Saturday, 2 December, 2023

Why Controversy Over MCC?

Uttam Maharjan


The Millennium Challenge Corporation (MCC) is a bilateral US aid agency setup way back in 2004. The basic thrust of the MCC is to help poor and developing countries in their development endeavours. This is a separate entity from the US Department and USAID. In fact, the concept of the MCC has emerged to provide better and more effective aid than that provided under the US Department and USAID. MCC provides grants for eligible countries irrespective of political considerations. It accentuates good economic policies like free market and low corruption.

Eligibility criteria
Despite being touted as an effective aid programme implemented in many countries in the form of compacts or threshold programmes, MCC has landed in controversy in Nepal. The groundwork for implementing the US aid in the country began in 2012 and after performing satisfactorily on various policy indicators ranging from civil liberties to low corruption, which are regarded as eligibility criteria, the country was declared eligible for MCC. And an MCC compact was signed in 2017 when the Deuba-led government was in power.
As per the MCC policy, the compact needs to be ratified by the country's parliament. When the compact is about to be endorsed by the parliament, controversy over it has emerged. It may be noted that when the compact was signed in 2017 by the country, there was no debate and it seemed at the time that the compact would be easily endorsed by the parliament. In fact, the controversy has debouched from some US officials linking the MCC to the Indo-Pacific Strategy of the USA.
The USA does not easily give aid to any country under MCC. For this, the policy indicators as enshrined in MCC need to be fulfilled. If a country scores well on these indicators, it will be eligible for an MCC compact. On the other hand, if a country is poor in performance but has potential for improving vis-à-vis the indicators in the foreseeable future, it will be provided with a threshold programme, which carries a smaller grant provided under a compact. After a country is selected, it is required to identify priority sectors of development itself for economic development and poverty alleviation and accordingly develops MCC proposals. As far as Nepal is concerned, the country has identified two priorities: electricity transmission lines and road infrastructure.
As per the policy of MCC, the country has already set up the Millennium Challenge Account, Nepal (MCA, Nepal) under the Ministry of Finance. The MCA, Nepal is responsible for managing and implementing the projects under MCC. The projects under MCC have a budget of US$ 630 million, out of which the country is receiving US$ 500 million under MCC. The grant is the biggest ever the country will receive from the USA.
At present, leaders of various political parties, civil society organisations and general people are divided into two camps favouring or disapproving of the MCC grant. Some critics are questioning why parliamentary ratification is needed to implement MCC. As per the MCC, ratification of an MCC compact by a recipient country's parliament is required to implement the projects under it in a hassle-free way. This provision is applicable to all recipient countries. The MCC impact was registered with the country's Parliamentary Secretariat in July 2019.
Some critics are questioning the MCC compact from various other angles as well. They claim that the MCC compact provides that in case of dispute, its provisions will prevail over the county's legal provisions. The MCC provisions are meant to ensure that the projects it are not hampered by a change in the country's law. Moreover, such provisions are also being abided by the countries which have received MCC grants.
There is a suspicion that MCC projects are handled by US companies only. In fact, MCC projects are assigned to companies, both local and global, in a fair and transparent way through global tenders to ensure that the projects are completed by renowned, experienced and qualified companies.
That the consent of India is required for the implementation of the MCC, as suspected by some critics, is totally wrong. Indian consent is required only for the cross-border transmission line involving Nepali and Indian territories, especially the Butwal-Gorakhpur transmission line. The construction of this transmission line will facilitate the import and export of electricity from and to India.
The country's Financial Comptroller General Office can audit the accounts of the projects under MCC as against the views of some critics who claim that only US audit firms are allowed to do so. In fact, there is a provision in the MCC compact which allows the government to audit the projects under MCC.

No link with IPS
The greatest controversy seems to be related to the linking of MCC to the Indo-Pacific Strategy (IPS). Some critics have gone so far as to claim that MCC is a strategy of the USA to strengthen its presence in the country so as to weaken China militarily. They also argue that the USA is planning to set up military bases in the country in the name of protecting the projects under the MCC and the troops so stationed here will not go back even after the projects are completed. As a matter of fact, there is no military component in the MCC compact. Even the US embassy based in Kathmandu has clarified that the MCC compact has no military component. Moreover, the US law prohibits it.
MCC aims at the economic development of the country. The country can hire locals, as opposed to some critics who claim that workers will come from the USA, in the operation of the projects under MCC, thus creating job opportunities to some extent. After all, it is the responsibility of the government to explain the provisions of MCC in detail to the people so that any doubt can be removed from their minds and the MCC compact can be implemented in the country in an uninterrupted way.

(Former banker, Maharjan has been regularly writing on contemporary issues for this daily since 2000. He can be reached at