Millennium Challenge Corporation in Nepal: Good or Bad?
Millennium Challenge Corporation (MCC) is an independent bipartisan support between the United States foreign aid agency and a member country, especially from the third world, that endorses economic and political reforms. There are 49 countries based on the MCC website that the MCC has assisted and on the way of developing partnership with economically developing nations that are dedicated to strengthen good governance, promote economic freedom, and expand funding in their civilians. Pertinent to the MCC website, Nepal has signed the MCC compact on September 14, 2017. Each country under the MCC compact receives grants, with no strings attached, no interest rates, and no hidden clauses, for its economic development to uplift the position of its citizens through reducing poverty, generating economic growth via creating employment opportunities in different macroeconomic sectors of an economy, improving the performance of policy indicators. Since Nepal has demonstrated passing scorecards for 16 out of 20 indicators, the US government has decided to allow $500 million in grants, the largest grant Nepal has ever acquired in the history, whilst Nepal would add further $130 million, prioritizing energy and roadways projects. The collected funds under the MCC compact proceeds to develop 400 KV transmission lines from Lapsiphedi – Galchhi- Damauli – Sunawal corridor along with 3 substations , and to readapt and construct about 300km roadways in different parts of Mechi, Koshi, Sagarmatha, Tribhuvan Rajpath and East west highway. Despite having a lot of economic benefits to Nepal through the MCC compact, politicians in Nepal seem to be splitting into three factions: accept the MCC as it is; improvise the terms and conditions on the MCC such that Nepal’s laws would prevail if conflicts arise between the provision of the MCC and the Nepalese laws; do not accept the MCC compact at any cost. Given this scenario, ratification of the MCC compact by the Nepalese parliamentary is under dilemma, raising the question of Nepal’s sovereignty, the link of the MCC compact to the US’ Indo-Pacific Strategy, as well as the inclusion of India on the MCC compact between the US and Nepal.
Historically, the MCC is established in January 2004 to convey and disburse the US aid in a different way effectively and efficiently to reduce poverty through economic growth to low- and lower-middle-income countries that are committed to good governance. After the September 11 attacks, the US realizes that global terrorist activities have been increasing due to the widespread poverty across the world. In this scenario, the 43rd president of the United States, George W. Bush, has proposed to create MCC in 2002 and finally established it in 2004, uniquely distinguished from the Departments of State and the Treasury and from the U.S. Agency for International Development (USAID). In particular, the inception of MCC dates to the then prime minister of Nepal, Dr. Baburam Bhattarai– from August 2011 to March 2013, back in 2012. Successive governments and each political party, while in leadership, after 2012 in Nepal have already shown their consent and interest to forward the MCC compact. Even though it is said that Nepal is not required to “join” or “sign up” anything to take part in the MCC based on the website maintained by the U.S. embassy in Nepal, the then Finance Minister Mr. Gyanendra Bahadur Karki and MCC Acting CEO Mr. Jonathan Nash have singed the MCC Compact agreement on September 14, 2017 in Washington DC under the premiership of Nepali Congress leader Sher Bahadur Deuba. Despite the fact some politicians, like Bhim Rawal, Dev Gurung, the NCP leaders, seem to prove themselves as nationalists –opposing for the endorsement of the MCC compact from the Nepalese parliament , the chairman of ruling Nepal Communist Party (NCP)–in one side, Pushpa Kamal Dahal, is in favor of endorsing the MCC compact with essential amendments. On the other hand, the Prime Minister KP Sharma Oli seems to be firm to endorse the MCC compact rain or shine from the beginning regardless of the report of the taskforce, including erstwhile Prime Minister Jhalanath Khanal, Minister for Foreign Affairs Pradeep Gyawali and the NCP leader Bhim Rawal, to analyze criticisms and controversies of the MCC compact. Out of five significant sectors of the Nepalese economy, such as energy, transport, tourism, labor migration and remittance, and agriculture, the support of MCC has been focused on two focus area, such as energy sector and road sector. Consequently, the approval of the MCC compact from the Nepalese parliament apparently become, like “crocodile in the water, tiger on the bank,” for Nepali politicians.
