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Aid effectiveness, US global development policy, USAID, MCC
Casey Dunning was formerly a senior policy analyst for the US Development Policy Initiative at the Center for Global Development. Dunning previously worked as a senior policy analyst for the Sustainable Security and Peacebuilding Initiative at the Center for American Progress. Before that, in a previous position at CGD, she conducted the center’s analysis on the Millennium Challenge Corporation and researched the application of aid effectiveness principles within USAID, with a particular emphasis on country ownership, aid selectivity, and innovative aid-delivery models. She has worked on harmonizing gender violence and rule-of-law programs in Liberia with Emory University’s Institute for Developing Nations, and at the Carter Center and the International Rescue Committee. Dunning graduated from Emory University with a specialization in international political economy and has also completed studies at Oxford University and Trinity College, Dublin. She holds a masters degree in public policy from George Washington University.
Last Thursday, December 15, the Millennium Challenge Corporation (MCC) board of directors convened for its annual meeting to select eligible countries for FY2012 MCC assistance. As a result (and largely in line with MCA Monitor predictions), the board selected Benin and El Salvador to develop second compacts, and selected Honduras and Nepal to develop threshold programs. In addition, the board reselected Georgia, Ghana, and Zambia to continue compact development and approved Cape Verde’s second compact.
Second Compacts for Benin and El Salvador
Benin and El Salvador are FY2012’s newly compact eligible countries and will now begin developing second compacts. Both countries are notable for having passed the new indicators system while failing the old system (due to only passing one indicator in the Investing in People category). Under the new system, El Salvador passes 14 indicators and Benin passes 11 indicators.
Benin completed its $307 million compact in October 2011. The compact focused on expanding the Port of Cotonou, promoting land security, and creating a more efficient judicial system. El Salvador is due to complete its $461 million compact in September 2012. As a part of the Partnership for Growth initiative, El Salvador recently signed a 2011-2015 Joint Country Action Plan with the U.S. government.
Honduras and Nepal: Dwellers on the Threshold
After choosing no eligible countries for the revamped threshold program during last year’s meeting, the MCC board made two interesting selections this year: Honduras and Nepal. To recap: the new threshold program will use the same diagnostic tool as compacts – constraints-to-growth analysis – to identify and support targeted policy and institutional reforms. This is in contrast to the previous iteration of the threshold program which singularly focused on moving certain indicators from failing to passing.
The MCA Monitor predicted a second compact for Honduras based on its exemplary first compact implementation record and its policy performance on the indicators test. Honduras passes 16 of 20 indicators on the new selection system but narrowly misses the control of corruption indicator, scoring in the 47th percentile. Presumably this is why the board elected to give Honduras a threshold program rather than a second compact.
Awarding a threshold program to a country with a completed compact is new territory, but it also presents Honduras with a great opportunity. By undergoing the same analyses used in compact development, Honduras can take a rigorous approach to identifying and reforming policy areas that inhibit economic growth.
Nepal is another notable threshold program choice considering it passes both indicators systems this year. The selection of Nepal is a signal that a major component of the revamped threshold program will be the partnership capability of a country. The threshold program will be a chance for the MCC and the government of Nepal to work together on a smaller-scale and will provide important insights into the country’s capacity for an expanded set of investments.
Cape Verde the First Country to Embark on a Second Compact
The MCC board officially approved Cape Verde’s second compact, worth $66.2 million. Cape Verde was the first country to be made eligible for a second compact, in FY2010. Its second compact will focus on reforming the water, sanitation, and land management sectors. Cape Verde performed very well in the FY2012 indicators test, passing 14 of 20 indicators in the new system. Cape Verde’s first compact, worth $106 million, was completed in October 2010.
In one week, the Millennium Challenge Corporation (MCC) board of directors will meet to decide which countries will be eligible for FY2012 assistance, and the MCA Monitor has two new reports to feed into this process.
The first report, Which Countries Will the MCC Board Likely Select as Eligible in FY2012?, takes an in-depth look at the MCC’s ninth round of eligibility selection. Owen McCarthy and I make predictions on potential compact- and threshold-eligible countries and analyze indicator results for current compact countries. At play this year is a new indicators test, a revised threshold program, and a host of potential second-compact countries. The analysis breaks down the MCC’s new selection system and offers comparisons on how countries fare under both the new and old systems. The table below highlights which countries pass under the different scenarios.
