[Senate Hearing 108-25]
[From the U.S. Government Publishing Office]
S. Hrg. 108-25
THE MILLENNIUM CHALLENGE ACCOUNT:
A NEW WAY TO AID
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
MARCH 4, 2003
__________
Printed for the use of the Committee on Foreign Relations
Available via the World Wide Web: http://www.access.gpo.gov/congress/
senate
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2003
87-142 PDF
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov Phone: toll free (866) 512-1800; (202) 512-1800
Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001
COMMITTEE ON FOREIGN RELATIONS
RICHARD G. LUGAR, Indiana, Chairman
CHUCK HAGEL, Nebraska JOSEPH R. BIDEN, Jr., Delaware
LINCOLN CHAFEE, Rhode Island PAUL S. SARBANES, Maryland
GEORGE ALLEN, Virginia CHRISTOPHER J. DODD, Connecticut
SAM BROWNBACK, Kansas JOHN F. KERRY, Massachusetts
MICHAEL B. ENZI, Wyoming RUSSELL D. FEINGOLD, Wisconsin
GEORGE V. VOINOVICH, Ohio BARBARA BOXER, California
LAMAR ALEXANDER, Tennessee BILL NELSON, Florida
NORM COLEMAN, Minnesota JOHN D. ROCKEFELLER IV, West
JOHN E. SUNUNU, New Hampshire Virginia
JON S. CORZINE, New Jersey
Kenneth A. Myers, Jr., Staff Director
Antony J. Blinken, Democratic Staff Director
(ii)
CONTENTS
----------
Page
Berresford, Ms. Susan V., president, Ford Foundation, Washington,
DC............................................................. 74
Prepared statement........................................... 77
Larson, Hon. Alan, Under Secretary of State for Economics,
Business and Agricultural Affairs, Department of State,
Washington, DC................................................. 3
Prepared statement........................................... 4
Responses to additional questions for the record from Senator
Biden...................................................... 93
Responses to additional questions for the record from Senator
Jeffords................................................... 99
McClymont, Ms. Mary E., president and CEO, InterAction,
Washington, DC................................................. 54
Prepared statement........................................... 57
Natsios, Hon. Andrew S., Administrator, Agency for International
Development [USAID], Washington, DC............................ 13
Prepared statement........................................... 16
Responses to additional questions for the record from Senator
Biden...................................................... 97
Radelet, Dr. Steve, senior fellow, Center for Global Development,
Washington, DC................................................. 43
Prepared statement........................................... 46
Taylor, Hon. John B., Under Secretary for International Affairs,
Department of the Treasury, Washington, DC..................... 7
Prepared statement........................................... 10
Additional Statements Submitted for the Record
American Foreign Service Association, John K. Naland, president
and Joseph Pastic, vice president for USAID.................... 89
National Audubon Society, Bob Perciasepe, senior vice president.. 91
(iii)
THE MILLENNIUM CHALLENGE ACCOUNT:
A NEW WAY TO AID
----------
TUESDAY, MARCH 4, 2003
U.S. Senate,
Committee on Foreign Relations,
Washington, DC.
The committee met, pursuant to notice, at 9:35 a.m., in
room SD-419, Dirksen Senate Office Building, Hon. Richard G.
Lugar (chairman of the committee), presiding.
Present: Senators Lugar, Hagel, Chafee, Brownback,
Alexander, Coleman, Sununu, Biden, Feingold and Bill Nelson.
The Chairman. This meeting of the Senate Foreign Relations
Committee will come to order. Today the Foreign Relations
Committee will examine President Bush's proposal for a new
mechanism to deliver foreign assistance. It is called the
Millennium Challenge Account, or MCA.
President Bush's calls to establish the MCA come at a time
when a reassessment of foreign assistance is badly overdue.
American foreign assistance programs lack unifying objectives
or coherent criteria. Too much of our foreign assistance is
determined by obsolete cold war imperatives, the vestiges of
our responses to past humanitarian emergencies, or domestic
political inertia.
In my judgment, the primary goal of American foreign
assistance must be to combat terrorism. And in some instances,
this requires direct military and economic aid to key allies of
the war on terrorism. But our foreign assistance must also be
aimed at broader objectives that aid in the fight against
terrorism over the long run.
These include strengthening democracy, building free
markets, and encouraging the civil society in nations that
otherwise might become havens or breeding grounds for
terrorists. We must seek to encourage societies that can
nurture and fulfill the aspirations of their citizens and deny
terrorists the uncontrolled territory and abject poverty in
which they thrive.
To do this, all of us should begin to think about foreign
assistance as a critical asset in the war on terrorism. In this
context, an ineffective foreign aid program squanders our anti-
terrorist assets just as surely as does a poorly designed war
plane or an unnecessary military base or a flawed intelligence
collection operation. It is up to this committee--and
ultimately every Member of Congress--to cooperate in the
construction of the most potent foreign aid strategy possible.
Now, this process will require us to ask how nations
develop political stability and economic momentum, and how they
become good international citizens that contribute to the peace
and prosperity of the world community.
The Millennium Challenge Account is being established on
the bold assumption that we do know some of the answers. We
believe that successful societies cannot be built without good
leadership, without economies based on sound market principles,
and without significant investments in health and education.
The MCA will provide aid designed to jump start rapid
economic growth in low-income countries that pursue sound
policies. By establishing firm criteria to measure and reward
the progress of low income nations in these areas, the MCA can
provide a powerful incentive to foreign governments to embrace
and to sustain reform.
As we encourage nations on every continent to join us in
reshaping the world, the MCA would put our money where our
mouth is. The President's proposal envisions $1.3 billion for
the account this year, with an increase to $5 billion by its
third year.
The President should be commended for proposing this new
and creative departure in our foreign assistance programs. He
is demonstrating a strategic understanding of the broader fight
against terrorism and the altruistic American desire to help
others achieve the prosperity that we are fortunate to enjoy in
this country.
As we begin our deliberations on granting the President
authority to establish the MCA, I would offer the following
guidelines.
First, the MCA cannot be funded at the expense of other
programs. Top priorities, such as HIV/AIDS funding and food
programs for the hungry, cannot take reductions to make room
for MCA funding. Neither can assistance be reduced to key
countries like Afghanistan, which are unlikely to qualify at
this stage for MCA participation.
Second, an optimal division of labor must be found between
MCA and the United States Agency for International Development.
Failing or failed States need more attention, not less, and
USAID must be given the resources to address these complex
situations.
Third, the Administrator of USAID or his representative
should have a place on the board of the MCA. USAID has
experience developed over decades that should be included in
the expertise undergirding the MCA.
Other central questions that we will address today include
how the MCA might coordinate with other bilateral or
multilateral donors, whether it will need to have
representatives in the field and whether it will be useful for
outside experts to serve on its board.
To examine these and many other questions, we are fortunate
to have two expert panels with us today. From the
administration, we will be hearing from Alan Larson, the Under
Secretary of State for Economic, Business, and Agricultural
Affairs; John Taylor, the Under Secretary of the Treasury for
International Affairs; and Andrew Natsios, the Administrator of
the Agency for International Development.
On the second panel, we have three distinguished citizens
from the private sector: Dr. Steven Radelet, Ms. Mary
McClymont, and Ms. Susan Berresford. We welcome you all and we
look forward to your insights. And I call upon now in the order
that I introduced you--and first of all, Under Secretary
Larson--for your testimony.
STATEMENT OF HON. ALAN LARSON, UNDER SECRETARY OF STATE FOR
ECONOMIC, BUSINESS AND AGRICULTURAL AFFAIRS, DEPARTMENT OF
STATE, WASHINGTON, DC
Mr. Larson. Thank you very much, Mr. Chairman and Senator
Hagel, it is a great honor to testify on behalf of the
Millennium Challenge Account. I do have a statement for the
record, but with your permission----
The Chairman. It will be published in full and I would say
this to all the witnesses, your statements will be published in
full, and we would ask you to summarize as appropriate.
Mr. Larson. Perfect. Mr. Chairman, last March, President
Bush caught the world's attention when he called for ``a new
compact for global development'' that would link greater
contributions from developed countries to greater
responsibility from developing countries.
It was not just the amount of money that attracted
interest. It was also the fact that the Millennium Challenge
Account brought together lessons about development learned over
the last 50 years.
The MCA targets countries that govern justly, invest in the
health and education of their own citizens, and encourage
economic freedom. By focusing on those countries whose own
policies encourage growth, MCA assistance will deliver much
greater economic development. And for those countries that do
not initially qualify, it provides a strong incentive to adopt
growth-enabling policies.
The MCA proposes a true partnership, one in which
participating, developing countries with the full involvement
of their own citizens will set forth their own priorities and
propose their own projects. And the MCA insists on results.
We will have business-like contracts with each partner, and
we will invest our resources in well-implemented programs that
have clear objectives and built-in performance benchmarks.
To realize the President's vision, the administration's
development team, including the three of us at this table,
engaged in an intensive, year-long process of policy
formulation. We received thoughtful suggestions from many,
including NGOs and the business community.
Throughout, President Bush and his Cabinet gave
unprecedented direct and sustained attention to the MCA and to
development issues more generally. After a year of
deliberation, we come to you with a number of conclusions
reflected in the legislation before you.
First, the MCA should focus on promoting economic growth
and developmental outcomes in countries with good policies.
Second, the MCA must complement, not replace other
assistance. In fact, the President seeks to expand other
assistance programs that provide famine relief, that combat
HIV/AIDS, or that help strategic partners. The MCA will not
come at the expense of USAID.
Third, the MCA must have a strict and transparent selection
process. We have chosen 16 publicly available indicators to
help in forming decisions about which countries will
participate. Secretary Powell and the administration are
committed to keeping the MCA firmly focused on development.
Fourth, the MCA should be administered by a separate
corporation. Combining all of the new elements--selective
qualification, partnership, giving developing countries the
lead, a business approach that measures results from the
beginning to the end--all of this requires a new approach. The
legislation therefore creates a lean Millennium Challenge
Corporation headed by a chief executive officer nominated by
the President and confirmed by the Senate.
The CEO would report to a board of directors, chaired by
the Secretary of State.
Fifth, the MCA needs a clean, flexible, legislative
mandate. If it is to respond to developing country priorities,
the MCA cannot be earmarked. To attract the best and the
brightest personnel in public, private, and non-profit sectors,
the MCA must have special personnel authority. To be lean and
efficient, it must have the ability to contract broadly for
services.
Sixth, the MCA must be accountable and coherent with other
development programs. As chairman of the board of directors,
Secretary Powell ensures--intends to ensure that the MCA is
accountable to the President and to the Congress, and is well
coordinated with the activities of USAID, which he also
oversees.
Mr. Chairman, I would like to close on a personal note. My
involvement with developing countries began 32 years ago as a
school teacher in a self-help school in Kenya. Since then, as a
diplomat, first in Sierra Leone, then in Zaire, then in
Jamaica, I have run small assistance programs and promoted
development initiatives like the Carribean Basin Initiative.
On trips to every corner of the world, I have had an
opportunity to observe a wide variety of developmental
strategies. I am convinced that the proposal before this
committee today is the most thoughtful and important American
development initiative to be advanced in the last 32 years.
It is built on American values, embracing both our
compassion and also our insistence on practical results. It
comes at a time when our Nation is engaged in a war against
global terrorism. Yet even as we fight to defeat terrorism, it
is also important, in the words of President Bush, to fight for
the values that make life worth living--education, health, and
economic opportunity.
I urge the committee to give the Millennium Challenge Act
of 2003 its full support. Thank you, Mr. Chairman.
The Chairman. Thank you very much, Secretary Larson.
[The prepared statement of Mr. Larson follows:]
Prepared Statement of Hon. Alan Larson, Under Secretary of State for
Economic, Business and Agriculture Affairs
Mr. Chairman, members of the committee, I am pleased to appear
before you to testify in favor of the establishment of the Millennium
Challenge Account (MCA).
Last March, President Bush described an exciting new approach to
development assistance. He called for ``a new compact for global
development'' linking ``greater contributions from developed nations''
to ``greater responsibility from developing nations.'' The United
States would lead by example, the President pledged, and increase core
development assistance by 50 percent over the next three years--an
increase of $5 billion per year by the third year. A Millennium
Challenge Account would channel this new assistance only to ``nations
that govern justly, invest in their people, and encourage economic
freedom.''
why a millennium challenge account?
Mr. Chairman, this new foreign assistance initiative, the
Millennium Challenge Account, brings together in a new and innovative
way the lessons we have learned about development over the past 50
years.
It affirms that economic growth is key to development and
targets assistance at those countries that have adopted the
governance, health, education and economic policies that enable
growth. In this way, the MCA increases the odds of spurring
successful economic development and, at the same time,
encourages more countries to adopt growth-enabling policies.
It recognizes that development must primarily come from
within, not conferred from the outside. No one can develop a
country except its own people. The MCA thus proposes a true
partnership in which the developing country with full
participation of its citizens proposes its own development
priorities and plans.
It insists on results. Funds will go to those countries that
have the best proposals--with clear objectives and benchmarks--
and those that best implement their programs.
The MCA builds on the promise of the global economy and the spread
of democratic institutions. It rests on the greater recognition by
developing countries that their policies and governance are the most
critical keys to development. The MCA is not the sole answer. it is
part of a broad array of Administration efforts to spur development
that stretch from the Doha Development Agenda to initiatives on HIV/
AIDs, famine and education. Along with these other efforts, the MCA
supports our overall foreign policy, including the struggle against
terrorism, by encouraging free, democratic and prosperous societies
where people have a stake in the future and value partnership with the
United S States.
The Administration's vision of the MCA, as reflected in the
legislation sent forward to the Congress on February 3, is profoundly
positive. It affirms the ability of the poorest people in the poorest
countries to improve their lives; it embraces human dignity by
stressing mutually responsible and accountable partnership; and it
upholds the key insight that thoughtful and participatory political and
economic governance are fundamental to lasting progress.
developing the mca
This past year our challenge has been to implement the vision that
the President put forward last March in Monterrey. In so doing, we have
engaged in an intense, thoughtful and collegial interagency process
involving the Departments of State and Treasury, the U.S. Agency for
International Development, the Office of Management and Budget, the
National Security Council, and a number of other agencies. We have also
benefited greatly from the strong interest and suggestions of many,
including from Members of Congress and staff. The public, especially
the NGO and business communities, have been vital advisors and sounding
boards. We have kept other donor nations and potential MCA beneficiary
countries apprised, as both have welcomed the MCA and been keen
observers of our progress. Throughout this process, the involvement of
the President has been central. President Bush has given an
unprecedented level of direct and sustained commitment to the MCA and
to development issues more generally.
After months of discussion and deliberation, the Administration
came to a number of conclusions:
The MCA should focus on development objectives;
It must complement, not replace current assistance;
To ensure we select only those countries that can best use
assistance, the MCA requires the integrity of objective
eligibility criteria;
To combine all the new elements--a selective program,
partnership that gives developing nations themselves the lead
role in guiding their development, and a program where results
are integrated and measured from beginning to end--we decided
that the MCA could not just be grafted onto existing assistance
programs or structures;
We also concluded that to realize the promise of the MCA
without a huge increase in bureaucracy, we will have to
organize and run the MCA in a whole new way, requiring a clean,
flexible and creative legislative mandate.
legislative overview
Mr. Chairman, to make this vision a reality, the legislation before
you would create a new organization--the Millennium Challenge
Corporation (MCC)--with one key goal: ``to reduce poverty through
promoting sustained economic growth in developing countries committed
to implementing good policies.'' A Chief Executive Officer nominated by
the President and confirmed by the Senate would run the MCC. A cabinet-
level board, chaired by the Secretary of State, would provide policy
guidance and oversee operations. This will ensure policy consistency
and coordination between the MCA and other foreign assistance, which by
law the Secretary of State supervises.
Selection: Only poor countries will be eligible for the MCA. In FY
2004, countries eligible to borrow from the International Development
Association (IDA), and which have per capita incomes below $1,435, (the
historical IDA cutoff) will be considered. As funding expands, we would
also gradually expand the countries eligible for participation in the
MCA. In 2005, all countries with incomes below $1,435 will be
considered. In 2006, all countries with incomes up to $2,975 (the
current World Bank cutoff for lower middle income countries) will be
eligible.
At the heart of the MCA is a challenge to countries to create and
maintain the policy and institutional environment that underpins
lasting development and makes assistance truly effective. We have
therefore based MCA qualification on these criteria and have chosen 16
indicators, falling into three baskets: ruling justly, investing in
people and encouraging economic freedom. In order to participate in the
MCA, countries would be expected to do better than the median on half
the indicators in each category. We will give special attention to the
corruption indicator, since corruption has such a corrosive effect on
democratic institutions and developmental achievement.
The sources for these indicators, and the data for evaluating them,
will be publicly available. By giving countries access to the
information they need to qualify, the MCA helps to give poor countries
incentive and direction to develop the policies required. The
indicators come from independent and analytically rigorous sources,
including the multilateral development banks, academic policy
institutes, international financial institutions and non-profit
organizations. When countries create the policies to meet these
indicators, they will create the conditions friendly to sustained
economic growth.
We know that indicators cannot capture all critical aspects cf a
country's performance in these areas and may not be fully up to date.
The legislation addresses this by providing for discretion by the Board
of Directors to exercise final judgment as to which countries will
qualify. Secretary Powell and this administration are absolutely
committed to keeping the MCA focused on development, with the basis for
qualifying reflected in the President's three categories. We have other
tools, including development assistance and economic support funds, to
address other important national goals.
Implementation: To implement the partnership between the MCA and
MCA countries, the MCA will use time-limited, business-like contracts
that represent a commitment between the United States and the
developing country to meet agreed performance benchmarks. Developing
countries will set their own priorities and identify their own greatest
hurdles to development. They will do so by engaging their citizens,
businesses and government in an open debate, which will result in a
proposal for MCA funding. This proposal will include objectives, a plan
and timetable for achieving them, benchmarks for assessing progress and
how results will be sustained at the end of the contract, delineation
of the responsibilities of the MCA and the MCA country, the role of
civil society, business and other donors, and a plan for ensuring
financial accountability or funds used. The MCA will review the
proposal, consulting with the MCA country. The Board will approve all
contracts.
To be most effective in promoting development, the MCA will need
flexible authorities with regard to funding, personnel, procurement and
contracting. The MCA will fund programs to promote economic growth. We
envision a focus on areas such as agricultural development, education,
enterprise and private sector development, governance, health, and
trade and investment capacity building, but to be able to respond to
MCA country proposals, the MCA should not be restricted to specific
areas of funding.
The Millennium Challenge Corporation will draw its staff from the
best and brightest in the public, private and non-profit sectors. We
envision a relatively small staff, which would serve for time-limited
terms. The staff would rely heavily on contracted services for
monitoring, evaluation and many services. The MCA will need the ability
to contract for services with the private sector, with government
agencies, and with international organizations and should be able to
procure globally.
Funding: The initial funding request for the MCA is $1.3 billion.
This is the first stage of a ramp-up that will increase to $5 billion
by 2006. That is a 50 percent increase in current core U.S. development
assistance, and represents an unprecedented effort to reduce poverty.
We believe $1.3 billion will provide sufficient resources for a strong
start. We deliberately chose to ramp up requests over time to ensure
funds would match but not exceed our ability to use them well.
Operation: Mr. Chairman, we know that the keys to success of any
initiative as innovative as the Millennium Challenge Account lie not
only in ensuring that it has a well thought out mandate and the needed
authorities. It must also operate well. We have sought to give the MCA
a unique identity so that it will work well with other agencies that
deliver development assistance. We have kept its staff small, so that
it will rely on other agencies in the field and in Washington. We have
placed MCA officials in the field under Chief of Mission authority to
ensure that they coordinate well with other Embassy elements, including
the AID mission. And to ensure accountability, the Secretary of State,
who oversees all of our foreign assistance programs, will serve as
Chairman of the Board.
USAID will continue to be central to U.S. foreign assistance. The
Administration is working hard to bring forward new development
initiatives on agricultural development, famine, HIV/AIDS, rural
poverty, trade capacity building and humanitarian relief. Under the
committed leadership of Administrator Natsios, USAID will not only have
a growing role in these new development assistance initiatives, but it
will also be a key partner of the MCA and the implementing agency for
many MCA programs. In fact, USAID programs will work in partnership
with the MCA to provide technical assistance and other funding for
those countries that are ``near qualifiers,'' so that they can make the
policy changes necessary to qualify for the MCA.
what the mca can achieve
Mr. Chairman, in conclusion, the Millennium Challenge Account is an
innovative effort to spark international development that deserves
support. While many of the elements of the MCA are not new, this will
be the first attempt to integrate them into a concept that challenges
countries to adopt policies that enable development, that challenges
aid recipients to take the lead in a new form of partnership, and that
challenges us and MCA countries alike to adopt a business-like,
results-oriented approach. The MCA's goal and mission are clear: to
raise countries out of poverty by promoting sustained and broadly
shared economic growth.
The Millennium Challenge Account is a key element of the overall
U.S. effort to address poverty and development, which must also include
existing programs of AID and others to provide humanitarian assistance
and famine relief, fight HIV/AIDs, build trade capacity, and provide
for economic stability and defense of key partners. We are convinced
that the MCA is in our national interest. Greater prosperity in the
developing world will alleviate the poverty that breeds discontent and
instability. It will expand markets for American exports. It will
reduce the spread of disease and pestilence. The Millennium Challenge
Account will promote our own security and well-being even as it brings
a better life to millions around the globe.
Mr. Chairman, members of the committee, I request your speedy and
favorable consideration of the ``Millennium Challenge Act of 2003.''
The Chairman. Under Secretary Taylor.
STATEMENT OF HON. JOHN B. TAYLOR, UNDER SECRETARY OF THE
TREASURY FOR INTERNATIONAL AFFAIRS, DEPARTMENT OF THE TREASURY,
WASHINGTON, DC
Mr. Taylor. Thank you very much, Mr. Chairman and Senator
Hagel for inviting me to testify on this very important and
innovative initiative of President Bush's.
The Millennium Challenge Account is designed, as you
indicated, Mr. Chairman, to reduce poverty and to raise income
per capita around the world. And it is designed to do that by
increasing economic growth and in particular by increasing
productivity growth.
Productivity growth represents the ability for people to
produce more goods and services. That ability to produce more
is the source of rising incomes and reduction in poverty
wherever it has occurred.
In countries where productivity growth has been strong,
those countries have begun to catch up, even some have caught
up to the wealthier countries. In countries where productivity
growth is low or nonexistent, those are still the countries
that are behind, in which there is still immense poverty. So
the idea here, we think, is that by raising growth, we can take
a real stab at poverty reduction.
The Millennium Challenge Account endeavors to raise
economic growth by focusing on the policies that encourage
economic growth, that bring down the impediments to investment
flows, to technology flows that can raise productivity.
And as President Bush has stated, there are three types of
policies that do this--policies that represent governing
justly, policies that represent investing in people, and
policies that represent encouraging economic freedom.
It is by encouraging such policies that the Millennium
Challenge Account will raise economic growth.
The second part of the Millennium Challenge Account, as
Under Secretary Larson has emphasized, is an insistence on
measuring results, measuring the impact of the assistance as
best as we possibly can.
And, of course, the third part of it is to actually
increase the amount of assistance, as you have indicated, Mr.
Chairman.
In my remarks here, I would like to focus on the way in
which we are implementing the part of the program and the
account that focuses on the policies that raise economic
growth.
As Under Secretary Larson indicated, during the last year,
there has been an extensive effort inter-agency in the U.S.
Government, consultations with the Congress, consultations with
other groups to develop a method to measure good economic
performance and the policies that will raise growth. And on the
basis of that--those consultations we have selected 16
indicators of policies that will raise economic growth.
In looking for these, we have looked at explicitly policies
that we think correlate well with higher growth. We have looked
at indicators that cover a large number of countries. We have
looked for indicators that are widely available and for which
there is transparency. And we have looked for indicators that
are objective and sound as best that we can.
These indicators, which I will just briefly review, are not
set in stone. We think they are good--very good indicators. But
as the Millennium Challenge Account develops, there may be
changes in the indicators themselves.
But just to review briefly, the 16 indicators cover
governing justly, investing in people, and encouraging economic
freedom. There are a total of six in the first category of
governing justly. Two of them have been developed by Freedom
House and have a long history. One is based on civil liberties,
the other is based on political rights.
Four of the other indicators in the governing justly
category have been developed by the World Bank Institute, and
they cover issues such as the rule of law, measuring
corruption, which is extraordinarily important from the point
of view of encouraging economic growth, combating corruption.
There are four indices that we have focused on in the
investing in people category. Two relate to health and two
relate to education. For the education part, we look at the
amount that a country devotes as a share of GDP toward
education.
That is, of course, not the only indicator of good
investing in people and education. Another measure is the
completion rate for young children in school, what is the
completion for--a rate for them as they finish school.
With respect to health, again, a measure of the spending as
a share of GDP on health. But since spending is not a sole
measure of commitment by a country, we also want to look at the
effectiveness as measured by the immunization rates with
respect to certain important diseases.
With respect to encouraging economic freedom, there are a
total of six indices, such as openness to trade, an index
developed by the Heritage Foundation; an index of how long it
takes to startup a business. That is a commitment to policies
that we think are essential for economic growth.
We have a measure of good macroeconomic policies, keeping
inflation low and stable, and keeping the budget deficit in
line.
So based on these 16 indicators, we think we have found a
reasonably objective way and a transparent way to measure
policies that the countries are taking. Now, when these data
are used, there are going to be gaps occasionally in them. They
are not going to be perfect.
So the Millennium Challenge Corporation, when they use
these data, will have to exercise some judgment in coming to
conclusions of which countries are succeeding. What we have
suggested in this is that countries have to be above the median
in half of the indices in each category. That allows for some
flexibility and for some judgment. But it is a rigorous
objective way to apply the indices.
I think the most important thing about the indices is they
are very transparent. They can be obtained from Web sites.
People can do their own calculations to see how countries stand
up. And perhaps most important, the countries themselves can
see how they stand up.
I want to just mention briefly the other part of the
Millennium Challenge Account and Corporation which is so
important, and that is the emphasis on measuring results.
We expect that every contract will have outcomes that
specify what is supposed to be accomplished in each country and
each project. There will be specific baseline data of where
things are at the start so that you can see what the
improvements are.
And we would like the projects to be structured in a way
such that it can be stepped up or changed or cut back depending
on how progress is made so we can actually make adjustments if
the goals are not being achieved. So by measuring results by
insisting on performance and by actually increasing the amount
of funding, we feel that the President's initiative can be more
effective than any in the past in achieving the goals of
raising economic growth and reducing poverty.
We feel the Millennium Challenge Account represents our
country's greatest opportunity to transform the rhetoric of
measurement and the rhetoric of development effectiveness into
an operational action plan and we urge your favorable
consideration of the Millennium Challenge Account Act of 2003.
Thank you, Mr. Chairman.
The Chairman. Well, thank you very much, Secretary Taylor.
[The prepared statement of Mr. Taylor follows:]
Prepared Statement of Hon. John B. Taylor, Under Secretary of the
Treasury for International Affairs, Department of the Treasury
Chairman Lugar, Senator Biden, Members of the Committee, thank you
for the opportunity to testify today on the Millennium Challenge
Account (MCA). My statement will focus on the economic rationale behind
the MCA and how it fits well with the Administration's approach to
development.
Today there are more than one billion people living on less than $1
a day and nearly three billion living on less than $2 a day. In
addition to the tragedy of those living in extreme poverty are those
whose lives are claimed by ailments virtually unseen in the U.S. Last
year alone 3 million people died for lack of immunization, 1 million
died from malaria, 3 million died from water-related diseases, and 2
million died from exposure to stove smoke inside their own homes. In
addition, HIV/AIDS has ravaged the populations of developing nations,
killing 3 million people in 2302 alone.
The United States is helping in many ways to combat these problems.
The MCA is part of the Administration's overall development strategy,
as Administrator Natsios and Under Secretary Larson describe in their
testimony. The MCA is designed specifically to catalyze the policy
reforms that are the foundation of economic growth and poverty
reduction.
development assistance and productivity growth
Sustainable poverty reduction can only be achieved via economic
growth, which is primarily determined by productivity growth.
Productivity is the amount of goods and services that a worker produces
per unit of time with the skills and tools available. If you want to
reduce the number of countries with low per capita incomes, then you
have no choice but to increase productivity in those countries. And the
higher the rate of productivity growth, the faster poverty will
decline. Simply put, the ticket out of poverty is higher productivity
jobs.
Productivity depends on two things: capital per worker and the
level of technology. If there are no impediments to the flow and
accumulation of capital and technology, then countries that are behind
in productivity should have a higher productivity growth rate. They
should catch up, and we have seen many countries catching up over the
years--such as South Korea, Chile, and Botswana. However, many of the
poorest nations still have had low and stagnant productivity and
income, and they are not catching up. More and more evidence has been
accumulating that this is due to significant impediments to investment
and the adoption of technology.
These impediments can be grouped into three areas. First, poor
governance--the lack of rule of law or enforceable contracts and the
prevalence of corruption--creates disincentives to invest, start, up
new firms, and expand existing firms with high-productivity jobs. This
has a negative impact on capital formation and entrepreneurial
activity. Second, weak health and education systems impede the
development of human capital. Workers without adequate education do not
have the skills to take on high-productivity jobs or to increase the
productivity of the jobs they do have. Third, too many restrictions on
economic transactions prevent people from trading goods and services or
adopting new technologies. Poor economic policies, state monopolies,
excessive regulation, and the lack of openness to trade are all
examples of restrictions that reduce the incentives for innovation and
investment that are needed to boost productivity.
The Administration's approach to assisting developing nations to
overcome these impediments and thereby increase their productivity
growth is to increase aid, reward better performance, and measure
results. All three must be simultaneously implemented; two of three
alone would not succeed. As the MCA clearly represents a significant
increase in aid levels, I want to focus on how the MCA will reward
better performance and measure results.
rewarding better performance
President Bush's vision of the MCA recognizes the importance of
rewarding pro-growth policies. He categorizes these policies as ruling
justly, investing in people and encouraging economic freedom. The MCA
provides an incentive for countries to adopt good policies that will
benefit them in three distinct ways:
(i) These policies, in and of themselves, will increase
growth;
(ii) These policies will create an environment conducive to
foreign and domestic investment; and
(iii) Development assistance will be more effective in good
policy environments.
Following President Bush's leadership, the Administration sought to
develop a set of indicators that will be used to measure a country's
commitment to pro-growth policies. An interagency group with
representatives from Treasury, State, USAID, OMB, Commerce, CEA and NSC
worked intensively for several months evaluating a wide range of
possible indicators. As part of this process, we met with
representatives from other donor countries, developing countries, non-
governmental organizations (NGOs), universities, think tanks, the
private sector, and other interested parties to gather their ideas.
As a first step we needed to decide which set of countries would be
eligible to compete for MCA funds. Our proposal is to expand the number
of countries eligible as funding ramps up. In FY'04, countries eligible
to borrow from the International Development Association (IDA), and
which have per capita incomes below $1,435 (the historical IDA cutoff),
will be considered. This is currently 74 countries. In FY'05, all
countries with incomes below $1,435 will be considered, which adds
another 13 countries. In FY'06, all countries with incomes up to
$2,975--the current World Bank cutoff for lower middle income
countries--will be eligible to compete as a separate pool. This group
currently consists of 29 countries. It is important to note that
countries prohibited from receiving assistance by current statutory
restrictions will not be eligible.
Eligible countries will qualify for funding based on their policy
performance in the categories of ruling justly, investing in people and
encouraging economic freedom. In an attempt to objectively quantify
performance in these three categories, we considered a variety of
potential indicators.
Ultimately, we selected 16 based on their relationship to growth
and poverty reduction, the number of countries they cover, their
transparency and availability, and their relative soundness and
objectivity. These indicators are not set in stone and may change in
the future if problems with them emerge or better indicators become
available. To qualify as a better performer, a country will have to be
above the median on half of the indicators in each of the three policy
areas.
Governing Justly:
There is a growing literature on the importance of strong political
institutions and good economic governance to successful development.
(1) Civil Liberties: Freedom House evaluates freedom of expression,
association and organizational rights, rule of law and human rights,
and personal autonomy and economic rights.
(2) Political Rights: Freedom House also evaluates the prevalence
of free and fair elections of officials with real power; the ability of
citizens to form political parties that may compete fairly in
elections; freedom from domination by the military, foreign powers,
totalitarian parties, religious hierarchies and economic oligarchies;
and the political rights of minority groups.
(3) Voice and Accountability: The World Bank Institute has designed
a set of indices that aggregates existing quantitative assessments of
governance from a broad range of sources. One of these indices attempts
to measure a country's ability to protect civil liberties, the extent
to which citizens of a country are able to participate in the selection
of governments, and the independence of the media.
The policies incorporated in the previous three indicators should
be seen as ends in their own right apart from their impact on growth.
Additionally, freedom of expression and of the media allow civil
society to effectively monitor the government and reduce corruption and
more subtle rent-seeking behavior. Free and fair elections make
governments accountable to the entire country rather than to a narrow
power base, thus making them more responsive to development needs.
The remaining three indicators are produced by the World Bank
Institute. These indices are formed by aggregating surveys from 15-20
different sources, similar to Voice and Accountability:
(4) Government Effectiveness: Good governance includes the
provision of quality public services, civil servants who are competent
and independent from political pressures, and credible governments that
make good on their commitment to produce and implement sound policies
and deliver public goods.
(5) Rule of Law: This index attempts to measure the extent to which
people have confidence in and abide by rules of society, the incidence
of violent and non-violent crime, the effectiveness and predictability
of the judiciary, and the enforceability of contracts.
(6) Control of Corruption: With respect to this indicator,
President Bush made it clear that MCA funds should only go to the most
transparent and least corrupt countries. To meet the President's
concerns, we have determined that those countries which fall below the
median on this indicator will be considered ineligible for MCA funds,
absent material change in their circumstances.
Investing in People:
In terms of measuring a country's commitment to educating its
citizenry and providing basic health care, we were particularly
concerned that a country's income level not preclude it from
qualifying, yet we also wanted to provide an incentive for countries to
focus on key policies that contribute to growth. Our proposal,
therefore, includes two budgetary input measures, which governments can
control and rapidly change. However, more money does not always lead to
better results. Consequently, we have included two output measures that
more accurately reflect improvement in the policy environment over time
and are key to sustainable development.
(1) Public expenditure on health as a percent of GDP: These data
are being provided directly by the recipient government.
(2) Immunization rate for DPT and measles: The UN's World Health
Organization publicly compiles and annually releases data on
immunization rates for nearly all member countries. Immunization rates
can be associated with growth because labor productivity increases when
workers are not out sick or caring for ill family members.
(3) Total public expenditure on primary education as a percent of
GDP: These data are being provided directly by the recipient
government.
(4) Primary Completion Rate: The World Bank and UNESCO compile data
that measure whether children are attaining minimum education levels. A
higher level of education increases labor productivity.
Encouraging Economic Freedom:
The MCA will measure a country's level of economic freedom based on
its performance in implementing prudent macroeconomic and microeconomic
policies, as well as creating the conditions necessary to attract
investors.
