MCC

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MCCs Selection ProcessMonitoring Government
PerformanceThomas Kelly Senior Director,
Economic Policy

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Millennium Challenge Corporation

• Fulfillment of Monterrey commitment to provide
  greater resources to countries taking greater
  responsibility for their own development.
• Established in law January 2004.
• Mandate is to reduce poverty through
• economic growth.

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Based on Key Lessons of Aid

• Policies
• Country Ownership
• Results

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Policy Performance

• Aid is most effective when it reinforces good
  governance, investments in people, and economic
  freedom
• Why MCC was created - Reward and Incentive
• Selective Program one tool in USG toolbox

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Eligibility for MCC Programs

• Quantitative measures of policy performance
• Objective third party in indicator institutions
• 17 indicators in 3 categories
• Ruling Justly
• Investing in People
• Economic Freedom

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Country Selection Policies Critical to Growth
Poverty Reduction

• Ruling Justly A countrys commitment to
• promote political pluralism,
• equality and the rule of law
• respect for human and civil rights
• private property rights
• transparency and accountability of government
• commitment to combating corruption
• Investing In People Investments in
• broad based education
• public health
• sustainable management of natural resources.
• Encouraging Economic Freedom economic policies
  that promote
• trade
• macroeconomic stability
• private sector growth
• sustainable management of natural resources
• market forces
• respect for workers rights.

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Indicators 3 Categories
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Selection Process

• Process
• 17 indicators, 3 categories
• 2 income categories
• Indicator Score gt median ? pass
• Pass gt ½ indicators in each category control
  of corruption

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Indicator Category Economic Freedom
Kenya FY08
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Indicator Category Investing in People
Kenya FY08
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Indicator Category Ruling Justly
Kenya FY08
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FY 08 Countries in LIC and LMIC Income
Categories 108
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FY 08 Candidate Countries 95
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FY 08 Countries that pass all
threecategories 34
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FY 08 Countries that pass all threecategories
and Corruption 25
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Threshold Program

• For countries that didnt qualify but are close
  and moving in the right direction
• This program focuses on the indicators the
  country does not fulfill
• Ideally, a threshold country will become an
  eligible country

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The Incentive Effect

• In a short span of timeby tracking very simple
  indicators on investment climateyou can see
  that the Millennium Challenge Account has
  affected two dozen countries 24 countries in one
  way or another have come to us and either have
  asked for ways to reform, have already reformed,
  or would like to be bench-marked so that they are
  considered for the Millennium Challenge Account.
  That is, in my view, quite a success.
• Simeon Djankov Manager of the Monitoring and
  Analysis Unit, International Finance Corporation
  June 24, 2005

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Where Are We?

• 25 countries eligible for MCA Compacts.
  16 Compacts signed and 9 others in
  the pipeline.
• About 5.5 billion committed to date for
  Compacts.
• 21 countries eligible for Threshold Program that
  aims to help countries improve policies in areas
  where they fall short so they might qualify in
  the future. 18 Threshold programs approved to
  date for roughly 400 million.

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Threshold Countries
Eurasia Albania Indonesia Kyrgyz Republic
Africa Kenya Mauritania Niger Rwanda S?o Tomé and
Principe Uganda Zambia
Latin America Guyana Paraguay Peru

• Burkina Faso, Tanzania East Timor moved from
  Threshold Program to Compact Eligible in FY2006
  Jordan, Moldova Ukraine moved to Compact
  Eligible in FY2007 Malawi and the Philippines
  moved to Compact Eligible in FY08

Countries in blue have signed or MCC
Board-approved Threshold Programs
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MAP