The second analysis is a recent Report from the Field: Honduras which examines Honduras’s compact results more than a year after its official closeout. Honduras was the first country to successfully complete an MCC compact and was able to do so despite three government transitions during the five years of compact implementation. Results from the compact’s rural development and transportation projects were particularly impressive in their scope and sustainability potential. How was Honduras’s compact able to meet almost all of its project targets and enact difficult policy reforms to sustain them? Four lessons stand out in my analysis:
Sustainability measures were included in compact processes and projects.
There was a deep understanding and buy-in of the MCC model at all levels.
Honduras’s MCA accountable entity kept the focus on compact results through multiple government transitions.
The compact leveraged additional financing to achieve greater results.
This blog is a preview to a forthcoming MCA Monitor Report from the Field on Honduras.
You know the old maxim: "Give a man a fish and he eats for a day; teach a man to fish and he eats for life." Well I'd like to amend it to include the following: "Show a man how to catch the most expensive fish and then sell it to a guaranteed buyer for a hefty profit and he, his family, and his community will all be eating whatever they want for life." Trade fishing for farming and that’s exactly what you have as a result of the Rural Development project from the Millennium Challenge Corporation’s (MCC) recent compact in Honduras.
In this extremely tight U.S. budget environment, it's all about the sustainability of U.S. foreign assistance, and the MCC made sure to build long-term sustainability into each of its investments in Honduras. The compact officially closed in September 2010, meaning Honduran farmers have had 14 months to either expand upon MCC investments or drop them completely and revert back to inefficient ways of producing. “Expand upon MCC investments” seems an understatement. The MCC’s method of farmer training turned over 6,000 farmers into businessmen who have amplified their incomes since the compact’s conclusion by purchasing more land and further increasing yields.
How was the MCC’s brand of training different? In a nutshell, the MCC investments in the Rural Development project included farmer training, increased access to credit, grants for agricultural innovations, and rehabilitated rural roads. Specifically, the farmer training entailed an intensive two-year commitment that taught a farmer new methods of planting including high-value crop production, soil and pest management, and novel irrigation systems. The training also included business instruction on how to sell the product in local and regional markets and how to locate and secure dedicated wholesale buyers. Other donors (in the U.S. and elsewhere) surely engage in this type of training, but the MCC difference lies in the criteria-based selection of beneficiaries, the result that was demanded, and the integration of multiple projects to achieve the final goal of increased farmer incomes.
The results are evident in rural Honduran farmers like Juan Carlos, a participant in the MCC’s program. It’s been over three years since his training ended, and, with his new-found skills, he has purchased more land to farm, expanded his portfolio of high-value crops, hired other farmers, and is in the process of building his family a brand-new house. The MCC program demanded that each farmer who received training earn at least $2000 per hectare by the training’s end. Juan Carlos is making well over $2000 on less than a hectare. (Keep in mind the GNI per capita of Honduras is $1,880 – MCC demands over-achievement.)
Or take the rural community of Ajuterique. Its farmers benefited from a triple investment of training, new access to credit, and a rehabilitated secondary road that allows for the quick conveyance of produce to market. Mario Palencia, the mayor of Ajuterique, described the MCC model difference and the continued results of the compact:
With other donors, people knew that the funds had come but they didn’t see any results. We had to convince people to adapt to the Millennium Challenge way of working with its different, more strict rules. The MCA gave us a model of how to successfully run a program in a transparent manner and it also convinced the people that the work they did must be of the highest quality to last into the future. With the MCA, all the projects were interrelated and well thought-out. It was all about supporting the farmers to produce a good product and then teaching them commercial skills so they have a solid foundation to build upon.
Our farmers have been taken advantage of in the past because they didn’t know how to market their product and so they always lost. The MCA came and it focused on reviving interest in the small producer that sometimes is very ignorant but is also very intelligent. The MCA was a school for us on how to manage funds and how a program should be run…the MCA administered it well, executed it well, and achieved the best results.
The breadth of agricultural training the MCC compact offered was impressively comprehensive, but the real highlight is the training’s sustainable results over a year later. Because the MCC model mandated that sustainability measures and results (in this case a farmer receiving a much higher income) be at the forefront of project design, the MCC is seeing its investments flourish well over a year later. After the MCC training dollars and spotlight have left the Honduran countryside, Juan Carlos continues to grow his family’s income. He has a standing agreement to sell his produce to Wal-Mart in Honduras and plans to use his increased income from this deal to expand his business and export internationally, and he will keep growing until he meets that goal.
