Nepal: Background and U.S. Relations

Nepal: Background
and U.S. Relations
Updated July 30, 2007
Bruce Vaughn
Specialist in Asian Affairs
Foreign Affairs, Defense, and Trade Division

Nepal: Background and U.S. Relations
The three-way contest for control of Nepal — among King Gyanendra, a
coalition of seven parties seeking democracy for the country, and the Maoists —
ended with the king relinquishing power to the democrats in April 2006 after large
scale popular demonstrations against him. King Gyanendra’s inability to subdue the
Maoist insurgency and his repression of pro-democratic elements in the country
undermined his legitimacy and led to his fall from power. The United States sought
to assist the government of Nepal in its struggle against the Maoist armed insurgency
and has promoted the democratic development of Nepal. It has also sought to
promote stability in Nepal to keep it from becoming a destabilizing element in the
This shift of power from monarchy to democracy was followed in November
2006 by a peace agreement between the Maoists and the new government which led
to the laying down of arms, a parliament that includes Maoists, and the scheduling
of elections for a constituent assembly. The constituent assembly is to address the
question of whether the king is to have a place in the future government of Nepal
and, if so, to what extent. The constituent assembly is also expected to act on calls
for Nepal to become a republic and redraw constituencies to more equitably represent
the Nepali people, particularly in the Terai in southern Nepal, which experienced
much unrest in 2007.
A landlocked Himalayan kingdom between India and China, Nepal ranks among
the world’s poorest countries. In 1990, following a democratization movement, it
became a parliamentary democracy under a constitutional monarch. Although this
led to a process of economic restructuring and market liberalization, the country’s
economic growth and reform effort was undercut by political instability and years of
increasingly dire internal security challenges brought on by the civil war with the
Maoists. Compounding the country’s difficulties was the June 2001 tragedy in which
ten members of the royal family, including King Birendra, were killed in an
assassination-suicide, reportedly carried out by Crown Prince Dipendra.
Nepal has a long way to go before its democratic gains can be effectively
consolidated. The need to more fully integrate the Maoists into the political process
and ensure that they, or any splinter groups, do not resort to the force of arms or
coercion in the lead-up to the constituent assembly elections remains a key challenge.
In addition, mounting political tension over Madhesi calls for greater representation
in the political process will demand attention. The Madhesis are an indigenous ethnic
group that inhabit the lowlands of Nepal who feel they have not been fairly
represented. Some Madhesi demonstrations have turned violent. The need to develop
the economy and bring prosperity to the people will remain whatever the outcome of
the constituent assembly election.

Overview ........................................................1
Recent Developments..............................................1
New Unrest..................................................4
The United Nations’ Role.......................................4
Political Setting...................................................5
The King’s Takeover...........................................5
Maoist Reaction...........................................6
The Context of the King’s Takeover...........................6
Key Country Issues................................................7
Governance ..................................................7
Constitutional Crisis.......................................8
Maoist Insurgency.............................................9
Human Rights Concerns.......................................10
The Economy................................................11
Geopolitics ..................................................12
U.S. Interests and Bilateral Relations.................................12
U.S. Assistance..............................................12
Chronology of Recent Events...................................14
List of Figures
Figure 1. Map of Nepal............................................15

Nepal: Background and U.S. Relations
Relations between the United States and Nepal have traditionally been friendly.
U.S. policy objectives toward Nepal include supporting democratic institutions and
economic liberalization, promoting peace and stability in South Asia, supporting
Nepalese independence and territorial integrity, and alleviating poverty. The United
States became Nepal’s first bilateral aid donor in January 1951 and has since
contributed more than $1.4 billion bilaterally and multilaterally to that country.
American foreign policy interests in Nepal have sought to strengthen democracy
and to prevent the collapse of Nepal which, should it become a failed state, could
provide a base of support for terrorists or insurgents in the region. Such a scenario
could be destabilizing to the security dynamics of the region. The United States also
seeks to promote democracy and civil society in Nepal and provide developmental
assistance to its people.1 Political instability and insurgency-related violence has2
undermined the country’s economy. U.S. government officials have asserted that
further deterioration of Nepal’s circumstances could destabilize the region, spur new
tensions between India and China, and potentially create a new terrorist haven in
South Asia.3
Recent Developments
On April 24, 2006, mounting popular resistance in support of the political
parties led King Gyanendra to hand over power to the Seven Party Alliance. The
seven parties have worked together through their alliance to promote a more
democratic Nepal in the face of direct rule by the king. With this development, Nepal
began a process that promises to end a period of intense political conflict between the
king and the political parties, and armed struggle with the Maoists. In May 2006, six
of the seven political parties formed a coalition government. On November 8, 2006,
the Seven Party Alliance and the Maoists reached a peace agreement ending a
decade-old insurgency that claimed some 13,000 lives. In it, the Maoists agreed to

