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America Can Profit from Foreign Aid Done Right

Choking off funding will only make the Millenium Challenge Corporation less effective and will only signal to the those countries who have been getting their house in order that their efforts have been for naught.
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Whether you are looking at investing in a promising new business or in new systems to reduce poverty, a smart investor looks for certain givens.

  • Have internal barriers to growth been analyzed for dismantling and have external barriers been analyzed to be overcome?
  • Is the management team -- or in the case of foreign aid, the recipient country's government -- committed to the program and personally invested in the success of what you are trying to achieve?
  • Is there accountability so you know exactly where your investment dollars are going?
  • Are there benchmarks against which performance can be measured and success weighed?

These are among the issues venture capitalists use to weigh potential success when looking for new and expanding businesses. Why shouldn't similar criteria be used in the allocation of at least some of American's foreign aid dollars?

Washington has taken encouraging action in this regard through the formulation of the Millennium Challenge Corporation, or MCC. There has been a realization in recent years that as we increase the amount of foreign aid the US government spends some of it should be invested not just donated.

To this end, on a bipartisan basis in 2004, Congress passed legislation creating the Millennium Challenge Corporation thereby changing the way some of our foreign aid is given out so it isn't given out at all but, instead, invested. This followed President Bush's appearance at the Monterrey Conference in 2002 where calls for increased aid to meet United Nation's Millennium Development goals -- reducing the percentage of people in poverty by half in 15 years -- was met by America with calls for increased responsibility from aid recipients.

At that conference, the president promised to increase foreign aid by $5 billion each year, bringing our total commitment to the developing world closer to the declared objective of 0.7 percent of America's Gross National Product. As envisioned, the Millennium Challenge Corporation would be a different kind of government agency, overseen by a separate board chaired by the Secretary of State, who, reflecting his personal dedication to the concept, was then Colin Powell and is now Condoleezza Rice.

Having spent the last five years assisting various organizations foster economic activity in the developing world, I was attracted to the concept of foreign aid with accountability that MCC promises, and recently have been fortunate enough to be nominated and confirmed by the Senate as a Member of MCC's Board of Directors.

With a dedicated team built up only over the past three years, MCC has the potential to be a lasting achievement; a foreign aid program which, for the first time, takes into consideration the needs and wants of developing nations and which demands from its partners and itself high levels of accountability.

If a country is prepared to govern justly and meet a well defined set of requirements it is eligible to enter into negotiations with MCC -- which may agree to finance specific projects in health, infrastructure, legal reform, and a myriad of other projects -- with specific benchmarks for the advancing of funds at each stage of the process.

This simple but elegant approach prevents some of the major criticisms of foreign aid, namely corruption, waste, and failure to deliver services to those intended. The MCC, as it is structured, will advance funds only to those countries who continue to meet the 16 good-governance indicators established for eligibility at each stage of a multi-year grant.

In the original concept, according to reports, MCC was intended to ramp up over four years to a level of $5 billion annually by 2006. However, the president hasn't requested more then $3 billion in any one year, and Congress has actually only funded $1 billion in the first year, $1.5 billion in its second year and $1.75 in each of the last two years.

Unfortunately, MCC is the subject of some criticism in Congress because of the nearly $6 billion given to it, only about $92 million has actually been advanced to the compact countries and threshold countries with another $124 million in the process of being expended.

At this early stage in its lifecycle, however, MCC is analogous to an iceberg where observers see only the amount actually advanced to recipient countries, a number which seems very small in relation to the funding it has been given.

While some focus on this low level of disbursements, what lies beneath the surface of the iceberg is the $3 billion in assistance that MCC has actually committed to countries who have worked hard to make the improvements to qualify, countries such as Ghana, El Salvador, Georgia, or more recently Mozambique and Lesotho. By the end of the year, the amount MCC will have committed to these countries and the 10 others like them will jump to close to $5 billion.

Better still ask the people in Burkina Faso, Mongolia or Jordan, all of whom have spent the past several years trying to improve their governments enough to qualify for an MCC grant who may find there no longer are funds available.

Or Peru, the Philippines and Ukraine, all of whom are a part of the innovative pipeline developed by MCC to help move along lower-performing countries in attacking corruption, improving their judicial systems, expanding press freedom, and improving the rights of women as a way to assist with possible eligibility for a larger, truly transformative MCC Compact. These nations, on the threshold of getting the MCC "stamp of approval," want to change their systems. Fourteen have already been allocated commitments of $316 million in grants to assist them become eligible for the much larger Compacts.

This caution in disbursements, however, instead of being lauded, is causing the opposite affect. The U.S. Senate Appropriations Committee has just proposed funding the MCC this year at $1.2 billion, well short of the $3.0 billion it had asked for. If allowed to stay at this level, it will be the third year in a row below the amount the MCC has requested from Congress.

Choking off funding will only make the MCC less effective and will only signal to the those countries who have been getting their house in order by building health clinics, improving roads and facilities to get goods to market, or introduced often politically painful anti-corruption legislation that their efforts have been for naught.

MCC was built by Congress to operate more like a business. As a businessman, I can tell you, it is better to control the outflow of funds, measure outcomes and discipline the process, rather than advancing funds indiscriminately with nothing to show for it as has been done in the past.

With fruits of the efforts of the past three years ripe, now is the time to increase funds for MCC, not reduce them.