The MCC’s selection process is unique this year. The MCC recently adopted a new selection system and will run both the new and old selection systems for FY2012. The new system includes two hard hurdles that countries must pass to be considered eligible for compact selection. The MCA Monitor’s annual hard hurdles note offers a breakdown on how FY2012 candidate countries fare on both the control of corruption hard hurdle and a new “democratic rights” hard hurdle.
How will the selection systems work? In both systems, countries will be measured in relation to their income-level peers. In the old system, countries will be assessed on 17 indicators in three policy categories: ruling justly, investing in people, and economic freedom. To pass the indicators test, countries must pass half of the indicators in each category and the control of corruption hard hurdle. In the new system, countries are evaluated on 20 indicators in the same three policy categories. To pass the indicators test, countries must pass half of the indicators overall, one indicator in each category, the control of corruption hard hurdle, and the democratic rights hard hurdle.
Some of the hard hurdle highlights this year include:
Of the 60 low income candidate countries, 30 pass the control of corruption hard hurdle and 34 pass the democratic rights hard hurdle. Twenty-two countries pass both hurdles.
Of the 30 lower middle income candidate countries, 15 pass the control of corruption hard hurdle and 23 pass the democratic rights hard hurdle. Fourteen countries pass both hurdles.
Five of 24 compact countries fail the FY2012 control of corruption hard hurdle. Three – Armenia, Honduras, and Nicaragua – have completed compacts. Indonesia and the Philippines are both recent compact recipients and both fall below the LMIC control of corruption median this year. No previous compact countries fail the democratic rights hard hurdle; however, one current compact country, Jordan, fails the democratic rights hard hurdle.
Countries that Pass the Hard Hurdles
To pass the corruption hard hurdle, a country must score above the median (the 50th percentile) as in years past. To pass the democratic rights hard hurdle, a country must score higher than 17 on the political rights indicator and/or higher than 25 on the civil liberties indicator. (The new system replaces median thresholds with absolute thresholds for these two indicators.)
Stay tuned for the MCA Monitor’s upcoming complete analysis of the FY2012 indicators and selection processes.
The Millennium Challenge Corporation (MCC) board of directors made three big decisions at its recent quarterly meeting. It selected Tunisia as threshold-eligible and conditionally approved a $600 million compact with Indonesia. (For more information on these programmatic developments, see here.) Perhaps most importantly, the Board endorsed a number of changes to the MCC’s selection system and criteria. The new system incorporates improved data and learning from the MCC over the past nine years but also calls into question the MCC’s historic commitment to clarity and an equal emphasis on a country’s commitment to rule justly, invest in its people, and encourage economic freedom.
After eight years of selection, the MCC decided to review its selection process to ensure that it was still using the best available criteria to identify well-governed, lower income countries. The MCC spent over a year evaluating the process and new data as well as collecting input from the development community. In Fine-Tuning the MCC Selection Process and Indicators, we at the MCA Monitor undertook a parallel review and made recommendations to keep the indicator system clean, clear, and color-coded; institutionalize the “democracy indicators” hurdle and ease the corruption hard hurdle; give the investing in people category an equal number of indicators; account for income bias in indicator scores; and be transparent about the Board’s use of discretion.
The MCC’s new system takes into account a number of CGD’s recommendations but falls short on maintaining clarity. The revised selection process incorporates the following changes to the indicators and the rules that govern them. (For a full explanation of the new system and new indicators, see the MCC’s Guide to the MCC Indicators and the Selection Process for FY2012.)
Three New Indicators Added: A Freedom of Information indicator will replace Voice & Accountability in the Ruling Justly category. The Economic Freedom category will see two new indicators: Access to Credit and Gender in the Economy. The MCC is also breaking the current Natural Resources Management indicator into two indicators based on its component indices: Child Health and Natural Resources Protection.
Democratic Rights Hard Hurdle: The MCC adopted a hard hurdle for democratic rights, requiring a country to pass either Political Rights or Civil Liberties to pass the indicators test. These two indicators will also now be judged with an absolute threshold rather than a median. To pass these indicators, a country must score above 17 for Political Rights and 25 for Civil Liberties.
New Indicator for LMICs Only: The MCC made changes that will apply to lower middle income countries (LMICs) only in the Investing in People category. A new Girls’ Secondary School Enrollment indicator will replace the Girls’ Primary Education Completion Rate indicator. The Immunization Rates indicator will also now be judged on an absolute threshold of 90 percent for LMICs only.
New Pass Half Overall Rule: Emphasis on the MCC’s three hallmark categories is reduced; now a country must pass half of the indicators overall (instead of half in each category) and one indicator in each category.
