Development Operation, Conflict and Aid Effectiveness in Nepal

(Preliminary draft; Do not quote)
Development Cooperation, Conflict and

Aid Effectiveness in Nepal
Paper presented in the workshop

Development Cooperation and
Ongoing Conflict in Nepal
10 November 2005
Kathmandu
Sudhindra Sharma & Bandana Gyawali

Interdisciplinary Analysts
Development Cooperation, Conflict and Aid Effectiveness in Nepal

- Sudhindra Sharma & Bandana Gyawali1
The Maoist conflict in Nepal is posing challenges to the ways development cooperation
has traditionally functioned in Nepal. While it would not be just for the international
community to abandon the country at this juncture in history when the country needs
foreign assistance the most, how to administer aid in a context where conflict is
escalating – and without further fueling the conflict becomes a tricky issue. This is not
least because of the issue of fungibility at the central level but also due to the dynamics of
aid at the local level.
Fungibility of aid has received considerable attention in the literature on aid. The
issue of fungibility, needless to say, is a potent problem in Nepal and donors need to be
vigilant if the conflict is providing a pretext for the Nepali state to siphon its resources
away from the much needed development work to the security sector. The aid that the
donor community provides to Nepal should not provide an excuse for the Nepali state not
to invest in the country’s development (since lack of and inequitable development has
been identified as one of the primary causes leading to the conflict in the first place).
However, no less complicated is the possibility of funds provided through donor
assistance getting into the hands of the Maoists at the local level thereby further fueling
the conflict. This is particularly so in a context where the presence of the state at local
levels is marginal in large tracks of the kingdom. When development approaches
emphasize community management and envisage the local community itself to handle
funds, it could very likely be that development funds meant for community work find
their way into Maoist hands who then use it for their security purposes. Thus how to
administer aid in a way that avoids fungibility at the central level while simultaneously
preventing it from getting into the hands of the Maoists at the local level becomes the
challenge for the donor community providing aid to Nepal in times of conflict.
Administering aid in conflict situations thus becomes intricately tied up with aid
effectiveness.
Introduction
Foreign aid has had a significant role in Nepal's development and economic activities for
over fifty years. While the effectiveness of aid has been questioned by both Nepali and
expatriates scholars alike, none doubt the pervasive role it has played in the latter half of
the twentieth century2.
Today, however, disruption in the country's political sphere and intensification of

the Maoist insurgency has not only led Nepal to a state of political stalemate but also
1
Dr. Sudhindra Sharma is Director at Interdisciplinary Analysts and Ms. Bandana Gyawali is a Research
Associate at Interdisciplinary Analysts. Both are Sociologists by training. Funds for this research have been
provided by Department for International Development Cooperation, Ministry of Foreign Affairs, Finland
for which the authors are grateful.
2
Some of these works include Mihaly, E. B (1965), Khadka N, (1997), Panday, D R. (1984) and Sharma
et. al. (2004).
1
hampered expected outcomes of development programs. This has caused the international
community to rethink their roles in the conflict-torn country. The debate between
development and humanitarian assistance, previously not heard in Nepal's context, is
gradually entering the donor discourse. Possible scenarios such as either withdrawing if
political or security situations deteriorate or remaining engaged on humanitarian grounds,
are being examined by donors in Nepal. The issue of fungability of aid at the national
level and the possibilities of its ‘leakages’ at the local level has immense implications for
possible conflict in Nepal, not to mention the efficacy of development programs. This
paper is a preliminary attempt at understanding these issues. It is believed that many of
these issues could be explored in greater depth by focusing on the performance of one
donor. The study takes up Finnish assistance to Nepal since Finnish aid has been a topic
that one of the authors has previously researched in Nepal.
The paper begins by examining literature on fragile states - in the process,

exploring the characteristics of fragile states and the rationale for Nepal to be labeled as
one. It then outlines the history of development cooperation in Nepal zeroing on the
Finnish assistance. It then proceeds to explore how the various donors in Nepal have been
“reading” the Maoist conflict as well as the recent government strategies and discusses
how these have shaped donor assistance in Nepal today. The paper then delves into what
conflict in local areas has meant for the local people living there drawing upon published
anthropological work on Maoist conflict. To understand the impact of the insurgency on
donor funded programs at the local level the paper then takes up Finnish development
assistance to Nepal as a case. It explores three ongoing Finnish projects related to water,
education and the environment and explores how these have been operating locally in the
face of the conflict. The paper ends with a note on the possibilities of making aid more
effective in the situation that Nepal finds itself in today.
‘Fragile’ States
Fragile states are a number of 'failing, failed or recovering states' that are characterized by
instability and a government whose legitimacy and effectiveness are feeble3. Such states
are unable to deliver basic services, manage public resources, control its territory and
protect and support its people. All fragile states follow the same course but some
common pathways taken by them are: democratic collapse, state sponsored corruption,
regional or guerilla rebellion, violent ethnic conflicts or economic collapse.4
From the perspective of donors, fragile states pose a challenge to development

and humanitarian assistance and peace building processes. There are around 46 to 48
counties that are ‘fragile’ and these countries include:5
3
US Agency for International Development. 2005. Fragile States Strategy. http:
//www.usaid.gov/policy/2005_fragile_states_strategy.pdf
4
US Agency for International Development. 2005. Fragile States Strategy. http:
//www.usaid.gov/policy/2005_fragile_states_strategy.pdf
5
DFID Policy Division. In Striking A New Balance. Donor policy Coherence and Development
Cooperation in Difficult Environment A background paper commissioned by the Learning and Advisory
Process on Difficult Partnerships of the Development Assistance Committee of the OECD.
2
• 28-35% of the absolute poor.

• 32-46% of the children that do not receive a primary education.
• 41-51% of the children that die before their fifth birthday.
• 33-44% of maternal deaths.
• 34-44% of those living with HIV/AIDS.
• 27-35% of those deprived of safe drinking water.
Among donor countries, classification of fragile states differs. To cite some

examples, DFID's classification scheme is based on 'capacity' and 'willingness' of
countries in areas such as safety and security, political power, economic management and
service delivery. UNDP's classification, one the other hand, is based on a 'need based
approach'. It uses eleven indicators of state weakness to categorize fragile states. The
World Bank uses still another framework. Called the Country Policy and Institutional
Assessment rating system (CPIA) it classifies 'low income countries under stress' into
five categories of performance. The bottom two are useful factors for state fragility.
According to CPIA, countries have been ranked according to the gaps they display in
security, legitimacy, capacity etc. Nepal is among the top six countries that have a
security gap.
From the point of view of donor agency, it is important to examine the influence
of development assistance in fragile states and to ensure that it is not indirectly fueling
conflict. Poorly planned programs in conflict zones may indirectly worsen situations by
contributing to the economy of the war, granting legitimacy and therefore fueling
tensions between warring parties.
With growing concern among international committee to make their engagement in

fragile states to lead to a positive outcome, a draft called the “Principles for Good
International Engagement in Fragile States” was prepared by OECD which acknowledges
that the international community alone cannot put an end to the problem but by engaging
with national stakeholders it can contribute to minimizing harm. This draft states:6
Action today to prevent state failure can reduce the risk of future outbreaks of
conflict… and can contribute to long term global development and security. The
International community must … move from reaction to prevention… to address the
root causes of state fragility, strengthening the capacity of regional organizations to
engage in prevention and to help developing countries themselves to establish
resilient institutions which can withstand political and economic pressure.
The international community faces distinct challenges in applying aid effective

principles in fragile states. The table below enumerates some of them.7
6
OECD, Ten Principles for good international engagement in Fragile States.
7
Nicholas Leader and Peter Colenso. Aid Instruments in Fragile States. Poverty Reduction in Difficult
Environment (PRDE) January 2005
3
Principles of Aid Challenges in applying principles of aid effectiveness to

effectiveness8 ‘fragile states’, as opposed to ‘good performers’
1. Country ownership & Fragile States may lack capacity and/or will to deliver core state
leadership functions, particularly for the poor
2. Budget alignment with PRS Fragile States may not have an established budget or
budgetary process, or may have a budget that donors would
not want to support; most lack PRSPs (see 6.).
3. Delivery through effective Fragile States are likely to have ineffective institutions (low
institutions capacity) and/or institutions that lack legitimacy (low will)
4. Results orientation Capacity may not be there to measure and account for results
5. Aid allocation focused on ‘Poverty-efficient’ aid allocation criteria limit fragile state
the poorest eligibility for aid; as a proportion of global aid, allocations to
fragile states has reduced.
6. Donor policy alignment with Of the 34 countries classified by the World Bank as LICUS in
PRS 2004, only 8 had PRSPs, and 7 had full PRSPs70.
7. Harmonization between Fragile states can be characterized by multiple instruments,

