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38
JANUARY 2013
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THE FOREIGN SERVICE JOURNAL
after a coup, for example. Armenia and Nicaragua had their funds
placed on hold for arresting journalists and oppositionmembers,
among other lapses. And while Mali enjoyed good governance for
about 20 years, a coup sparked by a rebellion in the north led to
cancellation of MCC aid last year.
Encouragingly, eight countries have completed compacts in
the last two years. And El Salvador and four others are to complete
their programs in the near future.
“All of our countries create a climate for private investment,”
says Yohannes. He notes that the former Soviet republic of Georgia,
formerly 120th in the world in terms of ease of investment, climbed
to 18th place as it cut excess regulation as part of MCC conditions.
Yohannes says that as he visits the countries where MCC
works, he sees that the American way of doing business is catching
on; these governments are becoming more transparent in their
procurement processes. In addition, MCC guidelines require each
recipient country to set aside money for maintenance after the
projects are completed.
The MCC Efect
Asked if MCC was a rival of its sister agency, Yohannes said:
“No, we complement each other. Our job is to reduce poverty by
economic growth. We do not do food, medical or confict-related
aid,” all of which USAID handles.
Asked if MCC hadmade mistakes along the way, Yohannes
admits to some. “InMorocco, we had a $700 million compact in
toomany sectors and all over the country,” he recalls. “Te com-
pact started before there was a ‘due diligence’ policy in place.”
Now projects are sector-specifc and focus on two or three
areas, such as water, energy or agriculture. In addition, “we make
sure prep work is done before the compact enters into force,” he
notes.
Despite Yohannes’ assertion that MCC does not compete with
USAID, Sarah Jane Staats, an aid expert at the Center for Global
Development inWashington, notes that in the shrinking budget
environment, “there is competition across the board; resources are
scarce.”
Asked if MCC was performing well in its niche brand of foreign
aid, Staats says: “It is too early to knowwhat mid-course correc-
tions are needed. Te big accomplishment of MCC is largely its
approach. It only selects countries that demonstrate policy perfor-
mance, a huge departure fromU.S. and global aid programs.”
James W. Fox, who has worked on two assessments of the MCC
for the Brookings Institution, recalls that “the MCC got of to a
terrible start, led by a CEOwho thought signing agreements was all
there was to it.”
Tat said, the MCC “has opted for the most transparent
approach of any donor in history...using outside evaluators, using
the best techniques available...no other donor comes anywhere
close,” Fox commented in an e-mail.
He also notes what he calls an “MCC efect,” motivating gov-
ernments “to do lots of things to try to improve their indicators.”
Clearing Up Misconceptions
According to a report by USAID analyst Michael Crosswell,
MCC’s underlying principle is that “foreign aid tends to be more
efective in countries making strong self-help eforts in terms of
policy performance. Tat principle has guided USAID and U.S.
foreign aid legislation since the early 1970s.”
However, Crosswell, whose comments are his own and do not
necessarily refect those of USAID, lists some “misconceptions”
sometimes expressed by the MillenniumChallenge Corporation’s
sponsors:
MCC-eligible countries clearly have very good policies.
Tis
overstates the reality on the ground, since each country is com-
pared to its peers rather than a Western level of governance.
MCC countries have strong, capable institutions.
In fact,
Crosswell says, they have the weaknesses typical of low-income,
least-developed countries. Even when these governments have
the political will to meet assistance criteria, they lack resources,
trained people, technology, physical infrastructure, capital,
fnancial markets regulation, security and other building blocks of
development.
MCC countries mainly lack aid in the form of large resource
transfers.
What they really need, Crosswell believes, is stronger
institutions to promote economic growth and develop absorptive
capacity, so that wealth does not destabilize the system and enrich
the elites through corruption.
Large programs can be delivered with relatively little donor
programming efort.
Large MCC programs do take place with only
two U.S. staf on the ground, but they have been slow to accom-
plish anything. “You can’t simply pick the ‘right’ countries and
then hand over the money,” says Crosswell.
The Real Test
Development is an evolutionary process that can take centu-
ries, even in a world of high-speed communications. MCC is the
latest attempt to jump-start that process, but the verdict on its
success is not yet in.
Te big test will be whether recipients revert to antidemocratic,
corrupt practices once the U.S. project is over, leaving them vul-
nerable to coups and repression.
n