1 FY 2006, Congressional Budget Justification for Foreign Operations, Department of State,
released February 15, 2005.
2 Binod Bhattarai and Edward Luce, “Nepal’s New Premier Unmoved by Clamor at
Parliament’s Gates,” Financial Times, November 21, 2002.
3 Such concerns were expressed in May 2003 by the U.S. Deputy Assistant Secretary of
State for South Asia, Donald Camp (Campbell Spencer, “Nepal Rebels’ Patience ‘Wearing
Thin,’” Washington Times, May 3, 2003. See also Bertil Litner, “Nepal’s Maoists Prepare
For Final Offensive,” Jane’s Intelligence Review, October 2002).

put down their arms and postpone a decision on the future disposition of the
monarchy until after the election of a constituent assembly. Under the peace
agreement, constituent assembly elections were to be held by the end of June 2007.
The June election date slipped to November 2007 due to difficulties in preparing for
the election. The Maoists favor the removal of the monarchy while the Nepali
Congress Party favors a ceremonial role for the monarchy. Girija Prasad Koirala of
the Nepali Congress Party is currently Prime Minister.

Population: 29 mil; growth rate 2.132%
Area: 147,181 sq. km. about the size and shape of Tennessee
Capital: Kathmandu 1.5 mil
Ethnic/Caste Groups: Brahman, Chetri, Newar, Gurung, Magar, Tamang, Rai, Limbu, Sherpa,
Tharu, et al.
Language: Nepali (official); about 12 others
Religion: Hindu 80.6%; Buddhist 10.7%; Muslim 4.2%
Life Expectancy at Birth: 61.8
Literacy: total 45.2%; female 27.6%; male 62.7%
Per Capita income: $322
Gross Domestic Product Growth: 2.5%
Population distribution: Rural 85.8%, with 49% of the population in the Terai region, 44% in
the hills and 7% in mountainous regions of Nepal

Sources: CIA World Fact book 2007; Reuters News; U.S. Departments of Commerce and State; World
Bank; Asian Development Bank; Global Insight.
The Seven Party Alliance that opposed the king in April includes the following
parties as listed below. The Maoists are not part of the Seven Party Alliance though
they have worked with the alliance in recent months.
!The Nepali Congress (NC)
!Communist Party of Nepal Unified Marxist Leninist CPN (UML)
!Nepali Congress (Democratic) or NC (D)
!Nepal Sadbhavana Party (Anandi Devi) or NSP (A)
!Jana Morcha Nepal
!Samyukta Baam Morcha (United Left Front) or ULF
!Nepal Workers and Peasants Party (NWPP)
The six party government includes all of the Seven Party Alliance members except
the NWPP. The royalist Rashtriya Prajatantra Party (RPP), the third-largest party in
parliament, did not oppose the king’s direct rule and is outside the government.
According to one source, the “Maoists appear to be the most organized political
force in the country” and the seven party alliance has “a history of bickering among
themselves, a weakness that both the Maoists and the royalists would be quick to

exploit.”4 For these reasons, as well as mounting protests in the south, Nepal has yet
to consolidate the significant moves towards peace and democracy that have
transpired over the past year. There is also growing concern that the constituent
assembly election be held as soon as possible.
A poor security situation, particularly in rural areas, has hindered voter
registration which was to have been completed by May 2007 for the scheduled June
election. Unrest in the Terai, including demands for greater political representation
in parliament, remains unresolved. The Maoists have stated that the failure to hold
the constituent assembly election in June ended the basis for their participation in the
government. A commission looking into the delineation of constituencies has also
recommended the expansion of the number of constituencies from the planned 425
in the interim constitution to a total of 496.5
On January 15, 2007, 83 Maoist parliamentarians, out of a total of 330 Members
of Parliament, assumed their seats in accordance with the terms of the November
peace agreement. The Nepali Congress has 85 seats while the CPN (UML) has 83
seats.6 This led to further hope that the Maoists are serious in their decision to set
aside their armed struggle for power and will now seek power through democratic
means.7 Maoist leader Prachanda, who has not taken a seat in parliament, addressed
a Maoist rally in February 2007 and called for Nepal to become a republic. He also
expressed concern that the constituent assembly elections may be delayed: “If the
elections are delayed beyond the deadline, we should straight away declare Nepal a
federal democratic republic.”8 Under the previously negotiated agreement, it is up to
the constituent assembly to decide the fate of the king and disposition of the
government. In a poll released in February 2007, 43.2% of Nepalis surveyed believed
there was no place for the monarchy in Nepal while nearly 45% said there should be
a place for the monarchy.9 Under the Comprehensive Peace Agreement of November
2006, the political parties and the Maoists agreed that the Maoists would retire to
cantonments and secure their arms under lock and key. These Maoist arms have been
monitored by United Nations personnel, though the Maoists retain the keys to the
arms stores.10
The U.N. has expressed concern over reports that Maoists have attacked the
gatherings of other political parties and have been interfering with the creation of

