Nepal Riots & The Millennium Challenge Corporation (MCC) Pact of USA

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In Nepal, hundreds of protests and resultant riots in vehement opposition of the MCC outside the Parliament have caused disorder in the law and order situation of the tiny Himalayan nation. However, despite these protests, the Nepalese Parliament has now approved the MCC, a $500 million grant by the United States (US) to Nepal.

Speaker of the Nepalese Parliament Agni Prasad Sapkota stated in the legislature that the agreement’s ratification is through a voice vote. The statement came irrespective of the protests and claims by the opposition parties that the agreement undermines Nepal’s sovereignty.

In Nepal, MCC Pact triggered widespread protests. The riot police used tear gas, water cannons, and batons to prevent the protestors from marching to the Parliament
Image Courtesy- Reuters

The ratification comes at a critical juncture as it has been pending since 2017. However, Donald Lu, the US Assistant Secretary of State for South and Central Asian Affairs, had recently urged the Nepali government to endorse the pact by 28th February. Alternatively, the US would review its relationship with Nepal if it is not signed.

The MCC 

After the 9/11 terror attacks, the US became increasingly concerned about the potential sources of hostility against it, especially in developing countries. Therefore, it realized that unless these less developed countries are economically empowered, they will continue to face terror attacks. Moreover, the traditional US bilateral aid agency – USAID – was not functioning up to the task. 

The US thus created the Millennium Challenge Corporation (MCC) in 2004. The objective is to reduce poverty rates and support economic growth in low-income countries by offering them large grants.

The United States has given development assistance to 43 low- and lower-middle-income countries
through the MCC since its establishment in 2004

It is a bilateral foreign aid agency of the US established by Congress. The agency is independent and is not under the State Department and the USAID. MCC emphasizes a competitive process for selecting the countries that will receive the grants. Besides, it has also ensured that the host countries will have the sole right to administer the projects.

2017 MCC Pact with Nepal

In 2012, Nepal had expressed its interest in MCC grants for the first time. In 2017, under PM Sher Bahadur Deuba, Nepal signed the MCC Pact with the US. The latter agreed to a $500 million grant to the Himalayan State to fund electricity transmission lines and road infrastructure projects. This aid does not need to be repaid and comes without any conditions attached.

MCC Acting CEO Jonathan Nash and Finance Minister of Nepal Gyanendra Bahadur Karki signed the $500 million MCC Compact
in September 2017

Construction of a 315 km double circuit 400kv electricity transmission line comes first under the MCC Pact.

It will build the line through five segments – New Damauli-Ratmate (90km), New Butwal-New Damauli (90km), Ratmate-Lapsephedi (59km), Ratmate-New Hetauda (58km), and New Butwal-India Border (18km).

Once completed, these transmission lines will provide a critical missing link for hydro-power projects in different rivers to the existing high-voltage grids in Nepal.

Nepal will disburse part of the total $500 million grant to improve road infrastructure in the country. All the projects undertaken will be managed by the Millennium Challenge Account – Nepal Development Board (MCA – Nepal) – a new agency established by the Nepalese government to oversee the projects.

The energy and transport sectors are the two major focus areas of the MCC-Nepal Compact
Courtesy- Twitter @usembassynepal

Opposition’s Fears in Nepal

Although signed in 2017, the MCC pact’s ratification by the Parliament has been in limbo since then. The primary reason was divisions in Nepal’s political parties, including the ruling coalition parties. The parties failed to reach a consensus on whether to accept the grant or not.

Significant opposition came from, among others, the ruling party coalition partners themselves. This includes the Maoist politicians who claim that the pact undermines Nepal’s sovereignty.

Wary of US influence, opponents argued that the pact would undermine Nepal’s domestic laws and sovereignty. The primary allegation is that Nepal would not have enough control over the projects. They fear an international perception – ‘US soldiers follow US dollar.’

During the Parliament’s discussion regarding the pact’s ratification, the Communist Party of Nepal (Unified Marxist-Leninist) (CPN – UML) argued that the pact would bring Nepal under the security architecture of the US. 

