The Great Game, 2nd Half

The grant paralysed Nepali politics, and nearly brought down a government. After acrimonious wrangling, Parliament three years ago this week ratified the $500 million US project for roads and transmission lines.

Just as the Millennium Challenge Corporation (MCC) started awarding contracts this week for sections of transmission lines, substations, and highways, Donald Trump suddenly pulled the plug.

The Finance Ministry said it had received an email last week from Washington that payments for contracts were ‘suspended’ by Trump’s executive order. It is not clear if the stay is only for 90 days, and the MCC has asked for a waiver for Nepal and other countries.

Read also: Trump shock wave hits Nepal, Sudiksha Tuladhar 

“This is a temporary suspension, we believe it will eventually work out as it is supposed to,” says former National Planning Commission Chair Biswo Nath Poudel. “If not, the Americans will lose credibility around the world.”

In January, the MCC approved an additional $50 million to cover increased costs, and Nepal is chipping in its own $197 million.

“We will take loans to complete the transmission lines if we have to, and Nepal is now capable of operationalising projects of that value,” Poudel told us. 

The MCC was caught up in the Sino-US competition for dominance in the region. It was Washington’s response to Beijing’s Belt and Road Initiative (BRI). Abandoning MCC will leave Nepal open for China to step in with its own infrastructure. 

“I don't see the Chinese replacing the US in terms of dollar-to-dollar aid in Nepal, including on the MCC, which is also an export-to-India-oriented project,” says Amish Mulmi, author of All Roads Lead North. “But, yes, China can use the aid and investment vacuum left by the US to assist Nepal.”

The debate about whether Nepal should accept the MCC polarised politics, even splitting leaders within parties. Conspiracy theories and disinformation spread like wildfire in Nepal’s cybersphere, alleging that the MCC was a ploy to base US missiles in Nepal aimed at China. The Chinese added fuel to the fire, trying to stop ratification. 

Not surprisingly, the suspension of MCC contracts this week was greeted with the same trolling that filled social media during the MCC debate and after ratification in 2022. This time, the posts have an additional ‘we told you America was not a reliable partner’ refrain.

One self-described influencer posted on X: ‘The MCC has only been suspended, it should be entirely cancelled…(it) is an absolute military trap.’

Finance Ministry officials last week assured that the MCC would not be affected by the freeze on USAID supported programs worldwide, including Nepal. 

On Wednesday at Mar-a-Lago, Trump singled out Nepal, and said USAID’s $20 million to support federalism and $19 million for conservation was a “fraud”. Other US-supported government programs worth $131 million to improve healthcare, education, agriculture and inclusion are halted. 

In 2022, USAID and Nepal signed a five-year Development Objective Agreement worth $659 million for climate adaptation, environment protection, gender and reproductive rights. That is also now in limbo.

Slashing all this assistance has impacted over 300 consultancies and non-profits in Nepal, and threatens to undermine past successes in maternal and child health, women’s empowerment, free press and rural development.  

Says Mulmi: “What the US withdrawal on MCC will do is further erode US credibility inside Nepal, particularly since it was such a politically charged subject. It will also signal a change in its stance on China in South Asia, as the MCC was a direct challenge to the BRI and Chinese investments in infrastructure.”

If there is one lesson from all this, it is that foreign assistance is rarely a free lunch and often comes with strings attached. Nepal should look out for itself and be self-reliant, after all basic health care and environmental protection are responsibilities of the Nepali state, not of donors. 

This means investing in infrastructure and development to create jobs at home, actually spending budget outlays for capital expenditure, and making optimum use of domestic resources such as hydropower.

Says Bishwo Nath Poudel: “The MCC was never anti-China. In fact, India and China are our most important neighbours. What is really important for us is to leverage their growth to pull us along.”