[Federal Register Volume 77, Number 186 (Tuesday, September 25, 2012)]
[Notices]
[Pages 59016-59020]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-23534]


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MILLENNIUM CHALLENGE CORPORATION

[MCC FR 12-10]


Report on the Criteria and Methodology for Determining the 
Eligibility of Candidate Countries for Millennium Challenge Account 
Assistance in Fiscal Year 2013

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 19, 2012.
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 in 
Fiscal Year 2013

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 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 (FY) 2013 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 FY 2013 based on per capita income levels and eligibility to 
receive assistance under U.S. law. This report 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 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 ``eligible countries'' from 
among the ``candidate countries'' (section 608(b) of the Act); and
    The list of countries determined by the Board to be ``eligible 
countries'' for FY 2013, with justification for eligibility 
determination and selection for compact

[[Page 59017]]

negotiation, including those eligible countries that the Board will 
seek to enter into compacts (section 608(d) of the Act).
    This report sets out the criteria and methodology to be applied in 
determining eligibility for FY 2013 MCA assistance.

Criteria and Methodology for FY 2013

    The Board will base its selection of eligible countries on several 
factors, including:
    The country's overall performance in the three broad policy 
categories of Ruling Justly, Encouraging Economic Freedom, and 
Investing in People;
    MCC's opportunity to reduce poverty and generate economic growth in 
a country;
    Performance during implementation of a prior compact (if selecting 
a country to be eligible for a subsequent compact); and
    The availability of MCC funds.
    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 the purpose of assessing countries' policy performance, MCC 
strives to ensure countries are consistently and appropriately compared 
against their income peers. Since its founding, MCC has relied on the 
historical ceiling for eligibility as set by the World Bank's 
International Development Association (IDA) to divide the pool of 
candidate countries into two groups for the purpose of comparative 
analysis on the policy performance indicators (described in the section 
immediately below). A Scorecard low income country (LIC) is defined as 
a country with a per capita income on or below IDA's historical ceiling 
for eligibility ($1,945 for FY 2013) and will continue to be compared 
against other Scorecard LICs. A Scorecard lower middle income country 
(LMIC) is defined as a country with a per capita income above the IDA's 
historical ceiling for eligibility, but below the World Bank's lower 
middle income country threshold ($1,946-$4,035 for FY13) and will 
continue to be compared against other Scorecard LMICs.\1\ This will 
ensure poorer countries are not disadvantaged by competing against more 
wealthy countries and provide relative stability and consistency in 
countries' assessments from previous years.
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    \1\ In December 2011, MCC's FY 2012 appropriations bill, enacted 
as part of the Consolidated Appropriations Act, 2012 (Pub. L. 112-
74) (FY 2012 Appropriations Act), included language at MCC's request 
to alter the way the agency defines LICs and LMICs for the purposes 
of candidacy and funding. MCC implemented this change through the FY 
2013 Candidate Country Report, approved by the board on August 21, 
2012. This change affects how MCC may fund countries selected as 
eligible and brought desired stability to the funding stream. To 
protect against unnecessary instability or income bias to the 
selection system, for Scorecard purposes, the agency will continue 
to use the historical IDA ceiling as described above.
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Indicators

    In FY 2013 the Board will use 20 indicators to assess the policy 
performance of individual countries. These indicators are grouped under 
the three policy categories listed in Table 1. A description of each 
indicator, including definitions and sources, can be found in Annex A.

