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EFSAS Commentary

Politicization of a US grant reiterates both the frailty of Nepal’s polity and the pernicious impact of Chinese penetration


There was ample reason this past week to recall the title of the Commentary of 08-01-2021 – Nepal’s self-centered political leadership has repeatedly failed its people – and conclude that the situation has, expectedly yet regrettably, not changed much one year down the line. The China-inspired protests by some of Nepal’s Communist parties against the Millennium Challenge Corporation (MCC) compact, a United States (US)-backed $500-million grant project approved for Nepal, have once again underlined how Nepal’s political elite continues to prioritize its own personal political and economic interests and prospects over those of the country and its people.

The unfortunate, avoidable, and artificially created controversy over the MCC grant has, as per local media reports, been stoked and fanned by a concerted Chinese propaganda campaign revolving around an imaginary breach of Nepalese sovereignty. Not only is China uncomfortable with the continuing influence that the US has in Nepal, it is equally as much the nature of the US offering – a grant aimed at benefitting the people of Nepal and which does not need to be paid back – that has irked and worried the Dragon. After all, the debt trap model that China has proposed to Nepal under its Belt and Road Initiative (BRI) makes China appear exploitative and greedy when seen alongside what the US is offering. Meanwhile, some of Nepal’s several Communist political parties have increasingly begun giving the impression that they have little option but to act as instruments of the Chinese State and promote Chinese interests in Nepal even while, paradoxically, their implausible claim is that their country’s sovereignty is being threatened by a relatively modest MCC grant.

Nepal and the United States had in 2017 signed the MCC Nepal Compact that was meant for infrastructure development in Nepal. The MCC says it is an “innovative and independent” US foreign assistance agency that is helping lead the fight against global poverty. It was created by the US Congress in January 2004 with the aim of providing time-limited grants promoting economic growth, reducing poverty, and strengthening institutions. The compact aims to create jobs in the market and promote growth through infrastructure. As per the agreement, the funds will be spent on setting up a 400KV transmission line running 400 kilometers on the Lapsiphedi-Galchhi-Damauli-Sunawal power corridor. Three substations will also be built that will connect to the Nepal-India cross-border transmission line with India in Rupandehi. The remaining amount will be used to maintain roads along the East-West Highway. The projects will use Nepali human resources to undertake the project. If Nepal’s House of Representatives passes the compact, it will be the largest grant Nepal has ever received. Nepal will also have to pledge $130 million for the projects that will be carried out through the MCC grant. Through this, the MCC wants to “incentivise policy and institutional reform” to create a better future.

A requirement of the MCC was that the agreement be ratified by Nepal’s parliament before it can take effect, something that successive governments have failed to get done. The agreement was registered in parliament in 2019, but it has been stuck for over two years with political parties sharply divided over its ratification. The matter was again slated to be put before Nepal’s House of Representatives on 16 February, but had to be deferred amidst clashes between protesters and the police that broke out on the streets of Kathmandu. Roads leading to the parliament buildings were blocked for hours because of the clashes. A general strike called by the protesters also shut down schools and disrupted transport in the country. The police had to resort to firing tear gas shells and water cannons to disperse the unruly crowd, which pelted stones and bricks. Several police personnel and some protesters were injured in the clashes, and well over a hundred protesters were detained. Officials said they used minimum force to disperse about 3,000 protesters near parliament in Kathmandu. Police spokesman Bishnu Kumar KC told Reuters that “We have used minimum force to stop protesters from marching on parliament”.

In view of these disturbances, Nepal’s Prime Minister Sher Bahadur Deuba, whose party the Nepali Congress (NC) is in favour of ratifying the MCC, and one of his major coalition partners, Chairman Pushpa Kamal Dahal ‘Prachanda’ of the Nepal Communist Party – Maoist Centre (NCP-MC), which is opposed to the ratification, met on the afternoon of 16 February and decided not to present the MCC grant agreement in the House of Representatives as scheduled. Earlier in the day, a meeting of the parliamentary party of the NCP-MC decided to vote against the government’s proposal if the MCC compact was tabled without amendments. Maoist Centre Chief Whip Dev Gurung warned that the ruling alliance would break automatically if parliament passed the MCC project without the consent of the ruling coalition. The NC apparently stepped back from tabling the agreement due to such threats from the Maoist Center and another Communist coalition partner, the Nepal Communist Party – Unified Socialists (NCP-US), of bringing down the government. It is widely accepted in Nepal that both these Communist factions are aligned to and influenced by China. Moreover, the Speaker of the House of Representatives, Maoist Center leader Agni Sapkota, who is known to be close to Beijing, has actively been blocking the ratification process for the past several months.

After the decision to defer tabling of the agreement, NC leader and Minister of Law, Justice, and Parliamentary Affairs Dilendra Prasad Badu informed that efforts were being made to forge agreement to table the MCC in the House, and that the House would convene today to further discussions the matter. “We aim to find common ground for taking the proposal to the Parliament for deliberations. The political parties have realized that they need more time to reach agreement on the matter”, he said.

Despite assurances from US officials that the grant concerns only Nepal’s development, the Communist parties insist that it comes with conditions that are not acceptable. They claim the conditions in the grant agreement will override Nepal’s laws and damage the country’s sovereignty. They also say that it is part of Washington’s Indo-Pacific strategy, which has military components that could bring US soldiers to Nepal. This line of thinking received fodder when David J. Ranz, a US State Department official, suggested during his visit to Nepal in May 2019 that the MCC was a crucial part of the US’ Indo-Pacific Strategy. The MCC, however, clarified that the agreement was not above Nepal’s Constitution and that it was not a military alliance nor was it part of the Indo-Pacific Strategy. Other later clarifications from US officials and MCC representatives have not been able to sway those Nepali politicians who, disregarding the benefits that would accrue from the grant to common Nepali citizens, have persisted with their opposition to it.

