Aid With Strings

The new U.S. foreign assistance corporation evaluates nations before extending a hand.

Paul V. Applegarth is on a mission to change the hostile view conservatives have long held about U.S. foreign aid. And if he succeeds, the U.S. government might embrace the view long held by liberals that the United States should devote more of its national treasure to helping poverty-stricken nations around the world.

At the moment, the United States ranks behind most other developed nations in its generosity toward less fortunate nations. And that's attributable in part to conservatives' view that foreign aid is largely wasted. As Applegarth notes, critics of foreign aid thought it was "going to corrupt dictators who put it in Swiss bank accounts."

Now, Applegarth is trying to "rebuild faith in foreign aid" as the chief executive officer of a new federal agency, the Millennium Challenge Corporation. And he's got the backing of one of Washington's foremost conservatives: President Bush.

Bush's perspective on foreign aid changed on Sept. 11, 2001. At a development conference in Monterrey, Mexico, in 2002, Bush announced his plan to dramatically increase the overall amount the United States spends on aid-eventually by $5 billion a year-and to target that aid to countries that demonstrate the ability and commitment to use it wisely. Bush said effective distribution of foreign aid was part of his plan to defeat terrorism. "We will challenge the poverty and hopelessness and lack of education and failed governments that too often allow conditions that terrorists can seize and try to turn to their advantage," he said.

But funding has lagged behind Bush's promise. Millennium Challenge Corporation opened its doors last year with a $1 billion budget. This year, it has $1.5 billion to spend, and Bush is seeking $3 billion for 2006. The rules governing the dispersal of the funds are considered revolutionary among development advocates.

Only the poorest countries in the world are eligible, and only those that demonstrate commitment to ruling justly, investing in people and economic freedom will receive aid. In March, Madagascar-an island nation off the coast of Africa-signed the first compact. It will receive $110 million over four years to advance land titling, financial sector reforms and agricultural production. Applegarth expects that by this summer, the corporation will reach agreements with several other countries; Honduras, Nicaragua and Georgia are top contenders.

Countries are evaluated using criteria set by nongovernmental organizations. For example, in the "investing in people" cate-gory, countries' immunization rates are assessed by the World Health Organization. For "ruling justly," the World Bank Institute evaluates anti-corruption efforts. For "economic freedom," the Heritage Foundation rates trade policies. In each of these categories, MCC monitors at least four indicators.

After agreements are reached with eligible countries, MCC employees-currently, there are about 120-evaluate the countries' adherence to their plans and their success. But the foreign governments, not the agency, will set development priorities and determine how funding is spent. Madagascar already has hired a German firm to oversee procurement. By contrast, says Applegarth, in the past, donor nations told developing ones: "You need this and we'll do it for you."

The creation of MCC marked a defeat for the U.S. Agency for International Development, long the overseer of most foreign aid. In the 1990s, foreign aid critic and then-Sen. Jesse Helms, R-N.C., succeeded in placing USAID under the aegis of the State Department, sending the message that foreign aid should be as much aimed at bolstering alliances as delivering actual improvements in people's lives.

MCC, unlike USAID, operates outside the old civil service structure. Its employees are not covered by the 15-grade, 10-step General Schedule, and pay decisions are based more on performance evaluations than longevity. Applegarth is a Senate-confirmed appointee who reports to a seven-member board of directors chaired by Secretary of State Condoleezza Rice. The staff will remain lean, about 200 people at full staffing, and will rely heavily on contractors. Asked why a new agency was necessary to revamp foreign aid, Applegarth says, simply, "We really want to do something different."

Who's Eligible

The Millennium Challenge Corporation chooses countries for funding based on 16 indicators that aim to demonstrate that they are ruling justly, investing in people and promoting economic freedom.

Ruling Justly

• Civil liberties
• Political rights
• Voice and vote
• Government effectiveness
• Rule of law
• Control of corruption

Investing in People

• Immunization rate
• Public expenditure on health
• Female primary education completion rate
• Public expenditure on primary education

Economic Freedom

• Country credit rating
• Inflation rate
• Days to start a business
• Trade policy
• Regulatory quality
• Fiscal policy