DOMESTIC POLITICS <Go to Contents>

In the year 2001, the politics of Nepal remained highly volatile caused by governmental instability, parliamentary deadlocks, Royal assassination, growing Maoist insurgency and the state of emergency. On January 4 Prime Minister Girija Prasad Koirala survived a no-trust vote against him by dissatisfied members of his own party Nepali Congress (NC). The 41 rebel Congress MPs close to former Prime Ministers-Krishna Prasad Bhattarai and Sher Bahadur Deuba-- boycotted the voting. That 69 votes went against the no confidence motion indicated that Premier Koirala held majority in his parliamentary party. Criticizing the voting as invalid, Deuba initiated nation-wide tours to force premier Koirala to resign from one of the posts-Prime Minister or party president before the 10th General Convention of the party in Pokhara.
The convention of Nepali Congress Party took place during January 19-22, which elected Prime Minister Koirala as Congress president for the second term. He scored 64 percent of the votes ( 936 votes out of the total valid 1,453) and defeated his two rivals-ex-premier Deuba (507 votes) and ex-minister Ram Hari Joshi (10 votes). The party resolution passed by the Convention pledged to "provide justice to the helpless and income to the poor and involve people of the backward regions of society in the mainstream development. Social justice and equality of opportunity in society are essential for the fulfillment of democracy. The economic and social policies of the party are guided by the ideology of socialism." The Convention also endorsed a Code of Conduct for party workers, according to which, every party member holding an advantageous post required to submit a statement of property registered in his/her own and family members' names and update such statements every year.

Newly Elected Central Working Committee Members of Nepali Congress Party are: <Go to Contents>

Nominated Members by the President <Go to Contents>

Krishna Prasad Bhattarai
Sher Bahadur Deuba
Basu Risal
Nona Koirala
Dil Bahadur Gharti
Ram Krishna Tamrakar
Sunil Kumar Bhandari
Farmullah Mansur
Purna Kumar Sherma

On September 25 Nepali Congress President G. P. Koirala nominated CWC member Govind Raj Joshi as the joint General Secretary of the Party, and CWC members

Mahanta Thakur and Arjun Nar Singh KC as the party's treasurer and spokesman respectively.
In order to solve the differences within the party, premier Koirala recommended some changes on the Council of Minister. Accordingly, on February 7 King Birendra declared changes in the Council of Ministers constituted under the chairmanship of Prime Minister Girija Prasad Koirala on March 21, 2000. Physical Planning and Works Minister Khadka did not take oath and was therefore removed. From Bhattarai-Deuba side only Omkar Shrestha took the oath of minister. Prime Minister Koiral's effort to solve the party problems thus remained a festering sore.

In fact, the formation of new cabinet intensified the rift in the party at a time when all the opposition parties in the parliament were demanding the resignation of premier Koirala on his alleged involvement in Lauda Jet Air Deal and were blocking the parliamentary sessions. Pressure against him mounted as Minister for Agriculture and Cooperatives Jaya Prakash Gupta and State Minister for Labor and Transport Surendra Hamal resigned on the ground of "policy differences" with him while ex-premier K. P. Bhattarai criticized his unilateral decision to reshuffle the cabinet and requested him to resign from one of the posts.

To frustrate the maneuver of rival faction and to demonstrate his strength, premier Koirala on March 18-19 convened the meeting of party presidents of district levels, Congress MPs and central working committee members of the party in Kathmandu. While K. P. Bhattarai boycotted the meeting, other had decided to: wage anti-corruption campaign in the districts, including campaign against violence, support the Prime Minister against opposition and call on premier Koirala not to opt for mid-term election. On April 4 rival Nepali Congress camps met at Deuba's residence and discussed about the ways and means of resolving deadlocks in the party, with the mainstream opposition and the Maoists. Both groups agreed to end the House Session and re-promulgate the ordinances regarding Armed Police Force and Local Administration Ordinance.

On May 5 ex-premier Bhattarai again asked the Prime Minister to resign. He said: "The Commission for the Investigation of Abuse of Authority's (CIAA) questions to the Prime Minister confirmed my previous statement that PM Koirala was deeply involved in the Lauda Jet Lease. There was no alternative to the resignation for the sake of NC's commitment toward democracy, respect for the constitution and the rule of law." Premier Koirala countered this move by mobilizing 30 Nepali Congress district committee presidents close to him who also issued a joint statement asking premier Koirala "not to resign for the interest of democracy." In a last attempt to stick to power, he brought the idea of national consensus among the major political parties. While addressing the 20th session of parliament on June 25 he said: "he was fighting for upholding the prime ministerial system of governance, and not for his post of Prime Minister." Premier also pointed out that in the 12 years of the restoration of democracy, there have been instances of several attacks on the Constitution, the parliament, the Constitutional monarchy and the judiciary." He presented his 14-point agenda for national consensus:

Leader of opposition Madhav Kumar Nepal while appreciating the premier's proposal remarked that "If you resign, we are ready to cooperate." A few days later CPN-UML modified those points and added some more points which, among others, include:

As the attention of his rivals in the party and opposition parties got diverted to Royal massacre of June 1, Premier Koirala got some political space to stay in power.

Royal Assassination <Go to Contents>

On June 1, 2001 at 9.15 PM Friday at Royal Palace King Birendra Bir Bikram Shav Dev (56), queen Aishwarya Rajya Laxmi Devi Shah (52), Crown Prince Nirajan, Princess Shruti and Princes Jayanti Shah and many members of Royal family were shot dead. All the royal members were in family dinner party hosted by the King. The next day Nepal Raj Parishad declared Crown Prince Dipendra (30) as the new king of Nepal who was seriously injured and hospitalized. Similarly, the Raj Parisad also appointed Prince Gyanendra (born in July 1947), the King's uncle and king Birendra's second brother, as the Regent of the Kingdom of Nepal. Since the new monarch was in critical condition and was unable to discharge his duties, the Regent would exercise the power vested in the monarchy. On June 4 the State Council upon the death of King Dipendra declared the Regent Gyanendra Bir Bikram Shah Dev the new king of Nepal.

The new King after ascending the throne announced: "due investigation is to be instituted to prove into the Royal deaths." Accordingly, the same day he announced the formation of a Commission under the Chief Justice of the Supreme Court Keshav Prasad Upadhaya as the Chairman and Speaker of the House Tara Nath Ranabhat and Leader of Opposition Madhav Kumar Nepal to investigate into the matter and submit report within three days. He also declared his wife Komal Rajya Laxmi Devi Shah as the queen of Nepal.

Chronology of Events <Go to Contents>

Armed Police Ordinance <Go to Contents>

As per the recommendation of the Koirala government, on January 22, His Majesty king Birendra had promulgated an "Armed Police Ordinance 2057 B. S." intended to immediately create an armed police force and make arrangements for its functioning. The force is equipped with modern weaponry and provided training in counter-insurgency operations, especially Maoist, secessionist activity, terrorist activity and religious and communal riots taking place or likely to take place in any part of the country. The King also promulgated a "Local Administration (fourth amendment) Ordinance 2001 to immediately amend the Local Administration Act 1972. The provisions in the Act had facilitated to set up one Regional Administration Office in each development region, with a gazetted special class regional administrator from the civil service appointed by His Majesty's Government as chief administrator. The regional administrators are responsible for running the general administration in their region in a coordinated manner as per the policy and directives of His Majesty's Government. On April 12 His Majesty the King had, with the advise and consent of the council of ministers, re-promulgated "Armed Police Ordinance-2057" and "Local Administration (fourth amendment) Ordinance-2057" as 19th session of Parliament could not ratify them due to total disturbances. The 19th session of parliament that started on February 8 and ended on April 5 (57 days) did not make a single working sessiondue to opposition boycott demanding the resignation of Prime Minister Koirala.

The flexibility in Nepalese politics appeared on July 22 when NC parliamentary party had elected ex-premier Sher B. Deuba (55) as its leader and His Majesty appointed him as 11th Prime Minister. PM Koirala had already resigned on July 19 following alleged non-cooperation of the army to him against growing Maoist insurgency in the country and standoffs with all the opposition political parties. Chief of the Army P. S. Rana on April 20 had clearly indicated that the use of army requires "national consensus," as it cannot be used for partisan interest. As a result, the government granted more powers to Chief District Officer (CDO) under Public Security Act-2001. Under this Act, CDO or officials on their behalf can "put individual or a group under solitary confinement or limit their movement to certain areas if officials are convinced that the suspect people are about to harm the country's sovereignty, integrity or infringe public peace, law and order." According to new Regulations "a person or a group of person found involved in such activities are liable to arrest, home arrest and are forbidden to leave the country."

On July 26 Premier Deuba announced a 13-member Council of Minister and took a number of important initiatives. First, he announced total cease-fire and urged the Maoists to come to the negotiation table and showed a gesture of goodwill by releasing 15 Maoist cadres and subsequently holding three dialogues with them. He also held regular all-party meeting to muster consensus for dealing with the Maoists effectively. Second, on August 12 with the support of CPN-UML he facilitated the passage of the Armed Police Force Bill 2000 by a majority vote while the Local Administration (4th Amendment) was passed unanimously. Third, on August 16, he announced sweeping structural reforms by introducing land reforms in order to give land to landless and ensure judicial distribution in the land system, provide equal property rights to women and abolish the system of untouchability in the country. On August 31 the government registered a Bill on land reform in the parliament secretariat and withdrew the earlier ban on all land transactions. Land Reforms (Fifth Amendment) Bill was passed on October 12 amidst boycott from the RPP and Nepal Sadbhavana Party. Both the parties criticized the government's "highhandedness, banking on its majority." While the left opposition argued that "It is better to have some ceiling on the land holdings as proposed by the bill than not have any." According to new arrangement the ceiling will be 11 Bighas in Tarai, and 25 and 70 Ropanis per family in inner Tarai or Kathmandu valley and hills respectively.

The House of Representative also passed 11the Amendment to the Muluki Ain (Civil Code) on October 9, which purports to grant a semblance of property rights to daughters. The Bill legalized abortion under certain cases, which was completely prohibited earlier. The existing laws say that women have to be 35 years old and remain unmarried until that point they are entitled to paternal property. But, once married, the property has to be returned. Now women will be able to get their share once they become adult. They do not have to wait until they reach 35 years. The provision on abortion as prescribed in the Bills enables women to abort up 12 weeks of pregnancy with their husband's consent. In rape related pregnancy case or incest, pregnancy up to 18 weeks may be terminated. In the cases where pregnancy poses danger to the physical and mental health of mothers or if medical reports prove that foetuses are damaged leading to the birth of a disabled child, abortion is permitted in any time with the consent of the pregnant women. However, if in case anyone is found testing to find sex of the foetus with the intention of aborting, they could face three to six months of prison sentence and if abortion is carried out on the basis of sex of the foetus then the punishment is added to additional one year. This is meant to discourage the discriminatory practice in the society to give preference to male child over the female. Likewise, on November 9 the government constituted a high-level commission in coordination of secretary of the Judicial Council Kashi Raj Dahal, to present a draft report on the existing discriminatory laws against women. The eight-member commission will first review the discriminatory laws against women, make a draft report suggesting proper reforms on such laws and annul all discriminatory laws against women as guaranteed by the Constitution of Nepal, and the UN Convention on the Elimination of All Kinds of Discriminatory Law against Women (CEDAW) of which Nepal is a party.

Premier Deuba said that the government would take action against those who prevent anyone entering into religious sites and performing religious activities on the basis of caste. Declaring the practice of untouchability as a social crime, he promised to introduce a new Bill in parliament to eliminate such religious discrimination and untouchability. The Prime Minister also said that a high level commission for the development of oppressed class would be constituted. The government would make sincere efforts to create a mechanism to ensure free and fair election in consultation with all political parties.

