The Millennium Challenge Corporation (MCC) was established in 2004 to administer the Millennium Challenge Account (MCA), the Bush administration’s “revolutionary” new bilateral development aid fund. The MCA was conceived in the wake of 9/11 as a means of combating terrorism through poverty alleviation—or, more accurately, through economic development in poor countries where instability could pose a threat to U.S. interests. The MCC is a government corporation, with a Board of Directors helmed by the Secretary of State and managed by key federal agencies (Treasury, Trade, USAID) in the U.S. foreign policy diorama.
MCC aid is conditional. The agency makes selective grants to qualifying developing nations based on a set of 16 criteria in three areas: good governance/rule of law, “investment in people,” and economic freedom. Though differing from other U.S. aid ventures—primarily by program scale and an emphasis on “responsible” country behavior—the agency’s approach to development is a solid continuation of established neoliberal models. The MCC charter is “to achieve market driven economic growth,” and the agency applies a trickle-down aid approach: building business and financial sectors with the assumption that benefits will eventually come to the rest of society—that is, to the people most in need of development initiatives.
At the outset, during FY 2004, $650 million was made available for the MCA. Funding increased to $1.5 billion in FY 2005. Although the Bush administration planned to administer an annual $5 billion dollars through the agency by FY 2006, disbursement thus far has been slow, leaving the budget vulnerable to congressional trimming. Although MCC’s annual budget requests were, for some time, held at $3 billion, appropriation funding was $1.77 billion in FY 2006, $1.482 billion in FY 2008, and down to $875 million in FY 2009. FY 2010 saw funding at $1.105 billion. The MCC requested $1.280 billion the following year, $1.125 billion for FY 2012, and $898.2 million for FY 2013. Critics fault the Bush administration for bad planning from the beginning, and the agency has become somewhat embattled with bipartisan pressures—although, due to its solid neoliberal ideology, it receives some rare support from right-wing factions that normally disdain foreign aid programs.
The Bush administration’s response to the events of September 11, 2001, included a broad and comprehensive overhaul of relevant federal agencies and foreign policy. An outgrowth of Cold War strategy, development has always provided a means of fighting the country’s proxy wars and protecting its economic interests, and was a natural candidate for an “anti-terrorist” makeover. The apparent post-Cold War shift increased the focus on military and security in the developing world. But the formula is very much the same—based on neoliberal capitalist policies (induced economic liberalization, privatization of social services, and market deregulation aimed at attracting foreign direct investment).
President George W. Bush announced the formation of the Millennium Challenge Account (MCA) in a speech he made at the Inter-American Development Bank in 2000. Specifically, Bush called for “a new compact for global development, defined by new accountability for both rich and poor nations alike. Greater contributions from developed nations must be linked to greater responsibility from developing nations.”
To this end, Bush pledged a 50% increase in U.S. foreign development aid over the following three years—and a planned annual budget of $5 billion for the new agency that would manage the account, the Millennium Challenge Corporation (MCC), by FY 2006. And he outlined a shift in standard development practice—emphasizing an increased “responsibility” on the part of recipient nations that “govern justly, invest in their people and encourage economic freedom”:
Countries that live by these three broad standards—ruling justly, investing in their people, and encouraging economic freedom—will receive more aid from America. And, more importantly, over time, they will really no longer need it, because nations with sound laws and policies will attract more foreign investment. They will earn more trade revenues. And they will find that all these sources of capital will be invested more effectively and productively to create more jobs for their people...
Bush’s plan, in part, was designed to address a deteriorating perception of U.S. aid on all sides of the development debate, and secure the U.S. agenda for future bilateral and multilateral ventures by playing to the “other” beneficiaries: financial institutions, and U.S. and foreign corporations.
I challenge other nations, and the development banks, to adopt this approach as well. America’s support for the World Bank will increase by almost 20% over the next three years. We expect the World Bank to insist on reform and results, measured in improvements in people’s lives. All the development banks should adopt a growth agenda, increasing their support for private sector enterprises and focusing more on education, as the Inter-American Development Bank has done…And I challenge the development banks to provide up to half of the funds devoted to poor nations in the form of grants, rather than loans. Grants instead of loans that may never be repaid.
