National Budget 2068/69 (2011/12) Nepal

After all the governmental and political exercises the national budget has come up. Since the establishment of the government, the main focus of the government has to be the preparation of constitution through the constitution assembly. But the obstacles were abundant to disrupt the procedure. The ruling parties have provided their shares in the formation of the government and the governmental responsibilities. The opponents are trying to get involved in the government through various means, either by forming up groups or the party as a player. They have been trying to fulfill their own demands and needs. Though there have been obstacles from non ruling parties to fulfill their demands for the budget allocations, the budget have come up. For the first time in history of Nepal, the budget has been leaked out before the formal announcement.

Every year the country gets a new finance minister and similarly the budget allocations. Most of the budget either gets frozen or they are being misused the whole year. Let’s see what we have on our plates.

As the tradition follows the budget has been based on the government plans and policies of Nepal. The gets allocated in the same heads and the income and expenditure are maintained accordingly. As expected, the budget has gone up in amount though with the deficit budget funding. The budget has been a deficit budget with plans to collect from the foreign loans and financial support. Overall the budget seems to made up without proper studies and considerations.  It seems weak but some of the points are quite good but they lack far sightedness and fails on the ground of practicability.

Due to the various political and economic situations the production and distribution has gone low in the country. The distribution of means and measures are unfair. Most of the products and services are city centered. The budget has been focused on creating employment opportunities in the economy by establishing a foundation for development that is based on social justice that is balanced and inclusive. In this regard, enhancing production and productivity in agricultural and industrial sectors, promoting investment of private sector in industry and infrastructure, reducing poverty and inequality by fairly distributing the available opportunities will be the major thrust of the budget.  Nepal’s economic condition has been deteriorating since years and we have not seen any developments in the economy of the country. The government has targeted the economic growth rate of 3.5% for this Fiscal Year. But it seems not that near to be achieved with all these situations of the country. The government persists that the inflation has gone down to a single digit and will diminish in the days to come, that’s very tough either. The imports and export has gone up during the last Fiscal year period. The government claims that we do have good reserves for foreign trading.

The Revised total expenditure of the current Fiscal Year is estimated to be Rs. 306.27 billion. Current expenditure is estimated to be Rs. 180.14 billion, capital expenditure Rs. 108.08 billion, and principal repayment Rs. 18.04 billion. Even though the size of the total budget has been increasing continuously, availability of budget for capital expenditure is squeezing because of the rapid rise in current expenditure. At the same time, absorptive capacity of foreign aid has also been gradually eroding. The next Fiscal Year budget needs to be focused towards achieving a higher growth rate by improving macroeconomic indicators, expanding capital market and enhancing confidence, promoting private sector investment by expanding physical and economic infrastructures, and focusing economic activities in the productive sectors. The budget has been claimed to lead the country in the paths of economic development.

To implement the policies and programs of the budget during the Fiscal Year 2011-12, it has been proposed a total appropriation of Rs. 384.90 billion. According to the new classification of Government Finance Statistics, the total appropriation for recurrent expenditure is proposed to be Rs. 266.61 billion which is 69.27 percent of the total budget. Likewise, government has appropriated Rs. 72.61 billion for capital expenditure which comes to 18.86 percent of the total budget.  Under the Financing, a sum of Rs. 25.38 billion (6.6 percent) has been allocated for loan and share investment, and Rs. 20.3 billion (5.27 percent) for repayment of principals.  The total appropriation proposed for the next Fiscal Year is higher by 25.67 percent compared to revised estimate of this Fiscal Year.  Under the existing arrangement, recurrent and capital expenditure will amount to 56.08 percent and 38.64 percent, respectively, whereas the 62 repayment of principal amount will be 5.28 percent of the total expenditure. Out of the total appropriation, it has earmarked a total of Rs. 202.56 billion (52.62 percent) for developmental programs whereas for recurrent expenditure a sum of Rs. 182.34 billion (47.38 percent).  Of the total sources of financing to meet the expenditure proposed for the next Fiscal Year, a total of Rs. 241.77 billion will be met from revenue, Rs. 5.93 billion from repayment of principal amount and Rs. 70.13 billion from foreign grants, leaving a deficit of Rs. 67.06 billion.  Of this deficit, Rs. 29.65 billion will be met from foreign loan and remaining Rs. 37.41 billion from domestic borrowing.  Thus as the budget speaks up, it is a deficit budget. The total budget has been under deficit condition in years and it might continue in the days to come as well. Since we are all set to borrow up the money for the running of the country, if we cannot collect the required sum o money then there will be total economic disruption. This disruption will lead to the budget switching among the required allocation units leading to a budgetary and planning failure. We could see lack of proper planning and allocation of funds in the various sectors of the economy. The most important part was inability to focus on the necessary sectors and distributing more to the more sectors.

The government has formulated various programs in the various sectors of economy such as agriculture, industry, tourism, development, education, health and social services. The programs are well focused but still the plans matters. The budget allocation matters with the headings and expenses and the social justice.