Furthermore, since the US is in better position economically and militarily after the end of the World War I and II, she has emerged as the the dominant global superpower. However, the rapid rise of the Chinese economy after 1978 as a fresh hub of capital accumulation through economic reforms , such as the formation of rural enterprises and private professions, relaxation of foreign trade and investment, slackening the state control over some prices, and expansion of investment in industrial production and the education of its human resources , has made china the low-cost manufacturing country of the world, and hence enormously become the fastest growing export market for the U.S. Given this scenario, U.S. authorities have been targeting for reconnecting alliances and coalition to acknowledge to economic opulence of China given the reasonably diminishing most influential orientation of the US and the growing re-positioning of geo-economics and geopolitics from Europe and the North-America to Asia– the Indo-Pacific region. Since China and India are the two most populous and emerging economies in the world, heavily reliant on Indo-Pacific sea avenues for their trade and energy businesses, the presence of the US in the Indo-Pacific region through any means, such as IPS or MCC, has a strategic significance as two-third parts of the world’s trade occurs via this route. Similarly, the diagnostic study submitted to DFID Nepal for choosing the Nepalese macroeconomic sectors under of the MCC compact has determined to make an investment in the energy and transport sectors based on high costs constraint pertinent to such sectors. Since Nepal geographically lies between India and China, Nepal should strategically and tactfully acts and cooperates with India, China and the United States for making it an economically prosperous country through the open boarder access to India, the BRI project of China and the MCC of the United States. Thus, since economic growth, most importantly, lifts the living standard of people and Nepal also wants economic prosperity, political stability, reduction in the economic disparity among its citizens, the MCC compact becomes feasible and attractive to Nepal.
Moreover, an issue should be taken as an opportunity to do one’s best. For Nepal, the diplomatic skepticism for the endorsement of the MCC compact from the Nepalese parliament arises when remarks are made from the US authorities about connection of the state partnership program through the MCC into the Indo-Pacific strategy. For me, solutions for this issue are straight forward. First, the Indo-Pacific Strategy, IPS, comes into reality in November 2017 after signing the MCC compact from the Nepalese authorities in September 2017. In this case, Nepal is liable to follow the terms and conditions only during the time of agreement, not after the agreement time. Second, given that the U.S. is not going to review and amend the MCC compact, the members of the lower house, the House of Representatives, and the upper house, the National Assembly, of the Federal Democratic Republic of Nepal should make use of their rationality while evaluating the consequences of such treaties according to the Nepal Treaty Act because nobody is above the law – not even the ceremonial president as well as the executive prime minister of Nepal. In addition, the U.S. is also provoking the rule of law across the world. So, the government of Nepal should accept the MCC compact solely as an economic support, not as the military partnerships and alliances with the United States. Given that confirmation of the MCC compact signifies that Nepal would not automatically be a part of the Washington’s military alliance. Third, Nepal should use the limits accompanied by the Non-Aligned Movement (NAM) if there occurs a clash of interest between Nepal and the United States. More importantly, the U.S. has also comprehensively understood the strategic significance of Nepal due to its geographic alignment and the importance of implementation of the MCC in Nepal. In short, when there is a will, there is a way.
In addition, there can be several positive and negative potential outcomes due to the MCC compact in Nepal, that can have short-term to far-sighted effects on the Nepalese economy politically, economically, strategically etc. The intra-party contention inside the ruling Nepal Communist Party (NCP) may lead to split the NCP, and the current ongoing government may dissolve, resulting in a more unstable political situation in both the short-run and long-run in Nepal. Apart from this, the government of Nepal should weigh the potential benefits and adverse consequences of the MCC compact whether the US grant could replace Nepalese farmers and even make them landless, making Nepal a more foreign-dependent country in different sectors of the Nepalese economy. There is also a risk of benefiting only employers along with the negative effect of high inflation and large unemployment in the Nepalese economy, implying a reverse effect on economic growth. Most importantly, there might again be hidden agendas of the MCC compact in addition to its linkage to the IPS. At the same time, the government of Nepal should be cautious whether the MCC grant impacts negatively to the grant-receiving country, Nepal, while only benefiting to the donor country, the United States. On the other hand, the foreign aid in the form of grant under the MCC has more potentiality of enjoying with positive effects for the donor-recipient country, and thus attracting further foreign direct investment (FDI) into the Nepalese economy. More importantly, one should be genuinely concerned on fueling military to avoid the potential military coup in the Nepalese economy. On the side,there could be a development of culture of less corruption, efficient administration, industrial development, which could have lasting positive effects on the Nepalese economy. Similarly, Nepal can at least employ the returnees from foreign countries due to the COVID-19 pandemic in the short-run since Nepal can hire Nepalese to implement projects under the MCC compact if employed the compact effectively and make it Nepal-friendly.Thus, Nepal should behave sensibly in overcoming probable adversities and reaping up such biggest advantages while making decision on the MCC compact.
