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As one of the world's poorest countries, and surrounded by the two most populous nations, Nepal has had a difficult political history. With a land area of more than 140,000 square kilometres and a population of 28 million, it has been wracked by a decade of civil

unrest that has left more than 12,000 people dead. The UN has estimated that as many as 100,000 people have been displaced within and beyond Nepal, with many refugees fleeing to Bhutan. Attempts to promote peace and reconciliation have repeatedly failed and there are fears that the country will suffer further ethnic instability.

While Nepal has great tourism potential, given its location at the foot of the Himalaya, the civil war, coupled with environmental pressures resulting from deforestation, has meant that it remains dependent on agriculture, foreign aid and trade with neighbouring India. It's estimated that up to 40 per cent of the population live in poverty.

For much of its history, a hereditary monarchy has held sway over Nepal, and until it declared secularity in May 2006, it was the world's only official Hindu state. In the early 1950s, the Nepalese ruler, King Tribhuvan, ended the hereditary system of absolute rule and introduced a cabinet system of government. But in 1959, Mahendra, Tribhuvan's successor, suspended the parliament, and Nepal again functioned as a monarchical state for the next 30 years.

Reforms in the 1990s led to the establishment of multiparty democracy--albeit with the continued presence of the constitutional monarchy. In 1996, a Maoist insurgency erupted and the country was plunged into a period of extreme instability. The rebels wanted to create a Communist republic and demanded that the monarchy be abolished. Several attempts to secure a ceasefire failed and the monarch resumed executive authority on several occasions.

The most shocking moment in Nepal's recent history was arguably the massacre committed by the Crown Prince Dipendra, who killed ten members of his own family, including the king and queen, in June 2001. In October 2002, the new king, Gyanendra, dismissed the prime minister and cabinet, and attempts to hold new elections were foiled by the Maoist insurgency. The four-party coalition government was reinstated in June 2004 but then removed again by King Gyanendra in February 2005. It wasn't until April 2006, after weeks of mass protest, that the parliament and now seven-party opposition were allowed to reconvene. A peace accord was secured in November 2006 and Maoists entered parliament for the first time in January 2007.

While the peace accord called for a Constituent Assembly to draft a new constitution for the country, the elections planned for June 2007 weren't held and instead took place in April.

During the intervening period, the prime minister, GP Koirala, leader of the Nepali Congress, became embroiled in a crisis involving the Madhesi community in the south of the country. In February, a general strike and petrol shortages gripped the region. Local leaders are demanding greater self-determination and allege neglect and discrimination by governments in Kathmandu.

Elections finally held in April were unexpectedly won by the Communist Party of Nepal (Maoist), and in May, the former rebel leader Prachanda announced that he will meet the king to persuade him to voluntarily make a 'graceful exit'. However, the new government now faces the challenge of accommodating a series of minority community demands--not to mention soaring price rises of food, fuel and construction material--just as it deals with the ending of the monarchy.

* Klaus Dodds is professor of geopolitics at Royal Holloway, University of London