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10 October 2008

[Federal Register: October 10, 2008 (Volume 73, Number 198)]
[Page 60359-60362]
From the Federal Register Online via GPO Access []



[MCC FR 08-15]

Report on the Criteria and Methodology for Determining the 
Eligibility of Candidate Countries for Millennium Challenge Account 
Assistance in Fiscal Year 2009

AGENCY: Millennium Challenge Corporation.

ACTION: Notice.


SUMMARY: This report to Congress is provided in accordance with section 
608(b) of the Millennium Challenge Act of 2003, 22 U.S.C.A. 7701, 
7707(b) (the ``Act'').

    Dated: October 7, 2008.
Henry Pitney,
(Acting) Vice President and General Counsel, Millennium Challenge 

Report on the Criteria and Methodology for Determining the Eligibility 
of Candidate Countries for Millennium Challenge Account Assistance in 
Fiscal Year 2009 Summary

    This report to Congress is provided in accordance with section 
608(b) of the Millennium Challenge Act of 2003, 22 U.S.C.A. 7701, 
7707(b) (the Act).
    The Act authorizes the provision of Millennium Challenge Account 
(MCA) assistance to countries that enter into compacts with the United 
States to support policies and programs that advance the prospects of 
such countries achieving lasting economic growth and poverty reduction. 
The Act requires the Millennium Challenge Corporation (MCC) to take a 
number of steps in determining the countries that, based on their 
demonstrated commitment to just and democratic governance, economic 
freedom and investing in their people, and the opportunity to reduce 
poverty and generate economic growth in the country, will be eligible 
for MCA assistance during fiscal year 2009 (FY09). These steps include 
the submission of reports to the congressional committees specified in 
the Act and the publication of notices in the Federal Register that 
    1. The countries that are ``candidate countries'' for MCA 
assistance during FY09 based on their per-capita income levels and 
their eligibility to receive assistance under U.S. law, and countries 
that would be candidate countries but for specified legal prohibitions 
on assistance (section 608(a) of the Act);
    2. The criteria and methodology that the Board of Directors of MCC 
(the Board) will use to measure and evaluate the relative policy 
performance of the candidate countries consistent with the requirements 
of section 607 of the Act in order to select ``MCA eligible countries'' 
from among the ``candidate countries'' (section 608(b) of the Act); and
    3. The list of countries determined by the Board to be ``MCA 
eligible countries'' for FY09, with justification for eligibility 
determination and selection for compact negotiation, including which of 
the MCA eligible countries the Board will seek to enter into MCA 
compacts (section 608(d) of the Act).
    This report sets out the criteria and methodology to be applied in 
determining eligibility for new partner countries for FY09 MCA 

The Criteria and Methodology for FY09

    MCC reviews all of its indicators and methodology annually to 
ensure that the best measures are being used and, from time to time, 
recommends changes or refinements if MCC identifies better 
methodologies, better indicators, or improved sources of data. MCC 
takes into account public comments received on the previous year's 
criteria and methodology and consults with a broad range of experts in 
the development community and within the U.S. Government.
    MCC recommends no changes to the selection criteria and methodology 
for this fiscal year.

Potential Future Changes

    Since FY07, MCC has pursued research and consultation to explore 
the possibility of adopting a new education indicator in the Investing 
in People category. However, MCC was unable to identify an indicator 
that would significantly strengthen the selection criteria in FY09. MCC 
will continue to explore potential measures. Over the last fifteen 
years, much attention has been focused on enrolling and keeping more 
children in school, but not necessarily on enhancing the quality of 
education. With the support of the World Bank, USAID, UNESCO, the Basic 
Education Coalition, and others, efforts are currently underway to 
develop cross-country measures of learning outcomes, educational 
quality, and governments' commitment to improving educational quality. 
However, these efforts are still under development and there are 
currently no education quality indicators that are viable for MCC 
purposes at this time. In assessing new indicators, MCC favors those 
that: (1) Are developed by an independent third party; (2) utilize 
objective and high quality data that rely upon an analytically rigorous 
methodology; (3) are publicly available; (4) have broad country 
coverage; (5) are comparable across countries; (6) have a clear 
theoretical or empirical link to economic growth and poverty reduction; 
(7) are policy linked (i.e., measure factors that governments can 
influence within a two to three year horizon); and (8) have broad 
consistency in results from year to year.
    Many of MCC's candidate countries in the lower middle income 
category have realized substantial success in achieving high levels of 
performance on select Investing in People indicators. MCC will explore 
options for alternative measures of an Investing in People policy 
framework that do a better job of distinguishing among high performers 
to incorporate in future fiscal years for the lower middle income 
    Several of MCC's early compacts are due to conclude within the next 
two years. MCC will review whether the selection criteria and 
methodology should be modified when applied to selecting a country as 
eligible for a second compact.

