AS Barack Obama works to reinvigorate America's standing in the world, foreign aid will be one of his most precise tools of statecraft. Ever since the Marshall Plan helped rebuild Europe after World War II, aid has been instrumental in winning hearts and minds and catalyzing global economic growth that has contributed to America's prosperity.
But not all foreign aid is the same. Hard lessons learned over the past five decades have taught us that good governance, accountability, local ownership and long-term engagement are the keys to success. In January, the new administration will inherit the five-year-old Millennium Challenge Corporation, which was created by Congress to ensure that foreign assistance operates according to these principles. He would do well to adopt it as a core development tool.
Aid works best in countries whose governments are capable and committed. Before directing any American aid to a country, the corporation measures its performance on 17 indicators of democratic government, anti-corruption efforts, investments in health and education (particularly for girls) and economic freedom. Only those countries that perform strongly are allowed to compete for a five-year compact that makes them eligible to receive American aid for programs intended to reduce poverty and stimulate economic growth.
By building its program around independent measures of policy performance, the corporation has been able to catalyze reform in poor countries — sometimes before any aid money is spent. Burkina Faso, one of the poorest countries in the world, has committed to improving girls' primary education. And in Guatemala, which does not yet qualify for a compact, the president has made improvement on the indicators a national priority and appointed the vice president to lead the effort.
Aid programs are sustainable only when they are designed and carried out by the country that needs them. The Millennium Challenge Corporation insists on playing a robust consulting role to ensure that any program the United States helps finance has a good rate of return and a clear effect on reducing poverty, and that the highest standards of accounting are followed. But it also requires that poor countries assume primary responsibility for their own development to ensure that our assistance truly helps the poor help themselves.
The corporation's board includes key members of the president's cabinet — the secretaries of state and Treasury, the United States trade representative and the administrator of the United States Agency for International Development — along with a bipartisan group of four citizens appointed by the president on the advice of Congress. The cabinet members make sure the program operates according to the president's foreign policy, while the four private members see that it remains faithful to the principles that Congress laid down for it.
The long-term engagement with the United States that is required for any country to earn a Millennium Challenge Corporation compact provides a platform for the kind of robust diplomacy that President-elect Obama has embraced. As he seeks to adapt American foreign assistance to a transformed world, one decisive step he can take is to signal his strong support of the corporation's approach to global development.