Speech

May 9, 2006

As Delivered by John J. Danilovich, Chief Executive Officer

Business Council for International Understanding

Ambassador Danilovich addresses Board members of the Business Council for International Understanding

Thank you Maurice for your generous remarks and for your support of our innovative MCC model and its application to development assistance,  national security and to the private business sector. It is a pleasure to be here today – it’s the seventh time I have had the opportunity to meet with BCIU and to meet with so many friends:

Maurice (Tempelsman)

Peter (Tichansky)

Frank (Wisner)

Nelson (Cunningham)

Ralph (Gerson)

Today I’d like to make a few comments but want leave ample time for discussion. Let me briefly talk about the Millennium Challenge Account model, the impact we have already made, and ultimately why this is of importance in the work you do.

The MCA Model

When President Bush first launched the idea for the MCA he laid out what would become our core operating principles.

The first principle is that policy matters ; good policies support growth,  reduce poverty and make assistance more effective.  And for growth to be sustainable, countries must adopt and maintain policies that support it.

MCC works with the poorest counties in the world, and selects those that perform better than their peers in three broad categories of ruling justly, investing in people,  and encouraging economic freedom, as measured by independent, non U.S.  Government indicators. Over the past two years of MCC’s existence we have found very encouraging evidence regarding the policy changes we are seeing in countries, with particular relevance to your community,  which I will expound on in just a moment.

The second principle upon which we operate is that country ownership is crucial to building responsibility and accountability. MCC requires that countries pick their own priorities and develop their own programs in consultation with civil society and the private sector, and MCC requires it to be meaningful, so that it allows citizens to have genuine input into the process. We then do our due diligence to ensure that the proposal is feasible and will achieve our objective of reducing poverty through growth.

Finally the third principle, and perhaps the most important, is that development programs need to be results-oriented. As members of the private sector and board representatives for the BICU, you understand that success is not measured by inputs but by results. Consequently,  MCC ties the funding it provides to measurements of program results. I call this “aid with accountability” – not only on our part, as fiduciaries of U.S. taxpayer dollars, but also on the part of the country for the success of their program in reducing poverty and achieving economic growth.

MCC asks countries how they will ultimately assess a program to be successful, and works with them to develop measures of interim and final program success, disbursing funds according to benchmarks along the way.

Already Making An Impact

In our short existence, MCC is already having an impact, not only in the countries that are eligible to apply for MCA funds, but in those striving to be selected.

We are working with 23 compact eligible countries. To reinforce our incentive for good policy, we also offer a Threshold program to 18 countries that fall short of qualifying for the MCA. These programs help them address their areas of weakness – often in corruption and governance – if they display the political will to do so.

We have signed and are implementing 8 Compacts – with Madagascar,  Honduras, Cape Verde, Nicaragua, Georgia, Benin, Vanuatu and Armenia –  and 3 Threshold Agreements—with Burkina Faso, Malawi and Albania and we will be signing three more with Tanzania, Paraguay and Zambia this month.

Together these represent a commitment of over $1.6 billion and we anticipate adding several more Compacts and Threshold Programs by the end of the year. Even as the programs are beginning, we see the MCC acting as a catalyst as countries undertake difficult policy reforms necessary for development.  We thus see our role as a catalyst. By providing incentives for improvement in the overall policy environment, we already have clear evidence that we are having an impact. And as I mentioned in the beginning, I want to elaborate on the importance of this and its relevance for your work:

             
  • According to the managers of the Doing Business project at the International Finance Corporation, 80 percent of the business start-up reforms that they have observed are directly linked to the incentive effect of the MCC.   To date, twenty-four countries have specifically cited the Millennium Challenge Account as the primary motivation for their reform efforts.
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  • El Salvador, which was selected for the first time this past November,  slashed the number of days to start a business by two-thirds—so dramatic an improvement that the World Bank cited the country as the one of the most aggressive business start-up reformers in the world.
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Our success in helping reducing the ‘days to start a business’ led us to add a second “Doing Business” indicator, ‘the cost to start a business.’ And we hope to see similar results elsewhere.

             
  • Academics also back our belief that countries can and do respond to clear and actionable incentives, if the political will is there. A study released earlier this month by two Harvard economists concludes that MCC’s selection criteria are, in fact, accelerating policy reform.
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Why This is of Importance for Private Sector

In the end, we will only succeed when our efforts spark policy reform and as a result, make possible other investments needed for sustainable growth and poverty reduction – whether from a farmer because he now has title to his land or a local or multinational company because the conditions are now promising.

While foreign assistance can help create the conditions for growth, it is private sector investment and output that sustain growth. MCC is intended to be a foreign aid program with an exit strategy. Our goal is to spur countries to graduate themselves out of poverty. We will know we have been successful when we are no longer necessary.

As such, the ultimate success of the MCC will not be measured by the number of dollars it hands out, but by the changes that it brings about in the countries it supports and the investments that follow. To give you just one example:

In February, we signed a $307M Compact with Benin, in West Africa, in which they identified a poor investment climate and a lack of dynamic private sector activity as key impediments to sustainable economic growth and poverty reduction. Land insecurity, lack of access to capital, an inefficient judicial system, and an increasingly uncompetitive Port of Cotonou further hinder economic growth. The Compact with Benin will address these key constraints by focusing on access to land, financial services, justice (especially for small claim commercial disputes), and markets. The access to markets project is expected to reduce delays at the Port of Cotonou and increase the volume of exports.

As a result of this Compact, we will assist five million people, over half of Benin ‘s population, and lift an estimated 250,000 of its citizens out of poverty by the year 2015. 

This is just one example of how we are incentivizing policy change,  stimulating growth, and ultimately creating opportunities for private investment that will further stimulate long term economic growth. W e want the Millennium Challenge Account not only to be a great opportunity for our countries, but for the business community as well.  In closing, let me leave you with three thoughts.

In Conclusion

First,  take a look at our indicators: We focus attention on countries that are doing the right things. All of our data is public and each country’s historic ranking on our 16 indicators is on our website at www.mcc.gov.  Good policy environments should make good investment environments. We invite you to use our indicators as a tool to help in your business planning.

Second, look into our programs. See if your local subsidiaries, affiliates or partners have contributed to the consultative process that takes place in each MCA country. And, once the program is underway, look to see if its successful conclusion will make a difference to your business prospects.

Third, take a look at competing for our procurements. We run a standard FAR compliant process. But the big money is in the services and products procured by MCA entities in each of our Compact countries. These are all done by open and transparent, international procurements with notices listed online at United Nations Development Business and Development Gateway Market. You can help ensure that our partner countries are getting the best possible products at the most competitive price.

Finally,  I noticed last week that GE announced that sixty percent of its growth in the next decade will come from developing countries. Our objective is to increase the long term growth trajectory in the developing world – by encouraging them to improve policies and helping them overcome constraints. We at MCC see you as essential partners in our efforts,  and we look forward to working with you in this endeavor.

  I hope that what I have said has been of interest to you and I thank you for this opportunity to meet with you this morning.