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Millennium Challenge Corporation withdraws its US$ 480 million grant to Sri Lanka as MCC Board was Unwilling to re-negotiate Agreement in its present form as desired by Gotabaya Rajapaksa Govt

By P.K.Balachandran

Highly placed sources in the Sri Lankan government said on Wednesday that the Board of Directors of the Millennium Challenge Corporation (MCC) has withdrawn the five-year US$ 480 million grant offered to the government of Sri Lanka in April 2019 after three years of negotiations.

However, a formal announcement is yet to be made on the withdrawal.

The grant, which was meant for a land and a transport project, became highly controversial in the island nation with nationalists up in arms against it. Nationalists alleged that the grant was meant to make agricultural land marketable, thereby dismantling the existing system in which government, which owns 80% of the land, leases them out to peasants. The idea behind the established system was to prevent the alienation of land which is dear to peasants who constitute 70% of the island’s labor force.

More importantly, nationalists feared that the country’s scarce land resources would finally end up in the hands of Western individuals and corporations endangering the sovereignty of Sri Lanka.

The MCC selected Sri Lanka for the grant in December 2016 but immediately ran into trouble in the island. Nevertheless, the then pro-West government led by Prime Minister Ranil Wickremesinghe, stuck to the decision to accept the MCC compact. But it became a major election issue when Sri Lanka held the Presidential poll in November 2019. Front runner Gotabaya Rahapaksa of the Sri Lanka Podujana Peramuna (SLPP) promised to review all agreements with foreign countries from a nationalistic angle. A review of the MCC was on the top of his agenda.

Gotabaya secured a massive endorsement of his line on the MCC. The SLPP reiterated the promise to review the MCC in the run up to the parliamentary elections in August 2020. Again, the SLPP got a massive popular endorsement of the nationalistic line when it secured a two-thirds majority in parliament.

The US then saw the writing on the wall and stopped pressing for the implementation of the MCC compact. When the US Secretary of State Mike Pompeo visited Sri Lanka and met President Rajapaksa he did not press for it. He told the Sri Lankan media subsequently that it was up to Sri Lanka to accept or reject the grant.

The Two Components

According to the MCC website, the compact sought to assist the Sri Lankan government in addressing two of the country’s binding constraints to economic growth: (1) inadequate transport logistics infrastructure and planning; and (2) lack of access to land for agriculture, the services sector, and industrial investors.

The compact was to be composed of two projects: a Transport Project and a Land Project. The Transport Project aimed to increase the relative efficiency and capacity of the road network and bus system in the Colombo Metropolitan Region and to reduce the cost of transporting passengers and goods between the central region of the country and ports and markets in the rest of the country.

The MCC website said that the goal of the Land Project was to expand and improve existing Government of Sri Lanka initiatives to increase the availability of spatial data and land rights information. This project was meant to help the government identify under-utilized state land that could be put to more productive use and maximize rents from lands that the government leases. It would also increase tenure security and tradability of land for smallholders, women, and firms by digitizing deeds records so that they are less vulnerable to damage, theft, and loss.

Presidential Commission

The nationalists in Sri Lanka had no objections to the transport segment of the compact, but they opposed the land project tooth and nail. A Presidential Commission appointed to examine the MCC proposal said that it was not advisable to accept it in the existing form and suggested re-negotiation.

The US, apparently, was not keen on re-negotiations. It was in the context of such a stalemate that the MCC Board decided to withdraw the grant, it is learnt.