US embassy cable - 02KATHMANDU2066

UNCLAS SECTION 01 OF 02 KATHMANDU 002066 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON, ETRD, PGOV, Government of Nepal (GON) 
SUBJECT: NEPAL: NEW FINANCE MINISTER OUTLINES PRIORITIES 
 
 
1. (U) This cable contains business-sensitive information and 
should be handled accordingly. 
 
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Summary 
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2. (SBU) Summary. On October 25, the Ambassador and USAID 
Director met with Nepal's newly appointed Finance Minister. 
The Finance Minister articulated the immediate priorities of 
his Ministry and highlighted the broader mandate of the 
interim government to deliver services and hold elections. He 
expressed eager support for USAID's first Conflict Mitigation 
Program project, the completion of a rural road in the western 
hills through quick-dispersing payments for local labor. The 
Finance Minister also requested assistance from the USG on 
providing breathing space to Nepal's textile exporters leading 
up to the elimination of the Multi-Fiber Agreement. End 
Summary. 
 
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Establishing Priorities 
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3. (U) the Ambassador, accompanied by USAID Director, Joanne 
Hale and ECONOFF, met with Badri Prasad Shrestha, the newly 
appointed Finance Minster, on October 25. The Finance Minister 
explained that the primary goals of the interim cabinet are to 
deliver effective government services, establish peace, and 
hold elections. The Finance Minister explained the need to 
support these efforts with an appropriate economic package 
that efficiently delivers such services as sanitation, medical 
care, security, and development. 
 
4. (SBU) The Finance Minister is developing a reform package 
to present to the cabinet and the people that will address 
three priorities: fiscal balance, anti-corruption, and 
privatization and administrative reform. As described, many of 
the specifics of these priorities mutually support one 
another. The package should meet his goal of accelerated 
implementation and meet conditions set by the Asian 
Development Bank, the World Bank, and the International 
Monetary Fund. He plans to unveil this package along with his 
assessment of the economy. 
 
5. (SBU) The Finance Minister identified a few specific items 
of action: strengthening the Nepal Rastra Bank (central bank) 
to provide it greater autonomy, and the immediate shedding of 
half a dozen public enterprises through privatization or 
closure of non-performing enterprises. While he sees these 
items as important components of his priorities, no further 
details were provided. 
 
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Security and Donor Assistance 
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6. (SBU) The Ambassador welcomed the priorities of the Finance 
Minister and offered the assistance of the USG to help 
accomplish them. As a first step, the Ambassador offered a 
briefing on the security assistance to be provided by the USG 
in order to coordinate it with the budget requests made by the 
Nepali security forces. The Finance Minister expressed 
appreciation for the offer and explained that U.S. assistance, 
by meeting a significant portion of Nepal's urgent security 
needs, would help to free up funding for the development 
portions of the budget--which he termed as negligible this 
year. 
 
7. (U) The USAID Director took the opportunity to press the 
Finance Minister for the quick approval of the first project 
under USAID's Conflict Mitigation Program, the Gulmi Road--a 
15.7 km road project linking 21 Village Development Committees 
in the northern reaches of Gulmi, from Indergauda to Chhaldi 
River, in Nepal's mid-Western hills. The effort completes a 
project initiated by the EU and represents the first USAID 
effort with funding from DFID, the British development agency. 
The Finance Minister was encouraged by the low-technology/high- 
employment approach, which will employ 600 people, roughly 20 
percent of whom will be women. He hoped that other donors 
could duplicate this effort across the country. He instructed 
Joint Secretary for Foreign Aid, Madhiv Ghimire, to process 
the letter of implementation as soon as possible to facilitate 
this effort. 
 
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Commerce and Trade 
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8. (SBU) The Ambassador raised several commercial issues with 
the Finance Minister regarding some of the difficulties U.S. 
businesses are experiencing in Nepal. He highlighted the 
difficulties of the private Bhote Koshi/Panda Energy project 
regarding duty waivers for replacement parts and the extra- 
contractual deductions taken on payments for energy delivered. 
He also raised the delay in processing the duty assessment of 
the Lotus Energy REVA electric cars (product of a Indian- 
American joint venture in Hyderabad) that have been held in 
customs for eight months. Finally, the Ambassador expressed 
the need to continue infrastructure investment to meet the 
needs of a growing population, tying it to the timely 
completion of the rural telephone project, in which STM 
Wireless of California is the major supplier. The requests of 
the Ambassador were welcomed by the Finance Minister, who 
stated that he would look into them as part of fostering 
cooperation between the U.S. and Nepal. 
 
9. (SBU) In a similar vein, the Finance Minister requested 
assistance from the U.S. in providing breathing space through 
duty free access (similar to AGOA) for textile products until 
expiration of the Multi-Fiber Agreement in 2005. The breathing 
space will allow the industry to restructure in order to be 
more competitive. The Finance Minister discussed the creation 
of a lobby in Washington to argue the merits of Nepal's case. 
One of the arguments he offered includes the side-benefits of 
women's empowerment, education opportunities, and family 
planning activities that take place in the garment industry, 
due to the concentration there of women. 
MALINOWSKI