The Maoist insistence that aid agencies stop working with the local government and sign agreements with them instead has forced some to suspend basic health and education programs in rural areas.

Last month, the Dutch aid agency, SNV, Britain's DfID, and Germany's GTZ suspended their programs in Karnali Zone and Kailali district. More than 55,000 people are directly affected.

Now, Swiss Development Cooperation (SDC) is considering terminating work in areas where rebels are insisting that the agency formally recognise the Maoist local administration. SDC works in 54 of Nepal's 75 districts with basic health, forestry and education and many of its projects are regarded as models for cost-effectiveness, sustainability and local participation.

"Wherever we go in these places, someone shows up and asks us to recognise their administration," says Joerg Frieden, SDC's Kathmandu-based director who has just returned from a fieldtrip himself. "How can we have double standards by recognising both the government and the rebel administration?" This is exactly the same question other donors are asking.

This is the first time local Maoist cadre demanded that aid agencies work through them. Earlier, it used to be threats against Nepali staff and extortion. On 10 May, a consortium of donors including SNV, GTZ and DfID put out a statement through the media saying that their projects in Nepalganj and Dhangadi had been threatened, their offices bombed and staff intimidated. They said they were closing activities in Karnali's Mugu, Humla, Jumla and Dolpa districts where they had supported the Rural Community Infrastructure program. GTZ and DfID also suspended their support for the Freed Kamaiya Food Security program.

The situation has worsened in the past month, according to one European aid worker. Now it is not just the NGOs who are being threatened-even the representatives of the donor agencies are under increasing pressure.

Asked if they are not playing into the Maoist's hands by stopping their activities, another donor official in Kathmandu admitted it would be Nepalis most in need who were going to suffer, but staff security could not be jeopardised. "Also, recognition of the local Maoist government is just not acceptable until the rebels give up violence," said the official.

The Maoists, for their part, are hoping that by forcing out what little development is still going on in the rural areas, they will further discredit the government that is already non-existent in large parts of the country. But it is clear that the biggest losers will, as always, be Nepal's increasingly desperate villagers.