Foreign Aid And Corruption

It is against this background that the US-proposed MCA is facing serious political headwind

Feb. 23, 2020, 7:36 a.m. Published in Magazine Issue: VOL. 13 No. 13 ,Feb.21-Mar.12,2020(Falgun.09, 2076) Publisher: Keshab Prasad Poudel Online Register Number: DOI 584/074-75

No, we are not going to be discussing titillating details of “under the table” cash flow kind of corruption, which is only the natural result of a much more serious cause: institutional corruption that foreign aid and its national henchmen class produce and reproduce that must be constantly interrogated. And there is a long history of such questioning, albeit often ignored at the official level by the political-bureaucratic structure of Nepal that is aid-addicted.

Possibly the first such open discussion happened in the early 1980s when IDS (now IIDS) published its seminal critique of foreign aid in Nepal under the leadership of then ex-finance secretary Devendra Raj Pandey. Also in it, two now prominent development thinkers, academics Chaitanya Mishra and Pitamber Sharma analyze Nepal’s predicament through the lens of neo-Marxist Dependencia Theory and its center-periphery classification. It prompted outrage in an already decaying, post-referendum Panchayat regime; and there was hope that it would be picked up by the rising revolutionary political forces, the Nepali Kangress and the UML, to forge a new development pathway for Nepal.

Unfortunately, once in power after the 1990 restoration of multiparty democracy, these two ostensibly socialism-inclined parties, instead of critically assessing foreign aid against national interests and development policy priorities, made it a point of competition between them to see who could bring in more foreign aid. The results were some of the most egregious examples of institutional distortions: Arun-3, Enron, Mahakali, outrageous power purchase agreements that led to near bankruptcy of the national utility, shady privatization of the national airline’s ticketing and marketing and so on. Decisions related to these and many more instances happened against a background of donor conditionalities for unbridled privatization even as civic movements were up in arms against them.

More critical analysis followed in latter decades, some with which I was associated with. In 2004, University of Helsinki and Interdisciplinary Analysts published through Himal Books a study (Aid Under Stress) of Finnish foreign aid in water supply and forestry sectors. Comparing projects done by multilateral development banks with those done by a Nepali technical NGO, it was found that foreign-aided water supply projects were consistently three times more expensive than local ones even as the ratio of software to hardware was sixty-six to thirty-three percent for the former and the reverse for latter local ones. It meant rich bonanza for foreign consultants and repatriation to donor countries of a large share of the aid that came in the name of the Nepali poor.

In forestry, the Finns pushed for “oligarchic” privatization of Bara forests as propounded by the infamous “Washington Consensus” that asked for Southern governments to stay out of development and let the market do it. It fortunately came up against a vibrant civil society opposition as well as an already rampant “more democratic” privatization that the forest ministry of Nepal had already in effect become. (A DFO posting to Bara meant immense underhand income from timber smuggling to India!) And the Finns never had the clout to push that kind of “reform” that the Americans and others have, and were forced to retreat.

Subsequently, Aid, Technology and Development: the lessons from Nepal was published by Routledge in 2017,which showed how good, Green and mountain-friendly technologies such as ropeways or cheap hydropower development stood no chance of finding policy support from Nepal’s aid-addicted bureaucracy that consistently opts for revenue enhancing but development resilience depleting projects. Nor was there, besides tokenism, any meaningful support from the international development community, especially Northern NGOs, that received all their funding to push for policy prescriptions manufactured in London, Washington DC and other centers of global finance.

It is against this background that the US-proposed MCA is facing serious political headwind. Even among the critics, there is little disagreement about the US being a development partner of Nepal as it has since the very Dawn of the Age of Aid some seven decades ago with the President Harry Truman’s 4H Program. There is also a general consensus that a 400 kV transmission line is a good thing. So where is the controversy? It is in the packaging this time around.

To the credit of the US, its USAID-aided and built Nepal’s first transmission-distribution system in the early 1960s, the famous 11kV Ring Main around Kathmandu and Patan together with the sub-stations that still function as key distribution nodes. Without that support, the electricity produced by the Indian-built 21MW Trisuli, the Chinese-built 10MW Sunkosi and the Russian-built 2.4MW Panauti could not have been evacuated to the consumers in the capital. So what changed this time around?

