Order Code RL32427
CRS Report for Congress
Received through the CRS Web
Millennium Challenge Account:
Implementation of a New
U.S. Foreign Aid Initiative
Updated June 30, 2004
Larry Nowels
Specialist in Foreign Affairs
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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Millennium Challenge Account: Implementation of a
New U.S. Foreign Aid Initiative
Summary
In a speech on March 14, 2002, President Bush outlined a proposal for a
major new U.S. foreign aid initiative. The program, referred to as the Millennium
Challenge Account (MCA), would be managed by a new Millennium Challenge
Corporation (MCC) and be available, through a competitive selection process, to
developing nations that are pursing political and economic reforms in three areas:
ruling justly, investing in people, and fostering economic freedom. If fully
implemented, the initiative would represent one of the largest increases in foreign aid
spending in half a century, outpaced only by the Marshall Plan following World War
II and the Latin America-focused Alliance for Progress in the early 1960s.
The MCC differs in several respects from past and current U.S. aid practices:
! the size of the $5 billion commitment;
! the competitive process that will reward countries for past actions
measured by 16 objective performance indicators;
! the pledge to segregate the funds from U.S. strategic foreign policy
objectives that often strongly influence where U.S. aid is spent; and
! the requirement to solicit program proposals developed solely by
qualifying countries with broad-based civil society involvement.
For FY2004, the Administration sought $1.3 billion for the MCA’s first year,
a level reduced by Congress to $994 million. The FY2005 budget proposes $2.5
billion, with a commitment for a $5 billion program in FY2006.
The passage of legislation on January 23, 2004 authorizing and funding the
MCC for FY2004 (Division D of P.L. 108-199) launched the start of the program
during which the new Corporation formed, issued required reports, consulted with
Congress and the public, and selected on May 6 the first 16 eligible countries.
Continuing implementation matters that will unfold in the months ahead will include
the relationship of MCC programs with those operated by USAID, how the
Corporation and USAID will support near-miss or “threshold” countries better
prepare for future performance reviews, congressional budget decisions for FY2005,
and the selection of candidate countries for next year.
A growing question raised by some Members of Congress is whether sufficient
funds will be available to support MCC programs in every country selected,
especially if the Board also makes exceptions in the FY2005 selection process and
qualifies more countries than meet the strict criteria. A March 2004 GAO report
estimated that the MCC could adequately fund 8-13 Compacts with an appropriation
of $3.5 billion (the combined FY2004 enacted and FY2005 amounts). This suggests,
that even if Congress fully funds the pending proposal, the Corporation will not be
able to support programs in all 16 countries approved for FY2004 and those selected
for FY2005.
This report will be updated as events unfold.

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Contents
MCC Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
MCC Implementation Steps and Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Establishing the Millennium Challenge Corporation . . . . . . . . . . . . . . . . . . 4
Naming FY2004 Candidate Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Publishing the Selection Criteria and Methodology . . . . . . . . . . . . . . . . . . . 4
Country Selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
MCA Compacts and Program Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
“Threshold” Countries and U.S. Assistance . . . . . . . . . . . . . . . . . . . . . . . . . 8
Role of USAID and the Future of Agency Programs in MCA Countries . . . 8
Funding Issues and the FY2005 MCC Request . . . . . . . . . . . . . . . . . . . . . . . 9
List of Tables
Table 1. MCC Performance Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Table 2. Comparison of MCA Authorization Legislation . . . . . . . . . . . . . . . . . 12

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Millennium Challenge Account:
Implementation of a New U.S. Foreign Aid
Initiative
In a speech on March 14, 2002, President Bush outlined a proposal for the
United States to increase foreign economic assistance beginning in FY2004 so that
by FY2006 American aid would be $5 billion higher than three years earlier. The
funds, referred to as the Millennium Challenge Account (MCA), would be managed
by a new Millennium Challenge Corporation (MCC) and be available, through a
competitive selection process, to developing nations that are pursing political and
economic reforms in three areas:
! Ruling justly — promoting good governance, fighting corruption,
respecting human rights, and adhering to the rule of law.
! Investing in people — providing adequate health care, education,
and other opportunities promoting an educated and healthy
population.
! Fostering enterprise and entrepreneurship — promoting open
markets and sustainable budgets.
If fully implemented, the initiative would represent one of the largest increases in
foreign aid spending in half a century, outpaced only by the Marshall Plan following
World War II and the Latin America-focused Alliance for Progress in the early
1960s. It would also represent a fundamental change in the way the United States
invests and delivers economic assistance.
MCC Background1
The concept is based on the premise that economic development succeeds best
where it is linked to free market economic and democratic principles and policies,
and where governments are committed to implementing reform measures in order to
achieve such goals. Conditioning assistance on policy performance and
accountability by recipient nations is not new to U.S. aid programs. Since the late
1980s at least, portions of American development assistance have been allocated to
some degree on a performance-based system. Nevertheless, the MCC differs in
several fundamental respects from past and current U.S. aid practices:
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.