Criteria and Methodology

    The Board will select eligible countries based on the following, 

[[Page 60360]]

other factors: (1) Their overall performance in relation to their 
income-level peers in three broad policy categories--Ruling Justly, 
Encouraging Economic Freedom, and Investing in People; (2) the 
opportunity to reduce poverty and generate economic growth. Section 607 
of the Act requires that the Board's determination of eligibility be 
based ``to the maximum extent possible, upon objective and quantifiable 
indicators of a country's demonstrated commitment'' to the criteria set 
out in the Act. For FY09, there will be two groups of candidate 
countries--low income countries and lower middle income countries. Low 
income candidate countries refer to those countries that have a per 
capita income equal to or less than $1,785 and are not ineligible to 
receive United States economic assistance under part I of the Foreign 
Assistance Act of 1961 by reason of the application of any provision of 
the Foreign Assistance Act or any other provision of law. Lower middle 
income candidate countries are those that have a per capita income 
between $1,786 and $3,705 and are not ineligible to receive United 
States economic assistance.
    The Board will make use of seventeen indicators to assess policy 
performance of individual countries (specific definitions of the 
indicators and their sources are set out in annex A). These indicators 
are grouped for purposes of the FY09 assessment methodology under the 
three policy categories listed below.

                              Encouraging economic
        Ruling justly                freedom         Investing in people
1. Civil Liberties..........  1. Inflation........  1. Public
                                                     Expenditure on
2. Political Rights.........  2. Fiscal Policy....  2. Public
                                                     Expenditure on
                                                     Primary Education.
3. Voice and Accountability.  3. Business Start-Up  3. Immunization
                                                     Rates (DPT3 and
4. Government Effectiveness.  4. Trade Policy.....  4. Girls' Primary
5. Rule of Law..............  5. Regulatory         5. Natural Resource
                               Quality.              Management.
6. Control of Corruption....  6. Land Rights and

    In making its determination of eligibility with respect to a 
particular candidate country, the Board will consider whether a country 
performs above the median in relation to its peers on at least half of 
the indicators in the Ruling Justly and Economic Freedom categories, 
above the median on at least three of the five indicators in the 
Investing in People category, and above the median on the Control of 
Corruption indicator. One exception to this methodology is that the 
median is not used for the Inflation indicator. Instead, to pass the 
Inflation indicator a country's inflation rate needs to be under a 
fixed ceiling of 15 percent. The Board will also take into 
consideration whether a country performs substantially below the median 
on any indicator (i.e., in the bottom 25th percentile) and has not 
taken appropriate measures to address this shortcoming. The indicator 
methodology will be the predominant basis for determining which 
countries will be eligible for MCA assistance. In addition, the Board 
may exercise discretion in evaluating performance on the indicators and 
determining a final list of eligible countries.
    Where necessary, the Board may also take into account other 
quantitative and qualitative information (supplemental information) to 
determine whether a country performed satisfactorily in relation to its 
peers in a given category. There are elements of the criteria set out 
in the Act for which there is either limited quantitative information 
(e.g., rights of people with disabilities) or no well-developed 
performance indicator. Until such data and/or indicators are developed, 
the Board may rely on additional data and qualitative information to 
assess policy performance. The Board may also consider whether any 
adjustments should be made for data gaps, lags, trends, or other 
weaknesses in particular indicators. For example, the State Department 
Human Rights Report contains qualitative information to make an 
assessment on a variety of criteria outlined by Congress, such as the 
rights of people with disabilities, the treatment of women and 
children, workers rights, and human rights. Similarly, as additional 
information in the area of corruption, the Board may consider how a 
country scores on Transparency International's Corruption Perceptions 
Index and the Global Integrity Index, as well as on the defined 
    Compact eligible partners are expected to seek to maintain and 
improve policy performance. MCC recognizes that partner countries may 
not meet the formal eligibility criteria from time to time due to a 
number of factors, such as changes in the peer-group median; graduation 
into a new income category (e.g., from low income to lower middle 
income); numerical declines that are within the margin of error; slight 
declines in policy performance; revisions or corrections of data; the 
introduction of new sub-data sources; or changes in the indicators used 
to measure performance. None of these factors alone warrants suspension 
or termination of eligibility and/or assistance. Countries that 
demonstrate a significant policy reversal can face a warning, 
suspension, or termination of eligibility and/or assistance. According 
to MCC's authorizing legislation, ``[a]fter consultation with the 
Board, the Chief Executive Officer may suspend or terminate assistance 
in whole or in part for a country or entity * * * if * * * 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 * * 
*.'' Given data lags, this pattern of behavior need not be captured in 
the indicators for MCC to take action. [See MCC's Policy on Suspension 
and Termination]
    As provided in the Act, following the determination of eligible 
countries, the Chief Executive Officer's Report to Congress will set 
out the list of eligible countries, identify with which of those 
countries MCC will seek to enter into compact negotiations, and include 
a justification for such eligibility determinations and selections for 
compact negotiation.

