On July 14, the West African nation of Burkina Faso signed a compact that will bring it nearly $481 million in U.S. aid, but there’s a catch: funding is tied to the nation’s ability to show it is committed to improving governance, encouraging economic freedoms and investing in its citizens to reduce poverty by promoting growth.
Since its creation in 2004, the U.S. Millennium Challenge Corporation (MCC) has approved $6.2 billion in compacts with 16 other countries: Madagascar, Cape Verde, Honduras, Nicaragua, Georgia, Armenia, Vanuatu, Benin, Ghana, Mali, El Salvador, Mozambique, Lesotho, Morocco, Mongolia and Tanzania.
The program embodies the Bush administration’s “steadfast commitment to global development, to ending the scourge of poverty that robs communities of hope and opportunity,” Secretary of State Condoleezza Rice said at the July 14 signing ceremony.
Steve Radelet, in an essay published by Center for Global Development (PDF, 184 KB), summarizes the MCC approach as follows:
“Once countries qualify, the recipient countries set priorities, design the programs to be funded and implement them. This approach places much more responsibility for development programs with the recipient country. In return for this flexibility, the MCC – in theory – demands greater accountability for achieving results, including being willing to cut off funding when programs fail.”
The MCC process sets metrics to measure the effectiveness of the aid. The program is so new that there are insufficient data as yet to draw conclusions, but the most recent MCC report on Madagascar, party to the first MCC compact on March 14, 2005, gives cause for optimism:
“[E]conomic growth in Madagascar picked up and GDP growth accelerated to 6.1% in 2007. This was mostly due to prudent macroeconomic policies, ongoing construction of large mining projects and progress in structural reforms. Inflation slowed to single digits and averaged 8.2% by the end of December 2007.”
Radelet, who holds a doctorate in public policy from Harvard University, calls MCC a significant accomplishment but asserts deeper reforms are needed, and lays out a number of possible approaches to revamping the entire system.
“The United States can and should do a much better job of getting the right kind of assistance in the right amounts to the right countries to fight poverty, address some of the root causes of state failure, and support democracies around the world.
Should international assistance be linked to a country’s progress in political and economic reforms? Is that an effective way to promote democracy and good governance?
Comments (9)
Sheila Herrling
21 July 2008 at 10:04 EDT
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I think the MCC model that rewards poor but well-governed countries with U.S. aid specifically targetted to economic growth programs is terrific. Certainly an experiment we need to let ride for a while, without changing the model, so we can evaluate its effectiveness vis a vis other forms of delivering assistance. The more interesting question to me, in the case of Burkina Faso, is whether there may be some countries that are too poor for the MCC model. What should the MCC, taking into account its business model and growth focus, do in a country where it is difficult to design projects with healthy economic rates of return as is the case with the majority of the MCC Burkina Faso compact?
Suresh Shah
24 July 2008 at 10:13 EDT
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This can be an excellent programme vehicle to uplift backward economies on par with developing countries and also it will contribute for the faster economic growth to every nation because new demand generations from such growing economy.
Prof. George Krhoda, Former Permanent Secretary of Water and Irrigation, Kenya
28 July 2008 at 04:43 EDT
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There is sufficient evidence that developing countries need to put in place public sector reforms in order to utilize additional financial resources that they continue to receive from development partners. Quite often these countries lack absorptive capacity as well as accountability checks, that if not put in place, generally leads to corruption and abuse of support received.
One needs to add that when good policies have been promulgated, then policy reversal by governments must be resisted both by citizens and supporting development partners. Evidence of water sector reforms in Kenya is a case study that may be investigated by other researchers.
Wesley
30 July 2008 at 02:32 EDT
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I agree with Prof. Krhoda, however being in an African country and observing the dynamics associated with African socio-political economics vis a vis aid given to promote good governance and ultimately economic prosperity; it is apparent that until the power ratio’s between governments and people are more realistically ingrained into the frabric of society, the ills that the Prof. refers to such as rampant corruption and also the misuse of that aid to promote internal power struggles and ideological arguments will always overpower and overshadow the good intentions. And then what? Withdraw aid, and noone benefits. It is a thin line we walk..
Sie.Kathieravealu
10 August 2008 at 10:19 EDT
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“The United States can and should do a much better job of getting the right kind of assistance in the right amounts to the right countries to fight poverty, address some of the root causes of state failure, and support democracies around the world.
Should international assistance be linked to a country’s progress in political and economic reforms? Is that an effective way to promote democracy and good governance?”
