The Macro-financial Reform

One of the best advices to me came from a traditional Chinese doctor in Beijing. She spoke beautiful fluent English (traditional doctor and fluent English are rare but impressive combination I thought). I had gone with a pre-conceived notion that all traditional treatments are good for chronic diseases and have low side-effects. In my case it was not even chronic. After  “dungso” (Bhutanese traditional doctor), Korean ginseng , fish-oil capsules and western medications failed to produce satisfactory result, I had the opportunity to try traditional Chinese medication to lower my cholesterol level : the higher it got, lower became my body energy level.

Of the one hour consultation only 10 minutes were allocated on check-up, the rest were more of question (hers) and answer (mine) session including why I had so much trust on traditional Chinese medication, why I thought traditional medicines had low side-effects and so on.  At the end she prescribed food and exercise regimes and told me to come after a month for next consultation. No medication! In the next visit, cholesterol  level showed slight decline.  Good, she said and so I thought, thinking Chinese drugs would now be apt. This time she spoke and I listened.  It was all about “adjusting life style with time”.  Yes, “with time” including age, environment, situation and pace. People destroy their lives because at 60 they still live the life-style of 25, she said.  I understood but what about the cholesterol medicine. “Adjust your life-style  to properly suit you to live long”, and that was her medication for cholesterol. In other words, if I did not change my life-style with time ( “reform” in structural context) I will not live long.

The Asian Development Bank (ADB) recently approved a grant of $20.81 million and program loan of SDR 9.224 million (a total of $35.00 million equivalent) under the Strengthening Economic Management Program (the Program). The Program is aimed at pursuing policy reforms through budget support for the Government, “which currently faces weakening growth prospects and challenges in macroeconomic management.” The figures look generous. Generally, the generosity of ADB (for that matter all international financial institutions) is associated with seriousness. So “budget support”, “weakening growth prospects” and “challenges in macroeconomic management” are not to be taken lightly by any stretch of ingenuity.

And, the Program is pinned around “Over time, as construction (of hydropower projects) is completed and plants go onstream, exports increase, the trade balance gradually improves, and export earnings meet loan servicing requirements. In the meantime, sizable positive capital inflows from capital grants and development assistance keeps Bhutan’s balance of payments in surplus.” With no analytical support some may find the deduction cautious, I do not. In fact I am happy with it given the natural environment, technology, management and capacity factor of the existing hydropower plants. These may be the reasons why the Program outcome and performance targets and indicators are net of hydropower loans, meaning risks associated with hydropower loans are not taken into account in the Program formulation. If we add, it is heavy!

The ADB’s Program is generous with serious forewarnings:

 “If the critical factors are not properly addressed, the economy may be headed for a hard landing with potentially large economic losses reversing recent gains in socioeconomic development”

“In the absence of reform measures—with inflation, fiscal deficit, and current account deficit increasing and already at relatively high levels—the economy may run the risk of a hard landing and even recession.”

I read several places the words “hard landing”. Believe me, I know what goes into writing such sentences.  I am not implying anything but emphasizing at this critical juncture the importance of sound macroeconomic reform. The general attitude that program loan/grant  agreement covenants are to be implemented lightly aiming mostly at timely release of loans/grants, with low priority on in-depth  longer-term policy impacts because reforms are politically difficult to swallow, is misguided.  It would be a big mistake if we take lightly ADB’s timely offer to improve (i) budget and debt management system, (ii) revenue management system, (iii) macro-prudential management framework, and (iv) external and internal audit operations. If we just consider the Program as an instrument to meet the resource gap, we will miss the boat. I am quite definite about it.

I do not believe the macro-financial reforms under the Program are adequate to ensure macroeconomic stability and/or even ease rupee liquidity crunch near-term, but it is a good beginning in the right direction. I do see small weaknesses  on some aspects of the Program, e.g. the shallow mitigating measures for the risks identified and so on, but then it is up to the Government to go deeper. The fact is we live in a globalized world that moves fast, and  have to move with the flow with step-by-step integration of the economy with ICT sector. Those who do not follow the pace are bound to get dragged or even stepped on.  The choice right now is still with us: the wrong pick will take us to hard landing of economy. If you have doubt read carefully ADB’s Report and Recommendation of the President to the Board of Directors for Strengthening Economic Management Program, and Financing Agreement.

It would make much difference if the new Government is capable and credible to understand and undertake the reforms agreed with ADB with sincerity and diligence. To ADB the change of government  would not make a difference considering that the "Beneficiary" (changed from  "Borrower" for the Program) is the Kingdom of Bhutan, not Government of Bhutan.  The Financing Agreement is between the Kingdom of Bhutan and ADB.

The Knowledge Economy..(3) - Positive Contribution

            I do not feel comfortable chasing name, fame, limelight and/or attention. May be  because I always thought power, position and/or authority as outcomes, not objectives.  Some might think I am insane and talking rubbish. The fact is I have never been desperate for success. I enjoy creating value, no matter how small. I believe success follows automatically. If I think I did something of a substance that is of some benefit, I am happy. But it is not charity. If I am not good to myself how can I be good to others. If others fail to recognize and/or appreciate what I did, its up to them and not my problem. I move on. A simple bloke with a straightforward thought, I am.

