Nepal’s missing peace money

When the dust began to settle after the Jana Andolan (People's Movement) of April 2006, Nepalis expected that foreign assistance would come pouring in, making up for lost time in development – time that had been taken up addressing the Maoist 'people's war' and King Gyanendra's takeover. This expectation of an aid bonanza was well founded, since none of the 33 'development partners' – donor countries and organisations – listed in the roster of the Ministry of Finance had spared any rhetoric in committing to support Nepal's transition into a post-conflict democracy. But 16 months on and fast closing in on the crucial Constituent Assembly polls, slated for 22 November, the expected flood has not even amounted to a trickle.

After devoting almost a year in ushering the Communist Party of Nepal (Maoist) into the government, in January 2007 the government created the Nepal Peace Trust Fund (NPTF), with an eye to mobilising funds to strengthen peace and restart development. The money was to be used for the rehabilitation of displaced people and Maoist fighters, rebuild infrastructure destroyed by the rebels, hold the Constituent Assembly elections, support law and order, and maintain the cantonments in which former Maoist fighters are sequestered. The NPTF thus comes closest to a fund created specifically for Nepal to access the 'peace and development dividend', a largesse that the population has a right to expect for having created such a mass upsurge for pluralism and tranquillity. But as of late August, the internationals had put a meagre NPR 909 million into the till, or roughly USD 14 million.

Of the 20 bilateral donor countries listed in the Finance Ministry's directory, only five – Britain (USD 4.8 million), Finland (USD 4 million), Norway (USD 2 million), Denmark (USD 3.6 million) and Switzerland (USD 1.5 million) – have made contributions to the NPTF. This could indicate one of several things: an unwillingness to trust the government of Nepal to disburse funds in the continuing political instability that has followed the People's Movement; a lack of appreciation of the achievement that was the People's Movement; or the inability of a government caught in incessant turbulence to raise the required money. Indeed, for the two to three billion dollars that the Nepali people had a right to expect, the fact that the Kathmandu government could not be trusted to raise even USD 15 million is pitiable, indicating the donors' lack of seriousness and generosity, and the government's inability.

The men at the ministry maintain that they have done everything possible to raise money for peace and reconstruction. Alongside the complex peace negotiations, officials in Kathmandu have put together a three-year plan for reconstruction and development, done the math, and come up with an estimate of funds needed to kick-start growth after a decade of diversion. The National Planning Commission's tab for a complete overhaul is placed at USD 2.5 billion. Yet donor contributions since April 2006 amount to just slightly more than what had come during the period of direct royal rule, at a time when development assistance had been halted by many European donors.

Kindly aid
Arriving at firm figures on international aid, or monitoring trends in contributions, is notoriously tricky. And, whether in wartime or peacetime, Nepal is no exception. Japan, China, India and the United States have long preferred to offer aid in kind without intermediary multilateral agencies or international NGOs, through development aid that tends to be 'tied' – attached to donor-country material and implementing agencies. Some of this bilateral support could be seen as part of the peace-and-development dividend, but even this does not amount to much.

In the past year, Japan has gifted the Election Commission 44,000 fibreglass ballot boxes (at a total cost of USD 1.2 million), and has written off some debt to free up government cash for the peace process. China has also promised in-kind support, valued at around USD 1.3 million, for the upcoming elections, and is "positively" considering Nepal's request for USD 200 million in soft credit.

It is India that has made the largest contribution over the past year and a half, and much of this can be ascribed to its immediate interest in neighbourhood stability. India's initial economic package, announced in June 2006, included a INR 1 billion (USD 24.8 million) grant as budget support, a USD 100 million soft-credit line, an increase in its 'Aid to Nepal' outlay from USD 1.6 million to a whopping USD 37.2 million. India also wrote off military hardware-related dues, which had piled up during the insurgency, and has offered a blank cheque for the elections. "Whatever assistance is needed, within our means, will be given to make the Constituent Assembly election happen," said Indian Ambassador to Nepal Shiv Shanker Mukherjee, repeating Manmohan Singh's promise to Girija Prasad Koirala this past March. Even the United Nations received a cut of India's largesse for peace; its monitoring mission to Nepal has received 82 vehicles.

Despite the significant aid provided by both New Delhi and Washington, DC since April 2006, neither government has put anything into the NPTF. The United States, which continued to support various development projects throughout Nepal's turbulent decade (including during the period of royal rule), gave USD 50 million between October 2005 and September 2006. One stipulated component of the aid, which has also included USD 56 million thus far in 2007, was "conflict mitigation and peace building". Washington, DC prefers to fund peace initiatives through its overseas development agency, USAID, which in turn works through intermediary US firms. Since this type of aid does not flow through Nepal's government, however, it is difficult to ascertain exactly how much of the assistance actually arrives, and what percentage is siphoned off prematurely.

