Speech

February 4, 2008

by John J. Danilovich, Chief Executive Officer

Center for Strategic and International Studies, Smart Power Series

‘How MCC offers a Smart Power approach to America’s global engagement’

Introduction

Thank you, John, for that kind introduction and for organizing this exciting “Smart Power” series. I’ve read the Commission’s thoughtful and insightful paper, and I welcome the opportunity to add to the discussion by sharing a few thoughts on how the Millennium Challenge Corporation offers a strategic, smart power approach to expanding America’s global engagement.

The Success Stories

At a time when America’s leadership is being challenged around the world, the Millennium Challenge Corporation provides a great opportunity to showcase the best of America’s values, and the generosity of the American people.

Indeed, America’s engagement worldwide through the work of the Millennium Challenge Corporation is positive and powerful.   I have seen it with my own eyes.

  • It’s smart that girls receive an education in 132 newly constructed, girl-friendly schools throughout Burkina Faso, financed by MCC.  They are a joy to behold.
  • It’s smart that women are no longer treated as legal minors in Lesotho and can fully participate in the life of their country and contribute to the success of Lesotho’s $363 million MCC compact.
  • It’s smart that farmers in Madagascar and Honduras are using the training received through MCC compact programs to diversify to higher profit crops that will raise their household incomes and improve their quality of life.
  • It’s smart that infrastructure projects are underway in partner countries in Africa—to rehabilitate
    • ports,
    • bridges,
    • an airport, and
    • roads—to help farmers get their crops to market and to help the poor better access schools and health clinics.

In these ways, MCC is inspiring hope and optimism for a better life in some of the poorest and most challenging places in the world. We are making investments to help citizens replace poverty with prosperity, impossibilities with possibilities.  And, our American efforts—made by MCC—are acknowledged and much appreciated.

MCC 101

The President and Congress—with strong bipartisan support—partnered in 2004 to establish the Millennium Challenge Corporation, a new tool in the generous toolbox of American development assistance. 

MCC’s mission is to reduce poverty through sustainable economic growth.  And, we do this among the world’s poorest countries that are

  • ruling justly,
  • fighting corruption,
  • investing in the health and education of their citizens, and
  • promoting economic freedom.

MCC partner countries are committed

  • to practicing sound policies in these areas,
  • to building their capacity to lead their own development, and
  • to delivering results in the lives of the poor.  

We have compacts with 16 countries in

  • Africa,
  • Central America,
  • Eurasia, and
  • the Pacific

totaling $5.5 billion. Our 16th compact with Tanzania will be signed later this month by President Bush and President Kikwete for $698 million.  We also have approved smaller threshold programs with countries worldwide to improve their performance on our eligibility criteria to eventually qualify for full compact funding.

How MCC is part of a smart power strategy

The manner in which MCC delivers development assistance is an effective tactic in our country’s overall smart power strategy for global engagement. And, I was pleased to read several MCC mentions recognizing this reality in the Commission’s report.  Let me highlight three key ways MCC contributes to “smart power” by being “smart aid.”
First, MCC contributes to smart power by changing the expectations for development assistance.     

MCC assistance is a reward for countries that are already practicing sound policies. With the data supplied by such international organizations as

  • theWorld Bank Institute,
  • the World Health Organization,
  • UNESCO, and
  • the IMF,

we assess each country’s performance on 17 political, economic, and social indicators.

MCC approaches development more like an investor than a traditional donor: We partner with countries that want to leverage MCC assistance to further their own commitment to reduce poverty and stimulate growth, not act as a substitute for it.  And, as an investor, we demand results from our investment.

We see countries take on the incredible work of policy reforms to qualify for our assistance and, then, to maintain their eligibility.  Our model has become a powerful incentive for reform, what is often referred to as the “MCC effect.”  

  • We see this “MCC incentive effect” in Madagascar, our first compact partner, which slashed the amount of time it takes to start a business from 67 days to 1 week, and reduced the minimum capital requirement for new businesses by 80 percent. The impact has been tremendous. Madagascar has seen a 26 percent increase in the rate of new business registrations, bringing 200 additional firms into the formal economy where they can access credit and grow to their full potential.
  • We see the “MCC effect” in Benin, another compact partner, which initiated sweeping reforms against corruption throughout several government ministries.
  • In Lesotho, the prospect of  MCC compact funding prompted the government to pass landmark legislation allowing women—for the first time in that country’s history—the right to own property, and the right to enter into binding contracts.
  • We even see the “MCC effect” taking hold in countries that have never received an MCC grant. In Guatemala, for example,  local media outlets publish the MCC scorecard in their newspapers to place pressure on their government. Civil society organizations ask presidential candidates to weigh in on what they would do to ensure that their country becomes MCC eligible. 
  • And, other countries, that do not yet qualify for an MCC grant,  have created presidential commissions and interministerial committees to monitor and implement reforms that will improve their MCC indicator performance.

We see MCC promote democracy and economic development by

  • linking aid to a country’s commitment to open markets,
  • tying aid to how a country governs, and to the civil and political liberties enjoyed by its citizens, and
  • connecting aid to a country’s willingness to fight corruption.