The conflict handling and social welfares have been put forward in the current year budgetary headings. Since the formation of constitution, sustainable peace keeping and rehabilitation of the Maoist cadres has been the motto of this government, the obstacles are to be handled carefully. The budget has made allocations for the underdeveloped and poor tribes of people. They are to be provided with various fasciitis and their development has been focused. The allocations have been designed to help out the people under the terms of castes, religions, social beliefs and norms of the localities. The remote areas and sectors of the country have also got their shares of the budget. It also has devised the new municipalities. There are also the subsidies and facilities for the least developed areas, women, single mothers, and lest developed groups of people.  The land could be transferred from the male owners to the female owners at low costs, special allowances for the least developed women. The government has allocated Rs. 73.33 billion for the women welfare. The the question persists, will it be on the targeted hands? The Madhesis, Badis, and people affected by various sorts of violence are given priorities and the budget has been allocated for their welfare.

The purchase and sales of the land and real estate have been made more legalized and rules governing them will be tightened. The agriculture and related services will be subsidized and various fasciitis such and fertilizers, equipments, technical support and issues will be provided mode handy to the farmers. New breeds of crops will be produced and supplied to the public with proper studies so that they could get a better result from their harvests. Places feasible for horticulture will be developed as pocket area.

"One Village One Product" program has been set up by the government. It has arranged to provide 50 percent subsidy on the capital expenditure to the small farmer cooperative institutions in the purchase of machinery and equipment for processing cardamom, tea, coffee, ginger, nut and honey. The commercialization of the products has been focused. Another most important part covered in this years budget is the cooperative movement. Cooperatives will be established as strong pillar by building inclusive economic base and utilizing local resources, capital and labor.  Special grants and facilities will be provided through a co-operative trust for backward classes, caste, sex, conflict affected, martyrs' families, landless and informal sector workers to get involved in economic activities. Customs tariff will be exempted on the basis of project viability for bus and tax operation in Kathmandu valley and urban areas through the establishment of cooperative formed with the involvement of transport workers.  A sum of Rs. 10 Million will be provided to construct the central office building of National Cooperative Federation.

The most important decision under any budget in Nepal is the tax of the vehicles, import and purchases, both four wheelers and four wheelers. This time the government has left the vehicle taxes untouched for this year. This is due to the fact that the previous year’s tax increment has led to the low purchase and sales of vehicles leading to the overall low tax collection. To open the track, to improve the opened tracks and to begin the black of various roads, more budget has been allocated. Budget has been allocated for the construction and renovations of various roads and highways. Around Rs 6.5 billions have been allocated for the roads. Budget have been allocated  of Rs. 80 million for the construction of Seti Highway and Mahakali Highway. Additional budget for regional roads has also been provisioned.  The current traffic problems will be eased by the lane extension in the entry points of the major cities including the Capital one and the upgrading of inner roads within the cities. Construction works of Fly-over in Kathmandu will be expedited. There will be flyovers and Metro Trains in Kathmandu. With a view to expanding the tourism business, tourism roads are being constructed from the current fiscal year. Necessary arrangements will be made to accomplish those in a timely manner. Additional budget is allocated for the tourism roads.  The most amazing plan for this year budget is the establishment of Metro trains in Kathmandu valley. For the construction of road-bridges in highways and other roads connecting the district headquarters budget have allocated Rs. 2 billion.

In view of making transport services in urban roads including Kathmandu and highways more safe and comfortable through the implementation of regular, recurrent and casual maintenance, reconstruction and rehabilitation works in planned manner, government have allocated Rs. 3.10 billion. 99. Necessary budget is allocated to initiate the development of waterways in the big rivers including Koshi.  Arrangement will be made to operate big physical infrastructure projects through a separate institutional mechanism. New fast tracks, railways and airports have been declared for the easy transportation.

The most important part of human life and most problematic services of Nepal is electricity. Lets see what we have in the sectors of electricity. High priority has been given on energy development. New hydropower and sustainable planning have been set up. With a view to set up an effective mechanism for the enhancement of investment in energy sector by mobilizing domestic and external resources, a  Hydropower Development and Investment Company, with a paid up capital of Rs. 8 billion, has already been registered.  A Master Plan on hydropower development will be prepared. To assess the total hydropower potentials, a study will be initiated from next year and will be updated every 10 years. For this, bilateral and multilateral assistances will be mobilized.  Private sectors have been encouraged to invest in the power sectors. Additional study and implementation process will be expedited on the reservoir projects including West Seti (750 MW), Tamor (550 MW), 22 Nalsingaad (400 MW), Uttarganga (300 MW), Aandhikhola (180 MW), Upper Seti (127 MW), Indrawati (91 MW), Kankai, Karnali, Chisapani, Dudhkoshi, Bagmati, Nisdipanaha, Kaligandaki and Likhu-5. Essential arrangements including funding have been made for 456 MW Tamakoshi Hydropower project, a topmost prioritized project of the country. The major civil construction work of this project has already started from the current fiscal year. The plant will be completed by 2014.The Construction work of Rahughat, Kulekhani III, Chameliya and Upper Trisuli-3"A" will be accelerated. Internal resources will be made available for the construction of  Upper Modi "A" and Upper Trishuli-3"B" from the coming fiscal year. The construction works on ongoing plants and transmission projects will be accelerated.  Feasibility study of Tamakoshi V will be completed within the coming fiscal year. The present Government will give priority to Pancheshwor project which will be implemented under support of the Indian Government. 

