Lingering political turmoil in Nepal has weakened the authority of the state to ensure public security, rule of law and delivery of public goods. Hobbled by mistrust, political parties failed to install a stable government since the resignation of Premier Madhav K. Nepal on June 30. Each major party claims to lead government but lacks requisite parliamentary support. CPN-UML's President J. N. Khanal withdrew his candidacy from Prime Ministerial contest in the first round of voting as he did not see any chance to win two-thirds majority required to endorse the new constitution. UCPN (Maoist) chairman Puspa K. Dahal also withdrew in the 7th round when he could not garner simple majority of 301 in a 601-member Constituent Assembly (CA). Nepali Congress (NC) candidate Ram C. Poudel vainly ran 16 times. The House session for the election of new prime minister on January 9, 2011 only promises either a government of majority or a syndicated rule of three major parties.

Having failed to deliver a new constitution, the CA extended its tenure for one more year from May 28 deadline. High Level Task Force headed by Maoist Chairman Puspa K. Dahal settled half of 210 issues leaving federalism, self-determination, governance, election, prior use rights, etc undecided. Major parties have set up a Special Committee, headed by Rtd. General of Nepal Army to work on the integration and rehabilitation of Maoist combatants. Wracked by internal feuds, the ruling parties are finding hard to substitute the function of United Nations Mission in Nepal (UNMIN) after its departure on January 15, 2011. The UN sought to set up a special unit to fill the void while Maoists sought UNMIN's 8th extension till May 28 to avert constitutional crisis. The government is willing to set up a UN unit without its right to monitor Nepal Army.

Women, Dalits, ethnic groups, indigenous people, youth, workers and Madhesis are exerting pressure for an inclusive governance and democratization of political parties torn by factionalism and split. Growth of armed groups and militant wings of political parties are breeding inhospitable climate for development and peace. Extortion and killing are eroding space for civil society, NGOs and development agencies in Nepal's southern flatlands and eastern hills. Nepal's weak law-enforcement and impunity offer huge prospects for corruption and pillaging of national resources. It has reduced aid effectiveness. Patronage politics offers no incentive for public institutions to perform. Over 800 local bodies do not have secretaries. Acute power crisis up to 14 hours a day, political instability and labor unrest shook the confidence of foreign investors. It is only remittance that is feeding rural economy and supporting livelihoods.

International community has blamed political parties for the lack of development leadership and negating donors' ability to secure resources for post-conflict peace process. India and China are concerned about Nepal's stability and agree on non-involvement of third-party in peace but each fears the other of undermining its legitimate security, political and economic interest.

Crisis of Governance

The failure of Nepal's parliament 16th time to elect a new prime minister after Prime Minister Madhav Kumar Nepal resigned on June 30 under the pressure of his own party and Communist Party of Nepal-Unified Marxist-Leninist-Maoist (UCPN-Maoist) impends a crisis of constitutionalism. The sole NC candidate R. C. Poudel did not score simple majority in a 601-member Legislative-Parliament. Maoist Chairman Puspa Kamal Dahal withdrew his candidacy from the seventh run-off as he found no possibility to win. The CPN-UML and Madhesi parties abstained from voting as they saw no one could secure two-thirds majority needed to approve the new constitution.

The 17th round of voting was deferred in the wake of an accord reached between three major parties- NC, CPN-UML and UCPN (Maoist) to explore an alternative and introduce annual budget which was pending since last 4 months. The Maoists effort to block the parliamentary proceeding on the ground that the caretaker government instead of presenting the partial budget sought to present full one forced the government prorogue the parliamentary session to introduce the budget through Ordinance. This made the election of Prime Minister uncertain. The Supreme Court directed Speaker Subash C. Nembang to review parliamentary regulations and ruled out the abstention of lawmakers from voting. On the request of UCPN (Maoist) and five small parties President Ram Baran Yadav called House session on December 19 but after two-point accord between three major parties, Maoists withdrew their proposal and the government called regular House session on January 9, 2011. A consensus exists for rotational Prime Minister of three big parties but each claimed to have its Prime Minister first. NC does not want to discuss on power sharing unless Maoists are disarmed while CPN-UML prefers to take peace process and government formation in tandem.

