[Senate Hearing 108-778]
[From the U.S. Government Publishing Office]
S. Hrg. 108-778
THE MILLENNIUM CHALLENGE CORPORATION:
A PROGRESS REPORT
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
OCTOBER 5, 2004
__________
Printed for the use of the Committee on Foreign Relations
Available via the World Wide Web: http://www.access.gpo.gov/congress/
senate
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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)
?
C O N T E N T S
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Page
Alexander, Hon. Lamar, U.S. Senator from Tennessee, prepared
statement...................................................... 5
Applegarth, Hon. Paul V. Chief Executive Officer, Millennium
Challenge Corporation, Arlington, VA........................... 5
Prepared statement........................................... 9
Responses to additional questions for the record from Senator
Lugar...................................................... 31
Responses to additional questions for the record from Senator
Biden...................................................... 33
Responses to additional questions for the record from Senator
Corzine.................................................... 36
Lugar, Hon. Richard G., U.S. Senator from Indiana, opening
statement...................................................... 1
(iii)
THE MILLENNIUM CHALLENGE CORPORATION:
A PROGRESS REPORT
----------
TUESDAY, OCTOBER 5, 2004
U.S. Senate,
Committee on Foreign Relations,
Washington, DC.
The committee met, pursuant to notice, at 10:05 a.m. in
room SD-419, Dirksen Senate Office Building, Hon. Richard G.
Lugar (chairman of the committee), presiding.
Present: Senators Lugar, Hagel, Alexander, and Feingold.
opening statement of senator richard g. lugar, chairman
The Chairman. This hearing of the Senate Foreign Relations
Committee is called to order. Today the Senate Foreign
Relations Committee meets to receive a progress report on the
Millennium Challenge Corporation and we look forward to the
testimony of our witness, Mr. Paul Applegarth, who is the Chief
Executive Officer of the MCC. The MCC is charting an innovative
course in development assistance. Our committee has
enthusiastically endorsed the concept of this new organization,
which will provide assistance to developing countries that
invest in their people, uphold political freedoms, fight
corruption, maintain the rule of law, and pursue sound economic
policies.
We want to ensure that the MCC becomes an efficient and
valuable tool of U.S. foreign policy. We want it to be a bold
weapon in the battle against poverty, disease, corruption,
disorder, and terrorism. We want the MCC to help lift deserving
nations and provide incentives for meaningful reform in
countries around the world.
The performance of the MCC during the next 6 to 12 months
will determine whether it can fulfill this ambitious vision.
During that period the MCC will operate in a difficult
political and budgetary environment. In recent years, Congress
has demonstrated a parsimonious attitude toward the 150
account, which funds foreign assistance, embassy operations,
cultural and educational programs, contributions to
international institutions, and many other aspects of our
outreach to the world. It has significantly cut the President's
request for the 150 account for 2 years in a row.
This year, President Bush proposed a healthy 8 percent
increase for the foreign affairs portion of the budget. The
Senate Budget Committee cut the President's request by a
billion dollars. On the Senate floor, I offered an amendment to
restore the cut, and that amendment succeeded. But the House
Budget Committee cut the President's request by $4.6 billion.
The resulting budget conference settled on a compromise that
would trim more than $2 billion from President Bush's request.
Thus, Congress is doing, in my judgment, the unthinkable--
downsizing the President's foreign policy budget request at a
time of our greatest diplomatic crisis in decades. This is the
equivalent of cutting the defense budget in time of war.
Responsibility for this untimely action is unfortunately
bipartisan and bicameral.
By downsizing the President's 150 account requests,
Congress has ignored the fact that foreign affairs spending has
not yet recovered from extreme cuts implemented in the 1990s
during the era of peace dividends. In constant dollars, the
foreign affairs budget was cut in 6 consecutive years from 1992
to 1998. This slide occurred even as the United States
sustained the added costs of establishing new missions in the
15 emergent states of the former Soviet Union. In constant
dollars, the cumulative effect was a 26 percent decrease in our
foreign affairs programs. As a percentage of GDP, this 6-year
slide represented a 38 percent cut in foreign affairs programs.
By the end of the decade, these cuts had taken their toll.
The General Accounting Office reported that staffing
shortfalls, lack of adequate language skills, and security
vulnerabilities plagued many of our diplomatic posts.
Meanwhile, after decades of being the largest provider of
economic aid to the world, the United States fell behind Japan
throughout the period between 1993 and 2001, even though our
gross domestic product is almost three times greater than
Japan's and our international interests are more expansive.
In the year following the September 11 attacks, President
Bush and Secretary Powell prevailed upon Congress to boost
foreign affairs spending. We began the process of filling the
budgetary hole that we had dug for ourselves in the 1990s. But
Congress's reductions in the President's requests during the
last 2 years have impeded this progress. As a percentage of
gross domestic product, foreign affairs programs are still
about 40 percent below their average levels in the 1980s.
Not every problem can be solved with more resources. But
Congress must understand that we are in a race to secure our
future. We are in a race to safeguard weapons and materials of
mass destruction; and to overcome anti-American opinion in
dozens of nations around the globe; to gain cooperation in the
war on terror and to combat poverty, disease, and economic
hopelessness. These are life and death issues on which the
security and moral authority of our country rest.
In the best case, Congress will reconsider and give the
President and the Secretary of State what they need to fully
restore U.S. diplomatic and foreign assistance capabilities. I
will continue to argue for this outcome with like-minded
colleagues on this committee and elsewhere in Congress. But in
the absence of enlightened 150 account increases, the MCC will
be competing for scarce funds with other deserving foreign
policy programs.
In this competition, the MCC enjoys the advantage of being
the President's initiative, but this sometimes can turn into a
disadvantage. My hope is that the MCC will perform so well
during the next year that Members of Congress of both parties
will embrace it enthusiastically as an inspired idea and an
essential program. But for this to happen, the execution of the
MCC concept must be truly extraordinary. Compacts must be
concluded and money must be spent quickly, while ensuring that
those dollars are distributed fairly, effectively, and without
corruption.
This committee has held multiple hearings on the loan
practices of multilateral development banks and on
reconstruction spending in Iraq, both of which have suffered
from severe management flaws. In the case of the MDBs, loans
have frequently been made with insufficient oversight, leading
to corruption and waste. In the case of Iraq, critical
reconstruction funding has been stalled by bureaucratic red
tape, a cumbersome approval process, and an insufficient sense
of urgency. The MCC must avoid all of these problems.
President Bush has pledged to seek $5 billion for the MCC
in its third year of operation, which will be 2006. This
committee authorized $1 billion for 2004 and $2 billion for
2005. I am hopeful that appropriators will find a way to
increase funding for the MCC. I have written to the Bush
administration to urge that they act decisively on behalf of
increasing funds for the MCC in this fiscal year. Mr.
Applegarth, we look forward to a report on MCC expenditures
thus far.
The United States will be writing compacts with MCC
countries after consulting with them on their ideas of how best
to stimulate growth and eliminate poverty. This dialog is a
crucial component of the MCC concept. We look forward to an
update on the compact development process, and we are
especially interested in knowing how the MCC is ensuring broad
civil society participation in the drafting of country
proposals.
We are also eager to know your timetable for completing
compacts. In the last 8 months I have had to build an entire
organization from the ground up, solidify the MCA's procedures,
and develop criteria for selecting eligible countries. You have
done a lot in a short period. However, we are anxious to see
actual compacts signed. Do you anticipate that any compacts
will be completed and any funding distributed by the end of
this calendar year? If not, when will the first compact be
completed, and is there any way to accelerate the process while
maintaining requisite standards of operation?
We are also interested in your thoughts about the threshold
program, which is intended to provide targeted assistance to
help near-miss nations qualify in the future. This joint
venture with USAID is a critical component of the MCC mission.
It was encouraging to hear Secretary Powell say during a recent
hearing that many countries are coming to us asking what they
have to do to get into this program. This enthusiasm may spur
new efforts toward reform around the world. To this end, we
need to maintain the right incentive structure for countries
interested in becoming MCC countries. The continued
transparency of indicator policy, selection methodology, and
compact development is critical to the overall success of the
MCC.
The MCC holds great promise for both participating
countries and the United States. It gives us a chance to
invigorate our relationship with the developing world and help
set those countries on a course of progress. We hope that the
MCC, working closely with Congress, can realize the original
vision of President Bush to dramatically expand our ability to
spur economic development throughout the world.
Let me welcome our colleagues to the hearing and ask if in
fact any of our colleagues have additional opening comments
that they would like to make. Senator Feingold?
Senator Feingold. Mr. Chairman, just very briefly, I thank
you very much for having this hearing. Mr. Applegarth, it is
good to see you again.
As you know, I believe that the President's Millennium
Challenge Account initiative is an admirable one. It recognizes
two important facts: that sustainable development overseas is
in our national interest and that development efforts are most
likely to succeed in countries that are actually taking serious
steps to get their own fiscal houses in order, to crack down on
corruption, to respect the rule of law and basic human rights,
and then to invest in their own citizens' well-being.
As I am sure you are already experiencing and have
experienced before, good ideas are not always easy to
implement. A lot of people are skeptical about creating a new
institution to implement this initiative. I for one have not
yet heard concrete plans for how the Millennium Challenge
Corporation plans to monitor and evaluate U.S. taxpayer-funded
projects overseas.
I also want to be sure that resources for very valuable
existing programs are not used in order to fund this. My
understanding is this was to be on top of other things that we
believe strongly in, and I would have some questions about that
as well. But I am eager to hear how it is going and I very much
appreciate your being here.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Feingold.
Senator Hagel, do you have an opening statement?
Senator Hagel. No statement.
The Chairman. Senator Alexander.
Senator Alexander. Thank you, Mr. Chairman. I have a
statement I would like to put in the record and I would like to
say these things.
First, I fully support what Chairman Lugar said. I support
the Millennium Challenge Account. It is a bold new approach. I
hope we as a Congress can appropriate at the level that the
President has asked for, and I also sent a letter to our
committees along with some other Senators urging that.
The one thing I would like to suggest is you have 16
countries qualified for funding and another 7 who came close.
Temptation in government in some quarters would probably be to
give everybody a little bit, but it is my hope that, especially
in this first round, that the money go to fully fund the best
projects. I will be supporting you on that if that is the
decision that you make, even though that means that some pretty
good projects do not get funded because there is not enough
money in the first round. But it is very important that the
first projects be the best projects and that they have the best
chance of success in setting a good example for the future.
Thank you, Mr. Chairman.
[The prepared statement of Senator Alexander follows:]
Prepared Statement of Senator Lamar Alexander
Millennium Challenge Accounts represent a bold new approach to
foreign aid. If properly executed, it should prove quite successful.
The principle is simple: reward poorer countries that have established
sound policies, giving them the needed boost to achieve the next level
in their nation's development. The result is a double bonus: we're
providing incentive for good policy choices by rewarding them, and
we're providing aid where it is most likely to do good--in those
countries that already have the right policies in place. By rewarding
poorer countries that put an emphasis on open markets and the rule of
law, we will help put more countries on the path to prosperity.
That's why earlier this year I sent a letter--that was also signed
by Senators Santorum, Sununu, and Sessions--to appropriators asking
them to appropriate as nearly as possible the amount requested by the
President for this important initiative. I'm sorry to report that both
the House and Senate came up short. The House version of the Foreign
Operations Appropriations bill funds only half the President's request,
and the Senate version even less. I hope conferees on the bill will do
better, but I'm not optimistic.
At the same time, we also need to see some positive results coming
from the Millennium Challenge Corporation. To date, no money has been
awarded, and the MCC is still severely understaffed. We need a success
story. Unless Congress can see an example of the MCC working--
efficiently and effectively--we are unlikely to fund the MCC to
requested levels.
To that end, I hope the MCC will remain true to its purpose: to
provide a relatively large sum for major projects in a few qualified
countries. Sixteen countries qualified for funding under the MCC this
year, and another seven threshold countries, who came close to
qualifying, were announced last week. I'm pleased that eight of the
sixteen and four of the seven are in sub-Saharan Africa. The temptation
will be to fund qualified projects in all those countries. While I
sympathize with that desire, given that the MCC has been severely
under-funded to date, we should not give in to that temptation.
Rather, the best projects in a few of the qualified countries
should be fully funded. That may not seem fair to every country that
has qualified, but it will ensure that Millennium Challenge Accounts
achieve the desired impact--greatly improving a few qualified countries
so they can rise up to the next level of development. If the MCC
chooses to sprinkle its limited funds around all the qualified and
threshold countries, the impact will be greatly diminished and the
program will end up looking more like our traditional foreign aid
programs rather than a new, bold initiative.
The Chairman. Thank you very much, Senator Alexander.
