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Political, Economic and Social Development in Nepal in the Year 2009


The lingering political crisis in Nepal has eroded the state's capacity to handle security, human rights and development challenges. The crisis underlined many of Nepal's structural problems. The polity lacks coherence and parties have failed to put a stable government to implement peace accord, expedite the constitution drafting process by 601- member Constituent Assembly (CA) and address class, caste, ethnic, gender and regional disparity. The crisis climaxed after the ruling Unified Communist Party of Nepal (Maoist) fired army Chief R. Katwal on May 3 for his refusal to integrate Maoist People's Liberation Army (PLA) into Nepal Army (NA), an action loathed even by their coalition partners. President Ram B. Yadav overturned this action thereby provoking Prime Minister Puspa K. Dahal to resign on May 4.

Twenty-two political parties have elected the leader of Communist Party of Nepal-Unified Marxist-Leninist (CPN-UML) Madhav K. Nepal as new Prime Minister on May 23. The Maoists dubbed this new government "puppet of India" and as a trial of strength disrupted the parliament from August 7 to December 22 except 3 days interval to pass the annual budget. Demanding the civilian control of NA and a national unity government under their leadership, the Maoists sent a stern threat of indefinite strike from January 24 if their demands are ignored. They also blamed India for maneuvering the fall of their government, resisting the replacement of Indian priests of Pashupatinath temple by Nepali ones and integration of PLA into NA. In contrast, the ruling coalition despised Maoists threat to capture the state, declaration of autonomous republic and seizure of private land. Despite endless political dialogues, the contentious opinions of hardliners from both sides have thwarted any chance for compromise.

The signing of post-conflict accords with a variety of unruly groups proved to be ineffectual. Many of them just refused to respond the government's call to engage in peace talks. Militant youth wing of different political parties, 109 para-military groups and armed outfits of Tharus, Tamangs, Limbus, Kirants and Madhesi ethnic forces often flex their muscle to erode the state's authority in society. Irresolution of a slew of issues-power-sharing, federalism, polity, judiciary, land reforms and prior-use rights of indigenous people in land, water and forest fuel the sources of conflict. Nepal's poor legal framework, weak law enforcement mechanism and impunity have created huge possibility for corruption and cronyism. Local government bodies, the participation of which is required by NGOs and donors to carry out their development works, are non-functional as 1,124 local bodies are without secretaries.

The process of transition to democracy continues confronting adverse milieu-- labor unrest for 100 days, capital flight, over 770 political strikes, killing of 25 businessmen and abduction of 65 by armed bands. The acute power crisis up to 12 hours deterred new industrial set up, business investment and tourism. Food crisis exposed 3.7 million people at risk. The flood killed 72 persons leaving other 20,800 families homeless while diarrhea outbreak killed over 400 people. Nepal's government held a cabinet meeting at the base of Mt. Everest to draw global attention to the effect of climate change. Though buffeted by global economic crisis, it is still the workers' remittance that is the lifeblood of rural economy. International community's concern in Nepal remained high due to the rivalry between neighbors--India and China, for geo-strategic contest. Its development partners are worried about growing polarization between the Maoists and the ruling coalition and suggesting them to work for democracy, human rights, constitution-drafting, peace, ecological justice and development.

Political Development

The Global Fund for Peace has put Nepal among the 25th of the worst 38 countries caught in statelessness. The expansion of political constituency by parties has hobbled state's ability to perform core functions. Fulfillment of the nation's major tasks- declaration of new constitution by May 28, 2010, durable peace and structural reforms-remains an Achilles' heel. The Constituent Assembly has revised its work plan 8th times after two committees failed to produce their preliminary drafts within deadline. Conflicting views in the CA on the preamble, integration of PLA, nature of governance, election, chief justice, land reforms, federalism and self-determination have mired the constitution-drafting process. The UCPN (Maoist) is the single largest party in the parliament having 240 members but due to lack of absolute majority it has to negotiate with rivals to form coalition government. The legal term requiring consensus or two-thirds majority to pass each article of new constitution entails the cooperation of UCPN (Maoist) in constitution drafting. But, the hardliners within both sides has created divides thereby leaving only a flicker of hope for timely declaration of new constitution.

