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Opinions of Wednesday, 6 April 2005

Columnist: Asenso-Boakye, Francis

The Millennium Development Account - How I see it

The United States has a long history of extending a helping hand to the rest of the world especially in developing countries struggling to make a better life, recover from a disaster or striving to live in a free and democratic country. The history of U.S. foreign development assistance goes back to the Marshall Plan reconstruction of Europe after World War II and the Truman Administration's famous Point Four Program. In 1961, President John F. Kennedy signed the Foreign Assistance Act into law and created by executive order the United States Agency for International Development (USAID), which has since, then been the lead agency in charge of U.S. foreign assistance. The purpose of this paper is to signal the main benefits and challenges of a new U.S. foreign development assistance program.

In March 2002 at the United Nations Financing for Development Conference in Monterrey, Mexico President George W. Bush called for a "new compact for global development", which links greater contributions from developed nations to greater responsibility from developing nations. The President proposed a concrete mechanism to implement this compact -- the Millennium Challenge Account (MCA) which seeks to address the failure of current U.S. development assistance programs to meet their stated goals.

The United States is the largest bilateral donor to the developing world; in 2001, it contributed $10.9 billion (roughly the entire economic output of Kenya) in official development assistance (ODA) to developing countries. Most recipients of U.S. development aid are poorer now than they were before first receiving that aid. According to the Organization for Economic Co-operation and Development, the United States provided $167 billion to 156 developing countries from 1980 to 2000. But for the 97 for which reliable economic data for that period are available, the World Bank reports that median per capita gross domestic product (GDP) declined from $1,076 in 1980 to $994 in 2000. Traditional development aid has been ineffective because it is often directed toward governments that embrace misguided policies that undermine economic development or toward corrupt regimes that steal the money. For example, Nigeria--one of the world's most corrupt countries under a succession of dictators--received over $190 million in U.S. development assistance from 1980 to 2000. Per capita GDP in Nigeria today is $300 (World Bank, 2002). Directing more money to such countries only reinforces the policies that have retarded economic growth, exacerbating their predicament and increasing their dependence on international donors. Recognizing this problem, President Bush specified that the MCA would be "above and beyond existing aid" and, for the first time, would be distributed only to developing countries that "govern justly, invest in their people and encourage economic freedom." The MCA will not replace existing development assistance programs or subtract from their budgets. In fact, President Bush allocated an additional $5 billion, phased in over a three-year period: a $1.7 billion increase in fiscal year (FY) 2004, $3.3 billion in FY 2005, and the full $5 billion in FY 2006 to fund the MCA. As a separate and distinct entity, the MCA is essentially an experimental program that attempts to learn from past mistakes and explore new strategies to improve the effectiveness of future development aid programs. The goal of MCA, which takes inspiration from W.W. Rostow ? an early development economist who advocates for economic growth - is to reduce poverty by significantly increasing economic growth trajectory of recipient countries. This requires an emphasis of investments that raise the productive potential of a country?s citizens and firms and help to integrate its economy into a global product and capital markets. Is MCA another growth and modernization strategy, which has proved unworkable in developing countries and thus received condemnation from dependency theorists? MCA seems to take into consideration some concerns of dependency theory as it strengthens the internal conditions of these countries by supporting agricultural development, education, health, enterprise and private sector development, governance, trade and capacity building.

One important distinctive feature of the MCA not found in other development assistance programs is that it serves as a reward for good policies of recipient countries. Using objective indicators, countries have been selected to receive assistance based on their performance in governing justly, investing in their citizens, and encouraging economic freedom. This provides a morale booster for other developing nations to adopt and implement good policies in an effort to qualify and become MCA recipient country.

Unlike other development assistance programs, MCA recognizes the fact that development must come from the local people and not imposed by people from outside; and as such countries that receive MCA assistance will be responsible for identifying the greatest barriers to their own development and ensuring civil society participation. This could be a break through in the international development because in the past development assistance programs have sought to impose policies and programs on countries without taking into consideration the needs and aspirations of the local people.

In his State of the Nation address this year, President Kufuor argued that the county's qualification for the MCA on two consecutive years is a demonstration of his government success with. A potential problem with the MCA is that given the fact that countries are selected based on good policies, there is a tendency to select countries that are already doing well, thus neglecting the poor in very poor countries who are believed to have bad policies. When this happens then the original goal of MCA will be defeated. Also the fact that MCA serves as reward for good policies provides a good ground for the MCA officials, and of course, the American government to influence the policies of recipient countries. After all what are good policies? And who decides what good policies are? Officials of Millennium Challenge Corporation (MCC) therefore have great incentive to impose what they believe are good policies to the recipient countries which may not necessarily help them in their development process.

Francis Asenso-Boakye
Program in Public Policy and Administration
Michigan State University


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