MCC – Separating myth from reality

By Dr. Sirimewan Dharmaratne

As there is considerable tumult in Sri Lanka on this agreement, this is an opportune time to have an objective look unclouded by political affiliations. Although this article may be redundant by the time of publication, hopefully it will at least serve to inform the public.

Eligibility criteria

According to official documents, MCC funding is for the poorest 75 countries in the world, and for those up to a certain GNI. In the document ‘Millennium Challenge Corporation: Overview and Issues,’ published by the US Government’s Congressional Research Service, on 3 October, it clearly says that if the 2019 GNI per capita is more than $3,895, that country is not eligible for MCC funding (page 8, Figure 5). 

It further makes it clear such a country is legally ineligible to receive any US foreign assistance. Sri Lanka having a much-flaunted GNI of over $4,000 in 2019 is therefore clearly ineligible for any type of US foreign assistance. Therefore, the first question is why is US breaking its own laws to shove down MCC on Sri Lanka?

Selection criteria

Given that a country is eligible (which Sri Lanka is clearly not), then there are further selection processes based on, 1. Ruling Justly, 2. Investing in People and 3. Economic Freedom. When we look at these selection criteria, selection of Sri Lanka it becomes even more baffling.

Under Ruling justly, two of the sub-criteria are fighting corruption and respecting human rights. Yet according to USA government rankings, Sri Lanka is the 89th most corrupt country in the world well below India. 

More importantly, the US has vehemently criticised Sri Lanka’s human rights record and accused of Sri Lankan’s military and politicians of war crimes. They have publicly stated that the current appointment of the chief of army would adversely impinge on future relationships with Sri Lanka. If that is the case, then why go ahead with MCC?

Some criteria under “investing in people” that Sri Lanka has not done well at all are promoting and protection of biodiversity and a healthy population. Finally, on “economic freedom” the criteria are promoting engagement in global trade, strengthening market forces and respecting worker rights. Sri Lanka’s global trade is only one way with virtually no discernible exports. As for worker’s rights, I will have to let experts decide.

While I appreciate that no country will satisfy all these criteria, the fact that Sri Lanka falls at the first hurdle cannot be ignored. Despite being clearly not qualifying to receive MCC funding and not meeting further selection criteria, it is bemusing that the US is so keen on pushing this through at such an inopportune time. If the US is genuinely interested in helping out poorer countries on “no strings attached” basis, then there are much more deserving nations.

Spanner in the works

The above document further refers to conditions of public engagement stipulated in the MC Act (page 9). It says that countries must conduct significant public consultation and stakeholder engagement. When was this done in Sri Lanka? Not only the public, but also even those who are blindly signing this agreement are not privy what the agreement really entails.

This type of consultations have been done in Namibia, which identified 500 issues through public consultation, while in Burkina Faso 3,100 people were consulted. Where is this process in Sri Lanka that the US itself promotes as an integral part of the funding process?

ERR – Economic rate of return

Probably the most crucial impediment to implementation of projects under this agreement is meeting the ERR criteria. ERR not only requires identifying widespread economic, environmental and social costs and benefits, but also measure them as accurately as possible. This is a mammoth task even in developed countries. 

Identifying indirect economic benefits and costs and measuring them is non-trivial. Crucial in this process is the availability of data and technical expertise to use appropriate valuation techniques. This is an area where Sri Lanka needs significant improvement. What is identified as benefits under MCC, may not be benefits to those they are intended up on. This is why consultation and engagement is crucial.

MCC makes projections on ERR for projects that are implemented under the agreement. These more often than not are based on “similar” projects elsewhere, and not based on actual data. The threshold that MCC adheres to has often been breached in other countries. Third of the projects have fallen under the 10% threshold. Therefore, it is more than likely the 19% ERR predicted for projects in Sri Lanka would not meet this target. 

So what is in it for Sri Lanka?

According to the MCC policy, local counterparts have significant control over disbursements of funds, local employment and implementation of projects, given suitable legislation exists. This has created an artificial “MCC” effect; where countries have passed laws satisfy certain requirements to attract funds. Therefore, one has to question current regimes’ eagerness to promote settlement of displaced person, agreeing to accusations of war crimes and human right violations are all part of bowing down to US pressure to receive MCC funds, rather than doing what is right for the country. 

This has leads to concerns of serious corruption in recipient countries. It is quite likely some tangible “benefits” have been already disbursed to local counterparts to guarantee agreement. While on the surface MCC looks like a great deal, let’s not forget the good old US adage, that there no such as a ‘free lunch.” 

What is in it for USA?

Countries that voted for US in the UN General Assembly are less likely to undertake domestic reform to attract MCC funding. This is because they know that regardless of their reform record, they will be financially rewarded. Therefore, is this just a bribe to buy a friend from a region where US is rapidly losing allies? 

The statement that President Trump made at 2018 UN General Assembly – “we only going to give foreign aid to those who are our friends” – certainly lends support to this premise. While the US has every right to get support for its foreign policy through agreements such as MCC, it is up to recipient countries not to let ‘Trojan Horses” in through such agreements. This concern has been raised in several countries where MCC has been implemented, as well as in Sri Lanka.

While it is true that signing of the agreement does not automatically lead to implementation of projects, it is unclear the urgency to sign this agreement when Sri Lanka is in the verge of a major political change. The fact that Sri Lanka does not meet the first eligibility criteria send this to a further quagmire. As such, there is understandable trepidation among the populace about the signing of the agreement at this time. 

If the current regime is genuinely concerned about the welfare of the country and the benefits this agreement is going to bring, then there is absolutely no reason to postpone the signing until the establishment of a more stable political environment.