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S. Government bilateral assistance program to Nepal supports the broader United States interest of maintaining Nepal's independence and stability as a buffer between two major powers, China and India. Small, landlocked and impoverished, the Himalayan Kingdom of Nepal was first opened to the outside world in 1951. Never colonized, seven centuries of authoritarian rule ended only in 1990 with the establishment of a constitutional monarchy and multiparty democracy. Central planning is giving way to marketled development, and a more dynamic monetized economy is emerging as government policies are liberalized. Nepal has a strong record of support for positions favored by the United States in international fora, including participation in international peacekeeping operations. Bilateral assistance is provided in the interest of sustainable development and longerterm stability. The Development Challenge With an annual per capita income level of $210, Nepal is one of the world's poorest countries: half of Nepal's 20.4 million citizens live in absolute poverty; 65% of all children under 36 months show evidence of stunting as a result of chronic malnutrition; average life expectancy is estimated to be only 54 years; infant and maternal mortality rates remain among the highest in the world; and only 40% of the population is literate. Rapid population growth of 2.5% annually exacerbates a difficult development environment and further complicates the delivery of services for the improvement of human welfare. The population increased by 65% to 20.4 million over the past 20 years, and it is expected to double within the next 30 years. The poor are predominately rural subsistence farmers, and agriculture is the primary occupation for 81% of the economically active population. Cultivated land constitutes only 18% of the total land area of Nepal, and subsistence farming reached peak productivity levels years ago as high population density resulted in overexploitation of the natural resource base and erosion of soil fertility. As opportunities to bring additional land into cultivation are limited, the Government of Nepal (GON) is giving priority, with good results and promise, to crop intensification, diversification and commercialization. The strategic vision, based upon documented USAID project results in the midwest development region of Nepal, is to achieve and sustain an annual agricultural growth rate of about 5%. Coupled with efforts to reduce the population growth rate to 2% or below, this means that per capita agricultural output will rise to a more robust 3% or better as compared with recent past rates of 0.5% annually. Over a 20 year period, rural poverty thus could be reduced to 30% of present levels. GON strategy to reduce population growth recognizes that there is a large unmet demand for family planning services, and a great number of gaps in service delivery. USAID is helping to expand the availability, access to and use of quality family planning and reproductive health services. Reducing maternal and under fiveyearold child mortality rates are complementary efforts. Due in part to USAID's efforts, results have been significant: the use of contraceptives has risen from 3% to 24% over the past 20 years, desired family size has declined from five children per family to 3.2, the infant mortality rate declined from 150 in 1986 to 102 per 1,000 live births in 1991, and the average life expectancy of a woman has risen from 49 years a decade ago to 53 currently. As a further complement to these social initiatives, and recognizing the threat of a rapid spread of the HIV/AIDS epidemic in Nepal and throughout South Asia, USAID is employing proven methods to increase prevention and control practices by highrisk groups. Increasing sales of high value agricultural and forestry products in a sustainable manner, and reducing fertility and improving maternal and child health are essential factors in building the momentum necessary for sustainable development. The inclusion of women in all aspects of the social, economic and political development of Nepal is similarly critical. Religious and ethnic conventions have traditionally disregarded the role of women in the economic wellbeing of the family, community and nation and repressed or denied their role in decisionmaking. Opportunities to alleviate this constraint improved with the advent of democracy, and have been further reinforced over the past year with publicity surrounding the Beijing conference, and the visit by First Lady Hillary Rodham Clinton. USAID efforts in this area are focused on increasing women's literacy rates, improving legislation which ensures the provision and enforcement of basic rights, and enhancing participation in economic activity through microcredit programs. Donor assistance has contributed directly and substantially to Nepal's development over the past 40 years. A base of physical and human capital necessary for nationbuilding has been established, and respectable improvements in human welfare have been achieved. The country, however, has been overly dependent on donors, and future investment must come increasingly from private sources. Borrowing is possible too, as current external debt is almost all concessional and the debt servicing requirement is low. Prospects for investment and the further strengthening of the macroeconomic policy environment were enhanced over the past year with the fall of the United MarxistLeninist Government and the coming to power, through constitutional means, of a coalition government committed to free market principles. USAID and other donors are assisting the new government with tax reform, privatization of parastatals and streamlining of business licensing procedures. USAID, however, is reducing its bilateral assistance in this area in favor of tightly focused efforts in highgrowth agriculture, smaller family size, and greater participation by women. Other Donors Donor assistance accounts for nearly 60% of the GON's investment budget. Approximately $400 million is provided annually by donors with the greatest contributions coming from Japan, the World Bank, and the Asian Development Bank. The United States provided about 5% of all donor assistance to Nepal. FY 1997 Program Priority investments in highgrowth agriculture, family planning and health services, and the empowerment of women are strategic to Nepal's attainment of sustainable growth, broadbased development and longerterm stability. At the same time, these investments address global interests of respect for human rights, environmental protection, stabilization of population growth and control of the HIV/AIDS virus. Development assistance is requested for the continued implementation of a focused, resultsoriented program built upon the successes of past investment and current opportunities. Almost half of the FY 1997 funds requested will be applied to the Agency goal of stabilizing world population growth and protecting human health. The balance of funds will be distributed between the Agency goals of broadbased economic growth and building democracy, with a somewhat higher portion allocated to the economic growth objective. Over the next three years, the Mission plans to reduce its focus on Agency goals from its current level of four to three or two. The number of U.S. direct hire staff will be reduced from its current level of 13 to 10 U.S. direct hire in 1997. X` / hp x (#%'0*,.8135@8: