I’m delighted to be on this panel with my very good friend and fellow Californian Ann Veneman, and I appreciate the Hilton Foundation’s efforts to organize this event and for including me in today’s dialogue on democracy and development.
What can we do to reduce poverty and to sustain economic growth and to help create democratic, stable and prosperous societies?
That is a difficult question, and it was at the heart of deliberations when Congress established the Millennium Challenge Corporation in 2004, fulfilling President Bush’s vision to “provide greater assistance to countries taking greater responsibility for their own development.” MCC is an innovative answer to that question and puts into practice core ideas resulting from lessons learned in the development field over the past several decades.
First, we reward good policies, partnering with countries that already are “doing the right thing” in the areas of: Ruling Justly, Investing in their People, and Encouraging Economic Freedom. The idea is to put our aid money where it most likely will yield development results.
Second, the MCC serves as a catalyst for generating reforms. It is incredible to see what transparent comparisons—and considerable money—will do to incentivize and motivate countries. This is what we call “The MCC Effect.”
Third, we give countries ownership and insist on accountability. This is essential for continued commitment to institutional reforms and program implementation and to ensure democracy and sustainable development.
Let me review these 3 elements of the MCC approach and then return to our question.
First, MCC partners only with countries that already have good policies in place because we believe good policies create optimal conditions for maximizing and leveraging MCC funding over the long term.
Countries are selected to apply for MCC assistance based on their demonstrated commitment to political and economic freedoms, investments in education and health, control of corruption, a regulatory and fiscal climate favorable to business development, and respect for civil liberties and the rule of law as measured by 16 policy indicators adopted from independent, non-U.S. government sources, such as Freedom House, UNESCO and the World Bank.
By rewarding countries that perform well on these indicators, we are encouraging them to build their capacity and institutions leading to democratic, stable and prosperous societies.
In addition to the 16 policy indicators we currently use, two more indicators—a Natural Resources Management Index and a Land Rights and Access Index—will be proposed for approval by our Board of Directors in November. They will provide MCC with additional measures to determine how well a country is protecting its eco-regions, providing clean drinking water, expanding sanitation services, streamlining the property registration process, and making land rights accessible and secure for poor and vulnerable populations.
Each November, our Board of Directors selects eligible countries based on their performance on our criteria. There are currently 22 countries eligible for MCC funding in Africa, Eurasia and Latin America. So far, we have signed Compact Agreements with 9 of these countries—Madagascar, Cape Verde, Honduras, Nicaragua, Georgia, Armenia, Vanuatu, Benin, and Ghana with total funding of over $2 billion. We anticipate signing 2 more Compacts before the end of this calendar year, bringing our total aid close to $3 billion.
Our MCC mission is poverty reduction through economic growth, and our Compacts contain specific proposals that fulfill that mission. We seek to generate sustainable growth among the poorest segments of society, and the success of our Compacts is directly linked to the positive impact our assistance will have on the lives of the poor—where it matters most—and, ultimately, sustainable growth among the poor helps create more stable and prosperous societies.
We monitor policy performance throughout the life of our assistance and encourage our partner countries to continue to embrace ongoing reforms to retain, maximize, and leverage our funding. This is especially the case when a country’s performance slips and exhibits policy weaknesses.
We are prepared to suspend or terminate a country’s participation with MCC if we see a serious erosion of policy performance, and we provide our partner countries with guidance on potential corrective measures they can take to address the policy areas where they fall short. Our preference is inclusion, not exclusion; we are flexible, not rigid, in our approach. We want our countries to succeed.
We believe this requires that they take the difficult steps necessary to maintain good policies to advance their own political, economic and social development.
In addition to rewarding good policies, MCC is increasingly viewed as a catalyst for reform, the second dimension of our approach.
Countries want to be deemed eligible for MCC funding and want to maintain that eligibility. We are seeing that they are taking it upon themselves to re-evaluate their policies, regulations and legislation related to good governance, health and education, and their business climate.
Thus, MCC is prompting countries to enact reforms they otherwise would not have made. We call this “The MCC Effect.” We are proud and encouraged that our selection criteria are, in fact, accelerating policy reform and that countries are scrambling to improve themselves to qualify in future selection rounds.
