Nepal accepts U.S. aid despite protests, Chinese objections

Nepal’s Parliament on February 27 ratified an aid package provided through the Millennium Challenge Corporation (MCC), an “independent agency” located in the United States. The $500 million to be dispensed, plus $130 million from Nepal, will pay for roadway improvements and transmission lines conveying hydro-generated electricity to India and to domestic users.

Nepal’s acceptance process was long and tortuous due to the country’s layered, fractured, and unwieldy political system. China’s government opposed the MMC funding.

Massive protests unfolded outside the parliament building in Kathmandu prior to parliamentary approval. Joining the demonstrators were those representing student and peasant groups and sections of Nepal’s two Communist Parties. They were protesting the government’s alleged disrespect for Nepal’s sovereignty.

The U.S. Congress passed legislation creating the MCC in January 2004. The intention was that of providing economic aid to low and middle-income countries via “threshold programs” and “compacts” lasting five years. The MMC website highlights “cost-effective projects, a lean staff, an evidence-based approach …[and] a good investment for the American people.”

The aid is tailored to reducing investment risk and promoting “growth …[and] economic freedom.” MMC officials look for “good economic policies in recipient countries, such as free markets and low corruption.”

After first awarding a threshold grant, the MMC in 2014 offered Nepal a compact. The agreement signed in 2017 represented the largest foreign assistance grant ever received by Nepal, and the first MMC compact with a South Asia nation.

The MMC has offered 83 compacts and threshold programs to 51 countries in Africa, Asia, Eastern Europe, Latin America, and the Pacific. Some MMC agreements have ended abruptly – with Madagascar in 2009, Tanzania in 2016, and Sri Lanka in 2020. The MMC complained of election irregularities in the first two situations, while Sri Lanka objected to violations of sovereignty.

The almost six-year hiatus between the agreement being signed and Nepal’s ratification of the compact stems from governance problems in Nepal. Two factors contribute. One is institutional immaturity, the result of decades of political turmoil prior to 2015 when Nepal’s present Constitution took effect. The other is parliamentary dysfunction associated with wrangling over disparate caste, ethnic, and regional interests.

A constitutional monarchy, in place between 1990 and 2006, had succeeded decades of absolutist minority rule. A 10-year-old armed Maoist insurgency ended in 2006, coincident with the king’s departure. From then until 2015, strife over the dissolution of the Maoists’ army, regional demands, and the shape of a new constitution weakened the Maoist political party as it tried to exercise political power. All the while, it was contending with internal schisms, another Communist party, and Nepal’s Congress Party.

Following the institution of the new Constitution in 2015 and the general elections two years later, the Communist Party of Nepal–Unified Marxist-Leninist (CPN-UML) and the Communist Party of Nepal–Maoist Centre were positioned to jointly form a government. They did so, and, having united in May 2018, they established the Nepal Communist Party.

The Supreme Court nullified the unification. Afterwards, the CPN-UML headed a shaky government amid continuing factionalism. It exited in early 2021 after a no-confidence vote. The Supreme Court named Congress Party head Sher Bahadur Deuba as prime minister, and he remains.

The picture is of a government that is precarious and rudderless. In particular, according to The Statesman news service in New Delhi, “With the leadership of the executive practically non-functional … the onus of making the system work lay upon Parliament. Sadly, the legislature has become almost dysfunctional.” Adding to the chaos is the matter of corruption.

Reports the Kathmandu Post: “Nepal’s position on the latest Corruption Perception Index remained unchanged at 117th out of 180 countries … Nepal’s score also remained unchanged at 33 …[and a] score below 50 is considered as having a relatively higher level of corruption.”

Once more The Statesman: “The biggest “achievement” of Parliament is that it had succeeded in ratifying the Millennium Challenge Corporation … Compact in the face of considerable resistance from the constituent political parties in government itself.”

It would be miraculous, so it seems, if mechanisms of accountability are in place as to where and to whom the money goes, and if the 28% of rural Nepalese who were poor in 2019 find that, with the money, their lives improve. Only through wishful thinking might one expect China to rest easy with Nepal’s half-billion-dollar bonanza. Perhaps that’s the U.S. purpose: to provoke and to intrude.

Chinese Foreign Minister Wang Yi will visit Nepal on March 25 to deal with Nepal’s ratification of the MMC compact. According to a Chinese official quoted by India’s ANI news: “Implementation of the BRI projects in Nepal is important for Beijing … But this time Beijing is more worried about the security challenges emanating from the compact’s approval.”

Nepal’s government in 2017 had signed an agreement with China’s Belt and Road Initiative (BRI) for a railway project linking Kathmandu to Central Asia.

“We tried hard to stop the MCC compact’s parliamentary approval,” declared another Chinese official, who remarked also that, “[Nepalese] leaders who had earlier assured us of the compact’s failure started shaking under US pressure.”