Feuding politicians take Nepal to brink of ruin

By Gopal Sharma and John Chalmers

KATHMANDU (Reuters) - Apart from a small bust of Chairman Mao beside his armchair, Nepali Prime Minister Baburam Bhattarai flaunts no trappings of his revolutionary past: these days he talks of foreign investment, infrastructure projects and double-digit growth.

The trouble is that, since they handed over their guns at the end of a decade-long insurrection in 2006, Nepal's Maoists have done no better at running the Himalayan republic than the corrupt and incompetent political mainstream they joined.

Liberated from civil war and sandwiched between economic powerhouses China and India, Nepal could be one of Asia's success stories. Instead, as it blunders further into political turmoil, even its own leaders talk darkly of a "failed state".

Last May, its quarrelsome political parties missed a deadline to write a new constitution. As a result, Bhattarai's rivals say his government has no legal status, the country has no parliament, and there is now no agreement on a date for elections to end the stalemate.

"Unfortunately the old parliamentary parties are trying to get their pound of flesh, not agreeing ... on anything until they get the leadership of the government," Bhattarai told Reuters in an interview in his leafy official compound in the capital, Kathmandu, last week.

Most pressing, due to an impasse over this year's budget, the caretaker government's authority to draw from the Treasury will lapse this Thursday, which means it will be unable to pay the salaries of half a million civil servants, soldiers and police.

"We won't be able to supply even essential drugs to the sick in hospitals, pay old-age pensions and feed inmates in jails beyond that day," bemoans Shanta Raj Subedi, the most senior bureaucrat at the Finance Ministry.

Economists warn that development projects will grind to a halt in a country where one quarter of the 26.6 million population live below the poverty line, the economy will shrink and black markets, money-laundering and smuggling will flourish.