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- 05/12/12: Commencement Address by Dr. Rajiv Shah, USAID Administrator, at the School of International Service, American University
- 05/11/12: Baccalaureate Address by Dr. Rajiv Shah, USAID Administrator, at Tuskegee University
- 05/08/12: Remarks by Nancy Lindborg, Assistant Administrator, Bureau for Democracy, Conflict & Humanitarian Assistance, at the International Food Aid and Development Conference - The Role of U.S. Food Assistance in Building Resilience
- 04/30/12: Remarks by Donald K. Steinberg, Deputy Administrator, at the Interaction Forum 2012 - The Democratization of Development
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This is an archived USAID document retained on this web site as a matter of public record.
Testimony of Andrew S. Natsios,
Administrator,
U.S. Agency for International Development
Millennium Challenge Account
Before the Senate Foreign Relations Committee
March 04, 2003
Thank you Mr. Chairman and Members
of the Committee for holding this important hearing on the Millennium Challenge
Account (MCA) in such a timely
fashion. We look forward to continued
close cooperation with you and your committee as we move ahead to establish
what I believe is a revolutionary new development initiative.
I would like to thank Under
Secretary Larson and Under Secretary Taylor for the excellent summary of the
evolution of the MCA and analysis of key issues and philosophy that stimulated
the initiative. I will focus my remarks
on three key areas:
- how the experience of USAID and other development
institutions has shaped the MCA;
- how we see the MCA complementing the work
of USAID and refocusing USAID priorities; and
- our vision for how the MCA
will be implemented in the field.
I would like to preface my remarks
by underscoring two points made by Under Secretary Larson. The first point is that the process for
developing the framework for the MCA and the legislation has truly been a model
of interagency coordination. Thanks to
the active involvement of key departments and agencies, we were able to
coalesce the comparative advantages of those parts of the government already
deeply involved in bilateral and multilateral assistance programs. The State Department coordinated outreach
with key international and domestic constituencies; the Treasury Department,
which has responsibility for the multilateral development banks, played a
central role in developing the indicators; USAID, based on its extensive field
experience, offered ideas and proposals on the framework and implementation of
the MCA. Together, our ideas have been
drawn on, and in many cases adopted, as fundamental principles of the proposed
new account.
I would also like to underscore the
point that we need to see the MCA as only one piece of an unprecedented and
concerted commitment of President Bush to increase and improve the
effectiveness of foreign assistance. It
began with his efforts to forge a new international consensus on development at
the Monterrey Financing for Development Conference a year ago and the proposal
for the MCA. At the heart of that
consensus is that the donor countries will work to mobilize more money for
development, while developing countries take more responsibility for creating a
sound policy environment. Last month
the President submitted a budget to Congress requesting a dramatic increase in
the 150 account of development and humanitarian assistance from $7.7 billion in
Fiscal Year 2002 to over $18 billion by Fiscal Year 2008. Much of that increase will go toward urgent
crises, such as stemming the global HIV/AIDs pandemic. But it also includes as much as $20 billion
for MCA, beginning with $1.3 billion in Fiscal Year 2004 and stabilizing at $5
billion per year by Fiscal Year 2006. It
is clear that this Administration has taken development off the back burner and
placed it squarely at the forefront of our foreign policy.
From
the perspective of USAID, the MCA is a welcome and bold initiative that will
complement and provide a model for our mission. We see USAID’s role as key in the President’s all-out campaign to
attack the scourge of poverty by stimulating economic growth, promoting
democracy and investing in people. But
USAID is only one piece of what is now becoming a more coherent and coordinated
United States development strategy. For
the first time, we have the opportunity to articulate and implement a U.S.
strategy that clearly and accurately defines our different challenges and matches
the right tools to address them. MCA
will play a critical role in this process as we begin to redefine U.S.
development assistance to address the very different challenges we face today.
The Roots of the MCA
The MCA symbolizes a dramatic
turning point, both in putting into practice what we know works in development
and in elevating development as a fundamental aspect of our foreign
policy. As both Under Secretaries
Larson and Taylor suggested, the MCA is the direct outgrowth of what USAID and
other development actors have learned over the past fifty years. We not only have considerable first-hand
experience about what has worked and what hasn’t, but we also have the benefit
of considerable recent analysis by the World Bank and leading analysts that
support this experience. Put simply,
economic development assistance in poor countries works best when you are
pursuing good policies that are conducive to growth. We know that good governance, policies and institutions are key;
real country ownership is also essential. And we know that performance must be measured using rigorous and
unbiased indicators These are
the foundations for the MCA.
