Special Briefing on the Designation of 16 Countries Eligible for Funding

(2:45 p.m. EDT)

MR. ERELI: We are very pleased and honored to have with us today the newly sworn in Chief Executive Officer of the Millennium Challenge Corporation, Paul Applegarth, who is going to -- is here to brief us on some of the recent decisions by the Millennium Challenge Corporation governing countries that would be -- that are now eligible to receive grants under the -- from the Millennium Challenge Corporation, the -- what the Millennium Challenge Corporation represents in terms of a new approach to development assistance and reform. This is building on the meeting of the Millennium Challenge Corporation last Friday and the ceremony today at the White House where we spoke to the recipients; the President spoke to it. Mr. Applegarth will be here, or is here with us today to sort of go into a little bit more detail on what this represents in terms of a new approach to development assistance, and also to answer your questions about, well, whatever you're interested in, but particularly sort of how the process works, looking ahead to the future where we see things going.

So thank you very much and I'll turn it over to Paul.

MR. APPLEGARTH: Thanks, Adam. Hi. I'd like to keep this informal. I will give a few opening remarks and then throw it to Q & A, and since I haven't met most of you before, I would look forward to, at some time in the future, sitting down and talking to each of you.

Last week really was a milestone for MCC, which was the announcement of the 16 countries that were selected for the first year of potential assistance. This is week 15 for MCC. It was established by -- in late January, and since that time has been working actively. There were only, under our legislation, the Board of MCC had to select countries that will be candidates to compete this year, and then wait at least 90 days before it selected those that would be eligible for MCA assistance. Thursday, which is the day the Board met was the 90th day for the selection process, and I think MCC is very conscious of trying to get up moving quickly in establishing a track record of really announcing in advance what it was going to do and then doing it.

Let me put the MCC in a bit of context. First, it does bring into existence the vision, or the new vision for America's approach to foreign aid that President Bush announced at Monterrey two years ago, and that passed with strong bipartisan support in Congress in January.

Traditionally, the National Security Strategy has been based on defense and diplomacy. And -- but early in his Administration, President Bush added a third "d," -- development. And as part of this, he pledged at Monterrey to increase core development assistance by 50 percent over three years.

There are three elements of the strategy: First is to increase traditional assistance through USAID and others. That has been going up, if I remember correctly, about 12 percent per year. Secondly, is the new HIV/AIDS program that Randy Tobias is heading, which is really to tackle head on the problems of health and disease that HIV/AIDS is creating; and that program is $15 billion over three years. And then MCC, which is really the key new approach -- focuses on growth and policy reform, with explicit links of providing assistance to governments, which are implementing economic, social and political reform.

The importance of the effort is reflected in the strength of MCC's Board: The Secretary of State is Chairman; the Secretary of Treasury is Vice Chairman; the USTR head is also on the Board; Administrator Natsios at AID is on the Board; the CEO of MCC is on the Board; and there will be four members from lists submitted by Congress that will be selected. Each of them has been quite engaged already, and the Board meeting that we had on Thursday was spirited. I think people walked away feeling it was really a good discussion; it was not any kind of a rubber stamp effort at all. I don't think anybody could have predicted exactly where it would come out.

The major things that were decided at the Board meeting were three: First, that the commitments that MCC will make will be multiyear. You can't start out with a one-year program -- ask a developing country to come -- to come up with its priorities and implement all of those and be dependent on one-year funding. So we're looking to commitments of three to five years to implement an MCC compact. The second is the selection of countries, and I'm sure you've seen the list, but I'll repeat it again: Armenia, Benin, Bolivia, Cape Verde, Georgia, Ghana, Honduras, Lesotho, Madagascar, Mali, Mongolia, Mozambique, Nicaragua, Senegal, Sri Lanka and Vanuatu. And the third Board action was to reserve $40 million of the first year funding for what we call threshold countries, countries that are -- did not qualify to become eligible this year, but are close, and that where programs might be targeted to assist them to improve their policies so they better qualify under the criteria. This is different than the traditional MCC program, which is very, very much focused on countries that have already had good policy reform and whether they focused on their growth priorities.

The threshold program is targeted to countries that are -- are close or on the threshold, but may need some assistance to implement -- to change the policies or implement the policies which will enable them to qualify for MCC.

