The fate of the US$500 million grant to Nepal by the US Millennium Challenge Corporation (MCC) has been thrown into limbo after top brass in the ruling Nepal Communist Party came out against it.
The US support to building critical infrastructure – cross-border transmission lines and maintenance of strategic road networks – should have won the hearts of Nepalis, who are in dire need of development and prosperity.
But much to chagrin of the superpower, the Nepal Compact, the MCC’s first compact in South Asia, has now turned into a cause célèbre, triggering waves of protests from the streets to the parliament over its contentious provisions. The Nepalese government, which is seemingly on the defensive, has been struggling to get the bilateral accord through the federal parliament.
The opponents inside and outside the ruling party argue that the US is trying to foist its “hidden geopolitical agenda” on Nepal through the grant in an apparent bid to counter China’s Belt and Road Initiative (BRI). After top US officials and documents linked the MCC with America’s Indo-Pacific Strategy (IPS), the Nepal Compact fell into controversy. At the heart of dispute lay suspicions that the Compact’s provisions undermined the country’s sovereignty and legal supremacy.
The two nations signed the MCC Nepal Compact in Washington in September 2017 while marking their 70-year-old development partnership. Nepal, on its part, announced that it would contribute $130 million to the five-year Compact that would be run by Millennium Challenge Account Nepal (MCA-Nepal) formed by Nepalese government. But it is the Washington-based MCC board that pulls the strings of MCA-Nepal.
Prime Minister K P Sharma Oli is determined to approve the bill related to the Compact in parliament at all cost, but he lacks the necessary support in the party’s powerful wings – the Secretariat and Standing Committee. A task force led by former prime minister Jhala Nath Khanal suggested that the parliament should not approve it until the US removes the Compact’s unequal provisions.
The US government will release the fund only after Nepal’s parliament approves the bill. On the other hand, the Nepalese government has already spent 2 billion rupees ($16.4 million) to implement the two MCC projects. This is a sheer paradox.
Interestingly, the main opposition Nepali Congress has demanded the early passage of the bill, with a warning that Nepal risks losing the trust of donors if the government fails to secure the hefty US fund.
Here is another contradictory point – Nepal inked both the BRI and MCC accords during the premiership of Pushpa Kamal Dahal Prachanda, who is also NCP co-chairman. But now Prachanda is on the frontline of the ruling-party leaders wanting to reject the MCC grant.
Oli has been trapped between the devil and the deep blue sea. He does not want to rile America or bypass his own party. He has seemingly put ideology aside for the sake of foreign capital and investment required to realize his much-vaunted goal of “Prosperous Nepal, Happy Nepalis.” At the same time, it is difficult for him to “betray” the feelings of his own cadres and masses who have dismissed the MCC fund as “anti-nationalist.”
One narrative surrounding this is that US troops will land on Nepalese soil on the pretext of the MCC grant. This theory does not hold water, as the Compact itself prohibits spending the grant for any military purposes. The US Embassy in Kathmandu has already refuted such a rumor. However, former Nepal Army chief Dharmapal Thapa stoked this suspicion when he wrote on his Facebook page: “The MCC is a stepping stone for US troops being stationed inside Nepal. We do not need them.”
The remark of the ex-army chief provides ammunition to those inclined to interpret the MCC through the military lens.
The Compact does not mention the term “Indo-Pacific Strategy,” but many US documents consider the MCC as an integral part of the IPS and its national-security strategy, giving ground for critics to question the long-term objectives of free US aid.
For instance, a US State Department document titled “A Free and Open Indo-Pacific: Advancing a Shared Vision” recognized the MCC and the Overseas Private Investment Corporation (OPIC) as economic pillars of the IPS.
The US National Security Strategy (NSS), unveiled in December 2017, states that the MCC will be used for executing diplomacy and assistance abroad. It claims that Chinese dominance risks “diminishing sovereignty” of many states in the Indo-Pacific region, which are calling for sustained US leadership. The NSS envisages forging a strategic partnership with India and supporting it for its leadership in the Indo-Pacific.
The NSS puts it on the line: “US development assistance must support America’s national interests.”
The term “American national interest” is ambiguous and open to various interpretations, because when a superpower seeks to advance its national interests beyond its borders, it carries deeper geopolitical ambition.
Given that US President Donald Trump is vigorously pushing his “America First” policy, the MCC fund won’t be merely utilized to satisfy the domestic need of the recipient nations. This is one reason the detractors describe the MCC grant as one that violates Nepal’s neutral and non-aligned foreign policy.
Moreover, the Compact’s contested clauses have raised the eyebrows of many. It says “this Compact, upon entry into force, will prevail over the domestic laws of Nepal.” The MCC gets the upper hand regarding intellectual-property rights, procurement, payment of tax, liability or loss of its property, auditing and suspension of the project, among others.
Nepal and the US are old friends. The US has been cooperating with Nepal in diverse areas such as the economy, trade, education, culture and public administration. The MCC issue must not get in the way of straining bilateral ties.
Even if parliament endorses the MCC bill in its existing form, it will be difficult for the infrastructure mega-project to take off smoothly given its negative image among the people.
Bearing in mind the ongoing protests, the two sides need to renegotiate the terms of the Compact to the satisfaction of the Nepali people. The US should understand Nepal’s sensitive geo-strategic position and must not push it to the wall.