[Federal Register Volume 69, Number 44 (Friday, March 5, 2004)]
[Notices]
[Pages 10497-10500]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-4993]


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DEPARTMENT OF STATE

[Public Notice 4646]


The Department of State on Behalf of the Millennium Challenge 
Corporation, Section 608(b), Public Law 108-199 (Division D); MCC FR 
04-3: Report on the Criteria and Methodology for Determining the 
Eligibility of Candidate Countries for Millennium Challenge Account 
Assistance in FY 2004

AGENCY: State Department.

SUMMARY: The Millennium Challenge Act of 2003, Public Law 108-199 
(Division D) (the ``Act'') authorizes the provision of 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

[[Page 10498]]

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, 
will be eligible countries for Millennium Challenge Account (MCA) 
assistance during Fiscal Year 2004. These steps include the publication 
of notices in the Federal Register that identify:
    1. The ``candidate countries'' for MCA assistance (section 608(a) 
of the Act);
    2. The eligibility criteria and methodology that will be used to 
choose ``eligible countries'' from among the ``candidate countries'' 
(section 608(b) of the Act); and
    3. The countries determined by the Board of Directors of the 
Millennium Challenge Corporation to be ``eligible countries'' for FY 
2004 and identify the countries on the list of eligible countries with 
which the Board will seek to enter into compacts (section 608 (d) of 
the Act).
    This notice is the second of the three required notices listed 
above.

DATES: For a 30-day period beginning on March 5, 2004, the Millennium 
Challenge Corporation will accept public comment on the eligibility 
criteria and methodology contained in the report and will consider such 
comment for purposes of determining eligible countries.

ADDRESSES: Submit public comments electronically to [email protected] or 
in writing addressed to: Public Comment, Millennium Challenge 
Corporation, 1000 Wilson Boulevard, Suite 1411, Arlington, VA 22209.

SUPPLEMENTARY INFORMATION: Report on the criteria and methodology for 
determining the eligibility of candidate countries for Millennium 
Challenge Account assistance in FY 2004.

Summary

    This report is provided in accordance with section 608(b) of the 
Millennium Challenge Act of 2003, Pub. L. 108-199, Division D (the 
``Act'').
    The Act authorizes the provision of assistance to countries that 
enter into compacts with the United States to support policies and 
programs that advance the prospects of such countries to achieve 
lasting economic growth and poverty reduction. The Act requires the 
Millennium Challenge Corporation (MCC) to take a number of steps to 
determine the countries that, based on their demonstrated commitment to 
just and democratic governance, economic freedom and investing in their 
people, will be eligible to receive Millennium Challenge Account (MCA) 
assistance during a fiscal year. These steps include the submission of 
reports to appropriate congressional committees and the publication of 
notices in the Federal Register that identify:
    1. The ``candidate countries'' for MCA assistance (section 608(a) 
of the Act);
    2. The eligibility criteria and methodology that the MCC Board of 
Directors (the ``Board'') will use to select ``eligible countries'' 
from among the ``candidate countries'' (section 608(b) of the Act); and
    3. The countries determined by the Board to be ``eligible 
countries'' for a fiscal year and the countries on the list of eligible 
countries with which 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 FY 2004.

Methodology

    The Board will select eligible countries based on their overall 
performance in relation to their peers in three broad policy 
categories: ruling justly, encouraging economic freedom, and investing 
in people. 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 FY 2004, candidate 
countries are those countries that are eligible for assistance from the 
International Development Association, have a per capita income equal 
to or less than $1415, and are not ineligible to receive United States 
economic assistance.
    The Board will make use of 16 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 assessment methodology under the three 
policy categories as follows:

------------------------------------------------------------------------
                              Encouraging economic
        Ruling justly                freedom         Investing in people
------------------------------------------------------------------------
1. Civil Liberties..........  1. Country Credit     1. Public
                               Rating.               Expenditures on
                                                     Health as Percent
                                                     of GDP.
2. Political Rights.........  2. 1-year Consumer    ....................
                               Price Inflation.
3. Voice and Accountability.  3. Fiscal Policy....  2. Immunization
                                                     Rates: DPT3 and
                                                     Measles.
4. Government...............  4. Trade Policy.....  3. Public Primary
                                                     Education Spending
                                                     as Percent of GDP.
5. Rule of Law..............  5. Regulatory         ....................
                               Quality.
6. Control of Corruption....  6. Days to Start a    4. Primary Education
                               Business.             Completion Rate.
------------------------------------------------------------------------

    In making its determination of eligibility with respect to a 
particular candidate country, the Board will consider whether such 
country performs above the median in relation to its peers on at least 
half of the indicators in each of the three policy categories and above 
the median on the corruption indicator. One exception to these relative 
comparisons is inflation, for which a country needs to pass an absolute 
test of having an inflation rate under 20%.
    The indicators 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 and 
translating the indicators into a final list of eligible countries. In 
this respect, the Board may also consider whether any adjustments 
should be made for data gaps, lags, trends, or other weaknesses in 
particular indicators. Likewise, the Board may deem a country 
ineligible if it performs substantially below average on any indicator 
and has not taken appropriate measures to address this shortcoming.
    Where necessary, the Board may also take into account other data 
and quantitative information as well as qualitative information to 
determine whether a country performed satisfactorily in relation to its 
peers in a given category. As provided in the Act, the CEO's report to 
Congress setting out the list of eligible countries and which of those 
countries the MCC will seek to enter into Compact negotiations will 
include a justification for such eligibility determinations and 
selections for Compact negotiation.
    There are elements of the criteria set out in the Act for which 
there is either limited quantitative information (e.g.,

