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Senate Good to Foreign Aid; Not So Good to Millennium Challenge Account

September 10, 2007
On September 6, the Senate, by a margin of 81 to 12, approved a $34.2 billion FY08 State, Foreign Operations and Related Programs Appropriations bil. While the Senate and House bill provide the same overall funding level -- $3 billion above the FY07 CR level and 2 percent or $700 million less than the Administration's request -- there are specific acccount funding and policy differences that need to be negotiated by a conference committee. One such funding account difference is the Millennium Challenge Account, where the difference between the Senate bill's $1.2 billion and the House bill's $1.8 billion appropriation will need to be reconciled. The reason for such a low Senate appropriation? Discomfort over large, undisbursed obligations when there are immediate needs for foreign aid elsewhere. Senate staffers claim to support an overall funding level that covers the four compacts expected to be finalized between now and end-FY08 -- Tanzania, Burkina Faso, Namibia and Mongolia. At currently projected levels, however, $1.2 billion does not cover those compacts. The impact will most likely hit Burkina Faso where hard-fought reforms achieved will go unrewarded. More specifically, the Burkinabe who have been both making progress on an MCA Threshold program and working with the government to prepare a compact would need to wait another year to receive funding. The Senate's proposed solution? Instead of increasing the overall funding level, the Senate approved unanimously an amendment by Senator Lugar (introduced by Senator Leahy) that changes the current stipulation requiring the MCC to obligate the entirety of the funds for approved compacts at the time of their signing to require that "not more than 50 percent of the entire amount anticipated for the duration of the compact" be obligated upfront. That does a couple of things. First, it technically allows the MCC to sign compacts with the four countries cited above, and more. (Although it remains unclear whether the MCC would, or should, take that path.) And, going forward, it would make the overall balance sheet optics a little better – reduces the current '"wow factor" of what are now large undisbursed balances which, theoretically, reduces the “poachability” of the MCA come budget time. The simple reality from the perspective of appropriators is that even if they support the concept of the MCA, they will see the opportunity costs (needs today) of hundreds of millions of dollars waiting to be spent in the future. And yet, the MCA was specifically designed to challenge the business-as-usual allocation and appropriation systems of US foreign aid. The Lugar amendment removes a key innovation in the MCA program -- the predictability of aid – purposefully accommodated in the MCA’s design based on internationally-endorsed development effectiveness lessons. The idea was that countries that performed well enough to get into the MCA program, that then worked with their citizens to design a credible development program, and that met performance benchmarks during implementation would know with certainty that funding for the program they designed was guaranteed and was not at risk of being redirected to other foreign aid programs. Countries have been told that this “predictability-with-performance element” distinguishes the MCA program from USAID and countries have responded. Removing this innovation could impact how incentives for sustained reform work. So it comes down to two big questions. One is a question of risk – how likely is it that the remaining 50% of compact funding would not be available when needed? On the one hand, I can’t think of any example of the US not fulfilling its bilateral aid commitment. On the other hand, the risks of redirection are real -- the lion's share of US foreign aid goes to ten countries, the majority of which are geopolitical allies in the war on terror or drugs. A rising deficit will continue to put pressure on international affairs spending, and maintaining political allies has trumped development spending to date. And the weightiest question of all? What will it take to convince Congress that global development is a national priority – the right and smart thing to do – and that the MCA program, including its unique funding obligation construct, should be given a chance to demonstrate its effectiveness. Potentially the greatest innovation of the MCA is that it creates a new kind of political ally – America’s model partners in the war on global poverty and instability. Some Congressional staffers believe that the amendment is necessary to protect both future MCA funding levels and the reputation of the MCC by allowing it to continue negotiations with countries in the final stages of compact preparation. Maybe. But the cost is the very core of what distinguished the MCA from the pack. Proceeding along these political lines is a slippery slope toward programmatic conventionalism. Instead, Congress could have provided an amendment to allow for concurrent compacts which could address the same irritation in a more pragmatic and programmatically-relevant way. I'm not convinced that the Lugar amendment is the right approach to saving the MCA. What I am convinced of is that it's time to rebuild -- not just reform -- US foreign assistance more broadly, and to keep the MCA program and its principles as a cornerstone and critical component of any final strategy.

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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.

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