- The Washington Times - Sunday, August 22, 2010

A groundbreaking, 6-year-old initiative meant to reward developing countries with U.S. aid for good governance and efforts to institutionalize democracy is giving billions of dollars to nations upbraided by the State Department for corruption in government.

The Millennium Challenge Corp. (MCC), the U.S. government agency that provides large-scale grants to the chosen countries to reduce poverty and stimulate economic growth, will begin distributing $540 million in aid next month to Senegal despite persistent questions from members of Congress and others about the African nation’s commitment to good government and democracy.

Although MCC says control of corruption is the single most important indicator by which a nation is deemed qualified for aid money, a review of the State Department’s most recent report on human rights reveals that Senegal — and virtually every country receiving similar grants — has been criticized for government corruption.

Some members of Congress and others point to Senegal as the prime example of a country where MCC should reconsider its aid. They cite Senegalese President Abdoulaye Wade, who built a 164-foot monument with scarce public resources that will benefit his personal foundation and who appointed his son to a senior government post.

The persistence of corruption in grantee nations has drawn concern to a program generally hailed as innovative, which has forged a total of $7.2 billion in multiyear aid agreements with MCC in 20 countries.

“We can’t just give out money and say we will put up with whatever you are doing,” said Rep. Kay Granger of Texas, the ranking Republican on the House Appropriations subcommittee for state and foreign operations. “We are talking about foreign aid and helping their countries.”

Sheila Herrling, MCC vice president for policy and evaluation, said the organization takes corruption seriously and continues to monitor countries that receive the grants.

“Corruption is a fact of life, not an if, in all countries,” she said. “The question is how we deal with it.”

Yet MCC has not suspended or terminated aid to any country solely because of corruption issues.

Meanwhile, the State Department’s 2009 human rights reports, released in March, detail corruption in other countries receiving or in line for MCC money, including:

Benin, where the department found “widespread” corruption, noting that no action had been taken by the end of last year on a 2007 state audit finding that about 300 civil servants may have embezzled approximately $51 million. Earlier this month, Benin silenced a French state-owned radio station for 14 hours after it reported that lawmakers were attempting to impeach the president on corruption charges.

Yet MCC continues to fund and administer a $307 million multiyear compact with Benin signed in 2006 for projects that include reforming the justice system and improving market access to a port.

Benin noted that President Thomas Yayi Boni established the state audit office and that cases of embezzlement have been reported to the judiciary for further investigation and sanctions. Officials also say the government reported cases of six current and former Cabinet ministers to the parliament for further action.

The Embassy of Benin said the country “remains a beacon of freedom of speech and press” and the current administration has been fighting corruption.

• Mozambique, where the State Department report says “officials engaged in corrupt practices with impunity” in part because “there are no laws against conflict of interest for government officials” and the government did not implement existing corruption laws effectively.

Last year, a British court found that a British construction company had paid more than $460,000 in bribes to the former national director of roads and bridges — a charge the director denies.

“Despite the government’s strong anti-corruption rhetoric, corruption in the executive and legislative branches was widely perceived to be endemic,” the State Department said. “Petty corruption by low-level government officials to supplement low incomes and high-level corruption by a small group of politically and economically connected elites continued to be the norm.

“In some cases, high-level bribery was related to narcotics trafficking,” the report said.

MCC is funding a $506.9 million multiyear compact signed with Mozambique in 2007 to improve water and sanitation services and rehabilitate a major road. A spokesman for the Mozambique Embassy could not give an official response last week, saying he needed more time to get information from officials in the country’s capital.

• Moldova, where the State Department says various organizations reported that corruption was “pervasive” and even “widespread” in the nation’s educational system.

“The law provides for punishing university rectors, deans and chairs for corrupt acts, including grade buying and influence peddling, with fines or imprisonment of two to seven years,” the department said. “However, the law does not apply to professors and lecturers.”

In a separate investment climate statement on Moldova, the State Department this year noted that its embassy had received reports of “informal” hostile takeovers of profitable businesses. The department said business owners are approached by politically connected people who want to acquire parts of the businesses and threaten to shut them down if the business owners refuse.

Moldova this year signed a compact to receive a five-year grant of $262 million for reconstructing irrigation systems and rehabilitating a section of the country’s national road network.

The Moldova Embassy in Washington did not respond to a request for a comment.

Announced by President George W. Bush in March 2002, MCC was designed to help eradicate global poverty. Mr. Bush linked foreign aid to the threat of terrorism posed by failed states. MCC was launched in 2004 with bipartisan support from Congress.