4 “Country Report Nepal,” The Economist Intelligence Unit, November, 2006.
5 “Country Report Nepal,” The Economist Intelligence Unit, May 2007.
6 “Nepal: Maoists Take Seats in Parliament,” Stratfor, January 16, 2007.
7 Charles Haviland, “Nepal - Rocky Path to Democracy,” BBC News, January 16, 2007.
8 “Maoist Leader Warns on Nepal Poll,” BBC News, February 13, 2007.
9 “Nepalis Unsure About the Purpose of Upcoming Elections,” Agence France Presse,
February 6, 2007.
10 “Nepal Outlook for 2007-2008: Domestic Politics,” Economist Intelligence Unit,
November 3, 2006.

voter lists.11 Maoists reportedly seized recently prepared electoral rolls in the towns
of Salyantar and Khalde.12 The Election Commission has stated that the voter list,
which is being revised for the upcoming Constituent Assembly election, has
expanded by 15%.13
New Unrest
The most recent threat to the political stability of Nepal stems from a number
of groups representing Madhesis of the Terai region in southern Nepal. Madhesis are
culturally and ethnically close to peoples of northern India. There have been
allegations from inside Nepal that Hindu radicals may have had a role in the violence
in the Terai.14 Two Maoist splinter groups are thought to be fomenting violence in
the Terai by attacking police stations and sponsoring strikes while other groups
unrelated to the Maoists have also been using violent means, such as blockade of
customs stations and transport strikes, to attract attention to their cause and put
pressure on the government to address their concerns. Madhesis have complained
about their under representation in parliament, the government, police, and army as
well as economic discrimination against them.15 The Madhesis, or plains folk, seek
autonomy to free themselves from what they feel is domination by Pahadis from the
more mountainous parts of northern Nepal.
The United Nations’ Role
Formal assistance from the United Nations was requested by the Nepalese
government in July 2006. Following this, the U.N. dispatched a pre-assessment
mission that helped the seven party alliance and the Maoists to resolve differences
on the issue of arms management. The U.N. has monitored the cantonment of16
combatants and the caching of arms as specified under the peace agreement. The
Security Council established the U.N. Political Mission in Nepal (UNMIN) through
Resolution 1740 in January 2007. Under Resolution 1740, UNMIN will undertake
the following tasks:
!Monitor the management of arms and armed personnel of both sides;
!Assist the parties through the Joint Monitoring Coordinating
Committee in implementing their agreement;
!Assist in the monitoring of the cease fire;

11 “Maoist Leader Warns on Nepal Poll,” BBC News, February 13, 2007.
12 “Nepalese Maoists Said Obstructing Election Work Near Kathmandu,” BBC News,
February 9, 2007.
13 “15 Per Cent More Voters for Nepal Con. Assembly Polls,” Asia Pulse, February 8, 2007.
14 “BJP Has No Role in Terai Violence: Yashwant Sinha,” Indo-Asian News Service, July

25, 2007.

15 “Violence in the Terai and the Madhesi Movement,” U.S. Institute for Peace, July 17,


16 “Nepal Monitor: The National Online Journal,” at [].

!Provide technical support for the planning, preparation and conduct
of the election of a Constituent Assembly; and
!Provide a small team of election monitors.17
The U.N. will reportedly send 186 unarmed military observers to carry out the
mission. By way of comparison, the Maoist force has been reported to number
between 7,000 and 35,000.18
Political Setting
Nepal appears to be emerging from a political struggle between monarchists, the
political parties, and Maoists, all of whom have been vying for control of the country.
The Madhesis of the Terai have added a new dimension to Nepal’s struggle for
political stability. The Maoists have set aside the military path to power, at least for
the time being, and are now seeking to gain power through a constituent assembly.
In this way they seek to achieve politically what they have been unable to gain on the19
The King’s Takeover
After seizing direct power in February 2005 King Gyanendra exerted control
over democratic elements, but made little progress in the struggle against the
Maoists. The king reportedly thought he could take advantage of a split in the Maoist
leadership and disarray amongst democrats to seize control and use the Royal Nepal
Army to defeat the Maoists.20 The seizure of power by the king appears to have been
aimed as much, if not more so, at asserting the king’s control over democrats. Many
observers felt that a military solution to the conflict with the Maoists was not
achievable and that a concerted effort by the king and the democrats was needed to
establish a unified front to defeat the Maoists.21
When the king assumed power he stated that he would take steps to reinstate a
constitutional democracy within 100 days, which he then failed to do. While some
political prisoners were released by the king, hundreds of others remained under
arrest and restrictions on civil liberties, such as public assembly and freedom of the
press, remained in place. A U.N. Office of the High Commissioner of Human Rights

