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Report

The Other War: Global Poverty and the Millennium Challenge Account

Carol Graham, Gayle E. Smith, Lael Brainard, Nigel Purvis, and Steven Radelet

In March 2002 President BUsh announced his intention to request an increase of $5 billion per year over current assistance levels through the creation of a bilateral development fund, the Millennium Challenge Account. To implement the program, the administration subsequently recommended the creation of an independent agency, the Millennium Challenge Corporation (MCC), to allocate the new funding on the basis of objective selection criteria based on a nation’s commitment to “governing justly, investing in people, and encouraging economic freedom.”

The proposed Millennium Challenge Account (MCA) would amount to a doubling of U.S. bilateral development aid—the largest increase in decades. It presents a rare opportunity to create a new blueprint for distributing and delivering aid effectively. For these reasons the MCA offers a critical chance to deliberately shape the face that the United States presents to people in poor nations around the world.

Although the MCA presents an enticing opportunity, there are also important risks. This initiative will fall short unless it squarely addresses the tension between foreign policy and development goals that chronically afflicts U.S. foreign assistance. It will fall short unless there is a clear vision of how the MCA can complement rather than exacerbate the myriad of overlapping policies, agencies, aid programs, and eligibility criteria targeted at developing nations, particularly USAID. The president’s decision to establish an independent agency to administer the MCA was a clear vote of no confidence in the 10,000-strong Agency for International Development (USAID), which will retain responsibility for providing foreign assistance to the vast majority of the world?s poorest. And finally the MCA will fall short if it is interpreted as one more instance of the United States going it alone instead of buttressing international cooperation in the fight against global poverty.

Critical design and implementation decisions require urgent attention for the new fund to succeed on its own terms, as well as to strengthen international cooperation and broader U.S. foreign assistance policy. The Other War: Global Poverty and the Millennium Challenge Account identifies ten key drivers of success and provides recommendations for each. They cover the spectrum from policy to operations, including strategies to improve international coordination, the pros and cons of establishing a new agency, the budget outlook, the debate over country coverage, what a new agency would mean for USAID, and forging a new partnership with Congress. The authors bring to bear a range of experience and expertise—from government, academia, the international financial institutions, and on-the-ground experience in Sub-Saharan Africa, Latin America, and Asia.

Authors

Lael Brainard

Member - Board of Governors of the Federal Reserve System

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