs to play with policy lacunas.

Nepal needs aid that does not have any obscure and incomprehensible conditionality that hurts the national interest. To the contrary, Nepal as recipient country needs to know more about the hidden agendas of the donor communities and whether their objectives are compatible to the national policy’

No doubt, the donor communities have their own strategy to put pressure on the government through the carrot and stick policy. Nepal should learn more from the practices of several aid receiving countries of Africa, Latin America and other Asian countries.

‘Colonial approach syndrome’ of the donor agencies/countries obstructs the development of harmonious bilateral relations. Probably, that would be one of the reasons - they cannot remove the concept of treating Nepal as their purlieu and do not abjure on what the Nepali people appear a bit skeptical.

Moreover, aid would be more effective to strengthen democracy if there is a solid democratic foundation in which domestic political actors and stakeholders play a substantial role in policy debate and effective policy implementation.

The government needs to develop new ways to strengthen voice and accountability among all actors involved in the democratic mainstream, so that the overall domestic accountability chain is enhanced.

Similarly, the current use of political conditionalities – such as cutting off aid when democracy, human rights, and corruption worsens – is confusing. The definition of democracy and human rights also sometimes is looked upon as mystifying. If the government is weak and the economy of the country is poor, donor agencies impose conditionalities heartlessly. In such a situation, the government’s responsibility is to develop the strength to say ‘No’ if the conditionalities are against the interest of the country and its people.

13.6 Way Forward

Despite the considerable efforts to mobilize limited domestic resources to combat poverty and develop overall growth, Nepal is suffering from the pain of bridging the huge financial gap over the last several years. Despite much talk of the private sector boosting growth to alleviate poverty, no result has come up in a substantive manner. Post-conflict Nepal requires a huge amount of financial resources to bridge the gap between poverty reduction and democracy strengthening. Given the interwoven relationships between poverty and democracy, domestic and foreign resources should be mobilized in that direction. Talking only about democracy - no democratic system prevails. For strengthening democracy, let people be strong enough in terms of food, health, shelter and education. Once these primary necessities are fulfilled, people of the country naturally come forward to strengthen, promote and safeguard the Lokatantra based on a pluralistic society. Protectors of democracy are the citizens of the country. They are sovereign. Let these protectors become capable through immense investment in their health, education, food and infrastructure development. For this, foreign aid plays a role proficient in boosting the strength of the citizens whereby the national political system is enriched, which ultimately harvests the spirit of democracy.

Presently, the Nepali economy is highly dependent on foreign aid due to its limited internal resources. Since the bilateral aid flow is in a decreasing trend, the government does not have another option except accepting multilateral aid. However, in such difficult circumstances, donors have certain grievances with the aid recipient country that are reflected during negotiation and they unfold the files of pre-conditionalities at that time. It is the negotiating team members of the recipient side who must deal with their counterparts. While negotiating with the counterpart team the recipient side must think about the pros and cons of the negotiation and take care of how far the conditionalities are compatible with the national interest. If the terms and conditions set forth by donors are against the public interest, against government policy and against national security, such aid must be rejected.

Reprehensible utilization of foreign aid hinders the development of the human face of democracy. By halting leakages/corruption of foreign aid, appropriate aid utilization must be made through establishing vigilance mechanisms with no political interference at the central and local level.

Government should have a separate master plan on how the country can be sustained financially and economically in the days to come. For its smooth functioning all the national level political parties, should endorse such a plan.

Dissolution of Legislative Parliament, vacant constitutional posts in the Supreme Court, the Commission on Investigation of Abuse of Authorities (CIAA) and the Election Commission are some of the serious concerns that created dilemmas in strengthening democracy in Nepal. Obsolete and weak constitutional bodies cannot reinforce and fortify the democracy. In front of the government there is no way except to work for the underpinnings of democracy in a cohesive manner.

References

[1] Development Cooperation Report, Fiscal Year 2010-2011 - Ministry of Finance, GoN, March 2012.

[2] Economic Survey (2068/2069) Ministry of Finance, Government of Nepal

[3] Ibid

[4] History of US Foreign Aid http://www.bcps.org (Retrieved on 1st Jan 2013)

[5] Alesina, Alberto and David Dollar, 1998. Who Gives Foreign Aid to Whom and Why? Working Paper, National Bureau of Economic Research, Massachusetts.

[6] Wikipedia (Retrieved on 1st Jan 2013)

[7] Three Year Plan (2010/11-2012/2013) National Planning Commission, Government of Nepal.

[8] Ministry of Peace and Reconstruction, Government of Nepal.

[9] Ibid

[10] Nepal Country Report (2011) Survey on Monitoring the Paris Declaration, Ministry of Finance, GoN.

[11] Smith, J.W. 2004. Economic Democracy: The Political Struggle of the Twenty-First Century. Indian Research Press, New Delhi.

[12] Opcit.

[13] Carothers, Thomas et al. 2010. The Elusive Synthesis: Exploring the Changing Relationship between Democracy Support and Development Aid, Washington

[14] Democratic Dimensions of Aid (2009) Global Partners &Associates.

[15] Lekvall, Anna, 2009. Democracy and Aid: The Missing Links.

14. Foreign Aid: a Hot Button Issue

Prof. Dr. Sohan Kumar Karna

14.1 Introduction

What should developing countries do to increase their growth rates and speed up the rates at which their citizens converge to the level of material well-being? Is there any role of foreign aid in this connection or not? Foreign aid, regarded as the flow of finance, human and technological resources from developed to developing countries, has become so well entrenched as a pillar of modern North-South relations that many observers now regard it as an integral part of international law. Rosenstein-Rodan considers foreign aid as a catalyst effect of mobilizing domestic savings and increasing the rate of investment (Rosenstein-Rodan, 1968). W. W. Rostow, Millikan, and P. Hoffman accord a top priority to foreign aid in economic development. Mosley and Boone opine no significant correlation existing between aid and economic growth (Mosley, 1975; Boone, 1996). Foreign aid is a hotly contested issue. Debate has centred on whose interest aid actually serves- the recipients’ or donors’. In developing countries like Nepal, it is publicly held that foreign aid has not brought about the promised social- economic development. On the contrary, aid is believed to have widened the gap between rich and poor. Foreign aid has also been charged with increasing corruption. It is said to have disembowelled the LDCs, their people and governments. It is estimated that about half offoreign aid goes back to donor countries in the form of consultancy or expatriate costs. This is not to mention politicians, bureaucrats and project staff who take away big shares of the total budget of projects. Consequently, such aid hardly reaches the needy and poor people. The issue of grant vs. loan in their effectiveness to promote development of recipient countries has been a matter of great debate. Grants are favoured because of resource poor status and low repayment capacity of poor countries. On the other hand, it is criticized on the ground that grants, being free money, are spent unproductively. Loan is favoured on the ground that it requires repayment and recipient countries will be compelled to use it productively.

Foreign aid is one of the most original political innovations of the twentieth century. Never before have wealthy countries transferred, unilaterally and non-reciprocally, such financial resources to the poorer nations (Therien, 2002). Though there is no debate on the requirements of foreign aid for developing countries the only debate is on the effectiveness of foreign aid. The debate of foreign aid effectiveness is not a current problem. It has been put forwarded since 1950s. Is foreign aid virtue or vice for development? Jeffrey Sachs, Joseph E. Stiglitz, Nicholas Stern and others have argued that although aid has sometimes failed, it has supported poverty reduction and growth in some countries and prevented worse performance in others. They believe that many of the weaknesses of aid have more to do with donors than recipients, and point to a range of successful countries that have received significant aid such as Botswana, Indonesia, and Korea or more recently in Mozambique and Tanzania (Radelet, 2006). Economists like Milton Friedman, Peter Bauer, and William Easterly have levelled stinging critiques, charging that aid has enlarged government bureaucracies, perpetuated bad governments, enriched the elite in poor countries, or just been wasted. They have cited widespread poverty in Africa and South Asia despite three decades of aid, and point to countries that have received substantial aid yet have had disastrous records such as the Democratic Republic of Congo, Haiti, Papua New Guinea, and Somalia. In their eyes, aid programs should be dramatically reformed, substantially curtailed or eliminated altogether. It has continued to fail to promote human development for the eradication of poverty based on the core values of human rights, democracy, gender equality and environmental sustainability. This is despite the appearance of progress in the form of high- profile debt cancellations, new aid pledges, and the signing of the Paris Declaration on Aid Effectiveness. Shikwati rightly observes that aid to Africa does more harm than good. Despite the billions that have poured into Africa, the continent remains poor. Huge bureaucracies are financed (with the aid money), corruption and complacency are promoted, and Africans are taught to be beggars and not to be independent. In addition, development aid weakens the local markets everywhere and dampens the spirit of entrepreneurship that they desperately need (Shikwati, 2005). Erixon’s study has proved that aid fails to fill the gap in Africa and elsewhere. It does not finance additional investment for which the recipient countries failed to marshal domestic resources. It simply frees central government resources for spending on current consumption which in turn fuels corruption. He has further pointed out that overall in Asia aid has not had a significant and positive effect on economic development. Millions of poor people live in India and China, but their economies are growing despite the insignificant role that aid plays in their investment (Erixon, 2005). In most South Asian countries, foreign aid under the benign guise of helping various kinds of development projects has been aggravated. There is no proper accounting system for recording the movement of foreign aid.

On the contrary, amid controversies surrounding aid effectiveness, an increasing number of empirical studies find support for the idea that aid can spur growth and that the aid growth relationship is nonlinear. Lavy and Sheffer (1991) quoted in Robert Lensink and Howard White, examine the cases of Egypt, Syria and Jordan which are now worse off, after years of very high aid inflows, than they were in the early 1970s. High aid inflows exceed those which can feasibly be used in profitable investment and some aid must be consumed. This consumption usually takes the form of consumer subsidies (and perhaps highly subsidized government services). When aid slackens, these policies are not readily reversible (a notion economists call hysteresis). The explanation with the longest history is that aid largely goes to consumption, crowding out domestic savings and investment. The extent of crowding out, if it exists, should be an important consideration in determining the net benefits from foreign aid in terms of whether it increases the rate of economic growth or not (Shields, 2007). World Bank economists David Dollar, A. Craig Burnside and Paul Collier as quoted by William Easterly state that aid can help, but it should be concentrated on countries with good macroeconomic policy and government genuinely committed to improving public services and infrastructure, and stamping out corruption. Easterly (2003) argues that economic research on foreign aid effectiveness and economic growth frequently becomes a political football. But when a regression result is passed from one source to the next, context is often stripped away so that what the result means in public discussion is different than what the original research actually demonstrated.

14.2 Foreign Aid in Nepal

The history of foreign assistance in Nepal begins with an agreement with the USA under the ‘Point Four Program’ in 1951. After joining the Colombo Plan in 1952, Nepal received a considerable amount of aid for various projects from the USSR, China, France, UK, Germany, Canada, etc. In 1976, Nepal Aid Group (NAG) was formed in order to channelize foreign assistance in a coordinated manner under the guidance of World Bank. NAG has enlarged the number of its members like Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Japan, Saudi Arab, Sweden, Switzerland, UK, USA including multilateral donors namely, IDA, WB, IMF, EEC, UNCTAD, UNDP, IFAD, OECD etc. In the mid to late 1980s, recorded aid disbursements averaged more than US$ 200 million annually about 7 percent of GDP. More than 70 percent of the aid was in the form of grants, and the rest was in the form of concessional loans. After the restoration of multiparty democracy many bilateral donors as well as multilateral agencies have been taken keen interest of providing aid in different sectors of Nepal. The bulk of assistance is directed towards developing agriculture, transportation infrastructure and power generation. Other areas targeted for assistance were communications, industry, education and health.

Before the restoration of democracy in 1990, Nepal accepted all kinds of aid as provided but gradually, it was realized that the impact of aid in Nepal has been less effective. Strong voices were raised regarding the misuse of foreign aid leading socio-economic inequalities. In this connection Nepal formulated its first official Foreign Aid Policy, 2002 aiming to reap maximum benefits from aid and to enhance effectiveness of aid in terms of better results and internal resource mobilization. In 1991, Nepal was receiving external assistance in the form of project aid, commodity aid, technical assistance, and program aid. Project aid funded irrigation programs, hydroelectric plants and roads. Commodity assistance targeted fertilizers, improved seeds, and construction materials. Technical assistance covered services of experts to advise the government in training indigenous personnel to perform research in technological fields resulted in the development of skilled labor. Program aid supported various projects, the agricultural and health fields in particular. Nepal relies heavily on foreign aid, and donors coordinate development aid policy through the Nepal Development Forum, whose members include donor countries, and international financial institutions. Japan is Nepal’s largest bilateral aid donor, and the World Bank and Asian Development Bank are the largest multilateral donor agencies. The continuous rise of savings-investment gaps, income-expenditure gap, foreign exchange gap and increase in regular expenditure makes foreign aid indispensable in the economy. In the 1990s foreign assistance accounted for over 10 percent of GDP and was contributing 60 percent to 80 percent of the annual development budget of Nepal.

Nepal’s excessive dependency on foreign aid is an outcome of slow economic growth, lower savings ratio and widespread poverty. On the other hand, liberalization in the external sector has greatly accelerated imports with consequent depreciation of the external value of the Nepali currency. This has further widened the magnitude of trade and current account imbalances. Foreign aid has jeopardized the self-esteem of Nepal and its people. The dependency syndrome pervades the Nepali psyche to such an extent that no mainstream political parties and public officials can conceive of national development without foreign aid. There is foreign aid for observation, for preparing feasibility studies, for its scrutiny, for construction, for O & M and also for the project’s destruction. So Nepal has now accepted foreign aid to manage foreign aid in Nepal (Acharya, 2000).

Foreign aid does not come under the scrutiny of auditing in Nepal with more than one third of total aid outside the orbit of auditing (Khanal and etal., 2008). It shows that foreign aid lacks transparency, accountability and good coordination with aid givers according to our development paradigm and other specified objectives and strategies.

Nepal’s aid dependency is very high, despite more than five and half decades of planned development efforts. The contribution of foreign aid in total development outlay has almost been two thirds as envisaged in the periodic plans. Nepal with the launch of its First Plan (1956-61) joined the league of aid recipient countries for financing its development. A substantial portion of development expenditure, averaging about 55 percent per year, has since been financed through foreign aid. In terms of sectoral distribution, agriculture and forestry have been the largest recipients of aid followed by energy, transport, health, social services and human resource development (Foreign Aid Policy, 2009). During 1980s the foreign aid (grants and loans) was average Rs. 3942.47 million which was increased to average Rs.12989.39 million – about 3 times greater in the 1990s, whereas the real growth rate in 1994/95 price had minor increase from 4.86 percent to 5.1 percent during the same period. It further reduced the growth rate from 1999/2000. Likewise, the foreign aid to percentage of development expenditure was not decreasing to less than nearly 40 percent from 1975/76 to 2004/05; it showed the high dependency on foreign aid for developmental work in the country (MoF, 2006).

14.3 Impact of Foreign Aid on Nepalese Economy

Developing countries of Asia, Africa and Latin America heavily embarked on foreign aid in the form of Official Development Assistance in the aftermath of World War II. Since then, voices have been raised against its non-performance from donors and recipients alike, as it has led to dependency, eroded self-reliance, bred corruption, promoted inequality and “intoxicated” people with its short-term, myopic and unsustainable deliveries. Such criticisms in many instances have proved valid, strongly suggesting the need for a critical re-ook into the current concept, scope, motive, quality, utility and mobilization instruments (Foreign Aid Policy, 2009). Foreign aid has been the mainstay of the Nepalese economy contributing more than 60 percent of the development budget and around 30 percent of the total budget. In Nepal as in many other developing countries, the aid agencies increasingly see themselves as ‘partners’ and not as donors. The term ‘partnership’ assumes symmetrical relationship. However, Nepal continues to remain a highly aid dependent country and Nepal’s relationship with the donors continues to be highly asymmetric. For instance, in 1999 foreign assistance contributed a little less than half the development expenditure, made up almost 6.7 percent of the country’s gross national income, while per capita aid hovered around US$18. Despite the decreasing trend, the aid that Nepal receives is still the highest in South Asia in relative per capita terms and is one of the highest in the world (Sharma and et al, 2003). It is notable that aid has not contributed a single penny to national development. Compared to 1951, when Nepal first received foreign aid, in 1998 the length of roads had increased 43 fold to nearly 12 thousand km, electricity generation increased 230 fold to 252.6 mw. Similar progress is recorded in expansion of health and education services, and in irrigation and communications (Acharya, 2000).

There is no debate on whether Nepal needs foreign aid or not, the prime concern is to raise its productivity through effective utilization of foreign aid. In recent years, major issues like ownership of donor-driven projects in recipient countries, engagement of national experts in lieu of foreign consultants to ensure cost effectiveness, transparency and aid conditional ties have dominated the central stage of development drama orchestrated through foreign aid (Dahal, 2008). The most striking finding is that about a quarter of a dollar received as foreign aid in Nepal has been spent on government consumption and the rest on development expenditures. This is the exact opposite of what Feyzioglu et al. (1998), quoted in Tiwari, found in the study of 14 developing countries – that two thirds of every dollar in aid was used for government consumption in their sample (Tiwari, 2007). Foreign aid has failed to address the continuation of social injustice, class and gender discrimination, unequal distribution of means and resources, and corrupt governance. We are gravely concerned by the fact that faulty implementation of foreign assistance has contributed to further marginalization of the disadvantaged sections of society. We vehemently oppose the national and international experimental development policies that have reinforced derailed governance, economic stagnation, growing poverty and environmental degradation, and bring about further sufferings, exploitation and violent conflicts on women, children, dalits, nationalities, indigenous peoples, the disabled, the Terai people and disadvantaged communities who have been systematically ignored and denied development for decades (Nepal Civil Society Development Forum, 2004). There is apprehension that foreign aid does not trickle down effectively to targeted groups. Crude estimations reveal that 60 percent of total aid has driven back to donor countries in the form of consultant fees and salaries. Foreign aid has aggravated corruption. Patrick Meagher, Kumar Upadhyay and Betty Wilkinson (1998) in Combating Rural Public Works Corruption: Food for Works Program in Nepal, a study prepared for the World Bank, found between 40 percent to 50 percent of the project budget being siphoned out by politicians, bureaucrats, and project staff (quoted by Acharya).

Aid Management in Nepal

Nepal receives official development assistance from over 40 donors including 35 resident agencies. Ministry of Finance is mandated for the overall coordination of foreign aid including its allocation in line with national priorities. The Foreign Aid Coordination Division (FACD) of the Ministry of Finance is empowered, among others to oversee the activities of the government in the area of aid coordination, harmonization and alignment. For the purpose of aid transparency and aid predictability, the Aid Management Platform (AMP), an online web-based information system has been set up in the Ministry of Finance. All development partners have been given access to this and requested to report regularly. In addition, the National Planning Commission, Ministry of Education, Ministry of Health and Population, and Ministry of Local Development have been given pilot access to this system, which will be extended to all ministries receiving foreign aid. The Ministry of Finance is planning to make key aid information available to the public through its website with the help of AMP, and to conduct a number of outreach activities with all concerned stakeholders, including Parliament, civil society and government officials.

Magnitude and Trend of Foreign Aid in Nepal

The official economic assistance was started after an agreement on the “Point Four Program” signed between Nepal and the USA on 23 January 1951 followed by India in 1952, China in 1956 and the USSR in 1958. The trend of foreign aid inflow increased after 1956 with planned development efforts to rationalize the demand for aid, the expansion of international relations and diversifying the source of aid, with the bonus effect of cold war and decline in competitive feelings among donors pushing up the level of aid. Until 1963/64 most foreign aid was provided in the form of grants and afterwards, the trend of foreign aid changed with the inclusion of loans. The structure of foreign aid in Nepal as of 2010/11 reflects that foreign grants constitute 79.17 percent, while foreign loan accounts for 20.83 percent of the total foreign aid during 2010/11 (Annex-1). In the very beginning of the 1960s, some parts of bilateral assistance were in the form of loans but in the mid 1960s, foreign grants replaced loans for all development projects. Most of these grants were on a bilateral basis. Grants from India helped to build the airport in Kathmandu, the Koshi Dam, and various irrigation projects. In the 1970s, multilateral assistance programs started to play an important role in development planning and accounted for more than 70 percent of funding for development planning. By the end of the 1980s, the great majority of foreign aid was in the form of multilateral assistance programs. The major sources of borrowing or grants for these programs were the International Development Association of the World Bank and the Asian Development Bank. Most of these loans could be characterized as soft loans (Sigdel 2004).

During the period 1961-1970, bilateral grants played a predominate role in the structure of foreign aid in Nepal. Foreign aid to Nepal increased substantially in each succeeding decade and reached Rs.22041.8 million in 2005/06 of which grants rose to Rs.13827.5 million and loan was equal to Rs. 8214.3 million. Since the establishment of NAG the composition and trends of aid to Nepal witnessed a dramatic change. The primary factor responsible to rapidly increasing assistance of NAG during 1980s and 1990s was significant growth in the cooperation provided by the multilateral financial institutions.

Figure 1 presents grants and loans in total aid inflow covering the period for 21 years from 1990/91 to 2010/11. In the initial years, grants had been a major component of foreign aid but after that loans had been a major component of foreign aid till 2001/02. Since 2002/03, loans have been dominated by grants and the share of grants in 2010/11 was 79.17 percent and loans was 20.83 percent. In 1991/92, loans occupied 80.4 percent of total foreign aid and the share of foreign grants remained at the lowest position of 19.6 percent of total foreign aid in same year. The share of grants declined to 59.6 percent in 2003/04 and slowly increased to 79.17 percent by 2010/11.

It is observed that total aid increased from 1990/91 to 2006/07 but that there was a nosedive in total aid in 2007/08 and soon thereafter started to increase. The trend of loans from 1990/91 to 2001/02 superseded the trend of grants which implies that during that period, donors had provided many loans to Nepal. But from 2002/03, the portion of grants in total aid started to supersede the loans volume and since then there has been a rising trend of grants with huge cuts in loans revealing that the present trend and pattern of foreign aid is favorable in terms of recipient countries. But the issue is related to the use of inflow of foreign aid which has appeared much poorer. The discrepancy between the accepted assistance and its actual implementation has been a serious matter of concern.

Source: Based on the Annex 2

Revenue/Resource Gap Problem and Contribution of Foreign Aid

Nepal has been experiencing a serious resource gap in its regular and development expenditures. Annex-3 reflects the financial crisis growing each year in Nepal along with the contribution of foreign aid to bridge the gap. The revenue gap in each year since 1990/91 has been increasing leading to reliance on the deficit financing to fulfil its budgetary requirements of regular and development expenditures. In 1990/91 the revenue gap was Rs. 10655.1 million which was 45.24 percent of the total government expenditure. To fulfil such revenue gap the government relied heavily on foreign aid. In order to finance the government expenditure of 1990/91, the government received Rs. 8421.5 million in terms of foreign aid of Rs. 2164.8 from grants and Rs. 6256.7 from loans. Overall contribution of foreign aid on total expenditure in 1990/91 was 35.76 percent showing the heavy dependency on aid. Since 1991/92 there has been an increasing revenue gap and high share of government expenditure financed by external sources. There was a higher percentage of contribution from internal source to finance the total government expenditure and high dependency on the foreign assistance to total expenditure as well.

Aid Commitment and Disbursement

The amount of aid disbursement in comparison of commitment is quite low in Nepal due to low administrative capacity and other factors. There is a widening gap between commitments and disbursements. The gaps are widest in the committed and disbursed grant aid of bilateral agencies; a partial explanation for the wide divergence can be attributed to the poor capacity of the country to come up with matching funds. The country is unable to utilize the total committed aid. This is due to the delay in timely implementation of projects. The main cause of shortfalls in disbursements is the time lag of the projects as aid is committed in one year and the committed aid is being disbursed in many years until the projects are completed. But even more important is the poor institutional capacity for effective aid utilization. Multilateral agencies have disbursed more loans than the committed amount due to political instability, weak negotiation power, weak institutional arrangements for project implementation, rigidity in financial rules and regulations, conditions of donor agencies and lack of co-ordination between government and official donor agency (Karna,2007).

Figure 2 reveals the status of foreign aid commitment and disbursement during the period 1990/91 to 2010/11showing the constant short fall of disbursements against commitments. Only in 1990/91 and 2005/06, did disbursement overflow commitment. The restoration of multiparty democracy in 1990/91 perhaps attracted the donors to disburse the aid which they committed. In 1991/92, Rs. 7800.4 million was disbursed including bilateral as well as multilateral grants and loans, which was 37.0 percent of total aid commitment. During the period from 1990/91 to 2007/08, the low disbursement of Rs. 15885.5 million in 2002/03 was 36.8 percent of the total foreign aid commitment and the highest amount of Rs.5990.0 million was 105.7 percent of the total foreign aid commitment in 1990/91. Over the last eighteen years nearly 61.8 percent of the total aid committed was disbursed. The rising difference between foreign aid commitment and disbursement is mainly due to poor absorptive capacity as well as non performance of Nepalese economy. Donors seek to provide the assistance according to their own priorities. If they do not find foreign aid utilization promising, they will not disburse the committed aid and they even stop providing it. Unless there is substantial improvement in our absorptive capacity, it will be very difficult to fully utilize foreign aid.

Sector wise Composition of Foreign Aid

The sectoral priority in each successive development plan reveals that more than 30 percent of the resources were invested in transportation, communication and power generation projects. Further-more most of these projects were virtually implemented through the donors’ assistance. However, important road projects were implemented not only with the interest of Nepal but also with the strategic interests of India and China. Other donors with no strategic or political interests in Nepal provided their aid for institution building. The emphasis on different sectors like infrastructure development, community development, industrialization, integrated rural development, fulfilment of basic needs, alleviation of poverty, fulfilling millennium development goals might have resulted from the needs of Nepal and policy shifts to the international arena. The sector wise allocation of foreign aid has fluctuating nature not smooth. It has not been allocated according to the target plan due to the strategic interest of the donor countries. India and China proposed certain road projects having strategic importance to them and also benefitting Nepal. Sector wise allocation of foreign aid between 1990/91 to 2010/11 as shown in figure-3, foreign aid involved the entire major sectors of the economy like agriculture, irrigation, forestry, transport, power and communication, industry and commerce, social sectors and others. Before 1998/99, the first priority out of the total aid disbursed was given to agriculture, forestry, industry and commerce, and second priority was given to the social sector but since 2003/04, transport and communication replaced agriculture, irrigation and others.

Source: Based on Annex 5.

Volume of Foreign Aid disbursements, 2010/11

Foreign aid to Nepal is being provided by a diverse group of donors with a reported total dis-bursements amount of US$ 1.08 billion in 2010/11. Approximately 58 percent of aid came from multilateral donors while 36 percent came from OECD-DAC bilateral donors and over 6 percent from bilateral South-South cooperation partners. Table 1 provides the top 5 multilateral and bilateral donor’s disbursement in 2010/11. Sectors receiving over 100 million in disbursement in 2010-11 are education (US$ 202.8 million), local development (US$ 135.1 million), health (US$ 129.6 million) and road transportation (US$ 111 million). Other sectors having around US$ 50 million in disbursements for the previous years are drinking water, electricity, financial reforms, economic reforms and agriculture.

Table 1: Sector-Wise Allocation of Foreign Aid

Multilateral Donor’s	Disbursement (top 5)
World Bank Group	US $ 256.1 million
ADB	US $ 184.4 million
UN Country Team	US $ 112.5 million
European Union(EU)	US $ 42.4 million
Global Fund to fight AIDS,	US $ 19 million
Tuberculosis and Malaria
Multilateral Donor’s	Disbursement (top 5)
United Kingdom	US$ 92.1 million
Japan	US$ 58.7 million
India	US$ 50.7 million
United States	US$ 48.5 million
Norway	US$ 32.8 million

Source: Foreign Aid Coordination Division, MOF, Government of Nepal.

Foreign Aid Disbursements by Type of Assistance*

Nepal’s aid portfolio consists of 3 types namely, grants, loan and technical assistance. Table 2 presents the foreign aid disbursement by type of assistance. Nepal received US$ 618.16 million of grants for 186 projects, US$ 262.02 million of loans for 38 projects, and technical assistance of US$ 199.52 for 258 projects. Out of total foreign aid disbursements, grants occupy the highest (57 percent) followed by loans (24 percent) and technical assistance 19 percent).

Table 2: Foreign Aid Disbursements by Type of Assistance

S.N.	Type	No. Of Projects	Amount in US$ Million	%
1.	Grants	186	618.16	57
2.	Loan	38	262.02	24
3.	Technical Assistance	258	199.52	19

Source: Foreign Aid Coordination Division, MOF, Government of Nepal, 2012.

Sources of Foreign Aid

Nepal started to receive foreign aid after 1951 from three types of donors: bilateral, multilateral and international non government organizations. The first refers to foreign governments or their aid administrating bodies like United States’ USAID, Japan’s JICA, Germany’s GTZ, Switzerland’s SDC, Denmark’s DANIDA, China, India, UK, France, Austria, Australia, and many more. Multilateral donors include international agencies like World Bank, Asian Development Bank, International Monetary Fund and United Nation specialized agencies such as UNDP, FAO, WHO. The third type includes private organizations like Care Nepal, Action Aid and many more. The UN agencies provided mostly technical assistance and grants whereas the International Development Bank provides the hard and soft loans. After the late 1970s, Nepal has been receiving foreign aid mostly from NAG. The volume of aid from bilateral and multilateral sources is presented in figure 4 which shows the bilateral and multilateral sources of aid and their respective proportions in the total aid inflow in Nepal from 1990/91 to 2010/11.

The share of bilateral aid has been gradually decreasing while the share of multilateral aid in the total aid has been gradually increasing. The share of bilateral aid in total aid declined from 49.1 percent in the 1990/91 to 147 percent in the 2000/01, where as the share of multilateral aid in the total aid increased from 50.9 percent in the 1990/91 to 85.2 percent in the 2000/01. But in recent years, the share of bilateral aid has been increasing. The share of bilateral aid and multilateral aid in 2003/04 was 47.6 percent and 52.4 percent respectively. Again, the share of bilateral aid fluctuated to its highest point, 63.4 percent, in 2006/07. But it declined to 44.6 percent in 2010/11. The average percent of bilateral and multilateral aid flow in these twenty years of study are 37.56 percent and 62.48 percent respectively.

Source: Based on the Annex 7

Burden of Foreign Aid

The loan component of foreign aid generates burdens to future generations of the recipient country. The exchange rate depreciation further increases the debt burden of foreign loans if the productivity of the economy does not increase with the inflow of foreign loans. The country may eventually fall into a serious debt trap. The term debt trap denoteshe situation that the government is unable to pay the interest and principal obligation by revenue. In other word, it refers to a situation where debt is repaid only by restoring fresh borrowing. A lower rate of interest would have reduced the volume of net borrowing in the period required for repayment of debt. A long maturity for the debt and hence amortization payments would reduced the annual amount of gross and net borrowing but extended the period of net indebtedness. The greater the amount of foreign aid required, the greater the burden faced. Moreover, if foreign assistance is not used properly, foreign grants also become burdensome to the recipient economy.

Nepal has been borrowing external capital since the early 1960s; debt servicing began only in the late 1960s. Few governments guaranteed loans were carrying comparatively higher rate of interest and a few other direct loans were not mature until the mid 1970s. Nepal’s debt servicing burden has been reduced to some extent by the conversion of some loans into grants. Although Nepal has been receiving foreign loans with a very low rate of interest and the time of maturity periods very long ranging from, 25 to 40 years, the debt burden has been growing consequently.

