Operational Issues and Recommendations

In addition to the three headline stories about broad MCC principles in Nicaragua, the MCAN offers insight into a number of practical, operational issues associated with the ramping up and implementation of an MCA program.

Timing of entry into force

The MCAN signed its compact with the MCC in July 2005 and EIF ocurred ten months later in May 2006. This is the longest period between signing and EIF of any MCA compact country. The delay was caused by the tactical decision to ratify the compact in the National Assembly and to pass the legislation for FOMAV funding before EIF. While MCAN and MCC officials were surely wringing their hands at the time, the delay has paid off. It bought the MCAN time to get key systems in place before the clock started ticking on the compact period, allowing them to ramp up program implementation relatively quickly. This has given it a big advantage over other first-round countries like Madagascar and Honduras that rushed EIF and then spent the first year of real compact time getting systems in place. This experience suggests that MCA programs should strategically sequence entry into force with the readiness of key systems. This will allow for a much faster ramp-up of program activities once the official clock starts ticking.

Standard operating documents

In the name of country ownership, each country is expected to devise its own administrative procedures and tools. This includes operations manuals, financial plans, standard bidding documents, standard requests for proposal (RFPs), technical specifications for investments, etc. Members of the MCAN team argued that even under the best conditions, and with strong capacity, developing this set of documents can take six months. Many MCA countries end up with very similar documents and procedures and thus are, in a sense, each spending at least six months reinventing the wheel. According to one MCC official, "There is an understanding (at the MCC) that this was a weakness," and there is now an "intense effort" to standardize and streamline implementation processes including the creation of key operations documents. The Nicaragua experience reiterates the importance of something the MCC is already working to improve: The MCC should offer a set of standard operating documents and procedures to streamline the transition from compact signing to program implementation. It should allow partner countries to make revisions based on country-specific conditions.

Cost sharing schemes

The MCC has imposed a rule that the MCAN not put more than 30 percent of the cost of equipment into rural business plans developed by MCAN or proposed by beneficiaries, thereby requiring communities or beneficiaries to cover 70 percent of these costs.[4] While the MCAN team recognizes the importance of managing risk, and is sensitive to MCC principles of not just giving hand-outs, some staff argue that this cap on the MCAN contribution is limiting and should be raised (though not eliminated). Their view is based on two factors. First, the cap limits with whom they work--some communities are just too poor to meet the contribution requirement. Second, it can limit the returns on the investment--it might be that with a higher capital investment, projects could get a higher rate of return and ultimately yield more growth and poverty reduction. The MCAN is taking a wise approach. Rather than fighting the concept, it is doing its homework. As it develops business plans with producers’ groups, for example, it is fully documenting the opportunities missed because of this rule. Soon it will have a stack of evidence by which to evaluate the real impacts of this rule, and if the evidence warrants it, the MCAN will try to renegotiate this provision with the MCC. In the name of country ownership and program effectiveness, the MCC should be willing to renegotiate strict rules on cost-sharing if the constraints prove to be limiting the reach and return of MCAN investments.

Over-managing risk

In an effort to manage risk, Washington-based MCC staff retain approval authority over many aspects of country program operations, especially when it comes to expenditures, but also including clearance of hires, procurement documentation, and selection of contractors. Washington oversight measures, common across all implementing countries covered by the MCA Monitor, are partly due to the MCC, the Inspector General and the U.S. Congress’ focus on meticulous management of resources. It is important to avoid misuse of funds, but these strict oversight measures do have significant tradeoffs. First, they will not be sustainable as the MCC oversees a growing number of compacts yet maintains its fixed, small staff size. Second, they are adding to undue program and disbursement delays globally. Third, they reduce authority of field-level MCC officials. Finally, it is not clear that they are helping. Several MCAN officials argued that the MCC in Washington is focusing so much on process and procedural safeguards that it is losing site of big-picture program goals. One MCC official asked rhetorically, "Are we really mitigating risk or just creating bureaucratic hurdles?" The main focus on risk mitigation should be at the larger program-wide level rather than at each operational step. And like venture capital, taking some risks is crucial to finding investments with high returns. A better balance is needed between risk management and pace of progress (which the Congress is also very interested); and between the respective roles of Washington-based and field-based MCC staff in managing risk. In the name of country ownership, efficient administration and aid innovation, the MCC should accept--and help Congress understand the value of--the benefits of taking informed risks and creating a culture of learning. It should streamline its approval process accordingly and delegate more risk management to MCC staff in country.

