Nepal’s intermittent terrorist violence and a new wave of civil unrest flared in April and May with European and other international aid donors caught in the middle of the crossfire trying with only slight effect to influence a resolution of the Himalayan kingdom’s lengthy turmoil.

The international aid meeting in Khatmandu from May 6 to 9 struggled against this background to agree on pledge in further aid to the troubled recipient, but was followed just a few days later by the suspension of aid operations there by Britain, the Netherlands and Denmark.

But the aid meeting which involved the European Union, other western and Asian donors as well as international financial institutions reacted in mixed and ambiguous reservation to the clash between civil and political forces and the King over restoration of parliamentary democracy. While many might have been ready to support a legitimate Nepalese government confronted with terrorist rebels, they were clearly reluctant to assist a ruler also in conflict with most political forces in the country following his dismissal of the parliament and previous Prime Ministers.

Opening the conference the World Bank Vice President for the South Asia region Praful Patel remarked that “Over the period since we last met, Parliament has been dissolved and the constitutional crisis has deepened. Local elected bodies have, for all practical purposes, become dysfunctional. Since the peace talks collapsed, the conflict has flared up; many more lives have been lost to the violence; many more lives have been uprooted. International concerns have mounted over the deterioration in the human rights situation. And alarms have been sounded in the international community that Nepal may be heading the way of another "failed state".”

He added that “Giving development another chance in Nepal is not a blank check for more of the same chaotic governance. Not one of us here imagines that Nepal's development can be sustained in the absence of a government committed to participation, accountability and transparency.” He added that development efforts had become “hostage to political tactics.”

Donors pledged $1.6-billion (U.S.) in aid to Nepal May 6, but said they expect the Himalayan kingdom to work to end twin crises with Maoist rebels and opposition parties.

Closing two days of talks with Nepal's pro-royal government, representatives of 20 countries and six international agencies said they will provide the money over three years to finance development projects. The NDF meeting included international donors from the United States, Japan, the European Union, the Asian Development Bank, and the World Bank. A joint statement "stressed the urgent need to have the democratic process restored, the conflict resolved and human rights respected." Participants said privately they might be prepared to give more aid if they see progress. The BBC reported that the donor representatives said that aid would depend on the peaceful settling of the Maoist insurgency, the restoration of democracy and an improvement of the human rights situation.

Foreign aid accounts for around half of the funds used for development and accounts for some 6 percent of Nepal’s Gross Domestic Product. The last Forum in 2002 raised some US$1.4 billion dollars.

The EU and other international donors had taken an increasing interest in the country following the alarming uprising by Maoist guerrillas in recent years and the political instability in the wake of the June 2001 massacre of much of the royal family by Crown Prince Dipendra, 29, who apparently committed suicide immediately afterwards and was succeeded by his uncle Prince Gyanendra. The country of 23 million had become a constitutional monarchy in 1990 following a popular uprising, but the late King Birendra had assisted the democratisation and regained popularity. But there were some 10 governments marked by corruption and incompetence in 10 years following the established of the constitutional system and the instability continued after the accession of Gyanendra. Rioting erupted briefly following the royal carnage but some semblance of uneasy calm was restored.

The declaration of a state of emergency in Nepal and dissolution of Parliament in May 2002 followed a lengthy period of mounting political instability in the country, the weakening of control by Government in Maoist-held areas and an increase in violent conflict. In spite of the brief respite brought about by a January 2003 ceasefire agreement, conditions have further declined since the breakdown in late August 2003 of the fragile negotiations between the government and Maoist insurgents.

Since the king assumed executive powers in October 2002, tens of thousands have also marched in the streets to protest the monarchy and for the restoration of democracy. The five main political parties, who had held daily rallies against King Gyanendra in recent weeks, had boycotted the conference. The parties had also urged the donors to pressure Gyanendra to restore elected officials.

A German-Finnish study of aid to Nepal recently concluded that the country was “over-aided” but that the aid furnished by the major European aid donors was not sufficiently coordinated or directed at poverty reduction. It suggested that the most urgent requirement was to foster good governance. Rural infrastructure, education and health, energy from renewable sources were also given high priority. India is another major aid donor, training partner and source of employment for an estimated 6 million Nepalese transfrontier workers.

But immediately following the donor conference in May, the British Department for International Development and equivalent organisations from Germany and Holland said they were suspending their actions. The United Nations World Food Programme also said it was pulling out, as did embassies from other European countries, Canada and Japan. The agencies said that staff had been threatened, and bombs placed in the offices of a number of non-governmental organisations (NGOs) who they worked with. The decision means the suspension in four north-western districts of a project that enables destitute people to get food in return for work on infrastructure projects. They called on the Maoists to stop physically harming their staff and support staff, and pledged to re-start their operations once security concerns are removed. In the past, the rebels warned that only American-aided projects would be attacked because of their financial and military assistance to the government in tackling the insurgency.

The European Union in recent years has been active in providing assistance to poverty-stricken and combat-affected populations, as well as refugees on the border regions with Bhutan. It has also sent missions to examine the conflict and make recommendations in the hope of preventing further outbreaks. And it has funded the Stockholm-based International Institute for Democracy and Electoral Assistance (IDEA) to create a dialogue among all Nepalese stakeholders to examine other examples of deadlocked situations which had been transformed, such as Sri Lanka, and to examine their own situation and positions.

Despite the earlier announcement of the suspension of its aid activities, the UK on May 13 said it will spend £80 million over the next two years to support peace and development in Nepal.Gareth Thomas MP, the Parliamentary Under-Secretary of State for International Development, explained the Department for International Development (DFID) Country Assistance Plan (CAP) for 2004-08 which sets out the overall aim of helping to establish lasting peace in Nepal by reducing poverty and social exclusion. Gareth Thomas said: "It is a tragedy that more than 10,000 people have been killed by the conflict in Nepal since it started in 1996. The UK is committed to helping Nepal deal with the causes and consequences of this conflict. Development is critical at this time, both to relieve the suffering caused by the conflict and to help bring about sustainable peace by addressing the root causes of the conflict. This week's forced suspension of some donor activities, financially supported by DFID, because of Maoist threats to donor and NGO staff only illustrates the importance of our work in Nepal."