Ambassador Danilovich speaks at InterAction’s annual CEO Retreat

December 6, 2005

I want to thank InterAction for inviting me here tonight to speak to you. I am grateful for the opportunity to spend some time with you, not only because you are important to the Millennium Challenge Corporation, but because I would like to tell you how I see MCC at this point in time and how I would like to see it evolve.

Simply speaking, development is about helping poor countries not to be poor. Unfortunately, I don't think we have yet found the formula for achieving such an outcome, despite several decades of trying.

People understandably wonder why certain countries still can not, after billions of dollars in aid, develop the basic structures of a functioning economy and society. Critics of foreign aid also argue that donor countries often send ill-fitting aid packages to developing countries, and that leaders in recipient countries often give the required head-fake toward reform to obtain the donor-prescribed assistance – a combination that results in little real change.

International efforts have nevertheless resulted in some important gains—as many of you know first hand—and have produced many lessons for us to learn from, not the least of which is that there is no magic formula for somehow aligning the tumblers of the poverty lock that keeps much of the world from emerging out of destitute conditions.

It would be optimistic to suggest to you that Millennium Challenge is going to turn things around on its own or in short order. I will say, however, that President Bush created the Millennium Challenge initiative as an attempt to gain some traction in our effort to spring open that elusive lock on poverty that has a hold on developing countries.

Indeed, Millennium Challenge can't be viewed in isolation. While our mandate is to take a fresh look and a new approach to development, the MCA is not intended to stand alone. It is a critically important and new tool for international development, standing side-by-side with other instruments that together address a long list of diverse and complex issues.

What, then, is the particular mandate of Millennium Challenge?

The Millennium Challenge Corporation can not and will not be all things to all people. Disaster relief, food aid, humanitarian aid, and even some kinds of development assistance, that are so critical to the lives of so many, are not part of our mission. For this reason, MCA should be additive to the totality of an overall approach for assistance.

As the new head of the Millennium Challenge Corporation, I'd like to outline my views on the role of MCC in our collective effort. Overall, we will be sharply focused on helping poor countries reduce poverty through development and economic growth.

We will seek to achieve these aims through the use and improvement of each country's own economic, political, and social structures. Obviously, this is more easily said than done, so what are our guiding principles to get us there?

First, MCA is performance-based. As you know, eligibility for receiving assistance is predicated on a country's report card of 16 indicators measuring good governance, economic freedom, and investing in people. MCC seeks to target those countries most dedicated to breaking the cycle of poverty and ensuring our aid dollars have a transformative impact. Countries that miss the cut are encouraged to improve themselves, and try again in the next selection round—and many are doing just that:

Paraguay, for example, has adopted significant reforms to lower the barriers faced by business start-ups in hopes of someday qualifying for MCA funding.

In our Threshold program, Malawi is trying to prove itself by undertaking a large-scale program to root out corruption, and

Burkina Faso launched a major initiative using MCC funding to bolster primary education for girls.

Second, Millennium Challenge is not for everyone. Country selection will be driven by scores and data, and countries that are bastions of corruption, poor governance, and instability are not suited for the kind of assistance Millennium Challenge will provide.

Further, countries accepted into the program, but failing to design and implement their Compacts seriously or failing to maintain passing scores on their policy indicators, will risk losing their eligibility.

When the MCC Board met a month ago to select newly eligible countries, we, for the first time, also suspended a country when Yemen dropped significantly on the performance indicators. We will welcome Yemen's return to Millennium Challenge when it reverses its slide and puts itself back on track. And we will continue to monitor adherence to our indicators and, if necessary, take similar action with regard to other countries.

Third, MCC is focused on helping the poor primarily through economic growth, market principles, and private-sector instruments. MCC supports programs designed to create opportunities for people to overcome barriers that keep them from participating in local economic activity. I believe that a great many of the poor will thrive if they are provided access to healthy economic systems and are brought into the slipstream of wealth creation strategies if they are made available to them.

Last Friday, for example, I met with Senator Bob Bennett of Utah, and we talked about the great promise of microfinance and micro-enterprise programs, of which he is a huge supporter. I was able to report that MCC Compacts strongly emphasize access to credit programs, especially in poor, rural areas.

