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The Millennium Challenge Account: Influencing Governance in Developing Countries Through Performance-Based Foreign Aid

Posted by on Wednesday, July 11, 2012 in Notes, Vol. 42 No. 2, Volume 42, Volumes.

The United States actively impacts the legal and political environments of developing countries through the Millennium Challenge Account (MCA).  This new approach to foreign development aid presents both an incredible opportunity to encourage good governance as well as a serious danger of U.S. political agendas manipulating foreign aid to serve partisan interests.  The MCA should seek to develop a nonpartisan strategy and focus primarily on pure rule of law, governance, and political freedom indicators and programming in order to maintain its current successes in improving the legal and policy environment of developing countries competing for MCA funding.

The direction and mandate of the Millennium Challenge Account is important for several reasons.   Although some might consider the U.S. position on foreign aid to be a policy issue, much of law encompasses policy and the two simply cannot be divorced.  The United States, in organizing U.S. foreign aid around specific indicators of what it considers “good governance,” is necessarily impacting both the political and legal environments of developing countries seeking results-based foreign aid.  Preliminary studies have documented the tangible impact of the MCA through the “MCA Effect.”  Developing countries are changing domestic laws and policies specifically in order to qualify for MCA funding.  MCA funding disbursements, or “Compacts,” are also directly influencing governance and the rule of law through various programming mandates.

As this paper will demonstrate, it is vital that the MCA develop a non-partisan approach to assessing countries and allocating foreign aid in order to maintain fair and consistent relationships with MCA countries.   Past experience has demonstrated a tendency to use foreign aid for purposes of political expediency—such as rewarding political allies or shoring up failed states—rather than for purely development or poverty alleviation purposes.  However, because the MCA has been designed to reward good governance regardless of U.S. interests, it is vital to maintain the separation between political expediency and the development purposes of the MCA.   This can best be achieved by cultivating a more direct focus on governance reform and the rule of law, both in determining aid eligibility and in disbursing funds for development initiatives.

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