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2005

2004

Public Outreach Meeting Transcript

February 22, 2005

Transcript

MS. MCNAUGHT: Well, good morning and welcome to another in a series of public outreach meetings to keep you up-to-date on the Millennium Challenge Corporation. I guess it's a good sign that we're arguing over which number this is, but nine, 10, I can assure you it is the fourth since I have been here, and that has been five months.

I am Fran McNaught, vice-president for domestic relations. I am joined today by CEO Paul Applegarth, our director of development policy, Sherri Kraham, the director of the Office of Development, Evaluate and Information at USAID, Steve Brent, and the MCC director of threshold programs, Kevin Saba.

Today, we want to give you a general update about our progress since the corporation was established 13 months ago. We will report on the status of our Threshold Country Program and tell you about our search for a natural resources indicator. We will have Steve, Sherri and Paul and Kevin do their updates, and then, we will have time to take your questions. Paul?

MR. APPLEGARTH: Thank you, Fran. Good morning. I think next time, we will ask for heat when we get a building like this. Is anybody else as cold as I am? But hopefully, the lights will warm us up. I must say from up here, it makes it a little hard to see who is out there, so when we get to the Q and A, we'll have to improvise a little bit.

In any event, good morning and welcome again. It is good to see some familiar faces here as well as some I don't recognize. I am particularly pleased that many of you continue to attend and keep yourselves informed as to what we're doing. As Fran mentioned, our last public outreach meeting was before Christmas, soon after the Board selected the 16 countries for the '05 eligibility program and threshold countries for '05. We received some very useful feedback from you at that meeting and subsequently, and we encourage you to keep those communications and that channel open to us. We find these meetings beneficial to us and hopefully, they are beneficial to you.

Today, we have a lot of news to share, and most of it is quite good. First, I am quite pleased to announce that our Internal Investment Committee approved our first compact agreement last week, and we will be distributing an investment recommendation to the Board for its consideration. Right now, that meeting is scheduled for mid-March. Soon after that, if the Board approves the recommendation, we then have a 15-day Congressional notification period, following which, we will be able to sign. So right now, it looks like we will be in a position to sign our first compact and begin to disburse at the end of the first quarter or early in April.

Secondly, I'm happy to tell you we as a corporation have an external auditor, and we have just received our audited financial statements for last year and have a clean bill of health from them. I think it's important to tell you this because we do see ourselves as a fiduciary of the American taxpayer and setting quite high standards for ourselves in terms of our financial operations and the way we conduct our overall business. We see ourselves as accountable to you as well as to the countries of MCC and their citizens.

With that, I'd like to introduce Steve Brent from USAID and Kevin Saba, who will give you an update on the Threshold Program. As many of you know, USAID is working closely with us to implement the threshold program, and they have some initial results to report.

MR. SABA: Thank you, Paul. Upon arrival, I noticed I didn't have a name tag, so I was hopeful that I would remain anonymous, but my cover has been blown now that Paul has mentioned my name and Fran as well, so I guess I am on the record here at this point.

So just some brief comments on the threshold program, and just as a way of refreshment, the Threshold Program is focused on policy reform, with the idea being that countries get the right conditions in place as a prerequisite for the opportunity for sustained economic growth through the Compact Program. And as Paul mentioned, we're working in collaboration with USAID and other U.S. Government agencies as appropriate as we move through the process, and we identify potential implementing partners.

We have been very pleased thus far with the results. First of all, as Steve will mention shortly, all seven of our initial 2004 threshold countries have responded to the invitation to submit proposals, and as Steve will tell you in a few minutes, I think we were quite pleased with the results. We are at the first phase of what we consider a two-stage process.

Again, just as a reminder, the concept paper phase is really fundamentally about two questions. The first question is does the country recognize the opportunity for reform, as pointed perhaps by our indicators? And then, secondly, assuming they recognize the opportunity, is there a political will to address the reform? I.e., is the leadership in place to address the reform? And for the most part, I can say that again, we have been quite pleased. I think the Board has in its selection recognized these first seven countries for leadership, and thus far, the bet we have placed on these seven countries is proving to be a good one as we move forward.

In the second phase of the process, once a country moves through the concept paper phase, we move to the threshold plan itself, and this is simply just putting the flesh on the bones of the concept plan, the accountability for results, identifying measures of success, a time frame to do that, a budget that would be required to implement the reforms, et cetera, and that second phase, we have not put a time limit on. That second phase will be determined by the country's initiative.

Without any further discussion, then, at this point, I'd like to turn it over to Steve, who will talk in a little bit more detail about the responses we've gotten to date.

MR. BRENT: Good morning.

I will just say a few brief points, because I don't think it's appropriate to go into individual country proposals. They're still being reviewed within the Millennium Challenge Corporation, and it is based on the criteria that Kevin laid out, especially the reform commitment.

So the three points I just would like to mention here this morning are that first, what will determine--well, let me start with the first point that in many of the countries, the issue is corruption. We have a few that are passing corruption and have some more limited problems in areas like missing data or fiscal and so forth, but the preponderance of the issues in threshold countries in especially the '04 list is corruption. That's what's causing countries to fail.

We all know that's a very difficult area to address, particularly with quick changes, so point two is what Kevin said: it really is up to them to make policy and institutional and governance improvements. The assistance is not what is going to make the difference. The assistance is just to help them make the changes that they propose; hence, the concept paper stage is very important, because they're telling us which of these issues they're willing to work on.

The third point is that what is the goal post for threshold? It doesn't necessarily mean that that Kauffman-Kraay indicator for corruption is going to move at the end of two years. We are looking for specific actions for a given country that show that they are really biting the bullet, doing something that takes real effort, initiative, and that they're improving, they're setting a trajectory that will lead to improvement in corruption. The indicator will catch up eventually, but what I am trying to say is that it will be more of a disaggregated look. It will be a specific look at what that individual country is doing in addition to monitoring the indicator.