(1) Country Credit Rating: Institutional Investor magazine produces
a semi-annual survey of bankers' and fund managers' perceptions of a
country's risk of default. Our belief is that such a survey is an
important indicator of the views of the private sector. In addition, an
improved credit rating usually leads to a lower cost of capital and
greater domestic and foreign direct investment.
(2) Inflation: High inflation distorts relative prices and
discourages long-term investments. Also, as the poor hold a higher
percentage of their wealth in cash, they are disproportionately hurt by
the erosion of their purchasing power. Of the 16 indicators, this is
the only one where performance is not judged relative to the median.
Instead, a country must have inflation of less than 20% in order to
pass the indicator.
(3) Budget Deficit/GDP: As a measure of fiscal policy, we use a
country's overall budget deficit averaged over a three-year period. The
data for this measure will be provided directly by the recipient
government, cross-checked with other sources, and made publicly
available. Among other impacts on growth, a high budget deficit crowds
out private sector investment and can lead to inflation.
(4) Days to start a business: The Private Sector Advisory Service
of the World Bank Group works with local lawyers and other
professionals to examine specific regulations that impact business
investment. One of their studies measures how many days it takes to
open a new business. Bureaucratic barriers to business formation that
go beyond protecting society not only hinder entrepreneurship but may
exist to preserve the economic rents of political cronies.
(5) Trade Policy: The Heritage Foundation's Index of Economic
Freedom measures a country's openness to international trade based on
average tariff rates and non-tariff barriers to trade. Open economies--
those with low to moderate trade barriers and exchange controls--tend
to grow faster than more closed economies.
(6) Regulatory Quality Rating: The World Bank Institute (see
section above on Governing Justly) measures the burden on business
arising from, among others, licensing requirements, labor regulations,
and bureaucratic corruption. Excessive regulations and their arbitrary
application deter investment and raise the cost of doing business,
thereby hindering job creation and reducing growth.
While these indicators meet all of our criteria, there may still be
gaps or lags in the data, or trends not reflected in the data, which
may be material for assessing performance. To correct for these
possibilities, the MCA Board of Directors will look behind the numbers
to make a final recommendation to the President on qualifying
countries.
measuring results
Aid effectiveness requires not only better performance but also a
focus on measuring results. This is a core component of the
Administration's development strategy and is one that we have pushed in
the Multilateral Development Banks (MDBs). For example, the U.S. made
part of its financial commitment to the IDA-13 replenishment in the
form of an incentive contribution that will reward the World Bank for
increasing the use of various diagnostic tools (such as reviewing the
policies of developing countries in the areas of financial
accountability, procurement, public expenditure management, and poverty
analysis) as well as making progress towards a set of development
indicators (in health, education, and private sector development). The
agreement also called for the initiation of a performance measurement
system which will develop ultimately into a common set of outcome
indicators that can be compared across countries.
The MCA furthers this focus on measuring results by making
accountability for results an integral part of every activity for which
MCA funds are used. Americans are by nature a generous people but they
want to see results from their funds that are devoted to development,
and their support for providing foreign assistance will only increase
if those results are demonstrated in a convincing and straightforward
manner. By measuring concrete results, we can focus our efforts on what
really matters: helping poor people around the world escape from
poverty and lead better lives. The approach helps us cut through
bureaucratic layers, ignore non-essentials, and concentrate on
development problems that must be solved. It is a way to maximize the
benefits of our funds.
MCA contracts will state in quantitative terms the expected
outcomes of individual activities and overall country assistance. We
will require a clear strategy for gathering baseline data and measuring
progress towards stated results and assessing the reasons for success
and failure. We will also require projects to be structured in a way
that steps up or cuts back funding contingent on achieving results. In
addition, evaluation of results will allow the MCA to incorporate
lessons learned into ongoing and future operations. In keeping with the
MCA's commitment to transparency, all monitoring and evaluation
reports, as well as the terms of each contract, will be made public in
the U.S. and in the host country. Furthermore, we will continue to
monitor country commitment to MCA selection criteria.
In addition to sector specific monitoring, we will also be
concerned with the broader policy environment. The Millennium Challenge
Corporation will monitor overall budget data to determine whether
recipient governments are using MCA resources in a complementary manner
with their own domestic and other development resources.
Coordination of assistance with other donors will be vital to the
success of the MCA. Each recipient country will be responsible for
managing coordination among the MCA and other donors to maximize impact
and avoid duplication of efforts. The effort to align MCA country
contracts and MDB assistance with each country's Poverty Reduction
Strategy Paper (PRSP) or other development strategy will also help
coordinate development assistance.
conclusion
For many years, we have all heard about the importance of aid
effectiveness. The MCA represents this country's greatest opportunity
to transform rhetoric into an operational action plan. The MCA has the
ability to challenge countries to demonstrate performance, to achieve
results, and most importantly to assist their people in having a better
opportunity to pursue a better life for themselves and their families.
I urge your favorable consideration of the ``Millennium Challenge Act
of 2003.''
The Chairman. Administrator Natsios.
STATEMENT OF HON. ANDREW S. NATSIOS, ADMINISTRATOR, AGENCY FOR
INTERNATIONAL DEVELOPMENT [USAID], WASHINGTON, DC
Mr. Natsios. Thank you very much, Mr. Chairman and members
of the committee. I would first like to ask that my longer
written testimony be put in the record. But I also would note--
--
The Chairman. It will be published in full.
Mr. Natsios [continuing]. That we worked on the written
testimony a great deal. It is more than just written testimony.
It is actually the plan that we intend to use to integrate
USAID into the Millennium Challenge Account. So I would urge
the staffs to examine what we have written, because we went
through a long process to get to the written testimony.
Thank you, Mr. Chairman and members of the committee for
holding this hearing on the Millennium Challenge Account in
such a timely manner. I know, Mr. Chairman, that you and other
members of the committee, have had a great interest in what the
President has called our moral imperative to combat world
poverty. And I am delighted to participate in what I believe
will be one of the most sweeping changes in foreign assistance
funding since the Marshall Plan and the Alliance for Progress.
I would like to thank my colleagues, Under Secretary Larson
and Under Secretary Taylor, for their excellent summary of the
evolution of the MCA and on key issues, which I will not
repeat.
USAID welcomes the MCA as a bold initiative that will
complement our mission and provide strategic focus to U.S.
development assistance priorities. We see USAID's role as key
in the President's campaign to attack the scourge of poverty by
stimulating economic growth, promoting democracy and investing
in people. But USAID is only one piece of what is now becoming
a more coherent and coordinated U.S. development strategy.
For the first time, we have the opportunity to articulate
and implement a government wide U.S. strategy that clearly and
accurately defines our different challenges and matches the
right tools to address them. The MCA will play a critical role
in this process as we begin to define U.S. development
assistance to address the very different challenges we face
today than those that we faced during the cold war.
Specifically, MCA puts into practice what we know works in
development. As both my two colleagues suggested, the MCA is
the direct outgrowth of what USAID and other development actors
have learned over the past 40 years. Simply put, development
assistance in poor countries that are pursuing good policies
produces growth.
We know that good governance, economic policies, and
institutions are key. Country ownership of the development
agenda is also essential. These are the foundations of the MCA.
We also know that money alone will not correct bad policy.
The fact that it is not the quantity of aid that counts, but
the quality, was at the heart of the debate in Monterrey. We
know that throwing money at the problem, or meeting ``ODA
quotas'' is not the answer.
The MCA recognizes that foreign aid can, at best, play a
supporting role in a country's development. A country's
commitment to help itself is the primary determinant of
success.
This is particularly true of governance. Experience has
taught us that no amount of money can overcome corrupt local
leaders or the absence of political will for reform. I might
add here that one of the most powerful parts of the President's
approach is to support the forces of reform in the developing
world.
Every country in the world, whether or not it is the most
autocratic, has some force that wishes to change the society
and reform it. And the problem frequently is that the reformers
feel isolated. They do not have tools. I know already in
parliaments in the developing world, this piece of legislation
is being used to argue for immediate changes to deal with their
problems or they will not be eligible for the MCA. So even in
countries that are not MCA eligible, this legislation will have
a profound effect on the policy reform process.
It puts a tool in the hands of reformers, the very people
we want to support to try to make the changes in their society
so that they can get the local policies on their own without us
forcing them to do it. And it is a very powerful tool.
USAID will reorient its assistance programs to take into
account the principles driving the MCA. We welcome the MCA as
the strongest possible commitment by the administration to
making development a core element of our foreign policy. Not
only does it embody the right philosophy and approach to
development, it also gives USAID the opportunity to clarify its
role and better focus its activities within the context of a
coordinated strategy.
Given our strong interest in supporting and complementing
the Millennium Challenge Corporation, USAID has been reviewing
its portfolio to determine the best way to organize itself both
to support the mission and operations of the MCA and to fulfill
our mandate to help a wider range of developing countries. In
addition to providing support that may be needed in MCC
countries, we believe that USAID should focus activities on
four broad categories of countries.
The first is the countries that just miss getting into MCA.
There are a number of countries that are just below the
requirements in terms of the 16 indicators.
The second are mid-way--mid-range performers with the will
to reform, but that are a little further down in terms of
qualifying.
The third are failed and failing States that need post-
conflict, transition, or humanitarian assistance.
And finally there are countries requiring assistance for
strategic national security interests.
For the first group of countries USAID will concentrate on
the specific areas that require strengthening for MCA
eligibility. For example, if a country is not investing
sufficient resources in its people area or achieving good
results in this area, USAID would concentrate its programs in
that particular sector.
In the second group of countries that are unlikely MCA
candidates in the near future, we will assess the commitment to
political and economic reform. Where such a commitment exists,
we will concentrate on building local capacity and institutions
that can support the foundation of MCA assistance.
For those countries that lack such a commitment, we will
continue programs that address global issues such as HIV/AIDS
and environmental degradation, but will need to review our
broader assistance programs.
In the third category, USAID has responsibility for failed
and failing States that do not lend themselves to assistance
guided by MCA criteria. We are actively developing new
assistance models within this particular category of country
that will integrate emergency relief, food assistance,
governance reform, and civil society building.
We have restructured our humanitarian assistance bureau to
create a new bureau called Democracy, Conflict and Humanitarian
Assistance to put democracy and conflict offices in the same
office as Food, Transition Assistance, and the Office of
Foreign Disaster Assistance.
In 2004, we have requested over $2 billion for these crisis
countries and that is a substantial increase over what we have
done in the past.
Finally, USAID will continue to respond to needs in
countries of strategic importance or where there is a
transnational threat, recognizing that the primary objectives
typically fall under national security and foreign policy and
may not produce economic growth or reduce poverty. USAID will
work quickly, flexibly, and effectively to achieve our U.S.
Government objectives.
Finally MCC programs will be founded on a partnership and
driven by country demand. We stand ready to adapt our programs
to support the MCC.
If a country selected for MCC funding has a USAID mission
and program, we would undertake a strategic review of the
existing portfolio of projects. In many cases, we would see the
USAID program transition to support the MCC contract
specifically.
However, there are critical global and regional threats,
such as HIV/AIDS that would warrant continued support as they
are. One of the ways that USAID will complement the MCC is that
we have the ability to address regional issues, such as
disease, water resources through watershed management,
transport linkages, or regional trade capacity building
measures.
Thus the point I would like to leave with the committee is
that USAID will not adopt a black or white approach on how we
will relate to the MCC in every country; rather we think each
country will be reviewed on a case-by-case basis.
Mr. Chairman, I believe that President Bush's vision for
assisting the developing world as embodied in the MCA creates a
unique opportunity to prove that development done right can
work. We urge the passage of the legislation. This concludes my
testimony. I will be glad to answer questions.
The Chairman. Thank you very much, sir.
[The prepared statement of Mr. Natsios follows:]
Prepared Statement of Hon. Andrew S. Natsios, Administrator, U.S.
Agency for International Development (USAID)
Thank you Mr. Chairman and Members of the Committee for holding
this important hearing on the Millennium Challenge Account (MCA) in
such a timely fashion. We look forward to continued close cooperation
with you and your committee as we move ahead to establish what I
believe is a revolutionary new development initiative.
I would like to thank Under Secretary Larson and Under Secretary
Taylor for the excellent summary of the evolution of the MCA and
analysis of key issues and philosophy that stimulated the initiative. I
will focus my remarks on three key areas: (1) how the experience of
USAID and other development institutions has shaped the MCA; (2) how we
see the MCA complementing the work of USAID and refocusing USAID
priorities; and (3) our vision for how the MCA will be implemented in
the field.
I would like to preface my remarks by underscoring two points made
by Under Secretary Larson. The first point is that the process for
developing the framework for the MCA and the legislation has truly been
a model of interagency coordination. Thanks to the active involvement
of key departments and agencies, we were able to coalesce the
comparative advantages of those parts of the government already deeply
involved in bilateral and multilateral assistance programs. The State
Department coordinated outreach with key international and domestic
constituencies; the Treasury Department, which has responsibility for
the multilateral development banks, played a central role in developing
the indicators; USAID, based on its extensive field experience, offered
ideas and proposals on the framework and implementation of the MCA.
Together, our ideas have been drawn on, and in many cases adopted, as
fundamental principles of the proposed new account.
I would also like to underscore the point that we need to see the
MCA as only one piece of an unprecedented and concerted commitment of
President Bush to increase and improve the effectiveness of foreign
assistance. It began with his efforts to forge a new international
consensus on development at the Monterrey Financing for Development
Conference a year ago and the proposal for the MCA. At the heart of
that consensus is that the donor countries will work to mobilize more
money for development, while developing countries take more
responsibility for creating a sound policy environment. Last month the
President submitted a budget to Congress requesting a dramatic increase
in the 150 account of development and humanitarian assistance from $7.7
billion in Fiscal Year 2002 to over $18 billion by Fiscal Year 2008.
Much of that increase will go toward urgent crises, such as stemming
the global HIV/AIDs pandemic. But it also includes as much as $20
billion for MCA, beginning with $1.3 billion in Fiscal Year 2004 and
stabilizing at $5 billion per year by Fiscal Year 2006. It is clear
that this Administration has taken development off the back burner and
placed it squarely at the forefront of our foreign policy.
From the perspective of USAID, the MCA is a welcome and bold
initiative that will complement and provide a model for our mission. We
see USAID's role as key in the President's all-out campaign to attack
the scourge of poverty by stimulating economic growth, promoting
democracy and investing in people. But USAID is only one piece of what
is now becoming a more coherent and coordinated United States
development strategy. For the first time, we have the opportunity to
articulate and implement a U.S. strategy that clearly and accurately
defines our different challenges and matches the right tools to address
them. MCA will play a critical role in this process as we begin to
redefine U.S. development assistance to address the very different
challenges we face today.
the roots of the mca
The MCA symbolizes a dramatic turning point, both in putting into
practice what we know works in development and in elevating development
as a fundamental aspect of our foreign policy. As both Under
Secretaries Larson and Taylor suggested, the MCA is the direct
outgrowth of what USAID and other development actors have learned over
the past fifty years. We not only have considerable first-hand
experience about what has worked and what hasn't, but we also have the
benefit of considerable recent analysis by the World Bank and leading
analysts that support this experience. Put simply, economic development
assistance in poor countries works best when you are pursuing good
policies that are conducive to growth. We know that good governance,
policies and institutions are key; real country ownership is also
essential. And we know that performance must be measured using rigorous
and unbiased indicators. These are the foundations for the MCA.
A recent World Bank paper summarizes the key themes of what has
become a consensus among development specialists worldwide: ``The
collective record of the past yields three main lessons. First, good
development outcomes require good policies and institutions. Second, if
development progress is to be sustained, the underlying policies and
institutions must be country-owned and country-specific. Third, when
these conditions are in place, development assistance can be highly
effective.'' The MCA criteria of good governance, economic freedom, and
sound investments in people are indicative of the policies and
institutions that determine a country's development success.
We know that money will not solve the problem of bad policy. The
fact that it is not the quantity of aid that counts, but the quality,
was at the heart of the debate in Monterrey. We know that throwing
money at the problem, or meeting ``ODA quotas'' is not the answer. The
MCA also recognizes that foreign aid can, at best, play a supporting
role in a country's development; a country's commitment to help itself
is the primary determinant of success. We know that private capital
flows far outweigh development assistance, and that in the age of
globalization, developing countries can undertake reforms that value
private trade and investment for development.
We believe a key aspect of persuading countries to improve their
policies or institutions is to provide the right incentives. This is
why USAID actively promotes the principles of rewarding performance
rather than promises, rewarding good governance, establishing local
ownership, civil society and private investor participation, and
streamlining the assistance delivery process, all of which are
reflected in the MCA.
I want to highlight in particular the critical importance of
governance. The emphasis on governance in the MCA reflects a
fundamental lesson we have learned through hard experience; no amount
of money from afar can compensate for or overcome corrupt local leaders
or the absence of political will. Overcoming poverty and fostering
growth requires governments to become more transparent, inclusive,
lawful and responsible to their citizens. Money can't buy this
commitment or these kinds of reforms. There needs to be the will to
actually pursue these goals. These kinds of reforms, however, can be
supported, encouraged and even reinforced by rewards for governments
that are moving in this direction. Good performers should be tangibly
rewarded with increased development assistance from the international
community, incentives for foreign investment, and trade liberalization.
Democratic, accountable governance with responsible economic policies
should bring immediate and sustained benefits.
But actually linking aid to development performance is a radical
step. This is one of the reasons why MCA marks a revolution in foreign
assistance. Because MCA countries and institutions will have
demonstrated capacity to achieve results, the new Millennium Challenge
Corporation (MCC) will be able to employ a new way of doing business
that relies on host country institutions to manage development
activities.
relationship to usaid
The revolution does not stop with the MCA. It has just begun. The
themes of the critical importance of governance and country ownership,
the emphasis on performance and accountability, must infuse all of our
development assistance. That is why, working under the inspired
leadership of Secretary Powell, we initiated a series of reforms at
USAID two years ago. We knew that the major changes of the past decades
had dramatically altered the landscape for development and that we
needed a new direction for U.S. foreign assistance, and hence produced
the recent report, Foreign Aid in the National Interest. We took up the
challenge of drawing these lessons together to begin to formulate the
outline for a new framework for U.S. foreign assistance.
We had already begun making some of the changes in USAID suggested
by the report, incorporating lessons learned, such as making governance
an essential crosscutting theme, and adopting strategic budgeting
approaches as we reorient ourselves and adapt to the current
challenges. USAID, however, is only one piece of the picture of USG
foreign assistance. As you well know there are numerous U.S.
departments and agencies--the State Department, the Treasury
Department, the Department of Defense, the Peace Corps, to name only a
few--that all have different roles and objectives in providing
assistance. Putting these different pieces all together, many of them
with very diverse mandates, is no small task. Indeed, the MCA is the
cornerstone of putting America's foreign aid back in order: renewing
the focus on economic growth, integrating the nation's foreign affairs
expertise, and mobilizing new resources for development.
This is why the MCA, which has boldly and forcefully articulated a
new vision for development--with the resources to support it--has such
a critical role to play in stimulating and focusing the debate on
foreign assistance. Not only is it driving the debate in the United
States, but it has also grabbed the attention of our international
colleagues, who are all watching the progress of the MCA with great
interest. It presents all of us who care about development with both a
strong challenge and a historic opportunity. It gives us a clean slate
to make the case to the American public and the international community
that development is critical to global stability and that it can work.
To those who have questioned whether USA]D feels threatened by the
MCA, I would answer, to the contrary. We welcome the MCA as the
strongest possible commitment by the Administration to making
development a core element of our foreign policy. Not only does it
embody the right philosophy and approach to development and potentially
provide a model for development, but it also gives USAID the
opportunity to claify its role and better focus its activities within
the context of a coordinated U.S. development strategy.
We view the MCA as our leading edge, targeted on spurring growth in
the best performing poorest countries, providing the level of resources
that can really make a difference in moving them to a higher growth
trajectory. It will rely on country institutions--investors, business
people, political leaders and civil society--to design and lead the
economic growth of the country. But MCA, due to its strict criteria,
will only assist a limited number of countries. That leaves the large
majority of the developing world to USAID and other agencies and
actors.
Given our strong interest in supporting and complementing the
Millennium Challenge Corporation, USAID has been reviewing its
portfolio to determine the best way to organize itself both to support
the mission and operations of the MCC and to fulfill our mandate to
help a wider range of developing countries. In addition to providing
support that may be needed in MCA countries, we believe that USAID
should focus activities on four broad groups of countries: (1)
countries that just miss getting into the MCA; (2) the mid-range
performers with the will to reform; (3) failed or failing states that
need post-conflict, transition or humanitarian assistance; and (4)
countries requiring assistance for strategic national security
interests.
I would like to highlight our belief that the central objective of
focusing on performance, particularly responsible governance, and
focusing on good performers must infuse all our development efforts--
not just the MCA--and those of other bilateral and multilateral donors
as well. This is the way that MCC can serve as a model for all of our
assistance programs.
In the first group of countries, USAID will concentrate on the
specific areas needed to help a country become eligible for MCC funds.
For example, if a country just missed on the investing in people area,
USAID would concentrate its programs in that area to help it qualify
for MCC funds in a future round. In the second group of countries which
are unlikely MCA candidates in the near term, we will need to assess
the commitment to political and economic reform.
Where such a commitment exists, we will concentrate on building
local capacity and institutions that can support the foundation of MCA
assistance, i.e., ruling justly, promoting economic freedom, and
investing in people. For those countries that lack such a commitment,
we will continue programs that address global issues such as HIV/AIDS
and environmental degradation, but will need to review broader
development assistance. We are already beginning this process of
applying an MCA lens to our country programs, informing resource
decisions with analysis of democracy and sound governance.
In the third group USAID has responsibility for countries and
situations that do not lend themselves to assistance guided by MCC
criteria, such as in failing, failed and conflict states. As the
National Security Strategy states, ``America is now threatened less by
conquering states than we are by failing ones.'' Fully two-thirds of
the countries where USAID works have suffered violent conflicts within
the last five years. We know that conflict is complex and that
interventions must focus on multiple dimensions. We are actively
developing new assistance models that will integrate emergency relief
and food with transitional assistance, governance investments and civil
society building. We must approach these states with targeted, flexible
support that emphasizes conflict prevention and the nesting of short,
medium and long-term issues in our program designs.
Humanitarian assistance also remains central to USAID's portfolio.
Originally designed to respond to natural disasters, humanitarian
interventions are increasingly necessitated by complex emergencies
caused by conflict, failed and failing states. We restructured our
humanitarian assistance to create a new Bureau of Democracy, Conflict
and Humanitarian Assistance to make sure that democracy and conflict
are at the heart of our response to failing states, We have also
increased our funding levels. Recognizing the need for greater
flexibility in responding to humanitarian emergencies and failing
states, the President requested a new contingency fund to facilitate
the quick response that is critical in emergencies.
Finally, USAID will continue to respond to needs in countries of
strategic national importance or transnational threats recognizing that
the primary objectives typically fall under national security and
foreign policy more than development. These political challenges will
continue to arise, frequently related to the war against terrorism. As
much as possible they are funded out of Economic Support Funds (ESF) or
other assistance. USAID will work quickly, flexibly, and effectively to
achieve overall U.S. Government objectives.
In addition to adapting our programs to support and complement the
MCC, there are of course other ways that we will be working closely
with the MCC. Foremost will be detailing staff to the Corporation. We
view the long experience of USAID's development professionals as an
invaluable asset to the new corporation. As I will outline below, we
also envision that USAID support to the MCC in the field will be
required, given the lean staffing currently envisioned.
On the broadest policy and programmatic level, I expect to
coordinate closely with the CEO of the MCC, given our complementary
roles. This will be paralleled by coordination on a programmatic level.
While some have questioned whether the establishment of the MCC doesn't
complicate our development efforts, I would suggest that today's
reality is already a complicated one. There are many actors involved in
development. The addition of the MCC, which brings such significant and
welcome new resources applied to the best development practices, has
the opportunity to bring greater strategic focus to our entire
development framework.
implementation
Turning to the question of how the MCA will actually be implemented
in the field, I need to preface my comments by saying that very few of
the details have been worked out. However, I will try to lay out a very
broad vision for you of how the MCC might work, subject to revision,
once we get the Corporation up and running.
MCA programs will be founded on a partnership and be very focused
on one or two key strategic objectives that the country has identified
as their top priority to stimulate growth. In order to develop a
proposal, we are asking countries to engage in a consultative process
with all the relevant civil society and private sector groups. One of
the central principles of the MCA is that it be a transparent process
from start to finish. This is why it is important that the initial
phase of developing a country proposal set the tone and foundation for
the development partnership. While the process may vary considerably
from country to country, the themes of transparency and country
leadership and ownership of the proposal are critical.
In some cases, technical assistance may be required to help a
country develop a proposal, which the MCC could offer. However, the
country will be managing the process; it will not be a case of the MCC
hiring consultants to develop a proposal it wants.
If a country's proposal is selected, a country contract would be
negotiated between the MCC and government. This does not imply that
those funds will only go to the government. To the contrary, it is
anticipated that MCC funds will go to a variety of national and
community actors and alliances. However, the government will sign the
agreement with the MCC and have overall responsibility for managing and
overseeing the contract. The reason we chose a contract approach is to
underscore that both parties have an obligation to meet the terms and
conditions outlined in the contract.
We anticipate that MCC funds will mobilize a variety of economic
actors in each country; to the extent that a development result
requires a public sector investment (schools or roads), funds would be
channeled through the government. However since economic growth
inevitably depends on the activities and investments of the private
productive sectors, community groups and civil society organizations,
we expect that these institutions would also participate, and even
implement the bulk of the investments. In all cases, we expect that MCC
funds would be disbursed directly to the institutions implementing
activities under the MCC contract through the most flexible, but
accountable mechanisms.
If a country selected for MCC funding has a USAID mission and
program, we would likely undertake a strategic review of the program.
In many cases, we would see the USAID program transition to support the
MCC contract. Some programs, such as those fighting HIV/AIDS or
trafficking in persons, might well be continued, while others might
logically be phased out or incorporated in the MCC program. Indeed, one
of the ways that USAID will complement the MCC is that we have the
ability to address regional issues, such as disease, water resources,
transport linkages, etc., that the MCC, by virtue of being country-
specific, cannot.
One of the basic premises for implementation of the MCC is that it
should be demand-driven. We do not want to prescribe the mechanics of
how activities would be implemented. I would anticipate that it will
vary considerably from country to country, knowing there are no
``cookie-cutter'' approaches that will work across the board. However,
the goal will be to employ simple implementation mechanisms that
require less oversight and less U.S. management than traditional
projects. There are a variety of mechanisms for spending the funds,
such as contracts or grants, but these could be managed by the host
country, following their policies and procedures.
Because the management approach of the MCC will be to employ local
institutions for country development, it is appropriate that the MCC,
too, rely heavily on strong local institutions for the in-country
expertise it requires. Economic and financial analysis of specific MCC
investments can be contracted locally. Technical advisory services to
the MCC can be contracted locally. Monitoring and evaluation can
largely be contracted locally. Therefore, we anticipate that the full-
time presence of U.S. government employees needed to manage the MCC can
be significantly reduced.
Even though we envision a strong reliance on local institutions,
there will still be a need for limited MCC staff presence in the field
to facilitate, manage and oversee the partnership. Due to the limited
staffing, we anticipate that the Ambassador and Embassy staff will play
a strong supportive role of the MCC. We also believe that USAID field
staff, with its development expertise and knowledge of local culture
and context, will play a key role in supporting the MCC.
USAID presence in the field has rightly been repeatedly recognized
as its strongest suit. Thirty years of development experience has
taught us that country context matters a great deal. I can imagine that
our very capable field Missions could provide critical support to the
MCC, helping to work with local partners, finding creative, local
solutions to problems, and generally facilitating the work of the MCC.
The basic USAID activity in many of the likely MCA countries has been
knowledge transfer and building local capacity and institutions. In
some cases, continued USAID programs in institution building may be
necessary for a time to further build country capacity to manage MCC
programs and resources. As I have tried to emphasize, while I believe
USAID will have a key role in supporting MCC programs, we do not want
to adopt a black or white approach to how USAID will relate to the MCC
in every country; rather we think each country will need to be reviewed
on a case-by-case basis.
conclusion
As I mentioned earlier, there are many practical details to be
worked out, which the CEO and MCC need to be involved in and will be
best equipped to solve. However, I think we have developed a strong
vision of key principles for the MCC. I began by saving that we believe
the MCC marks a revolution in the U.S. approach to development
assistance. It will help clarify the mission and objectives of foreign
assistance, it will provide greater policy coherence by integrating
foreign policy expertise, and it will mobilize more resources to help
make development truly sustainable.
Spurred by the proposal for the MCC and the changes in the
developing world, we are forging a better understanding of foreign
assistance and its numerous different goals--the developmental goals,
the humanitarian goals, the policy goals, trade-related goals, security
goals, etc. We are beginning a process of articulating these goals and
matching them with appropriate resources and programs, and developing a
strategic approach to U.S. foreign assistance.
For USAID, the MCC has the potential to provide a great model. It
is a golden opportunity to prove that development, done right, can
work. I urge your favorable consideration of the legislation and look
forward to working with you in the weeks ahead.
The Chairman. We will have a first round with 7-minute
limits on Senators, and, if necessary, we will have a second
round as we question this panel.
Let me start by saying that my understanding is that the
countries under consideration for the new MCA program would
have a per capita income below $1,435, as well as the ability
to borrow from the World Bank International Development
Association. There are 74 countries apparently in this
category.
But the criteria you have suggested, the 16, have led the
Center for Global Development to estimate that only 13
countries would qualify in the first year. Now, that does not
negate the value of the 16 criteria. It may be the purpose of
the program to elevate the conduct of governments and their
policies very abruptly, so that conceivably there might be just
five winners.
But I just want to make sure my own understanding is yours,
and that is the criteria appear to be substantial, even
reasonable to Americans that other countries ought to have
these humane and efficient policies that you have suggested,
but most do not. In fact, a huge number do not, and especially
among those countries that have fairly low per capita income.
Now, in answering that question, try to couple it with
this. It is suggested, as I understand the MCA program, that by
the third year, the income cap would rise to $2,975. And some
have suggested--and you have all done the math on this--that
the increased cap might qualify more countries, such as Egypt,
Russia, Colombia.
If that is the case, then some very large entities may
become a part of this, well beyond the small countries that are
envisioned at least in the first track and the first year with
perhaps substantially different policies of management.
However, as Mr. Natsios has said, USAID will be integrating
case by case, trying to think through what is already
occurring, or if we are doing anything in these countries.
I wonder about the philosophy, please explain to us the
thinking and then likewise, the very small staff. You have
talked about a lean organization, and it certainly is. But will
MCA have people in the field? How will they deal with the NGOs
and with others who are intersecting so that life does not
become very complex for the recipient governments contending
with the various parties that are now all interrelating with
each other.
Secretary Larson, would you have a crack at those questions
to begin with?
Mr. Larson. Thank you, Mr. Chairman. I will certainly give
you an overview of our thinking. First of all, while it was
premature to talk about any list of countries as such, because
we do not have the latest data on these indicators and we will
be running all of that later, I think it is correct to expect
that the rigorous application of these indicators and criteria
will result in a very selective program.
And we believe that is appropriate for a variety of
reasons. First of all, the experience in development over the
last 50 years has shown that we get much greater developmental
impact, more bang for the buck, more kids completing primary
school, for example, if we are investing our development
assistance resources in countries with good policies.
Second, we do believe that as Andrew Natsios said that in
countries that do not make the cut in the first instance, this
set of very open and transparent criteria is already spurring
ferment and change and pressures to improve policies in
countries where those policies need improvement. And that is
one of the very important goals of the Millennium Challenge
Account.
We are going to make sure that we are in a position to help
those countries that are trying to improve their policies and,
again, Mr. Natsios has outlined the ideas USAID has for lending
a helping hand to countries that are not quite where they need
to be at.
In later years of the Millennium Challenge Account, we do
imagine easing the per capita income level to something just
below $3,000 per capita, which includes what the World Bank
calls the low-, medium-income countries. But there is a couple
of points to bear in mind here.
First of all, these are still countries that have very
serious problems of development and poverty, particularly for
certain segments of their population. Second, we do not imagine
these countries competing against the poorest countries. Our
vision is that they would compete among themselves for a slice
of MCA resources.
We believe that the focus of this program has to remain on
promoting development and economic growth in the world's
poorest countries, and that is where we intend to keep it.
Last, on the size of the Millennium Challenge staff, you
are right in saying it is a lean staff. We want to work very
hard to avoid a new bureaucratic entity. We are talking about
short-term appointments. We believe that they may need to have
a limited field presence, but we would also expect that in
countries where USAID is present that USAID would certainly
help and certainly the U.S. Embassies would help in every
country where the MCA is operating.
The Chairman. So you intend to rely upon that structure?
Mr. Larson. Yes, not necessarily exclusively, but to rely
on it very heavily.
The Chairman. And your staff sets the criteria, tries to
gather the data, makes the decision as to who the winners are,
and proceeds that way. And that is what the 100 people do?
Mr. Larson. That is what the 100 people do. And they will
make proposals to the board.
We have made clear that because any indicator is imperfect
and because you cannot summon an indicator to a hearing to
explain why the government is giving money to a particular
country, it is important for the board to exercise judgment
that can take into account missing or lag data or other factors
that may not be captured by that indicator about whether we
truly are selecting countries that are governing justly, that
are committed to the investment in their own people, and are
promoting economic freedom in their own countries.
The Chairman. Well, the indicators, I think, are great, but
they have a highly qualitative content; for example, as you
discuss, corruption First of all, you collect, I suppose,
stories of corruption or lack of it. To what extent does this
affect American diplomacy? Is it much like the accounts, at
least of those who have drug problems? Each year we wrestle
with whether they have a high degree of corruption, a low
degree, whether there should be waivers. In other words, have
you thought through the public relations aspect of listing out
the foibles as well the strengths of each of these 74
countries?
Mr. Larson. Well, I think we have. And we think while there
will be difficulties, that there is great merit and openness
and transparency. And I know each of us at this table believes
that corruption is a cancer that makes development almost
impossible.
And both through our initiatives in the international
financial institutions, through technical assistance through
USAID and through initiatives like the OECD Anti-bribery
Convention, we all are trying to push the envelope for greater
transparency and greater anti-corruption initiatives.
The Chairman. Senator Hagel.
Senator Hagel. Mr. Chairman, thank you. And I welcome our
witnesses. Thank you for your appearance this morning. This is
an exciting proposal and I compliment the President and all of
you for developing it.
And I think there is little question, as the three of you
have expressed so well this morning, as has the chairman, the
importance of this kind of attention and focus and the
resources that must go with it as to the future of our
security, if nothing else, American security, our role in the
world. It is an investment in stability and security.
And I think we should see it that way as well as the
humanitarian, because it will be those tools--the humanitarian
and the economic and the trade and environmental, law
enforcement, intelligence that I believe coming together in a
seamless network of our allies will do as much to secure the
security of this country for the future than our military will.
All must be used and will be employed.
So this is very important, what you are doing, and, again,
thank you for focusing on this.
Secretary Taylor, describe for me the role of Treasury in
here. In your testimony, you have laid out the 16 points but
what will be your role here on the board? What expertise do you
bring to this effort?
