You Can Have Our Millions — But First You Must Pass Our Test

What's the best way to help out someone in need? Just give money? Or try to make sure they'll spend the money effectively?

That's a dilemma that's faced anyone confronted by someone begging on the street. And it's an international problem as well. When rich countries give aid to poor countries, how do they know the money will go to good use?

The Millennium Challenge Corporation has come up with one strategy. MCC, as it's called, is a U.S. government foreign aid agency created by Congress in 2004 to fight global poverty.

Its mission says: "MCC forms partnerships with some of the world's poorest countries, but only those committed to good governance, economic freedom and investments in their citizens."

To be selected for aid that can help reduce poverty, countries are evaluated by a scorecard drawn from third party data gathered by groups like Freedom House, the World Bank and UNICEF. If there are concerns — say, evidence of corruption or a lack of democratic rights — then a country would not be eligible for an MCC compact.

So far, MCC has signed compacts with 32 countries and handed out about $11 billion. The average compact is around $350 million.

But partnerships do not always go smoothly. Of those 32 compacts, six have been suspended or terminated for falling short of MCC's expected commitment to good governance. The latest suspension is Tanzania. A $463 million grant — designated to improve the access of rural residents to electricity — was suspended this spring.

It shouldn't have come as a surprise to Tanzania. MCC doesn't issue "warnings" says Beth Tritter, vice president for policy and evaluation, but there are "open and honest conversations with partner countries when we take an action like this."

The problem is that the country hasn't lived up to the MCC definition of "good governance." An election on March 20 on the island of Zanzibar (a semi-autonomous part of Tanzania) was deemed "neither inclusive nor representative" by MCC. What's more, says Tritter, "the Government of Tanzania has also not taken measures to ensure freedom of expression and association are respected in the implementation of the Cybercrimes Act."

The question is: Is this linking of aid to government behavior a good way to encourage countries to change for the better?

Tritter thinks so. A case in point is Malawi. In March 2012, an MCC compact that would have provided funding for electricity was formally suspended because of concerns about "democratic rights and human rights," she says. When the president passed away in April, the new president "took actions to deal with the human rights issues and fairness issues, the treatment of protesters, freedom of speech." The MCC board reconvened in June of that year and reinstated the compact.

Sara Rose, a senior policy analyst at the think tank Center for Global Development, agrees with MCC's mission statement. Rose worked at MCC from 2007 to 2010 in the department of policy evaluation.

There are studies that show that "aid could be more effective [if it is delivered to] countries that are well governed," she says. Although she concedes that this theory "is not widely held as a complete truth."

The steps to qualify after a suspension are up to the government, Rose notes. MCC does not provide a list of needed reforms. But in her experience, governments believe it is a "mark of distinction" to be eligible for MCC funding. So there's motivation to live up to the aid group's standards.

Could an analogy be drawn to a parent who promises to pay for a child's college tuition if the child lives up to certain standards and doesn't get into trouble? Rose didn't think the analogy was appropriate: "It's a partnership, an aid partnership. MCC provides a chunk of money to invest in poverty reduction and economic growth, and there are expectations associated with that chunk of money."

On the other hand, Phyllis Pomerantz, a professor of the practice of public policy at Duke University, says the analogy is apt. "If it's a partnership," she says, "somebody is a junior partner."

"If your intent is to reduce poverty and promote honest growth, the [MCC approach] is not helpful," Pomerantz says. Consider the Tanzania example. The country is dependent on foreign aid but "doesn't know under what circumstances and conditions a donor is going to stop giving money," she says. Meanwhile, she says, the rest of the donor community is still giving aid to Tanzania even if MCC stops.

Cutting off aid in this manner "sours [the donor's] relationship with the country," Pomerantz says. And if the reason for the cutoff has to do with elections, she says, "this is a violation of their political sovereignty."

She does agree that "countries that don't have good governance don't use resources as effectively as better governed countries." But the relationship between governments and economic development is a "chicken and egg situation" that is much debated in academic circles, she says. Maybe good governance can help spur economic growth, she explains, but maybe if a country is making economic progress because of aid, "a rising middle class and private investors put pressure on the government to improve and get its act together."

So in her view, there's no clear answer to the question: Does the MCC approach work?

There's been no definitive response yet from the government of Tanzania.

Mujobu Moyo is an economist who is a research fellow at the Center for Global Development — whose specialty is managing natural resources in developing countries. She sent an optimistic e-mail, citing the comments of finance minister Dr. Philip Mpango, who's said that the government will engage with MCC to understand what Tanzania should do to be reconsidered.

"There is reason for hope," Moyo wrote. "It is hard to doubt the sincerity of President Magufuli's intentions to bring positive change to Tanzania. His actions to increase accountability and curb corruptions within the government speak for themselves. He will take action, but in his own time. He's not the kind of man that can be pushed around."

So she has faith that the president can restore freedom of expression and other citizen rights. And if that does happen, then Tanzania will have both people power and electrical power.