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IMPLEMENTATION OF THE MILLENNIUM

CHALLENGE ACT

HEARING

BEFORE THE

COMMITTEE ON 

INTERNATIONAL RELATIONS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

MAY 19, 2004

Serial No. 108–113

Printed for the use of the Committee on International Relations

(

Available via the World Wide Web: http://www.house.gov/international—relations 

(II)

COMMITTEE ON INTERNATIONAL RELATIONS 

HENRY J. HYDE, Illinois, Chairman 

JAMES A. LEACH, Iowa 

DOUG BEREUTER, Nebraska 

CHRISTOPHER H. SMITH, New Jersey, 

Vice Chairman 

DAN BURTON, Indiana 

ELTON GALLEGLY, California 

ILEANA ROS-LEHTINEN, Florida 

CASS BALLENGER, North Carolina 

DANA ROHRABACHER, California 

EDWARD R. ROYCE, California 

PETER T. KING, New York 

STEVE CHABOT, Ohio 

AMO HOUGHTON, New York 

JOHN M. MCHUGH, New York 

ROY BLUNT, Missouri 

THOMAS G. TANCREDO, Colorado 

RON PAUL, Texas 

NICK SMITH, Michigan 

JOSEPH R. PITTS, Pennsylvania 

JEFF FLAKE, Arizona 

JO ANN DAVIS, Virginia 

MARK GREEN, Wisconsin 

JERRY WELLER, Illinois 

MIKE PENCE, Indiana 

THADDEUS G. MCCOTTER, Michigan 

KATHERINE HARRIS, Florida 

TOM LANTOS, California 

HOWARD L. BERMAN, California 

GARY L. ACKERMAN, New York 

ENI F.H. FALEOMAVAEGA, American 

Samoa 

DONALD M. PAYNE, New Jersey 

ROBERT MENENDEZ, New Jersey 

SHERROD BROWN, Ohio 

BRAD SHERMAN, California 

ROBERT WEXLER, Florida 

ELIOT L. ENGEL, New York 

WILLIAM D. DELAHUNT, Massachusetts 

GREGORY W. MEEKS, New York 

BARBARA LEE, California 

JOSEPH CROWLEY, New York 

JOSEPH M. HOEFFEL, Pennsylvania 

EARL BLUMENAUER, Oregon 

SHELLEY BERKLEY, Nevada 

GRACE F. NAPOLITANO, California 

ADAM B. SCHIFF, California 

DIANE E. WATSON, California 

ADAM SMITH, Washington 

BETTY MCCOLLUM, Minnesota 

BEN CHANDLER, Kentucky 

THOMAS E. MOONEY, SR., Staff Director/General Counsel 

ROBERT R. KING, Democratic Staff Director 

PETER D.R. SMITH, Professional Staff Member 

LIBERTY DUNN, Staff Associate 

(III)

C O N T E N T S 

Page

WITNESSES 

The Honorable Paul Applegarth, Chief Executive Officer, Millennium Challenge Corporation ................................................................................................. 5

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

The Honorable Henry J. Hyde, a Representative in Congress from the State 

of Illinois, and Chairman, Committee on International Relations: Prepared 

statement .............................................................................................................. 2

The Honorable Paul Applegarth: Prepared statement ......................................... 8

APPENDIX 

The Honorable Ron Paul, a Representative in Congress from the State of 

Texas: Prepared statement .................................................................................. 35

The Honorable Robert Wexler, a Representative in Congress from the State 

of Florida: Prepared statement ........................................................................... 36

(1)

IMPLEMENTATION OF THE MILLENNIUM 

CHALLENGE ACT 

WEDNESDAY, MAY 19, 2004

HOUSE OF REPRESENTATIVES, COMMITTEE ON INTERNATIONAL RELATIONS, Washington, DC. 

The Committee met, pursuant to call, at 10:33 a.m. in Room 

2172, Rayburn House Office Building, Hon. Henry J. Hyde (Chairman of the Committee) presiding. 

Chairman HYDE. The Committee will come to order. Good morning, and welcome to today’s hearing of the Committee on International Relations. 

The purpose of today’s hearing is to examine the Administration’s implementation of the Millennium Challenge Act of 2004. We 

have with us today the new Chief Executive Officer of the Millennium Challenge Corporation, Mr. Paul Applegarth. Mr. Applegarth 

was confirmed on May 5, 2004, and is responsible for leading the 

Corporation, which was established by the Millennium Challenge 

Act. 

In March 2002, President Bush announced his intention to create 

a new development assistance program called the Millennium 

Challenge Account. The President proposed that this program 

would be ‘‘above and beyond existing aid,’’ with the new money 

placed in a separate fund, the Millennium Challenge Account, also 

referred to as the MCA. 

MCA funds would be available on a competitive basis to a select 

number of ‘‘best-performing’’ countries that have demonstrated a 

commitment to sound development policies, and where U.S. support would have the best opportunity for achieving the intended results. These ‘‘best-performers’’ would be selected based on their 

records in three areas—ruling justly, investing in people, and pursuing sound economic policies. 

The President’s MCA proposal, which passed the House last 

June, was enacted into law in Division D of Public Law 108–199. 

The Millennium Challenge Account Initiative is the first serious attempt to address the fact that existing U.S. development assistance 

programs have consistently failed to meet their stated goals. Despite decades of economic aid, most recipients are poorer now than 

they were before first receiving development assistance. 

Development assistance alone is not sufficient to stimulate economic growth and development. The main philosophical underpinning of the MCA is that the United States must be more selective 

in aid distribution if the assistance is to be effective and a positive 

contributor to development. 

2

MCA assistance will reward only those recipients who willingly 

adopt good policies and institutions. Of the approximately 70 countries currently eligible for development assistance, only 16 countries have met the strict criteria stipulated by the Millennium 

Challenge Act for FY 2004. 

At the funding level proposed by the President for FY 2005, this 

may mean a very high level of assistance for MCA-recipient countries. Traditional bilateral assistance programs will continue for 

countries who do not meet the cut. The President believes that this 

will create a competition among ‘‘cusp’’ countries which may accelerate reforms and the adoption of good policies. 

I look forward to today’s hearing, and I now am pleased to yield 

to my friend and colleague, the distinguished Ranking Member 

from California, Mr. Lantos. 

[The prepared statement of Mr. Hyde follows:]

PREPARED STATEMENT OF THE HONORABLE HENRY J. HYDE, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF ILLINOIS, AND CHAIRMAN, COMMITTEE ON INTERNATIONAL RELATIONS

Good morning, and welcome to today’s hearing of the Committee on International 

Relations. 

The purpose of today’s hearing is to examine the Administration’s implementation 

of the Millennium Challenge Act of 2004. We have with us today the new Chief Executive Officer of the Millennium Challenge Corporation, Mr. Paul Applegarth. Mr. 

Applegarth was confirmed on May 5, 2004, and is responsible for leading the Corporation, which was established by the Millennium Challenge Act. 

In March 2002, President Bush announced his intention to create a new development assistance program called the Millennium Challenge Account. The President 

proposed that this program would be ‘‘above and beyond existing aid,’’ with the new 

money placed in a separate fund—the Millennium Challenge Account, also referred 

to as the MCA. MCA funds would be available on a competitive basis to a select 

number of ‘‘best-performing’’ countries that have demonstrated a commitment to 

sound development policies, and where U.S. support would have the best opportunity for achieving intended results. 

These ‘‘best-performers’’ would be selected based on their records in three areas—

ruling justly, investing in people, and pursuing sound economic policies. 

The President’s MCA proposal, which passed the House last June, was enacted 

into law in Division D of Public Law 108–199. 

The Millennium Challenge Account initiative is the first serious attempt to address the fact that existing U.S. development assistance programs have consistently 

failed to meet their stated goals. Despite decades of economic aid, most recipients 

are poorer now than they were before first receiving development assistance. 

Development assistance alone is not sufficient to stimulate economic growth and 

development. The main philosophical underpinning of the MCA is that the United 

States must be more selective in aid distribution if the assistance is to be effective 

and a positive contributor to development. 

MCA assistance will reward only those recipients who willingly adopt good policies and institutions. Of the approximately 70 countries currently eligible for development assistance, only sixteen countries have met the strict criteria stipulated by 

the Millennium Challenge Act for FY2004. 

At the funding level proposed by the President for FY2005, this may mean a very 

high level of assistance for MCA-recipient countries. Traditional bilateral assistance 

programs will continue for countries who do not meet the cut. The President believes that this will create a competition among ‘‘cusp’’ countries which may accelerate reforms and the adoption of good policies. 

I look forward to today’s hearing, and I now recognize my friend and colleague, 

the distinguished Ranking Member from California, Tom Lantos.

Mr. LANTOS. Thank you very much, Mr. Chairman. 

Mr. Chairman, less than 2 weeks ago the Millennium Challenge 

Corporation made an announcement that will dramatically affect 

the economic and political future of 16 nations around the globe. 

3

These lucky 16 made the first cut of countries eligible to receive 

Millennium funds. 

I was largely pleased with the list of nations that cleared this 

first bar, and I have no doubt that the Millennium program will 

help these countries better provide for their own people and embrace freedom. I hope that the countries that made this cut because 

of very recent economic and political progress will sustain that 

progress as the program goes forward. 

Now that the first round of nations has been announced, the real 

difficult work begins for us all. The United States must now negotiate complex agreements with the 16 nations on how Millennium 

funds will be spent. 

While we share a common objective with these countries to help 

promote sound economic and political development, there will undoubtedly be major differences in the means to achieve these worthy objectives. We in Congress must also step up our oversight of 

the Millennium Challenge Corporation to ensure that the Millennium initiative is an unqualified success and that the strong bipartisan political consensus in support of this initiative does not fade 

away. 

Mr. Chairman, I would like to make four recommendations to 

Mr. Applegarth, whom I welcome here this morning, that will help 

to ensure the continuation of solid congressional support for the 

Millennium program. 

First, the upcoming negotiations with respect to the 16 recipient 

countries. We in the United States must focus on transparency and 

accountability. Congress granted the Executive Branch unprecedented flexibility in the expenditure of Millennium funds to increase the effectiveness of the program, but it would only take one 

horror story of Millennium funds being used to line a high official’s 

pockets or being wasted on white elephants for the whole program 

to be immediately tarnished. 

I do not need to suggest parenthetically that the heroic, humane, 

extraordinary efforts of thus far 200,000 of our military personnel 

at the moment is being overshadowed by the misguided and inappropriate behavior of a handful. If this is true of a major military 

undertaking, Mr. Applegarth, you must be extremely careful to see 

to it that it will not destroy this new program. The dangers are 

there in every one of the 16 countries. Flexibility must go hand in 

hand with transparency and accountability. 

Second, the Millennium Challenge Corporation must make serious efforts to expand the number of countries that will benefit from 

the Millennium initiative. The 16 countries that are currently eligible represent only about 3 percent of the world’s poor population. 

Ninety-seven percent of the world’s poor population will not benefit 

from this program in its early stage. 

Mr. Chairman, Congress allocated up to 10 percent of Millennium funds to work with additional countries that just missed the 

eligibility bar. However, the Millennium Challenge Corporation has 

ignored this provision and allocated only 4 percent for these threshold countries. I believe this was a mistake. 

These arbitrary criteria in any selection process need to be implemented in an intelligent and flexible fashion. At university admissions offices, students may miss the admissions criteria for 1 perVerDate Mar 21 2002 14:25 Aug 03, 2004 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6601 F:\WORK\FULL\051904\93777.000 HINTREL1 PsN: SHIRL
4

centage point, yet with proof to be a more promising student than 

some who barely made it. 

I think it would have been much wiser for Mr. Applegarth and 

his colleagues to use the 10 percent that we provided in our legislation rather than cut it back to 4 percent. I think it was a mistake, 

and I would like to find out why the leadership has chosen not to 

take full advantage of the flexibility we provided. I think legislation 

in this instance was far more intelligent and flexible than implementation. 

I strongly encourage the Administration to announce immediately those countries that could benefit from the threshold program and to devote the financial resources necessary to make the 

program work. I will also soon introduce legislation to reauthorize 

this threshold program, which unfortunately expires this year. 