In an interaction with Nepali journalists ahead of wrapping up his three-day visit to Nepal in November last year, US Assistant Secretary of State Donald Lu had said that it was up to Nepal to accept or reject the MCC grant. He said, “If Nepal does not take the grant, we will spend the money in some other country. And, it’s okay with us if Nepal does not endorse it. It is the sovereign decision of Nepal. We have urged you to find out what you want to do with the MCC. We have communicated (to the Nepali leadership) that they should take a consultative and democratic approach to reach a conclusion on the grant so that voices of all concerned can be accommodated”. Significantly, Lu also averred to the negative role that the US perceived China to be playing. He said, “The United States is concerned that there has been a lot of disinformation about the MCC in Nepal. It’s quite surprising that disinformation has been rife about the grant”. Pointing out that the US is providing the MCC grant assistance to a small number of countries that are democracies and open economies, Lu added, “And as per the request from the Nepal government, we decided to provide the grant assistance. This is a great project where Nepal will be able to generate $143 million annually after its implementation. That will be a great opportunity for Nepal. I’d love to see Nepal using this grant. But when it comes to its endorsement, it is not our decision. It is the decision of the government of Nepal and Nepal’s Parliament”.

As equanimous as the US has been to the delay in ratification in Nepal, it has made its frustration and ire at disruptive actions by China on the matter well known. Media reports quoted a US State Department spokesperson as saying that “Should outside influence and corruption cause parliament not to ratify, it would be deeply concerning for the US, and a loss for the people of Nepal”. China has cultivated Nepal’s Communist parties for some time. It was instrumental in the 2018 merger of the Nepal Communist Party – United Marxist Leninist (NCP-UML) and the NCP-MC to form the Nepal Communist Party (NCP), which ruled Nepal until recently. China was banking on the new party to secure its interests in Nepal. Although the combined party has now split, most communist leaders continue to have their own separate linkages with Beijing. Chinese officials have lobbied these Nepali politicians about the grant, which it has projected as a covert US push to increase Washington’s influence. The insecurity that has caused China to use its Nepali political assets to prevent the ratification of the innocuous MCC agreement was articulated by Lan Jianxue, head of the Department for Asia-Pacific Studies at China Institute of International Studies, in a 15 February article in the Chinese mouthpiece The Global Times. Jianxue described the MCC agreement as “nothing more than a pact with the geopolitical purpose of targeting China. MCC from the very beginning was a geopolitical tool under the disguise of infrastructure construction. The US has ramped up its efforts to stir up trouble surrounding China. It is a part of the US’ strategy to contain China”.

In contrast, the US embassy website merely has this to say about the compact: “The $500 million is a grant, with no strings attached, no interest rates, and no hidden clauses. All Nepal has to do is commit to spend the money, transparently, for the projects that have been agreed upon”. A short translation of this would read simply that the MCC grant was everything that China’s BRI was not, just as democracy was everything that authoritarianism was not. Achyut Wagle, professor at the Kathmandu University School of Management, was of the opinion that the only casualty of China’s ideological radicalization of the Nepali communists will be “Nepal's pluralistic democracy and the relentlessly touted balanced foreign policy”. Wagle also wondered whether the deep Chinese penetration of Nepal’s polity will allow the Himalayan nation to “remain in the club of the world's democratic nations and look up to prosper through their cooperation? Or will she be a decoy agent to fight China's strategic war of influence against the democratic world?”

From the US point of view, the inordinate delay in ratifying the MCC compact is surprising not only because the grant was requested for by Nepal in the first place, but also because the specific transmission lines and roads under the compact were proposed by Nepal in keeping with its own development master-plans. Most Nepali economists believe that accepting the grant will benefit the people of Nepal. Former Nepal Electricity Authority chief Hitendra Dev Shakya informed that the MCC project will form a backbone of Nepal’s electricity grid, and by linking it to the Indian grid it will become more robust and flexible, allowing load sharing and management. The MCC-funded transmission lines are also critical for meeting Kathmandu valley’s future demand growth, to transfer the power generated in eastern Nepal to the western half of the country during the monsoon, and from west to east in the winter. 

There has been some talk of the US reviewing its ties with Nepal in the event of the latter’s failure to endorse the MCC pact. Such a review would adversely affect Nepal’s economic sector. As The Kathmandu Post daily put it, “The US has been the largest bilateral donor of Nepal for decades… if it decides to review ties with Nepal, its direct impact will be in our economic sector. Nepal could lose bilateral and multilateral aid as well as foreign direct investment if it fails to ratify MCC”. Sanjay Poudyal, MCC’s Deputy Country Director for Nepal, believes that the MCC will “help support the government of Nepal to better deliver critical services to its people, ease the movement of goods around the country, and open new opportunities for private investment — all to create sustainable development for the people of Nepal. Strengthening the reliability of key infrastructure will put the country’s economy on a firmer growth trajectory, advance stability, support regional security, and reduce poverty”.

China’s actions aimed at preventing the people of impoverished Nepal from receiving much needed assistance is as appalling as the discreditable attempts by powerful Nepali political leaders to promote the interests of a foreign power over the needs of their own country folk.