Order Code RL32427
Millennium Challenge Account
Updated February 27, 2007June 2, 2008
Curt Tarnoff
Specialist in Foreign Affairs
Foreign Affairs, Defense, and Trade Division
Millennium Challenge Account
Summary
In a speech on March 14, 2002, President Bush outlined a proposal for a major
new U.S. foreign aid initiative. The Millennium Challenge Account (MCA) is
managed by the Millennium Challenge Corporation (MCC) and provides 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.
The MCC differs in several respects from past and current U.S. aid practices:
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the competitive process that rewards countries for past and current
actions measured by 1617 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.
As announced by the President in March 2002, the initial plan had been to fund
the MCC annually at $5 billion by FY2006, but this figure has not yet been reached.
The Administration has sought a combined $912.8 billion for the MCA program, FY2004FY2007
FY2004-FY2008, while Congress appropriated $67.5 billion, or less than two-thirds
of the total
sought. FY2007 funding is provided under the terms of a continuing resolution (H.R.
5631/P.L.109-289, as amended by H.J.Res. 20 on February 15, 2007) which provides
$1.75 billion to the MCA sought. In the FY2008 Consolidated Appropriations Act (H.R. 2764, P.L.
110-161), Congress provided $1.54 billion for the MCA, about half of the
Administration request. For the MCA in FY2009, the Administration has requested
$2.225 billion, a 44% increase over the previous year’s appropriation.
Congress authorized the MCC in P.L. 108-199 (January 23, 2004). Since that
time, the MCC’s Board of Directors has selected 2527 eligible countries for FY2004
— FY2007 (another, theduring the
period from FY2004 through FY2008 (another, The Gambia, was suspended in 2006) and signed eleven
and approved 16 Compacts with Madagascar (April 2005), Honduras June 2005),
Cape Verde (July
2005), Nicaragua (July 2005), Georgia (September 2005), Benin
(February 2006),
Vanuatu (March 2006), Armenia (March 2006), Ghana (August
2006), Mali
(November 2006) and, El Salvador (November 2006). Other MCA implementation
, Mozambique (July
2007), Lesotho (July 2007), Morocco (August 2007), Mongolia (September 2007),
and Tanzania (September 2007).
MCA implementation matters continue to unfold, including the relationship of MCA and USAID, how to
support “threshold” countries, and the country programs.
MCA and USAID, sectors chosen, and the impact of rising costs on country
programs. A growing question raised by some Members of Congress concerns the
level of
funding to support MCC programs. Some fear that insufficient funds might
force the
MCC to reduce the number of recipients or the size of the grants. Others,
however,
believe that the slower-than-anticipated support reductions in MCC budget requests, believing that the slower-thananticipated pace of Compact agreements means that the
Corporation has or will have enough resources, and have supported reductions in
MCC budget requests Corporation has enough
resources.
This report will be updated as events unfold.
Contents
Most Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
MCA Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
MCC Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Selection Criteria and Methodologyof Candidate Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Selecting Countries . . .Country Selection Criteria and Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Selecting Eligible Countries . . . . . . . . . . . . . . 7
Naming Candidate Countries — FY2004 . . . . . . . . . . . . . . . . . . . . . . . 76
Country Selection — FY2004FY2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Naming Candidate Countries — FY200510
MCA Compacts and Program Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Country Selection — FY200511
Compact Descriptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Naming Candidate Countries — FY200612
“Threshold” Countries and Programs . . . . . . . . . . . . . . . . . . . . . . 13
Country Selection — FY2006 . . . . . . . . . . 17
Select Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Naming Candidate Countries — FY2007. . . . . . . . . . . . . . . . . . . . . . . . . 16
Country Selection — FY2007 . . . .18
Role of USAID and the Future of Agency Programs in MCA Countries . . 18
Compact Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
MCA Compacts and Program Proposals. . . . . . . . . . . . . . . . . . . .18
Compact Size . . . . . . . . . . 17
Compact Descriptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
“Threshold” Countries and Programs19
Speed of Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Select Issues. . . . . . . . . 21
Compact Impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Role of USAID and the Future of Agency Programs in MCA Countries . . 27
Funding Issues21
Rising Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
MCA Request and Congressional Action for FY200722
Funding Issues . . . . . . . . . . . . . . . . . 28
MCA Request for FY2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Authorizing Legislation . . . . . . . . . . . . . . . 22
MCA Request and Congressional Action for FY2008 . . . . . . . . . . . . 23
MCA Request and Congressional Action for FY2009 . . . . . . . . . . . . 24
Authorizing Legislation and MCC Reform . . . . . . . . . . . . . . . . . . . . . . . . . 2924
List of Tables
Table 1. Status of MCA CompactsMCA Appropriations: FY2004-2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Table 2. MCA Appropriations: FY2004-200823
Table 2. Status of MCA Compacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2826
Table 3A. MCA Low-Income Candidate, Eligible, and Threshold
Countries — FY2007 . .Compact, and
Threshold Countries — FY2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3028
Table 3B. MCA Lower -Middle-Income Candidate and Eligible
Countries — FY2007FY2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3129
Table 4. MCC Performance Indicators for FY2007 . . . . . . . . . . . . . . . . . . . . . . 32
Millennium Challenge Account
Most Recent Developments1
Under the terms of a continuing resolution (H.R. 5631/P.L.109-289, as amended
by H.J.Res. 20 on February 15, 2007), the FY2007 appropriation for the MCA is
$1.75 billion, the same level as in FY2006 and $1.25 billion less than the
Administration request for that year.
On February 14, 2007, Kenya and Uganda were approved for Threshold
programs, both focusing on corruption. Yemen, suspended from Threshold program
eligibility in 2005, was reinstated due to its adoption of significant reforms.
On February 5, 2007, the Administration requested $3 billion in FY2008
funding for the MCA, a 71% increase over the FY2007 level30
Millennium Challenge Account
Most Recent Developments
On May 22, 2008, the Senate approved its version of H.R. 2642, the FY2008
and FY2009 supplemental, including two committee amendments that would rescind
$525 million from the MCA. The funds would be used to provide disaster aid to
Burma ($225 million) and economic and military aid to Jordan ($300 million). In
effect, one planned Compact — likely that of Burkina Faso or Namibia — would
have to be postponed if the Senate provisions are adopted in conference with the
House.
On March 11, 2008, the MCC Board added the Philippines to the list of
countries eligible for Compact funding. It joins 24 countries previously selected in
December 2007, including Malawi, the only other new country chosen in FY2008.
The Board also added Mauritania to the list of countries eligible for Threshold
Program funds.
On February 4, 2008, the Administration requested $2.225 billion for the MCA
in its FY2009 budget, a 44% increase over the FY2008 level.
On December 26, 2007, the FY2008 Consolidated Appropriations Act (P.L.
110-161, H.R. 2764) was signed into law. It provides $1.544 billion (after a .81%
rescission) for the MCA, $1.5 billion less than the Administration request.
Overview
In a speech on March 14, 2002, President Bush outlined a proposal for a new
program that would represent a fundamental change in the way the United States
invests and delivers economic assistance. The resulting Millennium Challenge
Account (MCA), managed by a new Millennium Challenge Corporation (MCC),
provides 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.
As the new agency develops
CRS-2
As the program evolves, the 110th Congress will continue to debate MCA
funding funding
issues and conduct oversight hearings on operations of the Corporation.
1
This report was originally written by Larry Nowels, who retired from CRS in June 2006.
CRS-2
MCA Background2
The concept of the MCA Background1
The MCA 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. The MCA proposal differedconcept differs in several
fundamental respects from
past and current U.S. aid practices:
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the size of the original $5 billion commitment;
the competitive process that will reward countries for past actions
measured by 1617 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.
The new initiative, which Congress authorized in January 2004 (Division D of
P.L. 108-199), was scheduled to phase in over a three-year period, beginning in
FY2004. During the first year, MCA participation was limited to the 74 poorest
nations with per capita incomes below $1,415 and that were eligible to borrow from
the World Bank’s International Development Association. The list expanded in
FY2005 to include all low-income countries with a per capita income below $1,465
(adding
another 13 nations). Beginning in FY2006 and beyond, all lower middle-income
low- and lowermiddle-income countries (with per capita incomes between $1,675735 and $3,465 in FY2007) may
595 in
FY2008) compete for MCC resources (adding another 29 countries in FY2006 and FY2007)a total of 95 countries in FY2008). However,
lower-middle-income countries may receive only a quarter of MCA assistance in any
year.
Country selection is based largely, but not exclusively, on the nation’s record
measured by 1617 performance indicators related to the three categories, or “baskets,”
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, 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 4 below for a complete list of the 1617 performance indicators.)
Administration officials, since announcing the MCA 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.
1
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, by Larry Nowels.
CRS-3
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,
2
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, by Larry Nowels.
CRS-3
and are 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 MCA 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. In
most cases, this will likely result in a significant increase of U.S. economic assistance
to MCA participant countries.
To manage the new initiative, the Administration proposed and 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
MCC plans for an eventual staff of about 300. It is led by a CEO confirmed by the
Senate. The current CEO is Ambassador John Danilovich.32 A Board of Directors
oversees operations of the MCC and makes the country selections. It is chaired by
the Secretary of State and composed of the Secretary of the Treasury, the USAID
Administrator, the U.S. Trade Representative, the Corporation’s CEO, and four
individuals from the private sector drawn from lists of proposed nominees submitted
by Congressional leaders. Two of these have yet to be nominated by the White
House and confirmed by the Senate.43
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 iswas 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.
It appears that the MCC’s status will remain unchanged under Secretary Rice’s
realignment of foreign aid authorities, announced on January 19, 2006. Randall
TobiasHenrietta
Holsman Fore, the USAID Administrator, also serves concurrently in the newly created State
2
3
Replacing Paul Applegarth who resigned on August 8, 2005.
The private sector Board members are Alan Patricof, co-founder of a venture capital
corporation; Lorne Craner, President of the International Republican Institute; former
Senate Majority Leader William Frist; and Kenneth Hackett, President and CEO of Catholic
Relief Services. The latter is a reappointment, permitted a two-year term; the others are
serving their first three-year terms.
CRS-4
created State Department position of Director of Foreign Assistance. While gaining
policy and
budget authority over nearly all USAID and State Department foreign aid
programs,
the Director will playplays a more limited role in other agency activities, by developing
developing an overall U.S. government development strategy and providing
“guidance” to
foreign aid programs delivered through other agencies like the MCC.
3
4
Replacing Paul Applegarth who resigned on August 8, 2005.
The two private sector Board members in place (since July 13, 2004), both proposed by
Senate leaders, are 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.
CRS-4
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 proposed $2.5
billion while Congress approved $1.488 billion. Congressional reductions continued
in FY2006, as lawmakers trimmed the $3 billion request to $1.75 billion (after
adjusting for a 1% across-the-board rescission). For FY2007, the Administration
again sought $3 billion for the MCC, but, under the terms of a continuing resolution
(H.R. 5631/P.L.109-289, as amended by H.J.Res. 20 on February 15, 2007), FY2007
funding for the MCA is set at $1.75 billion, the same as the previous year. The
Administration has requested $3 billion for the MCA in FY2008.
MCC Implementation
On February 2, 2004, the Board of Directors held its initial meeting to establish
the program and agreed to Corporation by-laws. Over the following weeks the
Corporation identified “candidate” countries for that fiscal year, published the criteria
and methodology to be used for country selection, issued guidelines for Compact
proposals, and selected countries to participate in the MCA program. Although
subsequent years have seen similar steps, there have been changes in procedures and
policy as the program evolves. These are discussed below.
Selection Criteria and Methodology
The choice of criteria on which to base the eligibility of countries for threshold
and Compact programs is one of the most important elements in MCC operations.
They are a key statement of MCC development priorities. The serious consequences
of a change in criteria and the indicators related to them can be seen in the proposed
plan to adopt two natural resource indicators. If those indicators are added to the
“investing in people” basket, at least six currently eligible countries, including
Compact program holder El Salvador, fail. Splitting them between “investing in
people” and “economic freedom” baskets also changes the number and identity of
eligible countries.5 Perhaps of greater significance, the indicators themselves have
become prominent objectives of some developing countries in what Board CEO
Danilovich has called the “MCC effect.”6 foreign aid programs delivered through other agencies like the MCC.
MCC Implementation
From the time the MCC Board of Directors held its initial meeting to establish
the program and agree to Corporation by-laws on February 2, 2004, procedures and
policies have continued to evolve. Program implementation moves chronologically
through a number of steps: candidate countries are identified, criteria are formulated,
Compact and threshold-eligible countries are selected, programs are developed and
proposed, and those approved are funded and carried out. Elements in this process
are discussed below.
Selection of Candidate Countries
The selection of initial candidate countries is fairly straightforward and based
on the authorizing statute. Countries must fall into specific economic categories
determined by their per capita income status (as defined and ranked by the World
Bank). In the first two years of the program, only low-income countries were
considered, and, in the first year only, these had to be International Development
Association-eligible borrowers (a World Bank loan window). Beginning in FY2006,
low-income countries were joined by lower-middle-income countries. Currently,
low-income countries are defined as those with a per capita income of $1,735 and
below; lower-middle-income countries are between $1,735 and $3,595.
In addition to the income ceiling, countries may be candidates only if they are
not statutorily prohibited from receiving U.S. economic assistance. In FY2008, 13
countries were excluded for this reason. Most had been barred in prior years as well.4
On August 24, 2007, the MCC transmitted to Congress its annual notification
of candidate countries, listing 67 low-income countries and 28 lower-middle-income
countries (See Table 3A and Table 3B). There were two new entries to the lowincome candidates: Somalia and Cambodia. Previously, Somalia had been barred
by the Brook Amendment prohibiting aid to countries defaulting on debt to the U.S.
government. Cambodia was prohibited from receiving most aid under the annual
Foreign Operations appropriations; relations with that country have since improved.
