Speech

May 9, 2007

As Prepared by John J. Danilovich, Chief Executive Officer

Washington, DC

Opening Remarks by MCC CEO Ambassador John Danilovich at the CSIS ‘Fighting Corruption: Challenges and Opportunities for the Millennium Challenge Corporation” Event

Introduction

Dr. Hamre,
Ladies and gentlemen,

Good afternoon, and thank you for your ongoing interest in the work of the Millennium Challenge Corporation, including our focus on fighting corruption as an essential component to fulfilling our mission to reduce poverty through economic growth.   From each of our 11 Compact countries and 13 threshold programs, the Millennium Challenge Corporation expects a clear and unwavering commitment to maintaining and furthering this fight against corruption.

Very special thanks to Dr. Hamre and the Center for Strategic and International Studies for co-hosting this event with MCC, and for your help in furthering the dialogue on this important topic.

Today’s panel of experts—

  • MCC’s very own Vice President for Policy and International Relations Maureen Harrington,
  • Georgetown University’s Callisto Madavo,
  • and Transparency International’s Frank Vogl—

will discuss the progress made and the challenges remaining in the fight against corruption.   MCC’s paper on corruption adds to this discussion, and I invite you to access it through our website at www.mcc.gov.

Purpose

Let me say just a few words on how MCC fights corruption and discuss in more detail why we attach such importance to this effort.

How MCC fights corruption

When the panel convenes, Maureen will explain the specific mechanisms used by MCC to fight corruption and what lessons we have learned along the way.  Let me just say that how we work to reduce corruption is fundamental to how our model for delivering development assistance works.

Within MCC’s performance-based approach to aid allocation, a key distinguishing characteristic is that we partner only with those countries that pass a control of corruption indicator.   It is a “must pass,” “hard hurdle” for MCC eligibility.  

This corruption indicator allows us to assess concrete government action—or inaction—in the fight against corruption.  Countries are evaluated to determine, for instance, 

  • the frequency of additional or irregular payments to get things done;
  • the extent of corruption among public officials, border officials,  judges, or magistrates;
  • and the effects of corruption on doing business.

By evaluating corruption in this way, the MCC model guides us toward partnering with and directing our aid to those countries clearly committed to a path that rejects corruption. 

Why MCC fights corruption

I would like to turn now to the three overarching reasons why the Millennium Challenge Corporation pursues such a staunch anticorruption agenda. 

  • First, corruption negatively impacts development.
  • Second, one of the most effective uses of aid is in the fight against corruption.
  • And, third, corruption undermines the ability of countries to graduate from development assistance and to embrace private enterprise.

Let me illustrate what we mean by each of these.

Three reasons why MCC fights corruption

First, corruption negatively impacts development.

Research and practical experience demonstrate that corruption cripples economic growth and undermines poverty reduction.   Corruption

  • undermines investments in health and education,
  • siphons funds away from other essential public services,
  • increases costs,
  • lowers productivity,
  • discourages investment,
  • reduces confidence in public institutions,
  • produces a more regressive tax system,
  • limits business development,
  • and weakens public financial management systems. 

During a speech at the University of Nairobi last August, Senator Barack Obama summarized the ill-effects of corruption in Kenya, for instance, when he stated and I quote, “…[C]orruption …here in Kenya…is a crisis…that’s robbing an honest people of the opportunities they have fought for…It is painfully obvious that corruption stifles development - it siphons off scarce resources that could improve infrastructure, bolster education systems, and strengthen public health. It stacks the deck so high against entrepreneurs that they cannot get their job-creating ideas off the ground…” 

Senator Obama’s summary could very well apply not just to Kenya but also to many countries in the developing world where corruption undermines development.

Our $13 million threshold agreement with Kenya seeks to stamp out such corruption, particularly in the health sector.

Second, one of the most effective uses of aid is in the fight against corruption.

Fundamental to how we operate at MCC is the core principle that sound policies ensure the most effective use of aid.   For this reason, we use

  • objective,
  • independent,
  • and third-party indicators

to assess whether a government

  • rules justly,
  • invests in the health and education of its people,
  • and promotes economic freedom. 

This allows us to determine and select which countries receive our aid.  While many donors take corruption into account in making resource allocation decisions, MCC is the only donor that currently explicitly ties eligibility for assistance to performance on a transparent and public control of corruption indicator.

This has raised the profile of corruption as a policy issue and created a powerful incentive for countries to

  • adopt tough anticorruption laws,
  • strengthen oversight institutions,
  • open up the public policy-making process to greater scrutiny,
  • and step up corruption-related investigations and prosecutions.

In short, just to qualify for our aid and to remain eligible for it, countries are putting procedures in place to root out corruption.

We see this in Georgia, which adopted dramatic anticorruption reforms leading to a significant improvement in its control of corruption indicator from the 36th percentile in 2004 to the 78th in 2005.  In 2002, approximately 37 percent of firms in Georgia reported that bribes were routinely necessary to get things done. That number declined to around 7 percent in 2005.  Georgia has

  • arrested scores of corrupt public officials,
  • made important legislative changes that facilitate the prosecution of corruption cases,
  • fired 15,000 members of the corrupt police force,
  • and increased the salaries of 10,000 public servants to counter the lure of petty corruption. 

