Order Code RL32427
CRS Report for Congress
Received through the CRS Web
Millennium Challenge Account:
Implementation of a New
U.S. Foreign Aid Initiative
Updated June 30November 12, 2004
Larry Nowels
Specialist in Foreign Affairs
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress
Millennium Challenge Account: Implementation of a
New U.S. Foreign Aid Initiative
Summary
In a speech on March 14, 2002, President Bush outlined a proposal for a
major major
new U.S. foreign aid initiative. The program, referred to as the Millennium
Challenge Account (MCA), would beis managed by a new Millennium Challenge
Corporation Corporation
(MCC) and be availableprovides assistance, through a competitive selection process, to
developing nations that are pursing political and economic reforms in three areas:
ruling justly, investing in people, and fostering economic freedom. If fully
implemented, the initiative would represent one of the largest increases in foreign aid
spending in half a century, outpaced only by the Marshall Plan following World War
II and the Latin America-focused Alliance for Progress in the early 1960s.
The MCC differs in several respects from past and current U.S. aid practices:
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the size of the $5 billion commitment;
the competitive process that will reward countries for past actions
and
current actions measured by 16 objective performance indicators;
the pledge to segregate the funds from U.S. strategic foreign policy
objectives that often strongly influence where U.S. aid is spent; and
the requirement to solicit program proposals developed solely by
qualifying countries with broad-based civil society involvement.
For FY2004, theThe Administration sought $1.3 billion for the MCA’s first year,
a level reduced by Congress to $994 million. The FY2005 budget proposes $2.5
billion, with a commitment for a $5 billion program in FY2006 (FY2004), $2.5
billion for FY2005, and a stated commitment for a $5 billion program in FY2006.
Congress reduced the FY2004 appropriation to $994 million and bills passed by the
House and Senate (H.R. 4818) would cut the FY2005 funding package by more than
half: to $1.25 billion and $1.12 billion, respectively.
The passage of legislation on January 23, 2004 authorizing and funding the
the MCC for
FY2004 (Division D of P.L. 108-199) launched the start of the program
duringa period in which the new
Corporation formed, issued required reports, consulted with
Congress and the public, and selected on May 6 the first 16 eligible countries.
Continuing implementation matters that will unfold in the months ahead will include
the relationship of MCC programs with those operated by USAID, how the
and selected on May 6 and November 8 eligible countries for FY2004 and FY2005,
respectively. Other MCA implementation matters have been unfolding throughout
2004, including a discussion of the relationship of MCA programs with those
operated by USAID, how the Corporation and USAID will support near-miss or “threshold” countries better
prepare for future performance reviews, congressional budget decisions for FY2005,
and the selection of candidate countries for next year
“threshold” countries, and the funding of programs, or “compacts,” for those
qualified under the FY2004 selection process.
A growing question raised by some Members of Congress is whether sufficient
funds will be available to support MCC programs in every country selected,
especially if the Board also makes exceptions in the FY2005 selection process and
qualifies more countries than meet the strict criteria. A . A
March 2004 GAO report
estimated that the MCC could adequately fund 8-13
Compacts with an appropriation
of $3.5 billion (the combined FY2004 enacted and
FY2005 amounts). This suggests,
that even if Congress fully funds the pending
proposal, the Corporation will not be
able to support programs in all 16 countries
approved for FY2004 and those selected
for FY2005.
This report will be updated as events unfold.
Contents
MCC Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
MCC Implementation Steps and Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Establishing the Millennium Challenge Corporation . . . . . . . . . . . . . . . . . . 4
Naming FY2004 Candidate Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Publishing the Selection Criteria and Methodology . . . . . . . . . . . . . . . . . . . 4
Country Selection — FY2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Naming Candidate Countries — FY2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Country Selection — FY2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Continuity in the FY2005 Selection Round . . . . . . . . . . . . . . . . . . . . . . 9
Excluding More Countries that Qualified . . . . . . . . . . . . . . . . . . . . . . 10
MCA Compacts and Program Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . 712
“Threshold” Countries and U.S. Assistance . . . . . . . . . . . . . . . . . . . . . . . . . 813
Role of USAID and the Future of Agency Programs in MCA Countries . . . 814
Funding Issues and the FY2005 MCC Request . . . . . . . . . . . . . . . . . . . . . . . 914
List of Tables
Table 1. MCC Performance Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Table 2.
Table 2.
Table 3.
Table 4.
Table 5.
MCA Candidate, Eligible, and Threshold Countries — FY2004 . . . . 16
MCA Candidate, Eligible, and Threshold Countries — FY2005 . . . . 17
MCA Potential Candidate Countries — FY2006 . . . . . . . . . . . . . . . . . 18
MCC Performance Indicators for FY2005 . . . . . . . . . . . . . . . . . . . . . . 19
Comparison of MCA Authorization Legislation . . . . . . . . . . . . . . . . . 1220
Millennium Challenge Account:
Implementation of a New U.S. Foreign Aid
Initiative
In a speech on March 14, 2002, President Bush outlined a proposal for the
United States to increase foreign economic assistance beginning in FY2004 so that
by FY2006 American aid would be $5 billion higher than three years earlier. The
funds, referred to as the Millennium Challenge Account (MCA), would be managed
by a is managed by a
new Millennium Challenge Corporation (MCC) and be availableproviding assistance, through a
competitive selection process, to developing nations that are pursing political and
economic reforms in three areas:
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Ruling justly — promoting good governance, fighting corruption,
respecting human rights, and adhering to the rule of law.
Investing in people — providing adequate health care, education,
and other opportunities promoting an educated and healthy
population.
Fostering enterprise and entrepreneurship — promoting open
markets and sustainable budgets.
If fully implemented, the initiative would represent one of the largest increases in
foreign aid spending in half a century, outpaced only by the Marshall Plan following
World War II and the Latin America-focused Alliance for Progress in the early
1960s. It would also represent a fundamental change in the way the United States
invests and delivers economic assistance.
MCC Background1
The concept is based on the premise that economic development succeeds best
where it is linked to free market economic and democratic principles and policies,
and where governments are committed to implementing reform measures in order to
achieve such goals. Conditioning assistance on policy performance and
accountability by recipient nations is not new to U.S. aid programs. Since the late
1980s at least, portions of American development assistance have been allocated to
some degree on a performance-based system. Nevertheless, the MCC differs in
several fundamental respects from past and current U.S. aid practices:
1The MCC differs in several fundamental respects from past and
current U.S. aid practices:
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1
the size of the $5 billion commitment;
the competitive process that will reward countries for past actions
measured by 16 objective performance indicators;
For a more in-depth discussion of the original MCA proposal and issues debated by
Congress in 2003, see CRS Report RL31687, The Millennium Challenge Account:
Congressional Consideration of a New Foreign Aid Initiative.
CRS-2
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the size of the $5 billion commitment;
the competitive process that will reward countries for past actions
measured by 16 objective performance indicators;
the
the pledge to segregate the funds from U.S. strategic foreign policy
objectives that often strongly influence where U.S. aid is spent; and
the requirement to solicit program proposals developed solely by
qualifying countries with broad-based civil society involvement.
The new initiative, which Congress authorized in January 2004 (Division D of
P.L. 108-199),2 would phase in over a three-year period, beginning in FY2004.
During the first year, MCC participation iswas limited to the 74 poorest nations with
per capita incomes below $1,415 and that are that are
eligible to borrow from the World
Bank’s International Development Association
and have per capita incomes below $1,435. The list will expand. The list expanded in FY2005 to
include all countries with a per capita income below $1,435465 (adding another 13
nations). Beginning in FY2006 and beyond, all lower-middle income countries with
per capita incomes below $2,975roughly $3,035 may compete for MCC resources.