And I guess the last thing, since Kevin did say to talk a little bit about the proposals, we have been pleased that countries have not whitewashed the situation. They have been honest about their problems. They are putting serious proposals forward, which will be developed further as we go into the business plan discussion, particularly in the area of engaging civil society and the private sector. Because the first discussions have been a little bit governmentally oriented, we want to go in the business plan stage to a broader societal discussion.

Thank you.

MR. APPLEGARTH: Thank you, Steve and Kevin. If there are questions for them, we will include them in the Q and A period.

Sherri, I'd like to introduce Sherri Kraham, who is going to talk about the work that's going on in the natural resources indicator.

MS. KRAHAM: Thank you; good morning. I'm not going to spend a lot of time talking about the process that we will pursue for the natural resources indicator, because we will be hosting a meeting on the 28th, which is Monday. The purpose of the meeting is to talk about the process, to explain the criteria for an indicator.

As you may know, in our authorizing legislation, MCC is asked to use quantifiable indicators to measure a government's or a country's economic policies that promote the sustainable management of natural resources. To date, we have been unable to find an indicator that has quantifiable data, objective data and that meets our other criteria for indicators.

So what we will be establishing is a process to seek broad public input from you, from others, from academics, from experts in this field, and that process will kick off on Monday the 28th. Board member Governor Christie Todd Whitman will cohost that with Paul Applegarth. We have sent out invitations. If you haven't received one, I'll stay around after the session today and tell you about the details.

It's Monday at 1:00 p.m. It's in D.C. We hope that you will participate. We hope that we can stimulate good dialogue on this issue and provide you with an opportunity for real input into the policies that we measure that shape our selection of countries, and I'll be happy to take any questions after this session.

Thank you.

MR. APPLEGARTH: Thank you, Sherri.

Before I open it to questions, I'd like to outline for you a bit more how MCC works and particularly the MCC proposal evaluation process. Recently, we've heard and seen the question posed, you know, why hasn't MCC disbursed any funds over the past three years? It's been three years since Monterrey, and MCC hasn't disbursed anything. What's going on?

Of course, you all know that we haven't been around for three years; it's been just about a year, 14 months; in fact, 13 months. But this is important, because the idea that MCC has not disbursed in three years makes us appear to be ineffective, and if this misperception is not corrected, it could be used as an argument to reduce our funding. And this would threaten our mission of reducing poverty, of increasing and incentivizing policy change in the countries in which we're working, and ultimately helping them achieve the Millennium Development Goals.

And for this, we are really going to need your help, which is why I'm going to spend some time today to take you through our process and what's happened since MCC was founded so that you, at least, will be able when you hear these kind of criticisms to respond knowledgeably and address them.

To be fair, some of our criticism comes to people who are accustomed to the way assistance has traditionally been given, who don't recognize or are unfamiliar with the lessons of development that MCC draws on and who believe that the solution for a problem is to throw money at it. MCC was founded a year ago. Since then, we have hit all of the marks in our legislation. Our Board, for example, we thought it was very important that we hold our first country eligibility selection meeting as soon as possible permitted under our legislation, and we did that on May 6.

Under our legislation, we have a 90-day period from the time the Board selects candidate countries before we can choose eligible countries. We also have a 60-day period under which the criteria have to be published and evaluated before we can choose countries. We made sure the 60 days fell within the 90 days so that there would be no delay in selecting eligible countries.

The first 16 were chosen the first week of May. We then entered into a consultative process or asked the countries to enter into a consultative process to determine within their countries what their true priorities for poverty reduction and growth were. And I think this is a key point, that ultimately the countries themselves drive the timing of our own process, because until they have conducted that consultative process, and until we receive proposals from them or ideas as to what their priorities are, we cannot move the ball forward in any meaningful way. We can move it as fast as we can in selecting, publishing candidate lists, publishing criteria and selecting eligible countries. But at that point, though, the ball really passes to the countries to do their consultative process and present us proposals.

We received our first proposals in mid-August and by the end of November had received proposals from 15 of the 16 eligible countries selected in May. We still haven't received a proposal from one of those 16. For those countries who are less familiar with the idea of MCC, who initially submitted programs that did not show a clear prioritization of needs, we requested they take time to go back and to reach out to a broader spectrum of their citizens and give us a more precise assessment of their barriers to growth, their objectives and desired outcomes as opposed to a grocery list of projects. We asked them, in effect, to prioritize what they had given us initially.

In terms of our own performance and our own standards, we really start our clock with country relationships from the time they submit a proposal to us, and in that, we try to stick to a private sector standard, and this is a tough standard both for our eligible countries and for us. In the private sector, when you receive proposals like the ones we have, which are fairly complex, involve a lot of detailed implementation, you're doing well from the time you receive a proposal to the time you can sign and disburse something if you can do it in five months, five to six months.

That standard is actually very tough for us to meet, for reasons that I would like to elaborate on. At the same time, I would like to mention that the Madagascar proposal was received October 4, and we have approved it in its final form in mid-February with the idea that if all things go well, it will be approved by the board and signed within six months of the time of its original submission.

Why is this a tough standard not only for us but, really, more importantly, for our countries? First, because it's a learning process for them and admittedly for us. In the private sector, everybody on both sides of the table has been through the process many times. That is certainly not the case for our partner countries or, indeed, for ourselves at this point.

However, I don't want to understate the value of this learning process. The intangibles that these countries gain in terms of country ownership, of learning to incorporate a wide variety of viewpoints into the consultative process and setting national development objectives and in prioritizing them against a long list of development needs or continuing to contribute to poverty reduction and growth long after the final drafts of their proposals are completed and even before any funding has been disbursed.

