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Ever since Russia on Feb 24 started its invasion of Ukraine, Western countries, led by the US, have been on a mission to rally global support against the war. They are in fact out to shape a global alliance against Putin’s ‘aggression’ on Ukraine. 

On February 24, the day Russia invaded Ukraine, Nepal issued a statement saying it ‘opposes any use of force against a sovereign country in any circumstances and believes in the peaceful resolution of disputes through diplomacy and dialogue.’ On March 1, US Secretary of State Antony J. Blinken spoke with Prime Minister Sher Bahadur Deuba. The two leaders discussed ‘Russia’s unprovoked, unjustified, and premeditated attack’ on Ukraine and the importance of respecting the UN Charter’s principles of state sovereignty and territorial integrity. 

A day later, on March 2, Nepal voted in favor of a UN resolution on the Ukraine crisis ‘that deplores in the strongest terms the aggression by the Russian Federation of Ukraine in violation of the Charter.’ Meanwhile, Bangladesh, India, and Pakistan abstained from the UN vote condemning Russia’s invasion. 

Nepal’s criticism of the invasion raised the eyebrows of some foreign policy experts who interpreted it as a deviation from Nepal’s non-aligned foreign policy. But Nepal’s political parties had shown a unified front at the time.

The country’s position on the Russia-Ukraine conflict was also in sharp contrast to that of India and China, its two closest neighbors, both of which had abstained from the UN vote and refused to condemn Russia.  

But in a clear departure from its earlier position, Nepal on April 7 abstained from voting when the UN General Assembly endorsed a resolution suspending Russia from the Human Rights Council. The assembly adopted the draft resolution by a vote of 93 in favor to 24 against, with 58 abstentions. 

Besides Nepal, Bhutan and Maldives had also made a U-turn on their earlier position on Russia’s invasion. Pakistan and India, and Sri Lanka, meanwhile, continued with their position of neutrality. 

Hiranya Lal Shrestha, former Nepali ambassador to Russia, says Nepal initially toed the line of the US and the Western countries, but had a change of heart after Chinese Foreign Minister Wang Yi arrived in Kathmandu in late March and Prime Minister Sher Bahadur Deuba visited India in the first week of April. 

Shrestha argues that while Nepal can take a position against one country that is attacking another, it is not a good idea “to blindly support the agendas of America and its allies.” 

“We should figure out the root cause of the war. Neighboring countries should be sensitive to each other’s security,” he says. “In this case, Ukraine clearly overlooked Russia’s security concerns.” 

A senior Nepali foreign ministry official, however, tells ApEx that there hasn’t been any shift in Nepal’s stated policy. When a country launches an unprovoked war against another sovereign country, he says, Nepal will oppose the war. But that doesn’t mean we endorse all proposals of some countries while we reject those of others. 

“We condemned the attack but we maintained neutrality on the issue of removing Russia’s membership from the Human Rights Council,” he says, insisting that such balancing cannot be termed a policy deviation. 

Nepal supports mutual respect for territorial integrity and sovereignty, non-interference in each other’s internal affairs, respect for mutual equality, and non-aggression and peaceful settlements of disputes. The foreign ministry official says Nepal abstained from kicking Russia out of the Human Rights Council based on the same policy. 

Sanjay Upadhya, a US-based foreign policy expert, says that when Nepal on March 2 voted in favor of the resolution demanding the withdrawal of Russian troops from Ukraine, it did seem like the country was tilting towards the US. 

“This perception has been bolstered by the visits of several American political and diplomatic delegations to Nepal in the aftermath of the parliamentary ratification of the contentious MCC compact,” he says. 

By joining the ranks of nations that have deplored Russia’s invasion of Ukraine, says Upadhya, Nepal was perhaps only articulating its anxieties as a small nation precariously sandwiched between two powerful neighbors. 

It’s not just Nepal. Other smaller countries are also being forced to pick sides on Ukraine. 

India and China, which have maintained a neutral position on the issue, have not openly urged small countries to take their side, but they nonetheless want their friends and allies to maintain neutrality. 

Shannon Tiezzi, the editor-in-chief of The Diplomat, wrote in her April 7 article titled ‘Asian Countries Voted to Suspend Russia’s UNHRC Membership?’ that many countries in Asia—and the developing world at large—are increasingly frustrated at being forced to take sides between the US and Russia.  “It’s also an important reminder that when countries are truly forced to pick sides—with a neutral position not an option—many countries will, in fact, choose Russia,” she wrote. 

Foreign policy analyst Dev Raj Dahal says Nepal’s position on Ukraine is influenced by western and particularly American perspectives. 

