[Federal Register Volume 74, Number 178 (Wednesday, September 16, 2009)]
[Notices]
[Pages 47620-47623]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-22331]



[[Page 47620]]

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MILLENNIUM CHALLENGE CORPORATION

[MCC FR 09-16]


Report on the Criteria and Methodology for Determining the 
Eligibility of Candidate Countries for Millennium Challenge Account 
Assistance in Fiscal Year 2010

AGENCY: Millennium Challenge Corporation.

ACTION: Notice.

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

    Dated: September 14, 2009.
Henry C. Pitney,
(Acting) Vice President and General Counsel, Millennium Challenge 
Corporation.

Report on the Criteria and Methodology for Determining the Eligibility 
of Candidate Countries for Millennium Challenge Account Assistance in 
Fiscal Year 2010 Summary

    This report to Congress is provided in accordance with section 
608(b) of the Millennium Challenge Act of 2003, as amended, 22 U.S.C. 
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 what countries will be eligible for MCA 
assistance during fiscal year 2010 (FY10) based on the countries' 
demonstrated commitment to just and democratic governance, economic 
freedom, investing in their people, and the opportunity to reduce 
poverty and generate economic growth in the country. 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 FY10 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; 22 U.S.C. 7707(a));
    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 (22 U.S.C. 7706) in order to determine ``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 FY10, 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 FY10 MCA 
assistance.

The Criteria and Methodology for FY10

    MCC reviews all of its indicators and methodology annually 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.
    In response to a request in the Explanatory Statement accompanying 
the 2009 Department of State, Foreign Operations, and Related Programs 
Appropriations Act, MCC considered an indicator that takes into account 
the votes and positions of the countries in international and 
multilateral institutions with respect to human rights; however, MCC's 
current indicator framework already includes three indicators--
Political Rights, Civil Liberties, and Voice and Accountability--that 
measure government commitment to human and democratic rights within 
their own borders. These indicators are better suited for measuring a 
government's commitment to human rights than its voting record, which 
can be influenced by political goals. Thus, such a measure is not a 
good fit for MCC's indicator-based system, as it would potentially 
politicize the country selection process.
    In keeping with MCC's commitment to aid effectiveness through the 
regular evaluation of its own practice, the agency plans to review the 
selection criteria and methodology as a whole in 2010. This will 
include, as a matter of course, consultations with a broad group of 
stakeholders. As a first step, we invite broad participation in the 30-
day public comment period that follows the publication of this report.

Changes to the Criteria and Methodology for FY10

Approach to Country Income Graduation

    Every year, changes in candidate countries' income status 
substantially affect MCC's candidate country pool--some countries 
``graduate'' from one income category to another; low income countries 
(LIC) become reclassified as lower middle income countries (LMIC), and 
LMICs are reclassified as upper middle income countries. Changes in 
economic growth rates, exchange rates, and relative inflation can 
contribute to country graduation, without necessarily representing a 
dramatic or immediate improvement in overall living standards of the 
country's population.
    Because MCC evaluates the relative performance of LICs and LMICs in 
separate income groups, when a country graduates from LIC to LMIC, it 
typically does not meet the higher performance standards in its new 
group, even if it performed relatively well as an LIC, and, in absolute 
terms, maintained or improved performance over the previous year.
    To address the challenges associated with graduating countries that 
have experienced no real change in performance, MCC is adopting an 
approach to income graduation in which a country that graduates from 
LIC to LMIC will have its indicator performance considered both 
relative to its LMIC peers as well as in comparison to the current 
fiscal year's LIC pool for a period of three years. This practice is 
consistent with the flexible, gradual graduation approaches of other 
donor institutions.

Eligibility for Consecutive Compact

    Several of MCC's early compacts are due to conclude within the next 
two years. MCC's experience to date suggests that compact development 
takes approximately 18 months. To maximize benefits of lessons learned 
in the first compact, the Board may determine that certain compact 
countries should be selected as eligible to develop a second compact 
before the completion of their first compact program.
    For FY10, when determining a country's eligibility for a second 
compact, MCC will consider, among other factors, the country's policy 
performance using the selection criteria and methodology outlined in 
this report, the opportunity to reduce poverty and generate economic 
growth in the country, and the country's performance implementing its 
first compact. To assess implementation of a first compact, the MCC 
recommends

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that the Board consider 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 
country has implemented the compact in accordance with MCC's core 
policies and standards.

Criteria and Methodology

    The Board will determine eligible countries based on several 
factors including (i) their overall performance in three broad policy 
categories--Ruling Justly, Encouraging Economic Freedom, and Investing 
in People; and (ii) 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 FY10, there will be two groups of candidate countries--LICs and 
LMICs. LIC candidates refer to those countries that have a per capita 
income equal to or less than $1,855 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 $1,856 and $3,855 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 FY10 assessment methodology under the 
three policy categories listed below.

