CENTER FOR GLOBAL DEVELOPMENT
Presents
Which Countries Will the Millennium Challenge
Corporation Choose in 2007?
by
Steve Radelet
Monday, November 6, 2006
10:00 a.m.
Doubletree Hotel
Terrace Ballroom
1515 Rhode Island Avenue, N.W.
Washington, D.C.
[TRANSCRIPT PREPARED FROM AUDIO RECORDING]
Steve Radelet:
Good morning. My name is Steve Radelet. I’m a senior fellow
here at the, at the Center for Global Development. Well, actually not here at the Doubletree
Hotel. I’m a senior fellow up the street at the Center for Global Development. Thanks to
everybody for coming out this morning. Tomorrow, the board of the Millennium Challenge
Corporation will meet, and decide which countries will be eligible for funding for the – to
apply for funding for the MCC for 2007. This will be the fourth time that the board has made
such decisions and for this year it will be for countries to apply for the funding that will be
available when Congress passes the 2007 budget for the upcoming fiscal year.
We’ve done a lot of work on the MCA over the years as many of you know. The work that
we’re doing today, I’ve done in conjunction with Sheila Herrling over here who runs our
MCA monitor project and Sarah Rose who’s got her hands on the projection. They actually
do all the work. Any of you that have good staff know that they just hand you the stuff and
say, here, sign this. Stand up in front of everybody and say this, and you just say okay, I’ll
just do it; but when you have faith you’ve got good staff, you know that whatever you say is
gonna be right. So, they deserve actually a lot of credit for the work, for the work here.
I won’t go through in any detail, uh, the MCC selection process. I’m gonna assume that most
of you know it fairly well. We’ve got it in the appendix and have gone over it many, many
times. So I won’t take time to go through it in any detail, but just as a quick refresher, the
MCC looks at 16 indicators in three groups of indicators. They look at six ruling justly
indicators, they look at four investing in people indicators, they look at six economic freedom
indicators, and for a country to be chosen, or for a country to meet the indicators’ test, they
have to be above the median score in their country group on half the indicators in each of the
three groups, okay.
So they take all the countries, developing countries, they divide them into two groups – lower
income countries, lower middle income countries – and among the lower, the dividing line
between those two groups is about $1,675.00. They take all the countries that are below
$1,675.00, that’s the lower income group. They look at the scores on all these indicators,
calculate the median. You’re either above or you’re below the median. If you’re above the
median, you get credit for that indicator. If you’re below the median, you don’t. Uh, and you
have to get 3 out of 6 ruling justly, 2 out of 4 investing in people, 3 out of 6 on economic
freedom. I will say, which I’ve said many times and I want to emphasize, uh, the absolutely
uniqueness of this selection process.
There’s no other aid agency in the world that does anything like this in any sort of transparent
manner that you have to score, you have to actually perform on some independent indicators
in order to become eligible. All of this data comes from outside the U.S. Government. They
take independent sources. All of the data is up on the website and you can see where a
country scores. It’s actually rather amazing I think that the U.S. Government does this in
such an open process and to some extent ties its own hands behind its back. They don’t just
go into a back room and choose the countries that they like. They need to pass these tests.
Having said that as most of you know, they don’t rigidly follow this process and they allow
themselves some discretion on both sides; sometimes choosing to select countries that don’t
meet these tests and more often actually, not choosing countries that do meet the tests. So
meeting these tests actually does not guaranty that you’re in, but it does increase your odds
quite, uh, quite substantially, and we’ll go through this in some, in some detail.
Before actually turning to that I wanted to actually say a little bit of a, of a word on some of
the other things that we, that, the other work that we’ve done on the MCA recently. I should
have actually said this before launching in. This paper that I’m looking at today, looks at the,
who we think will be chosen tomorrow. We have other papers on our website on related
topics and I just wanted to draw your attention to, uh, to several other papers. We have one
paper up now on the selection process with all the data and through the nitty-gritty of what
I’m gonna talk to about today. There’s a second paper specifically on the cases of Indonesia
and Jordan which I think are the most, uh, politically troublesome in some ways. There’s a
third paper on natural resource indicators. They’re adding two new indicators next year to
this process on the bottom and we’ve written an analysis of the pros and cons of those
indicators and how they might be incorporated into the process. That’s the third.
There’s a fourth paper on our website that looks at, that analyzes the impact of MCC funding
on other development funding for MCC and non-MCC countries. There’s a question about
the extent to which when the MCC adds funding to a country whether it’s truly additional or
not. Uh, that was the pledge in the beginning, uh, but there’s some controversy as to whether
or not that’s the case. We have a paper on the website that looks at it. The answer is that it’s
complicated. The U.S. budget numbers are very, very hard to follow through and to see
what, what, what is actually happening in any individual country. The funding comes from
so many different sources, it’s really hard to sort it out. We’ve made an attempt at it and the
No. 1 conclusions is that the data’s really hard to follow.
The second conclusion is that if you look at all core funding for MCC and non-MCC
countries, taking out the HIV AIDS program, which is sort of a special account, funding for
MCC countries has fallen in the last couple of years, outside of the MCC. But for non-MCC
countries, it’s actually fallen even more. This is in the development assistant account, child
survival and health, the Peace Corp account, several others. So MCC countries have received
less money but the non-MCC countries have received even less. However, if you look at a
subset of that on development assistance, the MCC funding has gone down, or sorry,
development assistance funding in MCC countries has gone down. Development funding in
non-MCC countries has actually gone up a little bit. So there does look like there’s more of a
tradeoff in MCC countries that the U.S. is responding by cutting other funding a little bit; but
there’s a paper there, and finally there’s a paper on whether or not the U.S. or whether or not
the MCC should provide some of its money as budget support. So I would just direct you to
look at some of those other papers. I’ll come back to that last issue in a few minutes.
Okay. Back to this. This year on the lower income country group, 21 countries passed the
eligibility test. Last year there were 26, so there are actually five fewer countries this year
that don’t, that do pass the test. Uh, to start with, these are the countries that are currently,
uh, eligible in the lower income country group: Armenia, Benin, Bolivia, Burkina Faso, East
Timor, Georgia, Ghana, Honduras, Lesotho, Madagascar, Mali, Mongolia, Morocco,
Mozambique, Nicaragua, Senegal, Sri Lanka, Tanzania, and Vanuatu. Several of these have
compacts already signed: Armenia and Benin, Georgia, Ghana, Honduras, Madagascar,
Mali, the compact was just approved and will be signed in a couple of weeks. Nicaragua has
a compact which has its own interesting political dimension which we’ll talk about in a
minute, and Vanuatu. So several of these have compacts in place.
Several, three others were first designated as eligible for the threshold program, which is a
separate program for countries not quite eligible, and then subsequently last year were also
designated as eligible for the full MCC eligibility and that’s Burkina, East Timor, and
Tanzania. So this is the current set of countries, lower income countries, that are eligible.
However, but this is not the full set that passed the test. Georgia and Senegal with the
asterisks did not pass the test last year but were selected anyway; and then there was a list of
countries that passed the tests that were not selected. Last year these countries, Bhutan,
China, Egypt, India, Kiribati, the Philippines, Uganda, and Vietnam passed the tests but were
not selected. So you can see that the board actually does use its discretion in not choosing a
lot of these countries.
Most of them, or at least several of them, uh, you note are non-democracies that passed the
test – Bhutan, China, Egypt, and Vietnam at lease, and to a large extent, and Uganda it’s
debatable whether or not it’s a democracy or not, depending on who you talk to. Um, but by
and large the board has only chosen democracies. It’s not a hard rule, but by and large, that’s
been the case. The only non-democracy that it has chosen so far is Morocco. I think that’s
gonna change tomorrow, but we’ll get to that. They never say why they don’t chose
countries that make the tests. I actually think that’s a mistake. I think that’s a problem. I
think given the transparency of the indicators, when they don’t choose a country, I think that
the board should say why. We have a leaning for a country to be a democracy or in India’s
case we just think it’s too big and they’ve got other resources, or whatever the case may be,
but I think they leave countries hanging a little that, and the system a little open in the air
when countries make the tests but are still not chosen. So that’s just to emphasize, uh, that
not everyone that makes the tests are chosen.
Now, of the group that is eligible right now, these countries in italics, those five countries, six
countries, don’t pass the indicators’ test this year. Those countries in italics that are currently
eligible do not pass the tests this year. One of them is Senegal which didn’t pass the tests last
year. That’s not so much of a surprise. Georgia which didn’t pass the test last year, that little
asterisk, actually does this year, but Benin, Ghana, Madagascar, Morocco, Senegal, and Sri
Lanka strictly speaking do not pass the test. In Morocco’s case it’s because actually their
income rose and they are now in the lower middle income group and are facing some higher
standards. We’ll come back to the case of Morocco later, but the others don’t make the test
and that is a big issue for the MCC. One of the biggest issues they face, you’ll notice that
several of these countries actually have signed compacts – Benin, Ghana, and Madagascar
have signed compacts and don’t make the tests this year. So that’s a big challenge for the
board tomorrow, what do to with those countries and we’ll talk about that in a second.
