1. (C) The ceasefire between the Government of Nepal (GON)
and Maoist insurgents, declared on January 29, enters its
fourth month amid evidence that the Maoists continue to
train, recruit/conscript, and extort money from the local
population. Violations of the code of conduct persist, with
the number of killings so far (15) topping the tally during
the 2001 ceasefire. Relaxed restrictions during the
ceasefire have allowed the Maoists to increase their presence
in areas where they were less active and to continue to
intimidate the population in areas not under sustained GON
control. In some areas, the Maoists continue to prohibit the
GON from re-establishing a presence and/or providing
services. Meanwhile, there is a sense of drift in the peace
process. Two rounds of talks have made little headway, and
with the June 4 change in government, built little confidence
toward a lasting peace. Despite the Maoists' ongoing
recruitment, training and "fund-raising," conventional wisdom
holds that the insurgents will not break the ceasefire,
especially so near the onset of monsoon weather. End summary.



--------------------------


FOUR MONTHS AND COUNTING


--------------------------





2. (C) The ceasefire between the Government of Nepal (GON)
and Maoist insurgents, declared on January 29, already has
surpassed the longevity of the 2001 ceasefire (July
23-November 26) and offers no signs of impending breakdown.
Thus far the current ceasefire has seen two rounds of
dialogue (three rounds were held in the 2001 ceasefire), two
prime ministers, and with the June 12 appointments of
Ministers Kamal Thapa and Prakash Lohani as negotiators (Ref
C), two different GON talk teams. The two negotiating
sessions have made little apparent progress so far toward
lasting peace, and seem to have accomplished even less to
build confidence between the two sides--especially after the
GON's very public and clumsy backpedaling on alleged
commitments to release prominent Maoist detainees and limit
patrolling by the Royal Nepal Army (RNA) (Ref A). No date has
yet been set for a third round of talks.



3. (SBU) Reports of violations of the ceasefire's code of
conduct continue. According to the Informal Sector Service
Center (INSEC), a local human rights NGO, 15 people have been
killed since January 29, of which 6 were killed by GON
security forces and 9 by the Maoists. (This compares with 7
people--all victims of the Maoists--killed in the 2001
ceasefire.) The Royal Nepal Army (RNA) has reported two
clashes with armed Maoist cadres since the ceasefire, in
which soldiers killed one Maoist in Ramechhap on June 3 and
one in Okhaldunga on April 24. INSEC also reports that 162
people have been abducted by the Maoists since the beginning
of the ceasefire; 102 remain missing. According to Rabi
Kanta Aryal, Assistant Inspector General of Police at the
National Police Headquarters' Operations Center, many of
those abducted were alleged to be GON "informers" or tagged
with having committed social crimes by local Maoist
vigilantes. (One police constable in Banke District, for
example, was kidnapped for having taken a second wife).
Others may have been "recruited" for service in Maoist
training camps.



4. (C) But if disappearances and killings have declined
during the ceasefire, extortion continues apace. The
Maoists, according to Central Bank estimates, had netted a
total of nearly USD 6 million from assorted bank robberies
across the country before the ceasefire. They have been
forced since January 29 to rely upon alternative methods of
fundraising--primarily extortion. Although the Maoists
publicly claim that all such donations are willingly given by
an enthusiastic public, sources contacted report that threats
of "negative consequences" generally accompany the demands
for funds. Large and small businessmen, civil servants,
teachers, and even local villagers are reportedly being
pressed for "donations" to help defray the upkeep of Maoist
cadres in the field. Poor rural residents in outlying areas
not under GON control are "asked" to provide food and/or
shelter. Those who attempt to resist the extortion demands
(whether out of principle or sheer economic exigency) are
sometimes beaten or abducted. Even the prestigious Soaltee
Corporation (in which King Gyanendra is a partner) reportedly
has been contacted for contributions. According to N.N.
Singh (protect), Country Manager for Coca-Cola and long-time
target of such demands, his Maoist contacts explain that
observing the ceasefire has cut off their more traditional
sources of income--like robbing banks--and that they thus are
forced to press the local population for resources. When
Singh pointed out that such activities contradict the Maoist
negotiators' public commitments to cease extortion, his
contact reportedly replied that he takes his instructions on
"fund-raising" from Maoist negotiator and Central Committee
member Krishna Bahadur Mahara. (Note: Despite the Maoists'
repeated importunings and implied threats of "consequences,"
Singh continues to resist their demands. End note.)