According to analysis by Citizens’ Network on Essential Services, “The White House National Security Council and Council of Economic Advisors, in coordination with the Treasury Department, the State Department, and the U.S. Agency for International Development (USAID), exercised significant leadership in formulating the MCA. The Treasury Department chaired the committee that identified the criteria for eligibility; which will determine which countries qualify for MCA assistance. The State Department chaired the outreach planning committee, which solicits recommendations on eligibility criteria and priorities for long-term spending for growth and poverty reduction.”
According to a 2007 Congressional Research Service (CRS) Report, the Millennium Challenge Corporation (MCC) project differs from other U.S. Development initiatives—and established policy—in several ways:
Also setting the MCC apart is its budget. In 2002 President Bush announced an initial plan to fund the agency at $5 billion annually by FY 2006—a large tag for ambitious programs, which has yet to be reached. Congress appropriated only $6 billion for FY 2004-2007. FY 2007 funding was provided under terms of a continuing resolution that provides $1.7 billion, while the Administration requested another $3 billion for FY 2008. By FY 2010, funding had dropped to $1.105 billion. MCC’s Congressional budget requests were $1.280 billion for FY 2011, $1.125 for FY 2012, and 898.2 million for FY 2013.
Congress authorized the creation of the MCC as “an independent government entity separate from the Departments of State and the Treasury and from the U.S. Agency for International Development (USAID)” to manage the initiative. Separate, but with a Board of Directors chaired by the Secretary of State, and composed of the Secretary of the Treasury, the USAID
Administrator, the U.S. Trade Representative, the Corporation’s CEO, and “four individuals from the private sector drawn from lists of proposed nominees submitted by Congressional leaders.” The Board oversees the agencies operations—and importantly, makes the country selections. MCA programs are authorized by the Senate Foreign Relations and House International Relations Committees, and the Senate and House Foreign Operations subcommittees appropriate funds for the agency each year.
In considering candidate countries, the MCC “assesses the degree to which the political, social and economic conditions in a country promote broad-based sustainable economic growth,” with the Board of Directors focusing on three factors: performance on the policy criteria, the opportunity to reduce poverty and generate economic growth in the country, and the funds available to MCC. In order to qualify for MCA support, countries must demonstrate—through “policy performance”—commitment to 16 criteria in three categories, which are measured by third-party indicators, from the World Bank and the IFC (International Finance Corporation), Transparency International, Freedom House and UNESCO, International Fund for Agricultural Development, and The Heritage Foundation, among others.
For FY 2010, candidate countries had either a per-capita gross national income below $1,905 (low-income category) or between $1,906 and $3,945 (lower middle-income category) and could not be statutorily prohibited from receiving U.S. economic assistance.
Category 1: Ruling Justly
This includes civil liberties, “voice and accountability,” political rights, government effectiveness, rule of law and clamping down on corruption. Specifically, the MCC explains the six indicators in this category as measuring as “just and democratic governance by assessing, inter alia, a country’s demonstrated commitment to promote political pluralism, equality, and the rule of law; respect human and civil rights, including the rights of people with disabilities; protect private property rights; encourage transparency and accountability of government; and combat corruption.”
Although the concept of “human rights” is explicit in this category, it is interesting to note that only “civil and political rights” are listed—and the accompanying “social, cultural and economic rights” as outlined in all major international human rights agreements and established in UN policy and the Universal Declaration of Human Rights, are overtly omitted. (Neoliberal policy and practice invariably favors civil and political freedoms at the expense of social, cultural, and economic rights.)
Category 2: Investing in People
This category includes immunization rates, public expenditure on health and primary education, girls’ primary education completion rates and natural resource management.
Category 3: Economic Freedom
This includes policies that foster enterprise and entrepreneurship, more open markets, sustainable budget policies, and strong support for development.
