A draft bill that will allow Nepal Army to invest in commercial projects has raised concerns about the bill’s potential impact on Nepal’s democracy, politics, and economy.
The Army Welfare Fund is estimated to have cash reserves of approximately Rs 46 billion, with another Rs 6 billion in investments. The army wants to invest directly in projects (such as hydro power, textile) that will provide higher returns than fixed deposits in commercial banks.
The army has a legitimate right to a higher rate of return on its funds. But how should it balance that against its potentially corrosive impact on Nepal’s democracy?
There are many reasons the army should not invest directly in specific projects. It undermines the army’s political neutrality, creates conflict of interest, and leads to distortionary effects on the economy. Instead of investments in specific projects, derivatives linked to domestic indices—for example, Nepal Stock Exchange, base lending rate, exchange rates—would be far better at providing a higher return without the corrosive effect of project-specific investments.
But there is an even bigger reason why the army should reconsider its proposal to invest directly in commercial activities: it may be called upon to save Nepal’s democracy.
Declining public trust
Around this time two years, I argued (Republica, 24 July 2018) that the army should not get embroiled in the business of building national infrastructure projects as it is a honey trap intended to tarnish its image. A lot has happened in the past two years.
Charges of corruption, and entanglements in infrastructure and other procurement exercises have eroded public trust and confidence in the institution of army.
In June this year, the army had to issue a public statement denying charges of corruption in the medical purchases related to Covid-19. Earlier in May, two senior officials of the Army Welfare Directorate were detained for financial irregularities. In February, a taskforce commissioned by the State Affairs Committee of the House of Representatives alleged significant financial irregularities during the term of the previous army chief.
Then there is the Kathmandu-Tarai Expressway, the infrastructure project the army has been tasked to build at an approximate cost of Rs 200 billion.
Last week, the army chief reportedly met with the Prime Minister to express his concern about the lack of political support on the project. The army is already investigating corruption on the project. Its selection of design and supervision consultants has been challenged for lacking transparency and disregarding procurement guidelines.
There are growing calls for the Commission for the Investigation of Abuse of Authority (CIAA) to look into the army’s public finances. But CIAA holds no jurisdiction over the army.
Public sentiment is increasingly that national projects, whether related to infrastructure or emergency medical procurement, is being assigned to the army as it is outside meaningful accountability.
Savior of last resort
The army will need public trust, not money, to rescue Nepal’s democracy.
Cracks in Nepal’s young democracy have become visible. Frustration is mounting as political leadership continues to fail, flagrantly and without concern. Corruption is deepening. Impunity is pervasive. The judiciary is tarnished. The President offers no hope. Geopolitical influences are more visible and increasingly polarizing.
Nepal’s young constitution is struggling to take root. Civil institutions that safeguard democratic principles have failed to emerge.
Against the odds, Nepal’s democracy functions because it is financed. The state has enough money to push through the system. Its ability to borrow remains strong. International donors and development partners continue to pump money. The State still has enough to feed its patronage network.
But money cannot indefinitely prop a constitution that lacks deeper institutional roots. Eventually it will run out and the network of patronage will need to feed off something else. That moment of reckoning may be closer than we imagine.
It is at that point, as the last remaining institution left to protect what remains, that Nepal Army will be tested. And at that point, will the army have retained enough public confidence and trust to revive a dying democracy?
As Nepal Army looks to earn more from the cash it has, it must examine how it will regain and retain public trust and confidence. No one will call on the army to protect Nepal’s border. But it may be called on to protect Nepal’s democracy.