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CWA # 233, 29 February 2020

Nepal and the US
The controversial MCC Nepal Compact

  Kabi Adhikari 

Unnecessarily, the MCC compact is being mired in controversies.  Some leaders of the ruling government argue that the MCC is a part of the Indo Pacific Strategy (IPS).

What happened?

The largest-ever bilateral grant agreement between Nepal and the US under the United States Millennium Challenge Corporation's Nepal Compact has courted controversy. The grant was offered when Nepal improved its record on human rights, governance, social sector along with sixteen out of twenty policy indicators. The issue got highly contentious in Nepal only after one and a half year of the agreement due to objections of some ruling communist party leaders. 

Leaders from the ruling Nepal communist party (NCP) have gone public over its interpretation and remain fundamentally divided on whether to ratify the US Nepal compact or not. While a section of the ruling party led by Prime Minister and Chairperson of NCP, K P Oli and his Foreign Minister Pradeep Gyawali is lobbying for its endorsement from the parliament, powerful leaders within the NCP including another NCP Chairperson and former Prime Minister Pushpa Kamal Dahal along with two other former Prime Ministers are opposing the compact's requirement of House approval. The most important part to acknowledge is that the opposition party the Nepali Congress is lobbying in favour of the compact and wants it to be ratified from the House of Representatives.  Usually, in Nepal, the opposing parties hold different views from that of the government position but in case of MCC, there appears to be a broad national consensus.  

What is the background?

The Millennium Challenge Corporation (MCC) is a bilateral United States foreign aid agency established by the U.S. Congress in 2004. MCC Nepal Compact was signed in 2017 in Washington D.C. There are certain requirements to be completed to start the implementation of the agreement.  MCC will provide technical assistance for the power sectors of Nepal receiving the US $500 million grant to construct 312 km of 400 kV electricity transmission lines and three substations.  In this respect, no prior agreement of Nepal with a third country was needed as the cross- border transmission line is a critical part of the Electricity Transmission Project. The active engagements with the Governments of Nepal and India, MCC played an imperative role for mutual interest. However, the parliamentary ratification from Nepal's side got more complex. 

Those against it feel that they do not need any sort of assistance from the US. Their unwillingness to accept such a huge amount of money for development is not only questionable but also makes it clear that the agreed amount of $500 million can be sent back to other developing countries as the MCC Board has approved compacts for 37countries including Nepal. While the competing views on MCC continue, Nepal is dreaming for Cross Himalayan Railway with a hefty loan from China which boasts of the most expensive railways. Given the topography at the border areas in the northern side, this becomes one of the most complex tasks.  China is yet to build the 540 Km road from Shigatse to Kerung. It definitely takes years to reach Kathmandu from Kerung. The railway process to connect Nepal further moves ahead only then when the railway gets constructed to Kerung. Nonetheless, superfluous arguments are coming out against the transmission lines to be constructed with the US assistance through which Nepal can export excess electricity in the near future to SAARC countries and also import according to its needs. Leaders must understand the direction in which the country is moving ahead and the public should be aware of it.

What are the issues?

Unnecessarily, the MCC compact is being mired in controversies.  Some leaders of the ruling government argue that the MCC is a part of the Indo Pacific Strategy (IPS). The Indo Pacific Strategy Report 2019 published by the US Department of Defence nowhere mentions MCC. In fact, MCC compact existed much before the emergence of IPS.  MCC compact to does not mention any specific strategy while disseminating its budget to the region. As a democratic country, such issues are an open book in the US. Therefore, it seems to be a waste of time to argue whether the grant is a part of the strategy or not.  

Let's take an instance of Belt and Road Initiative (BRI) of China. BRI was formed with the objective of economic impact. Some observers have taken it as a push for Chinese dominance and leadership in global affairs. Doesn't China have any strategy besides this? Chinese President Xi Jinping termed BRI as the project of the century, which implies various meanings. Every country has its own interests while granting assistance. One cannot, therefore, deny the fact that none of the countries pursues collaboration with other countries without considering their own interests or benefits. This strategy prevails even in the conversation between two people. Therefore, while granting people’s tax paid money to other countries, obviously some sort of self-interest becomes the dominant factor. Nevertheless, the agreement takes place to ascertain the welfare of the grant receivers also. Therefore, disagreement over a self-made agreement is bizarre in our context. Indeed, such decisions take the country years back in progress.  It is the current need to collaborate with donor and neighbouring countries for the sake of development of the nation without compromising self-esteem. 

History and geography are the two eyes of any nation.  While we cannot ignore lessons from history, geography remains a compelling factor that has to be factored into the process of foreign policymaking.  Nepal seriously lacks investment in research. The knowledge manufacturing industry is not the government’s priority.  Moreover, it takes years to draw insightful outcomes from experts and implement them while formulating policies.  'Prosperous Nepal, Happy Nepali' will remain only a slogan if we follow the same track ever.  In the rapidly shifting geopolitics focused on China and India, there is a growing focus on Nepal.  In this great game, Nepal appears to have been already trapped in the strategic radar of India, China and the US. It is not an easy task to come out of a triangular trap for which it has to be robust with in-depth research and strong democratic institutions along with clear strategy and a long-term vision. Given this situation, it is advisable not to make any issue unnecessarily debatable without knowing the details of development-oriented grant projects.

What next?

A section of party leaders who have stood against the MCC Compact should know the fact that the Nepal and US armies are taking part in the joint Military Training/Exercises under the Indo Pacific Command. The Military Exercises have helped to enhance friendly ties and peacekeeping capacity of Nepal. Besides them, the US has handed over two M28 Skytrucks to the Nepal Army (NA) representing the first part of one of the largest security grants to Nepal in history with approximately $15 million grant from the United States along with spare parts, pilot and maintenance training and support to facilitate modern maintenance management practices. The US has already announced to handover other two Sky trucks to the Nepal Army within 2021.

In addition to these, Nepal has been receiving grants from the United States Agency for International Development (USAID) for years. Similarly, the World Bank, Asian Development Bank (ADB) and International Monetary Fund (IMF) are also providing a grant to Nepal.  The compact offer that was made by the American government under the MCC for the improvement of roads and construction of power transmission lines awaits parliamentary approval before it goes for implementation.  The report submitted by the task force formed by the ruling party NCP on MCC has overtly stated that it would be passed by the parliament only with amendments arguing that the existing agreement greatly impacts national sovereignty and freedom of Nepal and its people. Nepal will unquestionably fail to receive the grant from the US with a prolonged process. 

 

Ms Kabi Adhikari is a Visiting Research Fellow in Centre for South Asian Studies (CSAS), Kathmandu.

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