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O 220841Z AUG 08
FM AMEMBASSY KATHMANDU
TO RUEHNE/AMEMBASSY NEW DELHI IMMEDIATE 2600
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UNCLAS SECTION 01 OF 03 KATHMANDU 000952 
 
SIPDIS 
 
PLEASE PASS STAFFDEL YEO (ANAND, WOOLFORK) FROM AMB NJPOWELL 
 
E.O. 12958: N/A 
TAGS: PREL PGOV PHUM KDEM NP
SUBJECT: SCENESETTER FOR STAFFDEL ANAND WOOLFORK NEPAL VISIT 
 
Summary 
------- 
 
¶1. (SBU) Your visit to Nepal comes four months after the 
interim government held national elections.  Election results 
confirmed the Maoists as the largest party, and also saw new 
Terai-based parties receive significant representation.  The 
Constituent Assembly relatively quickly declared Nepal a 
republic, but it took months of negotiations for it to elect 
a President, Vice-President, Prime Minister and new Chairman. 
 On August 18 Pushpa Kamal Dahal (aka Prachanda) was sworn in 
as the country's first Maoist Prime Minister and he is on the 
verge of announcing a complete cabinet.  The new government 
faces numerous economic and security challenges, and the 
United States faces the challenge of dealing with a Prime 
Minister and government led by an organization still on the 
Terrorist Exclusion List and Specially Designated Nationals 
List. 
 
Recent Election Results 
----------------------- 
 
¶2. (SBU) To the surprise of most Nepalis, including the 
Maoists themselves, the Communist Party of Nepal (Maoist) 
(CPN-M) won the largest share of the vote on April 10 for the 
Constituent Assembly (CA).  They garnered half of the 240 
first-past-the-post (FPTP) races and almost one-third of the 
335 proportional (PR) seats.  With 9 of the 26 nominated 
members put forward by the Maoists, the CPN-M controls close 
to 40 percent of the 601-member CA.  Pre-election violence 
and intimidation certainly occurred, but voter turnout was in 
excess of 60 percent and the results have been broadly 
accepted by both domestic and international observer groups. 
 
¶3. (SBU) The CPN-M is not the only party to which the April 
10 election gave the democratic stamp of approval.  The three 
United Democratic Madhesi Front (UDMF) parties, none of which 
existed as parties a year ago, together accumulated 79 seats 
in the CA; the Madhesi People's Rights Forum (MPRF) won 50 
seats, the Terai Madhes Democratic Party (TMDP) 20 and 
Sadbhavana Party (SP) 9.  Although the UDMF parties share 
common goals of an autonomous Madhesi state across Nepal's 
southern Terai region along the Indian border, and inclusion 
of historically disadvantaged Madhesis in all national 
institutions, they are not always able to work or vote as a 
bloc. 
 
Now a Republic 
-------------- 
 
¶4. (U) The CA held its first session on May 29, and declared 
Nepal a federal democratic republic on the same day.  The 
motion stripped the monarchy of all special legal, cultural, 
social and traditional rights and privileges and directed 
King Gyanendra and his family to vacate Narayanhiti Palace 
within 15 days.  The vote to create the republic and abolish 
the 240-year old Shah dynasty was overwhelming.  Of the CA's 
564 members present, only four (all members of the royalist 
Rastriya Prajatantra Party - Nepal) voted against.  King 
Gyanendra left Narayanhiti Palace and moved to a smaller, 
less ostentatious state-owned home.  His son's family has 
recently moved to Singapore. 
 
Slow Start to Constituent Assembly 
---------------------------------- 
 
¶5. (SBU) It took nearly two months after the first session 
for the CA to elect a President, Vice-President, and Chairman 
of the Assembly.  After months of arguments, disagreements, 
and short-lived alliances, on the eve of the presidential 
election, the Nepali Congress (NC), Communist Party of Nepal 
- United Marxist Leninist (UML), and MPRF caught the Maoists 
off guard by joining hands and voting in their candidates for 
 
KATHMANDU 00000952  002 OF 003 
 
 
the three posts.  On July 23 President Ram Baran Yadav (NC) 
and Vice-President Paramananda Jha (MPRF) were sworn in, with 
Subash Nemwang (UML) sworn in as CA Chairman a few days 
later.  The backlash against VP Jha taking his oath in Hindi 
has subsided, but may have played a role in the socket bomb 
attack at Jha's residence on August 17. 
 
