Nepal Country Review.

Transcription

1 Nepal 2017 Country Review

2 Table of Contents Chapter 1 1 Country Overview 1 Country Overview 2 Key Data 3 Nepal 4 Middle East 5 Chapter 2 7 Political Overview 7 History 8 Political Conditions 10 Political Risk Index 53 Political Stability 68 Freedom Rankings 83 Human Rights 95 Government Functions 98 Government Structure 101 Principal Government Officials 108 Leader Biography 109 Leader Biography 109 Foreign Relations 110 National Security 117 Defense Forces 121 Chapter Economic Overview 123 Economic Overview 124 Real GDP and GDP Per Capita 126 Nominal GDP and Components 130 Government Spending and Taxation 132 Money, Prices and Interest Rates 135 Trade and the Exchange Rate 137 The Balance of Payments 138 Real GDP and GDP Per Capita 140 Nominal GDP and Components 143

3 Government Spending and Taxation 145 Money, Prices and Interest Rates 148 Trade and the Exchange Rate 150 The Balance of Payments 151 Real GDP and GDP Per Capita 153 Nominal GDP and Components 156 Government Spending and Taxation 158 Money, Prices and Interest Rates 161 Trade and the Exchange Rate 163 The Balance of Payments 164 Real GDP and GDP Per Capita 166 Nominal GDP and Components 169 Government Spending and Taxation 171 Money, Prices and Interest Rates 174 Trade and the Exchange Rate 176 The Balance of Payments 177 Economic Performance Index 179 Chapter Investment Overview 191 Foreign Investment Climate 192 Foreign Investment Index 194 Corruption Perceptions Index 207 Competitiveness Ranking 219 Taxation 228 Stock Market 228 Partner Links 229 Chapter Social Overview 230 People 231 Human Development Index 233 Life Satisfaction Index 237 Happy Planet Index 248 Status of Women 257 Global Gender Gap Index 259 Culture and Arts 269 Etiquette 269

4 Travel Information 270 Diseases/Health Data 280 Chapter Environmental Overview 286 Environmental Issues 287 Environmental Policy 288 Greenhouse Gas Ranking 289 Global Environmental Snapshot 300 Global Environmental Concepts 311 International Environmental Agreements and Associations 326 Appendices 350 Bibliography 351

5 Chapter 1 Country Overview Page 1 of 363 pages

6 Country Overview NEPAL Landlocked Nepal is located in the Himalayan Mountains of South Asia, between two giant neighbors China and India. For most of its modern history from the 1700s, Nepal had been ruled by monarchs or a ruling family. A brief experiment with multi-party politics in 1959 ended with the king suspending parliament and taking sole charge in Reforms in 1990 established a multiparty democracy within the framework of a constitutional monarchy. An insurgency, led by Maoists demanding the abolition of the monarchy, broke out in A decade-long civil war between insurgents and government forces followed and resulted in the dissolution of the cabinet and parliament, as well as the assumption of absolute power by the king. As many as 15,000 people were killed in this period, while up to 150,000 were displaced by the fighting between the Maoist rebels and government forces. Mass protests in April 2006 were followed by several months of peace negotiations between the Maoists and government officials, culminating in a November 2006 peace accord and the promulgation of an interim constitution. Elections in April 2008 led to the abolition of a centuries-old monarchy, and a Maoist-dominated government took office in August. In the ensuing years, Nepal has been rocked by political instability and infighting. Political instability and the decade-long Maoist insurgency have dampened economic development of the country, and Nepal ranks among the poorest and least developed countries in the world. In 2015, the country was rocked by a devastating earthquake, adding to the country's woes. Page 2 of 363 pages

7 Key Data Key Data Region: Asia Population: Climate: Languages: Currency: Holiday: Mild to severe winters, cool to subtropical summers Nepali (official); several other languages and numerous dialects 1 Nepalese rupee (NR) = 100 paisa National Unity Day is 11 January Area Total: Area Land: Coast Line: 0 Page 3 of 363 pages

8 Nepal Country Map Page 4 of 363 pages

9 Middle East Regional Map Page 5 of 363 pages

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11 Chapter 2 Political Overview Page 7 of 363 pages

12 History Besides sharing its geographical borders with India and China, Nepal also shares history with its two giant neighbors. It was influenced to a large extent by the same incidents that proved to be turning points in the history of India and China. The earliest recorded history of Nepal goes back over 2,800 years when a tribe of Mongolian people-the Kiratis-arrived in the Himalayan territory, across the Tibetan plateau. Little is known of this era other than that Buddhism was the dominant religion in Nepal at that time. The current tribes of Limbu and Rai are believed to be direct descendants of the Kiratis. The Nepalese history of the period is unclear and remains so for almost 1,000 years. Around 300 before the common era, or B.C.E., Nepal received its second round of migrations-this time from India. The Lichavis arrived in Nepal from the northern parts of India. The newcomers immediately overthrew the Kiratis descendants who were still believed to be in power. With this victory, Hinduism became the official religion of the country. The Lichavis ruled for three centuries and were displaced by the Thakuris in 600 B.C.E. It is from this era that ample recorded history is available. Ansuvarman, the founder of the Thakuri dynasty, was a very shrewd and wealthy king. In order to protect his northern borders from attacks by the Tibetan kings, he married his daughter to a Tibetan prince. Ansuvarman took particular liking to a valley in the eastern part of his kingdom and decided to found his capital city there. It was thus here in the 10 th century that Kasthmandap (Holy Place of Wood) was founded, which over the centuries has come to be known as Kathmandu. It is at the same the location as Ansuvarman's palace, in Durbar Square, that the Nepalese monarch continues to stay and several buildings from the same period continue to decorate the modern day Kathmandu. The Thakuri dynasty ruled Nepal for three centuries. In the 12 th century came the Malla dynasty, which is recognized as the most significant dynasty of Nepal. King Arideva started the dynasty at the beginning of the 13 th century. His period was one of great wealth and prosperity for the Himalayan Kingdom. The Mallas, though Hindu, were tolerant of the other major religion, Buddhism, but were particularly strict on enforcing the caste system. However, the dynasty suffered a major reverse within a century and lost control over large parts of the country, which Page 8 of 363 pages

