Political, Economic and Social Development in Nepal in the Year 2006

Nepal's Seven Party Alliance (SPA) government and Communist Party of Nepal (Maoist) signed a Comprehensive Peace Agreement (CPA) on November 21, 2006 promising to end the decade-old Maoist insurgency and begin an inclusive, secular, peaceful and democratic nation-building process. The CPA thus paved the way for arms and armies' management under the supervision of the United Nations, preparation of an Interim Constitution, formation of an interim legislature and an interim government with the inclusion of CPN (Maoist). This government would then hold the Constituent Assembly (CA) elections before mid-June 2007. The CPA was signed after protracted negotiations following the success of the April (6-24) mass upsurge that rolled back King Gyanendra's direct rule. The King reinstated the parliament and appointed G. P. Koirala as Prime Minister. A subsequent House of Representatives (HOR) declaration removed the King as Supreme Commander-in-Chief of the Nepalese army (NA), made his income taxable, cut his power regarding the appointment of heir to the Nepali throne, left his role to be decided by the first meeting of CA in June 2007, brought the NA under civilian control and declared the state secular. These changes have substantially undermined the historic identity of Nepal built on monarchy, Hindu state, Nepali language and cultural nationalism.

On the surface, the SPA and CPN (Maoist) harbor many dissimilar and often contesting visions about the nature of the state, the status of monarchy, citizenship, modality of elections, economy, nationalism, foreign policy and power-sharing arrangements. These continue to pose as barriers to cooperative action. The governmental power of the SPA is weak to prevent its constituent units' resistance, overcome sectarian violence and consolidate national security, economic recovery and political development without international cooperation. The conflict-affected groups-- ethnic and indigenous people, Dalits (oppressed people), women, Madhesis (people of southern plains) and youth-- nurse a feeling of deprivation and demand a legitimate space in decision making. Pro-King forces are questioning the legitimacy of the 8-party establishment (SPA and Maoist) and dubbing its actions dictatorial. New polarizations between the left and the democratic forces, between republican and monarchist forces and between nationalistic and subsidiary identities is certain to make the transition to democratic peace difficult.

Massive poverty among the masses coupled with corruption associated with a culture of impunity among powerful economic and political actors flag the human rights condition of the majority of people. These call for economic reforms and engage the conflict-affected people in rebuilding the societies. Spiraling violence is drawing the concerns of the UN and great powers in the volatile geopolitics of the nation. The capacity of civil society, media and professional groups to generate public demands does not at all match the ability of the torn state. It is struggling even to fulfill basic needs of the people. The pressure of the CPN (Maoist) and subsidiary groups for state restructuring has put the regime further in a dilemma as to how to beef up the state's presence in society for security and authority and still enable the political leadership to renew its legitimacy through free and fair CA elections.

International community has to be strategically oriented in capturing the synergy of the social contract, economic revival, human rights, democratic consolidation and peace building so that the Nepalese are enabled to shape their shared future. Peace and reconciliation at various tracks can alone expand the development space for the donors, enable the governance institutions to meet their commitments and steer the regional and international cooperation in the right direction.

Political Situation

In the Year 2006 Nepal marked a political transition from assertive monarchy back to a multi-party democracy. The most significant development is the success of the April movement (6-24) led by the SPA, the CPN (Maoist) and civil society groups that overturned King Gyanendra's direct rule installed on February 1, 2005. Subsequently, the King appointed Nepali Congress (NC) President G. P. Koirala as Prime Minister. On May 18, the HOR claiming itself a sovereign and supreme body made a proclamation which made the king virtually powerless in governance. A judicial commission set up under the chairmanship of former judge K.J. Rayamajhi to investigate the "suppression of the movement" has submitted its report and recommended action against the culprits. Similarly, an Interim Constitution Draft Committee (ICDC) headed by former judge Laxman P. Aryal handed over the draft statute to the government. An 8-point (June 16) pact signed between the SPA and the CPN (Maoist) spelled out the provisions to implement Ceasefire Code of Conduct signed on May 26, expressed commitments to human rights, democracy, competitive politics, transitional arrangements, roles for the UN in the peace process and structural reforms in various institutions of governance.