This is the essence of what we are about. This is the essence of country ownership, one of the key lessons of development that came out of Monterrey, that countries themselves must be responsible for their own development. In addition to this being the first time through for everyone, in the private sector, when you receive a proposal, you know what your desired measures are and what your outcomes are. Basically, if you're investing in equity, you're looking for profits, profitability, your rate of return on equity. If you're lending, you're looking for some assurance you're going to get repaid plus some strengthening of creditworthiness.

In our case, the objectives are not defined at the time we receive the proposal. Indeed, the priorities are set, but really, in most cases, the countries have come to us, they have not determined or explicitly set out what they are trying to achieve and how they are going to measure success in the program.

So one of the first things we do with them is to sit down and talk with them: what are you trying to achieve? How will we know this program will be successful? And we don't want some large macroeconomic measure, because a lot of things can affect those: GDP growth or GDP per capita growth, things like that. We want specific measures tied to whatever the program priority is.

This setting of benchmarks, setting of objectives is a key part of our discussions with the countries once we receive a proposal. In some cases, these benchmarks are fairly easy to determine. If we are looking at, for example, rural agricultural production, you look at how much yields per hectare increase, or you may look at some increase in incomes, in farmer incomes.

In some other cases, those measures have not been well-defined historically in the development world, and we're having to sit down and have a serious conversation with the countries as to how we're going to try to measure performance: for example, how do you really measure the outcomes of land titling? We have a number of proposals around establishing for farmers rights to own their land and do they really have a stake in it? You can measure the number of titles issued, but we're really trying to push it beyond that. We want to see an economic impact in terms of poverty reduction, growth, and trying to measure those is sometimes more difficult.

Similarly, some of the proposals we've got around financial system reform or secondary education or in health. Some are fairly easy to establish benchmarks and measures; others are not. And this is happening in the process once we receive a proposal.

The third difference between us and the private sector is that when you get a proposal in the private sector, you're getting from a management team that's in place and a fairly-detailed implementation plan, and they're simply coming to you and saying here, help us finance this. Will you finance this for us?

In our case, what we are getting from a country is a list of their priorities and a description of how they arrived at those priorities. Almost in no case do they have the management team in place that will implement it; in fact, we want to talk about it, or the detailed implementation plan. And so, during this period of time that we're working with them and before we will sign a compact and begin disbursements, we want to understand how the plan will work and why it will lead to the desired outcomes.

So all of this is going on during this period of time from the time we receive a proposal, and it is quite, I think, a credit to the Malagasy in Madagascar that in less than six months, they not only came up with their priorities after a credible consultation process but came up with very specific proposals of how it would be managed, how the money would be controlled to meet our fiduciary standards for transparency and make sure that it gets from us to the right place, what the benchmarks were, and a detailed implementation plan. And that all was done in less than six months, which would meet a private sector standard virtually anywhere.

Realistically, this was a tough standard for our partner countries and for ourselves. I do not expect it to be met in most cases or in many cases. Some we will; in some cases, it will take longer; in some cases, it will take considerably longer, again, for the reasons I mentioned, this is a learning curve for everybody; there are no outcomes defined in advance; and the issues of getting it organized from an implementation structure or management structure and detailed implementation plan all has to take place in this period of time from the time we receive a concept paper.

Again, we really do need your help for people to understand this. MCC is effective and is moving forward as quickly as prudently possible. Our countries know that MCC funding is a scarce resource. They don't want to squander it. They know that doing it right if important for them and for us and ultimately for the poor people we are trying to benefit through our operations.

And we encourage them to do take the time to get it right; at the same time, we are moving as fast as prudently possible to begin disbursements. I'm quite pleased that we have not only have the Madagascar compact coming, I hope, soon, but some other mechanisms we might talk about in the Q and A to begin address some of that.

With that, let me turn it over to you all for Q and A. Is there a mike out there? Davy has a mike, and I can't even see who that is over there. We have a couple of mikes floating around. If you raise your hand, we will get you a mike. If you then can, as we have done in the past, introduce yourself, say who you represent and ask your question.

Thank you.

QUESTION: Thank you; good morning. My name is Jim Michael. I am with DPK Consulting.

I wanted to ask a question about the distinction between threshold countries and MCC-eligible countries with respect to policy reform. I understand that the emphasis is on policy reform for the threshold countries who have not met the standard. What about those who have met the standard but just barely? Does the compact address issues of further policy reform, or is it focused principally on the economic growth and poverty reduction issues without regard to further policy reform?

Thank you.

MR. APPLEGARTH: That's an excellent question. As you mentioned, the threshold country is targeted to policy reform, because that is what countries explicitly need to do to qualify to become eligible. And some of these policies will be easy to implement; some of the indicators are easy to implement, others are not.

In the case of the eligible countries, there has been a judgment by the Board that at least against the competitor countries, which is the other poor countries of the world, this is the better group in terms of potential partners to work with. However, none of the--virtually none of the particular criteria or the indicators are at a level that you would consider to be absolutely satisfactory. For example, you look at some of the health and education indicators, and you can correct me, but I think the immunization indicator now is around 72 percent for certain things.

Obviously, that is not an acceptable level. It's passing for purposes of our eligibility, but it is not for purposes of what you would like it at, which is 98 or 99 percent. That's one reason we use the median or the floating benchmark with the idea that over time, the dynamics of the competition will help all countries continue to move the bar up.

Whether we and how we introduce policy reform into the compacts will vary by the country. Some of them, it's very clearly linked to the particular proposal; in other cases, we may have a separate policy section, and it will depend on the country and what we see the need to be.

