The Millennium Challenge Account progresses

Some facts:

1. The U.S. is engaged in a major restructuring of its foreign aid programs, bypassing the multilateral institutions. For better or worse, this is one of the most innovative ideas of the Bush administration.

2. The Millennium Challenge Account represents a yearly foreign aid increase of about nine percent. By 2008 this could amount to a total of $5 billion a year.

3. For this year to come, perhaps no more than fifteen nations will win awards. All but five countries in Latin America are ineligible for the awards, largely because they are now too wealthy

4. Countries such as Senegal and Ghana, which are poor but respect (some) basic civil liberties, are leading contenders for funds.

5. We are told that grants will be handed out in accordance with a variety of indices, many of them non-governmental, such as the corruption index of Transparency International, the rule of law index of the World Bank Institute, and the Heritage Foundation index on trade policy and freedom.

6. The U.S. will not try to dictate how the money is spent, but rather leave this decision in the hands of the receiving government. This, plus the use of the indices, represents the real innovation of the policy. In essence we are giving bonuses to countries with good policies.

Here is a recent New York Times story on the policy initiative. Here is a previous MR post on the topic.

What’s the bottom line? One scenario is that the Bush people are serious about sticking to the chosen indices. In that case we are funding the marginal, otherwise-not-worth-doing Senegalese project. Third world countries typically need stronger states (as opposed to bigger states per se), it is an open question how much outright cash gifts will further this end, without further mechanisms for accountability. Another scenario involves a deepening of our fiscal crisis, and the use of the fund to prop up current efforts in Iraq and Afghanistan, or perhaps anti-AIDS efforts. In this case we have created another bureaucratic instrument to finance aid efforts that are already in place.

Stay tuned…