Millennium Challenge Corporation
Encyclopedia
George W. Bush administration
The presidency of George W. Bush began on January 20, 2001, when he was inaugurated as the 43rd President of the United States of America. The oldest son of former president George H. W. Bush, George W...
in 2004, applying a new philosophy towards foreign aid.
Background and formation
At the Inter-American Development BankInter-American Development Bank
The Inter-American Development Bank is the largest source of development financing for Latin America and the Caribbean...
on March 14, 2002, President George W. Bush
George W. Bush
George Walker Bush is an American politician who served as the 43rd President of the United States, from 2001 to 2009. Before that, he was the 46th Governor of Texas, having served from 1995 to 2000....
called for a new compact for development with accountability for both rich and poor countries. He also pledged to increase development assistance by 50% by Fiscal Year 2006 (which by the end of 2004 did double, and is to double again by 2010). Other development programs like USAID (United States Agency for International Development
United States Agency for International Development
The United States Agency for International Development is the United States federal government agency primarily responsible for administering civilian foreign aid. President John F. Kennedy created USAID in 1961 by executive order to implement development assistance programs in the areas...
) have been thought to suffer from many different and sometimes conflicting goals, which often are a result of political pressures, and for not delivering long-term economic improvements.
MCC was authorized in 2004 on this premise to bipartisan Congressional support. Its guiding principles are:
- Competitive selection: Before a country can become eligible to receive assistance, MCC’s Board examines its performance on 17 independent and transparent policy indicators and selects compact-eligible countries based on policy performance.
- Country-led solutions: MCC requires selected countries to identify their priorities for achieving sustainable economic growth and poverty reduction. Countries develop their MCC proposals in broad consultation within their society. MCC teams then work in close partnership to help countries refine a program.
- Country-led implementation: MCC administers the Millennium Challenge Account (MCA). When a country is awarded a compact, it sets up its own local MCA accountable entity to manage and oversee all aspects of implementation. Monitoring of funds is rigorous and transparent, often through independent fiscal agents.
Leadership
The first CEO of the Millennium Challenge Corporation was Paul Applegarth, a private businessman with experience managing emerging market investment funds. Applegarth was followed by Ambassador John Danilovich, a private businessman who had previously served as the U.S. Ambassador to Costa Rica from 2001 to 2004, and then U.S. Ambassador to Brazil. On November 20, 2009, Daniel W. Yohannes, an Ethiopian-born American businessman, was confirmed by the Senate as the newest CEO of the Corporation.Selection indicators
A country is considered eligible for a compact (aid grant) if its score on 17 indicators exceeds the median score of its peer group. All 17 indicators are compiled by third parties with no connection to MCC; MCC grants are made without politics entering the equation. This is perhaps the most innovative aspect of MCC, as previous foreign aid missions were plagued by political considerations. The focus of the MCC is to promote economic growthEconomic growth
In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...
in the recipient countries. The program emphasizes good economic policies in recipient countries. The Bush administration has stated its belief that development aid works better in countries with good economic policies, such as free markets and low corruption
Political corruption
Political corruption is the use of legislated powers by government officials for illegitimate private gain. Misuse of government power for other purposes, such as repression of political opponents and general police brutality, is not considered political corruption. Neither are illegal acts by...
.
