Guiding Principles for Design and Implementation of the MCA

Sarah Lucas
Sonal Shah
July 26, 2007

In the run-up to the March 2002 U.N. Conference on Financing for Development in Monterrey, Mexico, President Bush announced a new compact for development, proposing an additional $10 billion in foreign assistance over fiscal years 2004 - 2006, to ramp up to an annual aid level of $5 billion above current amounts. This new money would be channeled through a "Millennium Challenge Account" (MCA) and would be targeted towards countries already walking the hard path of development-friendly reforms: countries that demonstrate adequate performance along three dimensions: good governance (ruling justly), economic freedom (fostering entrepreneurship), and investment in people (education and health). In his speech announcing the proposed increase in U.S foreign aid, the president called on U.S. policymakers to engage with each other and with the international community to define a set of clear and objective selection criteria to determine country eligibility for MCA resources.

This note defines seven principles to guide the design and implementation of the MCA. It builds on two assumptions: that MCA resources will be targeted to low-income countries (e.g., all those that are IDA-eligible) that have limited, if any, access to private capital markets for sovereign debt, and for whom borrowing from the World Bank and other multilaterals is limited; and that the MCA will be an additional program to those already financed and administered by the U.S. government, which have related but not identical objectives, and affect a set of countries that is not necessarily the same.

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