My third point, Mr. Chairman, is that the Millennium Challenge 

Corporation must work hand in glove with the Agency for International Development both now and in coming years. Both institutions must play a critical role in negotiating the implementation 

agreements with the 16 Millennium countries and in helping the 

next round of eligible countries get ready for the Millennium program. We must ensure that a successful Millennium initiative does 

not mean the eventual demise of USAID. 

Finally, Mr. Chairman, the Administration must live up to its 

pledge that the Millennium program will not be funded at the expense of traditional development aid. While the President’s budget 

request contained a 92 percent increase for the Millennium program, it slashed core development accounts by more than 14 percent. I strongly encourage the Administration to reevaluate this 

policy and to reverse the downward trajectory for funding traditional development accounts. 

Mr. Chairman, with the selection of Mr. Applegarth to lead the 

Millennium Challenge Corporation and the announcement of the 

first cut of eligible countries, the Millennium program is off to a 

good start, but it will take all of our continued involvement and 

oversight to ensure that the Millennium Challenge Account ultimately lives up to all our hopes and our expectations. 

Thank you, Mr. Chairman, for calling today’s important hearing. 

Chairman HYDE. Thank you, Mr. Lantos. 

If there are any further opening statements, without objection 

they will be made a part of the record at this point in the record. 

I would like to welcome Paul Applegarth. Prior to becoming the 

Chief Executive Officer of the Millennium Challenge Corporation, 

he was Managing Director at Emerging Markets Partnership. He 

also recently completed service as the initial chief operating officer 

of the Emerging Africa Infrastructure Fund and is founding managing director of Emerging Africa Advisers, the Principal Adviser 

to the fund. 

Mr. Applegarth previously served as the Chief Financial Officer 

of United Way of America, Senior Vice President for International 

Markets at American Express and held several positions at the 

World Bank. He is a graduate of Yale University and Harvard Law 

School and holds an MBA with high distinction from Harvard Business School. 

5

We welcome you, Mr. Applegarth. We are honored to have you 

appear before us today. Please proceed with a summary, 5 minutes 

give or take liberally construed. Your full statement will be made 

a part of the record. 

Mr. Applegarth? 

STATEMENT OF THE HONORABLE PAUL APPLEGARTH, CHIEF 

EXECUTIVE OFFICER, MILLENNIUM CHALLENGE CORPORATION 

Mr. APPLEGARTH. Thank you, Mr. Chairman. It is a pleasure to 

be here today to appear before you and Members of the Committee. 

I am pleased to be here as the very recently confirmed Chief Executive Officer of the Millennium Challenge Corporation. 

Since this is my first time before you, let me say that I do look 

forward to meeting and working closely with you not only in these 

forums, but hopefully individually going forward. 

Chairman HYDE. Could you bring your microphone a little closer 

to you? 

That is good. Thank you. 

Mr. APPLEGARTH. I understand and I have been advised about 

the value and contribution of this Committee in particular to the 

creation of MCC. Many of the ideas and concepts presented by you 

and your colleagues are now a part of its philosophy and operating 

design, and I take particular note both of your opening remarks 

and some of the comments of Congressman Lantos, and I hope to 

address those both now and in the Q&A later. 

A venture potentially as far reaching and as innovative as MCC 

can only be successful through bipartisan backing and the kind of 

backing it has gotten in this Committee. It is one of my personal 

objectives as CEO to preserve and strengthen the spirit of bipartisanship which created the MCC. 

I am pleased to report that the MCC has had a fast, productive 

start up. It has been 4 months since it was established. In that 

time, it has truly been starting up, but it has met the legislative 

schedule for selecting eligible countries and has implemented a 

major communication and outreach effort to all of our key constituencies. 

As you mentioned, we completed a major milestone on May 6 

when the Board of Directors selected 16 countries as being eligible 

for the first funding. These countries were selected based on the 

criteria and methodology submitted to Congress on March 2. 

In considering the countries and the criteria, we welcomed a 

wide array of public input on the criteria and methodology. Public 

comment is not only a mandated part of the Corporation’s procedures, but such dialogue is also a part of our core philosophy and 

key to our future success. 

I think my written testimony mentions in detail the number of 

outreach meetings we have had with the public, with NGOs, with 

other donors and so on. I will not go into them here, but I will tell 

you that we are committed to ensuring a continuing process of 

input. In many ways, MCC is as much about the message as it is 

about money. We value the input of everyone—the Committee 

Members and others—in terms of what we are trying to do. 

6

The 16 countries that have been selected have responded enthusiastically. This weekend, five MCC teams, including me, will depart for initial visits to all 16 countries. During these visits, we will 

meet not only with government officials, but also with civic and private sector leaders, opinion leaders, members of the public and 

other donors. 

Following these visits, we expect that many or all of the countries will submit Compact proposals. If the proposals are good, 

MCC will then negotiate and finalize Compacts with the countries. 

This will be a deliberative process which will require a country to 

clearly outline its priorities and their impact on economic growth. 

Today I want to focus on some issues that concern the Committee: The principles that drive MCC, our intended methods of operation and accountability. I also want to touch on our relationship 

with other donors, in particular USAID. 

Building on what has been learned in international development 

assistance, the MCC will take a new approach. My written testimony discusses MCC’s principles in detail, but, to summarize, MCC 

emphasizes policy reform. It focuses exclusively on sustainable 

growth. Its relationship with emerging countries will be characterized by a spirit of partnership. 

Partnered countries will incorporate the views of broad cross-sections of their societies as they determine their priorities. MCC will 

focus on results and establish outcome based standards for success 

up front. It will establish accountability as a key operating principle and will monitor progress on an ongoing basis. 

MCC did not invent these ideas. Previous development assistance 

has included at least some of them. The fact that all of them are 

key structural components of MCC, together with the scale of MCC 

and the amount of its funding, make MCC different and I believe 

make it capable of making a real difference in the lives of millions. 

Let me elaborate briefly on three of the core elements of the 

MCC approach. First, policy reform. Research has shown that development aid produces the best results when it is targeted to 

countries that have a good policy environment. Indeed, policy reform in recipient countries can have a much more positive impact 

for those countries than whatever MCC itself does. As you said in 

your opening remarks, Mr. Chairman, MCC could be a catalyst for 

development. It is not the cause of development, and that is the approach we are taking. 

MCC’s emphasis on policy reform is already paying off. Countries 

want to be part of MCC, and they are competing to qualify. We are 

already beginning to see evidence of policy changes in countries 

seeking to improve their performance on the MCC indicators. 

MCC’s concepts are already having an impact even before the MCC 

has entered into a single Compact or disbursed a single dollar. 

Secondly, partnership. The MCC represents a major change in 

the relationship between donor and recipient aimed at a true partnership. Instead of telling donor countries what we want them to 

do or what they get money for, we are going to ask the qualified 

nations what are your development priorities. The nations will own 

the programs from the start, and MCC will provide financial and 

implementation assistance to countries that are performing. 

7

Third, accountability. I would echo Congressman Lantos’ comments. Partner nations will be accountable for their performance. 

If a country’s performance under a Compact begins to falter, MCC 

will attempt to find ways to support and assist it. However, if 

underperformance is chronic or if a country fails to live up to its 

commitments, MCC must be and is prepared to terminate funding 

and end the Compact. 

MCC is approaching the 17 month period from now until the end 

of fiscal year 2005 as a single period for planning purposes. We 

only have 5 months left for this fiscal year, and we believe from 

an operating point of view we need to look at the 17 months as one 

period. 

This planning period enables us to develop economic growth priorities with the countries, review country proposals and negotiate 

and sign Compacts in a manner that allows us to reach decisions 

with prudence, discipline and sound business judgment. There is 

going to be no rush to sign a group of Compacts by September 30. 

This partnership requires the countries to be responsible for 

identifying their priorities and submitting proposals for assistance 

to MCC. We have posted proposal guidance for countries on our 

Web site and will share it directly with those countries when we 

visit them over the next 2 weeks. 

Being selected by the board 2 weeks ago is no guarantee that a 

country will receive funding. We are at the beginning of a process, 

as Mr. Lantos said. MCC allocation and funding decisions are going 

to be driven by the quality of each country’s proposal rather than 

by the number of eligible countries that submit proposals. MCC 

may not finalize Compacts with all the eligible countries if the programs proposed do not meet MCA standards. 

To permit countries to qualify, adequately plan and efficiently 

implement their proposals, we plan to enter Compacts with multiyear programs fully funded up front. Since we do not know what 

the development priorities of the selected countries will be and 

thus costing out programs in advance will be virtually impossible, 

we can only make estimates for the Committee of the funding necessary to operate this program in the first 2 years. 

To be an effective incentive, command the attention needed for 

breakthrough country proposals and to galvanize the political will 

essential for success, Compacts should be sized to make MCC 

among the largest providers of assistance to a country. In an analysis earlier this year, the GAO estimated that with a funding level 

of $3.5 billion, i.e., the $1 billion requested and approved this year 

and $2.5 billion requested for next year, the MCC could fund 3-year 

Compacts in 8 to 13 countries. 

MCC’s own calculation based upon the actual countries selected, 

is consistent with the GAO analysis, although in practice MCC will 

likely engage in Compacts that are longer than 3 years, which 

would increase the funding needed for each Compact. 

In addition to the countries selected for 2004, in only a few 

months MCC will select the countries for 2005. Completed Compacts from these countries must also be funded from next year’s appropriation, as must any assistance provided to threshold countries. 

8

For MCC to be fully successful, we must coordinate with other 

agencies in Washington and in the field. Therefore, we will work 

with our partner countries to identify the contributions of other donors. We are already in touch with much of the donor community. 

In this regard, let me specifically mention USAID. USAID has 

been very helpful to us in our start up phase, and the spirit of cooperation is excellent. This is truly a good news story. MCC is now 

and will continue to take full advantage of USAID’s experience and 

expertise. We will also work with USAID to establish a threshold 

program for countries that miss selection for eligibility in the fiscal 

year 2004 round. 

This program will make MCC funding available for targeted programs in countries to improve their performance under the indicators. Mr. Lantos mentioned this in his opening remarks and had 

some questions about it. I will be happy to address those in Q&A. 

I cannot conclude without returning to what I believe to be the 

first and foremost purpose of our efforts—helping the poorest people in the world. The average per capita income of the people in 

the 16 countries selected to be eligible is roughly $470 a year. 

These countries face poverty levels that we can only imagine. These 

countries have demonstrated, however, they are working hard to 

make the reforms that will help give their people an opportunity 

to make a better life for themselves and for their children. 

Congress can be assured that the MCC will exercise discipline in 

its operation and act as a fiduciary for U.S. taxpayers. By creating 

growth, hope and opportunity for people who are the most impoverished, MCC will save money that might be spent in the future on 

national security or short-term humanitarian needs. 

MCC is a statement by the U.S. of its role in the world. It is a 

good investment for America, an investment in growth, an investment in security, an investment in demonstrating American values 

and leadership in the world. We are off to a fast start and are 

poised to move forward in pursuit of this vision. 

Going forward, I particularly welcome the ideas and support of 

the Members of this Committee and of Congress and would be glad 

to answer any questions you have. 

[The prepared statement of Mr. Applegarth follows:]

PREPARED STATEMENT OF THE HONORABLE PAUL APPLEGARTH, CHIEF EXECUTIVE

OFFICER, MILLENNIUM CHALLENGE CORPORATION

Mr. Chairman; Members of the Committee, I am pleased to appear before you as 

the newly confirmed Chief Executive Officer of the Millennium Challenge Corporation. You are to be commended for your leadership, vision and bipartisan support 

in creating the MCC. It is my personal objective to work closely with you and to 

strengthen that bipartisan coalition. 

I am pleased to report that the Millennium Challenge Corporation has had a fast, 

productive start-up. In the four months since MCC was established, we have created 

an operational structure, met the legislated schedule for selecting eligible countries, 

and implemented a major communication and outreach effort to all key constituencies. 

MCC completed a major milestone on May 6, 2004, when the Board of Directors 

selected 16 countries as eligible for funding from the Millennium Challenge Account 

(MCA). The eligible countries for FY 2004 are:

Armenia 

Benin 

Bolivia 

Cape Verde 

9

Georgia 

Ghana 

Honduras 

Lesotho 

Madagascar 

Mali 

Mongolia 

Mozambique 

Nicaragua 

Senegal 

Sri Lanka 

Vanuatu.