4
Various types of aid restrictions applied to these countries. For several — Sudan, Cote
d’Ivoire, Fiji, and Thailand — U.S. aid was blocked because an elected head of government
had been deposed by a military coup. For Uzbekistan, legislation banned FY2007 assistance
to the central government. Aid restrictions imposed on nations not cooperating in counternarcotics efforts (Burma), that are on the terrorist list (Sudan, Syria, Cuba, North Korea,
Iran), or in arrears on debt owed the United States (Zimbabwe) also applied.
Notwithstanding these restrictions, each country remained eligible for humanitarian
assistance from the United States.
CRS-5
Angola, Armenia, Azerbaijan, and Ukraine have moved from low-income to lowermiddle-income status. Five previously lower-middle-income countries are no longer
candidates: one, Fiji, cannot be considered because of a military coup; the others
have graduated to middle-income status.
Country Selection Criteria and Methodology
The choice of criteria on which to base the eligibility of countries for threshold
and Compact programs is one of the most important elements in MCC operations
(See Table 4 for Performance Indicators). They are a key statement of MCC
development priorities and ultimately determine which countries will receive U.S.
assistance. Perhaps of equal significance, the current indicators themselves have
become prominent objectives of some developing countries in what Board CEO
Danilovich has called the “MCC effect.”5 Countries seeking eligibility are moving
on their own to enact reforms and take measures that would enable them to meet
MCC criteria. The criteria and the methodology for applying them have evolved over
time.
Pursuant to reporting requirements set in the MCC legislation, the Corporation
on March 5, 2004 senteach year the
Corporation sends 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
5
Steve Radelet, Sheila Herrling, Sarah Rose, Expand and Enhance: A Proposal to
Strengthen the MCA Eligibility Process When Adding the Natural Resource Indicators,
Center for Global Development, January 24, 2007.
6
MCC Public Outreach Meeting, February 15, 2007.
CRS-5
performance indicators, as listed in Table 4 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.
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
candidate countries in that fiscal
year. The criteria have been altered and refined, sometimes dramatically, over time.
While the MCC 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;
respects worker rights;
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
would 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 would 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
would also be used for additional information regarding worker rights, while
statistics on girls’ primary enrollment rates would supplement the four social
investment performance indicators.
The MCC also noted that it would use the most recent release (then October
2003) of Transparency International’s Corruption Perception Index to update and
supplement the World Bank’s survey data on which the corruption performance
indicator is based. This was necessary because the World Bank information was last
published in March 2003. Since the corruption indicator is a “pass/fail” measure, the
quality and timeliness of the data are especially important.
During the public comment period and at congressional oversight hearings,
some suggested that existing data sources needed to be refined or new surveys
created in order to specifically measure a country’s commitment on the four 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 were used for the FY2005 selection process. The and
makes social investments, especially in women and girls.
For each of these, the MCC has sought to use supplemental data and qualitative
information to inform its decisions on Compact eligibility. The latter two factors
have led to the development of new indicators.
With regard to the requirement added by Congress regarding social investments
in women and girls, at first the MCC reported it would draw on girls’ primary
enrollment rates to supplement the four social investment performance indicators.
But in FY2005, an indicator measuring girls’ primary education completion rates
replaced a broader measure used in FY2004 that did not disaggregate primary
education graduation by gender.
Beginning with the FY2005 selection process, the MCC lowered 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 replaced 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 was one of the requirements added by Congress during deliberation
on MCC authorizing legislation.
CRS-6
For FY2006, the Corporation made further changes in the criteria and
methodology. The most notable was the addition ofFor FY2006, the
Corporation added a new indicator — the Cost of
Starting a Business — that replaced
5
MCC Public Outreach Meeting, February 15, 2007.
CRS-6
the Country Credit Rating, a measure that was
used in the FY2004 and FY2005 evaluation process. Data for the Cost of Starting
a Business are drawn from the World Bank’s Doing Business report, the same source
for another MCC indicator of Days to Start a Business.
evaluation process. The Corporation believes
believed that not only doesdid the new indicator
have a strong correlation with economic growth,
but that it iswas a measurement that may
might encourage governments to take action in order
to improve their scores. Since
the initial use of the indicator Days to Start a
Business, MCA candidatescandidate countries have had
introduced many business start-up
reforms, the results of which have beenwere reflected in a
lowered median for this
category. MCC officials hopehoped that adding an indicator for
the Cost of Starting a
Business willwould stimulate additional policy improvements.
They believebelieved that the
Country Credit Rating indicator was not as well linked to
policy reforms and that it
had a greater income bias than other MCC indicators.
The Corporation also modified the principal, in selected cases, that countries
must score above the median in order to pass a hurdle, with a rule that scores at the
median will represent a passing grade. This comes into play especially for those
indicators (civil liberties, political rights, and trade policy) where performance is
measured on a relatively narrow scale of 1-5 or 1-7. A number of countries fall
exactly on the median of these indicators and the methodology change allows the
MCC to make a more refined determination of whether a country passes or fails these
hurdles.
The MCC further indicated that it would explore additional criteria and
methodology changes for the future. Under consideration were options to:
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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.
consider additional gender-relation indicators; the MCC looked
closely at the indicator of Skilled Attendants at Birth (a proxy for
maternal mortality) but decided for now that the data lack the
necessary quality and coverage.7
had a greater income bias than other MCC indicators.
Efforts to develop a measurement to assess a country’s commitment to policies
that promote sustainable management of natural resources (as required by MCC
authorizing legislation) culminated in the November 2006as required by Congress
led to the adoption of two new
indicators to be indicators, first used as supplemental information in
determining FY2007 MCA
eligibility eligibility and then integrated with all the other indicators
beginning with the FY2008 eligibility process. The Natural Resources Management
index is a composite of indicators:
whether the country is protecting at least 10% of
its biomes, the percentage of
population with access to sanitation and clean water, and child mortality levels. The
Land Rights and Access index looks at whether land tenure is secure and access to
7
For a complete discussion of this issue, see Report on the Criteria Methodology for
Determining Eligibility of Candidate Countries for Millennium Challenge Account
Assistance in FY2006, at [http://www.mcc.gov], Congressional Reports.
CRS-7
land is equitable, and the number of days and cost of registering property. These
measures were applied for FY2007 only to supplement other indicators, in the way
that the disabilities analysis of the State Department Human Rights Report and
Transparency International’s Corruption index are currently used. However, the new
indicators may be integrated into the “Investing in People” category in FY2008.
In December 2006, Ambassador Danilovich announced that the MCC would
apply gender analysis to all aspects of the MCC program, including country selection
and Compact development and implementation.
Selecting Countries
Naming Candidate Countries — FY2004. On February 2, 2004, 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.8
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 raised a number of questions and concerns. The
Administration had previously said that the Board would be guided by, but not
8
Various types of aid restrictions applied to these countries. For several — Burundi,
Central African Republic, Cote d’Ivoire, Guinea-Bissau, and Sudan — U.S. aid was blocked
because an elected head of government had been deposed by a military coup. For Cambodia
and Uzbekistan, legislation banned FY2004 assistance to the central governments of these
countries. Aid restrictions imposed on nations 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 applied. Serbia could not receive aid in FY2004
unless the President issued a determination stating, among other things, that the government
was cooperating with the International Criminal Tribunal. Notwithstanding these
restrictions, each country remained eligible for humanitarian assistance from the United
States.
CRS-8
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 reflected decisions that both strictly followed the
performance indicator outcomes and applied Board discretion to take into account
other factors. Ten of the countries complied 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 “baskets” and performing above the median on corruption. The
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
and child mortality levels. It has been placed in the Investing in People basket,
raising the number of those indicators to five. The Land Rights and Access index
looks at whether land tenure is secure and access to land is equitable, and the number
of days and cost of registering property. It has been placed in the Economic Freedom
basket. That basket remains at six indicators, because, beginning in FY2008, the
MCC collapsed the Days to Start a Business and Cost of Starting a Business
indicators into one Business Start-Up indicator.
In addition to adding or refining indicators, the Corporation has also modified
its principal that, in selected cases, countries must score above the median in order
to pass a hurdle, with a rule that scores at the median will represent a passing grade.
This comes into play especially for those indicators (civil liberties, political rights,
and trade policy) where performance is measured on a relatively narrow scale of 1-5
or 1-7. A number of countries fall exactly on the median of these indicators and the
methodology change allowed the MCC to make a more refined determination of
whether a country passes or fails these hurdles.
In December 2006, Ambassador Danilovich announced that the MCC would
apply gender analysis to all aspects of the MCC program, including country selection
and Compact development and implementation.
Selecting Eligible Countries
Shortly after release of the performance criteria, the MCC publishes a scorecard,
showing where each candidate country’s performance falls in relation to the other
candidate countries in its peer group (i.e., lower income countries “compete” with
other lower income countries and lower-middle income countries with other lowermiddle income countries). Some time later, the MCC Board meets to select its list
of countries eligible to apply for Compact assistance.
A review of the history of MCC selections suggests that the Board is guided by,
but not entirely bound to, the outcome of the performance indicator review process;
CRS-7
Board members can apply discretion in their selection. Performance trends, missing
or old data, and recent policy actions might come into play during selection
deliberations.
For example, in its first year, FY2004, the MCC selected 16 countries. The
selection reflected decisions that both strictly followed the performance indicator
outcomes and applied Board discretion to take into account other factors. Ten of the
countries complied 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 “baskets”
and performing above the median on corruption. The 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 10 countries
also passed these additional tests.
For 10 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 Organization 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
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
Policy, but the most recent trends suggested that the government was 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, had created a cabinet position to coordinate
anti-corruption activities and an office to investigate police corruption. Georgia, with
a newly elected government that had 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 was more current than information available from the
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
CRS-9
country — Guyana — was also not selected despite passing the necessary hurdles.
It scored particularly low on the Fiscal Policy measurement.9
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
disagreements and possible surprises in the final list, especially if the Board exercised
its discretionary authority as it did for FY2004 participants. Representative Lowey,
for example, expressed her view at a May 13, 2004 House Appropriations Committee
hearing that East Timor, which failed to pass the “economic freedom” hurdle in part
due to missing data on two of the indicators, should have been selected. CEO
Applegarth responded that East Timor is a new nation and that it was premature to
conclude that it was a “high-performing” country. He acknowledged, however, that
East Timor should be given close consideration in the future if the current trend lines
continue.
Besides East Timor, some 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 scored slightly below the median on
corruption. Like Albania, Malawi and Moldova would have 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.10
Despite these questions over specific country eligibility, the selection process
appeared 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 an additional concern of many who view the absence of securityrelated factors from MCA decision-making as one of the most attractive features of
the initiative. For the most past, the Board appeared 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. 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
9
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.”
10
As noted below, East Timor, Albania, and Sao Tome were subsequently selected as three
of the first seven “threshold” countries that will receive assistance to help the country meet
the MCA requirements.
CRS-10
performance.11 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.
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 $1,46512 and dropping the requirement that
a country must be an IDA-eligible borrower from the World Bank, 11 new countries
were added to the list: China, Egypt, Equatorial Guinea, Iraq, Morocco, Paraguay,
Philippines, Swaziland, Turkmenistan, Tuvalu, and Ukraine. Four countries fell 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 were ineligible for other
U.S. economic assistance.13
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, remained eligible for MCA support using FY2004
funds. Board selections represented both a high degree of continuity between
11
See Steve Radelet, A Note on the MCC Selection Process for 2005, September 23, 2004,
found at [http://www.cgdev.org].
12
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. After 2006,when all lower middle-income countries became eligible to
compete, the MCC also adjusted that threshold — $3,465 in 2007 — in the consideration
of determining candidate countries.
13
Eleven of these countries were also excluded in FY2004. Serbia, which was barred from
consideration for FY2004, exceeded the per capita income limit for FY2005 so was not
under consideration. Syria and Cuba, which became potential candidate countries beginning
in FY2005, were excluded because of a ban on direct aid to the countries. See Footnote 5,
above, for a complete list of countries and aid restrictions.
CRS-11
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
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.14 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.
14
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-12
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
observers raised 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 minimum standards but were
not selected. The Corporation offered little explanation as to why these countries
were not chosen.15 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.16 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 funding reductions that were anticipated in early
November. The Administration had requested combined FY2004/FY2005
appropriations of $3.8 billion, but was more likely, at the time of selection, to have
available 25%-35% 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 — Burkina
Faso, Guyana, and the Philippines — to participate in the Threshold Program,
intended to help “near-miss” nations take steps to strengthen areas that would help
15
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.
16
Comments by Paul Applegarth at a State Department Foreign Press Center Briefing,
November 9, 2004.
CRS-13
them qualify for full MCA assistance in the future. Burkina Faso became the first to
sign a Threshold Agreement on July 22, 20058
country — Guyana — was also not selected despite passing the necessary hurdles.
It scored particularly low on the Fiscal Policy measurement.6
As the candidate pool was enlarged in succeeding years while funding levels
failed to meet expectations, the Board has become increasingly more selective. Many
outside the MCC support the approach of keeping the number of new participants to
a few so that future Compacts can be larger and emphasize “transformational”
development opportunities as the MCA program originally envisioned.