While foreign aid has always been an instrument of foreign policy of donor countries, in its early days it had a well-meaning stable of professional experts of development working behind a strong veneer of altruism. Even though Marshall Plan in Europe which inaugurated the Age of Aid after the Second World War is portrayed in highly charitable terms, its political conditions (i.e. decolonization by the British and French to allow US companies access to resources therein) were broadly supported by Southern elites. By the mid-1980s, with oil price shocks and the financial instability it brought about, Western elites began to lose interest in the charitable aspects of development aid and its idealisms. They began to opt for rawer interventionist policies, starting with Structural Adjustment that tied aid to sledgehammer opening of markets, divesting government-owned enterprises into private hands, and financing social reforms through pliant Western NGOs.

After 9/11, it became all about US security and countries being “either with us or against us”. Nothing epitomizes this shift from development professionalism to raw security concerns in US aid policy as the shutting down of USAID premises in Rabi Bhawan and its shift to Fortress America in Maharajganj. The same applies to DfID. In more instrumental terms, it also signifies America moving away from the post-WW2 model of development that saw a division of labour between USAID doing softer stuff and the World Bank doing harder infrastructure. US has chosen to devise a new instrument, the MCC that bypasses the World Bank as well as USAID in infrastructure interventions. The former is perceived to be too clumsily controlled by other multilateral interests while the latter has too much Congressional oversight to be useful from a security perspective. This security-based underpinning of MCC is where much of the unease in Nepal as well as Sri Lanka lies, seen as it is as the economic version of the Status of Force Agreement that the US enters into before deploying troops on foreign soil, agreements that place its military and its personnel above the law of the land they are stationed in.

Despite denials by Nepal’s MCA officers, US defense strategy documents say otherwise (specifically the Defense Department National Security Strategy of the US 2017 and the State Department’s Indo-Pacific Strategy of 2019). Sentences like the following leap out of the pages to stun a reader with any understanding of international relations:

MOBILIZE RESOURCES: The United States will modernize its development finance tools so that U.S. companies have incentives to capitalize on opportunities in developing countries. With these changes, the United States will not be left behind as other states use investment and project finance to extend their influence. In addition,the U.S. Government must not be an obstacle to U.S. companies that want to conduct business in the developing world.

INCENTIVE REFORMS: The United States will use diplomacy and assistance to encourage states to make choices that improve governance, rule of law, and sustainable development. We already do this through the Millennium Challenge Corporation, which selects countries that are committed to reform and then monitors an devaluates their projects.

The MCA amount of aid is not that big for the price that must be paid in terms of national autonomy: it is only 350 million USD subtracting from the grant the 150 million USD Nepal must contribute to, forgoing potential for its investing its own resources in other areas of needed development. For the five-year period of this aid flow, it is slightly less than the amount Nepal has already raised for Budhi Gandaki just by levying a Rs5/liter surcharge on petroleum. Do we really have to sign a “Status of Force Agreement” equivalent for this amount by superseding Nepali laws, constitution and parliament?

Moreover, with its 400 kV transmission line primarily geared to evacuating Nepali hydropower to India (and not addressing current need for 33 kV and 132 kV lines to help Nepali developers evacuate their power to serve Nepali consumers), is it really Nepali development or some kind of a neo-colonial agenda to tie Nepal with Mughlanin an unequal terms-of-trade fait accompli? The myth it is based on – that Nepal has surplus hydropower – is just that, a myth. Consider the fact that most Nepali politicians want Nepal to become a Singapore. Nepal’s installed capacity is barely over 1000 MW and per capita electricity consumption is one of the lowest in the world at 140 units/capita. In contrast, corresponding figures for Singapore is 13000 MW and 8000 units/capita. Where is the surplus electricity and why this mad pressure by Western powers to integrate with Bihar? Is this how the Indo-Pacific strategy of countering China is being promulgated?

At the end of the day, will the Oli government and Nepal’s supine parliament endorse the MCA compact? Most probably, and hang the provision in the constitution about Nepal travelling the socialist path!With MCA’s requirement for unbridled economic liberalization including bringing public property under private interests, which anywhere else would be defined as corruption but not under market liberalism, and with MCA ironically giving Nepal pass grade in tackling corruption, the signs are not good. Mahakali Treaty in 1996 has already shown our revolutionary comrades to have limitless capacity for generating controversy before collapsing in lampasarbad!

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