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CRS-2
! the size of the $5 billion commitment;
! the competitive process that will reward countries for past actions
measured by 16 objective performance indicators;
! the pledge to segregate the funds from U.S. strategic foreign policy
objectives that often strongly influence where U.S. aid is spent; and
! the requirement to solicit program proposals developed solely by
qualifying countries with broad-based civil society involvement.
The new initiative, which Congress authorized in January 2004 (Division D of
P.L. 108-199),2 would phase in over a three-year period, beginning in FY2004.
During the first year, MCC participation is limited to the 74 poorest nations that are
eligible to borrow from the World Bank’s International Development Association
and have per capita incomes below $1,435. The list will expand in FY2005 to
include all countries with a per capita income below $1,435 (adding another 13
nations). Beginning in FY2006 and beyond, all lower-middle income countries with
per capita incomes below $2,975 may compete for MCC resources.
Country selection is based largely, but not exclusively, on the nation’s record
measured by 16 performance indicators related to the three categories of good
governance, economic freedom, and investing in people. Countries that score above
the median on half of the indicators in each of the three areas qualify. Emphasizing
the importance of fighting corruption, however, should a country fall below the
median on the corruption indicator, it will be disqualified from consideration unless
other, more recent trends suggest otherwise. (See Table 1 below for a complete list
of the 16 performance indicators.) Administration officials, since announcing the
MCC initiative in 2002, have said that the selection process would be guided by, but
not necessarily bound to the outcomes of the performance indicators. Missing or old
data, general trends, and recent steps taken by governments might also be taken into
account when annual decisions are made.
Eligibility to receive MCA assistance, however, does not necessarily result in
an aid grant. Once selected, countries are required to submit program proposals —
referred to as MCA Compacts — that have been developed through a broad-based,
national discussion that includes input from civil society. The focus of program
submissions may vary among countries in size, purpose, and degree of specificity,
and will be evaluated by the Corporation for, among other things, how well the
Compact supports a nation’s economic growth and poverty reduction goals. Only
those Compacts that meet the MCC criteria will be funded. It is expected that
successful Compacts will support programs lasting three to five years, providing a
level of resources roughly equivalent to the largest providers of assistance in the
country. This will most likely result in a significant increase of U.S. economic
assistance to MCA participant countries.
To manage the new initiative, the Administration proposed and the Congress
authorized the creation of a Millennium Challenge Corporation (MCC), an
2 Table 2, found at the end of this report, provides a summary of major MCA issues and
compares positions approved by the House, Senate, and Conference Committee during the
2003 debate.