Now, this is just the data for who passes this year. You’ve got handouts in front of you,
there’s a legal size paper that’s got all the data for all the countries in very small, tiny print.
We didn’t hand out magnifying glasses. You might need those to actually read those, but you
can find your favorite country and see where they fall by looking at that; and obviously we,
we’re not gonna go through all of that data, but just quickly a summary of who passes and
who doesn’t, and then we’ll come back and look at some of the interesting cases. There are
13 currently eligible countries that passed the tests again. There are four countries that
passed again this year but weren’t chosen – Bhutan, Egypt, Kiribati, Vietnam. They passed,
um, I don’t think the board will choose them again this year since they didn’t last year.
The Gambia passes again this year. Last year they passed, were chosen which was quite
surprising given the political situation in the Gambia. I lived there for a couple of years.
They’ve had, uh, a guy who took power through military coup more than a decade ago. He’s
still there. I was stunned actually that the MCC chose him last year and within weeks there
was another crackdown on journalists and so the MCC, to their credit, reversed themselves
and suspended the Gambia. They pass again this year but will not be selected; and then
there’s three countries – Moldova, the Solomon Islands, and Ukraine – this year that pass for
the first time. So that’s the breakdown of, of who passes.
Then there’s several countries that are also interesting. There are the five that are currently
eligible but missed by one indicator, and 12 other countries that are very close that missed by
one. I say note Zambia there on the bottom. Zambia comes as close as possible to passing.
They pass all, they pass a sufficient number of indicators but as, as most of you know, you all
– and I didn’t mention this earlier – you actually have to be above the median on the
corruption indicator. Even if you pass all of the other indicators, if you fail the corruption
one, by the rules you’re out; and the rules say that you must be above the median to pass.
Zambia passes enough hurdles on the corruption indicator. It is the median country. It is not
above the median. It is the median. So they are that close to passing the indicators, but
technically they don’t pass but are as close as close can be.
Now, I think many of these are straightforward, I think, as to what the board will do. If they
were passed last year, they were chosen last year, and they pass again, I don’t think there’s
gonna be much of an issue, with one possible exception, which is Nicaragua which we’ll
come back to in a minute. But let’s flip to the next slide. Now, this is where I think there’s
gonna come out. These are my guesses. Who knows whether they’re right or not? There are
11 countries that are currently eligible that passed the tests, passed the tests last year, passed
the tests again this year, um, and I don’t think there’s much question. There’s not much
controversy over those 11 countries. The only one of these 11 that there might be some
question is about East Timor because there was the political troubles, the unrest a few months
ago. Also East Timor has coming on line huge amounts of new revenues from offshore oil
and gas, which its working on with a, an agreement with the Australian government and so
their government revenues are now quite large, and it’s possible that the MCC might, uh,
think twice about East Timor, but I’m pretty sure that they will choose them again.
I also think that they’ll pass, that they’ll choose Moldova. They’re eligible. They passed for
the first time and they passed 15 out of the 16 indicators. They passed very strongly. So I’m
pretty sure that Moldova will be chosen for the first time. Um, I think that these five
countries that are currently eligible but missed by one, I believe that all five of them will be
chosen again. These cases, I think, require a lot of thought, and I certainly hope that the
board thinks carefully about those. I don’t think that just because a country is currently
eligible that they should be chosen again. Uh, if the indicator – if they don’t pass the
indicators, there’s two different reasons why, and I think one of those reasons you don’t
worry about; the other is, the other you do.
These, the first you don’t worry about too much is that the data fluctuate a little bit. All data
does. These data are not precise, they’re imperfect, and from one year to the next, a
country’s score might dip below the median and then above the median, and it might not
really indicate any sort of fundamental change. If a country’s been chosen and they’re
working with the MCC and they’re, you know, working hard to put a compact either together
or to implement one, if they dip below the median score from one year to the next, and in
your judgment you don’t think it’s a fundamental break in a worsening policy, I wouldn’t
change their eligibility status. That would be my judgment.
A second case would be if a currently eligible country’s scores fall and you actually believe
that it’s a fundamental change, for whatever reason. The most obvious would be a change in
government, but it also could be that for some reason corruption really has gone up or their
immunization rate really has fallen; they’ve stopped spending on health and education for
whatever reason. If it actually does indicate in your judgment, and this is a subjective issue
that there’s a falloff, then I think you’ve got to think twice about it, and that’s where they’ve
got to go through these cases. They’re quite different. Benin I think is actually, uh, the most
difficult. Benin does not pass the corruption indicator this year. Their score dropped
substantially. Last year they were in the 86th percentile. This year they’re in the 38th
percentile. It’s a huge drop in the corruption score.
What happened was that the way that the score, that the World Bank Institute who puts
together this control of corruption score, they actually changed the underlying indicators.
They added two new indicators and dropped one. They think it’s a better representation of
the score, but with the two new corruption indicators that are in there, in the World Bank –
the World Bank Institute does a composite of about 18 different sources to put together its
corruption score, and of those 18 or 19 sources, they added two new ones and dropped
another, and with that new composition, Benin’s score dropped quite precipitously. It’s
probably not an indication that corruption got that much worse. It’s probably an indication
that in past years it wasn’t quite a good, the corruption story was probably not as good as the
data previously indicated. So that’s one that I would be troubled with.
Since they’ve signed a compact and since they’ve been – the MCC has been saying great
things about Benin and they are in the early stages, the MCC has a choice. Do they send a
signal supporting the country, good country, got a compact in place, we want to be
supportive; or do they send a signal to say the corruption indicator has fallen off and we need
to really be supportive of the indicators. That’s their choice. I think in the case of Benin
they’re gonna stick with them but probably give them a bit of a stern warning on something
about corruption and if that continues to be the case, maybe in the future they won’t be
chosen. That’s the most difficult.
Ghana misses by one indicator on the economic freedom side. On inflation, the threshold is
15 percent. Their inflation rate is 15.1. It’s partly because they recently increased gasoline
and fuel prices in response to higher prices. The more recent – that data is for the calendar
year 2005. The most recent data that has come out on inflation through August, they’re
inflation rate is now down to 11 percent, well underneath the hurdle. I don’t think that’s a
substantial. They missed by one tenth of 1 percent on inflation. Otherwise they’d be in.
That to me is not a significant issue so I’m pretty sure that Ghana will be chosen.
Madagascar, there was a revision on their immunization rate data and now they fall below the
hurdle, so it’s a little bit like Benin, that there’s actually been a change in the data. This one
is on immunization. Again I think that the MCC will chose them, select them again this year
but perhaps send a bit of a warning.
Senegal did not pass last year and they picked them. This year it’s almost identical situation.
The IIP is investing in people. They only get one 1 out of the 4 on investing in people just
like last year. I suspect that they will choose them again. Sri Lanka is a little bit different.
Sri Lanka doesn’t pass this year because it’s actually missing data on the girls’ primary
school completion rate. The data just weren’t reported this year so they failed the indicator.
Last year, their data on that indicator was one of the best. It was 95 percent girls’ completion
rate. There’s no reason to think that there was actually a huge decline in the girls’ school
completion rate, so I think that they will select Sri Lanka again, although given the up-check
in political violence, they may think twice about Sri Lanka.
So that’s my judgment as to where they’re going to come out. I think these first 12 are pretty
crystal clear, 11 plus 1. This one, I think they’ve got to think carefully about, but I think
that’s the way they’re going to go. Then there are several other cases that are borderline.
Bolivia is borderline. They chose Bolivia a couple of years ago. The Bolivians, the former
government, sent in a proposal for a compact. I haven’t seen it, but I’ve heard from several
people that it’s a good, pretty decent, solid compact. The new government of Evil Morales
has embraced that proposal and said that they want to endorse it, but it has not moved
forward. Those of you who follow politics in Latin America know that this is a tricky one for
the U.S. because they’re not wild about the new government in Bolivia, particularly the
actions that the Bolivians have taken on nationalization of the hydrocarbon industry. But the
Bolivians make the hurdles. They’re a democracy. The government was elected freely.
They’ve embraced what is supposed to be a good compact.