Mr. Applegarth, we deeply appreciate your patience in
waiting for our votes to happen. We believe that we have clear
sailing for a good period of time ahead of us before votes will
recommence. We look forward to your testimony as well as your
responses to all of our questions, but even more we appreciate
the enthusiasm and idealism which you bring to this program.
Will you please proceed. Let me say your full statement
will be made a part of the record. You may either recite from
that or summarize as you prefer.
STATEMENT OF HON. PAUL V. APPLEGARTH, CHIEF EXECUTIVE OFFICER,
MILLENNIUM CHALLENGE CORPORATION
Mr. Applegarth. Thank you, Mr. Chairman and members of the
committee, for the opportunity to address you today. Because we
do have a lot to discuss, I have submitted a written statement
for the record and will just summarize it this morning.
My opening remarks address several of the questions that
you all raised in your own opening remarks. To the extent that
they do not, and it does not, I would like to address them
during the Q&A session.
Sixteen months ago I was testifying before you as President
Bush's nominee to become the first Chief Executive Officer of
MCC. During these past 6 months, the MCC has designed and
implemented its operating structure, carefully reviewed and
selected countries that are eligible to formally apply for
fiscal year 2004 assistance, and announced the first threshold
countries. And at this moment we are evaluating the first
proposals and concept papers that have arrived from 13 of the
16 selected countries.
As the committee is well aware, it was only on January 23
of this year, with sustained bipartisan support, that MCC was
established as a unique and innovative effort in poverty
reduction and sustainable development. Underlying all our
efforts is a pronounced emphasis on policy reform. We believe
that by providing incentives for countries to adopt policies
for governing wisely, investing in their own people, and
promoting economic freedom, we strengthen the critical
relationship between fundamental democratic principles and
economic freedom, that together form the bedrock of stable and
responsible nations.
MCC is unique because it was deliberately designed to make
U.S. aid more effective by linking increased foreign assistance
to good governance and sound policies. As you mentioned, Mr.
Chairman, MCC is innovative in several important respects.
Countries are selected based on their ability to participate as
full partners in the development process. This genuine process
means that they themselves will design programs that directly
address the root causes of poverty and will stimulate economic
growth in those areas that they determine are most important.
Since January 23, MCC has set ambitious goals for itself,
moving as fast as the legislation allowed. On May 6, MCC's
board of directors selected the first 16 countries eligible to
submit proposals for MCC assistance. These 16 countries, which
when combined represent more than 130 million people, were
selected out of 63 of the poorest countries in the world. The
selection was based on published criteria, including 16
indicators developed by the World Bank, Freedom House, and
other entities independent of the U.S. Government. They rank
countries on whether they are governing justly, investing in
their own people, and encouraging economic freedom.
MCC has already announced the names of 71 candidate
countries for fiscal year 2005. We expect our board to select
the 2005 Millennium Challenge Account-eligible countries next
month.
It is important to point out that since the fiscal year
2004 selection criteria and methodology were announced MCC has
received a number of very valuable public comments. These
comments were taken into account during our review of the
selection criteria for fiscal year 2005. For example, in a
direct response to public comments MCC replaced the primary
school completion rate indicator, which measured graduation
rates for all students, with a girls primary school completion
rate indicator. We made the change to emphasize clearly the
proven importance of primary education for women in terms of
poverty reduction and growth and because data is now available
to provide a measurable ranking.
MCC is also exploring potential improvements in the
selection criteria for the future, such as measuring the
country's support for entrepreneurial activities, improved
focus on investing in people, and the economic cost of trade
barriers. We are also establishing a working group to help
identify an indicator to measure a country's policies as they
affect its natural resources. This group will be chaired by MCC
Board Member Christie Todd Whitman.
Within 3 weeks of the selection of the first round of MCC-
eligible countries in May, we had MCC teams on the road to
visit all the countries. Working together with USAID and
embassies, we explained to a wide variety of groups in each
country that we wanted each nation, through a consultative
process with civil society and the private sector, to develop a
compact proposal, which is essentially a detailed
implementation plan that lays out country priorities,
objectives, and benchmarks for the use of MCC assistance.
We are not pushing any particular sector or project, but
instead we seek to help those countries find the best
opportunities for poverty reduction and growth.
President Bush has requested $2.5 billion for fiscal year
2005. In an analysis earlier this year, the General Accounting
Office estimated that with a funding level of $3.5 billion, the
President's 2005 request plus the fiscal year 2004 enacted
levels, the MCC can fund compacts in only 8 to 14 countries at
a level that would provide a meaningful incentive for policy
reform. MCC is a good investment in security, poverty
reduction, and growth, and achieving an adequate level of
funding is essential to our mission. I very much appreciate
your support, and that of the members of this committee in
achieving adequate levels of funding.
We are now looking at the country proposals that we
received. We are looking at them as investment opportunities.
However, the return we seek is not a financial return, but a
return in poverty reduction and growth. We want to give our
partners an opportunity to escape the cycle of dependency and
actively change the economic path of their country and the
lives of their people.
We have been impressed with the efforts of MCA-eligible
countries so far and the innovative steps they have taken to
ensure a broad-based consultative process. Some countries have
significantly involved NGO and business sectors in priority-
setting for the first time. For example, Mongolia is holding
public meetings throughout the country. Armenia and Georgia
have broadcast public meetings on national TV. One official
from an MCA country in Africa said: ``Even if we receive less
than we have requested through our compact proposal, the
intangibles gained from taking control of our own development
destiny are the most important part of the process.''
Just as important, the potential for qualification is a
continuing incentive for countries to make reforms. One country
passed four pieces of anti-corruption legislation and began
enforcement. The stated reason: They hope to qualify for MCA
funding. Since the announcement of potential MCA indicators in
February 2003, the median number of days to start a business
has dropped from 61 to under 50 in MCA candidate countries.
The first country proposal reached MCC in mid-August and a
number of countries have submitted proposals and concept
papers. What we see thus far covers almost all areas linked to
poverty reduction and economic growth, education, health,
water, microcredit, rural development, infrastructure and
financial sector development. As we begin our due diligence, we
are asking direct questions: What is the link to poverty
reduction and growth? Who are the beneficiaries? How will we
measure results? How will the proposal impact the environment?
Will the money be well handled?
We are also coordinating with the United Nations
Development Program, the World Bank, and other donors and
working closely with USAID, State, and other U.S. Government
departments to think through technical issues, to coordinate
our activities, and to maximize the effectiveness of our
assistance.
We anticipate that we will begin consulting with Congress
about entering our first compact negotiations in the near
future. This consultation will occur once we have conducted a
thorough review of a country's proposal to determine whether
there is a basis for conducting more formal negotiation. My
personal hope is we could sign one or more compacts by the end
of this year. But let me be clear that MCC is not in the
business of rushing funds out the door before it is satisfied
that the proposed compact will achieve real measurable results.
As I emphasized earlier, underlying all MCC's efforts is
the importance of incentivizing policy reform. We believe this
objective is enhanced by the threshold program. For fiscal year
2004 the board selected Albania, East Timor, Kenya, Sao Tome
and Principe, Tanzania, Uganda, and Yemen to be invited to
submit their proposals for improving their MCA indicators.
To encourage and support these reforms, we are working
closely with the USAID to assist these threshold countries with
targeted programs that will help improve their policies so they
have a better chance of qualifying for MCA assistance. Let me
emphasize, however, that selection for the threshold program
does not ensure automatic or quick selection for MCA
eligibility. The type of reforms that the threshold program is
designed to assist requires leadership and commitment over a
period of time.
Like MCC's primary programs, the responsibility lies with
the countries. If these countries want to undertake the
challenge and opportunity, we will support their efforts.
Eligibility, with or without threshold program participation,
will be judged only against clearly measurable data that
reflect the concrete efforts made by the governments.
Operationally, MCC has increased its staffing and has
developed detailed hiring plans, while addressing the basic
issues inherent in the startup. We have sought to bring to MCC
the most highly qualified individuals with diverse backgrounds
and experience in government, the private sector, multilateral
institutions, NGOs, and higher education.
I could continue speaking at length about the ways we are
constructing the foundations of MCC, but perhaps your questions
will allow us to address these subjects in more detail.
In closing, let me remind you of our ultimate
beneficiaries, the people we have been created to help.
Madagascar, one of our potential partners, has a population of
16.4 million, who on average earn less than 64 cents a day.
These people, like the rest of the world's poorest countries,
live with hopes, aspirations and potential as yet unrealized.
The Millennium Challenge Account exists to help the world's
poorest countries and exists because of a significant
bipartisan consensus here in Congress that clearly recognizes
the importance of effective and lasting global poverty
reduction.
Through MCC we have the capability to carry that task
forward, to help create a world of free and prospering nations.
I believe that together we can do this by working closely with
our partner countries, by insisting on commitment and
accountability, and by focusing on poverty reduction and growth
to help them move toward a more flourishing and more stable
future.
I thank the committee for its support and attention this
morning and I would be glad to answer any questions you have
about MCC and its operations.
[The prepared statement of Mr. Applegarth follows:]
Prepared Statement of Hon. Paul V. Applegarth
Thank you very much Mr. Chairman--and members of the committee--for
the opportunity to appear before you this morning. Six months ago, I
was testifying before you as President Bush's nominee to become the
first Chief Executive Officer of the Millennium Challenge Corporation
(MCC). Yet during these past six months, MCC has designed and
implemented its operational structure, carefully reviewed and selected
countries that are eligible to formally apply for assistance from the
Millennium Challenge Account (MCA), announced the first threshold
countries and--at this very moment--we are evaluating the first
proposals and concept papers that have arrived from 13 of the 16
countries.
As the Committee is well aware, it was only on January 23rd of this
year--with sustained bipartisan support--that MCC was established as a
unique and innovative foreign assistance program. By establishing MCC,
the United States Government has boldly (and generously) begun a new
era in poverty reduction and sustainable development. Underlying all
our efforts is a pronounced emphasis on policy reform. We believe that
by providing incentives for countries to adopt policies for governing
wisely, investing in their own people, and promoting economic freedom,
we strengthen abroad the critical relationship between free market
ideals and fundamental democratic principles that together form the
``bedrock'' of stable and responsible nations.
MCC is unique because it was deliberately designed to make U.S. aid
more effective by linking increased foreign assistance to good
governance and sound policies. We are innovative in several important
respects: countries are selected based on their capacity to perform
according to the stringent standards mandated by Congress; countries
are also selected based on their ability to participate--as full
partners--in the development process. This genuine partnership with
selected countries means that they themselves will design programs--
with MCC evaluation and guidance--that directly address the root causes
of poverty; it means that the countries themselves will seek to
stimulate economic growth in those areas that they determine are most
important.
Since January 23rd, MCC has set ambitious goals for itself, and
then met them, moving as fast as legislation allowed. MCC legislation
has a series of sequential requirements--naming candidate countries,
publishing criteria and methodology for selection, and holding a public
comment period--each followed by a waiting period before selection can
take place. MCC opened its doors with only 7 staff members. I am both
grateful and proud to inform the Committee that MCC has met--and in
some cases surpassed--every one of these requirements. On May 6, MCC
Board of Directors (Board) was able to select with confidence the first
16 countries eligible to submit proposals for MCC assistance; again,
all of this activity took place as quickly as the current law would
allow.
These 16 countries, which when combined represent more than 130
million people, were selected out of 63 of the poorest countries in the
world. The selection was based on published criteria, including how
well (or poorly) the 63 countries performed on 16 indicators developed
and monitored by the World Bank Institute, Freedom House, and other
entities independent of the U.S. government. MCC uses these 16
independently derived indicators to evaluate the policy performance of
countries in terms of whether or not they are ``governing justly,
investing in their people, and encouraging economic freedom.''
Let me emphasize that the performance of the candidate countries on
the sixteen policy indicators are completely transparent: any member of
the Committee, any government staff, and--perhaps most important--any
interested member of the public can look at our Web site (www.mcc.gov)
and see how the candidate countries scored this year. In order to
become candidates for fiscal year 2004, countries had to have an annual
per capita income of under $1,415 US dollars (the historic cutoff for
the International Development Association), be eligible for assistance
from IDA, and be eligible to receive U.S. assistance.
FY 2005 SELECTION PROCESS
MCC has already announced the names of the 71 candidate countries
for fiscal year 2005. Because the MCA legislation no longer required
that countries be eligible for IDA loans, the number of competing
countries has grown. We expect our Board to select 2005 Millennium
Challenge Account (MCA) eligible countries before the end of the year,
probably next month.
It is also important to point out that since the FY04 selection
criteria and methodology were announced, MCC has received valuable
public comment. These comments were taken into account during our
review of the criteria for FY05. In a direct response to public
comments, MCC replaced the Primary School Completion Rates indicator
(for all students) with a Girls' Primary Completion Rates indicator. We
made the change to emphasize clearly the proven importance of primary
education for women in terms of poverty reduction and high economic
return because data was now available to provide a measurable ranking.
