Governance and Growth－U.S. Foreign Assistance Enters New Era of Opportunity
An Interview With Darius Mans and Ken Hackett
Ownership, results, and accountability are the hallmarks of aid agreements that the Millennium Challenge Corporation (MCC) has formed with 19 developing nations. The agency, established by the U.S. Congress in 2004, has disbursed almost $7 billion in poverty reduction programs. This support is only disbursed to countries that demonstrate their capability to rule justly, control corruption, and create economic freedoms which will be attractive to the private sector.
Darius Mans is MCC’s vice president for compact implementation and was serving as the acting chief executive officer of MCC when this interview was conducted.
Ken Hackett is a member of MCC’s congressionally appointed board of directors. He is also president of Catholic Relief Services, the international humanitarian agency of the U.S. Catholic community. The two spoke with eJournal USA Managing Editor Charlene Porter.
Question: Mr. Mans, how has MCC changed the game in the delivery of U.S. foreign assistance? How is its strategy for assistance different than what has come before?
Darius Mans: MCC’s principles in providing development assistance are based on the lessons of experience over the past 60 years. Our founders took a hard look at what was working and what wasn’t and focused on three core principles.
One is the central importance of country ownership. Countries have to take responsibility for pursuing sound policies and defining their priorities for development, and they have to drive the implementation of programs. It’s very important that the support the outside world gives is anchored in the country’s own development priorities.
Second is the importance of ensuring that the assistance that is provided is focused on achieving very concrete results. On MCC’s Web site[www.mcc.gov], you’ll see a “Results” page, which defines—for every compact we are supporting around the world, now in 19 countries—the concrete, tangible results these programs are aimed at achieving. It’s very important that all of us be very focused on results, getting value for the investment of U.S. taxpayer dollars.
The third core principle is the importance of accountability, making sure that countries are driving the development programs and achieving value from the support they are getting. That accountability runs in two directions. One is making sure the countries are being held accountable for achieving the agreed results, but also very importantly, accountability within the country. Every compact is implemented and overseen by a local entity, often called the Millennium Challenge Account, and typically there are stakeholder groups that play a key role in providing oversight. MCC wants to be sure that within the societies themselves there is strong accountability for achieving the results we all have agreed are important.
Q: Mr. Hackett, you had been in the foreign aid field for decades prior to the formation of the Millennium Challenge Corporation, starting as a Peace Corps volunteer almost 40 years ago. How did you perceive the whole idea of MCC when it was first announced?
Ken Hackett: As this was evolving, I said to one of my staff who was participating in some of the discussions, “If this really turns into what it seems to be moving towards, this will be almost the ideal in terms of economic development, social development, and poverty reduction. I want to be part of it, if I can.”
So I was lucky enough to be chosen for a seat on the board in the first year, 2004. I’ve been very pleased with the way the organization has evolved. The mission of the organization has moved forward, learning lessons and improving. It’s been tremendously successful.
Q: Did you perceive the MCC proposal to be a game-changer at that time?
Hackett: Absolutely. This was a new way of undertaking development, as Darius said, built on a lot of lessons learned over the last 40 or 50 years. Other agencies haven’t been able to learn those lessons. I saw MCC as an entity that was ready to apply new models, test them out, discard them if they didn’t work, and move on. So now five years into it, we’ve evolved in a very positive way.
Q: One of the game-changing principles that MCC employed was the application of objective criteria in the selection of nations with which it would establish a partnership. Mr. Mans, please describe those.
Mans: Our program is premised on providing support to countries that have a demonstrable commitment to ruling justly, to investing in their own people, and to providing a business climate, grounded in economic freedoms, that is attractive for the private sector. We have 17 indicators in these three broad categories. One of the difficult hurdles in order to qualify for MCC assistance is a proven track record with respect to the control of corruption. For us, that is fundamental because one of the clear lessons from development experience is that—without taking seriously the anticorruption agenda—investments and development assistance don’t achieve very much.
MCC uses 17 policy indicators to score and select countries. Every year, the board looks at the performance of countries on those indicators. We do it in the following way: MCC ranks countries based on their performance on the 17 indicators in comparison to other countries in their income category. It’s very important for countries to see where they stand relative to their peers. That has been an incredibly powerful incentive for countries to stay the course and continue reforms. They all look to see, “How are we doing?”