It’s a little bit difficult for the MCC to just all of a sudden say, “Well we used to like you, but
you had an election that was fair and free, and now we don’t like you, even though you
haven’t actually done too much that violates the indicators or violates your compacts.” I
suspect that they will just quietly select Bolivia again. To not select them might create more
of a political issue than they want to make. It actually doesn’t affect the funding. Bolivia,
since they were eligible before, the compact that they sent in can be funded out of previous
money. Selecting them this year, since they’ve already got a compact underway, doesn’t
make them eligible for any more money than they would have been anyway. So it actually
has no material impact on the amount of money that Bolivia would get. They’ve got a
compact in there. If they approve it, it’s already fully funded from previous budget. It
doesn’t affect the funding that’s available.
Indonesia, in my paper, in our paper, we actually said we thought they’d choose Indonesia.
In the last week, I think that the odds that they’ll choose Indonesia have fallen. Indonesia
does not make the indicators. It misses by two. It misses by quite a bit. But there is pressure
on the MCC to choose more countries that are predominantly Muslim and the President is
going to Indonesia in a couple of weeks, so my understanding was that, as of a couple of
weeks ago, Indonesia was quite high on the list. But I think they’ve thought twice about it
and recognized that to choose a country that misses by two indicators, just before the
President arrives in the country, would actually really be pretty hard to justify and would
really clearly signal politicization of the MCC.
So they may be pulling back from Indonesia, but I think there is a lot of support to perhaps,
um, to perhaps select Indonesia. I hope they don’t. I’m a big fan of Indonesia. I lived there
for four years. I’m close friends with many of the senior government officials and I wish
Indonesia very well, but Indonesia should be making these indicators. They should be
passing these indicators and they’re not. And until they get their corruption indicator up just
a little bit and get their immunization and health spending back up a little bit, I think they
should be left out. But I’m not sure what’s going to happen.
Nicaragua passes the indicators, but there’s this little election that’s going on in Nicaragua,
um, and I’m not so sure that if Daniel Ortega wins, that the U.S. government wants to
suddenly come out and say, “And we’ve selected this government again for our high profile,
great performing country or program.” They passed the indicators. They passed them quite
easily. They have a compact in place, so it’ll be pretty hard to back off. It’s possible,
however, that the U.S. government could stop that compact and just say, “You know what?
We negotiated that with the previous government. We didn’t negotiate it with this new
government and we’re just going to stop it.” I’m not sure whether they will take that step.
That issue, whether they would stop a compact in place, is separate from whether or not they
will choose Nicaragua to be eligible this year.
Since Nicaragua already has a compact in place, selecting them again this year has no
bearing. They can’t apply for a second compact. You can only have one compact at a time,
so it wouldn’t actually make them eligible for any more money, but it’s a symbolic issue – do
you choose them for your high profile program or not? And I’m not sure what they’ll do
tomorrow. It depends a little bit on how quickly the results come out on the election, but that
Nicaragua status, I think, has suddenly come into play.
Solomon Islands passes. There’s no reason to think they wouldn’t be chosen. But frankly, I
think they’re a small country and I don’t think they’re going to be chosen. I think the MCC
wants to restrict its focus to a certain number of countries and it’s a small – they’ve got one
Pacific Island country, Vanuatu, and I think the fact that the Solomon Islands is a small
country that doesn’t get very much attention, my guess is they’ll just pass them by. No
particular reason, but I think they’ll pass them by.
Ukraine passes for the first time, but a couple of the indicators that they miss on, they miss by
a lot. And those of you who know Ukraine, the history is up and down and back and forth
and I think they’re just very borderline. I think they could choose Ukraine, but they might
also say, “You’ve got a threshold program. Let’s wait a year and see what happens.”
And then Zambia, as I mentioned, is right on the cusp, and I think that they are honestly
thinking, you know, they’re as close as close can be, do we choose Zambia or not? So I
think, again, this is the set of countries that we think are the most likely to be chosen, along
with the borderline countries. So that’s my summary of the lower middle-income countries.
Let me pass now to the lower middle-income countries. Lower middle-income countries are
defined as having incomes between $1,646.00 and $3,465.00. Those are the lower middleincome countries. Those numbers change every year. It’s a World Bank designation that the
MCC adopts, and they take the countries in that group, run the indicators test again, come up
with the medians for that set of countries, which is a smaller set, and run the tests again.
Here’s the status for the lower middle-income countries. Last year, eight countries passed the
tests. They only picked three. Cape Verde, El Salvador and Namibia. We endorsed the
position, have always endorsed the position, that they should pick very, very few lower
middle-income countries.
In fact, I’ve always endorsed the position that they should pick none. I think that the lower
middle-income countries don’t need a lot of foreign aid and that we ought to focus this on the
really poor low-income countries, that once countries get up above the $1,600.00 per capita,
that for the most part, they have other sources of funds from the private sector. They tend to
have higher savings rates. They tend to have higher tax rates and higher government
revenues. They tend to have more private sector capital flows and so I have always taken the
position that it’s a mistake for the MCC to allow any of these countries to be eligible for
foreign aid programs. Most of them have actually been graduating from other foreign aid
programs. They’re no longer eligible for the World Bank’s concessional assistance or other
kinds of things and I think it’s a little bit odd for the MCC to be providing money for this
group. So they only picked three.
Cape Verde is at the lower end of that income level and had been in the lower income group
in the first two years of the MCC, then elevated, didn’t make the higher standards, but came
very close. Cape Verde has one of the best development records around for the last 20-25
years. It’s a democracy, has been a democracy for a long time in Africa. It has sustained
economic growth of 4 percent or so, has done things largely right and so I’m actually, among
the lower middle income countries, quite comfortable with Cape Verde. They’ve got a
compact in place. It’s a good one. Once again, they fall just short on the indicators with the
higher standards, but I think the MCC will pick them since they’ve been quite a good partner
and have a strong compact in place. El Salvador has not yet negotiated its compact, although
it’s coming up. And Namibia is at an earlier sage, but I suspect that those three again will be
eligible.
Last year, there were these other countries – Brazil, Bulgaria, Jordan, Samoa, Thailand and
Tunisia, that all passed the eligibility tests, but were not selected. Jordan was selected for a
threshold program and we’ll come back to Jordan in a minute. I suspect that this is what
we’re looking at for this year, for that set of countries. Sorry, this is just the numbers in terms
of where they come out this year. El Salvador and Namibia passed again. Brazil, Bulgaria,
Jordan, Samoa, Tunisia passed again. Moldova passes for the first time. Cape Verde and
Morocco both missed by one and there are four other countries that missed by one.
So that’s where they turn out on the countries, or on the data this year, it looks very similar to
last year. So what do we think that they’re going to do? I think that they’ll choose Cape
Verde again, El Salvador again, Namibia again, and I think they’re going to choose Jordan
this time, which I think is a mistake, but we’ll come back to that in just one minute because it
deserves a little bit more attention. There are three other countries that are on the borderline,
Bulgaria, Morocco, Samoa. Bulgaria does quite well on the indicators. They didn’t choose
them, we don’t know why. Because actually their scores look pretty good and again, we
come back to this transparency issue where, when a country like that doesn’t pass, I think that
there deserves to be an explanation.
Morocco was a lower income country last year, passed the indicators, almost, has a compact
that’s very far advanced. It looks like it might be signed by the end of the year, but now it’s
income has jumped to the next group and in the higher group, they don’t pass the indicators.
I think they’ll probably select Morocco anyway, like Cape Verde, just because they’ve
moved up to this higher income country. I will note though that again, Morocco’s USAID
program was phasing out until a few years ago because they were about to graduate and now
we’re looking like we’re going to put money into a lower middle-income country again.
Morocco is the only non-democracy so far that has been chosen.
Samoa, another place where I lived, I was a Peace Corps volunteer in Samoa – they passed
the indicators, but it’s a little tiny set of islands in the south Pacific that doesn’t get much
attention and they’re just – I don’t think that they’re going to choose them. I’d like it if they
did, it would give me a good excuse to go back to the village I used to live in, but um, I don’t
think that they’ll choose Samoa.
The big issue here is Jordan. Um, Jordan passes the indicators. No question about it. Lots of
countries pass the indicators that don’t get chosen. The MCC has thought about, over the
years, whether or not to choose democracies or not to choose democracies. They make it
tough for a non-democracy to pass because, of the six governance indicators, three of those
are essentially democracy indicators, two from Freedom House and one from the World Bank
Institute called voice and accountability. They’re not strictly democracy indicators, but
they’re close. And when non-democracies have passed, like Bhutan, like China, like
Vietnam, like Egypt, the MCC has pretty systematically not chose them, with the exception
of Morocco last year. Jordan falls into that group. It’s a non-democracy. As nondemocracies go, it respects human rights fairly well. It’s certainly been a very strong ally of
the United States, but it would be the second non-democracy chosen. So they make the
indicators, but I think that to choose them would actually weaken the MCC in the long run
and I think there are several reasons for that.
