Preserve the Dealmaking Capability of the Millennium Challenge Corporation

Introduction

Last week, the Department of Government Efficiency (DOGE) notified the Millennium Challenge Corporation (MCC) that it would “shutter” the agency, instructing the MCC to terminate all its compact and threshold agreements with partner countries, terminate all contracts, and fire or retire its staff within 90 days.¹ While this may seem aligned with President Trump’s executive order (EO) pausing U.S. international assistance to reevaluate aid effectiveness, the MCC does foreign investment, not foreign aid. Instead of shuttering, the administration can easily reform the MCC to meet its goals and eliminate wasteful spending. But shuttering the MCC will hinder—not help—better aligning investment with American interests and cost more than it saves.

The MCC’s ability to make deals via bilateral country compacts is unique in the U.S. government and ideal for advancing administration goals. The MCC method of developing investment packages provides tremendous political leverage with governments, and the programs have solid evidence of effectiveness. Terminating the MCC’s compacts and programs will provide China and other U.S. adversaries diplomatic and economic wins while leaving blighted, half-built infrastructure scarring both the landscape and minds of former U.S. partner countries and their citizens for a generation. If the Trump administration wants to reorganize and eliminate the MCC as an independent agency, at a minimum, it should transfer its capabilities and personnel, especially in blended finance, to the U.S. International Development Finance Corporation (DFC) and allow it to administer existing compacts, agreements, and contracts.

The DFC already struggles to process its current transaction workload, and it lacks the ability to commit to contractually obligated disbursements. Eliminating the MCC without transferring its capabilities and qualified personnel will do the opposite of derisking engagement with developing countries and create unnecessary hardship and resentment, especially given how much effort developing countries invest in getting an MCC compact. Rather than shuttering the MCC, the administration has an opportunity to reassess the role of the agency in advancing an “America First” agenda and further moving international development assistance away from just “gifting” funds. To maximize the MCC’s value, the Trump administration should enhance its mission under the existing charter to better fit America First priorities by building on the agency’s core strengths—country ownership, conditional and performance-based funding, and a rigorous, evidence-driven model—while addressing procedural constraints that limit its agility.

The administration can modify the MCC’s program parameters to prioritize investments in the national interest by adjusting the agency’s long compact development timelines, limited field presence, and risk aversion, all of which reduce its responsiveness and limit its untapped potential to engage with the private sector, particularly American businesses. These barriers, largely due to the complexity of the MCC’s current procurement process and timeline, can be addressed mostly without significant changes to its legislative charter. At the same time, the administration should work with Congress to update the charter for the modern era, including adding a provision to buy more American goods and services. Targeted reforms to improve the compact and threshold program development process, increase flexibility, shorten feedback loops, and modernize measurement tools would amplify the MCC’s value, identify opportunities for U.S. investment, and increase collaboration with co-financiers without compromising its credibility in some of the regions of the world most vital to American interests.

In fact, the first Trump administration selected many of the current MCC compact countries precisely for their strategic importance. The United States has spent years courting Nepal away from China’s orbit, and abandoning the country now would irreparably harm the United States’ reputation in the fraught neighborhood between China and India. Cote d’Ivoire provides one of the last remaining drone bases in Africa to counter ISIS. The Pacific Island states of Kiribati and the Solomon Islands lie astride trade routes and the undersea cables powering the digital economy; deserting them would allow China to ring-fence a close U.S. ally, Australia. Zambia anchors part of the critical Lobito Corridor for mines and minerals in Central and Southern Africa. Instead of abruptly terminating compacts and agreements that the first Trump and other administrations carefully put in place, this administration can preserve both diplomatic and financial capital with targeted reforms at the MCC or by transferring some of its specific capabilities to the DFC.
 

The Unique Value of the MCC

The MCC takes a unique approach that focuses on poverty reduction by creating economic growth through an evidence-based approach. Unlike other development organizations, the MCC executes a rigorous and transparent selection process for potential partner governments, providing eligibility-based funding to large-scale infrastructure or other high-priority growth sectors, all codeveloped and codified in a “compact” with recipient countries.

This government-to-government collaborative model directly involves local communities in project planning and execution, fostering national ownership (and therefore sustainability) of the projects while providing the United States with high levels of diplomatic leverage and influence. Future assistance and investment are always contingent on the terms in the compact and on a country’s implementation and policy performance. The time-bound nature of compacts, with clear start and end dates, also prevents them from becoming self-perpetuating, never-ending obligations. Because of this co-development process and commitment to understanding recipient country needs built around clear milestones, the MCC has a global reputation for credibility and impact in the countries where it has operated.