13 was split into small city-states. At one point, there were as many as 48 such city-states. Partly responsible for this were the frequent invasions of India by Muslim armies from the northwest, which also invaded Nepal several times. It was nearly 100 years later that another Malla king took charge of the country. In 1372, Kathmandu's king, Jayasthiti Malla, took over the neighboring city-state of Patan, and, a decade later, the city-state of Bhaktapur. This unified the Kathmandu Valley once again into one large kingdom. The kingdom expanded tremendously during the reign of his successor, King Yaksha Malla. By the middle of the next century, Nepal's borders extended southwards to the Ganga River, and north deep into Tibet. After his death in 1482, Nepal once again split up into many small states. The situation lasted for almost two centuries. In the 18 th century, a new dynasty came to power. The Shahs of the Gorkha Kingdom gradually extended their power and in 1768, they conquered the Kathmandu Valley. However, barely 20 years later, war broke out between Nepal and China over Tibet, which lasted for most of a decade. The Nepalese were defeated and forced to sign a treaty that obligated them to pay annual homage to the Chinese. This tribute continued for over a century and ended only in In the meantime, Nepal also had to battle the British, who had been conquering territory in India throughout the 18 th century. Soon enough, the British were fighting Nepal for control over the southern parts of Nepal and the Ganga plains. Once again, Nepal lost and had to concede much of its territory to the British in the war of Throughout the tumultuous times, the Shahs continued to be the rulers of Nepal. In 1846, they lost power to the powerful Rana family, big landowners from the west. Jung Bahadur Rana, who massacred almost all the political leaders of Nepal in a coup, proclaimed himself prime minister and took over all the executive power from the monarchy and he made the position of prime minister a hereditary one. The Rana family continued to be in power for over a century, though the Shahs remained the nominal monarchs. It was only after the Indian independence in 1947 that the royal family, which was then led by King Tribhuvan Shah, could be restored to its earlier power. In 1950, King Tribhuvan fled to India. This was followed by an armed revolt and under pressure from India, the Ranas were deposed and Tribhuvan Shah took over as the all-powerful monarch once again. He, however, did not enjoy the reign for long, passing away in 1955; his son, Mahendra, succeeded him. Nepal was not eager to return to a totalitarian monarchy. Bowing to pressure, Mahendra Shah instilled a constitutional parliamentary system. The first elections under this system were held in 1959 and saw the installation of leader of the Nepali Congress, G.P. Koirala, as the first elected Page 9 of 363 pages

14 prime minister of Nepal. Note on History: In certain entries, open source content from the State Department Background Notes and Country Guides have been used. A full listing of sources is available in the Bibliography. Political Conditions Background The Shahs ruled Nepal through many of the country's tumultuous times. In 1846, they lost power to the powerful Rana family -- landowners from the west. Jung Bahadur Rana, who had massacred almost all the political leaders of Nepal in a bloody coup d'etat, proclaimed himself prime minister, promptly took over all the executive power from the monarchy, and made the position of prime minister a hereditary one. The Rana family continued to be in power for over a century, though the Shahs remained the nominal monarchs. It was only after the Indian independence in 1947 that the royal family, which was then led by King Tribhuvan Shah, could be restored to its earlier power. In 1950, King Tribhuvan fled to India. This was followed by an armed revolt and under pressure from India, the Ranas were deposed and Tribhuvan Shah took over as the all-powerful monarch once again. He, however, did not enjoy the reign for long, passing away in 1955; his son, Mahendra, succeeded him. The Monarchy and Constitutional Government Nepal was not eager to return to a totalitarian monarchy. Bowing to pressure, Mahendra Shah instilled a constitutional parliamentary system. The first elections under this system were held in 1959 and saw the installation of leader of the Nepali Congress, Girija Prasad (G.P.) Koirala, as the first elected prime minister of Nepal. The honeymoon between the monarchy and democracy was short-lived and within a year the king dissolved the parliament, placed the entire cabinet under arrest and resumed total control. He then introduced a decentralized democratic system, by setting up a panchayat (or council) system. The king chose 16 members of the panchayat, while the other 19 were chosen through indirect elections. While political parties remained banned, the village panchayats nominated members for the district panchayats and which in turn sent members to the "Rashtriya Panchayat" (National Page 10 of 363 pages