“The six indicators in this category measure the extent to which a government encourages economic freedom by assessing, inter alia, demonstrated commitment to economic policies that encourage individuals and firms to participate in global trade and international capital markets, promote private sector growth and the sustainable management of natural resources, protect private property rights, strengthen market forces in the economy and the respect for worker rights, including the right to form labor unions.”
Rationalization of the Criteria
All indicators are tied to a central assumption that their presence will decrease poverty and have a positive effect on economic growth—and that the former will result from the latter. In the agency’s “2008 Guide to Indicators and the Selection Process,” each indicator is explained in terms of its “relationship to poverty and growth.” Most indicators are rationalized in the context of conventional development theory and neoliberal logic, emphasizing economic growth as an end in itself, which will eventually lead to decreased poverty. (In fact, this causal assumption has been disproved by years of failed economic development that has often resulted in higher poverty rates, greater dependency and a greater divide between rich and poor.) For example, “Government Effectiveness”:
“Countries with more effective governments tend to achieve higher levels of economic growth by obtaining better credit ratings and attracting more investment, offering higher quality public services and encouraging higher levels of human capital accumulation, putting foreign aid resources to better use, accelerating technological innovation, and increasing the productivity of government spending. Efficiency in the delivery of public services also has a direct impact on poverty. On average, countries with more effective governments have better educational systems and more efficient health care. There is evidence that countries with independent, meritocratic bureaucracies do a better job of vaccinating children, protecting the most vulnerable members of society, reducing child mortality, and curbing environmental degradation. Countries with a meritocratic civil service also tend to have lower levels of corruption.”
Worldwide Governance Indicators, 1996-2010 (World Bank Institute)
See MCC’s FY 2012 country selection guide for detailed descriptions of each criteria at Guide to the MCC Indicators and the Selection Process (pdf).
Candidate country reports:
Programs—the agency groups its activities into two types of programs:
A Compact is a multi-year agreement between the Millennium Challenge Corporation and an eligible country to fund specific programs targeted at reducing poverty and stimulating economic growth.
The Threshold Program is designed to assist countries that are on the “threshold,” meaning they have not yet qualified for MCA Compact funding, but have demonstrated a significant commitment to improve their performance on the criteria.
MCA Monitor: Tracking the Millennium Challenge Account (Center for Global Development)
Progress as of 2011
According to the Federal Register (Volume 76, Number 115; Wednesday, June 15, 2011), the agency had dispersed about $700 million to 20 countries. Most of these funds are focused on agriculture, transportation, administration, road and land development, education, and energy.
Report on the Selection of Eligible Countries for Fiscal Year 2012 (Federal Register)
Radelet: Bush Policies Have Made a Difference in Africa (by Bernard Gwertzman, Poverty News Blog)
Reports from the Field (MCA Monitor)
From the Web Site of the Millennium Challenge Corporation
Of its $898.2 million proposed FY 2013 budget, $105 million is earmarked for administrative costs, to be distributed as follows:
Salaries & Benefits $53.5 million
Overseas Operations $20 million
Contracted Services $9.5 million
Information Technology $8.3 million
Rent, Leasehold & Improvements $7.4 million
Travel $5.3 million
Training $1 million
Additional budget directives include $95 million for Due Diligence and Compact Development, $678.2 million for Compact Programs, $15 million for Threshhold Programs, and $5 million for the Inspector General budget.
According to USASpending.gov, since 2010, the MCC has spent more than $95 million on 1,300 transactions. The top five types of services are A&E management and engineering ($9.7 million), R&D research ($9.1 million), R&D management and support ($8.9 million), facility rentals ($6.9 million), and thoroughfares (roads, bridges, highways—$6.1 million).
The top five MCC contractors for FY 2010-11 are:
1. MBO Partners Inc. $11,919,512
2. ICF International Inc. $7,095,712
3. MWH Global Inc. $6,247,017
4. Roche LTE Groupe-Conseil $5,705,325
5. Bowen Building Limited Partnership $4,260,928
MCC’s FY 2013 proposed budget estimates that $9.5 million will be spent on contracted services that year, which is a 2% reduction from the its FY 2012 appropriated level.