Newly Expanded Cabinet <Go to Contents>

On October 18, Premier Deuba inducted 28 new members in the 13-member Council of Ministers headed by him (Note: the names with bold letters were appointed on July 26), thus taking the number of members of the Council to 41. The names and portfolios of newly included minister are given below:

NC party president G. P. Koirala described the expanded council of minister "big and disorderly." He wanted to revive his formula of Broader Democratic Alliance, which he broached on September 18, to oppose the atrocities of the Maoist cadres. He said: "The government may or may not oppose the Maoist activities, but the general public must." He forwarded this proposal to the leaders of other political parties. While premier Deuba termed this "alliance" an untimely ploy to grab power, leader of opposition Madhav Kumar Nepal stated that "democratic alliance" should not be joined by corrupt elements. Later G. P. Koirala dropped the idea and stated his support to the government.

Opposition Politics <Go to Contents>

On January 25 the main opposition party CPN-UML asked the Prime Minister Koirala to resign for his involvement in Lauda Air deal and criticized him for failing to maintain law and order in the country. The Standing Committee of the UML initiated talks with other political parties to create "common position" about this. Accordingly, on February 12, legislators of five main parties-- CPN-UML, Rastriya Prajatantra Party (RPP), National People's Front, Nepal Workers and Peasants Party (NWPP) and United People's Front (UPF) walked out from the Lower House of Parliament over the House's non-attention to their demand for the resignation of the Prime Minister. On February 19, MPs from both the ruling and opposition sides even resorted to fisticuffs in the parliament building and traded accusations of stooping to "unparliamentary norms." The Speaker and Chairman of Parliament organized a series of all-party meeting to break the deadlock in the parliament, but ended inconclusively. Support to the government further declined when Nepal Sadbhavana Party (NSP) which had been co-operating the government so far boycotted the parliament since March 20 along with other five parties and opposed the government's alleged plan to pass two ordinances-Armed Police Force and Local Administration-through what they called "unfair means."

On April 15 the UML with thousands of their supporters from other left parties gathered in front of Singh Durbar, the principal secretariat, to block the entry of Prime Minister. The police took the top leaders of CPN-UML including General-secretary Madhav Kumar Nepal into custody before they could lead their cadres to their destination. Police arrested them for some hours and then released them later on. Police also resorted to lathi charge and fired tear gas shells in the agitating cadres, who burned vehicle tyres, abused and pelted stones at the police. In protest they organized a rally in Kathmandu and announced their call for Chakkajam throughout the country from 4 to 5 PM the next day.

On April 23 president of RPP Surya Bahadur Thapa argued that the government's Integrated Security and Development Package (ASDP) cannot solve the present crisis of the nation. The RPP's Central Working Committee (CWC) meeting on April 19-20 had decided to initiate dialogue with various political parties to end the political deadlock. Thapa told: "The national consensus is must among the parliamentary parties to negotiate with Maoists, tackling corruption, mobilization of army and winning the confidence of the king. Monarch's goodwill and support is essential to solve the existing crisis." Six left political parties led by CPN-UML called Nepal Bandh (shut down) during May 27-30, organized a series of strikes afterwards and crowned premier Koirala as "Corrupt the Great."

Royal massacre of June 1, however, completely changed the political situation of the country. While CPN-UML accepted constitutional monarchy, it wanted some reforms in the institution. The Central Committee Meeting of CPN-UML on August 5 took decision on several major issues including "parliamentary control over the succession to the Throne and the Royal Nepalese Army (RNA)." The party also decided to fight against "the extreme leftists" that is, the Maoists and work on strengthening the party. Likewise, the meeting endorsed a proposal on "unity of the left parties" and agreed to work seriously for either unification or cooperation with like-minded left parties including CPN-Masal, CPN-ML, CPN-United Front, Nepal Workers and Peasants' Party, CPN-United, CPN-Marxist and CPN-Marxist-Leninist and Maoist, among other, in order to integrate the Communist revolutionary movement. The party also appealed the underground Maoist party to joint the mainstream Communist revolution withdrawing their extreme revolutionary attitude and give up arms. On August 9, the UML lawmakers demanded the amendment in the constitution in order to facilitate the formation of national government under the Chief Justice to monitor the general elections.

Various left parties had held several rounds of talks aiming to create a "united left front" but could not. ML had clearly stated that the two parties should be merged on the basis of equality and that the UML should admit "Mahakali treaty was a mistake." ML wanted the dissolution of the central committee of both the parties for the creation of a new executive committee with equal number of representation. UML leaders objected both the conditions and their talks had been stalled. Again on August 31 eight left parties mentioned above held their first round of talks for forging alliance. The meeting focused on the ongoing dialogue between the government and the Maoists and proposed land reforms in Nepal.

General secretaries of five communist parties, including leader of the main opposition CPN (UML), met Maoist leader Comrade Prachanda at Siliguri, India on August 16. They include Bamdev Gautam, General-Secretary of CPN-UML Madhav Kumar Nepal, General Secretary of the CPN-ML, Narayanman Bijukchhe of the Nepal Peasants and Workers' Party, Mohan Bikram Singh of the CPN (Masal), Prakash of the Unity Centre and Lilamani Pokharel of the United People's Front. The general secretaries held extensive discussions with Prachanda, particularly on the much-awaited peace talks with the government and on forging a basic working understanding among all the leftist forces. As these leaders could not agree on Maoist proposal for the call of republican state and constituent assembly, the talk became fruitless and Maoist leaders began to criticize Madhav Kumar Nepal as second version of "Rayamajhi," who is regarded as Royal communist.

The Terai-based Nepal Sadbhavana Party (NSP) organized a weeklong Mechi to Mahakali Chriot procession from Feb. 28-March 7 calling for an end to the exploitation and discrimination of Madhesi community, provision of federal government, citizenship facility to the people of Terai, equal access to political and administrative power and authority, etc.

Citizenship Bill <Go to Contents>

On July 26,2000 the House of Representatives passed the sixth amendment to Citizenship Act 2056. The Act guarantees citizenship rights to a person on the basis of birth. The Bill was passed with 108 votes of Nepali Congress MPs in the presence of 5 Nepal Sadbhavana Party MPs and submitted to the King as Finance Bill. Other parties boycotted this move. The fate of this controversial bill was passed on to the Supreme Court as His Majesty king Birendra on February 20, sought the court's opinion on "whether the Bill is accordance with the present Constitution or not." The bill drew criticism as it purported to provide citizenship to any one, even a foreigner, if he or she can prove Nepali ancestry. There is also no need that the applicant's father should be holding Nepali citizenship. According to the Constitution, the royal seal must be affixed on a Finance Bill within 30 days after being forwarded to the King. Unlike a case in the general bill, the monarch cannot send back the Finance Bill to the parliament for further discussion. Since March 14, the Supreme Court formed an amicus curiae and started debates on the bill in which all noted advocates (Sarvagya Ratna Tuladhar, Bishwa Kanth Mainali, Moti Kaji Stapit, Mukund Regmi, Daman Nath Dhungana) argued against the bill, saying that either it was not a Finance Bill or it directly contravened the clauses of the Constitution. The only exception was official defender, Attorney-General Badri Bahadur Karki. On April 25 the Supreme Court judges unanimously gave opinion to the king that the proposed bill contradicts the provisions of the Constitution. The bill remains dead now.

Maoist Insurgency <Go to Contents>

CPM-Maoist party started People's war in Nepal on February 17, 1996. In the Year 2001 it intensified its activities throughout the country, held three rounds of negotiations with the government, then unilaterally broke down the negotiation and resorted to armed attacks against the establishment. On February 5, Maoist rebels killed the Surkhet Appellate Court judge in a lethal attack including five other people. The Chief Justice of Supreme Court Keshav Prasad Upadhayay and others narrowly escaped. The attack on the Chief justice was being thought as a "symbolic expression" of the Maoist's warning against the formation of the Special Court, especially aimed at taking the Maoists to book. The Special Court had begun its operation since January 9 of this year.

On February 25 in a statement signed by Chairman Prachanda (hitherto General-Secretary) indicated that his line will combine armed mass revolt and the people's war. Upon entering six year of people's war they organized a conference and decided to establish "Prachanda's path" combined with Marxism-Leninism and Maoism. It called for a conference of political parties (including Nepali Congress) and related organizations to frame a people's constitution, pledged to pursue a "Great Leap Forward" to push for the expansion of secure bases, strengthen people's local governments, form a people's central government, and constitute a broad-based "united front" government to work toward forming a central level people's government backed by "mass line" to mobilize the masses.

By dropping their earlier insistence on Constituent Assembly and opting for all parties' interim government to draft the Constitution, Maoists had adopted two-pronged strategy -- the possibility of a political dialogue with the government and intensification of their attacks against the establishment. Their major operations this year included Rukum, Dolakha and Dailekh in which they killed 102 policemen. In response to this event, the National Defense Council decided to take all "necessary means to maintain law and order in the country." The Chief of Army Prajjwal Shumsher Rana, however, set preconditions for the mobilization of army: all party consensus, administrative reforms, speedy justice by the court, finding way out of the current political deadlock and good governance. This prompted the Maoists to call for an all-party government to resolve the current crisis.

On April 11 Premier Koirala appealed the king to allow the mobilization of royal army in Maoist affected areas and provide security coverage to Integrated Development and Security Plan (ISDP). It also initiated dialogues with the opposition political parties for the implementation of ISDP. The army agreed to work under ISDP in seven rural western districts-Rukum, Rolpa, Jajarkot, Salyan, Gorkha, Pyuthan and Kalikot.

To outmaneuver the government, Maoist party activated its 23 frontline professional, ethnic and regional organizations and executed a number of social reforms: for example, demand for cutting down the fees in private schools by half, improvement in academic environment in public schools and putting other 15 demands to the government including that politicians and high officials should take their children out of the private schools and enroll them in public schools. It also banned alcohol sales and consumption nationwide from August 18. In the process, they attacked Nepalgunj-based Shah Distillery Pvt. Ltd, Colgate Palmolive (Nepal), Surya Tobacco, Nepal Lever Ltd, Asian Pants, etc. Maoists also created "people's court" to provide instant justice to victims and raised the demands of ethnic and regional groups, Dalits, indigenous people and trade unions. Meanwhile, they evoked fear among the public by hanging bombs in public places attaching to a banner denouncing the Koirala government and abducting policemen in huge number. The Maoist's stand against the government became tougher following Royal massacre.

Chief Maoist ideologue Dr. Baburam Bhattarai in an article published in Kantipur daily on June 2 pointed out to the "conspiracy" of domestic and international factors in the killing of king Birendra, Queen Aishorya, Crown Prince Dipendra and other royal family members and appealed the army and people to revolt against the new King.

Meanwhile, Maoist rebels launched their armed operation against police in Nuwakot, Lamjung, Bajura and Gulmi districts and killed 58 policemen while on July 12 they kidnapped 70 policemen and looted large quantity of arms. On July 13 for the first time the Royal Nepal Army went into action against Maoist rebels in Ropa district of Nepal. The action was meant to release 70 policemen abducted by Maoist guerrillas and seize the weapons looted by them. The rebels first fired on an army MI-17 Russian helicopter that was on a surveillance mission over Rolpa jungles. But, within a few days local sources claimed that rebels and army have moved away from that place.
The Moist offensive on police and government machinery became relaxed only after premier Deuba declared a government cease-fire on July 23, which was quickly reciprocated by the Maoist leader Prachanda asking his guerrillas to suspend all activities. Deuba urged the security forces and the Maoists to "stop" all the activities.

Prachanda asked all his fighters to "postpone" their pre-planned offensive action while remaining "alert." He also asked the premier to declare the whereabouts of the "missing" Maoists, exchange prisoners and annul anti-people's war laws. Prachanda remarked that the Maoists have taken Deuba's "victory over the fascist Girija faction" as a positive move. All the major political parties representing the parliament, including minor ones outside it, provided the Prime Minister a comprehensive mandate to pursue talks with Maoists. The government also initiated steps to gradually release Maoist cadres in detention and guaranteed the security of Maoist negotiators.

