Putting the MCC in context

The Millennium Challenge Corporation (MCC) Compact is an ‘agreement’ first proposed in July 2017 between the US agency and the government of Nepal promising $500 million worth of funding to ‘increase the availability of electricity and lower transportation costs —helping to spur investments, accelerate economic growth, and reduce poverty’.

This would be MCC’s first such ‘compact’ in South Asia, and according to the CEO of the MCC, Jonathan Nash, the program would tackle two of Nepal’s most binding constraints to economic growth: low energy supply and high transportation costs.

“It includes the construction of high voltage power lines equivalent to one-third the length of Nepal, facilitate electricity trade with India, and strengthen road maintenance ... the projects are designed to spur private investment, increase regional connectivity, drive growth and fight poverty,” Nash says.

The proposal should be seen, in part, as a response to the Belt and Road Initiative (BRI), a global development strategy involving infrastructure development and investments in nearly 70 countries and international organisations adopted in 2013 by China.

Significant differences within the ruling Nepal Communist Party (NCP) has delayed the presentation of the Compact in Parliament. In a statement on 29 June, the US Embassy noted that ratification was the next step needed to proceed with the grant which Nepal committed to pass by September 2019.

‘Delaying ratification is delaying the benefits of more jobs and increased economic growth for nearly 23 million Nepalis. Accepting this grant is Nepal’s choice but the availability of the funding is not open-ended. Tangible, near-term steps in Nepal are necessary to ensure the continued viability of the program,’ the statement noted.

Nepal’s Finance Minister Yubaraj Khatiwada then confirmed that the government has requested the MCC for an extension as its original deadline for the implementation of the projects on 30 June 2020 could not be met. Last week, Parliament was prorogued by President Bhandari at the request of the Cabinet, signalling further uncertainty on the implementation of MCC.

The MCC, like the BRI, to which the government of Nepal has already signed up, has caused a significant public and political debate in Nepal. The existing public debate has been sharply polarised between those who support the MCC as a useful investment for Nepal's development and those who view MCC as a form of US strategic interest in the region, and therefore not prioritising Nepal’s development and in fact undermining it.

In our view, however, the current debate pays little attention to the history and politics of external intervention and aid that has shaped Nepal’s economic and political developments for the last seven decades.

First, we need to recognise that foreign aid has been a key part of Nepal’s development experience, and of its successes and failures. Yet, it would be misleading to assess this development experience only in terms of the impact of aid, not least because foreign aid’s contribution to development is arguably insignificant in the wider scheme of things.

For example, foreign aid is marginal in financial terms when compared to remittances, which contributes over 30% of Nepal’s GDP. However, although critics point out that the lofty objectives of its proponents have rarely been met in its seven decade-long history, foreign aid (and external intervention more broadly) through its disproportionate normative and ideological power, its organisational networks and material support, continues to shape broader social-political and economic processes, including the deepening penetration of market forces in once-remote locations.

Second, it is critical to situate the MCC as a part of the broader panoply of aid and external intervention, and the broader framework of global capitalist development as well as part of the growing international competition (and potential conflict) between the USA and China. There is no denying the fact that the MCC is a part of the expansion of global capital, but this is neither specific to Nepal nor to the MCC.

It would be naïve to debate the potential impact of MCC without a consideration of the political and economic interests not just of the US but also of China, and of course Nepal’s political and economic elite and various other ‘intermediaries’.

Third, the history of aid in Nepal is deeply rooted in its geo-strategic role, beginning with the early investments in infrastructure by India, China and others in the 1950s and 60s. Aid was also manipulated by King Mahendra to consolidate his Panchayat model of development.

More recently, aid and other forms of intervention, such as the opening up of Nepal’s labour market, have significantly shaped Nepal’s political and economic development in the last few decades, and also influenced patterns of patronage and the distribution of development rent.

Promises and delivery of development projects have become a key technique of building and maintaining patronage networks. Political and economic networks through informal relationships and kinship determine awarding of lucrative procurement contracts and employment opportunities in aid funded complex.

Commodification of labour, education, health and land offer rent generating opportunities for the economic and political elite through operations such as running of migrant worker recruitment agencies, private schools and hospitals, cooperatives and real estate businesses. The MCC is not entering Nepal in a vacuum or as something entirely novel, but as an element in a complex and constantly evolving political-economic process involving both external and internal structures and dynamics.

Fourth, a nationalist critique of the MCC identifies the undermining of Nepal’s sovereignty as a key element in the MCC, given that the compact requires the government to endorse the agreement from Parliament. In the era of aid and influence of transnational forces, sovereignty is a controversial concept.

While Nepalis take pride in their history of relative autonomy, Nepal’s sovereignty has always been compromised and negotiated, whether it involves the 200 year history of Gurkha recruitment, or the more recent massive out-migration of Nepalis as workers in the global labour market, both of which have played their part in shaping Nepal’s economic and social development, for better or worse.

Anyone who has been closely participating and observing Nepal’s development bureaucracy over the years will be able to attest how donors have played key role in drafting and influencing Nepal’s development policies and priorities, including during Nepal’s protracted political transition following the peace process. Donor advisers or their contractors regularly draft critical government policy documents, including guidelines, plans and evaluations.

Fifth, the MCC has a separate institutional structure, and it is a grant and not a loan. MCC is managed by Millennium Challenge Account-Nepal, a government of Nepal agency formed by Cabinet decision. The institutional form of MCC, informed by norms such as good governance, transparency, professionalism and efficiency, is a part of new-managerialism, contracting and outsourcing of aid.

Globally, over the years, foreign aid modalities have undergone significant changes, with new norms and forms such as results framework, role of large transnational private contractors, establishment of consortium and new institutions in the delivery of aid.

In conclusion, it is useful to raise a few questions that highlight the choices that have to be made regarding aid and intervention. What is the model of development that the Nepali state would like to pursue? Who are the winners and losers of this model of aid and intervention? How can the most vulnerable be protected from models of development that exclude and extract instead of distributing benefits? What would it mean to pursue a more inclusive, ‘people-centric’ distributive strategy for development in the neo-liberal era which privileges extractive form of development leaving many people disadvantaged as regards access to land and livelihoods?

Dr Jeevan R Sharma is at the University of Edinburgh, and is author of many publications on migration, development and social change in Nepal.

Dr David Seddon is Director of Critical Faculty, author and co-author of many publications on Nepal.

Both are currently working on a book on the political economy of aid and intervention in Nepal.