Speech

April 15, 2007

As Prepared by John J. Danilovich, Chief Executive Officer

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Remarks by CEO Ambassador John Danilovich at the World Bank Institute 11th Annual Spring Breakfast Forum

Introduction

President Wolfowitz,
Managing Director Daboub, 
Partners, clients, and senior managers of the World Bank and the World Bank Institute in particular, 

Good morning, and thank you for that kind introduction and welcome.  It is a pleasure to be here to discuss the role of the Millennium Challenge Corporation in helping our partner countries build capacity to achieve sustainable and transformative development.

Since our establishment by an Act of Congress three years ago, the Millennium Challenge Corporation has been working toward a single mission: to reduce poverty through growth.  To fulfill this mission, we provide development assistance in the form of grants—not loans—to eligible countries in the developing world; and to date, MCC has awarded 11 partner countries in

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

with $3 billion in total funding through individual, fully funded, five-year agreements we call Compacts.  

The MCC model is built on the valuable lessons the development community has learned over the past half century.   Experience has taught us that assistance is most effective when it reaches partner countries:

  • that practice sound policies supporting good governance, investments in the health and education of their citizens, and economic freedom;
  • that are actively engaging in and pursuing their own development by identifying and implementing strategies for poverty reduction and economic growth; and
  • that demand nothing less than measurable results from the aid they receive. 

Therefore,

  • good policy performance,
  • country ownership,
  • and tangible results

are fundamental to how we engage in development at MCC.

Introduction to Capacity Building
What, then, does capacity building have to do with MCC’s work?

Think of it like this.  On the one end, we have substantial funding and technical expertise to help countries achieve their poverty reduction and economic development objectives.  On the other end, we have the actual programs—the concrete actions—countries develop to achieve their objectives.  

What connects these two ends is the capacity to convert resources into results. 

And, of course, that capacity, once created, enables results to be sustainable and expands a country’s capabilities overall.

What we can do through MCC funding, and what donors can do in full concert with one another, is transformational only when our partner countries put to use what they can do on their own—and for and by themselves—if they invest in building their capacity to deliver on the programs they design.

Capacity is fundamental to the ultimate success and sustainability of the programs that assistance funds and, as we all know, to long term development.  

Two core ways MCC builds capacity

Therefore, to help our partner countries build capacity, MCC takes a twofold approach:

  • We set high expectations.
  • And, we believe in “learning by doing.”

We consult extensively to ensure that this approach complements the efforts of others in this room.  As a result, almost all MCC programs learn from, build on, or work with the programs of other donors or the countries themselves. Let me explain what we mean by each dimension.

First, we set high expectations.

MCC assistance is not for everyone.   We only award it to those countries that are committed to sound

  • political,
  • social,
  • and economic

policies.  

To assess whether a country

  • rules justly,
  • invests in the health and education of its people,
  • and promotes economic freedom, MCC uses 16—soon to be 18—policy indicators taken from independent, non-US Government sources.  Five of the indicators come from the World Bank Institute.       

We evaluate how a country performs in terms of

  • civil liberties,
  • the rule of law,
  • and government effectiveness. 

We review measures of a country’s health expenditures and primary education completion rates.  We use evaluations of a country’s regulatory and fiscal climate to see how conducive it is for business development. 

We examine a country’s control of corruption.  Next year, we will add 2 new indicators that assess how well a country promotes environmental stewardship and protects property registration and land rights. 

It is one thing for a country to have a strong anticorruption policy but without the tangible capacity to deliver on that policy—in the form of trained prosecutors, for instance—performance will be lacking.  This is why policy performance—and not just the good policy itself—matters at MCC as a prerequisite for our assistance. 

And, this is why we are seeing countries take it upon themselves to

  • reform,
  • strengthen their institutions,
  • and build their capacity to improve their performance.

We refer to this phenomenon as the MCC incentive effect.

We see it in action in the Dominican Republic, which attributes its campaign to immunize 5 million citizens for measles to their effort to qualify for MCC assistance, because one of our indicators measures immunization rates. 

We see it among the 24 countries examined in the World Bank IFC’s Doing Business report, which specifically cite MCC as the primary motivation for their efforts to improve their business climate. 

We see it in the interministerial committees and presidential commissions in at least a dozen countries, which are devising reform strategies to address our selection criteria. 

We see it in El   Salvador, which dramatically reduced the number of days required to start a business from 115 to 26, and saw a 500-percent jump in business registration.  We hear it in the words of Indonesia’s finance minister, who argues that MCC’s real draw is its “good housekeeping seal of approval” to validate that countries are performing well.