donors delivery and reporting systems, and poor frameworks for
coordination (policy and programming); harmonization can be
harder, but not impossible.
8. Aid which is predictable and Insecurity and political instability may lead to disruptions in aid
untied flows, and increased use of conditionality by donors (see 9.).
9. Aid conditions minimal and In ‘low will’ countries, a disjuncture between government and
based on country policies donor policies and priorities may result in an increased use of
conditionality by donors; ‘low capacity’ countries may struggle
to formulate sound policies; ‘low will’ countries may have
policies that are not considered by donors to be pro-poor.
10. Aid instruments strengthen Chains of accountability between citizen and state can be weak
accountability to citizens of or non-existent.
developing countries
In the context of Nepal, because of the ongoing Maoist conflict, and the
implications this has had on security and indirectly on legitimacy, the country has been
identified as a fragile state. The conflict has affected international involvement in Nepal.
However, development agencies continue to operate according to the 'community based
participatory approach'. This approach focuses on various user groups and community
based organizations to plan and implement programs as it is believed to strengthen local
capacity and ownership and therefore foster decentralization. Other approaches adopted
by donors to continue operating in Nepal are: increasing transparency, using staff from
the region, delivering tangible outputs and targeting the poorest and marginalized
8
Developed by the DFID Aid effectiveness Team.
4
members of the community.9 Despite such modifications in working modalities donor

countries' development operations are not free form incoherence. UNDP reported the
following results stemming from the Maoist conflict:10
• Most aid donors have ignored conflict issues in the design of their programs and
have yet to realign their operations to address the antecedents of conflict and
manage their security concerns so as to continue operating in disputed areas
• Anti-terrorism aid is escalating military responses and eliciting countermeasures
by the Maoists.
• Multiple donor initiatives are underway but there is little coordination and no
centralized information about them.
• Weak domestic capacities, transport restrictions and human rights abuses are
hindering development.
Despite these incoherencies, the donors' assistance could still make viable
contributions in the present conflict context since an immediate end to the conflict is
highly unlikely.
History of foreign aid in Nepal11

Development cooperation or foreign aid as it is more commonly called in Nepal has long
constituted a major component of the Nepali state's development expenditure. When the
first five-year plan was formulated in 1956, the entire development expenditure of the
plan period was financed from foreign aid. Beginning from the time when Nepal signed
the first Agreement for Technical Cooperation under US president Harry Truman's Point
Four Program in 1951, foreign aid has continued to have a dominant position through the
country's five year plans.
Nepal since the 1950s has seen the entry of numerous donors and an influx of aid.
India and the United States were the first donor's in Nepal. US aid concentrated on
agriculture and rural development and basic infrastructure during the 1950 and added
health and education in the 1960's. Indian aid concentrated on administrative reforms,
transportation and communication in the 1950s and was extended to irrigation, education
and drinking water in the 1960s. The UK, China, Switzerland, and the UN arrived in
Nepali aid scene during the 1960's. From the 1970s onwards, multilateral agencies such
as the World Bank and the Asian Development bank also started their programs in Nepal.
By the 1990s a lot of changes were setting in. Japan emerged as the biggest aid
contributor to Nepal in the 1990s followed by US and UK and Germany. "Small"
European countries like Denmark, Netherlands, Finland and Norway as a group also
became important as donors during the 1990s. During the 1990s entry of international
9
Service Delivery in Difficult Environment: the case of Nepal. DFID august 2004.
10
UNDP, Bureau for Crisis Prevention and Recovery, Crisis in Nepal: A Development Response, New
York. 2002 in Striking A New Balance.
11
This section is based on Sharma et. al. 2004. Aid Under Stress. Water Forests and Finnish Support in
Nepal. Himal Books, Nepal
5
non government organizations (INGOs) into Nepal's development field and a steady
increase in disbursement over the years was seen.
With the increasing number of donors, the volume and the types of aid Nepal
receives have changed. Whereas in the initial phases aid composed mainly of grants, in
the later phases, loans have come to constitute the major chunk. For instance, while in
1964 Nepal's first foreign loans comprised about 10 percent of the total foreign aid, this
figure started to rise steeply during the 1970s. In 1984 loans constituted 35 percent of the
total foreign aid and in 1994 these made up almost 80 percent of the total foreign aid in
Nepal. From mid 1990s because of the greater involvement of INGOs, the portion of
grants has grown in relative terms. However, loans are still sizeable. For instance, in 2000
loans constituted 67 percent of the total aid (Sharma et al. 2004).
Finland’s Entry into the Nepali Aid Scene

The first preliminary talks between the Nepali and Finnish officials on Finnish
development assistance to Nepal at the bilateral level were held in Kathmandu in August
1982. A bilateral program was begun between the two countries in 1983 with the delivery
of urea fertilizers to Nepal and the planning of the Pokhara Rural Electrification Project.
Nepal's selection as one of the Finnish aid partners happened mainly on
“developmentalist”12 grounds, as an LDC to be included in the Finnish development
program. Finland made a commitment to allocate at least 30 percent of its bilateral aid to
LDCs and Nepal was chosen for partnership. By early 1990 Nepal had become one of the
10 main recipients of Finnish aid receiving around 75 million FIM annually.
There were few, if any, policy directives to guide the Finnish aid apparatus in
Nepal until the 1990s. Through out the 19980s Finnida did not issue any policy
documents or country strategies. The few existing general guidelines issued way back in
the 1970s had been forgotten and actual cooperation was guided by administrative and
instrumental day to day considerations. Policy frameworks were established by Finnida
only in the early 1990s; these formed an important part in the constitution of the new,
globalization-EU phase in Finnish development cooperation. Also a country strategy
paper for Nepal was drafted and published in 1994 although it was left in preliminary
form and was not much of use to the Nepali side as it remained available only in Finnish
language.
Development cooperation or aid is seen as a main tool of Finnish foreign policy

towards developing countries. The goals of development aid are defined as poverty
reduction, combating global environment threats and promoting human rights, democracy
and equality in developing countries. The means to achieve these goals are left to the
developing countries themselves. Finland will only support them, working with partners
who commit to these objectives.
12
Juhani Koponen writes, "…the core of the modern notion of development rests on two premises. The first
is the conviction that development….is regarded as socially achievable and desirable and beneficial to all.
The second is that a well meaning, rationalistically constructed intervention in a social process will lead to
such a development that it is in the long term interest of everybody to foster such an intervention and
development." in Sharma et. al (2004).
6
Examining projects and programmes, what one finds is that priority areas have
shifted over time. Whereas during the 1980s and again in the early 1990s a major chunk
of the Finnish aid was taken up by the delivery of urea fertilizer, from 1984 to 1997
forestry became on of the main focus areas. A total of 120 million was provided to eight
projects in the form of grants during this period. From 1985 to 1996, telecommunication
was another area of Finnish support and so was energy, beginning with the Pokhara rural
Electrification project and ending with the Biratnagar Multi fuel diesel power plant. From
1992 onwards topographic mapping has been another area of Finnish support. From 1990
onwards Finland began supporting Nepal in water supply and sanitation and support to
this area has been continuing. Support has also been given to other multilateral programs
operating in Nepal such as the activities of the UNFPA.
During the 1990s the energy sector received the highest amount of Finnish
support, representing about 35 percent of the total volume of Finnish aid. The other large
sectors have been forestry (16 percent), water and sanitation (14 percent) and mapping
(12 percent). The relatively small sectors have been education, environment and social
sectors that have taken up between 1 and 2 percent of the total aid volume.
The nature of Finnish aid has clearly changed since the late 1990s. Forestry and
energy sectors have been phased out, while environment and education are receiving
greater attention: support for communication ahs ended but water and sanitation remain
one of the major sectors of cooperation between Nepal and Finland. By early 2000s the
main areas of Finnish development cooperation in Nepal were: water supply and
sanitation, education and environment. More about these projects as well as their
implementation in the conflict context is discussed later on.
"Reading" Conflict in Nepal.

