This week, the Senate Foreign Relations and the House International Relations Committees heard testimony concerning the Millennium Challenge Account (MCA) and the agency charged with administering the MCA, the Millennium Challenge Corporation (MCC).
Testifying before both committees, MCC Chief Executive Officer Paul Applegarth explained that the MCC “has the potential to accomplish a great deal in our steadfast struggle to reduce poverty. MCC impacts the poorest people in the world, people who live on less than $2 a day, those without access to clean water, without access to basic health care, those who suffer through disease and drought, and have no way to sustain themselves. The MCC was created to help these people.” Announcing that Madagascar is the first country eligible to sign a compact with the MCC, he summarized the proposal: “Poverty in Madagascar is overwhelmingly rural. Its agriculture productivity is among the lowest in the world. Seventy-three percent of Madagascar’s population lives in rural areas; eighty percent of those who live under the poverty line are rural inhabitants. In this situation, the most effective vehicle to reduce poverty is for the rural poor to invest in their land, to plant new crops, to learn how to increase productivity, to improve farming methods, to get credit to implement these new methods and, finally, sell to new markets. Consequently, the Government of Madagascar asked MCC to support a major effort to attack two of the root causes of poverty: first, a weak land-titling system that fails to provide the incentive of collateral for investments in poor rural areas, and second, a dysfunctional financial system that fails to serve the rural poor.” Mr. Applegarth also noted that the MCC intends to negotiate compacts with Honduras, Georgia, Nicaragua, and Cape Verde.
With regard to MCA funding, Mr. Applegarth stated, “Proposals from eligible countries already are expected to exceed resources currently available by about $1 billion. In addition, MCC estimates that the addition of new FY2006 candidate countries, along with amendments to existing compacts, will increase the total requests from MCA-eligible countries by as much as $3 to $5 billion.” He explained that the administration’s request of $3 billion for FY2006 would ensure that the MCC “can credibly tell our partner countries that we are ready, and able, to fully fund Compacts that show a real commitment to reducing poverty and spurring economic growth. It is critical for Millennium Challenge Account (MCA) eligible countries to recognize that the U.S. is committed to funding good proposals, and the $3 billion request helps us make such assurances.”
Senate Committee Hearing
In his opening remarks, Chair Richard Lugar (R-IN) said that the Senate Foreign Relations Committee “has enthusiastically endorsed the concept of the Millennium Challenge Corporation, which will provide assistance to developing countries that invest in their people, uphold political freedoms, fight corruption, maintain the rule of law, and pursue sound economic policies.” He added, “It is imperative that the MCC moves forward to expand its portfolio of compacts with eligible countries. As new compacts are being concluded, we must ensure that U.S. taxpayer funds are closely monitored and the process for selecting countries and evaluating proposals is carried out in a transparent process.”
House Committee Hearing
House International Relations Committee Chair Henry Hyde (R-IL) stated that Congress “recognize[s] that development work is extraordinarily difficult, and we commend those in the Millennium Challenge Corporation for their long hours and dedication. But from the outside, we see a program struggling to get off the ground and funding levels for compacts now emerging that lack the boldness necessary to break the cycle of poverty in countries prepared to take that step.” He argued that the MCC “should bolster levels of assistance to countries that implement their compacts in a manner that reflects the vision of MCA to create major improvements in economic growth and poverty reduction. A three- or four-year compact, though significant, is not likely to achieve such a result; particularly at the funding levels we now see emerging. MCA cannot become an open-ended commitment to partner countries, but we should consider awarding follow-on compacts of several hundred million dollars each to the four or five countries that demonstrate the greatest dedication to implementing their MCA compact and prove the most serious in their commitment to pursue the reforms necessary to create self-generated prosperity.”
Testifying on behalf of Catholic Relief Services, Conor Walsh highlighted the incidence of poverty in Honduras:
Mr. Walsh commended the Honduran government for including civil society representatives in its MCA compact negotiations, but urged that their voice be strengthened to “institutionaliz[e] their role in decision-making.” He expressed his concerns regarding one provision in the proposal that would provide technical assistance (TA) to farmers, stating, “I agree that Honduran farmers need training in better agricultural practices, crop diversification, efficient production and processing, and marketing to enable them not only to subsist but also compete in an increasingly global economy. My concern has to do with the mechanism the compact proposal envisions for delivering such TA, which appears to rely heavily on consultants and private TA firms that will be contracted to impart technical services to interested farmers.” Mr. Walsh further stated that the compact “should lay out a far clearer strategy for addressing the needs of women, especially as it pertains to TA. In the Honduran context, where women play a key role in agricultural transformation and processing, TA should be geared towards those activities on which women spend the most time, such as canning, pressing juice, and packaging.”
Steve Radelet of the Center for Global Development stressed the importance of local ownership for MCA compacts, stating, “Economic growth and poverty reduction are closely linked in most countries, with growth the strongest contributor to sustained poverty reduction. Sustained growth requires a combination of good governance, strong investments in health and education, and a robust private sector. In turn these three ingredients form the foundation of the most effective poverty reduction strategies. Of course the specific details and most appropriate combinations will vary across countries, which is why local ownership and direction is so important. The MCA need not fund all the ingredients of a strong growth and poverty reduction program, but rather should be aimed at filling gaps not met by local resources or other donors.”
