AN OPPORTUNITY THAT SHOULD NOT BE LOST: U.S.

UNCLAS SECTION 01 OF 02 KATHMANDU 000989

SIPDIS

SIPDIS

FOR THE DEPUTY SECRETARY FROM THE AMBASSADOR
ALSO FOR F

E.O. 12958: N/A
TAGS: PGOV PREL EAID UDEM NP
SUBJECT: AN OPPORTUNITY THAT SHOULD NOT BE LOST: U.S.
FOREIGN ASSISTANCE AND NEPAL'S PEACE PROCESS

REF: A. KATHMANDU 3217

B. KATHMANDU 720

Introduction
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1. (SBU) Mr. Deputy Secretary, during our recent consultation
in Washington, you requested that I send you my reflections
on how the new foreign assistance reform process was working
for Nepal. As we discussed, a historic window of opportunity
has opened in Nepal to ensure its transition to a peaceful,
democratic, and prosperous state. However, we have seen a
dramatic decline in needed resources at a time when the U.S.
should be capitalizing upon an opening to impact the course
of events in the country. A 63 percent cut in Development
Assistance (DA) and Economic Support Funds (ESF) in FY 2008
and a possible straight-lined budget in FY 2009 leave us with
almost no ability to support the fragile peace process or
influence the democratic transition, contrary to what I
believed to be the goal of the foreign assistance reform
process. Without our support, scenarios much more
detrimental to U.S. policy in the region, such as a Maoist
takeover or a return to conflict, threaten to unfold. While
Nepal cannot compete with the top U.S. priorities in the
region, Afghanistan and Pakistan, a relatively minuscule
amount of U.S. resources would have a substantial impact.

A Moment of Opportunity
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2. (SBU) Following the signing of the Comprehensive Peace
Agreement (CPA) in November 2006, Nepal is on the brink of
ending a decade-long Maoist insurgency and embarking on a
path to stability and democracy. In the next two to three
years, we must use our foreign assistance to ensure a
peaceful transition, supporting Nepal to accomplish essential
transition tasks including: ensuring a credible Constituent
Assembly election; re-establishing law and order; addressing
marginalized group grievances; drafting a new constitution;
and reintegrating and rehabilitating conflict victims.
Nepalis look to India and the United States as their two key
bilateral partners.

But Other Scenarios Loom
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3. (SBU) Without our support, other scenarios, much more
detrimental to U.S. policy, threaten to unfold. Over the
past months, Maoist violence and intimidation have continued
and violent riots have gripped the Terai, the country's
southern border with India. A Maoist-dominated and/or
fractured Nepal would have a destabilizing impact on India
and China, two countries vital to U.S. national interests.
Maoist leaders have stated in the past that, once in power,
they would collectivize agriculture, re-educate class enemies
and export their revolution, with the potential to embolden
India's own Maoist movement and create massive refugee flows.

FY 2008-2009 Assistance Levels Handicap U.S. Efforts
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4. (SBU) The level and mix of funding currently allotted for
Nepal for FY 2008 (roughly 26 million) and a straight-line
budget for 2009 do not reflect U.S. priorities and leave us
with almost no ability to support the fragile peace process
or influence the democratic transition. I believed that
these were the goals of the foreign assistance reform
process. Nepal faces a 63 percent cut in DA and ESF
resources, funding sources central for supporting democracy
and governance and peace and security goals. We received
only USD 4 million in DA and no ESF for non-health programs.
As a result, USAID was forced to close-out successful
anti-corruption, rural infrastructure, and
trafficking-in-persons programs. The four remaining USAID
programs, including programs that support peace and
reconciliation and political processes, were significantly
scaled back. No new funds are available to address key peace

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and democratic transition needs, such as security sector
reform, critical human rights monitoring programs, and
assistance for the constitutional drafting process.

Health Programs Alone are Insufficient
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5. (SBU) Furthermore, if the FY 2009 budget process reflects
current earmark realities, approximately 70 percent of
Nepal's budget will be Child Survival and Health (CSH) funds.
We have a very successful health program that has
significantly reduced child and maternal mortality, and
believe that its role in assisting the government to provide
services to citizens is an important part of the peace
process. Instead of discussion of re-programming essential
health funding, we must ensure that Nepal also receives
adequate DA, ESF, and INCLE funds to support post-conflict
priorities.

The F Process Has Failed Nepal
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6. (SBU) If the goal of the new Foreign Assistance Reform
process is to better align assistance with foreign policy
priorities and improve interagency coordination, the FY
2008-2009 budget for Nepal is an example of the new system's
serious flaws. Nepal has seen a dramatic decline in
resources at a time when the U.S. should be capitalizing upon
an opportunity to impact the course of events in the country.
The extensive discussion and communication my country team
has had over the past months laying out our joint interagency
priorities for Nepal in the FY09 Mission Strategic Plan and
in other reporting (reftel) has not resulted in a budget that
supports Nepal's transition. The detailed operational
planning process and number-crunching exercise blurred the
overall goal of setting strategic priorities, and the reality
of earmarks resulted in an overall budget that does not
ensure that U.S. assistance can make a real difference. No
flexibility is built into the system to respond to unfolding
realities in Nepal's dynamic post-conflict environment.

Nepal Could Be Test Case for Foreign Aid Success
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7. (SBU) Recent statements about the future of the foreign
assistance reform indicate that resources, particularly DA,
ESF and CSH funds, will be targeted toward countries where
instability, poverty, and poor government capacity impede
human and national progress. As a rebuilding state, Nepal
fits squarely into this country category, yet the level of FY
2007, 2008 and possibly 2009 resources does not reflect the
new reform priorities. It may be that Nepal is penalized by
competing priorities with neighbors such as Afghanistan and
Pakistan, but in contrast to these states, only a small
amount of additional resources in Nepal are needed to make a
significant difference in the political outcome. The time to
make these budgetary changes is now, before Nepal becomes a
failed state.
MORIARTY