Again, one goal of the selection process is to evaluate the policy performance of lower income countries and identify good policy performers. On this, the changes to selection do much to improve the targeting of potential MCC partners. The new indicators focus on key constraints to economic growth, and the added dimensions will further expand the opportunity for policy discussion around these sectors. The adoption of democratic rights absolute thresholds and a hard hurdle sends the message that countries must value the input and rights of their citizens, no matter the income level.
But another goal of the selection process is to produce clear, simple scorecards for the MCC to use in policy dialogue with candidate countries. The new rule specifying that a country must pass half of the indicators overall and one in each category muddies the MCC’s historic emphasis on a country’s ability to rule justly, invest in its people, and encourage economic freedom. In an interview, MCC Board member Mark Green opposed the change, expressing concern that the new rule “will be perceived as a weakening of MCC’s commitments to all three of the core values that have been at the heart of this program since its birth.”
Green was also disappointed in the process by which the sweeping changes were approved. The MCC Board is still without two of its four public board members, meaning the Board accepted the change in selection without all of the statutorily designated Board members present. It is crucial that the administration fill these vacancies. It (and the MCC) missed the chance to have a full MCC board weigh in on changes to the selection system, and selection decisions will only become more important at the upcoming December board meeting.
With compact eligibility decisions only a few months away, how will the new system be implemented? To allow for a period of transition, the MCC will run both systems for FY2012 selection, but neither will be binding or dominant. This means there will be clear winners and losers (those countries that pass or fail on both systems) and some countries who pass under one system but fail under the other. The Board will use its discretion on these country cases but should be transparent in its decision-making about why it favored one system over another.
Stay tuned for upcoming MCA Monitor analysis of how countries fare on the two hard hurdles and full FY2012 selection results.
The Millennium Challenge Corporation (MCC) board of directors recently held its quarterly meeting and follow-up outreach meeting to discuss new MCC partner countries. The Board selected Tunisia as threshold-eligible, conditionally approved a $600 million compact with Indonesia, and heard results from compact close-out in Armenia. The Board also endorsed changes to the MCC’s selection system and criteria; for more information on these changes, see here.
Tunisia: Tunisia is the first country selected as threshold-eligible under the revamped threshold program. Under the new threshold program guidelines, Tunisia will undergo a constraints-to-growth analysis to determine targeted policy reform efforts that best address impediments to growth. In its FY2011 scorecard (produced before the Arab Spring), Tunisia was one indicator short of passing the indicators test. But why now? This Board meeting was the last in which Tunisia could be declared eligible for FY2011. In FY2012, Tunisia graduates to upper middle income country status and out of MCC candidacy.
Indonesia: Upon completion of technical negotiations with the Indonesian government, the MCC will enter into a $600 million compact with Indonesia. The compact will focus on three projects:
The Green Prosperity Project is designed to raise household incomes in some of Indonesia’s poorest provinces by supporting low-carbon economic development and protecting the country’s natural capital.
The Community-Based Nutrition to Prevent Stunting Project is designed to reduce and prevent low birth weight, childhood stunting, and malnourishment of children in project areas, which is expected to increase incomes through cost savings, greater productivity, and higher lifetime earnings.
The Procurement Modernization Project is designed to achieve significant savings in government procurements, reduce the incidence of corruption and waste, and improve the delivery of public goods and services.
The compact was designed to simultaneously address development and natural resource stewardship, a priority of the Indonesian government. Rather than focus solely on infrastructure projects, the Indonesian government opted to take advantage of the innovative nature of the MCC and pursue cutting-edge projects with a high economic rate of return.
Malawi: The MCC Board opted to continue the operational hold that was placed on the compact with Malawi. The MCC and Malawi signed a $350 compact on April 7, 2011 to revitalize Malawi’s power sector, but violence and media restrictions perpetrated by the government led to an operational hold in July 2011.
Armenia: The MCC also reviewed results from its five-year compact with Armenia at the post-board outreach meeting. The Armenian compact, which totaled $177 million at closeout, was completed on September 29, 2011 and focused on reducing rural poverty through improving the economic performance of the agriculture sector. The MCC and MCA-Armenia completed one of Armenia’s largest ever irrigation infrastructure rehabilitations in addition to rural road construction and farmer training in high-value agriculture.
