1. SUMMARY: DURING LAST WEEK, NEW RIJAL GOVERNMENT
HAS TAKEN ACTION TO INCREASE INTEREST RATES AND TO
RAISE PRICES TO CONSUMERS OF RICE AND SUGAR. MEASURES
HAVE BEEN CRITICIZED BY PRESS AND PUBLIC
WHO FEAR FURTHER PRICE INCREASES. CRITICISM HAS
FORCED GOVERNMENT TO COME OUT WITH STATEMENTS IN ITS
OWN DEFENSE. UNLESS ACTION HAS DESIRED RESULT OF INCREAS-
ING PRODUCTIVE INVESTMENT AND DOMESTIC AVAILABILITY OF
FOOD SUPPLIES -- AND THERE IS GOOD CHANCE THAT IT WILL
NOT -- EFFECT MAY BE TO INCREASE DOMESTIC DISSATISFACTION,
WEAKEN POSITION OF PRIME MINISTER AND ENHANCE
POSSIBILITY OF NEW MINISTERIAL CHANGES LATER IN YEAR.
END SUMMARY.
2. SEVERAL ECONOMIC MEASURES IMPLEMENTED BY THE
GOVERNMENT WITHIN THE LAST WEEK HAVE BEEN DENOUNCED
LIMITED OFFICIAL USE
LIMITED OFFICIAL USE
PAGE 02 KATHMA 01930 01 OF 02 260641Z
BY CONSUMERS AND THE PRIVATE SECTOR, CAUSING GOVERN-
MENT SPOKESMEN TO ISSUE STATEMENTS DEFENDING THE
NEW POLICIES:
A) INCREASE IN INTEREST RATES -- NEPAL'S RASTRA
BANK ANNOUNCED A SHARP INCREASE IN INTEREST RATES,
BOTH FOR LOANS AND FOR SAVINGS ACCOUNTS. INTEREST
RATES ON SMALL LOANS FOR AGRICULTURAL, INDUSTRIAL
AND EXPORT PURPOSES HAVE BEEN INCREASED FROM 8 PERCENT TO
15 PERCENT. INTEREST RATES ON LOANS BY THE AGRICULTURAL
DEVELOPMENT BANK TO THE PRIVATE SECTOR HAVE BEEN
RAISED FROM THE FORMER RANGE OF 5 AND ONE-HALF TO 9
AND ONE-HALF PERCENT TO NEW LEVEL OF FROM 10 TO 15
PERCENT. SIMILARLY, INTEREST RATES FOR LOANS BY
NEPAL INDUSTRIAL DEVELOPMENT CORPORATION HAVE BEEN
RAISED FROM FORMER LEVEL OF 3 PERCENT TO 9 PERCENT TO LEVEL OF
10 TO 16 PERCENT. (THE 10 PERCENT RATE IS A CONCESSIONAL
RATE FOR COTTAGE INDUSTRIES.) ON THE DEPOSIT SIDE, THE
NEW INTEREST RATE FOR SAVINGS ACCOUNTS IS SET AT 8 PERCENT
WITH RATES FOR FIXED DEPOSITS RANGING FROM 4 PERCENT
FOR THREE MONTHS TO 15 PERCENT FOR ONE YEAR AND 16 PERCENT FOR
TWO YEARS. IN EXPLAINING NEW POLICY, GOVERNOR SHARMA
OF RASTRA BANK SAID THAT INCREASE WAS NECESSARY TO
ATTRACT NEW DEPOSITS AS LAST YEAR BANK LOANS
INCREASED BY 56 PERCENT, WHILE SAVINGS ROSE BY ONLY 19 PERCENT.
FOR FIRST SIX MONTHS OF CURRENT FISCAL YEAR, BANK
LOANS HAD AGAIN INCREASED BY 56 PERCENT WHILE SAVINGS WERE
UP BY ONLY 6 PERCENT. SHARMA ALSO ARGUED THAT HIGHER
INTEREST RATES WOULD CONTRIBUTE TO ACCELERATION OF ECONOMIC
DEVELOPMENT AS INVESTMENTS WOULD NOW ONLY BE MADE IN
PRODUCTIVE SECTORS AND THERE WOULD BE INCENTIVE TO
UTILIZE LOANS AS EFFICIENTLY AND QUICKLY AS
POSSIBLE.
