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Email this citationCIAO DATE: 10/05
The Millennium Challenge Account: Moving Toward Smarter Aid
James W. Fox and Lex Rieffel
July 2005
Executive Summary
The Millennium Challenge Account (MCA) proposed by President George W. Bush in March 2002 is an important step toward smarter US assistance to low-income countries. While it cannot yet be said to represent a revolution in development assistance, it is a welcome experiment and merits substantial funding by the Congress.
The original concept remains valid. A level of funding—$5 billion per year, large enough to be transformational—is one key element of the concept. Other key elements are rewarding good performance, country ownership, measurable results, and operational efficiency.
Sadly, the MCA program is limping, largely as a result of self-inflicted injuries. The most visible signs of trouble are the mid-June announcement of the resignation of Paul Applegarth, the first CEO of the Millennium Challenge Corporation (MCC), and the cuts imposed by the Congress in the FY 2006 budget mark-up process during the same month. The health of the program in the short run will depend on finding a second CEO who can mobilize strong bipartisan support in the Congress.
Funding is a critical issue because the FY 2006 appropriations level is headed toward a level below $2 billion compared with the President's request for $3 billion. The original proposal envisioned ramping up quickly to a steady commitment level of $5 billion per year beginning in FY 2006. The funds requested in both FY 2004 and FY 2004 were also cut by the Congress, by a total of $1.3 billion.
The goal of a $5 billion-per-year program is now getting in the way of building a successful program. An operating level of $2-3 billion annually over the next several years can still have a significant impact. At this level, however, opening the program to the lower middle-income countries, which become eligible for MCA funding in October, would be premature. The health of the program in the medium term will depend on the skill of the MCC in implementing the four Compacts already concluded and finalizing another dozen high-quality Compacts during the coming year.
Criticism of the MCC for getting off to a slow start is missing the point. Pressure to conclude a certain number of Compacts or commit a certain level of funding by some arbitrary date is counterproductive. In particular it undercuts the value of the consultative process that is unique to the MCA.
More seriously, the MCA program appears to be drifting toward "more of the same". This trend represents a grave risk and results from MCC policies as well as legislative constraints. Allowing the MCC to have multiple Compacts with an eligible country could contribute significantly to the program's efficiency. Similarly, lifting the 5-year limit on Compacts and opening the door to having Compacts with regional governments or private sector entities would strengthen the program.
