Development business continues despite MCC compact terminations

A Nicaraguan farmer seeks to increase his crop yield with the help of technical assistance funded by the Millennium Challenge Corp. Photo by: MCC

Many were skeptical about Madagascar’s development prospects following the termination of the country’s $110 million compact with the Millennium Challenge Corp. Some suggested that political tensions within the island nation, which prompted the end of the MCC partnership, would reverse whatever progress had already been made on important development goals.

But the reality proved otherwise. Former Millennium Challenge Account employees in Madagascar have been handed jobs in countries like Mauritius and Senegal, others have established local non-governmental organizations to continue MCC’s projects.

The first four

Cape Verde, Honduras, Madagascar and Nicaragua all entered into MCA compact agreements in 2005, becoming the first four to participate in the U.S. government corporation’s development assistance program.

Madagascar’s $110 million, four-year compact was set in motion in April 2005. Cape Verde, Honduras and Nicaragua followed suit in July 2005, with five-year compacts of $110 million, $215 million and $175 million, respectively. After completing its initial term, Madagascar’s compact was extended for an additional year. All four compacts were scheduled for completion in 2010.

On Dec. 9, Cape Verde became the first country to be approved for a second compact. But the other three pacesetters did not have the same luck. Components of the compacts with Nicaragua and Honduras have been terminated, and Madagascar’s compact has been scrapped altogether.

The deal breaker

Failure to comply with all 17 of MCC’s selection criteria leads to a compact suspension or termination.

MCC’s scorecards compare the performance of compact countries in the areas of rule of law, investment in people, and economic freedom to the median score of their respective income groups.

While Madagascar has a high percentile ranking of 95 percent in controlling corruption, it fares poorly in natural resource management, with a rating of 10 percent.

Investments in health, education and resource management grant Nicaragua high rankings in those areas. However, its percentile rankings of 45 percent in corruption and 37 percent in government effectiveness point to the need for more focus on those areas.

“Our aid is conditioned on our criteria – on democracy, on our indictors,” Steve Marma, Nicaragua’s resident country director, told Devex.

“I think it’s important that we hold these governments accountable, and that we don’t continue to dump money into countries that aren’t accountable for their own governments,” he continued.

MCC is leading the way in this campaign, and, according to Madagascar Resident Country Director Glenn Lines, other donor agencies have expressed their support.

“I don’t know how many times I’ve heard from other donors in the country, ‘Thank God you guys are out there doing that; we can’t, because our policies aren’t allowing us to. But at least somebody is saying this is wrong, and you guys are making an example for the rest of us,’” Lines said about MCC’s decision to halt Madagascar operations last year.

But what happens during and after the termination or suspension of a compact?


Madagascar’s compact termination – MCC’s first – was announced in May 2009, following a coup staged two months earlier. With a year left for completion, Madagascar had disbursed about $77 million of its funds for land tenure, financial sector reform and agricultural business investment projects in rural communities.

Madagascar worked with MCC headquarters to inform stakeholders and put together a compact termination plan. The plan outlined how to receive and validate deliverables, pay invoices, deal with and protect in-country assets, and ensure that environmental and social concerns surrounding the closedown are addressed.

Although MCC did not meet all of its objectives, Lines said he was optimistic about Madagascar’s development prospects.

“We may not have gotten to our final objectives on all of our indicators, but we’ve left systems in place for the beneficiaries to continue to access those services that were being provided under the three projects in the compact,” he told Devex.

MCC places a premium on country ownership and capacity building, a fact that helped in Madagascar.

“The fact that they’ve worked very diligently through this closedown process says they want to see this end right, because they believed in what we were trying to do,” Lines said.

He added: “It’s frustrating and sad to see it happen. But I think we’ve left in place linkages and other partners we were working with, and these activities will continue into the future.”

Already, the sustainability of MCC’s approach is beginning to show. Former employees of MCA-Madagascar’s land tenure project have set up a local NGO – Ezaka ho Fampandrosoana ny Ambanivohitra – to continue the agency’s work.

