Discussion Report
18 Chaitra 2067, 1 April 2011
Lalitpur
A discussion was organised on the basis of an overnight public notice at YalaMaya Kendra, Patan Dhoka, on Friday morning, 1 April 2011. Anyone was free to attend, and the 31 participants represented a broad spectrum, including serving and retired civil servants, professionals, politicians, rights activists, journalists and bankers. While no resolutions were passed or decision taken, the consensus was that the departure of Rameshwore Prasad Khanal as Finance Secretary was pointed to a rule-of-law breakdown underway in the country which was affecting state administration and the economy. Special focus was placed on what was seen as a dangerous and growing nexus between businessmen and political powerbrokers. It was agreed that a synopsis of the discussion would be prepared by journalists Kanak Mani Dixit and Guna Raj Luitel as rapporteurs. It was hoped that the broader civil society would find the discussion useful in fashioning a response to this developing episode. Secretary Khanal left on a trek after his walkout of the Ministry of Finance on 30 March, and the Friday meeting was organised without his knowledge or input. Hopefully, in the days ahead he will provide perspective and information on matters that are addressed here. This discussion summary will be submitted to the offices of the Prime Minister and Finance Minister, and given maximum distribution for the sake of transparency, feedback and appropriate action by all concerned. The meeting was organised by Himal Association.
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Why did Rameshwore Khanal depart?
According to one participant, Finance Secretary Rameshwore Khanal was under great pressure over the last two weeks, even though he seems not to have show the strain to journalists he met. However, his mindset was clear from the Facebook entry he put up as he walked out of the Finance Ministry on Wednesday, 30 March, “Freedom is so precious!” The next day, he wrote on the site, “I had to encounter people with Greed and Lust for power and money almost on a daily basis. It was extremely difficult dealing with them. But I did for eight daunting years…” One participant, a former student of Secretary Khanal, recalled he had been a strict educator who taught with passion and commitment. His ideals and work ethic were evident in the present episode, even in his reported plan to devote himself to school education rather than seek international positions.
Participants referred to the ‘VAT prakaran (event)’ and the planned ‘purak (supplementary) budget’ as the proximate reasons why Mr. Khanal felt pressured. On the matter of Value Added Tax, Secretary Khanal had sought to go by the law against those who had paid not VAT at all, as well as those who had fraudulently claimed excess VAT refund and variously cheated the exchequer. With a list of 450 firms who would have to pay a fines amounting to about Rs 4 billion (arab), there was pressure on the Finance Ministry bureaucracy to bend the rules. On the matter of the supplementary budget, one participant said a sum of Rs 7 arab from the possible total outlay of Rs 20-25 arab was being sought to be channelled to the Peace and Reconstruction Ministry headed by a UCPN (Maoist) minister, as part of a plan to spread the largesse and buy support. Besides, Secretary Khanal believed that bringing a supplementary budget in the little time available would be devastating to the economy.
Did Secretary Khanal do the right thing by walking out?
A participants noted that the state and society have invested a lot in the person of Mr. Khanal and he had a duty not to be emotional, and to fight from the inside the government administration. The opposing view was that as a person with both integrity and intelligence, Mr. Khanal must have come to his decision after realising the futility of a principled stand. He was gracious in his departure, it was noted, having kept a silence and not pointing an accusing finger at the Finance Minister Bharat Mohan Adhikary or others. On the other hand, given the furore created by his resignation, Mr. Khanal now had a responsibility to provide information and defend his abrupt action.
How much is Secretary Khanal to blame for a bureaucracy that succumbs to political pressure?
The present meeting should not convert itself into a platform of applause for Secretary Khanal, said one participant. He was a bureaucrat with fine credentials, but not an exception in a state administration with steadfast civil servants all over. As a bureaucrat who had served more than three decades and served in high positions, Mr. Khanal could not evade some of the responsibility for the present condition of the civil service, but the primary blame lay with the politicians and especially those who tended to show less accountability than others. Another participant: while true that there were honest bureaucrats at all levels, Rameshwore Khanal’s case was emblematic, symbolising the best and brightest of the civil service who stand up to principles of good governance. Highlighting his achievements and probity did not imply denigration of the others. One participant, who had worked with Mr. Khanal, said that the Finance Secretary was one of the few able to challenge ministers with civility, his arguments always based on sound research. Another suggested that the defence by Finance Minister Bharat Mohan Adhikary be given due respect; the minister maintained that no pressure had been applied on the Finance Secretary.
