Order Code RL32427
CRS Report for Congress
Received through the CRS Web
Millennium Challenge Account
Updated August 1, 2006
Curt Tarnoff
Specialist in Foreign Affairs
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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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. 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 rewards countries for past and current
actions measured by 16 objective performance indicators;
! the pledge to segregate the funds from U.S. strategic foreign policy
objectives that often strongly influence where U.S. aid is spent; and
! the requirement to solicit program proposals developed solely by
qualifying countries with broad-based civil society involvement.
The Administration sought a combined $6.8 billion for MCA program, FY2004-
FY2006, while Congress appropriated $4.2 billion, or roughly two-thirds of the total
sought. For FY2007, the MCC requests $3 billion, the House approved $2 billion,
and the Senate Appropriations recommends $1.9 billion. As announced by the
President in March 2002, the initial plan had been to fund the MCC annually at $5
billion by FY2006.
Congress authorized the MCC in P.L. 108-199 (January 23, 2004). Since that
time, the MCC’s Board of Directors has selected 23 eligible countries for FY2004
— FY2006, and signed eight Compacts with Madagascar (April 2005), Honduras
June 2005), Cape Verde (July 2005), Nicaragua (July 2005), Georgia (September
2005), Benin (February 2006), Vanuatu (March 2006), and Armenia (March 2006).
A ninth Compact has been approved with Ghana (July 2006). Other MCA
implementation matters continue to unfold, including the relationship of MCA and
USAID, how to support “threshold” countries, and the country programs.
A growing question raised by some Members of Congress concerns the level of
funding to support MCC programs. Some, noting that proposals received by the
Corporation in 2004 totaled more than $4.2 billion, 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 pace of Compact agreements
means that the Corporation has or will have enough resources, and have supported
reductions in MCC budget requests.
This report will be updated as events unfold.

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Contents
Most Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
MCC Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
MCC Implementation Steps and Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Establishing the Millennium Challenge Corporation . . . . . . . . . . . . . . . . . . 5
Naming FY2004 Candidate Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Publishing the Selection Criteria and Methodology . . . . . . . . . . . . . . . . . . . 6
Country Selection — FY2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Naming Candidate Countries — FY2005 . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Country Selection — FY2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Continuity in the FY2005 Selection Round . . . . . . . . . . . . . . . . . . . . . 12
Excluding More Countries that Qualified . . . . . . . . . . . . . . . . . . . . . . 12
Naming Candidate Countries — FY2006 . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Country Selection — FY2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Greater Board Selectivity? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Selection of Lower Middle-Income Countries was Less Clear . . . . . . 16
MCA Compacts and Program Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
MCA Compacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
“Threshold” Countries and U.S. Assistance . . . . . . . . . . . . . . . . . . . . . . . . 23
Role of USAID and the Future of Agency Programs in MCA Countries . . 26
Funding Issues — Previous and in the 109th Congress . . . . . . . . . . . . . . . . 27
MCA Request and Congressional Action for FY2007 . . . . . . . . . . . . 27
Authorizing Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Authorizes Appropriations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Allows Compacts to Cover a Longer Period . . . . . . . . . . . . . . . . . . . . 28
Permits Multiple Compacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Adds New Notification Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . 29
List of Tables
Table 1. Status of MCA Compacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Table 2. MCA Candidate, Eligible, and Threshold Countries — FY2004 . . . . 30
Table 3. MCA Candidate, Eligible, and Threshold Countries — FY2005 . . . . 31
Table 4A. MCA Low-Income Candidate, Eligible, and Threshold
Countries — FY2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Table 4B. MCA Lower Middle-Income Candidate and Eligible
Countries — FY2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Table 5. MCC Performance Indicators for FY2006 . . . . . . . . . . . . . . . . . . . . . . 34

