Order Code RL31599
CRS Report for Congress
Received through the CRS Web
Nepal: Background
and U.S. Relations
Updated February 2, 2006
Bruce Vaughn
Analyst in Southeast and South Asian Affairs
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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Nepal: Background and U.S. Relations
Summary
A landlocked Himalayan kingdom between India and China, Nepal ranks among
the world’s poorest countries. In 1990, following a democratization movement,
Nepal became a parliamentary democracy under a constitutional monarch. Although
this led to a process of economic restructuring and market liberalization, political
instability and years of increasingly dire internal security challenges have undercut
the country’s economic growth and reform efforts. 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. The murdered king’s younger brother, Gyanendra,
now occupies the throne. In a reversal of the longer-term trend towards a democratic
constitutional monarchy, King Gyanendra declared a state of emergency, assumed
full powers, suspended civil liberties, and placed opposition leaders under arrest on
February 1, 2005. The King explained his move as necessary to fight the Maoist
insurgency. Human rights advocates continue to be concerned about the human
rights situation in Nepal. U.S. foreign policy toward Nepal has provided development
and security assistance while seeking to promote democracy and human rights.
Prior to the king’s takeover, the Kathmandu government faced serious political
opposition and increasing pressure to end a Maoist insurgency that since 1996 has
caused widespread violence and crippled the Nepali economy. By January 2006,
approximately 12,000 people were reportedly killed as a result of the conflict. The
Nepali Maoist rebels’ continuing violent campaign to overthrow the Kathmandu
government has heightened concerns about the government’s ability to effectively
counter the insurgency. There exists fear that further deterioration of Nepal’s security
circumstances could lead to further human rights abuses, destabilize the region, spur
new tensions between India and China, and potentially create a failed state in South
Asia which could become a source of regional instability. The Maoists are listed as
an “other terrorist group” by the State Department.
The king’s takeover can be seen as the culmination of events beginning in late
2002 when the Nepali government faced a constitutional crises. In October 2002,
amid dissatisfaction with the worsening security situation and the inability of the
prime minister to hold parliamentary elections as scheduled, King Gyanendra
dismissed the prime minister and the cabinet and assumed “temporary executive
authority.” One week later, the king chose royalist Lokendra Bahadur Chand to serve
as prime minister. The king replaced Chand with Surya Bahadur Thapa over the
objections of the main parties in June of 2003. Prime Minister Surya Bahadur Thapa
ended his term as Prime Minister on May 7, 2004. He was replaced by the king’s
former Prime Minister Sher Bahadur Deuba. Former Prime Minister Deuba was
placed under house arrest on February 1, 2005. In early 2006, human rights and pro-
democracy advocates remained concerned with the king’s continued suppression of
democracy and increasingly oppressive rule. This report will be updated.

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Contents
Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The King’s Takeover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Maoist Reaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Political Reaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Human Rights Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
The Context to the Takeover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Political Setting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Key Country Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Constitutional Crisis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Maoist Insurgency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Geopolitics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
U.S. Interests and Bilateral Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
U.S. Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Terrorism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Human Rights Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
List of Figures
Figure 1. Map of Nepal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

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Nepal: Background and U.S. Relations
Recent Developments
The three-way contest for control of Nepal, among King Gyanendra, who has
assumed direct control of the country, a coalition of seven parties seeking democracy
for the country, and the Maoists has shifted over the past year as the king seized
direct rule and has suppressed democrats while trying to fight the Maoists. Analysts
increasingly view differences between King Gyanendra and the main political parties
as undermining Nepal’s ability to deal with its ongoing Maoist insurgency. King
Gyanendra seized direct rule in February 2005. The king reportedly arrested
hundreds, including party leaders, in January 2006. Street protests across Nepal on
February 1, 2006, marked the first anniversary of the king’s seizure of power and
followed a Maoist raid that targeted military installations, police, and government
buildings and killed 19.1 The king’s approach to the democrats has given them
common cause with the Maoist communists. More than 12,000 people are now
thought to have died in the struggle with the Maoists that began 10 years ago.2 Over
90 are thought to have died in January 2006 following the Maoists resumption of
hostilities.3 The Maoists broke off a ceasefire on January 2, 2006. Since that time
they have stepped up attacks on Nepal police posts and security installations.4
The latest wave of crackdown of democratic elements in the country has come
in an effort by the king to preempt a planned demonstration on January 26, 2006, and
boycott of municipal elections planned for February 8, 2006. The king cut phone and
internet service, banned demonstrations, imposed a curfew, clashed with student
demonstrators, and placed party leaders under arrest in order to improve his position
and carry out the elections.5 In the lead-up to these elections Maoists targeted
candidates. Reportedly, only 3,700 candidates filed nominations to stand for 4,100
seats across the country.6 The government offered life insurance to those standing for
1 “Nepal,” The Washington Post, February 2, 2006.
2 “Nepal Maoist Clash Leaves 23 Dead,” BBC News, January 22, 2006.
3 Nepal Riot Police Out in Force as Parties Launch National Strike,” Agence France Presse,
January 26, 2006.
4 Binaj Gurubacharya, “Eight People Killed in Rebel Attack in Western Nepal,” Associated
Press, January 25, 2006.
5 Nepal Riot Police Out in Force as Parties Launch National Strike,” Agence France Presse,
January 26, 2006.
6 Sushil Sharma, “Dearth of Nepal Poll Candidates,” BBC News, January 27, 2006.

