Speech

April 30, 2008

As Prepared by John J. Danilovich, Chief Executive Officer

Los Angeles, California

‘Discussing MCC at the United Nations Association’

Introduction

Distinguished guests,

Thank you so much for inviting me here today.

I am delighted to share with you the story of the Millennium Challenge Corporation and our success to date. I’d like to tell you about

  • who we are,
  • the core values that define our approach
  • how our work is helping to support progress on the United Nations’ Millennium Development Goals,
  • and how we are engaging with the private sector

—all critical elements in fulfilling our mission to reduce poverty through sustainable economic growth.

MCC 101

The Millennium Challenge Corporation, created by an Act of Congress in January 2004, is a demanding, different, and innovative approach to U.S. foreign development assistance.   We join many other organizations—in both the public and private sectors—in a shared commitment to meeting the MDGs. 

MCC delivers what many are calling “smart aid.” Through our approach, we work to empower countries to build their capacity and lead their own development. While this creates an excellent, solid foundation, more is needed.  And, that is why MCC’s approach to development assistance can only be sustained over the long term if it is coupled with the

  • creativity,
  • innovation,
  • and entrepreneurship

of the private sector. What leverages our aid and creates a sustainable development impact in the lives of the poor is combining our investments with those of the private sector, through early and continuing private sector engagement.

In four short years, MCC has partnered with 16 of the world’s poorest countries in

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

through compacts to fight poverty.  These compacts total over $5.5 billion and address specific barriers to poverty reduction and economic growth. 

And, our approach has fundamentally changed the conversation about how best to award development assistance to effectively tackle poverty.  Three core principles define how our model operates.

First: Since we believe policies matter, MCC funding is performance based.  MCC partners only with those countries that measure up to 17 independent, non-U.S. government indicators proving their commitment to

  • good governance,
  • economic freedoms,
  • investments in education and health,
  • control of corruption,
  • a regulatory and fiscal climate favorable to business development,
  • civil liberties,
  • the rule of law,
  • land rights,
  • and the protection of natural resources.

As a result, we are seeing partner countries enact the often difficult policy reforms necessary not just to qualify for and remain eligible for MCC aid but also, even more important, to do what is best for their citizens and to stimulate private sector activities.

To create an incentive for policy reform, those countries that come close, but do not fully qualify on our 17 performance indicators, may submit a threshold program for funding to address their particular policy weaknesses.   Countries want to be deemed eligible for MCC funding, and we are viewed as a powerful catalyst for accelerating policy reform.    To date, MCC has signed 17 threshold programs totaling about $365 million with countries worldwide, and we work mainly with USAID to administer these programs.

Second: Since we believe that foreign aid should be predicated on partnership and not paternalism, MCC funding requires “country ownership.”Taking an approach much like an investor – rather than a traditional donor – MCC requires countries themselves to come up with their own development strategy.   

It is the country, not MCC, which must identify its barriers to poverty reduction and economic growth.

They are the ones that must develop their proposal for funding through a broad consultative process.  This involves input from all segments of civil society, the private sector, and non-governmental organizations. 

And, they are the ones that will implement their program. 

We place a country in the driver’s seat of its own development by expecting its full participation in, ownership of, and responsibility for its development path.  MCC’s approach empowers countries to lead their development.

Third: Since we are interested in outcomes, MCC insists upon tangible, meaningful, sustainable results.Our partner countries must identify, at the outset, what impact and outcomes our MCC funding will achieve.  Extensive monitoring and evaluation plans are integrated into each program.  We believe that it is not too much to ask that the assistance invested should yield tangible results. 

Ourapproach is bearing fruit, and we can point to some early results on the ground.

  • Madagascar, for example, slashed the time it takes to start a business from 67 days to one week, and reduced the minimum capital requirement 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.  Additionally, MCC funded-agricultural cooperatives in Madagascar are producing greater quantities of high-value geranium oil to be used in soaps and perfumes.
  • Georgia completed the first round of emergency repairs to its North-South Gas Pipeline, improving the long-term security and diversification of the country’s gas supply, and providing citizens and businesses with reliable electricity and heating.  This improves the standard of living for average Georgians and increases productivity among businesses so that people can earn a better living.
  • Nicaragua is helping farmers and rural entrepreneurs gain land security and access to markets.  When I was there in January, I awarded land titles to over 700 Nicaraguan families and inaugurated a transportation project to rehabilitate a segment of the Pan-American Highway, connecting Nicaragua to Honduras. MCC funding is improving links not only between Honduras and Nicaragua but also between El Salvador and Honduras.  These connected routes will help farmers more easily move their products to markets
    • in the region,
    • in the U.S.,
    • and beyond.

