MCC CEO Ambassador John Danilovich Addresses the Asia Society

I am very happy to see my good friend, Leo Daly, Chairman of The Asia Society, and want to thank you and Washington Center Executive Director Joe Snyder for asking me to be here today.

I would like to congratulate The Asia Society on celebrating your 50th anniversary of strengthening the bonds between Asia and the United States.

I welcome the opportunity to be the first speaker in a new series of presentations this fall on development issues in Asia, and I hope to add to the dialogue by discussing the Millennium Challenge Corporation’s role in Asia and our activities in that part of the world.

The MCC is a new and innovative approach to U.S. foreign aid. I refer to our approach as “aid with accountability.”

It’s accountability on the part of MCC to prudently spend U.S. taxpayer dollars and to expect results from that expenditure.

It’s also accountability on the part of our recipient countries to create and implement projects that they believe will reduce poverty and stimulate economic growth. We ask countries not only to be accountable for the execution of their proposals—to take full “country ownership”  of the process—but also to be responsible for sustaining these efforts over the long-term.

When MCC was established two-and-a-half years ago—under President Bush’s leadership and with the bipartisan support of Congress—to reduce poverty through economic growth, we incorporated three core values into how we work.

First: We believe policies matter and that MCC funding should be performance based.

MCC partner countries must comply with 16 political, economic and social indicators, adopted from independent organizations, that require that they: rule justly, invest in their people, and support economic freedom.

Our MCC countries must create and maintain the necessary institutional infrastructure that will allow our funding to be efficiently and effectively disbursed throughout the five-year span of our programs.

There are currently 22 countries eligible to submit a Compact proposal for funding. To date, we have signed Compact Agreements with 9 countries and hope to conclude 2 more Agreements by the end of this calendar year. As a result, MCC will have committed close to $3 billion in total Compact funding by year’s end.

We also have an additional 17 eligible countries currently in our Threshold program, meaning—as the name implies—that they are on the “threshold” of qualifying for MCC Compact funding, but first must improve their performance on certain eligibility criteria.

Second:  Since we believe that foreign aid should be predicated on partnership and not paternalism, MCC funding requires “country ownership.”

Taking an approach much like an investor – rather than a traditional donor –  MCC requires countries themselves to create their own development strategy.

The countries themselves, not MCC, must assume the responsibility to develop their Compact proposals through a broad consultative process and identify what they believe to be their barriers to poverty reduction and economic growth. This involves input from all segments of civil society, the private sector and non-governmental organizations. And,  ultimately, our MCC countries have the responsibility of implementing the program which they have designed.

Third: Since we are interested in outcomes, MCC insists upon results.

Our partner countries must identify, at the outset, what impact and outcomes our MCC grants will achieve. And, to assure that the impact and objectives are reached, extensive monitoring and evaluation plans are integrated into each program.

We believe that it is not too much to ask that the assistance invested by the American taxpayer should yield results. If it doesn’t yield results, it should be stopped. In short, again, our partners must be held accountable for the aid they receive.

By taking this bold approach to development assistance—by insisting on performance, homegrown solutions, and results—MCC acts as a catalyst for policy reform. The desire to be deemed eligible for MCC funding has resulted in countries taking it upon themselves to enact economic,  social and political reforms that they previously would not have considered doing. We call this “The MCC Effect.”

And, “The MCC Effect” has not gone unnoticed:

The International Finance Corporation’s latest annual report highlights MCC’s incentive effect as a catalyst for reform. The report says,  “Since the Millennium Challenge Corporation introduced conditions for grant eligibility based on performance in the time and cost of business start-up, 13 countries have started reforms aimed at meeting the criteria.”

In many countries,  inter-ministerial committees and presidential commissions have been set up to devise reform strategies that address our selection criteria.

And,  it was reassuring when two Harvard economists set out to study “The MCC Effect”, the report they released earlier this year concluded that countries are responding to MCC’s clear and actionable incentives.

We are proud and encouraged that our selection criteria are, in fact, accelerating policy reform.

Let me share some examples of how MCC’s mission and “The MCC Effect” are unfolding specifically throughout Asia. We are making progress in Indonesia.

Indonesia’s highly-regarded Corruption Eradication Commission, KPK, has prioritized the fight against corruption in the hope of improving the country’s performance on our “Control of Corruption” and “Rule of Law” indicators in the area of “Ruling Justly.” This is an example of “The MCC Effect”—of MCC’s eligibility indicators driving policy changes.

To accelerate these reforms, Indonesia submitted an aggressive Threshold proposal to MCC. It seeks to improve Indonesia’s performance on indicators not only in the category of “Ruling Justly” but also in the “Investing in People” category.