MCC’s insistence on good performance on our control of corruption indicator, which is taken from the World Bank Institute, is another example of where countries eager for our assistance are building capacity. 

They are doing so by

  • adopting tough anticorruption laws,
  • strengthening oversight institutions,
  • opening up the public policymaking process to greater scrutiny,
  • and stepping up corruption-related investigations and prosecutions.

MCC is the only donor that currently explicitly ties eligibility for assistance to performance on an independently produced, transparent, and public indicator of control of corruption.  This raises the profile of corruption as a policy issue and creates a powerful incentive for reform and capacity building. 

Indeed, we take policy performance very seriously in selecting our partner countries.  In addition to the incentive effect, we have a Threshold program for those eligible countries that come close to qualifying for an MCC Compact, but fall short on several indicators.

This program is designed to provide targeted assistance to eligible countries to improve specific policy weaknesses in the hope that reform efforts will push them over the “threshold” to Compact eligibility.  To date, we have 13 Threshold agreements totaling $310 million.

Through the Threshold program, MCC has provided more than $220 million for anticorruption assistance programs proposed by partner countries, focusing on reforming

  • tax administration,
  • customs administration,
  • public financial management,
  • and business licensing. 

They also focus on strengthening the role of

  • investigative journalists,
  • public prosecutors,
  • civil society watchdog units,
  • and government auditing agencies.

All these measures improve the delivery of essential public services and build confidence in public institutions. 

By expecting good performance and providing assistance to countries taking the often difficult steps to reform and implement pro-development policies,  MCC pushes them toward building capacity for development.  This leads to my second point.  To both reinforce and reward good policy performance, we also expect countries to take ownership of and lead the efforts toward their own development. 

We believe in “learning by doing.”

While we work in partnership to define and share respective responsibilities toward realizing a Compact, we expect the country to take the lead in creating and implementing its own development proposal for funding.

Drawing on their Poverty Reduction Strategy (PRS) or national development plans, we expect countries to first identify their main constraints to poverty reduction and economic growth in a broad-based consultation with their civil societies, including

  • the private sector,
  • women,
  • and the poor themselves who are to benefit from the programs.

Then, we expect them to design their own proposals.  

We make it clear that should MCC approve their proposals, we expect them to be responsible for the implementation of those proposals, and that the implementation mechanisms be thought through as part of the proposal process. We expect their proposals to include

  • benchmarks to measure progress,
  •  procedures to ensure fiscal accountability for the use of our aid,
  • and an extensive plan to monitor results and evaluate impact.   

To ensure transparency and accountability, our assistance is disbursed only as those benchmarks are achieved.

The level of expectation—and responsibility—demanded by country ownership has stretched capabilities in our partner countries and motivated them to develop new capabilities.  Ghana’s public sector reform minister best described this when he said, “Unlike other traditional development assistance programs where the donor proposes how funds are used, countries selected under the Millennium Challenge Account propose programs to receive funding.  Thus, the MCA is designed to allow developing countries to take ownership and responsibility for funds provided by the Millennium Challenge Corporation.”

Country ownership is something everyone in this room supports because it is making partner countries think critically about what policies are needed and what institutions must be reorganized or created to sustain development. In short, it is working with them to build capacity. 

Last month, some 60 representatives from our Compact-eligible countries gathered at our headquarters here in Washington for a week of

  • intense learning,
  • workshops,
  • and peer-to-peer exchanges

in what we call MCC University.  MCC U itself is very much a capacity building initiative, providing countries with the information and materials they need to return home better equipped to successfully implement their own Compacts. 

Follow-on “MCC Colleges,” focused on

  • monitoring and evaluation,
  • environmental and social assessments,
  • and procurement matters,

are scheduled later this month and in May to build additional capacity in these specific areas. 

Over and over again during the course of MCC U, the participants recognized and applauded country ownership as key to achieving their specific Compacts.  We are finding countries learning much from each other—perhaps more than from us. 

Consider Ghana’s decision to host a forum later this month in Accra—similar to MCC U—of those African countries that are MCA eligible, in order to share peer-to-peer experiences and assist each other in the Compact process. There is tremendous pride in owning the process, navigating through the particular challenges of Compact development and implementation, and, in the end, celebrating successes as the fruits of their labors, and not MCC’s efforts.

To achieve and sustain development goals, each MCC Compact is not just a compilation of unrelated projects but rather a comprehensive, integrated approach to poverty reduction and economic growth that includes policy reforms as well as ways to build capacity in our partner countries.

Let me touch on three areas in this integrated approach to Compact implementation that contribute to capacity development.