B) PRICE INCREASES FOR RICE AND SUGAR -- OF
MORE IMMEDIATE IMPORTANCE TO MOST NEPALESE WAS THE
GOVERNMENT'S DECISION TO INCREASE THE PRICES OF BOTH
PARBOILED RICE AND SUGAR. SINCE INSTITUTIONALIZING
RICE EXPORT TRADE, THE GOVERNMENT'S RICE CORPORATION
HAS PROVIDED COARSE PARBOILED RICE, A VARIETY CONSUMED
LIMITED OFFICIAL USE
LIMITED OFFICIAL USE
PAGE 03 KATHMA 01930 01 OF 02 260641Z
PRIMARILY BY THE LOWER CLASSES, AND WHICH THE GOVERNMENT
OBTAINS THROUGH A LEVY ON EXPORTS, AT PRICES FIXED
BELOW EXPORT PRICES. FOR POLITICAL REASONS, PARBOILED
RICE WAS SOLD AT A CHEAPER PRICE IN KATHMANDU VALLEY
THAN IN THE TERAI WHERE IT IS PRODUCED. IN RECENT
MONTHS, INCREASING NUMBERS OF PEOPLE HAVE WALKED TO
KATHMANDU FROM AREAS OUTSIDE THE VALLEY TO TAKE
ADVANTAGE OF THE LOWER PRICES, WITH RESULT THAT RICE
CORPORATION WAS INCURRING LOSSES AT RATE WHICH WOULD
AMOUNT TO NEARLY 20 MILLION RUPEES PER YEAR.
THE PRICE IN KATHMANDU HAS NOW BEEN RAISED FROM RS
0.85 PER MANA TO RS. 1.15 PER MANA, EQUAL TO THE PRICE
IN THE TERAI. THE GOVERNMENT ACTED AT THE SAME TIME
TO INCREASE THE PRICE OF SUGAR FROM RS. 5.40 PER KG.
TO RS 7.00 PER KG., EXPLAINING THAT THE INCREASE WAS
NECESSARY BOTH TO SERVE AS AN INCENTIVE FOR FARMERS
TO GROW SUGAR CANE, WHICH IS NOT NOW PRODUCED IN
SUFFICIENT QUALTITIES TO SUPPLY NEPAL'S REQUIGPMENTS,
AND TO PREVENT SMUGGLING OF SUGAR FROM NEPAL TO INDIA,
WHERE THE PRICE IS HIGHER.
LIMITED OFFICIAL USE
NNN
LIMITED OFFICIAL USE
PAGE 01 KATHMA 01930 02 OF 02 260649Z
11
ACTION NEA-09
INFO OCT-01 ISO-00 CIAE-00 DODE-00 PM-03 H-02 INR-07 L-02
NSAE-00 NSC-05 PA-01 PRS-01 SP-02 SS-15 USIA-06
AID-05 COME-00 EB-07 FRB-03 TRSE-00 XMB-02 OPIC-03
CIEP-01 LAB-04 SIL-01 OMB-01 STR-04 AGR-05 SAM-01
/091 W
--------------------- 057587
R 260545Z APR 75
FM AMEMBASSY KATHMANDU
TO SECSTATE WASHDC 1518
INFO AMEMBASSY NEW DELHI
LIMITED OFFICIAL USE SECTION 2 OF 2 KATHMANDU 1930
3. COMMENT: THE GOVERNMENT'S ACTIONS HAVE LED TO A
LIVELY EXCHANGE IN THE PRESS AND TO CRITICISM BY MOST
NEPALIS WHO FEAR THE MEASURES WILL RESULT IN A NEW
ROUND OF GENERAL PRICE INCREASES. INDEED, THE INCREASE
IN PRICE OF COARSE PARBOILED RICE HAS ALREADY LED TO
INCREAES IN PRICES OF OTHER VARIETIES OF RICE. WITH
RICE THE STAPLE FOOD OF MOST INHABITANTS OF THE VALLEY,
THE PINCH IS ALREADY BEING FELT. IN ADDITION TO CONCERN
OVER LIKELY INFLATIONARY IMPACT, THERE IS ALSO SKEPTICISM
ABOUT THE WISDOM OF GOVERNMENT'S MEASURES. PRESS
HAS POINTED OUT FOR EXAMPLE THAT IN CASE OF
SUGAR CANE, PRICES WERE RAISED AFTER PLANTING SEASON
WAS OVER, TOO LATE TO SERVE AS ANY INCENTIVE FOR
FARMERS, WITH RESULT THAT SUGAR MILLS WILL REAP WINDFALL
PROFITS. GOVERNMENT, HOWEVER, HAS SINCE ANNOUNCED THAT
IT WILL APPROPRIATE OVER HALF OF PRICE INCREASE AS
TAX WITH REMAINDER BEING DIVIDED BETWEEN FARMERS AND
SUGAR MILLS. THERE HAS BEEN NO STATEMENT ON WHAT USE
WILL BE MADE OF TAX PROCEEDS.