It is no wonder that in the World Bank’s 2006 and 2007 Doing Business reports, Georgia was identified as one of the world’s most aggressive reformers.

We see it too in the Philippines,  where in an unprecedented move, President Arroyo matched MCC’s $20 million threshold program funding to fight corruption with a similar amount from the Philippine government.

Corruption-related investigations and dismissals have stepped up significantly. For instance, the Office of the Ombudsman indicted the former Justice Secretary and three others on charges of

  • graft,
  • extortion,
  • and falsification of public documents.

Additionally, an executive order mandates a “seamless” registration process that is expected to make doing business easier and less prone to corruption.

We see it in Malawi,  where we are helping build prosecutorial abilities in the

  • Department of Public Prosecutions,
  • the Anticorruption Bureau,
  • and the police force. 

Through our program, some 45 Malawian journalists have been trained in investigative and corruption reporting.

We see it in Zambia,  where Integrity Committees, or internal watchdog units, have been established,  and codes of ethics have been developed at key institutions to fight corruption. To reduce corruption in the border management of trade, a centralized “single window” process has been launched.

We see it in the Ukraine,  where we are helping streamline complicated and overlapping systems for providing

  • construction permits,
  • municipal services,
  • land and property ownership,
  • and customs clearance at borders

that create opportunities for corruption.

We see it in Tanzania, where we are helping the government set up a Financial Intelligence Unit that will analyze suspicious financial transactions and freeze or confiscate corrupt proceeds.

Threshold programs in these countries, in

  • the Philippines,
  • Malawi,
  • Zambia,
  • the Ukraine,
  • and Tanzania,

are examples of how MCC’s assistance scales up and accelerates the anticorruption agenda of reform-minded governments. Our threshold programs are with countries that do not yet qualify for a Compact with us, frequently because of poor performance on the corruption indicator, but have demonstrated their commitment to improving performance on that and other policy indicators. 

In fact, the MCC Board of Directors has approved anticorruption programs totaling more than $220 million over the past three years with a number of countries, including

  • Moldova,
  • Paraguay,
  • Albania,
  • Indonesia,
  • Kenya,
  • and Uganda.

These programs focus on reforming

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

They are also strengthening the role of

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

in the fight against corruption. 

We have also seen how the incentive of potential MCC funding and our insistence on sound policies spurred anticorruption reform in Yemen.After being suspended from MCC’s threshold program in late 2005 due to a material decline in overall policy performance on a number of our selection indicators, the Yemeni government pursued aggressive reforms, including

  • passing important anticorruption and financial disclosure legislation,
  • launching a national anticorruption awareness campaign,
  • and retiring, sanctioning, suspending,  or prosecuting more than 30 corrupt judges.

These anticorruption measures, along with other reforms, led to our Board’s decision in February to reinstate Yemen’s participation in our threshold program.

By setting a new standard for performance-based aid allocation, MCC advances a strong anticorruption agenda.  Requiring countries to fight corruption remains one of our highest priorities, since we are serious about delivering effective development assistance that, in turn,  delivers results to the millions our programs intend to benefit. Anticorruption measures improve the delivery of essential public services and build confidence in public institutions. 

Equally important, these measures increase a government’s operating revenues so that more can be invested in sustainable social programs to make a transformative difference where it matters most—in the lives of the poor. 

Third, corruption undermines the ability of countries to graduate from development assistance and to embrace private enterprise.

By working with countries to counter corruption, MCC is strengthening effective governance as well as human and economic development that make the country more attractive for private sector investment.  This is key to long-term, sustainable growth that creates jobs and increases the incomes of the poor. 

Assistance to our partner countries is provided with the expectation that it is not open-ended.  Rather, it is designed to stimulate emerging economies so that, in time, they can flourish—driven by private enterprise, investment, and trade—and  expand and sustain opportunities for the poor.

Our goal is to create the policy framework and generate the necessary conditions to make this transition possible.   That is why we demand performance on indicators evaluating

  • fiscal,
  • monetary,
  • regulatory,
  • and trade conditions,

including the costs and days required to start a business.  That is why we insist on transparency.  And, that is why we reject corruption,  because it stifles entrepreneurship and private investment. 

Conclusion

Because corruption

  • suffocates development,
  • reduces aid effectiveness,
  • and undermines the conditions for sustainable progress through private enterprise activities,

we see it as a fierce impediment to poverty reduction and economic growth.   And, we are addressing it with fierce determination and priority importance.

MCC is a competition for funds and, acting like an investor, we must target our resources to those partners who are most serious about their own development, which includes establishing an environment where our money is not squandered.

At MCC, we are working to create a future of opportunity and prosperity by reducing poverty through economic growth.   By rejecting corruption’s stranglehold, we can increase the standard of living and quality of life of the world’s poorest in transformative and sustainable ways.

Thank you very much for your interest in the Millennium Challenge Corporation.  I would be happy to answer some questions before the panel presentations and discussion to follow.