WORLD BANK REP TRIES TO ENGAGE MAOISTS

C O N F I D E N T I A L KATHMANDU 002551

SIPDIS

SIPDIS

MANILA FOR PSPELTZ

E.O. 12958: DECL: 09/19/2016
TAGS: EAID ECON PTER PGOV NP
SUBJECT: WORLD BANK REP TRIES TO ENGAGE MAOISTS

REF: 05 KATHMANDU 2723

Classified By: Ambassador James F. Moriarty. Reasons 1.4 (b/d).

SUMMARY
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1. (C) On September 15, World Bank (WB) Country
Representative Ken Ohashi told Emboff that he had requested a
meeting with the Maoists' 20-member economic advisory
committee, but was rebutted. Frustrated with the Government
of Nepal (GON),Ohashi suggested the Maoists should be
allowed to run a few ministries to see if they could perform
better than the GON. While Ohashi said a Maoist takeover was
"probable," when pushed, he acknowledged that a Maoist
takeover would be bad for Nepal. He explained that World
Bank President Wolfowitz planned to deliver a tough message
to Finance Minister Mahat during a scheduled September 17
meeting in Singapore. The World Bank rep mentioned that the
WB was close to approving USD 25 million in funding over
three years for Nepal's Poverty Alleviation Fund. He added
that the WB continued to withhold the USD 100 million Poverty
Reduction Strategy Credit (PRSC II) until the GON dealt with
loan defaulters and three other key issues (reftel).

MAOISTS HAVE ECONOMIC ADVISORY COMMITTEE; BUT SHORT ON POLICY
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2. (C) Long-time World Bank (WB) Country Representative Ken
Ohashi told Emboff on September 15 that he had recently met
with the top Maoist leadership and had learned that the
Maoists have a 20-member economic advisory committee. He
noted that the chair of the committee was a university
professor and that it included an employee of Nepal Rastra
Bank (Nepal's Central Bank). Ohashi said he had requested a
meeting with the advisory committee in the hopes of
influencing their economic policies, but was turned down. He
was told committee members were wary of being identified with
the Maoists at this point. He was not impressed by
Prachanda's and Bhattarai's command of economics during his
recent meetings with them. Ohashi told Emboff that when he
had asked the "top two leaders" which industries they would
like to nationalize, they had no answer. He surmised they
had not thought the matter through.

WORKING WITH MAOISTS NOT SO BAD
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3. (C) Noting that the Health Ministry was not functioning
well, Ohashi suggested it might be good to give the Maoists
control of a few ministries to see if they could get things
done better than the GON. (Note: The Health Ministry is run
by Deputy Prime Minister Amik Sherchan, who is a member of
the far-left People's Front Nepal (PFN). USAID noted that
Sherchan had already appointed many Maoists to the Health
Ministry and that Maoists had been observing hospital
operations at Teaching Hospital in Kathmandu a month ago.
End Note) The WB representative said that a Maoist takeover
was "probable" and that there was a growing group of people
in Kathmandu who thought the Maoists would take over and
therefore it was better to try and work with them. Ohashi
explained that European donors worried that too much support
for the GON might upset the Maoists and damage the peace
process. When pushed, however, he acknowledged that a Maoist
takeover would not be good for Nepal.

WOLFOWITZ TO DELIVER TOUGH MESSAGE TO FINANCE MINISTER
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4. (C) Ohashi mentioned that WB President Paul Wolfowitz
planned to meet Finance Minister Ram Sharan Mahat on
September 17 in Singapore on the sidelines of the WB and
International Monetary Fund's annual meeting. He stressed
that Wolfowitz would give Mahat a "tough message" about the
Government of Nepal's (GON) need to take action. Ohashi
noted that the GON had been unable to pass a procurement act,
which he said could seem like a weak GON indicator to
Wolfowitz. Ohashi expressed frustration and said the GON was
"myopic" and unable to get anything done. He explained that
the WB had withheld the USD 100 million PRSC II until the GON
took tough action against loan defaulters and resolved three
other outstanding issues. (reftel). (The PRSC II aims to
help the GON prioritize future policy reform areas and
provide funds for operations in the education, financial and
health sectors.)

INCREASED FUNDING FOR POVERTY ALLEVIATION FUND LIKELY
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5. (C) Ohashi mentioned that a proposal to provide USD 25
million over three years to the poverty alleviation fund for
Nepal would be sent to the Board soon and could be approved
as soon as October. The poverty alleviation fund aims to
improve access to income-generation activities and community
infrastructure to marginalized groups of society. He noted
this was a significant increase above the 15 million funded
over the past three years. Ohashi enthusiastically talked
about a USD 60 million project for higher education to
develop academic programs to attract fee paying students. He
noted the success of Kathmandu Engineering college, which had
been given funding ten years ago to develop its academic
programs and now had students seeking admission from India.
Ohashi said the WB felt that poverty alleviation was the more
immediate need, but that the higher education program could
become a reality in the coming year.

COMMENT
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6. (C) The DCM had previously told Ohashi that his all too
public meetings with top-level Maoists were perhaps
ill-advised and were helping to create an aura of legitimacy
for an organization cynically engaged in extortion,
kidnapping and murder. (The WB representative had been seen
eating lunch with Prachanda on at least two occasions at one
of Kathmandu's five-star hotels.) Ohashi, who has been the
WB Country Director for five years, is clearly frustrated
with the GON and some of his comments could have been made in
this vein. However, during the majority of the conversation
he seemed almost enthusiastic about the prospect of a Maoist
takeover and appeared to think it wise to try and influence
the Maoists now before they come into power. That others in
the international community might share Ohashi's sentiments
is a worrying trend. While we believe a Maoist takeover is a
possibility, post strongly believes that now is not the time
for the international community to write off the GON -- a
move that would make a Maoist victory much more likely.
MORIARTY