¶6. (SBU) On July 29 President Yadav issued a public statement 
calling upon the Maoists to form a new government, on the 
basis of consensus, within seven days.  The Maoists proved 
unable to do that, but on August 8 did garner support from 
all but NC to elect Pushpa Kamal Dahal (Prachanda) as Prime 
Minister.  The Maoists, UML, and MPRF have tentatively agreed 
to form the government, with the Maoists to get 9 ministries 
(likely including Defense and Finance), the UML 6, MPRF 4, 
and smaller parties 4.  Political disputes over the 
distribution of ministries, particularly Foreign Affairs and 
Deputy Prime Minister positions, have delayed the 
announcement of the cabinet. 
 
Economic 
-------- 
 
¶7. (SBU) The new government will face major and immediate 
economic challenges.  Nepal's sole source of petroleum 
products, the Indian Oil Corporation (IOC), provides oil 
supplies on credit to Nepal's monopoly oil supplier, Nepal 
Oil Corporation (NOC).  Domestic oil shortages continue to 
plague the economy, since IOC periodically severely limits 
deliveries to NOC as a result of NOC not keeping current with 
payments.  Despite raising prices a few times in the past 
year most petroleum products are still subsidized and have 
not kept up with world market prices.  It will be the new 
government's responsibility to further increase the price of 
oil, a contentious issue, which has in the past provoked 
hostile responses by the masses, often led by the Maoists, in 
the form of violent protests. 
 
¶8. (SBU) Current and potential food shortages are a growing 
concern.  Transportation difficulties compound the problem of 
distribution in remote areas, and recent floods have 
displaced thousands.  When campaigning the Maoists had 
promised to raise salaries, provide free health care and 
education as well as universal employment, but it is unclear 
how they plan to deliver on their promises.  Maoist proposals 
regarding land reform could also likely to lead to conflict. 
The country is operating under an interim budget which 
allocated an amoun equivalent to one-third of the previous 
year's budget. 
 
Security 
-------- 
 
¶9. (SBU) The current political impasse in Kathmandu has 
perpetuated weak implementation of law and order throughout 
the country, especially in the Terai.  In the past three 
months junior officers in two battalions of the Nepal Police 
and Armed Police Force mutinied against senior officers on 
charges of corruption and harassment.  Although the situation 
remains fluid, USAID implementing partners in the Terai 
report that they are able to operate their programs in 
eastern and central Terai.  The programs continue to be well 
received by the local communities. 
 
¶10. (SBU) Integration of the Maoist People's Liberation Army 
(PLA) with the Nepalese security forces is another 
contentious issue now coming to the fore.  The Maoists have 
announced they would like the forces to be integrated within 
the next three to six months, but a concrete plan has not yet 
been put forward or agreed to by the other parties and 
security forces.  Despite numerous pledges to rein in the 
Maoist-affiliated Young Communist League numerous allegations 
of its engagement in both criminal and parallel policing 
 
KATHMANDU 00000952  003 OF 003 
 
 
activities continue to be made. 
 
UNMIN 
----- 
 
¶11. (SBU) The United Nations Mission in Nepal (UNMIN) was 
granted a six-month extension on July 23, 2008.  Although the 
mandate has been reduced, UNMIN will continue supporting the 
peace process and monitoring arms and armed personnel in line 
with agreements reached across the political parties.  The 
United States government is working with UNMIN and the UK to 
encourage P-5 and Indian support for steps that can lead to 
the successful conclusion of UNMIN. 
 
U.S. Policy in Transition 
------------------------- 
 
¶12. (SBU) Throughout the transition the United States has 
publicly stated the desire to continue all assistance 
programs to promote a stable, prosperous, and democratic 
Nepal.  Contact with the Maoists continues to be limited and 
primarily occurs at higher levels.  An expanded OFAC waiver 
was recently signed, allowing inclusion of Maoists in 
USG-funded training/programs.  However, the Maoists remain on 
the Terrorist Exclusion List and Specially Designated Foreign 
Nationals List, though discussions are underway as to the 
procedures to remove them should their behavior warrant. 
POWELL