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On Wednesday, June 9, the MCC Board of Directors will meet for what is shaping up to be a potentially landmark meeting.  Scheduled for 4 hours, at the request of the Secretary of State who chairs the Board, the agenda is teeming with decisions and updates that will, in many ways, send the first real signals of how the Obama Administration will steer the MCC in its own right and within the broader foreign assistance and foreign policy landscape.  Key country-specific decisions, most notably Armenia, will demonstrate the degree to which the Administration will maintain the unique mission and mandate of the MCC – economic growth assistance to countries with demonstrated (not promised) policy and governance performance – or lump it into a traditional geopolitical-dominated assistance platform.  The Board will also be briefed on the compacts for Senegal and Moldova, expected to be presented for written consent in the coming months, and on the performance of the Threshold Program.  In many ways, this meeting will leave the first imprint of Team Obama on the MCC path.  As the Board treks down that path, it should keep in mind that every step off the path makes it harder and more time-consuming to get back on track toward delivering promised development results.  And that the success (or not) of the MCC to deliver on the promise of more flexible, targeted aid has implications well beyond just the MCC.

A run-down of the key issues to be covered follows, along with my sense of where things will fall out.  It is long, so have a seat and read on:

 Nicaragua and Armenia – Take Three:  The Board will resume its deliberations from March, which were a resumption of deliberations in December, on what to do with the Nicaragua and Armenia compacts.  Given President Ortega’s blatant disregard of the MCC’s conditions for lifting its suspension of the road component of the compact, the Board would be hard pressed not to officially terminate that component, de-obligate the associated funds and put them toward better use in future compacts.  Doing so would be a strong signal that the MCC means business on its performance-based mandate.  Armenia, although a similar case as Nicaragua in terms of government under-performance on a set of conditions required to lift a management hold on the road component, will prove to be a more complicated decision.  One that will more directly test the degree to which the Board squares the unique principles of the MCC – the principles that until now have separated the MCC from the rest of the foreign assistance pack – with significant geopolitical foreign policy interests.  On the one hand, Armenia has been a staunch ally of the U.S. in the region, has a powerful U.S. lobby and is in the middle of delicate peace negotiations with Turkey. From a foreign policy perspective, now is not the time to use any sticks. On the other hand, Armenia has not fulfilled the conditions laid out by the MCC to move forward with the road project, is experiencing further deterioration of political rights and civil liberties post-election, and has run out of the interim finance it put up to continue the road project during the hold.  The Board has several options: 

  • It could lift the management hold and allow the road program to move forward with MCC finance. 
  • It could maintain the status quo, giving more time for Armenia to meet the conditions. 
  • It could elevate the sanctions by officially suspending the road program which ups the level of  publicity (a Congressional notification and public presentation of conditions). 
  • It could suspend the entire compact. 
  • It could terminate the road component and de-obligate those funds. 
  • It could terminate the entire compact. 

I don’t think the Board will or should move toward any extremes.  I suspect there will be great pressure from a few USG Board chairs to refrain from sending any negative signals to the Armenians at this point in time, which would argue for the status quo option.  That would be a shame.  Time is not a luxury the MCC can afford and mission confusion impacts the ability of the MCC to deliver on the development results to which it will be held accountable.  The stakes are pretty high in terms of the reputation and credibility of the MCC if an elevation of sanctions does not occur.  Official suspension of the road component at least sends a signal in the right direction in terms of upholding the MCC’s principles.  Terminating the road component is, in my view, what is merited and would firmly establish the new Board’s standards for expected performance under what was supposed to be a new kind of development assistance.  Swift, decisive action in the face of non-performance and policy deterioration in areas critical to program success, with funds reallocated to countries that are outperforming and/or in the pipeline is the appropriate response from the MCC given its mandate. There are other foreign assistance and foreign policy instruments that can be drawn upon to support Armenia politically.

Teeing Up the Next Set of Compacts:  The Board will be briefed on compact preparations with Senegal and Moldova, both in the final stages and expected to be submitted to the Board for approval via written consent before the end of the fiscal year.  Although both countries are strong performers on the eligibility indicators, neither country has had a smooth path to the finish line.  Senegal, deemed eligible in 2004, got off to a  slow and rocky start with an earlier compact proposal that even Congressman Jim Kolbe, an original architect of the MCC, questioned.  After signals that scarce resources needed to be dedicated to countries that demonstrated serious commitment, Senegal put together a new team and by all accounts has prepared an impressive compact.  Unlike Senegal, Moldova’s path to compact signing was smooth in the beginning and increasingly rocky at the end.  Two issues loom large for the timing of a decision to sign the compact:  the outcome of the presidential election re-do next month and its tier designation in the State Department’s FY09 Trafficking in Persons report June 16th.   A country that fails to make significant efforts to bring itself into compliance with the minimum standards for the elimination of trafficking in persons receives a “Tier 3” assessment in this Report. Such an assessment could trigger the withholding by the United States of non-humanitarian, non-trade-related foreign assistance.  Moldova’s original FY08 Tier 3 designation was upgraded to Tier-2-Watch in October. 

Looking further down the pipeline, FY10 candidates also pose some challenges.  According to a publicly-stated  Board position, Philippines – whose compact constitutes almost half of the MCC’s FY10 budget request -- must pass the control of corruption indicator in order to finalize its compact.  Now, it should be no surprise that the road all countries must travel to MCC compact signing and, more importantly, completion is rocky.  It comes with the territory of working in developing countries in general.  The added challenge required to secure a long-term partnership with the MCC should, however, distinguish a select group of countries who become “development allies” with the U.S. in a mutual quest for global prosperity.  Maintaining a high standard of eligibility and performance becomes a critical ingredient to the incentive effect inspiring countries which is why decisions on Nicaragua and Armenia are precedent-setting.

Reviewing Threshold Program Experience:  The Board will be briefed on the uses, achievements and challenges of the Threshold Program to date.  As most readers know, I have become increasingly skeptical of the utility of the Threshold Program as it is currently designed and used.  Hopefully this briefing will tee up a discussion on the future of the program.  Next week, my colleague Molly Kinder and I will release our own assessment of the Threshold Program with recommendations on its future direction.  In short, our key concerns include the following:

  • By directly funding reform efforts, the threshold program undermines and muddies the core MCC principle that the countries themselves are responsible for their policy reforms and, instead, implicates the MCC itself in countries’ efforts to qualify for the MCC.
  • By focusing on country selection and not compact preparedness, the Threshold Program addresses the wrong problem
  • The Threshold Program vastly overemphasizes the indicators – indicators that are imprecise proxies for policy reform and are fraught with methodological limitations such as time lags and margins of error.
  • The conceptual model of the threshold programs – full implementation of the programs resulting in indicator improvements and subsequent compact eligibility – has simply not borne out in reality.
  • Few countries have experienced statistically or practically significant improvements in indicator performance in the aftermath of threshold program implementation.  Even the few, modest improvements were dwarfed by the sizable improvements in corruption performance in countries such as Tanzania, Ukraine, Indonesia, Niger and Zambia – in time periods unrelated to threshold program implementation. 
  • Because the MCC has not yet completed impact evaluations of the threshold programs, it is not possible yet to assess the impact that the threshold programs have had in catalyzing policy reforms.

Many important items to discuss, each with potential to bolster or dilute the unique principles of the MCC.  Wednesday’s meeting will shed some first real light on Team Obama plans for the MCC and the dynamic between the government and private Board members.  Stay tuned for a read-out after the meeting!

Disclaimer

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.