First of all, it’s one of the largest foreign aid recipients in the world already. It’s not starving
in terms of foreign aid. And as a lower middle-income country, to get that kind of assistance,
it just is hard for me to make the case that they need more. From the U.S. standpoint last
year, they received $380 million, the seventh largest amount of any U.S. recipient in the
world after Iraq, Afghanistan, Ethiopia, Sudan and a couple of others. They were No. 7 in the
world with $380 million, 3 ½ times more than any other MCC country already, 3 ½ times
more than any other MCC country. When you look at it on a per capita basis, this is the
MCC eligible countries – Jordan in the middle in terms of aid recipients, aid receipts from the
United States, already on a per capita basis, Jordan receives $70.00 per Jordanian already.
The other countries, there’s a couple that are over $20.00 per capita – most are down below
$10.00 and more than half of the MCC countries are down at $4.00, $5.00, $6.00 per capital.
US foreign assistance to Africa, to Sub-Saharan Africa, is in the range of $7.00 or $8.00 per
capital. To Jordan, it’s ten times that much already. For a program aimed at fighting
poverty, I just think this is not the country where we should be spending the next dollar. I
will immediately say that is not at all to say that I think the U.S. should not be providing
significant support to Jordan. I think it’s in our national interest to do so. I think it’s in our
foreign policy interest to do so. They’ve been a great ally, they are very strong in the war on
terrorism or whatever we want to call it.
I have no qualms with the United States providing this amount of foreign assistance to
Jordan, but they do it for political purposes, not for development purposes. It should be done
through State Department funds, not through the MCC, which is a development program.
That’s the issue. It’s where the money comes from, not whether we should be giving money
to Jordan at all. And the MCC, as a development program, should not be used to provide
additional support to countries that are political allies, as Jordan is. Jordan also receives
substantial private sector support. Private sector inflows, private capital inflows to Jordan, 18
percent of GDP according to World Bank data. So they’re one of the largest foreign aid
recipients in the world. They get a lot of private sector capital inflows.
A lot of talk around the MCC is to help countries get to the point where they can attract
private sector capital. Jordan’s already there. So, for those reasons, I think it would be a
mistake for the MCC to select Jordan. There are two additional things that worry me about
Jordan. One is they’ve already received this large amount of money. I suspect, and this is
total speculation, I suspect that if they are selected for the MCC and receive a large compact,
that the U.S. will reduce the amount of money that it gives to it from the State Department so
that it can use that money from the State Department to provide money to somebody else, to
another ally, through our, what’s called Economic Support Funds through the State
Department.
So I suspect that if Jordan is chosen, that on the margin, most of the new money wouldn’t go
to Jordan, it would take pressure off the State Department budget account so that they could
give the money to someone else. And then finally, the MCC is supposed to be performance
based. We don’t know whether or not it will be or not. It’s too early to tell, but the idea is
that if a country doesn’t perform on its compact, that three, four, five years down the road,
we’d cut them off. Jordan, if it got a compact, might well perform. Actually, its economic
policies have been very strong. It’s got great economic management. It may very well
perform. But if it didn’t, it’s very difficult for me to see that the U.S. would ever cut them off
for performance reasons. So if that happened, that could again further weaken the MCC
down the road.
Anyway, that’s my views on Jordan. I’m not on the Board. They don’t ask me my opinions
and it’ll go different direction tomorrow, I’m quite sure. But we thought it was important to
get that out on the table.
So those are the numbers. Let me finish by, on the MCC part of this, by just drawing
attention to some key issues here, um, for the Board. One is these four countries that
currently have compacts, Cape Verde, Ghana, Benin and Madagascar, that don’t pass the
indicators, and what they should do about the eligibility for that. I think that’s a very key
question for the Board tomorrow and again, they face this dilemma – do we want to really
send a strong signal about the importance of the indicators, or do we want to send a strong
signal of support to countries that already have compacts. That’s one.
Second, the encroachment of politics. The MCC is supposed to be apolitical. So far, I think
they’ve done actually an outstanding job of keeping politics out of the selection process. I’m
a little worried where things are going with Jordan. Indonesia, although I don’t think
Indonesia will be chosen now, and what’s going on with Bolivia and Nicaragua, that politics
could begin to creep in on the MCC selection process. A third issue which I haven’t talked
much about today – the MCC budgets, the President promised it would be $5 billion a year
when he announced the program, it’s not going to be $5 billion a year in my view. Never.
The last time the budget went through, $1.77 billion, I think it’s probably going to stay there
for a while.
I think we’re looking at an organization which will be a billion and a half to $2 billion a year
for the foreseeable future. That’s not bad. If anybody would have said to me five years ago ,
you know, what about a program, $2 billion focused on poor countries, I would have said
“great”, so $2 billion is not to sneer at. But that has implications for the MCC. If you’re
going to be a smaller organization, you’ve got to either have fewer countries or you’ve got to
have smaller compacts, and I think they had to adjust to that. And they are slowly adjusting
by now choosing all the countries that are eligible, but I think the implication of that is
they’ve got to be very tight on who they choose and not, the program just can’t expand very
much with a fixed budget, without it coming at the cost of smaller budgets and again, that’s
why I wouldn’t choose Jordan. That’s why I wouldn’t choose the lower middle-income
countries. If instead of a $5 billion organization, you’re a $2 billion organization, to me,
that’s a really strong reason to keep us focused on the poorest countries and not the middleincome countries. So that’s a third issue.
And then the fourth that I’ve talked about is the transparency of the Board decisions, that I
think it’s really important for the Board to be much clearer when a country does not pass the
indicators, to say why they weren’t chosen. If the MCC is about sending signals to countries
so that they will pass the indicators, I think that we need clear information as to what’s going
on.
Finally, let me step back, away from the indicators, to make a broader point about the MCC.
This is a critical year for the MCC. It’s easy to say that, it’s a critical year. This is a critical
year for the MCC. They’ve got eight compacts signed, another one about to be signed. The
organization now has been around for several years. I think, with the last year, with the new
CEO, John Danilovich coming in, I think he’s done a great job moving forward over the last
year, in signing compact – there was a debate in the early stages about how long it took to get
compacts signed and whether the MCC was too slow – that has morphed into an argument – a
debate, not an argument – a debate about once a country is eligible and signs a compact, how
long should we expect in a signed compact to actually see the roads being built and the
agriculture changing.
But now, we’re at the point where we need to actually see some things happening on the
ground. Many of these compacts were signed well over a year ago. They’re 20 percent into
their life and with a five-year compact, not unusual, not surprising, to take the first year to set
up our systems, get the monitoring and evaluation systems in place, get the financial
oversight into place, pick your contractors, do all that sort of stuff. Within the next year,
when we’re standing here one year from now, many of those compacts will be 40 percent of
the way through their life, or even half in a couple of cases, in Madagascar’s case – we’ve got
to see roads built. We’ve got to see agriculture expansion activities happening. We’ve got to
see training programs happening. We’ve got to actually see the substance on the ground in
this next year. Up to now, they haven’t done that and that’s okay.
It’s not great because the President announced this program so long ago, but this is really the
year where it’s got to switch to seeing implementation on the ground. So I really think in a
big way, this is really a critical year, and with the election cycle the way it is, we’ve got a
presidential election two years from now. Who knows what kind of support this program will
have at that point when there’s any kind of switch. Who knows what kind of support this
program will have on Wednesday, although I don’t foresee a major change there. Um, but a
year from now, two years from now, if we’re not seeing real solid tangible results on the
ground, then I think the MCC is going to face some trouble. I don’t expect that’s going to
happen.
There’s some good compacts in place to some good countries and I think they’re ready to go,
but we’re going to have to see some action in the next year. So let me leave it at that. I’ve
been going on for a while, um, and open it up for questions on whether it’s broader issues
around the MCC, whether it’s some of the specific cases that we’ve highlighted today on the
selection process, on some of our other papers, I throw it open for questions. Yes, ma’am.
Please state your name, your affiliation and then your question.
Next Speaker: Betsy Clark, Institute for the Study of Diplomacy. You said that you would
rather see democracy as a hard threshold –
Next Speaker: Yup.
Next Speaker: Is there any chance that will happen? Is there any movement towards that?
Steve Radelet:
That’s a good question. My understanding is that it has been
discussed at the Board, um, and that the decision was to continue and to perhaps even
emphasize more, giving, leaning towards democracies, but not going as far as making it a
hard hurdle. I think that they should, um, that’s not to say that I don’t think the U.S.
government should give money to non-democracies sometimes – of course we should, but for
this program, I think it’s perfectly legitimate and it’s a good idea to say, “This is our idea,
that we as Americans support democracies. And for non-democracies, we’ve got other
programs where we can support.”