Mr. Taylor. Senator, as you know, the Secretary of the
Treasury would be a member of the board as currently proposed.
And the role of Treasury here, I think, is most important in
the focus on the policies that will raise economic growth, and
looking at those policies, working with the countries about
those policies as we frequently do, whether it is through the
international financial institutions or in bilateral ways.
I think another role which is important, which we all share
in the government, is measuring the results of the projects--of
the specific projects and contributing to that as well.
So it is these economic financial quantitative aspects that
I think are so important in this project in which the Treasury
has participated in already in developing and helping to
develop the indicators, working with other agencies, State,
OMB, USAID. So those are the particular things that the
Secretary would focus on.
Senator Hagel. Thank you. I know there is no one here who
can speak for OMB, but can anyone explain to me what OMB's role
would be? If that is Treasury's role, then what is OMB'S role?
Mr. Larson. I think there is two things that I would
highlight, Senator Hagel. The first is that when fully
implemented, this represents a 50 percent increase in the
Nation's commitment to development assistance.
And I think the Director of OMB is the place where you have
to really look to get advice about whether we are getting the
results we want for that substantial investment.
Second, I think OMB, as the agency within the government
that really focuses on management and management by objective
that the Director would be in a position to support what the
Secretary of the Treasury would be doing and helping formulate
this measurement of results in making sure that your meeting
benchmarks in these programs.
Senator Hagel. But is that not already the role of OMB? Do
you not all have to go to OMB to get your budgets approved, and
do you not have to go through that process if there is an
appeal?
I mean, I am not sure what new assistance or authority you
are adding here. Since they already have that.
Mr. Larson. In many respects it replicates what is the
Budget Review Board right now. And I think that is seen as one
of the merits that you have right on the board, the key players
that would be reviewing resource allocation decisions within
the administration, if there was a difference of opinion about
whether a particular investment or budget allocation should be
made.
You have got that represented right on the board of
directors.
Senator Hagel. Administrator Natsios, you wanted to
respond.
Mr. Natsios. Let me just add one little caveat--not caveat,
but sort of an argument here that I do not think is fully
understood. There has been a shift in the last 12 years in
terms of foreign assistance.
When I left the first Bush administration, most foreign
assistance was done through USAID. And in the nineties as the
cold war ended, the perception was that most Federal
departments should have international programs. Some of them
appropriately, some of them, it was a little more difficult to
defend, but they have them anyway. And so many Federal
departments are involved appropriately in foreign assistance
now, and they have technical expertise in it.
If we have this MCA and we do not have a disciplining force
on the board that can force other Federal departments over the
longer term--this has nothing to do with one administration or
another--to have one coherent development strategy, we could
have MCA and USAID doing one thing with State and Treasury, and
then other Federal departments basically doing whatever they
want to, which could contradict what the MCA does.
Senator Hagel. You are not saying that that is the case now
with the Federal programs?
Mr. Natsios. No. I am not saying it, but we----
Senator Hagel. So we should have OMB maybe on all these?
Mr. Natsios. No. But I am saying by having them on the
board of this MCA, what they are doing is allowing a level of
inter-agency discipline.
It used to be OMB that was the disciplinary force during
the cold war to ensure there was coherence in strategy. And by
being on this new board, I think they are going to be in a much
more powerful position to ensure in the future that there is
strategic coherence.
Senator Hagel. Are you aware that OMB was invited to
testify and declined to testify? Did the three of you know
that? You knew that.
Why would they decline to testify if they will be one of
the three board members? Do you have any idea?
Mr. Natsios. I do not know.
Senator Hagel. We will ask them.
Mr. Natsios. You will ask them, yes.
Senator Hagel. Of course, I know you cannot speak for them.
But I find it interesting that if they are one of the three
board members, they were asked to come up and testify and they
declined.
We will ask that--Mr. Chairman, I would like to ask that
for the OMB Director, because if they are to play this very
important and critical role in protecting the American taxpayer
then it seems to me they have an opportunity and some
responsibility to come up and explain that, and maybe we can
have another hearing for them to come up.
I have other questions, and I will wait till the second
round. Thank you very much, gentleman.
The Chairman. Well, thank you, Senator Hagel.
Senator Chafee.
Senator Chafee. Thank you very much, Mr. Chairman.
Senator DeWine and I just got back from Guyana and Haiti
over the recess, the recent recess. And we were looking at some
of the programs that USAID does have as we look at the funding
for HIV and AIDS funding coming up.
And I was very impressed with the work being done in these
countries of extreme hopelessness and great challenges. And the
reflection that it has on us as Americans to see this American
program out there in such hard to travel conditions making a
difference makes me wonder what are the frustrations, Mr.
Natsios, with the current USAID program, specifically where are
the frustrations that caused you to want to make these changes?
Mr. Natsios. Thank you, Senator. I am glad you saw two very
good programs. I just, in fact, this week met with the
President of Guyana, and we discussed the very programs that
you saw.
Well, there are several frustrations. One is we have some
very experienced people who work in the Foreign Service in
USAID who have been career officers for a long time, and who
have worked in the developing world all over the world. The
level of detail in the appropriation bill each year in terms of
what we will spend, where we will spend it--I do not mean in
broad categories--is enormous. I mean, you will approve this
grant in this country under these circumstances. And it is not
a few. It is hundreds of earmarks and requirements. And none of
it is malicious. It is very well intentioned, but the effect is
to put a huge straitjacket on our people in the field.
I have officers in countries that will say, ``We need to
spend more money on democracy and governance in this country.
That is the critical problem.'' And we have no democracy money,
because it does not have a constituency in Washington or in the
United States that is very clear.
Or another country, a very well governed country, needs
help in agriculture; for example, and there is not enough money
for agriculture. So the thing the MCA does is to say there are
to be no--the President is very clear on this--no earmarks.
The money is going to be programmed within the countries,
since they are functioning democracies, using civil society and
the parliament and the media and the executive branch. They
will make the decisions locally and allocate the resources
based on their needs rather than our requirements in terms of
sectors and our constituencies in the United States.
So I think that a major problem for us and a major
frustration for our officers is the lack of flexibility in the
existing structure. This has built up over many, many years. I
understand why it exists the way it does, but ultimately the
decisions of this kind, I think, should be made in a
decentralized way.
Senator Chafee. As Senator Lugar said and as Mr. Larson
said, this is going to be a very selective program. Does that
not concern you that--from my recent experience--the good will
that is generated by having these American programs out there
and the reflection on us as a country at this critical time
when we need it most. To pull our parameters in so tightly
seems like we are going backward.
Mr. Larson. If I could comment briefly on that, Senator. We
believe it is very, very important for the MCA not to come at
the expense of either USAID as an institution or the other
programs that you have already mentioned.
For example, the President on HIV/AIDS has called for a
dramatic expansion of this over the next 5 years, proposing $10
billion of new money, most of which would be, I expect,
administered through USAID and go to countries based on where
this disease is the most serious and where our money is most
badly needed.
We are proposing to increase our commitment on things like
fighting famine and emergency relief. So we intend to be
present in countries where there is a need and where there is
an adequate commitment to reform. But we do also believe that
this new program, which involves a very, very substantial
increase in resources, should be focused in those places where
you know you can get the best developmental outcome for every
dollar you spend.
And by doing that, we think we can foster greater economic
reform. We believe that there will be strong support from the
American people and the Congress for these types of
initiatives, because they will see the results that we are
producing.
Senator Chafee. Mr. Natsios, I will also ask in my limited
time remaining, your agency will not be on the board, is that
correct? And, obviously, the question must be someone that is--
an agency that is so experienced in this area, and all the
challenges that come with it--we recognize the challenges for
trying to make every dollar stretch as far as it can, but all
the experience it has to not be on the board is--to me, is
perplexing what is the answer?
Mr. Natsios. Well, first, I just want to say, we support
the legislation as it is written. We have a representative on
the board. His name is Colin Powell. He is the Secretary of
State. He is my boss. I am at the Deputy Secretary's level. I
am not equivalent to the Cabinet Secretary, and that is who are
on the board, people of that rank.
So, why have two people from the foreign policy apparatus?
We have our representative. He is the Secretary of State on the
board.
If I could tell a quick story, though, on the last
question? We had the speaker of the parliament of a country--I
will not embarrass the country, which has a corruption problem
but does well in all the other indicators. He came in and he
said, ``Well, we want to be eligible for the MCA.''
I said, ``Well, I am afraid you are not going to be,
because there are four pieces of legislation that have been
languishing in your parliament for 3 years now that you refuse
to pass to clean up this corruption problem. And I am very
sorry, but you are probably not going to be eligible.''
He did not say anything. I asked our Mission Director
yesterday what effect did that have. He said it has caused
convulsions in the capital.
They went to see the President. They said, ``you know, we
could not be eligible for this just because we did not get this
legislation through and we are not implementing it. And that is
a lot of money that we are going to lose.''
So they are actually now for the first time in 3 years
taking this seriously. Because it is such a large amount of
money and the incentive is so big, it is changing countries
that might not be eligible. That helps us in the existing USAID
program in a country, because our biggest impediment to doing
development in that country is the corruption problem. And they
are now facing it, because they realize it has done damage to
them for their eligibility.
Senator Chaffee. It appears the parameters are still tight
for that. Thank you.
The Chairman. Thank you very much, Senator Chafee.
Senator Brownback.
Senator Brownback. Thank you, Mr. Chairman.
Gentlemen, thank you for coming here and, Mr. Chairman,
thank you for holding the hearing.
I want to compliment the administration on this Millennium
Challenge Account and Millennium Challenge Corporation.
With Senator Moynihan, we were talking about an issue that
both of us were trying to grapple with. And he noted in all his
experience here that until you figure out how to measure
something, you can rarely figure out how to change it. And that
seems to me to be really square-on with what we have in our
history of development aid funding and where we are today.
We have done a lot of development aid funding, and we have
done it out of--really trying to think we are doing things out
of the goodness of our heart, it is the right thing to do. We
want to help people. Those are the right instincts, the right
way to go at it. But we need to continue to figure out how to
measure it, or you rarely are going to be able to figure out if
we have really been successful with this or not.
Consequently when you go across the country, a lot of
people are not very supportive of development aid funding. They
think it is a much larger portion of the budget than it is.
I generally have people say, when I ask a group, ``How big
do you think the developmental funding aid is, foreign aid?''
generally ``Around 25 percent'' is the usual figure that I get.
And when I say 1 percent, then I have lost credibility with
the audience, because they do not think that can be true, that
it is at that level.
But I think a big portion of it is they are good-hearted
people. They want to support and do things right to help
others, but they just--the history has been very checkered of
success and failure and how it has been given to people. And on
what basis has it been passed to others? Is it based on some
sort of political relationship between the President of that
country and the President of this country, and that kind of
thing. Is there some greater issue that is involved and the
money is wasted? And there is a view of a strong amount of
waste.
That is why I really compliment you on this program. It is
measurable. It is definable. And it bases it on accomplishments
that are there and not on any sort of basic political
relationship.
The premise I would hope you would look at this in the
future that, if we get this established, as pouring other funds
into it. And I think, Mr. Natsios, you were suggesting that we
have got a lot of different agencies that have international
funds now. I would hope that more funds could be attracted to
this sort of criteria-based allocation. And not all and each
country is in a different setting than what--than another one
is, and I would like a group discussion too.
I worked in Central Asia for some period of time, and
clearly that region needs to work together and collectively to
expand its economic opportunities, expand its trade, expand the
east/west corridor, oil movement. And there are huge synergies
for them if we can encourage them to work together.
But I would urge you--and I do not know if there is any
thoughts about this, about drawing more of the foreign aid
budget into this sort of criteria based allocation rather than
just starting a new account and it being another foreign aid
account, rather than one that really helps reform the system
or--I do not know if anybody would care to----
Mr. Natsios. Let me just speak about our budget in USAID.
We are actually going through a very substantial review of the
way in which we do our business to use the MCA model and
criteria as a way of restructuring USAID internally.
And if you look at the longer testimony for the record, it
goes into some detail as to how we are doing that. We have done
a lot of work on it, and I have to say there is wide acceptance
within the agency that this is the opportunity to change what
we know does not work for a model that career people and others
are very enthusiastic about.
We believe the President was right on in what he said; and
not just because he is our boss, but because based on the
empirical research, which is initially what it was based on, he
is exactly correct.
So we are looking at the existing portfolio in a detailed
way in determining which countries fall in which category. A
failed or failing State like Sudan or Somalia, which has not
had a government in 10 years, for example, is not going to be
eligible for MCA, and we cannot provide assistance to them
based on this model.
We are not going to provide assistance to HIV/AIDS based on
whether the government reforms or not because it is an epidemic
that crosses national boundaries. So there are nuances in this
that we need to make sure get worked into the language we
structure in the existing program.
Your point is very well taken. You are exactly correct and
we are trying to do that now.
Mr. Taylor. Senator, I just want to add to that with
respect to the foreign aid that goes to the international
financial institutions, for example, the World Bank's funding
for the poorest country item, we are also trying to emphasize
the same features in those programs as well.
For example, the most recent replenishment item has a very
specific measurable results component to it. And in the
authorization we are requesting, there will be an incentive
built into the World Bank to explicitly measure the
accomplishments of their programs in much the same way that we
are focusing here in the Millennium Challenge Account. And
there is also an emphasis on allocating the funds based on
policy performance.
So in some sense the MCA is incorporating the features that
are so important and the President has emphasized, but we are
trying to have those same features apply to other parts of our
foreign aid as well.
Senator Brownback. Good. Good.
Mr. Chairman, I would just note that, finally, on this that
we generally have done many things in our involvement based
upon vital and strategic interests of the United States. And I
think that measure has generally served us well.
But I think in looking to the future, vital and strategic
is going to include more functions with it, and this is one of
the functions of expanding democracy, of getting systems right.
Systems of government really matter. Just compare North and
South Korea if you want to get a real drastic example of that.
One is the 12th largest economy in the world; and in the other,
a third of its people are living on food aid donations. The
systems hugely matter in the world.
I would hope that as we move forward, the overarching views
for foreign policy that are not vital and strategic, we look at
how we do our compassion and how we present that in a way that
can be most empowering to the people. And that is why this
account in the way it measures and is set up is really good.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Brownback.
Normally, I would recognize a Senator from the other side
of the aisle. But I am going to ask permission of Senator
Feingold, if I may, if I could recognize Senator Sununu who has
been here for a portion of the hearing, and then I will
recognize the Senator from Wisconsin.
Senator Sununu.
Senator Sununu. Thank you very much, Mr. Chairman.
There has been a little bit of discussion today and in
terms of the materials we have had about the cases, and the
role of the four, and trying to differentiate between those
cases.
I am a little bit concerned. Maybe I am looking too far
out. But I am a little bit concerned about a problem that may
arise, and that is whether or not you fund all of the countries
that may be eligible. And it is certainly the possibility--and
I would suggest the hope--that we might have 60, 70, 80, 90
countries available if you look at the different income
determinants, those that will be eligible. And certainly over
100 countries are potentially eligible as the program is now
structured.
My question is whether your goal is to get off a good
system that can choose among qualified countries, or if the
goal is ultimately in the near term to fund any country that
qualifies. Mr. Larson.
Mr. Larson. First of all, we do think, at the very
beginning, Senator, this is going to be very selective. And we
expect that the number of countries that we will prove to have
been above average in the, you know, in at least half of these
various indicators will be a relatively small number. But even
then, we----
Senator Sununu. I am sorry. I have got to interrupt you.
This may sound a little bit picky, but my guess is that, again,
the pool is around 115 countries. Roughly one-half will be
above average.
Mr. Larson. Well----
Senator Sununu. And so I do not have--I do not think that
should be the metric within the pool of selecting those
countries that are above average in the pool. I do not think
that is what you meant. I do----
Mr. Larson. I do not, but----
Senator Sununu. I will give you a chance to be clear.
Mr. Larson. No. What I want--when Mr. Taylor outlined this,
he said you would have to be above average in a number of
different areas.
Senator Sununu. Right, but----
Mr. Larson. By the time you do that, you start winnowing
out countries because they may be doing fairly well in one
segment, but then they fall down in others. So that is how the
selectivity tends to operate.
But even then, we do not believe getting into the eligible
pool makes this an entitlement. Countries have to come forward
with proposals that reflect their development goals and
aspirations. But they also have to be proposals that we believe
in and are credible, because we are their partners and we are
putting our tax dollars to work there.
As this program continues, we do believe also that
countries that are participating with us as partners should do
so with the expectation that we are supporting a specific
activity that does have a beginning and an end. We want these
projects or activities to be sustainable after a few years of
U.S. support, because we are not thinking about having an
indefinitely long funding relationship for a particular
activity in a particular country.
We want to emphasize the idea of self-reliance, having this
be a kick start, but not something that just continues year
after year with the same country, the same activity.
Thank you.
Senator Sununu. There seems to be a slight contradiction
here, which is to say that you are setting up a challenge
account where you say, ``'If you meet specific criteria in 16
different categories, you become eligible for support.''` And
by structuring a program with such incentives, then you should
be encouraging everyone that is eligible to do certain things.
But then you are also saying another hurdle, once they
become eligible--you were talking about project-specific
assistance once they become eligible. Does not the existence of
that additional hurdle in some ways discourage countries from--
or reduce the incentive for countries to meet all of these
criteria if the possibility is there that even having met all
the criteria, they are not going to receive any benefit from
it?
Mr. Larson. I do not think so in practice, for a couple of
reasons. First of all, the amount of money that potentially is
available is very fine. Second, we are prepared to work with
these countries to develop activities and proposals that are
consistent with their developing priorities, but also are ones
that we believe are credible, that have the built-in benchmarks
that we talked about and that we believe that the Secretary of
State and the board can come before you and say, ``We believe
this is a good use of taxpayer money.''
We think this sort of posture, vis-a-vis our partners, will
mean that there will be good activities that promote their
development and that the board and that you will support.
Senator Sununu. It seems that that, in the end, is an
affirmative answer to the question, ``Are we going to
differentiate among countries that meet all of the
requirements?'' Is that correct? So you envision even if there
are multiple, 60, 70, 80 countries, 100 countries that meet the
requirements, the goal is still to pick and choose among them
based on the strength of programs or how they----
Mr. Larson. If we have that many countries that qualify, we
already will have had very significant success in promoting the
sort of policy reforms that will help countries develop at
their own speed. But, yes, I think the board--I know that
Secretary Powell believes that the accountability aspects of
this are very important. He believes he will be accountable to
the President, accountable to the committee, accountable to the
Congress for how these resources are used.
And so it has to be for projects that we--and activities
that we think will produce the sort of results the American
people expect. We think we will have gotten off to a very good
start by ensuring that in the first instance we are working
with countries that have crossed these policy hurdles and have
shown that they are committed to good economic policy. But that
is not the end of the process.
Senator Sununu. At what point are countries no longer
eligible for assistance? Are you just going to--is there a per
capita income window for the middle income countries? Do you
just hold that per capita income level and when a country gets,
you know, $2,500 per year per capita, they are no longer
eligible?
Mr. Larson. We certainly see the per capita income level as
something that would graduate a country from eligibility. We
also intend to support a specific activity that is proposed by
the country and agreed by us, and perhaps lasts for a couple of
years. When that activity has been successfully completed, they
would be graduated from that activity.
Now, they may come back with a very good suggestion about
something in another field. And if it is a good proposal and
their track record was good on the first activity and they are
still eligible to participate in the program, that is something
we could consider.
Senator Sununu. Thank you.
Thank you, Mr. Chairman.
The Chairman. Thank you very much, Senator Sununu.
I have consulted with the senior ranking member, and he has
asked to continue with our plan to recognize Senator Feingold,
which I will do. Then I will recognize the senior ranking
member, and then Senator Alexander.
Senator Feingold.
Senator Feingold. I thank the chairman and ranking member
very much.
Let me just thank you and followup a bit on what Senator
Sununu was just discussing. Have you actually done a test run
with these indices that you discussed? What was the turnout?
What were the results?
Mr. Larson. We have done a number of test runs during the
last year of review. And we are continuing to get better data
and more updated data. And I think we will, if and when the
Congress approves this approach, we will do a run or a
competition based on the latest data that we have.
But the illustrative results that we have produced have
suggested exactly what the chairman said at the beginning, that
it tends to produce a group of roughly a dozen, could be a few
more, could be a few less, countries that meet the indicators.
That, of course, does not take into account the operation and
the function of the board to make a responsible judgment about
whether the indicators are really telling the whole story.
Senator Feingold. Is there a way to get more specific
preliminary results from this, that our committee could get so
we could get a sense of what problems there may be? You are
asking us to authorize this, and I am wondering if we could get
a little more information about those, and about what you have
come up with so far, subsequently.
Mr. Larson. I think we will be prepared to work very
intensively with the committee, Senator. Just to show you how
these indicators work to--I mean, one of the things that is
notable about this is that it is the most transparent process
for considering foreign assistance allocation that I have been
familiar with.
We have outlined the indicators. They are available on the
Web. They are publicly available, and so there is no problem in
getting a very good sense about what we are looking at. And we
will be prepared to intensify that discussion with you
subsequently.
Senator Feingold. All right. We will followup with you on
that.
The draft MCA legislation proposed by this administration
does not spell out eligibility criteria in detail. And I do
respect the need for flexibility, especially in a new
initiative.
But if we are going to commit taxpayer's dollars to this
program, I am a little concerned about the potential
rejiggering of criteria down the road to improve the
eligibility of, let us say, a political favorite or shut out a
good performer that might, let us say, differ on a vote with
the United States on a controversial matter before the Security
Council----
Senator Feingold. Is it not possible to get a little more
specific in a legislative format with regard to these criteria
and still meet the administration's need for flexibility and
enforceability and that kind of thing as was suggested?
Mr. Larson. I think we have to strike a very thoughtful
balance on this issue. We have done something that I believe is
unprecedented in spelling out the amount of detail we have, the
sort of indicators that we think ought to inform the judgment
of the board.
We have also said not only are those indicators publicly
available, but that the decisions of the board will be publicly
available. And the contracts that our government signs with
another government will be publicly available. So the degree of
transparency that we are envisioning in this program is
something that is absolutely unprecedented.
At the same time, none of us--or each of us, with the first
two, admit that these indicators or any indicators are
imperfect in certain respects. In some cases, there is not data
available for all countries. In some cases, they do not capture
everything you want to know about good governance or about
investing in people or about the entrepreneurial climate that
countries have or do not have.
And for that reason, I know that the Secretary of State
believes, while respecting the developmental goals of this
program and feeling very strongly that this is a developmental
program and not a program to accomplish other national
objectives, that he and the board have to be accountable for
the decisions that we make about where this money goes, and
that they cannot say, ``Well, we do not think actually country
x was such a good investment,'' but the indicators pop them up
into the group. The Secretary is very, very clear on this. He
wants us to be developmental. He wants the process to be
informed by the indicators, but he also believes that he is
accountable to you, not the indicators.
Senator Feingold. All right. I hope we can work together
and consider the possibilities and legislative language that
would clarify these criteria and, at the same time, not destroy
the needed flexibility. And I hope we can work together on
that.
Would you tell me a bit more about the graduation concept
associated with the MCA? Is it just a function of the length of
the contract, or is it linked to some objective set of
indicators?
Mr. Larson. Very briefly, we believe that an eligible
country would come to us and say, for example, ``We think that
our biggest developmental challenge is--the thing that will get
us over the hump is''--let us say it is primary school
education. And we know that the United States is not going to
fund primary school education in that country for the long
term, but we need to develop with them a specific set of
initiatives. Let us say it is teacher training, textbook and
curriculum development, and a certain set of very specific
activities that they think over a period of 3 or 4 years will
help them reach a new threshold of activity.
We would want to build into that project the benchmarks
that show whether they were on track and the sustainability
assessment that shows that if a project is successful over,
say, 4 years that they can carry it forward from then on in,
and they would have graduated from that project.
As I said in response to Senator Sununu's questions, that
does not necessarily mean that they could not come back if they
were otherwise still eligible and say, ``OK. We have a very
important set of developmental objectives in the area of
agriculture, and we would like to see if we could develop a
similar project there.'' We do not rule followup contracts in.
We do not rule them out.
Senator Feingold. Thank you, Mr. Chairman.
The Chairman. Thank you very much, Senator Feingold.
Senator Biden.
Senator Biden. Thank you very much. My absence was not for
lack of interest. Secretary Ridge and Attorney General Ashcroft
and the Director of the FBI are before my other committee
downstairs. So I apologize, Mr. Chairman, for being late.
I wanted to followup on the question that Senator Feingold
asked about the test runs. It would seem to me that that would
be a fairly significant indices of how this is likely to work.
My staff informs me that--in my request to them, they--and they
then have asked about this, what some of these results are. I
am not particularly looking for, you know, the names of
countries who have crossed the threshold.
I want to get a sense from you all of whether or not there
is reason to believe that as we move in this direction in light
of the fact that we talked about in this committee, in the
previous several years under the former chairman, of
reorganizing this whole account, if you will, under the aegis
of 8,000 people in the Ministering and Aid Center, and this
massive reorganization, which we--massive, or significant
reorganization of the State Department.
So can you give us some more insight without telling us
what, you know--which countries cross the threshold? I mean,
what should we, who are trying to support what you are talking
about here--I mean, I do not think any of us disagree that
study after study for the past 15 to 20 years shows that our
aid is--its efficacy is in direct proportion to the fertile
ground upon which it falls, whether or not it is used for
social purposes, whether there is an infrastructure to
distribute and so on and so forth. We all agree on that, and so
we are on the same page.
And Mr. Natsios knows a lot about this. He has been one of
the people who have talked about this in the past prior to this
present incarnation and this present responsibility. But it
seems to me that the very committee you are asking for the
reauthorization or the authorization to move in this direction
should get some sense of what you are--of what the runs have
indicated. What do you anticipate?
This is not a, you know, you get a ``Get Out of Jail Free''
card in this room. I mean, if it does not turn out exactly like
you think, that is OK; we understand. But can you give us a
greater sense of what, if you were a betting man, based on the
runs, what you--what we would look forward to in terms of
countries that would be able to be recipients that would be
able to, once this is up and running, that would have the more
efficacious use of our limited resources?
Mr. Larson. Thank you, Senator. I appreciate the way that
you phrased your question because we, frankly, have been
concerned that if the administration started publishing lists
at this stage, at a point when we do not have what will be the
latest data, we are going to start raising expectations,
perhaps, for countries that are----
Senator Biden. And I would suggest, Mr. Chairman, that
maybe you consider--I would propose for your consideration that
this study and list be submitted to us in a classified forum.
It does not have to be in this public forum. But It would be
helpful to us.
But in an open forum, if you could give us some sense of--I
have actually made that request, if you would consider that,
that you would give us that and we treat it as classified.
And it is not because it is a national security secret, but
it is, practically speaking, a little bit like why all of the
time that we have worked on, for example, the expansion of
NATO, it is not a good thing to put out the list that we are
looking into, because it creates expectations, and if
expectations are not met then there are consequences.
But at any rate, can you describe in a more generic form
the percentage prospects that you think the nations will----
Mr. Larson. Well, yes, sir. And very briefly, what tends to
happen is that you get a group of roughly ten to a dozen
countries. Obviously, by definition, all are very poor
countries with per capita incomes under $1,440 or so. Some are
African countries, and some are in this hemisphere.
And by definition, they are all countries that have shown
themselves to be performing relatively well under these
indicators in the areas of government, social investment and
their own economic policy framework.
Senator Biden. So the bottom line is you think that there
are enough potential recipients that our assistance will have
some impact that goes beyond arguably a suitable country. In
other words, this notion that--I assume one of our objectives
here is to promote--again, if I can make an analogy to a
military alliance, one of the greatest things for the expansion
of NATO in my view was the so-called Parry principle, which
required nations to settle non-military issues in order to
qualify.
I would respectfully suggest that the Hungarians would have
never worked out their differences with the--or I suggest that
Poland would have never really worked out its border disputes.
I suspect that a lot of things would not have occurred were it
not for the carrot out there of NATO and the realization that
you had to meet this requirement in order to be eligible for
consideration.
So I assume one of our purposes here is not only to
identify nations that would qualify now, but that when other
nations realize that what they need to qualify, that it
requires them to have a system that is more consistent with the
principles that we are laying down here, that this will grow.
Our goal is for the number of recipient nations to grow, not to
diminish, correct? I mean, I assume we are all on the same
page.
Mr. Larson. Well, you are correct both in your analysis
and--you are correct in the assumption that we would like to
see this number grow, and you are also correct in suggesting
that even now each of us are seeing very dramatic evidence that
countries are looking at their policies with exactly the same
results that you hope for, that ``We better do a better job on
governance or some other issue if we hope to qualify for this
program.''
Senator Biden. Well, I wish you luck. I have a question
that I would like to submit in writing so I do not trespass
into Senator Alexander's time, about why integrating within the
existing structure does not work. I mean, we have got--you
know, we went through this reorganization. And why is the
administration suggesting we establish a new aid organization?
Why not within the existing administration? And as we work
through that, the question remains. And you talked a little bit
about are you going to have call on some of the 8,000 folks in
USAID to accommodate the ability to function. That will be
useful for me to know.
The Chairman. If you would respond to that question----
Senator Biden. I will submit it to you in writing. I would
appreciate it.
The Chairman. I join the Senator from Delaware in asking
for a classified or unclassified estimate of countries
eligible. However, I would mention that in our second panel,
Mr. Radelet has already listed 13 countries and published that
in the Washington Quarterly, spring of 2003 issue.
So we will get another point of view, or maybe the same
one.
Mr. Taylor. May I say something briefly about this?
The Chairman. Yes.
Mr. Taylor. I think one of the real nice things about this
or the way this is constructed is these indices are publicly
available. So if Senator Biden and his staff would just look at
what the ranking is and the index on civil liberties or the
heritage index for free trade, you will see right away what
countries are close to meeting these. It is very transparent,
and that is why it is so easy to replicate, as many people in
the private sector are beginning to do. That is a feature.
But there will be missing data. There will be revisions to
data. And that is why the judgment ultimately is required. And
any one list at this point could be potentially misleading.
The Chairman. We will ask staff to go to the Web sites and
begin to cull out this information for us.
Senator Alexander.
Senator Alexander. Thank you, Mr. Chairman.
I am all for this Millennium Account idea, and I have some
thoughts about it, and I have a question about it that I would
like to ask. And I hope I did not miss this when I was
somewhere else earlier, so please tell me if I did.
I like the idea of awarding countries who are working hard
to improve their incomes and expand their freedoms. And I think
human nature is such that if you do it with a few people and
you have a lot of flexibility in how you go about it, that you
might learn something and you actually might succeed in doing
it.
I also think it is much easier for the American taxpayers
to understand foreign aid. It has always been said that it is a
constituent of one, the President. And so I think it is easier
for taxpayers to understand in these countries, that creating
jobs and expanding freedoms, that that is worth rewarding.
As I look over the criteria, I think back on the economic
development and the things that I have been involved in as a
Governor. And it is not so different in other countries. They
are starting with less freedoms, but when I became Governor, we
were 70, 80 percent of the national average income and we
wanted to get up to 100.
There were a lot of things we did. But as I look back on
it, what helped cities in our State and our State more than
anything else was first identifying something that was unique
to our State, something, some strength that we had.
Much more than any kind of indicator of how much you are
spending on health, how much you are spending on this, or
whether you have civil liberties, or--all those things are
important and are indicators, but how does Memphis get from
where it is to where it goes? Well, it first remembers that it
is on a river, and it remembers that its agriculture is
important and not to be embarrassed about. And then it
remembers that it has a central location, which is why Federal
Express is there. And it has the Peabody Hotel where ducks walk
across the--you know, every day at regular hours in the parlor,
and people come to see it.
And they celebrate those strengths. And the people of east
Tennessee celebrate their Appalachian culture, and Nashville
celebrates Music City.
So I am wondering if as--my inclination would be for you to
be as flexible as possible. I would take the risk of failing,
and I would take the risk that one administration might do
something that another one would not.
I mean, who is to say that there is not a little bit of
rewarding going on today as we look around the country and at
the Security Council with our present policy? So that is going
to happen.
So let me take a specific example. Let us take Gabon in
Africa. There they set aside 12 percent of their land for
national parks. That would be celebrating something that is
unique and special about a country that is poor and has not got
so many institutions that would help it expand its freedoms and
grow its incomes. Would a strategy that is based on starting
with creating 12 percent of your land in national parks and
letting other institutions and other improvements come from
there, would that fit within the kind of criteria that you are
considering for grants from the Millennium account?
Mr. Larson. Yes. I think you are focusing in on a very
important issue of what do we actually do with this money once
a country is eligible. We have put a lot of emphasis on these
criteria and indicators for getting into the program; but once
a country is in the program, then it becomes exactly the sort
of process you highlighted of identifying the comparative
advantage, identifying the one big push that can really take
them to the next level.
I mean, to take--and what the President has made clear is
that we want to be able to be involved in any project that is a
growth generator or a productivity driver. We have given some
examples--agriculture, health education, trade, small business
expansion, but----
Senator Alexander. But what about conservation?
Mr. Larson. But a national park--I mean, if this--you gave
the example, Senator, of Gabon. I mean, let us suppose that
they felt that ecotourism was a real driver of economic
growth----
Senator Alexander. Yes.
Mr. Larson [continuing]. They could expect to bring lots of
people in, generate jobs for their people. That would be
something that one could look at.
But what the goal is to achieve growth, because growth will
generate the resources if properly used to bring people along.
Senator Alexander. Right. Right. But I am suggesting that
even before you get to the business of creating growth, that in
the case of Gabon--and I am not even sure this is true or not
true, I am just trying to get it down to specifics--that before
you get to results, even--or programs, you need a sense of
confidence, a sense of spirit--I mean, a community needs to
come together for some reason and say, ``Hey, we have got
something here. Let us work together to go forward.''
And in one place it might be oil. In another place, it
might be a national park. In another place, it might be a
devotion to education. In another place, it might be the
location of--the weather. It might completely depend, but it
would be a coalescing spirit that causes the country to
actually want to work together and then you can get to all
these other things. And it would seem to me you would not want
to jump over that if you are really--it is like a nurturing a
child and helping to what identify the strength of that child
is.
Mr. Larson. We put great emphasis in our description of how
we imagine this program working. The process of citizen
participation, the coalescing of the society around development
goals.
We have made clear that we believe one of the
responsibilities of a partner country would be to have that
sort of process so that any development priority was not the
development priority only of the President or only of the
Finance Minister, but it was the priority of the country.
So we do see this idea of citizen involvement, involvement
of civil society and coalition and coalescence being very
important to the idea.
Senator Alexander. My last comment, and I would not want to
push the analogy too far, but I remember in the case of both
Memphis and Chattanooga when they were beginning processes 20
years ago to try to move their cities, which they have done a
magnificent job of, in our initial discussions I actually asked
them to go back home and create much larger broad-based groups
of people and go through a broad-base process, all of which
sounds very mushy, to try to set up some goals.
And in Memphis, there were 2000 people who did that, in
Chattanooga there were several hundred. And out of that
actually came specific objectives, a sense of ownership and
there may be some usefulness in that metaphor.
The Chairman. Thank you very much, Senator Alexander. Let
me ask if there are other questions from Senators that you
would wish to ask of this panel?
Senator Hagel. I have one.