These countries were selected based on the criteria and methodology submitted 

to Congress on March 2. We welcomed a wide array of public input on the criteria 

and methodology. While public comment is a mandated part of the Corporation’s 

procedures, such dialogue is also part of our core philosophy and key to our future 

success, and we are committed to a continuing process of input and response. Indeed, this initial outreach effort was followed by a number of public meetings and 

sessions for candidate countries. 

The 16 chosen countries responded enthusiastically to the May 6th eligibility announcement. It is clear they want to be part of this unprecedented approach to 

international development assistance. This weekend, five MCC teams will depart for 

in-depth discussions and briefings in all 16 countries. We will seek dialogue, not 

only with government officials, but also with local civic and business leaders, members of the public and international donors. Following these and other discussions, 

the countries will submit program proposals. MCC will then negotiate and finalize 

Compacts with those countries that propose quality programs for sustainable growth 

that have a strong likelihood of success. 

Today, I want to focus my testimony on four core issues that I believe are important to your Committee: the concepts that drive MCC; our operational procedures; 

budget priorities; and the role of accountability and partnership. I also will touch 

on our relationship with other donors, including USAID. 

THE CONCEPTS THAT DRIVE THE MCC

Two years ago in Monterrey, Mexico, the President called for a new ‘‘Compact for 

global development’’ that would make greater contributions from developed nations 

to greater responsibility from developing nations. That’s exactly what the United 

States is launching with the Millennium Challenge Corporation. 

So, what are we, together, engaged in? First and foremost, this initiative is about 

helping the poorest people in the world. All of us who wake up every morning in 

good health, turn on the lights, are warm, can run a bath and eat a plentiful breakfast can easily forget that half the human race—more than three billion people—

lives on less than $2 a day. More than one billion people don’t have safe water to 

drink. Two billion people have no electricity and another two billion people lack adequate sanitation. When we in Washington talk about mechanisms, plans, procedures 

and administrative processes, we must not forget that these people are living in 

crushing poverty and that assisting them to escape this poverty is what MCC is all 

about. 

For several decades, many of us have worked to change the conditions in developing nations that I just described. Many programs, policies and institutions are 

making significant changes but some, unfortunately, are not succeeding as well as 

we would like. Building on what has been learned in international development assistance, the MCC will take a new approach, one that combines six major concepts 

in an unprecedented way:

• MCC emphasizes policy reform.

• It focuses exclusively on sustainable growth.

• Its relationship with emerging countries will be characterized by a spirit of 

partnership.

• MCC will require partner countries to incorporate the views of broad elements 

of their societies as they determine their priorities.

• It focuses on results, and establishes outcome-based standards for success up 

front.

• It establishes accountability as a key operating principle, and will monitor 

progress on an on-going basis.

10

Previous development assistance has involved these concepts with varying degrees 

of emphasis and success. The fact that all of them are key structural components 

of MCC makes MCC truly different—and, I believe, capable of making a real difference in the lives of millions. 

Let me elaborate briefly on some of these core elements of MCC’s approach. First, 

policy reform. Research has shown repeatedly that development aid produces the 

best results when it is targeted to countries that respect political and economic 

rights and freedoms, respect the rule of law, and pursue effective growth policies. 

Thus, MCC provides incentives for countries to adopt or maintain policies for governing wisely, investing in their own people and promoting economic freedom. Policy 

reforms in poor nations can provide opportunities for citizens to benefit from increased international trade and private capital inflows, from the growth of their domestic economics, and from greater economic and political freedom. These reforms, 

in turn, can have a much greater impact than whatever MCC itself achieves. 

President Bush told me personally that providing incentives for policy reform to 

our partner nations is a critical aspect of our new approach. MCC provides incentives for countries to change their policies, reward those that do, and assist them 

in achieving their development goals. 

Second, MCC will promote sustained economic growth. There are many legitimate 

purposes of development assistance, including disaster relief, food aid, and disease 

prevention. But over the years, the press of short-term needs has squeezed out attention on to long-term issues. Thus, MCC’s focus would include investments in agriculture, education, private sector and financial systems development, legal and 

regulatory reform, and enabling infrastructure. Our exclusive mission is to focus on 

the long-term challenge of assisting developing countries to escape their dependency 

status through self-sustaining economic growth. 

Partnership is a critical third piece. This is a major change in the relationship 

between donors and recipient nations. Millennium Challenge Corporation will ask 

qualified nations: what are your development priorities? This positive, empowering 

approach gives partner nations ownership for their programs from the start, and 

then provides the financing they need. 

Let me add that this partnership spirit should extend beyond MCC’s relationship 

with its partner countries. MCC has an extraordinary Board. USAID, the State and 

Treasury Departments, and the U.S. Trade Representative are each represented on 

MCC’s Board. All greatly contribute to MCC’s own expertise, experience, resources 

and country relationships. MCC’s own staff is lean by design. We should and will 

take maximum advantage of what these partners, and others within the U.S. government, can contribute. 

Fourth, to meet MCC criteria, each partner nations must consult broadly within 

its society to determine their priorities. This ensures the participation of non-governmental bodies, private businesses, and representatives of civil society, with all 

their skills, knowledge, interests and concerns. 

Fifth, MCC will enter into Compacts with qualifying nations that focus on outcomes—that outline concrete objectives, benchmarks and responsibilities for meeting 

development goals. 

And finally, partner nations are will be accountable for their performance. If a 

country’s performance under a Compact begins to falter, MCC will attempt to find 

ways to support and assist it. However, if under-performance is chronic or if a country fails to live up to its commitments, MCC must be prepared to terminate funding 

and end a Compact. 

OPERATIONAL PROCEDURES

As the first step in the partnership between the MCC and eligible countries, eligible countries will identify their priorities and the programs to achieve them, and 

submit proposals for assistance to the MCC. Proposal guidance is posted on our 

website (www.mcc.gov) and will also be shared directly with the 16 eligible countries. 

The six core concepts that I described above—the core structural components of 

the MCC—will encourage partner countries to adopt and implement better policies, 

to develop institutions and build capacity to govern wisely, to invest in their own 

people and to promote economic freedom. At the same time, these core concepts also 

provide a clear opportunity for the USG to demonstrate international leadership in 

promoting economic growth that will help reduce poverty in many of the world’s 

poorest countries. They articulate an international role for the United States that 

is a positive statement about our country and our values. 

This year’s 16 eligible countries—and others as well—are clearly eager to be partners and participants. Over the three months that the MCC has been in existence, 

11

we have heard from many of them. Indeed, countries have already begun to discuss 

ways to improve their performance on the indicators. 

In short, the incentives inherent in the MCC’s core concepts are already at work, 

even before the MCC has entered into a Compact or disbursed a single dollar. This 

is the ultimate sign of the ability of this approach to catalyze positive change. 

BUDGET PRIORITIES

The Compacts between the MCC and partner countries will establish multi-year 

programs that involve significant up-front commitments: by countries; which will 

commit to continued policies and actions that promote growth; by the MCC; which 

will commit to deliver a significant level of financial assistance. These commitments 

by the MCC and partner countries will permit the countries to achieve measurable 

objectives that lead to economic growth and poverty reduction. 

MCC allocation and funding decisions will be driven by the quality of each country’s proposal rather than by the number of eligible countries that submit proposals. 

MCC may not finalize Compacts with all eligible countries if the programs proposed 

do not meet MC standards. But where we can successfully negotiate a Compact, it 

is important that the MCC be able to provide substantial funding. Being among the 

largest providers of assistance in a country will allow the MCC to be an effective 

incentive, to command the attention needed for breakthrough country proposals, and 

to galvanize the political will essential to success. 

In order to underscore this commitment, the MCC plans to fully fund multi-year 

Compacts at a magnitude that would make it either the largest or second largest 

donor on average in country. In an analysis earlier this year, the GAO estimated 

that, with a funding level of $3.5 billion, the MCC could fully fund three-year Compacts in 8 to 13 countries. Our own calculations, based upon the actual countries 

selected, is consistent with the GAO analysis. However, in practice, the MCC will 

likely engage in a number of Compacts that are longer than three years, increasing 

the funding needed for each compact. In summary, a funding level of less than the 

requested $2.5 billion for FY 2005 will reduce the number of Compacts that the 

MCC will be able to finalize. In addition, a reduction in funding will dampen the 

incentive effect and impair the MCC’s ability to stimulate economic growth and poverty reduction. 

Because MCC was legally established in January 2004 and per the MCC legislation the eligible countries were not determined until May 6, 2004, the MCC is approaching the remainder of FY 2004 plus FY 2005—a period of about 17 months—

as a single period for planning purposes. Framing our work within this planning 

period will enable us to discuss development priorities with countries, review country proposals, and negotiate and sign Compacts in a manner that gives meaning to 

our concepts and allows us to reach decisions with prudence, discipline and sound 

business judgment. 

This is important because, in addition to the FY–2004 eligible countries, in early 

FY 2005 the MCC will be determining countries eligible for FY 2005. As per the 

legislation, the pool of potential countries will be broadened somewhat for FY 2005. 

The result is that in the first quarter of FY 2005, following the steps laid out by 

the Millennium Challenge Act, we are likely to lengthen the list of countries that 

will be eligible to submit Compact proposals to the MCC, proposals that if approved 

would be funded from the $3.5 billion. The threshold country program will also be 

funded during this period. 

We are confident that the requested funding would put MCC in an optimal position to provide both international leadership in promoting economic growth in developing countries and needed incentives to the countries themselves to help them 

adopt the policies, build the institutions and make the investments that will lead 

to a better future for their citizens. 

ACCOUNTABILITY AND PARTNERSHIP

I have emphasized the key concepts upon which the MCC has been established 

and upon which the MCC will provide assistance to countries through Compacts. 

Let me highlight one of these concepts that will be central to all stages of MCC’s 

relationship with partner countries—from the review of proposals, to the negotiation 

of Compacts, to the oversight of implementation. That concept is accountability. 

Accountability for results will be an integral part of every Compact funded by 

MCC. MCC will monitor systems and activities to ensure financial responsibility. It 

will review overall budget data to demonstrate that MCC resources, domestic resources and other development resources are used in a complementary manner. 

MCC will conduct audits of partner nation programs and monitor achievement of 

specific benchmarks. These evaluations will be made public. 

12

MCC will actively coordinate with other agencies in Washington and in the field. 

We will also be coordinating our activities with other donors. It would defeat MCC’s 

objectives if MCC funds displace the resources of other donors. Therefore, we will 

work with our partners to identify the contributions of other donors, and we are already in touch with much of the donor community to ensure that our resources are 

complementary. 

Finally, there has been a lot of discussion about relations between MCC and 

USAID. First of all, I’m proud that I have the opportunity to sit on the same board 

with Andrew Natsios. He and his staff deserve a tremendous amount of credit for 

helping start up the MCC, and I look forward to taking continuing advantage of 

USAID’s experience and expertise. Indeed, we expect USAID to be a key partner 

of MCC in many eligible countries. 

One important shared initiative is the establishment of a ‘‘threshold’’ program for 

countries that just missed selection for eligibility in the FY 2004 round. The Board 

of Directors has reserved up to $40 million for this program, which would make 

MCC funding available for targeted programs in these countries to improve their 

policy performance. The MCC and USAID intend to develop a joint strategy for the 

program. The MCC will update Congress on the details of the threshold program 

when it is developed. 

I cannot conclude without returning to what I’ve called the first and foremost purpose of our enterprise: helping the poorest people in the world. Please note that the 

average per capital income for the 16 countries selected to be eligible is roughly 

$470 per year. These countries face poverty levels that we can only imagine. These 

countries have demonstrated, however, that they are working hard to make the reforms that will help give their people an opportunity at a better life for themselves 

and for their children. They need and deserve our help. 

The President and Congress, in approving the MCC, have invited developing 

countries—governments and their citizens—to participate in an expanding circle of 

development and offered a vision for reducing poverty through economic growth. It 

is a vision that demonstrates American leadership at its best. And it invites the best 

from our partner countries: a new commitment to policies, institutions and programs that are the building blocks for sustained economic growth. 

The MCC is off to a fast start and is poised to move forward in pursuit of our 

shared vision. 

Thank you for giving me the opportunity to appear before you today. I would be 

glad to answer any questions you have.

Chairman HYDE. Thank you, Mr. Applegarth. 