The six-point deal among three major parties in April to review past agreements, build trust, define the authority of President, integration of Maoist combatants, drafting new constitution and power-sharing by all parties remained unimplemented. The UCPN (Maoist) as a dominant party in the CA claimed to lead the government but short of simple majority of 301. Its effort to come to power through a mass rally and 'indefinite general strike' beginning from May 1 was suspended right away due to popular pressure. Non-Maoist parties fear its slogan of state capture and seeking its commitment to democratic rule. Without Maoists' support the new constitution cannot be ready as each article requires approval of two-thirds majority.

Multi-party consensuses reactivated Vice-President Permanand Jha's post. Jha, who was discharged of his duties for defying Supreme Court's verdict to retake oath in Nepali language, was allowed to take oath in his mother tongue. Similarly, as the CA failed to promulgate new constitution on May 28 deadline three major parties signed a pact and extended its tenure for one more year. The pact promised a consensus to lead the peace process, draft new constitution and facilitate Prime Minister's resignation. CA's 11 subject committees have prepared their concept papers for debate and consensus. In October, 27 political parties in the CA constituted a seven-member High Level Task Force led by Maoist Chairman Dahal to settle contentious issues by December 11. So far it has settled 127 out of 210 issues agreeing Nepal as a sovereign, multi-lingual, multi-cultural and multi-ethnic country, Nepali as official language, mixed economy, head of the state with authority to appoint and sack army chief on the recommendation of the cabinet, seek the consent of province before signing a treaty if it falls under the jurisdiction of province and incorporate a provision saying the province shall take the consent of the federal government before signing any agreement with foreign parties about economic matters and citizenship. The Maoists, however, disagreed on pluralism. Right to self-determination, federalism, judicial appointments, governance, electoral system and conscription of youth in army, etc are yet to be decided. The Task Force formed earlier remained moribund after the death of NC President G. P. Koirala on March 20 while the new one headed by Dahal was opposed by Maoist leader Mohan Baidya for compromising too much to ruling parties.

The local bodies are without people's representatives since 8 years. Absence of 850 secretaries out of 3913 for many years is affecting the development. The government is planning to form Citizens' Forum of local people and leaders to fill this vacuum, set development priorities and oversee their execution. Communication of grievances and action by subsidiary identities has weakened national identity. The month-long strikes announced by ethnic groups since July 18 demanded the state restructuring on the basis of ethnicity, language and historical identities. It cancelled strike after the DFID threatened to stop its aid. Madhesi parties opposed the Election Commission (EC) voters' identity cards distribution to make elections free and fair as they considered it biased. On October 9 the EC and 4 Madhesi parties reached a deal to accept citizenship certificates and other official documents as the basis for the issuance of voter identity cards. The Supreme Court, however, ordered the government not to issue voters' identity cards without citizenship certificate. The Limbuwan group also prevented EC campaign and went hunger strike for separate statehood.

Absence of public security is retarding economy, education and development of Tarai and eastern hills. Killing and kidnapping by criminal and armed groups for money and patronage politics of ruling parties created unfavorable climate for business. Impunity has deteriorated both human rights and rule of law. Murder of two businessmen Jamim Shah in Kathmandu and Arun Singhanayia in Janakpur and kidnapping of medical doctor Bhakta M. Shrestha in a broad day light manifest the condition of public security. On January 19 senior police officers reported to the Supreme Court that the task of law enforcement has become difficult as "the politicians are protecting the dons of criminals." Low morale of civil servants discourages the efficiency of development programs and service delivery. Fear of revenge has fostered the self-censorship of media.

Wracked by internal rift with central committee, the chairmen of major parties are weak to exercise their authority for national initiative. The dominant political party UCPN (Maoist)'s sixth plenum on November 21 witnessed open rift between Vice-Chairman Baburam Bhattarai favoring peace and constitution and Senior Vice-Chairman Kiran Baidya for people's revolt against comprador classes and India for national independence. Dahal-Baidya duo declared protest programs beginning from December 3 for people's revolt. On February 3, the politburo meet of third biggest party CPN-UML adopted the policy of 'partnership, struggle and transformation' with Maoists and 'defend, implement and develop' its ideology of People's Multi-Party Democracy. One group led by J. N. Khanal-Bamdev Gautam favored "national unity government" while Madhav K. Nepal-K. P. Oli faction favored a government of non-Maoists.

