Innovations in Aid: Lessons from the Millennium Challenge Corporation
On July 17, GMF hosted Ambassador John J. Danilovich, the chief executive officer of the Millennium Challenge Corporation (MCC), forthe second event in GMF's Innovations in Aid Series. Mr. Jim Kolbe, Senior Transatlantic Fellow at GMF, who is leading the Aid Effectiveness project, moderated the event.
Ambassador Danilovich began his speech stating that several developing countries have signed, or are in the process of signing, MCC compacts. Many ambassadors from MCC compact and threshold countries were in attendance at this event. The Ambassador's speech covered the current state of the MCC, what makes the MCC innovative, and his vision for the future of the MCC.
The MCC was established by Congress in 2004 as an alternative model for development assistance. Over the last three and a half years, the MCC has laid the groundwork for implementation by encouraging countries to reform their institutional environments so that they may more effectively utilize MCC aid. In fact, what sets the MCC apart is its firm commitment to holding partner, or recipient countries, accountable for good governance and sound policies and its emphasis on country ownership in transforming the lives of the poor.
At present, the MCC has thirteen compacts with partner countries in Africa, Central America, Eurasia, and the Pacific, totaling nearly $4 billion. Compact countries are those countries that have demonstrated good governance and are accepted as MCC countries for a 5-year term. The compacts are time-limited to discourage aid dependence and encourage the development of sustainable, private-sector-led implementations. Threshold countries are those countries that do not yet qualify for MCC compact aid and the MCC works with to assist them in transforming their policy environment in order to accept MCC aid. Ambassador Danilovich asserted that at the termination of an MCC compact, they aim, "to see dynamic economies kick in, driven by private enterprise, investment and trade that will expand and sustain opportunities for the poor."
The MCC is innovative because it focuses on performance-based-aid by selecting partner countries based on their institutional and policy environment. That is, MCC recipients must be committed to sound political, social, and economic policies. A country's performance is measured by a sort of "score card" - the 16 transparent indicators developed by non-governmental organizations such as Freedom House, UNESCO, and the Heritage Foundation among others. In order to receive MCC assistance, countries must pass a thorough corruption indicator in addition to meeting 50% of the selection indicators. Moreover, a recipient country may be suspended if it is not performing to the level specified by MCC criteria. For example, the Gambia and Yemen were both suspended for non-performance, however Yemen has since made progress on anti-corruption reforms and has been re-instated as a threshold country. Accordingly this score card helps the MCC reward good performance, creating an incentive for countries to pursue growth-oriented policies - the so called "MCC effect."
Country ownership and accountability for tangible results are central to the MCC's innovative approach. This approach places the onus on the partner country to develop their own development proposals - putting them in the driver's set of the development process. Current poverty reduction strategies and national development plans also are used to help guide these activities. All sectors of society, including government, civil society, the private sector, and women are expected to be engaged in a broadly-based consultative process so that these become "home grown strategies." The MCC expects these proposals to be coordinated with other donors to avoid redundancies. They also are expected to include extensive plans for monitoring and evaluating results. Assistance is disbursed only as targets are achieved. When asked to do so, the MCC works with partner countries in assisting them with developing proposals for sustainable economic development reforms that emphasizes private-sector led growth.
Going forward, the MCC will continue to ramp-up monitoring and evaluating efforts to ensure that MCC assistance is, in fact, having a positive impact on the partner country. Thus, the MCC assists low-income countries that are willing to make the painstaking effort to eliminate corruption, improve their institutions and revamp their policies to promote private-sector economic growth.