17 “Security Council Establishes UN Political Mission in Nepal,” United Nations Security
Council SC/8942, Department of Public Information, News and Media Division, New York,
January 23, 2007.
18 “New Hope for Nepal,” The Japan Times, February 3, 2007. United States Department
of State, Office of the Coordinator for Counter-terrorism, Country Reports on Terrorism

2005, released April 2006.

19 “Nepal: Responding to the Royal Coup,” International Crisis Group, February 24, 2005.
20 Chitra Tiwari, “India Delivers Arms to Nepal,” The Washington Times, May 14, 2005.
21 “US Envoy Warns Political Crisis in Nepal Could Benefit Maoists,” BBC News, May 24,


team was established in Nepal in April 2005 to monitor the observance of human
rights and international humanitarian law.22
By moving against the democrats, who under different circumstances could
have worked with the king against the Maoists, the king strengthened the position of
the Maoists. By some estimates almost half of the RNA was occupied with palace
security, civil administration, and efforts to restrict communications and civil rights.23
The king’s legitimacy with the people was weakened due to the circumstances under
which he assumed the throne, the way he seized direct rule, and due to poor popular
perceptions of his son, Prince Paras Shah.24
Maoist Reaction. From February 13-27, 2005, the Maoists reacted to the
king’s actions by blockading major highways linking the country’s 75 districts, as
well as international road links to India and China.25 This led to clashes between
Maoists and the RNA and reportedly brought trade by road to a standstill. The army
organized armed convoys which allowed limited trade to continue.26 The Maoists27
had earlier cut off land routes to Kathmandu in August 2004. During the week-long
blockade in 2004, prices of some basic foods more than doubled and fuel was28
rationed. This increase in food prices reportedly recurred in the 2005 blockade. By
blockading Kathmandu, the Maoists successfully increased pressure on the king’s
The Context of the King’s Takeover. The security situation in Nepal
deteriorated after the collapse of the ceasefire between the Maoists and the
government on August 27, 2003. The Maoists favored drafting a new constitution
that would abolish the monarchy. The king opposed such a move and wanted the
Maoists to relinquish their weapons. Accommodation between the king and
democratic elements had been thought to be key to creating the unified front
necessary to defeat the Maoists. With his direct assumption of powers, and arrest of
opposition democratic elements, the king decided to try to defeat the Maoists on his
Programs associated with the United States have been threatened by the Maoists
in the past.29 The U.S. Agency for International Development and Save the Children

22 “UN High Commissioner for Human Rights Appoints Chief for Nepal Monitoring
Operation,” M2 Presswire, April 29, 2005.
23 S.D. Muni, “Thy Hand, Great Monarch!” The Hindustan Times, February 8, 2005.
24 Nepal: A Country Report, The Economist Intelligence Unit, February 2005. John
Lancaster, “King Claims Absolute Authority in Nepal,” The Washington Post, February 2,


25 “Maoist Blockade Creates Chaos in Nepal,” Hindustan Times, February 22, 2005.
26 “Nepal Rebels Attack Highway Convoy,” Reuters, February 20, 2005.
27 “Maoist Rebels Cut off Kathmandu,” ABC Radio Australia, August 8, 2004.
28 “Bombs on the Tennis Courts, No Petrol in the Pumps,” The Economist, August 28, 2004.
29 Kedar Man Singh, “Nepal’s Maoist Rebels Say They Will Not Carry Out Political