Should there be an effort to reinstate Secretary Khanal?
Minister Adhikary had publicly asked Secretary Khanal to return, and the resignation has not yet been accepted. However, Mr. Khanal seems to have made a considered decision, so any emotional, mechanical or make-believe call for his his return would surely to fail, said several participants. Secretary Khanal would surely require an unequivocal commitment from the Prime Minister and Finance Minister that the principles of rule-of law, transparency and good governance would be applied specifically on the matter of VAT matter and supplementary budget. Unfortunately, the first public reaction of Prime Minister Jhalanath Khanal on 31 March, at a Federation of Nepali Journalists function, was to criticise the media for having highlighted what he termed an insignificant event. While the reinstatement of Secretary Khanal was therefore a good idea, the general understanding among the participants was that it would not happen. One participant suggested that Secretary Khanal should not just ‘fade away’; it was his duty to speak up on what he saw and why he resigned. Because of his stature in the country and internationally, he must use the present episode to promote probity and accountability in relation to state administration and the economy.
What has been the role of the business community?
There has lately been an unprecedented series of investigations and actions against politicians, judges and even anti-corruption commissioners accused of corruption. Amidst this positive trend, some participants asked why there was not a focus on the businessmen who engaged in unfair practices and promoted fraud and non-transparency. The present episode represented the attitude of some large business houses which seek impunity by trashing of rule of law, and is only the latest and most disturbing example of big business wanting to have its own way. To cite other tendencies corporate ‘groups’ tend to shift funds among their entities to evade accounting. Business houses required to pay fines and penalties tended to allow the amount to pile up before proposing negotiation or outright cancellation. The real estate and housing sectors were presently a locus of non-transparent transactions. The brashness of big business is seen in the public claims of investments in foreign markets, something not allowed by existing law. It was well known that many businesses keep dual accounts, but chartered accountancy firms and government tax officers tended to look the other way.
Big business groups regularly fund a stable of politicians in the hope that one of them would become finance minister so as to take undue advantage, said one participant. The excise collection issue on VAT was ‘the tip of the iceberg’ of a national racket that had enveloped the entire revenue service, including customs, said a participant. While individual politicians, the political parties as well as the bureaucracy are regularly brought up for scrutiny in terms of corruption, especially lately, there was a strange silence when it came to questioning the business community. In fact, the very businesses engaged in questionable activities tended to be the most lionised by the media. If Nepal was going to rise as an economic power, for which it has the natural and human resources, the business community itself should aim high through transparency, competitiveness and corporate governance. Civil society and the media must help them achieve this by challenging them when necessary, was the general view in the meeting.
One participant asked why the business community had been so quiet on the resignation of Secretary Khanal, as a person engaged in creating a level playing field for all who wanted to prosper through clean commerce and industry. Why were FNCCI and CNI, the two large business federations, silent at this critical time? If the intention was to rise from the corruption-ridden business-politician nexus towards transparent corporate governance, the two federations should have been at the forefront of petitioning government to reinstate Secretary Khanal. Why was a business community so quick to meet ministers with petitions on diverse issues silent on this one?
Does this business-politician nexus go very far back?
One participant said that the deep and developing nexus developing between politicians, political parties and big business – including the high stakes involved and the impunity – was akin to the situation in the Panchayat era in the 1980s. That was a time when the royal palace and the royal politicians were playing with money, while the businessmen were playing politics. That was a time when the ‘license raj’, kickbacks and smuggling were institutionalised, carried out in the absence of strong civil society and free media. The high margins possible through unfair practices was one reason the Nepali business sector was unable to rise to any height during the Panchayat era – also the fact that the royal palace demanded a ‘cut’ on every significant deal. Today, a similar trend was visible, said a participant, and the loss of transparency amidst political skulduggery was rapidly making Nepal a haven for less-than-savoury businessmen, and denying our economy its great possibilities. High-minded businessmen and executives who had invested their future in the country in the hope that democracy would lead to great economic opportunity and unbounded prosperity, were being betrayed by this politician-big business nexus. Said the participant, all who are interested in the growth potential of the Nepali economy through its human and natural resources must be worried at what the Rameshwore Khanal resignation represents – a descent once again into crony capitalism at a time when the stakes are much higher than in the Panchayat period. This trend will destroy prospects of clean investment and transparent profits, and the loss of economic growth that would provide employment to the citizenry.
