Remarks by MCC CEO Ambassador John Danilovich at Third Anniversary Forum Hosted by the Society for International Development

Washington, D.C. – Ambassador John J. Danilovich, Chief Executive Officer for the Millennium Challenge Corporation (MCC), today addressed a public forum hosted by the Washington D.C. Chapter of the Society for International Development on the “State of the MCC: Progress Made Agenda Forward.” The following are his remarks as prepared:

“SID-Washington fosters dialogue on international development ideas and best practices, and we appreciate this wonderful venue to highlight the Millennium Challenge Corporation’s innovative approach to development assistance. The MCC is working tenaciously to fulfill our mission to reduce poverty through economic growth. I welcome this opportunity to discuss the progress made and our agenda forward on the occasion of our third anniversary, which we officially celebrate on January 23rd.

Two thousand six was a banner year for the Millennium Challenge Corporation. We have signed to date 11 Compacts valued at $3 billion and 11 Threshold agreements valued at another $300 million with countries around the world. We are working with a total of 39 countries committed to a culture of reform and over 22 million people will directly benefit from our 11 Compacts.

Two thousand seven will be a year of great excitement and challenge for MCC. While continuing to sign new Compacts with partner countries, we will also focus on implementing an array of major projects in the field. We already see targeted, tangible, and transformative results unfolding in our partner countries.

Consider our $110 million Compact with Madagascar to move that African island nation from subsistence to a market-driven economy by fostering property rights, expanding the financial sector, and increasing household incomes among the poorest farmers. I leave this weekend for east Africa, where in addition to visiting Tanzania and Kenya to discuss their Threshold programs, I will travel to Madagascar, where I look forward to seeing firsthand the progress that has been made on the implementation of its Compact. Such progress includes the awarding of the first 361 of an eventual 8,000 land titles. Additionally, almost 2,000 local farmers and enterprises have received technical assistance from 6 new agricultural business centers and another 225 farmers have been trained to tap into microfinance credit.

In Nicaragua, where I was part of the presidential delegation to President Ortega’s inauguration last week, our $175 million Compact is increasing the incomes of rural farmers and entrepreneurs in León and Chinandega. Last October, I helped inaugurate a pilot project at a milk-collection facility as part of the rural business development component of the Compact and participated in the first Nicaragua Investment Summit, which has already sparked a number of foreign direct investments.

Consider also our $295 million Compact with Georgia to renovate regional infrastructure and develop enterprises. Although the Compact is still in its first year, we have already awarded agricultural grants that are expected to benefit almost 10,000 people. We have projects to rehabilitate municipal water supplies in two cities that serve 230,000 Georgians.

During my travels next month, I will check on the progress of our $13 million Threshold agreement with Burkina Faso to construct 132 “girl-friendly” schools throughout the country. Several of these are already in operation and are keeping girls in school by including day care centers, on-site canteens, separate male and female bathrooms, and take-home food rations for the families of those girls who maintain a 90 percent attendance rate. In Indonesia, $20 million of our $55 million Threshold agreement funds a program to immunize at least 80 percent of the children under one year of age against diphtheria, tetanus, and pertussis and 90 percent of all children against measles. In many of our partner countries, specific projects focus on human development—investments in health, education, skills—so as to expand human capabilities, raise the standard of living, and directly impact the quality of life.

Overall, our goal is to improve the lives of the poor. It’s about benefiting 75 percent of Armenia’s one million-plus rural poor and increasing their annual incomes by $36 million by 2010. It’s about improving the lives of more than 65,000 of the poor in Vanuatu and increasing their average per capita income by 15 percent within 5 years. It’s about increasing the annual incomes of more than a quarter of the poor population of Cape Verde. The bulldozers and dump trucks are already in action there, building roads and bridges as part of our Compact.

From Africa, to Central America, to Eurasia to the Pacific, Americans are already seeing a return on their investment as MCC works to fulfill our mission of poverty reduction through economic growth. It is a mission guided by three principles that build on each other and on the lessons learned in development.

First, our aid encourages and rewards good policies. MCC provides aid to partner countries who adopt and maintain good policies. It is no accident that some of the most aggressive policy reformers in the world are MCC-eligible. They cite their determination to meet our performance criteria as the motivation behind their reforms. We can suspend or terminate a country’s participation with us if we see a serious erosion of policy performance. The Gambia and Yemen, for instance, were suspended because of a material decline in overall performance on our selection criteria. We have seen that the Yemeni government—spurred in large part because of MCC—embarked with a new sense of urgency after its suspension to enact a wide range of reforms so as to be considered for reinstatement. We acknowledge and welcome Yemen’s efforts.

