Aid in developing Nepal

Foreign Aid and Politics in Nepal: A Case Study
Eugene Bramer Mihaly.
2002.(Originally published by Oxford University Press 1965).

It is a moot point whether Nepal consumes aid or aid consumes Nepal. Hard research on the aid economy of Nepal is negligible. Barring the routine claims of multilateral and bilateral donors, and the shrewd suspicions of independent sceptics, there is no empirically rigorous and analytically sophisticated assessment that can furnish a conclusive answer to a question that ought to have been answered decades ago. So long as donor slogans remain the only source of development wisdom, the shrewd suspicions will persist. In the meanwhile, both believers and sceptics alike will have to be content with the existing meagre stock of literature, including the 2002 reprint of Eugene Mihaly´s 1965 title, Foreign Aid and Politics in Nepal.

This relative absence of detailed empirically grounded inquiry as a proportion of both the total volume of aid and the extent of donor influence on government, itself merits scrutiny as an exercise in the sociology of institutional academics. It remains one of the most persistent and debilitating paradoxes of intellectual activity in the country that the anthropology of Nepal is as overdeveloped as its economy and the study of it is underdeveloped. While Nepal´s social organism has been so intrusively and exhaustively scrutinised, the extraordinary role of foreign bodies in the polity and economy of the kingdom remains a quasi-mystical trend that is left largely well alone. Perhaps it is a sign of the overwhelming power of hard currency that aid manages to insulate itself from systematic academic study.

It is perhaps a measure of the lack of interest among the Kathmandu intelligentsia in scrutinising the processes of aid that it took three and a half decades between the first edition of Foreign Aid and Politics and its second edition. In the interim there have been few other works to complement it. Strictly speaking the only reason the book qualifies to be called a second edition is the introductory chapter by the sociologist Sudhindra Sharma, which is a broad survey of aid flows and priorities in the interim. Contrary to the view that there is a paucity of research on the ´assistance´ economy, Sharma argues, in the context of what exactly aid has achieved, that inadequate research is not an issue.

However, his introduction itself seems to point, in at least two instances, to a very different conclusion. According to Sharma, it is difficult to be conclusive about the total volume of aid Nepal receives because of the wide variance in the estimates given by different sources. He cites the wide discrepancy between government of Nepal´s Economic Survey for the year 1999, which indicates total assistance of USD 251.4 million and UNDP´s Development  Cooperation Report which estimates it at USD 416 million for the same year. Likewise, he points out that whereas the UNDP figures show a total of 21 INGOs disbursing about USD 24.1 million in aid in 1999, the Social Welfare Council lists 96 INGOs providing funds to the tune of USD 19.8 million in the year 2001.

In five decades of such high levels of aid dependence if nobody can tell us anything about the precise quantum of aid flows into Nepal, other than quoting the discrepant figures offered by various official sources, it clearly points to a dearth of independent economic research into donor activity. Further evidence of this dearth is to be found in the list of references appended to the introductory chapter. The 47 entries in the list of references may or may not exhaust the sum total of all the material on aid in Nepal, but they presumably represent the most relevant studies for producing an overview of aid.

Even the most cursory evaluation of this list shows that of the 47 entries, 11 are so-called official documents. Three of them are government reports while the remaining eight are bilateral and multi-lateral donor documents (one each of DFID and USAID and three each of the UNDP and World Bank). Of the 19 monographs, including the book under review, six are on aid in general as it applies globally and are not specific to Nepal. The remaining 13 Nepal-specific monographs are uneven in quality and not all of them are specifically aid-related. Some are anthropological reflections on Nepal, while others are sector-specific studies into which aid, as the preeminent reality of the country, inevitably enters. Most significantly, though aid is so inescapably an economic enterprise, very few are on the macro-economics of the phenomenon. The remaining 17 references are either reports by various organisations and institutions or articles in journals and edited volumes. This partial enumeration of references, if it represents the best and most relevant, clearly does not do adequate justice to the totality of aid in Nepal.

So long as this absence of longitudinal and indepth studies persists, aid in Nepal will always operate in a climate of controversy. In fact almost all claims and counterclaims have been controversial. Critics have generally been very dismissive about the effectiveness of foreign aid. They point to the fact that even though Nepal has received, in the 50 years between 1950-2001, foreign aid totaling slightly over US $ 5 billion, the country´s development indicators are abysmally poor not only in relation to the quantum of money but also in comparison with other countries. In 2001, Nepal, ranked 129 on the UNDP´s Human Development Index, was 33rd from the bottom in a list of 162 countries. In 2002 Nepal´s position had slipped to 31 from the bottom in a list of 173 countries.

