The Millennium Challenge Account: A New Way to Conceive of Foreign Aid?

 In the last few years, discussions about the effectiveness of U.

 In the last few years, discussions about the effectiveness of U.S. foreign assistance have intensified considerably, especially in regards to its perceived successes and failures in transforming the former communist countries-particularly the countries of the former Soviet Union-into successful liberal democracies. Since the dissolution of the Soviet Union, the stated goals of the American assistance programs in that region have been to stimulate the development of civil society and the rule of law and to assist with the transition to a market economy. In many regards, the results are short of the initial expectations. 

Indeed, more than ten years after the independence of the countries of the former Soviet Union, it is easy to point out abysmal failures (for example, Turkmenistan and Belarus), but it is impossible to point to true success stories (even though some positive developments can be noted). Many believe that U.S. assistance often had the opposite effect to that which was intended-contributing to corruption and strengthening authoritarian tendencies rather than leading to true economic development and the creation of a civil society. Some people have expressed the opinion that foreign assistance is useless under the conditions that exist in these countries and will always be misused by the corrupt governments. Others, including myself, believe that at least a significant part of the problem has to do with how the assistance programs are administered and that simply reforming the programs can make foreign assistance work positively. 

A major new initiative of the Bush Administration reflects some of the concerns about foreign assistance programs. The Millennium Challenge Account (MCA) establishes new principles for allocating foreign assistance. It aims to channel significant amounts of aid to countries that already meet specific criteria. Thus, instead of trying to influence a government to adopt policies towards greater economic and political freedoms, the new approach rewards those countries that achieve measurable success by implementing their own initiatives. This is a very interesting idea, but the execution of it must be tuned carefully otherwise it may represent just another costly failure. 

One of the problems inherent in the current proposal has to do with the "all or nothing" selection process for the recipients - the countries that qualify receive a very generous package while those countries that are judged just below the cut-off would get nothing. With such an arrangement, the political pressure in favor of some countries may overcome the objectivity of the process. The State Department often fails to meet such tests of its objectivity.  After all, Saudi Arabia was excluded from the list of countries that violate religious freedoms precisely because of political pressure. If a similarly ridiculous judgment was made with regard to the human rights record of a particular country to determine its eligibility for the MCA (while denying access to similar countries), it would void the whole idea because countries would concentrate on getting into the MCA by means of political lobbying rather than by improving their policies. So, increasing the stakes in the selection process may undermine it. A congressional amendment addresses that problem to some extent by setting aside 10 percent of MCA funding for "bridge countries", i.e., countries that fail to meet the criteria just a little. 

Consider, for example, the countries of the former Soviet Union. In his March 2003 testimony before the Senate Foreign Relations Committee, Steven Radelet of the Center for Global Development concluded that only Georgia would qualify for MCA assistance. That is certainly a strange conclusion, because it is hard to understand how conditions in Georgia can be so much better that in many other Newly Independent States (NIS). It is especially striking considering that Georgia is also one of only two NIS countries on the recently compiled State Department list of countries with significant human trafficking problems (the other one is Uzbekistan). Of the other countries, Kazakhstan and Kyrgyzstan fail the test by one criterion, while Moldova and Ukraine are eliminated by a high corruption score. How is it possible for Georgia to have a corruption score that is below Moldova? How is possible that Kazakhstan missed the positive score by just one point when international corruption scandals that involve top government officials are widely known and the persecution of dissidents and journalists there has approached the scale and brutality of the Soviet time.  These questions underline the dangers of aggregate scoring which both hides problems and makes it easier to manipulate results.  

Aggregation also makes it more difficult to deliver effective assistance. From personal experience as an international IT consultant, as well as from the evidence of successful programs around the world, I am convinced that effective assistance most often is delivered in small targeted programs. Large projects usually become a source of income for corrupt officials and over-paid consultants who produce paper studies with no visible result for the recipient country and its people. (This is especially the case when foreign assistance is restricted to U.S. goods and services, becoming a type of corporate welfare for consulting corporations. (Recognizing this problem, Congress removed that restriction from MCA funds.)