The program aims to curb corruption in the judiciary, financial institutions and public procurement, and improve immunization rates that would serve previously unreachable communities.

The immunization program helps Indonesia meet one of its Millennium Development Goals of reducing child mortality by two-thirds by the year 2015. I am pleased to report that Indonesia’s Threshold proposal is currently under review and will be submitted to our Board of Directors in late October.

We signed a 2 year, $21 million Threshold Program with the Republic of the Philippines this past July to improve revenue administration and fight corruption.

The agreement strengthens the Office of the Ombudsman, tasked with investigating and prosecuting high-level government officials. It also improves enforcement efforts within the Department of Finance.

Corruption-related investigations and dismissals have stepped up significantly since the Threshold Program was announced.

By stamping out corruption and improving tax collection, resources can be funneled, for instance, toward healthcare and education.

In an unprecedented move, President Gloria Macapagal-Arroyo “matched”  MCC’s Threshold Program with an additional $19 million of her country’s own money to fight corruption. This is an impressive commitment and complements MCC’s efforts. Vanuatu signed a 5 year, $66 million Compact with MCC in March of this year.

Although a geographically remote country, Vanuatu has been particularly important in relaying “The MCC Effect” to other Asian Pacific nations.  Many have cited the Vanuatu Compact as an inspiration in their own reform efforts to meet our eligibility criteria.

The Vanuatu-MCC Compact strengthens the reliability of the country’s transportation networks. This will give rural agricultural producers better access to markets for their products. The Compact is expected to increase average per capita income by 15 percent within 5 years.

We are also in negotiations with Mongolia, Sri Lanka and East Timor.

Mongolia is working on a broad approach to removing barriers to poverty reduction and economic growth by improving performance in: rail transport, information and communication technology, vocational education, and health care.

Provided these projects are well-designed and pass our due diligence, they have the promise of transforming the economic and social landscape and improving the lives of Mongolia’s citizens.

The proposal submitted by the Government of Sri Lanka seeks to upgrade the country’s irrigation and road systems and assist small and medium-sized businesses, and is specifically designed to benefit populations across the ethnic divide. In this way, it contributes, in part, to reducing economic issues that fuel conflict.

In East Timor, which is at a very early stage in Compact development, we are already seeing a high level of commitment from Timorese authorities. A work plan to conduct public consultations and technical analysis for a potential Compact is under development.

In a strong sign of support, East Timor’s Parliament approved $1.3 million for proposal and Compact development. East Timor demonstrates that commitment more than size is a critical prerequisite for successful Compact development.

The future of MCC in Asia rests upon Asian countries themselves.

They need to continue generating the momentum towards stability and prosperity from within. We have tremendous respect for those Asian countries demonstrating the political will and commitment to embrace good governance, democracy, open markets, and transparency.

While we are proud of existing MCC-Asian partnerships, we look forward with enthusiasm to forging further partnerships with even more Asian countries in the years ahead.

Clearly,  MCC can not act alone in this pursuit. Our success is tied to the success of organizations like The Asia Society working in the field,  opening doors, creating connections, providing insights. It is also tied to private sector engagement.

I want to reaffirm our commitment to working with you as members of The Asia Society and as representatives of the development, diplomatic,  business, and investment communities.

To all of you here today as members and friends of The Asia Society, when the opportunity arises, we ask that you champion MCC’s mission.

To our colleagues in the international development community, your constructive insights into our work are vital to us as we move ahead.  Since MCC will have no more than 300 professionals at its peak, our presence in our partner countries will be limited. Therefore, we are relying on your ongoing knowledge and your informal monitoring network to tell us what we are doing right and what we can do better in Asia.

To our friends among the investment community and private sector, your participation with us is key to sustainable and long-term economic development in Asia. The ultimate success of MCC will not be measured by the dollars we spend but by the changes we can leverage with our dollars to stimulate trade and entrepreneurship that we hope will complement, add to, and, ultimately, follow our programs. Indeed, MCC’s involvement with any country is meant to be transformational and transitional. With MCC encouraging the right conditions leading to improved business climates, local entrepreneurs and private investors are recognizing that their best interests are served by increasing their engagement.

As a result,  we hope that the private sector’s role will replace MCC’s role. That is why we view private sector engagement as our “exit strategy.”

The story of economic success in Asia is tied in part to private enterprise. MCC’s model for reducing poverty through economic growth depends on it.

Together, with the private sector and all our partners, we can continue transforming the political, social and economic landscape of Asia for the better and for the betterment of the Asian people.

Thank you very much for your interest in and support for MCC’s work.