The Millennium Challenge Corporation (MCC) Compact is a threat to people’s sovereignty – MONLAR

Srilanka, the island nation in South Asia, is struggling to battle the coronavirus. At the same time, with its economy in shambles, its mounting external debt has pushed Sri Lanka further to the brink of another crisis. With limited resources, the Government of Gotabaya Rajapaksha is fighting to contain the pandemic. The previous government’s move to open up the country’s economy to finance public investment projects funded by International Financial Institutions and countries like China, the U.S., and others have pushed the country into a web of debt traps.

Recently, President Gotabaya Rajapaksa highlighted the need for debt relief and fiscal stimulus. He called upon international financial institutions and donors to provide debt relief and financial assistance to vulnerable countries like Sri Lanka.

Sri Lanka’s economic problems were long in the making, with mounting national debt for decades, and efforts to roll over debt with consecutive IMF agreements. The IMF Standby Arrangement in 2009 and the IMF Extended Fund Facility in 2016, are the 15th and 16th IMF agreements reached by Sri Lanka.[1] Such IMF agreements come with stringent conditionalities and prescribed market-friendly neoliberal policies. They always advocated for increased imports and the rapid flow of finance capital that have only thrown the country further into debt.

Chinese debt trap and beyond

China is one of the largest lenders in the country, and this debt amount stood at USD 5 billion in 2018. Economic analysts have pointed out that the country has much more significant financial issues that go well beyond the debt owed to China. Sri Lanka currently has an external debt of $ 55 billion.[2] The most substantial portion of Sri Lanka’s foreign debt was international sovereign bonds, which amounted to 39 per cent of the total foreign debt as of 2017. These are commercial borrowings obtained from global capital markets since 2007, and such bonds have resulted in soaring external debt servicing due to the nature of the debt.[3] The yearly dues of foreign debt payment of Srilanka stood at USD 4.8 billion in December 2019.[4]

The threat of MCC agreement

Sri Lanka was almost close to signing the 480-million-U.S. dollar deal with the U.S. government-funded Millennium Challenge Corporation (MCC). Srilanka’s civil society and peoples’ movements claim that the MCC is an instrument of new-type imperialism pursuing economic hegemony over more impoverished countries. Noted columnist Shenali Waduge argues that the geopolitical interest of the U.S. backs this Compact. She notes, “In short, the plan is to turn Sri Lanka into another colony, an American military base in the Indian Ocean.”[5] People supporting the MCC compact claim that it places no financial burden on the Sri Lankan government or people as it is given as a grant rather than loan. But the activists and movements fear about the more enormous consequences of this Compact, as it will snatch away the land and destroy the livelihoods of lakhs of people.

What is MCC?

The Millennium Challenge Corporation1 (MCC) is a bilateral U.S. foreign aid agency established by the U.S. Congress in 2004. It is an independent agency, separate from the State Department and USAID.[6] The MCC was established to link economic development with defence and diplomacy. To date, the MCC has provided $ 13 billion in grants to 29 countries, including Nepal, Indonesia, Mongolia, and the Philippines from Asia.

The MCC states its mission as “reducing poverty through growth” and chooses countries to receive funding based on MCC criteria on economic freedom, good governance, and social investment. In 2016, the MCC Board approved Sri Lanka as an eligible country to receive the grant. In 2017, the Sri Lanka Government completed the ‘Constraints Analysis’. – an exercise that is compulsorily done before receiving assistance. In April 2019, Srilanka was granted US$ 480 million under the MCC Compact.[7] The proposed provisions of the Compact include two types of projects: for digitalising land holdings in selected districts, and for modernising and improving transport and communication in some other districts, where there are bottlenecks.

Graphics: Daily Mirror Online

The MCC Compact presents many challenges for small and medium peasants. Various clauses in the draft Compact present threats to the rights of Sri Lankan people. Annex 1[8] of the draft proposal asked the Sri Lankan government to establish a new independent company as the primary agent to respond to exercising the Government’s right and obligations to oversee, manage, and implement the Program and Projects. Many other sections of the draft compact prevent the exercise of Sri Lankan jurisdiction over MCC and by giving the U.S. government rights over intellectual rights/patents, etc. questioning the sovereignty of the country and freedoms of individuals.

MCC Compact jeopardises the sovereignty of locals

“The land reforms envisaged by the MCC agreement have not addressed the real issues relating to land in Sri Lanka. The agreement will not address the needs of women, marginalised, war-affected people, and low-income communities, particularly on land ownership, access to land, land rights, use, and protection for the future,” says Chintaka, Coordinator of Movement for National Land and Agricultural Reform (MONLAR)

The development strategy adopted in the last 40 years, especially against smallholder farmers, has led to several problems. The rural masses are suffering from indebtedness and lack of income. The transfer of land to private ownership under the MCC land reform project will force the rural masses under economic pressure to use their property as collateral for repayment of their debts. MCC reforms facilitate easy exchange of land, making it easier for creditors to plunder the land and forfeiting peasants’ livelihood. It will push away the small farmers and farmworkers away from farming; they will have to join the informal workforce without rights and incomes. Already 68% of the total workforce in Srilanka do not have a secure job and income.