15 Council). Upon the death of King Mahendra in 1972, his son Birendra succeeded. Birendra's lack of political reform drew sharp criticism; riots in 1979 forced the king to call for a national referendum. The vote would decide on the nature of Nepal's government either the continuation of the panchayat system with democratic reforms or the establishment of a multiparty system. The referendum was held in May 1980, and the panchayat system narrowly survived. The king carried out the promised reforms, including selection of the prime minister by the Rashtriya Panchayat. Political Developments in the 1990s In 1990, the political parties again pressed the king and the government for change. Leftist parties united to form United Left Front and joined forces with the Nepali Congress Party to launch strikes and demonstrations in the major cities of Nepal. This "Movement to Restore Democracy" was initially dealt with severely, with more than 50 people killed by police gunfire and hundreds arrested. In April, the king capitulated. Consequently, he dissolved the panchayat system, lifted the ban on political parties, and released all political prisoners. An interim government was sworn in on April 19, It was headed by Krishna Prasad Bhattarai as prime minister, who presided over a cabinet made up of members of the Nepali Congress Party, the Communist Party of Nepal, royal appointees and independents. The new government drafted and promulgated a new constitution in November 1990, which enshrined fundamental human rights and established Nepal as a parliamentary democracy under a constitutional monarch. International observers characterized the May 1991 elections as free and fair elections, in which the Nepali Congress won 110 seats out of 205 to form the government. The largest opposition, the United Marxist and Leninist Party, or UML, won 69 seats. Girija Prasad Koirala became prime minister and formed the government. In May-June 1992 the structure of Nepal's new democratic government was completed following local elections in which the Nepali Congress Party scored a convincing victory. The Communist Party formed a minority government in December The new government continued, if somewhat slowly, economic liberalization and privatization of state enterprises, land reform and the establishment of the Human Rights Commission. Man Mohan Adhikari, prime minister under the communist government administration, was challenged from the very beginning of his tenure. A no-confidence vote was held, to no avail. The vote was followed by another, thus prompting King Birendra to dissolve the assembly in 1995, only to be overruled by the Supreme Court. The situation compelled the resignation of the prime Page 11 of 363 pages

16 minister. In September 1995, Sher Bahadur Deuba led Nepal's first coalition government, comprising the Nepali Congress Party, the Rashtriya Prajatantra Party (RPP-also National Democratic Party) and the Nepal Sadbhavana Parishad (NSP). He too could not garner widespread confidence in his leadership and faced a no-confidence vote in March 1996, which could not usurp Deuba out of power. However, problems continued to plague the Deuba administration. The government faced a serious challenge when G.P. Koirala was re-elected president of the Nepali Congress Party, or NCP, in mid Koirala's accession to power within the NCP meant the death of the coalition, which was hobbled by corruption and internal bickering. Dissention also spelled doom for the other major party, UML. Charges of corruption contributed to the collapse of the coalition. In March 1997, the coalition collapsed following its failure to win a vote of confidence in the parliament. It was replaced by another coalition consisting of the RPP and the UML with Lokendra Bahadur Chand as prime minister. The coalition suffered from infighting throughout 1997 and, in October, lost a vote of non- confidence. A new coalition consisting of the RPP, NSP and NCP took power with Surya Bahadur Thapa as the new prime minister. The coalition agreed that the position of prime minister would rotate between Thapa (RPP) and Koirala (NCP) until general elections in Predictably, this arrangement did not work well. The year 1998 was one long series of no-confidence votes, prime ministerial shuffling and political mayhem. By year's end, the king had had enough dissolving the parliament and choosing to let the people have a say; elections were slated for May 3, In the elections, the Nepali Congress Party won an absolute majority in the parliament, acquiring 110 of the 205 seats; its leader Krishna Prasad Bhattarai was elected the new prime minister. The United Marxist-Leninist Communist Party of Nepal garnered 68 seats. But the perennial rivalry of the prime minister with Koirala led to his ousting in March 2000, following a revolt in the ruling party. Koirala was installed as the prime minister, but his future was uncertain as the Nepali Congress Party continued to be torn between the two factions. Political Instability from Political instability rocked the Nepalese government throughout Prime Minister G.P. Koirala faced a threat not only from the opposition parties that were keen to oust him, but also from challengers within his party, especially his longtime rival K.P. Bhattarai, who had been waiting for his turn ever since Koirala ejected him out from the position of the prime minister in March 2000, as discussed above. The opposition had, for some time, play the "anti-india card" by projecting Page 12 of 363 pages

