Prior to the establishment of the monarchy, Bhutan followed a dual system of administration initiated in 1651 by Shabdrung Ngawang Namgyel. Under this Chhosi system, the Druk Desi looked after the temporal administration and the Je Khenpo looked after religious matters of the country. Although this form of government worked for over two centuries, disputes over the succession to office brought about increasing strife and instability by the second half of the 19th century.

Prior to the establishment of the monarchy, Bhutan followed a dual system of administration initiated in 1651 by Shabdrung Ngawang Namgyel. Under this Chhosi system, the Druk Desi looked after the temporal administration and the Je Khenpo looked after religious matters of the country. Although this form of government worked for over two centuries, disputes over the succession to office brought about increasing strife and instability by the second half of the 19th century.

 
The First and Second King of Bhutan

A new era in Bhutanese history began on 17th December 1907, when Tongsa Penlop (the Governor of Tongsa) Ugyen Wangchuck was elected as the first hereditary king of Bhutan. It was a decision taken unanimously by the clergy, officials, and people acting on their desire for political stability and internal peace in the country. Thus, King Ugyen Wangchuck laid the foundation for the emergence of modern Bhutan, uniting it under a central authority.
The nation continued to enjoy peace and stability under the reign of the second king who succeeded him in 1926 and ruled the country till 1952.

The Third King

After his ascension to the throne in 1952, the third king Jigme Dorji Wangchuck took the initiative of developing political consciousness among the Bhutanese people by giving them a greater say in running the country. This was most evident in the establishment of the National Assembly by the king in 1953, and later still, when he voluntarily surrendered the right to veto bills in the Assembly. King Jigme Dorji Wangchuck also proposed a mechanism of no-confidence vote that could require the king to abdicate his throne if he was deemed unfit to rule the nation. This, however, was met with a great deal of objection and resistance in the Assembly. Upon yet another recommendation on this issue from the king in 1969, the Assembly reluctantly approved the resolution whereby the reigning monarch would have to abdicate if two-thirds of the Assembly supported a vote of no confidence. This system was, however, abolished by the Assembly during the spring session in 1973. Under the third king's reign, the Royal Advisory Council, the Council of Ministers and Cabinet, and a High Court were also established. Pertinently known as the farther of modern Bhutan, king Jigme Dorji Wangchuck was responsible for bringing planned development into the country with the introduction of Five-Year Plans, shedding off centuries old isolation and opening Bhutan up to the rest of the world. In 1971, Bhutan joined the United Nations Organization.

The Fourth King

King Jigme Singye Wangchuck ascended the throne in 1972. Like his farther before him, the young king at age 17 wanted to open and modernise the country in a cautious manner and has always stressed on the need to foster a balanced society by promoting, tradition, culture and the preservation of the environment. Considered a people's monarch in every sense, His Majesty has guided the nation towards the pursuit of economic self-reliance, cultural promotion, environmental preservation, regionally balanced development, good governance and decentralization.

Following a royal decree issued by the king in September 2001, the government of Bhutan inaugurated the drafting of a Constitution, which is widely seen as a historic move in the process of political evolution initiated by His Majesty. The process of decentralization was a personal initiative of the king with the introduction of Dzongkhag Yargye Tshogchungs (DYTs) in 1981, and Geog Yargye Tshochungs (GYTs) in 1991. Emotions ran high amongst the Bhutanese people when His Majesty devolved all executive authority from the throne to the Cabinet in 1998, introducing a system in which the National Assembly would elect a Council of Ministers by secret ballot, and directed the National Assembly to re-introduce the system of a vote of confidence in the King.

Governments

Governance in Bhutan concerns the efforts of the National Assembly, Judiciary, Council of Ministers, Royal Advisory Council, and the Central Government.

National Assembly

Set up in 1953, the Tshogdu (National Assembly) meets twice a year and can be called for emergency sessions. Of its 150 members, 99 are chimmis or representatives of the people. The Monk Bodies elect 10 representatives for the monastic community. The remaining 35 are representatives of the Government and nominated from among senior officials by the king. The assembly from amongst its members elects the Speaker and Deputy Speaker. All members serve for a term of three years.

Royal Advisory Council

The Lodey Tshogdey (Royal Advisory Council) is the highest advisory body in the country established in 1965. Six councillors are elected from representatives of the people, two from representatives of the Monk Bodies, and one is nominated by the king acts as Chairman of the Council. With the exception of the representatives of the Monk Body who serve for one year, the rest hold office for three years.

Central Government

The central government is comprised of seven ministries, 5 commissions, the armed forces, and several autonomous bodies. The ministries are those of Foreign Affairs, Communications, Trade and Industry, Finance, Health and Education, Agriculture and Home Affairs. The Commissions are the Planning Commission, Royal Civil Service Commission, National Commission for Cultural Affairs, Dzongkha Development Commission, and National Environment Commission. The armed forces are the Royal Bhutan Army, Royal Bhutan Police, and the Royal Body Guards.

Judiciary

Bhutan’s legal system is based on codes laid down by Shabdrung Ngawang Namgyel in the 17th century. The National Assembly in 1957 enacted the present laws, as they exist in the Thrimshung Chenmo (Supreme Laws). To ensure the independence of judiciary from the executive and legislative branches of the Government, the High Court was established in 1968.

Cabinet and Council of Ministers

Until recently, the Monarch was both Head of State and Government. A royal decree issued from the throne in June 1998 carried further the devolution of executive powers of the king. The establishment of the Chairman of the Council of Council of Ministers as Head of Government, equivalent to a Prime Minister, was a personal initiative of the present king, as is the policy of decentralization. The Lhengye Shungtshog (Cabinet) is the highest executive body in the country. Established in 1968, its 15 members consist of 6 elected ministers and 9 Royal Advisory Council members. Following the political changes introduced in 1998, the Chairmanship of the Council of Ministers is rotated on a yearly basis according to the number of votes obtained during election by secret ballot in the National Assembly.

Decentralization

First implemented in 1981, the decentralization of administration began with the establishment of Dzongkhag Yargye Tshogchungs (DYTs) or District Development Committees. This was followed by decentralization to the block level with the introduction of the Geog Yargye Tshogchungs (GYTs) or Block Development Committees in 1991. The implementation of this policy has led to the enhanced participation of the people in decision-making processes.

The country is divided into 20 Dzongkhags (districts) with larger Dzongkhags sub-divided into Dungkhags (sub-districts). The Dzongkhags and Dungkhags are further divided into 202 Gewogs (blocks). The districts are governed by Dzongdags who also serve as the chairman of the DYTs and Dungpas look after the Dhungkhags. Gups elected by the community administer the Gewogs and serve as the chairman of the GYTs. The Dzongdags and Dungpas are assisted by the Gups in collection of taxes, settlement of disputes and other local activities including implementation of development programmes.

Tourism is the greatest source of hard currency. Although the number of visitors to the country is not restricted, it is regulated by the high tariff on tourists in keeping with the government’s policy of preserving culture and cautious modernization. Even though there are many niche markets such as eco-tourism and cultural tourism that offer significant growth potential and are consistent with other development objectives, these niches are yet to be explored to their full potential.

As Bhutan’s major trading partner India is market to 90 percent of its exports and source for 70 percent of its imports. The Bhutanese currency Ngultrum is pegged at parity to the Indian Rupee, and the two countries have a free trade agreement. Bhutan also enjoys a preferential trade agreement with Bangladesh.