Previous staff of MCA-Madagascar’s agricultural business investment project also set up two NGOs: Actions et Initiatives pour le Developpement de l’Agribusiness dans le MENABE, and L’Association pour l’Agribusiness et le Commerce Agricole de Vakinankaratra. These nonprofits are working alongside existing NGOs to continue providing services to beneficiaries in Madagascar’s rural areas.

Now, those two NGOs are exactly what MCC had hoped they would be: self-sustainable.

“What we ended up doing was helping them with some of the asset transfers, so they’d have assets to continue providing services right off the bat,” Lines explained.

With the support of MCA, local agencies took on responsibility and made decisions. This has made many Madagascan professionals strong candidates in the international job market.

“We’ve left a staff of professionals that are very marketable and capable,” Lines pointed out. “They’re getting job opportunities from people who know what their capacity is after working with MCC for four years.”

Lines, who found his work as resident country director particularly rewarding, also enjoyed working closely with farmers.

“Some of those folks that we worked with out there are just amazing people,” he said. “You look at some of the constraints that they’re working under, their attitude towards trying to change their lives, and their willingness to take on a lot of risk in their eyes.”


In June 2009, following fraudulent elections and a six-month suspension, Nicaragua’s $61.5 million property regularization project was suspended. While activities queued up under a transportation project were also suspended, MCC and MCA-Nicaragua decided to continue the rural business development project as it is “most linked” to the poor. As of October 2009, $78 million of the $110 million compact had been dispersed, and the compact is set to be concluded by May 2011.

Marma, MCC’s resident country director, stressed the importance of consistent policy.

“Overall, the process was a healthy process,” Marma said. “It was consistent with our policies, and we were able to get a strong message out to the people and government of Nicaragua that democracy is important and is part of our criteria that we respect.”

According to him, drawings and feasibility studies for the roads project have been handed over to the Nicaraguan government to “allow them to look for other sources and move forward with that.”

Having worked closely with the World Bank on the property project, MCC is also transferring its expertise and assets to its donor counterpart.

“We’ve managed to finish work in one municipality, and we’ve given them all of our experience,” Marma explained. “They [World Bank] hired the former MCA property specialist, who is helping the World Bank design a second project on a second loan, and they have moved $400,000 into Léon to continue with the property titling project.”

In what Marma describes as a “healthy exercise,” Nicaragua and the World Bank are working together – with the help of MCC assets like GPS systems, computers and vehicles – to assure that the people are affected as little as possible by the compact suspension.

Additionally, Nicaragua has secured a $50 million loan from Venezuela to continue the property and roads projects.

“The minister of finance has told me on several occasions that they have that money: $15 million is to go to property projects and $35 million to roads,” Marma said. “He did say that the roads wouldn’t be to our specification; they couldn’t continue with that.”

The termination process in the Latin American country has highlighted the importance of donor coordination and partnerships in ensuring that projects continue even after a suspension or termination.

“Before the compact was even signed, we worked with the World Bank, IDB and the Nicaraguan government to pass a law developing a road maintenance fund that started off with $10 million and will increase to about $45 million,” Marma noted.

Thanks to that fund, Nicaragua is intensifying efforts to ensure that roads developed by local and donor agencies are maintained.

This not only points to value chain improvements but also suggests that future contract opportunities lie on the horizon.

Impact assessment

Jonathan Bloom, part of MCC’s compact implementation shop, told Devex that Madagascar’s termination has informed MCC’s policy framework.

“It did force the pace in helping us to develop guidelines for other countries that are coming up on the end of their compact,” he said.

The new guidelines have already been used for Nicaragua’s partial termination, and will be applied to Niger’s $23 million threshold program, which was suspended following a Dec. 9 MCC board meeting.

According to MCC Implementation Director Ariane Gauchat, Madagascar’s MCA program has published a windup report that will “generate lessons learned that we could feed into our program design in the future for other countries.”

In addition, MCC is conducting its own analysis of program results and has contracted Mathematica Policy Research to undertake an independent program evaluation. Currently in its first phase, the Mathematica evaluation should be completed in September 2010.

With these assessments, MCC will learn “how to maximize sustainability even under those difficult circumstances,” Bloom said.

A summary of the completed MCC, MCA and Mathematica impact assessments will be made available to the public.

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