Off the Record 132: A new coalition takes charge
Issue 132 • 15 March 2024
It’s March 15, 2024, and you’re reading Off the Record.
I’m Pranaya Rana and in this newsletter, we’ll stop, take a deep breath, and dive into one singular issue that defined the past week.
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Good morning, good afternoon, and good evening from Kathmandu. The one week I take some time off and the ruling political coalition collapses and the entire Cabinet gets reshuffled with new partners and new ministers. More on that in today’s deep dive.
A small note on the state of the newsletter before we begin. Subscription numbers have begun to slow down but we are very close to my goal of 3,000 subscribers. We are currently at 2,970 so I still need your help, constant readers, to share this newsletter among your social circles. I’d like to thank my friends Anne Shrestha and Abhinav Khadka for becoming my newest paid supporters. Your support means a lot and allows me to continue to write this weekly epistle.
Now, on to the news.
Nepal is awash in foreign reserves
Back in April 2022, two years ago, Nepal’s central bank sounded the alarm on the country’s foreign exchange reserves. Rising imports had pushed the balance of payments into the red, with the country at a deficit of Rs 258.64 billion. With fears that Nepal could head the way of Sri Lanka, which was then in the middle of a massive debt crisis, the bank outright banned the import of many luxury goods like cars, motorbikes, liquor, tobacco, snacks, and toys. The ban was in effect for seven months before it was lifted in mid-December 2022.
But now, Nepal is reportedly swimming in foreign currency. Reserves have hit a peak of Rs 1.84 trillion (about USD 13.9 billion) and could reach Rs 2 trillion soon. This should be a good sign for an import-heavy country like Nepal. Foreign exchange reserves are necessary to pay for imports and Nepal imports pretty much everything. Nepal earns very little from exports; most foreign currency comes in as remittances. However, a large balance of foreign currency implies that investments have stalled, which in turn means that economic growth is slowing. It also means that imports have reduced too, implying people are spending less on goods. The rise in foreign currency and the reduction in imports can both be attributed to rising labor migration. People are leaving the country in droves. They work in foreign lands and send the money back home but there are not enough people left in Nepal to consume the goods and services available here.
This is a sign of things to come. Having cash in the bank benefits no one. Unless the government can spend that cash and create jobs, people will continue to leave the country. There is an opportunity for the government to invest all that foreign currency and stem the tide of labor migration a bit. But as usual, the politicians and policymakers all appear more concerned with their political shenanigans than taking stock of the current situation and figuring out a way to make better use of all those foreign reserves.
Meter byaj victims reach another agreement with government
Those of you who live in Kathmandu must have noticed large protests on the streets, even if only because you were caught in a resulting traffic jam. Those protesting were victims of usury, what is called ‘meter byaj’ in Nepali. I’ve written in detail about meter byaj in a previous newsletter but allow me to explain briefly for readers who might’ve missed it. Many Nepalis, mostly illiterate rural farmers, take loans from local moneylenders to pay for things like higher education or marriages with their land or home as collateral. These lenders, who are basically loan sharks, charge exorbitant interest rates, sometimes up to 36%, and draft agreements that state a much higher amount than loaned out. Since these farmers are often illiterate or desperately need the money, they sign the agreement and end up paying off the loans for the rest of their lives. The loans are called ‘meter byaj’ since the interest rate increases like the numbers on a water meter.
Agreements like these are illegal, as is charging such high interest rates. Yet, these local moneylenders are influential people in the villages and often have political protection due to the cash they can spread around during elections.
The victims of these predatory loan sharks have been protesting again and again, demanding that the government look into their plight and offer some respite. In 2022, victims from around the country gathered in Kathmandu to protest. The government of the time signed a five-point agreement promising to rein in loan sharks and create a mechanism to compensate the victims. A task force was also set up to investigate the issue and recommend ways to end the practice. But of course, nothing came of this agreement. So the next year, in 2023, victims gathered once again in Kathmandu to protest. Again, another five-point agreement was signed and another task force formed. But you already know what happened next. The agreement and the task force’s recommendations both went unimplemented.