17 Koirala as being too soft on India, and taking every opportunity to paint him as India's puppet. One bizarre turn of events occurred in November 2000 when widespread anti-india riots broke out in Kathmandu in the wake of anti-nepal comments attributed to the popular Indian actor, Hrithik Roshan. In a television interview that no one ever saw broadcast, Roshan was rumored to have made disparaging remarks about Nepal. Seizing the opportunity, the opposition parties, as well as the Bhattarai camp within the ruling party, called for anti-india protests and demonstrations. Indian businesses were looted, cinemas showing Indian films were damaged and widespread violence occurred in Kathmandu. Nearly 10 people died in the violence and property worth millions of dollars was damaged. The violence also saw Indian tourism in Nepal plunge once again. Indian travelers accounted for the largest chunk of Nepal's earnings from tourism. Nepal's economy had already suffered following the suspension of Indian Airlines flights to Nepal, which had been due to concerns over the lack of security at the Tribhuvan International Airport. Indeed, in 1999, an Indian Airlines aircraft was hijacked on its way from Kathmandu to New Delhi. Now, with the violence on the streets continuing, another battle was in progress inside the Nepalese parliament. The Nepalese opposition parties grilled Koirala for the statements attributed to the Indian actor and asked him to take strong action "to restore the national dignity of Nepal." For his part, Koirala alleged that his political enemies had concocted the entire episode in order to weaken his position in the party and to destabilize the government. He pointed out that no one had seen the alleged interview in which the remarks were said to have been made. He also told the parliament that his government had, nonetheless, taken up the matter with the Indian government, which had reiterated its respect for Nepal, its people and culture. Dissatisfied by the response of the prime minister, the opposition moved a no-confidence motion in the parliament against the Koirala government. However, the motion was easily defeated due to the numerical strength of the Nepali Congress Party and its allies in the house. Koirala's troubles did not end with with this vote suucess in the parliament. Within weeks of the vote, his adversary and former prime minister -- K.P. Bhattarai -- challenged Koirala for the leadership of the Nepali Congress Party. At the annual conference of the party held at Pokhara in November 2000, Koirala faced a near revolt in the party from Bhattarai and the other challenger Sher Bahadur Deuba, another former prime minister. Deuba eventually challenged Koirala for the position of the president of the party. In the end, however, Koirala came through unscathed, soundly winning the election and thus squashing yet another attempt to destabilize his government. After asserting his position as the leader, Koirala made some generous moves towards both Deuba and Bhattarai. Following the election, Koirala nominated Bhattarai to the powerful Working Committee of the party; expectedly Deuba was also to be nominated to this decision-making body. Page 13 of 363 pages

18 In August 2000, Prime Minister Koirala went to India on a week-long visit; it was the first visit by a Nepalese prime minister to India in over four years. Koirala said he was visiting India to mend the bilateral relations, which had been under stress for nearly four years due to various misunderstandings on both the sides. During his meetings with his Indian counterpart, Atal Behari Vajpayee, Koirala covered the entire ground of Indo-Nepalese relations. The two countries agreed to strengthen bilateral ties across board in political, economic and cultural fields. During the talks, Nepal assured India it would not let Pakistani intelligence agencies use its soil for conducting anti-india activities. Though the two governments did not admit it, the concessions seemed to be aimed at helping the Koirala government, which had been accused of being pro-india. With the renegotiation of the treaty, the Koirala government could finally silence its critics. Another reason for the Indian offer could have been aimed at improving the Indian image in Nepal, which suffered during the riots of December While Koirala did gain breathing space from his challengers within the Nepalese parliament, he had to fight another more serious battle outside the parliament. Since mid-1990s, extreme left wing, Maoists guerrillas were waging a war against the democratically elected government. The insurgency resulted in the loss of thousands of lives, as well as some daring attacks on government officials. One such attack was carried out unsuccessfully in January 2001 on the chief justice of Nepal. The guerrillas, active for the most part in the mountainous northwestern region of the country, were believed to have received some covert support from China, which stood to gain tremendously if a communist, pro-china government was ever installed in Nepal. Such a situation would give China a very strong upper hand and a tremendous strategic advantage in its relations with India, given New Delhi's location less than 200 kilometers from the Nepalese border. After months of attempts to get the guerrillas and the government to agree on a face-to-face meeting, mediators, both sides were set to discuss peace in October The first round of direct peace talks took place between the government and the rebels in Kathmandu. The talks failed as the rebels wanted many more concessions from the government, including a list of all the members of the movement detained by the police. After months of impasse, the issue seemed to inch ahead in March 2001 when the government proposed fresh negotiations and offered some key concessions to the rebels. Violence by Maoist rebels in the country reached new heights in 2001, as the insurgents committed some daring raids on the army and police establishments, killing hundreds of security personnel during the year. One of the deadliest raids came in May It resulted in 41 policemen dead in a well-organized attack on various police stations across the Himalayan kingdom. With the situation spinning out of control, and as the Maoist rebels intensified their attacks, Prime Page 14 of 363 pages

19 Minister Koirala resigned from office in July of The government of Koirala had already been weakened and divided due to the political struggles between various factions of his Nepali Congress party. In the weeks leading to his resignation, the pressure on Koirala had mounted, especially after his close follower and Deputy Prime Minister Ram Chandra Poudel resigned. Poudel accused Koirala of being hungry for power and also cited differences over the handling of the Maoist insurgency. The resignation of Poudel led rivals of Koirala, including Sher Bahadur Deuba, to introduce a parliamentary no-confidence motion against the prime minister. Before resigning, Koirala criticized a "confused" opposition for seeking his resignation and forcibly stalling the parliament. The opposition parties and the dissidents in the ruling Nepali Congress had been demanding the resignation of Koirala for failing to deliver on his promise of improving law and order. The government was also allegedly involved in financial irregularities while leasing a jetliner for the state-run Royal Nepal Airlines from Austria's Lauda Air. The opposition had accused the government of corruption in this deal. The deal was finally terminated a day before Koirala's resignation. Koirala's successor was Sher Bahadur Deuba. Under Prime Minister Deuba's new government, talks with the Maoists began in October 2001, followed by a short-lived ceasefire agreement. Though the two sides held three rounds of peace talks, negotiations came to a sudden end in November 2001, when the insurgents walked out of the talks saying that the justification for the talks and the four month-long cease-fire were both over. Indeed, the truce effectively ended in another concerted violent action in which the Maoist rebels killed 34 security personnel, including members of the army, in a series of raids committed on November 22, The nature of the violence in the kingdom led the King to declare a state of emergency in Nepal on November 26, This gave wide powers to the army and the police and involves suspension of some basic civil rights. While imposing the state of emergency, the King did not specify any time limit for the emergency. Pushpa Kamal Dahal, chairman of the Communist Party of Nepal (Maoist), blamed "reactionary and fascist" forces for the failure of the talks. The Maoists' decision to pullout of the talks was a shock to the country's fledgling government. Prime Minister Sher Bahadur Deuba expressed his surprise and shock at the development and urged the insurgents not to jeopardize the peace talks. Conflicting Views on Monarchical and Republican Styles of Government Though the timing of the insurgents' decision may have been a surprise, it was not actually unanticipated. Indeed, negotiations had reached a deadlock over the Maoists' demand for an Page 15 of 363 pages

