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U.S. Department of State

Diplomacy in Action

Nepal (10/06)


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For the most current version of this Note, see Background Notes A-Z.

The Nepal flag is red with a blue border around the unique shape of two overlapping right triangles; the smaller, upper triangle bears a white stylized moon and the larger, lower triangle bears a white 12-pointed sun.

PROFILE

Official Name:
Kingdom of Nepal

Geography
Area: 147,181 sq. km. (56,136 sq. mi.), about the size and shape of Tennessee, bordering China and India.
Cities: Capital--Kathmandu municipality (5 districts) (pop. 1.5 million). Other cities--Biratnagar, Patan, Pokhara, Birganj, Dharan, Nepalganj.
Terrain: Flat and fertile in the southern Terai region; terraced cultivation and swiftly flowing mountain rivers in the central hills; and the high Himalayas in the north. Eight of the world's ten highest peaks are in Nepal. Kathmandu, the capital, is in a broad valley at 1,310 meters (4,300 ft.) elevation.
Climate: Subtropical in the south to cool summers and severe winters in the northern mountains. The monsoon season is from June through September, during which showers occur almost every day, bringing 75 to 150 centimeters (30-60 in.) of rain.
Time zone: Nepal is 10 hours and 45 minutes ahead of Eastern Standard Time and does not observe daylight saving time.

People
Nationality: Noun--Nepali (sing.) or Nepalese (plural). Adjective--Nepalese or Nepali.
Population: (October 15, 2005 census update by UNFPA): 27.1 million.
Annual growth rate: 2.25%.
Population breakdown/distribution: Rural (85.8%); female (50.1%); in the southern Terai region (49.1%); in the hills (49.1 %); in the mountains (7%).
Ethnic groups (caste and ethnicity are often used interchangeably): Brahman, Chetri, Newar, Gurung, Magar, Tamang, Rai, Limbu, Sherpa, Tharu, and others.
Religions: Hinduism (80.6%), Buddhism (10.7%), Islam (4.2%), and others (4.2%).
Languages: Nepali and more than 12 others.
Education: Years compulsory--0. Attendance--primary 80.4%, secondary 20%. Literacy--53.7% (65.1% male, 42.5% female).
Health: Infant mortality rate--61/1,000 (in 2005). Life expectancy--61.8 years (male), 62.5 years (female).
Work force: Agriculture--85%; industry--3%; services--11%; other--1%.

Government
Type: Constitutional monarchy.
Constitution: November 9, 1990.
Branches: Executive--prime minister (head of government), king (head of state). Legislative--Parliament consisting of House of Representatives (205-member lower house) and National Assembly (60-member upper house). Judicial--Supreme Court, 16 appellate courts, 75 district courts.
Subdivisions: 5 development regions, 14 zones, and 75 districts. 75 district development committees, 58 municipalities, 3,913 village development committees, and 36,023 ward committees.
Political parties (lower house representation): Nepali Congress Party, Nepali Congress-Democratic Pary, Communist Party of Nepal/United Marxist-Leninist, National Democratic Party (RPP), Nepal Goodwill Party (NSP), National People's Front, and others.
Elections: No national elections since 1999.
Suffrage: Universal over 18.
Defense/police (2005): $265 million.
National Day: Democracy Day, Falgun 7 (mid-February). The King's birthday July 7.

Economy
GDP (2004/05): $7.37 billion.
Annual growth rate of real GDP: 2.04% in FY 2004/05.
Per capita income (Gross National Product): $300 in FY 2004/05.
Avg. inflation rate (Consumer Price Index): 7.8% in Oct. 2005.
Natural resources: Water, hydropower, scenic beauty, limited but fertile agricultural land, timber.
Agriculture (39.2% of GDP): Products--rice, wheat, maize, sugarcane, oilseed, jute, millet, potatoes.
Cultivated land--25%.
Industry (11% of GDP): Types--carpets, pashmina, garments, cement, cigarettes, bricks, sugar, soap, matches, jute, hydroelectric power.
Trade (2004/05): Exports--$821.84 million: carpets, pashmina, garments. Major markets--Germany and the U.S. Imports--$2.00 billion: manufactured goods. Major supplier--India.
Central gov. budget (FY 2005/06): $1.79 billion; military allocation $153.73 million.
Official exchange rate (July 16, 2005): 70.9 Nepalese rupees=U.S. $1.00.
Fiscal year: July 16-July 15.