The MCC’s data- and evidence-driven programs focus on measurable outcomes, transparency, and long-term impact. The agency’s structure, unencumbered by mandates, budgetary line items, and reporting requirements, should allow the MCC to move efficiently while maintaining greater maneuverability. In practice, however, the MCC has a single-track, rigid approach to compact development, with a heavily defined process resulting in a three-to-five-year preparation period. The administration might modify this self-imposed process and create a dual-track approach that provides greater diplomatic leverage, ensuring that programs are developed and agreed upon in an accelerated fashion (e.g., 90–180 days) in direct alignment with U.S. geopolitical interest.
 

Immediate Reforms

The MCC has significant room to evolve within its existing legislative charter and mandate.

First, the Trump administration can revise the MCC’s internal processes for program development and the application and interpretation of scorecard metrics—adjusting or adding additional metrics more focused on America First factors (e.g., critical supply chains, minerals, and return on investment, or ROI) while retaining metrics for effective governance and management.

To do so, the MCC should prioritize flexibility, agility, and diplomatic leverage by adapting proven methods from the private sector for rapidly developing agreements and programs (e.g., “lean startup” methodology), which could shrink program development and due diligence in specific cases from three to five years to 90–180 days (or less).

While the MCC’s flexible, data-driven model that supports country-led development has earned bipartisan trust in Congress, it has untapped potential to enhance U.S. diplomatic influence in a post-USAID era and in active collaboration with the DFC. The credibility of the MCC’s selection process reliably signals U.S. support to allies and emerging partners, and the compact model has the potential to retain greater diplomatic leverage because of its inherently contingent nature, wherein the agency can include provisions within the compact linked to diplomatic priorities but only if compacts are agreed upon within the life of a presidential administration.

As part of these reforms, the Trump administration can make the MCC engage the U.S. private sector earlier in compact development to live up to Secretary of State Marco Rubio’s call to make America more prosperous. Likewise, the MCC can also resolve policy-level decisions around scoring methodologies, compact allocation, or internal staffing and procurement flexibility within the agency’s current framework.

Second, the Trump administration can adjust how the MCC evaluates which projects it funds by integrating national security or commercial impact into its economic rate of return (ERR) analysis. It can also modify the weighting or structure of scorecards, including the addition of a dual-track system, allowing simpler, more easily developed and verified programs to proceed while more complex programs are being finalized.

Third, the Trump administration should continue to grow its focus on hard infrastructure investment and broaden the structure of its sector-specific or corridor-based regional initiatives to include more sectors that align with America First priorities, such as developing natural resources, which the Biden administration effectively excluded from consideration.

Fourth, the MCC should become the “investment origination and project preparation arm” of the DFC to create deals and reduce bottlenecks for U.S. strategic interests. This would require effective coordination, including the formation of joint DFC-MCC deal teams and private sector opportunity analysis to pick sectors with the most investment potential. It would also require countries to commit to further reforms or to facilitate U.S. investments. In this context, the DFC should use the MCC to build the trust and relationships necessary to cocreate more sustainable investments in these countries.

This new approach to cocreating compacts would also allow for strategic alignment among several U.S. government entities looking for greater U.S. strategic investment globally. For example, the MCC, DFC, and Export-Import Bank of the United States (EXIM Bank) could collaborate on large-scale infrastructure projects. The MCC could facilitate enabling institutional and policy elements as well as initial investment analysis to enhance the DFC’s returns and ability to engage in a project based on its model. Further, given that the MCC can grant monies, it could take a portion of the capital stack of a mezzanine financing structure and absorb the pieces that do not meet the DFC’s ROI requirements, thereby allowing a structured trade project to proceed. The EXIM Bank could help crowd in U.S. companies with their financing supported by both the MCC’s grants and the DFC’s capital. While narrower in scope and focus from traditional compacts, this would also enable less complex compact design through a collaborative one-stop shop for financing and investing, improving America’s ability to counter competitors already aggressively investing in projects. Ultimately, this could easily lead to the merging of the DFC and MCC, in whole or in part, saving money and improving coordination.

