The Foreign Service Journal, January 2013

THE FOREIGN SERVICE JOURNAL | JANUARY 2013 37 rivaling the USAID budget, which was about $7 billion at the time. But Congress balked at the request. Heavily lobbied by the giant nongovernmental organizations accustomed to getting paid to operate much of USAID’s humanitarian and development agenda, Capitol Hill has never given the MCCmore than a billion dollars a year—about 20 percent of what the administration initially sought. Total outlays over the past eight years come to about nine billion dollars. Daniel Yohannes, current chief executive officer of the Millen- niumChallenge Corporation, has about $900 million in foreign aid to distribute among 24 countries. His agency looks for recipi- ents that maintain high standards in strengthening governance, safeguarding a free press, immunizing children, educating girls, supporting free markets andmeeting similar objectives. Governments that pass vetting in 20 categories (originally 16) are eligible to enter into five-year aid agreements known as “compacts.”The first of these agreements are just wrapping up, and reports on howwell they have functioned are now being done. From Rivalry to Cooperation AndrewNatsios, who was USAID administrator from 2001 to 2006, noted in an interview that the MCC discovered early on that infrastructure projects were vital to its goal of life-changing development. “Without roads and bridges you can’t do economic growth,” says Natsios, who recently completed a professorship at Georgetown University and is now teaching at the Bush School of Government and Public Service at Texas A&MUniversity. “Since the Nixon administration we have followed the human needs school of development and never got away from it,” he adds. “But in the time of Kennedy and Johnson, USAIDwas very much into infrastructure.” Natsios concedes that there was a degree of rivalry initially between the two aid agencies: “At first, MCC leaders said not to do anything that came fromUSAID.” But now, he says, a lot of MCC staffmembers are retired USAID officers. “It has become what USAIDwas in its early years,” he said. The MCC runs its operation with only 300 people, rather than trying to replicate the extensive string of overseas missions with American and foreign staff in nearly 100 countries that USAID operates. In fact, it has only two people in the field in each of the 24 recipient countries. Local boards composed of government officials, business leaders and civil society representatives meet to decide how to spend the MCCmoney. Natsios sees this focus on having local input and control over projects as a positive shift in aid policy. When local institutions and people are invested in decision-making, he believes, the projects are more likely to prove useful and survive the end of U.S. assis- tance. Measuring Success Still, it is too soon to say whether the MCC’s approach is effec- tive. CEODaniel Yohannes noted during a recent interview in his office inWashington that only a few compacts have run their five-year course. But TimRieser, longtime chief clerk of the Senate Appropriations Subcommittee on State and Foreign Operations, said in an interview that MCC has had only mixed success to date. “Although the countries selected were not the basket cases of the world, they did have corruption, lack of capacity and other major obstacles,” Rieser observes. “It was naïve to think that a com- pact would be a game changer,” he adds. “You can’t change a country with $500 million,” he adds. “You can build a road, reform a banking systemor change agricultural policies. But you cannot achieve the transformative, starry-eyed vision of the Bush administration. You can give a country a boost, but there are somany challenges they face that it will only improve things incrementally.” One prominent researcher with a Washington think-tank, speaking on condition of anonymity, says: “We thought MCC was a brilliant idea, but the Bush administrationmangled the idea at the outset.” He notes that the first head of the MCC, Paul Applegarth, quickly alienated the critical constituency for foreign assistance: the NGO community, Interaction, the Center for Global Develop- ment, Save the Children and all the other outfits. “Uninterested in the lessons learned by leading development economists and practitioners of the day, Applegarth hired a bunch of private-sector guys who thought they had all the answers and were not going to listen to the bleeding-heart liberal foreign aid guys.” Although later chief executive officers were more successful, the damage was done. Congress has kept MCC’s budget at around $1 billion a year, even as USAID funding tripled to $24 billion, includ- ing funds for Afghanistan, Iraq and Pakistan. A Pro-Business Approach During our interview, Yohannes explained the MCC’s method- ology. Each recipient country must show a return on investment of at least 10 percent of the value of the grant over five years. So for every $100 million invested in a road, for example, MCC wants the country to show it generated $110 million over five years through increased traffic, agriculture, trade and construction. Some MCC projects have been canceled due to backsliding by the recipient country. Madagascar’s compact was terminated