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these elections in an effort to keep candidates in the poll.7 Seven political parties,
which includes a royalist party and reportedly represents over 90% of parliament
before its dismissal by the king, claimed that the elections would not be free and fair
given the state of civil war and political strife that exists in the country and would be
used by the king to legitimize his authority. Democrats demand that the king
relinquish the absolute power that he seized almost a year ago. Eight student groups
have affiliated themselves with the seven party pro-democracy alliance and have
supported pro-democracy efforts through street demonstrations.8
New Delhi, Washington, Tokyo, and the European Union each expressed their
concern with the king’s actions while China and Pakistan offered some support. India
and the United States suspended the sale of military equipment to Nepal. It has been
reported that China and Pakistan have made military sales, including grenades and
ammunition to Nepal.9 China’s motive for doing so is reportedly to gain influence
in a region bordering Tibet.10 The European Union has warned that the situation
appears to be “moving towards an ever more severe confrontation and polarization,
thus increasing the risk of deepening the political crisis.”11
King Gyanendra’s inability to subdue the Maoist insurgency and his repression
of pro-democratic elements in the country has undermined his legitimacy. His moves
against the democrats has given common cause to democrats and Maoists alike, as
they are now both opposed to the king’s rule. It has been reported that the Maoists
and the seven main political parties secretly met in November 2005 in India and
negotiated a 12-point agenda to reestablish multiparty democracy in Nepal, bring an
end to tyrannical monarchy, and work to achieve an election of a constituent
assembly to write a new constitution for Nepal.12 It has also been reported that the
Maoists have agreed to give up their campaign of violence if their demand for a
constituent assembly is realized.13 Some fear that the Moaists will use this process
to seize government and that they will return to violence if they do not gain power
through a political process. The most significant outcome of events that have
transpired since November 2005 is that the view that the path to peace is to be found
through an accommodation between the political parties and the king is increasingly
challenged by the view that such accommodation is unlikely. As a result, many are
7 Justin Huggler, “Nepal Shuts Down as Maoists Target King,” The Independent, January
27, 2006.
8 Parties Vow More Protests, King in No Mood for Compromise,” Press Trust of India,
January 22, 2006.
9 Nepal Government Procuring Military Articles from China, Pakistan,” Press Trust of India,
January 22, 2006.
10 “A Dangerous Game,” The Wall Street Journal, January 24, 2006.
11 “EU Condemns Government, Maoist Rebels in Nepal,” Agence France Presse, January
27, 2006.
12 Francis Lim Khek Gee, “Nepal’s King Faces Tough Fight to Stay in Power,” New Straits
Times, January 26, 2006.
13 “Nepal Political Parties Unite in Opposition to the King,” DowJones Newswire, January
27, 2006.

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CRS-3
increasingly of the opinion that a solution must be found through a new constitutional
settlement that can bring the Maoists into the political process and off the
battlefield.14 Such an outcome would likely limit the role of the king in government
and as a result would be opposed by him.
The King’s Takeover
King Gyanendra of Nepal continued to exert his control over democratic
elements in 2005, but made little progress in the struggle against the Maoists.
Reportedly, the king in early 2005 thought he could take advantage of a split in the
Maoist leadership and continuing disarray amongst democrats to seize control and
use the Royal Nepal Army to defeat the Maoists.15 The seizure of power by the king
appears in practice to have been aimed as much, if not more so, at asserting the
king’s control over democratic elements as attempting to assert authority over the
Maoists. Many observers have felt that a military solution to the conflict with the
Maoists is not achievable and that a concerted effort by the king and the democrats
is needed to establish a unified front to defeat the Maoists. Despite setbacks, the
Maoists appear committed to undertaking large scale attacks.16
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 have been released by the king, hundreds of others reportedly
remain under arrest and restrictions on civil liberties, such as public assembly and
freedom of the press, remain in place. Human rights advocates are urging the United
States not to sell arms to Nepal.17 A new United Nations Office of the High
Commissioner of Human Rights team was established in Nepal in April 2005 to
monitor the observance of human rights and international humanitarian law.18
India has been increasingly concerned with events in Nepal and there are signs
China may seek to leverage the situation to gain influence. It has also been reported
that India is concerned with possible growing ties between Nepalese Maoists and
Indian radicals.19 Maoist faction leader Baburam Bhattarai is also thought to have
met with the General Secretary of the Communist Party of India.20 It is also thought
that the king turned to Pakistan and China for military assistance in the wake of
14 “Nepal Election Chaos,” International Crisis Group, January 31, 2006.
15 Chitra Tiwari, “India Delivers Arms to Nepal,” The Washington Times, May 14, 2005.
16 “US Envoy Warns Political Crisis in Nepal Could Benefit Maoists,” BBC News, May 24,
2005.
17 “US Urged not to Supply Military Weapons to Nepal,” Agence France Presse, May 9,
2005.
18 “UN High Commissioner for Human Rights Appoints Chief for Nepal Monitoring
Operation,” M2 Presswire, April 29, 2005.
19 Chitra Tiwari, “India Delivers Arms to Nepal,” The Washington Times, May 14, 2005.
20 “Nepali Maoist Meets Indian Marxist,” Inter Press Service, May 31, 2005.

