[Federal Register Volume 69, Number 168 (Tuesday, August 31, 2004)]
[Notices]
[Pages 53090-53093]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-19859]


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MILLENNIUM CHALLENGE CORPORATION

[MCC FR 04-09]


Report on the Criteria and Methodology for Determining the 
Eligibility of Candidate Countries for Millennium Challenge Account 
Assistance in FY 2005

AGENCY: Millennium Challenge Corporation.
SUMMARY: The Millennium Challenge Act of 2003, 22 U.S.C.A. 7701, 
7707(b) (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 growth and poverty reduction. The Act 
requires the Millennium Challenge Corporation 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 2005. 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 
Fiscal Year 2005 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.
    Public Comment: For a thirty-day period beginning on the date of 
publication of this notice in the Federal Register, 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.

FOR FURTHER INFORMATION CONTACT: Public comments should be submitted 
through the MCC Web site at http://www.mcc.gov or in writing addressed 
to: Public Comment, Millennium Challenge Corporation, 1000 Wilson 
Boulevard, Suite 1411, Arlington, VA 22209.
    Report: Report on the Criteria and Methodology for Determining the 
Eligibility of Candidate Countries for Millennium Challenge Account 
Assistance in FY 2005.
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 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 for MCA assistance during Fiscal Year 2005. 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 identify:
    1. The countries that are ``candidate countries'' for MCA 
assistance during

[[Page 53091]]

Fiscal Year 2005 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 legal prohibitions on assistance 
(section 608(a) of the Act);
    2. The criteria and methodology that the Board of Directors of the 
Millennium Challenge Corporation (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 ``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 ``eligible 
countries'' for Fiscal Year 2005, including which of the 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 FY 2005 MCA assistance.

Changes to the Criteria and Methodology for FY 2005

    MCC has received constructive input on the indicators since the 
announcement of FY 2004's selection criteria and methodology. That 
input has been taken into account in creating the criteria and 
methodology for the selection of eligible countries for FY05. Since the 
selection process for FY05 falls soon after the FY04 selection process, 
MCC will not make far-reaching changes this year, as continuity is a 
vital concept to the selection methodology. In addition, more time is 
necessary to fully evaluate some potential changes, including the use 
of additional or different policy indicators. This section describes 
two changes in the policy indicators for the FY05 selection process. 
This section also outlines some potential changes to the indicators 
that will be explored for the FY06 process, in order to solicit 
comments from the public and to provide countries an opportunity to 
evaluate their performance in these areas prior to the possible 
implementation of more substantial changes.
    We hope that by highlighting our intention to look for better and 
more comprehensive indicators we will stimulate interest in improving 
the available data. In assessing new indicators, we will favor those 
that: (1) Are developed by an independent third party, (2) utilize 
objective and high-quality data, (3) are analytically rigorous and 
publicly available, (4) have broad country-coverage and are comparable 
across countries, (5) have a clear theoretical or empirical link to 
economic growth and poverty reduction, (6) are policy-linked, i.e., 
measure factors that governments can influence within a two to three 
year horizon, and (7) have broad consistency in results from year to 
year.
    A summary of the changes (and potential future changes) to the 
selection criteria and methodology follows:

