VZCZCXRO1505
OO RUEHAST RUEHBI RUEHCI RUEHLH RUEHNEH RUEHPW
DE RUEHNE #3016/01 3331150
ZNR UUUUU ZZH
O 281150Z NOV 08
FM AMEMBASSY NEW DELHI
TO RHEHNSC/NSC WASHDC IMMEDIATE
RUEHC/SECSTATE WASHDC IMMEDIATE 4429
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEAIIA/CIA WASHDC
RHEHAAA/WHITE HOUSE WASHDC
RUEKJCS/SECDEF WASHDC
RHEHNSC/NSC WASHDC

UNCLAS SECTION 01 OF 03 NEW DELHI 003016 
 
SIPDIS 
 
SENATOR MCCAIN FROM CDA STEVEN WHITE; STATE FOR SCA/INS, H 
 
E.O. 12958: N/A 
TAGS: BH CH IN KNNP PGOV PREF PREL
SUBJECT: SCENESETTER FOR CODEL MCCAIN DECEMBER 2008 VISIT 
TO BHUTAN 
 
¶1. (U) Senators McCain, Lieberman, and Graham: On behalf of 
Ambassador Mulford and the Country Team, I warmly welcome 
you to Bhutan.  Your visit comes at the end of a historic 
year for the small Himalayan nation, marked by the 
successful transition to a constitutional monarchy and the 
coronation of the Fifth King (Druk Gyalpo) on November 6. 
Bhutan, however, cannot rest on its laurels after this 
triumph since it faces several challenges in the coming 
years, including the impact of modernization on its unique 
culture, balancing relations with its behemoth and rising 
neighbors to the north and south, and resolving 
disagreements between its majority population and its 
ethnic Nepali minority.  Your visit will further 
demonstrate U.S. support of Bhutan as it confronts these 
issues and continues to develop as a prosperous and stable 
democracy. 
 
FLEDGLING DEMOCRACY IN THE LAND OF THE THUNDER DRAGON 
------------------- 
 
2.(SBU) Former King Jigme Singye Wangchuck launched 
Bhutan's transition to a constitutional monarchy through 
over two decades of democratic reforms. In a strong showing 
of commitment to democratic values, Bhutan's voters went to 
the polls in large numbers (79.4 percent turnout) on March 
24 and elected 47 members to the National Assembly. The 
Druk Phuensum Tshogpa (DPT) party secured an overwhelming 
victory of the People's Democratic Party (PDP) in the 
elections by winning 45 of the assembly's 47 seats.  In an 
important symbolic step toward incorporating minorities 
into the mainstream, nine Nepali-speaking candidates were 
elected to the National Assembly in 2008.  In July, the 
assembly formally adopted the constitution, marking the 
final step in Bhutan's historic transformation from an 
absolute to a constitutional monarchy. 
 
¶3. (SBU) Bhutan is a least-developed country.  History has 
shown that even wealthier nations face a difficult task 
inculcating democratic norms and establishing deep 
democratic roots.  Democracy is very new to the Bhutanese 
and will take time to establish its roots in this isolated 
land.   Most of the Bhutanese were satisfied with their 
absolute monarchy and had to be convinced by the former 
King of the need to make the transition.  The U.S. Agency 
for International Development possesses expertise in numerous 
programs which support democracy and good governance.  As 
Bhutan continues to democratize and decentralize power, 
some of these programs might be useful in providing 
technical assistance. 
 
FOREIGN AFFAIRS: BIG BROTHER IS A LITTLE SMALLER 
------------------- 
 
¶4. (SBU) India has historically "supervised" Bhutan's 
foreign policy as "heir" to the 1910 treaty signed between 
the British Raj and Bhutanese king, which provided for 
British noninterference in Bhutan's internal affairs in 
exchange for Bhutan's acceptance of British advice on its 
external relations.  In 1949, independent India and Bhutan 
signed 
the Treaty of Peace and Friendship, which mirrored the 
British treaty by giving India the right to "guide" Bhutan 
in its foreign policy.  In 2007, the two neighbors signed a 
new treaty removing the clause on the right to "guide" and 
allowing Bhutan to purchase military equipment from other 
nations.  Nevertheless, India still retains enormous 
influence in Thimphu.  Indian Prime Minister Manmohan Singh 
visited Thimphu in May 2008 and addressed the newly-elected 
parliament.  Bhutanese Prime Minister Thinley returned the 
gesture when he made his first official trip abroad as 
prime minister to New Delhi in July 2008.  Further 
illustrating the strong bilateral ties, India sent a 
high-powered delegation to the lavish November coronation 
ceremony, that included Indian President Pratibha Patil, 
Congress Party president Sonia Gandhi, and Congress Party 
heirs Rahul Gandhi and Priyanka Gandhi. 
 
¶5. (SBU) Bhutan became a member of the United Nations in 
1971 but has a very light international footprint, with 
formal diplomatic relations with less than two dozen 
nations and embassies in only six countries.  Bhutan does 
not have diplomatic relations with the United States, China 
or any other P-5 member.  Bhutan is a member of the South 
Asian Association for Regional Cooperation. The seven 
 
NEW DELHI 00003016  002 OF 003 
 
 
European nations with which Bhutan have diplomatic 
relations form the "Friends of Bhutan" group, together with 
Japan. These nations contribute generously to Bhutanese 
development and social programs.  India is by far the 
biggest donor to Bhutan; as part of the Bhutan's tenth 
five-year plan, India donated USD 826 million to the tiny 
nation. The Bhutanese government has engaged in 17 rounds 
of high-level talks with Chinese officials regarding a 
border dispute over three Chinese-built roads, which 
allegedly encroach on Bhutanese territory. 
 
