Millennium Challenge Corporation
Curt Tarnoff
Specialist in Foreign Affairs
February 13, 2013
Congressional Research Service
7-5700
www.crs.gov
RL32427
CRS Report for Congress
Pr
epared for Members and Committees of Congress
Millennium Challenge Corporation
Summary
The Millennium Challenge Corporation (MCC) provides economic assistance through a
competitive selection process to developing nations that demonstrate positive performance in
three areas: ruling justly, investing in people, and fostering economic freedom.
Established in 2004, the MCC differs in several respects from past and current U.S. aid practices:
• the competitive process that rewards countries for past actions measured by
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;
• its mandate to seek poverty reduction through economic growth, not encumbered
with multiple sector objectives;
• the requirement to solicit program proposals developed solely by qualifying
countries with broad-based civil society involvement;
• the responsibility of recipient countries to implement their own MCC-funded
programs, known as compacts;
• a compact duration limited to five years, with funding committed up front;
• the expectation that compact projects will have measurable impact; and
• an emphasis on public transparency in every aspect of agency operations.
On February 13, 2012, the Administration issued its FY2013 State, Foreign Operations budget,
requesting $898.2 million for the MCC, the same amount it received in FY2012 and FY2011. In
September 2012, the Continuing Appropriations Resolution, 2013 (H.J.Res. 117, P.L. 112-175),
was approved by Congress, providing FY2013 funding for the MCC at the level in the FY2012
Consolidated Appropriations Act (P.L. 112-74) plus 0.612%—$904 million. The resolution
expires on March 27, 2013.
Congress authorized the MCC in P.L. 108-199 (January 23, 2004). Since that time, the MCC’s
Board of Directors has approved 26 grant agreements, known as compacts: with Madagascar
(calendar year 2005), Honduras (2005), Cape Verde (2005), Nicaragua (2005), Georgia (2005),
Benin (2006), Vanuatu (2006), Armenia (2006), Ghana (2006), Mali (2006), El Salvador (2006),
Mozambique (2007), Lesotho (2007), Morocco (2007), Mongolia (2007), Tanzania (2007),
Burkina Faso (2008), Namibia (2008), Senegal (2009), Moldova (2009), Philippines (2010),
Jordan (2010), Malawi (2011), Indonesia (2011), Cape Verde II (2011), and Zambia (2012).
MCC issues include the level of funding to support MCC programs, the impact of budget
reductions on MCC programs, the rate of program implementation, the results of MCC compacts,
and procurement and corruption concerns.
This report will be updated as events unfold.
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Contents
Most Recent Developments ............................................................................................................. 1
Introduction ...................................................................................................................................... 1
MCC Policy and Programs .............................................................................................................. 2
Identification of Candidate Countries ........................................................................................ 2
Eligible Country Selection Criteria and Methodology .............................................................. 4
Selection of Eligible Countries .................................................................................................. 6
Country Selection—FY2013 ............................................................................................... 9
MCC Compacts ......................................................................................................................... 9
Compact Development ........................................................................................................ 9
Compact Implementation .................................................................................................. 11
Compact Suspension and Termination .............................................................................. 13
Anticipated Compacts in 2013 .......................................................................................... 15
Threshold Programs ................................................................................................................. 15
Select Issues ................................................................................................................................... 17
Funding .................................................................................................................................... 17
MCC Appropriations Request and Congressional Action for FY2012 ............................. 18
MCC Appropriations Request and Congressional Action for FY2013 ............................. 18
MCC Appropriations Request and Congressional Action for FY2014 ............................. 19
Impact of Sequestration ..................................................................................................... 19
Authorizing Legislation and MCC Reform ............................................................................. 20
Compact Outcomes and Impact ............................................................................................... 21
Ensuring Sustainability ............................................................................................................ 23
Procurement Policy ................................................................................................................. 24
Corruption................................................................................................................................ 24
Implications of New Eligibility Methodology ......................................................................... 25
Key Concerns in the Early Years of the MCC ......................................................................... 26
How Large Should a Compact Be? ................................................................................... 27
What Development Sectors Should the MCC Support?.................................................... 28
How Fast Should the MCC Spend Its Funds? ................................................................... 28
What Should Be the Role of USAID? ............................................................................... 29
Tables
Table 1. Compact-Eligible Countries: FY2013 ............................................................................... 9
Table 2. MCC Appropriations: FY2004-FY2013 .......................................................................... 18
Appendixes
Appendix A. MCC Compacts ........................................................................................................ 30
Appendix B. Compact Descriptions and Status ............................................................................. 33
Appendix C. MCC Candidate Countries FY2013 ......................................................................... 41
Appendix D. MCC Performance Indicators FY2013 .................................................................... 42
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Contacts
Author Contact Information........................................................................................................... 43
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Millennium Challenge Corporation
Most Recent Developments
On March 1, 2013, if sequestration requirements under the Budget Control Act of 2011 (P.L. 112-
25) go into effect, the MCC FY2013 budget will likely be cut. Reduction estimates vary, but the
latest Congressional Budget Office estimate suggests a cut of 5.3% to non-defense accounts.
On December 19, 2012, the MCC Board announced countries eligible for new compacts—
Liberia, Niger, Sierra Leone. Morocco and Tanzania were made eligible for second compacts.
Guatemala was selected for a threshold program. Benin, El Salvador, Georgia, and Ghana are
allowed to continue developing their compact proposals, and Honduras and Nepal can continue
developing their threshold programs.
In September 2012, the Continuing Appropriations Resolution, 2013 (H.J.Res. 117, P.L. 112-175),
was approved by Congress, providing FY2013 funding for the MCC at the level in the FY2012
Consolidated Appropriations Act (P.L. 112-74) plus 0.612%—$904 million. The resolution
expires on March 27, 2013.
Introduction
In a speech on March 14, 2002, President Bush outlined a proposal for a new program that would
represent a fundamental change in the way the United States invests and delivers economic
assistance. The resulting Millennium Challenge Corporation (MCC) 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 concept differs in several fundamental respects from
past and current U.S. aid practices:
• the competitive process that rewards countries for past actions measured by
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;
• its mandate to seek poverty reduction through economic growth, not encumbered
with multiple sector objectives;
• the requirement to solicit program proposals developed solely by qualifying
countries with broad-based civil society involvement;
• the responsibility of recipient countries to implement their own MCC-funded
programs, known as compacts;
• a compact duration limited to five years, with funding committed up front;
• the expectation that compact projects will have measurable impact; and
• an emphasis on public transparency in every aspect of agency operations.
The original proposal also differed from previous aid efforts in the size of its commitment to
reach an annual level of $5 billion within a few years, an aim never even approximately met.
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Congress approved the new initiative in January 2004 in the Millennium Challenge Act of 2003
(Division D of P.L. 108-199).1 To manage the initiative, 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).2 The MCC headquarters staff level is currently about 261, with a total of 40 additional
U.S. direct hire employees in compact countries.3 On December 8, 2009, Daniel Yohannes was
sworn in as the new Chief Executive Officer (CEO) of the MCC. A Board of Directors oversees
the MCC and makes the country selections. It is chaired by the Secretary of State and composed
of the Secretary of the Treasury, the USAID Administrator, the U.S. Trade Representative, the
Corporation’s CEO, and four individuals from the private sector appointed by the President drawn
from lists submitted by congressional leaders.4
Since its inception, Congress has closely followed MCC implementation. The 113th Congress will
likely consider MCC funding, a possible reauthorization, and operational issues.
MCC Policy and Programs
From the time the MCC Board of Directors held its initial meeting to establish the program and
agree to Corporation by-laws on February 2, 2004, procedures and policies have continued to
evolve. Program implementation moves chronologically through a number of steps: candidate
countries are identified, eligibility criteria are formulated and applied, compact and threshold-
eligible countries are selected, compact programs are developed and proposed, and those
approved are funded and carried out. Elements in this process are discussed below.
Identification of Candidate Countries
The identification of initial candidate countries for possible participation in MCC programs is
based on the authorizing statute. Countries must fall into specific economic categories determined
by their per capita income status (as defined and ranked by the World Bank). The pool of possible
participants is limited to low- and lower-middle-income countries (the former with per capita
1 When first proposed and in its early years, the initiative was known as the Millennium Challenge Account. Today,
both the program and the funding account in the foreign operations budget are more commonly known by the name of
the managing entity, the MCC. For a more in-depth discussion of the original MCC 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.
2 The decision to house the initiative in a new organization was one of the most debated issues during early
congressional deliberations. The Bush Administration argued that because the initiative 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 initiative was 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 program, while others said
that it should reside in the State Department. 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.
3 MCC, Agency Financial Report, Fiscal Year 2011, p. 17.
4 Current private sector board members serving their first term are Mark Green, former congressman and ambassador to
Tanzania, and Morton Halperin, senior advisor for the Open Society Foundations. Serving his second term is Lorne
Craner, president of the International Republican Institute. There is one vacancy. First terms run three years and second
terms run two years.
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incomes below $1,945 and the latter between that figure and $4,035 in FY2013), a total of 89 in
FY2013.
This division of countries into income groups and the variability of annual income levels have
created some uncertainties and problems.5 Depending on the timing, a change in relative income
status might exclude countries from MCC eligibility. In FY2011, Albania, a threshold program
country, moved from lower-middle-income to upper-middle-income status and, therefore, became
ineligible for further MCC assistance. On the other hand, Namibia, which gained upper-middle-
income status in FY2010, was able to continue its compact signed in 2008, as can Jordan, a
compact country that moved to upper-middle status in FY2012. Tunisia, which was made
threshold program eligible in September 2011, based on its FY2011 status, moved to upper-
middle-income rank in FY2012.
Because it is MCC practice to judge the performance of countries within their income status
cohort—low-income countries compete with other countries in the low-income group; countries
in the lower-middle-income group compete with each other—countries that move from one year
to the next from low-income to lower-middle-income status may be affected negatively by being
compared to countries at a higher level of development. Seeking to mitigate the negative
consequences of income change, in September 2009 and in each subsequent year, the MCC Board
announced that, for countries that move from low to lower-middle-income status, it would
consider their performance relative to both their old income group and the newer one for a period
of three years.6 The FY2012 appropriations language would treat countries that moved from low-
income to lower-middle income or vice versa as though they were in their former classification
for that fiscal year and two succeeding years.
Perhaps the most significant impact of the two income division is that, under the MCC legislative
authority, only a quarter of total MCC assistance in any year is available for lower-middle-income
country compacts, severely limiting the possibility that such countries can be funded or even
selected. Both the Philippines (FY2008) and Indonesia (FY2009) were selected when they were
low-income countries; a year or two later and the outcome may have been different.
To address the recurring issue of income category change strictly as it affects funding eligibility,
FY2012 appropriations language (P.L. 112-74), following closely provisions proposed in the
recent past by authorizers (see the “Authorizing Legislation and MCC Reform”section below),
made a change that the MCC is applying to the FY2013 candidate identification process. For
purposes of funding eligibility, the legislation redefines the category of low-income countries
from the World Bank’s characterization as those with per capita incomes below $1,945 to one that
encompasses the bottom 75 countries in the Bank’s low- and lower-middle income level rankings.
The remaining countries below the Bank’s cut-off ceiling for lower-middle income countries
($4,035 per capita in FY2013) remain defined as lower-middle in MCC terms. Applied in
5 An example of the limitations of determining eligibility based on variable factors like income level is the Philippines.
The Philippines was selected for compact eligibility as a low-income country in FY2008 (and signed a compact based
on that status in 2010), moved from low-income to the lower-middle-income level in FY2010, then returned to low-
income status in FY2011, and again to lower-middle-income status in FY2012.
6 The FY2010 Consolidated Appropriations Act (P.L. 111-117, H.R. 3288, Division F) allowed those transitioning
countries already selected in FY2009 to maintain their candidacy for eligibility and, if reselected, draw on the same
source of funds as when they were first selected. The compact for Indonesia, transitioning to lower-middle in FY2010
when it was reselected, was therefore funded as though in the low-income group.
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FY2013, 75 countries are considered for MCC funding purposes as low-income versus 56 in the
Bank’s definition, and 14 countries are considered lower-middle income versus the Bank’s 33.
In addition to the income ceiling, under the MCC authorization, countries may be candidates only
if they are not statutorily prohibited from receiving U.S. economic assistance. For FY2013, 14
countries were excluded for this reason. Many had been barred in prior years as well.7 Two,
Madagascar and Mali, excluded in FY2010 and FY2012 respectively because of an undemocratic
change in government, were compact countries and, in losing their eligibility, had their programs
terminated early.
In August 2012, the MCC transmitted to Congress its annual notification of candidate countries.8
For funding purposes, the revised version listed 62 low-income countries (from the original pool
of 75, after excluding prohibited countries) and 13 lower-middle-income countries. For selection
purposes, there are 45 low-income countries competing with each other, and 30 lower-middle-
income countries competing with each other, a total of 75 candidate countries from which
compact-eligible countries may be chosen. (See Appendix C.)
Eligible Country Selection Criteria and Methodology
As noted earlier, the MCC provides assistance to developing nations through a competitive
selection process, judged by country performance 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.
• Economic freedom—fostering enterprise and entrepreneurship and promoting open
markets and sustainable budgets.
Country selection is based largely, but not exclusively, on a nation’s record, measured by
performance indicators related to these three categories, or “baskets.” Indicators may be a
straightforward single measure of a country’s rate of inflation—one reflection of good economic
policies—or may be a combination of data points forming an index of surveys and expert
opinions on the quality of public service, civil servant competency, a government’s ability to plan
and implement sound policies, which together “measure” government effectiveness. MCC is
constrained somewhat in measuring performance by the public availability of appropriate,
comparable, and consistent data on every country.
