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                                                       Calendar No. 115
108th Congress                                                   Report
                                 SENATE
 1st Session                                                     108-55

======================================================================



 
                  THE MILLENNIUM CHALLENGE ACT OF 2003

                                _______
                                

                  May 29, 2003.--Ordered to be printed

    Filed under authority of the order of the Senate of May 23, 2003

                                _______
                                

          Mr. Lugar, from the Committee on Foreign Relations,
                        submitted the following

                              R E P O R T

                             together with

                            ADDITIONAL VIEWS

                         [To accompany S. 1160]

    The Committee on Foreign Relations, having had under 
consideration an original bill to authorize appropriations for 
Millennium Challenge assistance, reports favorably thereon and 
recommends that the bill do pass.

                                CONTENTS

                                                                   Page
  I. Purpose..........................................................1
 II. Committee Action.................................................2
III. Section-by-Section Analysis......................................3
 IV. Cost Estimate....................................................8
  V. Evaluation of Regulatory Impact.................................10
 VI. Changes in Existing Law.........................................10
VII. Additional Views of Hon. Richard G. Lugar, Chairman.............11

                               I. Purpose

    The Millennium Challenge Act of 2003 establishes a program 
of Millennium Challenge assistance to be coordinated by an 
appropriate officer designated by the Secretary of State. It 
authorizes foreign assistance funding and addresses the 
purposes, functions, and procedures relating to the operations 
of a Millennium Challenge Account and its expenditures.

                          II. Committee Action

    The Committee heard Secretary of State Colin Powell's views 
on the Millennium Challenge Account in his testimony of 
February 6 regarding the international affairs budget (S. Hrg. 
108-19). The Committee also held an extensive hearing on the 
Millennium Challenge Account on March 4 (S. Hrg. 108-25). 
Witnesses from the Department of State, the Department of the 
Treasury, and the Agency for International Development 
testified at the hearing on the issues addressed in this 
legislation. The Committee also heard testimony from expert 
witnesses from the private sector.
    The Committee considered an original bill on May 21, 2003, 
introduced by the Chairman. The Chairman's mark contained a 
number of changes to the administration's proposed bill, S. 
571, introduced by the Chairman on behalf of the President on 
March 6, 2003. The Chairman's mark established a separate 
government agency, named the Millennium Challenge Corporation, 
and authorized appropriations for assistance to be delivered by 
the Corporation. It adopted the President's innovative plan to 
choose recipients based on objective measurements of 
demonstrated commitment to certain policies, and a system of 
contracts between recipient countries and the Corporation 
whereby benchmarks of success would be determined in advance 
and referred to throughout the period of the contract. It also 
mandated procedures that the Corporation would follow to choose 
recipients, and manage and deliver the assistance.
    During the mark-up of this legislation, the Committee 
adopted three amendments, one by roll call vote and two by 
voice vote.
    The first was an amendment offered by Senators Hagel and 
Biden that struck the provision creating a separate government 
corporation; instead, the amendment gives the authority to 
coordinate the new Millennium Challenge program to the 
Secretary of State, consistent with legislation enacted in 1998 
(the Foreign Affairs Agencies Consolidation Act of 1998) 
granting the Secretary of State authority to coordinate all 
U.S. development and economic assistance. The Committee 
disagreed with the administration's proposal to create a new 
government agency, which would have undermined the Secretary of 
State's existing authority (granted just five years ago) and 
complicated, rather than enhanced, inter-agency coordination. 
The Committee is not persuaded that a separate government 
agency--with duplicate management structures and attendant 
costs to establish it--is necessary to administer this new 
program.
    The Committee strongly supports the purposes and goals of 
the Millennium Challenge Account and believes that they can be 
carried out in a unique and innovative way as proposed by the 
administration. Under the provision approved by the Committee, 
the Secretary will have the flexibility to decide which 
agencies of the government will administer the various aspects 
of the MCA program. The bill also retains the authority to 
provide the assistance ``notwithstanding any other provision of 
law.'' Finally, to ensure that the economic and financial 
expertise of the Treasury Department is properly utilized, the 
provision requires the Secretary of State to consult with the 
Secretary of the Treasury with regard to several aspects of the 
program.
    The vote on the Hagel-Biden amendment was 11 to 8. Those 
voting in the affirmative were Senators Hagel, Chafee, Biden, 
Sarbanes, Dodd, Kerry, Feingold, Boxer, Nelson, Rockefeller, 
and Corzine. Those voting in the negative were Senators Lugar, 
Allen, Brownback, Enzi, Voinovich, Alexander, Coleman, and 
Sununu.
    The second amendment, offered by Senator Corzine, strikes 
an appropriate balance between adherence to objective criteria 
in selecting recipients and cases where candidate countries 
fail to meet such criteria because of questionable data or by 
only a narrow margin. The amendment allows discretion in both 
cases but restricts grants to such countries to only 10 percent 
of the available funding. It was adopted by voice vote.
    The third amendment offered, by Senator Dodd, provides a 
specific deadline in the public disclosure requirements in 
section 107. It was adopted by voice vote.
    The Committee ordered the bill reported, as amended, by a 
vote of 19 to 0. Ayes: Senators Lugar, Hagel, Chafee, Allen, 
Brownback, Enzi, Voinovich, Alexander, Coleman, Sununu, Biden, 
Sarbanes, Dodd, Kerry, Feingold, Boxer, Nelson, Rockefeller, 
and Corzine.