So once again, last month in February, victims walked for over 20 days from all parts of the country to come to the Capital and protest once again. After three weeks of protests, another three-point agreement was signed on Wednesday, February 13, and another commission will be formed to study the issue and provide recommendations. The victims have withdrawn their protest and will now be heading back home. This time will be different, returning Home Minister Rabi Lamichhane has promised, but does anyone really believe him?
Politicians in the gold smuggling racket
An investigative commission formed to look into recent high-profile cases of gold smuggling through Tribhuvan International Airport submitted its report to Home Minister Rabi Lamichhane on Thursday. The report specifically looked into the 60 kilos of gold smuggled inside brake shoes and the 9 kilos of gold smuggled inside e-cigarettes. A string of individuals, including private citizens, bureaucrats, politicians and their relatives, have been implicated in the report. Among them are influential Maoist politician and former House Speaker Krishna Bahadur Mahara; his son Rahul Mahara; Dipesh Pun, the son of former vice-president Nanda Kishore Pun; Pranish Pun, the brother of current Finance Minister Barsa Man Pun; and former Inspector Generals of Police Sarbendra Khanal and Dhiraj Pratap Singh. Most of these individuals have been implicated on the basis of call records from those already arrested.
Most of these powerful people had been identified previously by the police as being involved in the smuggling. But the police’s hands were tied by their bosses. Although Rahul Mahara was arrested and remains in jail, his father Krishna Bahadur, got off. Similarly, Dipesh Pun was investigated but let go while Pranish Pun was not even investigated. All of them were found to have had numerous points of contact with the arrested smugglers. Home Minister Lamichhane has promised to pursue investigations against all those named in the report but promises are easily made. We have yet to see how Lamichhane will bear political pressure and actually put high-profile criminals in jail.
7 more Nepalis have died in Russia’s war
On Thursday, the Foreign Ministry confirmed the deaths of seven more Nepalis in Russia’s war of aggression with Ukraine, bringing the official death toll to 21. According to activists working to bring back Nepalis from Ukraine, this number is possibly much higher as at least 531 Nepalis are estimated to be fighting in Russia, with over 100 injured and over 270 missing. Since taking office last week, Foreign Minister Narayan Kaji Shrestha reportedly spoke to Russian Foreign Minister Sergey Lavrov and asked that Russia take the initiative to dismiss Nepalis from the front lines and send them home. The Russians have agreed to provide compensation to the families of the dead but have yet to respond in concrete terms to any of Nepal’s other demands.
In a related incident, a video emerged this week of a group of Nepalis pleading in Hindi with India to rescue them from Russia. They claimed that they had been lied to and sent to fight on the frontlines. Since India was bringing back its own citizens, the Nepalis asked that they too be rescued. Such is the state of Nepali statecraft but are we really surprised? It’s practical for Nepalis to ask India for assistance, as at least India attempts to utilize its status as a rising superpower to help its citizens. India also has a history of rescuing Nepalis from foreign lands in times of crisis, most recently during the fall of Kabul in 2021.
Illustrative of Nepal’s callous approach to the suffering of its citizens is Bipin Joshi, who remains a Hamas hostage. The Nepal government seems to have completely forgotten about him, with not even a mention of his name from Prime Minister Pushpa Kamal Dahal or former Foreign Minister NP Saud. I hope that Minister Shrestha can follow up on the plight of poor Bipin. We don’t even know if he is still alive.
As I was writing this, Reuters reported that Hamas had presented a ceasefire proposal outlining the release of its hostage in exchange for Palestinians held by Israel. It is unclear whether this proposal also includes hostages who are not Israelis but there is really nothing for Hamas to gain by holding Bipin hostage. The Nepal government must utilize every channel to communicate with the Hamas leadership and negotiate Bipin’s release. It is frankly a crying shame that Bipin, an innocent Nepali who had nothing to do with the Israel-Palestine conflict, has been held for over five months.
New book sheds light on old debates
General Sir Sam Cowan’s new book of essays, Maharajas, Emperors, Viceroys, Borders: Nepal’s relations north and south, is currently out in the market and available for purchase at all major bookstores in Kathmandu, local online retailers like Thuprai, and internationally via Amazon. The book consists of essays previously published on The Record but updated with new notes and addenda. General Cowan is a brilliant historian and a passionate researcher with an eye for detail. The arguments in his essays might not sit well with many Nepali nationalists but General Cowan provides the unvarnished truth, regardless of how uncomfortable it might make some . The book would benefit any serious student of history, especially of Nepal’s foreign policy. The essays show how messy and complicated Nepal’s relations north and south have been over the centuries and shatter the myth of Gorkha invulnerability. History offers harsh lessons but we have to be willing to hear them.
