Millennium Challenge Corp. discusses Armenia Compact

First published in June 21, 2008 Armenian Reporter

Millennium Challenge Corp. watching Armenia developments
$235 million in aid over five years at stake
by Yelena Osipova and Emil Sanamyan

WASHINGTON – The Board of Directors of the Millennium Challenge Corporation (MCC) is taking an active interest in the political situation in Armenia and discussed it at its meeting on June 17, MCC Chief Executive Officer Ambassador John Danilovich said at the public outreach briefing the same day.

There was concern ahead of the meeting that the MCC board may suspend or cancel its $235 million five-year assistance program in Armenia.

The terms of MCC grants require recipient countries to maintain standards of ruling justly, investing in people, and maintaining economic freedom.

While no decision was taken on the suspension of MCC-funded programs in Armenia, Mr. Danilovich indicated that the board has been “encouraged” by Armenia’s most recent steps and will continue to watch developments to see whether Armenia remains eligible for aid.

Mr. Danilovich said he communicated the MCC’s concerns to the government of Armenia following the March board meeting in a warning letter to then-President Robert Kocharian and more recently through communications with President Serge Sargsian.

The messages sent to the Armenian government are part of an MCC policy process that governs potential suspension or termination of assistance. Mr. Danilovich said that the board wanted to make it clear to President Sargsian that Armenia now has the opportunity “to make the reforms that are necessary with regards to the rights to public assembly, the creation of an ad hoc bipartisan commission to investigate the election, to take certain action with regard to political prisoners and to continue in other areas of reform to take Armenia on the path of democracy.”

Similar recommendations to Armenia were made by the Parliamentary Assembly of the Council of Europe in April.

Mr. Danilovich welcomed the reforms already enacted and signed into law over the past several weeks. The “MCC board is expecting that the Armenian government will continue to make the appropriate reforms so that our cooperation on the poverty-reduction programs can continue as fruitfully as it has [so far],” Mr. Danilovich added.

MCC board member and International Republican Institute (IRI) president Lorne Craner said the reform efforts are “a measure of importance that the Armenian government attaches to MCC.” He said the board will continue to closely monitor the process and the other ways in which the Armenian government will improve on democracy and human rights.

“I am confident that at least at the next few meetings we are going to get reports on how Armenia is doing in respect to these issues,” he said. Mr. Craner stressed, however, that board meetings are not required for the MCC to take action on the Armenia compact, should events warrant a more immediate response.

Compact moves forward despite “hold” on one project

Mr. Danilovich said that the program’s implementation in Armenia is continuing and that the MCC is “very pleased” with many parts of it.

However, when asked by the Armenian Reporter, Mr. Danilovich confirmed that about a month ago the corporation had put on hold the commencement of negotiations on a package of road projects in order to send a clear message to the Armenian government about its concerns.

“We are considering our position on that as we go forward and we will be making some decisions on that regard in the coming weeks,” Mr. Danilovich added.

Although on March 12 Secretary of State Condoleezza Rice said in a congressional hearing that the 20-day state of emergency in Yerevan declared on March 1 had “made it necessary to suspend” some of U.S. assistance programs, other officials denied that any “suspension” occurred.

In a March 20 interview with the Armenian Reporter, Deputy Assistant Secretary of State Matt Bryza said that any MCC suspension decisions would be based on a “subjective judgment” on whether a country has made “large amount of backtracking” from democratic standards.

Economic performance and MCC eligibility

In addition to such subjective criteria, Armenia’s annual eligibility for the MCC program is determined based on its democracy, economic freedoms, and social spending ratings when compared against countries in similar economic condition.

Because of Armenia’s improved economic performance, it has graduated from the lower-income to the lower-middle income category. As a result, starting this year its indicators are judged relative to less poor countries.

Asked by the Armenian Reporter whether this would have an impact on Armenia’s eligibility, Mr. Craner responded in the negative.

“This is not the issue in Armenia,” Mr. Craner said. “The issue in Armenia is [about] the election” and its aftermath.

Mr. Danilovich said the MCC has a certain level of “fluidity” about the indicators, as the corporation recognizes that they are not perfect: the indicators may suffer from a time-lag or inaccurate information.

However, he said, the MCC has a special Policy Improvement Program to find out ways to target various aspects of institutional functioning and improve that performance
on an annual basis, in case a country has “started to slip” in its indicative performance, which initially had allowed it to join the MCC.

Inside-the-beltway struggle underway for MCC funds

The board meeting came at a difficult time for the four-year-old corporation. Sen. Judd Gregg (R.-N.H.) offered an amendment last month seeking to strip the MCC of more than half a billion dollars in unspent funds in Fiscal Years 2008 and 2009, to be used for humanitarian aid around the world. (See the May 24 issue of the Armenian Reporter.)

According to a June 16 posting on the Center for Global Development’s blog, “the rumor has it that the original $525 million rescission of FY08 funding to the MCC [proposed by Sen. Gregg] has been reduced in conference [to reconcile Senate and House versions of the spending bill] to around $60 million.”

Mr. Danilovich argued that the effort to rescind the funds arose in part from a misunderstanding of the way MCC operates. It takes time to determine eligibility and carry out negotiations with eligible states, and multiyear contracts require committed funds upfront.

“The notion that we are sitting on money is wrong,” he said, adding that programs that have been launched are already bringing benefits to farmers from Honduras to Armenia.

Further, Mr. Danilovich said that the campaigns of presidential hopefuls John McCain and Barack Obama have both pledged to support the program. The MCC was initiated by President George W. Bush at a time when conventional foreign aid programs, administered through U.S. Agency for International Development (USAID), have been cut.

Mr. Danilovich said he expects the corporation’s total financial disbursements in the field to rise from $500 million currently to close to $1 billion before the end of 2008. At its June 17 meeting, the MCC board approved a fiveyear $480 million compact with Burkino Faso, the seventeenth country worldwide slated to receive MCC funds.

connect: http://mcc.gov/countries/armenia