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Millennium Challenge Account
Most Recent Developments1
On July 13, 2006, the House International Relations Committee reported H.R.
4014, the Millennium Challenge Reauthorization Act of 2006 (H.Rept. 109-563). In
addition to authorizing appropriations, the legislation would permit Compacts of
longer duration than the current five year limit, and would allow up to two Compacts
to occur concurrently. The bill adds the requirement that the MCC Board notifies
congressional authorizers and appropriators 15 days prior to the signing of a
Compact.
On July 12, 2006, the MCC Board approved a five-year $547 million Compact
with Ghana. The Compact would focus on agriculture, transportation, and rural
development needs.
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.
On June 16, 2006, the MCC Board suspended The Gambia from eligibility for
MCA assistance due to “a disturbing pattern of deteriorating conditions” in half of
the 16 conditions that are used to determine candidate countries. The Gambia had
been selected in November 2005 for eligibility in FY2006. Among the problems
cited in this case were human rights abuses, restrictions on civil liberties and press
freedom, and worsened anti-corruption efforts.
On June 9, 2006, the House approved H.R. 5522 (H.Rept. 109-486), the Foreign
Operations Appropriations, FY2007, providing $2 billion for the Millennium
Challenge Corporation in FY2007. This represents a $1 billion reduction from the
President’s $3 billion request, but an increase over the $1.75 billion provided for
FY2006.
Overview
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), is managed by a
new Millennium Challenge Corporation (MCC) providing assistance, through a
1 This report was originally written by Larry Nowels, who retired from CRS in June 2006.

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CRS-2
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.
While the program was established and initially funded during the 108th
Congress, the 109th Congress has been and will continue to debate MCC funding
issues, as well as conduct oversight hearings on operations of the Corporation. In
2006, Congress is also considering changes to the authorizing legislation, as
proposed in H.R. 4014.
MCC Background2
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. The MCC differs in several fundamental 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.
The new initiative, which Congress authorized in January 2004 (Division D of
P.L. 108-199),3 was scheduled to phase in over a three-year period, beginning in
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.
3 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
(continued...)

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CRS-3
FY2004. During the first year, MCC 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 countries with a per capita income below $1,465 (adding
another 13 nations). Beginning in FY2006 and beyond, all lower middle-income
countries with per capita incomes between $1,575 and $3,255 may compete for MCC
resources (adding another 29 countries in FY2006).
Country selection is based largely, but not exclusively, on the nation’s record
measured by 16 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 1 below for a complete list of the 16 performance indicators.)
Administration officials, since announcing the MCC initiative in 2002, 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 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 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. 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, up significantly from initial estimates,
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, two of which have yet to be confirmed by the Senate, are individuals
3 (...continued)
2003 debate.

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CRS-4
from the private sector drawn from lists of proposed nominees submitted by
Congressional leaders.4
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.
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
Tobias, the new USAID Administrator, also serves concurrently in the newly 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 play a more limited role in other agency activities, by
developing an overall U.S. government development strategy and providing
“guidance” to foreign aid programs delivered through other agencies like the MCC.
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 roughly $1.75 billion
(after adjusting for a 1% across-the-board rescission). For FY2007, the
Administration again seeks $3 billion for the MCC. On June 9, 2006, the House
approved $2 billion for the MCC in the Foreign Operations bill (H.R. 5522). On
June 29, 2006, the Senate Appropriations Committee approved its version of the
FY2007 State/Foreign Operations appropriations, providing $1.9 billion for the
MCC.
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 90 days during
which the new Corporation formed, issued required reports, consulted with Congress
and the public, and selected first year participant countries. Within 10 days of
4 On July 13, 2004, the Senate confirmed two of the four new Board members: Kenneth
Hackett, President and CEO of Catholic Relief Services, and Christine Todd Whitman,
former Governor of New Jersey and former head of the Environmental Protection Agency,
2001-2003. No further nominees have been submitted by the White House.

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CRS-5
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. This
was followed on November 10 with the selection of FY2005 eligible MCA countries,
an action that added one new participant to the FY2004 list. The MCA Board issued
its third round of selections on November 8, 2005, choosing 23 countries, six of
which are new for FY2006. In addition, 18 countries have been named as threshold
nations — those that just missed qualifying as eligible countries — for FY2005 and
FY2006.
Implementation matters that continue to unfold in 2006 include the relationship
of MCC programs with those operated by USAID, how the Corporation and USAID
will support threshold countries to better prepare for future performance reviews, the
awarding of MCA grants — in the form of Compacts — to MCA eligible countries,
funding for FY2007, and the selection of FY2007 eligible countries.
Establishing the Millennium Challenge Corporation
On February 2, 2004, the Board of Directors met, agreed to Corporation by-
laws, and approved then-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 5.5
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.6
5 CEO Applegarth resigned his position, effective August 8, 2005. President Bush has
nominated John Danilovich, currently the U.S. Ambassador to Brazil, as the new CEO.
6 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
(continued...)