Based on Annex-8, the net outstanding debt was only Rs. 59505.3 in 1990/91, repayment was Rs. 589.0 and the component of invested was Rs. 497.5 in same years. In 2000/01, the amount of net outstanding debt was RS. 20040.6 million, the repayment was Rs. 4500.6 million and interest was Rs. 1700.8 showing outstanding debt increased by 3.4 times, repayment increased by 7.6 times and total debt service increased by 5.5 times in one decade. In 2010/11, the net outstanding debt accounted in Rs. 259551.8 million The overall economic situation of Nepal up to the 2010/11 shows that Nepal needs more foreign aid in the form of grants. Data shows that there is allocation of foreign aid in different sectors such as agricultural, irrigation and forestry, transport, power and communication, industry and commerce, social services and other sectors. The trend of foreign aid in the form of loans shows that foreign aid is becoming a growing burden amounting to Nepali Rs. 10249.73 of external loan per person. This should be managed properly with the appropriate application of the foreign aid policy with its strategies.

14.4 Contribution of Foreign Aid in Economic Development

Though foreign aid is a much debated, hotly discussed, controversial phenomenon, it is never-theless the most cherished system resulting as the mainstay of developing economies like Nepal. Most of the development expenditures have been financed by foreign grants and loans for the last fifty five years of planned development. Nepal is unable to construct any large and long gestation period projects without foreign aid. It is sine qua non for Nepal to have foreign aid and to attract foreign direct investment to meet development expenditures. Nepal, one of the developing countries, has low savings due to low economic growth, low income, low consumption, and high population growth. Levels of income should be increased to increase the consumption and capital formation. Government should increase the development expenditure to increase the income level of people but since there is lack of internal sources to meet the development expenditure, foreign aid is a necessary component for the economic development of Nepal.

Foreign Aid in Periodic Plans

Nepal has completed ten plans from 1956 to 2007, and one Three Year Interim Plan (TYIP) from 2007 to 2010. Among ten plans only the second plan (1962/63-1964/65) was for three years. There was a plan holiday of one year from 1961 to 1962 because of the fact that the rise of the Panchayat system and the dissolution of multi party system in 1960 largely affected the operation of second plan. The three year plan was followed by consecutive five year plans from 1965/66 to 1989/90 during the partyless panchayat system. The eighth, ninth and tenth plans were operated under the multiparty system. There was again a plan holiday for two years due to restoration of the multi party system in 1990. The plan holiday for two years and a change in political system after 1990 significantly affected the evaluation of seventh plan. At present a three year plan (2010/11-2012/13) is being implemented. In these plans the need for socio-economic transformations have been underlined, with different stresses in each of them.

It is observed that foreign aid occupies two thirds of total development expenditure on average in all periodic plans. The development expenditure of first plan was completely financed by foreign aid. On average about 25 percent of government expenditure in every annual budget of Nepal has been financed by foreign aid. It is observed from figure 5 that the contribution of foreign aid as percentage of development expenditure has gradually decreased from 100 percent in the first plan to 45 percent in the fourth plan. After fourth plan, the percentage of foreign aid has fluctuated. In the eighth plan it was reached to 65.5 percent and decreased by 53.1 percent in ninth plan. In the tenth plan, it reached to 57.5 percent of development expenditure and slowed down to 50 percent in TYIP.

Source: Based on the Annex 9

Sector wise Foreign Aid

Though it is complex to measure the contribution of foreign aid in different sectors due to multidimensional effects in the economy nevertheless the contributions of foreign aid in sector wise development where they are heavily financed are justified.

1 Transport and Communication Sector Nepal has recorded impressive achievements of foreign aid inflow to the expansion of transport and communication. Perhaps this sector is only area where the most of the donors have involved themselves. The bilateral donors notably India, China USSR, UK, USA, and France have undertaken road construction projects. In addition, multilateral donors such as the UNDP and the World Bank have also contributed construction of road network. By the end of 2010/11, a total of 9902 km blacktopped, 5670 km gravelled and 7637 earthen road totalling 23,209 km roads were constructed. Out of a total 966 km length of road constructed by India include Kunauli-Pokhara 200 km, east-west high way with eastern position of 354 km between Kakadbhita and Dhalkewar including the Western sector of 250 km between Butwal and Kohalpur, Koshi area road of 42 km, Kathmandu-Trishuli road of 69 km, and Kathmandu-Godawari road of 16 km have been completed with Indian assistance. The Kathmandu-Kodari highway of 104 km and other important highways have been constructed by China. Likewise USA and USSR have constructed the Dhangadi-Dadeldhura road of 133 km, and Janakpure-Simara Road of 110 km respectively and UK has given important contribution to road network in Nepal. The share of road constructed by foreign assistance is 11.70 percent. Beside these, India and other countries have constructed many smaller airports in various parts of the country (Annex 10). The transportation system has a positive impact on the socio-economic life of the people of the country. The transport and communication infrastructure mentioned above represent the symbol of economic development efforts made through foreign aid.

2 Agriculture, Irrigation and Rural Development Based on the Annex 11, the largest amount of foreign aid inflow to Nepal is targeted for the irrigation projects. The Sunsari Morang Irrigation project was financed US $ 83.3 million by donors and only a small portion of project was financed by the government of Nepal i.e. US $ 12.6 million. Hence, foreign aid flow played an important role for the construction of a major irrigation project. These irrigation projects helped to increase the productivity of agriculture and living standards of the Nepalese people.

3 Industrial Sectors The industrial development shows a high contribution of foreign aid inflow into its development. Lead manufacturing units have been established with foreign assistance. These units have changed industrial composition and modern technology in the manufacturing activities. Table 3 shows the foreign aid inflow in industrial sector. Industrial estates in Balaju, Patan, Dharan, Nepalgunj, Hetauda, and industrial units like Birgung Sugar Mill, Lumbini Sugar Mill, Janakpur Cigarette Factory, Agriculture Tools Factory, Harrisiddi Bricks and Title Factory, Bhirkuti Paper Mill, Bansbari Leather and Shoe Factory are some of the lead investments made by donors like India, USA, China, and Russia to Nepal.

Table 3: Foreign Aid Inflow in Industrial Sector

S.N	Name of the Industry	Donor Country
1.	Industrial Estate in Patan	India
2.	Industrial Estate in Dharan	India
3.	Industrial Estate in Nepalgunj	India
4.	Industrial Estate in Balaju	USA
5.	Industrial Estate in Hetauda	USA
6.	Bansbari Leather and Shoe Factory	China
7.	Harrisiddi Bricks and Title Factory	China
8.	Bhirkuti Paper Mill	China
9.	Lumbini Sugar Mill	China
10.	Birgunj Sugar Mill	Russia
11.	Janakpur Cigarette Factory	Russia
12.	Agriculture Tools Factory	Russia

Source: Industrial Property Bulletin 2009, Ministry of Industry

4 Power Development Sector The contribution of foreign aid inflow is very important in the domain of power development in Nepal. The hydropower potential in Nepal is estimated to be 83000 mw, of which about 43000 mw is commercial potential. When the first plan was started, the economy processed 2.077 mw of hydro power, 4.203 mw of diesel, 55.020 mw of thermal power and 100 kw of solar power. This adds up to 611.529 mw of total production. It is significant to note that almost all the hydropower projects are assisted with partial co-ordination of foreign assistance. Rs. 56348.48 million of foreign assistance was spent for all major projects. These projects have helped to generate hydroelectricity in Nepal. The major projects notably Kulekhani, Marshangdi, Kaligandaki, are financed by foreign assistance (Annex-12).

5 Social Sector Developments Although it is difficult to measure the effect of foreign aid inflow quantitatively in social sectors due to absence of statistical data, it has brought great change in the quality life to the people in the country. Undoubtedly, foreign aid has played an important role in providing health, education and drinking water facilities with implementing family planning programs successfully. Foreign assistance in education has increased the literacy rate from 4.4 percent in 1954, 11 percent in 1971, 53.7 percent in 2001 and 60.9 in 2011. Since 1975, various donor agencies notably, World Bank UNDP, the Japanese and the Norwegian governments have been assisting to expand and improve the water supply system in Nepal. Similarly, in the health sector, different donor agencies are playing a significant role. Before the implementation of the first plan the number of hospitals was only 23 but in 2007/08, the number of hospital reached 94, health centres 8, health posts 699, Ayurvedic Service Centres 293, sub-health posts 3104 and primary health centres 201. Different donors have provided significant assistance in the development of the social sector in Nepal. Table 4 represents education projects heavily financed by foreign assistance. The share of donors’ contribution to each project is more than the contribution of Government of Nepal. In the basic and primary education projects, government financed only US $ 5 million whereas foreign aid in that project was US $ 120.00 million. Similarly, ADB is financing US $ 19.6 million in Teacher Education Project, ADB and DANIDA are financing US $ 60.00 million in Secondary Education Support Program, Japan is financing US $ 17.2 million in Primary Education Physical Facility Program, and WFP and World Bank are financing US $ 33.24 million and US $ 5.11 million respectively in the education sector which is comparatively very high in comparison to the contribution of government investment in educational sector.

Table 4: Donors of Different Project / Programs in Education Sector (US$ in Millions)

S.N	Projects	Donors Name	Donors Contr.	GON	Total
1.	Basic and Primary Education	WB, DANIDA,UNICEF	7.36	NA	NA
2.	Basic and Primary Education	DFID, EUNORAD,FINDIA,UNICEF	120.00	5.00	125.00
3.	Secondary Education Development Project	ADB, DFID, UK	34.00	NA	NA
4.	Education for all Program	DANIDA, DFID,NORAD, FINIDA, WB	158.00	NA	NA
5.	Teacher Education Project	ADB	19.6	6.3	25.9
6.	Secondary Education Support Program	ADB, DANIDA	60.0	14.83	74.83
7.	Primary Education Physical Facility Program	JAPAN	17.2	1.6	18.8
8.	Higher Education Second project	WB	60.00	NA	NA
9.	Food Education Project	WFP	33.24	3.84	37.88
10.	Common School Support Project	WB	5.11	NA	NA
11.	Teacher Education Project	DANIDA, DFID, UK	7.21	1.8	15.52
12.	Higher Education Second Project	NORAD, FINIDA, WB	50.00	NA	NA

Note: NA denotes not available Source: Ministry of Education, 2009

6 Bilateral Donors and Their Priority Sector Nepal’s bilateral donors include Australia, Austria, Belgium, Canada, China, Denmark, France, Germany, India, Japan, Korea, Netherlands, Norway, Saudi Arabia, Sweden, UK and USA. They have their own priority areas of aid inflows as revealed in Table 5.

Table 5: Bilateral Donors and Their Sector wise Involvement

Donors	Date	Sectors
China	2002	Health, Sports, Road, Industry , Commerce, Hydro power, Irrigation
Denmark	2001	Education, Health, Forestry, Dairy, Livestock, Telecommunication,
		Agriculture, Institution Building
Germany	1998	Health Education, Industry, Power, Forestry, Livestock, Seed, Institution
		Building, Local Development, Structure Adjustment, Advisory Service
Australia	1998	Health education, Air Transport, Forestry, Institution Building and
		Rural Development
Austria	2003	Drinking Water, Restoration or Archaeology, Monuments, Small Hydro Power
USSR	1994	Education, Road, Industry
Sweden	NA	Through Multilateral Agencies
Belgium	1996	Telecommunication
Canada	2001	Health, Education, Air Transport, Agriculture Rural Development
Japan	2005	Water supply, Education, Health, Horticulture, Sericulture, Store,
		Institution Building, Road, Radio, Commodity Assistance,
		Telecommunication, Hydropower, Electricity Distribution
Finland	1999	Health, Water supply, Power, Forestry, TV, Telecommunication, Agriculture,
		Institution Building
India	2009	Health Education, Drinking Water, Hydropower, Irrigation, Road,
		Air Transport, Industry, Horticulture, Veterinary, Advisory Service
Netherlands	1987	Health, Earthquake Relief, Road, Forestry, Local Development, Bio-gas,
		Bee Keeping
Switzerland	1998	Education, Resettlement, Health, Dairy Cheese, Veterinary, Road,
		Small Hydropower, Forestry, Local Development
Italy	NA	Through EEC only
United Kingdom	2002	Education, Health, Water Supply, Storage, Tea, Institution Building, Road,
		Air Transport , Forestry
United States	2004	Education, Health, Institution Building, Forestry, Irrigation, Local Development,
of America		Economic Liberalization, Democracy

Source: Donors Profile 2009/10, Ministry of Finance, Government of Nepal

7 Multilateral Donors and Their Priority Sector Multilateral donors participating in aid inflow to Nepal are ADB, EU, IFAD, ILO, IMF, OPEC, UNDP, UNESCO, UNFPA, and WB. Each multilateral donor has its own priority sector for the aid inflow as revealed in Table 6.

Table 6: Multilateral Donors and Their Sector wise Involvement

Donors	Date	Sectors
WHO	2008	Social (Health, Drinking Water, Institution Building)
UNDP	2007	Social (Education, Health, Drinking Water), Forestry, Agriculture,
		Industry, water Resources (Irrigation, Hydropower), Other (Institution
		Building, Decentralization, Policy support)
UNICEF	2008	Social (Health, Drinking water, Institution Building)
OPEN Fund	1997	Social (Education), Water Resources (Irrigation, Hydropower),
		Transport (Road and Air Transport), Balance of payment
IFAD	1997	Agriculture, Water Resources (Irrigation), Forestry, Others
		(Rural Development)
Kuwait Fund	1986	Water Resources (Hydropower)
ADB	2001	Social (Education, Drinking Water), Transport (road and Air Transport),
		Water Resources (Irrigation, Hydropower, Electricity Transmission),
		Agriculture (Cotton, Livestock, Horticulture, Agri-Credit, Institution
		Building), Forestry and Industry
EEC	1999	Social (Drinking Water, Sewerage), Agriculture (Credit, Training, Livestock,
		Crop, Storage), Water Resources (Irrigation, Hydropower, Transmission,
		Watershed), Commerce, Local/Rural Development, Institution building
WB	1997	Social (Education, Drinking Water Supply, Settlement), Agriculture(Extension,
		Research, Crop, Institution Building, Storage), Water Resources (Irrigation,
		Hydropower), Transport (Road), Industry (Credit, Institution Building),
		Foreign, Other (Rural Development )
UNFPA	1998	Social (Health and Population)
SDF	2002	Water Resource (Irrigation, Hydropower), Transport(Road Transport),
		Other (Food Assistance)
IME	2003	Monetary Economy

Source: Donors Profile 2009, Ministry of Finance, Government of Nepal

14.5 Challenges of Foreign Aid

A crucial question arises whether foreign aid should be continuous or should be stopped after crossing a critical phase. Undoubtedly, foreign aid should be used properly at the appropriate place. Donors and recipients should be careful about the problems of the recipient country. In spite of reported huge aid inflows, there remains a large gap between the need and aid availability due to mis-targeting, emergency situations, aid diplomacy and unfair trade. Donors’ political and economic interests coupled with their disharmonising aid policies have made aid inadequate, inefficient and ineffective. But provided the recipients ensure good governance, aid has immense potentiality. Donors should have conditions, provide better terms of trade, ensure aid harmonization, and address emergencies. The major challenges for proper utilization of foreign aid include absence of transparent and clear-cut vision in foreign aid policy, low aid disbursement in comparison to commitment due to low administrative capacity, corruption, insurgency, political and business motives of donors, inefficient bureaucracy, lack of proper record keeping, challenge for implementation according to commitment, lack of good governance and political instability. Poverty is the result of the failures of government policy. Unemployment remains high because of inappropriate economic policies. Despite the various efforts made by Nepal through periodical plans in the past, the development efforts have fallen behind to meet the expectations of poverty reduction and growth. This is mainly due to the national savings and investment gap. To bridge this gap, foreign aid is very crucial for the economy. Its economic importance lies in the fact that foreign aid provides resources for the national budget and also helps meet the gap between excess of imports in and exports of goods and services. Indeed, hardly any economic activities of government do not have an element of foreign aid attached to them; aid is all pervasive to the country. Significant political, social and economic policy are planned and conducted along with foreign aid. This horizontal and vertical pervasiveness in national economic management transcends into noneconomic spheres of Nepal too, including social, political and regional dimensions and also through its overall redistributive effects. Hence, the grant element in foreign aid need to be enhanced and its use needs to be prioritized. Overall, rational utilization of foreign aid should be a matter of constant review. The role of foreign aid should be examined in terms of development concept embracing growth, distribution, survival and self-reliance. Foreign aid has played a significant role in removing transport and communication bottlenecks, industrial viciousness and agricultural backwardness. To be very specific, almost all the highways and communication networks, public industrial enterprises, agricultural and rural development projects, and development institutions are undertaking foreign aid. But at the same time it is to be noted that most of the development projects financed through foreign assistance are neither able to accomplish the targeted goals nor establish the ownership of government and people in such development projects. Debt liability is on the increase. The foreign debt of Nepal counts for more than 28.7 percent of GDP (CBS, 2012).

14.6 Concluding Remarks

While the effect of development aid shows positive indications, some negative effects are also there. As mentioned before, lessons can be drawn from experiences of the past, both to increase the efficiency of aid and to increase the ratio of utilization of foreign aid. The objective of foreign aid is to promote recipient country’s economic development up to a point, where a self-sustaining rate of economic growth can be achieved. In Nepal, the volume of aid has been increasing each year; the number of donors has also been increasing. There has been a change in the composition of aid and no sectors of the economy remain untouched by foreign aid. It has formed an integral part of development. Over the years, foreign aid has financed a considerable part of Nepal’s growth. Nepal has the highest degree of foreign aid as a percentage of government expenditure in South Asia. Foreign aid has shown to be associated positively with a rise in national output, and with the rate of growth of the economy. Encouraging the private sector to handle foreign aid resources, with the government functioning as a facilitator, may bring about an increase in the efficiency of foreign aid. This would increase the efficiency of aid disbursement by reducing the tendency of aid to strengthen the government sector and curbing the government behaviour of using foreign aid to pursue socially non optimal agenda. Domestic resource mobilization has to be strengthened but ways to increase it requires drastic modifications in the behaviour of the government. Saving is an inter temporal decision. Households tend to think of not only the present but also the future in making their consumption decision. A strong government commitment to maintaining a conducive environment for investment would be a shot in the arm for domestic resource mobilization. Economic liberalization is a welcome step in this regard and should be pursued further. The role of government is noteworthy. The government should be more efficient. A strong endeavour has to be made to develop a clear economic vision. Rather than financing a multitude of projects it cannot afford, the government should clarify its mission and focus its resources. Ever since the government began to receive aid, the capacity to utilize the committed amount of aid productively continues to remain as a crucial problem. This shows low absorptive capacity resulted in political instability, lack of commitment of ruling authorities, bureaucratic delays and absence of institutionalization of development administration, corruption and lack of proper management of development projects.

As described earlier, a country has an “absorptive capability” determined by its institutions and its capital, human or otherwise. Aid disbursement beyond this limit is bound not to have an effective impact. Developing factors that determine the absorptive capacity of Nepal may be the order of the day. The government should streamline its institutions, prepare personnel (both through training of its staff and through spending in the social sector to equip the population in providing skilled manpower), ensure an open environment for entrepreneurship and commit itself to maintaining a healthy economic climate. Such actions that strengthen the private sector and bolster macroeconomic management will not only pay dividends in an increased willingness of the donor countries to disburse more capital in the form of foreign aid, but also increase the effectiveness of the institutions and process that determine the efficiency of foreign aid already disbursed.

In order to make foreign aid more effective and efficient, some aspects that need to be considered are: priority lists for proper utilization of foreign aid, selection of projects with full commitment regarding their objectives, substantial improvement in the absorptive capacity of foreign aid, establishment of an effective administrative department for aid evaluation, technical assistance on facilitating the implementation of large projects, maintain transparency and accountability, improvement and enhancement of project management efficiency, control of corruption, formation of proper co-ordination, evaluation, and monitoring mechanisms. In this regard, donors need to shift their allocations with fewer conditional ties, promptly address emergencies, provide better terms of trade, and ensure harmonization of aid.

14.7 Annexes

Annex 1: Grant and Loan in Total Aid Inflow of Nepal (Rs in Millions)

Fiscal Year	Total Aid	Grant	% of Grant	Loan	% of Loan
	Inflow		in Total		in Total
1961-1970	163.97	159.53	96.86	4.80	2.89
1971-1980	701.85	447.13	68.36	253.39	31.64
1981-1990	3549.97	1197.28	36.04	2709.14	63.06
1991-2000	11932.35	3740.06	31.34	8193.29	68.66
2000/01	18797.04	6735.04	35.09	12044.00	64.01
2001/02	14384.08	6686.02	46.05	7698.06	53.05
2002/03	15885.05	11339.01	71.03	4546.04	28.07
2003/04	18912.04	11283.04	59.06	7629.00	40.04
2004/05	23657.03	14391.02	60.08	9266.01	39.02
2005/06	22041.08	13827.05	62.07	8214.03	37.03
2006/07	25854.03	15800.08	61.01	10053.05	38.09
2007/08	29300.06	20320.07	69.03	8979.09	30.7
2008/09	3635.17	2638.28	72.57	9968.09	27.42
2009/10	4976.94	3854.60	77.45	11223.04	22.55
2010/11	5799.78	4592.22	79.17	1207.56	20.83

Source: Economic Survey FY 2010/11; FY 2011/12, Ministry of Finance, GON.

Annex 2: Total Aid Inflow in Nepal (Rs in Millions)

Fiscal Year	Total Aid	Grant	Percentage	Loan	Percentage
	Inflow		of Grant		of Loan
1990/91	5990.0	1630.0	27.2120	4360.0	72.7880
1991/92	7798.4	1531.0	19.6322	6267.4	80.3678
1992/93	9235.6	3273.9	35.4487	5961.7	64.5513
1993/94	11557.2	2393.6	20.7109	9163.6	79.2891
1994/95	11249.4	3937.1	34.9983	7312.3	65.0017
1995/96	14289.0	4825.1	33.7679	9463.9	66.2321
1996/97	15031.9	5988.3	39.8373	9043.6	60.1627
1997/98	16457.2	5402.6	32.8282	11054.6	67.1718
1998/99	16198.0	4336.6	26.6514	11852.4	73.3486
1999/00	17523.9	5711.7	32.5938	11812.2	67.4062
2000/01	18797.4	6753.4	35.9273	12044.0	64.0727
2001/02	14384.8	6686.2	46.481	7698.6	53.5190
2002/03	15885.5	11339.1	71.3802	4546.4	28.6198
2003/04	18912.4	11283.4	59.6614	7629.0	40.3386
2004/05	23657.3	14391.2	60.832	9266.1	39.1680
2005/06	22041.7	13827.4	62.7329	8214.3	37.2670
2006/07	25854.3	15800.8	61.1147	10053.5	38.8850
2007/08	2930.7	20320.7	69.35	8979.9	30.65
2008/09	3635.2	26382.8	72.58	9968.9	27.42
2009/10	4976.9	38546.0	77.45	1122.34	22.55
2010/11	5799.7	4592.2	79.17	1207.56	20.83

Source: Economic Survey FY 2010/11; FY 2011/12, Ministry of Finance, GON.

Annex 3: Revenue Gap Problem and Contribution of Foreign Aid (Rs in Millions)

FY	Total Expend.	Total Revenue	Revenue Gap	(Internal) Revenue	(Internal) Loan	Grants (FA)	Loan(FA)	Sum (FA)	Contr. of FA in Total Expend.(%)
1990/91	23549.8	12894.7	10655.1	10729.9	4552.7	2164.8	6256.7	8421.5	35.76
1991/92	26418.2	15156.5	11261.7	13512.7	2078.8	1643.8	6816.9	8460.7	32.03
1992/93	30897.7	18941.7	11956	15148.4	1620.0	3793.3	6920.9	10714.2	34.68
1993/94	33597.4	21974.4	11623	19580.8	1820.0	2393.6	9163.6	11557.2	34.40
1994/95	39060.0	28512.3	10547.7	24575.2	1900.0	3937.1	7312.3	11249.4	28.80
1995/96	46542.4	32718.2	13824.2	27893.1	2200.0	4825.1	9463.9	14289.0	30.70
1996/97	50723.7	36361.8	14361.9	30373.5	3000.0	5988.3	9043.6	15031.9	29.63
1997/98	50118.3	38340.5	11777.8	32937.9	3400.0	5402.6	11054.5	16457.1	32.84
1998/99	59579.0	41587.6	17991.4	37251.0	4710.0	4336.6	11852.4	16189.0	27.17
1999/00	66272.5	48605.5	17667	42893.8	5500.0	5711.7	11812.2	17523.9	26.44
2000/01	79835.1	55647.0	24188.1	48893.6	7000.0	6753.4	12044.0	18797.4	23.55
2001/02	80072.2	57131.6	22940.6	50445.5	8000.0	6686.1	7698.7	14384.8	17.96
2002/03	84006.1	67568.9	16437.2	56229.8	8800.0	11339.1	4546.4	15885.5	18.90
2003/04	89442.6	73614.4	15828.2	62331.0	5607.8	11283.4	7629.0	18912.4	21.44
2004/05	102560.4	84513.9	18046.5	70122.7	8938.1	14391.2	9266.1	23657.3	23.07
2005/06	110889.2	86109.6	24779.6	72282.1	11834.2	13827.5	8214.3	22041.8	19.88
2006/07	133604.6	103512.9	30091.7	87712.1	17892.3	15800.8	10053.5	25854.3	19.35
2007/08	161349.9	127943.2	33406.7	107622.5	20496.4	20320.7	8979.9	29300.6	18.16
2008/09	219662.0	169857.3	49804.7	143474.5	18417.1	26382.8	9968.9	36351.7	16.55
2009/10	259689.1	218491.7	41197.4	179945.8	29914.0	38545.9	11223.4	49769.3	19.16
2010/11	295363.4	245741.2	49622.2	199819.0	42515.8	45922.9	12075.6	57998.5	19.63

Source: Various Issues of Economic Surveys, MOF, GON; Various Issues of Quarterly Economic Bulletins, NRB, Nepal

Annex 4: Status of Foreign Aid Commitment and Disbursement(Rs. in Millions)

Fiscal Years	Total Commitment	Total Disbursement	Disbursement as Percent Commitment
1990/91	5665.0	5990.0	105.7
1991/92	21084.1	7800.4	37.0
1992/93	1990/91	5665.0	45.0
1993/94	13172.2	11537.2	87.5
1994/95	12876.9	11249.4	87.4
1995/96	16537.3	14289.0	86.4
1996/97	39643.0	15031.9	37.9
1997/98	32022.1	16457.1	51.4
1998/99	18352.5	16189.0	88.2
1999/00	20448.0	17523.9	85.7
2000/01	31287.0	18797.4	60.0
2001/02	33227.7	14384.8	43.3
2002/03	43202.7	15885.5	36.8
2003/04	23738.0	18912.4	79.7
2004/05	38152.3	23658.3	62.0
2005/06	20924.2	22041.8	105.6
2006/07	37022.9	25854.3	69.8
2007/08	49186.2	29300.6	59.6
2008/09	47975.3	36351.7	75.8
2009/10	96609.5	49769.4	51.5
2010/11	106100.7	57997.8	54.7

Source: Economic Survey FY 2010/11; FY 2011/12, Ministry of Finance, GON.

Annex 5: Sector wise Allocation of Foreign Aid (Percentage of Foreign Aid)

Sectors	Agricultural Irrigation and Forestry	Transport, Power and Communication	Industry and Commerce	Social Services	Other Sector
FY 1990/91	20.9	42.9	23.2	11.1	1.7
1991/92	24.9	31.8	27.8	15.2	0.1
1992/93	20.8	42.6	7.5	28.8	0.1
1993/94	47.5	36.0	3.3	12.7	0.1
1994/95	30.7	40.6	4.2	23.8	0.4
1995/96	23.7	56.3	0.1	18.4	1.2
1996/97	18.8	56.5	0.1	24.3	0.1
1997/98	17.3	54.6	1.2	26.8	0.6
1998/99	20.9	48.7	2.4	27.4	0.3
1999/00	18.3	46.5	1.7	33.0	0.3
2000/01	20.0	49.1	0.1	30.6	0.1
2001/02	22.8	41.0	2.5	32.5	1.2
2002/03	13.7	48.9	2.5	33.5	1.3
2003/04	12.9	40.0	0.8	46.2	0.2
2004/05	11.0	41.7	0.5	45.4	1.4
2005/06	10.8	32.3	0.5	50.5	5.9
2006/07	14.4	25.8	0.5	58.7	0.7
2007/08	13.2	23.0	0.3	62.1	1.6
2008/09	6.3	17.3	0.4	67.9	8.0
2009/10	6.2	23.7	0.7	66.3	3.0
2010/11	5.1	25.6	0.6	62.7	6.0

Source: Economic Survey FY 2010/11; FY 2011/12, Ministry of Finance, GON.

Annex 6: Sector wise Disbursements, 2010-11

S.N.	Primary Sector	Actual Disbursements(US$)	Percentage (%)
1.	Education	202,848,741	18.79
2.	Local Development	135,065,879	12.51
3.	Health	129,633,812	12.00
4.	Road Transportation	110,991,413	10.28
5.	Drinking Water	52,892,075	4.90
6.	Electricity	50,356,227	4.66
7.	Economic Reform	48,555,621	4.50
8.	Financial Reform	47,950,476	4.44
9.	Agriculture	45,942,238	4.26
10.	Peace and Reconstruction	37,123,694	3.44
11.	Others-Social	28,921,179	2.68
12.	Irrigation	27,987,133	2.59
13.	Forest	26,283,742	2.43
14.	Alternative Energy	25,676,483	2.38
15.	Livelihood	18,059,999	1.67
16.	Constitutional Bodies	16,337,157	1.51
17.	Women, Children and Social Welfare	15,908,852	1.47
18.	Supplies	11,690,565	1.08
19.	Urban Development	10,993,918	1.02
20.	Population and Environment	8,496,158	0.79
21.	Energy	5,498,107	0.51
22.	Others-Economic	4,480,460	0.41
23.	Miscellaneous	3,016,347	0.28
24.	Commerce	2,057,779	0.19
25.	Labor	2,057,020	0.19
26.	Financial Services	1,828,387	0.17
27.	Policy and Strategic	1,594,183	0.15
28.	Communications	1,358,376	0.13
29.	Industry	1,340,663	0.12
30.	General Administration	1,303,040	0.12
31.	Revenue and Financial Administration	529,010	0.05
32.	Tourism	687,659	0.06
33.	Youth, Sports and Culture	685,964	0.06
34.	Planning and Statistics	604,237	0.06
35.	Meteorology	524,039	0.05
36.	Air Transportation	286,070	0.03
37.	Hydro Electricity	134,721	0.01
38.	Land Reform and Survey	9,128	0.001
	Total(462 Projects)

Source: Foreign Aid Coordination Division, MOF, GON.

Annex 7: Foreign Aid from Bilateral and Multilateral Sources(Rs. In Millions)

Fiscal Years	Total Aid	Bilateral Aid	Multilateral Aid	Percent of Bilateral Aid	Percent of Multilateral Aid
1990/91	59990.0	2939.9	3050.1	49.1	50.9
1991/92	7800.4	3597.3	4203.1	46.1	53.9
1992/93	9235.9	3638.5	5597.1	39.4	60.6
1993/94	11537.2	2627.1	8930.1	22.7	77.3
1994/95	11249.4	3988.7	7260.7	35.5	64.5
1995/96	14289.0	3533.3	10755.7	24.7	75.3
1996/97	15031.9	6012.7	9019.2	40.0	60.3
1997/98	16457.1	6297.7	10159.4	38.3	61.7
1998/99	16189.0	4167.6	12021.4	25.7	74.3
1999/00	17523.9	4929.1	12594.8	28.1	71.9
2000/01	18797.4	2771.2	16026.2	14.7	85.3
2001/02	14384.8	4675.3	9709.5	32.5	67.5
2002/03	15885.5	10044.4	5841.1	63.2	36.8
2003/04	18912.4	9013.2	9899.2	47.6	52.4
2004/05	23657.3	9230.8	14426.5	39.0	61.0
2005/06	22041.8	7658.4	14383.4	34.7	65.3
2006/07	25854.3	16406.4	9447.9	63.4	36.6
2007/08	29300.6	10207.7	19092.9	34.8	65.2
2008/09	36351.7	9333.1	27018.6	25.7	74.3
2009/10	49769.4	22901.5	26867.9	46.0	54.0
2010/11	57997.8	25850.4	32147.3	44.6	55.4

Source: Economic Survey FY 2010/11; FY 2011/12, Ministry of Finance, GON.