LIMITED OFFICIAL USE
LIMITED OFFICIAL USE
PAGE 02 KATHMA 01930 02 OF 02 260649Z
4. IT COMES AS NO SURPRISE THAT INCREASE IN INTEREST RATES
FOR LOANS HAS ELICITED WIDESPREAD OPPOSITION FROM PRIVATE
SECTOR, WHICH ARGUES THAT MEASURES WILL RESULT IN GENERAL
PRICE INCREASE AND WILL STIFLE INVESTMENT. MORE IMPORTANT,
THERE ARE MANY WHO DOUBT THAT INCREASE IN INTEREST RATES
FOR SAVINGS AND FIXED DEPOSITS WILL ATTRACT NEW FUNDS
FOR SIMPLE REASON THAT CAPACITY TO SAVE IN NEPAL IS
SEVERELY LIMITED AND ADDITIONAL FUNDS ARE THEREFORE
NOT AVAILABLE. FINALLY, PRIVATE SECTOR POINTS OUT
THAT PRESENT STRAIN ON BANKS' RESOURCES HAS BEEN CAUSED
BY INCREASING DEMANDS FOR LOANS BY GOVERNMENT
CORPORATIONS, WHICH ARE NOT REQUIRED TO POST COLLATERAL,
AND WHICH OFTEN DO NOT UTILIZE FUNDS AFTER LOANS
HAVE BEEN AUTHORIZED.
5. THERE IS NO QUESTION THAT OPERATIONS OF NEPAL'S
FINANCIAL INSTITUTIONS MUST BE IMPROVED TO SERVE
AS MORE EFFICIENT MOTOR FOR DEVELOPMENT. AN INCREASE
IN INTEREST RATES BY ENCOURAGING MORE RIGOROUS
ALLOCATION OF AVAILABLE RESOURCES CAN OFTEN SERVE THIS
PURPOSE. WHILE IN SOME INSTANCES HIGHER INTEREST RATES MAY
EVEN BENEFIT SMALL INVESTORS BY CURBING DEMAND OF LARGE
BORROWERS THIS MAY NOT BE CASE IN NEPAL GIVEN FACT THAT
GOVERNMENT AGENCIES THEMSELVES ARE LARGE SCALE BORROWERS.