Country selection is based largely, but not exclusively, on the nation’s record
measured by 16 performance indicators related to the three categories of good
governance, economic freedom, and investing in people. Countries that score above
the median on half of the indicators in each of the three areas qualify. Emphasizing
the importance of fighting corruption, however, the indicator for corruption is a “pass/fail” test:
should a country fall below the
median on the corruption indicator, it will be
disqualified from consideration unless
other, more recent trends suggest otherwise.
(See Table 1 below for a complete list
of the 16 performance indicators.)
Administration officials, since announcing the
MCC initiative in 2002, have said that the
selection process would be guided by, but
not necessarily bound to the outcomes of
the performance indicators. Missing or old
data, general trends, and recent steps
taken by governments might also be taken into
account when annual decisions are
made.
Eligibility to receive MCA assistance, however, does not necessarily result in
an aid grant. Once selected, countries are required to submit program proposals —
referred to as MCA Compacts — that have been developed through a broad-based,
national discussion that includes input from civil society. The focus of program
submissions may vary among countries in size, purpose, and degree of specificity,
and will be evaluated by the Corporation for, among other things, how well the
Compact supports a nation’s economic growth and poverty reduction goals. Only
those Compacts that meet the MCC criteria will be funded. It is expected that
successful Compacts will support programs lasting three to five years, providing a
level of resources roughly equivalent to the largest providers of assistance in the
country. This will most likely result in a significant increase of U.S. economic
assistance to MCA participant countries.
To manage the new initiative, the Administration proposed and the Congress
authorized the creation of a Millennium Challenge Corporation (MCC), an
independent government entity separate from the Departments of State and the
Treasury and from the U.S. Agency for International Development (USAID). The
2
Table 2, found at the end of this report, provides a summary of major MCA issues and
compares positions approved by the House, Senate, and Conference Committee during the
2003 debate.
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independent government entity separate from the Departments of State and the
Treasury and from the U.S. Agency for International Development (USAID). The
MCC plans for an eventual staff of about 200, drawn from various government
agencies, non-governmental organizations, and the private sector, and led by a CEO
confirmed by the Senate. A Board of Directors, chaired by the Secretary of State and
composed of the Secretary of the Treasury, the USAID Administrator, the U.S. Trade
Representative, and the Corporation’s CEO, oversees operations of the MCC and
makes the country selections. Four additional Board members, yet to be confirmed
by the Senate, will be drawn from lists submitted by Congressional leaders.3
The decision to house the MCA in a new organization was one of the most
debated issues during early congressional deliberations of the President’s foreign aid
initiative. The Administration argued that because the MCA represents a new
concept in aid delivery, it should have a “fresh” organizational structure,
unencumbered by bureaucratic authorities and regulations that would interfere in
effective management. Critics, however, contended that if the MCA is placed
outside the formal U.S. government foreign aid structure, it would lead to further
fragmentation of policy development and consistency. Some believed that USAID,
the principal U.S. aid agency, should manage the MCA, while others said that the
MCA should reside in the State Department where more U.S. foreign policy entities
have been integrated in recent years. At least, some argued, the USAID
Administrator should be a member of the MCC Board, which had not been proposed
in the initial Administration request.
For FY2004, the Administration sought $1.3 billion for the MCA’s first year,
a level reduced by Congress to $994 million. The FY2005 budget proposes $2.5
billion, with a commitment for a $5 billion program in FY2006. Pending House- and
Senate-passed appropriation bills (H.R. 4818) recommend reducing the FY2005
funding level to $1.25 billion and $1.12 billion, respectively.
MCC Implementation Steps and Issues
The passage of legislation on January 23, 2004 authorizing and funding the
MCC for FY2004 (Division D of P.L. 108-199) launched a period of at least 90 days
during which the new Corporation would form, issue required reports, consult with
Congress and the public, and select first year participant countries. Within 10 days
of enactment, the Board of Directors held its initial meeting to establish the program,
and over the following weeks the Corporation identified “candidate” countries for
FY2004, published the criteria and methodology to be used for country selection,
solicited public comments, issued guidelines for Compact proposals, and, on May 6,
2004, selected 16 countries to participate in the MCA’s first year of operations.
Continuing implementation matters that will unfold in the months ahead will include
the relationship of MCC programs with those operated by USAID, how the
Corporation and USAID will support near-miss or “threshold” countries to better
3
On June 8, 2004, President Bush nominated This
was followed on November 10 with the selection of FY2005 eligible MCA countries,
an action that added one new participant to the FY2004 list. An additional 13
countries have also been named as threshold nations — those that just missed
qualifying as eligible countries. Continuing implementation matters that will unfold
3
On July 13, 2004, the Senate confirmed two of the four new Board members: Kenneth
Hackett, President and CEO of Catholic Relief Services, and Christine Todd Whitman,
former Governor of New Jersey and former head of the Environmental Protection Agency,
2001-2003.
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No further nominees have been submitted by the White House.
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in the months ahead will include the relationship of MCC programs with those
operated by USAID, how the Corporation and USAID will support threshold
countries to better prepare for future performance reviews, congressional budget
decisions for FY2005,
and the selection of candidate countries for next yearawarding of MCA grants — in the form of Compacts
— to MCA eligible countries.
Establishing the Millennium Challenge Corporation
On February 2, 2004, the Board of Directors met, agreed to Corporation bylaws, and approved Under-Secretary of State Larson as the interim CEO.
Subsequently, the President nominated Paul Applegarth to be the permanent MCC
CEO, an individual confirmed by the Senate on May 5. Mr.CEO Applegarth has held
various international and development positions over the past 30 years, primarily in
the private sector. Most recently, he was the Managing Director of Emerging
Markets Partnership, serving as the COO of Emerging Africa Infrastructure Fund in
2002.
Naming FY2004 Candidate Countries
Also on February 2, the MCC Board issued a list of 63 “candidate” countries
that would be reviewed for possible selection as MCA participants in FY2004. These
countries, according to authorizing legislation, must be eligible for assistance from
the World Bank’s International Development Association, have a per capita income
of $1,415 or less, and not be otherwise ineligible to receive U.S. assistance. The
latter condition eliminated twelve countries — Burma, Burundi, Cambodia, Central
African Republic, Cote d’Ivoire, Guinea-Bissau, Liberia, Serbia, Somalia, Sudan,
Uzbekistan, and Zimbabwe — that were statutorily barred from receiving American
aid.4
Publishing the Selection Criteria and Methodology
Pursuant to reporting requirements set in the MCC legislation, the Corporation
on March 5, 2004 sent to Congress an overview of the criteria and methodology that
would be used to determine the eligibility of the 63 candidate countries in FY2004.
The report suggested that there would be relatively few and only minor changes to
the criteria and methodology that had been outlined 15 months earlier. The same 16
performance indicators, as listed in Table 1 below, would be utilized. In a few cases,
data sources shifted from international institutions to national governments. This
was especially true in cases where existing data for an indicator were old or
incomplete.
4
Various types of aid restrictions applyapplied to these countries. For several — Burundi, Central
Central African Republic, Cote d’Ivoire, Guinea-Bissau, and Sudan — U.S. aid iswas blocked because
because an elected head of government hashad been deposed by a military coup. For Cambodia and
Uzbekistan current legislation bars
and Uzbekistan, legislation banned FY2004 assistance to the central Governmentgovernments of these
countries. Aid restrictions
imposed on countriesnations not cooperating in counter-narcotics efforts
(Burma), that are on the
terrorist list (Sudan), or in arrears on debt owed the United States
(Liberia, Somalia, and
Zimbabwe) also applyapplied. Serbia cannotcould not receive aid untilin FY2004
unless the President issuesissued a determination
stating, among other things, that government isthe government
was cooperating with the International Criminal
Tribunal. Notwithstanding these
restrictions, each country may still receiveremained eligible for humanitarian
assistance from the United States.
