The Challenges of the Millennium Challenge Account

One of the most innovative ideas in recent years of how to deliver aid more effectively is the Millennium Challenge Account. It is based on several sensible principles:

1. Choose countries with a demonstrated record (not promises) of decent governance and reasonable health, education, and economic policies;

2. Give those countries greater say in setting priorities and designing projects;

3. Provide them with larger amounts of money than other countries; and

4. Hold them accountable for achieving results.

The Administration was slow in getting the MCA off the ground, but the Millennium Challenge Corporation (MCC) has made reasonable progress since it was launched. It has operated substantially differently from other US aid programs in two areas: how it selects countries, and in allowing those countries to set priorities and design programs. In these two areas, the difference between the MCC and other agencies is night and day. The committed amounts of money are somewhat larger than other programs, albeit not at the scale originally envisaged.

The challenges going forward are the tough ones: implementation, monitoring and evaluation, and accountability. It remains to be seen whether or not the MCC will be more effective in these areas. Implementation is at an early stage. There have been some bumps along the road, and it is not always clear that the MCC has absorbed the key lessons from past aid programs. On M&E, the MCC is making progress in setting clearly defined, measurable performance targets. However, there is no true independent entity to measure progress against these goals. And the real acid test lies a year or two in the future: when a country fails to achieve its targets, will the MCC really reduce or redirect aid flows, or will it make excuses and coach countries along to keep the disbursements going? To make performance-based funding meaningful, the MCC and its political backers will have to be willing to demonstrate that they will cut off funding for non-performance and reward strong performance with continued finance for sound projects.

Also from this issue

Lead Essay

  • Why Doesn’t Aid Work? by William Easterly

    It is a tragedy that billions suffer from extreme poverty. The second tragedy of the world’s poor, William Easterly maintains in this month’s lead essay, is that trillions spent on foreign aid have done so little to help. Aid efforts so rarely succeed because they so often lack feedback and accountability. The way forward, Easterly argues, is “truly independent scientific evaluation of specific aid efforts … continuous evaluation of particular interventions from which agencies can learn.”

Response Essays

  • Thought-Provoking and Misleading by Branko Milanovic

    In his spirited reply to this month’s lead essay the World Bank’s Branko Milanovic claims that William Easterly’s argument is misleading. Easterly, Milanovic argues, is not clear about the definition of “aid,” and he both underestimates how much governments can do to help the poor and overestimates the likely effectiveness of his proposed new “grandiose bureaucracy” to assess aid effectiveness. Easterly, Milanovic writes, “provides an argument for those who have long argued that the best policy is to do nothing and ignore the poor world.”

  • There is No Fix for Aid by Deepak Lal

    In his reply essay, Deepak Lal, the James S. Coleman Professor of International Development Studies at UCLA, argues that like almost all aid efforts, Easterly’s proposed evaluation initiative is likely to fail. “Short of direct or indirect imperialism,” Lal argues, “there seems to be little hope of overcoming the domestic political obstacles to the efficient utilization of foreign aid.” Easterly’s proposal is just more fodder for the “Lords of Poverty,” the middle class professionals who derive a good living from the international business of alleviating world poverty.

  • Evidence Beats Rhetoric, Every Time by Steve Radelet

    The Center for Global Development’s Steve Radelet argues against Easterly that, in fact, “aid amounts have been modest” and that the evidence shows that aid is often effective. Without successful health interventions, “millions of these people would be dead,” Radelet writes. Furthermore, he argues, aid does promote economic growth. “Here is the dirty little secret: most of the published research over the past decade has shown a modest positive relationship between aid and growth.”

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