The second indicator change MCC made was to lower the ceiling inflation
rate indicator from 20 to 15 percent in order to make the indicator a
more meaningful test of a country's economic policies.
In addition to the two changes to the selection criteria for FY05,
MCC will explore potential changes for the future, such as measuring a
country's support for entrepreneurial activities, improved focus on
investments in people, and the economic cost of trade barriers. Taking
into account suggestions from the public and advice from Congress, MCC
will also establish a working group to help identify--or promote the
development of--an indicator to measure a country's policies as they
affect its natural resources. The group will be chaired by MCC Board
Member (former Governor of New Jersey, and most recently head of the
Environmental Protection Agency) Christine Todd Whitman. This group
will work with outside groups and experts to establish criteria and
invite ideas for such an indicator.
COUNTRY COMPACTS
Within weeks of the selection of the first round of MCC eligible
countries in May, we had MCC teams on the road to visit the countries.
Working together with USAID and our Embassies, we explained to a wide
variety of groups in each nation that we want each country, through a
consultative process with civil society and the private sector, to
develop a Compact proposal--which is essentially a plan that lays out
country priorities and objectives for the use of MCA assistance to
address barriers to poverty reduction and growth in the country. These
proposals form the basis for discussions between MCC and the country on
their priorities and, finally, for negotiating a mutually agreeable
Compact that includes plans for ensuring accountability, and clearly
lays out the responsibilities of each partner.
As investors using U.S. taxpayer dollars, we are not pushing any
particular sector or project, but instead we seek to help these
countries find the best investment opportunities for poverty reduction
and growth. President Bush has requested $2.5 billion for FY05. In an
analysis earlier this year, the GAO estimated that, with a funding
level of $3.5 billion--the President's FY 2005 request plus FY 2004
enacted levels--the MCC could fully fund three-year Compacts in only 8
to 14 countries.
We will be looking at proposals we have received as investment
opportunities. The return we want to see is poverty reduction and
sustainable economic growth in the countries. We want to give them an
opportunity to escape the cycle of dependency, and actively change the
economic path of their country and part of our strategy is that this is
best accomplished by allowing them to take ownership of the success of
the program.
That means that the programs are about our partner countries'
priorities, their ideas, their activities, their policy reforms and
compacts should reflect the priorities and needs of the people of the
country--not just the government--by placing a strong emphasis on civic
and private sector participation in setting priorities and then
implementing these priorities. This is why we have met with key
individuals in each country--inside and outside of government--such as
the private business sector, NGO's, and other organizations that have
an important stake in the positive development of their nation.
We have advised countries that we would assess their proposals
based on a number of criteria, including:
the proposal's contribution to poverty reduction and
economic growth;
the breadth of public support within the country for the
proposal; and
the government's commitment to continued policy improvement.
We explained to them that MCA eligibility does not mean automatic
entitlement to funding, and that MCC allocation and funding decisions
will be driven by the quality of each country's proposal and their
ability to successfully implement the Compact as well as the
Congressionally mandated criteria for a robust financial management
plan so that U.S. taxpayer money is optimally used.
We have been impressed with the efforts of MCA eligible counties so
far and the innovative steps they have taken to ensure a broad based
consultative process. Some countries have consulted NGO and business
sectors for the first time. Mongolia is holding public meetings in all
four corners of its large expanse. Armenia and Georgia have broadcast
public meetings on national TV. One official from an MCA country said,
``even if we receive less than requested, the intangibles gained from
taking control of our own development destiny are the most important
part of the process.'' Indeed, we are finding that the process itself
is an incentive for progress.
Just as important, when countries don't achieve eligibility, the
potential for qualification is a continuing incentive for them to make
reforms and become eligible. One country passed four pieces of anti-
corruption legislation and began enforcement. The stated reason: the
hope of qualifying for MCA funding. And since the announcement of
potential MCA indicators in February 2003, the median number of ``days
to start a business'' dropped from 61 to 47 in MCA candidate countries.
Many countries decided to include additional parties in the
consultation, and as a direct result of this increased participation
they have achieved a much deeper analysis and more careful
prioritization. They know this will lengthen the proposal development
process, but they believe it will increase proposal quality and as well
as its acceptance within the country.
The first country proposal reached MCC in mid-August and a number
of MCA countries have now submitted proposals and concept papers. What
we have seen in the proposals and concept papers thus far covers almost
all areas linked to economic growth and poverty reduction: for example,
education, water, micro-credit, rural development, infrastructure, and
financial sector development. We have begun our due diligence
processes. We are asking direct questions. What is the link to poverty
reduction and growth? Who are the beneficiaries? How will you measure
results? How do you rank your priorities? How will the proposal impact
the environment? How does your proposal relate to what the government
and other donors are doing? Will the money be well handled? Is
procurement going to be fair and transparent?
As part of our due diligence process, we have already begun
consultations with the United Nations, the World Bank, the UK's
Department for International Development (DFID), Japan and other
donors. We are doing analysis on the growth and poverty reduction
potential among proposals. We are working closely with USAID, State and
other USG departments to think through technical issues, to coordinate
our activities, and to maximize the effectiveness of our assistance.
MCC anticipates that we will begin consulting with Congress about
entering our first Compact negotiations in the near future, as
prescribed in our legislation. This consultation will occur once MCC
has conducted a thorough review of a country's proposal to determine
whether there is a basis for conducting a more formal negotiation. We
believe that due to our efforts as well as the efforts of the
countries, that we will make significant progress on several proposals
by the end of this year. My personal hope is that we could sign one or
more Compacts by the end of the year. Let me be clear, however, MCC is
not in the business of rushing funds out the door before it is
satisfied that the proposed Compact will achieve real, measurable
results.
THRESHOLD PROGRAM
As I emphasized earlier, underlying all MCC's efforts is the
importance of incentivizing policy reform. In many ways, this is the
challenge in the Millennium Challenge Account. But we don't just want
to challenge these countries that are eligible, but also those
countries that currently fall short on MCC indicators but are making
efforts to reform. We believe this objective is enhanced by the
Threshold Program.
The Board made the decision to set aside an initial pool of up to
$40 million dollars from fiscal year 2004 funds to go to the
``Threshold'' countries that are very close to qualifying and have
demonstrated a commitment to undertake the policy reforms necessary to
improve their growth conditions and their prospects for qualifying for
the MCA. For FY 2004, the Board selected Albania, East Timor, Kenya,
Sao Tome and Principe, Tanzania, Uganda, and Yemen to be invited to
submit their proposals for improving their MCA indicators.
To encourage and support reform, we will be working closely with
USAID to assist these ``Threshold'' countries with targeted programs
that will help improve their policies so that they have better chance
qualifying for MCA assistance. Moreover, such a program can help
countries put in place the policies that provide the foundation for
increasing productivity, reducing poverty, and moving toward more
sustained economic growth. Distinct from the poverty reduction and
economic growth programs that are MCC's primary focus, the hope of
qualification presents these countries with an opportunity to actively
address and improve their performance on the policy indicators.
This type of reform requires leadership and commitment. Like MCC's
primary programs, the responsibility lies with the countries. If these
countries want to undertake this challenge and opportunity--we will
support their efforts. However, I want to make it clear that simply
participating in this program will not guarantee eligibility for MCA
assistance. Eligibility, with or without Threshold Program
participation, will be judged by clearly measurable data and concrete
efforts made by the governments.
Change will not be easy and will not soon be reflected in country
scores. The policy areas where these countries will need to focus can
only be changed with consistent effort and a high level of political
commitment--over a period of time.
Building on our strong working relationship with USAID, MCC will
ask countries to submit their plans for reforming failing indicators
and we will evaluate their final proposals based on political
commitment, looking for specific actions that the government will
undertake. MCC will soon post guidance on our Web site explaining the
parameters for submitting such a proposal.
MCC has also increased its staffing and has developed detailed
hiring plans to ensure that MCC will have the right number of people
and skill sets to analyze proposals from both eligible countries and
those in the Threshold Program. In less than nine months the number of
staff has gone from 7 to 63 (which includes contractors) and we have
sought to bring MCC the most highly qualified individuals, with diverse
backgrounds and years of experience in government, private sector
development, multilateral institutions, NGO's, and higher education. I
could continue speaking for a considerable length of time about our
goals for specific departments, the meticulous and frankly demanding
way in which we are constructing the foundations of MCC. But perhaps
your questions will allow me to address these subjects in detail.
In closing, Madagascar, one of our potential partners, has a
population of 16.4 million people who, on average, earn less than 64
cents a day. These people live with hopes and aspirations for a better
life that are as of yet unrealized. The Millennium Challenge Account
exists to help them and others among the world's poorest countries to
achieve their potential. MCA also exists because of a significant
bipartisan consensus here in Congress that clearly recognizes the
importance of effective and lasting global poverty reduction.
Through MCC we have the capability to carry that task forward--to
do our part in creating a world of free and prospering nations.
And I believe that, together, we can do this by working closely
with partner countries, by insisting on commitment and accountability,
and by focusing on growth, nudging each nation toward a more
flourishing, more stable future. And that will be a great good, for us
all.
I thank the Committee for its attention and support. I would be
glad to answer any questions you may have about MCC operations.
The Chairman. Well, thank you very much, Mr. Applegarth.
We will have a 10-minute round to begin with for our
members. When was the threshold group of countries announced?
Mr. Applegarth. It was announced last Thursday, September
30, Mr. Chairman.
The Chairman. I appreciate your giving that list to us
today. I mention just anecdotally the selection of Albania as
one of the seven. It was my privilege to visit Albania in
August. I would say that the Prime Minister, and all of the
ministers with whom I visited, were extremely hopeful of being
included on the threshold list. They thought that they had
taken steps, which they outlined to me, that would qualify them
to do that.
I could offer no assurance, but let me just underline some
of the points you have made in your testimony about the
internal debate which is occurring in countries around this
world. Albania is a focus because I talked to the people there
and they had in mind first of all some MANPAD missiles that
were up in the mountains, at least 79 of them as I recall, that
they were prepared to destroy.
Now, this has nothing to do with economic assistance and
the normal things that we are involved with, but it has
everything to do with a country that is forthcoming, and that
wanted to make sure that these missiles and various other
things that were in sheds and so forth and that were revealed
to us as we proceeded up above Tirana were going to be
destroyed safely. The Albanian officials wanted some degree of
expertise as they worked with the United States.
In addition to that, they outlined the idea of a military
academy, in which young officers in the Albanian armed forces
would come forward. One of the requirements of this would be
proficiency in the English language--once again, a clear
reaching out to us to indicate that they really wanted to be
friends and to be part of the move toward democracy.
Then we heard a very vigorous debate over the dinner table
in the Ambassador's residence. This included the Prime
Minister, but likewise members of at least two distinct
political parties that were in the opposition, who felt free in
arguing publicly and vociferously about the course of affairs
in the country, which I think is very healthy.
Now, you are running into that, I am certain, with your
administrators as you visit these countries and as they become
aware of the possibilities. I have no idea what sort of plan
Albania will propose, but I think it will probably be a fairly
good one. They have given some thought to this, and their hope
is that they might be included.
Other countries in the world are out there in the same
condition. When I visited Georgia shortly after the Albania
visit, they were extremely pleased and, as you said, have had
public meetings. It is a point of national interest that they
are formulating a plan. I do not know whether they have
submitted one as yet.
In both of these countries the needs are obvious to an
observer just walking along the street, quite apart from going
out in the countryside. They have extraordinary needs. But in
Georgia the application that they have given was preceded by a
tremendous crackdown on public corruption, including dismissal
of most of the police force of the entire country and rehiring
of persons on different terms, and a whole culture of change,
with the young people from the Rose Revolution. It is
extraordinary for that area, exemplary, in every way. This
should be supported by us in our public diplomacy and in our
espousal of democracy.
So this is not an incidental program that we are
discussing. I have already gone through some criticism of the
Congress for its lack of prescience with regard to our
possibilities in the world, but at the same time, this is why
the urgency of this situation impelled this hearing before we
go out of session. Members have many things on their minds. It
is the final week of session and people sometimes say: Not
another hearing. Yes, we are holding another hearing. We are
here because we really want to hear from you, and we have some
benchmark at this point.
We will return to this subject. We must. The appropriations
process for the next year is upon us there rendering this
matter particularly urgent.
Now, it is in that spirit that you have indicated that
probably some compacts will be concluded in this calendar year,
but can you quantify that any better? How are the 16 coming
along? What sort of timetable may we expect before we see the
results of those examinations?
Mr. Applegarth. I will certainly do so, Mr. Chairman. I
wanted to emphasize something you mentioned, which is the
impact in the countries. I think some of the most interesting
and positive feedback we have received, that I have received,
has been in discussions with the Presidents and Prime Ministers
of countries, some of whom qualified, but a number of whom did
not.