On August 30 the government and the Maoists held their first official meeting in Godabari Village Resort, Lalitpur. The first round of talks that took place in Godavari lasted about three hours. The first meeting was meant to familiarize the negotiators from both sides and prepare the background for second round of substantive negotiations. Krishna Bahadur Mahara, former left MP, led Maoist delegation. The other members were T. B Rayamajhi (Former President of All Nepal Free Student Union) and Agni Prasad Sapkota (Former schoolteacher and a candidate for 1991 parliamentary election from UPF). They demanded a new Constitution, an interim government and an end to Hindu monarchical Kingdom in favor of a republic. They also asked the government to release 200 of their supports. The government side led by Minister for Physical Planning and Works Chiranjibi Wagle said that they would get back after further consultation. Besides Wagle, the five-member government committee included Minister for Agriculture Mahesh Acharya, Minister for Water Resources Bijaya Kumar Gachhedar, and Nepali Congress leaders Chakra Prasad Banstola and Narahari Acharya. Former Speaker Daman Nath Dhungana and former leftist MP Padma Ratna Tuladher acted as facilitators. After the talks, the two sides issued a joint statement: "Both the government and the Maoists have expressed their commitment to resolve all the differences and the problems through peaceful dialogue."

On September 4 Premier Deuba denounced the Maoists of trying to disrupt the peace process and warned the Maoists to abide by the documents they signed during the first round of talks, to stop extortion, threatening people and organizing armed mass meets including the one huge show down they set for September 21 in Kathmandu. As the government took tough measure to use army to disarm and arrest the Maoist cadres and requested them not to hold their Kathmandu meet.

India Factor <Go to Contents>

On September 3 UML General-Secretary Madhav Kumar Nepal said, "The Maoists have been instigated by India to weaken Nepali nationalism; they have been instigated by the palace to weaken democracy and by the Congress to weaken the UML." On September 6 NC President Girija Prasad Koirala accused the Royal Palace and India of sheltering the Maoist rebels. He said, "The Palace and India are directing the Maoists who have been running terrorist activities in Nepal." In response to these statements the Indian government on September 9 disclosed its intention of deploying 80,00,0 paramilitary forces along the Nepal-India border to "control undesirable elements spoiling the friendly relations between the two countries." The Indian government said that it decided to deploy paramilitary forces along the Nepal-India open border as "peace and security situation in Nepal had deteriorated after the June 1 Royal Palace massacre." On September 25 Indian Minister for External Affairs Jaswant Singh remarked that the Indian government "openly opposed the Maoists." In an interview granted to Doordarshan TV, he said, "Wherever there is terrorism, we oppose it. In Nepal, we openly oppose the Maoists. We support the King of Nepal and the Nepal government of Sher Bahadur Deuba, we are with them in their fight against the Maoists." In December Delhi police also arrested two Nepalese Maoists with large quantity of explosives, meant for subversive activities and instructed their intelligence agencies to monitor their activities.

On September 13 the second round of government-Maoist dialogue took place in Tiger Top Lodge of Bardiya Royal Forest Park. The Maoists reiterated their demand for the release of their 200 supporters arrested in connection with collecting donations. Another agenda was September 21 mass meet of Maoists in Kathmandu. In response to it the government had decided to ban public mass meetings, extortion and other activities detrimental to law and order situation in the city for a maximum of one month.

Accordingly, the joint team of army and police raided the hostels of four government colleges in Kathmandu valley under the "Special Search Campaign" and arrested many Maoist students with explosives. Ultimately, the Maoist leaders called off September 21 meet in Kathmandu but warned the government of violent retribution. The student wing held its meeting in Biratnagar on September 24.

On September 18 the government made three major decisions. It lifted the ban on public meetings in Kathmandu valley on the ground of "an improvement in law and order situation." It also decided to withdraw criminal cases against 41 Maoists including top leader Dr. Baburam Bhattarai. The Home Ministry made public the names of 188 Maoists under custody including those of Matrika Prasad Yadav, Ajab Lal Yadav and Purna Bahadur Khadka whose whereabouts were constantly demanded by the Maoists. The government also set up a separate National Defense Council Secretariat to regularly advise the Prime Minister about the country's security situation on the basis of day to day analysis.

In an all-party meet organized by Premier Deuba on September 24 he stated that "the Maoists are in the process of political safe landing." In the first week of October Maoist released 43 policemen and handed over them to International Red Cross Society. The government claimed that the Maoists held 185 people--116 civilians and 69 policemen captive. On October 11, the government decided to release Matrika Yadav, one of the leading Maoist leaders who has been in prison since last year.

As per the demand of Maoists, the emergency cabinet meeting on November 9 decided to withdraw the controversial Public Security Regulation 2001, paving the way to the third round of dialogue between the government and the Maoists. The cabinet meeting also decided to begin the process of releasing 68 Maoist cadres who were in police custody. Home and Local Development Minister Khum B. Khadka revealed that "there is no Maoist left in the police custody nor anybody disappeared by the government."

On November 10 Prachanda said that formation of interim government is the only precondition to the upcoming third round of peace talks with the government. He also declared that his "party has withdrawn the demand of institutional development of a republic state in the forthcoming talks. He said, "We want to form an interim government thereby conducting elections for the constituent assembly…We want the people to make the final decision about the republican state through constituent assembly."

On November 13 the government and Maoist held third round of dialogue at Godavari, Lalitpur that lasted about five hours. In this talks Maoist side focused on dissolving the present constitution and forming an interim government thereby conducting election for the Constituent Assembly. The Chief Maoist negotiator Krishna Bahadur Mahara put forth their demand for the release of 300 Maoist workers and supporters, withdrawal of army personnel deployed in seven Maoist stronghold districts under government's Integrated Security and Development Program (ISDP) and withdrawal of Armed Police Force Act that was passed by the 20th session of parliament to counter Maoist rebels. Facilitator Daman Nath Dhungana observed that the Maoist side insisted on the complete change of the Constitution while the government side preferred its reform.
The government negotiators responded that since Maoists have withdrawn the demand of a republican state, other demands could be fulfilled by the present Constitution. The government side denied supporting for the Constituent Assembly. During the talk the chief negotiator of government Minister Chiranjibi Wagle reiterated its demand of publicly issuing a directive by Maoist leader Prachanda to all cadres not to indulge into murder, violence, abduction and extortion. Political leaders from Nepali Congress, CPN-UML, CPN-ML, RPP, Nepal Sadbhabana Party and Nepal Workers and Peasants' Party ruled out election to constituent assembly. In an article written by Dr. Baburam Bhattarai in Kantipur Daily on November 21 argued that Constitutional Assembly "is needed to formulate a new constitution that can abolish the current constituency system and create a new constituency to promote proportional representation of class, ethnic, regional and gender interests; special measures should be developed to empower the oppressed and backward classes; Royal Nepal Army and People's Army can be merged to create national force or both can be dissolved in favor of people's militia, etc The same day Speaker of the parliament Taranath Ranabhat suggested "the government to dissolve the lower house in order to make room for the Maoists to join the national mainstream by conducting early elections." He also said, "There exists a possibility of an all party government to conduct the elections and to ensure fairness." But, the sudden remarks by Maoist supremo Prachanda that "the government has closed all the doors for the peaceful resolution of Maoist problem through negotiation" and that "it terminated the relevance of cease-fire" in the country indicated ominous sign. Media speculated that Prachanda's statement indicates the pressure of his hard-liner comrade Ram B. Thapa (Badal), who was the chief wing of guerrillas. Premier Deuba said that the Maoist charges are "baseless and false. We are committed to talks. The Maoist themselves will have to take the responsibility for the outcome that would inevitably follow as a result of the violation of cease-fire called by the Maoists."

On November 23 Maoist insurgents attacked in Surkhet, Rukum, Kalikot, Kaski, Makwanpur, Sankhuwasabha, Taplejung, Khotang, Gorkha, Syangja and many other parts of the country. In Surkhet they destroyed a helicopter of Asian Airlines. Home Ministry revealed that 39 people (14 army personnel, 23 police and 2 civilians) have been killed in raids carried out by CPN-Maoist militias in Dang and Syangja districts. Many government offices have been damaged and they looted the guns and money amount to Rs. 60 million. It was for the first time Maoist attacked the army barrack in Dang.

On November 24 the CPN-Maoist announced the launching of the United Revolutionary People's Council (URPC) and the formation of the People's Liberation Army (PLA). Their portfolio and order is given below: Dr. Babu Ram Bhattarai, head, the Central People's Government, Krishna Bahadur Mahara (Coordinator), Dev Gurung (Secretary-General), Members are:Top Bahadur Rayamajhi, Agni Prasad Sapkota, Hari Bhakta Kandel, Mani Thapa, Rabindra Shrestha, Barkha Man Pun, Chandra Prasad Khanal, Shakti Bahadur Basnet, Jayapuri Gharti, Sri Ram Dhakal, Khadga Bahadur Bishwokarma, Lekhraj Bhatta, Ram Charan Chaudhari, Purna Bahadur Gharti Magar, Nanda Kishor Pun, Hitraj Panday, Santu Darai, Shiva Raj Gautam, Suresh Ale Magar (Chairman Karnali Mukti Morcha), Tilak Pariyar, Jhakku Prasad Subedi, Khop Bahadur Kandel, Hit Bahadur Tamang, Dil Kumar Sinjapati, Kumar Dahal, Mukti Pradhan, Chaturman Rajbansi, Jaya Krishna Goiet, Gopal Khambu (President of Khambuan Liberation Front), Bhakta Raj Kandangwa, Resham Chaulagain, Ms. Hsila Yemi, Ms. Rekha Sharma Ms. Pampha Bhusal are also included in the central committee. The army front is headed by Ram Bahadur Thapa (Badal) and Puspa Kamal Dahal (Prachanda) as chairman of the party.

On that occasion they also published a 75-point policy and programs focusing on 1. Basic policies, 2. State system, 3. People's army and people's security system, 4. Land and agricultural revolution, 5. Industry and commerce, finance and infrastructure development, 6. Culture and Education, 7.Health and social welfare, 8. Ethnic and regional question, 9.Women and family, 10.Dalit caste, 11. Foreign policy. The document says that under the leadership of proletariat the framework of state power shall consist of joint revolutionary front of all oppressed class, caste, region, gender and community. Contrary to the propaganda of one party communist dictatorship it will combine a myriad group of patriotic, pro-people and leftist forces who will guarantee full freedom, prevent the bureaucratization of the state by means of popular control, participation, monitoring, proportional representation of different class, caste and regional groupings in the House of Representatives, unity of people's army with the mass and expansion of the base of people's militia, establishment of local self-governance by means of granting self-determination to oppressed caste, ethnic group and region, development of national capitalist mode of production oriented to socialist mode of production, implementation of revolutionary land reforms on the basis of empowering the actual tiller of the land etc.

The National Defense Council meeting on November 24 decided to deploy the Royal Nepal Army for "Cordon and Search Operations," so as to disarm the Maoists and seize all the arms looted by them. Similarly, in an all-party meeting leaders of the parliamentary political parties unanimously decided to let the government take all due measures, including the use of army, armed police force and police to maintain the law and order situation in the country.

On November 25 Maoist rebels carried out violent attacks in Salleri, district headquarters of Solukhumbu. They also exchanged heavy firings with the Royal Nepal Army (RNA), bombed the airport, damaged district police office and quarter of Chief District Officer (CDO). The government says that army and police have killed 200 rebels after they tried to storm the Royal Nepal Army barracks in the town. Radio Nepal confirmed the deaths of four soldiers, 17 policemen including two inspectors and Chief District Officer. The rebels also took away Rs. 2 million form two banks. The attacks also completely destroyed District Administration Office, District Police office, Revenue office, and residence of the CDO and Agriculture Development Bank buildings. On November 25 police arrested Central Committee member of the CPN-Maoist, Rabindra Shrestha from his residence in Kathmandu along with his wife and 11 aides. In an another police raid Coordinator of National People's Movement Coordination Committee Bhakta Bahadur Shrestha was also arrested.