The choice of criteria on which to base the eligibility of countries for MCC programs is one of the
most important elements in MCC operations. They are a key statement of MCC development
7 Various types of aid restrictions applied to these countries. For Sudan, Madagascar, Mali, Fiji, and Guinea-Bissau,
U.S. aid was blocked because an elected head of government had been deposed by a military coup. For Zimbabwe,
legislation banned assistance to the central government until rule of law is restored. Aid restrictions imposed on nations
not cooperating in counter-narcotics efforts (Burma), that are on the terrorist list (Sudan, Syria, North Korea), or in
arrears on debt owed the United States (Syria, Sudan) also applied. Notwithstanding these and other restrictions, each
country remained eligible for humanitarian assistance from the United States.
8 MCC, Report on Countries that are Candidates for Millennium Challenge Account Eligibility for Fiscal Year 2013
and Countries that would be Candidates but for Legal Prohibitions, August 2012.
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priorities as they ultimately determine which countries will receive U.S. assistance. Perhaps of
equal significance, raising indicator scores has become a prominent objective of some developing
countries in what former CEO Danilovich called the “MCC effect.”9 Countries seeking eligibility
are said to be moving on their own to enact reforms and take measures to improve performance
scores that would enable them to meet MCC criteria.
Pursuant to reporting requirements set in the MCC legislation, each year the Corporation sends to
Congress an overview of the criteria and methodology that would be used to determine the
eligibility of the candidate countries in that fiscal year.10 The criteria have been altered and
refined, sometimes dramatically, over time. In September 2011, the MCC Board adopted perhaps
the most significant changes to its selection methods since the agency was established. To ease
the transition to a new system, for the FY2012 selection round, the MCC used both “old” and
“new” methods to make its judgments on compact eligibility. In FY2013, the new system is fully
adopted.
As in the past, for most performance indicators, each country is judged against its peers in its
income group, requiring a score just above the median to pass that indicator. For some indicators
there is an absolute threshold that must be met in order to pass the indicator. The absolute
threshold indicators include an “inflation rate” under 15%, “political rights” requiring a score
above 17, “civil liberties” requiring a score above 25, and, for lower-middle-income countries
only, an “immunization coverage” of above 90%.
Under the new system, countries no longer have to pass half the indicators in each basket to
qualify; they are required to pass at least half of the total number of indicators. That total has been
expanded to 20, so countries need to pass 10 in all (see Appendix D for a complete list of the 20
performance indicators). Of the 10, two of these are “hard hurdles” that must be passed to
qualify—the “corruption” indicator as in the past, and either one of two democratic rights
indicators, the “civil liberties” indicator or the “political rights” indicator. Requiring passage of a
democratic rights indicator may weed out countries that achieved eligibility only to have their
compact programs suspended or terminated when their governments failed to meet governance
performance standards. Finally, to avoid concerns that a country could achieve compact eligibility
with a passing performance in only two of the three baskets, the Board set the requirement that
countries must pass at least one indicator in each basket.
The new methodology established some indicators and modified or replaced old ones, continuing
an MCC effort to improve the quality of indicators and identify indicators better reflecting
congressional intent. Beginning with the FY2005 selection process, for example, 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). For FY2006, the MCC
replaced a “country credit rating” with a new indicator on the “cost of starting a business” that it
believed had a stronger correlation with economic growth and was a measurement that might
encourage governments to take action in order to improve their scores. Since the initial use of the
indicator “days to start a business,” MCC candidate countries had introduced many business start-
up reforms, the results of which were reflected in a lowered median for this category. MCC
officials hoped that adding an indicator for the “cost of starting a business” would stimulate
9 MCC Public Outreach Meeting, February 15, 2007.
10 Most recently, Report on the Criteria and Methodology for Determining the Eligibility of Candidate Countries for
Millennium Challenge Account Assistance in Fiscal Year 2013, September 2012.
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additional policy improvements. In FY2008, the MCC collapsed the “days to start a business” and
“cost of starting a business” indicators into one “business start-up” indicator.
In addition to criteria originally proposed by the Bush Administration, lawmakers in the 2004
MCC authorizing legislation included four other 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; respects worker rights; supports a sustainable management of natural resources; and
makes social investments, especially in women and girls. For each of these, the MCC has sought
to use supplemental data and qualitative information to inform its decisions on compact
eligibility. The latter two factors have led to the development of new indicators. In FY2005, an
indicator measuring girls’ primary education completion rates replaced a broader measure used in
FY2004 that did not disaggregate primary education graduation by gender. In FY2008, two
indicators assessing a country’s commitment to policies that promote sustainable management of
natural resources were adopted.
The new system, fully adopted in the FY2013 process, modified or added new indicators under
all three baskets. Under the Ruling Justly basket, a “freedom of information” indicator, including
a measure of efforts to restrict internet content, replaced the “voice and accountability” indicator.
Under Investing in People, a measure of “natural resource management” was split into two
indicators, one focusing on “natural resource protection” that assesses whether countries are
protecting up to 10% of their biomes, and, the other on “child health,” which captures the earlier
indicator’s data on access to improved water, sanitation, and child mortality. The indicator on
girls’ education was amended solely for lower-middle-income countries to weigh the number of
female students enrolled in secondary school, rather than those completing primary school, which
remains the indicator for low-income countries.
Two new indicators were added to the Economic Freedom category of performance measures. An
“access to credit” indicator reflects the importance of credit in stimulating private sector growth.
A “gender in the economy” indicator measures a government’s commitment to promote equal
economic legal rights for both men and women.
Selection of Eligible Countries
Shortly after release of the performance criteria, the MCC publishes a scorecard, showing where
each candidate country’s performance falls in relation to the other candidate countries in its peer
group and where they stand on the absolute threshold indicators. As noted above, it is MCC
practice that low-income countries “compete” with other low-income countries and lower-
middle-income countries with other lower-middle-income countries, as defined by the World
Bank definitions (and not by FY2012 appropriations legislation, which is used for funding
purposes only). Some time later, the MCC Board meets to select countries eligible to apply for
compact assistance.
Although all of the FY2013 compact eligible selections passed the indicators test, a review of the
history of MCC selections suggests that the Board is guided by, but not entirely bound to, the
outcome of the performance indicator review process; board members can apply discretion in
their selection. Performance trends, missing or old data, and recent policy actions might come
into play during selection deliberations.
Just because a country passes the requisite number of qualifying indicators does not mean that it
will be selected for compact eligibility. This can be due to a variety of reasons, not least of which
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is the limited funding available to support compacts. The Board is not required to give a reason
for its selections and only occasionally offers one. Most often it appears that a country has passed
half or more of the qualifying indicators in each basket but is not selected because it scores very
poorly—perhaps in the lowest 25th percentile—in one or more of the remaining indicators. For
example, in FY2005, the Philippines passed 13 of the then-16 indicators, but was not made
eligible, because it 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.11 In FY2006, Bhutan, China, and Vietnam passed enough hurdles but were not chosen
based on very low scores on political rights and civil liberties; Uganda passed 12 of the 16
indicators and did not fall significantly below the median on the other four, but was not selected
for unexplained reasons.
At times, countries have been deemed compact eligible without meeting a sufficient number of
qualifying factors or with weak scores in some qualifying areas. In most such cases, the Board
takes into consideration recent policy changes or positive trend lines. For example, in FY2004,
the program’s first year, several countries (Georgia, Mozambique, Bolivia) were selected despite
having failed the so-called “pass-fail” corruption indicator. Mozambique, which failed on
corruption and each of the four “investing in people” indicators, was chosen based on
supplemental data that were 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. In FY2004, Cape Verde
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 to
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. In FY2011, Georgia was invited to submit a proposal for a second compact
despite failure in the investing in people basket; supplemental information attributing an
insufficient score in immunization rates to a temporary shortage of one vaccine helped the Board
toward a positive decision.
Even prior to its selection in FY2007, the possible choice of Jordan had come in for severe
criticism from some quarters. Freedom House, the organization whose annual Index of Freedom
is drawn upon for two of the “Ruling Justly” indicators, had urged the MCC Board to bypass
countries that had low scores on political rights and civil liberties. It argued that countries like
Jordan that fell below 4 out of a possible 7 on its index should be automatically disqualified.
Jordan, however, did well on three of the other indicators in this category. Several development
analysts further argued that Jordan should not be selected, because it is one of the largest
recipients of U.S. aid, has access to private sector capital, and is not a democracy.12 In selecting
Jordan, the MCC Board appears not to have been swayed by these arguments.
The Board has, at times, selected a country and then, in future years, and prior to approval of a
compact, de-selected it if its qualifying scores worsened or other factors interceded. Although the
11 Comments by Paul Applegarth, then MCC CEO, at a State Department Foreign Press Center Briefing, November 9,
2004.
12 Freedom House, “Millennium Challenge Corporation Should Hold Countries to Higher Standards of Democratic
Governance,” November 2, 2006, http://www.freedomhouse.org; Sheila Herrling, Steve Radelet, and Sarah Rose, “Will
Politics Encroach in the MCA FY2007 Selection Round? The Cases of Jordan and Indonesia,” Center for Global
Development, October 30, 2006, http://www.cgdev.org.
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Gambia was selected in FY2006, its eligibility for MCC assistance was suspended by the MCC
Board in June 2006 because of “a disturbing pattern of deteriorating conditions” in half of the 16
qualifying factors. Among the problems cited in this case were human rights abuses, restrictions
on civil liberties and press freedom, and worsened anti-corruption efforts.13 For the 2008 selection
process, the MCC Board eliminated Sri Lanka because of the resurgent civil strife that would
make a compact problematic. In the FY2009 selection round, the Board decided not to reselect
several countries that had been eligible in previous years—Bolivia, Timor-Leste, and Ukraine. In
FY2008 and FY2009, both Ukraine and Timor-Leste failed the corruption indicator. Timor-Leste,
in addition, failed the “investing in people” basket in those years. Bolivia, however, had passed its
indicator test in every year. A hold put on MCC consideration of Bolivia’s compact proposal in
FY2008 and its exclusion from eligibility in FY2009 appeared likely due to the political tensions
existing between it and the United States rather than its performance in development-related
matters.
Some countries have remained eligible despite failing performances in years following their
selection. For example, Indonesia, selected in FY2009 and signing a compact in 2011, failed the
corruption indicator, half the indicators, and the investing in people basket in FY2010 and
FY2011. It remained compact-eligible, because Congress has allowed it to be judged and funded
as a lower income country, in which case it passes the selection requirements.
Except in certain extreme circumstances, described in the “Compact Suspension and
Termination” section below, countries that are already implementing compacts are generally
unaffected by a decline in performance indicators. Nine of the 19 countries implementing
compacts as of January 2011 would not have qualified in FY2011.14 Georgia and Vanuatu had
failed three years in a row; Armenia, El Salvador, Mali, and Mozambique had failed four years in
a row. Morocco had failed for five years straight.15 In FY2012, this picture changes dramatically;
of 16 active compacts in November 2011, only 2 would fail under the new system, 5 under the
old system. In FY2013, 5 of the 15 active compact countries would fail.
In not strictly following the rule of the performance indicators, the MCC has argued that the
indicators themselves are imperfect measures of a country’s policies and performance. The
indicators often suffer from lag time, reflecting when the raw data were derived as much as a year
or more previously. A country’s position vis-à-vis its peers may also fluctuate considerably from
year to year without reflecting any significant change in the country’s policies. Countries
following reasonable policies may fall behind the performance criteria when other countries are
improving faster—thereby raising the bar. A shift in position from the low income to lower-
middle income group can similarly alter a country’s scores as it competes with countries more
likely to achieve better indicators than ones in the lower income group. They may also fail when
new criteria are introduced which countries have not had an opportunity to address and when
institutions measuring performance refine or revise their indicators.
13 MCC Press Release, “The Gambia Suspended From Participation in MCC Compact Program,” June 15, 2006.
14 These are Armenia, Burkina Faso, El Salvador, Georgia, Mali, Mongolia, Morocco, Mozambique, and Vanuatu.
15 For further discussion, see Casey Dunning, Owen McCarthy, and Sarah Jane Staats, Center for Global Development,
Round Eight of the MCA, December 3, 2010.
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Country Selection—FY2013
In its FY2013 selection round, the MCC Board reselected countries in the process of preparing
their compact proposals—Benin, El Salvador, Ghana, and Georgia—and newly selected Liberia,
Niger, Sierra Leone for first compacts and Morocco and Tanzania as eligible to develop second
compacts. Already-signed compact countries do not need to be reselected each year.
Table 1. Compact-Eligible Countries: FY2013
Low-Income Countries
Lower-Middle-Income Countries
Benin
El Salvador
Ghana
Georgia
Georgia*
Morocco
Liberia
Niger
Sierra Leone
MCC Compacts
MCC compacts are grant agreements, none more than five years in length (as required by the
MCC authorization), proposed and implemented by countries selected by the MCC Board. Details
of each compact and significant developments in their implementation are provided in Appendix
B.
As of March 31, 2012, 33% of MCC compact funding was in the transport sector, mostly roads;
18% was targeted on agriculture; 8% on health, education, and community services; 9% on water
supply and sanitation; 11% on energy; 4% on governance, and 5% on financial services.16
Counting the 26 signed compact countries to date, 56% of compact funding has gone to sub-
Saharan African countries, 11% to North Africa and the Middle East, 10% to the former Soviet
Union, 9% to Latin America, and 15% to Asia and the Pacific.17
Since its inception, the MCC has designed guidelines and procedures for project development and
implementation that are followed by all MCC compact countries. These are described below.
Compact Development
Once declared as eligible, countries may prepare and negotiate program proposals with the MCC.
The process to develop a compact, from eligibility to signing, is expected to take about 27
months. Only those compact proposals that demonstrate a strong relationship between the
proposal and economic growth and poverty reduction will receive funding. With more countries
declared eligible in the FY2013 round than for which funding is likely to be available, the MCC
notes that compact development, like the selection process, will be highly competitive.