The Chairman. Senator Hagel.
Senator Hagel. Mr. Chairman, thank you. I had just one. You
all are well versed in the Foreign Assistance Act of 1961,
which I have portions of that law in front of me, Public Law
87-195.
And as I have read it again--my staff gave it to me
yesterday--almost everything that you are talking about
accomplishing, focusing on in this Millennium project is
covered already under public law. The criteria, they spell it
out: transparency, freedom, women's rights, and so on. It is
all here. I assume you have seen it all.
So I assume--I suspected as most Americans--that we are
already doing this as we focus on foreign affairs and where our
foreign aid goes and on what basis that foreign aid is
allocated. So it is already here. It has been around for a long
time, so I assume USAID is already following this, so I have
not heard anything new here today that already is not in law.
Now, the question is--two questions really, is USAID not
capable of administering a program like this? Why would we set
up a new program? Why would we set up a new bureaucracy? Why
would we set up a new structure?
And then the second part of that, which I ask tangentially,
be--but we could not answer because OMB preferred not to come
up here: Is it standard practice for OMB to participate on a
board that actually sets policy, that actually participates in
implementing policy that this board obviously would do, since
OMB is already the court of last resort when it comes to money
and budgets and management as far as I know. And I think they
guard that rather well, and they should.
So I know you cannot answer for OMB, but anything you can
tell me about that, and then really, but my major question is
to why is USAID not capable of doing this, since everything you
are already talking about is in law now. This is not a
revolutionary thought as to why we grant our foreign aid
assistance the way we do.
Mr. Natsios, you may begin. Thank you.
Mr. Natsios. Foreign aid serves many purposes. One purpose
is humanitarian assistance regardless of the national
government, regardless of reform to people who are in the
middle of a famine or a civil war or an epidemic or that have
very high rates of child mortality, for example.
You know, Afghanistan had the worst human misery index in
the world prior to September 11. And our assistance to those
countries is not based on the performance of the government.
Indeed, in many of the cases, there are no governments.
Somalia has not had a government in 10 years. The Taliban
was not really a government in a formal sense. And there are
those countries that are not going to be covered by the MCA.
USAID, however, spends $2 billion a year in dealing with those
failed and failing States.
There are another set of countries that are critically
important geo-strategically for the United States. I have to
tell you I know which countries they are--I do not want to
embarrass countries, but, you know, our program there is for
political and diplomatic reasons. Appropriately, you can guess
what they are. We have added a few countries to the list in the
last year just since the terrorist wars started. This
legislation is not directed to those countries.
Some programs we run are regional in nature. They are not
country specific, because the programs like some of the great
river systems in Latin America or Africa, require regional
approaches. They are not country specific, and they require us
to set up regional governance structures. MCA does not deal
with that. OK.
Our development assistance account is actually a relatively
small part. This year, it is about $1.3 billion of the $10
billion we spend. Only $1.3 is really in the area that you are
talking about. So it is a relatively small portion.
What the President is proposing here is a massive increase
in that portion that should be based on criteria. And I think
the difference between the Foreign Assistance Act and this
legislation is that the Foreign Assistance Act does not say
that the allocation of resources will be based on past
performance. That is a profound shift not only in the United
States but in international institutions and in other donor
governments.
That is not how we are allocating aid now. And the
difference is, for 20 years now, we have been focusing on what
is called conditionality. We will give you this money, this
additional aid, if you will do these things that are good
things to do in terms of policy in the future.
Well, it has not worked very well, because half of the time
the countries never do the things that they say--because there
is no local commitment as Senator Alexander properly pointed
out. Unless there is local commitment, it does not work very
well.
So what this is saying, this is creating some competition.
Some of the countries actually told me they resent this. And I
said, ``Well, I am very sorry if you resent it.''
They say, ``Well, we are not going to be eligible for
this.''
I said, ``There is a reason for it. You are not doing the
things needed to make your country progress.'' We are going to
give money and distinguish the countries that really are
performing. And most of us know what those things are.
That is not how aid is distributed now. There are other
criteria that we use in a variety of areas.
Senator Hagel. So USAID could not do that. That is why we
require a new bureaucracy, to do this.
Mr. Natsios. Well, it is not a new bureaucracy. Let me----
Senator Hagel. It is not new?
Mr. Natsios. No. In the sense that there is only----
Senator Hagel. Oh, according to what you have given me
here, 100 new staff people----
Mr. Natsios [continuing]. 100 people----
Senator Hagel [continuing]. And we are going to confirm a
new director.
Mr. Natsios. It is a coordinating office in Washington. A
hundred people cannot spend $5 billion, I do not think. Our
testimony is that other U.S. Government agencies that do work
in the field, including USAID will, in fact, be managing
portions of this in the field.
And the President does not want parallel structures.
Senator Hagel. My question is: USAID is not capable of
doing that now?
Mr. Natsios. I think we do a good job, but we have many
different demands on us right now. And this account is trying
to separate out, funds to reward performance. The problem we
have is we have many, many demands on our existing program that
are not based on performance.
Senator Hagel. Thank you, Mr. Chairman. May Secretary
Larson respond? Thank you.
Mr. Larson. I wanted to just add three quick points.
First of all, USAID enjoys great confidence in the
administration, and they are being asked to do many, many more
tasks, even in the President's proposed budget.
Second, it has been commented earlier in the hearing that
foreign assistance has a constituency of one, that the American
people do not understand the relatively small amount of money
that is going to it and they are not sure they are getting the
results.
One of the things that I believe the President feels
strongly is that in asking the Congress and through the
Congress the American people for what amounts to a 50 percent
increase, it is very important to show that we are doing some
things differently with this program and that one of the things
we are doing, and this is the last point is that in this
program, we are focused very tightly on developmental outcomes.
We are focusing on a select group of countries that are
committed to reform. And we are doing the whole process in the
most transparent way that we have ever done before, and the
American people can see what is--how decisions are being made
with these incremental resources.
Senator Hagel. Thank you. Mr. Chairman, thank you.
The Chairman. Thank you very much, Senator Hagel.
Senator Chafee, do you have further questions of the panel?
Senator Chafee. I know the second panel is coming up. I do
have one quick one. Mr. Larson, did you say that--I think I
heard you right that the board will be able to make some
decisions themselves as to the allocation of the money. The
board is really going to have a lot of power.
Mr. Larson. Yes. The board has a number of responsibilities
that are set out in the authorization, setting policy and
setting the framework, but also including making final
decisions about selection of countries.
And we believe--I know the Secretary of State believes that
it is important that at the end of the process that there is
Cabinet level accountability to the President and to the
Congress and to the American people about the decisions that
are making, who is in this program, and how the money is being
used.
The Secretary has made very clear to me that in his view
this does not mean injecting non-developmental considerations
into the process, but it does mean being sure that we are--have
confidence that the indicators and the other sources of
information that we use to help us form a judgment about
whether a country meets the President's criteria, you know,
there needs to be a review of that.
It could be just a case of data--I mean, I will give you an
absurd example, a country might look very good on the basis of
the criteria; but last month there was a military coup, they
abolished human rights, and they adopted backward looking
economic policies.
You know, you would not expect--and no one would expect
that the board would nevertheless approve MCA eligibility for
that country. That is an extreme example, but it is,
nevertheless, an example of an area where we believe and the
Secretary believes that there is an element of judgment, that
this board like any board should be expected to exercise. They
are going to do it in a very transparent way, so that you and
the American people will see.
Senator Chafee. Now, just to followup, I think what Senator
Hagel was driving at is that the program is essentially
targeted for the people, and sometimes the people do not agree
with what their government is doing. And I think that is where
we have our questions. Let me go to the second panel.
Mr. Larson. Yes. Well, and, again, sir, we are very
sensitive to the issue that some people have the misfortune to
live under very bad government. And that is why we have
humanitarian programs. That is why we try in some of those
places to work through non-governmental organizations to
provide certain types of services.
But we do believe that when it comes to getting the biggest
developmental impact out of our dollars that we need to be
working in countries that are governed justly, and that do have
a good economic framework, and are making investments in their
own people. And so for this program, for this program, we want
to make sure that we are concentrating on those types of
situations.
The Chairman. Thank you, Senator Chafee. We thank the
panel.
Let me just say for the record we have the draft
legislation that you have proposed and likewise it has been
received by the House International Relations Committee.
And we have had consultations with them. They want to act
quickly and we do too. I would say that each one of us on this
committee will try to become more familiar with the criteria.
We have had a number of questions about that today, about how
USAID will interact, about Mr. Natsios's work there. He
commented to the staff and likewise to the Senators that is
important to consider.
We want to try to think through with the U.N. formally and
with others from the non-governmental organization community
how their efforts in these countries will either interact or
impact, or how the governments that are involved will deal with
all the requirements for data or for concepts that are a part
of this, and are an important part.
And those will be considerations as we try to take a look
at the language that has been presented to us. We may make some
revisions or suggestions as we proceed.
And we thank you all for a very constructive piece that
helped each one of us today. We have had good participation,
and we look now to the next panel.
The Chair would like to call now Dr. Steven Radelet, senior
fellow of the Center for Global Development; Ms. Mary E.
McClymont, president and CEO, Interaction, Washington, DC; and
Ms. Susan Berresford, president, Ford Foundation of Washington,
DC. Thank you.
Thank you, Secretary. Thanks so much for coming over.
[Brief recess.]
The Chairman. If we could reassemble now and obtain order
in the committee room, the Chair would appreciate it, because
we want to proceed with the distinguished panel. I have
introduced you, and I will ask you to testify in the order I
introduced you.
Understand, please, that your full statements will be made
a part of the record, and we will ask you to summarize
appropriately.
Dr. Radelet.
STATEMENT OF DR. STEVEN RADELET, SENIOR FELLOW, CENTER FOR
GLOBAL DEVELOPMENT, WASHINGTON, DC
Dr. Radelet. Thank you. Thank you for the opportunity to
testify on this very important issue. I think overall the
Millennium Challenge Account is a program that is worthy of our
support. It could be one of the most important changes in U.S.
foreign assistance policy in many decades. With modifications,
however, I think it could be even better.
U.S. foreign assistance, in my view, stands at an important
crossroads. If the Millennium Challenge Account is implemented
well, with strong design, sufficient staffing, particularly on
the ground, and if it is well coordinated with other programs,
it could significantly improve U.S. foreign assistance, not
only within itself, but other programs as well.
However, if it is not done carefully and the Millennium
Challenge Account fails, it could set back support for other
foreign assistance programs at great cost to our security, our
humanitarian goals, and other foreign policy goals.
There are several strengths to this program. First, its
focus on poverty and growth will help clarify the mission of
the organization. It concentrates on countries with committed
governments, which will ensure results, stronger results. It
calls for strong recipient country participation, which should
help set clear priorities and also strengthen results. And it's
very transparent, both in the selection process, also in the
proposal design, and in the proposed evaluation process. All of
these strengths are worthy of keeping.
I should mention that the greater recipient involvement
goes hand in hand with selectivity. There was a lot of talk
this morning about the small number of countries that might
qualify for this. That goes hand in hand with the opportunity
to provide those countries with much more say in how these
funds would be used.
The more we expand the program, I think the less--into less
responsible governments, the less able we are to involve those
governments in setting priorities and giving them more
flexibility and responsibility.
There are four key issues in my view to making sure this
program works well. One is the country selection process. As
you have already mentioned, using the administration's
criteria, I have gone ahead and constructed a list of
countries.
There was talk about your staff getting the indicators off
the Web site. There is no need. You can just ask me. I have all
of them already. I would be happy to share them with you.
Now, this is my list. It is not the administration's list.
They are right. The data will change. I have talked to my
friends at the World Bank Institute. They create five of the
sixteen indicators. In 2 weeks time, they are going to change--
they will update those indicators, so this list will change.
And I think there is good reasons why the administration has
not gone public with the list.
But according to the data that are available today, there
are 13 countries that would qualify in the first year.
In the second year, only 11 countries would qualify, as the
pool of countries expands, the medians rise, and fewer
countries meet the standards.
In the third year, in addition to those that are already
qualified, a new group of countries become eligible. Four
additional countries would qualify by these standards.
I should note that my list has already changed in the last
2 months as new data has become available. My updated list is
part of my testimony and the list will change.
My biggest concern about the selection process is the
addition of the third group of countries in year three with
incomes between $1,435 and $2,975. In my judgment, these
countries should be omitted. Their needs are much--although
there is poverty in these countries, their needs are much less
acute than in the poorer countries. They have much greater
access to private sector financing and so less need for aid.
And third of all, it could politicize the process because, as
you mentioned earlier, Egypt, Colombia, Jordan, Turkey, and
Russia are in the group of qualified--or of eligible countries.
The second issue that should be considered to improve this
is the median scores. Using--I think they should use absolute
scores rather than medians. There is a particular problem with
using median scores.
As we encourage other countries to improve their scoring,
the medians go up. And so countries that once qualified will
not qualify as other countries improve their standing. We need
absolute standards that countries can move toward and not
moving targets.
We can strengthen some of the indicators, particularly the
budget indicator, the trade indicator, the expenditure items,
and the business days. There are several that can be improved;
others that can be added, the ratio of boys to girls in school,
school enrollment rations, private sector--the State control of
private sector assets and some other health indicators.
There is several ways that that these indicators can be
strengthened and improved. And for those reasons, I think it
should not--those--the 16 indicators should not be legislated.
But I do think it is important that the administration be
required to report regularly to Congress on exactly what the
process is and exactly what the outcomes are, so that--and to
consult with you so that you can add your views as to how to
improve the system as it goes forward.
The second big issue is the corporation itself. There are
some advantages of a new corporation. It could reduce political
pressures. It could improve on bureaucratic procedures and move
out of the way of the multiple mandates that USAID now operates
under.
But it could also further fragment foreign assistance
policy. It could lead to redundancy, to more confusion. It
could impede coordination and create rivalries.
It seems odd to me to have multiple Presidential appointees
in charge of foreign assistance policy.
It could work out, but it will need to have much stronger
coordination, with USAID on the board, perhaps plus some
outsiders on the board, not just government officials as we do
with OPIC and AXIOM. There should be clear methods of
coordination. I think Mr. Natsios' testimony deserves careful
study for their ideas for further coordination.
There needs to be much more adequate staff of the
corporation, particularly on the ground. I do not see how this
program can be run effectively with 100 people on the ground,
and I think there is a danger that it could be starved before
it gets off the ground. We need good staffing on the ground to
make this work.
The third issue is the opportunity to improve operations on
the ground. The contracts are a good idea, but in the--and the
proposals are a good idea, but the administration is now
proposing that these only come through the governments. And I
think that is a mistake.
It needs to be an open process with other entities within
the recipient countries eligible to write proposals, including
NGOs, sub-national governments, and others.
There is a danger in its current proposal that it could
enlarge the size of recipient governments, which is something
that we do not want.
Related to this, we must have a very strong monitoring and
evaluation program on the ground. And the administration has
not unveiled its plans for how it is going to do that, but it
is absolutely central to making sure the countries meet the
standards that are there, achieve the benchmarks, how we
allocate funds to the best programs and how we can think about
reducing funds when programs fail.
There needs to be an independent monitoring and evaluation
process, and that has not yet been spelled out.
On the ground also, development takes time. There was talk
this morning about the need for countries to move off onto a
sustainable basis. Development takes a long time.
Ghana, which may--is a good candidate for this program,
their current income is $350 per year. If they grow at 7
percent per year per capita, a very, very high growth rate, it
will take them 20 years to reach $1,435, the standard of just
the first group in the MCA. And it will take many more years to
reach $2,975.
Development takes a long time. Twenty years of great
performance might get Ghana to a graduation level.
Finally, we have to have strong clear programs for
countries that do not qualify. Only a small number of countries
will qualify for this program. I think that is OK, because it
brings with it a way to bring those countries in in a much more
flexible way.
But we have to have other kinds of programs to deal with
the many countries that do not qualify. Mr. Natsios laid out
some preliminary plans this morning. We need to look at those
more carefully. But we need to think very creatively about the
countries that do not quite qualify, the countries that are
mediocre, countries that are failed and weak States, and how we
can modify our current programs to make them much stronger in
order to achieve our development goals in those countries.
Thank you very much.
The Chairman. Thank you very much, sir.
[The prepared statement of Dr. Radelet follows:]
Prepared Statement of Steven Radelet, Senior Fellow, Center for Global
Development
The Millennium Challenge Account (MCA) could bring about the most
fundamental change to U.S. foreign assistance policy since President
Kennedy introduced the Peace Corps and the U.S. Agency for
International Development (USAID) in the early 1960s. The significance
of the proposed program lies partly in its scale: the proposed $5
billion annual budget represents a 50 percent increase over the $10
billion annual foreign aid budget in FY '02 and a near doubling in the
amount of aid that focuses strictly on development objectives.
Perhaps even more important than its size, however, is its
potential to distinguish itself from existing aid programs. Through
four guiding principles, the MCA could greatly improve the allocation
and delivery of U.S. foreign assistance:
It selects a relatively small number of recipient countries
based on their demonstrated commitment to sound development
policies;
It provides them with sums of money large enough to make a
real difference;
It gives them more say in how the funds are used (relative
to current programs); and
It holds them much more accountable for achieving results,
including being willing to increase funding for successful
programs and reduce it for weaker programs.
Overall, the MCA initiative is worthy of strong support. It builds
on America's core values of generosity, commitment to progress, and the
expectation of clear results. Many of the ideas in the administration's
proposal are appropriate and would make the U.S. foreign aid program
more effective. With some adjustments, the initiative could be
strengthened further. There are four key areas that require further
consideration:
the country selection process;
the administrative structure within the USG;
operations on the ground once countries are selected; and
a strategy for the countries that will not qualify for the
MCA.
I first comment on the strengths of the administration's proposal,
and then on each of the four key areas for further consideration.
strengths of the proposal
There is much in the administration's proposal that should be
commended and preserved.
(1) Focus on poverty and economic growth. The MCA is clearly aimed
at reducing poverty and stimulating economic growth in low-income
countries, and not to reward diplomatic partners for strategic
initiatives. The program's sharp focus will enable it to define
specific goals, ensure that resources are better allocated to meet
those goals, and allow for stronger and clearer evaluation of results.
This should help ensure that both recipient countries and the American
public get better outcomes from the program.
(2) Country Selectivity. A central idea of the MCA is that aid can
be more effective if it is focused on nations with governments that are
committed to establishing policies and institutions conducive to
economic growth and poverty reduction. Larger, more flexible programs
like the MCA should be used in countries with a strong development
record, while different strategies with more limited funding and more
structured programs should be used in other countries.
(3) Recipient country participation. The proposal implements a new
approach in which government and non-government groups in qualifying
countries take the lead in developing and defending their own ideas for
using aid. This so-called ``foundation'' approach makes particular
sense in well-run countries where there is the freedom and the
capability to develop and manage programs. It has the advantage of
allowing for real participation by civil society groups in recipient
countries, both in the design of the overall MCA strategy and in
implementation of funded projects and programs. The ``selectivity''
principle of the MCA goes hand-in-hand with improved recipient country
participation.
(4) Transparency. The proposed process is remarkably transparent,
from the use of publicly available selection criterion, to wide public
participation in formulating strategies and programs, to posting agreed
``contracts'' on the internet (although the legislation should ensure
that all agreed contracts are thus posted). The administration is
proposing a process through which it can be held publicly accountable
for choosing appropriate countries and funding strong programs.
the country selection process
Basic Methodology
The administration has proposed using 16 specific indicators to
choose countries for the MCA (Table 1), grouped into the three broad
categories proposed by the president: ``ruling justly,'' ``investing in
people,'' and ``establishing economic freedom.'' Countries must score
above the median (measured against all broadly eligible countries) on
half or more of the indicators in each of the three groups to qualify
for the MCA. That is, they must surpass the median in three of the six
``ruling justly'' indicators, two of the four ``investing in people''
indicators, and three of the six ``establishing economic freedom''
indicators. In addition, a country must score above the median on
corruption, regardless of how well it does on all the other indicators.
This proposed methodology is basically sound, with some caveats as
discussed below.
Using publicly available data and this methodology, I have produced
an illustrative list of countries that might qualify for the MCA during
its first three years.\1\ It is crucial to emphasize that this list is
illustrative: data on all 16 indicators will be updated before the
program actually starts in October, so the group of top countries will
change. In fact, the 16 indicators (from the World Bank Institute's
governance data set) are due to be updated by the end of March 2003, so
the list is likely to change within a few weeks.
---------------------------------------------------------------------------
\1\For a detailed description see Steve Radelet, ``Qualifying for
the Millennium Challenge Account,'' http://www.cgdev.org/nv/Choosing--
MCA--Countries.pdf
---------------------------------------------------------------------------
Moreover, the administration proposes to reserve the right to add
or subtract a limited number of countries in determining the final set
of qualifying countries. This last step introduces an element of
subjectivity that probably is necessary given the weaknesses in the
data, but must be used very selectively to guard against too much
political influence in the selection process.
Possible Qualifying Countries
In the first year, the administration has proposed that the pool of
countries eligible for consideration for the MCA should be those that
have an average annual per capita income below $1,435 and are eligible
for concessional borrowing from the World Bank. There are 74 countries
in this group. Table 2 shows that 13 of these countries might qualify
for the MCA based on data currently available. Two other countries
(Moldova and Nicaragua) failed to qualify because their corruption
scores were below the median, although they met all the other
requirements. Seven other countries miss qualifying by one indicator.
In the second year, the administration proposes expanding the pool
of eligible countries slightly in line with an increase in program
funding to include all countries with average per capita incomes below
$1,435, regardless of their borrowing status with the World Bank. This
change increases the total number of eligible countries to 87. The new
countries tend to be better off on average than the original 74, so the
median values that a country must exceed to qualify rise on most of the
indicators.
As a result, only 11 countries qualify in the second year,
including 8 that had qualified the first year. The three new countries
are China, the Philippines and Vietnam, although China will not receive
MCA funds.
In the third year, the administration proposes sharply expanding
the pool of eligible countries in year three (in line with the increase
in annual funding to the full targeted amount of $5 billion) to include
28 nations with average per capita incomes between $1,435 and $2,975.
This group of countries would be judged separately from the 84
countries with average incomes below $1,435, with their own median
scores used to assess country qualification. Adding this last group of
nations is controversial. The administration's main reason for
including them is that many people in these countries still live in
poverty. However, as conveyed by Table 3, this group of nations is far
better off than the 87 countries eligible in year two, with average
incomes more than four times higher, much lower infant mortality rates,
and much higher literacy rates. They also have much greater access to
alternative sources of financing, with higher private capital flows,
saving rates, and government revenues.
Thus, including this new group of countries would divert aid
resources away from countries with greater needs and fewer financing
alternatives. In addition, adding this group heightens the possibility
that MCA funds will be diverted to support political allies as it
includes Colombia, Russia, Egypt, Jordan, and Turkey, among others. In
my opinion, these 28 countries should not be eligible for MCA funds.
Alternatively, if they remain eligible, the administration should
allocate only a limited portion (a maximum of $1 billion) of the annual
$5 billion for them, with the rest reserved for the poorest nations.
Based on data available today, 4 of these 28 nations--Bulgaria,
Egypt, Namibia, and South Africa--would qualify in year three if the
administration's proposal were adopted, as shown in Table 2. Note that
these countries are in addition to those that qualify in year two (not
instead of), since they compete to qualify as a separate group.
Thus, based on the administration's proposal, over the course of
the first three years 19 different countries (excluding China) might
qualify for the MCA. Eighteen others miss qualifying by one indicator
(including corruption). Conceivably several of these countries could
improve their scores and attain qualification within a few years, thus
increasing the number of MCA countries. Of the 19 countries most likely
to qualify, 8 are in sub-Saharan Africa (SSA), 5 are in South and East
Asia, 3 are in Eastern Europe and Central Asia, 2 are in Latin America,
and 1 is in North Africa.
Strengthening the Selection Process
In my opinion, the selection process should not be legislated--the
administration will need some flexibility to adapt the system during
its early years--but Congress should expect regular and thorough
reporting on the selection process. The administration's proposed
methodology to select MCA countries is a reasonable initial approach,
by and large. However, the process could be improved with some
relatively modest changes:
As discussed, eliminate the countries with incomes between
$1,435 and $2,975 from eligibility to focus the MCA on
countries with the greatest needs and least alternative
financing options.
Change the qualification standard on each indicator from
median scores to fixed levels (e.g., a 75% immunization rate).
Median scores will change from year-to-year, creating a moving
target for countries hoping to qualify.
Modify the requirement that countries must score above the
median on corruption to qualify for the MCA. Although
corruption is extremely important, the data are not reliable
enough to be used to eliminate countries.
Strengthen some of the indicators, especially the trade
deficit, the budget and expenditure data, and days to start a
business.
Consider adding a limited number of additional measurable
indicators, including the ratio of girls-to-boys in school, an
additional health indicator, and a measure of state ownership
of productive assets in manufacturing and retail trade (but not
in utilities and basic service delivery).
Finally, although the indicators give a strong weight to democracy
(through 3 of the 16 indicators), there is no firm requirement for a
country to be a democracy to qualify for the MCA. A small number of
non-democracies appear on the list of possible qualifiers shown in
Table 2. The question is whether the MCA should be aimed at all low-
income countries that are committed to use aid effectively to fight
poverty and stimulate growth, or limited to democracies with that
commitment. A rule requiring countries to pass a democracy hurdle
(while leaving other selection criteria the same) would reduce the
number of qualifying countries during the first three years from 19 to
14.
administrative structure
A New Corporation?
The U.S. foreign aid system, particularly USAID, is bogged down
under heavy Bureaucracy, overly restrictive legislative burdens, and
conflicting objectives. The MCA is intended to be different. The
administration has proposed that the program be administered through a
new ``government corporation,'' designed to reduce administrative costs
and increase effectiveness.
The biggest advantage of establishing a new organization is that it
could avoid the political pressures, bureaucratic procedures, and
multiple congressional mandates that weaken current aid programs. Its
status as an independent body could make it more flexible and
responsive as well as allow it to attract some top-notch talent. Since
the MCA is supposed to do business differently than other aid programs,
with a narrower focus, higher standards, and more flexibility, it
follows that there is a strong case for situating the MCA in a new
institution.
However, establishing a new corporation risks further fragmenting
foreign assistance programs across the Executive Branch. Major foreign
assistance programs currently reside at USAID, the State Department,
Treasury, and the Peace Corps, with other programs at HHS, the
Department of Agriculture, the African Development Foundation, the
Inter-America Foundation, and several other agencies. Adding yet
another agency could impede coordination and increase redundancy.
An alternative structure would be to house the MCA in a new office
or bureau at USAID. It would report to the Administrator, but would
otherwise be separate from the existing USAID bureaucracy. It would
require separate authorizing legislation to ensure greater efficiency
and reduced administrative burdens. Staff could be a combination of
USAID personnel and staff detailed from other agencies. This structure
would put the major development programs under a single presidential
appointee and ensure greater coordination of programs.
If the plan to establish the corporation goes forward, several
steps should be taken to ensure it works as effectively as possible:
The Board should include the administrator of USAID rather
than the Director of OMB. In addition, it should include a
small number of outside experts representing private business,
NGOs, or others with development expertise. Alternatively, an
outside advisory panel could support the Board's operations.
Staffing needs to be adequate for the task, especially on
the ground. The administration hopes to keep the corporation
small, but its projected staffing of 100-200 people seems
insufficient for a program with an annual budget of $5 billion.
It would be unfortunate if the zeal to make the new corporation
as lean as possible resulted in poor evaluation, oversight, and
coordination. Furthermore, it is not clear who will represent
the MCC on the ground in the qualifying countries, where a
strong presence will be required to achieve success.
Much stronger coordination mechanisms will be necessary,
both amongst USG agencies and with multinational organizations.
One of the biggest concerns is the impact of the new
corporation on USAID and the relationship between the two
organizations. The corporation is likely to draw staff and
resources from USAID, further weakening the agency, possibly
engendering some resentment, and making cooperation more
difficult. Having both agencies operate simultaneously in
recipient countries could be very confusing for recipient
countries, create coordination problems and unnecessarily
duplicate services. To date, these coordination issues
apparently have received very little attention.
operations on the ground once countries qualify
Contracts
The proposal to enter into ``contracts'' with recipients is
basically sound, as it puts program design and implementation
responsibilities squarely with the recipient country while building in
clear accountability for achieving agreed benchmarks. However, the
administration's proposal seems to envisage that a recipient government
would coordinate a variety of proposals from government and non-
government groups, and, through a local consultative process,
consolidate them into a single contract with the MCC. This could
inadvertently enlarge the power and bureaucracy of the recipient
government. A better approach would have the MCC accept proposals from
a variety of organizations within eligible countries, including sub-
national governments and non-government groups. This would create a
larger administrative burden for the new corporation, but it would lead
to better quality and more effective programs on the ground.
Monitoring and Evaluation
To be successful, the MCA will require a very strong monitoring and
evaluation (M&E) system. Strong M&E will be central to allocating funds
appropriately, learning what works and what doesn't, avoiding
absorptive capacity problems, and otherwise making the program more
effective. Each ``contract'' should include clear plans for the
recipient to establish internal M&E operations. In addition, an
independent outside M&E function will be crucial, perhaps through the
GAO. Without a much stronger monitoring and evaluation (M&E) capacity
than in past programs, the MCA will be doomed to fall.
The results of these evaluations must be taken seriously if the MCA
is to succeed. Strong M&E programs will help redirect activities that
have gone off course, provide the basis for increasing funding for
successful activities, and reducing funding for weak programs. The USG
must be willing to reduce or eliminate MCA funding for programs that
are not achieving results. Recipient countries will quickly recognize
whether program benchmarks are taken seriously or not. Where programs
are succeeding, they should be funded generously; where they are off-
track, funding should be reduced; and when they fall, funding should be
directed elsewhere. Being true to this principle will certainly
distinguish MCA from existing aid programs.
Although the focus on results is critical, at the same time it is
important to keep expectations in line with reality. Development takes
time. Recent analysis of the experience of 22 relatively successful
developing countries (such as Korea, Thailand, Chile and Botswana)
shows that for those countries it took an average 12 years before their
aid levels were reduced by 50 percent, and 24 years before their aid
levels fell by 75 percent.\2\ Many MCA recipients will continue to be
low-income countries with limited access to private sector financing
for many years, even if all goes very well. Consider Ghana, a prime
candidate for the MCA, with current per capita income of $350. If it
does everything absolutely right and achieves per capita growth of 7%
per year (equivalent to about 9% overall growth, a rate achieved by
only Korea, Botswana, and a few other countries), it will take Ghana 21
years to reach per capita income of $1,435.
---------------------------------------------------------------------------
\2\See Michael Clemens and Steven Radelet, 2003, ``The Millennium
Challenge Account: How much is too much, how long is long enough?''
www.cgdev.org/nv/features--MCA.html.
---------------------------------------------------------------------------
Earmarks and Tied Aid
The Congress can play an important role in shaping this legislation
and helping pave the way for the program to be both more responsive to
needs on the ground and more cost-effective in achieving results. The
promise of the MCA to be different--to make a measurable difference in
the lives of the poor--requires that both the Administration and
Congress act differently that they have in the past. Congress, of
course, has both the right and the responsibility to direct where
appropriated dollars should be spent. However, too much detail in this
directive process is counterproductive.
Congress should resist the temptation to earmark, even to target
what may seem like important activities and countries. The accumulation
of such earmarks, even when they seemed sensible and enlightened,
gradually undermined USAID's ability to respond flexibly and
efficiently to the changing needs of recipient countries. Congress
should also resist the temptation to ``tie'' MCA assistance to U.S.
goods and services, as has been the case with the vast majority of past
U.S. bilateral assistance. Tied aid reduces the effectiveness of
foreign assistance, by some estimates reducing the ultimate value to
the recipient by 25%.
working in countries that do not qualify
The MCA promises to be a terrific program for the countries that
qualify, providing them with generous funding and more flexibility in
setting program priorities. However, it will reach a relatively small
number of countries, and so by itself is not a complete foreign
assistance strategy. Of particular importance are the countries that
just miss qualifying for the MCA, the so-called ``tier II'' countries.
One approach would be to expand the MCA to include a larger number
of countries. But this could dilute the basic promise of the program:
keep it narrowly focused, fund the countries generously, and provide
them with more flexibility. If the group of countries were expanded to
those with weaker governments, it would be more difficult to provide
recipients with the responsibility and flexibility that offers the most
promise of setting the MCA apart.
A better approach would be for USAID to work with these countries
to develop strategies to help them eventually gain eligibility for the
MCA. For example, traditional aid programs could be changed to allow
them to write limited proposals focused on the specific areas where
they fall short of qualification. It may make sense to use some MCA
funding for this purpose. But the second tier countries should not be
part of the MCA until they meet the eligibility requirements.
TABLE 1. ELIGIBILITY CRITERIA FOR THE MCA
Note: To qualify, countries must be above the median on half of the
indicators in each of the three sub-groups.
------------------------------------------------------------------------
Indicator Source
------------------------------------------------------------------------
I. Ruling Justly .................................
1. Control of Corruption World Bank Institute
2. Rule of Law World Bank Institute
3. Voice and Accountability World Bank Institute
4. Government Effectiveness World Bank Institute
5. Civil Liberties Freedom House
6. Political Rights Freedom House
------------------------------------------------------------------------
II. Investing in People .................................
7. Immunization Rate: DPT and WHO/World Bank
Measles
8. Primary Education Completion World Bank
Rate
9. Public Primary Education World Bank
Spending/GDP
10. Public Expenditure on Health/ World Bank
GDP
------------------------------------------------------------------------
III. Economic Freedom .................................
11. Country Credit Rating Institutional Investor
12. Inflation IMF
13. Regulatory Quality World Bank Institute
14. Budget Deficit/GDP IMF/World Bank
15. Trade Policy Heritage Foundation
16. Days to Start a Business World Bank
------------------------------------------------------------------------
Source: ``Fact Sheet: Millennium Challenge Account,'' distributed by the
administration on November 25, 2002, available at www.cgdev.org.
TABLE 2. POSSIBLE QUALIFYING COUNTRIES USING THE ADMINISTRATION'S
CRITERIA
------------------------------------------------------------------------
Year 2: All
Year 1: IDA Eligible Countries With Year 3: Countries With
Countries With Per Capita Per capita Per Capita Incomes
Incomes Less than $1,435 Incomes Less Between $1,435 and
than $1,435 $2,975
------------------------------------------------------------------------
QUALIFYING COUNTRIES
1. Albania Bangladesh Bulgaria
2. Bangladesh Bolivia Egypt
3. Bolivia China Namibia
4. The Gambia Honduras South Africa
5. Ghana Lesotho\1\ .......................
6. Georgia Malawi .......................
7. Honduras Mongolia .......................
8. Lesotho\1\ Philippines .......................
9. Malawi Senegal .......................
10. Mongolia Sri Lanka .......................
11. Mozambique Vietnam .......................
12. Senegal ................ .......................
13. Sri Lanka ................ .......................
------------------------------------------------------------------------
ELIMINATED CORRUPTION
1. Moldova Ecuador .......................
2. Nicaragua Moldova .......................
3. Nicaragua .......................
4. Ukraine .......................
------------------------------------------------------------------------
MISSED BY ONE INDICATOR
1. Cambodia Albania Jamaica
2. Guyana Cambodia Jordan
3. India The Gambia Tunisia
4. Mali Georgia .......................
5. Nepal Ghana .......................
6. Uganda Guyana .......................
7. Vietnam India .......................
8. Kazakhstan .......................
9. Kyrgyz Rep. .......................
10. Mali .......................
11. Morocco .......................
12. Mozambique
13. Uganda .......................
------------------------------------------------------------------------
2\1\For Lesotho, data for the corruption indicator are currently
unavailable, so technically it would not qualify. However, these data
are expected to become available within the next few months, and
Lesotho is likely to qualify when the MCA begins in late 2003.
