Liberalization and

Globalization
By
H.B. Chhetri
 Introduction
• The meaning of economic liberalization is to
liberate the economy from the grip of the
government and provide the platform for the
enhance role of the private sector in economic
activities.
• The economic liberalization seeks to the
transformed role of the ruler to facilitator in
order to strength the market forces in resource
allocation
 Cont..
It refers to the opposite of economic regulation by the
state and includes
 Deregulation (reduction or elimination of government
power) of markets,
 deregulation of prices
 privatization of public enterprises,
 Industrial de-licensing;
 removal of quota system in foreign trade
 and curtailing grant and subsidy provided by
government to different sectors of the economy.
 Features of liberalization
 Economic freedom,
 Role of the government,
 Absence of monopoly,
 Consumer sovereignty;
 Privatization;
 Ownership of returns and
 Private property
 Efforts for Economic Liberalization in
Nepal
 The process of liberalization in Nepal began
from 1982/83 when Nepal faced the problem
of BOP deficits (exports> imports).
 In order to escape from this problem, Nepal
implemented the Structural Adjustment
Program (SAP) in 1985/86 financed by IMF
and WB and formally entered into the process
of liberalization.
 Types of liberalization
1. Internal Liberalization: Real/fiscal and
Financial sector liberalization
2. External Liberalization: Trade and Exchange
rate liberalization
 1. External Liberalization
a. Reform in Trade Sector:
 Nepal adopted the Import Substitution
Industrialization (ISI) trade before 1985.
 imports form overseas countries were
controlled through tariff and non tariff barriers
and exports were more or less freed.
 In the early period of 1990, trade policy had
been changed from ISI policy to export led
economic growth strategy.
 Reforms in Import Regime
i. Reforms in non-tariff barrier front
 Open General License (OGL) system replaced the
quantitative restriction (QR).
 Prior to the OGL, Nepal had followed quantitative restriction
(QR) policy in order to protect the domestic industries from
the foreign industries, facilitate import of raw materials and
intermediate inputs required for domestic production by local
and export – oriented industries, conserve the foreign
exchange and discourage the deflection of good to India.
 An import Auction License System (IALS) replaced the
administrative quota system in July 1986 for 88 commodities.
 Cont..
ii. Reforms in tariff front:
 Both tariff rates and slabs have been slashed
down.
 Maximum tariff rate has been reduced to 80%
from 300% and
 tax slabs have been curtailed to 6 categories
i.e. 5, 10, 20, 30, 40, and 80 percentage.
 Reforms in Export
• In the past Nepal has followed export promotion
strategy such as export subsidy, dual exchange rate,
bonus system etc.
• Thus with implementation of adjustment programs
bonus and subsidy facilities were replaced by Bonded
Warehouse, and duty draw back system.
• Exports are tax exempted except 0.5 percent.
• Sales tax is replaced by VAT which does not tax export.
• Introduced new Trade Policy 1992, industrial policy,
1992 and Foreign Investment and Technology Transfer
Act (FITTA), 1992
 Reforms in exchange rate
 From 1993 capital account is made fully
convertible.
 The foreign exchange market is converted to
floating system but it is still pegged with
Indian currency.
 Commercial banks are allowed to keep their
balance abroad.
 Cont..
 Effective from 1991, Nepalese working in
international agencies based in Nepal can keep there
account in convertible currencies if they receive
salary in such currency similarly Nepalese working
abroad also can keep there account in convertible
currency in local bank.
 Commercial Banks can provide loan to exporters
(related to trade finance) in foreign exchange and
central bank started to refinance area to commercial
bank in US currency from 1998.
 2. Internal Liberalization
• Freedom to open the commercial banks is provided
in 1984.
• Determination of interest rate is completely left to
the market mechanism in 1989 (before 1989, NRB
itself used to fix the interest rate for deposits and
loans)
• Freedom to open development banks, finance
companies and NGOs.
• Similarly, security exchange board is established in
1992 in order to improve capital market
• Restructuring of NBL and re-engineering of NRB.
 Globalization
• Globalization means the integration of national
economy into the international economies
through trade, foreign direct investment,
capital flows, migration and the spread of
technology.
• Globalization, representing the concept of
"global neighborhood", "global village" or "the
world without borders" is a next stage of
liberalization.
 Cont..
• Liberalization and globalization are concepts
closely related to one another and both refer to
relaxing social and economic policies which
results in better integration with an economy
and between nations.