The National Human Rights Commission asked the government the reason for the withdrawal of 238 court cases against the criminals. It said, "Impunity is rearing its ugly head in the country as parties are protecting criminals." The Supreme Court, reduced as a passive appendage of the legislature, has demanded security for the judges. The execution of Special Security Plan has cut the violent activities of 109 armed groups but it failed to tame as most of them have sanctuary in India and get local politicians' support. There are 100 active criminal gangs in the Valley linked to political parties and security agencies. The absence of 1,124 secretaries of local bodies and delayed transfer of the budget for them due to the failure of parties to create inclusive mechanism mired the delivery of basic public goods to citizens.

The outreach of state in society is shrinking. Leaders from caste, ethnic, indigenous, Dalit and backward classes are structuring around ethno-territorial ties. Traditional source of authority bitterly divides them over primordial visions and contests modern national identity. The Khas-Chhetri Unity Society issued a stern warning of armed struggle if proportional representation in governance is not granted by the Bahun rulers. The Nepal Federation of Indigenous Nationalities demanded their right to self-determination, voice and visibility in decision-making. The Madhesi Jana Adhikar Forum (MJAF) made similar warning of stir unless the government declares all Madhesh a single federal state and resolves dispute over the Vice-President Permanand Jha. Jha was deprived of state facilities for denying reoath of his office in Nepali language as directed by the Supreme Court on July 7. Earlier he has taken oath in Hindi language. All the Madhesi parties demanded Hindi as national language for Tarai, the southern flatlands. The Tharus have rejected the Madhesi demand instead claimed for Tharuhat, an autonomous region for them with the prior right to use forest, water and land. As native insider, they also rejected Maoist declaration of autonomous federal states as a ploy to convert them into Madhesis-the outsider. To satisfy these demands the CA has proposed 11 constitutional commissions for Women, Indigenous people, Dalit, Madhesi, Muslim, Disabled, Minorities and Backward groups, Labor, Human Rights, and Anti-Corruption Commission, Public Service, Election and Auditing. The CA has 11 thematic, 2 procedural and 1 constitutional committee-the last one is chaired by Nilamber Acharya after Madhav Nepal resigned from the post. In the by-election for CA members, UCPN (Maoist) scored 3, NC 1, CPN-UML 1 and MJAF 1 seats.

The Power Play
Nepal's political crisis took a sudden turn on April 20 when Prime Minister Dahal asked General Katawal to give reasons for new recruitment of 3,010 NA, eight retired generals' service extension and boycott of six events in the national game by the NA players due to PLA's participation. Unhappy with General Katawal's account, Prime Minister Dahal dismissed him on May 3 and appointed Lt Kul B. Khadka as Acting Chief. In reaction, the partners of ruling coalition withdrew from the government. President Yadav asked General Katwal to continue in office. Upset by President's move, Dahal resigned on May 4. On May 21 Maoists tabled a "commitment motion" at the parliament for debate about the constitutionality of President's move but Speaker of parliament Subas C. Nembang denied to entertain it.

Twenty-two parties elected CPN-UML leader Madhav K. Nepal as Prime Minister on May 23. His cabinet reversed many decisions of earlier government and astutely cemented relations with the powerful stakeholder-the military, glued ties with NC by promoting Foreign Minister Sujata Koirala to Deputy Prime Minister and did not take any action against State Minister for Agriculture and Cooperatives Karima Begum for slapping Chief District Officer D. P. Bhandari of Parsa for sending old vehicle for her. Premier knew that clash with Begum's party, MJAF (Democratic), can bring his coalition crashing down. Likewise, Defense Minister Bidhya Bhandari underlined the need to review the peace accord on the ground that new recruitment in NA, arms purchase and training were needed to make the army competitive for UN peace mission and directed the NA to fill the vacancies through fresh recruitment. Chief of United Nations Mission in Nepal (UNMIN) Karin Landgren deemed it a breach of the peace accord. Conversely, the ruling coalition blamed UNMIN for failing to check "phony PLA during the verification process" and anti-government bias.

The ruling coalition also dubbed the UN Secretary-General Ban ki-Moon's advice for a national unity government as an "act of blatant UN intervention in Nepal's internal affairs." It also promoted Major General Toran Singh as second in rank in the NA despite opposition from human rights watchdogs for his poor human rights record and declined to handover Major Niranjan Basnet to civilian court who is implicated for Maina Sunwar's murder case. Haunted by the Maoist's version of statute that barred the party loyal to "imperialists, feudal and not progressive" it felt that only NA can protect the coalition from the Maoists. The fear of Maoists' threat of state capture through revolt for People's Republic in the country has coagulated the interest of incongruent forces-- leftists, liberals, monarchists, anti-secular and anti-federal forces, NA and India into a united front. The Maoists' were forced to pull out their decisions to replace the priests of Pashupatinath temple by Nepali ones due to tough opposition from India and NC. The Supreme Court issued a stay order to Maoist-led government not to touch priests, destroy the statue of Prithvi N. Shah, the builder of modern Nepal, and withdraw voluntary retirement scheme for judges and appointment in National Academy.