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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.
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
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 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.
Given the range and diversity of suggestions offered throughout the public and
congressional debate of the MCC, many observers were surprised that the
Corporation did not propose more substantive changes to the criteria and
6 (...continued)
restrictions, each country remained eligible for humanitarian assistance from the United
States.

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CRS-7
methodology. Some questioned how seriously the Administration considered
alternative approaches and whether the Corporation would be open to future
revisions.7 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 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.
For FY2006, the Corporation made further changes in the criteria and
methodology. The most notable was the addition of a new indicator — the Cost of
Starting a Business — that replaced 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. The Corporation believes
that not only does the new indicator have a strong correlation with economic growth,
but that it is a measurement that may encourage governments to take action in order
to improve their scores. Since the initial use of the indicator Days to Start a
Business, MCA candidates countries have introduced many business start-up
reforms, the results of which have been reflected in a lowered median for this
category. MCC officials hope that adding an indicator for the Cost of Starting a
Business will stimulate additional policy improvements. They believe that the
Country Credit Rating indicator is not as well linked to policy reforms and that it has
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 will explore additional criteria and
methodology changes for the future. Under consideration are options to:
7 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-8
! 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.8
After releasing on January 20, 2006, a set of guidelines the Corporation will use in
evaluating proposals for their environmental and social impact, CEO Danilovich
announced that a new indicator for natural resources will be forthcoming in the near
term for use in the selection of FY2007 qualified countries.9
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
Madagascar
Benin
Mali
Bolivia
Mongolia
Cape Verde
Mozambique
Georgia
Nicaragua
Ghana
Senegal
Honduras
Sri Lanka
Lesotho
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
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
8 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.
9 See remarks of John Danilovich at conference held by the American Enterprise Institute
on January 23, 2006. Available at
http://www.mcc.gov/public_affairs/events/012306_2nd_anniversary_AEI_trans.shtml

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CRS-9
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 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
country — Guyana — was also not selected despite passing the necessary hurdles.
It scored particularly low on the Fiscal Policy measurement.10
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
10 For a complete statement regarding the Board’s rationale, see Report on the Selection of
MCA Eligible Countries for FY2004, found at [http://www.mcc.gov], “Congressional
Reports.”

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CRS-10
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.11
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 security-
related 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
performance.12 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.
11 As noted below, East Timor, Albania, and Sao Tome were subsequently selected as three
of the seven “threshold” countries that will receive assistance to help the country meet the
MCA requirements.
12 See Steve Radelet, A Note on the MCC Selection Process for 2005, September 23, 2004,
found at [http://www.cgdev.org].

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CRS-11
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 $1,46513 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.14
Country Selection — FY2005
Meeting on November 8, the MCC Board of Directors made its selection of
FY2005 eligible countries:
Armenia
Mali
Benin
Mongolia
Bolivia
Morocco
Georgia
Mozambique
Ghana
Nicaragua
Honduras
Senegal
Lesotho
Sri Lanka
Madagascar
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
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.
13 The MCC plans to adjust the per capita income threshold each year to correspond to the
per capita income cutoff of the “historic ceiling” of IDA lending, a calculation made by the
World Bank. In future years when all lower middle-income countries will be eligible to
compete, the MCC also will adjust that threshold — which grew from $2,975 in 2003 to
$3,035 in 2004 and to $3,255 in 2005 — in the consideration of determining candidate
countries.
14 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.