Those of us in the District have a very soggy weekend ahead so what better way to fill it than with new analysis from the Rethinking U.S. Foreign Assistance program? This week, Connie Veillette released The Future of U.S. Aid Reform: Rhetoric, Reality, and Recommendations. This new report examines how well principles in the Presidential Policy Directive on Global Development and the Quadrennial Diplomacy and Development Review are reflected in the president’s FY2012 budget request. The analysis gauges the administration’s progress on seven elements of reform (via handy graphics).
Note: Progress is measured by a green light if the administration is on the path to full implementation, a yellow light if progress is modest, or a red light if there has been little or no progress. These assessments of progress are subjective in nature, but the indicators logically follow from the reform element, and are generally accepted measures.
Veillette situates PPD and QDDR implementation within the context of the current budget debate and makes recommendations to improve each element. The bottom line: shrinking budgets need not mean the end of reform, but may present an opportunity to re-examine the whys and wherefores of U.S. aid and to reorient policies and programs for greater effectiveness.
The Millennium Challenge Corporation (MCC) recently released its FY2012 Candidate Country Report, officially kicking off this year’s selection process. The report identifies low income country (LIC) and lower middle income country (LMIC) groups as well as countries that are legally prohibited from receiving MCC funds. In addition to key MCC country income category transitions, the list of prohibited countries has increased this year as countries with poor human trafficking records are also disqualified.
The per capita income cut-off for the LIC group this year is $1915. Four countries surpassed this level and graduated out of the LIC group into LMIC status: the Republic of the Congo, Guyana, Kiribati, and the Philippines. Six countries graduated out of the LMIC group and MCC candidacy: China, Ecuador, Jordan, Maldives, Thailand, and Tunisia. The LMIC group includes countries with per capita incomes between $1916-$3975. Two countries transitioned into lower income groups: Timor-Leste moved from the LMIC to the LIC group, and Fiji moved from the upper middle income group into the LMIC group.
There is a similar level of country volatility this year compared to FY2011 with a net two fewer candidate countries in FY2012. Two MCC compact countries – the Philippines and Jordan – transition income groups. The Philippines’ $434 million compact entered-into-force on May 26, 2011. While its indicator outcomes will be affected by tougher medians in a new peer group, compact implementation should be unaffected by the Philippines’ transition to the LMIC group.
Jordan’s transition out of the LMIC group and out of MCC candidacy poses a dilemma. Jordan and the MCC signed a $275 million compact in October 2010. The compact has not yet entered into force, but compact implementation should be unaffected by the income group transition. However because Jordan is no longer an MCC candidate country, it will no longer be subjected to the indicators test or have a scorecard. This means that the MCC will have two compact countries – Jordan and Namibia – that don’t receive annual scorecards on the MCC indicators. The MCC should consider producing scorecards for these compact countries even though they have risen above the LMIC category. (Both countries have incomes close enough to the upper LMIC level that it would make sense to simply use LMIC medians to determine indicator passing.)
Another big change this year is the number of countries that are legally prohibited from receiving MCC funds. The MCC has added countries ranked as Tier III in the 2010 Trafficking in Persons Report. This has led to an increase from 11 prohibitions in FY2011 to 16 in FY2012. For a complete list of statutorily prohibited countries (and the reasons for their prohibitions), see the Candidate Country Report.
The Candidate Country Report is only the first step in the MCC’s selection process. The MCC will soon release its Report on Selection Criteria and Methodology as well as indicator data on individual country performance through MCC scorecards. Stay tuned here for more analysis as the FY2012 MCC selection process unfolds!
On the eve of the Fourth of July holiday, the administration quietly issued a joint message on the Global Health Initiative’s “next steps,” effectively sounding a death knell for the GHI. CGD's Amanda Glassman breaks down what this means for the GHI experiment and for U.S. global health agencies seeking to integrate and coordinate their efforts. Check out the post over on CGD's Global Health Policy blog and add your comments.
Amidst the big cuts in the House State, Foreign Operations mark-up yesterday, the Millennium Challenge Corporation (MCC) is one of the few agencies whose budget request remains intact. The House subcommittee voted to keep MCC’s funding at $898.2 million, level with the President’s FY2013 request. Funding levels for the Development Assistance account and the Peace Corps are also essentially maintained at request levels.
When President Obama released his FY2013 request for the MCC, I expressed concern that this low number was only the opening salvo, subject to reduction in congressional mark-up. So it’s good to see the House recognize the importance of the MCC’s mission and model and fulfill the request. Assuming the $898 million request for MCC is appropriated, FY2013 will be the third consecutive year that the MCC has been funded at $898 million.
Also worth noting, the House subcommittee included language on the MCC’s new income categories that define “low income” as the poorest 75 countries. These new definitions first passed in FY2012 but will have to be legislated on an annual basis.
