MCC as a Tool of American Influence on Developing Countries

In' Tsyun' ORCID: 0000-0002-2685-9898 Post-graduate student, Department of Theory and History of International Relations, RUDN University 250001, Russia, Shandong province region, Jinan, Wuyingshan Street, 10 312267208@qq.com

Millennium Challenge Corporation is a foreign aid agency of the United States government. It is headquartered in Washington and its budget comes from Congress. The Secretary of State serves as chairman and the Secretary of the Treasury as vice chairman. Including the trade representative, there are three members of the U.S. Cabinet on the board. It is rare in other companies for senior officials to be senior executives. The US has many different types of foreign aid programs under one official agency, the US Agency for International Development. The MCC, however, is separate from USAID and called a "corporation". The background and purpose of its establishment is to reform the American foreign aid system ^[1].

Most foreign aid carried out by the US is accompanied by ideological export or even regime change in recipient countries. But there are many problems with this foreign aid, such as inefficient bureaucracy, poor aid effectiveness and poor KPIs, which not only make parliamentarians unhappy, but also create PTSD in many third world countries. The MCC was set up by the Bush administration after the September 11 terrorist attacks with the seeming purpose of aiding poor countries and overturning the breeding ground for terrorism. The deeper purpose is to break away from the problems of traditional aid methods and cover up the competing interests and national colors of American foreign aid ^{[2, 3]}.

Established in 2004, the MCC provides assistance to what the World Bank defines as low - or lower-middle income countries to help them achieve economic growth. On the face of it, the MCC is independent, specific and has no political agenda, just to help poor countries out of poverty, which is a breeding ground for terrorism. However, America never does "charity". The MCC's veneer is fine, but the devil is in its supposedly "open and transparent" selection system.

The MCC introduced a selection mechanism for applicant countries ^[4]. If a country wants help, it needs to pass the MCC's annual assessment, which includes about 20 items. These included "anti-corruption efforts" and "political rights", which were scored by the Brookings Institution and Freedom House, two NGO. For many third world countries, it is hard to get quick results. Therefore, the applicant country can only change according to the meaning of the United States. As for the rating agency, it is the "lobby group" of the US government that interferes in the internal affairs of other countries. It has no neutrality at all. To get the money, you have to work hard to match America's "high score": liberalising the economy and moving closer to American-style democracy politically. The MCC claims to be apolitical, but its criteria for selecting aid countries have led them to willingly "shackle themselves to American political correctness" ^[5]. Once they put it on, it's hard to take it off.

Even if the applicant country has been selected, it will still be scored each year. If the score goes backwards, the MCC board has the right to unilaterally stop the project and terminate the cooperation. If the applicant country's score continues to improve, it will be given priority to qualify for the second round of aid. For some countries, the aid is so important that they will try to meet American demands. The MCC "regulates" the behaviour of recipient countries with rules of rewards and punishments. As a strong party, the MCC can hold aid projects hostage during the negotiation stage, either by meddling in the domestic affairs of the recipient country, or by opening up the market to US companies and privatizing key industries. In 2019, for example, MCC signed a $190 million deal with Ghana in exchange for U.S. access to the country's state-run electricity sector.

In addition to the shackles from American political correctness, another mystery of the MCC is that the United States holds the "final power of interpretation." A country's high score is no guarantee of inclusion. Because it's the MCC board that decides the final list. Senior American officials and representatives of the private sector make decisions about which countries to choose and which not to choose, without giving any explanation. In 2006, Uganda met the criteria but did not make the list. In 2009, the Honduran military staged a coup, and MCC projects there continued after a two-month suspension. However, the MCC was the first to cut off aid after military coups in Madagascar and Mali. Why is there a difference? Hillary Clinton, then secretary of state, refused even to call it a "coup" because of America's longstanding support for the Honduran military. Mr. Trump has openly used the MCC as a political tool ^[6]. The MCC, for example, blocked $50m in aid to Kosovo when the region refused to lift tariffs on Serbia.