Mr. Paul of Texas? 

Mr. PAUL. Thank you, Mr. Chairman. 

I notice in your bio that you have had a lot of experience in the 

private sector, the public sector and also in the public/private sector. Most people, when they talk about the private sector, refer to 

capitalism, and in the public sector usually if it is all public then 

we refer to it as socialism. 

Philosophically I have concerns about this program, and it probably falls into the third category of a public/private type of a program. I think so often when the government gets involved in private affairs there is room for a lot of mischief. 

I am mostly concerned philosophically about this whole program 

because of our intent to teach other people what the proper role of 

government ought to be and how to set up their affairs. We have 

been known on occasion to go to other countries, impose our will 

on them and actually teach them about the Internal Revenue Service and how to collect taxes, how to develop a central bank and how 

to print money and have a monopoly control of interest rates. We 

teach them about regulations, so this is not too reassuring. 

Yesterday, The Wall Street Journal had a horrible article in the 

paper about a gentleman that is going to go to prison because he 

poured some sand on his land. I mean, it would be good if we could 

teach the world about private markets and private property, but I 

13

see so many problems here. I do not know how we can be such an 

example. I worry about programs like this. 

It is designed to help the poor, which is a good motivation. I believe we would spread the message of capitalism and we truly 

would help the poor, but when we do it through transfer payments 

we take billions from our people and transfer it to governments in 

other areas. Maybe it might help. It usually has not in the past. 

We are hoping this new approach will, but it really has not in the 

past. All we do is make more poor people here. We ignore the cost. 

There is always a cost. There is a cost here. It is not for free. 

Unfortunately, the people who pay the price in this country for programs like this, now that we are running a $700 billion deficit, 

are the people that are unknown, the people who lose their job, the 

people who have a high cost of living or lose their medical benefits 

They suffer the consequence because of programs like this and because we glibly just say you know, this is a great idea to help the 

poor, but I cannot see where we are really going to change the fundamentals, and yet I know that is the intent. 

There are two brief questions I have though. Could you assure 

me that no American corporation or bank will profit from this 

money taken from the American taxpayers through these programs? 

Second, how can we really expect a market economy to evolve 

from this with this notion that we are merely working on a transfer 

payment? We are transferring payments and transferring funds 

from people in this country to another. How can we really expect 

that to help develop market economies elsewhere? 

Mr. APPLEGARTH. Thank you, Congressman. I think you have 

highlighted some of the concerns about past foreign assistance programs and some of the lessons learned from those programs. 

There have been good things accomplished by some of the past 

programs, but there are also things that have not worked very 

well. We are trying to take advantage of that experience, and I 

think the people who created and conceived of MCC, which includes Members of this Committee, had that in mind when they established the principles underlying MCC. 

In terms of your particular question, I am not sure I fully understand. I would hope that over time American corporations and 

banks do profit from this effort. If we are creating growth in these 

economies and these people are able to participate more fully in the 

international system, they are going to be growing. There should 

be opportunities for their people, their corporations, their companies and for U.S. companies and banks. 

I think if there is not such opportunities either our corporations 

or banks are asleep at the switch or we have failed. They should 

have an opportunity to participate as we are opening these economies up. 

Mr. PAUL. Excuse me. I am not talking about the long term. I 

am talking about the specific benefits from these direct appropriations to these companies or these countries. 

I mean, are our American companies going to get contracts to go 

in and benefit directly from the taxpayers’ money? 

Mr. APPLEGARTH. Our intention is to work in the spirit of partnership with the countries. The presumption here is one of partnerVerDate Mar 21 2002 14:25 Aug 03, 2004 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6601 F:\WORK\FULL\051904\93777.000 HINTREL1 PsN: SHIRL
14

ship with the countries, in establishing and identifying what their 

priorities are and what they are going to do. 

There is no presumption that the country’s government itself will 

be the implementing agency. We are going to agree on the priorities. We are going to agree on a method of implementation, but I 

would fully expect that specific projects will often be tenders or procurements within the country as part of the building of capacity in 

the country to upgrade economically. 

We see development of those kinds of processes happening as a 

result of MCC efforts, and it will be free and open for anyone to 

compete. We are certainly not going to preclude U.S. corporations 

from bidding in the country for those projects. They will be open 

to everybody. 

Chairman HYDE. The gentleman’s time has expired. 

Mr. Blumenauer? 

Mr. BLUMENAUER. Thank you, Mr. Chairman. 

Mr. Applegarth, I certainly like the philosophy here of rewarding 

transparency and accountability and trying to see what actually 

works. I appreciate your second element that talks about sustainability in terms of economic development, and I hope that that goes 

in a broader context dealing with what happens with the environment. 

I, too, saw the article that Mr. Paul talked about dealing with 

a guy who repeatedly filled wetlands illegally. I hope that the work 

that you will be involved with overseas will be working very hard 

to avoid the expedience of reckless environment endangerment. 

We are seeing that in some of the poorest countries, whether it 

is attacking endangered species or deforestation—both very dangerous policies in terms of agriculture—and I am hopeful that what 

we say is a stated commitment in this country to environmental 

quality that will carry forward. 

I am going to submit three or four specific questions for the 

record because they are a little more detailed, and I do not want 

to put you on the spot. I also do not want to take up my time, Mr. 

Chairman, unduly, but it speaks to aspects here to guarantee that 

the work that you will be doing will be accessible to women in 

these countries. 

I know you are aware that this has been articulated before the 

Appropriations Committee, as this proposal was hammered out. 

Being able to know that you are launching it forward, you are 

going out, to be able to respond in some detail, how you will make 

sure that the more than half of the population that often is dramatically underserved and most at risk is adequately accommodated with the plan? 

I would like to go back to what I mentioned a moment ago for 

your reaction. We are reaching a point next year where we are told 

for the first time in human settlement history, half the people will 

be in cities. I know there is a lot of attention to rural areas, and 

it is appropriate, but the economic engines are likely to be found 

in urban settings and in areas of investment that deal with sound 

planning and water resources. 

We just had a hearing 2 weeks ago in this Committee dealing 

with the potential of investment in that area. We are going to be 

going back and looking at it. 

15

Could you elaborate for me in the 2 minutes that I have left 

what you are going to be doing environmentally to try to help 

urban development? Translate this philosophy of sustainability 

working with our NGO partners and these emerging governments. 

Mr. APPLEGARTH. First, Congressman, let me say that I also believe that growth has to be sustainable. I am quite familiar with 

the concept of ‘‘high grading’’ in an environment where you reap a 

very short-term profit, and you destroy the longer term. It does not 

work. It is not a good business principle. It is not a good development principle. 

We will be looking in our due diligence process at the overall impact in the country. Since we do not know what sectors countries 

are going to propose as a priority, I cannot speak in detail about 

what we will do in terms of an environmental assessment or other 

assessments, but certainly in my work at EAIF and elsewhere 

where we had projects that clearly impacted the environment in 

some way we had a process of bringing in third parties to do an 

individual environmental and social assessment of what was going 

to happen. 

It has worked well for me in the past. I would certainly commend 

it to MCC for us to look at. There are certain sectors where that 

is clearly a factor. In other cases it may or may not be relevant, 

but as a principle it is part of long-term sustainability and something we would be trying to do. 

Mr. BLUMENAUER. And in terms of infrastructure investment, in 

terms of transportation, particularly water and sanitation, things 

that are very hard to put in a foreign bank account and have proven to have huge benefits economically, health saving, improving 

productivity, how do you see your programs being able to help some 

of the poorest of the poor have this fundamental infrastructure that 

is so necessary for a decent life? 

Mr. APPLEGARTH. I have spent the last 12 years of my career 

building infrastructure in emerging markets using private sector 

principles, taking almost a venture capital model to activities that 

traditionally have been the role of government. Governments were 

willing to let private capital come in and privatize some activities 

to deliver those basic services. 

I think there are proven models for doing that. They are not dependent on only governments doing it or the U.S. Government 

doing it. If the countries in which we are working identify infrastructure as a priority, we would certainly talk about those principles and about how it will work, but there are proven models to 

do it. They deliver benefits to poor people and stimulate growth 

which is what MCC is about. 

Chairman HYDE. The gentleman’s time has expired. 

Mr. Bereuter? 

Mr. BEREUTER. Thank you, Mr. Chairman. 

Mr. Applegarth, thank you for your testimony. I wish you well 

in your leadership taking on these challenges. 

Mr. APPLEGARTH. Thank you. 

Mr. BEREUTER. Conceptually and in terms of my vote, I am very 

supportive of the Millennium Challenge Act and your efforts under 

it. I have watched the incentives work in eastern and central Europe, incentives from the European Union and from NATO, and I 

16

think it has pushed them to make good steps forward in areas of 

reforms. I do not suggest we have that much influence, but I think 

it is a very good step. 

I have a number of specific questions. There is one country on 

the list of accepted that strikes me as very much a contrary position to the United States and very much detrimental to regional security. I will just leave it at that. I believe that of the three areas 

that you use to judge the best performers, the criteria are probably 

statutory, I notice that whether or not the country is taking steps 

that are positive for regional security and consistent with U.S. policy or contrary to U.S. policy is absent. My question to you is are 

these statutory criteria, or are they possibly supplementable? 

Secondly, I know a number of countries certainly are low income 

that would have been eligible in that respect—Albania, Bangladesh, Cambodia. Albania and Bangladesh I am told indirectly 

the problem was inadequate demonstration of commitment to deal 

with corruption. Perhaps you could make a comment about that. 

Cambodia’s situation is so far from acceptable that it would be 

hard to know where to start there. Macedonia. Is it an income 

problem level there in the first year? What was the problem, if I 

may ask? I would like to see you move forward with the threshold 

countries and give them some encouragement in a very formal, consistent way. 

Finally, I want to associate myself with Mr. Lantos’ remarks in 

hoping that in fact the traditional development aid programs are 

not going to suffer because of the resources being devoted to the 

Millennium Challenge. I think that would be quite unfortunate. 

I think I will let you respond to my questions at this point. 

Mr. APPLEGARTH. Let me address the particular countries. Is 

that what you would like me to focus the remaining time on? 

Mr. BEREUTER. Also the threshold issue, what do you plan to do 

with threshold countries? 

Mr. APPLEGARTH. Okay. 

Mr. BEREUTER. And the statutory question of whether or not 

those criteria you used to judge are statutory or if those are something the Corporation has chosen? 

Mr. APPLEGARTH. Let me start with the last one first. The criteria and method, the key principles are identified in the legislation in terms of investing in people, promoting economic freedom 

and governing wisely. 

The 16 indicators were developed over the course of a year and 

a half or so. They were published and provided to Congress on 

March 2, I think. Those indicators are all prepared at an arm’s 

length basis, or in most cases an arm’s length basis, by independent parties. 

The point was to take the politics out of individual decisions, and 

to put the criteria or countries and related information on the Web. 

We are using the MCC Web site as our primary communications 

tool. 

A lot of people are interested in what we are doing. We are trying to keep it very clear and transparent. Each country’s scores 

against those criteria are on the Web site. It is a very simple system. If they pass, it is green. If they fail, it is red. 

17

Mr. BEREUTER. Mr. Applegarth, is it possible for a country in an 

adversarial position to the United States to qualify? 

Mr. APPLEGARTH. I am sorry? I did not hear you. 

Mr. BEREUTER. Is it possible for a country in an adversarial position to the United States to qualify? 

Mr. APPLEGARTH. I guess it would depend on the issue, if the criteria are met. They are objective criteria, in line with the legislation that was passed. You would have to consider the particular 

issue. I am sure we have differences with many countries, even 

with our closest friends. ‘‘Adversarial’’ is a broad term. 

The criteria is there. What the countries have to do to qualify is 

there. They are open. They have been available. They are open for 

comment. There was a serious, genuine effort to take those comments into account in considering country qualification. 

Mr. BEREUTER. But I guess the answer is yes. 

Mr. APPLEGARTH. Well, to the extent that it is not prohibited 

under the Foreign Assistance Act. There were, I think, potentially 

75 countries eligible this year under the first two criteria, which 

were per capita income and eligibility to borrow from the International Development Association. 

There was a third criterion, though. It has to be legal for us to 

provide foreign assistance. If under the Foreign Assistance Act it 

is illegal, we are obviously not going to do it. There were 12 countries from the 75 that were knocked out for those reasons. 