For FY2005, the Board did not select 10 countries that met the criteria,
including Bhutan, Vietnam, Guyana, Burkina Faso, China, Djibouti, Egypt, Nepal,
the Philippines, and Swaziland. The Corporation offered little explanation as to why
these countries were not chosen.7 It appeared, however, that scoring “substantially
below” — perhaps in the lowest 25th percentile — had 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.8 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 Board departure in the FY2005 selection process was to avoid using its
discretionary authority to qualify countries that did not meet the minimum
performance indicators. In MayFor FY2004, 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.
Naming Candidate Countries — FY2006. On August 5, 2005, the MCC
released a list of 69 low-income countries and 29 lower middle-income nations that
were evaluated for MCA grants in FY2006. The number of low-income nations —
those with a per capita GNI of less than $1,575 — was one less than the previous
year (Equatorial Guinea was dropped) while all of the lower middle-income group,
with per capita GNI between $1,575 and $3,255, were new to the MCA selection
process.17 Fifteen nations were excluded from the FY2006 candidate country list
because they are ineligible under existing law to receive U.S. economic aid. Most
had been barred in prior years as well.18
Country Selection — FY2006. On November 8, 2005, the MCC Board of
Directors made its selection of FY2006 eligible countries, and, for the first time,
selected participants in both the low-income and lower middle-income groups.
All 17 countries previously selected in FY2004 or FY2005, or both years, again
qualified in FY2006. Four new low-income countries were added for FY2006 —
Burkina Faso, East Timor, The Gambia, and Tanzania — plus two new lower
middle-income nations — El Salvador and Namibia.19 None of the four low-income
17
Each year, the MCC adjusts the low-income country per capita income threshold to
correspond to the per capita income cutoff of the “historic ceiling” of IDA lending, a
calculation made by the World Bank. The range of per capita GNI for the lower middleincome group is also drawn from the World Bank.
18
For several — Burundi, Central African Republic, Cote d’Ivoire, and Sudan — U.S. aid
is blocked because an elected head of government has been deposed by a military coup. For
Cambodia and Uzbekistan, legislation bans FY2005 assistance to the central governments
of these countries. Aid restrictions imposed on nations not cooperating in counter-narcotics
efforts (Burma), that are on the terrorist list (Cuba, Iran, North Korea, Sudan, and Syria),
not complying with minimum trafficking in persons standards (Burma and Sudan), or in
arrears on debt owed the United States (Somalia, and Zimbabwe), also apply. Serbia and
Bosnia and Herzegovina are not eligible for aid in FY2005 unless the President issues a
determination stating, among other things, that the governments are cooperating with the
International Criminal Tribunal.
19
Cape Verde was also selected in the new lower middle-income country grouping. Cape
(continued...)
CRS-14
nations were surprising. Three — Burkina Faso, East Timor, and Tanzania — were
chosen last year as Threshold countries, meaning they were “near-misses” in
FY2005. The Gambia improved its scores significantly between FY2005 and
FY2006, including those for inflation, fiscal policy, controlling corruption, and other
governance indicators. The rationale for selecting any lower middle-income
countries, on the other hand, and El Salvador and Namibia in particular, is less clear,
as discussed below.
Low-Income Countries
Armenia
Benin
Bolivia
Burkina Faso*
East Timor*
The Gambia*
Georgia
Ghana
Honduras
Losotho
Madagascar
Mali
Mongolia
Morocco
Mozambique
Nicaragua
Senegal
Sri Lanka
Tanzania*
Vanuatu
Lower Middle-Income Countries
Cape Verde
El Salvador*
Namibia
* New for FY2006.
Although selected only seven months previously, The Gambia’s eligibility for
MCA assistance was suspended by the MCC Board on June 16, 2006, due to “a
disturbing pattern of deteriorating conditions” in half of the 16 conditions that are
used to determine candidate countries. Among the problems cited in this case were
human rights abuses, restrictions on civil liberties and press freedom, and worsened
anti-corruption efforts.
Greater Board Selectivity. Given the likelihood that the MCC would have
substantially less appropriated funds for FY2006 than it had requested, a number of
observers argued that now was not the time to expand the list of eligible countries to
a great extent, especially for cases where Board discretion would be necessary to
qualify a country that did not pass a sufficient number of indicators. Instead, many
asserted, the Board should be more selective, keeping the number of new participants
to a few so that future Compacts could be larger and emphasize “transformational”
development opportunities as the MCA program envisioned.
19
(...continued)
Verde, however, had been previously chosen in FY2004 when its income placed it in the
low-income grouping, and signed an MCA Compact on July 4, 2005.
CRS-15
The Board seemed to heed this advice for the low-income group by not choosing
eight countries that qualified and not using its discretionary powers to select any new
nations that failed to meet the minimum requirements.20 Bhutan, China, and Vietnam
passed enough hurdles but did not qualify, as was the case the past two years, based
on very low scores on political rights and civil liberties. Kiribati, the Philippines, and
India were not selected most likely because some of their scores were substantially
below the median, which has become a marker used by the Board previously. India
also presents a challenging case for the Board in that, despite qualifying, it is a
country with a significantly large poor population which would require a sizable
MCA Compact in order to produce a reasonable degree of impact on poverty
reduction. It is also a nation with the means to attract capital and investment from
other sources. Egypt, also not selected, falls into a somewhat different category as the
second largest recipient of annual U.S. assistance based on a strategic rationale. The
reason for not selecting Uganda, despite having passed 12 of the 16 indicators and
not falling significantly below the median on the other 4, is less obvious.
Selection of Lower Middle-Income Countries was Less Clear.
Whether to include relatively more wealthy nations — in FY2006 those with a percapita income higher than $1,575 — in the MCA program has been debated since the
launch of the initiative. A number of analysts have argued that especially given the
less-than-anticipated budget available to the MCC, the Board should refrain from
selecting any lower middle-income countries (LMICs), at least in the FY2006
round.21
Of the eight LMICs (out of 32 total) that passed sufficient performance hurdles,
the Board chose two to participate in FY2006. In addition, the Board also selected
Cape Verde, a country that passed only two of the six economic performance
indicators and therefore, did not technically qualify.22 It appears, however, that the
Board could have decided to select none of the lower middle-income nations by using
criteria it had applied consistently in the two previous rounds. Moreover, it was not
Threshold Countries, none of the five were chosen for full MCA status.
In FY2006, the Board did not choose eight countries in the low-income group
that qualified and did not use its discretionary powers to select any new nations that
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.”
7
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.
8
Comments by Paul Applegarth at a State Department Foreign Press Center Briefing,
November 9, 2004.
CRS-9
failed to meet the minimum requirements.9 Bhutan, China, and Vietnam passed
enough hurdles but did not qualify, as was the case the past two years, based on very
low scores on political rights and civil liberties. Kiribati, the Philippines, and India
were not selected most likely because some of their scores were substantially below
the median, which has become a marker used by the Board previously. India also
presents a challenging case for the Board in that, despite qualifying, it is a country
with a significantly large poor population which would require a sizable MCA
Compact in order to produce a reasonable degree of impact on poverty reduction. It
is also a nation with the means to attract capital and investment from other sources.
Egypt, also not selected, falls into a somewhat different category as the second largest
recipient of annual U.S. assistance based on a strategic rationale. The reason for not
selecting Uganda, despite having passed 12 of the 16 indicators and not falling
significantly below the median on the other 4, is less obvious.
In its first year of choosing among lower-middle-income countries, the Board’s
approach was less clear. A number of analysts had argued that especially given the
less-than-anticipated budget available to the MCC, the Board should refrain from
selecting any lower-middle-income countries (LMICs), at least in the FY2006
round.10 Of the eight LMICs (out of 32 total) that passed sufficient performance
hurdles, the Board chose two to participate in FY2006. In addition, the Board also
selected Cape Verde, a country that passed only two of the six economic performance
indicators and therefore, did not technically qualify.11 It appears, however, that the
Board could have decided to select none of the lower-middle-income nations by
using criteria it had applied consistently in the two previous rounds. Moreover, it
was not clear why the Board chose the two that did qualify and excluded others.
All eight LMICs that passed the performance indicator test fell significantly
below the median on at least one of the indicators. El Salvador and Namibia, the two
that were selected, both had low scores on fiscal policy. El Salvador also scored well
below the median on the costs of starting a business, while Namibia also did poorly
on days to start a business and immunization rates. The other six that were not
chosen — Brazil, Bulgaria, Jordan, Samoa, Thailand, and Tunisia — also performed
substantially below the median in at least one area, although Jordan was selected to
20participate in the Threshold program. What separated these latter six from El
Salvador and Namibia, however, was not explained by the Board.
Although the Gambia was selected in FY2006, its eligibility for MCA assistance
was suspended by the MCC Board on June 16, 2006, because of “a disturbing pattern
of deteriorating conditions” in half of the 16 conditions that are used to determine
9
Georgia and Senegal were selected despite not passing the necessary hurdles, but both had
been chosen in FY2004 and FY2005.
21
10
See, for example, Steve Radelet, Kaysie Brown, and Bilal Siddiqi, “Round Three of the
MCA: Which Countries are Most Likely to Qualify in FY 2006?” Center for Global
Development, October 27, 2005.
2211
Cape Verde had been classified as an eligible low-income country in FY2004 and signed
a Compact in July 2005. The Cape Verde case, however, also points out a limitation in
using the system of 16 performance indicators. For two of the economic categories, no data
are available for Cape Verde, resulting in a failing score on those hurdles.
CRS-16
participate in the Threshold program. What separated these latter six from El
Salvador and Namibia, however, was not explained by the Board.
Naming Candidate Countries — FY2007. On August 11, 2006, the MCC
released a list of 69 low-income and 29 lower middle-income countries to be
candidates for MCA grant eligibility. The number of low-income countries — those
with per capita GNI of less than $1,675 — and lower middle-income countries —
those with per capita GNI of $1,675 to $3,465 — was the same as the previous year.
However, China and Morocco have been dropped from the low-income group — the
former is restricted by human rights concerns and the latter has moved to the lower
middle-income list, and replaced by Burundi and Central African Republic, both no
longer restricted by military coup prohibitions. Thailand has been removed from
lower middle-income list due to its coup and Romania has moved up to the ranks of
upper middle-income countries. New entries are Montenegro and Morocco. Fifteen
countries were excluded from the FY2007 candidate country list because they are
ineligible under existing law to receive U.S. economic aid. Most had been barred in
prior years as well.
Country Selection — FY2007. 10
candidate countries. Among the problems cited in this case were human rights
abuses, restrictions on civil liberties and press freedom, and worsened anti-corruption
efforts.
On November 8, 2006, the MCC Board
added three new countries to the list of
those eligible for MCA grants — Moldova,
Jordan, and Ukraine.
Low-Income Countries
Armenia
Benin
Bolivia
Burkina Faso
East Timor
Georgia
Ghana
Honduras
Losotho
Madagascar
Mali
Moldova*
Mongolia
Morocco
Mozambique
Nicaragua
Senegal
Sri Lanka
Tanzania
Ukraine*
Vanuatu
Lower Middle-Income Countries
Cape Verde
El Salvador
Jordan*
Namibia
* New for FY2007.
Jordan, and Ukraine. Even prior to the
selection, the possible choice of Jordan had come in for severe
criticism. Freedom
House, the organization whose annual Index of Freedom is
drawn upon for two of the
“Ruling Justly” indicators, had urged the MCC Board to
bypass countries that had
low scores on political rights and civil liberties. It argued
that countries like Jordan
that fall below 4 out of a possible 7 on its index should be
automatically disqualified.
Jordan, however, did well on three of the six other
indicators in this category.
Several development analysts further argued that Jordan
CRS-17
should not be selected,
because the MCA is not an appropriate funding source. They
assert that Jordan
already is one of the largest recipients of U.S. aid, has access to
private sector capital,
and is not a democracy.2312 In selecting Jordan, the MCC Board
appears not to have
been swayed by these arguments.
Another concern expressed by observers regarding the FY2007 selection process
iswas that four of eleven current Compact countries — Ghana, Benin, Madagascar, and
Cape Verde — would fail if measured under FY2007 indicators. While it was not
expected that existing Compact funding would be withdrawn as it is based on
eligibility in previous years, some had hoped the Board would send a signal of
disapproval of such lapses. However, the MCC Board did not address this issue at
the November 2006 candidate selection meeting.
Country Selection — FY2008. On March 11, 2008, the MCC Board added
the Philippines to the list of countries eligible to apply for a Compact. It joins 24
countries, previously selected on December 12, 2007. Of these, Malawi is the only
other new entry. Two countries that had appeared in the past were absent in the 2008
list. Sri Lanka is left out because of the resurgent civil strife that would make a
Compact problematic, and Cape Verde for more complicated reasons. Under the
recent changes in the qualifying indicators, Cape Verde would not have been eligible
for the third year in a row, and, as a lower-middle income country, is more strictly
judged. Nonetheless, according to the MCC, 12 of the 24 countries that made the cut
this year did not meet the FY2008 criteria, five of them failing the control of
corruption indicator. One reason that the MCC has re-selected these countries is that
they are viewed as maintaining or improving their performance rather than adopting
policies contrary to the criteria. This approach is taken because countries following
reasonable policies may fall behind the performance criteria when other countries are
improving faster — thereby raising the bar — when new criteria are introduced
which countries have not had an opportunity to address and when institutions
measuring performance refine or revise their indicators.
12candidate selection meeting.
