‘Why foreign aid with accountability
is good for America: The MCC Perspective’

Remarks by MCC CEO Ambassador John Danilovich

Los Angeles World Affairs Council
Los Angeles, California
May 1, 2008

As prepared

Introduction

It’s great to be here, and I appreciate the invitation to speak at this coveted podium. The Los Angeles World Affairs Council has hosted some of the most prominent newsmakers and opinion leaders of our day, and the topics they speak about often capture the headlines. I’d like to discuss a subject that rarely makes the front page, but whose importance is significant and vital to our economy, to our security interests and to our global reputation.

I want to talk tonight about foreign aid and, particularly, the role the Millennium Challenge Corporation is playing in revolutionizing it and making it smarter.

Evaluating perceptions about foreign aid

The United States has a long history of helping those in need,

from rebuilding war-torn countries
to promoting economic development and democracy in the developing world
to providing security assistance
to delivering humanitarian and disaster relief.

It is embedded in the American character—it is fundamental to American values—to contribute to the improvement of the human condition.

From the Marshall Plan
to the creation of the Kennedy-era United States Agency for International Development
to new innovations in foreign aid exemplified by the President’s Emergency Plan for AIDS Relief—known as PEPFAR—and, yes, the Millennium Challenge Corporation,

Americans demonstrate, time and again, their compassion and generosity in tackling such severe global challenges as

disease,
hunger,
and poverty.

But, some Americans remain skeptical about foreign aid and have doubted its effectiveness. Surveys conducted by the Chicago Council on Foreign Affairs found the U.S. public divided on giving aid to other countries.

Only 13 percent of Americans favored increasing spending on economic aid, while nearly 50 percent favored reducing it—although American aid still amounts to less than one-half of one percent of the total U.S. budget. A 2005 Harris Interactive/Wall Street Journal survey found that the American public, as a whole, did not appear to favor increased foreign aid to poor countries, even for public health initiatives and disease prevention, including HIV/AIDS. True to an American culture that advocates

transparency,
self-reliance,
and accountability,

Americans seem concerned that corrupt foreign governments will squander the aid provided. There is a general sense of distrust and misgiving.

What Americans do say they want is foreign aid that shows results in countries with honest governments.

And, in the wake of September 11th, they want their aid abroad to somehow benefit them right here at home. In a speech at the Carnegie Endowment for International Peace, National Security Advisor Stephen Hadley summarized this link best when he said, “…[W]e also recognize that helping people in the developing world is very much in our national interest. People who are free, educated, healthy, empowered, and able to use their freedom to enhance their economic well-being are less likely to support terror or attacks on others.”

MCC as a new way in foreign aid

So, it stands to reason that U.S. assistance—no matter the amount—needs to provide maximum effectiveness and impact. It needs to show accountability. It needs to build stability and security. It needs to be a positive and constructive expression of American public diplomacy, if you will, of American goodwill to change negative perceptions and win hearts and minds. Enter the Millennium Challenge Corporation.

Created by an Act of Congress in 2004 as a different and demanding U.S. program for development assistance, the Millennium Challenge Corporation provides grants—not loans—to reduce poverty through sustainable economic development. We have partnered with 16 countries in

Africa,
Central America,
Eurasia,
and the Pacific

to invest in their priorities for development. MCC partners with countries

willing to undertake the often necessary and difficult work of

political, economic, and social policy reforms,

willing to build their capacity to lead their own sustainable development,
and willing to deliver meaningful and lasting results where they matter most—in the lives of the poor.

When I visited Morocco in February, which has a $698 million MCC grant, the Minister of Agriculture said exactly this, “We have many donors, but the MCC will be remembered for having changed our lives.”

To date, we have committed $5.5 billion in grants—what we call compacts—to partners worldwide. We also have a preparatory program with 18 additional countries totaling nearly $400 million to help them get over the “threshold” and closer to qualifying for a compact. Around the world, MCC partner countries are using these investments to:

issue land titles,
increase farmer incomes,
create jobs,
increase market access,
improve infrastructure,
strengthen small-scale fisheries,
expand artisan training,
open health clinics to contain the spread of HIV/AIDS and other diseases,
build girl-friendly schools,
expand vocational training,
strengthen access to credit,
and
improve access to water and sanitation services.

These investments directly impact progress on the United Nations Millennium Development Goals. In addition, MCC also creates an incentive for reform that supports improved performance on the Millennium Development Goals. We join many other organizations—in both the public and private sectors—in a shared and ongoing commitment to meeting these goals.

