New Approach to Aid – The Millennium Challenge Corporation


Conventional approaches to aid often get a bad rap (although this is not necessarily deserved). This encourages innovation in the field, and one somewhat controversial new approach to aid has recently been shown to be effective: the “compact” approach of the Millennium Challenge Corporation (MCC).

The MCC, which was set up by the US government, provides grants (or compacts) based on merit rather than solely on need. To qualify, countries need to be poor and have relatively low levels of corruption in 20 areas as well to meet the criteria.

This approach is designed to reward countries for implementing reforms, which is exactly what many leaders of emerging democracies are trying to do. The provision of incentives helps them accomplish this, especially in the case of “threshold countries”, which are almost eligible for aid but need to make reforms in areas that are relatively easy to improve, such as business friendliness or primary education.

One criticism of this method is that it therefore helps countries that would eventually implement reforms anyway and are relatively better off than others, neglecting countries that are “falling off the edge”.  This is a fair point, and there is no question that other types of aid, such as emergency relief, are certainly still needed.

However, this method results in an extraordinary bargain by promoting reforms in countries before even spending any money. As a result, it is easy to “sell” in the current context of tight budgetary conditions and may thereby represent a way to help at least some types of international aid survive budget cuts.

– Caroline Poterio Martinez

Source: The Economist
Photo: Catholic Lane

Read Clint Borgen articles about global poverty and aid.


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