PEOPLE
Perched on the southern slopes of the Himalayan Mountains, the Kingdom of Nepal is as ethnically diverse as its terrain of fertile plains, broad valleys, and the highest mountain peaks in the world. The Nepalese are descendants of three major migrations from India, Tibet, and central Asia.

Among the earliest inhabitants were the Newars of the Kathmandu Valley and aboriginal Tharus in the southern Terai region. The ancestors of the Brahman and Chetri caste groups came from India, while other ethnic groups trace their origins to central Asia and Tibet, including the Gurungs and Magars in the west, Rais and Limbus in the east, and Sherpas and Bhotias in the north.

In the Terai, a part of the Ganges Basin with 20% of Nepal's land, much of the population is physically and culturally similar to the Indo-Aryan people of northern India. People of Indo-Aryan and Mongoloid stock live in the hill region. The mountainous highlands are sparsely populated. The Kathmandu Valley, in the middle hill region, constitutes a small fraction of the nation's area but is the most densely populated, with almost 7.4% of the population.

Religion is important in Nepal--The Kathmandu Valley alone has more than 2,700 religious shrines. Nepal is about 81% Hindu. The constitution describes the country as a "Hindu Kingdom," although it does not establish Hinduism as the state religion. Buddhists account for about 11% of the population. Buddhist and Hindu shrines and festivals are respected and celebrated by all. Nepal also has small Muslim and Christian minorities. Certain animistic practices of old indigenous religions survive.

Nepali is the official language, although a dozen different languages and about 30 major dialects are spoken throughout the country. Derived from Sanskrit, Nepali is related to the Indian language, Hindi, and is spoken by about 90% of the population. Many Nepalese in government and business also speak English.

HISTORY

Early History
Modern Nepal was created in the latter half of the 18th century when Prithvi Narayan Shah, the ruler of the small principality of Gorkha, formed a unified country from a number of independent hill states. The country was frequently called the Gorkha Kingdom, the source of the term "Gurkha" used for Nepali soldiers.

After 1800, the heirs of Prithvi Narayan Shah proved unable to maintain firm political control over Nepal. A period of internal turmoil followed, heightened by Nepal's defeat in a war with the British from 1814 to 1816. Stability was restored after 1846 when the Rana family gained power, entrenched itself through hereditary prime ministers, and reduced the monarch to a figurehead. The Rana regime, a tightly centralized autocracy, pursued a policy of isolating Nepal from external influences. This policy helped Nepal maintain its national independence during the colonial era, but also impeded the country's economic development.

In 1950, King Tribhuvan, a direct descendant of Prithvi Narayan Shah, fled his "palace prison" to newly independent India, touching off an armed revolt against the Rana administration. This allowed the return of the Shah family to power and, eventually, the appointment of a non-Rana prime minister. A period of quasi-constitutional rule followed, during which the monarch, assisted by the leaders of fledgling political parties, governed the country. During the 1950s, efforts were made to frame a constitution for Nepal that would establish a representative form of government, based on a British model.

Democracy Develops
In early 1959, King Mahendra issued a new constitution and the first democratic elections for a national assembly were held. The Nepali Congress Party, a moderate socialist group, gained a substantial victory in the election. Its leader, B.P. Koirala, formed a government and served as Prime Minister.

Declaring parliamentary democracy a failure eighteen months later, King Mahendra dismissed the Koirala government and promulgated a new constitution on December 16, 1962. The new constitution established a "partyless" system of panchayats (councils), which King Mahendra considered to be a democratic form of government closer to Nepalese traditions. As a hierarchical structure progressing from village assemblies to a Rastriya Panchayat (National Parliament), the panchayat system enshrined the absolute power of the monarchy and kept the King as head of state with sole authority over all governmental institutions, including the Cabinet (Council of Ministers) and the Parliament.

