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GAO Report Shows Millennium Challenge Corporation Overstated Projected Impact of Vanuatu Projects

Jul 26, 2007
Press Release

July 26, 2007

Contact:  Lynne Weil, 202-225-5021

Washington, DC – Chairman Tom Lantos of the House Foreign Affairs Committee today said a U.S. foreign aid program in the Pacific Islands is a waste of U.S. taxpayer dollars that promises far more than it can ever deliver.

A study by the Government Accountability Office that Lantos requested last year and released today shows that the Millennium Challenge Corporation (MCC) has exaggerated the potential effect of its compact with Vanuatu on that country’s people and economy. The GAO report was posted on-line (www.foreignaffairs.house.gov/110/GAOreport072607.pdf) and discussed today at a hearing of the Foreign Affairs Subcommittee on Asia, the Pacific and the Global Environment.

“The program in Vanuatu is a complete waste of taxpayer dollars,” Lantos said. “The MCC has promised to fork over $65 million to the government of Vanuatu, and it will have little or no impact on the local economy or poverty alleviation. It’s hard to tell whether this MCC boondoggle is due to gross incompetence or deliberate malfeasance.”

The GAO study was intended to review the MCC’s proclamations that the compact would have a “transformative impact” on the country’s economy. It found that the MCC’s Vanuatu program would have no effect on the country’s gross domestic product; Vanuatu’s GDP is expected to grow at 3% with or without the aid project.

The GAO also was dubious about the program’s potential effect on individuals in Vanuatu. The MCC said it would increase per capita income by 15% by 2010, and 37% by 2015. The GAO found that a more realistic expectation for per capita income growth over time was 3.9% and 4.6%, respectively.

In addition, the GAO found that the proposed major infrastructure project – rehabilitation of roads, wharves, and warehouses – will primarily benefit large tourism and transport companies in Vanuatu, and not the local population.

“I am very concerned about the GAO’s findings that the Millennium Challenge Corporation’s projected impact of the Vanuatu Compact is overstated,” Subcommittee Chairman Eni Faleomavaega said. “The GAO report calls into question the credibility of the Millennium Challenge Account, which was highly touted by the Administration as a revolutionary approach to administering foreign aid and lifting the poor.

“The small island nation of Vanuatu played by our rules and, for doing so, is now being unfairly depicted in the press because the MCC made a choice to overstate its case,” Faleomavaega added. “I hope we find that the MCC has an explanation in response to the GAO report and that we can move forward to ensure greater accountability in predicting, measuring, and assessing the impact of future compacts.”

“The MCC apparently is mistaking wishful thinking for sound economic analysis,” Lantos said. “It is clearly time for some adult supervision there. Unless the MCC gets its act together quickly and is truthful and accountable to the American people, it places its support in Congress at risk.”

To ensure that similar overstatements in aid programs have not occurred, Lantos calls on the GAO to expand its review to the 12 other country compacts with the MCC. Lantos co-authored, along with former Chairman of the House International Relations Committee Henry Hyde, the legislation that authorized the Millennium Challenge Account in 2004.