The Millennium Challenge Corporation: A Friend or Foe for Development?

As the G7 wraps up its latest meeting, they have committed to a large amount of development aid for infrastructure in poorer countries totaling 600 Billion USD.^{^[1]} Many have applauded this move, even the Chinese Director General for European Affairs, Wang Lutong sent out a tweet, claiming it is “great news.”^{^[2]} Before we all rush to praise rich countries for this, it is worth taking a look at a previous attempt from rich countries, namely the United States, to aid development within the poor world. Which is why we should revisit the work of the U.S.’s Millennium Challenge Corporation (MCC).

The MCC is nominally an independent aid agency, providing grants to countries which have been determined to have “good economic policies and potential for economic growth.” But in fact, it is an arm of the US government, including the secretary of State and the finance minister as its board member.^{^[3]} The agency does not initiate projects, yet it allows developing countries who are committed to good governance, economic freedom and investing their citizens to apply for a grant. The MCC will select countries which are in the American political interest. The money is handed out as grants, but assistance can be terminated by MCC if a country engages in a pattern of actions inconsistent with MCC’s eligibility criteria.

Just as he was invading Iraq, in 2004, President George W. Bush wanted a new development agency, as he believed the USAID, the traditional development agency of the United States, was much too bureaucratic. Out of this wish, the MCC was born.

In 2007, President Bush met with his Mongolian counterpart for a signing of a MCC grant. There he clearly stated that the MCC “is an important part of our (The U.S.’s) foreign policy. It’s an opportunity for the United States and our taxpayers to help countries that fight corruption, that support market-based economies, and that invest in the health and education of their people.” From this quote, namely the part about ‘market-based economies,’ Vijay Prashad, an Indian historian, argues that we can see the main goal of the MCC, upholding and promoting the US-led neoliberal, capitalist world order.^{^[4]}

In 2006, the MCC and Vanuatu signed a $65.69 million deal to help reduce transportation costs. It attempted to do this in two ways, the first was to rehabilitate and seal two of Vanuatu’s most important roads, while also promoting “the strengthening of institutional efforts and policy reform initiatives.”^{^[5]} The MCC projected huge benefits to Vanuatu, yet fell short of delivering them. Using 2005 as a baseline, the MCC stated that Vanuatu’s GDP will grow by an additional 3 percent a year thanks to the project, projecting that after 2008 (when the benefits fully kick in), GDP growth should be well above 3%.^{^[6]} There was strong growth at first, 2008 had a growth rate of 5.6%, yet growth slowed down significantly, averaging 1.88% during the years 2010-2015.^{^[7]} Meaning the additional inflow of cash initially stimulated growth, yet the actual project was not as economically viable as projected.

Why would the United States spend over 65 million dollars on a project that was not so viable? The answer is clearly upholding the global capitalist economic system and U.S. hegemony. So how can semi-useless infrastructure spending be used to further neoliberalism? Simple, the large amount of criteria that needs to be met for the approval of these grants. While some may be laudable, such as protecting civil liberties, many of them focus on macroeconomic stability, codeword for cuts to public spending, low regulations, and no checks on trade and capital flows. Not only that, some of the criteria are naturally at odds with each other, such as the need for a high vaccination rate, which is difficult to do if countries have to rein in public healthcare spending.

The time leading up to the Vanuatu project was marked by an economic crisis, a political crisis, and civil unrest. During the years before Vanuatu received the grant, they started to enact neoliberal policies in order to meet the MCC’s criteria. This caused a deep recession in the early 2000’s, with GDP dropping by 8.6% in just two years.^{^[8]} This prompted a large protest from the citizens of Vanuatu and led to the ousting of a President.^{^[9]} The costs to Vanuatu by adhering to the MCC’s criteria far outweighed the meager benefits from the project itself. Not only that, some locals have voice concerns over the treatment of the workers and their working conditions on these two MCC projects.
History shows, each country that wants to develop fast requires large investments. As developing countries do not have a developed bourgeoisie class, finding private capital to bank-roll development is impossible in these countries. This means investment for development can come from two other sources, public capital (investments from the government) or foreign capital. It seems as though the MCC project is determined to ensure that poor countries will continue to need money from rich countries, by upholding current neocolonial power structures and preventing development. In this sense, rich countries stay rich and poor countries stay poor and dependent on rich countries for sources of capital.

Understanding the MCC as a tool of upholding the current world-order, in which developing countries have such a hard time finding capital to develop, it would be reckless to try to meet the criteria to be eligible for a grant. Despite this, it seems that the Solomon Islands are heading down this road. Four years ago, the Solomon Islands were deemed eligible for a grant and earlier this year, they signed a contract with the MCC and the project is expected to start soon.

The Solomon Islands deal was not as big as Vanuatu’s, totaling 20 million USD. The deal aims to help promote tourism and promote effective management of their natural resources. It will do this with two projects: the Forest Value Enhancement Project (FoVEP) and the Accessing Land for Tourism Investment Facilitation (ALTIF) Project.^{^[10]}

If the MCC projects in Vanuatu serve as an example, the downsides of conforming to neoliberal policies to meet the MCC’s criteria will not offset the minor economic gains from the grants. In fact, even though the project has yet to start, there were intense protests in November of 2021. The reasons behind the protests are multifaceted, yet one thing has cut through; economic conditions. Unemployment and underinvestment in housing were a large driver in this period of civil unrest.^{^[11]} Adhering to the MCC’s criteria makes solving these economic problems impossible without foreign aid, as the government of the Solomon Islands is handicapped due to neoliberal policies, despite having the fiscal space to invest in housing and jobs. This is exactly why the MCC select the Solomon Island.

The Solomon Islands should take a page out of Nepal’s book. Nepal sought out a MCC grant to help develop infrastructure, yet after David J Ranz, assistant secretary for South Asia at the US State Department, in 2019 said that the MCC plays an important role in the U.S.’s Indo-Pacific Strategy, a fierce debate broke out in Nepal.^{^[12]} Ultimately the MCC deal never received a vote in Nepal’s parliament, and thus the project was never started.

The MCC project will not help the Solomon Islands in the long-run. The Solomon Islands should be worried about the US and other large countries using them as a pawn, rather the Solomon Islands should focus on finding indigenous sources or any other friendly country for funding investments that further development. All that will happen to the Solomon Islands by signing this deal is kneecapping their ability to develop and future the U.S.’s goal of retaining the current global power structure.

^{^[1]} https://www.bbc.com/news/world-asia-61947325

^{^[2]} https://twitter.com/WangLutongMFA/status/1541388910751674369

^{^[3]} https://www.mcc.gov/

^{^[4]} https://asiatimes.com/2022/07/us-makes-another-stab-at-challenging-chinas-bri/

^{^[5]} https://www.mcc.gov/where-we-work/country/vanuatu

^{^[6]} https://www.gao.gov/products/gao-07-1122t

^{^[7]} https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=VU

^{^[8]} https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=VU

^{^[9]} https://www.rnz.co.nz/international/pacific-news/148408/vanuatu-protest-called-off-to-allow-court-to-decide-president's-status

^{^[10]} https://www.mcc.gov/where-we-work/program/solomon-islands-threshold-program

^{^[11]} https://www.reuters.com/world/china/what-is-behind-unrest-solomon-islands-2021-11-29/

^{^[12]} https://thehimalayantimes.com/nepal/millennium-challenge-corporation-compact-programme-important-initiative-under-indo-pacific-strategy