The framework of a CPA signed on November 21, brought the decade-long armed insurgency to an end and promised to chart a "peaceful and democratic new Nepal." The CPA includes provisions on political, economic and social transformation, conflict management, management of army and arms, permanent ceasefire, the process of ending the conflict, human rights, fundamental rights, adherence to humanitarian law and dispute settlement and implementation mechanism. The most significant developments are, beyond doubt, the ongoing efforts to manage the arms and armed forces from both sides and commitment to hold the elections for the CA by mid-June 2007 to write a new constitution. The 5-point (August 9) letters separately written by both sides asked the UN to assist in four areas-management of arms and armed forces, monitoring of human rights and ceasefire, observation of CA elections and peace-building efforts. The UN has already created a Trust Fund to finance its peace mission in Nepal and agreed to provide experts on elections, constitution, management of arms and human rights monitoring.

Interim Governing Arrangements
According to the CPA, both sides agreed to form an interim constitution and set up an interim unicameral legislature with 330 members in which all the sitting members, except those nominated by the King and also those supported regression, will remain as members. The share of seats for NC will be 75, Communist Party of Nepal Unified Marxist-Leninist (CPN-UML) and CPN (Maoist) will have -- 73 seats each, NC (Democratic) 42, the rest 48 seats would go to other SPA constituents and oppressed groups, marginalized and professional associations. An interim government is to be formed after the management of arms. These measures are expected to dismantle CPN (Maoist)'s 'people's governments' and bring all sides under a single rule of law. Local bodies will be run according to the understanding between the SPA and CPN (Maoist). They also agreed that those born in Nepal before mid-April 1990 or have been residing in Nepal since then are eligible for Nepali citizenship. The parliament has already passed the Citizenship Bill and the government has decided to mobilize 520 mobile teams to distribute citizenship certificates.

The CA will have 425-members out of which 205 will be directly elected from the existing geographical constituencies on the basis of first-past-the-post election system, another 204 members will be nominated by the political parties in proportion to the votes they score and the council of ministers would nominate the remaining 16 members. Every Nepali attending the age of 18 will be eligible for voting in the CA elections. The members of constitutional bodies will be appointed by the Constitutional Council (CC) headed by the Premier, Chief Justice and Speaker of the interim legislature as members. The CA will also function as a legislature for two years until general elections take place. They have decided to put late King Birendra and his family's property under a trust while nationalizing King Gyanendra's ancestral property. A high level Truth and Reconciliation Commission will be created to promote peace in society.

Both sides have agreed to constitute a 23-member interim cabinet, 5 ministers each to NC, CPN-UML and CPN (Maoist) and the rest will be divided among other parties. On December 16, the leaders of SPA and the CPN (Maoist) signed the final Draft of the Interim Constitution, which relegated the King to the margins devoid of any powers in governance. Nepal is defined as an independent, indivisible, sovereign, inclusive and completely democratic state. The other features of the Constitution are: popular sovereignty, secularism, women's rights, rights to education, health, employment and food have been included as fundamental rights, constitutional remedy against caste discrimination, provision of a CA Court to look into the complaints regarding the CA elections, National Human Rights Commission (NHRC) to be set up as constitutional body, revival of local bodies in the understanding of eight parties, formation of a National Security Council headed by the Premier including Defense and Home Ministers and other ministers named by the Premier, executive power to the Council of Ministers (COM) which will also appoint the Chief of Army Staff, a special committee of the COM to oversee accommodation and rehabilitation of People's Liberation Army (PLA), formation of the CC headed by the Premier that includes the Chief Justice, Speaker and three ministers named by the Premier, authority to the COM to look into the punishment sentenced by any court, special court and military court, appoint ambassadors and other special representatives, power to remove difficulties that should be approved by the parliament of the CA within a month, all executive powers given to the Premier as the head of the state, to confer title, honor and decoration on behalf of the state, fresh oath of office made mandatory to justices of the courts, amendment of the Constitution by two -thirds of the parliamentarians, etc.