I would say it all depends on the situation in the country concerned. I cannot say about other countries, because I am not aware of the situation in those countries, but as far as our country - Sri Lanka - is concerned I would say that international assiatance should be linked to the country’s political and economical reforms. That is the most effective way to promote democracy and good governance.
The country is in turmoil and as a bye product of the turmoil a conflict cropped-up which is now being termed as terrorism.
If there had been true democracy, good governance with transparency and accountability would have prevailed. If good governance had prevailed the turmoil would not arisen in the first instance. If the turmoil had not arisen, there would have been a conflict of this magnitude. The conflict would not have taken this magnitude and be termed as “terrorism” if good governance had been practiced to arrest the rising tide of the conflict by actually analyzing the causes and taking remedial measures to contain it.
All these happened because there was a great inflow of uninterrupted foreign assistance which was not tied to good governance as is trying to be done now.
It is my humble opinion that in the first instance ‘Aid must NOT be given to any country. Give loans tied exclusively to a project and to good governance with transparency and accountability. If the loan has been used exclusively for the purpose it was given and the results are good, then the country that gave the loan can consider converting the loan into a grant.
So you would see that my answer for the question “Should international assistance be linked to a country’s progress in political and economic reforms? Is that an effective way to promote democracy and good governance?” is a BIG YES.
Rajendra_Bisessar
17 August 2008 at 07:29 EDT
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I find it strange that there are discussion about aid flows to certain countries when those very countries have profits from industries being expatriated in quantities far greater than any potential aid.
I think that its unfortunate that those giving aid would check progress in terms of growth as opposed to development.
if governments are corrupt and part of the under development and the qualification is the removal of corruption then we have a serious problem in takling poverty.
Threre is corruption is so many donor agency….
There has to be a system of getting aid to the poor that would help to promote productive activities. At the same time the USA and other developed countries have to stop the subsidies to agriculture and facilitate more entry of goods.
The American authorities call tropical fruits, for instance, weird fruits.
The USA has to stop pushing the free market, and its liberalisation policies as the panacea of all evils.
the private sector very often is the engine of personal growth and development the rest of the people are left behind.
The rich are getting richer and rich countries are getting richer and the poor poorer.
The bible states that those who have more shal be given and those who have not even the little that they have would be taken away. How true within present structures.
The economic structures needs to be examined and possibly transformed.
Democracy is not just the right to vote but also within the economic field.
MAJ Hector Gonzalez
17 August 2008 at 17:42 EDT
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The Millennium Challenge Corporation is a fantastic concept that should have been implemented decades ago. I believe it is an effective way to promote democracy and good governance in two ways: before the contract is granted; and during contract implementation.
Countries have to meet the 17 selection indicators prior to signing an aid contract with the MCC. These indicators focus on socio-economical parameters with respective objectives or goals for each parameter. Meeting these goals in order to receive MCC aid is a tremendous way to incite democracy and good governance in underdeveloped countries. The population is already benefiting from their government’s intent to meet the goals of the 17 selection indicators without even receiving one dollar from the MCC!!
Once the contract is signed, the actual program begins. But this is no ordinary economic aid program. There is nothing more counterproductive to the development of a poor nation than to exist based on unconditional loans, or grants. Many well-intentioned aid packages get usually dissolved into the hands of corrupt government officials resulting in illicit enrichment by the minority, and continued poverty by the majority. The MCC maintains offices and representatives in each qualified country to oversee the responsible disbursement of the economic aid, the effective implementation of such aid, and the transparent use of these funds by the host country. The MCC office also supervises and advises the lead host nation agency on staying true to the agreed development plan to ensure the project remains within the cost, performance, and schedule initially proposed by the host nation. This typically results in a successful conclusion of the program, professional development by the host nation lead agency, national pride, and the socio-economic benefit the project itself brings. This is money well spent.
The MCC sets preconditions, and applies high standards in order for countries to benefit from this aid. However, unlike other economic aid and grants, the MCC contracts foster democracy and good governance throughout the entire process, which only maximizes the socio-economic benefits to the poorest populations. A great concept that we should have adopted long ago!!
mtuo
23 August 2008 at 01:49 EDT
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This can be an excellent programme vehicle to uplift backward economies on par with developing countries and also it will contribute for the faster economic growth to every nation because new demand generations from such growing economy.http://www.mtuo.net
petter thomson
13 September 2008 at 06:37 EDT
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According to my point of view it’s a great program to help or uplift all those backward countries. It’s an effective way to promote democracy and I think this is the best way to spend money. As U.S. in the past helped such backward countries and could do better in this great program. Am I right?
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Petter thomson