Changing Relative Prices in Nepal

The figure shows that how do relative prices of commodities are changing over the period in Nepal. The relative prices are taken as the ratio of price index of respective commodity to overall consumer price index (CPI) of Nepal. It shows relative price of cloth is decreased and energy is highly increased.

Liberalization is Most

Word matters most. Future of Nepal's economic policy depend on its constitution. Why lawmakers do not want the word "liberalization" in constitution? It discouraged the investors. "The Federation of Nepalese Chamber of Commerce and Industry (FNCCI) is angry because the Act does not mention liberalization in the preamble." This is because of fact that various lawmakers have various interpretation of regulation. A group of lawmakers think regulation means active participation of the government, other group interprets regulation is only for increasing the efficiency of the market through curbing its negative externalities. Policy confusion is harmful to investment and economy as a whole. It is good if regulation is defined to the extent to promote competition and cure monopolies and inefficiencies of the market. However, if it goes beyond the extent then it is harmful to Nepal. Therefore, it is necessary to understand history and governments role in economy.

Government is not a creator of wealth, but, only inefficient distributor of wealth. It receives income from one who work and provides it to those who are lazy and inefficient like lawmakers. Even though government tries to create wealth, it is remains inefficient in it. We can take examples of Nepal Electricity Authority, Nepal Oil Co., Nepal Airlines, Nepal Food Co. etc. We compare these with private organizations, which are more efficient in creating employment, consumption and services to Nepali people. Government has provided only 3 percent employment and remaining 97 percent are either unemployed, self employed, or work at private organizations. If private companies are able to increase employment and consumption, why we need government in commercial activities.

Many anti-liberal economist blame liberalization for the current economic crisis. However, they have forget sixty years' benefit of liberalization. Otherwise there might be no innovations and benefits like internet, air services, communications, T.V., computers, news agencies, ATMs and ABBS of banks, etc. etc.

If we observe from production, consumption and welfare side, liberalization has done a lot. In spite of these benefits, why people expect very much from government? Why our lawmakers are against liberalization? Development is an outcome of freedom in thinking, freedom to work, freedom to earn, freedom to express, freedom to innovate. All these are in liberalization.

In Nepal, knowingly, unknowingly or either due to circumstances of BoP crisis Dr. Lohani has done a good job during mid 1980s i.e., liberalization.

Therefore, dear government you are not capable in your work i.e., maintaining law and order. You specialized yourself in your field. Don´t come in the business and economy. People want democracy and freedom. We work, we consume, we save, we pay you tax for maintaining national security, law and order. But, do not want to pay for your inefficiencies.

Tax Payers' Question ?

Despite various inefficiencies, government still want to be active in commercial and business activities in Nepal. However, quesition arises why to contribute our everyday meal for inefficient business?

There is an article which rightly advocates in favor of taxpayers right. Why should the tax payers’ money of a poor nation like Nepal be spent to pay the huge losses of Janakpur Cigarette Factory, that of all the commodities produces cigarettes, can’t compete with its private sector rivals?

Whatever few PEs are making, profits are because they enjoy virtual or actual monopoly markets and not because they are efficient. For instance, despite its poor services Nepal Telecom Ltd (NTL) earns a huge profit, simply because its competitors are too small and too new to challenge its domination in the lucrative market. Other monopolists like Nepal Electricity Authority and Nepal Oil Corporation that enjoy huge captive markets are not as lucky as NTL; with chronic ills like oversized structure, swollen staff, wasted resources, high leakage in operation and corruption their financial health is very poor. The condition of other PEs too, is not very different.

Economic Lesson from An Illegal Call Bypass in Nepal

Today's Editorial of Myrepublica raised legal issue regarding call bypassing. However, it is unable to analyze its core causes, which are economic. Though it is illegal, why call bypass is in huge volume in Nepal. Call bypassers provide services at low price. There is only one alternative to eliminate the call bypass, that is to adopt advance technology and reduce international call prices. Government cannot compete with these call bypassers who use advance technology and provide services at low price. Using police force and legal action to compete with advanced technology is ridiculous and waste of resources.

