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NEPAL: NEW HORIZONS..? Nepal is an independent country which lies as a buffer between two major powers, China and India. Small, landlocked and poor, the Himalayan Kingdom of Nepal was first opened to the outside world in 1951. Lord Buddha (Siddhrtha Gautam, 563-483 BC) was born in this country but still considered as the only Hindu nation in the world. However, the main religions are Hinduism (87%), Buddhism (8%), and Islam (4%). Even though Nepalese is the national language, there are 70 different languages spoken by diverse ethnic groups. Nepal was dominated by authoritarian rule for seven centuries and was never colonized. Nepal remains one of the world's poorest countries with an annual per capita income level of $210. Infant and maternal mortality rates remain very high and average life expectancy is estimated to be only 55 years. Only 40% of the population is literate. The population growth is also high, 2.5% annually, and is expected to double within the next 30 years. Nepal's development is constrained by high population density, low industrial output, limited natural resources, difficult topography, geopolitical crisis, a weak human capital base with extremely poor levels of education and health, poor public management capacity and a long history of autocratic regime, and public intervention. Rapid population growth further complicates the delivery of services for the improvement of human welfare. Because of unequal distribution of income, opportunities and power equations, almost half of Nepal's 22.4 million citizens live in absolute poverty. The poor are predominately rural subsistence farmers. Agriculture is the primary occupation for 80% of population. Cultivated land constitutes only 18% of the total (147,181 sq. km) land area of Nepal. Since opportunities to bring additional land into cultivation are limited, a high population density has resulted in over-exploitation of the natural resource base and erosion of soil fertility. Nepal was often called a forbidden kingdom because during the authoritarian regime, there was no contact with the outside world. When the Tribhuvan International Airport was established in 1951, the diplomatic relations with foreign countries increased dramatically. Unfortunately 'absolute monarchy' was imposed by the 10th King (Mahendra) of Nepal in 1959. Once again all the economical and political systems were centralized. Although revenue from the tourism increased from $12 million (in 1960) to 172 million in 1995, it brought a little change in overall development of Nepal. During these 30 years (1969-1989), corruption, deforestation, poverty and cultural erosion went almost unchecked (if not out of control). During the 1980s alone, it was believed that billion dollars were injected to various banks of Europe. Autocratic regime ended only in 1989 with the establishment of a constitutional monarchy and multi-party democracy. All three major political parties in Nepal -- the Communist Party of Nepal (United Marxist-Leninist), the Nepali Congress, and the National Democratic Party -- have agreed for liberalization and privatization of the Nepalese economy. Although there are some differences in their manifestation, they are committed to the establishment of democracy, and a market-oriented economy. The Nepalese governments have shown progress in the liberalization of its economy over the past eight years. Nepal has privatized a number of public enterprises, eliminated public monopolies in air transport and hydropower generation, eliminated price controls on most products, reduced consumer subsidies, established a convertible currency for all current account transactions, modernized its commercial and company laws, and set in place a program to attract foreign investment, particularly in the generation of hydroelectric power. Recently the Nepalese governments have begun a program of tax reform by introducing a new value-added tax system. Because of a large balances of payments deficit, the governments now face the difficult task of establishing a basis for sustained growth (through hydropower development and exports). In order to reduce such problem the governments have started other areas of basic economic reform program, privatizing public enterprises, freeing trade and prices, revitalizing the stock market and setting in place a program to attract private investment. A new transit agreement with India has also been discussed which Nepal can easily export/import to/from the third country. The democratic governments have recognized four major sectors of economic growth: hydropower generation, tourism, transport (and air transport in particular), and telecommunications. Tourism industry has grown dramatically becoming one of the largest foreign exchange earners for Nepal. In early 1990s, the domestic air transport was privatized which resulted four-fold increase in air traffic. However, poor transportation and communications facilities have hampered its growth. The country has only some 10,000 kilometers of motorable roads, therefore, the surface travel is limited/difficult, especially during the monsoon (June-September), where it can rain as much as 500 mm within 24 hours. Moreover, Nepal is a mountainous country so that better development of roads are very difficult and costly. Consequently, the existing infrastructure is inadequate to meet the needs of tourists. The slow development of an appropriate road network has put further pressure on the limited domestic air transport. Although the governments have given a high priority for private airlines to fly international destination, its still uncertain that whether demand will be fulfilled adequately. The other two sectors are all areas in the process of being privatized. Hydropower is the most significant and the Nepalese governments have, now, laid the legal basis full-scale private development and for private exports of hydropower to China and India. Nepal has roughly 83,000 MW of hydropower potential and half of which is economically feasible for development. Some of these private-projects are now underway and others (costing billions of dollars) have put forward, namely West-Seti, Pancheswor, Karnali-Chisapani and Arun III sites. As far as the telecommunications concerned, the progress has been slowest. However its also under discussion for privatization as well. Even though some economic progresses have seen since 1989, still the government bureaucracy is felt even at a more local, project level. This has created some animosity between the government and the private sector. "Many aid workers identify the root cause of Nepal's slow development as 'institutional problems' a euphemism that covers a multitude of sins. They speak of management bottlenecks, where bureaucrats hoard power to such an extent that project mange

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