Rastriya Prajatantra Party (RPP), Rastriya Janashakti Party (RJP) and Rastriya Prajatantra Party (RPP-Nepal) have dubbed the Interim Constitution (IC) exclusionary as it was prepared in the interest of only 8 parties. The Federation of Indigenous Peoples and Nationalities burned the copies of the IC saying that it has ignored their demands for federalism, ethnic autonomy and local self-determination. Nepal Workers and Peasants Party (NeWPP) and Jana Morcha Nepal (JMN) opposed the provision to give citizens to all born in Nepal after 1990. Nepal Bar Association and Supreme Court judges have also opposed it arguing that it subordinates the judiciary to the executive, makes the Premier an all powerful which undermines the system of checks and balances of power. The IC bars those political parties which hold the opposite views against the spirit of the constitution, recognizes only 8 incumbent parties, allows a party to be registered only if it can submit 10,000 signatures to the Election Commission (EC) and allows the government to sign treaties with any foreign country without any parliamentary approval. Nepal Sadbhavana Party (NSP-A)-sponsored a general strike on December 25, demanding a federal state system, demarcation of constituencies according to population and seeking that the rights of Madhesi people in the interim constitution be ensured. It crippled life in the Tarai plains killing one person. The mounting opposition against the unlimited power of the executive forced Premier Koirala to reconsider revising some of the provisions of the IC. But later an eight party meeting, including the Maoists, agreed to promulgate it in its current form on 15 January. The reservations by different sections of the people and the prime minister's own recommendations regarding power check and balance were put on hold for the interim legislature to decide. Although Nepal is in a state of no-war-no-peace, the deteriorating security and law and order situation puts a question mark on the feasibility of holding the CA elections on time. The media and civil society movement is putting pressure for the democratization of the state and political parties and inclusive peace while ordinary public are seeking the professionalism of these groups in public communication and the promotion of public interests.

Management of Arms and Armies
On December 8 the government and CPN (Maoist) signed an agreement on arms management of both NA and PLA. The UN put its signature as a witness. They agreed to form a 9-member Joint Monitoring Coordination Committee (JMCC) comprising representatives from the government, the UN and the Maoists for monitoring the camps and barracks. The CPN (Maoist) were to be set up 7 main and 21 satellite camps, the latter were to be clustered within two hours' driving distance from the main camps. The CPN (Maoist)'s arms will be separated from the PLA and put under a single-lock system. The keys will be given to CPN (Maoist) but the arms were to be monitored by the UN via Closed Circuit Television (CCTV) with siren alarm. There were to be 30 armed Maoists to provide security to the main camps and 50 Maoists in the satellite camps. They would be accountable to the UN. The government has taken the responsibility of providing food and other logistics support to them. All the landmines are be destroyed within 60 days. Neither of the parties' were to engage in movement or deployment of forces resulting in tactical or strategic advantage. Due to the UN's delay in arms storage, CPN (Maoist) pushed for the creation of a ex-Gurkha servicemen's [retired servicemen from the Indian army but of Nepalese origin] Interim Task Force where all sides agreed to recruit 111 ex-British and Indian Gurkhas to monitor the arms.

The ongoing peace process has yet to rid the country of violence and intimidation. More persons have been killed (46) during the first six months after the formation of SPA government than during the April movement (22). The regime was responsible for the killings of 12 persons whereas the CPN-Maoist was responsible for 15. Six persons were killed by vigilante groups, 8 by local villagers and unknown groups and the rest were killed in stray bomb explosions. Ethnic, regional and separatist resentment against the government and religious fissures are also challenging the government's ability to protect human rights and create a favorable environment for the CA elections. The CPN (Maoist) is trying to capitalize on the former three elements while the simmering Hindu discontent against secularism goes against it. Janatantrik Tarai Mukti Morcha (JTMC), a breakaway faction of the CPN (Maoist), has continued to mount violent attacks against CPN (Maoist) and hill people. It has forced them to close their shops and has prevented them from driving vehicles.

The SPA government is struggling to enlarge the writ of governance in rural areas. The CPN (Maoist) has recently allowed the restoration of police posts and return of Village Development Committee (VDC) secretaries to their respective villages. The miserable record of the SPA leadership on governance and its intense internal bickering has strained its effectiveness to create security, law and order and facilitate humanitarian and development supplies. Under Maoist threat of general strike the government withdrew its August 18 decision to raise the price of petroleum products and suspended the recent appointment of 14 ambassadors, chairman and two members of NHRC and put off the recruitment and transfer of government officials until an interim government including the Maoists was formed.