 "People's Hydropower" programme will be implemented with the direct involvement of local bodies and other public institutions. A policy of investing the reserve and capital of the cooperatives will be implemented in the hydropower generation and distribution. A new hydropower project will be implemented by civil employees' share investment from their one month salary contribution paid in 12 installments within a year.

 To implement "People's Desire, of a Bright City" programme, modern energy efficient street light will be installed in major cities including the Kathmandu. A total of 4500 kilowatt electricity will be generated through the micro and small hydro power project with the individual plant capacity up to one Mega Watt to provide electricity facility to the denizen of remote area, still not having access to national electricity grid. Electricity will be provided to 6500 households through solar energy by fixing solar. To reduce the electricity leakage, government has arranged to launch a campaign with a slogan "Stop Electricity theft, Make Civilized Society".  The plans smell good but the result will depend on the implementations. Otherwise we will be having the blackouts for the long run. Thought the plans have been made good but there might be absence of ideas and strategies to cope with the ever increasing demands of power.

Youth are the pillars of country. They are the ones who run the country and they should be all prepared to steer the country in the right track. The youth will be provided with various skill development training and investment opportunities.

Special programs will be arranged to attract both domestic and foreign investment for the development of water resources, tourism and infrastructure sector. Arrangements will also be made to ensure facilities to be accorded to industries as per the provisions made in the Industrial Policy 2010, and necessary legal arrangements including acts will be enacted to promote both domestic and foreign private investment in the industrial sector.

Special campaign will be launched with a view to exploring and utilizing precious metals, minerals, oil and gems or precious stones scattered across different parts of the country. Natural gas, which has been explored in Kathmandu, will be piloted and made operational based on an action plan.  Measures related to liquidity management, reforms in the capital market, balanced expansion of banks and financial institution and control of financial crimes will be expedited. In this regard, corporate governance will be maintained to enhance trust upon banks and financial institutions. Banks and the financial institutions with Government involvement will be restructured with necessary capitalization. 

Monitoring and supervision of banks and financial institutions will be made effective by enhancing the capacity of Nepal Rastra Bank, Nepal Security Board and Insurance Board. The High Level Financial Sector Coordination Committee will be made more active.  222. Effective from next Fiscal Year, Nepal Rastra Bank will make an arrangement whereby any depositor (individual, company or entity) depositing more than or equal to Rs. 1 million in a bank or financial institution will have to make a self declaration that the money being deposited is not earned illegally from sources such as terrorism, drug and human trafficking, and organized crime.  A provision will be made in which Nepal Rastra Bank in association with Department of Cooperatives will carry out supervision and monitoring of saving and credit co-operatives with annual transactions of more than Rs 50 million. Access to quality education for all will be ensured.

Basic education will gradually be made mandatory. Arrangement will be made to provide free education up to grade 12 to all low caste students and all girl students in the community schools.  There have been plans for the quality educations since long but most of the plans are just in the books and papers. Program has been formulated so as to eradicate illiteracy within the next three years. To make this program more effective, women of selected 12000 wards in the first phase will be given priority to be appointed as motivators.

The health sectors have also got their slogans and plans for this period. Most of the places of the country are beyond the reach of quality health services. Now they have been put forward with the improvement of health services through health post and hospitals.

With a view to build sustainable, private sector friendly, transparent and self-reliant economy through maximum utilization of domestic resources, and developing the equitable tax system, Mobilization of revenue through administrative reform , tax collections, export import balance, industries and revenue leakage control have been taken under the policy figure points for revenue generation.  In order to make the people involved in the registration process of land and house transactions more professional and respectful, arrangement will be made so that only persons having Permanent Account Number (PAN) will be eligible for such transactions.  Various plans have been created for the collections and utilization of taxes and revenues.

Most of the areas covered by the current budget allocations are not the new sectors in the budget books but they are the most critical sectors the economic development of the country. The most important and most popular arrangement of this budget is the salary increment of the government employees. The salary has been increased from 35.35% to 42.86%. This is quite good but not in the proper sense of economic movement. This will lead to the market price increment from 10% to 17%. The increment of price in Nepal is not a new thing and the government has promised to control the price increment within 7% but that is very difficult to maintain. This is the country where people could not bargain on their daily goods. Every increment  in price should be paid up by the consumers, who even not care about bargaining. This will lead to the more expensive market products and the quality goes down. The most affected people will be the lower class people, who have to work whole day to get a handful for rice for the day treat.

Overall the budget is not as good as expected to be. Most of the issues have not been considered. The lack of proper background work and planning could be observed in the budget of the country. Most of the plans seem hypothetical and beyond the reach of the Nepalese economy. The financial condition is deteriorating day by day and the government is flooding more money into the market, which will ultimately affect the whole economy.  Foreign Direct Investments have been taken as a major source of funds. But there should be proper political and economic environment for the FDI. The people will never invest in a market where the risk percentage is very high above the gain percentage. Thus the government should be able to prepare strategies and plans to create a investment friendly economic scenario in the country.  Whatever the budget may be, however it has been made, let’s hope it will implemented properly wherever it has been allocated and for the better result. Let’s hope it won’t be another package of slogans and promises, which always turns out to be another worst allocation of funds.