I'm sure a number of you are familiar with what MCC's about, but in to the extent you're not, let me encourage you to first look at my -- the testimony at my confirmation hearing. It's on the website. It goes into detail about how it's different and what's different about it. But I think the six or seven key things that are important is MCC's focus on growth, sustainable economic growth, its emphasis on developing country leadership and policy reform.

We did -- in many ways, we did not pick the countries, the countries picked themselves through their actions in terms of implementing policies and promoting good governance; promoting economic freedom in terms of how they're investing in their own people, and in anti-corruption. We intend to work with the countries involved by a spirit of partnership. The process we ask them to go through in presenting their priorities to us -- and it is their priorities which we'll evaluate -- is to make it an inclusive process and engage all of their civic society in determining it. In the same way, we don't want it to be simply a couple people here in Washington deciding what's good for a country. We don't want a couple people sitting in their Ministry of Finance or someone in the government deciding. We really genuinely do want to look to how to be an inclusive process and part of our evaluation process will be looking at that inclusiveness.

The MCC will be very much focused on outcomes, and -- rather than simply, how does money get spent, where does it go; but what is -- whether measurable outcomes, which we’ll agree with the country that might be expected over the life of the compact; and then, accountability. A country is signing up to do this; we're signing up to help them. There will be good measures and MCC's intention is to hold the countries accountable. If they stay on track, funding continues. If they fall off track, we'll provide assistance and try to help them get back on track. But if there is a pattern of chronic underperformance or a lack of political will, MCC and the Board are quite -- quite willing to suspend or cut off funding, if necessary.

I should also say that, having been selected Friday, the good news for the countries, the 16 countries on Thursday was that they were selected. The bad news is that no -- that no checks are being written. There's no guarantee of funding at this stage, and, really, the ball passes from MCC to the country to come back now with a proposal tied to what's their priority in terms of economic growth. But the -- and this process has already started. We, after the countries were informed on Thursday that they had been selected, we had a meeting for all of the ambassadors of the 16 countries at MCC on Friday afternoon to begin talking through the process, answering their questions, and beginning to establish the dialogue with them.

We expect that late May or early June, teams from MCC will go visit each of the countries that have been selected, again, to meet with the country leadership as well as elements in the society more broadly, to talk about what MCC is, why it's different from what they're used to, and answer what questions they've got. At that point, we expect to begin to get proposals from countries in terms of -- for assistance and that -- which we will work with them to develop further. And I think the key thing to think about in terms of what MCC would be looking for, will be identif -- will be -- is in some ways almost like a private sector investment analysis, but instead of looking at financial returns, or solely at financial returns, MCC is going to be looking for growth returns. In short, MCC is investing in growth and will be asking itself: Is this a good investment for the American taxpayer? Does it provide the most benefit to the poor for the American taxpayer in terms of the dollars being expended? So that's a quick summary about what we're about, but I'd be happy to answer your questions and clarify anything that I went through very quickly.

Yes, sir.

QUESTION: Hi. You talked about the --

MR. APPLEGARTH: Excuse me. Since I don't know who you are, would you mind identifying yourself?

QUESTION: Okay. Sorry. Harry Dunphy, AP.

MR. APPLEGARTH: Okay.

QUESTION: You talked about some of the threshold countries, and I noticed that in some of the run up to this MCC, Vietnam was mentioned as a possibility, but they didn't make it. Is that because of the nature of the government in Hanoi? And I noticed Bolivia did, even though they overthrew a pro-American president last December, and they've got a politician who's anti-business, so --

MR. APPLEGARTH: Well, I think it's important to look -- first, a lot of this is explainable in the website. See, 13 of the 16 countries qualify for the criteria. All right? Ten clearly pass all of the criteria that was set out in the congressional report on methodology that was sent up by the Board in early March. The -- three fall into a second group, which passed the criteria but were significantly below on some of the criteria. And if you look at the write up on the methodology, you see that those countries, even though they were significantly below on some of the criteria, if the governments were taking steps to remedy that and raise them up, raise their ranking, and you could see positive steps, the Board was favorably disposed to work with them. And there were three other countries on that basis.