QUESTION: My name is Gregory Simpkins with the Leon Sullivan Foundation.

MR. APPLEGARTH: I'm sorry, with whom?

QUESTION: The Leon Sullivan Foundation.

The reforms that you are calling for, certainly, it's a credit to MCA/MCC that you would want the countries to engage their private sectors, for example, and civil society, but public-private partnerships have been very difficult for many developing countries, and it would seem that without some sort of assistance in learning how to do a credible public-private partnership, it would take much longer to put together than you really have, since there are some time limits on this.

The other thing is the policies that you're talking about reforming: corruption, for example, is very difficult, because corruption has infected the body politic so deeply that it is difficult to undo what has been done over many years, and some of the others, human rights, democracy and governance, all of those, we have given some assistance over the years to governments to improve their situations.

Would they not still need some more technical assistance to meet some of your benchmarks in a timely fashion? And to what extent are you providing that kind of technical assistance?

MR. APPLEGARTH: Thank you.

First, it may be a bit of a mischaracterization to say that MCC is doing public-private partnerships. Our partner is the government, and we need to have the government, because at the end of the day, they are the ones who can put the things in place that will help the project outside a compact or even within a compact. They are also the ones who most credibly should be determining national priorities.

Having said that, we make no assumptions that the government itself will be the implementer. The government is our partner, but part of the detailed implementation planning that I was talking about before was to determine with the government what is the best way to get this program done and done well?

Frequently, that will involve tenders of parts or all of the program out within the local economy, possibly where private sector firms can participate in program management or in the monitoring and evaluation process, certainly the accounting and legal work; at the same time, NGOs could participate in the management or in the transparency, financial funds. In the Madagascar compact proposal, there actually will be more likely an NGO will be responsible for our representatives to ensure fiduciary standards are met. So there may or may not be private sector participation directly in the compact. There may be in the context of providing some services and goods, but it will vary country by country.

The broader question, though, of assistance, you are right: assistance is needed. And I think you will see a difference between us and, say, the World Bank and the regional development banks who are typical project finance lenders. First of all, of course, our funds are grants, but the World Bank, IDB, others typically view everything with every T has to be crossed, every I dotted, everything fully in place before they will commit and disburse. That's why you hear stories it takes them, instead of our private sector standard of five or six months, it takes them 18 months or even longer from the time they get a proposal to try to get that in place.

We see ourselves differently than the World Bank and even some of the bilaterals in that we see ourselves as partners throughout the whole program development process. So certainly, by the end of the process, when large sums of funds are flowing, we would expect that every detail of the program and project would be spelled out quite clearly.

But we also see ourselves in some ways at earlier stage providing assistance much as a venture capitalist would or, perhaps, again, to use a private sector term an angel financier is that to help get things going, and so we can provide some assistance either through a compact or through another facility we have in our legislation, which is called 609(g) funding to help countries do some of the initial things of the kinds of things you're talking about to get themselves prepared.

So, for example, in Madagascar, we are going to be providing funding in advance of the compact for some of the baseline data gathering which would otherwise have to be done after the compact is signed so that we will begin to be able to measure right away the impact on women and children, which we're required to do under our legislation; the impact on farmers, several of the other groups we want to try to measure the impact of.

We can do this. Our standard right now is that we try to do it so that even making no assumption that the compact will be approved by the board, but nonetheless, the funding will still go for purposes that will ultimately have a positive impact on the country and will be used by them constructively.

The disbursements are still subject to the same kind of fiduciary standards that we would normally insist on. We want to know what are the controls? How is it we are sure it is getting from us to where it is supposed to go and so on? But that is quite different than having a full project completely spelled out in terms of some places engineering, environmental feasibility studies and so on, much of which can come once the compact itself is in place.

You also mentioned corruption, and you're right, that's key. Now, and as you know, the one indicator of our 16 that a country must pass is the corruption indicator for them to be selected. They can fail any of the other ones, but not that one. And it does take time to root corruption out, and even in the countries we select, it remains to be an issue.

This is not only a problem in the developing world. In case, you haven't noticed, there's some corruption in the developed world as well. The reality is it is a continuing battle with these countries. It does take time. One reason we don't expect a number of the threshold countries who have been selected in 2004 and 2005 to be eligible in 2006 is because it is going to take awhile for these corruption programs to take an impact, but ultimately, if they are going to be eligible, they are going to have to address it.

And to the extent that countries put together credible programs to us to address corruption, we are quite pleased to assist them.

QUESTION: Sara Masavi, United Nations World Food Programme. In many of the countries--

MR. APPLEGARTH: Excuse me; again, I didn't hear which group you're with; I'm sorry.

QUESTION: United Nations World Food Programme.

MR. APPLEGARTH: Thank you.

QUESTION: In many of the eligible and threshold-eligible countries, they suffer from high rates of malnutrition and food insecurity. Does MCA recognize these immediate humanitarian needs, and will you support efforts, country efforts, to address these problems, i.e., food aid for school feeding or food for work programs in agriculture?

MR. APPLEGARTH: That is an interesting question. MCC is--the answer is yes and no, okay? MCC is set up to focus on poverty reduction and long-term growth rather than to purely address humanitarian needs. There are a number of U.S. and other programs that are targeted to humanitarian needs, whether it is food aid or a number of efforts in the health area, although both of them ultimately contribute to the development of human capital.

A simple food aid program as such would not be something which would meet our mission, which is long-term poverty reduction and growth. What we would like to do is to help countries escape their dependency on food aid and dependency on humanitarian aid, and that is why the answer is also yes, because you are seeing in many of our countries proposals targeted to increasing agricultural production, rural production to ensure that the people in the country can not only feed themselves but can actually begin to generate income, produce food for export, and we're seeing a lot of food and agriculturally oriented programs as a result of the proposals.

