Keynote Address by MCC CEO Ambassador John Danilovich at George Washington University's Elliott School of International Affairs Institute of International Economic Policy

“Reducing Poverty in Developing Countries: MCC's Role in Globalization and Stimulating Growth”

6:30 p.m.
Thursday, October 25, 2007
Washington, DC

As prepared.

Introduce topic for lecture

Good evening, and thank you, Dean Brown and Director Moore, for that kind introduction.
GW is one of this city’s—and this country’s—most prestigious universities, and I’m honored that you’ve asked me to speak to you tonight and to join you in celebrating the launch of the Elliott School’s new Institute for International Economic Policy. Congratulations and best wishes on this great new endeavor!

The Institute’s expertise on policy issues will expand our understanding of the challenges faced in the global economy. The importance of international economics cannot be underestimated in bridging the gap between developed and developing countries.

I welcome this opportunity to add to that understanding and talk about the Millennium Challenge Corporation and how our innovative approach to development assistance helps low income countries reduce poverty through sustainable economic growth and compete globally.

MCC 101

MCC was established by an Act of Congress in 2004 as an alternative model of development assistance.

We provide sizeable grants—not loans—:

to countries that practice sound

political,
economic,
and social policies;

to countries that are committed to maximizing the assistance received to deliver tangible results in the lives of the poor; and
to countries that are pursuing their own development by designing and implementing homegrown strategies for poverty reduction through economic growth.

While others offer support through important social safety nets or humanitarian aid, MCC’s support focuses on economic growth.

We are achieving our mission of reducing poverty through growth in 16 partner countries in

Africa,
Central America,
Eurasia, and
the Pacific

which have approved MCC compacts totaling nearly $5.5 billion.

We are achieving our mission through our threshold program, where 17 other countries have been awarded almost $360 million to help them address specific policy weaknesses that will push them over the “threshold” to compact eligibility.

We are achieving our mission in scores of other countries worldwide that have undertaken tough

institutional,
constitutional,
legislative, and
regulatory reforms.

They do this to perform better on the performance indicators we use to determine eligibility for our assistance—a phenomenon we call the MCC incentive effect.

We see this MCC incentive effect in Madagascar, which reduced the minimum capital requirement for new businesses by 80 percent in 2006 and saw a 26 percent increase in new business registrations.

We see the MCC incentive effect in El Salvador, which reduced the number of days it takes to start a business from 115 to 26 days and which resulted in a significant increase in business registrations.

Reflections from the field supporting growth

I’ve seen the MCC model at work—and it does work—work that will continue only with Congress’s support for sufficient funding.

I can assure you that there is nothing more gratifying than seeing firsthand how countries are using our assistance to strengthen their foundations for growth.

From learning about the reforms taking place in Guatemala and the Dominican Republic, which are striving to become MCC eligible,
to attending class with students—many of whom are girls who are seeing the inside of a classroom for the first time—in one of 132 “girl-friendly” schools we are making possible in Burkina Faso,
and even to planting geraniums with Malagasy farmers, who are transitioning to higher profit horticultural markets,

we see how our mission is benefiting the lives of poor men, women, and children in meaningful ways.

MCC helps create favorable conditions for

more profitable businesses,
more productive farms, and
more private investments

—all critical factors for generating faster income growth over the long term.

MCC helps countries grow and compete

Development assistance alone is not the answer to alleviating poverty nor can donor assistance be expected to fundamentally alter the way emerging economies grow and compete.

However, development assistance can support country-owned reforms and development strategies that offer new opportunities for

expanding investment,
stimulating growth,
creating jobs, and
reducing poverty.

MCC does this by altering the traditional donor-recipient relationship to one of a partnership for economic development.

MCC incorporates over 50 years of “lessons learned” in development assistance to use our grants to:

reward good policies,
motivate countries to build their capacity, and
engage the private sector.

In each of these three ways, MCC helps the poorest countries escape poverty and connect to the global community and economy. Let me explain each of these.

3 ways MCC helps countries grow and compete

First, MCC encourages the practice of good policies.
Globalization means global competition. Competitive success is best achieved in those countries with:

the best educated workers,
the deepest capital markets, and
the most efficient

administrative,
legal, and
regulatory

mechanisms to make those markets run smoothly.

MCC recognizes this reality. That’s why we take a hard look at the policies required for countries to succeed in the global economy. We use this to develop a series of indicators to help determine if a country has the right policy environment in place for private investment and growth. We group these indicators in three areas.

First, we look at a country’s governance, particularly its willingness to combat corruption.

Second, we look at how well a country is investing in its people’s health and education.

And, third, we look at the basic foundation stones of economic freedom—

macro stability,
openness to trade,
ease of investment, and
a quality regulatory regime.