Maoists launched their Peoples War from 1996 onwards. Between then and now some 9
years have elapsed and these nine years of insurgency that is increasingly turning into a
civil war, has placed severe stress on the country’s social, political and economic fabric.
It has left more than 1,200 dead, several thousand more injured and many more internally
displaced. There have been tremendous human casualties as a result of the conflict.
Human rights organizations have been documenting these and this is not the place to look
at this in detail13. But what of the economic and social impacts? These have not been
studied or at least are not available in the public domain. The exception is a national
survey entitled Nepal Living Standard Survey (NLSS).
The data generated by the Nepal Living Standard Survey (NLSS) covered from
1996 to 2004 - coinciding as it does with the beginning of Maoist insurgency to the time
it has taken the form of a full-blown conflict. This section reveals the social and
economic data as of 2003 and compares it with the indicators of the 1996 national survey.
13
For more details refer to the annual report brought out by INSEC entitled Nepal Human Rights
Yearbook.
7
NLSS 2005 shows that from 1995/96 to 2003/04 Nepal's per capita income has
increased from Rs. 7,700 to Rs. 15,162. Steady increase in employment and access to
facilities such as primary schools, health posts/hospitals, commercial banks, cooperatives,
agricultural centers etc. are also indicated. Despite these positive markers, Nepal's
progress towards achieving the Millennium Development Goals14 is considered slow and
disparities between rural and urban areas are expanding15. By development regions,
poverty is lowest in the Central Development region (27%) and highest in the Mid
Western Development region (45%) the epicenter of the Maoist movement. Added to this
are political instability and the nine years of Maoist insurgency that have aggravated
Nepal's plight and shaken the foundations of social, political and economic activities to
its very core.
Poverty Profile: NLSS I (1995/96) and NLSS II ( 2003/04)

Percentage of Households reporting less than adequate
NLSS I NLSS II
Food consumption 50.9 31.2
Housing 64.1 40.6
Clothing 57.6 35.6
Health care 58.7 28.3
Schooling 45.4 21.4
Total Income 72.6 67.0
Adult literacy (Total) 35.6 48.0
(15+) F 19.4 33.8
Math 53.5 64.5
Households access to facilities within 30 minutes
Primary schools 88.4 91.4
Health posts/hospitals 44.8 61.8
Agriculture centers 24.5 31.9
Commercial banks 20.7 27.8
Paved roads 24.2 37.2
Motorable roads 58.0 67.6
Source: NLSS II (2003/04)
The NLSS data indicate that though there may have been human casualties as a
consequence of the Maoist conflict, the social and human indicators are moving in a
positive direction16.
14
The Millennium Development Goals that Nepal expects to achieve by 2015 are: reduce by half, the
proportion of people that live on less than US$1/day, enroll all children in primary education by 2015,
make progress towards gender equity, reduce infant and child mortality rates by two thirds, reduce maternal
mortality ratios by three quarters, reduce the spread of HIV/AIDS, malaria and other major diseases,
Integrate sustainable development principles in country policies and develop global partnership for
development. Source: World Bank 2003.
15
According to NLSS growth per capita consumption is 91% for the bottom quintile of the population and
177% for the top quintile over the past eight years. In 2003 the richest 20% of the population accounted for
53% of the total consumption while the bottom 20 for only 6%
16
Not all positive outcomes could be due to the role of the state. More than the role of the state, the
increasing role that remittance has begun to exert in Nepal’s economy could have led to the positive
outcome.
8
The Conflict in Nepal and Donor’s Programmes

With the Maoist insurgency having affected the donor community's involvement in
Nepal, they have begun re-examining their programs and priorities for the country.
Addressing the 'root causes' of the conflict and supporting social, economic and peace
building activities to reduce poverty as well as prevent the conflict from escalating
further are high on generally all the donor’s agenda and they continue to operate
according to the 'community based participatory approach'. This approach focuses on
various user groups and community based organizations to plan and implement programs.
It is believed that it would strengthen local capacity and ownership and therefore foster
the practice of good governance principles. Programs that work against social exclusion,
promote civil society’s role in peace building, activities that strengthen the capacity of
local government to deliver their services are emphasized. For instance, DFID's country
strategy report identifies uneven development, failure of governance, discrimination in
access to opportunities and the ongoing conflict as causes of poverty in Nepal. It states:
Poverty and inequality, corruption, abuse of power, social and political exclusion and
domination by elite caste groups have fuelled the frustrations of ordinary people.
Development failures have not helped. These grievances have been used by the
Maoists who have resorted to violence and terrorism in seeking the overthrow of the
‘old’ regime…..conflict has exacerbated poverty in the affected areas…has greatly
reduced development activities …… Conflict related budgetary pressures reduced
overall development spending in 2002/03 to the lowest level in real terms in the past
ten years
Donors have also adopted certain approaches to maintain operating in conflict

affected areas in Nepal such as increasing transparency, using staff from the regions
involved, delivering tangible outputs and targeting the poorest and marginalized members
of the community.17 Donors acknowledge that the conflict has affected the effectiveness
of development cooperation and some are in the process of realigning future assistance
strategies with the evolving political and socio economic changes in Nepal. The
interaction between conflict and development and how aid will achieve desired outputs in
the face of continued political instability and conflict are being examined.18 For donors to
work effectively in conflict situation the 'acceptability' of their programs by both the
government and the Maoists is a concern that echoes in many strategic documents.
How donors have been "reading" government priorities.

In the past few years, HMGN has designed a Poverty Reduction Strategy (PRS) which
aims to reduce Nepal's poverty from 38 percent in 2001/02 to 30 percent by the year
2006/07. Other goals include raising literacy rates, reducing infant mortality rates, raising
life expectancy, increasing access to drinking water, electricity and providing telephone
facilities to every VDC. The PRS, in the case of Nepal, has been integrated into the
Tenth Plan (FY 02/03 – FY 06/07). The Tenth Plan document is in fact the PRS.
17
DFID, Service Delivery in Difficult Environment. August 2004.
18
ADB's role in Nepal's development. Nepal resident mission of ADB.
9
The tenth plan is centered on four pillars19: (1) Broad based and sustainable
economic growth: creating an investment friendly environment to promote non
agricultural growth is the focus. PRSP expects to achieve this by focusing on liberal
economic policies. It also focuses on improving agricultural growth to raise income,
employment and food security in rural areas. (2) Social sector development: by
recognizing the need for better roads, electricity and communication facilities to achieve
sustainable growth. (3) Social inclusion of poor men and women from all groups
including Dalit and disadvantaged Janjati groups through mainstreaming and targeted
programs. Focus is on ensuring women and excluded groups have access to education,
health services and economic opportunities to help them overcome poverty and
contribute towards national growth. (4) Good governance to improve service delivery,
efficiency, transparency and accountability by stressing on participation of local
communities in management and monitoring of development activities, redefining the
role of the state as well as enhancing the role of private sector, NGO's, INGO's and
CBO's.
PRSP acknowledges that political instability and conflict have affected the pace
of development resulting in slow government spending on development, low private
sector investment, closure of financial, industrial and service establishments, disruption
of trade and transport, damage to development infrastructure and a sense of insecurity in
urban and rural areas. PRSP incorporates strategies that address the "root causes" of the
conflict but maintains that achieving expected outcomes depends on peace and security.
It states that the best way to ensure continuity of development activities in conflict
situation is to transfer basic development functions to the people where the government
assumes the role of a facilitator. It also discusses various scenarios the present conflict
could take and how this would influence PRSP implementation. Among them, the need to
device appropriate mechanisms to deliver basic services in the face of continued violence
which 'may demand higher investment towards ensuring security of all stakeholders
working to reduce poverty and restore peace' is one. 20 Although PRSP focuses on a
bottom–up approach and has also implemented the Integrated Security Development
Program (ISDP) in conflict affected areas it has not adopted a clear conflict approach. Its
assumption that handing over development activities to local communities in conflict
zones is rather naïve and overlooks the possibility of these resources getting into the
hands of the Maoists.
Among it other strategies, HMGN also introduced the Medium Term Expenditure
Framework (MTEF) in 2002/03 to ensure efficiency in planning and allocating
development budget. MTEF classifies development budget into two categories – priority
and strategy. The priority category is further classified as P1, P2, P3 and N according to
priority. Strategy is classified into five headings. In 2002 the government also devised an
Immediate Action Plan (IAP) which was a 'must' complete list of plans.
19
An Assessment of the implementation of the Tenth Plan (PRSP). Second Progress Report. National
Planning Commission, Singhdurbar, Kathmandu, Nepal. June 2005.
20
An Assessment of the implementation of the Tenth Plan (PRSP). Second Progress Report. National
Planning Commission, Singhdurbar, Kathmandu, Nepal. June 2005
10
The World Bank and the IMF carried out a Joint Staff Assessment of the PRS in
July 2003, highlighting its strengths and weaknesses. The assessment was approved in
November 2003. Most bilateral and multilateral donors have been designing their
strategies to support the PRS.
Social inequalities, economic disparity and political instability are believed to be

the causes of the Maoist conflict. The PRS/Tenth Plan has been designed to address these
causes and these also provide donors a framework for defining their operating principles.
Donor activities are striven by objectives that focus on achieving prolonged reduction in
poverty through improvements in basic services. Priority is given to the excluded and
marginalized groups in order to help them achieve access to opportunities. Promoting
good governance that is responsible to the needs of the poor, strengthening the capacity
of local governance to deliver services and decentralization are the other criteria. Since
the immediate concern for Nepal is an end to the conflict, priority is given to support
development activities in areas that are most affected by the conflict.
Partnerships in Implementing the Poverty Reduction Strategy