MR. SABA: I just wanted to add to the point that Paul just made, I was in a country recently in Africa which has had a history of malnutrition, and they recognize the problem as being one of a policy problem, not a money problem, and they saw the threshold program, they actually made a point of telling me that they saw the threshold problem as being an opportunity to address some of the policy weaknesses to address their concern about potential famine actually this fall that they were talking potentially would happen.

So just to buttress, you know, Paul's point, we're seeing from the countries a recognition that if they get the right policies in place, that will go a long way towards alleviating some of the concerns that you bring up.

QUESTION: Thank you. I got the mike.

MR. APPLEGARTH: Oh, yes, okay.

QUESTION: My name is [inaudible], development counselor at the Danish Embassy. I have a few questions concerning the upcoming compact on Madagascar, and first of all, how have you done during the preparatory process? Did you end up sending somebody from your staff to Madagascar to work with the people there to further develop the compact, or have you had them up here for a longer period, or have you, I mean, in practical terms, how have you managed that dialogue with the government?

And the other country is could you say us a little bit about what is the size of the compact, what is the duration and the sector?

MR. APPLEGARTH: I'm sorry; I didn't hear the second part of it.

QUESTION: I mean, it would be interesting to hear for your first compact, what is the size of that compact, and how many years is it going to run at least approximately and what area are you focusing on there?

Thank you.

MR. APPLEGARTH: On the first question, we expect to have in country representation in virtually all countries where we sign a compact, not until then but at that that point. When we're not there all the time, we're there frequently even now. But that would be a principal source of our relationship monitoring as well as coordinated monitoring and evaluation.

Again, I wanted to emphasize that we are not doing the implementation, however. Ultimately, it is up to the country to do the implementation, and so, we don't need a huge team of people, okay? We do need, if you have well-established benchmarks in advance, and you have performance measures along the way and a detailed implementation plan and have selected both control procedures and implementation procedures that meet a high standard, it makes your job easier during the implementation program.

I don't want to say it's easy, but it's certainly easier, and our basic standard is to make sure that by the time we sign a compact and large amounts of funds begin to flow that all of those tests have been met, and we would fully expect that our country representative or representatives will be overseeing from a fiduciary role and a monitoring and evaluation role what is happening on a very active basis, as you would expect the partner to do so but not to be doing the implementation.

Regarding the details of the Madagascar compact, I would advise you the proposal itself is not yet public and is therefore subject to something called the Foreign Government Information Act. I can tell you in very general terms that it is focused as a stage one of ultimately a two or three stage effort where they're focusing on some of the initial things that will ultimately clear the obstacles to having significant increases in agricultural production and rural income.

Madagascar has some of the lowest yields per hectare in the world, and for several reasons, and they have really started out by saying we have to address these reasons first to really have the boost in agriculture. I would hope that shortly after the Board meeting in mid-March, we have another session just like this. We would be glad to talk through the proposal at that point with you in detail, and ultimately, the compact itself will go up on the Net for anybody to look at. But at this point, just know that it is targeted to increasing rural agricultural production, clearing away some of the initial barriers to that.

MR. LOWERY: Paul, there was one part of the question that I wanted to make sure was clear: we had a team of people doing due diligence for the last six months going back and forth to Madagascar to work with the Malagasy. We met with them up in New York for the UNGA meetings, but we have mainly been going down there, and we work a lot with USAID in country, and we've also worked a lot with the other donors, because some of the work that we're talking about doing is being worked on with the African Development Bank, the French and the Germans

MR. APPLEGARTH: Just for those of you who don't know, that was Clay Lowery. He's the vice-president for marketing and sectoral assessment.

I should also mention the donor coordination. A lot of the Madagascar proposal comes out of some of the work they had done around the PRSP, the poverty reduction strategy paper, and so, we feed this into what other donor activities have been, and it complements quite well what they have been doing.

Let's go there because I can see you and then we'll come down here. Oh, you don't have the mike. If you have the mike--

QUESTION: [Inaudible], European Commission. And my question is twofold. The first is how much money do you expect to get from Congress for FY '06 based on your request for $3 billion and given the fact that there is a lot of concern on the Hill that no money has yet been spent on MCC?

And my second question is the following: when the MCC concept was first launched, you had stressed very much the idea that the very tyrannical earmarking of Congress will be avoided for MCC. It's not clear to me why, when you are talking about finalizing the compact, you are still talking about consulting with Congress when my understanding is that Congress will not be involved in this process, at least in the level of earmarking.

Thank you.

MR. APPLEGARTH: Two different questions. One is the amount to be appropriated for FY '06. As you know, the President has asked for $3 billion for FY '06, and we would certainly hope that that would be achieved.

As I mentioned in my remarks, I think there are questions about why MCC hasn't disbursed after three years. I mean, there is a lot of misinformation floating around, and I would hope that we would get the full $3 billion if not more. We sometimes forget Congress can add as well as subtract, and how well the message gets out that MCC is doing a good job, is doing things that the countries themselves that they are pleased with, they are pleased with the process, that message needs to be echoed, and the more of you in conversations elsewhere that can reinforce that message, you will reinforce the ability to get at least the President's request.

And I think it is fair to say that as we look at the compact proposals we have that are moving on, we have more than enough to fully allocate the $2.5 billion that we have been appropriated so far for FY '04 and '05. Sometimes, people think or lose track of the fact that we are designed to enter into three to five-year compacts fully funded up front, and we need this in our planning process with the countries.