16 MCC, Semiannual Report to Congress, Submitted for Period Ending March 31, 2012, p. 4.
17 MCC, Congressional Budget Justification FY2013, p. 45.
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While acknowledging that compact proposal contents likely will vary, the MCC expects each to
discuss certain matters, including a country’s strategy for economic growth and poverty
reduction, impediments to the strategy, how MCC 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 and monitored during implementation 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 MCC
performance indicators.
Countries designate an entity, usually composed of government and non-government personnel,
to coordinate the formulation of the proposal and act as a point of contact with the MCC. In many
cases, a high level of political commitment to the program—country leadership identifying
themselves closely with the success of the compact—helps propel compact development forward
and continues into implementation.
One of the first steps in the compact development process is the undertaking by the compact
eligible country, possibly in conjunction with MCC economists or consultants, of an analysis of
the principal constraints to economic growth and poverty reduction. This report seeks to identify
the binding constraints that “are the most severe root causes that deter households and firms from
making investments of their financial resources, time, and effort that would significantly increase
incomes.”18
Underscoring the MCC concept of “country-ownership” and the requirement of broad public
participation in the development of MCC programs embodied in MCC authorization language,
the compact development entity typically launches nationwide discussions regarding the scope
and purpose of the MCC grant, with meetings held at the regional and national level that include
representation of civil society and the business community. In Namibia, the National Planning
Commission charged with developing the compact identified 500 issues as a result of public
discussions held throughout the country on the question “What will unlock economic
development in your region?”, narrowing them down to 77, and then just to several.19 Burkina
Faso’s consultations reportedly included 3,100 people in all 13 regions.20
Public consultation combined with analysis of constraints to growth help focus a country on the
range of sectors and possible activities that might go into a compact proposal. Concept papers are
developed around many of these ideas. During each step in the development process, the MCC
provides feedback to keep the country within MCC parameters.
The eventual results of these public deliberations and concept papers are compact proposals.
These proposals often exceed MCC’s budget capacity, forcing a process of further prioritization
and elimination. Tanzania reportedly suggested a package worth $2 billion; with the elimination
of irrigation and education options, they were able to bring it down to $700 million. Namibia’s
first proposal, at $415 million, was whittled down to $305 million by eliminating irrigated
agriculture and roads projects.
18 MCC, Compact Development Guidance, January 2012, p. 15.
19 Tanzania and Namibia examples in this section are based on author interviews.
20 Rebecca Schutte, Burkina Faso Field Report, Center for Global Development, July 2009.
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Proposals are developed by a country with the guidance of and in consultation with the MCC. To
assist in compact development, the MCC may, under Section 609(g) of its authorizing statute,
provide so-called pre-compact development grants to assist the country’s preparatory activities.
Among other things, these grants may be used for design studies, baseline surveys, technical and
feasibility studies, environmental and social assessments, ongoing consultations, fees for fiscal
and/or procurement agents, and the like. For example, in June 2009, the MCC provided Jordan
with a pre-compact development grant of $13.34 million, not counted as part of the final compact.
It was used for feasibility studies and other assessments for water and wastewater projects.
One feature of compact proposals is the requirement that sustainability issues be addressed. In the
case of road construction, this might mean provisions committing the government to seek to
establish transport road funds, a fuel levy or some other tax to pay for road maintenance in future.
For example, as a condition of its compact, Honduras increased its annual road maintenance
budget from $37 million to $64 million.21
Once a proposal is submitted, the MCC conducts an initial assessment, then, on the basis of that
assessment, launches a due diligence review that closely examines all aspects of the proposal,
including costs and impacts to see if they are worthy of MCC support. Included in the review is
an economic analysis assessing anticipated economic rates of return for the proposed projects and
estimating the impact on poverty reduction. At the same time, MCC staff work with the country
to refine program elements. Finally, the MCC negotiates a final compact agreement prior to its
approval by the MCC Board. The compact is signed but does not enter into force until
supplemental agreements on disbursements and procurement are reached.22
When the compact enters into force the clock begins to tick on compact implementation and the
total amount of funds proposed for the compact are formally obligated (held by the U.S. Treasury
until disbursed). Because of the difficulties encountered in trying to undertake a complex set of
projects within a set five-year time span, MCC has increasingly sought to front load many
planning activities prior to compact signing or entry-into-force, including feasibility studies and
project design, which in the case of infrastructure can be a lengthy process. Usually, the first year
of operations is consumed by contract design and solicitation for services. In the case of Burkina
Faso, however, one analyst noted that the passage of a full year between signing and entry-into-
force combined with early action on staff and planning allowed an estimated 60% of procurement
to be initiated before entry-into-force.23
Compact Implementation
The MCC signed its first compact, with Madagascar, on April 18, 2005, an event that was
followed by four other signings in 2005—with Honduras, Cape Verde, Nicaragua, and Georgia. In
2006, six more agreements were signed: Benin, Vanuatu, Armenia, Ghana, Mali, and El Salvador.
In 2007, four compacts were signed—with Mozambique, Lesotho, Morocco, and Mongolia. In
2008, three, with Tanzania, Burkina Faso, and Namibia were signed. In 2009, one compact, with
Senegal, was signed. Compacts with Moldova, the Philippines, and Jordan were signed in 2010.
21 MCC, Policy Reforms Matter, September 9, 2010.
22 Details on each of the negotiated compacts can be found at the MCC website: http://www.mcc.gov.
23 Rebecca Schutte, Center for Global Development, Burkina Faso Field Report, July 2009, p. 1.
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In 2011, compacts with Malawi and Indonesia were signed, and, in 2012, compacts with Cape
Verde and Zambia.
Typically, by the time of signing, the entity that was established as point of contact during
program development segues into the compact management and oversight body, the “accountable
entity” usually known as the MCA. Its board is usually composed of government and non-
government officials, including representatives of civil society. The government representatives
are usually ministers most closely associated with compact project sectors. The MCA itself may
take a variety of forms. In Tanzania, it is a government parastatal established by presidential
decree under the Ministry of Finance. In Namibia, it is a separate unit within the ministry-level
government National Planning Commission.
MCA staff will include fiscal and procurement agents, in many cases duties contracted out and in
some cases, where the capacity is available, undertaken in-house. In the case of Namibia, for
example, procurement started as a contracted function, and, when capacity improved, the
contractor was replaced by an MCA-staffed procurement office. The MCA is also responsible for
ensuring that accountability requirements concerning audits, monitoring, and evaluation take
place. Environmental, gender, and other social requirements embedded in the compact agreement
are its responsibility as well. Held to a strict five-year timetable and limited budget, the MCA
faces a daunting challenge for most developing countries. For many countries, the process of
getting the MCA set up, staffed, and operating was very time consuming and difficult, in some
cases causing delays in implementation.
As, perhaps, the most important aspect of compact implementation, MCC procurement processes
are a good example of how the MCC is building government capacity at the same time that it
provides development project assistance and maintains accountability oversight for the use of
U.S. funds. MCC-supported procurements are fixed-price contracts, putting the burden on the
contractor to get the work done to meet the agreed price. The MCC has a set of standards and
guidelines for all its project contracting. The MCC requires that procurements are preceded by a
price reasonableness analysis to ensure that bids are realistic. An independent evaluation panel is
selected for each discrete procurement, with all members requiring MCC approval to ensure that
appropriate technical expertise is represented. The panel’s report is also vetted by the MCC.
Reportedly, several countries have adopted this methodology for their procurements. Cape Verde
is applying it to all public procurements. Honduras says it will maintain the program management
unit to deal with projects funded by other donors and will apply MCC guidelines for
procurement.24
The MCC itself has only a very small staff located in-country, composed chiefly of a Resident
Country Director and a deputy. To assist in oversight of infrastructure projects, which account for
more than half of MCC activities, MCC will often hire an independent engineering consultant.
Close cooperation and guidance is also provided by MCC Washington headquarters expert staff at
all points of implementation, on procedure as well as on sector technical support. MCC has to
sign off on all major steps during implementation, including each disbursement. To reduce the
risk of corruption, funding is transferred periodically and directly to contractors following a
determination that project performance has continued satisfactorily. An appealing feature of MCC
24 Marco Bogran, Acting General Director, MCA-Honduras, and Ariane Gauchat, Associate Director, MCC, MCC
Hosts Public Event: Lessons Learned from MCC’s First Compacts, February 22, 2011, pages 9 and 32.
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contracts to international contractor firms is that payment is made by the United States Treasury,
not the compact country.
Following completion of a compact, as was the case with Honduras and Cape Verde which closed
in 2010, and with Armenia, Benin, Georgia, Nicaragua, and Vanuatu in 2011, the MCC conducts
impact evaluations using independent evaluators. Results of the first evaluations are expected to
be made public within a year.
As projects are implemented, events may require that changes be made to compact plans.25 In
2007 and 2008, for example, the convergence of a depreciating U.S. dollar and rising costs for the
machines and material necessary for the many infrastructure projects conducted by MCC meant
that MCC projects were faced with having less funding than envisioned to meet the agreed-on
objectives. At the time, at least six projects were scaled-back from original plans or supplemented
by financing from other sources. In 2010, increased costs due to design changes and higher
construction costs led to the re-allocation of nearly $40 million for a Ghana transportation project.
A re-allocation of project resources was made unnecessary when bids on Tanzania’s rural roads
came in higher than budgeted, because the Tanzanian government committed funds to make up
for the shortfall. The number of boreholes to be drilled under a rural water supply project in
Mozambique was reduced from 600 to 300-400 because the amount allocated for construction
was insufficient. Although the MCC is trying to address potential changes by requiring more
frequent portfolio reviews and early identification of high risk projects, projects planned for a
five-year life span are likely to undergo revision at some point. Changes in country policy
performance, however, are less foreseeable and may carry more serious consequences. These are
discussed below.
Compact Suspension and Termination
Throughout the entire process from candidacy to eligibility through development and
implementation of a threshold program or compact, countries are expected to maintain a level of
performance on the criteria reasonably close to that which brought them to their MCC threshold
or compact-eligible status. On more than one occasion and for a variety of reasons, MCC
programs have been suspended or terminated.
Section 611(a) of the Millennium Challenge Act of 2003 provides that, after consultation with
MCC’s Board of Directors (Board), the CEO may suspend or terminate assistance in whole or in
part if the CEO determines that (1) the country or other entity receiving MCC aid is engaged in
activities which are contrary to the national security interests of the United States; (2) the country
or entity has engaged in a pattern of actions inconsistent with the criteria used to determine the
eligibility of the country or entity; or (3) the country or entity has failed to adhere to its
responsibilities under its compact. This policy applies to MCC assistance provided through a
compact, for compact development and implementation, and assistance through a threshold
agreement.26 All compacts contain language providing that MCC may terminate the compact if
the government engages in a pattern of action inconsistent with the criteria used to determine the
25 For more details, see Office of Audit for the MCC, Review of the Millennium Challenge Corporation’s Compact
Modifications, M-000-12-006-S, July 16, 2012.
26 “MCC Policy on Suspension and Termination”, available at http://www.mcc.gov/mcc/bm.doc/07-
suspensionandterminationpolicy.pdf.
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eligibility of the country for assistance. This is the standard compact language that has been cited
in most, if not all, prior MCC compact terminations.
In addition, all countries at all points of the process are affected by certain strictly applied foreign
assistance restrictions in the Foreign Assistance Act of 1961 and in annual appropriations
legislation. For example, restrictions on aid to countries whose governments are deposed by a
military coup prevent countries from being considered for MCC candidacy, eligibility, or
continued threshold or compact implementation.27
Application of legislative restrictions varies according to circumstances. The MCC has four steps
available to it as responses to any perceived violations of its performance rules. It may warn a
country of its concerns and potential consequences. It may place a program or part of a program
on hold. These actions are both preliminary steps that can be taken by management without
immediate concurrence of the Board. The two further steps, suspension and termination, must be
made by the Board of Directors.
In all cases when some possible violation of MCC standards has been brought to the attention of
the agency, the MCC Department of Policy and Evaluation conducts a review of the evidence and
presents it with a recommendation to the Board. The Board does not uniformly follow the
recommendation made. If a determination is made to hold, suspend, or terminate, it may be
further determined to affect a whole or only part of the compact.
The MCC has suspended or terminated programs in the following cases (see Appendix B for
details):
• Threshold programs have been suspended in Niger (December 2009, reinstated in
June 2011), due to undemocratic actions taken by its leadership contrary to the
MCC’s governance criteria; suspended in Yemen (November 2005, reinstated
February 2007, but never implemented) due to a pattern of deterioration in its
performance criteria; and terminated in Mauritania (2008) due to aid prohibitions
on governments deposed by a coup. See “Threshold Programs” section below for
details.
• Compact eligibility was suspended in the Gambia (June 2006) because of “a
disturbing pattern of deteriorating conditions” in half of the 16 qualifying factors.
• Portions of compacts have been terminated in Nicaragua (June 2009), because of
the actions of the government inconsistent with the MCC eligibility criteria in the
area of good governance; and in Honduras (September 2009), because of an
undemocratic transfer of power contrary to the Ruling Justly criteria. The compact
in Madagascar was terminated due to a military coup (May 2009). In Armenia
(2008), MCC put a hold on a portion of the compact due to poor performance in a
range of governance indicators, but the Board did not formally vote to suspend.
The Mali compact, put on operational hold in March 2012 after a military coup,
was terminated in August 2012.
• Most recently, in March 2012, the MCC Board suspended the Malawi compact.
This followed the placing of an operational hold on the Malawi compact in July
2011, only a few months after the compact was signed, both steps taken as a result
27 Most recently, §7008 in P.L. 111-117, Division F, the State, Foreign Operations Appropriations, FY2010.
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of a pattern of actions by the Malawi government “inconsistent with the democratic
governance criteria” of the MCC. The Malawi suspension was lifted in June 2012
when democratic behavior significantly improved.