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States.
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data sources shifted from international institutions to national governments. This
was especially true in cases where existing data for an indicator were old or
incomplete.
Although the Corporation did not alter any of the original 16 performance
indicators, it attempted to address additional criteria added by Congress in P.L. 108199 through the use of supplemental data and qualitative information. While the
legislative authorities broadly match criteria proposed by the Administration,
lawmakers included four additional matters on which to evaluate a country’s
performance. These relate to the degree to which a country:
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recognizes the rights of people with disabilities;
supports a sustainable management of natural resources;
respects worker rights; and
makes social investments, especially in women and girls.
For an evaluation of the rights of people with disabilities, the MCC reported that it
willwould draw on information in the State Department’s annual Human Rights Report,
which includes a discussion of discrimination based on disability. Regarding natural
resource management, the Corporation willwould also use the Human Rights Report as
supplemental information on such issues as access to sanitation, deforestation,
conservation of land and marine resources, land tenure institutions, and protection
of threatened and endangered species. The State Department’s Human Rights Report
willwould also be used for additional information regarding worker rights, while statistics
statistics on girl’s primary enrollment rates willwould supplement the four social investment
investment performance indicators.
The MCC also noted that it would use the most recent release (October 2003)
of Transparency International’s Corruption Perception Index to update and
supplement the World Bank’s survey data on which corruption performance indicator
is based. This was necessary because the World Bank information was last published
in March 2003 and is not expected to be revised this year. Since the corruption
indicator is a “pass/fail” measure, the quality
and timeliness of the data isare especially
important.
Given the range and diversity of suggestions offered throughout the public and
congressional debate of the MCC, many observers arewere surprised that the Corporation
Corporation did not propose more substantive changes to the criteria and
methodology. Some
have questioned how seriously the Administration considered
alternative approaches
and whether the Corporation would be open to future
revisions.5 During the public
comment period and at congressional oversight
hearings, some have suggested that
existing data sources needneeded to be refined or new
surveys created in order to
specifically measure a country’s commitment on the four criteria added by Congress.
Country Selection
On May 6, the MCC Board of Directors determined that 16 countries would be
eligible for MCA funding FY2004 and invited each to submit program proposals:
criteria added by Congress.
After further study of the criteria and methodology, the Corporation announced
on August 26, 2004, a revised set of performance indicators that will be used for the
5
See, for example, Steve Radelet, et al., A Comment on the Millennium Challenge Account
Selection Process, Center for Global Development, March 9, 2004.
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FY2005 selection process. The MCC will lower the inflation rate threshold from
20% to 15%, making it somewhat more difficult to pass this test (only 6 of the 63
candidate countries failed this test for FY2004). An indicator measuring girls’
primary education completion rates will replace a broader measure used in FY2004
that did not disaggregate primary education graduation by gender. As noted above,
including the means to measure country performance on key women and girls issues
is one of the requirements added by Congress during deliberation on MCC
authorizing legislation.
The Corporation further indicated that it will explore additional criteria and
methodology changes for FY2006. Under consideration are options to:
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lower the inflation level to 10%.
identify a measurement related to natural resource management; the
MCC has created a working group to study possibilities.
review other possible indicators that would better measure trade
barriers that are linked with economic growth.
develop a more comprehensive indicator than the current Days to
Start a Business to gauge a government’s commitment to
entrepreneurship and private-sector ownership.
consider additional gender-relation indicators.
Country Selection — FY2004
On May 6, the MCC Board of Directors determined that 16 countries would be
eligible for FY2004 MCA funding and invited each to submit program proposals:
Armenia
Benin
Bolivia
Cape Verde
Georgia
Ghana
Honduras
Lesotho
Madagascar
Mali
Mongolia
Mozambique
Nicaragua
Senegal
Sri Lanka
Vanuatu
As expected, the selection process has raised a number of questions and concerns.
The The
Administration had previously said that the Board would be guided by, but not
entirely bound to, the outcome of the performance indicator review process; that
Board members could apply discretion in their selection. Performance trends,
missing or old data, and recent policy actions might come into play during selection
deliberations, officials noted.
The final selection reflectsreflected decisions that both strictly follow the performance
followed the
performance indicator outcomes and applyapplied Board discretion to take into account
other factors.
Ten of the countries complycomplied with the stated criteria: performing
above the median in
relation to their peers on at least half of the indicators in each
of the three policy
clusters and performing above the median on corruption. The
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Board also examined
whether a country performed substantially below average on
any single indicator and
whether their selection was supported by supplemental
information. Each of the ten
countries also passed these additional tests.
For ten other countries, however, some discretion was applied by the Board. In
three cases, countries which met the criteria but fell significantly below average on
one indicator were still selected by the Board due to recent policy changes or positive
trend lines. Cape Verde, for example, scored poorly on the Trade Policy indicator,
but the Board took into account the country’s progress towards joining the World
Trade ProgramOrganization and implementing a value added tax that will reduce reliance on
import tariffs. Lesotho did not score well on the measurement for days to start a
businessDays to Start a
Business. The MCC Board, however, took note of Lesotho’s creation of a central
office to facilitate new business formation and saw positive performance on other
factors related to business start-ups. Sri Lanka scored far below the median on fiscal
policyFiscal
Policy, but the most recent trends suggestsuggested that the government iswas making
progress in
reducing its budget deficit.
For three other countries — Bolivia, Georgia, and Mozambique — the Board
deviated from a strict application of the selection criteria because of evidence that the
governments were taking corrective actions in the deficient areas. Bolivia fell at the
median (as opposed to above the median) on the corruption indicator, something that
would eliminate it from consideration. The Board, however, noted that President
Mesa, who took office in October 2003, hashad created a cabinet position to coordinate
anti-corruption activities and an office to investigate police corruption. Georgia, with
a newly elected government that hashad created an anti-corruption bureau and taken
other steps to fight corruption, was also selected despite scoring below the median
on corruption and three other “ruling justly” indicators. Mozambique, which failed
on corruption and each of the four “investing in people” indicators, was chosen based
on supplemental data that iswas more current than information available from the
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primary data sources. This evidence, the Board felt, demonstrated Mozambique’s
commitment to fighting corruption and improving its performance on health and
education.
On the other hand, the MCC Board chose not to select four countries that
technically met the performance criteria but fell substantially below the median on
one or more indicator. In each of these cases, the Board did not believe that the
government was taking any action to improve its performance. Although Bhutan,
Mauritania, and Vietnam passed the corruption hurdle and half of the “ruling justly”
indicators, they scored very low on the measurements for Political Rights and Civil
Liberties, and in Vietnam’s case, on the Voice and Accountability indicator. A fourth
country — Guyana — was also not selected despite passing the necessary hurdles.
It scored particularly low on the Fiscal Policy measurement.6
It has been long assumed by MCC officials and close observers of the MCA
initiative that when the country selections were announced, there would be
6
For a complete statement regarding the Board’s rationale, see Report on the Selection of
MCA Eligible Countries for FY2004, found at [http://www.mcc.gov], “Congressional
Reports.”
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disagreements and possible surprises in the final list, especially if the Board exercised
its discretionary authority as it has donedid for FY2004 participants. Representative
Lowey,
for example, expressed her view at a May 13 House Appropriations
Committee Committee
hearing that East Timor, which failsfailed to pass the “economic freedom”
hurdle in part
due to missing data on two of the indicators, should have been selected.
CEO CEO
Applegarth responded that East Timor is a new nation and that it iswas premature
to to
conclude that it was a “high-performing” country. He acknowledged, however,
that that
East Timor should be given close consideration in the future if the current trend
lines lines
continue.
