Issue Brief

Country Selectivity

Principles Into Practice Series

The Millennium Challenge Corporation’s mandate is to reduce poverty through economic growth. MCC works with a select number of developing countries that demonstrate a commitment to good governance and sound economic and social policies where the opportunity for economic growth and poverty reduction is greatest. MCC’s model reflects a set of principles that the United States—and many other donors and advocates—agree are required for development assistance to work well: country ownership, an evidence-based approach, focus on results, and transparency.

MCC’s Principles into Practice series offers a frank look at what it takes to apply these principles in day-to-day operations. MCC hopes that capturing and sharing the experiences will help MCC and others learn and do better. Country Selectivity is the seventh paper in the Principles into Practice series available at http://www.mcc.gov/pages/results/principlesintopractice.

In Principle: Country Selectivity

The Millennium Challenge Corporation was created in 2004 to work with a limited number of well-governed poor countries. 1 By law, MCC’s Board of Directors selects these partner countries based “to the maximum extent possible, upon objective and quantifiable indicators” of a country’s demonstrated commitment to just and democratic governance, economic freedom and investments in people. MCC is the only donor agency in the world to base country selection so heavily—and so transparently—on public, third-party policy performance data.

In Practice: How MCC’s Country Selection Works

Every year, MCC’s Board of Directors uses an evidence-based process to select the most well-governed poor countries as eligible for assistance. 2 The Board considers three elements when selecting from among low income and lower middle income countries: a country’s policy performance, the opportunity to reduce poverty through economic growth and funding available to MCC.

Policy performance is based first and foremost on annual MCC scorecards, which include 20 indicators from public, third-party data sets. The indicators are proxies to evaluate a country’s commitment to three policy areas: ruling justly, investing in people and encouraging economic freedom.

MCC’s Country Selection System Works

MCC has allocated more than $9 billion of compact assistance to 25 countries in 10 years, based primarily on how these countries perform on MCC’s scorecards.

Policy Performance Data Drives MCC Country Selection Decisions

MCC’s Board of Directors has almost always selected countries that pass the MCC scorecard. Since 2004, MCC’s Board of Directors has made 41 unique selections for compact eligibility. In 37 of those cases, countries passed the scorecard at the time of selection. Three of the four exceptions (Bolivia, Georgia and Mozambique) occurred at the first MCC Board meeting in 2004. Since then, only one country that did not meet the scorecard criteria (Georgia in fiscal year 2011) has been selected for compact assistance. 3 Evidence that supplemented the scorecard data informed these four decisions, and all four countries met the selection criteria in subsequent years.

MCC's Indicator Scorecard Drives Country Selection Decisions

Policy Performance Data Focuses Attention on MCC’s Poverty Reduction through Economic Growth Mission

MCC’s approach to country selection reflects and communicates its singular purpose: poverty reduction through economic growth in the most well-governed poor countries. MCC’s focus allows it to use one selection process for all programs. But the transparent, country selection process also helps MCC stay true to its mission and mandate. It constrains the Board from making decisions that fall outside of this singular purpose and allows anyone—developing country governments, citizens, the U.S. Congress, or taxpayers—to monitor the process and see whether decisions are based on the best evidence.

According to a College of William & Mary survey of MCC’s policy influence:

  • 92 percent said MCC’s eligibility criteria had an impact on reform in their country.
  • 67 governments made policy reforms to improve their MCC eligibility indicator scores.
  • 68 percent said it enabled civil society or journalists to more effectively advocate for reform.

Policy Performance Data Inspires Policy Reform (Even Before Spending Money)

MCC’s investments are focused on a small, select group of partner countries, but MCC’s scorecards have a broader influence. MCC’s approach to selecting countries inspires countries—and not just MCC partner countries—to improve their economic and social policies, before MCC spends a single dollar there. Many call this the “MCC Effect.”

MCC sees this when government and civil society groups contact MCC or indicator institutions to learn about and improve their scorecard performance. A number of countries set up interministerial committees to improve their scorecard performance and policy data. And an independent global survey concluded that the MCC Effect exists and that MCC scorecards inspire more policy reform than any other measure. 4

The MCC Effect

Georgia: The World Bank hailed MCC as a catalyst for business reforms in Georgia. Georgia reformed its tax and customs administration, business and property registration and court system.

Niger: Niger’s government formed an interministerial committee to improve its policy performance and data quality. The committee established new protected nature areas and reformed laws to allow men and women the same rights to pass citizenship onto their children and apply for passports.

Honduras: The Government of Honduras established a public, anti-corruption plan in 2008 to address weaknesses identified in the MCC scorecard. In 2012, the Open Budget Initiative said the government had improved its budget transparency and the Public Expenditure and Financial Accountability assessment found significant improvements in public financial management.

Côte d’Ivoire: When the MCC scorecard incorporated a new gender in the economy indicator in 2011, the Government of Côte d’Ivoire used it to guide their efforts to improve their family code. In 2012, it passed a new code giving women the same rights as men to choose where they live, apply for a passport, pursue a job or profession, and become head of household. Côte d’Ivoire now passes MCC’s gender in the economy indicator.

What Makes MCC’s Country Selection Process Work

1. It’s Public

MCC’s country selection system works above all because it is public. At all stages of the selection process, MCC reports and solicits public feedback. The structure of MCC’s Board—with five governmental and four private sector members—also ensures an outside perspective is included in the highest levels of decision-making. These mechanisms hold the agency accountable for making decisions based on the best evidence of good policy performance and opportunity to reduce poverty and promote economic growth.