                    III. Section-by-Section Analysis


Section 1. Short Title; Table of Contents

    This section contains the short title and table of contents 
of the bill.

Section 2. Findings; Purpose

    This section contains findings and purposes applicable to 
the bill. It recalls President George W. Bush's announcement of 
American support for the international development goals of the 
UN Millennium Declaration, and pledge of support for increased 
U.S. assistance through a Millennium Challenge Account to 
countries that govern justly, invest in their own people, and 
encourage economic freedom. It states that the purpose of this 
bill is to provide United States assistance for global 
development through the Millennium Challenge Account in a 
manner that promotes economic growth and the elimination of 
extreme poverty, and strengthens good governance, economic 
freedom, and investments in people.

Section 3. Definitions

    This section contains definitions of terms used in the bill.

                TITLE I--MILLENNIUM CHALLENGE ASSISTANCE


Sec. 101. Authority of the Secretary of State

    This section directs the Secretary of State to coordinate 
assistance provided under this bill.
    Subsection (c) directs the Secretary to designate a 
Coordinator for the Millennium Challenge Account from among 
those officers serving in the Department of State in positions 
requiring the advice and consent of the Senate. It also 
specifies the Coordinator's duties, which include developing 
the indicators to be used to select eligible countries for 
Millennium Challenge Assistance and coordinating such 
assistance with other United States assistance programs and 
with assistance programs of other countries and international 
organizations.
    Subsection (d) directs the Secretary of State to consult 
with the Secretary of the Treasury with respect to the 
development of indicators for use in selecting eligible 
countries, the determination of such countries, standards for 
use in measuring performance under Millennium Challenge 
Contracts, and other appropriate matters determined by the 
Secretary of State.

Sec. 102. Authorization for Millennium Challenge Assistance

    Subsection (a) provides the Secretary authority to provide 
assistance consistent with the purposes contained in section 
2(b), notwithstanding any other provision of law. The bill 
submitted by the administration, S. 571, provided that 
assistance could be provided ``notwithstanding any other 
provision of law, except the provisions of the Anti-Deficiency 
Act.'' The Committee does not believe that authority to make 
funds available ``notwithstanding any other provision of law'' 
is ever to be interpreted as making inapplicable the provisions 
of the Anti-Deficiency Act. Obviously, an agency cannot 
obligate funds it does not have. The Committee omitted the 
administration's language specifically excepting the Anti-
Deficiency Act from the notwithstanding authority because it 
did not wish to imply that other statutes which contain 
notwithstanding authority without such specific exceptions have 
the effect of making the Anti-Deficiency Act inapplicable.
    Subsection (b) provides that assistance under this Act may 
not be used for military assistance or training.
    Subsection (c) provides that assistance shall be provided 
in the form of grants.
    Subsection (d) provides that assistance under this Act 
shall be coordinated with other U.S. foreign assistance 
programs. The Committee expects such coordination to include 
existing and future U.S. trade, debt, investment, and 
environmentally sustainable development programs.
    Subsection (e) provides for entities seeking assistance 
under this Act to submit proposals to the Secretary accompanied 
by such information as he may reasonably require. It is the 
intention of the Committee that the Secretary should make clear 
his favorable disposition towards proposals that

   Include men and women equally in the development of 
        the proposal, in plans for its implementation, and 
        among its beneficiaries.

   Have a beneficial impact on the environment, in 
        cases where this is applicable.

   Promote civil liberties and human rights.

   Support the development of the financial 
        infrastructure necessary to build an entrepreneurial 
        culture.

    By citing this list of considerations that it considers 
especially important, the Committee does not intend to exclude 
other worthy projects and programs that meet the purposes and 
goals of Millennium Challenge assistance.