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CRS-12
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.15 As a result, the review of countries for
FY2005 was based on much of the same data and rankings as had been the case for
the FY2004 selection.
Moreover, the addition of 13 new countries for consideration in the FY2005
round had the effect for at least six of the indicators of lowering the median against
which countries were compared. Because of this, if a country scored well — above
the median — in the FY2004 selection decision, it was likely that it would score the
same or better in the review for FY2005 where medians declined. For example, in
May Bolivia fell exactly at the median on the corruption indicator. But in November,
when the median for corruption dropped somewhat after new countries were added,
Bolivia scored above the median even though Bolivia’s score on corruption did not
change. This phenomena is unlikely to be repeated again to the same extent since
countries in the low-income group will be added or subtracted only if their economy
grows beyond the per capita income ceiling or U.S. foreign aid sanctions are applied
or lifted since the last review. The net effect is that the core set of low-income
countries competing for MCA selection is unlikely to change as much as it did in
FY2005, thereby reducing the extent to which the median will be altered simply
because of the addition of new countries.
Excluding More Countries that Qualified. Despite the degree of
continuity between FY2004 and FY2005 in the selection of eligible countries, the
MCC Board departed somewhat from the previous round by not selecting a large
15 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.

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CRS-13
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.16 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.17 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
them qualify for full MCA assistance in the future. Burkina Faso became the first to
sign a Threshold Agreement on July 22, 2005.
16 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.
17 Comments by Paul Applegarth at a State Department Foreign Press Center Briefing,
November 9, 2004.

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CRS-14
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 May, the Board chose three nations — Bolivia, Georgia,
and Mozambique — that did not pass the so-called “hard-hurdle” of corruption. The
latter two again qualified despite falling below the median on corruption, while
Bolivia did not require an exemption after the median dropped below its score with
the addition of new countries. For FY2005, five nations — Malawi, Moldova,
Paraguay, Tanzania, and Ukraine — passed the required number of performance
indicators, except corruption. Although Malawi, Paraguay, and Tanzania are
Threshold Countries, none of the five were chosen for full MCA status.
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.18 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.19
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:
18 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 middle-
income group is also drawn from the World Bank.
19 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.

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CRS-15
Low-Income Countries
Armenia
Madagascar
Benin
Mali
Bolivia
Mongolia
Burkina Faso*
Morocco
East Timor*
Mozambique
The Gambia*
Nicaragua
Georgia
Senegal
Ghana
Sri Lanka
Honduras
Tanzania*
Losotho
Vanuatu
Lower Middle-Income Countries
Cape Verde
Namibia
El Salvador*
* New for FY2006.
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.20 None of the four low-income
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.
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
20 Cape Verde was also selected in the new lower middle-income country grouping. Cape
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.

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CRS-16
to a few so that future Compacts could be larger and emphasize “transformational”
development opportunities as the MCA program envisioned.
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.21 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, 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 — those with a per-capita 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.22
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.23 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 exclude 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
21 Georgia and Senegal were selected despite not passing the necessary hurdles, but both had
been chosen in FY2004 and FY2005.
22 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.
23 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.

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CRS-17
chosen — Brazil, Bulgaria, Jordan, Samoa, Thailand, and Tunisia — also performed
substantially below the median in at least one area, although Jordan was selected to
participate in the Threshold program. What separated these latter six from El
Salvador and Namibia, however, was not explained by the Board.
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.
MCA Compacts.24 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 the program proposal.25 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,
three more agreements were signed: Benin (February 22), Vanuatu (March 2), and
24 Details on each of the negotiated Compacts can be found at the MCA website:
[http://www.mcc.gov].
25 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.

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CRS-18
Armenia (March 27), and one with Ghana was approved by the MCC Board on July
12.
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
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
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_us/key_documents/index.shtml].
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.

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CRS-19
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 four five-year Compacts with Cape Verde ($110 million), Benin
($307 million), Vanuatu ($66 million), and Ghana ($547 million) represents 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 mid-1990s, 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 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,
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.
31 Geographical Distribution of Financial Flows to Aid Recipients, 2000/2004: 2006
edition.

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CRS-20
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.
Madagascar Compact. 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, MCA-
Madagascar, whose Steering Committee will include government and non-
government 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.
Honduras Compact. 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
32 Prepared statement of John J. Danilovich, before the Senate Committee on Foreign
Relations, September 27, 2005.

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CRS-21
! 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 Compact. 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 Compact. The five-year, $175 million Compact with Nicaragua
will focus on the promoting economic growth primarily in the northwestern region
of the 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.
Georgia Compact. 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;

---

CRS-22
! 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 Compact. 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.
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
the country. Moreover, the MCC Board delayed final approval following the
November 27 constitutional referendum after allegations of fraud, mismanagement,
limited access by the press, and abuse of individuals were raised.33
Vanuatu Compact. 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.
Benin Compact. 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 Compact. The five-year $547 million Compact focuses on agriculture
and rural development. Poverty rates in the three targeted geographic areas are above
33 See letter of John Danilovich to Armenia President Robert Kocharyan on December 16,
2005.

