Speech

July 17, 2007

As Prepared by John J. Danilovich, Chief Executive Officer

Washington, DC

Remarks by MCC CEO at the German Marshall Fund of the United States

Washington DC—Ambassador John J.  Danilovich, Chief Executive Officer for the Millennium Challenge Corporation,  today delivered remarks at the German Marshall Fund’s new “Innovations in Aid”  series.   In the spirit of the Marshall   Plan, GMF’s Aid Effectiveness project explores how the United States and Europe   can work together to enhance aid effectiveness.

Introduction

Thank you, Jim [Kolbe], for that kind introduction.  You are a good friend and staunch supporter of MCC—a “Founding Father”—and  I’d like to especially thank you because some of the best and brightest talent who now work for MCC came from your office! 

I’m pleased to join you all this afternoon and certainly appreciate your interest in the Millennium Challenge Corporation. What a fantastic turnout—especially for July in Washington.

Before taking your questions, I want to focus my remarks today in three areas:

  • the current state of MCC;
  • what makes MCC innovative,  especially our focus on country ownership;
  • and our vision for MCC’s future.

MCC Now

Reflecting

  • President Bush’s vision,
  • Congress’s bipartisan support,
  • and our country’s longstanding commitment and responsibility to assist those in the developing world,

MCC was established by an Act of Congress in 2004 as an alternative model of development assistance. The MCC model provides grants—not loans—to:

  • countries that practice sound policies supporting
    • good governance,
    • investments in the health and education of their citizens,
    • and economic freedom;
  • countries that are pursuing their own development by designing and implementing homegrown strategies for poverty reduction through economic growth; and
  • countries that demand measurable and tangible results in the lives of the poor.  

By applying these core values—

  • policy performance,
  • country ownership,
  • and tangible results—

we are achieving our mission to reduce poverty through sustainable economic growth in the world’s poorest countries.

I have seen the MCC model at work. And, I can assure you that there is nothing more gratifying.

When I visited Madagascar,  for example,

  • I  handed out land titles to poor farmers and saw firsthand what it means for a woman to own her own land—not only tremendous pride but also economic security, dignity, empowerment. 
  • I met with farmers, who received technical assistance from local agricultural business centers made possible through our funding, and who are now tapping into microloans to expand their productivity.  
  • I planted geraniums with farmers supported by our program, who were already profiting from the high-value oil produced by their geranium crops. 
  • One farmer explained how he managed to enlarge his farm from one to 15 plots of land and significantly increase his crop production and income because of MCC’s investment.

A funny story comes to mind. 

  • All of what I just described to you was taking place deep in the interior of Madagascar—and you can imagine our surprise when on our return trip to town,  late in the afternoon, our car was flagged down on a small country road by a group of local villagers.  We got out of the car and they presented me with this huge, red rooster with gigantic claws as an expression of their gratitude for the help they are now receiving from the MCC.
  • I told the farmers that I was very honored that they should offer me the rooster to bring home, but that it would be a little difficult for me to get it on the plane.  So,  I asked them to keep it for me, and look after it, and allow it to roam free on their farm as a symbol of the MCC.  So, John,  the MCC rooster, is now clucking around a Malagasy farm as a symbol of our ongoing success there.

MCC is making a difference, and not only in Madagascar.  From

  • helping farmers transition to higher-profit crops in Honduras,
  • to refurbishing parts of the gas pipeline in Georgia, which will supply energy to industries as well as family homes,
  • to enrolling  students—including girls—in one of 132 new “girl-friendly” schools we are building in Burkina Faso,

MCC is improving the lives of the poor.     

In the short space of three and a half years, MCC has signed 13 compacts with partners in Africa, Central America, Eurasia,  and the Pacific, totaling nearly $4 billion.  

We signed our most recent compact last Friday with Mozambique and will sign a compact with Lesotho next week.

Another $316 million has been awarded to 14 countries in our Threshold Program to help them address policy weaknesses and push them over the “threshold”  toward compact eligibility.

We have laid a very strong foundation for poverty reduction and economic growth by partnering with those countries most committed to the hard work of their own development.  The

  • groundwork is in place,
  • implementation is underway,
  • and the results are beginning to emerge.

Having spent three decades of my life in business, I know full well how important it is to  lay the groundwork as operations begin in order to see a future return on investment. That is exactly what MCC is doing.  If you make mistakes at the outset, you pay for it big time over the longer term—both financially and in terms of time lost.   What you see now is the tip of the iceberg—there is much more to come.