DISCUSSIONS WITH REPRESENTATIVES OF PRIVATE SECTOR
INDICATES THAT THEY VIEW NEW GOVERNMENT MEASURES AS ANTOHER
INSTANCE WHERE COMMUNCIATIONS BETWEEN GOVERNMENT
AND PRIVATE SECTOR HAVE BEEN LACKING AND AS
RSULT THEIR INTERESTS HAVE NOT BEEN TAKEN INTO
ACCOUNT. IT WOULD APPEAR THAT OTHER MEASURES, SUCH AS
PROGRAMS TO MODERNIZE THE BANKING SECTOR, TO DEVELOP
BETTER CLERICAL AND ENTREPRENURIAL SKILLS IN
NEPAL'S FINANCIAL INSTITUTIONS, AND ACTIONS TO
ENSURE TIGHTER FISCAL MANAGEMENT BY GOVERNMENT CORPORA-
TIONS AND GREATER INTERACTION BETWEEN THE PRIVATE
AND PUBLIC SECTORS ARE ALSO PRIORITY NEEDS. THE
PRIVATE SECTOR WILL UNDOUBTEDLY FIND THE GOING TOUGH
IN THE FACE OF THE INCREASED INTEREST RATES AND IT IS
UNLIKELY THAT THE NEW MEASURES WILL GENERATE AS MUCH
PRODUCTIVE INVESTMENT OR INCREASED AVAILABILITIES OF
FUNDS AS THE GOVERNMENT HOPES. INDEED, IF THE MEASURES
LIMITED OFFICIAL USE
LIMITED OFFICIAL USE
PAGE 03 KATHMA 01930 02 OF 02 260649Z
SET OFF A NEW ROUND OF PRICE INCREASES, THE INCENTIVE
MAY BE TO SPEND RATHER THAN SAVE.
6. IT IS POSSIBLE THAT IN ITS EAGERNESS TO PRESENT
AN AIR OF ACTION AND DECISIVENESS, THE NEW RIJAL
GOVERNMENT DID NOT FULLY CONSIDER ALL ITS OPTIONS
OR THE POLITICAL REPERCUSSIONS OF ITS RECENT MEASURES.
CERTAINLY IT HAS BROUGHT DOWN ON ITSELF A GREAT DEAL
OF CRITICISM. UNLESS THE MEASURES SUCCEED IN STIMULATING
AGRICULTURAL AND INDUSTRIAL PRODUCTION, THE OVERALL
EFFECT MAY BE TO WEAKEN THE POSITION OF THE PRIME
MINISTER AND THOSE AROUND HIM AND ENHANCE THE LIKELIHOOD
OF MINISTERIAL CHANGES LATER IN THE YEAR.
CARGO
LIMITED OFFICIAL USE
NNN
| GON DEFENDS NEW ECONOMIC MEASURES | |
1975 April 26, 05:45 (Saturday) |
1975KATHMA01930_b |
LIMITED OFFICIAL USE |
UNCLASSIFIED |
|
-- N/A or Blank -- |
8897 |
-- N/A or Blank -- |
TEXT ON MICROFILM,TEXT ONLINE |
-- N/A or Blank -- |
TE - Telegram (cable) |
|
-- N/A or Blank -- ACTION NEA - Bureau of Near Eastern and South Asian Affairs |
Electronic Telegrams |
Margaret P. Grafeld Declassified/Released US Department of State EO Systematic Review 05 JUL 2006 |
|
Content
Raw content
LIMITED OFFICIAL USE
PAGE 01 KATHMA 01930 01 OF 02 260641Z
10
ACTION NEA-09
INFO OCT-01 ISO-00 CIAE-00 DODE-00 PM-03 H-02 INR-07 L-02
NSAE-00 NSC-05 PA-01 PRS-01 SP-02 SS-15 USIA-06
AID-05 COME-00 EB-07 FRB-03 TRSE-00 XMB-02 OPIC-03
CIEP-01 LAB-04 SIL-01 OMB-01 STR-04 AGR-05 SAM-01
/091 W
--------------------- 057550
R 260545Z APR 75
FM AMEMBASSY KATHMANDU
TO SECSTATE WASHDC 1517
INFO AMEMBASSY NEW DELHI
LIMITED OFFICIAL USE SECTION 1 OF 2 KATHMANDU 1930
E.O. 11652: N/A
TAGS: ECON, NP
SUBJECT: GON DEFENDS NEW ECONOMIC MEASURES
1. SUMMARY: DURING LAST WEEK, NEW RIJAL GOVERNMENT
HAS TAKEN ACTION TO INCREASE INTEREST RATES AND TO
RAISE PRICES TO CONSUMERS OF RICE AND SUGAR. MEASURES
HAVE BEEN CRITICIZED BY PRESS AND PUBLIC
WHO FEAR FURTHER PRICE INCREASES. CRITICISM HAS
FORCED GOVERNMENT TO COME OUT WITH STATEMENTS IN ITS
OWN DEFENSE. UNLESS ACTION HAS DESIRED RESULT OF INCREAS-
ING PRODUCTIVE INVESTMENT AND DOMESTIC AVAILABILITY OF
FOOD SUPPLIES -- AND THERE IS GOOD CHANCE THAT IT WILL
NOT -- EFFECT MAY BE TO INCREASE DOMESTIC DISSATISFACTION,
WEAKEN POSITION OF PRIME MINISTER AND ENHANCE
POSSIBILITY OF NEW MINISTERIAL CHANGES LATER IN YEAR.