I know Secretary Powell has also mentioned this, but to see
our little country data sheets, which are available on our Web
page, in the hand of a President or a Prime Minister--as
happened twice in New York the week before last, is gratifying.
Two different Presidents said: Paul, we really want to qualify
for Millennium Challenge; Why did we not?
In one case I had to say: Mr. President, because you fail
our corruption indicator. And he said: I understood that and I
just needed to have you confirm that; what kind of things
should we be doing? And I said: We are not going to be
prescriptive. It is a partnership. We just set the benchmarks.
But let me tell you what some of the other countries that did
qualify have been doing.
To have this opportunity to talk with the senior, truly
senior leadership of countries about what is important in terms
of promoting good governance, in terms of promoting economic
freedom, in terms of investing in their own resources, is
really extraordinary. We get constant feedback and constant
reinforcement that this joint mission that we are all about is
really significant.
In terms of the compact proposals themselves, as I
mentioned, we got our first one in mid-August. They continue to
come in virtually every other day. I think we got the most
recent one on Friday. To be fair, they all require still a fair
amount of work. A lot of them have had a lot of effort going
into them, but they all require a focus on true prioritization
and more detailed implementation and work.
I think the 13 that we have received total $4.2 billion
themselves. Now, there is no question that I am in complete
sympathy with Senator Alexander's remarks, but even if I was
not, we would still focus only on the very best, and the
countries understand that in terms of the available funding we
have. We think it is also very important that we show a clear
linkage of high quality plans and proposals to poverty
reduction and growth.
My own experience in the private sector has been that, even
when you get a very good proposal with parties that are used to
doing funding, whether it is the private equity world or other
kind of worlds, for this kind of investment it frequently takes
4 to 5 months to negotiate a contract--even in the best of
circumstances, from the time you get the proposal until you get
to completion.
Therefore, I say it is my personal target and I hope we can
get a couple done by the end of the year. But I also have to
recognize that this is a learning process for parties on all
sides. Our emphasis is in the consultative process, which is
certainly not typical in a private sector perspective, and the
fact that we are asking governments to step up and do a number
of things that they have not done before, and at the end of the
day we need a government to government agreement, says that
that is a stretch target, an ambitious target, but we will try
to do it.
The Chairman. Well, you are between a rock and a hard place
because on the one hand you are attempting to do the
responsible, prudent thing, and you must. On the other, the
governments that are involved, 13 of the 16, have sent them,
but three have not, and here we are on October 5.
The problem in our government, however, is that already the
appropriation that MCC will need for the year following this
year is going to be going on during November and December.
Before long, OMB and others will already be suggesting what the
limits are. You understand our predicament as advocates. We
understand yours, that there has to be a track record that
somehow you are handling this money, you are handling it
successfully and we are getting results. Failing that, the
result is going to be that people will say: Well, you are not
able to use the money that fast, you are just not able to
assimilate this. They will say, it is a good program, but by
and large we should fund it at half-speed.
This is what I am worried about, quite frankly, and that is
why in my opening statement I offered the long recitation of
the battles over the foreign account, the 150 account, which
all of us are engaged in. This is hand-to-hand combat each year
on this business.
Let me just mention one more thing. The capability
corruption item is just critical. We have held hearings on the
multilateral development banks. Granted, this is an area that
people do not get into very often, and some would say hardly
should get into at all. It is off somewhere else. There are
many countries involved and we play a part in it. But who knows
exactly what happens when loans are made to a government for
budgetary support?
Well, somebody needs to. In other words, the accountability
of American taxpayer funds, however humanitarian the intention
may be, is of the essence. A corrupt government on the face of
it, even if it has great needs, is not a candidate for MCC
funds. We know off the bat that this is very bad news.
I had the Foreign Minister of Papua-New Guinea in the
office on Friday, an able gentleman and an able Ambassador who
once came over here on a Henry fellowship or what have you.
Unfortunately, all the fellowships for Papua-New Guinea were
cut off about 1997, which is sad. We will address international
scholarships in a separate hearing tomorrow.
The corruption business, as we found in these multilateral
development bank oversight hearings, is just endemic. Cases
like Georgia, with the young people overthrowing their
government, these are extraordinary exceptions in the world.
And yet you have a great opportunity here to fashion a
different culture that will be of great benefit to people in
terms of their governance, quite apart from their economics,
which you understand.
Let me pass the baton on to Senator Feingold for his
questions.
Senator Feingold. Thank you, Mr. Chairman.
I would like to start, Mr. Applegarth, by asking you
essentially the same question I asked you at your confirmation
hearing in March, which is: How will the MCC monitor the very
significant expenditures of taxpayer resources with a total
staff of about 200 people?
I understand it is your intention to have about 20 people
based overseas to monitor programs in 30 countries by fiscal
year 2006. As the recent Inspector General's report noted, $5
billion a year, as the President called for, spread over 30
countries still averages out to $167 million per country per
year. Do you think that 20 roving employees can adequately
monitor the use of these taxpayer dollars?
Mr. Applegarth. I think we are different, Senator, because
we have the true country partner ``buy-in'' as to what we are
doing, and it is not only our resources, in that we view
ourselves as fiduciaries to the American taxpayer, but at the
end of the day this is also their resource. This opportunity is
a rare one for them, and we are fortunate in picking really the
best of the highest ranked of the potential countries we are
working with.
We will, as a part of the detailed implementation plan
under a compact, have explicit monitoring benchmarks and
methods and procedures built in, and essentially we will
monitor the monitors. We do not expect our staff to be doing
the detailed monitoring, but we will be working with the
partner countries to make sure that that happens correctly.
In addition, those compacts and those procedures will all
be public and available. We have been trying to encourage both
the community here as well as in the countries to participate,
so they know what the benchmarks are, they know what the
intentions for where the money is supposed to go are, and so we
expect to have not 20 watchdogs, but thousands of watchdogs in
each country in some way that are helping us do this informally
as well as formally through the procedures we build together
with the country and the compact.
Senator Feingold. I appreciate that answer. Let me follow
by asking if these plans for monitoring and evaluation of the
Millennium Challenge are based on any existing model? Is there
some existing arrangement that you can point to that will give
us confidence that we will be able to keep close tabs on our
taxpayers' dollars, especially since you are talking about a
relatively modest staff of American employees and an
interesting concept of thousands of other people helping us in
those countries? And I am wondering if there is some other
model that would suggest it might work.
Mr. Applegarth. We are looking at the best that is out
there. We are different in some ways because we are combining
what the private sector does in terms of ongoing and short-term
monitoring and quarterly monitoring, if you like, or even more
frequently, as you would if you were sitting on the board of a
country or of a company, together with some things that the
World Bank has been doing and the IDB has been doing and
elsewhere, in both looking at the long-term impact, but also
the short-term monitoring basis.
We have been looking closely at both successes and failures
in monitoring in those other institutions and we will try to
pick the best of them, depending upon the sector and depending
upon the country. It is just going to vary by both.
Senator Feingold. What will it cost for the MCC to maintain
these 20 employees who are based overseas? And are you asking
the State Department or USAID to share some of the cost, and
how much?
Mr. Applegarth. Well, we have been working closely with
State and USAID to make sure we are leveraging our staff
resources to the extent we can. By design we are not intended
to be creating another bureaucracy. We are really modeled much
more on a professional services entity, where we are
subcontracting out anything that is not critical to our
mission. So that we subcontract out things like our personnel
administration, our internal accounting, even our security
clearances, so that our folks really are directed to our
mission, which is to work with the countries to make these
things work.
In many countries, we expect to be housed in the embassy or
with the USAID mission. It will vary on the country's
circumstances, but that would be our intention. To the extent
we can leverage the usage of other U.S. Government resources in
the area, we would like to do that. We have been getting quite
good cooperation on the ground from both our Ambassadors and
the mission heads from USAID in particular.
Senator Feingold. I think I understood that answer. Let me
followup by asking, does the MCC anticipate asking USAID or
State Department personnel to assist in the monitoring effort?
Mr. Applegarth. We can and I think it will be country
specific. As you know, we certainly will be seeking their views
and their input. Whether or not they have the resources to do
that for us I think is really up to them.
Senator Feingold. Would State or USAID be reimbursed for
these costs?
Mr. Applegarth. We would attempt to, I think, work out on a
country by country basis arrangements that would work for them
as well as for us. We are not going to divert them from their
primary missions.
Senator Feingold. Some have voiced concerns that lobbyists
have been retained at a significant cost to extremely poor
countries to help represent developing countries that wish to
participate in the Millennium Challenge initiative. Obviously,
this is troubling since the whole premise behind this
initiative is that objective performance will be rewarded. It
is not supposed to be about who is in and out of political
favor, who has a high-priced lobbyist, and who does not.
What's more, the objective indicators are well-known and
publicized. Certainly our embassies should be able to explain
clearly how one qualifies for MCA assistance. So it would
trouble me if some countries believe that by hiring some
professional lobbyist that that is a good investment, rather
than, say, implementing the actual policies that the chairman
was talking about to root out corruption.
Does this phenomenon trouble you? Do you have any idea of
how widespread the phenomenon is, and what steps are being
taken by the MCC to discourage this kind of activity?
Mr. Applegarth. I share your concerns 100 percent, Senator.
This is not a good use of funds. I have been quite public about
that. This is not an approach that countries should take. As
recently as last Thursday, I spoke before a large audience at
the Bretton Woods Conference. In response to a particular
question from an emerging market Ambassador, I repeated the
fact that success with MCA does not involve lobbyists.
We have seen only a couple instances of it, and I cannot
think of a case where a lobbyist was hired that I am aware of
where the country was selected in this first round. The board
takes it quite seriously that its selections are based on the
criteria and not politics and lobbying. I think that is the
best signal, both our jawboning and the fact that it does not
work.
Senator Feingold. I am very pleased to hear you have shown
concern about this already, and over time I want to work with
you to make sure we stay on top of this possible problem.
What steps has the MCC taken to ensure that civil society
in qualifying countries is engaged in actually developing
compact proposals, so that this program really empowers
citizens and not just empowering governments overseas? What can
you do to bring civil society into this process?
Mr. Applegarth. Transparency is our biggest ally,
particularly now when we are trying to build confidence that we
will use the money well. In the countries--in every country
that we visited on the initial rounds--we had separate meetings
with civil society, with NGOs, members of the business
community. Most of our followup trips have involved similar
meetings.
We have asked the countries to in their compact proposals,
to discuss and explain their consultative process. It is clear
to them that we are taking it seriously, and, as a result, they
are taking it seriously, and it is constantly reinforced in our
messages to other countries and in our discussions and they
know it will be a key element of our due diligence.
Senator Feingold. Thank you, Mr. Chairman.
Thank you, Mr. Applegarth.
The Chairman. Thank you very much, Senator Feingold.
Senator Hagel.
Senator Hagel. Mr. Chairman, thank you.
Mr. Applegarth, welcome. We are grateful for your
leadership and please convey to your colleagues that we
appreciate their good work and you are off to a very productive
beginning.
As noted in your testimony and in the opening comments of
Chairman Lugar, the current funding for MCA is below expected
levels, below what the President had requested. Most of us on
this committee fought for that mark. We did not achieve that.
Now, as that as the context of the issue, I have got two or
three questions regarding that shortfall in funding for fiscal
year 2005.
The first is, what impact does this have on planning and
implementation as you have completed fiscal year 2004? More
importantly, you are planning for 2005 with essentially a
billion dollars less than what the President had requested.
Mr. Applegarth. It affects us in a number of ways, Senator.
As we evaluate proposals and really build a pipeline, it is
crucial that we have adequate funding. If you come back to what
we are really about, it is to provide an incentive to countries
to enact policy reform. It would be a fundamental problem if
countries gave us good proposals--and there are a lot of good
elements in proposals in what we are receiving right now--and
that as a result of the cutbacks in funding, we either had to
eliminate countries that had good proposals. There will be some
countries that do not have good proposals. We are confident of
that. But if there is a proposal before us that has good merit,
that clearly leads to poverty reduction and growth, and we are
unable to fund it, we have built expectations in the countries,
their governments are taking heroic steps. Georgia is a very
interesting example, the things they are doing, but there is
also leadership in our other partner countries where they are
trying to do things. If we fail to deliver on the Monterey
promise that if they take those steps we will be there to help
provide assistance, we are going to get questioned: Well, where
is the beef? What happened?
I think it is important to us in terms of our role in the
world that what we are doing be funded adequately. I think it
is important for U.S. credibility and I think it is important
in terms of poverty reduction and growth, and we will come back
to that. So it is very important as we go forward that we be
able to work with the countries and credibly respond to good
proposals as we have encouraged them to submit.
Senator Hagel. In the same regard as the general question
that I asked previously, what specific contingencies are you
taking to deal with the shortfall? If you could give the
committee one or two or three examples? You have laid out a
general dynamic of what you are going to be dealing with, the
concerns, the vulnerabilities, the down sides, but what are you
doing to prepare for this?
