Confused Obsession: Unanswered Questions on the Nepal’s MCC debate

Associate Professor Krishna K. Shrestha, UNSW Sydney, AUSTRALIA

The Millennium Challenge Corporation (MCC) is hotly debated in Nepal currently.  We can almost certainly expect to hear or see something about the MCC on Nepali Newspapers, TV, radio, social media, cafe chats, and even in family dining tables every day.  The discussions are centred around the question of whether, how and why the MCC is good (or not good) for Nepal. The media is currently abuzz about a letter sent to the MCC Board by the Nepali Prime Minister and Chairman of the Nepal Communist Party (Maoist Centre). The letter had an implicit commitment to ratify the MCC from the Nepal’s parliament. Amidst an intense debate and divergent opinions from the political party leaders and public, many arguments for, and arguments against, have emerged and have now divided the nation.  No time in the recent history that a debate on a foreign aid has captured so much public attention and controversy in Nepal, so much so that this has become almost a political and media obsession.  And yet, confusion remains – what is the fate and future of the MCC; why is there so much confused obsession; what are the unanswered questions on the MCC, and what could be some possible ways forward.

The MCC: who benefits?

The MCC is endorsed by the U.S. Congress in January 2004 for the USA. On January 23, 2022, MCC turned 18 years and has continued around the world until today because it is serving the USA.  It was set up as an independent bilateral foreign aid agency because of dissatisfaction with the other aid programmes. Assistance under the MCC is given to poorer countries selected through competition. Naturally, the terms and conditions are set by the US Congress. Any country willing to receive the grant must have 10 of 20 indicators, ranging from proper business conditions and civil liberties to the status of political rights.  Since its inception, the MCC Board has approved 37 compacts worth $13 billion for 29 countries (as of 2019). There are several instances of the US partially or fully terminating compacts. For instance, the compacts for Madagascar and Mali were terminated fully while those in Nicaragua and Honduras were partially withdrawn. In Mali, the termination followed the late-March military coup.  The MCC has become a new way of the U.S. to support stability and prosperity in partner countries but also ‘enhance American interests’, labelling the MCC as a good investment for the American people and a vehicle for ‘smart U.S. Government assistance’. When we consider the benefits of MCC in Nepal, it is therefore critical to understand that the MCC is initiated by the US for the benefit of its citizens and for advancing its interest globally. Any benefit Nepal or any other country gets is only the flow-on effects of the program. There are always costs involved.

Nepal’s former Minister of Finance Gyanendra Bahadur Karki, seated left, and acting CEO of Millennium Challenge Corporation Jonathan Nash, seated right, sign the Nepal Compact on Thursday, Sept. 14, 2017 in Washington. (Photo by Steve Ruark for MCC)

The MCC Controversy: whose debates, what evidence?

The MCC in Nepal is not new. It started some 5 years ago (September 2017).  There is now a heightened political and public discussion because of the interest in economic prosperity amidst continuing political wrangling. The political parties are now preparing for the national, provincial, and local elections. Much of the debate is circled around three perspectives and these are mostly driven by opinions, emotions, and egos, not by critical analysis and facts.

  • Firstly, the MCC Nepal’s proposed USD500 million is a big sum of grant money, committed to the development of critical infrastructures in Nepal such as roads and electricity. This investment marks a new chapter in the U.S. – Nepal partnership, designed to increase the availability and reliability of electricity, lower the costs of transportation, maintain road quality, and facilitate cross-border electricity trade between Nepal and India—helping to spur investments, accelerate economic growth, increase export, expand industry, and reduce poverty. Moreover, having a closer relationship with the USA, which has been Nepal’s development partner for many decades is a good thing for Nepal. A streamlined approach of the MCC is appropriate to advance the interest of the American people in South Asia, given the problematic track record of Nepali bureaucracy, political complexity and corruption that has paralysed many foreign aid programs in Nepal.
  • Secondly, the MCC has the wrong definition of the problems and an inappropriate approach to foreign aid. This is combined with overarching conditionalities and upward accountability that undermine the very role of a sovereign state. The problems of inadequate electricity and roads, as identified by MCC are technical problems. The solutions identified are injecting money, employing overseas experts, attracting private investments, and employing policies for market deregulation and international trade liberalisation. These are technical solutions. USD 500 million is not that big, given that remittances and taxes from big businesses easily surpass this money in just a few years. The fundamental problems are more about how to manage money, how to manage people, how to deal with international partners, how to foster trust, and so on. The crux of the problem is therefore social and political, not technological, or financial as embraced by the MCC.
  • Thirdly, Nepali leaders have not properly engaged with the MCC or with the Nepali public. It is now too late to discuss and negotiate the MCC. The responsibility of deciding the next step of the MCC is best left to the MCC Board. This situation is created by the Nepali government, driven by the deeply seated submissive culture of the Nepali politics and bureaucracy. This has paralysed the MCC from the design stage to present. The submissive culture and issue of responsibility were exposed when Nepali leaders including the Prime Minister sent a letter to the MCC Board, requesting a few months extra to ratify the MCC compact through the national parliament. This letter, for many, was problematic because it did not respect political and diplomatic norms of negotiation between equal position holders, and that the political leaders assured implicit commitment of ratification to the MCC Board, without engaging with the public and political forces in Nepal.