Sec. 103. Candidate Country

    Subsection (a) sets per capita income levels as the 
criteria for countries to be considered as candidates for 
assistance under this title. In FY 2004, candidate countries 
will be those countries eligible to receive loans from the 
International Development Association (currently this consists 
of countries with an annual per capita income below $1,435). In 
FY 2005, the number of candidate countries expands to include 
countries at the same per capita income level but which are 
ineligible for International Development Association loans for 
reasons other than income. In fiscal years after 2005, the 
rules will depend on the amount of money appropriated for MCA 
assistance in that year. In years in which $5 billion or less 
is appropriated, the same criteria that apply for fiscal year 
2005 will apply (i.e. candidate countries will be those with 
annual per capita incomes below the International Development 
Association's historical per capita income cutoff). In years in 
which more than $5 billion is appropriated, candidate countries 
will be those with annual per capita incomes which qualify as 
lower middle income countries as defined by the World Bank 
(currently an annual per capita income of $2,975).
    The Committee has linked these criteria to recognized 
income benchmarks, rather than to fixed dollar figures, to 
ensure that they will accurately reflect countries' development 
needs over time. Use of International Development Association 
and World Bank income standards is also intended to facilitate 
coordination of Millennium Challenge Assistance with other 
assistance programs which base eligibility on these standards.
    Subsection (b) provides that in years in which more than $5 
billion is appropriated, no more than 20 percent of the funds 
appropriated for assistance may be used to provide assistance 
to countries with per capita incomes that exceed the 
International Development Association's historical per capita 
income cutoff. This provision is intended to ensure that MCA 
assistance remains focused primarily on the poorest eligible 
countries, even as increasing appropriations levels make it 
possible to allow developing countries with higher per capita 
incomes to participate in MCA assistance. If the $5 billion 
threshold is reached, the Committee expects that assistance to 
the lower middle income countries will focus on poor 
communities in those countries and that the Secretary will 
fully consider existing levels of assistance to those countries 
when assessing the need for MCA assistance. Finally, the 
Committee expects that, in using the indicators described in 
section 104, the Executive Branch will not require the poorer 
countries to ``compete'' with the lower middle income nations.

Sec. 104. Eligible Country

    Subsection (a) establishes criteria for use in selecting 
countries eligible to receive MCA assistance from among the 
group of countries with low enough incomes to be considered as 
candidates for such assistance. The criteria are designed to 
identify countries with a demonstrated commitment to ensuring 
just and democratic governance, promoting economic freedom, and 
investing in people.
    Subsection (b) requires the Secretary to rely on objective 
and quantifiable indicators of a candidate country's 
performance in these areas. This requirement is intended to 
ensure that decisions about eligibility for MCA assistance are 
based on countries' development needs and their ability to make 
productive use of assistance, and not on short-term political 
considerations. The Committee expects that as countries with 
relatively higher incomes become eligible for MCA 
consideration, the Secretary will design and apply indicators 
in ways that ensure that lower income countries are not 
disadvantaged in competing for MCA eligibility. This subsection 
also provides for notice and public comment on the indicators 
to be used by the Secretary.
    The Committee fully supports the principle of designating 
eligible countries on the basis of publicly available, 
objective data. Much of the data currently available for 
establishing quantitative indicators, however, are subject to 
significant gaps and time lags. In addition, an empirical 
correlation between some available indicators of demonstrated 
commitment and the goals of economic development and poverty 
reduction is not clearly established. The Committee believes 
that the publication of the indicators in the Federal Register 
and the promotion of public comment will help to refine the 
indicators and sharpen their focus on factors that have a 
direct bearing on a country's development potential.
    The Committee believes that selecting and measuring the 
indicators of demonstrated commitment is a crucial component of 
a successful MCA, one that should be subject to regular review 
and refinement. The Committee expects that the Secretary's 
selection of indicators will reflect improvements in both 
theory and data on poverty reduction and economic development.

Sec. 105. Eligible Entity

    This section provides that MCA assistance may be provided 
to MCA eligible governments, including local or regional 
governments, and to nongovernmental organizations or other 
private entities. The Committee hopes that MCA assistance will 
be allocated to the greatest extent possible to entities that 
are based in MCA eligible countries in order to develop local 
capacity and broaden participation in achieving Millennium 
Challenge goals.

Sec. 106. Millennium Challenge Contract

    Subsection (a) requires the Secretary to enter into a 
Millennium Challenge Contract with the government of a country 
eligible to receive MCA assistance. The purpose of the contract 
is to create a multi-year plan for the eligible country to 
achieve specific development objectives. The Committee expects 
that key areas of focus for MCA assistance will include:

   poverty reduction,

   health,

   education,

   agricultural development,

   enterprise and private sector development,

   governance,

   trade and investment capacity, and

   environmentally sustainable development.

