The controversy around the $500 million MCC grant to Nepal

What is the MCC? Why are domestic parties opposing economic assistance from the U.S.?

The story so far: On February 27, the Nepal parliament approved the Millennium Challenge Corporation Nepal Compact — a $500-million grant from the United States for electricity transmission and road development projects, after five years of keeping it on hold. The grant was ratified with an imperative declaration attached to it.

The declaration states that the U.S. grant is not part of the Indo-Pacific strategy and Nepal’s Constitution would be above the provisions of the grant agreement. It also mentions that the grant will solely be perceived as an economic assistance. Political parties and civil society have been divided on the U.S. grant for various reasons. 

The grant agreement, which was tabled in the Parliament in Kathmandu on February 20, faced demonstrations against it, which turned violent, with riot police firing tear gas shells and using water cannons to disperse the protesters outside the parliament. Protestors also hurled stones at the police and several people reported injuries on both sides. 

The Millennium Challenge Corporation (MCC) is an independent U.S. foreign aid agency, which was established in 2004 by the country’s Congress to offer “time-limited grants promoting economic growth, reducing poverty, and strengthening institutions,” to low and lower-middle income countries through a selection process.

While this is the current official definition of the aid body, MCC was proposed by the George Bush administration post the 9/11 terrorist attack, as a tool to counter global poverty and international terrorism, citing the rationale that poverty and terrorism are linked.

MCC selects countries to award grants through a selection process, which involves evaluating the country’s performance on 20 policy indicators ranging from control on corruption to government effectiveness.

The MCC offers assistance in three forms. In the form of compacts, meaning large, five-year grants; concurrent compacts or “grants that promote cross-border economic integration”, and threshold programs, which are smaller grants aimed at policy reform. The aid being offered to Nepal is in the form of a compact; the MCC has so far approved about 37 compacts for 29 countries, worth a total of over $13 billion.