What's the Millenium Challenge Corporation?
The Millennium Challenge Corporation (MCC) is a bilateral United States foreign aid agency created by the George W. Bush administration in 2004, applying a new philosophy towards foreign aid.
--First, the indicators used to choose who gets "compacts":
--Civil Liberties
--Political Rights
--Voice and accountability
--Government effectiveness
--Rule of Law
--Control of Corruption
--Immunization rate
--Public expenditure on health
--Girl's primary educaton completion rate
--Public expenditure on primary education
--Natural resource management
--Inflation rate
--Trade policy
--Land rights and access index
--Regulatory quality
--Fischal policy
--Business start up
These are only criteria for eligibility. An eligible country must of course apply for a grant with a specific project in mind.
Background and formation
At the Inter-American Development Bank on March 14, 2002, President George W. Bush called for a new compact for development with accountability for both rich and poor countries. He also pledged to increase development assistance by 50% by Fiscal Year 2006 (which by the end of 2004 did double, and is to double again by 2010). Other development programs like USAID (United States Agency for International Development) have been thought to suffer from many different and sometimes conflicting goals, which often are a result of political pressures, and for not delivering long-term economic improvements.
MCC was authorized in 2004 on this premise to bipartisan Congressional support. Its guiding principles are:
Competitive selection: Before a country can become eligible to receive assistance, MCC’s Board examines its performance on 17 independent and transparent policy indicators and selects compact-eligible countries based on policy performance.
Country-led solutions: MCC requires selected countries to identify their priorities for achieving sustainable economic growth and poverty reduction. Countries develop their MCC proposals in broad consultation within their society. MCC teams then work in close partnership to help countries refine a program.
Country-led implementation: MCC administers the Millennium Challenge Account (MCA). When a country is awarded a compact, it sets up its own local MCA accountable entity to manage and oversee all aspects of implementation. Monitoring of funds is rigorous and transparent, often through independent fiscal agents.
Leadership
The first CEO of the Millennium Challenge Corporation was Paul Applegarth, a private businessman with experience managing emerging market investment funds. Applegarth was followed by Ambassador John Danilovich, a private businessman who had previously served as the U.S. Ambassador to Costa Rica from 2001 to 2004, and then U.S. Ambassador to Brazil. On November 20, 2009, Daniel W. Yohannes, an Ethiopian-born American businessman, was confirmed by the Senate as the newest CEO of the Corporation.
Selection indicators
A country is considered eligible for a compact (aid grant) if its score on 17 indicators exceeds the median score of its peer group. All 17 indicators are compiled by third parties with no connection to MCC; MCC grants are made without politics entering the equation. This is perhaps the most innovative aspect of MCC, as previous foreign aid missions were plagued by political considerations. The focus of the MCC is to promote economic growth in the recipient countries. The program emphasizes good economic policies in recipient countries. The Bush administration has stated its belief that development aid works better in countries with good economic policies, such as free markets and low corruption.
MCC compacts and thresholds programs in recipient countries
MCC signs either a compact or a threshold agreement with a partner country. A compact is awarded if the country scores highly on the selection criteria indicators. If the country scores poorly but has a positive, upward trend on the selection criteria, it can still be eligible for a smaller grant, called a threshold program.
MCC requires that each partner government creates a special purpose legal entity that will be accountable for implementing the compact program.
Eligible countries
In the first year (2004), 17 countries were made eligible for an MCC grant: Armenia, Benin, Bolivia, Cape Verde, El Salvador, Georgia, Ghana, Honduras, Lesotho, Madagascar, Mali, Mongolia, Morocco, Mozambique, Nicaragua, Senegal, Sri Lanka, and Vanuatu.
Madagascar and Honduras were the first countries to receive actual funding from the MCA. On June 16, 2006, The Gambia was suspended from eligibility, citing deterioration in 8 of the 16 criteria categories.
Mali was approved in October 2006 for a $461 million program to develop modern irrigation systems and an industrial park. Jordan was granted full compact eligibility, despite objections from Freedom House for its lack of full political and civil rights.
