[Federal Register Volume 75, Number 191 (Monday, October 4, 2010)]
[Notices]
[Pages 61216-61219]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-24727]


-----------------------------------------------------------------------

MILLENNIUM CHALLENGE CORPORATION

[MCC FR 10-12]


Report on the Selection of Eligible Countries for Fiscal Year 
2011

AGENCY: Millennium Challenge Corporation.

ACTION: Notice.

-----------------------------------------------------------------------

SUMMARY: This report is provided in accordance with section 608(d)(1) 
of the Millennium Challenge Act of 2003, Public Law 108-199, Division 
D, (the ``Act''), 22 U.S.C. 7708(d)(1).

    Dated: September 28, 2010.
Melvin F. Williams, Jr.,
VP/General Counsel and Corporate Secretary, Millennium Challenge 
Corporation.

Report on the Criteria and Methodology for Determining the Eligibility 
of Candidate Countries for Millennium Challenge Account Assistance for 
Fiscal Year 2011

    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 a Millennium Challenge 
Compact 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 selected as eligible for MCA compact assistance for 
fiscal year 2011 (FY11) based on the countries' demonstrated commitment 
to just and democratic governance, economic freedom, and investing in 
their people, as well as MCC's 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 publication of notices in the Federal Register that identify:
    The countries that are ``candidate countries'' for MCA assistance 
for FY11 based on their per capita income levels and their eligibility 
to receive assistance under U.S. law. This report also identifies 
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));
    The criteria and methodology that MCC's Board of Directors (Board) 
will use to measure and evaluate the 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
    The list of countries determined by the Board to be ``MCA eligible 
countries'' for FY11, with justification for eligibility determination 
and selection for compact negotiation, including with which of the MCA 
eligible countries the Board will seek to enter into MCA compacts 
(section 608(d) of the Act).
    This report is the second of the three required reports listed 
above.

Criteria and Methodology for FY11

    The Board will base its selection of eligible countries on several 
factors including:
    The country's overall performance in three broad policy 
categories--Ruling Justly, Encouraging Economic Freedom, and Investing 
in People; MCC's opportunity to reduce poverty and generate economic 
growth in a country; and Availability of funds to MCC.
Performance of Policy Categories
    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 FY11, there will be two groups of 
candidate countries--low income countries (LIC) and lower middle income 
countries (LMIC). As outlined in MCC's Report on Countries that are 
Candidate Countries for Millennium Challenge Account Eligibility for 
Fiscal Year 2011 and Countries that would be Candidates but or Legal 
Prohibitions (August 2010), LIC candidates are those countries that 
have a per capita income equal to or less than $1,905 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 Assistant Act or any other provision of law. 
LMIC candidates are those countries that have a per capita income 
between $1,906 and $3,945 and are not ineligible to receive United 
States economic assistance under the same stipulations.
    The Board uses seventeen indicators to assess the policy 
performance of individual countries (specific definitions of the 
indicators and their sources are set out in the attached Annex A). 
These indicators are grouped for purposes of the FY11 assessment 
methodology under the three policy categories listed below.

Ruling Justly

Civil Liberties
Political Rights
Voice and Accountability
Government Effectiveness
Rule of Law
Control of Corruption

Encouraging Economic Freedom

Inflation
Fiscal Policy
Business Start-up
Trade Policy
Regulatory Quality
Land Rights Access

Investing in People

Public Expenditure on Health
Public Expenditure on Primary Education
Immunization Rates
Girls' Primary Education Completion
Natural Resource Management
    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 three of the indicators in each of the Ruling Justly, 
Encouraging Economic Freedom, and Investing in People categories, 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 must be under a fixed ceiling of 15 percent. The Board 
may also take into consideration whether a country performs 
substantially below the median on any indicator (i.e., below the 25th 
percentile) and has not taken appropriate measures to address this 
shortcoming.

Approach to Income Classification Transition

    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. As a result, they typically 
perform relatively worse as an LMIC, even if they performed relatively 
well as an LIC, and maintained or improved performance over the 
previous year in absolute terms. To address the challenges associated 
with sudden changes in performance standards for these countries, MCC 
has adopted an approach to income category

[[Page 61217]]

transition whereby the Board may consider the indicator performance of 
countries that transitioned from the LIC to the LMIC category 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.