The lesson to the government is to learn from call bypass technology, lower taxes, and price of calls. Low taxes and price also increases government revenue because call hours increases as call price decreases. And, increase in call hours increases revenue. It is in the favor of welfare of the people. They can talk more hours about their business and their relatives as well. In nutsell, the solution of the problem is to lower tax, increase competition and adopt technology. Let us take it as a lesson for our advancement.

Nepal Loosing Global Competitiveness

Figure depicts the trend of real effective exchange rate (REER) index of Nepal. Since 2001, as REER of Nepal is appreciating, we are losing competitiveness in global trade. The formula used to calculate REER is REERt = Summation[TWit * { Eit*(Pit/Pitf)}]. Where, i stands for ith trade partner of Nepal and t denotes year, P domestic price level, Pf foreign price, TW is trade weight. REER has been constructed by using data of exchange rate of Nepali Rupees with two currencies, IC and US$. Moreover, here exchange rate is calculated as price of domestic currency in terms of foreign currency. Two currencies are used to construct REER because India is Nepal’s largest trade partner, about 70 percent trade is with India, and remaining trade occurs almost in US$. In addition, except a few countries Nepal's trade with other countries is insignificant; there is no long period time series data of trade with all countries.

US$ and Indian Rupees Exchange Rate

Long run trend of US$ rate vis-a-vis to indian currency (in nominal term) shows that indian rupee is appreciating over the year. As there is fixed exchange rate in between Nepali currency and Indian Currency, it may lead to appreciation of Nepali currency as well. Appreciation of Nepali currency adversly affects Nepali export and economy as a whole.

Importance of Economic Freedom to Development

Economic freedom is one of most important factors of economic growth and development. Here is a good piece of article on economic freedom and its linkage with development by professor BISHWAMBHER PYAKURYAL . He concludes,"... ... ... if someone tries to examine the impact of Nepal’s ailing democracy on economic growth, one can safely say that it is not the redistributive policies of the governments that limit development but the lack of economic freedom."

Volatility of Inter-Bank Rate in Nepal

Higher the interest rates higher its volatility. The figures show monthly inter-bank rate and its volatility of Nepali banks. After 2009, as a result of fall in banks liquidity inter-bank rate significantly increased in Nepal. During the period its volatility, measured by GARCH Model, also increased significantly. It indicates that higher interest rate also leads to higher volatility.

Congratulation

Congratulation to Peter A. Diamond, Dale T. Mortensen and Christopher A. Pissarides, Nobel Prize winners of 2010 in Economic Sciences "for their analysis of markets with search frictions".

Economic Optimism in Nepal

The figure shows a long run trend of economic growth rate of Nepal. Estimated trend line indicates that despite political chaos there is still some economic optimism in the country.

Importance of Economics

There is economics subject in high school courses in Nepal. However, it is optional subject. One who studies economics, he must sacrifice optional mathematics in school. Therefore, most of the high school students, especially talent one, do not choose economics as their optional subject. Similarly, it is not an important subject in higher education as well.

But, economics is the study of mankind in their ordinary business life. It is important to all as presented by Greg Mankiw, Harvard Professor in the New York Times.

Satellite is Used to Forecast Production and Sales

As part of a growing trend among hedge funds, surveillance is being used to gather market-moving information. It is early warning or information system about the performance of the business. There are two surprising facts about how production and business performance can be forecasted.

First, on August 6, 2010 Russian government announced it was shutting down the grain exports because of production are going to decline in Russia.At the same time, Lanworth Inc. a private firm was ready to announce its forecast the food grain production in Russia. It informed its customers that it guessed the Russians would only be able to produce 45.6 million tons of wheat this year.