Unrest World for Changes

At around the end of the first decade of the 21^st century, the Middle East went up with the revolutions. The people came forth to relieve their country from the dictatorships and inequality. The people came out to find the real freedom from the autocrats. They defy the rulers to find their own rights to live. They protest against their so called rulers with limited resources.  The protests have shared techniques of civil resistance in sustained campaigns involving strikes, demonstrations, marches and rallies, as well as the use of social media such as Facebook and Twitter to organize, communicate, and raise awareness in the face of attempts at state repression and Internet censorship.

The protest started on 18 Dec 2010 from Tunisia following the self immolation of Mohammad Bouazizi against the police corruption and ill treatment. This revolution was called “Jasmine Revolution”, which later on led the President Zine El Abidine Ben Ali to flee to Saudi Arabia. This revolution ignited the revolutions around the other countries as well. The countries following the path of revolution after Tunisia are Algeria, Egypt, Yemen, Jordan and other Arabian and African nations. They all have the same issues of hardships. They all came up for getting human rights and ultimately to the Democratic ruling for them. Not only this region of the world as influenced by the revolutions but the outside world also got affected. In Egypt, massive protests began on 25 January, and after 18 days of protests, President Hosni Mubarak, who had ruled Egypt for 30 years, resigned on 11 February 2011. Around the same time, Jordan's King Abdullah named a new prime minister and the president of Yemen, Ali Abdullah Saleh, announced that he would not seek another term in office in 2013, after what would then be 35 years of rule. Two state heads have been overthrown by their own people for the democratic system and the equality of rights. The people have been rising against their rulers due to the differences between their aspirations and the absence of governmental reforms.

The oil powerhouses Libya and Algeria has the oil benefits for their rulers only. The rulers were only the ones who could benefit from the country’s wealth of oils. These autocrats have been ruling for decades and they either provide negligible or no share benefits for the people. This scale of corruption ultimately and the refusal of youth to silently accept this previous status quo have been mentioned as the main motive for the current movements. Most of the youths are the educated and internet connected people who took their autocrats and absolute monarchy as anarchies so they took steps of build up their own government for the people. This revolution was not a single day event but it has been running since years but they were not effective enough to collaborate and collect such enormous warriors of the country. Only little were ready to die for their country. But everything has changed, the people became more educated and influenced by the development of the world. They get interconnected through social media and raise voice against the autocrats. They used the social sites to get collected and the find out the ways to deal with the autocrats and defy them. The government did everything to stop the revolution from blocking information channels, harassment, torture, and killing and bombing, the governments even use mercenaries to kill their fellow citizens. With all these activities the rebels seemed to be backed up but they reunited with each other and come forth against with strength.

The patriots work out to find out the ways to revolutionize their people and overthrow the autocrats. They didn’t want to be ruined by their rulers. They wanted to get freedom. The freedom fighters were praised by the Medias and all over the world. The people should have the right to choose their rulers. They have the rights of educations, equality, and freedom. They are the particles of the democratic movement. Most of the revolutions were fueled by the autocracies, corruption, and governmental harassment upon the people. This will ultimately lead the people on the path of success and development. It will help to attain a better ruling system, equality, socio economic development and ultimately the living standard of each and every citizen. The revolutions have influenced the whole world and it will remain a good lesson for the rest of the world. The revolutions are still moving on in various countries such a Libya, Bahrain, Saudi Arabia, Somalia, Yemen and others as well; and it will continue until the changes and reforms came up. For these countries this is the time for changes and they need it desperately.

Creation of the Financial Crisis

No Pain No Gain. The more the risk, the more the return. All most all of the investors know this principle and they always try to achieve more. But they differ in how they want to gain better in a short term or the long term. Who wants to ride the high tides of the gains gets it better if everything goes right and if not they lost the high. The higher gains need the higher risk to be taken. The risk taken will definitely pay off with a better return. The risk and return differs with the life cycle. Everything has its own life and has to collapse down one day. The living being and non living beings have their own life cycle. The products have their own life; introduction, growth, maturity and decline. Each and every product follow the same life cycle. The time frame and the return might be different but they follow the same patterned life cycle.  The similar case happens to the whole economy.

After the Great Economic Depression of the 1930s, the whole world has experienced the economic downturn on the year 2007. Though the economic situation is trying to pick up now but still the experts are signaling about another crash down. The whole world collapsed on the economic terms. The people and the country as a whole suffered a lot from the down turn. The companies collapsed, people went out jobless and homeless. The more they have invested on the risky business the more they suffered. The third world countries are suffering till date while the developed ones have already got the good vibes of improvement. The crisis has created chain reaction from one category to another, from one country to another, and the whole world economy came to its knees. Some weak and immature decisions have created a ground for this economic havoc.  The way how we do business and the top business brains do the businesses differ in real terms but the result comes out the same, only the differences are on the level of loss and gain.