Relationship to Legislative Criteria

    Within each policy category, the Act sets out a number of specific 
selection criteria. As indicated above, a set of objective and 
quantifiable policy indicators is used to establish eligibility for MCA 
assistance and measure the relative performance by candidate countries 
against these criteria. The Board's approach to determining eligibility 
ensures that performance against each of these criteria is assessed by 
at least one of the seventeen objective indicators. Most are addressed 
by multiple indicators. The specific indicators used to measure each of 
the criteria set out in the Act are listed below.
    Section 607(b)(1): Just and democratic governance, including a 
demonstrated commitment to:

[[Page 60361]]

    (a) Promote political pluralism, equality and the rule of law;

Indicators--Political Rights, Civil Liberties, Voice and 
Accountability, and Rule of Law

    (b) Respect human and civil rights, including the rights of people 
with disabilities;

Indicators--Political Rights, Civil Liberties, and Voice and 

    (c) Protect private property rights;

Indicators--Civil Liberties, Regulatory Quality, Rule of Law, and Land 
Rights and Access

    (d) Encourage transparency and accountability of government; and

Indicators--Political Rights, Civil Liberties, Voice and 
Accountability, Control of Corruption, Rule of Law, and Government 

    (e) Combat corruption;

Indicators--Civil Liberties, Rule of Law, and Control of Corruption

    Section 607(b)(2): Economic freedom, including a demonstrated 
commitment to economic policies that:
    (a) Encourage citizens and firms to participate in global trade and 
international capital markets;

Indicators--Fiscal Policy, Inflation, Trade Policy, Business Start-Up, 
and Regulatory Quality

    (b) Promote private sector growth and the sustainable management of 
natural resources;

Indicators--Inflation, Business Start-Up, Fiscal Policy, Land Rights 
and Access, Natural

    (c) Resource Management, and Regulatory Quality strengthen market 
forces in the economy; and

Indicators--Fiscal Policy, Inflation, Trade Policy, Business Start-Up, 
Land Rights and Access, and Regulatory Quality

    (d) Respect worker rights, including the right to form labor 

Indicators--Civil Liberties and Voice and Accountability

    Section 607(b)(3): Investments in the people of such country, 
particularly women and children, including programs that (A) promote 
broad-based primary education and (B) strengthen and build capacity to 
provide quality public health and reduce child mortality.

Indicators--Girls' Primary Education Completion, Public Expenditure on 
Primary Education, Immunization Rates, Public Expenditure on Health, 
and Natural Resource Management

    Where necessary the Board will also draw on supplemental data and 
qualitative information, including the State Department's Human Rights 
Report, Transparency International's Corruption Perceptions Index, and 
the Global Integrity Index.

Annex A to Report: Indicator Definitions

    The following 17 indicators will be used to measure candidate 
countries' demonstrated commitment to the criteria found in section 
607(b) of the Act. The indicators are intended to assess the degree to 
which the political and economic conditions in a country serve to 
promote broad-based sustainable economic growth and reduction of 
poverty; and thus provide a sound environment for the use of MCA funds. 
The indicators are not goals in themselves; rather they measure 
policies that are linked to broad-based sustainable economic growth. 
The indicators were selected based on their relationship to economic 
growth and poverty reduction, the number of countries they cover, their 
transparency and availability, and their relative soundness and 
objectivity. Where possible, the indicators are developed by 
independent sources.