Party Politics
Popular pressure on SPA is increasing for intra-party democracy, inclusiveness of the social diversity in their central committees, resolution of intense factionalism and splits and connecting the grassroots citizens with district party structures. Despite personality clashes at highest leadership level, both NC and NC (Democratic) are making efforts for reunification. There is also generational conflict within the SPA and its youth factions are demanding their fair representation in party structures. Maoists are adding force to their demands which in the foreseeable future might push for the democratization of the SPA built on patronage politics, and patron-client network. Ethno-regional differences are exacerbated by favoritism and nepotism in appointments in political, diplomatic and bureaucratic positions. Their pre-modern political culture has weakened the loyalties of citizens to the state. The RPP, RPP (Nepal) and RJP have proposed to Premier Koirala to create a "democratic front" to counter the CPN (Maoist) sponsored "left front" that are bent on abolishing the monarchy. The Premier talks about a "patriotic and democratic front," and has initiated a peace campaign in the countryside where leaders of NC and NC (D) were dispatched to mobilize their cadres seeking to re-link the broken connections of the party. The non-left parties' move to expand the state's writ in society has moderated the leftists' preference for state restructuring. Premier Koirala defended the appointment of the current army chief, preferred ceremonial monarchy, fostered civil-military relations, left the Palace Secretariat intact and did not mind the King's rejection to respond to the questions of Rayamajhi Commission. The King has also welcomed the CPA considering that it will be able to restore peace and amity in the country.

The students of 8 parties took action against pro-King parties for voicing their disapproval of exclusionary moves of the government. The supremacy of the political will of the majority over the constitution has already weakened the conditions for human rights as well as rule of law. The formation of democratic culture in Nepal requires a democratization of both mainstream and revolutionary parties, moderation of their behavior, structural inclusiveness, sustained civic education for citizenship training and building party from below. Sustainable peace also requires the partnership of the critical mass of change agents of Nepalese society, such as business leaders, media and civil society in democracy consolidation and development.

The CPN (Maoist)'s strategic goal is a People's Republic. But it has tactically adopted bourgeoisie democratic republic for the medium-term and has formulated a policy to "fuse class war, mass movement, diplomatic efforts and peace talk" to mark the opening of another phase of transition whereby 8 parties will have primacy in politics. But, it has also broached a proposal to unify all the left forces in the country and form a single Communist Party of Nepal. In December, CPN (Maoist) decided to transform its military-based party structure into a political one to implement the CPA and prepare for CA elections.

An 11-member central secretariat led by Prachanda has been created to coordinate the party's all 15 bureaus and 6 commands and formulate necessary policies for the party. It has also created village and district committees and decided to push for a nation-wide political campaign for a socialist democracy, republic, federal state structure, foreign direct investment in priority sectors such as energy and production sectors that can give good employment opportunities, revolutionary land reforms through redistribution of lands, transformation of the rural economy into an industrial one, education for all, decentralization and special policy for Karnali Zone, etc. It has, however, not foreclosed the possibility of a revolt if peaceful processes are foiled.

Foreign Affairs
Preoccupation of political leaders with peace negotiation has left foreign affairs without a clear edge. As a result, foreign aid has declined, there is no positive indication of actual increment on foreign direct investment and the fate of over 106,000 Bhutanese refugees of Nepalese origin has been left in a limbo. Bhutan's Foreign Minister Lyonpo K. Wangchuk, has ruled out any prospect of repatriation of these refugees. On October 4 the US Assistant Secretary of the State for Refugee Affairs Ellen Sauerbrey said that Australia and Canada would be willing to resettle 60,000 Bhutanese refugees out of the 106, 000 but no progress in this regard has been made so far.

Nepal suffered an embarrassing defeat during voting in the UN Security Council for a non-permanent membership from Asia. Its contender, Indonesia, received 158 votes - guaranteeing its election - while Nepal received only 28 votes. The government in April recalled the ambassadors from nearly a dozen important world capitals and has not yet been able to fill the vacant posts. Among them involve Washington, Tokyo, Beijing, Delhi, London, Paris and Brussels (European Union). Internal political wrangling among the mainstream political parties and opposition by CPN (Maoist) forced the government to suspend the appointment of ambassadors for various countries.

There are some positive signs also as Nepal's major donors-EU, India, the UK, China and Japan have welcomed the ongoing peace process. The US has expressed cautious support and suggested the CPN (Maoist) renounce violence, surrender arms and transform itself into a democratic party before joining the government. The US and India have not yet removed it from the list of terrorist organizations. The Indian role from the signing of 12-point agreement to CPA is based on the belief that the rebels' entry into the government will de-link it from Indian communists, the Revolutionary International Movement (RIM) and inspire Indian Maoists to join democratic politics.