Over the past two weeks, the House Foreign Affairs Committee and the Senate Foreign Relations Committee released separate Foreign Relations Authorization bills designed to guide the direction of and spending on U.S. foreign engagement in FY2012. The House bill, which was passed through committee, generally maintains FY2011 funding levels but places serious restrictions on funding and operations for the Millennium Challenge Corporation (MCC) and USAID. The Senate bill generally adheres to the President’s FY2012 request and seeks to expand capabilities within MCC and USAID. Below is a head-to-head look at how the MCC and USAID fare in both Authorization bills.
The MCC in the House and Senate Authorization Bills
House AuthorizationSenate Authorization
$900 million (This is 20% below the FY2012 request.)
What happens if a candidate country changes income groups?
A country should retain its candidacy at the former income category only for the year of such a transition.
A country shall retain its candidacy for the year of its transition and the three fiscal years thereafter.
Application of the MCC’s control of corruption indicator
No U.S. economic or development assistance may be provided to the government of a country that does not meet the MCC’s corruption indicator. (The President may waive this restriction on a case-by-case basis for national security reasons or if a country has taken documented steps to meet the corruption benchmark.)
The Senate bill does not tie non-MCC U.S. assistance to any MCC indicator.
Longer, Concurrent, and Subsequent Compact Authority
The House bill does not grant these authorities.
Upon MCC board approval, a compact may be extended up to seven years. The bill also grants concurrent and subsequent compact authority to the MCC.
Re-defining the MCC’s Income Categories
The House bill maintains the status quo income categories.
The low income category would become the poorest 75 countries according to GNI per capita.
During the House authorization bill markup, three MCC-specific amendments were offered. Reps. David Cicilline (D-RI) and Bill Keating (D-MA) offered an amendment in support of awarding Cape Verde a second MCC compact. This amendment was approved by voice vote. Rep. Allyson Schwartz (D-PA) offered two amendments. The first specifies adding language to the findings section on reducing tariffs for MCC compact-eligible countries to better align trade and development policies. It was temporarily withdrawn so that committee staff could work on inclusion and determine whether it would require referral to the Ways and Means Committee. Rep. Schwartz’s second amendment moved to strike the section on prohibition of non-MCC U.S. assistance to governments that fail to meet the MCC’s control of corruption indicator; it failed on a party-line vote of 13-23. As the MCA Monitor noted in a recent analysis, the MCC’s control of corruption indicator is extremely problematic as a hard hurdle. The corruption indicator has a range of uncertainly (especially around the median) and can have time lags of up to two years. Using the control of corruption indicator as a hard hurdle for all U.S. economic and development assistance without addressing the inherent problems in the indicator could prove highly challenging.
USAID in the House and Senate Authorization Bills
Total Allocation for USAID Operating Expenses
$1.52 billion (This is a decrease of 13% below the FY2012 request.)
The Senate bill does not specify a USAID OE amount but does authorize it to establish a Working Capital Fund.
USAID’s Budget Authority
Budget authority is stripped from USAID and moved back to the State Department.
The Senate bill maintains the status quo in which USAID has authority over its own budget.
Spotlighted USAID Program
The House bill highlights the Global Development Alliance program and its mandate to promote public-private partnerships. In contrast to the Senate bill, the House defunded the Development Innovation Ventures program.
The Senate bill highlights the Development Innovation Ventures program which enables USAID to work with partners to identify and scale evidence-based development solutions.
The House authorization bill markup saw two USAID-focused amendments; both were approved by voice vote. The first was an amendment from Reps. Ted Poe (R-TX) and Jeff Duncan (R-SC) that codified the Obama administration’s Foreign Assistance Dashboard. Dashboard offers USAID and State Department program and funding data from FY2006 to the present. The second amendment, from Rep. Don Manzullo (R-IL), was to defund USAID’s Development Innovation Ventures (DIV) program. On DIV, the two bills stand in stark contrast with the House bill seeking to defund it and the Senate bill highlighting it as an example of improving U.S. development efforts.
The chances of these two bills becoming law are close to nil so perhaps the biggest takeaway is the immense distance between the Senate and House on foreign assistance. In response to the question of how U.S. development should work in a resource-scarce environment, the House offers an overly prescriptive bill (see section 409: a make-more-work provision for data on aid by other international donors – data that is already publicly available) that restricts aid while the Senate attempts to inject USAID and the MCC with the authority to make aid more effective and far-reaching. The Authorization bills offer the opening salvo in the international affairs budget debate; the real contest will come when the House and Senate appropriators go head-to-head on FY2012 funds.