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CRS-3
independent government entity separate from the Departments of State and the
Treasury and from the U.S. Agency for International Development (USAID). The
MCC plans for an eventual staff of about 200, drawn from various government
agencies, non-governmental organizations, and the private sector, and led by a CEO
confirmed by the Senate. A Board of Directors, chaired by the Secretary of State and
composed of the Secretary of the Treasury, the USAID Administrator, the U.S. Trade
Representative, and the Corporation’s CEO, oversees operations of the MCC and
makes the country selections. Four additional Board members, yet to be confirmed
by the Senate, will be drawn from lists submitted by Congressional leaders.3
The decision to house the MCA in a new organization was one of the most
debated issues during early congressional deliberations of the President’s foreign aid
initiative. The Administration argued that because the MCA represents a new
concept in aid delivery, it should have a “fresh” organizational structure,
unencumbered by bureaucratic authorities and regulations that would interfere in
effective management. Critics, however, contended that if the MCA is placed
outside the formal U.S. government foreign aid structure, it would lead to further
fragmentation of policy development and consistency. Some believed that USAID,
the principal U.S. aid agency, should manage the MCA, while others said that the
MCA should reside in the State Department where more U.S. foreign policy entities
have been integrated in recent years. At least, some argued, the USAID
Administrator should be a member of the MCC Board, which had not been proposed
in the initial Administration request.
For FY2004, the Administration sought $1.3 billion for the MCA’s first year,
a level reduced by Congress to $994 million. The FY2005 budget proposes $2.5
billion, with a commitment for a $5 billion program in FY2006.
MCC Implementation Steps and Issues
The passage of legislation on January 23, 2004 authorizing and funding the
MCC for FY2004 (Division D of P.L. 108-199) launched a period of at least 90 days
during which the new Corporation would form, issue required reports, consult with
Congress and the public, and select first year participant countries. Within 10 days
of enactment, the Board of Directors held its initial meeting to establish the program,
and over the following weeks the Corporation identified “candidate” countries for
FY2004, published the criteria and methodology to be used for country selection,
solicited public comments, issued guidelines for Compact proposals, and, on May 6,
2004, selected 16 countries to participate in the MCA’s first year of operations.
Continuing implementation matters that will unfold in the months ahead will include
the relationship of MCC programs with those operated by USAID, how the
Corporation and USAID will support near-miss or “threshold” countries to better
3 On June 8, 2004, President Bush nominated two of the four new Board members: Kenneth
Hackett, President and CEO of Catholic Relief Services, and Christine Todd Whitman,
former Governor of New Jersey and former head of the Environmental Protection Agency,
2001-2003.

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CRS-4
prepare for future performance reviews, congressional budget decisions for FY2005,
and the selection of candidate countries for next year.
Establishing the Millennium Challenge Corporation
On February 2, 2004, the Board of Directors met, agreed to Corporation by-
laws, and approved Under-Secretary of State Larson as the interim CEO.
Subsequently, the President nominated Paul Applegarth to be the permanent MCC
CEO, an individual confirmed by the Senate on May 5. Mr. Applegarth has held
various international and development positions over the past 30 years, primarily in
the private sector. Most recently, he was the Managing Director of Emerging
Markets Partnership, serving as the COO of Emerging Africa Infrastructure Fund in
2002.
Naming FY2004 Candidate Countries
Also on February 2, the MCC Board issued a list of 63 “candidate” countries
that would be reviewed for possible selection as MCA participants in FY2004. These
countries, according to authorizing legislation, must be eligible for assistance from
the World Bank’s International Development Association, have a per capita income
of $1,415 or less, and not be otherwise ineligible to receive U.S. assistance. The
latter condition eliminated twelve countries — Burma, Burundi, Cambodia, Central
African Republic, Cote d’Ivoire, Guinea-Bissau, Liberia, Serbia, Somalia, Sudan,
Uzbekistan, and Zimbabwe — that were statutorily barred from receiving American
aid.4
Publishing the Selection Criteria and Methodology
Pursuant to reporting requirements set in the MCC legislation, the Corporation
on March 5, 2004 sent to Congress an overview of the criteria and methodology that
would be used to determine the eligibility of the 63 candidate countries in FY2004.
The report suggested that there would be relatively few and only minor changes to
the criteria and methodology that had been outlined 15 months earlier. The same 16
performance indicators, as listed in Table 1 below, would be utilized. In a few cases,
data sources shifted from international institutions to national governments. This
was especially true in cases where existing data for an indicator were old or
incomplete.
4 Various types of aid restrictions apply to these countries. For several — Burundi, Central
African Republic, Cote d’Ivoire, Guinea-Bissau, and Sudan — U.S. aid is blocked because
an elected head of government has been deposed by a military coup. For Cambodia and
Uzbekistan current legislation bars assistance to the central Government. Aid restrictions
imposed on countries 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 apply. Serbia cannot receive aid until the President issues a determination
stating, among other things, that government is cooperating with the International Criminal
Tribunal. Notwithstanding these restrictions, each country may still receive humanitarian
assistance from the United States.