PRS Area World Bank Multi laterals Bi laterals
Broad based economic Denmark, Germany, UK
growth
Macro economic stability ADB, IMF Australia, Canada, Denmark, Finland,
Germany,
India, Japan, Kuwait Fund, Norway, Saudi
Fund, Sweden, Switzerland, UK, US
Irrigation ADB, IFAD, OPEC Fund, UN Canada, Japan, Kuwait Fund, Saudi Fund, US
Agencies
Trade IMF, UN Agencies, WTO Norway
Labor ILO, IMF, UN Agencies Germany
Roads ADB China, Germany, India, Japan, Switzerland,

UK,
US
Power ADB, UN Agencies Canada, Denmark, Finland, Germany, Japan,

Norway, Sweden, US
Information/ ADB Denmark, Finland, Japan

communication
Tourism ADB, UN Agencies Japan, Netherlands, UK
Industry UN Agencies Japan, US
Food security UN Agencies Canada, France, Germany, Japan, UK
Social Sector development

Education EU, UN Agencies Canada, Denmark, Finland, Germany, Japan,
Norway, Switzerland, UK
Health ADB, EU, UN Agencies Australia, Canada, China, Germany, India,

Japan, Norway, Switzerland, UK, US
Source: World Bank, 2003.
11
Shifts in Donor Strategies

Humanitarian aid is provided to areas that are affected by natural disasters or war, to help
them cope with and recover from the crisis. It focuses on short-term emergency relief
efforts. Development assistance is provided to developing countries to help them
overcome poverty and increase their capacity for sustained development. However, this
distinction between humanitarian aid and development aid is not closely followed in
Nepal. Donor agencies have incorporated both frameworks. As International Alert
writes:21
Just as internationally there is an increased merging of the two forms of assistance, in

Nepal we see the broad use of Do No Harm, the largest bilateral agencies signing up
to the basic operating guidelines (and in particular the underlying ethos of neutrality)
and the provision of food for work programs in various forms throughout he country.
Do No Harm, BOG's and food for work are all tools strongly associated with
humanitarian assistance, so in an sense the donor community in Nepal has been using
a Humanitarian framework to deliver its development assistance for a number of
years now. The result is that the debate about whether to take a developmental or
humanitarian assistance approach to Nepal misunderstands both current global trends
and operational realities in Nepal.
Due to the insurgency, strategic shifts are seen among donor agencies. They admit
'operating in grey areas between relief and development' activities. Along with
community based approaches, donors have adopted humanitarian principals. An example
could be the Risk Management Office (RMO) jointly established in 2002 by DFID and
GTZ to ensure that programs can be continued safely and effectively without
exacerbating the conflict. RMO has developed a 'Safe and Effective Development in
Conflict' approach which is based on concepts such as 'Risk Management' and 'Do No
Harm'. These concepts are associated with humanitarian work but have been applied to
development context. A group of donors have also adopted the "Basic Operating
Guidelines" (BOG)22 while working on development and humanitarian assistance. SDC
Country Director to Nepal writes:
At the program level SDC has put the conflict at the core of its strategy and its
approaches. Development work is now at the service of conflict transformation. The
specific nature of the political conflict has been accepted, with the recognition that
every development activity must take into account its potential manipulation by the
parties in the conflict as well as its potential influence on their behavior and on their
willingness to enter into a constructive dialogue with the political foe. Projects and
activities that are relevant for the mitigation of the social conflicts, through delivery
of direct benefits to poor and discriminated households or through a strong
involvement of women in decision making have been identified and furthered.
21
Rethinking Development Assistance in Nepal: Choices for a meaningful Dialogue. International Alert.
22
Basic Operating Guidelines (BOG) is a code of conduct adopted by international agencies in Nepal to
carry out programs and to set standards for their programs and staff at the field level. BOG prohibits using
development and humanitarian assistance for political, military or secular purpose, refuses to make forced
contribution in cash or kind for activities other that development and humanitarian areas and asserts
withdrawing from areas where staff and project safety are threatened.
12
Areas of involvement
Most donors in Nepal seem to be following three modalities in delivering services in
conflict situation:23 (1) Direct involvement with the communities in conflict affected
areas to meet their demands and deliver tangible outputs to areas where the state is unable
to perform service delivery functions; (2) Partnership with local NGO's to identify and
access vulnerable communities; (3) Partnership with central and local government.
Based on these modalities, development programs that support HMGN's effort to reduce
poverty and achieve Millennium Development Goals are as follows:
Peace building and development: Programs aim to help conflict victim families,
disseminate Human Right issues, strengthen community based peace building initiatives,
build initiatives and assist the government in forming peace and development strategies
and work to negotiate and end the conflict.
Democracy and governance: decentralization, increasing the capacity of local

governments in areas such as primary education and health care, increasing the role of
civil society in promoting development and human rights matters, strengthening the anti
corruption drive, promoting development based on democratic values, focusing on
community based programs and fostering human development are other areas of donor
involvement.
Social inclusion and gender sensitive programs: programs that reach out to the poor and
marginalized, excluded groups and strengthen community based programs the address
areas of social exclusion such as rural water supply and sanitation are another priority
area.
Agriculture and natural resource management: programs that focus on sustainable

resource management, ensure environment sustainable development, increase assess of
resources to the poorest and most vulnerable groups and create income generating
opportunities which directly lead to reduced poverty in rural areas are among other
priorities.
Other areas of involvement include infrastructure development by promoting private

sector involvement especially in hydropower. The aim of development programs is to
assist HMGN but the working modality for many donors is based on partnership with
local NGOs and CBOs rather than direct service delivery.
Effects of Insurgency at the Local Level

Ethnographic works that examine how ordinary men and women living in conflict zones
could provide insights into how the lives of ordinary men and women are being shaped
by the ongoing conflict. In contrast to macro studies of Maoists and their movement, such
micro studies fulfill an important lacuna in the sense that these could reveal how the
conflict is being translated in local arenas. There are, however, a few anthropological
articles that examine Maoist conflict in local contexts.
23
Service delivery in Difficult Environment: the case of Nepal. DFID August, 2004.
13
Tatsuro Fujikura's 'The Role of Collective Imagination in the Maoist Conflict in

Nepal' is one. While analyzing the rise and spread of the Maoist movement in Nepal,
many point to lack of good governance, lack of employment opportunities and 'failed
development' as some of its causes. Refuting the views that tend to inform the macro
understanding of the Maoist movement, Fujikura (2003), drawing upon his own
fieldwork in Salyan district, argues that to understand the insurgency, the “collective
imagination” that the People's war has shaped needs to be probed. He writes, "The
Maoists have promoted a vision in which the armed revolution appears as an inevitable
step forward, given the monstrous Nepali state that was impeding true (and inevitable)
progress. Fujikura quotes a Maoist cadre from Salyan telling him, "If unemployment was
the reason, it would have made us not Maobadies (Maoists) but Jagir Badis (employment-
ists)". Fujikura asserts that at the local level those who join the Maoist movements did so
consciously and not out of coercion.
Other works provide insights into some other dimension of the movement. When
CPNM declared the formation of its peoples government in Dolakha district in 2001, 10-
15 thousand people were reported to have attended the mass meeting. Sara Shneideiman
and Mark Turin who were conducting anthropological research among the Thangmi
community in Dolakha explored the reasons behind such massive participation and
concluded that since the People's War began from peripheral areas in Nepal it gave
villagers an opportunity to become active participators rather that passive spectators
(Shneideiman and Turin, 2004). The revolutionary ideas propounded by Maoists made
practical sense to those burdened by exploitation and promised improvements and social
changes. As one interviewee told them, "In Nepal, democracy has only come to people in
the towns and district headquarters…. In villages and remote areas people have no idea
what democracy is or how it should feel…Even though eventually it reached the villages
the People's Movement was something that started in Kathmandu and spread outward.
But the Maoists movement is exactly the opposite: it started in the villages. The villagers
now know what the democracy movement must have felt like….. "
Judith Pettigrew observes how the "culture of terror" has made its way into the
lives of villagers in Maurigoun and survival strategies they have adopted to cope with the
insurgents as well as the security forces (Pettigrew, 2003). She describes the various
ways in which terror is routinized among villagers which “allows people to live in a
chronic state of fear with a façade of normalcy at the same time”. She remarks that terror
permeates and shreds the social fabric." She notices how in hushed tones, within the
confines of their home villagers discuss the movements of the Maoists and security forces
and pass information about the presence and movement of both sides to be prepared for
possible future visits. Alertness and circumspection in speech, accommodating fear and
violation in their daily lives to the extent of becoming "socialized" to live in fear,
changing patters of movement lodging and working conditions among villagers were
some of the impacts of living between the Maoists and the army.
Though some of these anthropological work gives a flavor of the life in conflict
zones in Nepal, more need to be underway in Nepal that examine how development work
14
in local contexts are being shaped by the ongoing conflict. Among others, such works
could provide insights into what happens to aid in local contexts in times of conflict.
While not an in-depth study of the effects of conflict on development activities at the
local level, the following section, by taking as case study the Finnish aid funded three
projects, explores its dynamics at the local level. But, first a general description of the
three Finnish aid funded projects currently underway.
Finnish Aided Projects and Their Implementation24
Rural Water Supply and Sanitation Support Project Phase III (RWSSSP III)
Finnish assistance to Nepal in water supply and sanitation began in 1990. It had the name
Rural Water Supply and Sanitation Project (RWSSP). By July 2004, this project had
completed three such phases. The earlier two phases of this project were targeted only to
Lumbini Zone and covered all the six districts in the zone. In RWSSP phase III, two
additional districts of Dhawalagiri and Gandaki zone were included.
RWSSSP Phase III commenced in July 1999. The estimated duration of Phase III
was from July 1999 to July 2004. It was later extended to December 2004. The Program
was executed under the Ministry of local Development and operated from its
headquarters in Butwal. It spread in eight districts which were Arghakhanchi, Gulmi,
Kapilvastu, Nawalparasi, Palpa, Parbat, Rupendehi and Tanahu. Stakeholders involved
were the Department of Local Infrastructure and Agricultural Roads (DOLIDAR), Water
Supply and Sanitation Division/Subdivision office, DDCs, VDCs, Support Organizations,
user committees and the users.
The primary objective of the project was to contribute to full coverage of

