Millennium Challenge Corporation (MCC) Nepal Compact: What You Need To Know

Right now, the debate over accepting a grant from Millennium Challenge Corporation (MCC) is raging on. In the balance hangs 500 Million USD grant from U.S government to Nepal.

MCC History

MCC was established in January 2004 with a mission to reduce poverty. In fact, Geroge Bush established this program, as an aftermath of 9/11 attacks. His vision was to create a program that would aid projects the USAID or World Bank would not invest in. However, MCC had established threshold requirements for countries to receive this aid.

Nepal passed the threshold of eligibility for this program in 2012. In 2017, the Nepal government agreed to commit 130 million USD as the counterpart fund.

In the MCC website, they state that the aid is provided on the basis of three polices. First, the recipients should have the right policies in place, thus keeping a commitment to good governance. Second, MCC will only spend in programs that are cost-effective and provide “positive development returns.” Third, the aid recipients actions and policies should reflect ownership in the aid program. In Nepal’s case, that reflection of ownership comes with 130 million USD spending on MCC programs.

MCC & Nepal

According to the U.S Embassy’s site, the US government started to work on the MCC compact at the request of Nepal’s leaders in 2012. They also add that all governments and political parties while in power showed the desire to conclude the MCC compact.

What is in the MCC Nepal Compact?

MCC recognizes the problem of transportation in Nepal as well as problems in electricity supply. So MCC’s Nepal Compact is designed to solve these two specific problems. The goal is to lower transportation costs and increase electricity availability in Nepal.

In order to improve the electricity availability, Hetauda-Damauli-Butwal 400kVA transmission line will be built. Similarly, in order to lower transportation costs, the Itahari-Kakarvitta and Pokhara-Butwal highways, stretching 305km will be improved.

What is the huge Debate About?

So far so good. The US is ready to provide a grant to upper mentioned projects. The question is what is the U.S Interest that comes attached to this grant? Opponents to this compact say MCC is a part of Indo-Pacific Strategy.

What is the Indo-Pacific Strategy?

As China is on its way towards being a military and economic powerhouse, the USA wants to contain Chinese Influence. So Chinese view USA’s Indo-Pacific strategy as a policy to contain China while safeguarding US leadership in the Indo-Pacific region. The main debate is whether this is a military partnership. In the report prepared by the US Government, they state that they want to “uphold the core principles of the regional order at a time when these principles are under renewed threat.”

What are the leaders saying?

Nepali leaders are worried that MCC may be a part of a military partnership with the USA. A senior leader of NCP (Nepal Communist Party) Bhim Rawal thinks that it is a military partnership and Nepal’s Constitution does not “allow us to join in any military alliance.” Bhim Rawal is not alone in thinking so, there are many other leaders who think the same way.

This debate got more serious when Acting Deputy Assistant Secretary of State for South Asia David J Ranz said MCC was a part of Indo-Pacific Strategy. Foreign Minister Pradeep Gyawali says that is not the case because MCC formation precedes Indo-Pacific Strategy.

The United States Embassy categorically rejects the military involvement, they state that “There is NO military component to the MCC. In fact, U.S. law prohibits it.” In addition, the US Embassy clears that Nepal need not join anything in order to participate. You can see their statement here.

Why Lawmaker’s Opinion Matters?

MCC Compact needs to be rectified from the Parliament even though the compact explicitly does not say so. This will provide transparency to the project. All other nations involved in MCC have passed MCC compact from their parliaments. This also ensures that other laws do not hinder while implementing MCC compact projects. But, this is also a contentious issue because the compact says that it will “prevail over Nepal’s existing laws” if the laws conflict.

Will MCC Compact Pass?

Even though there are leaders within the ruling Nepal Communist Party opposed to MCC compact, Prime Minister KP Oli wants to pass this compact.

In fact, Finance Minister Yubaraj Khatiwada registered the compact for ratification at the federal parliament in July 2019. But, the then-Speaker of the House Krishna Bahadur Mahara did not introduce it to the house.

The main opposition party Nepali Congress wants this compact to be ratified, adding not doing so will be “suicidal” for Nepal.

It is true that China and the USA are competing to enlarge their power of influence. In order to achieve this, they will be putting forward economic incentives. Nepal needs to take all that it can for its own prosperity without getting trapped in military conflicts. I believe Nepal should accept MCC compact.

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