MCC Board Selects (and Quietly De-Selects) FY08 Countries

Yesterday, the Millennium Challenge Corporation Board of Directors decided which countries to add to -- and if you look closely, which countries to withdraw from -- the list of those eligible for funding. For Compact program eligibility, the Board chose one new country -- Malawi -- to add, and it looks like The Gambia, Cape Verde and Sri Lanka were quietly removed. On the Threshold program, the Board added Mauritania to the eligibility list and it announced a "Stage II" program for Albania, Paraguay and Zambia whose current programs expire in 2008.For those of you who read our Round Five of the MCA pre-selection paper, you probably know my reactions, but here they are:1. First and foremost, there must be greater transparency around country selection decisionmaking. Without a public record of the principles that guided the decisionmaking process, it is extremely difficult to understand, explain and support the selection of Malawi and Mauritania vis a vis other countries. The press release gives a bit of context but tends to raise more questions than provide answers. The annual Congressional Report on country selection (see the FY07 report for reference) offers an opportunity to enhance public transparency, particularly for the countries that passed the indicators and were not selected. Clarity on the degree to which performance on the democracy indicators factors into decisionmaking should also be addressed in this report. Equally important will be reasons for deselecting countries and to what extent they set policy going forward.2. On Compact Program eligibility, it appears that the reality of a low FY08 budget number for the MCA, heightened scrutiny on the democracy indicators, and concerns over cost over-runs and failing performance on existing compact countries framed the selection decisions. There were some good results and some bad results from these filters. On a positive note, the decision to select no new lower middle income countries (LMICs) due to budget constraints was both bold and right. It was bold considering there is typically more political support for countries in this category and right because, until there is a substantially larger annual MCA budget, scarce development dollars should be prioritized to lower income country reformers. I also think the decision to not select Rwanda and Uganda (to a lesser extent), presumably due to their performance on the democracy indicators, was a good decision; a premium on democracies makes perfect sense for the program in general and particularly given budget shortfalls. That said, I fear that extreme selectivity at the selection stage -- particularly turning countries away that cleanly pass -- risks hindering continued efforts by countries to reform their policies to qualify. Countries that fought hard to both undertake difficult reforms and wait for the data to finally capture those reform efforts (in most cases, there is a year or two lag) ought to be rewarded with selection. Selected countries can then compete to design the best compacts, a process that has taken most MCA countries over a year, and to sustain their performance on the indicators. The fact that countries continue to pass the indicators test each year is something to be excited about, the role that the MCA is playing in incentivizing countries to reform is something to be proud of, and Congress should feel and respond to the pressure to meet its end of the bargain.3. The critieria for Threshold Program eligibility remains unclear.and this year's selection doesn't help, particularly when it is publicly compared to a comparable country not selected. This year, the MCC chose to add Mauritania, a country that missed passing by three indicators, fails all three democracy indicators, fails all five indicators in the Investing in People category, and has shown little overall progress in the indicators over the last few years (some have improved, others have worsened). The press release indicates that the Threshold program is designed for countries that "are close to qualifying and have demonstrated commitment to enact the reforms necessary to improve policy performance that may eventually help them qualify." Most Africa watchers agree that Mauritania is making progress on advancing difficult democracy reforms. Those reforms, however, are not yet captured in the indicators so the selection decision appears to be more about encouraging forward momentum and, in some observers' minds, supporting an ally in the global war on terror. The problem is that it's hard to see a Threshold Program enabling Mauritania to fully pass. To make matters more confusing, eyebrows already raised as to whether Mauritania is really "close enough" to passing to justify Threshold Program eligibility are raised higher when, in the press release, is compared to the decision not to select Liberia. Liberia also misses by three indicators, but passes all three democracy indicators, has shown improvement in every single indicator for which there are data over the past two years, showed the second-largest improvement in corruption in the world last year, and must offer as much evidence as Mauritania on commitment to sustained reform. It is hard to see the rationale for one over the other, not to mention the fact that if decisions were based on which country is "close to passing," Ethiopia trumps them both. Lastly, on this topic, the introduction of Stage II Threshold Programs is probably programmatically smart, however, it does highlight the need to either make sure to choose countries legitimately on the cusp of passing in two-years or redefining the program to focus on countries not necessarily on the cusp but in need of incentives for sustaining reforms.4. The dilemma of what to do with current compact-eligible countries that are failing the indicators, some for the second and third year in a row, is a serious issue for the MCC and one that they are not taking lightly. The decision to not reselect three currently eligible countries was a step in the right direction but, in the risky business of development, it is going to continue to be an issue. Remediation programs -- efforts to help countries understand why they are failing and what needs to be done to improve their scores -- are to be a new business line for the MCC. The MCC needs to be careful about the extent to which it becomes more (or even equally) responsible for performance than the countries themselves. Part of the innovation of the MCA was that countries made it into the program because they were better governed and better governors of their own reform program. I am optimistic that the MCC understands the right balance to strike.Tell me what you think about this year's selections.