State of Emergency <Go to Contents>

On November 26 His Majesty's government declared the State of Emergency for three months, termed the Maoist terrorist, announced the full-fledged mobilization of the Royal Nepal Army (RNA) and suspended nearly all the fundamental rights of citizens (Aritcle 12. Right to Freedom, Article 12.2 (a) freedom of opinion and expression, Article 12.2 (b) freedom to assemble peaceably and without arms, Article 12.2 (d) freedom to move throughout the kingdom and reside in any part thereof, Article 13. Press and Publication Right, Article 13.1 no news item, article or any other reading material shall be censored, provided that nothing shall prevent the making of laws to impose reasonable restrictions on any act which may undermine the sovereignty and integrity of the Kingdom of Nepal, or which may jeopardize the harmonious relations subsisting among the peoples of various castes, tribes or communities, or any act of sedition, defamation or contempt of court or incitement to an offense or on any act against which may be contrary to decent public behavior or morality, Article 15 Right Against Preventive Detention, Article 15.1 No person shall be held under preventive detention unless there is a sufficient ground of existence of an immediate threat to the sovereignty, integrity, or law and order situation of the Kingdom of Nepal, Article 15.2 Any person held under preventive detention shall, if his detention was contrary to law or in bad faith, have the right to be compensated in a manner as prescribed by law, Article 16. Right to Information--every citizen shall have the right to demand and receive information on any matter of public importance; Article 17. Right to Property, Article 17.1--All citizens shall, subject to the existing laws, have the right to acquire, own, sell and otherwise dispose of, property, Article 17.2-The State shall not, except in public interest, requisition, acquire or create any encumbrance on, the property of any person, Article 17.3- the basis of compensation and procedure for giving compensation for any property requisitioned, acquired or encumbered by the State for in the public interest, shall be as prescribed by law, Article 22. Right to Privacy-Except as provided by law, the privacy of the person, house, property, document, correspondence or information of anyone is inviolable, Article 23 Right to Constitutional Remedy-The right to proceed in the manner set forth in Article 88 for the enforcement of the rights conferred by this Part is guaranteed, Article 88 deals with protection of fundamental rights to be safeguarded by the Supreme Court. However, the right to remedy of habeas corpus under Article 23 has not been suspended).

The king approved the mobilization of Royal Nepal Army, on the recommendation of National Defense Council (NDC). The NDC comprises Prime Minister, Defense Minister and Commander-in-Chief of the Army. The king also promulgated Terrorist and Disruptive Ordinance 2001 declaring the cadres of Nepal Communist Party (Maoist) terrorist. Anyone found involved, directly or indirectly, and helping them would also be treated as terrorists. The same day the Army started aerial shooting and killed 40 terrorist in a forest near Dang. Premier Deuba made an appeal in the name of nation and people justifying the need for the declaration of emergency and seeking cooperation from political parties, civil society and all the quarters in the campaign against the Maoists. Army also made a series of aerial attacks in Rolpa, Dang, Ramechhap, Gorkha, Syanga, and other places, killed many Maoists, recovered two army jeeps and bulk of ammunitions looted by them during their attack of Dang Army Barracks. As a result, it is reported that hundreds of the members of Maoist peoples government from Rolpa, Syangja, Dolakha, Ramechhap, Udaypur, Pyuthan, Salyan, Sankhuwasabha, etc resigned, a large number of their cadres and supporters surrendered to the local administration and many of their sympathizers deserted them to lead a normal life.
Regarding the invitation of foreign force against the Maoists, Premier Deuba speaking to The Kathmandu Post Daily on December 4, categorically ruled out inviting any foreign armies to assist the Royal Nepal Army in its operation against Maoist rebels. Regarding the import of weapons he said, "The only criteria is that such weapons be available quickly and cheaply. In this context, we could import arms and ammunitions from India." Regarding the room for negotiation, he said, "How can there be negotiations with those who deceive you. No, there will not be any peace negotiations now. They must first lay down their arms and surrender, then we can think of other things." Premier Deuba, however, agreed that "poverty, illiteracy, lack of jobs and other socio-economic factors had all combined to create a ripe situation waiting to be exploited by the Maoists." He further asserted the emergency will continue till the Maoists are defeated. The official news claim that in seven districts night curfew continues and on December 9 a big encounter between the army and the Maoists took place in Rolpa in which 50 to 60 Maoists and 4 army men died. The army successfully saved the Nepal Telecommunication Corporations' repeater station from Maoist attack. In a similar encounters the next day in Salyan and Baitadi more than 40 Maoists and 2 soldiers died. On December 16 rebels launched sudden attacks District Police Office and military barracks in Solu and started firings but the joint operation of police and army repulsed them. In an interview to Nepal Television, C-N-C of the Army Prajwal S. Rana on December 17 revealed that so far 24 Army persons are killed and 58 are wounded in encounters with Maoists. Since December 24 the Royal Nepal Army (RNA) entered into a phase of offensive called "Search and Destroy Operations." The security men destroyed many of Maoist caves, also defused three banner bombs hung by the "terrorists" at Lalitpur districts while Maoists destroyed the houses of two ministers in Chitwan. On December 26 Informal Sectors Service Center (INSEC) revealed that during the emergency period 523 Maoists and 97 security personnel have been killed, 3386 persons believed to have Maoist connections have surrendered before the local authorities, 2971 persons have been arrested while action was taken against 481 persons.

Opposition Parties' Stand <Go to Contents>

On December 2 the meeting of nine left parties emphasized that "the state of emergency was not the solution to the crises dogging the nation." They asked the government to call off the state of emergency at the earliest possible and also suggested the Maoists to abandon the path of violence and seek peaceful solution to the present crisis. CPN-UML also constituted five-member parliamentary team under MP Rajendra Panday to study nationwide events that occurred during the state of emergency. The team collected facts from Syangja, Pyuthan, Dang, Dolakha, Ramechhap, Makwanpur, Rolpa, Sankhuwasabha and Solukhumbu districts and submitted report to Premier Deuba on December 4. The press release by the team claims that "the government side has killed many innocent civilians. Many UML activists have been deliberately killed or subjected to physical and mental torture and the civilians are not given access to newspapers in those districts." Speaking to press on December 5, leader of the opposition Madhav Kumar Nepal argued that the "government should persuade the Maoists that one cannot reach at the goal by the barrel of the gun. In order to solve the Maoist problems politically, both the government and the Maoists should come at the negotiation table." Addressing a gathering to celebrate 53rd World Human Rights Day leader of the opposition Nepal argued that " army mobilization would only aggravate the present fluid situation instead of solving it. If the country is to be free from terrorism, it is necessary to identify its root cause." Similarly, the leader of CPN-ML Bam Dev Gautam added that "if the RNA starts committing atrocities against innocent people, we will be forced to protest vigorously against its mobilization." On Dec. 11 thirteen opposition partied including CPN-UML, CPN-ML, and Rastriya Prajatantra Party (RPP) handed over a memorandum to premier Deuba asking him to end the state of emergency as soon as possible and cautioned the government against misusing the authority. Taking the move of the opposition as positive one the Prime minister responded," The State of emergency has definitely curtailed some fundamental rights of the people. But it is not meant for the general people; it is for the terrorists only."

Nepali Congress Party also instituted two sub-committees each headed by MP Anand Dhungana and Benup Raj Prasain. While Dhungana is heading Information Analysis Committee, Prasai is heading another three member Contact Committee. This has been done to further ensure that no "one who is innocent is caught in the insurgency." On December 14 Chairman of RPP Soorya Bahadur Thapa said, "Although security operation was essential, it was not an end in itself. A political solution would be the ultimate answer to the ailing state of affairs in the country." Similarly views have been echoed by the General-Secretary of CPN-ML Bam Dev Gautam: "Maoist s should renounce violence, political parties should build pressure for creating an environment for holding talks to foster a wider national consensus." The leader of opposition Madhav Kumar Nepal, however, "stressed the need for new structures, political sagacity and farsightedness among those in power and a change in the Maoists' mind set for bringing about tangible improvements in the country." On December 15 G. P. Koirala, called for a "broader democratic alliance" to establish stronger partnership among the political parties during emergency, create a new image in national and international circle and work in a consolidated manner for reforms before the eleventh SAARC summit between January 4 to 6 next year.

Monarchy's Stand <Go to Contents>

In an interview granted to a journalist on December 6 His Majesty King Gyanendra said that " I never wanted the state of emergency. It came because of the necessity of the situation. The internecine killing among Nepalese is in itself painful. The army has no choice except to disarm them."

International Support to the Government <Go to Contents>

Premier Deuba convened a meeting of the heads of diplomatic mission Kathmandu to seek their support for the state of emergency. Foreign Ministry Spokesperson of India extended support to the "declaration of emergency" terming it a necessary step by a democratic government to preserve order in the country. The statement also said that "India would not allow its territory to be used by those inimical to Nepalese interest." The European Union Heads of Mission in Nepal in a press statement said, "EU Heads of Mission condemns these acts of violence in the severest terms. They place in jeopardy the prospects for a peaceful solution to the conflict in Nepal. We call urgently upon the leadership and cadres of the CPN-Maoist to desist at once from all such acts of violence and intimidation and to return to the search for a negotiated outcome...with very deep regret the EU Heads of Mission have observed the major violent attacks against the government of Nepal and its security officials, as well as against infrastructure targets, on a carefully planned and a systematic basis across various parts of Nepal since November 23."

The American Embassy in Kathmandu in a statement said, "The US condemns recent Maoist attacks and we call upon Nepal Communist Party (Maoist) activists to lay down their arms and pursue their goals peacefully, within the democratic framework established by Nepal's constitution. We support the government of Nepal's efforts within the constitution to protect its citizens and officials " State Department Spokesman Richard Boucher said, "We have said we clearly support the Nepali government's efforts to protect its citizens and officials." A Nepalese official said that "the United States would provide 10 sophisticated, bullet proof helicopters free of charge to the government to help it "establish law and order in the country." The Deputy Assistant Secretary of state for South Asia, Donald A. Camp while visiting Kathmandu on Dec. 11 said," I am here on behalf of the US government to express our support to the government of Nepal in its efforts against the Maoists."

On November 28 in a telephone call to the King Indian Prime Minister Atal Behari Bajpayee offered to help Nepal in its fight against Maoists. The Indian side also agreed to strictly check the border points to stop infiltration from both sides. The Indian Foreign Ministry said that "whatever assistance is required" in its fight against Maoists, it will support. The Indian Prime Minister said that India's Border Security Force would extend full cooperation to its Nepalese counterparts. "India will seal its borders and not allow its soil to be used to launch attacks on security forces in the neighboring country." Meanwhile, the Press Trust of India has reported that "India would supply Nepal with military equipment to quell the terrorists."

On November 29 in a press statement of the Ministry of Foreign Affairs of the Russian Federation, it said: "The Russian Federation supports the firm intentions of the Nepalese government aimed at securing sovereignty and territorial integrity of the country." The same day the Chinese government also firmly supported the government action taken by His Majesty's the King of Nepal and His Majesty's Government of Nepal to restore peace and stability in the country. In a statement issued by Chinese Foreign Ministry said, "As a cordial and friendly neighbor of Nepal, China is very much concerned about the latest situation in Nepal" and expressed hope and belief that "Nepal can maintain peace, stability and development." On December 8 Chinese Foreign Minister Tang Jiaxuan telephoned premier Deuba and reiterated the support of China for official measures including the state of emergency by the government to maintain peace and stability in the country. He also informed the Prime Minister that "neither the communist party nor any entity of the Chinese government has any link with and support for the terrorists of Nepal." The Chinese ambassador to Nepal Wu Cong Yong also stated that "China will never support Maoists in Nepal, nor would allow its territory to be used by them."

On December 10, while addressing an interaction program with reporters, Israeli Ambassador to Nepal, Avi Nir, said the Israel government is willing to extend military logistics and other support to Nepal in its fight against terrorism. He said that Nepal and Israel could negotiate over the issue if Nepal made such a request. Saying that his government fully supported Nepal's military action against the Maoists, ambassador Nir added that the government was fully justified in its action after the Maoists abruptly pulled out of talks and resumed violence. "No one has the right to remove a legitimate government forcefully." On December 17 Premier Deuba briefed the major about political and economic situation of Nepal and asked for enhanced cooperation in his efforts to curb terrorism in the country. In the meeting donors especially the British, UNDP, USAID, World Bank and Asian Development Bank raised the questions of corruption, misuse of resources, inability of the government to prioritize development issues, lack of good governance and human rights, etc.

