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F.W. Schieck: The New U.S. Compact for Development
Written by Frederick W. Schieck, U.S. Agency for International Development (USAID)
Tuesday, June 18, 2002
Delivered at an International Symposium on the United States and the United Nations, “Governance and the Challenge of Contemporary Crises,” June 18-19, 2002
Only three times since the end of World War II has a president gone to the American people and announced significant new foreign assistance initiatives. President Harry S. Truman appeared before a Joint Session of Congress on March 12, 1947, and warned the country of the grave threats facing Greece and Turkey. The aid we subsequently sent to those countries would prove vital to their survival as democratic states. His speech also marked a historic shift away from the peacetime isolation that had been our policy since the time of Washington’s administration and toward the international engagement we have maintained ever since. Almost three months later, Secretary of State George C. Marshall would give his famous commencement speech at Harvard College. This launched the Marshall Plan and set the nations of Western Europe on the road to economic recovery and political integration.
The second time a president launched a major foreign assistance program was at the height of the Cold War, in March 1961, when President John F. Kennedy announced the Alliance for Progress. Kennedy followed this later the same year with an executive order that created the United States Agency for International Development.
The third such speech was on March 14, 2002 given by President Bush in which he announced the Compact for Global Development and the Millennium Challenge Account. I would like to highlight a number of key thoughts presented by the President.
The first is our country’s long tradition of fighting poverty and helping those in need. As the President said, poverty casts a dark shadow across a world that is increasingly illuminated by opportunity. Half the world’s people still live on less than $2 a day. For billions, especially in Africa and the Islamic world, poverty is spreading and per capita income is falling…. This growing divide between wealth and poverty, between opportunity and misery, is both a challenge to our compassion and a source of instability. We must confront it. We must include every African, every Asian, every Latin American, every Muslim in an expanding circle of development.
Poverty, of course, did not cause the events of September 11. Most of Al Qaeda’s leaders, as you know, came from well-to-do backgrounds. But, as the President cited, “Persistent poverty and war and chaos created conditions that allowed a terrorist regime to seize power. In many other states around the world poverty prevents governments from controlling their borders, policing their territory, and enforcing their laws.” Thus the second point is the relationship between poverty and national security, a relationship that the events of September 11 have underscored.
A third point noted by the President is that our foreign assistance has not always produced the results that we would like. When nations have not enacted sound policies, progress in alleviating poverty is slow, if not nonexistent. In such situations, there is the danger that economic aid money may well end up subsidizing bad policies, delaying reforms, and crowding out private investment. In many poor countries, corruption runs deep. Monetary and fiscal policies are unsustainable and private contracts are unenforceable. Thus, aid which is not accompanied by legal and economic reforms does not produce expected benefits.
Improving the effectiveness of our economic assistance programs is USAID’s single highest priority. To this purpose, we have reorganized the Agency around four new pillar bureaus, giving our programs a tighter focus. We are promoting trade and economic growth because countries need long periods of sustained economic growth to develop. We are giving new emphasis to agriculture and rural development, training farmers in modern technology so that they can take advantage of an increasingly open global trading system. It is also important to note in this respect that three-quarters of the people in the developing world are farmers or herders and live in rural areas. It means investing in health and education, too, particularly for women and girls. We are also building new alliances with a host of private sector partners, pooling our experience with their energy, ideas, and financial resources.
With respect to the Millennium Challenge Account itself, it will be a new account. It will not replace existing foreign assistance programs in countries selected or not for participation in the MCA. In fact, we will have as an objective under our programs in countries not selected for MCA to help them advance to the stage where they can become eligible. MCA will add significant new resources to the U.S. economic assistance account, making it potentially the single largest increase of its kind in our nation’s history.
The main goal of the MCA is to promote economic growth and poverty reduction in developing nations that have made strong commitments to ruling justly, investing in people, and promoting economic freedom. MCA funded programs will be designed to help countries that have made commitments to further improve their performance so that they can attract trade, investment, and private capital flows to their economies. Currently a number of inter-agency committees are at work to define key components of the MCA. Target completion dates for various components of the plan have been set. While it is too soon to have details related to much of how the MCA is to work, I can lay out for you some of the approaches that are under discussion at this time. The projected size of the account will enable relatively large investments to be made in programs aimed at accelerating economic growth and reducing poverty. As a result, there will be a wider range of opportunities to identify activities and programs that can be supported. And, most important, we will have a chance to lift more people out of poverty than under any previous development program.
