We are all aware that there are at least two wars being fought in Nepal: one pits the Maoist rebels against the government, the second is between the main political parties and the king.


In fact, Nepal is fighting a third war: a war against poor governance, exclusionary and feudal social structures, and ultimately poverty itself. It is being fought mostly by less-than-fearsome-looking technocratic reform leaders and an enlightened breed of politicians who have transcended the day-to-day business of politics. On the flanks are change advocates all across civil society.


Some of the local level political leaders have been the important 'field commanders' of reforms. Unlike in the other two wars, no bullets are being fired and no mass demonstrations have been held. Yet, the consequence of defeat is no less serious than in the other two wars. Together, they could lead to nothing short of a failed state.

Despite the many positive changes that Nepal has seen since the advent of multi-party democracy in 1990 and the first wave of economic liberalisation measures in the early-1990s, stark and worsening inequities persist, not only in terms of incomes, but also of the fundamental ability of the Nepali citizen to participate in social and political decision-making processes. The Maoist insurgency is a particularly acute expression of the disillusionment over these adverse developments. After the Maoists escalated violence in November 2001, the economy went into a tailspin and the government's fiscal position weakened sharply. When this crisis did not seem to prompt the political leadership into serious corrective action, the frustration of many turned into utter alarm that the nation was heading for catastrophe.

It is from this profound sense of crisis that a new wave of reforms was born. The deepening political turmoil contributed to this crisis, but it also produced the space and creative stress for technocrats to begin implementing some important reforms. Nepal's reform leaders already knew that unless decent public services begin to reach the poor masses quickly and their trust in the state is restored, Nepal would not have the foundation for either sustainable peace or meaningful economic development. Now was the time to run with the reforms. Serious reform efforts have thus emerged in a range of areas:

Public expenditure management: Nepal's budget system had been plagued by waste, corruption and political interference. In 2002-03, Nepal introduced a 'medium-term expenditure framework.' Simply put, the Government is trying to impose a realistic spending ceiling on itself, prioritise spending through a transparent evaluation process and hold line ministries accountable for effective implementation of the agreed work plan. Nepal's expenditure reform efforts are beginning to draw attention internationally as a little-known success story.

Public service delivery: For the last 30 years, Nepal's centrally-managed primary education system has performed poorly. Last year, Nepal started the process of handing over primary schools to community management. Other countries (eg, Guatemala and El Salvador) have done something similar, but what Nepal has done is breathtaking in its scope. The government has told all communities that they have the option of taking over the management of public schools, and in 2003-04, it expects 1,000 communities to sign on (out of about 20,000 public primary schools). In health, 460 sub-health posts (out of about 4,000) have already been handed over to community management.

Fighting corruption: People had come to see corruption as the norm in politics and public administration in Nepal. Even when the legal power of the Commission for Investigation of Abuse of Authority (CIAA) was strengthened in 2002, many expected little change. Since its creation under the 1990 Constitution, it had won but one conviction. During the last fiscal year, however, the CIAA won over 40 convictions, and has changed the basic equation for the corrupt. To be sure, most of the cases involving 'big fish' are still pending, but they are in considerable fear now.

Financial sector reform: The two largest and ailing commercial banks had accumulated estimated losses of about $450 million, nearly 8 percent of GDP. No doubt, much of these losses arose because the politically well-connected elite have abused these two banks. The reformers became convinced that left alone, the banks would eventually bring down the whole financial system, and wreck the economy and government finances. The reform is already showing some encouraging results in stemming financial haemorrhaging
and improving loan recovery. The Deputy Governor of the central bank of Bangladesh came to Nepal recently to learn how Nepal has done what his country has not been able to do.

Greater role of the private sector: Like many developing countries, Nepal's public sector tended to be involved in too many things. This has been changing rapidly. For instance, to expand telephone services in the rural areas, the government has just selected a private operator to cover 538 VDCs in the Eastern Region. Such a venture is not viable on a strictly commercial basis, but instead of relying on the public monopoly, the government has opted to harness private sector efficiency by offering a one-time, capital subsidy to attract a competitive private bidder for this service.

These are only part of a much longer catalogue of reforms underway. To be fair, the impact of many of these reforms have not been felt widely yet at the grassroots levels. Only when many of the poor come to see the change first hand and regain confidence in their own government, will there be a foundation for sustained peace and development.

Impressive and sustained reform efforts in many other countries have emerged often after catastrophic events. Only such events seem capable of breaking down the entrenched social and political norms, and opening up space for a new vision and leadership. But, what a costly way to do what is clearly right for the nation. Nepal's reformers refused to accept this historical 'rule' and started a bold attempt to avert catastrophe in the first place. While the original impetus for change came more from technocratic leaders, many more in the political leadership now appear to be taking notice. A far deeper appreciation of the centrality of reforms to peace building is beginning to emerge.

Take for example either the change agenda forwarded by HMG at the last round of peace talks with the Maoists, or the 18-point program of the agitating five party coalition. Polemics aside, the bulk of either composition is about social and economic reforms.

Nepal's donors can only hope that Nepalis themselves will find the courage to set aside political differences in the pursuit of peace through their first two wars. Accustomed to inaction and corruption, donors have been somewhat cautious in the past to acknowledge the progress made in reforms. Now, however, many donors appear willing to give Nepali reform leaders the benefit of the doubt and provide stronger support to their efforts at winning Nepal's third war. As Nicholas Stern, the World Bank's chief economist till recently, said: this is indeed a "special moment" for Nepal.