The Maoists, too, feared the ruling coalition's right-wing tilt spelling troubles: dissolution of CA, President's rule, rebirth of monarchy and civil war. The coalition wants to settle the PLA before the declaration of new constitution while the Maoists fear the risk of counter revolution and, therefore, prefer the integration of PLA and Young Communist League only after the declaration of constitution and formation of a national army. Demanding "civilian supremacy" and leadership of government the UCPN (Maoist) blocked the parliamentary business from August 7 to December 22 except three-day break to pass the annual budget. The sharp polarization between the two sides has ratcheted up despite endless meeting of task force manned by NC, CPN-UML and UCPN (Maoist) leaders to work out a compromise deal. The Singapore meet between Maoist chairman Dahal and NC President Koirala on November 17 to find middle ground through a high level political mechanism ended in a noise. The Maoists then organized series of stir from November 1, unilaterally declared ethno-territorial federal states, national strikes and stoked nationalist feelings by exposing "clandestine deals of the coalition government with foreign compradors" meaning India. On December 23 they, however, let the parliament run "to foil conspiracies and restore parliamentary supremacy." On December 27 Chairman Dahal asked Indian Ambassador Rakesh Sood to clarify whether Indian Army Chief Deepak Kapoor's opposition to "the PLA's en masse integration into NA" is official Indian version.

In the absence of a credible high level all-party political mechanism to settle vital issues, the trust deficit between the government and opposition has put the peace process under severe strain. The leaders failed to live up to their obligations to set up-- high level peace commission, state restructuring commission, justice and reconciliation commission, commission on disappeared persons, etc to manage conflict residues and expedite the peace process. The Special Committee for Supervision, Integration and Rehabilitation of Maoist combatants has become prisoner of indecision of leaders as it failed to produce a strategic plan to adjust 19,602 PLA in productive life of society. The only progress is that on December 16 the government, the UN and the UCPN (Maoist) signed an action plan for the release and rehabilitation of 4,008 disqualified PLA, mostly minors.

In Nepal, few powerful leaders decide all matters whether elected or not, even caring less to party split. On January 12, CPN (Maoist) and CPN (Unity Center) merged to form Unified CPN (Maoist), dropped Prachandapath as its ideology, and clinched multi-post leadership and people-oriented republic. Blaming his mother party for a lack of discipline and dominated by non-proletarians and kinsmen, politburo member of UCPN (Maoist) Matrika Yadav formed a new party CPN (Maoist) on February 10. The MJAF elected Upendra Yadav as new president on January 21. But, the bitter fracas splinted the party between the parliamentary group and party's central committee incubating a new party MJAF (Democratic). On February 29, the CPN-UML elected J.N. Khanal as Chairman by defeating K. P. Oli.

The NC's general assembly on November 2 endorsed a provision to elect 75 percent members in the 85-member central committee to cut the power of president. Congress leader P. M. Singh even blamed NC patriarchs G. P. Koirala and Sher B Deuba for colluding to send the discredited persons in the cabinet. The NC elected R. C. Paudel as its parliamentary party leader and 17 members. Many CPN-UML legislators accused Premier Nepal and Chairman Khanal of "providing cabinet berths to losers of elections, creating a huge cabinet and reverting the decision of previous government than working towards real agenda."

Economic Development

Nepal's total population is 29m with a growth rate of 2.2%. It ranks 144th among 182 countries in Human Development Report 2009.Life expectancy at birth is 59.8 years (male 60.9:female50.5 years). Adult literacy is 53.74% (68.51 % for male and 42.49% female). With a per capita income of $471 human poverty index value for Nepal is 32.1 % and power purchasing parity is $1.25 a day. Agriculture contributes 32.5%, industry 16.6 % and service 50.9 % to GDP. Economic growth is 3.6 %. The lack of investment climate, poor capital expenditure, energy crisis, flood, labor disputes and round-the-year strikes, suppressed economic growth. Agriculture sector growth is 2.1 % and non-agricultural sector 4.8 % while the industrial production declined by 0.5%. Tourism increased only by 1 %. There is no growth in health sector, modest rise in education and road expansion of 62 kilometers. This has affected employment and basic services. Nepal's unemployment rate is 46 %. Every year 350,000 youth enter into labor market and each day 750 people leave the country for job. About 3m workers abroad and Gurkha soldiers in the UK and India send US $2833.88m and $50m remittance respectively which has reduced poverty to 32%. But, the global meltdown is likely to cut remittance flow and augment inequality in rural areas. Inflation remained 13.2 %.