Supplemental Information

    While the indicators are the predominant basis for determining 
which countries will be eligible for MCA assistance, it is consistent 
with the Act for the Board to exercise discretion when evaluating 
performance on the indicators and determining a final list of eligible 
countries. The Board may 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 
income category. Such supplemental information is important because 
there are elements of the eligibility criteria set out in the Act for 
which there is either limited quantitative information (e.g., the 
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.
    Supplemental information is also important because it makes up for 
data gaps, lags, trends, or other weaknesses in particular indicators. 
For example, the median score (and passing threshold) for the Girls' 
Primary Education Completion indicator in the LMIC group has 
historically been very high. Recognizing that this may pose limitations 
on the indicator's ability to meaningfully differentiate policy 
performance, the Board may consider that a girls' primary education 
completion rate above 95 percent essentially represents full 
completion, regardless of where the median score for this indicator 
falls. As additional information in the area of corruption, the Board 
may consider how a country is evaluated by supplemental sources like 
Transparency International's Corruption Perceptions Index and the 
Global Integrity Report, among others, as well as on the defined 
indicator.

Consideration for Subsequent Compacts

    Countries nearing the end of compact implementation may be 
considered for eligibility for a second compact. In determining 
eligibility for a second compact, the Board will consider, among other 
factors, the country's policy performance using the methodology and 
criteria described above and the country's track record of performance 
implementing its first compact. To assess implementation of a first 
compact, the Board will 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 policies 
and standards.

Continuing Policy Performance

    Partner countries that are developing or implementing a compact are 
expected to seek to maintain and improve policy performance. MCC 
recognizes that partner countries may not meet the indicator criteria 
from time to time due to a number of factors, such as changes in the 
peer-group median; transition into a new income category (e.g., from 
LIC to LMIC); numerical declines in score that are within the 
statistical 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 in measuring performance. 
None of these factors alone signifies a significant policy reversal or 
warrants suspension or termination of eligibility and/or assistance.
    However, MCC may issue a warning, suspension, or termination of 
eligibility and/or assistance to countries that demonstrate a 
significant policy reversal. 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 * * * 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 actions need not be captured in the indicators for MCC 
to take action.

Consideration of Changes to the Criteria and Methodology

    For FY11, there are no changes to the core criteria or methodology 
used in FY10.
    In keeping with MCC's commitment to aid effectiveness through 
regular evaluation of its own practice, MCC is undertaking a 
comprehensive review of its country selection process. At the time the 
selection system was established, MCC's country scorecard represented 
the most effective way to use third-party data to compare policy 
performance as objectively as possible across the broad majority of low 
and lower middle income countries. After using this system for six 
years, MCC believes it is appropriate to undertake a review to ensure 
that the most effective indicator system is being used to evaluate and 
select countries for eligibility. While the review may find that MCC 
should make no changes to the selection system, it may, alternatively, 
identify recommended adjustments. Any such adjustments could be 
implemented as part of the fiscal year 2012 selection process.
    The selection review is in its early stages and planned to extend 
through mid-2011. The review will include consultations with a broad 
range of stakeholders and experts in the development community. As a 
first step, MCC encourages broad participation in the formal public 
comment period that follows the publication of this report and lasts 
until December 15.

Relationship to Statutory 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 in determining eligibility for 
MCA assistance and in measuring the relative performance by candidate 
countries against these criteria. Performance against each of these 
criteria is assessed by at least one of the seventeen objective 
indicators and some criteria are addressed by multiple indicators. The 
following list of the criteria set forth in the Act identifies in 
parentheses the corresponding indicators.

