Day 2 (1615) Theme 6a Kelly

Slide 1: 1

Slide 2: 2 MCC’s Selection Process: Monitoring Government Performance Thomas Kelly Senior Director, Economic Policy

Slide 3: 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”.

Slide 4: 4 Based on Key Lessons of Aid • Policies • Country Ownership • Results

Slide 5: 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

Slide 6: 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

Slide 7: 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.

Slide 8: 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

Slide 9: BERI Excessive Red Tape/Regulation Econ Intel. Unit Excessive Involvement in Economy Merchant Int. Pol. Risk Services Separation of Public/Private Roles Business Risk Intel Firm Perceptions Income and Asset Disclosure Against Corruption World Markets Environment to Protect Conflict of Interest Protections Asia Risk Survey Laws to Prevent/Punish Corruption Exec. Opin. Survey World Comp. Survey Mechanisms to Report Corruption Firm Experiences Corruption in Higher Education World Bank CPIA Corruption Laws/Standards Internal Audit Systems in Tax Adm. ADB CPIA FH Crossroads Effectiveness of Indep. Auditing Ag, Global Integrity IFAD CPIA Investigation of Corr. Allegations Media Coverage of Corr. Allegations Gallup World Poll WBI Control of Corruption Index Enforcement of Laws/Standards Whistleblower Protections TI Corr. Barometer Legal/Reg/Judicial, Transparency Legal Rights to Public Information Policies and Institutions Citizen Perceptions Info on Services for Disadvantaged Budget Transparency Accounting of Public Expenditures TI Corr. Barometer Transparency in Public Procurement Government Transparency Transp. in Foreign Aid Administrat. 9 Citizen Experiences

Slide 10: 10 Selection Process Process: ● 17 indicators, 3 categories ● 2 income categories ● Indicator Score > median  pass ● Pass > ½ indicators in each category & control of corruption

Slide 11: 11 Indicator Category: Economic Freedom Kenya FY08

Slide 12: 12 Indicator Category: Investing in People Kenya FY08

Slide 13: 13 Indicator Category: Ruling Justly Kenya FY08

Slide 14: 14 FY ’08: Countries in LIC and LMIC Income Categories: 108

Slide 15: 15 FY ’08 Candidate Countries: 95

Slide 16: 16 FY ’08: Countries that pass all three categories: 34

Slide 17: 17 FY ’08: Countries that pass all three categories and Corruption: 25

Slide 18: 18 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

Slide 19: 19 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

Slide 20: 20 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.

Slide 21: 21