Donors Set Up Trust for Peace <Go to Contents>

On October 4 a group of eight European donor countries including the Norwegian government, British government and Swiss government, under the aegis of United Nations Development Program (UNDP) jointly set up a Trust for Peace and Development (TPD) aiming at reducing violence and promoting peace and development in Nepal. The donors reached an agreement to set up TPD during mid-September, after the terrorist attack in the United States. Nepalese will be involved in the project implementation and will work at the grassroots level. Beneficiaries will be those affected by Maoist insurgency, particularly the disadvantaged groups, women and youth. It also aimed to create awareness in the society and advocate for peace and development.

Corruption <Go to Contents>

On March 6 the Commission for the Investigation of Abuse of Authority (CIAA) had asked premier Koirala to take necessary action against the Education Minister Govind Raj Joshi for exercising his rights willfully in connection with the selection of primary, lower secondary and secondary school teachers in 1998 thereby creating confusion in the education sector and eroding the people's faith in the government's functioning. To CIAA, the entire process of selecting 14,000 teachers were wrong as he removed the names of many successful candidates and that he did not follow the guideline of Public Service Commission (PSC). On March 12 Minister Joshi filed a writ petition against CIAA at the Supreme Court stating that it was not he but the cabinet that amended the Education regulation. The Supreme Court's decision of December 5 gave minister Joshi a clean cheat and asked the Ministry of Education to go ahead and publish the results of teachers.

On April 26 the CIAA ordered Hari Bhakta Shrestha, former Executive Chairman of RNAC and Tirtha Lal Shrestha, board member into police custody for their involvement in Lauda Jet Air deal. They were taken into custody as they failed to provide a bail of Rs. 50 million each that CIAA asked to submit. The CIAA also asked former minister for Culture, Tourism and Civil Aviation Tarini Dutt Chataut to submit his passport to the commission. On April 27 Chataut who resigned from the Minister and submitted his passport to CIAA. He was also barred from moving outside Kathmandu valley without the permission of CIAA. On August 10 the Supreme Court released on bail two formal executives of RNAC, Hari Bhakta Shrestha and Tirtha Lall Shrestha. The duo posted the required bail amount of Rs. 4.5 and Rs 3.5 million respectively. Chief Justice of the Supreme Court Keshav Prasad Upadhayay reduced the amount of bail. Likewise, former minister Tarini Datta Chataut posted a bail worth Rs. 2.1 million and 56 thousand at the Appellate Court Patan in connection with the Lauda case.

In the first week of May the CIAA sent five questions to premier Koirala in sealed envelop to which he wrote three page reply challenging the CIAA's jurisdiction to ask cabinet decision. On May 25 the CIAA filed cases in the Patan Appellate Court against 10 persons, including former Minister Chataut and two Lauda Air Executives charging them with corruption. The CIAA argued that the decision to lease the Lauda Air jet was reached with malafide intentions. The lease led to a direct loss of the RNAC of over 389 million. The convicted would have to compensate the loss. The CIAA strongly rebuked Premier Koirala for the cabinet's role in the deal but spared him from the embarrassment of having to face a court case. On July 19 Royal Nepal Airlines annulled the controversial deal with Austria's Lauda Air to lease a Boeing 767-300 at unfavorable conditions from May 26 before expiry in December this year.

In May third week the Public Account Committee of the parliament implicated senior party member of CPN-UML and former Civil Aviation Minister, Bhim Rawal of corruption while leasing a Chinese jet for RNAC. The CPN-UML immediately constituted a three-member committee in the party to investigate the matter and declared that there was no fault of Rawal.

On August 7 the CIAA asked the Ministry of Finance and the Cabinet to suspend distribution of financial assistance to individuals, Donation and Award Fund. In a directive issued to the Cabinet, CIAA asked the issuance of funds to be suspended until a transparent process is implemented. According to the Home Ministry, the amount of financial assistance granted during the first 10 months of this fiscal year had reached Rs. 100,073,876.

The Supreme Court on September 27 ordered the government to formulate a proper act to regulate the Rs. 1 million annual grant given to MP for his/her constituency development. The order came in response to the writ petition filed by Bharat Jungam, an anti-corruption activist. The court also ordered that the Constituency Development Program Implementation Procedure, 2055 is not a law and members of parliament can receive such money only after making a proper law. The nine-month government of CPN-UML had started this program to provide Rs. 2,00,000 to the MPs to spend in their respective constituencies. This amount was increased to 1 million last year. Many MPs reported that there has been misuse of this fund.

On September 11 the Public Account Committee of the Parliament (PAC) blamed the secretaries for the piling of unsettled accounts of different ministries, departments and corporations. The unsettled accounts totaled Rs. 25.71 billion last year, while a year before the amount was 22.36 billion. The secretaries are considered to be the chief accountants in their respective ministries and they are held accountable for any irregularities or problems in the accounts.

On August 8 the Supreme Court reverted a one-year old verdict made by the Special Election Court and reinstalled Rajendra Prakash Lohani of CPN-UML in parliament invalidating the sitting of Dr. Prakash C. Lohani of Rastriya Prajatantra Party. The two were contenders of May 1999 election from Nuwakot Constituency-1. The Election Commission declared UML's Lohani elected. But in response to a petition filed by Dr. P. Lohani, the Special Election Court in June 2000 declared him the winner by a margin of one vote. This was again invalidated by the Supreme Court noting that " due procedure was not followed while making the filing of the complaint."

In 2001 Nepalese trade unions show greater level of maturity in working together in many areas of their common concerns and the mainstream trade Unions of Nepal--Nepal Trade Union Congress (NTUC) and General Federation of Nepalese Trade Unions (GEFONT) held a number of dialogues for creating a national center. These unions including Democratic Confederation of Nepalese Trade Unions (DECONT) conducted a number of programs separately to strengthen their respective unions. With FES they worked in the fields of trade union training and education, leadership development, organization and management, leadership training for women, policy planning, material support and helping the unions to publish their training and teaching materials.

With the ILO and ITSes these unions worked in the fields of the elimination of child labor, bonded labor, worker's rights, organization of informal sectors, education for workers' children, occupational health and safety, role of trade unions in privatization, impact of globalization on workers etc. and conduction of a series of research projects on Kamaya (bonded labor), child labor, role of big business houses in Nepal, upliftment of sweeper community and implementation of labor law. On December 14 the Nepalese government and ILO signed an agreement for the implementation of ILO's IPEC DECL project entitled "Sustainable Elimination of Bonded Labor in Nepal." The three-year project aims at providing support to bonded labor in Nepal. The project is funded by United States Department of Labor.

A few labor strikes occurred in the initial months of this year on the hotel industry. On March 15 in order to avoid the impending crisis in tourism industry due to strikes called by Hotel Workers Union for 10 percent compulsory service charge, the government banned all forms of strike in the hotel industry effective from March 16. Under the Essential Service Regulation Act 1958, the government included tourism, accommodations, hotels, motels, restaurants, and resorts and banned strikes in these institutions. Other areas include: 1. Postal, telegram and telephone services; 2. Passenger and cargo transportation service; 3. Aerodrome and aircraft care taking, maintenance and operation services; 4. Mint and government's publishing services; 6. Service related to government's security arrangement including the production, storage and distribution of arms and ammunitions; 7. Communication services; 8. Electricity services; 9. Drinking water's operation and distribution service; and 10.

Tourism, accommodation, motel, hotel, restaurant and resort services. Two umbrella organizations of trade unions-Nepal Trade Union Congress and General Federation of Nepalese Trade Unions -- took the case to the court. Legal experts argue that the step of the government contravenes the ILO Convention 98 regarding the right to organize and collective bargaining, fundamental rights of citizens and the spirit of Universal Declaration of Human Rights. Nepal has already ratified Convention 98. On March 21, NTUC and GEFONT jointly organized a press Conference suggesting the government to enter into peaceful dialogue with the Hotel Workers Unions in order to solve their problems.

Each trade union federation organized May Day celebration separately. NTUC gathering was addressed by Prime Minister Girija Prasad Koirala while DECONT by former premier Krishna Prasad Bhattarai. Secretary-general of CPN-UML Madhav Kumar Nepal addressed GEFONT meeting.

On May 23, the government asked all its public sector units to implement the financial agreement between workers and government signed on April 24, 2001 under which workers representatives will have share in the decision-making process of the enterprises regarding finance, operation and sharing of benefits. It would be effective from July 2000. The agreement would affect about 110,000 workers of public sector bank and more than 80 public sector enterprises. This is for the first time in the history of Nepal that any national level federation made any agreement with the government.

On August 5, upon the request of all trade unions of the country to end the system of contract labor, all the industries located inside the Hetaunda Industrial District decided not to hire workers on contract. Nepal Trade Union Congress organized a program "Nepal Trade Union Congress and Social Dialogue" involving forty-six Members of Parliament, Civil society (academician, women, and press) and politicians. The contents of social dialogue involved: consolidation and safeguarding democracy, Social Security, Social Justice and Cooperation, Economic Development and Employment Generation, Tripartism, State and Good Governance, NTUC and question of employment, workers' rights and responsibility.

The House of Representatives ratified unanimously the ILO Convention-29 concerning forced or compulsory labor and Convention-182 concerning elimination of the worst forms of child labor on Sept. 13. Nepal has been selected as a model in terms of abolition of child labor in Asia, by the ILO and the government hopes to eliminate the worst forms of child labor within the next five years and all kinds of child labor by the next ten years.

FOREIGN AFFAIRS <Go to Contents>

Foreign policy of Nepal is guided by the Principles of the UN Charter, nonalignment, the five principles of peaceful existence of Panchsheel, international law and the value of world peace. It believes in the promotion of cooperative relations on the basis of equality with neighboring countries--India and China--and all other countries of the world. Nepal shares with India 1850 kilometers open border with India and 1415 kilometers long border with China. History, tradition, trade and commerce, treaty relationship and shared interests govern Nepal's relations with the neighbors and the outside world. In the year 2001, Nepal did not see much upheaval in its foreign policy. This writing deals Nepal's foreign affairs item-wise below:

Nepal-India Relations <Go to Contents>

Nepal and India are very close neighbors. People of both the countries share common Hindu and Buddhist cultures, art, cross border marriages, educational opportunities, businesses and commerce and seasonal migration of peoples. More Nepalese are working in the Indian army than they are in the home country. All the political parties of Nepal, civil society and market institutions are affiliated with like-minded Indian counterparts. India provides Nepal with transit and trade facilities through its port in Calcutta. Some irritants, especially illegal trade, cross-border trafficking of girls, crime-related activities etc, however, plagued the relations of two countries.

January 13, the proposal made by Nepal for the construction of a dam to avoid inundation of many villages in Nepal caused by India-built Laxmanpur Barrage has been partially accepted by India. Nepal had asked India to construct a 15-kilometer long dam on the eastern side of Rapti river and seven-kilometer long dam on the western side of the river. The Indian side has agreed to construct a two and half kilometer long dam on the eastern side and seven-kilometer long dam on the western side. India has also agreed to construct a nine-kilometer long dam at Lalkabiya, Gaur where the dam constructed over Bagmati River by India often cause inundation.

On January 31, Nepal provided Rs. 10 million worth of relief materials to earth quake victims in Gujrat, India, including 10 medical doctors.
In July 29 Speaker of House of Representatives Taranath Ranabhat issued a ruling to the government to give details within a week on the Russiyal-Khurda-Lautan barrage and its supporting embankment just about 6 kilometer south east of Lord Buddha's birth place Lumbini being constructed by India near the Nepal-India border that threatened to submerge the UNESCO World Heritage Site. The six-meter high barrage is being constructed over Danav River in Marchabar area, just 200 meters away from Nepal -India border. The Nepalese government has asked the Indian government to stop the construction of barrage.