Besides East Timor, some have suggested that Kenya should have been included
because of its new government’s commitment to education and anti-corruption
efforts. USAID Administrator Natsios acknowledged at the May 13 hearing that
Albania was
a “close call,” failing because it scoresscored slightly below the median on
corruption. Like
Albania, Malawi and Moldova would qualifyhave qualified on the basis
of performance if not for
slightly failing scores on corruption. Several small island
states, including Kiribati,
Sao Tome, and Tonga, were not selected even though the
absence of data for several
categories may have played a role.7
Despite these questions over specific country eligibility, the selection process
appearsappeared to have satisfied two major concerns that have been consistently expressed
over the past year. Based on earlier analysis, some argued that Africa would be
under-represented in the final selection process, with perhaps as few as three regional
states participating. In fact, eight, or half of the first year qualifying nations are from
Africa.
Selection of countries that would give the appearance of geostrategic
considerations was aan additional concern of many who view the absence of security-related
securityrelated factors from MCA decision-making as one of the most attractive features of the
initiative.
the initiative. For the most past, the Board appears to have avoided this concern.
Had the Board used its discretionary powers to select Indonesia, for
example, some
critics would have likely charged that the decision stemmed more
from Jakarta’s role
in the war on terrorism than on strict policy performance.
Indonesia passed all
necessary hurdles except for corruption.
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MCA Compacts and Program Proposals
The next step for the 16 qualified countries is the preparation and negotiation
with the MCC of program proposals, referred to as MCA Compacts. Only those
Compacts that demonstrate a strong relationship between the program proposal and
economic growth and poverty reduction will receive funding. It is anticipated that
not all 16 Some, nevertheless, have questioned
whether Georgia’s selection was driven by broad U.S. foreign policy objectives of
assisting a smooth political transition in the country rather than a choice based on
performance.8 Likewise, Bolivia, a country in which the United States maintains
strong counter-narcotics goals, had been experiencing a period of instability despite
strong performance prior to October 2003. Both Georgia and Bolivia were selected
despite not strictly meeting the MCA performance criteria.
7
As noted below, East Timor, Albania, and Sao Tome were subsequently selected as three
of the seven “threshold” countries that will receive assistance to help the country meet the
MCA requirements.
8
See Steve Radelet, A Note on the MCC Selection Process for 2005, September 23, 2004,
found at [http://www.cgdev.org].
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Naming Candidate Countries — FY2005
On July 20, 2004, the MCC Board of Directors launched the initial step in the
FY2005 selection process by naming 70 candidate countries, 7 more than were
reviewed for FY2004. After adjusting the per capita income upward to $1,4659 and
dropping the requirement that a country must be an IDA-eligible borrower from the
World Bank, 11 new countries are added to the list: China, Egypt, Equatorial Guinea,
Iraq, Morocco, Paraguay, Philippines, Swaziland, Turkmenistan, Tuvalu, and
Ukraine. Four countries fall off the FY2005 list that had qualified in FY2004 —
Albania, Bosnia and Herzegovina, Cape Verde, and Tonga — because their per
capita income grew beyond the $1,465 cutoff. Thirteen other nations were excluded
because they are ineligible for other U.S. economic assistance.10
Country Selection — FY2005
Meeting on November 8, the MCC Board of Directors made its selection of
FY2005 eligible countries:
Armenia
Benin
Bolivia
Georgia
Ghana
Honduras
Lesotho
Madagascar
Mali
Mongolia
Morocco
Mozambique
Nicaragua
Senegal
Sri Lanka
Vanuatu
The Board chose one new country for FY2005 — Morocco — while 15 of the 16
nations included for FY2004 were determined eligible again for FY2005. Cape
Verde was not selected due to the fact that its per capita GNI exceeded the $1,465
ceiling. Cape Verde, however, remains eligible for MCA support using FY2004
funds. Board selections represent both a high degree of continuity between FY2004
decisions as well as a sharp difference in the degree to which it applied its
discretionary authority for qualifying or denying countries for FY2005.
Continuity in the FY2005 Selection Round. The fact that each country
(except Cape Verde) selected for FY2004 MCA participation was also declared
9
The MCC plans to adjust the per capita income threshold each year to correspond to the
per capita income cutoff of the “historic ceiling” of IDA lending, a calculation made by the
World Bank. In future years when all lower-middle income countries will be eligible to
compete, the MCC also will adjust that threshold — which grew from $2,975 in 2003 to
$3,035 in 2004 — in the consideration of determining candidate countries.
10
Eleven of these countries were also excluded in FY2004. Serbia, which was barred from
consideration for FY2004, exceeds the per capita income limit for FY2005 so is not under
consideration. Syria and Cuba, which became potential candidate countries beginning in
FY2005, are excluded because of a ban on direct aid to the country. See Footnote 4, above,
for a complete list of countries and aid restrictions.
CRS-10
eligible for FY2005 should not be surprising, given the nature of the MCA concept.
The Board identified in May 2004 what it determined to be the 16 “best performers”
based on the assumption that these countries had, and would continue to express, a
strong commitment to the types of economic, governance, and social policy reforms
measured by the MCC. Absent a substantial negative development since May, there
was a presumed expectation that these same countries would score well in a
subsequent performance comparison with their income peers. Moreover, except in
some extreme situations, evidence of a slide in policy performance as measured
through the various data sources would likely lag behind the actual policy shift and
not be reflected in the immediate data updates.
In addition, two other factors that may not apply in future years seem to have
affected the outcome for FY2005. First, with the selection dates for FY2004 and
FY2005 coming only six months apart — rather than one year, as should be the case
in the future — it was likely that the data would indicate less change than might be
the case if the comparisons occurred over a longer period. Between May and
November, several of the data sources upon which the 16 performance indicators are
based did not update or revise their figures.11 As a result, the review of countries for
FY2005 was based on much of the same data and rankings as had been the case for
the FY2004 selection.
Moreover, the addition of 13 new countries for consideration in the FY2005
round had the effect for at least six of the indicators of lowering the median against
which countries were compared. Because of this, if a country scored well — above
the median — in the FY2004 selection decision, it was likely that it would score the
same or better in the review for FY2005 where medians declined. For example, in
May Bolivia fell exactly at the median on the corruption indicator. But in November,
when the median for corruption dropped somewhat after new countries were added,
Bolivia scored above the median even though Bolivia’s score on corruption did not
change. This phenomena is unlikely to be repeated again to the same extent since
countries in the low-income group will be added or subtracted only if their economy
grows beyond the per capita income ceiling or U.S. foreign aid sanctions are applied
or lifted since the last review. The net effect is that the core set of low-income
countries competing for MCA selection is unlikely to change as much as it did in
FY2005, thereby reducing the extent to which the median will be altered simply
because of the addition of new countries.
Excluding More Countries that Qualified. Despite the degree of
continuity between FY2004 and FY2005 in the selection of eligible countries, the
MCC Board departed somewhat from the previous round by not selecting a large
number of countries that technically met the MCA performance criteria. Many
11
This is not true for the performance indicators of Inflation and Primary Girls Graduation
Rate, which were modified for the FY2005 selection, or for the indicators measuring Days
to Start a Business, Civil Liberties, and Political Freedom which were updated in 2004. For
some of the other economic and social investment indicators where data were drawn from
national sources, revised figures were used in the FY2005 selection, but only where
available. World Bank data for six governance-related indicators and the Trade Policy
measurement, however, were not revised between May and November 2004.
CRS-11
observers may raise questions over the FY2005 selections regarding the countries
that were not selected rather than those that were.
