VZCZCXYZ0009
OO RUEHWEB

DE RUEHKT #2179/01 2231333
ZNR UUUUU ZZH
O 111333Z AUG 06
FM AMEMBASSY KATHMANDU
TO RUEHBJ/AMEMBASSY BEIJING IMMEDIATE 4662
INFO RUEHC/SECSTATE WASHDC IMMEDIATE 2726

UNCLAS KATHMANDU 002179 
 
SIPDIS 
 
SIPDIS 
 
BEIJING PLEASE PASS TO CHAIRMAN SPECTER FROM AMBASSADOR 
MORIARTY 
 
E.O. 12958: N/A 
TAGS: PGOV PTER NP
SUBJECT: REVISED NEPAL SCENESETTER FOR AUGUST 12-14 VISIT 
OF CODEL SPECTER 
 
 
SUMMARY AND INTRODUCTION 
------------------------ 
 
¶1.  Your visit comes at a critical moment in Nepal's history. 
 The country is perhaps closer to establishing lasting peace 
than it has been at any other time during the 10-year-old 
Maoist insurgency.  On August 9, the Nepalese Prime Minister 
GP Koirala and the Maoist leader Prachanda signed a joint 
letter to UN Secretary General Kofi Annan requesting a 
greatly enlarged UN role, notably including monitoring of the 
Maoist combatants.  The central issue of decommissioning of 
Maoist weapons was deferred.  Meanwhile, an interim 
constitution is nearing completion and an interim government 
with Maoist participation is already envisioned in some 
quarters leading up to elections for a constituent assembly 
perhaps as soon as April 2007.  The government continues to 
insist, however, that the Maoists will not be allowed to 
enter the government until they are separated from their 
weapons.  The nationwide elections would be the first in 
nearly a decade.  The coalition government is struggling to 
deal with multiple challenges, including an ailing Prime 
Minister, the difficulties of maintaining internal cohesion 
within a seven-party coalition, continued Maoist violence, 
limited financial resources and a battered economy. 
 
¶2.  Your trip to Nepal will be the first in more than two 
years by a Member of Congress. End Summary and Introduction. 
 
THE SPA AND THE MAOISTS RULE THE SCENE 
-------------------------------------- 
 
¶3.  The Seven-Party Alliance (SPA) and the Maoists have 
dominated the political scene since King Gyanendra reinstated 
Parliament on April 24.  Since then, the King has largely 
disappeared from the public eye.  The SPA - a coalition of 
political parties that opposed the King's February 2005 
takeover - and the Maoists have had great difficulty 
transforming the alliance they formed against the King's 
dictatorship in the form of a November 2005 12-point 
understanding into a working system of government.  While 
demanding a share of power in Kathmandu, the Maoists refuse 
to abandon their campaign of violence.  In the meantime, the 
SPA has been hard pressed to merge the diverse views of its 
member parties into a common voice.  It also faces challenges 
because of repeated hospitalizations of Prime Minister and 
center-right Nepali Congress (NC) President GP Koirala.  No 
other party leader in any party commands the same nationwide 
standing and it is unclear who could or would succeed him. 
 
CAREENING TOWARD DEMOCRACY 
-------------------------- 
 
¶4.  The April pro-democracy movement and the reinstatement of 
the 200-plus-member House of Representatives, the lower house 
of Parliament, led to a dizzying pace of transformation. 
MPs returned to the seats they last held in 2002 and agreed 
to work toward constituent assembly elections.  During the 
following month, the House of Representatives issued decrees 
that limited the powers of the King and declared Nepal a 
secular state.  The House also stripped the Nepal Army of the 
"Royal" moniker and placed it under civilian control.  The 
GON and Maoists created negotiation teams to lead the peace 
process dialogue.  On May 26, the GON and Maoists signed a 
25-point Code of Conduct to govern each side's unilateral 
cease-fire. 
 
A PEACE PROCESS ON TWO LEVELS 
----------------------------- 
 
¶5.  The GON and Maoist negotiation teams planned high-level 
"summit" meetings to work through the formal peace process, 
but many decisions have sprung from informal meetings between 
Maoist and SPA leaders.  Tensions have arisen between the two 
largest SPA parties, the NC and the Communist Party of 
Nepal-United Marxist Leninist (CPN-UML), the largest 
center-left party, and the other SPA parties because the 
other parties felt excluded from decisionmaking.  PM Koirala 
has also faced public criticism for allegedly conducting 
private negotiations with the Maoists.  These private talks 
reportedly led in mid-June to an eight-point agreement that 
was widely criticized by SPA members. The document did lead 
to the creation of the Interim Constitution Drafting 
Committee and the National Monitoring Committee for the 
Cease-fire Code of Conduct. 
 