Mr. Bush originally hoped that Congress eventually would provide MCC with $5 billion a year, but his highest single-year funding request was for $3 billion. Congress has never provided the total funding requested by either Mr. Bush or President Obama. For fiscal 2010, Congress appropriated $1.1 billion for MCC, $320 million less than what the Obama administration requested.

Nevertheless, the program remains popular inside and outside the government, in part, because MCC officials maintain that their funds are disbursed directly to vendors for specific projects instead of being given to foreign government officials who could misdirect them.

“The Millennium Challenge Corporation is one of the most innovative foreign aid programs we have in the United States,” said Sarah Jane Staats, director of policy outreach at the Center for Global Development, where she monitors MCC and U.S. foreign assistance.

“The MCC aid is not a handout and it is not used for political purposes,” she said. “It has clear, transparent criteria to select the best-governed poor countries where aid dollars will be used well.”

At a congressional budget hearing in April, Mrs. Granger similarly called MCC the “best tool in our foreign assistance budget to help lay the groundwork in select countries that have demonstrated responsible governance.”

But at the same hearing, she and other subcommittee members raised questions about the seeming lack of consequences for countries bankrolled by MCC that face corruption allegations.

Rep. Nita M. Lowey, New York Democrat and chairman of the state and foreign operations subcommittee, said MCC was supposed to be a new, different model, “but corruption is business as usual.”

The State Department reports detail varying degrees of corruption within the judiciary, the police and the military, and in the political processes of 18 of the 20 MCC-funded countries.

An MCC spokeswoman said the group monitors the State Department reports but mainly bases its decisions on its own score cards, which use publicly available information not generated by the U.S. government or by the countries seeking the grant.

The MCC website says the countries are selected for the grants after being judged on 17 independent performance indicators and are assigned numerical values in categories ranging from investment in public health and education to economic freedom. Each year, MCC issues score cards for the countries based on the latest indicators.

The most important single criterion is control of corruption — a measure considered so vital that it is the only criterion in which the countries are given a pass/fail grade. To pass, the countries must score above the median level when compared with other countries with similar per-capita income levels.

MCC relies on an index prepared by the World Bank Institute on as many as 26 regional and international surveys and expert assessments to determine control of corruption. The index rates countries on the frequency of “additional payments to get things done,” the effects of corruption on the business environment, corruption in the political arena and the tendency of elites to engage in cronyism.

Daniel Kaufmann of the Brookings Institution, who helped develop some of the indicators of corruption and governance used by MCC while a director at the World Bank Institute, said the agency deserves credit for “implementing a selective approach to funding countries, where good governance and anti-corruption play an important role.”

He also said all aid agencies need to “elevate the priority of good governance and anti-corruption in their assistance programs so that they become center stage and overarching.”

Even though the agency has the right to terminate a compact based on reports of corruption, no country has had a grant terminated for that reason. That has led some members of Congress to question whether MCC has a mechanism to evaluate the countries for corruption while they are receiving U.S. taxpayer funds.

While the countries criticized in the State Department reports generally have earned passing grades in the World Bank index, five countries — Benin, the Republic of Georgia, Honduras, Armenia and Nicaragua — twice in the course of the grant period got failing grades for control of corruption without losing funding.

“In each of these cases, we determined that the changes in the score were not representative of a significant policy reversal and therefore did not merit a suspension or termination action by MCC,” Ms. Herrling said. “Instead, MCC began a policy dialogue with each of the countries in question.”

She said a country can fail the indicator because of performance declines, but also because of changes in measurement standards or improvements in the availability or quality of data.

MCC terminated, partially terminated or suspended compacts in Madagascar, Honduras, Armenia and Nicaragua after a coup or serious questions about elections in each country. It also suspended the eligibility of Gambia in 2006 based on “deteriorating conditions,” including worsening of anti-corruption efforts.

Termination, according to MCC officials, is a serious step because of its effect on residents who had nothing to do with the corruption.

Ms. Herrling said MCC has a unit that monitors the countries to track their performance controlling corruption and measure other governance indicators. She said cases of “opportunistic corruption” would not trigger a suspension or revocation but MCC would act if it found “a pattern of action that has the government implicated in undermining the institutions of accountability such as the courts, the media or anti-corruption agencies.”

In the case of Benin, one Africa analyst said it is correct to measure lingering corruption against the progress the country has made.

Benin has some issues but they have made tremendous strides, especially when you consider that less than two decades ago the country was a strict Marxist-Leninist dictatorship,” said J. Peter Pham, a senior vice president and director of the Africa Project at the National Committee on American Foreign Policy.

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