In recent weeks, 'Yes to MCC' and 'No to MCC' have echoed in Nepali politics, media and among intellectual groups, leading to violent opposition to it in the streets.

The Millennium Challenge Corporation (MCC) compact was concentrated on national politics until the United States Assistant Secretary of State Donald Lu called upon three senior Nepali leaders on the 10th of February to either accept the aid or face the consequences.

The U.S. secretary's call is taken as a serious note in Nepal's relations with the US and also provides us a picture of US insecurity over China's rising influence in Nepal.

This insecurity further gets bolstered with Chinese Foreign Ministry spokesperson Wang Wenbin's statement that recent developments on the MCC compact shows America's 'coercive diplomacy'.

Following this, the current developments of the gloomy and changing relations among Nepal, the US and China are a result of a lack of understanding of the changing global and regional powers by Nepali politicians, lack of their expertise in foreign policy, and rising insecurity of the US and China.

I have read and watched hundreds of articles and interviews whereas I did my Master's research on the MCC compact and examined the agency of the local actors (political parties and development institutions) in Nepal in the ways in which they appropriated the Western-centric development discourses by simultaneously incorporating and localising them in the national setting.

I interviewed several leaders of the political parties - the Nepali Congress, Maoist Centre and Communist Party of Nepal-UML (at the time the Nepal Communist Party) - and got an opportunity to know the foundations on which they set their opinions.

At the intellectual level (especially among the youths), there is absence of a pragmatic analysis on the background of the compact, changing power dynamics of the Indo-Pacific region and the influence.

There is an over-exaggeration of compact conditionalities made by the communist parties, whereas the Nepali Congress lacks systematic analysis of power relations and the future of confrontational politics between the major powers.

Sadly, now everyone is an expert on the MCC.

The story behind the creation of the MCC so far is well known to the public. It was created in 2004 after a long debate on the ineffectiveness of U.S. aid and rising dissatisfaction among the U.S. public about it.

The MCC was considered to be a game-changer in international development as it would promote policies that backed a liberal market economy and privatisation.

These policies would builda capital market economy, international organisations, multinational companies and liberalism in political terms.

The propounders of the MCC believed that U.S. influence in the world (especially in the rising global south) could only be ensured with the promotion of liberalism, where Bill Clinton, back in 1994, stated that the 'democracies don't attack each other'.

The MCC was built on this ideology that the best strategy to ensure the safety of the US was to promote U.S. policies.

With the anonymous linkage of the MCC with the Indo-Pacific Strategy and obscure conditionalities, it has now created a distinctive mode on whether to accept or reject the aid. In this uncertainty, China (also India) seemed to signal to the political parties to reject the aid as both countries do not want increased US influence in Nepal

However, the rise of China and its increasing influence have diverted the ways the MCC was created.

No one in the U.S. establishment ever imagined the growth of China and the rise of regional institutions (Asian Infrastructure Investment Bank, New Development Bank, Belt and Road Initiative) within a decade that shook the foundation of U.S. influence in the global south, mainly in the Indo-pacific region.

The introduction of the Indo-Pacific Strategy (IPS) by the Trump Administration and linking the MCC to the IPS unlocked the first maze of stress that brings debate to Nepali politics and raises concerns of China, whereas the conditionalities/clauses have further complicated the compact.

The established U.S. strategic framework for the Indo-Pacific aims to prevent China from establishing 'new, illiberal spheres of influence' that go beyond the Nepali non-alignment foreign policy principle. Although the US has clarified that the MCC is not a part of the IPS, the alignment of the MCC with the economic component of the IPS was noted as a serious transgression.

Going back to the selection criteria, Nepal has done commendable work in promoting policies related to democracy, governance, health, education, economy and political rights, which mainly follow liberalism.

The political parties were positive about the MCC; however, with the anonymous linkage of the MCC with IPS and obscure conditionalities, it has now created a distinctive mode on whether to accept or reject the aid. In this uncertainty, China (also India) seemed to signal to the political parties to reject the aid as both countries do not want increased U.S. influence in Nepal.

The political parties of Nepal are now under immense pressure on how to accept or reject the aid without destabilising the relations with US and China.

From a realpolitik sense, it is a context of the changing realities of the region and increased rivalry between two great powers.

With this, the fate of the MCC is no longer just limited to the Nepali parties but has extended to Washington DC and Beijing.

In this mixed crisis, the best way to get rid of it is to ask for a written confirmation that the MCC is not a part of the IPS and is not directed against China. This can clear the insecurities of China and the communist parties while welcoming the MCC compact.

The compact now has already taught the political parties how free aid can be a headache and a source of political conflict in a country.

Let us hope that Nepal will least follow the aid mentality in the future.

Bhandari is a research fellow at the United Nations University - Institute on Comparative Regional Integration Studies in Belgium

A version of this article appears in the print on February 21, 2022, of The Himalayan Times.