Millennium Challenge Account Totally Explained

Everything about The Millennium Challenge Account totally explained

The Millennium Challenge Account (MCA), run by the Millennium Challenge Corporation, is a bilateral development fund announced by the Bush administration in 2002 and created in January, 2004.

Origin

At the Inter-American Development Bank on March 14, 2002, President George W. Bush called for a new compact for development with accountability for both rich and poor countries. He also pledged to increase development assistance by 50% by Fiscal Year 2006 (which by the end of 2004 did double, and is to double again by 2010). Other development programs like USAID (United States Agency for International Development) have been thought to have suffered from many different and sometimes conflicting goals, which often are a result of political pressures, and for not delivering long term economic improvements.
   Countries are selected on a competitive basis through a set of 16 indicators designed to measure a country’s effectiveness at ruling justly, investing in people, and fostering enterprise and entrepreneurship. The focus of the MCA is to promote economic growth in the recipient countries. The program emphasizes good economic policies in recipient countries. The Bush administration has stated their belief that development aid works better in countries with good economic policies, such as free markets and low corruption.
   While the MCA was founded to take politics out of aid allocation, the Bush administration may have used MCA funds as leverage against Angola. According to a leaked transcript published by the Spanish newspaper El Pais, the MCA may have been used to leverage support for the 2003 invasion of Iraq. In a discussion held on February 22nd, 2003, in Crawford, Texas, President George W. Bush told then-President of Spain Aznar that he might cut Angola's MCA funds if it posed problems in the United Nations' Security Council.
   Early evaluations noted that environmental safeguards would be needed to prevent widespread environmental damage that comes with economic growth. Before the creation of the Threshold program, there was also arguments to allow countries that narrowly failed the criteria to be allowed to compete for funding.

Criteria for eligibility

All indicators used and the whole process of qualifying are publicly available at the homepage of the MCA. On September 11, 2006, two new criteria were adopted for the Fiscal Year 2008 selection process, both of which relate to the environment. They will measure candidate countries ability to provide "clean drinking water, expand sanitation services, streamline the property registration process, and make land rights accessible and secure for poor and vulnerable populations." The Corporation announced in December 2006 the creation of a gender policy to promote the role of women in the process of forming the compacts and in their impact.

Criteria

Criteria	Category	Source
Civil Liberties	Ruling Justly	Freedom House
Political Rights	Ruling Justly	Freedom House
Voice and Accountability	Ruling Justly	World Bank Institute
Government Effectiveness	Ruling Justly	World Bank Institute
Rule of Law	Ruling Justly	World Bank Institute
Control of Corruption	Ruling Justly	World Bank Institute
Immunization Rate	Investing in People	World Health Organization
Public Expenditure on Health	Investing in People	World Health Organization
Girls' Primary Education Completion Rate	Investing in People	UNESCO
Public Expenditure on Primary Education	Investing in People	UNESCO and national sources
Natural Resource Management	Investing in People	CIESIN/Yale
Inflation Rate	Economic Freedom	IMF WEO
Trade Policy	Economic Freedom	Heritage Foundation
Land Rights and Access index	Economic Freedom	IFAD / IFC
Regulatory Quality	Economic Freedom	World Bank Institute
Fiscal Policy	Economic Freedom	national sources, cross-checked with IMF WEO
Business Start-up	Economic Freedom	IFC

Additional information is provided via third party indexes, such as the Global Integrity Index.

Eligible countries

In the first year (2004), 17 countries were made eligible for an MCA grant: Armenia, Benin, Bolivia, Cape Verde, Georgia, Ghana, Honduras, Lesotho, Madagascar, Mali, Mongolia, Morocco, Mozambique, Nicaragua, Senegal, Sri Lanka, and Vanuatu. Madagascar and Honduras were the first countries to receive actual funding from the MCA. As of May 2005, Nicaragua, Cape Verde and Georgia are next in line to receive money. On June 16, 2006, The Gambia was suspended from eligibility, citing the deterioration of in 8 of the 16 criteria categories. Mali was approved in October 2006 for a 461 million dollar program to develop modern irrigation systems and an industrial park. Jordan was granted full compact eligibility, despite objections from Freedom House for its lack of full political and civil rights. The country of Fiji is no longer eligible due to its military coup, which under US law precludes the country from receiving financial aid of this type. MPs in Uganda from the opposition party hailed their country's rejection from full compact status, demanding instead a stronger effort in stopping the corruption that disqualified their country. The funding of Tanzanias compact has been pushed forward from May 2007 to an earlier date to accelerate the process of reform. In June 2007, MCA eligible countries in Africa held a meeting in Accra to discuss their experiences in the program. The country of Malawi qualified for a full compact in 2007s round, while Mauritania became threshold eligible.

