Consolidate schools

In 2007, the year before the elections, when the interim government started work on the 10th Five Year Plan, they decided to “consolidate” the nation’s schools. Their rationale was that children in rural Bhutan were not receiving proper schooling as education resources were being spread too thin across the country.

The interim government figured that since the number of children in our villages was falling, it would be better and cheaper to take village children to well-established and well-run schools rather than making them attend ill-equipped and inadequately staffed schools in their villages.

But after the elections, the new government changed the 10th Five Year Plan. They figured that it would be better to keep children with their families and in their communities rather than making them study in boarding schools far away from home. So they completely reversed the education policy from school consolidation to school expansion by starting extended classrooms.

Extended classrooms typically have less than 25 students, run from makeshift classrooms, have only one teacher who teaches several grades and who reports, for administrative purposes, to the management of a larger school. Extended classrooms are also typically found in our smaller, more remote villages.

At last count there were 99 extended classrooms.

But that number is about to explode. The government has announced that they will downgrade 343 primary schools to extended classrooms over the next few years. Their decision is prompted by the fact that primary school enrollment has been declining steadily.

Personally, I think this is a good opportunity for the government to revisit their policies, and reconsider the interim government’s plans to consolidate schools. If primary school enrollment is falling, consolidate the schools instead of downgrading them. Pool their resources – teachers, libraries, equipment and infrastructure – and allow students to study in proper schools, schools that are able to cater to extracurricular as well as classroom activities.

But if the government is going to continue extended classrooms, and if they are bent on downgrading primary schools instead of consolidating them, they should first do a careful study on the effectiveness of extended classrooms.

Children in our villages already work many times harder than their urban counterparts. The least we can do is to ensure that the education they receive gives them a strong enough foundation to help them through the school system, and later, in their careers. I can’t see how makeshift classrooms can provide that foundation. Yes, there will be precious exceptions, but, in general, I can’t see how a lone teacher, stationed in a distant village, teaching 25-odd children of various ages and levels can adequately prepare them for the academic rigors of real schools.

What our children need is not easy access to classrooms. They need access to proper schools – schools that have enough teachers and classrooms and playgrounds and libraries and computers and laboratories and, most importantly, a critical mass of students so that they can play, learn and compete together; so that they can grow together.

Consolidate our schools so that our children have access to proper schools. Consolidate our schools so that our children can also benefit from the type of education that we aspire for our own children.

Nu confidence

Bhutan airlines?

The government recently approved airfares for our two airlines. This is how the fares were reported in Kuensel:

Druk Air is charging USD 170 (single) and USD 340 (return) for Paro-Bumthang, while Bhutan Air will charge USD 250 (single) and USD 400 (return).

For Paro-Trashigang, Druk Air is charging USD 215 (single) and USD 430 (return). Bhutan Air is charging USD 350 (single) and USD 600 (return).

From Bumthang to Trashigang, Druk Air will cost USD 110 (single) and USD 220 (return), while Bhutan Air costs USD 150 (single) and USD 250 (return).

When I read the fares, two questions immediately came to my mind: why so expensive? And why USD?

The answer to the first is straightforward. The fares are expensive because operating costs are high. And unless domestic air travel becomes unexpectedly popular, both the airlines may incur losses, in spite of the government’s generous subsidies.

The answer to the second question is not so straightforward. Why, indeed, are domestic fares denominated in US dollars?

All goods and services in Bhutan should be priced in ngultrum. Unless, that is, we lack confidence in our own currency. And that shouldn’t be the case. Firstly, the ngultrum is pegged to the Indian rupee. And secondly, if air tickets were priced in ngultrum, foreigners would, anyway, have to pay US dollars to buy the ngultrums to purchase their air tickets.

Hard currency would come into the country in any case. So it may seem that there’s no difference whether foreigners pay for their air tickets in US dollars or ngultrums. Actually, there is a difference. If the tickets were priced in ngultrums, banks – and the Royal Monetary Authority – would automatically be more involved in the US dollar transactions and, as such, would also be better able to regulate the movement of foreign currencies.

But more importantly, we would demonstrate to foreigners, and ourselves, that we have confidence in our own currency. And that confidence is crucial for economic growth.