END SUMMARY.
2. SEVERAL ECONOMIC MEASURES IMPLEMENTED BY THE
GOVERNMENT WITHIN THE LAST WEEK HAVE BEEN DENOUNCED
LIMITED OFFICIAL USE
LIMITED OFFICIAL USE
PAGE 02 KATHMA 01930 01 OF 02 260641Z
BY CONSUMERS AND THE PRIVATE SECTOR, CAUSING GOVERN-
MENT SPOKESMEN TO ISSUE STATEMENTS DEFENDING THE
NEW POLICIES:
A) INCREASE IN INTEREST RATES -- NEPAL'S RASTRA
BANK ANNOUNCED A SHARP INCREASE IN INTEREST RATES,
BOTH FOR LOANS AND FOR SAVINGS ACCOUNTS. INTEREST
RATES ON SMALL LOANS FOR AGRICULTURAL, INDUSTRIAL
AND EXPORT PURPOSES HAVE BEEN INCREASED FROM 8 PERCENT TO
15 PERCENT. INTEREST RATES ON LOANS BY THE AGRICULTURAL
DEVELOPMENT BANK TO THE PRIVATE SECTOR HAVE BEEN
RAISED FROM THE FORMER RANGE OF 5 AND ONE-HALF TO 9
AND ONE-HALF PERCENT TO NEW LEVEL OF FROM 10 TO 15
PERCENT. SIMILARLY, INTEREST RATES FOR LOANS BY
NEPAL INDUSTRIAL DEVELOPMENT CORPORATION HAVE BEEN
RAISED FROM FORMER LEVEL OF 3 PERCENT TO 9 PERCENT TO LEVEL OF
10 TO 16 PERCENT. (THE 10 PERCENT RATE IS A CONCESSIONAL
RATE FOR COTTAGE INDUSTRIES.) ON THE DEPOSIT SIDE, THE
NEW INTEREST RATE FOR SAVINGS ACCOUNTS IS SET AT 8 PERCENT
WITH RATES FOR FIXED DEPOSITS RANGING FROM 4 PERCENT
FOR THREE MONTHS TO 15 PERCENT FOR ONE YEAR AND 16 PERCENT FOR
TWO YEARS. IN EXPLAINING NEW POLICY, GOVERNOR SHARMA
OF RASTRA BANK SAID THAT INCREASE WAS NECESSARY TO
ATTRACT NEW DEPOSITS AS LAST YEAR BANK LOANS
INCREASED BY 56 PERCENT, WHILE SAVINGS ROSE BY ONLY 19 PERCENT.
FOR FIRST SIX MONTHS OF CURRENT FISCAL YEAR, BANK
LOANS HAD AGAIN INCREASED BY 56 PERCENT WHILE SAVINGS WERE
UP BY ONLY 6 PERCENT. SHARMA ALSO ARGUED THAT HIGHER
INTEREST RATES WOULD CONTRIBUTE TO ACCELERATION OF ECONOMIC
DEVELOPMENT AS INVESTMENTS WOULD NOW ONLY BE MADE IN
PRODUCTIVE SECTORS AND THERE WOULD BE INCENTIVE TO
UTILIZE LOANS AS EFFICIENTLY AND QUICKLY AS
POSSIBLE.