Dispossession of land

According to national statistics, 27% of Sri Lanka’s workforce is engaged in agriculture. The government owns more than 80% of the land in Sri Lanka, including the land few small peasants cultivate without land deeds. The Land Development Ordinance of 1935 prohibits the sale and mortgage of these lands distributed by permits or grants, but children can inherit it. The proposed MCC compact will provide land titles to individuals. It will also make land transfer easy. This Compact will remove the existing legal limits on land acquisition and land consolidation of a 50 acre limit for private land ownership. Through this Compact, the U.S. is trying to clear such hurdles for commercial agriculture and large scale acquisition of Sri Lankan lands for foreign individuals and corporations.

Implementation of the new LSPA and the concept of digitising land and granting deeds is an attempt to take away the land ownership of the people. Rising food costs and the impacts of climate change are already threatening food security today. The effects of such land grabbing may push either thousand peasants to work as agricultural labourers in big farms or a massive migration towards the city, putting the rural economy at doom, says Chintaka.

While providing land deeds under the new project, more and more deeds will go to wealthier male peasants, leaving women without any voice in such a patriarchal society. Violence and massive migration will happen from villages to urban areas, says Anuka Vimukthi of MONLAR.

File photo- People protesting outside US embassy in Colombo

Locals have the sole right over country’s Natural Resources:

Sri Lanka (both on land and sea), is rich in valuable Rare Earth Elements (REE). The districts demarcated for freehold privatisation under the MCC compact are rich in pure veins of Graphite for Lithium and Rare Earth Minerals (REM). These valuable resources are critical inputs in the manufacture of electronic hardware such as robots, electric cars, mobile phone screens, and batteries.[9] 

These resources belong to the people who harvest, mine, and process. They are the ones who should be benefitted by the country’s resources. Local demands and participation must be ensured in policymaking. A national policy framework should be developed to keep such industries in the hand of the State, not in private hands.  

“Distribution of grants to certain districts and the rationale behind their selection has raised much concern for unequal development of the country,” says Chintaka

The MCC Compact is only focusing on seven districts. The seven districts chosen under the development of the transport and land system are not the worst poverty-ridden districts. In many analyses, it was found that the MCC land reform projects in these districts may not benefit the most. There is speculation by many grassroots organisations that the MCC proposed an economic corridor between Colombo and Trincomalee to facilitate land grabbing by foreigners. It will divide the country into two parts and will cause unequal development in the regions. It will force massive migration from one region to another, providing cheaper labour to companies. This capitalist approach of the Compact will enslave peasants and labour rights.

Fisherfolks who rely on fishing will be severely affected. Sri Lanka’s exclusive maritime economic zone, which is almost ten times its land area, is overfished and exploited by Distant Water Fishing States (DWFS), which claim to be aiding poverty alleviation with trade concessions. Deep-sea fishing has already affected small fishers. Once this Compact is finalised, small fishers have nowhere to go and will give way to overfishing by private players, says Anuka.

Since many years organisations such as MONLAR is fighting for the public policies built upon the principles of agrarian reform and food sovereignty. Peasant movements like MONLAR and other grassroots organisations, working for poor and small peasants, have always demanded the government to account for their concerns before signing any compact or economic deal concerning land, agriculture, and development. Peasants, rural communities and urban workers are living in the extreme poverty and have been left out to fend themselves with less intervention from the government to address their needs. Needs of small and medium peasants, fishers, and other stakeholders must be addressed before signing any agreement.

Chintaka says that reducing poverty among these communities needs more policy support and measures to strengthen local markets for their products. They also need high investment in education, health, and social security. We need policy support and people-friendly legislation and increased public investments in agriculture to protect the small farmers.  

After continued resistance from the people’s movements and civil society groups, the government put the agreement on hold. On February 28, 2020, after accepting recommendations of a select committee, the Sri Lankan Cabinet decided not to sign the MCC agreement.[10] Still, an official spokesman of the Government said that they are prepared to amend the deal in the future. The report argued that even though this Compact will bring investment to mitigate the financial constraints of the Sri Lankan economy, some of the projects will adversely affect the social economy of Sri Lanka. The committee also argued that many clauses of the corporate agreement and proposed company establishment may be inconsistent with the Sri Lanka constitution and can potentially affect the sovereignty and national interest of the country.

Analysts have warned that If MCC goes through, the other agreements ACSA & SOFA will only strengthen US/transnational corporate presence in Sri Lanka. We need to be aware of the hidden interests of imperialist forces who always seek opportunities to further destroy the country by tapping into the weaknesses of the political system and the ignorance of the masses, says Anuka.

Any agreement has to empower the poor and protect the sovereignty of the country and its people. “Land is life . Our constitution clearly enshrines the Land & Resources as belonging to the People and for future progeny. A government is only custodian of the land & resources. We do not want any aid that deprives peasants rights to land and peoples’ right to food sovereignty.” We will not remain silent, and our struggle continues against the government and the corporations; says Chintaka.

[1] Daily Mirror – Debt in Times of Economic Crisis.


[3] Is Sri Lanka Really a Victim of China’s ‘Debt Trap’? – The ….


[5] An aid agreement with a hidden agenda – CGTN.




[9] LEN – | Why the MCC agreement should be ….

[10] Sri Lanka will not sign MCC but ready to amend – Cabinet Spokesman