While New Delhi's assistance is also similarly kept outside the budgetary oversight, Indian embassy officials in Kathmandu take pride in stating that "cent percent" of the assistance provided goes to the recipients, with administrative costs not included in the aid package. They also take satisfaction in the fact that Indian grants and loans have been marked up exponentially in some instances, which is in line with India's rise as a donor to Third World countries in general. The flaw, however, is the fact that donor spending is not institutionalised, and much thus depends on individual decision-making by the embassy diplomats. Despite being the largest donor in Nepal, the fact that the Indian disbursement is entirely out of the hand of the Kathmandu government does not help the latter to plan and prioritise, especially in a time of transition when there is a need for a coordinated approach.

On average, donors have provided around 25 percent of Nepal's annual government budget. The last year has not seen any spike in the proportion of foreign aid in the budget, and the only thing to show an additional commitment is the roughly USD 14 million that has gone into the NPTF. Incidentally, this 'peace money' has already been allocated, with the principal beneficiary being the Election Commission. The commissioners have drawn up a budget of about USD 33 million for the Constituent Assembly polls, and the government has allocated USD 24.4 million from its current budget for the Commission. It received another USD 1.9 million from the NPTF kitty for voter education and the training of over 150,000 election officials.

The poor response to the NPTF is also reflected in the inability of the donors to pick up the tab as per the Finance Ministry's request, made at a conference in London this past March. The government asked for aid, including loans, to the tune of USD 721 million. Other than the UK's Department for International Development (DFID), which has raised assistance, none of the others have done anything significant since. Asked whether the collection in the NPTF thus far was satisfactory, Finance Minister Ram Sharan Mahat admits that it is "not as much as was expected". Unfortunately, just as the elections process is picking up steam, Nepalis are finding out that, when the conversation turns to international funding, talk is frustratingly cheap.

Who failed Nepal?
Explanations abound for the scarcity of the country's 'peace money'. Donors talk about the lack of 'credible' proposals from the government, and allege that Mahat did not do a good enough job of requesting funding in the first place. Despite its achievements in peacemaking, it is impossible to ignore the fact that Girija Prasad Koirala's interim government has thus far been unable to garner the aid it needs for peace and development. It is certain that a government concentrating on making peace with the Maoists, even while being hit with a series of internal revolts from disfranchised communities, has not done a good job of focusing on raising funds, or on being able to create mechanisms to digest what is disbursed. Many multilaterals and bilaterals are currently in watch-and-wait mode due to the political instability, and are anxious to see how the Constituent Assembly elections shape up. At the same time, now is when the government needs the funds the most, in order to show its ability to deliver to a restive populace.

International funders also point to Nepal's inability to implement programmes. But here again, this does not show enough sensitivity regarding the complex transition underway. Donors are now said to be putting together an Immediate Action Plan for the government, in consultation with the Ministry of Finance. As of mid-August, however, the National Planning Commission (NPC), which acts as a governmental think tank, had yet to be brought into the loop on this.

By and large, Western donors tend to denigrate the Nepali political process, and do not give enough credit to the political parties that the Maoist insurgency is now over. Furthermore, what Nepal's donors will never admit is that they are as fractured and cantankerous as are the political parties, and therefore unable to agree on a common approach to aiding the Nepali process. The London meeting, organised by DFID, was unsuccessful in cobbling together the varying positions among donors; but DFID has not stopped trying to get donors to agree on a common peace-and-development framework. Back when King Gyanendra conducted his putsch, the debate among donors was between those who cancelled or reduced aid because they did not want to support an autocratic regime, and those who felt that the Nepali people should not suffer because of the royal action. Today, the agencies are split between those who think Nepal must be supported during the transition (because of the disastrous consequences of a failed peace process), and the conservatives who want everything to be stable before they risk their money.

Many funders had hoped for the establishment of local all-party peace councils at the district and village levels, which would also have engaged in development as a way of taking aid money to the people. This has not happened. Others wanted political representation in the village development committees (VDCs). But it was only in late August 2007 that the government got around to agreeing on the formula by which local governments would be activated with the involvement of the political parties, including the Maoists. All of this has meant that the peace-and-development dividend, however it is defined, has yet to begin to trickle into the villages, where the people need to feel substantial improvement in living standards in order to sustain any peace-and-democratisation process.

International assistance has also been affected by stark differences in positions held by the government and the funders regarding the approach to be taken. Take, for instance, the debate on reconstruction. Kathmandu wants rehabilitation and reconstruction to include three aspects: repairing damage, maintaining infrastructure that has deteriorated due to non-use, and re-starting projects that were shelved during the conflict. The tab for all this is pegged by the NPC at around USD 92 million. But most donors think that mere repairs are sufficient for now, which is why government proposals have failed the 'credibility test' one after another.

"If they want to see infrastructures damaged as they were in Afghanistan and then help to rebuild them, then they have come to the wrong place," says one irritated senior government official. "We want to use this opportunity to think beyond replacing four-room VDC buildings that were damaged with similar four-room structures." Indeed, many foreign assistance agencies tend to take Nepal to be like any other post-conflict country, where the state has failed and the government is incapable of governing. While the law-and-order situation in Nepal does hint at the absence of the state, the fact is that the entire governmental administrative and development machinery remains intact. The fact that the machinery has not been activated can be blamed on the political confusion on the ground, and the donors' unwillingness to trust the government functionaries.