“The education, knowledge, and exposure of Kathmandu elites are western, so they see all international issues through the same lens,” he says. “The geopolitical implications of Nepal’s stand on Ukraine will depend on how the war progresses and who comes out on top.” 

Foreign policy expert Upadhya says if Nepal is uncomfortable with the increasing Indian and Chinese sway in the country, there are less brazen ways of expressing its doubts than abandoning its traditional non-alignment. 

“Nepal has vitiated its domestic and foreign policy by allowing the narrative that the ruling coalition is pro-American in its basic orientation to hold,” he says. “The countries that abstained from the UN vote did not, by any stretch of the imagination, imply that they were in favor of Moscow’s position.” The Deuba government has done little, he adds, to present its case “as one of conviction rather than of convenience.” 

Four months into the invasion, there is no end in sight to the fighting. As war drags on, its geopolitical implications are being felt everywhere including in South Asia. Past few months have shown that Nepal is not immune.

The 11th summit of the South Asian Association for Regional Cooperation (SAARC) held in Kathmandu in 2002 agreed to the development of a South Asian Economic Union by 2020 in a phase-wise process. This commitment was never implemented. 

Again, during the 18th summit in 2014, regional leaders renewed their commitment to the same through a free trade area, customs union, common market, and common economic and monetary unions. This pledge too never saw the light of the day, as the SAARC process remains stalled after 2016 over India-Pakistan tension.  

The regional body was formed to promote economic growth in member states. And trade integration, it was thought, was the key to unlocking such growth.   

With the same thinking, the South Asian Free Trade Agreement (SAFTA) under the aegis of the regional body came into force in 2006. But it has not contributed much in intra-regional trade. 

With intra-regional trade at less than five percent of the eight countries’ total foreign trade, South Asia is the least integrated region in the world, heavily dwarfed by East Asia’s 35 percent and Europe’s 60 percent, according to a 2019 World Bank report.

Don McLain Gill, a resident fellow at Manila-based International Development and Security Cooperation, says SAARC’s creation in 1985 was the result of a new trend towards regional cooperation. 

“With SAFTA coming into force, there were hopes of maximizing economic cooperation in the region. However, today, South Asia remains arguably the least integrated region in the world despite its shared history, culture, and geography,” he says.

He says there are salient differences in intra-regional trade in the SAARC and the Association of Southeast Asian Nations (ASEAN). From 1992 to 2017, for example, ASEAN’s intra-regional trade grew exponentially, while SAARC’s pretty much stagnated. 

Unlike in SAARC, the asymmetry in size and capacity of member states was never an impediment to regional trade under ASEAN.

There are a host of reasons behind SAFTA’s sorry state. Tariff and non-tariff barriers, extensive sensitive list, poor connectivity, visa restrictions, lack of proper border infrastructure and booming informal trade are some of the major ones. 

Purushottam Ojha, a former commerce secretary, says one of the major hindrances to intra-regional trade are the extensive sensitive lists, which are lists of goods exempted from tariff concessions. 

The inventory of goods on the sensitive lists is very high. Despite the commitment to bringing them down, the member states haven’t been able to do so. 

“Nepal, Bangladesh, Bhutan, Sri Lanka have put 900 to 1,000 products under sensitive lists to collect revenue,” Ojha says. The basic principle of free trade is to liberalize trade by increasing investment and collecting taxes, he adds, but the least-developed countries of the region are loath to tweaking with their custom revenues.

He argues SAFTA cannot be implemented until and unless these countries review their sensitive list. 

Although there is a provision of reviewing the lists at least every four years, there hasn’t been much progress.

Similarly, unchecked informal trade has also hamstrung SAFTA. Although informal trade is not included in official government figures, the World Bank estimates nearly 50 percent of trade in South Asia is informal. For example, there is a large volume of informal trade between Nepal and India, and Nepal and Bangladesh. 

Para-tariffs also limit intra-regional trade. Para-tariffs are taxes levied on imports, but not on domestic products. SAARC member countries levy hefty border processing charges, much more than standard import-export tariffs. Bangladesh, Sri Lanka, and Pakistan are among the countries with high para-tariffs.

These para-tariffs, along with the sensitive lists, have rendered the region’s free trade agreement ineffective. 

According to the World Bank, average tariffs in South Asia were 13.6 percent compared to 7.3 percent in South East Asia. 

“Lack of comparative advantage, infrastructure issues, power asymmetry, and India-Pakistan security dilemma are other hindrances to intra-regional trade,” adds Gill. 