Annex 8: Foreign Loans and Debt Servicing (Rs. in Millions)

Fiscal Years	Net Outstanding Debt	Repayment	Interest Payment	Total Debt Service
1990/91	5950.3	589.0	497.5	1086.5
1991/92	70923.9	942.2	722.7	1664.0
1992/93	87420.8	1252.9	879.0	2131.9
1993/94	101966.8	1468.2	1020.5	2488.7
1994/95	113000.9	1828.2	1156.5	2984.7
1995/96	128044.4	1987.7	1316.6	3304.3
1996/97	132086.4	2102.4	1247.0	3349.4
1997/98	161208.0	2780.2	1421.0	4201.2
1998/99	169465.9	3196.5	1549.0	4745.5
1999/00	190691.2	3681.1	1640.3	5321.4
2000/01	200404.4	4500.6	1700.8	6201.4
2001/02	202125.6	4751.4	1816.1	6567.5
2002/03	223433.2	5497.5	2021.7	7519.2
2003/04	232779.3	5767.1	2141.8	7908.9
2004/05	219641.9	5954.5	2146.8	8101.3
2005/06	233968.6	6987.5	2163.9	9151.4
2006/07	216628.9	7538.8	2055.7	9594.5
2007/08	249965.4	7869.4	2145.3	10014.7
2008/09	277040.4	10120.3	2373.7	1249.4
2009/10	256242.3	10743.0	2458.1	13201.1
2010/11	259551.8	12218.1	2321.9

Source: Economic Survey FY 2010/11; FY 2011/12, Ministry of Finance, GON.

Annex 9: Share of Foreign Aid to Development Expenditure in Periodic Plans(Rs. in Millions)

Plan Period	Development Expenditures	Foreign Aid	Percentage of Foreign Aid
1st plan (1956-61)	382.9	382.9	100.0
2nd plan (1962-65)	641.7	478.5	74.5
3rd plan (1965-70	1639.1	919.8	56.1
4th plan ( 1970-75)	3356.9	1509.1	45.0
5th plan (1975-80)	8870.6	4624.1	52.2
6th plan (1980-85)	21750.0	13260.0	61.0
7th plan (1985-90)	48345.4	23978.5	49.6
8th plan(1992-97)	111919.8	49203.0	44.0
9th plan (1997-02)	2151454.5	111546.0	51.8
10th plan ( 2002-07)	234030.0	134620.0	57.5
Interim plan (2007-10)	28030.1	14066.0	50.1

Source: National Planning Commission

Annex 10: Road Construction by India, China and Other Donors

Name of the Road	Kilometer	Donor
Tribhuvan Rajpath	116	India
Sunauli-pokhara	200	India
Koshi Area Road	42	India
East-West Highway	504	India
Dakshinkali Road	19	India
Kathmandu-Godawari Road	16	India
Kathmandu-Trishuli	69	India
Kathmandu-Kodari Highway	104	China
Kathmandu-Bhaktpur	13	China
Gorkha-Narayanghat Highway	61	China
Pokhara-Baglung Highway	73	China
Kathmandu Valley Ring Road	28.2	China
Hetuda-Narayanghat Highway	83	ADB
Dhangadi Road	135	USA
Janakpure-simara Road	110	USSR
Butwal-Narayanghat Road	113	UK
Dharan-Dhankuta Road	52	UK
Jogbani-Dharan Road	67	UK
Koteshwor-Suryabinyak Road	10	Japan

Source: Road Statistics 2000-2010, Department of Road

Annex 11: Foreign Aid Flow in Major Irrigation Projects (US $ in Millions)

S.N	Projects	Foreign Aid	GON	Total	Donors	Irrigation
1.	Sunsuri Morang Irrigation	83.4	12.4	96.0	WB,IDA	41550
2.	Nepal Irrigation Sector
	Programmer	97.7	23.8	103.0	WB	59600
3.	Bagmati Irrigation Projects	25.4	25.9	51.3	SDF, Japan	37000
4.	Paganna Irrigation	4.6	0.8	5.5	KFARD	10460
5.	Mahakali Irrigation	41.2	7.7	49	WB	11600
6.	Rajapur sector Program	16.6	4.1	20.7	ADB	15000
7.	Irrigation Sector Program	26.4	3.3085	33.0	ADB	63400
8.	Narayani Irrigation program	NA	NA	NA	WB	24700
9.	MarchwarShipt Irrigation Program	5.6	0.7	7.4	UNCEDR	7600
10.	East Rapti Irrigation	NA	NA	NA	ADB	8516
11.	Kankai Irrigation Project	NA	NA	NA	ADB	7000
12.	Kamala Irrigation Project	NA	NA	NA	ADB	2500
13.	Chitwan Irrigation Project	NA	NA	NA	ADB	10400
14.	Munusmara Irrigation Project	NA	NA	NA	ADB	58000
15.	Banganga Irrigation Project	NA	NA	NA	ADB	6500
16.	Mohana Irrigation Project	NA	NA	NA	Korea	3500
17.	Dhawalagri Irrigation Project	5.5	0.9	5.5	Denmark	2196
18.	Community Irrigation Project	7.6	0.9	8.8	IFIDA	48000
19.	Community Underground				ADB,
	Irrigation Project	32.8	5.3	42.8	SIDA	69000

Note: NA denotes not available Source: Department of Irrigation

Annex 12: Foreign Aid Flow in Hydropower Sector of Nepal (Rs. in Millions)

S.N	Project Name	Donor Agency, Loan No. **	Loan Amount
1.	Kulekhani Hydro- Electricity Project	WB,OECF,TDA	114.363
2.	Small Hydro Project	ADB512,NEP(SF)	303.08
3.	Marshyangdi Hydroelectric Project	FFW,IDA,SODI	4841.236
4.	HetaudaBiratnagar 123K.V.T.L	ADB447,NEP(SF)	197.213
5.	ButalNepalgunj 123K.V.T.L	ADB533,NEP(SF)	192.883
6.	Seventh Power project	ADB 1011,NEP(SF)	2300.925
7.	Sixth Power Project	ADB1011, NEP(SF)	781.432
8.	Fifth Power Project	ADB670,NEP(SF)	462.487
9.	Fifth Power Project	NDF/FEC129	960.84
10.	Power Sector Efficiency project	NDF2347	2636.956
11.	KhimtiBhaktapur Project 123K.V.T.L	NDF 223	135.38
12.	HetaudaGandak 123K.V.T.L	ADB249,NEP(SF)	47.95
13.	Biratnagar Distribution system	ADB447,NEP(SF)	36.651
14.	Marshyangdi Project (Interst)	GON	1056.789
15.	Loss reduction project	IDA1478	346.335
16.	BharapurPokhara 123K.V.T.L	ADB250,NEP(SF)	3.678
17.	Nepalgunj Mahendranagar 123K.V.T.L	French Loan	115.114
18.	DumkibasButal 123K.V.T.L	French Loan	56.94
19.	Marshyangdi 123K.V.T.L	ADB708,NEP(SF)	74.118
20.	AttariyaDipayal 66K.V.T.L	French Loan	15.41
21.	Modikhola Hydropower Project	Korea	851.801
22.	Kaligandaki Hydropower Project	ADB 1452, NEP	12432.64
23.	Kulekhani Dister Prevention (I)	OEFC Japan	1664.878
24.	Demebrebesishar/HV Spare parts	NDF37	344.888
25.	Kulekhola Disaster Prevention(II)	JIBC,NEP-6	15895.426
26.	Loand Dispatch Center Extension Project	KFW	1449.474
27.	Kaligandaki Hydropower Project	JBIC	9029.729

Source: Nepal Electricity Authority (2000-2010)

References

Achary, Keshav P. 2000. “Review of Economic Policies and Economic Reforms Undertaken by the Government”, Development Challenges for Nepal, Part II, Nepal Foundation for Advanced Studies, Embassy of Finland, Kathmandu.

Boone, Peter, A. 1973. The Political Economy of Growth, Penguin Books, United Kingdom.

CBS, 2012. SAARC in Figures, CBS, NPCS, GON.

Dahal, Madan Kumar, 2008. Foreign Aid in Nepal: The Changing Context, a paper presented at a symposium organized by Central University of Sikkim in Co-operation with Nepal-India BP Koirala Foundation, Gangtok, India.

Easterly William, 2003. “Can Foreign Aid Buy Growth?” Journal of Economic Prospective, Vol. 17, No. 3, pp.23-48

Erixon Fredrik, 2005. Aid and Development: Will It Work This Time? International Policy Network.

Foreign Aid Policy, 2009. a draft for discussion at the Nepal Development Forum Stakeholders’ Consultation Meeting, Ministry of Finance, Government of Nepal.

Karna, Sohan Kumar, 2007. “ An Inflow of Foreign Aid in Nepal “, The Economic Journal of Nepal, Vol. 30, No. 4, Issue No. 120, Central Department of Economics, T.U., Kirtipur, Kathmandu, October-December 2007.

Khanal, Dilli Raj, Laxman Acharya, and Dilli Ram Upreti, 2008. Role and Effectiveness of Foreign Aid under PRSP in Nepal, Action Aid Nepal and Institute for Policy Research and Development.

Lensink Robert and White Howard, 1999. “Are There Negative Returns To Aid?”

Ministry of Finance, 2006. Economic Survey, 2005/06, Ministry of Finance, GON.

Ministry of Finance, 2011. Economic Survey, 2010/11, Ministry of Finance, GON.

Ministry of Finance, 2012. Economic Survey, 2011/12, Ministry of Finance, GON.

Mosley, Paul, 1975. “A Model of Public Fiscal Behaviour in Developing Countries: Aid, Investment and Taxation”, American Economic Review, Vol. 65, USA, July.

Nepal Civil Society Development Forum, 2004. “National Sovereignty, People’s Pride: Foreign Aid, A Universal Right”, Civic Declaration We, the 400-plus delegates of Nepal Civil Society Forum for NDF-2004, Kathmandu, May 3-4.

Radelet Steven, 2006. “A Primer on Foreign Aid”, a working paper number 92, Centre for Global Development.

Rosenstein-Rodan, P. N. 1968. “The Consortia Technique” in Bhagwati, Jand R. Eckuas (eds), Foreign Aid , Penguin Books.

Sharma, Sudhindra, Koponen Juhani, and Hansen Annette Skovsted, 2003. “Preliminary Proposal on Partnership of Nordic and Japanese Aid in Nepal”

Shield, Michael P. 2007. “Foreign Aid, and Domestic Savings: The Crowding Out Effect”, Discussion Paper 35/07, Monash University, Business of ISSN 1441-5429.

Shikwati James, 2005. “For God’s Sake, Please Stop the Aid!” Press release No. 05/59.

Sigdel, B. 2004. “Foreign Aid in Nepal, in Madan Kumar Dahal (ed), Nepalese Economy Towards Building a Strong Economic Nation-State, Central Department of Economics, Tribhuvan University and New Hira Books Enterprises, Kirtipur.

Thérien, Jean-Philippe, 2002. “Debating Foreign Aid: Right versus Left”, Third World Quarterly, Department of Geography, Royal Hollway, Vol.23, No. 3.

Tiwari, Sailesh, 2007. “Putting Money Where the Mouth Is: Does Aid To Nepal Finance What the Donors Say They Want To Finance?” Himalayan Journal of Development and Democracy, Vol. 2, No. 1.

15. Does Foreign Aid cause Gross Domestic Product? Empirical Evidence

Dr. Kamal Raj Dhungel

15.1 Preamble

Nepal is becoming an aid dependent country. It is because of its limited resources to invest in socio-economic development. Infrastructure projects require huge investments that the government is incapable of providing. “Successful development requires public investments, but governments in impoverished countries are often too cash strapped and too indebted to finance the requisite investments. When the government is unable to build the roads, a power grid and other basic infrastructure the private sector languishes. This results in a fiscal policy trap in which poverty leads to low public investments and low public investments reinforce poverty. This kind of fiscal collapse is one of the most important causes of economic development failures in the poorest countries” (Sachs, 2008, p.223). In Nepal, the private sector is reluctant to invest in infrastructure because of the long gestation period bound by the risk of political instability. This leaves the country’s economic development in the hands of foreign investment. All development activities in Nepal, small or big, have largely been influenced by foreign aid. At the beginning, aid in the form of grants played an important role in the construction of infrastructure projects and establishment of some of the key basic industries. But foreign assistance in the form of grants has been changing over time. Grant at large is being replaced by loans as bilateral donors are gradually changing into multilateral. In this context, this article aims to investigate the causal relationship between GDP and foreign aid in the short and long run. In the Nepalese context, a few similar studies were conducted to investigate the causal relationship between energy and electricity consumption and GDP (Dhungel 2008, 2011), and the causal relationship between GDP and other macro economic variables such as remittance, export earning, tourism earning (Dhungel, 2012).

15.2 Historical antecedent

After World War II, foreign aid has played a significant role in meeting the financial requirements of developing countries of the world. Aid was invented to rebuild Europe and it worked (Collier, 2007 p.106). At the beginning, the aid flowed to construct war devastated infrastructure. Slowly, foreign aid transformed from constructing war devastated infrastructure to new infrastructure projects such as road, bridges, powerhouses, airports and so on with an aim to improve the economic development of backward countries. From the beginning of the mid twentieth century, as a poor country Nepal started receiving foreign aid with an increased volume over the years. More specifically, Nepal has been a recipient of foreign assistance since 1952 when it joined the Colombo plan for Cooperative, Economic, and Social Development in Asia and the Pacific. Agriculture, transportation infrastructure and power generation absorbed the major part of assistance received in the form of grants while other sectors included industry, communication, education and health. India and the USA were the major donors followed by China, Russia, Switzerland, Australia and New Zealand. During the 1950s, many Nepalese students received scholarships through the Colombo Plan to go to different countries to study various technical and professional courses (Wikipedia, 2013).

Development projects, until the mid 1960s were totally financed by foreign grants. The grants were based on bilateral cooperation. Table 1 presents some of the worthy projects operated under grant.

Table 1: Development projects undertaken during 1950s and 1960s

Countries	Projects operated under grants
India	Tribhuvan international airport, Kosi and Gandak dam, and various
	other irrigation and road projects.
Former Soviet Union	Cigarette and sugar factories, hydro electric plant, a part of east west high way.
China	Road construction, a trolley bus line, leather and shoe factories.
USA	Village development, agriculture, education, public health and NIDC.

From the beginning of the 1960s, Nepal borrowed loans from multilateral sources also but the size and extent of loans as compared to bilateral grants were negligible.

Rate of change of foreign aid over each decade is diminishing, however, the rate of increase in the volume of aid is alarming (Table 2). Historical data further makes it clear that foreign aid in the 1980s was Rs. 17.9 billion up from Rs. 1.7 billion in 1970s, an increase of 952.9%. This figure in 1990s and 2000s has reached Rs. 68.5 billion and Rs. 181.2 billion with the percentage change over each decade is 281.8% and 164.5% respectively.

Table 2: Amount of aid by decades

Decades	Amount in billion rupees	% change over the decade
1970s	1.7*	-
1980s	17.9	952.9
1990s	68.5	281.8
2000s	181.2	164.5

Source: Economic survey, various issues.

*includes the aid amount after 1974

15.3 Aid in conflict and post-conflict period

The Maoist insurgency started in 1996 and ended in 2006. At the beginning, the insurgency affected three hill districts of the Mid-western Development Region, which later in 2000 spread all over the country. Since then the country swirled into a conflict trap stalling almost all the infrastructural development activities. Resources had to be diverted from development to defense during the war and to peace restoration after the war which is yet to be achieved. During the war (1996-2006), Nepal received a total of Rs 167.8 billion as foreign aid which surpassed the total amount received in three decades - the 1970s, 1980s and 1990s. And the trend of post-conflict foreign aid has been at sprint over the years the amount standing at Rs. 131.1 billion during the 2007-2011 period. The amount just over five years is nearly the amount received during the ten year conflict period. “In more recent times, the mistake with aid to post conflict situations has been that it has become too little and too soon. Yes too soon. The peace settlements hit the media and politicians hit their check books. Aid floods in the first couple of years and then rapidly dries up” (Collier, 106). In contrast to Collier’s statement, Nepal has been receiving aid continuously from both bilateral and multilateral sources at an increasing rate after the restoration of peace.

15.4 Governance and policies

The country is in political deadlock because of the lack of consensus and constitution. After four years of failure, the constitution assembly dissolved after failing to come up with a new constitution. Many constitutional entities are without constitutional head. The government has no power to fill in positions because of the lack of consensus among political parties. Viewed from this angle, it can be said that the government has a head but no heart to function properly.

Nepal is getting worse over time. Lack of a proper leader with good vision and farsightedness has pushed the country into unknown crisis. The system is broken. The inefficient are promoted while efficient suffer. There are no jobs, thus a mass of youths fly abroad daily in search of greener pastures. There is a lack of good governance while rule of law is out of order, is crowded out by the anarchy. Corruption is rampant. The corruption index in 2012 was 27. The value of corruption index ranges from 0-100 where 0 and 100 indicates high and low corruption respectively (Transparency International 2012). Controlling measures are deliberately forced and overridden by political power.

The economic policies (if any) conducive to investment through foreign capital are based on the liberalized economic system. Market is unable to capture their universal economic law which is considered a prerequisite for the liberalized economic system to function. Governance and policies can make the role of market effective, but the political uncertainties cripple these economic laws.

15.5 Economic growth

Governance and economic policies help shape the economic performance, but there is an asymmetry in consequences of getting them right and getting those worse. Excellence governance can help the growth process. Good governance helps the country to realize its opportunities, but they cannot generate opportunities where non-exist and they cannot defy gravity (Collier, 64). Nepal has neither good governance nor policies to drive economic growth. Nepal’s economic growth remains stagnant or even deteriorating over the years while its neighbors grow at a double digit rate. International experience is that if a country’s neighbors grow by additional 1% the country grows at an additional 0.4% if landlocked and 0.7% if coastal. Nepal, being a landlocked country with neighbors having double digit growth rate per annum for more than two decades, must have grown at least by 0.4% as much as them. But due to the factors mentioned above and other reasons, Nepal’s growth rate has been disappointing, if not disheartening, over those years. This poses serious questions: In which sectors did the increased volume of aid utilized? Who are the beneficiaries? If aid was utilized in those sectors which can produce growth and generate employment, the country would become as prosperous as our neighbors are. Neither of the economic sectors are well functioning. Although, Nepal is a land locked country, one can assume that it is in a land locked trap. Its prosperity solely depends on its neighbors. Overseas trade depends on the neighbours governance, attitude and policies. It limits the export oriented growth. Given this constraint, aid should be utilized in those sectors that can generate additional growth and hence employment.

15.6 Aid and Inequality

As discussed, aid is considered as an antibiotic in achieving higher level of growth rate. For a poor country like Nepal with six development traps — political impasse trap, conflict trap, bad-governance trap, hydropower (single most development potential resource) development trap, landlocked trap and financial trap, aid is the only option to deal with fiscal imbalances. On the brighter end, if aid could be utilized in the construction of infrastructure, education and health and other productive sectors, there would be better economic growth and hence better employment. The balanced utilization of aid primarily depends on the governance and policies that a government has designed to follow. Good, sound and stable policies are needed for the rational use of aid. With unsound and unstable policies the aid will only aid those in power and not the economy. The aid will only make the rich richer and poor poorer thus aiding inequality. One standard measure of inequality is the Gini coefficient. If income is shared in proportion among the population, the bottom 10% gets roughly 10% of the income, the bottom 20% gets 20% and so forth, then the Gini coefficient would be zero. There would be no inequality. On the other hand if all the income went to one portion of the population, the Gini coefficient would be one, in some sense perfect inequality. More equal societies have Gini coefficient 0.30 or below. The most unequal societies have Gini coefficient 0.50 or above (Stiglitz, 23). Featuring high income inequality with a Gini coefficient of approximately 0.50 indicates that Nepalese society is highly divided. It indicates that the upper 20% of the society earns 80% of the total national income. The remaining 20% of national income goes to the people of bottom 80%. Among other things, foreign aid is partly responsible for the terrible inequality in distribution of income. This is because of the policy lacuna. The more unequal the society is, the more unstable the economy, leading to social unrest. Stiglitz (83) further remarks that, “Widely unequal societies do not function efficiently and their economies are neither stable nor sustainable in the long run. When one interest group holds too much power, it succeeds in getting policies that benefit itself rather than policies that would benefit society as a whole”.

15.7 Empirical results

Before applying higher econometric methods to the data of selected variables Gross Domestic Product (GDP here after) and foreign aid (FA here after), it would be suitable to give the descriptive statistics. The table below shows the average values of the variables (mean and median), range, and standard deviation (the dispersion of data around their mean). Kurtosis is a measure of whether the data are peaked or flat relative to a normal distribution. Skewness is a measure of symmetry, or more precisely, the lack of symmetry (Table 3).

Table 3: Descriptive statistics

Statistics	FA	GDP
Mean	8128.122	567117.3
Median	4728.7	297782
Maximum	28197.9	10063596
Minimum	26.5	131061.8
Std. Dev.	8052.411	1588207
Skewness	0.84475	5.847617
Kurtosis	2.55724	35.48336
Jarque-Bera	4.829876	1887.25
Probability	0.089373	0.0003
Sum	308868.6	21550456
Sum Sq. Dev.	2.40E+09	9.33E+13
Observations	38	38

The association between GDP and FA

GDP and FA data, covering the period 1974-2011, are expressed in logarithm. They move in the same direction. It can be seen in Figure 1 which exhibits their positive association. This reveals that FA has some level of positive impact on GDP. The association between them is examined with the help of time series data covering the period 1974-2011 in Figure 1.

OLS results

The regression coefficients (table 4) are statistically significant. The coefficient 0.1758 is individually significant as indicated by t-statistics and its corresponding probability value. This value represents the coefficient of FA elasticity. It shows that a 1% change in the FA will change the GDP by 0.1758%. In another way we can say that an increase of additional one rupee of aid in the Nepalese economy will increase the GDP by 17 Paisa other things remaining constant. The R-square is 0.66 meaning that 66% variation in GDP has been explained by FA. It reveals that the GDP growth of Nepal primarily depends on the FA.

Table 4: Regression results (Dependent variable LGDP)

Independent variable	Coefficient	Std. Error	t-Statistic	Prob.
C	11.00857	0.419856	26.21988	0.0002
LFA	0.175815	0.055779	3.151985	0.0034
AR(1)	1.829017	0.425286	4.300677	0.0001
R-square	0.66	F-stat	33.049	0.0003

Time series data and their relevance

It is necessary to conduct a number of econometric tests to examine the causality between GDP and FA. These tests include unit root, co-integration, causality and so on. Time series data contain unit root in their level. It means that data are non-stationary. After first difference they would become stationary. Co-integration test is applied to see the long run relationship between GDP and FA. This test determines the number of co-integrating equation. Vector Error Correction model which itself automatically converts time series data from their level to first difference is applied to determine the long run and short run causality between GDP and FA.

Lag Length

In order to undertake all the tests as described above it is necessary to determine the lag length. Akaike Information Criteria (AIC) is used to determine the lag length. The lag length is 3 (Table 5) at which the AIC value is least among the values of 5 lags period.

Table 5: Lag length criteria

Lag	AIC
0	4.901723
1	1.387663
2	1.443301
3	1.301051*
4	1.503054
5	1.468823

• indicates lag order selected by the criterion

The Co-integration test

Table 6 exhibits the result of the co-integration test. Trace statistic shows that there is one co-integration equation at 5% level of significance. It means GDP and FA have at least one long run relationship. If the variables, FA and GDP are co-integrated they have causal relationship either in short run or in long run or both. The short and long run causality can be examined by running the vector error correction model.

Table 6: Co-integration test (Trace statistic in columns 3-5 and Max-Eigenvalue statistic in columns 6-8)

H0	H1	Value	CV(0.05)	Prob	Value	CV(0.05)	Prob
r=0	r=1	15.89118	15.49471	0.0436	13.07701	14.26460	0.0764
r=1	r=2	2.814174	3.841466	0.0934	2.814174	3.841466	0.0934

Trace test indicates 1 cointegrating eqn(s) at the 0.05 level Max-eigenvalue test indicates no co-integration at the 0.05 level Series LGDP, LFA

Vector error correction model

There are two models – model 1 and model 2. The dependent variable in model 1 is GDP and independent variable is FA. Model 2 is the opposite. Table 7 presents the results of vector error correction model. In model 1 the coefficient of ECM - 1 is positive. This coefficient is significant at the level of 10%. Only the coefficient of FA-2 is statistically significant at 5% level individually. In model 2 FA in first difference is taken as the dependent variable. The coefficient of ECM-1 is negative and significant at 10% level. However none of the remaining coefficients are statistically significant.

Table 7: Results of vector error correction model; Model 1 with Dependent variable d(LGDP), Model 2 with Dependent variable d(LFA)

Independent	Coefficient	Stand.	t-stat	Prob	Coeffic.	Stand.	t-stat	Prob
variable	d(LGDP)	error d(LGDP)	d(LGDP)	d(LGDP)	d(LFA)	error d(LFA)	d(LFA)	d(LFA)
ECM-1	1.124706	0.636709	1.766436	0.0891	-0.309198	0.160406	-1.9276	0.0649
d(LGDP-1)	-3.545767	3.691697	-0.96047	0.3457	0.152977	0.160294	0.954352	0.3487
d(LGDP-2)	-2.390936	3.684797	-0.64887	0.5221	-0.229185	0.16157	-1.41849	0.1679
d(LGDP-3)	0.423092	3.611513	0.117151	0.9076	0.200001	0.173826	1.150578	0.2604
d(LFA-1)	-0.069823	0.250079	-0.2792	0.7823	1.135108	2.366279	0.479702	0.6355
d(LFA-2)	-0.752588	0.25207	-2.98563	0.0061	1.285001	2.361857	0.544064	0.591
d(LFA-3)	-0.34941	0.271191	-1.28843	0.2089	0.663269	2.314884	0.286524	0.7767
Constant	0.539534	0.322864	1.671088	0.1067	-0.037163	0.206947	-0.17958	0.8589

Short and long run causality

Table 8 shows the vector error correction model. The error correction coefficient denoted by ECM-1 is positive. This coefficient must be negative as a necessary condition and should be statistically significant as the sufficient condition to have long run causal relationship between GDP and FA. From the outcome of the VECM it is found that the error correction coefficient ECM-1 is positive meaning that it could not fulfill the necessary condition for long run relationship. But it is significant at 10% level which is the sufficient condition for the long run equilibrium. It indicates that FA will not cause GDP in the long run. Let us view on the short run equilibrium. Wald test is applied to examine the short run equilibrium. The coefficient of chi-square of the Wald test is statistically significant at 5% level meaning that FA causes GDP in the short run.

Model 2 is opposite of Model 1. In Model 1 GDP is dependent variable for a set of lagged independent variable while in Model 2 FA is the dependent variable for a set of independent lagged variables. The coefficient of error correction ECM-1 is negative and statistically significant. It means it meets both the conditions- necessary and sufficient for long run equilibrium. The speed of adjustment for disequilibrium is 30.91% per year in the long run. In other words the long run equilibrium will reach in approximately 3.3 years. However, there is no short run equilibrium. The chi-square test is not significant.

Table 8: Outcome of Vector Error correction model (Short run: Wald test, and long run: ECM-1

	Wald test			ECM-1
	Chi-square	df	Prob	coefficient	t-stat	Prob
model 1	11.8096*	3	0.0081	1.1247**	1.7636	0.082
model 2	0.5263	3	0.913	-0.3092**	-1.9276	0.0649

(*) and (**) significant at 5% and 10% level respectively.

15.8 Conclusion

Nepal has and will continue to receive aid turning itself into if not already an aid dependent country. Since the beginning of mid 1950s it has received aid from both bilateral and multilateral sources which has increased over time. Foreign aid at the beginning in the form of grants was effective as the grants entailed import of technology as well as skilled manpower from the grant providing countries. Minimal involvement of local authorities and the government in these projects resulted in good management with the projects being timely accomplished with great effectiveness. However, in latter years, foreign aid changed its form from grants to loans - aid without transfer of technology and manpower. This led to increased involvement of the government and authorities. The government itself managed the aid and employed its own, if not borrowed technology and manpower. The management of grants was largely characterized by the lack of governance and rampant corruption. This prevented aid from producing any good results. Moreover the Maoist insurgency that not only stalled the development of infrastructure for ten years but also destroyed the one that already existed diverted the resources of the country to defense. The country has not been able to utilize grants in development and growth ever since as the peace process still hasn’t come to a conclusion with resources being spent on writing the new constitution unsuccessfully in six years. The government is busy building consensus among political parties while the majority of public institutions are without a constitutional head to perform properly. Nepal has been receiving aid at an increasing rate regardless of any political turmoil. After the peace process started in 2006, Nepal has received more foreign aid than ever. Unfortunately the foreign aid has not been utilized in any of development activities but rather in solving political disagreements. This has led to lack of opportunities in the country. Citizens, businessmen and youths are frustrated. The majority of youth have flown abroad in search of earnings. Businesses hesitate to invest as the future is uncertain and the risk is high. For this reason, the empirical finding does not show any sign of long run equilibrium. But FA has a significant role in economic growth as indicated by the elasticity coefficient. In such a scenario, it would not be wrong to conclude that foreign aid is not working in Nepal. The more the aid is the greater the economic imbalance and higher the debt. Without prosperity from economic activities it is impossible to achieve growth and for that more than anything the country needs stability. Foreign aid is not the answer to the growth of Nepal.

References

Collier, P. 2007. The Bottom Billion, Oxford University Press, NY.

Dhungel, K. R. 2012. On the Relationship between Remittance and Economic growth, Evidence from Nepal, South Asia Journal, no. 6, NJ, USA, pp.52-67.

Dhungel, K. R. 2011. A Causal Relationship between Electricity Consumption and Economic Growth in Nepal, Finance India Vol, XXV, No. 4 pp. 1273-1284.

Dhungel, K. R. 2008. A Causal Relationship between Energy Consumption and Economic Growth in Nepal, Asia Pacific Development Journal 15(1), pp.137-150.

Wikipedia. 2013. Foreign Aid to Nepal (Online)

Transparency International, 2013. Corruption Perceptions Index 2012 (Online)

Sachs, J. 2008. Common Wealth, Economics of Crowded Planet, Penguin Books.

Stiglitz, J. E. 2012. The price of Inequality, Penguin Books, New Delhi, India.

16. Donor Obligation for Public Sector Reform in Nepal

Ganesh P. Adhikari, PhD and Prabhash Devkota

Abstract Donor obligation is the donor role expected by the recipient. As a developing country, Nepal is characterized by inadequate governance. As a result of the globalization of governance, Nepal has been making efforts for improving governance mostly supported by donor agencies since the 1990s. In this context, this paper aims to assess the necessity of donor-support for improving democratic governance; to analyze the appropriateness of donor-support for civil service reform; and to identify the level of efficiency of development actors in demonstrating good governance in Nepal.

This article is heavily based on secondary data. However, the data related to the ‘appropriate donor-support for civil service reform’ are derived from secondary analysis based on the raw data collected during the researcher’s own PhD work (Adhikari, 2011). The study reveals that donor-support is highly necessary for strengthening local authorities and civil society organizations. Financial support and policy advice are necessary for strengthening local authorities — the best performers of good governance among development actors in Nepal. Only policy advice is required for reforming new areas of civil service such as merit-based bureaucracy and performance incentives. The highly complex issue of civil service reform is corruption control for which all kinds of donor-support (policy advice, financial advice and technical assistance) are required in Nepal.

16.1 Public Sector Governance in Nepal: An Overview

Public sector governance refers to the governmental institution that includes a network of donor-recipient as well as public-private partnerships and a set of rules and regulations for managing public affairs under the paradigm of inclusive democracy. This section devotes itself to describing the causes of inadequate governance, recent efforts for improving governance and reviewing the role of donor support for reforming governance.