The second biggest party NC's national convention on September 21 elected Sushil Koirala as president defeating his nearest rival Sher B. Deuba. Koirala camp won 32 Central Committee (CC) members including President and General Secretary while Deuba camp won 29 members including Treasurer. The elected president can nominate 21 CWC members. The President, however, met strong resistance when he tried to nominate Ram C. Poudel as Vice-President and K. P. Sitaula as General-Secretary. Deuba claimed proportional representation of his faction.

Madhesi Jana Adhikar Forum (MJAF), MJAF (Democratic), Tarai Madehsh Loktantrik Party (TMLP) and Sadbhavana Party-formed United Democratic Madhesi Front demanded the execution of all previous pacts, proportional reservation of Madhesi people in governance, federal democratic republic constitution and founding of Autonomous Madhesh state with a right to self-determination, group entry in the Nepal Army, etc. These issues contrast with Tharus and ethnic groups' choice of multi-federal states for Tarai having prior use rights on 'land, forest and river.' TMLP suffered split and a new party TMLP-Nepal is born recently.

Rastriya Prajatantra Party-Nepal is demanding referendum on Hindu state, monarchy and unitary polity which prompted ex-King Gyanendra to believe, "Monarchy in Nepal has not ended" and began his tour to countryside. The declining performance of the government and support of Indian Janata Party leaders for Hindu state prompted both deputy prime ministers-Bijaya K. Gachhedar and Sujata Koirala and even Vice-President Jha to reconvert Nepal into Hindu state. Rastriya Janamorcha Nepal is strongly opposing federalism considering it a plan by foreigners to split up Nepal.

Peace Process

The government discharged 4,008 disqualified Maoist ex-combatants, granted martyr status to 1,626 people killed during insurgency and $1,352 each to their families and endorsed a code of conduct for the Maoist combatants. The Special Committee for Supervision, Integration and Rehabilitation of Maoist combatants led by Prime Minister has instituted a 12-member secretariat, converted the 8-member Technical Committee into the Special Committee Secretariat and appointed its coordinator Rtd. Nepal Army General Balanand Sharma. Its efforts to detach ex-rebel soldiers from the chain of Command of Maoist party has failed as the Maoists claimed that the chain of command of ex-combatants will continue to be in their hands unless the modality of integration and rehabilitation is decided. They also opposed five-phase action plan submitted to Special Committee for the complete integration of Maoists by 2013.

The UN Under-Secretary General of Political Affairs B. Lynn Pascoe on December 3 said that to ensure an orderly exist of UNMIN the Special Committee first close the cantonments and said that Nepal will be on UN Security Council watch for three years. The UN has consulted the government regarding setting up of its special unit to fill the void in the peace process in the post-UNMIN phase. The Special Committee secretariat is ready to take the charge of UNMIN's monitoring role but the UNMIN declined to handover Maoist arms and monitoring equipments without a political compromise. For civilian control of Nepal Army, the cabinet formed a three-member Defense Steering Committee led by Defense Minister Bidya Bhandari. On November 23 the government of Nepal and donors signed a Joint Financing Arrangement for Nepal Peace Trust Fund to support cantonment management, integration and rehabilitation of Maoist combatants and post-conflict peace building assistance.

Nepal with Regional and International Relations

Nepal has utilized its participation in international forums. The 16th summit of South Asian Association for Regional Cooperation on April 28-29 in Bhutan focused on fighting the perils of climate change and set up a $300m SAARC Development Fund to reduce regional poverty. Maldives will host 17th SAARC summit on November 10-11, 2011. Nepal hosted the 2nd Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) Ministerial Meeting on poverty alleviation, economic cooperation, technology transfer and private sectors' role in development. Nepal's both neighbors, India and China, prefer the non-involvement of third-party in its peace. India is constructing 1,450 kms of black topped all weather roads in the Terai area adjoining India at an estimated cost of $94.17m, provided $1m for eye treatment and $3m for embankment. Indian Army Chief V. K. Singh during his visit to Nepal on December 22 promised expanded defense cooperation. Nepalese government's scrapping of its March 19 decision to award machine readable passport printing contract to India amid huge public pressure forced Nepal to pay $48,000 compensation.