Millennium Challenge Corporation (MCC)

The debates such as above are interesting and important, an indication of a vibrant Nepali politics and society. What is puzzling, however, that much of these debates are rarely based on factual details and critical analysis. No convincing analysis exists for the MCC issues and potentials linked with lessons from historical development aid initiatives in Nepal and globally. The questions being asked are: where are the scholars, analysts and practitioners who have studied and analysed Nepal’s development for decades? are they simply uninterested on this matter, or is that their voices are being suppressed, or sidelined by the media and political leadership? Who are the best people/stakeholders to inform and lead these debates to influence the MCC as well as the Nepali public with some truth, facts, and analysis? As it is though, the debates are largely unsustained and misconceived.

Accountability: what is the limit? 

No doubt that the MCC is a well-crafted program by the USA for advancing the US interests. It ensures the MCC investments being controlled by the MCC Board. By design, the MCC initiatives in Nepal (and elsewhere) make all the MCC partners including the Nepali government to be overseen and accountable to the MCC Board for all MCC activities. It makes sense for the MCC to have some form of oversight to give away grants (US taxpayers’ money) overseas. The question is: what is the limit of this oversight? This question goes to the intent and capability of the Nepali government leaders who have started to negotiate the MCC in the first place. Nepal has already half-celebrated the fact of being the first country in South Asia to qualify for the compact after it met 16 out of the 20 policy indicators. Then joint-secretary, Baikuntha Aryal, and acting chief executive officer of the MCC, Jonathan Nash, in September 2017 signed an agreement in Washington. The US government agreed to provide USD500 million in grants while Nepal would put in $130 million for the project that prioritises energy and roadways. This is the largest grant Nepal has ever received. Then Finance Minister Yubaraj Khatiwada registered the compact at the federal parliament for ratification. However, it was never presented before the House for approval. It is noteworthy that the MCC compact does not note that it needs to be ratified by Nepal’s parliament. However, the text of the agreement says that provisions in the compact will prevail over Nepal’s existing laws in case of conflicts, which requires parliamentary ratification. In this context, the MCC is the first grant agreement that requires parliamentary approval. As the grant assistance under the MCC must be approved by the US Congress, the United States government looks for the same level of endorsement from receiving countries. Most countries ratify the MCC compact through their parliament, although their agreements do not say the provisions in the compact would prevail over the domestic laws in case of contraction. There are critical lessons for Nepal from the global experience. It certainly seems possible and necessary for Nepal to engage in a further discussion and negotiation. Any suggestion that the time for negotiation is finished is utterly incorrect and unacceptable, given that the MCC has now been enmeshed into public controversy.  The question for the Nepali government and political leaders is who are the competent people to do this work effectively, ensuring that there is a positive relationship with the MCC (USA), India, China and maintaining trust and confidence of Nepali people.