MCA Compacts and Program Proposals
Once declared as eligible, countries may prepare and negotiate program
proposals with the MCC. The proposals are 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. Not all qualified
MCA countries may 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 did not set hard deadlines for Compact submissions in order
to allow countries adequate time to conduct a national dialogue over the contents of
23
Freedom House, “Millennium Challenge Corporation Should Hold Countries to Higher
Standards of Democratic Governance,” November 2, 2006 [http://www.freedomhouse.org];
Sheila Herrling, Steve Radelet, and Sarah Rose, “Will Politics Encroach in the MCA
FY2007 Selection Round? The Cases of Jordan and Indonesia,” Center for Global
Development, October 30, 2006, [http://www.dgdev.org].
CRS-18
the program proposal.24 By December 1, 2004, the MCC had received proposals and
“concept papers” from 15 of the 16 FY2004 eligible countries, and began the next
phase — negotiating formal Compacts — with several countries. The MCC signed
its first Compact, with Madagascar, on April 18, 2005, an event that was followed
by four other signings in 2005 — with Honduras (June 13), Cape Verde (July 4),
Nicaragua (July 14), and Georgia (September 12). In 2006, six more agreements
were signed: Benin (February 22), Vanuatu (March 2), Armenia (March 27), Ghana
(August 1), Mali (November 13) and El Salvador (November 29).25
Two features of the first series of Compacts have drawn particular attention.
First, most of the Compacts include a similar sector concentration, focusing on
agriculture and transportation infrastructure projects. While these activities are well
justified, the similarity across Compacts is somewhat surprising. Given the wide
diversity of conditions in each of the countries, plus the Corporation’s willingness
to support all types of programs, many observers had expected to see a greater degree
of variation among the Compacts. Some believe that social sectors, including those
in health and education, should be receiving greater attention in Compact design.
Others had expected greater variety in aid delivery mechanisms, and are concerned
that the MCC is reluctant to approve sector grants and other types of budget support
assistance. While there can be greater accountability risks associated with this kind
of aid, countries that qualify for MCA support are selected because they have already
demonstrated stronger performance in managing resources and fighting corruption.26
As subsequent Compacts are signed, the issue of sector focus is likely to be closely
watched.
A second closely examined characteristic of the early Compacts has been the
dollar size of the grants; or more specifically, the lower-than-anticipated funding
level for the first several Compacts. While Administration officials have said
repeatedly that Compacts will be funded at various levels depending on the nature
and potential impact of the proposal, the presumption has been that the MCA grant
would represent a sizable increase in U.S. assistance to the eligible country. In order
to realize its potential as a “transformational” aid program and to provide sufficient
incentives to countries requesting “breakthrough” projects, the MCC says that the
size of its grants must place MCA assistance among the top aid donors in a country.27
Some had estimated that once the Corporation’s budget reached $5 billion, each
24
H.R. 4014, introduced on October 7, 2005, expresses the sense of Congress that the MCC
should encourage countries to submit Compact proposals within one year of being declared
eligible, enter into a Compact within two years, and to consider removing countries from the
status of eligibility if they do not comply with these guidelines in a timely and good faith
manner.
25
Details on each of the negotiated Compacts can be found at the MCA website:
[http://www.mcc.gov].
26
James Fox and Lex Rieffel, The Millennium Challenge Account: Moving Toward Smarter
Aid. The Brookings Institution, July 14, 2005, p. 24.
27
See, for example, Millennium Challenge Corporation FY2005 Budget Justification, p. 7.
Found at [http://www.mcc.gov/about/reports/congressional/budgetjustifications/budget_
justification_fy05.pdf].
CRS-19
Compact would be supported with annual resources in the $150-$200 million range.28
These levels could vary up or down depending on many factors, such as the number
of people living in poverty, the size of the economy, and the scope of the proposed
projects.
Most of the first several Compacts, however, do not appear to meet the
anticipated financial allocation thresholds. Madagascar’s four-year, $110 million
Compact roughly doubles U.S. assistance to the country, but does not place MCA
assistance among the top donors. France is the largest bilateral donor, disbursing on
average $189 million per year, 2001-2004. The European Commission’s aid
program, 2001-2004, averaged $82 million per year, while the World Bank’s
International Development Association has been Madagascar’s largest source of
concessional assistance of about $209 million lent in each of 2001 through 2004.29
The $110 million Compact for Madagascar is also not very large relative to the
country’s population. Of the 16 qualified countries for FY2004, Madagascar has the
fourth largest population (16.4 million), and might have been expected to receive one
of the larger MCA grants given its population size and its per capita income ($230,
second lowest among the 16 MCA countries).
For Honduras (a $215 million MCA program over five years), Georgia ($295
million over five years), and Armenia ($236 million over five years), the United
States has been the top bilateral donor in recent years without the MCA program, and
will likely remain in that position once the MCA grants begin to disburse. But the
MCA Compact for Honduras calls for only a slightly higher annual amount than
current U.S. economic assistance provides, while Georgia’s Compact will average
only about three-fourths and the Armenia Compact only about two-thirds of the
annual level of present American aid. While these are not insignificant amounts of
new resources, they are far less than Administration officials had suggested
previously.30
In contrast, the six five-year Compacts with Cape Verde ($110 million), Benin
($307 million), Vanuatu ($66 million), Ghana ($547 million), Mali ($461 million),
and El Salvador ($461 million) represent a substantial investment by the United
States, relative to the current size of American aid and the size of their economies.
USAID, which last provided direct bilateral assistance to Cape Verde in the mid1990s, does not maintain a mission presence, allocating small amounts of aid through
regional programs. The Compact’s $22 million annual average will place the United
States second to Portugal, Cape Verde’s former colonial power, as the leading donor,
and represent more than a quarter of total bilateral development aid grants from all
sources compared with figures for 2003 and 2004. Likewise, the United States does
not maintain a bilateral program with Vanuatu, limiting direct aid through the Peace
28
Prepared statement of Steve Radelet, Senior Fellow at the Center for Global Development,
before a hearing of the House International Relations Committee, April 27, 2005.
29
Organization for Economic Cooperation and Development (OECD), Geographical
Distribution of Financial Flows to Aid Recipients, 2000/2004: 2006 edition.
30
For example, USAID Administrator Natsios remarked in an October 22, 2002 speech at
the American Embassy in London that “we estimate in most countries the MCA will provide
funding 5 to 10 times higher than existing levels” of U.S. assistance.
CRS-20
Corps. The $13 million annual average of the Vanuatu program will place the United
States as the country’s top aid donor, along with Australia. In Benin, USAID
manages an annual bilateral economic aid program of about $15 million, compared
with the $61 million annual size of the MCC Compact. The Compact appears likely
to place the MCC as the top aid donor, together with France, for Benin.31
This issue has been a priority of Ambassador Danilovich since his September
27, 2005 confirmation hearing to be the MCC’s new CEO. He noted that the MCC
was “meant to create transformative programs,” and to do so he said that “future
Compacts will generally need to be larger than those signed thus far.” Ambassador
Danilovich cautioned, however, that with limited resources but larger Compacts,
fewer countries will receive funding if MCC is to achieve its transformational goal.32
His record since assuming the CEO position appears to be moving towards larger
Compacts and placing the MCC as the largest donor in recipient countries.
Compact Descriptions. The eleven Compacts agreed up to this point are
described below.
Madagascar. The Madagascar Compact is a four cgdev.org].
CRS-11
Low-Income Countries
Benin
Bolivia
Burkina Faso
East Timor
Georgia
Ghana
Honduras
Lesotho
Madagascar
Malawi*
Mali
Moldova
Mongolia
Mozambique
Nicaragua
Philippines*
Senegal
Tanzania
Vanuatu
Lower-Middle-Income Countries
Armenia
El Salvador
Jordan
Morocco
Namibia
Ukraine
* New for FY2008.
MCA Compacts and Program Proposals
Once declared as eligible, countries may prepare and negotiate program
proposals with the MCC. Only those Compact proposals that demonstrate a strong
relationship between the program proposal and economic growth and poverty
reduction will receive funding. Not all qualified MCA countries may submit
successful Compact proposals.
While acknowledging that Compact proposal 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 did not set hard deadlines for Compact submissions in order
to allow countries adequate time to conduct a national dialogue over the contents of
CRS-12
the program proposal. Proposals are developed by a country with the guidance and
in consultation with the MCC. Sometime during the proposal development process,
the MCC may provide so-called pre-Compact development grants to assist the
country’s efforts. Among other things, grants may be used for design studies,
baseline surveys, technical and feasibility studies, environmental and social
assessments, ongoing consultations, fees for fiscal and/or procurement agents, and
the like. In December 2007, the MCC provided Burkina Faso with a pre-Compact
development grant of $9.4 million, not counted as part of the final Compact.
Once a proposal is submitted, the MCC conducts an initial assessment, then, on
the basis of that assessment, launches a due diligence review that closely examines
all aspects of the proposal, including costs and impacts. At the same time, MCC staff
work with the country to refine program elements. Finally, the MCC negotiates a
final Compact agreement prior to its approval by the MCC Board. The Compact is
signed but does not enter into force until supplemental agreements on disbursements
and procurement are reached.13
The MCC signed its first Compact, with Madagascar, on April 18, 2005, an
event that was followed by four other signings in 2005 — with Honduras, Cape
Verde, Nicaragua, and Georgia. In 2006, six more agreements were signed: Benin,
Vanuatu, Armenia, Ghana, Mali and El Salvador. In 2007, four Compacts were
signed — with Mozambique, Lesotho, Morocco, Mongolia. In 2008, only one, with
Tanzania, has been signed to date.
The case of Madagascar is a good example of how the Compact process is
expected to take shape. Elements of the design, negotiation, and completion of the
Madagascar Compact met several of the key criteria of the MCA process.
Discussions regarding the scope and purpose of the MCA grant occurred at the
regional and national level in Madagascar that included broad representation of civil
society. Management and oversight of the Compact will be handled by a new entity,
MCA-Madagascar, whose Steering Committee will include government and nongovernment officials. Both of these steps underscore the “country-ownership” and
broad participatory nature of MCA programs. The Compact also includes fiscal
accountability requirements concerning audits, monitoring, and evaluation that
support the transparency concept of the MCA. While the $110 million MCA grant
was fully obligated when the Compact entered into force, resources will be
transferred periodically following a determination that performance continues
satisfactorily. This funding plan emphasizes the MCA principles of accountability
and results.
Compact Descriptions. The 16 Compacts agreed up to this point are
described below (also see Table 2). In addition to individual Compact components
noted in each description, Compact totals include administrative and monitoring
costs.
13
Details on each of the negotiated Compacts can be found at the MCA website:
[http://www.mcc.gov].
CRS-13
Madagascar. The Madagascar Compact is a four-year, $110 million program,
focusing on rural agriculture development and poverty reduction. Specifically, the
project has three objectives: 1) to increase land titling and land security ($36 million);
2) to expand the financial sector and increase competition ($36 million); and 3) to
improve agricultural production technologies and market capacity in rural areas ($17
million). According to the MCC, the Compact is designed to assist Madagascar’s
rural poor, which account for 80% of the nation’s impoverished population, and
generate income by expanding opportunities to own land, to access credit, and to gain
technical training in agriculture and market identification.
Elements of the design, negotiation, and completion of the Madagascar Compact
met several of the key criteria of the MCA process. For example, discussions
regarding the scope and purpose of the MCA grant occurred at the regional and
national level in Madagascar that included broad representation of civil society.
Management and oversight of the Compact will be handled by a new entity, MCAMadagascar, whose Steering Committee will include government and nongovernment officials. Both of these steps underscore the “country-ownership” and
broad participatory nature of MCA programs. The Compact also includes fiscal
accountability requirements concerning audits, monitoring, and evaluation that
support the transparency concept of the MCA. While the $110 million MCA grant
will be fully obligated when the Compact enters into force, resources will be
transferred periodically following a determination that performance continues
satisfactorily. This funding plan emphasizes the MCA principles of accountability
and results.
31
Geographical Distribution of Financial Flows to Aid Recipients, 2000/2004: 2006
edition.
32
Prepared statement of John J. Danilovich, before the Senate Committee on Foreign
Relations, September 27, 2005.
CRS-21
Honduras. The five-year, $215 million MCA Compact with Honduras focuses
on two objectives — rural development and transportation. The rural development
project, representing $72.2 million of the Compact, will assist small and medium-size
farmers enhance their business skills and to transition from the production of basic
grains to horticultural crops, such as cucumbers, peppers, and tomatoes. According
to the MCC, these vegetable crops will generate about $2,000 to $4,000 in annual
income per hectare, compared with roughly $500 for basic grains. The project
intends to provide farmers with the appropriate infrastructure and necessary training
for producing and marketing these different crops. The transportation project,
totaling $125.7 million of the Compact, will improve the major highway linking
Honduran Atlantic and Pacific ports, and major production centers in Honduras, El
Salvador, and Nicaragua. Rural roads will also be upgraded, helping farmers
transport their goods to markets at a lower cost. Specific results sought in the
Compact are:
!
!
!
!
double productivity in 15,000 hectares in rural areas
expand access to credit for farmers by over 20%
upgrade the major road that links Honduras with commercial centers
upgrade about 1,500 kilometers of rural roads
Cape Verde. The MCC and Cape Verde have signed a five-year, $110 million
Compact focused largely on improving the country’s investment climate,
transportation networks, and agriculture productivity. The program’s goal is to
increase the annual income in Cape Verde by at least $10 million. The Compact
evolves around three projects:
!
!
!
Private Sector Development — with $7.2 million and additional
participation with the International Finance Corporation, the project
aims to remove constraints to private sector investment.
!