Table 1

    (1) Ruling Justly: Political Rights, Civil Liberties, Freedom of 
Information, Government Effectiveness, Rule of Law, Control of 
Corruption. (Sources: Freedom House, FRINGE Special, Open Net 
Initiative, World Bank/Brookings)
    (2) Encouraging Economic Freedom: Fiscal Policy, Inflation, 
Regulatory Quality, Trade Policy, Gender in the Economy, Land Rights 
and Access, Access to Credit, Business Start-Up (Sources: IMF, World 
Bank/Brookings, Heritage Foundation, IFC, International Fund for 
Agricultural Development)
    (3) Investing in People: Public Expenditure on Health, Total Public 
Expenditure on Primary Education, Natural Resource Protection, 
Immunization Rates, Girls' Education (Primary Completion Rate for 
Scorecard LICs, Secondary Education Enrollment for Scorecard LMICs), 
Child Health. (Sources: World Health Organization, UNICEF, UNESCO, 
National Sources, CIESIN/YCLEP)
    To determine eligibility for a particular candidate country, the 
Board will consider whether a country performs above the median or 
absolute threshold on at least half of the indicators; above the median 
on the Control of Corruption indicator; and above the absolute 
threshold on either the Civil Liberties or Political Rights indicators. 
Indicators with absolute thresholds in lieu of a median include: (i) 
Inflation, on which a country's inflation rate must be under a fixed 
ceiling of 15 percent; (ii) Immunization Rates (Scorecard LMICs only), 
on which a Scorecard LMIC must have immunization coverage above 90 
percent; (iii) Political Rights, on which countries must score above 
17; and (iv) Civil Liberties, on which countries must score above 25. 
The Board will also consider whether a country performs substantially 
worse in any policy category than they do on the overall scorecard, and 
countries must meet a minimum standard of passing one indicator in each 
category.

Considerations of Prior Compact Implementation

    Countries that have completed their compact, or are within 18 
months of compact completion, may be considered for eligibility for a 
subsequent compact. To determine eligibility for subsequent compacts, 
the Board will consider the country's policy performance using the 
methodology and criteria described above, as well as the country's 
track record of performance implementing its prior compact.
    To assess implementation of a prior compact, the Board will 
consider the nature of the country's 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.
    In FY 2013, the Board will assess countries on their performance on 
the prior compact through supplemental information covering the 
categories and issues shown in Table 2. A more detailed list of compact 
performance considerations and MCC reporting sources is provided in 
Annex B.

Table 2

    (1) Country Partnership: Political Will, Management Capacity 
(Sources: Quarterly reporting, Survey of MCC staff)
    (2) Program Results: Financial Results, Project Results, Target 
Achievements (Sources: Indicator tracking tables, Quarterly reporting, 
Survey of MCC staff, Impact Evaluations)
    (3) Adherence to Standards: Commitment to MCC Operational 
Guidelines and Policies, Audit Findings (Sources: Quarterly reporting, 
GAO Audits, OIG Audits, Survey of MCC staff)

Other Considerations for the Board

Supplementary Information

    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 also may take into account other

[[Page 59018]]

quantitative and qualitative information (supplemental information) to 
determine whether a country performed satisfactorily in relation to its 
peers in a given income category. There are elements of the criteria 
set out in the Act for which there is either limited quantitative 
information, 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. Similarly, 
MCC may consult a variety of third party sources to better understand 
the domestic potential for private sector led investment and growth.
    The Board may also consider whether supplemental information should 
be considered to make up for data gaps, lags, trends, or other 
weaknesses in particular indicators. 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, the Global Integrity Report, and the Extractive 
Industry Transparency Initiative, among others, as well as on the 
defined indicator.

Approach to Income Classification Transition

    Each year a number of countries shift income groups, and some 
countries formerly classified as Scorecard LIC suddenly face new, 
higher performance standards in the Scorecard LMIC group. As a result, 
they typically perform worse relative to other Scorecard LMICs, than 
they did compared to other Scorecard LICs, even if in absolute terms 
they maintained or improved their performance in the previous year. To 
address the challenges associated with sudden changes in performance 
standards for these countries, MCC has adopted an approach to income 
category transition whereby the Board may consider the indicator 
performance of countries that transitioned from the Scorecard LIC to 
the Scorecard LMIC country category both relative to their Scorecard 
LMIC peers as well as in comparison to the current fiscal year's 
Scorecard LIC pool for a period of three years.