We have developed two new world-class performance indicators that will become integral in future country selections. The Natural Resources Management Index and a Land Rights and Access Index will help us determine how well a country is promoting environmental stewardship as well as property registration and land rights for its poor and vulnerable populations. We are also considering another education-related indicator.

Second, our aid requires full country ownership of the development process. While we partner with a country, we fully expect it to take the lead in creating, developing and implementing its Compact in a continuing consultative process with all segments of its society. When I travel to Africa in February, I plan to visit Ghana, with whom we signed our largest Compact to date for $547 million last August. When the Public Sector Reform Minister testified before his own Parliament on the MCC-Ghana Compact, he best illustrated the essence of country ownership when he said, “Unlike other traditional development assistance programs where the donor proposes how funds are used, countries selected under the Millennium Challenge Account propose programs to receive funding. Thus, the MCA is designed to allow developing countries to take ownership and responsibility for funds provided by the Millennium Challenge Corporation. I wish to confirm to the honorable members of the House that our professionals have designed a program that belongs to us and one that we Ghanaians can implement successfully.”

Third, our aid demands tangible results. Our partner countries must identify from the outset what impact our funding will achieve. MCC’s focus on measurable outcomes is central to how we operate. It is also the best way to sustain poverty reduction and economic development even after our funding ends. Last Fall, I helped award the first 26 “clean” land titles to beneficiaries in Nicaragua, many of which went to female landowners. These titles are the first of 43,000 that will be delivered under our Compact. These titles represent the tangible results our funding is achieving.

This is the MCC model: good policies, country ownership, tangible results. This is the model we have successfully applied to become the high-performing agency we are today. Along the way, we learned some key realities.

First, our emphasis has been and will remain on funding those projects that are truly transformative in nature. The transformative nature of what we are doing is not just about investments—in agricultural productivity or infrastructure projects—but also about how our partner countries are selected and how programs are crafted and ultimately implemented.

Secondly, such transformative change does not and cannot happen overnight if done right and if it is to be sustainable. Diligence and perseverance are required throughout the implementation process—not just the implementation of the various Compact components but also the implementation of the institutional reforms that were initially undertaken to qualify and which must be maintained to assure that a country does not slip on its indicator performance.

Third, our expectations about progress are pragmatic. It would be unrealistic—for us and for those following our work—to expect that our Compacts will show instantaneous outcomes in terms of poverty reduction. Sustainable poverty reduction through economic growth is a long hard slog, a marathon not a sprint. Yet, we are starting to see progress and results on the ground.

The first and most transformative results to surface are policy reforms and improvements, both in those countries we are working with and in those countries striving to become eligible. In what is a significant accomplishment, we are seeing countries undertake the hard work of policy reforms in response to our incentive for funding. They are: making improvements in governance, fighting corruption, increasing investments in health and education, and adopting micro- and macro-economic reforms.

Even before a dollar of aid is invested, these countries are investing in their own development to qualify for MCC funding. I call this the “MCC Effect.” According to the World Bank’s Doing Business report, 24 countries specifically cited the Millennium Challenge Account as the primary motivation for their efforts to pursue business start-up reforms. Inspired by the MCA, El Salvador, for example, reduced the number of days to start a business from 115 to 26. Business registrations jumped by 500 percent.

Inter-ministerial committees and presidential commissions have been set up in over a dozen countries to devise reforms that address our selection criteria. In an unprecedented move, Philippine President Arroyo matched MCC’s $20 million Threshold funding to fight corruption. The announcement of the Threshold Program has given The Philippines renewed vigor in this fight, and corruption-related investigations and dismissals have stepped up significantly.

We made women’s legal and economic rights a precondition to the signing of a Compact with Lesotho, where married women were considered legal minors. The recent enactment of the law by Lesotho’s Parliament conferring equal legal status on married women is a tremendous step in the right direction. This is a powerful example of how MCC is helping to change policy for the better, which, in this case, is improving the lives of women. This is also the first time U.S. foreign assistance has been conditioned on gender equality.

MCC’s success is only partly measured in terms of agreements signed, funding awarded, and targets set and met. Our ultimate success is grounded in what actually changes and improves in the lives of the poor and in the sustainability of the institutional reforms we inspire. It is these reforms that maximize the impact of our assistance in reducing poverty and transforming our partner countries.

Though a young organization, we have also been successful in changing the very discussion on development assistance. With MCC at the center of a ripple effect, we are proving that aid based on performance is working and can motivate policy changes. If nonperforming countries look over at their neighbors and see substantial attention and resources pouring in as a result of good governance and a genuine commitment to reform, it might compel them to re-evaluate their lagging performance.