As noted above, in May 2004, the Board chose not to select four countries —
Bhutan, Guyana, Mauritania, and Vietnam — although each passed the minimum
number of indicators. The Board decided to exclude these four because they scored
“substantially below” the median on one or more measurements, although without
defining precisely what represented a mark “substantially below”the median.
For FY2005, the Board did not select 10 countries that met the criteria,
including three of the four left out of the FY2004 round (Mauritania did not meet the
minimum qualifications). In addition, for FY2005 Burkina Faso, China, Djibouti,
Egypt, Nepal, the Philippines, and Swaziland met the minmium standards but were
not selected. Thus far, the Corporation has offered little explanation as to why these
countries were not chosen.12 It appears, however, that scoring “substantially below”
— perhaps in the lowest 25th percentile — has become a de-facto criteria for
exclusion. For example, the Corporation’s CEO Paul Applegarth commented that
the Philippines, a country that passed 13 of the 16 indicators, did not qualify because
Manilla scored “substantially below” the median on tests for health expenditures and
fiscal policy, and that more recent trends indicated the fiscal policy situation was
deteriorating further.13 Each of the other nine nations that met the minimum
qualifications but were not selected also had one score in the 25th percentile, although
the Corporation has not commented on whether this was the reason for not choosing
them.
Another possible reason for limiting the number of qualifying countries in the
FY2005 round might be due to anticipated funding reductions. The Administration
had requested combined FY2004/FY2005 appropriations of $3.8 billion, but may
have available 25%-30% less, depending on the outcome of congressional debate on
the FY2005 budget. Corporation officials have said that reduced funding would lead
to fewer countries assisted and/or smaller grants per country, a situation that would
be complicated further by qualifying additional nations.
Instead, the Board of Directors invited three of these 10 countries to participate
in the Threshold Program, intended to help “near-miss” nations take steps to
strengthen areas that would help them qualify for full MCA assistance in the future.
Burkina Faso, Guyana, and the Philippines may now apply for Threshold Program
assistance.
Another Board departure in the FY2005 selection process was to avoid using its
discretionary authority to qualify countries that did not meet the minimum
12
The MCC’s authorizing legislation (section 608(d)) requires the Corporation’s CEO to
provide justification to Congress regarding only those countries declared as eligible for
MCA assistance and for those selected for Compact negotiation. Otherwise, there is no
statutory requirement for the MCC to comment on its decision-making process, including
the rationale for not selecting specific countries.
13
Comments by Paul Applegarth at a State Department Foreign Press Center Briefing,
November 9, 2004.
CRS-12
performance indicators. In May, the Board chose three nations — Bolivia, Georgia,
and Mozambique — that did not pass the so-called “hard-hurdle” of corruption. The
latter two again qualified despite falling below the median on corruption, while
Bolivia did not require an exemption after the median dropped below its score with
the addition of new countries. For FY2005, five nations — Malawi, Moldova,
Paraguay, Tanzania, and Ukraine — passed the required number of performance
indicators, except corruption. Although Malawi, Paraguay, and Tanzania are
Threshold Countries, none of the five were chosen for full MCA status.
MCA Compacts and Program Proposals
The next step for qualified countries is the preparation and negotiation with the
MCC of program proposals, referred to as MCA Compacts. Only those Compacts
that demonstrate a strong relationship between the program proposal and economic
growth and poverty reduction will receive funding. It is anticipated that not all
qualified MCA countries will submit successful Compacts.
While acknowledging that Compact contents likely will vary, the Corporation
expects each to discuss certain matters:
!
!
!
!
!
!
!
a country’s strategy for economic growth and poverty reduction,
impediments to the strategy, how MCA aid will overcome the
impediments, and the goals expected to be achieved during
implementation of the Compact.;
why the proposed program is a high priority for economic
development and poverty reduction and why it will succeed; the
process through which a public/private dialogue took place in
developing the proposal;
how the program will be managed, monitored, and sustained after
the Compact expires;
the relationship of other donor activities in the priority area;
examples of projects, where appropriate;
a multi-year financial plan; and
a country’s commitment to future progress on MCA performance
indicators.
The Corporation hasdid not set hard deadlines for Compact submissions in order to
allow a country
to allow countries adequate time to conduct a national dialogue over the contents of the
the program proposal. However, some Compacts are expected in the coming weeks.As of November 8, the MCC had received proposals and
“concept papers” from 14 of the 16 FY2004 eligible countries, and begun the next
phase — negotiating formal Compacts — with four countries: Georgia, Honduras,
Madagascar, and Nicaragua. The Corporation anticipates signing one or two
Compacts by the end of 2004.14
14
Ibid.
CRS-13
“Threshold” Countries and U.S. Assistance
In order to encourage non-qualifying countries to improve in weak areas,
Administration officials have said that the U.S. would help governments committed
to reform strengthen the
United States will help governments that are committed to reform to strengthen
performance so that they would be more competitive for MCA
funding in future
years. Congress provided in authorizing legislation that not more
than 10% of MCA
appropriations ($99.4 million in FY2004) could be used for such
purposes, stating
that the funding could be made available through USAID. The
MCC has set aside up to
$40 million for countries that just missed qualifying for
FY2004 funding, although these specific threshold countries have not been named.
Officials say that the Corporation and USAID will design a joint strategy for
assistance and notify Congress as the effort develops. In related legislation, the
House International Relations Committee is considering a bill, H.R. 4660, that would
extend the authority to assist threshold countries in FY2005.
CRS-9 FY2004 funding and will
announce an amount for FY2005 following enactment of new appropriations.15
The Corporation has made two announcements regarding the selection of
Threshold Countries. On September 30, the Corporation named seven participants:
Albania, East Timor, Kenya, Sao Tome and Principe, Tanzania, Uganda, and Yemen.
Five weeks later, on November 8, the MCC added six more nations for FY2005:
Burkina Faso, Guyana, Malawi, Paraguay, the Philippines, and Zambia. According
to the Threshold Program Policy guidance issued by the Corporation,16 the program
will assist countries make policy reforms and institutional changes in areas where
they failed to meet the MCA performance criteria. In order to qualify for Threshold
Program FY2004 assistance, countries must submit by January 31, 2005, concept
papers identifying:
!
where and why the country failed to pass specific indicators;
!
proposals for policy, regulatory, or institutional reforms that would
improve the country’s performance on these indicators; and
!
types of assistance, over a two-year maximum period, required to
implement these reforms.
If the Corporation, in consultation with USAID, determines that the concept paper
shows sufficient commitment to reform and a promise of success, the country will
prepare a Threshold Country Plan that specifically establishes a program schedule,
the means to measure progress, and financing requirements, among other
considerations. USAID is charged with overseeing the implementation of Threshold
Country Plans, including working with countries to identify appropriate
implementing partners such as local, U.S., and international firms; NGOs; U.S.
government agencies; and international organizations. Like regular MCA Compacts,
funding is not guaranteed for each country selected for the Threshold Program, but
will be based on the quality of the Country Plan.
15
Initially, assistance for Threshold countries was authorized only for FY2004. Section 119
of P.L. 108-309, the Continuing Resolution for FY2005 signed on September 28, extends
such authority through November 20, 2004, the day on which the resolution expires.
16
Found at [http://www.MCC.gov].
CRS-14
Role of USAID and the Future of Agency Programs in MCA
Countries
As noted above, how USAID would participate in the MCA initiative has been
a continuing concern of Congress and various policy analysts. Legislation
authorizing the MCC requires the Corporation’s CEO to coordinate with USAID and
directs the Agency to ensure that its programs play a primary role in helping
candidate countries prepare for MCA consideration. Corporation and USAID
officials have said there will be close collaboration between the two entities, although
the precise nature of the relationship has yet to be made public. USAID maintains
missions in 1314 of the 1617 eligible countries and which might be expected to support
MCC MCC
programs, through contracting, procurement, and monitoring tasks.