A recent World Bank paper
summarizes the key themes of what has become a consensus among development
specialists worldwide: "The collective record of the past yields three main
lessons. First, good development outcomes require good policies and
institutions. Second, if development
progress is to be sustained, the underlying policies and institutions must be
country-owned and country-specific. Third, when these conditions are in place,
development assistance can be highly effective." The MCA criteria of good governance, economic freedom, and sound
investments in people are indicative of the policies and institutions that
determine a country’s development success.
We know that money will not solve
the problem of bad policy. The fact
that it is not the quantity of aid that counts, but the quality, was at the
heart of the debate in Monterrey. We
know that throwing money at the problem, or meeting "ODA quotas" is not the
answer. The MCA also recognizes that
foreign aid can, at best, play a supporting role in a country’s development; a
country’s commitment to help itself is the primary determinant of success. We
know that private capital flows far outweigh development assistance, and that
in the age of globalization, developing countries can undertake reforms that
value private trade and investment for development.
We believe a key aspect of
persuading countries to improve their policies or institutions is to provide
the right incentives. This is why USAID
actively promotes the principles of rewarding performance rather than promises,
rewarding good governance, establishing local ownership, civil society and
private investor participation, and streamlining the assistance delivery
process, all of which are reflected in the MCA.
I want to highlight in particular
the critical importance of governance. The emphasis on governance in the MCA
reflects a fundamental lesson we have learned through hard experience; no
amount of money from afar can compensate for or overcome corrupt local leaders
or the absence of political will. Overcoming poverty and fostering growth requires governments to become more
transparent, inclusive, lawful and responsible to their citizens. Money can’t buy this commitment or these
kinds of reforms. There needs to be the
will to actually pursue these goals. These kinds of reforms, however, can be supported, encouraged and even
reinforced by rewards for governments that are moving in this direction. Good
performers should be tangibly rewarded with increased development assistance
from the international community, incentives for foreign investment, and trade
liberalization. Democratic, accountable
governance with responsible economic policies should bring immediate and
sustained benefits.
This is one of the reasons why MCA marks a
revolution in foreign assistance. Because MCA countries and institutions will have demonstrated capacity
to achieve results, the new Millennium Challenge Corporation (MCC) will be able
to employ a new way of doing business that relies on host country institutions
to manage development activities.
Relationship to USAID
The revolution does not stop with
the MCA. It has just begun. The themes
of the critical importance of governance and country ownership, the emphasis on
performance and accountability, must infuse all of our development
assistance. That is why, working under
the inspired leadership of Secretary Powell, we initiated a series of reforms
at USAID two years ago. We knew that the major changes of the past decades had
dramatically altered the landscape for development and that we needed a new
direction for U.S. foreign assistance, and hence produced the recent report, Foreign Aid in the National Interest. We took up the challenge of drawing these
lessons together to begin to formulate the outline for a new framework for US
foreign assistance.
We had already begun making some of
the changes in USAID suggested by the report, incorporating lessons learned,
such as making governance an essential cross-cutting theme, and adopting
strategic budgeting approaches as we reorient ourselves and adapt to the current
challenges. USAID, however, is only one
piece of the picture of USG foreign assistance. As you well know there are numerous U.S. departments and agencies
- the State Department, the Treasury Department, the Department of Defense, the
Peace Corps, to name only a few - that all have different roles and objectives
in providing assistance. Putting these
different pieces altogether, many of them with very diverse mandates, is no
small task. Indeed, the MCA is the
cornerstone of putting America’s foreign aid back in order: renewing the focus
on economic growth, integrating the nation's foreign affairs expertise, and
mobilizing new resources for development.
This is why the MCA, which has
boldly and forcefully articulated a new vision for development - with the
resources to support it - has such a critical role to play in stimulating and
focusing the debate on foreign assistance. Not only is it driving the debate in the United States, but it has also
grabbed the attention of our international colleagues, who are all watching the
progress of the MCA with great interest. It presents all of us who care about development with both a strong
challenge and a historic opportunity. It gives us a clean slate to make the case to the American public and
the international community that development is critical to global stability
and that it can work.
To those who have questioned
whether USAID feels threatened by the MCA, I would answer, to the
contrary. We welcome the MCA as the
strongest possible commitment by the Administration to making development a
core element of our foreign policy. Not
only does it embody the right philosophy and approach to development and
potentially provide a model for development, but it also gives USAID the
opportunity to clarify its role and better focus its activities within the
context of a coordinated U.S. development strategy.
We view the MCA as our leading
edge, targeted on spurring growth in the best performing poorest countries,
providing the level of resources that can really make a difference in moving
them to a higher growth trajectory. It
will rely on country institutions - investors, business people, political
leaders and civil society - to design and lead the economic growth of the
country. But MCA, due to its strict
criteria, will only assist a limited number of countries. That leaves the large majority of the
developing world to USAID and other agencies and actors.