First, consider procurement systems.  We offer our countries the option of including assistance for these critical systems within their Compacts.    In most cases, they already have programs ongoing with other donors. In Ghana, for example, a critical component for the successful implementation of its Compact includes training public procurement specialists.  Procuring

  • goods,
  • works,
  • and services

in a

  • transparent,
  • timely,
  • and competitive

manner ensures the best use of public funds.

Therefore, the Compact includes a procurement capacity-building initiative within the Ghanaian government itself designed to strengthen the effectiveness of various procurement entities. 

Second, consider environmental and social assessments.  To reinforce country ownership as well as to reflect international best practice, we require that countries conduct their own environmental assessments, which may include social impact assessments and gender analyses. 

Though the government of El   Salvador had previously never undertaken a Strategic Environmental Assessment, itrecognized the social, technical, and environmental benefits and launched such an assessment using World Bank funding in advance of MCC Compact funding.

We signed our Compact with El Salvador last November, and the government is now increasing its environmental staff and creating an interdepartmental task force within its Ministry of Environment and Natural Resources to implement results from the Strategic Environmental Assessment.   

This is bolstering capacity for monitoring and oversight of the environmental impact of investments in the country’s Northern Zone, where the Compact targets the highest concentrations of poverty.   El Salvador is also strengthening the environmental management system to help enforce land-use plans and to increase the participation of Salvadoran communities in the sustainable management of natural resources.   MCC is providing the funding for training in environmental management to deepen this institutional capacity.

Third, consider monitoring and evaluation plans to gauge progress.  Asking countries to develop their own Compacts—including the monitoring and evaluation plans for them—enhances their abilities and skills to evaluate other programs, including those of their own governments.

As part of Georgia’s Compact, extensive collaborative efforts are strengthening the Georgia Department of Statistics to ensure that MCA Georgia—which is responsible for Compact implementation, monitoring, and evaluation—has the best possible data to evaluate its program in particular and to generate stronger impact evaluation and data gathering capacity within the Georgian government overall.   

All of our partner countries are responsible for establishing baselines and demonstrating and measuring results to focus on outcomes and impacts rather than projects. 

Our Compact assistance seeks to lay a solid foundation for countries to help themselves, and to do this, in time, without assistance.  Through both incentives for good policy performance and country ownership, MCC is preparing for the day when aid can be replaced by the self-sustaining economic activity driven and spurred from within the country itself.

We know that even the most generous investment of development assistance will not be sustainable unless favorable conditions exist for private enterprise to flourish and become the engine driving growth and poverty reduction.  

We see this among our Central American partner countries—who like many other MCC countries—have programs to attract private investment and promote trade.   El Salvador, Honduras, and Nicaragua are not only MCC-eligible but also partners in trade through CAFTA-DR.  They are leveraging their Compacts to build trade capacity that maximizes the benefits of free trade arrangements already in place. 

Results like these take leadership.   We have found that committed leadership at the highest level is the key factor in enabling countries to move through the process of developing and implementing their Compacts—and building capacity along the way to do so.  We believe that our expectations of performance reinforce leadership capacity.    

During MCC U, Simon Pierre Adovelande, who is the coordinator of the Benin-MCA team, talked about how MCC has “raised great expectations” among the Beninese, who want to see results from their $307 million Compact. 

Because of this expectation, he went on to discuss the major role MCC plays in raising a new generation of leadership in Benin and building capacity in the people administering the program by demanding

  • accountability,
  • integrity,
  • and responsibility

that lead to anticipated results.

Conclusion

We are not naïve.  We fully realize that capacity in our partner countries is not built overnight.  It is not like flipping on a light switch.  MCC alone—or, for that matter,  any other donor in this room acting alone—cannot build capacity.  The paramount role is played by many actors within our partner countries themselves.   They must build the organizations.   They must provide the leadership.   We can only help.

We are challenging countries to look at how they perform on their policies.    We are challenging them to create the ability to accomplish their own objectives. We are challenging them to do far more for themselves—with their own leadership—than previously expected to maximize assistance received.  We are challenging them to foster the conditions needed to spur private enterprise, which is ultimately the engine of sustainable growth. 

We are challenging them to transition away from the dependence of foreign assistance toward the independence of sustainable, investment-driven development so as to have a transformative and lasting impact on the lives of the poor. 

By raising expectations and by placing responsibility and accountability on the shoulders of our partners, the Millennium Challenge Corporation is helping countries help themselves—and, that will be the ultimate measure of the success of capacity building.  

I want to thank you for asking me to speak to you this morning.  I thank you for your attention at this early hour and for your continuing interest in and support of the Millennium Challenge Corporation.