Abstract: In a speech on March 14, 2002, President Bush outlined a proposal for a major new U.S. foreign aid initiative. The program, referred to as the Millennium Challenge Account (MCA), is managed by the Millennium Challenge Corporation (MCC) and provides assistance, through a competitive selection process, to developing nations that are pursing political and economic reforms in three areas: ruling justly, investing in people, and fostering economic freedom. If fully implemented, the initiative would represent one of the largest increases in foreign aid spending in half a century, outpaced only by the Marshall Plan following World War II and the Latin America-focused Alliance for Progress in the early 1960s.

The MCC differs in several respects from past and current U.S. aid practices:

* the size of the $5 billion commitment;
* the competitive process that rewards countries for past and current actions measured by 16 objective performance indicators;
* the pledge to segregate the funds from U.S. strategic foreign policy objectives that often strongly influence where U.S. aid is spent; and
* the requirement to solicit program proposals developed solely by qualifying countries with broad-based civil society involvement.

The Administration sought a combined $6.8 billion for MCA program, FY2004- FY2006, although Congress appropriated $4.2 billion, or roughly two-thirds of the total sought. For FY2007, the MCC requests $3 billion. As announced by the President in March 2002, the initial plan had been to fund the MCC annually at $5 billion by FY2006.

Congress authorized the MCC in P.L. 108-199 (January 23, 2004). Since that time, the MCC’s Board of Directors has selected 23 eligible countries for FY2004 — FY2006, and approved and/or signed eight Compacts with Madagascar (April 18, 2005), Honduras June 13, 2005), Cape Verde (July 4, 2005), Nicaragua (July 14, 2005), Georgia (September 12, 2005), Armenia (December 19, 2005), Vanuatu (January 3, 2006), and Benin (January 30, 2006). Other MCA implementation matters continue to unfold, including the relationship of MCA and USAID, how to support “threshold” countries, and the country programs.

A growing question raised by some Members of Congress concerns the level of funding to support MCC programs. Some, noting that proposals received by the Corporation in 2004 totaled more than $4.2 billion, fear that insufficient funds might force the MCC to reduce the number of recipients or the size of the grants. Others, however, believe that the slower-than-anticipated pace of Compact agreements means that the Corporation has or will have enough resources, and have supported reductions in MCC budget requests.

This report will be updated as events unfold.

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Topics: International Finance, Government, International