Speech

May 21, 2007

As Prepared by John J. Danilovich, Chief Executive Officer

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Remarks by MCC CEO at the U.S. National Commission for UNESCO Annual Meeting

“Capacity Building: MCC’s Unique Role”

Ambassador John J. Danilovich, Chief Executive Officer for the Millennium Challenge Corporation, today delivered remarks on “Capacity Building: MCC’s Unique Role” at the U.S. National Commission for UNESCO Annual Meeting.

His prepared remarks follow:

It is good to see my friend Ambassador Oliver here as well.  Promoting international cooperation in the fields of  education, science, culture, and communication and creating a global vision for sustainable development based on human rights, mutual respect,  and poverty alleviation  are well served by the great experience and expertise that Ambassador Oliver brings to her position.

Just as building human and institutional capacities is core to UNESCO’s mission, fulfilling the Millennium Challenge Corporation mission to reduce poverty through growth also depends on capacity building.

And, I welcome this opportunity to discuss how MCC is helping our partner countries build capacity to achieve sustainable and transformative development.

Established by an Act of Congress three years ago, the Millennium Challenge Corporation provides development assistance in the form of grants—not loans—to eligible countries in the developing world.  To date, we have awarded a total of $3 billion through funding agreements we call Compacts to 11 partner countries in Africa, Central America, Eurasia, and the Pacific. 

We have awarded a further $310 million in Threshold agreements to another 13 countries.  Our Threshold program is designed to provide targeted assistance to improve specific policy weaknesses in the hope that reform and capacity-building efforts will push these countries over the “threshold” to Compact eligibility.

As champions of UNESCO, you would appreciate that Compact assistance supports, for instance, education as well as training and skill development programs in some of our partner countries.  Our Threshold assistance in some countries is improving the quality and quantity of investigative journalism, engaging mass media and NGOs to increase public knowledge of government issues, and enhancing the roles of women in society.

The MCC model, demanding responsibility and accountability, is built on three key principles:

First, good policy performance matters.  For assistance to benefit the poor, it must be awarded to countries that  govern justly, invest in the health and education of their people, and promote economic freedoms. 

Second, country ownership is expected.  MCC requires that countries lead their entire development process from creation to implementation.

And, third, tangible results are key to making poverty reduction and economic growth sustainable and transformative. 

Capacity building is fundamental to the MCC model.

On the one end, we have substantial funding and technical expertise to help countries achieve their poverty reduction and economic development objectives.  On the other end, we rely on the countries to develop the actual programs to achieve their objectives.  

What connects these two ends is the capacity to convert resources into results. 

And, once that capacity is created, it enables results to be sustainable and expands a country’s capabilities overall. Therefore, MCC takes a twofold approach to helping our partner countries build capacity: We set high expectations. And, we believe in “learning by doing.” Let me explain each dimension.

First, we set high expectations. MCC assistance is not for everyone.  We award assistance only to those countries that are committed to sound  political,  social,  and economic policies. 

To assess a country’s performance, MCC uses 16—soon to be 18—policy indicators taken from independent, non-US Government sources.  We evaluate how a country performs in terms of civil liberties, the rule of law, government effectiveness, health, and primary education completion rates.

We use evaluations of the regulatory and fiscal climate to see how attractive a country is for business development. 

We examine a country’s control of corruption. 

We will be adding 2 new indicators in FY 08 that assess how well a country promotes environmental stewardship and protects property registration and land rights. 

To determine a country’s eligibility for our assistance, it is not enough to have good policies in place; what matters is how a country actually performs on those policies. That is why we are seeing countries take it upon themselves to reform and, strengthen their institutions, and to build their capacity to improve their performance. We refer to this phenomenon as the “MCC incentive effect.”

We see it in action in the Dominican Republic, which attributes its campaign to immunize 5 million citizens for measles to its effort to qualify for MCC assistance, since one of our indicators measures immunization rates. 

We see it among the 24 countries examined in the World Bank’s Doing Business report, which specifically cite MCC as the primary motivation for their efforts to improve their business climate. 