I was recently at a reception of the Government of Afghanistan, and if you look at their performance against the 17 indicators, they are very far from being eligible for an MCC compact. But the government official I met at that event not only knew about our indicators, but also said, “Give us time, we want to become eligible. That is what we are focused on achieving.”
At an event co-hosted by MCC and InterAction on the margins of the U.N. General Assembly meeting in September, the Government of Sierra Leone said the cabinet uses the 17 indicators to set out their reform program because they want to be sure that one day they become eligible for assistance. Clearly, MCC’s eligibility criteria have become a very powerful carrot and reward for performance. The countries we are supporting meet our criteria and give us a commitment to continue to maintain eligibility. They see the criteria as being an important anchor for their own programs for reform.
Q: Are you suggesting that the MCC criteria are conveying a message well beyond the nations with which you have compacts to other governments in the developing world?
Mans: Yes, this is what we call the MCC effect, and we see it in country after country.
Hackett: This is one of the most remarkable elements, this open and transparent process for selection. You’ll even see the criteria for suspension and termination on the MCC Web site for anybody to read. You continually run into ministers of finance or planning who are questioning their counterparts in MCC countries: “How did you get into the MCC process? What do we have to do?” It’s really created a wonderful and successful model.
Q: These criteria are markedly different from how aid decisions were made in the Cold War, for instance, aren’t they, Mr. Hackett?
Hackett: Absolutely. We are now in a completely different situation. The expectations are that the distribution of assistance should be about a country producing results. The results should be visible, and the process transparent and sustainable. It is not just about being friendly. That’s a positive and remarkable change.
Our European friends are also taking considerable interest in this model. The British, the French, and the Germans are taken with this whole idea. I hope there will be better and more robust opportunities for collaboration around this kind of model.
Q: Mr. Hackett mentions those criteria that can end a compact. How has your board put those into use in 2009?
Mans: The MCC model was tested this year and proved its durability. In a couple of countries, MCC has had to either completely terminate or partially suspend parts of a compact because of a pattern of performance in countries which simply do not meet our standards.
In Madagascar, because of a military coup, the MCC board had to make the very tough decision to terminate that program one year before its scheduled completion. It was difficult because Madagascar was MCC’s very first compact. It was coming to the end of its fourth year with just one more year to go. They were well on their way to successfully completing the compact, but then the coup occurred in March 2009.
So the board, quite rightly, decided this is not the kind of country we should be partnering with and terminated the Madagascar program. Despite the recent termination, a tremendous amount was accomplished within the compact and for the people of Madagascar to reduce poverty through economic growth. We didn’t get everything done that we set out to do, but it led to some positive and irreversible changes in the way the government does rural development.
We also had some similar concerns in Armenia in the aftermath of the February 2008 presidential election. The elections resulted in a very violent aftermath which led to a real crackdown. The pattern of actions taken by the Government of Armenia was inconsistent with MCC’s commitment to good governance. As a result, the board decided to put the road construction program on hold.
We’ve had similar stories in Nicaragua and Honduras in 2009. When MCC sees a pattern of actions that is inconsistent with the principles of MCC, inconsistent with the sound performance that originally made them eligible for funding, then the MCC board acts—even if that action means to end assistance. That’s very different from the traditional approach of other donors.
Q: How do you think the board’s actions on termination and suspension are being perceived? Are they sending out a cautionary message on the consequences of undemocratic or uncivil government action?
Mans: I think so. Consistently in country after country, what we have seen is that people have looked at the decisions the board has taken and recognized that this reflects a shortcoming on the part of governments. It is governments that are being held accountable for the actions they take. This is not some arbitrary and capricious act that the United States is taking for political reasons. It is instead based on a clear violation of the basic standards of trust and confidence that are at the heart of the partnership that we have in each country.
MCC compacts are designed to benefit the poor in those countries—and to reduce poverty through economic growth. In the cases of Madagascar, Armenia, Honduras, and Nicaragua, hundreds of thousands of people have benefited from MCC programs.
Q: Let’s move on to some of your successes. I’ll ask each of you for a favorite story about how you have seen MCC’s compacts enable the mutual growth of good governance and economic development.
Mans: One we are proud of is Cape Verde, one of our very early compacts. It’s a country that has a tremendous track record with respect to good governance in Africa. Even so, the government used the compact to improve their performance in good governance.
