February 21, 2008

HARRISONBURG—In an op-ed published in today’s Washington Times, Dr. J. Peter Pham, Director of the Nelson Institute for International and Public Affairs at James Madison University, praises the Millennium Challenge Corporation (MCC)—which is one of the focuses of President Bush’s current trip to Africa—as “ one of the Bush administration’s most innovative programs” because it links eligibility for funding “to a potential recipient’s demonstrated commitment to promoting political and economic freedom, funding education and health, reining in corruption and respecting civil liberties and the rule of law.” However, he also raises the question of “what to do when the results in some of the initiative's partner countries fail to measure up.”

The test case cited in the commentary is Mongolia. Acknowledging that “ the country has made tremendous strides since a peaceful 1990 revolution overthrew the Soviet-aligned communist dictatorship that had ruled since 1924” and that it is an ally that has committed troops to Afghanistan and Iraq, the article also notes that “friendship with the United States has brought the nation benefits, including a five-year $285 million MCC compact,” signed last fall by President Bush and Mongolian head of state Nambaryn Enkhbayar. However, Dr. Pham observes, “there are worrying signs that the country's rulers are starting to again take cues from their immediate neighbors,” Russia and China. For example, “by the MCC’s own scorecard for the country, Mongolia has declined in virtually all its indicators in recent years, reflecting a rapidly deteriorating investment and governance climate.” The op-ed goes on to argue that the recent discovery of valuable natural resources may have played a role in the downward spiral as “ruling elites are eager to seize these resources for themselves” and are willing to “jettison the rule of law” and “break the country’s binding contracts” in order to do so.

Dr. Pham concludes:

More than $180 million in MCA funds is budgeted for improving Mongolia's rail system. It would be both ironic and tragic if this U.S. aid creates an infrastructure which makes it easier to not just haul minerals to Mr. Putin's Russia or Communist China, but to leave ordinary Mongolians on the platform, missing the chance to break out the trap of bad governance and poverty. Indeed, the stalled capital investment by the mining sector alone would roughly equal the country's entire GDP.

Russia again is flexing its muscles on the world stage and trying to reassert its traditional spheres of influence. Already, the U.S. has lost the foothold it had secured after September 11, 2001, in the former Soviet Central Asian republics. The Shanghai Cooperation Organization — a regional group led by Moscow and Beijing in which Mongolia was the first country to be accorded observer status while the U.S. application was rejected — is increasingly looking like an anti-American bloc.

The United States should not sit by idly while all this happens. And if America is destined to lose Mongolia as a partner, we certainly shouldn't shovel hundreds of millions of taxpayers' dollars there as the Mongolian government thumbs its nose at the very principles underlying the [Millennium Challenge Account].

If President Bush is serious about bringing in market concepts to transform America's approach to development assistance, the MCC must act more like a prudent investor and, when necessary, be prepared — in something close to real time — to cut off financing when trends go negative.

To read the full text of the op-ed, “ Mongolia’s Challenge,” click here.