Mr. Applegarth. Well, first we are being rigorous in our
evaluation of the proposals. We do that anyway, but I think we
have tried to make it clear to the countries that only the best
proposals will qualify. We are looking at timing; we think it
is very important to have full funding up front in a compact,
so the government can really plan and does not at the last
minute get a rush of funds that ultimately leads to
inefficiency and corruption.
We are trying to make sure that the planning is up front.
There are some things we can do in terms of funding technical
assistance or evaluate in early stages something where we can
perhaps as funding comes through amend the proposal to increase
the funding once we have the certainty of it. At the same time,
we will obviously do the other things we can in terms of
adjusting timing. We think a number of countries will qualify
in the future, if we pick the right countries, and qualify for
2006 funding, qualify for 2005 funding.
But the reality is it is important, if we are going to do
this right, that we do get the funding that we need. We will
obviously manage the program to the resources that are
available, but I cannot assure you that significantly reduced
funding would not impact either our mission, how the U.S. is
viewed, or what we are trying to do.
Senator Hagel. So the level of funding for fiscal year 2005
could in fact affect the countries that have been selected? We
just might not be able to fund those programs, after we have
committed to the world that this program was effective and new
and efficient and was a partnership that was very important for
them?
Mr. Applegarth. Absolutely, Senator. I think that is a very
important point. At current funding proposals it is inevitable
that the number of countries that we work with will be reduced,
the size of the programs will be reduced, and/or our ability to
truly create the incentives for the kind of policy reform that
we are really all about will be impaired.
Senator Hagel. I might note, Mr. Chairman, this is at a
time when America is reaching out to the world, trying to
improve its standing in the world, trying to develop
relationships, partnerships, based on common interests, and
these are the kind of programs that probably are most
effective, have the most long-lasting effects of any, but yet
we are shortchanging these kinds of programs and I think, Mr.
Chairman, very clearly undermining our overall foreign policy
objectives.
Is there any way that other donors can assist to fill in
some of these gaps, Mr. Applegarth, that we are going to
obviously come up underfunded and we are going to need some
assistance to fill those gaps?
Mr. Applegarth. We are looking. We are working closely with
other donors, first to make sure that they stay in the
countries that we are coming into. We will start the
conversation within the context that we do not want them
pulling back simply because MCC is coming in. We lose all of
our additionality, all of our incentive effect if they are not
there.
We are trying to align what we are doing with their
programs, to the extent it is consistent with what the
countries have identified as our priorities. It is not just
with other donors, but I will mention one specifically. I just
came back from Central America, where the countries propose
that we do something that ties in very closely with something
the World Bank and the IDB are doing, but which will take years
before they can address it. We have the support of those two
institutions to try to get this particular piece done.
We are also working closely with other U.S. Government
institutions. The senior management of OPIC, for example, is
coming over this afternoon after this hearing to talk with us
about what they are doing to put in place, how we might be able
to leverage their resources and their capabilities to
supplement what we are doing and provide more bang for our
developing buck.
Now that you have got me started; the private sector. I had
a conversation on Friday with an institution that is looking
closely at moving back into one of the regions we have been
operating in. They have not been there for a while. They are
trying to decide the best way to do it and to pick the areas of
opportunity for them. Coming out of that conversation I think
was a recognition that the criteria that we are using to
evaluate countries that really do recognize good governance and
recognize long-term growth and poverty reduction are probably
very fertile areas for them to be putting their money. It is
clear from that conversation they are going to be looking
closely at the countries we pick and potentially using that as
a basis for their own strategic investments.
If we can truly mobilize that kind of support, we have
really delivered on the promise that we are about.
Senator Hagel. What is the role of multilateral lending
institutions, private institutions, here? How can we--and
obviously you have touched on it and I want you to go a little
bit further--integrate those institutions and those private
lenders into this fabric to make it more complete? Obviously
you have thought about that and your own background lends
itself to understanding that probably better than most.
Mr. Applegarth. First, we have encouraged the private
sector companies, both domestic and those that are operating
internationally, that already have a presence in the country to
participate actively in the consultative process, because we
think that if there is anyone who truly knows about job
creation, how to use resources to promote growth, it is the
local private sector.
We are not talking about the elites. We are talking about
farmers or small businessmen or housewives who start a
business. We ask them to do it. We are also talking about the
multinationals trying to participate through their local
professional staff.
Second, we think there will be opportunities through our
operations for them to participate business-wise. But more
important, I think we are looking proactively for ways that
their funding can complement whatever we are doing,
particularly if it is not the governments themselves that are
doing the implementation of some of our programs, if it is the
private sector or even NGOs, others that are actually doing the
program management and implementation. There would be a number
of opportunities.
Senator Hagel. Thank you. I might note, Mr. Applegarth,
that the power of Chairman Lugar is immense. He was just in
Albania and miraculously it shows up on your list of threshold
countries 30 days after his appearance. If there is any
question and doubt about the strength and power of this
chairman, it should be dispelled immediately. I have understood
that long ago.
Mr. Applegarth. I did not realize he had been there, but I
am glad to know--it is in the record I did not know he was
there.
Senator Hagel. A celestial kind of happening, really.
Thank you.
The Chairman. Well, thank you very much, Senator Hagel, for
underlining the authority of the chairman.
Senator Alexander.
Senator Alexander. Thank you, Mr. Chairman.
Thanks, Mr. Applegarth, for being here. This is a
fascinating process we all hope succeeds. As I was thinking and
listening to you, there is really nothing so new about it. I
can think of many examples in our society, like foundation
grants. I remember when I was Governor 20 years ago, Memphis
went through a big jobs conference in which they got 2,000
people involved and came up with private money, county money,
city money, had a great vision for the future, and then came
and wanted the State to put some money in, and we did.
Chattanooga then wanted its money, and what I remember doing is
sending them back to get more people involved and to think
bigger.
I can remember the New American Schools Development
Corporation under the first President Bush, where David Kerns
and I raised $50 million private dollars to give to break-the-
mold schools and 700 applied and 14 were chosen. I think of the
private entrepreneurial sector we have in our country, where
startups occur all the time and they are always looking at the
people who have a lot of money to try to do things the way that
people with a lot of money want them to do it.
I was trying to think of any lesson from that and the two
that I thought of were these: It seems to me that you have got
double objectives here. One is to introduce a way of thinking
to people in a way that is attractive to them. You are clearly
doing that with your indicator ratings, so you have got people
thinking differently.
But to succeed it seems you need to have 5 years from now
and 10 years from now a success story. It may only be one
success story. It might only be two success stories. But it
seems to me that that would need to be a success. Of all the
new companies that start in America, most of them fail. Of all
those 700 schools that applied to New American Schools
Development Corporation, only 14 were chosen and some of them
did not do very well.
So I would like to ask you to look down the road in two
ways. One would be, how will you work to make sure that, given
the uncertain amount of money and the large number of
countries, that you end up 5 or 10 years from now with one or
two or three real success stories?
Second, what will you do with everybody who does not make
it? Is there some help--is there some way you can say to
someone who comes close but does not make it that,
congratulations, you have really gotten to an important point
now, and here is a plateau that you have reached or an area you
have reached, and here are a number of things that we can do.
We are not able to give you the grant that you sought, but we
can assist with all of these other things, give you a stamp of
approval, and cause that country to feel good about having
participated, rather than to have the government that got
everybody excited be embarrassed and get thrown out of office
in the subsequent election.
Mr. Applegarth. It is a wide-ranging question, Senator. One
thing I would say, we are not having to encourage our partner
countries to think bigger. I think we are trying to encourage
them to focus at this point. But I think we really cannot wait
5 years or 10 years to show demonstrable success.
We are seeing successes on the policy side and I cited a
couple of them. What is most important is where we really do
have meaningful impacts on poverty reduction in the areas we
are working in, and growth. Inherent in what we are trying to
do in our basic compact proposals with the government is to
build in intermediate term benchmarks and objectives, where we
can see tangible linkages in terms of outcomes and results to
this investment that we are making.
So if we have to wait 5 years before we do that, I think we
are not being ambitious enough. I think we really do need to
tie it to the projects.
In terms of countries that are close on the eligibility
side, we have that platform. It is the threshold program, where
we do agree to work with them to take their proposals. If they
are willing to tackle corruption in their country and give us a
proposal that looks like we can provide some help, we will. The
same thing in terms of rule of law. If they need training of
judges or other kind of things, we will try to do that to help
them.
In countries where we have successful compacts and ongoing
programs, if they get off track, as long as the country
commitment is there, we will do midcourse corrections. I think
that is inherent in the kind of operational involvement and
monitoring that we are trying to do. At the end of the day,
though, I would like to see some tangible results besides the
policy reforms we encourage.
Senator Alexander. In terms of those that do not quite make
it, do you have a name for them? What do you call them? I mean,
what do you say in your letter when you say no?
Here is why--I am not trying to be tricky with you. I am
thinking of No Child Left Behind. You know, many schools were
very good schools, but they had a few kids who did not learn,
so they did not make the grade. So they were suddenly called,
quote, ``failing schools.'' That really made everybody feel
very bad in that school. That was not really a good name.
I was thinking of an award or a designation for countries
that apply, go through a process, get to a point, but do not
get all the way. I think it is--maybe you have thought that
through and you have that in mind or maybe you are not to that
point yet. But I would think about that, because to elected
officials back in various countries it could make a big
difference whether they have something to brag about for having
made this effort.
And funding huge amounts of money, the 13 countries plus 7
threshold countries, that will be hard to do. So you are going
to have some who went a long way in the direction that you
hoped they would go, but do not succeed. So I am thinking of
different levels of success, that is all I am encouraging.
Mr. Applegarth. Well, I think you have put your finger on
first the importance of the funding, that we get just as many
good proposals as we can. Right now we are focused on getting
good proposals, not on those who submit a proposal that does
not work. We did rebrand, what I think you called them ``near-
miss countries,'' to be the ``threshold countries,'' because we
felt that was a more looking-forward process or offered more
opportunity.
In terms of countries that submit proposals that are well
thought through and that we could not fund, I would rather not
contemplate that possibility, frankly. The others we will deal
with in the course of the conversations with the governments.
By being selected and recognized, they already have achieved
something in their neighborhoods and I think in the world, but
we would like to have it backed up with a good program.
Senator Alexander. Yes, but if you are going to fund well a
few good projects, you are going to have a number of other
projects that are not funded, that may be OK but not the best.
Otherwise you would be dribbling out a fairly insignificant
amount of money among a lot of--we have got 63 potential
countries, more than 13 plus 7. I guess I have made my point.
Mr. Applegarth. I think you have. We are really asking the
countries to focus first on the kinds of things that really are
country-transforming, to use our MCC resources for those
things, rather than things that others, particularly other
donors, could do.
I also believe--I do not have any evidence, I do not have
any proof of it, but I have to believe--that if a country has
gone through this process well and had a good consultative
process and prepared good proposals, that somehow or other we
will have other donors at least coming in to help on some of
it. Still it is not a perfect solution in the absence of our
full funding, but it is a step. That is what we will try to do.
Senator Alexander. Maybe there can be a very specific
process for those, like an all-American first team and an all-
American second team and both are honored in their home towns,
one more than the other. But maybe you can have a specific
process for the all-American second team or all-whatever it is
second team, that takes them to other donors and other places.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Alexander.
Let me just follow up on some of the points my colleagues
have asked. You talked about good proposals. How do countries
go about attempting to either guess or estimate what we will
see as a good proposal, and how inclusive are these proposals?
Do countries ask for help, in say, education, sort of back-to-
back with infrastructure, or banking reform, or what have you?
In other words, there is probably a long list of reforms
that could occur in many of the candidate countries. How do
they surmise what the tide will bear? They could present to you
a $5 billion proposal out of a single country for the $1 or $2
billion that you have to distribute. Is there any sense of
restraint on the part of the countries? Do you counsel them as
to what your fair share might be, and therefore how you ought
to tailor this proposal so that it somehow meets probability?
Mr. Applegarth. First, the nature of the proposals, then I
will come back to the second part of your question, Mr.
Chairman. We are seeing, as I mentioned in my opening remarks,
a variety of proposals. I think, generalizing that we have seen
a number of sort of integrated rural development proposals,
where countries have been very thoughtful in targeting a
particular area or region after a consultative process, where
they are not looking at a single intervention or support, but
combining agricultural extension, training farmers in good crop
rotation techniques, plus diversifying crops, to be more
responsive to what the competitive market would be asking for.
The Chairman. Rural development is often an area countries
look at.
Mr. Applegarth. Right, that, put together with drip
irrigation, combined with building rural roads so they can get
the products out to the market, and frequently combined with a
major road leading to a port or somewhere else where they can
essentially have products that meet world standards.