both operate in Nepal. In the past, Maoist leader Prachanda has stated that “we will
ensure that no American citizens — tourists or officials — except those who come
to the battlefield with the Nepal Army would be caused any harm by the Maoist
militia.”30 Despite such reassurances, in 2003 the U.S. government identified the
Maoists as a threat to American national security, froze Maoists’ assets, and warned
Americans in Nepal of “the possibility of an increased threat to Americans and
American-affiliated organizations from Maoist insurgents.”31
Key Country Issues
Nepal, the world’s only officially Hindu country, has been an independent
kingdom since 1768. Never colonized, the country was almost totally isolated from
outside influence until the early 1950s. A transition from strict rule by the king to
constitutional monarchy began in 1959, when then-King Mahendra issued a new
constitution and held the country’s first democratic elections. In 1960, however, the
king declared the parliamentary system a failure, dismissed the fledgling government,
suspended the constitution, and established a partyless system of rule under the
monarchy. Although officially banned, political parties continued to exist and to
agitate for a return to constitutional democracy.
In February 1990, student groups and the major political parties launched the
Movement for the Restoration of Democracy. The centrist Nepali Congress (NC)
party joined with the leftist parties to hold peaceful demonstrations in Nepal’s few
urban centers. In April 1990, after more than 50 people were killed when police fired
on a crowd of demonstrators, then-King Birendra turned power over to an interim
government. This government drafted a constitution in November 1990 establishing
Nepal as a parliamentary democracy with a constitutional monarch as head of state.
The king at that time retained limited powers, including the right to declare a state
of emergency with the approval of a two-thirds majority of parliament.
The Kathmandu government faced additional turmoil in June 2001, when
Crown Prince Dipendra reportedly shot and killed his parents, King Birendra and
Queen Aishwarya, seven other members of the royal family, and himself after a
disagreement over whom he should marry. King Gyanendra, the former king’s
brother, was crowned on June 4 and he appointed a commission to investigate the
assassination. By mid-June, the country began returning to normal following rioting
and widespread refusal to believe official accounts of the massacre. In July 2001,
Prime Minister Girija Prasad Koirala stepped down amid fears of continuing

29 (...continued)
Killings,” Agence France Presse, October 22, 2003.
30 Kedar Man Singh, “Nepal Maoists Say Americans Safe,” Agence France Presse, October

27, 2003.

31 “United States Declares Nepalese Maoists a National Security Threat, Freezes Assets,”
Agence France Presse, October 31, 2003.

instability and his government’s failure to deal with the growing Maoist insurgency.
He was replaced by NC leader Sher Bahadur Deuba, who then became the head of
Nepal’s eleventh government in as many years.
Constitutional Crisis. During the summer of 2002, the government of Nepal
was thrown into a constitutional crisis that, many argue, interfered with its ability to
effectively combat the Maoist insurgency. The crisis began in late May, when King
Gyanendra, at the request of the prime minister, dissolved parliament and unilaterally
declared a three-month extension of emergency rule, which had expired on May 24.
The prime minister, who also scheduled early elections for November 2002,
reportedly took such action after his centrist Nepali Congress party refused to support
his plan to extend emergency rule. Following the prime minister’s actions, 56 former
members of parliament filed a lawsuit against him, claiming there was no
constitutional precedent for the dissolution of parliament during emergency rule. In
August, the Supreme Court rejected this lawsuit. Although opponents of the prime
minister agreed to accept the verdict, they emphasized the difficulty of holding free
and fair elections two years ahead of schedule when much of the country was under
either rebel or army control.32
Meanwhile, these events effectively split the Nepali Congress into two factions.
First, the Nepali Congress Party (NC), led by former Prime Minister Koirala,
expelled Deuba from the party for three years for his unilateral actions. Then, in
mid-June, Prime Minister Deuba called an NC convention that overturned his
expulsion and elected him, rather than Koirala, as NC president. Supporters of
Koirala, however, argued that the NC convention led by Deuba, who was an expelled
party member at the time, was invalid. In September, Nepal’s Election Commission
ruled that Koirala was the president of the NC, and, therefore, his faction was
authorized to use the party’s name and emblems in the November elections. In
accordance with the Election Commission’s ruling that allowed it one week to apply
under a new party name, the Deuba-led faction registered as the Nepali Congress33
(Democratic) party on September 23. Given that almost 60% of Nepal is illiterate,
use of the NC emblems could be a significant advantage for the Koirala faction in
future elections. On the other hand, some observers speculate that the ruling party
split may benefit the Nepal Communist Party-United Marxist and Leninist (NCP-34
UML) party, the country’s second largest.
Although the prime minister pledged that there would be no emergency rule
during the scheduled November 2002 elections, Maoist attacks and threatened strikes
prompted the government to consider various measures to prevent a Maoist
disruption of the polls. The government discussed imposing a partial state of

32 “Parties React to Court Ruling Backing PM’s Right to Dissolve Parliament,” BBC
Monitoring South Asia, August 7, 2002; Shusham Shrestha, “Nepal PM’s Foes
Begrudgingly Accept Court Approval of Early Elections,” Agence France-Presse, August

7, 2002.