Photo credit: Kuensel

Mistaken government

The Government has used our foreign currency reserves to address a severe rupee crunch in the kingdom. Last week they sold US$ 200 million from our reserves to pay off the Rs 8 billion outstanding debt on an overdraft account with the State Bank of India.

The Royal Monetary Authority borrows rupees from a special credit line with the Government of India and an overdraft facility maintained with the State Bank of India. The special arrangement with the Government of India permits our government to borrow rupees up to a maximum of Rs 3 billion, and the overdraft facility allows borrowings up to Rs 8 billion.

The RMA had exhausted both lines of credit before it recently cleared the Rs 8 billion loan.

The government has been remarkably quiet on the issue. So here are some questions, questions I will take up officially with them.

What caused the rupee crisis?

We import more goods and services from India than we export. So our trade balance with India is negative. And that causes a rupee deficit. But that has always been so. And that – the trade balance and the resulting rupee deficit – has always been easily resolved by the large amounts of rupees that the Indian government pumps into our economy in the form of generous aid to our government.

So why did we face such a big rupee crisis recently? Why did we have to borrow as much as Rs 11 billion to finance the rupee deficit? Rs 8 billion of that was borrowed in the past year alone, and that, in spite of increased Indian grant aid and huge inflows of rupees for the construction of mega projects.

The government has had to sell US$ 200 million to address the rupee deficit. Otherwise, RMA would not have been able to maintain the ngultrum’s exchange peg with the rupee. And we wouldn’t have been able to continue buying goods and services from India.

In other words, our economy was in serious trouble.

And the government had to bail it out by injecting US$ 200 million into it. US$ 200 million works out to Nu 10.3 billion at the current exchange rate. That works out to 14% of the GDP. And that is a huge bailout by any measure.

So why was our economy in such big trouble? What caused the rupee crisis?

What must be done to prevent another crisis?

Our foreign exchange reserves are not reserves in the strict sense – they are actually savings accrued carefully over several decades. The government has used US$ 200 million of it, in one go, to bail out our economy.

It’s obvious that if we don’t do anything different, if we don’t learn from our mistake, we will face another big rupee deficit by this time next year. Should that happen, the Constitution, which requires that foreign currency reserves must meet at least one year’s essential imports, will prevent the government from selling our foreign reserves for Indian currency. This simply means that the government will not be able to bail out the economy as easily as it has done this time.

So the question is, what must we do to prevent a similar crisis next year? How will the government prevent another rupee deficit from developing? What are the government’s plans?

How will the foreign exchange reserves be rebuilt?

The government has announced that the current reserves, equivalent to US$ 702 million, can finance 13 months of essential import. So even though the government has used up more than 20% of our reserves, what remains is still within the minimum limit set by Constitution according to which, “A minimum foreign currency reserve that is adequate to meet the cost of not less than one year’s essential import must be maintained.”

US$ 702 million at today’s exchange rate of Nu 51.5 for every US$ is about Nu 36.1 billion. And RMA has calculated that this amount – US$ 702 or Nu 36.1 billion – finances 13 months of essential imports. By dividing Nu 36.1 billion by 13 and multiplying it by 12 we now know that Nu 33.4 billion would be required to finance one year’s essential imports. The Constitution requires that the government set aside a minimum of this amount in the foreign exchange reserve.

But by this time next year, if the current trend continues, the volume of essential imports would have increased. That, plus inflation, would mean that the government would need set aside that that much more money in foreign currency to meet the minimum requirements set out in the Constitution.

But since the reserves must be maintained in foreign currency, there’s something else the government must think about: exchange rates.

Today the exchange rate has fallen to an all-time low. What when it strengthens? What if, by this time next year or the following year, the exchange rate rises to 2008 levels of Nu 40.4 per US$? That would mean that US$ 827 million would be required to finance one year’s essential imports at today’s quantity and today’s prices.

That would mean that the government would need to increase the foreign currency reserves by at least US$ 125 million. And that is without even factoring in increased consumption of essential imports and price increases for the essential imports.

The government has spent US$ 200 million. And the government has stated that the US$ 702 million remaining as foreign currency reserves is enough to meet the Constitutional requirements.

What we now need to know is how the government will replenish the foreign currency reserves to ensure that the reserves remain well within the minimum limits set by the Constitution. How will the government rebuild our foreign currency reserves?