Table 1. Foreign aid since the millennium challenges and companies’ establishment

Source: https://www.mcc.gov/where-we-work

Since its inception, MCC has focused on Africa. By 2020, MCC has provided assistance to 41 countries, with a total amount of about US $11.8 billion. More than half of them are African countries, accounting for two thirds of the total amount of aid. Ironically, George W. Bush initially put on the honor aura of "eliminating terrorism" for MCC. However, Nigeria, Somalia and Afghanistan, countries with rampant terrorist forces, have never been funded. George W. Bush once promised that MCC's annual budget would reach 5 billion dollars, and Congress would only approve 800 million dollars until fiscal year 2020; The budget of USAID is 50 times of its budget. The projects that MCC has assisted in these years are limited, and poor countries are still so poor that the effect of stimulating the economy can hardly be seen. It can be said that this "company" has been "lazy" for a long time.

After Trump came to power, the situation has changed. The US government proposed the "Indo Pacific Strategy" to assign new tasks to MCC. In 2019, the State Department of the United States publicly said that MCC will become a supplement to the "Indo Pacific Strategy" economic cooperation, and the United States will strengthen its assistance to South and Southeast Asia ^[7]. Over the past few years, among the 16 countries that have negotiated cooperation with MCC, 5 are from Asia, either China's neighbors or countries along the "the Belt and Road" initiative. The essence of the US "Indo Pacific Strategy" is to attract India and encircle China ^[8]. MCC claims to have no political purpose and has been humiliated in its own operation. Now it is included in the framework of the US geopolitical competition, which will only increase the suspicions of the recipient countries.

In the case of Sri Lanka and Nepal, we will see how these doubts become reality.

Figure 1.

Source: designed by author

In January 2015, Sri Lanka's pro American Maithripala Sirisena was elected president, and the bilateral relations heated up rapidly. After Trump came to power, he promised various kinds of assistance to Sri Lanka, some of which were implemented through MCC. In December 2016, Sri Lanka passed the MCC qualification review, and one year later submitted the Analysis Report on Constraints to the national economic development, which is the "aid program" we mentioned earlier.

MCC carried out several rounds of investigation and assessment on Sri Lanka, and finally approved a US $480 million assistance plan in April 2019, including land and transportation projects. The text of the agreement was sent to the Sri Lankan government for signature. Just seven months later, Sri Lanka had a new president, or an old president who had been in power for ten years, Gotabaya Rajapaksa. After taking office, the President organized a working group to analyze whether the MCC agreement proposed by the United States harmed Sri Lanka's sovereignty and interests.

The Working Group presented a report, which highlighted two main points. First of all, the Constraints Report was completed by a subsidiary of Harvard University, and the Sri Lankan government did not participate. Moreover, the Sri Lankan government did not seriously conduct cross sectoral research on the text of the agreement before. In other words, the MCC's "construction assistance plan", from making suggestions to setting up projects to generating agreement text, is basically self guided by Americans, and the Sri Lankan government is only responsible for stamping, which is a huge procedural defect. In addition, there are serious problems in the content of the agreement. Transport and land are two projects. One directly refers to infrastructure, involving important geographic information and national personal data of Sri Lanka, and the other involves land ownership, which are very important to the country. MCC not only allows foreign capital to operate the transportation system, but also leads to excessive privatization of land, making Sri Lanka's land fall into the hands of foreign capital. The Working Group also introduced to the President a number of unfortunate cases after MCC was signed by other countries. It was this report that finally led to President Ra's pledge that he would not sign MCC even in his dream.

Compared with Sri Lanka, Nepal's MCC protocol has similarities and differences. Nepal's economy is heavily dependent on foreign aid. One quarter of government expenditure comes from foreign donations and loans. In 2012, Nepal began to apply to MCC for assistance. At that time, the Prime Minister Baburam Bhattarai was not from the pro-Western Congress Party, but the Maoist Communist Party. In order to maintain its position in the parliament, the CPN compromised with the Congress Party and the Marxist Leninist Communist Party and returned the land "confiscated" during the civil war, almost in this period. After that, Nepal began the constitutional process, and the political situation was very chaotic. MCC started a preliminary investigation in Nepal at the same time, identified energy and transportation as the areas of assistance, and established the MCC Nepal Account Office to be responsible for the feasibility study of the project.

Compared with Sri Lanka, Nepal applied for MCC earlier and just at the time of political turmoil. When the steps were completed, a pro American regime was taken over. In 2017, the Congress Party, which has always maintained close relations with the United States and India, came to power. The new Prime Minister came to power in June, reviewed the text in August, and signed an agreement in Washington in September. These operations left the opposition too late to respond.