Chairman HYDE. The gentleman’s time has expired. 

Mr. Delahunt? 

Mr. BEREUTER. Mr. Chairman, could I have answers to the specific questions about the countries? The gentleman did not get to 

those. 

Mr. APPLEGARTH. Yes. I will use some of my time. 

Mr. BEREUTER. Let me ask unanimous consent for an additional 

minute. 

Chairman HYDE. Without objection. So ordered. 

Mr. BEREUTER. Thank you, Mr. Chairman. 

Mr. APPLEGARTH. I can talk about the individual countries, or I 

can give you background information. 

Mr. BEREUTER. No. I would just like to know is it true that the 

problems with Albania and Bangladesh were insufficient attention 

to corruption issues? 

Mr. APPLEGARTH. I am speaking from memory here, so I would 

like to have the opportunity to correct this later if possible. As I 

recall, Bangladesh ranks at the bottom on the corruption scale. 

Mr. BEREUTER. Okay. 

Mr. APPLEGARTH. That is a very important indicator for us. Corruption saps all the efforts of not only what we are trying to do, 

but the best people in these countries, what they are trying to do. 

Mr. BEREUTER. I understand that, and I support you. 

Mr. APPLEGARTH. Okay. 

Mr. BEREUTER. And Macedonia? 

Mr. APPLEGARTH. Macedonia I frankly do not recall. 

Mr. BEREUTER. Perhaps you could get me an answer on that. 

Mr. APPLEGARTH. I think Albania does a pretty good job in a lot 

of the indicators. They failed the World Bank indicator on corruption, but on transparency, they actually passed marginally. They 

18

fail on fiscal policy right now, but there are a number of steps they 

are taking. 

To me, speaking personally, they would be a good candidate as 

a threshold country to try to help improve their performance on the 

indicators. 

Mr. BEREUTER. Thank you. Thank you to my colleagues, and 

thank you, Mr. Chairman. 

Chairman HYDE. Thank you. 

Mr. Delahunt? 

Mr. DELAHUNT. Thank you, Mr. Chairman. 

I noticed that I think it said in the staff report, or maybe it was 

your testimony, Mr. Applegarth, that your teams are going out this 

weekend. Give us some timeframes as far as when you anticipate 

these trips will be concluded and when you will have plans in place 

for the 16 countries. 

Mr. APPLEGARTH. We have no fixed deadlines. We basically think 

it is inconsistent with the whole idea of country ownership to say 

you have to do it by this and this date. 

Mr. DELAHUNT. And I concur and I support that, but I am just 

looking for——

Mr. APPLEGARTH. We are also not going to rush to throw money 

out the door. 

Mr. DELAHUNT. Right. 

Mr. APPLEGARTH. Okay. 

Mr. DELAHUNT. I am looking for a range more. This is not a trick 

question. 

Mr. APPLEGARTH. I understand. Realistically, we are breaking 

new ground here. 

Mr. BEREUTER. Right. 

Mr. APPLEGARTH. There is a lot of learning taking place, not only 

in MCC, which is still starting up, but in the countries. They are 

not used to this concept that it is their initiative. They keep looking 

me in the eye and asking if we are serious. 

If we get country initiative and we get civic participation, that 

will be important. Elites have determined a lot of the priorities and 

what happens in these countries. We are genuinely serious about 

civic participation. 

Cutting to the chase, my best guess is if we get two or three 

Compacts concluded by the end of this fiscal year we should get 

very high marks. I think we will see more in the 1st quarter next 

year and then going on, assuming funding is available, through all 

the balance of next year, but that is our real planning horizon. 

Mr. DELAHUNT. Yes. I think that sounds very realistic, and I 

would also encourage that approach, thoroughness rather than setting goals that are etched in stone that turn out to be raising expectations. 

That is really the only question I have. I would make just an observation too in terms of following up on the question by Mr. Bereuter in terms of whether these nations, some of whom might 

have adversarial aspects of their bilateral relationship with the 

United States. 

I was pleased to hear if it is legal, if it falls within existing statutes, then that ought not to be a consideration. Obviously this has 

to be done on an ad hoc basis. I understand that. 

19

I would speculate that a way to influence some of these nations 

who have adversarial aspects of their policy vis-a-vis the United 

States would be to engage, and this, I would suggest, is constructive engagement so I was glad to hear your response. I think that 

is common sense. 

Mr. APPLEGARTH. Thank you, sir. There are certainly lots of 

other tools available in the United States in terms of working with 

other countries as friends. I think part of what MCC is about is to 

work with them on a growth basis, an economic development basis. 

The reality is if they follow these criteria I think they are going 

to find themselves aligned with us and we aligned with them on 

many issues. 

Mr. DELAHUNT. Exactly. Over time, rather than this simplistic 

black and white, ‘‘are you our friends or are you our adversaries,’’ 

I think that is a very dangerous component of the equation in 

terms of what we should be doing because I think we have to recognize that if we are going to influence individual nations this is 

something that is brand new. It is I think an interesting concept. 

I support it, and I wish you luck. 

I spent a lot of time in Latin America, and the corruption piece 

is where it is at, Mr. Applegarth. 

Mr. APPLEGARTH. I know. 

Chairman HYDE. The gentleman’s time has expired. 

Mr. Green? 

Mr. GREEN. Thank you, Mr. Chairman. Mr. Chairman and to our 

witness, as one of the original sponsors of this legislation, I am immensely proud of it, and in many ways I envy you because I think 

you will be involved in an endeavor that is terrifically important 

for this nation and for this world in so very many ways. 

Obviously concerns have been expressed by some as to not allowing the MCA to crowd out other forms of foreign assistance. I understand that. That is an appropriate concern. On the other hand, 

I would hope that all nations one day would aspire to the Millennium Challenge Account and seek to receive their assistance 

through such sort of incentive based programs. I think it would 

have an enormously positive effect. 

Just some general questions based upon your experience so far. 

Do you believe that nations around the world are aware of the Millennium Challenge Act and they are aware of the criteria? Is there 

a need for us to be more involved in the promotional aspect to this 

program? 

Mr. APPLEGARTH. We are seeing a lot of evidence that countries 

are aware of it and responding. We see a lot of reports from domestic press that in countries that failed to qualify, it was viewed as 

criticism of the government, questions were raised about why they 

failed. 

In other cases we have seen leaders in these countries saying we 

have to do this and that to qualify and using the existence of MCC 

as a lever to get the kinds of changes which they believe in. 

I mentioned some particular examples in my opening remarks. I 

think the President, when he welcomed the Ambassadors of the selected countries last week, mentioned some others, but we are seeing this broader impact and we are encouraging it. We are spending a lot of time on outreach and communication and believe that 

20

at the end of the day what we are about is policy reform and promoting good leadership in developing countries. They need the tools 

to do that, so whatever we can do to support it we will. 

Mr. GREEN. Great. One reason that I think this legislation proves 

so popular among Members is I think all of us have an understanding that in the long range generational battle against terrorism that we are involved in, it will not simply be enough to fight 

terrorism on a military level—to take out camps, to take out terrorists. I think there is the recognition that more will pop up where 

those came from. 

Instead, we are looking for ways to sow seeds of hope and opportunity in areas that have been controlled for too long by despair. 

To that end, I noticed from the original list I guess my concern is 

whether or not this program will be of much value early on to some 

of those nations which are not terrorist nations, but nations which 

we perhaps view as being at risk for being taken over by despair. 

What is your view on that, and how can the Millennium Challenge Act be utilized as a tool in that regard to try to make headway in that longer battle that we all face? 

Mr. APPLEGARTH. I am not sure which countries you are talking 

about, Congressman. The legislation sets forth what countries we 

can consider, and the combination of the per capita income test this 

year and IDA eligibility has probably deleted some of countries you 

are thinking of from that list. 

Next year the IDA eligibility comes off, but the per capita income 

test still remains. That goes up in the 3rd year. 

Mr. GREEN. Perhaps let me put it this way. Turning it back to 

the idea of marketing and promotion——

Mr. APPLEGARTH. Right. 

Mr. GREEN [continuing]. I would hope that as you engage in marketing promotion that we target in particular those countries that 

we might view as being at risk because of the control that despair 

has in those cultures. 

Finally, with the brief time I have left, what are the greatest 

challenges you are facing right now? What is it that we can do to 

help you as you go forward? 

Mr. APPLEGARTH. If you are good at making travel arrangements 

and getting visas, we would really like some help right now as a 

start up. Trying to get 16 teams out in the field simultaneously is 

tough. 

Realistically, I think continued focus about what we are about, 

staying true to the principles of MCC in terms of real partnership, 

of accountability, of policy reform, recognizing that there are other 

purposes that Members of the Committee may have that can perhaps be fulfilled through other programs. Keeping us true to our 

purpose is probably the best thing we can do and I welcome your 

ideas and thoughts and advice. 

You have all spent a lot of time thinking about this and creating 

MCC, and your ideas are very important. This is a bipartisan effort, and we need to reflect the good ideas on both sides of the 

aisle. You all can help do that. 

Anything you can do to make sure we get the $2.5 billion next 

year is important because while the message and policy performance is what we are about, we need money to be credible. We creVerDate Mar 21 2002 14:25 Aug 03, 2004 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6601 F:\WORK\FULL\051904\93777.000 HINTREL1 PsN: SHIRL
21

ated certain expectations in this group of countries and other countries. The U.S. has to be there to stand up to what it says it is 

going to do. 

Chairman HYDE. The gentleman’s time has expired. 

Ms. Lee? 

Ms. LEE. Thank you, Mr. Chairman. Let me also congratulate 

you for taking this position on this very exciting challenge that you 

have. 

I wanted to ask you a couple of questions, really I think basic 

questions with regard to the operation of the fund. First of all, 

while I am aware and understand that the majority of the money 

is not going to be contracted out to U.S. companies, I know that 

some of the funds will be. I wanted to find out what type of contract and opportunities are there for U.S. companies such as with 

auditing or reviews or evaluations, and also what is your plan? 

We on a bipartisan basis included in the law a provision for the 

inclusion of minority, women-owned and small businesses, and I 

wanted to ask you what type of plan do you have to ensure the inclusion of those companies? 

Mr. APPLEGARTH. If I understand your question, I think the provisions you are talking about refer to women within the countries 

themselves. 

Ms. LEE. No, no, no. There is a provision that we wrote into the 

legislation to ensure the inclusion, where there were contracting 

opportunities from the fund on the U.S. side, if there should be, 

that we wanted a plan and a review of how minority firms and 

small businesses and women’s businesses—U.S. companies—would 

be part of this whole operation. 

Mr. APPLEGARTH. I think first and foremost, we are looking at 

procurement in the target countries. We want to make sure those 

opportunities are open to everybody. A lot of what we are about is 

capacity building in those countries. 

Ms. LEE. Sure. We recognize that. 

Mr. APPLEGARTH. We believe that MCC, as a corporation, should 

be held to the standards that are set through Sarbanes-Oxley and 

other relevant statutes. 

We should have a truly independent audit by an internationally 

recognized firm. We think that we ought to be fully subject to those 

kinds of reviews and disclosures. We would like to make sure that 

that happens as part of our process. 

If you have other ideas or suggestions——

Ms. LEE. No. I am asking you will the fund be contracting any 

of your services out to U.S. companies? I understand that most of 

the money will be in country, but on the U.S. side do you have a 

contracting plan at all? 

Mr. APPLEGARTH. We have some procurement for our own operations here in this country. Obviously we are based here. Those are 

fully open to everyone, and they are subject to the Federal Acquisition Regulations (FAR). I think we are making a genuine effort to 

make sure that we are competing everything. 

Ms. LEE. Okay. I understand competing, but I am talking about 

minority businesses and women-owned businesses and small businesses. There is open competition, which we all understand. 

22

But then because of the historical reasons that we have minority 

business programs or small business or women-owned business 

programs, we wanted to make sure that the Millennium Challenge 

Account complied with those requirements also and had a plan to 

include them in. 

Mr. APPLEGARTH. Maybe I am still not understanding your question. We are trying to be fully compliant with all the requirements 

of U.S. law, but not only the letter of law, but the spirit of the law 

as well. 

Ms. LEE. Okay. Tell me about the 8(a), for example. How are you 

utilizing the 8(a) program? 

