Nepal's Maoist rebellion began in February 1996, when the guerrilla movement set out to overthrow the constitutional monarchy. The key demand of Maoist insurgents is the formation of a constituent assembly to draft a new Constitution. So far, over 8,000 people have died as a result of the insurgency and counterinsurgency, with civilians frequent victims. The conflict, although mostly in remote areas, not only affects the security of Nepal and neighboring India, but strains an already dismal Nepalese economy. Human rights violations by both sides in the conflict increased throughout 2002, with Nepalese human rights activists documenting frequent assassinations and summary executions.
On being presented with his office, Chand moved quickly to open negotiations with the Maoist rebels, with a ceasefire put in effect on 29 January 2003. Chand's government entered into talks with Maoist negotiators in Kathmandu in April 2003. Despite this progress, enormous street protests against the king's antidemocratic actions continued, and most political parties expressed anger at Chand's "regressive" attitudes and policies. For his part, Chand blamed the political parties for hindering progress on security and the economy, insisting, "I am prepared to resign anytime if anybody will guarantee durable peace, security and the people's welfare in this country."
Both the tourist trade and export markets, key areas of economic growth, have suffered the effects of political unrest. Other blows to Nepal's tourist industry came with international terrorism fears and the appearance of the Sudden Acute Respiratory Syndrome (SARS) epidemic in Asia in early 2003. Even prior to the rural political instability of the Maoist insurgency, widespread bureaucratic corruption had resulted in economic neglect throughout Nepal, causing a decline in development spending, a drop in GDP growth, and the erosion of living standards. Nepal is one of the world's most impoverished nations. Nearly half of its population lives in poverty, with per capita income hovering around US $230. An estimated 1.5 million citizens of Nepal were unemployed as of May 2003, with layoffs in important industries like carpets and garments. Many young Nepalese have sought work in other countries.