We are promoting local capacity-building, strengthening institutions, and jumpstarting critical thinking about the policies necessary to ensure sustainability by insisting that our partner countries design and implement their own Compacts. Our focus on country ownership reinforces the good policies we demand in the first place.

Other donors are taking interest in our approach. They are considering using indicators similar to ours to determine which countries might receive their assistance and are putting incentives in place to encourage policy improvement. Achieving transformative change that replaces poverty with prosperity is our agenda forward. Looking ahead, MCC is committed to three goals:

First and foremost, Compact implementation will join Compact development as one of our core competencies and will be the mainstay of our work in the long-term.

We expect considerable acceleration in implementation activities in 2007. Since our projects are finite in duration—usually 5 years—we are trying to remedy implementation problems before they occur. As numerous Compact projects come on line, they are subject to monitoring, evaluation, quality control, fiscal and procurement oversight, and performance assessments on an ongoing basis.

Though funding for the entire life of each of our Compacts is committed up front, it is not handed out all at once. Instead, because of our focus on results, disbursements are tied to benchmarks outlined over the life of the Compact. We distribute funding as our partner countries meet performance measures and as they are ready to implement their Compact projects. Typically, less than 10 percent of a Compact’s 5-year total is disbursed in the first year, with a sharp buildup in subsequent years. Rather than push money out the door or take unwarranted risks that could jeopardize the confidence of American taxpayers and Congress, our process ensures that resources are spent well and directed to tangible results.

For Compact implementation to succeed, we ask much of our partner countries. They need to continue their consultation processes and capacity-building efforts to bring their Compacts completely to fruition. They must pursue the hard work of maintaining a sound policy environment. Basing assistance on performance on our political, economic, and social indicators will continue to define our approach. Consequently, we see the MCC incentive effect intensifying as countries pursue reforms to qualify for our assistance. And, they must ensure that all members of their societies—men and women—fully participate in every way to maximize outcomes from our assistance. For this reason, we are integrating gender equality throughout all phases of our Compact development and implementation.

Second, moving forward demands streamlining and focusing on our top priorities. In 2006, we greatly strengthened our own organizational capacity. We implemented internal policies and procedures to improve the way we do business. We recruited the best talent and doubled our staff. With a cap of 300 professionals, we remain small and lean, particularly in light of the magnitude of the work ahead. Thus, we need to prioritize. The demands on our finite resources—both our staff time and funding—require that we focus our attention and energies on working with those countries performing well and exhibiting the fiercest determination to get the job done.

In 2007, it is unlikely that we will have adequate funding for all the countries that seek MCC grants. We will not have the staffing necessary to pull those countries through the Compact process that are not rigorously engaged. Competition for our funds and our engagement will increase. We will direct our limited resources and attention to those MCC partner countries that demonstrate the greatest effort, urgency, and willingness to develop their Compact proposals and implement their signed Compacts. Our priority is to work with those countries that are working hardest for themselves.

Third, moving forward means moving toward closer cooperation with donor partners. Our forward-leaning partner countries understand the power of leveraging the assistance we provide by cooperating with key partners. Our partner countries are responsible for ensuring that our programs are well coordinated with the efforts of other donors throughout our entire process—from Compact development through implementation. This avoids duplication, creates synergies, and prevents previously unsuccessful approaches.

Beyond the donor community, we encourage our partner countries to champion their own cause and use MCC as a means to generate greater economic activity and investment led by their private sectors. We want our assistance to give way over time to private sector economic activities that will make development transformative and sustainable. Thus, looking ahead, we will explore ways to help our partner countries more fully engage the private sector in making this possible.

From implementing Compacts, to streamlining priorities, to including vital partners in our work, our agenda ahead is indeed ambitious. Then again, the MCC model itself is ambitious. Our mandate to reduce poverty is profoundly challenging and remarkably noble. Reducing poverty means the eradication of hopelessness. It means opportunity for the most vulnerable.

As a signature development assistance initiative of the United States built on innovation and executed through the creativity of first-class professionals who are encouraged to challenge assumptions and think like entrepreneurs, MCC is demonstrating how progress can be made in replacing poverty with promise. We are making significant strides in our partner countries in the fight against poverty. To reduce poverty through sustainable and transformative economic growth is our mandate and our mission, our promise and our pledge.

I thank you for your interest in the Millennium Challenge Corporation, and I hope for your continued support for our endeavors as we evolve into our fourth year.

Thank you very much.”