Every thing has its own reasons for its existence. Similarly, the financial crisis has it’s as well.  The causes of the financial crisis are interlinked with each and could bring the stronger impact on the overall economy. It all got ignited with the US subprime mortgage crisis. The causes have created a vulnerable financial system, including complex financial securities, a dependence on short-term funding markets, and international trade imbalances. The increase on the consumer and corporate debt levels exert pressure on the overall fragile financial system. Regulation authority and markets system could not safeguard the rising debt level and the whole economy went on going down under the heavy loaded debt levels. The key financial institutions failed to be regulated properly creating the shocks for the market system such as ongoing foreclosure and failures. The stock market and real estate market played the most important role in the economic downturn. The debts were not managed properly. The mortgage could not be regulated and the debt kept on increasing with a little back support of the mortgage. The main setback was on the financial and economic regulation of the States. The U.S. Financial Crisis Inquiry Commission reported its findings in January 2011. It concluded that "the crisis was avoidable and was caused by: Widespread failures in financial regulation, including the Federal Reserve’s failure to stem the tide of toxic mortgages; Dramatic breakdowns in corporate governance including too many financial firms acting recklessly and taking on too much risk; An explosive mix of excessive borrowing and risk by households and Wall Street that put the financial system on a collision course with crisis; Key policy makers ill prepared for the crisis, lacking a full understanding of the financial system they oversaw; and systemic breaches in accountability and ethics at all levels.”  US has announced the Financial Crisis Inquiry Commission to figure out the causes for the financial crisis on July 2009.

During the period of 1997 to 2006 the American real estates prices kept on increasing. It went up by 4.6 times on 2006 as that of 1997. The price appreciation boosted the homeowners to gain much higher loan amount on the similar assets. The people gain much loans than they could pay for. But the real estate market went on the decline stage from 2008 September. This decline has diminished the real estate prices by 20%. There were easy credit facilities and the people were sure about the appreciation of the prices. These factors encouraged the subprime borrowers to borrow loans on adjustable rate mortgages. These mortgages enticed the borrowers to borrow at the lower interest and aspiring to pay the make up by the remainder of the mortgage terms. Then, who could not pay the initial high interest started the refinancing process and start another cycles of refinancing.  Once the refinancing started, the prices declined and the loan availability too. Then it came up to be the painful story of going default. The borrowers who could not pay the higher interests, started to go default and the cycle continued.

During 2007, lenders had begun foreclosure proceedings on nearly 1.3 million properties, a 79% increase over 2006. This increased to 2.3 million in 2008, an 81% increase vs. 2007. As of August 2008, 9.2% of all mortgages outstanding were either delinquent or in foreclosure. The fault of the US Government sponsored enterprises and the investment bankers are none the less. They have supplied very well for the subprime lending cycles in the US. These loans were very good for the sub prime borrowers but they were too risky for the government. If anyone defaults the loan then there goes out the investment. The lenders could not recover their investments. Subprime mortgages remained below 10% of all mortgage originations until 2004, when they increased to nearly 20% and remained there through the 2005-2006 peak of the United States housing bubble Subprime mortgage payment delinquency rates remained in the 10-15% range from 1998 to 2006, then began to increase rapidly, rising to 25% by early 2008.

Not only the lenders were considering the high risk borrowers but they were also offered high risk loan options and borrowing incentives. During the price boomed period the mortgage underwriting got loose and the loans were being provided without proper audits and review of the related documents. The underwritings were basically done on an automated system. On those periods sub prime borrowers collected the 40% of the loans on their accounts as a subprime loans. The brokers and the bankers got their high profit but they could not anlyse about how the borrowers will pay the loans. They just kept on increasing their loan amounts. Thus the fraud kept on increasing. The quality of the loan kept on decreasing. The credit standard kept going under gradual declination but the defaulters kept on high speed booming.

The down payment and the equity kept on going down. There was the situation of negative equity and very low level of down payment for the purchase of the property. There were 2% of first time home buyers but 43% among them did not pay off any down payment.  Economist Nouriel Roubini wrote in Forbes in July 2009: "Home prices have already fallen from their peak by about 30%. Based on my analysis, they are going to fall by at least 40% from their peak, and more likely 45%, before they bottom out. They are still falling at an annualized rate of over 18%. That fall of at least 40%-45% percent of home prices from their peak is going to imply that about half of all households that have a mortgage—about 25 million of the 51 million that have mortgages—are going to be underwater with negative equity and will have a significant incentive to walk away from their homes." According to the LA Times, strategic defaults were heavily concentrated in markets with the highest price declines. An estimated 588,000 strategic defaults occurred nationwide during 2008, more than double the total in 2007. They represented 18% of all serious delinquencies that extended for more than 60 days in the fourth quarter of 2008. More than 50% of the borrowers were strategic defaulters though they have better credit score at the mortgage time. The credit ratings performed were also not of the great relief. They were inaccurate on most of the cases. Author Upton Sinclair (1878–1968) has stated: "It is difficult to get a man to understand something when his job depends on not understanding it." The agencies did not follow the provided rules and regulations and figured out their own credit ratings. Some of the sub prime defaulters were rated to be with high credit ratings. From the period 2000-2006, structured finance (which includes Collateralized Debt Obligations) accounted for 40% of the revenues of the credit rating agencies. During that time, one major rating agency had its stock increase six-fold and its earnings grew by 900%. There might have been the conflict of interest on the credit rating scales, which have been backed up by the bankers and the investors. Thus created rating might have created huge differences from the actual credit rating. It has been estimated that about & USD 3.2 trillions has been sanctioned to the bad credit home owners. Later, after the critics from various sectors, the credit ratings have been lowered by the agencies by USD 1.9 trillion on mortgaged securities. The decreases in credit ratings have forced the financial institutions to collect more capital by selling their shares. The values degraded shares ultimately diminished the overall stock market figures for the institutions.

