On Friday, MCC CEO Daniel Yohannes announced my appointment as the Corporation’s Vice President of Policy and International Relations.  I am both honored and excited to assume that position on Monday and work with the CEO and the immensely capable staff of the MCC on an exciting set of issues aimed at enhancing the organization’s effectiveness.  It is, of course, a bittersweet moment for me.  I have also been hugely honored to be a part of CGD and given the space and support to think, write and build a program that I hope has helped people better navigate U.S. foreign aid  issues and helped foreign aid agencies stay true to their missions.

I want to especially thank you all for your thoughtful comments, both online and off-line.  They have both informed my analysis and inspired me personally.  It is much of what has made this job so much fun.  The Rethinking U.S. Foreign Assistance Program and blog will continue, with posts and analysis from CGD senior staff.  And before you know it, there will be a new Director you will know and love and soon be saying, “Sheila who?” 

Thanks again to all of you for your attention and support through the years.  I trust our paths will cross again and that I will benefit, on “the other side,”  from your continued monitoring of the MCC!

–Sheila

While the appointment of Administrator Shah represents a significant step forward for USAID, it should be noted that the bulk of the work is just beginning. I’ve talked before of the set of fundamental challenges facing Shah as he takes the helm of the Agency. Filling out the rest of his leadership crew – 12 of which, like him, require Senate confirmation – is at the top of the to-do list.  We’re all anxious to see who emerges by his side!  Who would you like to see?

In its seventh round of selecting countries eligible to apply for assistance (and the first for the Obama administration), the MCC Board welcomed its new CEO and faced a decision tree with an awful lot of branches.  And each branch seemed to have unknown variables:  Would countries sustain eligibility? What final FY10 appropriations would it receive? Would Congress provide a short-term legislative fix for graduates?  What to do about the trends that show graduation will continue, putting most of the better performers in the lower-middle income category (LMIC), capped at 25% of resources?  Would Congress ever allow concurrent compact authority?  What is the right balance between selecting new countries vs. implementing existing compacts?   As the first set of compact countries near completion of their compacts, should it select them for a follow-on (second) compact?  And then there always seems to be a case that challenges whether the MCC should be used as a purely diplomatic carrot.  In the end, the Board navigated well all of the various pressures, adding no new countries to the existing pool but re-selecting those in the midst of compact preparation and selecting one country as eligible to prepare the first-ever second compact.  Here are the headlines, along with our thoughts and comparison to our predictions: 