--------------------------


CONSOLIDATING PRESENCE,
SPREADING MESSAGE


--------------------------





5. (C) Most sources contacted, including those working in
government, NGOs, political parties, and the police, note
that relaxed restrictions during the ceasefire have allowed
the Maoists to tighten their hold in many of the areas not
under GON control while permitting them to establish or
increase their presence in areas, like the southern Terai
plains, the East, and urban centers like Kathmandu where they
were not previously as active. AIGP Aryal expressed alarm at
what he described as the spread of Maoists in the Terai,
which heretofore had been comparatively less affected by the
insurgency. Subodh Pyakurel, General Secretary of INSEC,
reports that since the ceasefire the Maoists have banned
members of his organization from entering certain areas to
perform human rights monitoring. No such restrictions were
placed on INSEC, which maintains local offices in all 75
districts, during the previous ceasefire or even during the
state of emergency, Pyakurel observed. He speculated that
the Maoists, who have reportedly reactivated the "people's
courts" that mete out summary "justice" to local miscreants,
do not want INSEC monitoring their vigilantism or reporting
their extortion campaigns. He said that he has publicly
challenged the Maoist leadership to commit to international
human rights accords, but has received no reply. Political
party leaders also report that in numerous areas the Maoists
continue to prohibit their workers from carrying out party
activities or holding meetings. Similar restrictions have
not, however, been imposed on the insurgents, they complain,
who, now that their leaders are "above ground," have been
exploiting their new-found freedom to spread their political
message.



--------------------------


OBSTRUCTING GOVERNMENT WORK


--------------------------





6. (C) In many areas, the Maoists continue to prohibit GON
civil servants from carrying out their assigned duties as
well. Ganga Datta Awasthi, Joint Secretary at the Ministry
of Local Development, cited the mid-western districts of
Kalikot, Achham, Rukum, Rolpa, and Jajarkot, as well as parts
of the far-western district of Bardiya, as the worst
affected. In Rukum, Rolpa, and Jajarkot, the GON presence is
limited to district headquarters (although Maoist "people's
governments" in some parts of Jajarkot have cooperated with
GON health workers to provide some limited services). In
Kalikot, local Maoist commanders in 17 of the 30 Village
Development Committees (the VDC is the smallest unit of local
government) have flatly barred any GON presence, including
from the only health posts available to the local population.
In Achham, civil servants are not allowed to enter
three-fourths of the VDCs in the district. In Bardiya,
nearly one-third of the VDCs are off-limits to the GON.
(Note: Along the Rajapur delta in Bardiya, the Maoists also
have hung posters banning any USG-funded NGO activity as
well. End note.) In Kavre--the district directly adjoining
Kathmandu--the anti-GON ban extends to about 20 percent of
the VDCs. In Salyan, however, GON services are apparently
permitted on a selective basis, with health officers being
granted access and mobility but VDC Secretaries being told to
keep out. Despite these restrictions, the overall situation
has improved markedly, said Awasthi, adding that the degree
of cooperation largely depends on the individual Maoist
commander in a particular area.



7. (C) Even in those VDCs where civil servants have been
permitted to return, most do not stay overnight, Awasthi
said, both out of fear of possible Maoist violence and
because the GON has not rebuilt any of the facilities
destroyed during the conflict. (Note: The Maoists have
destroyed about 40 percent of VDC buildings across the
nation. The GON so far has not rebuilt any. End note.) He
said that about half of the nation's nearly 4,000 VDCs have
not requested the release of their annual budget primarily
because Maoist restrictions inhibit the development
activities those funds are meant to support. Awasthi said he
finds it difficult to blame VDC Secretaries who do not stay
at their posts out of fear, observing that families of
policemen killed by the Maoists receive approximately USD
10,000 in compensation, while VDC officials' families receive
nothing.



