Winter 2007
MCA Monitor Update: Winter 2007The MCA Monitor Update is a quarterly newsletter summarizing key events and issues related to the Millennium Challenge Account examined through CGD's MCA Monitor. To receive our Update by email: Sign up for the MCA Monitor Update Contents
1. MCC Selects FY2007 Eligible Countries In November 2006, MCC announced the FY2007 eligible countries. Two lower income countries, Moldova and Ukraine, and one lower-middle income country, Jordan, joined the other 22 previously eligible countries. (Read CGD's earlier predictions (pdf) of which countries would be selected.) The selection of Jordan (pdf) was not--in our view--the best choice for MCC's next development dollar. 2. Incorporating the New Natural Resources Indicators: An Opportunity to Strengthen Selection The MCC and its Board are deliberating how to add two new natural resource indicators -- Natural Resources Management and Land Rights and Access -- to the country eligibility criteria for the FY2008 selection round. CGD's MCA Monitor team presents alternatives to the MCC's original proposal, shows how countries fare under each alternative (Excel), and recommends an option (pdf) that places the Natural Resources Management indicator in the Investing in People basket, places the Land Rights and Access indicator in the Economic Freedom basket, and makes some new adjustments within both baskets to accommodate the additions, including adding a new education indicator. The MCC is taking this proposal seriously and has initiated consultations with various education stakeholders like UNESCO to assess the options for including a new education indicator. 3. Two New Compacts Signed: Trend to More "Transformative" Grant Sizes MCA compacts are, on average, getting bigger, with the two most recent, Mali and El Salvador coming in at $461 million apiece. This trend toward larger compacts is in tune with the original MCA goal to fund "transformative" projects that will have a dramatic and long-lasting impact on poverty reduction through sustainable economic growth. The Mali compact, signed on November 13, supports an irrigation project, airport improvement, and the creation of an industrial park near the airport. El Salvador, the first lower middle income country to receive a compact, signed a grant on November 29 to support formal and non-formal education, provide business and financial services for small farmers and small and medium enterprises, and fund the design, construction, and rehabilitation of a transnational highway and a network of connecting roads. Although El Salvador is a lower middle income country, the compact focuses on the Northern Zone where over 50% of the population live in poverty. 4. Four New Threshold Agreements Approved, One Signed On October 25, MCC's Board approved two new Threshold Programs: one in Moldova and one in Indonesia. Indonesia's $55 million program to reduce corruption and increase immunization has yet to be signed. Moldova's $24.7 million program was signed on December 15 and focuses on controlling corruption through judiciary reform, health care system reform, tax and customs reform, police system reform, and the strengthening of NGO anticorruption monitoring. The corruption focus of Moldova's program is interesting since Moldova passed corruption in the FY2007 (pdf) round (having barely failed it in the three prior selections). In fact, Moldova is technically not on the "threshold" of eligibility at this point since it was one of the three new countries chosen as eligible for compact assistance in the recent FY2007 round. This situation -- where Threshold countries reach compact eligibility status before they finalize a Threshold Program -- is an increasing phenomenon and has made us start thinking about whether the definition of the Threshold Program is too explicitly focused on targeted indicator improvements instead of being couched more broadly as a program that offers narrow assistance in demonstrably weaker policy areas. Also interesting is the approval on February 14 of anti-corruption Threshold Programs for Uganda ($10.4 million) and Kenya ($12.7 million). The Board has now approved a total of 13 Threshold Programs, all but one (Burkina Faso) focused predominantly on fighting corruption (pdf). While both new programs tackle important procurement and transparency reforms critical to the countries' development prospects, it is questionable whether these programs can bump their corruption indicators over the passing threshold in two-years' time. 5. Yemen's Threshold Eligibility Restored On February 14, in somewhat of a surprise move, the MCC Board reinstated Yemen's eligibility to apply for Threshold Program finance. On November 28, 2005, Yemen was the first country suspended by the MCC due to major policy performance slippages on the 16 MCA eligibility indicators. Yemen has shown remarkable and demonstrable effort in undertaking many policy reforms to address its poor performance, and it is quite apparent that they care deeply about regaining the MCC "seal of approval." Yemen indicated that the MCC's suspension from eligibility was the motivating factor in their series of subsequent reform actions, good evidence of the "MCA Effect" in action (pdf). Yemen should, without doubt, be congratulated for its tremendous reform efforts, yet the timing of the MCC's decision is puzzling. Why now? Why not wait until the FY2008 indicator run where hopefully evidence of the reforms will show up in the data? Yemen failed a total of 13 of the 16 indicators in FY2007 (pdf), which is 4 more than the next lowest ranking eligible Threshold country, and we still don't know whether the reforms will actually move any of those indicators in the next round. Technically, the indicators don't matter in a case of reinstatement, but should they? Contribute to the discussion with your thoughts. 