Commentary: Using aid to fight corruption

Special to McJuly 11, 2012 

Daniel Yohannes has a tough job – he has to give away about $900 million in U.S. foreign aid each year, but only to countries that fight corruption.

He must also determine that each of the 24 countries that get a piece of his budget maintain high standards in: honest government, free press, immunizing children, educating girls, and letting free markets operate.

Yohannes is the chief operating officer of a little-known U.S. foreign aid agency created by President Bush and the Congress in 2004 – the Millennium Challenge Corporation (MCC).

So far it has spent $9 billion in a new foreign aid system that holds recipient nations accountable. However the first of its 24 long-term programs known as “compacts” are just completing, and the reports on how well they have worked have not yet been published.

For 50 years, the main engine of foreign aid has been the U.S. Agency for International Development (USAID) which in principle helps those who need it most – the poor, the ill, the illiterate and those hurt by storms and earthquakes and famine. Sometimes politics gets in the way and the State Department cuts aid to governments seen as hostile to U.S. interests.

But in 2004, Bush created the MCC to deliver a new kind of foreign aid. First, the MCC would narrow down the list of 100 countries getting U.S. foreign aid to a few dozen that were actually fighting corruption, allowing a free press and letting free markets operate.

Countries that passed the vetting in 16 categories – now raised to 20 -- from democracy to free markets would get a big chunk of change: about $500 million in a compact over five years aimed at really making an impact on that country’s poverty.

MCC put only two people in the field in recipient countries where local boards composed of government, business and civil society would meet and decide how to spend the MCC money.

Some feared that the MCC might diminish the power of USAID which Republicans had tried to kill in the 1990s when they eliminated the U.S. Information Agency. They saw USAID as a bunch of soft-hearted liberals and former Peace Corps volunteers who simply gave away money without being hard-nosed and demanding that poor countries improve governance and let businesses operate freely.

Bush sought $5 billion a year for MCC at a time when USAID’s budget was only $7 billion a year. A rivalry seemed inevitable. However Congress balked at the move and instead crippled Bush’s plans by chopping 80 percent off his request. MCC now gets less than $1 billion a year while the USAID budget tripled to $24 billion with huge programs in Afghanistan, Iraq and Pakistan. Experts want to know if the MCC methods forced recipients to improve governance and invest in people through health and education.

Yohannes explained in an interview the pro-business approach of MCC. Each recipient country must show that they got a return on investment of at least 10 percent of the value of the grant over five years. For every $100 million invested in a road, for example, MCC wants the country to show it generated $110 million over five years.

How does a road show cash return? Through increased traffic, agriculture, business, markets, and other business, said MCC officials. Roads reduce the cost of fertilizer and of transport of harvests to markets.

“Aid is most effective when countries work for themselves,” said Yohannes.

He noted that some countries agree on a program but then don’t abide by the principles. “Sometimes the projects are even terminated,” he said.

Madagascar and Mali were both terminated after coups. Armenia and Nicaragua also had funds placed on hold for arresting journalists and the opposition, or other lapses.

“Look at Mali,” said Yohannes with some degree of regret. “For two decades it had good governance.”

Eight countries completed compacts in the last two years. El Salvador and four others are to complete their MCC programs in the near future.

“Other development agencies talk of ‘input – we gave so many dollars to build a school,’” said Yohannes. “We look at the ability to generate income.”

Much of the MCC cash goes to large infrastructure projects that assist trade, industry and agriculture such as ports, bridges and roads.

“All of our countries create a climate for private investment,” said Yohannes, citing the former Soviet Republic of Georgia as an example: it was 120th in the world in terms of ease of investment and climbed to 18th place as it cut excess regulation as part of MCC conditions.

Yohannes says that as he travels around visiting the countries he works in, he sees that the American way of doing business is catching on – that governments are now more transparent in their procurement processes.

Yohannes says the MCC requires that each country set aside money for maintenance after the projects are completed.

Some at USAID, where I worked from 2003 to 2010 as editor and senior writer at the newsletter FrontLines, worried that the MCC would take the low-hanging fruit and deal with the best-performing developing nations while USAID would be left with the basket cases.

USAID was even given the task of helping some countries that were just below the threshold for MCC grants improve their levels of democracy, free markets or other MCC criteria.

Asked if MCC was a rival to USAID, Yohannes said: “No. There is not competition with USAID.”

“Our job is to reduce poverty by economic growth. We do not do food, medical, and conflict” related aid, which USAID handles. “We complement USAID.”

Asked if MCC had made mistakes along the way, Yohannes admitted some.

“In Morocco, we had a $700 million compact in too many sectors and all over the country,” he recalled. “The compact started before there was a ‘due diligence’ policy in place.”

Now projects are sector specific and focus on two or three sectors such as water, energy or agriculture.

“We make sure prep work is done before the compact enters into force,” said Yohannes.

Sarah Jane Staats, an aid expert at the Center for Global Development in Washington said that “in this shrinking budget environment there is competition across the board – resources are scarce.”

Asked if MCC was performing well in its niche brand of foreign aid, Staats said: “It is too soon to tell – it is early to know what mid course corrections are needed.”

“The big accomplishment of MCC is largely its approach. It only selects countries that demonstrate policy performance. It is a huge departure from U.S. and global aid programs.”

The big test for MCC is to see whether these countries will revert back to old anti-democratic and corrupt practices once the U.S. project is over or fall back into the old patterns of coups, corruption and repression.

Development, some say, is an evolutionary process that can take centuries, even in a world of high speed communications. MCC is the latest bid to jump-start that process.

And the verdict on its success is not yet in.

ABOUT THE WRITER

Ben Barber has written about the developing world since 1980 for Newsday, the London Observer, the Christian Science Monitor, Salon.com, Foreign Affairs, the Washington Times and USA TODAY. His photojournalism book — GROUNDTRUTH: Work, Play and War in the Third World — is to be published in 2012 by de-MO.org. To view his fundraising site for the book please go to: http://www.kickstarter.com/projects/562206481/groundtruth-at-work-play-and-war-in-the-third-worl?ref=email.

McClatchy Newspapers did not subsidize the writing of this column; the opinions are those of the writer and do not necessarily represent the views of McClatchy Newspapers or its editors.

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