33 “Nepal’s Embattled PM Forms New Political Party,” Reuters News, September 23, 2002.
34 Kedar Man Singh, “Nepal Says PM is not Head of Ruling Party, Hands Title to Foe,”
Agence France-Presse, September 17, 2002; “Nepal Poll Panel Rejects PM as Head of
Ruling Party,” Reuters News, September 17, 2002.

emergency in areas most affected by the insurgency. However, opposition parties,
which urged the government to open a dialogue with the Maoists, argued that by
curbing civil liberties, emergency rule would inhibit free and fair elections. As an
alternative, the government announced in September that it would hold the elections
in six stages over two months, starting in mid-November, so that government troops
could be transferred around the country to protect voters and candidates.35 After
further deliberation, however, Nepal’s cabinet concluded that the security situation
was too risky to hold elections. On October 3, the cabinet asked King Gyanendra to
postpone the national elections for one year.36 The next day, the king dismissed the
prime minister, disbanded his cabinet, and assumed executive powers.
Maoist Insurgency
In February 1996, the leaders of the underground Communist Party of Nepal
(Maoist) launched a “People’s War” in the midwestern region of Nepal, with the aim
of replacing the constitutional monarchy with a one-party Communist regime. The
uprising appears to have been fueled by widespread perceptions of government
corruption and failure to improve the quality of life of citizens, including providing
access to cultivable land. The Maoists have run a parallel government, setting up
their own tax system, burning land records, and redistributing seized property and
food to the poor, in 45 districts.37 The insurgency was waged, in part, through torture,
killings, and bombings targeting police and public officials. A string of bank
robberies, combined with “revolutionary tax” revenue, made the Nepali Maoists
among the wealthiest rebel groups in Asia, with up to $128 million in net receipts.38
Shortly after Prime Minister Deuba took office in July 2001, the Nepali
government and the Maoists announced a truce and began peace talks the following
month. After three rounds of promising discussions, talks broke down over the
Maoists’ demand that the monarchy be eliminated. On November 23, 2001, the
Maoists broke the cease-fire with coordinated attacks on army and police posts.
Three days later, King Gyanendra declared a state of emergency, which allowed the
Royal Nepal Army (RNA), then at a strength of 53,000, to join the police in fighting
the insurgents. The poorly trained, largely ceremonial RNA, however, was unable
to stem the increasing Maoist violence. The state of emergency was extended for
three months in February and again in May 2002. The government also passed the
Terrorist and Disruptive Activities (Control and Punishment) Bill in April, which

35 Binaj Gurubacharya, “Nepal to Hold Elections in Stages,” Associated Press Newswire,
September 28, 2002.
36 Gopal Sharma, “Nepal Cabinet Seeks to Put Off Elections by a Year,” Reuters News,
October 3, 2002.
37 Aniket Alam, “Abductions, a Political Message by Maoists?” The Hindu, January 23,


38 Bertil Litner, “Nepal’s Maoists Prepare For Final Offensive,” Jane’s Intelligence Review,
October 2002.

replaced an anti-terrorism ordinance issued at the time of the first declaration of
em ergency. 39
After the state of emergency expired on August 28, 2002, the Maoists again
stepped up their attacks. During the first week of September, Maoist bombings and
battles with police officers and soldiers left more than 300 people dead. On
September 16, a general strike called by the Maoists shut down much of the country.
November clashes in areas to the west of Kathmandu involved rebel attacks on police
stations and administrative headquarters and caused at least 200 deaths, including
some 60 security personnel.40 Along with this accelerated pace of violence, there
were reports that sizeable Nepali army units had undergone anti-terrorist training in
India, while Maoists may have established a presence in nearby Indian states such as
Bihar. Intelligence reports also suggested that, in return for arms and training, Maoist
forces provide bases to rebel groups fighting New Delhi’s rule in India’s northeastern
Assam state.41 A cease fire was reached in January 2003. Fighting resumed in
August 2003 as the cease fire agreement collapsed.
The Maoists’ message has in the past called for “American imperialism” and the
“dirty Yankee” to “go home.” The Maoists’ Chief Negotiator, and Chairman of the
“People’s Government,” Baburam Bhattarai, once reportedly threatened the United
States with “another Vietnam” if the United States expanded its aid to Nepal.42
Bhattarai also once sent a letter to the U.S. Ambassador in Kathmandu which called
on the United States to stop “interfering” in the internal affairs of Nepal.43
Human Rights Concerns
The U.S. State Department Country Report on Human Rights in Nepal released
in March 2007 focused on events in 2006 and stated that security forces members as
well as the Maoists “committed numerous grave human rights abuses during the year.
Arbitrary and unlawful use of lethal force, including torture, as well as
disappearances, occurred frequently....” The report added that there had been some

