MCC compact: Decide now

Recently termed the ‘lightning rod for controversy’, the MCC is among the most talked about topics among Nepali citizens, politicians, experts and media, and they continue to be divided over the $500 million-worth compact.

Who would have thought that a development cooperation project would be so politicized? According to political pundits, China and the US seem to be direct players in the MCC and India’s approach seems aligned with the US.

Nepal seems to be struggling to balance geopolitics and to develop broader political consensus on the issue. The MCC’s Vice President Fatema Sumar’s Nepal visit coincides with the Nepal government’s call for a new session of the parliament, which is expected to ratify or reject the compact. According to the US, Sumar’s visit will be aimed at assessing the compact’s progress, but many in Nepal view it as a US pressure tactic to force Nepal to make a final decision.

The ongoing debate has political and technical dimensions. At the political level, there are concerns about whether Nepal, through this compact, will fall into the sphere of the American Indo-Pacific Strategy. Although the compact is not directly related to any security agenda, many suspect Nepal is being tricked into agreeing to one.

At the technical level, there are few provisions in the compact, which are taken as a threat to Nepal’s sovereignty, independence and non-aligned foreign policy. 

The blessing in disguise is that the MCC debate has also contributed to the overall discussion about the effectiveness of foreign aid in Nepal. What kind of financing is needed for Nepal’s development projects? Should Nepal finance those projects of strategic importance on its own? What kind of projects should we accept? Regardless of whether Nepal’s parliament ratifies or rejects the compact, there is already a major lesson: Nepal should accept foreign aid only after a thorough study of terms and conditions and the project’s overall impact on Nepal’s political and economic future. 

If the MCC compact fails to get parliamentary approval, there are concerns that Nepal’s ties with the US could suffer. Nepal has over 70 years of diplomatic, development, and military engagements with the US, including recent cooperation on Covid-19 vaccines. Due to the prolonged process to approve the compact, the American patience seems to be running thin. Nepal’s credibility is also in line if the compact is rejected, potentially impacting US collaboration and assistance in other sectors (vaccine support, health and education support, etc.). 

Second, at the technical level, revisions are sought on many legal provisions in a mutually agreeable way. Amid rumors of a secret military conspiracy, there are some real concerns about the pact's implications for Nepal’s sovereignty, including the superiority of US laws against Nepal’s constitution and laws. Moreover, Nepal should not give the impression that it is leaning towards the Indo-Pacific Alliance against China. 

Given the growing geopolitical, security and economic US-China rivalry, many Nepalis suspect a hidden agenda behind the MCC. In fact, many Asian countries, including Sri Lanka, Malaysia, Maldives, and Nepal, are now reassessing the vaccine diplomacy of China and US, as well as assistance through both the MCC and the BRI. While donors emphasize their strong oversight for the money given for big infrastructure projects and expect aid recipient countries to appreciate the support, the receiving countries are also paying close attention to overall benefit of infrastructure projects. 

There are also arguments that Nepal could fund those two MCC funded projects on its own. However, the Nepal government’s borrowing from the internal and external capital markets have tripled in the past three years, reaching more than 40 percent of Nepal’s GDP. In this perspective, a development pact with a grant of a half a billion dollars is not a small amount for Nepal. 

What is the way out then? Given the level of politicization of MCC all the way down to the grassroots, there seem to be only two choices. First, there should be an open discussion in Nepal’s parliament regarding all provisions of the compact so that the general public clearly see the risks and benefits. Suspicion about the MCC seems to be a combination of two things: misinformation and a few unclear provisions. For example, there is misinformation that the US is desperate to give the grant to Nepal because of its security interest. In fact, the MCC board in 2018 approved Nepal’s grant proposal not just because the US chose Nepal for its strategic importance. It was because Nepal met the MCC’s eligibility criteria of good governance, economic freedom, and citizens-centered investments.

Nepal needs to clearly convey to the US that it should agree to revise unclear or controversial provisions of the Compact. Nepal should also convey the message that the US should not expect any security favors in return. Most important, there has to be a broad consensus among Nepal’s major political parties, particularly among those in the current coalition, on whether to accept or reject the compact. 

There is a silver lining to the MCC issue. Nepal government’s request to the US to clarify the provisions deemed controversial is a good start. The US is also sending a positive signal that it is ready to revise these controversial provisions in a mutually agreeable way. 

But if the US does not revise unclear or controversial provisions and if there is no broad consensus about the MCC among the major political parties in Nepal, it is better to reject the compact than risk the instability in the government and rift among coalition partners. A development project, even if it has a good intent, should not be accepted if it brings long-term political instability. 

The author holds a Master of Science in International Affairs from New School University, New York, and specialized Post Graduate courses from Harvard University, Boston