Speech

May 12, 2005

As Prepared by Paul V. Applegarth, Chief Executive Officer

Chicago, Illinois

MCC CEO Paul Applegarth’s Remarks to Northwestern University Conference on Aid, Governance and Devopment in Africa

Thank you, Professor Joseph, for your kind introduction. It is an honor to be here with all of you today- I am delighted to see in the roster of participants, so many who have also come a great distance – several of whom are our partner countries- from Nigeria, Senegal, Ghana, Burkina Faso, to tell us about how you are working in your countries to overcome obstacles to development.

And it is you- as representatives of academia, of civil society, and those who work with the private sector, you are a great part of the driving force of sustainable development in your countries.

It is one thing for us to discuss good policies, to talk about development strategies, and to critique the various theories of development in Chicago, or in Washington, or in Geneva or even Johannesburg . It is something else entirely to implement these ideas on the ground, facing the constraints of time, a lack of resources, and sometimes just overcoming inertia.

I realize that you have just come from a discussion and critical analysis of development assistance.

And there is much to critique. From the my own vantage point in Washington- as someone who is directly accountable to the US Congress, and of course, to the people of the United States for all that we at Millennium Challenge Corporation are investing, and plan to invest, on development assistance, the negative perceptions of development assistance drawn from the past few decades have not made my job an easy one.

For example, the Heritage Foundation has cited research that shows that between 1980 and 2003, the United States gave $116 billion to 89 low-income and lower-middle income countries. Of those 89 countries, 37 — including half of the countries in sub-Saharan Africa that received aid — got poorer. The per capita GDP in these countries actually declined. Another 20 experienced marginal growth of 1 percent or less.

Many people in the United States hold the view that large-scale aid programs have resulted only in fat bank accounts for local politicians, or feel that aid often creates only dependency over the long-term, and offers no real solutions for the over one billion people in this world who are living on less than one dollar a day.

But it may be a well kept secret that aid has been effective in many areas, such as boosting health and education, helping to improve life expectancy and infant mortality rates.

And much of the international community has learned from the mistakes of the past. What came from our collective experience- (and my personal experience as well—I have spent much of my career in emerging markets, including The World Bank Group and the private sector)— What came from our experience was a series of instructive lessons. You probably were discussing some of these lessons this morning.

Back in 2002, at the Monterrey Summit on Financing for Development, President Bush, Secretary (then NSA) Rice, Secretary Powell, and others took a long look at what worked and what didn’t over the last few decades of development experience, and used three important lessons of development to form the foundation for what was to become the Millennium Challenge Corporation.

The first lesson is that aid is most effective when it reinforces sound political, economic, and social policies. The second is that country ownership is integral to a successful development program; and the third is that programs work best when countries are held accountable for their performance and results.

The First Lesson—Policy Matters:

Most informed observers know that increased funding alone will not develop a country, and it will not, by itself, eliminate poverty, end hunger, reduce the spread of HIV/AIDS, or increase education of women. There is a general consensus expressed at Monterrey and elsewhere that in order to achieve the Millennium Development Goal of eradicating extreme poverty and growth—and to make headway on all of the other MDGs—long-term, broad-based economic growth is required. Redistributing the pie is not enough; the pie must be larger. It is sustained growth that, properly managed, will translate into real improvements in the everyday lives of the poor.

Economic growth is sustainable in countries that adopt and maintain policies that support it. Countries that are actively fighting corruption, that are providing an environment for a free and open exchange of ideas that will help identify and overcome obstacles to growth, that are investing in health and education, and that are creating an enabling environment for businesses to grow, are putting themselves on the fastest track to poverty reduction and growth.

All countries facing a critical lack of resources have important choices to make, at the margin, about developing and maintaining policies that will improve the lives of their people. At MCC we evaluate countries against peers in their income bracket.

Countries compete to be eligible for our assistance, and MCC selects them based on their performance against a set of objective indicators-developed by independent, respected international institutions. These indicators are linked to policies and fall into 3 categories:

  • Ruling Justly, which includes rule of law, human rights, government effectiveness, control of corruption,
  • Investing in People – measures investments in health and education, with a focus on women and girls, and
  • Encouraging Economic Freedom, micro and macroeconomic policies, as well as a country’s regulatory environment.

