VZCZCXRO8400
PP RUEHCI
DE RUEHKT #0989/01 1371307
ZNR UUUUU ZZH
P 171307Z MAY 07
FM AMEMBASSY KATHMANDU
TO RUEHC/SECSTATE WASHDC PRIORITY 5970
INFO RUEHBJ/AMEMBASSY BEIJING PRIORITY 5730
RUEHLM/AMEMBASSY COLOMBO PRIORITY 6039
RUEHKA/AMEMBASSY DHAKA PRIORITY 1267
RUEHIL/AMEMBASSY ISLAMABAD PRIORITY 4060
RUEHLO/AMEMBASSY LONDON PRIORITY 5344
RUEHNE/AMEMBASSY NEW DELHI PRIORITY 1456
RUEHCI/AMCONSUL KOLKATA PRIORITY 3475
RUEKJCS/SECDEF WASHDC PRIORITY
RHMFIUU/CDR USPACOM HONOLULU HI PRIORITY
RUEAIIA/CIA WASHDC PRIORITY
RHEFDIA/DIA WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 KATHMANDU 000989 
 
SIPDIS 
 
SIPDIS 
 
FOR THE DEPUTY SECRETARY FROM THE AMBASSADOR 
ALSO FOR F 
 
E.O. 12958: N/A 
TAGS: PGOV PREL EAID UDEM NP
SUBJECT: AN OPPORTUNITY THAT SHOULD NOT BE LOST: U.S. 
FOREIGN ASSISTANCE AND NEPAL'S PEACE PROCESS 
 
REF: A. KATHMANDU 3217 
     ¶B. KATHMANDU 720 
 
Introduction 
------------ 
 
¶1. (SBU) Mr. Deputy Secretary, during our recent consultation 
in Washington, you requested that I send you my reflections 
on how the new foreign assistance reform process was working 
for Nepal.  As we discussed, a historic window of opportunity 
has opened in Nepal to ensure its transition to a peaceful, 
democratic, and prosperous state.  However, we have seen a 
dramatic decline in needed resources at a time when the U.S. 
should be capitalizing upon an opening to impact the course 
of events in the country.  A 63 percent cut in Development 
Assistance (DA) and Economic Support Funds (ESF) in FY 2008 
and a possible straight-lined budget in FY 2009 leave us with 
almost no ability to support the fragile peace process or 
influence the democratic transition, contrary to what I 
believed to be the goal of the foreign assistance reform 
process.  Without our support, scenarios much more 
detrimental to U.S. policy in the region, such as a Maoist 
takeover or a return to conflict, threaten to unfold.  While 
Nepal cannot compete with the top U.S. priorities in the 
region, Afghanistan and Pakistan, a relatively minuscule 
amount of U.S. resources would have a substantial impact. 
 
A Moment of Opportunity 
----------------------- 
 
¶2. (SBU) Following the signing of the Comprehensive Peace 
Agreement (CPA) in November 2006, Nepal is on the brink of 
ending a decade-long Maoist insurgency and embarking on a 
path to stability and democracy.  In the next two to three 
years, we must use our foreign assistance to ensure a 
peaceful transition, supporting Nepal to accomplish essential 
transition tasks including: ensuring a credible Constituent 
Assembly election; re-establishing law and order; addressing 
marginalized group grievances; drafting a new constitution; 
and reintegrating and rehabilitating conflict victims. 
Nepalis look to India and the United States as their two key 
bilateral partners. 
 
But Other Scenarios Loom 
------------------------ 
 
¶3. (SBU) Without our support, other scenarios, much more 
detrimental to U.S. policy, threaten to unfold.  Over the 
past months, Maoist violence and intimidation have continued 
and violent riots have gripped the Terai, the country's 
southern border with India.  A Maoist-dominated and/or 
fractured Nepal would have a destabilizing impact on India 
and China, two countries vital to U.S. national interests. 
Maoist leaders have stated in the past that, once in power, 
they would collectivize agriculture, re-educate class enemies 
and export their revolution, with the potential to embolden 
India's own Maoist movement and create massive refugee flows. 
 
FY 2008-2009 Assistance Levels Handicap U.S. Efforts 
--------------------------------------------- ------- 
 
¶4. (SBU) The level and mix of funding currently allotted for 
Nepal for FY 2008 (roughly 26 million) and a straight-line 
budget for 2009 do not reflect U.S. priorities and leave us 
with almost no ability to support the fragile peace process 
or influence the democratic transition.  I believed that 
these were the goals of the foreign assistance reform 
process.  Nepal faces a 63 percent cut in DA and ESF 
resources, funding sources central for supporting democracy 
and governance and peace and security goals.  We received 
only USD 4 million in DA and no ESF for non-health programs. 
As a result, USAID was forced to close-out successful 
anti-corruption, rural infrastructure, and 
trafficking-in-persons programs.  The four remaining USAID 
programs, including programs that support peace and 
reconciliation and political processes, were significantly 
scaled back.  No new funds are available to address key peace 
 
KATHMANDU 00000989  002 OF 002 
 
 
and democratic transition needs, such as security sector 
reform, critical human rights monitoring programs, and 
assistance for the constitutional drafting process. 
 
Health Programs Alone are Insufficient 
-------------------------------------- 
 
¶5. (SBU) Furthermore, if the FY 2009 budget process reflects 
current earmark realities, approximately 70 percent of 
Nepal's budget will be Child Survival and Health (CSH) funds. 
 We have a very successful health program that has 
significantly reduced child and maternal mortality, and 
believe that its role in assisting the government to provide 
services to citizens is an important part of the peace 
process.  Instead of discussion of re-programming essential 
health funding, we must ensure that Nepal also receives 
adequate DA, ESF, and INCLE funds to support post-conflict 
priorities. 
 
The F Process Has Failed Nepal 
------------------------------ 
 
¶6. (SBU) If the goal of the new Foreign Assistance Reform 
process is to better align assistance with foreign policy 
priorities and improve interagency coordination, the FY 
2008-2009 budget for Nepal is an example of the new system's 
serious flaws.  Nepal has seen a dramatic decline in 
resources at a time when the U.S. should be capitalizing upon 
an opportunity to impact the course of events in the country. 
 The extensive discussion and communication my country team 
has had over the past months laying out our joint interagency 
priorities for Nepal in the FY09 Mission Strategic Plan and 
in other reporting (reftel) has not resulted in a budget that 
supports Nepal's transition.  The detailed operational 
planning process and number-crunching exercise blurred the 
overall goal of setting strategic priorities, and the reality 
of earmarks resulted in an overall budget that does not 
ensure that U.S. assistance can make a real difference.  No 
flexibility is built into the system to respond to unfolding 
realities in Nepal's dynamic post-conflict environment. 
 
Nepal Could Be Test Case for Foreign Aid Success 
--------------------------------------------- --- 
 
¶7. (SBU) Recent statements about the future of the foreign 
assistance reform indicate that resources, particularly DA, 
ESF and CSH funds, will be targeted toward countries where 
instability, poverty, and poor government capacity impede 
human and national progress.  As a rebuilding state, Nepal 
fits squarely into this country category, yet the level of FY 
2007, 2008 and possibly 2009 resources does not reflect the 
new reform priorities.  It may be that Nepal is penalized by 
competing priorities with neighbors such as Afghanistan and 
Pakistan, but in contrast to these states, only a small 
amount of additional resources in Nepal are needed to make a 
significant difference in the political outcome.  The time to 
make these budgetary changes is now, before Nepal becomes a 
failed state. 
MORIARTY