If you look at the Vietnam scores, you will see that they fall well short on political rights and a number of other standards. So far, at least, we've seen no steps by the government to proactively change that. And that's true for some of the other countries that are sort of in that second group. And then three countries were -- who were not of -- in the 13, but where the Board concluded -- and this is my interpretation, don't hold the Board -- I think the Board very much focused on issues of country leadership, government leadership, commitment to reform and anti-corruption. And certainly in the actions of Georgia, the government is new, has been in place only a short amount of time, but some of the steps it has taken are really quite dramatic. I think there is some -- there's, clearly, were changes in Bolivia, but nonetheless a number of the things that the government is doing are still -- were felt to be worthy of recognition, same with Mozambique.

Now, as I said, as I indicated earlier, having been selected Thursday does not imply cash. And during the evaluation process of the compact proposal, there is going to be continued evaluation. Is the country committed to the kind of principles on which MCC is built? Is it pursuing those? What more is it trying to do to pursue those? And in a couple of cases, at least, the Board took a bet that these countries will continue to do that. If they fail to do that, then the compact -- they will not reach a satisfactory conclusion on the compact.

Yes, ma'am.

QUESTION: Elise Labott with CNN. Can you talk a little bit more about the selection process? How many countries had shown an initial, like, the pool of countries you were choosing them from and whether -- how close was the competition, things like that? I mean, were there a lot of other countries that you think might, you know, be on the threshold for next year? I mean, even though you said there were just a few threshold countries?

MR. APPLEGARTH: The number of countries that potentially could compete this year is driven by the legislation, and it varies each year, FY04, '05, '06.

This year there were three criteria: The first one is a per capita income ceiling. They had to have a per capita income -- I think it's below 1415, $1415 per capita. The second criterion is that they have to be currently eligible to borrow from IDA, the International Development Association, which is a soft window to the World Bank. And then third, it has to be legal under the Foreign Assistance Act to provide them foreign assistance.

An example: So there were 75 countries that met the first two criteria. 12 fall out, countries like Myanmar and others, which -- well, through act of Congress, it was really illegal to provide foreign assistance or foreign aid to them. They were deleted. So we had a population of 63 that were -- and those countries were evaluated against the criteria and the indicators, and coming out of that, and the Board concluded 16. There was a lot of discussion and about countries -- not so much on the first 10. They were -- there was one country that was really, things had been going the wrong way, and the Board -- even though it passed everything, the Board concluded that it just didn't -- it felt that it would have been slippage, and it wanted to at least give a signal that this was important, and the Board does have discretion. This is not a black box, though, I mean, you know -- you just plug in the numbers, you get a result -- and that you don't have to put together a Board this strong without that kind of -- the idea that they can look at things.

The intention is to make the process transparent, to make it clear to the countries what they have to do to qualify, and not to subject it to a lot of the political ebbs and flows that frequently happen in Washington. It really is intended to do that, and I think both the Board felt and the commentators that I have seen subsequently, believe that the Board did a pretty good job in sticking to the criteria, and there weren't a whole lot of surprises in that regard. And that was -- that's really the intention.

QUESTION: Can you say which the country was that you thought that there might be slippage and you wanted to send a signal?

MR. APPLEGARTH: Well, I think if you look at the criteria, you will see Tonga has slipped.

QUESTION: Can you tell me -- could you describe how -- what the shape of the U.S. assistance will look like now going to these countries that do qualify, that do come back with a positive -- a positive plan, according to the Corporation? And is this going to give them more money than they would have under a less, the less critical system that was in place before, or is it just going to be better, better watched? And how are you going to divide up the pool of money that you have?

MR. APPLEGARTH: I'll be happy to answer that as soon as you tell me who you are.

QUESTION: Oh, I'm sorry. I'm Teri Schultz with Fox News.

MR. APPLEGARTH: Thank you.

First, the MC money -- MCA money is additional, okay? And secondly, it will take the form -- the assistance will be divided under something called a compact. The ball is really with the country now, okay? We didn't know until Thursday, which the countries were. I can't tell you now what sectors there's going to be because it really has shifted to them. We do expect them to have an inclusive process in terms of putting it together. I'm not sure the countries fully know yet themselves. I know -- I happened to see an ambassador of one country this morning and it was selected. He was at the White House, and he told me they are actually holding a five- or six-day event starting the week after next to talk about it within the elements of their society to really get a proposal ready, and they've asked if somebody from MCC can come be there the last day. That's to talk about it and get feedback from the full number of participants.