--------------------------


DIALOGUE DELAYED IS DIALOGUE CONTINUED?


--------------------------





8. (C) Despite having held two rounds of talks, neither the
GON nor the Maoists can point to appreciable gains as a
result. According to the ICRC, the GON has released as many
as 1,300 Maoist detainees since the beginning of the
ceasefire. Approximately 600-700 remain in custody. The GON
continues to arrest some Maoist suspects, most of whom are
held on weapons violations, rather than under the
anti-terrorism measures invoked before the ceasefire.
Although some prominent Maoist detainees have been released,
several, including Rabindra Shrestha, whose release
reportedly was promised during the second round, remain in
custody (Ref B). The RNA's flat refusal to restrict its
movements to a 5-km radius around barracks--after Maoist
negotiators publicly announced the GON had committed to do so
during the second round--was another perceived setback to the
insurgents' prestige. The June 4 change in government--and
thus in the composition of the GON negotiating team--has
muddied prospects for progress in the peace talks still
further.



9. (C) Some GON sources claim the signal lack of progress
as a victory. According to Nischal Nath Pandey of the GON's
Institute of Foreign Affairs, the government has consistently
employed a strategy of delaying progress and drawing out
dialogue for as long as possible, reasoning that a
combination of inclement weather, popular aversion to resumed
conflict, and overall inertia will keep the Maoists off the
battle field. Other sources, including politicians, NGO
activists, businessmen, and members of the security forces,
express a similar sang-froid that the Maoists, despite their
ever-bellicose rhetoric, are not contemplating a return to
fighting. According to this rather sanguine analysis,
tighter Indian control of the border and the perceived threat
posed by foreign, including US, security assistance have
forced the Maoist leadership to seek "a soft landing" back
into the political mainstream.



10. (C) Brig. Gen. Dilip Rayamajhi, Director of Military
Intelligence, told poloff that he shares some of this
optimism. The Maoists have to continue training and
"fundraising" to keep their cadres in the field employed, he
reasoned; their activism need not presage a return to the
battlefield. The RNA assesses that the Maoists have lost 50
percent of their cadres, he said, basing his analysis on an
informal estimate that about half of the Maoist cadres who
have returned home since the ceasefire will be unwilling to
take up arms again. (Note: Given Maoist "recruitment" and
conscription methods, we question this estimate. See
reporting in other channels that may belie his assumptions.
End note.) Even though the Maoists are continuing to train,
their resources are severely limited, he asserted, both
because of dwindling funds and because of stricter Indian
border controls. He pointed to reports that the Maoists had
begun using wooden bullets while training as evidence of
their straitened circumstances.

COMMENT


--------------------------





11. (C) The ceasefire, despite the higher number of
casualties and violations than its 2001 predecessor, has
given this battle-weary nation a welcome respite. This
respite should not, however, lull either the GON, the general
public, or the diplomatic community into a complacency that
overlooks the Maoists' obvious activism. Despite the break
in hostilities, the Maoists continue to keep large parts of
the country off limits to the civilian GON, thereby
undercutting its ability to provide services to disaffected
segments of the population. The GON's stalling tactics on
the dialogue front, aggravated by the June 4 change in
government, may begin to wear thin with the Maoists, who
likely are anxious to demonstrate some measure of progress
and success to their presumably restive cadres. The recent
uptick in the Maoists' anti-American rhetoric may reflect
some of that frustration. Unfortunately, the new Prime
Minister's protracted deliberations in choosing a Cabinet
will likely delay dialogue still more, further diminishing
immediate prospects for a negotatied settlement.



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