Millennium Challenge Account - Promises yet unfulfilled

March 14, 2002, President George W. Bush made a speech at the Inter-American Development Bank meeting in Mexico. He called for: "a new compact for global development, defined by new accountability for both rich and poor nations alike. Greater contributions from developed nations must be linked to greater responsibility from developing nations."

The President pledged that the United States would lead by example and increase its core development assistance by 50 percent over the next three years, resulting in an annual increase of $5 billion by FY 2006. He called it the new Millennium Challenge Account (MCA). Because sound policies are an essential condition of development, the President announced that the Millennium Challenge Account will be "devoted to projects in nations that govern justly, invest in their people and encourage economic freedom."

This was a new idea. A new way of funding, giving the Administration more control, and the World Bank, IMF, and USAID, less authority. It was different in another way. It would fund to nations, based upon their willingness to make changes in their nations "before funding" unlike the World Bank and others, who have traditionally provided aid, with conditions that changes would be made in their nations after funding.

Country Eligibility

Bush's criteria were as follows: "We must tie greater aid to political and legal and economic reforms. And by insisting on reform, we do the work of compassion. The United States will lead by example. I have proposed a 50-percent increase in our core development assistance over the next three budget years. Eventually, this will mean a $5 billion annual increase over current levels. These new funds will go into a new Millennium Challenge Account, devoted to projects in nations that govern justly, invest in their people, and encourage economic freedom."

President George W. Bush, Monterrey, Mexico, March 22, 2002 Funding for the MCA will increase over three years to $5 billion per year in FY 2006. The number of countries eligible to compete for funding will also increase over this period. Specifically:

• In FY'04, the first year of MCA operation, countries eligible to borrow from the International Development Association (IDA), and which have per capita incomes below $1,435, (the historical IDA cutoff) will be considered.
• In FY'05, all countries with incomes below $1,435 will be considered.
• In FY'06, all countries with incomes up to $2,975 (the current World Bank cutoff for lower middle income countries) will be eligible.

Bush directed that countries be identified based on "a set of clear and concrete and objective criteria" that would be applied "rigorously and fairly." The President stated that the Millennium Challenge Account will "reward nations that root out corruption, respect human rights, and adhere to the rule of law... invest in better health care, better schools and broader immunization... [and] have more open markets and sustainable budget policies, nations where people can start and operate a small business without running the gauntlets of bureaucracy and bribery."

16 indicators (with sources), were chosen because of the relative quality and objectivity of their data, country coverage, public availability, and correlation with growth and poverty reduction, were to be used to assess national performance relative to governing justly, investing in people, and encouraging economic freedom.

Governing Justly:

• Civil Liberties (Freedom House)
• Political Rights (Freedom House)
• Voice and Accountability (World Bank Institute)
• Government Effectiveness (World Bank Institute)
• Rule of Law (World Bank Institute)
• Control of Corruption (World Bank Institute)

Investing in People:

• Public Primary Education Spending as Percent of GDP (World Bank/national sources)
• Primary Education Completion Rate (World Bank/national sources)
• Public Expenditures on Health as Percent of GDP (World Bank/national sources)

Immunization Rates:

• DPT and Measles (World Bank/UN/national sources)

Promoting Economic Freedom:

• Country Credit Rating (Institutional Investor Magazine)
• Inflation (IMF)
• 3-Year Budget Deficit (IMF/national sources)
• Trade Policy (Heritage Foundation)
• Regulatory Quality (World Bank Institute)
• Days to Start a Business (World Bank)

Final Selection

"Qualifying as a better performer will not guarantee MCA support. If the President and his appointees have a favorite or a political choice, they can influence the final decision."

THAT WAS THE PROMISE, BACK IN 2002. Seehttp://www.whitehouse.gov/infocus/developingnations/millennium.html

Mr. Bush said his government would donate $1.7 billion the first year, $3.3 billion the second and $5 billion the third. That $5 billion amount would have been just 0.04 percent of America's national income, but the administration still failed to match its promise with action. Back in Washington and away from the spotlight of the summit meeting, the administration didn't even ask Congress for the full $1.7 billion the first year; it asked for $1.3 billion, which Congress cut to $1 billion. The next year, the administration asked for $2.5 billion and got $1.5 billion. Worst of all, only one nation has been approved for funding, and its allocation was reduced.

The Senate Republicans now want to cut the funding even more, while every year in Africa, one in 16 pregnant women still die in childbirth, 2.2 million die of AIDS, and 2 million children die from malaria. Jeffrey Sachs, the economist appointed by Kofi Annan to direct the Millennium Project, puts the gap between what America is capable of doing and what it actually does into stark relief. The U.S. government spends more than $450 billion annually on the military, and $15 billion on development help for poor countries, a 30-to-1 ratio that, as Mr. Sachs puts it, shows how the nation has become "all war and no peace in our foreign policy."

Indeed while Madagascar got a promise of $110 million, they now realize that they are in reality only getting $27 mill per year, effective April 27, 2005. Of 16 countries that applied and could "qualify", the amount is now scaled down to an average of $40 million to $60 million and that is only if they "pass" the incentive qualifications. Steven Radelet (Senior Fellow of the Center for Global Development) indicated that the funding is highly influenced by a stress on incentives, hoping to pressure nations to qualify in advance. Therefore, the effort causes nations to improve their "standards" even if funding is withheld, case by case.

What seems unfair are the false hopes the program causes. Each nation is presented with the prospect of hundreds of millions of dollars. Civic leaders become involved. Groups meet and define their goals, and really believe that the USA is going to let them achieve their dreams. Then we find out, that much of it is rhetoric, and that if the funding ever does come, it will be 1/2 or 1/3 or even a smaller percentage than developing nations were led to believe.It brings up the question. Perhaps the traditional way the World Bank, IMF and USIS worked was better, more ethical, and more efficient after all. Plus, it wasn't controlled by a single administration.