Poor connectivity is another big obstacle. There are no prominent connectivity projects in the region. Although India has been taking numerous bilateral initiatives to enhance connectivity, the capitals and major cities of South Asian countries are still poorly linked. 

Transport logistics and border infrastructure in the region are also poor, resulting in high import and export costs. It takes several weeks to clear goods at some border points. There hasn’t been any progress on product harmonization and quality control either.

The long-standing dispute between India and Pakistan, two largest SAARC member states in terms of population , is another big hindrance to intra-regional trade.  

For a long time there have been talks about making the SAARC region a visa-free regime, to no avail. Some member countries still have rigid visa systems, directly affecting traders in the region. In fact, these traders find it easier to do business with the rest of the world. 

The economic and geopolitical situation of South Asia has undergone a sea change since the SAARC member countries implemented SAFTA. With China’s rise, all South Asian states including India are more engaged with China on the economic front. 

“Today’s South Asia, through its individual sovereigns wants to harness open-ended regionalism or unbounded regionalism to keep it invested in groupings on its Eastern and Western flanks,” says Dattesh D. Prabhu-Parulekar, assistant professor at the School of International and Area Studies in Goa University, India.

In this regard, China's burgeoning trade and investment links with almost all South Asian nations can no longer be ignored, he adds. “These links undercut SAFTA.”

Moreover, over the past few years, countries in the region have been making good progress in terms of economic growth but their debts have increased as well.  

Parulekar says smaller South Asian economies are today bedeviled by debts brought on by profligate borrowing and serious liquidity crises. 

“Until these issues are urgently addressed, seamless trade-based regional cooperation and synergies appear unrealistic,” he adds. 

He instead suggests focusing on sub-regional mechanisms to enhance trade. 

With the SAARC showing diminishing returns for some of its members, he says South Asian nations have now bought into the propositions of ‘mini-lateralism’ and sub-regionalism.  “That undercuts SAARC and yet boosts regional integration. BBIN and BIMSTEC are cases in point,” he says.

Gill says the way forward is not to waste more resources on restructuring SAARC, but to strengthen sub-regional mechanisms. 

“Enhancing existing sub-regional arrangements such as BIMSTEC, BBIN, and the India-Sri Lanka-Maldives trilateral will help create stable conditions to maximize intra-regional cooperation, not just in trade, but also in areas like defense and socio-cultural exchanges,” he says. 

With the entire SAARC process in limbo, chances of SAFTA’s meaningful revival are slim. Better to accept the bitter reality, suggest experts, and move on.

Where are the candidates running for local level offices getting all the money they are lavishing on expensive campaigning paraphernalia and in looking after jumbo door-to-door teams?

It is an open secret that even the candidates for local elections spend millions of rupees on their campaigns. But there is no proper tracking of this money. In principle, it is the duty of the Election Commission to monitor election campaigns and keep tabs on candidates’ spendings. But keeping a close watch on the campaigns of thousands of candidates is beyond its capacity.

Prospective candidates start investing big months before the elections. To get an election ticket from their party, they have to appease key leaders at the center as well as at the local level. Usually, this entails some kind of cash handover. 

On April 27, senior Nepali Congress (NC) leader Shekhar Koirala had courted controversy by saying that a lot of money had changed hands during candidate-selection for local elections. Koirala said this after scores of Congress sympathizers from across the country complained to him that honest and committed cadres were being sidelined and that the party was nominating those who were rich.  

Political analyst and election-expenditure researcher Binod Sijapati says money’s role in the distribution of election tickets is pervasive. 

“We have heard of aspiring election candidates competing to buy election tickets from top party leaders,” he says. “After securing the candidacy, there are many other areas where they have to spend large sums. A big chunk of their election war-chest goes in cadre-mobilization.” 

Cadre mobilization has become a costly affair because the candidate selection process has been highly centralized. This means local-level cadres are reluctant to work for the candidate picked from the center. 

“So the candidates rely on the power of money to woo cadres and mobilize local cadres,” Sijapati says. “They also hand out money and meals to lure voters in rural areas”

Other key spending areas are transport and promotional material such as pamphlets, posters, flags, and T-shirts. 

So where indeed do candidates get hold of large sums of money to pour into their campaigns? 

They rely on local businessmen, contractors, and profit-oriented institutions.  

 According to Sijapati, funding the election campaign of a candidate is akin to an investment with the promise of high returns.  

“Candidates are ready to gamble away their own assets because if they win, they can gain so much more through back channels,” he adds. 

Candidates can accept donations from their well-wishers but such donations can only be routed through transparent banking channels. Instead, they choose to get their election expenditures from other sources, the ones that cannot be easily traced.