Another question is how USAID will adjust its own programs in MCA
countries, especially where the Agency maintains relatively small activities in
relation to other donors. Since the goal is to provide resources that will make MCA
programs among the largest aid operations in a country, it is likely that USAID
spending will fall well below amounts provided through MCC Compacts. For
example, in Mongolia, where U.S. aid programs have totaled $10-$12 million
annually in recent years, the United States was the fourth largest bilateral donor in
2002, representing less than a quarter of the size of Japan’s economic aid
disbursements. In Ghana, Senegal, and Sri Lanka, USAID maintains larger programs
but spends far less than other countries and multilateral agencies.
Like other issues involving USAID, this question remains under review.
USAID Administrator Natsios told the House Appropriations Committee on May 9,
2004 that the Agency would not withdraw from or cut programs in MCA countries,
but would not increase spending either. He said, however, that USAID would work
to ensure that its programs operate in an integrated way with MCA-funded activities.
Funding Issues and the FY2005 MCC Request
As mentioned above, Congress appropriated $994 million for FY2004 MCC
programs and is considering a $2.5 billion request for FY2005. This is by far the
largest increase sought by the Administration in the Foreign Operations
appropriations proposal and viewed by many observers as one of the most vulnerable
items in an increasingly difficult budget environment. In earlier congressional action,
House and Senate Budget Committees (H.Con.Res. 393 and S.Con.Res. 95)
recommended reductions in international affairs spending, suggesting that much of
the proposed cuts could be achieved by trimming back the MCC request. Legislation
authorizing appropriations for the MCC reported by the Senate Foreign Relations
Committee (S. 2144) would reduce the level to $2 billion.
On June 23, the House Foreign Operations Appropriations Subcommittee
marked up its draft FY2005 spending bill, approving $1.25 billion for the MCC.
This is half the amount the President seeks but 25% higher than approved for
FY2004. Moreover, the Subcommittee’s draft recommendation includes a provision
that would require the Corporation to fully fund the anticipated three-to-five year
Compacts in the year they are signed. Rather than drawing on funds over time in
CRS-10
several appropriation acts to finance these multi-year arrangements, this provision
might have the affect of reducing the number of programs the MCC could support
in FY2004 and FY2005 due to the reduced funding levelsForeign Operations appropriation bills passed in both the House and Senate
(H.R. 4818) make substantial reductions to the President’s MCC request for FY2005.
The bill, as approved by the House, reduces by half the President’s $2.5 billion
proposal. In cutting the MCC proposal, the House Appropriations Committee noted
that its decision resulted solely from the constrained budget environment in FY2005
and the need to address other Administration and Congressional priorities. The
CRS-15
executive branch, in its Statement of Administration Policy on H.R. 4818, expressed
its “disappointment” over the level of MCC funding and urged Congress to increase
resources. During floor debate on July 15, the House defeated (41-379) an
amendment by Representative Paul to eliminate all MCC appropriations.
The House Committee, in its report on H.R. 4818, also expressed concern over
Corporation plans to enter into multi-year Compacts without committing total
funding for these programs in the year the Compact is signed. This, the Committee
believed, would obligate future Congresses to fund prior year contracts.
Consequently, the bill requires the MCC to only sign Compacts for which complete
funding is available from existing appropriations. The House Committee also
recommended that Compacts be limited to a 3-4 year period rather than a 3-5 year
duration envisioned by the MCC.
The Senate measure — also H.R. 4818, as amended to incorporate the text of
S. 2812, proposes a more significant cut to the President’s MCC request — to $1.12
billion. Despite the reduction, the Senate Appropriations Committee noted its strong
support for the program.
For some time, some Members of Congress have raised questions regarding
whether sufficient funds will be available to support MCC programs in every country
selected, especially if the Board also makes exceptions in the FY2005 selection
process and qualifies more countries than meet the strict criteria. Representative
Kolbe, chairman of the House Foreign Operations Subcommittee, speculated at a
May 9 hearing that based on recent Board decisions, by 2006, as many as 40
countries might have qualified. This, he believed, could not be fully supported with
likely funding levels, and might raise country expectations that could not be met and
undermine program incentives.
MCC officials point out that qualification for the program does not mean that
a government will receive funding. That decision will be based on the quality of the
Compact proposals and it is possible that the Corporation will not finalize
agreements with all eligible countries. Nevertheless, the Corporation’s CEO Paul
Applegarth acknowledged the funding dilemma for future MCC operations at a
Senate Foreign Relations Committee hearing on October 5, noting that the sum of
proposals received thus far totaled $4.2 billion.
A March 2004 GAO report estimated that the
MCC could adequately fund 8-13
Compacts with an appropriation of $3.5 billion (the
combined FY2004 enacted and
FY2005 amounts). This suggests, that even if
Congress fully funds the pending
proposal, the Corporation will not be able to
support programs in all 1617 countries
approved for FY2004 and those selected for
FY2005. If Congress reduces the $2.5 billion request, the
MCC may face increasing
difficulties funding Compacts of a sufficient size that will
have a meaningful impact
on a country’s economic growth and poverty reduction
goals. This may lead to
further congressional examination of the Board’s selection
process and consideration
of ways to limit the number of countries selected in the future.
CRS-11
Table 1. MCC Performance Indicators
Ruling Justly
Investing in People
Economic Freedom
Control of Corruption
Source: World Bank Institute
[http://www.worldbank.org/wbi/governance/pubs/g
ovmatters3.html]
Public Primary Education Spending as % of GDP
Sources: National governments
Country Credit Rating
Source: Institutional Investor Magazine, September
2003.
Voice and Accountability
Source: World Bank Institute
[http://www.worldbank.org/wbi/governance/pubs/g
ovmatters3.html]
Primary Education Completion Rate
Sources: World Bank and UNESCO
Inflation (must be below 20%)
Source: Multiple
Government Effectiveness
Source: World Bank Institute
[http://www.worldbank.org/wbi/governance/pubs/g
ovmatters3.html]
Public Expenditure on Health as % of GDP
Sources: National governments
Three-year Budget Deficit
Source: National governments
Rule of Law
Source: World Bank Institute
[http://www.worldbank.org/wbi/governance/pubs/g
ovmatters3
future.
CRS-16
Table 1. MCA Candidate, Eligible, and Threshold Countries —
FY2004
Criteria: IDA-eligible, per capita income $1,415 and below, and not prohibited from
receiving other U.S. economic assistance.
Eligible Countries are in Bold.
Threshold Countries are followed with (TC)
Africa
Angola
Benin
Burkina Faso
Cameroon
Cape Verde
Chad
Comoros
Congo, Dem Rep of
Congo, Rep of
Eritrea
Ethiopia
Gambia
Ghana
Guinea
Kenya (TC)
Lesotho
Madagascar
Malawi
Mali
Mauritania
Mozambique
Niger
Nigeria
Rwanda
Sao Tome &
Principe (TC)
Senegal
Sierra Leone
Tanzania (TC)
Togo
Uganda (TC)
Zambia
Latin
America
Bolivia
Guyana
Haiti
Honduras
Nicaragua
Income*
$940
$840
$440
$920
**
Income*
**
$360
$590
$460
$230
$420
$840
Mid-East
Djibouti
Yemen (TC)
Income*
$900
$490
Eurasia
Armenia
Azerbaijan
Georgia
Income*
$790
$650
$720
Europe
Albania(TC)
Bosnia
Income*
$1,380
$1,270
$290
Kyrgyz Rep.
