Nepal continues to be caught in a political quagmire over the ratification/endorsement of Millennium Challenge Corporation (MCC)-Nepal Compact since 2017. The entire debate over the issue is polarised between those who support it as a grant indispensable for Nepal’s development and those who are against it on the ground that it would undermine Nepal’s national interest arguing that it is part of the US Indo-Pacific Strategy (USIPS). While the previous political dispensation led by Prime Minister (PM) KP Oli had tried to put the agenda on track, it was met with huge opposition from within Nepal Communist Party (NCP) as also from outside. The current ruling coalition led by the Nepali Congress (NC) is also divided over MCC.
MCC Nepal Compact
MCC is an independent US foreign assistance agency created by the US Congress in January 2004 to provide grant assistance for promoting economic growth, reducing poverty and strengthening institutions.[i] It forms partnerships with developing countries who are committed to good governance, economic freedom and investing in their citizens. MCC has three types of grants: i) Compacts – They are five-year agreements between MCC and an eligible country to fund specific programs targeted at reducing poverty and stimulating economic growth[ii]; ii) Threshold Programme – It assists promising candidate countries to become compact eligible by offering them the opportunity to demonstrate their commitment to just and democratic governance, economic freedom and investments in their people[iii]; and c) Concurrent Compacts for Regional Investments – This is aimed at promoting cross-border economic integration, trade and collaboration.[iv] Seven priority areas have been identified by MCC for which grant assistance would be provided which includes: a) agriculture; b) education; c) energy; d) health; e) land and property rights; f) roads and transportation infrastructure; and g) water, sanitation and irrigation.[v]
MCC-Nepal Compact is a five-year US$500 million grant agreement signed between the Government of Nepal and Millennium Challenge Corporation (MCC) of the US in September 2017.[vi] In addition, the Nepal Government would pitch in US$130 million. Two projects have been selected under the MCC Nepal Compact viz., the construction of 400kv transmission line, including a link to the Indian border to facilitate electricity trade and the maintenance of a 305km road. However, MCC Nepal Compact is yet to be ratified by the Parliament of Nepal as the political parties are divided on the issue, particularly over whether MCC constitutes a part of the US Indo-Pacific Strategy.
Nepal, MCC and the US’ Indo-Pacific Strategy (USIPS)
While the Indo-Pacific Strategy Report: Preparedness, Partnership, and Promoting a Networked Region (June 2019) of the Department of Defense did not refer to MCC, the Department of State in its report entitled A Free and Open Indo-Pacific: Advancing a Shared Vision clearly mentioned that MCC supports the economic pillar of the USIPS.[vii] In the context of Nepal, the US although initially maintained that Nepal and MCC are part of the USIPS, later mellowed down stating that Nepal is not part of the USIPS and MCC Nepal Compact is not an agreement under the USIPS. The debate over whether or not Nepal is part of USIPS has long been going on, particularly following the then Nepalese Foreign Minister Pradeep Gyawali’s visit to the US in December 2018. However, Nepal had always refuted the reports that claimed Kathmandu had joined the US’ Indo-Pacific Strategy.
The statement issued by the US State Department following Gyawali’s meeting with the then Secretary of State of the US, Michael R. Pompeo, claimed that the two leaders had discussed “Nepal’s central role in a free, open, and prosperous Indo-Pacific”.[viii] Nepal rejected the claim arguing that they discussed Indo-Pacific as region and not as a strategy. However, the spokesperson of US Embassy in Kathmandu asserted that “Nepal is part of the larger Indo-Pacific Strategy, as part of the strategy to increase regional connectivity, which Nepal can do through its role in the SAARC and BIMSTEC and also through its unique land-linked position between major economic markets.”[ix] In an attempt to dispel false notions surrounding the US-led Indo-Pacific Strategy in Nepal, the US Ambassador Randy Berry averred that the strategy is a US “policy”, not a secret alliance nor does it require or demand membership from anyone.[x]
Significantly, according to the Indo-Pacific Strategy Report: Preparedness, Partnership, and Promoting a Networked Region (June 2019) of the US Department of Defense, Nepal, along with Sri Lanka, was added to the US’ “State Partnership Programme in the Indo-Pacific”.[xi] On Nepal, it stated that “the US seeks to expand its defence relationship with Nepal, focused on humanitarian assistance and disaster relief (HA/DR), peacekeeping operations, defence professionalization, ground force capacity and counter terrorism”.