Because our emphasis is on creating the conditions for robust public and private sector investment, MCC must consider the economic rates of return of the projects that we undertake. And that will continue. We will, of course, be careful not to exclude programs that remove impediments to growth and development, such as investments in education and health projects.

I want to emphasize the importance of the participation of women in all our economic growth activities. Our programs to promote land tenure and property rights, for example, are resulting in changes in local practices to ensure that women are provided the same ownership rights as men.

Our Compacts enable us to work with countries on a range of issues in a very practical setting. We drafted guidelines for the review of the environmental and social impacts of projects, to help ensure that our partners adequately consider the impacts of the actions that they propose. We very much appreciate and value the thoughts that your organizations have offered on our interim guidelines and we encourage you to continue this constructive engagement.

A fourth guiding principle is that recipient countries, not the donor, should have primary ownership of the Compact, and it is the recipient country that will conceive, develop, and implement its own program – with MCC oversight and monitoring.

It may be complex … it may take a long time … countries have not been expected to take on this level of responsibility before…but it is absolutely essential. In fact, some have questioned MCC for expecting so much of the countries we work with. But even in the poorest countries, we have seen that their willingness to take on the job usually transforms into their capability to do it.

One of the criteria we use to judge proposals is whether or not a vigorous consultative process was used to develop them. We expect our eligible countries to consult with groups of their own citizens–including their NGO communities.

Perhaps Benin's experience best illustrates the importance of the consultative process. Over 100 local NGOs participated in electing their own representatives to the Executive Board of the MCA working group that designed the Compact proposal.

Not only that, but the number of non-government representatives on the proposed Board of Directors for the implementation team nearly matches the number of representatives from the government. As a result, Benin has not only ensured civil society buy-in during the development of its Compact, it is also looking ahead for its partnership during implementation. This kind of consultation and participation is new to many of our countries, but MCC is working to make it a lasting part of the fabric of their own development strategy.

In fact, we have been told by all five countries that have now signed Compacts that the benefits resulting from the struggle and frustration of reaching out to their citizens and figuring out how to do it themselves is at least as valuable as the assistance they will receive.

We must focus on a relatively small number of countries and develop large, transformative Compacts that allocate enough resources to actually make a dent on poverty in those countries. If we spread ourselves – and our money -- too thin, we will undermine the potentially transformational impact of MCC. President Bush created Millennium Challenge to fundamentally change poor countries, and our success will be measured by the success of our efforts to kick-start economies and reduce poverty.

These five points, of course, are the ideal, but what matters ultimately is not how we talk about this great concept but whether we actually make it work. It's about execution. Whatever start-up challenges the organization and our partner countries may have encountered – and there have, naturally, been some of those -- it is critical that together we do everything in our power to create ever-more effective Compacts and to implement those Compacts effectively. I have every confidence we can succeed in this effort. We do have an outstanding concept. I do have an outstanding team, and we intend to use every degree of energy we have to achieving the goals of this initiative.

We have five Compacts in place ( Madagascar, Honduras, Nicaragua, Cape Verde, and Georgia ) resulting in nearly a billion dollars committed to development projects. We expect to have three more Compacts signed in the next three months ( Armenia, Vanuatu, and Benin ) and a number of new Threshold Country programs coming on line.

In closing, let me emphasize that Millennium Challenge cannot survive on its own. We need to engage effectively with other U.S. agencies and departments. We need to build stronger ties to the Congress. And, we need you.

Your community of NGO's has been on the front lines, out in the field for decades honing your profession. Your input at the local and national level is vital to each eligible country's success in the consultative process. And I also ask that you share your experience with us so we can sharpen our skills as we implement this new approach.

Your community of NGO's has an incredible network of thousands of experts on the ground in the developing world. At our peak, we will have no more than 300 employees, with a limited presence in our partner countries. So, I am asking that your organizations let us know of your thoughts and impressions as our projects are developed and as we move forward in these countries. This informal monitoring network and your unvarnished input to us is of great importance.

Your community of NGO's has an incredibly powerful voice. So, I am asking for your support, not only for the principles I outlined tonight, but also for your support when it becomes unpopular for us to stick to them.

In this room are some of the most caring and committed leaders in the development community, and I have no doubt that when we work together, we can turn this knowledge and experience into sustainable and successful results.

Again, thank you for asking me here tonight. I look forward to working with you.

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