Source: Steven Radelet, updated from ``Qualifying for the Millennium
Challenge Account,'' www.cgdev.org
TABLE 3. DEVELOPMENT STATUS, RESOURCES FLOWS AND FINANCING FOR THREE
MCA COUNTRY GROUPS (MEDIANS)
------------------------------------------------------------------------
IDA eligible Countries
countries Countries with incomes
with incomes with incomes between
less than less than $1,435-
$1,435 $1,435 $2,975
------------------------------------------------------------------------
Development Status:
GNI per capita, 2001........ $380 $460 $1,965
Adult illiteracy rate, adult 36 33 14
total, 2000 (%).
Life expectancy at birth, 54 56 70
2000 (years).
Mortality rate, infant, 2000 75 69 27
(per 1,000 live births).
Resources Flows and Financing:
Aid/GNI, 2000 (%)........... 10.8 8.5 1.4
Gross private capital flows/ 6.9 8.7 10.3
GDP (%).
Tax revenue/GDP(%).......... 11.7 12.6 21.8
Gross domestic savings/GDP, 7.3 8.4 16.2
2000 (%).
Number of Countries 74 87 28
------------------------------------------------------------------------
Source: Steven Radelet, ``Qualifying for the Millennium Challenge
Account,'' www.cgdev.org
The Chairman. Ms. McClymont.
STATEMENT OF MARY E. McCLYMONT, PRESIDENT AND CEO, INTERACTION,
WASHINGTON, DC
Ms. McClymont. Thank you very much, Mr. Chairman, for the
opportunity to testify before you and the committee. I am
pleased to present today some of the views of InterAction
members, as well those of the broader NGO development coalition
that has actually been working together around the MCA over the
last several months. InterAction has co-chaired that effort
with the organization, Bread for the World.
InterAction is the largest alliance of U.S.-based relief
and development organizations, and our 160 members operate in
all of the developing countries and have decades of experience
in development on the ground. Both faith-based and secular,
InterAction members reach millions of Americans who support
foreign assistance programs.
President Bush's announcement of the new MCA has really
galvanized our community with great interest and support. Not
only would, of course as everybody has said, these be
significant new resources, but importantly, the President has
also underscored that these would be used to ``fight world
poverty.''
He has said in other places that expanding the circle of
development is a ``moral imperative'' and a U.S. foreign policy
priority.
Moreover, we believe that the MCA, as you have said, Mr.
Chairman, provides the opportunity to relook and revitalize and
perhaps redefine some of our U.S. foreign assistance policy and
programs and really maximize their effectiveness.
Although the administration, we believe, has articulated a
very powerful vision to transform development, many unanswered
questions remain. And we look forward to working with you to
further define the MCA and its relationship to the broader
foreign aid program.
We have put forward some recommendations. They are attached
to my testimony. But before, I turn to just highlighting
several of them, I would like to place the MCA in the broader
context of U.S. development assistance and foreign policy.
We believe the MCA must be seen as just one tool to
stimulate broad-based economic growth and prosperities in
developing countries. To leverage it, we need a comprehensive
U.S. strategy to guide all of our development through not only
programs of assistance, but thinking through coherence around
trade, economic policies, debt relief, and private investment
flows.
This broader strategy then could go guide and hopefully
bring more coherence among and between the various development
assistance programs and enhance the whole effort.
So to be successful, the MCA must be seen in this larger
strategy for needs development, and not in a vacuum. As many
have said, the MCA is intended to be a bonus pool for a small
group of countries, not meant to replace the development
assistance for the many poor countries that will not qualify.
Neither is it intended to address humanitarian concerns such as
disaster response or refugees, or those that need a global
strategy, such as HIV/AIDS. Yet, these objectives are also
critical.
Countries in which peoples' basic needs are met are more
stable. It makes for a more stable world.
So we underscore, and Mr. Chairman we thank you for your
remarks, funds for the MCA should be in addition to and not a
substitute for other core bilateral development and
humanitarian programs.
In short, we need to ensure that the core development
programs work together with the MCA to accomplish our goals.
I will now try to highlight--I am going to touch very
briefly on seven of our key principles, our priorities for your
consideration, Mr. Chairman. And I give more detail in our
submitted testimony.
First, the purpose. We urge the MCA funds be targeted for
poverty-focused development, advancing the Millennium
development goals in the poorest nations.
In announcing the MCA, the President endorsed these so-
called Millennium development goals, which are really
internationally agreed targets to cut in half poverty and
improve health and education. These goals, among them to
educate children, help mothers and children stay alive, and
reduce hunger, are all concrete concerns we have discovered
through our polling, are things Americans believe our
assistance programs, development assistance programs should
support.
Importantly, these goals might be able to provide an
overarching framework for the MCA and have several advantages.
They could leverage more donor support, and they could try to
bring everybody into the circle, and get international buy-in
from other donors to leverage our money.
Second, country eligibility, the MCA should, we believe,
target the strongest performers in the poorest countries,
specifically the low-income countries under IDA. These low-
income countries, as Mr. Radelet has suggested, lack good
access to or means of attracting other financial resources and
they are much more in need of assistance per se largely than
the lower middle income countries that the administration would
bring in in year 2006.
If there is a concern about not enough poor countries
meeting eligibility, we would propose that perhaps the pool
will be expanded by providing a lesser amount of MCA funds for
sort of a second tier of countries, which would be the near-
miss countries that just do not quite qualify.
Third, program design, we wanted to stress this point, Mr.
Chairman. Developing countries should be full partners in the
entire process. Funding decisions should follow the principle
of country ownership.
Programs for recipient countries should be designed through
consultations with, and implemented by, civil society, local
governments, private sector, as well as the national
government, and we believe should be based on national
development strategies within the country.
Fourth, the MCA assistance should utilize multiple funding
mechanism, not only government to government grants, but also
direct funding to civil society organizations, international
NGOs, as well as local governments. The administration's
proposal appears to contemplate this approach, and I want to
stress--or what I believe, is the importance of civil society.
A robust civil society is critical to achieving good
governance, accountable governance in a country, and also for
providing more equitable delivery of services at the local
level, which helps many marginalized people in a society.
Five, women's participation is essential to the success of
all development strategies, and it is critical that gender be
fully considered in the design implementation and evaluation of
the MCA programs.
Six, because broad-based economic growth and social
development do, as Mr. Radelet suggests, take time, it is
important that country agreements set reasonable timetables and
expectations to be met. A careful balance, we believe, should
be struck between the shorter timeframes for program support
the administration seeks and a longer term commitment to these
countries required to truly reduce poverty and bring broad-
based economic growth.
And finally, Mr. Chairman, the issue of the structure. We,
our coalition, have proposed a separate, semi-autonomous office
within USAID to implement the MCA, with new authorities and
procedures that could enable a faster, more flexible, and more
innovative set of programs.
This approach would allow several things, for the MCA to
help reform and revitalize USAID where needed, enable its
expertise--and that is to say USAID's experience and
expertise--to guide the MCA, and hopefully bring more policy
coherence and less fragmentation to our foreign assistance
programs.
Should the Congress agree with the administration's
approach to establish a separate entity, we would recommend at
least three key steps for strong linkages to and a meaningful
role by USAID. No. 1, the MCC should use the existing
mechanisms and improve them where needed at USAID for
implementing programs and disbursing funds.
Two, the MCA should contemplate--which does contemplate 100
staff people only, should make use of the field structure of
USAID, rather than trying to establish a new presence in MCA
countries.
And third, we believe USAID should be brought on the board
of the MCC so it can offer its strong institutional experience
to inform policies and judgments.
In short, the MCA will include only a small group of
countries. But USAID continues to struggle with the difficult
challenge of the many other developing countries, including the
failed States and also including those poor countries, which
are struggling very hard in the development process.
In those countries, development assistance targeted to
reform-oriented leaders, institutions, and communities can
truly make a difference and really lay the foundation for
future reform.
So with that, I will close, Mr. Chairman. Thank you very
much.
The Chairman. Well, thank you very much, Ms. McClymont.
[The prepared statement of Ms. McClymont follows:]
Prepared Statement of Mary E. McClymont, President and CEO, InterAction
Thank you, Mr. Chairman, for the opportunity to testify before this
Committee on the Millennium Challenge Account. I also want to
acknowledge the leadership and support that you, Senator Biden, and
many others on this Committee have provided on issues of importance to
those of us in the humanitarian and development community. I am
grateful for the opportunity to present some of the views and
perspectives of InterAction members and the broader NGO development
community on the Millennium Challenge Account.
InterAction is the largest alliance of U.S.-based international
development and humanitarian nongovernmental organizations. Our 160
members operate in every developing country and have decades of
experience on the ground in working to overcome poverty, exclusion and
suffering by advancing social justice and basic dignity for all. While
many in our membership have a long and successful history of
partnership with U.S. government agencies, collectively, the members
receive $3 billion in annual contributions from private donors,
including direct contributions from the American people. Both faith-
based and secular, InterAction members are headquartered in 25 states
and have branch offices and/or constituencies in every state in the
country. Furthermore, when you look at the donors, sponsors, and
supporters of our member organizations, InterAction reaches millions of
Americans who care about and support in some form our foreign
assistance programs. I come before you to reflect views from this
broad-based coalition.
President Bush's announcement in March 2002 of a new ``Millennium
Challenge Account'' (MCA) has galvanized great interest and support
from the development community. Under the MCA, the President has
pledged additional funds beginning in FY 2004, leading to a $5 billion
annual increase in development assistance over current levels by 2006.
According to the President, funds would go to selected countries that
govern justly, invest in people, and encourage economic freedom. These
are new and significant resources. Importantly, the President has also
made clear that the funds will be used to ``fight world poverty'' and
``bring hope and opportunity to the world's poorest people.'' It is a
significant signal that the United States must play a much larger role
in fighting world poverty, a point the President recognized by making
it a ``moral imperative'' and a U.S. foreign policy priority. Indeed,
development is now a key component of the National Security Strategy.
In announcing this pledge, the President endorsed internationally-
agreed targets for cutting in half extreme poverty around the world and
for substantial improvements in health and education in developing
countries by 2015, known as the ``Millennium Development Goals''. These
goals, which include improving access to basic education, helping
mothers and children stay alive, advancing the status of women and
girls, improving access to clean water, and reducing poverty and
hunger, are all concrete concerns supported by the American people,
based on polling commissioned by InterAction and other organizations.
In fact, we believe President Bush's strong and consistent
statements reflect a growing consensus in this country that development
assistance can bring lasting and positive change in the lives of the
world's poorest people. Indeed, the MCA provides the opportunity to
revitalize and redefine foreign assistance policy of the United States
and to maximize the impact, effectiveness and coherence of our aid
programs. It will have a critical effect on the way development is
carried out in the years to come by the United Slates and other donor
nations.
For these reasons, the new initiative must be shaped and defined in
a careful and comprehensive way. The Administration has articulated a
powerful vision to transform development; yet, many unanswered
questions remain as to what this assistance will fund, how it will be
implemented and how it will relate to other foreign assistance programs
of the U.S. government. We hope that this Committee and your colleagues
in the House of Representatives will take up the challenge and work to
further define and shape the MCA and its role and relationship to the
rest of our foreign aid program. We look forward to working with you
and with the Administration to fashion an innovative and effective
fund.
To that end, InterAction has developed a set of recommendations as
to how the new account should be developed and implemented. We have
brought together 40 of our member organizations and the broader
development community to create a consensus around a set of principles
and priorities for the MCA. InterAction developed a policy paper in
May, and subsequently with the broader community, a legislative
proposal that we have shared with Members of Congress and with the
Administration. With your permission, Mr. Chairman, I would like to
submit for the record our initial policy paper, The Millennium
Challenge Account: A New Vision for Development, along with our
legislative proposal on the MCA.
I will touch on several of our specific recommendations in a
moment, but first let me place the Millennium Challenge Account in the
context of a broader reassessment of U.S. development assistance and
foreign policy.
the larger framework
Although it represents a significant step forward, the MCA must be
seen as just one tool to stimulate broad-based economic growth and
prosperity in developing countries. To leverage it, a comprehensive
U.S. development strategy should be designed. This strategy should
include clear goals, realistic timetables, and sufficient resources for
reducing poverty and meeting the Millennium Development Goals through
programs of assistance, trade and economic policies, debt relief and
private investment flows. It should identify strategies to promote
development in the countries that will not be eligible to receive
assistance under the new account, and address such complex issues as
how the Millennium Development Goals can be met by finding new ways to
deal with trade barriers, debt reduction and tied aid.
To be successful, the Millennium Challenge Account must be seen
within this larger strategy for development. In short, the MCA cannot
be considered in a vacuum if ``the advance of development,'' which the
President has called a ``central commitment of American foreign
policy,'' is to be truly realized. After all, as the President has
defined it, the MCA is a bonus or incentive pool of large, concentrated
assistance that will be directed to a small, select group of countries
that meet the eligibility criteria set forth in the President's
proposal. It is not meant to replace the development assistance being
provided largely by the U.S. Agency for International Development
(USAID) to poor countries that for the most part do not meet the rather
stringent criteria. And I will come back to that point. Further, the
President has underscored that funds for the MCA would be in addition
to, and not a substitute for, other core bilateral development and
humanitarian programs.
In February 2002, one month prior to the President's announcement,
InterAction launched a campaign, the Global Partnership for Effective
Assistance, a multiyear effort to save lives and build self-sufficiency
by increasing development and humanitarian assistance, improving aid
effectiveness, and building international partnerships. In the broadest
sense, this campaign aims to help reinvigorate America's role in
partnering to build safer, more stable and democratic societies.
Effective assistance programs with concrete, realistic goals and
adequate funding are key ingredients for reducing poverty and meeting
basic needs. The issue is not only about how much money is spent, but
also how the money is spent. To that end, we are working to influence
the policy debate and raise public awareness about the importance of
aid effectiveness.
The MCA initiative, which we strongly advocate for in our campaign,
can be a critical new instrument of policy to fight poverty. Yet, as
noted, it envisions funding for a limited number of qualifying
countries and does not address the development needs and objectives in
the many nations that won't qualify. The initiative also does not take
into account humanitarian concerns such as disaster response and
refugees, or areas that may need a global or regional strategy, such as
HIV/AIDS. Yet we know that these objectives are critical and that
countries in which peoples' basic needs are met are more stable and
less prone to conflict.
That is why InterAction's campaign urges that the MCA be seen as a
part of the overall aid strategy, and that existing bilateral aid
programs in the foreign operations budget be increased. These programs
build self-sufficiency by promoting basic education, healthcare, job
and business skills, reducing hunger, women and girls, refugee and
disaster response, and peace and democracy. In short, programs funded
under these core accounts, if carried out effectively, can build
capacity in people and lay the groundwork for additional nations to
qualify for the MCA in future years.
It is critical, therefore, that funding for these programs not be
cut or diverted to fund the MCA. We must also guard against the
fragmentation of our foreign aid program that can lead to
uncoordinated, inefficient and duplicative use of resources. Instead,
we must ensure that core development programs work together with the
MCA to meet the international goals for poverty reduction, promote
broad-based economic growth, and help create a better, more secure
world. If we do it right, the MCA can serve as the catalyst for a
comprehensive and coherent new aid policy that recognizes progress and
encourages change.
We believe the Millennium Challenge Account offers an opportunity
to maximize the impact of our development assistance. Behind the new
initiative should be an understanding that for development to succeed
in the long run, there must be the right mix of good policies,
sufficient resources, measurable goals, coordination among donors,
effective innovative delivery mechanisms, and the program ownership and
participation of developing nations. Both sides of the development
equation--rich and poor countries alike--must make a commitment to
reform, and hold themselves accountable for the results.
the mca
With this broader context in mind, I will highlight several of the
key principles and priorities of concern to us that I hope you and your
Committee, Mr. Chairman, will keep in mind as you work to shape and
define the Millennium Challenge Account in the months ahead.
Purpose
We urge that funds from the new account targeted for
poverty--focused development--advancing the Millennium
Development Goals in the poorest nations. These goals provide a
broad framework for the MCA, including parameters for the
sectors on which the MCA should focus. Furthermore, they serve
as useful mechanism to both leverage funding from other donors
and to secure international support for this new framework for
development. And, the American public is supportive of the
concerns addressed under the MDGs, such as basic education, and
advancing the status of women and girls.
In its proposal, the Administration has indicated that the
goal of the MCA is ``to reduce global poverty through increased
economic growth.'' It is correct to highlight the importance of
economic growth, as there is ample evidence that sustained
growth is essential to poverty reduction in developing
countries. However, it is also clear that growth by itself is
not sufficient. While we agree about the importance of economic
growth in helping countries meet their development objectives,
it must be broad-based growth that is built on policies that
promote equity, reduce poverty, and provide robust investments
in people. Achieving a just, equitable pattern of growth and
development has important implications for the type of
investments to be financed by the MCA.
Country Eligibility
The MCA should target strong performers among the poorest
countries. The Administration's proposal, however, would also
allow lower-middle income countries to be eligible in 2006 and
beyond. We recommend targeting MCA assistance to low income
countries eligible to borrow from World Bank International
Development Association (IDA). Many of the lower middle income
countries do indeed have many poor people and face significant
development challenges. They, however, also have better access
to means of attracting other financial resources and are less
in need of the MCA assistance than the low-income countries.
If there is a concern that not enough poor countries will
meet the eligibility criteria, then we would advise that the
pool be expanded by providing a lesser amount of MCA funds to
the ``near miss'' countries to help them qualify in future
years. Our legislation call for a second tier of MCA countries
that would fall into this category. Thus a part of the MCA
funds could be directed towards building capacity and creating
incentives for countries to graduate to the first tier.
With regard to the specific indicators as outlined by the
Administration, we welcome the use of publicly-available
indicators to select MCA countries because that approach offers
a potential for transparency and allows for monitoring of the
selection process by civil society and other interested
parties. There are several details of the criteria and
selection process, however, on which our members have differing
views. InterAction has not made specific recommendations on the
indicators themselves.
Program Design/Funding Process
We suggest in our legislative proposal ``implementation
agreements'' between recipient countries and the United States which
would establish the funding parameters and guidelines under which
proposals could be submitted by various governmental, private sector,
and civil society or NGO actors. The Administration's proposal does not
detail how its MCA contract relates to the proposal process.
Developing nations should be partners in the formation and
implementation of the new account, and broad participation of
the private sector and civil society should be evident
throughout. Funding decisions should follow the principle of
country ownership, and should ensure that resources support
priorities identified by the country's government, in
consultation with its citizens. MCA assistance programs for
recipient countries should be designed through consultations
with, and implemented by, civil society, local governments and
the private sector as well as the national government. The MCA
should support locally conceived and implemented national
development strategies such as the Poverty Reduction Strategy
Papers (PRSP). The Administration's proposal is properly
supportive of country ownership and broad consultation, but
this language could be reinforced and further defined.
Women's participation is essential to the success of all
development strategies. For example, the World Bank has noted
that countries can significantly boost productivity and
economic growth by focusing on the abilities and potential of
their women. To benefit from these synergies, it is critical
that gender be fully considered in the design, implementation
and evaluation of MCA programs.
Because broad-based growth and social development take time,
it is important that country agreements or contracts set
reasonable timetables and expectations. The Administration has
indicated it would like to see results in short timeframes. A
careful balance must be struck, however, between shorter
timeframes for program support, and a longer-term commitment to
poverty reduction and broad-based growth. Exit strategies for
ending aid should be carefully planned in collaboration with
recipient countries.
The MCA assistance should utilize multiple funding
mechanisms including, but not limited to, government to
government grants, as well as direct funding to civil society
organizations, international private voluntary organizations,
as well as local governments. The Administration's proposal
appears to contemplate this approach. I stress the importance
of civil society and private voluntary organizations because,
even in the best performing nations, governments often do not
have open transparent and inclusive processes to engage civil
society. And yet, a robust civil society is critical to
achieving good, accountable governance. NGO and civil society
implementers also help ensure a more equitable delivery of
services at the local level, particularly to segments of the
population that might otherwise be neglected or marginalized.
Donor coordination is important to increase effectiveness
and reduce wasteful financing. The United States cannot
undertake the global development challenge on its own. We must
leverage the resources of other donors and, more importantly,
of the developing countries themselves. Too often, competing
requirements from different donors place undue burdens on
developing countries. The MDG framework provides one mechanism
to ensure donor coordination since the international community
has already agreed to these targets. Using national development
strategies or PRSPs is another. The Administration's proposal
acknowledges the importance of donor coordination. However, it
places the burden solely on recipient countries. We believe
responsibility should be borne by both the donor and developing
countries.
Implementation Structure
We have proposed a separate, semi-autonomous office within
USAID to implement the MCA, with new authorities and procedures
that enable faster, more flexible and more innovative
programming to assure funds are programmed effectively and
expeditiously. Such an approach would allow for the MCA to help
reform and revitalize USAID, enable its experience and
expertise to guide the MCA, and help further policy coherence
and coordination among various foreign assistance programs.
The Administration proposes to set up a new entity to
implement the MCA, the Millennium Challenge Corporation. If the
Congress agrees with the Administration's approach to establish
a separate entity, it will be critical to avoid duplication of
effort, competing priorities and contradictory policies. We
would therefore recommend the following steps to establish
strong linkages to and a central meaningful role for USAID in
order to foster policy coherence in our development programs.
(1) The MCC should utilize, and improve upon, where
necessary, existing mechanisms at USAID for implementing
programs and disbursing funds.
(2) The MCC, which contemplates only about 100 staff, should
make use of the field infrastructure of USAID rather than
trying to establish a new presence in MCA countries. This will
also help improve coordination between USAID run programs and
MCA programs.
(3) USAID should be on the board of the MCC. This would
enable USAID, with its strong institutional experience and
knowledge in international development to inform Board
decisions and policies, including selection of countries,
development of country strategies, and review of funding
proposals.
I conclude with a few words on the continuing role and importance
of USAID in our development and foreign policy. The MCA will likely
include only 15 to 20, selected countries. USAID, however, continues to
have the difficult challenge of assisting the larger universe of
developing countries. It includes a group of failed, or failing, states
which require largely humanitarian assistance, such as disaster aid or
HIV/AIDS funds. There are also many other low income countries that are
struggling in the development process, making progress in one area and
falling back in another. It is in these countries where development
assistance targeted to reform-oriented leaders, institutions, and
communities can make a difference. Assistance targeted to building
capacity in both government and civil society and delivering key
services can lay the foundation for future reform.
We believe that the MCA can play a transforming role in U.S.
development policy. The President has laid out a bold new vision for
expanding the circle of development. Mr. Chairman, your Committee will
play a pivotal role in shaping this initiative. Many questions remain
to be addressed on the MCA and we welcome the opportunity to work with
you in the weeks and months ahead.
[Attachments]
The Millennium Challenge Account: A New Vision for Development
A Policy Paper from InterAction--May 2002
foreword
These recommendations on the creation and implementation of the
Millennium Challenge Account are offered by InterAction, the largest
alliance of U.S.-based international development and humanitarian
nongovernmental organizations. With more than 160 members, both faith-
based and secular, operating in virtually every developing nation, we
work to overcome poverty, exclusion and suffering by advancing social
justice and basic dignity for all.
This paper offers a set of recommended guidelines for the design
and implementation of the Millennium Challenge Account for overseas
development, announced by President Bush in March 2002. The paper was
developed through consultations with our membership. We hope it will
serve as an important resource for policymakers as they craft this new
initiative. Our InterAction community looks forward to an open and
constructive ongoing dialogue with the Administration and the Congress
on the Millennium Challenge Account in the months ahead.
executive summary
The Millennium Challenge Account (MCA) presents a unique moment to
fundamentally transform U.S. development policy and maximize its
impact. Success of the MCA will have a critical effect on the way
development is carried out in the years to come by the United States
and other donor nations.
The purpose of the MCA should be to demonstrate how poverty can be
reduced and the Millennium Development Goals (MDGs) can be met through
the right mix of good policies, sufficient resources, measurable goals,
coordination among donors, effective innovative delivery mechanisms,
and the program ownership and participation of developing nations. Rich
and poor countries alike must make a commitment to reform, and to hold
themselves accountable for results.
Although the Millennium Challenge Account is a significant step
forward, it is just one tool to stimulate broad-based economic growth
and prosperity in developing countries. To leverage the Millennium
Challenge Account, a comprehensive U.S. development strategy should be
designed. It should have clear goals, realistic timetables, and
sufficient resources for meeting the MDGs through programs of
assistance, trade and economic policies, debt relief and private
investment flows.
The debate over the Millennium Challenge Account has only begun,
and the broader question, how it helps redefine U.S. development
policy, will not be answered by a single paper any more than it will be
answered by a single meeting. Rather, the solutions will be multi-
layered and subject to alterations until the right fit is achieved.
This paper, which includes key design and implementation guidelines,
should he viewed in the same way, as an initial framework for
policymakers designing the Millennium Challenge Account, and
positioning it in the broader mosaic of an overarching foreign policy.
summary of key guidelines for the millennium challenge account
Focus
Funds from the new account should be used to advance the
Millennium Development Goals.
Funds from the new account should focus on the poorest
countries.
Eligibility
Eligibility criteria should serve as an incentive, rather
than a reward, for good performance.
The impact of the MCA will be closely related to the level
of funding provided for a country, which is why there should be
a limited number of nations that receive funding each year.
Implementation and Administration
Developing countries should be partners in the development
and implementation of the new account, and broad participation
of the private sector and civil society should be evident
throughout.
Assistance under the new account should not be provided
exclusively to national governments.
Benchmarks for success should be built into the Millennium
Challenge Account.
lnteragency coordination will be critical to the success of
the MCA, and a lead agency should be designated to administer
the distribution of funds.
Improved donor coordination and policy coherence are crucial
if the MCA is to succeed and the MDGs are to be met.
The Broader Framework
Because only a limited number of countries will qualify for
assistance under the Millennium Challenge Account, it is vital
that the new account complement other development programs.
Funds from the Millennium Challenge Account must be provided
as an addition to, not a substitute for, other development and
humanitarian programs.
There must be strong linkage to humanitarian and refugee
assistance efforts.
The Millennium Challenge Account: A New Vision for Development
In March 2002, the International Conference on Financing for
Development in Monterrey, Mexico, brought world leaders together to
discuss ways of building a more prosperous world community. They sought
commitments by both rich and poor nations to help reach a set of
internationally-agreed targets for the halving of extreme poverty
around the world and for substantial improvements in health and
education in developing countries by 2015. Endorsed by 189 counties at
the September 2000 U.N. Millennium General Assembly, collectively these
are known as the Millennium Development Goals (MDGs).
At the time of the Monterrey conference, President Bush indicated
America's support for these goals. He reaffirmed the commitment of the
United States to bring hope and opportunity to the world's poorest
people and pledged new resources to fight world poverty. The funds
would be provided through a ``Millennium Challenge Account,'' which
would increase U.S. development assistance over three years, leading to
a $5 billion annual increase above current levels by 2006.
InterAction applauds President Bush's commitments and pledges to
work in partnership to make the MCA a success. InterAction, the largest
alliance of U.S.-based international development and humanitarian
nongovernmental organizations, with 160 members operating in virtually
every developing country with local partners, is uniquely positioned to
offer guidance on maximizing the new account's effectiveness in the
fight against poverty.
a new vision for development
The Millennium Challenge Account (MCA) presents a unique moment to
fundamentally transform U.S. development policy and maximize its
impact. Success of the MCA will have a critical effect on the way
development is carried out in the years to come by the United States
and other donor nations.
The purpose of the MCA should be to demonstrate how poverty can be
reduced and the Millennium Development Goals can be met, through the
right mix of good policies, sufficient resources, measurable goals,
coordination among donors, effective innovative delivery mechanisms,
and the program ownership and participation of developing nations. Rich
and poor countries alike must make a commitment to reform, and to hold
themselves accountable for results.
Although the Millennium Challenge Account is a significant step
forward, it is just one tool to stimulate broad-based economic growth
and prosperity in developing countries. To leverage the Millennium
Challenge Account, a comprehensive U.S. development strategy should be
designed. It should have clear goals, realistic timetables, and
sufficient resources for meeting the MDGs through programs of
assistance, trade and economic policies, debt relief, and private
investment flows. It should identify ways to reach people in the
countries that will not be eligible to receive assistance under the new
account, and address such complex issues as how the MDGs can be met by
finding new ways to deal with trade barriers, debt reduction and tied
aid. To be successful, the MCA must be placed within this larger
strategy for development.
President Bush made another pledge at the Monterrey conference, to
``jump-start'' the Millennium Challenge Account by ``working with
Congress to make resources available over the next 12 months for
qualifying countries.'' Initiating the MCA in FY 2003 will illustrate
on the part of President Bush and his administration an understanding
that there is no time to waste on beginning the implementation of this
initiative. But a down payment on the promise of the MCA should not
come at the expense of other critical assistance programs, which is why
funds to jumpstart the program should be added to--not deducted from--
existing humanitarian and development accounts.
The debate over the Millennium Challenge Account has only begun,
and the broader question, how it helps redefine U.S. development
policy, will not be answered by a single paper any more than it will be
answered by a single meeting. Rather, the solutions will be multi-
layered and subject to alterations until the right fit is achieved.
This paper, which includes key design and implementation guidelines,
should be viewed in the same way, as an initial framework for
policymakers designing the Millennium Challenge Account, and
positioning it in the broader mosaic of an overarching foreign policy.
As the Millennium Challenge Account evolves, questions about
specific aspects of legislation and implementation that are not
addressed in these initial recommendations will undoubtedly arise.
While InterAction plans to actively monitor the way in which the MCA is
shaped, we feel our community being one of the trusted partners in the
entire process will be a key ingredient to its ultimate success. We
look forward to providing additional information and guidance as the
process moves ahead. Some of the member organizations of InterAction
also will be submitting their own policy papers in the coming weeks,
with recommendations based on their particular areas of expertise.
key guidelines for the millennium challenge account
In defining and implementing the Millennium Challenge Account,
decisionmakers should follow 12 key guidelines.
Focus
1. Funds from the new account should be used to advance the
Millennium Development Goals.
Development has worked where there has been a sharp focus on
poverty reduction and on specific programs and policies that address
the MDGs. Countries requesting assistance should develop their own
strategies to address these goals.
2. Funds from the new account should focus on the poorest
countries.
Although there are desperately poor people even in middle- and
high-income countries, the Millennium Challenge Account should focus on
the countries with the lowest per capita incomes--those eligible to
borrow from the International Development Association.
Eligibility
3. Eligibility criteria should serve as an incentive, rather than a
reward, for good performance.
President Bush said that for a nation to participate in the MCA it
should show evidence of ruling justly, investing in the health and
education of its people, and encouraging economic freedom. While it
makes sense to focus on countries that fully meet these criteria,
setting the bar too high could further alienate those facing the
greatest challenges. If only the best performers are eligible to
receive assistance, then aid will go to those who least need it. Many
countries, particularly those in Africa, will once again be left
behind. At the same time, if eligibility criteria are not sufficiently
rigorous, there is a danger that recipients will be chosen for
political reasons.
Assuming that the selected countries truly meet these criteria, and
assuming that funds are used only to advance the Millennium Development
Goals, Congress should provide the kind of flexibility in programming
that enables quick and effective obligation of funds. if additional
earmarks, restrictions and conditions are imposed, important
opportunities for cooperation will be missed, and the transforming
effect of the Millennium Challenge Account will have been negated.
Elaborating on the president's eligibility criteria, recipient
countries should have demonstrated a commitment to, and should be
taking steps toward:
Good governance for all of their people, including the poor,
through expanding democratic participation, rooting out
corruption, upholding human rights, encouraging a free press,
protecting and treating displaced people, refugees and asylum
seekers fairly, advancing opportunities for women, encouraging
the development of civil society, and adhering to the rule of
law;
Investing in the health and education of their people, with
careful attention to the needs of women and girls, through
budgetary policies that seek to develop human capacity and
build sustainable development;
Economic policies that foster enterprise development,
private investment, poverty reduction and prosperity, while
taking into account differential impacts on women and men.
4. The impact of the MCA will be closely related to the level of
funding provided for a country, which is why there should be a limited
number of nations that receive funding each year.
For the MCA to be successful, allocations from the new account must
be large enough to make a real impact on the lives of large numbers of
people by leveraging the kinds of policy changes and resource
commitments that will make the impact significant.
Implementation and Administration
5. Developing countries should be partners in the development and
implementation of the new account, and broad participation of the
private sector and civil society should be evident throughout.
Once nations have been found eligible for funding, allocations from
the Millennium Challenge Account should be made in response to
comprehensive national plans or proposals from the developing
countries.
Rather than asking a country to produce an entirely new strategy
for assistance, a proposal should be based on a nation's own national
development strategy, such as the World Bank and IMF-initiated Poverty
Reduction Strategy Papers (PRSPs). To date, however, the PRSP process
has not been consistently open or accountable and, in some cases, it
has been conducted without the participation of women and civil society
organizations. Yet, the benefits of executing the PRSP process as
envisioned could produce such clear benefits as local ownership, donor
coordination, and policy coherence.
A recipient's proposal should identify the programs and projects
for which it is seeking assistance, describe specific development goals
and targets to be achieved, and provide measurable indicators of
success. These plans should detail the involvement and participation of
other donors, host governments (local and national), private
businesses, civil society groups and nongovernmental organizations.
This will help ensure accountability, transparency and local ownership.
In turn, the MCA would foster donor coordination and private-public
partnerships, while ensuring that recipient countries assume
responsibility for successful implementation of the programs.
6. Assistance under the new account should not be provided
exclusively to national governments.
In addition to governments, other channels should be used for the
implementation of the MCA, including nongovernmental organizations,
civil society groups, regional and local governments, international
organizations, or multilateral development banks. In these cases, such
entities should be eligible to receive funds directly from the new
account, as appropriate.
While part of the purpose of the Millennium Challenge Account is to
strengthen governments that are undertaking the right combination of
policies, many of them are not yet able to provide adequate monitoring
and controls over funds. Moreover, working through humanitarian,
developmental and civic organizations, which have built relationships
of trust and respect with intended beneficiaries in local communities,
is essential to maximizing aid impact and ensuring it reaches people
who need it.
It should be made clear, however, that funds from the MCA will not
be used to meet ongoing U.S. commitments to international institutions.
Further, since one of the greatest challenges to successful development
has been the overhang of crippling debt, funds from the account should
be provided only in the form of grants, not loans.
7. Benchmarks for success should be built into the Millennium
Challenge Account.
To determine effectiveness and ensure accountability, clear
indicators of success need to be established for programs at the
country level and for the overall MCA. The assistance targets should be
part of the conditions for the grant, and they should be agreed upon by
all parties. A certain amount of flexibility should be factored into
the measurements of success for any program, but not so that it
compromises accountability.