QUESTION: Would you expect they'll be coming back to you with a requested amount, or just a manner in which to spend the money you can give?

MR. APPLEGARTH: I would expect they'll come back with a proposal and with indicative amounts --

QUESTION: With numbers on it?

MR. APPLEGARTH: Potentially, yeah, I would think so. If they've taken it seriously, they should have a good idea of what it may cost. There is, actually, on the MCC website, which I would refer you to, which is www.mcc.gov, not the most imaginative name to come up with, but there is actually some guidelines for compact proposals. And again, it's not, you've got to fill out this form in triplicate or anything like that, but it's the start of a process where you expect that the -- if the country can't and we can't answer the question at the beginning of the day, by the end of the process we'll have a pretty good sense of not only what's the priority and why it's important to the country and what, but what -- how it's going to lead to economic growth; how we're going to measure it; what kind of outcomes we're expecting and how it's going to be implemented. Now, we don't expect that's going to be already up front, but by the end of this process, we should be.

QUESTION: And none of these determinations will affect the bilateral aid that would go out of the normal FY budget?

MR. APPLEGARTH: Well, ideally, no. Because MCC is about policy reform, and if we say, "Well, here you get this but we're going to take it away here," then we're not going to -- it's not going to be the incentive or the reward that we really expect. And the same -- and we say that not only for other U.S. assistance but assistance from other donors and the IFIs and others, is that we expect those programs to continue and MCC funding to be additional. Now, we may complement their programs, build on it, be able to help accelerate something they're already doing, but if there was a retreat from other -- by other donors or by the IFIs or other parts of foreign -- of U.S. foreign assistance, then the countries are going to say, "Well, you're putting us through a bunch of hoops here, and yeah, it's good for us and, of course, like castor oil, is it really worth it," you know?

Yes, sir.

QUESTION: I'm Charlie Wolfson from CBS. I understand that you're emphasizing the positive, but I noted a few -- a few words in your presentation about what happens if things don't go as according to plan along the way, or at least I think I did, and that's my question. You, on a multiyear thing, what happens if a government changes, by hook or crook, in that period and they fall short somewhere? You mentioned, I think, suspend or stop. How strict and how quickly do you intend to act and --

MR. APPLEGARTH: Well, we will, you know, the evaluation process of this is an ongoing part of, really an ongoing active part of the operations. It's not something that's done eight years after the fact, which a number of other institutions do do. Do they -- did we get what we want? This is built of the M & E team, Monterrey Evaluation team, would be part of the compact negotiations; they will help identify the measures up front, together with the country, and they will be tracked on a quarterly basis. So hopefully, hopefully, we'll be able, if we see slippage or some change, be able to respond quickly and hopefully the country will. Again, this is not us implementing. This is a country and the country ownership, so I think you'll see that in the process. If country -- a government has changed, we'll see the commitment. Hopefully, it's not either by hook or by crook, but by free election. I mean -- there were changes in Bolivia, there have been changes in Sri Lanka since the data was posted or put up, but those elections, at least in Sri Lanka, it was a free election. And that's what we're trying to encourage. And we want to -- if the government is there, the priority is there and the commitment is there, then we will continue to work with them.

QUESTION: Saul Hudson from Reuters. What's the process for selecting this --

MR. APPLEGARTH: Excuse me, who are you, sir?

QUESTION: Saul Hudson from Reuters.

MR. APPLEGARTH: Thank you.

QUESTION: From the -- for the threshold countries, what's the process for selecting them? Do they come forward and say, we thought we were close, we realize we've fallen down on this criteria. Here's a proposal for another project? Or do you guys go to them and identify them saying, look, you were close, we'd like you to go to USAID for something?