Our economy was in serious trouble – that’s why the government used our foreign currency reserves. But that is only a stopgap measure, one that does not address the real issues and one that can be used only this once.

So the government must get serious. The government must identify its mistakes. The government must accept those mistakes. And the government must rectify those mistakes.

Otherwise, our economy, tiny as it is, will collapse.

Conflicting news

How is it that one week the government calls McKinsey’s Accelerating Bhutan’s Socioeconomic Development project “A success story”, and the next week the government has used our foreign currency reserves to “rescue Bhutan from rupee crisis”?

Why would our economy need to be bailed out by using our hard earned foreign exchange reserves if the McKinsey project really was “…an initiative that created 14,000 new jobs in two years, helped tourist arrival cross the magical 50,000 figure, and will save the government Nu 360mn within its tenure, among numerous other benefits” ?

Bhutan builders

Jai Prakash and Gammon have been selected to construct the 1000MW Punatsangchhu – II hydropower project.

Gammon, Hindustan Construction, and Larsen and Turbo are building the 1200MW Punatsangchhu – I hydropower project.

Hindustan Construction, Larsen and Turbo, and Jai Prakash built the 1020 MW Tala Hydropower Project.

A select group of contractors, characterized by the complete absence of Bhutanese contractors, public or private, even after decades of experience in hydropower construction in our country.

Viva la Shoe Vival!

Enterprising role model

I like business startups. These places have an air of excitement about them. They show confidence, enthusiasm and courage. And they give off infectious optimism.

But I like new businesses for another reason: they are critical for our economy. They create employment. They help reduce poverty and distribute income. And they contribute to improving and strengthening our economic conditions.

That’s why I try not to miss invitations to visit business startups or attend their opening ceremonies. And over the years I’ve had the opportunity to visit a wide range of new businesses ventures from restaurants and bakeries to workshops and factories.

Yesterday, I got to visit another startup. Shoe Vival. This small enterprise, located in lower Norzin Lam, offers a unique service – they launder and refurbish footwear.

Shoe Vival was officially launched yesterday. But they’ve already been in business for a few successful months. If you visit their Facebook profile you’ll see some of the work they’ve been doing.

And if you visit their workshop in Norzin Lam, you’ll see why I’m so excited about their work. Here are the top five reasons that make Shoe Vival my favorite start up:

5.     Dawa Dakpa, the owner of Shoe Vival. He dropped out of college, and spent several jobless years drinking too much. But he didn’t give up. Instead he looked for a business idea, learnt about that business, established it, and is now running it successfully. Today this self-employed entrepreneur is a role model for out-of-school youth.

4.     The Loden Foundation helped Dawa Dakpa start Shoe Vival. That’s the kind of work I like to see our NGOs do – helping us help ourselves.

3.     I can now get my shoes repaired – and repaired well – by a fellow Bhutanese. I no longer have to take them to a foreign cobbler.

2.     Shoe Vival will clean and refurbish my old favorite shoes, making them good enough to wear or give away. I no longer have to throw them away or store them indefinitely.

1.     I’ve finally figured out a way of cleaning my traditional boots, especially the white brocade, without damaging them – viva la Shoe Vival!

Discriminating industries

Excised steel

Today’s steel prices:

A ton of 10 mm TMT bar manufactured in Bhutan (by Karma Steel, for example) costs Nu 39,000 in Phuentsholing.

A ton of similar grade (Fe415) 10 mm TMT bar manufactured in India (by SRMB, for example) costs Nu 42,900 in Jaigon, outside Phuentsholing.

    If you were a contractor, which steel would you buy? Bhutanese steel, right? All else being the same, TMT bars manufactured in Bhutan would be cheaper by Nu 3,900 per ton.

    But Punatsangchu Hydropower Project Authority contractors prefer Indian steel. Why? Because for PHPA, the government refunds the excise duty levied on Indian steel (collected in India by the Indian government, then transferred to the Bhutanese government). The excise rate for steel is 10.3%. And that seems to be enough to make PHPA contractors prefer TMT bars manufactured in India over those produced in Bhutan.

    PHPA’s demand for steel is huge. And that demand will get even bigger – much bigger – as construction on the other hydropower projects also begin.

    This massive surge in demand for steel should come as good news for our industries. It doesn’t. Instead, our steel manufacturers are disappointed.

    I am disappointed too. And I am confused.

