Nepal stuck between rock and hard place

On 9 September, while a US delegation was landing at Kathmandu airport on a four-day visit, Madhav Kumar Nepal, Pushpa Kamal Dahal and Narayan Kaji Shrestha got together at the residence of Upendra Yadav for an important meeting.

The Nepali Congress, which leads a five-party coalition government, was not invited to the discussion between its own partners.

The meeting was to discuss a common posture of the coalition members towards a $500 million US grant under the Millennium Challenge Corporation (MCC) to upgrade Nepal’s electricity transmission lines and highways.

Cross-party support for the much-needed infrastructure project should have been a no-brainer, but MCC ratification has become such a political hot potato that it threatens Prime Minister Sher Bahadur Deuba’s ruling alliance, two months into his fifth term in office.

Deuba’s current coalition made up of Dahal’s Maoist Centre, Nepal’s breakaway CPN (Unified Socialist), and the Rastriya Janamorcha parties are opposed to the project. In fact, Rastriya Janamorcha even staged a street protest on 7 September, two days before MCC vice president Sumar landed in Kathmandu.

Deuba’s NC has been in favour of ratifying the MCC in parliament since his Nepali Congress-Maoist coalition government signed the agreement in 2017 during his fourth term as prime minister. In fact, Deuba’s political rival KP Oli backed the MCC after he succeeded Deuba in 2018.

Baburam Bhattarai was Prime Minister in 2012 when Nepal was selected for the MCC threshold program. Bhattarai is now with another coalition partner, the Janata Samajbadi Party, but while he has been speaking publicly in support of MCC, his colleague Yadav is hedging his bets. Hence his inclusion in the meeting with Dahal and Nepal on 9 September. 

Ironically, a bilateral negotiating team was formed for the MCC Compact during Pushpa Kamal Dahal’s stint as Prime Minister in 2017. Dahal later changed his stance and joined up with dissidents from Oli’s own UML, who considered the project as being ‘anti-national’, to ultimately remove him from power in July. 

As internal disputes within the erstwhile NCP escalated, a task force including Bhim Rawal, Jhala Nath Khanal, and then foreign minister Pradeep Gyawali suggested that the MCC could be ratified, but after amendments. Had the process not been deadlocked by the feud between Oli and Dahal,  it could easily have been endorsed by Parliament then.

Differing views within the ruling coalition towards the United States, as well as individual and party relationships with neighbouring India and China, have stopped the project from moving forward as it nears a deadline for acceptance.

“Nepal’s political leadership has failed to recognise the difference between ultranationalism and patriotism,” says Khadga KC, a professor at the Department of International Relations and Diplomacy at Tribhuvan University. 

“Geopolitics has now permeated right down the political chain of command of the parties that seek to use the clash between an imperialist America and an expansionist China on the one hand and between China and India on the other.”

Deuba has lately been seen to be a bit too eager to please New Delhi by not raising the issue of a Nepali man who was killed while trying to cross a wire bridge across the Mahakali river into India, as well as resurrect an already settled border dispute with China in Humla. 

In response, the All Nepal National Free Students Union (ANNFSU) associated with the CPN (Unified Socialist) and the Maoist Center held anti-India street protests. The significance of the ‘student’ wings of parties in the ruling coalition protesting the policy of the prime minister was not lost on anyone.

If Deuba was hoping for New Delhi’s support for the MCC, that has not been forthcoming. The project’s power lines would increase the capacity of future export of surplus electricity to India. In fact, most analysts see China’s hand in behind the scenes lobbying against the MCC they regard as America’s response to Beijing's Belt Road Initiative (BRI).

The fall out of the US defeat in Afghanistan, its growing tension with China with last week’s strategic AUKUS pact with Australia and Britain in the Indo-Pacific, and Beijing growing global clout have undermined the prospect of the MCC going ahead in Nepal.

Diplomatic experts see an attempt by Deuba to use the China border issue and the formation of an investigative committee to ingratiate himself with India so it will openly support the US project.

Nepal signed a framework agreement on the BRI in 2017 after the Indian Blockade of 2015 prompted Kathmandu to plan alternative trans-Himalayan trade routes. Critics of the agreement interpreted this as Beijing’s increased influence in Nepal.

“Deuba is trying to counter the narrative that Nepal is cosying up to Beijing and the BRI so as to assuage New Delhi,” says Professor KC.

In November 2019, India issued a political map that included disputed border areas of Kalapani and Limpiyadhura. In response, Prime Minister Oli got Parliament to unanimously pass an amendment bill to include the territory in its national emblems and its own political map, much to New Delhi’s chagrin.

And while the border issue with China is gaining traction, Professor KC says that the Nepal Congress has failed to offer any criticism to India regarding Limpiyadhura as well as the 2015 blockade.

Says Professor KC: “Nepal’s diplomatic relations have unnecessarily jeopardised due to the selfishness and immaturity of the political leadership. Nepal must restore the strategic balance in its stance towards the triangular rivalry between China, India and the US.”

Experts say that Nepal has not been able to come up with a coherent response to this changed geostrategic terrain globally and in the region, and its leaders react in an ad hoc manner, allowing a development grant like the MCC to become a pingpong in domestic politics. 

Former Foreign Minister Ramesh Nath Pandey says that Nepal should have a consistent and common foreign policy messaging on matters like the MCC, even though there might be internal disputes.

“Nepal’s foreign policy is not fixed and keeps changing as the government changes hands,” says Pandey. “In fact, not only does our foreign policy change based on the political party in power, every political leader seems to want to dictate the country’s foreign policy.”

Former Ambassador Dinesh Bhattarai believes that while the NC’s foreign policy has been fairly consistent from the beginning, Nepal's diplomatic relations especially with its neighbours have been affected by other parties using geopolitics for their domestic power struggles.

“When parties which are part of a coalition government themselves take to the streets in protest, it affects our international diplomacy and credibility negatively,” says Bhattarai.

He says Nepal's international credibility will hit rock bottom if the MCC Compact is not ratified: “It will mark a strategic shift in our relationship with the United States, and affect our relationship with the World Bank, the International Monetary Fund and the Asian Development Bank.” 

(Translated by Shristi Karki from the Nepali original in the September-October issue of Himal Khabarpatrika.)