The Millennium Challenge Corporation (MCC) is a novel United States foreign aid program established in 2004 by President George W. Bush. Since its inception MCC has been seen as a bold new approach toward development aid with features similar to the World Bank’s Sector Wide Assistance Program, as it puts host nations in the “aid drivers seat.” Its annual appropriations budget averages $1 billion with the majority of this funding going toward country development projects. The overarching philosophy of MCCs development model is “based on the premise that economic development succeeds best where it is linked to free market economic and democratic principles and policies, and where governments are committed to implementing reform measures in order to achieve such goals.”
Since its inception, however, only one Pacific Island nation has been awarded an MCC compact despite many of the region’s countries meeting the selection criteria. As United States foreign aid and interest in the Pacific Region slowly evolves, a number of recent events in the region should encourage MCC to reconsider funding small Pacific Island Nations. This article takes a brief look at the selection process for MCC grants, what has influenced MCC in shying away from funding small Pacific Island Nations, and why one Pacific Island Nation in particular, Solomon Islands, would benefit greatly from an MCC compact.
MCC has a well-defined set of selection criteria. First before any awards are considered candidate countries are identified using the World Bank classification for low-income and low- to middle-income countries. A GNI per capita of less than $4125 (2015) defines the list of 83 countries that are candidates for two possible grants: compacts and threshold program grants. Compact grants are awarded to countries that meet specific eligibility indicators and threshold program awards go to countries that have not met compact indicators but are encouraged to improve their performance through modest awards.
The selection of eligible countries for compact consideration includes performance ranking in Ruling Justly, Investing in People, and Encouraging Economic Freedom. If awarded, grants are limited to a five-year period despite many development specialists encouraging longer grant periods to allow development programs to evolve and yield measurable results. Regional versus country-specific programs have also been debated over the MCC’s 10 years history. Many Pacific Island Nations qualify to be candidates this year, including Vanuatu, Solomon Islands, Papua New Guinea, Kiribati, the Federated States of Micronesia and Samoa. Of these Vanuatu, Solomon Islands, Kiribati and Samoa have met eligibility criteria. But unless the MCC and Congressional Appropriations Committee recognize some of the unique development challenges these small island states face they will be overlooked, again.
In the past MCC has looked less favorably on establishing compacts with small Pacific Island Nations based upon the perceived inefficiencies of working in the Pacific Region. This was based on a very early experience with a 2006 compact between MCC and Vanuatu. While the Vanuatu project yielded a good result – putting in place infrastructure upgrades, including roads, warehouses and an airstrip, in support of agriculture development – the cost of overseeing the compact was deemed too expensive and not “cost effective.” This early experience has cast a shadow over the chances of all other Pacific Island Nations establishing compacts with MCC and in doing so has undervalued their human and economic development needs. Today, things are different in the Pacific Region and MCC’s Board should reconsider their Pacific decision. USAID has returned to the region and U.S. engagement appears to be on the upswing, as evidenced by Secretary of State John Kerry’s recent historic visit to Solomon Islands and the regular U.S. attendance at regional meetings. While USAID now oversees some modest foreign aid investment programs addressing climate change in the Pacific these programs are spread so thin over the entire region that the impact potential is diluted. MCC engagement in the region could create synergies with these programs and make them more effective.
Pacific Island Nations face unique development challenges that include economies largely based upon natural resources, potential for outside exploitation, and limited investments that leave them highly vulnerable to economic volatility. They are also increasingly vulnerable to climate change impacts due to accelerated coastal erosion, sea level rise and more severe extreme weather events. In Solomon Islands, one of the least developed countries in the Pacific, a recent flood and infrastructure disruptions stalled the nation’s economic growth. With well thought-out cross-cutting infrastructure adaptation based on demonstrated vulnerabilities, the country’s fragile economy can continue to grow despite the climate change impacts it faces. Addressing economic growth and human security in countries like the Solomon Islands requires significant dollar investments, something its fledgling economy is not able to do on its own despite government and leadership development over the past 10 years. This is where MCC compacts can make a difference.
MCC compact agreements are ideal for small vulnerable nations like Solomon Islands as they have the real potential to assist host governments in establishing resilience as well as growth through both hardscape and leadership investment. A well designed Pacific compact that includes economic as well as public health and health sector investments will create stability despite vulnerability and could set the stage for further uninterrupted development of human capital, tourism, and expanded business investment. In the case of Solomon Islands a MCC compact could elevate the country from its current low income category (LIC) to a low to middle income category (LMIC). This would be a very significant and measurable achievement for Solomon Islands as well as MCC.
As United States involvement in the Pacific Region evolves, funding agencies like the Millennium Challenge Corporation can play a unique and powerful role in shaping development in the region. Smart, comprehensive compact funding can allow Pacific Island Nations like Solomon Islands to include adaptation and resilience along with economic and human capital growth schemes so they may best address the unique challenges they face.
Eileen Natuzzi, MD, MS, FACS is a public health surgeon and director of surgical education for the Solomon Islands Living Memorial Program, an educational partnership between health providers in the U.S., Australia and Solomon Islands.