Infrastructure — the project will invest $78.7 million in road and
bridge construction to help link the nine inhabited islands and
improve transportation links to social services, employment
opportunities, local markets, and ports and airports.
!
Watershed Management and Agriculture Support — by investing
$10.8 million to increase the collection, storage, and distribution of
rainfall water, the project hopes to increase agricultural production
and double the household income of farmers.
Nicaragua. The five-year, $175 million Compact with Nicaragua will focus
on the promoting economic growth primarily in the northwestern region of the
CRS-14
country where potential opportunities exist due to the area’s fertile land and nearby
markets in Honduras and El Salvador. The Compact has three components: 1) to
strengthen property registration ($26.5 million); 2) to upgrade primary and secondary
roads between Managua and Leon and to provide technical assistance to the Ministry
of Transportation ($92.8 million); and 3) to promote higher-profit agriculture
activities, especially for poor farmers, and to improve water supply in support of
higher-value sustainable agriculture.
CRS-22
Georgia. The $295 million, five-year agreement with Georgia focuses on
reducing poverty and promoting economic growth in areas outside of the capital
where over half the population lives in poverty. The Compact is divided into two
projects. The first and the largest component ($211.7 million) concentrates on
infrastructure rehabilitation, including roads, the north-south gas pipeline, water
supply networks, and solid waste facilities. The Enterprise Development Project
($47.5 million) will finance an investment fund aimed at providing risk capital and
technical assistance to small and medium-sized businesses, and support farmers and
agribusinesses that produce commodities for the domestic market. The program
expects to:
!
!
!
!
reduce in the incidence of poverty by 12% in the Samtskhi-Javakheti
region;
provide direct benefits to 500,000 people and indirectly benefit over
25% of Georgia’s population;
reduce the travel time by 43% to Tbilisi, the capital, from regional
areas, thereby cutting transportation costs for farmers, businesses,
and individuals needing health and other social services; and
lower the risk of a major gas pipeline accident and improve the
reliability of heat and electricity to over one million Georgians.
Armenia. The five-year, $236 million Compact concentrates on the
agricultural sector, investing in the rehabilitation of rural roads ($67 million) and
improving irrigation ($146 million). The program anticipates that it will benefit
about 750,000 people, 75% of Armenia’s rural population, by improving 943
kilometers of rural roads and increasing the amount of land under irrigation by 40%.
In signing the Compact, however, the MCC issued a cautionary note, signaling
Armenia that it must maintain its commitment to the performance indicators on
which the country was selected, or risk suspension or termination of the Compact.
Misgivings have been raised both prior to and during implementation of the
Armenia Compact. In September 2005, the MCC expressed concerns with Armenian
officials regarding
slippage on two of the governance indicators and matters raised
by international
groups concerning political rights, political freedom, and an independent media in
and freedoms in the country.
Moreover, the MCC Board delayed final approval of the Compact following the
November 27, 2005, constitutional referendum, after allegations of fraud,
mismanagement,
limited access by the press, and abuse of individuals were raised.33
In signing the Compact on March 27, 2006, the MCC issued a cautionary note,
signaling that Armenia must maintain its commitment to the performance indicators
or risk suspension or termination of the Compact. On March 11, 2008, the MCC
issued a warning that assistance might be suspended or terminated in response to the
CRS-15
government’s actions, including the imposition of a state of emergency and
restrictions on press freedoms.14
Vanuatu. The $65.7 million, five-year Compact targets improvements broadly
in multiple types of infrastructure, including roads, wharfs, an airstrip, and
warehouses. The objective is to increase the average per capita income by 15%, by
helping rural agricultural producers and providers of tourism-related goods and
services. The Compact further aims to help strengthen Vanuatu’s Public Works
Department in order to enhance capacity to maintain the country’s entire transport
network.
33
See letter of John Danilovich to Armenia President Robert Kocharyan on December 16,
2005.
CRS-23
Ghana. The five-year $547 million Compact focuses on agriculture and rural
development. Poverty rates in the three targeted geographic areas are above 40%.
The agriculture component ($241 million) will provide training for farmer-based
organizations, improve irrigation, provide greater access to credit, and rehabilitate
local roads. The transport component ($143 million) will seek to reduce transport
costs to farmers by improving key roads, such as the one between the capital and the
airport, and an important ferry service. Rural development programs ($101 million)
will construct and rehabilitate education, water, and electric facilities, among other
activities.
Benin. Benin, one of the world’s poorest countries with the lowest Human
Development Index ranking of any MCC Compact nation, has been approved for a
$307 million, five year program focused on four sectors:
!
!
!
!
Land rights, reducing the time and cost of obtaining property title;
Financial services, helping micro, small, and medium-sized
businesses;
Justice reform, assisting the judicial systems capacity to resolve
business and investment claims; and
Market access, improving the Port of Cotonou.
The Compact’s goal is to benefit five million people, bringing 250,000 of the
population out of poverty by 2015.
Ghana. The five-year $547 million Compact focuses on agriculture and rural
development. Poverty rates in the three targeted geographic areas are above 40%.
The agriculture component ($241 million) will provide training for farmer-based
organizations, improve irrigation, provide greater access to credit, and rehabilitate
local roads. The transport component ($143 million) will seek to reduce transport
costs to farmers by improving key roads, such as the one between the capital and the
airport, and an important ferry service. Rural development programs ($101 million)
will construct and rehabilitate education, water, and electric facilities, among other
activities.
Mali. The five-year $461 million Compact emphasizes an increase in
agricultural production and expansion of trade. About half the funds ($234.6
million) will support a major irrigation project, including modernization of
infrastructure and improvements in land tenure. Improvements in the airport ($89.6
million) will target both passenger and freight operations. An industrial park project
located at the airport ($94.6 million) will assist agro-processing and other industry.
El Salvador. The five-year $461 million Compact will address economic
growth and poverty reduction concerns in El Salvador’s northern region where more
than half the population lives below the poverty line. Education as well as water and
sanitation, and electricity supply ($95.1 million); support for poor farmers and small
and medium-sized business ($87.5 million); and transportation, including roads
($233.6 million) are the chief elements of program.
CRS-24
Table 1. Status of MCA Compacts
Country
Armenia
Compact Signed
Mar. 27, 2006
GNI
per capita
$1,470
Population
Living Below $2
p/day (%)
31.1%
Human
Development
Index Rankinga
80
FY06 US
Econ. Aid
(millions)
Compact
Size
(millions)
Compact Focus
$76.0
$236
5 years
-Agriculture/irrigation
-Rural roads
-Land and property
-Financial services
-Judicial improvement
-Port rehabilitation
Benin
Feb. 22, 2006
$510
73.7%
163
$15.1
$307
5 years
Cape Verde
July 4, 2005
$1,870
NA
106
$1.8
$110
5 years
- Agriculture
- Transport/roads
- Private sector
$33.3
$461
5 years
-Education
-Transport/roads
-Small business/farm
development
- Infrastructure/gas
- Transport/roads
- Agriculture/business
El Salvador
November 29,
2006
$2,630
40.5%
101
Georgia
Sept. 12, 2005
$1,350
25.3%
97
$68.1
$295
5 years
Ghana
August 1, 2006
$450
78.5%
136
$46.7
$547
5 years
-Agriculture
-Transport
-Rural Development
Honduras
June 13, 2005
$1,190
44.0%
117
$35.3
$215
5 years
-Agriculture
-Transport/roads
CRS-25
Country
Compact Signed
GNI
per capita
Population
Living Below $2
p/day (%)
Human
Development
Index Rankinga
FY06 US
Econ. Aid
(millions)
Compact
Size
(millions)
Compact Focus
Madagascar
April 18, 2005
$290
85.1%
143
$23.8
$110
4 years
- Land titling
- Financial sector
- Agriculture
Mali
November 13,
2006
$380
90.6%
175
$34.9
$460.8
5 years
-Irrigation
-Transport/airport
-Industrial park
Nicaragua
July 14, 2005
$910
79.9%
112
$34.5
$175
5 years
- Land titling
- Transport/roads
- Agriculture
Vanuatu
March 2, 2006
$1,600
NA
119
$2.2
$66
5 years
-Transport rehab
-Public Works Dept.
Sources:
Population Living Below $2 Per Day — data from the World Bank, World Development Report, 2007; Gross National Income per capita — 2005 data from the World Bank, World
Development Report, 2007. Human Development Index Rank — from UNDP, Human Development Report, 2006.
U.S. Economic Aid — Department of State. MCA Compact information — Millennium Challenge Corporation.
a. The Human Development Index (HDI) is compiled by the U.N. Development Program and is published annually in the UNDP Human Development Report. It is a composite index
that measures the average achievements in a country in three basic dimensions of human development: a long and healthy life, as measured by life expectancy at birth; knowledge,
as measured by the adult literacy rate and the combined gross enrolment ratio for primary, secondary and tertiary schools; and a decent standard of living, as measured by GDP
per capita in purchasing power parity (PPP) U.S. dollars. The most recent report (2006) evaluates 177 countries, with number 1 having the best HDI and number 177 scoring
the worst in the Index.
CRS-26
“Threshold” Countries and Programs
In order to encourage non-qualifying countries to improve in weak areas, 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 could be used for such purposes, stating that the funding could be
made available through USAID. Subsequent foreign operations appropriations have
made 10% of new MCA appropriations available for this Threshold assistance.34
According to the Threshold Program Policy guidance issued by the
Corporation,35 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, countries
14
See letters of John Danilovich to Armenia President Robert Kocharyan on December 16,
2005 and March 11, 2008 on MCC website.
CRS-16
and medium-sized business ($87.5 million); and transportation, including roads
($233.6 million) are the chief elements of program.
Mozambique. The five-year $506.9 million Compact, like most other
Compacts, targets specific districts, in this case the less prosperous North of the
country. The Compact has four components. Water and sanitation services will be
improved ($203.6 million), a major road will be rehabilitated ($176.3 million), land
tenure services will be made more efficient ($39.1 million), and steps will be taken
to protect existing coconut trees, improve coconut productivity, and support
diversification to other cash crops ($17.4 million). The long-term objective is to
reduce the projected poverty rate by more than 7%.
Lesotho. The five-year $362.6 million Compact has three elements. A water
sector project ($164 million) will focus on both industrial, supporting garment and
textile operations, and domestic needs. It will also support a national watershed
management and wetlands conservation plan. A health project ($122.4 million) will
seek to strengthen the health care infrastructure, including renovation of up to 150
health centers, improved management of up to 14 hospital out-patient departments,
construction and equipping of a central laboratory, and improved housing for medical
staff and training for nurses. A private sector development project ($36.1 million)
will address a wide range of legal and administrative obstacles to increased private
sector activity, including development of land policy and administration authority,
implementation of a new payments and settlement system, and improvement of case
management of commercial courts.
Morocco. The five-year, $697.5 million Compact has multiple components,
all aimed at increasing private sector growth. These include efforts to increase fruit
tree productivity ($300.9 million), modernize the small-scale fisheries industry
($116.2 million), and support artisan crafts ($111.9 million). In addition, the
Compact will fund financial services to micro-enterprises ($46.2 million) and will
provide business training and technical assistance aimed at young, unemployed
graduates ($33.9 million).
Mongolia. The most significant part of the five-year $285 million Compact
intends to stimulate economic growth by refurbishing the rail system, including
infrastructure and management ($188.38 million). In addition, the Compact will
support improvements in the property registration and titling system ($23.06 million)
and the vocational education system ($25.51 million). The Compact will also
attempt to reform the health system to better address non-communicable diseases and
injuries, which are rapidly increasing in the country ($17.03 million).
Tanzania. The five-year, $698 million Compact will focus on three key
economic infrastructure issues. A transport sector project ($373 million) will
improve major trunk roads, select rural roads, general road maintenance capabilities,
and upgrade an airport. An energy sector project ($206 million) will lay an electric
transmission cable from the mainland to Zanzibar, will construct a small hydroelectric plant at Igamba Falls, and will rehabilitate the existing distribution system
to unserved areas. A water sector project ($66 million) will expand a clean water
treatment facility serving the capital, reduce water loss in the capital region, and
improve the water supply in Morogoro, a growing city.
CRS-17
“Threshold” Countries and Programs
In order to encourage non-qualifying countries to improve in weak areas, the
MCC 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
could be used for such purposes, stating that the funding could be made available
through USAID. Subsequent foreign operations appropriations have made 10% of
new MCA appropriations available for this Threshold assistance.15
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. Those
countries deemed eligible for the program must submit 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.
Twenty-oneCurrently, 22 countries are currently eligible for threshold assistance. Yemen,
suspended in November 2005 following a significant decline in meeting the
eligibility criteria, was re-instated in February 2007 due to its adoption of a series of
significant reforms. eligible for threshold assistance. To date, the
threshold programs of thirteen19 countries totaling
$309 $420 million have been approved by the
MCC Board — Albania, Tanzania, Burkina
Faso, Malawi, Moldova, Philippines, Zambia, Jordan, Indonesia, Ukraine, Paraguay,
Kenya, and Uganda.36
34
Initially, assistance for Threshold countries was authorized only for FY2004. The MCC
Authorization bill, H.R. 4014, as reported by the House International Relations Committee,
would make the 10% set-aside for threshold programs permanent.
35
Found at [http://www.MCC.gov].
36
Countries that are eligible but have not yet been awarded threshold program support are
(continued...)
CRS-27
Eleven of the thirteen programs seek to improve country scores on the
corruption indicator. Several countries have multiple objectives. Indonesia, for
example, targets corruption and immunization indicators. Albania focuses on
corruption and improvements in its business environment. The Burkina Faso
program is designed to improve girls’ primary education, targeting areas of the
country with the lowest primary completion rates.