Section 607(b)(1): Just and democratic governance, including a 
demonstrated commitment to--

    (A) Promote political pluralism, equality and the rule of law 
(Political Rights, Civil Liberties, Voice and Accountability, and Rule 
of Law);
    (B) Respect human and civil rights, including the rights of people 
with disabilities (Political Rights, Civil Liberties, and Voice and 
Accountability);
    (C) Protect private property rights (Civil Liberties, Regulatory 
Quality, Rule of Law, and Land Rights and Access);
    (D) Encourage transparency and accountability of government 
(Political Rights, Civil Liberties, Voice and Accountability, Control 
of Corruption, Rule of Law, and Government Effectiveness); and

[[Page 61218]]

    (E) 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--

    (A) Encourage citizens and firms to participate in global trade and 
international capital markets (Fiscal Policy, Inflation, Trade Policy, 
and Regulatory Quality);
    (B) Promote private sector growth (Inflation, Business Start-Up, 
Fiscal Policy, Land Rights and Access, and Regulatory Quality);
    (C) Strengthen market forces in the economy (Fiscal Policy, 
Inflation, Trade Policy, Business Start-Up, Land Rights and Access, and 
Regulatory Quality); and
    (D) 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--

    (A) Promote broad-based primary education (Girls' Primary Education 
Completion and Public Expenditure on Primary Education);
    (B) Strengthen and build capacity to provide quality public health 
and reduce child mortality (Immunization Rates, Public Expenditure on 
Health, and Natural Resource Management); and
    (C) Promote the protection of biodiversity and the transparent and 
sustainable management and use of natural resources (Natural Resource 
Management).

Annex A

Indicator Definitions

    The following 17 indicators will be used in measuring candidate 
countries' demonstrated commitment to the criteria set forth 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 are proxy 
measures of 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

    Civil Liberties: Independent experts rate countries on: Freedom of 
expression; association and organizational rights; rule of law and 
human rights; and personal autonomy and economic rights, among other 
things. Source: Freedom House.
    Political Rights: Independent experts rate 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, among other things. 
Source: Freedom House.
    Voice and Accountability: An index of surveys and expert 
assessments that rate 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, among other things. Source: Worldwide 
Governance Indicators (World Bank/Brookings Institution).
    Government Effectiveness: An index of surveys and expert 
assessments that rate 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, among other things. Source: Worldwide Governance Indicators 
(World Bank/Brookings Institution).
    Rule of Law: An index of surveys and expert assessments that rate 
countries on: The extent to which the public has confidence in and 
abides by the rules of society; the incidence and impact of violent and 
nonviolent crime; the effectiveness, independence, and predictability 
of the judiciary; the protection of property rights; and the 
enforceability of contracts, among other things. Source: Worldwide 
Governance Indicators (World Bank/Brookings Institution).
    Control of Corruption: An index of surveys and expert assessments 
that rate countries on: ``Grand corruption'' in the political arena; 
the frequency of petty corruption; the effects of corruption on the 
business environment; and the tendency of elites to engage in ``state 
capture,'' among other things. Source: Worldwide Governance Indicators 
(World Bank/Brookings Institution).

Encouraging Economic Freedom

    Inflation: The most recent average annual change in consumer 
prices. Source: The International Monetary Fund's World Economic 
Outlook Database.
    Fiscal Policy: The overall budget balance divided by GDP, averaged 
over a three-year period. The data for this measure come primarily from 
IMF country reports or, where public IMF data are outdated or 
unavailable, are provided directly by the recipient government with 
input from U.S. missions in host countries. All data are 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.
    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.
    Trade Policy: A measure of a country's openness to international 
trade based on weighted average tariff rates and non-tariff barriers to 
trade. Source: The Heritage Foundation.
    Regulatory Quality: An index of surveys and expert assessments that 
rate countries on: the burden of regulations on business; price 
controls; the government's role in the economy; and foreign investment 
regulation, among other areas. Source: Worldwide Governance Indicators 
(World Bank/Brookings Institution).
    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

    Public Expenditure on Health: Total expenditures on health by 
government at all levels divided by GDP. Source: The World Health 
Organization.
    Immunization Rates: The average of DPT3 and measles immunization 
coverage rates for the most recent year available. Source: The World 
Health Organization and the United Nations Children's Fund.
    Total Public Expenditure on Primary Education: Total expenditures 
on

[[Page 61219]]

primary education by government at all levels divided by GDP. Source: 
The United Nations Educational, Scientific and Cultural Organization 
and National Governments.
    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 (gross intake ratio in the 
last grade of primary). Source: United Nations Educational, Scientific 
and Cultural Organization.
    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. 2010-24727 Filed 10-1-10; 8:45 am]
BILLING CODE 9211-03-P