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India’s and Britain’s decision to halt arms sales to Nepal.21 China has viewed the
king’s takeover as an internal affair for Nepal. Chinese Foreign Minister Li
Zhaoxing’s visit to Nepal on March 31, 2005, was the most senior high level visit to
Nepal in the aftermath of the king’s power grab in February. China’s motive for
seeking influence in Nepal may be limited to gaining Nepal’s support on the issue of
Taiwan and to promote stability in a bordering region. It could also be related to
larger geopolitical rivalry with India and possibly be aimed at neutralizing what may
be viewed by China as rising Indian and American influence in Nepal. Nepal has
supported China’s anti-secession law on Taiwan and recently closed the exiled Dalai
Lama’s office in Kathmandu.22 These are two key foreign policy objectives for
Beijing.
The American response has focused on the need to restore democracy and civil
society. Assistant Secretary of State for South Asia Christina Rocca traveled to
Nepal in May 2005 where she had a “productive” meeting with the king. At that time
she described American goals for Nepal as, simply, “we want Nepal to be a peaceful,
prosperous and democratic country where civil liberties and human rights are
protected.” The United States has in the past provided security assistance to Nepal
and has increased development assistance. In 2005, $4 million was requested in
Foreign Military Financing and $650,000 was requested for International Military
Education and Training for Nepal for FY2006.23 Britain had planned to give Nepal
a package of military equipment to fight the Maoist insurgency in January 2005 but
halted the military assistance after the events of February.
NEPAL IN BRIEF
Population: 27,676,547 (2005 est.); growth rate 2.2% (2005 est.)
Area: 147,181 sq. km.
Capital: Kathmandu
Ethnic 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: 59.8 (2005 est.)
Literacy: total 45.2%; female 27.6%; male 62.7% (2003)
Per Capita income: $1,500 (2005 est.)
Gross Domestic Product Growth: 2.5% (2005 est.)
Inflation: 4.8% (2004 est.)
Sources: CIA World Fact book; Reuters News; U.S. Departments of Commerce and State; World Bank;
Asian Development Bank; Global Insight.
21 Chitra Tiwari, “India Delivers Arms to Nepal,” The Washington Times, May 14, 2005.
22 David Wiencek, “China’s Geopolitical Maneuvering in the Himalayas,” China Brief, The
Jamestown Foundation, May 10, 2005.
23 FY 2006 Congressional Budget Justification for Foreign Operations, Department of State,
released February 15, 2005.

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CRS-5
By moving against the democrats the king has strengthened the position of the
Maoists. By some estimates almost half of the RNA is now occupied with palace
security, civil administration, and efforts to restrict communications and civil rights.24
If human rights abuses by the king’s government leave his regime isolated from the
international community, his ability to successfully fight the Maoists may be further
constrained. The king’s legitimacy with the people has been weak due to the
circumstances under which he assumed the throne and due to the perception of the
people that his son, Prince Paras Shah, has “a reputation for drunken thuggery.”25
Maoist Reaction. From February 13-27, 2005, the Maoists blockaded major
highways linking the country’s 75 districts as well as international road links to India
and China in protest of the king’s actions.26 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.27 The Maoists had earlier
cut off land routes to Kathmandu in August 2004.28 During the week-long blockade
in 2004, prices of some basic foods more than doubled and fuel was rationed.29 This
increase in food prices reportedly recurred in the 2005 blockade. By blockading
Kathmandu, the Maoists are likely to increase pressure on the king’s government.
They have threatened to repeat the blockade if the king does not reverse policy and
restore political power to the parties.30 On June 6, 2005, the Maoists exploded a
bomb under a crowded bus crossing a bridge which killed 38 and injured over 70.
Maoist leader Prachanda subsequently stated that the attack was aimed not at
civilians but at military personnel.31
The American Embassy in Kathmandu issued a message warning of a threat to
Americans in Kavre District. Maoist cadres in Kavre District evidently have been
instructed to arrest Americans traveling there. The warning noted that it is unclear
if the threat applies to other Maoist-controlled areas. The Embassy has warned
Americans against traveling by road outside the Kathmandu valley.32 A Maoist
24 S.D. Muni, “Thy Hand, Great Monarch!” The Hindustan Times, February 8, 2005.
25 Nepal: A Country Report, The Economist Intelligence Unit, February 2005. John
Lancaster, “King Claims Absolute Authority in Nepal,” The Washington Post, February 2,
2005.
26 “Maoist Blockade Creates Chaos in Nepal,” Hindustan Times, February 22, 2005.
27 “Nepal Rebels Attack Highway Convoy,” Reuters, February 20, 2005.
28 “Maoist Rebels Cut off Kathmandu,” ABC Radio Australia, August 8, 2004.
29 “Bombs on the Tennis Courts, No Petrol in the Pumps,” The Economist, August 28, 2004.
30 “Maoists Call off Blockade,” WMRC Daily, February 28, 2005.
31 Binaj Gurubacharya, “Nepal Rebels Admit Mistake in Civilian Blast,” Associated Press,
June 7, 2005.
32 “Warden Message: Warning of Threat to Americans in Kavre District,” Consular Affairs
Bulletin Report, U.S. Embassy Kathmandu, March 1, 2005.

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commander in the Parsa District has threatened attacks against Americans and
American interests.33
Political Reaction. Few political leaders appeared to be in a position to
mount opposition to the king’s assumption of power in the immediate aftermath of
the takeover. Four editors of Nepali newspapers were brought in for questioning
after their papers published blank spaces where they normally published editorials.
Six other journalists are known to have been put in detention since the takeover. In
a demonstration of solidarity, members of the Nepali Bar Association reportedly
accompanied the editors to their questioning.34 Party Member Secretary Arjun
Thapa, who escaped Nepal in February 2005, stated that the Nepali Congress’
position is that a new constitution be drafted through a constitutional assembly of all
key political stakeholders that incorporates political demands of the Maoists. The
Nepali Congress Party also demanded that the king revoke the state of emergency,
release all political prisoners, reinstate communications, recall parliament, and form
an interim government headed by former Prime Minister Deuba.35
Nepal’s seven main political parties announced on May 8, 2005, that they would
work together to reform the constitution, reinstate parliament, which has been
dissolved since 2002, and limit the powers of the king.36 American Ambassador
James Moriarty stated that “the confrontation between the king and the political
parties will make it much easier for the Maoists to make advances.”37 The President
of the Nepal Bar Association gave his support for the Supreme Court Bar
Association’s call on the nation’s lawyers to boycott the Royal Commission for
Corruption Control which was set up after the king took power in February. The
corruption commission has the power to investigate, prosecute, and sentence. Former
Prime Minister Deuba remained under arrest on June 1, 2005, after he refused to pay
bond to the Commission for his alleged involvement in corrupt practices.38
Human Rights Concerns. Human rights groups warned in the aftermath of
the king’s early 2005 take over that Nepal is “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.”
As of February 9, 2005, a large number of opposition politicians, human rights
activists, student leaders and trade unionists had been arrested in the wake of King
33 “Maoist Commander Threatening Attacks Against Americans,” Warden Message,
Overseas Security Advisory Council, May 25, 2005.
34 “Nepalese Editors Summoned Over Blank Spaces in Papers,” Agence France Presse,
February 23, 2005.
35 “Nepali Congress Demands New Democratic Constitution,” Press Trust of India,
February 22, 2005.
36 “US Envoy Meets Nepalese Leaders in Kathmandu,” Voice of America, May 9, 2005.
37 Binaj Gurubacharya, “US Diplomat Warns Confrontation Between King and Political
Parties Will Benefit Rebels,” Associated Press, May 25, 2005.
38 “Nepal’s Lawyers to Boycott Anti-Corruption Commission,” Press Trust of India, June1,
2005 and “Nepal Press Selection,” BBC News, June 1, 2005.

