A New Regional Approach for MCC

December 16, 2015 By David Stein

A little-noticed but important development is underway in Congress that could improve the way the Millennium Challenge Corporation (MCC) promotes economic growth: regional compacts.

For over a decade, MCC has been fighting poverty around the world by partnering with countries that demonstrate their commitment to good governance, economic freedom, and sound investments in their people. Thus far, MCC has signed 32 compacts with 26 countries benefiting roughly 175 million people.

The idea behind regional compacts is that constraints to economic growth in areas like water, transportation, and energy infrastructure may not be met most effectively within national boundaries. Accelerating regional integration has been identified as one of the keys to economic growth in Africa, and a study by the World Bank last year estimated that regionally integrated infrastructure could double Sub-Saharan Africa’s share of global trade.

Questions about implementation of regional compacts were raised at a Senate Foreign Relations Committee hearing last week: What would MCC do if a single country in a regional compact started to backslide on the standards relating to good governance and economic freedom? How will MCC ensure high standards of accountability when dealing with multiple stakeholders in several countries? How will MCC overcome the difficulties of negotiating a regional compact when the benefits of the compact may accrue unevenly across participating countries?

For the past year, a “cross-sector working group of technical experts” at MCC has been working to address these questions. During the hearing, MCC CEO Dana Hyde said, “our eyes are wide open about those challenges.” She explained that MCC is “at the very early stages of this” and that “if MCC were to receive this authority, we would be cautious, start slowly, not undertake a lot at the front-end, and prove the concept.”

In selecting a region, Ms. Hyde assured that “MCC would maintain the same standards” as it does for bilateral compacts and would only partner with countries “who themselves are looking for opportunities to integrate.” She also said that should one country become disqualified during a compact, MCC would seek to sever the project in the country in ways that, where possible, ensure the rest of the regional investment remains intact.

Last month, the House Committee on Foreign Affairs passed legislation that would authorize MCC to pursue regional compacts and a parallel effort is underway in the Senate. Thanks to the tremendous opportunities created through regional compacts, this legislative change has achieved bipartisan support in both houses of Congress.

By helping countries build and expand regional infrastructures and markets, MCC would generate new investment opportunities for American businesses. This is particularly important when you consider that America’s fastest growing markets – representing roughly half of U.S. exports – are in developing countries.

As Ms. Hyde put it, “In an increasingly globalized economy, these investments are a down payment on stability and market opportunities for American businesses… By giving MCC the authority it needs to make regional investments, this committee can take a critical step toward reducing global poverty.”

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