The MCC Conundrum

Millenium Challenge Corporation or MCC is perhaps the most talked about topic in recent history of Nepal. The issue has polarised Society, politicians and media alike and the country is divided into camps. Everyone seems to be asking whether MCC will benefit Nepal. The answer depends on whom you ask.

The Millennium Challenge Corporation is a US Foreign Assistance Agency that aims to fight poverty. It has partnered with 30 countries worldwide to implement projects worth around $13 billion. Assistance under the MCC is given to low-income and lower-middle-income countries for agriculture and irrigation, education, anti-corruption measures, power and energy, enterprise development, health, transportation, land rights and sanitation, and water supply. Nepal was the first country in South Asia to qualify for the programme after it met 16 out of the 20 policy indicators. An agreement to this effect was signed in September 2017.

However, fate of MCC continues to hang in balance as successive governments have failed to get the grant ratified by the parliament.  Although Deuba had made a commitment in writing to the MCC board that he would have the deal passed, the Communist Party of Nepal-Maoist Centre and the Unified Socialists say that since the elections for the local bodies have been called for May 13, to be followed by elections to the provincial and federal parliament, the deal cannot be tabled and ratified by the Parliament in the election year.

Following the deal, the US government agreed to provide $500 million in grants while Nepal would put in $130 million for the project that prioritizes energy and roadways. This is the largest grant Nepal has ever received. As per the deal, the funds will be spent on setting up a 400KV transmission line running 400 kilometres on the Lapsiphedi-Galchhi-DamauliSunawal power corridor. The funds will also be used to set up three substations en route to infrastructure that will connect to the cross-border transmission line with India in Rupandehi. Some $130 million under the MCC compact will go towards the maintenance of around 300 kilometres of roads on the East-West Highway.

The deal has courted controversy since a section of political class have  argued that the MCC is part of Washington’s Indo-Pacific Strategy, which has military components that are aimed at countering China, a friendly neighbour. They have also opposed the compact’s requirement of House approval, as the compact says that it would prevail over Nepal’s existing laws in case of conflicts. Although, Washington has maintained that the MCC project is focused purely on economic development by helping to build power lines and improve roads, there is no military component to the MCC.  In fact, U.S. law prohibits it. Nepal does not need to “join” or “sign up” for anything in order to participate in the MCC. The $500 million is a grant, with no strings attached, no interest rates, and no hidden clauses.  All Nepal has to do is commit to spend the money, transparently, for the projects that have been agreed upon based on Nepal’s own priorities.

The US has urged Nepal to ratify the proposed grant assistance under the Millennium Challenge Corporation by February 28, saying if Kathmandu did not accept the USD 500 million programme, Washington would review its ties with the Himalayan nation and consider China’s interests are behind its failure. Experts are also of the view that Nepal should consider the MCC as an economic part of the IPS. Ratifying the MCC doesn’t necessarily mean being a part of a “military alliance”. Economists suggest that Nepal should accept any economic support and there is no harm for the country in endorsing the MCC. If the US reviews its ties with Nepal following Nepal’s failure to endorse the MCC pact, it would adversely affect Nepal’s economic sector.“The US has been the largest donor in Nepal for decades. Therefore, if it decides to review ties with Nepal, its direct impact will be seen on the economic sector. Realizing this, three big private sector business associations have called for the endorsement of the Nepal-US Millennium Challenge Corporation (MCC) deal signed in 2017. The business leaders opine that “Nepal could lose bilateral and multilateral aid as well as foreign direct investment if it fails to ratify MCC. In addition, the country will also lose on opportunity to create more business and employment as the projects would predominantly be executed by Nepali contractors and workers, thus generating business and employment.

In case Washington decides to review ties with Kathmandu, the Nepal Army may perhaps be the first to face the brunt of re-jigged bilateral relations. Nepal Army (NA) insiders feel that the recent blocking of training of Nepal Army Officers and few pilots in USA by the US Embassy is, apparently, on account of US government’s disappointment /annoyance over the delay in endorsement of MCC agreement by Nepal’s Parliament. Further, if America curtails training slots / programmes for Nepal Army officers, particularly the Higher Command courses, or even goes to the extent of indirectly reducing NA’s presence in UN Peace Keeping Missions, it would adversely affect morale and financial benefits of NA personnel.

Further, a rejection of MCC would be tantamount to rejecting a substantial amount of money at a time when Nepal economy is dwindling due to pandemic, rising energy prices and recession in Gulf and other destinations for migrant workers who contributed to country’s exchequer. In addition, as Nepal has already used some of the money under MCC for infrastructural projects, it would need to return that money to the MCC as well as finance these projects through country’s exchequer that lies in tatters due to pandemic situation. This is likely to delay the project indefinitely, on account of funds and feasibility, along the lines of many such cases that have become political football in the country like Melamchi Water Project, Postal Roads, Fast Track, Airports in Pokhara/Bhairawaha and Nijgadh, Budhigandaki Hydropower Project etc;

The analysts are of the view that rejection could also lead to a partial withdrawal by the US from the country, leading to a situation where other countries which are close allies of the US, like UK/ Israel/ EU/ Switzerland/ Japan/ South Korea/ Australia/ Gulf/ Israel may also reduce their footprints in the country, thus causing a loss of huge amount of developmental funds to the country. This would hit common people in terms of employment, permanent residence and educational opportunities in the abovementioned countries.

The common citizens have also expressed concerns and are apprehensive of tighter visa norms. Around 4000-6000 Nepali nationals get diversity Visa every year for permanent residency in the US. Since failure to pass MCC by Nepal, would be seen as China’s interest, the US’ allies may also take a step back from the Himalyan nation. This may seriously affect the students seeking to acquire higher education from USA, Canada, Japan, Taiwan, Singapore, UK, EU, Australia, New Zealand as fewer scholarships may be available. Similarly, tighter norms may adversely affect the migrant labour and women working in countries like UK, Israel, Japan, South Korea and EU – all close to the US.

News Desk

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