INTERVIEW - U.S. seeks corporate help in aid to poor countries

WASHINGTON (Reuters) - The United States is making a new push for U.S. corporate investments in poor countries, hoping to rope in the private sector as a partner in overseas development, a senior U.S. official said on Friday.

Daniel Yohannes, the new chief executive of the government-funded Millennium Challenge Corporation (MCC), said bringing in the private sector was a key new goal for the innovative U.S. overseas aid program.

"We have to approach the private sector," Yohannes told Reuters in an interview at the headquarters of the MCC, which has approved some $7.5 billion in grants since it was set up by former President George W. Bush in 2004.

"We can be an entry to many of those businesses. It's win-win. American business can win, but it can also be a win for many of our partner countries."

Yohannes takes the reins at the MCC at a turning point in U.S. aid strategy, which the Obama administration has identified as a key plank of its foreign policy.

Widely seen as a promising new approach to development, the MCC rewards good behavior by selecting recipient countries based on commitment to good governance and economic policies, hoping to kick-start domestic growth to fight poverty.

Yohannes, an Ethiopian-born former senior bank executive, said results are encouraging. Agreements have been established with some 20 countries ranging from Benin to Vanuatu, with the bulk of financial assistance going to African countries.

After a visit to Ghana and Cape Verde -- two MCC partners praised for market-oriented reforms -- Yohannes said the MCC model of linking aid to governance was working.

"We work with countries that have taken ownership," Yohannes said. "We don't tell the countries how to invest it, where to invest it. We have no sector requirements. It's up to the country to come up with what they consider the major economic constraints."

INVESTMENT PRIORITIES

The MCC -- first envisioned with annual funding of up to $5 billion -- is adapting to tighter budgets at home. Congress approved $1.1 billion for 2010, and the Obama administration has asked for almost $1.3 billion for 2011.

Yohannes hopes to make up the gap by encouraging more U.S. companies to step in with new investments, particularly in Africa, where U.S. direct investment lags other competitors including China.

He said the MCC already has an agreement with General Electric to promote energy, water and other projects in MCC partner countries, and was approaching other potential partners including candy maker Mars Inc, pointing out cocoa investment possibilities in Ghana.

"We have roads now, we have ports, we're investing heavily in education, you've got farmers that are trained, so why wouldn't you take an opportunity?" he asked.

Other initiatives include helping Standard Bank make $110 million in loans to small farmers in four African countries and teaming up with global power company AES Corp on a rural electricity project in El Salvador.

U.S. business thus far has proven less than eager to pump big money into Africa, which could make the job difficult. But Yohannes said that in MCC pilot countries such as Benin, Tanzania and Lesotho the MCC was setting the groundwork for good investment opportunities.

"They all understand that the best way to do that is to bring in the private sector, which is the engine of growth, innovation and job creation," Yohannes said. "These are the perfect countries for American business to do well in."

Not all the MCC's forays into aid have produced the desired results, with political problems and corruption often seen as major hurdles for continued eligibility in the program.

The corporation has ceased or put on hold assistance to Madagascar, Honduras, Armenia and Niger due to political concerns. The MCC's decision last year to award Senegal $540 million has come under scrutiny due to the fact that the country's infrastructure minister is the son of the president.

Yohannes said the MCC thus far has seen nothing to imply anything was going wrong in Senegal, but pointed out that no money has been disbursed and said the MCC would be looking very carefully to ensure no funds are misused.

"If we find that they are not meeting their commitments then we've got a lot of options: to terminate, suspend, hold (assistance)," Yohannes said. "We've got safeguard after safeguard to make sure not a single dollar goes to corruption."

(Reporting by Andrew Quinn; editing by Patricia Wilson and Will Dunham)