WASHINGTON, USA (AFP) — The United States is to change the way it distributes overseas development aid, creating a new independent agency to administer part of the funds, administration officials announced early this week.

The agency, to be called the Millennium Challenge Corporation, will seek approval before Congress next February, when it will also be looking for budget finance authorisation for fiscal 2004, which comes in next October.

Its administrative board will be presided by the US secretary of state — currently Colin Powell — a source said, speaking on condition of anonymity.

The initiative follows the announcement by US president, George W Bush early this year of a 50 per cent increase in US overseas aid — up from US$10 billion to US$15 billion per year between 2004 and 2006.

The additional sum will be channelled into a separate fund managed by the agency.

“The pool of money will go to countries that put in place the right kind of policies and then … reward this decision,” the official said, as he outlined the project’s scope.

During a United Nations conference last March in Monterey, Mexico, Bush said the extra aid would be directly tied in with progress made by poor countries in governance and economic management.

“Many of the old models for economic development are now outdated,” Bush said at the time. “A bad framework for aid perpetuates poverty and corruption.”

The new agency will take its place beside the US Agency for International Development (USAID), and the Export-Import Bank (Ex-Im Bank) of the United States.

Beneficiary countries will have to meet a series of criteria, based on those already set out by the World Bank and private entities such as the conservative Heritage Foundation, the source said.

The move, according to officials, is to get developing countries to compete with each other to access the extra overseas aid made available by Washington.

“The first question we had to answer is ‘who is eligible to compete?’, ‘who gets to line up at the start?'” the official added.

In 2004, the fund’s first year, countries eligible are those classed as the world’s poorest under the World Bank’s International Development Association (IDA) guidelines for funding eligibility — some 79 of them in all.

In the second year, countries with the same annual revenues as those in the first case, but with a better financial situation can apply. A country such as The Philippines might be eligible in this category.

And in the third year — 2006 — nations considered as lower-middle income by the World Bank may apply.

A total of 16 indicators will be taken into consideration.

Six of the indicators reflect governance and the fight against corruption; four relate to investment in social capital, such as education and health.

The other six indicators reflect what US administration officials call “economic freedom” — including nations’ free trade inclinations.

“Countries will have to do well in the three areas,” the officials said, noting that they must “do better than average and better for at least half of the indicators”.

When asked how many countries are likely to satisfy requirements, US administration officials said they expect around 10 to benefit from the extra pool the first year.