On September 12 the International Organization for Migration (IOM), the principal intergovernmental organization in the field of migration affiliated to the UN, formally established its liaison office in Kathmandu. It deals with migration and human trafficking issues. The United Nations Peace and Disarmament regional office for Asia-Pacific is likely to be established in Kathmandu soon. On December 15 the cabinet approved the idea of setting up embassies in South Korea and Australia. The UN has increased its role in Nepal and has deputed personal representative of UN Secretary-General, Ian Martin, to beef up the peace process. The UN Security Council has provided electoral advisors as well as a full mission to deliver the assistance requested by the conflicting parties. The UN Technical Assessment Mission has prepared a detailed proposal for the personnel, the logistical support and resources required by the mission to support the peace process.

Economic Development

Economic Review
Nepal's population is 27m with a growth rate of 2.25%. It ranks 138th out of 177 countries in the Global Human Development Report 2006. The Human Development Index (HDI) stands at 0.527. Life expectancy at birth is 60.18 years (male: 60.43; female: 59.91 years). Adult literacy is 45. 6 % (62% for males and 27% for females). With a per capita income of US $311 human poverty index value for Nepal is 38.1 and power purchasing parity is $ 1 per day. Agriculture provides livelihood for majority of people. Due to poor monsoon, floods in the far-west and famine in Tarai, agricultural production this year suffered a sharp decline. Still, this sector contributes 40 % to Gross Domestic Product (GDP). After the reduction of violence since the end of April economic condition remained stable as economic growth remains at 3 %. The industrial sector suffered due to frequent disruptions by unions, declining business confidence and extortions by rebels. Poor security situation, lack of representative institutions and inability of the international community to invest in rural areas have caused food crisis in 32 food deficit districts of the far-west. Nepal's economic growth rests on political stability and a viable mechanism to resolve multi-layered conflicts.

The Nepal Rastra Bank in its 2005-06 report reveals that Nepal's trade with India (Rs.150b) made up 63.6 % of the country's entire foreign trade amounting to over Rs.235b (US$1=Rs 71.69). It indicates an almost 18% increase over the previous year's business. Indian imports accounted for Rs.109b while imports from other countries amounted to nearly half, Rs.65.80b. Petroleum products, rice, medicine, fertilizers and TV parts formed the bulk of Indian imports. Petroleum imports accounted for over Rs.33b, medicines Rs.4.38b and spare parts over Rs.5b. Nepal exported goods worth over Rs.61b, with India being the prime destination that accounted for exports worth Rs.41b. Vegetable ghee, polyester yarn and jute goods were the top three export items to India, earning Rs.3.86b, Rs.3.47b and Rs.2.63b respectively.

The tourist arrival has increased by 7 %. Inflation remained at 7.8 %. Growth in remittance (49 %) helped to keep current account surplus of $186m. Foreign grant declined by 10.6 % due to shrinking development space in the countryside. Foreign exchange stands $2.3b until mid-October which is adequate for financing merchandise and service imports of 9 months. It has a balance of payments surplus of Rs 25.6 b during the current fiscal year.

Nepal's annual budget stands at Rs. 143.91b. Out of this Rs. 79.64b has been allocated for regular expenditure while Rs. 64.276b has been allocated for development program. Rs 80.825 b will be borne from the current source of revenue, Rs 23.73b from foreign grant and Rs 16.97b from foreign loan. There will be a deficit of Rs 22.45b. The debt servicing now is about 8 % of government expenditure. The foreign debt of Nepal as of July 16 has reached over Rs. 234b which comes to over 40 % of the country's total GDP that stands at Rs 583b. Every Nepali now owes a loan of Rs. 13,000. Alarming foreign loans and declining development expenditure indicate that Nepal is moving towards a debt-trapped economy.

Although Nepal provides 100 % ownership in some sectors and has simplified licensing and regulations, pro-investment policies are often distorted by bureaucratic delay. Still, official data show that the FDI commitment received during the first half of 2005/06 touched $17.5m. A total of 67 FDI projects were approved for operations in the country where India topped the list by registering 20 projects followed by the US and China.

The annual report of the Office of Auditor-General has raised serious concern over growing losses in public enterprises (PEs). The unsettled account of the government crossed over Rs.29.9 b in the last fiscal year. Appointments of party cadres in PEs, corruption and rent-seeking tendencies have affected economic performance. The cabinet has decided to take legal action against 1,917 blacklisted loan defaulters who have borrowed Rs. 32.23b by the end of this year. The action involves passport seizure and restriction on fixed asset transfer. Citizens, however, doubt that these actions will take place given their leverage in high power centers.