But my understanding is that the Board has thought about it, debated it, but is basically
staying where they are in terms of leaning heavily towards non-democracies – towards
choosing only democracies. But if they begin to choose non-democracies, for they’ve got
one – Morocco – if they do select Jordan, which I’m almost positive they will tomorrow – it
begins to weak it even further and it becomes a lot harder to say to the non-democracies,
here’s why you’re not in the program, where they can say, you’ve got other non-democracies
in the program and it begins to add a political flavor to it that I don’t think it should have.
Other questions. Yes?
Next Speaker: The name is Bernard ****, Ambassador of Sri Lanka. In your presentation,
you made reference to the education level, primary education level of girls at 95 percent last
year and we have held that this year, due to the fact, of course, you said that indicators are not
available.
Next Speaker: Right.
Next Speaker: So still we find that the indicator has gone below 66, I find it difficult to
understand if the data is not available, how do you put the indicators below the, whatever –
Next Speaker: Median.
Next Speaker: Line you have indicated. That’s one. The second point is, with regard to
public primary education spending, it is indicated again Sri Lanka is 0.88, whereas the
median line is 66.7. Now, in a country like Sri Lanka, where our literacy rate exceeds 90
percent –
Next Speaker: Mm-hm.
Next Speaker: And where the country has **** very heavily since 1948 **** the country has
**** education –
Next Speaker: Mm-hm.
Next Speaker: Where education at all three levels are free to all students and there are
textbooks, school uniforms and fellowships in the universities are provided, how much
investment can a country make to reach these figures, in the sense we have **** the last
three, four five decades spent on infrastructure, unless we star air conditioning the schools or
paving the cement floor with tiles or whatever it is, it’s hardly difficult for us to spend any
more on infrastructure.
Next Speaker: Hm.
Next Speaker: And the indicators indicate that the policy of the country and its **** has
****. Now the whole question is, to achieve this objective, how do we or how does a
country like Sri Lanka spend on infrastructure, that’s what –
Steve Radelet:
Yeah, two good questions. On the first, as a general rule, and I think
it’s the right starting point, when data are not available, a country doesn’t get credit for
passing the indicator. And in most cases, that’s the right step to take, neither because you
don’t know what’s going on or because when countries didn’t have a particularly strong
performance, they might decide not to report the indicator. They might hide the data. And
we don’t want that to happen. So I think as a general rule, the idea that if the data’s not
available, you don’t pass the indicators, is the right one.
But there are circumstances where that doesn’t make sense, and I think the burden then falls
on the country itself to show some evidence that they’re passing, that they’re passing the
indicators, and the MCC allows for that sort of secondary data. And they don’t absolutely tie
themselves down to the indicators. In the particular case which I mentioned of Sri Lanka,
that last year the girls, the primary school completion rate for girls was 95 percent, this year,
the hurdle is 66 percent, there’s no way that it fell that much and I’m sure the Board will see
it that way, and my guess is that they’ll give Sri Lanka credit for the hurdle and rightly they
should.
As a government, of course, I would be interested why it wasn’t reported this year and make
sure that it’s reported next year. So it should provoke a little bit of action on the
government’s side to find out – I have no idea why it wasn’t reported – but to find out why so
that it doesn’t happen again. On your second issue, which is about the spending rate, the
indicators are not perfect measures of policy. They are arbitrary to some extent.
Overall, I think they’re pretty good, that in many cases, increased spending on health or
education is not a bad indicator of educational policy. It’s not a perfect one, and we wish
there were others. There’s actually not very many good indicators out there on education
policy. It’s surprising. But you’re right that higher spending by the government is not
always necessarily the right thing. That’s one of the reasons why you don’t actually have to
pass all the indicators. So by not passing one, you know, you need to pass two of the four,
and in the health and education side, if the immunization rates are up and the girls’ school
completion rate is up, then you’re in. So there isn’t absolutely a necessity to pass all of those.
But it is possible that a country could fall below the median for good reasons, that they’ve
already spent sufficient amounts, but there are other ways to pass the hurdles. So I don’t
think it’s a binding constraint. Yes, in the back.
Next Speaker: I wanted to highlight the issue of encroachment of politics. My name is Jackie
Bass, I’m from the Emerging Markets Group, and what we’ve been looking at in terms of the
Latin America region, I would add Bolivia, Nicaragua and Honduras as interesting sort of
cases in terms of looking at the encroachment of politics and the precedents that are actually
being set. Particularly, a concern of mine is in a country like Nicaragua and Honduras where
the contacts are pretty much underway, Nicaragua has already solicited fiscal and
procurement agents, is actually going downstream with some of their compact work in terms
of technical activities, and what would be the repercussions of, you know, sort of a political,
you know, sort of election, free and fair elections, and those results, which are similar to
Bolivia. And then just making sure that the precedents that are actually being set highlight a
particular trajectory on the political arena.
Steve Radelet:
Yeah. It’s a very good question. Um, and I don’t know what they’re
going to do on Nicaragua. My own view is, if the country has a good compact and could pass
the indicators, they’ve got a good compact in place, they’ve been a good, faithful partner and
it’s moving ahead, all indications are good, as it is with Nicaragua, they have an election, a
fair and free election, for the United States to all of a sudden say, “We don’t like this new
government and we’re going to go back on a compact that’s already been signed with the
government, which legitimately represents the people of Nicaragua,” I think would do great
damage to the MCC.
On the other hand, I can also see the politics of, and it wouldn’t surprise me if the
administration decides to do this because they’ve made their views very clear on Mr. Ortega,
for better or for worse, and I think they might see it as very risky for them to do anything that
might suggest that they’re endorsing the new government and providing it large amounts of
money through its high-profile, great performing program, so I think it would be a mistake,
but I wouldn’t be surprised if there was a change, unfortunately. So yeah, I think what you
do is you wait and see performance.
If the new government, for some reason, was not able to continue to progress on the new
compact, fine, that’s when you stop it. Or if their performance on the indicators all of a
sudden changed and, you know, some policy really went quite badly or corruption went up or
down – whatever it was, that’s when you make the change, not just based on public results
and statements that people make in political rhetoric one way or the other. That would be my
sense of doing it. So, other questions? Yes, yes.
Next Speaker: Hi, Miral Karan from DAI. I was wondering if you could go into a little bit
about Indonesia. You had mentioned earlier –
Next Speaker: Yeah.
Next Speaker: And also um, with East Timor, if there’s any analysis about absorptive
capacity –
Next Speaker: That’s a good question.
Next Speaker: Aid flow into countries like that.
Steve Radelet:
Yeah, that’s a good question. Um, both of your – on Indonesia, um,
there’s two issues with Indonesia. They don’t pass the corruption hurdle and on the health
and education, the investing in people, they only pass 1 out of 4. They do fine on the other
ruling, just the indicators, and they do fine on the economic freedom. On corruption, um, it’s
quite an interesting pattern in Indonesia. Having lived there in the early 90s, when Suharta
was still President, if you look at their corruption scores while Suharta was there and then in
the years after, they got worse after Suharta left, which is a little bit interesting.
The basic story was, under Suharta, there was a lot of corruption, but it was very predictable
corruption. And then, after he left, it became very unpredictable corruption, that you had to
give a lot of envelopes to a lot of people as opposed to one big fat envelope to one. I can say
that sort of thing because I don’t work for the U.S. government any more. Um, but it’s gotten
better in the last couple of years since the election two years ago, and the control of
corruption has improved and they are now just under the median score.
So my guess is, that within another year, it’ll look good on that score. They’ve got a lot of
anti-corruption programs in place and things seem to be moving in the right direction. On the
health and education indicators, they only passed 1 of 4. I wish Indonesia all the best in the
world, but Indonesia ought to be passing those health and education – if Mozambique and
Tanzania and some of the poorest countries in the world can pass those health and education
indicators, Indonesia should be able to do it too. I know they went through a big crisis, I
know it very well, but I think the right thing on Indonesia is to hold off until they pass the
indicators. They’ve got a threshold program in place, let it work its course.
I would guess that a year from now, there’s a very good chance that, with the new
government in place – it’s not so new – but with another year of implementation, that
Indonesia would pass the indicators and then absolutely, they could be a very strong
candidate. On East Timor, with all the new government revenue coming in, the issue on
absorptive capacity is a very good one. I don’t think just because there’s a lot of money
coming in to the government, that that’s a reason to not select East Timor. It is still one of
the poorest countries in the world. If they were a middle-income country, then yes, but
they’re not. They’re a very poor country. They’re a very new country and since government,
the budget deficit is one of the indicators, it’s a little – it would be a little ironic that they
perform so well on one of the indicators, that the revenues are so high, that we don’t select
them because they’re so good on that indicator.