MR. APPLEGARTH: We're still working on that. Again, the story on Thursday is really the selection of the first -- of the 16, and we expect to do this very closely with USAID, and Andrew Natsios and I were talking on Friday. We really want to sit down and go through the process. I think the reality is it's going to have to be -- it will be a limited number of countries and we're going to need to see some credible chance that they can get there with a relatively small amount of assistance in a reasonably short amount of time. I suspect we will -- under the Board resolution, the CEO has the ability to really designate them. I think we'll do that in the consultation with the Board and with, actually, USAID, we're really going to count on them to do a lot of this.

QUESTION: And does a country like Vietnam have to forget about it? They were close -- they did well on a lot of criteria, but on certain ones, they're so way below.

MR. APPLEGARTH: Well, I don’t know, for Vietnam -- if the government of Vietnam comes in with a credible proposal about how they're going to open up and have a true democratic process and do some of the other things that, you know -- that's a speculative question in many ways, but that's -- at the end of the day, we're about policy reform.

QUESTION: Okay. And have any -- any of the ones who were missed out come forward and say, hey, what about us? We expected to be in it.

MR. APPLEGARTH: There's been a little bit of why it happened, why -- and again, this is only 72 hours, and over the weekend --

QUESTION: Sure.

MR. APPLEGARTH: -- but there's certainly some questions about, well, what happened? How come we missed? And that's the beginning of the dialogue and that's the kind of dialogue you want. You know, there's already been significant policy change in several countries just by the creation of MCC. Before MCC announced any countries and signed a compact or spent a cent, we're seeing policy changes in the right direction.

QUESTION: And sorry, one more on that. You said 40 million this year has been set aside for the threshold.

MR. APPLEGARTH: Has been reserved, yeah.

QUESTION: I -- maybe I was wrong, but wasn't there some talk at one point that there would actually be 100 million?

MR. APPLEGARTH: Under the legislation, up to 100 million, up to 10 percent of the appropriation can be done. And the Board can allocate more if it likes, but again, MCC's primary focus is to growth and I think the Board said, "We'll hold this." It may not spend 40. It may not invest 40 in this. We'll see what happens. But a dollar -- don't forget, a dollar taken for a threshold country is a dollar away from an MCC country and the growth of which MCC is all about. And again, this growth is really designed to focus on the poorest countries of the world and to create growth that benefit the poorest people in those worlds, so we're very -- trying to be very careful and judicious about before we spend a dollar on admin budget or before we spend a dollar on anything else, this is -- we could eas -- you know, we're quite -- we have $1 billion this year. Where I come from, that's a lot of money. We're requested $2.5 billion for next year. That's also a lot of money. At the end of the day, though, when you look at these countries and the needs, it is -- that money will be, is needed, and will be well spent and that's what we're all about.

Yes, sir.

QUESTION: Wait a minute; I lost my train of thought. Oh, yes -- is this list of 16 changeable at any time? Is this a once a year or twice a year? I mean, how often do you anticipate the list going back?

MR. APPLEGARTH: Yeah, the list is each year, okay? And we put out -- there's a process -- we put out the list of countries that are eligible that can compete each year, and that's, as I say, those criteria are specified under legislation for the first three years, and then the selection criteria, and then we will choose countries based on those. Now because this year is happening so late in the cycle, we actually expect to be doing -- publishing the list of countries that may -- that are candidates for next year and the criteria on which they're going to be evaluated in late July or early August.

QUESTION: But in a normal cycle, once you're up and running, we shouldn't expect to see Vietnam change governments, come up with a great program, and three months after you've put out a list --

MR. APPLEGARTH: No. It will be an annual, an annual review.

QUESTION: Okay.

MR. APPLEGARTH: We're talking about long-term policy change here and that you have to see a track record. I think it was really because of things like the developments in Georgia, where there are lags in the data and so on and so forth, but you really do -- significant changes by the government and that the Board felt was worthwhile recognizing, and still, nonetheless, putting it through the compact proposal and evaluation process.

QUESTION: You say there was bipartisan support for the legislation, but the numbers are a lot lower than the President had originally proposed. Are you doing anything special on Capitol Hill to lobby them for better -- for more support?