According to the Doing Business project at the International Finance Corporation, 24 countries specifically cited the Millennium Challenge Account as the primary motivation for their efforts to improve their business environment. Inter-ministerial committees and presidential commissions have been set up in a number of countries to devise reform strategies that address our selection criteria.
To further this incentive effect, MCC established a Threshold Program. As the name implies, this is for countries that are on the “threshold” of qualifying for countries that come close, but fall short of fully qualifying, on our indicators.
To date, we have 9 Threshold agreements. These programs are 2 years in duration and have focused mainly on improving governance, especially on rooting out corruption.
Malawi’s Threshold Program is an example. It contains 14 specific programs that focus on strengthening the legislative and judicial branches of government, providing support for lead anti-corruption agencies, strengthening independent media coverage, and expanding and intensifying the work of civil society organizations.
Jordan’s Threshold Program, which we signed 2 weeks ago, supports homegrown reforms for broadening public participation in the political and electoral process, including strengthening municipal governance and the role of women in elections, increasing government transparency and accountability, and enhancing the efficiency and effectiveness of the customs administration to help reduce non-tariff barriers and allow for the freer movement of imports and exports.
These examples demonstrate MCC’s role as an incentive for encouraging reforms toward democracy-building and development. The third element of MCC’s model recognizes that good policies are essential, but they are not enough. Countries must own and be accountable for their development.
Our approach is not doing for others, but rather helping others do for themselves. Our approach is not one of paternalism but partnership. We encourage better governance from the outset by insisting that MCC-eligible countries conceive, develop, and eventually implement their own homegrown proposals for their own sustainable development.
I call this “aid with accountability.” Just as the MCC is accountable to get results for the expenditure of U.S. taxpayer dollars, so are our partner countries accountable for the effective and efficient implementation of their programs to reduce poverty and sustain economic growth.
To measure results, we jointly design a monitoring and evaluation plan to assess Compact performance. Having countries help develop such a plan also improves their ability to evaluate other programs, including those of their own governments. Our focus on country ownership and accountability has helped build local capacity, encourage broad consultation, and jumpstart critical thinking about the policy framework necessary to ensure the sustainability of proposed Compacts.
Our Compacts are powerful instruments for capacity-building and policy reform to build democracy and encourage development. In Benin, for instance, over 100 local civil society organizations elected their own representatives to the working group that designed that country’s proposal. This degree of civic participation was unprecedented and will continue throughout the implementation of Benin’s Compact.
Other MCC countries have engaged in similar consultative processes, leading to proposals accepted for Compact funding. As a result, MCC is helping Nicaragua remove barriers to growth by improving roads; increasing farm production through high-value crops in Honduras; and overhauling the antiquated land titling system in Madagascar.
I began my remarks by asking: What can we do to reduce poverty and to sustain economic growth and to help create democratic, stable and prosperous societies?
MCC’s innovative approach offers part of an answer to that difficult question. The MCC model marries development to democratic capacity- and institution-building, economic opportunity, and social progress. And, our approach is beginning to bear fruit in the 3 ways I’ve discussed here today.
By rewarding good policies and insisting that programs go forward only if the policy climate measures up to key indicators, the pressure is on for countries to improve their policies and performance continuously.
By creating a powerful incentive effect with the potential reward of MCC funding, the efforts of reformers to create and foster the right policy climate have been enhanced in several countries.
By making countries responsible for program development and implementation, governments and their peoples are consulting, interacting, and devising results-oriented proposals for their own political, economic, and social development that leverage MCC’s assistance.
In these ways, our work to alleviate poverty through economic growth can be sustained and can make a difference where it matters most: in the lives of the poor throughout the developing world.
As we gather to learn from each other, we also gather to congratulate Women for Women International as this year’s recipient of the Hilton Humanitarian Prize. The honoree’s work is an extraordinary example of the difference we all are striving to make to improve the human condition. At MCC, we are proud of our role in this landscape and of the contributions we continue to offer to reduce poverty through economic growth.
Thank you very much, and I welcome your questions.