The perception of the Nepalese Government on the alleged link between MCC and the USIPS are exemplified in views expressed by the Foreign Minister Pradeep Gyawali. He had always maintained that MCC and the USIPS were two different things, and that there was no need to link them together.[xii] Gyawali stated that Nepal interpreted MCC Compact as a development partnership. He stressed that while MCC-Nepal Compact was signed in September 2017, the term Indo-Pacific Strategy was coined by President Trump later.[xiii]
The political parties in Nepal remain sharply divided along ideological lines than substance of the Compact.[xiv] The Nepali Congress (NC) and the pro-monarchist Rashtriya Prajatantra Party (RPP) demanded early endorsement of MCC by the Parliament. The leftist parties, on the other hand, are against it. They opine that the agreement will allow the US to include Nepal under its military strategy. Several protests were also held opposing MCC. Critics have argued that MCC is linked to the USIPS, which is termed as the strategy of the US, with strong military components, aimed at countering China in the region.
Amidst heated debate on whether MCC was part of USIPS, the then Nepalese ruling party, Nepal Communist Party (NCP), held a meeting in September 2019 to build a concrete position on the US Strategy. The six-member party taskforce headed by senior leader Jhalanath Khanal recommended that the government should ratify the compact with necessary amendments and modifications in favour of national interest.[xv] This demand was rejected by the US.[xvi] Following intense debate within the NCP, the US Embassy in Nepal issued (January 2020) a 10-point clarification highlighting that MCC does not have any military components.[xvii]
Specific Concerns of Nepal over MCC Nepal Compact
A day ahead of the scheduled visit of MCC Vice President Fatema Z. Sumar to Nepal on September 9, 2021, MCC in a written communication to the Nepalese Ministry of Finance conveyed clarifications sought on MCC Nepal Compact. Following major issues of concern to Nepal were addressed: firstly, on the concern that some of the provisions were against national interest and sovereignty of Nepal, particularly the Section 7.1 of the Compact which states that “…this Compact, upon entry into force, will prevail over the domestic laws of Nepal”, MCC clarified that the Constitution of Nepal will prevail over the MCC Compact.[xviii] Secondly, on the need for parliamentary ratification, MCC replied that the Compacts with all member MCC partner countries are international agreements in order to avoid any conflicts with the domestic laws. Under the Nepali law, parliamentary ratification was required for the Compact to become an international agreement.[xix] Thirdly, and more importantly, on the question whether MCC a part of USIPS, MCC elucidated that the Compact is not an agreement under the USIPS, nor is it a part of any military strategy of the US. Strong relationship between the US and Nepal long predates the Indo-Pacific Strategy.[xx]
Diplomatic Tug of War between China and the US over the Belt and Road Initiative (BRI) and the USIPS
It may be noted that Chinese Foreign Minister Wang Yi visited Nepal from September 8-10, 2019,[xxi] the first high level visit from China after the visit of Defence Minister Gen. Chang Wanquan in March 2017. Following his visit, the Chinese Foreign Ministry released a statement which quoted the then NCP Executive Chairman Prachanda saying Kathmandu disapproved of the Indo-Pacific Strategy. The statement said “Nepal firmly adheres to the non-alignment policy, disapproves of the so-called Indo-Pacific Strategy, opposes any attempt to stop the development of China, and always believes that China’s development is an opportunity for Nepal and is willing to learn from China’s successful experience.”[xxii] This made the US to seek clarifications from the Government of Nepal as to whether they endorsed similar view. Chinese media have also contributed to the politicisation of the MCC Nepal Compact. Such a tussle between two major powers has worried Nepal as it does not want to be entangled in the geostrategic competition between the US and China.
Conclusion
It may be noted that MCC predates USIPS. The MCC Compact development was supported by all Governments in Nepal since 2012. Several Nepalese analysts are of the view that whether it is US’ MCC or China’s BRI, it is in Nepal’s interests to accept or reject any development finance agreements on the merits of the agreements themselves but not on geopolitical speculations. They argue that engaging with some but not others go against Nepal’s guiding principle of foreign policy “amity with all and enmity with none” and also jeopardises Nepal’s neutrality. They aver that while Nepal should continue with its non-aligned foreign policy, it would be in Kathmandu’s interests to get the best out of all, especially from a development perspective.[xxiii] Further, they are of the view that the rejection of the Compact may have a negative impact not only on the bilateral relations with the US but also on flow of development assistance and investments from the Western countries to Nepal. It is also pointed out by the analysts that it is contingent upon Nepal to ratify the Compact at the earliest in its own interest, keeping in mind development and welfare of its public. Moreover, Nepal need not worry about debt trap as MCC financing comes in the form of grant. Accepting grant under MCC-Nepal Compact does not mean endorsing the USIPS. Nor would it mean Nepal’s “strategic autonomy” would be compromised. Kathmandu’s final decision on MCC would be based on several considerations and creating domestic consensus.
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*Dr. Naresh Kumar, Research Fellow, Indian Council of World Affairs, New Delhi.
Disclaimer: Views expressed are personal.