One of the lessons of development has been that, and you hear this from finance ministers and development ministers in the countries themselves that the traditional aid disbursement mechanisms which make them very dependent and have a lot of uncertainty in terms of timing, when they are going to get funding and how much they are going to get, and frequently, it comes as strings that have to be disbursed in a very quick amount of time leads to a lot of inefficiency, lack of planning and corruption, and they use themselves the word that it promotes corruption, the traditional model, because they have to move the money quickly; they haven't been able to plan for it, and they don't know when it's coming.

Our model is very different, built on the lesson that up front, the countries should know, assuming they continue to perform and meet their conditions under the standards of performance under the compact that the money is going to be there. So these funds that we are appropriated now and that we get in '06 requested are key to our ability to do three to five year compacts with these countries.

It is not a case of topping up later. We have tried to manage, we may have to do some phasing and other things, but the reality is the existing $2.5 billion is fully and more than fully allocated and would be taken up by the proposals that we currently have, and this is again the part of the process where we have to evaluate their proposals one against another and the subcomponents one against another.

These proposals all lead or virtually all lead to poverty reduction and growth, and we are in the question because of the funding levels right now of rationing and determining which are the best proposals in terms of the greatest impact in terms of growth, greatest impact in terms of poverty reduction, best plans, best detailed implementation plans, best performance by a partner government.

So these funding requirements are very key now, which is why we certainly need at least the $3 billion. I should add that in addition, the FY '06 number should fund significant expansion in the number of eligible countries. Under our legislation, our first two years were targeted at the very poorest countries. Next year, under the legislation, we begin to consider and have a separate competition for some of the low and middle income countries. We could potentially have another 10 eligible countries out of that group next year. That has to be funded out of the $3 billion request as well as the ongoing eligible countries among the poorest.

So this is a quite key issue for us, and the more we can address the concern that MCC is actually performing quite well, and the more you can echo that, the better off it helps support the $3 billion request from those who really don't understand the process, don't understand that we've been around a year, that all of the targets have been met from the MCC side and a lot of the countries are doing quite a good job in submitting proposals for us.

In terms of earmarking, there's two different pieces. Yes, I think one of the lessons of development is that indeed, the countries themselves should determine their priorities. It shouldn't be determined in Bonn [sic] or Paris or on Capitol Hill. And that's what we mean by earmarking the pieces that go into legislation that Congress says you have to spend money for this or this, and it leads to what you see among many donors going to a country saying here, you need this, we'll go and do it for you.

That's not our model. The reward of MCC eligibility is a country gets to pick its own priorities, and avoiding earmarking is key to that, absolutely key to the basic message, because otherwise, we don't incentivize the policy reforms and the changes that we know are really necessary to promote poverty reduction in the countries.

In terms of Congressional involvement, we actually have a lot of discussion throughout this process with Congress. The key committees and key staff have a good idea of the overall content of several of the proposals at this point. We have notified them of entering into negotiations with four countries: Madagascar, Honduras, Nicaragua and Georgia .

We want to make sure that they are fully informed of what is happening. We think it is important to get feedback from them. It builds their confidence in us. And we also recognize that as a new entity, in the same way that you're looking at what we're doing, that we're looking at what we're doing, that everybody is that is getting a fair amount of funding at a time that funding is tight that we are using the money well.

It's a perfectly legitimate set of questions we're getting from them. We try to respond to it, make sure that they are fully involved through discussions now so that their confidence builds as they are comfortable with what we're doing.

QUESTION: I'm Alexander Kravitz from IESC.

Just to follow up on the Madagascar discussions, a thought and perhaps even a suggestion. Following the Board meeting, assuming that it's approved, I think it would be interesting, given your comments today, it seems that Madagascar has set a sort of standard, if you will, not just probably being the first but, you know, a standard in terms of how the proposal was prepared and how well it was done.

It might be interesting to have a meeting like this where not only MCC officers but also Malagasy Government officials and others would also explain and walk everybody through sort of the process and the lessons learned. I think that could be beneficial.

Thank you.

MR. APPLEGARTH: Thank you. That is a helpful suggestion. I come back to the fact that there is a learning curve on this by everybody now. I think as soon as the compact is on the Net, other countries will begin to see what the documentation looks like. They will begin at least to be able to appreciate that better. Again, in the case of the Malagasy case, it is going to be in both French and English, which--you forget that in our discussions, many of these discussions go on with not just English, and a lot of the background papers are in the languages that you would expect of the partner country, and so, we are ultimately working in probably six or seven different languages at this point.

That is again part of this process. But the more we can do in terms of lessons learned to help other countries move forward is something we would really like to do, and if you have more concrete suggestions on that, we would welcome them.

QUESTION: Thank you very much for taking my question, Paul. My name is Susanna Florin with Parsons Brinkerhoff.

I'm seeking some clarification. Considering that physical infrastructure is key to hunger eradication, could you walk us through how will the physical infrastructure contracts be tendered? You made a comment that implementation is not done by MCC but by the countries themselves. Therefore, if there is a road project or an airport project, could you just help us understand how that plays out?

MR. APPLEGARTH: I don't understand the question. How would we evaluate an infrastructure project? Is that the question?

QUESTION: No, I understand how it will be evaluated. Once the evaluation is done and the compact is signed, how will the work be tendered for, and who will be evaluating the candidate private enterprise wanting to build the project?

Thank you.

MR. APPLEGARTH: Thank you.

The procurement process is going to vary country by country. Ideally, we would like to use procurement standards within the countries themselves, because this, again, comes back to our mission, which is to build sustainable capacity within the countries to do this kind of work. If somebody else is running the tender externally, doing all the evaluations, you may get a good project, but you don't have any lead-behind. And ultimately, we are about that sustainable capacity.