In as much as there have been only 26 compacts and 23 threshold agreements to date, the number
of holds, suspensions, or terminations suggests that the MCC takes seriously its legislative
mandate by moving to address violations of its performance standards. These prior instances of
MCC program suspension and termination indicate that the MCC is most likely to apply Section
611(a) in response to an undemocratic transfer/retention of power, a violation of the Ruling Justly
eligibility criteria. The incidence of suspensions and terminations also suggests a weakness in the
eligibility criteria that the new democratic rights “hard hurdle” for compact eligibility is meant to
address. Despite these efforts by MCC, observers have noted instances in the past in which MCC
has not taken action to restrict eligibility to countries with questionable records on political rights
and civil liberties, for instance Jordan.28 And, as noted above, a number of compact countries
have failed one or more of their qualifying indicators for one or more years in a row during the
period of compact implementation.
Anticipated Compacts in 2013
The MCC anticipates possible board approval of second compacts with Georgia, El Salvador,
Ghana, and, perhaps, Benin during 2013. Several of these compacts would draw on FY2012
funds or a combination of FY2012 and FY2013 funds.
Threshold Programs
In order to encourage non-qualifying countries to improve in weak areas, the MCC has helped
governments that are committed to reform to strengthen their performance so that they would be
more competitive for MCC funding in future years. Congress provided in the MCC authorizing
legislation that not more than 10% of MCC appropriations could be used for such purposes,
stating that the funding could be made available through USAID (sec. 616 of P.L. 108-199).
Subsequent foreign operations appropriations have made 10% of new MCC appropriations
available for this so-called threshold assistance; the FY2012 appropriations (P.L. 112-74), the
terms of which carried forward under the FY2013 continuing resolution, makes 5% available for
this purpose.29
In the first part of 2010, the threshold program underwent an extensive review, the result of which
has led to significant changes to the program. Up through mid-2010, the threshold programs
sought chiefly to assist countries make policy reforms and institutional changes in areas where
they failed to meet the MCC performance criteria with the stated goal of helping them improve
those indicators.30 Those countries deemed eligible for the program had to submit concept papers
28 Freedom House, Press Release, “Millennium Challenge Corporation Should Hold Countries to Higher Standards of
Democratic Governance, November 2, 2006, available at http://www.freedomhouse.org/template.cfm?page=70&
release=435; Sheila Herrling, Steve Radelet, and Sarah Rose, “Will Politics Encroach in the MCA FY2007 Selection
Round? The Cases of Jordan and Indonesia,” Center for Global Development, October 30, 2006, http://www.cgdev.org.
29 Initially, assistance for threshold countries was authorized only for FY2004.
30 Of the programs ongoing or completed, most have sought to improve country scores on the corruption indicator.
Several countries had multiple objectives. Indonesia and Peru, for example, targeted both corruption and immunization
indicators. Liberia’s program focuses on girls’ education and land rights. Timor-Leste targets corruption and childhood
(continued...)
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identifying where and why the country failed to pass specific indicators; make proposals for
policy, regulatory, or institutional reforms that would improve the country’s performance on these
indicators; and note types of assistance, over a two-year maximum period, required to implement
these reforms. If the MCC, in consultation with USAID, determined that the concept paper
showed sufficient commitment to reform and a promise of success, the country would prepare a
threshold country plan that specifically established a program schedule, the means to measure
progress, and financing requirements, among other considerations. USAID was charged with
overseeing the implementation of nearly all 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 MCC
compacts, funding was not guaranteed for each country selected for the threshold program, but
was based on the quality of the country plan.
Although eight threshold country programs were followed by compact eligibility, some Members
of Congress and others raised concerns regarding the efficacy of threshold programs. It has been
variously argued that two years is insufficient time to alter the indicators; that some countries
passed the indicators before the threshold program could begin; that, by funding reform to
improve an indicator, the threshold program undermines the principle that countries should
themselves be responsible for reform and MCC eligibility; and that programs should focus on
better preparing countries to implement compacts rather than on enabling them to qualify for
eligibility. 31 In response to an explanatory statement accompanying the FY2009 Omnibus
appropriations that suggested an assessment of the programs be undertaken before more are
approved, the MCC did not select any new countries for threshold eligibility for FY2010 and did
not request funding for the program in its FY2011 budget.
Following the threshold program review, the MCC briefed its board in June 2010 and announced
in September 2010 a new approach to threshold programs. While maintaining the basic purpose
of helping countries become compact-eligible as required by the authorizing language, the MCC
no longer focuses on changing specific indicator scores. Rather, it focuses on constraints to
economic growth, like those identified for compact countries, but maintains the former threshold
program focus on reforming policies. Working on resolving constraints to growth is believed to
have the benefit of helping MCC and the Board become more familiar with potential compact
countries as well as of beginning to work on policy reforms for problem sectors that would likely
be among the ones addressed in compact projects. Despite this statement of policy, the MCC
selected only one new eligible country for the FY2011 round at the very end of the fiscal year—
choosing Tunisia in September 2011—and requested no threshold funding for FY2012.
Nevertheless, as noted above, funding has been made available in the FY2012 appropriations for
threshold programs and, in its December 2011 meeting, the MCC Board selected Nepal and
Honduras as eligible for threshold programs. The choice of Honduras, a former compact country,
was made in recognition of the steps it had taken to address political and corruption concerns that
likely have prevented its acceptance for a second compact. Guatemala was made threshold
eligible in FY2013. While Tunisia completed a required constraints analysis in early 2013, none
of the eligible countries have signed a program agreement at this time.
(...continued)
immunization.
31 One such critic, Sheila Herrling, has since become the MCC Vice President for Policy and Evaluation . See
“Precedent-Setting Board Meeting for Team Obama,” MCA Monitor Blog, June 9, 2009, Center for Global
Development website http://blogs.cgdev.org/mca-monitor.
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To date 23 threshold programs worth a total of about $495 million have been awarded to 21
countries, two of which have received second programs. Funding levels for threshold programs
differ, ranging from $6.7 million for Guyana to $55 million for Indonesia. Currently two
countries are receiving threshold assistance: Liberia and Timor-Leste. Of those countries that
have completed programs, Indonesia, Moldova, Burkina Faso, Jordan, Malawi, the Philippines,
Tanzania, and Zambia, have begun compacts. The re-launch of Niger’s previously suspended
program was ended when it was made compact eligible for FY2013.
Threshold countries are subject to the same performance rules as compact countries. Two
countries—Mauritania and Yemen—have had their threshold eligibility terminated prior to
program implementation, the former because of a coup and the latter due to deterioration in
qualifying indicators.32 One country—Niger—had its active threshold program suspended as its
governance performance deteriorated.33
Select Issues
Concerns regarding the MCC have been expressed at various points in time on its level of
funding, its operations, ability to ensure project sustainability, aspects of procurement, and the
risk of corruption. These and other issues are discussed below.
Funding
When the MCC was proposed, it was expected that, within a few years, the level of funding
would ramp up to about $5 billion per year. For a variety of reasons, not least of which is the
limitation on available funding for foreign aid, the MCC never achieved anywhere near that level
of funding. In fact, in most years since the MCC was established, its enacted appropriation has
been well below the President’s request.
32 Mauritania, made eligible in 2007, saw its eligibility terminated in 2008, prior to development of a threshold program
agreement, due to aid prohibitions on governments deposed by a coup. Yemen, made threshold eligible in 2004, was
suspended by the Board in November 2005, as a result of a consistent “pattern of deterioration” in its policy
performance on selection criteria. Following a series of government reforms, Yemen’s threshold status was reinstated
in February 2007 and a threshold agreement valued at $20.6 million was approved in September 2007. In October
2007, however, the chair and ranking Member of the Senate Foreign Relations Committee noted their concern
regarding the Yemen decision, in particular noting that, while Yemen had made reforms, its performance indicators had
not yet shown improvement. The Members emphasized that, even if the MCC moved forward with the Yemen
threshold program, “such compromises should never extend to the Compact program itself.” In the end, implementation
was postponed on October 27, 2007, pending a review, and its program has never been resumed.
33 In September 2009, the MCC Board warned that Niger appeared to be moving away from its reform agenda,
jeopardizing its $23 million threshold program. Niger’s threshold program was suspended in December 2009 due to
“political events that were inconsistent with the criteria used to determine eligibility for MCC assistance,” when
President Tandja dissolved parliament and dismissed the constitutional court after it ruled that a referendum to extend
his presidential term was illegal. See MCC Congressional Notification, December 17, 2009, available at
http://www.mcc.gov/mcc/bm.doc/cn-121709-niger.pdf. As noted above, in June 2011, following Niger’s return to
democratic rule, MCC announced it would reinstate the Niger program, and, in March 2012, $2 million was approved
to enable completion of education activities under the original agreement. Further work on the program ended when
Niger was made compact eligible in December 2012.
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Table 2. MCC Appropriations: FY2004-FY2013
(in $ billions)
FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013
Request
1.300 2.500 3.000 3.000 3.000 2.225 1.425 1.280 1.125 0.898
Enacted
0.994 1.488 1.752 1.752
1.544
0.875
1.105 0.900 0.898 0.904a
Appropriation
Post-
0.989 1.480 1.751 1.746 1.484 0.871 1.081 0.898 0.898
Rescission
Appropriation
Note: P.L. 110-252 rescinded $58 million in FY2008 appropriation. P.L. 111-226 rescinded $50 million from
unobligated amounts; MCC applied it to the 2004-2010 fiscal years. P.L. 112-10 includes an across-the-board
0.2% rescission in FY2011 appropriations. There was no rescission in FY2012.
a. FY2013 is amount provided by the Continuing Appropriations Resolution, FY2013 (P.L. 112-175)—the
FY2012 level plus 0.612%. Resolution expires March 27, 2013.
In determining the appropriation level, Congress has to weigh the benefits of the MCC program
against all other foreign assistance programs as well as against other non-foreign policy needs. A
consequence of diminished appropriations is that the agency may provide fewer compacts each
year to fewer countries than originally anticipated. An additional effect may be that, if few
compacts are offered annually, the incentive for countries to reform on their own in order to meet
eligibility requirements—the so-called MCC effect—could be lost.
MCC Appropriations Request and Congressional Action for FY2012
In February 2011, the Obama Administration issued its FY2012 budget, requesting $1.125 billion
for the MCC, a 2% increase from the enacted FY2010 appropriation and a 25% increase over the
final FY2011 appropriation. On July 27, 2011, the State, Foreign Operations subcommittee of the
House Committee on Appropriations marked up an FY2012 bill, providing $898.2 million for the
MCC, equal to the FY2011 level. The bill was not taken up by the full Committee on
Appropriations. On September 22, 2011, the Senate Appropriations Committee reported S. 1601
(S.Rept. 112-85), the FY2012 State, Foreign Operations Appropriations, providing $898.2
million, equal to the FY2012 level. On December 23, 2011, the Consolidated Appropriations Act
(P.L. 112-74, H.R. 2055) was signed into law, providing $898.2 million for the MCC in FY2012,
equal to the FY2011 level and 20% less than the Administration request.
MCC Appropriations Request and Congressional Action for FY2013
On February 13, 2012, the Administration issued its FY2013 State, Foreign Operations budget,
requesting $898.2 million for the MCC, the same amount it received in FY2012 and FY2011.
On May 24, 2012, the Senate Appropriations Committee reported S. 3241 (S.Rept. 112-172), the
FY2013 State, Foreign Operations appropriations. It provides $898.2 million for the MCC, the
same amount as in FY2012 and equal to the request level. While noting its support for the MCC
mission, the committee report pointed to GAO questions regarding the lack of transformational
change and sustainability promised by the agency. It also called for an assessment of how
compacts align with U.S. strategic interests and other U.S. aid programs, the sustainability of
MCC investments, and whether lessons learned by MCC indicate a need for adjustments in its
development model.
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On May 25, 2012, the House Appropriations Committee reported H.R. 5857 (H.Rept. 112-494),
the FY2013 State, Foreign Operations appropriations. It provides $898.2 million for the MCC,
the same amount as in FY2012 and equal to the request level. The committee report urged
expeditious filling of private sector vacancies in the Board of Directors, a responsibility of
congressional leadership. It required submission of a report on how to improve MCC assessments
of corruption in partner countries and the process to determine whether a level of corruption
merits termination of a compact. The report expressed concern over possible private equity,
investment, and development funds established by MCC and sought annual audits of such funds
and a report on each. The committee expected the MCC mandate of increasing economic growth
and reducing poverty to be maintained and requested that the economic rates of return for each
compact item be listed in new compact congressional notifications.
In September 2012, the Continuing Appropriations Resolution, 2013 (H.J.Res. 117, P.L. 112-175),
was approved by Congress, providing FY2013 funding for the MCC at the level in the FY2012
Consolidated Appropriations Act (P.L. 112-74) plus 0.612%, adding $5.5 million to the $898.2
million FY2012 level. The resolution expires on March 27, 2013.
MCC Appropriations Request and Congressional Action for FY2014
The President’s budget request, usually provided in the first week of February, was delayed at
least until March 2013.
Impact of Sequestration
Under the Budget Control Act of 2011 (P.L. 112-25), signed into law on August 2, 2011, across-
the-board reductions in budget authority (also referred to as sequestration) in every discretionary
program, project, and activity were to be triggered on January 2, 2013, if legislation to reduce the
deficit by $1.2 trillion over a 10-year period between FY2012 and FY2021 was not enacted by
January 15, 2012. The sequestration deadline was delayed by two months, until March 1, 2013,
by the American Taxpayer Relief Act of 2012 (P.L. 112-240).
On September 14, 2012, the Office of Management and Budget (OMB), as required by the
Sequestration Transparency Act of 2012 (P.L. 112-155), submitted a report to Congress with
preliminary reduction estimates for discretionary budget accounts, including foreign affairs
spending. The report, OMB Report Pursuant to the Sequestration Transparency Act of 2012 (P.L.
