Eurasia Insight:
US AID PROGRAM IN GEORGIA FACES CRITICISM OVER TRANSPARENCY
Molly Corso: 8/23/06

From rebuilding roads to revitalizing villages, the Millennium Challenge Corporation (MCC) in Georgia has set high expectations for its five-year program. However, just months into the project some observers claim the US-backed initiative is not meeting expectations on transparency.

The MCC operates in Tbilisi via the Millennium Challenge Georgia Fund (MCG), an entity established by the Georgian government. The flagship development program has already come under criticism from several watchdog groups, including the Berlin-based Transparency International (TI). A lack of information has both tarnished the program and frustrated civil society activists, said Mark Mullen, TI’s chief in Georgia. “They are not telling anyone anything,” he said.

Other NGO representatives have voiced similar concerns. Irina Lashkhi -- the rule-of-law and public administration program coordinator at the Open Society Georgia Foundation (OSGF), a founding member of the local NGO coalition For Transparency of Public Finance -- said it was “quite difficult” to get information from the MCC/MCG. “They told us our questions are welcome, but they have no policy to regulate information,” she said. [OSGF and EurasiaNet both operate under the auspices of the Open Society Institute].

Colin Hugh Buckley, resident country director in Georgia for MCC, said an information policy would be implemented in the coming weeks. Up to this point, he added, there simply hasn’t been much information to disseminate. “We haven’t finished the first quarter yet,” he said. The MCG compact went into force in early April.

However, TI’s Mullen insists several decisions have already been made, emphasizing that the process has not always been transparent. He said a tender for a fiscal agent earlier this year may not have been entirely open. “After our press conference in March, we got a lot of calls from accounting firms who said they had planned to participate in the tender but it was never announced. MCC Washington picked four companies by some method nobody knows. The fact that it was not an open competition is very, very important,” he said.

David Nummy, managing director of fiscal accountability at MCC, believes the selection process fully complied with international standards. MCC short listed four accounting firms after consultations with the US Embassy in Georgia, USAID and other donor organizations. Three of the four companies listed applied for the position, he said.

While not disputing the choice of Ernst & Young, Mullen said the lack of transparency had set a dangerous precedent. “Our intention is in the design process, decision-making process. We tried to influence transparency as much as possible so there could be oversight by journalists in the implementation process,” Mullen said. “There is always just one more thing on the horizon, ‘we will just get over this next serious decision and then we will start being transparent.’”

Nummy maintains the decision to hire Ernst & Young was made in Tbilisi by a panel that included representatives of the Georgian government and NGOs. [The accounting firm subsequently backed out of the agreement]. He also said the hiring process had “evolved” and the announcement for a new tender was advertised on the MCG website. [http://www.mcg.ge/english/Millennium_Challenge_Georgia.htm]

However, the NGO transparency coalition in Georgia is not just concerned about the tender process. Activists also worry about a perceived lack of oversight for the disbursement of funds. A report to be issued later this year reportedly will warn of the possibility that the Georgian government could use funds earmarked for MCC/MCG projects to finance other programs. Lashkhi called attention to the $51.7 million that the MCG fund anticipates spending in 2006. The amount should be reflected in the 2006 Georgian budget, but is not, she said.

“We talked about it with the Ministry of Finance. They told us that as soon as the money arrives in the country it will be reflected in the state budget. In the [MCG] compact it says that all money should be reflected in the budget from its formation,” she said.

Buckley, the MCC country director, disputed Lashkhi’s interpretation of the rules. According to the State Department, he said, it is not necessary for the whole amount to be reflected in the Georgian budget immediately.

MCC is a multi-billion dollar aid program created by the Bush administration to help developing nations, and is designed to operate like a business by demanding accountability and responsibility from administrators in the recipient country. MCG’s assistance strategy is “based on the principle that aid is most effective when it reinforces good governance, economic freedom, and investments in people that promote economic growth and elimination of extreme poverty,” according to a June 20 statement issued by the US Embassy in Tbilisi. The MCG website contains a wealth of information about planned projects and program administration, including the minutes of the most recent supervisory board meeting.

With $295 million at stake in Georgia, Buckley suggested that fulfilling the five-year program without some incident is unlikely. But checks and oversights are in place to make sure funds are spent correctly and are accountable, he insisted. “A balance has to be made between the projects and protection or the projects will be bogged down,” he said. “We have struck the right balance, but if we have erred, we have erred on the side of too many layers and oversights.”

The system appears impressive on paper. Money transferred to the MCG is not technically given to the fund. Instead, the money is placed into an account for the “benefit” of MCG, and program administrators do not have direct access to it. Money needed for procurements and other expenses are issued through a series of steps that involve both a financial agent and a procurement agent.

In addition to the system MCC already has in place, TI is calling for even more due diligence. Mullen said he would welcome greater, timelier disclosures. But Nummy dismissed the idea, saying MCC already is meeting international standards. “Transparency results from understanding whether the payment was in settlement of a valid obligation, not that it occurred,” he said.

Ana Dolidze, chairwoman of the Georgian Young Lawyers Association, and a member of the Stakeholders’ Committee, said MCG was moving in the right direction. “There might have been things that might not have been dealt with, or paid attention to. This is understandable because this is a very unique fund,” Dolidze said. “MCG is making the effort to make policy as transparent and accessible as possible.”

Editor’s Note: Molly Corso is a freelance journalist and photographer based in Tbilisi.