Causes of Inadequate Governance

In Nepali context the causes of poor governance can be viewed from two dimensions: (i) administrative culture; and (ii) political and economic situation. For understanding the administrative culture from a theoretical perspective, it is relevant to view Nepal from Rigg’s model. From Rigg’s perspective, the Nepali society could be considered as a prismatic society that is neither fused (traditional) nor diffracted (modern). Nepal as a prismatic society, it is characterized by formalism, heterogeneity, overlapping of organizational structures, nepotism, and polycommunalism. As a developing country, Nepal’s administration is characterized by a discrepancy between prescriptive and descriptive, between formal and effective power, between the impression given by the constitution, laws and regulations and the actual practices (Prasad and Manohar, 1991). Such discrepancy is also known as formalism. This theory indicates that the crisis of governance is a key feature of a prismatic society like Nepal.

Dhungel and Ghimire (2000) highlighted several cultural traits of Nepali administrative culture as causes of poor governance. To them, Nepali administrative culture is characterized by feudal structure of bureaucracy, patron-client relationships in service delivery, nepotism and favorism, Chakari (buttering), buck passing, unnecessary secrecy, recognition of corrupt behavior, risk avoidance, distorted role perception, process orientation, absence of enthusiasm, and double standard (the gap between preaching and practice).

Another dimension of the causes of poor governance in Nepal is its political and economic situation. To the United Nations System (UNS, 1999), the main reason of inadequate good governance in Nepal was its climate of continuous political instability. Nepal conducted four parliament elections after 1990: in 1992, 1994, 1999, and 2008. No government ran in full term. To DFID/Nepal (2005), the main causes of poor governance in Nepal were poverty, social exclusion, wide spread corruption and the Maoist insurgency.

Efforts for Improving Governance in Nepal

After the restoration of democracy, the constitution of the Kingdom of Nepal was promulgated in 1990 guaranteeing a multiparty policy, a constitutional monarchy, people’s sovereignty and fundamental human rights. The constitution recognizes the importance of decentralization, the equitable distribution of economic resources, the rights and welfare of children and the uplifting of economically and socially deprived communities. In practice, however, a great deal remains to be done towards translating these clauses into reality.

In the spirit of the democratic constitution, several legal Acts were passed and institutions created for improving governance in Nepal. They were: (a) Karya Bibhajan Niyamabali 2047 (Business Allocation Rules 1990); (b) Karya Sampadan Niyamabali 2047 (Transaction of Business Rules 1990); (c) Administrative Reform Commission 1991; (d) Civil Service Act 1993; (e) Civil Service Regulations 1993; (f) Civil Service Reform Act 1994; (g) Human Rights Commission Act 1996; (h) Human Rights Commission 1999; and (i) Local Self-Governance Act 1999.

The council of ministers is responsible for directing, controlling and regulating the country. The council of ministers has to conduct government business on the basis of two rules: Karya Bibhajan Niyamabali that allocates the functions for different ministries and the Karya Sampadan Niyamabali that, though confidential, defines the working procedure of the cabinet, ministers and constitutional bodies.

In 1991, a high level Administrative Reform Commission was formed under the chairmanship of Prime Minister Girija Prasad Koirala. The report of this commission was devoted to recommending an efficient, economical and people-oriented governance system and more specifically in the line of “reinventing government”.

For reforming civil service, the Civil Service Act was passed in 1993, Civil Service Regulations in 1994 and Civil Service Reform Act in 1994. Similarly for improving human rights, the Human Rights Commission Act was passed in 1996 and the Human Rights Commission was created in 1999.

Several donor agencies including United Nations System (UNS, 1999) appreciated the Local Self-Governance Act 1999, considering it a significant breakthrough in reducing administrative inefficiencies and promoting decentralization or the empowering of local authorities. But, Shrestha (2000) concluded that the Local Self-Governance Act 1999 is just an “old wine in a new bottle”, because it is just a compiled single volume of three separate Acts of local bodies — the VDC Act, the DDC Act and the Municipality Act—promulgated in 1991. However, the Local Self-Governance Act aims at strengthening local institutions in terms of financial autonomy, making them directly accountable to the people.

Apart from making legal provisions and creating institutions, the Government of Nepal has also incorporated policy issues of governance reform in its development plans. The Ninth Plan (1997-2002) is the first plan document pronouncing the policy of governance. The plan contains a separate chapter on good governance and management. The Tenth Plan (NPC, 2003) document appreciates the Ninth Plan’s progress in policy reforms in the areas of decentralization, civil service reform, corruption control, tax reform, public expenditure reform, financial sector and infrastructure reform. These reforms are also incorporated in the Tenth Plan (NPC, 2003).

Decentralization: To create a legal framework of decentralization, the Local Self Governance Act was enacted in 1999. To reform institutional framework, a high level Decentralization Implementation Monitoring Committee (DIMC) was set up.

Civil Service Reform: To make the civil service more results oriented as well as people oriented, a long term Governance Reform Program (GRP) was initiated. For right-sizing the civil service, the Government of Nepal froze more than 12000 vacant positions during the Ninth Plan period.

Corruption Control: For addressing corruption practices, “four anticorruption legislation were passed by the Parliament …[and] a Judicial Property Probe Commission was also established” (NPC, 2003:18).

Tax Reform: For improving revenue collection, a Value Added Tax (VAT) was introduced and the Income Tax Act was revised. For strengthening tax administration, The Departments of VAT and Taxation was amalgamated into one.

Public Expenditure Reform: A Public Expenditure Review Commission (PERC) submitted its comprehensive report to the Finance Minister in 2001. PERC recommended, among others, to formulate the Medium Term Expenditure Framework (MTEF) that was adopted in the budget of fiscal year 2002/03. Government has formed various task forces to look into implementing the recommendations made by the PERC (ESP, 2001).

Financial Sector: For reforming the financial sector, a Financial Sector Strategy Statement (FSSS) was prepared in 2001. The reform programs of FSSS are now (during 10th plan period) being implemented to strengthen the autonomy of the Nepal Rastra Bank and to place two major commercial banks under external management.

Infrastructure Reforms: Some reforms were initiated in the Ninth Plan (1997-2002) period to encourage private sector participation in infrastructure, particularly in power, telecommunications, education, health, and rural infrastructure (NPC, 2003).

Important reform initiatives taken during the study period include: allowing the private sector entry into the generation, transmission, and distribution of hydro-power; opening the telecommunication sector for private investment; providing alternative educational and health care services through the private sector and improving service delivery through community participation and management; creating a separate institutional mechanism (i.e. Department of Local Infrastructure Development and Agricultural Roads) and formulating a Public Infrastructure Construction and Transfer Policy to promote private sector participation for constructing local roads; and distributing fertilizer and seed through private sector.

In recent years, governance reform has also become a matter of discussion in Nepal Development Forum (NDF). In NDF-2002, the Government of Nepal strongly committed to making public-sector management lean, transparent, competitive, economical, efficient, service-oriented, accountable and more gender-sensitive (NDF, 2000). In the meeting, the donor representatives also addressed the issue of “a crisis of governance” in Nepal. In response, the Government of Nepal committed to reducing poverty, improving its planning, budgeting and expenditure management, effectively implementing programs, and improving accountability and transparency.

The Ministry of Finance committed to focus on the then ongoing reforms in the Nepal Development Forum 2004, particularly public expenditure reforms, tax reforms, public enterprise reforms, private sector development, financial sector reforms, decentralization, improving financial management and accountability, improving budgeting and expenditure management, civil service reform and sector-specific reforms (FACD, 2004).

An Overview of Donor-Support in Governance Reform

Bhatta (2000) explicitly states that good governance emerged in the late 1980s as a new paradigm which was dictated by international agencies led by the World Bank. Governance reform has been considered a path to economic growth and poverty reduction. This is the reason why donors want to assist in reforming governance. Several donor agencies have been involved in supporting Nepal for her governance reform as given below:

Table 1: Donor Partners Involving in Governance Area

Governance area	Multilaterals	Bilaterals
Civil service reform	WB, ADB, UN Agencies	UK, Switzerland
Anti-corruption	ADB	Denmark, Norway, Switzerland, UK
Decentralization	WB, ADB, UN Agencies	Canada, Denmark, Germany, Netherlands, Norway, Switzerland, UK, US
Human rights	—	Canada, Denmark, Norway Switzerland, UK
Social inclusion	WB, ADB, EU, UN Agencies	Canada, Denmark, Germany, Netherlands, Norway, Switzerland, UK
Integrated security development	—	US

Source: World Bank (2004: 49).

Table 1 shows that, among bilateral donors, there is a predominance of European donors: Denmark, Germany, Netherlands, Norway, Switzerland and the UK. Only Non-European donors Canada and the US have implemented governance-related projects. Among multilaterals, ADB, World Bank and UN Agencies have been involved in almost all areas of governance. But the World Bank and ADB focus on macro-level governance whereas the UN Agencies focus on local governance.

The United Nations System (UNS, 1999) aims to assist the Nepal government in governance improvement particularly in decentralization, capacity-building of local institutions, and empowerment of disadvantaged groups. This means the UN Agencies want to focus on local governance. The widely known example is the Local Governance Program (LGP) supported by UNDP. The UNDP is a lead donor in coordinating all the donors involved in local governance and decentralization.

Among both multilateral and bilateral donors, the UK is a lead donor in the field of good governance including administrative reform. In the field of democratic governance including judicial reform, Denmark is the lead donor in Nepal (ODI, 2000). The role of leading donors is to coordinate other donor partners involved in the concerned field. They not only help in donor-donor coordination but also serve as a focal point of the government dealings within the concerned field.

After promulgating the Local Self-Governance Act in 1999, many donors have shown their interest in supporting Nepal’s efforts in decentralized decision-making. The UNDP is involved in the decentralized management of local development by implementing its Participatory District Development Program (PDDP) in 20 districts. A local trust fund has been established in each participating district for ensuring financial sustainability. DANIDA is also involved in decentralized policy reforms. Likewise GTZ, USAID, FINNIDA and NORAD are involved in supporting Nepal’s initiative in decentralized decision-making by implementing different projects (FACD, 2005).

Almost all the constitutional bodies in Nepal are also reformed by donors. DFID reformed four constitutional bodies—Public Service Commission (PSC), Commission for Investigation of Abuse of Authority (CIAA), Prime Minister’s Office (PMO), and National Planning Commission (NPC)—by implementing: Nepal NPC project, CIAA Institutional project, PMO project, and support to NPC respectively during the second half of the 1990s. These reforms were aimed at improving their functions. For example, to improve the functions of Public Service Commission, the project objective was to improve the selection, recruitment and promotion procedures within the civil service (UNDP, 2000).

DANIDA also helped reform the Parliament Secretariat, and Election Commission by implementing the projects: support to the Parliament Secretariat and support to Election Commission. Likewise the World Bank reformed NPC by executing the NPC strengthening project. UNDP also executed the “Reform of the Judiciary” project (2000-2005) to support the Government of Nepal strategy by addressing some key issues related to the rule of law and judiciary and to enhance access to and improve the quality of justice for all citizens, particularly women and members of disadvantaged groups (FACD, 2005). The project beneficiary was the Supreme Court, a constitutional body.

The World Bank has supported Nepal’s Poverty Reduction Strategy Paper(PRSP) by implementing two projects–Poverty Reduction and Growth Facility (PRGF) and Poverty Reduction Support Credit (PRSC). The key components of these projects are: financial sector strengthening, public sector reforms, governance reforms including service delivery improvements and social inclusion promotion (FACD, 2005).

The ADB has also supported the implementation of PRS through the “Public Sector Management Program” project. The aim of this project was to strengthen the fiscal position of the government, disengage the government from the public enterprise management and ownership, and strengthen public and private sector governance (FACD, 2005)

The DFID (2005:14-15) funding policy focuses on (i) improving public expenditure management and privatizing state-owned enterprises, (ii) decentralization and sectoral devolution, (iii) combating corruption, and access of justice. Much of its support is directed through the Enabling State Program (ESP) which runs several projects for reforming governance in Nepal.

Thus, most of the development projects and programs undertaken after the mid-1990s are implicitly related to governance reform. The reason behind it is that governance has become a cross-cutting issue of development since the early 1990s. In some cases, governance reform has also been projectized. In most cases, it is difficult to segregate purely governance-related projects from among all donor-funded projects. However, a Development Cooperation Report (FACD, 2005) presents a list of some selected projects related to rule of law and good governance.

Among the governance related projects, the ADB funded “Governance Reform Program” was the largest project in terms of the amount of aid. The second largest program is Enabling State Program of DFID that aims at developing practical understanding of good governance in the country. It focuses mainly on pro-poor governance. The committed amount for these two programs was more than NRs 20 billion each. But the ADB committed loan assistance and DFID grant. In some cases, ADB also provided grant, for example, for “Strengthening Rule of Law”.

A single project of UNDP was not as large as that of ADB and DFID. But UNDP provided more aid than any other donors for governance reform, by launching several projects—(i) Enhancing Access to Justice through Media Campaign, Settlement Fairs and Strengthening Community Mediation Practice; (ii) Human Rights Based Approach to Programming with special Focus on Conflict; (iii) National Human Rights Action Plan; (iv) Strengthening Rule of Law; (v) Coordination and Support of International Electoral Observers; and (vi) Local Governance Program. The largest project of UNDP was the “Local Governance Program”. The objective of this project was to strengthen and support decentralized, participatory and sustainable management of local development and to strengthen the planning and management capacity of DDCs and VDCs (FACD, 2005).

The USAID has also contributed in this field by implementing projects such as: Anticorruption and Law Enforcement, and Specialized Project for Promoting Peace through Improved Governance and Income in Target Areas. The objective of the former project was to strengthen rule of law and the latter was to mitigate the conflict in Nepal through support for the provision of quick and visible benefits to the under-served and conflict affected populations, and through support for the peace process (FACD, 2005).

DANIDA, SNV, NORAD and SDC have also contributed in the field of local governance, human rights, and good governance. Among their projects, the DANIDA’s “Human Rights Good Governance” is the largest. The objectives of this project are: (i) to create effective public awareness on human rights, victims of human rights; (ii) to support abused victims; (iii) to mitigate and resolve social conflicts; (iv) to create a strong broad based democratic organizations of Dalits; (v) to qualitatively improve the training of media practitioners in mastering the core score skills of journalism; and (vi) to strengthen the capacity and the necessary systems of the Election Commission for managing and conducting democratic elections (FACD, 2005).

On the whole, almost all donors have been involving in supporting the effort of governance reform in Nepal. But one of Nepal’s largest donors, Japan, has not shown her interest in projectizing governance. This does not mean that Japan has no interest in governance. Japan makes Nepal conscious of reforming governance through aid agreements aimed at improving aid effectiveness. In fact, Japan has contributed a great deal to Nepal for improving public sector governance through the ADB.

16.2 Necessity of Donor-Support for Governance Reform in Nepal

The available literature on governance reform in Nepal reveals that, among the prominent donors working for public sector reform, European bilateral donors, the Asian Development Bank, and the United Nations Development Program focused on democratic governance, civil service reform, and good governance respectively (see: Adhikari, 2011). These three components of governance reform have been taken into consideration for this study even though they are not perfectly mutually exclusive.

Necessity of Donor-Support for Democratic Governance

This section assesses the extent of the necessity of donor-support for improving democratic governance in Nepal. For this purpose, eleven issues of democratic governance were set as given below:

Strengthening Local Authorities: Almost all the donors working in Nepal have been funding for strengthening of local authorities. Some prominent examples of on-going donor-funded projects during the study period were: “Decentralization Support Unit” supported by DANIDA; “Local Governance Program” supported by UNDP; and “District Partnership Program” supported by SNV (see Adhikari, 2011).

Strengthening Civil Society Organizations: After restoration of democracy, the number of NGOs, professional organizations, trade unions, religious groups, and media has increased substantially. The number of NGOs registered at the Social Welfare Council increased from 5,128 in January 1997 to more than 10,475 by March 2000 (ESP, 2001). Most of them are not active; some are affiliated to political parties; some are created by donors and INGOs. However, they have become important development actors.

Controlling Corruption: Major governmental organizations for controlling corruption in Nepal are: Commission for the Investigation and Abuse of Authority (CIAA), Special Police Department, District Administration Offices, Judicial Council, and Revenue Investigation Department (see ESP, 2001). If these institutions are reformed, then corruption will be reduced. In consideration of this assumption, several donor-funded projects were implemented for this purpose.

Strengthening Private Sector: Since 1992 the Government of Nepal has adopted a policy of private sector development for liberalizing the economy by regulating rather than controlling the private sector. Several policies– trade, industrial, financial, foreign investment, privatization were reformed. Several donor-funded projects were implemented in Nepal. Some key informants were of opinion that the implementation part of private sector reform was very weak in Nepal mainly because of the reluctance of bureaucrats and weak political commitment.

Strengthening Governmental Institutions: The term ‘governmental institutions’ refers to the set of rules, regulations, practices, and administrative culture of executive, legislative, judiciary and other publicly-owned governmental organizations. Several donor-funded projects were implemented for reforming central level governmental organizations in Nepal.

Reforming Development Policies: “Reforming development policies” refers to the change in development approaches, strategies, goals, procedures and practices in the line of modern governance or neo-liberalism. In micro-level, it includes specific procedures like project formulation, procurement, auditing, evaluation and reporting of donor-funded projects. An example of such a project is “Strengthening Project Implementation and Quality Assurance Project”, funded by ADB in 2004.

Reforming Civil Service: After 1990, the concept of civil service reform is viewed from the perspective of good governance such as improving accountability, transparency, effectiveness, responsiveness, and inclusive civil service. One of the most popular donor-funded programs of civil service reform in Nepal was “Governance Reform Program” initiated by ADB’s loan in 2001.

Improving Human Rights Situation: After the mid-1990s, a new paradigm of ‘rights-based development’ emerged. It focuses on promoting human rights in the development process (Uvin, 2004). In this context, donor agencies have been showing their interest in aligning national laws with international human rights standards and commitments. For example, UNDP implemented a project “National Human Rights Action Plan”, DANIDA implemented “Human Rights and Good Governance”, and NORAD implemented “Implementation of Human Rights and Good Governance Program” since 2003.

Improving Rule of Law: The most important value of democracy is Rule of Law– the independent and competent system of justice. Nepali citizens experienced a situation of law-lessness during the course of the Maoist insurgency. Government was unable to maintain law and order and protect human rights. In some cases the ruling parties protected criminals involved in serious crimes (ESP, 2001).

Strengthening Political Parties: After the restoration of multiparty democracy in 1990, major political parties have developed their institutional capacity from their own effort. The process of dissolution and reorganization of parties occurred frequently. Some key informants asserted that no political party developed a democratic culture and ideological clarity with a long term vision. This reveals that the ‘strengthening of political parties’ is highly necessary.

National Election: In many cases, election funding to political parties from certain embassies had becoming a confidential issue for many years in the past. In Nepal, a major funding source of political parties was from illegal activities such as smuggling, drug trafficking, illegal trading, and the commission of development projects (ESP, 2001:8). In 2002, a project entitled “Coordination and Support of International Electoral Observes” supported by UNDP was implemented.

The ranking of the above discussed issues of democratic governance on the basis of their weighted mean score is as given below.

Table 2: Democratic Governance: Necessity of Donor-Support (n=225)

Issues of democratic governance	Highly necessary (2)	Necessary (1)	Not necessary (0)	Weighted mean score
Strengthening local authorities	56%	44%	0%	1.56
Strengthening civil society organizations	33%	64%	3%	1.30
Controlling corruption	34%	56%	10%	1.24
Strengthening private sector	29%	46%	24%	1.04
Strengthening governmental institutions	28%	46%	27%	1.02
Reforming development policies	19%	60%	21%	0.98
Reforming civil service	27%	42%	31%	0.96
Improving human rights situation	22%	47%	31%	0.92
Improving rule of law	21%	47%	32%	0.89
Strengthening political parties	20%	42%	37%	0.82
Assisting national election	17%	24%	58%	0.58
Total (percentage)	28%	47%	25%	1.03

Source: Adhikari, 2011

Table 2 shows that the donor-support for strengthening local authority is necessary in highest level because of its highest mean score, i.e. 1.56. The respondents’ second priority of donor-support is for strengthening civil society organizations.

Appropriateness of Donor-Support for Civil Service Reform

What kind of donor-support is appropriate for civil service reform in Nepal? For answering this question, three categories of donor-support–policy advice, financial support and technical assistance–and seven issues of civil service reform were taken into consideration. Table 3 shows the total response in favor of policy advice, financial support and technical assistance for different issues of civil service reform. More than fifty percent of respondents were in favor of all kinds of donor-support for corruption control. In the case of strengthening local authority and citizen-centered service delivery, nearly 83 and 69 percent respondents respectively were in favor of only financial support.

Table 3: Proportion of Positive Responses for Appropriate donor-support in the Issues of Civil Service Reform

Issues of civil service reform	Policy advice*	Financial Support*	Technical Assistance*	Grand total positive responses (out of 675)
Strengthening	0.600	9.800***	-3.800	387
local authority	(52.0)	(82.6)	(37.3)
Corruption	2.067**	2.200**	0.067	370
control	(56.9)	(57.3)	(50.2)
Citizen-	-3.400	5.667***	-0.733	349
centered service delivery	(38.7)	(68.8)	(47.5)
Merit-based	1.000	-1.133	-0.067	336
bureaucracy	(53.3)	(46.2)	(49.8)
Performance	0.867	-2.467	-0.333	323
incentives	(52.9)	(41.8)	(48.9)
Procedural	-1.533	-1.533	-1.533	303
reform	(44.9)	(44.9)	(44.9)
Social inclusion	-5.000	-6.200	-2.867	232
in civil service	(33.3)	(29.3)	(40.4)

Note: H_0: p = 50%; and H_1: p > 50%

• z-value of the proportion of responses (n=225 for each cell);
  ***indicates level of significance at 1% level; ** at 5% level; and * at 10% level

Source: Secondary analysis of raw data collected by Adhikari (2011).

Table 3 presents the observed z values of the proportion of positive responses in three different types of donor-support in the given issues of civil service reform. In the issue of strengthening local authority, respondents were in favor of getting financial support rather than policy advice and technical assistance. The observed z-value of financial support is 9.800 which is significant because it is greater than the table value 2.326 at one percent level in one-tailed test.

In the issue of receiving donor-support for controlling corruption, H_0 is rejected at 5 per cent level of significance both in policy advice and financial support. It means that the respondents favored policy advice and financial support significantly. In the issue of citizen-centered service delivery, the majority of respondents were in favor of getting financial support, and it is true at the one percent level of significance.

The Table also indicates that all the tabulated z-values in the issues of merit-based bureaucracy, performance incentive, procedural reform, and social inclusion in civil service are statistically non-significant.

Efficiency of Development actors in Good Governance

Which development actors have become efficient to demonstrate good governance in Nepal? For answering this question, seven issues of good governance and four groups of development actors were taken into consideration and then respondents were asked to rank the development actors for the given issues of good governance. The following table presents the mean score of the performance ranking of development actors.

Table 4: Efficiency of Development Actors in Good Governance (Mean score of the performance ranking of development actors)

Issues of good governance	Donors	I/NGOs	GOs	Local authority
a. Cost effectiveness	1.94	2.58	2.76	3.63
b. Accomplishment in time	2.89	2.60	1.66	3.02
c. Financial transparency	2.10	2.44	2.76	3.61
d. Minimization of Corruption	2.23	2.38	2.53	3.25
e. Accountability (to user group)	1.56	2.13	2.80	3.23
f. Participation of stakeholders	2.08	3.13	2.54	3.63
g. Local capacity-building	1.73	2.43	2.58	3.32
Average score	2.07	2.55	2.52	3.34

Note: The highest score is 4 for best performer and 1 for least performer (n=225).

Source: Adhikari, 2011.

Table 4 indicates that the respondents considered local authority as the best performer and donors as the least performer in demonstrating good governance. The mean scores assigned to I/NGOs and GOs are in between the scores of donors and local authorities. It is also important to note that the average ‘mean score values’ range from 2.07 of donor agencies to 3.34 of local authorities. There appears a high level of variation in the efficiency of development actors for demonstrating good governance. The lowest level of donor efficiency indirectly indicates that turn-key projects executed by donor agencies are not effective in terms of good governance, particularly from recipient’s perspective.

16.3 Conclusion and Suggestions

The main causes of inadequate public sector governance are feudal structure of bureaucracy, political instability, poverty, and wide spread corruption. The Government of Nepal has been making efforts for improving governance in Nepal since the early 1990s. Several governance-related laws were passed, institutions were created, and governance-focused plan documents were prepared. The World Bank, ADB, UN Agencies, and European bilateral donors supported several governance reform programs in Nepal. However, that donor-funded reform programs are not sufficiently sustaining may be due to several factors, such as political instability, lack of the country-ownership of aid activities, and corruption.

With regard to the necessity of donor-support for democratic governance, respondents were of opinion that the donor-support is highly necessary for strengthening local government and civil society organizations. Similarly aid is not highly necessary for assisting in national elections, strengthening political parties, improving rule of law, improving human rights situation, reforming civil service, and reforming development policies.

Regarding civil service reform, respondents gave their views on the appropriate type of donor-support. More than 50 percent respondents were in favor of financial support and policy advice for strengthening local authority. They were in favor of policy advice, financial support, and technical assistance for corruption control; financial support for citizen-centered service delivery; and policy advice for merit-based bureaucracy, and performance incentives.

Regarding good governance, respondents considered local authority as being the best performer, donors as being least performer, and I/NGOs and GOs as being moderate performers for demonstrating good governance, particularly in the issues of cost-effectiveness, accomplishment in time, financial transparency, minimization of corruption, accountability to user groups, participation of stakeholders, and local capacity-building.

On the whole, the findings of the study indicate what should be done by the government as well as donor partners for reforming the public sector in Nepal. The Government of Nepal should go ahead for political stability and country-ownership of aid activities through capacity building. The donor partners should focus on strengthening local authorities civil society organizations. Donor agencies should also rethink the appropriateness of their policy advice, financial support and technical assistance by considering local needs in different issues of governance reform, such as controlling corruption, improving human rights situation and reforming civil service. On the other hand, donor agencies should reduce their support in less important issues, such as assisting national election and strengthening political parties.

References

Adhikari, G.P. 2011. The Politics of Foreign Aid and Governance Reform in Nepal. An unpublished PhD thesis submitted to the Faculty of Management, Tribhuvan University, Nepal.

Bhatta, B.D. 2000. “Decentralization in the Context of Good Governance and Civic Society in Nepal”. In Public Administration Journal, vol. x & xi, (pp. 368-375). Kathmandu: Public Administration Campus.

DFID, 2005. Annual Report. Kathmandu: Department for International Development, Available at www.dfid.gov.uk.

Dhungel, D.N. and Ghimire, H. 2000. Demands for a New Culture in the Context of Good Governance. A theme paper presented in the Sixth National Convention of Public Administration Association of Nepal.

ESP, 2001 Pro-Poor Governance Assessment in Nepal. Nepal: Enabling State Programme.

FACD, 2004. Chairman’s Summary of the Proceedings of Nepal Development Forum 2004. An unpublished report prepared by Foreign Aid Coordination Division, Ministry of Finance, Nepal.

FACD, 2005. Development Cooperation Report 2001-2004. Nepal: Foreign Aid Coordination Division, Ministry of Finance.

NDF, 2002. Review of Development Partnership in Nepal. A paper prepared by donors group led by OECD (not mentioned in the report) and presented at the Nepal Development Forum 2002.

NPC, 2003. The Tenth Plan 2002-2007: Summary. Nepal: National Planning Commission.

NPC, 2007. Three-Year Interim Plan (2007-2010). Nepal: National Planning Commission.

NPC, 2010. Three-Year Plan: Approach Paper (2010/11-2012/13). Nepal: National Planning Commission.

ODI, 2000. European Aid for Poverty Reduction in Nepal. London: Overseas Development Institute.

Prasad, V.S. and Manohar, K.M. 1991. “Fred W. Riggs”. In D.R. Prasad et al., eds., (1991), Administrative Thinkers, (pp. 234-260). New Delhi: Sterling Publishers Pvt. Ltd.

UNS, 1999. Nepal: Common Country Assessment 1999. Nepal: United Nations System.

World Bank, 2004. Nepal: Country Assistance Strategy, 2004-2007. Kathmandu: The World Bank.

---

Desk Review by Birkha Pun

17. Civil Society as a Democracy-Building Project in Nepal

Tara Dahal

17.1 Introduction

Nepal’s twisted political transition has crushed its citizens’ legitimate aspirations of building a community based on human rights, social justice, citizenship equality, good governance and stable peace embittering the functioning of democratic institutions. The absence of a negotiated constitution, lack of a legitimate national unity government and erosion of national institutions are unraveling the Nepali state from above. Proliferation of politics of difference is fomenting the resurgence of sub-nationalism, clientalism and parochialism undermining national identity of Nepali. This is decaying the state from below and straining its sovereignty in the determination of national course of action. “When citizens have no real opportunity to select their leaders, grievances fester and violence may be close behind” (Roth, 2009: 22). Owing to the inability of Nepali state to enforce security, rule of law and protect the rights of citizens, international community treats it as a “fragile state,” designed its aid policies accordingly and seeking to make leaders accountable to human rights, comprehensive peace accord and electoral legitimacy.

Bulk of Nepalese civil societies bear the potential to carry out an impulse of virtuous society to democratize, civilize and reduce social, economic and political gaps across various sections of people through righteous public action. The plurality of civil society in Nepal reflects the diversity of Nepalese society’s needs and conditions and, therefore, multi-dimensional level of action from advocacy, education, communication to relief, livelihood, rehabilitation and relationship-building measures. Civil society need to create favorable condition for Nepal’s society and the state to adapt to universalistic norms and act to abolish the tradeoff between political power where leaders indulge in life-and-death-struggle and democratic values that moderates their appetites to move to extreme directions incubating the source of violence and vicious conflicts. As democracy demands the accountability of power, civil society actors of Nepal have to offer an opportunity for the citizens to learn the virtues of civility and provide an alternative leadership at both micro and macro levels of governance.

There is an increasing recognition of civil society in Nepal for their contribution in social and political movements, protection and promotion of democracy, human rights, social justice to powerless section of society, peace building for conflict affected people and minimization of the negative effects of climate change. Charity-based civil society actors are distributing public goods across various geographical and sociological spaces of the nation. As a power of the public, they need to motivate the Nepalese leaders towards “rational consistency between their words and actions” (Freedland, 2006:25), encourage citizens to reject lies in order to “live in truth” (editorial board, 2011: 19) and pursue the common good out of the goodwill of citizens. Is it possible to achieve this without the conversion of citizens into a critical mass of attentive public imbued with moral duty and responsibility to free ordinary citizens from the ideological and institutional constraints and create a rule of general will of citizens? How can Nepali citizens become aware of changing knowledge, authority and relationship about the state and society and espouse democracy as a way of life when intermediary institutions, organizations, groups and trusts referred as civil society reflect fractious tendencies in their own public lives? This article focuses on the role of civil society in overcoming democratic deficits, fostering the politics of national identity, creative role of international donors in democracy promotion project and offers a brief conclusion.

17.2 Overcoming the Democratic Deficits

A number of factors have weakened Nepal’s democracy. The entrenched interest groups of the political system did not leave space for the inter-generational and non-elites circulation to power, insufficient institutional mechanism for the protection of rights of citizens including property rights, law-based contract and mechanism for the representation of minorities and weaker sections of society anchored politics along aspirational lines, disproportional growth of security agencies including Maoists and armed groups relative to weak political parties and civil society limited social choice for citizens, fragile democratic control on economy to avoid collapse of political order and the beginning of social tensions triggered by the proliferation of identity-based groups, radical political parties, NGOs, communal organizations fomented politics along patronage-based lines and pre-civil solidarity activism strained the nation-building projects. Nepal’s local governance is a mismatch between legal devolution of power, lack of actual institutional capacity of local bodies and denial of role for citizens to elect their representatives for over a decade (Dahal, 2012:4).

