MCC agreement will not affect Nepal’s sovereignty nor its policy of non-alignment.

July 22, 2020

Jonathan Brooks, the Deputy Vice President, MCC, Washington DC

Some leaders of the ruling Communist Party of Nepal (CPN-M) are raising rumors that US troops are coming to Nepal, the US strategy of encircling China will trap Nepal in the MCC, it has challenged Nepal's sovereignty, and the US has started interfering in Nepal by paying a lot of money. For the past few months, there has been a heated debate in Nepal's politics over the million USD of the Millennium Challenge Corporation (MCC), an agreement reached between the two governments in which the US government is ready to provide grants. Prime Minister KP Sharma Oli has already sent the compact to the parliament for ratification, approving from the cabinet, but the speaker has not put the compact on the agenda of the parliament. Opposition leaders within the ruling NCP have turned it into an anti-government weapon. As a result, many misconceptions have been spread about the MCC project that the United States has set for the development of the country. Instead, the main opposition party, the Nepali Congress, has backed the prime minister's proposal and demanded immediate approval.

When heated debate is raising on this issue in Nepal's politics, Choodamani Bhattarai, Global Editor of DCNepal, has interviewed Jonathan Brooks, Vice President of MCC at the MCC's Washington DC headquarters. Brooks is the MCC's Deputy Vice President for Europe, Asia Pacific, South Asia and Latin America.

How have you assessed the situation in Nepal in relation to MCC?

In September 2017, the U.S. Government’s Millennium Challenge Corporation (MCC) signed a $500 million compact with the Government of Nepal. This compact will build electric transmission infrastructure and perform road maintenance activities; priorities identified by Nepal during the nearly three years of project design to benefit the people of Nepal. The MCC compact is agrant, not a loan, aimed at reducing poverty through economic growth.

MCC is aware that the Nepali Parliament has not ratified the MCC Compact. Parliamentary ratification is the next step needed to proceed with the $500 million grant, which the two countries signed in September 2017 and which Nepal committed to ratify by September 2019.  Delaying ratification is delaying the benefits of more jobs and increased economic growth for nearly 23 million Nepalis.

MCC recognizes that deliberate misinformation on the nature of the compact and internal political issues are delaying the tangible benefits of the compact for the people ofNepal and is causing debate. While,debate is an important part of any free society, itshould be based on facts.

MCC has successfully partnered with nearly 30 countries worldwide on 37 grant agreements of several hundred million dollars, totaling $13 billion. These grants have helped lift millions of people from poverty by catalyzing investment and economic growth.

The Entry Into Force date has now elapsed; the recent press release said funding for MCC is not available for an ‘open-ended’ period. How long do you think can the U.S. wait?

MCC has committed $500 million in grant funding and it is now up to the Government of Nepal to move the Compact forward. Nepal committed to ratify this compact by September 2019. Continuing with the partnership is Nepal’s choice, but the availability of the grant funding is not open-ended. We have not determined the appropriateness of setting a new EIF date.  MCC is a transparent and committed partner and is watching developments in Nepal closely; such actions are likely to affect the views of MCC and its Board of Directors about Nepal’s commitment or ability to proceed with this partnership. Responsibility for moving forward with ratification rests with Nepal.

Is this really a part of the Indo Pacific Strategy?
Some leaders claim that the compact is against Nepal’s interest.

The partnership between MCC and Nepal long predates the Indo-Pacific Strategy. The MCC board selected Nepalfor a compact in recognition of Nepal’s performance on MCC’s eligibility indicators and its efforts to establish rule of law and democratic institutions.  MCC compacts are agreements between MCC and the partner government; they are not specific requirements under the Indo-Pacific Strategy.  The MCC Nepal Compact – a $500 million grant – does not require Nepal to join any U.S. organizational entity or initiative. An MCC compact is a non-military agreement; it does not have any military components and by U.S. law, MCC funding cannot be used for military assistance or training. All MCC compacts are built on a premise of country ownership, sustainability, transparency, accountability, and a focus on enabling inclusive economic growth and job creation.

The Compact will not affect Nepal’s sovereignty nor its policy of non-alignment. It is regrettable that some have sought to criticize the Compact in order to advance their own agendas. The current debate over the compact appears to be driven by internal politics rather than opposition to the proposed programs or engagement with MCC directly.

There are also claims that MCC is a way to counter China’s Belt and Road Initiative (BRI). Is this true? Are there any similarities between the two?

MCC was founded in 2004 as a new form of development assistance focused on accountability and host country ownership, well before the Belt and Road Initiative.  MCC has been working in partnership with Nepal since 2012, prior to Nepal’s MOU with China’s Belt and Road Initiative. There is no relationship or connection between them.

MCC funding is in the form of grants that do not have to be paid back, and MCC abides by high standards of good governance and transparency with partner countries. As a recent illustration, MCC was once again ranked as a top bilateral donor in this year’sAid Transparency Index.

Questions have been raised regarding certain clauses of the agreement. If the parliament of Nepal says amendments are needed, will the US be ready to amend them?

The Compact signed by Nepal in September  2017 was jointly developed by the Government of Nepal  and MCC over nearly three years of intensive consultation with support from all major political parties and leaders in the country and the compact language was finalized only after a thorough negotiation period on all clauses with the Government of Nepal.   Given this period of preparation, we look forward to Nepal ratifying the compact as signed, so that critical electricity and road infrastructure assets can be built for the benefit of the people of Nepal. We would be happy to clarify any section of the Compact if the Government of Nepal requests it.

If MCC is not endorsed in Nepal, what would it mean for USG’s other assistances to Nepal?

MCC is an independent U.S. government agencyandcontinuing with this partnership is Nepal’s choice.The decision by the Government of Nepal regarding compact ratification will not necessarily affect other U.S. government assistance to Nepal. It should be noted that compact activities were designed to help support Nepal in its efforts to better deliver critical services to its people, ease the movement of goods around the country, and open up new opportunities for private investment.

Delaying the compact delays or denies benefits to nearly 23 million Nepalis. Beyond the economic loss, this would likely signal to many observers that the Government of Nepal is not yet prepared to own large, transparent, and accountable investments like the MCC program.  This may in turn raise doubts among responsible investors about its commitment to improving the development and investment climate in the country.

MCC Profiles

Jonathan Brooks is the Deputy Vice President for Europe, Asia, Pacific and Latin America (EAPLA) programs at the Millennium Challenge Corporation (MCC) in Washington, DC.