20 election to a new Constituent Assembly, which would then draft a new constitution for the country. The demand had been met with strong opposition from the entire political spectrum of Nepal, including the communists, who said they only favored an amendment to the constitution. The government, on the other hand, had indicated its willingness to call for a mid-term elections, supervised by an interim government, which would include representatives of the Maoists. The new government, after the elections, would then go about the task of amending the constitution in a way to accommodate the Maoists' concerns. The Maoists, for their part, had put on hold their demand that the monarchy be abolished and Nepal turn into a republic. The issue of whether Nepal's governmental system (parliament and monarchy) was to be replaced by a republic has been a contentious one. The people of Nepal have been regarded as some of the poorest in the world, and the standards of living had been rapidly declining over the last 20 years. The inability of the legislature to achieve consensus on any issue made it virtually impossible to address any of the country's problems. Political parties agreed in 1991 that the monarchy would remain to enhance political stability and to provide an important symbol of national identity for the culturally diverse Nepali people. As it became evident to the Maoists that their main demand for a shift in government struture would not be accepted, tensions arose within the insurgents' groups over whether to continue the talks. According to some analysts, the hardcore elements of the Maoists insurgents, especially the commanders of the military wing of the insurgents, mounted tremendous pressure on Dahal -- the chairman of the Maoists' party -- to withdraw from engagement. Tragedy Strikes Nepal Amidst the struggle between rival political interests, Nepal was also struck by tragedy in In fact, June 1, 2001will be noted as the blackest day in the modern history of Nepal. On the evening of this fateful day, the entire royal family of the Himalayan kingdom was all but wiped out due to a mysterious palace shootout which left 10 leading members of the royal family, including King Birendra, Queen Aishwarya and Crown Prince Dipendra dead. The killings occurred during a family dinner for which most members of the ruling family had gathered at the Narayanhitti Palace in Kathmandu. Although the exact reasons and sequence of events that led to the massacre may never be known, an investigation committee appointed by the Nepalese government said that a dispute over the marriage of the Crown Prince Dipendra led to the massacre. According to the committee, when the Queen Aishwarya firmly ruled out Dipendra's marriage to a "commoner," the Crown Prince, under the influence of alcohol and wielding a semi-automatic weapon, began shooting at the entire family, injuring almost everyone present in the room. He is then believed to have left the room, throwing the gun on the floor. At this moment, King Birendra tried to pick up the weapon and defend the Page 16 of 363 pages

21 family. However, Dipendra returned with another gun and began shooting again, killing six members on the spot and grievously injuring two more. Later, he allegedly turned the gun on himself and shot, critically injuring himself. The attack took the entire country by surprise and in the immediate aftermath of the incident, the government was left without any explanations to offer for what had happened within the palace. Wild rumors about various conspiracies began spreading like wildfire in the capital Kathmandu, and sporadic incidents of violence also occurred in the hours after the attack. By the next morning, the government seemed to have recovered partially and announced measures to ensure political stability and continuity in the country. The Raj Parishad or Royal Council nominated Dipendra as the King, even though he was fighting for his life in the military hospital in Kathmandu. King Birendra's brother, Prince Gyanendra was named the regent, with the responsibility of running the kingdom till Dipendra recovered from his injuries. Within two days, however, Dipendra succumbed to his wounds and Prince Gyanendra was proclaimed the King of Nepal. King Birendra and the royal family were accorded state funerals. As the funeral procession wound through the streets of Kathmandu, thousands of mournful citizens lined the streets to take a last glimpse of their beloved King and royal family members. The development sent Nepal into a shock, especially due to a near total absence of information about what led to the killings. Initial reports said that the crown prince had a difference of opinion about whom he should marry and his mother, the queen, had even threatened to disinherit him if he went ahead to marry the girl of his choice, Devayani Rana -- the daughter of a minister in the Nepalese cabinet. The mass murder, which was the second such case in Nepal in less than two centuries, led to anger and confusion in the streets of Nepal. Rioting erupted when the government were unable to say what exactly had happened in the palace. Over 12 people were killed in the rioting and a curfew was clamped on the city. King Birendra's death came at a very sensitive time for Nepal, which had been facing political instability due to the military campaign led by the Maoists rebels. This campaign spread to nearly a third of the country. Besides battling the militia, the government of Prime Minister Koirala had also been facing pressure from the opposition parties which had called for the government's resignation and holding of fresh general elections. The death of the royal family and the subsequent political instability intensified these demands. The opposition accused the government of mishandling the incident and leading to further confusion and anger in the society. The development was also watched with great concern by Nepal's neighbors, especially India, which has had a close but highly volatile relationship with Nepal. The new king was reported to be anti-india in his foreign policy, though most foreign policy experts believed that King Gyanendra would not embark on any significant shift in his foreign Page 17 of 363 pages

