WB threatens to pull out of financial sector reform

The World Bank (WB) has warned that it would stall all assistance related to the financial sector reform programme if there is no 'satisfactory' improvement in Nepal Bank Limited (NBL) within one month and the expert management team at the bank is not restored, reports Kantipur daily.
In her letter to the finance secretary Bidhyadhar Mallik Thursday, WB's Nepal country director Susan Goldmark has given the government time till 21 August for this. The letter says that if the two pre-conditions stated in the letter are not fulfilled by that time then all assistance related to financial sector reform would be suspended.
As per this, the WB would suspend grants and loans amounting to Rs 10 billion ($150 million). It has also threatened of suspending budgetary support programme.
Citing dissatisfaction over the union activities and lack of cooperation from the central bank, ICCMT, an Irish/Scottish consulting firm that had been handling the management of troubled Nepal Bank Limited (NBL) for the last five years, unilaterally terminated the management contract on July 22. The team announced its decision after the NRB had agreed to extend its contract by six months as against its demand for 18 months extension.
The WB said in the letter that since NRB has not taken necessary measures to ensure effective control over NBL as required by the agreement signed in June 2004, the government would not be able to make further withdrawal of assistance unless the management contract with ICCMT is extended for a six-month period.
In the letter WB has also alleged that Nepal Rastra Bank (NRB) failed to create a conducive environment for the operation of the NBL and has asked for "decisive action satisfactory to the WB to restore the operational autonomy of the NBL management team."
The WB has recommended convening a meeting of all parties, including the finance ministry, NRB, the consulting firm and the WB before the departure of the one remaining consultant.
WB has also made it clear that following a six month extension for ICCMT, the government is free to hire a professional management team for NBL, foreign or local, but with at least one expatriate as either CEO or chief credit manager.
However, the team needs to have qualification and terms of reference acceptable to the WB and should be hired as per the procurement procedures agreed between Nepal and the WB, said the letter.
Meanwhile, on Friday, the NRB appointed a new management team at the NBL. The three member team is led by NRB director Dr. Binod Atreya and includes Laxmi Prapanna Niraula and Numnath Poudel.
nepalnews.com ag July 28 07