Remarks by MCC CEO Ambassador John Danilovich at Third Anniversary Forum Hosted by the Society for International Development

SID-Washington   fosters dialogue on international development ideas and best practices, and we   appreciate this wonderful venue to highlight the Millennium Challenge   Corporation’s innovative approach to development assistance.  The MCC is working   tenaciously to fulfill our mission to reduce poverty through economic growth.  I   welcome this opportunity to discuss the progress made and our agenda forward on   the occasion of our third anniversary, which we officially celebrate on January   23rd. 

Two thousand six was   a banner year for the Millennium Challenge Corporation.  We have signed to date   11 Compacts valued at $3 billion and 11 Threshold agreements valued at another   $300 million with countries around the world.  We are working with a total of 39   countries committed to a culture of reform and over 22 million people will   directly benefit from our 11 Compacts. 

Two thousand seven   will be a year of great excitement and challenge for MCC.   While continuing to   sign new Compacts with partner countries, we will also focus on implementing an   array of major projects in the field.  We already see targeted, tangible, and   transformative results unfolding in our partner   countries.

Consider our $110   million Compact with Madagascar to move that African   island nation from subsistence to a market-driven economy by fostering property   rights, expanding the financial sector, and increasing household incomes among   the poorest farmers.  I   leave this weekend for east Africa, where in addition to visiting   Tanzania and   Kenya to discuss their   Threshold programs, I will travel to Madagascar, where I look forward to   seeing firsthand the progress that has been made on the implementation of its   Compact.  Such progress includes the awarding of the first 361 of an eventual   8,000 land titles.  Additionally, almost 2,000 local farmers and enterprises   have received technical assistance from 6 new agricultural business centers and   another 225 farmers have been trained to tap into microfinance credit. 

In   Nicaragua, where I was part of the   presidential delegation to President Ortega’s inauguration last week, our $175   million Compact is increasing the incomes of rural farmers and entrepreneurs in   León and Chinandega.  Last October, I helped inaugurate a pilot project at a   milk-collection facility as part of the rural business development component of   the Compact and participated in the first Nicaragua Investment Summit, which has   already sparked a number of foreign direct   investments.

Consider also our   $295 million Compact with Georgia to renovate regional   infrastructure and develop enterprises.  Although the Compact is still in its   first year, we have already awarded agricultural grants that are expected to   benefit almost 10,000 people. We have projects to rehabilitate municipal water   supplies in two cities that serve 230,000   Georgians.

During my travels   next month, I will check on the progress of our $13 million Threshold agreement   with Burkina   Faso to construct 132 “girl-friendly” schools   throughout the country. Several of these are already in operation and are   keeping girls in school by including day care centers, on-site canteens,  separate male and female bathrooms, and take-home food rations for the families   of those girls who maintain a 90 percent attendance rate. In Indonesia, $20   million of our $55 million Threshold agreement funds a program to immunize at   least 80 percent of the children under one year of age against diphtheria,  tetanus, and pertussis and 90 percent of all children against measles.  In many of our partner   countries, specific projects focus on human development—investments in health,  education, skills—so as to expand human capabilities, raise the standard of   living, and directly impact the quality of life.

Overall, our goal is   to improve the lives of the poor.  It’s about benefiting 75 percent of   Armenia’s one million-plus rural poor   and increasing their annual incomes by $36 million by 2010.  It’s about   improving the lives of more than 65,000 of the poor in Vanuatu and   increasing their average per capita income by 15 percent within 5 years.  It’s   about increasing the annual incomes of more than a quarter of the poor   population of Cape   Verde.  The bulldozers and dump trucks are   already in action there, building roads and bridges as part of our Compact.

From Africa, to   Central America, to Eurasia to the Pacific,  Americans are already seeing a return on their investment as MCC works to   fulfill our mission of poverty reduction through economic growth. It is a   mission guided by three principles that build on each other and on the lessons   learned in development.

First, our aid   encourages and rewards good policies.  MCC provides aid to partner countries who   adopt and maintain good policies.  It is no accident that some of the most   aggressive policy reformers in the world are MCC-eligible.  They cite their   determination to meet our performance criteria as the motivation behind their   reforms.  We can   suspend or terminate a country’s participation with us if we see a serious   erosion of policy performance. The Gambia and Yemen, for   instance, were suspended because of a material decline in overall performance on   our selection criteria.  We have seen that the Yemeni government—spurred in   large part because of MCC—embarked with a new sense of urgency after its   suspension to enact a wide range of reforms so as to be considered for   reinstatement.  We acknowledge and welcome Yemen’s   efforts.