Given our strong interest in
supporting and complementing the Millennium Challenge Corporation, USAID has
been reviewing its portfolio to determine the best way to organize itself both
to support the mission and operations of the MCC and to fulfill our mandate to
help a wider range of developing countries. In addition to providing support that may be needed in MCA countries, we
believe that USAID should focus activities on four broad groups of countries:
(1) countries that just miss getting into the MCA; (2) the mid-range performers
with the will to reform; (3) failed or failing states that need post-conflict,
transition or humanitarian assistance; and (4) countries requiring assistance
for strategic national security interests.
I would like to highlight our
belief that the central objective of focusing on performance, particularly
responsible governance, and focusing on good performers must infuse all our
development efforts - not just the MCA - and those of other bilateral and
multilateral donors as well. This is the way that MCC can serve as a model for
all of our assistance programs.
In the first group of countries,
USAID will concentrate on the specific areas needed to help a country become
eligible for MCC funds. For example, if
a country just missed on the investing in people area, USAID would concentrate
its programs in that area to help it qualify for MCC funds in a future
round. In the second group of countries
which are unlikely MCA candidates in the near term, we will need to assess the
commitment to political and economic reform.
Where such a commitment exists, we
will concentrate on building local capacity and institutions that can support
the foundation of MCA assistance, i.e., ruling justly, promoting economic
freedom, and investing in people. For
those countries that lack such a commitment, we will continue programs that
address global issues such as HIV/ AIDS and environmental degradation, but will
need to review broader development assistance. We are already beginning this
process of applying an MCA lens to our country programs, informing resource
decisions with analysis of democracy and sound governance.
In the third group USAID has
responsibility for countries and situations that do not lend themselves to
assistance guided by MCC criteria, such as in failing, failed and conflict
states. As the National Security Strategy states, "America is now threatened
less by conquering states than we are by failing ones." Fully two-thirds of the countries where
USAID works have suffered violent conflicts within the last five years. We know that conflict is complex and that
interventions must focus on multiple dimensions. We are actively developing new assistance models that will
integrate emergency relief and food with transitional assistance, governance
investments and civil society building. We must approach these states with targeted, flexible support that
emphasizes conflict prevention and the nesting of short, medium and long-term
issues in our program designs
Humanitarian assistance also
remains central to USAID’s portfolio. Originally designed to respond to natural
disasters, humanitarian interventions are increasingly necessitated by complex
emergencies caused by conflict, failed and failing states. We restructured our humanitarian assistance
to create a new Bureau of Democracy, Conflict and Humanitarian Assistance to
make sure that democracy and conflict are at the heart of our response to
failing states. We have also increased
our funding levels. Recognizing the
need for greater flexibility in responding to humanitarian emergencies and
failing states, the President requested a new contingency fund to facilitate
the quick response that is critical in emergencies.
Finally, USAID will continue to
respond to needs in countries of strategic national importance or transnational
threats recognizing that the primary objectives typically fall under national
security and foreign policy more than development. These political challenges will continue to arise, frequently
related to the war against terrorism. As much as possible they are funded out of Economic Support Funds (ESF)
or other assistance. USAID will work
quickly, flexibly, and effectively to achieve overall U.S. Government
objectives.
In addition
to adapting our programs to support and complement the MCC, there are of course
other ways that we will be working closely with the MCC. Foremost will be detailing staff to the
Corporation. We view the long
experience of USAID’s development professionals as an invaluable asset to the
new corporation. As I will outline
below, we also envision that USAID support to the MCC in the field will be
required, given the lean staffing currently envisioned.
On the broadest policy and programmatic level, I expect to coordinate closely with the CEO of the MCC, given our complementary roles. This will be paralleled by coordination on a programmatic level. While some have questioned whether the establishment of the MCC doesn’t complicate our development efforts, I would suggest that today’s reality is already a complicated one. There are many actors involved in development. The addition of the MCC, which brings such significant and welcome new resources applied to the best development practices, has the opportunity to bring greater strategic focus to our entire development framework.
Implementation
Turning to the question of how the MCA will actually be
implemented in the field, I need to preface my comments by saying that very few
of the details have been worked out. However, I will try to lay out a very broad vision for you of how the
MCC might work, subject to revision, once we get the Corporation up and
running.
MCA
programs will be founded on a partnership and be very focused on one or two key
strategic objectives that the country has identified as their top priority to
stimulate growth. In order to develop a
proposal, we are asking countries to engage in a consultative process with all
the relevant civil society and private sector groups. One of the central principles of the MCA is that it be a transparent
process from start to finish. This is
why it is important that the initial phase of developing a country proposal set
the tone and foundation for the development partnership. While the process may vary considerably from
country to country, the themes of transparency and country leadership and
ownership of the proposal are critical.