How does this episode affect the civil service as a whole?
Because Secretary Khanal seems to have resigned on the platform of integrity, the message this sends to the civil service is that the present political masters as well as the large business houses are united in trying to destroy rule of law and good governance. The morale of the bureaucracy will thus be brought low, upright officers will be mortified, while those engaged in herapheri will be energised. Mr. Khanal’s departure leaves a void at the Ministry of Finance, by far the most powerful ministry in the Government of Nepal, which directs all matters from development to finance to revenue monitoring. The Ministry has always attracted the best and brightest of the civil service because of its great power and reach, and so Secretary Khanal’s drastic action signifying distrust in the entire political class will have an impact throughout the civil service hierarchy. This episode, unless the Prime Minister and Finance Minister take immediate steps to correct the impression that has been created, will weaken the civil service at a most critical time in the country’s modern era. History will judge who was involved in the destruction of an economy of such possibilities, said one participant, and the social fallout that results.
Nepal’s civil servants have to be credited for having been able to keep the society and economy on a more-or-less even keel over the past decade of conflict and political anarchy. Only those businesses and political forces that seek to take advantage of political instability will benefit from the overall attitude and specific decisions that triggered Secretary Khanal’s resignation, according to one view. His departure raises an alarm of the nefarious plans to break the back of the larger bureaucracy beyond the Finance Ministry, to encompass the entire civil service at all levels up from the VDC secretary to secretary of the ministry, so that impunity is total. This is happening at a time of lawlessness when the public is left at the mercy of the politico-criminal nexus all over the country, which favours the contractor-opportunists and extortionists, and when the absence of a Home Minister has simultaneously weakened the state security apparatus. Secretary Khanal’s travails came to the fore both because of his track record and pivotal position in the state administration; however, his experience is not unique and bureaucrats in all sectors – from public health to labour, local government, commerce, etc – have been affected by the rapid descent in quality of ministers in recent times.
Will this episode affect young adults in making their career choices?
Even under normal circumstance, it has been difficult to attract the educated youth to the civil service, because of the pull to foreign shores, and into the development industry and the private sector. Nevertheless, many idealistic individuals keen to serve society and the nation have been joining the bureaucracy since the advent of democracy in 1990. The attraction of the civil service is bound to be affected when a highly regarded civil servant – at the very top of the ladder in the most powerful ministry – decides that he cannot battle the greed and absence of accountability any more.
What are the weaknesses of the civil service?
One participant suggested the weakening of the Nepali bureaucracy was triggered back in the year BS 2032. That year, three individuals close to the royal palace and linked to the Jaanch Bujh Kendra, the investigation centre controlled by the palace, succeeded in changing the Civil Service Act for personal interest so that seniority was counted and merit disregarded in career progression. The goals of an accountable, independent and professional independent civil administration began to be compromised at that point, but civil servants were nevertheless able to find creative ways to respond to crisis situations and maintain morale, including during the ten years of conflict which ended in 2006. Lately, with the continuous political turmoil and a decided policy of some to opportunistically weaken all national institutions, the civil servants have begun to lose heart, said the participant.
There is now a situation where the political bosses can pick up senior bureaucrats at random and assign them to any ministry, which is why there is no saying who will replace Secretary Khanal and what level of expertise that person will bring to the job. Generally, it is the corrupt minister who will want to pick his own secretary, said one participant with experience in national government. The politicisation of the bureaucracy has reached such a peak that anyone can be pulled in from anywhere, no matter the matter of merit or line of succession. All of this has led to a drastic deterioration in the morale in the senior-most rungs of civil service, which is affecting governance as a whole. No matter how we may have criticised the situation in the past, we are really heading towards the tipping point in terms of ‘failed state’, said one participant.
How will the present episode affect the economy in general?
An economy already confronted with innumerable problems has been gravely impacted by the departure of Rameshwore Khanal from leadership in the Ministry of Finance. When due process and the rule of law are breached at the topmost level, the impact is on the entire society and economy, with the latter about to enter an uncontrollable spiral, according to one participant. Most participants were convinced that Secretary Khanal’s resignation will be felt at the macro level in society as a whole, beyond the financial, commercial and developmental sectors. The lack of confidence in the political leadership, which Secretary Khanal’s action signifies, will have a snowball effect on the business community, potential investors as well as donor institutions, which will in a direct line hurt the common citizen. If Prime Minister Jhalanath Khanal as head of government does not respond effectively to the concerns raised, society will have to get used to a lesser level of probity across the board, which in fact is what some in business and politics want.