Businessmen and other interest groups are more than happy to invest in elections. If their chosen candidate wins, they will find ways to influence policies and decisions of local governments to not just recoup their investment but also to make hefty profits. For them, this is a simple quid pro quo investment, but that in turn promotes local-level corruption.

“In some cases, even the candidates don’t know how much money is being spent as people with different interests are financing their campaigns,” says Sijapati.

Then there are also some candidates who are taking out loans from their friends and relatives, even though their numbers are believed to be negligible.   

Yet there is an upside to election and campaign spending, no matter where it originates. 

Some economists see it as an opportunity to launder black money. They even hope that the current liquidity crisis will be eased after the elections. 

Political parties have reportedly amassed big amounts of cash to fund their election campaigns. As parties splurge on this cash, much of it could be routed into banking channels.

The downside of heavy campaign financing is that democracy suffers as a result. Elections are no more free and fair and governance is corrupted.

Expensive elections are not just a worry for the Election Commission. Even some political parties have been expressing concern. But fixing this problem is not easy. 

The legal and institutional mechanisms in place are hardly ever implemented. The poll governing body fixes expenditure ceilings for candidates, but without effective monitoring, there are no effective curbs in place.  

Surya Prasad Aryal, assistant spokesperson at the commission, says the body is trying to monitor election campaigns through its district and local level representatives.

The commission has set a ceiling of Rs 750,000 for mayor and deputy mayor candidates of metropolitan cities and Rs 550,000 for those contesting these top posts in sub-metropolitan cities. For the chairperson and vice-chairperson candidates of municipalities and rural municipalities, the ceilings have been set at Rs 450,000 and Rs 350,000 respectively.

Candidates are also required to open a separate bank account for the purpose of election campaigning and to appoint accountants. All transactions, big or small, should be made through bank checks. The rule also states that all candidates should submit their poll expenditure details within 30 days of the completion of elections. 

But so long as candidates continue to rely on undisclosed sources to fund their elections, the actual figures they spend on their campaigns will remain a secret. 

In 2017, a study by the Election Observation Committee, an NGO, estimated that Rs 13bn was spent on the three levels of elections; the candidates alone spent Rs 9.6bn. But these are at best rough estimates.

Ila Sharma, former election commissioner, concedes that hamstrung by lack of resources the Election Commission alone cannot track the money spent by candidates across the country. 

“What the commission can do is rigorously vet the documents of expenditure submitted by candidates after the elections. But it rarely does so,” she says.

When the elections are over, she suggests, the commission should invite officers from the Office of the Auditor General to go through the requisite documents. 

“It is obvious that political parties and their candidates are spending millions on election campaigns. We just don’t know how much,” Sharma says. 

Voters also have a role in bringing down election costs. 

Both Sharma and Sijapati ask voters to discourage the candidates who try to influence voting patterns with their money. 

But most of all, it is the responsibility of political parties to reduce the influence of money in the election process and to field clean and competent candidates.  

To control election spendings and promote better election candidates, some experts have long suggested a fully-proportional election system. But again, it is the political parties that will once again have to take the onus for this.

The 75 years of US-Nepal diplomatic relations have had their share of ups and downs. The Americans were among Nepal’s first bilateral donors. Peace Corps volunteers, engaged in pursuits ranging from education to agriculture, helped Nepal modernize. The American role in helping Nepal maintain its ‘strategic autonomy’ vis-à-vis its two giant neighbors has been no less important over the years.

Yet there have also been times when the Americans have made things rather tricky for Kathmandu. For instance, the US-supported Khampa uprising in the 1960s had become a big headache for Kathmandu as it threatened to destroy Nepal-China ties. Throughout the Cold War, Nepal also had to maintain a delicate balance between the US and the USSR, the two superpowers. The Americans were also blamed for prolonging the Maoist insurgency (1996-2006) by arming the Nepal Army.

Now the bilateral relationship is again in focus thanks to the MCC compact. After its February 27 endorsement by the Nepali parliament, there has been a flurry of activity on the bilateral front, with the announcement of another lucrative USAID grant and a spate of high-level visits from America.

Anil Sigdel, founder of Nepal Matters for America, a Washington DC-based think tank, says the Americans want to “to ensure that Nepal aligns with US policy against Russia’s invasion of Ukraine”— more so as both India and China have refused to condemn Russia. They would also like to ensure the projects under the compact face no more obstacles and to keep China honest in Nepal.

Says Anna Richey-Allen, spokesperson at the US Embassy in Kathmandu, “Now more than ever, we [the two countries] will need to tackle difficult issues like… protecting democracy in the face of rising authoritarianism.”