2011 Candidate Countries (Low-Income Category)
5. Burkina Faso
9. Central African Republic
12. Congo, Republic of the
13. Dem. Republic of the Congo
16. Gambia, The
19. Guinea Bissau
26. Kyrgyz Republic
27. Lao PDR
41. Papua New Guinea
44. Sao Tome and Principe
46. Sierra Leone
47. Solomon Islands
2011 Lower-Middle Income Candidate Countries
5. Cape Verde
7. Egypt, Arab Republic
8. El Salvador
15. Marshall Islands
16. Micronesia, Fed. Sts.
20. Sri Lanka
For FY 2011, several countries that would have been eligible for MCC assistance were prohibited by legal restrictions. Lower-income prohibited countries include: Burma, for human rights, democracy, and drug violations; the Cote d’Ivoire, because its elected head of government was deposed by a military coup; North Korea, as direct government assistance is prohibited by section 7007 of the FY 2010 SFOAA; Sudan is subject to numerous provisions, including two under the Foreign Assistance Act, which prohibits assistance to governments supporting “international terrorism” and defaulting on payment to the U.S., and because its elected head of government was deposed by a military coup; Uzbekistan is subject to a U.S. progress report before it can receive funds; and Zimbabwe, which cannot be given aid until the country’s rule of law is restored. For the lower-middle income category, China is not eligible on account of its human rights record; Iraq, pending negotiation of an agreement to furnish such assistance; and Syria, because it supports “international terrorism.”
MCC’s Slow Pace
Many have expressed concern over a slow start for the agency. Relative to most U.S. foreign aid, which often consists of small, centrally planned and contracted projects, the ambitious Millennium Challenge Corporation (MCC) approach allows grantee countries to undertake large projects on their own—making funding levels a crucial issue. According to press reports in December 2007, MCC had spent only $155 million of the $4.8 billion it has approved for spending on projects. The unspent billions made it vulnerable at a time when both the House and Senate had slashed the 2008 budget request. The Senate also proposed a rule that critics claim would be counterproductive to the agency’s “innovative approach”—wherein Congress would provide no more than half of the money up front for future five-year projects (typically $250-$700 million). Under the current system, such projects are fully funded up front to ensure completion.
The Impact of FY2008 Funding Options on the MCA: From Saving Face to Saving the Program (by Sheila Herrling, Center for Global Development) (pdf)
Will the Millennium Challenge Account Be Caught in the Crosshairs? A Critical Year for Full Funding (by Sheila Herrling and Sarah Rose, Center for Global Development)
Congress and the MCA (Center for Global Development)
Millennium Challenge Corporation Invests in African Infrastructure to Fight Rural Poverty (by Cole Mallard, Voice of America)
U.S. agency's slow pace endangers foreign aid (by Celia W. Dugger, New York Times)
Controls and Infrastructure Planning (Government Accountability Office) (pdf)
According to observers, the MCC leaves many unanswered questions, including its relationship to USAID, and the issue of “tied aid.” According to the Citizens Network on Essential Services (CNES), it was unclear at the start whether or to what extent MCA services will be attached to the purchase of goods and services (as in USAID operations):
“At a May 22, 2002 public meeting on the MCA, an InterAction spokesperson claimed that some 71% of U.S. assistance represents ‘tied aid’—that is, aid for the purchase by recipient countries of U.S. goods and services. The spokesperson asked whether the MCA would continue to tie aid or whether greater resources flows would directly benefit recipient countries without strings attached. Alan Larson, U.S. Under Secretary of State for Economic Business and Agricultural Affairs, responded that the just-concluded OECD negotiations on tied aid had been ‘tortuous’ and that the goal of untying aid would not represent the ‘sharp end of the spear’ of the MCA initiative. Indeed, Larson said that he would not make this objective the centerpiece of any initiative, since it’s good policy to buy the time of talented consultants who are able to contribute to a country’s development.
