With New Leader, Foreign Aid Program Is Taking Off

By Michael A. Fletcher and Paul Blustein
Washington Post Staff Writers
Tuesday, January 31, 2006

After getting off to a painfully slow start, President Bush's signature foreign aid program is poised to begin ramping up the amount of money it spends on development projects in poor countries, according to its new chief executive -- who vows that the impact will be "transformative."

John J. Danilovich, the former ambassador whom Bush installed as head of the Millennium Challenge Corp. in November, said the agency is adopting a new strategy to fulfill its mission of providing aid to well-governed nations. It will winnow recipients to a short list but intends to give them significantly bigger grants than those bestowed in previous programs.

Implementing such an approach would mark an important shift for the federally funded corporation, which Bush proposed creating in 2002 as an innovative way to dole out development assistance.

The idea was to establish an agency that, instead of giving funds to a broad cross section of countries, would funnel aid only to poor nations deemed to have relatively honest governments and good policies -- the theory being that aid works best that way. Working separately from traditional aid programs, the corporation was to choose potential recipients based on a clear set of criteria measuring their commitment to free enterprise, perceived success in reducing corruption and willingness to invest in education, health care and other programs aimed at the well-being of their citizens.

Despite widespread praise for the concept, the program has fallen well short of Bush's stated ambition. He envisioned spending $1.7 billion in 2004, $3.3 billion in 2005 and $5 billion per year thereafter. But the administration took two years just to set up the corporation, and even then problems impeded its progress.

With 16 countries eligible to enter into "compacts," the agency was reluctant to give too much money to any individual country. Initially only five countries submitted proposals for projects that the agency's management found worthy of funding -- Cape Verde, Georgia, Honduras, Madagascar and Nicaragua. As a result, the corporation has committed or approved just $1.6 billion in development aid since its inception. As of December, $19.5 million of that money had been disbursed, as recipients are given money only as their projects move ahead.

Frustrated by the slow pace, Congress limited the agency's budget, and its first CEO, Paul V. Applegarth, left shortly after African leaders complained to Bush at the White House last June about the difficulty of obtaining the promised assistance.

A former ambassador to Brazil and Costa Rica who spent much of his career in the shipping business, Danilovich acknowledged that handing out relatively modest sums to individual countries would not produce the desired galvanic effect. That is why he is planning to dispense bigger amounts to fewer countries, while giving recipients larger blocks of capital at the start of their development projects.

"We're concentrating on fewer countries with larger compacts, because we want to have a transformational impact," Danilovich said in an interview. "There is no point in giving a little money to each of a lot of countries, because you're just not going to have that impact."

He said the corporation wants to step up its pace of disbursements. Typically, the corporation's aid agreements are five-year deals that call for money to be distributed to countries as their projects progress. "We hope to do some reconfiguring of our disbursements . . . to see if we can get a substantial amount of money out the door in the first year of a compact," Danilovich said. He added, however, that money would be distributed no more quickly than a country can absorb it.

He also has worked to improve communication with prospective grantees, and has produced a binder that outlines for recipients the process of implementing development deals with the corporation. The idea is "here's the book. Here's what you have to do. Follow it," Danilovich said.

Since Danilovich has come aboard, the corporation has agreed on additional compacts with Armenia and Vanuatu, an island nation in the South Pacific. Yesterday, it announced a deal with the African nation of Benin and officials are hoping to have several more agreements in place by the end of the year.

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