Fifth, the MCC should stop shying away from “third compacts.” Congressional stakeholders in the past have sought to limit the executive by capping MCC compacts to one or two per country. While the intent of not continuing failed investments should continue, the MCC should create standards for countries seeking a third compact. These criteria would allow continued engagement with countries that the president has decided provide a strong economic and strategic rationale for ongoing U.S. commercial engagement. This would also enable the MCC to better support the DFC, leveraging transactions for investment opportunities and deal origination on the ground and securing U.S. interests in strategic sectors.

Last, MCC leadership must foster a culture that supports calculated risk-taking. Risk aversion is deeply embedded in the MCC’s structure and culture, which constrains its ability to engage in more complex environments, larger-scale projects, or investments in strategic sectors. While individual staff may be willing to take bigger risks, the institutional culture prioritizes caution, fearing failure and reputational damage. The transformative, high-impact economic growth outcomes and projects most likely to provide political leverage will be rare if MCC leadership remains confined to low-risk environments. The MCC should focus on building a portfolio of viable and attractive investments, in partnership with the DFC, that advance U.S. strategic goals and create economic opportunity in MCC countries for both local and U.S. interests (including infrastructure investment, trade, supply chain security, market development, and employment).

Structural Reforms

Certain structural shifts would require congressional authorization, starting with expanding the pool of eligible countries. Under current law, the MCC can only operate in low- and lower-middle-income countries, limiting its reach and constricting its ability to coordinate with the DFC, which uses different eligibility criteria. In addition, creating a statutory national security waiver—allowing the MCC to work in countries that may not meet traditional governance benchmarks but that serve critical U.S. interests—would also require congressional approval. Congress should also consider expanding the MCC’s core financing model beyond grants to add blended finance options, ideally aligned with DFC mechanisms. Likewise, extending compact timelines beyond the current five-year structure would add administrative flexibility.

Selection Process

The MCC’s country selection process should undergo significant changes to align with U.S. strategic interests to (1) address great power competition, (2) better align with U.S. economic interests, and (3) address critical regional supply chains. Much of this can be done without legislative changes.

To better address great power competition and U.S. economic interests, the MCC should enhance its selection metrics. Historically, the MCC’s selection process emphasized “hard hurdles” like governance and corruption. The MCC should augment its metrics to incorporate new indicators that capture the growing importance of sectors like digital infrastructure, critical minerals, and critical supply chains for goods such as technology, pharmaceuticals, and natural resources. This would enable engagement with the U.S. private sector and international allies to help MCC countries improve their economic position and governance.

Additionally, Congress could allow for a national security waiver that allows the MCC to partner with countries where projects have the ability to meet U.S. strategic interests despite scorecard shortcomings. In parallel, implementing a dual-tiered scorecard system, with a “gold status” for countries with strong governance and a “bronze status” for those that may not meet all criteria but hold strategic significance, would allow the MCC to extend support without compromising on governance standards.

The United States’ foreign policy challenges and interests increasingly cross borders. The MCC can help protect multi-country strategic supply chains by using some of its money for regional, not country-to-country, grants. Low- and middle-income countries (LMICs) increasingly seek regional agreements to align their economic priorities with global demands in sectors like mining, digital infrastructure, energy, agriculture, pharmaceuticals, and ports—industries driving development and central to global supply chains and U.S. strategic interests. Focusing on interconnected programs—like the one mirroring the Lobito Corridor to better connect resources in Angola, the Democratic Republic of the Congo, and Zambia to U.S. markets—would unlock commercial opportunity. Doing so requires Congress to revise eligibility criteria and the MCC to revise its selection criteria so that projects can be implemented in strategic sectors. The MCC’s current approach to regional compacts, however, suffers from several execution weaknesses. It should learn from these lessons and improve its ability to deploy regional compacts to support cross-border investments and transactions. For example, rather than create cumbersome and complex administrative arrangements through a full regional compact, the MCC could use the Zambia compact to support the Lobito Corridor through cross-border investments in countries that do not meet MCC criteria.

Measuring Return on Investment

The Trump administration should assess the economic benefits of projects from both the perspective of the partner countries and the United States. Currently, the MCC primarily employs ERRs to compare a project’s benefits to its costs, requiring a minimum 10 percent threshold for investment. The MCC should develop a complementary measure of ROI for the United States to demonstrate how the MCC aligns with partner-country growth and with U.S. strategic and economic interests. This could include metrics like expanded access for U.S. firms, strengthened supply chains, and increased geopolitical leverage. The MCC should convene private and public sector economists to design an updated ROI formula that aligns with the administration’s “safer, stronger, more prosperous” pillars. Integrating an American ROI framework would align with the MCC’s commitment to ensuring that U.S. taxpayers receive a substantial ROI in international development and help the agency better communicate its value to the American people and their elected representatives in Congress.