• A country usually experiences liberalization of
its economic and other policies which is letter
on followed by globalization. There are many
differences between two.
 Cont..
• Liberalization generally relates to activity within a
country as a result of modernization.
• It generally refers to removal of restrictions;
usually government rules and regulation imposed
on social, economic or political matters in response
to greater participation of private entities.
• It is market flexibility, lower tax rates and lower
restrictions on capital movement for maintaining
global competitiveness.
 Cont..
• On the other hand, globalization refers to the
activities among countries and results in
interdependence and integration among countries and
facilities the movement of goods and services,
capital, individuals, knowledge and technology etc.
• Globalization is driven by push up and pull down
trends.
• It pools power from the government down to civil
society but it also pushes power outs past national
borders to regions and to the global domain
 Cont..
• Globalization comprises both a description and
prescription.
• The description refers to the expansion of
international flows of trade, finance and information
into an integrated global market, and
• the prescription to the liberalization of national and
global market in the belief that free flows of trade,
finance and information will produce the best
outcome for both economic growth and human
welfare
 Cont..
• Globalization enhanced global economic activities and
increased cross-international flows of a greater variety
of commodities and services, cross broader flows of
short term and long-term capital along with increasing
dense and complex network of transnational production
networks involving multinational (transnational)
enterprises and independent supplier companies.
• In Nepal, the process of globalization picked up with the
policy reforms of 1990. In present, no country can be
isolated from the rest of the world.
 Positive views of liberalization and
globalization
• Potential for more dynamic economic growth,
• Create new opportunities and innovations,
• Enhance mobility of people and other resources,
• Tremendous opportunities for human development
• Poverty reduction with increasing participation
• Prominence of private sector as a engine of growth
• Competition- primary means of increasing
efficiency
 Cont..
• Opening the economy to international trade,
foreign investment and foreign technology-
chance for technology-chance for technology
spill-over for local firms from MNCs.
• Promotion of employment opportunities
• Benefits to consumers
• Improvement of public enterprises
• Wider market for domestics products
• Utilization of domestic resources.
 Negative views of liberalization and
globalization
• Harmful to developing countries
• Difficulties to new industries
• Pollution and other environmental problems
• Increase domestic economic instability from
international trade cycles
• Loss of the domestic market
• Unequal competition
 Cont..
• Danger in national sovereignty
• Increased income instability between the nations
and within the nation
• Cultural threat
• Threat to democracy
• Political influences of MNCs
• Internationalization of cross-border problems
like terrorism, drugs, social dislocation of the
poor and human trafficking.
 The benefits of globalization can be achieved if SAARC/
Nepal follow or fulfill the following requisites.

• Stronger domestic policies and reforms designed to

consolidate
• Macroeconomic stability
• Human resource development
• Improve basic infrastructure and spur agriculture development
• Accelerate trade liberalization and regional economic
integration
• Promotion of sound banking system
• Foster private investment
• Ensure good governance
• Strengthen the role of civil society
 Public- Private Partnership
 Public-Private Partnership Policy, 2072 .
Objectives of this policy shall be as follows:
 To create an environment that attracts private
investment to meet requirement of capital,
means and resources for development,
reconstruction and operation of public
infrastructure and services, from private sector.
 Cont..
• To utilize professionalism, work efficiency,
entrepreneurship and technical skills available
with the private sector to render qualitative
public infrastructure services needed for the
country.
 Cont..
• BOOT (build, own, operate, transfer) is a
public-private partnership (PPP) project model
in which a private organization conducts a
large development project under contract to a
public-sector partner, such as a government
agency. A BOOT project is often seen as a way
to develop a large public infrastructure project
with private funding.
 Cont..
• BOOT is sometimes known as BOT (build,
own, transfer).
• Variations on the BOOT model include BOO
(build, own, operate), BLT (build, lease,
transfer) and BLOT (build, lease, operate,
transfer).
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• Thank you
• Any questions???