$290
$470
$140
$280
$270
$240
$330
Moldova
Tajikistan
$460
$180
Income*
$660
$390
$220
$560
$1,290
$220
$390
$90
$700
$160
$100
$280
$270
$410
$360
$470
$240
$160
$240
$340
$210
$170
$290
$230
East Asia/Pacific
East Timor (TC)
Indonesia
Kiribati
Laos
Mongolia
Papua New Guinea
Solomon Islands
Tonga
Vanuatu
Vietnam
Income*
$430
$680
$810
$310
$440
$580
$570
$1,410
$1,080
$430
South Asia
Afghanistan
Bangladesh
Bhutan
India
Nepal
Pakistan
Sri Lanka
* Gross National Income, dollars per capita, 2002. World Bank Annual Report, 2003.
** Precise data unavailable.
CRS-17
Table 2. MCA Candidate, Eligible, and Threshold Countries —
FY2005
Criteria: Per capita income $1,465 and below, and not prohibited from receiving
other U.S. economic assistance.
Eligible Countries are in Bold.
Threshold Countries are followed with (TC)
Africa
Angola
Benin
Burkina Faso (TC)
Cameroon
Chad
Comoros
Congo, Dem Rep
Congo, Rep of
Equatorial Guinea
Eritrea
Ethiopia
Gambia
Ghana
Guinea
Kenya (TC)
Lesotho
Madagascar
Malawi (TC)
Mali
Mauritania
Mozambique
Niger
Nigeria
Rwanda
Sao Tome &
Principe (TC)
Senegal
Sierra Leone
Swaziland
Tanzania (TC)
Togo
Uganda (TC)
Zambia (TC)
Income*
$740
$440
$300
$640
$250
$450
$100
$640
**
$190
$90
$310
$320
$430
$390
$590
$290
$170
$290
$430
$210
$200
$320
$220
$320
$550
$150
$1,350
$290
$310
$240
$380
Latin
America
Bolivia
Guyana(TC)
Haiti
Honduras
Nicaragua
Paraguay(TC
Income*
$890
$900
$380
$970
$730
$1,100
Income*
**
$400
$660
$530
$240
$470
$930
Mid-East
Djibouti
Egypt
Iraq
Morocco
Yemen (TC)
Income*
$910
$1,390
**
$1,320
$520
Income*
$950
Europe
Income*
East Asia/Pacific
China
East Timor (TC)
Indonesia
Kiribati
Laos
Mongolia
Papua New Guinea
Philippines (TC)
Solomon Islands
Tuvalu
Vanuatu
Vietnam
Income*
$1,100
$430
$810
$880
$320
$480
$510
$1,080
$600
**
$1,180
$480
South Asia
Afghanistan
Bangladesh
Bhutan
India
Nepal
Pakistan
Sri Lanka
Eurasia
Armenia
Azerbaijan
Georgia
Kyrgyz Rep.
Moldova
Tajikistan
Turkmenistan
Ukraine
$810
$830
$330
$590
$190
$1,120
$970
* Gross National Income, dollars per capita, 2003. World Bank Annual Report, 2004.
** Precise data unavailable.
CRS-18
Table 3. MCA Potential Candidate Countries — FY2006
Criteria: Per capita income $3,035 and below, and not prohibited from receiving
other U.S. economic assistance.17
Africa
Angola
Benin
Burkina Faso
Cameroon
Cape Verde
Chad
Comoros
Congo, Dem Rep of
Congo, Rep of
Equatorial Guinea
Eritrea
Ethiopia
Gambia
Ghana
Guinea
Kenya
Lesotho
Madagascar
Malawi
Mali
Mauritania
Mozambique
Namibia
Niger
Nigeria
Rwanda
Sao Tome&Principe
Senegal
Sierra Leone
South Africa
Swaziland
Tanzania
Togo
Uganda
Zambia
Income*
$740
$440
$300
$640
$1,490
$250
$450
$100
$640
**
$190
$90
$310
$320
$430
$390
$590
$290
$170
$290
$430
$210
$1,870
$200
$320
$220
$320
$550
$150
$2,780
$1,350
$290
$310
$240
$380
East Asia/Pacific
East Timor
Fiji
Indonesia
Kiribati
Laos
Marshall Islands
Micronesia
Mongolia
Papua New Guinea
Philippines
Samoa
Solomon Islands
Thailand
Tonga
Tuvalu
Vanuatu
Vietnam
Income*
$430
$2,360
$810
$880
$320
$2,710
$2,090
$480
$510
$1,080
$1,600
$600
$2,190
$1,460
**
$1,180
$480
Latin America
Belize
Bolivia
Brazil
Colombia
Dominican Rep
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Nicaragua
Paraguay
Peru
Suriname
Income*
**
$890
$2,710
$1,810
$2,070
$1,790
$2,200
$1,910
$900
$380
$970
$2,760
$730
$1,100
$2,150
**
South Asia
Afghanistan
Bangladesh
Bhutan
India
Nepal
Pakistan
Sri Lanka
Income*
**
$400
$660
$530
$240
$470
$930
Mid-East
Algeria
Djibouti
Egypt
Iraq
Jordan
Morocco
Tunisia
Yemen
Income*
$1,890
$910
$1,390
**
$1,850
$1,320
$2,240
$520
Eurasia
Income*
Armenia
$950
Europe
Azerbaijan
$810
Albania
Belarus
$1,590
Bulgaria
Georgia
$830
Bosnia
Kazakhstan
$1,780
Macedonia
Kyrgyz Rep.
$330
Romania
Moldova
$590
Turkey
Russia
$2,610
Tajikistan
$190
Turkmenistan
$1,120
Ukraine
$970
* Gross National Income, dollars per capita, 2003. World Bank Annual Report, 2004.
** Precise data unavailable.
17
Income*
$1,740
$2,130
$1,540
$1,980
$2,310
$2,790
The $3,035 per capita GNI figure would be the ceiling for FY2005 but will be adjusted
in July 2005 when the World Bank releases a new World Development Report. It is likely
that the per capita GNI ceiling for lower-middle income countries will rise somewhat, but
at this time, it is impossible to say what that level might be or precisely identify which
countries will fall under the ceiling. This list is an estimate based on the current lowermiddle income ceiling and those countries that are currently defined by the World Bank as
lower-middle income and are not prohibited from receiving U.S. economic assistance.
CRS-19
Table 4. MCC Performance Indicators for FY2005
Ruling Justly
Investing in People
Economic Freedom
Control of Corruption
Source: World Bank Institute
[http://www.worldbank.org/wbi/governance/govdat
a2002/index.html]
Public Primary Education Spending as % of GDP
Sources: National governments
Country Credit Rating
Source: Institutional Investor Magazine, September
2004.