adequate and sustainable water supply and sanitation facilities in Lumbini zone and
additional two districts through improvement of institutional capacity of the district and
to facilitate decentralization from nation to district and from district to user level. Broader
objectives were: 1) to develop institutional capacity to support decentralization of water
supply and sanitation 2) to develop human resource capable of implementing
decentralized water supply and sanitation strategies 3) mobilize local resources to
facilitate implementation and management of water supply and sanitation on
decentralized basis 4) develop new approaches, methods and technologies especially to
meet the needs of the poor.
The completion report of the project has yet to be prepared. According to the
Annual Progress Report 2004/2005, within a span of five years the project was able to
provide water supply services to 195,000 people, sanitation services to 228,000 people,
human resource development training to 12,300 people and organized various awareness
raising and gender training activities, workshops and seminars. A total of 12,313 persons
were trained in human resource development and post construction related matters. A
total of 10, 347 user community members, mother groups and female community health
volunteers participated in pre-construction, during-construction and post-construction
24
This section is based on annual reports prepared by RWSSSP and SEAM-N for 2003/04 and on
information available on the official website of HMGN, Ministry Of Education
15
seminars, trainings on community action plan, fund and store management, gender issues,
hygiene and sanitation. Representatives from district level and members from user groups
formed the monitoring team to evaluate projects.
Finnish contribution to the project was Euros 1.41 million. However, only 1.13
million was spent due to savings and postponement of investments. HMGN contributed
NER 2.017 million and DDC's share was NER 795 million but released NER 53 million
only. Investment was done by VDC's and users at the local level, which amounted to
57percent of the total contribution. Main strategies of the program were local resource
mobilization, capacity building, participatory approach and gender sensitive approach.
Self reliant funding schemes were introduced in areas where villagers were willing and
capable of contributing. In these areas, central government did not contribute and DDC
and Finnish contribution were limited to 25 percent and some technical support.
RWSSSP is also working to mitigate Arsenic and bacterial contamination in ground
water. RWSSSP has tested the level of arsenic and bacterial contamination of 3,700 tube
wells in Nawalparasi, Kapilvastu, Rupendhei and Palpa districts. The project has also
made available 700 biosand filters in arsenic affected areas at subsidized rates.
Education for All (EFA)

EFA cannot really be called a Finnish project since Finland is only one of the many
donors involved in supporting this project. EFA, nevertheless, is taken up in this section
because it happens to be one of the major programs currently receiving Finnish support in
Nepal.
During the 1980s there were two major foreign funded projects in the education
field. These were the Education for Rural Development Project, known as the Seti Project
and the Primary Education Project (PEP). Seti project was developed and financed by
UNICEF, UNESCO and UNDP. PEP was a legacy of the Seti Project and was supported
by World Bank and UNICEF. The characteristics of these projects were that they focused
on cluster models and used resource centers to enable more decentralized control and
management of educational institutions. Based on the experiences of these two projects,
the Basic and Primary Education Program (BPEP) was initiated in the 1990s. It focused
not only on school going children but also on those children who due to various
constrains were unable to attend formal schools and the project sought to provide literacy
programs for them. EFA builds on the achievements of Basic and Primary Education
Program (BPEP). The positive aspects of programs such as PEP, BPEP and EFA is that
within two decades education sector in Nepal has gradually evolved to a decentralized
mode. EFA has strengthened this strategy of devolving education system to local bodies.
Today, responsibilities for monitoring, budgeting, planning activities, etc. rests with the
management committee while central and local governments act as facilitators rather than
implementers.
EFA is a five year strategic plan. Its basic objectives are: (1) Ensuring access and
equality in primary education; (2) Enhancing quality and relevance of primary education;
(3) Improving efficiency and institutional capacity.
16
The program is based on the following six components: (1) Expanding and
improving early childhood development. This is done by continuing to support two early
childhood development programs: the community based and school based pre primary
classes. It evaluates effects of the two in enrolment retention and learning achievements
of primary education. EFA also gives priority to producing education materials by
utilizing locally available materials. (2) Ensuring access to education for all by providing
primary education free of cost. Also to improve access, children affected by insurgency
and natural disasters are tracked down. Creating friendly learning environment for
children with special needs while constructing infrastructure, resource classes and
assessment centers are some of its strategies. (3) Meeting the learning needs of children:
EFA's response to the linguistic minorities has been to work in preparing curriculum and
textbooks in eleven minority languages with the support of local communities and ethnic
minorities. (4) Reducing adult illiteracy through income generating programs and through
pilot projects on literacy through mother tongue. (5) Eliminating gender disparity by
increased female teachers at primary level and by designing gender sensitive texts and
curricula and (6) improving all aspects of quality education through trained teachers,
relevant curricula, conducive learning environment and involvement of community. EFA
expects to meet it goals by 2015.
EFA provides incentives such as scholarships, food for education and uniforms to
help overcome various social and economic obstacles faced by girls, children from dalit
families, poor and indigenous children and children with disabilities. It also assists in
improving physical environment of schools and encourages recruitment of female
teachers and those from dalit, indigenous and disadvantaged communities. To enhance
quality and relevance, EFA focuses on improving teaching learning materials, providing
free textbooks and support materials to teachers, reviewing and revising curriculum with
a purpose of making them locally relevant and developing monitoring and evaluation
system. In order to improve efficiency and institutional capacity, EFA focuses on
transferring school management to the local community building local capacity by
offering training for head teachers, School Management Committees and VDC members
implementing the School Improvement Plan (SPI), which provide block grants to schools
to allocate resources for specific activities according to the needs identified and activities
proposed by the SPI.
The total funding for EFA is US $335.43 million out of which HMG will bear
US$ 56.46 and foreign aid will amount to US$ 278.97. Finnish contribution to EFA is
US$ 15 million from which US$ 1 million is set aside for technical assistance.
Strengthening of Environmental Administration and Management – Nepal (SEAM-N)

Finland's support to environment sector in Nepal started in the late 1990s. The first
projects were Environment Labeling for Export Industries and the Environment Support
Fund for NGO's and CBO's - both started in 1999. An ongoing project in this sector is the
Strengthening of Environmental Administration and Management at the Local Level
which commenced in 2001.
17
The proposed duration for SEAM-N was from 2001 to 2004. The locations for the
program were municipalities of Biratnagar and Dharan and VDC's of Katahari,
Dadarbairiya, Hattimuda, Tankisinuwari, Sonapur, Duhabi and Khanar. The basic
objective of this project was to contribute to protection of environment and to promote
environment sustainable rural, urban and industrial development. Its specific objectives
were (1)Develop skills and capacity of staff and cooperation partners of municipality and
VDC's to implement environment monitoring, planning and management (2) To plan and
implement Cleaner Production (CP) and Occupational Health and Safety (OHS) measures
in Biratnagar- Dharan industrial corridor (3) To establish local/regional environment
monitoring, data management and information system and laboratory analytical services
for environment monitoring and pollution control (4) To enhance cooperation between
industries, VDC's, DDC's municipalities, local universities and campuses in the project
area. (5) To establish funds for promoting sustainability of environment and to offer
investment support for local industries. Finnish contribution to the project is 16.382
million FIM.
The program has five components. Component 1: Environmental Administration,