MCC’s performance-based approach to aid creates an incentive for change—for countries

to initiate,
add to, or
accelerate their own reform agendas,

not only to improve their performance on our indicators and qualify for our assistance but also because it is the right thing to do for their citizens.

Consider Mali, as an example, where we have a $460 million compact. As one of the world’s poorest countries, third from last in the Human Development Index, it chairs the Community of Democracies, a coalition of over 120 nations seeking to strengthen democracy across the globe. Mali demonstrates the political will to adopt good policies and tough reforms that will help it make the best use of its MCC investment to benefit the poor.

Mali has few resources, but what it does have, it is putting to very good use in what it calls its “national struggle against poverty.”

Second, MCC motivates countries to build their own capacity for homegrown solutions.
A global world does not mean a global template for success.

Each country has to determine its own way to build success to complement its good policy performance.

When researchers at the World Bank examined the historical record on rapid growth periods to determine any commonalities, they, in fact, discovered few. There is no cookie cutter approach.

This research squares well with one of MCC’s core convictions that countries must truly own their developmentinitiatives.

What does this commitment to country ownership mean in practice?

When countries qualify for an MCC grant, we do not tell them how to break down their constraints to growth.

Instead, we ask them what remedies would best address their problems. Countries must identify—for us and for themselves—their barriers to growth in a systematic way.

Then, they propose an investment program to help reduce poverty and sustain economic growth.
We analyze the likely returns on the proposed investments and their contribution to economic growth.

And, we expect these proposals to produce results.

We are mindful of how our money is invested.

But, we also understand that our partner countries, when given an opportunity to lead their own destiny, will take a constructive approach to solving their own problems. That ensures that we are making very prudent use of U.S. tax dollars.

By insisting that our partner countries take charge of their development from start to finish, we are strengthening institutions and jumpstarting critical thinking about what policies are necessary to ensure self-sustained growth.

This is how we build capacity and help countries help themselves.

In Ghana, which is implementing a $547 million MCC anti-poverty compact, one of the obstacles to development has been the lack of trained procurement specialists.

Procuring goods and services in a transparent and competitive manner ensures the best use of public funds.

MCC is funding a procurement capacity-building initiative within the government to help Ghana overcome this barrier to development.
By applying this and other lessons learned from working with MCC, Ghana—on its own—has charged the team that first developed its Millennium Challenge Account proposal to now pursue other development projects.

Third and finally, MCC creates partnerships for private enterprise and trade.
We deliver our aid to countries committed to sound

fiscal,
monetary,
regulatory, and
trade

policies. This is conducive for doing business and attracting investment.

Our MCC investments 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.

The Finance Minister of Indonesia, where we have one of our largest threshold programs, says MCC’s real draw is its “good housekeeping seal of approval,” which sends a powerful signal to private investors that conditions are swiftly improving for doing business.

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

a school,
or trained workers,
or a road,
or clean water,
or proper sanitation.

We see this in Lesotho, where the MCC-Lesotho compact is investing in private sector development to create a stable framework for doing business—from secure land tenure to the enforcement of contracts.

This enables the private sector to be part of larger markets for export, like the emerging Southern African Development Community, which will become a common market next year.

We see this among the MCC partner countries of

Honduras,
Nicaragua, and
El Salvador

who are also trading partners in CAFTA-DR. Domestic, market-led growth is accelerating as these countries build greater trading capacity.

Recent MCC-sponsored workshops with Nicaraguan farmers, for instance, led to over $3 million in new private sector commitments in agricultural exports. Moreover, the construction of MCC-funded transportation networks will help create alternate routes for goods to cross the isthmus from the Atlantic to the Pacific and create greater market access.

Conclusion

With very few exceptions, countries that grow more rapidly experience more rapid poverty reduction.

MCC’s model is built on this relationship, and our approach promises to expand economic opportunities in poor countries.

As one of many tools in the foreign assistance toolbox, MCC is, of course, not the only way to help the poor, and there are many other development and relief organizations that provide assistance using other criteria and metrics of success.

We are proud that our efforts are bearing fruit in giving the poor a share in the benefits of international economic integration.

By using MCC assistance

to foster sound policy performance,
to build capacity, and
to create a jumping off point for private enterprise,

we are equipping partner countries to compete in a global economy of opportunity.

Early results point to this…and point to how development assistance can, in fact, be used effectively to help countries committed to their own development, to competing globally, and to reducing poverty through economic growth.

Thank you again for inviting me here this evening and for your interest in the Millennium Challenge Corporation. I welcome the Institute’s continued interest in exploring many of the issues that impact MCC’s mission, and I wish you every success in your important work ahead.

Thank you for your attention, and I’d be happy to take your questions.