In Maputo, Mozambique, today, I met with senior officials to discuss the progress of the Millennium Challenge Corporation Compact that Mozambique signed with the United States last summer.

This five-year, $507 million agreement focuses on the neglected northern part of the country where I will visit later this week. The Compact will bring clean water to tens of thousands of people for the first time—making them less vulnerable to disease and more economically productive. MCC’s grant will also allow Mozambique to build new roads that link poor communities with markets. A land tenure component will help ensure that property rights are respected. Finally, the Compact seeks to eradicate a coconut disease that threatens one of northern Mozambique’s most valuable crops.

Last year, President Bush appointed me to the Board of Directors of the MCC, which was created by Congress in 2003 when I was Majority Leader of the United States Senate to reduce global poverty through economic growth. The MCC represents a fundamentally different way of giving American development aid to the world’s most deserving nations.

In the past, most of our aid money was, frankly, wasted. That’s because we didn’t pay attention to the quality of the government or how well it treated its people. That caused many Americans to grow skeptical about foreign aid. The late Senator Jesse Helms used to refer to foreign aid as a “rat-hole” because of all the waste and corruption!

We learned something from those failures. MCC only awards aid to countries that are accountable, both to their own people, and to the American taxpayers who ultimately provide the grants. There is no point at all in wasting your taxpayer dollars in countries with bad governments. But in well-governed countries, American generosity can produce transformational change in the daily lives of poor people.

The MCC method compares countries using 17 independent measurements of good governance, investment in the well-being of their citizens, and the promotion of free enterprise. Only the best are eligible to compete for an MCC grant.

MCC has allocated nearly $7.5 billion in public investments abroad since its founding. And with a lean staff of 300 people, the agency is one of the most efficient I’ve seen in Washington.

Today I met with Aiuba Cuereneia, the Minister for Planning and Economic Development. He is one of the Mozambique’s rising young leaders, and the country’s President has entrusted him with managing this important relationship with the United States. Minister Cuereneia led the team that designed the Compact. Now, as Chairman of the Board of the special agency Mozambique established to implement it, he is ultimately responsible for getting things done. In fact, he already has his eye on the next five-year Compact. And he knows that Mozambique’s eligibility depends on maintaining the country’s positive policy performance in governance, social investment, and economic freedom. That kind of national “ownership” of an aid project—coupled with powerful incentives to perform—is what produces lasting results. In my opinion, it’s what makes MCC better than any other method of giving large-scale foreign aid.

I drove outside of the city to visit a successful public-private partnership model for water distribution that Mozambique intends to replicate using MCC funds. FIPAG, Mozambique’s public water agency, partnered with Aguas de Moçambique, a Portuguese-Mozambican joint venture to manage the distribution network. The standpipe they installed now pipes clean water into a poor neighborhood for the first time.

Many crucial public services in developing countries cannot be delivered by public agencies alone. The involvement of the private sector is required, just as it is in the United States. Too often, development efforts assume that the poor do not benefit from private sector activity. In fact, around the world, private sector growth has been the single most powerful agent of permanent poverty reduction. MCC’s approach prioritizes economic growth and seeks to maximize the private sector impact of Compacts.

The MCC model can even produce change before any money is spent. We’re finding that governments are undertaking important reforms in an effort to qualify for MCC assistance—or to keep policy performance on track in order to qualify for a second five-year MCC Compact, as Minister Cuereneia said Mozambique would like to do.

This “MCC effect”, as we call it, makes MCC the biggest bargain in foreign aid.