Gradual shifting of funds for US assistance to Millennium Challenge Account pushed

MANILA, Philippines – A policy research paper prepared by a Washington-based think tank is pushing for a gradual shifting of funds for US official development assistance to the Millennium Challenge Account (MCA), which requires greater transparency and accountability from recipient governments.

James Roberts, a research fellow for Economic Freedom and Growth in the Center for International Trade and Economics at The Heritage Foundation, said that funding for traditional ODA programs administered by the US Agency for International Development or USAID should gradually be reduced, with the remaining USAID programs redesigned based on MCC criteria and policy indicators.

“When it comes to spending precious US tax dollars on official development assistance to Third World countries, the Millennium Challenge Corp. (MCC) has a better approach than the traditional foreign aid model reflected in the mostly ineffective and costly programs of the US Agency for International Development,” Roberts said.

He said the MCC programs also encourage private sector-led economic growth, strong protection of property rights, and the rule of law.

Roberts lamented that the Obama administration and Congress have primarily embraced the USAID approach and have made significant cuts in MCC funding.

The US Congress has slashed this year’s funding for the MCC to $875 million, more than 60 percent less than the $2.23 billion requested by the Bush administration for that year.

In its 2010 budget request, the Obama administration included a paltry $1.4 billion for the MCC, while it increased the 2010 budget for the State Department and USAID by seven percent to a staggering $48.6 billion.

Roberts said Congress has already sent worrisome signals in recent FY 2010 budget resolutions that it might further cut the Obama administration’s modest MCC appropriations.

“President Obama says he wants to put the United States on a path to double foreign assistance but, given its lukewarm support of the MCC budget, that means in practical terms that the Obama administration intends to increase spending massively for traditional ODA programs through USAID and other agencies,” Roberts said. “These programs will not produce the value-for-money that taxpayers deserve,” he said.

According to Roberts, the MCC has identified corruption as a critical indicator. “Because corruption undermines every aspect of sustainable development, MCC has made fighting it one of its highest priorities.”

One of the founding principles of the MCC, he said, is to focus “specifically on promoting sustainable economic growth to reduce poverty through investments in areas such as transportation, water and industrial infrastructure, agriculture, education, private sector development, and capacity building.”

The Philippine Economic Management Team has reaffirmed the country’s commitment to the MCC process of addressing poverty reduction through economic growth as it conveyed its readiness to enter into a Compact partnership as soon as possible during a meeting with top MCC officials in Washington last April, when the Philippines’ MCA Compact Status bid for 2010 was tackled.

They met with top MCC Officials led by acting CEO Rodney Bent to discuss the Philippines’ bid for Compact Status in 2010.

The MCC is a US government corporation established to work with developing countries in promoting growth based on the principle that aid is most effective when it reinforces sound political, economic, and social policies.

At present, the Philippines is a threshold country under the MCC program but it can now apply for Compact Status by presenting a five-year program that would sustain its fight against corruption and its fight against poverty.

Foreign Affairs Secretary Alberto Romulo said the Philippines remains on track to receive major grants for key development projects when it was reselected as Compact eligible by the Board of the MCC.

Romulo said the Philippine government was able to successfully address misperceptions about corruption in the Philippines and that “this was a major factor in the decision of the MCC Board to rule in our favor.”

He reiterated that out of 17 policy indicators that the MCC maintains, the Philippines scored above the median in 14 indicators.