On August 1 in three-day trade talks at the commerce secretary level, the visiting Indian trade delegation raised the issue of swelling exports of some Nepalese products such as Zinc Oxide, acrylic yarn, copper twines, vegetable ghee, and steel pipes to India. The Nepalese side, however, maintained that natural growth in the export to India does not attract "surge" Clause of the Nepal-India Trade Treaty 1996. Article V (2) of the treaty says, "In the event of…a surge in the imports generally or in the import of any particular article, the two governments shall enter into consultation with a view to taking appropriate measures." An understanding among some disputed issues was reached which will be included in the "comprehensive agenda" for debate. India agreed to look into the Nepalese request on delayed Railways Agreement and the recognition of Nepal Standard (NS) mark in India. The Railways Agreement with the Indian authorities had delayed the operation of the multi-million Birgunj Inland Container Depot (ICD). Once the agreement is signed the Birgunj town of Nepal would have direct rail links with Calcutta and Haldia, which is expected to slash transit costs for Nepalese exporters by 30 percent. The Indian concern was centered on Nepal Vehicular Mass Emission Standard, 1999 that required the submission of certificate of Conformity of Production (COP) before imported vehicles are cleared at the customs points. India also accused Nepal of unfavorably treating Indian vehicle imports, while vehicle imports from other countries are done on mere self-certification. India decided to wave premium in the leased Nepalese properties at Kolkata, in addition to setting up lab testing facilities at Raxual and Gorakhpur for exports of food articles from Nepal. Also an understanding was reached for enhancing the process of agreement between the Bureau of Indian Standard and Nepal Bureau of Standard and Metrology for recognizing the Nepal Standard mark in India, which has created hurdles for Nepalese exporters. India also conceded to Nepal's request for help in setting up the protracted Export Processing Zones (EPZs) while Nepal agreed to reach an agreement guaranteeing the security of Indian investment in Nepal within six months.

Besides India also agreed to waive excise duty being levied on aviation fuel supply to Nepalese aircraft in India and assured to take steps for the improvement of physical facilities and infrastructures at major border points. The Indian delegation also promised to open Nepal's access to Mumbai Jawaharlal Nehru seaport. On August 14 the Indian Embassy in Kathmandu stated that "The Indian government has sought the review and revision of certain provisions of the Nepal-India Treaty of Trade before extending the validity of the Treaty beyond December 5, 2001. India also extended an invitation to a delegation from Nepal to visit New Delhi at the earliest to discuss the issue." The Treaty was signed between the two sides on December 6, 1991 and further modified by letters exchanged between the two governments on December 3, 1996.
The Indian Foreign and Defence Minister Jaswant Singh arrived on August 17 for a three-day "goodwill visit" to Nepal three days after New Delhi formally called bilateral talks to review and revise a five-year trade treaty that expires December 5. India sought quantitative restrictions or increased value added input on five items including vegetable oil that have duty free access to India against Nepalese opposition at the last round of trade talks in Kathmandu. India invited a Nepali delegation to discuss the issue at the earliest in New Delhi. He was to have visited Nepal during Koirala's tenure to officially inaugurate seven bridges constructed by India completing the Dhalkebar -- Mahendranagar section of the Mahendra highway linking east and west Nepal. During talks with his counterparts both Nepal and India vowed to maintain the "basic spirit" of the bilateral trade treaty. Nepal suffers Rs. 20 billion worth trade deficit with India.

The third round of talks on Nepal-India Trade Treaty at Joint Secretary level on November 3-4 concluded without striking a "solid deal," but with some positive gestures of giving continuity to further consultations and dialogues. The two sides discussed the need of using the provisions of Preferential Trade regime for the benefit of the contracting parties and to avoid the deflation of trade. Nepalese Joint Secretary P. Ojha, who headed the Nepalese team, said, "The Talks mainly zeroed in on the topics such as certificate of origin, value addition, export surge and safeguard. Our priority was for adopting the recommendations of the Joint Economic Council of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) and Confederation of Indian Industries (CII)." The other meeting that took place in India on November 9-10 ended inconclusively. The officials between Nepal and India extended letter to extend the terms of bilateral trade treaty by another three months by till March 5, 2002. The terms of the existing trade treaty signed on December 6, 1991 and amended on December 3, 1996 had already expired on December 5, 2001.

Nepal-China Relations <Go to Contents>

Nepal shares with China 1414-kilometer long border with China and citizens of both countries can travel to each other's nearby market up to 30 kilometers from both sides. China provides Nepal scope for its trade and transit diversification. It is also one of the major countries in helping Nepal's industrialization and development. On February 27, 2001 the Chinese government had agreed to expedite the process of building the Syaprubeshi-Rasuwa road. The road project had been planned to be completed within three years. At the request of Nepalese side to accord the fifth freedom right from Shanghai to Osaka and the multiple designation of the Nepalese airlines on the Kathmandu-Lhasa route, the Chinese side stated that it would look into the matter and for this purpose the Civil Aviation Authorities of the two sides could hold discussion. The Chinese side appreciated His Majesty's government's "one China policy" and latter's stand on the questions of Taiwan and Tibet. The Chinese delegation to Nepal was led by assistant foreign minister of China Wang Yi.

Chinese Defense Minister General Chi Haotian came to Nepal on February 21 for his four-day official visit. He raised concern over "free Tibet activities" being done though Nepalese territory. Nepalese side also expected cooperation from China on the modernization of Nepalese army. On February 26 His Majesty King Birendra Bir Bikram Shah and Queen made a weeklong state visit to China (Feb. 26-March 4) on the invitation of President Xiang Zemin. The Chinese government requested king Birendra to be the Guest of Honor in the inaugural ceremony of the Boao Forum for Asia held at Hainan province of China. The forum was designed to create region-wide strategic alliance for seizing "trade, industry and investment opportunities emerging from a globalizing world." On April 18 China accepted Nepal's request to be included in its list of outbound destinations enabling its citizens to travel to Nepal. A Memorandum of Understanding to this effect has been signed recently.

On May 14 Chinese Premier Zhu Rongji made a three-day official visit to Nepal. According to the memorandum of understanding signed between Nepal and China the latter would support Nepal in agriculture, establishment of polytechnic institute at Banepa, hospitals for civil servants in Kathmandu, Syabrubensi-Rasuwagadhi road link, agreements on economic and technological cooperation and avoidance of double taxation on merchandise. China agreed to provide a grant assistance of over Rs. 720 million under the economic and technical cooperation and assured to raise Nepal's demand of receiving the facility of "visa on arrival" from Hong Kong Special Administrative Region, which Nepal used to get until 1998. The Chinese side also consented to the Nepalese request to open a Consulate in Shanghai to facilitate visas for the Chinese tourists visiting Nepal. Bilateral trade between Nepal and China stands a little over Rs. 11 billion, a large part of the trade favoring China.

On November 14 China expressed its wishes that "India and Nepal could solve their territorial disputes on Kalapani though friendly consultations and negotiations" said Chinese Foreign Ministry Spokesperson Zhang Quiye in a press conference. Situated on the western frontiers of Nepal, Kalapani has been a disputed territory claimed by both Nepal and India as theirs. It is in a strategic tri-junction between Nepal, India and China, where India has stationed border police since the 1962 border war.

Chinese Tourism Minister He Guangwei while visiting Nepal signed tourism deal with his counterpart to enlist Nepal in China's outbound tourist destinations. The minister inaugurated Chinese National Tourist Office in Kathmandu and Nepal is also expected to establish similar office in China. Nepal has already authorized 67 Chinese travel agencies to bring Chinese tourists to Nepal and also vice versa. An agreement has also been reached to expand Nepal-China air link and making Chinese currency convertible with Nepalese rupees.

Bhutanese Refugees <Go to Contents>

On December. 25, 2000 Bhutanese Foreign Minister Jigmi Thinley said that the recent American proposal to verify Bhutanese refugees would be considered bilaterally during the 10th round of Nepal-Bhutan Talks. During their visit to Bhutan and Nepal, two US assistant secretaries--Karl Inderfurth and Julia Taft-had suggested the validation of 1,000,00 (more than 15 thousand families) refugees before actually verifying them. In 1993 Nepal and Bhutan agreed to the four categories of refugees-- Bhutanese citizens, voluntarily emigrated, Bhutanese who have committed crimes and non-Bhutanese. On December 27, 2000 Nepal and Bhutan agreed to verify the Bhutanese refugees on the basis of family units in one of the seven refugees camps in eastern Nepal within January 2001. Accordingly, both the countries established a Joint Verification Team (JVT) with five members from each side. The Ministerial Joint Committee directed the leaders of the two teams to visit eastern Nepal within January 2001 for logistic, security and other arrangements to ensure smooth functioning of JVT. In the bilateral verification process, both sides agreed on a common definition of a family unit, maintaining family integrity and scrutiny of all valid documents. For Nepal, there is one more hurdle, the issue of Bhutan's position on the four agreed categories of refugees. So far, Bhutanese has insisted on taking back only the refugees of the first category-bonafide Bhutanese.

On January 26, 2001 the joint verification team led by Dr. Sonam Tenzin from Bhutanese side and Ms. Usha Nepal from Nepalese side visited the refugees camp in and talked to refugees. Refugee leaders, however, did not feel happy with the slow pace of verification, the rate of 10 families a day. This means it will take atleast 5 years to complete the verification process. The issue became complicated as the National Assembly of Bhutan in July 2000 demanded that the Royal Government should not own responsibility of those refugees who supposedly signed the voluntary migration form and the government should bring to court all those individuals who have committed criminal acts or written or spoke against the government. This indicates that the Bhutanese government would repatriate only about 40 percent of the refugees.

On August 21 Finance Minister Dr. Ram Sharan Mahat held talks to his counterpart in the hopes of speeding up the process of verification of Bhutanese refugees in southeastern Nepal. He insisted that Bhutanese refugees should be grouped only into two categories--Bhutanese and non-Bhutanese and raised the issue with Bhutanese counterpart during the 11th Joint Ministerial Committee (JMC) in Thimpu. The Nepalese side revealed that Bhutan did not agree to Nepal's proposal to verify all the Bhutanese refugees in Eastern Nepal in a time bound manner but it endorsed the idea of increasing the pace of ongoing verification in one of the refugee camps. Both sides, however, agreed to categorize the refugees of the Khudunabari Camp and at the same time to harmonize their positions on the categorization. Jigme Y Thinley, Bhutanese Foreign Minister, said that the categorized refugees of the Khudunabari camp, after the harmonization of stands of two nations, would be repatriated.
Nepal-Britain Relations: The UK government supports Nepal in a number of development programs under the title "Enabling State Program." It's special focus is on pro-poor governance. The British government agreed to provide a grant assistance of 31,995,000 Sterling Pounds to Nepalese government for the implementation of a rural access program (RAP) in the eastern, mid and far-western region. The main purpose of RAP is to improve poor people's access to the goods, markets and services so as to enable the poor and disadvantaged population secure sustainable rural livelihoods. It also provided Rs. 1.96 billion to Nepal for the implementation of a 10-year Livelihoods and Forestry program from 2001.

On March 9 the British government announced "substantial pension rise of 10.9 percent effective from April 1, 2000 for the British ex-service men, put together with last year's hike of over 100 percent. The British initiative comes a day latter when the Gurkha Army Ex-Servicemen's Association (GAESO) raised their longstanding demand for pension parity vis-à-vis the British retired soldiers at the launch of their three-day International Human Rights Conference. Currently, there are 25,400 ex-Gurkha servicemen, while 3,400 other are still serving the British Army. The number in 1940 was above 100,000.

Nepal-Germany Relations <Go to Contents>

Germany is one of the most important development partners of Nepal. On April 3 annual bilateral consultation on development cooperation between Nepal and Germany took place. The Nepalese delegation was led by finance secretary Dr. Bimal Koirala while the German delegation was led by head of the South Asia Division of the Federal Ministry of Economic Cooperation Jochen Kenneweg. The German government is providing assistance to Nepal in various areas, such as hydroelectric power, rural and urban development, family planning, local governance, civil society, renewal energy, health, forestry and institutional strengthening of economic sector. German side agreed to contribute an additional DM 2.0 million for the integrated food security project in Nepal. Nepal's export to Germany rose to DM 203.5 million in 2000 from DM 187 million in 1999. Similarly, import from went up to DM 38 million in 2000 from DM 30 million in 1999.