Planning and Management of the Local Authorities. A variety of activities are conducted
under this component. A VDC forum has been formed to enhance coordination and co-
operation among the VDCs, to raise awareness on environment and strengthen their
environmental administration. Formation of the committees such as Solid Waste
Management Working Committees, Awareness Raising Committee, Management
Strengthening Committee, Infrastructure Development Committee have been made. It
also supports Purbanchal University in creating a curriculum on environmental topics.
Component 2: Local Administration Environmental Investment Fund: This component

encourages and assists the participating Municipalities, VDCs, NGOs and local
communities to implement environment management and environment promotion
activities by establishing a Local Environmental Fund. EUR 336,376 is allocated for the
Fund for the years 2001-2005. The fund can finance training, capacity building and
awareness raising activities, technical assistance, feasibility and other studies,
consultancies and investments.
Component 3: Cleaner Production and Occupational Health and Safety of the Local
Industries. This component encourages polluting industries to practice Cleaner
Production or Waste Minimization and Occupational Health and Safety in the project
area. This component identifies industry’s strengths and weakness in terms of Waste
Minimization / Cleaner Production, designing a Cleaner Production/Waste Minimization
Program for the selected industries and organizing training programs to encourage the
industry to implement the cleaner production program.
Component 4: Environmental Support Investment Fund for the Local Industries: This
component encourages and enables those industries to practice cleaner production and
occupational health and safety measures through the establishment of an Environmental
Support Investment Fund. EUR 336376 has been allocated for the Fund for the years
2001 - 2005
18
Component 5: Environmental Monitoring and Laboratory Services This component of the

project aims to promote an effective environmental monitoring and evaluation system as
a part of the environmental management. This component includes Self-monitoring and
evaluation by the industries where industries establish a simple laboratory and regularly
test some key parameters to self-monitor the qualities of effluent/emission.
This project has been organizing various awareness raising and gender training activities,
workshops and seminars. It has also provided water supply services to 195,000 people,
sanitation services to 228,000 people and Human Resource Development training to
12,300 people.
The Interface between Conflict and Development at the Local Level
RWSSP III: Phase III of RWSSP has been more decentralized than Phase II. A five
member District Project Management Team is responsible for financial and
administrative aspects as well as identifying the needs of the district. In earlier phases the
responsibility had rested with the project staff or the counterpart government staff. In
keeping with the Self Reliant Concept, users contribute substantially, while the Finnish
contribution forms just about 25 percent of the budget. The DDC's also contributes 8 to
20 percent. The self reliant concept was introduced to ensure continuity of the program.
As a part of the fieldwork, the team visited Motipur VDC of Kapilvastu District.
The scheme mainly involving two deep tube wells and overhead tanks, has a provision to
construct 502 tap stands and 300 washing platforms population. With a total of 1300
households, the scheme has a population of 8000. However, 30% of the households in the
areas were not covered. Among the excluded 30%, some households are rich and others
are poor. The poorer households were dispersed and therefore could not be included.
RWSSP is officially complete but a technical problem arose in one of its overhead tanks.
To rectify the problem FINNIDA contributed additional funds to conduct soil tests and
geotechnical and structural designs. Funds were also secured through user groups and
VDC's. Some of the project staff have remained behind to oversee the completion of
work on the overhead tank and they and the water user committee has maintained contact
and consults with FINNIDA via fax.
“Working in a conflict context is not an impossible task”, says Bhim Malla,

Technical Expert with RWSSP. He feels that because of the success of RWSSP and the
consequent good will and support received from the people, it will not be difficult to
launch other activities in the area in spite of the conflict.
The effects of the conflict have had their effects on the project in the form of
delays which have in turn affected the cost of construction materials Variation in the
estimates has been a common phenomenon; the cost of schemes has tended to escalate.
Although programs are running at a slower pace, they have not come to come to a halt. It
was observed that the state was unable to directly deliver services in DDC's and VDC's
with the program in Kapilvastu generally being implemented by NGO's.
19
According to key respondents, Maoists keep an eye on NGO activities in their

area. Some NGOs have been penalized. Maoists, however, do not hinder projects that
demonstrate transparency. However, they penalize organizations in which they detect
financial irregularities. If they feel that a specific amount has been mismanaged, they
demand this sum as a ‘contribution’ to their cause.
Since this project delivers tangible outputs and keeps transparency in accounting, it has
not faced Maoist assaults and censorship so far, is the opinion of Sushil Subedi,
Institutional Expert with RWSSP III. According to him, in the six districts of Lumbini
zone, the program has been active for many years and has a good base in the area. The
program acts as a facilitator and most of the planning and resource management is done
by the communities. He feels that since the Maoists are familiar with the working
modalities and achievements of RWSSP. However Maoist troops are mobile and there
have been incidents in the past where Maoists unfamiliar with RWSSP have tried to
create problems. Once the intentions and accomplishments of the program is made clear
to them, projects are allowed to operate smoothly25.
EFA: EFA aims to improve access, efficiency and institutional capacity and enhance
quality of education. Local bodies have the authority to identify the educational needs of
the community and to formulate, implement and monitor educational plans. Based on the
principle of devolution, the Department of Education under Ministry of Education,
Culture and Sports provides block grants to DDC's District Development Fund (DDF).
The local Development officer releases the fund from the DDF to the District Education
Fund. The District Education Officer makes this fund available to the municipalities,
VDC's and schools.
Early Childhood Development is one of the major components of EFA. In order

to ensure access to vulnerable and marginalized children, EFA strengthens the existing
community based and school based primary classes and has been working on community
mobilization to increase the efficiency of the programs. The "welcome to school" and
"ghar dailo" or "door-to-door" programs carried out nationwide were successful in
increasing Dalit and janajati enrollments. The "ghar dailo" program, specially designed to
abolish untouchability in schools, was able to draw communities such as Dung, Chamar,
Kami, satar, Damai, Mushaharto in schools in Morang district where the researchers
visited. Such programs have helped ameliorate the hesitation that was seen among Dalit
and janjati groups to attend schools. Additionally scholarship programs such as the Dalit
scholarship, girl child scholarship, special needs children scholarship, flexible schooling
programs and 'boosters' for families where children have never attended schools, are
some of the incentives provided by EFA to expand early childhood development.
To deliver quality education, EFA has identified the following "five basics":
teachers, textbooks/instruction materials, learning environment, school improvement and
management and capacity building. To fulfill the "basics", the program focuses on
25
The Maoists had also tried to force the staff to ‘contribute’ (i.e., give some money from their salary). The
staff resisted and the Maoists didn’t pursue this further.
20
regular short term teacher training courses, creating “book corners”, libraries and making
available teaching/learning materials. For this, every primary school is given Rs.3000. A
five year School Improvement Plan (SPI) is being implemented. The SPI is based on
EFA grants and contributions from the parent body. Parents are required to contribute
Rs.100 per child to facilitate the SPI. EFA has allocated Rs.110, 000 per primary school
to cope with the increasing number of students and to improve the physical environment.
In order to make learning relevant to indigenous people and linguistic minorities,

