MCC Biggest Disagreement between House and Senate Appropriations Bills

July 15, 2009

Last Thursday the House passed a $48.8 billion FY10 State, Foreign Operations Appropriations bill (H.R. 3081), $3.2 billion below the President’s request (not including $1.9 billion in advanced FY09 supplemental funding).   The bill included $1.4 billion for the MCC, just a hair below the President’s $1.43 billion request.  The Senate Appropriations Committee delivered a slightly lower amount of overall  funding, $48.7 billion (again, not including  advanced supplemental  funding).  Within that, the MCC received $950 million for the MCC with report language that more or less tells the MCC to make up the difference by using funds deobligated from recent decisions to terminate components of  existing compacts, presumably a reference to recent actions in Madagascar (post-coup), Armenia and Nicaragua.   The problem with that logic is that in the case of Madagascar, it costs money to responsibly close down operations; in the case of Armenia, since the Board didn’t technically terminate anything, the unused money will sit idle unable to be reallocated elsewhere; and in the case of Nicaragua, the amount available for deobligation looks to be around $15 million — something, but not the $450 million needed to match the House appropriation.

Hopefully, the two bills will be reconciled in conference, with a number that at least splits the difference.  I continue to think the MCC needs to prioritize implementing the compacts currently in the pipeline, the results of which will, in many ways, secure the future of the MCC as a model and pave the way for other aid agencies to get the flexibilities afforded to the MCC (no earmarks, no tied aid, country-led design and implementation, results driven).   At the same time, the FY10 request was perhaps the most realistic justification I have seen yet for use of MCC funds in terms of new compacts.  And more broadly, while rebuilding and reprofessionalizing USAID — a much needed investment, but one that will take time to deliver real returns — it is good for the U.S. to continue to support well the one model we have that was built around internationally-recognized principles of aid effectiveness.

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1. Martin Ochoa Says:
   July 21st, 2009 at 4:10 pm

   We are aware that, as part of the US Government, the Millennium Challenge Corporation is watching with great concern the evolution of events in Honduras, and that the suspension of the Millennium Challenge Account –Honduras depends on the results to be obtained from the negotiations between the parts.
   A temporary suspension of disbursement for MCA-Honduras would represent losses for more than 130 million dollars from the more than US$ 190 million already committed, as well as irreversible delays equivalent to a permanent cancellation.
   The following is what is currently at stake:

   Farmer Training Losses of 23,920 jobs and income US$ 4.8 million. Most farmers currently in the program (3274) that have obtained loans will probably lose access to market and default on the loan.

   Farmer Access to Credit US$ 5.0 million (MCC funds and non MCC funds) in loans would probably fall into default, as suspension of technical assistance. 1500 farmers would not have access to long term credit. Over 4000 farmers will lose access to soft warranties. Loss of 3100 permanent jobs. 40,000 potential borrowers with limited access to finance because of limited ownership of land.

   Rural Roads Inability to use US $ 3.2 million of resources available from MCC and US$ 1.2 Million from communities for road works from farms to market. Costs of claims from contractors and communities due to suspension or termination. Loss of 900 jobs. Probably loss of US $ 1.7 Million in mobilization payments. Nearly 200,000 direct beneficiaries of the rural roads will not gain access to markets and/or social services.

   Grants Facility Loss of 7,411 jobs and US$ 815,000 in net annual income. Negative impact on personal farmers loans US$ 1,028,000. Claims from suppliers to project implementers/MCA-H of up to US$ 659,000. The public image and credibility of all grantees will be negatively affected. Grants to 2076 beneficiaries will not be benefited by the project.

   Construction CA-5 Highway Inability to use US $ 17.0 million from MCC and US $ 87 million from CABEI resources committed in the CA5 works because of request for additional time that would fall outside the period of the compact, costs of claims from contractors. More than 1500 affected parties in process of being resettled; Loss of 2000 jobs. Increase operating costs for more than 10,000 vehicles per day.

   Paved Secondary Roads Over 560,000 beneficiaries affected and at least 180,000 in the Choluteca area permanently affected upon termination of contract for this road. Increased costs of repair or restoration works unfinished. Inability to implement US $ 2.5 million contract in Choluteca in the remaining life of the agreement cutting 5.5 kilometers in length to be paved. Loss of 800 jobs.
   Weight Control Limited government capacity to prevent damage from overweight. Pressing the need for additional resources for maintenance and rehabilitation/construction of works.

2. Austin Says:
   July 25th, 2009 at 11:35 pm

   Is there any particular reason why Honduras is being held to a completely different set of standards than Nicaragua? When the MCC cut aid funding to Nicaragua there was an ambiguous reason given. In this case the coup was a clear cut violation of the proclaimed values of the MCC.

   Why the double-standard?

3. Anthony Says:
   August 4th, 2009 at 11:52 am

   Unfortunately the flexibilities afforded by MCC as written in its guidlines result in a procurement environment which favors low bid companies; i.e. Chinese state-owned companies. I’m surprised the Congress continues to allocate taxpayer dollars to a program which favors Chinese companies over U.S. companies. The wave of upcoming MCA-funded construction contracts in Africa will demonstrate this bias in favor of low bid, but necessarily high-quality competitors.

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