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1 2 MCC’s Selection Process: Monitoring Government Performance Thomas Kelly Senior Director, Economic Policy 3 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”. 4 Based on Key Lessons of Aid • Policies • Country Ownership • Results 5 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 6 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 7 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. 8 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 9 Selection Process Process: • 17 •2 indicators, 3 categories income categories • Indicator Score > median pass • Pass > ½ indicators in each category & control of corruption 10 Indicator Category: Economic Freedom Kenya FY08 11 Indicator Category: Investing in People Kenya FY08 12 Indicator Category: Ruling Justly Kenya FY08 13 FY ’08: Countries in LIC and LMIC Income Categories: 108 14 FY ’08 Candidate Countries: 95 15 FY ’08: Countries that pass all three categories: 34 16 FY ’08: Countries that pass all three categories and Corruption: 25 17 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 18 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, International Finance Corporation June 24, 2005 19 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. 20 21 Threshold Countries* Latin America Africa Guyana Kenya Paraguay Mauritania Peru Niger Rwanda Sấo Tomé and Principe Uganda Zambia Eurasia Albania Indonesia Kyrgyz Republic * Burkina Faso, Tanzania & East Timor moved from Threshold Program to Compact Eligible in FY2006; Jordan, Moldova & Ukraine moved to Compact Eligible in FY2007; Malawi and the Philippines moved to Compact Eligible in FY08 Countries in blue have signed or MCC Board-approved Threshold Programs 22 MAP