112-155), indicated that most State-Foreign Operations and Related Agencies accounts, including
the MCC, could see an 8.2% reduction in gross budget authority in FY2013. Sequestration would,
therefore, likely cut the MCC budget by roughly $74 million. Taking into account more recent
changes to the debt and other factors, the Congressional Budget Office has calculated the possible
cut to non-defense accounts at 5.3%.34
34 CBO, The Budget and Economic Outlook: Fiscal Years 2013 to 2023, p. 14, Table 1.2, February 2013.
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Authorizing Legislation and MCC Reform
Congress has not enacted a new funding authorization since the original MCC legislation in 2004
authorized “such sums as may be necessary” for FY2004 and FY2005. The requirement of an
authorization of appropriations for foreign aid programs has been routinely waived, as the
Continuing Appropriations Resolution, 2013 (H.J.Res. 117, P.L. 112-175), did in the case of
currently unauthorized foreign aid program appropriations, including the MCC (Section 113).
In recent years, there have been a number of efforts to amend the original MCC authorizing
legislation that were unsuccessful, because their legislative vehicles failed.35 In the 112th
Congress, several bills were under consideration that would make policy modifications along
similar lines as the earlier efforts—S. 1601, the FY2012 State, Foreign Operations
Appropriations; S. 1426, a Foreign Relations Authorization bill introduced by Senator Kerry on
July 27, 2011; and H.R. 2583, a Foreign Relations Authorization bill reported by the House
Foreign Affairs Committee on July 21, 2011 (H.Rept. 112-223). Similar efforts may be expected
in the 113th Congress.
• S. 1601 and S. 1426 would allow a compact to exceed five years in length, up to
seven years, if it cannot be completed on time. This provision is deemed necessary
by MCC in view of the difficulties that recipient countries may have in
implementing complex projects within a limited timeframe.
• S. 1601 and S. 1426 would allow subsequent or concurrent compacts (more than
one at the same time), in order to give the MCC flexibility to do smaller, staggered
projects, instead of wrapping them all in one compact. The MCC argues that
concurrent compacts could be implemented as a recipient country is prepared to do
so, thereby speeding up the implementation process. For example, some
infrastructure projects require more planning than do technical assistance projects.
Concurrent or subsequent compacts would be allowed only if the compact country
contributed 7.5% of total funding in the case of low-income countries, or 15% of
funding in the case of lower-middle-income countries. Both bills contained
additional provisions that would allow concurrent compacts only up to two years
after the initial compact is signed and would limit compact funding to any one
country to 15 years.
• S. 1601 and S. 1426 redefine low- and lower-middle-income status to place the
lowest 75 lowest-income countries identified by the World Bank in the low-income
group and the remaining lower-middle-income countries in the lower-middle-
income level. Without this change, there are 60 countries in the low-income and 30
in the lower-middle level in FY2012. This move is a response to the continually
shifting classification of candidate countries that determines who they compete
against for compact eligibility and the level of funding available to support their
compacts (only 25% of appropriations are available to the lower- middle group
each year). The FY2012 appropriations (P.L. 112-74) contains language requiring
this approach for candidate selection, which the MCC is applying in the FY2013
35 Significant policy language was offered in the 109th Congress (2006): H.R. 4014, reported by the House International
Relations Committee (H.Rept. 109-563); in the 111th Congress (2010), S. 2971, reported by the Senate Foreign
Relations Committee (S.Rept. 111-301); and S. 3676, the State, Foreign Operations Appropriations for FY2011,
reported by the Senate Appropriations Committee (S.Rept. 111-237).
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selection process. The MCC has requested continuation of this language in the
FY2013 appropriations, and it is currently carried forward under the Continuing
Resolution.
• S. 1601 requires that a country transitioning from low-income to lower-middle-
income status or vice versa would retain its former classification for purposes of
compact eligibility for the year of transition and two subsequent years following
the transition. S. 1426 would apply this requirement for the year of transition and
the three subsequent years following the transition. S. 1426 would also apply the
rule to countries transitioning to upper-middle-income status. H.R. 2583 would
apply it to any transition in income status, but only for the year of that transition.
The FY2012 appropriations (P.L. 112-74) contains language requiring application
of the S. 1601 procedure during the compact eligibility selection process. The
MCC has requested continuation of this language in the FY2013 appropriations,
and it also carried forward under the Continuing Resolution.
In addition to requests already noted, the MCC has in 2012 asked that several changes be enacted
in its authorizing legislation. These include placing the new candidate identification reforms in its
authorizing statute, allowing MCC to extend compacts in select cases for up to one year, and
allowing MCC private sector Board members to remain on the Board for one year after expiration
of their term in order to allow time for re-confirmation or confirmation of a successor.36
Compact Outcomes and Impact
The MCC places considerable weight on demonstrating results. During project development, it
predicts a set of outcomes that help determine which projects will be funded. During
implementation, it gathers data to establish baselines and monitor performance. And, at project
completion, it supports independent evaluations of achievements. It promises to release these
findings to the public, regardless of the results, with the intention of improving the agency’s
performance in meeting its purpose of reducing poverty through economic growth.
In the MCCs first years of existence, however, some observers complained about the lack of
measurable results.37 One reason for the seeming absence of results was the slow speed of
compact implementation. A second was that the first compact programs only ended in late 2010,
and it was reasonable to expect that it would be some time after project closures before a serious
analysis of actual impacts could be undertaken. Nonetheless, as the delay continued, a degree of
impatience was not unfounded. Finally, two years after the initial compacts ended, the first
evaluations were released in October 2012, focusing on five farmer training projects. About 120
other impact evaluations are promised over the next few years.38
36 MCC, Summary of the March 22, 2012, Meeting of the Board of Directors of the Millennium Challenge Corporation,
p. 2.
37 For example, the Senate Appropriations Committee report (S.Rept. 110-425) on its version of the FY2009
State/Foreign Operations appropriations explained a proposed cut to the MCC by noting the small compact
disbursement rate (4% of total compact funding at the time) and the lack of tangible results to date as factors. The
committee stated its intention to support future compacts “if current country compacts are shown to be cost effective
and achieving results.”
38 MCC CEO Daniel Yohannes, MCC Quarterly Town Hall Meeting, September 14, 2012, based on transcript.
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In fact, the agency argues that it has been producing various kinds and degrees of results since it
was launched. First is the impact made by the MCC process itself. Under the so-called “MCC
effect,” countries are said to be establishing reforms in an effort to qualify under the 20
performance indicators. Yemen has been cited in this regard, because, following its suspension
from the threshold program in 2005, it approved a number of reforms to address indicators where
its performance had lapsed (and subsequently was reinstated and then later suspended for
different reasons). House and Senate-approved resolutions in 2007 (H.Res. 294 and S.Res. 103)
noted the role the MCC played in encouraging Lesotho to adopt legislation improving the rights
of married women. It can also be argued that the establishment of local compact implementation
mechanisms—the MCA’s—has served a capacity building function and influenced some
government’s procurement policies.
Second, assistance program inputs—financing, technical expertise, vaccines, construction, etc.—
produce outputs. In lieu of reporting the more long-term impacts sought impatiently by some,
MCC has in recent years been regularly reporting the immediate outputs resulting from its efforts.
For instance, it notes that its programs have trained 210,851 farmers, built 830 educational
facilities, completed 1,712 kilometers of roads, and constructed 11,756 sanitation systems.
Third, it argues that some of these outputs have led to medium-term outcomes, such as an
increase by 20,000 in the number of new registered businesses in Albania as a result of
administrative reforms made in business licensing under its threshold program. An independent
analysis of the Burkina Faso threshold program found that construction of 132 primary schools
led to increased enrollment for both boys and girls by about 20% and for girls over boys by 5%.39
Among the outcomes of its Port of Cotonou modernization project under the Benin compact,
according to MCC, are annual savings of $2.1 million in dredging and maintenance costs and a
decrease in average customs clearance time.40
The fourth and perhaps most important result from MCC activity is the long-term impact of its
compacts on poverty reduction through increased incomes among poor people. Independent post-
compact impact evaluations are meant to explore the relationship between an MCC investment
and such an outcome, if any, so as to provide lessons for future compacts. As noted, the first such
impact evaluations were published in October 2012. Examining farmer training programs
conducted in five compact countries, the evaluations affirmed that the average of individual
outputs anticipated for a country, such as the number of farmers trained and hectares under
production with MCC support, met or exceeded their targets in all five cases (although for two
countries a number of indicators had no targets). While the evaluations found increases in farm
income in three countries—no measurements could be undertaken in a fourth country—in no case
was it able to identify increases in household incomes. This finding may be due to a household
reallocating other income sources to farming or because household income is too difficult to
measure. In any case, MCC is looking for alternative methods for measuring household income
for application to future compacts.
Some concerns have been raised by GAO regarding the possible outputs and impacts of MCC
compacts. A 2007 GAO report highlighted a concern that, in the case of Vanuatu, projected
impacts had been overstated. The GAO noted that the MCC estimated a rise from 2005 per capita
39 MCC Public Board Meeting, June 11, 2009. Mathematica Policy Research, Inc., Impact Evaluation of Burkina
Faso’s BRIGHT Program, March 2009.
40 MCC, Fact Sheet: MCC’s Continuum of Results, May 23, 2012.
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income in Vanuatu of about 15% ($200) by 2015 when the data suggest it would rise by 4.6%.
Although the MCC states that the compact would benefit 65,000 poor, rural inhabitants, the data,
according to the GAO, do not establish the extent of benefit to the rural poor. Further, the MCC
projections assume continued maintenance of projects following completion, whereas the
experience of previous donors is that such maintenance has been poor.41 The MCC response was
that, although there may be varying views on the degree of benefit, both agencies agree that the
underlying data show that the compact would help Vanuatu address poverty reduction.42
A September 2012 GAO report called into question the quality of data used to determine
beneficiary numbers in seven transportation projects, pointing to mistakes made in formulas used,
a failure to apply a methodology to all compacts, and a failure to update numbers in public
documents.43 A June 2012 GAO report questioned the quality of work done on a road
construction project in Georgia and noted an array of problems that have kept part of a port
constructed by MCC in Benin from full operability.44 Sustainability concerns were raised for both
projects (see below for discussion).
Ensuring Sustainability
An important factor in assessing the success of development assistance programs, one strongly
emphasized by the MCC, is the extent to which assistance efforts are sustainable after donor
support ends. As noted earlier, the MCC often conditions compact aid on country adoption of
policy reforms that enhance sustainability. In Tanzania, for example, the government electric
power services were required to reform their tariff schedules in order to fully recover their costs,
and, in those countries with road projects, provisions have been included to ensure establishment
or improvement of a road fund to pay for upkeep.
GAO reports on completed compacts, however, have questioned the effectiveness of MCC
sustainability efforts in the cases it examined. In Cape Verde, the road fund reportedly met only
half of maintenance requirements, and water fees, established to fund infrastructure maintenance
for the watershed and agricultural support project, were not being collected in one of the three
watersheds. In Honduras, a required increase in the national road maintenance budget was
believed to be insufficient to meet needs and was intended to address all roads, not just those
funded by the MCC. Further, farm-to-market roads provided under the Honduras compact were
the responsibility of municipalities that, reportedly, lacked equipment, expertise, and funds for
road maintenance.45 GAO noted that, while the MCC included conditions precedent in its
compact with Georgia requiring the government to maintain a level of funding for road
maintenance, the government “shows limited ability to keep the road operational and well
41 Government Accountability Office, Millennium Challenge Corporation: Vanuatu Compact Overstates Projected
Program Impact, July 2007, GAO-07-909.
42 Testimony of Rodney Bent before the House Committee on Foreign Affairs, Subcommittee on Asia, the Pacific, and
the Global Environment, July 26, 2007.
43 GAO, Millennium Challenge Corporation: Results of Transportation Infrastructure Projects in Seven Countries, 12-
631, September 2012.
44 GAO, Millennium Challenge Corporation: Georgia and Benin Transportation Infrastructure Projects Varied in
Quality and May Not Be Sustainable, 12-630, June 2012.
45 Government Accountability Office, Millennium Challenge Corporation: Compacts in Cape Verde and Honduras
Achieved Reduced Targets, GAO-11-728, July 2011.
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maintained.” It has also questioned the ability of Benin’s port authority to operate key
components.46
Procurement Policy
In the course of implementing compacts, the entity that MCC sets up with partner governments
signs hundreds of contracts each year to procure equipment, construct infrastructure, or obtain
technical expertise. Under MCC rules, compact procurement processes are based on World Bank
procedures, not U.S. federal acquisition requirements or the compact country’s own rules. To
counter corruption, build capacity, and achieve the maximum value for the cost of goods and
services, MCC-approved rules feature transparent, competitive bidding from all firms, regardless
of national origin. According to the MCC, companies from 54 countries have won MCC
procurement contracts, U.S. firms winning the most with 15% of the total.
In August 2010, Senator Jim Webb raised the concern that some of these contracts had been won
by Chinese government-owned firms. In a letter to the MCC, he argued that contracts awarded to
Sinohydro Corporation for construction work in Mali and Tanzania supported Chinese foreign
policy efforts to expand influence in Africa and harmed U.S. business. In September 2010, the
MCC amended its procurement guidelines to prohibit contracts with state-owned enterprises
(SOEs), except in the case of educational, research, and statistical units of government not formed
for a commercial purpose. Its chief stated reason for making the change is to ensure a level
playing field for competing firms. As of September 2010, $400 million of MCC contracts had
gone to SOEs.
Corruption
With developing countries themselves implementing MCC-funded programs, corruption is a
major concern of the MCC, in the selection process, in threshold programs, and in compact
implementation.
Aiming to safeguard U.S. aid dollars, MCC programs are designed to prevent corrupt contracting.