The indicators are:
| Indicator | Category | Source |
| Civil Liberties | Ruling Justly | Freedom House Freedom House Freedom House is an international non-governmental organization based in Washington, D.C. that conducts research and advocacy on democracy, political freedom and human rights... |
| Political Rights | Ruling Justly | Freedom House |
| Voice and Accountability | Ruling Justly | World Bank Institute World Bank Institute The World Bank Institute is the capacity development branch of the World Bank. It provides learning programs, policy advice and technical assistance to policy makers, government and non-government agencies and development practitioners of developing countries... |
| Government Effectiveness | Ruling Justly | World Bank Institute |
| Rule of Law | Ruling Justly | World Bank Institute |
| Control of Corruption | Ruling Justly | World Bank Institute |
| Immunization Rate | Investing in People | World Health Organization World Health Organization The World Health Organization is a specialized agency of the United Nations that acts as a coordinating authority on international public health. Established on 7 April 1948, with headquarters in Geneva, Switzerland, the agency inherited the mandate and resources of its predecessor, the Health... |
| Public Expenditure on Health | Investing in People | World Health Organization World Health Organization The World Health Organization is a specialized agency of the United Nations that acts as a coordinating authority on international public health. Established on 7 April 1948, with headquarters in Geneva, Switzerland, the agency inherited the mandate and resources of its predecessor, the Health... |
| Girls' Primary Education Completion Rate | Investing in People | UNESCO UNESCO The United Nations Educational, Scientific and Cultural Organization is a specialized agency of the United Nations... |
| Public Expenditure on Primary Education | Investing in People | UNESCO and national sources |
| Natural Resource Management | Investing in People | CIESIN/Yale |
| Inflation Rate | Economic Freedom | International Monetary Fund International Monetary Fund The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world... WEO |
| Trade Policy | Economic Freedom | Heritage Foundation Heritage Foundation The Heritage Foundation is a conservative American think tank based in Washington, D.C. Heritage's stated mission is to "formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong... |
| Land Rights and Access index | Economic Freedom | IFAD / IFC |
| Regulatory Quality | Economic Freedom | World Bank Institute |
| Fiscal Policy | Economic Freedom | national sources, cross-checked with IMF WEO |
| Business Start-up | Economic Freedom | IFC International Finance Corporation The International Finance Corporation promotes sustainable private sector investment in developing countries.IFC is a member of the World Bank Group and is headquartered in Washington, D.C., United States.... |
These are only criteria for eligibility. An eligible country must of course apply for a grant with a specific project in mind.
MCC compacts and thresholds programs in recipient countries
MCC signs either a compact or a threshold agreement with a partner country. A compact is awarded if the country scores highly on the selection criteria indicators. If the country scores poorly but has a positive, upward trend on the selection criteria, it can still be eligible for a smaller grant, called a threshold program.MCC requires that each partner government creates a special purpose legal entity that will be accountable for implementing the compact program.
Eligible countries
In the first year (2004), 17 countries were made eligible for an MCC grant: ArmeniaArmenia
Armenia , officially the Republic of Armenia , is a landlocked mountainous country in the Caucasus region of Eurasia...
, Benin
Benin
Benin , officially the Republic of Benin, is a country in West Africa. It borders Togo to the west, Nigeria to the east and Burkina Faso and Niger to the north. Its small southern coastline on the Bight of Benin is where a majority of the population is located...
, Bolivia
Bolivia
Bolivia officially known as Plurinational State of Bolivia , is a landlocked country in central South America. It is the poorest country in South America...
, Cape Verde
Cape Verde
The Republic of Cape Verde is an island country, spanning an archipelago of 10 islands located in the central Atlantic Ocean, 570 kilometres off the coast of Western Africa...
, El Salvador
El Salvador
El Salvador or simply Salvador is the smallest and the most densely populated country in Central America. The country's capital city and largest city is San Salvador; Santa Ana and San Miguel are also important cultural and commercial centers in the country and in all of Central America...
, Georgia
Georgia (country)
Georgia is a sovereign state in the Caucasus region of Eurasia. Located at the crossroads of Western Asia and Eastern Europe, it is bounded to the west by the Black Sea, to the north by Russia, to the southwest by Turkey, to the south by Armenia, and to the southeast by Azerbaijan. The capital of...
, Ghana
Ghana
Ghana , officially the Republic of Ghana, is a country located in West Africa. It is bordered by Côte d'Ivoire to the west, Burkina Faso to the north, Togo to the east, and the Gulf of Guinea to the south...
, Honduras
Honduras
Honduras is a republic in Central America. It was previously known as Spanish Honduras to differentiate it from British Honduras, which became the modern-day state of Belize...
, Lesotho
Lesotho
Lesotho , officially the Kingdom of Lesotho, is a landlocked country and enclave, surrounded by the Republic of South Africa. It is just over in size with a population of approximately 2,067,000. Its capital and largest city is Maseru. Lesotho is a member of the Commonwealth of Nations. The name...
, Madagascar
Madagascar
The Republic of Madagascar is an island country located in the Indian Ocean off the southeastern coast of Africa...