    Subsection (b) specifies particular issues to be addressed 
in the contract.
    Subsection (c) provides that the Secretary shall seek to 
ensure that the government of the eligible country consults 
with nongovernmental organizations and other private entities 
in the country with respect to the content of the Millennium 
Challenge Contract. Such consultations with these and other 
interested local stakeholders, including indigenous women's 
organizations, are intended to ensure widespread public 
participation, and thereby build local commitment to the 
objectives toward which MCA assistance is directed. The 
Committee expects that, to the greatest extent possible, 
Millennium Challenge contracts include a description of the 
beneficiary populations disaggregated by gender.

Sec. 107. Disclosure

    This section requires the Secretary to publish in the 
Federal Register and to make available on the Internet 
specified information about the selection of countries eligible 
to receive MCA assistance, the programs and projects for which 
assistance is provided, and the results achieved through MCA 
assistance. Disclosure under this section of information about 
assistance provided is intended to apply to entities that 
receive assistance directly from the United States; it is not 
intended to require reporting on individual expenditures made 
by those recipient entities from MCA assistance funds. In 
reporting on the progress each year by eligible countries, the 
Committee expects to see appropriate statistics disaggregated 
by gender and age.

Sec. 108. Annual Report to Congress

    This section requires that the President submit an annual 
report to the Congress with specified information on MCA 
assistance provided during the prior fiscal year. The Committee 
will be particularly interested in learning how and to what 
extent Millennium Challenge assistance and the traditional 
programs organized and carried out by the U.S. Agency for 
International Development relate to one another.

Sec. 109. Millennium Challenge Assistance to Candidate Countries

    This section provides that the Secretary may make available 
up to 10 percent of the funds appropriated for MCA assistance 
in any fiscal year to provide assistance to countries that are 
not eligible for MCA assistance under section 114 because of 
unreliability of data or because they failed to perform 
adequately with respect to one indicator of eligibility. Such 
assistance may be provided for the purposes of assisting such 
countries in becoming eligible countries. This provision is 
intended to encourage countries that are making genuine efforts 
to meet MCA eligibility criteria but fall just short of 
qualifying, and to help expand the pool of MCA eligible 
countries.

                                TITLE II


Sec. 201. Establishment of the Millennium Challenge Account

    This section establishes a Millennium Challenge Account on 
the books of the Treasury, into which all amounts made 
available to carry out this title are to be deposited.

Sec. 202. Authorization of Appropriations

    Subsection (a) authorizes appropriations to carry out this 
Act in the following amounts: $1,000,000,000 for fiscal year 
2004; $2,300,000,000 for fiscal year 2005; and $5,000,000,000 
for fiscal year 2006. The Committee expects that this funding 
will be in addition to current development assistance funds, as 
the President pledged in announcing the MCA program.
    Subsection (b) provides that these funds are authorized to 
remain available until expended.
    Subsection (c) authorizes the Secretary to allocate or 
transfer to other Federal Government agencies funds available 
for carrying out this title. Any such transfers or allocations 
must be notified to the Senate Foreign Relations Committee, the 
House International Relations Committee, and the Appropriations 
Committees of both Houses of Congress in accordance with 
section 634A of the Foreign Assistance Act.

                           IV. Cost Estimate

    In accordance with rule XXVI, paragraph 11(a) of the 
Standing Rules of the Senate, the Committee provides the 
following estimate of the cost of this legislation prepared by 
the Congressional Budget Office.

                                     U.S. Congress,
                               Congressional Budget Office,
                                      Washington, DC, May 28, 2003.

Hon. Richard G. Lugar, Chairman
Committee on Foreign Relations,
United States Senate,
Washington, DC.

    Dear Mr. Chairman:

    The Congressional Budget Office has prepared the enclosed 
cost estimate for the Millennium Challenge Act of 2003.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Joseph C. 
Whitehill.

            Sincerely,
                             Douglas Holtz-Eakin, Director.

    [Enclosure.]

               CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

Millennium Challenge Act of 2003

                                SUMMARY

    The Millennium Challenge Act of 2003 would create a new 
foreign assistance program, the Millennium Challenge Account, 
to provide economic assistance to developing countries that 
have demonstrated a commitment to just and democratic 
government, economic freedom, and improved educational 
opportunities and health care for its citizens. The bill would 
authorize the appropriation of $1 billion in 2004 and $8.3 
billion over the 2004-2006 period for the new program. CBO 
estimates that implementing the bill would cost $6.5 billion 
over the 2004-2008 period, assuming the appropriation of the 
authorized amounts. The bill would not affect direct spending 
or receipts.
    The Millennium Challenge Act of 2003 contains no 
intergovernmental or private-sector mandates as defined in the 
Unfunded Mandates Reform Act (UMRA) and would impose no costs 
on State, local, or tribal governments.

