The Foreign Service Journal, January 2013

38 JANUARY 2013 | THE FOREIGN SERVICE JOURNAL after a coup, for example. Armenia and Nicaragua had their funds placed on hold for arresting journalists and oppositionmembers, among other lapses. And while Mali enjoyed good governance for about 20 years, a coup sparked by a rebellion in the north led to cancellation of MCC aid last year. Encouragingly, eight countries have completed compacts in the last two years. And El Salvador and four others are to complete their programs in the near future. “All of our countries create a climate for private investment,” says Yohannes. He notes that the former Soviet republic of Georgia, formerly 120th in the world in terms of ease of investment, climbed to 18th place as it cut excess regulation as part of MCC conditions. Yohannes says that as he visits the countries where MCC works, he sees that the American way of doing business is catching on; these governments are becoming more transparent in their procurement processes. In addition, MCC guidelines require each recipient country to set aside money for maintenance after the projects are completed. The MCC Effect Asked if MCC was a rival of its sister agency, Yohannes said: “No, we complement each other. Our job is to reduce poverty by economic growth. We do not do food, medical or conflict-related aid,” all of which USAID handles. Asked if MCC hadmade mistakes along the way, Yohannes admits to some. “InMorocco, we had a $700 million compact in toomany sectors and all over the country,” he recalls. “The com- pact started before there was a ‘due diligence’ policy in place.” Now projects are sector-specific and focus on two or three areas, such as water, energy or agriculture. In addition, “we make sure prep work is done before the compact enters into force,” he notes. Despite Yohannes’ assertion that MCC does not compete with USAID, Sarah Jane Staats, an aid expert at the Center for Global Development inWashington, notes that in the shrinking budget environment, “there is competition across the board; resources are scarce.” Asked if MCC was performing well in its niche brand of foreign aid, Staats says: “It is too early to knowwhat mid-course correc- tions are needed. The big accomplishment of MCC is largely its approach. It only selects countries that demonstrate policy perfor- mance, a huge departure fromU.S. and global aid programs.” James W. Fox, who has worked on two assessments of the MCC for the Brookings Institution, recalls that “the MCC got off to a terrible start, led by a CEOwho thought signing agreements was all there was to it.” That said, the MCC “has opted for the most transparent approach of any donor in history...using outside evaluators, using the best techniques available...no other donor comes anywhere close,” Fox commented in an e-mail. He also notes what he calls an “MCC effect,” motivating gov- ernments “to do lots of things to try to improve their indicators.” Clearing Up Misconceptions According to a report by USAID analyst Michael Crosswell, MCC’s underlying principle is that “foreign aid tends to be more effective in countries making strong self-help efforts in terms of policy performance. That principle has guided USAID and U.S. foreign aid legislation since the early 1970s.” However, Crosswell, whose comments are his own and do not necessarily reflect those of USAID, lists some “misconceptions” sometimes expressed by the MillenniumChallenge Corporation’s sponsors: MCC-eligible countries clearly have very good policies. This overstates the reality on the ground, since each country is com- pared to its peers rather than a Western level of governance. MCC countries have strong, capable institutions. In fact, Crosswell says, they have the weaknesses typical of low-income, least-developed countries. Even when these governments have the political will to meet assistance criteria, they lack resources, trained people, technology, physical infrastructure, capital, financial markets regulation, security and other building blocks of development. MCC countries mainly lack aid in the form of large resource transfers. What they really need, Crosswell believes, is stronger institutions to promote economic growth and develop absorptive capacity, so that wealth does not destabilize the system and enrich the elites through corruption. Large programs can be delivered with relatively little donor programming effort. Large MCC programs do take place with only two U.S. staff on the ground, but they have been slow to accom- plish anything. “You can’t simply pick the ‘right’ countries and then hand over the money,” says Crosswell. The Real Test Development is an evolutionary process that can take centu- ries, even in a world of high-speed communications. MCC is the latest attempt to jump-start that process, but the verdict on its success is not yet in. The big test will be whether recipients revert to antidemocratic, corrupt practices once the U.S. project is over, leaving them vul- nerable to coups and repression. n