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UNCLAS SECTION 01 OF 04 KATHMANDU 000038 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR PDAS PATRICK MOON 
 
E.O. 12958: N/A 
TAGS: PGOV PREL KDEM MARR NP
SUBJECT: NEPAL: SCENESETTER FOR PDAS MOON VISIT 
 
¶1. (SBU) PDAS Moon, Embassy Kathmandu warmly welcomes you to 
Nepal.  You are arriving at a particularly critical juncture 
in the peace process, with "indefinite" Maoist protests still 
threatened for January 24, despite some welcome progress on 
unblocking the political process.  Pressure building as the 
Comprehensive Peace Agreement deadline of May 28 approaches 
for completing the integration and rehabilitation of former 
Maoist combatants and drafting a new constitution.  Your 
visit offers a timely opportunity to press for progress on 
these key issues, as well as raise important human rights 
concerns.  The United States has been an active funder and 
supporter of Nepal,s bumpy peace process and maintains good 
access and influence with the major parties. 
 
Tentative Progress on Peace Process, Tough Issues Ahead 
--------------------------------------------- ---------- 
¶2. (SBU) For the first time since the resignation of the 
Maoist government in May, we have some tentative progress on 
Nepal's peace process.  After nearly two years of stalling, 
the Maoists have finally begun discharging the 4,008 
disqualified former combatants, most of whom were under 18 
years old when the conflict ended.  You will visit one of the 
seven main Maoist cantonment sites, where preparations will 
be underway for discharging the disqualified on January 21. 
 
¶3. (SBU) While the discharge of the disqualified former 
combatants is a positive (and long overdue) step, the more 
difficult challenge remains:  the fate of the 19,008 
"verified" Maoist combatants.  Under the Comprehensive Peace 
Agreement, some number of these will be integrated into the 
"security forces," including the Nepal Army, and the 
remainder reintegrated into Nepali society.  The Government 
of Nepal (GON) recently unveiled a plan to complete this 
process by April 30, a deadline that no one -- including the 
GON itself -- believes is realistic.  The Maoists agree in 
principle with the action plan, although many observers 
believe the Maoists are unlikely to give up their combatants, 
which they view as leverage, until they are satisfied with 
the new constitution and their overall political position. 
 
Constitution Drafting Plods Along 
--------------------------------- 
¶4. (SBU) On the constitution, Nepal's unwieldy 601-person 
Constituent Assembly (CA) has made steady, albeit painfully 
slow, progress in recent months.  Nine of the eleven 
"thematic committees" have presented their reports, and work 
has begun on drafting constitutional text.  On the most 
difficult issues -- federalism, the structure of the 
government, judicial independence, the electoral system, land 
reform -- the Maoists and other parties remain 
philosophically divided. 
 
¶5. (SBU) The Constituent Assembly's mandate ends May 28, and 
the CA is highly unlikely to promulgate a new constitution by 
that date.  In that case, the CA most likely will extend its 
own life by six months or longer.  Such a step would require 
a two-thirds majority, which means that the Maoists (which 
have 40 percent of the seats) and a mix of other parties (the 
Nepali Congress has 19 percent; the United Marxist Leninist 
18 percent; various Terai parties some 12 percent) will have 
to agree on the extension, a decision that will be 
politically difficult.  Some conservative Nepali lawyers have 
argued that the CA does not have the authority to prolong its 
own existence, and have floated the idea of the president 
taking over after May 28, a highly provocative step that the 
Maoists would strongly protest since it would effectively 
marginalize them in the political process. 
 
Lots of Political Talk, Little Action 
------------------------------------- 
¶6. (SBU) Concluding the integration and rehabilitation 
process and constitution drafting will require intense 
 
KATHMANDU 00000038  002 OF 004 
 
 
political dialogue and difficult trade-offs among the three 
major parties:  the United Communist Party of Nepal-Maoist, 
the Nepali Congress, and the Communist Party of Nepal-United 
Marxist Leninist (UML).  The recently-created High-Level 
Political Mechanism, led by ailing, 85-year-old Nepali 
Congress President G.P. Koirala, could be a forum for such 
talks, but each of the leaders in the Mechanism faces strong 
challenges from within their parties, complicating the 
negotiation process.  Unlike the 2005-2006 peace 
negotiations, leaders Pushpa Dahal "Prachanda" and G.P. 
Koirala cannot, by themselves, drive the process to its 
conclusion. 
 
Maoists Tactics Shifting 
------------------------ 
¶7. (SBU) The political climate has improved slightly in 
recent weeks, in part because of a shift in Maoist tactics. 
The party allowed Parliament to resume functioning on 
December 23, began the discharge of the disqualified on 
January 7, and supported the creation of the High-Level 
Political Mechanism on January 8, all positive steps.   At 
the same time, the threat of an indefinite general strike or 
"bandh" for January 24 looms, a tactic that the Maoists (and 
other political groups) use extensively, much to the 
detriment of the average Nepali.  The Maoists have also begun 
nationalist and highly vitriolic attacks on India, which may 
have gained them some domestic support but also further 
alienated New Delhi. 
 