, Mali
Mali
Mali , officially the Republic of Mali , is a landlocked country in Western Africa. Mali borders Algeria on the north, Niger on the east, Burkina Faso and the Côte d'Ivoire on the south, Guinea on the south-west, and Senegal and Mauritania on the west. Its size is just over 1,240,000 km² with...
, Mongolia
Mongolia
Mongolia is a landlocked country in East and Central Asia. It is bordered by Russia to the north and China to the south, east and west. Although Mongolia does not share a border with Kazakhstan, its western-most point is only from Kazakhstan's eastern tip. Ulan Bator, the capital and largest...
, Morocco
Morocco
Morocco , officially the Kingdom of Morocco , is a country located in North Africa. It has a population of more than 32 million and an area of 710,850 km², and also primarily administers the disputed region of the Western Sahara...
, Mozambique
Mozambique
Mozambique, officially the Republic of Mozambique , is a country in southeastern Africa bordered by the Indian Ocean to the east, Tanzania to the north, Malawi and Zambia to the northwest, Zimbabwe to the west and Swaziland and South Africa to the southwest...
, Nicaragua
Nicaragua
Nicaragua is the largest country in the Central American American isthmus, bordered by Honduras to the north and Costa Rica to the south. The country is situated between 11 and 14 degrees north of the Equator in the Northern Hemisphere, which places it entirely within the tropics. The Pacific Ocean...
, Senegal
Senegal
Senegal , officially the Republic of Senegal , is a country in western Africa. It owes its name to the Sénégal River that borders it to the east and north...
, Sri Lanka
Sri Lanka
Sri Lanka, officially the Democratic Socialist Republic of Sri Lanka is a country off the southern coast of the Indian subcontinent. Known until 1972 as Ceylon , Sri Lanka is an island surrounded by the Indian Ocean, the Gulf of Mannar and the Palk Strait, and lies in the vicinity of India and the...
, and Vanuatu
Vanuatu
Vanuatu , officially the Republic of Vanuatu , is an island nation located in the South Pacific Ocean. The archipelago, which is of volcanic origin, is some east of northern Australia, northeast of New Caledonia, west of Fiji, and southeast of the Solomon Islands, near New Guinea.Vanuatu was...
. Madagascar and Honduras were the first countries to receive actual funding from the MCA. On June 16, 2006, The Gambia
The Gambia
The Republic of The Gambia, commonly referred to as The Gambia, or Gambia , is a country in West Africa. Gambia is the smallest country on mainland Africa, surrounded by Senegal except for a short coastline on the Atlantic Ocean in the west....
was suspended from eligibility, citing deterioration in 8 of the 16 criteria categories. Mali
Mali
Mali , officially the Republic of Mali , is a landlocked country in Western Africa. Mali borders Algeria on the north, Niger on the east, Burkina Faso and the Côte d'Ivoire on the south, Guinea on the south-west, and Senegal and Mauritania on the west. Its size is just over 1,240,000 km² with...
was approved in October 2006 for a $461 million program to develop modern irrigation systems and an industrial park. Jordan
Jordan
Jordan , officially the Hashemite Kingdom of Jordan , Al-Mamlaka al-Urduniyya al-Hashemiyya) is a kingdom on the East Bank of the River Jordan. The country borders Saudi Arabia to the east and south-east, Iraq to the north-east, Syria to the north and the West Bank and Israel to the west, sharing...
was granted full compact eligibility, despite objections from Freedom House for its lack of full political and civil rights. MPs in Uganda
Uganda
Uganda , officially the Republic of Uganda, is a landlocked country in East Africa. Uganda is also known as the "Pearl of Africa". It is bordered on the east by Kenya, on the north by South Sudan, on the west by the Democratic Republic of the Congo, on the southwest by Rwanda, and on the south by...
from the opposition party hailed their country's rejection from full compact status, demanding instead a stronger effort in stopping the corruption that disqualified their country. In June 2007, MCA eligible countries in Africa held a meeting in Accra
Accra
Accra is the capital and largest city of Ghana, with an urban population of 1,658,937 according to the 2000 census. Accra is also the capital of the Greater Accra Region and of the Accra Metropolitan District, with which it is coterminous...
to discuss their experiences in the program. The country of Malawi
Malawi
The Republic of Malawi is a landlocked country in southeast Africa that was formerly known as Nyasaland. It is bordered by Zambia to the northwest, Tanzania to the northeast, and Mozambique on the east, south and west. The country is separated from Tanzania and Mozambique by Lake Malawi. Its size...
qualified for a full compact in 2007, while Mauritania
Mauritania
Mauritania is a country in the Maghreb and West Africa. It is bordered by the Atlantic Ocean in the west, by Western Sahara in the north, by Algeria in the northeast, by Mali in the east and southeast, and by Senegal in the southwest...
became threshold eligible.