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 eligibility criteria 
from time to time due to a number of factors, such as: (i) Changes in 
the peer group median; (ii) transition into a new income category 
(e.g., from Scorecard LIC to Scorecard LMIC categories); (iii) 
numerical declines in scores that are within the statistical margin of 
error; (iv) slight declines in policy performance; (v) revisions or 
corrections of data; (vi) introduction of new sub-data sources; or 
(vii) 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 or face suspension or termination of 
eligibility and/or assistance. According to the Act, ``[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 * * *.'' Consistent with the Act and MCC's Policy on 
Suspension and Termination, this pattern of actions does not need to 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 in Table 1, a set of objective and 
quantifiable policy indicators is used to determine eligibility for MCA 
assistance and to 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 objective indicators. Most are 
addressed by multiple indicators. The specific indicators appear in 
parentheses next to the corresponding criterion set out in the Act.
    Section 607(b)(1): Just and democratic governance, including a 
demonstrated commitment to--
    Promote political pluralism, equality and the rule of law 
(Political Rights, Civil Liberties, Rule of Law, and Gender in the 
Economy);
    Respect human and civil rights, including the rights of people with 
disabilities (Political Rights, Civil Liberties, and Freedom of 
Information);
    Protect private property rights (Civil Liberties, Regulatory 
Quality, Rule of Law, and Land Rights and Access);
    Encourage transparency and accountability of government (Political 
Rights, Civil Liberties, Freedom of Information, Control of Corruption, 
Rule of Law, and Government Effectiveness); and
    Combat corruption (Political Rights, Civil Liberties, Rule of Law, 
Freedom of Information, and Control of Corruption);
    Section 607(b)(2): Economic freedom, including a demonstrated 
commitment to economic policies that--
    Encourage citizens and firms to participate in global trade and 
international capital markets (Fiscal Policy, Inflation, Trade Policy, 
and Regulatory Quality);
    Promote private sector growth (Inflation, Business Start-Up, Fiscal 
Policy, Land Rights and Access, Access to Credit, Gender in the 
Economy, and Regulatory Quality);
    Strengthen market forces in the economy (Fiscal Policy, Inflation, 
Trade Policy, Business Start-Up, Land Rights and Access, Access to 
Credit, and Regulatory Quality); and
    Respect worker rights, including the right to form labor unions 
(Civil Liberties and Gender in the Economy); and
    Section 607(b)(3): Investments in the people of such country, 
particularly women and children, including programs that--
    Promote broad-based primary education (Girls' Primary Completion 
Rate, Girls' Secondary Education Enrollment Rate, and Total Public 
Expenditure on Primary Education);
    Strengthen and build capacity to provide quality public health and 
reduce child mortality (Immunization Rates, Public Expenditure on 
Health, and Child Health); and
    Promote the protection of biodiversity and the transparent and 
sustainable management and use of natural resources (Natural Resource 
Protection).

Annex A

Indicator Definitions

    The following 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

[[Page 59019]]

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 (i) their 
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. Listed below is a brief summary of 
the indicators (a detailed rationale for the adoption of these 
indicators can be found in the Public Guide to the Indicators on MCC's 
public Web site at www.mcc.gov).

Ruling Justly

    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.
    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.
    Freedom of Information: Measures the legal and practical steps 
taken by a government to enable or allow information to move freely 
through society; this includes measures of press freedom, national 
freedom of information laws, and the extent to which a country is 
filtering internet content or tools. Source: Freedom House/FRINGE 
Special/Open Net Initiative.
    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).
    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).
    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).

Encouraging Economic Freedom

    Fiscal Policy: The overall budget balance divided by GDP, averaged 
over a three-year period. The data for this measure comes 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.
    Inflation: The most recent average annual change in consumer 
prices. Source: The International Monetary Fund's World Economic 
Outlook Database.
    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).
    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.
    Gender in the Economy: An index that measures the extent to which 
laws provide men and women equal capacity to generate income or 
participate in the economy, including the capacity to access 
institutions, get a job, register a business, sign a contract, open a 
bank account, choose where to live, and to travel freely. Source: 
International Finance Corporation.
    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.
    Access to Credit: An index that rates countries on rules and 
practices affecting the coverage, scope, and accessibility of credit 
information available through either a public credit registry or a 
private credit bureau; as well as legal rights in collateral laws and 
bankruptcy laws. Source: International Finance Corporation.
    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.