Under those periods the financial institutions were not able to back up their losses caused due to subprime lending. They were highly leveraged and have less capital to be put up as collateral. They have high debt ratio; i.e. the equity was lower than the debt supplied. The most critical role for regulation is to make sure that the sellers of risk have the capital to support their bets. But the financial institutions lacked the same point to be considered. The executives of the financial institutions have been rewarded recklessness rather than responsibility and the people buy houses without responsibilities. There were high debt and low capital to support them leading to an economic downturn. Speculative housing also forced the economic downturn. More than 22% houses were bought for reinvestment during the year of 2006 and 14% more were for vacation spots. With the scale of 28% and 12% in the year 2005, approximately 40% of the houses were not for the primary housing; they were either for the business or for the vacation which could be used for a month or two in the whole year. Media widely reported condominiums being purchased while under construction, then being sold again for a profit without the seller ever having lived in them. Some mortgage companies identified risks inherent in this activity as early as 2005, after identifying investors assuming highly leveraged positions in multiple properties.

Under the 2004 the new net capital rule allowed the investment banks to issue higher debt amount, which in turn helped the real estate price hike after the low price cycle of the houses. From 2004-07, the top five U.S. investment banks each significantly increased their financial leverage (see diagram), which increased their vulnerability to a financial shock. These five institutions reported over $4.1 trillion in debt for fiscal year 2007, about 30% of USA nominal GDP for 2007. Lehman Brothers was liquidated. The other companies such as Bear Sterns, Merill Lynch and Goldman Sachs survived with the Government funding support.

Not only that the innovations on the financial sectors also adversely affect the overall economy, market participants did not accurately measure the risk inherent with this innovation or understand its impact on the overall stability of the financial system. The Collateral Debt Obligations (CDO) enabled financial institutions to to obtain investor funds to finance subprime and other lending, extending or increasing the housing bubble and generating large fees. A CDO essentially places cash payments from multiple mortgages or other debt obligations into a single pool, from which the cash is allocated to specific securities in a priority sequence. Those securities obtaining cash first received investment-grade ratings from rating agencies. Lower priority securities received cash thereafter, with lower credit ratings but theoretically a higher rate of return on the amount invested.  A sample of 735 CDO deals originated between 1999 and 2007 showed that subprime and other less-than-prime mortgages represented an increasing percentage of CDO assets, rising from 5% in 2000 to 36% in 2007.

Risk is the most important player in the economic and the financial market. If you could handle the risk properly you will achieve more return and if you could not then you will crash down. Similar was the case related to the mortgage backed securities and the collateral debt obligations. The financial players could not figure out the exact level of risk related to mortgage backed securities (MBS) and CDO. The insurers were also unable to provide the required amount of return to the parties bearing the default loss. They were unable to figure out the level of risk associated to which they could not arrange up for the payments on time. The players could not find out the related risk factors. They could not find out what was really going on in the risk part of the financial assets. The credit risk was misinterpreted and the credit amount kept on increasing. Banks have already issued US$450 billion of CDOs. According to JP Morgan the average recovery rate was expected to be 32% but the actual recovery rate was only 5%.

The capital crisis also supported the financial crisis to a large scale. The capitalist countries were mostly affected by this crisis. This systematic crisis of capital was the most disruptive one creating a huge impact rather than the financial one. The average GDP of the developed countries have been decreasing since 1970 releasing out more unused capital. The market has been getting saturated leading to the decrease in the GDP. The unused capital was kept idle due to the lack of investment sectors. Thus the capital came into the financial market sector supported by the deregulation. The financial investment has turned out to be the most profitable rather than the capital investment.

Another important factor was the commodity market, the commodity prices kept on increasing after the collapse of housing bubble. The prices of every commodity kept on increasing at a steady rate. This has been due to the decrease in prices of raw materials and the speculative flow of money from the real estate and financial sector to the commodity market. The most important commodity markets were oil, crude oil and the metallic products. The price of copper and nickel kept on surging during the 2000s. Some of the nickel plants have already gone bankrupt, due to unavailability of the nickel ores in Australia.

Though the financial crisis could have been foreseen, it could have been properly handled or minimized as far as possible. If the economic plan was able to be built up to be prepared for such disaster the crisis could not have come up. Though some of the economists and market experts have foreseen the disaster but the regulatory authority did not prepare for the same rather they just took it just as a theory. Since the Great Depression the economists are being out casted on their forecasting due to the fact that they could not forecast the great depression. Now the people could not believe that the economists could forecast the economic movement. They are being flooded with various market related information and they don’t believe on such forecast. The lack of proper economic regulations and the drawbacks of the system have supplied energy for the crisis.

In this present global economic market nothing remains within the boundary of a country. Similarly the economic disasters also get into the other countries and affect them as well. The countries depend on each other and work together for their betterment. They relied upon each other and MNCs are the one among them. If an MNC goes bankrupt then it will bankrupt all over the world. All its business gets down and the company gets doomed. Not only that the foreign exchanges among the various currencies also depend upon each and sustain the market. If a country goes down the economy the other countries can’t escape. Thus the financial crisis engulfed the whole world. The first financial crisis of 21^st century went increasing larger and larger until it swallowed the whole world economy. The European countries get suffered and Iceland collapsed as a result of the financial crisis. The euro zone courtiers tried and worked various measures to safeguard the crisis. UK has implemented the systematic capital injection to safeguard the economy from the collapse. The economy of Iceland collapsed and the economy of three countries, Iceland, UK and Netherlands were shaken. Due to the interdependence in between the countries like Norway, Denmark, Sweden and Iceland, each and every involved country got the low economic and mere away from collapse. Then after the collapse of Iceland economy the European countries cooperatively work together to avoid such collapse. They were able to save the Greek economy as well and the Europe as a whole.