Threshold eligible
Several countries were chosen in 2004 for a new part of the program called Threshold Program Assistance, which are smaller compacts used to assist a country close to meeting account eligibility to become eligible for a full program. JordanJordan
Jordan , officially the Hashemite Kingdom of Jordan , Al-Mamlaka al-Urduniyya al-Hashemiyya) is a kingdom on the East Bank of the River Jordan. The country borders Saudi Arabia to the east and south-east, Iraq to the north-east, Syria to the north and the West Bank and Israel to the west, sharing...
received a Threshold program aimed at democracy and trade totaling $25 million. Yemen
Yemen
The Republic of Yemen , commonly known as Yemen , is a country located in the Middle East, occupying the southwestern to southern end of the Arabian Peninsula. It is bordered by Saudi Arabia to the north, the Red Sea to the west, and Oman to the east....
was previously eligible for a threshold agreement, but was suspended after their indicators fell too low to qualify. But having successfully competed a democratic election and various economic reforms, the Millennium Challenge Corporation has once again made Yemen eligible for a threshold agreement. On December 12, 2007, the MCC Board selected Malawi
Malawi
The Republic of Malawi is a landlocked country in southeast Africa that was formerly known as Nyasaland. It is bordered by Zambia to the northwest, Tanzania to the northeast, and Mozambique on the east, south and west. The country is separated from Tanzania and Mozambique by Lake Malawi. Its size...
for a compact and Mauritania
Mauritania
Mauritania is a country in the Maghreb and West Africa. It is bordered by the Atlantic Ocean in the west, by Western Sahara in the north, by Algeria in the northeast, by Mali in the east and southeast, and by Senegal in the southwest...
for a threshold agreement, as well as allowing Albania
Albania
Albania , officially known as the Republic of Albania , is a country in Southeastern Europe, in the Balkans region. It is bordered by Montenegro to the northwest, Kosovo to the northeast, the Republic of Macedonia to the east and Greece to the south and southeast. It has a coast on the Adriatic Sea...
, Paraguay
Paraguay
Paraguay , officially the Republic of Paraguay , is a landlocked country in South America. It is bordered by Argentina to the south and southwest, Brazil to the east and northeast, and Bolivia to the northwest. Paraguay lies on both banks of the Paraguay River, which runs through the center of the...
, and Zambia
Zambia
Zambia , officially the Republic of Zambia, is a landlocked country in Southern Africa. The neighbouring countries are the Democratic Republic of the Congo to the north, Tanzania to the north-east, Malawi to the east, Mozambique, Zimbabwe, Botswana and Namibia to the south, and Angola to the west....
to submit a first ever second stage threshold agreement. In 2007 the American ambassador to Swaziland
Swaziland
Swaziland, officially the Kingdom of Swaziland , and sometimes called Ngwane or Swatini, is a landlocked country in Southern Africa, bordered to the north, south and west by South Africa, and to the east by Mozambique...
highlighted the progress on the MCC indicators over the last few years and encouraged the country to work toward eligibility.
A full listing of MCC partner countries can be found at http://www.mcc.gov/pages/countries. MCC's portfolio focuses mostly on African nations.
Funding
Congress has consistently provided less funding for the program than the president has requested. In Fiscal Year 2004, $650 million were provided for the program, with an increase up to $1.5 billion the next year. For Fiscal Year 2007, $2 billion were provided, a 14% increase over the previous year but still under the $3 billion target. Again for Fiscal Year 2008, less funding will be provided than was hoped for, and only $1.2 billion is budgeted, and the CEO of the MCC commented that it would undercut the program's efforts. Congress declined to re-authorize the program, which technically was not needed since the program had been authorized already, but also since there was argument over the authorization language. In discussions of the Fiscal Year 2009 budget, the United States Senate has proposed that only half of the money needed for a compact be provided up front, as opposed to full funding for each one provident in advance, which officials at the corporation insist would be a "large step backward" causing too little aid to make an impact on recipient countries. Senator Richard Lugar, the author of the amendment, responded that more "realistic" funding levels allowed for more compacts, thus spreading the "MCC effect".The amendment did not make it into the final bill. President Bush's 2008 Fiscal Year budget requested $2.225 billion, the first time since the programs inception that the amount was not $3 billion, and enough money for 5 compacts, several threshold agreements and administrative funding.