Five Innovations

So, what makes MCC innovative? Our approach builds on the valuable lessons the development community has learned over the past half century, yet we are unique in how we apply those lessons to awarding assistance. Let me touch on 5 main ways that best summarize MCC’s innovation.   

First and foremost, selecting the recipients of our aid based on their policy performance sets MCC apart. We award assistance only to those countries that are committed to sound

  • political,
  • social,
  • and economic policies. 

We currently use 16 transparent indicators, taken from non-U.S. government sources—such as the

  • World Bank Institute,
  • Freedom House,
  • UNESCO,
  • the World Health Organization,
  • the International Finance Corporation,
  • the IMF,
  • and Heritage Foundation

—to assess performance.  We are in the process of adding two additional indicators to determine how well a country safeguards its environment and protects land rights. Results on these indicators create a scorecard—a report card, so to speak—measuring each country’s policy performance among its peer group in the same per capita income range.  These scorecards are then used by our Board of Directors to select which countries are eligible to receive our aid based on their policy performance.

We have found that rewarding policy performance creates an incentive.  Countries

  • initiate,
  • add to,
  • or accelerate

their own reforms so as to improve their performance on our indicators,  something we call the MCC Effect.  In country after country,

  • institutional reforms,
  • constitutional reforms,
  • legislative and regulatory reforms

 have been undertaken to meet the MCC indicators.

Second, MCC raises the profile of controlling corruption. MCC’s focus on performance-based aid makes us the only donor that currently ties eligibility for assistance to performance on a transparent and public Control of Corruption indicator. Passing this corruption indicator is the only hard hurdle to qualify for MCC funding. This creates a powerful incentive for reform and capacity building to fight corruption.  Countries are

  • adopting tough anticorruption laws,
  • strengthening oversight institutions,
  • opening up the public policymaking process to greater scrutiny,
  • and stepping up corruption-related investigations and prosecutions.

Third, because policy performance matters, we have the option to suspend non-performing countries.  We monitor policy performance throughout the life of our assistance and encourage our partner countries to embrace ongoing reforms to

  • retain,
  • maximize,
  • and leverage our funding. 

We provide our partner countries with guidance on corrective measures to address policy areas where they fall short.   If we see an egregious erosion of policy performance, we are prepared to suspend or terminate a country’s participation with us. 

The Gambia and Yemen, for example, were suspended because of a material decline in overall performance on our selection criteria. The Yemeni government moved aggressively following its suspension to make impressive

  • judicial,
  • anticorruption,
  • public procurement,
  • and microeconomic reforms

to reverse its areas of decline.    We welcomed Yemen’s efforts to adopt and maintain policies to advance its good governance as well as economic and human development. This past February, our Board voted to reinstate Yemen into the threshold program.  Our suspension policy played a role in helping the Yemeni undertake reforms that made their country eligible, once again, for MCC assistance.

Fourth, we expect countries, not MCC, to lead the development process. While many donors believe in country ownership, MCC goes a step further by placing our partner country in the driver’s seat increating and implementing its own development proposals. Drawing on their Poverty Reduction Strategies or national development plans, we expect countries to first identify their main constraints to poverty reduction and economic growth. 

We then expect them to engage in a broadly-based consultative process with their civil societies, including the

  • private sector,
  • NGOs,
  • other donors,
  • women,
  • and the poor themselves, who are to benefit from the programs,

to design their own proposals for what will most effectively relieve those constraints. 

We expect their proposals to integrate the work of other donors already in the field to maximize impact and minimize costly redundancies. 

We expect women to be part of the process. 

We expect social and environmental assessments to be conducted. 
We make it clear that should MCC approve their proposals, we expect them to be responsible for the implementation of those proposals, and that the implementation mechanisms be a coherent part of the proposal process.

We expect their proposals to include

  • benchmarks to measure progress,
  • targets against which to measure success,
  • 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 targets are achieved.

The high expectations—and responsibilities—demanded by country ownership have stretched existing capabilities and helped our partner countries develop new capabilities.  But, this is exactly what it takes to make development sustainable. 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 [their own] 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.”

In March of this year, 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.  This started out as a good idea, and success has made it a great reality. MCC U itself is very much a capacity building initiative, providing countries with the information and materials they need to return home better equipped to implement their own compacts. 

Follow-on “MCC Colleges,” focused on

  • monitoring and evaluation,
  • procurement matters,
  • and environmental and social assessments,

build additional capacity in these specific areas. 

We even saw an extension of this effort when Ghana hosted a ministerial level forum last month in Accra—similar to MCC U—of those African countries that are eligible for our assistance, in order to share peer-to-peer experiences and assist each other in the compact process. There is tremendous pride in

  • owning the process,
  • navigating through the particular challenges of compact development and implementation,
  • and, in the end, celebrating successes as the fruits of their labors, and not MCC’s efforts.