I think the right way to handle the absorptive capacity issue is to see, not to assume, that
because there is new revenue coming in, that they can’t use it effective, but to actually – this
program is based on results. They were chosen, they passed the indicators, it’s a democracy,
they’ve had some political issues, but lots of countries have had those – if they put forward a
good compact, which is a big if, if the correct fiduciary controls can be put into place as to
where this money would be spent, and if they can begin to achieve results, then they should
go forward. But I think the test should be actual results rather than just assume, well they’ve
got this oil windfall coming in, therefore, let’s assume that they don’t need the money. That
would be my take on it.
Next Speaker: Other questions. Yes?
Next Speaker: Um, hi Steve, Lesley Wroughton from Reuters. Um, the question I have is
how does this fit into the broader global picture right now, given, **** given Glen Eagle’s
promises, and given the pact made on the weekend in Beijing on increased spending in
China?
Steve Radelet:
Good question. Global aid flow started going up in 1997, after they
fell sharply at the end of the Cold War and reached their **** in 1997 and then began to pick
up. The first part of that was debt relief in the late 90s, that the Clinton administration and
others pushed through and, as a result of that, in the late 90s, aid began to increase and our
aid to Africa went up about 50 percent actually, in the late 90s and early 2000 or so. Then,
after 2001, global aid and US foreign aid really began to accelerate even more sharply. And
there are several different reasons for that. One, of course, is the HIV AIDS program, $15
billion over five years, and that’s ramped up and I think that they’re actually going to spend a
little bit more than that over five years – another part of it is funding to Iraq and Afghanistan
and other countries affiliated in the war on terror, and some of it has been debt relief as well,
in particular, a couple of high profile debt relief programs, Iraq being one, Democratic
Republic of Congo being another, all of which has contributed to increases in foreign aid
within the United States. Other countries have also increased their aid.
My guess, and it’s only a guess, is that the era of sharp increases in foreign aid is drawing to a
close, with the exceptions of funding for Iraq and Afghanistan, and for the HIV AIDS
program. We’re already beginning to see a leveling off of other programs and even though
the aggregate numbers may continue to grow, I think once you take out the HIV AIDS stuff
and the Iraq/Afghanistan stuff, I don’t think we’re going to see much more of an increase
from the United States. How this plays into this, it’s part of the overall foreign aid budget. I
think they got their $2 billion of $1.7, $1.8 billion, and I think it’s going to stay level. And
any further increases here, as we’re already beginning to see come out a little bit of some of
the other programs.
In terms of Glen Eagle’s promises, the U.S. promised to double aid to Africa, was based on
the already scheduled increases of the HIV AIDS program, to a very large extent, a new
malaria program which is much smaller which was introduced last year, and the promises that
the MCC would achieve $5 billion, which it’s not going to do. US aid to Africa has gone up
significantly. It’s still quite low. Global aid to Sub-Saharan Africa, globally it’s about
$27.00 per capita, from the U.S., it’s less than $10.00. It’s more than it was but it’s still quite
low. But again, outside the HIV AIDS money, I don’t see it increasing much more. The
pressure from the U.S. on its budget deficits in other countries facing the same kinds of
pressures, I think it’s going to be increasingly hard to increase funding, again, with those
exceptions of the HIV AIDS programs and Iraq and Afghanistan. So that’s where I see it
going. Yes ma’am.
Next Speaker: Diane La Voy. Where does adaptation to global climate change fit into the
current or the thinking that you see coming down the pike here?
Steve Radelet:
In terms of the MCC? There are two things that I think are relevant to
that. One, if you go back to the indicators, um, it’s not precisely global warming, but there
has been a movement from the beginning actually, of the MCC, to sort of search for some
sort of either called environmental indicator or natural resource indicator, and they went
through a long process over the last year or so to look for what they ended up calling natural
resource management indicators. A real problem was that the data aren’t there, in terms of
actually trying to think of what data you would look at to decide this country has good
policies, this country does not have good policies – it’s actually hard to think of what you
look at, and they looked at it way back in the beginning and looked at it subsequently to that,
and it’s very, it’s hard. Um, so that’s one point.
They did come up with these two new indicators, which we’ve done a paper and it’s on our
website, that analyzes the indicators – they’re not bad. They’re both fairly new. The
coverage is not, the country coverage is not as extensive as I’d like it to be, but probably that
country coverage is likely to increase. This stuff is getting much more attention. One
indicator is on land rights and access to land, which comes from the International Fund for
Agricultural Development and the IFC. The other is on natural resource management, which
is put together by several groups, which looks in and of itself, at several different kinds of
indicators on natural resource management. One of the issues on natural resource
management is that it’s very multi-faceted. Are you talking about air? Are you talking about
water? Are you talking about land? Are you talking about – forest management, fisheries
management?
There are many, many different parts and countries might do well in one area but not in
another. That index puts together many different parts of that and a lot of it focuses on water
and sanitation, but one part is more broadly on resource management, which would involve at
least partly, climate change. So I think the issue, the big issue, in terms of the indicators, if
you were really going to focus on climate change as a piece of that, what policies you would
look at where the data would be available across countries, and it’s something measurable
about what developing country policies should be in this area. That’s a discussion that
urgently needs to happen, but it hasn’t happened yet. That’s one part. The second part,
beyond the indicators, would be okay, and to some extent even more importantly, what
countries might be doing about this in terms of their compact proposals or other kinds of
things?
One of the hallmarks of the MCC, which I think is an important one and the right one, is for
countries themselves, the recipient countries, to decide what their priorities should be. But
climate change is one of those places where you get an uncomfortable, perhaps, difference of
views across countries as to what their highest priority should be. Given the fact that these
countries are selected because they’re by and large democracies with legitimate governments,
they by and large have good economic and social policies, by and large good governance, I
think they deserve the benefit of the doubt for them to say, “Look, here’s our highest priority.
We need roads. We need agriculture. We need schools.”
Whatever it is that they decide. And the MCC gives them the freedom to say, you know,
we’re open for whatever it is that you want to fund. And I think giving countries that choice
is very important. I’m not sure a lot of countries would put something on climate change
high on their list. Whether we should tell them to do that is a much more fundamental
debate, but you obviously have a follow up. Please, please.
Next Speaker: Your response is within the realm of natural resources.
Next Speaker: Yup.
Next Speaker: As though that were where climate change impacts.
Next Speaker: Right.
Next Speaker: But we’re talking about where those countries place those roads, where they
place cities.
Next Speaker: Right, right.
Next Speaker: I mean it’s really affecting everything.
Steve Radelet:
Good. Good question. And the reason I answered it that way was
because the only place where there is a relationship with climate change is the natural
resource indicator, which I realize is an imperfect one. One of the things that they are doing,
there is an environmental group within the MCC headed by a friend, Margaret Pulo, who
does a great job there, is to do environmental impact assessments of the programs. So in
terms of when they look at the compact proposals that come down the line, they are doing
impact assessments. I’m no expert on environmental impact studies, but I do know that that
was an important consideration as they have looked at that so you might want to look a little
more into what kind of environmental impact assessments that they do, but I know that is a
part of what they look at. Yes, ma’am?
Next Speaker: Yeah, I’m Deanna Gray with BNA. I just want to clarify on Nicaragua, it
seems to me there’s three possible outcomes for the Board in that country? I mean you – they
have a compact already –
Next Speaker: Yes.
Next Speaker: You’ve got them as most likely to be selected –
Next Speaker: Right.
Next Speaker: So that would mean that they’re selected for a second year and have a
compact. It’s possible they would not be selected but continue with the compact, and then
the third possibility is that they not be selected and that the MCC says we’re not going to
fund the compact any more?
Next Speaker: Correct, correct.
Next Speaker: All right. And the third possibility, wouldn’t you need to like say that
something more has happened?
Steve Radelet:
Yeah. And I doubt that third possibility is going to happen. I don’t
foresee any chance that tomorrow they would say, the compact is off. That could come
further down the road. A country, once they are selected in any fiscal year, and they have a
compact that is approved, the financing for that compact comes from the fiscal year that they
were approved. So they are already approved from, I think, 2004, but certainly 2005 and
2006. They’ve got a compact in place. The funding for that program comes from the
previous selection. Once a country has a compact in place, it can only have one, at the
moment. That might change, by the way, with new authorizing language that’s being
considered up on the hill – but for the moment, you can only have one compact.
So Nicaragua’s got one. It’s signed, it’s funded. The selection for fiscal year 2007 has no
material bearing on their current compact or the funding available for that current compact. It
is a symbolic vote and that’s true for all of the countries that are actually currently eligible
because they can’t get more money. So it sends a signal and it could send a signal of either,
well it could send a lot – putting Nicaragua aside – if a country fails the indicators, you could
be sending a signal about the indicators. If they don’t, you could be sending a signal of
support.