King Mahendra was succeeded by his 27 year-old son, King Birendra, in 1972. Amid student demonstrations and anti-regime activities in 1979, King Birendra called for a national referendum to decide 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 won a narrow victory. The King carried out the promised reforms, including selection of the prime minister by the Rastriya Panchayat.

Movement To Restore Democracy
In 1990, the political parties again pressed the King and the government for change. Leftist parties united under a common banner of the 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 persons 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, 1990, headed by Krishna Prasad Bhattarai as Prime Minister presiding over a cabinet made up of members of the Nepali Congress Party, the communist parties 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, in which the Nepali Congress Party won 110 seats out of 205 to form the government.

In mid-1994, the Parliament was dissolved due to dissension within the Nepali Congress Party. The subsequent general election, held November 15, 1994, gave no party a majority. The 1994 elections resulted in a Nepali Congress Party defeat and a hung Parliament, with a minority government led by the United Marxist and Leninist Party (UML); this made Nepal the world's first communist monarchy, with Man Mohan Adhikary as Prime Minister. The next five years saw five successive unstable coalition governments and the beginning of a Maoist insurgency.

Following the May 1999 general elections, the Nepali Congress Party once again headed a majority government after winning 113 out of 205 seats. But the pattern of short-lived governments persisted. There were three Nepali Congress Party Prime Ministers after the 1999 elections: K.P. Bhattarai (5/31/99-3/17/00); G.P. Koirala (3/20/00-7/19/01); and Sher Bahadur Deuba (7/23/01-10/04/02).

On June 1, 2001, Crown Prince Dipendra reportedly shot and killed his father, King Birendra; his mother, Queen Aishwarya; his brother; his sister; his father's younger brother, Prince Dhirendra; and several aunts; before turning the gun on himself. After his death two days later, the late King's surviving brother Gyanendra was proclaimed King.

In February 1996, the leaders of the Maoist United People's Front began a violent insurgency, waged through killings, torture, bombings, kidnappings, extortion, and intimidation against civilians, police, and public officials in more than 50 of the country's 75 districts. Over 12,000 police, civilians, and insurgents have been killed in the conflict since 1996. The government and Maoists held peace talks in August, September, and November of 2001, but they were unsuccessful, and the Maoists resumed their violent insurgency. Shortly after the 2001 peace talks failed, King Gyanendra declared a state of emergency and the Parliament approved this declaration by a two-thirds vote. On the recommendation of Prime Minister Sher Bahadur Deuba, the King dissolved the House on May 22, 2002.

Struggle for Democracy Continues
In a sudden turn of events on October 4, 2002, King Gyanendra removed Prime Minister Deuba and assumed executive power. The entire Council of Ministers was also dissolved, and the November 13, 2002 elections to the dissolved House of Representatives were called off. After a week-long consultation with the leaders of various political parties, on October 11, 2002, the King appointed Lokendra Bahadur Chand as Prime Minister with a five-point directive that included creating an environment of peace and security as well as holding elections to the local bodies and the House of Representatives.

In a major development after Chand assumed the premiership, the government and Maoists declared a cease-fire on January 29, 2003. This marked the second cease-fire with the Maoists; the first, in 2001, had been broken by the Maoists. The 2003 cease-fire included an agreement to undertake initiatives to resolve the Maoist problem through dialogue and bring the Communist Party of Nepal/Maoist back into mainstream politics. After the announcement of the 2003 cease-fire, the Chand government held two rounds of peace talks with the Maoists, in April and May. But in its effort to end political instability, it failed to secure the support of the leading political parties. In the face of growing pressure from political parties and their mass movement, Chand resigned from his post on May 30, 2003, after only seven months in power.

The King appointed Surya Bahadur Thapa as the new Prime Minister on June 4, 2003, amidst opposition from the major political parties. Another round of peace talks was held in mid-August 2003, but on August 27, 2003 the Maoists broke the second cease-fire. Thapa resigned in May 2004 as a result of political pressures. In June 2004, the King reinstated formerly dismissed Sher Bahadur Deuba as Prime Minister.