Before you ask, this is not a paid advertisement. General Cowan is an old friend of The Record and he has made The Record his home for every article he’s published. I also helped edit the book so this is just an endorsement from a friend and colleague who truly believes in the value of General Cowan’s scholarship. Now please go out and buy the book!
The deep dive: A new coalition takes charge
Prime Minister Pushpa Kamal Dahal and President Ram Chandra Poudel with the new Cabinet. (Image: The Prime Minister’s Office)
It was no secret that things were going badly between coalition partners the Maoists and the Nepali Congress. Ever since Congress bigwigs began stating publicly that they would not enter into any electoral alliances in the future, Prime Minister Pushpa Kamal Dahal, chief of the Maoists, knew that the winds had changed. He immediately entered into negotiations with the CPN-UML, his old archrival, and his nemesis, KP Sharma Oli, chief of the UML. Dahal and Oli had once been co-chairs of the Nepal Communist Party, the largest communist force in the country, until the party fell apart due to Oli and Dahal butting heads. Both wanted to lead the party and neither wanted to play second fiddle to the other. But there are no permanent friends or enemies in politics. And so, on Sunday, March 3, Dahal kicked the Nepali Congress out of the coalition and brought in the UML, the Rastriya Swatantra Party (RSP), and the Janata Samajbadi Party. Dahal inducted new ministers into the Cabinet and reshuffled a few old ones.
I’m not going to get into what led to the collapse of the old alliance and how the new one was birthed as it’s a little too late for that. You can read this analysis from The Kathmandu Post’s Anil Giri if so inclined. Let’s look ahead instead.
Narayan Kaji Shrestha, ubiquitous in every Maoist administration despite never having won an election, has been transferred from the Home Ministry to the Foreign Ministry, a portfolio he held back in 2011. Previously, he issued a Diplomatic Code of Conduct for politicians, government employees, and foreign diplomats. Among the code’s many clauses was a requirement that diplomats first inform the Foreign Ministry before meeting with any political leader. The ministry would then arrange the time and place and assign a rapporteur to take notes on the meeting. It was a necessary code of conduct aimed at formalizing such meetings and not allowing diplomats — I’m looking particularly at the Indians and the Chinese — to meet politicians secretly and influence decision-making. Unfortunately, this code was roundly ignored. Perhaps Shrestha will attempt to enforce this code more stringently now that he is Foreign Minister again.
I have some hope from Shrestha. He might not be popular with many of the Maoist rank and file who believe that he did not earn his position near the top of the party since he did not take active part in the civil conflict. But his track record as a minister has been commendable. He was a decent Foreign Minister and a decent Home Minister. He hasn’t been involved in any major scandals, appears to keep a low profile, and does not constantly put his foot in his mouth with unnecessary comments. So I wish Mr Shrestha the best and hope he can bring more stability and coherence to Nepal’s foreign policy.
The most-talked-about induction into the Cabinet has to be that of Rabi Lamichhane, chair of the Rastriya Swatantra Party, as Home Minister and Deputy Prime Minister. Lamichhane was ignominiously stripped of both these positions by the Supreme Court back in January of last year. The RSP, despite being the youngest party in Parliament, is currently the fourth largest, right behind the Congress, UML, and Maoists, in that order. Its support was thus critical to Dahal gaining a vote of confidence after the new coalition took charge. Hence, the RSP bargained. Scuttlebutt around town is that their only condition to joining the Dahal government was that party chief Lamichhane be reinstated as Home Minister and Deputy Prime Minister. Seems like a pretty narrow set of demands. Dahal did them one better. He gave them the Ministry of Labour, Employment and Social Security (Dol Prasad Aryal), Ministry of Education, Science and Technology (Sumana Shrestha), and Ministry of Youth and Sports (Biraj Bhakta Shrestha).
