Posted on November 12th, 2020


TheMillennium Challenge Corporation (MCC) is a  foreign aid agency established by the U.S. Congress in 2004. The MCC Board is chaired by the Secretary of State. The Board members consist of the Secretary of the Treasury, US trade representative, four private sector representatives and a representative of USAID.

MCC is  therefore not the independent, altruistic  US foreign assistance agency it claims to be.  It has government connections.   The governing  Board  represents  the  political and trade interests of the USA.   Advocata  Institute   however, says, although heads of the U.S. State Department and U.S. Treasury sits on its board, the MCC operates independently as a separate entity.

The Millennium Challenge Compact is a US grant for development work in foreign countries.  The  first project negotiations in Sri Lanka  for  such a  grant commenced in 2004 during the Kumaratunga-Wickremesinghe tenure and continued during the Rajapaksa government until the project was terminated for political reasons,  by MCC in 2008.

After Yahapalana government came to power, in December 2016, Sri Lanka was again selected for a Compact.  The country became eligible for assistance after passing 13 out of 20 indicators on MCC’s policy scorecard.

Countries must qualify as low income or lower middle income countries according to the World Bank’s classification in order to be eligible for MCC grants. On the 1st of July 2019, the World Bank classified Sri Lanka as an upper middle income country with a per capita income in excess of $ 3,895. However, by that time the MCC grant for Sri Lanka had already been passed and in any event according to MCC criteria, when a country’s classification changes, it will retain its former classification for a further two years. 

On August 13, 2018, the MCC delivered to the U.S. Congress a Congressional Notification of its intent to negotiate a Millennium Challenge Corporation Compact with the Government of Sri Lanka.  Sri Lanka completed negotiations with MCC in October 2018    and the Board of Directors of the Millennium Challenge Corporation of USA approved a five-year, $480 million Compact grant to the Government of Sri Lanka. 

 The agreement was to be signed in December 2018 but was delayed, due to   objections. MCC’s Board of Directors met in mid-September 2019 and re-approved a five-year, $480 million Compact grant to the Government of Sri Lanka.   The United States said it hopes that Sri Lanka will eventually approve the $ 480 million Millennium Challenge Corporation (MCC) grant. Measures will be taken to create awareness on the MCC programme among the people,  the embassy said.

Analysts observed that US does not historically give Sri Lanka direct aid, they do it through World Bank. But in this case they   readily provided money direct. The embassy confirmed in 2019 that the full sum of USD 480 has   already been approved.

When a country is awarded a Millennium Challenge compact, it sets up its own local MCA accountable entity to manage and oversee all aspects of implementation, the US explained. Sri Lanka has set up Compact Development Team in the Policy Development Office of the Office of the Prime Minister.    This will later be replaced by MCA-Sri Lanka, which will deal with the work of the Compact.

The   land and transport projects of the Compact were first examined  by Harvard University’s Centre for International Development in a year long study in 2016. This was followed  by studies from World Bank, Asia Foundation,  Trimble and Center for Policy Alternatives, Colombo. These are  organizations which have a strong link with USA, said critics.

The present Compact is based on a full-fledged proposal submitted by the government in November 2017, said Pathfinder Foundation. The local Compact team and MCC specialists had extensive discussions with the departments responsible for transport and land administration. They also had discussions with the private sector,   think tanks, and civil society organizations.

The government team was led by the Secretary to the Ministry of Finance. The team included senior officials from the External Resources Department, Attorney General’s Department, Policy Development Office in the Prime Minister’s Office, Ministry of Highways and Road Development, Ministry of Lands and Parliamentary Affairs, Ministry of Megapolis and Western Province Development, Ministry of Transport and Civil Aviation, and Sri Lanka Survey Department, said Pathfinder.

The MCC Compact  led to considerable discussion. Several organizations  held seminars on the subject and the US embassy has attended and contributed information. This is your project. We are not forcing it on Sri Lanka, said US. Implementation will be supervised by a local body staffed by Sri Lankans. This body will be accountable to a Sri Lankan Board of Directors comprised of eight government officials and three representatives from the private sector and civil society.