39 Binaj Gurubacharya, “Nepal Parliament Approves Anti-Terrorism Bill,” Associated Press
Newswire, April 4, 2002.
40 Kedar Man Singh, “Nepal Considers New Emergency After 300 Dead in Maoist Unrest,”
Agence France-Presse, September 11, 2002; Binaj Gurubacharya, “General Strike Shuts
Most of Nepal,” Washington Post, September 16, 2002; “Upsurge in Nepal Violence,” BBC
News, November 15, 2002; Sushil Sharma, “Nepal Rebels ‘Suffer Heavy Casualties,’” BBC
News, November 23, 2002.
41 R. Bedi, “Maoist Battle to Control Nepal,” Jane’s Terrorism and Security Monitor,
November 2002.
42 Thomas Bell, “Maoist Army Wins Hearts and Minds in West Nepal,” The Globe and
Mail, September 18, 2003.
43 Binaj Gurubacharya, “Maoist Rebel Leader Asks U.S., China, India to Stop Interfering
in Nepal,” Associated Press, September 25, 2003.

improvement in the human rights situation since the political transition in April


Amnesty International has expressed concern about the unrest in the Terai in
early 2007. It is “gravely concerned” that the protesters, members of the Madhesis
community that are demanding proportional representation, may be subject to “the
possible use of excessive force by the police.” Amnesty also pointed out that the
protestors have attacked busses, lorries, and journalists. Amnesty has called for an
investigation into these events.45
Human rights groups warned in the aftermath of the king’s early 2005 take over
that Nepal was “plunging deeper into a massive human rights crisis” with “arbitrary
arrests, censorship, and general repression” with “suspended fundamental
constitutional rights including the freedom of assembly.” Political developments
since the king’s handover of power have raised hopes that the human rights situation
in Nepal will improve.
The Economy
Nepal is one of the poorest countries in the world. Up to 90% of its inhabitants
earn a living through agriculture, which accounts for a significant percentage of the
country’s gross domestic product. Only 20% of the land is arable. Major crops
include rice, wheat, maize, jute, sugarcane, and potatoes. Continued reliance on
subsistence farming could keep Nepal poor for many years to come. Though the
industrial base is small, Nepal produces carpets, garments, and, increasingly textiles,
which now account for a majority of merchandise exports. Other major revenue
sources are tourism and remittances from Nepal’s famed Gurkha soldiers serving in
the British and Indian armies. Government efforts to increase foreign trade and
investment have been impeded by political instability, the resistance of vested
interests, the small size of the economy and its remoteness, the lack of infrastructure
and technological development, and frequent natural disasters, including floods and
Hydroelectric potential may be Nepal’s most attractive asset in the eyes of
investors. Nepal and India have completed several joint irrigation-hydroelectric
projects and, in 2001, the Kathmandu government implemented a hydropower policy
that opened the entire sector to private investment. A number of factors, including
lack of capital, high transportation costs, environmental and social impact concerns,
and political impediments, continue to hamper Nepal’s hydropower potential, leaving
only 15% of the country’s population with access to electricity. Nepal’s tourist
industry has traditionally been an important part of the economy and a key source of
foreign exchange. Past government efforts to revive the industry include opening up
more mountain peaks to expeditions, reducing visa fees and easing visa procedures.

44 U.S. State Department, Bureau of Democracy, Human Rights, and Labor, Nepal Country
Report on Human Rights Practices 2005, released March, 2007.
45 “Nepal: Amnesty International Urges Investigation into Killings,” Amnesty International,
January 31, 2007.

Nepal has been described as a yam between two boulders. Nepal’s geopolitical
status as a small, landlocked buffer state situated between two Asian giants — India
and China — has severely constrained its foreign policy and trade options. Although
Nepal has sought to maintain friendly relations with both neighbors, its cultural,
linguistic, religious, and economic ties with India historically have been much closer
than those with China. Despite this, recent moves by the king have strained relations
with New Delhi and opened the prospect of closer relations with China. Nepal is
heavily dependent on India as the primary source of imports, the main market for
exports, and for access to the sea through the major port of Calcutta. Moreover, the
Himalayan mountain range along Nepal’s northern border limits access to China,
whereas the 500-mile southern border with India is relatively open. India, which has
always considered Nepal a strategic link in its northern border defenses, has
supported Kathmandu’s efforts against the Maoist guerrillas.46 New Delhi has
viewed Nepali instability as a potential catalyst for the destabilization of India’s own
troubled northeastern states.47 Maoist success in Nepal may also have a negative
impact on India’s Maoist problem.48
At the same time, the Nepali leadership has long resented Indian economic
influence and has sought to establish a more independent foreign policy. Kathmandu
has at times “played the China card” in seeking to counterbalance what it considers
undue pressure from India. In recent years, Beijing has contributed significant
economic aid to Nepal and has pledged “political and moral” support for Nepal’s
fight against the Maoist insurgency, which it denounces as misusing the ideas of
Chairman Mao Zedong. Some observers have noted that Nepal’s stability is
important to China, given that it serves as a buffer between China and India.49 The
United States apparently supported India in taking a leading role in the situation in
Nepal in the wake of the February 2005 takeover by the king.50
U.S. Interests and Bilateral Relations
U.S. Assistance
In recent years U.S. attention to Nepal has focused on issues related to the
Maoist insurgency, though non-military assistance has been far greater. The United
States has in the past provided Nepal with light weaponry and other military