Conclusively, the financial crisis has shaken the whole world economy. It has provided us the idea about how we treat the economy and how to safeguard from another crisis which might come sooner or later. There should be proper economic planning to handle each and every critical situation. Not only there should be a proper planning but it must also be implemented accordingly. Whenever we took any economic decision there should be proper consideration for he related risk and return. This will definitely help us in the future to avoid another financial disaster.

References :

1. www.wikipedia.org

2. www.forbes.com

3. Financial Times

4. www.msn.com

5. Google Images

Nepal Tourism Year 2011 : Success Factors

Nepal Tourism Year 2011 has officially begun. The inauguration was a thrilling one. The blacked out city was illuminated by the rockets and all the crackers of the ceremony.  The stadium was illuminated with all the lights and crackers. The sounds of the crackers and rockets boomed through the evening sky.  Yes, the NTY 2011 has been officially inaugurated. The expectations of the country, the tourism sector and the overall Nepalese has to be met on this year. After the grand success of Visit Nepal ’98, it took us a whole thirteen years to come to another tourism event for the country. There were various obstacles on these thirteen years, the political turmoil is the most important in the Nepalese history and will remain. Government of Nepal in consultation with Nepalese travel trade sector and concerned organizations/experts decided on October 25, 2008 to launch a national tourism campaign "Nepal Tourism Year 2011".

Kaligandaki with Nilgiri (courtesy www.panoramio.com)

Tourism plays an important role in the development of country. Tourism not only brings on the economic development to the country but also the new ideas. But it depends how we perceive those ideas and how we implement them in the practical field. Nepal is a very rich country in terms of natural and cultural tourism. We have abundant feasibilities for the tourism. We just need the ideas about how to get much from what we have. Tourism doesn’t run on itself, it needs various others partners to run properly. There should be a healthy condition to run the tourism sector.

Political Aspect



 

Mt. Everest





The most important point for the development of a country is the political stability of the country. None of the sectors of the nation or the economy is away from the politics. If the political situation is better then there will be the possibility and availability of the development. Above all, if the political situation is better, then the people will feel secured and safe thus enhancing the mobility of people. NTY 2011 has come up in the midst of the political turbulence of the nation. No one knows what will happen tomorrow. Each and every sector is influenced by the same. In the present day situation of absence of final complete constitution of the country, it is very much like an absence of responsibility of the lawmakers, it is under a pressurized situation. Nobody knows when will it be formed and what it will bring for the economic development. The responsible people are all working for their own motives and not the needs of the country. Let's hope it to be good at least for 2011. The budget formed recently has provided the heavy loaded price hikes for the people. Moreover the regular and unmanaged price hikes in petroleum products has affected the nation as a whole. If the price of the transportation means goes up, then it is absolute that the price of every thing goes up. This leads to the overall price hike in the economy. This will definitely affect the tourism sector leading to the increase in expenses for the tourists. That might affect the overall stay plan of the foreigners.



Machhapuchhre

 Natural Resources



Water Fall



Nepal is rich in natural resources. The flora and fauna are so rich and unique, but still we could not explore them all. The mountain ranges are suitable for all sorts of visitors. The adventure sports could be the important chapter in the tourism year. The tourists could find every type of adventurous places according to their needs. They don't have to follow the old tracks but they could also explore their own; the trekking routes, hiking routes, etc are getting bigger and bigger. The tourist could enjoy their stay at some exotic hotels or some indigenous villages. They could enjoy the city lives as well as the remote ones. They could stroll around the historic places and religious places. Though the foreigners come to Nepal to visit and spend their time but they still want to get themselves involved in some social activities. We have seen so many foreigners visiting and helping some needy people. Some has open up some NGOs to help children, old age people; some has opened up some schools.

Jatra at Kathmandu

Culture

Nepal's cultural aspects are of high values and the other people want to see them. Nepal is for every sort of religion, ethnicity and ideology. The people have various cultures and tradition. Within the same community we could see various systems and subsystems to guide the people. These cultural heritages could be of greater attraction for the visitors. They could sing along the Nepalese folk songs and dance along our Jatras and festivals. They could enjoy our religious festivals, though there are some boundaries. The cultural and religious heritages might be the places of interest for the foreigners. They might want to see them, learn them and feel them or at least they could pose a photograph in front of our heritages.