Citing a steady deterioration of conditions in the country, King Gyanendra dismissed the Cabinet and constituted a Council of Ministers under his own chairmanship on February 1, 2005. He stated that the Council of Ministers (i.e., Cabinet) would try to reactivate multi-party democracy within three years. The King subsequently declared a state of emergency and suspended almost all fundamental rights for almost three months. His new government was sworn in on February 2, 2005. The Council of Ministers under the King's chairmanship has been reshuffled twice since then.

In April 2006, a second major people's movement for the restoration of democracy pressured the King to relinquish power, and on April 24, 2006, King Gyanendra reinstated the 1999 parliament that was dismissed in May 2002. Former Prime Minister Girija Prasad Koirala of the Nepali Congress Party was selected by the opposition seven-party alliance to again lead the government. The Maoists declared a ceasefire on April 26, and the new Koirala government announced its own ceasefire and plans for peace talks with the Maoist insurgents on May 3, 2006.

GOVERNMENT AND POLITICAL CONDITIONS
According to the constitution, Nepal is a constitutional monarchy with a parliamentary form of government that is multiethnic, multilingual, Hindu, and retains the king in the role of head of state. The former "partyless" panchayat system of government was abolished in April 1990 (see "Movement to Restore Democracy."). Under the constitution, the democratically elected Parliament consists of the House of Representatives (lower house) and the National Assembly (upper house). International observers considered the 1999 parliamentary elections to be generally free and fair. There have not been any parliamentary elections since 1999. King Gyanendra assumed the throne in June 2001, after the late Crown Prince Dipendra killed King Birendra and nine members of the royal family, including himself.

A Maoist insurgency--punctuated by a cease-fire in 2001, one in 2003, another from September 3, 2005 to January 2, 2006, and the latest one from April 26, 2006--has been ongoing since 1996. A nationwide state of emergency was in effect from November 2001 to August 2002 after Maoist insurgents broke a four-month cease-fire with violent attacks. During that time, King Gyanendra, under the constitution's emergency provisions and on the advice of the Cabinet, suspended several constitutional rights, including freedom of expression, assembly, privacy, and property. In October 2002, the King dismissed Prime Minister Sher Bahadur Deuba after he recommended the dissolution of Parliament but was subsequently unable to hold elections because of the ongoing insurgency. A Cabinet was royally appointed to govern the country until elections could be held at an unspecified future time.

On June 4, 2003 King Gyanendra appointed Surya Bahadur Thapa as Prime Minister after Lokendra Bahadur Chand resigned on May 30, 2003. The government and the Maoists declared another cease-fire on January 29, 2003 and held three rounds of talks on April 27, May 9, and August 17 to 19, 2003. The Maoists unilaterally broke the cease-fire on August 27, 2003 and resumed attacks against government, security, and civilian targets.

Prime Minister Thapa resigned in May 2004, and on June 2, 2004, King Gyanendra reinstated formerly dismissed Sher Bahadur Deuba as Prime Minister. In February 2005, the King dismissed Prime Minister Deuba and dissolved the Cabinet. The Maoists announced a three-month unilateral cease-fire on September 3, 2005, which was extended for another month on December 2, 2005. The Maoists ended this third cease-fire, returning to violence on January 2, 2006. After the King announced the reinstatement of parliament on April 24, the Maoists declared a three-month unilateral ceasefire on April 26, which the new Koirala government reciprocated on May 3.

Under the constitution, Nepal's judiciary is legally separate from the executive and legislative branches, and in practice has increasingly shown the will to be independent of political influence. The judiciary has the right of judicial review under the constitution. The King appoints the Chief Justice and all other judges to the Supreme, Appellate, and District Courts upon the recommendation of the Judicial Council. All lower court decisions, including acquittals, are subject to appeal. The Supreme Court is the court of last appeal. The King may grant pardons and may suspend, commute, or remit any sentence pronounced by any court.