• No new countries: selectivity or what? No new countries were added into the compact or threshold program pipeline this year.  We would love to say it was a decision to prioritize the implementation of compacts already underway.  And perhaps it was a bit of that.  But we suspect it was based more on two other issues:  uncertainty over the legislative fix for the Philippines and Indonesia that graduated into the LMIC pool, and the waning stock of good-bets in the low-income (LIC) pool.  On the former, the FY10 appropriations conference report, released the same morning as the Board meeting, provided some comfort that the short-term fix to allow graduates to access funding from their original selection round income pool would come.  (Indeed, the final bill, with the provision, passed Sunday.)  On the latter, we had predicted that the Board would look at selecting either Guyana or Rwanda, each of which have consistently passed the indicators test but each of which also have issues that make them less than ideal.  (Read our paper for background on all these issues.)  As much as we don’t like to be “wrong,” we believe the Board made the right choice and hope that the new CEO and his management team undertake a selection methodology re-think next year.  
• Second compacts enter the arena.  Compact country Cape Verde was re-selected as eligible for a second compact due to both its policy improvements and good compact implementation.  The MCC team stressed at its public outreach meeting that second compacts are not automatic and in fact are more difficult to attain as both the indicators and implementation performance are taken into consideration.  We had predicted that in addition to Cape Verde, Georgia would also be selected as eligible to prepare a second compact.  The Board appears to have pushed the Georgia decision to next year’s selection round given that it is not as close to finishing its first compact as Cape Verde.
• Keeping hope alive: six countries re-selected to compete for compact funding.  Indonesia, Malawi, Moldova, the Philippines, Zambia and Jordan will be allowed to continue compact preparations already underway.  Moldova’s compact, already approved by the Board but not yet signed, will use FY09 funds.  Best bets for getting to the FY10 funding finish line are Jordan, Malawi, and the Philippines.  Indonesia and Zambia are still in the early stages of compact development.
• What’s up with Colombia?  We know that Colombia was “legally not part of the Board’s discussion,” as relayed by the MCC team at the outreach meeting, because it graduated out of candidacy. But it appears that the legislative fix in the FY10 appropriations conference report would also apply not just to the Philippines and Indonesia having access to LIC resources but Colombia having access to LMIC resources for a three-year period.  The language is such: “that a MCC candidate country selected as an eligible country in FY2009 …that is transitioning out of one of the income categories…shall retain its candidacy status at the lower income category for purposes of setting compact funding levels for the fiscal year of its transition and the two subsequent fiscal years.”  So, just a heads-up that, technically, the Board could now add in Colombia. 
• Impact of graduates on the model.  There was not much discussion on the selection of the Philippines and Indonesia at the outreach meeting, but presumably it was a hot topic at the Board meeting itself.  The selection of these countries is deserved, but it makes the issue of what to do about country graduates all the more pressing, both in terms of budget and what it means to “pass” the indicators’ test.  (See our paper for more details.)
• Will politics encroach on the MCC model?  As we noted in our event launching our FY10 selection predictions paper, “keep your eye on Bolivia discussions.” We suspect that Bolivia was discussed at the Board meeting in terms of providing a carrot for them to align themselves more with the U.S. than Hugo Chavez.  After all, Bolivia continues to squarely pass the indicators test.  That is precisely why we categorized it as “borderline” in our paper.  While we are not privy to the Board deliberations, nor was it discussed at the outreach meeting, it appears that the Board recognized the many actions of the Bolivian government not captured in the data that are inconsistent with MCC principles and would impact the ability to successfully implement a compact.  Other USG funding accounts are available for purely diplomatic objectives.
• Mongolia’s compact gets a face-lift:  The Board voted to restructure Mongolia’s compact, approving an energy and a roads project in lieu of an originally-approved national rail project that Mongolia determined wouldn’t be feasible.  Is this a good thing?  On the one hand, the restructuring is a testament to the MCC’s ability to be a flexible and adaptable partner, presuming the new components received the same rigor of due-diligence the original components received.  On the other hand, does this set a precedent that countries are entitled to the over-all envelope of resources once approved?  We know the MCC has suspended and terminated compact components, which eases concern on the latter, and MCC staff stressed at the outreach meeting that extensive due-diligence of the new components and their impact on achieving compact outcomes in the original time-frame was conducted.
• Alas, another suspension.  The Board regrettably but appropriately voted to suspend Niger’s $23 million Threshold program due to actions inconsistent with MCC principles and eligibility criteria.  (Niger’s President Mamadou Tandja is seeking an unconstitutional third term.)  The orderly wind-down is effective immediately and the program looks to be closed out by the end of this month.

And perhaps the biggest headline of all is that we got our first peek at CEO Daniel Yohannes in action.  He gave opening remarks and fielded questions at the MCC’s post-Board meeting outreach event.  Clearly excited about being at the helm of the MCC and advancing its mission, Yohannes paid particular note to encouraging innovation within the MCC model, fostering private sector investment in partner countries, and highlighting results achieved by the MCC thus far.  He also referenced the ongoing PSD-7 in the White House and the QDDR in the State Department, and the MCC’s important role in the Administration’s global development reviews.  The Rethinking U.S. Foreign Assistance team is looking forward to working with him and his new team!

Last week, in front of twelve of the seventeen senators that form the Senate Foreign Relations Committee (an impressive turnout!) many folks got their first look at the long-awaited nominee to head the embattled U.S. Agency for International Development (USAID).  Raj Shah, a medical doctor, senior official of the Gates Foundation and most recently, undersecretary of USDA, took center stage.  And wowed. 

He wowed with confidence and poise in answering very pointed, very informed questions from Members. He wowed with his knowledge, at this early stage, of the issues at the forefront of the development policy and foreign aid reform agenda.  He wowed with the story of his meteoric rise through the ranks of the Gates Foundation.  He wowed with an obvious passion for global development and public service.  Heck, he even wowed with his young son who sat in his chair through the entire hearing, studiously taking notes. 

But, here’s the thing.  It’s really not so much about the man.  With all the wow’s we just ran through, and with the full support of a team of tenured USAID practitioners, the man comes armed with the personal and political capability to lead the crew of USAID.  The question is whether he will be given the authorities he needs to steer his own ship:

• The right people. 
• A strong policy capacity to participate alongside diplomacy counterparts in the Presidential Study Directive on U.S. Global Development Policy (PSD), the Quadrennial Diplomacy and Development Review (QDDR) and efforts to rewrite the Foreign Assistance Act. 
• The support of Congress to allow him to use existing notwithstanding and waiver authorities attached to the too-many earmarks put on his budget. 
• And, most importantly, authority over the agency’s budget—from its request, based on input from the field; to its justification, including argumentation directly to the Secretary of State and OMB as it relates to the rest of the overall State Department request; to its final allocation across sectors, programs and countries; to accounting publicly for its results.

