Global Development: Views from the Center

UPDATE: The trade and tax bill passed the Senate 79-9 and the House 212-184.

1. This legislative delay, besides the excellent points noted above, causes a more insidious damage: Contracts can only be tendered based on the time-frame approved on the Compact. A more flexible enabling legislation could allow more options in negotiating completion time. The "tight" time frame weakens negotiating options, primarily in complex infrastructure projects and agriculture/agribusiness (any delay causing the loss of one export season, for example, may force MCC to cancel the whole project. Why? Absent that initial export season in a five year framework the rate of return from the overall project could easily fall below the IRR marker (e.g., the number of farmers who will be participating in year four and five, usually the largest addition to the project, will not be achievable; in such cases, it is hard to reach the longer term results used to estimate Errs).

2. Another point deals with a built in bias. Only the more advanced countries have the necessary institutional strength and can capture the required professional skills to launch the Compact without major delays and to implement it on the extremely tight timeline MCC currently negotiates with the governments. Poorer societies usually face a major hurdle in the organization of the resources required not only to launch the projects under the Compact, but the significantly more important task of managing effectively their implementation (current focus has been on compact signing and first disbursement--development really begins, per force, after that). Why? A five year chronometer starts ticking with first disbursement--and many societies do not have the capacity to move quickly from that first disbursement towards full blown implementation--and while they adapt the program to "their" clocks, the MCC chronometers tick relentlessly towards the five year deadline.

Thus the current five year envelope bias the probabilities of achieving poverty reduction results towards the wealthier countries and against the poorer societies--notwithstanding that the latter may have "earned" the right to benefit from MCA funds.

3. I sense your note places its emphasis on MCC's contribution to economic growth. This rushed note is not the place to debate economic growth and poverty because--my experiences in Latin America and Africa (e.g. Nigeria) has taught me some lessons (growth is necessary but not sufficient?).

MCC is not competing with private investment banks or the private sector mandate to stimulate growth through investors' returns. My taxes go to fund MCC not only to encourage growth, but to encourage growth that reduces poverty...a very special inclusiveness quality is expected. If growth were the only objective, then my taxes should not go to MCC--I already invest in those who could finance ports, infrastructure, etc., in the expectation of a nice rate of returns or in agribusiness ventures diversifying in tomorrow's consumers markets. If I misread the tenor of your message, apologies.

Otherwise, congrats on a well articulated note dealing with a major issue affecting MCC effectiveness in reducing poverty through economic growth. . The requested amendments will strengthen MCC's capacity, and those of the eligible countries (don't they own the overall process?) in reducing poverty; w/o them, MCC will be strongly tempted to opt only for growth, (e.g. building major ports, or very large infrastrucute and pass total control to foreign companies)and work with the wealthier groups that can implement in the time-hostile MCC current environment.
Posted by Felipe P Manteiga at December 12, 2006 12:44 PM