Criticisms of aid-driven development have in fact gone beyond just questioning the developmental efficiency of donor activity. They go so far as to posit rather more malign attributes to the aid establishment than just its inherent tendency towards the dissipation of funds. It is, for instance, often argued that aid has stifled the domestic capacity for capital formation and resource mobilisation, that it has promoted institutional corruption and organisational cronyism in the civil, political and administrative spheres and accentuated economic disparities in society.

Moreover, aid, like globalisation, is deemed to be responsible for promoting external control and strangulating local enterprises through purchase of donor country products as part of the conditionality. Attention has also been drawn to the fact that the loan component of foreign aid has increased over time and part of it at least is wasted in unproductive expenditure. This increases the burden on the national exchequer and hence on poor people as there is a proportionate decline in allocations for welfare programmes reduced as increasing proportions of the annual budget is diverted to debt servicing.

Clearly, though aid remains an under-researched area, it provokes a degree of debate among the intelligentsia. For this reason, the reissue of Mihaly´s book is timely, not only for the discussion it can provoke, but also for situating the discussion in a comparative historical perspective, particularly in so far as the politics of aid is concerned. Mihaly analyses of foreign aid and the factors affecting its magnitude, nature and flows from various countries between the 1950s and the mid-1960s and concludes that it failed to achieve the development goals visualised then.

The issues raised in the course of the book are pertinent even today. His analysis of the political and administrative culture that impeded development then may well hold true in contemporary Nepal. Mihaly also argues that the assumptions underlying US aid were not relevant to Nepal´s context, which led to the failure of development initiatives. One major assumption at that time was that if popular expectations of material prosperity were not fulfilled, social unrest and communism would follow.

To the contrary, Mihaly found Nepalis had no rising expectations as most of them were too preoccupied with meeting their most basic needs of survival. This point is important since in contemporary discussion it is customary to attribute the rise of the Maoist movement to thwarted expectations. In other words the argument that propelled funding in the 1960s has resurfaced four decades later. Mihaly debunked the argument then. It remains to be seen if the disciplines which involve field research, notably sociology and anthropology, will set out to verify the contemporary validity of this hypothesis.

By far the most interesting aspect of the book in terms of its current relevance is his analysis of domestic politics as it related to the dynamics of aid. Thus, while the East-West highway provided the infrastructural basis for unifying Nepal and expanded economic opportunities, Mihaly suggests that it was primarily intended by King Mahendra to facilitate the repression of political movements seeking participation in a democratic polity. He argues that donor countries silently acquiesced in the suppression of parliamentary democracy for fear of giving communism a fillip.

Mihaly also explores the nature of the complex aid relationship between India and Nepal in the context of India´s overbearing attitude and Nepal´s excessively sensitive reaction. In this context he cites the absurd case of the Indian government assisting in the construction of the Tribhuvan highway, and the Nepali officialdom launching a quixotic project to construct Kanti Rajpath, across exactly the same territory that the former highway covered. This provides not only an insight into the prickly nature of equations between the two countries but also the squandering of resources that resulted from it. But while he explores these nuances of internal impediments he has relatively fewer criticisms of donors and foreign project technicians involved in developing Nepal.

Of course Mihaly´s perspective is not the final word on the question and this quite clear from Sudhindra Sharma´s critical introduction, in which he departs from Mihaly´s conclusions on two significant counts. Sharma joins issue with him on the question of rising expectations and argues that the Maoist insurgency is a product of rising expectations that were not fulfilled. That is for the present a matter of opinion and until established by empirical research must remain a speculative hypothesis.

The other point on which he departs from Mihaly´s argument is on the question of Nepal´s institutional and political readiness to handle aid efficiently. Sharma believes that the circumstances of today´s Nepal are very different from what it was 40 years ago and therefore Nepal is today in a position to utilise aid effectively. This again is a matter of conjecture since there is little in the institutional environment that inspires such confidence. The fact that such divergent arguments have been voiced through the medium of this book bodes well for the state of the public sphere, and for that very reason may inspire the kind of independent research agendas that will make up for the very noticeable lack of fundamental studies on the macroeconomics of aid in Nepal.