‘A Smart Model for Development:
Millennium Challenge Corporation’

Remarks by MCC CEO Ambassador John Danilovich

University of California—Los Angeles International Development Studies
Los Angeles, California
April 30, 2008

As prepared

Introduction

It’s a pleasure to be on the campus of the University of California, Los Angeles. Although Washington is now home for me, as a native Californian, although from the Bay Area, it’s always good to come home. So, it’s wonderful to be here, and I appreciate your warm welcome, and that kind introduction, Professor Ross.

There is nothing more invigorating for me than to see the progress of Millennium Challenge grants in partner countries worldwide and to share that story of impact with my fellow Americans in our own country, including to a group of students like yours in the International Development Studies program.

UCLA’s unique perspective on world affairs is preparing the next generation of leaders with the critical skills needed to navigate a complex and diverse world community. I appreciate your interest in

international relations,
development,
and public diplomacy

—I share them—and very much welcome this opportunity to brief you on how the Millennium Challenge Corporation is revolutionizing the delivery of U.S. development assistance.

MCC 101

The Millennium Challenge Corporation was created by an Act of Congress four years ago, in January 2004 as a

different,
strategic,
and smart

approach to development assistance. Incorporatingthe best practices and lessons learned from the past 60 years of work in the development field, MCC recasts the traditional donor-recipient relationship into one of a partnership for economic growth.

Half of our fellow world citizens live on less than $2 a day. America and Americans have always reached out to the poor: It is not only the right thing to do, but also reflects one of the most fundamental values of the American character—to help those in need, to help those who have not had the advantages that we have had.

Reaffirming the compassion of the American people to constructively engage in the fight against global poverty, Congress created the MCC as an independent government agency to partner with developing countries and to reduce poverty through sustainable economic growth. MCC provides sizeable grants—not loans—to countries

practicing good governance,
making investments in the health and education of their citizens,
and promoting economic freedom.

We partner with countries

willing to undertake the often difficult work of

political,
economic,
and social policy reforms,

willing to build their capacity to lead their own sustainable development,
and willing to deliver results in the lives of the poor.

MCC stories from the field

At a time when America’s leadership is being challenged around the world, the Millennium Challenge Corporation is a positive expression of the best of America’s values, and the generosity of the American people.

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.”
Indeed, America’s global engagement through the work of the Millennium Challenge Corporation is positive and powerful, exemplifying the best in public diplomacy.

I’ve listened to young boys and girls as they learned to read in one of the 132 newly constructed, girl-friendly schools throughout Burkina Faso, funded by MCC. What a joy it is to see these schools in action!
It’s groundbreaking that women are no longer treated as legal minors in Lesotho and can fully participate in the life of their country and contribute to the success of Lesotho’s $363 million MCC compact. In the development of their compact, MCC helped the Basotho realize that the ultimate growth impact of their compact proposals could only be realized if they did not exclude half their population.

I’ve met with farmers in Madagascar and Honduras, who are using the training received through 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 African partner countries to rehabilitate

ports,
bridges,
an airport,
and roads

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

I’ve seen Georgia’s MCC compact make improvements to sections of the North-South Gas Pipeline, which is now providing heat to Georgian homes and energy to Georgian 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 not only in the region, but also to the U.S. and beyond.

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 American people at the end of a speech to 6,000 Nicaraguans in the main square of Chinandega, proclaiming, “Viva los Estados Unidos!” Who would have ever guessed that!

In El Salvador, President Saca and I presented the first of thousands of scholarships funded by MCC’s compact to young students for vocational training.

In all these ways, MCC is a source of optimism and hope for a better life in some of the poorest and most challenging places in the world. Our former U.S. Ambassador to Tanzania Charles Stith wrote in an op-ed in the Boston Globe that MCC projects are “more than bricks and mortar. They are monuments to hope and symbols that America cares.”

To date, we have provided $5.5 billion in grants—what we call compacts—to 16 partners in

Africa,
Central America,
Eurasia,
and the Pacific

and have signed threshold programs with 17 additional countries totaling $365 million to help them move closer to compact-eligibility. 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.

What makes MCC different

While we are proud of our portfolio of work underway in partner countries worldwide and the results that are emerging, there is more to the MCC story. I want to talk about three fundamental ways our aid is different; how, in the words of Secretary of State Condoleezza Rice, MCC is “changing the conversation about how development takes place.”

First, the MCC model thrives on competition.
Second, we empower countries.
Third, we invite private enterprise.

Let me explain what I mean by each.

