Remarks by CEO Ambassador John Danilovich at the Sixth Annual Global Philanthropy Forum Financing Social Change: Leveraging Markets and Entrepreneurship in Mountain View, California

April 12, 2007

As delivered.

Introduction

Thank you, Sheryl, and good afternoon to you all. I am grateful for the opportunity to speak before such a distinguished audience of philanthropists, social entrepreneurs, and public, private, and corporate foundations, and to tell you about the Millennium Challenge Corporation’s new and innovative approach to combating poverty.

Reflecting the President’s vision and Congress’s bipartisan support—a unique combination of forces at the best of time—and recognizing the responsibilities we have as part of the developed world to assist those in the developing world, the Millennium Challenge Corporation was established by an Act of Congress in 2004 to offer an alternative to how U.S. foreign development assistance is awarded. The MCC model, based on the American ideals of compassion for those in need, together with accountability and responsibility, provides sizeable development assistance grants to partner countries:

that practice sound policies supporting good governance, investments in the health and education of their citizens, and economic freedom;
that are actively engaging in and pursuing their own development by devising and implementing their homegrown strategies for poverty reduction through economic growth; and
that demand nothing less than measurable and tangible results in the lives of the poor.

To date, the MCC has awarded development grants—what we call Compacts—to 11 partner countries throughout the world totaling $3 billion.

Another $310 million has been awarded to 13 other countries in Threshold agreements to help them address policy weaknesses to push them over the “threshold” toward Compact eligibility.

Though we are committed to development assistance, development assistance alone is not the answer to alleviating poverty. The answer is using aid as a foundation, a starting point, a springboard to attract and leverage what is essential for generating sustainable and transformative poverty alleviation.

MCC’s approach does just that.
We use our aid to leverage the power of

good policies,
a country’s ownership of its own development,
and the role of private enterprise

to fight poverty. Let me explain what I mean by each of these areas.

MCC’s Role in Alleviating Poverty

First, aid alone is ineffective if a country’s policy environment underutilizes or wastes it. For this reason, MCC is designed to provide aid as a positive reward to countries that have a sound policy framework in place. We do not provide aid to a country that promises to enact good policies; we provide aid to countries because they already practice good policies. Lessons learned after decades of work in the development arena prove that performance-based aid allocation helps maximize aid effectiveness.

Therefore, we partner with countries that measure above the median on at least half of the 16 objective and transparent indicators we use to assess a government’s performance in the areas of ruling justly, investing in the health and education of its people, and promoting economic freedom.

We also require that our partner countries perform above the median on our control of corruption indicator. Currently, MCC is the only donor that ties eligibility for assistance to performance on a transparent and public control of corruption benchmark.

We create scorecards summarizing a country’s indicator performance for our Board to use in making its selections of countries that qualify for our aid. You can visit our website at www.mcc.gov to view the indicator scorecards for all low income and lower middle income countries.

Because scores and data drive our approach, countries suffering from corruption, poor governance, and closed markets do not receive our assistance. Countries that do not perform well on our indicators are encouraged to improve and try again in the next selection round; and many are doing just that.

And, even after a country is selected to participate in our program, it must continue to maintain passing scores on our performance indicators or risk losing its eligibility.

Since we maintain that aid goes further—and will be awarded by us only—if good policies are in place, we are finding that countries are taking it upon themselves to proactively initiate or accelerate policy reforms.

We call this phenomenon the MCC Effect. The Dominican Republic, for instance, launched a campaign to immunize 5 million citizens for measles and explicitly attributed this tremendous undertaking to its desire to qualify for MCC assistance, since the MCC measures immunization rates in our investing in people category.

Countries talk to us and even hire experts to help them better assess their indicator performance. They engage directly with the organizations supplying the indicator data to make sure their policy performance is captured accurately. Countries are providing us with detailed reform agendas. It is no accident that some of the most aggressive policy reformers in the world, as measured by the World Bank’s Doing Business report, are MCC-eligible. According to that report, 24 countries specifically cited the MCC as the primary motivation for their efforts to improve their business climate.

Presidents, ministers, and government officials regularly call on us or ask our ambassadors in the field, “What reforms do we need to make to become eligible for MCC funding?” To date, at least 14 countries have established interministerial committees and presidential commissions to devise, implement, and track reform strategies that address our selection criteria. They share our core belief that aid is most effective in a policy environment where good governance as well as economic and human development are valued.

Second, aid alone is ineffective if it fails to enable countries to help themselves. We believe our partner countries must play the central role in their own development. Our aid and our involvement must enable countries to build their own capacity to “do for themselves.” Therefore, we ask our partner countries to develop their proposals for funding after identifying their barriers to poverty reduction and economic growth, in consultation with their civil societies, including the private sector. Taking an approach much like an investor–rather than a traditional donor–we require that countries themselves come up with their development strategy and provide their proposals to MCC much like a business plan.

If due diligence determines that the proposals are well-integrated and comprehensive, we not only provide the funding up front, but also ask countries to then implement their proposals. And, we ask that they work with us to monitor performance and evaluate impact along the way.

These expectations have stretched capabilities in our partner countries and motivated them to develop new capabilities, and to also think critically about what policies are needed or what institutions need to be strengthened or created to sustain development. They are building country capacity.