MPs in Uganda from the opposition party hailed their country's rejection from full compact status, demanding instead a stronger effort in stopping the corruption that disqualified their country.
In June 2007, MCA eligible countries in Africa held a meeting in Accra to discuss their experiences in the program. The country of Malawi qualified for a full compact in 2007, while Mauritania became threshold eligible.
Threshold eligible
Several countries were chosen in 2004 for a new part of the program called Threshold Program Assistance, which are smaller compacts used to assist a country close to meeting account eligibility to become eligible for a full program.
Jordan received a Threshold program aimed at democracy and trade totaling $25 million. Yemen was previously eligible for a threshold agreement, but was suspended after their indicators fell too low to qualify. But having successfully competed a democratic election and various economic reforms, the Millennium Challenge Corporation has once again made Yemen eligible for a threshold agreement.
On December 12, 2007, the MCC Board selected Malawi for a compact and Mauritania for a threshold agreement, as well as allowing Albania, Paraguay, and Zambia to submit a first ever second stage threshold agreement. In 2007 the American ambassador to Swaziland highlighted the progress on the MCC indicators over the last few years and encouraged the country to work toward eligibility.
MCC's portfolio focuses mostly on African nations.
Funding
Congress has consistently provided less funding for the program than the president has requested. In Fiscal Year 2004, $650 million were provided for the program, with an increase up to $1.5 billion the next year.
For Fiscal Year 2007, $2 billion were provided, a 14% increase over the previous year but still under the $3 billion target. Again for Fiscal Year 2008, less funding will be provided than was hoped for, and only $1.2 billion is currently budgeted, and the CEO of the MCC commented that it would undercut the program's efforts. Congress declined to re-authorize the program, which technically was not needed since the program had been authorized already, but also since there was argument over the authorization language.
In discussions of the Fiscal Year 2009 budget, the United States Senate has proposed that only half of the money needed for a compact be provided up front, as opposed to full funding for each one provident in advance, which officials at the corporation insist would be a "large step backward" causing too little aid to make an impact on recipient countries.
Senator Richard Lugar, the author of the amendment, responded that more "realistic" funding levels allowed for more compacts, thus spreading the "MCC effect".[21] The amendment did not make it into the final bill. President Bush's 2008 Fiscal Year budget requested $2.225 billion, the first time since the programs inception that the amount was not $3 billion, and enough money for 5 compacts, several threshold agreements and administrative funding.
Reception and impact
Studies by groups such as the conservative Heritage Foundation in the United States have shown that many developing countries that have received foreign aid have seen their per capita income fall or stagnate over the last 40 years, and the Heritage Foundation has consistently supported the MCC's approach, which has also utilized their trade measure from the Index of Economic Freedom.
In April 2005, the United States Government Accountability Office issued a favorable report about the work of the MCC and its work thus far. The Program Assessment Rating Tool, or PART, which reviews the efficiency and results produced by US government programs, was scheduled to be reviewed in 2007.
A study in 2006 looking at the "MCC effect" estimated that potential recipient countries improved 25% more on MCA's criteria than other countries, after controlling for time-trends.
The World Policy Council, headed by Ambassador Horace Dawson and Senator Edward Brooke, recognizes the MCC as the most recent and most promising program in its area, and recommended that the Bush administration and the Congressional Black Caucus focus on full funding and an accelerated pace of spending.[28] Doing Business 2007 cited the Millennium Challenge Accounts as a catalyst for reforms underway in 13 countries.
Also, Freedom House, an organization that monitors the level of freedom in the world, released subcategories for the first time since it was being used as part of the MCC's measurements to allow for finer distinctions in their ratings. Also, the number of days it takes to start a business in both low and low-middle income countries has decreased significantly since 2002, which is one of the factors the accounts measure since rapid business registration is thought to increase economic activity.
Some critics have charged that the program uses indicators by conservative groups such as the Heritage foundation and are therefore biased toward free market economics. The program is thought to have also resulted in countries receiving less funding from other US government development organizations and not more. Some development agencies have also felt frozen out of the process since the compact programs are designed primarily by the country involved. Implementation has also been difficult in Armenia, with concern about effectiveness is currently being discussed.
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