Madagascar may not be a country that shows up on Washington’s radar screens that often, but this week, it did in a very significant way. The island nation off the coast of East Africa could help change the terms of the debate here in Washington over how to help countries in the developing world. It will depend on the success or failure of the $110 million grant from the U.S. Millennium Challenge Corp. (MCC), which Monday made Madagascar its first official recipient. Four other compacts are close to completion with Cape Verde, Georgia, Honduras and Nicaragua.
In an ideal world, the disbursement of the first grant of the Millennium Challenge Account (MCA) would put an end to the criticism of the program, unveiled on Jan. 23, 2004. While the money appropriated for the MCA amounted to $1 billion in 2004 and $1.5 billion in 2005, until now, none of it had actually been disbursed. This has given proponents of traditional foreign aid handouts an opening to dismiss the MCA as mere conservative rhetoric.
Based on the idea that economic freedom, sound institutions, and good governance cause countries to develop, the Millennium Challenge grants are intended for only those countries that can demonstrate a real commitment to these goals. The grants are directed at fostering accountability and responsibility, and are designed to help countries help themselves.
All of this takes on added significance as we are headed into a season when official development assistance will receive a lot of high-level attention. British Prime Minister Tony Blair (who is looking for ways to raise his popularity at home before the British elections in May) has promised to make foreign aid a priority when the G-8 group of industrial nations meets in Scotland in early July. A number of African leaders will be attending the meeting.
In September, the United Nations will have its Millennium Challenge Goals high on the agenda of the meeting of the General Assembly, and following that, the WTO will be meeting in Hong Kong in December to discuss the Doha Development Agenda in international trade. In addition to the British, the French have jumped on the bandwagon, with President Jacques Chirac pushing for countries to commit 0.7 percent of their gross domestic product to foreign aid. There is a more than fair chance that the Bush administration and its European partners will disagree over the philosophy and targets of foreign-aid programs.
Now, there is a growing international consensus that the key to development in poor nations is good governance, and the idea of “conditionality” has been around for several decades. Unfortunately, the international financial institutions have never done much by way of enforcement or follow-up, wasting money and leaving the recipient countries no better off.
The MCA, by contrast, is very tightly structured, with levels of accountability written into the programs and reviews taking place every 90 days. Extensive consultation goes on with MCA teams to formulate proposals. The first of these were ready for consideration in August. In fact, before any grants had even been approved, potential recipients started making changes to qualify. According to the Millennium Challenge Corporation, the number of “days to start a business” had dropped from 61 to 46 in MCA candidate countries.
The Madagascar grant is illustrative of the MCA grants. Over the next four years it will fund three programs designed to raise income in rural areas: a land tenure project, a finance project and an agricultural business investment project.
Property rights are at the heart of the land tenure project. The majority of poor rural families in Madagascar have no records of their landholdings, and the government has a huge backlog of cases to be registered. In 2002 alone, there were 200,000 requests for titles, whereas the official capacity to process them is very limited. In the absence of property titles, a certain amount of chaos reigns, and incentives for investments and improvements are absent.
The finance project is designed to improve the rural banking system, which can only be described as rudimentary. In Madagascar, only 208,000 people have bank accounts out of a population of 17 million. Local banks capable of making small loans to farmers are almost nonexistent. And finally, the agriculture investment project aims at helping farmers and businessmen identify new markets and improve production techniques.
Will the MCA work? With commitment from the individual governments, oversight from the MCC, and measurable goals, the odds are better than even.