Innovative or Ineffective?: Performance-Based Lending as an Anticorruption Tool

The Sustainable Development Goals’ (SDGs) new focus on fighting corruption and building institutions has generated quite a stir (including on this blog – see here, here, here, and here). But the Millennium Challenge Corporation (MCC) – a U.S. agency responsible for disbursement of assistance geared toward international development targets – has long been acting against corruption through its effort to achieve the SDG precursors, the Millennium Development Goals (MDGs). Institution-building does not appear among the substantive aims of the eight MDGs. Rather, the MCC made anticorruption central to its work by introducing corruption indices into its process for competitive selection of aid recipients. In brief, the MCC Board of Directors chooses aid-eligible countries by evaluating and scoring candidates countries’ “policy performance” on a number of measures. Crucially, in order to qualify for aid, countries must score above average for their income group on the Worldwide Governance Indicators (WGI) “Control of Corruption” score. The indicator is therefore known as the “hard hurdle.” The Board also assesses corruption trends in its analysis of a country’s ability to reduce poverty and generate economic growth, which, with policy performance, comprises the overall evaluation.

This strategy is known as performance-based lending, and the MCC has employed it to award over $10 billion in grants to nearly 40 countries over the past 12 years. Is the MCC approach a good one? Many critics say no. I say yes. Although it is a strategy that is still evolving, performance-based lending—including the corruption control “hard hurdle”—is not only innovative and effective, but important.

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Am I the Only One Who’s Not So Excited About SDG 16?

This Friday, over 190 world leaders are scheduled to gather at the UN headquarters in New York City for the UN Sustainable Development Summit to endorse a new set of “Sustainable Development Goals” (SDGs) to be achieved over the next 15 years. The SDGs are a follow-up to the Millennium Development Goals (MDGs), but the SDGs are much more expansive and cover a wider range of topics. Most relevant to the anticorruption community is Goal 16 (“Promote Peaceful and Inclusive Societies for Sustainable Development, Provide Access to Justice for All and Build Effective, Accountable and Inclusive Institutions at all Levels”), and in particular SDG “Target” 16.5 (“substantially reduce corruption and bribery in all their forms”).

There seems to be a lot of excitement among anticorruption activists and reformers about Goal 16 and Target 16.5 (see here, here, and here)—but to be honest, I’m not sure why. Indeed, I tend to think that the formal endorsement of anticorruption as part of the SDGs will do little good, and the inclusion of Target 16.5 might, if anything, be counterproductive. Continue reading