22 policies. Nepal's close ties with India would be maintained and the strengthening of these ties was expected to continue. Born on Dec. 28, 1945, King Birendra ascended to the throne in 1972 following the death of his father, King Mahendra. During his thirty-year reign, Nepal witnessed enormous changes and several challenges. The king showed himself in step with the modern times and his hand on the pulse of the people. Thus, even though he had begun as an absolute monarch, when the people of Nepal demanded a constitutional monarchy, real powers were shifted to the elected representatives of the people. Despite apparent opposition from the hard-liners, he introduced direct elections to the National Assembly for the first time during the panchayat system. Though political labeling was still banned, many with political labels contested and won the elections. After the 1990 peoples movement that barely lasted two months, King Birendra conceded the demand of the people for western style liberal pluralistic democracy. The new democratic Constitution of Nepal was promulgated in November The king abided by the Constitution until his death. King Birendra also set up five development regions, which were designed to improve the lives of the people of west Nepal. King Birendra had visualized balanced development in all the regions. The sudden change of power in Nepal was watched with anxiety by New Delhi, which has enjoyed close relations with Nepal, but with some tensions in the recent years. While King Birendra was seen as being inclined towards India, King Gyanendra was seen as being more tilted towards China and some analysts feared that with Gyanendra on the throne, Nepal might shift its foreign policy focus. However, the fears proved unfounded as Gyanendra continued to function in the fashion of a constitutional monarch and also promised to follow the policies laid down by his brother, Birendra. Tragedy continued to hover over the royal family as nearly six months after the royal massacre, another blow struck the family. Princess Prekshya Rajya Laxmi Devi Shah, 49, was killed in a helicopter crash in central Nepal. Three others also perished in the crash. The princess was married to Dhirendra Shah, the youngest brother of King Gyanendra. The couple, who had three daughters, were divorced in the late 1980s which led the late King Birendra to strip his brother of the royal title. Dhirendra Shah was one of the 10 royal family members killed in the royal massacre. The princess had several close brushes with death before the helicopter crash. Two weeks before the crash, she escaped unhurt in an automobile accident and prior to that she had been hospitalized following an illness. Political Developments in 2002 Heavy floods in July 2002 resulted in over 10 deaths and the destruction tens of thousands of Page 18 of 363 pages

23 homes in many parts of Nepal. On the political front, the Nepali head of government, Prime Minister Deuba, was elected to be the President of the Nepali Congress Party in June 2002, ousting Koirala from the party's leadership position. Koirala protested the ouster, however, and was reinstated as the head of the party by the elections commission in September 2002, essentially making Deuba a prime minister without a party. Meanwhile, the ongoing conflict in Nepal between the government and Maoists continued in In June 2002, the rebels attacked an army outpost in the remote villiage of Khara in the Rukum district 200 miles west of Katmandu. This led the King to declare a state of emergency in Nepal. Ongoing clashes between the rebels and the Nepalese army resulted in numerous casualties on both sides. Then, after much violence by Maoist rebels, and amid discussions of a Maoist-sponsored strike to protest the upcoming elections, the Nepalese government killed 100 rebels in clashes that took place in late September With the unstable security situation in the country and concerns over the safety of both candidates and voters, the country's prime minister, Dueba, initiated discussions aimed at postponing the country's parliamentary elections. Parliament had been dissolved in May 2002 when the government found itself unable to extend the country's state of emergency. King Gyanendra dismissed the request and sacked the entire cabinet. He then announced that an interim government would be established and elections would be held in a timely fashion. Later, the king would postpone elections indefinitely. In response to King Gyanendra's actions, which essentially assumed executive powers, the representatives from Nepal's two major political parties expressed a desire to work with the country's monarch, in accordance with the constitution. In this regard, they urged the country's monarch to hand over power to an elected government as quickly as possible, in order to preserve the country's constitutional democracy. In October 2002, Lokendra Bahadur Chand was appointed as head the government, but resigned in mid King Gyanendra then appointed his own selection -- Surya Bahadur Thapa -- as the new head of government and prime minister. Political Developments in 2003 As was the case previously when a new government was established in Nepal, a fresh ceasefire accord with the Maoists was put into effect in January After two rounds of peace negotiations, talks broke down by May of that year between Maoist rebels and the government of Nepal. Page 19 of 363 pages