Human Rights
Since political reform began in 1990, some progress has been achieved in the transition to a more open society with greater respect for human rights; however, substantial problems remain. Poorly trained police sometimes use excessive force in quelling violent demonstrations. In addition, there have been reports of torture during detention and widespread reports of custodial abuse. In 2000, the government established the National Human Rights Commission, a government-appointed commission with a mandate to investigate human rights violations. The government is sometimes slow to follow the commission's recommendations or to enforce accountability for recent and past abuses. The King's February 2005 dismissal of the government, subsequent imposition of emergency rule and suspension of many civil rights for almost three months--including freedom of expression, assembly, and privacy--was a setback for human rights in Nepal. Censors were reportedly deployed to major newspapers, and many political leaders were kept under house arrest.

Both the Maoists and security personnel have committed numerous human rights violations. The Maoists have used tactics such as kidnapping, torture, bombings, intimidation, killings, and conscription of children. Within the Nepalese security force, violations ranging from disappearances to executions have been recorded. After the royal takeover on February 1, 2005 and subsequent imposition of the state of emergency, the security forces arrested many political leaders, student leaders, journalists, and human rights activists under the Public Security Act of 1989, although all were released by June 2005 when the King ended the state of emergency.

There are three major daily English-language newspapers, "The Kathmandu Post," "The Himalayan Times" and "The Rising Nepal," of which the latter and its vernacular sister publication are owned by a government corporation. There are literally hundreds of smaller daily and weekly periodicals that are privately owned and of diverse journalistic quality. Views expressed since the 1990 move to democracy are varied and vigorous. Currently twenty-five radio and three television stations are privately owned and operated, due to liberalization of licensing regulations. Radio Nepal and Nepal Television are government-owned and operated. There are nearly 200 cable television operators nationwide, and satellite dishes to receive television broadcasts abound.

There are some restrictions on freedom of expression. The law strictly forbidding the media to criticize or satirize the King or any member of the royal family is currently being enforced after the King's February 2005 dissolution of the Cabinet. After the royal takeover on February 1, 2005, the Ministry of Information and Communications issued a notice invoking the National Broadcasting Act of 1992, stating that no media can publish interviews, articles, or news items against the spirit of the royal proclamation of February 1. A second notice invoking the Press and Publications Act of 1991 was issued on February 3 stating that no media can publish news items supporting terrorist and destructive activities.

On October 9, 2005, the government promulgated a new Media Ordinance restricting news reporting by private FM radio stations, prohibiting criticism of the King and royal family, restricting dissemination of news from foreign sources, enabling a government-controlled press council to recommend revoking a journalist's press credential; and placing new restrictions on cross-media ownership. In the months following the issuance of the ordinance, armed authorities raided private FM radio stations and seized station equipment, although the government has since obeyed a Supreme Court order to return the equipment and allow FM stations to broadcast news. The newly reinstated government led by Prime Minister Koirala announced in May 2006 that all media ordinances passed by the former King-led government would be overturned, and the Supreme Court on May 5, 2006, upheld FM stations' right to air news.

Trafficking in women and child labor remain serious problems. Discrimination against women and lower castes is prevalent.

Principal Government Officials
King--Gyanendra Bir Bikram Shah Dev
Queen--Komal Rajya Laxmi Devi Shah

Cabinet Ministers
Prime Minister and Defense--Girija Prasad Koirala
Deputy Prime Minister and Foreign Affairs--KP Oli
Finance--Ram Sharan Mahat
General Administration--Dharmaraj Shah
Agriculture and Cooperatives--Mahanta Thakur
Home--Krishna Prasad Situala
Education and Sports--Mangal Siddhi Manandhar
Forest and Soil Conservation--Gopal Rai
Environment Science and Technology--Man Bahadur Bishwokarma
Land Reform and Management--Prabhu Narayan Chaudhari
Local Development--Rajendra Pandey
Law and Justice and Parliamentary Affairs--Narendra Bikram Nemwang
Physical Planning and Works--Gopal Man Shrestha

State Ministers
Labor and Transport Management-- Ramesh Lekhak
Culture Tourism and Civil Aviation-- Pradip Gyawali
Women Children and Social Welfare-- Urmila Aryal
Information and Communications-- Dilendra Prasad Badu

Ambassador to the United States--vacant
Ambassador to the United Nations--Madhu Raman Acharya

Nepal maintains an embassy in the United States at 2131 Leroy Place, NW, Washington, DC 20008 (tel 202-667-4550; fax: 202-667- 5534). The Nepalese Mission to the United Nations is at 300 E. 46th Street, New York, NY 10017 (tel 212-370-3988/3989).