---

CRS-23
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.
“Threshold” Countries and U.S. Assistance
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 ($99.4 million in FY2004) could be used for such purposes, stating
that the funding could be made available through USAID. The MCC set aside up to
$40 million for countries that just missed qualifying for FY2004 funding and projects
an additional $90 million for FY2005, subject to the quality of submitted proposals.34
Of the 18 countries selected to participate as Threshold Countries, the
Corporation has approved six programs for Albania, Burkina Faso, Malawi,
Paraguay, Tanzania, and Zambia. 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 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.
34 Initially, assistance for Threshold countries was authorized only for FY2004. The
FY2005 Foreign Operations Appropriations (Division D of P.L. 108-447, the Consolidated
Appropriations Act for FY2005, makes 10%, or $149 million of the new appropriation
available Threshold assistance. H.R. 4014, as introduced on October 7, 2005, would make
the 10% set-aside for threshold programs permanent.
35 Found at [http://www.MCC.gov].

---

CRS-24
Table 1. Status of MCA Compacts
Population
Human
FY06 US
Compact
Compact
GNI
Country
Living Below
Development
Econ. Aid
Size
Compact Focus
Signed
per capita
$2 p/day (%)
Index Ranking1
(millions)
(millions)
$236
-Agriculture/irrigation
Armenia
Mar. 27, 2006
$1,060
49.0%
83
$76.0
5 years
-Rural roads
-Land and property
$307
-Financial services
Benin
Feb. 22, 2006
$450
NA
162
$15.1
5 years
-Judicial improvement
-Port rehabilitation
- Agriculture
$110
Cape Verde
July 4, 2005
$1,720
NA
105
$1.8
- Transport/roads
5 years
- Private sector
- Infrastructure/gas
$295
Georgia
Sept. 12, 2005
$1,060
15.7%
100
$68.1
- Transport/roads
5 years
- Agriculture/business
$215
-Agriculture
Honduras
June 13, 2005
$1,040
44.0%
116
$35.3
5 years
-Transport/roads
- Land titling
$110
Madagascar
April 18, 2005
$290
85.1%
146
$23.8
- Financial sector
4 years
- Agriculture
- Land titling
$175
Nicaragua
July 14, 2005
$830
79.9%
112
$34.5
- Transport/roads
5 years
- Agriculture
$66
-Transport rehab
Vanuatu
March 2, 2006
$1,390
NA
118
$2.2
5 years
-Public Works Dept.

---

CRS-25
Sources:
Population Living Below $2 Per Day — data from the World Bank, World Development Indicators, 2005; Gross National Income per capita — 2004 data
from the World Bank, World Development Indicators, 2005. Human Development Index Rank — from UNDP, Human Development Report, 2005.
U.S. Economic Aid — Department of State. MCA Compact information — Millennium Challenge Corporation.
1. 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) US dollars. The most recent report
(2005) evaluates 177 countries, with number 1 having the best HDI and number 177 scoring the worst in the Index.

---

CRS-26
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.
The MCC signed the first Threshold Agreement with Burkina Faso on July 22,
2005. The $12.9 million plan is designed to improve girls’ primary education,
targeting areas of the country with the lowest primary completion rates. Although
Burkina Faso “passed” enough performance indicators to qualify for a regular MCA
program in FY2005, the Corporation’s Board did not select the country, presumably
because its scores on girls’ primary education completion and days to start a business
fell significantly below the median level. Subsequently, the MCC has signed seven
other Threshold programs — with Malawi (September 23, 2005), Tanzania (February
1, 2006), Albania (February 8, 2006), Paraguay (February 16, 2006), Zambia (April
18, 2006), Philippines (June 16, 2006), and Ukraine (June 16, 2006) — each aimed
at curbing corruption.
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 17 of the 23 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