End Notes
[i] Millennium Challenge Corporation, Available at: https://www.mcc.gov/about (Accessed on September 04, 2021)
[ii] Millennium Challenge Corporation, Available at: https://www.mcc.gov/how-we-work/program/compact (Accessed on September 04, 2021)
[iii] Millennium Challenge Corporation, Available at: https://www.mcc.gov/how-we-work/program/threshold-program (Accessed on September 04, 2021)
[iv] Millennium Challenge Corporation, Available at: https://www.mcc.gov/how-we-work/program/concurrent-compact (Accessed on September 04, 2021)
[v] Millennium Challenge Corporation, Available at: https://www.mcc.gov/sectors (Accessed on September 04, 2021)
[vi] Millennium Challenge Corporation, “U.S. and Nepal Sign $500 Million Compact”, Available at: https://www.mcc.gov/news-and-events/release/release-091417-nepal-signing-event (Accessed on September 04, 2021)
[vii] The Department of State, A Free and Open Indo-Pacific: Advancing a Shared Vision, November 04, 2019, Available at: https://www.state.gov/wp-content/uploads/2019/11/Free-and-Open-Indo-Pacific-4Nov2019.pdf (Accessed on September 04, 2021)
[viii] US Department of State, “Secretary Pompeo’s meeting with Foreign Minister Pradeep Gyawali of Nepal ”, December 18, 2018, Available at: https://2017-2021.state.gov/secretary-pompeos-meeting-with-foreign-minister-pradeep-gyawali-of-nepal/index.html (Accessed on September 27, 2021)
[ix] Anil Giri, “US says Nepal is part of US Indo-Pacific Strategy”, The Kathmandu Post, Available at: https://kathmandupost.com/miscellaneous/2018/12/20/us-says-nepal-is-part-of-its-indo-pacific-strategy (Accessed on September 27, 2021 )
[x] Anil Giri, “US Ambassador attempts to clear the air on Indo-Pacific Strategy”, The Kathmandu Post, September 28, 2019, Available at: https://kathmandupost.com/2/2019/09/28/us-ambassador-attempts-to-clear-the-air-on-the-indo-pacific-strategy (Accessed on September 28, 2021)
[xi] The Department of Defense, Indo-Pacific Strategy Report: Preparedness, Partnerships and Promoting a Networked Region, June 01, 2019, Available at: https://media.defense.gov/2019/Jul/01/2002152311/-1/-1/1/DEPARTMENT-OF-DEFENSE-INDO-PACIFIC-STRATEGY-REPORT-2019.PDF (Accessed on September 04, 2021)
[xii] Roshan S. Nepal, “MCC, Indo-Pacific Strategy not Linked”, The Himalayan Times, June 03, 2019, Available at: https://thehimalayantimes.com/nepal/millennium-challenge-corporation-compact-programme-united-states-indo-pacific-strategy-not-linked (Accessed on September 06, 2021).
[xiii] Ibid.
[xiv] Ashok Dahal, “Parties Sharply Divided along Ideological Lines over MCC”, My Republica, February 12, 2020, Available at: https://myrepublica.nagariknetwork.com/news/parties-sharply-divided-along-ideological-lines-over-mcc/ (Accessed on October 07, 2021)
[xv] Anil Giri, “NCP Task Force throws future of MCC into confusion”, The Kathmandu Post, August 25, 2020, Available at: https://kathmandupost.com/politics/2020/08/25/ncp-task-force-suggestion-throws-future-of-mcc-into-confusion (Accessed on October 07, 2021)
[xvi] Ibid.
[xvii] US Embassy in Nepal, “MCC in Nepal, Top Ten Facts, ”Available at: https://np.usembassy.gov/mcc-in-nepal-top-ten-facts/ (Accessed on October 07, 2021)
[xviii]Millennium Challenge Corporation, September 08, 2021, Available at: https://uploads.mwp.mprod.getusinfo.com/uploads/sites/27/2021/09/MCC-Clarification-Letter-and-Responses-English-and-Nepali.pdf (Accessed on October 07, 2021)
[xix]Ibid.
[xx]Ibid.
[xxi] Ministry of Foreign Affairs (Nepal), “Press Release regarding the visit of Chinese Foreign Minister”, Available at: https://mofa.gov.np/press-release-regarding-the-visit-of-chinese-foreign-minister/ (Accessed on September 10, 2021)
[xxii] Anil Giri, “Nepal’s Disapproves of Washington’s Indo-Pacific Strategy, Beijing Says”, The Kathmandu Post, September 11, 2019, Available at: https://kathmandupost.com/national/2019/09/11/nepal-disapproves-of-indo-pacific-strategy-china-s-foreign-ministry-says (Accessed on September 19, 2021); https://www.fmprc.gov.cn/web/wjbzhd/t1696292.shtml (Accessed on September 19, 2021)
[xxiii] Dr. Balmukunda Regmi, “Working with MCC and BRI”, The Rising Nepal, March 16, 2020, Available at: https://risingnepaldaily.com/opinion/working-with-mcc-and-bri (Accessed on September 24, 2021)