6. Balancing the MCA Budget: An FY2007 Continuing Resolution, the FY2008 President's Request and the MCC's Budget Justification Originally envisaged to be receiving $5 billion per year at this point, but funded far below that mark for its first three years, the MCA's funding crunch continues. The FY2007 Continuing Resolution (CR) (pdf) allocated $1.75 billion for MCC. With four more compacts expected to come online by the end of FY2007, MCC will find this level of funding tight, particularly since compacts have, on average, become larger and more in line with the initial goal of providing grants large enough to have a dramatic and sustained impact on development in a country. The President's FY2008 Budget Request requested $3 billion for the MCA for the second year in a row. The enacted levels, however, have thus far been significantly lower than the President's request despite the fact that, again, the MCC demonstrates it can use the money. The MCC plans to spend the bulk of its 2008 budget (87%) on compacts, which it hopes to increase both in number and in size over the next couple of years. MCC expects to sign three to five more compacts by the end of FY2007 (Lesotho, Morocco, Mozambique, Tanzania and Sri Lanka are cited), and this would use up the entirety of FY2007 money and balances from past years. MCC also hopes to sign compacts with up to six countries in FY2008, projecting an average compact size of $400-$500 million which would basically eat up the requested $3 billion. Clearly, if compacts develop along these lines, an allocation of less than $3 billion would put significant pressure on the number of compacts, their size, or both. The MCC has streamlined the process for bringing countries to the signing table, so it is likely that it can sign eight to ten new compacts in the next two years as planned. The focus now shifts towards implementation and the actual spending of compact funds, which has been slow for the first few compacts. To date, an average of five months passes between signing and entry into force, and actual disbursements were less than half of what was predicted for the first year. Staying true to the country ownership principle justifies some of the delays, and MCC says that implementation will improve rapidly over the next few years as they work out their "new organization/new phase" kinks. With up to eleven compacts coming in the next two years, and with eyes turning toward implementation results, it is imperative that it does. Some questions we’re examining include:
7. US Foreign Aid: How Additional is the MCA? A recent paper by Kaysie Brown, Bilal Siddiqi and Myra Sessions, US Development Aid and the Millennium Challenge Account: Emerging Trends in Appropriations (pdf), takes a closer look at whether the MCA is cutting into existing US development aid funding. As CGD has pointed out before, the MCA was intended to be a supplemental aid program that would complement -- not replace -- existing aid structures. Presenting aid numbers with pre-MCA and post-MCA analysis for the first time, the data and the paper paint a mixed picture. The main conclusions:
8. The Uncertain Fate of the MCA Reauthorization Bill In October 2005 (later amended in July 2006), the House International Relations Committee introduced a bill to reauthorize the Millennium Challenge Account. The bill never passed in the 109th Congress, but apparently it is not yet dead. Whether it is taken up by the new Congress -- and in what form -- remains unclear. Though the MCA does not technically need to be reauthorized to continue operations (only funding needs to be authorized), there were some important amendments in the reauthorization act of 2006 that make good development effectiveness sense, for instance language allowing for concurrent and longer-term compacts and language putting greater emphasis on the poverty reduction impact of MCA programs. It remains to be seen whether the bill will be resubmitted (in its current form or some other) or whether the Appropriations Committee will cherrypick amendments when they reauthorize funding. The complication with the latter is that this would not occur until the FY2008 appropriations cycle at the earliest since the FY2007 Continuing Resolution means no appropriations and therefore no amendments. Contribute your thoughts to the discussion on MCA reauthorization. 9. On the Ground in Madagascar: A Look at MCA's First Compact Country For the past year, CGD's Sarah Lucas has sent snapshot-in-time, on-the-ground assessments of recipient country experiences with the MCA. Her latest report from Madagascar, the first country to sign an MCA compact, reviews its experience at the one-year mark. It is a story of managing expectations, fostering civil society consultation, and making the most of innovation. It is also the story of the "invisible year." Lucas finds that the progress that was made in Madagascar included some foundational steps that perhaps should have been addressed before the compact's "entry into force." Perhaps the longer period of time now often seen between compact signing and entry into force is an attempt by other countries to reduce the need for an "invisible year" once the compact gets underway. Keep an eye on our site for her next Field Reports from Nicaragua and Honduras. 10. MCC Releases New Gender Policy On January 11, the MCC announced the adoption of a gender policy that will integrate into every aspect of MCC operations an analysis of the social roles and responsibilities assigned to women and men in society and their ability to access and control resources. The policy has been widely praised, and it is particularly noteworthy because the good policy formalizes what has already been great practice within MCC operations. Considerations of gender are already captured in the MCA country selection process through several indicators, and gender issues are key components of many of its approved programs. Formalizing the gender policy binds MCC to its commitment, so it will be interesting to watch and see how MCC prioritizes gender vis a vis other performance criteria when aspects of the policy are challenged. Add your comments to the discussion on MCC's new gender policy. 11. Democracy Considerations for MCC Should the MCA impose more stringent democratic requirements on eligible countries? Freedom House suggests that the MCC introduce a democracy hard hurdle into the current MCA eligibility indicators test, a position CGD has supported in the past. Freedom House is the source for two of the MCA's Ruling Justly indicators and proposes using countries' scores on these two indicators as the democracy hurdle. If the MCC were to have adopted Freedom House's recommended hurdle in the FY2007 selection process this past November, Armenia (one of the first compact countries, and technically a democracy), Bhutan, Egypt, Jordan, Maldives, Tunisia and Vietnam who otherwise pass the indicators test would have failed. (Morocco, an eligible country which missed passing the FY2007 indicators test by one indicator, would similarly fail the democracy hurdle.) Taking democracy considerations further, the MCC is contemplating internally whether recipient country Parliamentary ratification of MCA compacts should be a standard condition precedent to be met prior to entry into force. Requiring ratification could both serve as a broader validation of the consultative process and help ensure continuity should there be a change in government during compact implementation. Ratification, of course, does not guarantee continuity, particularly if a shift in Parliamentary control results in the rejection of the previous administration's legislation. However, it could help, particularly since party shifts in the legislature are frequently less of a complete overhaul than are shifts in the executive. Follow and share in the debate. |