TOPICS : PEs: Need to remodel policies

Nandan Prasad Adhikari:

Public enterprises (PEs) have social responsibility in making a country self-sustained. But their dismal performance and incompetence have led many investments to go wrong while regulators continue to fail to enforce appropriate policy and regulatory measures. In view of existing political instability in Nepal, arbitrarily made investment decisions leave wilful defaulters to play with many loopholes. Hence, uniformity in law and regulations has become essential to wipe out the defaulters’ designs.

Amending relevant laws could reduce duplication and redundancy even as various acts governing financial sector are not consistent with each other and are often in conflict with corporate legislation. The process of establishing a Corporate Law Tribunal for speedy justice has a long way to go. Legal practices are fragmented with an institution-based rather than a function-based system. Investment opportunities are missing. A disciplined system is needed for credit allocation. If the system behaves irresponsibly, costs to be borne by the economy become enormous. Loan loss provision and increment in capital fund reduce and avoid problems of Non Performing Asset (NPA) whereas corporate ethics and responsibility help gauge the exact value and calibre of investment.

Setting up an independent Assets Management Company with power for recovering loans is also yet to be materialise. Complete overhaul is necessary for controlling the misuse of funds and securing investments. The government has lost Rs.11.2 million in 2003/04 from the service sector alone. This trend is increasing because of outcomes of many bad loans, which are almost 50 per cent of the total investment. If precautions are not taken, national budget will continue to be used in financing debts.

The Nepal Rastra Bank (NRB) has yet to prove itself capable of curbing loan defaults. Though the so-called umbrella act unifies laws to govern financial intermediaries, many PEs are still free to ignore such requirements. Making provisions for NPA and loan loss adjustment on it is the only choice. Precautions must be taken in reducing financial burden of future reforms from donors. Advice of IMF and World Bank cannot be a remedy if strong legal action and effective enforcement of disciplinary measures against defaulters are not implemented.

Central regulation helps in making policy decisions as per national priorities that may bring unnecessary government intervention and over-politicisation. The most recent example is Nepal Oil Corporation, which was provided loans when it was facing huge losses. Self-regulation is to be encouraged within PEs with nominal supervision and management by the government but possibilities of foul game plans still persist like in the case of Nepal Industrial Development Corporation. If the system remains unchanged, many PEs are bound to become bankrupt soon.

Politically motivated policy makers must be forced to follow a uniform practice. Banks and Financial Institutions Ordinance 2005 must be enforced as an umbrella act. The task is to remodel policies as per continuation of corporate reform practices by combining all publicly accountable financial institutions within single governing practices under the policy framework of the NRB in economic administration of the country.