King Gyanendra's seizure of power and arrest of democratic party leaders on 1 February 2005 will likely aid the Maoist insurgency and intensify the civil war.^[fn]For more details on the coup see Crisis Group Asia Report N°91, Nepal's Royal Coup: Making a Bad Situation Worse, 9 February 2005.Hide Footnote But by bringing the crisis to a head he has created an opportunity for diplomatic efforts to pull Nepal back from the brink of collapse and develop an effective counter-insurgency strategy. The key countries and organisations involved in the country -- India, the U.S., the UK and the UN -- need to work together to strengthen a collapsing state and establish a plan to deal with the Maoist insurgency.^[fn]This paper deals with immediate policy steps to strengthen the state in order that it can develop a political, economic and military strategy to defend itself against a violent insurgency and recover the ground it has lost in the last several years. It does not address in detail the longer-term issue of how to end the Maoist threat, through military means or negotiations, or a combination of those two approaches: this will be the subject of future Crisis Group reporting. Detailed policy reports will also shortly be published on three critical areas for reform -- the constitution, political parties and the security sector -- and on how best to respond to the current human rights crisis.Hide Footnote Acceptance of the coup and lack of action would only increase the chances of a Maoist victory and a descent into worse violence.

There is also an urgent human rights crisis in Nepal that requires international action. The record on disappearances and extra-judicial killings is one of the world's worst. Hundreds of political figures and activists have been detained, and protests have been violently suppressed. An expanded campaign against the Maoists by the Royal Nepalese Army (RNA) is likely to result in worsening abuses while offering no realistic chance of defeating the insurgency or reaching a negotiated solution. At the same time, the government is vulnerable to external pressure because it is heavily dependent on foreign aid.

The policy priorities should be:

• re-establishment of constitutional rule, including restoration of all suspended freedoms, release of all people arrested in the royal crackdown since 1 February 2005 and revocation of the state of emergency;
   
• expanded protection of human rights, including through full and immediate access to all places of detention for the National Human Rights Commission (NHRC) and the International Committee of the Red Cross (ICRC);
   
• a stronger legal framework to protect rights, including through repeal of the Terrorism and Destructive Activities Ordinance (TADO);
   
• re-establishment of democratic institutions and strengthening of the state's administrative and governance capacity across the country; and
   
• a broad-based political, security and socio-economic strategy to address not only the insurgency but also the underlying issues that have fuelled it.

To achieve these, donors should immediately implement a range of measures to pressure the royal government. Instead of vague threats, they should take the following steps at once and only lift them when specific conditions are met:

• suspend all military assistance that is not essential to maintaining the security status quo;
   
• suspend all direct bilateral and multilateral budgetary support to the government;
   
• initiate a review of all current development assistance and prepare plans for phased suspension and withdrawal of these programs;
   
• signal displeasure with the king's action by diplomatic and protocol means (including cancellation of visits and invitations); and
   
• support a strong resolution on human rights at the UN Commission on Human Rights in Geneva in March 2005.

The best mechanism to coordinate this would be a Contact Group bringing together the major powers and institutions that have been active in developing a policy towards Nepal's conflict. This group might in turn appoint a special envoy to advance its agreed political response to the coup and the insurgency. It will not be easy to achieve all policy objectives but a demonstrably united international front would demand attention in Kathmandu and be able to send a strong message to all involved that political institutions must be rebuilt if the state is to survive the insurgency. If the country's main political forces cannot agree on a common agenda, they all stand to lose.

The Contact Group and other donors should make clear that they expect the measures demanded to be taken immediately and to be sustained. The royal government must be judged on its actions rather than its public pronouncements. If the initial round of pressure does not achieve results, and the king is still unwilling to relinquish absolute power, donors should consider:

• suspending all military aid, including provision of spare parts for vehicles and helicopters and aviation fuel;
   
• suspending all assistance (including development assistance) apart from humanitarian aid;
   
• introducing targeted sanctions including a freeze of the assets of the royal family, senior officials, military officers and their families, visa bans and suspension of the RNA's lucrative involvement in UN peacekeeping operations; and
   
• encouraging the Security Council to investigate and prosecute both government and Maoist suspects who have escaped justice due to Nepal's inadequate judicial procedures.

Should the king still drag his feet, it would be time to consider more radical options, including international expressions of support for a republic rather than constitutional monarchy. Gyanendra may well have tipped support within the country decisively toward a republic already but he should be offered one last chance to agree to policies that would allow the Nepali state to respond effectively to the Maoist challenge. If he continues on his present course, his coup will mark a stage leading to intensified conflict and possibly a Maoist victory.

Kathmandu/Brussels. 24 February 2005