ECONOMY
Nepal ranks among the world's poorest countries with a per capita income of around $300. Based on national calorie/GNP criteria, an estimated 31% of the population is below the poverty line. An isolated, agrarian society until the mid-20th century, Nepal entered the modern era in 1951 without schools, hospitals, roads, telecommunications, electric power, industry, or a civil service. The country has, however, made progress toward sustainable economic growth since the 1950s and is committed to a program of economic liberalization.

Nepal launched its tenth five-year economic development plan in 2002; its currency has been made convertible; and fourteen state enterprises have been privatized, seven liquidated and two dissolved. Foreign aid accounts for more than half of the development budget. The Government of Nepal has shown an increasing commitment to fiscal transparency, good governance, and accountability. Also in 2002, the government began to prioritize development projects and eliminate wasteful spending. In consultation with civil society and donors, the government cut 160 development projects that were driven by political patronage.

Agriculture remains Nepal's principal economic activity, employing over 76% of the population and providing 39% of GDP. Only about 25% of the total area is cultivable; another 33% is forested; most of the rest is mountainous. Rice and wheat are the main food crops. The lowland Terai region produces an agricultural surplus, part of which supplies the food-deficient hill areas. Because of Nepal's dependence on agriculture, the annual monsoon rain, or lack of it, strongly influences economic growth.

Nepal's exports increased 9.32% in FY 2004/05 compared to an increase of 7.78% in FY 2003/04. Imports grew by 7.08% in FY 2004/05 compared with 5.94% in FY 2003/04. The increase in exports is marginal due to the fact that there has been a significant drop in Nepal's main export, ready-made textile products. The trade deficit for FY 2003/04 was $1.0 billion, which widened to $1.18 billion in FY 2004/05. Real GDP growth during 1996-2002 averaged less than 5%. Real growth experienced a one-time jump in 1999, rising to 6%, before slipping back below 5%. In 2002, the GDP recorded a negative growth rate of 0.33%, largely because of the Maoist insurgency. GDP grew 3.1% in 2003 and 3.26% in 2004, and again slipped to 2.04% in 2005, according to Nepal Rastra Bank (Nepal's Central Bank).

Despite its growing trade deficit, Nepal traditionally has a balance of payments (BOP) surplus due to money sent home from Nepalis working abroad. In FY 2004/05, however, Nepal recorded a much lower balance of payments surplus of $80 million, as compared to $217.7 in FY 2003/04. The lower BOP surplus in FY 2004/05 is mainly attributable to the lower inflow of net government loans. The decline is primarily in the capital account, due primarily to a slow down in development activities funded by foreign grants and loans. Nepal receives substantial amounts of external assistance from India, the United Kingdom, the United States, Japan, Germany, and the Scandinavian countries. Several multilateral organizations--such as the World Bank, the Asian Development Bank, and the UN Development Program--also provide assistance. Such assistance has decreased substantially in FY 2004/05 after the royal takeover of February 1, 2005 and also because the ongoing Maoist conflict has seriously undermined development activities throughout most of Nepal. On April 23, 2004 Nepal became the 147th member of the World Trade Organization (WTO).