Mr. APPLEGARTH. You will have to enlighten me as to the details 

of the 8(a) program. I must say, I am not familiar with the 8(a) 

program. 

Ms. LEE. Okay. That is a program for minorities, and the socially 

and economically disadvantaged, which allows for the participation 

of such companies in Federal Government procurement. 

So I was wondering. Do you have a plan to utilize those companies? 

Mr. APPLEGARTH. As we are developing our procurement plans, 

we are trying to be conscious of this. Again, very little of our money 

is going to be spent in the United States. 

What is going to be spent is going to be for administrative 

things. We are trying to make sure we are minimizing the money 

spent on administration versus the money spent on the programs 

for the poor. 

Ms. LEE. Okay. Maybe I will write you a letter and ask you to 

sort of break that down. 

Mr. APPLEGARTH. Yes. I would be happy to. 

Ms. LEE. Okay. Let me ask you how the board is functioning. Is 

the board up and running? I know you still have several appointments to go, but is that hampering your operation? What is the 

timeframe for the final appointments? How are the decisions being 

made now by a partial board? 

Mr. APPLEGARTH. I think so far the board is working quite well. 

I think there has been very spirited discussion. I think with all due 

respect to the interim CEO, Al Larson, who did a tremendous job 

having two full-time other jobs, MCC was hampered a little bit by 

not having a full-time CEO. That is now cured. 

We do face a deadline though. Under the legislation, there is a 

requirement that a quorum of the board include one of the public 

members that comes from a list submitted by Congress. The legislation gives Congress, the leadership in the House and the Senate, 

Republican and Democratic, the opportunity to submit lists of potential members for the board from which the President is asked 

to make nominations. 

We have an exemption from having one of those members on the 

board that lasts for 135 days, but that exemption expires in early 

June, and we will not be able to hold a board meeting, because of 

the absence of a quorum, after early June unless at least one of 

those members has been nominated and confirmed. 

Chairman HYDE. Mr. Royce of California? 

Mr. ROYCE. Thank you, Mr. Chairman. 

23

Mr. Applegarth, I commend your statement that aid can be a catalyst, not a cause of development. It is important that you comprehend that. 

This initiative is a very worthy initiative. The idea of investing 

in countries based on their commitment to reform and commitment 

to development is long overdue. The Administration deserves credit 

for the initiative. The Chairman of this Committee and the Ranking Member do as well. 

You selected a fairly limited number of countries to start, 16 

countries of the approximately 70 countries currently eligible for 

development assistance. That was right. This is a new program; it 

is always easier to add a country than to drop one. 

The African trade bill that we passed, AGOA, has been very successful over the last few years, producing the investment of hundreds of millions of dollars in Africa, and the creation of hundreds 

of thousands of desperately needed jobs. It is the best anti-poverty 

program that I am aware of for Africa. 

The Millennium Challenge Account concept is focused on trade 

and investment capacity building assistance, which is good. Some 

African countries could put this aid to good use to take better advantage of AGOA and better advantage of AGOA’s market access. 

How might MCA aid complement AGOA to help Africa move beyond its very small share of world trade? 

Yesterday we met with Bono. He indicated how many new jobs 

would be created in Africa, and how many people would be lifted 

out of poverty if we could increase, by 1 percent, their share of 

world trade. Could you comment on that vision? 

Mr. APPLEGARTH. I will try to, Congressman. I think first, 8 of 

the 16 countries selected are African. Sixty-three percent of the 

population of the initial group of MCA countries is African. I think 

this pleasantly surprised a number of commentators as well. I 

think we have created an opportunity for African countries to benefit from this program. 

At the end of the day, to the extent they do it in conjunction with 

the opportunity of AGOA, for example, is really up to them. We are 

not going to tell them to align their programs with AGOA, but we 

fully expect, given that these are countries that are looking for 

ways to grow, they will take the opportunity from AGOA, and I 

think you will see some coordination between what we are trying 

to do and the opportunity that you have created with AGOA. 

Mr. ROYCE. You mentioned that these 16 qualified countries reacted well. That would indicate that this MCA is acting as an incentive. 

In AGOA, we have incentives to stay in the program. For example, Eritrea was dropped as a result of their conduct. Have you had 

any interesting reactions from excluded countries which indicate leverage for reform? 

Mr. APPLEGARTH. Yes, we have. We had a number of questions 

and comments about it. It is a very easy answer in many ways because the board tried to adhere very much to the criteria. The criteria are out there publicly available. 

The first place to go look is at your scores on the Web site. If 

you want to improve your chances to qualify, you need to improve 

your scores under the criteria, particularly the countries which I 

24

think will be threshold countries. We are in a position to try and 

help them do that. 

I would like to come back to Congressman Lantos’ question at 

some point, but yes, we are seeing good policy changes. In several 

countries which did not pass, there have been headlines in newspapers asking why not? It is the kind of thing that you want to see 

happening. 

Mr. ROYCE. My last question. Monitoring and evaluation of countries will be done by MCC or third party contractors. Were third 

party contractors involved in the initial assessment of countries? 

What do they bring to the process that MCC cannot? Why is it important to include them in that process? 

Mr. APPLEGARTH. I think third parties were involved in the initial assessments to the extent that the rankings, the indicators, 

were all done or in most cases done by third parties. 

You cannot call the World Bank a ‘‘third party contractor’’ or 

Heritage or Freedom House, but those rankings were all done independently. They are not getting paid by us to do it. That is part 

of the independent evaluation process we are trying to establish 

here. 

There is supplemental data given to the board. There may have 

been, for example, material from the State Department Human 

Rights Report, which is publicly available. There may have been 

‘‘third party participation,’’ in that sense so I cannot say there was 

not some indirect participation, but directly there was not. We see 

possible use of third party contractors going forward potentially 

helping us in due diligence. 

Mr. ROYCE. Thank you very much, Mr. Applegarth. 

Mr. BEREUTER [presiding]. I thank the gentleman. 

The gentleman from New Jersey, Mr. Payne, is recognized. 

Mr. PAYNE. Thank you very much. I am glad to see the program 

starting to move forward. 

What is the amount that will be allocated with these first 16 

countries? About $1 billion? What is the amount that will be expended? 

Mr. APPLEGARTH. The first year just short of $1 billion. One billion dollars was appropriated subject to the budget wide haircut, 

but we are basically at $1 billion for this year, and we have asked 

for $2.5 billion going up to $5 billion per year starting in fiscal year 

2006. That is what the President has announced as his goal when 

he announced the program. 

Mr. PAYNE. So each year you will be bringing in some additional 

countries, right? 

Mr. APPLEGARTH. That is the intention, yes. The eligibility list 

expands each of the first 3 years. 

Mr. PAYNE. Then after the 3 years are over, I would assume that 

there would be a request for continued appropriations? 

Mr. APPLEGARTH. We would hope, assuming we are successful. 

Certainly, yes. 

Mr. PAYNE. On this question of ruling justly, when I first heard 

that, it seemed to be relatively subjective, but I do see that you are 

evaluating civil liberties, regulatory quality, rule of law. 

Do you get any gender issues in that: Women in business, property rights for women, or girl to boy ratios in primary schools? Does 

25

that get into the ruling justly, and is ruling justly really objective 

or the problem of subjectivity might come in? 

Somebody might feel this is not ruling justly because, in my opinion, to rule justly you do not hit kids’ hands with a ruler as they 

used to do in some schools. How is that ruling justly worked out? 

Mr. APPLEGARTH. I should say, first of all, the whole principle 

here has been to establish 16 indicators, objective indicators done 

by third parties. 

Mr. PAYNE. Right. 

Mr. APPLEGARTH. If you take subjectivity out, at least our subjectivity out of it, that has been the real intention. That is one of the 

fundamental principles of what MCC is about. 

All of the indicators could use improvement. This is the first time 

around. We think that MCC’s creation is going to help because 

there is now an important new incentive. The fact that we are 

using indicators is important to the groups who put those indicators together. 

There are some pretty good indicators available, but they only 

cover a few of our countries. To have a legitimate ranking, we need 

to have broader coverage. If we get broader coverage, that helps. 

The intention is to have the indicators publicly available so people 

can understand them. We tried to follow that principle. 

There are several goals or measures in the criteria or in the legislation, including impact on women, role of the private sector, 

labor and so on. As we look at the indicators, we think those are 

reflected in many of the subcomponents of the indicators. 

There are two where we do not feel they are fully and adequately 

covered. One is on the environment because there are very few 

good environmental indicators that apply across all countries. The 

other is on disability. 

We look at the criteria again in July as part of the next year’s 

process. We expect over time to have these indicators improved and 

developed to address even more clearly what your objectives are 

and what the objectives of the program are. 

Mr. PAYNE. Okay. There are some countries, for example—not 

many, but I know one or two like Namibia, for example. Namibia 

I do not think qualifies in income. It might be a little bit above. 

As you probably know, in Namibia the income of the White minority is high because of the former apartheid government, in some 

instances I understand that in 2 weeks a well-off White family 

makes as much as a rural Black family makes in the entire year. 

Now, is there any way to desegregate and extrapolate that out 

somehow where it is a small number, but it really totally skews the 

whole per capita income? I have a particular interest. Maybe you 

will find the same thing, of course, in South Africa, although generally their income level is higher than most of the other countries. 

Once again, you will find that skewed part. 

Is there any way at least with Namibia to deal with that issue, 

or has that come up? 

Mr. APPLEGARTH. It has not come up in the context of Namibia 

because it does, as you mentioned, exceed the per capita income 

test. 

In terms of our assessments, we are guided by the legislation. 

The tests are on a per capita level at the country level. RealistiVerDate Mar 21 2002 14:25 Aug 03, 2004 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6601 F:\WORK\FULL\051904\93777.000 HINTREL1 PsN: SHIRL
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cally, at probably this stage of our existence that is probably the 

only way we can operate. 

You are certainly right that income distribution is an issue in 

many of these countries. I suspect if Namibia was on the list for 

income reasons, for the reasons you mentioned, it might well fail 

on the investing in people indicators because as you describe it it 

does not reflect that available resources are going to the populations that need them. 

Again, how the countries use the resources that they do have is 

an important part of the ‘‘investment in people’’ criteria. 

Mr. BEREUTER. The gentleman’s time has expired. 

The gentleman from California, Mr. Rohrabacher, is recognized. 

Mr. ROHRABACHER. Thank you very much, Mr. Chairman. 

Mr. Applegarth, there are a number of Americans whose businesses and property were confiscated by Ethiopia’s former communist government. One of those who have a claim against the 

Ethiopian Government is the Berhane family, which is a respected 

family in Orange County, California, and they are constituents of 

mine. 

Unfortunately, the current Government of Ethiopia has made 

itself an accomplice to the theft of the Berhane family’s property 

by refusing to give it back or to offer a fair settlement. The 

Berhane family’s property has not been returned, which could end 

it. They have been offered some sort of compensation. 

OPEC has looked into this claim and determined the Berhane 

family has a just claim. In fact, OPEC has suspended all operations 

in Ethiopia until that claim and other claims of American citizens 

are dealt with. 

My question to you is that in countries where a government 

agency has made this type of determination and is now not doing 

business because of this type of decision by the government, will 

they be eligible for MCA assistance? 

Mr. APPLEGARTH. Congressman, as you know, Ethiopia is not one 

of the 16 selected countries. 

Mr. ROHRABACHER. Correct. 

Mr. APPLEGARTH. Presumably that is related to some of the reasons you have given. We would think that included in good governance measures is a trusted independent judiciary, and I would 

think the pattern of behavior you have described would indicate a 

country that would fail the criteria and, therefore, would not qualify. 

Mr. ROHRABACHER. Okay, because I would think that Ethiopia 

and other governments that have Americans with just claims and 

their property has been taken away and stolen perhaps by a former 

regime, as had happened in Ethiopia, they need to treat Americans 

fairly. 

For this particular family in my constituency, this is their whole 

life. I mean, they are not wealthy people. If our government does 

not watch out for them, nobody is going to. I would hope that we 

take that into consideration. I know OPEC has, and I am very 

pleased that our government is considering the rights of the American people as well and trying to push governments that have done 

wrong things in the right direction. 