The CPN (Maoist Center) said that the agreement should be pursued purely as an economic project without violating Nepal’s sovereignty and its constitution of laws.

Government’s Counter 

Allaying the opposition’s fears, Nepal’s Finance Minister Janardan Sharma assured the country that the pact would not undermine Nepal’s sovereignty or constitution, as it was not a part of the Indo-Pacific Strategy of the US and did not have any military objective.

He further stated that the government had declared the pact as purely an economic project, leaving no room for suspicion on the programme.

Minister in the Nepalese cabinet Gyanendra Bahadur Karki emphasized that the grant is essential for Nepal’s socio-economic development. The projects under it will benefit close to 24 million people.

Compromise between the two 

Prime Minister and chief of Nepali Congress Sher Bahadur Deuba had intensive political deliberations regarding the pact’s ratification with other political parties.

PM of Nepal Sher Bahadur Deuba heavily risked a breakdown of his political coalition throughout the ratification process

The CPN Maoist Center, a ruling alliance partner led by Pushpa Kamal Dahal’ Prachanda’ and the CPN – Unified Socialist under Madhav Kumar Nepal agreed to support the deal. However, they had a condition to include an interpretative declaration to clarify the deal’s confusion.

Moreover, as part of the compromise, the Nepalese Parliament ratified the deal and an interpretative declaration. It stated that Nepal would not become part of any security, military or strategic alliance of the US, including its Indo-Pacific Strategy. Also, Nepal’s constitution will be superior to any provisions in the MCC, which will be perceived purely as economic assistance.

Thus, this declaration underlines that Nepal will not be bound to become a part of any US alliance.

The scene in the parliament of Nepal where Deuba’s coalition partners agreed to the MCC Pact only after vehement deliberations
Image Courtesy- The Kathmandu Post

In addition, it also states that MCC will not have ownership over any intellectual property. The Nepalese government has the right to nullify the pact within 30 days of notice if it violates any Nepalese laws.

China’s Disinformation Campaign

The US believes that China has actively facilitated a disinformation campaign against the MCC Pact in Nepal. 

Therefore, it expressed its displeasure to Nepal, saying that it would be disappointing if outside influence led to the failure of the pact’s ratification.

On the other hand, the Chinese Foreign Ministry has stated that it opposes coercive diplomacy and is against projects that pursue selfish interests at the cost of Nepal’s sovereignty. It further stated that it believes in development cooperation without any strings attached. However, this also has a geopolitical picture.

Chinese investments and political influence have grown immensely in Nepal in recent years, especially under the former Prime Minister, the pro-Beijing, K. P. Sharma Oli.

Its influence has been affected due to Prime Minister Deuba’s rise. He advocates a balanced foreign policy with a close relationship with India.

India and Nepal share a unique friendship and cooperation

Naturally, Beijing is worried about Washington’s forays into Kathmandu. China’s position is understandable as Nepal is part of its highly ambitious Belt and Road Initiative (BRI).

India’s Reaction

As a significant stakeholder in Nepal, India has not reacted to the controversy around the pact so far. However, it is presumably pleased that the US is stepping up to weaken China’s increasing influence in Nepal. 

New Delhi does not have the economic wherewithal to compete with China’s deep pockets. So aligning with like-minded countries such as the US and Japan for development projects in Nepal can prove to be a successful strategy for India in the larger geopolitical tussle in South Asia.

Read another exciting article to know more about the India-China relationship, In a Nutshell: India-China Relations a history of distrust.

About the Author:

Ayush Gala

Apart from being a percussionist and a cricket enthusiast, it’s the unfolding tumultuous events of Geopolitics and International Relations that give Ayush the adrenaline rush he craves for. So naturally, he is pursuing his Master of Arts in International Relations and Strategic Studies from the University of Mumbai. He also loves to analyse and discuss the socio-political issues in India. He has a burning desire to make the citizens of India more aware and informative on various matters concerning them.

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