Realistically, many of the countries that we work in do not have procurement procedures and standards that would meet our fiduciary standards, and so, it will vary. We are, in some cases, the World Bank has been assisting countries in improving their procurement rules and standards, and they have reached a level we think we can use them, and so at least in those countries, we will be looking to use local procurement rules and regulations.

In other countries, it may be possible in fairly short order to upgrade the local procurement standards in the same way. In other cases, we will find other ways to do it. In terms of the evaluation themselves, obviously, the country has a big stake in this. They should participate in the evaluation. MCC and the American people have a stake in this and will participate in the evaluation whatever the procedures are.

In general, we will insist that the tenders be open to all parties. We do think it's important to the extent that we can to have much of the services provided locally, because this again goes to building sustainable capacity; at the same time, a number of the things we will be asked to do, they don't have local capacity, in which case, and I'm speculating here, we may see situations where local teams and international teams are bidding jointly to provide those services.

QUESTION: Melanie Ram from JICA. I have a follow-up.

MR. APPLEGARTH: Excuse me; what was your group, please?

QUESTION: Melanie Ram from JICA, Japan International Cooperation Agency. I have a follow-up question about the budget, regarding the $2.5 billion that you already have, do you expect that to be disbursed in fiscal year '05, and will it be disbursed all at once or in periodic installments?

And also, regarding Congress, is Congressional approval required of the compact, and can they also make changes at this point?

MR. APPLEGARTH: And what was the last part of it?

QUESTION: Can they also require any changes to the compact at this point?

MR. APPLEGARTH: The answer on the disbursement question is no, we will not disburse all of the funds at once. Would you? If you wouldn't, we probably would not. Just as a basic common sense test here, which is we want to be sure that the funds are going at the right pace in time, but as long as the country is performing, they are going to disburse and will disburse, and we are not going to cut off funding arbitrarily. That is key, again, to one of the lessons I was talking about.

In terms of one of the compacts, as I mentioned, they are typically going to be between three to five years, so you would, if, on average, you would expect the $2.5 billion to be disbursed over three to five years. How much this year will depend a bit on how many compacts are finalized, and disbursements begin this year, but realistically, you should take the $2.5 billion and divide by somewhere between three and five, and that would be disbursements this calendar year.

What was the second part of the question? I'm sorry.

QUESTION: Regarding Congressional approval of the compact.

MR. APPLEGARTH: No, as you know, we have a board setup. It is a very competent board that ultimately approves the compacts. We do keep Congress informed, as I was mentioning earlier, throughout, and they have a 15-day notification period once we approve the compact, at which point we go ahead and sign.

Hopefully, they have no questions or concerns that have been previously addressed, but as you can imagine, trying, if we suddenly had not only all of Congress but a bunch of all staffs and everybody else who had potentially thought they had a view on our side of the table trying to negotiate something, we had, like, 535-plus on our side of the table, it would be impossible to reach an understanding, very difficult for our partners.

So I think that's what the--not only the management, the board has been entrusted to do, and at the same time, we are certainly going to be listening and trying to reflect, make sure that the Congress is informed about what we're doing, addressing any potential concerns early on and hopefully make them comfortable with what we're doing.

QUESTION: Do you expect the $2.5 billion to be allocated by then?

MR. APPLEGARTH: Again, countries, I would think most of it could be, would be. It depends, as I say, countries drive the timing, okay, with Morocco, which we added in November, we haven't received a proposal from Morocco, either. We don't even have proposals from two of the 17 countries that might receive funding from the $2.5 billion. Depends a lot on the size, depends a lot on our evaluation.

So it may not be all be fully allocated or through signed compacts. It is certainly going to be allocated through our planning process, which is key, because you can't have a negotiation with a country without knowing that you have the money in hand to do it. So we need the funding, and I know that it's going to be difficult in the traditional aid model to say, well, all of it has got to be allocated and disbursed this year, because otherwise, it goes away.

That is one of the lessons of MCC. Our money does not go away September 30th. We need to know, though, how much we have so we can have a reasonable discussion with the countries about the priorities, how much we can fund and evaluate the proposals against each other. So the $2.5 billion we need, and we have now, we are using in all of our discussions with the countries. Whether we actually sign and begin disbursing all $2.5 billion of it by the end of the fiscal year or the calendar year is certainly not irrelevant, but it is not the key issue for all of us.

QUESTION: Karen Whitaker with the National Wildlife Federation.

MR. APPLEGARTH: With who?

QUESTION: National Wildlife Federation.

First, I'd like to thank you for the update. My understanding is that the general compact will be approved with, then, a requirement of environmental assessments at the project level, and my first question is is that correct?

My second question is if, then, the assessment or the feasibility studies show that the project could cause a significant environmental or health hazard, and to avoid that hazard would actually take more resources, more technical assistance or capacity-building, is there a mechanism then for that to happen? Will the MCC give those services?

MR. APPLEGARTH: Is Margaret here, who heads our environmental work? She's not?

Clay, do you want to address that?

MR. LOWERY: Yes, I think you actually hit on--it's a very good question; a tough issue. It depends on what type of projects and proposals we're talking about, because we're going to have to basically try to categorize the proposals. There's going to be some things that could have significant environmental impact issues, and there's going to be some things that will have--I mean, we can't even see how there could be any.

On the ones that are significant or moderate, if it's significant, we are going to require that an EA be done, and if it's moderate, we are going to be looking at environmental assessment issues. If, in the proposal, it comes up that there is a significant problem that needs to be addressed for mitigation purposes, and it's going to cost a lot more money, or there's an alternative that we haven't thought about that we need to look at, we might need to readdress the whole compact and amend it or possibly get rid of things.

But that's something that, you know, it's a little bit hard for me to guess, because it's hypothetical at this point in time, but we get the issue very well, and that's the type of thing we're going to be looking at going forward.