---

CRS-27
programs (about $24 million for Madagascar, $35 million for Honduras, and $34
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,
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.
The FY2007 USAID budget request offers the first look at how funding and
sector distribution levels may be affected by MCA Compacts. For each of the six
Compact countries where USAID maintained a mission presence at the time of the
request, “core” economic assistance would be reduced under the FY2007 budget
plan. In most cases, the reductions would be taken in the sector of economic growth,
not for health or education programs. 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.
Funding Issues — Previous and in the 109th Congress
As mentioned above, Congress appropriated $994 million for FY2004 MCC
programs, $1.488 billion for FY2005, and $1.75 billion for FY2006. The enacted
appropriations for FY2005 and FY2006 were well below the President’s $2.5 billion
and $3 billion requests, respectively. In each year, 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.
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 continues its practice of selecting more countries
than meet the strict criteria. 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.
MCA Request and Congressional Action for FY2007. The
Administration seeks $3 billion appropriation for FY2007. The MCC estimates that
it will exhaust all existing appropriations from FY2004-FY2006 by the second
quarter of FY2007, leaving nine currently 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 Kolbe, questioned whether the MCC could pick
up the pace of signing new Compacts to the degree required to utilize the full $3

---

CRS-28
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.
Congressional Action. 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. 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 directs 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 suggests that judicial reform
should be part of MCC compacts and raises a concern that education has not yet been
a major part of compacts. The Committee directs that the MCC submit a report
regarding steps it is taking to address social and environmental costs resulting from
infrastructure investments.
Authorizing Legislation
On July 13, 2006, the House International Relations Committee reported a
measure, H.R. 4014 (H.Rept. 109-563), introduced by Representatives Hyde and
Lantos, Chairman and the ranking Member of the House International Relations
Committee, that would make a number of policy modifications to the original
legislation and to the operations of the Corporation. These include:
Authorizes Appropriations. H.R. 4014 authorizes “such sums as may be
necessary” for fiscal years 2007 through 2009. The initial MCA statute only
authorized appropriations through FY2005. Annual Foreign Operations
appropriations bills routinely waive the requirement of authorization of foreign aid
programs, as the FY2006 Foreign Operations measure did in the case of currently
unauthorized foreign aid programs, including the MCA.
Allows Compacts to Cover a Longer Period. Currently, Compacts
cannot last for more than five years. H.R. 4014 would permit Compacts that cannot
be completed in that period to be approved for up to 10 years.
Permits Multiple Compacts. Under current law, a country cannot maintain
more than one Compact. H.R. 4014 would allow the Corporation to enter into two
concurrent Compacts with an eligible country, so long as the country is making
“considerable and demonstrable progress” in meeting the terms of the original
Compact. Likewise, when a country applies for a subsequent Compact, the MCC
must determine that the country has “substantially met” the goals of prior Compacts.

---

CRS-29
Adds New Notification Requirement. Current law requires that the MCC
consult with “appropriate committees” prior to negotiating a Compact. H.R. 4014
adds language requiring notification 15 days prior to signing a Compact. By
requiring that the process of prior notification be followed in accordance with the
procedures of reprogramming notifications under section 634A of the Foreign
Assistance Act, H.R. 4014 makes explicit the requirement that the MCC Board
notifies congressional authorizers as well as appropriators.

---

CRS-30
Table 2. MCA Candidate, Eligible, and Threshold Countries —
FY2004
Criteria: IDA-eligible, per capita income $1,415 and below, and not prohibited from
receiving other U.S. economic assistance.
Eligible Countries are in Bold.
Threshold Countries are followed with (TC)
Latin
Africa
Income*
East Asia/Pacific
Income*
Income*
America
Angola
$660
East Timor (TC)
$430
Bolivia
$940
Benin
$390
Indonesia
$680
Guyana
$840
Burkina Faso
$220
Kiribati
$810
Haiti
$440
Cameroon
$560
Laos
$310
Honduras
$920
Cape Verde
$1,290
Mongolia
$440
Nicaragua
**
Chad
$220
Papua New Guinea
$580
Comoros
$390
Solomon Islands
$570
Congo, Dem Rep of
$90
Tonga
$1,410
Congo, Rep of
$700
Vanuatu
$1,080
Eritrea
$160
Vietnam
$430
Ethiopia
$100
Gambia
$280
South Asia
Income*
Mid-East
Income*
Ghana
$270
Afghanistan
**
Djibouti
$900
Guinea
$410
Bangladesh
$360
Yemen (TC)
$490
Kenya (TC)
$360
Bhutan
$590
Lesotho
$470
India
$460
Madagascar
$240
Nepal
$230
Malawi
$160
Pakistan
$420
Mali
$240
Sri Lanka
$840
Mauritania
$340
Mozambique
$210
Eurasia
Income*
Europe
Income*
Niger
$170
Armenia
$790
Albania(TC)
$1,380
Nigeria
$290
Azerbaijan
$650
Bosnia
$1,270
Rwanda
$230
Georgia
$720
Sao Tome &
$290
Kyrgyz Rep.
$290
Principe (TC)
Senegal
$470
Moldova
$460
Sierra Leone
$140
Tajikistan
$180
Tanzania (TC)
$280
Togo
$270
Uganda (TC)
$240
Zambia
$330
* Gross National Income, dollars per capita, 2002. World Bank Annual Report, 2003.
** Precise data unavailable.