After the two Nepalese Communists responded, they immediately blocked MCC in the parliament. Their objections are based on the procedure and content. The agreement is filled with a large number of unequal elements, for example, MCC agreement is higher than Nepal's domestic law; MCC employees, like American officials, have diplomatic immunity, are not subject to the jurisdiction of Nepalese courts, are exempt from prosecution, etc. These contents obviously undermine Nepal's sovereignty ^[9], but they have not been fully discussed within the government and the parliament, and have not given Nepal any opportunity to revise them.

Similar to Sri Lanka, Nepal's MCC includes two projects, one for power grid and one for highway construction ^[10]. The power grid is mainly used to pave the transmission line from Nepal to India to facilitate the southward transmission of power to India. The road is built on a 300km long expressway in the south of Nepal, which can directly reach the Koilabas market on the Nepal India border. A large number of Indian goods need to pass through here and export to Nepal ^[11]. In contrast, the economic development in the northern mountainous areas of Nepal is backward, and the energy and transportation infrastructure are even more lacking, but they are not cared for by MCC at all. Who is MCC helping?

It is just written in the MCC agreement that it will "closely cooperate" with USAID, the State Department of the United States and the Indian government, and obtain the consent of India when conducting relevant transmission projects. In 2019, David Ranz, Deputy Assistant Secretary of State for South Asia Affairs of the US State Department, said during his visit to Nepal that "MNI MCC is an important part of the" Indo Pacific Strategy". At that time, the ruling party, the Indonesian Communist Party, which had not split after the merger, was opposed from top to bottom.

In February 2020, the Nepalese government, like Sri Lanka, set up a working group to evaluate the MCC agreement, and the conclusion was similar: it could not be passed unless it was revised. However, if it is to be revised, the United States will obstruct it, and because of the impact of COVID-19, the CPN is splitting up. This one comes and goes, and the revision was shelved until the CPN really split last year, and Deuba and the Congress Party took over.

India is surrounded by Pakistan, Bhutan and Nepal. It goes without saying how India Pakistan relations are ^[12]. Bhutan's internal affairs and diplomacy are all controlled by India, which can almost be said to be a colony of India. Nepal's economy is highly dependent on India. India has used this to impose economic blockade on Nepal for many times, interfere in Nepal's internal affairs, and penetrate Nepal's social aspects through immigration, religion and other means to firmly hold Nepal in its hands.

Sri Lanka, which is also highly dependent on India economically, has also been stuck in the "Tamil issue" for a long time. Under the influence of India, the political situation of these countries is unstable and the people are living in poverty, which can even form a "poverty belt around India". Because India is absolutely dominant in the region, they will want to introduce extraterritorial forces to hedge India's influence. Sri Lanka, Nepal, Pakistan and Bhutan are basically old politicians or political families who can hold power for a long time. These state elites have a certain strategic vision. They know that if the country wants to survive and develop, it must be independent and cannot be a puppet of India. Therefore, strategic hedging is the only option for these countries. The key to the success of the technique of "driving the tiger and swallowing the wolf" is that you will not be swallowed by the "tiger". Their solution to this problem is to introduce two parties with conflicting interests - one tiger can't do it, then two. China and the United States just meet this condition.

In fact, the US assistance to Nepal and Sri Lanka has a long history and means far more than MCC. The United States has provided international assistance to Nepal since 1951, covering almost all aspects ^[13]. For Sri Lanka, the amount of US aid in 2015 was less than US $4 million, and in 2017 it increased to nearly 40 million. In 2018, the US Department of Agriculture directly provided US $14.1 million in aid to help Sri Lanka increase its milk production. Although Sri Lanka's total trade volume with the United States is less than India and China, the former is Sri Lanka's largest export market, consuming about a quarter of Sri Lanka's exports. In recent years, the annual surplus is about 2.5 billion dollars, and the annual total export volume at that time was just over 20 billion. In addition, the military cooperation between the two countries has always been very close. As early as 1995, the United States signed the Status of Forces Agreement (SOFA) with Sri Lanka, and in 2007, it signed the Acquisition and Cross Service Agreement (ACSA) to provide logistical support services for the United States and NATO forces. After the pro US faction came to power in 2015, the two countries not only had various military visits and exercises, but also announced to provide military assistance of US $39 million in 2018.