First, MCC thrives on competition. MCC funding is performance based. Each year, we create a summary of performance—a scorecard—for every poor country in the world, using 17 policy indicators that measure whether a country

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

Non-U.S. government organizations—like the

World Bank,
IMF,
the World Health Organization,
UNESCO,
and Transparency International

—create the indicators we use.

Using these results—which we publish on our website at mcc.gov—we invite only those poor countries that pass our scorecard to join our program. The use of such a scorecard is

unprecedented,
groundbreaking,
and innovative

in the delivery of foreign aid. In this way, we create a competition among countries for MCC funding based on sound policy performance. We don’t think it’s too much to ask of countries receiving American taxpayer dollars that they practice good policies and demonstrate the political will to use our aid effectively.

MCC’s performance-based approach to aid has created a strong incentive for change. Anxious to partner with MCC, we see country after country make policy reforms not only to qualify for our program but also to improve the lives of their citizens. Many have called this phenomenon the “MCC Effect,” where the promise of qualifying for our aid and maintaining eligibility for it acts as an incentive for continuous policy reform.

In just one example, Madagascar reduced the minimum capital requirement for new businesses by 80 percent in 2006 and saw a 26 percent increase in new business registrations.

Second, MCC empowers countries. Those countries invited to join the MCC program because of good performance are empowered—and expected—to lead their own development. Each country must determine its own path to success.

That is why we place the responsibility with our partner country to examine its own constraints to poverty reduction and economic growth and to design its own solutions—country-driven solutions to country-determined challenges.

To do this, we ask countries to consult extensively with their citizens—from the

private sector,
to nongovernmental organizations,
to farmer associations,
to civil society groups
to women

—and outline their own priorities for eliminating barriers to poverty reduction and growth.

MCC’s commitment to country ownership and empowerment generates a positive, favorable impression in our partners around the world. 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.

Once a country’s proposal for funding is approved by MCC, we ask that it continue taking the lead. We put countries in charge of implementing their own programs to deliver tangible results in the lives of their poor. We believe it is essential for countries to take the responsibility for—to buy into—not only the creation but also the implementation of their own program.

We say to countries: You can and must do it for yourselves; we’ll give you the money, but you take the responsibility for the success of your own development. This is not easy. Capacity is often lacking. But, MCC is not a handout; rather it is a remarkable opportunity to empower countries to sustain their own development efforts.

Third, MCC invites private enterprise. Insisting on good policies—including sound

fiscal,
monetary,
regulatory,
and trade policies

—and insisting that countries build their capacity to do more for themselves create conditions where, ultimately, the private sector can flourish.

Private enterprise is the true engine of economic growth, and the only way countries can effectively combat poverty is not to depend on development assistance but, rather, to use it to promote a thriving private sector. MCC grants to developing countries are designed to be transitional and to pave the way to private investment.

Our MCC investments are designed to foster continuing economic activity—whether by a farmer in her field who now invests because she has title to her land or by a local or international company that invests because of the improved business climate.

The MCC resident country director in Morocco, where we have a $698 million compact, recently conveyed a very interesting story to me that illustrates this. She was chatting with a senior Moroccan government official who believes that the compact is already showing signs of success 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 socialselection criteria.

Conclusion

The Millennium Challenge Corporation by:

motivating countries to further their own good policy performance,
empowering them to build their own capacity,
and stimulating private sector activities for their own benefit

embodies a new way of looking at development assistance. We can’t expect assistance alone to fundamentally alter the way emerging economies grow and compete; however, development assistance can support country-owned reforms and country-determined solutions that offer new opportunities for stimulating growth and reducing poverty.

MCC’s model makes this possible.

It’s no wonder that the HELP Commission’s recommendations to Congress on ways to reform foreign assistance mirror MCC’s emphasis on

democratic principles,
good governance,
country-led development,
and economic growth.

It’s no wonder that the Center for Strategic and International Studies included MCC in its “smart power” series, which outlined creative and integrated ways for restoring America’s leading role in global affairs by drawing on both hard and soft power. MCC delivers what many call “smart aid” to poor countries determined to use it wisely. This benefits our partner countries around the world as well as communities right here in our own country.

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.”

This is the power of MCC’s new and demanding approach to development; this is how MCC is

changing,
revolutionizing,
and deepening

the effectiveness and efficiency of foreign aid.

I am extremely proud of MCC’s role in fighting poverty and making the vision of sustainable growth a reality in our partner countries—

for their sake,
our own country’s sake,
and for the sake of a more peaceful and secure world.

Thank you so much for your interest in the Millennium Challenge, and I look forward to your questions and our conversation this afternoon!