Reception and impact
Studies by groups such as the conservative Heritage FoundationHeritage Foundation
The Heritage Foundation is a conservative American think tank based in Washington, D.C. Heritage's stated mission is to "formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong...
in the United States have shown that many developing countries that have received foreign aid have seen their per capita income fall or stagnate over the last 40 years, and the Heritage Foundation has consistently supported the MCC's approach, which has also utilized their trade measure from the Index of Economic Freedom
Index of Economic Freedom
The Index of Economic Freedom is a series of 10 economic measurements created by The Heritage Foundation and The Wall Street Journal. Its stated objective is to measure the degree of economic freedom in the world's nations....
. In April 2005, the United States Government Accountability Office issued a favorable report about the work of the MCC and its work thus far. The Program Assessment Rating Tool
Program Assessment Rating Tool
The Program Assessment Rating Tool, or PART, is a program run through the United States Office of Management and Budget instituted by President George W. Bush in 2002 to rate all federal programs on their effectiveness...
, or PART, which reviews the efficiency and results produced by US government programs, was scheduled to be reviewed in 2007. A study in 2006 looking at the "MCC effect" estimated that potential recipient countries improved 25% more on MCA's criteria than other countries, after controlling for time-trends. The World Policy Council
World Policy Council
The World Policy Council of Alpha Phi Alpha fraternity is a nonprofit and nonpartisan think tank established in 1996 at Howard University to expand the fraternity's involvement in politics and social and current policy to encompass important global and world issues...
, headed by Ambassador
United States Ambassador to Botswana
From 1885 until 1966 the area of southern Africa that is now Botswana was part of the Bechuanaland Protectorate of Great Britain.In June 1964, Britain accepted proposals for democratic self-government in Botswana. The seat of government was moved from Mafikeng in South Africa, to newly established...
Horace Dawson
Horace Dawson
Horace Greeley Dawson, Jr. was an American diplomat who served as the United States Ambassador to Botswana.-Life:...
and Senator
United States Senate
The United States Senate is the upper house of the bicameral legislature of the United States, and together with the United States House of Representatives comprises the United States Congress. The composition and powers of the Senate are established in Article One of the U.S. Constitution. Each...
Edward Brooke
Edward Brooke
Edward William Brooke, III is an American politician and was elected to the United States Senate as a Republican from Massachusetts in 1966, defeating his Democratic opponent, Endicott Peabody, 60.7%–38.7%...
, recognizes the MCC as the most recent and most promising program in its area, and recommended that the Bush administration and the Congressional Black Caucus
Congressional Black Caucus
The Congressional Black Caucus is an organization representing the black members of the United States Congress. Membership is exclusive to blacks, and its chair in the 112th Congress is Representative Emanuel Cleaver of Missouri.-Aims:...
focus on full funding and an accelerated pace of spending. Doing Business 2007 cited the Millennium Challenge Accounts as a catalyst for reforms underway in 13 countries. Also, Freedom House
Freedom House
Freedom House is an international non-governmental organization based in Washington, D.C. that conducts research and advocacy on democracy, political freedom and human rights...
, an organization that monitors the level of freedom in the world, released subcategories for the first time since it was being used as part of the MCC's measurements to allow for finer distinctions in their ratings. Also, the number of days it takes to start a business in both low and low-middle income countries has decreased significantly since 2002, which is one of the factors the accounts measure since rapid business registration is thought to increase economic activity.
Some critics have charged that the program uses indicators by conservative groups such as the Heritage foundation and are therefore biased toward free market economics. The program is thought to have also resulted in countries receiving less funding from other US government development organizations and not more. Some development agencies have also felt frozen out of the process since the compact programs are designed primarily by the country involved. Implementation has also been difficult in Armenia, with concern about effectiveness is being discussed.