The US Indo-Pacific Strategy and Nepal

Dr. Souravie Ghimiray
15th January 2022

Picture Courtesy: US Embassy, Nepal

The US’ Indo-Pacific strategy has led to the extension of bilateral and multilateral engagements in South Asia. Himalayan countries such as Nepal have been crucial especially due to its strategic location between the two Asian giants — India and China. The prioritization of Nepal by the US is witnessed through its renewal of various aid programs and extending of $500 million Millenium Challenge Corporation (MCC).  The acceptance of Chinese Belt and Road Initiative in several sectors and the growing proximity between Nepal and China explains heightened US focus for the Himalayan nation.  In this context, the US attempts at bringing Nepal in its Indo-Pacific strategy through its MCC project has been difficult as it has failed to get support in Nepal’s Parliament. This indicates Nepal’s hesitation in aligning with the US strategically.

For the US, South Asia is a priority in its foreign policy calculus. Factors such as threat to region’s stability, and various other geopolitical shifts have assumed importance. The withdrawal from Afghanistan has also allowed the US to focus more on the Indo-Pacific strategy, and a major aspect of this strategy is to counter Chinese deepening footprint across the region fueled by its Belt and Road initiative.  Hence, the attention of the US in South Asia is largely framed through the lens of rivalry with China.

This is the current context of the larger geopolitical scenario. However, the United States and Nepal have had cordial relations since 1947 when diplomatic relations were established.  Since 1951, the United States has provided Nepal with economic aid. The US has contributed close to $1.6 billion in aid and assistance. US agencies like the USAID have funded programs focusing on restoring democracy, civil society, economic liberalization, prevention of terror and providing stability in the region.

The United States views the importance of Nepal in striking the balance against Chinese aspirations by providing the MCC grant. The Millennium Challenge Corporation is a US foreign assistance agency created to fight poverty in countries globally. With funds worth $13 billion, it has partnered with several countries for developmental projects. It aims at solving some pressing challenges faced by people in the developing countries. Such projects include transportation infrastructure and electricity, water supply and sanitation, education, health, farming and irrigation. It is envisioned to promote growth and lower poverty levels in the long run.

Since its creation in 2004, MCC has helped 43 countries with development projects. Nepal signed the agreement in 2017 but is yet to ratify the agreement. Questions have been raised regarding the clauses and intention of the grant in Kathmandu.  The $500 million grant from the U.S. is to be used for two projects : a 400 kV electricity transmission line connecting Nepal to India and upgrading transportation infrastructure. Some commentators in Nepal view that MCC has put Nepal in a dilemma and is caught up in the middle of competing players– China and the US. In the event of any escalation of conflict between the two powers, Nepal fears that ratifying the MCC would make entry of US troops easier in Nepal’s territory. In addition, there are other reservations against MCC such as the hidden economic gains by the US from the projects and fears of antagonizing China by its ratification.

The MCC has made Beijing uncomfortable as it views it as a part of the US-Indo-Pacific strategy aimed at containing China. The Chinese Ambassador Hou Yanqi welcomed any foreign economic support to Nepal, but has warned against any move to contain China since the MCC is recognized as a part of the US Indo-Pacific Strategy.

Apart from the MCC grant in the larger Indo-pacific strategy, the US also wants to include Nepal in its defense strategy, which was revealed by the Indo-Pacific Strategy Report (IPSR) published by the US Department of Defense in 2019.  This partnership includes peacekeeping operations, defense professionalization, ground force capacity and counter-terrorism. The US is apprehensive of BRI and has urged Nepal to judge the transparency and sustainability of Chinese investments in the country. According to the US, Nepal might be vulnerable to fall into a Chinese debt trap.

When it comes to Nepal’s perspective about US Indo-pacific strategy, it seems apprehensive about it, in particular the QUAD. Especially if this grouping gets stronger than its impact in Nepal with India as a QUAD member can be worrisome to Nepal. Given the Chinese financial help to Nepal, the latter may have to face problems if persuaded by other powers to distance itself from China.

Incorporation of the MCC by Nepal depends on several factors, about its perception of MCC- if it is a part of the defense arrangement, which Nepal fears if it has a military component then it implies presence of US military aimed at Chinese transgressions. This is clearly not in favor of Nepal’s interest given its close relations with China. Nepal would not want to upset China from any front, and accepting programs linked to the US Indo-Pacific strategy can be detrimental to Nepal vis-a-vis China. Hence, winning Nepal’s confidence over the MCC may remain a challenge for the US and including it in its Indo-Pacific strategy a bigger hurdle.

*The Author is an Independent Researcher and an Associate Fellow at the Kalinga Institute of Indo-Pacific Studies (KIIPS)

Disclaimer: The Views in the Article are of the Author