The current predicament is not the baggage of the past failures but unresponsiveness of present leaders to fulfill the legitimate expectations of citizens they themselves ignited. Nepal’s authoritarian political culture is characterized by primacy to lineage ties, selective inclusion through patronage and cronyism, excessive party-mindedness, corruption and impunity and isolation of opposition, minorities and the ordinary people from the institutional resources of the state. In a country of minorities like Nepal, there is no institutional mechanism to prevent today’s minority group to become tomorrow’s powerful actor. Any solution of future turmoil, therefore, requires an institutionalized system of checks and balances over the arbitrary behavior of top leaders and imposition of rule-governed order.

“Impunity in Nepal is the result of effective justice delivery owing to political interference and corruption, the inability of constitutional bodies to function independently and corruption in public office” (Bhattarai, 2010: XI). A semblance of the transparency and openness of the governance provided by the Nepalese media, however, constitute an effective democratic oversight over their weak performance (Rijal,2012:45). The only hope to address these unprecedented political crises lies in the resilience of active Nepali citizens to undertake grassroots initiatives for robust institution-building, cut illegitimate opportunities for elites, repair the social divides, redress inequality, create jobs and heal the society through cooperative action. To overcome the growing democratic deficits underway in Nepal, civil society need to lobby for national and local elections, strengthen the courts, insert competitive spirit in the party system and exert pressure for the integrity of constitutional bodies. An impetus for this can come through civil society imbued with the ideal of abolishing the culture of ideological conformism fostered by political parties, bottom-up approach of promoting citizens participation and establishing the dignity of each and every Nepali citizen through the democratization of political and economic society.

17.3 Fostering the Politics of National Identity

Self-awakening is not a blind alley but an opening to the whole universe. It is about situating one’s own relations with others in a web of life and renews the civic spirit to connect those outside its penumbra. To serve as a bridge across the social divides of the nation is the way Nepalese civil society can ignite the power of civility and moderate the alienation of political parties from each other as well as construct broad-based national perspective for breaking the logjam which is necessary for the formation of a broad-based national unity government. The innocent optimism of citizens on the capacity of democracy as a more responsive system than other political systems must be kept alive for the future of democracy. The effects of national consciousness of the disaffected and disenfranchised citizens fighting for recognition and representation must be given appropriate outlet and space. Democracy “promotes a single public identity coterminous with the state’s territory” called common citizenship and also seeks the “equality of individual citizens before the law and within public institutions” (O’ Leary and McGarry, 2012: 79). Democracy is a better system in the sense of giving legitimate space for the opposition and micro minorities. What is essentially needed in Nepal are “visionary leaders who can build identification with the nation as a whole” (Roth, 2009:22), distribute political power as widely as possible and do not indulge in extractive business and predation of commonwealth of the nation for selfish interests. “Countries differ in their economic success because of their different institutions, the rules influencing how the economy works, and the incentives that motivate people” (Acemoglu and Robinson, 2012:73).

The game of winner takes all in Nepal has decreased the stake of the loser, opposition and minorities undermining the dynamic equilibrium of the political system. The predominance of group rights couched in the politics of difference has further undermined individual and human rights in Nepal and reduced the efficacy of human rights NGOs, civil society and democratic institutions to construct national identity out of mini-identities existing in the nation. Feral social crisis is growing because of the failure of leadership to understand the dynamics of either social transformation they themselves unleashed or find the historical connection of this nation or even alter the multiple frames of politics played on the unmet democratic expectation of ordinary citizens. Opponents of the ethno-federalism argue that such a structure would only deepen ethnic divisions that are difficult to resolve through peaceful negotiation and compromise of legitimate interest. One can already see the country slipping into protracted sociopolitical tensions.

Only a faith in the peace can sustain leaders’ commitment to ending democratic transition, bring Nepal back to normal constitutional legitimacy and begin constructive engagement between entrepreneurs, citizens and the state. Balance of power between rival political parties at the central level or periodic elections are not sufficient condition for securing internal peace so long as institutions prevent the half of the nation’s poor from profiting from their hard labor and work and improve material condition. What is also required is the state’s command of a “standing force that could also defend the community against neighboring tribes and states” (Fukuyama, 2011:15). Fukuyama argues, “Modern democracy was born when rulers acceded to formal rules limiting their power and subordinating their sovereignty to the will of the larger population as expressed through elections” (2011:15). Building democracy project, therefore, requires reforming electoral laws and system to enable the infrastructures of political system representative of entire social diversity and prevent the fragmentation of politics (Schofield,2003:87).

17.4 Donors in Democracy Promotion Project

The beginning of cold war marked the beginning of the confluence of foreign aid and strategic interests into the state. Its decline led the declining support to the state from outside and autonomy of market forces from inside. Unresponsiveness of bureaucracy fostered the shift of donors from the state to non-state actors—private sectors, NGOs, civil society and community organizations—in the development process. The ongoing failure of unregulated market has renewed an awakening among the international leaders that non-state actors cannot totally replace the state in broad-based development as well as protect the order of democracy that exists only within the nation-state. Moreover, elite capture of resources, under-development and conflict fostered a feeling that it is hard to make them accountable to tax payers, the state and ordinary citizens in need of inclusive development. Therefore, democracy building in Nepal has became associated with good governance, human rights, transparency, accountability, equity and sustainability principles in their aid agenda and consultants are engaged in electoral reforms, political parties, judiciary, civil society, media, bureaucracy and security sectors.

Donors also adopted that many-hands approach can benefit the larger sections of society and build partnership-based development necessary to sustain participatory democracy. Political parties were ignored in the earlier scheme as during cold war phase development was seen as non-political while support to the state was not without geopolitical interests (Ghimire, 2013:6). Political leaders, therefore, created their own NGOs, human rights organizations, women’s groups, Dalits’ society, and civil society to fetch aid and build constituency for a safe return to power in the elections. The indirect means of support to leaders weakened the competitive spirit of parties for policy innovation and undermined the possibility of alternative leadership to emerge as they lack resources, tools and techniques to galvanize their supporters for political participation. There was also no accountability as civil society and NGOs unmonitored by the donors and the state became self-promoting almost disconnected from the life-world of citizens they were mandated to serve (Dahal, 2012).

The bulk of aid outlays in Nepal lacking clear transparency mechanism have created strong business interests who are short of business ethics. The rent-seekers of privatization and owners of financial institutions have only converted their black money into white money that played critical role in screwing democratic politics by blurring the boundary between business and politics and profit and public service. The conditionality of aid attached to privatization only sought to control the egalitarian effects of democracy as many of Nepal’s civil society just maintained silence while other sprouted from the carapace of feudal structure of society did not have any commitment for democracy other than to protect their class privileges only. Therefore, donors (multi-lateral and bilateral) have to devise new policies to strengthen democracy project at the grassroots level in fostering participatory democracy and encouraging citizens’ voice, visibility and participation in the development process, promoting the capacity of marginalized and disadvantageous citizens through the accountability mechanism of local bodies, increasing equitable access of all citizens in the public goods (Kaul, 1013:1)and services and building the integrity system of local self-governing institutions. The Local Governance Act 1999 has called for a greater role for civil society in the everyday functions of local bodies, emphasizing transparency, public accountability and popular participation (TAF, 2013:2) that can promote the deepest meaning of civic connection defined by national citizenship and nurture “people’s approach” (Khatri, 2008:59) to decision making.

A democracy imposed from outside without the ownership of native citizens cannot become sustainable. Donor can set up assistance to practical areas of democracy building without upsetting the national and local priorities and strengthening only elite-driven process like the one with the Constituent Assembly project which involved huge costs with no return as it failed to produce a new constitution. Institutional cooperation from the state is necessary for development as the state of local environment in Nepal is fraught with insecurity. Regional and local environment of insecurity feeds one another as a result of the weak state whose outreach in the society is declining. Moreover, the leaders occupied with transactional passion seem unable to address their democratic accountabilities because many of them lack national perspective for conflict resolution and hold no interest in service delivery. Donors should focus on the training of leadership from the bottom up who are not alienated from the citizens and from each other’s parties but harness a culture of compromise on the basis of practical interests of citizens, such as food, education, health, infrastructural development, irrigation, cooperatives and mitigation of climate change. These issues are linked to ameliorating yawning economic disparity, improving state-citizenship relationship and building peace-generating activities. Breaking the cycle of conflict and assisting the fragile state can provide strategic solution to the problem of public order. But, long-term democracy building from the grassroots requires increasing the level of political awareness of citizens about their rights and duties, their engagement with the government agencies, policy makers and political leaders to strengthen their ties and discourage collusive tendencies in local politics in Nepal due to lack of elected authorities, opposition force and critical mass of change agents of civil society. These steps help to transform pre-civil solidarity of people into civic solidarity of citizens giving the latter to shape their and their children’s better lives.

Donors should encourage parties to move to political tendencies from violence and authoritarianism to participatory democracy infusing them an “awareness about non-violent option and corresponding political action” (Maskay, 2008: 4). Violence arising from the democratic deficits of leaders and institutions can be partially overcome if the state institutions including bureaucracy are imbued with the spirit of impersonal cooperation with citizens, not driven by party politics, rent-seeking and career-enhancing inclinations without any duty to either the state or citizens. In a situation of fragmented political parties there is a danger of election of demagogues and corrupt fragmenting further Nepal’s political sphere and throttling the prospects for democratic leadership. In the absence of a strong national center social fissures will continue to unfold along ethnic, communal and territorial lines in the scramble for power and erode the power of state to subdue chaos and enforce constitutional rule. In both the counts, independent media, anti-corruption watchdog, the court, Election Commission, and civil society have to put law-breaking leadership in negative light so that they cannot enter into public life of politics.

Donors, therefore, need to focus on those civil society groups who work on the virtue of state-society cooperation, not utilizing them for instrumental purpose acting against the state’s legitimate interest and sustain a regime of impunity. An instrumental use of primordial forces against the state in the name of social transformation has fatally weakened the base of Nepalese democracy and continues to remove the stake of ordinary citizens. On the contrary, reckless privatization of public industries, bank-defaulting, capital flight and tax-evasion indicate that powerful elites do not feel comfortable with the egalitarian effects of democracy though they are its major beneficiary as it provided an openness they sought. It suggests that there is a need to restructure the methodology of aid governance in Nepal. Democratization process requires integrity of the public life of those who are engaged in politics, business, civil service and also civil society. Only those civil societies can be conducive to democracy building project who work along the line of strengthening robust citizenship and discourage centrifugal tendencies and lawlessness as they undermine the normative aspirations of citizens for self-rule. Creation of national citizenship and protection of rights of citizenship within the state increases their loyalty and solidarity with its democratic institutions. In this sense, aid to civil society should be steered to overcome their parochialism and personalism and build a framework for cooperative action among citizens.

Donors need to orient their aid package to strengthen the national process of state building enabling the state to deliver institutional public goods benefitting both elites and masses and responding to its citizens’ social voices thus discouraging the tendency toward personalized leadership and clientalism. A genuine approach of development cooperation increases the chances of self-help among the citizens and catalyzes their collective energy for recovery from post-conflict trap. Many states of the world have stabilized democracy through the distribution of land, capital and technologies to the poor enabling them to become equal citizens. Redistribution of resources creates condition for democracy while its concentration damages it giving monopoly on power to a few. Democracy provides scope for the self-determination of citizens and their representatives in the setting of priorities beneficial to them. But, the interest of Nepali government more on foreign aid and less on domestic resource mobilization has scuttled its own sovereign capacity to formulate public policies. In the process this tendency has undermined its charity-based civil society and pushed both the society and the state excessive dependent on outside forces. As a result, development in Nepal has become permanently tied with foreign aid and democracy is confined to elite projects, not self-sustaining process through the mobilization of its civilizational resources, preservation of civic values, institutions and processes. There is a risk in maintaining aid-dependent democracy as it does not create the stake of citizens in its foundation and the virtue of associated life.

In this context, donors have to devise multi-sectoral support programs to complement national and local needs of the people at the grassroots level and align with pressing priority of the state building so that a balance is maintained between micro and macro institutional needs and allow citizens incentives for sustaining them. Several democracy building macro-projects of the donors—judicial efficiency, electoral reforms, strengthening the capacity of political parties, democratization of security agencies, rehabilitation and reintegration of ex-Maoist combatants and supporting human rights organizations, non-state actors, NGOs, media, community organizations and civil society—might have given the learning opportunities for the leadership of these organizations. But, one has to see whether there is an attitude change of leadership for better performance. Those engaged in development sectors have also to answer why despite huge aid investments in Nepal poverty, inequality, alienation, social tension and conflict continue to grow. One lesion learned is that many of the donors are delivering only soft power packages, not the infrastructural development. Others are only interested in the success of development theories, not the upliftment of Nepalese life and stabilization of environment. Only few of them are engaged in fostering self-help, improving the state’s capacity to organize society and nurturing ecologically and socially embedded development projects.

Can aid-supported development process grow in a fragile state lacking sufficient capacity to provide security, rule of law and public goods? If not, then one should focus on strengthening national framework first before political leaders compete for power and civil societies compete for democracy building. Perhaps aiding civil society in a state lacking the concept of citizenship is a prescription for destabilization as many of Nepalese civil society groups do not see themselves a partner of the people but above them and treat them a recipient of aid doled out by them although they themselves fetch it from the charitable donors. In this context, donors have to see first whether the support they extend are transparent to the targeted groups or not and whether the benefits go to cross-section of population or not. Civic virtues among citizens can be promoted “through a common and deliberative public culture” (O’Leary and McGarry, 2012: 84). Similarly, they also need to see the practice of internal democracy, inclusiveness, participation of women and marginalized in the inner life of civil society and assess their performance regularly. Aid money is a universal public good which should not be left to be privatized by elites who are efficient in conceptual quibble of demand-generation strategy without any intention to satisfy. Aid donation should be made through a broad national and local committee manned by all the stakeholders of society so that it can serve the general public, rather than just the clients and elites alienated from their own society and culture. Good governance requires a balance between demand and supply. In this context, donors should act to build trust between state and non-state institutions, improve the responsive capacity of local civil society and reform their institutional culture.

17.5 Conclusion

Nepal’s transition to post-conflict state to stable peace has become protracted and engulfed into various challenges—humanitarian due to food insecurity, public security owing to growing violence and governance posed by protracted political standoff at the center marking an erosion of democratization process. Brutal power struggle of leadership, constitutional and political vacuum and lawlessness have produced system instability and lack of proper authority to address these challenges. At the moment, a reconciliation between the state and society requires problem-solving approach of five elements: a power-sharing formula for the major political parties as they are high leverage actors, improved civil-security relations, control of extra-constitutional risks posed by three-dozen armed groups engaged in extortion, management of social movements of Dalits, women and labor demanding social justice and legitimate accommodation of the assertion of ethnic, Madhesi and indigenous people for power, resources and recognition. Donors can help to transform the perspective of those inclined to tribal, territorial and racialist passion into a road-based rational and national consciousness basic to repair this nation.

A shift from violence to politics can be possible by the international community exerting influence on leaders to set up transitional justice mechanism as it is a precondition for truth, healing and forming democratic attitudes. In the context of frozen peace, genuine civil society actors alone cannot bring the state and society to normal order and begin the democratization process through civic education and action as well as constant consent to the governmental process through public opinion and fair elections. International cooperation in reforming the macro politics, security and democratic institutions are crucial determinants of good governance outcome and a transition from informal to impersonal political process essential to construct good citizens.

Inequality of resources affects the quality of democracy, therefore, international community and the state should work together to bridge the gender and development gaps through the expansion of economics of peace. Donors should not judge the performance of civil society through the prism of media visibility as those working for various causes of citizens are invisible, many of them are working in remote and rural areas lacking the access of media. Therefore, democracy building process requires building impersonal state and impersonal citizens. Citizens turn to solution to their own national government, which remain the best hope for collective action (Rodrik, 2012:7). It is also one viable mechanism to cope with the challenges emerging from outside. It is, after all, the nation state which frames laws, upholds contracts, raises taxes and implements policies designed to promote the development of the spheres of production (Rosenerg, 2008:280).

Peace building requires democratization, justice, security, transnational justice, rule of law, mutual trust, inclusion of all strata of society in peace economy, strengthening of horizontal and vertical ties among citizens, mutual learning from each other’s success cases, and duty based function of vibrant civil society well-coordinated with market and state acting together to achieve sustainable peace and development. In the post conflict process the role of civil society is a vital part of nation building. Only the virtuous civil society can reintegrate Nepali society overcoming all sorts of socio- political, cultural and psychological deficits by mitigating future source of conflict and achieving shared goals of peaceful, democratic society through political acculturation.

References

Acemoglu, Daron and James J. Robinson, 2012. Why Nations Fail: The Origin of Power, Prosperity and Poverty, London: Profile Books.

Bhattarai, Binod, 2010. Impunity in Nepal, Kathmandu: The Center for Investigating Journalism.

Dahal, Dev Raj, 2012. “Recovering the Roots of Civil Society in Nepal,” New Angle, Vol. 2 (1).

Dahal, Tara, 2012. “A Critique of Trust and Development in Nepal,” The Weekly Mirror, February 15.

Editorial Board, “Vaclav Havel, Living in Truth,” The Washington Post, December 20.

Freedland, Jonathan, 2006. “Homeland Insecurity,” The New York Times, June 25.

Fukuyama, Francis, 2011. The Origin of Political Order: From Prehuman Times to the French Revolution, London: Profile Books.

Ghimire, Yubaraj, 2013. “The Danger of Another Package Deal,” (in Nepali) Annapurna Post, January 18.

Kaul, Inge, 2013. “What is a Public Good?,” Le Monde Diplomatique, January 15.

Khatri, Sridhar K. 2008. “South Asian Conflicts and the Role of Civil Society in Peace Building,” ed. Bishwa Keshar Maskay, Peace and Development: Working Together, Kathmandu: Rotary International.

Maskay, Bishwa Keshar, 2008. “Peace and Development,” ed. Bishwa Keshar Maskay_Peace and Development: Working Together_, Kathmandu: Rotary International.

O’ Leary, Brendan and John McGarry, 2012. “The Politics of Accommodation and Integration in Democratic States,” eds. Michael Stein and John Trent, The Study of Ethnicity and Politics: Recent Analytical Developments, Opladen: Barara Budrich Pulishers.

Rodrik, Dani, 2012. “The Nation-State Reborn,” The Kathmandu Post, February 20.

Rijal, Mukti, 2012. “Access Regime for Democratic Accountability,” Readings on Governance and Development, Vol. XIV.

Rosenberg, Justin, 2008. “The Empire of Civil Society,” ed. Steven C. Roach. Critical Theory and International Relations: A Reader, London: Rutledge.

Roth, Kenneth, 2009. “Ballots and Bullets,” The New York Times, March 22.

Schofiled, Norman, 2003. “Power, Prosperity and Social Choice: A Review,” Social Choice and Welfare, 20.

The Asia Foundation (TAF), 2013. Political Economy Analysis of Local Governance in Nepal, Kathmandu.

18. Democracy and Foreign Aid – Disconnect between Democratic Aspirations and Free-Market Policy Prescriptions

Meena Acharya

Abstract The paper starts by stating that foreign aid is not only a transfer of resources and technology but also a package of institutional transfers, policy prescriptions and many other things. Nevertheless, for this paper it explores only four questions in the context of 60 years of Nepal’s political history since 1951: (1) whether the volume of foreign aid changed with the system of governance in the country, (2) whether the institutional and policy packages that accompanied the aid flow were democratically discussed, and their fitness and sustainability evaluated in the specific country context; (3) whether the economic packages introduced were discussed by the political representatives and voted by the people in Nepal, and (4) whether the aid packages and the policy recommendations matched the needs and aspiration of the people in the country? Conclusions are: (1) available information does not show any connection between the volume of foreign aid and political changes in Nepal, (2) until about the late 1990s, foreign aid packages were rarely contextualized to Nepal’s political or economic realities, nor did they match the needs and aspirations of the people, and (3) these were neither discussed or voted by the people or by their political representatives. The situation has started to change with MDGs, PRSP, and Aid Effectiveness Agenda. However, the policies and programs are still based on the assumption of primary role of the private sector as the engine of growth, and unsustainable model of capitalist or social democratic models, which themselves are facing multiple crises. The paper sees no way out of spiraling international crises until a more holistic economic model is adopted, which takes into account both market and non-market activities, is socially more sensitive and is based on environmentally more sustainable resource use.

Key words: Foreign Aid, Policy Packages, Contextualization, Governance, Inclusion, Gender Equality, Private Sector,

18.1 Introduction

Despite more than half a century of transfer of resources and technology as foreign aid from the developed to developing countries, ostensibly to help the people in the poor countries to overcome poverty, the world is seething as a consequence of war and conflicts. Much of this may be attributable to the rising aspiration of the masses for more and more material resources and inability of the economic system to satisfy them. In this process the poorest countries and the poorest of the poor are suffering most, among which women form the majority. Nearly 20 percent of the world population still has daily income of less than 1.25 US$ and 39 percent less than US$ 2. The Gini index measuring the world inequality levels has increased from 36.4 percent in the 1990s to 39.4 currently (ESCAP, 2013). Poor women are overburdened with pressure of poverty and care work. The general issue in every body’s mind is why? Answers to this question must be sought in the context of each specific conflict itself and in the history of economic policy making.

Foreign aid is not only a transfer of resources and technology; this package also contains institutional transfers and policy prescriptions, and with this a culture of aid givers and recipients, exposure to global media, democratic systems of governance and western life styles and consumerism. What role foreign resource transfers and accompanying policy packages have played in the past in regime changes in general and to more democratic systems in particular? What kind of direct impact has foreign aid had on sustaining non-democratic states, stifling the initiatives of the democratic governments to fulfill people’s aspirations or bringing about democratic changes? What were the indirect impacts induced by the cultural impact? These are complex questions, and each aspect of this change needs a full historical study, which is beyond the scope of this paper. The paper seeks to explore some of the direct relationships between flow of foreign aid, accompanying policy packages and political events in the context of Nepal.

Narrower questions that could be asked in this context may include: (1) whether the volume of foreign aid changed with the system of governance in the country, did foreign aid to Nepal increase substantially with the democratic changes in the country? (2) whether the institutional and policy packages that accompanied the aid flow were democratically discussed, and their fitness and sustainability evaluated in the specific country context; (3) whether the economic packages introduced were discussed by the political representatives and voted by the people in Nepal, and (4) Whether the aid packages and the policy recommendations matched the needs and aspiration of the people in the host country?

This paper examines such issues in the context of Nepal. The relationship between the volume and the policy packages that accompanied the foreign aid in the last 60 years of Nepalese political history, which has been full of political upheaval, is examined in brief. The paper does not focus on direct interventions by foreign countries in the political processes, because other papers in this volume address those issues. It concentrates in analyzing a few policy prescription and packages and their impact in generating flash points for conflict in Nepal.

18.2 Entry of Nepal into Aid Diplomacy and Early Years of Planned Development

Nepal entered proper aid diplomacy only after the political changes of 1951. Before that, foreign aid to Nepal was limited to technical expertise on a very limited scale, as the Rana regime tried to keep people’s contact with the foreigners to a minimum (Liechty, 2010), although the rulers vied for the support of the British Indian Regime in their internal bloody struggles for power, opened Nepal for British Gorkha recruitment and sent Nepalese forces to fight for the allied side in both World Wars (Acharya B, 1998). Only after the democratic changes in 1951, Nepal started to receive development aid.

Actually, foreign aid for economic development in its modern form just started after the World War II. By the end of the War II, the allied forces had distinctly split in two blocks, the USA and the Western Europe on the one hand, and the Soviet Union and the Eastern Europe on the other. The early packages of foreign aid from the two blocks were therefore directed to gaining support for their own systems in the aid recipient countries. The Western Europe and the USA were keen on preventing spread of communism further in Europe and other parts of the world, while the emerging Soviet Union wanted to maintain its grip in the parts of Europe it occupied. Both parts of Europe were devastated. The USA sponsored (1) a Marshall Plan to rehabilitate the economies of 17 western and southern European countries, and (2) large scale funding of the United Nations, IMF, and the World Bank, for further development assistance to the less developed countries. The Soviet Union and its allied countries on their part formed the Warsaw Pact to help rebuild their countries with mutual cooperation. Throughout the Cold War period, both sides used foreign aid as a means of gaining support for their ideology by promoting economic development in the recipient countries. Assistance from the soviet block was directed to opening up the countries for communist propaganda and from the US and its allies to prevent communism. Nepal entered the aid diplomacy in this cold war situation.

Early sources of foreign aid for Nepal were India, USA and China. There is not much information on how these aid packages were negotiated, as Nepal had only rudimentary bureaucracy and the political leaders had no experience of governance, not to talk about aid diplomacy. The first sectors in which Nepal received foreign aid were education (Colombo Plan), agriculture (Indian currency accumulated in the US account under US PL 480) and community development (India). China came in with cash grants in the mid-fifties. The number of donors and the sectors of assistance were rapidly diversified and by the end of the sixties, Soviet Union, Germany, Britain, Switzerland, Australia, Japan, and New Zealand were involved as donors in Nepal’s development.

Objectives of all these donors, except India, seemed to be getting a foothold in Nepal. India, on the other hand, wanted to take the mantel of the British Colonial powers in Nepal and maintain its hegemony, although the relationship was garbed under a façade of equality in the 1950 Indo-Nepal Treaty of Peace and Friendship.

In the early 50s, Nepal was just emerging from a feudal system of governance. The early organized movement for democracy in Nepal had started in the early thirties by a group of youth with the establishment of Nepal Praza Parishad in 1936, which culminated in the first ever political pamphlet in the Country in 1940. Although inspired by the Indian Independence movement and other similar movements around the world, it was primarily of home grown nature. Much later, in the late forties the Nepali Congress and the Communist Party of Nepal were established in India. A large proportion of the Nepali Congress leaders at that time comprised Nepali youths who had participated in India’s Independence Movement. A few communist leaders also had similar background. This gave much leverage to the leaders of independent India for guiding the Nepali democratic movement, which culminated in the overthrow of the Rana Regime and a first attempt at democratization of the Nepalese political system. Foreign aid played little role in this process, although external forces, primarily India and the British did play significant roles in bringing about the change.

Beyond 1951, and especially since 1955, when Nepal gained UN membership, the field was wide open for other countries. United States, as the rising super power and China, the next door neighbor were quick to capture the opportunity and come to Nepal with offers of development aid. Even then Nepal had already acquired recognition as a country of international significance due to its strategic geopolitical situation. As the Soviet Union, China and India seemed to form a diplomatic block at that time, Nepal provided a space for the prying USA and its allies. The Nepalese had little role to play in this international diplomacy. By welcoming China and western countries, the Nepalese rulers tried to balance the traditional one sided dependency on India. On the economic front the First Plan Period was coming to an end. This Plan was entirely funded by external development partners. It focused on physical infrastructure development, education and agriculture.

In 1959, an election to the Parliament was conducted and the Nepali Congress came to power with overwhelming majority. Some Indian assistance in the form of ballot boxes and facilitation of observation tour for election officials during the preceding Indian election was received. But it is also alleged by many that Indian money played a big role in the congress win. In 1960, the king dissolved the elected Parliament and took the reins of power in his own hand.

Even while the democratic system was overthrown by the King, the amount and sources of foreign aid continued to increase and diversify. During the decades of 1960s and 1970s, each country had its own priorities for funding. While USA focused on agriculture and education, the Soviet Union and China invested in hard core projects like roads, industries, power houses etc. Soviet Union came up with offers of a large number of scholarships for technical education, which contributed substantially to build Nepal’s technical human resources. But this also gave the Soviet Union a big opportunity to prepare a permanent human base for the leftist politics in Nepal. Nepal received assistance from India for roads, power houses and to some extent in education.

The World Bank and the IMF entered Nepal as donors in the early 1970s. The World Bank assistance was multi-dimensional, and so came with multiple sectoral policy packages, which were primarily based on the free-market philosophy and aimed breaking the subsistence cycle and creating a free market economy in Nepal. Most bilateral aid from both economic blocks was either tied to the purchase of goods from the aid-giver country or was in the form of commodities and technical support. The primary objective of creating markets for their own country goods by the donors was quite evident. The most glaring example in this case was of US aid under PL 480 to India, whose merits and demerits and devastating impact on the local agriculture, which Nepal also shared due to the open border, has been a subject of much debate.

Foreign aid as a percentage of development expenditure during the successive plan periods has fluctuated as per the programs priorities of the donors and not by changes in the political system (table 1). Already by 1962, His Majesty’s Government of Nepal (HMGN) was receiving more offers of foreign aid than it could use. For example the Three Year Plan (1962/63-1964/65) commented that “Foreign aid allocated to the projects in this Plan is much less than what can be obtained”. Major bottlenecks identified in aid disbursement were low capacity of the Nepalese economy to absorb the foreign aid, inability of the government to generate matching funds and to implement foreign aided program effectively and not the political system. The emphasis on decentralization of the decision-making process to the lower level government offices was there, but it never acquired much importance, until the basic need approach to development came into vogue and the government of Nepal, itself introduced the idea of regional development for decentralized implementation of the development programs. It was a part of an attempt to strengthen the Panchayat system itself. During the Panchayat era, actual disbursement of foreign aid to Nepal had increased from a mere NRs. 92 million[1] in the Fiscal Year (FY) 1962/63 to nearly 3 billion (NRs. 2927 million) in the last year (FY 1989/90) of the regime.

The Eighth Plan, coming immediately after the democratic changes of 1990 saw a slight decline in foreign aid as proportion of development expenditure, despite structural adjustment in full swing. On the other hand the estimated plan expenditure had jumped almost by 300 percent. The proportion of estimated foreign aid to development expenditure has declined continuously since the 7th Plan, despite structural adjustment policies, MDGs and PRSP. This could be attributed to various causes: increased capacity of the economy to generate internal resources, reclassification of many items, which were in the regular budget in previous classification into development budget and actual decline in the proportion of foreign aid. Thus the official foreign aid flow shows no direct relationship with regime changes in Nepal

Table 1:Estimated Share of Foreign Aid to Development Expenditure (Dev. exp.) in the Periodic Plans (amount in prices of the base year in the respective plans)**(NRs. in million)

Plan Period	Dev. exp.	Foreign aid NRs	FA as % of Dev. exp.
5th plan (1975-80)	6,170	2,776	45.0
6th plan (1980-85)	21,750	13,050	60.0
7th plan (1985-90)	29,000	20,480	70.6
8th plan(1992-97)	113,480	74,360	65.5
9th plan (1997-02)	189,580	115,546	60.9
10th plan/PRSP (2002-07)	2,340,300	1,346,200	57.5
TYIP (2007-10)	2,803,010	1,406,600	50.2
Three Year Plan (2010-2013)	5,651,400	2,402,800	42.5

Source: Respective plan documents.

18.3 Donor Political Pressures, Aid Conditionalities, Policy Packages and Political Charters, before 2007

Visibly, India was the only country, which directly used both aid and transit facilities as a tool to pressurize the King to lighten his grip on the reins of power during the Panchayat era. But that was not entirely because it wanted democracy in Nepal, but because it wanted to minimize the influence of the King on foreign policy, which was more neutral between China and India. But all development partners excluding China sided with the political parties to pressurize the King for political changes in 1990.

In terms of aid conditionalities and policy packages recommended by the multilateral agencies and the OECD countries, there was no direct pressure for democratic changes but only for liberalization of the economy especially in the financial sector, which became overtly forceful after the Washington Consensus. However, investment in building an effective and a-political bureaucracy was extensive. The foundations of the Nepal’s modern bureaucracy laid down in the mid-fifties were greatly strengthened and its structure vastly expanded during this period.