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CRS-5
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. 108-
199 through the use of supplemental data and qualitative information. While the
legislative authorities broadly match criteria proposed by the Administration,
lawmakers included four additional matters on which to evaluate a country’s
performance. These relate to the degree to which a country:
! recognizes the rights of people with disabilities;
! supports a sustainable management of natural resources;
! respects worker rights; and
! makes social investments, especially in women and girls.
For an evaluation of the rights of people with disabilities, the MCC reported that it
will 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 will 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
will also be used for additional information regarding worker rights, while statistics
on girl’s primary enrollment rates will supplement the four social investment
performance indicators.
The MCC also noted that it would use the most recent release (October 2003)
of Transparency International’s Corruption Perception Index to update and
supplement the World Bank’s survey data on which corruption performance indicator
is based. This was necessary because the World Bank information was last published
in March 2003 and is not expected to be revised this year. Since the corruption
indicator is a “pass/fail” measure, the quality and timeliness of the data is especially
important.
Given the range and diversity of suggestions offered throughout the public and
congressional debate of the MCC, many observers are surprised that the Corporation
did not propose more substantive changes to the criteria and methodology. Some
have questioned how seriously the Administration considered alternative approaches
and whether the Corporation would be open to future revisions.5 During the public
comment period and at congressional oversight hearings, some have suggested that
existing data sources need to be refined or new surveys created in order to
specifically measure a country’s commitment on the four criteria added by Congress.
Country Selection
On May 6, the MCC Board of Directors determined that 16 countries would be
eligible for MCA funding FY2004 and invited each to submit program proposals:
5 See, for example, Steve Radelet, et al., A Comment on the Millennium Challenge Account
Selection Process, Center for Global Development, March 9, 2004.

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CRS-6
Armenia
Madagascar
Benin
Mali
Bolivia
Mongolia
Cape Verde
Mozambique
Georgia
Nicaragua
Ghana
Senegal
Honduras
Sri Lanka
Lesotho
Vanuatu
As expected, the selection process has raised a number of questions and concerns.
The Administration had previously said that the Board would be guided by, but not
entirely bound to, the outcome of the performance indicator review process; that
Board members could apply discretion in their selection. Performance trends,
missing or old data, and recent policy actions might come into play during selection
deliberations, officials noted.
The final selection reflects decisions that both strictly follow the performance
indicator outcomes and apply Board discretion to take into account other factors.
Ten of the countries comply with the stated criteria: performing above the median in
relation to their peers on at least half of the indicators in each of the three policy
clusters and performing above the median on corruption. The Board also examined
whether a country performed substantially below average on any single indicator and
whether their selection was supported by supplemental information. Each of the ten
countries also passed these additional tests.
For ten other countries, however, some discretion was applied by the Board. In
three cases, countries which met the criteria but fell significantly below average on
one indicator were still selected by the Board due to recent policy changes or positive
trend lines. Cape Verde, for example, scored poorly on the Trade Policy indicator,
but the Board took into account the country’s progress towards joining the World
Trade Program 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 suggest that the government is 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, has created a cabinet position to coordinate
anti-corruption activities and an office to investigate police corruption. Georgia, with
a newly elected government that has 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 is more current than information available from the

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CRS-7
primary data sources. This evidence, the Board felt, demonstrated Mozambique’s
commitment to fighting corruption and improving its performance on health and
education.
On the other hand, the MCC Board chose not to select four countries that
technically met the performance criteria but fell substantially below the median on
one or more indicator. In each of these cases, the Board did not believe that the
government was taking any action to improve its performance. Although Bhutan,
Mauritania, and Vietnam passed the corruption hurdle and half of the “ruling justly”
indicators, they scored very low on the measurements for Political Rights and Civil
Liberties, and in Vietnam’s case, on the Voice and Accountability indicator. A fourth
country — Guyana — was also not selected despite passing the necessary hurdles.
It scored particularly low on the Fiscal Policy measurement.
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 has done for FY2004 participants. Representative
Lowey, for example, expressed her view at a May 13 House Appropriations
Committee hearing that East Timor, which fails 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 is 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 have suggested that Kenya should have been included
because of its new government’s commitment to education and anti-corruption
efforts. USAID Administrator Natsios acknowledged at the hearing that Albania was
a “close call,” failing because it scores slightly below the median on corruption. Like
Albania, Malawi and Moldova would qualify 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.
Despite these questions over specific country eligibility, the selection process
appears 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 a concern of many who view the absence of security-related
factors from MCA decision-making as one of the most attractive features of the
initiative. Had the Board used its discretionary powers to select Indonesia, for
example, some critics would have likely charged that the decision stemmed more
from Jakarta’s role in the war on terrorism than on strict policy performance.
Indonesia passed all necessary hurdles except for corruption.