So the selection in terms of eligibility for Nicaragua for this coming year is a symbolic one,
but symbols are important obviously, particularly in this case. So those are your first, as you
laid it out, the first two options. They could continue with the compact and be eligible for
fiscal year 2007 or continue with the compact and not be selected as eligible for 2007. The
third, whether or not the compact would be cancelled, I don’t get any sense that the board is
anywhere close to that decision, and I doubt that they’ll make that decision this week. I think
I keep saying tomorrow, but actually, the board meeting is Wednesday. Um, it’s too early on
a Monday and maybe I’m wishing that it was Tuesday already. But um, the board meeting is
actually Wednesday. Um, um, so I don’t see any chance that the Board would cancel the
compact now. But it’s possible that they might move to that, particularly if we seen on
Wednesday that they choose to not select Nicaragua this year, that that could be the first shot
over the bow, for example. So I think that that Wednesday decision will be an indicator of
where they might go in terms of the compact. Okay? Any other questions? We’ve covered a
lot of ground. Yes. Got two over here.
Next Speaker: Uh, Charles Santongo from Uganda Embassy.
Next Speaker: Mm-hm.
Next Speaker: You already mentioned that once a country signs a compact, there’s some sort
of trade off where the money, for instance, which would have been for developmental
assistance through the State Department –
Next Speaker: Yeah.
Next Speaker: Is again committed, is transferred for use under the compact program.
Next Speaker: Uh-huh.
Next Speaker: Can you say a little bit more about that? I mean it’s –
Next Speaker: Yeah, yeah let me –
Next Speaker: Like, **** just gaining funding for one program.
Steve Radelet:
Let me clarify that. That’s not quite what I mean. There are separate
pots of funding. The MCC is a separate entity, has its funding, and the State Department and
USAID has its funding, as does Health and Human Services and many other US government
agencies out there that have their programs – they’re separate pots of money. When the
MCC signs a compact, all of its funding comes out of its own pot of money. So there’s no
substitution directly with the MCC money.
The question, however, is, that in countries, the US has many different programs. It’s got the
MCC program, but it’s also got USAID programs, State Department programs, Health and
Human Service program. And so a question that has come up is, when a country signs a
compact with the MCC and gets a lot of money from the US, are some of the other US
agencies cutting back their funding, independently of the MCC, but as part of a larger
discussion about where the next US dollar should go. And as we said, there’s some
preliminary evidence that on one of the specific USAID accounts, called Development
Assistance, that in countries that are eligible for the MCC and that have compacts in place,
that the Development Assistance funding from this other pot of money is beginning to fall a
little bit, but it’s very preliminary evidence. And that’s just on the Development Assistance
account.
When you look more broadly at MCC countries with all of the funding that the US provides,
it’s a much less clear picture. I also mentioned that in the case of Jordan, specifically, Jordan
receives a lot of money through the State Department. And my, I was, my suspicion is that if
they are chosen for the MCC program and get a large compact, that the State Department
would then reduce the funding that it gives to Jordan through this other program called the
Economic Support Funds, which would then free that money up so that they could give it to
some other country. There are a lot of demands for that account.
This is an account in the State Department. It’s called the Economic Support Funds, but it’s
actually the account that’s used for our political allies, quite legitimately so for our political
allies, but that’s where Jordan gets a lot of its money and it would allow the State Department
perhaps to reduce its funding to Jordan from that account and free that money up to be used
for someone else, for a different country.
Next Speaker: Okay.
Next Speaker: Yes sir, you had a question.
Next Speaker: **** ICT **** development projects. Have you done any research or analysis
with regard to the procurement requirements that MCC is going to require of these countries,
especially with regard to the implementation that you just mentioned?
Next Speaker: What do you – in terms of what on procurement requirements?
Next Speaker: **** money, of where ****.
Steve Radelet:
Yup. Um, the rules for the MCC are quite different than they are for
other federal, other agencies. There are no requirements in the legislation for the MCC that
they have to buy, that the funds have to go to American firms or any other firms. There is no
legislatively tied aid. Um, I’m not sure how many people have actually recognized it and
maybe it’s a good thing it hasn’t been recognized, but there’s no legally tied aid. That might
change sometime in the future. But one of the reasons for that is that on a USAID contract or
a State Department contract, for the most part, not always, but for the most part, the US
government contracts with a contractor here in the United States, which then provides the
services or the commodities.
In the MCC, the money actually goes to the recipient country, not straight to their budget,
although in some cases I think it should – Chu and I have written a paper on the
circumstances under which that should be the case – but they’re setting up what they call an
accountable entity, very similar to what the World Bank calls a Project Management Unit,
which is an independent body within the government to, within the country, to receive the
funds and then it’s that entity which will actually do the procurement on the contract. In
some cases, they will follow the procurement rules of the government itself and in some
cases, the procurement rules of the government are actually World Bank standards. But in
each case, it differs a little bit.
But because the funding actually goes from the MCC to this accountable entity, it’s those
procurement rules that hold. Um, and that opens the possibility for greater global
competition for those contracts, whether those be local contractors for services or goods or
commodity imports, whether it’s US groups or whether it’s groups from other countries. And
so far, since the implementation, since the compacts have only just begun to be implemented,
we don’t know what the pattern is going to be as to where those funds will be. I think over
the next year, that’s one of the things that we will begin to learn, as to where these contracts
are being signed. Does that make sense? Yes, ma’am. We’re here and then we’ll go over
there.
Next Speaker: I’m **** from **** International.
Next Speaker: Yeah.
Next Speaker: I have a question with regard to the control of corruption indicator.
Next Speaker: Yeah.
Next Speaker: You mentioned that a country needs to be **** for this indicator.
Next Speaker: Correct.
Next Speaker: Is there any particular reason for this requirement and would it mean that
control of corruption as an indicator gets more rating compared to other indicators?
Steve Radelet:
It certainly means the latter. It’s the one indicator that, by the rules, a
country must pass. For any of the indicators, the standard for passing is the median. And as I
mentioned earlier, the rules are that are, of the governance indicators, you’re supposed to pass
3 of 6. One of those governance indicators is the control of corruption, but the rules say that
not only must you pass 3 of 6, you must pass the corruption indicator. So you pass 5 of 6, if
you pass 15 of the 16 indicators and don’t pass corruption, um, you might not be chosen and,
in some cases, there have been some countries that have done very well on other indicators,
but not pass the corruption and not been chosen.
My understanding is that at the early stages, this actually went to the President, who decided
that he wanted to put this special emphasis on corruption. So it absolutely gets more weight
than any other indicator. The median as a hurdle is a completely arbitrary choice. There’s no
question about that. Um, whenever you draw a line between any group of countries, these are
in, these are out – whether it’s lower income versus lower middle income, whether it’s on
corruption, whether it’s on budget deficits or inflation or anything you want, most of the time
you’re going to draw an arbitrary line because there’s not, on inflation, there’s no consensus
really as to this is the right line that if you’re above that inflation rate or above that budget
deficit or that all of a sudden policy is bad, and below that line, it’s good. It’s just too much
of a gray area.
So any time that you get into this, into a process where you’re trying to segregate countries,
which I think is actually a good thing because we can’t keep treating all countries as if they
were the same, you immediately get into very difficult gray area decisions as to where you
draw that line. So they chose the median. Now I’ve argued for a long time that the median,
since it’s a moving target – every year it changes – that that’s not such a good idea. What I
thought they ought to have done is in the first year, calculate the medians and then use
whatever those numbers are as the score going forward.
So for example, in the first year, the median on immunization rates, I think, was 68 percent or
70 percent, something like that – my view is that that’s the standard now for immunization.
You could change it in the future, but it’s 70 percent. And countries know it’s going to be 70
percent. But you get sometimes where the median moves and a country, you know, one year
it passes and the next year it doesn’t, where it hasn’t changed anything, but the median has
moved. So it’s a little bit of an arbitrary indicator. So far, that has not had a huge bearing on
the outcomes because the movement has been relatively small. But it is an arbitrary number,
but you’ve always – once you get into the basic idea, you’ve always got some arbitrariness.
Yes, you had another question. Yes please.
Next Speaker: It’s Deanna Gray again. Um, I notice you said that this was a crucial year in
terms of getting results.
Next Speaker: Yeah.
Next Speaker: You said that you needed to see results on the ground as far things like roads
built and training, and the MCC itself often refers to the so-called MCC effect –
Next Speaker: Yeah.
Next Speaker: Saying that more countries are doing, following, doing business indicators at
the World Bank, um, I have a little bit more of a, a more extra question is at point would you
actually think you could see results in terms of poverty reduction?
Next Speaker: That’s a good – that’s an excellent question.
Next Speaker: Wouldn’t it take longer?