We see it in the committees and presidential commissions that have been established in at least a dozen countries to create reform strategies to address our selection criteria. 

We see it in El Salvador, which dramatically reduced the number of days required to start a business from 115 to 26, and saw a 500-percent jump in business registration. 

We see it in our approach toward curbing corruption. As the only donor that currently explicitly ties eligibility for assistance to performance on an independently produced, transparent, and public control of corruption indicator, MCC raises the profile of corruption as a policy issue and creates a powerful incentive for reform and capacity building.  As a result, we are motivating countries to adopt tough anticorruption laws, strengthen oversight institutions, open up the public policymaking process to greater scrutiny, and step up corruption-related investigations and prosecutions.

Through MCC’s Threshold program, we have provided more than $220 million for programs proposed by partner countries to help them build their capacity to fight corruption. 

By expecting good performance and providing assistance to countries taking the often difficult steps to reform, MCC helps them build capacity to implement pro-development policies.  This leads to my second point. 

We believe in “learning by doing.”

While we work in partnership to define and share respective responsibilities toward realizing a Compact, we expect the country to take the lead in creating and implementing its own development proposals.

Drawing on their Poverty Reduction Strategy or national development plans, we expect countries to first identify their main constraints to poverty reduction and economic growth in a broadly-based consultative process with their civil societies, including the private sector, women, and the poor themselves who are to benefit from the programs.

Then, based on the results of this process, we expect them to design their own proposals. 

Following MCC approval of their proposals, we hold countries accountable for implementing them, and require that implementation mechanisms be included as part of the proposal process. We expect their proposals to include benchmarks to measure progress, procedures to ensure fiscal accountability for the use of our aid, and an extensive plan to monitor results and evaluate impact.  

To ensure transparency and accountability, our assistance is disbursed only as those benchmarks are achieved.

The level of expectation—and responsibility—demanded by country ownership has stretched capabilities in our partner countries and caused new capabilities to be developed.  Ghana’s public sector reform minister best described this when he said,

“Unlike other traditional development assistance programs where the donor proposes how funds are used, countries selected under the Millennium Challenge Account propose programs to receive funding.  Thus, the MCA is designed to allow developing countries to take ownership and responsibility for funds provided by the Millennium Challenge Corporation.”

Putting our partner countries in the driver’s seat of their own development makes them think critically about what policies are needed and what institutions must be reorganized or created to sustain development. In short, it is working with them to build capacity. 

In March, some 60 representatives from our Compact-eligible countries gathered at our headquarters here in Washington for a week of intense learning, workshops, and peer-to-peer exchanges in what we call MCC University. 

MCC U itself is a capacity building initiative, providing countries with the information and materials they need to return home better equipped to implement their own Compacts. 

During the course of MCC U, the participants recognized and applauded country ownership as key to achieving their specific Compacts.  We are finding countries learning much more from each other, perhaps more than from us. 

There is tremendous pride in owning the process, navigating through the particular challenges of Compact development and implementation, and, in the end, celebrating the successes of their projects as the fruits of their labors, and not MCC’s efforts.

To achieve and sustain development goals, each MCC Compact is not just a compilation of unrelated projects but rather a comprehensive, integrated approach to poverty reduction and economic growth that includes policy reforms as well as ways to build capacity.  Let me touch on three examples:

First, consider procurement systems.  We offer our countries the option of including assistance for these critical systems within their Compacts.   In most cases, they already have programs ongoing with other donors. In Ghana, successful implementation of its Compact requires trained public procurement specialists.  These specialists are procuring goods, works, and services in a transparent, timely, and competitive manner to ensure the best use of public funds.

Therefore, the Compact includes a procurement capacity-building initiative within the Ghanaian government itself designed to strengthen the effectiveness of various procurement entities.

Second, consider environmental and social assessments.  To reinforce country ownership and to reflect international best practice, we require that countries conduct their own environmental assessments, which may include social impact assessments and gender analyses.