People keep talking about the “break-through moment” when Dr. Shah, in response to Senator Menendez’ persistent questioning, states unequivocally that he would report directly to the Secretary of State.  Well, by law, this is the case.  That didn’t feel like such a “wow” moment.  The more interesting question, to get at the senator’s point—that “the hallmarks of a strong institution are control over its budget, over its planning and over its resources, and when you lack that, you lack the elements of a strong institution”—is: what will Raj Shah’s relationship be with Deputy Secretary Lew?

In the end, many of the meatier issues were left either a little unclear—like budget authority—or deferred to the results of the PSD and QDDR in process—like consolidation of development functions, programs and agencies.  So, did we have any “wow” moments?  Well, maybe they’re not “wow!” but they caught our attention: 

1. Dr. Shah did indeed have an impressive command of the issues and ably handled the vast range of questions launched at him.
2. Dr. Shah referred in his testimony to development as a “discipline.”  A discipline, he argued, that should be supported by best practices of country-led planning, strategic focus to maximize impact, working with others, leveraging through multilaterals, and investing for long-term results.   Right on!  Which is precisely why it should have healthy degree of autonomy from the very different discipline of diplomacy.
3. Ranking Member Lugar emphasized the critical importance of policy, budget and evaluation capacity at USAID. He said:  “During the last two decades, decision-makers have not made it easy for USAID to perform its vital function. Reorganization initiatives resulted in the agency’s loss of evaluation, budget, and policy capacity. There is a broad consensus among development experts that the loss of these functions at USAID is inhibiting the success of our development programs. Our development efforts will never be as effective as they should be if the agency that houses most of our development expertise is cut out of relevant policy, evaluation, and budgetary decisions.”  He cited the Foreign Assistance Revitalization and Accountability Act (S.1524), recently voted out of committee—that would take some initial steps on policy, budget and evaluation capacity. And Dr. Shah echoed the need for USAID professionals to have long-term policy planning capacity and program monitoring and impact evaluation in his own testimony.
4. Chairman Kerry reminded us of the importance of educating the American public on the value of U.S. investments in global development, harkening back to the massive effort of the Marshall Plan era.  Kerry spoke of the “huge number of accomplishments” USAID has had, but said “frankly, nobody knows about them…and that just doesn’t make sense.” Kerry continued: “I think that no one should underestimate the importance and it is underestimated. It’s underestimated every day in every conversation in this country because the parochial politics are so much easier to play, but the linkage to our national security of the few dollars we spend of our gross domestic product in this effort of development and humanitarian assistance and so forth – the return on investment where we have done it significantly has proven itself time and again to be countless times that investment…So I hope you will boldly make this case, and we need to work with you to strengthen the base, the foundation, of understanding in America of what we get for this very small investment.”  Dr. Shah agreed about the need to “be quantitative and specific” about our return on development investments but also “discuss in real English what we’re learning from successes and failures.” But of course, Congress will need to restore adequate budget capacity to the agency if it is serious about holding Dr. Shah to this mandate.

Tell us what you thought of the hearing and your views on what the nominee needs to succeed.  Any “wows”?  ONE Campaign, MFAN and Foreign Policy are all good reads.  Yesterday, Dr. Shah’s nomination sailed through the Senate Foreign Relations Committee and word has it, the full Senate may approve Dr. Shah’s nomination as early as Friday.

The MCC received an appropriation of $1.1 billion; $295 million less than the House request and $155 m greater than the Senate’s.  Not exactly a “split the difference” but nor is it a terrible outcome for a year in which the MCC transitions to new leadership and examines experience under the model.   But the big win for the MCC was securing a provision to accomodate the awkward situations of countries that graduate to a higher income category in the middle of compact preparation.  This issue hit particularly hard this year in the cases of Indonesia and Philippines graduating from lower-income to lower-middle income status, and Colombia graduating from lower-middle income to upper-middle income (taking it out of MCC candidacy altogether).

The provision allows:

“that a Millennium Challenge Corporation candidate country selected as an eligible country in fiscal year 2009 in accordance with section 607(c) of the Millennium Challenge Act of 2003 that is transitioning out of one of the income categories identified in subsections 606(a) and (b) shall retain its candidacy status at the lower income category for purposes of setting compact funding levels for the fiscal year of its transition and the two subsequent fiscal years.”

