Nepal

In 1951, the Nepalese monarch ended the century-old system of rule by hereditary premiers and instituted a cabinet system of government. Reforms in 1990 established a multiparty democracy within the framework of a constitutional monarchy. A maoist insugency, launched in 1996, has gained traction and is threatening to bring down the regime. Ten members of the royal family, including the king and queen, were massacred in a family dispute in 2001.

In October 2002, the new king dismissed the prime minister and his cabinet for "incompetence" after they dissolved the parliament and were subsequently unable to hold elections because of the ongoing insurgency. The country is now governed by the king and his appointed cabinet until elections can be held at some unspecified future date.

chief of state:

King GYANENDRA Bir Bikram Shah (succeeded to the throne 4 June 2001 following the death of his nephew, King DIPENDRA Bir Bikram Shah)

head of government:

Prime Minister Lokendra Bahadur CHAND (since 11 October 2002)

cabinet:

Cabinet appointed by the monarch on the recommendation of the prime minister

elections:

• none;
• the monarch is hereditary;
• following legislative elections, the leader of the majority party or leader of a majority coalition is usually appointed prime minister by the monarch

note: King BIRENDRA Bir Bikram Shah Dev died in a bloody shooting at the royal palace on 1 June 2001 that also claimed the lives of most of the royal family;

King BIRENDRA's son, Crown Price DIPENDRA, is believed to have been responsible for the shootings before fatally wounding himself; immediately following the shootings and while still clinging to life, DIPENDRA was crowned king; he died three days later and was succeeded by his uncle

Nepal is among the poorest and least developed countries in the world with nearly half of its population living below the poverty line. Agriculture is the mainstay of the economy, providing a livelihood for over 80% of the population and accounting for 41% of GDP. Industrial activity mainly involves the processing of agricultural produce including jute, sugarcane, tobacco, and grain.

Textile and carpet production, accounteing for about 80% of foreign exchange earnings in recent years, contracted significantly in 2001 due to the overall slowdown in the world economy and pressures by Maoist insurgents on factory owners and workers. Security concerns in the wake of Maoist activity, the June massacre of many members of the royal family, and the September 11 terrorist attacks in the US led to a decrease in tourism, another key source of foreign exchange.

Agricultural production is growing by about 5% on average as compared with annual population growth of 2.3%. Since May 1991, the government has been moving forward with economic reforms, particularly those that encourage trade and foreign investment, e.g., by reducing business licenses and registration requirements to simplify investment procedures.

The government has also been cutting expenditures by reducing subsidies, privatizing state industries, and laying off civil servants. More recently, however, political instability - five different governments over the past few years - has hampered Kathmandu's ability to forge consensus to implement key economic reforms.

Nepal has considerable scope for accelerating economic growth by exploiting its potential in hydropower and tourism, areas of recent foreign investment interest. Prospects for foreign trade or investment in other sectors will remain poor, however, because of the small size of the economy, its technological backwardness, its remoteness, its landlocked geographic location, and its susceptibility to natural disaster.

The international community's role of funding more than 60% of Nepal's development budget and more than 28% of total budgetary expenditures will likely continue as a major ingredient of growth.