Chinese leader Zhou Yongkang on March 26 said, "China will work with Nepal to push forward the bilateral comprehensive partnership to support its efforts to safeguard its national independence, sovereignty and territorial integrity and choice of development path." It allowed zero-tariff entry facility to 4,721 Nepali exportable items and provided $1.47m to beef up security along Nepal-China border, 108 vehicles worth $1.8m, urged the Nepalese parties to complete the peace process through consensus "without external help" and pledged $11.50m (70m yuan) direct aid. China has received nearly a dozen of Maoist commanders and leaders and arranged meeting with the military and party officials. On December 3 it handed a draft of the new Nepal-China Cultural Cooperation Treaty. Nepal foiled the primary polls organized by Tibetan refugees in the Valley to elect Tibetan government-in-exile and instructed its Ambassador not to attend ceremony for awarding Nobel Peace Prize to Liu Xiaobo.

The visiting US Assistant Secretary for South and Central Asian Affairs Robert O. Blake on April 26 stressed on a permanent peace, integration and rehabilitation of Maoist combatants and a new constitution. The EU stressed on peace process, drafting of new constitution and creation of investment friendly environment for development. The Speaker of Swiss National Council Pascale Wyss recommended Nepali CA members to develop its own model of state. Nepal also started lobbying for its candidate Kul C. Gautam for the presidency of the UN General Assembly and has written letter to executive heads of all UN members to support him.

Sluggish Economy

Nepal's population is 29.7m with a growth rate of 2.2%. Its rank is 138th in Human Development Report 2010. Life expectancy at birth is 68.81 years (male 64.62: female 67.05). Adult literacy rate is 53.74 % (male 68.51: female 42.49). With a per capita income of $562 human poverty index value for Nepal is 25.4 % and power purchasing parity is $1.5 a day. Agriculture contributes 33 %, service 51.5 % and industry 9.2 % to GDP. Economic growth is only 3.5 %. Slow agricultural sector growth of 1.2 % and disruption of transportation caused 3.3m people food insecure. Service sector growth of 5.5% was driven by remittance while industrial growth remained sluggish 3.9% only. Saving rate is only 10% of GDP. To curb industrial strike and make Visit Nepal Year 2011 successful, the government introduced "No Work No Pay." The contribution of workers' remittance to GDP is 23 %($3,513m). Unemployment is 2.1% while underemployment is 30% of total labor force. Every year 350,000 youth enter labor market and 250,000 leave the country for job. Tourism sector contributes 1.5 % to GDP.

In December Nepal Rastriya Bank revealed that the total trade deficit of Nepal during the first four month of fiscal year 2010-11 remained $690.41m. Its exports stand $296.43m against imports of %1662.32m. The balance of payment marked a deficit of $68.90m. The gross foreign exchange reserve of $3586.43m can sustain imports and goods and services for only 7 months. India accounts for 99.4 % of Nepal's imports and 88.8 % of its exports in South Asia. Nepal's annual budget for 2010-11 is $4628.76m. The share of domestic borrowing is $461.36m, foreign loan $304.52m, foreign grants $895.06m and revenue target is $2967.67m. Nepal's outstanding external debt is $4.5b. Foreign Direct Investment is $46.84m. Inflation hovered around 10.5 %.

The Asian Development Bank's help is $559m, USAID $15.6m for health and $30m to benefit it from the Generalized System of Preference, EU $ 1,14m food aid, euro 22m to peace and euro 60m for the next three years for development, the UK 55m pound for health sector, Swiss francs 12.716m for roads by Swiss, UN $41m to fight hunger, $50m for TB and Malaria control, $5m for sanitation, $50m for energy and Denmark $81m aid. Nepal. German annual aid to Nepal is $46.3m in various fields-peace, democracy and development. The World Bank offered $48.31m loan for social safety nets, $129.2m poor people's access to health services and $3.4m for reducing greenhouse emission.

Nepal reduced child mortality rate to 50 per 1,000 live births and net enrollment for primary education reached 93. 7 %. However, 15m do not have access to sanitation, 7.1m lack access to safe drinking water and 10,500 under the age of five die due to poor sanitation. Health facility in rural areas is poor because of absence of doctor and lack of medicine. Strikes disturbed regular education. There are 3.14 m children engaged in child labor. Due to weak law-enforcement about 15,000 women and children are sold for trafficking and slavery every year. HIV patients in Nepal is 64, 000.

Abbreviations