So, technically, that keeps Colombia still in the mix at today’s selection round, something we did not predict.  Now, of course, the Board has discretion over its choices so let’s wait and see what they do!  Check back for our coverage.

After emphasizing that the Secretary of State is responsible for setting U.S. foreign policy priorities and leading foreign assistance programs, Chairman Kerry stated, “S.1524 intends to strengthen the capacity of USAID to more effectively undertake development programs in support of the Secretary’s priorities.  We believe that diplomacy and development can and should be mutually reinforcing.  To that end, this bill will provide appropriate tools so USAID can function at the highest level and achieve key foreign policy priorities under the guidance of the Secretary.  I would also like to point out that maintaining institutional distinction between our diplomatic agenda and our development programs is essential.  Quite simply, development and diplomacy often operate on different timelines, assumptions and objectives requiring specialized expertise and capabilities.  We must ensure that our development programs coordinate effectively with our diplomatic programs, but this does not mean we should merge the two functions into one entity.”

And Senator Menendez:  “This is one of the most significant pieces of foreign assistance legislation that has passed out of the Senate Foreign Relations Committee in decades. I am proud that this is truly a bi-partisan bill, developed in a collaborative manner and that it includes input from a wide range of voices. These programs are critical to millions of people around the world, they contribute to our mutual economic health, and are in the direct national security interests of the United States. Furthermore, this legislation implements strong, new accountability and oversight provisions to ensure that foreign assistance is being used as intended and delivering a return on our investment. I remain committed to continue to push for a strong, independent foreign assistance voice in the U.S. government and to ensure that USAID is an empowered, innovative, and first-class development agency.  Today marks an important step, but it is just the beginning. I am committed to continue working with the Administration to build up our foreign assistance programs, not just to where they used to be, but to where they need to be.”

And Ranking Member Lugar, almost seems to be telling the State Department, hey, I’ve got your back on who’s the ultimate boss of USAID (he invokes the notion that some Senators would like to see USAID as a Cabinet agency but that he see the Secretary of State “at the top of the pyramid”), but get off my back and recognize that Congress has every right to also set priorities.  An excerpt from his statement:  “Clearly, the State Department will have ideas about development assistance that will be expressed in the Quadrennial Diplomacy and Development Review. This Committee will be eager to review the State Department’s ideas when they are ready. But Congress also should be offering proposals on how to improve development assistance. The bill we passed today should be seen as an essential input into this process. It is the product of well over a year of research and analysis by Senators and their staffs. It has attracted the support of most development groups, led by the Modernizing Foreign Assistance Network. It is co-sponsored by a bipartisan group of 19 Senators, twelve of whom are members of this Committee. This level of backing for a bill related to foreign assistance structure is extremely rare. It provides an opportunity to build something approaching a consensus on this issue.  It is especially important that Congress express its views given that the nominee for the USAID Administrator position was only announced last week. Without an Administrator in place for most of 2009, the USAID perspective has been at a disadvantage during the QDDR process. I look forward to discussing the future of the agency with Undersecretary Shah during his upcoming confirmation process. Although the State Department declined to participate at our hearing on this bill last July, I am hopeful it will recognize that a bill co-sponsored by a majority of the Senate Foreign Relations Committee should be given substantial weight in their review process. Congress will be making decisions about resources for development programs, and those decisions will be effected by our confidence in how funds are managed and coordinated.”

The fact that a foreign aid reform bill of any kind not associated with a specific national security issue like Afghanistan or Pakistan was able to generate this level of bipartisan support and pass out of committee is truly remarkable.  If this is a “first step,” I can’t wait to see what comes next.  What will happen to the bill when it hits the Senate floor?  And, together with the other important “steps” — the State Department/USAID QDDR, the White House Presidential Study Directive on U.S. global development and Congressman Berman’s work on rewriting the Foreign Assistance Act — the sum of the parts might just be something historic.

For the past year, policy commentators (including me) have, in the course of pushing the administration to name a USAID Adminstrator said, “no offense to Alonzo, he’s doing a great job, but it’s not the same as having the political backing of the White House.”  But let’s be real: in saying we mean no offense, we have, of course, been completely offensive. I regret that casualty in our efforts as Alonzo’s record and character is one to which all civil servants should aspire.  From serving as a Peace Corps volunteer to serving USAID in hotspots such as Bosnia and Afghanistan and perhaps the hottest spot of all — this past year as Acting Administrator where his hard work and unflappable nature have  indeed been remarkable. 

To Alonzo and his team — thank you.