Because broad-based economic growth and social development take
time, the selection of indicators and measures should be realistic and
thought of as intermediate steps. For example, investments in the
health and education of a population may take a generation or more to
``pay off'' in terms of productivity and earnings.
Technical assistance should be available to help countries devise
indicators of success and measure results. The MCA should make a
special effort to help strengthen local capacity in evaluation and
monitoring skills and tools, both among governmental personnel and
within civil society.
Just as recipients will be held accountable for meeting their goals
under the MCA, industrialized nations should be held accountable for
meeting their commitments to broader development targets embodied in
the Millennium Development Goals. To that end, a system should be
devised for measuring how the success of the MCA and other U.S.
development programs contribute broadly to the MDGs.
8. Interagency coordination will be critical to the success of the
MCA, and a lead agency should be designated to administer the
distribution of funds.
Ensuring that the funds are spent accountably and that the goals or
benchmarks are met will require expertise in all aspects of political,
social and economic development, reflected in the involvement of
several federal agencies or offices.
Once decisions on criteria and country eligibility are made at the
interagency level, an agency with a commitment to poverty reduction,
experience in conducting successful development projects, and personnel
based in recipient countries will be needed to actually administer the
account. Given the mission of the MCA, the current structure of the
U.S. government, and the bureaucratic difficulties of building a new
entity to manage development, the U.S. Agency for International
Development (USAID) is well positioned to administer the program. Since
a large infusion of aid could overwhelm USAID's current system, it
would likely need to establish a separate implementing office.
If the intention of the Millennium Challenge Account is to reshape
the way in which the U.S. government views, and conducts, development
assistance, then the tools and methods employed for these tasks must
also change. The agency should also have procedures and practices that
support creativity, innovation, flexibility and quick response to
ensure that funds from the account are programmed effectively and
expeditiously.
Further, additional funds should be made available to cover
administrative expenses of the administering agency. Costs such as
salaries, operating expenses, evaluation and monitoring, and technical
assistance to meet and measure criteria can constitute a sizeable
percentage of the grant value.
9. Improved donor coordination and policy coherence are crucial if
the MCA is to succeed and the MDGs are to be met.
One of the reasons that assistance programs have not been more
effective in the past is that donor countries fail to agree on common
goals and objectives, standards, and requirements. Each donor,
bilateral and multilateral, requests different types of information and
documentation from the recipient government, while recommending
different policies and imposing different types of conditionality.
There are gaps and contradictions as well as duplication and overlap,
leaving even the most dedicated reformers without viable options. These
shortcomings could be alleviated by using the Millennium Development
Goals as a common set of objectives and a country's national
development strategy as the agreed blueprint.
At the Monterrey conference, nations recognized that aid alone, no
matter how well designed, will not solve the problem of global poverty.
Real progress requires a combination of efforts in both donor and
recipient countries. Developing countries must adopt policies to
mobilize domestic resources, reduce corruption, and attract private
investment. Industrialized nations must broaden access to their
markets, help resolve debt crises and improve stability of global and
regional financial structures. Broad-based economic growth, which can
only take root in a conducive policy environment, ultimately is the
most effective means of reducing poverty and increasing standards of
living.
The Broader Framework
10. Because only a limited number of countries will qualify for
assistance under the Millennium Challenge Account, it is vital that the
new account complement other development programs.
Unfortunately, many of the countries in which poverty is most
deeply entrenched and which pose the greatest potential threats to U.S.
security will not qualify for assistance under the new account. People
will be overlooked in failed states that are unable to provide basic
human services, the pariah nations that provide haven for international
outlaws, and the authoritarian regimes that engender civil unrest and
unleash aggression against their neighbors.
While good governance is essential for sustained economic growth,
discrete development programs to build self-sufficiency can be
successful in almost any environment. In states where the governments
are not effective development partners, assistance can be provided
through local civil society groups and international nongovernmental
organizations. Incipient democratic movements and economic reformers
can be strengthened with technical and material assistance. Small
businesses and microenterprises can be encouraged through access to
credit. By building human capital, such programs empower individuals to
meet their own basic needs and lay the groundwork for future growth.
11. Funds from the Millennium Challenge Account must be provided as
an addition to, not a substitute for, other development and
humanitarian programs.
Increased support should also be directed to existing accounts,
including Development Assistance, Child Survival and Health,
International Disaster Assistance, Transition Initiatives, Migration
and Refugee Assistance, Emergency Refugee and Migration Assistance, and
International Organizations and Programs.
Only a small proportion of overall U.S. foreign assistance
currently goes to the poorest people and the poorest countries. If the
Millennium Development Goals are to be met, then all U.S. development
assistance must be increased and sharpen its focus on building
prosperity from the bottom up. This means expanding access to
education, health care, jobs, technology and credit, as well as
broadening democratic participation, combating corruption and promoting
equality before the law.
12. There must be strong linkage to humanitarian and refugee
assistance efforts.
There is a continuing need to mitigate the number and effects of
natural and human-caused disasters, as well as to strengthen the
protection of civilians in complex emergencies. A priority must be
placed on creating an environment in which refugees and displaced
persons return voluntarily to their homes in safety and dignity.
Development does not occur in a vacuum. It cannot be sustained when
people are forced to flee their homes due to war, famine or natural
disaster. Even in countries where development is on track, extended
droughts, floods, earthquakes, and conflicts that spill over from
neighboring states can arrest progress. Development assistance cannot
replace refugee and disaster aid, nor can it succeed without them.
Americans are a caring and giving people, who consistently support
giving life-saving assistance and protection to refugees and displaced
people, wherever they may be, and helping them be resettled.
Development and humanitarian assistance need to be more closely
aligned. In that way, humanitarian interventions provide a foundation
for development and prevent disasters from destroying development
gains.
conclusion
Announcing the initiative for a Millennium Challenge Account was a
significant first step that has helped to galvanize support for global
poverty reduction and focus attention on the Millennium Development
Goals. The real test now, however, is designing a program that will
meet these goals and ensure that the promised resources materialize.
Reaching the MDGs will require the combined efforts of the U.S. and
other donor governments, international financial institutions, private
businesses and nongovernmental organizations, in developing as well as
developed countries.
Over the many years in which InterAction members have carried out
humanitarian and development projects around the world, they have
learned valuable lessons about what works and why. Although there have
been some critiques of development assistance, there have been major
successes and breakthroughs already achieved.
With the help of foreign assistance, adult illiteracy in developing
countries fell from 47 percent in 1970 to 26 percent in 1998; smallpox
was eliminated from the world in 1977; life expectancy in poor
countries has risen from 45 to 64; the number of people living below
the poverty line has fallen by about 200 million, while the world's
population has grown by 1.6 billion; malnutrition has declined by 17
percent over the last decade; maternal deaths were reduced by 12
percent between 1990 and 1995; 55 more democratic governments have been
elected over the past 14 years; and just last year, catastrophic
famines were averted in Ethiopia and Afghanistan.
Americans can be proud of what their tax dollars have achieved
around the world. The Millennium Challenge Account offers a valuable
opportunity to put our knowledge and values into action. It can serve
to leverage more effective and coherent development overall.
The Millennium Challenge Account
a legislative proposal
The attached draft authorization bill is a legislative proposal for
the Millennium Challenge Account developed by InterAction and its
member organizations as well as other key non-governmental
organizations active in international development. The legislation is
consistent with InterAction's White Paper on the MCA and benefits from
the research and analysis done by many diverse organizations in the
development community. It is hoped that this draft legislation can
serve as a vehicle for discussions on the MCA between the
Administration, Congress and the development community.
The draft legislation represents the consensus of this coalition on
the basic principles around which MCA should be organized. This draft
is evolving and certain sections are being revised and refined through
an ongoing collaborative process. The basic principles include the
following:
The Millennium Challenge Account is one component of U.S.
foreign assistance programs and therefore should be authorized
under the Foreign Assistance Act of 1971 through amendment of
the Act and should be linked to other U.S. assistance programs
such as humanitarian, development, and economic assistance.
Funds appropriated to the MCA must be in addition to the
funds authorized for core humanitarian and development
assistance programs and not a substitute for funding these
accounts.
In order to maintain the link to core development programs
and prevent the politicization of this assistance, the MCA
should be implemented by a semi-autonomous office in the United
States Agency for International Development and should carry
new authorities to allow for new, flexible, and innovative
mechanisms to improve delivery and effectiveness of assistance.
The MCA assistance should be directly linked to advancing
the Millennium Development Goals (MDGs) and to national efforts
to reduce poverty.
The MCA should support locally conceived and implemented
national development strategies such as the Poverty Reduction
Strategy Papers. MCA assistance programs for recipient
countries should be designed and implemented through
consultations with civil society and local governments as well
as the national governments. Proposals for funding should
support national development strategies and outline specific
development goals consistent with the MDGs.
The MCA assistance should utilize multiple funding
mechanisms including, but not limited to, government to
government grants, direct funding of local governments, civil
society organizations, and international private voluntary
organizations.
IDA eligibility should be the basic eligibility criterion
for MCA assistance.
To improve the effectiveness of all assistance, the United
States must give increased attention to donor coordination and
to coherence of trade and economic policies to development
objectives.
The MCA should encourage an emphasis on women both in
shaping national development strategies and as the target
beneficiaries of development assistance.
This legislation does not identify specific indicators to measure
performance under the three areas of eligibility identified by the
President, ruling justly, investing in people and economic freedom. The
bill, however, does define the principles under each category of
criteria which coalition believes should be stressed in determining
eligibility. The bill also provides for expanded eligibility to enable
countries that may not meet all the eligibility criteria set forth by
the Administration to receive assistance under the MCA. The coalition
continues to discuss specific indicators and data that should be
utilized in determining eligibility and may have more detailed
recommendations at a later stage.
Millennium Challenge Account
authorization bill
10-18-02
An Act
To amend the Foreign Assistance Act of 1961 to establish the
Millennium Challenge Account for the provision of assistance to certain
eligible countries and for other purposes.
SEC. 101. SHORT TITLE.
This Act may be cited as the ``Millennium Challenge Account Act of
2002.''
SEC. 102. FINDINGS AND PURPOSES.
(a) Findings.--The Congress finds that--
(1) A principal objective of United States foreign assistance
programs, as stated in the Foreign Assistance Act of 1961, is
the ``encouragement and sustained support of the people of
developing countries in their efforts to acquire the knowledge
and resources essential to development and to build the
economic, political, and social institutions which will improve
the quality of their lives.''
(2) On March 14, 2002, in a speech at the Inter-American
Development Bank, President Bush noted the successes of
development: ``During our lifetime, per capita income in the
poorest countries has nearly doubled. Illiteracy has been cut
by one-third, giving more children a chance to learn. Infant
mortality has been almost halved, giving more children a chance
to live.''
(3) Despite these achievements, there are mounting challenges
facing developing countries:
(A) Over 100 million children of primary school age
remain out of school, 60 percent of them girls.
(B) 10 million children die every year of preventable
causes, 40 percent of them in the first month of life.
Malaria alone takes two lives every minute--mainly
children under 5 and pregnant women.
(C) Approximately 1.2 billion people live on less
than $1 a day.
(D) 6 million children die of hunger-related causes
each year. 800 million people in the world are
undernourished.
(E) One woman dies every minute as a result of a lack
of access to basic healthcare during pregnancy and
childbirth.
(F) HIV/AIDS has claimed more than 22 million lives
since the beginning of the epidemic making it the
leading cause of death in sub-Saharan Africa and the
fourth highest cause of death globally.
(4) Inequalities between men and women undermine development
and poverty reduction in fundamental ways. Women's limited
access to resources and rights--including the right to
participate in social and political processes--limits their
contribution to family health, education and wellbeing.
(5) The United Nations General Assembly in September 2000
adopted a set of international goals, known as the Millennium
Development Goals, calling for the halving of extreme poverty
and for substantial improvements in health and education in
developing countries by 2015.
(6) In announcing the Millennium Challenge Account, President
George W. Bush called for a new compact for global development,
defined by new accountability for both rich and poor nations;
pledged to increase U.S. development assistance by $5 billion
per year over existing levels by Fiscal Year 2006; and endorsed
the Millennium Development Goals, saying: ``America supports
the international development goals in the UN Millennium
Declaration, and believes these goals are a shared
responsibility of developed and developing countries.''
(7) The provision of assistance from the Millennium Challenge
Account, as defined by President Bush, will be linked to a
country's commitment to ruling justly, investing in people, and
adopting economic reforms and policies that make development
effective.
(8) The President has called for MCA funds to be provided as
an addition to, not a substitute for, other development and
humanitarian programs.
(9) To ensure maximum impact, activities under the MCA must
be linked to and coordinated with core development,
humanitarian, and refugee assistance programs.
(b) Sense of Congress.--It is the sense of the Congress that--
(1) The United States should take global leadership in
efforts towards meeting the Millennium Development Goals by
expanding funds available for such ends, and ensuring that
economic and trade policies cohere with the attainment of these
goals. In particular, the United States should seek to address
the external debt of recipient countries, including debt owed
to the United States and other creditors.
(2) The Millennium Challenge Account (MCA) provides an
opportunity to build upon the successes and lessons learned
over the past fifty years of foreign assistance. To improve the
effectiveness of development assistance, the U.S. should
support locally conceived and implemented strategies.
Programming under the MCA should strengthen civil society and
participatory processes, and ensure that those affected play a
role in designing and implementing strategies. Development
assistance that supports governments and civil society working
in tandem will achieve better and more sustainable results.
(3) Effective development assistance requires coordination
among donor nations. The U.S. should collaborate fully with
developing countries and other donors to support locally
developed strategies and to minimize duplication of efforts,
competing priorities and burdensome donor requirements.
(4) Development policies, programs, and practices should take
into account the differences in the social, cultural, and
economic roles of men and women and should ensure women's full
participation.
(5) The President's pledge of additional funds over three
years beginning in fiscal year 2004, leading to a $5 billion
annual increase in development assistance over current levels
by fiscal year 2006, is a significant step forward in the fight
against global poverty. Assistance under the MCA should be
provided at levels and for a duration sufficient to enable a
country to make significant progress toward meeting the
Millennium Development Goals.
(c) Purposes.--The purposes of this Act are--
(1) to enhance the U.S. contribution to achieving the
Millennium Development Goals;
(2) to assist men and women in developing countries to
acquire the tools needed to lift themselves out of poverty and
seize the opportunities of the global economy;
(3) to enable nations to grow and prosper.
SEC. 103. THE MILLENNIUM CHALLENGE ACCOUNT.
Part I of the Foreign Assistance Act of 1961 (22 U.S.C. 2151 et
seq.) is amended by adding at the end the following:
chapter 13. millennium challenge account
SECTION 1. STATEMENT OF POLICY.
(a) Congress finds that--
(1) it is in the interest of the United States to support a
new compact for global development in which increased
development assistance is provided to those developing
countries which have demonstrated a commitment to ruling
justly, investing in people, and adopting economic reforms and
policies that make development effective;
(2) such a compact should have as its objective, as a shared
responsibility between developed and developing countries, the
achievement of the goals of the United Nations Millennium
Declaration; and
(3) in order to maximize the effectiveness of such a compact,
the United States should ensure coherence of economic and trade
policies with such goals, including the external debt of
recipient countries.
SEC. 2. ELIGIBLE COUNTRIES.
(a) A country shall be eligible for assistance under this chapter
if the President has determined, in accordance with section (1) that--
(1) the country is eligible to borrow from the International
Development Association.
(2) its government has demonstrated a commitment to democracy
and good governance through promoting the human rights of all
its people, protecting freedom of association, safeguarding an
independent judiciary and media, concerted efforts to combat
corruption, transparent budget decision making, and by
involving citizens, particularly women, and other
disenfranchised segments of society, in the process of making
and administering public policy.
(3) its government has demonstrated a commitment to investing
in the health and education of its people, with careful
attention to the needs of women and girls.
(4) its government has demonstrated a commitment to economic
policies that foster sustainable development, poverty
reduction, and equitable growth; and that give special weight
to promoting economic opportunities for the rural and urban
poor--particularly women--to participate in the market economy.
(5) the country is working, in consultation with the
International Labor Organization, towards eventual compliance
with core labor standards. Countries shall not be obliged to
privatize essential services or liberalize capital markets
unless it can be shown that this will enhance equitable growth
and poverty reduction.
(6) the country has developed a participatory national
strategy, such as Poverty Reduction Strategy Papers, for
working towards the Millennium Development Goals and otherwise
promoting equitable and sustainable development.
(b) Expanded Eligibility.--A country that is not eligible for
assistance under the criteria set forth in paragraph (a) of this
section, may otherwise receive assistance provided under this chapter
if that country--
(1) is eligible to borrow from the International Development
Association;
(2) has demonstrated substantial progress towards the
criteria set forth in paragraph (a) of this section,
particularly criteria pertaining to good governance,
accountability and transparency of the budget and investing in
people;
(3) has a comprehensive strategy for addressing a particular
Millennium Development Goal and is demonstrating commitment to
implementing that strategy; and
(4) will use such assistance to improve performance on the
criteria set forth in paragraph (a) of this section and to help
meet the targets it has established in the strategy called for
in paragraph (b)(3) of this section.
SEC. 3. IMPLEMENTATION.
(a) Structure.--
(1) Governing/policy council.--The President shall establish
a structure for the governance and policy guidance of the MCA
which involves collaboration among the heads of the U.S. Agency
for International Development, the Department of State, and the
Department of the Treasury. These agencies shall ensure
coordination with other U.S. government agencies.
(2) Administration.--The MCA shall be administered by a
semiautonomous office located in the United States Agency for
International Development. That office shall be structured to
maximize efficiency, innovation, and responsiveness to partner
countries and organizations, to provide appropriate technical
and managerial assistance, and to coordinate with other USG
agencies and international donors.
(3) Donor coordination.--MCA activities shall be coordinated
with other bilateral and multilateral donor institutions at all
stages of implementation, including the review of poverty
reduction strategies, proposal submissions, and evaluation of
progress. In order to increase complementarity of programs and
reduce duplication of efforts for recipient countries, the
United States should work with the other donors to develop
common approaches to proposal submission, reporting
requirements, data collection and evaluations systems, and
other processes for the delivery of development assistance.
(4) Advisory council.--In order to ensure continued input
from civil society organizations and transparency of operation,
there shall be established an Advisory Council to provide
periodic review and advice on the policies and administration
of the MCA. This Advisory Council shall be composed of
development experts from government and multilateral agencies,
academic institutions, non-governmental organizations and other
civil society organizations.
(b) Provision of Assistance.--
(1) Principles.--The approach and delivery mechanisms adopted
under the Millennium Challenge Account shall be based on the
overarching principles of local ownership, specifically
ensuring the use of locally designed national development
strategies, and civil society participation. The support for
such national strategies will provide a mechanism for assuring
coordination with other bilateral and multilateral donors.
(2) MCA implementation agreement.--Upon a country being
determined eligible for MCA assistance and that government
indicating a willingness to participate in the program, the USG
and that government shall develop an MCA Implementation
Agreement to outline the broad areas of collaboration for MCA
assistance. Both USG and the recipient government shall have
substantial consultations with civil society institutions in
the process of developing the MCA Implementation Agreement.
This agreement shall be a public document and shall serve as
the guide for the submission and evaluation of proposals for
funding by both government and civil society institutions.
(A) The MCA Implementation Agreement shall be derived
from the country's participatory national development
strategy, such as the PRSP, and shall therefore require
a joint review of that strategy. This review shall
identify areas of desired collaboration, particularly
those elements of the country's national development
plan for which MCA assistance will be available and
shall identify--broadly and not exclusively--the
appropriate roles and responsibilities of government
and civil society institutions.
(B) The joint review shall identify the strengths and
weaknesses of the national strategy in the areas to be
funded by the MCA--assessing both the process and the
content the strategy--and identify areas for
improvement. Particular attention should be focused on
the participation of civil society in the development
of the strategy and the differences in development
opportunities for men and women likely to result from
the achievement of goals set forth in the strategy.
Technical assistance and funding under the MCA shall be
made available for addressing particular weaknesses and
other such purposes related to the strategy.
(c) Proposals for Funding.--Proposals for funding consistent with
the MCA Implementation Agreement may be submitted by the eligible
country government, local civil society organizations, international
agencies and U.S. private and voluntary organizations in partnership
with indigenous organizations. Proposals should contain the following
elements:
(1) a description of the programs and projects for which
assistance is requested;
(2) specific development goals consistent with the MDGs,
targets to be achieved, and measurable indicators of success to
determine progress toward these goals;
(3) a clear indication of the contribution towards and
consistency with the MCA Implementation Agreement of the
recipient country;
(4) identification of the key stakeholders and how they will
be involved; and
(5) mechanisms for mid-course corrections.
SEC. 4. REPORTING REQUIREMENTS.
(a) Comprehensive Strategy.--Not later than 12 months after the
date of enactment the President shall submit to the appropriate
congressional committees a comprehensive U.S. strategy, with
benchmarks, timetables, and necessary resource requirements for
achieving the Millennium Development Goals, through programs of
assistance, trade and economic policies, debt relief, and private
investment flows.
(b) Annual Report to the Congress.--Not later than December 31 of
each year, the President shall prepare and transmit to the appropriate
congressional committees a report, which shall be made available to the
public, concerning assistance provided to each country under this
chapter for the prior fiscal year. Such report shall contain--
(1) the amounts of assistance provided to each country under
this Act;
(2) for each country, the specific goals and objectives of
such assistance;
(c) Additional Report to the Congress.--In every third consecutive
year during which a country receives assistance under this chapter, the
report in paragraph (b) of this section shall also contain for such
country--
(1) progress made toward reaching the goals and objectives
set forth in paragraph (b) of this section, including data
disaggregated by sex, age, and income;
(2) in cases where progress towards reaching these goals and
objectives was hampered by any exogenous shocks to the
country's economic, political or social climate, a description
of such shocks and their impact on the country's progress
towards reaching the goals and objectives set forth in
paragraph (b) of this section;
(3) a description of the role of civil society institutions
in developing and in achieving the goals and objectives set
forth in paragraph (b) of this section;
(4) an overall assessment of progress made toward reaching
the Millennium Development Goals, including data disaggregated
by sex, age, and income;
(5) efforts towards donor coordination;
(6) the extent to which there is coherence of economic and
trade policies of the United States with the goals and
objectives set forth in paragraph (b) of this section.
SEC. 5. AUTHORIZATION OF APPROPRIATIONS.
(a) There are authorized to be appropriated to the President to
carry out the purposes of this chapter, in addition to funds otherwise
available for such purposes, $1,666,700,000 for FY 2004, $3,333,300,000
for PY 2005, and $5,000,000,000 for each of the years FY 2006, FY2007
and FY2008, to remain available until expended.
(1) Terms of assistance.--Assistance provided under this
chapter--
(A) shall be in the form of grants and shall not be
repayable, even if provided through multilateral
institutions;
(B) shall be made available notwithstanding any other
provision of law;
(C) shall be coordinated with other donors utilizing
the PRSP and or other national coordinating mechanisms
such as national education plans and country
coordinating mechanisms of the Global Fund for HIV/
AIDS, TB and Malaria, as applicable and to the extent
possible, in order to avoid duplication of efforts or
contradictory requirements to effectively reach the
MDGs; and
(D) may not be used for any military or paramilitary
purposes.
(2) Limitation.--No assistance authorized by this chapter
shall be provided to--
(A) any country that is otherwise ineligible to
receive economic assistance under the following
provisions of the Foreign Assistance Act of 1961--
(i) section 116 (relating to human rights);
(ii) section 490 (relating to major illicit
drug producing and drug transit countries); and
(iii) section 620A (relating to governments
supporting international terrorism.
(B) any country whose duly elected head of government
is deposed by decree or military coup, until such time
as the President determines and certifies to Congress
that a democratically elected government has taken
office in that country.
(3) Administration expenses.--Of the amounts appropriated
each year and made available to carry out the purposes of this
chapter, not more than __ percent of such amount may be used
for administrative expenses of the United States government
agencies administering programs under this chapter.
SEC. 6. SPECIAL AUTHORITIES.
In addition to the other uses of assistance authorized under this
chapter, assistance is authorized to be provided for--
(a) Technical assistance to mca eligible countries.--
Technical assistance may be provided to eligible countries
for--
(1) addressing weaknesses in its national development
plan and in developing proposals pursuant to section
3(b)(2) of this chapter; and
(2) improving the capacity to monitor programs,
collect and analyze data, and evaluate program
effectiveness, particularly for strengthening the
capacity to collect and analyze data disaggregated by
sex, age and income.
(b) Debt relief for mca recipient countries.--
(1) Authority.--For all countries receiving
assistance under this chapter, the President is
authorized and encouraged to cancel all amounts owed to
the United States as a result of loans made or credits
extended prior to January 1, 2003, under any of the
provisions of law specified in subsection (A) of this
section.
(A) Provisions of law.--The provisions of law
referred to in subsection are the following:
(i) Sections 221 and 222 of the
Foreign Assistance Act.
(ii) The Arms Export Control Act (22
U.S.C. 2751 et seq.)
(iii) Section 5(f) of the Commodity
Credit Corporation Charter Act, Section
201 of the Agricultural Trade Act of
1978 (7 U.S.C. 5621), or Section 202 of
such Act (7 U.S.C. 5622), or
predecessor provisions under the Food
for Peace Act of 1966.
(iv) Title I of the Agricultural
Trade Development and Assistance Act of
1954 (7 U.S.C. 1701 et seq.).
(B) Other debt reduction authorities.--The
authority provided in this section is in
addition to any other debt relief authority and
does not in any way limit such other authority.
(2) Limitation.--A country that is eligible to
receive cancellation of debt under this section may
receive such cancellation only if the country has
agreed--
(A) to direct the financial benefits of debt
cancellation to programs to meet the goals and
objectives set forth in the MCA Implementation
Agreement pursuant to section 3(b)(2) of this
chapter; and
(B) to ensure that the financial benefits of
debt cancellation are in addition to the
government's total spending on poverty
reduction for the previous year or the average
total of such expenditures for the previous 3
years, whichever is greater.
SEC. 7. GENERAL PROVISIONS.
(a) Definitions.--
(1) For the purposes of this chapter, the term ``Millennium
Development Goals'' or ``MDGs'' shall refer to the
internationally-agreed goals set forth in Section 102(c) of the
Foreign Assistance Act of 1961 as amended by this Act;
(2) For the purposes of this chapter, the term ``appropriate
congressional committees'' means the Committee on
Appropriations and the Committee on Foreign Relations of the
Senate, and the Committee on Appropriations and the Committee
on International Relations of the House of Representatives.
SEC. 104. RELATION TO OTHER DEVELOPMENT ASSISTANCE.
Sec. 102 of the Foreign Assistance Act of 1961 is amended as
follows, strike section (c) and insert:
(c) U.S. development assistance policies and programs shall be
utilized in support of achievement of the Millennium Development Goals:
(1) Eradicate extreme poverty and hunger;
(2) Achieve universal primary education;
(3) Promote gender equality and empower women;
(4) Reduce child mortality;
(5) Improve maternal health;
(6) Combat HIV/AIDS, malaria, and other diseases;
(7) Ensure environmental sustainability; and
(8) Develop a global partnership for development.
(d) To carry out the policies set forth in this section, the U.S.
government shall provide assistance to governments and organizations in
the form of policy advice, technical and project assistance, financial
assistance, debt relief, and commodities:
(1) Development assistance shall be provided to governments
and organizations to alleviate poverty and hunger, to enable
people and communities to build the capacity to develop
economically, socially, and politically, and to strengthen the
capacity and commitment of government to govern justly and
wisely.
(2) Within development assistance, a Millennium Challenge
Account shall be created to provide assistance to help
implement indigenously designed national development plans for
countries which demonstrate a strong commitment to, and are
taking concrete steps toward, good governance, open economic
systems, and investing in their citizens.
The Chairman. Dr. Berresford.
STATEMENT OF SUSAN BERRESFORD, PRESIDENT, FORD FOUNDATION, NEW
YORK CITY, NY
Ms. Berresford. Good morning. It is a great honor to be
here today and a personal pleasure, I would say, Mr. Chairman,
to be here before you, knowing of your enthusiasm for the Ford
Foundation's International Fellowship Program and your
assistance with that.
The MCA is a very welcome initiative from the
administration. It is bringing substantial new resources and
new ideas to the development field.
I will focus primarily on ways that the Ford Foundation's
international development assistance experience may contribute
to your thinking about the structure and operation of the new
Millennium Challenge Corporation.
Ford is a private foundation with more than 50 years of
work internationally in development in this country and
overseas. In that period we have provided more than $12 billion
in grants and loans, about 40 percent of that overseas. And
while $12 billion is a lot of money and a big number, it is
very small in relation to the development need.
And so we have thought of ourselves, really, as an R&D
donor, or a venture philanthropist, testing new ideas, trying
to bring them to scale, building new kinds of institutions, and
trying to amplify the voice and contributions of talented
people who would otherwise be marginalized in their societies.
We are headquartered in New York City, and we currently
have 13 offices in Africa, Asia, Latin America, and Russia. We
work in 35 countries through these offices, and about 46
percent of our spending in program goes overseas.
You have asked me to testify specifically on such issues as
the optimal ratio of funding levels to staff, the ideal
composition of a foundation board, and the advantages and
disadvantages of field offices. And while the Ford Foundation's
structure and scale is quite different from that that is being
proposed here, I think there are some principles that perhaps I
can offer. And I have four to offer today that may be useful in
thinking about the new corporation.
Principle No. 1 is to work close to the ground through in-
country offices. We believe strongly at the Ford Foundation
that our offices overseas make us particularly effective in
supporting development on the ground--and it is on the ground
where development really occurs.
In-country offices allow us to be genuine partners with the
development players who are working doing the hard daily work.
They give us a local credibility, a seat at the table with
people who are wrestling with the serious problems of
development. They give us a full and nuanced sense of country
and culture and context. And they allow us to understand how
things really are working as they are rolling out on the ground
through grants and loans.
They help us also make well informed decisions about
initial funding, understanding the difference between something
that looks good on paper but in reality is not quite so
promising, or even vice versa.
And they give us the very critical ability--and we have
heard a lot about this this morning--to ensure very strong
evaluation and monitoring that gets at what is really
happening.
I think the MCC needs these capabilities very clearly, and
I do not think there is any other way to get them than having
some kind of presence on the ground.
And, of course, there is a disadvantage to having a
presence on the ground, it costs more money than staying in one
place outside. We have accepted that increased cost because we
believe it so greatly increases our effectiveness. And in our
experience and our scale of operation, an overseas office
brings an additional 15 percent cost to the amount of money
that you are moving into a country.
Principle No. 2, invest in staff with diverse
qualifications and give them significant authority and
flexibility. And this is really a corollary of the first point.
Our board gives the president of the Ford Foundation
authority to approve all grants and loans, after substantive
discussion with the board about the aims of the programs that
we undertake, the means that we are likely to take, our
strategies, the amount of money, and how we are going to be
measuring progress.
With the board's approval, I delegate further down to the
overseas offices very significant authority to make decisions.
This helps us not get bogged down in bureaucracy and very time-
consuming endless processes.
Obviously, our staff regularly report back to the board on
progress and how things are going. And we require regular
reports from our grantees.
For decentralization of this kind to be effective, we
require seasoned people who can handle this degree of authority
and responsibility, and a very streamlined approval process. We
recruit staff with excellent academic and know-how, knowledge
of in-country context, and language.
They are economists, lawyers, doctors, social scientists,
NGO leaders--a diversity that we have found very fruitful to
development work, because you need to bring so many different
kinds of players into the development process. Thirty percent
of our staff are drawn from the countries in which we work.
And I might note, similar to the proposed Millennium
Challenge Corporation, our grant makers work on fixed term
contracts, generally 3-year contracts. We hope they stay for
two contracts in their overseas assignments, so a total of 6
years.
Now, the ratios. Across the foundation, we have 125
grantmakers, 65 of whom work overseas, outside the United
States. On average, each of these grantmakers handles a grant
budget of about $3 million a year. That could rise to $5
million perfectly easily.
And because our grants are for multiple years, grantmakers
typically manage an active portfolio of about $7.5 million. We
expect our grantmakers to be active in the work that they are
doing, to be visiting grantees regularly, to be convening
meetings of people doing like work in other parts of the world
or in the region so that our grantees are exposed to the very
best thinking that is available. And we expect our staff to
help them muster the kind of professional expertise they would
need to solve problems that emerge.
Reflecting on this, in Ford's experience and even allowing
for the differences in scale that I referred to earlier, I find
the proposed MCC staff total of 100 persons surprisingly small
for an entity that is likely to be spending $1.3 and up to $5
billion a year. So I think that may need some further thought.
The third principle is that we should all be aiming to
build local development capacity in all three sectors over the
long term. The responsibility for national development lies
with a country's own people and institutions. And every
development donor ought to be engaging very directly with the
people and institutions in all three sectors--government,
business and non-profits--and I think particularly with the
nonprofit, voluntary sector now, which has become such a
flourishing force for good and for development in many
countries in which we work.
The plans for the MCC seem sharply focused on the
government--as they are now written--as the primary development
leader and contractor. And certainly, government has a lead
responsibility. But innovation and effectiveness also is found
outside of government, for example, in the NGO community.
And, therefore, it seems to me it might sense for the MCC
to state clearly its aims and objectives in a country and then
have an open competition where members of all sectors might
apply and bring forward their best ideas, and some may even
come in combinations across sector.
No single sector has a monopoly on good ideas and, in fact,
some of the most innovative development advances have come from
cross-sectoral combinations.
And I do not have this in my written testimony, Mr.
Chairman, but I also would observe that in many countries in
which MCC is likely to operate, the relationship between
governments and NGOs is not entirely settled and not always
totally comfortable. And so I am not convinced that relying
entirely on government as the key contractor would bring forth
the very best of NGO participation.
I would make a related point about evaluation and
monitoring. In many countries in which the Ford Foundation
works, there have been built up over the last decade or two
very significant capacities in country universities, in think
tanks and policy analysis groups that can do very sophisticated
monitoring and tracking and evaluation of programs, national
and local.
I think the MCA has an opportunity to build on this and
strengthen these capacities, and at the end of the day, it is
these local analysts of development and progress that need to
be very strong in every country. And so it seems to me as the
proposal now reads, it may be overly dependent on evaluation
from outside the country, and perhaps more emphasis could be
given to engaging the analytic capacities that are there within
region or within country.
The last principle I would stress is that it is important
to get guidance from a diverse and active board. The Ford
Foundation's trustees have always included corporate CEOs,
former elected and appointed government officials, and NGO and
civic leaders. They come from the U.S. and they come from
overseas. We need that diversity because of the variety of
sectors in which we work in the development process.
They also help us with donor coordination and
collaboration, and that is obviously a challenge in this new
entity as well.
Most important is that our trustees are outsiders, in a
sense, to the Ford Foundation. They come in from the outside.
And they bring us the most up-to-date knowledge of activity in
each of their spheres, and they challenge our assumptions and
our ideas. And that is very important in an institution that is
involved in the hard daily grind of development work.