Select Issues
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 20 of the 25 eligible countries and might be expected to support 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 was anticipated that
USAID spending would 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. But in the case of
the first Compacts for Madagascar, Honduras, and Nicaragua, the MCA grants are
only somewhat larger on a per-year average ($28 million for Madagascar, $43 million
for Honduras, and $35 million for Nicaragua) than USAID’s “core” economic aid
programs (about $22 million for Madagascar, $34 million for Honduras, and $32
million for Nicaragua). For Georgia, the Compact’s average level of $59 million is
below USAID’s $68 million allocation for FY2006.
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,
36
(...continued)
Guyana, Krygyz Republic, East Timor, Sao Tome and Principe, Niger, Peru, and Rwanda.
The latter three were added on November 8, 2006.
CRS-28
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.
Nonetheless, some critics continue to express concern that MCA funding is not
always additive, as had been the pledge, but will substitute for portions of previous
USAID bilateral development aid programs. The FY2008 budget request offers a
look at how funding levels may be affected by MCA Compacts. In every Compact
country where there has been a bilateral economic assistance program, that assistance
would be reduced under the FY2008 budget plan from FY2006 levels.
Funding Issues
In each year since the MCA was established, its enacted appropriation has been
well below the President’s request. In each year, the MCC proposal was also by far
the largest increase sought by the Administration in the Foreign Operations
appropriations bill and viewed by many observers as one of the most vulnerable
items in an increasingly difficult budget environment.
Table 2. MCA Appropriations: FY2004-2008
(in $ billions)
FY2004
FY2005
FY2006
FY2007
FY2008
Request
1.300
2.500
3.000
3.000
3.000
Appropriation
0.994
1.488
1.752
1.752
—
MCA Request and Congressional Action for FY2007.
The
Administration sought a $3 billion appropriation for FY2007. The MCC had
estimated that it would exhaust all existing appropriations from FY2004-FY2006 by
the second quarter of FY2007, leaving nine then-eligible countries, plus any new
nations selected for FY2007 to be funded out of the FY2007 appropriation. In
testimony before the House Foreign Operations Appropriations Subcommittee on
March 29, 2006, CEO Danilovich argued that a funding level less than $3 billion
would require the MCC to delay the negotiation and approval process for new
Compacts. He further asserted that without full funding, the ability of the MCC to
leverage reforms and provide incentives to eligible countries would be diminished.
Some, including Subcommittee Chairman Kolbe, questioned whether the MCC
could pick up the pace of signing new Compacts to the degree required to utilize the
full $3 billion request for FY2007. Ambassador Danilovich said the Corporation has
learned from its first two years of operations and has accelerated several steps in the
evaluation and approval process.
On June 9, 2006, the House approved the FY2007 Foreign Operations
appropriations, H.R. 5522, reducing the FY2007 MCA funding level to $2 billion.
The Appropriation Committee’s report on the legislation (H.Rept. 109-486) said that
the panel continued to strongly support the MCC and that the proposed reduction
stemmed solely from the constrained budget environment and the need to allocate
resources to other Presidential and congressional priorities.
CRS-29
On June 29, 2006, the Senate Appropriations Committee approved its version
of the FY2007 State/Foreign Operations appropriations, providing $1.9 billion for the
Millennium Challenge Corporation, $1.1 billion below the Administration request.
Like the House, the Senate Committee report (S.Rept. 109-277) offered strong
support to the MCC and noted that, in allocating funds, it was restricted by broader
budget constraints. The Committee directed the Director of Foreign Assistance at
State to submit a report no later than 15 days after the signing of a compact assessing
its place within the context of the overall foreign aid program in a country and noting
any possible resulting duplication of programs. It also suggested that judicial reform
should be part of MCC compacts and raised a concern that education has not yet been
a major part of compacts. The Committee directed that the MCC submit a report
regarding steps it is taking to address social and environmental costs resulting from
infrastructure investments. The full Senate did not take up the foreign operations
appropriations legislation.
Under the terms of a continuing resolution (H.R. 5631/P.L.109-289, Division
B as amended by H.J.Res. 20 on February 15, 2007), $1.75 billion was provided in
FY2007 funding for the MCA.
MCA Request for FY2008. On February 5, 2007, the Administration
requested a FY2008 appropriation of $3 billion for the MCA. In its budget
presentation, the MCC argued that currently available resources are expected to be
fully utilized on Compacts likely to be signed this year, including Lesotho, Morocco,
Mozambique, Tanzania, and Sri Lanka. Expected to be left in the pipeline for
funding in FY2008 are nine to ten countries, possibly including Jordan, Moldova,
and Ukraine. If fully funded at $3 billion, the MCC could support about six of these
compacts in FY2008.
Authorizing Legislation
On July 13, 2006, the House International Relations Committee reported a
measure, H.R. 4014 (H.Rept. 109-563), that would have authorized MCC
appropriations (“such sums as may be necessary”) for fiscal years 2007 through 2009
and made a number of policy modifications to the original legislation and to the
operations of the Corporation. These included allowing Compacts to last up to ten
years, instead of the five currently permitted; allowing two concurrent Compacts,
rather than the current one; and requiring notification to authorizing and
appropriating Committees 15 days prior to signing a Compact (as in the procedures
of reprogramming notifications under section 634A of the Foreign Assistance Act),
in place of existing language requiring that the MCC consult with “appropriate
committees” prior to negotiating a Compact. H.R. 4014 received no further
consideration in the 109th Congress. The requirement of an authorization of foreign
aid programs has been routinely waived in annual Foreign Operations appropriations
bills, as the FY2007 continuing resolution measure did in the case of currently
unauthorized foreign aid programs, including the MCA.
CRS-30
Table 3A. MCA Low-Income Candidate, Eligible, and Threshold
Countries — FY2007
Criteria: Per capita income $1,675 and below, and not prohibited from receiving
other U.S. economic assistance.
Eligible Countries are in Bold.
Threshold Countries are followed with (TC)
Africa
Income* East Asia/Pacific Income* Latin America Income*
Angola
$1,350 East Timor (TC)
$750
$1,010
Bolivia
$510
Indonesia (TC)
$1,280
Guyana (TC)
$1,010
Benin
$400
Kiribati
$1,390
Haiti
$450
Burkina Faso
Burundi
$100
Laos
$440
$1,190
Honduras
Cameroon
$1,010 Mongolia
$690
$910
Nicaragua
Central African Rep
$350
Papua New Guinea
$660
Paraguay (TC)
$1,280
Chad
$400
Philippines (TC)
$1,300
Comoros
$640
Solomon Islands
$590
Congo, Dem Rep of
$120
$1,600
Vanuatu
Congo, Rep of
$950
Vietnam
$620
Djibouti
$1,020
Eritrea
$220
Ethiopia
$160
$290
Gambia (suspended)
$450
Ghana
Guinea
$370
South Asia
Income*
Mid-East
Income*
Guinea-Bissau
$180
Afghanistan
**
Egypt
$1,250
Kenya (TC)
$530
Bangladesh
$470
Iraq
**
$960
Bhutan
$870
Yemen (TC)
$600
Lesotho
Liberia
$130
India
$720
$290
Nepal
$270
Madagascar
Malawi (TC)
$160
Pakistan
$690
$380
$1,160
Mali
Sri Lanka
Mauritania
$560
$310
Mozambique
Eurasia
Income*
Niger (TC)
$240
$1,470
Armenia
Nigeria
$560
Azerbaijan
$1,240
Rwanda (TC)
$230
$1,350
Georgia
Sao Tome&Principe
$390
Kyrgyz Rep. (TC)
$440
(TC)
$710
$880
Senegal
Moldova (TC)
Sierra Leone
$220
Tajikistan
$330
$340
Turkmenistan
**
Tanzania
Togo
$350
$1,520
Ukraine (TC)
Uganda (TC)
$280
Zambia (TC)
$490
* Gross National Income, dollars per capita, 2005. World Bank, World Development Indicators, On
Line, 2007.
** Precise data unavailable.
CRS-31
Table 3B. MCA Lower Middle-Income Candidate and Eligible
Countries — FY2007
Criteria: Per capita income between $1,675 and $3,465, and not prohibited from
receiving other U.S. economic assistance.
Eligible Countries are in Bold
Threshold Countries are followed with (TC)
Africa
Cape Verde
Namibia
Swaziland
Income* East Asia/Pacific
$1,870 Fiji
$2,990 Marshall Islands
$2,280 Micronesia
Samoa
Tonga
Tuvalu
South Asia
Maldives
Income*
$3,280
$2,930
$2,300
$2,090
$2,190
**
Income*
$2,390
Latin America
Brazil
Colombia
Dominican Rep
Ecuador
El Salvador
Guatemala
Jamaica
Peru (TC)
Suriname
Income*
$3,460
$2,290
$2,370
$2,630
$2,450
$2,400
$3,400
$2,610
$2,540
Mid-East
Income*
Algeria
$2,730
$2,500
Jordan (TC)
Morocco
$1,730
Tunisia
$2,890
Eurasia
Income*
Europe
Income*
Belarus
$2,760
Albania
$2,580
Kazakhstan
$2,930
Bulgaria
$2,450
Macedonia
$2,830
Montenegro
$3,280**
* Gross National Income, dollars per capita, 2005. World Bank, World Development Indicators On
Line, 2007.
** Precise data unavailable. Montenegro figure is based on combined Serbia and Montenegro.
CRS-32
Table 4. MCC Performance Indicators for FY2007
Ruling Justly
Investing in People
Economic Freedom
Control of Corruption
Source: World Bank Institute
[http://www.worldbank.org/wbi/governance]
Public Primary Education Spending as % of GDP
Sources: UNESCO and National governments
Inflation (must be below 15%)
Source: Multiple
Voice and Accountability
Source: World Bank Institute
[http://www.worldbank.org/wbi/governance]
Primary Girls’ Education Completion Rate
Sources: World Bank and UNESCO
Fiscal Policy
Source: National governments and IMF World
Economic Outlook
Government Effectiveness
Source: World Bank Institute
[http://www.worldbank.org/wbi/governance]
Public Expenditure on Health as % of GDP
Sources: World Health Organization (WHO)
Trade Policy
Source: The Heritage Foundation, Index of
Economic Freedom
[http://www.heritage.org/research/features/index/]
Rule of Law
Source: World Bank Institute
[http://www.worldbank.org/wbi/governance]
Immunization Rates: DPT and Measles
Sources: World Health Organization (WHO)
Regulatory Policy
Source: World Bank Institute
[http://www.worldbank.org/wbi/governance]
Civil Liberties
Source: Freedom House
[http://www.freedomhouse.org/template.cfm?page
=15&year=2006]
Days to Start a Business
Source: World Bank
[http://www.doingbusiness.org]
Political Freedom
Source: Freedom House
[http://www.freedomhouse.org/template.cfm?page
=15&year=2006]
Cost of Starting a Business
Source: World Bank
[http://www.doingbusiness.org]
Supplemental Indicator for FY2007
Measuring Sustainable Management of Natural Resources
Natural Resources Management [Source: Columbia Center for Int’l Earth Science Info Network (CIESIN) and Yale Center for Env. Law and Policy (YCLEP)
Land Rights and Access: Access to Land [Source: International Fund for Agricultural Development (IFAD)] and Cost of Property Registration [Source: International
Finance Corporation (IFC)]
Zambia, Jordan, Indonesia, Ukraine, Paraguay, Kenya, Uganda, Guyana, Kyrgyz
Republic, Yemen (program postponed on October 26, 2007, pending review), Sao
Tome and Principe, Peru, and Niger. Countries that are eligible but have not yet been
awarded threshold program support are East Timor, Rwanda, and Mauritania. The
latter country was added on December 12, 2007. At the same time, the MCC Board
invited three countries — Albania, Paraguay, and Zambia — to submit proposals for
follow-on threshold programs (stage II) as their initial threshold programs will expire
this year.
15
Initially, assistance for Threshold countries was authorized only for FY2004.
16
Found at [http://www.MCC.gov].
CRS-18
Funding levels for threshold programs differ, most recently ranging from $8.7
million for Sao Tome and Principe to $35.6 million for Peru. Of the 19 programs,
15 seek to improve country scores on the corruption indicator. Several countries
have multiple objectives. Indonesia and Peru, for example, target both corruption
and immunization indicators. Albania focuses on corruption and improvements in
its business environment. The Burkina Faso program is designed to improve girls’
primary education, targeting areas of the country with the lowest primary completion
rates.
Select Issues
Role of USAID and the Future of Agency Programs in
MCA Countries
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 and consult with USAID and directs
the Agency to ensure that its programs play a primary role in helping candidate
countries prepare for MCA consideration. USAID maintains missions in most of the
eligible countries and might be expected to support MCC programs, through
contracting, procurement, and monitoring tasks. Although USAID is the chief
implementor on behalf of the MCC of threshold programs, its role in other aspects
of MCC activities is not clear.
Another question is how USAID will adjust its own programs in MCA
countries. Then-USAID Administrator Natsios told the House Appropriations
Committee on May 13, 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. Nonetheless, some critics continue to express
concern that MCA funding is not always additive, as had been the pledge, but will
substitute for portions of previous USAID bilateral development aid programs. The
FY2008 budget request offers a look at how funding levels may be affected by MCA
Compacts. With the exceptions of new entries Lesotho, Mozambique, and Morocco,
in Compact countries where there has been a bilateral economic assistance program,
that assistance would be reduced under the FY2008 budget plan from FY2006 levels.
