Wednesday's Millennium Challenge Corp. board meeting is bound to get interesting. For one thing, there's a new sheriff in town. New leadership under the Obama administration and the newly-sworn-in MCC Chief Executive Director Daniel Yohannes, promises to make the government corporation's seventh annual gathering an all-new ball game.
The board, on Dec. 9, is expected to discuss follow-up compacts for countries that have successfully implemented their initial compacts, like Cape Verde. Then, there's the question of "graduating countries" like the Philippines and Indonesia, which passed MCC muster when they were designated low-income countries but which are failing MCC's more stringent benchmarks since graduating to lower-middle-income status.
The MCC board, led by U.S. Secretary of State Hillary Clinton, will also select new compact partners. Indonesia, Jordan, Moldova, the Philippines, and Zambia have been tipped as candidates.
Right time for reform?
Sheila Herrling, senior policy associate at the Center for Global Development and director of its "Rethinking U.S. Foreign Assistance" program, said last week that the time was right for transforming MCC from "what has always been called the Bush flagship program to just a very good U.S. foreign assistance program."
To date, MCC has signed 19 compacts, totaling $6.9billion in development projects across the globe. In addition, 21 threshold programs, amounting to $470 million, have sought to prepare countries for larger, more complex compacts; 13 are still in place.
The board will be making selections without a definite idea of MCC's budget: While the U.S. Senate put forth a $950 million budget for MCC, the House proposed $1.4 billion.
"They're going to be making decisions based on trying to balance this, ‘We have an idea of what our budget is going to be, we have lots of competition for resources in foreign assistance, so although we think the number will come out somewhere between the House number and the Senate number, we really don't know,'" Herrling suggested Dec. 1 when presenting this year's MCA Monitor, a CGD publication she co-authored with Casey Dunning, in Washington.
The fact that MCC regularly exhausted its budget does not make this year's "blind" selection any easier. With a 25-percent cap on funding LMICs, some "graduating countries" might miss out on Christmas this year.
"If [MCC board members] use the process and compare Indonesia and the Philippines against the LICs, [the two countries] pass squarely," Herrling argued.
She continued: "But the problem really is, even if they select [Philippines and Indonesia] as eligible without a fix in the legislation to this 25-percent cap we're talking about, they can't fund them. Jordan basically will take the entirety of the existing LMIC money."
The value of governance
CGD's report calls for the MCC board to pick countries that are "strong passers, have a solid passing record, and have big potential for poverty reduction."
Herrling said: "Democratic governance is a priority. We've had a long-standing view that countries that fail all three democratic indicators should not be chosen."
In designing the MCC country scorecards, a premium was placed on democratic governance, with three of six indicators for ruling justly - namely, political rights, civil liberties, voice and accountability - being democracy indicators. Corruption was also selected as the category's "hard hurdle": In order to pass MCC's benchmark, countries need to score above the median in their income group.
Unfortunately, that emphasis has been somewhat undermined as countries have succeeded in passing the "ruling justly" category despite failing all three democracy indicators, Herrling said.
With the existing pressures, the CGD senior policy associate also suggested flexibility and focusing on the implementation of existing compacts. This, she argued, would not only help reduce the added strain of developing new compacts alongside existing ones, but it would help MCC demonstrate results and highlight its relevance as a donor.
Beyond the board meeting, Herrling recommended a "serious rethink" of the MCC model, especially with regards to "graduating countries," threshold programs, and the organization's mission and delivery modes.
"More recently, they have chosen projects which really do not meet standards of their economic rate of return," she argued. "People have started wondering, are they straying too far from its mission?"