After 1990, the management of the economy was taken over by a new generation of western educated economists, who themselves were committed to the Washington Consensus and the free market economy as panacea for all economic ills of Nepal. The relevance of the policy packages based on the Washington Consensus was rarely examined in the specific context of Nepal, just emerging from the feudal past through not radical Prussian but the English path whereby, the emerging bourgeoisie collaborated with the feudal system to maximize profit on its investment as described by Samir Amin for other countries.[2] Neither were the macro- economic policies and development plans discussed in the Parliament.

Luckily, the Washington Consensus package had arrived in Nepal at its second phase, by which time the state investment in rural infrastructure, health and education was already considered a legitimate activity for the government, although the conditions for privatization of these services, broadening scope for activities of INGO/NGO, and decentralized management were imposed (Santiso, 2001). The latter two may be considered as promoting democracy, but privatization without proper regulatory framework and mechanisms to ensure equitable access by the poor and the disadvantaged groups could hardly be considered so.

Although the process of liberalization was started by Nepal in 1985, it went into full swing only after the1990 democratic changes, when the privatization process assumed a broad-based character, encompassing almost all sectors of the economy. On the real side, conditions for industrial investment were considerably eased both for the domestic and foreign capital. Physical and social sectors encompassing hospitals, schools and other educational institutions, transport system as a whole including surface and air transport, electricity generation, telecommunications, fertilizer imports and distribution etc were opened up for private and foreign investment (Acharya, K. 1998). The new industrial policy, formulated in 1992, aimed at mitigating “distortion”[3] created by market interventions and generating substantial growth through allocative efficiency.

Strengthening fiscal management was defined primarily in terms of downsizing the government and expanding and strengthening public resource management, with tax reforms to expand the tax-base and to strengthen tax-administration. The pressure on the minimum government, withdrawal of subsidies, pricing of social services etc continued. This constrained the scope of inclusive programs. For example the Governance Reform Program funded by Asian Development Bank (2001-2007) mentioned gender responsive civil service in its background to the objectives. The section on components and outputs included right sizing the civil service through voluntary early retirement and at the same time increasing the proportion of women in the government services (ADB, 2010). The amendment to the Civil Service Act that was implemented to make it more inclusive of women and other disadvantaged groups in 2007 was cited as the success of the program in this respect, in its 2010 evaluation. Actually, we all know that it was a consequence of the political events rather than the ADB program. When new recruitment was closed, there was no space to recruit more women.

The financial sector liberalization, which had started already in the early eighties, was intensified with further deregulation of interest rates, relaxation of entry barriers for domestic and foreign banks, restructuring of public sector commercial banks and withdrawal of central bank control over their portfolio management.

Nepal went fast ahead with external liberalization as the 1990s saw a significant movement towards economic liberalization in India also and constraints on policy choices in Nepal lessened. Nepal went for full convertibility on current account, adopted market determined exchange rate system against convertible currencies, removal of all but a few quantitative controls on imports. Drastic downward revision of the tariff rates and a general liberalization of trade and exchange rate regimes were implemented. These programs were advocated, applauded and supported by the donor agencies including the IMF & the World Bank.

On the other hand, the Nepali Congress which came to power in 1991 and the UML, the main opposition in the Parliament, two parties which had led jointly the 1990 mass movement for democracy, both had fought elections on a socialist platform. Consequently, one of the approaches mentioned for national development in the Eighth and Ninth Plans included reduction of poverty through creation of conditions for equal access of all to the fruits of development. Nonetheless, during the implementation, the social objectives except in education were completely lost in the euphoria of structural adjustment. No contradiction was seen in the objective of poverty reduction on the one hand and the philosophy of the minimalist state and unfettered all-round privatization on the other.

Commenting on the situation the then Finance Minister in the Interim Government of 1991-1992, Dr. Devendra Raj Panday (1999) wrote “Nepal’s development process is guided by two contradictory trends, first the democratic processes mandated by the Constitution and second the imperatives of foreign aid”. Most often the imperatives of aid override the democratic processes and leaders and political parties loose their credibility with the people.”

Liberalization did have substantial impact in terms of short term growth. However it could not be sustained beyond 1992. Liberalization had greatly increased exposure of the economy to external factors. Foreign trade had increased from 24 percent of GDP in 1985-9 to 40 percent in 2000-3. The contribution of agriculture to GDP had come down substantially, from about 65 percent in 1981 to 47 percent in 1991 and 38 percent in 2001. But the reduction in contribution of agriculture to GDP was not matched by a concomitant reduction of its role as employment provider, which remained at 66 percent in 2001 (Acharya, Khatiwada, and Aryal 2003). Expansion of external trade in the early 1990s was not sustained.

Beyond 2001, remittance from the migrants kept the economy going, and the overall poverty level declined from 42 percent in 1996 to 31 percent in 2004, in spite of the CPN (Maoist) led insurgency. But inequality between men and women, between urban and rural areas, between hills and Tarai areas, between migrant and non-migrant households, between well-educated, half educated and not-educated people, and among people of various castes/ethnicities had increased. The rural hills were largely left behind. All indicators of income and human development showed substantial inequality, which was recognized by the development community only from 2000 onwards. Dissenting voices were mostly ignored, until about this time, when the CPN (Maoists) made it impossible to implement foreign-aid projects for many of them. It seems the basic caste ridden and Kathmandu centered power structure was totally ignored in the development policy making.

As a consequence of extensive privatization of social services, the quality of public services decreased dramatically in these sectors as the children of better off households were sent to private schools, and the schools were converted into a political battle ground by the political parties. Introduction of pricing even for these meager services put them beyond the reach of the poorest and most disadvantaged sections of the population. Disparity in results was glaring there to see for everybody.

Furthermore, the CPN (Maoist) led insurgency was spreading like a fire in rural areas. Janajati, women and Dalits had started to raise voices about the unequal outcomes of development efforts so far. They constituted the main force in the Maoist Army. The new King had started to show impatience with the incompetence and squabbles of the democratic political parties.

What had happened? Where did the development community, including the national intellectuals go wrong? I want to discuss only a few issues to illustrate how the structural adjustment policies failed to contextualize the proposed remedy to the Nepalese realities.

First of all, the structural adjustment policies were supposed to stimulate growth and reduce poverty through more efficient employment generation, trickledown effect. But it did not happen fast enough. Privatization of the banking, air transportation, education and health did absorb the newly educated elite children, the product of the private schools who were fluent in English and computer literate, but it hardly percolated below that to absorb the illiterate and the half educated youth from rural areas or the urban poor. The details of nature of the labor market and the informal sector based village economy and how that might be impacted was never studied or addressed. Neither the linkage between the growth and employment in Nepal’s specific context of open border with India and the employment/income multiplier of trade were analyzed adequately. Dissenting voices were ignored.

The domestic labor market was unable to absorb the unemployed Nepalese youth released from agriculture because of two evident trends: excessive population pressure on land on the one hand and extinction of small and cottage level manufacturing industries on the other, due to the liberalization policies and opening of new areas by roads to imports and factory manufactured goods. This process had devastating impact on the service castes who had survived till then by servicing the village households and manufacturing goods of daily use for them. Excepting a few cases such as carpets, knitwear and pashmina shawls, direct and indirect employment multiplier effect of the larger manufacturing industries were largely exported to India in those years. This was attributable primarily to the mismatch between the kind of available labor and demand of the modern industries for literate and skilled human resources. The workers released from the rural subsistence economies were largely uneducated and unskilled. Attention to the need for creating skilled workers was grossly inadequate to what was demanded in the market. The emphasis was only on primary and to some extent on secondary education. Solving the immediate unemployment problem created by extinction of mass scale small and cottage level enterprises or outflow of youth from agriculture, by regular school education was impossible in the short run. Part of this out flux of labor from rural areas was directed to the foreign markets, while the rest constituted the recruiting ground for the insurgent army. This crucial issue of mismatch between the kind of labor available in the market and kind of labor demanded received little attention. It was conveniently forgotten that without adequate attention to upgrading the skills of Nepali labor on a massive scale, trade may increase GDP/GNP and look like an engine of growth, but it may impact very little on employment and income generation for the poor and the disadvantaged sections of the population. That is what happened in Nepal.

The solutions proposed to address the unemployment problem were introduction of contract labor provisions and Export Promotion Zones (EPZ). These could be partial solutions. But could labor relations be bettered in EPZs? Without that, how possible was it to implement them given the ground realities of that time, the strength of the trade unions that were supported by the political parties in all their demands? The experience from around the world also shows that EPZs hardly address labor issues judiciously. Women workers in EPZs do gain opportunities for precarious employment in some export industries for short run, but often suffer long term health consequences. What about the ILO labor standard treaties? Only recently the World Bank itself has started to recognize that.

More importantly, when lack of appropriate skills was the primary problem for the Nepalese labor to be absorbed in newly developing service and manufacturing sector, how was EPZ going to help? While India clamps down on any industry, which shows any signs of growth and Foreign Direct Investment (FDI) is attracted to Nepal only with an eye on Indian market; and while Nepal itself is a very high cost economy in comparison to India or other neighboring or far-off countries; how is EPZ going to help? What will be the specific advantages to the Nepalese people from the EPZ? These questions still linger.

There was much emphasis on easing labor-market rigidities, but the need for proper labor-retraining and re-deployment-programs got little attention. Given the strength of the left in Nepal’s politics and the raging CPN (Maoist) insurgency boosting the morals of the trade unions, how that could be feasible was not evaluated. This fact is still ignored in current private sector promotion policies. On the one hand our leaders in government (whatever parties) talk about removing the labor rigidities with the development partners, particularly the World Bank and ADB, on the other the same political parties go about encouraging their trade unions to raise their demands beyond the capacity of the industries and business units. Little attention was/is given to the mediating and facilitating roles of the state in bringing labor and capital together on a fair compromise for social good. This state of affairs still prevails.

Or another such politically not implementable pet recommendation from the donor community pre-PRSP was on developing land markets and opening land transaction for foreign investors[4], while the rural areas were largely under the control of the insurgents, and land redistribution was one of the major demands of the CPN (Maoists) leading the insurgency. Most of the larger land lords from the rural areas had been forced to leave their land to the share croppers or the CPN (Maoist) cadres. How was one expected to generate land-market in this situation? Even currently, prior rights on land and natural resources for the Janajati and other groups has been one of the contentious issues in the outgoing Constituent assembly and will probably be an issue in the forthcoming election. All political parties have put land reform on their agenda, whatever that means for each of them is not clear. But redistribution and some ceiling on land holdings are definitely going to be a part of the package. Currently even the World Bank is talking about the land reform, but it seems more related to secure land rights for the land holders and return of the property captured by the CPN (Maoists) during the conflict.

With the CPN (Maoist) led insurgency raging fierce, women and various historically excluded groups demanding justice in all walks of life, and with political, economic and social, statistics showing stark inequality in economic as well as human development indicators, by 2002 it was clear that, Nepal needed more social sensitivity and political acumen in its economic policies. The Tenth Plan (2002-2007) set its primary objective as poverty reduction and the World Bank arrived with the package of PRSP, which was supposed to be the guiding principal of the Tenth Plan. Following section tries to analyze what did change under PRSP in Nepal, starting early 2000s.

18.4 MDGs, PRSP, Aid Effectiveness Agenda and the Donors

It was not only Nepal which was suffering from Washington Consensus based economic policies with a pious hope of trickle down to take care of the poor and the poorest or to achieve even the minimum Millennium Development Goals (MGDs) and its targets. Most aid receiving countries suffered from this.

In 1996, the Human Development Report commented that preceding 15 years had seen unprecedented growth of the world economy but the **growth had been jobless, ruthless, voiceless, rootless and futureless, ** generating unprecedented inequality and creating two worlds. In this period economic decline had affected 100 countries reducing incomes of more than a quarter of the World’s population. This provided a backdrop for the Social Summit in 2000.

In the United Nation’s Millennium Summit, 2000, all 189 United Nations member states and at least 23 international organizations committed themselves to the 8 Millennium Development Goals to be achieved by the year 2015. Eradicating extreme poverty and hunger topped the agenda. Other associated goals included achieving universal primary education, promoting gender equality and empowering women, reducing child mortality rates, improving maternal health, combating HIV/AIDS, malaria, and other diseases, ensuring environmental sustainability, and developing a global partnership for development. PRSPs came as a program to achieve MDGs.

By that time, starting with the International Conference on Financing on Development in Monterrey (2002) several other conferences had taken place on working out the basic principles of Aid Effectiveness Agenda, which was later developed fully in the Paris Declaration (2005). These principles included national ownership of programs and processes, alignment and harmonization of donor support to the national priorities, transparency and mutual accountability and managing for results.

OECD donors and multilateral banks in Nepal have been guided more or less by their commitment to MDGs, Poverty Reduction Strategy and Aid Effectiveness Agenda since the early 2000s. A review of their plans, programs and instruments of monitoring in Nepal (World Bank/IDA, ADB, JICA, DFID, GTZ, EU, DANID, and USAID) in 2007 showed that they had identified poverty reduction, gender and inclusion of Dalits and other marginalised and excluded caste/ethnic groups as their priority concerns, in one or other way. The difference was only in language and emphasis. The PRSP, Development Plans, MTEF, Government budgets and SWAps provided a common framework for action.

Donors have been targets of criticism from two opposite sides for their activities in this period. One group believes that they did not visualize adequately the structural changes required in their approach, while another is critical of their wider intervention in the political processes by supporting various specific interest groups and weakening the state.

For example, I had following evaluation of donor programs in one of my papers in 2010. The UN system programs had been redesigned to address the peace, gender equality and inclusion agenda through a unified common framework for action, the UNDAF (2002-2006) with emphasis on rights approach to development. However, this was still to address root causes of poverty (UNDAF, 2002-2006 Executive Summary). This changed with the UNDAF (2008-2010)[5] somewhat. It talked about the rights approach to development. However, the clear change in emphasis seen in the TYIP from growth and equity to inclusive growth with elimination of structural inequalities and injustice was not visible in objectives or strategies until 2007/08. It was for achieving MDGs and poverty reduction. This instrumental approach to gender equality and inclusion despite prefaced rights approach to development and multiple empowering programs persisted in the cases of many other mutilateral and bilateral donors. Peace and MDGs should be achieved for inclusive society not vice versa.

As to the implementation, UNDP and other larger development partners, including the World/Bank, ADB, GTZ, DFID, and DANIDA had worked out their gender and inclusion strategy and the monitoring frameworks in general and in the Nepal specific context quite elaborately. Strategies of most of the larger OECD donors were three pronged, gender and inclusion mainstreaming in larger development programs, funding specific programs for women in the government sector and funding large scale poverty focused, awareness raising and advocacy programs through both government and semi-government institutions (Election Commission, Judiciary) and NGOs and INGOs. Many of such programs had both gender and inclusion perspectives. However, emphasis differed from donor to donor on as to the preferred channels of assistance and in some cases instruments designed for ensuring social sensitivity were used only halfheartedly as a formality or not used at all. One of such example was Vulnerable Communities Development Program (VCDP) of the World Bank (Acharya, 2008).

Overall the projects/programs that fell in the social engineering and rural development sectors were developing adequate poverty, gender and inclusion sensitivity in terms of program/project design - planning, implementation and monitoring instruments and paying adequate attention to involvement of the stakeholders. Yet, such conclusions could not be drawn from available information on larger infrastructure, economic and financial restructuring and economic reform directed programs. Such programs were funded primarily by the World Bank and the Asian Development Bank.

The main criticism against PRSP is that it became another targeted Bank project in practice, instead of the overarching guiding principal it was supposed to be. For example in Nepal, Khanal et al (2008) comment that PRSP was just a repacking of the old programs and it was poorly implemented. However, one may argue that the whole idea is to change the approach to development to encompass larger masses and that requires repacking of the old programs with new approach as also new intervention tools. Development is a continuous process and if one accepts a democratic framework for development, what has to change is the approach. Few new tools are available. It is true that the basic issue of land rights, the crucial issue for rural poverty reduction was never considered under PRSP or otherwise in the foreign aid package. Neither were the poverty reduction strategy and programs geared to changing the power structure. But that is for us to change not the donors.

What changed with PRSP? Nepal had always put poverty reduction as its main agenda in its development plans. But this agenda was lost in the priority for growth without any plan to equalize the benefits of growth, because no donor was interested enough to tackle poverty effectively. PRSP, for the first time allowed the use of donor money for equalizing opportunities for basic education and health for the poor. How effective that was is a different issue. At least gender equality and inclusion became the cross cutting strategies in all four pillars of poverty reduction strategy.

The four strategic pillars identified by PRSP to address the then existing situation included broad-based growth, social sector and rural infrastructure development, targeted programs of inclusion and good governance. The concept of governance was expanded to include devolution of power to local governments and community groups, thus shifting the exclusive focus on the private sector as the sole engine of growth. These were expected to address the problems of wide spread unemployment, unequal access to social services and consequent increasing inequality in human development standards of various social groups and between women and men.

The World Bank and the donors had gone a full circle after the McNamara period. Nevertheless, growth was the priority and expansion of primary education, agriculture, rural infrastructure and tourism were expected to solve the unemployment and inequality problems. The emphasis on governance was still focused on facilitating the market, limiting government role to education, health and infrastructure development.

Moreover, gender and poverty mainstreaming and inclusion did not go far enough to encompass non- traditional sectors. Despite the idea of PRSP to mainstream poverty concerns in all programs, the monitoring indicators used in general programs were defined as always in terms of physical outputs and not their impact on employment or poverty. For example commenting on this I wrote in 2008 “although above efforts (targeted social programs) are necessary for bringing poor women from disadvantaged groups into the mainstream and also achieving MDGs, but limiting women’s concern under social inclusion to be addressed with some targeted programs is not adequate to fulfill the commitments made under CEDAW, BPfA, MDGs and other human rights related instruments. There is high possibility of women’s concerns getting by-passed by the planners, policy makers and implementation machinery in general programs” Empowerment aspects were not adequately addressed under PRSP.

18.5 Post 2007 Political Environment and the Changed Context of Foreign Aid

The Nepalese political scenario completely metamorphosed in 2006, when the democratic parties and the CPN (Maoista) mediated by India combined their forces to overthrow the autocratic rule of the King. People responded in mass to make the Jana Aandolan II (people’s movement II) as the most important political event in Nepal’s history after the unification of Nepal by Prithiwi Naryan Shah. All external partners, except China, were more or less guided by India this time on their attitudes towards the mass movement for democratic changes. Once the movement started to gather momentum, India and western donors stopped the arms supply and new commitments on aid and also threatened to stop all aid, if the government failed to compromise with the political parties. Stoppage of military was one of the crucial factors, which forced the King’s government to collapse. It is true that many countries and institutions used people’s discontent towards advancing their own agenda, e. g. abolition of Monarchy (Particularly India), secularism and federalism to weaken the Nepali State. Millions of money flowed into the NGO coffers for mobilization of the people on particular interest group agenda, for example religious institutions were in forefront of funding NGOs with demands for secular Nepal. Ostensibly, the support to the movement was for the democratic changes but covertly each of them was advancing its own agenda for change (See Bhatta, in this volume). Nonetheless, it was primarily the people’s force that brought the Monarchy down and forced the political parties to move towards more equitable political, economic and social systems. Nepal is now constitutionally a Secular Democratic Federal Republic.

Nepal’s Interim Constitution, 2007, a symbol of democracy at work, not only guarantees civil and political rights, but also provisions many social rights, particularly right to inclusion, non-discrimination, and basic education and minimum of health for all. It also promises scientific land reform with lower ceilings on land ownership. Although the rights to private property and its use are also guaranteed, the Interim Constitution is much more sensitive to social rights and inclusive state than any other constitution in Nepal’s history.

The Three Year Interim Plan (TYIP) (2007-2011) an outcome of compromise among all major political forces of the time outlined its vision as “… to build a Prosperous, Modern and Just Nepal. In the envisioned situation, Nepal will be free from absolute poverty and all Nepalese will have obtained full rights to live in suitable human conditions. The people will obtain equal rights, and economic and social opportunities to fully utilize their potential. —- the gap between the rich and the poor will have reduced, and all kinds of discrimination and inequality, whether they are legal, social, cultural, linguistic, religious, economic, ethnic, gender, physical condition, and geographical, will have ended” (TYIP, 2007)” reflecting the spirit of the Jana Aandolan II.

It placed special focus on employment-oriented pro-poor and wider economic growth, inclusion, equality, equity and justice. Besides the PRSP initiated policies, more emphasis was placed on development of technical skills and training, and appropriate technology transfers to both formal and informal sector workers. These two documents have guided Nepal’s development strategy since then.

The current Three Year Plan (2012-2013) aims at poverty alleviation and establishment of sustainable peace through inclusive employment centric growth. Major strategies outlined for stimulating such growth include inclusion, private-public partnership and group activities through cooperatives. A three sector model, government, cooperatives and private sector is proposed. There is belated special emphasis on technical education for rural youths along with basic education. Gender equality, inclusion, peace building and good governance have remained the pivotal cross cutting themes in both the plans.

Donor Approaches 2009 -2013

In the meantime, although internationally much progress in productivity growth and poverty reduction has been achieved and progress has been seen on many of the MDG targets, the world is seething today with multiple crises on many fronts - food, water, commodity, security, human care, environment, and the financial world. Many OECD countries, the UNDP and the World Bank have come to recognize that despite the rise in the economic strength of few Southern cCountries, many countries have lagged behind. Inequality between and within the countries is rising creating multiple conflict points, and holding the recovery of the world from the economic crisis. UNDP and the World Bank’s regular publications such as the HDR and WDR[6] have come to recognize that there are multiple lessons to be learnt from the newly emerging countries such as Brazil, China and India, who have found innovative ways to equalize to some extent the opportunities created by growth and provide safety nets to the people who were impoverished in the process of this growth. The irrelevance of Washington consensus based policy packages has been finally recognized and opinions have converged on the need to support a proactive developmental role of the state to ensure equitable and just growth. Although emphasis on each of the points listed below may differ, overall the following could be listed as policy packages to be supported in developing countries, on which donors have currently converged:

• Employment oriented broad based inclusive growth,
• Judicious tapping of global markets, with gradual sequencing of investment in people, institutions and infrastructure,
• Measures to promote gender equality and inclusion,
• Institutional reforms to ensure broad citizen participation and people’s voice in the decision making process, political and other institutions
• Meeting environmental challenges

These developments have definitely impacted on the donor approaches in Nepal. Post 2007, the four Pillars of PRSP and inclusion and gender equality as cross cutting issues have continued to guide the policies and programs of the development partners, with added agenda of peace building and assistance in state restructuring. Following the Aid Effectiveness Agenda they have also widened the circle of stakeholder consultations, more closely aligned their assistance with government plans and policies and attempted for a better donor coordination in planning programs. The emphasis on employment generation has become more pronounced but the instruments to achieve them remain the same, agricultural and tourism growth, education and rural infrastructure. As examples, I briefly review the UNDP coordinated multi-donor approved “Peace and Development Strategy 2010-2015”[7] and the World Bank’s Interim Strategy Notes (2009-2011) and (2012-2013).

UN System and the OECD countries

The Peace and Development Strategy 2010-2015 and its accompanying Action Plan has tried to align its strategies and programs with the Comprehensive Peace Accord (CPA) signed by the Nepal government with the then CPN (Maoists) after Jana Aandolan II, which along with the Interim Constitution and other political agreements have guided the peace process so far. The Joint Peace and Development Strategy identify 178 specific areas of ongoing or potential support to development in Nepal. They are divided in short and long term priorities. Short term priorities include:

(a) Completion of the continuing activities in the peace agenda (e. g. support to the conflict-affected, constitution making, elections etc). Assistance in the implementation of the Plan of Action on UNSCR 1325 and 1820 is specially mentioned. Job creation has been identified as especially important for preventing future conflicts and as a challenging task.

(b) Assistance for transitional justice – Truth Commission, Commission for Disappeared and Missing, local peace committees etc; rehabilitation and integration of Maoist combatants, a more inclusive and effective human-rights-focused law and order situation, establishment of an independent Police Commission and reforms in the judiciary. This group of actions also includes assistance to develop a comprehensive record of the land and property seized by the CPN (Maoists) and a mechanism to return them to its owners.

(c) A third group of short term actions are designed to widening and deepening citizen’s engagement to prevent relapse of the situation into another conflict.

With longer term perspectives the Strategy focuses on social inclusion, rule of law, security sector transformation, reduction of inequality and inclusive employment oriented growth, good governance and state restructuring. Areas of assistance identified include programs for better information on sex disaggregated and social group data and their better use in programs, affirmative action measures, elimination of remaining discriminatory laws, expansion of inclusive scholarships, and outreach of ILO Convention 169, more inclusive judiciary and reforms in judicial processes, vital events registration, reform in citizenship processes etc. Land reform has been identified as another explosive area which needs assistance. Particular areas for assistance identified in this connection are strengthening the local government to improve accountability, transparency and effectiveness of the service provisions, improving the government regulatory framework, and strengthening oversight and support to anti-corruption initiatives.

For reducing inequality and inclusive growth, the donor agenda outlined includes support for more targeted scholarships and a more effective social protection system, collection of data on inequality, acceleration of infrastructure delivery and improving regulation of labor migration.

Areas of possible cooperation in the restructuring of the state include assistance in mechanisms of restructuring and capacity building of the government bodies to deliver gender sensitive, human rights based and inclusive services.

The last area identified for long term assistance is in creation of broad-based employment, which includes formulation of a national action plan for employment, inclusive employment schemes, improving the investment climate for sustainable enterprises, expanding technical and vocational training and dealing with the consequences of large scale migration of the population.

The new strategy paper in its approach mentioned that the status of the Action Plan will be reviewed and updated periodically for timely changes. It also says that they are ultimately contingent upon Government requests. It calls for donors to make greater efforts to monitor and understand the complex social and political processes for better contextualization of their programs and integration. They are also called to ensure predictability of funds, make realistic planning of the time frame and maintain flexibility in programs. Observance of the Aid Effective Agenda as agreed upon in Paris, 2005 and Accra are also emphasized.

The World Bank’s Strategy Notes

The World Bank in its joint IDA-IFC Interim Strategy note for Nepal (2007-2009) identified three strategic pillars to support consolidation of peace and promotion of development in Nepal. These pillars included: (i) promoting capable state structures and systems and fostering accountable institutions which addresses the cluster of challenges in transformation of the state structures; (ii) laying the foundation for sustainable, inclusive and equitable economic growth with focus on job-creation, productivity, connectivity and sustainability; and (iii) enhancing equitable access to the benefits of growth, services and social inclusion with focus on expanding and honing social programs to increase opportunities and wellbeing, especially for the poor and excluded.

The first pillar focused on three areas of engagement: (i) strengthening core public sector; (ii) defining the institutional framework for the new state, with a particular focus on decentralized administration; and (iii) helping to articulate and implement new “rules of the game”, including transparency, accountability, and anti-corruption among key players, including the private sector, and strengthening institutions for regulation and governance. IDA was to concentrate on public institutions, while IFC focused on corporate governance in the private sector, especially the banking sector and on large founder-owned firms. Promoting the interface of the state and the private sector was identified as an important agenda.

Under the second pillar the emphasis was on private sector led but broad-based and sustainable growth. This is the most important pillar for dealing with the explosive cause of conflict, unemployment of the youth. The emphasis was on reforms to remove structural and regulatory constraints for the private sector investment, enhance accountability, and increase policy predictability. IDA and IFC were to adopt a two-pronged approach under this pillar, long and medium term and short term focusing on hydropower, tourism and agriculture potentials.

Major thirst of the policy was to transform the agriculture sector from subsistence based to commercial production as well as to reduce on-farm underemployment and increase more productive off-farm employment. Specific interventions planned were: to encourage cultivation of high value commodities and to promote market orientation and trade. IDA was re-engaging with the proposed Agriculture Commercialization and Trade Project and continuing its involvement in the irrigation sector. IFC was to support agribusiness in the private sector.

Another area under this program was infrastructure and connectivity through promotion of private sector investment and assistance in establishing PPP policies. IFC’s contribution to private sector growth was to come through three channels: (i) direct investments across agriculture, manufacturing and services; (ii) working with the Bank to highlight constraints to private sector investment (both domestic and external); and (iii) improving the investment climate. Based on the joint IDA-IFC Investment Climate Assessment (ICA), IFC was to work with the Bank to engage the government in reforms to streamline regulations for business entry, operation and exit, rationalizing inspections and certification regimes, accreditation for export markets, and simplifying the tax regime, and establishing PPP and Special Economic Zone (SEZ) regimes.

Gender equality and inclusion, which was a cross cutting strategy under PRSP became a specific third pillar to be addressed by specific programs. Going by this, it seems that it became a collection of programs rather than an overall strategy to be applied to all programs and projects. This pillar proposed to strengthen core diagnostics and continue programs in sectors in which IDA and the World Bank were already engaged (education, health, rural water, micro-hydro and poverty alleviation). Communities were identified as the most robust channel of delivery for such services. One very important addition to previous programs under this pillar was the provision for technical and diagnostic advisory services for overall visioning and strategy for the social protection and security systems and consolidation and improvement in the existing systems. Nepal’s current social security is a collection of programs designed ad hoc as political response to demands from various interest groups and scattered throughout different ministries.

Specific strategies were outlined to ensure that the Bank group portfolio contributes to peace building. IDA will ensure that new interventions “do no harm” and, where possible, enhance peace building, job creation, and social inclusion. According to the Strategy Note a specific screening tool — or “peace filter” — has been prepared and is used. The peace filter will help project teams during the project preparation and implementation processes to assess national and local level political dynamics and the possibility of benefit capture only by non-target groups, the security situation in given areas of operation, and to ensure transparency and accountability, inclusion and voice of the people in the decision-making and resource use. Linkages will be made with other risk assessment tools regarding governance, anti-corruption and fiduciary risk assessment frameworks, as well as social mobilization practices that promote inclusion. Since employment generation is seen as a critical factor in maintaining social stability, the peace filter would also track employment effects in relevant projects.

These programs, strategies and instruments form the basic components of the Bank’s Interim Strategy Note (ISN) for 2012-2013 also, with some variations on emphasis. It specifically reiterates its objectives -poverty alleviation and the establishment of sustainable peace through inclusive, employment-centric growth, in line with Nepal’s current Three Year Plan. To achieve these objectives, the Bank Group’s strategy is organized around three ‘pillars’ (a) enhancing connectivity and productivity for growth, (ii) reducing vulnerabilities and improving resilience, and (iii) promoting access to better quality services. Within each of these pillars, the strategy identifies specific areas where it can make a difference. Gender equality and inclusion is back as a cross cutting theme along with governance, and accountability.

IDA programs will continue to focus on energy, irrigation and roads under the first pillar. IFC will work with private sector to improve investment climate and enhance opportunity for the private sector, both local and foreign, along with some catalytic investment. Enhancing food security and nutrition and reducing the livelihood vulnerability of the poor to the climatic and other economic risks will remain priorities areas under the second pillar for the IDA. It will continue its assistance in the education, health and urban services and consolidation and improvement in social security and social protection system under the third pillar. The Strategy notes that these programs follow Nepal’s Plan priorities and have been decided in consultation with the government and other development partners in Nepal.

As to the cross cutting themes, IDA and IFC will support all interventions to improve the overall governance for improvement of accountability and transparency, including state restructuring, strengthening institutional capacity in public financial management system, promoting social accountability, improving municipal governance, strengthening governance and accountability in the financial sector etc, along with ensuring good governance and accountability across all three ISN pillars.

Major tools for this will include the governance accountability action plan (GAAP), political economy analysis of change and reform, institutional assessments of selected programs, and the peace filter. Effective M&E systems and results management, institutional support to operationalizing right to information, anti-corruption, social accountability, and inclusion implementation will be other areas of assistance of IDA. These efforts will be complemented by IFC’s Regulatory Reform project and access to finance initiatives which the aim to encourage good corporate governance; improve productivity, competitiveness and enhance investment and trade activity along with a broader set of regulatory issues.