What will be the impact on investment and in development allocation?
Firstly, said one participant, because we have already swallowed all our shame (laaj pachaisakeko), the government leaders will not be bothered about how the resignation ‘looks’ to the citizenry or to foreign friends. There was little foreign direct investment coming in at this time in any case, so the episode will not make a great difference in that sector, though it will impact the future drastically. On the immediate plane, the plans of the Nepali non-resident community (NRNs) to enthusiastically promote investment and economic growth will certainly be affected. This show of no-confidence in the political leadership by a senior bureaucrat will discourage professional business organisations and investors from neighbouring countries and elsewhere from coming to Nepal, said a participant, while our economy will become more attractive to the carpetbaggers (‘sukulgundas’) from the neighbourhood. Additionally, there will be a further spurt in the capital flight that has already devastated the economy. As far as donor assistance is concerned, the politicians would hope that, after the initial show of concern at the Finance Secretary’s resignation, the donors and diplomats will learn to live with the lower level of probity in government.
What has been the reaction of the powerful donor community?
One participant offered the information that an anxious Secretary Khanal had met key donor agency heads over the last month and flagged the issues relating to the VAT fraud and the supplementary budget. He had sought to alert them to the political pressures being brought to bear on the Finance Ministry bureaucracy, but there had been inadequate show of interest. On the other hand, after the fact of Secretary Khanal’s walkout, the donor community had released a strong statement of concern which was to be welcomed, said the participant.
What has been the role of the media in the resignation episode?
One participant said that the press, supposed to be a watchdog of society amidst the lawlessness resulting from political polarisation, has not been effective in tackling the corporate-political nexus. The coverage of unfair business practices and bad governance in terms of how it affects the economy has been one of the weakest aspects of the national media despite its overall development. On Secretary Khanal’s resignation, the good reportage highlighting his honesty and integrity had not been complemented thus far by specific identification of the source of his alarm and anxiety. One participant said that the journalists had the list of the 450 firms identified by the revenue department for having cheated on VAT, and yet it was being kept under wraps. Another participant pointed an accusing finger at the journalists as a whole, including commentators who refuse to enter into matters of genuine controversy, referring to the media pusillanimity as “Ranakaal ko gaijatra” (a lampoon worthy of the Rana era).
What can civil society actors do?
One participant suggested it was vital amidst the changing landscape for concerned citizens to immediately visit three individuals – the Prime Minister, the Finance Minister and the Chief Secretary – and impress upon them the need to continue with a transparent VAT investigation process, as well as to lobby them not to bring a supplementary budget which was dangerous for both the economy and a stable polity. Prime Minister Khanal and Finance Minister Adhikary should resist the pressures on a matter which radiates a strong sense of malfeasance and political brinkmanship. Another participant suggested that the issues behind Secretary Khanal’s departure must be raised effectively by parliamentarians in the Constituent Assembly, that this issue should not be allowed to lapse like so many others in the past. Towards the conclusion of the meeting, one participant raised the concern that those in civil society, politics or media seeking to raise the matter of VAT fraud or the supplementary budget could be in some danger given the high stakes involved. This could be why so many in the know were so silent, suggested the participant. The participant felt that the best protection would be provided by multiplicity of media coverage of both topics.
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LIST OF PARTICIPANTS, YALAMAYA KENDRA, PATAN DHOKA – 1 APRIL 2011
- Amrit Gurung
- Anil Shah
- Arjun Dhakal
- Dr. Arjun Karki
- Dambar Krishna Shrestha
- Devendra Bhattarai
- Dewan Rai
- Guna Raj Luitel
- Hari Phuyal
- Jagannath Khatiwada
- Jagat Bahadur Khadka
- Janardan Sharma
- Kamal Raj Pandey
- Kanak Mani Dixit
- Dr. Kedar Narshing KC
- Kedar Sharma
- Manjul
- Mohan Ojha
- Nabindra Raj Joshi
- Pitamber Silwal
- Prem P. Sanjel
- R.K. Sharma
- Raghu Pant
- Rajesh KC
- Ramesh Khatry
- Suman Rayamajhi
- Shailee Basnet
- Siddhant Pandey
- Subodh Raj Pyakurel
- Sujeev Shakya
- Suresh Raj Neupane
Simultaneously uploaded Saturday 2 April by rapporteurs at