Donor dilemma

  • Despite mistrust of Nepal’s institutions, the only way to rebuild Nepal is by working with them
- RAM C ACHARYA
Donor dilemma

Jun 14, 2015-

How bad can Nepal’s government institutions be? This is the question in everyone’s mind after seeing the global hesitancy in channeling the earthquake relief money through the Prime Minister’s Disaster Relief Fund. Donations for rescue and relief seem to be pouring in from all over the world to different I/NGOs but the PM Fund has only received a meagre amount. The repeated claims by the authority of built-in checks and balances in utilising the fund assured

no one: not the citizens, not the Nepali diaspora, not the international community.Indeed, if the past is any indication, the concern that cash given to the government may be misused is completely understandable.

It is unfortunate that Nepal fares so bad in terms of its government’s honesty, integrity and accountability. This poor governance did not surface overnight, and it is not that the international community learned about it only in the wake of the earthquake.

It has been decades in the making, and the donors have known it all along. With the support of the international community, this problem can be, and must be, fixed. For that, in the reconstruction phase, the international community should tackle the governance issue head-on by partnering with the government, not aggravate it by circumventing the government.

Doing development

A bit of history first about how we arrived where we are now. The reasons that led to the amplification of the damage of the earthquake are same that led to Nepal’s failed economic development: corruption, poverty, inequality, rent-seeking activity and the centralisation of economic and political power in Kathmandu. Had the development policies not gone astray, not only would the loss have been mitigated but the country would have been in a better position to withstand such a disaster and rebuild. The culprits for this failure are none other than Nepal’s decision makers.

However, one would hesitate to give the international community an alibi in this development failure. Since the early 1970s, about one-fourth of the annual government budget has been financed by foreign aid. Most of the countries and the international organisations that will be involved in reconstruction are also the ones that have provided aid for decades, watching the gradual degradation of the polity. Moving forward, we should be mindful of the fact that foreign aid in Nepal might not have been a curse but, as the perception goes, it has not been a boon either.

In fact, Nepal would not have required foreign aid in ordinary times. A visionary government would have stopped relying on foreign aid a long ago and focused on building a sound fiscal system, competitive trading regime and investment-friendly economy. Instead, in the last five decades, the entire political capital was spent on mobilising foreign aid, neglecting everything that is required for economic development.

Among several, perhaps unintended, consequences of foreign aid, the most damaging one has been that it has become a substitute to a sound tax system for politicians. Had there been no foreign aid, Nepal would have had no choice but to develop comprehensive income and property tax regimes.Among a myriad of drawbacks of not having a robust tax system, the one that particularly hits hard right now is that Nepal does not have its own tax revenue to rebuild.

Empowering people

Also, this time, the situation is different.Nepal has unprecedented humanitarian needs. The losses are too overwhelming for Nepal to manage alone: more than 8,700 lives have been lost; more than half a million houses are decimated and another 282 thousands partly damaged; hills and mountains have crashed causing landslides to bury villages; roads have cracked; thousands of school buildings have been leveled to the ground; and a large number of World Heritage sites dating back to the third century have collapsed. In such a crisis, foreign aid is not an option but a necessity.

The question is: what would be the best modalities for the international community to help rebuild Nepal? Should it provide support through I/NGOs as in the rescue and relief phase or through the government budgetary process? As rescue and relief have to be done quickly and spontaneously, it is reasonable to expect many groups to work independently without going through the government. Even then, a country with an efficient government would have coordinated such efforts.

However, reconstruction is a long-term programme implemented over the years. So there is ample time for both fund embezzlement and establishing accountability. In this case, the international community

and the government should set a common agenda with common priorities and

the donors should channel their funds through the government budgetary process. Within a plan agreed upon by all, each donor can provide funding either for a general purpose or for any particular programme or locations or even have turnkey projects.  Such a joint effort not only makes the reconstruction effort transparent, efficient, and systematic, it also helps reshape the corrupt institutions.

To fulfil its cherished goal of empowering the Nepali people, the international community must work along with the government to implement the rebuilding plan and hold the government accountable. Doing so would strengthen Nepal’s institutions. In a way, when it comes to nation-building, the costs of institutional degradation are more than rebuilding earthquake-ravaged physical facilities. Therefore, any support in improving the institutions would be the greatest gift that the international community can

offer. By empowering people and improving institutions, the community would be strengthening Nepal’s sovereignty.

Despite commendable work done by some I/NGOs around the globe, working out of the government framework is not a viable option for them. The questions regarding ways to respect sovereignty, to monitor and streamline I/NGOs’ work and make them accountable are still unsettled. Besides, it might be a mistake to think that the institutional decay is applicable only to governments. Furthermore, Nepal does not need a parallel government; it needs a government that is accountable.

Rebuilding institutions

Nepali people know that all donors, including Nepal’s two neighbours, would whole-heartedly like to see them out of this tragedy. The outpouring of support from citizens around the globe at the time of

rescue and relief is testimony that

global voters have mandated their governments for this task.

The international community should not start from a false premise by taking Nepal’s weak institutions as an excuse for parallel plans. It must start from an optimistic premise and seek to fix the failures. It should aim to rebuild Nepal and reshape its institutions in a transparent manner. Despite understandable mistrust of Nepal’s institutions, the only way to rebuild Nepal is by working with them, not going around them.

The international community should take to heart that the use of local resources—skills, labour, capital and material—is vital for rebuilding Nepal. It should aim for building Nepal’s capacity to govern itself.

Nepalis do not need to test their governments any more. This time, they expect the development partners to play a more transparent, larger and more intimate role. I just hope that the frustration that the Nepali people have with their government does not extend to the international community.

Acharya is an economist who conducts research on economic policies

Published: 15-06-2015 08:30

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