In Ghana, for example, one of the major obstacles to the successful implementation of development projects has been the lack of adequately trained public procurement specialists. The ability to procure goods and services in a transparent and competitive manner ensures the best use of public funds.

MCC is funding a procurement capacity-building initiative within the Ghanaian government designed to strengthen the effectiveness of various procurement entities.

By improving the efficiency of government procurement, substantial resources can be saved in future years—resources that could be directed toward health and education for the poor. Fair and competitive procurement also strengthens business confidence and encourages an open environment for innovation.

Countries previously have not been expected to take an “ownership” role in their development or to take on the level of accountability and responsibility we demand. Yet, we believe country ownership is an absolute prerequisite if we are serious about leveraging our aid to make it most effective in the fight against poverty.

Third, aid alone is ineffective if countries are not prepared to continue without it. Through good policies and country ownership, we foresee the day when our aid can be replaced by the self-sustaining economic activity driven and spurred from within a partner country itself by the private sector.

We believe that the private sector fuels economic growth, and that countries experiencing such growth will see the number of their citizens living in poverty decrease.

We see MCC’s role as transitional as we become the gateway to private sector engagement. Even the most generous investment of American development assistance can not be sustained unless favorable conditions exist for private sector enterprise to flourish and become the engine driving long term growth.

Because MCC demands performance on indicators evaluating

fiscal,
monetary,
regulatory, and
trade conditions,

including the costs and days to start a business—and insists on transparency and a rejection of corruption—we create a powerful incentive for countries to foster a business climate where the private sector can flourish and can do business.

This stimulates

homegrown entrepreneurship,
small business development,
increased trade,
and investor opportunities,

both domestically and for international companies.

In our Compact with Benin, for example, the access to financial services component is improving the capacity of small rural enterprises to respond to new business opportunities by reducing the cost of credit and facilitating access to financial services. Within five years, we expect that this will generate substantial new investment—creating jobs, raising incomes, and lifting lives out of poverty in Benin.

By creating favorable business conditions through our Compact with Nicaragua, MCC has already helped attract a $6 million investment from Grupo Beta, a textile manufacturing firm that will generate some 1,500 local jobs. We hope that this is just the tip of the iceberg.

Like Grupo Beta, we want others in the private sector to look closely at what is happening in our partner countries. Because MCC investments create and require viable physical, financial, and policy infrastructure, the private sector has a favorable point of entry to initiate or expand their own commercial activities. I encourage and invite the business community to leverage MCC investments and use them as a springboard for complementary or alternative investments of their own.

MCC eligibility and selection have been viewed by businesses and investors as providing countries with a “good government imprimatur,” a “good housekeeping seal of approval,” and have encouraged and attracted investments in MCC countries.

I also invite foundations and companies with compassionate corporate social responsibility initiatives to look carefully at MCC programs in countries in which they have an interest. In conversations we have had with the Gates Foundation and the Rockefeller Foundation, for example, we have identified a number of mutual synergies in the fight against poverty worth exploring further. I have no doubt that we can be much more effective when we work together rather than when we work alone.

Conclusion

Aid alone is not the answer to financing poverty alleviation.

Aid that

encourages and rewards good policies,
expects countries to be the champions of their own development,
and engages the private sector by creating the right conditions

is the answer.

And this is the approach MCC is taking to reduce poverty among our partner countries.

Initial results demonstrate that our approach is working.

Our Compacts are lifting communities out of poverty by stimulating economic growth through:

infrastructure projects that make access to markets, schools, and health clinics possible;
projects to improve the security of land tenure for small farmers;
soil conservation programs and improvements to agriculture and irrigation systems;
business development initiatives, including micro-lending credit programs; and
improvements to water and sanitation services that are so vital for health.

Land titles are being awarded in Nicaragua and Madagascar—many to women. MCC expects that women, alongside men, participate fully in creating, implementing, and reaping the benefits of our Compacts in keeping with our gender policy, which Women’s Edge Coalition and its president Ritu Sharma Fox, who I see here today, played a significant part in developing.

Farmers in Honduras are transitioning from corn and beans to higher-profit crops such as squash and jalapenos.

Farming cooperatives in Madagascar are growing geranium plants that will produce oil for soaps and perfumes.

Grants have been awarded for the first eight agribusiness development projects in Georgia that are creating new jobs, improving technologies, and facilitating market access.

In Burkina Faso, “girl-friendly” schools are enrolling some 13,000 students—more than double the number from the last academic year, with girls making up more than half of the student population.

The Millennium Challenge Corporation embodies government’s effective role in applying new parameters and higher expectations to grant funding for development assistance to finance tangible outcomes that transform the lives of the poor. MCC seeks to fully leverage our relationships with our partner countries—committed to sound policies and to engaging the private sector—in order to reduce poverty through economic growth in sustainable and transformative ways.

This is the solution the Millennium Challenge Corporation offers—a solution that is already making progress and showing signs of success—in replacing poverty with prosperity for the world’s poorest. I again want to thank you for inviting me to speak here today and for your continued interest in and support of the Millennium Challenge Corporation.