A key step in putting the MCA into operation, apart from actually having funds appropriated of course, is to define the criteria that will be used in determining good country performance in three broad areas: ruling justly, investing in people, and encouraging economic freedom. Performance in such areas as respect for human rights, functioning of judicial systems, commitment to attacking corruption, improvements in education and health status, regulatory frameworks, and economic growth will be important indicators. This is a complicated undertaking, and even when the identification of criteria is completed, there will be the difficult process of deciding how to weigh performance among the indicators. We do not expect that all countries will receive high marks across the board, which means that there will have to be some way to balance and compare performance.
Another and also very important need is to identify the modalities related to managing the MCA, including defining the types of activities that will be funded. I can say something about our initial thinking here. First, we expect that MCA funds will be provided on a grant basis only. This will not be a loan program with recipient countries, although it is possible that some funds could be channeled through intermediate financial institutions for on-lending to targeted beneficiaries (e.g., small businesses). Second, MCA will be largely a bilateral program, although we might possibly finance programs in conjunction with the multilateral development banks. Thirdly, provision for data collection and performance review will be built into the programs, and, finally, the investment needs and growth potential of the selected countries will determine the allocation of funds.
Possible investment sectors for MCA encompass a wide range of interventions. Examples include:
• Public Management: to strengthen national efforts to consolidate rule of law, combat corruption, and protect and promote democracy and human rights.
• Entrepreneurship: to expand the entrepreneurial business class through small business development programs (training and financing), and removing regulatory impediments.
• International and Regional Trade: to promote activities that will open domestic markets to international and regional trade, including financing specific projects to increase trade of commodities and services and providing technical assistance to help countries accede to the WTO.
• Agriculture: to expand domestic agricultural marketing and trading networks; strengthen domestic agricultural education, research and training facilities; promote agricultural technology improvement and transfer; develop and deepen rural property rights and private ownership of land; and strengthen financial services available to farmers and agribusiness facilities.
• Education: to finance expansion, improvement, and reform of educational systems with a particular focus on girls’ education.
• Health: to expand basic health coverage and prevent disease, and,
• Finance and Business: to strengthen macroeconomic management and bolster financial and business sector capabilities.
This list encompasses many potential activities, but there is one underlying theme applicable to all and that is the goal of economic growth and poverty reduction. We want to finance programs that will directly contribute to achieving this goal, and we believe that the prospects for being successful in this respect are greatly enhanced through the choice of recipient countries that have demonstrated performance. It will be important to have flexible tools including the ability to design programs in-country so that MCA programs will address actual needs.
We expect that our government will have many partners in implementing the MCA. In the first instance, MCA will engage in and emphasize cooperation with governments at both national and local levels. Where government performance has been good, we want to strengthen that performance. The various US government agencies offer important expertise and experience that should be made available. Similarly, US and local universities can offer technical expertise and provide sources of training for scholarship recipients.
International and local NGOs can be expected to participate in a wide range of country activities. Private firms will have significant roles in supporting local business development, investment management, and trade facilities as well as, in the broadest sense, serving as a source of expertise on a wide range of topics. Volunteer and faith-based organizations (such as the Peace Corps, IESC, Freedom Corps) can play supporting roles in MCA programs. Foundations, public international organizations, and international financial institutions could provide financing, in partnership with MCA, in areas of mutual interest.
President Bush’s Millennium Challenge Account initiative represents a bold new approach to what we have been working on for many years. We have seen success, but we have also learned that if political will is lacking in recipient countries, and if their policy structures are such that individual initiative to invest and create jobs is discouraged, then development is slow to nonexistent. Therefore, MCA represents an opportunity for the US development community, public and private, to focus on performance as the base on which assistance programs are built. There will be sufficient funding to make a difference.