The World Bank has approved a $25m grant to be utilized for the benefit of the rural poor and vulnerable groups in Nepal. German government has provided half a million euros to the World Food Program to Nepal and has already spent 1.2 m. It has pledged an additional grant (16.6m euro) to meet almost 70 % of the funding gap faced by the middle Marsyangdi Hydel Project. This is in addition to the grant of 161m euros already committed by the German government through the German Development Bank (KFW). The annual German bilateral aid stands at euro 36.3m, the British government's stands at $ 62.7m and the US development package stands at $45m.

India has offered a soft credit of Rs7.5b for the execution of infrastructure development projects and enhanced its aid to Nepal budget from Rs. 1.4b to Rs. 2.4 b. Additionally, it has provided a grant of Rs. 1.3b to build unified, modern check posts along the Nepal-India border and Rs. 1.08b for the establishment of a trauma center. China has provided Rs 180m to invest in "mutually agreed" projects in Nepal. This amount is a part of the 80m yuan that China provides annually for Nepal's development.

Policy Reforms
Transparency International (TI) revealed that the level of corruption in Nepal has not gone down in comparison to the previous year. Nepal has scored 2.5 in the Corruption Perception Index (CPI) ranking 21st out of 163 countries. Corruption, continued political instability and conflict have caused the failure of public institutions and delayed in achieving the targets of Poverty Reduction Strategy (PRS) and Millennium Development Goals (MDGs). Donors are suggesting the government review its priority areas to have an impact on poverty outcomes. The International Monetary Fund (IMF) has renewed the Poverty Reduction and Growth Facility (PRGF) agreement for one more year and allowed it to receive $24.6 m despite the slow pace in fulfilling "prior commitments". A MDGs needs assessment report unveiled that the government should mobilize double the current level of foreign assistance ($16.6b) for the next decade if the MDGs are to be achieved for the period 2005-2015. Half of that money needs to be invested to reduce hunger, improve education and rural infrastructure. The government has approved Rs. 620m for the reconstruction of district headquarters and the rehabilitation of internally displaced persons. The preliminary estimate reveals that Rs.1.10b is needed. It has requested the international community to bear the financial burden of the ongoing peace process and sought $ 75m aid from them to bridge the existing financial gap.

Social Development

The eleven-year old conflict has displaced about 300,000 people and has intensely affected Nepal's social progress. Nepal's total fertility rate is 3.5 children per couple while infant mortality rate is 64.4 per 1000 live birth. 6,000 mothers die each year in child birth. Two thirds of the babies die within 28 days which equates to over 30,000 neonatal deaths annually. The main reason for this condition is lack of post-natal care. Despite government ban on child marriage and the law for punishing brides and bridegrooms who ask for or offer dowry the system has not been abolished due to poor law-enforcing mechanism. There are 75,000 cases of people living with HIV/AIDS. Among these 16,000 are women (ages 15-49). Health facilities for the people of rural areas are declining due to declining investment, low motivation of the doctors and poor infrastructural condition. Medical equipment at district hospitals and health centers are dysfunctional. The facilities need to be improved. Only 67 % of the people have safe drinking water facilities.

Every year 300,000 youth enter the labor market. But, Nepal's domestic labor market is shrinking day by day due to declining economic opportunities, fragile political situation and possibility of ethnic and regional unrest. Although the government has annulled the previous government's Ordinance guaranteeing labor market flexibility, a climate of industrial peace has yet to be established. More than 90 % of the country's 11.5m workforces are employed in informal sector and are not covered by any social protection mechanism. This condition has forced the migration of youth every day abroad for jobs. Altogether 8,19,000 Nepalese migrants have contributed $785m in remittances, representing 12% of the country's GDP and 65% of the country's foreign exchange. Nepal has 1.660m economically active children (boys 54% and girls 46%). Many of these children do not go to schools. It is estimated that there are 127,143 children working in the worst forms of child labor - as bonded laborers, rag pickers, porters, domestic workers, in mines, in the carpet sector, and being trafficked.