I’ve seen with my own eyes how positive and powerful America’s global engagement really is through the work of the Millennium Challenge Corporation.

I’ve listened to young boys and girls read in one of the 132 newly constructed, girl-friendly schools throughout Burkina Faso, funded by MCC.

I’ve met with farmers in Madagascar and Honduras, who are using the training received through their respective MCC programs to diversify to higher profit crops that will raise their household incomes and improve their quality of life.

I’ve toured infrastructure projects underway in partner countries in Africa to rehabilitate

ports,
bridges,
an airport,
and roads

to help farmers get their crops to market and to help the poor access schools and health clinics.

I’ve seen Georgia’s MCC compact make emergency repairs to critical sections of the North-South Gas Pipeline to ensure the dependability of energy for use by homes and businesses.

I joined President Ortega in Nicaragua to present land titles to over 700 families and launched the beginning of a transportation project that will rehabilitate a key segment of the Pan-American Highway that will help farmers more easily move their products to markets in the region and to the United States. Nicaraguan farmers are grateful for their
increased agricultural productivity,
increased incomes,
and increased market access

that have resulted from MCC funding. In fact, President Ortega himself thanked the United States government and the American people at the end of a speech to 6,000 Nicaraguans in the main square of Chinandega, proclaiming, “Viva los Estados Unidos!”

In El Salvador, President Saca and I presented the first of thousands of scholarships funded by MCC’s compact to young students attending vocational training. Economic development and education are linked, and the scholarships demonstrate El Salvador’s commitment to empowering people with the necessary skills to participate in the economy.

At a time when America’s leadership is being challenged around the world and our reputation is being called into question, MCC provides a great opportunity to showcase the best of America’s values—and the generosity of the American people—in all these ways.

While a June 2007 World Public Opinion Poll found that majorities in 10 of 15 countries polled did not trust the United States to act responsibly, MCC’s engagement offers a much different perspective. A Gallup survey of MCC partner countries found that 86 percent of respondents feel MCC fits in well with their country’s overall development strategy. Eighty-one percent believe MCC's approach to country ownership will help achieve their country’s specific development objectives. Moreover, compared to other donors, partner countries report

that MCC provides more oversight,
that MCC provides more help to move toward sustainability, and
that MCC does a better job with building country capacity.

These findings demonstrate how MCC’s approach to empower countries is generating a positive, favorable impression in the national psyches of our partners around the world.

As Michigan Congressman Joe Knollenberg stated, “Our development assistance dollars and support of humanitarian programs around the world is the face of the American public, [and] MCC takes these values one step further.”

When the Center for Strategic and International Studies launched its “smart power” series to outline creative and integrated ways to restore America’s leadership role in global affairs, it, fittingly, included MCC in the discussion. Smart power relies on:

diplomacy,
alliances,
partnerships,
and relationship-building.

Smart power is a way to restore America’s positive

influence,
credibility,
and image

in the world as a beacon of hope and optimism. In this framework, MCC delivers what many call “smart aid” to poor countries determined to use it wisely.

Indeed, MCC’s innovative, “smart” model for development assistance demonstrates the power of aid not only to make the world a better place but also to make America’s place in the world better. I see this in three key ways.

What makes MCC “smart aid”

First, MCC is smart aid because it is performance-driven.Like the American people have requested, we don’t think it’s too much to ask of countries receiving their tax dollars that they practice good policies and demonstrate the political will to use our aid effectively. Because of this, we create a summary of policy performance—a scorecard—for every poor country in the world, using 17 policy indicators taken from non-U.S. Government sources that measure whether a country

governs justly,
invests in health and education,
promotes economic freedom,
protects the environment,
and fights corruption.

In fact, MCC is the only donor that currently ties eligibility for assistance to performance on a transparent and public Control of Corruption indicator.

Moreover, we provide an incentive for countries to meet several of the Millennium Development Goals by including them in our eligibility indicators. For instance, one of our country selection indicators is girls’ completion rates from primary school. Our country selection indicator measuring immunization rates for DPT3 and measles supports the Millennium Development Goal of reducing the child mortality rate. Two new indicators—a Natural Resource Management Index and a Land Rights and Access Index—are used to measure factors related to

environmental sustainability,
child mortality,
gender,
and equality in access to land.

We make the scorecards public through our website. And, using the results, we invite only those poor countries that pass our scorecard to join our program. This “good government” indicator based, results driven approach is a whole new way of looking at foreign assistance within the U.S. Government.