¶6. (SBU) Bhutan and Nepal established diplomatic relations 
in 1983 and have held discussions in the past about a 
solution to 107,000 ethnic Nepali refugees who reside in 
UNHCR camps in Nepal.  While most of the refugees claim 
Bhutanese citizenship, Bhutan alleges they are 
non-nationals or "voluntary immigrants" who forfeited their 
citizenship rights.  Several insurgent groups have arisen 
from some of the refugee camps.  Bhutan has blamed these 
groups for a series of bombings targeting the country in the 
lead-up to the 2008 parliamentary elections. Top Bhutanese 
officials told Ambassador Mulford their concerns that future 
instability in Nepal or Nepali Prime Minister Prachanda's 
reversion to old Maoist techniques could adversely affect 
Bhutan's security. 
 
READY FOR PRAGMATIC, NOT FORMAL DIPLOMATIC RELATIONS, WITH 
THE UNITED STATES 
------------------- 
 
¶7. (SBU) At this time, Bhutan does not seek formal 
diplomatic relations with the United States.  Bhutan's 
policy is to move carefully in expanding formal diplomatic 
relations with the five nations that hold permanent seats 
on the UN Security Council (the P-5), because of what former 
King 
Jigme Singye Wangchuck calls "demarcation" problems of 
Bhutan's rugged border with China.  The Bhutanese 
government is committed to achieving progress on this 
matter with the Chinese government over the next three 
years and does not desire to establish formal diplomatic 
relations with the P-5 nations during this period, since 
moves in this direction could be perceived as provocative 
by China.  In a private meeting with Ambassador Mulford in 
November, the former King stressed his nation's willingness 
to expand informal contacts with the United States such as 
through USAID projects and strengthening consular relations 
in whatever manner the USG thinks best. 
 
¶8. (U) The US Embassy in New Delhi has consular 
responsibilities for Bhutan.  The United States does not 
give foreign assistance to Bhutan.  However, Bhutan 
participates in a regional program for South Asia sponsored 
by USAID that helps countries develop their power 
infrastructure.  A few Bhutanese military officers have 
attended courses at the Asia-Pacific Center for Security 
Studies.  The USG also brings several Bhutanese to the 
United States through our International Visitors program 
and through the U.S.-India Fulbright program. We are also 
developing a specific program for the placement of an 
American Fulbright scholar in Bhutan. 
 
REFUGEE ISSUE: PROGRESS AND LACK THEREOF 
------------------ 
 
¶9. (SBU)  The USG has agreed to resettle at least 60,000 
Bhutanese refugees of Nepali descent.  Our resettlement 
program is one of the most positive aspects of our 
bilateral relationship, and the Bhutanese government--most 
recently the former King to Ambassador Mulford--repeatedly 
expresses its gratitude to us for helping in this matter. 
Bhutan, however, has not made progress, in repatriating 
those refugees who want to return to Bhutan.  We have urged 
both Bhutan and Nepal to renew discussions regarding the 
facilitation of the voluntary return of eligible refugees 
to Bhutan. 
 
NOT JUST ABOUT GROSS NATIONAL HAPPINESS ANYMORE 
------------------ 
 
¶10. (SBU) Bhutan's economy is one of the worlds' smallest 
and least developed.  It's based on hydroelectricity, 
tourism, agriculture, and forestry.  Gross domestic product 
(GDP) for 2007, in purchasing power parity terms, is $3.359 
 
NEW DELHI 00003016  003 OF 003 
 
 
billion USD.  The Asian Development Bank suggests that GDP 
growth in Bhutan was as high as 14.4 percent in fiscal year 
2007/08, but predicts it will slow to 7.2 percent in fiscal 
year 2008/09.  The high rate in 2007/08 was in large part 
due to the completion of the Tala hydroelectric project. 
The Tala project provides Bhutan with its number one 
export, hydroelectric power, which it supplies to India. 
The Government of Bhutan plans to develop three more 
hydroelectric projects, which will help India meet its 
growing power demand.   Bhutan's economy faces challenges 
of unemployment (estimated at 10 to 11 percent) and poverty 
(23 percent).  Rugged terrain remains an obstacle to 
developing roads and other infrastructure. 
 
¶11. (U) Bhutan's economy has recently prospered due to 
subregional economic cooperation efforts.  In May 2003, 
Bhutan renewed its Bilateral Free Trade Agreement with 
Bangladesh, which is now Bhutan's second largest trade 
partner after India.  Bhutan has applied for membership in 
the World Trade Organization and is developing clear legal 
and regulatory systems to promote business development. 
The country has plans to stimulate several of its business 
sectors, particularly IT and tourism.  The government has 
also welcomed foreign assistance and guidance to address 
rising corruption related to increased revenues from the 
Tala project. 
 
¶12. (U) Observers believe newly-crowned King Jigme Keshar 
Namgyal Wangchuck will be a stronger proponent for economic 
development and growth than his father, who coined the 
expression Gross National Happiness (GNH) in 1971 when 
Bhutan was criticized for slow economic growth.  The new 
King has emphasized in his public speeches and interviews 
the necessity for strong economic growth to build a vibrant 
democracy, demonstrating a clear shift in focus from GNH to 
GDP. 
 
 
WHITE