I’ve written about Lamichhane a lot before so I won’t say much more. Lamichhane, perhaps more than any other politician, has the most to prove. He’s built a career out of pointing out flaws in the system and now he’s in the space to fix them, hopefully for longer than the last time. It was largely off of his public persona that the RSP won its votes. He’s been dogged by controversy but there have also been instances when he has been unfairly targeted, even hounded, by some in the press. His brashness might have suited the television but as an elected official he needs to be more circumspect. The Home Ministry is quite possibly the most powerful in the country. Whoever leads it can take direct action against criminals and the corrupt. His biggest test will be how he will handle the ongoing allegations against himself while pursuing similar cases against other high-profile public personas.
Another appointment from the RSP is that of Sumana Shrestha as Education Minister. I’m not sure why Shishir Khanal, who was Education Minister the last time around, was recommended again but Sumana is a good pick, as she has so far been an exemplary people’s representative. She has been very vocal in her criticism of proposed bills and amendments, like the amendment to the criminal code that would allow the government to withdraw any criminal cases against individuals or groups who eventually joined politics. She, along with her party colleagues Swarnim Wagle and Dor Prasad Aryal, has also drawn attention to an amendment to the Money Laundering Prevention Act that would allow individuals to basically ‘legalize’ property acquired through criminal activities by paying a tax on it. Since taking office, Sumana has reportedly started the process of amending laws that would end the practice of having the prime minister as the chancellor of all of Nepal’s universities, giving them undue influence on the appointment of university officials. That’s a good sign and I hope it bears fruit.
Among the RSP’s other ministers are Biraj Bhakta Shrestha as Minister for Youth and Sports, and Dol Prasad Aryal as Minister for Labor and Employment. Biraj is a relatively young man and appears to be passionate about his portfolio. This ministry is largely overlooked and used as parking ground for politicians who need a ministerial appointment but aren’t influential enough to command the big ones. So it is probably a good sign that Shrestha is at least happy to take up the job at a ministry that should ideally be looking after Nepal’s biggest demographic — the youth.
Aryal is a little more complicated. Aryal had been appointed to the same position earlier too, but resigned along with his other party colleagues when Lamichhane was stripped of his posts. At that time, there were allegations that Aryal was part owner of an overseas employment company and so, his appointment as minister of labor and employment constituted a conflict of interest. Aryal denied everything, even though an employment company called Shristi Overseas had him on its website as its International Marketing Director. He’s been scrubbed from the website as of now.
Among the ministers from the more established parties, Barsa Man Pun the stalwart Maoist is Finance Minister again. He was Finance Minister previously from 2011-2013, a crucial time when the second Constituent Assembly elections were held. His yearly budget at the time was welcomed by many as ‘pragmatic’. But Pun was also involved in Nepal’s purchase of six Chinese aircraft to add to Nepal Airlines’ fleet. There were allegations that the aircraft did not meet specifications. They further lacked trained pilots so they were grounded. Most have never been flown — one was grounded after flying just for a little while — and are only losing Nepal Airlines money in maintenance and parking costs. The government wants to sell them but no one’s interested in buying them, not even at scrap prices. Pun was also linked more recently to gold smuggler Dawa Tsering when a photo of them together circulated on social media. The police have also uncovered call records that link Pun to Jiban Kumar Gurung, another gold smuggler in police custody. Pun has vehemently denied all allegations.
Then, there is Raghubir Mahaseth of the UML as Deputy Prime Minister and Minister for Physical Infrastructure and Transport, a very ‘lucrative’ ministry. Mahaseth has held the same position before and has also been Foreign Minister. His tenures at both ministries were wholly unremarkable. Despite not being a very effective minister and even alienating other members of his party, Mahaseth seems to always gain a ministerial berth when the UML gets its share. Perhaps his wife, Juli Mahato, has something to do with it. Madame Mahato is the sister of Upendra Mahato, a Russia-based businessman with very deep pockets.
Most other ministers are career politicians who’ve been ministers before and have had little to show for it. None of these former ministers really left a mark on their ministries in the form of lasting changes or serious policy divergences. They toed the line and were largely forgotten. There’s not much to expect there, but I do hope that the new faces in Dahal’s Cabinet will prove their worth. They’ve all been vocal critics in opposition. Now, their real test begins.
That’s all for this week. I will be back next Friday, in your emails, for the next edition of Off the Record.
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