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Gyanendra’s takeover.39 Human rights groups assert there is a history in Nepal of
people disappearing after being brought into custody for political reasons. As a
result, there is concern for those still in detention.40 A February 2005 report by the
International Crisis Group has stated that Nepal’s record on “disappearances and
extra-judicial killings is one of the world’s worst.”41 The report predicted that the
king’s actions will intensify the civil war and aid the Maoists while also providing
an opportunity for the international community to play a constructive role. On
February 24, 2005, the European Parliament reportedly adopted a resolution strongly
condemning King Gyanendra’s takeover and recommended that a neutral third party,
such as the United Nations, should arbitrate.42
The Context to the Takeover. The security situation in Nepal has been
deteriorating since the collapse of the ceasefire between the Maoists and the
government on August 27, 2003. The Maoists favor drafting a new constitution that
would likely abolish the monarchy. The king opposes such a move and wants 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 though other views have emerged. With his direct
assumption of powers, and arrest of opposition democratic elements, the king
decided to try to defeat the Maoists on his own. Observers have thought a military
victory for either the Royal Nepal Army (RNA) over the Maoists to be unlikely.
King Gyanendra first declared a state of emergency in November 2001 and
dissolved Parliament and assumed executive power in October 2002. The lack of
elections undermined the legitimacy of the government appointed by the king.
Political protest by the main political parties mounted in the spring of 2004 over the
increasing assumption of power by the king. Monarchist Prime Minister Surya
Bahadur Thapa stepped down amid these protest on May 7, 2004. The king will have
difficulty holding elections as long as the Maoists control much of the countryside.
Programs associated with the United States have been threatened by the Maoists
in the past.43 The U.S. Agency for International Development and Save the Children
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.”44 Despite such reassurances, the U.S. government identified the Maoists as
39 “Nepal: Danger of ‘Disappearances” Escalates,” Human Rights Watch, February 9, 2005.
40 “Nepal: Media Blackout Heightens Risk of Abuses,” Human Rights Watch, February 16,
2005.
41 “Nepal: Responding to the Royal Coup,” International Crisis Group, 24 February 2005.
42 “Nepal: After Monarchist Coup d’etat in Nepal, Parliament Foresees Mediation by Javier
Solana or UN,” Agence Europe, February 26, 2005.
43 Kedar Man Singh, “Nepal’s Maoist Rebels Say They Will Not Carry Out Political
Killings,” Agence France Presse, October 22, 2003.
44 Kedar Man Singh, “Nepal Maoists Say Americans Safe,” Agence France Presse, October
(continued...)

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a threat to American national security and froze Maoists assets and warned
Americans in Nepal of “the possibility of an increased threat to Americans and
American-affiliated organizations from Maoist insurgents.”45
Political instability and insurgency-related violence has undermined the
country’s economy. According to a close advisor of the Nepali king, and chairman
of the country’s largest private company, “Nepal is on the verge of becoming a failed
state.”46 U.S. government officials have expressed similar fears, and assert 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.47
Political Setting
Nepal is engaged in a political struggle with monarchists, the political parties,
and Maoists all vying for control. The Maoists are seeking a constituent assembly to
achieve politically what they have thus far been unable to gain on the battlefield. The
political parties seek a return to Parliamentary rule while the king has preferred an
influential role in government. “An alliance between any two of the three contending
groups is likely to determine Nepal’s future.”48 The king’s takeover in February 2005
makes any alliance between the king and the democrats seem remote and may serve
as a catalyst for an alliance among democratic elements. A July 2004 poll found that
60% of Nepalis favor democracy under a constitutional monarchy, 17% favor
democracy without a monarchy, and only 2% favor a return to absolute monarchy.49
The relationship between the political parties and the king began to come apart
in late 2002. On October 4, 2002, amid dissatisfaction with the worsening security
situation and the inability of Prime Minister Deuba’s government to hold
parliamentary elections as scheduled, King Gyanendra dismissed the prime minister,
disbanded his cabinet, and assumed executive powers, while pledging to relinquish
his authority once a new government was formed. (Deuba has since been
reappointed and dismissed for a second time as prime minister.) This event marked
the first time since absolute monarchy was ended in 1990 that a Nepali king
dismissed an elected government and assumed direct power; the move thus stunned
44 (...continued)
27, 2003.
45 “United States Declares Nepalese Maoists a National Security Threat, Freezes Assets,”
Agence France Presse, October 31, 2003.
46 Binod Bhattarai and Edward Luce, “Nepal’s New Premier Unmoved by Clamor at
Parliament’s Gates,” Financial Times (London), November 21, 2002.
47 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).
48 “Nepal,” Economist Intelligence Unit, August, 2003.
49 “Nepal: Responding to the Royal Coup,” International Crisis Group, February 24, 2005.