The decline in carpets and garments reduced Nepal's export growth to 13. 5 % while import increased by 28.2% and the balance of payment stood at $509.42m. Nepal's trade balance is -$2936.49m, India alone is accounted for -$2833.78m. Nepal's major export destinations are India, the US and Bangladesh while import sources are India, China, Singapore, Australia, etc. Its outstanding domestic debt is $1936.46m. Nepal's annual budget is $3319.62m, $2073.46m are borne by internal revenue and $1006.54m by foreign assistance (grant $ 730.13m and loan $274.41m). The net budget deficit of $594.10m will be financed by domestic borrowing.

The US has allocated $54m for peace and development and the EU provided $0.74m for water, sanitation and Euro5.95m to peace. German ODA stands $ 49m for various development projects. The UK Minister for International Development Mike Foster outlined a package of $245m for next three years for new roads, jobs and basic services and pledged $80m for livelihood. Japanese ODA stands at $48.6m for road, safe home and irrigation. The Asian Development Bank increased its grant and loan to $538m in 2009-10 from $258m in 2007-08. The ADB and UNDP provided $3.81m to strengthen local governance. The World Bank provided $109.2b to support energy and agriculture, a new two-year lending of $782m, $130m for social sector and $45m for roads and bridges. The Indian aid amounts to $337.84m. Norway agreed to allocate $5m for the rehabilitation of disqualified Maoists and the UN provided $ 6 m food aid. There were no policy reforms due to crisis of governance. Even the meeting of Nepal Development Forum was postponed.

Social Development

The frequent strikes have affected the delivery of basic services and peace dividend to conflict victims. Nepal's population fertility rate is 3.5 children while child mortality rate is 48 per 1,000 live births. Legalization of abortion reduced maternal mortality rate to 281 per 100,000. There are 14,787 people infected with HIV/AIDS. Viral influenza has killed over 400 people in the far west. Health facilities in rural and remote areas have declined due to a lack of interest of doctors, inadequate budget for hospitals, poor equipments, etc. Due to weak law-enforcing agencies, every year over 10,000 girls are trafficked to India and the Gulf region. About 77% of people benefit from safe and clean drinking water where as 60 % of people does not have any access to electricity. The government decided to make gender-responsive budget.

Regional Cooperation

The South Asian Association for Regional Cooperation (SAARC) tried to prioritize cooperation on key projects, such as regional university, museum of textiles and handicrafts, development fund, food bank to cope with livelihood crisis and climate change, prune sensitive lists to increase the volume of trade and launched regional website on trade and commerce. Its 16th Summit will be held in Bhutan on 28-29 April 2010. The 12th Ministerial meeting of Bay of Bengal Initiative for Multi-Sectoral Technical Cooperation in Myanmar (December 8) decided to establish energy and weather stations in India and cultural industry in Bhutan.

Foreign Affairs
Nepal has deftly handled balancing act in the neighborhood and demonstrated its main priorities to international community. India and Nepal agreed to set up three layered mechanism to deal with border disputes, flood and cross-border crime. India urged Nepal to sign extradition treaty and control the flow of fake Indian currency while Nepal asked full Indian cooperation on Special Security Plan. During Chief of the Army Staff Chhatra M. Gurung's visit to India in December 11 New Delhi agreed to resume non-lethal arms supplies to Nepal. On October 27 Nepal and India signed Treaty of Trade and Agreement of Cooperation to Control Unauthorized Trade. With equal investment from both sides Nepal will get 3,300 megawatt electricity from Pancheshwor Project.