27

Number two, Ethiopia is not on the list, but I understand that 

Senegal is. One of the problems with Senegal is copyright law, and 

coming from California copyright law is really important to us. Intellectual property is really an important thing. Apparently Senegal has a very corrupt copyright agency. 

Until Senegal creates a conducive environment for the private 

sector by living up to copyright enforcement, it would seem to me 

that that is another area that we should be concerned about. How 

does that fit in? 

Mr. APPLEGARTH. I think you have really hit upon one of the key 

principles of MCC, which is encouraging policy reform. 

We are going to Ethiopia. If Ethiopia wants to qualify for MCC, 

it cannot have a rule of law under which it operates in the way you 

are describing. The whole point of MCC is to encourage countries 

to make the changes that will encourage domestic investment and 

foreign investment, and open up their economies. That is exactly 

what we are about. 

In terms of the specific Senegalese copyright law, I will defer to 

greater expertise. Clearly, the whole concept of promoting economic 

freedom, of property rights and ownership is inherent in a lot of 

what our criteria aim toward. 

Mr. ROHRABACHER. Right. Anything we can do for our country, 

if they are themselves engaged in practices that show that they do 

not respect property rights like in Ethiopia, people are not going 

to invest there anyway in the long run no matter what we do. 

In Senegal, I would hope that as we move into this new age 

where property rights are not just pieces of property or businesses 

confiscated, but also intellectual property, that Senegal understands that they have to make sure they protect people’s intellectual property as well. 

Thank you very much, and good luck. 

Mr. APPLEGARTH. Thank you. 

Chairman HYDE [presiding]. The gentlelady from California, Ms. 

Watson. 

Ms. WATSON. Thank you, Mr. Chairman, and I also want to give 

you my congratulations for taking over this awesome task. 

My concern is about the countries that fall just below the median 

and negotiating contracts with them. Can that occur? You can 

speak. I am going to throw some things out, and you can answer 

cumulatively. What I would like to know is if at any point in time 

that they feel they have met the criteria, can they come back for 

negotiating the Compact? 

I am impressed by the movements that these countries such as 

Bolivia and Georgia and Mozambique have made on their own and 

that they have a chance to come back and resubmit. You can speak 

to that. 

My other interest is what happens to USAID? In terms of MCA 

and MCC, MCC MCA, will you have facilities right where USAID, 

in the countries where they have been for many years? What is the 

relationship between the two? Is there a tremendous duplication 

with the same dollars? USAID, U.S. dollars. MCC MCA, U.S. dollars. Will there be competition? 

We are all about development and health care, governance, et 

cetera. Can you explain how you see the difference between the 

28

two? I have familiarity with USAID, and I had some concerns 

about the countries that I have visited and am familiar with. They 

have a high overhead. How will the MCA differ from the way 

USAID has performed in the past? 

If you can just give us a general statement? You probably do not 

know all the specifics, but do the best you can, please. 

Mr. APPLEGARTH. Thank you for your inference that I do not 

know the specifics, Congresswoman. 

First, I think the threshold country program, which we have not 

talked very much about, does offer a ready opportunity to help 

countries improve their policy performance. I think we, together 

with USAID, are working closely on this and are looking at the 

countries that just missed being selected. We hope to identify a 

group of those countries within the next 30 days. 

The timing will be affected a little bit by our travel, but it is our 

target at least to have an initial list out there soon, so that we can 

tell that group of countries why they missed. We will offer ideas 

on how to improve their policy performance, and will work with 

them to try to do that. 

Ms. WATSON. Would you yield for a moment? 

Mr. APPLEGARTH. It is your 5 minutes, ma’am. 

Ms. WATSON. Yes. Will you have the staff to be able to track 

their proposals to you so that negotiations can be based on real 

progress? 

Mr. APPLEGARTH. This is one case where we will rely a lot on 

USAID staff because our staff are dedicated very much to MCC 

Compacts. We do have somebody within MCC dedicated to working 

with USAID. I will come back to that relationship in a moment. 

That is a positive relationship, notwithstanding all the fears that 

were expressed in the past about how it was going to work. 

The board will select countries for 2005 in about 4 or 5 months. 

Because of the shortened schedule this year, we expect to be picking 2005 countries in the 4th quarter of this year. 

I do not know whether any of the threshold countries would qualify or not. Ideally they should. I think we will be working with 

countries where the changes can be implemented fairly quickly. We 

would like to see that. There is another list for 2006. 

For a country to have the opportunity to submit a Compact proposal, it has to be identified by the board as MCC eligible. They 

cannot simply submit a Compact proposal. The policy changes 

should be reflected in the data and in the information that is coming to the board for consideration. 

The board is certainly tracking the countries that are close, to 

see how they are doing and wants to encourage these kind of 

changes and so we would want to try to reward them. 

As I mentioned earlier, we are working closely with USAID. 

USAID has more people and experience than MCC has, and we 

would be crazy not to take advantage of it. 

They do not operate in all of our countries. There are not USAID 

missions in at least a couple of the first group of MCC countries. 

There we will be going alone. I think otherwise we will be attempting to both cooperate with USAID and with other donors. This is 

not simply a U.S. effort. 

29

We are not going in and replacing somebody else’s program, that 

is not what we are about. We are intended to be additional and an 

incentive. Our partner countries would recognize that it is giving 

with one hand and taking with the other, if that were the case. 

What kind of incentive is that? What kind of reward is that? 

Chairman HYDE. Mr. Weller? Mr. Weller? 

Mr. APPLEGARTH. Excuse me, Mr. Chairman. 

Mr. WELLER. Thank you, Mr. Chairman, Mr. Applegarth. 

Chairman HYDE. We expect a vote soon, and I want to get everybody in. 

Mr. APPLEGARTH. That is fine. I am still learning the clocks and 

what to watch for. 

Mr. WELLER. Thank you, Mr. Chairman. 

Mr. Applegarth, thank you for the opportunity to have you with 

us today. I appreciate your testimony. I also congratulate you on 

your responsibilities. 

I, like my colleagues here on this Committee, applaud this initiative of President Bush and the bipartisan leadership of our Committee and working together in a partnership and am particularly 

pleased that with the announcement of 16 countries that are now 

eligible for MCA status, three of these are located in our own hemisphere. 

The inclusion of Bolivia, Honduras, Nicaragua—these countries 

have a new and important opportunity to continue their partnership with us, the United States, and I would note that they have 

taken a leadership role with their commitment in regard to economic and political reform, and we want to work with them with 

the MCA process. 

I would note in the documents and the report that you have 

shared with us that Nicaragua and Honduras have performed in 

comparison with other countries about the median in the key areas 

of ruling justly, investing in people and pursuing sound economic 

policies, including performing above the median on corruption. For 

that, I congratulate Nicaragua and Honduras on their performance. 

I would also note that Bolivia was right on the median on the 

corruption factor and is above the media on other indicators. However, the score did not reflect changes instituted by President Mesa 

since he assumed power in October 2003, including the creation of 

a cabinet level position to coordinate anti-corruption efforts and an 

office to investigate police corruption. 

Currently we are working with Bolivia, as you know, in preparation for them hopefully joining with the United States, Peru, Ecuador, and Colombia, in the Andean Free Trade Agreement that we 

will begin negotiations on later this week and in light of this new 

MCA opportunity, which coincides with this trade opportunity. 

Could you discuss how the Millennium Challenge, the MCA, will 

provide development assistance that might be helpful to help bring 

Bolivia into the FTA or TLC discussions that begin this week? 

Mr. APPLEGARTH. First, we are making our initial visit to Bolivia. 

I think the trip is scheduled for the end of next week. 

What we will do in Bolivia is going to be first and foremost driven by what Bolivia wants to do, their priorities. If they are actively 

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prised to hear that whatever they propose relates to that, but I 

think we will have to wait and see. 

We are very conscious not to give in any way a signal to these 

countries that this is what we want them to do, and we try to adhere to that because we think it is part of the core philosophy of 

what MCC is about. 

Mr. WELLER. What is the time table on these meetings with Bolivian leadership? 

Mr. APPLEGARTH. I believe most of our teams leave over the 

weekend, and I believe they will be visiting Bolivia—I am not going 

on the Latin America trip. I believe they are going the end of next 

week to Bolivia. 

That particular team is actually dividing because there is a civic 

meeting that it wants to participate in. It is actually splitting its 

trip, and it may be a couple weeks from now, but I could certainly 

give you the exact dates after the hearing if you would like. 

Mr. WELLER. Sure. I would appreciate it if you could keep us 

abreast and give us a report on the progress of those discussions. 

Regarding Nicaragua and Honduras, what do you see as the 

focus of the MCA and working with Honduras and Nicaragua? 

Mr. APPLEGARTH. In terms of the civic sectors, again we will wait 

to hear from them first. We know both countries are very aware 

of MCA. We have seen some action by the governments to improve 

their performance under the indicators in terms of housing reform, 

clearly some strong actions in the corruption area in at least one 

of those two cases, and we expect them in some ways to be further 

along in terms of their Compact proposal process than some of the 

other countries, but at this point the ball really does pass to them. 

Mr. WELLER. Mr. Applegarth, I know our time is limited, and out 

of courtesy to my colleagues when we have a vote I will conclude 

my questioning, but I would ask in the cases of Bolivia, Honduras, 

and Nicaragua, I would be very interested in being kept informed 

on the process and the progress that you make in these discussions. 

Mr. APPLEGARTH. I would be happy to. 

Mr. WELLER. We certainly stand ready to assist you. 

Mr. APPLEGARTH. Great. Thank you. 

Mr. WELLER. Thank you. 

Chairman HYDE. Mr. Meeks? 

Mr. MEEKS. Thank you. Thank you, Mr. Chairman. 

Good day, Mr. Applegarth. You know, I think this is great. Congratulations to you first and foremost. 

Mr. APPLEGARTH. Thank you. 

Mr. MEEKS. I am one who believes the cost of well is so much 

smaller today than it was say 50 years that we really have to outreach to other places, and when we do that we have to be sure that 

we understand them and their cultures, as well as that they begin 

to understand us, and we begin to develop some foreign aid policy 

based upon the whole global atmosphere of which we are currently 

dealing with. 

That being the case, and making sure that we are able to establish these global ties that are based upon mutual respect and understanding and helping countries develop and strengthen their 

31

governing institutions, I have a few questions I will throw out and 

just try to get back. 

I would like to know, for example, whether or not the MCC will 

become an integral part of the Administration’s foreign policy and 

foreign policy decisions and how we make a move, whether that is 

going to be very important. To me that is important, particularly 

given our actions in Iraq and Haiti. 

How will the MCC fit with the overall foreign policy? Will the 

MCC be a model for our future development of aid, of foreign aid? 

Is this something that we will be looking at to expand? Is it going 

to be a model that we can look upon? 

What happens, given that whole complex? What happens to 

countries like Kenya who have been crucial to us in our overall foreign policy and our fight against terrorism who have done well politically and economically, but fail to meet other criteria for selection? What happens to a country like that, given the whole context 

of our foreign policy? 

Will we now be given a choice when we talk about appropriations 

of funds to either MCC or USAID? Will USAID funding begin to 

start to fade as we begin to include more countries into the MCA? 

What will happen? Is there any consideration given to countries 

that are failed states or on their way to being a failed state such 

as the Somalias of the world? Or to some countries that may be 

part of the criteria, but all of the countries around them are failing 

states, which thereby will have an effect on the countries that are 

trying to move forward? I do not know what, if any, considerations 

you have given to those. 

In the time that we have left, if you could just try to elaborate 

some? 

Mr. APPLEGARTH. Let me see what I can do. If I now understand 

the clock system, I have 2 minutes and 7 seconds to respond to all 

of that. 

Development became the third D of the national security strategy. Traditionally defense and diplomacy have been the two Ds. 

President Bush added development at the beginning of his term as 

the third D. I personally think it was the right thing to do. It recognizes that at the end of the day our overall international security 

is also dependent upon the success of other countries around the 

world. 

In terms of coordination with foreign policy and how we fit into 

it, the Secretary of State is the Chairman of the Board. We operate 

within the overall context of U.S. foreign policy. We are the exclusively growth oriented piece of that. 

In the context of other programs, we have talked some already 

about the role of USAID and what we are trying to do to cooperate 

with them. We hope MCC can become a model for development. In 

adopting these principles, we are trying to operationalize them and 

to operationalize any lessons learned. 

