The Armenia Decision: The Carrot that Should Have Been the Stick

On December 19th, the MCC Board approved a $235 million compact with Armenia. Seeing as how the government of Armenia didn't take very seriously the advice offered by the MCC in September or the concerns expressed by Freedom House and Open Democracy, the approval came with a stern warning from CEO Danilovich:

“MCC is concerned about the government's lack of transparency and commitment to open and fair elections in the recent referendum. I have expressed those concerns to President Kocharyan and look forward to working with the government to protect Armenians' ability to participate fully in the electoral process. MCC was designed to reward and work with nations that take the hard steps necessary to create a policy framework to spur economic growth and reduce poverty. Consequently, Armenia's continued participation in the Millennium Challenge Program depends on its good performance in ruling justly, investing in people, and encouraging economic freedom. MCC will continue to monitor Armenia's policy performance in these three categories throughout the life of the Compact.”

The use of the carrot vs. the stick has always been a dilemma in foreign aid. The optimist in me had great hopes that one sign of the MCC's innovative model would be its ability to say no -- to demand measurable performance before approval, instead of approving on the hopes that performance will be addressed later (and, fingers-crossed, before the first significant disbursement). This modus operandi is old-school foreign aid. At a minimum, the measures laid out by the MCC to demonstrate Armenia's commitment to addressing slippages could have been time-bound and measurable. Better still, the MCC could have said, "show me the commitment before we show you the money."So, why the carrot vs. the stick? Some folks say the MCC was under pressure to approve more compacts to show Congress they are truly operational. Some folks say it was political pressure to support a strategic ally. Some folks say Armenia really does have an innovative poverty reduction and growth strategy worthy of incentivizing. And some folks say there is still time for tough love from the MCC in terms of withholding disbursements if there is no progress on the measures they laid out. I would love to hear what you all are thinking...how you reacted...and whether you think there is still scope for tough love.