Danilovich: New Aid Program ‘Aggressively Engaged’ in Reforms for the Developing World

Danilovich: New Aid Program ‘Aggressively Engaged’ in Reforms for the Developing World

John Danilovich, chief executive of the Millennium Challenge Corporation, says the organization has become more aggressively engaged with developing nations in pressing economic reforms and is now disbursing aid more efficiently. Congress is on course to provide its highest funding levels yet for the program.

July 10, 2006 3:03 pm (EST)

To help readers better understand the nuances of foreign policy, CFR staff writers and Consulting Editor Bernard Gwertzman conduct in-depth interviews with a wide range of international experts, as well as newsmakers.

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When the Bush administration launched the Millennium Challenge Account (MCA) in 2004, it was touted as one of Washington’s most ambitious efforts to reform U.S. foreign aid to impoverished nations. The program was charged with providing aid only to poor countries that meet certain governance criteria, such as establishing judicial reforms and anti-corruption measures.

But the program soon came under congressional criticism that it was moving too slowly. In late 2005, John Danilovich, a former shipping executive and U.S. ambassador to Brazil, was chosen as chief executive of the Millennium Challenge Corporation, which administers the account. The MCC has now completed eight agreements, or "compacts," with countries, focused on infrastructure projects, and it is on track to commit $3 billion in aid this fiscal year. Danilovich says a growing number of governments realize that if they show they are serious about reforms, "We will be more than aggressive in engaging with them." Developing states, he says, are also attracted to the program because it encourages home-grown solutions to poverty and economic growth problems. Congress is on course to provide its highest funding levels yet for the program.

The conventional wisdom is that the Millennium Challenge Corporation was highly touted, got off to a sluggish start, and has some momentum now, but has a lot that it needs to prove to Congress. Is that a fair assessment?

I think when I came on board in November 2005 I encountered a situation where the president and the secretary of state and Congress all still believed very much in the concept of the MCC. But there had been an increasing amount of disillusionment that had occurred because it wasn’t really doing what they had mandated it to do in an expeditious fashion. I spent the first six months here in Washington up on Capitol Hill speaking to over sixty-five representatives and senators with regards to the MCC in an attempt to rekindle support for the organization. That was coupled with an effort that I made here internally to streamline and make more coherent our administrative processes so that we could deliver our compacts in a more expeditious as well as full-frontal sort of approach. We not only made a number of changes here within the administration in Washington, but also engaged more aggressively and earlier with countries in the field.

With regards to congressional perception of the organization, I think we’ve come a long way in the last six months and the acknowledgement of that is a very healthy funding from the House and the Senate of $2 billion. The executive branch request—the president’s request—was for $3 billion in [fiscal year] ’07. The [fiscal year 2006] request was also $3 billion and we received $1.7 [billion]. This year, although the cycle isn’t finished yet, we have $2 billion. It’s the largest appropriation we have received, ever, in the most difficult budget climate ever, so I think there is a clear perception the MCC has turned around and is giving Congress what they asked for and what they wanted it to do. Certainly, the feedback we’ve gotten from both sides of the aisle, from bipartisan representatives throughout the House and the Senate, is that they are pleased.

The original plan was for funding of $5 billion per year for the Millennium Challenge Account by this point. Being at $2 billion instead of being at $5 billion, how does that limit what you’re able to do?

We have eight compacts to date, totaling $1.6 billion. By the end of this year, we will have three further compacts totaling a similar amount. So by the end of this fiscal year we will have $3 billion committed. We have a very strong [aid] pipeline; we’re in very serious and deep negotiations with a number of countries for [fiscal year] ’07. It would be nice if we had the full presidential request of $3 billion. It would be nice if we had even more than that, but for the moment we don’t, and the reality of the situation is that we’re in a very difficult budget climate, there are a lot of constraints, and even with that we have received a larger appropriation that we’ve ever received in the past.

What would you point to that’s happening in terms of MCC money being put to use, working in a direction that you envisioned?

There has been an incentivizing effect throughout the developing world where countries that are eligible—and those that are not eligible—are putting into place the necessary reforms and legislation to move forward with institutional reforms to accommodate the MCC funding. This goes straight across the board with judicial reforms, fiscal policy, land titling, political rights, civil liberties, good governance, [and] anti-corruption legislation. Countries on the eligible roster are coming to us and asking "Well, what do we have to do?" Calling our ambassadors and saying "What laws do we have to pass? Can you show us what a law looks like that deals with corruption? That deals with judicial reform? Can you tell us what other countries have done so that we can also get in line for MCC funding?" This has been frankly inspirational, the fact that countries have realized that if they practice good governance, if they’re not corrupt, if they have the right political, economic and social policies to accommodate the [Millennium Challenge Account] funding, we will be more than aggressive in engaging with them.