Ruling Justly

    1. Civil Liberties: A panel of independent experts rates countries 
on: Freedom of expression; association and organizational rights; rule 
of law and human rights; and personal autonomy and economic rights. 
Source: Freedom House.
    2. Political Rights: A panel of independent experts rates countries 
on: The prevalence of free and fair elections of officials with real 
power; the ability of citizens to form political parties that may 
compete fairly in elections; freedom from domination by the military, 
foreign powers, totalitarian parties, religious hierarchies and 
economic oligarchies; and the political rights of minority groups. 
Source: Freedom House.
    3. Voice and Accountability: An index of surveys that rates 
countries on: The ability of institutions to protect civil liberties; 
the extent to which citizens of a country are able to participate in 
the selection of governments; and the independence of the media. 
Source: World Bank Institute.
    4. Government Effectiveness: An index of surveys that rates 
countries on: The quality of public service provision; civil servants' 
competency and independence from political pressures; and the 
government's ability to plan and implement sound policies. Source: 
World Bank Institute.
    5. Rule of Law: An index of surveys that rates countries on: The 
extent to which the public has confidence in and abides by the rules of 
society; the incidence of violent and nonviolent crime; the 
effectiveness, independence, and predictability of the judiciary; and 
the enforceability of contracts. Source: World Bank Institute.
    6. Control of Corruption: An index of surveys that rates countries 
on: The frequency of ``additional payments to get things done;'' the 
effects of corruption on the business environment; ``grand corruption'' 
in the political arena; and the tendency of elites to engage in ``state 
capture.'' Source: World Bank Institute.

Encouraging Economic Freedom

    1. Inflation: The most recent 12-month change in consumer prices as 
reported in the IMF's International Financial Statistics or in another 
public forum by the relevant national monetary authorities. Source: The 
International Monetary Fund's World Economic Outlook (WEO) database.
    2. Fiscal Policy: The overall budget deficit divided by GDP, 
averaged over a three-year period. The data for this measure relies 
primarily on IMF country reports with input from U.S. missions in host 
countries, or is provided directly by the recipient government where 
public IMF data is outdated or unavailable. All data is cross-checked 
with the IMF's World Economic Outlook database to try to ensure 
consistency across countries and made publicly available. Source: 
International Monetary Fund Country Reports, National Governments, and 
the International Monetary Fund's World Economic Outlook (WEO) 
    3. Business Start-Up: An index that rates countries on the time and 
cost of complying with all procedures officially required for an 
entrepreneur to start up and formally operate an industrial or 
commercial business. Source: International Finance Corporation.
    4. Trade Policy: A measure of a country's openness to international 
trade based on weighted average tariff rates and non-tariff barriers to 
trade. Source: The Heritage Foundation.
    5. Regulatory Quality: An index of surveys that rates countries on: 
The burden of regulations on business; price controls; the government's 
role in the economy; foreign investment regulation; and many other 
areas. Source: World Bank Institute.
    6. Land Rights and Access: An index that rates countries on: The 
extent to which the institutional, legal, and market framework provide 
secure land tenure and equitable access to land in

[[Page 60362]]

rural areas and the time and cost of property registration in urban and 
peri-urban areas. Source: The International Fund for Agricultural 
Development (IFAD) and the International Finance Corporation.

Investing in People

    1. Public Expenditure on Health: Total expenditures on health by 
government at all levels divided by GDP. Source: The World Health 
Organization (WHO).
    2. Immunization Rates: The average of DPT3 and measles immunization 
rates for the most recent year available. Source: The World Health 
Organization (WHO).
    3. Total Public Expenditure on Primary Education: Total 
expenditures on primary education by government at all levels divided 
by GDP. Source: The United Nations Educational, Scientific and Cultural 
Organization (UNESCO) and National Governments.
    4. Girls' Primary Completion Rate: The number of female students 
enrolled in the last grade of primary education minus repeaters divided 
by the population in the relevant age cohort. Source: United Nations 
Educational, Scientific and Cultural Organization (UNESCO).
    5. Natural Resource Management: An index made up of four 
indicators: Eco-region protection, access to improved water, access to 
improved sanitation, and child (ages 1-4) mortality. Source: The Center 
for International Earth Science Information Network (CIESIN) and the 
Yale Center for Environmental Law and Policy (YCLEP).

[FR Doc. E8-24206 Filed 10-9-08; 8:45 am]