With Washington now needing to lobby with Nepali leaders against Moscow it seems like Cold War redux in Kathmandu.   

Also read: China, Russia behind greater US engagement with Nepal

Nepal-China relations have been rather choppy of late, particularly after the Nepali parliament’s ratification of the MCC compact. China believes the current (election-bound) Sher Bahadur Deuba government does not prioritize ties with the northern neighbor. Members of the government, meanwhile, seem wary of recent Chinese assertiveness in Kathmandu. 

When Chinese Foreign Minister Wang Yi visited Nepal in the third week of March, Beijing and Kathmandu were expected to mend fences and sign something concrete under the BRI. It was not meant to be. 

This week ApEx held a roundtable with some China experts on the current state of Nepal-China relations. Excerpts: 

(Note: Indira Adhikari and Sharada Ghimire, the two other invitees to the roundtable, had to pull out last-minute due to personal emergencies.) 

China has become a bargaining tool for power 

Pramod Jaiswal

(Research Director at Nepal Institute for International Cooperation and Engagement, with specialization in China and South Asia) 

To understand China’s Nepal policy, it is imperative to delve into its larger South Asia policy. Beijing has prioritized South Asia with the view to developing its southern and western regions, particularly Tibet, which is comparatively less developed than other parts of China.  

Xi Jinping is the first Chinese president to visit all South Asian countries, except Bhutan with which China does not have diplomatic relations. With Nepal, China is developing relations in trade, defense, and security. It is also engaging with Nepal at the political level. 

Scores of countries seem eager to enhance ties with China for their economic development, but we have been unable to do so. Even the countries that have hostile relations with Beijing are benefiting from China’s growth. But even as a neighbor, we haven’t been able to strengthen ties with China. 

Whenever our politicians feel that their positions are under threat, they try to use China as a tool to stay in power. This happened during the Panchayat regime, and this is happening today. Even when the communist government led by KP Sharma Oli was in power, there wasn’t much progress in Nepal-China relations. 

China will not engage with Nepal to the extent of offending India. What China rather wants in Nepal is a trustworthy and long-term partner to address its security and economic concerns. Before 2008, China was completely reliant on Nepali monarchy to pursue its interests here. Now, China is engaging with all political parties. 

There has been much rhetoric about MCC and BRI, but what is our official stand on these issues? We never delve into the economic aspects of these issues, only seeing them through the narrow lens of nationalism. We lack the vision and willpower to benefit from China’s rise. It’s high time that our political leadership mended its ways. 

Deuba has chosen one neighbor over another 

Gopal Khanal

(Foreign affairs advisor to KP Oli during his first term as prime minister) 

We have to understand that China is an emerging superpower. The world is becoming multipolar, and China’s foreign policy has vastly changed from the one adopted by Deng Xiaoping. Beijing is now more assertive in the international arena than ever before. 

China shares borders with 14 countries. But it wants to engage not just with its neighbors, but also with the world at large. Thus its greater presence in Nepal is to be expected. But it is crucial that Nepal adopts a balanced foreign policy with India and China. Both the neighbors are equally important to us. 

But it seems the current five-party ruling alliance undervalues China. There is a perception that this government favors Western countries. China should be Nepal’s highest foreign policy priority. There have been some departures in our bilateral engagement with China under PM Deuba. First, you see a clear anti-China prejudice. For instance, soon after its formation, the incumbent government formed a panel to look after alleged Chinese encroachments of Nepali territories, even though the two previous governments had already concluded that there was no border dispute. Second, when Chinese Foreign Minister Wang Yi visited Nepal, there were no talks on BRI projects. 

I see the current government choosing one neighbor over another. Due to serious lapses in judgment of our political leadership, we find ourselves in a difficult geopolitical spot. When Chinese President Xi Jinping visited Nepal in October 2019, he talked about turning Nepal from a landlocked country to a ‘land-linked’ country. This was a momentous announcement but there was then no follow-up from our side. We have never seen our relations with China through the lens of larger national interest. 

There have been some mistakes from the Chinese side as well. For instance, Chinese Ambassador to Nepal Hou Yanqi’s running-around to save the Nepal Communist Party from imploding did not send a good message. Likewise, China could have resolved the problems at border points to smoothen the supply of goods. On the MCC compact, too, it would have been better had Beijing refrained from making any statement. 