Adventure Sports

Rafting at Kali Gandaki

The adventure sporting tourists are also coming to Nepal for some adventure sports such as rock climbing, mountaineering, bungee, kayaking, rafting, etc. We do have feasibility but we are unable to exploit them all to get a better return. This is due to the fact that we don't have the knowledge and ideas to explore them. If we could arrange for the infrastructure, they will be successful. We should be able to encourage the visitors to do some new things, get some new experiences and new vibes. Recently, just in the dawn of NTY 2011, we have seen the obstacles at bungee. Lets hope such obstacles won't arise at least for a year. We all want our part from the investment we have done but it's of no use to get it all for ourselves. If we share it collectively then we could make it successful for all of us. There should be a proper coordination of how we earn and how we expend the income. We do have a lot to explore about the adventure sport in the country.
Promotion

Today is the day of communication and communication comes from sharing ideas. The best player for sharing ideas is the media. The media of any sort could be effective for the publicity of Nepal Tourism Year 2011 campaign. There should be efficient marketing strategy for the campaign to make it a successful one. The timing and flow of the advertising campaigns should be maintained properly otherwise the information could bear a negative result. The information related to the tourist spots should be provided to the tourists through various means. They could be transmitted through the television channels, magazines, brochures, newspapers, websites and all.  Each and every citizen is equally liable for the promotion of this mega event of the country. We are Nepali citizens and we all are equally responsible for the development of the country. Tourism will help to get our result at least a little. Let’s make it a successful one.

Setbacks



Bungee



The tourists should be provided with various facilities. I guess we are in a short of these all. We do have better resorts and hotels of various grades but they are not quite enough. We do have transportation facility but they are not in the proper condition. Even the only one international airport is not in a good condition. The roads are full of reconstruction patches. The traffic runs accordingly, without following the proper rules. The footpaths are more for the street shops rather than walk ways. The roads and street stay cramped up all the day with vehicles, and no body follows the traffic rules. On that point we all should be responsible and manage it accordingly.

A look back to Visit Nepal 1998

Tourism in Nepal contributes 3.5% to GDP and 15% of total foreign exchange earnings of the country. It also gave direct or indirect employment to 257,000 people in 1998. The average length of stay was 10.8 days and average expenditure/tourist/day was US$44.2 in 1998. According to a report, in the year 1998, we have the following number of visitors.

Total number of tourists visiting Nepal 463,684

 Total number of tourists visiting Pokhara 103,895

Total number of tourists visiting Chitwan 72,528

Total number of trekkers 112,644

Annapurna	65,587	Dolpa	322
Sagarmatha	22,826	Bardia	2,543
Langtang	10.952	Shuklaphata	121
Kanchenjunga	782	Khaptad	5
Upper Mustang	798	Kosi Tappu	318
Manaslu	756	Makalu Barun	876
Humla	538	Rara	142

Table 1. Trekkers details

Although the Ninth Plan had envisaged a growth rate of 10% in tourist arrivals and

20% for foreign exchange earnings, the progress reported in 1998 and 1999 indicate

that the target for 10% growth rate in tourist arrivals has almost been met, the target

for foreign exchange earnings has not been met. Analysis of data for first ten months

in 2000 shows that the number of Indian tourists visiting Nepal has declined by almost

a third compared to the same period in 1999 resulting in an overall drop of almost 13%

in the number of tourists. Such factors as the hijacking of Indian Airlines plane in

December 1999 and adverse publicity in the Indian newsmedia could have been

responsible for the large decrease in the number of Indian tourists. On the other hand,



the decrease in the number of tourists from third countries could be attributed to

adverse publicity due to Maoist activity in the international media and warning given by

many tourist-generating countries that parts of Nepal are not safe for tourists.

A Visit Nepal Year was celebrated in 1998 with mixed results. UNDP assisted

Partnership for Quality Tourism was implemented between 1995 and 1998. The sites

selected were Swayambhu and Changunarayan in Kathmandu valley and two villages,

Syabru Besi and Thulo Syabru in Langtang National Park. National Tourism Board

was also created as a follow up of Quality Tourist Project.

Prospects on Nepali Tourism

Courtesy : realadventures.com

Nepal is rich on every sectors required for the tourism development. We are very rich on natural resources, social and cultural factors and religious norms. We can focus on these various aspects of tourism and lead it for a sustainable development of the tourism sectors. The economic status of the country will be improved by the tourism sectors. Currently we are unable to manage what we have. We should be able to manage the available resources and avoid the by products. The waste management is the most important for the city basically Kathmandu. Whatever comes to the city goes out on the road as waste. If we could not manage the waste then the visitors will get a negative impact. They certainly won’t visit such a dirty city, and nobody does. The government and the related all the parties should focus on the conservation of reserve areas, flora and fauna, the rare animals and the beauties of the tourist spots. For the sustainable development of tourism sector the earnings from the tourism revenue should be implemented on those areas. We do not have such an implementation and if we have, they are not so enough. The tourism should not be taken as a one way concept, it is a multilateral concept. Each and every part of the country and each and every sector of the economy should participate on the tourism development. There should be a participatory movement for the sustainable development of the tourism. If tourism is to benefit people in the village level and gap between "haves" and "have nots" were to be reduced, there should be participation of the people of the touristy areas including villages who should have a say in development of tourism in their areas.

With the badge of adventure destination glittering and the adage “Atithi Devo Bhava” (Guests are Gods) embedded in our culture, the portfolio of tourism products never cease to mesmerize the visitors. The unparallel cultural, geographical, ethnic and bio diversities of the country allure visitors to Nepal time and again which truly substantiates the spirit of Nepal tourism brand ‘Naturally Nepal, once is not enough!’ Let’s promote “Nepal Tourism Year 2011”.

(Picture Courtesy : www.nepaltourismyear2011.com, realadventures.com, panoramio.com)