MR. APPLEGARTH: Well, not lobby, but I get -- had the opportunity to talk before the House Appropriations Committee on Thursday and the HIRC next week. But I think also more importantly what we're trying to is to, at least at the MCC level -- and look, the Administration is putting weight behind this and it's bipartisan -- as I say, bipartisan efforts around the -- one of the things we're trying to do is to build confidence that this is money that will be used well. I mean we are a startup. Let's face it. We're a startup. And that's -- and that's unpreced -- or, not unprecedented, but it's unusual in a government corporation. We're not going to have a lot of outcomes and results of the compact process in this budget cycle, okay?

So what can we do? We can make sure that we're clear about what we're doing. We can hit the ground running. We can, as I said earlier, announce what we're going to do and then do it, and be transparent in the process. We've had three public meetings in 15 weeks. We've had three meetings for Ambassadors. We've had a lot of informal consultations with the Hill. We've been using the web as our primary communications tool. Really, given a small staff and a lot of people to talk to, we really are trying to exploit that as a tool. Every one of our public meetings has been globally webcast. The criteria are up on the web. The countries can see how they measure. That's up on the web. If they pass, it's green; if they fail, it's red. The message is out there. The story is simple, and this is a story of country leadership as a partner trying to promote their taking the policy reform and we're there to assist them. And if we'd stick to that and show ourselves that we're disciplined to do it and that we're following a credible process, which have transparent, accountable measures, and we're holding people accountable, we think that that provides the basis that this is a good investment.

QUESTION: So in -- sorry -- fiscal year '06, do you think -- what do you think the chances are getting five billion?

MR. APPLEGARTH: The need is there. The president has asked for it. And, you know, if we're doing our job right, people should give us some more. We just got a -- there's a -- I've heard of a GAO study which has done an analysis of the MCC objectives, and actually says more money is needed, not less.

QUESTION: Can you expand a little on what kind of proposals you're looking for? I mean, are these going to be for like one sector of the economic reform, or have you told these countries specifically where you think they need to reform and what kind of proposal you would like to see individually?

MR. APPLEGARTH: The answer to that is no. And that's part of the difference here. It really is. This is country ownership. It is up to them to determine what their priority is. This is a very different model.

QUESTION: Is it all economic reform?

MR. APPLEGARTH: This is a very different -- it's got to lead to growth. Okay? But it's got to meet the other standards in the legislation, and we're going to be looking at impact on gender; we're going to look at the impact on environment; we're going to be looking at the impact on private sector development. But, no, there is no magic secret answer here. I mean you have all been familiar in the aid world. Everybody is looking for the secret answer and sometimes we joke a little bit about why everybody is looking through the papers -- our partners in emerging countries, trying to find the right answer somewhere. There is no right answer in anything that we're telling them about. It's up to them to figure it out. And if they come in with agriculture, fine; and can demonstrate its growth, impact, fine; if they come in with financial sector development, fine; if they come in with infrastructure, fine, or with health. It is really and truly up to them.

QUESTION: It has to be based on free market economy though?

MR. APPLEGARTH: It has to be based on an economy that passes the criteria under MCC, but they passed that on Thursday. It met those standards. And so now we're focused on what is their priority for economic growth. This is a different phase. Okay? They have established themselves as having good policies and being a government that could potentially use U.S. taxpayer money well because of the way they’re implementing policies. And this is different than a lot of what traditional aid has been where we use it for a lot of different purposes, and a lot of quite legitimate purposes. But here we're starting with governments that have adopted what economists and others believe lead to good development, they have policy to lead to that, and that gives us some confidence that we're working with good partners that can get some things done.

QUESTION: There's one thing I don't understand. You say it was pretty cut and dried for about 10 countries.

MR. APPLEGARTH: Well, cut and dry might not have been -- I think, clearly, passed.

QUESTION: I would imagine that several of the countries, probably more than that, had a pretty good idea they were going to be -- they were going to make the cut. Why haven't they already got their proposals there? You say, one country is going to have some kind of a meeting?

MR. APPLEGARTH: Well, some of them may. They may, but the reality is, I mean, we haven't had that dialogue yet, but I can assure you that until Thursday, nobody knew what the list was, absolutely nobody. This was not walking into the proposal Board; please rubber-stamp this. First of all, this isn't a rubber stamp Board, and there was a lot of active dialogue back and forth.
And so countries who did so -- I think there were some countries surprised they were not on the list.

QUESTION: Thank you.

MR. APPLEGARTH: Thank you.

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