We have developed   two new world-class performance indicators that will become integral in future   country selections.    The Natural Resources Management Index and a Land Rights   and Access Index will help us determine how well a country is promoting   environmental stewardship as well as property registration and land rights for   its poor and vulnerable populations.  We are also considering another   education-related indicator.

Second, our aid   requires full country ownership of the development process. While we partner   with a country, we fully expect it to take the lead in creating, developing and   implementing its Compact in a continuing consultative process with all segments   of its society.  When I   travel to Africa in February, I plan to visit Ghana, with whom   we signed our largest Compact to date for $547 million last August. When the   Public Sector Reform Minister testified before his own Parliament on the   MCC-Ghana Compact, he best illustrated the essence of country ownership 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.   I wish to confirm to the honorable members of the House that our   professionals have designed a program that belongs to us and one that we   Ghanaians can implement successfully.” 

Third, our aid   demands tangible results. Our partner countries must identify from the outset   what impact our funding will achieve.  MCC’s focus on measurable outcomes is   central to how we operate.  It is also the best way to sustain poverty reduction   and economic development even after our funding ends.  Last Fall, I helped award the first 26   “clean” land titles to beneficiaries in Nicaragua, many of which went to   female landowners. These titles are the first of 43,000 that will be delivered   under our Compact. These titles represent the tangible results our funding is   achieving. 

This is the MCC   model: good policies, country ownership, tangible results.  This is the model we   have successfully applied to become the high-performing agency we are today.   Along the way, we learned some key realities. 

First, our emphasis   has been and will remain on funding those projects that are truly transformative   in nature. The transformative nature of what we are doing is not just about   investments—in agricultural productivity or infrastructure projects—but also   about how our partner countries are selected and how programs are crafted and   ultimately implemented.

Secondly, such   transformative change does not and cannot happen overnight if done right and if   it is to be sustainable.  Diligence and perseverance are required throughout the   implementation process—not just the implementation of the various Compact   components but also the implementation of the institutional reforms that were   initially undertaken to qualify and which must be maintained to assure that a   country does not slip on its indicator performance.

Third, our   expectations about progress are pragmatic.  It would be unrealistic—for us and   for those following our work—to expect that our Compacts will show instantaneous   outcomes in terms of poverty reduction.  Sustainable poverty reduction through   economic growth is a long hard slog, a marathon not a sprint.  Yet, we are   starting to see progress and results on the ground.

The first and most   transformative results to surface are policy reforms and improvements, both in   those countries we are working with and in those countries striving to become   eligible. In what is a significant accomplishment, we are seeing countries   undertake the hard work of policy reforms in response to our incentive for   funding.  They are: making improvements in governance, fighting corruption,  increasing investments in health and education, and adopting micro- and   macro-economic reforms. 

Even before a dollar   of aid is invested, these countries are investing in their own development to   qualify for MCC funding.  I call this the “MCC Effect.”  According to the World   Bank’s Doing Business report, 24 countries specifically cited the Millennium   Challenge Account as the primary motivation for their efforts to pursue business   start-up reforms.  Inspired by the MCA, El Salvador, for example, reduced the   number of days to start a business from 115 to 26.  Business registrations   jumped by 500 percent.

Inter-ministerial   committees and presidential commissions have been set up in over a dozen   countries to devise reforms that address our selection criteria.  In an   unprecedented move, Philippine President Arroyo matched MCC’s $20 million   Threshold funding to fight corruption.  The announcement of the Threshold   Program has given The Philippines renewed vigor in this fight, and   corruption-related investigations and dismissals have stepped up   significantly.

We made women’s   legal and economic rights a precondition to the signing of a Compact with   Lesotho, where married women were   considered legal minors. The recent enactment of the law by Lesotho’s   Parliament conferring equal legal status on married women is a tremendous step   in the right direction. This is a powerful example of how MCC is helping to   change policy for the better, which, in this case, is improving the lives of   women. This is also the first time U.S. foreign assistance has been   conditioned on gender equality. 

MCC’s success is   only partly measured in terms of agreements signed, funding awarded, and targets   set and met.  Our ultimate success is grounded in what actually changes and   improves in the lives of the poor and in the sustainability of the institutional   reforms we inspire.  It is these reforms that maximize the impact of our   assistance in reducing poverty and transforming our partner   countries.

Though a young   organization, we have also been successful in changing the very discussion on   development assistance.  With MCC at the center of a ripple effect, we are   proving that aid based on performance is working and can motivate policy   changes. If nonperforming countries look over at their neighbors and see   substantial attention and resources pouring in as a result of good governance   and a genuine commitment to reform, it might compel them to re-evaluate their   lagging performance.