With eight of the world's ten highest mountain peaks--including Mt. Everest at 8,848 m (29,000 ft)--Nepal is a tourist destination for hikers and mountain climbers. Yet a worsening internal security situation and a global economic slowdown threaten the tourism industry. Figures from the Nepal Tourism Board showed a 12.8% increase in arrivals in 2004, but these are well below numbers during 1999, the peak tourism year. Recent tourist arrivals, during the Maoist cease-fire, show a recovery from the massive decline experienced during the first five months of 2005; however, 2005 annual arrivals fell 3.9% short of total arrivals in 2004. The fragile security situation, particularly after the Maoists ended their unilateral cease-fire on January 2, 2006, is expected to alter the trend of growth in tourist arrivals witnessed during recent months.

Swift rivers flowing south through the Himalayas have massive hydroelectric potential to service domestic needs and growing demand from India. Only about 1% of Nepal's hydroelectric potential is currently tapped. Several hydroelectric projects, at Kulekhani and Marsyangdi, were completed in the early to late 1980s. In the early 1990s, one large public-sector project, the Kali Gandaki A (144 megawatts--MW), and a number of private projects were planned; some have been completed. Kali Gandaki A started commercial operation in August 2002. The most significant privately financed hydroelectric projects currently in operation are the Khimti Khola (60 MW) and Bhote Koshi (36 MW) projects.

The environmental impact of Nepal's hydroelectric projects has been limited by the fact that most are "run-of-river," with only one storage project undertaken to date. The private-sector West Seti (750 MW) storage project is dedicated to electricity exports. An Australian company, which signed a power purchase agreement with the Indian Power Trading Corporation in September 2002, is promoting the project for implementation along build-own-transfer lines. Negotiations with India for a power purchase agreement have been underway for several years, but agreement on pricing and capital financing remains a problem. The Government of Nepal has taken up the issue of project financing for the West Seti project with the EXIM Bank of China. Currently, domestic demand for electricity is increasing at 8%-10% a year.

Population pressure on natural resources is increasing. Overpopulation is already straining the "carrying capacity" of the middle hill areas, particularly the Kathmandu Valley, resulting in the depletion of forest cover for crops, fuel and fodder, and contributing to erosion and flooding. Additionally, water supplies within the Kathmandu Valley are not considered safe for consumption, and disease outbreaks are not uncommon. Although steep mountain terrain makes exploitation difficult, mineral surveys have found small deposits of limestone, magnesite, zinc, copper, iron, mica, lead, and cobalt.

Progress has been achieved in education, health, and infrastructure. A countrywide primary education system is under development, and Tribhuvan University has several campuses. Although eradication efforts continue, malaria has been controlled in the fertile but previously uninhabitable Terai region in the south. Kathmandu is linked to India and nearby hill regions by an expanding highway network.

DEFENSE
Nepal's military consists of the nearly 90,000-strong Royal Nepalese Army (RNA), which is organized into six divisions (Far Western, Mid Western, Western, Central, Eastern and the Valley Division) with separate Aviation, Parachute and Royal Palace Brigades as well as brigade-sized directorates encompassing air defense, artillery, engineers, logistics and signals which provide general support to the RNA. The King is the Supreme Commander of the RNA while the Prime Minister normally serves as Minister of Defense. General Pyar Jung Thapa is Chief of the Army Staff (COAS).

The RNA has contributed more than 45,000 peacekeepers to twenty-eight peacekeeping missions such as the UN Interim Force in Lebanon (UNIFIL), the UN Protection Force (UNPROFOR) in the Former Yugoslavia, the UN Operational Mission in Somalia II (UNOSOMII), the UN Mission in Haiti (UNMIH), and the UN Mission of Support in East Timor (UNTAET). While concurrently fighting a Maoist insurgency within Nepal, RNA units are also presently serving in the UN Mission in Sierra Leone (UNAMSIL), the UN Mission in the Democratic Republic of the Congo (MONUC), and the UN Mission in Haiti (MINUSTOH), among others. Approximately 3,400 of the world-famous Nepalese Gurkha forces serve in the British Army and 40,000 serve in the Indian Army.

