Nearly half of the development projects in the country are either grinding to a halt or have been suspended. The money meant for them, much of it from foreign aid, is unspent.

The government and Nepal's donors say they will use the next meeting of the Nepal Development Forum in April to put on their thinking caps about what to do with the unspent budget.

One idea the donors are pushing is to disburse money, even if it is in Maoist-affected areas and could get in the hands of the rebels. They argue that the people are in desperate situations vis-?-vis education, health and food and need urgent help. The government is understandably not keen on the idea, but officials say they are open to discussing it to find a suitable compromise.

At a meeting last week, Prime Minister Surya Bahadur Thapa instructed officials to come up with ideas about how to speed up implementation of projects so the money can be spent. Officials who attended the meeting at the National Planning Commission told us that the prime minister was unusually blunt after finding out half of the development projects were not on schedule or had to be abandoned. In the last fiscal year, thirty percent of the development budget was never disbursed, although the people needed the resources desperately.

"We have kept the issue open for discussion during the NDF meet," the NPC's Shankar Sharma said. "The donors may have something on their minds. We will listen to each other and then decide on the new modalities for disbursement."

The government is happy that despite the insurgency and poor performance of projects, donors haven't really slashed their budgets or pulled out. "We will not abandon Nepal at its hour of need, and donors should not," David Wood, head of the British aid agency DfID said in an interview.

But this euphoria among officials may be short-lived. Donor officials say their patience is wearing thin: both with the sluggish progress in development work as well as the stalemate in the peace and parliamentary process. They reluctantly agreed to the World Bank's $70 million budgetary support in November, but with strict conditions that democracy be restored and the peace process restarted. At the Finance Ministry, officials are happy that there have been commitments of more than Rs 13 billion from donors for the current fiscal year.

Bilateral and multilateral donors are now egging the government to consider involving Maoists in development and, if need be, in the rebels' strongholds. "You are trapped in between," said Rudiger Wenk of the European Commission delegation in Kathmandu. "That is why you need to have an arrangement so that the work can go ahead smoothly." The EC has different programs worth $70 million. The funds have to be spent between 2000-2006.

One of the biggest bilateral donors, DfID, believes Nepal needs a new development model to suit the special circumstances. The agency has been spending Rs 3 billion in Nepal annually and thinks assistance programs should be implemented at the village level for social justice and elimination of discrimination.

"Given the situation Nepal is in, it needs a development model that is different from what it used to be before 1996," DfID's Wood says. The agency plans to increase its annual assistance to Nepal to Rs 6.5 billion by 2007. "We are already working toward the direction of a changed development model."

But even if donors wish to make direct delivery at the village level, development projects will be caught between the Maoists and the government. Both sides will create problems for projects implemented by the other. "If the donors reach an understanding with rebels, security agencies will be suspicious, and vice-versa," one aid official who did not want to be named told us. "And the government may be worried the Maoists will take credit for donor-aided projects that are successful in their areas."

Some donors have informally taken the government's permission to get projects implemented without using the government network. The German aid agency GTZ and the UN's World Food Program have decided to launch food security and rehabilitation projects in 15 village development committees of Rukum and Rolpa. WFP's 'Quick Impact Program' has been going in seven conflict-ridden and food deficit districts.

Even while it claims that it is sidelining the Maoists, the government understands that without development projects in the most needy areas, the number of Maoist sympathisers will not decrease significantly. Therefore, it is in the mood to revise the entire gamut of development project issues through a discussion with donors. And that is probably what will dominate the agenda for the Nepal Development Forum in April.