Under the theme 2 Fostering Gender Equality and Social Inclusion, IDA in collaboration with other development partners and civil society organizations will support the capacity building of key sectoral ministries and implementing agencies for integration of Gender Equality and Social Inclusion (GESI) in their programs. It will also incorporate GESI in all its current operations and future lending and monitoring programs. IFC will concentrate to improve access to credit in the rural areas and to increase the outreach to under-banked and underserved populations.

18.6 Conclusion

After the Social Summit, MDGs and poverty reduction became the overriding goals for the donors and PRSP provided a common platform to coordinate their contributions to Nepal’s development. The Paris Declaration (2005) on aid effectiveness outlined five principles and new modalities for more effective aid delivery. The European development partners, the multilateral Banks and the UN System tried to redesign and reformulate their existing and new programs to support MDGs and focus on poverty, especially with expanded instruments for monitoring the impact of their programs on the vulnerable groups, inclusion and gender equality. For donor coordination and harmonization several mechanisms of aid delivery such as SWAp’s and Joint programs were initiated. Human development of the vulnerable groups was considered as the most effective means for poverty reduction, inclusion and gender equality. PRSP tried to take a new approach to broad based growth with inclusive policies.

What is new in the new World Bank strategy notes and the multi-donor Peace and Development Strategy, is their acceptance of inequality and unemployment as the major cases of conflict and refocus of their programs towards assistance for direct employment generation and technical education and training, which was greatly neglected till now. UN system has been more aware of these issues since before, but now the approach is more formalized. Agriculture, which was left entirely to the private sector, is back on the donor agenda for assistance. Inclusion and governance have been brought to the forefront. Greater social and economic inclusion are to be guiding principles in all programs. The untouchables such as land reform, citizenship management, police and judiciary could all now line up for donor money.

The concept of good governance has been expanded beyond efficiency, transparency and accountability in service delivery and improving investment climate, to encompass state restructuring, inclusion, control of corruption, accountability and transparency in broader areas of government services, and corporate governance. Nevertheless, the approach towards government intervention in the private sector activities remains still that of a minimalist state, although with more emphasis on Private-Public Partnership.

The issue is how practical the commitments to transparency, accountability and weeding out corruption are? What donors can do is only to assist improvement in procedures and mechanisms and insist for their implementation in funded programs. But this is not adequate. The political environment must be made transparent and accountable for weeding out corruption in the civil service. The nexus between the political parties, big business houses NGOs and the bureaucrats has been a big factor in increasing corruption at high places, which in its turn creates incentives for corruption throughout the system. Laws or regulations which are freely ignored can remedy very little by themselves. It is clear that school output is so low because most of the teachers spend their time servicing political leaders or political parties rather than teaching. How do you control this? Half of the time they go on strike on flimsy demands on behest of their parties; it is their human right to strike. What about the human rights of the children; those thousands who failed SLC primarily because of those teachers? Consider the example of the over charge to the treasury on the name of the Maoist Combatants in the camp, with the connivance of UN team itself. Who is to blame for this scenario? Definitely, primarily our own leaders and the political parties should share the blame. But donors have not even protested publicly. A commitment by politicians to show clean behavior is a first condition for the implementation of anti-corruption agenda. What can donors do on this?

On the other hand, what intervention by the donor community in our governance processes do to Nepal’s sovereignty and independence is an issue of much debate. There is great apprehension on this issue. For example many papers (Malla and Bhatta in this volume, Dahal and Ghimire, 2012) have commented critically on the issue of intervention of donors in the political processes of Nepal and its unwanted impact. They argue that too much focus by the donors on INGOs and NGOs as channels of aid delivery, and intervention in political processes (such as support for ethnic federalism) have tended to promote extremism among various interest groups and create new points of conflict. It has weakened the state. It is true that the focus of some donors has been promoting only demands for rights, without any consideration to concomitant duties and commitment of resources to fulfil the demands. It is conveniently forgotten that rights have to be exercised without impinging on other people’s rights. In a country just emerging from a feudal socio-economic system entrenched into a strongly hierarchical power structure, building democratic institutions cannot be a short term task.

Donor policy prescriptions often swing from one extreme to the other depending on the exigencies in developed countries. For example after complete neglect of people’s initiatives in the 60s and 70s, the pendulum swung completely to the other end advocating NGOs and community based organizations (CBOs) as alternative agencies for service delivery. This was more on the part of the UN organizations, EU and individual EU countries. The issues of social inclusion, caste, language were completely ignored before 2001, even in education program (e,g Basic and Primacy Education Programs). Post 2001, there is a risk that another kind of exclusion may be created for a majority of the poor by exclusive focus on the caste and ethnicity as the sole criteria for preferential treatment without economic filters. While opening of the political institutions for broader participation by women and various marginalized cast/ethnicities seems to be necessary, preferential treatment in education and job openings without economic filter for each individual is hardly justifiable from the point of view of the majority groups, who form the absolute majority among the poor. How do such swings help to building peace and stabilizing democracy?

Stimulation of broad based growth focused on agriculture, forestry, tourism, rural infrastructure, micro-credit for group based activities, with some emphasis on small industries, EPZ based exports remain the key policies outlined for generating employment. The private sector is assigned a pivotal role in these activities. Going through other documents of the World Bank and ADB[8] there is enough emphasis on putting a regulatory framework in place to facilitate competition, but not enough to ensure fair competition by the business houses or traders, transport owners and other private service providers. The fact that private monopolies can be worse than state monopolies in a hierarchical feudal society is hardly taken note of. Examples of private monopolies hampering competition abound in Nepal, even today, e. g. truckers, medicine suppliers etc.; petrol transporters go on strike because the National Oil Cooperation wants to reduce the cost of oil import by changing the point where the truckers pick up petrol from the Indian suppliers at the border. How to introduce competition in these sectors smoothly is a big issue. If market has to function for the consumers, such kinds of entry barriers have to be eased in practice and not only on paper. But these issues hardly get attention. While the world is talking about the corporate responsibilities to the consumer, Nepalese policy makers and the development partners remain happy with the little social projects of the corporate houses and donations to their preferred parties. What will be covered under assistance to the private sector for improvement in corporate governance is not clear. Is social responsibility included?

Overall, we have been perusing this model of private sector led growth for already three decades. Do the development indicators show more inclusive growth and more inclusive distribution of gains from growth for the poorer sections of the population? Statistics speak for themselves. Going by the recent SLC results which shows a drastic decline in the pass rates from the community managed schools, despite pouring billions of Rupees on them, we seem to be moving towards more inequitable education system, because of those who failed are sure to be from the poorer households. Opening of the school education to private sector has allowed tapping the private resources for expansion of school facilities. But it has introduced a new factor of inequality in already unequal society. The chasm between the graduates of the English medium educated school graduates and those from the local community schools is multi-dimensional and deep. Difference is not only in pass rates, to me that is a secondary issue. More important is the aspirational gap it is producing between the two groups. The products of private schools do not want to stay in Nepal at all; their target is earning money and migration to more developed countries. They do not mix up well with the society; survive by dreams of western countries. The other group seems to be destined to the ghettos of Arab countries. Whether this will generate new points of conflict is an issue to ponder, as is evident today. The school sector has become a battle ground despite constant commitment by the political parties to leave them as a “zone of peace”. How to ensure private-public partnership in social sectors is a big issue even in the developed world.

The experience of the last century and current day world-wide crisis of capitalism with increasing inequality of income, wealth, access to resources, education and information has proved conclusively that actualization of political democracy in practice presupposes a minimum of economic and social equality as well. The increasing inequality is threatening not only the political fabric of democracy, but it is also hampering the economic recovery itself. Democracy as perceived today by the majority of people has to ensure along with political and civil liberty for all groups of citizens, a minimum of economic insurance to equalize not only the opportunities for self-development but also yield some sort of equality in results as well. This requires scope for individual initiatives as also social control to ensure that they are used judiciously for social good. This is a model practiced in most of the developed countries today, with variation in the actual role of the state. But all of them are in crisis now; the social democratic Europe is in deeper crisis than USA, where the state role in the social programs is lower.

Pecastaing (2013), in a recent article in Defining Ideas, attributes this state of affairs to the impossibility of maintaining a balance between market and welfare initiatives. He argues that democracy was viable in the early years because it was rule by a few not the masses. When masses got their voices organized and started to participate in the governance process, democracy was sustained by introduction of welfare measures. But the private sector needed to be given free space to develop, so that taxes could be generated for the welfare measures. But it has become impossible to administer the welfare state and the democracy has reached an impasse, because of the unsustainable and conflicting demands of various interest groups by lobbying, considered to be the backbone of current day democracy and corruption. The social democratic Europe seems to be more in trouble. How to balance the two it is the crux of the problem. The issue is going to be more difficult in new democracies, where the political parties have overthrown the old regime with mobilization of people under socialist agenda and slogans. Nepal presents a good example of this trend.

The whole concept of progress must be revaluated. The South has risen but they are going the same old “normal way” of development based on greed and unsustainable use of earth’s resources. For example from the point of view of feminists, it will not be enough to focus on how women can get a fair share of jobs in the market and appropriate social security measures such as cash transfers. A group of feminists Scholars (Jain and Elson, in Collaboration with the Casablanca Dreamers, 2010) in an UNDP draft paper declare “If post-crisis economies are to meet goals of equality and social justice and environmental sustainability, we need to consider more basic questions, such as questions about the role of markets in society; and about what kinds of goods and services are being produced and for whom; and what criteria are going to be used to judge success and how we define progress.” Economic models must take more holistic approach in evaluation of the progress taking into account both market and non-market inputs and outputs. The unpaid household and care work to which women have to contribute disproportionately, has to be taken into account in each policy decision. So far such change is hardly visible in donor approaches[9], despite awareness of the burden of house and care work on women due to inability of economic models to reflect male/female distribution of such kind of work.

References and Endnotes

Acharya, Baburam. 1998. “Aaba Yesto Kahilyai Nahos” Publisher Shree Krishna Acharya

Acharya, Keshab, N.B. Thapa, S. Sharma, 1998. “Economic Liberalization in Nepal Sequence and Process,” OXFAM GB-Nepal, Kathmandu

Acharya, Meena, Yuba Raj Khatiwada and Shankar Aryal.2003. “Structural Adjustment Policies and Poverty Eradication”. Kathmandu: Institute for integrated development studies

Acharya, Meena. 2008. “Mapping Foreign Aid in Nepal from Gender Perspective”. Kathmandu:UNIFEM

Acharya, Meena.2003. “The economic foundations of the current socio-political crisis in Nepal” in D. B. Gurung (ed.) Nepal Tomorrow: voices and visions, Kathmandu: KoseleePrakashan.

Amin, Samir. 1978. “Accumulation on a World Scale” Two Volumes in One, Published by Monthly Review

Asian Development Bank (ADB) 2010. “Validation Report on Nepal”: Governance Reform Program Reference Number: PCV: NEP 2010-08; Independent Evaluation

Asian Development Bank. 2008. Strategy 2020. ADB. Manila

Bhatta, Chandra Dev. “External Influence and Challenges of State building in Nepal” (In this Volume)

Dahal, Devraj & Yubaraj, Ghimire. 2012. “Ethnic Federalism in Nepal” Published at Winter/Spring 2012 (71) under the heading Culture &Society

ESCAP. 2013. “Economic and Social Survey of Asia and the Pacific” Forward-Looking Macroeconomic Policies for Inclusive and Sustainable Development, United Nations

Fukuda-Parr, Sakiko. 2008. “The Human Impact of the Financial Crisis on Poor and Disempowered People and Countries” Paper presented at the UN General Assembly: Interactive Panel on the Global Financial Crisis

Government of Nepal. 2007. “The Interim Constitution of Nepal 2063”

His Majesty’s Government (HMG), 2004. “Economic Survey” Fiscal Year 2003/2004, HMG Ministry of Finance

UNDP Vision for a Better World: From Economic Crisis to Equality (2010) drafted

Jain Devaki and Diane Elson, in Collaboration with the Casablanca Dreamers. 2010. “Vision for a Better World: From Economic Crisis to Equality.” UNDP

Khanal Dilli Raj, Acharya Laxman and Upreti Dilli Ram. 2008. “Role and Effectiveness of Foreign Aid Under PRSP in Nepal”. Kathmandu: Action Aid and Institute for policy Reseach and Development (IPRD)

Liechty, Mark, 2010. Out here in Kathmandu. Martin Chautari Press

Malla, Meena, 2013. “Foreign Aid and Democratization in Nepal: Culture of Dependency”

Nepal Government, “Nepal Peace and Development Strategy 2010-2015”

NPC. 1965/66-1969/70. “The Third Plan” (2022-2027), HMG/ National Planning Council, Ministry of economic Planning, Kathmandu, Nepal

NPC. 1992. “The Eighth Plan” (2049-2054), HMG/NPC, National Planning Commission, Singha Durbar Kathmandu, Nepal

NPC. 2002. “The Tenth Plan” (2059-2064), HMG/NPC, National Planning Commission, Singha Durbar Kathmandu, Nepal

NPC. 2007. “Three Year Interim Plan” (2064/65-2066/67), National Planning Commission, Singha Durbar Kathmandu, Nepal

NPC. 2011. “Three Year Plan” (2067/068-2069/070), National Planning Commission, Singha Durbar Kathmandu, Nepal

OECD. 2006 & 2008. Paris Declaration 2006 and Accra Agenda for Action

Panday, Devendra Raj, 1999-2002. “Matching Democracy and Development Policy Making in an Aid-Dependent Country an Illustration from Nepal” Harvard Asia Quarterly. USA: Harvard University, 1999-2002) as quoted by Malla in her paper Foreign Aid and Democratization in Nepal: Culture of Dependency

Pecastaing Camille. 2013. “The Failure of Democracy and the Rise of the Welfare State” Hoover Institution

Santiso, Carlos, 2001. Good Governance and Aid Effectiveness: The World Bank Conditionality in The Georgetown Public Policy Review Vol. 7, No. 1

Savun Burcu & Tirone Daniel C. 2011. “Foreign Aid Democratization, and Civil Conflict: How Does Democracy Aid Affect Civil Conflict?” American Journal of Political Science, Vol. 55, No. 2 April 2011, PP 233-246.

United Nations. 2011. Nepal peace and Development Strategy, Lalitpur, Nepal

UNDP. 1996. Human Development Report, Ney York. New York

UNDP. 2013. Human Development Report, 2013: The Raise of the South: Human Progress in a Diverse World, UNDP New York, NY 10017

World Bank. 2004. Development Policy Review of Nepal. Kathmandu

World Bank. 2009. “Interim Strategy Note for Nepal” July 2009-June 2011, World Bank, Nepal Office, Kathmandu Nepal

World Bank. 2011. “World Development Report” Conflict, Security and Development, World Bank, Washington, DC

World Bank. 2012. “World Development Report” Gender Equality and Development, World Bank, Washington, DC

World Bank. 2012. “Interim Strategy Note for Nepal” FY 12-FY13, World Bank, Nepal Office, Kathmandu Nepal

---

[1] The figure for the FY 1962/63 is taken from the Third Plan (p175). The plan does not say whether it included loans, most probably not. The FY 1989/90 figure cited is from the economic Survey 2003/2004, Statistical Tables (p13) includes only the grants part of the aid.

[2]See Samir Amin, 1976 on this process.

[3] We have questioned whether this term could be applied to Nepal’s investment pattern in 1990. (Acharya et al, 2003)

[4] For example the World Bank Development Policy Review 2004,

[5] Government of Nepal and United Nations Country Team/ Kathmandu (2007)

[6] For example see WDR, 2011; and 2012; HDR, 2013: The emphasis on inequality is somewhat uneven in the UN and the World Bank approaches, but on the whole they converge.

[7] This “Peace and Development Strategy 2010-2015” (UN RC/HC Office, 2011),has been undersigned by Australia (Australian Aid Program), Denmark (DANIDA), UK (DFID), USA (USAID),Japan (JICA), and the embassies in Nepal of the European Union, Canada, Finland, Federal Republic of Germany, Norway and Switzerland.

[8] For example the World Bank’s Development Policy Review (2004) and ADB’s Strategy 2020 (2008).

[9] For example see World Development Report , 2012.

19. Aid Effectiveness and Country Ownership: Need of Democratic Governance in Nepal

Vidyadhar Mallik

19.1 Paris Principles: Concept of Ownership

Paris principles of aid effectiveness 2005 prescribe that partner countries (aid receiving countries) exercise effective leadership over their development policies and strategies and coordinate development actions. It also enumerates that the partner countries exercise the leadership through a broad consultative process and encourage the participation of civil society and private sector in dialogue for coordination of aid and other resources at all levels. Similarly partner countries in fragile situations including post conflict environment need to build institutions, stabilize law and order, provide equitable access to basic social services to all its citizens and more broadly engage the various actors at all levels for setting development priorities or prioritizing aid in their development programmes.

19.2 Accra Agenda: Expanded Country Ownership

Accra Agenda of Actions (AAA) in 2008 took notice of progress made after the declaration of Paris Principles but also prescribed a more effective agenda of actions for better aid effectiveness which included that ofcountry ownership. The concept of government ownership transformed into the concept of country ownership whereby national governments were assumed to take more effective leadership of the development agenda in deliberations with donor countries but with the anticipation that they would be more effectively engaged with national parliaments, local governments, civil society, private sector and general citizenry. Ownership of development programmes can not be that of the governments alone and must encompass the views of all parliamentarians and citizens’ representatives at all levels and in all forums. The donor countries promised to more effectively engage in open and inclusive dialogue on development policies. Developing country governments were supposed to work more closely with parliaments and local governments in preparing, implementing and monitoring national development policies and plans. They were also supposed to effectively engage civil society organizations in deliberations on development policies. The donors were tasked to build capacity and engage with not only the national governments – but also with the parliamentarians, local governments, CSOs, media, research institutes and the private sector. Similarly the developing countries were supposed to reflect their international commitments to gender equality, children’s rights, environmental sustainability, other international human rights and the upliftment of women, children, and disabled people. In countries in fragile condition including those emerging from post conflict situations, a joint assessment by donors and partner country governments of governance and capacity building, examination of the causes of conflict, fragility and insecurity was to be done and realistic objectives of peace building and state-building were to be planned and agreed on jointly by the donors and the government. Peace building and state building were to address the root causes of conflict and fragility.

19.3 Busan HL4 Deliberations

In the ‘2011 Reality of Aid’ report which was prepared in run-up to Busan high level deliberations, ‘democratic ownership’ was highlighted over ‘country ownership’ for aid and development effectiveness especially for vulnerable and marginalized communities. The 2010 CSOs’ reality of aid report named ‘Aid and Development Effectiveness: towards human rights, social justice and democracy’ called for a bolder and broader approach that will lead to genuine development effectiveness – an approach based on protecting and fulfilling the rights of marginalized and impoverished people and empowering them to claim their rights on an ongoing basis. CSOs recommended in Busan HLF4 forum further expansion of the concept of country ownership to ‘rights based democratic ownership’ as a development principle for all development actors.

A global survey of aid effectiveness by OECD in 2010 on various Paris Declaration monitoring indicators do not show good results in terms of achievements of ownership , and especially on results of broader deliberations with national parliaments, local governments, media and CSOs (OECD: 2011). Only 2 countries in 2010 had an operational development strategy developed through an inclusive process of deliberations. Nepal’s country report in the 2011 Survey on monitoring the Paris declaration (MOF: 2011) though, reports fairly significant progress on indicator 1 on ownership principles and operational development strategy – with long descriptions on how budget is formulated, periodic plans are deliberated, the role of parliament, civil society and process of consultations in the formulation of development strategy. However, it also agrees that other than the role of parliament (which does not exist from May 2012) in the budget approval process, other institutions, local governments, media, CSOs do not have a significant influence in development strategy or budget allocation decisions.

19.4 Nepal’s Foreign Aid Policy

Nepal’s foreign aid policy 2002 provided for mobilization of foreign aid resources for reduction of poverty and broadening the productive base of economic growth and creation of socio-economic infrastructure. The aim was to integrate use of foreign aid with the priorities of national development policy and supplement the use of national resources for development effectiveness. The 2002 policy focused on use of concession loans, grants, budgetary support and technical assistance for facilitating and maximizing the uses of national resources, one window for INGOs, leadership and ownership of the government of Nepal, the facilitating role of civil society and maximization of foreign aid (MOF: 2002).

National Development Forum was organized in Kathmandu (and Pokhara) in 2004 where national ownership was again highlighted with an aim to strengthen national systems, align foreign aid to the development priorities of Nepal and for the integration of aid with national priorities. Three layers of aid harmonization were discussed in this forum – harmonization at overall programmatic level, harmonization at development plan and policy level and harmonization at resource mobilization level. Support was sought for poverty reduction strategy and sectoral policies. The aim was also to align support for joint procedures, joint programmes, joint monitoring mechanisms and reporting format and acceptance of Nepali financial systems (MOF/NDF: 2004).

A ‘Nepal Donor Consultation Meeting’ was held in 2008 (also called Mini - NDF/NDCM 2008) to conduct consultations with Nepal’s development partners on peace and development priorities – in the post conflict situation. A window of opportunity was briefly open in those years envisioning a “new Nepal” and support was anticipated from donors and the international communities for reconstruction of post-conflict socio-economic infrastructure and mobilizing support for provision of peace dividends for Nepali people. A new draft foreign aid policy 2008 was presented in this meeting for discussion. The major features of this draft policy were a focus on peace dividends, on relief, reconstruction and rehabilitation (RRR), demand based foreign aid, rights-based approach, community ownership of development, full implementation of Paris principles of aid effectiveness by all sides, aid predictability, transparency and mutual accountability, alignment, harmonization, recognition of inter-relationships between peace, development and democracy and mobilizing support for peace process, stability and socio-economic transformation of the country (MOF/NDCM: 2008). A new foreign aid policy was again drafted in 2009 in anticipation of organizing a NDF which ultimately could not take place. But this new draft policy was circulated by MOF for deliberations. This new policy draft was similar to the 2008 draft in general – but as this policy was drafted by the then UCPNM led government, it talked more about the people’s war and other Maoist agendas of socio-economic transformation. It discussed transforming Nepal into a medium – developed country within 10-15 years, use of foreign aid in domestic savings mobilization and broad based inclusive and equitable economic growth, attraction of foreign direct investment, transfer of technology, enhancement of national capacities and alignment of foreign aid for fulfilling the basic national developmental objectives (MOF: 2009). It also talked of stopping receiving foreign aid by making the country self reliant by 2025.

19.5 2008 and 2011 Aid Effectiveness surveys in Nepal

The 2008 survey on monitoring the Paris Declaration shows the following results on implementation of principles of aid effectiveness:

Key findings of the aid effectiveness survey, 2008

S. No.	Indicators	Results (%)
1.	Aid on budget	74
2.	Technical cooperation	34
3.	Coordinated technical assistance	14
4.	Using country public financial management system	68
5.	Using country procurement systems	59
6.	Parallel project implementation units (number)	106
7.	In-year predictability	47
8.	Programme-based approaches (budget and other support)	32
9.	Programme-based approaches (budget support)	20
10.	Joint missions	36
11.	Joint country analytical work	37

The above results show percentages of respondents to the questionnaire administered to monitor Nepal’s progress against the 2010 targets (and their indicators agreed on in at the 2005 Paris Declaration). For the monitoring survey purpose, the respondents were GoN officials and donor representatives (MOF: 2008).

Similarly Nepal country report of 2011 Survey on monitoring the Paris Declaration was conducted between January and March 2011 in Nepal which has followed the guiding principles of OECD and incorporated evidences from both donor and government questionnaires. It was supplemented by optional survey modules on gender equality and inclusive ownership as well on top of the 12 survey indicators of 2008. This report highlights the following major challenges in aid effectiveness (MOF: 2011):

• Polarized politics and instability has affected the discussion and adoption of strategic policies, including the foreign aid policy.
• ODA to Nepal remains too fragmented leading to high transaction costs.
• The reluctance or lack of enthusiasm in implementing aid effectiveness principles among major stakeholders is a major challenge.
• There is perception that bureaucracy has been politicized reducing the motivation for implementing the principles of aid effectiveness.
• Civil society actors complain of being excluded as active stakeholders in the deliberations on Paris declarations.
• The quality of participation in policy deliberations including that over aid effectiveness is compromised and there is not much participation of disadvantaged groups or beneficiary groups and the deliberations have a risk of being hijacked by a few groups with higher levels of capacity – thus limiting the ownership of Nepali citizenry over the agenda of development policies.

19.6 Present situation in Nepal without elected institutions

Nepal has not seen parliamentary elections since 2008 when elections to Constituent Assembly was held (which had also worked as legislative parliament) and has had no elected representatives in local bodies since 2002. The Constituent Assembly did not produce a constitution and thus country is run under an Interim Constitution which itself is ridden with serious gaps and lacuna and does not provide answers to present political and constitutional stalemates. An election to the next Constituent Assembly which can also serve as legislative parliament can happen only when there is broader political consensus and the present caretaker government sets the time and place for an elected government, and one does not know when that can happen. As there is no parliament, there are no democratic and accountable structures to which the government can be answerable. The constitutional bodies who serve as checks and balances are also non-existent as there are vacancies in all of them and they cannot be fulfilled in absence of parliament – because of lack of parliamentary hearings – which are required as per the Interim Constitution. The judiciary is getting weaker also as all the temporary judges of the Supreme Court retired and the vacancies cannot be fulfilled because of the same reason.

A budget cannot be approved by the parliament as there is no parliament, hence answerability towards the citizens through their elected representatives on financial matters also does not exist. Nepal does not have an annual budget rather in fiscal year 2012/13 and the government has to satisfy with one third the budget of the previous year’s expenses initially and later with two third of the same previous year’s expenses. This has resulted in low economic growth, a negative flow of funds towards the donors (as debt repayment is done but fresh receipts have substantially decreased) and liquidity crunch (as the government keeps on collecting revenues based upon previous year’s tariffs while unable to pump funds into the economy). Aid effectiveness is further diluted and Paris declarations on aid effectiveness have been compromised because the Foreign aid policy 2008 has not yet been adopted, donors are more skeptical towards working through country systems and the government budget (as ownership is further weakened) and democratic ownership of development policies and strategies has been seriously compromised. A national development forum has not been organized in Nepal since 2004 because of the lack of political consensus around this, thus broader and deeper consultations within the country on aid effectiveness or development agenda have not been done in the last 9 years. The NDCM organized in 2008 was of a miniature scale and its agenda of adopting a new Foreign aid policy has yet to materialize. Nepal also has yet to see donor support coming for the larger agenda of creating peace dividends for disadvantaged communities. As there have been no local elections, broader participation at local and community levels on the issues of policy significance to them has been challenged too. The issue of ownership and downward accountability has been quietly illusive in Nepal despite claims by the sitting governments of participatory processes and demand side mobilization. As people–based elected institutions do not exist in contemporary Nepal, any efforts by the development partners (donors) for capacity building or supply side strengthening ultimately support and strengthen only petty interests of unaccountable bureaucrats and hand-picked politicians while fear of investments in demand side/voice mobilization with grass-root level communities constantly keep weakening the initiatives of community organizations and that of civil society. Without reinforcement of democratic institutions in Nepal, whatever is invested in Nepal’s prescriptive model of development, there is a risk of losing funds (which were received in the name of Nepalese people) in vain or to serve the interests of sitting few elites/bureaucrats/technocrats/cronies of unaccountable politicians.

Issues of public financial management, fiduciary risks and charges of corruption or lack of transparency are getting serious as well in Nepal because no proper accountability structures are in place as of now. The Commission for Investigation of Abuse of Authorities (CIAA) has been without any commissioners for years now. The courts are degenerating because of the decreasing number of judges and no fresh recruitments in recent years. The Office of the Auditor General (OGA) has been headless as well for many years and now the Election Commission which has a responsibility for holding elections both at national and sub-national levels has also gone vacant now. The role given to civil society organizations (CSOs) for public audit or social audit is also minimal and serves more the purpose of window-dressing than effectively entrusted partners to embolden transparency or accountability.

19.7 Suggestions in the present situation

Hence, at present, there is a general need to support the cause of ‘democratic governance’ and ‘democratic ownership of Paris Principles’ in Nepal. A general compact between the government of Nepal and society at large represented by plethora of civil society organizations, intelligentsia, media, NGOs, local governments, community organizations like Ward Citizen Forums (WCFs) and Community Awareness Centers (CACs), PAF – COs, local peace committees, forestry user groups, irrigation user groups, school and hospital management committees, rights bodies, human rights institutions, women and children organizations and their associations/federations need to be exercised. The development partners/donors should engage with the government of Nepal through a second compact which is based on a ‘peace and development’ strategy (PDS). The peace and development strategy, presently should be the guiding principle to define the relationships between both the government of Nepal and its citizenry, especially the disadvantaged groups and between the development partners/donors and the government of Nepal. The PDS should contain the elements of conflict sensitive approaches to development in the present ‘yet-in – conflict’ situation of field level in Nepal, equal, inclusive and broad-based growth and socio-economic transformation agenda of popular wishes of Nepalese society, which gives more weight to social justice and less weight to the traditional concept of elite dominated ‘social harmony’. The strategy should be owned democratically by the elected and legitimate bodies of the Nepalese people and also should be owned by the exercise of grass-root democracy/by the hundreds of thousands of community organizations – both formal and informal initiatives. This is possible through the creation of structured dialogue structures between the government and these institutions. The development partners/donors should encourage, engage and actively support such dialogues and deliberations during the present transition through enough funding and capacity building exercise for such community based grass-root institutions. The fear of ‘demand mobilization’ should give way to more such exercise for voice and choice mobilization of communities till the elections of local and national governments are held and Nepal stabilizes with a new popular constitution. Ultimately, only meaningful democratic governance (with popular participation of citizenry and exercise of grass-root democracy) and democratic ownership of Nepal’s development agenda, policies and strategies can do justice and bring value for money for both the taxpayers of Nepal and the development partner countries/donor countries.

References

Horner, Lisa and Greg Power, 2009. The democratic dimension of aid, Global Partners and Associates for International IDEA

MOF, 2002. Foreign aid policy 2002, MOF, Kathmandu

MOF, 2004. National Development Forum proceedings, 2004, MOF, Kathmandu

MOF, 2008. Nepal country report, 2008 survey on monitoring the Paris declaration, MOF, Kathmandu

MOF, 2008. Nepal development consultations meeting proceedings, 2008, MOF, Kathmandu

MOF, 2009. Draft Foreign Aid Policy 2009 – mimeo- limited circulation, MOF, Kathmandu

MOF, 2011. Nepal country report, 2011 survey on monitoring the Paris declaration, MOF, Kathmandu

OECD, 2011. The Paris declaration on aid effectiveness and the Accra Agenda for Action, OECD Secretariat, Paris

The reality of aid Report, 2011. Achieving progress for development effectiveness in Busan: an overview of CSO evidence, 2011, The Reality of Aid International Coordinating Committee, Luxembourg

20. A Survey on the Impact of Foreign Aid on Democracy in Nepal

Jan Goossenaerts, PhD and Prabhash Devkota

Abstract This paper presents and interprets the results of a survey in the aid and democratic governance sectors of Nepal on the contribution that Foreign Aid has had on deepening democracy and promoting governance.

20.1 Introduction

Deepening democracy is an approach to enable people to amplify their voices for a just and prosperous Nepal. The approach includes as its core the deepening of the practices of social accountability to hold the public duty bearers to account, and advancing propositions for an equitable National Development Strategy. In such a strategy foreign aid has had and will continue to have a role.

This paper aims at informing debates around democracy, democratization and governance among right holders and state and non-state stakeholders.

By means of a survey on Foreign Aid’s contribution and an analysis of the answers, the authors address the share Foreign Aid has had in the deep political and constitutional crises that Nepal finds itself in now. A critical look at what Foreign Aid could contribute and where it has failed is only one input to a Nepalese discourse seeking answers to further pertinent questions explored in other papers in this book: What are underpinnings and major strands of deepening democracy in Nepal? What are the key elements of the inclusive participatory democracy involving all Nepali citizens? How can participatory democracy and electoral democracy reinforce each other? What are the challenges in sustaining participatory democracy? What lessons can be learnt from ongoing initiatives on participatory democracy at the grassroots, and their relevance to ongoing discourses on state restructuring? What features of native democratic institutions can be included?