In its FY2008 report on the State/Foreign Operations bill (H.Rept. 110-197), the
House Appropriations Committee made note of this trend and expressed the view
that MCC aid should be “a complement,” not a substitute, to the current aid program.
Compact Sectors
One feature of the first series of Compacts drew particular attention. Most of
the early Compacts included a similar sector concentration, focusing on agriculture
and transportation infrastructure projects. While these activities are well justified,
the similarity across Compacts surprised some observers. Given the wide diversity
of conditions in each of the countries, plus the Corporation’s willingness to support
all types of programs, many had expected to see a greater degree of variation among
CRS-19
the Compacts. Some believe that social sectors, including those in health and
education, should be receiving greater attention in Compact design. Others had
expected greater variety in aid delivery mechanisms, and are concerned that the MCC
is reluctant to approve sector grants and other types of budget support assistance.
While there can be greater accountability risks associated with this kind of aid,
countries that qualify for MCA support are selected because they have already
demonstrated stronger performance in managing resources and fighting corruption.17
As more Compacts are signed, some diversity in programs is creeping in — three of
the more recent ones, in Lesotho, Mozambique, and Tanzania, feature a water and
sanitation component. The Morocco Compact includes micro-credit and artisan
crafts support among its projects.
Compact Size
A second closely examined characteristic of the early Compacts was the dollar
size of the grants; or, more specifically, the lower-than-anticipated funding level for
the first several Compacts. While Administration officials said repeatedly that
Compacts would be funded at various levels depending on the nature and potential
impact of the proposal, the presumption was that the MCA grant would represent a
sizable increase in U.S. assistance to the eligible country. In order to realize its
potential as a “transformational” aid program and to provide sufficient incentives to
countries requesting “breakthrough” projects, the MCC says that the size of its grants
must place MCA assistance among the top aid donors in a country.18 Some had
estimated that once the Corporation’s budget reached $5 billion, each Compact
would be supported with annual resources in the $150-$200 million range.19 These
levels could vary up or down depending on many factors, such as the number of
people living in poverty, the size of the economy, and the scope of the proposed
projects.
Most of the first several Compacts, however, did not meet the anticipated
financial allocation thresholds. Madagascar’s four-year, $110 million Compact
roughly doubled U.S. assistance to the country, but did not place MCA assistance
among the top donors. France was the largest bilateral donor, disbursing on average
$189 million per year, 2001-2004. The European Commission’s aid program, 20012004, averaged $82 million per year, while the World Bank’s International
Development Association was Madagascar’s largest source of concessional
assistance of about $209 million lent in each of 2001 through 2004.20 The $110
million Compact for Madagascar is also not very large relative to the country’s
17
James Fox and Lex Rieffel, The Millennium Challenge Account: Moving Toward Smarter
Aid. The Brookings Institution, July 14, 2005, p. 24.
18
See, for example, Millennium Challenge Corporation FY2005 Budget Justification, p. 7.
Found at [http://www.mcc.gov/about/reports/congressional/budgetjustifications/budget_
justification_fy05.pdf].
19
Prepared statement of Steve Radelet, Senior Fellow at the Center for Global Development,
before a hearing of the House International Relations Committee, April 27, 2005.
20
Organization for Economic Cooperation and Development (OECD), Geographical
Distribution of Financial Flows to Aid Recipients, 2000/2004: 2006 edition.
CRS-20
population. Of the 16 qualified countries for FY2004, Madagascar had the fourth
largest population (16.4 million), and might have been expected to receive one of the
larger MCA grants given its population size and its per capita income ($230, second
lowest among the 16 MCA countries).
For Honduras (a $215 million MCA program over five years), Georgia ($295
million over five years), and Armenia ($236 million over five years), the United
States has been the top bilateral donor in recent years without the MCA program, and
will likely remain in that position as MCA are disbursed. But the MCA Compact for
Honduras called for only a slightly higher annual amount ($43 million) than U.S.
economic assistance provided ($34 million) at the time, while Georgia’s Compact
will average only about three-fourths and the Armenia Compact only about twothirds of the annual level of recent American aid. While these are not insignificant
amounts of new resources, they are far less than Administration officials had
suggested previously.21
In contrast, the five-year Compacts with Cape Verde ($110 million), Benin
($307 million), Vanuatu ($66 million), Ghana ($547 million), Mali ($461 million),
and El Salvador ($461 million) represent a substantial investment by the United
States, relative to the size of recent American aid and the size of their economies.
USAID, which last provided direct bilateral assistance to Cape Verde in the mid1990s, does not maintain a mission presence, allocating small amounts of aid through
regional programs. The Compact’s $22 million annual average places the United
States second to Portugal, Cape Verde’s former colonial power, as the leading donor,
and represents more than a quarter of total bilateral development aid grants from all
sources compared with figures for 2003 and 2004. Likewise, the United States does
not maintain a bilateral program with Vanuatu, limiting direct aid through the Peace
Corps. The $13 million annual average of the Vanuatu program places the United
States as the country’s top aid donor, along with Australia. In Benin, USAID
manages an annual bilateral economic aid program of about $15 million, compared
with the $61 million annual size of the MCC Compact. The Compact likely places
the MCC as the top aid donor, together with France, for Benin.22
This issue has been a priority of Ambassador Danilovich since his September
27, 2005 confirmation hearing to be the MCC’s new CEO. He noted that the MCC
was “meant to create transformative programs,” and to do so he said that “future
Compacts will generally need to be larger than those signed thus far.” Ambassador
Danilovich cautioned, however, that with limited resources but larger Compacts,
fewer countries will receive funding if MCC is to achieve its transformational goal.23
His record since assuming the CEO position appears to be moving towards larger
Compacts and placing the MCC as the largest donor in recipient countries.
21
For example, USAID Administrator Natsios remarked in an October 22, 2002 speech at
the American Embassy in London that “we estimate in most countries the MCA will provide
funding 5 to 10 times higher than existing levels” of U.S. assistance.
22
Geographical Distribution of Financial Flows to Aid Recipients, 2000/2004: 2006
edition.
23
Prepared statement of John J. Danilovich, before the Senate Committee on Foreign
Relations, September 27, 2005.
CRS-21
Speed of Implementation
A recurrent criticism of the MCC, especially in Congress, is the slow speed of
implementation, reflected largely by the limited amount of disbursements made to
date. As perhaps the leading cause of cuts in MCC funding from the Administration
request and of threatened rescissions from amounts already appropriated, this view
has had severe consequences for the MCC (see below). As of the end of March
2008, of the $7.5 billion appropriated for the MCC, only $629 million, or 8%, has
been disbursed.
There are some good reasons for this spending rate. The MCC is a new
experiment, and it has taken considerable time to develop methods of operation,
including settling on the rules of eligibility and the requirements of Compact
proposals. Further, the countries themselves are responsible for developing
proposals, and they have problems common to most developing countries in
managing complex programs to meet donor requirements of accountability. The
GAO found that for five signed Compacts in Africa — with Madagascar, Cape
Verde, Benin, Ghana, and Mali — the process of going from eligibility to compact
signature took between 12 and 31 months. Four of these compacts entered into force
about five months after compact signature.24
Once launched, Compacts may be slow to get underway. For two in their third
year — Madagascar and Cape Verde — disbursements have been slow, only 27%
and 16%, respectively, of planned disbursements had been made by end of March
2008. Among the causes are delays by these Compact countries in filling managerial
positions. The nature of many of the Compacts is also responsible for the delays.
Typically, infrastructure projects are slow to disburse funds, the majority of activity
in the first few years being the design and planning of projects rather than actual
construction.
Whatever the causes, the MCC has responded to the criticisms by arguing that
projected annual Compact disbursements by 2009 will top $1 billion. The MCC is
also attempting to shift its organizational focus from the early emphasis on Compact
development to Compact implementation. In October 2007, it announced a
reorganization aimed at facilitating implementation.
Compact Impact
The purpose of the MCA is to reduce poverty by supporting economic growth,
but some observers have complained about the lack of measurable results to date.
There are some possible reasons for this, most prominently the slow speed of
Compact implementation noted above. As a result, it will likely be some time before
a serious analysis of actual impacts can be undertaken.
A recent GAO report highlighted a related concern, that, in the case of Vanuatu,
projected impacts have been overstated. Among many the economic factors
24
Government Accountability Office, Millennium Challenge Corporation: Progress and
Challenges with Compact in Africa, Testimony, June 28, 2007, GAO-07-1049T.
CRS-22
considered in its report, the GAO notes that the MCC estimated a rise from 2005 per
capita income in Vanuatu of about 15% ($200) by 2015 when, in fact, the data
suggest it would rise by 4.6%. Although the MCC states that the Compact would
benefit 65,000 poor, rural inhabitants, the data, according to the GAO, do not
establish the extent of benefit to the rural poor. Further, the MCC projections assume
continued maintenance of projects following completion, whereas the experience of
previous donors is that such maintenance has been poor.25 The MCC response is that,
although there may be varying views on the degree of benefit, both agencies agree
that the underlying data show that the Compact will help Vanuatu address poverty
reduction.26
In lieu of results from the Compacts, MCC officials have pointed to the impact
made by the MCC process itself. Under the so-called MCC effect, many countries
are said to be establishing reforms in an effort to qualify under the 17 indicators.
Yemen has been cited in this regard, because, following its suspension from the
threshold program in 2005, it approved a number of reforms to address indicators
where its performance had lapsed (and subsequently was reinstated). Both the House
and Senate approved resolutions in 2007 (H.Res. 294 and S.Res.103) noting the role
the MCC played in encouraging Lesotho to adopt legislation improving the rights of
married women.
Rising Costs
The majority of Compact projects support construction of economic
infrastructure, primarily roads and water and sanitation systems. In the past year,
costs for the machines and material necessary for these activities have been rising
worldwide. At the same time, the U.S. dollar has depreciated significantly. As a
result, MCC projects are faced with having less funding than envisioned to meet the
agreed-on objectives. The MCC reports that at least six projects are expected to be
scaled-back from the original plans or may be supplemented by financing from other
sources.
Funding Issues
In each year since the MCA was established, the MCC proposal was by far the
largest increase sought by the Administration in the Foreign Operations
appropriations bill and viewed by many observers as one of the most vulnerable
items in an increasingly difficult budget environment. In each year as well, its
enacted appropriation has been well below the President’s request.
Supporters of the MCC are disturbed by this trend, reflected again in the
congressional funding level for FY2008, well below the Administration request.
They argue that countries that have gone through the whole process of seeking
25
Government Accountability Office, Millennium Challenge Corporation: Vanuatu
Compact Overstates Projected Program Impact, July 2007, GAO-07-909.
26
Testimony of Rodney Bent before the House Committee on Foreign Affairs,
Subcommittee on Asia, the Pacific, and the Global Environment, July 26, 2007.
CRS-23
eligibility and designing and refining a proposal are likely to seek funding elsewhere
if they have to wait long for MCC funding to become available. Further, the socalled MCC effect, which encourages countries to reform on their own in order to
meet eligibility requirements, is likely to be lost if fewer Compacts are offered
annually.
Table 1. MCA Appropriations: FY2004-2008
(in $ billions)
FY2004
FY2005
FY2006
FY2007
FY2008
FY2009
Request
1.300
2.500
3.000
3.000
3.000
2.225
Appropriation
0.994
1.488
1.752
1.752
1.544
—
MCA Request and Congressional Action for FY2008. On February 5,
2007, the Administration requested a FY2008 appropriation of $3 billion for the
MCA. In its budget presentation, the MCC argued that available resources were
expected to be fully utilized on Compacts likely to be signed in 2007, including
Lesotho, Morocco, Mozambique, Tanzania, and Sri Lanka. Expected to be left in the
pipeline for funding in FY2008 were 9 to 10 countries, possibly including Jordan,
Moldova, and Ukraine. If fully funded at $3 billion, the MCC could support about
six of these compacts in FY2008.
On June 22, 2007, the House approved H.R. 2764, the FY2008 State/Foreign
Operations appropriations, providing $1.8 billion to the MCC, $1.2 billion or 40%
below the Administration request and roughly the same as in FY2007. The
Appropriations Committee expressed support for the MCC and pointed to budget
constraints as the cause of the reduction (H.Rept. 110-197). On September 6, 2007,
the Senate approved its version of the FY2008 appropriations, providing $1.2 billion
for the MCC, $1.8 billion (or 60%) below the Administration request and a 32%
decline from the FY2007 level. The bill, however, also contained a provision that
would allow the Administration to transfer up to $200 million in State Department
Diplomatic and Consular Program account funds to the MCC. As the funding level
provided for this account is less than the request, a transfer appeared to some
unlikely.
An amendment added on the Senate floor would require the MCC to obligate
no more than half of the promised Compact total. Currently, under annual
appropriations language, the full amount of a Compact must be committed at the time
of signing (in practice, it is obligated when the Compact enters into force). The
impact of this change would be to allow the MCC to sign more Compacts with fewer
up-front appropriations. It might also lessen the impression that the MCC has
inordinately large amounts of undisbursed obligations available for possible
congressional diversion to other aid programs. On the other hand, it may suggest to
countries that full payment of Compacts is not guaranteed, leaving them wondering
if it is worth their time and effort to seek one.