How they forecast the production of agricultural product? Satellite has been used to estimate the production of agricultural crops. An analytical firm Lanworth Inc. scrutinized satellite images of Russia to measure wheat production. “Using infrared and microwave images of the entire planet taken twice a day, Lanworth can distinguish between each type of corn, soybeans, wheat and on and on—and discover the total number of acres of each planted overall. Infrared images capture the chlorophyll in the plants, and microwave images pick up the degree of moisture in the crops.” It monitors the health of those acres over time; analysts can spot any changes that can affect supply of commodities in the markets: diseases, floods, fires and other agricultural calamities.

Second, by counting the cars in Wal-Mart’s parking lots month in and month out, ‘Remote Sensing Metrics’ analysts were able to get a fix on the company’s customer flow. From there, they worked up a mathematical regression to come up with a prediction of the company’s quarterly revenue each month.

Details can found Here & Here

Public Vs Private Enterprises

Most of the public enterprises (PEs) are burden to the government as well as to tax payer. However, there is no radical recommendation to government by Commission for Review of Government Budget Management and Expenditure System to correct the inefficient system of PEs. If private sector is able to provide the services, then we don’t need PEs. There is no hire and fire system in Nepal, it is making performance of PEs very much ineffective. Because, once worker or staffs are hired, it becomes long term liabilities for the PEs. They must be paid even there is no production. In addition, they demand bonus even PE is in loss. As an example, we recently saw a case in Nepal Oil Corporation (NOC), where staffs are found to think themselves as a proprietor of the NOC. They were demanding bonus even NOC is in loss. Similar problems are found in other PEs as well.

Therefore, there is only one alternative of PEs that is to make long term strategy to liquidate them and encourage private sector. Problem in liquidation arises only from one side that is from incumbent staffs and workers. There is also a solution for it. The existing capable staffs can be transferred to government sector. For example, dairy development corporation (DDC) can be liquidated and its staffs can be transferred to "Gunastar tatha Naap Taul Bivag" (Quality Control Authority) of government, where they can play a crucial role for regulation and monetoring the dairy industry. Similar procedure can be applied to other PEs like NOC, Sajha etc. Government should have a regulatory role, instead to participate in the commerce.

Private sector growth is the people's growth.Private business are the people's business.If one want to serve people with an expectation to earn profit then there is no reason for the government to block their business. Let us give a chance to private sectors in petroleum supply, electricity distribution, water supply etc. It is a key to development for Nepal. In Nepal, many private businesses performed well services. We can see the private sectors in various industries like internet services,telecommunication, banks, airlines which have good regulations of the government almost performed well in Nepal. Let us think out-of-the-box.

Market and Sports in Nepal

Market provides incentive and opportunity to capable people. It’s an example of "market is everything". However, in Nepal people expect from government, which is always an inefficient institution all over the world.

An example is here. National football player Sandip Rai has joined Mohammedan Sporting Club, Kolkata, a second division Indian football club. Rai, who had left for Kolkata with Sapan Das last week, signed with the club on Friday. Rai will get Rs 1.2 million for an eight-month contract. Rai who played for Three Star Club in the Martyrs Memorial League last season had signed with Manang Marshyangdi Club (MMC) about a month back for Rs 40,000 per month.

Rai has become the second Nepali footballer to play professional football in India in the last two years. Anil Gurung last season played professional football from Shillong Lajong, an I-League team of India. Gurung received Rs 6.3 millions for a three-year contract. His team has been relegated in the current season.

Unless there is economic growth in the country, sports also doesn’t grow. Expansion of the market spills over to the sports man and to the sports club. Moreover, the sport events also get sponsors. It expands opportunities for the players. Let us expect from market rather than from government.

Easy View of Debt of Greece, Spain and Portugal

View debt of Greece, Spain and Portugal

Analysis of Business for Succesful Entrepreneurs

SLEPT analysis is a method of scanning the external environment in the business. SLEPT is termed a Social, Legal, Economic, Political and Technological analysis of the business environment. A best analysis and forecast is key to business success.