Again, the key to our approach is that countries compete to participate in the MCA, and we strive to make the selection process as transparent as possible. This competitive process, like competition everywhere, stimulates better performance and improved policies, which, of course, is what we are about.

We strive to keep the selection process meaningful and transparent by posting the country rankings are on our website, (www.mcc.gov), and by annually reviewing the indicators that we use to ensure we continue to use the best measurements.

After our first two rounds of selections, we chose a total of 17 countries to apply for MCC assistance- over half (9) of them are in Africa, and 8 are Sub-Saharan African.

This has surprised many observers who argued that Africa could not compete on a global scale, and that special rules- a dispensation- would be needed for Africa . We didn’t believe them, and governments and leaders of Africa have proven us right.

The countries we selected include Benin, Cape Verde, Ghana, Lesotho, Madagascar, Mali, Mozambique, Senegal, and (Morocco).

This is significant- because positive steps are being taken by the leaders of these countries, and they deserve to be recognized. Being selected to apply for MCA is an honor. These countries we’ve selected were out of a potential pool of 82 candidate countries. This group of countries is certainly in the top quartile of all developing countries around the world in terms of their performance against the criteria we use.

There is a lot of good news coming out of Africa today, although it doesn’t necessarily get the publicity it deserves, and I believe that the people and the governments of these 9 eligible countries should be recognized for taking the sometimes difficult, but essential steps, toward building a policy environment that provides the most benefits to all citizens.

Countries like Ghana and Senegal, where Presidents Kufour and Wade are taking active steps to combat corruption, and are encouraging others in NEPAD to do the same through the peer review process, are examples. I encourage you to take a look at our website, and see how these countries are performing compared with countries with similar resources all over the world.

MCC engages in a constant dialogue both with the countries we have selected, and with those who were not, and the overwhelming majority are very aware of the competition and, moreover, that their scores are on the web. It’s not unusual for leaders from a country to come holding their scorecard in meetings with me. This has created a powerful tool for change.

In fact, we were pleased to see that The World Bank even cited MCC’s selection criteria as a reason for a downward trend on the "Days to Start a Business” indicator-which went from an average of 61 in candidate countries to 46 when it was first announced in 2003 that the MCA might use the indicator when we had our competition in November last year.

To further encourage policy changes, we have established a "Threshold Program” which is run with the help of USAID. The program offers assistance to thirteen additional countries that did not qualify for the MCA to address the areas in which they fell short and thus improve their chances of qualifying in the future. Again, Africa has performed well—seven out of the thirteen we’ve selected are sub-Saharan.

We know that it is not possible to merely transfer good governance, a free and open exchange of ideas, and a just legal system from one country to another—these environments need to be built from within a country, all MCC can do is to help encourage their formulation.

Which leads me to the Second Lesson: Country ownership

"Country ownership” is often discussed in development circles- and it is integral to the success of any development program. In the past, prescriptions for growth were inconsistent, and often imposed from the outside by “experts” who had little local knowledge or understanding of the constraints to growth faced within developing countries.

Country Ownership as it applies to the MCC process is exhibited not only in our explicit recognition that it is the country’s responsibility to put good policies in place. It is evident in what happens next—once a country is selected.

MCC recognizes that countries themselves need to identify their own obstacles to growth, and should be responsible for designing and implementing plans to overcome these obstacles. We therefore partner with countries that we have selected to apply, letting the countries take the lead in developing their program.

In establishing development priorities, we ask the governments of each country to consult broadly with representatives from civil society, NGOs, the private sector, other donors, local and regional leaders, and parliamentarians. Some countries have started this process already during the development of a National Development Strategy or the World Bank’s Poverty Reduction Strategy initiative. For others, this is new. We are not, by any means, seeing perfect processes. But we are seeing growth and good efforts.

MCC has three main requirements when evaluating a country’s consultative process: We ask that each be early in the process of developing a proposal for MCA funding. We require that it be participatory, taking into account a broad range of views, including women and the rural and urban poor. And we require it to be meaningful, so that it allows citizens to have genuine input into the process.

We also ask countries to provide us with their strategies for implementation- tell us how it is going to work - and a plan for monitoring and evaluation. Which leads to the third lesson of development…

Development Programs need to be results-oriented. Ultimately, we are after results. MCC ties the funding it provides to measurements of program results. We ask the countries how they will consider a program to be successful, and work with them to develop measures and benchmarks along the way.

