Challenge Lives Up to Its Name

GAO Says New Aid to World's Poor Is Off to a Rocky Start

John Danilovich was hired to cut red tape. (Chip Somodevilla - Getty Images)

The Millennium Challenge Corp., launched by President Bush with the promise that it would bring an unprecedented level of efficiency to foreign development aid, is struggling to create the management structure needed to reach its goal, according to the Government Accountability Office.

A new report, which reviews implementation of MCC development agreements in three countries, says the agency is having trouble developing the reliable economic information needed to accurately assess the impact its grants or compacts are having on impoverished countries.

"The data and assumptions used in some of MCC's economic analyses may not accurately reflect the countries' socioeconomic conditions," the report says. "As a result, MCC cannot be assured that it has selected projects that will achieve the compact's goals."

The report, while acknowledging that the development agency has made substantial progress since it began operations two years ago, says the difficult job of developing reliable economic measurement and accountability systems in impoverished countries is central to the MCC's mission.

"In the context of significant progress, the MCC is facing some real challenges that are key to demonstrating that compacts are funding the right projects and for MCC to be able to show that compacts have achieved their intended results," said David Gootnick, principal author of the report.

The MCC was established with the aim of spreading development aid to the some of the world's poorest countries. More than other aid programs, it aimed to adhere to the principle that it would reward poor countries that were well run. The corporation chooses recipients based on 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 citizens' well-being.

The GAO report focuses on the first three countries to sign compacts with the MCC: Honduras, Cape Verde and Madagascar. It found that while the MCC and recipient countries have made progress in developing plans for overseeing the implementation of the grants, some have weaknesses that could compromise the MCC's ability to assure accountability. Also, the report says, countries have been slow to hire staff to oversee the programs, limiting their ability to adhere to the agreements.

Charles O. Sethness, the MCC's vice president for accountability, said the organization will always face a difficult task working in developing nations. "Anything that requires forecasting and analysis in uncertain environments is always going to be a challenge," he said. "But that's our middle name."

Since its establishment in 2004, the MCC has approved foreign assistance agreements that would pay more than $2.1 billion to aid development in nine nations. Yesterday, the agency signed its largest agreement to date, a $547 million aid deal with Ghana. The agreement aims to raise the income potential of farmers through increased crop production, an improved transportation network and the development of food-processing industries. It also would help fund initiatives to improve access to education, water and sanitation and to provide electricity in rural areas.

Beyond Ghana, Madagascar, Honduras and Cape Verde, the MCC has signed compacts with Nicaragua, Georgia, Benin, Vanuatu and Armenia. Others are in various stages of development.

In part because of its emphasis on accountability, the foreign aid program got off to an extremely slow start. As of May, it had disbursed $22.4 million of the $4.2 billion that Congress has appropriated.

Last November, Bush appointed former ambassador John J. Danilovich as chief executive of the agency with a mandate to eliminate unnecessary red tape in establishing development deals and ramp up the agency's spending.