Developing Countries Should Change their Forex Reserves Portfolio

Bloomberg states that Suresh Tendulkar, an economic adviser to Indian Prime Minister Manmohan Singh, is urging the government to diversify its $264.6 billion foreign-exchange reserves and hold fewer dollars. He said, “the major part of Indian reserves are in dollars -- that is something that’s a problem for us,”

Presently, there is a domination of US $ as a global currency reserves. Russia and China have already stepped up calls for a rethink of how global currency reserves are composed and managed. They are planning for a system to maintain the stability of the major reserve currencies.

It has increased further uncertainty to Developing countries foreign exchange reserves holding and investment as well. Foreign exchange reserves portfolio of developing countries like Nepal must be changed so as to avoid likelihood foreign exchange loss.

Likelihood Bank Holiday in US

Recently US president Obama proposed a new regulatory structure for US financial system declaring that it is needed to protect the rights of ordinary consumers and to guard against the murky practices that led to the current financial crisis. Analysts have predicted that he is planning for bank holiday in US in near future. It expected to happen for late August and early September.

On 26 June 2009 CNNmoney.com reports that in US the number of bank failures so far this year has already exceeded last year's total of 25, with an average of 7 failures per month. Local banks in Georgia, Minnesota and California were closed Friday by state regulators, bringing the total number of failed banks this year to 45, according to the Federal Deposit Insurance Corporation.

Marketwatch.com quotes the Harry Schultz Letter (HSL) report "Some U.S. embassies worldwide are being advised to purchase massive amounts of local currencies; enough to last them a year. Some embassies are being sent enormous amounts of U.S. cash to purchase currencies from those governments, quietly. But not pound sterling. Inside the State Dept., there is a sense of sadness and foreboding that 'something' is about to happen ... within 180 days, but could be 120-150 days.”

In addition, globalresearch.ca refers the Bob Chapman’s influential International Forecaster’s report on the possibility of a so-called “bank holiday” planned for late August or early September. According to Chapman’s sources, U.S. embassies around the world are selling dollars and stockpiling money from respective countries where they operate.

Similarly, Schultz believes the global elite are in the process of engineering an FDR-style “bank holiday” of undetermined length in order to “sort-out the bank mess” and impose new bank rules. On March 5, 1933, in the depths of the banker engineered “Great Depression,” newly elected Franklin D. Roosevelt (FDR) declared a “bank holiday” that forced banks closed for four days. Roosevelt then rammed the Emergency Banking Act through the legislature. Passed by Congress on March 9, the act granted FDR near dictatorial control over the dealings of banks. It also allowed the Secretary of the Treasury the power to compel every person and business in the country to relinquish their gold and accept paper currency in exchange.

It was also known as the Emergency Banking Relief Act of the United States Congress spearheaded by President Franklin D. Roosevelt during the Great Depression. It was passed on March 9, 1933. The act allowed a plan that would close down insolvent banks and reorganize and reopen those banks strong enough to survive

On March 10, Roosevelt issued Executive Order No. 6073, forbidding people from sending gold overseas and forbidding banks from paying out gold. A few weeks later, on April 5, Roosevelt issued Executive Order No. 6102 ordering Americans to deliver their gold and gold certificates to the Federal Reserve Bank in exchange for paper fiat money. In other words, it is called, FDR engaged in one of history’s greatest rip-offs — that is until now.

FDR not only ripped-off the American people, but foreigners holding dollars as well, thus ensuring the “Great Depression” would spread around the world like a bankster engineered contagion.

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On March 5, 1933, the day after Roosevelt's inauguration, he called a special session of Congress which instituted a mandatory four-day bank holiday. This act provided for the reopening of banks after federal inspectors had declared them to be financially secure.

As Schultz notes, another forced “bank holiday” will likely lead to a formal devaluation of the already broadsided U.S. dollar. “But devalue against what? The euro? Doubtful. Gold? Maybe. Or vs. the IMF basket of currencies,” which he feels is more likely.