“In February 2003 a U.S. official responsible for implementing MCA could not answer questions about whether the Millennium Challenge Corporation would favor proposals from qualifying governments that involve partnerships with U.S. corporations and NGOs. (Personal communication with CNES staff.) The official would not confirm whether, when considering a government proposal for contracting out services, the MCC was likely to favor those involving U.S. partnerships (over say, partnerships with French or German or Japanese corporations).”
Lessons from Seven Countries: Reflections on the Millennium Challenge Account (by Sarah Lucas, Center for Global Development)
Poverty and Control: George Bush and the Millenium Challenge Account (by Jamie Hodari, Journal of Politics and Society) (pdf)
Post-9/11 U.S. Foreign Aid, the Millennium Challenge Account and Africa: How many Birds can One Stone Kill? (by Francis Y. Owusu, Department of Community & Regional Planning, Iowa State University) (pdf)
De-federalize the Corporation
With the federal budget deficit threatening the existence of many programs and offices, two international aid experts recommended the Millennium Challenge Corporation (MCC) be made a non-government agency.
Raj Kumar, president of Devex, an online community for global development professionals, and John Hewko, a former MMC vice president, wrote an Op-Ed in 2011 arguing the corporation should be transformed “into a multilateral agency, an international organization with multiple countries as shareholders.”
The primary benefit, they argued, would be the MCC “could rise above politics” if it was no longer beholden to Congress for funding.
As it was, the MCC was not hurting for cash. Having received about $10 billion over a seven-year period, corporation still had several billion in the bank, “in part because it makes multiyear agreements with its partner countries and demands proof that they are keeping up their side of the bargain before giving them all the agreed-upon funding,” according to Kumar and Hewko.
How to Save the Innovative Millennium Challenge Corp. Aid Agency (by Raj Kumar and John Hewko, Washington Post)
More Suggested Reforms
Millennium Challenge Corporation: Can the Experiment Survive? (by John Hewko, Carnegie
Endowment for International Peace) (pdf)
Millennium Challenge Account (by Curt Tarnoff, Congressional research Service) (pdf)
James Roberts, The Heritage Foundation)
The Coming Crisis In U.S. Foreign Aid: Options for the 21st Century (by Steve Dobransky,
Does Conditionality Work? A Test for an Innovative US Aid Scheme (pdf) (by Hannes Öhlera,
Peter Nunnenkampb and Axel Drehera)
According to a CRS report, the decision to house the Millennium Challenge Account in a new organization was heavily debated during early congressional deliberations over the new initiative. The Bush administration advocated a new structure and fresh start to circumvent some of the bureaucracy inherent in conventional development organization—while critics argued it would further divide policy and complicate delivery. Suggestions were made to house the agency in the State Department or link it to USAID administration.
Some experts think the MCC is off to a good start, and beginning to live up to its promise of innovation. Steve Radelet, a Senior Fellow at the Center for Global Development and an expert in its MCA Monitor division, expressed reserved optimism when assessing the agency in a February 2008 interview:
“The Millennium Challenge Corporation (MCC) has evolved into what I think is an imaginative and creative new way to think about foreign assistance. It has done many things well, in terms of how it is thinking about foreign assistance, but it has also been quite slow in getting off the ground and dispersing money. What it has done well is recognizing that not all countries are the same and that we should deliver assistance differently to different countries. It separates out those that are better governed, countries that have made choices toward democracy, toward better governance, and toward better health and education policies. It gives those countries the responsibility to set their priorities and design the programs. This is a huge change and a huge step forward in how we think about foreign assistance, to actually give the recipient countries much more responsibility.”