B) PRICE INCREASES FOR RICE AND SUGAR -- OF
MORE IMMEDIATE IMPORTANCE TO MOST NEPALESE WAS THE
GOVERNMENT'S DECISION TO INCREASE THE PRICES OF BOTH
PARBOILED RICE AND SUGAR. SINCE INSTITUTIONALIZING
RICE EXPORT TRADE, THE GOVERNMENT'S RICE CORPORATION
HAS PROVIDED COARSE PARBOILED RICE, A VARIETY CONSUMED
LIMITED OFFICIAL USE
LIMITED OFFICIAL USE
PAGE 03 KATHMA 01930 01 OF 02 260641Z
PRIMARILY BY THE LOWER CLASSES, AND WHICH THE GOVERNMENT
OBTAINS THROUGH A LEVY ON EXPORTS, AT PRICES FIXED
BELOW EXPORT PRICES. FOR POLITICAL REASONS, PARBOILED
RICE WAS SOLD AT A CHEAPER PRICE IN KATHMANDU VALLEY
THAN IN THE TERAI WHERE IT IS PRODUCED. IN RECENT
MONTHS, INCREASING NUMBERS OF PEOPLE HAVE WALKED TO
KATHMANDU FROM AREAS OUTSIDE THE VALLEY TO TAKE
ADVANTAGE OF THE LOWER PRICES, WITH RESULT THAT RICE
CORPORATION WAS INCURRING LOSSES AT RATE WHICH WOULD
AMOUNT TO NEARLY 20 MILLION RUPEES PER YEAR.
THE PRICE IN KATHMANDU HAS NOW BEEN RAISED FROM RS
0.85 PER MANA TO RS. 1.15 PER MANA, EQUAL TO THE PRICE
IN THE TERAI. THE GOVERNMENT ACTED AT THE SAME TIME
TO INCREASE THE PRICE OF SUGAR FROM RS. 5.40 PER KG.
TO RS 7.00 PER KG., EXPLAINING THAT THE INCREASE WAS
NECESSARY BOTH TO SERVE AS AN INCENTIVE FOR FARMERS
TO GROW SUGAR CANE, WHICH IS NOT NOW PRODUCED IN
SUFFICIENT QUALTITIES TO SUPPLY NEPAL'S REQUIGPMENTS,
AND TO PREVENT SMUGGLING OF SUGAR FROM NEPAL TO INDIA,
WHERE THE PRICE IS HIGHER.
LIMITED OFFICIAL USE
NNN
LIMITED OFFICIAL USE
PAGE 01 KATHMA 01930 02 OF 02 260649Z
11
ACTION NEA-09
INFO OCT-01 ISO-00 CIAE-00 DODE-00 PM-03 H-02 INR-07 L-02
NSAE-00 NSC-05 PA-01 PRS-01 SP-02 SS-15 USIA-06
AID-05 COME-00 EB-07 FRB-03 TRSE-00 XMB-02 OPIC-03
CIEP-01 LAB-04 SIL-01 OMB-01 STR-04 AGR-05 SAM-01
/091 W
--------------------- 057587
R 260545Z APR 75
FM AMEMBASSY KATHMANDU
TO SECSTATE WASHDC 1518
INFO AMEMBASSY NEW DELHI
LIMITED OFFICIAL USE SECTION 2 OF 2 KATHMANDU 1930
3. COMMENT: THE GOVERNMENT'S ACTIONS HAVE LED TO A
LIVELY EXCHANGE IN THE PRESS AND TO CRITICISM BY MOST
NEPALIS WHO FEAR THE MEASURES WILL RESULT IN A NEW
ROUND OF GENERAL PRICE INCREASES. INDEED, THE INCREASE
IN PRICE OF COARSE PARBOILED RICE HAS ALREADY LED TO
INCREAES IN PRICES OF OTHER VARIETIES OF RICE. WITH
RICE THE STAPLE FOOD OF MOST INHABITANTS OF THE VALLEY,
THE PINCH IS ALREADY BEING FELT. IN ADDITION TO CONCERN
OVER LIKELY INFLATIONARY IMPACT, THERE IS ALSO SKEPTICISM
ABOUT THE WISDOM OF GOVERNMENT'S MEASURES. PRESS
HAS POINTED OUT FOR EXAMPLE THAT IN CASE OF
SUGAR CANE, PRICES WERE RAISED AFTER PLANTING SEASON
WAS OVER, TOO LATE TO SERVE AS ANY INCENTIVE FOR
FARMERS, WITH RESULT THAT SUGAR MILLS WILL REAP WINDFALL
PROFITS. GOVERNMENT, HOWEVER, HAS SINCE ANNOUNCED THAT
IT WILL APPROPRIATE OVER HALF OF PRICE INCREASE AS
TAX WITH REMAINDER BEING DIVIDED BETWEEN FARMERS AND
SUGAR MILLS. THERE HAS BEEN NO STATEMENT ON WHAT USE
WILL BE MADE OF TAX PROCEEDS.
