The Politics of Poverty

Ideas and analysis from Oxfam America's policy experts

Congress puts MCC on life support

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The Millennium Challenge Corporation (“MCC”) is a program that does the right thing for the right reasons. Envisioned as a $5 billion a year program, this year its budget was slashed about 20% to less than $900 million. If it doesn’t get bumped back up above $1 billion in 2012, we could see the MCC effectively budgeted out of existence before this Administration’s term is done.

This Guest Blog is written by Paul O’Brien, Vice President for Policy and Campaigns at Oxfam America, and originally appeared on the Hill Blog.

We never really know how much Congress cares about global poverty until they have to make hard choices. Don’t get me wrong—the overall budget cuts could have been far worse. Everyone is hurting, at home and abroad, so we knew that poverty-fighting budget cuts were coming. What hurt was where they chose to cut and the signal that sends.

Birthed by the Bush Administration, and courageously adopted by President Obama, the Millennium Challenge Corporation (“MCC”) is a program that does the right thing for the right reasons.

This is not a program for political hotspots—Iraq, Afghanistan or Pakistan. Nor is it a program for Haiti or any other emergency where we all want to “do something.” The MCC takes a long-term and serious perspective on what actually helps countries emerge from poverty. It drives economic growth by addressing the root causes of past development failures: it listens to the legitimate solutions of stable governments rather than imposing them from afar; it makes long-term investments in institutions, confronting the typical impatience of donors; and it conditions its giving on key policy reforms (like transparency, accountability and getting results) rather than rewarding corrupt allies with backhanders for being nice to us. In short, the MCC recognizes that addressing root causes takes time, but can produce lasting results for our US global aid dollars.

Yet, since its inception, the MCC has seen steady budget cuts. Envisioned as a $5 billion a year program, this year, for the first time, it saw its budget drop below $1 billion. While the overall cuts to the development budget (about 1%) mirrored broader cuts across the federal budget, the MCC budget was slashed by about 20% to less than $900 million. If it doesn’t get bumped back up above $1 billion in 2012, we could see the MCC effectively budgeted out of existence before this Administration’s term is done.

Why would this be devastating?

First, the “MCC effect,” gives sufficient financial incentives to countries that implement key reforms before a Compact is reached. In Lesotho, because rights for women were a precondition of the Compact, the Lesotho government passed a law that allowed married women the legal right to hold property.

Emelina Dominguez is an Agricultural Technician and member of the all-female farmer's cooperative COMUCAP (not affiliated with the MCC).  In Honduras, roads built by the MCC increased incomes for nearby farmers, allowing them to feed their families and send their kids to school.  Picture by Gilvan Barreto/Oxfam.
Emelina Dominguez is an Agricultural Technician and member of the all-female farmer's cooperative COMUCAP (not affiliated with the MCC). In Honduras, roads built by the MCC increased incomes for nearby farmers, allowing them to feed their families and send their kids to school. Picture by Gilvan Barreto/Oxfam.

Second, the MCC undertakes large scale concrete development projects that few other donors will consider. The MCC Compact in Honduras built 300 miles of rural roads, which increased incomes for nearby farmers from $1,800 to $3,550, an 88% leap in their ability to feed their families and send their kids to school.

Third, MCC Compacts use the scale of their investments to promote lasting policy reforms that have a multiplier effect far beyond the life of the Compact. In Nicaragua, the MCC not only built roads, but it challenged the Nicaraguan government to set up a permanent road maintenance fund to keeps those and other roads in good repair so donors, like the US, don’t have to come back and repair them.

Driven by demand rather than supply, the MCC’s emphasis on economic growth and country-led development helps the US eventually put itself out of the aid business. Countries like Zambia, whose compact may be in danger due to proposed cuts, have invested $4 million of their own scarce resources to reach an agreement with the MCC. Walking back from that commitment now undoes the MCC, and the US reputation as a reliable partner for countries committed to reform.

The 2012 budget will determine whether Congress has the courage and vision not just to save the MCC as an institution, but as an idea—the idea that long-term investments, led by strong and accountable country leaders can drive economic growth, help countries lift themselves from poverty and ultimately become full economic partners of the United States in making a better world for all. Soon enough, we will see how much Congress really cares about the long-term interests of the United States in tackling global poverty.

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