Remarks by MCC CEO John Danilovich at a Center for Global Development Conversation with Steve Radelet

Washington, DC
January 13, 2009

As prepared.

Introduction

I’m very happy to be here with all of you today and I’m especially happy to be here with you Steve.  Steve was one of the first people I spoke with when I came to Washington from Brazil in 2005, and now you are the host of my last public appearance as CEO of MCC.  So in a sense, we’ve come full circle.  You and your colleagues at the Center for Global Development, especially Nancy Birdsall and Sheila Herrling, have been terrific partners – providing MCC with candid assessments and advice which we found enormously constructive (and at times irritating).    In any case, I think you know that if the comments were from CGD, we took them seriously.

With the beginning of a new administration, Washington is abuzz with the talk of changes and challenges, and there is general agreement that an overhaul of U.S. foreign aid is necessary.  In fact, criticism of development practices—internationally—is widespread and many countries are reassessing their approaches and analyzing their results—often in reference to the MCC.  However, it is worth remembering that development work, writ large, has yielded some amazing achievements:

To borrow a current expression, there is change we need, and change we can believe in.  Progress is possible.
In a week I will complete my tenure at MCC and return to the private sector. As the head of the United States’ newest development agency during some of its most formative years, I have a unique perspective on what it takes to put into practice some of the most meaningful lessons we have learned in development.

MCC began as a great concept for helping developing countries to reduce poverty through sustained economic growth.  But we aren’t a concept anymore.  We are way beyond that.  We are an acknowledged reality.    Starting from scratch in 2004, we have to date committed $6.7 billion to 18 compacts and 19 thresholds programs in 35 partner countries. We’ve had an incredible trajectory.  When I say “we,” I mean my professional, talented, creative and disciplined colleagues at the MCC with whom I have had the good fortune to work over the past several years - - some of whom have been there since the beginning in 2004 and the many others who now comprise the almost 300-person staff of MCC.  It is they who deserve full credit for the success of this organization.
I have found it prudent to be somewhat reserved in the debate on foreign assistance reform, but today, as I’m soon not only leaving MCC, but leaving town, and in fact, leaving the country, I’d like to provide you with some candid observations about:

MCC’s Purpose

MCC was created as a unique model with a specific purpose.  While objective selection criteria, country ownership, and results focused on economic growth and poverty reduction don’t implicitly make MCC better, they do make us distinctive -- and in the context of aid reform, there is great value in acknowledging, and making use of that fact.

Although a small agency, MCC’s presence in the US assistance portfolio has amplified our country’s role as an engaged and compassionate global leader -- A leader that cares about long-term economic development around the world—a world with less poverty, more sustained growth, more active participants in the global economy, and greater international and national security.

[How our experience could strengthen the broader US foreign assistance portfolio] 

So with the benefit of a clear purpose and a fresh start, MCC put in practice some of the most difficult lessons of aid-effectiveness and in five years we have learned enough to identify real practices that could further strengthen the broader U.S. assistance portfolio.
First, country performance must remain at the heart of how MCC selects countries. By using objective policy performance indicators to identify country partners -- and then delivering assistance to promote economic growth and poverty reduction -- MCC gives credence to the assertion that when it comes to economic development, it is policies that matter, not politics. 

Second, country ownership is something that should be more widely adopted across development programs. Even with intense pressure to disburse money more rapidly, we can not push aside our country partners in their efforts to assume responsibility for their own development. When a country leads the program proposal process, they determine what they need.  These proposals are not only more likely to be for high-impact investments, but they are often deeply integrated into that country’s efforts to meet Millennium Development Goals or to improve trade capacity. Furthermore, when an elected government takes a visible public role in economic development, their citizens are much more likely to hold them accountable. So if progress on the Millennium Development Goals, increased trade capacity, and accountable democracies are to be valued, then reform of development assistance should place greater emphasis on countries owning and leading their development.  

Finally, transparent results monitoring must be adopted more broadly if the American taxpayer is to get a return on their investment. I have seen few organizations—public or private—combine rigorous results monitoring with aggressive transparency in the way MCC does. MCC not only publishes its agreements and quarterly reports, but it has also pushed the envelope on transparency by posting economic rate of return data and monitoring and evaluation plans for ongoing projects.

The risk for such transparency, of course, is that it provides plenty of opportunity for critics to play “gotcha” – and they do.  MCC has been criticized for technical imperfections in analysis that no one else even makes public. I believe, however, that this will make MCC even more effective over time – being realistic about mistakes always does -- but this also depends on whether continued openness is respected, rewarded, and emulated -- or punished by outside stakeholders.   