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CRS-8
MCA Compacts and Program Proposals
The next step for the 16 qualified countries is the preparation and negotiation
with the MCC of program proposals, referred to as MCA Compacts. Only those
Compacts that demonstrate a strong relationship between the program proposal and
economic growth and poverty reduction will receive funding. It is anticipated that
not all 16 MCA countries will submit successful Compacts.
While acknowledging that Compact contents likely will vary, the Corporation
expects each to discuss certain matters:
! a country’s strategy for economic growth and poverty reduction,
impediments to the strategy, how MCA aid will overcome the
impediments, and the goals expected to be achieved during
implementation of the Compact.;
! why the proposed program is a high priority for economic
development and poverty reduction and why it will succeed; the
process through which a public/private dialogue took place in
developing the proposal;
! how the program will be managed, monitored, and sustained after
the Compact expires;
! the relationship of other donor activities in the priority area;
! examples of projects, where appropriate;
! a multi-year financial plan; and
! a country’s commitment to future progress on MCA performance
indicators.
The Corporation has not set hard deadlines for Compact submissions in order to
allow a country adequate time to conduct a national dialogue over the contents of the
program proposal. However, some Compacts are expected in the coming weeks.
“Threshold” Countries and U.S. Assistance
In order to encourage non-qualifying countries to improve in weak areas,
Administration officials have said that the U.S. would help governments committed
to reform strengthen performance so that they would be more competitive for MCA
funding in future years. Congress provided in authorizing legislation that not more
than 10% of MCA appropriations ($99.4 million in FY2004) could be used for such
purposes, stating that the funding could be made available through USAID. The
MCC has set aside up to $40 million for countries that just missed qualifying for
FY2004 funding, although these specific threshold countries have not been named.
Officials say that the Corporation and USAID will design a joint strategy for
assistance and notify Congress as the effort develops. In related legislation, the
House International Relations Committee is considering a bill, H.R. 4660, that would
extend the authority to assist threshold countries in FY2005.

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CRS-9
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 13 of the 16 eligible countries and which 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 is likely that USAID
spending will fall well below amounts provided through MCC Compacts. For
example, in Mongolia, where U.S. aid programs have totaled $10-$12 million
annually in recent years, the United States was the fourth largest bilateral donor in
2002, representing less than a quarter of the size of Japan’s economic aid
disbursements. In Ghana, Senegal, and Sri Lanka, USAID maintains larger programs
but spends far less than other countries and multilateral agencies.
Like other issues involving USAID, this question remains under review.
USAID Administrator Natsios told the House Appropriations Committee on May 9,
2004 that the Agency would not withdraw from or cut programs in MCA countries,
but would not increase spending either. He said, however, that USAID would work
to ensure that its programs operate in an integrated way with MCA-funded activities.
Funding Issues and the FY2005 MCC Request
As mentioned above, Congress appropriated $994 million for FY2004 MCC
programs and is considering a $2.5 billion request for FY2005. This is by far the
largest increase sought by the Administration in the Foreign Operations
appropriations proposal and viewed by many observers as one of the most vulnerable
items in an increasingly difficult budget environment. In earlier congressional action,
House and Senate Budget Committees (H.Con.Res. 393 and S.Con.Res. 95)
recommended reductions in international affairs spending, suggesting that much of
the proposed cuts could be achieved by trimming back the MCC request. Legislation
authorizing appropriations for the MCC reported by the Senate Foreign Relations
Committee (S. 2144) would reduce the level to $2 billion.
On June 23, the House Foreign Operations Appropriations Subcommittee
marked up its draft FY2005 spending bill, approving $1.25 billion for the MCC.
This is half the amount the President seeks but 25% higher than approved for
FY2004. Moreover, the Subcommittee’s draft recommendation includes a provision
that would require the Corporation to fully fund the anticipated three-to-five year
Compacts in the year they are signed. Rather than drawing on funds over time in