If we are successful, I think we can become a model not only for 

USAID and some of its operations—I think Administrator Natsios 

certainly would applaud that—but also for the World Bank, for 

other donors, and for the IFIs and DFIs more generally. 

Everybody is looking at us. I think most wish us well. They certainly want to see if there are lessons to be learned from what we 

32

are doing. By being deliberately slim and operationally focused, we 

can move more agilely than some of the other institutions. Therefore, if we can through our successes become a model I think that 

is part of our mission. 

In terms of threshold countries, and potentially Kenya I think is 

one, we are intending to try to work to help those countries. The 

board reserved, as you know at the last meeting, $40 million, but 

the thinking there was not—it was aware of the 10 percent threshold potential. It did not say this is the only amount we are going 

to do. This is early days. 

If the threshold program is working well and there are good proposals, the board certainly would consider increasing at this stage. 

It just felt that rather than immediately take away $100 million 

from MCC programs that are focused on countries that have already demonstrated policy reforms in their proposals, it wanted to 

just assess the situation with the idea they can go forward. Certainly those kind of countries will be a key part of what we are trying to do. 

Chairman HYDE. Mr. Pitts? 

Mr. PITTS. Thank you, Mr. Chairman. 

Mr. Applegarth, thank you for coming. In looking at your list of 

16 countries eligible for fiscal year 2004 MCA funding, it appears 

that there are no Muslim countries on this eligibility list. 

What was the eligibility criteria? You talk about areas of the 

world where we need to win hearts and minds. What were the 

major factors that may have prevented Muslim countries from 

making this eligibility list? 

Mr. APPLEGARTH. Yes, Congressman. The first criterion was the 

overall legislative criterion. The per capita income of $414 per capita was the ceiling. A number of Muslim countries, the majority of 

them, exceed that level and, therefore, were not eligible to be considered. 

There are a few, and some of the countries we selected do have 

significant Muslim populations, but would not qualify I think by 

your definition as a Muslim country. Some of the others, the few 

that do qualify, they do not pass the criteria of corruption, rule of 

law, those kind of things. 

We would like to see more qualify. I think as the income test 

goes up we will see more eligible to compete. Whether they qualify 

or not is at the end of the day up to those governments. 

Mr. PITTS. You mentioned the income test. I notice, for instance, 

Vanuatu has a per capita income of over $1,000, but they qualify. 

What is our national interest in Vanuatu? 

Mr. APPLEGARTH. The per capita income test is $1,415. 

Mr. PITTS. I thought you said $400. 

Mr. APPLEGARTH. They fell under the ceiling, and under the criteria they perform well. They pass all the criteria. 

Again, we think it is in our national interest to reward good policies around the world and reward countries who are taking leadership positions to promote economic freedom, to promote good governance. 

The neighbors of Vanuatu presumably are aware of what is happening next door or across the border. In rewarding these counVerDate Mar 21 2002 14:25 Aug 03, 2004 Jkt 000000 PO 00000 Frm 00036 Fmt 6633 Sfmt 6601 F:\WORK\FULL\051904\93777.000 HINTREL1 PsN: SHIRL
33

tries’ leaders for adopting good policy, we hope to see follow-on effects in other countries. 

Mr. PITTS. Okay. How will your criteria specifically measure a 

country’s commitment or progress toward clearly defined and enforced property rights? Under the category of ruling justly, the indicators the board has chosen to evaluate are civil liberties, regulatory quality, and rule of law. 

These are important concerns, but do they really matter if property rights and the institutions that define, protect and enforce 

property rights are not clearly in place? 

Mr. APPLEGARTH. These are, if you would like, top line indicators. They are composed frequently of subindicators. Several of 

them include references to treatment of property rights and other 

rights. 

I cannot give you the specifics right off the top of my head, but 

we can certainly, if you would like to pursue this, discuss it further 

after the hearing. 

Mr. PITTS. Are you aware that there are excellent indices out 

there that are available to measure property rights within most developing countries? I think the Heritage Foundation and The Wall 

Street Journal, for instance, have done these. 

Mr. APPLEGARTH. We are aware. In fact, we are using at least 

the Heritage Foundation indicators now. We are constantly trying 

to evaluate and improve the indicators we are using. 

In putting them out for comment as we have, we solicit and welcome opinions as to what might better measure the objectives set 

out under the legislation. 

Mr. PITTS. Would you be willing to consider placing property 

rights in the non-negotiable category with corruption, for instance? 

Mr. APPLEGARTH. I think we do not want to detract from the importance of corruption would be the best way to answer. All of 

these criteria are important, and each of the indicators are important. We tried to strike an overall balance and say the countries 

have to be above the median on at least half the indicators in each 

category. 

If they are falling substantially below on indicators where they 

pass a particular category, the government has to be taking steps 

to improve the performance substantially. Our approach is to try 

to strike an overall balance in terms of the indicators. 

Mr. PITTS. My time is up. Thank you. 

Chairman HYDE. We have reached the end of our hearing. Mr. 

Applegarth, it has been a pleasure. It has been instructive, your 

testimony. If we have further questions, we will write you. Meanwhile, we send you on your way with every good wish. 

Mr. APPLEGARTH. Thank you very much, Mr. Chairman. 

Chairman HYDE. Thank you. 

[Whereupon, at 12:12 p.m. the Committee was adjourned.] 

(35)

A P P E N D I X 

MATERIAL SUBMITTED FOR THE HEARING RECORD

PREPARED STATEMENT OF THE HONORABLE RON PAUL, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF TEXAS

Mr. PAUL: Mr. Chairman, though the ill-conceived Millennium Challenge Act has 

already become law and therefore we are only talking about its implementation 

today, it is nevertheless important to again address some very fundamental problems with this new foreign aid program. 

I believe that the Millennium Challenge Account (MCA) may be one of the worst 

foreign policy blunders yet—and among the most costly. It is advertised as a whole 

new kind of foreign aid—apparently an honest admission that the old system of foreign aid does not work. But rather than get rid of the old, bad system of foreign 

aid in favor of this ‘‘new and improved’’ system, we are keeping both systems and 

thereby doubling our foreign aid. I guess it is easy to be generous with other people’s money. In reality, this ‘‘new and improved’’ method of sending US taxpayer dollars overseas will likely work no better than the old system, and may in fact do 

more damage to the countries that it purports to help. 

The MCA budget request for fiscal year 2005 is $2.5 billion. We have been told 

that somewhere between 12 and 16 countries have met the following criteria for inclusion in the program: ‘‘ruling justly, investing in people, and pursuing sound economic policies.’’

It is a good idea to pay close attention to these criteria, as they tell the real tale 

of this new program. First, what does ‘‘investing in people’’ mean? It is probably safe 

to assume that ‘‘investing in people’’ does not mean keeping taxes low and government interference to a minimum so that individuals can create wealth through private economic activity. So, in short, this program will reward socialist-style governance. 

In fact, this program will do much more harm than good. 

MCA will hurt recipient country economies. Sending US aid money into countries 

that are pursuing sound economic policies will not help these economies. On the contrary, an external infusion of money to governments meeting the economic criteria 

will actually obscure areas where an economy is inefficient and unproductive. This 

assistance will slow down necessary reform by providing a hidden subsidy to unproductive sectors of the economy. We thus do no favors for the recipient country in 

the long term with this harmful approach. 

MCA is a waste of taxpayer money. Countries that pursue sound economic policies 

will find that international financial markets provide many times the investment 

capital necessary for economic growth. MCA funds will not even be a drop in the 

bucket compared to what private capital can bring to bear in an economy with 

promise and potential. And this capital will be invested according to sound investment strategies—designed to make a profit—rather than allocated according to the 

whim of government bureaucrats. 

MCA is corporate welfare for politically-connected US firms. These companies will 

directly benefit from this purported aid to foreign countries, as the money collected 

from US taxpayers can under the program be transferred directly to US companies 

to complete programs in the recipient countries. As bad as it is for US tax dollars 

to be sent overseas to help poor countries, what is worse is for it to be sent abroad 

to help rich and politically-connected US and multi-national companies. 

MCA encourages socialism and statism. Because it is entirely geared toward foreign governments, it will force economically devastating ‘‘public-private partnerships’’ in developing nations: if the private sector is to see any of the money it will 

have to be in partnership with government. There should be no doubt that these 

foreign governments will place additional requirements on the private firms in order 

36

to qualify for funding. Who knows how much of this money will be wasted on those 

companies with the best political connections to the foreign governments in power. 

The MCA invites political corruption by creating a slush fund at the control of foreign governments. 

MCA encourages a socialist approach to health care in recipient countries. In rewarding a top-down government-controlled approach to health care, the program ignores the fact that this model has failed miserably wherever it has been applied. 

Ask anyone in the former communist countries how they liked their government 

healthcare system. 

Finally, MCA is another tool to meddle in the internal affairs of sovereign nations. 

Already we see that one of the countries slated to receive funds is the Republic of 

Georgia, where former cronies of dictator Eduard Shevardnadze staged a coup 

against him last year and have since then conducted massive purges of the media 

and state institutions, have jailed thousands in phony ‘‘anti-corruption’’ campaigns, 

and have even adopted their own political party flag as the new flag of the country. 

The current government in Georgia does not deserve a dime of aid from the United 

States. 

Though the Millennium Challenge Account is advertised as a brand new approach 

to foreign aid—foreign aid that really works—it is in fact expensive and counterproductive, and will be very unlikely to affect real change in the countries it purports to help. The wisest approach to international economic development is for the 

United States to lead by example, to re-embrace the kind of economic policies that 

led us to become wealthy in the first place. This means less government, less taxation, no foreign meddling. Demonstrating the effectiveness of limited government 

in creating wealth would be the greatest gift we could send overseas. 

PREPARED STATEMENT OF THE HONORABLE ROBERT WEXLER, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF FLORIDA

Mr. Chairman: 

As you know, the Millennium Challenge Account (MCA) was created in March 

2002 by President Bush during his speech at the Inter-American Development 

Bank. This account was created to form a ‘‘new compact for global development, defined by new accountability for both rich and poor nations alike. Greater contributions from developed nations must be linked to greater responsibility from developing nations.’’ To implement the MCA, President Bush also created the Millennium 

Challenge Corporation (MCC), which is a government corporation supervised by a 

Board of Directors composed of Cabinet level officials and the Secretary of State acting as the Board’s Chairman. 

As stated above, the two core principles of the MCA are development effectiveness 

and accountability. However, I am particularly interested in how the MCC will build 

on the lessons we have learned about women and development effectiveness as well 

as holding countries accountable for putting them into practice. 

Mr. Chairman, it has become a well-known lesson learned that when development 

investments reach women, they go the farthest because they use their increased access to resources to benefit their families and communities. However, women face 

different barriers to poverty reduction than men. Unless development interventions 

take that into account, they will not be effective whether addressing education or 

trade policy. 

In the 2004 Omnibus Appropriations bill, Congress explicitly called upon the MCC 

to require that MCA countries identify intended project beneficiaries by sex, age and 

income. The goal of this was to encourage countries to perform serious gender analysis when designing projects. Given the MCA’s commitment to development effectiveness, I was surprised to see that this provision of the legislation did not clearly 

address gender and that there was only a brief mention of it in the sample proposal. 

Therefore, I would like to suggest that specific steps be taken to ensure that candidate countries be urged to analyze how their proposed interventions impact 

women as well as men. Also, in regards to the benchmarks that will be used to hold 

countries accountable for how they spend MCA funds, I suggest that countries be 

required to collect sex-disaggregated data to monitor how programs are reaching 

women as well as men and to encourage and support countries in building the capacity to collect this data. 

Mr. Chairman, the 2004 Omnibus Appropriations bill builds on the development 

best practices of local ownership by requiring the MCC to ensure that eligible countries consult with both women and men living in urban and rural areas as they develop their project proposals. We included this provision because women are often 

the ones most impacted by poverty and development issues, yet they are also often 

37

left out of discussions on the solutions. Often those best equipped to collect and represent this information are local women’s civil society groups, because they have established relationships with the women and, therefore, have the potential to be an 

invaluable resource to MCA countries and the MCC. 

Given the short timeline that the MCC is using to move ahead on developing new 

compacts, we must ensure that women’s civil society is adequately tapped in developing the priorities for countries. 

Thank you for your consideration on this most important issue.

Æ