It seems odd that we Nepalis need heavy foreign pressure even to act against the corrupt and the loan defaulters or to clean up the mess we ourselves created. And for this, we seek foreign aid, some in grants and more in loans, that go on piling up on the heads of the Nepali people. Look at the question of taking action against the defaulters who together have to repay billions of rupees in principal and interest to the Nepal Bank Ltd. (NBL) and the Rastriya Banijya Bank (RBB). Defaulting on loans obtained on inadequate collateral is not the invention of the post-1990 democratic era, but it was not checked even during this period. Government and the banks’ management have changed hands many times, but the two largest and oldest commercial banks of the country continued to go downhill until the foreigners pressured the government into doing something about it.

As a result, for about two years foreign management has taken over the two banks, first NBL and then RBB. The Nepal Rastra Bank published a black list of the defaulters months ago, but nothing has come of it so far. It is the donors who are insisting on tough action. The two banks’ foreign managements have suggested impounding the passports of the defaulters and the World Bank has even stressed boycotting them socially. The World Bank is reported to have informed the government that it is suspending its Rs. 5 billion pledged as ‘budgetary support’ during the current year because it is ‘not happy with the pace’ of the reforms the government had promised. And one of the reasons cited is that the government has not cracked down on the defaulters. The World Bank had approved the second and current phase of financial sector reforms, aimed, among other things, at making the two banks fit for eventual privatisation, tied to such lending conditions as the voluntary retirement scheme and NRB re-engineering. Now NBL is reported to be introducing the compulsory retirement scheme, after the voluntary one failed to cut staff to the desired extent, and under the new scheme, the bank is likely to retire 1,100 employees at a monetary cost of Rs. 320 million loan money.

The urge to reform should come from within. Any reforms introduced only under foreign pressure cannot have full and lasting effects. Introducing reforms such as these is a question of will. Recovering loans, making the central bank more capable and more autonomous, reducing the staff, and such other things should come within Nepalis’ capacity. But the fact that there is no powerful will coming from within raises serious doubts about the ability of a government to deliver on larger goals like reducing poverty, strengthening democracy, providing good governance and making the body politic clean.