Ideas to Action:

Independent research for global prosperity


US Development Policy


Post-midterm elections, President Obama is reacting in the same way Presidents Ford, Reagan, Clinton and Bush (43) did to the rough results: road trip!  Obama’s ten-day trip to India, Indonesia, South Korea and Japan shifts attention away from the domestic politics that ruled election day and onto foreign policy. His arrival in Indonesia could also throw the U.S. Millennium Challenge Corporation (MCC) into the limelight.

We’ve already seen President Obama highlight the importance of trade in an interconnected world. He called increased commerce between the United States and India a “win-win proposition for both nations.” My colleague Nandini Oomman commends Obama for crediting India with driving its own development process, but highlights the role that U.S. foreign assistance and trade have played in the process. My hope is that Obama will continue his focus on trade at the G-20 Summit to be hosted in Korea later this week, perhaps even by pushing duty-free, quota-free trade access for the least-developed countries. 

But when President Obama is in Indonesia, I suspect we’ll also hear something about Indonesia’s partnership with the U.S. Millennium Challenge Corporation (MCC). The MCC, one of the flagship U.S. development agencies, focuses on reducing poverty through economic growth in well-governed countries. Following a $55 million MCC threshold program, Indonesia passed the MCC’s indicator criteria for investing in people, economic freedom and ruling justly and was selected as eligible for a full MCC compact in December 2008.

Indonesia is developing a five-year $700-800 million MCC compact that may focus on governance, infrastructure, education and or environmental sustainability (including combating deforestation). While it is far too soon to announce that the MCC and Indonesia will be signing a compact (not expected to happen until the end of FY2011), President Obama may very well highlight the program while he is in Indonesia. And I wouldn’t be surprised if the administration went one step further and tried to announce some kind of MCC-related deliverable. Small funds to support compact development  (aka MCC’s 609(g) funding) perhaps?

The tricky part is that when we ran the initial numbers this year to see which countries pass the MCC’s control of corruption indicator (the one hard-hurdle that all countries must pass to be eligible for assistance), Indonesia drops a whopping fifteen percentage points, and scores in just the 26th percentile compared to fellow lower-middle income countries. In other words: Indonesia fails the control of corruption indicator. By a lot. While a recent MCC legislative fix permits the MCC to evaluate Indonesia against the lower-income candidate pool for one more fiscal year (which would allow Indonesia to pass the indicator), the stark downward trend is worrying. And it raises the question of whether, in a constrained fiscal environment, the MCC can risk spending a large sum of resources in a country that is sliding on the MCC’s good-governance indicators.

The U.S. has a vested interest in Indonesia’s prosperity and stability. And the MCC sounds an awful lot like the principles in President Obama’s policy directive on global development. But is the MCC the right tool, right now, in Indonesia? The best outcome, in my mind, would be a tough-love message from the president that urges the Indonesians to improve their policy performance on control of corruption in order to demonstrate that the country is indeed a strong candidate for a large sum of MCC funds. In this way, he would transform tough-love into the MCC-incentive effect that spurs countries to improve policy performance before they receive U.S. assistance—a smart way to get a better bang for our development bucks!

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CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.