Nepal has enjoyed cordial relations with the United States for more than 70 years. Photo: Nepali Embassy, Washington DC

There were delays.

There were divided opinions.
There were politicians arguing in favour and against.
And then came the warning message.
The United States in no uncertain terms said that February 28 is the final deadline for the Nepali political leadership to ratify the Millennium Challenge Corporation-Nepal Compact from Parliament. Hints that were being sent to Nepal became a firm warning a few days ago. And then Donald Lu, US assistant secretary of state, on Thursday held separate telephone conversations with Prime Minister Sher Bahadur Deuba, CPN-UML chair KP Sharma Oli and Maoist Centre chief Pushpa Kamal Dahal. The message was that failing ratification by the deadline could mean a review of ties with Nepal and serious ramifications.
“We will land in a serious crisis if we fail to ratify the MCC compact. Nepal must not lose the trust of countries like the United States,” said Suresh Chalise, who has served as an ambassador of Nepal in Washington. “It will not be good for Nepal in terms of economic and strategic aspects if the US decides to review its ties with Nepal.”
Under the MCC compact, Nepal is eligible to receive $500 million in grants to build electricity transmission lines and import roads. But it needs to be ratified by Parliament.
Two ruling parties—Maoist Centre and CPN (Unified Socialist)—are against the parliamentary ratification of the MCC compact and have been demanding amendments to some clauses.
The MCC headquarters has said any amendment is not possible now.
According to Chalise, Nepal must maintain good relations with all its friendly nations and development partners.
“We are sandwiched between two great economic and military superpowers. Our relations with them, however, see ups and downs once in a while,” said Chalise. “We do need countries like the United States which have been our development partners for decades.”
Lu’s calls to the Nepali leadership comes as an unprecedented move, a manifestation of the vexation in Washington due to continued delays in ratification, and probably such first strongly worded message to Nepal with which the US has over seven decades of ties.
While it has become an issue of Nepal’s trustworthiness, the MCC compact is also a prestige issue for the US, according to experts, as Washington will feel a long-time assistance recipient is now reluctant to take the grant.
“The US will definitely retaliate given its nature and its past records but we do not know what kind of action it may take,” said Ramesh Nath Pandey, a former foreign minister. “The US after all is the superpower.”
According to Pandey, failure to ratify the compact will impact Nepal on multiple fronts—political, economic and strategic.
“It will not only be an embarrassment for us… we will face a major setback in terms of our over 70 years of ties with the US,” Pandey told the Post. “Our leaders and officials must realise the gravity of the message that the US could even review ties with Nepal. Such a step could invite a huge political crisis in Nepal. And sadly we do not have leaders who can fix such a crisis should it arise.”
A senior Foreign Ministry official said it’s difficult to imagine the scope of US retaliation if Nepal fails to endorse the MCC compact but it will certainly be huge.
“We can just imagine there will be strategic, geopolitical, economic and other implications if the US indeed reviews its Nepal policy,” said the official.
Officials at the Finance Ministry who deal with foreign assistance and development partner countries say they have been a worried lot for quite a while since the controversy over the MCC started to snowball.
“Other than strategic and geopolitical implications, we are worried about possible economic consequences if the US indeed revises its policy towards Nepal in the event of our failure to ratify the compact,” said a Finance Ministry official who requested anonymity citing the sensitivity of the matter. “The aid and assistance we receive not only from the US but also from other countries and agencies also could suffer. And such cuts at a time when our economic indicators are looking bad may lead us to a full-blown economic crisis.”
Pandey, the former foreign minister, agrees.
“It’s true that the US holds sway over key financial institutions of the world,” said Pandey. “Take this simple example. We are going to hold elections soon. Our development partners have always supported us during elections. If the US indeed takes a stern step revising its policy towards Nepal, we may not get budgetary support from any bilateral and multilateral donors.”
Nepal signed the compact to receive the $500 million grant with the US in September 2017. The compact was registered in Parliament on July 15, 2019. It, however, started to become a political issue from January 2020 when Dahal, who co-chaired with Oli the now invalidated Nepal Communist Party (NCP), and some other leaders sowed seeds of suspicions about the US grant.
A serving Nepali diplomat said that if any senior US official warns that US will review its ties with Nepal in his conversation with the prime minister, the leader of the main opposition party and another ruling party leader, then they should immediately sit together, consult with experts, diplomats and former prime ministers and foreign ministers to avert any possible crisis.
“If they have received such strong warnings, they should assess the possible ramifications of aid cuts and possible geopolitical fallouts,” said the diplomat who spoke on the condition of anonymity. “It’s not about one leader or one political party. Politicians must think of the irreparable loss the country could face if Nepal faces the US ire.”
Gopal Thapa, a former diplomat, said the message to Nepal was expected as there had been too much disinformation, lies and malicious campaigns against not only the MCC compact but also the United States, with some making efforts to portray it as an imperialist.
“Never before in Nepal’s history had international relations been so badly managed. It will be premature to say exactly what impacts there will be on Nepal if the US revises its ties,” said Thapa. “We can just hope Washington will wait for a final yes or no from Nepal before swinging into action. But if the Nepali leadership fails to ratify the MCC compact, an economic and geopolitical crisis is certain to befall the country.”