Though the government of El Salvador had previously never undertaken a Strategic Environmental Assessment, it recognized the social, technical, and environmental benefits and launched such an assessment.

We signed our Compact with El Salvador last November, and the government is now increasing its environmental staff and creating an interdepartmental task force within its Ministry of Environment and Natural Resources to implement results from the Strategic Environmental Assessment

This is bolstering capacity for monitoring and oversight of the environmental impact of investments in the country’s Northern Zone, where we are targeting the highest concentrations of poverty. 

El Salvador is also strengthening the environmental management system to help enforce land-use plans and to increase the participation of Salvadorans in sustainable natural resources management.  MCC is providing the funding for training in environmental management to deepen this institutional capacity.

Third, consider monitoring and evaluation plans to gauge progress.  Asking countries to develop their own Compacts—including the monitoring and evaluation plans for them—enhances their abilities and skills to evaluate other programs, including those of their own governments.

As part of Georgia’s Compact, extensive collaborative efforts are strengthening the Georgia Department of Statistics to ensure that MCA Georgia—responsible for Compact implementation, monitoring, and evaluation —has the best data possible to evaluate its program in particular and to generate stronger impact evaluation and data gathering capacity within the Georgian government overall.  

Our assistance seeks to lay a solid foundation for countries to help themselves, and to do this, in time, without our assistance.  Through both incentives for good policy performance and country ownership, MCC is preparing for the day when aid can be replaced by the self-sustaining economic activity driven from within the country itself—by its own private sector and by its own leaders. 

It also helps elevate the country as a place attractive to foreign investment.

We know that even the most generous investment of development assistance will not be sustainable unless favorable conditions exist for private enterprise to flourish and become the engine driving growth and poverty reduction. 

We see this among our Central American partner countries—who like many other MCC countries—have programs to attract private investment and promote trade. 

El Salvador, Honduras, and Nicaragua are not only MCC-eligible but also partners in trade through CAFTA-DR.  They are leveraging their Compacts to build trade capacity that maximizes the benefits of free trade arrangements already in place. 

Results like these take leadership.  We have found that leadership at the highest level in our partner countries is the key factor in enabling them to move through the process of developing and implementing their Compacts—and building capacity along the way to do so.  We believe that our expectations of performance reinforce leadership capacity.   

Simon Pierre Adovelande, who is the coordinator of the Benin-MCA team, talks about how MCC has “raised great expectations” in Benin for results from their $307 million Compact. 

Because of this expectation, he points out the major role MCC plays in raising a new generation of leaders in Benin and building capacity in the people administering the program by demanding accountability, integrity, and responsibility that lead to anticipated results.

Even with all these efforts aimed at building capacity by setting high expectations and counting on our partner countries to learn by doing more on their own, we are not naïve.  We fully realize that capacity in our partner countries is often strained and not built overnight.  And, MCC alone cannot do it.

We can help, but the paramount role is played by many actors within our partner countries themselves.  They must build the organizations.  They must provide the leadership. 

We are challenging countries to look at how they perform on their policies.    We are challenging them to create the ability to accomplish their own objectives. We are challenging them to do far more for themselves—with their own leadership—than previously expected to maximize assistance received.  We are challenging them to foster the conditions needed to spur private enterprise, which is ultimately the engine of growth. 

We are challenging them to move away from dependence on foreign assistance toward the independence of sustainable, investment-driven development that will have a transformative and lasting impact on the lives of the poor. 

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 and who are tackling   challenges like these. 

By raising expectations and by placing responsibility and accountability on the shoulders of our partners, the Millennium Challenge Corporation is helping countries help themselves—and, that will be the ultimate measure of the success of capacity building.  

Thank you again for asking me here today to speak, and for your interest in the MCC approach to capacity building.  I hope my remarks have offered some useful ideas for the great work UNESCO is doing around the world.  Thank you. 

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Millennium Challenge Corporation (MCC), a U.S. government corporation designed to work with some of the poorest countries in the world, is based on the principle that aid is most effective when it reinforces sound political, economic, and social policies that promote poverty reduction through economic growth.