Involving the Private Sector

Integrating the U.S. private sector earlier and more frequently into development projects, such as during geographic selection and design, would better align initiatives with U.S. strategic goals and local needs. Engaging U.S. small businesses offers specific value, as they often create scalable business models and serve as conduits for innovation and investment from global technology companies. Focusing on U.S. strengths, particularly in technology and innovation, by collaborating with U.S. small businesses and tech giants like Google, Amazon Web Services, Visa, MasterCard, Cisco, and Intel can drive technological advancement in developing nations while generating employment opportunities in the United States and in local economies. Leveraging corporate soft power, particularly in promoting meritocracy, can enhance global influence and strengthen strategic partnerships.

To ensure the involvement of U.S. private sector interests in the long-term success of development projects, partnerships and grants should be structured to require crowding in follow-on investments from companies and investors. Adopting public-private partnership (PPPs) models (e.g., build-operate-transfer, leases, and concessions) can be highly effective, as they involve private entities in financing, constructing, and operating infrastructure and other economic assets for a specified period before transferring ownership, ensuring a balance of interests between the public and private sectors.

Enhancing coordination between government agencies, the MCC, and the private sector is essential for streamlining project implementation, addressing regulatory challenges, and crowding in blended finance. Educating U.S. companies about international bidding processes and involving them early to help shape projects can ensure they can effectively bid, offering better value and driving competition. Early collaboration with U.S. industry associations (e.g., chambers of commerce and trade associations) would create platforms for gathering feedback and tailoring MCC projects to better align with market objectives. Adjusting project criteria and speeding up development processes will help attract private investment and align funding with the private sector’s need for quicker returns on investment.

Procurement Reform, Life-Cycle Costs, and Buying American

Partner governments often prefer working with U.S. firms but are constrained by procurement rules or a lack of early engagement. A soft “Buy American” preference, with set-aside criteria for American small businesses, modeled after existing practices in the Federal Acquisition Regulation (FAR), could increase U.S. participation without undermining competition or local capacity building. Leveraging tools like non-reimbursable grants could de-risk investments, reduce financial burdens on partner countries, and further incentivize U.S. companies, advancing U.S. strategic and economic interests while preserving the MCC’s commitment to high standards and locally owned development.

The MCC should also address the inefficiencies stemming from the inherently distributed nature of procurement within individual Millennium Challenge Account (MCA) programs. Instead, the MCC should publish a consolidated business forecast for all MCA projects and house it prominently on its website to improve transparency and make opportunities more accessible, especially for American firms. Complementing procurement reform, the MCC should complete its transition to life-cycle cost analysis across its programs. This would move procurement beyond upfront pricing to consider the total cost of ownership, including maintenance, energy use, and long-term performance while avoiding short-term decisions that lead to unsustainable or low-quality infrastructure.

Lessons Learned for Broader International Development

Apolitical Compact with Local Buy-In and Cocreation

Rather than imposing predesigned U.S. programs, the MCC collaborates with partner countries from the outset to jointly identify development priorities, design interventions, and set measurable goals.

The MCC’s use of time-bound, apolitical compacts that are cocreated with partner governments offers a strong model for broader U.S. development efforts. These agreements are intentionally insulated from short-term political pressures, allowing development investments to remain focused on evidence-based priorities rather than shifting political agendas.

Cocreation fosters strong local ownership, ensuring that investments align with national priorities and address context-specific challenges. Positioning governments as active participants and not passive recipients makes them more likely to contribute their own resources and remain committed to implementation after U.S. involvement ends. As a result, the United States generates diplomatic leverage to directly counter the influence of China’s Belt and Road Initiative. This model offers a blueprint for other development agencies to develop projects embedded in local systems that will yield lasting impacts.

Intra- and Interagency Coordination with the DFC and Other U.S. Government Entities

Central coordination, posting, and reporting systems across agencies would increase transparency, efficiency, and private sector engagement. It is critical to include the DFC in the early stages of compact design and scoping to ensure alignment of strategic and investment priorities. This system would create a competitive market for development contracting by allowing local and international firms to see what projects are open for bidding through a centralized business forecast spanning the whole international development sector, including the Department of State, MCC, EXIM, DFC, and the Trade and Development Agency. This approach lowers barriers to entry and ensures greater predictability across projects, improving cost-effectiveness and reducing opportunities for opaque contracting practices.

