MCC and ERRs: Turning a Triple on Transparency into a Home Run

This is a joint blog posting by Sheila Herrling and Amy Crone.A quick shout-out to the MCC on the launch of its new economic rate of return web feature! It shows how the MCC and its partner countries use ERR analysis in its decision making and evaluation processes and includes interactive spreadsheets on six countries (with more to come) which can be manipulated to see the effect of project changes (cost, time, etc.) on estimated impacts. We think it is a bold demonstration of the MCC’s commitment to transparency, public feedback and accountability for results.The reliance -- or as some observers suggest, overreliance – by the MCC on the ERR to drive its investment choices was the focus of the event we hosted here at CGD in late April. To an audience of over 100 of what we lovingly referred to in our welcoming remarks as “development dorks,” MCC Chief Economist Franck Wiebe presented the methodology used by the MCC and previewed the new web feature. He aimed to debunk the misperceptions regarding the dominance of economics in MCC decision-making: the countries drive the process while economics “helps inform the process”, along with other considerations such as gender and the environment.If you missed the event, watch the video here, or read on for some quick points.In a lively panel discussion following the presentation, Franck, Steve Radelet of CGD, Asma Lateef of Bread for the World Institute and Mauela Ferro of the World Bank debated several important points, including:• the proper weighting of the ERR vs. beneficiary targeting or social and poverty impact analysis in MCC funding decisions. (Radelet raised the point that poverty impact can technically be included in ERR analysis by weighting where dollars accrue, i.e., more weight attributed to those dollars that accrue to those living on less than $1/day. Wiebe was concerned, however, about data availability and reliability.)• the importance of publicly posting information on distributional and poverty-impact analysis since they factor into the decision making process. (Wiebe responded that the beneficiary analyses are scheduled to be posted as well – likely in the fall, to which we say Bravo!)• the potential use of MCC Threshold Programs to improve poverty data quality for use in measuring distributional and poverty impact. (Lateef noted that this has occurred on a limited basis through pre-compact grants (609g funding) in Namibia and Burkina Faso, but is not systematically incorporated into the threshold program)• the possibility of the MCC delivering a portion of its funding through budget support where ERR analysis is less relevant. (Ferro and Lateef noted that the MCC has only funded project assistance to date, despite the rigorous selection criteria which indicate that eligible Compact countries should be capable of effectively utilizing budget support or other novel financing arrangements; see the MCA Monitor issues and options paper.)One important topic which was mentioned in the event but not examined in detail was the role of the ERR in Compact restructurings currently underway between the MCC and its partner countries. The increase in oil, the depreciation in the US dollar, and the sharp rise in infrastructure input costs due to an international construction boom have all combined to affect implementation costs, timing and benefits of Compact components. So the question now turns to, when the rubber meets the road in terms of rescaling and recosting the portfolio, how will the MCC balance the trade-off between maintaining their internal ERR hurdle rate and maintaining strong numbers of project beneficiaries? And all within their 5-year time frame.So, back to the title of the blog. The MCC continues to impress on its commitment to transparency and a willingness to open itself up to public scrutiny. We need to praise them for this...it's not easy, particularly in an environment of scarce development dollars. And we can provide advice, criticism and examples of how to improve their efforts. We all want the same thing -- more and better results on the ground in terms of economic prosperity and poverty reduction. So, MCC, make those beneficiary analyses public so we can understand -- and, yes, perhaps criticize -- the weighting it plays in the decisionmaking process. Make it a transparency and aid effectiveness home run.