Among other things, MCC requires a transparent and competitive process and mandates
separation of technical and financial elements of a bid. The MCC reviews each decision made by
the procurement entity and must register approval for many of them, and it provides funds
directly to contractors rather than through the government implementing entity. MCC argues that,
in following this process, recipient governments learn how to do procurement in a corruption-free
way.
The degree to which a country controls corruption is one of the performance indicators that help
determine whether a country should be eligible for compact funding. In fact, it is a “pass-fail”
indicator. Passing the indicator, however, does not mean there is little or no corruption—an
unrealistic expectation for most developing countries. It only demonstrates that a country’s
performance is above the median relative to other countries at the same economic level. Further,
as suggested in the discussion of country selection, the MCC board does not depend on indicator
scores alone to determine the selection process. These scores change from year to year, depending
46 GAO, Millennium Challenge Corporation: Georgia and Benin Transportation Infrastructure Projects Varied in
Quality and May Not be Sustainable, 12-630, June 2012, p. 33 and p. 47.
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on fresh data and the relative scores of competing countries. Taking this into account, the MCC
board uses discretion by looking at a number of factors, including the many underlying data
sources that make up indicators, as well as recent steps taken by the government in question to
address corruption (or, in some cases, recent increased allegations of corruption). Accordingly, a
country can be selected that technically falls near or below the median if mitigating factors occur.
Alternatively, countries that pass the corruption indicator may be the subject of intense debate
over incidences of alleged corruption. Because of data lags, countries passing the indicator may
fail a year or two later, once a compact is in place. This can be true of all the indicators,
particularly when a country “graduates” into a higher income category, thereby changing the
medians. The MCC attempts to address this concern by looking for a pattern of behavior on the
part of the government in order to judge the severity of any proposed corrective action.
In 2010, there were suggestions from Congress that the MCC should take the issue of corruption
more into account in judging compact country behavior. During hearings with the MCC CEO, the
House State, Foreign Operations Appropriations Subcommittee chair and ranking Member raised
concerns regarding the absence of termination guidelines based on a pattern of corruption.47
In 2009 and 2010, several Members of Congress noted their concern regarding provision of MCC
funding to corrupt countries.48 Specifically, they each referred to the case of Senegal, whose
leader installed a monument to the country’s independence estimated to cost between $24 million
and $70 million. The $540 million compact with Senegal was signed in September 2009. Despite
corruption reports, Senegal scores in the 74th percentile of the FY2011 Control of Corruption
indicator formulated by the World Bank. The MCC says it has looked at but found no pattern of
corrupt behavior since signing the Senegal compact that would justify suspending or closing the
compact program. It has notified the Senegalese government that any decline in policy
performance, regardless of indicator scores, could jeopardize the compact.
Implications of New Eligibility Methodology
The pool of compact-eligible countries is meant to represent those more committed than others to
democratic governance, investments in their people, and economic freedom, in the belief that the
best-performing countries in these areas are also those more likely to effectively use MCC
resources in reducing poverty and promoting economic growth. The FY2013 change to the
methodology for establishing country compact eligibility status will shape the number and
composition of the pool of eligible countries and may have important consequences for the future
of the program. Accordingly, some of the differences between the old and new systems, both of
which were used to inform the selection process during the transition year of FY2012, are worth
noting:
• Under the new system, in FY2012, more countries pass the eligibility requirements
than under the old system. Under the old system, 21 of the 82 candidates, nearly
26%, pass. Under the new system, 31 countries, nearly 38%, pass.
• Under the new system, the number of indicators increases from 17 to 20, possibly
facilitating specific policy changes by countries seeking MCC approval. Further, in
the old system, countries could pass 9 indicators to become compact eligible, 3 in
47 Hearing with Daniel Yohannes, MCC CEO, April 14, 2010.
48 “For Senegal: U.S. Aid, 164-ft. Statue,” The Washington Times, August 16, 2010.
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each basket; the new system requires 10, half of the indicators, at least 1 in each
basket.
• In 13 cases, a country passes under the new system where it would have failed
under the old. In these cases, the country now passes half of all the indicators,
including one in each basket, whereas previously it would have failed one of the
three baskets. Nine of those times, the country failed under the old system because
it did not pass the Investing in People category. Two additional times, countries
failed under the old system because of insufficient success in both Investing in
People as well as Economic Freedom categories. In two cases, countries would
have failed only the Economic Freedom basket.
• In only three cases, countries passed the old system, but failed in the new. In each
case, the country failed the “democratic rights” hard hurdle introduced under the
new system.
• The introduction of a pass-fail hurdle for “democratic rights” strengthens the role
of democracy and governance performance in the eligibility process by making
passage of one of the two indicators a requirement. But, for lower-middle-income
countries, the change from use of a median to an absolute threshold for the two
“democratic rights” indicators makes passing them easier than was the case under
the old system, because the absolute threshold falls below the median for that level
of income. The political rights requirement is a score of at least 17, but the median
for lower middle income is 24. The civil liberties requirement is a score of a
minimum of 25, but the median for lower middle income is 35.5. According to the
MCC, the choice of threshold level reflects what the Freedom House data presents
as an appropriate break between countries that are reforming and those that are not.
The new system of determining compact eligibility may affect the character of the final pool of
countries the MCC supports in the way that it appears to enlarge the pool of countries overall and
strengthens or diminishes the weight placed on one performance indicator or basket of indicators
over another. The MCC’s objective in making these changes is to stabilize a system that had been
characterized by a degree of unpredictability from year to year as countries near to the median in
one or more indicators might find themselves move from pass to fail and vice versa due to no
action of their own making, but because other countries had performed better or worse, or
because of the imperfect and variable data collected to capture country performance. The greater
weight given “democratic rights” also reflects a need to address the fact that compact suspension
or termination has been attributed to performance failures in this area. Indicator changes also
continue a long-standing effort to find better ways of calibrating country performance in the
required baskets.
Whatever the official rules for judging scorecard results, in the end, the MCC Board maintains
the flexibility to reject countries that pass the minimum requirements but show poor results in the
other indicators. The Board also may consider information entirely apart from the indicators that
would suggest compact success or failure.
Key Concerns in the Early Years of the MCC
In its first five or six years of existence, while the MCC was developing its policies and honing its
method of operations, a number of issues were raised by observers that, while no longer as
prominent, continue to form a backdrop to current views.
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How Large Should a Compact Be?
At various points, the MCC was criticized for supporting compacts that were either too small or
too large based on the dollar size of the grants. A closely examined characteristic of the early
compacts was their lower-than-anticipated funding level. While Bush Administration officials had
said repeatedly that compacts would be funded at various levels depending on the nature and
potential impact of the proposal, the presumption in its first years was that the MCC 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 said that the size of its grants must place MCC
assistance among the top aid donors in a country.49 Some had estimated that once the
Corporation’s budget reached the $5 billion annual level originally suggested, each compact
would be supported with annual resources in the $150 million-$200 million range.50 These levels
could vary up or down depending on many factors, such as the number of people living in
poverty, the size of the economy, and the scope of the proposed projects.
Most of the first several compacts, however, did not meet the anticipated financial allocation
thresholds. Madagascar’s four-year, $110 million compact roughly doubled U.S. assistance to the
country, but did not place MCC assistance among the top donors and was also not very large
relative to the country’s population. For Honduras (a $215 million MCC program over five
years), Georgia ($295 million over five years), and Armenia ($236 million over five years), the
United States was the top bilateral donor without the MCC program, and likely remained in that
position as MCC grants were disbursed. But the MCC Compact for Honduras called for only a
slightly higher annual amount ($43 million) than U.S. economic assistance provided ($34 million)
at the time, while Georgia’s compact averaged only about three-fourths and the Armenia compact
only about two-thirds of the annual level of its recent American aid. While these were not
insignificant amounts of new resources, they were far less than Bush Administration officials had
suggested previously.51 In contrast, the early five-year compacts with Cape Verde ($110 million),
Benin ($307 million), and Vanuatu ($66 million) represented a substantial investment by the
United States, relative to the size of recent American aid and the size of their economies.
This issue of compact size was a priority of Ambassador Danilovich following his September
2005 confirmation hearing to be the MCC’s new CEO. He noted that the MCC was “meant to
create transformative programs,” and to do so he said that “future compacts will generally need to
be larger than those signed thus far.” Ambassador Danilovich cautioned, however, that with
limited resources but larger compacts, fewer countries would receive funding if MCC was to
achieve its transformational goal.52 After assuming the CEO position, he moved the MCC toward
larger compacts and placing the MCC as the largest donor in recipient countries. In 2005, the
average amount of compacts signed in that year was $181 million; in 2006, $364 million; in 2007,
$463 million; and in 2008, $495 million.
49 See, for example, Millennium Challenge Corporation FY2005 Budget Justification, p. 7. Found at
http://www.mcc.gov/about/reports/congressional/budgetjustifications/budget_justification_fy05.pdf.
50 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.
51 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.
52 Prepared statement of John J. Danilovich, before the Senate Committee on Foreign Relations, September 27, 2005.
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Apparently, in the view of some in Congress, the move to larger compacts went too far. In the
explanatory statement accompanying the FY2009 Omnibus appropriations (P.L. 111-8), the MCC
was urged to limit compact size to under $350 million in order to “ensure that the MCC does not
become overextended, that existing compacts are meeting their goals, and future compacts are of
a manageable size.”
What Development Sectors Should the MCC Support?
Most of the early compacts included a similar sector concentration, focusing largely on
agriculture and transportation infrastructure projects. While these activities were well justified,
the similarity across compacts surprised some observers. Given the wide diversity of conditions
in each of the countries plus the MCC’s willingness to support all types of programs—the
agency’s only requirement is that projects be able to project the amount of economic growth and
poverty reduction that will be generated—many had expected to see a greater degree of variation
among the compacts. Some believed that social sectors, including those in health and education,
should be receiving greater attention in compact design.53
As more compacts are signed, diversity in programs is creeping in—four of the more recent ones,
in Lesotho, Mozambique, Tanzania, and Jordan, feature a water and sanitation component. The
Morocco compact includes micro-credit and artisan crafts support among its projects. Burkina
Faso and Namibia have education components.
How Fast Should the MCC Spend Its Funds?
A recurrent criticism of the MCC, especially in Congress, was the seemingly slow speed of
implementation, reflected, in the view of some, by the limited amount of disbursements relative
to available funds. This view became, to some extent, a cause of cuts in MCC funding from the
Administration request and of threatened rescissions from amounts already appropriated during
the past few years.
Multiple factors determined the spending rate. Since the FY2005 appropriations, Congress has
required that the MCC obligate all funding for a compact up front, even though compacts are
meant to last five years. It does this to ensure that funding will be available to meet the terms of
the binding contract that the MCC in effect signs with another country. In its first years, the MCC,
as a new initiative, took time to develop methods of operation, including settling on the rules of
eligibility and the requirements of compact proposals. Further, the countries themselves are
responsible for developing proposals and have problems common to most developing countries in
managing complex programs to meet donor requirements of accountability. The GAO found that
for five signed compacts in Africa—Madagascar, Cape Verde, Benin, Ghana, and Mali—the
process of going from eligibility to compact signature took between 12 and 31 months. Four of
these compacts entered into force about five months after compact signature.54
53 For example, James Fox and Lex Rieffel, The Millennium Challenge Account: Moving Toward Smarter Aid. The
Brookings Institution, July 14, 2005, p. 24.
54 Government Accountability Office, Millennium Challenge Corporation: Progress and Challenges with Compact in
Africa, Testimony, June 28, 2007, GAO-07-1049T.
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Once launched, compacts may be slow to get underway. For example, Honduras and Cape Verde,
both in their fourth year, had disbursed only 29% and 40%, respectively, of their total grants by
end of March 2009. Among the causes for these low rates are delays by compact countries in
filling managerial positions. The nature of many of the compacts is also responsible for the
delays. Typically, infrastructure projects are slow to disburse funds in the early years, the majority
of activity being the design and planning of projects rather than actual construction.
Whatever the causes, the MCC responded to the criticisms by shifting its organizational focus
from the early emphasis on compact development to compact implementation. In October 2007, it
announced a reorganization aimed at facilitating implementation. Spending has speeded up in
recent years. While, as of the end of September 2009, only $889 million, or 14%, of the $6.4
billion obligated for MCC compacts up to that point had been disbursed, by September 2011, $3.2
billion, or 42%, of compact obligations amounting to $7.6 billion had been disbursed.
What Should Be the Role of USAID?
How USAID would participate in the MCC initiative was a concern of Congress and members of
the development community when the MCC was established. Section 615 of the MCC
authorizing legislation requires the Corporation’s CEO to coordinate and consult with USAID and
directs the agency to ensure that its programs play a primary role in helping candidate countries
prepare for MCC consideration. USAID maintains missions in most of the eligible countries and
might be expected to support MCC programs in some way.
USAID’s role to date has varied. In cases where there is a USAID mission, the views of mission
personnel on potential compact proposals have been requested, and several MCC projects appear
to expand on activities from earlier USAID projects. In Namibia, for example, the MCC based its
community-based natural resource management efforts on USAID’s successful efforts to establish
conservancies. Almost all MCC threshold programs have been implemented by USAID, and
USAID is the implementor of the Burkina Faso compact education project, continuing efforts it
led in that country’s threshold program to increase primary school completion rates for girls.
One question of concern to the development community is how USAID would adjust its own
programs in countries receiving MCC compacts. Then-USAID Administrator Natsios told the
House Appropriations Committee on May 13, 2004, that the agency would not withdraw from or
cut programs in MCC countries, but would not increase spending either. Nonetheless, some critics
continue to express concern that MCC funding is not always additive, as had been the pledge, but
substitutes for portions of previous USAID bilateral development aid programs. In its FY2008
report on the State/Foreign Operations bill (H.Rept. 110-197), the House Appropriations
Committee expressed the view that MCC aid should be “a complement,” not a substitute, to the
current aid program.