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the main political parties in Nepal and led to a constitutional debate. While the king
claimed that his decision was in accordance with his constitutional power to dismiss
the government during a political crisis, the ousted prime minister and key political
parties denounced the action as unconstitutional. In the days following Deuba’s
dismissal, thousands of Nepalis took to the streets of Kathmandu to demonstrate their
opposition to the king’s decision and demand the speedy restoration of democracy.
Smaller demonstrations were held in support of the king.50 No large scale
demonstrations were held in the immediate aftermath of the king’s February 2005
takeover.
One week after his assumption of executive power in 2002, King Gyanendra
met with senior political leaders to discuss formation of a new government, and he
subsequently chose Lokendra Bahadur Chand, a member of the royalist, right-wing
National Democratic Party and former premier, to oversee a caretaker cabinet until
new elections could be held. The United States extended its best wishes to the new
government and pledged its continued support in Nepal’s anti-terrorism efforts.51
Leading Nepali political figures, including Deuba, denounced the appointment as an
“undemocratic exercise,” and more pro-democracy demonstrations involving tens of
thousands of Nepalis were held in December and January.52 A May 2003 rally saw
some 50,000 citizens gather to denounce the king and reiterate their demands for
democracy.53
The possibility of reconciliation between the king and the political parties was
set back when the king refused to accept the parties’ recommendation for Prime
Minister following Chand’s resignation. The king instead selected Surya Bahadur
Thapa to be his Prime Minister. Anti-monarchical protests from the five main parties,
which seek a full restoration of parliament, brought significant pressure to bear on
the king in late 2003 and early 2004.54 Maoists are reported to have sought to make
common cause with the main parties against the king at that time.
On July 13, 2003, Thapa called for a third round of negotiations with the
Maoists. Nepalese government authorities’ subsequent temporary detention of a
chief Maoist negotiator Bharat Dhungana led to the closing of the Maoist rebel
50 Binaj Gurubacharya, “Nepal King Fires Prime Minister,” Associated Press Newswire,
October 4, 2002; Y.P. Rajesh and Gopal Sharma, “Ousted Nepal PM Brands Dismissal
Unconstitutional,” Washington Post, October 5, 2002; Y.P. Rajesh, “Nepal Protesters
Demand King Restore Democracy,” Reuters News, October 8, 2002; Sushil Sharma, “Anti-
King Protests in Nepal,” BBC News, November 26, 2002.
51 “Senior US Official Meets New Nepal Premier, Extends Support,” BBC Monitoring
South Asia, October 22, 2002.
52 “Nepal Parties React Strongly to New Government,” Asia Pulse (Sydney), October 11,
2002; Sushil Sharma, “Thousands Protest Against Nepal King,” BBC News, December 15,
2002; “Thousands Urge Nepal King to Revive Parliament,” Reuters News, January 13, 2003.
53 “Opposition Rallies in Nepal,” New York Times, May 5, 2003; Daniel Lak, “Nepal King
Facing Cabinet Protest,” BBC News, May 5, 2003.
54 “Fresh Round of Nepal Anti-Monarchy Protests,” BBC Monitoring South Asia, August
16, 2003.

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CRS-10
contact office in Kathmandu and put a third round of negotiations in doubt.55 The
third round did transpire in mid-August 2003.56 The negotiations stalled on several
points. The Maoists favor a constituent assembly to establish a new constitution and
redefine the role of the king. The government opposes this, but has offered to include
Maoists in an interim government and to call new elections. The government has also
indicated that a negotiated agreement must include a plan for Maoists to disarm.
Chief Maoist negotiator Babu Ram Bhattarai stated that, “It is very unlikely the talks
will lead to any fruitful end.”57 Maoist “Supremo” Prachandra has stated that “we are
not going to agree to anything less than a constituent assembly.”58 The collapse of
negotiations led to renewed fighting between Maoists and Royal Nepal forces.
Key Country Issues
Governance
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 king’s rule 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.
Nepal’s first decade of democracy was marked by political turbulence in which
three parliamentary elections were held and nine governments came to power.59 In
55 Stratfor, “Maoist Warriors Await Outcome of Nepal Peace Talks,” July 24, 2003.
56 “Third Meeting Over,” Nepal News.com, August 18, 2003.
57 “Nepal Rejects Key Maoist Demands,” Irish Times, August 18, 2003.
58 “Nepal ‘Maoist Supremo’ Prachandra Pessimistic on Talks,” BBC Monitoring South Asia,
August 18, 2003.
59 The bicameral parliament consists of a 205-seat House of Representatives (Lower House),
whose members are elected by popular vote to serve five-year terms; and a 60-seat National
(continued...)

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CRS-11
the third parliamentary elections in May 1999, NC president and former Prime
Minister Girija Prasad Koirala agreed to support Krishna Prasad Bhattarai as prime
minister. However, in mid-March 2000, rivalry between the two leaders and party
dissatisfaction led to Bhattarai stepping down. On March 20, King Birendra
appointed Koirala prime minister for a fourth time.
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 Koirala stepped down amid fears of continuing 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, has 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 the prime minister, claiming
that 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.60
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
59 (...continued)
Assembly (Upper House), whose members are appointed (10 by the king, 15 by an electoral
college, and 35 by the House of Representatives). For the purpose of this report,
“parliament” refers to the House of Representatives, which is the main focus of legislative
reporting.
60 “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.

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CRS-12
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 Congress
(Democratic) party on September 23.61 Given that almost 60% of the population 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-UML) party, the country’s second largest.62
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
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.63 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.64 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) and the United People’s Front (UPF) 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 Maoist
movement is estimated to include between 5,000 and 10,000 armed fighters and to
control a substantial proportion Nepal.65 By some estimates the Maoists run a
61 “Nepal’s Embattled PM Forms New Political Party,” Reuters News, September 23, 2002.
62 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.
63 Binaj Gurubacharya, “Nepal to Hold Elections in Stages,” Associated Press Newswire,
September 28, 2002.
64 Gopal Sharma, “Nepal Cabinet Seeks to Put Off Elections by a Year,” Reuters News,
October 3, 2002.
65 Philip Pan, “China Backs Nepal Over Maoist Rebels,” Washington Post, July 14, 2002;
Bertil Litner, “Nepal’s Maoists Prepare For Final Offensive,” Jane’s Intelligence Review,
(continued...)