Indo-Pacific’s prominence has affected Nepal-China ties 

Rupak Sapkota

(Former Deputy Executive Director at the Institute of Foreign Affairs under foreign ministry) 

There are three ways of viewing Nepal-China relations. First is the larger geopolitical context. There has been extreme pressure on international power-balance of late due to growing rivalry among big powers. Strategic convergence between India and the US is increasing, and China and the US are headed towards confrontation. So the geopolitical center of gravity is gradually shifting to the Indo-Pacific. Such developments are likely to have some implications on Nepal’s national security and sovereignty as well—and which is also why we are seeing some stress in our relations with China. 

Our economic ties with China are stagnant. This did not happen even when there was a supposedly China-friendly government of left parties at the helm. We signed the transit and transport agreement with China, but it didn’t move ahead. Similarly, we signed several vital agreements when Xi Jinping was in Nepal, and they too remain unimplemented. 

I think there is a structural problem. Trade and connectivity with China should run parallel to our relations with other countries. We often make the mistake of seeing China as an alternative when our relationship with the other neighbor sours. Carefully balancing our neighbors should be the utmost priority of any government. 

China now sees Nepal not only from the security viewpoint but also as a strong economic partner. In recent years, Chinese investments in Nepal have increased but are still to benefit from the latest Chinese technology and knowhow. At the same time, there is growing interest among the Chinese about Nepal, which can be seen in Chinese social media platforms. 

In order to close the loopholes in the conduct of our foreign policy, including with China, we must have a sound mechanism to provide timely inputs to the government. But what we see is our policy-related institutions are not functioning well due to lack of resources, politicization and other issues.

No institutional framework to settle Nepal-China issues

Upendra Gautam

(General Secretary at China Study Center-Nepal) 

Frankly speaking, geopolitically, we are not in a comfort zone. Nepal should have a long-term view on our relations with China, which is lacking. We have policy inconsistency with China. We should stop viewing our ties with any country from the perspective of one party or government. Whenever there is a government change in Kathmandu, a new foreign policy is drafted. But why? The basic framework of foreign policy should remain unchanged. 

The problem is not just with the present government. For instance, time and again Nepal has failed to take up its issues with China in a frank and assertive manner. Our individual leaders take up important issues with China without understanding that China will not heed them until such proposals come via official channels. 

We should keep our relationship with China within a certain institutional framework. Without that, Nepal has been unable to raise its issues with China in a systematic way.  We have signed many agreements with China, but have they been incorporated into our national plans and policies? Obviously not. 

We are witnessing a sort of anarchism in our bilateral relationship with China due to a culture of indiscipline. When we talk to China, we should tell them exactly what about their policies hurt us so that they can go about addressing them. But seldom do we do enough homework to identify our issues or to present them clearly before the Chinese. 

Nepal should pursue an independent foreign policy. Geopolitical pressures and concerns are always there, but we can handle those issues with right vision and leadership.  

We should also deal with China without third-party influence. For instance, on the MCC compact, the Nepali prime minister could have held a phone conversation with the Chinese to assure them that its parliamentary endorsement would not affect Nepal-China relations. 

One thing I want to add concerns Nepal-China railway. Nepalis seem to believe that the railway can be built overnight. But we have no good plans for it. You cannot expect China to build such an expensive project and drop it in our laps. Nor have we been able to convince the Chinese that we have either the resources or the manpower to operate such a tricky rail line. 

Have Nepal-US ties undergone a sea-change following the February 27 parliamentary endorsement of the $500m MCC Nepal Compact? It certainly appears so.

Since the compact’s ratification, there have been important visits and bilateral exchanges between the two sides.

In addition to money under the compact, the US has announced a $659 million grant to Nepal under the United States Agency for International Development (USAID) for the next five years. Hot on its heels, an American Congressional delegation led by Senator Kirsten Gillibrand also visited Kathmandu on April 22-24.

Just days prior to this visit, US Deputy Assistant Secretary for South and Central Asian Affairs Kelly Keiderling had also jetted to Nepal and held talks on a range of issues with various sections of Nepali society. Earlier, she had come to Nepal just before the compact’s endorsement.

In Washington DC, newly appointed Nepali Ambassador to the US Sridhar Khatri has been holding high-level meetings with senior US officials. On March 29, he met Assistant Secretary of State, Bureau of South and Central Asian Affairs, Donald Lu, as well as Keiderling.

The recent flurry of talks and visits indicate that the otherwise tepid high-level engagement is finally getting some life.   

Anil Sigdel, founder of Washington DC-based think tank Nepal Matters for America, sees the visits as a follow-up to the recently passed compact as well as part of the American effort to drum up support against Russia. 

A statement issued by the US Embassy in Kathmandu on the Congressional delegation’s visit states: “Nepal has joined the majority of countries in condemning Russia’s brutal invasion of Ukraine.”