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Appendix A. MCC Compacts
Human
Develop-
Other U.S.
Compact
Population
ment
Econ. Aid:
Compact
Size
Entry Into
Compact
Living Below
Index
FY2012
Country
Signed
(millions)
Force
Completion Compact
Focus $2 p/day (%)
Rankingb
(millions)c
Armenia Mar.
27,
2006
$236
Sept. 29,
September
-Agriculture/ irrigation
12.4% 86 $40.0
5 years
2006
2011
-Rural roads
Benin
Feb. 22, 2006
$307
Oct. 6,
October 2011
-Land & property
75.3% 167 $28.4
5 years
2006
-Financial services
-Judicial improvement
-Port rehab
Burkina Faso
July 14, 2008
$481
July 31,
- Rural land governance
81.2% 181 $9.0
5 years
2009
- Agriculture
- Roads
- Education
Cape Verde I
July 4, 2005
$110
Oct. 17,
October 2010
-Agriculture
N/A 133 $0.0
5 years
2005
-Transport/roads
-Private sector
Cape Verde II
Feb. 10, 2012
$66.2
—
-Water and Sanitation
N/A 133 $0.0
5 years
-Land Management
El Salvador
Nov. 29, 2006
$461
Sept. 20,
September
-Education
15.2% 105 $25.9
5 years
2007
2012
-Transport/roads
-Small business/farm
development
Georgia
Sept. 12, 2005
$295
April 7,
April 2011
- Infrastructure/ gas
32.6% 75 $66.7
5 years
2006
- Transport/ roads
- Agriculture/ business
Ghana August
1,
$547
Feb. 16,
February 2012
-Agriculture
53.6% 135 $171.1
2006
5 years
2007
-Transport
-Rural Development
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Human
Develop-
Other U.S.
Compact
Population
ment
Econ. Aid:
Compact
Size
Entry Into
Compact
Living Below
Index
FY2012
Country
Signed
(millions)
Force
Completion Compact
Focus $2 p/day (%)
Rankingb
(millions)c
Honduras
June 13, 2005
$215 Sept. 29,
September
-Agriculture
35.6% 121 $55.3
5 years
2005
2010
-Transport/roads
Indonesia
Nov. 18, 2011
$600
—
-Energy
&
Resource 50.7% 124 $146.0
5 years
Management
-Health & Nutrition
-Public Procurement
Jordan
Oct. 25, 2010
$275.1
—
-Clean Water and Sanitation
3.5%
95
$360.0
5 years
Lesotho
July 23, 2007
$362.6
Sept. 17,
-Water
sector
N/A 160 $28.1
5 years
2008
-Health sector
-Private sector
Madagascar
April 18, 2005
$110
July 27,
May 2009
- Land titling/ Agriculture
89.6% 151 $50.6
(terminated May
4 years
2005
- Financial sector
2009)
Malawi
April 7, 2011
$350.7
—
-Electric
power
90.5% 171
$142.9
5 years
Mali (terminated
Nov. 13, 2006
$460.8
Sept. 17,
August 2012
-Irrigation
77.1% 175 $133.3
August 2012)
5 years
2007
-Transport/ airport
-Industrial park
Moldova
Jan. 22, 2010
$262
Sept. 1,
-Agriculture
12.5% 111 $21.0
5 years
2010
-Roads
Mongolia
Oct. 22, 2007
$285
Sept. 17,
-Transport/rail
N/A 110 $3.0
5 years
2008
-Property Rights
-Voc Ed
-Health
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Human
Develop-
Other U.S.
Compact
Population
ment
Econ. Aid:
Compact
Size
Entry Into
Compact
Living Below
Index
FY2012
Country
Signed
(millions)
Force
Completion Compact
Focus $2 p/day (%)
Rankingb
(millions)c
Morocco August
31,
$697.5
Sept. 15,
-Agriculture/
Fisheries
14.0% 130 $16.5
2007
5 years
2008
-Artisan Crafts
-Financial Serv/ Enterprise
Support
Mozambique
July 13, 2007
$506.9
Sept. 22,
-Water and Sanitation
81.6% 184 $357.6
5 years
2008
-Transport
-Land Tenure/ Agri
Namibia
July 28, 2008
$305
Sept. 16,
-
Education
N/A 120 $90.8
5 years
2009
- Tourism
- Agriculture
Nicaragua
July 14, 2005
$175
May 26,
May 2011
- Land titling/Agriculture
31.9% 129 $11.8
5 years
2006
- Transport roads
Philippines
Sept. 23, 2010
$434
May 25,
-Revenue
Reform
45.0% 112 $114.1
5 years
2011
-Community Dev
-Road Rehab
Senegal
Sept. 16, 2009
$540 Sept. 23,
-Roads
60.4% 155 $105.5
5 years
2010
-Irrigation
Tanzania
Feb. 17, 2008
$698
Sept. 15,
-Transport/roads,
airport 87.9% 152 $530.1
5 years
2008
-Energy
-Water
Vanuatu
March 2, 2006
$66
April 28,
April 2011
-Transport rehab
NA 125 $0.0
5 years
2006
-Public Works Dept.
Zambia
May 10, 2012
$354.8
—
-Water Supply and Sanitation
81.5%
164
$367.8
5 years
Sources: Population Living Below $2 Per Day—data is most recent survey available, from the World Bank, World Development Report, 2012; Gross National Income per
capita (Atlas method)—2009 data from the World Bank, World Development Indicators. Human Development Index Rank—from UNDP, Human Development Report, 2011.
MCC Information: MCC.
b. 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 enrol ment ratio for primary, secondary, and tertiary schools; and a
decent standard of living, as measured by GDP per capita in purchasing power parity (PPP) U.S. dollars. The most recent report (2011) evaluates 187 countries, with
number 1 having the best HDI and number 187 scoring the worst in the Index.
c. Other U.S. Economic Aid is defined here as Global Health, Development Assistance, Economic Support Fund, and Assistance to Europe, Eurasia, and Central Asia
accounts.
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Appendix B. Compact Descriptions and Status
Descriptions and key developments in the 26 signed compacts undertaken by the MCC since
2004 are provided below in alphabetical order. Compact funding totals include administrative and
monitoring costs.
Armenia
The five-year, $236 million compact, completed in September 2011, concentrated on the
agricultural sector, investing in the rehabilitation of rural roads ($67 million) and improving
irrigation ($146 million). When launched, the program anticipated that it would 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%.
Misgivings were raised both prior to and during implementation of the Armenia compact. In
September 2005, during compact development, the MCC expressed concerns with Armenian
officials regarding slippage on two of the governance indicators and matters raised by
international groups concerning political rights and freedoms in the country. Moreover, the MCC
Board delayed final approval of the compact following the November 27, 2005, constitutional
referendum, after allegations of fraud, mismanagement, limited access by the press, and abuse of
individuals were raised. In signing the compact on March 27, 2006, the MCC issued a cautionary
note, signaling that Armenia must maintain its commitment to the performance indicators or risk
suspension or termination of the compact. On March 11, 2008, the MCC issued a warning that
assistance might be suspended or terminated in response to the government’s actions, including
the imposition of a state of emergency and restrictions on press freedoms.55 In the autumn of
2008, the Armenian government used $17 million of its own funds to begin a road segment when
there was some question of whether the MCC would continue its support. In December 2008,
then-MCC CEO Danilovich noted that Armenia had since moved forward on a number of reforms
addressing MCC concerns and he expected MCC support to resume in the spring of 2009.56
However, on March 11, 2009, the MCC Board of Directors declined to lift the funding hold for
the rural roads component of the Armenia compact until an interim review session could be held
prior to its normal June 2009 meeting in order to assess the status of democratic governance in
Armenia. On June 10, 2009, the MCC Board allowed the hold to continue on financial support for
the roads project. One board member noted that the hold on funding was, in effect, a termination,
as the work, if reapproved, could not be completed within the compact lifespan.57
Benin
The five-year, $307 million compact, completed in October 2011, 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 system’s capacity to
resolve business and investment claims; and market access, improving the Port of Cotonou. When
55 See letters of John Danilovich to Armenia President Robert Kocharyan on December 16, 2005 and March 11, 2008
on MCC website.
56 MCC, Public Outreach Meeting Transcript, December 12, 2008, p. 12.
57 Lorne Craner at Public Outreach Meeting, June 11, 2009.
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launched, the compact’s goal was to benefit 5 million people, bringing 250,000 of the population
out of poverty by 2015.
Burkina Faso
The five-year, $480.9 million compact has four elements. A rural land governance project ($59.9
million) will focus on improving legal and institutional approaches to rural land issues, including
registration and land use management. An agriculture project ($141.9 million) will target water
management and irrigation, diversified agriculture, and access to rural finance in specific regions
of the country. A roads project ($194.1 million) will improve rural roads. The education effort
($28.8 million) will build on the country’s MCC threshold program and construct additional
classrooms and provide daily meals to children. The education project will be administered by
USAID.
Cape Verde I
The five-year, $110 million compact, completed in October 2010, focused largely on improving
the country’s investment climate, transportation networks, and agriculture productivity. The
program’s goal was to increase the annual income in Cape Verde by at least $10 million.
The compact evolved around three projects. In support of private sector development, $2.1
million and additional participation with the International Finance Corporation was used to
remove constraints to private sector investment by creating a commercial credit information
bureau and to stimulate other reforms. The MCC invested $83.2 million primarily for port
construction to help link the nine inhabited islands and roads and bridges to improve
transportation links to social services, employment opportunities, and local markets. By investing
$11.4 million to increase the collection and distribution of rainfall water and strengthen
agribusiness services, including access to credit, the project hoped to increase agricultural
production and double the household income of farmers.
Cape Verde is the first compact country to be made eligible for a second compact.
Cape Verde II
Cape Verde’s $66.2 million second compact will address two issues impeding economic growth.
A water and sanitation project ($41 million) aims to reform the regulatory regime and utility
structure and provide capital infrastructure improvements. A land management project ($17
million) is expected to induce legal reforms and the clarification of property rights. Meeting an
MCC requirement for second compacts, the government of Cape Verde will contribute an
additional 15% of total costs toward project implementation.
El Salvador
The five-year, $461 million compact, completed in September 2012, addressed economic growth
and poverty reduction concerns in El Salvador’s northern region, where more than half the
population lives below the poverty line. Education as well as water and sanitation, and electricity
supply ($95.1 million); support for poor farmers and small and medium-sized business ($87.5
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million); and transportation, including roads ($233.6 million), were the chief elements of
program.
Georgia
The $395 million, five-year agreement with Georgia ended in April 2011. It focused on reducing
poverty and promoting economic growth in areas outside of the capital, where over half the
population lives in poverty. The compact was divided into two projects. The first and the largest
component ($311.7 million) concentrated on infrastructure rehabilitation, including roads, the
north-south gas pipeline, water supply networks, and solid waste facilities. The Enterprise
Development Project ($47.5 million) financed 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 expected to reduce the incidence of poverty by 12% in the Samtskhi-Javakheti
region; provide direct benefits to 500,000 people and indirectly benefit over 25% of Georgia’s
population; reduce the travel time by 43% to Tbilisi, the capital, from regional areas, thereby
cutting transportation costs for farmers, businesses, and individuals needing health and other
social services; and lower the risk of a major gas pipeline accident and improve the reliability of
heat and electricity to over 1 million Georgians.
The original compact agreement totaled $295 million, but, on September 4, 2008, the Bush
Administration proposed a $1 billion aid initiative for Georgia, of which one component was
adding $100 million to the existing compact. An amendment to the compact was signed on
November 20, 2008, making the total $395 million. Complementing or completing projects begun
in the original compact, it was directed at road projects, water and sanitation facilities, and a
natural gas storage facility.
Georgia has been selected as eligible for a second compact.
Ghana
The five-year, $547 million compact, which ended in February 2012, focused on agriculture and
rural development. Poverty rates in the three targeted geographic areas were above 40%. The
agriculture component ($241 million) provided training for farmer-based organizations, improved
irrigation, greater access to credit, and rehabilitated local roads. The transport component ($143
million) sought 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) constructed and rehabilitated education, water, and electric facilities, among other
activities.
Ghana has been selected as eligible for a second compact.
Honduras
The five-year, $205 million (originally $215 million) compact with Honduras, completed in
September 2010, focused on two objectives—rural development and transportation. The rural
development project, representing $68.3 million of the compact, assisted small and medium-size
farmers to enhance their business skills and to transition from the production of basic grains to
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more high-value horticultural crops, such as cucumbers, peppers, and tomatoes. The project
provided farmers with the appropriate infrastructure and necessary training for producing and
marketing these different crops. More than 7,000 farmers were trained, of which 6,029
significantly increased production of horticulture crops. About 422 kilometers of rural roads were
also upgraded, helping farmers transport their goods to markets at a lower cost. The original
objective was 1,500 kilometers, but increased construction costs limited that figure.
The transportation project, totaling $119.2 million of the compact, sought to improve the CA-5
major highway linking Honduran Atlantic and Pacific ports and major production centers in
Honduras, El Salvador, and Nicaragua. Almost 50 kilometers of the CA-5 were completed of 107
originally planned and 45 of 68 kilometers in secondary roads before an undemocratic change in
government contrary to MCC’s Ruling Justly criteria—the removal of President Zelaya from
office by a coalition of civilian and military institutions—led to the September 9, 2009, MCC
termination of these two planned activities in the transportation sector. The termination affected
about $10 million in funding, including $4 million for the CA-5 road project. Already
contractually obligated programs were continued.58
Honduras has not been selected as eligible for a second compact due to concerns over
governance.
Indonesia
The five-year, $600 million compact has three projects. A Green Prosperity project ($332.5
million) will provide technical expertise and funding for renewable energy and natural resource
management efforts that aim to raise household incomes. A community-based health and nutrition
project ($131.5 million) is aimed at reducing stunting, from which more than one-third of
Indonesia’s children suffer. A public procurement reform project ($50 million) seeks to
implement practices that will counter fraud, waste, and abuse that results in the loss of billions of
dollars annually.
