03/07/2011 04:23 pm ET Updated May 25, 2011

U.S. Budget Woes Threaten MCC Money and Model

The prospect of a U.S. government shutdown over the FY2011 budget still hangs over Washington. While the Millennium Challenge Corporation (MCC) was just 0.03% of the FY2010 budget (and could be even less in FY2011), the FY2011 and FY2012 budget woes could cut more than MCC money; they could cut to the core of the MCC model.

The MCC's first "Principles into Practice" paper by Sarah Lucas highlights the MCC's "Focus on Results." The paper is more than smart, quick reading. It puts some of the MCC's hard-learned lessons into the public record. Kudos to Lucas and the MCC for candidly capturing real lessons -- the kind that are learned when things don't work -- and using them to inform MCC internal operations and sharing them publicly in the paper and at a recent event. The MCC's experience has implications for implementing President Obama's global development policy directive and the State/USAID Quadrennial Diplomacy and Development Review (QDDR) and congressional efforts which all promise (or demand) a renewed "focus on results."

Of the Principles into Practice paper's ten lessons, three rise to the top for me as the most important and most vulnerable in the current U.S. federal budget morass.

1.Transparency matters. The MCC wisely recognizes that public selection, financial and program information allows everyone from the American taxpayer to the recipient country to track progress and results so they can answer the questions: did the program achieve its goals and do the results justify the cost. Answering these questions is in the interest of the MCC, the recipient countries, and the U.S. Congress that has the unenviable task of having to pick and choose which programs to fund. But it also opens up the MCC to increased scrutiny. Lucas says:

"The risk, however, is worth it in terms of accountabil­ity, generating meaningful les­sons, and achieving better re­sults because implementation plans are continually informed by real-time monitoring data. Knowing which approaches work well and which do not can inform future investments by MCC, other donors, and coun­tries themselves."

In the interest of better development, the risk is absolutely worth it. But in the current budget environment, putting anything less than a perfect (if totally unrealistic) story in the public domain is risky business. This is even more true if the MCC is one of the few (if only) agencies doing this. Development is risky business period. And the short-comings teach valuable lessons for how to do things better. But members of Congress and their staff looking for any negative information to justify cuts may very well push development agencies further away from this much-needed transparency. I'm delighted to see the MCC standing by the courage of its convictions and hope the development community, the Hill and the administration will create the policy space for brutal honesty without risking reactionary budget cuts (lest we be forced to give up hope on progress and learning).

2.Results change over time. "Results" can mean everything, and often nothing. But in the MCC paper, results "exist along a continuum -- from policy changes countries make to become compact-eligible, to interim outputs and post-compact increases in incomes." It's understandable to want to know all the results, right now. But the MCC is trying to unpack the different types of results and set the expectations accordingly--from interim results to final (and laudable) independent impact evaluations emphasizing whether or not the compacts lead to increased incomes. Now that the MCC has completed compacts in Honduras and Cape Verde, they are getting closer to being able to provide some of the final outcomes and increased income data (and gave a preview at the event last week), that should soon be independently verified. In the interim, MCC staff often seem almost apologetic that they can only give output data mid-way into a compact; this is where lots of other development programs stop completely. Again, getting to the final impact results requires patience -- a luxury not necessarily afforded in the annual budget cycle.

3.The rush for results reduces results. Everyone is eager for results, but MCC learned early on that rushing to sign compacts--before completing project preparation, implementation structures, staffing, feasibility and design studies, and environmental and social impact assessment--led to major start-up lags, project budget revisions and reduced project scopes. In short, the rush for results reduced results. The MCC learned from the experiences in the early years and has been making better use of of the time between compact signing and when the compact enters-into-force. But the intense annual appropriations cycle and proposed budget cuts could pressure the MCC to sign compacts sooner than they are ready, in part to justify and maintain a reasonable budget level that is harder to recoup once it has been cut.

Keep an eye on Indonesia (and Cape Verde and Zambia, for that matter). Indonesia's proposed $700 million compact is intended to be split over FY2011 and FY2012 budgets. Before the MCC signs a compact with Indonesia, Congress and the MCC should have solid answers about whether the project preparation is advanced enough for rigorous economic and beneficiary analysis, reliable budget projections, and implementations mechanisms so MCA-Indonesia can hit the ground running and complete a sizable compact in five years. If the answers to any of these questions are iffy (or compact signing suddenly happens this fall,) it could signal the MCC is giving into pressure to speed things up before they're ready, running counter to the MCC's important and documented lessons. (I posed this question at the MCC event last week and MCC CEO Daniel Yohannes promised me MCC would continue to do "thorough due diligence" before signing compacts. Read the transcript.)

It's unfortunate that the strongest lessons the MCC has learned may also be the most vulnerable in the short-term axe-wielding budget environment. And given that the presidential policy directive on U.S. global development, the QDDR and Congress have all called for U.S. development to look a lot more MCC-like -- more transparent, more focus on results, more country ownership, etc. -- whether the MCC is able to walk the walk in the next few years will be a litmus test for the success of failure of the broader reform efforts. Let's hope the next lesson we learn is not that the messy U.S. budget process discourages transparency and impedes development learning.

**Full disclosure: Sarah Lucas previously worked at CGD and authored several MCA Monitor Reports from the Field (one of which is cited in the new MCC Principles into Practice paper).