In practicing these principles, MCC has made a substantial contribution to the development community.  However, two facts are inescapable:

One: Our ability to achieve these things is rooted in some very basic operational flexibility that must continue at MCC.  Ownership requires

Two: There are tradeoffs.  Some of the principles we are most proud of are in direct tension with the traditional aid measures that Congress and other colleagues rely on: country ownership and capacity development vs. the speed of disbursements; results monitoring vs. the expectation of a 100% success rate. 

Our choice has been to embrace risk, but to do so carefully, asking country partners to take charge of their own development, both strategically and tactically. We work from the perspective that enabling local, transparent, and results-oriented implementation is far more effective to sustainable development than just disbursing dollars. Anyone can spend money, few seldom do so effectively. Although there will inevitably be Compacts that fall short of our joint expectations, those that are successful will have the kind of deep domestic roots needed to be truly transformational. This is what we all want – meaningful success whenever it is possible and honesty whenever it is not.

What that means for the future of foreign aid reform

So what does all of this mean for the future of US foreign assistance?

Full consolidation is not the answer.

Yes, there is a need for greater coherence and coordination within foreign assistance – but a complete consolidation of the U.S.’s existing tools would blunt some of our sharpest instruments by unnecessarily choosing a single primary objective from our divergent national interests.  

MCC greatly benefits from the fact that we were specifically created to pursue economic growth and poverty reduction - period. We have a clear strategic goal, and the operational flexibility to pursue it efficiently: that sets us apart from much of the rest of the aid architecture and is an important factor in the reform process. Other aid agencies have grappled with generations of operational directives that were motivated by good - but often contradictory – intentions.

With that in mind, the reform process must acknowledge that there are many different objectives for foreign assistance –the United States supports stronger democracies, relief for humanitarian crises, greater national security, AND global economic development. But these are fundamentally different objectives and require fundamentally different legal authorities, staff expertise, and delivery mechanisms.

While humanitarian and security concerns react to immediate needs, sustainable development requires a long-term focus. Therefore, a rationalization of the U.S. foreign assistance portfolio should put development at the center and focus more clearly on the long term.
If we

MCC could be the United States’ strongest, most reliable vehicle for supporting long-term development.
This would mean increasing MCC funding, authorizing it to conclude concurrent, longer, and regional compacts, and taking actions that protect our up-front funding from other demands. To remain credible, and to retain our incentive policy reform effect, MCC would also have to continue to tell some countries, “no” – which means the U.S. would need to retain other mechanisms to provide development assistance when a country does not meet MCC’s criteria.

Placing MCC at the center of the U.S. development assistance portfolio would ensure that the largest blocks of flexible development funding are allocated to countries that have demonstrated commitment to fundamental good governance principles that make development sustainable and effective. 

More practically, it could also allow our existing public / private board to extend its strategic coordination function to other foreign assistance programs.  

MCC’s board structure enables us to fit effectively within a coherent foreign assistance framework.  The presence of government members ensures strategic coordination with the goals of other U.S. government agencies without undermining the development focus of our work. We further benefit from the diverse and relevant experience of our private sector members that bring an independent perspective.

Conclusion

Over the past three years, I have visited compact countries, threshold countries, and countries aspiring to become eligible for MCC assistance. I have met with presidents and ministers, sat with villagers on dusty roadsides, and inspected irrigation works and agricultural projects. In Washington, I have reviewed countless project proposals, argued over economic rates of return, insisted on world class environmental and gender standards in our work, and met with countless members of Congress.
I can attest to you that MCC is working and has fundamentally changed the way poor countries tackle their own development challenges: 

This is just a glimpse of the work on the ground that will multiply significantly in the months and years ahead. And most importantly, this is work being achieved by our country partners themselves in an efficient and transparent manner.  The great concept is now a great reality, and I am honored to hand over a vibrant, robust organization to the new team.

We have put into practice some of the hardest lessons of development – that paternalism doesn’t work; that good policies, country ownership, and results are key to sustainable development, that poverty reduction is best achieved through economic growth; and that it is worth risking transparent results monitoring for the benefit of people around the world.

It is in our best interest to preserve those lessons within our foreign assistance portfolio or perhaps even expand them into how the rest of U.S. foreign assistance is delivered. 

I’d like to thank all of you for your time and attention today and for listening to what I have had to say.  And I’d like to express my—and my colleagues—gratitude to you for your support of the Millennium Challenge Corporation.  For you, too, have been a constructive part of this effort and, as we enter a new administration and a new phase of MCC’s evolution, I would like to ask for your continued support for this innovative and outstanding model of American development assistance.

Let me stop there and begin the conversation with you, Steve, and take some questions from the audience.

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