Jordan
The five-year, $275.1 million compact is solely aimed at the water sector. In the governorate of
Zarqa, it will reduce water loss by rehabilitating the water supply and distribution network from
reservoir to household ($102.5 million) and will improve the sewage system by replacing or
rehabilitating sewage lines ($58.22 million). In a partnership with the private sector, the compact
will also expand a wastewater treatment plant originally built by USAID ($93.03 million).
Lesotho
The five-year, $362.6 million compact has three elements. A water sector project ($164 million)
will focus on both industrial, supporting garment and textile operations, and domestic needs. It
will also support a national watershed management and wetlands conservation plan. A health
project ($122.4 million) will seek to strengthen the health care infrastructure, including
renovation of up to 150 health centers, improved management of up to 14 hospital out-patient
58 See MCC Congressional Notification, September 17, 2009, at http://www.mcc.gov/mcc/bm.doc/cn-091709-
honduras.pdf.
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departments, construction and equipping of a central laboratory, and improved housing for
medical staff and training for nurses. A private sector development project ($36.1 million) will
address a wide range of legal and administrative obstacles to increased private sector activity,
including development of land policy and administration authority, implementation of a new
payments and settlement system, and improvement of case management of commercial courts.
Madagascar
The Madagascar compact, MCC’s first signed agreement, started out as a four-year, $110 million
program, was extended to five years because of start-up delays, and then terminated prematurely
because of a coup. The project had 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).
After restoring 149,000 land rights documents, digitizing another 128,000, formalizing land rights
for 12,800 families, constructing two new bank branches, and providing agriculture technical
assistance to 34,450 farmers and 290 small businesses and farmers associations, the compact
ended in May 2009, with little more than a year remaining in the compact’s five-year span and
$88 million of the $110 project committed.
Malawi
The five-year, $350.7 million Malawi compact, signed in April 2011, focuses on just one sector—
electric power. The program aims to reduce power outages, reduce costs to business and homes,
and improve the economic environment. One element will upgrade and modernize generation and
distribution capacity ($283 million); another will reform electric power supply institutions in the
country ($25.7 million). In July 2011, the compact, which had not yet entered into force, was put
on operational hold in response to concerns raised by several anti-democratic actions taken by the
government, including suppression of the media and prevention of peaceful protests. In March
2012, the compact was suspended in view of the continuing pattern of actions “inconsistent” with
good governance. On June 26, 2012, the MCC reinstated its compact with Malawi. A change in
the country’s leadership and subsequent steps to restore democratic society led the Board to
change its position.
Mali
The compact was due for completion in September 2012. However, on March 22, 2012, the MCC
announced it was halting its operations in Mali, following a military coup. The compact was
formally terminated in August 2012.
The five-year, $461 million compact emphasized an increase in agricultural production and
expansion of trade. About half the funds ($234.6 million) supported a major irrigation project,
including modernization of infrastructure and improvements in land tenure. Improvements in the
airport ($89.6 million) targeted both passenger and freight operations. Due to rising construction
costs and changes in currency valuations, $94.6 million in funds originally intended for
construction of an industrial park at the airport were reallocated to the airport project. The early
termination left some components uncompleted, including the airport terminal building and half
of a 80 km road.
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Moldova
The five-year, $262 million compact addresses agriculture and roads. On the agriculture side,
$101.77 million will be provided to repair large irrigation systems supporting high-value fruits
and vegetables, to support the legal transfer for these systems to water user organizations, and to
facilitate financing facilities for farmers and entrepreneurs. USAID will provide technical
assistance to improve market access for high-value agriculture. The compact will also provide
$132.84 million to repair a major bridge and highway leading toward Ukraine, facilitating
commercial traffic between the two countries.
Mongolia
The most significant part of the original five-year, $285 million compact was intended to
stimulate economic growth by refurbishing the rail system, including infrastructure and
management ($188.38 million). However, in April 2009, the government of Mongolia informed
the MCC that it would not be able to implement the $188 million rail component of its compact,
because Russian members of the joint Mongolian-Russian rail company would not allow an audit
of the company.
The MCC has decided to use $52 million of this amount to expand the three other original
projects in the compact. These include support for improvements in the property registration and
titling system ($23.06 million) and the vocational education system ($25.51 million), and an
attempt to reform the health system to better address non-communicable diseases and injuries,
which are rapidly increasing in the country ($17.03 million). In December 2009, the MCC Board
approved a further restructuring of the compact, utilizing remaining funding from the terminated
rail component of the compact to target $47.2 million at energy and environmental projects and
$79.7 million at rehabilitating a road and bridge.
Morocco
The five-year, $697.5 million compact has multiple components, all aimed at increasing private
sector growth. These include efforts to increase fruit tree productivity ($300.9 million),
modernize the small-scale fisheries industry ($116.2 million), and support artisan crafts ($111.9
million). In addition, the compact will fund financial services to micro-enterprises ($46.2 million)
and will provide business training and technical assistance aimed at young, unemployed
graduates ($33.9 million).
Mozambique
The five-year, $506.9 million compact, like most other compacts, targets specific districts, in this
case the less prosperous North of the country. The compact has four components. Water and
sanitation services will be improved ($203.6 million); a major road will be rehabilitated ($176.3
million); land tenure services will be made more efficient ($39.1 million); and steps will be taken
to protect existing coconut trees, improve coconut productivity, and support diversification to
other cash crops ($17.4 million). The long-term objective is to reduce the projected poverty rate
by more than 7%.
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Namibia
The five-year, $304.5 million compact focuses on education, tourism, and agriculture. The
education project ($145 million) will improve school infrastructure and training, vocational and
skills training, and textbook acquisition. The tourism project ($67 million) will target
management and infrastructure in Etosha National Park, the premier wildlife park in Namibia,
and build ecotourism capacity in the country. The agriculture project ($47 million) will focus on
land management, livestock support, and production of indigenous natural products.
Nicaragua
The five-year, $175 million compact with Nicaragua, ended in May 2011, focused on 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 had 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.
On June 10, 2009, the MCC Board voted to terminate assistance for activities not yet contracted
under the Nicaragua compact. These activities had been suspended since the end of 2008 because
of the actions of the Nicaraguan government inconsistent with the MCC eligibility criteria,
specifically in the area of good governance. Nicaragua first received a warning, then projects
were put on hold, and then activities not yet contracted were suspended in December 2008 as the
credibility of Nicaragua’s municipal elections was seriously questioned. In June 2009, due to
government actions that “limited the activity of political opposition, civil society, media elections
and observers” prior to the municipal elections,59 and were judged by MCC to be a pattern of
action “inconsistent with the criteria used by MCC to determine eligibility for assistance,”60
compact funding was partially terminated. The termination affected activities not yet contracted, a
property regularization project and a major road, together amounting to about $62 million.
Philippines
The five-year, $434 million compact has three components. Computerization of the revenue
collection process is expected to raise tax revenues and reduce tax evasion, while improving the
impartiality of tax administration ($54.4 million). Support for small-scale, community
development projects, designed and implemented by rural communities, is intended to strengthen
local governance and participation in development activities ($120 million). Rehabilitation of 222
kilometers of road linking two provinces is meant to reduce transport costs and increase incomes
($214.4 million).
59 MCC Press Release, “MCC Urges Nicaraguan Government to Respect Democracy,” available at
http://www.mcc.gov/mcc/countries/nicaragua/ni-documents/release-112508-nicaragua.shtml .
60 From Nicaragua country page of MCC website, available at http://www.mcc.gov/mcc/countries/nicaragua/
index.shtml.
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Senegal
The five-year, $540 million compact targets two infrastructure needs—roads and irrigation, both
largely intended to support the agricultural sector in Senegal. The road rehabilitation project
($324 million) seeks to improve two key roads, one connecting major towns and neighboring
countries to the capital and the other connecting the agricultural area of the Casamance to the rest
of Senegal. The irrigation project ($170 million) will develop up to 10,500 hectares of land and
prevent abandonment of 26,000 hectares. It will also address land tenure issues.
Tanzania
The five-year, $698 million compact focuses on three key economic infrastructure issues. A
transport sector project ($373 million) will improve major trunk roads, select rural roads, and
general road maintenance capabilities, and upgrade an airport. An energy sector project ($206
million) will lay an electric transmission cable from the mainland to Zanzibar and will rehabilitate
the existing distribution system to unserved areas. A water sector project ($66 million) will
expand a clean water treatment facility serving the capital, reduce water loss in the capital region,
and improve the water supply in Morogoro, a growing city.
Vanuatu
The $65.7 million, five-year compact, completed in April 2011, targeted improvements broadly in
multiple types of infrastructure, including roads, wharfs, an airstrip, and warehouses. The
objective was 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 aimed to help
strengthen Vanuatu’s Public Works Department in order to enhance capacity to maintain the
country’s entire transport network.
Zambia
The $354.8 million, five-year compact, focuses entirely on the water and sanitation sector in the
Lusaka area. Most of the funds ($284 million) will be used to rehabilitate and improve
infrastructure; other funds will go for strengthening management and policy controlling the water
sector.
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Appendix C. MCC Candidate Countries FY2013
(Divided into World Bank Income Categories)
East Asia/Pacific – Low
Latin America – Low
Africa – Low Income
Income
Income
Benin (FC): Second Compact
Senegal (C) Cambodia
Haiti
Eligible FY12&13
Burkina Faso (C)
Sierra Leone: Compact eligible
Laos
Nicaragua (FC)
FY13
Burundi Somalia Papua
New Guinea
Central African Republic
Tanzania (C): 2nd Compact Eligible
Solomon Islands
Latin America – Lower-
FY13
Middle Income
Chad Togo Vietnam
Belize
Comoros Uganda
East Asia/Pacific – Lower-
Bolivia *
Middle Income
Cote D’Ivoire
Zambia (C)
Indonesia (C) *
El Salvador(C): Compact
eligible FY12&13
Democratic Republic of Congo
Africa – Lower Middle Income
Kiribati *
Guatemala *: Threshold
eligible FY13
Djibouti
Cape Verde (CII)
Marshall Islands
Guyana
Ethiopia
Congo, Republic of *
Micronesia *
Honduras (FC): Threshold
eligible FY12&13 *
Gambia
Mongolia (C) *
Paraguay
Ghana (FC) : Compact Eligible
South Asia – Lower Income
Philippines (C) *
FY11& 12&13
Kenya
Afghanistan Samoa
Europe - Low Income
Lesotho (C)
Bangladesh
Timor-Leste (TC) *
None
Liberia (TC): Compact eligible
India
Tonga
Europe – Lower-Middle
FY13
Income
Malawi (C)
Kyrgyz Rep.
Vanuatu (FC) *
Albania
Mauritania
Nepal: Threshold eligible FY12&13
Armenia (FC)
Mozambique (C) Pakistan
Mid-East – Low Income
Georgia (FC): Compact
Eligible FY11&12&13 *
Niger: Compact eligible FY13
Tajikistan
Yemen
Kosovo
Nigeria Uzbekistan
Mid-East – Lower-Middle
Moldova (C) *
Income
Rwanda
South Asia – Lower-Middle
Egypt *
Income
Ukraine
Sao Tome & Principe
Bhutan *
Iraq *
Sri Lanka *
Morocco (C): 2nd Compact
Eligible FY13
Notes: Under World Bank Income Categories: Low Income = Per capita income $1,945 and below; Lower-
Middle Income = Per capita income above $1,945 and below $4,035. Excluded from this table are countries
prohibited from receiving U.S. economic assistance.
(C) = Current Compact Country; (CII) = Second Compact Country; (FC) = Former Compact Country; (TC) =
Current Threshold Country.
* Countries denoted by asterisk are considered Low Income for MCC funding purposes only under P.L. 112-74,
defined as bottom 75 countries in income level.
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Appendix D. MCC Performance Indicators FY2013
Ruling Justly
Investing in People
Economic Freedom
Control of Corruption
Primary Education Expenditure as %
Inflation
Source: World Bank/Brookings
of GDP
Source: IMF World Economic
World Governance Indicators
Sources: UNESCO and National
Outlook
(WGI)
governments
Freedom of Information
Girls’ Primary Education Completion
Fiscal Policy
Source: Freedom
Rate (For Lower Income Countries)
Source: IMF World Economic
House/ONI/FRINGE
Source: UNESCO
Outlook
or
Girls’ Secondary Education
Enrollment Rate (For Lower-Middle
Income Countries)
Source: UNESCO
Government Effectiveness
Health Expenditure as % of GDP
Trade Policy
Source: World Bank/Brookings
Source: World Health Organization
Source: The Heritage Foundation
WGI
(WHO)
Rule of Law
Immunization Rates: DPT and
Regulatory Quality
Source: World Bank/Brookings
Measles
Source: World Bank/Brookings
WGI
Source: World Health Organization
WGI
(WHO)
Civil Liberties
Child Health
Business Start-Up: Days and
Source: Freedom House
Sources: Columbia Center for Int’l Earth
Cost of Starting a Business
Science Info Network (CIESIN) and Yale
Source: International Finance
Center for Env. Law and Policy (YCLEP)
Corporation
Political Rights
Natural Resource Protection
Land Rights and Access
Source: Freedom House
Sources: Columbia Center for Int’l Earth
Source: Int’l Fund for Agricultural
Science Info Network (CIESIN) and Yale
Development (IFAD) and Int’l
Center for Env. Law and Policy (YCLEP)
Finance Corporation
Access
to
Credit
Source: International Finance
Corporation
Gender in the Economy
Source: World Bank
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Author Contact Information
Curt Tarnoff
Specialist in Foreign Affairs
ctarnoff@crs.loc.gov, 7-7656
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