book1

accompanied by poor supervision of NRB. Under these circumstances, risks
and uncertain� es in fi nancial organiza� ons have greatly increased adversely
aff ec� ng the confi dence of people in the banking system.
The ugly and unhealthy compe� � on among the banks to maximize
profi t has� ly, non-existence of credit ra� ng agencies and lack of corporate
governance with malafi ed inten� on and mal-prac� ces of the Management
and the Board to approve loans against vulnerable projects, over-valua� on
of collateral by the valuators, and extremely weak and poor supervision
and governance of NRB are major factors responsible for breakdown of
fi nancial ins� tu� ons in Nepal. However, NRB has ini� ated tremendous
eff orts to resolve liquidity crisis interwoven with fi nancial discrepancies
through various monetary measures including the proposals for merger and
insurance of deposits amoun� ng to Rs. 200,000.
In recent � mes, mushrooming grow of coopera� ves the State is a more
sensi� ve issue that they do not fall under the jurisdic� on of NRB but governed
by Department of Coopera� ves, Government of Nepal. The coopera� ves,
mostly confi ned to urban areas, have been successful as in mobilizing a large
sum of deposits by providing higher interest rates but without being � edup
with produc� on and mul� -purpose ac� vi� es like Amul Dairy and Lizzat
Papad in India. In recent � mes, therefore, credibility of fi nancial ins� tu� ons
including coopera� ves is on test, for their performance is unpredictable with
poor corporate governance leading to increasing risks and uncertain� es.
The economic meltdown in the US and other industrialized economies
during 2008-10 occurred due to fraudulent rela� onship among investors,
fi nancial ins� tu� ons and credit ra� ng agencies that completely overlooked
the signifi cance of maintaining a minimum level of ethics, morality, and
honesty in business deal and banking transac� ons (Dahal, 2009). Recent
debt ceiling crisis in the US is also a� ermath of overspending in excess of
available resources and fi scal indiscipline resul� ng into raising a historic size
of debt ceiling as high as US$ 1.5 trillion h� p://www.fxtrade.onada.com.
Risks, Uncertain� es and Assump� ons
Nepal is passing through the transi� on engulfed by increasing ineffi ciency,
corrup� on and poli� cal entrenchment that jeopardized the various prospects
of economic development. In addi� on, the respec� ve governments in
the past and to-day are terribly engaged in managing the crisis with li� le
emphasis and priority over to resolving crucial economic issues. Although
Nepal is situated at strategically important loca� on and � me zone in Asia,
geophysical limita� on and landlocked situa� ons have greatly increased
transporta� on costs leading to high-cost economy and adversely aff ected
its compe� � veness to expand and strengthen interna� onal trade and make
the economy one of the fabulous shopping centers in the world (Dahal et
al., 2008). With rugged topography Nepal is disadvantageously placed for
interna� onal trade and this is the greatest stumbling block leading towards
high-cost economy.
Not only Nepal’s trade defi cit with India is growing alarmingly but also
26
Changing paradigms of aid eff ec� veness in Nepal