Development sermons

Consider a stagnant economy ruled by an ethnic elite, in whose protection a number of business houses make the rules for the market. The political elite gains electoral consent through regular polls but dithers on its promises of growth and prosperity. However, they are faced with the challenge of governing the country on a low tax base. A large section of the population is too poor to pay substantial tax, while big businesses find ways to evade paying their share and siphon the money to overseas tax-havens, often with the aim of returning it to their own coffers as 'foreign investment'. So how does such a government manage the necessary expenditures?

Over the past half century or so, foreign aid has been touted as one solution. In the decades following the end of the Second World War, the race for geopolitical influence prompted the feuding Cold War blocs to provide countries of the Third World with resources to fund their modernisation endeavour. There is no clear evidence of the success of such efforts, but foreign-aid funds continue to be an important part of the global south's relationship with the global north. Nepal's Panchayat form of government, established by King Mahendra by ousting Nepal's first democratically elected government, benefited from the Cold War politics when the United States, the Soviet Union, China and India were all keen to fund projects either of the autocrat's choice or what the development experts of these donor countries presumed was necessary. When the Nepali state under the Panchayat rule started going bankrupt in the 1980s – due to a vicious circle of rising government expenditures, inflation, and import-fuelled current-account deficit – the World Bank, who had by then been a major player in the country's development schemes, and the International Monetary Fund (IMF), came to the rescue.