Change, don’t just adapt to COVID-19
Nepal’s current insolvency and bankruptcy framework is outdated and draconian. In the event of bankruptcy, companies have little leeway to restructure. Debt collection attacks the personal credibility of the borrower and their un-pledged property. The defective’s ability to rebound is destroyed.
When this crisis emerges, many companies with weak underlying fundamentals will go bankrupt. They should be allowed to fail. Rather than short-term relief that could support them artificially, an insolvency and bankruptcy protection framework would have allowed companies to go bankrupt with dignity and provided the space to do other things.
This crisis is so severe that even companies with strong fundamentals will fail. Here again, a framework for protection against insolvency and bankruptcy, rather than short-term relief, would have done better to provide them with a mechanism to restructure their business and come out of the crisis.
Nepal (partially) open for business, Nepalese weather
Short-term relief measures are essential to this response. But now we have two choices: adapt and accept the relief measures and move on, or accept the relief measures but force the government to modernize its current insolvency and bankruptcy protection framework.
There is already an adequate understanding of modern insolvency and bankruptcy mechanisms in Nepal. Its importance and necessity, particularly in the modernization of our economy, are widely recognized. Despite this, strong insolvency and bankruptcy protection to replace existing outdated financial regulations has never been offered. No one understands why or where the resistance lies. But mysteriously, that never happens.
All businesses should default on their loans until the government brings in such a protective framework. It could be immediately approved as a decree. Several Nepalese financial experts working together could develop it and prepare it for cabinet approval within a week. That would be about as long as it took for the Prime Minister to approve two extraordinary ordinances, have them approved by the President and have them rescinded.
The India-Nepal-China geopolitical trijunction, Kunda Dixit
Calling on everyone to default on their loans is highly irresponsible. Massive defaults could trigger a bigger financial crisis. But listen, a virus jumped out of a bat and infected a human. This sparked a pandemic, which in turn spawned an economic crisis that is compared to the Great Depression.
Millions of Nepalese are unemployed. Thousands of our workers are stranded abroad desperately awaiting a safe return home. Infections continue to increase. And throughout this crisis, the highest authority in government, the Prime Minister and his ministers, are embroiled in a senseless power struggle.
What are you gonna do this time? Are you going to rebuild and strengthen your house or support it with a plank of wood? Insolvency and bankruptcy reforms are just one example. In all sectors, we must not only try to adapt, but bring about lasting change.