Kessler, Reinventing US Foreign Aid at Millennium Challenge Corp. (Aug 2004)

NGOs and Civil Society

Kessler, Glenn. "Reinventing US Foreign Aid at Millennium Challenge Corp." Washington Post (10 Aug 2004).>. Also see>. Note that Kessler describes the Heritage Foundation>, known for its tremendous influence on US (foreign) policy, as one of the 'independent' groups on whose data country assessments are based, sz

Paul V. Applegarth's office has the look of a hot Internet start-up, complete with bare white walls and holes left when pictures hung by the previous tenant were ripped down. Though Applegarth is the chief executive of a new enterprise, Millennium Challenge Corp., his tiny hovel is at the end of two rows of cubicles with no reception area in an Arlington office building.

The staff, seven people at the beginning of the year, has expanded to 42 in six months and is due to grow to 200 in a year. Applegarth, a onetime Wall Street executive, is sitting on $1 billion in cash and soon hopes to get as much as $2.5 billion more. And -- literally -- the world is beating a path to his door.

Millennium Challenge Corp. is a hot prospect -- but in the world of foreign aid. It represents an audacious attempt by the Bush administration to rewrite the rules of foreign development assistance, focusing less on foreign policy considerations and more on whether countries create the conditions to use the money wisely.

The federal agency will hand over huge sums of money to a select group of countries that are evaluated and ranked according to series of benchmarks graded by outside parties. Only 16 countries -- out of a potential pool of 75 of the world's poorest nations -- qualified for the first round of funding, based on the quality of the government, public investment in people and economic freedoms. When the program is fully funded, each eligible country could receive as much as $300 million in additional aid per year beyond its current foreign assistance.

The developing world is familiar turf for Applegarth, 58. As a young Army officer in the Vietnam War, he worked in remote parts of the southern Mekong Delta, as part of an advisory team living in local hamlets and training medics, helping to establish schools and providing security.

His travel bug was whetted by a trip to Guatemala and British Honduras (now called Belize) while in college. "I was intrigued by the thought of working internationally and living internationally," he said. "It got the juices going."

Applegarth, a graduate of Yale University and Harvard law and business schools, spent nearly a decade at the World Bank before moving to Wall Street in the mid-1980s. He worked at Bank of America, American Express and Lehman Brothers (then part of American Express) -- and was lent out in 1992 to United Way of America to help it recover from a financial scandal -- before becoming managing director of an asset management firm that focused on emerging markets. He was responsible for operations in the Philippines and Indonesia and then headed the Hong Kong office of Emerging Markets Partnership.

He also was the chief operating officer of a fund sponsored by the British government that combined public- and private-sector money to build projects in sub-Saharan Africa. Just before being confirmed by the Senate as the first head of Millennium, Applegarth was chief executive of Value Enhancement International, a consulting firm.

Federal Election Commission records show that Applegarth, a Republican, contributed $500 in 1997 to Democratic Rep. Charles E. Schumer's successful campaign to oust Sen. Alfonse M. D'Amato (R-N.Y.). Schumer was a law school classmate and introduced Applegarth at his confirmation hearing. Applegarth also contributed $1,000 to former senator Bill Bradley's campaign for the Democratic presidential nomination in 2000, the records show. In June, he gave $2,000 to the Republican National Committee.

Millennium is based on an idea that had been kicking around foreign aid circles but which the Bush administration -- suspicious of the bureaucracy exemplified by the U.S. Agency for International Development -- has actively promoted. Millennium has a high-powered board -- Secretary of State Colin L. Powell is chairman, and Treasury Secretary John W. Snow is vice chairman -- and is designed to be independent of State and USAID, with as little bureaucracy as possible.

"There is a sense that USAID has done a lot of good things over time but some things have not gone well," Applegarth said. "The press of shorter-term needs -- HIV/AIDS, famine, humanitarian assistance -- has squeezed out the focus on longer-term needs. There is a sense that you needed a separate entity that could only do one thing -- focusing on ending the cycle of dependency, reducing poverty -- and doing it through sustainable growth."

Applegarth has outsourced most of the administrative functions -- such as financial accounting, security clearance and information technology -- to contractors. "We are not creating an empire here, we are not creating bureaucracy," he said. "We are much more modeled on a personal services firm."

Some have expressed concern that the Millennium program will drain funding from USAID and other foreign aid initiatives and, because it is a separate entity, complicate the coordination of foreign aid.

Mary McClymont, chief executive of InterAction, an alliance of U.S.-based international aid organizations, praised Applegarth for a willingness to listen to nongovernmental organizations and take their views into account. But, she said, "at the end of the day the jury is still out" on whether Millennium funding will reach the goals set by Bush and whether it will squeeze out other development assistance.

When Bush announced the program, he said it would quickly grow to $5 billion a year. Congress appropriated $1 billion for the first year, and though Bush requested $2.5 billion for the fiscal year starting Oct. 1, the House halved the amount because of budget constraints. The Senate has not yet acted on the request.

In the developing world, Millennium is a huge deal. After the program was announced in 2002, the foreign minister of Cape Verde cornered Powell during a refueling stop to make a pitch for the African country's inclusion in the program. When Cape Verde made the final cut, Prime Minister Jose Maria Neves said the selection "was the third most significant achievement for the country behind independence from Portugal in 1975 and the democratic transition in 1991."

Once countries are placed in a pool based on such factors as per capita income (under $1,415), they are then rated on 16 criteria -- corruption, political rights, education expenditures and days it takes to start a business, among others -- that are assembled by independent groups, such as the World Bank, World Health Organization and the Heritage Foundation.

The hope is that countries will feel a sense of competition and improve their performance. Every year, countries selected for Millennium money will be reassessed. Already, Applegarth said, there is evidence that the average number of days to start a business -- indicative of regulatory and bureaucratic burdens -- has begun to decrease in some countries.

Countries that are selected are also urged to consult widely with interest groups in order to determine national needs. On a recent trip, Applegarth found that Mongolia had set up "open forum" Web sites for people to send in ideas, while Georgia had a Web site and was holding town meetings.

Armenian officials at first thought they understood what people wanted but were surprised to discover different answers after nationally televised public forums were held, Applegarth said. Armenian Foreign Minister Vartan Oskanian said during a recent visit to Washington that inclusion in the Millennium program had made the country "more focused" on governance, democracy, rule of law and human rights.

"We are as much about the message as the money," Applegarth said. "If they can get the policy environment right, they will generate growth and capital."