Sigdel says the key US interest right now is “to ensure that Nepal aligns with US policy against Russia’s invasion of Ukraine”.

“It also wants to guarantee that Nepal does not slide towards China’s or India’s policy vis-à-vis Ukraine,” Sigdel says.

Both Beijing and New Delhi have so far refused to condemn the Russian invasion.

Another purpose of the American visits is to create a climate for smooth implementation of the projects under the compact. Though Nepal’s parliament has approved it, there are some outstanding concerns, mainly concerning security.

The US grant was ratified amid protests in both the chambers of parliament and out in the streets. These protests were fomented by communist forces, including those in the incumbent coalition.

Some fringe communist parties are still against the compact. The US fears for the security of cross-border transmission lines and highway improvement projects to be developed with the grant.

Government officials say the American side wants to create a favorable environment for project-implementation by engaging all sections of Nepali society.

It will take a year to formally start the implementation phase, and the US wants to ensure all hurdles are cleared by that time.   

Sigdel says resistance to the compact could still dissuade its Nepali stakeholders—and the US is aware of it.

“It all depends on how Nepal-US negotiations and engagements move forward in the coming days,” he says.

The high-level visits from the US officials also coincide with the 75th anniversary of Nepal-US bilateral ties. To mark the occasion, the two countries are planning to hold a series of activities including exchange of high-level visits.

Sources at the Ministry of Foreign Affairs say there are chances of high-level visits from Nepal to the US after the May 13 local elections.

Prof Jaya Raj Acharya, a former Nepali ambassador to the US, reminds that America is one of Nepal’s oldest allies.  

“Celebrating the 75th anniversary is important. You must remember that Nepal and the US established diplomatic relations even before India was independent,” he says. Bilateral relations between Nepal and the US were established on 25 April 1947. The US was only the second country, after the UK, to do so.

Anna Richey-Allen, spokesperson at the US Embassy in Kathmandu, says in these 75 years—and through the decades of changes in both the countries—the United States and Nepal have stood with one another. 

“The recent visits by senior diplomatic leaders, high-ranking US senators, and other important officials are a reflection of this,” she tells ApEx.

Democracy-promotion has long been a key foreign priority of the US government. In recent years, the US has given more emphasis to the agenda of democracy in talks with Nepali leaders and officials, which is also reflected in bilateral documents.

Following the meeting of the US Congressional delegation with Prime Minister Sher Bahadur Deuba on April 23, the Ministry of Foreign Affairs said in a statement that the two sides had exchanged views “on institutionalizing democracy and cooperation in climate change”.

Last December, PM Deuba had also participated in the Summit for Democracy hosted by US President Joe Biden.

Sigdel says Nepal has emerged as the most liberal democratic country in South Asia, attracting the attention of the US and its western partners.

He argues that Biden’s policy is “to strengthen a club of democracy vis-à-vis China and Russia”, and the US views Nepal as a bona fide partner in this quest.

Especially in South Asia, because of the Chinese outreach and democratic decline including in India, “Nepal’s record makes it an important member of the global democratic club,” says Sigdel.

The US Embassy spokesperson says partnership with Nepal focuses on supporting its democratic values, good governance, and economic prosperity. 

“Now more than ever, we will need to tackle difficult issues like addressing the climate crisis and protecting democracy in the face of rising authoritarianism,” she says.

The $500m grant under the MCC and an additional $659m from the USAID are also seen as proof of the US at long last prioritizing Nepal.

Acharya, the former Nepali ambassador to the US, however, says America’s Nepal policy is constant, reality-based and not necessarily influenced by specific events.

The US started providing assistance to Nepal from 1951 and the amount of assistance has been increasing over the past seven decades.

“After the restoration of multiparty democracy in 1990, there was general expectation that American aid would substantially go up, but that did not happen—yet the old momentum was given continuity as well,” says Acharya.

Another reason behind growing American engagement in Nepal, he adds, is China’s rise.

“The Americans have increased their activities in the South China Sea and Taiwan, and they may want to increase their activities here,” he says. “It is crucial we make them understand our sensitivities.” 

The fight for tickets for the May 13 local elections was starting to get ugly. In order to keep the ruling five-party coalition intact, it had to work out a consensual ticket-sharing formula. But none of the parties seemed ready to budge. Pushpa Kamal Dahal’s CPN (Maoist Center) was intent on retaining the mayor of Bharatpur, the country’s third most populous city (and Dahal did). Madhav Kumar Nepal’s CPN (Unified Socialist) was adamant that it should get to pick the mayoral candidate for Pokhara, the second most populous city (and Nepal did too). There was likewise a bitter dispute in the coalition over the pick of candidates for the mayor of Kathmandu, the most populous. It was the same story in Nepal’s other major settlements.