[[Page 10499]]

rights of people with disabilities) or no well-developed performance 
indicator (e.g., sustainable management of natural resources). Until 
such data and/or indicators are developed, in assessing performance in 
these areas the Board may rely on supplemental data and qualitative 
information such as:
     Ruling Justly: 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, worker rights, 
and human rights. As additional information, the Board may also 
consider how the country scores on Transparency International's 
Corruption Perceptions Index.
     Economic Freedom: The Board's assessment of a 
country's commitment to economic policies that promote private sector 
growth and the sustainable management of natural resources may make use 
of quantitative and qualitative information such as access to 
sanitation, deforestation, conservation of land and marine resources, 
land tenure institutions, and protection of threatened and endangered 
species. The MCC will consult with experts and work to refine this 
approach over time.
     Investing in People: Both the level and the 
trend in girls' primary enrollment rates may be considered as extra 
information to assess a country's commitment to Investing in People.

Relationship to Legislative Criteria

    Within each policy category, the Act sets out a number of specific 
criteria. A set of objective and quantifiable indicators is being used 
to establish eligibility 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 16 objective indicators and 
most are addressed by multiple indicators.
    Section 607(b)(1): Just and democratic governance, including a 
demonstrated commitment to--
    (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 and Civil Liberties.
    (C) Protect private property rights; Indicators--Civil Liberties, 
Regulatory Quality and Rule of Law.
    (D) Encourage transparency and accountability of government; and 
Indicators--Political Rights, Civil Liberties, Voice and 
Accountability, and Government Effectiveness.
    (E) Combat corruption; Indicators--Civil Liberties and Control of 
Corruption.
    Where necessary the Board will also draw on supplemental data and 
qualitative information including: the State Department's Human Rights 
Report and Transparency International Corruption Perception's Index.
    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--Country Credit Rating, 
Fiscal Policy, Inflation, Trade Policy, and Regulatory Quality.
    (B) Promote private sector growth and the sustainable management of 
natural resources; Indicators--Inflation, Days to Start a Business, 
Fiscal Policy, and Regulatory Quality.
    (C) Strengthen market forces in the economy; and Indicators--Fiscal 
Policy, Inflation, and Regulatory Quality.
    (D) Respect worker rights, including the right to form labor 
unions; and Indicators--Civil Liberties.
    Where necessary the Board will also draw on supplemental data and 
qualitative information including: the State Department's Human Rights 
Report, access to sanitation, deforestation, conservation of land and 
marine resources, land tenure institutions, and protection of 
threatened and endangered species.
    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 Indicators--Primary 
Education Completion Rate and Public Spending on Primary Education.
    (B) Strengthen and build capacity to provide quality public health 
and reduce child mortality. Indicators--Immunization and Public 
Spending on Health.
    Where necessary the Board will also draw on supplemental data and 
qualitative information including: the State Department's Human Rights 
Report and Girl's Primary Enrollment Rate.

Annex A: Indicator Definitions

    The following 16 indicators will be used to measure candidate 
countries' adherence 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 thus provide a sound environment 
for the use of MCA funds. The indicators are not goals in themselves; 
rather they measure policies that are necessary conditions for a 
country to achieve broad-based sustainable economic growth. The 
indicators were selected based on their relationship to growth and 
poverty reduction, the number of countries they cover, their 
transparency and availability, and their relative soundness and 
objectivity. Where possible, the indicators rely on indices of 
performance 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: 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 services' 
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 rules of 
society; incidence of violent and non-violent crime; effectiveness 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

[[Page 10500]]

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) Country Credit Rating: A semi-annual survey of bankers' and 
fund managers' perceptions of a country's risk of default. Source: 
Institutional Investor Magazine.
    (2) 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: Multiple.
    (3) Fiscal Policy: The overall budget deficit divided by GDP, 
averaged over a three-year period. The data for this measure is being 
provided directly by the recipient government and will be cross checked 
with other sources and made publicly available to try to ensure 
consistency across countries. Source: National Governments.
    (4) Days To Start a Business: The Private Sector Advisory Service 
of the World Bank Group works with local lawyers and other 
professionals to examine specific regulations that impact business 
investment. One of their studies measures how many days it takes to 
open a new business. Source: World Bank.
    (5) Trade Policy: A measure of a country's openness to 
international trade based on average tariff rates and non-tariff 
barriers to trade. Source: The Heritage Foundation's Index of Economic 
Freedom.
    (6) Regulatory Quality Rating: 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.

Investing in People

    (1) Public Expenditure on Health: Total expenditures by government 
at all levels on health divided by GDP. Source: National Governments.
    (2) Immunization: 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 by government at all levels on primary education divided 
by GDP. Source: National Governments.
    (4) Primary Completion Rate: The number of students completing 
primary education divided by the population in the relevant age cohort. 
Source: World Bank and UNESCO.

    Dated: March 2, 2004.
Alan Larson,
Interim Chief Executive Officer, Millennium Challenge Corporation, 
Department of State.
[FR Doc. 04-4993 Filed 3-4-04; 8:45 am]
BILLING CODE 4710-07-P