Through the compact, MCC provided assistance to support improvement in public financial management and procurement. The focus was to develop much better systems that would be used to provide oversight on implementing the investments being supported by the compact. Those investments were so successful that, in fact, I wish we had their financial management system in the United States. They can go to a map, show you where an investment project is taking place. They can drill down to tell you exactly what the progress is with the physical implementation of the project against the targets. They can go down to the level of invoices for absolutely every contract in connection with that project. They have very tight controls around the use of funding.
This was so successful under the MCC compact that the government decided to use this system as the platform for how the Cape Verdean government does business overall. The government also used the compact as an opportunity to accelerate its reforms regarding the business climate. The time and cost to start a business in Cape Verde have been slashed because of the commitment of this government to improving their performance. It’s a partnership we are very proud of.
Hackett: I’ll take the Ghana compact, which is moving into its third year now. It is framed to address the real economic issues facing the majority of the agrarian community in that country. It operates in three different geographic areas, and one of those is where I spent my Peace Corps volunteer service in the late 1960s. So I have a special feeling for this program. When I saw what the government was envisioning for this part of the country and the farmers there, I said, “That’s perfect! That’s exactly what’s going to change the economic dynamic for those farmers on the Afram Plains.”
They are going to add a range of support services in the communities that will together lift the economic situation in a positive way. From production, to marketing, to health and community education, this is the comprehensive approach they envisioned. And I think it will bring some magnificent changes in that particular area and other areas of the country as well.
Because these plans are flowing out of consultations in the countries themselves, there is a much more dynamic, relevant approach. And generally I feel they are going to be more successful than previous models.
Q: You mentioned that some of these countries are approaching the end of their five-year compacts. What’s going to happen then?
Mans: The board will be discussing this very issue in December, the question of second compacts with a given country. A couple factors will come into consideration: obviously, their performance on their first compact but also their continued eligibility: Do they meet the criteria for MCC funding?
If a country is to become eligible for a second compact, we need to squarely answer the question, “What is the exit strategy?” We do not want to have a 50-year relationship with a country. Instead, how do we ensure that we are not engendering aid dependence? How do we make sure that countries wean themselves off development assistance, become able to mobilize resources on their own, and attract the private investment that ensures sustainable, long-term growth.
Hackett: That’s one of the challenges the board will have to deal with. But basically we want to see long-term sustained success in economic growth in these countries, because that’s how you make an impact on poverty.
A related issue is that some of the problems we’re facing in terms of overall economic and social development go across borders. The board and staff are asking questions such as, “Should MCC begin to think about regional investments that could change the dynamic in different ways?” These are things that we haven’t dealt with yet, but we hope that we can look at some options and be transformative and ready to change and evolve as situations change.
Q: When elections change the party in power in the United States, it is common that the different political philosophies will also bring on significant change in certain programs, even abandonment of initiatives started under a previous administration. But in this case that hasn’t happened after the 2008 election. Why?
Mans: A couple of reasons. Effective and smart aid is a core principle of the Obama administration’s global development and engagement policy. In the president’s speeches, whether in Prague, Accra, or Cairo, the importance of creating opportunity and building capable states rings through all those speeches. The administration has “walked the talk” on this and provided strong support for MCC in a couple of very concrete ways.
The president’s request to the Congress for funding MCC included a 63 percent increase. That’s a strong show of support because what MCC is doing is very consistent with where the administration wants to go in terms of global development.
Second, we have a nominee to serve as MCC’s next chief executive officer, Mr. Daniel W. Yohannes, which is also a very strong show of support from the administration for what MCC is doing. Mr. Yohannes has a background embodying what MCC is trying to do. He is an Ethiopian American who came to the United States at a young age and succeeded in business. He has a tremendous track record of management and philanthropy with a keen interest in development. And he is the nominee of the administration to lead MCC.
Both of these are concrete demonstrations of the administration’s strong support for MCC.
Hackett: Before Secretary [of State Hillary] Clinton was named [to the cabinet], the four private board members called upon her in the Senate to ask her whether she would be a champion for MCC in the Senate. She said, “I really think MCC is the right concept and I will support it to the extent I can.” Then a couple months later she became secretary of state and chairman of the MCC board. So I think we have support where it is necessary, and I am heartened that this administration has kept up one of the great new initiatives of our government.
Mans: As the acting CEO, it’s great for MCC to see the strong engagement of the secretary as chair of the board and the tremendous interest and deep passion she has for development. She also sees MCC playing a strong role in the administration’s focus on elevating development as a tool to advance U.S. interests and to support countries that are on the move in pursuing their development objectives.