American Foreign Policy and Africa with Senator Johnny Isakson (Modernizing Foreign
Congress puts MCC on life support (by Paul O’Brien, The Hill)
Radelet: Bush Policies Have Made a Difference in Africa (by Bernard Gwertzman, Poverty News Blog)
Criticism from the Left
Much criticism has been leveled at the MCC, from within and outside the development field. Critics take issue with the underlying concept, arguing that making aid conditional upon a set of criteria crafted by the U.S.—no matter how complex, third-party regulated or transparent—is just a continuation of the “one-size-fits-all” model of development long supported by the U.S. government in its rule over the World Bank and other international aid institutions. The new-and-improved model trumpeted by the MCA and MCC is the same policy, albeit with a shiny new package—and runs the risk of continuing to ignore the need for a varied, relative, and organic approach to development and democracy across a diverse range of communities and countries in need.
According to a 2006 Rolling Stone article, the real beneficiaries of the Bush administration’s “fake aid” are the foreign banks it subsidizes. The investigative report also exposes a lack of transparency in the MCC’s operations, and a conditionality based less on the good governance indicators and how many young girls are enrolled in primary school—and more on how much profit countries are able to generate. Rolling Stone reports that the agency was staffed from the beginning with “MCC conservative ideologues,” not aid experts, that the agency refused to partner with other countries, and responded to criticism with a “bunker mentality, refusing to talk to detractors and learn from its mistakes.”
Bush's Fake Aid: The president's $5 billion program does more for foreign banks than the needy (by Joshua Kurlantzick, Rolling Stone)
Support from the Right
From the usually tight-fisted libertarians, an urging to Congress to fund the MCA and its “new approach to development assistance”:
Not All Foreign Aid Is Equal (by James Roberts, The Heritage Foundation)
Congress Should Fund the Millennium Challenge Account (by Brett D. Schaefer, Heritage Foundation)
How to Prevent the Millennium Challenge Account from Becoming Like Traditional Foreign Aid (by Paolo Pasicolan, Heritage Foundation)
And Criticism from the Right
CAGW Expresses Concern with Millennium Challenge Corporation (Citizens Against Government Waste Press Release)
A California native, John J. Danilovich earned a bachelor’s degree in political science from Stanford University and a master’s in international relations from the University of Southern California (London campus). He was a private investor and businessman, active in international shipping for more than two decades, and has worked as company director in the shipping, property, publishing, and investment fields. From 1991 to 1996 he served on the Board of Directors of the Panama Canal Commission, and chaired its Transition Committee prior to the transfer of the Panama Canal. He is also a U.S. diplomat, having served as American Ambassador to Costa Rica and to Brazil. Danilovich was appointed CEO of the MCC in November 2005.A longtime resident of London, Danilovich served as UK chairman of Republicans Abroad and European regional chairman of the same. Danilovich and his immediate family made $21,425 in contributions to Republican candidates and party committees prior to his appointment as ambassador to Costa Rica but have not made any donations since.
Increasing U.S. Credibility Through Better Aid Predictability (by John J. Danilovich, Huffington Post)
On the MCC’s first CEO, Paul Applegarth, from Rolling Stone:
“The first CEO of the program, Paul Applegarth, was a Republican campaign contributor with limited experience in international aid, having spent his career at financial institutions such as the Bank of America, American Express and Lehman Brothers. ‘Applegarth wasn't qualified to do the job,’ says a former official involved in the MCC's creation. ‘Folks that do development for a living, it's a skill—it takes a lot of hands-on work.’
“Applegarth, in fact, had a different kind of work in mind. In a report he authored for a think tank, Applegarth outlined ways to ‘establish financial-sector development as an explicit objective of U.S. development assistance efforts in sub-Saharan Africa’—in short, how to assist banks in the world's poorest countries. To do so, Applegarth recommended ‘bringing more people with capital market skills and experience into government by, for example, establishing a separate salary scale within the government for financial-markets experts’—in other words, paying Wall Street honchos extra to aid the poor.”
An Ethiopian immigrant who came to the United States at the age of seventeen with $150 in his pocket, Daniel W. Yohannes worked his way through school, became a wealthy bank executive. and was sworn in as the CEO of the Millennium Challenge Corporation (MCC) December 8, 2009.