Statement by Valeriano F. García at the Board meeting of December 15, 1998

International Bank for Reconstruction and Development 86732 International Development Association International Finance Corporation Multilateral Investment Guarantee Agency FOR OFFICIAL USE ONLY CONFIDENTIAL EDS98-553 December 14, 1998 Board Meeting of December 15,1998 Statement by Valeriano F. García NEPAL – Country Assistance Strategy I appreciate the extensive information that has been provided by staff, both in this CAS and in the CAN, which has contributed to a better assessment of the many challenges facing Nepal and for the reasons impeding Nepal to reach its economic potential. The constrains to Nepal’s development are daunting, and they are stated in the second paragraph of the Executive Summary: ineffective and increasingly unstable governments; high corruption; perverse incentives for civil servants; large and inefficient state enterprises; weak financial sector; delays in project implementation and, to top it all, a new violent Maoist insurgency. In the next paragraph we are told that “the CAS aims to help overcome these constraints to development”. Indeed, the CAS does not show lack of humility. We are trying to do too many things in Nepal. Due to acknowledged problems in absorbing capacity, and the forementioned daunting problems, I believe that the scope of Bank’s involvement should be reduced focussing in fewer areas with a deeper reach. Privatization. Despite its crucial importance, there is very little to learn about privatization in the CAS document. I would like staff comments on a number of questions such as: a) what is the relative importance of state-owned enterprises in the economy? b) are these enterprises making losses? One of the conditions to move from the low case to the base case scenario is the privatization of three enterprises. And in order to move to the high case scenario the Government should commit to the privatization of seven or more state-owned enterprises. I would have liked to see in the report a description of these enterprises, in order to quantify the importance of this condition. Exports. Exports are predicted to increase by almost 30 percent in the next three years (Annex B6). In contrast, the export’s growth for the period 1995-1998 was only 5 percent. What is the source of such optimistic increase projected in exports? Are we envisaging a trade  2 reform ? I do not think this is the case, because we do not see the discussion of this area in the CAS. Foreign investment legislation. The soundness of the investment legislation is just one of the factors taken into account by investors when deciding an investment. Moreover, it is generally an important factor particularly for foreign investors, but the CAS is not very specific on this issue. I wonder: a) is the treatment to foreign investments equal to domestic investment? b) Can foreign investors remit abroad realized profits as a result of their investments and may also repatriate their capital? c) can domestic companies of foreign capital access the domestic credit market with the same rights and conditions as domestic companies of domestic capital? d) is there full convertibility?