---

CRS-31
Table 3. MCA Candidate, Eligible, and Threshold Countries —
FY2005
Criteria: Per capita income $1,465 and below, and not prohibited from receiving
other U.S. economic assistance.
Eligible Countries are in Bold.
Threshold Countries are followed with (TC)
Latin
Africa
Income*
East Asia/Pacific
Income*
Income*
America
Angola
$740
China
$1,100
Bolivia
$890
Benin
$440
East Timor (TC)
$430
Guyana(TC)
$900
Burkina Faso (TC)
$300
Indonesia
$810
Haiti
$380
Cameroon
$640
Kiribati
$880
Honduras
$970
Chad
$250
Laos
$320
Nicaragua
$730
Comoros
$450
Mongolia
$480
Paraguay(TC
$1,100
Congo, Dem Rep
$100
Papua New Guinea
$510
Congo, Rep of
$640
Philippines (TC)
$1,080
Equatorial Guinea
**
Solomon Islands
$600
Eritrea
$190
Tuvalu
**
Ethiopia
$90
Vanuatu
$1,180
Gambia
$310
Vietnam
$480
Ghana
$320
Guinea
$430
South Asia
Income*
Mid-East
Income*
Kenya (TC)
$390
Afghanistan
**
Djibouti
$910
Lesotho
$590
Bangladesh
$400
Egypt
$1,390
Madagascar
$290
Bhutan
$660
Iraq
**
Malawi (TC)
$170
India
$530
Morocco
$1,320
Mali
$290
Nepal
$240
Yemen (TC)
$520
Mauritania
$430
Pakistan
$470
Mozambique
$210
Sri Lanka
$930
Niger
$200
Nigeria
$320
Eurasia
Income*
Europe
Income*
Rwanda
$220
Armenia
$950
Sao Tome &
$320
Azerbaijan
$810
Principe (TC)
Senegal
$550
Georgia
$830
Sierra Leone
$150
Kyrgyz Rep.
$330
Swaziland
$1,350
Moldova
$590
Tanzania (TC)
$290
Tajikistan
$190
Togo
$310
Turkmenistan
$1,120
Uganda (TC)
$240
Ukraine
$970
Zambia (TC)
$380
* Gross National Income, dollars per capita, 2003. World Bank Annual Report, 2004.
** Precise data unavailable.