Voice and Accountability
Source: World Bank Institute
[http://www.worldbank.org/wbi/governance/govdat
a2002/index.html]
Primary Girls’ Education Completion Rate
Sources: World Bank and UNESCO
Inflation (must be below 15%)
Source: Multiple
Government Effectiveness
Source: World Bank Institute
[http://www.worldbank.org/wbi/governance/govdat
a2002/index.html]
Public Expenditure on Health as % of GDP
Sources: National governments
Fiscal Policy
Source: National governments and IMF World
Economic Outlook
Rule of Law
Source: World Bank Institute
[http://www.worldbank.org/wbi/governance/govdat
a2002/index.html]
Immunization Rates: DPT and Measles
Sources: World Health Organization
Trade Policy
Source: The Heritage Foundation, Index of
Economic Freedom
[http://www.heritage.org/research/features/index/]
Civil Liberties
Source: Freedom House
[http://www.freedomhouse.org/research/freeworld/
2004/table2004.pdf]
Regulatory Policy
Source: World Bank Institute
[http://www.worldbank.org/wbi/governance/pubs/g
ovmatters2003.htmgovdat
a2002/index.html]
Political Freedom
Source: Freedom House
[http://www.freedomhouse.org/research/freeworld/
2004/table2004.pdf]
Days to Start a Business
Source: World Bank
[http://rru.worldbank.org/DoingBusiness/Snapshot
Reports/EntryRegulations.aspx]
CRS-12
Table 2ExploreT
opics/StartingBusiness/CompareAll.aspx]
CRS-20
Table 5. Comparison of MCA Authorization Legislation
Issue
Administration
Senate (S. 925)a
House (H.R. 1950)a
Conference (H.R. 2673)
MCA oversight
Board of Directors, chaired by
Sec. of State, with Treasury
and OMB
Board of Directors, chaired by
the Sec. of State, with
Treasury, USAID, USTR, and
the MCA’s Chief Executive
Officer (CEO)
Board of Directors, chaired by
Sec. of State, with Treasury,
USTR, USAID, MCC CEO, and
4 others nominated by the
President from a Congressional
list. Non-voting members
include OPIC, OMB, Peace
Corps, and TDA.
Board of Directors, chaired by
Sec. of State, with Treasury,
USTR, USAID, MCC CEO,
and 4 others nominated by the
President that may come from
list submitted by Congressional
leaders.
MCA organization
Independent Millennium
Challenge Corporation
Independent Millennium
Challenge Corporation whose
CEO reports to and be under
the direct authority and foreign
policy guidance of the Sec. of
State
Independent Millennium
Challenge Corporation
Independent Millennium
Challenge Corporation
MCA coordinator
CEO of Corporation
CEO “manages” the
Corporation, reporting to and
under the direct authority and
foreign policy guidance of the
Sec. of State
CEO “heads” the Corporation,
reporting to the President
CEO “manages” the
Corporation, reporting to and
under the direct authority and
foreign policy guidance of the
Board of Directors.
Interim CEO
Selection of
participating
countries
—
Board of Directors
—
Board of Directors
—
CEO of Corporation
Board of Directors may appoint
a confirmed U.S. Government
official to serve as interim
CEO until a CEO has been
confirmed by the Senate.
Board of Directors
CRS-1321
Issue
Senate (S. 925)a
Administration
House (H.R. 1950)a
Conference (H.R. 2673)
MCC Advisory
Council
None
None
Nine members named by the
CEO to advise on MCA policy,
review eligibility criteria,
evaluate the MCC, assess MCC
capabilities, and make
recommendations to the CEO.
None
Country income
eligibility
FY2004 - IDA eligible
FY2004 - IDA eligible
FY2004 - IDA eligible
FY2004 - IDA eligible
FY2005 - per capita GNP less
than $1,435
FY2005 - per capita GNP less
than $1,435
FY2005 - per capita GNP less
than $1,435
FY2005 - per cap GNP less
than $1,435
FY2006 - per capita GNP less
than $2,975
FY2006 - per capita GNP less
than $2,975 only if funds
exceed $5 billion; low-middle
income countries capped at
20%
FY2006 - per capita GNP less
than $2,975; low-middle income
countries capped at 20%
FY2006 - per capita GNP less
than $2,975; low-middle
income countries capped at
25%
Eligible entity & per
capita GNI less than historical
IDA level for the year ($1,415
in FY2004)
FY2004 - IDA eligible
FY2004 - IDA eligible & per
capita GNI less than historical
IDA level for the year ($1,415
in FY2004)
FY2004 - IDA eligible & per
capita GNI less than historical
IDA level for the year ($1,415
in FY2004)
FY2005 - per capita GNI less
than historical IDA level for
the year ($1,465 in FY2005)
FY2005 - per capita GNI less
than historical IDA cutoff for
the year ($1,465 in FY2005)
FY2005 - per capita GNI less
than historical IDA level for the
year ($1,465 in FY2005)
FY2005 - per capita GNI less
than historical IDA level for
the year ($1,465 in FY2005)
FY2006 - per capita GNI less
than historical IDA level for
the year ($1,465 in FY2005),
plus low-middle income
countries as defined in the
World Bank Development
Report ($3,035 in FY2005)
FY2006 - per capita GNI less
than historical IDA cutoff for
the year ($1,465 in FY2005),
plus, if appropriation exceeds
$5 billion, low-middle income
countries as defined in the
World Bank Development
Report ($3,035 in FY2005);
low-middle income countries
capped at 20%
FY2006 - per capita GNI less
than historical IDA level for the
year ($1,465 in FY2005), plus
low-middle income countries as
defined in the World Bank
Development Report ($3,035 in
FY2005); low-middle income
countries capped at 20%
FY2006 - per capita GNI less
than historical IDA level for
the year ($1,465 in FY2005),
plus low-middle income
countries as defined in the
World Bank Development
Report ($3,035 in FY2005);
low-middle income countries
capped at 25%
None stated
A government, including a
local or regional government,
or an NGO or private entity.
A national government, regional
or local government, an NGO,
an international organization
and trust funds.
A national government,
regional or local government,
or an NGO or private entity.
Eligible entity
CRS-22
Issue
Administration
Senate (S. 925)a
House (H.R. 1950)a
Conference (H.R. 2673)
Aid to “threshold”
countries
General support
10% of MCA funds available
for countries failing to qualify
because of inadequate data or
missing one indicator
15% of MCA funds available
for countries demonstrating a
development commitment but
fail to meet a sufficient number
of performance indicators
10% of MCA funds available
for countries showing a
commitment to MCA criteria
but fail to qualify
CRS-14
Issue
Oversight and
reports
Administration
MCA contracts and
performance posted on the
Internet.
Senate (S. 925)a
House (H.R. 1950)a
Conference (H.R. 2673)
Disclosure in Federal Register
and on the Internet of eligible
countries, programs supported,
and performance; proposed
performance indicators open to
public comment; annual report
to Congress
CEO consultation with Congress
on eligibility criteria;
notification 15 days in advance
on grants exceeding $5 million;
“Compacts” with countries
published in Federal Register
and on the Internet; advance
notification of aid termination;
annual reports to Congress from
the CEO and Advisory Council
Establishes a period of at least
95 days during which Congress
will receive the list of
“candidate countries,” the
eligibility criteria and
methodology for making a final
selection, and the list of
“eligible” countries (those that
will receive MCA assistance).
Consultation with
congressional committees will
occur during this period and
the information will be
published in the Federal
Register.
“Compacts” with countries
will be reported to Congress
and published in Federal
Register.
Annual report by March 31.
Funding
FY2004 - $1.3 billion
FY2005 - no decision
FY2006 - $5 billion
FY2004 - $1 billion
FY2005 - $2.3 billion
FY2006 - $5 billion
FY2004 - $1.3 billion
FY2005 - $3 billion
FY2006 - $5 billion
Such sums as may be necessary
for FY2004 and FY2005.
a. The status of the Senate billSenate position is based on S. 925, the Foreign Affairs Act, Fiscal Year 2004, as amended, but not passed during debate on July 9 and 10, 2003. The House position is taken
from H.R. 1950, an omnibus foreign policy authorization measure which passed the House on July 16, 2003 during debate on July 9 and 10. S. 925 remains pending in the Senate.
Previously, the Senate Foreign Relations Committee had approved legislation authorizing the Millennium Challenge Account in S. 1160. A modified text of S. 1160 was
subsequently incorporated into S. 925 as Division C on July 9. The House bill, H.R. 1950, is also a combined foreign policy authorization measure to which earlier MCA
authorizing text was added. The House International Relations Committee had reported H.R. 2441, which was incorporated, with modifications, to H.R. 1950, and passed by
the House on July 16.