- December 16, 2009
What is the best way to measure economic freedom in a developing country? Are the most effective measures external or internal? Imposed from outside a society or embraced from within it? The answers to these questions may affect how the U.S. Government implements an ambitious new foreign aid program over the next few years.
The Millennium Challenge Account: a new direction for foreign aid
According to President Bush, “countries that live by . . . three broad standards—ruling justly, investing in people, and encouraging economic freedom—will receive more aid from America” under the Millennium Challenge Account, or MCA. Eligibility for the MCA could be very significant for developing countries. The President’s proposal, delivered at the Inter-American Development Bank in March 2002, calls for a 50 percent increase in U.S. core development assistance over the next three budget years, or a $5 billion annual increase over current levels to combat poverty.
A discussion forum for the new initiative
Through the Advisory Committee on Voluntary Foreign Aid (ACVFA), the U.S. Agency for International Development (USAID) organized a public meeting on May 22 to gather ideas from the aid community on how countries can become eligible for MCA funds, how to measure their progress on the three criteria, and generally how to manage the MCA. After opening remarks by the ACVFA Chair, Mr. William Reese, and several economic development leaders, including USAID Administrator, Mr. Andrew Natsios, conference goers broke into working groups to discuss measurement criteria for economic freedom, ruling justly, and investing in people.
Measuring economic freedom
As part of the economic freedom working group, Rachid Benjelloun of Nathan Associates presented “Measuring Economic Freedom.” Mr. Benjelloun suggested that conventional criteria for measuring economic freedom, while rigorous and informative, might not¾for several reasons¾be the best way to determine MCA eligibility or measure progress toward reform. Instead, reform-minded groups representing a broad cross-section of society in developing countries should be given the opportunity to develop their own proposals and benchmarks for economic freedom based on the main objective of reducing poverty. These proposals would then be used as additional or balancing eligibility criteria.
Taking this local approach, Mr. Benjelloun argued, would help remedy “conditionality” problems that have plagued previous donor programs while meeting USAID’s goal of encouraging local involvement and ownership at the grass-roots level.