In some
cases, technical assistance may be required to help a country develop a
proposal, which the MCC could offer. However, the country will be managing the process; it will not be a case
of the MCC hiring consultants to develop a proposal it wants.
If a country’s proposal is selected, a country contract would be negotiated between the MCC and government. This does not
imply that those funds will only go to the government. To the contrary, it is anticipated that MCC funds will go to a variety of national and community actors and alliances. However, the government will sign the agreement with the MCC and have overall responsibility for managing and overseeing the contract. The reason we chose a contract approach is to underscore that both parties have an obligation to meet the terms and conditions outlined in the contract.
We anticipate that MCC funds will mobilize a variety of economic actors in each country; to the extent that a development result requires a public sector investment (schools or roads), funds would be channeled through the government. However since economic growth inevitably depends on the activities and investments of the private productive sectors, community groups and civil society organizations, we expect that these institutions would also participate, and even implement the bulk of the investments. In all cases, we expect that MCC funds would be disbursed directly to the institutions implementing activities under the MCC contract through the most flexible, but accountable mechanisms.
If a country selected for MCC funding has a USAID mission and program, we would likely undertake a strategic review of the program.In many cases, we would see the USAID program transition to support the MCC contract. Some programs, such as those fighting HIV/AIDS or trafficking in persons, might well be continued, while others might logically be phased out or incorporated in the MCC program. Indeed, one of the ways that USAID will complement the MCC is that we have the ability to address regional issues, such
as disease, water resources, transport linkages, etc., that the MCC, by virtue of being country-specific, cannot.
One of the basic premises for implementation of the MCC is that it should be demand-driven. We do not want to prescribe the mechanics of how activities would be implemented. I would anticipate that it will vary considerably from country to country, knowing there are no "cookie-cutter" approaches that will work across the board. However, the goal will be to employ simple implementation mechanisms that require less oversight and less U.S. management than traditional projects. There are a variety of
mechanisms for spending the funds, such as contracts or grants, but these could be managed by the host country, following their policies and procedures.
Because the management approach of the MCC will be to employ local institutions for country development, it is appropriate that the MCC, too, rely heavily on strong local institutions for the in-country expertise it requires. Economic and financial analysis of specific MCC investments can be contracted locally. Technical advisory services to the MCC can be contracted locally. Monitoring and evaluation can largely be contracted locally. Therefore, we anticipate that the full-time presence of US government employees needed to manage the MCC can be significantly reduced.
Even though we envision a strong reliance on local institutions, there will still be a need for limited MCC staff presence in the field to facilitate, manage and oversee the partnership. Due to the limited staffing, we anticipate that the Ambassador and Embassy staff will play a strong supportive role of the MCC. We also believe that USAID field staff, with its development expertise and knowledge of local culture and context, will play a key role in supporting the MCC.
USAID presence in the field has rightly been repeatedly recognized as its strongest suit. Thirty years of development experience has taught us that country context matters a great deal. I can imagine that our very capable field Missions could provide critical support to the MCC, helping to work with local partners, finding creative, local solutions to problems, and
generally facilitating the work of the MCC. The basic USAID activity in many of the likely MCA countries has been knowledge transfer and building local capacity and institutions. In some cases, continued USAID programs in institution building may be necessary for a time to further build country capacity to manage MCC programs and resources. As I have tried to emphasize, while I believe USAID will have a key role in supporting MCC programs, we do not want to adopt a black or white approach to how USAID will relate to the MCC in every country; rather we think each country will need to be reviewed on a case-by-case basis
Conclusion
As I mentioned earlier, there are many practical details to be worked out, which the CEO and MCC need to be involved in and will be best equipped to solve. However, I think we have developed a strong vision of key principles for the MCC. I began by saying that we believe the MCC marks a revolution in the U.S. approach to development assistance. It will help clarify the mission and objectives of foreign assistance, it will provide greater policy coherence by integrating foreign policy expertise, and it will mobilize more resources to help make development truly sustainable.
Spurred by the proposal for the MCC and the changes in the developing world, we are forging a better understanding of foreign assistance and its numerous different goals - the developmental goals, the humanitarian goals, the policy goals, trade-related goals, security goals, etc. We are beginning a process of articulating these goals and matching them with appropriate resources and programs, and developing a strategic approach to US foreign assistance.
For USAID, the MCC has the potential to provide a great model. It is a golden opportunity to prove that development, done right, can work. I urge your favorable consideration of the legislation and look forward to working with you in the weeks ahead.
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