However, the serious questioning on the endorsement of the MCC compact by the Nepalese parliament arises due to some clauses and conditions on it. For instance, the MCC compact being regarded as an integral part of IPS, a military or security component in the MCC– as revealed by the Acting Deputy Assistant Secretary for South Asia at the US Department of State David J Ranz, makes faction among the Nepalese political parties. Similarly, Nepal should choose such projects given that it must comply with all the terms and conditions of the MCC in addition to fulfilling simultaneously the interests of the Government of India. As a result, this also raises a question: is MCC compact a bilateral or trilateral agreement? Correspondingly, the US government may break off the deal at one’s convenience, nonetheless the Government of Nepal cannot. Likewise, one should be seriously careful, while approving the MCC, to find causes and consequences of the cancellation of the MCC compact in countries, namely Madagascar, Tanzania, Ghana, Sri Lanka etc. On the other hand, the bilateral relationship between Nepal and China, as defined by the Sino-Nepalese Treaty of Peace and Friendship signed and ratified on April 28, 1960, has always been friendly and cordial. More importantly, China understands Nepal’s geopolitical situation across the world, and is also familiar with the economic development of Nepal. Given this situation, Nepal not only requires an economic assistance from the US, the former also needs foreign aids and grants from any well-wisher developed and emerging countries worldwide. One crucial factor that any international communities should primarily acknowledge in relation to Nepal that Nepal is a a member country of the Non-Aligned Movement, implying clearly the fact Nepal cannot and never goes beyond national security interests of any countries in the world, including the United States, China, India. In addition, Nepal, the birthplace of Buddha, is spreading the peace , and participates regularly in sending the Nepali Army in UN peace support campaign, apparently signifying the reality that Nepal is always in favor of peace and harmony across the world. In consequence, Nepal surely wants to fulfill its dreams of economic development without compromising interests of her donor partners and neighboring nations.
Going forward, if the grants under the MCC compact help fight the Nepalese poverty via the economic growth, it can change fortune of the Nepalese citizens. Even though foreign aid is controversial in developing economies, the poverty-driven grant under the MCC compact by the US government has a greater chance of making Nepal an economically prosperous country if handled prudently. The last but not the least point is that Nepal should not sell the generated electricity and energy , raw materials for the production process, rather she should attract additional foreign direct investment (FDI) and foreign aids, spreading a good message to the rest of the world that Nepal has now become a fascinating avenue politically, economically and strategically , securing the sustainable source of energy for the establishment of export-based industries. Most importantly, no one in Nepal is against the MCC grant proposal. Finally, no country can be rich through foreign aids. However, if road networks and generation of electricity can be expanded without getting affected herself and affecting to neighboring countries and the donor nations negatively, it could be a foundation for the future sustainable economic development of the Nepalese economy. In short, the choice between blessing or cursing to Nepal from the MCC depends on the careful, cautious, and patient implementation of the compact among all concerned beneficiaries. I think denying over-estimated exaggerated negative projections from the domain of the conspiracy theory, the MCC compact is in favor of Nepal. That is, the approval of the MCC is financially good for Nepal at least to develop a culture of doing works and projects on time because most projects funded by the government of Nepal are incomplete or behind schedule for a designated time frame. However, one should be seriously careful about the vested interests of military part of the MCC while endorsing it.
Narendra Raj Tiwari ([email protected])
PhD student (Economics) at Texas Tech University
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