And, free people—governed by the rule of law, with access to opportunity—make good, stable neighbors.  While a number of factors contribute to this, the MCC effect is an undeniable part of the equation.

MCC’s approach reinforces ties with nations committed to sound policy performance. One way we do this is by inviting representatives from our compact-eligible countries to Washington and hosting them for a week of

  • intense learning,
  • workshops, and
  • peer-to-peer exchanges of lessons learned

in what we call MCC University.  This  creates a stronger camaraderie among countries that value stability and security and that are working to mitigate threats to international peace, including the menace of extremism. 

Second, MCC contributes to smart power by empowering capacity building within partner countries.

We partner with countries not only practicing sound policies but also leading their development.  Nearly 60 years of development experience has taught us that a partnership of equals—built on an equal will to make progress—is far stronger than a donor-recipient relationship of dependence.

Co-chairs Richard Armitage and Joseph Nye understand this reality and state in the Commission’s smart power report that, “Helping other nations and individuals achieve their aspirations is the best way to strengthen America’s reputation abroad.” 

We agree.  MCC cannot help a country to succeed more than the country itself wants to succeed.  Our approach is grounded in countries, not MCC, driving development.

  • That is why we ask countries to consult extensively with their citizens and determine their own priorities for eliminating constraints to growth.
  • That is why we ask countries to develop their own proposal for funding to address those development priorities.
  • Once their proposals are approved by MCC, we ask that countries take charge of implementing their own programs and coordinating with other donors already in the field to build synergies and avoid costly, inefficient duplications.
  • And, that is why we ask countries to evaluate progress and monitor impact, to make sure the intended results are delivered.  

By raising expectations and by placing responsibility and accountability on the shoulders of our partners, MCC is helping countries help themselves.  

  • For example, one of the obstacles to successful development in Ghana has been the lack of adequately trained procurement specialists. MCC is funding a procurement capacity-building initiative designed to strengthen the effectiveness of procurement entities to help Ghana help itself overcome this particular barrier to development.  Now, the training of procurement professionals across the country is underway.
  • Moreover, Ghana hosted a conference with other African countries eligible for MCC funding to share experiences and lessons learned in developing and implementing compacts. There is much pride in owning the process, navigating through the challenges of compact development and implementation, and, in the end, celebrating successes as the fruits of their labors, and not MCC’s efforts.

A Gallup survey of MCC partner countries found that 86 percent of respondents feel MCC fits in well with their country’s overall development strategy. Eighty-one percent believe MCC’s approach to country ownership will help achieve their country’s specific development objectives. Moreover, compared to other donors, partner countries report

  • that MCC provides more oversight,
  • that MCC provides more help to move toward sustainability, and
  • that MCC does a better job with building country capacity.

These findings are further proof of how MCC’s approach generates a positive impression in the national psyche of our partners and cements friendships around the world.   

Third, MCC contributes to smart power by paving the way for increased private enterprise.
Insisting on good policies and insisting that countries build their capacity to do more for themselves create conditions where, ultimately, the private sector can flourish.

Private enterprise is the true engine of economic growth, and the only way countries can effectively combat poverty is not to depend on development assistance but to use it to promote a thriving private sector. MCC grants to developing countries are designed to be transitional and to pave the way to private investment.  

We help create stronger economies so that entrepreneurs and businesses of all sizes can have new markets to

  • invest in,
  • conduct commerce through, and
  • trade with.

The Indonesian Finance Minister describes MCC support as a “good housekeeping seal of approval,” which sends a powerful signal to the private sector that conditions in MCC countries are improving—and are better for investing and doing business—than in other countries within the same income category.

  • We see this among our Central American partner countries.
    • El Salvador,
    • Honduras, and
    • Nicaragua

are not only MCC-eligible but also partners in trade through CAFTA-DR.  They are leveraging their compacts to

      • improve their business climates,
      • attract private investment, and
      • build trade capacity that maximizes the benefits of existing free trade agreements. 

Conclusion

In these three ways, the Millennium Challenge Corporation delivers “smart aid” to poor countries determined to use it wisely.  Using MCC investments to

  • motivate countries to further their own policy performance,
  • build their own capacity, and
  • stimulate trade and private sector activities for their own benefit

is smart…and is working. 

We see this as countries work to make difficult policy reforms, not only to qualify for MCC assistance, but also because such reforms are the right thing to do and the surest way to promote economic development and private enterprise.  Partner countries are fully leveraging MCC assistance to improve the lives of their poorest citizens—through their own solutions and their own determination

The Commission’s report concludes that, “It is against our economic and security interests to contribute to or ignore poverty and desperation around the world.” It is, rather, in our interests to reduce poverty, often seen as a breeding ground for

  • despair,
  • hopelessness,
  • resentment, and
  • terrorism

that could endanger our country and require the defense of our democratic ideals. 

Countering poverty where it exists counters the perils of poverty from reaching our shores.

MCC will continue to fight poverty through sustained economic growth; and I thank you, again, for your interest in the Millennium Challenge Corporation’s contribution to America’s smart power strategy for effective global engagement, for our own country’s sake and for the sake of a more peaceful, prosperous world.

Thank you very much, and I look forward to your questions and our conversation this afternoon!