The Chairman. So this is a business plan of how that
country's GNP might increase, both from production,
distribution, movement, ports, trade, what have you?
Mr. Applegarth. Right, and we are seeing a lot of that. We
are also seeing a number of water management proposals or
elements of proposals in a very broad base. Some of the
countries are quite rainfall-deprived, and if one can really
bring methods of water catchment and storage and avoiding loss
of use that could really impact the rural poor and others quite
a lot. So that is one element of the kinds of things we are
seeing and that we are having to evaluate.
We are in evaluating the proposals focused right now on
really picking the best and the countries understand that. They
realize they got through the first stage of this competition,
but essentially they got to the Sweet 16. To get to the Final 4
or 8, there are still some more hurdles to go through, and they
understand that we really will be picking and can only pick the
very best of the proposals. That is what we are really
encouraging them to do, to focus on those.
That is what we are trying to do, work with them to really
understand which are the best in terms of poverty reduction and
growth and which are ready to go, so that we begin to have an
impact and right away. If something is a good idea but it is
going to take 2 to 3 years of detailed planning, let us put
that aside for the moment on the grounds of trying to get
something done now so that they can feel tangible success and
we can begin to have an impact in the country.
The Chairman. Even after you get, as you say, to the
quarter-finals, or the semi-finals, and what have you, is it
probable that you may pick up from some other countries that
are not in the Final 4 or 8 elements that you can fund, that
are part of a more general plan, but at the same time that are
perhaps an integral stepping stone or foundation for what might
occur later on if they are more successful?
Mr. Applegarth. Yes, I would hope so, either on a stand-
alone basis or in coordination with other donors or other parts
of the U.S. Government.
The Chairman. I was intrigued by your response on the
private investment side, because some proponents of the
Millennium Challenge Corporation would say that, in fact, the
Federal Government may invest this money that you have talked
about, but the real future for the countries that are involved
comes in private investment. This is how the world discovers
these countries, but even more importantly--it has probably
discovered them already, it has discovered that they have a lot
of problems, including corruption and difficulty with their
basic institutions, whether they be legal or banking or so
forth.
Through your application process, through the rigors of
their looking at the 16 criteria, through how the world is
looking at them as they make these internal reforms and
adjustments, it is very conceivable that the path toward
private investment, whether it be the United States or European
or Japanese or what have you, may not be totally cleared away,
but might become much happier.
Again and again, as we dealt with the breakup of the Soviet
Union, Ambassador Strauss went over there. He talked to the
Russians about the fact that you have to have rule of law;
there has to be contract law, and courts that adjudicate
disputes fairly among all the parties, and minority
stockholders, as well as a number of other things that American
investors are going to look for, European investors that are
closer by. Some people may make investments anyway, with all
the risks, expecting confiscation and so forth.
I remember one gentleman in Russia, an American investor,
who invested in over 100 different enterprises. I said: Well,
why have you scattered these investments? He said: Well,
because of the law of averages; I expect that tens of these are
going to be confiscated, or that I will simply lose some
authority. But if you have 100 some may survive.
Now, most investors are not prepared to do this. Their
boards of directors are not in that business. That is
speculation. But to the extent that, through the process that
you are bringing about here, countries do the right thing for
themselves, then the path is really cleared for a lot of things
to occur.
I have no idea what you do presently in terms of your
public relations, within your house organs, the things that you
broadcast to the world, even the things that you send over to
this committee. But some of these stories, both anecdotal and
actual, need to be told. In other words, right along with your
judgments about who gets the money and whether they use it
well, maybe even more fundamental in terms of American history
or relations with these countries will be these internal
adjustments that are occurring, some of them induced by you or
by our State Department or by our businesses. Some reporting of
what is occurring would be advisable.
Most of us on this committee--and we follow other countries
more than many of our colleagues do--are usually unaware, until
there is a report in the Washington Post or The Times of
something that has happened, and then we clip it out and say:
Well, this is good news.
But it occurs to me that your group that is examining these
issues daily is much more prescient and knowledgeable about
those developments and could make them known in ways that would
be very important for MCC and its talented people, as well as
for the other countries themselves. You could communicate that
somebody is paying attention, that this is actually being said
outside of the walls of the conversations you are having.
All that has certainly already occurred to you and your
staff. What sort of action have you been able to take on those
ideas. What do you intend to do?
Mr. Applegarth. We do a number of things, Mr. Chairman.
First, public outreach here and in our eligible countries is
very important to us. We had, I think it was our fourth, public
meeting 2 weeks ago. Each of these meetings I think has been
standing room only. More important, we are globally webcasting
them, so you can----
The Chairman. When was the last meeting that you held?
Mr. Applegarth. The last one was I think Friday the week
before last.
The Chairman. Where?
Mr. Applegarth. The last two we have had at the General
Services Administration auditorium here in Washington. I know
there are several people in the hearing room today, that I saw
at the meeting. We encourage that. We have--we use the Web, not
only for webcasting, but we also use it as our primary means of
communication, so that everything we do from reports to country
evaluations to the indicators to the methodology is all on the
Web.
The Chairman. On your Web site?
Mr. Applegarth. On the Web site. That is visible. People
can see it. We solicit comments. The Web site is www.mcc.gov.
We have an e-mail list to which people can subscribe. They
get notices of the meetings. We put all of our compact
guidelines on there. We have had Q's and A's as questions have
come in from members of the public and countries. We try to
provide guidance. We have used the Web to solicit comments on
our criteria for methodology and selection. So we see that as a
key part of what we are doing.
In our eligible countries, in certainly every trip I take,
I have asked that we build into the travel schedule an
opportunity to both meet with, not just government officials or
people in the capital, but to have some event that is truly
out, touching or involved with people in the countryside or
elsewhere, so that other people can identify within the
country.
In addition, we always try to arrange some sort of an
interview or media event with the largest local language
newspaper. We are not talking about the international press,
but the papers or the media that are viewed by local people,
both to talk about what we are doing and encourage consultation
and also because we see it as a strong public diplomatic impact
in terms of the United States.
The Chairman. Great. Well, I appreciate that. I thank you
for giving the call sign, www.mcc.gov. I suspect viewers or
listeners of our hearing will be interested in that and may in
fact visit the Web site.
But I would just say, do not be sparing in giving only the
good news. Give a careful analysis of what you are finding,
because the rigor of your criteria does make a difference to
the potential recipients, as well as to those that are now
forming proposals, as you imagine.
Let me just ask, is there a good relationship with USAID?
How is your relationship going with those folks?
Mr. Applegarth. I think it has exceeded not only our
expectations, Mr. Chairman, but also our hopes. We have a very
strong working relationship with the USAID. As you know,
Administrator Natsios is a board member. He personally, but
also the members of his senior management team, are actively
involved in what we are doing. They provided us briefings from
their country teams here before we ever visited the countries
in May. We are working with them and they will be administering
the threshold program for us.
In addition, the people, mission leaders and mission teams
in countries, have been very helpful to us in countries in both
providing insights into what is actually going on in the
country and as a source of knowledge and experience. It has
been quite constructive and I think one of our success stories,
if you like.
The Chairman. Well, that is really good to hear. As you
remember, the initial hearings on the whole concept did not
dwell on this subject, but it was an important issue: How does
USAID fit into this? We explored whether the Director should be
on the MCC board, and how he comes together with you in your
responsibilities. So I am pleased that you have worked out a
good relationship personally and institutionally with them.
That is certainly reassuring.
To what extent do you depend upon USAID personnel in the
countries? As Senator Feingold's questions raised, you have a
relatively small staff, in terms of people who are actually out
in the field. Presumably you rely upon USAID and maybe other
people from the embassies. Can you describe a little bit the
monitoring as you use other United States personnel there?
Mr. Applegarth. I think one of the merits of trying to
build an organization with a small staff is that it really does
encourage you to be focused and disciplined to really take
advantage of the other resources out there. If you have
unlimited staffing and resources, you have a tendency to build
your own bureaucracy, your own little empire, and that is
clearly not my motivation or the way that I think MCC works. So
both by predilection and I think by design, we must work with
not only USAID but others, and we really try to do it.
So far the USAID teams, in-country teams, have been helpful
to us in providing introductions to key opinion leaders in the
country outside of governments, showing us examples of success,
where their programs have particularly been helpful in some of
the areas that the governments are likely to include in their
proposals, whether it is agricultural extension or policy
reform, governance, rule of law. You can go country by country
and talk about specifics of how that has worked--true on-the-
ground cooperation, people working together.
I think as we go forward doing due diligence we will
obviously take full advantage of USAID's knowledge of the
countries, of what is going on, solicit their views and
opinions as we evaluate compacts, and then use them in terms of
our lessons learned in terms of how we monitor and prepare the
monitoring and evaluation pieces, particularly their experience
in country, what particularly needs to be, both what works well
in that country and what we need to be watching out for.
So our door is open in terms of consultation. More than
that, we are proactively seeking that help.
The Chairman. You have completed 8 months by and large of
life of the MCC. How much of the $994 million that was
appropriated for the fiscal year did you spend? What is your
general accounting at this point?
Mr. Applegarth. Our expenses, our spending so far, has been
for our startup expenses and administration I think we have
obligated as of the end of the year about $6 million, of which
$3 or $4 million has been disbursed. For programs, we have not
disbursed anything. We are just getting the compact proposals
in and evaluating them.
But you will see significant expenditures under those
programs over the coming fiscal year as we go forward.
The Chairman. Starting the 1st of October?
Mr. Applegarth. Yes, as we sign our initial compacts and
begin to have funding flow into those compacts. That funding,
as you know, is what we call no-year funding. So that funding
will be disbursed over the life of the compact.
The Chairman. Finally, you had the criteria. I remember
this was a part of the discussion during the authorization of
the agency. Has there been any argument or subsequent amendment
of the criteria? Have you found that some are more useful than
others? Probably so, but have you found some that ought to be
added or subtracted? What sort of reaction have you received as
you have asked them to measure up to these criteria?
Mr. Applegarth. We have made changes. As you know, we have
pretty high standards for adopting an indicator. We really want
it to be prepared by a third party, a credible third party, so
that it is clear that it is not subject to politics or U.S.
Government intervention. We want it to be done at an arm's
length basis. We want it to be rigorous analytically in the way
it is put together. We want it to be transparent in terms of
the methodology, so that we and the members of the public can
comment and suggest improvement.
We also want it to be linked to policies, and it is
something that governments know, since we are really talking
about policy reform, encouraging countries to make good
policies. We want to be measuring things that they can act on
and have an impact on in an intermediate timeframe.
Last, we want them to have broad country coverage. You can
find a perfect indicator; but if it covers only three or four
of our candidate countries, it really is not very helpful to
us.
Against that backdrop, we made two small amendments to the
criteria for this year, between 2004 and 2005. All of our
criteria need improvement. We are seeing that improvement now
that folks are paying attention I think the fact that we have
gotten the attention and there is a lot of comment going on,
means we are seeing those who prepare the indicators improve
those individual indicators and we are evaluating--we are
seeing those improvements, as well as considering others.
The Chairman. What were the amendments that you made?
Mr. Applegarth. The two we made this year, one was, as I
mentioned in my opening statement, to change a measure of
primary school completion rates or graduate rates in the
country, to focus more particularly on girls primary school
completion rates. It has been demonstrated through research
over the last several years and since at least the late 1990s
that there is a clear linkage between girls primary education
rates and poverty reduction and growth. It was only recently
that the data has reached a sufficient standard that we felt we
could use it as an indicator, but we did adopt it for this
year.
We made one other change, which we had as a measure of
economic freedom; the measure of inflation rates, for which the
cap was at 20 percent. We have lowered it to 15 percent as a
better measure of economic performance. We will look at whether
we will lower it further. The academic research is actually
mixed as to whether it would be really productive to reduce it
below that, but that is one of the things we are evaluating.
The Chairman. That is an interesting point. Probably there
is some economic debate. Anecdotally, I remember visiting in
Turkey years ago. The ministers there were pointing out that we
have at one and the same time perhaps the largest growth rate
and the largest rate of inflation. This is extraordinary and
probably beyond the bounds of the criteria that you have just
mentioned, certainly as regards the inflation side and also the
growth actually in a couple of years, too.
So obviously you have to temper this with your own
experience. Turkey was not proposing itself in those days for
this economic assistance. But it is simply an interesting fact
in the governance of countries.
Mr. Applegarth. Well, it is an important fact for us, Mr.
Chairman. You put your finger on the dilemma. We do not want to
simply build into the indicators nice ideas. OK, we really want
to have them be credible; we think there has to be a linkage to
poverty reduction and growth. If we are going to encourage
countries to adopt particular policies or move in a certain
area, we want as strong a case as possible that those
indicators and those policies lead to poverty reduction and
growth, because that is what we are about.