Steve Radelet:
Of course. Absolutely. Absolutely. You know, the one thing we
know about development and poverty reduction, it takes a lot longer than any of us have
patience for. And we often have very high expectations. Um, for this kind of stuff to
translate into actual poverty reduction, is going to take several more years. I think the
process overall, so far, has been too slow, slower than it should have been. I think most of
that, I think, I very quickly hasten to say, was time lost before the MCC existed as an
organization. There were two years that went by between the time that the administration
announced this program and the time that the MCC went into place. And it was two years it
was just lost.
By contrast, the HIV AIDS program, they announced it in January and the legislation was
through in May. By contrast, when President Kennedy announced the formation of USAID,
he did it in March of 1961 and the organization started up in September or October 1 of 1961.
We can move fast when we want to. The President announced the MCC and it took two
years for the organization to get up and going. So we lost two years. Um, a year would have
been, you know, understandable, but a second year really wasn’t. That was where most of
the time was lost. But now we’re four years out. Um, and they’ve taken on these compacts,
some time to get the systems in place and there’s some, you know, to some extent, that’s
understandable. Now I hope we begin to see the roads and the agriculture and everything
else happening.
How long is that going to have to take to be effective, have an impact? It depends obviously,
on what, on what exactly the program is. Roads actually can have a pretty immediate impact
on economic activity and on poverty reduction. There’s a lot more things that they can do
once the road is in there. That takes a little bit longer because you’ve got to expand your
business if I – that will take some time but it shouldn’t be more than a year or so after the
road actually hits that you begin to see uh, incomes beginning to grow in a village and once
incomes grow, in most rural villages, that’s almost by definition a direct impact on poverty
so, uh, once the roads are completed, uh, within a year or two at the most you really should
be able to see some beginnings of impact, uh, on poverty. Yes?
Next Speaker: Hi, Jennifer with **** Corporation. You just recently mentioned that um, the
median is kind of an arbitrary line to choose um, and that perhaps we should go back to
choosing a standard line that was based on whatever the first –
Next Speaker: Yeah.
Next Speaker: The first or second year –
Next Speaker: Yeah.
Next Speaker: Doesn’t that kind of defeat the purpose of having countries self-competing and
choosing with constant improvement within these countries and also perhaps choosing the
best of the best countries rather than whoever reaches a line that was the best two years ago.
Steve Radelet:
Yeah. Sometimes medians go down which actually happened between
the first and second year on a couple of the indicators. The medians actually got worse so it’s
not always the case that each year the median grows. I don’t have a problem with the
benchmark going up over time if country performance improves. My problem is that
countries don’t know what they’re shooting at from one year to the next so, for example, on
immunization rates, I think they should have a transparent standard. Seventy percent is the
target. Okay? That gives countries something to strive for. They know what the target is.
They know what to achieve and it’s not a moving target that, you know, we hit 70 percent but
we don’t know this year whether that’s in or out.
If, over time, lots of countries pass that standard then I think it’s perfectly legitimate for the
MCC to say worldwide standards on immunization have gone up. That’s a good thing, but
we’re gonna raise the bar but we’re gonna do it and we’re gonna give you two years’ warning
that the immunization standard is going from 70 to 73 to 75. So I think you can still do that,
uh, what you’re talking about, but I think by putting in a transparent clear standard then
countries know what they’re aiming at and you don’t have the reverse problem which is, in
some cases, the median’s fault. So, that’s uh, so that’s where I would, you know, I absolutely
accept your point, but they’re not, uh, moving to a fixed standard does not mean fixed forever
over time. They’re not the same. They’re not the same. I will – there’s another problem
with having a fixed standard.
About half the indicators lend themselves to doing that – immunization rates, school
completion rates, budget deficits, inflation rates already do it, or you can have a fixed
standard. The other half, it doesn’t because the corruption score is not an absolute score. It is
by itself, by definition, the way that the corruption rule of law government effectiveness uh,
they are measured relative to each other so for those, it’s much more difficult to have an
absolute standard but on the ones where there is – where you can do it, I think they should but
I think they should hold up open to possibility of moving those up over time. Any other
questions? Yes?
Next Speaker: Hi, I’m Alena **** from Padco and thanks Steve, for your terrific analysis.
Next Speaker: Sure.
Next Speaker: Uh, as usual, and uh, wanted to ask you, um, you alluded earlier to the hill and
the reauthorization language –
Next Speaker: Yeah.
Next Speaker: And the new um, kinds of things that they’re trying to push through for MCC
–
Next Speaker: Yeah.
Next Speaker: What’s your take on how well that’s going to do and if, uh, what the
temperature is on the hill?
Steve Radelet:
Well, it’s hard to know. Maybe we’ll know more in, you know, 36
hours, but um, everything’s, you know, on the back burner for the moment, for the next – for
the next few weeks. Um, there are certain uh, members and staff members up there that pay a
lot of attention to this and this is pretty important and for many of them, they don’t pay much
attention, uh, at all. Uh, overall I think it’s gone reasonably well. I think the authorization
language overall is reasonably strong. Don’t agree with everything in it but uh, but for the
most part I think there’s some good things in it. Um, uh, but I think there’s a good chance
that even with good strong language that it would never be re-authorized.
As we all know, the Foreign Assistance Act has not been re-authorized in, what, 18 years?
Something like it? ’88? Do you know when it was last re-authorized? Something like that,
late 80s, when the Foreign Assistance Act was last re-authorized and so you don’t actually
have to have this stuff authorized, uh, and the appropriators can then take – take charge and I
suspect that that might be what happens, actually, is that this doesn’t get re-authorized and we
end where the appropriators are able to do a lot of the language through the appropriations
process instead. I hope that’s not the case but, um, but I think that’s my take on where things
are at the moment. Any other questions? Yes?
Next Speaker: Eric Vonguard of the University of Washington.
Next Speaker: Uh-huh.
Next Speaker: Um, you mentioned, uh, the consequences of um, sort of, funding for other
aspects for the development assistance project or the American Development Assistance
Program after sort of the millennium challenged corporation has made a decision –
Next Speaker: Yep.
Next Speaker: On what countries to select.
Next Speaker: Right.
Next Speaker: Um, my question is, to what extent are sort of existing commitments to
poverty reduction happen to be administered outside of the MCC taken into consideration
during the selection process itself. Is there a concern for, um, complementarity at all or is –
are these decisions taken, sort of, independently.
Steve Radelet:
It’s a good question, and I don’t know the answer. Um, having not – I
was in the U.S. Treasury at the early stages but not, uh, when they got to the actual selection
of countries so I don’t know uh, the answer per se. Obviously there’s nothing in the
indicators that suggest that and by and large, give them credit. They’ve actually stuck pretty
closely to these indicators. Um, closer than most people thought in that the indicators
process, um, actually has a lot of support now. I think bipartisan support is seeing and is seen
as a rather legitimate way of going about business if they stick to it.
Um, in the weeks before the board meeting in the last few weeks, there had been a series of
interagency discussions between state with USAID, um, Treasury, uh, other groups, other uh,
agencies, the White House, NSC, um, as they look at this list of candidates. The data have
been available. They’ve been publicly available now for about three weeks, um, and they go
through exactly the process that we went through and of course, they all have their different
opinions, um, and how directly these issues of what funding is in other countries and
countries right now comes to the table, I don’t know for sure because I’m obviously not privy
to those conversations but I suspect that it does in some certain cases.
The discussions, I suspect, pretty quickly focus on a set of five or six or seven borderline
countries. Uh, it’s pretty obvious, you know, countries that are in, they were selected last
year, they do well, fine. Countries that are out, or countries that, you know, the Vietnams of
the world that passed last year, I mean, I doubt there’s more than a few seconds of
conversation and it’s pretty easy to hone in on this list of six, eight countries that are on the –
on the edge, on the cusp, and I suspect that all kinds of issues come to bear in those
interagency discussions in terms of current funding, in terms of what our broader uh, political
objectives are, our broader foreign policy objectives are in these countries. Um, so far, a lot
of the stuff has not been politicized, as I said, I suspect it will be a little bit more this year.
Um, I don’t know to what extent the budget numbers are on the table.
My understanding is not explicitly but often implicitly and that the change happens after the
fact, that once a country is selected that then that subsequently means that they’re not quite as
high on the list for other sources of funding. That’s what, um, some senior people in the field
have told me off the record is that they think it was ex post that once an MCC country was
chosen that it looked like their budget allocations were being cut a little bit so I think that’s
more or less how the process works. Alright.
Well, thank you very much. This has been great. Good fun for me. Uh, good fun for all of
us. Thanks again to Sheila who’s now migrated to the back nearer to the coffee, I suspect and
to Sarah Rose, um, and we’re around if any of you have any further questions. Thanks very
much for coming out this morning.
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