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CRS-13
parallel government, setting up their own tax system, burning land records, and
redistributing seized property and food to the poor, in 45 districts.66 The King of
Bhutan is reported to have stated that the Maoists control 69 of 75 districts in
Nepal.67 The insurgency has been waged, in part, through torture, killings, and
bombings targeting police and public officials. Some analysts have equated the
insurgency with the Shining Path movement in Peru. A string of bank robberies,
combined with “revolutionary tax” revenue, has made the Nepali Maoists among the
wealthiest rebel groups in Asia, with up to $128 million in net receipts.68 The Maoists
control over Nepal “has been steadily increasing.”69
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. Plans have been underway to expand the
force, thought to number at least 72,000, and to provide them with enhanced
training.70 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 replaced an anti-terrorism
ordinance issued at the time of the first declaration of emergency. The new law
makes terrorism a crime punishable by life in prison and allows government forces
to detain terrorist suspects for an extendable 90-day period.71
After breaking the cease-fire, the Maoists staged numerous deadly attacks on
police and army posts, government facilities, and civilian areas, and forced the
country’s economy to a standstill in successive general strikes protesting the state of
65 (...continued)
October 2002; Binod Bhattarai and Edward Luce, “Nepal’s New Premier Unmoved by
Clamor at Parliament’s Gates,” Financial Times (London), November 21, 2002.
66 Aniket Alam, “Abductions, a Political Message by Maoists?” The Hindu, January 23,
2005.
67 G.S. Iyer, “Nepal Policy Lacks Cogency,” The Hindu, February 22, 2005.
68 Bertil Litner, “Nepal’s Maoists Prepare For Final Offensive,” Jane’s Intelligence Review,
October 2002.
69 International Institute of Strategic Studies, The Military Balance, 2004-2005, (London:
Oxford University Press, 2004), p.148.
70 John Kifner, “A Magical Kingdom’s Bleak Political Realm Grappling with a Wobbly
Cease Fire,” The New York Times, August 4, 2003; International Institute of Strategic
Studies, The Military Balance, 2004-2005 (London: Oxford University Press, 2004). Some
reports place the strength of the RNA at 78,000, see Neelesh Misra, “Nepalese Soldiers,
Famous for Keeping Peace, Learn to Wage War,” Associated Press, February 26, 2005.
71 Binaj Gurubacharya, “Nepal Parliament Approves Anti-Terrorism Bill,” Associated Press
Newswire, April 4, 2002.

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CRS-14
emergency. A significant proportion of the deaths associated with the insurgency
have occurred since November 2001. Two of the deadliest battles came in May
2002, when, according to Nepali officials, up to 650 rebels and at least 100 soldiers
and police officers were killed. Following those clashes, the rebel commander,
Pushpa Kamal Dahal — also known as “Prachanda” or “the fierce one” — issued a
statement declaring a one-month cease-fire beginning May 15, 2002. Claiming that
the rebels have used cease-fires to regroup, the government of Nepal promptly
rejected the cease-fire offer and insisted that the rebels first lay down their arms.72
Critics of the Deuba government’s hard-line approach toward the Maoists argued that
it failed to address the rural poverty that underlies the Maoist campaign.73
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.74 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.75 A cease fire was reached in January 2003. Fighting resumed in
August 2003 as the cease fire agreement collapsed.
Classical Maoism conceives three phases of protracted war: strategic defensive,
strategic stalemate, and strategic offensive. Although the insurgents’ tactical-level
efforts have had great successes thus far and represent a significant threat to the
Kathmandu government’s ability to govern, one late 2002 assessment indicated that
the rebels’ tactics may be ill-suited to urban combat, and that the Maoists may be
outstripping their supply resources.76
The Maoists’ message has called for “American imperialism” and the “dirty
Yankee” to “go home.” The Maoists’ Chief Negotiator, and Chairman of the
72 Neelesh Misra, “Government Rejects Maoists Cease-Fire Offer; Army Says Rebels
Withdraw From Western Stronghold,” Associated Press Newswire, May 9, 2002.
73 David Rohde, “Ousted by King, Nepal Premier Asks for Support,” New York Times,
October 6, 2002.
74 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.
75 R. Bedi, “Maoist Battle to Control Nepal,” Jane’s Terrorism and Security Monitor,
November 2002.
76 John Mackinlay, “A Military Assessment of the Nepalese Maoist Movement,” Jane’s
Intelligence Review, December 2002.

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CRS-15
“People’s Government,” Baburam Bhattarai, reportedly threatened the United States
with “another Vietnam” if the United States expands its aid to Nepal.77 Bhattarai also
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.78 Maoists claimed responsibility
for killing two off-duty Nepalese security guards at the American Embassy in
Kathmandu in 2002 and the Maoists have made it known that American trekkers are
not welcome in Maoist-controlled Nepal.79 Further, the Maoists stated on October
22, 2003, that American-backed organizations would be targeted. Rebel leader
Prachanda is reported to have stated that groups funded by “American imperialists”
would not be allowed to operate in Nepal.80
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. Future economic prospects will likely be influenced
by the outcome of the peace negotiations underway with the Maoists and the king’s
ability to come to terms with the democrats. 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 landslides.
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. Recent government efforts to revive the industry include opening
77 Thomas Bell, “Maoist Army Wins Hearts and Minds in West Nepal,” The Globe and
Mail, September 18, 2003.
78 Binaj Gurubacharya, “Maoist Rebel Leader Asks U.S., China, India to Stop Interfering
in Nepal,” Associated Press, September 25, 2003.
79 Binaj Gurubacharya, “Nepal Rebels Threaten U.S.-Funded Groups,” Associated Press,
October 22, 2003. Amy Waldman, “Chance for Peace Fades in Nepal as Deaths Rise,” The
New York Times, October 13, 2003.
80 Binaj Gurubacharya, “Nepal Rebels Threaten U.S.-Funded Groups,” Associated Press,
October, 22, 2003.