Threshold eligible

Several countries were chosen in 2004 for a new part of the program called Threshold Program Assistance, which are smaller compacts used to assist a country close to meeting account eligibility to become eligible for a full program. Jordan received a Threshold program aimed at democracy and trade totaling 25 million US dollars. Yemen was previously eligible for a threshold agreement, but was suspended after their indicators fell too low to qualify. But having successfully competed a democratic election and various economic reforms, the Millennium Challenge Corporation has once again made Yemen eligible for a threshold agreement. On December 12th 2007, the MCC Board selected Malawi for a compact and Mauritania for a threshold agreement, as well as allowing Albania, Paraguay, and Zambia to submit a first ever second stage threshold agreement. In 2007 the American ambassador to Swaziland highlighted the progress on the MCC indicators over the last few years and encouraged the country to work toward eligibility.

Proposals under consideration

Namibia submitted their proposal to the MCA in October, 2006 which involved improvements in education, livestock production and marketing, tourism, "Green Scheme" and indigenous natural products. Mongolia has had a long negotiation period for MCA funding due to its inexperience with such large monetary grants as the MCA gives.

The Millennium Challenge Corporation

The Millennium Challenge Corporation (MCC) is a United States Government corporation established in January 2004. Currently CEO is Ambassador Danilovich, who served as the American Ambassador to the Republic of Costa Rica from 2001 to 2004, and then Ambassador to the Federative Republic of Brazil, and has been a businessman and private investor with a strong background in foreign affairs.

Funding

Congress has consistently provided less funding for the program than the president has requested. In Fiscal Year 2004, 650 million USD were provided for the program, with an increase up to 1.5 billion the next year. For Fiscal Year 2007, 2 billion dollars were provided, a 14% increase over the previous year but still under the 3 billion target. Again for Fiscal Year 2008, less funding will be provided than was hoped for, and only 1.2 billion is currently budgeted, and the MCA CEO commented that it would undercut the programs efforts. Congress declined to re-authorize the program, which technically wasn't needed since the program had been authorized already, but also since there was argument over the authorization language. In discussions of the Fiscal Year 2009 budget, the United States Senate has proposed that only half of the money needed for a compact be provided up front, as opposed to full funding for each one provident in advance, which officials at the corporation insist would be a "large step backward" causing too little aid to make an impact on recipient countries. Senator Richard Lugar, the author of the amendment, responded that more "realistic" funding levels allowed for more compacts, thus spreading the "MCC effect". The amendment didn't make it into the final bill. President Bush's 2008 Fiscal Year budget requested $2.225 billion, the first time since the programs inception that the amount wasn't $3 billion, and enough money for 5 compacts, several thresholds and administrative funding.

Reception and impact

Studies by groups such as the Heritage Foundation have shown that many developing countries that have received foreign aid have seen their per capita income fall or stagnate over the last 40 years, and the Heritage Foundation has consistently supported the MCA's approach, which has also utilized their trade measure from the Index of Economic Freedom. In April 2005, the United States Government Accountability Office issued a favorable report about the work of the MCA and its work thus far. The Program Assessment Rating Tool, or PART, which reviews the efficiency and results produced by US government programs, will be reviewed in 2007. A study in 2006 looking at the "MCC effect" estimated that potential recipient countries improved 25% more on MCA's criteria than other countries, after controlling for time-trends. The World Policy Council, headed by Ambassador Horace Dawson and Senator Edward Brooke, recognizes the MCA as the most recent and most promising program in its area, and recommends that the Bush administration and the Congressional Black Caucus focus on full funding and an accelerated pace of spending. Doing Business 2007 cited the Millennium Challenge Accounts as a catalyst for reforms underway in 13 countries. Also, Freedom House, an organization that monitors the level of freedom in the world, released subcategories for the first time since it was being used as part of the MCC's measurements to allow for finer distinctions in their ratings. Also, the number of days it takes to start a business in both low and low-middle income countries has decreased significantly since 2002, which is one of the factors the accounts measure since rapid business registration is thought to increase economic activity.
Some critics have charged that the program uses indicators by conservative groups such as the Heritage foundation and are therefore biased toward free market economics. The program is thought to have also resulted in countries receiving less funding from other US government development organizations and not more. Some development agencies have also felt frozen out of the process since the MCA compacts are designed primarily by the country involved. Implementation has also been difficult in Armenia, with concern about effectiveness is currently being discussed.

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