The Chairman. Our public diplomacy section of the committee
would ask, at the end of the day, after all this is said and
done, are there more persons in any of these countries who
would answer a question of approval or disapproval of the
United States any differently? Granted, when polling many
people in foreign countries, often the answer depends upon the
question. If they were asked, do you like the foreign policy of
the United States, do you like its military policy, do you like
its President, or what have you, or do you like sort of
generally the American people as a whole, usually the American
people turn out fairly well, but the rest do not do so well in
most countries.
Now, the problem, obviously, will not go away, and we are
not attempting to buy favor. But I am curious about to what
extent this whole process of the interesting criteria, the idea
of increasing governance, possibly some private investment in
addition to actual funds, makes any difference. Is there some
anecdotal evidence that in the countries in which we are now
most active, there has been more support for our general
ideals? These ideals are what we are trying to promulgate here,
namely, an end to corruption, or openness for girls going to
school, or a lot of other things that you are suggesting.
Is this having an impact?
Mr. Applegarth. I think it has. As I mentioned in my
opening remarks, at least one government has specifically tied
some anti-corruption legislation to the prospects for MCC
qualification. Another country which did not qualify--it became
an election issue by the opposition to the fact that they did
not qualify--and why they did not qualify became a subject of
debate.
If you read the headlines, you would think the U.S. is
being vilified around the world. I do not think that extends to
the American people, but as a nation. I can just tell you, in
the countries where we are operating, there is genuine
enthusiasm, not only at the leadership level, but at the people
level, about what the United States is doing and what this
means and the kind of excitement it has created, because of the
combination of ideas and innovations we represent and the
concept of country ownership.
The Chairman. I appreciate your personal testimony and
likewise the work of your colleagues in the MCC, because this
is good news. It needs to be shared. We hope that we can
schedule regular hearings so that there will be opportunities
to followup on what happens to the proposals that we are
discussing today, as well as further developments in those
countries that have advanced, in which you make awards, in
which people actually are doing things. It is a story that
needs, I think, constant amplification.
So this committee is, if not quite a cheerleader for you,
nonetheless pretty close to that. This is a very important
mission, we believe. We thank you very much for your
preparation for this hearing today, and for your testimony.
Mr. Applegarth. Well, thank you, Mr. Chairman. As I said,
both you and your colleagues here on both sides of the aisle
have been very important to our being able to do what we are
able to do. We already have some anecdotes of success, but the
more opportunities we have to tell about them and the more
stories that we have, we will certainly make an effort to get
them out there, because this is a good news story. We are
having real impact and trying to get at it in a way that people
understand and appreciate that it is an important part of what
we are trying to do.
So thank you for the opportunity today and I look forward
to meeting with you again.
The Chairman. Thank you very much.
[Whereupon, at 11:35 a.m., the committee adjourned, to
reconvene subject to the call of the Chair.]
----------
Responses to Additional Questions Submitted for the Record
Responses of Hon. Paul V. Applegarth to Additional Questions for the
Record Submitted by Senator Richard G. Lugar
Question 1. Given our experience with the Iraq Stabilization and
Reconstruction fund, the Committee is interested in your disbursement
scheme. Firstly, how do you plan to disburse MCA funds? Will it be
through national governments or will some funding go directly to
program implementers? Secondly, will you create trust funds into which
the Corporation will deposit money? And lastly, will you distribute
resources only upon satisfactory implementation of earlier stages of
the project?
Answer. Fiscal accountability is a key element of Compact
development, implementation and oversight. Thus, MCC is devoting
particular attention to the mechanisms and processes that will need to
be in place to assure that funds are managed and accounted for properly
and procurements are undertaken in a fair, open, and transparent
manner.
As in many elements of the MCC approach, the lessons of development
assistance over the last few decades have shaped the MCC fiscal
accountability strategy. MCC is developing an approach pursuant to
which it is expected that in many cases, governments will designate and
reach agreement with MCC on a financial accountability mechanism that
will be responsible, on behalf of the country government, for the
financial management of MCC funds granted pursuant to a Compact.
In guidance to eligible countries posted on the MCC Web site, the
concept of a financial accountability mechanism is explained and it is
noted that different approaches could be used in its establishment.
Possible examples include:
a government ministry using existing government financial
systems,
the establishment of separate financial management units and
accounts within government,
an existing government financial system or new government
financial management unit, augmented by an outside financial or
auditing institution,
the use of a private accounting firm or financial
institution, or
the establishment of a trust managed by an independent party
to oversee and account for MCC program funds.
In reaching agreement with the country government on an appropriate
financial accountability mechanism for the MCC-funded program in a
country, MCC will be guided by the following principles:
The mechanism should result in maximum transparency of
financial transactions and activity.
The mechanism should have clear lines of authority and
responsibility to assure accountability. Performance standards
should be clear.
The mechanism should produce maximum integrity of financial
information and assurance the funds are used for the purpose
intended.
The MCC will seek, wherever possible, to build upon existing
systems, mechanisms, and previous assessment work whenever
possible.
The mechanism should, wherever possible, build capacity that
will remain in place at the end of a program.
While we anticipate that a signed Compact will typically obligate
funds for the country's program over the lifetime of the agreement,
cash disbursements will be made periodically (for instance, quarterly)
by MCC into the separate account, taking into account the performance
of the program to date. The financial accountability mechanism will
certify cash requirements and financial reports underlying disbursement
requests, prior to review and approval by MCC.
Annual audits of the use of MCC funds granted under Compact by
auditors approved by MCC's Inspector General will be required. In
addition, concurrent audits may be used when deemed necessary. Also,
MCC staff or outside experts will periodically review the financial
accountability mechanisms in-country to assure that they are operating
as agreed.
Question 2. Could you please describe your efforts to recruit and
hire an MCC staff that is a diverse representation of America with
respect to gender, race and ethnicity?
Answer. MCC's short-term goal is to staff up as quickly as possible
with the highest caliber personnel, in order to meet the organization's
ambitious goals of both establishing its operations and delivering
assistance as soon as possible to eligible countries. To do this, MCC
has advertised in The Washington Post, The Economist, and The Legal
Times, as well as on MCC's own Web site. In addition, MCC recently
entered into a contract with Korn/Ferry International, a recruitment
firm that specializes in hiring executives and managers for
associations, government, not-for-profit and economic development
organizations nationwide. Korn/Ferry International will be assisting
MCC's Human Resources staff in the recruitment and interviewing
candidates for various positions. Korn/Ferry received the American
Council on Education (ACE)--Network Leadership Award of 2001 for
promoting the advancement of women in senior level positions within
higher education.
Over the medium- and long-term, as MCC continues recruit staff that
meet the needs of its mission, MCC expects to build a workforce that is
a diverse representation of America.
Question 3. Will you please discuss your vision for the threshold
program? How did you arrive at the decision to allocate $40 million of
FY04 appropriations for threshold country assistance?
Answer. The Threshold Program is a very important part of MCC's
Mission. By targeting funds exclusively at policy reform, it is focused
on MCC's fundamental objectives. IT is directed toward a limited number
of countries that have not yet qualified for Millennium Challenge
Account (MCA) assistance but have demonstrated a significant commitment
to meeting the eligibility criteria. The Threshold Program is designed
as an added incentive to countries committed to reform, and will be
used to assist such countries in moving toward future MCA eligibility.
Participation in the Threshold Program does not guarantee that a
country will become eligible for MCA assistance in the future.
Likewise, countries may become eligible for future MCA funding without
participating in the Threshold Program.
The U.S. Agency for International Development (USAID), in
partnership with MCC, will take the lead in implementing the Threshold
Program. Other U.S. agencies and departments may play an implementation
role as well.
Countries that have been selected by the Board as eligible for FY04
Threshold Program assistance have been invited to submit proposals for
policy and other reforms necessary to improve performance on the
indicators. MCC and USAID, along with other U.S. agencies where
appropriate, will then evaluate proposals and determine which of these
proposals merit MCC funding. The evaluation process will be rigorous
and there is no guarantee that a Threshold Program for any particular
country will be approved and funded.
The decision to begin the program with funding of up to $40 million
was undertaken by the Board when program parameters were being
developed, to enable MCC and USAID to continue their planning efforts.
MCC retains the option of returning to the Board for additional funding
(up to a total of 10 percent of the amount appropriated, as permitted
in the legislation) should the threshold proposals dictate that
increased funding levels are warranted.
Question 4. Previously, MCC officials have indicated that the
amount of assistance awarded will vary among countries, but will be of
sufficient size to make the MCC grant either the largest or second
largest aid program on average. Is this still the mission of the
Corporation?
Answer. MCC's goal is reduce poverty and spur sustainable economic
growth. MCC's 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. Being among the largest
providers of assistance in a country will allow MCC to be an effective
incentive, to command the attention needed for breakthrough country
proposals, and to galvanize the political will essential to success.
For that reason, it has been suggested that MCC would have to be one of
the two or three largest donors in any given country.
That is why the administration requested $2.5 billion for the MCC
in FY 2005. As a recent GAO study concluded, with the full $2.5 billion
in FY 2005, together with the $1 billion appropriated in FY04, MCC
would have resources to fund meaningful compacts with only 8-14
countries in its first two fiscal years of operation. Appropriations
below this amount requested by the administration, will either require
reductions in the MCA programs (making the MCC a relatively minor
player in some countries) or force the MCC to withhold funding from
good proposals from MCA countries. Such reductions would undercut the
MCA's incentive and effectiveness in achieving its goal of having a
significant impact on poverty reduction and economic growth.
______
Responses of Hon. Paul V. Applegarth to Additional Questions for the
Record Submitted by Senator Joseph R. Biden, Jr.
Question 1. How does the Millennium Challenge Corporation (MCC)
measure or assess civil society's level of involvement in developing
country proposals? How will you determine whether or not the non-
governmental organizations that are involved are truly broadly
representative of civil society, or whether there were others who
should have been consulted and were not? How does the MCC evaluate
whether or not women's civil society organizations have been adequately
involved in the development of proposals? What steps will the MCC take
if it determines that countries did not adequately involve civil
society in the development of proposals?
Answer. MCC has made clear to governments, as well as its citizens,
that the quality of the process used to set development priorities for
MCA assistance will be an important factor in our evaluation of their
program proposals. To reinforce that message, MCC has posted its
guidance for developing a program proposal on the web in local
languages of the eligible countries, making the guidance available to
potential participants in the consultative process. MCC staff has
visited all of the eligible countries--some several times--and has met
with a broad range of society including the private sector, NGOs,
representatives of civil society, parliamentarians, opposition parties
and others to determine whether they had a meaningful opportunity to
participate in the process.
If a consultative process has been open, meaningful and
transparent, it will include a broad range of society, including women
and women's organizations. We have asked countries to provide
information about the process used and groups and institutions involved
in their program proposals.
As we continue to evaluate the process through our due diligence
reviews, we will seek to find out such things as to what extent were
citizens able to participate in the process, and if not, what were the
constraints they faced; how were their views sought; to what extent
were views taken into account; whether they were provided adequate
notice of the timing and location of meetings; whether they fully
informed about how to contribute to the process; whether they provided
an adequate opportunity to provide input; whether a broad range of
societies views were represented in the process; whether certain groups
were disadvantaged.
As part of its due diligence process, MCC will also consult with
others in country that will likely have views on the quality of the
process such as the Embassy and USAID mission and other bilateral and
multilateral donors. If it is determined that the process was not open
and inclusive and does not reflect the priorities of the country, MCC
may reject a program proposal until an appropriate process can be
undertaken.
Question 2. Section 609(b)(D) of the Millennium Challenge Account
(MCA) authorization requires that all Compacts identify the intended
beneficiaries. This was done to encourage eligible countries to think
about how their work will involve and impact different parts of the
population, including women and girls. How has the MCC prepared itself
to evaluate whether countries have undertaken this analysis and if
proposals reflect such analysis? How will the MCC respond if the impact
of a project on beneficiaries--specifically women and girls--is not
evident in proposals? Will the MCC be asking countries to design
projects such that they take into account the specific needs of women
and girls?
Answer. MCC has communicated clearly to the eligible countries the
requirement that all proposals identify the intended beneficiaries and
has encouraged countries to include elements in their programs that
impact women and girls. MCC will conduct a comprehensive due diligence
review of each proposal submitted by a MCC eligible country. An
important component of such review will be an analysis of the impact
the proposed MCC program would have on the intended beneficiaries,
including women and girls.
Question 3. What happens with countries which are determined to be
eligible to submit a proposal, but do not conclude a Compact with the
MCC in the same fiscal year? Do they have to compete again for
eligibility or can they conclude a Compact in the subsequent year?
