(PDF provides a complete and accurate display of this text.)
Calendar No. 115
108th Congress Report
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
[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.
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
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
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
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
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
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,
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
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
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
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:
enterprise and private sector development,
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
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.
Congressional Budget Office,
Washington, DC, May 28, 2003.
Hon. Richard G. Lugar, Chairman
Committee on Foreign Relations,
United States Senate,
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.
Douglas Holtz-Eakin, Director.
CONGRESSIONAL BUDGET OFFICE COST ESTIMATE
Millennium Challenge Act of 2003
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
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
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
Estimate prepared by:
Federal Costs: Joseph C. Whitehill.
Impact on State, local, and tribal governments: Victoria
Impact on the private sector: Paige Piper/Bach.
Estimate approved by:
Peter H. Fontaine, Deputy Assistant Director for Budget
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.