POMED Notes: “Budget Hearing – Millennium Challenge Corporation”

On Tuesday, the House Appropriations Subcommittee for State, Foreign Operations, and Related Programs held a hearing on the Millennium Challenge Corporation’s budget.  Chairwoman Kay Granger (R-TX), with ranking member Nita Lowey (D-NY) in attendance, requested the testimony of Dr. Daniel W. Yohannes, Chief Executive Officer of the Millennium Challenge Corporation (MCC).

To read full notes, continue below or click here for pdf.

In her opening statement, Kay Granger stated that the Administration’s request of $1.1 billion for the MCC is $20 million above the FY2010 appropriation and noted that since the first compact was signed in 2005, the MCC has programmed nearly $8 billion for compacts in 22 countries. She also discussed how the MCC can be a model for effective foreign assistance given the importance the corporation places on generating income in developing countries and its devotion to “building capacity at the local level so that governments are more effective.” She also called on the MCC to “be a catalyst for partner countries to graduate from U.S. development and economic assistance” so that they can break “the cycle of dependence.”

In her opening remarks, Nita Lowey stated that we must assess the effectiveness of the MCC to meeting its goals as the current compacts draw close. She stated that the MCC model has great potential for sustainable growth and development and applauded the MCC’s approach to determining grantees for aid based on governance criteria to ensure that the countries can maintain investments and that the taxpayer dollars are used effectively. She also stated that the external evaluations provide confidence and also lauded the role MCC compacts have played in women’s empowerment in countries such as Burkina Faso.  Lowey, however, questioned the proposed renewal of compacts to Georgia, Ghana and Indonesia noting that the role of the compacts was to have countries graduate from U.S. foreign assistance so that we are free to help other countries.  She also asked Dr. Yohannes to address the contracting and quality mechanisms of the MCC.

Dr. Daniel W. Yohannes began his testimony by stating that the MCC had requested $1.125 billion so that they may sign compacts with Indonesia, Georgia and Ghana.  He stated that given his banking background, he runs the MCC, which was constructed as a bipartisan project in 2004, as a business whose priority is to make sure that we get the best possible return on our investments.  The MCC’s operation mechanisms have been built upon “50 years of lessons” to find out what the best development practices are.  He states that the eligibility criteria allow the MCC to distinguish and choose to give aid to those countries which have a policy environment suitable for economic growth. It also gives poor countries access to foreign investment thereby ending their reliance on foreign aid and stated that these countries can see the benefits with increases of income expected to rise over time.  Yohannes also noted that the early data from compacts, like that in Honduras, are promising.

In response to a question by Rep. Kay Granger on the need for second compacts to Indonesia, Georgia and Ghana, Yohannes stated that these countries have been selected for second compacts based on the excellent results from the first compact and due to their strategic importance to the United States.  Granger noted that part of the MCC mandate is to wean these countries off all US aid and questioned the need for renewed compacts, to which Yohannes replied that the MCC addresses specific projects and that aid these countries get from USAID and other development agencies tend to go toward developing other projects.  He noted, however, that the MCC coordinates its efforts with other NGOs and agencies to ensure that we are not duplicating our efforts.

Rep. Tom Cole (R-OK) stated that he believes development funding mitigates the need for hard power and prefers the cooperative and peaceful approach the MCC has taken to addressing our strategic priorities.  He went on to note the Heritage Foundation’s assessment that the MCC method of providing aid is more effective than that of USAID and other organizations, and questioned how the MCC’s approach differs and whether it can be applied to other agencies.  Rep. Kay Granger and Rep. Mario Diaz-Balart (R- also raised this question to which Yohannes replied that the MCC formulated its aid model from what was believed to be the best practices of other development agencies and that because of their eligibility process, they can ensure that each of their compacts will have a successful outcome.  He states that by working with countries with good governance and economies and governments which invest in its people, they ensure that the governments are accountable to its people.  He made note of the indicators which determine country eligibility in the three sectors of Ruling Justly, Investing in its People, and a sound Economy. This makes them good partners as well and point to the likelihood that the government will sustain MCC projects through their own funding following the end of a compact.  Yohannes stated that the MCC has provided USAID and other programs with information on what they believe the most effective programs are.   He also noted that the MCC attempts to work with the U.S’s strategic partner and stated that he believes that countries that share the same values as the U.S. will make the best partners.

Rep. Nita Lowey (D-NY) discussed how corruption hinders economic growth and questioned how the MCC assesses and addresses corruption.  Yohannes responded by stating that one of the indicators that are used to determine a country’s eligibility is a corruption indicator.  He states that corruption is measured by checking if institutional processes are free from government control or not.  The corruption indicators are measured by the level of freedom and independence of the judiciary, how free and open the media is, and how independent and responsible auditors are, among other criteria.  When countries with which the MCC has compacts backslide towards corruption, the corporation states that it will rescind its aid agreement and works with the State Department other multilateral groups to help the government address the situation.   The key, he states, is to make sure that corruption is not institutionalized in the MCC’s partner countries and to engage in policy dialogue with those countries where we see high levels of corruption. Lowey argued that MCC continued cooperation with countries suffering from high levels of corruption sends a bad message and cautioned the corporation against continuing this practice.  Addressing a question by Rep. Kay Granger, Yohannes also made note of how certain aspects of the compact have encouraged countries to make policy and economic reforms as well.  These reforms, he notes, help increase their attractiveness to foreign investors.

Rep. Cole asked about MCC coordination with local NGOs and Rep. Lowey addressed the need for better coordination and asked the witness to discuss the results of the past compacts. Yohannes stated that they work with NGOs are included in the design, implementation, and consulting especially given that some of the groups are on local governance boards. He also stated that the MCC coordinates with U.S. and international development agencies to prevent duplication of aid for projects.  Yohannes noted that the bigger results remain to be seen, but pointed to early data from compacts in Honduras, Cape Verde, and Ghana that demonstrated increased income levels due to agriculture training.  He also noted the success in building schools, training programs for technology, and food security programs like those in Ghana which have achieved great success.