Economic Freedom

    Inflation: A new inflation rate of 15 percent will be used in FY05 
(down from the 20 percent rate used in FY04), making it slightly more 
difficult to pass and a more meaningful test of a country's economic 
policies. MCC intends to consider a further reduction to 10 percent for 
FY06.
    Management of Natural Resources: As indicated in the FY04 report to 
Congress, MCC has been working with experts both inside and outside of 
government to explore possible better measures in this area. MCC has 
not yet identified a source of reliable, consistent data for assessing 
the quality of a country's policies regarding the management of natural 
resources. In order to identify an existing natural resources 
management indicator or to stimulate development of a new indicator, 
MCC intends to establish a working group, chaired by MCC Board Member 
Christine Todd Whitman, to work with outside groups and experts to 
establish criteria, and invite proposals, for such an indicator. 
Pending the results of this work, the Board will rely on the 
assessments described in the ``Criteria and Methodology'' section below 
for the FY05 selection process.
    Trade Policy: The Trade Policy indicator is viewed by MCC as 
valuable and no changes will be made for the FY05 selection process. 
MCC intends, however, to conduct a thorough review over the next year 
to explore whether a measure of trade barriers more closely linked to 
growth is available.
    Entrepreneurial Environment: The Days to Start a Business indicator 
is viewed by MCC as a valuable indicator of barriers to 
entrepreneurship. In the future, MCC would like to move towards a more 
comprehensive measure of a country's policies with respect to 
encouraging entrepreneurship and private-sector ownership. As such, in 
addition to continuing to use the Days to Start a Business indicator, 
in the coming year MCC will be investigating the use of related 
indicators, such as costs of starting businesses, time and costs of 
enforcing contracts, time and costs of land registration, protection of 
property rights, and the private sector's share of the economy.
    Investing in People: MCC has evaluated the indicators in the 
Investing in People category and will substitute one indicator for 
FY05.
    Girls' Primary Completion Rates: In FY05, we have substituted 
Girl's Primary Completion Rates for Primary Completion Rates. We 
believe that using completion rate data disaggregated by gender both 
continues MCC's focus on the importance of countries investing in the 
education of their people while better highlighting the importance of 
the well-being of women and girls as contributors to a country's 
economic growth and poverty reduction.
    MCC will continue to explore additional ways to measure investments 
in people, particularly with respect to women and children, and 
anticipates additional changes in FY06. MCC has, in conjunction with 
outside experts, researched possible indicators measuring investments 
in women's health, children's heath, girls' education, and public 
health. We have identified several possible indicators, including 
Skilled Attendants at Birth (a proxy for maternal mortality which 
measures births attended by medically-trained midwifes, nurses or 
doctors), which will be considered more closely for potential use in 
FY06.

Criteria and 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 2005, candidate 
countries are those countries that have a per capita income equal to or 
less than $1465, and are not ineligible to receive United States 
economic assistance.
    The Board will make use of sixteen 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:

Ruling Justly

1. Civil Liberties
2. Political Rights
3. Voice and Accountability
4. Government Effectiveness
5. Rule of Law

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6. Control of Corruption

Encouraging Economic Freedom

1. Country Credit Rating
2. 1-year Consumer Price Inflation
3. Fiscal Policy
4. Trade Policy
5. Regulatory Quality
6. Days to Start a Business

Investing in People

1. Public Expenditures on Health as Percent of GDP
2. Immunization Rates: DPT3 and Measles
3. Public Primary Education Spending as Percent of GDP
4. Girls Primary Education 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 this 
methodology is that the median is not used for the inflation indicator. 
Instead, to pass the indicator, a country's inflation rate needs to be 
under a fixed ceiling of 15%. 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., 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. 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, worker rights, and 
human rights. Similarly, as additional information in the area of 
corruption, the Board may also consider how the country scores on 
Transparency International's Corruption Perceptions Index.
    The Board's assessment of a country's commitment to economic 
policies that promote 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 continue to consult with experts and 
work to refine this approach over time, including by creating a working 
group that will establish and make public criteria for the indicator 
and continue to explore existing data with the objective of finding a 
suitable indicator.

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 being 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 sixteen objective indicators. Most are 
addressed by multiple indicators. The specific indicators used to 
measure each of the criteria set out in the Act are as follows:
    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--Girls' 
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.

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

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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 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 and IMF WEO.
    (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) Girls' Primary Completion Rate: The number of female students 
completing primary education divided by the population in the relevant 
age cohort. Source: World Bank and UNESCO.

    Dated: August 26, 2004.
Paul V. Applegarth,
Chief Executive Officer, Millennium Challenge Corporation.
[FR Doc. 04-19859 Filed 8-30-04; 8:45 am]
BILLING CODE 9210-01-P