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several appropriation acts to finance these multi-year arrangements, this provision
might have the affect of reducing the number of programs the MCC could support
in FY2004 and FY2005 due to the reduced funding levels.
For some time, some Members of Congress have raised questions regarding
whether sufficient funds will be available to support MCC programs in every country
selected, especially if the Board also makes exceptions in the FY2005 selection
process and qualifies more countries than meet the strict criteria. Representative
Kolbe, chairman of the House Foreign Operations Subcommittee, speculated at a
May 9 hearing that based on recent Board decisions, by 2006, as many as 40
countries might have qualified. This, he believed, could not be fully supported with
likely funding levels, and might raise country expectations that could not be met and
undermine program incentives.
MCC officials point out that qualification for the program does not mean that
a government will receive funding. That decision will be based on the quality of the
Compact proposals and it is possible that the Corporation will not finalize
agreements with all eligible countries. A March 2004 GAO report estimated that the
MCC could adequately fund 8-13 Compacts with an appropriation of $3.5 billion (the
combined FY2004 enacted and FY2005 amounts). This suggests, that even if
Congress fully funds the pending proposal, the Corporation will not be able to
support programs in all 16 countries approved for FY2004 and those selected for
FY2005. If Congress reduces the $2.5 billion request, the MCC may face increasing
difficulties funding Compacts of a sufficient size that will have a meaningful impact
on a country’s economic growth and poverty reduction goals. This may lead to
further congressional examination of the Board’s selection process and consideration
of ways to limit the number of countries selected in the future.

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Table 1. MCC Performance Indicators
Ruling Justly
Investing in People
Economic Freedom
Control of Corruption
Public Primary Education Spending as % of GDP
Country Credit Rating
Source: World Bank Institute
Sources: National governments
Source: Institutional Investor Magazine, September
[http://www.worldbank.org/wbi/governance/pubs/g
2003.
ovmatters3.html]
Voice and Accountability
Primary Education Completion Rate
Inflation (must be below 20%)
Source: World Bank Institute
Sources: World Bank and UNESCO
Source: Multiple
[http://www.worldbank.org/wbi/governance/pubs/g
ovmatters3.html]
Government Effectiveness
Public Expenditure on Health as % of GDP
Three-year Budget Deficit
Source: World Bank Institute
Sources: National governments
Source: National governments
[http://www.worldbank.org/wbi/governance/pubs/g
ovmatters3.html]
Rule of Law
Immunization Rates: DPT and Measles
Trade Policy
Source: World Bank Institute
Sources: World Health Organization
Source: The Heritage Foundation, Index of
[http://www.worldbank.org/wbi/governance/pubs/g
Economic Freedom
ovmatters3.html]
[http://www.heritage.org/research/features/index/]
Civil Liberties
Regulatory Policy
Source: Freedom House
Source: World Bank Institute
[http://www.freedomhouse.org/research/freeworld/
[http://www.worldbank.org/wbi/governance/pubs/g
2004/table2004.pdf]
ovmatters2003.htm]
Political Freedom
Days to Start a Business
Source: Freedom House
Source: World Bank
[http://www.freedomhouse.org/research/freeworld/
[http://rru.worldbank.org/DoingBusiness/Snapshot
2004/table2004.pdf]
Reports/EntryRegulations.aspx]

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CRS-12
Table 2. Comparison of MCA Authorization Legislation
Issue
Administration
Senate (S. 925)a
House (H.R. 1950)a
Conference (H.R. 2673)
MCA oversight
Board of Directors, chaired by
Board of Directors, chaired by
Board of Directors, chaired by
Board of Directors, chaired by
Sec. of State, with Treasury
the Sec. of State, with
Sec. of State, with Treasury,
Sec. of State, with Treasury,
and OMB
Treasury, USAID, USTR, and
USTR, USAID, MCC CEO, and
USTR, USAID, MCC CEO,
the MCA’s Chief Executive
4 others nominated by the
and 4 others nominated by the
Officer (CEO)
President from a Congressional
President that may come from
list. Non-voting members
list submitted by Congressional
include OPIC, OMB, Peace
leaders.
Corps, and TDA.
MCA organization
Independent Millennium
Independent Millennium
Independent Millennium
Independent Millennium
Challenge Corporation
Challenge Corporation whose
Challenge Corporation
Challenge Corporation
CEO reports to and be under
the direct authority and foreign
policy guidance of the Sec. of
State
MCA coordinator
CEO of Corporation
CEO “manages” the
CEO “heads” the Corporation,
CEO “manages” the
Corporation, reporting to and
reporting to the President
Corporation, reporting to and
under the direct authority and
under the direct authority and
foreign policy guidance of the
foreign policy guidance of the
Sec. of State
Board of Directors.
Interim CEO
—
—
—
Board of Directors may appoint
a confirmed U.S. Government
official to serve as interim
CEO until a CEO has been
confirmed by the Senate.
Selection of
Board of Directors
Board of Directors
CEO of Corporation
Board of Directors
participating
countries