The board for the new entity for MCA will obviously reflect
the fact that it is a program of government assistance. But I
think it is worthwhile for the Congress to consider ways to
draw upon the strengths of individuals beyond the public sector
and perhaps even drawing people from some of the countries that
are likely to be involved in the programs.
Finally, I would say that MCA has a very laudable goal of
making assistance for development more transparent and less
subject to political pressure than it has been in the past.
That is a challenge both in perception and in practice.
And I think an active and diverse board with outsiders
could be an asset to the new entity in bringing this special
kind of credibility.
That concludes my testimony, Mr. Chairman. I would be happy
to answer questions.
The Chairman. Thank you very much, Ms. Berresford.
[The prepared statement of Ms. Berresford follows:]
Prepared Statement of Susan V. Berresford, President, Ford Foundation
Good morning. I am Susan Berresford, President of the Ford
Foundation. It is an honor to testify before this committee on the
Millennium Challenge Account and the proposed Millennium Challenge
Corporation. I might say, Mr. Chairman, that it is a personal pleasure
to be here, knowing of your support for the Ford Foundation's new 10-
year International Fellowship Program and your long and distinguished
record of leadership on critical issues in U.S. foreign policy.
The MCA is a very welcome initiative from the Administration. It
holds the promise of bringing substantial new resources to U.S. foreign
assistance for development. It also has the potential more fully to
express our country's responsibilities--and our values--to help those
least favored in our world. Equally important, MCA shows fresh thinking
both about how development occurs and how this country might better
assist others in their own efforts. Development is a large,
multidimensional process. This is wisely recognized in the
legislation's focus on just and democratic governance, economic
freedom, and investment in people. Development must draw upon and
energize the full range of a country's people and institutions. That is
the Ford Foundation's experience and, I believe, reflects the best
thinking in this field.
At this point the new entity that will oversee and administer the
MCA is still to be structured and fleshed out. Of utmost importance is
clarifying the MCA's relationship to other existing agencies of
official foreign assistance, perhaps most fundamentally USAID. Since I
believe others are commenting on this crucial point, I will focus
primarily on ways that the Ford Foundation's international development
experience may contribute to your thinking about the structure and
operation of the Millennium Challenge Corporation.
The Ford Foundation is a private foundation with more than 50 years
of work internationally and in the U.S. In that period we have provided
more than $12 billion in grants and loans, about 40% of that abroad.
Those are significant dollars but only a small part of the total
resources needed for development. Recognizing the limitations of this
scale of funding, we have tried to function as an ``R & D'' donor--
using our resources to test new ideas and help bring them to scale, to
establish new kinds of organizations, and to amplify the voice and
contributions of talented people who would otherwise be marginalized.
We seek to be a resource for innovative people and institutions
strengthening democratic values, reducing poverty and injustice,
promoting international cooperation, and advancing human achievement.
A fundamental challenge facing every society is to create
political, economic and social systems that promote peace, human
welfare and the sustainability of the environment on which our lives
depend. We believe that the best way to meet this challenge is to
encourage initiative by those living and working closest to where
problems are located; to promote collaboration among the nonprofit,
government and business sectors; and to ensure participation by men and
women from diverse communities and at all levels of society. In our
experience, those activities help build common understanding, enhance
excellence, and enable people to improve their lives and communities.
The Foundation is headquartered in New York City, and we currently
have 13 offices in Asia, Africa, Latin America and Russia. Through this
network, we support work in some 35 countries. About 46% of our current
program budget is spent on international development.
In your letter inviting me to testify, Mr. Chairman, you asked that
I focus my comments on the obstacles that the new Millennium Challenge
Corporation may run up against. You mentioned such issues as the
optimal ratio of funding levels to staff, the ideal composition of the
foundation board, and the advantages and disadvantages of field
offices. As you noted in your letter, the MCA does have some
similarities to foundations such as Ford in its character and purpose.
There are also obvious differences. For starters, the scope of MCA--a
contemplated $5 billion annual spending level by its third year of
operation--dwarfs even the largest private philanthropies. And as an
initiative of the United States government, it will operate somewhat
differently from an independent, private foundation.
But there may be principles of operation from Ford's experience
that would be helpful guideposts for MCA. I will try to put four of
these before you for this committee's consideration.
(1) Work close to the ground through in-country offices. We believe
strongly that our structure of overseas offices makes Ford particularly
effective in supporting development on the ground--which is where it
has to take place. In-country offices allow us to operate as genuine
partners--building relationships of mutual knowledge and respect with
people and institutions in country. They give us local credibility--a
``seat at the table'' with others who are tackling tough issues in
development. They allow a full and nuanced sense of context and
culture, of how things really work and how they are evolving as the
grants and loans play out. Moreover, since we are local, we can respond
quickly to new opportunities and unforeseen difficulties that are hard
to see from farther away. They help us make well-informed initial
decisions about funding--the difference between a project that looks
wonderful on paper but less promising on the ground or vice versa--and
they are critical to our ability to ensure reliable monitoring and
evaluation. The MCC needs these capacities that are nearly impossible
to obtain any other way.
Of course, maintaining overseas offices has a cost, and that is
something we have accepted in order to increase effectiveness. In our
experience, at our scale of operation, an overseas office brings an
additional cost of 15% of the funds spent overseas.
(2) Invest in staff with diverse qualifications and give them
significant authority and flexibility. This follows on very closely
from Ford's commitment to working close to the ground in an R&D mode.
Our board gives the president authority to approve all grants and
loans, after substantive discussion between the board and staff about
the aims, strategies and funds we expect to employ, and how we will
measure progress. And with the board's approval, the President further
delegates much grantmaking authority to heads of overseas offices. This
is to avoid decisions being bogged down in endless process and
bureaucracy. Staff regularly report back to our board on how the work
is going. We also require regular reports from grantees and have normal
accounting and other controls.
For such decentralization to be effective, Ford needs seasoned
people able to handle that authority and a fairly streamlined approval
process. With this in mind, we recruit an overseas staff with excellent
technical and academic skills, knowledge of the country context, and
local languages. They have a range of professional backgrounds--they
are economists, lawyers, MBAs, social scientists, NGO leaders--a
diversity that we have found contributes to fruitful thinking across
the different dimensions of development. Many are drawn from the
countries or regions where they are working--30% of our program staff,
currently--bringing perspectives that help us formulate more informed
judgments and strategies. We look for people able to interact
effectively with local men and women at all levels, and with experience
in complex organizations. I might note that all our program staff
operate on 3 year contracts. They typically spend about 6 years with
the foundation. We benefit enormously from fresh thinking that new
staff members bring to our different programs.
Across the foundation we have 125 grantmakers, 65 of whom work
outside the U.S. On average each overseas staffer now makes grants
totaling $3 million per year. If our assets grow, these totals could
increase to $5 million. As most of our grants are for two to four
years, each staff person manages a portfolio of old and new grants
totaling about $7.5 million. Portfolio management includes visiting
grantees, helping grantees to muster useful expertise, and convening
worldwide and national meetings to exchange ideas with people doing
similar work. In each overseas office, in addition to grantmakers, we
also have accountants, and normal office staffing to help ensure
compliance with relevant laws and adherence with good practice.
Reflecting on our experience and even allowing for differences in
operating style and purpose, I find the proposed MCC staff total of 100
persons (covering grantors, back office and other functions)
surprisingly small for the $1.3 to $5 billion spending levels
contemplated in the first years.
(3) Aim to build local development capacity in all three sectors
over the long term. The responsibility for national development lies
with a country's own people and institutions. Thus, development donors
should engage with a country in ways that build individual and
institutional capacities in all three sectors--government, business and
non-profits. Although Ford is an R&D donor and does not fund ``country
plans'' as such, we do have experience with all three sectors. Our way
of working with each of them has varied in different times and country
settings, depending on where we see ideas, energy, and need. Sometimes
we have focused primarily on working with government agencies and
infrastructural institutions, sometimes with business, other times with
NGOs and civil society. Local and national NGOs have become a
flourishing force for development in many of the countries in which we
work. We devote significant resources to helping build their capacity,
in addition to working with U.S.-based international NGOs.
Plans for the MCA seem sharply focused on the government as the
primary development leader and contractor. Certainly, government has a
lead responsibility but innovation and effectiveness are also often
found outside of government, for example in a country's NGO community.
It may make sense for the MCA to state clearly its aims and objectives
in a country and then have an open competition that allows all sectors
to bring forth their best proposals, and some to apply in cross-
sectoral combinations. No single sector has a monopoly of good ideas,
and often the most fruitful development innovation involves combining
the capacities of at least two of the three sectors.
I would make a related point about evaluation and monitoring. In
many countries in which the Ford Foundation works, universities and
policy analysis groups have been building capacity for evaluation and
tracking of national and local programs. Some NGOs have also built very
sophisticated systems for monitoring and analyzing their work and that
of counterparts. In the long term, these independent analytic resources
are essential to ongoing development. The MCA has an opportunity to
utilize and further strengthen them. As it currently reads, the MCA
proposal seems overly dependent on evaluation from outside, presumably
from U.S. based institutions. Each MCA grantee could be encouraged to
include in its proposal a full plan for evaluation and monitoring,
utilizing its choice of independent institutions that meet certain
specifications and qualifications. MCA could still have its own
overview review process, but it can augment this with the observations
and analysis of professional people close to the ground and familiar
with the operating realities.
(4) Get guidance from a diverse and active board. The Ford
Foundation has an independent board drawn from all three sectors with
which we work. Our trustees have always included corporate CEOs, former
elected and appointed government officials, NGO and civic leaders. They
come from the U.S. and from countries around the world. We need that
diversity because our program strategies involve civil society,
government and business and encompass a wide range of fields related to
social change and development. Our trustees are particularly valuable
in bringing us the most up to date experience of individuals who are
active in their different spheres. They view our work with ``outside''
perspectives, and they challenge our ideas and our assumptions--playing
a very useful role in an institution deeply engaged in daily realities
of development. Our trustees devote approximately 15 days to the
foundation every year--in three two-day meetings in New York, in a
field visit of 3-7 days to look at our programs and initiatives in the
U.S. and abroad, and in various consultations and preparation.
The board for the new entity for the MCA will obviously reflect the
fact that MCA is a program of government assistance. But it is
worthwhile for the Congress to consider ways it could draw upon the
strengths of individuals beyond the public sector. MCA is not a
conventional government-to-government aid program. It will support
development involving a variety of organizations from civil society and
from the private sector. It would benefit from guidance from a board
whose members were active in those different spheres, which have
complementary contributions to make to overall development. And it
would be stronger if it included active participation of individuals
from countries in the developing world itself
The MCA has a laudable goal of making assistance for development
more transparent and objectively-based--and less subject to political
pressures familiar in past programs. That is a challenge in both
perception and practice. An active, diverse board could be an asset to
the new entity in establishing its credibility as a fresh approach to
U.S. developmental assistance. Even more important, such a board could
also give MCA the kind of guidance it will need if it is to be a
pioneer and respond to and support the full range of ideas and energies
that go into genuine and lasting development.
Mr. Chairman, that concludes my testimony. I would be happy to
respond to any questions the Committee may have.
The Chairman. Let me start the questioning, and we will set
a time limit of 10 minutes each round, and then I will call on
Senator Nelson for brief comments and discussion.
First of all I want to test out the indicators. Dr.
Radelet, I think there is merit in your suggestion that the
indicators have an absolute aspect. If they are constantly
shifting around medians by definition--and one of our questions
earlier was trying to get at this, I suppose--half or above or
half or below, ultimately the qualities that are being sought
by our government as I understand this may become more diffuse.
Of course, it could be everybody that rises and you would
say then that some of the early winners drop off the charts
somewhere midway in their development program.
But in the case, for instance, of governmental corruption,
how do you get absolute indicators? Do you say either you have
a government that is not corrupt or one that is? In a way, this
almost invites a relative standard.
Some governments appear to be more corrupt and others less
so. Some of the indicators, obviously, and some you suggested,
permit a more statistical precision, but what do you advise as
we get into the indicator business?
Dr. Radelet. I think that several of the indicators can be
moved into absolute scales immediately--immunization rates,
expenditure on education and health, and primary completion
rate, several other things--obviously inflation, budget
deficits. But there are several corruption rules of law and
others that are much subjective as they are measured now, and
those could not be moved to an absolute standard right away.
There are some research efforts underway to investigate
ways that those indices could be made more objective, to look
at court cases, to look at payoffs and bribes, to look at
various other indicators of corruption, to look at court cases
and those kinds of things. But those are, I think, in their
infancy, and it will take several years to develop those.
Hopefully, this program will support efforts to improve the
range of indicators, not just in terms of subjectivity,
objectivity, but also to incorporate other kinds of things that
we might like to look at that--where data are not there yet.
So there are these efforts that are underway to begin to
make these more objective indicators and we should--we should
be supporting that. But you cannot move to complete objective
indicators right away.
The Chairman. I understand your testimony is that the
indicators ought not to be in the legislation, even though 16
have been identified. Now you are suggesting maybe additional
ones should be added--that this should be at the discretion,
perhaps, of this board, that it keeps thinking through the
program and what the objectives of our government are, vis-a-
vis other governments. Therefore the board has the flexibility
to add and subtract here without appearing to be arbitrary so
that the nations involved at least feel the competition is
fair, that we are not changing the goal posts.
Dr. Radelet. Well, I think that is right. I think there are
ways to improve it. And I think the ways to hold the
administration accountable are to make sure that it is
transparent, open and public, so that people can test those so
that there is a clear relationship to poverty reduction, to
economic growth, and to other development goals. And as I said,
that they report regularly to you as to the rationale behind
any changes in the selection process that they use.
The Chairman. I wanted to touch on--all three of you have
touched upon this very important issue of the fact that the
proposal that we have now really relies very much upon
government to government relations. In other words, the thought
is that governments are responsible to be clean and not
corrupt, and governments are responsible for educational
standards and various other things.
But as you are all pointing out, there--from your
experience, NGO's and businesses--to name two entities--within
the decisionmaking process in a country are often very
important in terms of development. And it is not clear, at
least as I look at the draft legislation, how that is
contemplated currently. And so this is something that probably
requires some thoughtful integration in our own thinking here.
However, some of you have pointed out that NGOs may
sometimes be at variance with the governments. And, therefore,
relying upon the government to dispense the funds is a friction
situation to begin with, or vice versa, sending money directly
to the NGO.
Now, you point out, Ms. Berresford, from your work with the
Ford Foundation, in order to get the NGO situation there
active, you have a lot of offices on the ground, you have a lot
of people on the ground. You stressed your on-the-ground
business in many ways.
Obviously the spartan proposal that has been presented
today of 100 employees does not contemplate very many people on
the ground.
Now, as we heard in the previous discussion, USAID, as I
suspect, is supposed to provide most of the people that are on
the ground, although that requires a lot of thinking through as
to how they do that, how the governance works.
What I perceive is that the administration faces a problem
with regard to perception, a public relations problem on
foreign aid. Namely, for a long time people have had an adverse
view of it. This is one reason it does not grow very much; in
fact, it has been contracting in most terms of the humanitarian
or economic development character.
So to resurrect the idea, a new idea of criteria of
countries that do good things, namely for children, for women,
to combat corruption and so forth, we need a mechanism to
determine who are going to be the winners. We need to establish
incentives, so that then we celebrate countries that are
successful and becoming more successful through our assistance,
countries which already have been very poor by the criteria of
$1,400 and some or less, but which have a chance to make a big
difference.
Now, in doing that, however, the administration also knows
from a public relations standpoint that creating another
bureaucracy has some down sides, namely, that people feel that
governmental bureaucracies are too big, that we already have
several, and that we are about to create another one.
So they have tried very hard not to create another one. The
100 people probably stay here in Washington, looking at the
criteria, measuring the countries, making decisions on policy.
Whereas somebody else is still in the field. Once again, who
and how do they relate?
In our hearing the other day on world hunger, we had
testimony from knowledgeable people from the NGO community that
most of the effective work was--hunger or the HIV/AIDS question
which intersects in the African countries in particular--has
come from on-the-ground work from very skillful NGOs. This is
not a settled question as to how people can be effective in any
country, even if the country has a fairly effective government
and it meets this criteria.
And the actual measurement of the results in terms of
malnutrition or HIV/AIDS seems to be much more complex as to
how people come into the programs and interact. So that implies
a lot of people, and this is the reason I am raising the
question of you. We raised it of the others and we will raise
it some more, because the administration has a draft bill which
we will either accept or have to modify in working with our
House colleagues.
So it is important that this get started right, the
governance structure. I am still sort of groping. If you were
to pick up things where they are now, should we be managing
this through USAID, or is that politically impossible?
People say that USAID simply does not have the popularity,
the credibility, or whatever. It has sort of lost its luster.
Even though we need all the manpower, all the foot soldiers
that are there, we need something else to be the spear carrier
of this. How do we do that?
I will ask each of you to make some further comments. You
have already been generous in your testimony, but I have tried
to draw a finer point, if I could.
Dr. Berresford, would you testify?
Ms. Berresford. I think--the first point I would make is
that the public perception problem will be helped, I believe,
somewhat by having criteria for inclusion and measurement of
progress and benchmarks and all that.
But I also think the public perceives some of the
governmental entities that do development as not being able to
move fast in responding to new developments or adjusting as
things go along. And so there is an efficiency question too
that, I think, that has to be addressed in a public way.
Our experience working with AID in the various countries in
which we work is that they have very good on-the-ground
knowledge. They are very good partners for us. There--they know
what is going on. They are helpful, thoughtful. So it seems to
me this question of the relationship of this to AID has to be
sorted out very clearly, and it is not clear yet.
If on the other hand, the proposal goes in this other
direction of creating a separate corporation, something like a
foundation as is suggested, and does not really coordinate
closely with or incorporate AID, I do not think you can do it
on the cheap. I think the mistake would be to think that
because you put in benchmarks and clear measures and set out
objectives that you can do this a different way. And that
really is not the case.
If you think about development in our country, we try and
reform our school systems, something that these countries are
going to be trying to do. There is no magic to doing that. It
takes time. It takes investments of people. It takes people
close to the problem to know what is going on.
Just having contracts and benchmarks does not get you
there.
The Chairman. Yes. You are suggesting, in other words, an
additional 15 percent that you found in your own organization
was required on top of the grants----
Ms. Berresford. Right.
The Chairman [continuing]. To have the on-the-ground, and
to have the administration----
Ms. Berresford. And be able to make--understand what is
going on and then make the convincing case to the public that
something is actually happening.
With your indulgence, Senator Nelson, may I ask the other
two to comment?
Senator Nelson. Absolutely.
The Chairman. Thank you.
Ms. McClymont. Thank you, Senator. With respect to the
public perception, Senator, we have done some polling recently,
which suggests to us that, indeed, the American people are very
concerned about waste and ill spent money. But at the same
time, they very much support a lot of what the MCA and frankly
a lot of what USAID--the USAID does in terms of very concrete
development goals, helping mothers and children, and getting
clean water, and fighting hunger, and fighting poverty. These
are very resonant concerns.
So I hope that with the MCA, it will not only be the
opportunity to feature another way of doing business, but it
will also give the opportunity to talk more broadly about the
importance of this development assistance we give overseas
through the leadership of the President, and certainly of your
committee, Senator, and the Congress more broadly.
With respect to some of your points about civil society and
NGOs, we believe the administration has alluded to these
concepts, but we think they need to be more pronounced. We
suggest that there be an implementation agreement with a
government indeed, but that that implementation agreement or
contract, if you will, is put together through full
consultation with civil society and private sector and others
so that there is a real voice being given and concern being
given from those entities.
This is done, Senator, as you well know, oftentimes in a
country through the so-called national development strategies,
which already exist, which may be able to be built upon to get
to these more specific projects that are needed. And then
indeed in terms of the implementation, we would offer that this
broad contract with the government which is put together in
that fashion then be implemented through specific proposals
that are consistent with that contracts that are put forward by
civil society and others.
And those could be put forward to either USAID or this new
MCC. So that would give the protection of the national
government, not necessarily working directly with the civil
society groups, but that would manifest in another way.
I guess the final point I would make is that we really do
believe that given the extensive presence of USAID on the
ground. And when we looked at the countries that Mr. Radelet
had actually reviewed, if you were going to use him as an
example, in virtually all of them there was a USAID office.
So those entities with all of that experience could be
working very closely with the national government to get the
job done rather than creating a whole other presence such as
the MCC, so we do stress that there are ways to do that.
And, again, if the Congress does not go with that route, we
think that still there should be an extensive reliance on USAID
and a real coherent strategy put together to bring them
together.
The Chairman. Thank you very much.
Dr. Radelet.
Dr. Radelet. Senator, just a few points. I think it is
important to have broader participation than just the recipient
government in terms of coming up with ideas and writing
proposals that will require more staff and more work, but it
will also lead to more proposals, more innovative ideas. And,
yes, there is some tension sometimes between NGOs and
governments, but sometimes that is a healthy tension. And I
think it would be a mistake to run everything through the
government and squash some of the innovation and some of the
independence from NGOs and other private entities.
So I think there needs to be a way to open it up to have
some limited capacity for others to write proposals directly to
the MCC for funding. The recipient governments could review it
and comment, but I don't think they should have the authority
to necessarily reject those kinds of things.
A second point, I think 100 people is too small to run this
thing. Yes, we do have the perception of poor aid, but we could
add to that if we have a new organization that does not have
the staff to do what it needs to do that is not coordinated
with our other things that is redundant in some ways. And that
could actually end up worsening perceptions.
We need to have enough people to make this work
effectively. And I really do not see how you can do this with
100 people once you start thinking about the number of people
needed to just look at the indicators, to look at what is
working in other aid agencies, to know what is going on in
development economics, to be aware of what is going on on the
ground, to be thinking about the next tier of countries, not to
mention personnel and finance and staffing and all the other
kinds of things that you need to make an organization work. So
I do think that there is a danger that this is too small.
I do have some concerns about relying on USAID staff on the
ground, because they would be two separate institutions. And I
think that could create some problems of communication and some
rivalries if we have the MCA staff here in Washington relying
on a separate agency on the ground. So I do think you would
have to have MCA staff on the ground, but more broadly, I think
the idea of implementing this program through USAID needs to be
considered again.
Ms. McClymont mentioned it in, you could have the criteria,
you could have the new ways of implementing programs, but it
could come under the direction of the person who is already
appointed to be the President's advisor on development
assistance and therefore coordinated with the other programs on
the ground.
I think there are ways that you can take the best features
of the administration's proposal, but bring it into AID and
make it separate the way that the Customs Department is
separate--well, it was separate from Treasury or the IRS was
separate; that they answer to the same person but they were
really independent entities that help coordination in the same
way.
The Chairman. Thank you very much.
Senator Nelson.
Senator Nelson. Thank you, Mr. Chairman. Doctor, how are
your criteria for a selection of a country different from the
administration's?
Dr. Radelet. They are the exact same ones. I took their
procedure, identical procedure, their 16 indicators are all
public, with one exception actually. Their budget deficit data,
they use a confidential IMF data source, so I used publicly
available budget deficit data. But otherwise I followed it to
the tee and took advantage of their strong proposal to make
this open and transparent and just use it with data available
today.
Now, the data will change. These data are revised
regularly; and as I mentioned earlier, five of the sixteen
indicators are going to be revised in the next couple of weeks,
and so the list will change. So I think there are good reasons
why the administration has not come out with its list. But my
procedure is identical to theirs.
Senator Nelson. What about a country like Mozambique? Would
it qualify?
Dr. Radelet. The first time I did this run back in
December, they did not qualify, but new data on immunization
has come out in the last couple of months and now they do
qualify. That was a standard that they had missed before, and
they make it now. So according to the data available today, by
my calculations, they would be on the list.
Senator Nelson. Mr. Chairman, other than straight
discussion of foreign aid, when we start talking about food aid
how would this criteria be employed in the qualification of
someone being eligible for food aid? And I think, you know, of
the obvious one right now, North Korea, I think 20 years ago
where the famine was and still is again 20 years later,
Ethiopia. Only it was a Communist government back then--how
would that all fit together?
The Chairman. Well, the administration testified earlier
that there are broad humanitarian programs. Food, HIV/AIDS were
named, these will continue on. USAID has a mission--or other
agencies do--to deal with these.
This is going to be a very special niche for select
countries that are doing the right things. That will be an
extra impetus for economic development, but it will be
segregated off from broad humanitarian goals.
Senator Nelson. Thank you.
The Chairman. Thank you very much, Senator Nelson. Let me
ask just as a general question, because I--the administration--
I did not get into this, and I am not quite clear as you. And
they have discussed the fact that some of these programs may
have several years of duration. A country comes on the list,
let us say, in this initial listing--and I think as has been
pointed out--even with 7 percent real growth, using the rule of
72 or what have you, it takes a long while to double or triple
whatever you have got.
Is this program likely to last a long while? In other
words, as I try to think through the practical aspects that we
face here in the Congress with programs that have some legs to
them, we are going to authorize perhaps a new entity here, the
MCA, and we will have an initial selection round, probably with
some enthusiasm.
But each year, as I gather our procedure, the appropriation
committees will have to appropriate money to fund this if it is
to go from the $1 billion level to the $5 billion or whatever
is contemplated. And let us say a country gets started on a
program that has five or 6 years, maybe even a 10-year span,
what is the confidence level that we are going to be able to
give to the recipients?
Now, this may be beyond your reckoning or mine. Life goes
on in this democracy. Members come and go, as do
administrations. But I am just trying to think sort of in
advance.
For the Ford Foundation, you have an endowment, and if it
is well invested, it will not disappear from year to year. It
is there, and you have a certain amount of money to spend. And
so does our government really, although the competition for
resources in appropriation remains in a political society here.
Have any of you given any thought to this, or have you
visited with the administration people and raised that question
outside of this hearing?
Ms. McClymont. Well, Senator, first of all, I do think it
is anticipated that the MCA would come into place and be in
place and that the $5 billion would be present going forward.
We know how difficult the resources question is.
I think that it is very important though to underscore that
although it would be critical to find the resources to do the
MCA program, to do this important experimentation, it will also
be important to recognize that we must not diminish the current
core development assistance programs that are there now.
Senator Nelson alludes to the food aid question, which, of
course, would not be really covered by this as you have said.
So I think it is notable that, for example, in the 2004 request
that the President has made, in fact, the funding for USAID has
not been increased. And some of the core development assistance
accounts, the Child's Survival and Disease accounts have, in
fact, decreased through the request.
So I think it is something that we are going to have to
really watch very closely to ensure that the resources are
available for both the programs.
The Chairman. Yes, Dr. Radelet.
Dr. Radelet. There is a couple of dimensions to your
question. One is the length of an immediate program or proposal
or contract as the administration has proposed. The second is
then the renewal of that contract over a longer period of time.
On the first issue, the administration is talking about a
contract length of 3 to 4 years, and they are trying to balance
that between giving countries enough commitment over several
years to--and recognizing that programs do take time on the one
hand. On the other hand, recognizing that things can change as
well on the ground and that we need every once in a while to
review. So they are settling into that length of a contract,
which makes reasonable sense to me.
Once a country qualifies, they would negotiate a proposal.
And as long as they meet all the benchmarks along the way, they
would not need to requalify. As long as they are performing
along the way and funds can be dispersed over that 3- or 4-year
period, then they could try to requalify. And as long as they
are in good standing and things went well, there could be a
follow-on contract.
That system generally makes sense to me, but over the
longer term, the idea that we can have one or two contracts and
then pull out, I think, would really undermine the objectives
and lead to greater resentment and really create problems for
us.
If we hold this out and promise that if countries do well
that we will support their efforts to reduce poverty and
sustain development. And then when countries actually do this,
if we then begin to cut back funding and reduce it in other
ways, I think that is going to hurt our credibility and really
undercut achieving our objectives in the long run.
So we are making a longer term commitment here if we are
going to do this and do it well.
The Chairman. Do you have a comment?
Ms. Berresford. I would only add that I think the more you
introduce the use of benchmarks as strict measures, the more
you introduce a short-term timeframe into the way that people
think about programs. And we know that development takes a very
long time, and so success in stage one of meeting a benchmark
is probably not going to mean success all the way to the finish
line where a country wants to get with its education system or
its health system. So that ensuring the future of a long-term
fund there seems to me very, very important.
The Chairman. Well, I think so, and this is why I am a
little concerned about how we start out that trail, recognizing
under our system of laws that we do not have a way exactly of
ensuring the continuity of this situation.
For example, in the humanitarian programs, world famine
rises and falls, although there are some countries that we know
have really systemic problems, sometimes of government, quite
apart from crops and weather.
Or we are about to get into the HIV/AIDS question in a much
larger way. The President has made dramatic proposals and most
optimists about this would say this is a problem that is going
to be with us for quite a long while. So there are some
situations that, because they are of a humanitarian character
or maybe even because of a political relations change--if we
are giving aid to a country for strategic reasons and suddenly
the country decides to join some other alliance and jump away
from us--well, then we have the ability to say, ``OK. Well,
that is the way it goes.'' I mean, you sort of look at your new
patron.
But now here in a business-like way, we are talking about
criteria, of performance, and suggesting development of a long-
term character for countries that start at a very low level of
per capita income and have a long way to go any way you look at
it. This strikes me as a different kind of program than we have
had before.
We have been struggling with who administers it on the
ground and even who governs it here on the board. These are
important questions. But just the overall concept of this
thing, how do we phrase this? Do we have a preamble or do we
have some general ideas that we want to make a part of this
authorization?
It seems to me to be very important so that we characterize
in ways that our successors in this committee or in the Senate,
what have you, recognize where we started, what our thoughts
were at the outset. So this is not something we can decide
among the four of us right now, but I invite your continuing
thought about this.
We are in the drafting process of something that may have
some legs to it if it works, which we pray that it will.
The idea of the administration coming forward with much
more aid on top of the things we are doing, I believe, is very
admirable. And that cannot be guaranteed for any successive
Congress. But if this works, if, in fact, a lot of countries do
change many of their habits, they become really better places
for the people that they serve, that will be remarked upon,
particularly if you have a good reporting system and sort of
note all these changes.
As Senator Biden was pointing out, we have noted these
remarkable changes in some of our new NATO partners--with
unresolved issues that went on for decades that were very
injurious to people have been resolved because these nations
really wanted to be a part of NATO--and were prepared to settle
in ways that they would not have--their political systems could
not have given the fractionalization of coalitions and what
have you. Suddenly they came together. And that might occur in
a big way here.
That is the dramatic aspect of the criteria, of taking them
seriously, of having them transparent, of broadcasting who does
what, that more children are getting an education, and more
women are participating, that disease levels are decreasing.
These are remarkable things, which could give a lot of impetus
to this.
Now, I suppose to the contrary, some nations may say,
``There you go again, United States. You are far too
meddlesome. You are reaching into our society and we really
are--we do not want to play it that way.'' But, I think, to the
contrary, many countries, as you suggest already, may be
consulting back home within the cabinet. How do we get up to
the standard? We can read it on the Web. We sort of see what is
being looked at.
These are fairly reasonable standards for freedom-loving
people trying to expand that.
Well, I just invite you to continue to work with our
committee. We appreciate your testimony today and your
forthcoming responses as always. And this is an important
issue. All of you have already studied it a lot, which is
important for the body politic to know. There are people at
work in your organizations that care about this.
We certainly do on this committee. We thank you very much
for your participation, and the hearing is adjourned.
[Whereupon, at 12:20 p.m., the committee adjourned, to
reconvene subject to the call of the Chair.]
----------
Additional Statements Submitted for the Record
Submitted Statement of American Foreign Service Association, John K.
Naland, President and Joseph Pastic, Vice President for USAID
Mr. Chairman and Members of the Committee, the American Foreign
Service Association (AFSA) and its 23,000 active-duty and retired
members of the Foreign Service appreciate the opportunity to share our
views on the proposed legislation to create both the Millennium
Challenge Account (MCA) and the Millennium Challenge Corporation (MCC).
The Association is both the professional organization and the
recognized bargaining agent of the Foreign Service. We thus represent
over 1,000 Foreign Service Officers who work at United States Agency
for International Development (USAID) and who make up one half of the
U.S. government corporate memory on international development.
We applaud the innovation and foresight that has sought new ways of
helping the poor of the world through different approaches to
delivering U.S. foreign assistance in these changing times. USAID and
its employees have proven themselves expert at conforming a world-wide
set of unique country development strategies with a broad array of
administration and legislative priorities and mandates. It is with this
40 years of development experience and expertise developed ``on the
ground'' that we view the proposed legislation and wish to share our
concerns with you.
the administrator of usaid should be added to the board of directors of
the millennium challenge corporation
While the Board of Directors of the Millennium Challenge
Corporation, the administering body of the MCA, is designed to have
cabinet level Directors, AFSA believes that this proposal is sorely
deficient and that the Administrator of the United States Agency for
International Development should also be a member of the Board because
of the specialized expertise and perspective that he can provide during
important deliberations on general policy, directions, and programs.
The assistance provided through the MCA is to be additional to
existing assistance activities, and regular U.S. programs will continue
even in MCA-participating countries. Certainly as both programs exist
in a country, a commonality of goals, strategy and policy coherence and
coordination between both the MCA and the regular assistance programs
will be required. The Administrator of USAID provides a unique nexus
for the MCC board in that the Administrator will be able to inform the
Board of current programs in a country and particular problems that may
be encountered, help to assure the complimentary nature of both MCA and
regular programs in a particular target country, and issue policy
guidance to USAID.
AFSA believes a sound relationship between the MCA and USAID is
essential to the success of both programs and to this Nation's overall
foreign assistance effort, and we urge the Committee to include the
Administrator of the United States Agency for International Development
on the Board of the Millennium Challenge Corporation. The Board should
not be limited to a certain level of rank, but rather should be
determined by what each of the Directors can add to the success of the
effort.
staffing issues
With a central mandate of the MCA requiring performance, results
and accountability, a key requirement of the Millennium Challenge
Corporation will be the ability to effectively monitor the programs in
the target countries. The Corporation is to have a staff of 100 people,
largely detailed from other agencies, to maintain this oversight and
accountability standards over a $3 billion program in Fiscal Year 2004,
and what will eventually become a $5 billion program.
AFSA firmly believes the Foreign Service of USAID is uniquely
skilled, experienced, and positioned to do this work, and should be an
integral part of the Washington staff and the effort around the world.
USAID Foreign Service has developed the expertise in formulating
coordinated country strategies and implementation of programs. They are
skilled in performance management and host-country fiscal
responsibility that meet the most rigorous standards. In those few
instances when the safeguards failed, it was USAID that ``sounded the
alarm'' and sought the help of investigators. Today, much of the work
of USAID is that of a contracting agency that works through a vast
network of educatirnal and other non-government grantees and private
contractors both large and small. These are the skills needed by the
staff of the Corporation, and these are the skills that USAID's Foreign
Service has developed over years of ``doing the work'' of international
development.
Further, while USAID will not be managed by the MCA, it is likely
that its staff, especially those located in MCA participant countries,
will play a strong supporting role. They will be in place in these
countries, and they will have the developed skills and experience to
provide a constant presence and perspective that a ``fly-in, fly-out''
staff person from the MCC's Washington headquarters will not have.
