SCENESETTER FOR CODEL MCCAIN DECEMBER 2008 VISIT

UNCLAS SECTION 01 OF 03 NEW DELHI 003016

SIPDIS

SENATOR MCCAIN FROM CDA STEVEN WHITE; STATE FOR SCA/INS, H

E.O. 12958: N/A
TAGS: BH CH IN KNNP PGOV PREF PREL
SUBJECT: SCENESETTER FOR CODEL MCCAIN DECEMBER 2008 VISIT
TO BHUTAN


1. (U) Senators McCain, Lieberman, and Graham: On behalf of
Ambassador Mulford and the Country Team, I warmly welcome
you to Bhutan. Your visit comes at the end of a historic
year for the small Himalayan nation, marked by the
successful transition to a constitutional monarchy and the
coronation of the Fifth King (Druk Gyalpo) on November 6.
Bhutan, however, cannot rest on its laurels after this
triumph since it faces several challenges in the coming
years, including the impact of modernization on its unique
culture, balancing relations with its behemoth and rising
neighbors to the north and south, and resolving
disagreements between its majority population and its
ethnic Nepali minority. Your visit will further
demonstrate U.S. support of Bhutan as it confronts these
issues and continues to develop as a prosperous and stable
democracy.

FLEDGLING DEMOCRACY IN THE LAND OF THE THUNDER DRAGON
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2.(SBU) Former King Jigme Singye Wangchuck launched
Bhutan's transition to a constitutional monarchy through
over two decades of democratic reforms. In a strong showing
of commitment to democratic values, Bhutan's voters went to
the polls in large numbers (79.4 percent turnout) on March
24 and elected 47 members to the National Assembly. The
Druk Phuensum Tshogpa (DPT) party secured an overwhelming
victory of the People's Democratic Party (PDP) in the
elections by winning 45 of the assembly's 47 seats. In an
important symbolic step toward incorporating minorities
into the mainstream, nine Nepali-speaking candidates were
elected to the National Assembly in 2008. In July, the
assembly formally adopted the constitution, marking the
final step in Bhutan's historic transformation from an
absolute to a constitutional monarchy.


3. (SBU) Bhutan is a least-developed country. History has
shown that even wealthier nations face a difficult task
inculcating democratic norms and establishing deep
democratic roots. Democracy is very new to the Bhutanese
and will take time to establish its roots in this isolated
land. Most of the Bhutanese were satisfied with their
absolute monarchy and had to be convinced by the former
King of the need to make the transition. The U.S. Agency
for International Development possesses expertise in numerous
programs which support democracy and good governance. As
Bhutan continues to democratize and decentralize power,
some of these programs might be useful in providing
technical assistance.

FOREIGN AFFAIRS: BIG BROTHER IS A LITTLE SMALLER
--------------


4. (SBU) India has historically "supervised" Bhutan's
foreign policy as "heir" to the 1910 treaty signed between
the British Raj and Bhutanese king, which provided for
British noninterference in Bhutan's internal affairs in
exchange for Bhutan's acceptance of British advice on its
external relations. In 1949, independent India and Bhutan
signed
the Treaty of Peace and Friendship, which mirrored the
British treaty by giving India the right to "guide" Bhutan
in its foreign policy. In 2007, the two neighbors signed a
new treaty removing the clause on the right to "guide" and
allowing Bhutan to purchase military equipment from other
nations. Nevertheless, India still retains enormous
influence in Thimphu. Indian Prime Minister Manmohan Singh
visited Thimphu in May 2008 and addressed the newly-elected
parliament. Bhutanese Prime Minister Thinley returned the
gesture when he made his first official trip abroad as
prime minister to New Delhi in July 2008. Further
illustrating the strong bilateral ties, India sent a
high-powered delegation to the lavish November coronation
ceremony, that included Indian President Pratibha Patil,
Congress Party president Sonia Gandhi, and Congress Party
heirs Rahul Gandhi and Priyanka Gandhi.


5. (SBU) Bhutan became a member of the United Nations in
1971 but has a very light international footprint, with
formal diplomatic relations with less than two dozen
nations and embassies in only six countries. Bhutan does
not have diplomatic relations with the United States, China
or any other P-5 member. Bhutan is a member of the South
Asian Association for Regional Cooperation. The seven

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European nations with which Bhutan have diplomatic
relations form the "Friends of Bhutan" group, together with
Japan. These nations contribute generously to Bhutanese
development and social programs. India is by far the
biggest donor to Bhutan; as part of the Bhutan's tenth
five-year plan, India donated USD 826 million to the tiny
nation. The Bhutanese government has engaged in 17 rounds
of high-level talks with Chinese officials regarding a
border dispute over three Chinese-built roads, which
allegedly encroach on Bhutanese territory.