                ESTIMATED COST TO THE FEDERAL GOVERNMENT

    The estimated budgetary impact of the Millennium Challenge 
Act is shown in the following table. The costs of this 
legislation fall within budget function 150 (international 
affairs).


----------------------------------------------------------------------------------------------------------------
                                                                By Fiscal Year, in Millions of Dollars
                                                     -----------------------------------------------------------
                                                         2004        2005        2006        2007        2008
----------------------------------------------------------------------------------------------------------------

                                  CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Authorization Level.................................       1,000       2,300       5,000           0           0
Estimated Outlays...................................         100         630       1,650       2,654       1,488
----------------------------------------------------------------------------------------------------------------


                           BASIS OF ESTIMATE

    The estimate assumes the Millennium Challenge Act of 2003 
will be enacted late in 2003 and that the amounts authorized 
for 2004, 2005, and 2006 will be appropriated at the start of 
each fiscal year. CBO estimates that outlays from the 
Millennium Challenge Account will be low during the first few 
years because of the normal delays in starting a new program 
and the multiyear character of the program as authorized.
    CBO estimates that it would take three to six months to 
select a coordinator to manage the Millennium Challenge 
Account, hire staff, write the necessary rules and regulations 
to administer the program, and establish interagency 
coordination. Only then would eligible countries be invited to 
submit a multiyear plan detailing how they would use the funds 
provided by the new program. CBO expects that the effort to 
develop such plans would require considerable time since each 
country's plan must specify the objectives it would achieve 
with Millennium Challenge funds, describe the actions it would 
undertake to achieve those objectives, provide a time schedule 
for achieving those objectives, and identify benchmarks for 
assessing whether the country has achieved its objectives.
    In addition, the bill also would require eligible countries 
to involve private sector and nongovernmental organizations in 
preparing their plans. Thus, CBO estimates that few grants 
would be extended before the last quarter of fiscal year 2004. 
Moreover, because the bill would require periodic evaluations 
to determine whether the country is meeting its commitments. 
CBO believes that this multiyear program would probably have a 
spending pattern similar to existing development assistance 
programs. Thus, CBO estimates outlays will follow historical 
patterns for such economic assistance spending.

              INTERGOVERNMENTAL AND PRIVATE-SECTOR IMPACT

    The Millennium Challenge Act of 2003 contains no 
intergovernmental or private-sector mandates as defined in UMRA 
and would impose no costs on State, local, or tribal 
governments.

Estimate prepared by:

    Federal Costs: Joseph C. Whitehill.
    Impact on State, local, and tribal governments: Victoria 
Heid Hall.
    Impact on the private sector: Paige Piper/Bach.

Estimate approved by:

    Peter H. Fontaine, Deputy Assistant Director for Budget 
Analysis.

                   V. Evaluation of Regulatory Impact

    In accordance with rule XXVI, paragraph 11(b) of the 
Standing Rules of the Senate, the Committee has concluded that 
there is no regulatory impact from this legislation.

                      VI. Changes in Existing Law

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, the Committee notes that no 
changes to existing law are made by this bill.
        VII. ADDITIONAL VIEWS OF HON. RICHARD G. LUGAR, CHAIRMAN

    Despite a Committee vote rejecting the MCC as a separate 
government corporation, the prospects offered by the 
President's initiative are so great that efforts must continue 
to find a way to capture his vision of designing and delivering 
a new American commitment to international development. The 
Committee made a mistake in rejecting the President's plan for 
a groundbreaking, highly visible, organization. With funding of 
more than $8 billion over three years, the mission of the 
Millennium Challenge program is to boost economic growth in 
countries that, while very poor, demonstrate commitment to good 
government. It is intended to be single-mindedly focused on 
development and unaffected by short-term political 
considerations. As the Secretary of State himself has argued, 
this is best achieved through the establishment of an 
innovative, flexible, narrowly targeted and highly visible 
separate organization that can complement other assistance 
provided through more traditional means.
    Every Member of this Committee is keenly aware that 
development assistance has garnered only modest support among 
the American public. It is one of the reasons that the 
Committee has not passed a foreign aid bill in over a decade. 
The President's vision of a new beginning in which America 
signs a contract with poor but promising countries and provides 
performance-based assistance is something that he is willing to 
take to the American public. The most important constituent for 
a major boost in development resources is now the President. It 
is incumbent on the U.S. Senate as a whole to support his 
enthusiasm and leadership.

                                   -