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Analysis : MCC Agreement – Why is it opposed?

By Mohammed Lafir

During the past several months, the people of Sri Lanka are bombarded with information about the MCC Agreement allegedly signed between the Sri Lankan Government and Millennium Challenge Corporation (MCC).

The word MCC became a talking point at the Presidential Election. It became so much so that the scrapping of this agreement became the most patriotic act one could perform.

We look at how and on what basis the MCC grants are provided and what are the performance measures that comes with such agreements in return for the grants provided.

When Millennium Challenge Corporation (MCC) enters into an agreement with a foreign government, it looks for the following in return as its key performance indicative objective framework.

The MCC Board of Directors selects countries as eligible for MCC assistance. Transparency about the process and criteria that govern selection of country partners – which inform the Board’s eventual decisions – are a hallmark of the MCC model.

For a country to be selected as eligible for an MCC assistance program, it must demonstrate a commitment to just and democratic governance, investments in its people and economic freedom as measured by different policy indicators.

The eligibility and selection criteria can be read here

The following are key performance measures that will be coupled in an agreement when grants are approved.

Aid effectiveness Since its creation in 2004, MCC has been advancing and accelerating the conversation on aid effectiveness.

Climate Resilient Development MCC and its country partners implement climate-resilient projects and policies to promote growth and sustainability in a changing environment.

County Led Poverty Reduction Country ownership—or country-led development—has been broadly embraced by the international donor community as a critical element of international development aid.

Strengthening Democracy One of MCC’s core principles is that aid is most effective in countries with a sound commitment to accountable and democratic governance.

Digitalisation of Technologies MCC is at the forefront of emerging digital technologies, relying on them to deliver information that is secure, user-friendly, innovative and effective at helping the agency reduce poverty through economic growth.

Domestice Resource Mobilisation MCC helps the poor by empowering its partner countries to pursue policies and reforms that deliver greater resources to invest in their people and promote long-term economic growth.

Finghting Corruption Controlling corruption is a key indicator in selecting countries for initial and ongoing compact eligibility. MCC and its partner countries promote measures to prevent, detect and combat corruption before it occurs and to address problems after they emerge.

There are few more other factors that are considered as well.

With respect to Sri Lanka, The Board of Directors of the Millennium Challenge Corporation approved a five-year, $480 million Compact with the Government of Sri Lanka aimed at reducing poverty through economic growth. This was the agreement that became the talking point in the country’s political platform and became a key policy matter at the Presidential Election.

The MCC Compact seeks to assist the Sri Lankan Government in addressing two of the country’s binding constraints to economic growth:

(1) inadequate transport logistics infrastructure and planning; and (2) lack of access to land for agriculture, the services sector, and industrial investors.

The compact is composed of two projects:

1. The Transport Project

The Transport Project aims to increase the relative efficiency and capacity of the road network and bus system in the Colombo Metropolitan Region and to reduce the cost of transporting passengers and goods between the central region of the country and ports and markets in the rest of the country.

2. The Land Project.

The goal of the Land Project is to expand and improve existing Government of Sri Lanka initiatives to increase the availability of spatial data and land rights information. This project will help the Government identify under-utilized state land that can be put to more productive use and maximize rents from lands that the government leases. It would also increase tenure security and tradability of land for smallholders, women, and firms by digitizing deeds records so that they are less vulnerable to damage, theft, and loss.

The grant by MCC are generally dispatched based on the periodical review of achieving the said objectives and framework.

These compacts are five-year agreements between MCC and an eligible country to fund specific programs targeted at reducing poverty and stimulating economic growth.

MCC’s unique model for the development of compact programs reflects the principles that shaped the agency’s creation in 2004. These include the principle of country ownership, a belief that assistance is most effective when built on a partnership (or “compact”) in which recipient countries assume greater responsibility for their own economic development.

MCC’s compact development process also reflects principles of transparency and accountability. In compact development, MCC invests considerable effort in gathering or generating useful data, evidence or other information to inform decisions; incorporating lessons learned; identifying clear, measurable objectives for each investment project; building monitoring and evaluation approaches directly into the design of each investment project and compact program; and assessing likely impacts and reporting actual results.

The following are the list of countries where these type of Compacts are implemented as published by MCC. Many such Compacts are now completed.

The agreements signed are very much standard in nature and we cannot see any such type of serious infringement of any country’s sovereignty as claimed by politicians of all spheres in Sri Lanka.

MCC is more benificial for Sri Lanka not only as a half a billion grant to upgrade our transport infrastructure and land registry etc., which are in dire states, it also helps diversify economic and foreign relations. It will reduce the growing dependency on China and its high interest loans.

On top of all what our politicians back home do not like is the accountability that comes with it unlike the free-fall non accountable, ethics less chinese loans.

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