I worked for the Royal Government of Bhutan from 1973-90, of which 16 years were with Public Works Department (still known around as PWD), the biggest department in terms of number of workers and budget in 1980s. I started as a young civil engineer. By 1985 at 35, I was the head of PWD and put my young energy and time -- most valuable resources -- into the department. Today, no one remembers who was responsible for constructing Tangmachu bridge  and driving the first motor vehicle to Lhuntse Dzong in 1982. No one cares who contributed most in the construction of road from Tsirang to Dagana Dzong including first bridge over Sunkosh river enabling 1986 National Day celebration in Dagana. No one knows who walked on foot from Wangdue to Damphu to finalize the Wangdue-Tsirang road alignment (initially planned as 2-lane) that forms today vital link of the national road network interconnecting south with west.  No one is interested in finding out who negotiated the PWD take-over of Simtokha-Trashigang and Trongsa-Gelephu highways from Dantak. And, so on. To me none of those impressions/opinions/views/appreciations/condemnations are important. What I value most is my fulfillment that I enjoyed working and made some contribution. I gave my energy and time to the benefit of the people.

I sincerely believed then and am convinced now that construction sector plays a very important role in positioning private sector on strong footing and therefore in building the nation. This is particularly so in a small landlocked country. During 1980s and before, PWD was undertaking most of the construction works in the country and therefore led construction sector by setting professional standards, ethics and discipline. Strong support was provided by senior engineers on deputation from Government of India. I, as head of PWD, wanted to put into proper footsteps the development of road construction with the help of Asian Development Bank. We formulated the Road Works Mechanization Project  under the guidance of late Dasho Lam Penjor, then Deputy Minister of Planning Commission, to enable systematic development of private sector  to take up road works within the country first, and in the region, yes in the region,  longer term. The concept involved  setting up of mechanized road construction units (in three specialized categories: formation cutting - 4 units, basecourse - 2 units and bituminious sealing - 1 unit), corporatizing first and then privatizing those units eventually. This, in my view, would have helped not only road construction but development of construction sector as a whole. The disciplined construction sector has positive influence on the environment in which private sector operates.

Dasho Lam Penjor died in a road accident in 1985. The new road construction equipment under the Roadworks Mechanization Project started to arrive in 1988. In 1989 I was asked to hand-over PWD to Dorji Tenzing, a semi-literate bigot who did not know  "E" of engineering, and was transferred to the then National Urban Development Corporation (NUDC) that had nothing to do with road works. That was the first time in the history of PWD, the department was being headed by non-engineering person whose qualification and competency were nothing compared with what were required of a head of PWD position. Thus the beginning of an era of treating all senior positions as favours, instead of high level professionally responsible positions requiring dedicated hard work. 

   Tenzing sold all road mechanization equipment to private individuals who believed road engineering was nothing more than owning bulldozers, excavators, road rollers, dump trucks. The road works mechanization and modernization concept, and strategy to develop competent private road contractors died with it. The skeptics  may have argued then that as the beginning of a technical attrition. I know where we would have been today if specialized and technically competent road construction units had been created, developed, corporatized and privatized. But I do not know where the sector currently is in terms of technical discipline, ownership and commitment. Do these carry any meaning in today’s Bhutanese professional world? You do not need to go too far for an answer. The writing is on the wall. I tried technical mainstreaming but it did not materialize. I have the satisfaction of trying my best. I did not worry then and do not now. Worry weakens the mind of its power to think and analyze, and takes us on more negative track. I opt for positive route. So I moved on. As simple as that, as far as I am concerned! But the fact is heavy prices are being paid. If you pretend not to see now, the forces will multiply and events will catch-up one day, not very far from now. 

            So, did I do enough to offset the fact that I, a son of poor villager who could not afford a pair shoes for his son, had an opportunity to study in India including in prestigious Indian Institute of Technology (IIT), Kharagpur? I do not wish to put myself on the weighing machine. I'd rather see from an angle if I am making any contribution to benefit human kind. I feel good that road financing in Mongolia, Kazakhstan, and Kyrgyz Republic are more efficient because of the influence of the ADB-financed projects that I developed introducing road fund concept. It makes me feel happy in learning that Pakistani private contractors are gaining better traction in dealing with their government clients by signing more balanced contracts, and gives me good feeling that the Chinese are going ahead with the showcase workshops, the concept I introduced to mobilize their in-country knowledge products from advanced eastern coastal region to backward western and inner provinces. I believe positive contributions, as long as they benefit human kind, have neither boundary nor expiry date.

Positive contribution emanates from knowledge/wisdom and is the way to fostering knowledge economy. Loyalty is a poor substitute of knowledge/wisdom.. Those who do not believe, pay the price. There is no other way!