Fifth and finally, our assistance has a fixed expiration date.  MCC seeks to facilitate a transition from dependence on foreign assistance to the independence of sustainable, investment-driven development led by the private sector. Our compacts are time-limited for a reason—to focus on results and to sustain the benefits of MCC investments beyond our period of investment.

Our MCC investments will succeed only to the extent that they foster continuing economic activity—whether by a farmer in her field who now invests because she has title to her land or by a local or international company who invests because of the improved business climate, created by MCC-incentivized reforms.   This goes back to the MCC Effect and our indicators evaluating

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

including the costs and days required to start a business. 

Our MCC investments enable and encourage other independent investments that were previously constrained, by a lack of

  • a school, or
  • a road, or
  • clean water, or
  • proper sanitation. 

When aid ends—and we want it to end—we want to see dynamic economies kick in—driven by

  • private enterprise,
  • investment,
  • and trade

—that will expand and sustain opportunities for the poor.

These five innovations to delivering aid underscore the very hallmarks of the MCC model: accountability and responsibility.   MCC is the newest tool in the foreign aid toolbox; however, we are not intended to be the right fit for every development need.  Rather, MCC’s aid is provided to those countries with the policies and political will already in place to make the most of it and to further their own development agendas. At every turn, our assistance is linked to a country’s performance

  • performance on sound policies,
  • performance on delivering results,
  • and performance on creating the environment and mobilizing the capacity to do without such assistance over time.

MCC’s Future

Looking forward, we want our compacts to be fully implemented and to deliver the expected results in the fight against poverty.

We want to apply our innovative model and sign more compacts with partner countries and continue making a transformative difference in the lives of the poor.  Pending the Board’s decision in each case, congressional notification, and sufficient funding, we might possibly be approving up to five additional compacts, all within the next nine months, with

  • Morocco,
  • Tanzania,
  • Mongolia,
  • Namibia,
  • and Burkina Faso.

We want to work with Congress to change the authorization language of our legislation to allow for concurrent compacts so as to build on progress.

We want to maintain the motivational MCC incentive effect for those countries taking on the hard work of policy reform with the expectation of eventually qualifying for our assistance.

And, we want to continue our threshold program in order to create the best possible policy environments where development can take root.

MCC needs sufficient funding from Congress to continue to successfully fulfill the mandate for which Congress created us in 2004. The House-passed Foreign Operations Appropriations Bill allocated $1.8 billion for MCC, falling short of the President’s request.  The Senate allocated an even shockingly lower $1.2 billion. Under-funding MCC devastates our work to reduce poverty and seriously damages relationships with countries making significant reforms to partner with us.

Without adequate funding, we will have to turn away countries already in the pipeline.  How are we going to tell the people of Burkina Faso,  for instance, that despite their great efforts to undertake reforms and complete negotiations, we cannot sign a compact with them?  Other countries such as

  • Jordan,
  • Senegal,
  • Ukraine,
  • Moldova,
  • East Timor,
  • and Bolivia

would see the compacts they were seeking to sign in fiscal year 2008 deferred.

We continue to urge Members to fully fund MCC so as not to undermine our ability

  • to respond to proposals,
  • to leverage our funding as an incentive for reform,
  • and to continue building on our early success.

Conclusion

When MCC was created as a new model for foreign aid, we also envisioned a new way for evaluating our progress, to get at the very core of what makes development transformative and sustainable. 

  • First, are MCC eligible countries maintaining and improving their policy performance? 
  • Second, are countries consulting with their citizens and presenting well-designed programs that will transform the lives of the poor?
  • Third, is project implementation being done in an effective and transparent way?
  • And, fourth, when completed, did the projects deliver the desired results?

The answer to each of these questions, even though we are only three years old, is

  • yes,
  • yes,
  • yes,
  • and yes again

MCC’s innovative model is working—

  • working in Africa,
  • working in Central America,
  • working in Eurasia,
  • and working in the Pacific

—as countries step up to lead the process.  The successes we are generating provide Members of Congress with further reasons to fully fund MCC.  These successes prove to U.S. taxpayers that their money is being put to good use. And, most of all, they are delivering tangible results that are

  • impacting and transforming the lives of the poor,
  • reducing poverty through sustainable economic growth,
  • creating stability and security.

Thank you for your support and interest in the Millennium Challenge.  I look forward to your questions and our discussion this afternoon. Thank you!