MCC was established with broad bipartisan support to do aid differently. Its model—partnering only with countries with relatively strong governance, letting countries lead the process of priority setting and implementation, choosing only projects that are likely to achieve cost efficient results, and then rigorously measuring those results—was designed to insulate MCC from many of the political and foreign policy pressures that have often undermined the effectiveness of development assistance. But in an unprecedented move late last week, MCC issued a blow to its own model by using its programs in Kosovo as a political bargaining chip.
MCC stated that it has put a hold on the threshold program it’s currently implementing in Kosovo ($49 million over three to four years), as well as the compact (estimated $124 million over five years) that’s under development. The goal is to pressure Kosovo to remove its tariffs on Serbian goods as part of a broader effort to normalize relations between the two Balkan countries.
While this may be a worthy foreign policy goal, using MCC to accomplish this goal is decidedly out of sync with the agency’s model that focuses on development results rather than geostrategic wins. We know that President Trump often takes a transactional, self-interested view of relationships with foreign partners, and his administration has often used aid cuts—or threats of cuts—to try to pressure countries to act in certain ways. And MCC does put conditions on its programming: countries must maintain good governance and implement specific policy and institutional reforms related to MCC’s investment. But these conditions are known and agreed to by all parties at the outset of the agreement. Imposing new political conditions outside of its programming is expressly not how MCC was meant to be used.
All of this isn’t to say that political or geostrategic priorities haven’t colored MCC’s decisions before. They definitely have. For example: before MCC had a strict democracy criterion for partner countries, the agency’s board usually shied away from selecting nondemocracies as a matter of practice—but they made an exception for Jordan, a key US ally. Then, when Georgia was affected by Russian aggression in 2008, MCC added $100 million to its already signed compact. And in FY2019, MCC selected the Solomon Islands for a threshold program mainly because it would “[support] the Trump Administration’s Indo-Pacific economic strategy,” even though MCC had typically avoided choosing small island nations as partners. But in all of those cases, political pressure influenced MCC to act in ways that were still within its own guidelines and operational policy. What they’re doing with Kosovo is very different.
It’s not that a hold on programming itself would be unique. MCC has a suspension and termination policy that outlines the reasons MCC will hold, suspend, or terminate a program: if the CEO determines “(1) the country is engaged in activities which are contrary to the national security interests of the United States; (2) the country has engaged in a pattern of actions inconsistent with the criteria used to determine the eligibility of the country; or (3) the country has failed to adhere to its responsibilities under its Compact.” And MCC has put this policy to use—many times in fact. Around a third of countries that have ever been selected as MCC partners have had their programs held, cut, or ended due to concerning declines in policy performance (e.g., in response to the government of Malawi’s 2011-2012 clamp down on civic space and violent suppression of protests; improving conditions later led MCC to lift the suspension).
In addition to suspension and termination for policy reasons, MCC can (and has) cut its programming when the partner government fails to comply with a funding condition jointly agreed to in the compact document (e.g., just this year when MCC pulled a tranche of funding from its Ghana compact after the government terminated a private power concession that had been included as a compact condition).
But none of this describes the story in Kosovo. The tariffs in question were already in place when MCC selected Kosovo for a compact, so its policy hasn’t deteriorated since then (in fact, one might argue it’s improved with the government having agreed to gradually reduce the tariffs). And tariffs with Serbia are unrelated to the content of the proposed compact (which is focused on the energy sector).
MCC is big US money in Kosovo, making it an attractive bargaining chip. But for anyone who cares about preserving the integrity of MCC’s aid effectiveness-focused model, this marks a new—and highly unfavorable—precedent.
MCC’s leadership regularly emphasizes the agency’s focus on accountability: the need to follow through on mutual promises to fulfill jointly held expectations that are necessary for achieving results. Its history of acting on its suspension and termination policy and paying attention to compliance with policy conditions demonstrates that the agency takes this seriously. But accountability cuts both ways. By putting a hold on its programs in Kosovo—to pressure new forms of policy change unrelated to its programming—MCC is letting down its side of the bargain.
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.
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