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CRS-13
Issue
Administration
Senate (S. 925)a
House (H.R. 1950)a
Conference (H.R. 2673)
MCC Advisory
None
None
Nine members named by the
None
Council
CEO to advise on MCA policy,
review eligibility criteria,
evaluate the MCC, assess MCC
capabilities, and make
recommendations to the CEO.
Country income
FY2004 - IDA eligible
FY2004 - IDA eligible
FY2004 - IDA eligible
FY2004 - IDA eligible
eligibility
FY2005 - per capita GNP less
FY2005 - per capita GNP less
FY2005 - per capita GNP less
FY2005 - per cap GNP less
than $1,435
than $1,435
than $1,435
than $1,435
FY2006 - per capita GNP less
FY2006 - per capita GNP less
FY2006 - per capita GNP less
FY2006 - per capita GNP less
than $2,975
than $2,975 only if funds
than $2,975; low-middle income
than $2,975; low-middle
exceed $5 billion; low-middle
countries capped at 20%
income countries capped at
income countries capped at
25%
20%
Eligible entity
None stated
A government, including a
A national government, regional
A national government,
local or regional government,
or local government, an NGO,
regional or local government,
or an NGO or private entity.
an international organization
or an NGO or private entity.
and trust funds.
Aid to “threshold”
General support
10% of MCA funds available
15% of MCA funds available
10% of MCA funds available
countries
for countries failing to qualify
for countries demonstrating a
for countries showing a
because of inadequate data or
development commitment but
commitment to MCA criteria
missing one indicator
fail to meet a sufficient number
but fail to qualify
of performance indicators

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CRS-14
Issue
Administration
Senate (S. 925)a
House (H.R. 1950)a
Conference (H.R. 2673)
Oversight and
MCA contracts and
Disclosure in Federal Register
CEO consultation with Congress
Establishes a period of at least
reports
performance posted on the
and on the Internet of eligible
on eligibility criteria;
95 days during which Congress
Internet.
countries, programs supported,
notification 15 days in advance
will receive the list of
and performance; proposed
on grants exceeding $5 million;
“candidate countries,” the
performance indicators open to
“Compacts” with countries
eligibility criteria and
public comment; annual report
published in Federal Register
methodology for making a final
to Congress
and on the Internet; advance
selection, and the list of
notification of aid termination;
“eligible” countries (those that
annual reports to Congress from
will receive MCA assistance).
the CEO and Advisory Council
Consultation with
congressional committees will
occur during this period and
the information will be
published in the Federal
Register.
“Compacts” with countries
will be reported to Congress
and published in Federal
Register.
Annual report by March 31.
Funding
FY2004 - $1.3 billion
FY2004 - $1 billion
FY2004 - $1.3 billion
Such sums as may be necessary
FY2005 - no decision
FY2005 - $2.3 billion
FY2005 - $3 billion
for FY2004 and FY2005.
FY2006 - $5 billion
FY2006 - $5 billion
FY2006 - $5 billion
a. The status of the Senate bill is based on S. 925, the Foreign Affairs Act, Fiscal Year 2004, as amended during debate on July 9 and 10. S. 925 remains pending in the Senate.
Previously, the Senate Foreign Relations Committee had approved legislation authorizing the Millennium Challenge Account in S. 1160. A modified text of S. 1160 was
subsequently incorporated into S. 925 as Division C on July 9. The House bill, H.R. 1950, is also a combined foreign policy authorization measure to which earlier MCA
authorizing text was added. The House International Relations Committee had reported H.R. 2441, which was incorporated, with modifications, to H.R. 1950, and passed by
the House on July 16.

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