The Millennium Challenge Corporation (MCC) shook the budget Magic 8 Ball and got a new response this year: outlook not so good. The administration requested $898.2 million for the MCC in FY2013, a decent number given today’s budget pressures and the same level appropriated in the FY2011 omnibus and FY2012 megabus. Despite this, I’m concerned Congress will make further cuts and puzzled that, while the MCC leads U.S. development rhetoric, it continues to get short shrift in the budget.
Here’s my concern: MCC has a number of compacts in the pipeline, and this $898 million is only the request. Since its inception, the final MCC appropriation has been lower than the request, in some cases by as much as $1.3 billion. (And it’s worth bearing in mind that the MCC was originally envisioned as a $5 billion per year program.) But assuming the request is fully funded, what does $898 million get the MCC in FY2013? And what’s at stake should the level shrink further?
The request should fund second compacts in Ghana, Benin, and El Salvador in addition to programs under the revamped threshold program in Honduras and Nepal. Both Ghana and El Salvador are Partnership for Growth countries, and the MCC has been leading efforts to determine constraints-to-growth in these countries—analyses that will underpin the overall programs. Here’s a quick look at how the MCC plans on funding upcoming compacts.
Beyond the compact pipeline, a reduction of the $898 million request could have serious consequences for an MCC model predicated on selectivity, transparency, and evaluation – all key components that cost money to execute effectively.
And here’s what puzzles me: the MCC’s model puts it at the vanguard of U.S. development practice, testing innovative aid models and methods that have since been adopted among other U.S. development agencies. Yet it keeps getting the short shrift. The constraints-to-growth analyses we see in Partnership for Growth, the independent, soon-to-be-publically-available impact evaluations at USAID, heck even the new Global Development Council established by President Obama, all have seeds in the MCC’s work. Considering that massive development contribution for such a relatively tiny budget, I’m hoping when Congress shakes the MCC Magic 8 Ball during their upcoming deliberations it will come back: Without a doubt.
Corruption remains a major concern of foreign aid policymakers. The Millennium Challenge Corporation (MCC) was created, in part, to address this concern by working with well-governed, poor countries that must pass a control of corruption indicator. This also means the MCC is held to a higher standard and is often the first aid agency forced to respond to corruption concerns. Our message to the policymakers: keep in mind that corruption, especially in poor countries, is relative.
Reps. Nita Lowey (D-NY) and Ileana Ros-Lehtinen (R-FL) raised concerns about corruption with MCC CEO Daniel Yohannes in recent hearings before the House foreign aid appropriators and authorizers. Both Lowey and Ros-Lehtinen are right to focus on corruption and to have concerns especially in MCC countries. But it is important to unpack what corruption means in—and across—developing countries to calibrate responses to these concerns.
Development is risky business. By its very nature, it takes place in the least-developed countries with the least-developed institutions, infrastructure and economies. To think that there is a low income country with zero corruption to which the United States can provide aid is foolish; it doesn’t exist at the high end of the income scale either. (In addition to many others, Bermuda and Uruguay both score better than the United States on control of corruption this year.)
The question is whether the MCC is investing in countries with relatively better records of controlling corruption. Let’s compare each of the 21 MCC compact countries with a country in the same region with a similar gross national income (GNI) per capita. Seventeen of the 21 MCC countries currently score better on control of corruption than their comparators, and 14 of the 21 countries have had better corruption scores than their comparators for the past six years. (Complete results here.)
To illustrate, here are examples of MCC and similar, non-MCC countries from sub-Saharan Africa, Eurasia, and Latin America. (Each country’s 2009 income/capita is in parentheses.)
MCC countries are doing relatively better (by a lot in some cases) than their regional comparators.
Even Senegal, abuzz in the media and congressional hearings over corruption concerns, stands above its West African neighbors Mauritania, Nigeria, and Cote d’Ivoire, and continues to score in the 74th percentile of all low income countries (passing the MCC indicator handily).
But Senegal’s control of corruption scores are declining; it fell from 70 in 2006 to 105 in 2010 in Transparency International’s index. The trends are cause for concern and while the MCC is taking all the right steps to ensure no MCC funds are misused, the agency faces a perception problem as it continues to operate in a country that has high-level, visible (and growing) corruption scandals.