China became pro-active to checkmate external intervention in Nepal. On August 16 Nepal and China tried to settle border security, Tibetan migration, cross-border crime, promotion of bilateral trade and access of Nepal's northern people to Chinese goods and addition of 200 quotas, 20 full scholarships for Nepali students. The meeting of six lawmakers of Madhesi parties with Dalai Lama in India in May to "support free-Tibet movement" alarmed the Chinese. On December 26 during Premier Nepal's visit to China three agreements were signed-youth exchange and economic and technical cooperation. It undertook 50-MW Upper Marsyangdi Hydro Electricity Project, increased yearly aid to $ 21.89m from $14.40m last year, military aid $1.35m, assured to offer duty-free access to 497 Nepali goods and allotted $0.29m for the construction of Nepal's Consulate office in Lhasa. Military delegations led by Lt. Gen. Shu Yutai and Major-General Jia Xiaoning offered integrated security, trade and economic support to Nepal including development projects bordering China.

The US Assistant Secretaries for South and Central Asian Affairs Richard Boucher and later Robert A. Blake expressed Washington's keen interest in assisting Nepal in peace and constitution. Principal Deputy Assistant Secretary for Population, Refugees and Migration, Sam Witten, discussed the latest scenario of the Tibetan and Bhutanese refugees in Nepal. The UK Under-Secretary of State for Defense and Minister for Veterans, Kevan Jones assured continued support for Nepal's peace and development. The Japanese Deputy Minister for Defense Nobuo Kishi agreed to construct Kawasoti hydel project. On February 5 German parliamentary delegation led by Dr. Wolfgang Thierse discussed about development cooperation and advised Nepalese parties to unite for statute. Nepal assumed the chair of 49 Least Developed Countries within the UN system in Geneva.


ADB Asian Development Bank
BIMST-EC Bay of Bengal Initiative for Multi-Sectoral Economic and Technical Cooperation
CA Constituent Assembly elected to draft a new constitution
CPN-UML Communist Party of Nepal Unified Marxist-Leninist led by Chairman J. N. Khanal
GDP Gross Domestic Product
MJAF Madhesi Jana Adhikar Forum led by its President Upendra Yadav
MJAF (D) Madhesi Jana Adhikar Forum led by its President Bijaya K. Gachhedar
NA Nepal Army
NC Nepali Congress led by President Girija Prasad Koirala
ODA Official Development Assistance
PLA People's Liberation Army raised by Maoists.
SAARC South Asian Association for Regional Cooperation
UCPN (Maoist) Unified Communist Party of Nepal (Maoist)
UNDP United Nations Development Program
UNMIN United Nations Mission in Nepal

Cabinet List

Madhav K. Nepal Prime Minister
Bijaya K. Gachhedar Deputy Prime Minister and Physical Planning and Work
Sujata Koirala Deputy Prime Minister and Foreign Affairs
Bidya Bhandari Defense
Surendra Panday Finance
Bhim B. Rawal Home
Shankar Pokhrel Information and Communication
Rabindra Shrestha General Administration
Rakam Chemjong Peace and Reconstruction
Dambar Shrestha Land Reform
Prakash S. Mahat Energy
Bal Krishna Khand Irrigation
Purna Kumar Sherma Local Development
Minendra Rijal Federal Affairs and Legislature Parliament
Uma Kant Chaudhary Health
Mohammed Aftab Alam Labor and Transport
Sharat Singh Bhandari Tourism and Civil Aviation
Mrigendra K Singh Yadav Agriculture and Cooperatives
RamChandra Kusbaha Education
Ganesh Nepali Youth and Sports
Mahendra P. Yadav Industries
Deepak Bohara Forest and Soil Conservation
Rajendra Mahato Commerce and Supply
Prem B. Singh Law and Justice
Laxman Lal Karna Minister Without Portfolio
Thakur Sharma Environment
Sarbadev P. Ojha Women, Children and Social Welfare
State Ministers
Karina Begum Agriculture and Cooperatives
Satrughan Singh P. Koiri Culture and Tourism
Sanjaya K. Shah Physical Planning and Works
Ram Bachan Yadav Women, Children and Social Welfare
Indra Prasad Dhungel Science and Technology
Saroj K. Yadav Commerce and Supply
Dilli B. Mahat Peace and Reconstruction
Jit Bahadur Gautam General Administration
Rijwan Ansari Home
Ganesh B. Khadka Local Development
Chandra Singh Bhattarai Energy
Khadga B. Basyal Health
Dan B. Chaudhary Industry
Man B. Shahi Land Reform
Govind Chaudhary Education
Assistant Ministers
Chanda Chaudhary Youth and Sports
Kalawati Devi Dusad Physical Planning and Work
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