2. It’s Built on a Research-Driven Technical and Mathematical Foundation

MCC’s approach to country selection is built on an independent, research-driven, technical, and mathematical foundation. It incorporates a rigorous methodology into how MCC selects independent indicators and how MCC manages data limitations, mathematical characteristics and changes in what and how data is measured over time (including missing data, data lags, distribution, normalizing and comparing different types of data, and changes in scores due to new or revised indicators). The MCC Board uses sound judgment to analyze what the scorecards do, and sometimes don’t, say. They consider supplemental information on a potential partner country’s economic context, investment climate and capacity. 5 And they must consider overall policy performance in a country, the opportunity to reduce poverty through economic growth and prioritize spending.

How MCC Selects Indicators

To find an indicator that is a good fit for MCC’s country selection process, MCC looks for indicators that:

  • are developed by an independent third party;
  • use an analytically rigorous methodology and objective and high-quality data;
  • are publicly available;
  • have broad country coverage;
  • have a clear link to economic growth and poverty reduction;
  • are policy-linked (i.e., measures factors that governments can influence); and
  • have broad consistency in results from year to year.

Reliable and comprehensive development policy data remains scarce. Rarely can an indicator meet all seven criteria. MCC considers the relative strengths and weaknesses of each indicator to select the best proxy for policy performance.

3. It’s Simple, Accessible and Actionable

The MCC scorecards are a distinct and recognizable part of MCC’s selection process. They visually communicate the indicator scores, compare countries’ performance to their income peers, identify policy areas where countries are relatively strong or weak, and identify which countries meet MCC’s selection criteria.

To keep it simple, MCC scorecards focus on just 20 indicators and presents each country’s scores on a single page.

To make it accessible, each of the 20 scorecard boxes corresponds to a policy performance indicator and shows a country’s overall score—with red or green color-coding to indicate whether it passes the scorecard—as well as percentile rank, median, five years of historical data, and a margin of error (when available). The scorecards also include an executive summary of whether the country passes the overall criteria.

Each indicator aims to be actionable, showing clear steps a developing country government can take to influence the scores. While some indicators are more easily influenced than others (such as days to start a business, as opposed to health outcomes), all are intended to be things a government can control and influence.

4. A Credible System Selects—And Removes—Countries

When most people think of country selection, they think about the decision to select a country as eligible for funding. 6 Equally distinct for MCC is the point of exit: the system for suspending or terminating a partnership if the country shows a tangible pattern of actions inconsistent with the eligibility criteria. 7 Just as MCC’s process for selecting countries as eligible for assistance is open and transparent, MCC is committed to being transparent about how and why MCC monitors ongoing country policy performance, the steps it can take with a country to get policies back on track and what conditions trigger a suspension or termination of assistance.

5. It Adapts to Stay Current and Cutting-Edge

Following extensive consultation and input from technical experts across the U.S. Government, multilateral donors, NGOs, and think tanks, MCC’s Board adopted two sets of scorecard changes:

  • In FY 2008, MCC adopted two new indicators to assess natural resource management.
  • In FY 2012, MCC added a democratic rights hard hurdle and adopted three new indicators: freedom of information, access to credit and gender in the economy.

In FY 2012, MCC also changed the requirement that countries pass three indicators per category and instead required countries to pass half the indicators overall.

MCC regularly reviews and thoughtfully considers changes to adapt its selection system and keep it current and cutting-edge. This is absolutely necessary to ensure the system keeps working to select countries, focus on economic growth and poverty reduction and inspire policy reform. MCC’s basic country selection system remains unchanged since its inception; however, MCC’s Board has adopted two sets of changes to incorporate new research and new indicators and keep the same selectivity. The quality of MCC’s approach to country selectivity is integrally linked to the quality of independent, policy performance data. MCC hopes that continuing to use and adapt the MCC scorecard can inspire the creation of more and better data for development decision-making.

Footnotes
  • 1. MCC works with poor countries, defined in MCC’s authorizing legislation as low income and lower middle income countries, based on the World Bank’s GNI per capita estimates (Atlas method).
  • 2. MCC’s Board of Directors consists of five government officials—the Secretary of State, the Secretary of the Treasury, the U.S. Trade Representative, the U.S. Agency for International Development Administrator and MCC’s Chief Executive Officer—and four private sector members appointed by the U.S. President with the advice and consent of the U.S. Senate.
  • 3. In FY2011, the Board selected Georgia for a second compact despite Georgia being one indicator away from meeting the criteria. Georgia failed the immunization rate indicator—and therefore the scorecard—due to a quarter delay in the procurement of the measles vaccine. The Board reviewed evidence that the procurement issue had been resolved and selected Georgia as eligible for assistance.
  • 4. Measuring the Policy Influence of the Millennium Challenge Corporation: A Survey Based Approach, Brad Parks and Zachary J. Rice, College of William and Mary, February 2013, http://www.wm.edu/offices/itpir/_documents/reform-incentives-report-mcc.pdf.
  • 5. The types of supplemental information MCC and its Board takes into consideration are listed in MCC’s Guide to the Supplemental Information Sheet, http://www.mcc.gov/documents/reports/report-2012001121001-fy13-selection-supplemental-info.pdf.
  • 6. MCC’s Board makes annual selection decisions for newly eligible MCC partner countries and for countries that have already been selected as eligible for assistance but are still developing MCC compacts. Once a country has a signed MCC compact, the Board is not required to annually reselect the country.
  • 7. MCC Policy on Suspension and Termination, http://www.mcc.gov/pages/about/policy/policy-on-suspension-and-termination.

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