6. (SBU) Bhutan and Nepal established diplomatic relations
in 1983 and have held discussions in the past about a
solution to 107,000 ethnic Nepali refugees who reside in
UNHCR camps in Nepal. While most of the refugees claim
Bhutanese citizenship, Bhutan alleges they are
non-nationals or "voluntary immigrants" who forfeited their
citizenship rights. Several insurgent groups have arisen
from some of the refugee camps. Bhutan has blamed these
groups for a series of bombings targeting the country in the
lead-up to the 2008 parliamentary elections. Top Bhutanese
officials told Ambassador Mulford their concerns that future
instability in Nepal or Nepali Prime Minister Prachanda's
reversion to old Maoist techniques could adversely affect
Bhutan's security.

READY FOR PRAGMATIC, NOT FORMAL DIPLOMATIC RELATIONS, WITH
THE UNITED STATES
--------------


7. (SBU) At this time, Bhutan does not seek formal
diplomatic relations with the United States. Bhutan's
policy is to move carefully in expanding formal diplomatic
relations with the five nations that hold permanent seats
on the UN Security Council (the P-5),because of what former
King
Jigme Singye Wangchuck calls "demarcation" problems of
Bhutan's rugged border with China. The Bhutanese
government is committed to achieving progress on this
matter with the Chinese government over the next three
years and does not desire to establish formal diplomatic
relations with the P-5 nations during this period, since
moves in this direction could be perceived as provocative
by China. In a private meeting with Ambassador Mulford in
November, the former King stressed his nation's willingness
to expand informal contacts with the United States such as
through USAID projects and strengthening consular relations
in whatever manner the USG thinks best.


8. (U) The US Embassy in New Delhi has consular
responsibilities for Bhutan. The United States does not
give foreign assistance to Bhutan. However, Bhutan
participates in a regional program for South Asia sponsored
by USAID that helps countries develop their power
infrastructure. A few Bhutanese military officers have
attended courses at the Asia-Pacific Center for Security
Studies. The USG also brings several Bhutanese to the
United States through our International Visitors program
and through the U.S.-India Fulbright program. We are also
developing a specific program for the placement of an
American Fulbright scholar in Bhutan.

REFUGEE ISSUE: PROGRESS AND LACK THEREOF
--------------


9. (SBU) The USG has agreed to resettle at least 60,000
Bhutanese refugees of Nepali descent. Our resettlement
program is one of the most positive aspects of our
bilateral relationship, and the Bhutanese government--most
recently the former King to Ambassador Mulford--repeatedly
expresses its gratitude to us for helping in this matter.
Bhutan, however, has not made progress, in repatriating
those refugees who want to return to Bhutan. We have urged
both Bhutan and Nepal to renew discussions regarding the
facilitation of the voluntary return of eligible refugees
to Bhutan.

NOT JUST ABOUT GROSS NATIONAL HAPPINESS ANYMORE
--------------


10. (SBU) Bhutan's economy is one of the worlds' smallest
and least developed. It's based on hydroelectricity,
tourism, agriculture, and forestry. Gross domestic product
(GDP) for 2007, in purchasing power parity terms, is $3.359

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billion USD. The Asian Development Bank suggests that GDP
growth in Bhutan was as high as 14.4 percent in fiscal year
2007/08, but predicts it will slow to 7.2 percent in fiscal
year 2008/09. The high rate in 2007/08 was in large part
due to the completion of the Tala hydroelectric project.
The Tala project provides Bhutan with its number one
export, hydroelectric power, which it supplies to India.
The Government of Bhutan plans to develop three more
hydroelectric projects, which will help India meet its
growing power demand. Bhutan's economy faces challenges
of unemployment (estimated at 10 to 11 percent) and poverty
(23 percent). Rugged terrain remains an obstacle to
developing roads and other infrastructure.


11. (U) Bhutan's economy has recently prospered due to
subregional economic cooperation efforts. In May 2003,
Bhutan renewed its Bilateral Free Trade Agreement with
Bangladesh, which is now Bhutan's second largest trade
partner after India. Bhutan has applied for membership in
the World Trade Organization and is developing clear legal
and regulatory systems to promote business development.
The country has plans to stimulate several of its business
sectors, particularly IT and tourism. The government has
also welcomed foreign assistance and guidance to address
rising corruption related to increased revenues from the
Tala project.


12. (U) Observers believe newly-crowned King Jigme Keshar
Namgyal Wangchuck will be a stronger proponent for economic
development and growth than his father, who coined the
expression Gross National Happiness (GNH) in 1971 when
Bhutan was criticized for slow economic growth. The new
King has emphasized in his public speeches and interviews
the necessity for strong economic growth to build a vibrant
democracy, demonstrating a clear shift in focus from GNH to
GDP.


WHITE