The MCC Board is supreme in the governance of MCA-Nepal. Many have argued that it is a one-sided compact with no respect or recognition of the Nepali government. Worse, it requires the monitoring of the contribution from the Nepal government. Everything must be done to the satisfaction of the MCC. As the debates go on, this has become difficult to accept for many commentators and a vast portion of the Nepali public. The Millennium Challenge Account Nepal (MCA-Nepal), which is a Government of Nepal’s agency formed by a cabinet to manage the MCC initiative in Nepal, is to be governed by its own rules; the project management chain of accountability links directly to the MCC Global; the hiring of its staff will be international and own its discretion, and that the Nepal government will have to make an easy passage for hiring foreign employees. The MCC is required to have autonomy and has the power of making all decisions related to the MCC projects. Despite Nepal’s government not having control of any of the governance activities, it is required to pay the indemnity for the work that MCA-Nepal does. The vital issue is therefore about specifying the limit and parameter of accountability, ensuring that sovereignty of Nepal is maintained to govern the Nepal’s affairs affecting its citizens.

Development politics: is MCC just a development project?

The MCA-Nepal compact focuses on enhancing connectivity to India, while it does not mention China or consider connectivity to China. Like India, China is Nepal’s important neighbour, and it is a big, perhaps a bigger market than India. Although geographical challenges are to be recognised, there are clear possibilities to enhance connectivity to China. This has been ignored, perhaps deliberately, by the MCC. This brings the question of geopolitics. With the reference to the Indo Pacific Strategy by the high-level officials from the USA, the MCC has become more than a development assistance from the USA. It has now become is a vital geopolitical issue. The issue of whether and how the agreement may prevail over Nepal’s laws in case of conflicts has been unclear. There was not much dispute over the compact until David Ranz, from the US State Department, during his Nepal visit said that the MCC was a crucial part of the Indo-Pacific Strategy. Many political leaders strongly stood against the parliamentary ratification of the compact, arguing that the MCC is part of Washington’s Indo-Pacific Strategy, which has military components that are aimed at countering China, a critical neighbour of Nepal. They have 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. As Moyo’s book, Winner Take All: China’s Race for Resources and What It Means for the World (2012) argued that China is already well on the way to gaining the upper hand in world economic dominance. In this context,

Nepal, both being an immediate neighbour and already receiving significant development grants and loans from China, cannot afford to make China feel sidelined by signing the MCA-Nepal compact without serious consultation with and advice from China: the issue that might not make the MCC hierarchy and India overly happy, but something this is in the best interest of Nepal.

Irony of Experts: whose problems?

 Not much debate exists on the misconceptions of the external ‘experts’ who have ill-defined the problems by ignoring local needs, culture, rights and contributions. The problems and solutions identified and imposed by the ‘experts’ are sponsored by the USA, ignore or undervalue the inputs from Nepali experts and community. This reminds me of Easterly’s argument in his book; The Tyranny of Experts: Economists, Dictators, and the Forgotten Rights of the Poor (Basic Books, 2014). As Easterly analysed, the broader shortcoming of this development thinking is the failure to recognise the importance of the rights and value of the locals. Development, as the MCA-Nepal sees it, is narrowly focused on the material well-being. Development “experts” champion technical solutions such as roads and electricity, believing they will end poverty. Nepal has a myriad of systemic dysfunctions, each with its own ecological, economic, and social dimensions without simple cause or solution. The problem cannot be merely attributed to financial and infrastructural shortcomings These technical solutions by “experts” fail to address the core of the problem. The lack of individual rights and recognition, including political and economic ones, prevents the local peoples from implementing bottom-up, emerging solutions to development problems, and from defending their interests from upwardly and imposing institutions like MCC global. As Redcliff (2005) argued sometimes ago, development needs are defined in different cultures. The first step, as William Easterly in his famous book, ‘A Whiteman’s Burden’ argued, is to at least open a debate, a discussion about why the rights and recognition of the Nepali local matter. The MCA-Nepal has come at a crucial juncture of Nepal’s development history and is undoubtedly important.

The western ‘experts’ imposing development solutions to the ‘east’ is not new. This practice has an origin in the implementation of the Bretton Woods System of the 1940s which has now persisted through the globalisation movement of the 1990s. The problem is that the development governance has been paralysed by the techno-centric view of development taken by the MCC, seeing development as reliant upon economic growth and capital accumulation with complete substitutability of factors of production (human-made capital for natural capital) and arguing technological fixes can mitigate resource extraction and environmental impacts. The MCC optimists have confidence that the existing capitalist social, economic, political, and ideological structures/institutions can deliver growth and alleviate poverty. However, skeptics argue that we must change our economic system, our political structures, and our ways of thinking to realise inclusive development in a socially diverse and politically vibrant country like Nepal. The problem of the ‘west’ cannot and must not continue in the form of imposition. There are alternative ways to think about development governance in Nepal.

