Mongolia's Challenge

Article excerpt


President Bush is visiting Africa this week where he will tout the success of the Millennium Challenge Corp. (MCC) in helping poor nations across the globe. That's the 4-year-old program created to transform America's foreign aid efforts. Under this new approach, grants are designed to encourage reforms that foster the economic growth critical to reducing poverty in developing nations.

But a few recipient countries, including a key U.S. ally, are on the brink of flouting the MCC's aims. It's a direct challenge to one of Mr. Bush's signature foreign policy efforts. How the U.S. government responds will send an important signal to other countries that receive American aid.

The advent of the MCC, one of the Bush administration's most innovative programs, marked a critical shift in aid policy. As Mr. Bush noted in a recent speech, the MCC has "revolutionized the way we approach development" by treating countries assisted "as equal partners, asking them to set clear goals, and expecting them to produce measurable results."

The key to this new strategy is, as Mr. Bush puts it, America "serving as an investor, not a donor" with its development aid. The U.S. links eligibility for funds from its Millennium Challenge Account (MCA) to a potential recipient's demonstrated commitment to promoting political and economic freedom, funding education and health, reining in corruption and respecting civil liberties and the rule of law. President Bush has said MCA assistance will go to countries that "live by three broad standards - ruling justly, investing in their people, and encouraging economic freedom."

The question is what to do when the results in some of the initiative's partner countries fail to measure up. A critical test case today is Mongolia.

Strategically wedged between Russia and China, Mongolia is of enormous geopolitical significance. The country has made tremendous strides since a peaceful 1990 revolution overthrew the Soviet-aligned communist dictatorship that had ruled since 1924.

Today Mongolia is a U.S. ally that has committed troops to Afghanistan and Iraq. Friendship with the United States has brought the nation benefits, including a five-year $285 million MCC compact, signed last fall by Mr. Bush and his Mongolian counterpart Nambaryn Enkhbayar.

But there are worrying signs that the country's rulers are starting to again take cues from their immediate neighbors. By the MCC's own scorecard for the country, Mongolia has declined in virtually all its indicators in recent years, reflecting a rapidly deteriorating investment and governance climate

What has triggered this democracy's downward spiral? Recent discoveries of copper, gold, and other valuable natural resources seem to play a role.

These discoveries have transformed the political landscape in the country in the few short years since Mongolia was named eligible for MCA funds in 2004. Ruling elites are eager to seize these resources for themselves. The governing ex-communist Mongolian People's Revolutionary Party (MPRP) now threatens to break the country's binding contracts with private companies under the nation's Mineral Law.

In other cases the MPRP has simply refused to move projects along that are important to the country's economic well-being. …