Certain changes have already been made. Attorney General’s Department raised objections to the clause in the original draft which brought the Compact under International law. MCC was asked to remove any sentence which excluded domestic law and the MCC agreed,  USA said.

MCC Compact has not been received well in Sri Lanka. The MCC was developed in secrecy by a team located in the Sri Lanka Prime Minister’s office, charged critics. The government has been inexplicably secretive about the whole MCC project, they said. There has been no public discussion on it, said Lasanda Kurukulasuriya.

The  US embassy replied. All MCC Compact   programmes,   all over the world are prepared by the locals of that country, the embassy said. In Sri Lanka too, the Sri Lanka plan was prepared by teams of Sri Lankans including  members of the civil society. The private think tank Verite Research  said that they had been involved in   planning the transport programmes. At least 15 Sri Lankans were present at the negotiations, the embassy said. The Compact program was proposed by Sri Lankans, developed by Sri Lankans and will be managed and supervised by Sri Lankans, said the US embassy.

The MCC grant represents the largest grant Sri Lanka has ever received from a single source, said Advocata. The grant is a huge one, USD 480 million. The failure to utilize the MCC grant would be an economic loss to the country   said US admirers.  USD 480 is not a big sum today, critics replied. The present government could borrow 480 million USD in a single afternoon through the issue of Sri Lanka Development Bonds.

Critics also observed that  while the donor (USA) is keen on the compact, the recipient, (Sri Lanka), is suspicious and reluctant. It is most unusual to have a donor running behind a recipient like this. It is usually the other way round.  Sri Lanka is wondering why USA is so anxious to push this through. Is this simply a grant to   avoid traffic jams and prepare   maps or is it something more. What is behind it all.

The stated aim of the MCC  is to    reduce poverty and stimulate economic growth, said MCC.  In Sri Lanka we have identified transport infrastructure and weak land administration   practices as the binding constraint on economic growth in Sri Lanka.This is   nonsense,  said critics. Sri Lanka’s ‘constraints to economic growth’ cannot be   removed by tackling traffic jams and listing  land parcels. Sri Lanka economic problems lie elsewhere.

One analyst, (name withheld) who it appears seem to have seen the document, said the MCC Compact is not a Compact at all. There are annexures and cross references and the agreement is difficult to understand. It has ‘shall’ only twice and that is for US, not Sri Lanka.

The present Compact is a treaty not a compact, said Palitha  Kohona and it is not under Sri Lanka law.  It is a tool for furthering the objectives of the USA . D.L.Mendis,  a specialist in  treaties and  international law , stated at an OPA discussion that MCC compact must be examined by  persons who know to asses a treaty. Simply looking to see whether it is good for the country  will not do. The treaty implications must be examined.

The MCC’s approval of the $480 grant for Sri Lanka was announced by government just days after the Easter Sunday attacks, when one would imagine that Sri Lanka’s investment credentials were at an all-time low. The secrecy, the odd timing of the announcement and other aspects would suggest that the MCC is being imposed by the US for its own purposes, rather than for the benefit of Sri Lankans, said Lasanda Kurukulasuriya.

The Compact now awaits approval by the Cabinet and signing of the agreement by the government., But there is hesitation on the part of the government and reluctance to sign., observed the media.

The Agreement between the MCC and the Government of Sri Lanka is yet to be signed  the Prime Minister office announced  in June 2019. .According to the Standing Orders of Parliament, this compact will be reviewed by the Oversight Committee and will be open to the interested parties. The agreement would also be presented to Parliament after obtaining Cabinet approval.

This Millennium Challenge Corporation grant has been seen as part of a threefold US package of MCC, ACSA and SOFA.  ACSA and SOFA are military agreements; MCC grant is about economic interests,  said MCC supporters.  But they look like a package, replied  critics. All three were to be signed in  2018, one after the other.  ( Continued)

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