¶8. (SBU) Where the Maoists are headed remains unclear, 
perhaps even to the Maoists themselves.  The divisions 
between the pragmatists and the hardliners appear somewhat 
sharper -- and more public -- than in the past, and Prachanda 
may be having difficulty straddling the fence.  There are 
reports the Indians and others are trying to use these 
divisions to split the Maoists in order to form a more 
centrist governing coalition.  This is unlikely to succeed. 
In the short-term, the Maoists are desperate to return to 
power, and continue to look for openings to peel off support 
from other parties (just as the other parties are doing the 
same to the Maoists). 
 
¶9. (SBU) While we regularly engage the Maoist leadership, the 
terrorist designation continues to affect our relationship. 
Per the IPC instructions, we recently presented the Maoists 
with a non-paper in local language outlining the steps 
necessary to be removed from the two U.S. terrorist lists. 
While these benchmarks are not new -- A/S Boucher and Blake 
made the same case to Prachanda -- the written document 
ensures full comprehension and creates a basis for further 
discussions.  We believe the Maoists would like to get off 
the U.S. terrorist lists, both to simplify the process for 
getting visas to the United States and to gain international 
credibility. 
 
Between India and China 
----------------------- 
¶10. (SBU) Your visit will come on the heels of the Indian 
Foreign Minister's first trip to Nepal, and concurrent with 
the Indian Chief of Army Staff's initial visit.  Fairly or 
unfairly, India is seen as the malign force behind every 
political development in Nepal.  India engineered the 2005 
12-point Agreement, working closely with Maoist leaders. 
Since then, and particularly following the Maoist's brief 
period as head of government, Indian distrust of the Maoists 
has grown, perhaps in part due to India's own Maoist problems 
(although there is no evidence of cooperation between the two 
Maoist movements), or perhaps due to the perception that 
Prachanda was tilting too far toward China.  The Maoist new 
stridently anti-Indian rhetoric doesn't help matters.  New 
Delhi is now seen as opposing the Maoist return to power. 
 
 
KATHMANDU 00000038  003 OF 004 
 
 
¶11. (SBU) Nepali leaders have for centuries tried to use 
Nepal's other neighbor, China, to counterbalance Indian 
influence, nearly always failing.  PM M.K. Nepal recently 
returned from a China trip, with promises of additional 
financial assistance and investment.   While there is some 
evidence of increased Chinese economic activity in Nepal, 
China's main interests in Nepal are maintaining a stable 
buffer between it and India, and ensuring Tibetans do not 
start anti-Chinese movements from Nepal.  (There are 
approximately 20,000 Tibetans living in Nepal.) 
 
Nepal Army Influential, Unsure of Future 
---------------------------------------- 
¶12. (SBU) The Nepal Army, perhaps the country's strongest 
institution, remains unsure about its place in a "new Nepal." 
 The Army is the fifth-largest contributor of troops to UN 
peace operations, and its troops are generally considered 
professional and competent.  We have a positive 
military-to-military relationship with the Army, and many of 
its senior leadership were trained in the United States.  For 
the first time since 2005, we will provide approximately USD 
1 million in FMF to Nepal, although Senator Leahy's recent 
amendment to the Foreign Operations bill limits FMF to 
humanitarian assistance, unless the Army meets certain human 
rights criteria.  The Army continues to be dogged by 
conflict-era human rights allegations.  The recent promotion 
of General Toran Singh, who commanded one of the units 
accused of committing gross human rights abuses in 2003, as 
well as the Army's foot-dragging on cooperation with civilian 
courts in the case of Major Nirajan Basnet, raises questions 
about the Army's commitment to human rights.  The Army points 
out (rightly) that the Maoists also committed atrocities 
during the conflict, but have not been held accountable.  The 
Nepal Army has had no human rights violations since the end 
of the conflict, while the some Maoist criminal and human 
rights violations continue. 
 
Security Situation Somewhat Improved 
------------------------------------ 
¶13. (SBU) The law and order situation, particularly in the 
Terai, remains poor.  Few criminals are arrested and 
prosecuted, and criminal gangs along the Indian border 
operate with impunity.  The GON's Special Security Plan 
appears to be having some positive effect, particularly along 
the Indian border, although the police lack resources to 
implement the plan effectively.  The Maoist-affiliated youth 
wing, the Young Communist League (YCL), continues to engage 
in illegal activities, such as threats, and extortion. 
 
Economy and Development 
----------------------- 
¶14. (SBU) As the peace process drags on, Nepal's economy 
continues to stagnate.  Nepal is one of the poorest countries 
in the world, with a per capita GDP of approximately $400. 
As many as one-third of Nepalis are food insecure, while the 
small elite lives well (the geni coefficient has doubled in 
the last ten years).  The economic hopes for many Nepalis now 
rest outside the country, with as many as 2.5 to 4 million 
Nepalis working abroad; remittances account for 20 percent of 
GDP.  New investment is low; political instability, labor 
unrest, high transportation costs, and power shortages scare 
away even the most adventurous of investors.  Tourism has 
returned to pre-conflict level, but Nepal is no where near 
reaching its full potential.  Trade with the U.S., mostly 
carpets and pashminas, is relatively small and declining, in 
part due to the end of duty-free access for textile exports. 
Donors provide significant development resources in Nepal. 
USAID has a diverse program, approximately $50 million in FY 
2010, focused on health, democracy, and economic growth. 
USAID's health and environment projects have been 
particularly innovative and successful, despite the political 
situation. 
 
KATHMANDU 00000038  004 OF 004 
 
 
ORDWAY