EFA encourages developing curricula in the local language if 75 percent students in
primary schools speak their mother tongue.
In order to encourage community involvement in schools, school management

committees consisting of parent representatives are formed. This body has an important
role in decision making and management activities. Following the principle of
decentralization, EFA will be implementing a Community School Transfer program with
the aim of making local people responsible for educational processes and decisions.
Education is one of the largest aid receiving sectors in Nepal and it is possible that
the huge amount of funds that the state allocates through its line agencies at the district
level which then make their way into schools subsequently gets into the hands of the
Maoists (or at least a portion of it) further fuelling the ongoing conflict. The basket fund
that has been established at the central level provides mechanisms for the transfer of
funds from the center to the district levels. Evidence suggests that at the district level the
funds are being transferred to the schools – the ultimate destination where the funds were
meant to go. Due to the bottom-up approach of EFA, the state is less and less involved in
education programs at the schools. Its main task is to ensure that budget is released to the
DDC's after which most of its activities are conducted through Resource Persons (RP). In
a sense the RPs are the hands and feet of the state that ensure that the funds released to
school performs the functions they are intended for. However, fieldwork in the two
districts made it evident that many RP's are facing Maoists threats because they are seen
by the Maoists as representatives of the state and so are unable to perform their
monitoring roles. They have not been able to make visits to the school and perform their
monitoring roles. In the past they have had to either resign from their post or to return the
allocated budgets to the District Education Office. This has affected monitoring and
evaluation of EFA in many areas.
Thus though evidence suggests that funds are flowing to the schools, what is
actually happening at that level – whether or not the funds are being used for the purposes
they were intended for - is not very clear though. Given the poor quality of monitoring,
there are rooms to suspects that the funds or at least a portion of it are getting into the
hands of Maoists, especially in areas controlled by them.
District education officers in Morang and Kapilvastu and some resource persons
(RPs) in Morang were interviewed in the concerned district headquarters. They feel that
EFA programs are generally ‘successful’. However, they also express their ignorance as
to whether or not the anticipated results have indeed reached the classrooms.
21
A number of unintended consequences of EFA were pointed out by some of the

interviewees such as increase in quantity of students which may not be accompanied by a
similar increase in quality, ineffective implementation of learning in local language,
untimely delivery of free textbooks and ineffective monitoring of EFA programs.
Maoists infiltrating the school management committees were also reported in Morang
and Kapilvastu Districts. Management committee has an important role in accounting
school budget and a link with it can be useful for the Maoists. Discrepancies in school
funds, politicization of the management committee and alliance between the Maoists,
school headmaster and the management committee are not uncommon in VDCs and
DDCs under the effective control of the Maoists. Some District Education Officers see
the presence of Maoists in a positive light: "Presence of Maoists in the management
committee should not be looked at negatively. Once the Maoists enter a system they get
to understand the working mechanisms. This is better than when the Maoists remain
outside a system and hamper its operations. Maoist presence in schools has also helped
check discrepancies in attendance of students and teachers. Both students and teachers
are compelled to attend schools if not for other reasons, simply out of fear!"
Some interviewees were skeptical about the practical outcomes of the idea of
handing over schools to the community. (Since these individuals preferred to remain
anonymous, their names have not been disclosed here.) In the present situation, presence
of the state from the local level has almost been wiped out and schools are its only
representative. If the government hands over schools entirely to communities, it will be
erasing its presence completely and the Maoists will have full control over education in
rural areas.
For the present, the direct Maoist influence in education that are tangible to
observe are the ban they have imposed on singing the national anthem and teaching
Sanskrit and moral education. These are subjects that mostly discuss religion and
monarchy in Nepal and are therefore against Marxist-Leninist-Maoist philosophy. They
have also instructed schools not to fly the national flag, not display photographs of the
king and queen. Some schools that were named after the king or queen had to, in fact,
change their names. Maoists have also banned celebration of certain holidays and have
their own school calendar. However schools do not strictly follow Maoist calendar, and
only in areas that are under the secure control of the Maoists have they complied with the
stricture. Maoists have also imposed levy on teachers salary. The teachers have to give, at
least, a days’ salary to the Maoists.
The Maoist calendar of school holidays

HMG holidays abolished by CPNM New CPNM holidays
State visit of the King People's war Day
Kings Birthday Sacrifice Day
Childrens Day Resistance Day
Constitution Day People's Movement Day
Democracy Day Foundation Day of Nepal Communist Party and anniversary
of Lenin
Education Day Matramani day (a martyr killed in Chitwan)
22
Rakshya Bandhan Marx commemoration day

Nag Panchami Mao commemoration day
Teej Student's day
Krishna Janmasthami Chiniya Kazi Day (martyr in Kathmandu)
Holi
Source: Kishor Nepal, 2005
Maoists also want to impose their own curriculum in primary and lower middle
level schools. They have come up with two textbooks: People's Education and Republic
Nepal and are also in the process of establishing specialized schools to teach Marxist-
Leninist-Maoist philosophies. Such schools called KAJU (Kalikot-Jumla) have been
formed in Kalikot. 26
CPN (Maoist) school curriculum for classes 4 and 5

Course Year 4 (9 years old) Year 5 (10 years old)
Philosophy (60 credit Introduction to philosophy Introduction to philosophy
hours) The two classes: the exploited and the Materialistic and idealistic
exploiters philosophies
Concept of two classes a) consciousness Introduction to materialistic
and dialectical materialism b) physics philosophies
and mental labor c) the known and the Concept of two classes: physical and
unknown mental labor, Material/
consciousness, Known/ unknown
Politics (40 hours) Biography of Prachanda The life of Mao Tse Tung
Beginning of the PW Biography of four people's war
Introduction to human social warriors
development: primitive stage, slave The Spartacus revolt
society, feudal society, capitalist society The organizations, rules and
Constitution of village level People's regulations of the district people's
Government councils
History (30 hrs) History of the communist movement in History of Nepal Communist Party
Nepal (Maoist)
Biography of Dal Bahadur Ramtel Biography of Mitramani Acharya
The Dang attack The Accham action
Economics (30 hrs) Definition of labor and wage Introduction to values, distribution,
Introduction to types and importance of capital
cooperatives What are the means of labor?
What is production and consumption? What are the weapons of labor?
Exchange and barter of goods Private and social ownership
Introduction to cooperatives
Types of cooperatives and
production
Culture (20 hrs) The song 'I will keep my country in my" The song "Dear Jaljala"
eyes"' Biography and poetry by national
Poetry about Maoist martyrs and local poets
Children's stories Short stories, science stories and
General introduction to traditional children's stories
festivals and people's festivals Types of culture: feudalism,
imperialism, capitalism,
Communism and socialism
26
Kishor Nepal, March 2005
23
Military science (20 hrs) Exercise and marching Important tips for sentries
What is roll call? Rules for route finding
Information, counting soldiers and Exercise and marching
reporting How to make and use guns
Introduction to being a sentry General introduction to explosives,
Introduction to homemade guns grenades and booby – traps
Communication in the battle field Students role, in military information
Introduction to explosives and exchange and communication
of information How to guide soldiers. Roll call
Introduction to war. Types of war – justified and
unjustified
Source: Kishor Nepal, 2005
SEAM-N: Despite the conflict, industries in Morang district have continued to benefit
from programs such as SEAM-N. The environment friendly cleaner production
technologies introduced by SEAM-N has helped them adopt energy saving and waste
minimizing methods. Such technologies have contributed to minimizing water and
chemical consumption, minimizing accidents and exposure to noise, minimizing wastage
discharge and improving the working condition of the factory workers. Citing an example
of the benefits of cleaner production one industrialist reported that he was spending Rs.
67,000 per month on electricity bills but that it went down to Rs.37,000 per month after
installing CP technology.
This program has also made industries aware of documenting data and has
increased management awareness. Added to this, the self monitoring system introduced
by SEAM-N has assisted industries in becoming capable of monitoring and regulating
their products and therefore maintaining their production standards.
The number of working days that have been lost as a result of the Maoist called
bandhs is the most conspicuous effect of the conflict on this programme. According to
one source during the last year, a total of 62 labor days have been wasted by strikes. Such
strikes affect the working schedule and Pasi Laihonen, team leader of SEAM-N says that
bandhs are one reason for the programme running behind time. Besides loosing working
days, bandhs impede transportation of materials and affect mobility of people.
However, subsequent to 1 February 2005, the bandhs have been drastically

reduced and industries in the Biratnagar-Dharan corridor perceive this positively.
VDC members are a link between the Maoists and the project. And Maoists had
approached the VDC members associated with SEAM-N for revenues. However, the
project accountings are transparent and the Maoists were given a clear message regarding
the improbability of providing donations. After this refusal, they have not caused any
obstruction in implementing programs.
Nobel Dairy is a one out of the six industries chosen by SEAM-N for accessing
cleaner productions and occupational health and safety of the local industries in Morang
district. As with the team leader of SEAM-N, the proprietor of this industry Mr. Dheeraj
Shrestha feels that Maoist declared bandhs have noticeably affected activities in the
24
industries. Apart from loss of working days, industries have to suffer from extra expenses
incurred due to the strikes. Industries take loans from banks and working days lost mean
more interests and higher cost revenues. According to him such bandhs can cause losses
of up to 12 lakhs per month. Nobel dairy manufactures dairy products. The raw materials
and finished good are both temporary in nature. Inability to market their products in time
causes spoilage and wastage. Bandhs hamper delivery of services to customers that
directly affects the image and reliability of the industry. Shrestha says that his industry
had to compete with the government owned DDC. Having strong financial and
infrastructure base as well as the support of the army, DDC is able to deliver to its
customers even during strikes, where as private industries with limited resources are the
one that suffer.
Conclusion
Following the events of February 1st 2005, the position taken by most of the donors is
continuing programs for which agreements have already been made but not signing new
agreements. In effect, many projects in the pipeline have been suspended. Some of the
donors that had provided military assistance have suspended such support or are
providing only non-combat support. Most of the donors would like to see constitutional
forces – mainly the monarchy and the political parties – settle their differences and are
adopting a 'wait and see' approach.
In the three projects taken up in the study, the research explored the possibilities
of funds getting into the hands of the Maoists in the course of project implementation at
the local level. While possibility of 'leakage' of funds do exist, at least theoretically
speaking, in the case of the education sector, this is not so for RWSSSP and SEAM-N.
Both RWSSSP and SEAM-N demonstrate greater control over expenditure. They focus
on delivering tangible outputs with carefully calculated cost estimates that leave very
little room for Maoists to siphon off funds. The funding modality for EFA, however,
involves budgetary support by donors to the basket fund at the central level and
disbursement by the central government to district levels and then to the schools. With
the presence of the state at the local level being marginal and with the Maoists running
their de facto government in the interiors of the kingdom, there exists real possibility for
some of these funds getting into their hands. However, to either substantiate or refute
this, more empirical research at the level of the schools is required.
Stopping aid is not an option but the mode of delivery of aid in a conflict situation
could be rethought. In a context where both the security apparatus of the state and the
Maoists are intent on siphoning resources to strengthen their military capabilities, it is
important that projects be designed in a way that minimize the possibilities of these
resources from being appropriated by the warring parties. It is important that
development aid is not used for fuelling the conflict in Nepal.
The dilemma surrounding development assistance and its effectiveness in a

