The Millennium Challenge Corp. works with countries committed to good policy performance as determined by the MCC Board of Directors, which consists of five government officials–the Secretary of State, Secretary of the Treasury, U.S. Trade Representative, USAID Administrator and MCC’s Chief Executive Officer–and four non-governmental members appointed by the President with the advice and consent of the U.S. Senate.
Each year, the Board uses an evidence-based decision making process to select countries as eligible to develop a proposal for MCC assistance. To help guide this process, MCC uses a “scorecard” of transparent, objective criteria to evaluate potential partner countries based largely on how they perform on 20 third-party, publicly available policy performance indicators. The indicators are made up of verifiable sources and are used to identify countries with policy environments that will allow MCC funding to be effective. The indicators serve as best available proxy evaluators of policy performance in three areas—Ruling Justly, Investing in People, and Encouraging Economic Freedom. Every November, MCC releases its annual scorebook, which lists how low income and low middle income countries performed on the 20 indicators.
When choosing country partners, the Board, by law, also takes into consideration the opportunity to reduce poverty and generate economic growth as well as funds available to MCC. When considering if a country should be eligible for a subsequent compact, the Board also looks at that country’s record implementing its first compact.
MCC’s annual country scorecards play a key role in the selection process, helping identify a country’s commitment to policy reform and good governance relative to its income peers. In addition, the Board considers whether any adjustments should be made for data gaps, data lags, or recent events since the indicators were published, as well as strengths or weaknesses in particular indicators. Where appropriate, the Board will take into account additional quantitative and qualitative information, such as evidence of a country’s commitment to fighting corruption, investments in human development outcomes, or poverty rates. The types of supplemental data and lists of sources can be found on the MCC website. 1
For example, because fighting corruption is key to increasing economic growth, the Board may consider how a country is evaluated by supplemental sources such as Transparency International’s Corruption Perceptions Index, the Global Integrity Report, Open Government Partnership status, and the Extractive Industry Transparency Initiative, among others, in addition to the Control of Corruption indicator.
A key consideration for the Board is a potential partner country’s investment climate, and therefore the Board may consider supplemental information from public sources such as International Finance Corporation’s Investment Climate and Doing Business indicators; firm perceptions of constraints to business (World Economic Forum’s Global Competitiveness Report); net inflows of Foreign Direct Investment; and the percentage of the economy in the informal sector supplied by the International Finance Corporation, International Monetary Fund and World Bank.
When weighing factors that could impact a compact’s development or implementation of a compact the Board may also turn to the State Department’s Trafficking in Persons Report; Freedom House’s Countries at the Crossroads Report; the Economist Intelligence Unit; the Open Budget Index; World Bank reports on refugees; the Cingranelli-Richards Human Rights Database; and the State Department Human Rights Report.
If MCC has not worked with a country before, the Board may look to supplemental information to determine if that country has the capacity to develop or implement a compact. Information such as the percentage of World Bank projects reported as “at risk” due to delays; poor legal compliance; poor project management or financial performance; shortage of counterpart funds; procurement problems; environmental/resettlement problems; the Bertelsmann Foundation’s assessment of political leadership’s management of reform; the World Bank indicator of statistical practice, data collection and indicator availability; the IDA or regional development bank’s assessment of policy/institutional factors and a country’s capacity for dialogue with rural populations and civil society as measured by the International Fund for Agricultural Development and Bertelsmann Foundation.
MCC’s founding legislation permits MCC to enter into one or more subsequent compacts, after completing a first compact. While this provision recognizes the reality that for poor countries, even the ones with the right policies in place, it takes decades of sustained growth to lift citizens out of poverty, MCC’s relationship with countries is not and should not be open-ended. MCC’s Board is particularly selective when determining eligibility for subsequent compacts. Of the fourteen countries that concluded compacts by the end of 2013, MCC’s Board has only selected seven as eligible for a subsequent compact (Benin, Cape Verde, Georgia, Ghana, Lesotho, Morocco, Tanzania). In those cases, subsequent compacts were determined to play a pivotal role in the ability to reduce poverty, promote economic growth and provide opportunities for MCC and partner countries to explore more innovative approaches, including ways to leverage additional country resources as well as potential private sector investment.
In addition to good policy performance, countries must show meaningful progress toward achieving first compact results before being considered for a subsequent compact. To assess implementation of a prior compact, the Board considers the nature of the country partnership with MCC, the degree to which the country has demonstrated a commitment and capacity to achieve program results, and the degree to which the county has implemented the compact in accordance with MCC’s core policies and standards. Details of how MCC measures implementation are outlined in MCC’s Guide to the Indicators and the Selection Process, and the Guide to the Supplemental Information Sheet. 2
Addressing Changes in Scorecard Performance
If, in a given year, a country in compact development does not pass the scorecard, MCC analyzes why the scorecard data changed, whether the changes can be connected to policy actions on the part of the government, and what the partner government is doing to address the issue. MCC also engages with that country to determine what steps the country is taking to improve policy performance. If relevant, MCC may request a plan of action to address the specific policy issues identified by the scorecard. This gives the country an opportunity to demonstrate to MCC’s leadership and Board of Directors that it is actively working to meet the eligibility criteria and demonstrate progress.
In some cases, the Board has decided to reselect countries that no longer pass the scorecard. This is because using cross national data sets means there are a number of mechanical reasons that countries may occasionally not pass the scorecard criteria. For example, countries that graduate from low income to the lower middle income category face increased competition on the indicators, which can result in them doing less well on the scorecard even if their actual performance has not worsened. However, MCC has also repeatedly demonstrated that it is willing to suspend or terminate country partnerships where poor performance or weakness on the scorecard is driven by meaningful policy declines.
Suspension from Compact Eligibility
Even after the MCC board has selected a country as eligible for compact assistance, MCC regularly reviews its partner countries’ policy performance throughout the development and implementation period of a compact. As part of this review, MCC may engage in a policy dialogue with partner countries, coordinating with U.S. government colleagues at the State Department, USAID, OPIC, USTR, Commerce and U.S. embassies regarding the country’s commitment and adherence to the MCC selection criteria. MCC also seeks input from non-governmental actors in Washington and in partner countries.
Because MCC assistance is conditioned on demonstrated good policy performance and MCC expects partner countries to be responsible for compact implementation and results, MCC can and will suspend or terminate MCA assistance before a compact is complete. The ability to “say no” to a country distinguishes MCC from many other bilateral and multilateral aid programs.
According to MCC’s statute, a country may have its eligibility or assistance suspended or terminated if the country has engaged in activities contrary to the national security interests of the United States; engaged in a pattern of actions inconsistent with MCC’s eligibility criteria; or failed to adhere to its responsibilities under an MCC compact agreement. MCC’s Board terminated two compacts—with Madagascar and Mali—following military coups in each country. The Board has also suspended portions of other compacts in every region. MCC’s Policy on Suspension and Termination describes the process and procedures that MCC follows. 3