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

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”.

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”.

Based on Key Lessons of Aid Policies Country Ownership Results

Policies

Country Ownership

Results

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

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

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

Quantitative measures of policy performance

Objective third party in indicator institutions

17 indicators in 3 categories

Ruling Justly

Investing in People

Economic Freedom

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.

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.

Indicators: 3 Categories Land Rights and Access Control of Corruption Natural Resource Management Regulatory Quality Rule of Law Girls Primary Education Completion Rate Trade Policy Government Effectiveness Public Expenditure on Primary Education as percentage of GDP Fiscal Policy Voice & Accountability Immunization rates: DPT3 & Measles Inflation Political Rights Public Expenditure on Health as percentage of GDP Business Start-Up Civil Liberties Investing in People Economic Freedom Ruling Justly

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

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

Process :

17 indicators, 3 categories

2 income categories

Indicator Score > median  pass

Pass > ½ indicators in each category & control of corruption

Indicator Category: Economic Freedom Kenya FY08

Indicator Category: Investing in People Kenya FY08

Indicator Category: Ruling Justly Kenya FY08

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

FY ’08 Candidate Countries: 95

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

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

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

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

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

“ 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

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.

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.