    Ideally, our government should favour our own industries over foreign ones. That, in fact, is what every country tries to do. But if, for whatever reason, that isn’t possible, our government should at least not discriminate between goods produced in our country and those that are imported.

    And under no condition – no matter what – should our government discriminate against national companies by favouring foreign products. But that, unfortunately, seems to be what’s happening at PHPA.

    Our government refunds the excise duty paid on Indian steel. But it does not refund the excise duty paid on Bhutanese steel. (Bhutanese manufacturers pay excise duty in India when buying raw material.) So Indian steel becomes much more competitive. And our own manufacturers lose out.

    If our government must refund the excise duty levied on steel manufactured in India, it should also refund the excise duty levied on the raw material that is purchased by domestic steel manufacturers. Only then will the playing field be level. Otherwise, our manufacturers don’t stand a chance. And they may eventually go out of business.

    That won’t be good for the promoters – they’d lose money.

    That won’t be good for the employees – they’d lose their jobs.

    That won’t be good for the banks – they’d lose their investments.

    That won’t be good for the government – they’d lose revenue from business and personal income taxes.

    And that won’t be good for our economy.

    But that precisely is what’s happening. Bhutan Concast is almost bankrupt. They’ve shut their factories. They’ve let go of most of their workers.  And they may be forced to default on their loans.

    I’m disappointed. And I am confused.

    Inflating prices

    The effects of inflation on the prices of essentials …

    Items

    Rates

    May June July
    Stone Free Rice (ST Rice)

    980

    1050

    1100

    Nestle Every Day Milk Powder

    190

    215

    245

    Red Label Tea Leave  (500 gms)

    145

    145

    145

    Natural  Gold Refined Oil (1Kg)

    55

    60

    65

    Maida (1Kg)

    20

    22

    22

    Salt (1Kg)

    10

    10

    10

    Sugar (1 Kg)

    40

    40

    45

    Amul Butter

    100

    110

    120

    Amul Cheese

    190

    205

    225

    River potential

    alternate hydro power

    National Geographic has rated rafting on the Drangme Chhu – from the Trashigang Bridge to the Royal Manas Park – as one of the 25 Best New Trips for 2010.

    But it’s not just the Drangme Chhu. Every one of our major river systems provides some of the world’s best rafting experiences. Dave Allardice of Ultimate Descents says that our rivers are:

    A gigantic staircase rising from the Indian border to the high Himalayas of Tibet, the soaring peaks of Bhutan are an untapped treasure house of whitewater. The rivers are powerful and challenging.

    And the National Geographic calls them:

    A spillway for Himalayan snow and ice that roils into turquoise Class IV and V rapids through sheer granite walls.

    So impressed were the editors of National Geographic Traveler magazine that they also included the Drangme Chhu decent as one of the world’s top 50 Tours of a Lifetime.

    All this is good news.

    But the good news will not last long. In fact, it will barely last two years. By 2012, construction on the 1800 MW Kuri-Gongri hydropower project will begin at the confluence of the Kuri Chhu and the Drangme Chhu. And further upstream, on the Kholong Chuu, construction on a 486 MW project will also commence in 2012.

    So if you want to experience what the National Geographic is raving about, head to the Drangme Chhu … before 2012.

    Photo credit: Bio Bio Expeditions

    Mining our business

    Most of the work at the Punatsangchu hydropower project, estimated to cost more than Nu 36 billion, is being contracted out to large Indian companies. And rightfully so. After all, we still don’t have enough in-house capacity to dig tunnels, erect dams and build powerhouses.

    But mining? For stone? Now that, I’m sure we can all agree, is something we are good at!

    Then why is the government allowing Indian companies – L&T, HCC and Gammon – to operate stone quarries for the Punatsangchu hydropower project?

    And how will L&T, HCC and Gammon operate their mines when the Mines and Minerals Management Regulations 2002 clearly defines the eligibility to obtain a mining lease as:

    Any Bhutanese individual, licensed firm or a company shall be eligible to obtain a mining lease.

    To be doubly sure that only Bhutanese companies operate our mines, the Mines and Minerals Management Regulations goes on to define “company” as:

    Any organization registered under the Companies Act of the Kingdom of Bhutan, 2000.

    I’ve reported the matter to the Anticorruption Commission.