conflict-affected fragile state like Nepal will require the international community and the
Nepali state and other stakeholders evolve innovative approaches.
25
Reference
Published Sources
Central Bureau of Statistics. 2004. Nepal Living Standard Survey 2003/04. Kathmandu:
National Planning Commission Secretariat
Fujikura, Tatsuro. 2003. 'The Role of Collective Imagination in the Maoist Conflict in
Nepal'. In The Journal of the Association for Nepal and Himalayan Studies. On
terrorism, War as terrorism and Nepal's Maoist insurgency. Volume XXIII
INSEC. 2004. Nepal Human Rights Yearbook. Kathmandu.
Mihaly, E. B (1965) Foreign Aid and Politics in Nepal: A Case Study , London, Oxford
University Press
Khadka N. (1997) Foreign Aid and Foreign Policy: Major powers in Nepal. Vikas
Publishing House, New Delhi.
Panday, D R. (1984) 'Foreign Aid in Nepal's Development: An Overview' , Foreign Aid
and Development in Nepal, Integrated Development Systems, Kathmandu.
Pettigrew, Judith. 2003. 'Living Between the Maoists and the Army in Rural Nepal'. In
The Journal of the Association for Nepal and Himalayan Studies. On terrorism,
War as terrorism and Nepal's Maoist insurgency. Volume XXIII
Sharma Sudhindra, J Koponen, D Gyawali and A Dixit. 2004. Aid Under Stress. Water
Forests and Finnish Support in Nepal. Himal Books, Nepal.
Shneiderman, Sara and Mark Turin. 2004.'The Path to Jan Sarkar in Dolakha District-
Towards an Ethnography of the Maoist Movement'. In Himalayan people's War,
Nepal's Maoist Rebellion. London: Hurst and Company.
DFID. 2004. Nepal Country Assistance Plan.
Frieden,Jorg. Aid Allocation to Fragile States: Observations from Nepal. SDC.
http://www.deza.admin.ch/resources/products_52_en_1424.pdf
OECD. Principles for Good International Engagement in Fragile States.
http://www.oecd.org/dataoecd/59/55/34700989.pdf
US Agency for International Development. 2005. Fragile States Strategy
http: //www.usaid.gov/policy/2005_fragile_states_strategy.pdf
Unpublished Sources
DFID. 2004. Service Delivery in Difficult Environment: the case of Nepal
International Alert. 2005. Rethinking Development Assistance in Nepal: Choices for a Meaningful
Dialogue
Ministry for Foreign Affairs of Finland, Department for International Development
Cooperation of Finland. 2002. Evaluation of the Development Cooperation
Program between Nepal and Finland. Blue Series 2000:1. Ministry for Foreign
Affairs, Department for International Development Cooperation of Finland,
Helsinki.
Ministry for Foreign Affairs of Finland and Ministry of Local Development, HMGN.
2004. Rural Water Supply and Sanitation Support Program, Nepal. Phase III.
Annual Report 2060/61. Butwal.
Plan Center (2004). Ministry for Foreign Affairs of Finland and HMGN. Strengthening of
Environment Administration and Management at the Local Level (SEAM-N),
Annual Report 2060/61. Plan Center, Dharan.
26
National Planning Commission. 2005. An Assessment of the Implementation of the Tenth

Plan (PRSP). On the Road to Freedom from Poverty. Second progress report.
Nepal: Singh Durbar
Nepal, Kishor. 2005. The Maoist Service Provision in Parts on Mid and Far West Nepal.
Kathmandu: Center for Professional Journalism Studies
Picciotto, Robert, Charles Aloa, Eka Ikep, Martin Kimani and Roger Slade, Striking a
New Balance. Donor Policy Coherence and Development Cooperation in Difficult
Environment, A background paper commissioned by the learning and Advisory
Process on Difficult Partnership of the Development Assistance Committee of the
OECD. DFID London. 2005.
World Bank. 2003. Memorandum of the president of the international Development
Association to the Executive Director on a Country Assistance Strategy for the
Kingdom of Nepal.
27

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(Preliminary draft; Do not quote)

Development Cooperation, Conflict and

Paper presented in the workshop

Sudhindra Sharma & Bandana Gyawali

Development Cooperation, Conflict and Aid Effectiveness in Nepal

Today, however, disruption in the country's political sphere and intensification of

The paper begins by examining literature on fragile states - in the process,

From the perspective of donors, fragile states pose a challenge to development

• 28-35% of the absolute poor.

Among donor countries, classification of fragile states differs. To cite some

With growing concern among international committee to make their engagement in

The international community faces distinct challenges in applying aid effective

Principles of Aid Challenges in applying principles of aid effectiveness to

7. Harmonization between Fragile states can be characterized by multiple instruments,

members of the community.9 Despite such modifications in working modalities donor

History of foreign aid in Nepal11

Finland’s Entry into the Nepali Aid Scene

Development cooperation or aid is seen as a main tool of Finnish foreign policy

"Reading" Conflict in Nepal.

Poverty Profile: NLSS I (1995/96) and NLSS II ( 2003/04)

The Conflict in Nepal and Donor’s Programmes

Donors have also adopted certain approaches to maintain operating in conflict

How donors have been "reading" government priorities.

Social inequalities, economic disparity and political instability are believed to be

Partnerships in Implementing the Poverty Reduction Strategy

Labor ILO, IMF, UN Agencies Germany

Roads ADB China, Germany, India, Japan, Switzerland,

Power ADB, UN Agencies Canada, Denmark, Finland, Germany, Japan,

Information/ ADB Denmark, Finland, Japan

Industry UN Agencies Japan, US

Food security UN Agencies Canada, France, Germany, Japan, UK

Social Sector development

Health ADB, EU, UN Agencies Australia, Canada, China, Germany, India,

Source: World Bank, 2003.

Shifts in Donor Strategies

Just as internationally there is an increased merging of the two forms of assistance, in

Democracy and governance: decentralization, increasing the capacity of local

Agriculture and natural resource management: programs that focus on sustainable

Other areas of involvement include infrastructure development by promoting private

Effects of Insurgency at the Local Level

Tatsuro Fujikura's 'The Role of Collective Imagination in the Maoist Conflict in

Finnish Aided Projects and Their Implementation24

The primary objective of the project was to contribute to full coverage of

Education for All (EFA)

Strengthening of Environmental Administration and Management – Nepal (SEAM-N)

The program has five components. Component 1: Environmental Administration,

Component 2: Local Administration Environmental Investment Fund: This component

Component 5: Environmental Monitoring and Laboratory Services This component of the

The Interface between Conflict and Development at the Local Level

“Working in a conflict context is not an impossible task”, says Bhim Malla,

According to key respondents, Maoists keep an eye on NGO activities in their

Early Childhood Development is one of the major components of EFA. In order

In order to make learning relevant to indigenous people and linguistic minorities,

In order to encourage community involvement in schools, school management

A number of unintended consequences of EFA were pointed out by some of the

The Maoist calendar of school holidays

Rakshya Bandhan Marx commemoration day

CPN (Maoist) school curriculum for classes 4 and 5

However, subsequent to 1 February 2005, the bandhs have been drastically

The dilemma surrounding development assistance and its effectiveness in a

National Planning Commission. 2005. An Assessment of the Implementation of the Tenth

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