ALL EYES ON ARMS MANAGEMENT 
--------------------------- 
 
¶6.  Management of the Maoist arms, specifically separation of 
 
the Maoist combatants from their arms, remains perhaps the 
primary issue in the peace process.  The identical letters to 
the Secretary General PM Koirala and Prachanda signed on 
August 9 set forth a strong role for the UN.  In addition to 
requesting the UN to continue its work monitoring human 
rights in Nepal (Note: the UN's human rights office here is 
the largest in the world), the letters requested that the UN 
also assist in monitoring the cease-fire Code of Conduct, 
monitor Maoist combatants and their weapons, monitor the 
Nepal Army in its barracks, and supervise and monitor 
Constituent Assembly elections (which could come by April 
2007).  What the letter did not do was indicate whether the 
combatants would be separated from their arms.  The 
modalities of that issue were deferred to an agreement at a 
future date between the GON, the Maoists and the UN. Most in 
the SPA agree that Maoists cannot join an interim government 
until they completely disarm.  What will happen is not clear. 
 
¶7.  Meanwhile, the Nepali authorities and journalists 
continue to receive reports of Maoist extortion, kidnappings, 
and other violations of the May 26 Code of Conduct.  There 
are even periodic news reports that the Maoists might 
initiate another people's movement if they are not admitted 
soon into an interim government. 
 
ECONOMIC WOES 
------------- 
 
¶8.  Nepal's GDP grew only 1.9 percent in FY 2005/06, while 
inflation increased to 8 percent annually. Approximately USD 
1 billion in foreign remittances pumped into the economy last 
year increased per capita income to USD 322, a nominal growth 
of USD 20.  The GON, sapped by the Maoist insurgency and 
faced with nurturing a fledgling democracy, lacks sufficient 
financial resources to kick-start economic activity.  On July 
12, Finance Minister Ram Sharan Mahat announced an ambitious 
USD 1.97 billion budget for FY 2006/07, which he said was 
aimed at institutionalizing the democratic system and 
establishing peace through constituent assembly elections. 
The budget included USD 325 million in foreign grants, a 72 
percent increase over the previous year.  Whether the GON 
will be able to implement the budget hinges on how the peace 
process unfolds.  Final donor commitments for most of the 
foreign funds depend on the GON and Maoists reaching an 
internationally accepted peace. 
 
¶9.  Political turmoil and the Maoist threat have created a 
hostile business environment.  Foreign direct investment has 
decreased nearly 50 percent since 2000.  Nepal is primarily a 
subsistence agriculture economy, but its industrial base has 
provided employment to the growing number of poor flocking to 
the cities.  If Nepalese businessmen flee the country instead 
of trying to work within the current unstable situation, the 
Nepalese economy will suffer and further hurt the poorest of 
the poor. 
 
TIBETAN AND BHUTANESE REFUGEES 
------------------------------ 
 
¶10.  Nepal hosts two refugee populations of note, Tibetan and 
Bhutanese.  The USG is currently funding an expansion of the 
Tibetan Relocation Center located in Kathmandu to make it 
possible to provide shelter to transiting Tibetans as they 
wait for processing by UNHCR here in Kathmandu. 
 
¶11.  Over 100,000 Bhutanese refugees have been living in 
seven camps in southeastern Nepal since the early 1990s. 
Donor countries continue to discuss with the GON options for 
a durable solution to the Bhutanese refugee issue, including 
repatriation, local integration, or resettlement of Bhutanese 
refugees.  The GON recently agreed to allow UNHCR to conduct 
a re-registration of the camps, a necessary step to lay the 
foundation for future solutions. 
 
USAID'S STRATEGIC OBJECTIVES 
---------------------------- 
 
¶12.  The U.S. Government through USAID has been one of the 
principal foreign donors to Nepal since the 1950s.  USAID's 
program in Nepal has an overall level of approximately USD 45 
million for FY 2006, including the USAID mission programs, 
new activities by the Office of Transition Initiatives (OTI), 
and a regional Office of Foreign Disaster Assistance (OFDA) 
program.  Approximately USD 40 million will finance USAID's 
three strategic objectives for Nepal:  enhance stability and 
security, strengthen governance and protect human rights, and 
build capacity of critical institutions.  The lion's share of 
the program budget goes to enhancing stability and security, 
including components to support the peace process, achieve 
 
equitable access to quality basic education, mitigate 
conflict and aid victims of conflict, protect and increase 
the assets and livelihood of the poor, and reduce the 
transmission and impact of HIV/AIDS with its potentially 
destabilizing effects.  To strengthen governance and protect 
human rights, USAID supports activities to reduce trafficking 
in persons, strengthen civil society and democratic political 
parties, and support UN and GON efforts to protect human 
rights.  USD 13 million has been allotted to improve 
institutions, including the agencies and local networks that 
address child survival, health, and nutrition; maternal care; 
family planning; anti-corruption reforms; and the justice 
sector.  Lastly, USAID/Nepal hosts a regional OFDA that has, 
over the past year alone, responded to the tsunami, the 
Pakistan earthquake, and even seconded staff for the Katrina 
response. 
 
MILITARY AND SECURITY ASSISTANCE 
-------------------------------- 
 
¶13.  Ensuring law and order is a key responsibility for every 
government.  We look forward to discussing these issues with 
you in more detail on your arrival. 
 
CONCLUSION 
---------- 
 
¶14.  Let me add in conclusion how delighted I am that you and 
the rest of your delegation, including Mrs. Specter, will be 
coming to Kathmandu.  We look forward to welcoming you to 
Nepal and trust you will find your time here well spent. 
MORIARTY