Nepal-US Relations <Go to Contents>

On March 20 the US government officials revealed a new five-year country strategy funding for Nepal in tune of $100 million (20 million each year from 2001 to 2005). The areas of assistance cover agriculture, forestry, irrigation, family planning and health, women's empowerment and hydropower development. Some of these program started since 1995 are expected to be completed by 2002. On April 20, the visiting US Acting Assistant Secretary of State for South Asian Affairs Alan W. Eastham defended US Ambassador Ralph Frank's recent statement about Nepal's political situation. He said, "The opposition is at liberty to interpret American policy in any way it wishes. The statement was an expression of US global policy in support of democracy as the best system of government." He also criticized the Maoists for large-scale killing of policemen and added that democracy in Nepal was resilient enough to take care of the Maoist situation in Nepal."

On July 25 US Assistant Secretary of State for South Asia Christina Rocca while making four-day official visit to Nepal made it clear that President George W. Bush's administration places high priority on relations with the nations of this region, including Nepal. She said, "The US believes strongly in the benefits of democracy and we care about the development of Nepal's democracy." She suggested that dialogue with the Maoists should be done under the framework of Constitution and corruption should be checked.

Nepal and the U.S. Agency for International Development (USAID) recently signed an amendment adding $60 million to the strategic objective agreement for reduced fertility and protected health of Nepali families. The amendment brings the total estimated USAID contribution for the health program to $110 million. The agreement which was first signed in 1996 has been extended for five years to 2006.

In response to Prime Minister Sher Bahadur Deuba's decision to allow the American force Nepal's air space and refueling facilities to attack Afghanistan, nine left parties in a press release criticized the government's decision. The statement signed by the leaders of the Communist Party of Nepal (Unified Marxist-Leninist) and CPN-ML, among others, said that until now Nepal had not allowed its land to be used against any other country. They added that this "decision was against Nepal's policy of non-alignment" and said that "Nepal should not even indirectly involve itself in the conflict. They demanded withdrawal of the Prime Minister's offer.

On November 11 Minister of State for Home Devendra Raj Kandel revealed that the United States has promised to supply Nepal with 10 modern fully armed helicopters to "fight terrorism." Those helicopters will be flown by either the regular police or newly constituted Armed Police Force.

Japanese Cooperation <Go to Contents>

Japan is Nepal's biggest development partner. It supports Nepal in the fields of transport and communication, education, health, agriculture and technical cooperation. On February 15, Japan extended a grant of US $ 7,363,000 to Nepal for debt relief measures and for the materialization of the project for improvement of Intersections in the Kathmandu Metropolitan City. On August 17 the government of Japan agreed to extend a grant assistance of Rs. 2.61 billion to the government of Nepal. The money will be spent in road, bridges, buying salt and other essential services. It also provided a grant assistance of Rs. 585.5 million for the construction of primary schools, $ 33,450 to the King Mahendra Trust for Nature Conservation, Rs. 2,470 million to purchase products and services needed for the construction of roads and bridges for Banepa-Sindhuli road, Rs. 565 million for the implementation of the project for improvement of storage facilities of iodized salt, and $. 49,401 to the Fire fighters Volunteer Association of Nepal.

The Japanese Embassy on September 25 gave a $79,153 grant to construct a two-story community development center at Charpene village in Jhapa. Ten villages around the center will benefit from the project. The center will establish and develop entrepreneurs' groups and co-operatives and provide training on the production and marketing of arts and crafts, help craftsmen identify markets for their products, among other things. Japanese government provided a grant assistance of 45,490 dollars to the Federation of Nepalese Chamber of Commerce and Industry for the implementation of human resource development. On December 27 it agreed to provide a grant assistance of about Nrs. 1,515,891,000 out of which Rs. 611,520,000 is granted for the implementation of the water supply projects for Kathmandu, Rs. 492.8 million for debt relief measures and Rs. 411.6 million for the purchase of fertilizer.

Nepal Small European States <Go to Contents>

Nepal receives substantial amounts of development aid form small European states like Finland, Denmark, Norway, Switzerland and Sweden in infrastructure development, community development, social development, human rights, democracy, decentralization and good governance. Norway's official development agency, NORAD, on Feb. 22 approved its long assured US dollar 24.7 million grant for the tunnel component of Melamchi Water Supply Project but decided to begin the construction work only after the government places a private operator at Nepal Water Supply Corporation's management. The funding of NORAD, Swedish International Development Agency (SIDA) US dollar 25 million (which is half grant and half loan), ADB loan $ 120 million and the government's investment of $ 36.5 million will go for the construction of the 72 kilometer long tunnel designed to initially pipe in 170 million litres o water every day into the capital valley from the Melamchi river in Sindhupalckowk District to the northwest of Kathmandu. The NORDIC Development Fund (NDF) agreed to provide a loan assistance of approximately Rs. 675.9 million for the Melamchi diversion scheme component of the Melamchi Water Supply project. The Norwegian government has contributed an amount of US $ 1.13 million to support the World Food Program's operation in Nepal. Danish government on March 6 provided a grant assistance of about of about Rs. 294.7 million for the management of air quality in Kathmandu valley. The Kingdom of Sweden agreed to extend a mixed credit assistance of Rs. 1.96 million to Nepal to support the implementation of Melamchi water supply project. The government of Switzerland agreed to provide a grant assistance of approximately Rs 156.35 million for the implementation of the third phase of rural health development project. It also provided a grant assistance of about Rs. 107.5 million for the implementation of the third phase of the Arniko Highway Project and 11.8 million Rupees for road network planning.

Nepal and Asian Development Bank (ADB) <Go to Contents>

On March 2 the ADB pledged a US $ 306 million loan for the year 2002-2004 that will mainly focus on poverty alleviation projects. It also extended another $ 4.8 million annual technical assistance for 21 projects. The technical assistance includes the project to assist the Commission for the Investigation of Abuse of Authority (CIAA). The ADB also agreed to develop a modality for new tourism project, an extension of the US$ 22 million Second Tourism Infrastructure Development Project, which is nearly under completion.

On January 24, Nepal and Asian Development Bank (ADB) signed an agreement under which ADB will provide a grant assistance of US $3.3 million and a loan assistance of $138.3 million for various development projects, such as Melamchi Water Supply Project, Crop diversification project, corporate and financial governance Project. On April 29 it sanctioned US $ 300,000 as technical assistance for the preparation of the Tenth Five-Year Plan (2002-2007). The main objective is to assist the government in clearly prioritizing the plan, meet the consultancy expenses in setting priorities, macroeconomic modeling, and public consultative processes. On November 27 the Bank approved a loan amounting to US$ 30 million to Nepal to finance improved governance. The loan will go towards initiating programs aimed at making the civil service and public sector organizations more result-oriented, responsive to people's needs and more gender friendly. On December 13 a loan agreement of US$30 million was signed between the government of Nepal and ADB on the Governance Reform Program to improve service delivery. The program aims to make public management clean, lean, transparent, efficient and accountable. Similarly, ADB also approved a loan of US$ 46 million for improving access to Nepal's rural areas. The ADB also agreed to provide a grant assistance of about Rs. 60.68 million to support poor and disadvantaged farmers through civil society organizations under the Japan Fund for Poverty Reduction.
The World Bank: On Dec. 12 the World Bank approved a US$ 22.56 million credit to Nepal to help finance the Telecommunications Sector Reform Project (TSRP) The reforms initiated by the Nepalese government are allowing virtually complete freedom for the private sector to provide all forms of value-added services, enacting the Telecommunication Act for fair competition establishing a regulatory agency and adopting a progressive policies in this sector. The TSR has two main components: one, strengthening institution building and two, licensing of a rural private operator through market mechanism to provide telecommunications services in 534 Village Development Committees (VDC) in the eastern region. The World Bank provided a grant assistance of US$ 100.000 to the Public Account Committee of the parliament in appreciation of its outstanding contributions to curb corruption.

SAARC <Go to Contents>

The third special session of the SAARC standing committee concluded its meeting in Colombo on August 10, 2001. All the delegations stressed the need for convening the eleventh SAARC Summit in Kathmandu as early as possible. The Committee adopted the budget of the SAARC Secretariat for the year 2002 and approved the reports and recommendations of four technical committees. The Committee also recommended holding the first and second meetings under the third round of trade negotiations under South Asian Preferential Trading Agreement (SAPTA) in Kathmandu from 6 to 7 September and 14 to 15 October, 2001 respectively. The report of the first meeting of the committee of experts (COE) on the drafting of a South Asian Free Trade Agreement (SAFTA) treaty framework was also adopted. To expedite the work in this area, the committee recommended to hold the second, third and fourth meetings of COE in Kathmandu on the 8th and 9th of September, the 13th and 14th of October and the 2nd and 3rd of November, 2001 respectively. Similarly the meetings of the Committee, Secretaries and Commerce Ministers would be held in New Delhi on 22nd and 23rd of August respectively to coordinate positions of SAARC countries at the Third Ministerial Meeting of the WTO held in Doha, Qatar in November 2001.

On November 2 four South Asian countries recently launched "major regional transport networks development program" focusing on increased investments in national infrastructure related to the transport sector. The beneficiary countries are Nepal, Bangladesh, India and Bhutan. The program is supported by Asian Development Bank (ADB). Transport Working Group under South Asia Sub-Regional Economic Cooperation Program (SASEC) aims to develop these regions engrossed in poverty into one of the fastest growing regions by establishing high speed transport grid, similar grind for power and energy exchanges, fibre optic Twenty telecommunications grid, world class port facilities.

The long-delayed 11th SAARC meet would be held in Kathmandu on January 4-6, 2002 revealed the SAARC Secretariat. SAARC Secretary-General Nihal Rodrigo revealed that the draft of the SAFTA framework treaty would not be the part of the agenda during the upcoming summit. The major agenda would be conventions on women and children, women and trafficking.

ECONOMIC SITUATION <Go to Contents>

The population of Nepal, according to the Census of 2001, has reached 23.1 million with the growth rate standing at 2.27 percent. The average economic growth over the last three decades has been around 4 to 5 percent while this year it stands at 2.5 percent. This high population growth without a commensurate economic expansion, especially in terms of the economy's capacity to create additional employment opportunities, has led people to increasingly rely on agriculture for their livelihood. Over 75 percent of the population is engaged in agricultural activities exerting a tremendous pressure on land and the ecology. Low growth rate in the agriculture sector (2.5 percent) has already made Nepal a net importer of food grains. Yet, agriculture has a 40 percent share in the country's GDP. The government's policy to increase agricultural productivity to 4 percent through the implementation of the Agricultural Perspective Plan (APP) 1995, failed to meet the target. The government could not execute the recommendation of the APP to invest in the priority areas--irrigation, roads, power, technology and fertilizer-- as a bulk of the available resources was diverted to other areas.

According to the Central Bureau of Statistics (CBS), the non-agricultural sector also declined from a growth rate of 5.6 percent last year to 2.76 percent this year. Sector-wise, hydropower, gas and water sectors are expected to register a robust growth of 27 percent. The manufacturing sector is projected to decline to a 2 percent growth rate, tourism sector 0.40, transport and communications 4.30 percent, and finance and real estate around 4.5 percent. The low growth in the financial sector is due to a continued excess liquidity condition in the banking sector coupled with a sluggish performance of real estate. Similarly, the community and social sector is expected to surge only by 1.2 percent against the 15.02 percent recorded last year.