Competition is the essence of democracy. Yet political parties were fighting tooth and nail not over the competing visions or competencies of their proposed candidates. What top leaders rather wanted was to ensure that their yes-men got the top posts so that they could milk the local units for partisan benefits. Another interesting trend is of political parties trying to woo actors and entertainers to increase their mass appeal. CPN-UML, the main opposition, seems particularly keen on having recognized celebrities on board—for show if not for actual representation.

Both these trends suggest a high level of immaturity of Nepali politics. The Nepali electorate keeps voting along party lines even if the candidates in the fray are incompetent—whether or not they are pop culture celebrities. This in turn gives the parties the freedom to pick candidates as they please. This vicious cycle must be broken if we want effective and accountable governance. 

The suspension of Nepal Rastra Bank Governor Maha Prasad Adhikari threatens to further roil an economy already battered by covid-19. Adhikari had apparently refused to heed Finance Minister Janardan Sharma’s instruction to release Rs 400m of suspicious money from abroad deposited into Nepali bank accounts of one Prithvi Bahadur Shah. (The Supreme Court on April 19 overturned the governor's suspension.) 

The country’s foreign reserves have shrunk to alarming levels. Remittance and tourism—the two backbones of Nepal’s economy—aren’t doing well either. Moreover, Nepal is already in the international spotlight as a conduit of illicit money. 

Kamal Dev Bhattarai spoke to senior economist Dilli Raj Khanal on the possible implications of the government’s intervention in the central bank and its lax attitude on black money.

What are Nepal’s international commitments on combating money laundering?

Global Financial Integrity, a Washington-based think tank, maintains a record of illicit financial flows, corruption, illegal trade, and money laundering. It also tracks money laundering in Nepal.

Likewise, the Asia Pacific Group on Money Laundering, a regional anti-money laundering body, conducts a mutual evaluation of the country. Nepal actively participates in such international organizations to control money laundering. But there seems to have been little improvement. 

Money laundering is a serious business. That is why we have laws and agencies to deal with it. Nepal introduced the Money Laundering Prevention Act in 2008 and the Department of Money Laundering Investigation was established in 2011. But again there has not been expected progress. As money laundering is linked to a country’s image, Nepal should take sufficient preventive measures. We are being closely watched by international organizations. 

In 2021, the Finance Ministry amended laws such that income sources of investors in infrastructure will no longer be investigated. Won’t that promote money laundering and flow of black money? 

Obviously, it will. The provision says the government will not seek the sources of investments made in nationally important hydropower projects, international airports, and other projects that use more than 50 percent domestic raw materials. This is a wrong approach as it contributes to money laundering. Some argue it will boost investments. But I personally do not see this as a valid reason. 

What will be the implications of reports of Finance Minister Janardan Sharma trying to release money brought into Nepal from suspicious sources abroad?

This is a very serious case, which could have a big implication on the country’s economy and image. The finance ministry is mainly responsible for checking the flow of black money. It has also formulated anti-money laundering laws. 

With this incident, the ministry has sullied its image. Governor Adhikari has been suspended on charges of defying Finance Minister Sharma’s directive to give clearance to suspicious black money. This could spoil Nepal’s image abroad. Bilateral and multilateral donor agencies want a country’s central bank to be autonomous and its economy transparent. The autonomy of our central bank is vital to building trust with them. 

What is Nepal’s international reputation when it comes to combating money laundering?

Many international reports suggest Nepal has a parallel economy and facilitates illicit flow of money. Our image was already bad abroad before the governor’s dismissal. 

We are not fully implementing laws related to prevention of money laundering in order to improve our image and to earn trust of donor agencies and investors. On the institutional front, it is a complete mess. The finance ministry is mending in the business of other bodies.

If the Financial Action Task Force blacklists Nepal, what will be the consequences?

There will be multifaceted impacts. The country’s image in the international stage will further slide. Many developed countries, donor agencies and multilateral financial institutions take money laundering seriously. It will be tough for us to get loans and assistance from World Bank, International Monetary Fund, and other institutions. 

It could also affect our international trade. If we fail to curb money laundering and flow of illicit money, it could in the long run create a serious economic crisis. Our politicians are taking this issue lightly, which is a grave mistake. Financial integrity is a vital pillar of any economy. If that is lost, it will affect every aspect of the economy, including resource mobilization, banking, and other sectors.