By way of an explanation for the deep cut in the MCC request, the Senate
Appropriations Committee report on the bill (S.Rept. 110-128) contained a number
CRS-24
of serious criticisms of the MCC that amounted to a challenge to its mode of
operation. The committee pointed out that the MCC had only disbursed one-thirtieth
of its obligations under the first 11 Compacts, raising the possibility of there being
undisbursed amounts at the end of the Compact term. The committee noted that few
tangible results could be measured from these Compacts. It questioned the
usefulness of a possible Compact with Tanzania for its large size (nearly $700
million) relative to a small population and weighed against the similar size of the
total FY2008 Development Assistance and ESF request for all of sub-Saharan Africa.
Further, the committee raised the concern that some Compacts have been made with
countries of relatively little strategic importance to the United States. Finally, it
criticized the lack of Compacts with health, education, or governance components.
These concerns appear to strike at the heart of the MCC model. Supporters of
the MCC would argue that large amounts of undisbursed obligations at the early
stages of a Compact are intrinsic to the guarantee that funds will be available as
contracted and not be subject to the uncertainty of future appropriations. They might
also argue that immediate results from uncompleted development projects are rare,
and that the early plan for the MCC was that Compacts would be larger than other
U.S. and most competing donor aid programs and sufficiently large to have a real
impact in a country, that their purpose would be developmental and not strategic, and
that their nature would be determined by the Compact country requesting such aid
and not reflect U.S. sectoral preferences. However, even many defenders of the
MCC appear to share the concern regarding the slow speed of project implementation
and the choice of sectors, despite the fact that both features may be the result of
putting power into the hands of the aid recipients as much as any fault of the MCC
itself.
On December 26, 2007, the FY2008 Consolidated Appropriations Act (P.L.
110-161, H.R. 2764) was signed into law. It provides $1.544 billion (after a .81%
rescission) for the MCA, $1.5 billion less than the Administration request.
On May 22, 2008, the Senate approved its version of H.R. 2642, the FY2008
and FY2009 war supplemental. The bill includes two committee amendments that
would rescind $525 million in FY2008 funding from the MCA, cutting its FY2008
total budget by one-third to a level of $1 billion. The funds would be used to provide
disaster aid to Burma ($225 million) and economic and military aid to Jordan ($300
million). In effect, one planned Compact — likely that of Burkina Faso or Namibia
— would have to be postponed if the Senate provisions are adopted in conference
with the House.
MCA Request and Congressional Action for FY2009. On February 4,
2008, the Administration requested $2.225 billion for the MCA in its FY2009
budget, a 44% increase over the FY2008 appropriation.
Authorizing Legislation and MCC Reform
Many observers anticipate that an MCC reauthorization measure will be
considered in the 111th Congress. A previous effort, in the 109th Congress (2006),
was reported by the House International Relations Committee (H.R. 4014, H.Rept.
109-563), but received no further consideration. It would have authorized MCC
CRS-25
appropriations (“such sums as may be necessary”) for fiscal years 2007 through 2009.
The requirement of an authorization of foreign aid programs has been routinely
waived in annual Foreign Operations appropriations bills, as the FY2008
Consolidated measure did in the case of currently unauthorized foreign aid programs,
including the MCA.
In addition to funding provisions, H.R. 4014 made a number of policy
modifications to the original legislation and to the operations of the Corporation,
many of which continue to be discussed for some future authorization effort. These
included allowing Compacts to last up to 10 years, instead of the five currently
permitted; allowing two concurrent Compacts, rather than the current one; and
requiring notification to authorizing and appropriating Committees 15 days prior to
signing a Compact (as in the procedures of reprogramming notifications under
section 634A of the Foreign Assistance Act), in place of existing language requiring
that the MCC consult with “appropriate committees” prior to negotiating a Compact.
Reflecting concerns regarding the slow speed of implementation, the bill expressed
the sense of Congress that the MCC should encourage countries to submit Compact
proposals within one year of being declared eligible, enter into a Compact within two
years, and to consider removing countries from the status of eligibility if they do not
comply with these guidelines in a timely and good faith manner.
CRS-26
Table 2. Status of MCA Compacts
Country
Compact Signed
Population
GNI
Living Below
per capita $2 p/day (%)
Human
Development
Index Rankinga
FY06 US
Econ. Aid
(millions)b
Compact
Size
(millions)
$236
5 years
Armenia
Mar. 27, 2006
$1,930
31.1%
83
$58.0
Benin
Feb. 22, 2006
$540
73.7%
163
$14.2
$307
5 years
Cape Verde
July 4, 2005
$2,130
NA
102
$0.0
$110
5 years
El Salvador
November 29,
2006
$2,540
40.5%
103
$24.0
$461
5 years
Georgia
Sept. 12, 2005
$1,560
25.3%
96
$58.0 ($0.7)
$295
5 years
Ghana
August 1, 2006
$520
78.5%
135
$41.1 ($0.3)
$547
5 years
Honduras
June 13, 2005
$1,200
44.0%
115
$27.7 ($0.8)
$215
5 years
Lesotho
July 23, 2007
$1,030
56.1%
138
$3.0 ($6.4)
$362.6
5 years
Madagascar
April 18, 2005
$280
85.1%
143
$26.0
$110
4 years
Mali
November 13,
2006
$440
90.6%
173
$38.1
$460.8
5 years
Compact Focus
-Agriculture/irrigation
-Rural roads
-Land and property
-Financial services
-Judicial improvement
-Port rehabilitation
- Agriculture
- Transport/roads
- Private sector
-Education
-Transport/roads
-Small business/farm development
- Infrastructure/gas
- Transport/roads
- Agriculture/business
-Agriculture
-Transport
-Rural Development
-Agriculture
-Transport/roads
-Water sector
-Health sector
-Private sector
- Land titling/Agriculture
- Financial sector
-Irrigation
-Transport/airport
-Industrial park
CRS-27
Country
Compact Signed
Population
GNI
Living Below
per capita $2 p/day (%)
Human
Development
Index Rankinga
FY06 US
Econ. Aid
(millions)b
Compact
Size
(millions)
Mongolia
October 22, 2007
$880
74.9%
114
$6.6
$285
5 years
Morocco
August 31, 2007
$1,900
14.3%
126
$18.9
$697.5
5 years
Mozambique
July 13, 2007
$340
78.4%
172
$44.9 ($148.4)
$506.9
5 years
Nicaragua
July 14, 2005
$1,000
79.9%
110
$24.1 ($0.1)
$175
5 years
Tanzania
February 17, 2008
$350
89.9%
159
$57.3 ($176.5)
$698
5 years
Vanuatu
March 2, 2006
$1,710
NA
120
$0.0
$66
5 years
Compact Focus
-Transport/rail
-Property Rights
-Voc Ed
-Health
-Agriculture/Fisheries
-Artisan Crafts
-Financial Serv/ Enterprise Support
-Water and Sanitation
-Transportation
-Land Tenure/Agriculture
- Land titling/Agriculture
- Transport/roads
-Transport/roads and airport
-Energy
-Water
-Transport rehab
-Public Works Dept.
Sources: Population Living Below $2 Per Day — data from the World Bank, World Development Report, 2007; Gross National Income per capita — 2006 data from the World Bank,
World Development Indicators. Human Development Index Rank — from UNDP, Human Development Report, 2006. MCC Information: Millennium Challenge Corporation.
a. The Human Development Index (HDI) is compiled by the U.N. Development Program and is published annually in the UNDP Human Development Report. It is a composite index
that measures the average achievements in a country in three basic dimensions of human development: a long and healthy life, as measured by life expectancy at birth; knowledge,
as measured by the adult literacy rate and the combined gross enrolment ratio for primary, secondary, and tertiary schools; and a decent standard of living, as measured by GDP
per capita in purchasing power parity (PPP) U.S. dollars. The most recent report (2007/08) evaluates 177 countries, with number 1 having the best HDI and number 177 scoring
the worst in the Index.
b. U.S. Economic Aid is defined here as Child Survival/Health, Development Assistance, Economic Support Fund, and FREEDOM Support Act. Figure in parenthesis is HIV/AIDS
Initiative.
CRS-28
Table 3A. MCA Low-Income Candidate, Eligible, Compact, and
Threshold Countries — FY2008
Criteria: Per capita income $1,735 and below, and not prohibited from receiving
other U.S. economic assistance.
Compact Eligible Countries are in Bold
Compact Countries are followed with (C)
Threshold Eligible Countries are in Italics
Threshold Program Countries are followed with (TC)
Africa
Benin (C)
Burkina Faso (TC)
Burundi
Cameroon
Central African Rep
Chad
Comoros
Congo, Dem Rep of
Congo, Rep of
Djibouti
Eritrea
Ethiopia
Gambia
Ghana (C)
Guinea
Guinea-Bissau
Kenya (TC)
Lesotho (C)
Liberia
Madagascar (C)
Malawi (TC)
Mali (C)
Mauritania
Mozambique (C)
Niger (TC)
Nigeria
Rwanda
Sao Tome&Principe
(TC)
Senegal
Sierra Leone
Somalia
Tanzania (C) (TC)
Togo
Uganda (TC)
Zambia (TC)
Incomea
$540
$460
$100
$1,080
$360
$480
$660
$130
$950
$1,060
$200
$180
$310
$520
$410
$190
$580
$1,030
$140
$280
$170
$440
$740
$340
$260
$640
$250
$780
$750
$240
East Asia/Pacific
Cambodia
East Timor
Indonesia (TC)
Kiribati
Laos
Mongolia (C)
Papua New Guinea
Philippines (TC)
Solomon Islands
Vanuatu (C)
Vietnam
Incomea
$480
$840
$1,420
$1,230
$500
$880
$770
$1,420
$680
$1,710
$690
Latin America
Bolivia
Guyana (TC)
Haiti
Honduras (C)
Nicaragua (C)
Paraguay (TC)
Incomea
$1,100
$1,130
$480
$1,200
$1,000
$1,400
South Asia
Afghanistan
Bangladesh
Bhutan
India
Nepal
Pakistan
Sri Lanka
Incomea
Mid-East
Egypt
Iraq
Yemen
Incomea
$1,350
Eurasia
Georgia (C)
Kyrgyz Rep. (TC)
Moldova (TC)
Incomea
$1,560
$490
$1,100
Tajikistan
Turkmenistan
b
$480
$1,410
$820
$290
$770
$1,300
b
$760
$390
b
b
$350
$350
$300
$630
a. Gross National Income, dollars per capita, 2006. World Bank, World Development Indicators, On
Line.
b. Precise data unavailable.
CRS-29
Table 3B. MCA Lower-Middle-Income Candidate and Eligible
Countries — FY2008
Criteria: Per capita income between $1,735 and $3,595, and not prohibited from
receiving other U.S. economic assistance.
Compact Eligible Countries are in Bold
Compact Countries are followed with (C)
Threshold Eligible Countries are in Italics
Threshold Program Countries are followed with (TC)
Africa
Angola
Cape Verde (C)
Namibia
Swaziland
Incomea
$1,980
$2,130
$3,230
$2,430
East Asia/Pacific
Marshall Islands
Micronesia
Samoa
Tonga
Tuvalu
Incomea
$3,000
$2,380
$2,270
$2,170
Latin America
Colombia
Dominican Rep
Ecuador
El Salvador(C)
Guatemala
Jamaica
Peru
Suriname
Incomea
$2,740
$2,850
$2,840
$2,540
$2,640
$3,480
$2,920
South Asia
Maldives
Incomea
$2,680
Mid-East
Algeria
Jordan (TC)
Morocco (C)
Tunisia
Incomea
$3,030
$2,660
$1,900
$2,970
Eurasia
Armenia (C)
Azerbaijan
Belarus
Ukraine (TC)
Incomea
$1,930
$1,850
$3,380
$1,950
Europe
Albania (TC)
Macedonia
Incomea
$2,960
$3,060
b
a. Gross National Income, dollars per capita, 2006. World Bank, World Development Indicators On
Line.
b. Precise data unavailable. Montenegro figure is based on combined Serbia and Montenegro.
CRS-30
Table 4. MCC Performance Indicators for FY2007
Ruling Justly
Investing in People
Economic Freedom
Control of Corruption
Source: World Bank Institute
[http://www.worldbank.org/wbi/governance]
Public Primary Education Spending as % of GDP
Sources: UNESCO and National governments
Inflation
Source: IMF World Economic Outlook
Voice and Accountability
Source: World Bank Institute
[http://www.worldbank.org/wbi/governance]
Primary Girls’ Education Completion Rate
Source: UNESCO
Fiscal Policy
Source: National governments and IMF World
Economic Outlook
Government Effectiveness
Source: World Bank Institute
[http://www.worldbank.org/wbi/governance]
Public Expenditure on Health as % of GDP
Source: World Health Organization (WHO)
Trade Policy
Source: The Heritage Foundation, Index of
Economic Freedom
[http://www.heritage.org/research/features/index/]
Rule of Law
Source: World Bank Institute
[http://www.worldbank.org/wbi/governance]
Immunization Rates: DPT and Measles
Source: World Health Organization (WHO)
Regulatory Policy
Source: World Bank Institute
[http://www.worldbank.org/wbi/governance]
Civil Liberties
Source: Freedom House
[http://www.freedomhouse.org/template.cfm?page=
15&year=2006]
Natural Resource Management: Eco-Region Protection, Access
to Clean Water and Sanitation, Child Mortality
Sources: Columbia Center for Int’l Earth Science Info Network
(CIESIN) and Yale Center for Env. Law and Policy (YCLEP)
Business Start-Up: Days and Cost of Starting a
Business
Source: World Bank
[http://www.doingbusiness.org]
Political Rights
Source: Freedom House
[http://www.freedomhouse.org/template.cfm?page=
15&year=2006]
Land Rights and Access
Source: Int’l Fund for Agricultural Development
(IFAD) and Int’l Finance Corporation