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In September 2017, the Council of Ministers decided to transfer NPR 418 million (USD 3,981,450) to Army Headquarters to fund the army's proposal to buy three helicopters to enhance its disaster management capacity. One month later, Cabinet transferred another NPR 85.6 million (USD 815,340) to buy two helicopters for 'aviation training'. The Ministry of Finance sanctioned the additional budget because the army argued that the amount earmarked was inadequate. Again in January 2018, NPR 1.70 billion (USD 16,192,500) was transferred for 'enhancing the aviation capacity of the army'. The cash-strapped government of Sher Bahadur Deuba made one decision after another in the span of three months to help the army buy helicopters and other items, for NPR 3.72 billion (USD 35,433,000). This amount was not stated in the budget program.
The national budget must include the amounts required by all government agencies, including the army. The budget is then tabled for approval in sovereign parliament, and after clause-by-clause discussions, the budget is passed for implementation. These constitutional and legal processes must be observed in both letter and spirit. However, there is a rising trend of arbitrarily sanctioning budget for the military outside the annual budget process.
Rules breached, army appeased
Almost every government in recent years has short-circuited parliament to meet army demands for additional money, making it appear as if governments in Nepal are competing to please the army. The Ministry of Finance is obliged to fork up the requested amount; however, the government allocates these resources without considering the state of the national coffers. Former chief secretary Bimal Koirala observes with alarm that the trend of arbitrary spending has increased, and this is fatal for the maintenance of fiscal discipline.
Government officials have failed to rein in the trend of high army officials visiting the Ministry of Finance whenever they are not satisfied with the budget allocated. Analysts argue that a weak civil administration has paved the way for the army to go beyond the bounds of established procedures. Former chief secretary Koirala speaks of the need for all government agencies to remain within budgetary parameters, saying that the practice of exceeding the budget allocated, without considering the national budget, increases the risk of the amount being misused. For the current fiscal year, the government had allocated NPR 39.12 billion (USD 372,618,000) and NPR 5.6 billion (USD 53,340,000) for general and capital expenditures respectively for the army. Till April of this current fiscal year, an extra NPR 1 billion (USD 9,529,255) and NPR 3.72 billion (USD 35,448,828) have already been released for general and capital expenditures respectively. Because of the army, an additional liability of NPR 18 billion (USD 171,526,590) has already been created for the Finance Ministry this year.
As revealed by the Mid-Term Review of the budget, the army has demanded an additional NPR 33 billion (USD 314,465,415) till mid-January 2018.
Meanwhile, the army is buying more than 10 helicopters and planes, raising the question: if it were so indispensable to enhance the aviation capacity of the army, why was this not included in the annual budget itself? Why did the government feel obliged to equip the army with helicopters and planes by short-circuiting the process without waiting even for the next budget?
One Ministry of Finance official says the Army's interest in economic transactions is growing by the day, leading to a demand for ever more additional money. "The army's particular interest lies with purchases and everyone knows what this is for," he adds.
What the Finance Ministry official is referring to is the irregularities involved in procurement processes. High ranking army officials focus on big purchases as they receive hefty amounts in commission while buying helicopters, planes and other logistical goods. This is why both buyers and suppliers look enthused when it comes to purchases.
Pressure from the army is difficult to withstand. "When a two-star general himself walks the office corridors supported by a retinue of armed body-guards, it creates psychological pressure on officials. When army officers go to see an under-secretary or a joint-secretary with such followers, their intention is to pressurize,” says one official. A relatively old story continues to do the rounds in the ministry: the then army chief Prajwal Shumsher JBR had threatened "to throw [Finance Secretary Bimal Koirala] along with his chair into the Bagmati" if the budget request was not met.
Now, high-ranking army officials issue threats in a roundabout way . In the 2017/2018 annual budget, NPR 3.35 billion (USD 31,923,004) was earmarked for the army in capital expenditure, but the army had the Council of Ministers transfer an extra NPR 3.85 billion (USD 36,687,631) that year for capital expenditure. In the fiscal year 2014/2015 , the army had 150 percent more non-budgetary amount than specified in the annual budget. An ex-official of the Ministry of Finance observes that political leaders never hesitate to release the required amount outside the annual budget because they fear being put on the spot.
The army is not as powerful as it was during the monarchy. Army officers now seek to achieve their aims by pleasing political leaders rather than by issuing threats. Why do political leaders want to make the army happy? One Finance Ministry official says: "One of the reasons may be the hefty commissions received in procurement." If the army's demands are spurned by the Finance Ministry, instructions come from the prime minister or the Council of Ministers to release the extra money. Ministry officials then have no choice but to release the amount. Army headquarters has bought helicopters and planes by taking the prime minister into confidence.
Let's take an example—when Dr. Baburam Bhattarai was the prime minister, the army demanded an additional budget of NPR 3 billion (USD 28,587,765) to buy two new MI-17 helicopters. But his cabinet sanctioned even more than what was asked by giving NPR 3.50 billion (USD 33,352,392). "On the initiative of the commission agent, the prime minister himself becomes interested in such deals and there is no possibility of holding them back," the official says.
