Millennium Challenge Account

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Participants in the Program; United States as donor is in green, red countries have active compacts, blue countries have active threshold compacts, purple countries are in negotations for either, and pink countries have negotiated threshold agreements and are negotiating for full compacts

The Millennium Challenge Account (MCA), run by the Millennium Challenge Corporation, is a bilateral development fund announced by the Bush administration in 2002 and created in January, 2004.

1 History
2 Criteria for eligibility
3 Eligible countries
- 3.1 Proposals under consideration
4 Implementation
5 Reception and impact
6 References
7 External links

[edit] History

Through this program, the administration proposed to permanently increase United States foreign aid funding by $5 billion by 2005. Countries are selected on a competitive basis through a set of 16 indicators designed to measure a country’s effectiveness at ruling justly, investing in people, and fostering enterprise and entrepreneurship. The focus of the MCA is to promote economic growth in the recipient countries. The program emphasizes good economic policies in recipient countries. The Bush administration has stated their belief that development aid works better in countries with good economic policies, such as free markets and low corruption.

At the Inter-American Development Bank on March 14, 2002, American President George W. Bush calling for a new compact for development with accountability for both rich and poor countries. he also pledged to increase development assistance by 50% by Fiscal Year 2006.^[1]

Early evaluations noted that environmental safeguards would be needed to prevent widespread environmental damage that comes with economic growth.^[2] Before the creation of the Threshold program, there was also arguments to allow countries that narrowly failed the criteria to be allowed to compete for funding.^[3]

For Fiscal Year 2007, 2 billion dollars were provided, a 14% increase over the previous year but still under the 3 billion target.^[4]

[edit] Criteria for eligibility

The program uses a fully transparent method of choosing the recipient countries. All indicators used and the whole process of qualifying are publicly available at the homepage of the MCA. Through this open process, the administration hopes to keep the MCA away from political influence. Other development programs like USAID (United States Agency for International Development) have been thought to have suffered from many different and sometimes conflicting goals, which often are a result of political pressures. On September 11, 2006, two new criteria were adopted for the Fiscal Year 2008 selection process, both of which relate to the environment. They will measure candidate countries ability to provide "clean drinking water, expand sanitation services, streamline the property registration process, and make land rights accessible and secure for poor and vulnerable populations."^[5]

[edit] Eligible countries

In the first year (2004), 17 countries were made eligible for a MCA loan: Armenia, Benin, Bolivia, Cape Verde, Georgia, Ghana, Honduras, Lesotho, Madagascar, Mali, Mongolia, Morocco, Mozambique, Nicaragua, Senegal, Sri Lanka, and Vanuatu. Madagascar and Honduras were the first countries to receive actual funding from the MCA. As of May 2005, Nicaragua, Cape Verde and Georgia are next in line to receive money. On June 16, 2006, The Gambia was suspended from eligibility, citing the deterioration of in 8 of the 16 criteria categories.^[6] Mali was approved in October 2006 for a 461 million dollar program to develop modern irrigation systems and an industrial park.^[7] Jordan was granted full compact eligibility, despite objections from Freedom House for its lack of full political and civil rights.^[8]

Several countries were chosen in 2004 for a new part of the program called Threshold Program Assistance, which are smaller compacts used to assist a country close to meeting account eligibility to become eligible for a full program.^[9] Jordan received a Threshold program aimed at democracy and trade totaling 25 million US dollars.^[10]

[edit] Proposals under consideration

Namibia submitted their proposal to the MCC in October, 2006 which involved improvements in education, livestock production and marketing, tourism, "Green Scheme" and indigenous natural products.^[11] Yemen, having successfully competed a democratic election, hopes to have improved enough to gain account funding eligibility in 2006.^[12]

[edit] Implementation

The funding of Tanzanias compact has been pushed foreword from May 2007 to an earlier date to accelerate reform.^[13] Implimentation has been difficult in Armenia, with concern about effectiveness is currently being discussed.^[14] Mongolia has had a long negotiation period for MCA funding due to its inexperience with such large monetary grants as the MCA gives.^[15]

[edit] Reception and impact

Studies by groups such as the Heritage Foundation have shown that many developing countries that have received foreign aid have seen their per capita income fall, and the Heritage Foundation has consistently supported the MCA's approach, which has also utilized their trade measure from the Index of Economic Freedom.^[16] In April 2005, the United States Government Accountability Office issued a favorable report about the work of the MCA and its work up till that point.^[17] Some critics have charged that the program uses indicators by conservative groups such as the Heritage foundation and are therefore biased toward free market economics.^[18] Congress has consistently provided less funding for the program than the president requested. In Fiscal Year 2004, 650 million USD were provided for the program, with an increase up to 1.5 billion the next year.^[19] Opposition MP's in Uganda hailed their countries rejection from full compact status, demanding instead a stronger effort in stopping corruption.^[20]

Doing Business 2007 cited the Millennium Challenge Accounts as a catalyst for reforms underway in 13 countries.^[21] Also, Freedom House, an organization that monitors the level of freedom in the world, released subcategories for the first time since it was being used as part of the MCC's measurements and more detail was welcome.^[22] Also, the days it takes to start a business in both low and low-middle income countries has increased significently since 2002, which is one of the factors the accounts measure.^[23] Harvard University conducted a study in 2006 that, controlled for time factors, concluded that potential recipient countries improved 25% more on MCA's criteria than other countries.^[24]