The Millennium Challenge Account


The Millennium Challenge Account was first proposed by President Bush in a speech at the Inter-American Development Bank on March 14, 2002. The innovative proposal called for a dramatic change in U.S. bilateral foreign aid programs: additional funds for foreign aid would go to countries that were following good pro economic growth policies and rigorous systems of measurable results would be set up to insure that the funds were used effectively.  In particular, the President’s vision called for more assistance to countries that were (1) governing justly (2) investing in their people, and (3) encouraging economic freedom.


The Treasury along with other U.S. agencies—especially State, OMB, CEA, NSC, and USAID—played a big role in implementing the MCA vision, and, in particular, researching the objective quantitative indicators of each of the President’s three policy categories, and then developing good systems to measure results.  Treasury’s experience with the multilateral development banks came in handy and indeed several of the indicators were the same as those used for our measurable results system, which was part of our recent reforms at the multilateral development banks. For these reasons the Secretary of the Treasury was to be vice president of the board of the new government corporation that was to administer the MCA. 


The speeches and testimony in this section describe the process of choosing and then selling the quantitative indicators and the MCA more generally. Item 1 was one of the very first public outreaches to the academic community of the rationale for our plan to develop quantitative indicators of pro-growth policies in each of the three performance categories. It was a presentation I gave at the Woodrow Wilson School at Princeton with development experts such as Angus Deaton in the audience. In many respects the Millennium Challenge Account represented the practical application of the best in academic and think tank research on economic growth and in particular the empirical growth literature of the 1990s.   An important practical issue—which has interesting analogies with the application of monetary policy rules—was how much to leave to discretion and how much to the rule-based indicators in choosing the recipient countries.


My Congressional testimony in Items 2 and 3 describe the actual indicators proposed and the rationale for them. These testimonies were part of the Administration’s effort to persuade the Congress to enact the MCA.


The last three speeches were given after the MCA was passed by Congress. Item 4 was a presentation in Ghana, one of the first countries to pass the criteria and be chosen as an MCA country. Item 5 made the connection to the important work of think tanks like Cato in bringing attention to the pro-growth policies for economic growth. Despite the novelty of the MCA, many Americans are still unfamiliar with it.  Item 6 was a speech I gave in Cleveland in which we endeavored to spread the word about the importance and great potential of the MCA and our related reforms at the international financial institutions.



1. Economic Growth, Poverty Reduction, and Foreign Aid: The New Agenda, Princeton University (slides only), April 22, 2004

2. Millennium Challenge Account Economic Rationale, House Committee on International Relations, March 6, 2003 and Senate Committee on Foreign Relations, March 4, 2003

3. Economic Development - Millennium Challenge Account, Subcommittee on Domestic and International Monetary Policy, Trade and Technology of the House Financial Services Committee, June 11, 2003

4. Millennium Challenge Corporation and the U.S. Role in the Multilateral Development Banks, United States Treasury, March 10, 2004

5. Launching the Millennium Challenge Account in Africa, Institute of Economic Affairs, Accra, Ghana, May 31, 2004

6. Economic Freedom and the Millennium Challenge Account, Cato Institute, Washington, July 15, 2004

7. Getting International Economic Development Right: Is Effective Foreign Assistance Possible?, Cleveland Council on World Affairs, Oct 26, 04