The U.S. Pacific Command (USPACOM) coordinates U.S. military engagement and security assistance with Nepal through the Office of Defense Cooperation. U.S. military assistance to the RNA has consisted of $21.95 million in grant Foreign Military Financing (FMF) since 2002, annual professional and technical training provided under the International Military Education and Training Program (IMET) grant ($650,000 in FY05), additional training provided under the Counter Terrorism (CT) Fellowship ($200,000 for FY04), and approximately $2 million of Enhanced International Peacekeeping Capabilities (EIPC) funding to increase the pool of international peacekeepers and promote interoperability. Many RNA officers attend U.S. military schools, including the U.S. Army War College, the U.S. Army Command and General Staff College (CGSC), and various conferences and seminars such as those provided by the National Defense University (NDU) and the Asia Pacific Center for Strategic Studies (APCSS).

FOREIGN RELATIONS
As a small, landlocked country wedged between two much larger and far stronger powers, Nepal seeks good relations with both India and China. Nepal formally established relations with China in 1956, and since then their bilateral relations have generally been very good. Because of strong cultural, religious, linguistic, and economic ties, Nepal's association with India traditionally has been close. India and Nepal restored trade relations in 1990 after a break caused by India's security concerns over Nepal's relations with China. A bilateral trade treaty signed in 1991 is renewed every five years. The most recent renewal on March 5, 2002 shall remain in force until March 5, 2007. However, a transit treaty with India, which allows Nepal to trade with other countries through the Calcutta/Haldia ports, expired on January 5, 2006. To allow time for the review of the seven-year-old transit treaty, India extended the treaty for a period of three months, until April 5, 2006.

Nepal has played an active role in the formation of the economic development-oriented South Asian Association for Regional Cooperation (SAARC) and is the site of its secretariat. Nepal is also a signatory of the agreement on South Asian Free Trade Area (SAFTA), which came into force on January 1, 2006, and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation Free Trade Agreement (BIMSTEC-FTA), which will come into force on July 1, 2006. On international issues, Nepal follows a non-aligned policy and often votes with the Non-Aligned Movement in the United Nations. Nepal participates in a number of UN specialized agencies and is a member of the World Trade Organization, World Bank, International Monetary Fund, Colombo Plan, and Asian Development Bank.

U.S.-NEPAL RELATIONS
The United States established official relations with Nepal in 1947 and opened its Kathmandu Embassy in 1959. Relations between the two countries have always 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.

Since 1951, the United States has provided more than $791 million in bilateral economic assistance to Nepal. In recent years, annual bilateral U.S. economic assistance through the U.S. Agency for International Development (USAID) has averaged $40 million. USAID supports agriculture, health, family planning, environmental protection, democratization, governance, and hydropower development efforts in Nepal. The United States also contributes to international institutions and private voluntary organizations working in Nepal. To date, U.S. contributions to multilateral organizations working in Nepal approach an additional $725 million, including humanitarian assistance. The Peace Corps temporarily suspended its operations in Nepal in 2004 due to increasing security concerns, and officially terminated its Nepal program in 2006.

Principal U.S. Officials
Ambassador--James F. Moriarty
Deputy Chief of Mission--Nicholas J. Dean
Counselor for Management Affairs--Michelle Esperdy
USAID Director--Donald B. Clark
Political and Economic Chief--Grace Shelton
Consular Chief--Robert Farquhar
Public Affairs Officer--Robert L. Hugins
Regional Security Officer--Dominic Gagliardi
Regional Environment Officer--Katharine E. Koch
Political/Military Officer--Stephen W. Riley
Defense Cooperation Officer--Maj. Lawrence A. Smith
Defense Attach´┐Ż--LTC Scott Taylor

The U.S. Embassy in Nepal is located in Pani Pokhari, Kathmandu (tel: [977] (1) 441-1179; fax: [977] (1) 441-9963). The Consular Section and American Center (Public Affairs Section) are located at the Yak & Yeti Hotel in Durbar Marg, Kathmandu (tel: [977] (1) 444-5577; Consular fax: [977] (1) 444-4981; Public Affairs fax: [977] (1) 443-5869). The U.S. Agency for International Development is located in Rabi Bhawan, Kathmandu (tel: [977] (1) 427-0144; fax: [977] (1) 427-2357).



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