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MCC’s Selection Process:MCC’s Selection Process:Monitoring Government Monitoring Government

PerformancePerformance

Thomas Kelly Thomas Kelly Senior Director, Economic PolicySenior Director, Economic Policy

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Millennium Challenge Corporation

• Fulfillment of Monterrey commitment to “provide greater resources to countries taking greater responsibility for their own development.”

• Established in law January 2004.

• Mandate is to “reduce poverty through economic growth”.

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Based on Key Lessons of Aid

• Policies

• Country Ownership

• Results

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Policy Performance

• Aid is most effective when it reinforces good governance, investments in people, and economic freedom

• Why MCC was created - Reward and Incentive

• Selective Program – one tool in USG toolbox

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Eligibility for MCC Programs

• Quantitative measures of policy performance

– Objective third party in indicator institutions

– 17 indicators in 3 categories• Ruling Justly

• Investing in People

• Economic Freedom

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Country Selection: Policies Critical to Growth & Poverty Reduction

Ruling Justly: A country’s commitment to…– promote political pluralism, – equality and the rule of law; – respect for human and civil rights; – private property rights; – transparency and accountability of government; – commitment to combating corruption

Investing In People: Investments in– broad based education– public health– sustainable management of natural resources.

Encouraging Economic Freedom: economic policies that promote…– trade– macroeconomic stability– private sector growth– sustainable management of natural resources– market forces– respect for workers rights.

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Indicators: 3 Categories

Ruling Justly Economic Freedom Investing in People

Civil Liberties Business Start-Up Public Expenditure on Health as percentage of GDP

Political Rights Inflation Immunization rates: DPT3 & Measles

Voice & Accountability Fiscal Policy Public Expenditure on Primary Education as percentage of GDP

Government Effectiveness Trade Policy Girls Primary Education Completion Rate

Rule of Law Regulatory Quality Natural Resource Management

Control of Corruption Land Rights and Access

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WBI Control of Corruption Index

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Selection Process

Process:

• 17 indicators, 3 categories

• 2 income categories

• Indicator Score > median pass

• Pass > ½ indicators in each category & control of corruption

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Indicator Category: Economic Freedom

Kenya FY08

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Indicator Category: Investing in People

Kenya FY08

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Indicator Category: Ruling Justly

Kenya FY08

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FY ’08: Countries in LIC and LMIC Income Categories: 108

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FY ’08 Candidate Countries: 95

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FY ’08: Countries that pass all threecategories: 34

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FY ’08: Countries that pass all threecategories and Corruption: 25

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Threshold Program

• For countries that didn’t qualify but are close and moving in the right direction

• This program focuses on the indicators the country does not fulfill

• Ideally, a threshold country will become an eligible country

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The Incentive Effect

• ““In a short span of time…[by tracking very simple indicators on investment climate]…you can see that the Millennium Challenge Account has affected two dozen countries… 24 countries in one way or another have come to us and either have asked for ways to reform, have already reformed, or would like to be bench-marked so that they are considered for the Millennium Challenge Account…. That is, in my view, quite a success.”.”

Simeon Djankov Manager of the Monitoring and Analysis Unit, Simeon Djankov Manager of the Monitoring and Analysis Unit, International Finance Corporation June 24, 2005International Finance Corporation June 24, 2005

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Where Are We?

• 25 countries eligible for MCA Compacts. 16 Compacts signed and 9 others in the pipeline.

• About $5.5 billion committed to date for Compacts.

• 21 countries eligible for Threshold Program that aims to help countries improve policies in areas where they fall short so they might qualify in the future. 18 Threshold programs approved to date for roughly $400 million.

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