FINANCE MINISTER RESIGNS IN ANGER, BUT HOPES TO

C O N F I D E N T I A L SECTION 01 OF 02 KATHMANDU 001036

SIPDIS

LONDON FOR POL/RIEDEL

E.O. 12958: DECL: 05/23/2012
TAGS: PGOV PREL PTER PINR NP GON
SUBJECT: FINANCE MINISTER RESIGNS IN ANGER, BUT HOPES TO
HEAL PARTY RIFT

REF: A. KATHMANDU 1007


B. KATHMANDU 1005

C. KATHMANDU 740 (EXDIS)

Classified By: Ambassador Michael E. Malinowski, Reasons 1.5(b),(d)


1. (C) Summary. Three Ministers resigned May 23 because the
Prime Minister had not consulted them on the decision to
suspend Parliament, Finance Minister Mahat told Ambassador
May 24. Even so, Mahat said he was prepared to stay in the
Cabinet under the right conditions. Mahat was especially
bitter because of his efforts in support of the PM's
policies. The rift in the Nepali Congress Party (NCP) would
have to be mended, but antipathy between Deuba and a faction
opposed to him would make this difficult. Holding elections
would be a challenge under current security conditions, Mahat
added. In the past Deuba had had difficulty fighting an
entrenched and corrupt party machine. Things seemed to be
going Deuba's way May 24 as 33 Ministers came out with a
statement of support and senior stateman K.P. Bhattarai
indicated he would work to heal the ruling party rift. A
split in the NCP would almost certainly mean a loss to the
main opposition party in the next election. End Summary.

FinMin Bitter About Not Being Consulted
--------------


2. (C) Although he blamed former Prime Minister G.P. Koirala
for precipitating the crisis, Finance Minister Mahat decided
to resign because Prime Minister Sher Bahadur Deuba had not
consulted him on the decision to dissolve Parliament, Mahat
told Ambassador May 24. Mahat called the Embassy to speak to
the Ambassador the day after he and two other Ministers
tendered their resignations. (Note: As of COB May 24 the
King had not yet accepted their resignations and thus they
remained as Ministers. According to an aide to the PM, Deuba
himself had not yet officially accepted the offers to resign,
and was holding them in his pocket. End Note.) The PM had
not consulted Parliament either on the decision to dissolve,
Mahat noted. Mahat indicated that he would be willing to
stay in the cabinet provided that the other Ministers were
"serious people" and he got party permission, as he would
lose his party ticket without it.

This Is How You Repay Me?
--------------


3. (C) As a member of the NPC Central Working Committee
(CWC),Mahat had supported Deuba against Koirala in that
body. Then he joined Deuba when the Cabinet had backed the
PM's recommendation to extend the state of emergency. Mahat
was bitter that - after supporting Deuba to such a degree -
he had not been consulted on the decision to dissolve
Parliament. (Note: One news report on the press conference
where Mahat announced his resignation said he was in "an
aggressive mood." End Note.) Mahat was not aware of any
analysis or consultations done beforehand on the subject of
dissolving Parliament. (Note: Post caught wind of Deuba's
musings about whether to dissolve Parliament six weeks ago
(Ref C). Note.) The main problem was that Deuba tried to
please everyone, Mahat judged. The PM was sincere, but had a
"weak temperament." In passing, the FinMin also expressed
bitterness about Deuba's failure to support his proposals in
Parliament and about instances when the PM overruled him.

Mahat: Patch Up Ruling Party Rift
--------------


4. (C) The rift in the Nepali Congress Party would have to be
patched up, Mahat believed. If Deuba were removed from the
NCP, he would have no locus of power within it and no power
base. Deuba could try to form an alternative party, but
constitutional and regulatory obstacles made it difficult to
create a new national party. Furthermore, Deuba was not the
charismatic type who could pull it off. Party history and
symbolism was very important in Nepal, Mahat concluded.
(Note: Party symbols are especially important in a society
where nearly half the population is illiterate. End Note.)
Efforts to mend fences would be hampered by an element within
the NCP who were set on destroying him, Mahat went on. Even
so, Mahat felt that Koriala's image had been "sullied"
because people blame him for forcing the PM's decision to
dissolve Parliament.

Elections a Question Mark
--------------


5. (C) The PM's desire to extend the emergency due to
security reasons contradicted his claim that elections could
be held within six months, Mahat said. Mahat noted that
local-body elections could not even be held, even though the
terms of local officials expire in about a month. Mahat
mused about possible fears that the military and/or palace,
in league with the Deuba faction, could try to manipulate the
elections.

A System Hard to Fight
--------------


6. (C) Mahat agreed that Nepal's political system was flawed
in that the parties played too great a role in dictating
policy and - more egregiously - in forcing the government to
dispense patronage. Unfortunately that was the reality in
Nepal, Mahat added. He judged that PM Deuba was not an
effective leader and thus could not stand up to the party
machine. For example, although Deuba was decidedly opposed
to corruption, Mahat watched as time and again he gave in to
party pressure to appoint people to high office who were
either novices or corrupt. On the corruption count, Mahat
mentioned the new Chief Secretary, most public corporation
heads and the Royal Nepal Airlines Corporation (RNAC)
Chairman as examples.

Going Deuba's Way
--------------


7. (C) After Mahat's morning call, signs began to appear that
things may be starting to shift Deuba's way. In the
afternoon Nepal's state radio reported that 33 out of 41
Ministers had signed a letter to the PM saying they "fully
supported" him. Former Prime Minister and current MP Krishna
Prasad Bhattarai, the only surviving founding member of the
NCP, returned to the capital from medical treatment abroad
and said he would participate in the new elections. This was
widely viewed as a statement of support for Deuba. Bhattarai
planned to meet separately with Deuba and Koirala May 25,
and, according to a close advisor, would ask Koirala to
withdraw Deuba's suspension from the party. (Note: On May
23 the NCP CWC suspended Deuba's party membership and asked
him to provide, within three days, an explanation of his
decision to dissolve Parliament. Deuba was not, however,
thrown out of the party, as erroneously reported in Ref B.
End Note.) One member of Nepal's upper house viewed with
significance the fact that no other Ministers had resigned
despite Koirala's calls that they do so.

Comment
--------------


8. (C) The situtation in Nepal remains extremely fluid but it
is now clear that Deuba has managed to raise a
counter-attack. Events on May 24 seemed to be going his way.
Comments by elder statesman K.P. Bhattarai - a long-time
Koirala rival - were especially helpful to Deuba. The cost
of a split within the NCP will likely be a certain loss in
the elections to the leading opposition party. With
Bhattarai standing by to mend fences, the NCP may yet be able
to resurrect itself.
MALINOWSKI