Speech

May 2, 2005

As Prepared by Paul V. Applegarth, Chief Executive Officer

Center for Global Development

MCC CEO Paul Applegarth’s Remarks at Center for Global Development

subtitle

The theme for today is that MCC is endeavoring to do something new for foreign aid and we need your help to do it well.

First, though, I want to thank CGD for its ongoing support, advice, and even constructive criticism. We really feel that this has strengthened us. I especially want to thank Sarah Lucas for her commitment to seeing MCC a success, and we wish her the best in her future endeavors.

Today, I’m not going to provide the history or a general update on MCC. I think those in this audience are quite well informed. I’m going to be very candid today about progress we’ve made, initial assumptions that have been confirmed, lessons we’ve learned, and challenges we have already faced and those we anticipate. Of course, we’re going to continue to rely on all of you to bring to our attention some of the challenges we haven’t anticipated. Then, in light of CGD’s new MCA Monitor, we wanted to give you some insight on how we think your evaluation of MCC could be most effective. We welcome the scrutiny. We take it as a sign of the importance of what we’re trying to do. And we believe it will strengthen us.

With regard to the assumptions confirmed, lessons learned, and the challenges:

First, what we’re asking countries to do is not easy, but many of them are proving their commitment. This is exactly what we hoped we would find. They can do it, as you have seen with the Madagascar Compact — this assumption is confirmed.

What we’ve learned is that those countries that make a commitment of dedicated staff, time, and resources to program development are seeing faster and better results. A sustained high-level political commitment is also absolutely critical to the in-country staff being able to manage the process.

One of our challenges, is we are spending a great deal of time giving technical guidance and are striving to find the right balance between providing guidance and preserving country ownership.

We’ve come to the conclusion that some financial assistance earlier in the process could be helpful in speeding it up and improving the quality of the programs. We have internally approved initial parameters for the use of pre-compact funding — 609(g) funds — for when money can best be used to support activities in advance of a Compact to accelerate its preparation or its implementation after signing. We are already moving forward with this funding in several countries including Madagascar and Nicaragua . We think we have defined parameters of assistance that will provide countries with resources they require, while preserving country ownership and evidence of country commitment.

One of the main challenges our candidate countries are facing is implementing the Consultative Process. This is a critically important element of proposal development as it is the foundation of a country’s development strategy. With the help of our NGO partners, we’ve recently published guidance on the consultative process—including examples of how it is being done in some countries—which we hope will encourage countries to engage more fully with their populations, and to allow them to benefit from the experience of other countries in improving their own process.

One encouraging example of country ownership we’ve seen was when on eligible country team leader got the name of his counterparts in other countries and contacted them to see how they were doing the consultative process. [A second example was when we hosted a "Lessons Learned” workshop for MCA countries at the IMF meetings, which provided an opportunity to further share experiences.]

I encourage you to look at the Consultative Process Guidance — it’s on our website — and give us your comments.

Second, something I’m very proud of is, MCC’s team. We’re up to over 120 people now, and I believe we are showing that the government can pull together top talent from the government, the private sector, and the academic, NGO, and development communities. Our ability to attract good people from a diversity of backgrounds is another assumption confirmed.

I think this is because our mission is right. It’s very difficult with the enormous tasks ahead, but one of our ongoing challenges is to continue focus on building a culture — and compensation system—which continues to attract and retain this talent.

A related challenge, as Steve Radelet pointed out last week, is that our target to have a staff of only 200 people would make us the leanest development organization. We’re on target for hiring and hope to be at full-strength by the end of the year. We agree that running this organization with 200 people will be a challenge, but we’re not yet ready to concede that this is sub-optimal. The jury is still out, but we’re going to try to make it work. Our effort to avoid creation of a huge bureaucracy has been a very good discipline. We are contracting with others who can do non-mission critical activities as well as, or better, than we can, while staff focus on our primary mission of poverty reduction. We invite you to continue watching us as we grow.

Third, because we’re doing something new, the necessity to continually educate people is surprisingly difficult and, more surprisingly, the need to educate people has not lessened over time. Getting basic information out there is time-consuming and challenging. Many people are asked to speak about the MCC, but some don’t understand even our basic principles. In that regard, you can help us. We would ask all of you who regularly engage publicly about the MCC to speak knowledgeably and responsibly. Please come to us if you want to check facts. We certainly encourage the scrutiny and expect you to speak honestly about what you’re seeing. We will help and of course, we will listen — if you think there is a problem, tell us first.

We’ve been pleased with the level of support that we’ve gotten from the development NGOs and think tanks and to ask all of you here today to keep it up. The constructive feedback that we get from you is invaluable and our door will remain open to your suggestions. We do get concerned when your messages of support are lost, and particularly when your constructive criticism is taken by those who are quick to focus on the negative and try to use it to cut our funding.

Also difficult has been getting external observers to buy into the new model of assistance. Change is incredibly difficult for most people and that makes our task that much harder to convince people of the merits of our new approach. Many are still in the same mode of throwing money at the problems of the developing world. We want to empower countries to address their underlying problems and help them make long-lasting change. We’re talking about more than a quick fix and that simply is not going to be done quickly.

As I testified last week, our mission differs from many other assistance efforts. In disaster relief and many humanitarian assistance programs, the diagnosis of the problem is relatively straight-forward to determine - that is, rescue the people in danger, feed and house them. MCC’s task is fundamentally different—the problems more intractable and the solutions less obvious. Identifying the reasons for grinding poverty and finding answers that will really lead to poverty reduction and long-term growth require serious consideration and thoughtful effort.

