Promoting good governance through aid: transatlantic experiences

11 April 2006

Ambassador John J. Danilovich, Chief Executive Officer for the Millennium Challenge Corporation, opened the discussion by explaining that because good governance was essential for development, the Millennium Challenge Corporation (MCC) had been created to encourage stable, democratic and prosperous societies.

The MCC was established in 2004 on the basis of President George W. Bush’s proposal to set up a Millennium Challenge Account (MCA) to “reward nations that root out corruption, respect human rights and adhere to the rule of law”. The MCC’s mandate is to reduce poverty through sustainable economic growth.

To become eligible for MCC aid, countries have to perform well on 16 good governance policy indicators. Ambassador Danilovich said the aim of the whole programme is to raise overall international standards by getting countries to compete for eligibility - and this was already happening.

The MCC has also established a Threshold Program to ensure that there are incentives for countries that fall just short of the eligibility criteria for receiving aid. So far, five countries have been granted support under this programme (in conjunction with USAID) to improve the performance in areas where they are lagging behind.

Ambassador Danilovich said countries which did not achieve the requisite marks to gain MCC support could still receive US development assistance under other programmes. However, those which had received MCC aid and then backtracked on their policies or failed to rigorously implement their agreements risked losing their eligibility. “We will not hesitate to say ‘no’ or ‘no more’,” said Ambassador Danilovich, citing Yemen as a country which had recently been suspended from the Threshold Program.

The MCC approach of “aid with accountability” has already yielded impressive results, particularly in committing recipient countries to create a sustainable environment in which programmes can have lasting effects. Monitoring and evaluation programmes are being designed in concert with recipient countries to help them build up their own capacities.

The Ambassador concluded by listing three ways in which the MCC programme encourages better governance: by providing incentives; by insisting that programmes are only launched if the policy climate is right; and by giving countries responsibility for programme development and implementation.

Alex Ellis, Member of European Commission President Barroso’s Cabinet and Special Adviser on development and the developing world, trade, transport and energy, reminded the audience that the EU itself is an experiment in governance, since “governance is the core of what Europe is about”.

While the Union has successfully encouraged good governance in central and eastern Europe by dangling the carrot of EU membership, wielding influence with countries outside the European neighbourhood is more of a challenge because it cannot use this “transformational carrot”.

According to Mr Ellis, the problem is that good governance is too often considered the successful outcome of development rather than as a means to development. This approach has to be changed.

International commitments to double aid by 2008 have heightened expectations of what the EU can achieve. Polling data also shows that EU citizens agree that the Union should increase its international responsibility. These expectations both provide an opportunity and pose a risk, because failure to fulfil them could damage the EU’s credibility and its initiatives.

Mr Ellis described three types of relations between the Union and aid-recipient countries:

1. Strong partnerships: where EU-recipient country cooperation is unproblematic.

2. Weak partnerships: between the EU and (often) fragile states, with aid focusing on capacity-building in core government services (e.g. Somalia, the Democratic Republic of Congo).

3. Stronger countries unwilling to deliver on agreed principles: the challenge in this situation is to get countries (e.g. Mauritania, Togo) to comply with the conditions for receiving aid, or, as in the case of Ethiopia, suspend budgetary support.

Mr Ellis then set out the EU mechanisms to support good governance. First, there are a range of instruments such as budgetary support (which comprises 30% of EU aid), offering money in multi-annual doses, and tying aid to outcomes. Second, there are a range of policies, such as trade, aid and energy policies, plus capacity-building and helping countries to take advantage of available favourable EU trade preferences and creating conditions for investment. Finally, there are a range of actors working at the local, national, regional and international level. The EU engages civil society in areas where a government is not cooperative (e.g. Zimbabwe); or works with regional organisations, for example, by giving support to and cooperating with the African Union.

Mr Ellis also conceded that the EU had to improve its own internal governance when working with third countries, particularly in coordinating Member States’ development policies.