Anxious to partner with MCC, we see country after country make necessary policy reforms to qualify for our innovative new program. Those already in the program must maintain their performance to stay in. Many have called this phenomenon the “MCC Effect”—where the promise of qualifying for our aid and maintaining eligibility for it motivates continuous policy reform.

Second, MCC is smart aid by focusing on country empowerment. MCC partners with countries not only practicing sound policies but also leading their development. Richard Armitage and Joseph Nye, co-chairs of the Smart Power Commission stated that, “Helping other nations and individuals achieve their aspirations is the best way to strengthen America’s reputation abroad.”

We agree. We believe in country-driven solutions to country-determined challenges. By raising expectations and by placing accountability on the shoulders of our partners for the development and implementation of their own compacts in consultation with all their citizens, MCC is helping countries help themselves. This is not easy. Countries are usually not asked to assume this responsibility. Capacity is often lacking. But, MCC is not a handout; rather it is an opportunity.

Third, MCC is smart aid by creating the groundwork for private enterprise. Insisting on good policies and insisting that countries build their capacity to do more for themselves ultimately will create conditions where the private sector can flourish.

Private enterprise is the true engine of economic growth. The only way countries can effectively combat poverty is not to depend on development assistance but to use it to promote a thriving private sector. The private sector—through its corporate social responsibility and day-to-day business operations—plays a tremendous role in meeting the Millennium Development Goals to achieve sustainable poverty reduction.

And, the MCC process for selecting partner countries and awarding aid sends a powerful signal to the private sector that conditions in MCC countries are swiftly improving for investing and doing business.

The MCC resident country director in Morocco recently conveyed an interesting story to me that illustrates this. She was chatting with a senior Moroccan government official who believes that the compact is already showing results even though it has yet to officially start its implementation. Why such success so soon? In the words of the Moroccan official, it’s because representatives of the private sector are already contacting his office to discuss potential investments in Morocco, drawn to the country by the fact that it passes MCC’s political, economic and social selection criteria.

MCC helps to create stronger economies so that entrepreneurs and businesses of all sizes—including companies here in California and across America—will have new markets in which to invest.

Conclusion

MCC’s way of delivering development assistance motivates countries

to continue their own policy improvement,
to build their own capacity, and
to engage in private enterprise for their own benefit.

Good policies build accountability. Holding countries responsible for their own development and results sustains accountability. Exploring ways to leverage our public investment with the resources of the private sector expands accountability.

This is smart; and this is working both for us and our partners.

The benefits of our aid investments for MCC partner countries are evident. It’s evident in the policy reforms they are undertaking and in the programs they are implementing with their MCC grants to improve the lives of their citizens—

from new schools,
to better roads,
to irrigation systems that increase the quantity and quality of their crops.

And, MCC’s “smart aid” also serves America’s interest. By

holding countries accountable,
delivering results,
opening doors to investment opportunities,
and providing a return to the American people in terms of increased security and stability,

MCC demonstrates that aid, in fact, can be effective.

And, when the U.S. delivers effective aid, it sows goodwill. In an op-ed in the Washington Post, Michael Gerson wrote, “…eight of the 10 countries most favorable to the United States in the world are in sub-Saharan Africa. It is not a coincidence that American bilateral assistance to African countries over the past six years—to fight AIDS, malaria, and poverty—has quadrupled. As a rule, people do not hate you when you save their children.”

Over 70 percent—the vast majority—of MCC’s investments worldwide benefit the people of Africa and contribute to this goodwill.

In a floor statement last July, California Congresswoman Diane Watson stated, “…there are a great deal of positive lessons to draw from the success of the MCC.” Indeed, just the way MCC incorporated the best lessons learned in development to launch its model, MCC’s approach is becoming a model that others are closely evaluating and monitoring to make adjustments to their programs.

Speaking as part of the smart power series, former New Jersey governor Christine Todd Whitman said, “I believe...that this administration has set-up an appropriate framework to move us beyond the kind of concerns we’ve seen in the past - and that is in the Millennium Challenge Corporation. As someone who was on the board of the MCC, I believe strongly in that approach to the way we use our power, our influence, and our money. I believe it is making a great difference.”

The Millennium Challenge Corporation epitomizes the “smart aid” Americans demand and deserve, it is an expression of America that Americans can be proud of. We at MCC are proud of our accomplishments to date, and of the strong foundation we have built that allows us to continue this most effective and accountable delivery of foreign aid well into the future.

Thank you for your interest in the Millennium Challenge Corporation, and I’d be happy to take your questions.