24 In mid-july 2003, the government formally requested the resumption of peace talks. The chief rebel negotiator, Baburam Bhattarai, gave the government four days to meet his group's demands in preparation for the resumption of peace talks. One of the preconditions was the participation by Nepal's monarch, King Gyanendra, in the peace process. The government said it was willing to meet most of the demands made by the Maoist rebels, however, it would not restrict army movements, which was one of the expressed demands. The establishment of a lasting peace would effectively end seven years of conflict in which thousands of people were killed. From early 2003 and the at the time of the establishment of the ceasefire accord, however, the level of violence diminished. Political Developments in 2004 In April 2004, a wave of protests was waged in the capital city Kathmandu against the King Gyanendra. Although the king commanded support among many of the citizens of the Himalayan kingdom, others remained outraged that the king suspended the legislature in 2002 and personally appointed the government ministers. Despite King Gyanendra's rationale, the suspension of normal governmental operations was viewed negatively by the public. Prime Minister Surya Bahadur Thapa announced his resignation from office in May King Gyanendra accepted the resignation and there were ongoing consultations to find a successor. Meanwhile, opposition forces continued to launch massive demonstrations and rallies protesting the King's decision to dissolve the elected government and demanding the government be dismissed. In June 2004, the King appointed Sher Bahadur Deuba as prime minister once again. Soon thereafter, the newly-appointed Prime Minister Deuba announced the formation of a coalition government. It was hoped that the new government, which included the left-wing United Marxist Leninists (UML), the right-wing Rastriya Prajatantra Party, the regional Nepal Sadbhavana party, two nominees by the monarchy and Deuba's own Nepali Congress-Democratic party, would end the country's ongoing political crisis and set the tone for parliamentary elections. For their part, the Maoist rebels said the new government would not stop their efforts. Meanwhile, experts said the new government was unlikely to stem the course of violence which had been ongoing in Nepal for several years. By September 2004, Nepal was traumatized by rioting. The riots occurred after kidnappers iniraqexecuted 12 young Nepali men. The capital city ofkathmanduwas under curfew as angry rioters burned businesses and attacked a mosque. Page 20 of 363 pages

25 Political Developments in 2005: Constitutional Crisis In early 2005, King Gyanendra sacked the entire government and declared a state of emergency. The king placed the prime minister and cabinet members under house arrest on the basis of their failure to effectively deal with Nepal's Maoist insurgency. The king announced he would assume control of the government and would also appoint a new cabinet. Prime Minister Deuba, who had been part of a previous cabinet that was also sacked in 2002, decried the King's decision, characterizing it as a violation of the Nepalese constitution. Condemnations from the international community were also registered. Meanwhile, on the ground in Nepal, reports were emerging that telephone lines had been severed, flights cancelled and the press censored. In April 2005, clashes between government forces and Maoist rebels in the remote western district of Rukum left approximately 100 people dead, according to the Nepalese authorities. This number, however, could not be independently verified and was rejected by the rebels who claimed the number of soldiers who died was much higher. Rukum is a Maoist rebel stronghold and is located about 340 miles (550 kilometers) west of Kathmandu. Meanwhile various landmine deaths were recorded as violence was on the rise. As a result of these developments, Dennis McNamara, a senior United Nations official visiting Nepal called for pre-emptive action to prevent a humanitarian crisis in that country. In particular, McNamara pointed to the situation of up to 200,000 internally displaced people who had been driven to flee from their homes, as a result of the ongoing violent conflict between government forces and Maoist rebels. Mass protests by several thousand people took place in Nepal after King Gyanendra lifted the country s state of emergency on April 30, The protestors called for the release of political prisoners and the restoration of democracy. Many expressed outrage that the king, who had dismissed the government months earlier, still retained full political power. By the first week of May 2005, several Nepalese political opposition parties announced they would join forces to agitate for the restoration of the country's democracy. The newly united opposition called on the king to relinquish the direct power he had assumed. They also demanded that he reinstate the parliament, restore civil liberties and release detained activists. In late June 2005, Nepal s former prime minister, Sher Bahadur Deuba, and six other former cabinet ministers were cleared on a graft charge by the country's powerful anti-corruption panel. He and the other cabinet ministers were charged with the misuse of funds. The former prime minister, however, remained in detention on another charge of corruption concerning a water project. In July 2005, the anti-corruption panel sentenced former Prime Minister Sher Bahadur Deuba to Page 21 of 363 pages

26 two years in jail after convicting him of embezzlement. He was also fined more than $1 million for wrongdoing over the controversial water project. While an international outcry resulted from the panel's findings, human rights groups accused King Gyanendra of setting up the panel as another measure intended to stymie dissent. For his part, Deuba said, "There is no basis for this case. This is political assassination. We will fight it politically." Meanwhile, even the former leader of the United States Senate Democrats, Tom Daschle, launched a scathing attack against Deuba's conviction and called for freedom for political prisoners, Nepalese security forces re-arrested a key student leader, Gagan Thapa. Daschle had been in Nepal for talks with the king. The latter part of 2005 was marked by a cease-fire between the government and Maoist rebels. Political Developments in 2006: Crisis, Clashes and Compromise Despite calls by from political parties, advocacy groups and the United Nations for an extension to the prevailing four-month truce, Maoist rebels in Nepal decided to let the agreement lapse at its expiration on Jan. 2, Maoist rebel leader Prachanda blamed the group's decision on the army, which had not halted its military operations. The rebel leader said that his group was now compelled to "go on the offensive" and he warned that it would seek to interrupt the local elections set for early For its part, Nepal's government claimed it was prepared for that eventuality and characterized the end of the truce to be "unfortunate." The government also accused the Maoist rebels of using the ceasefire to re-arm itself rather than sincerely work toward some sort of political resolution. Meanwhile, King Gyanendra, who seized absolute power a year earlier, promised the defeat of the rebels and dismissed the idea of peace talks until the group disarmed. His hardline stance, however, has not been well-received by opposition factions in Nepal who believe that the king has provoked the rebels into further violence. Indeed, only hours after the announcement of the end of the ceasefire, three bombs exploded in various towns. The almost-immediate return to violence evoked anxieties among the Nepalese people who had enjoyed a marked drop in the number of people killed during the brief period of the truce. After a weekend of violent clashes between security forces and pro-democracy demonstrators in the streets of Kathmandu, on January 23, 2006, Nepal's monarchy lifted a night-time curfew and a Page 22 of 363 pages