Having the countries develop and own the proposals and get citizen buy-in is very valuable, but that’s hard for some to digest. It’s also difficult to convince people that we are but one of a number of US development strategies — we’re focused on the long term success of these countries. There are other programs that address countries’ immediate needs. Of course, we want to be signing compacts sooner, but the test is how to do it without compromising what MCC is all about.

I lie awake at night wondering if we’ve struck the right balance between doing it quickly and doing it correctly. I’ve traveled to almost all of our eligible countries, and seen first-hand the poverty the people live with — with countries that have a maximum GDP per capita below $1450, and some far below that—Many of the people subsist on less than a dollar a day. Like most of you, I’ve wrestled for decades with the problems of seemingly intractable poverty. I know it’s a life or death situation for many. But I’m determined to change the way development assistance is given, to make a permanent difference in their lives, and not to go for a quick fix so we can report to Congress that we’ve signed a lot of Compacts and spent a lot of money.

Having said that, the efforts of MCC and its staff, and our partner countries, are paying off. We just signed our first Compact, as you know, and our pipeline is robust. You’ve seen the pipeline chart, here it is again. MCC has already notified Congress of our intention to negotiate Compacts with Honduras, Georgia, Nicaragua, and Cape Verde . We hope to sign Compacts with all of them this summer and our other countries are in varying stages of Compact development, most of which will be finalized during the remainder of this calendar year.

Through the years, the United States and others have devoted considerable funding to alleviating the effects of global poverty. Regrettably, however, there is far too little poverty reduction in relation to dollars spent. The MCC offers a new development assistance approach that requires measurable results for aid investment. We have learned that simply giving large sums of money away without a determined focus on poverty reduction, country ownership, and quantifiable targets is not the most productive means of providing foreign assistance.

This is one way we think that the CGD’s new MCA Monitor can play an important role to the MCC—helping us educate people about what MCC is trying to achieve. Measuring us against the old model — ie, how quickly we can spend money, is not how we think we should be measured. How can we educate people to focus on results — on poverty reduction? This leads to me to how we think MCC’s progress should be evaluated.

These are the fundamental questions we want your monitoring and advice on: Does MCC’s approach lead to better results? Have we established an effective model for development that allows countries to take the lead in their development? Are we fundamentally moving in the right direction? How can we improve?

Are we creating an incentive for policy reform in developing countries?

We believe the answer is already a solid yes. We are seeing progress and we will be focused on tracking these results and will share what we learn.

We see a great deal of attention to the indicators by governments; we see that we are providing a tool for reformers both inside and outside government to push for changes; and finally, we are seeing actual improvement by countries on the scores.

For example, in many cases, we have witnessed dramatic improvements in MCA-candidate countries’ performance on the "days to start a business” indicator which the authors say are in no small measure attributable to the existence of the Millennium Challenge Account. According to World Bank officials, because of MCA’s incentive effect, Paraguay, a Threshold Country, adopted significant policy reforms in 2004 that both improved their score on the "days to start a business” indicator and catalyzed an increase in registration of approximately 6,000 (or 20%) more firms than usual.

Second, are we seeing that ownership leads to better designed programs and greater citizen participation and buy-in?

Many of our countries are proving themselves up to the test and are building capacity through this experience. Countries can take greater responsibility for their own growth and for coming up with strategies to address poverty reduction.

Countries are consulting with their citizens to a greater degree than before. It’s not perfect, but they are doing it, with greater transparency, taking risks, strengthening capacity and learning along the way.

The programs we are supporting seem to be resulting in more locally-owned programs. Some of the governments are even inviting civil society representatives to participate as voting members of boards in overseeing implementation.

Third, is there value added in our process?

Someone came up to me at an NGO event last week and said he read the original Madagascar proposal on our website and compared it to the final result. He said he was very impressed with how it improved and gave credit to MCC. We would prefer to give the credit to the Malagasy. The point is - do you share this conclusion. Are there lessons to be learned in what you are seeing?

Fourth, look at MCC itself and whether we are efficient.

Help us to develop measures of efficiency.

200 people is a small number but they work hard and we hope, smart. We believe by traditional measures such as overhead costs, we are proving this lean model can work. However, we need better and transparent measures.

Finally, does building in benchmarks for success lead to better results?

This is a longer term question, of course, as it is too soon to judge results.

Even now, you can ask, have countries designed programs to impact the poor? Will it have an impact on both women and men? Are we focused where the poorest and most vulnerable are?

As you see more compacts, have we set up the right indicators for measuring success?

We think we, and the countries we’re partnering with, have made great strides in identifying programs which will lead to growth and, most importantly, will impact the poor.

Whether it’s increasing agricultural productivity, increasing access of the poor to markets, improving rural infrastructure — we think it’s very clear that the programs we’re supporting will address the underlying issues hindering the progress of the poor.

We look forward to answering these questions with you. We welcome your direct feedback. I’d like to stress to you — we really do want to hear from you. I believe that we have been open and responsive to the feedback that we’ve received to date and it’s essential to MCC’s mandate that we continue to learn and grow. It’s absolutely critical to MCC’s success to rebuilding confidence in long-term, focused foreign aid. We look forward to your continued support and scrutiny of the MCA and the progress of the MCC. Thank you very much, and I look forward to your questions.