The Cable

Challenging times ahead for the MCC

Entering its sixth year, the Millennium Challenge Corporation is entering a new phase of its maturation, transitioning off its first set of major projects while adjusting to life under the Obama administration.

But big questions linger on the horizon for the MCC, such as whether its mission can be sustained with smaller budgets in a tight fiscal environment and whether the agency will maintain its independence from the rest of the government as the State Department and the White House reorganize the U.S. development community.

Having already obligated $7.5 billion since its establishment in 2004, the MCC is proud to tout its record of accomplishment in the 20 countries it's now involved in, and the agency is working with 18 more potential national partners. Critics say the MCC focuses too heavily on countries that already have a reasonable amount of development, but the agency argues that its approach, which is country-focused and relatively hands off, is the best way to get to sustainable results over the long term.

"I came to the U.S. when I was 17 and I understand poverty first hand. I've seen it, I've seen the dehumanizing nature of poverty, sadly, it creates instability," the MCC's CEO Daniel Yohannes, the highest ranking Ethiopian born official in the Obama administration told The Cable. "I also understand that pouring a lot of aid money is not going to change the situation. You have to have governments that are really committed for transparency, governments that are accountable for their citizens."

Yohannes, who just got back from Ghana and Cape Verde, said MCC's approach is the right one. He also said that one of his main jobs is to find partners to help fund MCC programs, considering the difficult economic and fiscal environment.

In the past, the Bush administration requested around $3 billion each year for MCC and Congress has perennially slashed that request in favor of other priorities. But in its newly released fiscal 2011 budget request, the Obama administration asked for only $1.28 billion.

"This means we can only work with three, maybe four different countries within a given year," said Yohannes. "Because of the very precious resources that we have we have to find other partners -- whether these be PEPFAR or USAID or others. In addition, I'm looking for partners like other nonprofits or philanthropic organizations with Bill Gates and others ... So I'm trying to leverage every penny that we have."

Still, the MCC plans to take on new countries. This year the agency is looking at inking pacts with Jordan, Philippines, and Malawi. Zambia and Indonesia are under consideration for next year. Each of those projects carries a price tag of anywhere from $200 million to $450 million.

Other countries are nearing the end of their initial five-year compacts with the MCC; some will get new deals, some will not. Madagascar will not get new MCC funding because of election irregularities and other corruption, but Honduras and Nicaragua are being considered for a new deal.

"The second compact is not automatic," Yohannes said.

Meanwhile, over at the State Department and the White House, two key policy reviews are ongoing that could change the relationship between the MCC and the U.S. government. State Department leaders talk about "integrating" and also "elevating" development alongside the diplomacy mission as they craft their Quadrennial Diplomacy and Development Review, which makes some observers worry that Foggy Bottom is planning to assert new control over development organizations.

Yohannes, who is involved in the QDDR, wouldn't forecast its conclusions but said the MCC's autonomy is not his main concern.

"It's not so much about independence -- it's about what makes sense, what's the best approach in terms of development for our country. That's the real issue," he said. "We'll just wait and see what happens in the end."

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