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CRS-16
up more mountain peaks to expeditions, reducing visa fees and easing visa
procedures.
Deforestation is one of the major environmental problems in Nepal. A report
prepared by the United Nations and the Nepali government cites several key causes
of deforestation: population growth, increased consumption of fuel wood, expansion
of grazing and agricultural land, internal migration, smuggling of logs into India, and
government forest policy. Rapid depletion of forest resources has contributed to
landslides, floods, erosion of agricultural lands, silting of waterways, and loss of
settlements and human life.81
Geopolitics
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 by providing helicopters,
transport vehicles, and arms and offering to train Nepali soldiers.82 Some believe that
India has the most to lose from Maoist advances in Nepal, as New Delhi views
Nepali instability as a potential catalyst for the destabilization of India’s own troubled
northeastern states.83
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 — roughly $10 million per year — 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. In November 2001,
Beijing agreed to provide communications equipment to assist the Nepal Army in
operating in mountainous terrain. Some observers have noted that Nepal’s stability
81 “Rampant Tree-Felling Shrinks Nepal’s Forest Cover,” Reuters News, March 27, 2001;
United Nations Environment Program, “Nepal: State of the Environment 2001,” available
at [http://www.rrcap.unep.org].
82 “India Pledged to Support Nepal in Rebel Fight,” Reuters News, August 23, 2002.
83 Mandavi Mehta and Nisala Rodrigo, “Nepal Update,” South Asia Monitor 53, Center for
Strategic and International Studies, December 1, 2002.

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CRS-17
is important to China, given that it serves as a buffer between China and India.84 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.85
U.S. Interests and Bilateral 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 seek to prevent the collapse of Nepal
which, should it become a failed state, could provide operational or support territory
for terrorists. Such a scenario could be destabilizing to the security dynamics of the
region. The United States also seeks to promote democracy in Nepal and provide
developmental assistance to its people.”Strengthening Nepal to prevent a Maoist
takeover is key to achieving U.S. regional and bilateral goals, including preventing
the spread of terror, enhancing regional stability, promoting democracy, and
protecting U.S. citizens in Nepal.”86
U.S. Assistance
U.S. attention to Nepal has focused on issues related to the Maoist insurgency
in recent years though non-military assistance has been far greater. The United States
has in the past provided Nepal with light weaponry and other military assistance to
assist Nepal in its fight against the Maoists.87 As of February 2006, lethal military
assistance to Nepal remained suspended. It is not anticipated that such assistance will
resume until the domestic political situation improves. The FY2006 request proposes
an increase from $1,488,000 to $4,000,000 for Foreign Military Financing (FMF) for
Nepal with a stable $650,000 for International Military Education (IMET) and
training for Nepal. High priority items for FMF assistance to the RNA include
“small arms, grenade launchers ... night vision goggles, body armor, secure
communications equipment, spare parts for mobility platforms, and armor plating.”
The United States also provides development assistance to Nepal under the Child
Survival and Health (CSH) programs, Development Assistance (DA), and Economic
84 Philip Pan, “China Backs Nepal Over Maoist Rebels; Move Reflects Beijing’s Growing
Interest in Fostering Stability, Not Revolution,” Washington Post, July 14, 2002.
85 “U.S. Wants India to Play a Leading Role in Nepal,” Press Trust of India, February 22,
2005.
86 FY 2006, Congressional Budget Justification for Foreign Operations, Department of
State, released February 15, 2005.
87 Jahn Lancaster, “King Claims Absolute Authority in Nepal,” The Washington Post,
February 2, 2005.

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CRS-18
Support Funds (ESF).88 The United States views the Maoists’ 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.89
U.S. Assistance to Nepal, 2001-2006
(In U.S. $ thousands)
FY2002
FY2005
FY2006
Act.
FY2001 FY2002
FY2003
FY2004
S.A.a
est.
req.
CSH
9,250
20,000
—
19,899
24,840
23,540
23,000
DA
11,858
7,597
—
10,247
8,874
10,000
11,392
ESF
0
3,000
—
4,000
4,971
4,960
5,000
FMF
0
2,000
12,000
2,950
3,975
1,488
4,000
IMET
237
377
—
500
546
650
650
Peace
1,735
2,111
—
2,624
2,108
394
0
Corps
Totals 23,080
35,085
12,000
40,220
45,314
41,032
44,042
Food Aid (not including freight costs)
P.L.
0
2,352
—
0
0
1,000
0
480
Title II
Grant
FFE
—
—
—
2,130
0
n/a
n/a
Sec.
2,666
0
—
0
0
n/a
n/a
416(b)
Sources: CRS Report RL31362, U.S. Foreign Aid to East and South Asia: Selected Countries, by
Thomas Lum; U.S. Department of State.
a. Supplemental Appropriation
While U.S. officials have pledged to support Nepal’s efforts to combat the
Maoist insurgency and to strengthen democracy there, they also have dismissed any
speculation that the United States seeks to establish military bases in Nepal. Given
an expressed U.S. interest in maintaining and improving relations with India, some
have argued that the United States should limit any military presence in Nepal that
might rile New Delhi.90 Continuing a military exchange program that was
88 “South Asia,” FY2006 Congressional Budget Justification for Foreign Operations,
Released February 15, 2005, United States Department of State.
89 “Christina Rocca Delivers Remarks at the Institute of Foreign Affairs,” Federal Document
Clearing House, May 10, 2005.
90 “US Official Reiterates His Country’s Support,” BBC Monitoring South Asia, September
(continued...)