Even though we are a grant institution, we manage our responsibilities like an investor using US taxpayer dollars—seeking the best investment opportunities for poverty reduction. We have limited funds and will be looking at proposals we receive as investment opportunities . We are looking for an economic rate of return in terms of poverty reduction and growth. In short, not a financial return, but a growth return. This will drive our funding decisions.

In the private sector it takes at least 4-5 months from receipt of a proposal to an investment. MCC received our first proposals in the Fall of 2004. Last month we signed our first Compact with Madagascar and we are close to signing compacts with several countries. We are sticking to our private sector standard; a tough standard for us to achieve in part because the countries really do drive the process – we help them a lot, but ultimately we can only move as quickly as the country.

Where We Are Now :

As we have worked with our first round of eligible countries, what we have seen has truly impressed us.

As I mentioned, our first Compact was with the Republic of Madagascar . This country- as most of our eligible countries- named a team early on that enjoyed support at the highest levels to develop their proposal for MCA. And this was critical, because as the team organized national and regional workshops to solicit ideas for their MCA proposal, they also determined how a program designed for MCA would fit into the country’s national strategy for development, and they coordinated other donor programs around these priorities as well.

And they developed a program designed to increase incomes in rural areas (where the vast majority of the poor in Madagascar live) by helping to secure formal property rights to land, by improving a weak banking system to encourage lending to rural enterprises, and by training farmers and entrepreneurs in production, management, and marketing techniques.

President Ravalomana himself, right after we signed the Compact together, said that that the reason the Compact, and MCA, is so important to his country is because it allows his country to make its own decisions. In his own words, "It is our country, and we have to take on leadership and responsibilities.”

And we believe they will succeed because it is their program- they designed it, and they have the primary responsibility for making it work.

Other countries are close behind- we are in the final stages of Compact negotiations with Cape Verde, Honduras, Nicaragua, and Georgia, and hope to complete Compacts with these countries this summer- right behind them are more countries, including several African ones.

What’s exciting is that we’re seeing young professionals who are integrally involved in the process. Many have been out of the country and have returned well-trained, and looking for opportunities to use their skills. They see a new era unfolding for the development of their country. They can see the potential of this development process and the future it holds for alleviating poverty through economic growth.

This is also important to a key element of our mission—building local capacity. Flying in a group of expatriates in to do all of the work may solve a short-term problem, but does not serve to develop a country. We want to build the local capacity for countries to this themselves, and getting local professionals involved and giving them the chance to work on these kinds of problems is important.

Even ineligible countries recognize that by improving their performance on policies that we measure they will benefit, even without assistance. We provide the carrot, we help to strengthen the hand of the reformers, but the decision to change rests with the countries.

And we have much to offer. Congress has granted us a total of $2.5 billion through this fiscal year, and the president has requested $3 billion for 2006, and has pledged to continue to ramp up his requests for funding.

This is on top of other forms of assistance the United States is providing to developing countries . Since 2000, U.S. foreign assistance has increased by about 90% and aid to Africa has almost quadrupled. And this is before 2005 when MCC began disbursing money.

But the ultimate success of the MCA 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 in the countries striving to be selected.

And to succeed, MCC, the countries we are partnering with, and countries striving to become eligible, ALL rely on your feedback. Success demands continuing dialogue and knowledge-sharing. We encourage you to look at our indicators, to look at the Compacts ( Madagascar’s is posted on our website), and tell us where we can improve- and tell countries where they need to improve. This is a learning process for us as well as for our countries, but the process itself is one that stands to benefit all parties.

To summarize

Through the threshold and MCA programs, we now have potential relationships with 30 countries - some of the poorest in the world - totaling 400 million people. And we want its effect to go beyond those we already are working with. The candidate pool will rise to over 100 countries next year, and several of them are already taking steps- making important policy changes- to improve their chances of qualification.

We realize that there is still a long way to go before any form of assistance can provide permanent relief to people living in extreme poverty in Africa and around the world. But the good news is, we know much more about how to get where we want to be. We are now at a place where we can offer greater, more effective, more lasting hope to those in need. I believe the Millennium Challenge Account is an important part of achieving that goal: by encouraging our partner countries to take the lead in designing their own solutions that have broad support from their people, by insisting on good policies, commitment and accountability, and by focusing on growth as the primary means to reduce poverty.

Thank you. I welcome any questions that you may have.