LIMITED OFFICIAL USE
LIMITED OFFICIAL USE
PAGE 02 KATHMA 01930 02 OF 02 260649Z
4. IT COMES AS NO SURPRISE THAT INCREASE IN INTEREST RATES
FOR LOANS HAS ELICITED WIDESPREAD OPPOSITION FROM PRIVATE
SECTOR, WHICH ARGUES THAT MEASURES WILL RESULT IN GENERAL
PRICE INCREASE AND WILL STIFLE INVESTMENT. MORE IMPORTANT,
THERE ARE MANY WHO DOUBT THAT INCREASE IN INTEREST RATES
FOR SAVINGS AND FIXED DEPOSITS WILL ATTRACT NEW FUNDS
FOR SIMPLE REASON THAT CAPACITY TO SAVE IN NEPAL IS
SEVERELY LIMITED AND ADDITIONAL FUNDS ARE THEREFORE
NOT AVAILABLE. FINALLY, PRIVATE SECTOR POINTS OUT
THAT PRESENT STRAIN ON BANKS' RESOURCES HAS BEEN CAUSED
BY INCREASING DEMANDS FOR LOANS BY GOVERNMENT
CORPORATIONS, WHICH ARE NOT REQUIRED TO POST COLLATERAL,
AND WHICH OFTEN DO NOT UTILIZE FUNDS AFTER LOANS
HAVE BEEN AUTHORIZED.
5. THERE IS NO QUESTION THAT OPERATIONS OF NEPAL'S
FINANCIAL INSTITUTIONS MUST BE IMPROVED TO SERVE
AS MORE EFFICIENT MOTOR FOR DEVELOPMENT. AN INCREASE
IN INTEREST RATES BY ENCOURAGING MORE RIGOROUS
ALLOCATION OF AVAILABLE RESOURCES CAN OFTEN SERVE THIS
PURPOSE. WHILE IN SOME INSTANCES HIGHER INTEREST RATES MAY
EVEN BENEFIT SMALL INVESTORS BY CURBING DEMAND OF LARGE
BORROWERS THIS MAY NOT BE CASE IN NEPAL GIVEN FACT THAT
GOVERNMENT AGENCIES THEMSELVES ARE LARGE SCALE BORROWERS.
DISCUSSIONS WITH REPRESENTATIVES OF PRIVATE SECTOR
INDICATES THAT THEY VIEW NEW GOVERNMENT MEASURES AS ANTOHER
INSTANCE WHERE COMMUNCIATIONS BETWEEN GOVERNMENT
AND PRIVATE SECTOR HAVE BEEN LACKING AND AS
RSULT THEIR INTERESTS HAVE NOT BEEN TAKEN INTO
ACCOUNT. IT WOULD APPEAR THAT OTHER MEASURES, SUCH AS
PROGRAMS TO MODERNIZE THE BANKING SECTOR, TO DEVELOP
BETTER CLERICAL AND ENTREPRENURIAL SKILLS IN
NEPAL'S FINANCIAL INSTITUTIONS, AND ACTIONS TO
ENSURE TIGHTER FISCAL MANAGEMENT BY GOVERNMENT CORPORA-
TIONS AND GREATER INTERACTION BETWEEN THE PRIVATE
AND PUBLIC SECTORS ARE ALSO PRIORITY NEEDS. THE
PRIVATE SECTOR WILL UNDOUBTEDLY FIND THE GOING TOUGH
IN THE FACE OF THE INCREASED INTEREST RATES AND IT IS
UNLIKELY THAT THE NEW MEASURES WILL GENERATE AS MUCH
PRODUCTIVE INVESTMENT OR INCREASED AVAILABILITIES OF
FUNDS AS THE GOVERNMENT HOPES. INDEED, IF THE MEASURES
LIMITED OFFICIAL USE
LIMITED OFFICIAL USE
PAGE 03 KATHMA 01930 02 OF 02 260649Z
SET OFF A NEW ROUND OF PRICE INCREASES, THE INCENTIVE
MAY BE TO SPEND RATHER THAN SAVE.