Blended Finance

Blended finance—combining public, private, and philanthropic capital to fund development and stimulate investment—offers the potential to scale the MCC’s impact and attract private investment and philanthropy. However, blended finance has remained relatively niche, and efforts to scale it have fallen short because of the highly bespoke nature of blended finance transactions to date. Scale requires standardization, but what works for philanthropic actors, driven by mission and risk tolerance, rarely aligns with the needs of commercial investors, who operate with different timelines, risk thresholds, and expectations for returns.

The MCC and the U.S. government could make better use of blended finance by addressing several cultural, procedural, and partnership barriers. Culturally, the U.S. government is accustomed to being the rule-maker, not the rule-taker, when it comes to financing deals. This, combined with desired requirements from other donors and investors, has kept blended finance models bespoke and limited in scale. Achieving scale requires a move toward standardization. The U.S. government and MCC should leverage their convening power to bring interested parties together and set standards, aiming for a “HUD-1 for blended finance,” with standard terms applicable to multiple transactions.²

As an example, the MCC could play a convening and standardizing role in the use of concessional finance transactions, including zero-interest loans and reimbursable grants. Right now, multiple entities, including the DFC and the Organisation for Economic Cooperation and Development, have different rules on the use of these forms of concessional finance. The MCC could lead the charge, both within the U.S. government and with allied governments, to conduct a rapid review of the MCC’s own rules, the FAR, and related rules and regulations with foreign governments and large philanthropic donors to identify barriers and make appropriate recommendations. The MCC could also lead the charge in accelerating coordination with donor-advised funds (DAFs), a growing pool of philanthropic capital relatively untouched for blended finance.

The MCC should embrace a more flexible “parallel play” approach, where public and private entities operate alongside one another, each bringing their comparative advantage to a shared objective. By co-creating tailored financial solutions on a case-by-case basis, the MCC can better mobilize private capital without slowing deal-making or compromising its development mandate.

As the MCC evolves to look at how to counter China and other malign actors, it will increasingly need to take a regional view. The MCC should develop a systematic way of working with regional development banks at scale, as they rapidly add capacity without adding cost.

Prerequisites for Commercial Investment

Large-scale development projects, especially infrastructure with national security implications (e.g., an Arctic port requiring radar systems), or those that require having foundational infrastructure in place (e.g., roads, electricity, subsea cables, and other enablers) are often too risky and costly for commercial investors to handle alone. These investments require high upfront costs, long timelines for returns, or the inclusion of military assets, which includes incumbent added costs and political sensitivities that exceed typical private sector risk tolerance.

To make them viable, public subsidies, new financing models, or hybrid approaches with targeted risk-sharing are necessary to cover non-commercial costs. Public actors, such as governments and philanthropists, must step in early to de-risk these investments and create the necessary conditions to attract private sector capital. There may be some MCC and DFC projects with national security implications, and those should receive support to determine financial risks. However, a risk management approach needs to be in place to ensure commercial viability and sovereign financial prudence.
 

Conclusion

The Trump administration and Congress should work together to reform—not shutter—the MCC. The costs of closing it far outweigh the benefits.

Fundamentally, the MCC drives foreign investment, not foreign aid, and if implemented, these reforms will help it even more effectively provide good value for money. If, however, the administration chooses to shutter the agency, it should keep the best elements of the MCC model and transfer its compacts, agreements, contracts, and select qualified personnel to the DFC. This would enhance the U.S. government’s ability to deliver for the American people by retaining the MCC’s strengths—country ownership, performance-based and conditional funding, data-driven and transparent discipline, and apolitical delivery. But to stay effective, the MCC model must embrace calculated risks and better align with U.S. economic and geopolitical goals. This includes refining its approach to better engage private capital, work regionally, and deliver sustainable value to both partner countries and the United States while updating how it selects countries and measures impact. With targeted reforms and a renewed focus, the MCC model—regardless of whether applied at the MCC or DFC—can drive U.S. global leadership and offer valuable lessons for the broader development community.

The United States and the world are safer, stronger, and more prosperous with the MCC model than without it.

Daniel F. Runde is a senior vice president, director of the Project on Prosperity and Development, and holds the William A. Schreyer Chair in Global Analysis at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Richard Crespin is a senior associate (non-resident) with the Project on Prosperity and Development. James Mazzarella is a senior associate (non-resident) with the Project on Prosperity and Development.

This report is made possible by general support to CSIS. No direct sponsorship contributed to this report.

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