As MCC CEO Daniel Yohannes said in his testimony to the House State and Foreign Operations Subcommittee, “working with some of the poorest countries in the world means working with countries that struggle with policy performance, including corruption.” MCC countries will never have zero corruption. But the MCC should continue to support countries with relatively low levels of corruption and good policies to continue these positive trends.
Note: Control of Corruption scores come from the Worldwide Governance Indicators (WGI), a joint project of the Brookings Institution and the World Bank. The indicator measures the extent to which public power is exercised for private gain, including both petty and grand forms of corruption, as well as “capture” of the state by elites and private interests. It also measures the strength and effectiveness of a country’s policy and institutional framework to prevent and combat corruption. This indicator measures perceptions of corruption and has a time lag of two years.
Donor governments are increasingly utilising direct partnerships with governments and local organisations as a way to deliver sustainable results. Whether called country ownership, aid localisation, or sustainable development, the evidence base around localised approaches to foreign assistance remains slim. New research from the Center for Global Development explores how and when ownership approaches can be effective, and what tools and mechanisms development agencies have at their disposal to implement such an approach.
Greetings from Tbilisi, Georgia, where I’m working to bring you the tenth installment in the MCA Monitor’s Report from the Field series. As many readers know, these reports provide a snapshot-in-time, on-the-ground analysis of individual country experiences with the Millennium Challenge Corporation’s (MCC) policies and operations. The first nine reports covered countries in sub-Saharan Africa and Latin America and focused on the early stages of the MCC compact process: compact development and initial implementation. This report on Georgia’s MCC experience will be the first to focus on the end of a five-year MCC compact.
I’ll be travelling around Georgia to interview key stakeholders—members of the Millennium Challenge Georgia Fund (MCG) which is the accountable entity established to manage the compact, civil society, government representatives, private sector partners, and more—to better understand the five projects in the country’s $395 million MCC compact, interim and anticipated long-term results, and importantly, what happens when the compact comes to a close in April 2011.
The recently launched Quality of Official Development Assistance assessment, or QuODA, says the MCC leads the way among U.S. development agencies in “fostering country institutions and ensuring country ownership of programs,” and I’ll be looking at how these elements are being put into practice in Tbilisi and the surrounding regions.
First snap-shot: The Georgia Regional Development Fund
The Georgia Regional Development Fund (GRDF) is one of the initial MCC compact projects I’ve delved into. It is a part of the MCC compact’s Enterprise Development Activity and is the first investment fund of its kind in Georgia. The Millennium Challenge Georgia Fund (MCG) and the MCC created the fund and finalized its objectives together; MCG disburses funds while resident MCC staff have final approval on all investment decisions. With an allotment of $30 million to invest, the GRDF aims not only to encourage the flow of capital into rural small-to-medium enterprises (SMEs) and earn positive revenues, but also to maximize development impact and poverty reduction. Developmental returns are being measured in four ways: 1) increased wages of investee employees; 2) increased payment of taxes by investee; 3) increased contracting of local suppliers for raw materials and equipment, and; 4) increased revenue of investee.
Through the MCC compact, GRDF has invested $21 million in 10 enterprises primarily focused on agribusiness and tourism. Investments range from hazelnut processing and export to concrete production and supply. One of the investments is in the Black Sea Anchovy Fishing Fleet, the first Georgian company to utilize a Georgian fishing license rather than leasing out to Turkish ships. To ensure all investments are merit-based, GRDF is entirely managed by an independent fund manager and a board of directors comprising five Georgian and international bankers.
Four more proposals are due to be approved by the end of the calendar year, effectively disbursing almost all $30 million in funds. But what happens at the compact’s end in six months? That’s where this investment fund model gets really interesting. All new investments will cease and for the next five years (until April 2016) the $30 million in prinicipal plus additional revenues (forecasted to be around $8 million) will go into a trust to be used for higher education scholarships in under-funded disciplines like engineering and agriculture. In this way, the next cadre of Georgian experts will be educated to maintain and improve the sectors on which the compact focuses. MCC and MCG staff are currently working on a detailed plan of how this will work and the clock is ticking, but in theory this model looks to be an innovative way to fund SMEs and provide a sustainable developmental impact well into the future.
The GRDF is just one of five projects in Georgia’s compact. I’ll be looking into the other four, each of which will reveal its own successes and challenges within the MCC model. The Georgia Report from the Field will highlight these experiences and what happens next--remembering that Georgia’s compact has only six short months to go before it’s officially closed. In the meantime, I encourage you to take a look at MCG’s impressive website and the MCC’s own web-based tools for tracking Georgia’s compact results. Stay tuned!