6. IT IS POSSIBLE THAT IN ITS EAGERNESS TO PRESENT
AN AIR OF ACTION AND DECISIVENESS, THE NEW RIJAL
GOVERNMENT DID NOT FULLY CONSIDER ALL ITS OPTIONS
OR THE POLITICAL REPERCUSSIONS OF ITS RECENT MEASURES.
CERTAINLY IT HAS BROUGHT DOWN ON ITSELF A GREAT DEAL
OF CRITICISM. UNLESS THE MEASURES SUCCEED IN STIMULATING
AGRICULTURAL AND INDUSTRIAL PRODUCTION, THE OVERALL
EFFECT MAY BE TO WEAKEN THE POSITION OF THE PRIME
MINISTER AND THOSE AROUND HIM AND ENHANCE THE LIKELIHOOD
OF MINISTERIAL CHANGES LATER IN THE YEAR.
CARGO
LIMITED OFFICIAL USE
NNN
Metadata
---
Capture Date: 01 JAN 1994
Channel Indicators: n/a
Current Classification: UNCLASSIFIED
Concepts: ECONOMIC CONDITIONS, SUGAR, ECONOMIC PROGRAMS, PUBLIC ATTITUDES, PRICES
Control Number: n/a
Copy: SINGLE
Draft Date: 26 APR 1975
Decaption Date: 01 JAN 1960
Decaption Note: n/a
Disposition Action: RELEASED
Disposition Approved on Date: n/a
Disposition Authority: greeneet
Disposition Case Number: n/a
Disposition Comment: 25 YEAR REVIEW
Disposition Date: 28 MAY 2004
Disposition Event: n/a
Disposition History: n/a
Disposition Reason: n/a
Disposition Remarks: n/a
Document Number: 1975KATHMA01930
Document Source: CORE
Document Unique ID: '00'
Drafter: n/a
Enclosure: n/a
Executive Order: N/A
Errors: N/A
Film Number: D750147-0094
From: KATHMANDU
Handling Restrictions: n/a
Image Path: n/a
ISecure: '1'
Legacy Key: link1975/newtext/t19750413/aaaaalzq.tel
Line Count: '248'
Locator: TEXT ON-LINE, ON MICROFILM
Office: ACTION NEA
Original Classification: LIMITED OFFICIAL USE
Original Handling Restrictions: n/a
Original Previous Classification: n/a
Original Previous Handling Restrictions: n/a
Page Count: '5'
Previous Channel Indicators: n/a
Previous Classification: LIMITED OFFICIAL USE
Previous Handling Restrictions: n/a
Reference: n/a
Review Action: RELEASED, APPROVED
Review Authority: greeneet
Review Comment: n/a
Review Content Flags: n/a
Review Date: 05 AUG 2003
Review Event: n/a
Review Exemptions: n/a
Review History: RELEASED <05 AUG 2003 by izenbei0>; APPROVED <24 NOV 2003 by greeneet>
Review Markings: ! 'n/a
Margaret P. Grafeld
US Department of State
EO Systematic Review
05 JUL 2006
'
Review Media Identifier: n/a
Review Referrals: n/a
Review Release Date: n/a
Review Release Event: n/a
Review Transfer Date: n/a
Review Withdrawn Fields: n/a
Secure: OPEN
Status: NATIVE
Subject: GON DEFENDS NEW ECONOMIC MEASURES
TAGS: ECON, NP
To: STATE
Type: TE
Markings: ! 'Margaret P. Grafeld Declassified/Released US Department of State EO Systematic
Review 05 JUL 2006
Margaret P. Grafeld Declassified/Released US Department of State EO Systematic Review
05 JUL 2006'
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