Therefore, for these countries around India, China is the latecomer. It is the second "tiger" introduced to balance the influence of India and the United States. When the United States and India are too strong, they aim at China's "the Belt and Road". When China is too close, they will add strength to the other two sides. In fact, MCC was applied by Nepal and Sri Lanka on their own initiative. In 2015, Sri Lanka stopped the "Colombo Port City" project invested by China, and immediately signed a tripartite cooperation agreement with India and Japan to develop the east container terminal of Colombo Port ^[14].

In 2019, after the so-called "pro-China faction" refused to sign MCC, Nepal accepted three batches of assistance from China, invited Chinese ambassadors to the Northern Province to "interact", and formulated a Comprehensive National Strategy with India to strengthen cooperation and mutual trust between the two sides. Despite the epidemic, Nepal did not forget to carry out joint military training with the United States. Therefore, MCC is just a channel for them to make efforts and seek development through cracks. For Nepal and Sri Lanka, the US $500 million aid is not a small amount, but it is not as good as other alternatives due to the high cost. After all, how can they engage in "balanced diplomacy ^[15]" if they are forced to tie up one side's chariot? What small countries need is to survive and develop in the cracks,and not to be the cannon fodder of big countries' game ^[16].

So why did Nepal finally pass this MCC? The primary reason is that Nepal's economic pressure is too great during the epidemic. One of the commonalities of these countries around India is that their economic systems are very fragile. Nepal and Sri Lanka, both of which have just ended their civil wars, still have the shadow of the pre-colonial era in their economies, with a single industry and a high degree of dependence on foreign countries. Sri Lanka's economy mainly depends on tourism, tea and spice export, textile export and overseas remittances. Nepal's economy mainly depends on tourism, textile exports and overseas remittances. As the epidemic started, foreign exchange income shrank sharply. They are unable to feed themselves. Fertilizer, coal and oil are all imported. Once they have no foreign exchange, people cannot live normally.

What's more, these countries are heavily indebted ^{[17, 18]}. The foreign debt owed by Pakistan accounts for more than 30% of GDP, and the amount to be paid off each year is more than the annual fiscal revenue. In Sri Lanka, the foreign debt accounted for 59% of GDP in 2018, and one fifth of the annual foreign exchange income should be used to repay debt. It is conceivable that when the epidemic continues and foreign exchange shrinks for many years, it will inevitably be the hyperinflation and energy shortage caused by the shortage of materials. As a result, the financial system collapsed due to long-term and large-scale power outages and failure to pay debts ^[19]. An economic collapse will inevitably lead to a political collapse unless someone saves lives and there are objects to transfer contradictions.

Table 2.

Source: Designed by author

At this time, MCC is not a tactical means of icing on the cake, but a lifesaving pill. Although Nepal has not reached Sri Lanka, it is not far away. This MCC must be signed no matter how.

In May 2022, the United States signed a Development Goal Agreement with Nepal, which will give Nepal a "free grant" of US $659 million within five years to support Nepal to become a middle-income country. This time, the agency signing the agreement is not MCC, but USAID. When Sri Lanka's economy collapsed, the United States condemned China's "debt trap" ^[20] and demanded that China cancel its foreign debt to Sri Lanka. In fact, China's loans account for only 1.8% of Sri Lanka's total sovereign debt, far less than those of Japan and India in bilateral loans. For the United States, MCC is neither the beginning nor the end.

Conclusion: There are many ways for the United States to intervene in regional affairs. MCC is only one of them, but it is also a special one. Its particularity lies in the huge inequality of rights and obligations. Through MCC, the United States wants to obtain negotiation conditions that these third world countries cannot afford and cannot accept under normal circumstances ^[21]. But what Americans want is the "unacceptable" and the "abnormal circumstances".

For the United States, a $500 million project is nothing to mention. It achieves its goals through other ways. And even if the MCC agreement continues to miscarry, it can also create chaos in the domestic politics of the recipient countries, facilitating the United States to intervene in other countries' affairs ^[22]. The signing and shelving of the MCC agreement has destroyed the basis for cooperation between the left and right political forces in Nepal ^[23]; Sri Lanka's rejection of it has also led to constant attacks on domestic "pro-China" forces. Once abnormal circumstances occur, the United States can not only get double returns if the agreement is passed, but also vigorously support the domestic pro American forces of the recipient country, paving the way for the United States to further intervene in the political situation of the country ^[24]. Therefore, MCC is more like a chess game. It is not important for the United States whether the recipient country accepts it or not.