MCC Board Update: When Bad Governance Happens to Good Compacts

The Millennium Challenge Corporation (MCC) board of directors suspended Malawi’s $350 million compact and approved a $355 million compact with Zambia at its quarterly meeting last Thursday.  It also halted compact operations in Mali following news of a military takeover.  And there is still no news on the two vacant board seats.Malawi and Zambia: Parallel Paths, Opposite OutcomesIt’s hard not to draw parallels between the MCC experiences of these two Southern African countries. Both countries initially failed the indicators test, including the control of corruption indicator.  Both then implemented MCC threshold programs and made impressive reforms to eventually pass the indicators test (Malawi in FY2008 and Zambia in FY2009). And finally, with compact eligibility granted, both countries developed single-sector compacts (energy in the case of Malawi and water and sanitation in the case of Zambia) designed to reach a huge number of beneficiaries and yield high economic rates of return.Two similar trajectories, two very different outcomes.  In the same meeting, the MCC board approved a compact with Zambia that’s set to be signed in May and changed Malawi’s compact status from “operational hold” (which is an MCC management decision) to “suspended” (an official board determination).Did the MCC board make the right decision to suspend Malawi’s compact?  After all, MCC staff describes the compact as “the best yet” and the expected beneficiary results are staggering: close to $2 billion in net income benefits to nearly six million Malawians.  But my answer is absolutely the board made the right decision.At its core the MCC is an agency predicated on values, one of which is an unflinching commitment to partner with well-governed countries.  Without this commitment – and a willingness to make the (very difficult) decision to act should governance turn south – the MCC cheats itself and the other 24 partner countries who have taken steps to enact tough policy reforms to achieve and maintain compact eligibility.But there is still a chance that Malawi’s compact – and partnership with the MCC – can be salvaged.  The MCC made it clear at the outreach meeting that the ball is solely in the Malawian government’s court.  It has 90 days to exhibit distinct steps toward improved governance ahead of the MCC board’s next meeting in June.  Absent meeting these benchmarks, compact termination will be the only course of action for the board.33 Months Later, Two Board Seats Still EmptyWhich again brings up a point the MCA Monitor has called attention to in multiple blogs and reports: after 33 months (!!) the MCC board is still without two of its four public board members.  These public board members bring crucial insights to board deliberations and provide a necessary counterpoint to the five governmental board members.  At each quarterly board meeting, the members make decisions with far-reaching implications (case in point: suspension of the compact in Malawi) and the MCC model and we as a development community would benefit greatly from having a full board in place.Mali: Military Overthrow Halts MCC OperationsAnd last not but least, for those keeping a close eye on current events in Mali, the MCC board did discuss Mali but no action was taken.  The MCC has halted operations while it assesses developments in the country.  However timing couldn’t be worse (not that there’s ever a good time for a coup) as the $461 million compact has a mere six months to go before it’s due to close. This coup – even if it is short-lived – could potentially spell disaster for compact implementation as much of the construction and disbursement of funds happens in the fifth and final year for compacts.  And the MCC does not have extension authority to prolong the compact past its five-year timeframe. The MCA Monitor will keep tabs as events unfold and the compact in Mali nears its September 2012 deadline.