On December 3, endorsing the proposal of pressurizing political parties on compulsory proportional representation of workers in the interim parliament and CA election, a 10 point agreement was signed by the chairperson of all trade unions which affiliated to Maoists [All Nepal Trade Union Federation (ANTUF-Revolutionary)], NC, NC (D) and CPN-UML. The pact seeks workers' rights, social security, social justice and the need for a unified trade union movement. Nepal Trade Union Congress (NTUC), General Federation of Nepalese Trade Unions (GEFONT) and Democratic Confederation of Nepalese Trade Unions (DECONT) have been jointly working in a number of areas, such as implementation of labor laws, verification of memberships, elections in the unions, unity among affiliates, occupational health and safety, globalization and conflict mediation. After these federations joined the newly formed International Trade Union Confederation (ITUC) in November, better resource and networking opportunities are expected in various areas, especially to assert their collective rights in their representation in the CA and define areas of cooperative action. Internally, however, these unions are engaged with the Maoist-affiliated trade union on the resolution of their conflicts. A RPP-affiliated National Democratic Confederation of Trade Union (NDCONT) having 17 national affiliates has formally registered with the Labor Department.

Gender

Nepal's gender development index (GDI) value is 97.3% of its Human Development Index (HDI) value. Out of the 136 countries with both HDI and GDI values, 119 countries have a better ratio than Nepal's. Despite commitment by the political leadership to provide women 33 % of seats in the institutions of governance, gender disparity persists in every aspects of life, such as politics, formal labor market, education and empowerment measures. The transformation of agrarian feudalism and caste hierarchy into modern institutions has blurred the distinction between the public and the private spheres. Women's organizations and international community are, therefore, pushing for gender responsive governance. The implementation of the Interim Constitution, however, will likely to increase women's seat in the 330-member interim parliament and 425 seat CA body and increase their voice and visibility in decision making.

Conflict has affected men and women differently. Gender-based violence such as sexual violence, rape, unwanted pregnancy, forced recruitment as spy or in the fighting force, psychological damage, life-threatening diseases such as HIV/AIDS, infertility, stigmatization and rejection by family members and society, alienation, divorce, being declared unfit for marriage and severe economic and social repercussion, widowhood, trauma, economic burden for the family, etc has put women in a disadvantaged position. As a result, Nepalese women, during the violent conflict, played various roles in peace education, advocacy and rehabilitation.

On May 30, the parliament passed a proposal which obliged the government to issue a citizenship certificate to children with the mother as approver or legal guardian, to guarantee proportionate representation in all state mechanisms including jobs and other opportunities in the long run and to end all provisions in laws that discriminate against them. The post-conflict peace building efforts require alleviating their suffering and creating equal social, economic and political outcome for both women and men. On December 18, Nepal ratified CEDAW's Optional Protocol. This provides Nepali women the power to bring claims of gender discrimination directly to the UN committee. But, in rural areas, the lack of proper law enforcement agencies is exploited by anti-social elements. Rural women require capacity building efforts including access on the institutional resources of the state, civil society and international community.

Regional Cooperation

Regional cooperation has become an inescapable option for the South Asian countries owing to emerging international trends, the need to cope with the challenges of globalization and domestic need to form common positions on multi-lateral regimes such as World Trade Organization (WTO). The 14th South Asian Association for Regional Cooperation (SAARC) summit will be held in India in June 2007. The most important achievement of SAARC so far is that South Asian Free Trade Area (SAFTA) came into force on January 1, 2006 which is expected to give benefits to the regional peoples through enhanced economic activities, trade and commerce.

The induction of Afghanistan, as the eight member of the Association and the endorsement of observer status of Japan and China with the possibility of the EU, Republic of Korea and the USA joining at the next SAARC Summit surely gives further impetus to the Association. An integrated South Asia would bring concrete benefits to the people of the region and the decision to establish the SAARC Development Fund (SDF) is a crucial step in the direction of promoting mutual benefits through interdependence.

The seven-nation Bay of Bengal Initiative for Multi-Sector Technical and Economic Cooperation (BIMST-EC) has endorsed a plan for a free trade pact by 2017 -- while the three better off countries --India, Sri Lanka and Thailand-- are committed to trade liberalization by 2012. For a least developed Nepal's interest in joining the international regime lies in balancing the negative effects of bilateralism, creating choices in foreign policy and reaping the benefits of globalization by seeking collective self-reliance.

Nepal has also offered itself to serve as a "transit state" between its two mega neighbors and has received support from them. Nepal and China (March 16) signed an agreement on duty free access for all Nepalese goods to the Chinese market. Nepalese goods will be exported to three major Chinese markets-Tibet, mainland China and Hong Kong. On March 31, Nepal-India transit treaty was renewed for seven years. Of the 15 transit points, seven have been agreed for the transportation of goods under sensitive list.

Abbreviations

Cabinet List