 What next: The fate and future of MCC

 The MCC debates in Nepal have made us to rethink the meaning of foreign aid in the country. The MCC compact with all its do-good missions, can be seen as a modern reincarnation of the infamous colonial conceit of yore. As it is proposed, the MCC is typical of, what William Easterly argued in his famous book, ‘The Whiteman’s Burden’, “planners”, who believe in imposing top-down big plans on poor countries like Nepal. Nepal has three options of a) rejecting the compact and move on without further delay, b) work with the MCC to modify and make it as best as it can be for the Nepali people, and c) leave it as it is and it’s up to the MCC Board to decide the next course of action.

  • The ‘reject’ option may not be great for Nepal going forward because the MCC can be an opportunity for Nepal’s development, as demonstrated by many countries who have embraced MCC. It is offered by the USA that has a global political and economic influence. There are also risks in rejecting it – something Nepal cannot afford at this time.
  • The second option is to ‘accept’ with modifications. This is a better option, provided that the modifications are negotiated in good faith and in the interest of Nepali people.
  • The third option is to leave it up to the MCC Board to decide the fate of the MCC; whether to be open for further negotiation with Nepal or drop it altogether.

The better option for Nepal and the MCC as the situation unfolds, seems to be to engage in further discussion and negotiation. This is vital especially in the context of massive public interest in the MCC. Nepal should consider accepting the MCC with appropriate modifications. In so doing, the first and foremost, the Nepali political leaders must work out at least six critical tasks:

1)Develop a team of highly competent development and international relations experts from within Nepal and outside; this team being directly reporting to the Office of the Prime Minister of Nepal

When developing the team as highlighted above, there is a serious need for developing critical knowledge and skills for a deeper understanding of why and how local voices and indigenous knowledge are important but are persistently ignored or misconceived, and how to approach a more effective dialogue between the powerful global actors and rightful local people as a basis for transforming development and foreign aid. The Nepali contexts are important, indigenous knowledge and contributions must be valued, and political complexities and social relations recognised. Of course, the problematic development governance is not going to change overnight. But the team comprising of critical and scholarly champions must be nurtured and mobilised by the political leadership of Nepal to bring about these changes. Of course, these champions may be already there or emerging, and they can build on the debates of the MCC to date. After all, it’s not all doom and gloom. The debate over the MCC in Nepal has increased awareness on the pitfalls and potentials of foreign aid in Nepal. It has also shown that Nepal can attract powerhouse economies, like the USA, to have global agreements and resource commitments. This lively debate is the evidence that public engagement, even if opiniated and uncritical to a large extent, is increasing at all policy making processes (global, national, and local). There is clearly an increasing individual consciousness which can be a good foundation to identify competent local champions for change for inclusive, less dependent development.

It is important to note that the MCC compact being presented should not be accepted as it is. It gives sweeping powers to the MCC Global, while once accepted, the Nepal government is bypassed in the governance of MCA-Nepal. The consequences of accepting it without any modification can be risky for various political, economic, and social reasons. After all, Nepal does not want to replicate what Moyo characterised in her book, Dead Aid, where government-to-government foreign aid has harmed Africa by fostering dependency, encouraging corruption and ultimately perpetuating poor governance and poverty. After so much has happened over the years and throughout the history, Nepal cannot afford to be a country that perpetuates the cycle of poverty and hinders economic growth through the implementation of the MCC that has problematic definitions of problems and solutions. The MCC debates have raised questions on national sovereignty and strategic geopolitics and these issues must be seriously considered before any decision on the MCC is made. Clearly development aid’s accountability to the aid recipient and sovereignty of a country are important prerequisites for all future development.

Associate Professor Krishna K. Shrestha, UNSW Sydney, AUSTRALIA  [email protected]

Associate Professor Krishna K. Shrestha contributed to this article in his personal capacity. The views expressed are his own and do not necessarily represent the views of the

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