Answer. A MCC eligible country is not required to conclude a
Compact within the same fiscal year in which it became eligible. Since
MCC has ``no year'' funding, funds that are not obligated by MCC in FY
04 can carry over to subsequent fiscal years. As a result, a FY 04
eligible country would be permitted to enter into a Compact in a
subsequent year, so long as there is remaining FY 04 funding that has
not yet been obligated under Compacts concluded earlier with other FY
04 eligible countries. If the country is selected in the subsequent
fiscal year then it is also eligible to compete for that fiscal year's
funding, though it can have only once Compact in place at a time.
Question 4. Unlike other assistance programs, the MCA is designed
to let countries determine their own priorities. However, there are
certain priorities that the U.S. government has, such as reaching the
poorest communities, minorities or other under-represented groups, that
are not always the priorities of governments. How, specifically, will
the MCC balance the goal of letting countries set their own priorities
with the need to ensure that our assistance dollars are being spent on
projects we consider priorities?
Answer. As investors using U.S. taxpayer dollars, we are not
pushing any particular sector or project, but instead MCC seeks to help
countries find the best investment opportunities for poverty reduction
and growth. By design, MCC is focused on the poorest countries in the
world. The MCC wants to give these countries an opportunity to escape
the cycle of dependency and actively change the economic path of their
country and part of our strategy is that this is best accomplished by
allowing them to take ownership of the success of the program. In order
to reflect the priorities of a country--not just the government--MCC
places a strong emphasis on civic and private sector participation in
setting priorities and then implementing these priorities. We will
evaluate program proposals on that basis. We will also evaluate whether
the proposed programs will lead to broad based poverty reduction and
economic growth based on concrete evidence.
Question 5. As I understand it, the MCC is not making any proposals
available to the public until a compact has been finalized. Some
country governments have made their proposals public; however, many
have not. In the spirit of transparency and for the sake of encouraging
the continued engagement of civil society, will you encourage
governments to make their proposals public?
Answer. Transparency in the countries' proposal development process
is a fundamental MCC principle. MCC requires that all proposals reflect
the results of a broad-based consultative process within the country
that includes civil society and the private sector. MCC encourages
countries to make their proposals public; however, the final decision
as to when to make a proposal public is up to the countries themselves.
Question 6. The MCC just announced seven countries as eligible to
participate in the MCA Threshold Program. How were these countries
selected? In particular, why was Uganda selected? The government in
power intends to push a constitutional change to allow President Yoweri
Museveni--who has been in power since 1986--to run for a third term,
despite consistent and concerted diplomatic efforts by the U.S.
government to encourage President Museveni to step down.
Answer. The Threshold Program is directed toward a limited number
of countries that have not yet qualified for Millennium Challenge
Account (MCA) assistance but have demonstrated a significant commitment
to meeting the eligibility criteria. The Threshold Program is designed
as an added incentive to countries committed to reform, and will be
used to assist such countries in moving toward future MCA eligibility.
Participation in the Threshold Program does not guarantee that a
country will become eligible for MCA assistance in the future.
Likewise, countries may become eligible for future MCA funding without
participating in the Threshold Program.
The Millennium Challenge Corporation's (MCC) Board of Directors
recently invited seven countries to apply for FY 2004 MCC Threshold
Program assistance: Albania, East Timor, Kenya, Sao Tome and Principe,
Tanzania, Uganda, and Yemen. The MCC Board of Directors selected the
seven countries as eligible for FY 04 Threshold Program assistance
based on their demonstrated commitment to meet the MCA eligibility
criteria, including improvement of their scores on sixteen publicly
available policy indicators in three general categories: ruling justly,
investing in people, and encouraging economic freedom.
In considering countries for the FY 04 Threshold Program, the Board
favored countries that had to improve upon two or fewer indicators to
qualify cleanly under the MCA eligibility criteria; i.e., by improving
on two or fewer indicators the country would score above the median on
half of the indicators in each policy category, would score above the
median on the corruption indicator and would not score substantially
below the median on any indicator. In addition, the Board reviewed
whether countries that passed this screen also demonstrated a
commitment to undertake policy reforms that would result in
improvements in deficient MCC policy indicators. Finally, a Board
decision was made to limit the number of threshold countries to 7 to 9
countries due to limited initial resources and program staff at both
MCC and USAID.
In the case of Uganda we are aware of the concerns to potential
changes in the Ugandan constitution and we will continue to monitor
developments closely. It should be emphasized that Uganda's selection
as a threshold candidate does not guarantee that funding of any nature
will be provided. Rather, all potential threshold candidates will be
required to demonstrate that they are willing to take tangible steps to
address failing indicators. These types of reforms require leadership
and commitment, and the responsibility lies with the countries. If
Uganda, and the other threshold candidates, want to undertake this
challenge and opportunity then we should be prepared to support their
efforts.
Question 7. The MCC has conveyed its intention to lower the
inflation rate indicator from the 20 percent used in FY 2004 to 15
percent and is considering a further reduction to 10 percent in FY
2006. Can you explain the motivation for lowering the inflation
indicator and how lower inflation rates will contribute to the overall
MCA goals for sustained economic growth and poverty reduction?
Answer. Among a variety of factors in choosing indicators, the MCC
is looking for those that have a clear theoretical or empirical link to
economic growth and poverty reduction, and are policy-linked. There is
a great deal of research that shows that higher rates of inflation are
especially harmful to the poor, who are the least able to protect
themselves. It is sometimes referred to as a highly regressive tax. In
addition, inflation leads to distortions in relative prices and the
decisions based on them, which tends to harm the investment climate.
Inflation is also clearly an important measure of a country's monetary
policy.
MCC's indicators are used to rank country's policies against each
other. Given the difficulties of a relative scale to determine an
inflation median, MCC has used a hurdle rate for that particular
indicator. MCC was concerned that the 20 percent rate used in FY2004
was not as meaningful as originally intended and given the importance
of an investment climate and monetary policy to a country's growth
potential--we lowered it to 15 percent.
Question 8. How will factors such as poverty reduction and economic
growth be weighed in determining the merit of a country's MCA proposal?
How will you judge a country proposal's effect on short-term and long-
term impacts on both poverty and economic growth?
Answer. The goal of the MCA is to reduce poverty. It seeks to do
this by increasing the economic growth of recipient countries. This
requires an emphasis on investments that raise the productive potential
of a country's citizens and firms and help integrate its economy into
the global product and capital markets.
A country's proposal should make the link between the program
suggested and the desired outcomes, and we will conduct economic
analysis to try to determine those impacts. In order to promote a
sustainable, long-term economic growth and poverty reduction, in our
due diligence process we will also look at issues such as: efforts to
mitigate potentially negative environmental impacts; the quality of
public consultation and level of public support for the proposed
activities; identification of the expected beneficiaries; and the
quality and capacity of local entities to manage the funds in an
accurate, transparent, and efficient manner to implement the proposal.
In addition, we will look at program proposals to see if they have
concrete, measurable goals and benchmarks that can be used to assess
progress toward those goals and so we can adequately evaluate the
impact of the assistance.
______
Responses of Hon. Paul V. Applegarth to Additional Questions for the
Record Submitted by Senator Jon S. Corzine
Question 1. What were the criteria used to select the Threshold
Countries? What was the basis for determining that each of these
countries had demonstrated a `significant commitment'' to meeting the
eligibility requirements?
Answer. The Threshold Program is a very important part of MCC's
Mission. By targeting funds exclusively at policy reform, it is focused
on MCC's fundamental objectives. The program is directed toward a
limited number of countries that have not yet qualified for Millennium
Challenge Account (MCA) assistance but have demonstrated a significant
commitment to meeting the eligibility criteria. The Threshold Program
is designed as an added incentive to countries committed to reform, and
will be used to assist such countries in moving toward future MCA
eligibility. Participation in the Threshold Program does not guarantee
that a country will become eligible for MCA assistance in the future.
Likewise, countries may become eligible for future MCA funding without
participating in the Threshold Program.
The Millennium Challenge Corporation's (MCC) Board of Directors
recently invited seven countries to apply for FY 2004 MCC Threshold
Program assistance: Albania, East Timor, Kenya, Sao Tome and Principe,
Tanzania, Uganda, and Yemen. The MCC Board of Directors selected the
seven countries as eligible for FY 04 Threshold Program assistance
based on their demonstrated commitment to meet the MCA eligibility
criteria, including improvement of their scores on sixteen publicly
available policy indicators in three general categories: ruling justly,
investing in people, and encouraging economic freedom.
In considering countries for the FY 04 Threshold Program, the Board
favored countries that had to improve upon two or fewer indicators to
qualify cleanly under the MCA eligibility criteria; i.e., by improving
on two or fewer indicators the country would score above the median on
half of the indicators in each policy category, would score above the
median on the corruption indicator and would not score substantially
below the median on any indicator. In addition, the Board reviewed
whether countries that passed this screen also demonstrated a
commitment to undertake policy reforms that would result in
improvements in deficient MCC policy indicators. Finally, a Board
decision was made to limit the number of threshold countries to 7 to 9
countries for FY04 due to limited initial resources and program staff
at both MCC and USAID.
Question 2. Please describe the relative roles of the MCC, USAID
and any other government agencies in administering Threshold Country
assistance. How will this assistance be structured to achieve the goal
established in the MCA legislation of helping each country become fully
eligible for MCA assistance? For instance, will countries that do not
meet the criteria with regard to corruption but have demonstrated a
commitment to reform receive assistance in the form of anti-corruption
programs?
Answer. The U.S. Agency for International Development (USAID), in
partnership with MCC, will take the lead in implementing the Threshold
Program. Other U.S. agencies and departments may play an implementation
role as well.
Countries that have been selected by the Board as eligible for FY04
Threshold Program assistance have been invited to submit proposals for
policy and other reforms necessary to improve performance on the
indicators. MCC and USAID, along with other U.S. agencies where
appropriate, will then evaluate proposals and determine which of these
proposals merit MCC funding. The evaluation process will be rigorous
and there is no guarantee that a Threshold Program will be approved and
funded.
Qualifying for the MCA will continue to depend on a country's
performance on the MCA selection criteria. Change will not be easy and
it may take time for improvements to be reflected in a country's
indicator scores. Improving performance on the MCA indicators will
require strong political commitment and leadership over a sustained
period of time. Specifically, in regards to the corruption indicator,
we would expect countries that performed poorly on this indicator would
make this a central focus of their threshold program proposals.
Question 3. Please describe efforts to make the compact process
transparent in each of the eligible countries? What policies does the
MCC have in place to promote transparency, e.g. outreach to civil
society, posting of information on government web sites?
Answer. MCC has made clear to governments, as well as their
citizens, that the quality of the process used to set development
priorities for MCA assistance will be an important factor in our
evaluation of their program proposals. To reinforce that message, MCC
has posted its guidance for developing a program proposal on the web in
local languages of the eligible countries, making the guidance
available to potential participants in the consultative process. MCC
staff has visited all of the eligible countries--some several times--
and has met with a broad range of society including the private sector,
NGOs, representatives of civil society, parliamentarians, opposition
parties and others to determine whether they had a meaningful
opportunity to participate in the process. We have used the media
(radio, TV, and print) to reach out to a broad base of citizens in
eligible countries. Finally, we maintain a regular dialogue with U.S.
and international NGOs working in these countries, who are supportive
of this process and are working with local NGOs to improve their
capacity to participate.
Based on feedback from these groups, for example, we have recently
included on our Web site a link to eligible countries' government
points of contact and their Web site. Some governments have already
posted their program proposals on their Web sites to enable public
comment. Once we have reached a Compact agreement with countries, it
will be posted on MCC's Web site.
Question 4. Has the MCC considered incorporating within its
compacts a concrete role for civil society and NGOs to assist in the
monitoring and evaluation of projects?
Answer. MCC believes that civil society and NGOs have an important
role in the monitoring and evaluation of projects--whether formally or
informally--which is a key reason for posting Compact agreements on the
web and other means to make them publicly available. Making the
specific program and budget information publicly available will enable
the intended beneficiaries and other interested parties to monitor
progress. Eligible countries are to propose the monitoring and
evaluation system that will be employed on the program. This may rely
on NGOs for monitoring and evaluation work, depending on government and
NGO capacity. MCC will evaluate the monitoring and evaluation plans and
capacity, as part of the overall review of the program proposal.
Question 5. Has the MCC considered developing a tool for direct
feedback, either through the Internet or via a civil society forum,
from individual citizens and NGOs in recipient countries who witness
waste, fraud or misuse of funds?
Answer. We are working with U.S. and international NGOs that have
in-country offices and good contacts within these countries. We have
also developed direct communications with NGOs, civil society groups,
private-sector individuals, and individual citizens in the countries
and have encouraged them to provide this type of feedback once a
program has been initiated. We have a web-based mechanism for
submitting comments and questions and have already received helpful
feedback. USAID Missions and U.S. Embassies have served as an
additional vehicle for communicating questions, concerns or comments
and it is likely that MCC will post one or more representatives in some
of the Compact countries.