Likelihood bank holiday in US in near future (August Last or early September) ultimately devaluates the dollar. Devaluation is also an interest of US because its goods will be competitive in global markets. If dollar heavily devaluates it will affect the securities and dollar deposited by the developing countries in US. Nepal may loose significant amount of dollars, if foreign exchange reserve is held in dollars. Therefore, it is better to purchase gold and silvers and held a forex reserve in Euro and pound so as avoid foreign exchange loss.

Interview of Paul Samuelson

An interview of Paul Samuelson, a renowned and noble laureate economist, has been published in the Atlantic. I have copied the glimpses of his comment on other economists like Milton Friedman and Alan Greenspan. Here are the full interviews: Part I and Part II. Thanks to Conor Clarke, who published this interview.

"Milton Friedman. Friedman had a solid MV = PQ doctrine from which he deviated very little all his life. By the way, he's about as smart a guy as you'll meet. He's as persuasive as you hope not to meet. And to be candid, I should tell you that I stayed on good terms with Milton for more than 60 years. But I didn't do it by telling him exactly everything I thought about him. He was a libertarian to the point of nuttiness. People thought he was joking, but he was against licensing surgeons and so forth. And when I went quarterly to the Federal Reserve meetings, and he was there, we agreed only twice in the course of the business cycle."

"When the economy was going up, we both gave the same advice, and when the economy was going down, we gave the same advice. But in between he didn't change his advice at all. He wanted a machine. He wanted a machine that spit out M0 basic currency at a rate exactly equal to the real rate of growth of the system. And he thought that would stabilize things."

"However, unlike someone like Milton, Greenspan was quite streetwise. But he was overconfident that he could handle anything that arose. I can remember when some of us -- and I remember there were a lot of us in the late 90s -- said you should do something about the stock bubble. And he kind of said, 'look, reasonable men are putting their money into these things -- who are we to second guess them?' Well, reasonable men are not reasonable when you're in the bubbles which have characterized capitalism since the beginning of time."

Paul Samuelson's advice to starting graduate study in economics. "Well, I'd say, and this is probably a change from what I would have said when I was younger: Have a very healthy respect for the study of economic history, because that's the raw material out of which any of your conjectures or testings will come. And I think the recent period has illustrated that. The governor of the Bank of England seems to have forgotten or not known that there was no bank insurance in England, so when Northern Rock got a run, he was surprised. Well, he shouldn't have been."

"But history doesn't tell its own story. You've got to bring to it all the statistical testings that are possible. And we have a lot more information now than we used to."

Read yourself : Part I and Part II

Pro-Poor Free Market System

Tata, the Indian company that made worldwide headlines with its $2000 Nano car, now plans to build 1000 tiny apartments outside Mumbai. It would also start such projects in Chennai and Kolkata and subsequently to other Tier-I and tier-II cities. Tata group has once again caught the attention of the world media with its announcement of the launch of a low-cost housing programme. According to the Tata Group, the houses will cost less than Rs.4 Lakh. This is an example, how market mechanism supply goods for poor.

There is enormous wealth at the bottom of the pyramid. In his 2006 book “The fortune at the bottom of the pyramid”, Mr. Prahlad describes the people at “the bottom of the pyramid” as those 4 billion people living on less than $2 per day. He believes that embracing innovative, low-cost services have wider benefits for the economy, for example, low-cost housing, affordable educational hubs, and reliable health care facilities. Nano products are low price products. It is affordable to low-income people that raises their capabilities to goods and services.

Tata Group aims to achieve two things from this venture – first, fulfill its corporate social responsibility and second, make profit. Tata Group is to effectively use this idea of the “bottom of the pyramid”. First they came up with Tata Nano. Now they are planning to repeat the success of the idea with its Nano homes. With this, Tata Group is once again setting a great example as a company that cares not only for profits but also for people.

What the people, who are against capitalism, say about it? This is one of examples that free market system is pro-poor ideology.