Disbursement schedule

According to the MCC’s status report on Nicaragua, the disbursement goal for the first year (ending May 2007) is $20 million. The MCAN will fall short of this, but it is not alone in doing so. All compacts are behind their first-year disbursement targets (except Armenia).[5] This is largely due to the MCC and MCA country officials not adequately calculating the time demands and burden of transparently starting from scratch such a large program in difficult operating environments. The MCC and MCA country officials argue that once money for big projects such as roads and other infrastructure start flowing, the catch-up on disbursements will be quick. But in Nicaragua road construction is not going to begin until early 2008, so 2007 is likely to be another year of disbursements falling short of projections. The pace of disbursement remains a key issue for the MCC to watch, assess and communicate. What is keeping it from its disbursement targets? Is it simply that big-ticket items have not yet come on line and that projections were too optimistic, or are there fundamental operational or system-building issues that are making it difficult to move the money? The MCC should not be judged merely on disbursement rates--that would create the wrong incentives. But there is no getting around the fact that the ability to move money is one sign of operational capacity and efficiency, and in this regard the warning signs are emerging. To its credit, the MCC is engaged in an internal review of its business model. It should be bold in doing this, and make changes now before facing irreversible constraints on meeting compact goals. The Congress should be open to changes in the MCC model--be they, for example, more staff, a higher risk tolerance associated with a more hands-off approach, or concurrent compacts.

Interim performance benchmarks

Disbursement levels are not the only way to measure early progress of MCA compacts. First, there are a lot of important steps to take before significant resources flow and compact goals are met. The benefits of investing in civil society consultation, institutional strengthening, policy change, and establishing robust operational procedures and evaluation measures are not very tangible or sexy, but they are fundamental to program success. Many of these ideally happen before EIF, but even so, the MCC should find a way to measure them and count (and publish!) them as early successes. Second, there are ways to set interim benchmarks that help bridge between the start-up phase and overall compact goals. In the case of Nicaragua, the MCAN is intentionally focusing on some quick wins such as accelerated administration of land titles and visible hands-on work with small producers. MCAN officials argued that they will soon be able to track increases in productivity and incomes as technical assistance and the formation of cooperatives lead to better quality goods and higher sale prices. In addition, one MCC official argued that the mere prospect of road improvements and official land titles should increase land values. These all count as measurable steps toward program objectives. The MCC and country MCA teams should work to better define, capture and communicate the early "intangible" successes, as well as interim program benchmarks and innovative approaches that distinguish it from other aid programs.

Managing expectations

As covered in earlier MCA Monitor reports, the MCC’s emphasis on transparency and consultation has the side effect of creating high expectations. In Nicaragua as elsewhere, EIF is a technicality lost on the general public, and many started expecting results from the MCAN as soon as the compact was signed (or even as early as initial consultations took place). This led people to refer to La Cuenta del Milenio (the Millennium Account) as "El Cuento del Milenio" (the Millennium Story). MCAN is doing a lot right to manage expectations: implementing a communications strategy; balancing short-term and long-term interventions; quickly ramping up operations post EIF; fostering public and political support; etc. It is also working hard to change public focus on quick but shallow results to high quality implementation with transformational results. But even with these efforts there are feelings that the program is moving too slowly. There are no easy answers, but in conjunction with setting interim benchmarks, the MCC and country MCA teams should work to set realistic expectations early on and continue to manage them throughout the first years of the programs. This means making a bigger deal of accomplishments in the pre-EIF phase, being explicit about what will and will not be accomplished in the first year of compact implementation, and setting more realistic estimates of year-one disbursement levels.

4. This cap applies only to equipment. The MCAN can cover 90-100 percent of the costs of technical assistance, and covers 100 percent of costs associated with reforestation efforts. For equipment, beneficiaries and communities can cover their 70 percent through contributions in-kind, and can seek support from other donors.

5. This is according to the MCC’s country status reports of 2006. Some 2007 status reports are being revised to adjust disbursement projections based on compact progress and thus do not reflect disbursement delays vis a vis original targets.