27 ban on public gatherings in the capital city. The decision was regarded as somewhat surprising since the royal government also restored mobile phone connections a week after they had been suspended, presumably to control the increasingly volatile security situation on the ground. Observers surmised that the Nepalese authorities may have concluded that such restrictions might serve only to enrage protestors who were preparing for an opposition rally on January 24, Amidst these developments, the government was preparing for local elections to be held in February. Those elections were intended to symbolize the country's return to democratic rule. Certainly, they followed the power grab by King Gyanendra in early 2005 when he dismissed the government and assumed direct executive power. But opposition parties were quickly assuaged by the idea of local elections. Instead, they accused the king of attempting to advance his own direct rule through the election process and they said that such polls served only to legitimize the king's unlawful power grab. They also warned that they would boycott parliamentary elections, which the king has said will be held in The position of the opposition notwithstanding, plans for local election were marred by a mass exodus of candidates. Election officials in Nepal said that hundreds of candidates for the local elections had withdrawn their nominations in late January As such, there were as many as 1,000 out of 4,000 empty seats ahead of the February election. The principle reason for the mass withdrawal appeared to be attributed to rising security concerns following threats by Maoist rebels against those standing for elected office. After a Maoist rebel leader warned on "serious consequences," one candidate was shot dead and another kidnapped. The events propelled a climate of hysteria in Nepal with terrified family members urging candidates to quickly withdraw from contesting the elections. Hundreds of candidates who decided to nonetheless contest the election were transported to "safe houses" for their own protection. The overall climate of violence in Nepal had increased following the aforementioned end of the cease-fire between the Moist rebels and the government. Nepal's top Maoist rebel leader, Prachanda, said in mid-february 2006 that he could only envisage "exile or trial" as possible future courses for King Gyanendra. Prachanda's remarks occurred during in an interview with the BBC, which occurred on the 10th anniversary of the Maoist revolt. The Maoist rebel leader, who has rarely given interviews and who has lived a rather reclusive life for 25 years, suggested that a possible trial for the king could take place in a "people's court." He did not foreclose the possibility of the king being executed at the end of a possible trial -- a measure that would require legal changes since Nepal does not have a system of capital punishment. Still, the Maoist leader appeared to have taken a hard-line stance, noting that King Gyanendra's decision to dismiss parliament and seize direct political power made it unlikely that some sort of compromise could be reached. King Gyanendra aside, Prachanda also noted that the country could theoretically remain a monarchy, if it was so desired by the people. Page 23 of 363 pages

28 Such an outcome would, however, have to be reconciled with the stated aim of the Maoists for the establishment of an elected assembly, tasked with crafting a new constitution. Prachanda's Maoist rebels have held control over much of Nepal's rural areas in a conflict for which few analysts foresee an immediate solution. Indeed, Prachanda himself said that it was unlikely that his rebels would love to conquer the capital city of Kathmandu, due to concerns about safety of Nepali citizens. In this regard, he expressed sympathy for the thousands of people killed in the ongoing conflict with the government. Nevertheless, he said that his group had the right to use violence against what he described as informers. Prachanda's Maoists consolidated political influence when various opposition parties signed a political agreement with them. It was a move spurred by the assumption of political power by the ruling monarch. In anticipation of pro-democracy rallies and strikes, the authorities in Nepal instituted a ban on public rallies and imposed a night-time curfew in parts of Kathmandu in the opening days of April The ruling monarchy said the measures were necessitated for security reasons, largely due to the emerging connections between formerly disparate groups that convened to oppose the king's power. Opposition politicians ousted when King Gyananedra seized executive powers in February 2005 joined a loose alliance with Nepal's Maoist rebels. The alliance was forged in order to fight with common purpose against the erosion of democracy and the consolidation of autocratic power by the king. On April 5, 2006, police in Nepal detained over 50 pro-democracy protestors who defied King Gyanendra's ban on public rallies by demonstrating in the streets of the capital city of Kathmandu anyway. More than 20 opposition politicians, including several former ministers, were also taken into police custody. The professional ranks were not spared in the police crackdown, with several doctors, lawyers and journalists also arrested as they attempted to rally in support of the opposition activists. Students were also among those detained. Further arrests took place on the first official day of mass anti-monarchy protests and strikes, which were organized by the opposition alliance. A day later on April 7, 2006, at least 150 anti-government protesters were arrested in Kathmandu during clashes between police and participants of the rallies. Other clashes were reported elsewhere in Nepal. Further demonstrations were scheduled for April 8, 2006, despite the existing ban on rallies. On April 10, 2006, clashes between demonstrators and authorities turned decidedly violent as the security forces took a hardline against protestors. By mid-april 2006, demonstrations by protestors had spread to areas of the country frequented by tourists. As well, activists called on workers to participate in the ongoing general strike across the country and to refrain from paying taxes. They expressed the belief that such measures would elicit tangible economic consequences, thus placing further pressure on the king. On April 16, Page 24 of 363 pages