46 “India Pledged to Support Nepal in Rebel Fight,” Reuters News, August 23, 2002.
47 Mandavi Mehta and Nisala Rodrigo, “Nepal Update,” South Asia Monitor 53, Center for
Strategic and International Studies, December 1, 2002.
48 CRS Report RL32259, Terrorism in South Asia, by Alan Kronstadt and Bruce Vaughn.
49 Philip Pan, “China Backs Nepal Over Maoist Rebels; Move Reflects Beijing’s Growing
Interest in Fostering Stability, Not Revolution,” Washington Post, July 14, 2002.
50 “U.S. Wants India to Play a Leading Role in Nepal,” Press Trust of India, February 22,


assistance to assist Nepal in its fight against the Maoists.51 U.S. assistance to Nepal
has been focused on strengthening Nepal’s democratic institutions. Economic
Support Funds (ESF), Development Assistance (DA), and Child Survival and Health
(CSH) programs seek to enhance stability and security while seeking to strengthen
governance and protect human rights. IMET programs have sought to develop
Nepal’s military’s ability to conduct operations while “following the rules of
engagement that respect the rule of law, international human rights standards, and
democratic values.”52 U.S. assistance to Nepal will reportedly continue even with the
Maoists in the interim government under the terms of a one-year licence to the
Agency for International Development.53
U.S. Assistance to Nepal, FY2005-FY2007
(In U.S. $ thousands)
Act.FY2006 actualFY2007estFY2008request
CSH 18,613 - 17,985
P.L. 480 Title II1,213-0
Transition initiatives1,769-0
T otal 35,582 26,625
Source: U.S. Department of State, South and Central Asia, Budget Justification Document, FY2008.
Note: (CSH)Child Survival and Health, (DA) Development Assistance, (ESF) Economic Support
Fund, (FMF) Foreign military Financing, (IMET) International Military Education and Training,
(NADR) Nonproliferation, Antiterrorism, Demining, and Related Programs, (INCLE) International
Narcotics Control and Law Enforcement.
The United States has viewed the Maoists’ past plans to institute a one-party
republic, collectivize agriculture, reeducate class enemies and export revolution as
undermining regional stability as well as the promotion of democracy and
development for Nepal.54

51 Jahn Lancaster, “King Claims Absolute Authority in Nepal,” The Washington Post,
February 2, 2005.
52 “Nepal,” in U.S. Department of State, South and Central Asia, Budget Justification
Document, 2007.
53 “US to Continue Assistance Even After Maoists Join Interim Government,”
[ h t t p : / / www.Ne pa l n e ws . c o m] .
54 “Christina Rocca Delivers Remarks at the Institute of Foreign Affairs,” Federal Document

Chronology of Recent Events55
February 2005King Gyanendra dismisses the government, declares a state of
emergency, and assumes direct rule.
November 2005Maoists and political parties agree on a plan to restore
April 2006Opposition demonstrations force the king to reinstate
parliament and abandon direct rule. The Maoists declare a
May 2006Parliament cuts the king’s political power and the government
begins talks with the Maoists.
June 2006Prime Minister Koirala and Maoist leader Prachanda agree to
bring Maoists into an interim government.
September 2006The king loses his power over the armed forces.
November 2006A peace agreement between the government and the Maoists
ends the 10-year insurgency. The Maoists are to join a
transitional government and their weapons are to be monitored
by the United Nations.

2007Unrest in the Terai mounts.

January 2007Maoists enter the government under a temporary constitution.
November 2007Elections for a constituent assembly are to be held.

54 (...continued)
Clearing House, May 10, 2005.
55 This chronology is largely drawn from “Timeline: Nepal,” BBC News, January 16, 2007.

Figure 1. Map of Nepal