USDFC Monitor: Lessons for USDFC from the Millennium Challenge Corporation

This edition of the USDFC Monitor is authored by Alicia Phillips Mandaville. Mandaville worked at MCC in various capacities for nine of the agency’s first 10 years. She currently serves as Vice President for Global Programs at IREX.

With USDFC slated to open its doors in October, the real work of starting up a functional US government agency is in full swing. A lot will happen in USDFC’s first year of operation, much of which will fundamentally affect the new agency’s capacity to deliver its promised economic impact. Now is the time for those involved in standing up the agency to debate the most efficient models, recruit top staff, and refine the regulations around funding. But it is also the time to take notice of some fundamental lessons learned by the Millennium Challenge Corporation (MCC) when it was the most recent “new” development agency, with its own (very similar) interagency board, conceptualized as an agency that would upend US foreign assistance.

I worked at MCC for nine of its first 10 years, across the Bush and Obama administrations, leaving in 2015 as the chief strategy officer. Because I first staffed and later ran the MCC country selection process, I was present for the early, middle, and late stages of learning hard lessons by agency leadership, the board of directors, and MCC staff. Turns out, there are some real institutional challenges to being the “new” development kid on the block in the US government.

In the spirit of interagency support from a US government alum, here are four frank pieces of advice I wish someone had told us 15 years ago:

1. You have to get real, fast

Being the new agency is exciting, and in the early days, there is a tendency for everyone to talk about success with superlatives that stick in people’s heads. For example, at some early point, someone described MCC’s intended impact as “transformative” for low-income economies, and this stuck. Key stakeholders in the administration and on Capitol Hill spoke for years about how a single compact would transform some of the most impoverished places on the planet. Years later, appropriators wanted to know, “Why is Benin still poor? It’s already finished a compact.” MCC’s unsurprising inability to effect something like a 150-percent increase in per capita income in five years nearly denied it the opportunity to make any second investments. It certainly delayed it.

Practically, somewhere somebody has already promised that USDFC is going to accomplish something as unrealistic as a 150-percent increase in per capita income over five years—probably during the process of passing USDFC’s foundational legislation. It will likely take some time for this unrealistic expectation to surface, but when it does, managing it down will require the full comprehension and commitment of USDFC’s board to the specific goals that the USDFC actually defines for itself.

My advice for USDFC’s leaders: the clearer you can be with the first members of the board— especially private sector members who may be the sole consistency from administration to administration—the better. For MCC, this was the early and constant repetition of a three-part mantra of things we could achieve and maintain: (1) selectivity, (2) country ownership, and (3) accountability for results. Eventually, MCC built tools, evidence, and tracking systems beneath each of these headings, but consistency from the early days is in part what saved the agency’s ability to continue across political transitions and the reality of evolution.

USDFC was set up to dramatically expand the way the US leverages investment for economic and development outcomes, and its goals will be different from MCC’s. But choosing three or fewer goals, starting immediately, and sticking with them, will help USDFC to build that same agency sustainability in the face of unrealistic expectations.

2. Everyone wants to work with you, but no one actually knows what that means

The newness of a fresh development agency makes everyone curious, and working with a brand-new agency builds political capital in Washington, DC. But it is the as-yet-unallocated funding stream that makes people opportunistic and affects their ability to listen to what the new agency actually intends to do. In fact, other stakeholders’ inability to listen to how you will work is among the most persistent challenges of start-up. In MCC’s seventh year, we were still explaining to US and other country ambassadors that they didn’t get to vote on whether their country got an MCC compact, even though the scorecard-driven selection process is probably the most well-known feature of MCC.

There are two variations on this phenomenon:

• When you (or your founding legislation) say you will coordinate with another actor, that actor hears this as, “this new agency will implement my agenda with its own funds.” This is, of course, not what anyone intends, but in the early days, MCC found it surprisingly difficult to find mutual coordination within the interagency process. The reality is that congressional earmarks make it hard for most US agencies to use their funds as efficiently as possible. As a result, most long-existing agencies are constantly on the lookout for ways to leverage other funds or influence others’ decisions to make their own agendas whole. There is no malicious intent here, but it is surprising when you don’t expect it and frustrating when you hit it for the umpteenth time.

• Especially in the first three years, key stakeholders just cannot believe that a new agency does not intend to run a process exactly like some other part of the US government that they know well. Because USDFC is a market-oriented agency, it will struggle with some of the same disbelief MCC did around the lack of predetermined sectors for investment (in the worst moments at MCC, this manifested as another country’s president complaining to the US secretary of state that he couldn’t make any progress because MCC hadn’t yet told him what the investments were going to be).* It may be somewhat easier for USDFC to resolve these tensions thanks to the OPIC base on which USDFC is built, but the bipartisan efforts to pass the BUILD Act means there are several actors who are new to an OPIC-like entity and will have the same confusion.