We are promoting   local capacity-building, strengthening institutions, and jumpstarting critical   thinking about the policies necessary to ensure sustainability by insisting that   our partner countries design and implement their own Compacts.  Our focus on   country ownership reinforces the good policies we demand in the first   place.

Other donors are   taking interest in our approach. They are considering using indicators similar   to ours to determine which countries might receive their assistance and are   putting incentives in place to encourage policy improvement.  Achieving   transformative change that replaces poverty with prosperity is our agenda   forward.  Looking ahead, MCC is committed to three goals:

First and foremost,  Compact implementation will join Compact development as one of our core   competencies and will be the mainstay of our work in the long-term. 

We expect   considerable acceleration in implementation activities in 2007.  Since our   projects are finite in duration—usually 5 years—we are trying to remedy   implementation problems before they occur.   As numerous Compact projects come   on line, they are subject to monitoring, evaluation, quality control, fiscal and   procurement oversight, and performance assessments on an ongoing basis. 

Though funding for   the entire life of each of our Compacts is committed up front, it is not handed   out all at once. Instead, because of our focus on results, disbursements are   tied to benchmarks outlined over the life of the Compact.  We distribute funding   as our partner countries meet performance measures and as they are ready to   implement their Compact projects. Typically, less than 10 percent of a Compact’s   5-year total is disbursed in the first year, with a sharp buildup in subsequent   years.  Rather than push money out the door or take unwarranted risks that could   jeopardize the confidence of American taxpayers and Congress, our process   ensures that resources are spent well and directed to tangible results.

For Compact   implementation to succeed, we ask much of our partner countries.  They need to   continue their consultation processes and capacity-building efforts to bring   their Compacts completely to fruition.  They must pursue the hard work of   maintaining a sound policy environment.  Basing assistance on performance on our   political, economic, and social indicators will continue to define our approach.  Consequently, we see the MCC incentive effect intensifying as countries pursue   reforms to qualify for our assistance.  And, they must ensure that all members   of their societies—men and women—fully participate in every way to maximize   outcomes from our assistance. For this reason, we are integrating gender   equality throughout all phases of our Compact development and implementation.

Second, moving   forward demands streamlining and focusing on our top priorities. In 2006, we   greatly strengthened our own organizational capacity. We implemented internal   policies and procedures to improve the way we do business.  We recruited the   best talent and doubled our staff.  With a cap of 300 professionals, we remain   small and lean, particularly in light of the magnitude of the work ahead.  Thus, we need to   prioritize.  The demands on our finite resources—both our staff time and   funding—require that we focus our attention and energies on working with those   countries performing well and exhibiting the fiercest determination to get the   job done. 

In 2007, it is   unlikely that we will have adequate funding for all the countries that seek MCC   grants.  We will not have the staffing necessary to pull those countries through   the Compact process that are not rigorously engaged.  Competition for our funds   and our engagement will increase.  We will direct our limited resources and   attention to those MCC partner countries that demonstrate the greatest effort,  urgency, and willingness to develop their Compact proposals and implement their   signed Compacts. Our priority is to work with those countries that are working   hardest for themselves.

Third, moving   forward means moving toward closer cooperation with donor partners.  Our   forward-leaning partner countries understand the power of leveraging the   assistance we provide by cooperating with key partners.  Our partner countries   are responsible for ensuring that our programs are well coordinated with the   efforts of other donors throughout our entire process—from Compact development   through implementation.  This avoids duplication, creates synergies, and   prevents previously unsuccessful approaches. 

Beyond the donor   community, we encourage our partner countries to champion their own cause and   use MCC as a means to generate greater economic activity and investment led by   their private sectors.  We want our assistance to give way over time to private   sector economic activities that will make development transformative and   sustainable. Thus, looking ahead, we will explore ways to help our partner   countries more fully engage the private sector in making this   possible.

From implementing   Compacts, to streamlining priorities, to including vital partners in our work,  our agenda ahead is indeed ambitious. Then again, the MCC model itself is   ambitious.  Our mandate to reduce poverty is profoundly challenging and   remarkably noble.  Reducing poverty means the eradication of hopelessness.  It   means opportunity for the most vulnerable. 

As a signature   development assistance initiative of the United States   built on innovation and executed through the creativity of first-class   professionals who are  encouraged to challenge assumptions and think like   entrepreneurs, MCC is demonstrating how progress can be made in replacing   poverty with promise.  We are making significant strides in our partner   countries in the fight against poverty.  To reduce poverty through sustainable   and transformative economic growth is our mandate and our mission, our promise   and our pledge.

I thank you for your   interest in the Millennium Challenge Corporation, and I hope for your continued   support for our endeavors as we evolve into our fourth year.

Thank you very   much.”