The very fact of the Maoists joining the government, which should have been seen as a triumph of peace-making, has made many donors worried. And it is a fact that indecorous practice by the Maoists in the interim parliament, as well as certain actions by their ministers (they have five significant berths in Prime Minister Koirala's cabinet) have made the multilaterals back off from the large aid packages they were preparing. Earlier this year, for instance, the Asian Development Bank (ADB) was finalising a USD 300 million Rural Infrastructure Rehabilitation Reconstruction Sector Programme. The enthusiasm of ADB officials sagged in mid-May, however, after the government's decision to 'review' the Melamchi water-supply project, which the ADB has been trying to help build since 1998.

While the ADB was burnt, nothing of the sort has happened to the European Commission, which too has evolved as a significant donor presence in Nepal over the last decade. Yet for all the officious pronouncements it has made on the Nepali peace process, the Commission has yet to offer any aid to match its verbal enthusiasm. One reason for the standstill could be differences on the approach to Nepali peace and development among the EC member states. Following the February 2005 coup in Nepal, many European donors had decided not to continue aid for development activities, stating that democracy was more important as a trigger for overall development than individual projects to support livelihoods, economic growth or rural energy. Now, it seems, the Commission has the excuse of continuing instability not to support the government during the transitional phase.  

One fund too many?
In March, two months after the creation of the NPTF, the United Nations set up a fund of its own, called the United Nations Peace Fund for Nepal (UNPF). The new fund is almost an exact copy of the NPTF in terms of its mandate, but this money is to be spent only by UN organisations, and is overseen by a secretariat within the now-omnipresent United Nations Mission in Nepal (UNMIN). The fund also has a window for use by civil society and other organisations, but their projects would have to come through relevant UN agencies. (UNMIN, whose task is to monitor the peace process and the elections, is costing the international community USD 89 million over its first year in Nepal, which ends in January.)

One reason for the UN fund, according to UNMIN's Joerg Frieden, is to catch hold of money parked in multilateral funds, which would not otherwise have come to Nepal. Also at issue is the fact that some donors do not want to give their money directly to the Kathmandu government at this point, but that such funds could be attracted with the United Nations sticker.

While the segregation of the two funds may appear clear – the NPTF funds national programmes designed by the government, while the UNPF funds the UN's activities – the latter, too, has failed miserably at meeting its fundraising target. In late July, the UNPF could only boast about USD 3.3 million, with another USD 1 million in the process of being finalised. In any case, the two funds together have, till now, brought in less than USD 20 million.

Just as interesting is the manner in which the Nepali authorities have been sidelined from having a say on how the UN spends the UNPF monies. The National Planning Commission was only 'informed' of the UNPF's creation after the decision to do so had already been taken. The presence of a single peace fund could have been an opportunity to test the Nepali government in its ability to lead, by even allowing it the opportunity to fund programmes of international partners when needed. Though technically the finance minister chairs the UNPF's three-member steering committee (the other two are high-level UN officials in Nepal), he will have little independent control over the fund. For all the finger pointing regarding the lack of transparency in Kathmandu's fund disbursement, the UNPF itself appears to be marked by a lack of accountability. (The NPTF is a part of the government budget, and is thus accountable to Parliament). Perhaps most importantly, the parallel fund, though promoted as 'complementary', marks a U-turn in international rhetoric since 2004, when donors started talking about putting the government 'in the driver's seat' for managing development assistance.

Due dividends
The fact is that the 'donors' have become ubiquitous in Nepal since the deep Panchayat years of the 1980s, and the malaise of dependency on foreign largesse has sapped indigenous agency from the village level to the Singha Durbar government secretariat. In the best of worlds, the Nepali government and people would be able to take energy from the People's Movement and start a self-motivated and -supported development process. But that would be asking for too much too soon. The fact is that the people of Nepal require a couple of billion dollars or more to rehabilitate the tortured human spirit and the destroyed infrastructure that have resulted from ten years of internal war. Unfortunately, the hard cash has not come in.

Looking to the future, one thing that has changed over the last decade is the Nepali villager having found a voice. As development resumes, it will soon become clear that the Nepali public has converted from passive recipients of development assistance to those who know how to challenge and demand. But even so, they will require funds, and it is the international community that will have to provide the bulk of the support. When the time comes, following the Constituent Assembly elections, the Nepali government and the international community would do well to collaborate on a tightly-run three-year project of national rehabilitation and reconstruction, which would raise and spend the projected requirement of up to USD 3 billion. Such a project could be loosely linked to the United Nations, but be accountable to the government of the day, which should be in a position to take full credit for the good job that is done.

Having achieved catharsis through a dozen years of instability, an experienced and more mature Nepali polity will be able to ensure 'inclusive democracy' and 'participatory development' in a way that takes the cliché out of those terms. A people who have managed a mass movement for peace and democracy, forced a rebel force to join the political mainstream, and vanquished an autocrat king, is deserving of the peace-and-development dividend. A people who have thereafter managed a Constituent Assembly election, under the most adverse of conditions, will be even more deserving.

~ Binod Bhattarai is director of the Centre for Investigative Journalism in Kathmandu.