Investing in People

    Public Expenditure on Health: Total expenditures on health by 
government at all levels divided by GDP. Source: The World Health 
Organization.
    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.
    Natural Resource Protection: Assesses whether countries are 
protecting up to 10 percent of all their biomes (e.g., deserts, 
tropical rainforests, grasslands, savannas and tundra). Source: The 
Center for International Earth Science Information Network and the Yale 
Center for Environmental Law and Policy.
    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.

Girls Education

    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). Scorecard LICs are assessed on this indicator. 
Source: United Nations Educational, Scientific and Cultural 
Organization.
    Girls Secondary Enrollment Education: The number of female pupils 
enrolled in lower secondary school, regardless of age, expressed as a 
percentage of the population of females in the theoretical age group 
for lower secondary education. Scorecard LMICs will be assessed on this 
indicator instead of Girls Primary Completion Rates. Source: United 
Nations

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Educational, Scientific and Cultural Organization.
    Child Health: An index made up of three indicators: (i) Access to 
improved water, (ii) access to improved sanitation, and (iii) child 
(ages 1-4) mortality. Source: The Center for International Earth 
Science Information Network and the Yale Center for Environmental Law 
and Policy.

Annex B

Subsequent Compact Considerations

    MCC reporting and data in the following chart are used to assess 
compact performance of MCC partners nearing the end of compact 
implementation. Some reporting used for assessment may contain 
sensitive information and adversely affect implementation or MCC-
partner country relations. This information is for MCC's internal use 
and is not made public. However, key implementation information is 
summarized in compact status and results reports that are published 
quarterly on MCC's Web site under MCC country programs (www.mcc.gov/pages/countries) or monitoring and evaluation (www.mcc.gov/pages/activities/activity/monitoring-and-evaluation) Web pages.
    (1) Country Partnership: Includes Political Will (Status of major 
conditions precedent, Program oversight/implementation--project 
restructures and partner response to MCA capacity issues, Political 
independence of MCA) and Management Capacity (Project management 
capacity, Project performance, Level of MCC intervention/oversight, 
Relative level of resources required).
    MCC Reporting/Data Source: Quarterly implementation reporting, 
Quarterly results reporting, Survey of MCC staff.
    Published Documents: Quarterly results published as ``Table of Key 
Performance Indicators'' (available by country at http://1.usa.gov/QoduNl) Survey questions to be posted at http://1.usa.gov/PE0xCX.
    (2) Program Results: Includes Financial Results (Commitments, 
Disbursements), Project Results (Output, outcome, objective targets; 
MCA commitment to `focus on results;' MCA cooperation on impact 
evaluation; Percent complete for process/outputs; Relevant outcome 
data; Details behind target delays), and Target Achievements.
    MCC Reporting/Data Source: Indicator tracking tables, Quarterly 
financial reporting, Quarterly implementation reporting, Quarterly 
results reporting, Survey of MCC staff, Impact evaluations.
    Published Documents: Monitoring and Evaluation Plans (available by 
country at http://1.usa.gov/QoduNl), Quarterly Status Reports 
(available by country at http://1.usa.gov/NfEbcI), Quarterly results 
published as ``Table of Key Performance Indicators'' (available by 
country at http://1.usa.gov/QoduNl), Survey questions to be posted at 
http://1.usa.gov/PE0xCX.
    (3) Adherence to Standards: Procurement, Environmental and social, 
Fraud and corruption, Program closure, Monitoring and evaluation, All 
other legal provisions.
    MCC Reporting/Data Source: Audits (GAO and OIG), Quarterly 
implementation reporting, Survey of MCC staff.
    Published Documents: Published OIG and GAO Audits, Survey questions 
to be posted at http://1.usa.gov/PE0xCX.
    (4) Country Specific: Sustainability, Implementation Entity, MCC 
Investments.
    MCC Reporting/Data Source: Quarterly implementation reporting, 
Quarterly results reporting, Survey of MCC staff.
    Published Documents: Quarterly results published as ``Table of Key 
Performance Indicators'' (available by country at http://1.usa.gov/QoduNl), Survey questions to be posted: http://1.usa.gov/PE0xCX.

[FR Doc. 2012-23534 Filed 9-24-12; 8:45 am]
BILLING CODE 9211-03-P