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Appendix J
Extracts from Testimony of Paul V. Applegarth, Chief Executive Officer, Millennium Challenge Corporation (MCC)

HOUSE COMMITTEE ON INTERNATIONAL RELATIONS

May 19, 2004

MCC completed a major milestone on May 6, 2004, when the Board of Directors selected 16 countries as eligible for funding from the Millennium Challenge Account (MCA). The eligible countries for FY 2004 are:

Armenia

Georgia

Madagascar

Nicaragua

Benin

Ghana

Mali

Senegal

Bolivia

Honduras

Mongolia

Sri Lanka

Cape Verde

Lesotho

Mozambique

Vanuatu

For several decades, many of us have worked to change the conditions in developing nations. . . . Many programs, policies and institutions are making significant changes but some, unfortunately, are not succeeding as well as we would like. Building on what has been learned in international development assistance, the MCC will take a new approach, one that combines six major concepts in an unprecedented way:

  • MCC emphasizes policy reform.

  • It focuses exclusively on sustainable growth.

  • Its relationship with emerging countries will be characterized by a spirit of partnership.



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Science and Technology in Armenia: Toward A Knowledge-Based Economy Appendix J Extracts from Testimony of Paul V. Applegarth, Chief Executive Officer, Millennium Challenge Corporation (MCC) HOUSE COMMITTEE ON INTERNATIONAL RELATIONS May 19, 2004 MCC completed a major milestone on May 6, 2004, when the Board of Directors selected 16 countries as eligible for funding from the Millennium Challenge Account (MCA). The eligible countries for FY 2004 are: Armenia Georgia Madagascar Nicaragua Benin Ghana Mali Senegal Bolivia Honduras Mongolia Sri Lanka Cape Verde Lesotho Mozambique Vanuatu For several decades, many of us have worked to change the conditions in developing nations. . . . Many programs, policies and institutions are making significant changes but some, unfortunately, are not succeeding as well as we would like. Building on what has been learned in international development assistance, the MCC will take a new approach, one that combines six major concepts in an unprecedented way: MCC emphasizes policy reform. It focuses exclusively on sustainable growth. Its relationship with emerging countries will be characterized by a spirit of partnership.

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Science and Technology in Armenia: Toward A Knowledge-Based Economy MCC will require partner countries to incorporate the views of broad elements of their societies as they determine their priorities. It focuses on results and establishes outcome-based standards for success up front. It establishes accountability as a key operating principle and will monitor progress on an on-going basis. Previous development assistance has involved these concepts with varying degrees of emphasis and success. The fact that all of them are key structural components of MCC makes MCC truly different—and, I believe, capable of making a real difference in the lives of millions. Let me elaborate briefly on some of these core elements of MCC’s approach. First, policy reform. Research has shown repeatedly that development aid produces the best results when it is targeted to countries that respect political and economic rights and freedoms, respect the rule of law, and pursue effective growth policies. Thus, MCC provides incentives for countries to adopt or maintain policies for governing wisely, investing in their own people and promoting economic freedom. Policy reforms in poor nations can provide opportunities for citizens to benefit from increased international trade and private capital flows, from the growth of their domestic economics, and from greater economic and political freedom. These reforms, in turn, can have a much greater impact than whatever MCC itself achieves. President Bush told me personally that providing incentives for policy reform to our partner nations is a critical aspect of our new approach. MCC provides incentives for countries to change their policies, reward those that do, and assist them in achieving their development goals. Second, MCC will promote sustained economic growth. There are many legitimate purposes of development assistance, including disaster relief, food aid, and disease prevention. But over the years, the press of short-term needs has squeezed out attention onto long-term issues. Thus, MCC’s focus would include investments in agriculture, education, private sector and financial systems development, legal and regulatory reform, and enabling infrastructure. Our exclusive mission is to focus on the long-term challenge of assisting developing countries to escape their dependency status through self-sustaining economic growth. Partnership is a critical third piece. This is a major change in the relationship between donors and recipient nations. Millennium Challenge Corporation will ask qualified nations: What are your development priorities? This positive, empowering approach gives partner nations ownership for their programs from the start, and then provides the financing they need. Let me add that this partnership spirit should extend beyond MCC’s relationship with its partner countries. MCC has an extraordinary Board. USAID [the U.S. Agency for International Development], the State and Treasury Departments, and the U.S. Trade Representatives are each represented on MCC’s Board. All greatly contribute to MCC’s own expertise, experience, resources and country

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Science and Technology in Armenia: Toward A Knowledge-Based Economy relationships. MCC’s own staff is lean by design. We should and will take maximum advantage of what these partners, and others within the U.S. government, can contribute. Fourth, to meet MCC criteria, each partner nation must consult broadly within its society to determine their priorities. This ensures the participation of non-governmental bodies, private businesses, and representatives of civil society, with all their skills, knowledge, interests and concerns. Fifth, MCC will enter into Compacts with qualifying nations that focus on outcomes that outline concrete objectives, benchmarks and responsibilities for meeting development goals. And finally, partner nations will be accountable for their performance. If a country’s performance under a Compact begins to falter, MCC will attempt to find ways to support and assist it. However, if under-performance is chronic or if a country fails to live up to its commitments, MCC must be prepared to terminate funding and end a Compact. OPERATIONAL PROCEDURES As the first step in the partnership between the MCC and eligible countries, eligible countries will identify their priorities and the programs to achieve them, and submit proposals for assistance to the MCC. Proposal guidance is posted on our website (www.mcc.gov) and will also be shared directly with the 16 eligible countries. The six core concepts that I described above—the core structural components of the MCC—will encourage partner countries to adopt and implement better policies, to develop institutions and build capacity to govern wisely, to invest in their own people and to promote economic freedom. At the same time, these core concepts also provide a clear opportunity for the USG to demonstrate international leadership in promoting economic growth that will help reduce poverty in many of our world’s poorest countries. They articulate an international role for the United States that is a positive statement about our country and our values. This year’s 16 eligible countries—and others as well—are clearly eager to be partners and participants. Over the three months that the MCC has been in existence, we have heard from many of them. Indeed, countries have already begun to discuss ways to improve their performance on the indicators. In short, the incentives inherent in the MCC’s core concepts are already at work, even before the MCC has entered into a Compact or disbursed a single dollar. This is the ultimate sign of the ability of this approach to catalyze positive change.

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Science and Technology in Armenia: Toward A Knowledge-Based Economy BUDGET PRIORITIES The Compacts between the MCC and partner countries will establish multiyear programs that involve significant up-front commitments by countries, which will commit to continued policies and actions that promote growth, and by the MCC, which will commit to deliver a significant level of financial assistance. These commitments by the MCC and partner countries will permit the countries to achieve measurable objectives that lead to economic growth and poverty reduction. MCC allocation and funding decisions will be driven by the quality of each country’s proposal rather than by the number of eligible countries that submit proposals. MCC may not finalize Compacts with all eligible countries if the programs proposed do not meet MCC standards. But where we can successfully negotiate a Compact, it is important that the MCC be able to provide substantial funding. Being among the largest providers of assistance in a country will allow the MCC to be an effective incentive, to command the attention needed for breakthrough country proposals, and to galvanize the political will essential to success. In order to underscore this commitment, the MCC plans to fully fund multiyear Compacts at a magnitude that would make it either the largest or second largest donor on average in country. In an analysis earlier this year, the GAO [General Accounting Office] estimated that, with a funding level of $3.5 billion, the MCC could fully fund three-year Compacts in 8 to 13 countries.