QUESTION: We just heard here that the studies may come after the funding.

MR. LOWERY: No, no, that's not what I said. Basically, remember, you sign a compact, and then, you're going to disburse funds over a period of time against certain benchmarks. One of those benchmarks could be an environmental impact assessment depending on exactly what we are talking about. So no, we wouldn't do it that way.

QUESTION: Thank you.

MR. APPLEGARTH: And in that case, I was talking about earlier how we could provide some help earlier on. We might provide some of the funding post-compact for the environmental impact assessment, and if we got a bad result, we wouldn't proceed with the rest of the proposal or at least that piece of it if it couldn't be fixed.

We will hopefully by the outreach meeting on the 28th, the environmental outreach meeting hopefully be able to publish draft guidelines for what we propose to do at the project level, and we would be soliciting your comments. Those of you who have signed up for our email alerts should be alerted to that coming. For those of you who haven't, I would encourage you to sign up for our email alerts. We would welcome your input on these and how we propose to proceed.

We have time for two more questions, I think.

QUESTION: Lee Stork with IBM Business Consulting Services.

First, a comment: if part of the reason for the perceived delay in disbursement is to enable more consultation and to front load more performance management, I certainly appreciate that both as a taxpayer and as a development professional. So thank you for spending the time and investing in that.

My question has to do with the performance metrics that you are looking for: to what extent are you able to build on the good work that USAID, the OECD, the World Bank and others have been doing on outcome indicators? Just as you have leveraged a number of your eligibility indicators from these other sources, can't you do the same for the actual country programs and in so doing, hopefully prevent the development of lots of parallel reporting infrastructures? This is a good opportunity for donor coordination as well.

Thank you for your comment.

MR. APPLEGARTH: Thank you.

Personally, I think the issue around the perceived delay in disbursements has actually more to do with people thinking MCC was established in Monterrey three years ago, and they really understand our process, okay? And the fact that we were established a year ago and the countries are driving it, and the things we talked about, I think, is probably the major issue. But again, I think countries have taken to heart the idea of us having a good consultative process and trying to do it right. So I think that does contribute to it. But thank you for your comment on that.

In terms of the outcomes focus, let me differentiate between the indicators and the project performance measures. As you know, we really select indicators because they are, among other things, empirically linked to poverty reduction and growth. It is not just because they are good ideas, and those of you who have been to these meetings before know that we substituted the female primary school graduation rate indicator for the overall graduation rate indicator, because with the assistance of some of you all, we got research that showed a stronger empirical link to poverty reduction through female primary school graduation rates. And we continue to use that as we continue to evaluate indicators, again, outcomes-focused, because we see links between the indicator and project reduction.

In terms of the project specific outcomes, we will use anything that's available. Some cases, there is good work that has been done by other donors and other institutions or some foundations. We are starting to have initial dialogues with some foundations who have also been worried about the impact and results of their own efforts, and we are looking at ways we can collaborate with them.

So to the extent that people have already done the work, we are happy to benefit from it and would like to hear about it if we don't already know about it. To the extent that we are starting to work on it, we would like to work with them to develop these kinds of performance measures that are focused on outcomes.

One last one, and then, I think we need to break. If you have the mike, you have the floor.

QUESTION: Hi, my name is Sara Lucas. I'm with the Center for Global Development.

I'm interested in learning more about how you are assessing the compact proposals that are coming to you, particularly along the lines of their capacity to reduce poverty. And clearly, your motto is poverty reduction through economic growth, and the literature is very clear and strong that economic growth is an absolute necessary condition for poverty reduction.

But the literature is also quite clear that there is a very wide variance in country experience in linking economic growth to poverty reduction, and many initial conditions influence that, rates of inequality in the country, or the poor's access to the sectors that are growing, things of that nature.

So I'm wondering how, what lens are you using or how are you assessing the compacts that you are receiving in terms of this relationship between economic growth and poverty reduction?

Thanks.

MR. APPLEGARTH: Well, as I say, our mission is poverty reduction. The means that we are trying to do it through is sustainable growth. But it is not poverty reduction and sustainable growth; it is poverty reduction. So that is the first lens we are looking at.

Secondly, I think our control--one of our controls is the consultative process itself, because if there is a genuine consultative process, I don't think you would see an outcome from that that led to benefiting the elites, say, around the capital, okay? And we've gotten proposals like that, some of them that have tinges of that or subcomponents that have tinges of that, and we have gone back, and those components have dropped, or they have been redefined.

And you really have to take it on a case-by-case basis, but we are concerned, to be sure, that our core mission is what we are doing, and that is what we are looking at in terms of a growth return, a poverty reduction return in our analysis of that, and I think that is just so integral to what our approach is, it is perhaps hard to verbalize it better than I am right now, but I would think--it is key. We would welcome your thoughts, advice as these initial compacts get done as to how they look and let us know.

We also expect the countries to identify up front what they see to be the obstacles to poverty reduction and growth in a very large country sense. I think we take some heart in the quality of the proposals and the thrust of the proposals we have received so far, because a large majority of them are targeted to boosting rural incomes where, in most of our countries, that's where the majority of the poor people are.

And if you can do things that stimulate agricultural production through a variety of ways, whether it's irrigation, agricultural extension, rural roads, farmer education, et cetera, you are really beginning to target--microcredit to households; it's a range of things. Overall, I would say the vast majority of our proposals would, I think, pass a test that they really are intended to lead to poverty reduction, and I think that is partly a reflection of the quality of the partners and potential partners that we have chosen.

With that, we need to wrap it up today. Thank you all for coming. We will do another one of these soon, and I have enjoyed it, and I hope you've benefited from it. Thank you very much.

[Whereupon, at 11:44 a.m., the meeting was concluded.]