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established in the mid-1990s, a platoon-sized team of U.S. Pacific Command forces
reportedly engaged in month-long joint military exercises in Nepal in early 2003.
The exercise was meant to improve force interoperability and to boost Nepal’s
tactical efficiency.91 In May, the U.S. Ambassador to Kathmandu was quoted as
saying that the United States “does not seek to establish any U.S. base in Nepal and
the United States does not have any strategic interest in Nepal,” adding that the U.S.
military is there “just to train the Nepali soldiers in anti-terrorist techniques.”92 The
Maoists have expressed their opposition to any United States military presence in the
country and have stated they will fight U.S. military forces if they enter Nepal.93 In
a bilateral purchase deal unrelated to promised U.S. security assistance, a
consignment of 5,000 U.S.-made M-16 rifles was delivered to Nepal in January and
February 2003. These weapons were expected to be combined with a scheduled
shipment from Belgium of 5,500 advanced automatic rifles to enhance significantly
Kathmandu’s anti-insurgency capabilities.94
Terrorism
The U.S. State Department has listed the Communist Party of Nepal (Maoist)
as an Other Terrorist Organization.95 No links have been found between the Nepali
Maoists and international terrorist organizations operating beyond South Asia, such
as Al Qaeda, and the Maoist fighters have no known state patrons providing arms or
supplies.96 Some 200 Nepali police and Royal Nepal Army officers have received
anti-terror training under an anti terror training agreement between the United States
and Nepal. This agreement has been targeted by the Maoists in their negotiations with
the Nepali government.97
Human Rights Concerns
The United States views Kathmandu’s record on human rights as “poor” due to
“numerous serious abuses” including “arbitrary and unlawful lethal force ... abuse of
90 (...continued)
6, 2002; “USA Establishes Military Funding to Help Nepal Combat Maoist Insurgency,”
BBC Monitoring South Asia, September 11, 2002.
91 Surendra Phuyal, “US Forces in Nepal for Joint Military Exercise,” Kathmandu Post,
January 14, 2003.
92 “US Envoy Says No Plan to Establish Military Bases in Nepal,” BBC Monitoring South
Asia, May 6, 2003.
93 Chitra Tiwari, Nepal Maoists Agree to Bargain,” The Washington Times, August 2, 2003.
94 Surendra Phuyal, “US Arms Arrive, Wait On for Belgian Minimis,” Kathmandu Post,
January 6, 2002; Sushil Sharma, “Nepal Takes Delivery of US Rifles,” BBC News, January
6, 2003.
95 U.S. Department of State, Country Report on Terrorism 2004, April 2005.
96 “US Official Reiterates His Country’s Support,” BBC Monitoring South Asia, September
6, 2002.
97 “US Embassy Clarifies Anti-Terror Cooperation with Nepal.” BBC Monitoring South
Asia, August 16, 2003.

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detainees” and the use of “torture as punishment or to extract confessions.” The State
Department has also pointed to the disappearance of persons in custody and poor
prison conditions as other problems.98 Freedom of assembly, speech, and the press,
mandated by the Nepali constitution, have been suppressed by the government under
the current state of emergency. Reports by Amnesty International have echoed these
criticisms, asserting that Nepal has been “in the grip of a human rights crisis for a
number of years.” Amnesty International has also stated that as a result of the
February 2005 state of emergency “a human rights catastrophe is looming amidst
heightened militarization and an attack on democracy.”99
Along with the U.S. Department of State, Amnesty International, and Human
Rights Watch also have criticized the Maoist insurgents for human rights violations
in their ongoing conflict. The Maoists allegedly have committed murders, bombings,
torture, abductions, and the severing of victims’ limbs. Although they continue to
target the police and the army, the Maoists have also killed and injured civilians,
including political leaders, local elites, and suspected informers. Reports indicate
that the Maoists recruit children as young as 14 years old as soldiers, messengers, and
human shields. According to a July 2002 report prepared by a coalition of
international and Nepali human rights groups, at least 30% of the Maoist guerrillas
are children.100
Human trafficking and child labor are serious social problems in Nepal. An
estimated 5,000-12,000 Nepali women and girls are lured or abducted to India and
forced into prostitution each year. In addition, reports indicate that 2.6 million
children in Nepal, mostly girls, are economically active, with 1.7 million of these
children working full-time. Most child laborers — about 95% — work in
agriculture, and roughly 40% do not attend school. Until 1994, children reportedly
constituted nearly one-third of the workforce in Nepal’s carpet industry. However,
due to heightened media attention in consumer nations, the establishment of a
certification system for carpets made without child labor, and increased efforts by the
Ministry of Labor, children reportedly now comprise only 2% of Nepal’s carpet
workers.101 In August 2002, the International Labor Organization and the Finance
Ministry of Nepal reached agreement on a $5 million project funded by the U.S.
Department of Labor to combat the worst forms of child labor in Nepal.102
98 “Nepal: Country Report on Human Rights Practices-2004,” Released by the Bureau of
Democracy, Human Rights, and Labor, U.S. State Department, February 28, 2005.
99 “Nepal: A Long Ignored Human Rights Crisis is Now on the Brink of Catastrophe,”
Amnesty International, February 18, 2005.
100 “30 Percent of Nepalese Maoist Fighters Are Children: Study,” Agence France-Presse,
July 6, 2002.
101 Amnesty International, Annual Report 2001: Nepal, and Annual Report 2002: Nepal;
U.S. Department of State, Country Reports on Human Rights: Nepal 2001, March 4, 2002.
102 “Agreement to Combat Child Labor,” Press Releases, American Embassy, Kathmandu,
August 20, 2002.

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Figure 1. Map of Nepal

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