The trend of pleasing the army has gone so deep that during KP Oli's first tenure as prime minister, the then finance minister Bishnu Poudel allotted NPR 27 billion (USD 257,289,885) in non-budgetary resources for the military. Poudel was the defense minister before holding the finance portfolio. In recent years, our political leaders have apparently bowed down to the army. One of the reasons for this could be the way Army Headquarters provides luxurious motors to defense ministers after their appointment. The army also provides an escort for them. The tradition of taking a security escort seems to be anachronistic, creating a spectacle. The army also knows how to appease Finance Ministry officials by organizing foreign junkets. There is the regular practice of taking employees of the Budget Division, by turns, to different countries where the Nepal Army is posted under the United Nations Peacekeeping Operations.
The new finance minister Dr. Yubaraj Khatiwada, in his White Paper, said the treasury was almost empty on account of breaches of fiscal discipline. According to ex-finance minister Dr. Devendra Raj Pandey, arbitrary spending going beyond the limits of determined budget represents the height of fiscal indiscipline. Tax cannot be collected nor can it be spent unless the budget is approved by the sovereign parliament. Pandey questions, "If the Council of Ministers continues to make decisions going beyond the bounds fixed by budget, why make a budget at all?"
Interest in profit
The Nepali Army seems to be more interested in areas of economic benefits in recent years. Its unnatural interest and involvement in infrastructure development and lucrative businesses, increases the risk of irregularities and opaqueness in its activities. When a plane procured with the amount from the treasury as demanded is used for business purposes, it becomes clear that the money which should otherwise have been used for socio-economic development of the country has been used to let one particular institution exploit others. At present, the army has 10 helicopters and planes and is in the process of procuring 10 more. It has also bought two MI-17 helicopters and is buying another two, army Spokesperson Brigadier General Gokul Bhandari says.
One plane will be used in rescue operations, two medium-sized helicopters will be used for VVIPs, while one medium-sized helicopter, two light helicopters and two trainer helicopters are in the process of being procured, he adds.
The army had not purchased so many planes and helicopters even during the Maoist insurgency. The army is constantly accused of lack transparency in helicopter purchases. Unlike other government agencies, the Army has no fear of being subjected to investigation or scrutiny. Nor are its activities publicly debated. This is one reason why decision-makers become lenient when providing money to the army. The Commission for Investigation of Abuse of Authority (CIAA) does not have a mandate to question the army and this makes it easy for others associated with the army to take benefits from financial activities the army is involved in.
Every year, the Office of the Auditor General (OAG) criticizes the army for not following existing laws and regulations in its purchases and other activities. The 2017 OAG annual report questions the limited competition among vendors, contracts not being given on time and reports not being submitted even after completion of the project. The army which hitherto was participating in non-profit making health and education activities in the name of doing welfare activities both for incumbent and retired army personnel and their families, has been involved in the operations of petrol pumps, medical colleges and real estate.
The Tri-Chandra Military Hospital of historical significance has been demolished and converted into a business complex, ready to be rented out. The army now seems to be more eager to do construction work. It has prepared proposals for hydropower projects and for bank operation. The Army has now bagged a contract for construction of the 76-kilometer Kathmandu-Tarai fast track, a project costing more than NPR 100 billion (USD 952,925,500). The army is also constructing the Kaligandaki corridor, the Karnali corridor and the Jajarkot-Dolpa road; projects which cost more than NPR 5.14 billion (USD 48,980,370).
The army has also bagged contracts for construction of 121 km stretch of the 183-km Benighat-Aarughat-Larkebhanjyang road and the Mailung-Syaphrubeshi road. The cost of these projects is yet to be divulged. The Army faces criticism for grabbing the Fast-track project without having the technical and professional capacity required for construction. Sher Bahadur Deuba's government handed over the project to the Army. A recent advertisement had been put out for hiring a consultant to prepare a detailed project report (DPR), an expertise the army lacks. The project has been handed over to the army without trusting the Department of Roads which has long experience in road-building, with hundreds of engineers.
The army plans to have the work done by others with relevant experience and expertise. When the DPR will be prepared and when the project will begin is still up in the air. Though the project has a period of four years to be completed, there is no doubt that it will share the fate of Melamchi Drinking Water Project and Chameliya Hydropower Project, the construction of which took years.
According to informed sources, the army's increased interest and direct involvement in large procurement transactions and construction only serves as a shot in the arm to boost the army's ambition. A former finance secretary says: "To encourage the army to get involved in profit-making businesses and economic transaction in this way is risky not only from the viewpoint of having a competitive open-market policy but also, in the long run, from the angle of civilian supremacy over the army.”
This is an abridged translation of an article published in Himal Khabarpatrika, 8 April 2018.
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