Speech

July 17, 2005

As Prepared by Paul V. Applegarth, Chief Executive Officer

AGOA Forum

Paul V. Applegarth remarks to African Growth and Opportunity Act (AGOA) Forum Special Session on theMillennium Challenge Corporation

Ministers, Your Excellencies, Ambassadors and other distinguished guests. MCA has moved from an idea, to theory, to reality. We are here today to talk about what it means in practice and in operation and in very concrete terms.

I am honored to share the stage today with four people who have been instrumental in developing Cape Verde’s MCA program. They are best placed to describe to you how the Millennium Challenge Corporation interacts with its partners in Africa .

Cape Verde’s economic and political progress is also a good example of what MCA is trying to encourage. Cape Verde’s leadership has an outstanding track record in democratic governance, transparency, and in fighting corruption, and has created a world class fiscal system. They deserve to be recognized for what they have achieved.

Before my colleagues on the panel begin their discussion, I’d like to make a few remarks about the principles on which the MCA is based and on how we operate. It is particularly appropriate that we are holding this session in the context of AGOA, because t here is no one magic bullet to reducing poverty and promoting economic growth. Trade, debt reduction, private sector investment, foreign aid— all are elements of a broad effort to improve development prospects in Africa . Aid can play a key role in enhancing the competitiveness of countries and in improving their capacity to trade.

MCC was established just last year, in January 2004, to help countries reduce poverty in a sustainable way so that the country will eventually grow to the point where there is no longer a need for assistance.

Our mission is "reducing poverty through growth”. We believe that economic growth is essential if countries are to meet the goals of the Millennium Declaration. We believe in more aid, and more effective aid. We know that aid alone cannot achieve long-term poverty reduction.

So we want our assistance to be both an incentive and a catalyst for good policy. We want to help create a virtuous cycle of success. Good policy increases people’s potential and gives them the opportunity to succeed. Aid, private investment, and openness to trade then yield better returns. Better returns yield increased financial resources from many areas: foreign direct investment, repatriation of capital flight, and remittances. Welfare improves.

MCA is additional assistance and is one part of a comprehensive U.S. development strategy that addresses a range of issues affecting Africa . Since 2000, U.S. foreign assistance has increased in total by about 90% and aid to Africa has tripled. And this does not count the $2.5 billion appropriated for Millennium Challenge, which only began disbursing money this year.

At MCC we are attempting to apply lessons learned from years of development research and practice: One lesson is that good policies support growth and poverty reduction and make foreign assistance more effective. MCC therefore works with poor counties that have already demonstrated that they perform better than their peers in three broad categories of "ruling justly, investing in their citizens’ health and education, and encouraging economic freedom.”

Countries compete to participate in the MCA. Results on 16 independent, non U.S. government indicators for the 82 poorest countries in the world are transparently displayed on our website at www.mcc.gov. Everyone can see the scores, governments, neighboring governments, the opposition, everyone.

Cape Verde and 16 other countries have already met this test. It is an honor to be selected for the MCA. Roughly only the top twenty percent of those who are ranked have qualified for MCA.

Another lesson is that country ownership is crucial to building responsibility and accountability. We are looking for good partners, who will use our money well. MCC therefore lets countries define their own priorities in broad consultation—with NGOs, the private sector, other donors, local and regional leaders, and parliamentarians. Many countries started with their Poverty Reduction Strategy process. We are providing support to help countries through this process, but in the end, each country must take charge of its own program. This is the opportunity that being selected for MCA creates.

The third lesson is that success is not measured by inputs—what you spend money for—but by results—what you get for it. Therefore, each MCA Compact includes measures of success and mechanisms to monitor and evaluate them from the beginning of the program.

This emphasis on rewarding countries that are putting in place good development policies is at the heart of the Monterrey consensus.

We have come a long way in 17 months since we founded last year. We are currently working with 17 countries selected from the 82 poorest countries in the world. Nine of these countries are in Africa, and because it is an honor to be selected, I will name them: Morocco in North Africa and Benin, Cape Verde, Ghana, Lesotho, Madagascar, Mali, Mozambique and Senegal in Sub-Saharan Africa.

To further the incentive for reform, we established a Threshold program, which is run with the help of USAID. Through it we are offering 13 additional countries—7 of which are in Africa —an opportunity for assistance to help them reform their policies so that they might qualify for MCA eligibility in future rounds.

Our first MCA Compact was with Madagascar . From the day of its selection as an eligible country, Madagascar demonstrated the political leadership and commitment to make reducing poverty and accelerating economic growth a national priority. Our third Compact was with Cape Verde . And, our first Threshold program agreement will also be with an African country and will be signed later this week with Burkina Faso . Africa has been a focus of our program — not because we gave it special treatment but because African leaders and African governments have taken the sometimes difficult steps to reform policies and to qualify, and many have worked quickly to develop good programs. And we are working closely with the other African countries as they develop their MCA programs.

One of the interesting aspects of the proposals we have received from MCC-eligible countries is the large number that include either infrastructure or agricultural development projects. Reducing transport costs, modernizing port facilities, assisting farmers to produce high-value crops that can be exported—these are activities that will reduce poverty through increased trade and greater private sector activity.

Our partner countries have identified these priorities themselves, and they are priorities that improve their capacity to trade. They clearly see the benefits of integrating trade and aid to promote private sector activity and economic growth.

We are moving quickly at MCC. From receipt of original proposals to fully developed programs, with agreed measures of success, fully designed plans and fully in place procedures for governance, it has taken us less than a year to sign the first compacts— a pace most of you will understand is far faster than most other development agencies and one more in line with the private sector. And we have moved quickly without compromising the principle of country ownership in the process.

Since we began receiving proposals last August, we hve approved between $625 and $650 million of Compact, pre-Compact and Threshold funding in nine different countries.

In moving quickly, we will not sacrifice country ownership or endanger the success of each program.

We are also seeing what third parties are calling an "MCC effect” on good governance, an encouraging sign that MCC is achieving its mission of incentivising good polices.

We are preparing for the next annual selection process, which will occur this fall. Our intention is to have the most recent data for each selection indicator posted on our website by the end of the summer. This year we will be extending our incentive to all lower middle income countries for the first time.

We hope to have several new partners to work with later this year. The beauty of MCC is that becoming eligible is within the power of most any African country. However, it is up to you; any country that improves its policies will not only contribute directly to its own prospects for growth and poverty reduction, but may also become eligible for the reward of MCA funding.

In the end, we believe that what our partners do is the key to reducing poverty—what they do in terms of their policies and institutions, in terms of the priorities they identify, in terms of the programs they develop, and in terms of how they implement their MCA program.

  • MCC is now working with 400 million people in 30 countries all across the globe.

     

  • We want to ensure that this aid makes a difference—that it has a real impact on economic growth and poverty reduction. We hope our partners use these untied, non-earmarked, multiyear grants to overcome their most stubborn development obstacles and transform their futures.

  • I would now like to introduce the Minister of Finance and Planning of Cape Verde, Joao Serra, who has been instrumental in working with us and his government to realize the Cape Verde MCA Compact which we signed in Cape Verde on July 4, in conjunction with Cape Verde’s 30 th Anniversary of its own independence day.