Washington Post
Aug 10 2004
Reinventing U.S. Foreign Aid At Millennium Challenge Corp.
By Glenn Kessler
Paul V. Applegarth’s office has the look of a hot Internet start-up,
complete with bare white walls and holes left when pictures hung by
the previous tenant were ripped down. Though Applegarth is the chief
executive of a new enterprise, Millennium Challenge Corp., his tiny
hovel is at the end of two rows of cubicles with no reception area in
an Arlington office building.
The staff, seven people at the beginning of the year, has expanded to
42 in six months and is due to grow to 200 in a year. Applegarth, a
onetime Wall Street executive, is sitting on $1 billion in cash and
soon hopes to get as much as $2.5 billion more. And — literally —
the world is beating a path to his door.
Millennium Challenge Corp. is a hot prospect — but in the world of
foreign aid. It represents an audacious attempt by the Bush
administration to rewrite the rules of foreign development
assistance, focusing less on foreign policy considerations and more
on whether countries create the conditions to use the money wisely.
The federal agency will hand over huge sums of money to a select
group of countries, who are evaluated and ranked according to series
of benchmarks graded by outside parties. Only 16 countries — out of
a potential pool of 75 of the world’s poorest nations — qualified
for the first round of funding, based on the quality of the
government, public investment in people and economic freedoms. When
the program is fully funded, each eligible country could receive as
much as $300 million in additional aid per year beyond its current
foreign assistance.
The developing world is familiar turf for Applegarth, 58. As a young
Army officer in the Vietnam War, he worked in remote parts of the
southern Mekong Delta, as part of an advisory team living in local
hamlets and training medics, helping to establish schools and
providing security.
His travel bug was whetted by a trip to Guatemala and British
Honduras (now called Belize) while in college. “I was intrigued by
the thought of working internationally and living internationally,”
he said. “It got the juices going.”
Applegarth, a graduate of Yale University and Harvard law and
business schools, spent nearly a decade at the World Bank before
moving to Wall Street in the mid-1980s. He worked at Bank of America,
American Express and Lehman Brothers (then part of American Express)
— and was lent out in 1992 to United Way of America to help it
recover from a financial scandal — before becoming managing director
of an asset management firm that focused on emerging markets. He was
responsible for operations in the Philippines and Indonesia and then
headed the Hong Kong office of Emerging Markets Partnership.
He also was the chief operating officer of a fund sponsored by the
British government that combined public- and private-sector moneys to
build projects in sub-Saharan Africa. Just before being confirmed by
the Senate as the first head of Millennium, Applegarth was chief
executive of Value Enhancement International, a consulting firm.
Federal Election Commission records show that Applegarth, a
Republican, contributed $500 in 1997 to Democratic Rep. Charles E.
Schumer’s successful campaign to oust Sen. Alfonse D’Amato (R-N.Y.).
Schumer was a law school classmate and introduced Applegarth at his
confirmation hearing. Applegarth also contributed $1,000 to former
senator Bill Bradley’s campaign for the Democratic presidential
nomination in 2000, the records show. In June, he gave $2,000 to the
Republican National Committee.
Millennium is based on an idea that had been kicking around foreign
aid circles but which the Bush administration — suspicious of the
bureaucracy exemplified by the U.S. Agency for International
Development — has actively promoted. Millennium has a high-powered
board — Secretary of State Colin L. Powell is chairman, and Treasury
Secretary John W. Snow is vice chairman — and is designed to be
independent of State and USAID, with as little bureaucracy as
possible.
“There is a sense that USAID has done a lot of good things over time
but some things have not gone well,” Applegarth said. “The press of
shorter-term needs — HIV/AIDS, famine, humanitarian assistance —
has squeezed out the focus on longer-term needs. There is a sense
that you needed a separate entity that could only do one thing —
focusing on ending the cycle of dependency, reducing poverty — and
doing it through sustainable growth.”
Applegarth has outsourced most of the administrative functions —
such as financial accounting, security clearance and information
technology — to contractors. “We are not creating an empire here, we
are not creating bureaucracy,” he said. “We are much more modeled on
a personal services firm.”
Some have expressed concern that the Millennium program will drain
funding from USAID and other foreign aid initiatives and, because it
is a separate entity, complicate the coordination of foreign aid.
Mary McClymont, chief executive of InterAction, an alliance of
U.S.-based international aid organizations, praised Applegarth for a
willingness to listen to nongovernmental organizations and take their
views into account. But, she said, “at the end of the day the jury is
still out” on whether Millennium funding will reach the goals set by
Bush and whether it will squeeze out other development assistance.
When Bush announced the program, he said it would quickly grow to $5
billion a year. Congress appropriated $1 billion for the first year,
and though Bush requested $2.5 billion for the fiscal year starting
Oct. 1, the House halved the amount because of budget constraints.
The Senate has not yet acted on the request.
In the developing world, Millennium is a huge deal. After the program
was announced in 2002, the foreign minister of Cape Verde cornered
Powell during a refueling stop to make a pitch for the African
country’s inclusion in the program. When Cape Verde made the final
cut, Prime Minister Jose Maria Neves said the selection “was the
third most significant achievement for the country behind
independence from Portugal in 1975 and the democratic transition in
1991.”
Once countries are placed in a pool based on such factors as per
capita income (under $1,415), they are then rated on 16 criteria —
corruption, political rights, education expenditures and days it
takes to start a business, among others — that are assembled by
independent groups, such as the World Bank, World Health Organization
and the Heritage Foundation.
The hope is that countries will feel a sense of competition and
improve their performance. Every year, countries selected for
Millennium money will be reassessed. Already, Applegarth said, there
is evidence that the average number of days to start a business —
indicative of regulatory and bureaucratic burdens — has begun to
decrease in some countries.
Countries that are selected are also urged to consult widely with
interest groups in order to determine national needs. On a recent
trip, Applegarth found that Mongolia had set up “open forum” Web
sites for people to send in ideas, while Georgia had a Web site and
was holding town meetings.
Armenian officials at first thought they understood what people
wanted but were surprised to discover different answers after
nationally televised public forums were held, Applegarth said.
Armenian Foreign Minister Vartan Oskanian said during a recent visit
to Washington that inclusion in the Millennium program had made the
country “more focused” on governance, democracy, rule of law and
human rights.
“We are as much about the message as the money,” Applegarth said. “If
they can get the policy environment right, they will generate growth
and capital.”