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 -------------- ¶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 -------------- ¶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 -------------- ¶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 -------------- -------------- ¶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 KATHMANDU 00000989 002 OF 002 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 -------------- ¶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 -------------- ¶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 -------------- --- ¶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