In the preparation of the survey we have used findings and conclusions of a two-year process of OECD DAC GOVNET that had engaged a range of leading donors, partner countries and experts working on support to domestic accountability (OECD Development Assistance Committee, 2012) . From an earlier draft of that report (OECD Development Assistance Committee, 2011) we distilled two questions: one on ways in which foreign aid has had a negative impact on domestic accountability, and one on priorities for the further development of democracy and the domestic accountability system in Nepal. In the survey these questions are preceded by one on the position of the respondent, and one on the degree to which foreign aid has been a promoter of institutionalization in Nepal.

20.2 Context

In the context of Nepal, a major challenge for political leadership and civil society actors is to deepen the democracy that can be felt by people in their everyday lives. The transformation of the Nepali state post-conflict and post-constitution is the key priority for the country. This transformation poses both challenges and opportunities for Nepal. The opportunities are in terms of addressing the structural causes of poverty and injustice, whereas challenges arise, primarily, as Dev Raj Dahal has argued, from constructing a meta identity of Nepali citizens from subordinated and contesting identities, and to prepare for the post state challenges. The natural collapse of Nepal’s Constituent Assembly (CA) on Supreme Court-fixed deadline of May 27, 2012 without delivering a new constitution plunged the country into deep political and constitutional crises. The 601-member CA appeared weak in contextual planning, shortened the consultation process with the citizens and produced no substantive outcome even after four years’ of political drill, two years more than the popular mandate. The crisis of politics in Nepal is the product of the weakening of the public arena of power. It is hovering around a few powerful personalities lacking a sense of national vision for a new constitution and a sense of direction. The crisis’ costs have become higher for the poor, dispossessed and conflict-victims. The crisis has delayed the process of comprehensive reconciliation and reconstruction - physical, social and spiritual - and improvement of governance and development indicators.

Also the impact of the international system on Nepalese politics is ambiguous. Political realists characterize the nature of international system as anarchic because of the lack of global constitutional rule. The impact of this “anarchic international system” in Nepalese politics is awful as it is fostering centrifugal forces and constraining the choice of the Nepalese to strengthen its statehood.

Nepal’s difficult transition to a democratic society, and the differences between donors’ intentions and aid outcomes, indicate failures in the Nepalese accountability system for which solutions seem hard to deliver.

Participation

Of the about 150 persons invited to answer the survey, 73 answered it. Some of them indicated more than one position (Figure 1).

Foreign aid as a promoter of institutionalization

In a second question, the participants were asked to score the overall impact of foreign aid in a number of areas (completing the democratic system, local governance, deepening of democracy, indigenous movement, human rights). The answers on the question are summarized in Figure 2 and Figure 3. Scores are much more negative for the group MP or Politician (impact on completing the democratic system: -1.67; on deepening democracy: -1.58; on strengthening local governance: -1.42; on strengthening the indigenous movement: -1.25; on peace building and human rights: -1.17). For the group of people working in the aid sector or as a public servant (a total of 41 respondents) the average scores are in line with the overall averages, yet they are substantially more positive: on deepening democracy: -.28, on strengthening local governance: -.42; on strengthening the indigenous movement: -.16; on peace building and human rights: +.13). Journalists and researchers see both positive and to a lesser extent negative contributions as can be seen in Figure 4 and the Table 1 in which the scores are given for each group of respondents.

Table 1: Aid Impact scores for each position

The impact on	MP/P	E/C	J/R	Cit	PS	LIA	Avg
Completing the democratic system	-1.67	-0.41	- 0.07	- 0.59	- 1.57	-0.62	- 0.73
The strengthening of local governance	-1.42	0	- 0.36	- 0.35	- 1.00	- 0.75	- 0.54
Deepening of democracy	-1.58	+ 0.12	- 0.14	- 0.53	- 1.14	+ 0.12	- 0.49
The strengthening of the indigenous movement	-1.25	+ 0.7	+ 0.15	- 0.53	- 1.00	- 0.29	- 0.38
Peace building and human rights	-1.17	+0.25	+ 0.36	0	- 0.67	+ 0.5	- 0.15

Abbreviations used in Table 1: MP/P: Member of Parliament or politician; E/C: employee or contractor of a foreign aid agency/NGO; J/R: journalist or researcher; Cit: citizen (with no additional role); PS: public servant; LIA: local implementing agency; Avg: overall average.

Aid that contributes negatively to the Nepalese accountability system

The key policy messages of (OECD Development Assistance Committee, 2011) start by stating that: “There is increasing recognition that much of this support (donors spending over $10 billion annually on governance support of which accountability is a common component) has made inaccurate assumptions about the nature of democratic and institutional transitions. This has translated into commitments to Western models and technical approaches that use blueprints, templates and best practice approaches.”

Next there are a number of activities and impacts listed that external actors should avoid. Such possible causes, contributing factors, of weak domestic accountability and democracy, as summarized in Figure 5, have been the basis for the third question of the survey. In this question respondents had to rate the degree to which each of those factors had contributed negatively to democratic governance in Nepal.

The overall scores are in Figure 6. The group MP or Politician gives all factors a higher weight (between 4.58 for the lack of donor alignment on accountability, and 3.83 for accountability support being addressed on a project-by-project basis). For the group of people working in the aid sector or as a public servant (a total of 41 respondents) the average scores are lower with about 0.4 point on average, from 3.57 for the lack of donor alignment on accountability to 2.8 for aid policies weaken relationships between the state and its citizens.

Among researchers and journalists, the highest scoring factors are the pressure to record and monitor impact (4.27) and sector initiatives ineffectively linking national and local level accountability (4.2). Most scores are in line with the overall averages. Journalists and researchers give comparable weights to the majority of the listed factors, yet six factors score lower: sector initiatives ineffectively link national and local level accountability (3.25); sector initiatives exclude some of the most important Nepalese players (3.23); support to domestic accountability is too short term (3.23); taxation is not leveraged as a deeper driver of state-society relations (3.09); there is focus on support to a select number of accountability actors (3.00) and support to domestic accountability makes use of ideal models which work badly in the Nepalese context (2.92). Citizens score most factors slightly higher than the overall average. Employee or contractor of foreign aid agency or NGO consider the pressure to record and monitor impact as having the least weight (3).

Priorities for future development

For this question, the actions to rate were taken from Annex 1: Principles for Improving Donor Assistance to Support Domestic Accountability of (OECD Development Assistance Committee, 2011). The overall scores are in Figure 7. The group MP or Politician gives most factors a comparable, though higher weight. International elections assistance (3.77) and technical assistance to political parties (3.62) receive a substantially higher weight from this group. The figures for respondents working in the aid sector or as a public servant (a total of 41) are similar to the overall averages. Journalists and researchers give most factors a comparable weight, except for international elections assistance (2.54) and technical assistance to political parties (2.54). Citizens’ scores are in line with the overall averages. Public servants give a high importance to technical assistance to political parties (3.83) and a somewhat lower importance to links between media institutions and the rest of civil society (3.29).

20.3 Summary of the survey results

In a final diagram, Figure 8, the survey scores of the possible causes of national accountability failures are included for each factor. The priorities for the development of the accountability system and their survey scores are added in the green ovals.

20.4 Conclusion

All factors of aid contributing negatively to the domestic accountability system, as identified in the OECD study, seem to be at work also in Nepal. Moreover, also the recommendations of the study are considered relevant by most respondents.

The survey confirms the necessity of the book, with chapters diving deeper into a number of topics, both for what concerns the description of the messy problem confronting the Nepalese society, diagnostic hypotheses regarding the factors and dependencies slowing its transformation towards a substantive democracy, and solution directions.

For the near future, there remains the challenge of accelerating the process of comprehensive reconciliation and reconstruction - physical, social and spiritual - and improving governance and development indicators. In this process, foreign aid actors should take on board both an appreciation for local institutions and solution options, and the lessons learned from the OECD study. The papers in this book can help these actors to avoid approaches and commitments that are based on inaccurate assumptions about the nature of democratic and institutional transitions that are feasible in Nepal.

20.5 Annexes

Annex 1: Comments by respondents

Respondents working as a researcher or journalist (a total of 16) gave these comments:

• Foreign aid should be accountable to Nepalese people along with the taxpayers of the donor country
• MNC’s company should support the local producer at the lowest fees to develop the quality of their products, and the developed nations should buy the products of the developing nations and be given subsidy for their imports in their country as a part of foreign aid in order to strengthen the local producers of the developing countries. International quality certification for the products of the developing nations should be provided free of cost as an aid programme.
• Over the last decade foreign aid has become less transparent and been instrumental in dividing the Nepali society into different ethnic groups rather than encouraging them to grow more united as a country.
• 10-20 years of time has witnessed the weakening steps each day.

Respondents working in the aid sector or as a public servant (a total of 41 respondents) gave these comments:

• Donor agencies should provide access to aid information not only past but also planned.
• Of course, there is a contribution of foreign aid to the development of democracy and the accountability system in Nepal but it should be channeled for the real need of people.
• Foreign aid agencies are here to basically promote corruption that is already occurring in the government. National staff working in international agencies engage in unhealthy relations with government bureaucrats to misappropriate funds, power and technical knowledge in various subject matters involving international aid. There are many such examples. For instance: technical officers working in some UN agencies and bilateral agencies in the health field are working in tandem with government bureaucrats to contract profit-making local consulting firms and suppliers (including logistical suppliers and service suppliers) violating general rules of procurement, thus leading to abuse of huge amount of funds. In such cases, all involved three parties share the profits. A fraction of this added income made by personnel in all the three parties goes to activities such as lavish dinner parties (with free flow of alcohol), prostitution, and expensive vehicles. Many official agreements and contracts are signed in such dinner parties when the government bureaucrats are too drunk and offered money, prostitutes etc. The other way of luring bureaucrats is by organizing international travel for them. All these activities are funded with donor money that comes under the name of aid in Nepal. All three parties work together to skillfully prepare/clean up documents so that audits (within the aid providers) and government systems for power abuse investigation (e.g. the CIAA, finance controllers) can never detect such abuses. In the rare event that such abuses are detected, the people involved in the investigation are bribed (directly by offering money etc.) or offering them international visits, opportunities for their children, etc.
• Donor should not provide any assistance towards any ethnic groups. They must recognize “Poor Nepali” and help in their livelihood.
• As a whole our institutions have become weakened because of external partners.

Annex 2: Survey questions

Introduction to the Survey Studies in a number of developing countries have identified aid-related factors that may contribute to accountability failures in a country. The goal of this survey is to map for the development of democracy and the accountability system in Nepal the perceived negative contributions of aid-related factors.
After rating the negative contribution (prevalence and impact) of the development aid projects you are aware of, you will be asked also to give priorities for improving donor assistance to support domestic accountability.

1. In what role are you a stakeholder in foreign aid or in the Nepalese accountability system?

• as a member of parliament, in another elected role, or as a political activist
• as an employee or contractor of a foreign aid agency or NGO
• as a Nepalese public servant
• as an employee of a local organization involved in the implementation of aid projects
• as a researcher or journalist
• as a citizen with no additional role
• Other (please specify):

1. Rate the degree to which foreign aid has been a promoter of institutionalization in Nepal. Base your answer on the experience of the past 10 years. (Select one of: very negative (-2), rather negative(-1) ,neutral (0), rather positive(1), very positive(2), no answer(0))

• The impact on the deepening of democracy has been …
• The impact on the strengthening of local governance has been …
• The impact on completing the democratic system has been …
• The impact on peace building and human rights has been …
• The impact on the strengthening of the indigenous movement has been …

1. For each of the below aid-related factors, how do you rate its negative contribution to the Nepalese accountability system? (Select one of: minor contribution(1), (2) , average contribution(3), (4), high contribution (5), no answer(0))

• Aid policies weaken relationships between the state and its citizens
• Taxation is not leveraged as a deeper driver of state-society relations
• Sector initiatives exclude some of the most important Nepalese players
• Sector initiatives ineffectively link national and local level accountability
• Domestic accountability is not seen as a system, single actor approaches prevail
• Risk monitoring and management are neglected
• What does not work is not stopped
• Evaluation is not seen as part of a learning process
• There is a lack of donor alignment on accountability
• Suppliers and donors drive the assistance
• Accountability support is addressed on a project-by-project basis
• There is focus on support to a select number of accountability actors
• Support to domestic accountability is too short term
• Accountability support does not incentivize cooperation among local organizations, it spurs competition
• There is pressure to record and monitor impact
• Support to domestic accountability makes use of ideal models which work badly in the Nepalese context

1. When investing in the further development of democracy and the domestic accountability system in Nepal, which should be the priorities? (select one of: not needed (1), low priority (2), medium priority (3), high priority (4), no answer (0))

• Ensuring local ownership of development aid projects
• Make support to the accountability system long-term
• Ensure that accountability support efforts complement one another
• International elections assistance
• Technical assistance to political parties
• Support independent, sustainable, and capable local media
• Promote citizen access to media and mobile technologies as well as citizens’ media literacy
• Ensure that accountability support efforts strengthen the parliament
• Encourage links between media institutions and the rest of civil society

Other (please specify, and rate)

1. Thank you for answering the survey. You can use the box below to give any additional comment on the contribution of foreign aid to the development of democracy and the accountability system in Nepal.
2. The survey results will be published by the Alliance for Aid Monitor Nepal. If you want to receive the results by email, you can enter your email in the below box before completing the survey.

References

OECD Development Assistance Committee, 2012. Draft orientations and principles on development co-operation, accountability and democratic governance. Tech. rep., OECD, Paris.

OECD Development Assistance Committee, 2011. Draft Synthesis of Guidance on Aid, Accountability and Democratic Governance, Tech. rep., OECD-DAC-GOVNET Programme on Improving Support to Domestic Accountability, OECD, Paris.

21. Contributors

Meena Acharya

Dr. Meena Acharya is a well-known Economist, Feminist Scholar, Researcher and writer. With a varied experience of working in various government and non-government positions, currently she is the general secretary of Tanka Prasad Acharya Memorial Foundation, established in 1994. Her academic contributions to highlighting the broader socio-economic aspects of the Nepal’s economic development efforts, including its impact on the poor and women have been significant. She has multiple publications to her credit that have made a difference in the ways of analyzing socio-political development in Nepal. Starting in 1966 with the Research Department of Nepal Rastra Bank, the Central Bank of the country, she had risen to the post of Chief Economic Advisor by the time she took leave to work with the World Bank in 1980, on special invitation. After she left the Bank in 1991 she has been working with various NGOs, including the Institute for Integrated Development Studies where she occupied the position of Executive Director. During all these years she has been working for women on the side.

Ganesh Adhikari

Ganesh Adhikari, PhD, an Associate Professor of the Pubic Administration Campus, Tribhuvan University, conducted his dissertation on The Politics of Foreign Aid and Governance Reform in Nepal. He has been writing on policy analysis of foreign aid and governance reforms in Nepal. He has published many research papers and articles in journals from Nepal and abroad.

He can be contacted at: gp.adhikari@gmail.com

Chandra D. Bhatta

Chandra D. Bhatta is a Political Scientist trained at the Birmingham University and London School of Economics and Political Science, UK. He has held Research Fellowship at the George Warren Brown School of Social Work and at the Washington University in St. Louis, USA. His area of expertise includes, among others, civil society, state-building, religion in international affairs, and South Asian politics. He has published book/articles in these areas in the reputed internal journals.

Ganesh Datta Bhatta

Ganesh Datta Bhatta is an Associate Professor of Constitutional Law at the Nepal Law Campus, Faculty of Law, Tribhuvan University, Nepal. His research interests include: constitutional law, human rights, legal reform, governance and democratization process. Bhatta who has published articles in different journals and newspapers mainly in the area of constitutional and contemporary issues, has co-edited two books (Nepali) on the area of judicial reform published by Nepal Constitution Foundation. He is actively associated with different organizations and associations mainly working in the areas of constitution, human rights and democracy in Nepal.

Dev Raj Dahal

Dev Raj Dahal is head of the Nepal Office of the Friedrich-Ebert-Stiftung (FES) and writes on small states, civil society, governance and development. He has worked at the Center for Nepal and Asian Studies (CNAS) and at the Central Department of Political Science, Tribhuvan University as a Reader.

He can be contacted at: devraj.dahal@fesnepal.org

Kashi Raj Dahal

Kashi Raj Dahal, a senior constitutional and media law expert is a former secretary of the Government of Nepal. He has made significant contributions in a wide array of subjects such as constitutional law and assembly, human rights, press and criminal jurisprudence, media and law and Right to Information. He was a coordinator of High-Level Administrative Reform Commission constituted by the Government of Nepal. He has published many papers and articles in different national and international journals.

He can be reached through: krdahal@hotmail.com

Madan Kumar Dahal

Prof. Madan Kumar Dahal, an economist, a scholar and educationist has “cherished the goal, vision and mission to build Nepal a strong economic nation-state through active participation of the people ensuring a high quality of life to each individual and household within given timeframe”. Prof. Dahal has authored, co-authored and edited 15 books on economics and related areas, published at home and abroad especially from Nepal, India, and Japan. He holds a PhD degree in Economics from University of Bombay, India in 1983. Currently, Professor Dahal is Chairman at Mega Bank Nepal Ltd., Kathmandu. In addition, he is also attached to a number of organizations, which include: as member, the Revenue Advisory Board at the Ministry of Finance (MOF/GON); as treasurer, the Nepal Nagarik Manch (Civil Society Forum), Kathmandu; and as Immediate Past President, the Nepal Economic Association, Kathmandu.

Tara Dahal

Tara Dahal, a DAAD scholar received an MA from Otto-von-Guericke University, Magdeburg, Germany. She has taught at the Department of Conflict, Peace and Development Studies of Tribuvan University, Kathmandu, Nepal. She has also served at the Institute of Foreign Affairs and has published a number of articles on gender, governance, peace and conflict. Besides, she has published three poem anthologies entitled Tsunami, Mother’s Tree and Springs of Life. Currently, Ms. Dahal is a PhD student at the Willy Brandt School of Public Policy. Her research title is “Post Conflict Peace Process in Nepal: The Role of National and Transnational Civil Society Actors”. She writes frequently on civil society, transit state, women’s issues, peace, conflict resolution, and related subjects.

Prabhash Devkota

Prabhash Devkota, after receiving the Degree of M. A. in Economics in Rural Development from Tribhuvan University (TU), Kathmandu in 2006 has become an astute observer of foreign aid politics and governance in Nepal. He has been continuously engaged in various academic and professional activities with assignments of a lecturer, researcher, social activist, trainer, expert on aid politics, and editor and so on. His experiences include a wide spectrum of specialization ranging from rural development, aid politics and governance, media, culture, sociology and anthropology, and capacity development with proven credibility. He has demonstrated his leadership and management skills by establishing the Alliance for Aid Monitor Nepal and in a four years time-frame converted it as one of the leading organizations working around the issues of aid and development effectiveness in Nepal along with strong collaborations and engagement with regional and global organizations and networking around the issues of development effectiveness. The publication entitled “Changing Paradigms of Aid Effectiveness in Nepal” edited by Prabhash Devkota and published by Alliance for Aid Monitor Nepal was a milestone contribution to the sector.

Dwarika N. Dhungel

Dwarika N. Dhungel, PhD, a member of the Nepalese Administrative Service (Retired) was the former Executive Director (2001-2006) and Senior Researcher, Social Sciences (2006-2011) at the Institute for Integrated Development Studies (IIDS), a Kathmandu based think tank institute. During his nearly three decades (1968-1998) of association with the Nepalese academic institution and administrative set up, he held various positions, including the position of the Secretary to a number of ministries, the Ministries of Land Reforms and Management, General Administration and Water Resources. He has written numerous articles and books on Nepalese Governance and Administrative systems. His co-edited book on The Nepal India Water Resources Relationship: Challenges was published by Springer Sciences & Business Media B.V. Netherlands in 2009. Dr. Dhungel was awarded the SPURS Fellowship at the Massachusetts Institute of Technology, USA, and holds a PhD from Nagpur University, India. He was also a Visiting Scholar at the Workshop on Political Theory and Policy Analysis, Indiana University, Bloomington Campus, Indiana, USA.

E-mail: ddhungel@hotmail.com

Kamal Raj Dhungel

Dr. Kamal Raj Dhungel, a Professor of Economics in Tribhuvan University, Nepal, did his MA thesis on An Analysis of Chinese Aid in Nepal in 1981. He remained advisor to the National Planning Comission, Nepal at 1997/98. He has got extensive research experience on diverse subjects like agriculture and economic growth, energy, water, environment and hydropower development, and regional energy cooperation. His research articles are published in several international and national journals including more than 200 articles published in national dailies of Nepal.

He can be contacted at: bpceda@gmail.com

Jan Goossenaerts

Jan Goossenaerts, PhD is a social entrepreneur and business and architecture consultant specialized in the analysis and (re-)design of multi-level socio-technical systems. He has an extensive experience with requirements engineering, systems modeling, simulation, ICT and enterprise architecture. His current focus is on applying social media solutions for enhancing citizens’ participation in public affairs and for livelihood-centric communications (Actor Atlas and social capital wikis). Jan holds degrees in mathematics (MSc (1982) and PhD (1991)), computer science (M. Sc., 1985) and philosophy (Certificate, 1980), all from the Catholic University of Leuven in Belgium. He has held visiting researcher positions at The University of Tokyo (as a recipient of the EU Science and Technology Fellowship in Japan), the UNU International Institute of Software Technology in Macau, and Yokohama National University, and a teaching position at the Eindhoven University of Technology (1995-2008). Jan has edited several books on information infrastructure in manufacturing systems and published in a number of journals including Computers in Industry, Information & Management, Production Planning and Control and International Journal of e-Collaboration.

E-mail: info@wikinetix.com Google+: google.com/+JanGoossenaerts

Sohan Kumar Karna

Dr Sohan Kumar Karna is a Professor of Economics at the Central Department of Economics, Tribhuvan University, Kathmandu. He has been teaching Economics for the past 28 years, and has made significant contributions in the areas of developmental economics, globalization and economic reforms and economics of agriculture development in Nepal. His expert opinion and critique on key economic events and governmental policies are sought after by prominent publications in Nepal. Dr Karna has presented and participated in numerous national and international seminars, and accepted visiting lecturer offers at many universities, including St Cloud State University, MN. As an experienced researcher, Dr Karna has nearly 100 publications to his credit related to researches, reports, books, and articles. In 2010, he was awarded Ambassador for Peace by the Universal Peace Federation (UPF) and Interreligious and International Federation for World Peace (IIF-WP).

Govinda Prasad Kusum

Dr. Govinda Prasad Kusum is currently working as an Adjunct Professor at Kathmandu School of Law after his retirement in 2011 from the government service as a Secretary. He entered in the government service in 1979/1980 and rendered the best of his service life to the people holding different capacities and several positions in various Ministries of the Government of Nepal. Dr. Kusum received his PhD in Conflict Management from Tribhuvan University.

His background includes, serving as a Secretary in the Ministry of Home Affairs for three years, Ministry of General Administration for nine months, Office of the Prime Minister and Council of Ministers for six months. Similarly seven years’ work experience in the Ministry of Industry, Commerce and Supplies as a Joint Secretary, three years’ diplomatic service as a Consul General in West Bengal, India, seven years’ experience as a Local Development Officer in remote districts of Nepal such as Humla, Baglung, Rukum and Ramecchap are some of the major responsibilities that he accomplished successfully.

Dr. Kusum is also a co-author of three management related books and dozens of research articles published in English and Nepali journals, magazines and news papers go on his credit.

He can be reached through: gpkusum@gmail.com

Meena Vaidya Malla

Dr. Meena Vaidya Malla, a well-known academician, is a Professor of Political Science, Tribhuvan University, Nepal. She has more than 30 years of teaching experience. She has published a number of research articles on political culture, socialization, women’s right and empowerment. She has presented a number of seminar papers on national security, democracy, conflict and women’s land rights in national and international conferences. She has served as a member of the high level task force on the issues of martyrs constituted under the Home Ministry of Nepal in 2010. She is one of the members of the subject committee of Political Science, Faculty of Humanities and Social Sciences, TU. She is the vice chairperson of Academic Research and Development Study (ARDEC-Nepal), an NGO, committed to resuscitate the role of academia to the comprehensive development of Nepal. She is working as a gender course advisor in the Department of Conflict, Peace and Development Studies, Tribhuvan University, in collaboration with the University of Life Sciences, Norway, University of Ruhana, Matara, Sri Lanka and Eastern University, Batticaloa, Sri Lanka. She has been awarded the Mahendra Vidya Bhusan class 1 medal of Nepal. She is the author of Political Socialization of Women in Nepal(2011) and Building political Culture of Nepal(2013) both with Adroit Publishers New Delhi.

Vidyadhar Mallik

Vidyadhar Mallik, a retired bureacrat and former secretary for various ministries including the Ministry of Finance, has served as Honororay Advisor to the President of Nepal. Since March 2013 he is the Minister of Health and Population of the Government of Nepal. He acted as a Vice Chairperson for the Poverty Alleviation Fund for 2010/11. He is interested in Governance, Peace and Development, Conflict sensitive approaches to development, community driven development, decentralization at various levels and in different forms and in relation with peace and conflict, inclusive growth and poverty alleviation, public finance and tax reforms, aid effectiveness and development finance, education and health sector finance.

Bharat Pokharel

Bharat Pokharel, an Associate Professor of Economics in Tribhuvan University, Nepal was an Executive Director of the Center for Economic Development and Administration (CEDA) from 2008 to 2011. As an economist, he was an advisory member of the high-level budget preparation committee formed by the Government of Nepal, Ministry of Finance for the preparation of the first republic budget 2008-09. He was a member of BIMSTEK, Economic Policy Network-II (Ministry of Finance, Government of Nepal), the Nepal Business Forum (Ministry of Industries, Government of Nepal), and a Senate Member of Tribhuvan Univesity. He has authored numerous books and more than hundred and fifty articles published in Nepali and English. He has expertise on macroeconomics, political economy, research methodology and history of economic thought.

He can be contacted at: bpceda@gmail.com

Bharat K Pokharel

Dr. Bharat Pokharel is working with HELVETAS Swiss Intercooperation Nepal as Deputy Country Director. He holds a PhD degree from the School of Development Studies, University of East Anglia UK in 1998 and has more than 27 years of working experience in Nepal’s forestry sector. He has written dozens of articles on community forestry, forest governance and livelihood issues.

Uddhab Pd. Pyakurel

Uddhab Pd. Pyakurel, PhD from Jawaharlal Nehru University, New Delhi, is teaching Political Sociology at the School of Arts, Kathmandu University, Nepal. Also, he is associated with various democracy forums i.e., South Asian Dialogues on Ecological Democracy (SADED), Vasudhaiva Kutumbakam (VK), and the Network Institute for Global Democratisation (NIGD). He often contributes articles to journals and local newspapers on poverty, people’s participation, social inclusion/exclusion, state restructuring, micro-credit, gender, conflict, identity, democracy, election, Indo-Nepal relations and other socio-political issues. In addition, he is the author of a book Maoist Movement in Nepal: A Sociological Perspective (New Delhi: Adroit Publishers, 2007), and co-author of, amongst others, State of Conflict and Democratic Movement in Nepal (New Delhi: Vij Books, 2013), Dalit Representation in National Politics of Nepal (Lalitpur: NNDSWO, 2012).

Himalay Shumsher J.B. Rana

Himalay Shumsher J.B. Rana, born in 1928, obtained a MA in Economics. As the first Secretary of the Ministry of Finance he organized the Ministry in 1951. He became the founding Governor of the country’s central bank, Nepal Rastra Bank and as Governor successfully initiated the introduction of the Nepalese currency throughout the Kingdom and successfully implemented free convertibility of the Nepalese currency into the Indian currency at a stabilized rate of exchange. In 1960 and in 1991 he was an active member of the Nepalese Delegation negotiating the Treaty of Trade and Transit with India. Before retiring from UN Service in 1986, he had served in Sri Lanka and Afghanistan (as Deputy Resident Representative of UNDP), Burma (as Resident Representative of UNDP and Director of the UN Information Centre; 1972-77), Indonesia (as Resident Representative of UNDP, UNFPA and WFP; 1977-81) and in Pakistan (as Resident Representative of UNDP, UNFPA and WFP; 1981-86). Post retirement he has been Chairman of the Himalayan Bank Ltd. and of the Nirdhan Utthan Bank Ltd. and President of the Nepal Citizen’s Forum.

He can be reached through: himalya@hbl.com.np

Pradyumna Prasad Regmi

Mr. Pradyumna Prasad Regmi is a retired government officer. He is currently involved as a research associate in conducting studies relating to social sciences. So far, he has contributed in various research studies including on local governance and decentralization, transparency and good governance.

Mahendra Raj Sapkota

Mr. Mahendra Raj Sapkota is a career researcher. His academic qualification is MSc in Agricultural Economics from Kasetsart University of Thailand in 1989 with a scholarship of Winrock International. He has also a Degree in Economics from Tribhuvan University of Nepal in 1979. He has been continuously involved in carrying out research studies for more than 30 years. During this period, he has prepared various research study proposals and conducted research studies in different areas either independently or through research institutes for diverse national and international agencies. Recently, he has completed some important studies relating to local governance and decentralization, monitoring and evaluation, peoples’ perception about current country’s affairs, transparency and good governance.

Y B Thapa

Dr. Y B Thapa is presently Poverty Alleviation Specialist in the South Asian Association for Regional Co-operation (SAARC) Secretariat in Kathmandu under the partnership programme of SAARC and UNDP/Asia Pacific Regional Centren in Bangkok. Earlier he served as Member of the National Planning Commission of Nepal. Dr Thapa is also President of the Nepal Agricultural Economics Society and Chief Editor of the Nepalese Journal of Agricultural Economics, and the Renaissance Message. He has several research papers published in the areas of economic policy, and science and technology. He holds a PhD in economics from Tribhuvan University with specialization on India-China Trade under WTO and its impact on the Nepalese Economy, and M Sc in agricultural economics with specialization on econometrics and finance form Punjab Agricultural University, India. Presently, he is studying sociology with specialization in diaspora and transitional communities under the Indira Gandhi National Open University, and law with specialization on international law under the Nepal Law Campus.

-

Alliance for Aid Monitor Nepal (AAMN)
KalaMandir Bhawan, Third Floor, Kupondole, Lalitpur, Nepal
P.O.Box No.: 2719 I Tel: +977-1-5011069

www.aidmonitor.org.np

Email: info@aidmonitor.org.np

Blogs at: Just Aid-http://aidmonitor.org.np/blog/

Alliance for Aid Monitor Nepal (AAMN) is a public forum towards bringing voices, perspectives and critical discussions on the issues related to foreign AID in Nepal. Nepal is no exception to AID realities. However, AID, which in a way intends to influence the future of every citizen, has been an issue of debate of certain government, political and intellectual elite. It has not been able to be a part of public debate in Nepal. At a time when the country is marching towards transformative politics, it is high time to ensure that citizens have rights to access information about aid and that they have their say on aid politics. With an aim to engage and initiate a discourse on aid within people’s politics, this forum aims to open up a creative and critical space. Connecting Global to local on Governance, Democracy and Aid Issues in Nepal by Engaging Academia, Media, Professionals, Researchers, Campaigners, Community People and Development workers. A Think Tank and Research Base

ActionAid International Nepal is an anti-poverty, human rights-based organisation established in 1982.We are an associate member of the ActionAid International federation, and we aspire to become a full affiliate at the beginning of this strategy period. ActionAid International is active in over 45+ countries across Asia, Africa, the Americas and Europe, with international secretariat in Johannesburg, South Africa. We have worked in partnership with more than 250 civil society organisations, social justice movements and people’s organisations in 42 districts to fight against poverty and injustice.

ISBN 978-9937-2-7288-9 (print)
ISBN 978-9937-2-7289-6 (e-book, published via Leanpub https://leanpub.com/)