---

CRS-32
Table 4A. MCA Low-Income Candidate, Eligible, and Threshold
Countries — FY2006
Criteria: Per capita income $1,575 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
$1,030
China
$1,290
Bolivia
$960
Benin
$530
East Timor
$550
Guyana (TC)
$990
Burkina Faso
$360
Indonesia (TC)
$1,140
Haiti
$390
Cameroon
$800
Kiribati
$970
Honduras
$1,030
Chad
$260
Laos
$390
Nicaragua
$790
Comoros
$530
Mongolia
$590
Paraguay (TC)
$1,170
Congo, Dem Rep of
$120
Papua New Guinea
$580
Congo, Rep of
$770
Philippines (TC)
$1,170
Djibouti
$1,030
Solomon Islands
$550
Eritrea
$180
Vanuatu
$1,340
Ethiopia
$110
Vietnam
$550
Gambia
$290
Ghana
$380
Guinea
$460
South Asia
Income*
Mid-East
Income*
Guinea-Bissau
$160
Afghanistan
**
Egypt
$1,310
Kenya (TC)
$460
Bangladesh
$440
Iraq
**
Lesotho
$740
Bhutan
$760
Morocco
$1,520
Liberia
$110
India
$620
Yemen
$570
Madagascar
$300
Nepal
$260
Malawi (TC)
$170
Pakistan
$600
Mali
$360
Sri Lanka
$1,010
Mauritania
$420
Mozambique
$250
Eurasia
Income*
Niger
$230
Armenia
$1,120
Nigeria
$390
Azerbaijan
$950
Rwanda
$220
Georgia
$1,040
Sao Tome&Principe
$370
Kyrgyz Rep. (TC)
$400
(TC)
Senegal
$670
Moldova (TC)
$710
Sierra Leone
$200
Tajikistan
$280
Tanzania
$330
Turkmenistan
$1,340
Togo
$380
Ukraine (TC)
$1,260
Uganda (TC)
$270
Zambia (TC)
$450
* Gross National Income, dollars per capita, 2004. World Bank, World Development Indicators, On
Line, 2005.
** Precise data unavailable.

---

CRS-33
Table 4B. MCA Lower Middle-Income Candidate and Eligible
Countries — FY2006
Criteria: Per capita income between $1,575 and $3,255, 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*
Cape Verde
$1,770
Fiji
$2,690
Brazil
$3,090
Namibia
$2,370
Marshall Islands
$2,370
Colombia
$2,000
Swaziland
$1,660
Micronesia
$1,990
Dominican Rep
$2,080
Samoa
$1,860
Ecuador
$2,180
Thailand
$2,540
El Salvador
$2,350
Tonga
$1,830
Guatemala
$2,130
Tuvalu
**
Jamaica
$2,900
Peru
$2,360
Suriname
$2,250
South Asia
Income*
Mid-East
Income*
Maldives
$2,510
Algeria
$2,280
Jordan (TC)
$2,140
Tunisia
$2,630
Eurasia
Income*
Europe
Income*
Belarus
$2,120
Albania
$2,080
Kazakhstan
$2,260
Bulgaria
$2,740
Macedonia
$2,350
Romania
$2,260
* Gross National Income, dollars per capita, 2004. World Bank, World Development Indicators On
Line, 2005.
** Precise data unavailable.

---

CRS-34
Table 5. MCC Performance Indicators for FY2006
Ruling Justly
Investing in People
Economic Freedom
Control of Corruption
Public Primary Education Spending as % of GDP
Inflation (must be below 15%)
Source: World Bank Institute
Sources: National governments
Source: Multiple
[http://www.worldbank.org/wbi/governance/govdat
a2002/index.html]
Voice and Accountability
Primary Girls’ Education Completion Rate
Fiscal Policy
Source: World Bank Institute
Sources: World Bank and UNESCO
Source: National governments and IMF World
[http://www.worldbank.org/wbi/governance/govdat
Economic Outlook
a2002/index.html]
Government Effectiveness
Public Expenditure on Health as % of GDP
Trade Policy
Source: World Bank Institute
Sources: National governments
Source: The Heritage Foundation, Index of
[http://www.worldbank.org/wbi/governance/govdat
Economic Freedom
a2002/index.html]
[http://www.heritage.org/research/features/index/]
Rule of Law
Immunization Rates: DPT and Measles
Regulatory Policy
Source: World Bank Institute
Sources: World Health Organization
Source: World Bank Institute
[http://www.worldbank.org/wbi/governance/govdat
[http://www.worldbank.org/wbi/governance/govdat
a2002/index.html]
a2002/index.html]
Civil Liberties
Days to Start a Business
Source: Freedom House
Source: World Bank
[http://www.freedomhouse.org/research/freeworld/
[http://rru.worldbank.org/DoingBusiness/ExploreT
2004/table2004.pdf]
opics/StartingBusiness/CompareAll.aspx]
Political Freedom
Cost of Starting a Business
Source: Freedom House
Source: World Bank
[http://www.freedomhouse.org/research/freeworld/
[http://rru.worldbank.org/DoingBusiness/ExploreT
2004/table2004.pdf]
opics/StartingBusiness/CompareAll.aspx]

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