Official records say that about 42 percent of Nepal's population live below the poverty line while UN sources reveal the figure to be 51 percent. The magnitude of human poverty is the highest in the mountains followed by the hills and Tarai. The World Food Program estimates that 36 percent of Nepali people consume less than the minimum daily calorie intake requirement. Nepal has one of the lowest ratios of internal revenue generation to GDP, about 12 percent. It has a per capita income of US$ 220. Unemployment in urban areas is 7.4 percent while in rural areas it is 1.2 percent. Growing poverty and unemployment have caused large-scale outward migration of people looking for jobs- to India, Gulf countries, East and Southeast Asia, Europe, Australia and the United States.

Foreign aid plays a crucial role in Nepal's development. Sixty-five percent of its development expenditure comes from foreign aid. About 30 percent of the regular expenditure goes for debt servicing. Foreign aid commitments to Nepal have gone up four folds in the first four months of the current fiscal year 2001-02. According to the Foreign Aid Coordination Division, Ministry of Finance, foreign aid commitment by different donors to Nepal reached Rs 15.37 billion, up from only Rs 4.3 billion over the same period last year. Of the total foreign aid, the grant component is equivalent to Rs 12.69 billion and loans worth Rs 1.7 billion. On a project-wise basis, Melamchi Water Supply Project attracted the biggest amount of aid, worth Rs 5.53 billion. Similarly, Reduced Fertility and Protected Health Project received a grant assistance worth Rs 4.48 billion whereas the Banepa-Sindhuli road project received a grant from the Japanese government worth Rs 2.05 billion. Country-wise, the USA stood to be the largest donor extending an assistance worth Rs 5.9 billion for three different projects.

Nepal ranked 129th among the 162 countries included in the Human Development Index of 2001. The adult literacy rate is about 40 percent and for women the figure is less than 30 percent. Life expectancy of Nepalis is 58.1 years. Infant mortality rate is around 75 per thousand births. The Ninth Five-Year Plan (1997-2002) adopted poverty reduction as its primary objective. In the 10th Plan (2002-2006) the government presented a comprehensive "Reform Agenda for Poverty Reduction" at the Nepal Development Forum which again lays stress on poverty reduction. The government strategy visualizes a two-pronged approach: stimulating a high level of economic growth through a deregulated economic system and a liberalized trade regime, where the private sector plays the leading role, while ensuring distributional equity through pro-poor growth policies and distribution of gains from the overall economic growth.

The exports of 12 months of 2001-02 reached $0.8 billion. With around 4 to 5 percent GDP growth rate and a stable macroeconomic environment (2 percent inflation, comfortable foreign currency reserves to finance imports for at least 11 months and not-so-bad fiscal side) the Nepalese economy may look fundamentally sound. But there are signs of crisis: caused by labor unrest, Maoist insurgency, and declining performance of the agriculture, industrial and tourism sectors. Investments are dwindling-both private and public. It is investments that hold immense sway over the future tempo of economic growth. The environment for Foreign Direct Investment (FDI) is not at all encouraging. Most of the prospective foreign investors are holding up their investment plans or have scrapped it altogether citing worsening security situation in the country. Due to red-tapism, Nepal has been slow in adopting new technology. The bureaucracy is ill-suited even to clear investment approvals and duty drawbacks- a facility for exporters- within the timeframe stipulated by the Foreign Investment and Technology Transfer Act. Rigid labor laws, even compared to the neighboring countries, are emerging as another obstacle in the nation's endeavor to attract FDI. The tourism sector, which has about 4 percent share in the GDP, also declined due to global and national terrorism, the Royal Palace massacre and industrial strikes. In October this year, the number of tourists entering Nepal fell by 14 percent from a year earlier. The September 2001 terrorist attack in America badly affected Nepalese exports of hand-woven woolen carpets, ready-made garments and cashmere shawls, which represent over 80 percent of the country's exports. Customs and internal revenue collection fell well below the target of 60.25 billion and there is a shortfall of 6.5 billion rupees in foreign assistance due to the economic downturn in the US and Europe. About 25 to 30 percent of the total development budget from 2001/2002 budget will be reallocated to meet the operational costs of the army to combat terrorism.

According to the Garment Industry Association of Nepal, about 95 percent of the ready made garment industries have been closed with 50,000 employees laid off from their jobs. The number of jobs provided by the industry has also gone down from an earlier figure of 200,000 to 50,000 now. This is due to the unfavorable international market, regional competition and domestic political instability. Small and cottage industries are also plagued by the crisis. At least 60 percent of the nearly 127,500 cottage and small industries registered until 1999-2000 are now in dire straits. According to the Federation of Nepalese Cottage and Small Industries (FNCSI), although this sector has only 18 percent of the total industrial investment, it provides 67 percent of the total employment (offered by industries) and has 80 percent share in the total industrial output. The downward slide of 'dhaka' and 'pashmina' production has discouraged entrepreneurs.

In the mid-term review of this year fiscal year's budget, the government appeared very much concerned over the fast increment in its regular expenditure. And, the government has very little control over regular expenses- such as wage bill, pensions, security expenses, debt services, etc.

On January 9 of 2001, the Department for International Development (DFID), a major donor agency in Nepal's privatization efforts, warned the government that it would withdraw its assistance from the project if the government failed to show a clear commitment to the privatization process. In 1997, while negotiating technical assistance with DFID, the government had identified a list of seven PEs as potential candidates for privatization by the end of 2001. However, only one PE-the National Tea and Development Board-has been privatized. The World Bank in its Country Strategy Paper prepared for 1999-2001 tied the Bank's lending to the fulfillment of a condition that called for the privatization of at least 7 PEs including the Royal Nepal Airlines Corporation and Nepal Telecommunication Corporation. DFID's move has come at a time when Nepal is preparing to enter into a Poverty Reduction and Growth Facility (PRGF), an IMF sponsored reform program. During the last eith years, 16 PEs have been sold into private hands and the remaining over three dozen continue to fare hopelessly in their business. The average returns of PEs on their capital investment is just 0.55 percent.

On February 24, the government initiated steps to privatize the state-owned Hetauda Textile Industry, the country's largest textile industry, which it had closed down on February 12. The government has already started to pay its dues to the employees of the industry. The industries in the pipeline for privatization include: Janakpur Cigarette Factory, Lumbini Sugar Industry, Hetaunda Cement and Birgunj Sugar Factory. The entire privatization program started with the Nepali Congress government assuming office in 1992. Privatization had started with three-Chinese government aided industries. All were running in profit at the time of privatization. Hetaunda Textiles is the fourth Chinese-made industry to be privatized. The government has closed the industry before privatization.
On December 2, the cabinet decided to privatize four state-owned enterprises: Nepal Transport Corporation (NTC), Sajha Yatayat, Cottage Industries and Handicrafts Emporium and Nepal Orind Magnesite Pvt. Ltd.

Positive Measures <Go to Contents>

In order to take care of the revenue decline, the government has taken some measures. First, on March 1, the government decided to mobilize the Royal Nepal Army in order to control cross border smuggling. The army is placed at five major customs points along the border with India and the Tibet autonomous region of China. The army patrols along the border remain under the custom administration as the police and the revenue administration were unable to control the illegal trade-taking place at the custom points. Second, the government also urged tax defaulters to voluntarily disclose their sources of income by January 13, 2002 or face confiscation of their property. Despite this announcement in this year budget--Voluntary Disclosure Income Scheme (VDIS)-the tax department only recouped a meager Rs 2 million in back taxes until December 20001. Third, the government also announced the formation of a High Level Foreign Investment Committee under the Chairmanship of the Prime Minister to facilitate foreign investment in the country. Fourth, in order to promote tourism, the government has decided to announce a three to 14 -day package for tourists and the government is providing subsidies to the Royal Nepal Airlines. The package includes a reduction in the visa fees by half and also a reduction in accommodation, meals, sight seeing and air tickets. Similarly, the government has opened 103 more peaks for mountanieering.

Budget at a Glance <Go to Contents>

On July 9, 2001 the Finance Minister anounced a budget of Rs. 99.79 billion for Fiscal Year 2058/59 (2001/02). Out of the total budget, Rs. 49.32 (49.4 per cent) billion has been allocated for regular expenditure and Rs. 50.47 billion (50.6 per cent) for development.

The budget plans to collect Rs. 60.25 billion from revenue mobilisation, up from the revised estimates of Rs. 49.60 billion of 2000/01. Of the total, Rs. 56.54 would be collected from the existing sources and an additional Rs. 3.7 billion through new proposed tax schemes and administrative reforms. The budget envisages the amount of foreign grant to be Rs. 14.12 billion of which Rs. 11.83 billion was expected to come as bilateral grants, Rs. 2.25 billion as multilateral grants. And the total deficit estimated to be Rs. 25.42 billion. Of the total deficit, Rs. 16.42 billion is to be financed from foreign loans (Rs. 2.68 billion from bilateral and Rs. 13.73 billions from multilateral sources) and Rs. 9 billion from internal borrowing. The proposed budget registers a 19.9 per cent growth over the revised budget of the current fiscal year 2000/01 with the regular expenditure and development expenditure growing by 13.5 per cent and 25.9 per cent respectively.

In the regular expenditure, Rs. 14.11 billion has been earmarked for the payment of domestic and foreign loans and interests, Rs. 10.42 billion for education, Rs. 5.79 billion for both civilian and armed police forces, Rs. 4.52 billion for defence, and Rs. 2.22 billion for health. Likewise, Rs. 311.3 million has been allotted for the local elections to be held next year and Rs. 78.2 million for the distribution of voters' identity cards. Of the total development expenditure, 37.2 per cent has been set aside for social services and 60 per cent for economic services and the remaining 2.8 per cent for constitutional bodies, general administration and miscellaneous expenses. The allocation to the social sector is 33.8 per cent more than the previous budget's allocation-- 18.8 per cent more in education, 45.1 per cent more in health, 34.4 per cent more in drinking water, and 33.1 per cent more in local development.

Similarly, the budgetary allocation for economic services is 27.9 per cent greater than the previous fiscal year's allocation-- 12.8 per cent more in transportation, 17.4 per cent in electricity and 28.8 per cent more in agriculture, irrigation, land reform and survey and forest. Presenting the income and expenditure estimates the Finance Minister said the major target of the proposed budget is to alleviate poverty by continuing and strengthening the open and liberal economic policies for a robust economy. For this, the minister had said that, on the one hand, there was a necessity for maximum utilization of the existing resources to achieve high economic growth and, on the other, the fruit of development and opportunities had to be reached to the poor masses-- to create opportunities for their employment and human resource development and to give a sense of social justice and security to the people.

The major policies to be undertaken to achieve these objectives are to improve the investment environment, bring mobility in the finance sector, keep public expenditure within the sustainable limit, give access to the poor people to productive resources and to strengthen good governance and decentralization. The Value Added Tax has been treated as the backbone of mobilization of the internal resources. The budget has also decided to give continuity to the policy of disbursing development finance to members of the Parliament.

On August 6, in the donors' meeting organized by the Finance Ministry, representatives of donor organizations expressed doubts over the effective implementation of the budget proposals, effectiveness of Poverty Alleviation Fund (PAF), micro credits and the slow pace in the privatization of public enterprises. The Finance Minister himself admitted that the worsening law and order situation, weak and unnecessary delay in implementation, monitoring and financial irregularities were the major obstacles in achieving the development targets. The donors also stated that Nepal's peaceful future lay in: hydropower development, investment and tourism. The government closed down four loss-incurring Public Enterprises (PEs). They are: Gharelu Shilpakala Bikri Bhandar, Nepal Transport Corporation, The Timber Corporation of Nepal and Nepal Orind Magnesite Company.

ACTIVITIE REPORT OF FES IN 2001 (Social, Political and Development Areas) <Go to Contents>

Under Social Political and Development areas FES supported 42 activities involving seminars, training, workshops, publication, material help, and exposure. The areas covered are: democracy, civic education, women and development, Dalit, development policies and regional cooperation in South Asia: The activity reports in detail are as follows:

Democracy <Go to Contents>

Education <Go to Contents>

Women and Development <Go to Contents>

Dalit Upliftment <Go to Contents>

International Cooperation and Development Policy <Go to Contents>

Trade Union Cooperation <Go to Contents>

Other Activities <Go to Contents>