Addressing both of these challenges takes transparency, consistency, and repetition, all of which will help people understand what USDFC literally intends to do—and will help USDFC’s key staff stay focused on the agency’s actual goals and processes. Transparency about how countries, companies, implementing contractors or NGOs, and other US agencies access funding is particularly important. While that is parochial—and often the piece an agency wants to address only after creating an investment design and assessment process—it drove more meetings than anyone wants to count at MCC. If USDFC can save itself from that time sink, it should.

3. Your precedents are more important than your presidents

This is the one no one wants to think about, but if an agency is going to succeed, it has to build itself to outlive the administration that created it. Electoral transitions in the US mean that the existential legacy of an agency is disassociated from the real-time foreign policy goals of the president who signed it into law. To put it bluntly, the transition from Bush to Obama was scary for MCC—we were all afraid a new president wouldn’t want to keep the agency his predecessor created. MCC lasted because it had proven (publicly) that it actually did what it said it would, working through a consensus-driven interagency board always chaired by the seated secretary of state. Presidents of compact countries told the new US president as much in face-to-face meetings.

Getting past the first political transition, no matter when it comes, depends on an agency’s attention to two questions:

• What precedents do you need to set to affirm your operational rigor? MCC’s decision to terminate portions of the Nicaragua and Armenia compacts in its very early days proved it would walk away from a country in the face of democratic rollbacks. Its introduction of economic rate-of-return hurdles proved it demanded economic impact. MCC’s decision to restructure a railway investment in Mongolia proved it would not proceed with deals when one of the (Russian) parties to the construction proved unreliable. All mattered tremendously when political pressure in subsequent years pressed for alternative decisions in other countries. Meanwhile, presidential priority countries change, and have already been forgotten.

• Where is the line between executive decisions taken by the agency and the decisions made by the interagency board? There is a temptation to assume that expertise and judgement will always rest where it does when the agency is first created, but the reality of time is that new people create new configurations. As new board members are appointed, and new administrations come into office, the locus of expertise and consistency may shift. MCC found that when staff were asked to draft policies and guidance assuming a new set of actors that they didn’t know and didn’t trust, the result was a stronger, clearer combination of political decision making and technocratic advising.

4. Above all, you have to make it work

You will regularly encounter external stakeholders with strong views and advice on everything they are able to see from the outside: decision-making rules, org charts, staff recruitment, measures of success, locations of investment, environmental guidelines, and so on. This input can directly support the decisions needed to create a strong framework for operating. However, while these high-profile decisions can build a strong USDFC skeleton, there are a few internal processes that create the layers of muscle and sinew needed to perform. Because USDFC is unifying staff from both OPIC and the Development Credit Authority (DCA) at USAID, there are three challenges that internal systems will need to address head on.

• Experts often disagree about what to do. Experts pulled from different agencies disagree even more. There is nothing wrong or surprising about this. MCC learned the hard way that if you hire the best technical experts, put them all on a team, and make them responsible for maximizing accomplishment in their own sectors, they will argue like you cannot imagine. It took four or five agency reorganizations to sort this out in a way that sustained the agency’s function and allowed it to optimize. USDFC can bypass this challenge by acknowledging upfront that decisions about where and how to invest hundreds of millions of dollars are contentious, and by building clear authority and methods for arbitrating disagreement between different parts of the organization. Political and technocratic staff can manage through the drama of disagreements when they have clarity about who makes decisions and when.

• The plumbing matters for your data and your dollars. The data architecture and financial management systems at MCC were created from scratch, often in response to real-time realizations about what was needed. USDFC will have logical bases on which to build, but it is still worth calling out the strategic value in making the integration of OPIC and DCA systems an early priority. Doing so meets obvious needs around fiduciary responsibility and congressional oversight, but it also provides a framework that ensures the first several investment opportunities share enough characteristics and comparable information to quickly establish the new agency’s impact.

• Precedents hold if you document them. There will be a lot of decisions in the first year. Those that you document will influence the years that follow. While no one makes internal paperwork the signature priority of a new agency, the combined challenges of a larger staff size, high visibility, political demands, and eventually, transition from founding leaders to the next set of appointees all mean that if no one can explain a previous decision, it lives only as long as the initial decisionmakers are present.

None of this is sexy, and very little of it is specifically about development. But all of it is about sustainability and impact—and isn’t that the point?

*An MCC compact is very publicly driven by the country’s own proposal. MCC does not have preset sector priorities.