Subsequent Compacts Are the Future of MCC

Let’s talk about second compacts. Increasingly, MCC seems to be moving in this direction.  In the last five years, of the eleven countries selected as eligible to develop an MCC compact, eight had already completed (or were close to completing) an initial MCC compact.  MCC’s founding legislation expressly allows the agency to enter into one or more follow-on compacts with a country.  But, some reservations about this approach persist, particularly among some stakeholders in Congress and US development NGOs.  Two main sources of opposition to second compacts are: 1) the idea that the first compact must have failed if there is still a need for continued MCC investment, and 2) a longer-term partnership makes MCC’s operations too much like USAID’s standard engagement model of largely continuous assistance.

In a new MCA Monitor Analysis, I offer five arguments that seek to address these (and other) concerns and explain why second compacts—or, more broadly speaking, subsequent compacts—are the right way forward for MCC:

1. Compact success does not mean “transforming” a country.  No donor, and certainly not a single five-year compact—no matter how good it is—can catalyze such amazing growth that a country would will graduate from “developing” to “developed” status.  By illustration, Tanzania’s compact would have had to increase income per capita by over 900% (more than 50% per year) to move the country from low- to upper-middle income. Obviously, this didn’t happen.  It’s time to recalibrate expectations of what success looks like.

2. Consecutive partnership does not mean continuous support. One of the features of aid effectiveness that MCC put into place is a five-year time limit on its compacts.  The importance of the time clock is not in its application to MCC’s relationship with a country, but in its application to each compact.  The time limit creates incentives for expedient implementation, forces a firm exit point, and provides a specific juncture at which MCC must specifically assess whether to pursue another partnership with the country in the future (subsequent compacts are not automatic). 

3. Extending the application of aid effectiveness practices is a good thing.  MCC was designed to deliver aid differently from traditional US assistance models.  Some of the most important aid effectiveness principles are its singular focus on reducing poverty through economic growth and rigorous approaches to country ownership, good governance, transparency, cost-effectiveness, and results.  Subsequent compacts in a single country enable MCC to institutionalize and strengthen these practices as part of a longer-term development partnership.

4. Subsequent compacts capitalize on institutionalized relationships.  Countries with prior experience developing and implementing an MCC compact have a better understanding of MCC’s model, policies, and requirements.  This can smooth compact development the second time around and enable the partners to focus on tackling trickier constraints to growth.

5. The best MCC partner countries are increasingly those in which it is already working.  MCC was established to work only with relatively well-governed poor countries.  It’s already working in most of these places, and there just aren’t many strong new contenders that meet these criteria emerging.  The alternatives for expanding the list of MCC partner countries—things like lowering the good governance standards, picking more micro-state partners, working with richer countries, or working regionally or with sub-national units—are largely undesirable and/or questionably practical.  On the whole, MCC is currently spending its scarce resources in the right set of countries, many of which will continue to be strong partners in the future.  These countries shouldn’t be disqualified from further assistance just because they’ve worked with MCC in the past.

Of course, subsequent compacts should be more special than first compacts.  In some important ways they already are, though MCC could and should go further.  For instance, the eligibility standards for second compacts are tougher than for first compacts, since, in addition to the standard governance criteria, MCC also considers the country’s track record implementing its first compact.  Yet, this latter criteria is also much less transparent which should be improved.  In addition, while second compacts require countries to contribute their own resources, MCC should push harder for them to leverage private sector resources, as well.

In short, it remains important to engage MCC on the issue of subsequent compacts.  However, the pressure should be focused on ensuring that MCC does them well, instead of forcing the agency to refrain from doing them. Subsequent compacts—with countries that continue to pursue good governance and have a strong track record of partnership with MCC—are the right way forward.