----------------------------------------------------------------------------------------------------------------
            Ruling justly                 Encouraging economic freedom               Investing in people
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1. Civil Liberties                    1. Inflation                          1. Public Expenditure on Health.
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
                                                                             Measles).
4. Government Effectiveness           4. Trade Policy                       4. Girls' Primary Education
                                                                             Completion.
5. Rule of Law                        5. Regulatory Quality                 5. Natural Resource Management.
6. Control of Corruption              6. Land Rights and Access             ....................................
----------------------------------------------------------------------------------------------------------------

    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 income level peers (LIC or 
LMIC) on at least half of the indicators in the Ruling Justly and 
Encouraging 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.
    Each year a number of countries shift income groups, and some 
countries formerly classified as LICs suddenly face new, higher 
performance standards in the LMIC group. To address the challenges 
associated with sudden changes in criteria for these countries, MCC has 
adopted an approach to income graduation whereby the Board may consider 
the indicator performance of countries that graduated from the LIC to 
the LMIC category in FY10 both relative to their LMIC peers as well as 
in comparison to the current fiscal year's LIC pool for a period of 
three years.
    Consistent with the Act, the indicators will be the predominant 
basis for determining which countries will be eligible for MCA 
assistance. However, the Board may exercise discretion when 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. 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. The Board may also consider whether any 
adjustments should be made for data gaps, lags, trends, or other 
weaknesses in particular indicators. For example, as additional 
information in the area of corruption, the Board may consider how a 
country scores on supplemental sources like Transparency 
International's Corruption Perceptions Index and the Global Integrity 
Index, as well as on the defined indicator.
    Countries nearing the end of compact implementation may be 
considered for eligibility for a second compact. In determining 
eligibility for consecutive compacts, MCC recommends that the Board 
consider, among other factors, the country's policy performance using 
the methodology and criteria described above, the opportunity to reduce 
poverty and generate economic growth in the country, and the country's 
track record of performance implementing its first compact.
    Compact eligible country partners are expected to seek to maintain 
and improve policy performance. MCC recognizes that country partners 
may not meet the 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 signifies a 
significant policy reversal or warrants suspension or termination of 
eligibility and/or assistance. However, countries that demonstrate a 
significant policy reversal may be issued 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 * * *

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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 * * *.'' Because of data lags, this pattern of behavior need not 
be captured in the indicators for MCC to take action.

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 
appear in parentheses below next to the corresponding criterion set out 
in the Act.
    Section 607(b)(1) Just and democratic governance, including a 
demonstrated commitment to:
    1. Promote political pluralism, equality and the rule of law 
(Political Rights, Civil Liberties, Voice and Accountability, and Rule 
of Law);
    2. Respect human and civil rights, including the rights of people 
with disabilities (Political Rights, Civil Liberties, and Voice and 
Accountability);
    3. Protect private property rights (Civil Liberties, Regulatory 
Quality, Rule of Law, and Land Rights and Access);
    4. Encourage transparency and accountability of government 
(Political Rights, Civil Liberties, Voice and Accountability, Control 
of Corruption, Rule of Law, and Government Effectiveness); and
    5. Combat corruption (Political Rights, Civil Liberties, Rule of 
Law, and Control of Corruption).
    Section 607(b)(2): Economic freedom, including a demonstrated 
commitment to economic policies that:
    1. Encourage citizens and firms to participate in global trade and 
international capital markets (Fiscal Policy, Inflation, Trade Policy, 
Business Start-Up, and Regulatory Quality);
    2. Promote private sector growth (Inflation, Business Start-Up, 
Fiscal Policy, Land Rights and Access, and Regulatory Quality);
    3. Strengthen market forces in the economy (Fiscal Policy, 
Inflation, Trade Policy, Business Start-Up, Land Rights and Access, and 
Regulatory Quality); and
    4. Respect worker rights, including the right to form labor unions 
(Civil Liberties and Voice and Accountability).
    Section 607(b)(3): Investments in the people of such country, 
particularly women and children, including programs that:
    1. Promote broad-based primary education (Girls' Primary Education 
Completion and Public Expenditure on Primary Education);
    2. Strengthen and build capacity to provide quality public health 
and reduce child mortality (Immunization Rates, Public Expenditure on 
Health, and Natural Resource Management); and
    3. Promote the protection of biodiversity and the transparent and 
sustainable management and use of natural resources (Natural Resource 
Management).

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 (i) relationship to 
economic growth and poverty reduction, (ii) the number of countries 
they cover, (iii) transparency and availability, and (iv) 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/expert assessments 
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/expert assessments 
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/expert assessments 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/expert assessments 
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 average annual change in consumer 
prices. Source: The International Monetary Fund's World Economic 
Outlook 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 database.
    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

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rates and non-tariff barriers to trade. Source: The Heritage 
Foundation.
    5. Regulatory Quality: An index of surveys/expert assessments 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 rural areas and the 
time and cost of property registration in urban and peri-urban areas. 
Source: The International Fund for Agricultural Development 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.
    2. Immunization Rates: The average of DPT3 and measles immunization 
rates for the most recent year available. Source: The World Health 
Organization.
    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 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.
    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 and the Yale Center 
for Environmental Law and Policy.

[FR Doc. E9-22331 Filed 9-15-09; 8:45 am]
BILLING CODE 9211-03-P