Role of MDGs

By applying the MCC model—based on good policy performance, country empowerment, and tangible results—our work is also contributing to meeting the Millennium Development Goals in two key ways. 

  • First, MCC creates an incentive for reform that supports improved performance on the MDGs.
  • Second, MCC investments directly impact the MDGs.   

On the one hand, we provide an incentive for countries to meet several of the MDGs by including them in our eligibility indicators.  For instance, one of our country selection indicators is girls’ completion rates from primary school.  Our country selection indicator measuring immunization rates for DPT3 and measles supports the MDG of reducing the child mortality rate.  Two new indicators—a Natural Resource Management Index and a Land Rights and Access Index—are used in the selection process to measure factors related to environmental sustainability, child mortality, gender, and equality in access to land.
 
On the other hand, in designing their compacts to reduce poverty, our partner countries are choosing to directly address the MDGs. Our partners are using MCC funds to increase agricultural productivity, improve roads, ports, and airports, and reform justice ministries. MCC’s compact with Madagascar, for instance, contains a land titling element that provides farmers with an incentive to improve their land rather than abandoning it for new slash and burn fields.  Community development programs in Ghana and El Salvador contain education and health elements. MCC threshold programs focus mainly on rooting out corruption and improving governance to help create a policy framework where poverty reduction and economic growth can take root.  Some address other indicators, such as our threshold program with Burkina Faso, which is aimed directly at helping to improve girls’ graduation rates.

Role of Private Sector

We believe that reducing poverty through economic growth is key to achieving the MDGs in a sustainable way and requires that government, other donors, civil society, and the private sector all play essential roles in moving countries from dependence to independence.  For instance, we work very closely with other donors in partner countries so as to avoid duplications and to maximize outcomes.  And, we continue to explore ways to partner more closely with the private sector.

The private sector drives growth and is positioned to play a critical role in development and in lifting communities around the world out of poverty.  Because we demand performance on indicators evaluating the fiscal, monetary, regulatory, and trade conditions of a country, including the costs and days to start a business—and insist on transparency and a rejection of corruption—MCC creates an incentive for countries to foster a business climate where the private sector will want to do business.   This stimulates:

  • homegrown entrepreneurship,
  • small business development,
  • increased trade, and
  • opportunities for investors.

We want our partner countries to leverage their MCC aid to enhance private sector activity.  Our partners are using our funds to promote private land ownership, to improve access to credit, and to enable farmers to grow cash crops and get those products to market.  MCC investments are helping to create a physical, financial, and policy infrastructure in these countries that fuels private sector-led growth.   We also work to ensure that private sector leaders are engaged in proposal development to make certain that MCC funds are being used to solve the most critical problems.

We believe a country’s long-term growth is sustainable only if our assistance is eventually replaced with economic activity and investment led by the private sector. MCC’s role, ultimately, is transitional and serves as a gateway to increased private sector engagement. 

What MCC starts, the private sector will take across the finish line.  We will know that we have been successful in improving the lives of the poor when we are, so to speak, no longer in business, and our aid in our partner countries has been replaced by private capital flows. 

Conclusion

MCC’s work around the world will remain grounded in partnership because we know we can accomplish far more working with others than working alone.  The UN Association is an excellent example of the power of cooperation to tackle the world’s most pressing challenges.

While we know that what our partners do—through their policies, priorities, and institutions—is ultimately key to reducing poverty, we also appreciate the help other donors and NGOs have provided to our partner countries.  We welcome the private sector’s tremendous role—through its corporate social responsibility programs and, just as critically, through its day-to-day business operations—to meet the MDGs and in achieving sustainable poverty reduction.  Through awareness building and action in the field, groups like yours are making a difference in the fight against poverty.

Let us renew today our shared commitment to this great effort to reduce poverty through sustainable economic growth.

Thank you very much for your interest in the Millennium Challenge Corporation.  Again, thank you for inviting me to join you, and I would be happy to take your questions.