What are some examples of countries doing that?

Almost every country that we have, some of them are very nascent democracies, nascent in terms of their economic policies, nascent fiscal integrity, have had to institute reforms to accommodate the MCA. In Benin, for example, they have instituted significant reforms in their overall judicial process. In Nicaragua, one of our earlier countries, they have undertaken a road maintenance program to accommodate the infrastructure programs we’ll be undertaking in the near future. Many countries have instituted microfinance legislation to accommodate land ownership. Many have allowed women to own property for the first time. In Burkina Faso, we have an excellent program which has targeted women’s education, I believe it was girl’s elementary education. So, straight across the boards in the human area, as well as the financial, as well as the political area, countries have undertaken steps which they heretofore would not have considered undertaking.

The countries selected for the program are generally small countries. Has it been decided that smaller countries are better for initiating this program?

The entry point is not a matter of size. We have countries that have very differing populations and are very different geographically in size but the common point is that these are the poorest of the poor who are struggling to survive, and our objective, as you know, is to reduce poverty through economic growth. We target countries where there is extreme poverty, where we can reduce poverty through economic growth. The economic growth component is critical to the program; it’s not simply the alleviation of the immediate problems of poverty, but long-term sustainable growth. We have another component which I think really defines and makes unique the Millennium Challenge Corporation. We are foreign aid with accountability. It’s accountability not only on our side, with the American taxpayer’s money, but accountability on their side to create development and implement these programs themselves, for the benefit of their poor [and] for long-term sustainable and economic growth. We don’t go out and tell poor countries what they should do to alleviate poverty in their country. We ask them what they need to do with their experience. And we don’t ask the government. We ask them to pursue a very broadly based and very deep consultative process in coming to us ultimately with the proposals.

We have had some countries that have done this consultative process in an absolutely fantastic way. We have had other countries that we’ve had to go back to again and again and say, "Please do it again, it’s not good enough and we really do insist that you do this." Because we’re convinced that if you have country-owned programs, the implementation of these programs in the longer term will be easier to achieve and it will be successful. We want to not remain in a country longer than five years. Our contract arrangement is for five years and we’d like to have an exit strategy. We want to have these programs up and running and operational, we want to have the reduction of poverty and economic growth so it can all be sustained and we can leave. That’s the mark of our success.

In looking at your web site, one sees a lot of threshold countries with anti-corruption programs. Is anti-corruption now more of a centerpiece of the program?

We have three categories—political, economic, and social—which we call ruling justly, investing in people, and economic freedom. In the ruling justly category, the corruption indicator is one indicator which they must pass. The indicators that we use are third-party non-U.S. government objective indicators from Freedom House, Transparency [International], and the World Bank.

If all forms of corruption could be eliminated - and we’re adamant about this - then we feel far more comfortable in the use and expenditure of taxpayer dollars. Since 1960, over $2 trillion has been spent in foreign aid with few results, and we don’t think it’s too much to ask that the countries comply with our sixteen indicators with regards to good government. Good government includes anti-corruption, governance, political rights, civil liberties, fiscal responsibility, days to start a business, immunization, education, it includes all the components that make it possible for a country to sustainably move forward. Since we’re dealing with low-income countries, if we can reduce poverty and provide simultaneously economic growth, then we believe our program is something that will really make a difference.

Some are concerned that the MCC and all these other aid agencies you have in the U.S. government aid system represent further fragmentation of aid. Others say they are worried about efforts to pull together aid under a foreign aid czar and that the MCC will get co-opted and lose its independence. You’re in the middle of that. How do you see the situation?

Well, I don’t know if we’re in the middle of it. We’re sort of on the outside in a way because we are an independently constituted organization by Congress. We very much support 100 percent the efforts being made by the secretary of state and by Ambassador [Randall] Tobias [director of U.S. foreign assistance and head of the U.S. Agency for International Development] to bring greater coherency and efficiency to foreign aid and development assistance, and we work very closely with the director of foreign assistance in this matter. We have MCC people attending meetings on a weekly basis with people in the State Department in this effort that’s being made by the secretary and by Mr. Tobias to eliminate the stovepipes in American foreign aid.

At this point there still seems to be this grace period for MCC. If it doesn’t work, do you feel it’s going to be that much more difficult to get money out of Congress?

I don’t think it’s correct to characterize us as being still in a grace period or that the jury’s still out with regards to the future of the Millennium Challenge Corporation. I think the viability and the credibility of the MCC ha[ve] been established very thoroughly. And in the eyes of Congress as evidenced by the appropriation to date, in the eyes of the president, in the eyes of the secretary of state, the MCC is certainly a very potent and viable instrument of U.S. development assistance, foreign policy, and transformational diplomacy.

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