However, this will present another challenge to the in-country USAID
Foreign Service Officer. Because these countries will have both MCC
programs and regular, on-going USAID development programs, AFSA is
concerned that the support required by the MCA, both programmatic and
administrative, will diminish the ability of an already ``thinly
stretched'' staff to continue managing regular assistance programs that
they are also responsible for. Certainly the Foreign Service has worked
under such conditions before and they have thrived from challenges, but
such conditions also take their toll in burn-out and morale, and the
Committee should be aware of this. After years of such working
situations in the Department of State, and after several serious
warnings in a number of important studies, the State Department, under
the leadership of Secretary of State Powell, developed the Diplomatic
Readiness Initiative to meet a serious personnel shortfall in the State
Department.
the need for workforce planning at usaid
While it is certainly not the responsibility of legislation
creating the MCA and the MCC, personnel issues at USAID will influence
the success of the MCA.
For USAID to handle its present duties, as well as potential
emerging tasks with the MCA, the rebuilding of Iraq and the enhanced
Global Health Initiative, it is essential that USAID have the staffing
and operating budget needed to do its job. USAID is struggling to
recruit Foreign Services Officers at the rate of attrition. However, it
is still falling short and not even meeting attrition. AFSA believes
the personnel budget and staffing levels provided fall far short of
real requirements and that the same workforce planning review that gave
rise to the State Department's seminal Diplomatic Readiness Initiative
is required at USAID. USAID suffers staffing gaps, lacks a training
float, and has too many categories of non-direct hire employees that
seriously impacts the work of the Foreign Service at USAID.
Mr. Chairman, as the Committee considers the important skills,
talents, experience, and perspective that the Foreign Service can
provide to the success of this important MCA initiative, AESA urges
that in later legislation, the Committee also consider the personnel
needs of the Foreign Service at USAID.
conclusion
Mr. Chairman and Members of the Committee, the MCA initiative
brings needed additional resources and a different, and important
approach to the United States' international development efforts.
However for this program to fully succeed, the American Foreign Service
Association believes and strongly urges the Congress to include the
Administrator of the United States Agency for International Development
as a member of the Board of Directors of the Millennium Challenge
Corporation as it develops the implementing legislation. Further, AFSA
believes that the Foreign Service of USAID is experienced, expert,
certainly talented and well position in this area to play an importznt
role, both in Washington and abroad, in performing the necessary work
to meet the objectives of the MCA. AFSA encourages the Administration
and the Congress to fully utilize this cadre of dedicated men and women
to bring the goals of the MCA to fruition.
The Foreign Services welcome the challenges and opportunities
before us as the MCA moves from a concept announced by the President at
the Inter-American Development Bank last March to reality, and we thank
again the Committee for this opportunity to share our views and
concerns with you.
______
Submitted Statement of Bob Perciasepe, Senior Vice President, National
Audubon Society
Mr. Chairman and Members of the Committee:
Thank you for the opportunity to testify about the new Millennium
Challenge Account initiative proposed by President Bush.
For more than 25 years Audubon has spoken out in support of
increased support for international development funding. The reason for
this is simple: we believe that stronger economies in the developing
world are critical to the long-term survival of birds, wildlife and the
habitat they need for survival.
When people are prospering, they think long-term and make
investments in environmental protection that range from sustainable
agriculture and forestry to sewage treatment plants, clean air and
national parks.
When mortality is high, and economies are struggling, people cannot
think beyond tomorrow and forests, rivers, wetlands and birds and
wildlife inevitably suffer as a consequence.
As one of the oldest and largest environmental organizations in the
world, we know the world's interconnectedness predates international
banking and the Internet by many millennia. Here in the U.S., ``our''
songbirds travel the world, from Mexico to Argentina, and from Korea to
Tanzania. ``Our'' fisheries depend on biological food and migration
chains that stretch across the globe, and ``our'' sea turtles may have
been hatched on the shores of Costa Rica or Indonesia. The butterflies
and dragonflies soon to be arriving back in our gardens are returning
to the U.S. after a many-thousand mile migration beyond our borders.
Because we are aware of the interconnectedness of the natural
world, we are pleased that the Bush Administration has proposed a
significant increase in foreign aid, and are particularly pleased that
it focuses on poor nations at the bottom of the global economic ladder.
In addition, we commend the Bush Administration for trying to
choose carefully, invest wisely and encourage political and economic
development in those countries that are ready for change. What one does
with foreign aid--where it goes and how it is used--are extremely
important issues. If you believe that development aid can make a world
of difference--and we certainly do--then performance measures able to
track our success and progress can certainly help make that case if
they are meaningful and if the programs are given time to succeed.
As President Bush has noted, economic development in much of the
less developed world is tied to political and economic change. Audubon
believes, however, that economic development is also tied to
demographic change.
The fundamental development challenge ahead is how to cope with the
addition of 1.5 billion people over the course of the next 25 years and
the addition of 2.8 billion people over the course of the next 50
years. To put these numbers in perspective, we will add more people to
the world in the next 25 years as existed in 1925, and add more people
to the world in the next 50 years as existed across the globe at the
close of World War II.
Nearly one hundred percent of world population growth is now
occurring in the developing world. In fact, it is not too much to say
that rapid population growth is one of the defining characteristics of
underdevelopment, and a core reason for political instability and
economic lethargy in many regions of the world.
The relationship between population growth and economic growth is a
chicken-and-egg question that has fostered a great deal of
nonproductive debate over the years. There are those that say birth
rates will naturally decline if democracy and capitalism are embraced,
if free markets are allowed to work unfettered, if the status of women
is improved, and if gross domestic investments in education are
dramatically increased.
No doubt this is true.
That said, in the arena of family planning the most obvious
solutions have worked well for a very long time. If we have learned
anything over the course of the last 30 years, it is that massive
social, political, and economic changes are not necessary to slow the
rate of human population growth. In most cases, simply improving access
to the full array of modern contraceptive methods at the level of city,
village, and hamlet is often enough to dramatically slow population
growth, reduce infant mortality, and strengthen economies at both the
village and national level.
Consider Iran--a fundamentalist Muslim country where the
status of women is not notably high by western standards.
Despite this reality, however, Iran has seen its birth rates
plummet due to the government's desire to slow population
growth rates in order to strengthen economic development.
Iran's state-sponsored condom factory is the largest in the
Middle East, and both men and women must take a class on modern
contraception before receiving a marriage license. As a result
Iran now has a fertility rate that is lower than that of the
U.S. As population growth rates in Iran have slowed, political
stability and economic growth have gained traction and
environmental protection is now on the national agenda. It's
immediate neighbors--Afghanistan, Pakistan, and Iraq, where
birth rates hover well over 5 children per woman--have had
dramatically different economic, political, and environment
outcomes over the last decade in part due to the political and
economic instability inherent to countries with very rapid
rates of human population growth.
Consider Sri Lanka--a county of many faiths and
nationalities, which has also made access to a full range of
modern contraceptives a national development goal. Today Sri
Lanka has a fertility rate that is 50% lower than that of
India, its neighbor to the north. As a direct consequence of
falling fertility, life expectancy at birth in Sri Lanka is 11
years longer than that of India, and per capita income is 35%
higher.
Consider Costa Rica--a predominantly Catholic country whose
birth rate is a full 80% lower than that of Guatemala. Not only
does the population of Costa Rica enjoy a life expectancy rate
11 years longer than that of Guatemala, it also has twice the
per capita income and a thriving ecotourism industry based on
the protection and management of its vibrant natural resource
base.
The examples above do not stand in isolation. Mexico, Korea,
Thailand, and Turkey have all seen dramatic declines in fertility. With
those declines has come increased hope for economic development and
political change and a growing middle class that counts environmental
protection among its concerns.
As seen in the examples above, modern contraceptive methods have
been embraced by people of every faith, of every culture, and on every
continent. Italy and many other predominantly Catholic countries have
the lowest fertility rates in the world. Clearly, in the real world
religion is not an obstacle to family planning and contraception is not
a controversial issue and need not be treated as such by this Congress
or this Administration.
one recommendation
Audubon believes that the Millennium Challenge Account initiative
should include performance measures that track access to modern
contraceptive methods in developing countries.
You will note that these recommended performance measures do not
track falling birth rates and do not track contraceptive use.
This is intentional.
Audubon believes that in the arena of family planning we should be
striving to simply give people what they want. We believe that if
people are given all the information, and access to all the modern
methods of contraception, then individuals will make the right choices
for themselves, for their families, for their communities, for their
country and ultimately for the environment.
Just as we believe people will chose democracy if given a political
choice, and capitalism if given an economic choice, we believe people
in the developing world will also chose a modern contraceptive method
if they are made widely available at prices even the indigent can
afford.
two cautions
Along with this public policy recommendation, Audubon offers two
cautions that fall under the header, ``first do no harm.''
Our first caution is to make sure that existing development
programs, agencies and personnel are strengthened by the MCA
initiative. Though we understand that the Millennium Challenge Account
initiative is not designed to supplant the U.S. Agency for
International Development, it could easily weaken that agency by
drawing critical personnel away from core management functions.
It is not entirely clear to us why a new federal bureaucracy is
needed to administer grants made under the Millennium Challenge Account
initiative. The U.S. Agency for International Development is not
broken--it is simply an agency that needs a little more gas (money) and
perhaps a new sparkplug or two (good managers empowered by Congress and
the President). If key personnel are removed from the U.S. Agency for
International Development to manage the Millennium Challenge Account
initiative, we may find that we have harmed a vital and working federal
agency that has demonstrated real development success over the years.
On the other hand, if experienced personnel in the field of
international development are not hired to manage the Millennium
Challenge Account initiative, we may see waste, inefficiency, and
unnecessary redundancy as this new bureaucracy ``recreates the wheel''.
Both outcomes should be avoided.
Our second caution is that in gauging the success of the Millennium
Challenge Account initiative that ``sustainable development'' be
defined broadly and not solely in economic terms. An industry can be
profitable with very little of the money staying in the country and
while a great deal of environmental damage is occurring. One need only
look at logging in Indonesia or coal mining in Kentucky to see examples
of economically profitable enterprises that left the people and the
environment shattered. This is an outcome that should be avoided, and
we recommend that language addressing environmental protection and
capital retention within the grantee countries be inserted into any
legislation being considered.
We thank you and the members of this Committee for giving Audubon
the opportunity to testify today, and we look forward to working
closely with you in the future.
----------
Additional Questions Submitted for the Record
Responses of Hon. Alan Larson, Under Secretary of State for Economic,
Business and Agricultural Affairs, to Additional Questions for the
Record Submitted by Senator Joseph R. Biden. Jr.
Question 1(a). Five years ago, Congress (led by this committee),
carried out an extensive restructuring of the foreign affairs agencies
in the Foreign Affairs Agencies Consolidation Act of 1998 (Subdivision
A of Division G of P.L. 105-277). As part of that reorganization, the
Agency for International Development was brought under the ``direct
authority'' of the Secretary of State, and the Secretary gained the
statutory authority to supervise foreign assistance budgets and
strategies. One of the purposes of the Act was to strengthen the
coordination of U.S. foreign policy and the leading role of the
Secretary of State in the formulation and articulation of that policy.
Doesn't the creation of a new aid organization contradict the
objectives of coordination and of giving the Secretary a leading role
in policy formulation as set forth by Congress in the 1998 act?
Answer. As Chairman of the Board of the Millennium Challenge
Corporation (ICC), the Secretary of State would exercise his
responsibility under the Foreign Assistance Act of 1961\1\ to supervise
and coordinate U.S. economic assistance. The Secretary takes this
responsibility seriously and will ensure that the programs and policies
of the MCA promote the foreign policy interests of the United States
and are well coordinated, both in Washington and the field, with other
assistance programs. Secretary Powell also sees his role as Chairman of
a cabinet-level MCA Board as essential to ensuring there is strong
Cabinet-level accountability for the MCA.
---------------------------------------------------------------------------
\1\Section 622(c) of the Foreign Assistance Act of 1961 (as
amended) provides that ``. . . the Secretary of State shall be
responsible for the continuous supervision and general direction of
economic assistance to the end that such programs are effectively
integrated both at home and abroad and the foreign policy of the United
States is best served thereby.'')
---------------------------------------------------------------------------
The MCA's targeted mission reaffirms our development objectives and
contributes to an integrated strategy for achieving them. The MCC will
focus on spurring growth in the subset of developing countries that
have policies in place to use such assistance most effectively to
achieve lasting results. USAID, State, and other agencies will continue
to deliver humanitarian and regional assistance, to address complex
emergencies, and to work with failed and failing States, all issues
critical to U.S. national interests. USAID will also work with
countries that are MCA ``near misses'' to encourage them to achieve the
development-readiness essential for the MCA.
Question 1(b). Why should Congress not integrate the MCA into the
existing structure legislated in 1998--that is, by giving the Secretary
of State supervisory authority over the program, but leave it to AID to
implement it?
Answer. The MCA represents the President's vision for redefining
and revitalizing development assistance. It is a performance-based
initiative that rewards country responsibility. Too few countries are
achieving sustained economic growth, which is a prerequisite for
reducing poverty. By focusing on those under-developed countries
demonstrating the strongest commitment to good governance and sound
policies, the MCA will put into practice the main lesson we have
learned about development over the past half century. It will do so by
challenging countries to create the open and accountable policy
environment that our experience shows will lead to economic growth.
A new institution is the best hope to bring about this sea change
in our current approach. The existing agencies that might administer
the MCA--State and USAID--both have many other bureaucratic mandates
and priorities. The MCA needs flexibility to carry out its innovative
mandate and should start with a clean slate to give it the best chance
to succeed and show that this approach works.
If it is to respond to developing country priorities, the MCA
should not be constrained or directed to specific areas of funding. If
it is to operate with a lean staff and draw from the best and brightest
in the public, private and non-profit sectors, the MCA must have
special personnel authority. If it is to be effective, it will need the
ability to contract and procure broadly. If it is to succeed in its
mission, the MCA must be open to a new way of operating.
All this can best be achieved through an innovative, flexible,
narrowly targeted, and highly visible separate organization that
complements other assistance. That is why the Administration has
proposed the establishment of a Millennium Challenge Corporation (MCC).
Question 2. How does the draft Administration bill affect, if at
all, the powers of the Secretary of State as set forth in the
provisions of section 1523 of the Foreign Affairs Agencies
Consolidation Act of 1998 (Subdivision A of Division G of P.L. 105-277)
and section 622(c) of the Foreign Assistance Act of 1961?
Answer. The bill authorizes appropriations for use as foreign
assistance outside the authorities of the FAA.
The bill has no impact on assistance provided under Sec. 622 of the
FAA., and the Secretary's broad responsibility for the ``continuous
supervision and general direction of economic assistance, military
assistance and military education and training programs . . .'' As the
legally established Chair of the cabinet-level MCA Board, the Secretary
will be in a position to shape the overall policy direction of the MCA
in a manner consistent with broad U.S. assistance objectives.
Question 3. How will 100 people be able to administer $5 billion
worth of assistance?
Answer. Since only a limited number of countries will qualify for
the MCA in each year, the MCC requires a smaller staff than would be
the case if the MCA had a presence in most poor countries.
The MCA is also designed to be demand-driven and country-owned. We
expect each recipient country to take the lead in program design and
implementation, eliminating the need for top-down program development
by MCC staff.
The MCC will be assisted by existing USG staff in the field. The
MCC will also draw upon outside expertise, including for monitoring of
MCA activities, where appropriate and effective. It is also envisioned
that the MCC will rely on contracts with other agencies or independent
contractors for most administrative functions.
The number of permanent employees is not set in stone.
Nevertheless, the effort will be to develop a lean and flexible
organization that aims for maximum efficiency, with a focused
professional core staff.
Question 4. What will be the interaction between the MCA and AID?
If, as was suggested at the hearing, the MCA will rely on AID to help
administer the money, why create a new government organization with
which AID is not directly affiliated?
Answer. MCC and USAID activities will complement each other. The
MCC will operate in fewer countries, in a different manner than AID and
with a far more focused development mandate.
When both organizations are in the same country, AID will conduct a
review of its programs and determine which should continue and which
will phase out or become a part of the MCA program. USAID will also
target countries that barely miss MCA qualification for assistance to
help improve their performance in areas in which they fall short.
By law, USAID reports to the Secretary of State, who is also
designated by the Administration to be Chairman of the MCC Board of
Directors. This supervision will help ensure that the MCC and USAID
work in close cooperation and coordination both in Washington and in
the field.
MCC staff in the field will depend upon support from other elements
of the U.S. presence, which includes the State Department and USAID,
for information, expertise, and representation. As far as specific
services, the MCC might contract with USAID or other organizations to
provide technical assistance, implement programs, monitor and evaluate
programs or disburse funds. The MCC will require flexibility to operate
in the most effective manner to achieve its objectives in each country.
Question 5. Mozambique, a country which is expected to be eligible
far MCA funding, has an extensive aid program. The fiscal year 2003
request was $62 million--an increase of $14 million over the 2002
request. Funding was specifically requested to foster economic growth,
democratic governance, maternal and child health, and private sector
development. Likewise, the administration requested over $50 million
for development programs in Ghana this year.
Will the aid programs that we have in place in qualifying countries
be terminated once they are granted MCA funds? What will happen with
the AID programs in Ghana and Mozambique if they receive MCA funds?
Will the programs AID is currently engaged in be terminated? How will
the MCA and our regular development programs work together?
Answer. It is not yet clear which countries will qualify for the
MCA.
Because MCA funds would represent a major increase in a country's
development assistance, USAID would likely undertake a strategic review
of its programs in MCA qualifying countries. As mentioned in the
response to question 4, some USAID programs may well be continued, such
as regional programs or those fighting HIV/AIDs or trafficking in
persons, while others logically would be phased out or incorporated
into MCA program. Some USAID assistance might also be redirected from
new MCA countries to countries that just miss the list of better
performers to improve their chances of becoming an MCA partner with the
United States.
In any case, we intend to coordinate MCC and USAID efforts so that
the most successful and important development efforts would continue.
Question 6. Please provide, as requested, a copy of the results of
any ``test runs'' you have undertaken prior to the date of the hearing
of the indicators against countries that are IDA-eligible.
Answer. Various runs with different income groupings and shifting
data sets could badly mislead as to likely ultimate outcomes. Rather,
the Administration stands ready to provide a detailed briefing to
interested Committee members and staff on how all phases of the
proposed selection system would actually operate.
Question 7. How often does the Administration intend to revise the
criteria used to determine MCA eligibility?
Answer. The 16 indicators chosen to help select qualifying
countries will continue to be reviewed throughout the next few months
and during the life of the MCA. Certain indicators may be dropped in
favor of better data, or other indicators may be added if it is
determined doing so will help the Board of the MCC choose the most
qualified countries based on the criteria of ``governing justly,
investing in people, and encouraging economic freedom.'' Any changes
will be done in a way to balance the need for flexibility with the need
for predictability, so that countries know well in advance by what
standards they will be judged. The process will continue to be dynamic,
rigorous, transparent, and based on performance.
Question 8. Will there be an Inspector General (IG) for the
Millennium Challenge Corporation?
Answer. The MCC will be audited in conformity with the provisions
of 31 U.S.C. Sec. 9105, in accordance with the requirements for a
government corporation. It is not envisioned that the MCC will have its
own independent Inspector General.
Qiestion 9. If the answer to the previous question is ``No,'' will
any current IG in the government perform IG functions? If not, why not?
Answer. In accordance with 31 U.S.C. Sec. 9105, the MCC will either
contract to be audited by an Inspector General from aa existing agency
or by an independent external auditor, as determined by the CEO of the
MCC with the approval of the MCC Board of Directors.
Question 10. What is the purpose of section 105(c) of the draft
Administration bill?
Answer. In the case of assistance provided under another authority,
(e.g. under the authority of the Foreign Assistance Act) and used in
conjunction with MCA assistance, section 105(c) would allow such
assistance to be used in accordance with MCA authorities. This would
simply allow for instances where other U.S. assistance resources can be
used in conjunction with MCA's business-like partnership in an
effective manner that serves U.S. policy goals and MCA development
priorities.
Question 11. Would section 105(c) of the draft Administration bill
permit a transfer from any other appropriation account, whether from
accounts under the Foreign Operations Act or any other Act? Would funds
transferred be subject to any restrictions contained in the Act from
which the funds were transferred?
Answer. Section 105(c) is not a transfer authority. The account
being used would need to be authorized to be available to provide
foreign economic assistance. Such funds, if used in conjunction with
MCA assistance would, under section 105(c), get the benefit of the
authorities applicable to MCA assistance.
Question 12. Under the draft Administration bill, is the
Corporation a government corporation as that term is defined in 5
U.S.C. Sec. 103?
Answer. Yes; it is the same as that defined in 5 U.S.C.
Sec. 103(1).
Question 13. If Congress were not to waive nearly all laws, as is
contemplated by section 105(b)(1) of the draft Administration bill,
what major laws, specifically, should be waived to provide the
necessary flexibility for this program?
Answer. We are hopeful that Congress will accept the language
proposed in section 105(b)(1). It is for that reason we have made a
country's eligibility for MCA assistance subject to its eligibility to
receive other economic assistance under the Foreign Assistance Act.
Question 14. What is the legal effect of, section 107 of the draft
Administration bill?
Answer. Section 107 requires that each Millennium Challenge
Contract describe the purposes of MCA assistance, the activities that
will be funded to achieve these purposes, and the period of time over
which MCA assistance will be provided for these activities and
purposes. In essence, it holds the MCC and MCA partner countries
accountable for a shared business plan.
Question 15. Why is section 204(e) of the draft Administration bill
necessary?
Answer. Section 204(e) provides the MCC with authority to expedite
the procurement process in the event that the Board or the CEO believes
this to be necessary to effectively manage the program.
Question 16. Does any other foreign affairs agency have the
authority contemplated by section 204(e) of the draft Administration
bill? If so, which agency or agencies?
Answer. Section 204(e) is a narrower version of section 633(a) of
the Foreign Assistance Act.
Question 17. Section 205(a)(7) of the draft Administration bill
purports to grant certain privileges and immunities to individuals
employed by the Corporation. Please explain how legislation can grant
such immunities.
Answer. Only the host country can grant privileges and immunities.
Section 205(a)(7) should state:
The CEO should seek, through the U.S. Department of State, to
obtain privileges and immunities at least equivalent to those
of the technical and administrative staff of the Mission of the
United States to such country for individuals employed by the
Corporation and, as appropriate, individuals detailed to or
contracted by the Corporation. Such individuals shall be
subject to 22 U.S.C. 3927 in the same manner as United States
Government employees.
Question 18. What precedents are there for the following provisions
of the draft Administration bill--
a. Section 205(a)(2).
b. Section 205(a)(3)
Answer. Given the relatively small size of the MCC, the MCC will
require broad discretion to employ individuals without regard to civil
or foreign service limitations. It is anticipated that in order to
sustain a fresh and innovative approach staff would not serve more than
5 years and therefore a more flexible model than the Civil and Foreign
Service systems would be appropriate. Sections 205(a)(2) and 205(a)(3)
were based on, and expanded upon, authorities provided to the Overseas
Private Investment Corporation (section 233(d) of the Foreign
Assistance Act of 1961), the Enter-American Foundation (section
401(e)(3) of the Foreign Assistance Act of 1969, the African
Development Foundation (sections 506(a)(5) and 506(a)(7) of the
International Security and Development Cooperation Act of 1980) and to
agencies administering foreign assistance programs (section 625(b) of
the Foreign Assistance Act of 1961). Although not used as a model, the
Tennessee Valley Authority is also provided broad authority to appoint
and compensate employees without regard to the Civil Service laws
applicable to officers and employees of the government (16 U.S.C.
section 831b)
Question 18. What precedents are there for the following provisions
of the draft Administration bill--
c. Section 205(b)(3).
Answer. Section 205(b)(3) was based on language in the E-Government
Act of 2002, section 209(c), that provides for the assignment of
employees from private sector organizations. This authority allows for
additional flexibility in bringing under one roof the best and
brightest detailees from federal agencies, the NGO/PVO community, and
the private sector.
Question 19. Why is section 205(a)(1)(D) of the draft
Administration bill necessary, given that the ``notwithstanding''
language in section 205(a) does not purport to waive any provisions of
Title 18, United States Code.
Answer. It was included only to indicate that those provisions
would not be waived, but it is technically unnecessary.
Question 20. Would all employees of the Corporation be expected to
have security clearances?
Answer. Employees would be expected to have security clearances if
their jobs required access to classified materials, e.g., reporting on
developments in foreign governments. Such reporting, for example, could
be especially important regarding trends and developments related to
issues such as national leadership, governance, and corruption.
__________
Responses of Hon. Andrew S. Natsios, Administrator, U.S. Agency for
International Development, to Additional Questions for the Record
Submitted by Senator Joseph R. Biden, Jr.
Question. What is the average size of the assistance or grants
portfolio for which USAID officers are responsible?
Answer. Generally speaking, no single USAID officer is responsible
for managing a grants portfolio. Our portfolios are managed by teams of
officers working together from our technical, program procurement and
financial offices. On a per capita basis, USAID direct hire officers
serving overseas manage roughly $7.5 million.
Question. Please describe how the Executive Branch currently
implements Section 102(b)(1) of the Foreign Assistance Act of 1961,
which requires that development assistance from the United States
``shall be used in support of, rather than substitution for, the self-
help efforts that are essential to successful development programs and
shall be concentrated in those countries that take positive steps to
help themselves.'' Please describe how the provisions of the Millennium
Challenge Account will operate differently from this principle.
Answer. The principle of self-help has been central to USAID's
development assistance programming and attempts to achieve sustainable
development for years. What we have learned over the decades is that
the likelihood of achieving development and related foreign policy
results is greatly enhanced if countries take ownership for the
development process. Governments must be committed and willing to put
in place the necessary enabling environment economic, social and
political. But it is also important for the private sector,
nongovernmental and local governments to participate. This principle is
embodied in our strategic planning, resource allocation, and
performance monitoring and evaluation systems. It is primarily
implemented through our overseas field offices which are held
accountable for intended results. Where needed, programs incorporate
assistance to encourage democratic participation and to strengthen
institutions. Further, the principle of self-help is reflected in our
requirements for host country contributions and cost-sharing for NGO
grantees.
Given this history and the importance we place on participation,
commitment and self-help, we are taking several steps to more broadly
and more aggressively apply the principle and better link performance
to foreign aid programming and budgeting. A prime example is the new
``strategic budgeting'' model we are developing. When operational, we
will be able to more objectively relate country allocations to a
combination of need, commitment, program performance and foreign policy
priorities.
I should note that the importance of self-help and ownership by the
recipient country is shared by the donor community. Ways of better
achieving this ownership are the subject of active discussion by the
OECD Development Assistance Committee, and concrete recommendations are
being developed. We are actively engaged in this dialogue.
The concept of the MCA is indeed very similar to that of Section
102(b)(1) requiring that U.S. development assistance support, rather
than substitute for self-help efforts, and that it be targeted at
countries taking positive steps to help themselves. However, the MCA
goes a step further in targeting large amounts of assistance on the
poorest countries that have demonstrated a commitment to governing
justly, investing in their people, and promoting economic freedom, as
measured by a set of concrete and objective criteria. Because the MCA
will be working with the best performing countries, it will be founded
on a genuine partnership between the U.S. and the recipient country,
and will strive to achieve a broad coalition around development
investment within a country. A country's MCA program should reflect an
open consultative process, integrating a broad range of interests, and
should bring an inclusive perspective to discussions between the
country and the MCA.
Question. Please describe how the Executive Branch currently
implements Section 102(b)(4) of the Foreign Assistance Act of 1961,
which requires the President to ``assess the commitment and progress of
countries in moving toward the objectives and purpose of [chapter 1 of
the Act] by utilizing criteria.'' a non-exclusive list of which
follows.
a. How is such assessment conducted? Who conducts the
assessment?
b. Is the assessment conducted annually? If not, how
frequently is it conducted?
Answer. USAID assesses such information on every country annually
by reviewing available statistics. The assessment is done in the Bureau
for Policy and Program Development, and is reported within the Agency,
to Congress and to the American people in the Agency's Annual
Performance Report. Some of the data is generated within the U.S.
Government, including work done by USAID, the Census Bureau, the
Commerce Department and the State Department, and some of it is
dependent on work done by other organizations such as the World Bank,
Freedom House, and Transparency International.
These assessments are done annually. In some cases, annual
estimates are made by extrapolating from data that are not collected
frequently. These are done by such agencies as the Census Bureau and
the World Bank with well known and published methodology.
USAID is committed to using data to assess the commitment and
progress of countries in moving toward the objectives and purposes of
the FAA of 1961, the New Directions Act of 1972, and many additional
concerns raised in subsequent Foreign Operations Appropriations Acts.
Obviously, the indicators have changed since 1961 as we have learned
more about tracking country progress and the most effective and
efficient indicators. At the outset, it should be stated that USAID
does not attempt to duplicate the extensive research and statistical
analysis that other organizations such as the World Bank and the United
Nations do. Such a duplication of effort would not be a wise use of our
resources.
Factors referenced in the FAA:
(A) Increase in agricultural productive per unit of land
through small-farm, labor-intensive agriculture;
(B) Reduction of infant mortality;
(C) Control of population growth;
(D) Promotion of greater equality of income distribution,
including measures such as more progressive taxation and ore
equitable returns to small farmers;
(E) Reduction of rates of unemployment and underemployment;
(F) Increase in literacy;
(G) Progress in combating corruption and improving
transparency and accountability in the public and private
sector.
The major place that these figures are analyzed and reported is in
the annual Agency Performance and Accountability Report, which was
submitted to Congress this year on January 31, 2003. Trends are
analyzed and reported, and made available to Congress and the American
public. However, the Agency is consistently using such measures at both
the country and Washington levels to ensure that the country situation
is understood and trends monitored and programs adjusted to best meet
these needs.
Performance and Accountability Report country level indicators:
1. Average Annual Gross Domestic Product Growth Rate per
Capita;
2. Index of Economic Freedom Scores (trade policy; fiscal
burden of government, including tax policies; government
intervention in the economy; monetary policy; capital flows and
foreign investment; banking and finance policy; wages and price
controls and subsidies; property rights; regulation and black
market);
3. Trends in Net per Capita Agricultural Production;
4. Per Capita Net Food Production Index;
5. Annual Micro-enterprise Lending: a) total funding, b)
active number of loans, c) percentage of loans made to women;
6. Children enrolled in primary schools;
7. Hectares under improved environmental management;
8. Total Fertility Rate;
9. Contraceptive Prevalence Rate;
10. Under-five child mortality rates;
11. Adult HIV prevalence rates;
12. Freedom House Index scores (political rights and civil
liberties).
In addition, USAID provides several additional reports to Congress
that address some of the other original questions in the FAA. These
include:
1. The Progress in Education annual report, which includes,
among many other things, reports on progress in literacy.
2. The report to Congress pursuant to the International Anti-
corruption and Good Governance Act (P.L. 106-309) annual
report. While this report is only two years old, the Agency has
been tracking corruption for many years through a variety of
surveys and indices, including the Transparency International
index.
For those issues raised in the original legislation that are not
directly tracked, USAID has developed more appropriate approaches:
1. It is unclear that ``increase in agricultural productive
per unit of land through small-farm, labor-intensive
agriculture'' is the appropriate mechanism to improve food
available and the economic situation of small farmers in the
current world. However, USAID does do substantial micro-lending
to farmers and other small-holders, that is tracked in the
micro-enterprise lending indicator listed above. As noted
above, we do track overall agricultural productivity and, where
it is appropriate, track specific factors such as ``non-
traditional'' exports, which are likely to be produced by small
agriculturalists.
2. Traditional measures of income inequality and of un- and
under-employment are almost useless in tracking income and
employment trends. This is even a difficulty in the United
States, where traditional unemployment figures do not include
those who have ceased looking for work, and many who are
employed in non-traditional jobs. Instead, we feel that
elements of the economic freedom scores, cited above, track
government commitment to improving the business climate for
creating employment in the private sector, particularly among
small and medium-sized businesses which are the main engines of
job growth.
In addition to these sources, USAID maintains the Economic and
Social Database which gathers a wide variety of data from around the
world. This is immediately available to Agency managers and policy-
makers online, and is widely used both to access existing data sources,
and to research new questions as they arise.
__________
Responses of Hon. Alan Larson, Under Secretary of State for Economic,
Business and Agricultural Affairs, to Additional Questions for the
Record Submitted by Senator James M. Jeffords
Question. During the hearing Senator Lamar Alexander posed a
question to Al Larson. Senator Alexander encouraged the board to be as
flexible as possible in considering the sectors it will fund. He noted
that Gabon has set aside 12 percent of its land for national parks. He
asked whether conservation would be a criteria that would be considered
in qualifying for MCA funding. In responding, Mr. Larson rephrased
Senator Alexander's conservation example in terms of achieving
ecotourism. However, Mr. Larson did not fully answer the question:
would conservation be considered as a criteria, perhaps under the
``investing in people'' category, and would it be a sector for MCA
funding?
Answer. The goal of the MCA is to achieve poverty reduction through
economic growth. MCA criteria for selection measure how well a country
is performing in ``ruling justly, investing in people and encouraging
economic freedom.'' These criteria were chosen because they correlate
to economic development. Conservation, per se, is not a criterion for
selection. However, the indicators do measure a number of the
conditions necessary for conservation of natural resources: effective
participation in governance by civil society, effectiveness of
regulations, and protection of private property to name a few.
The legislation identifies six examples of areas for MCA funding
that are directly tied to a country's productivity and economic growth,
namely agriculture, education, private sector, governance, health, and
trade. These areas are meant to be illustrative, not exclusive. Because
flexibility and country ownership are key concepts of the MCA,
decisions on specific MCA investments will be made on a country-by-
country basis. MCA countries will identify investments that fit within
each country's overall growth strategy. While eco-tourism, environment
and water projects were not specifically mentioned as examples, a
participating country and the MCC might choose to invest in these areas
to support its development and growth strategy.
Question. Last year, at several meetings in the United States and
internationally leading up to the World Summit on Sustainable
Development, the Administration's MCA was highlighted. For countries
that qualify for MCA funding, could MCA funding be used to achieve any
of the outcomes or goals from the WSSD? If so, which ones in
particular?
Answer. The MCA could help a participating country achieve a number
of the outcomes or goals stressed at WSSD. These include improved
governance, safe water, clean energy, including rural electrification,
mass transportation, health, education, eco-tourism and agricultural
development.
As described in the response to the previous question, MCA funding
will be country driven. Thus, a country could choose a program in any
area that would be critical to achieving its development objectives.
Question. On numerous occasions the Administration has said that
the MCA will not be a substitute for current humanitarian assistance.
However, humanitarian assistance stays either the same or decreases in
various areas of the 2004 budget. Why? Are similar decreases
anticipated in the 2005 and 2006 budgets?
Answer. For FY 2004, the Administration has requested a total of
$2.476 billion for humanitarian assistance purposes. This request is an
overall increase of $230 million over the Administration's initial FY
2003 request for comparable humanitarian assistance (although less than
the amount now available from the just-enacted Omnibus Appropriations
bill). The recently transmitted FY 2003 supplemental request, as you
know, seeks additional humanitarian assistance for Iraq.
MCA funding is requested for the purposes of economic development
and can not be compared to nor offset humanitarian assistance
requirements.
We are not able to estimate the requirements for humanitarian
assistance funds in FY 2005 and 2006 at this time.
-