MCC’s New Selection System: Three New Indicators, Two Hard Hurdles, One Muddied Mandate?

The Millennium Challenge Corporation (MCC) board of directors made three big decisions at its recent quarterly meeting. It selected Tunisia as threshold-eligible and conditionally approved a $600 million compact with Indonesia. (For more information on these programmatic developments, see here.)  Perhaps most importantly, the Board endorsed a number of changes to the MCC’s selection system and criteria.  The new system incorporates improved data and learning from the MCC over the past nine years but also calls into question the MCC’s historic commitment to clarity and an equal emphasis on a country’s commitment to rule justly, invest in its people, and encourage economic freedom.After eight years of selection, the MCC decided to review its selection process to ensure that it was still using the best available criteria to identify well-governed, lower income countries.  The MCC spent over a year evaluating the process and new data as well as collecting input from the development community.  In Fine-Tuning the MCC Selection Process and Indicators, we at the MCA Monitor undertook a parallel review and made recommendations to keep the indicator system clean, clear, and color-coded; institutionalize the “democracy indicators” hurdle and ease the corruption hard hurdle; give the investing in people category an equal number of indicators; account for income bias in indicator scores; and be transparent about the Board’s use of discretion.The MCC’s new system takes into account a number of CGD’s recommendations but falls short on maintaining clarity.  The revised selection process incorporates the following changes to the indicators and the rules that govern them.  (For a full explanation of the new system and new indicators, see the MCC’s Guide to the MCC Indicators and the Selection Process for FY2012.)

• Three New Indicators Added: A Freedom of Information indicator will replace Voice & Accountability in the Ruling Justly category.  The Economic Freedom category will see two new indicators: Access to Credit and Gender in the Economy.  The MCC is also breaking the current Natural Resources Management indicator into two indicators based on its component indices: Child Health and Natural Resources Protection.
• Democratic Rights Hard Hurdle: The MCC adopted a hard hurdle for democratic rights, requiring a country to pass either Political Rights or Civil Liberties to pass the indicators test.  These two indicators will also now be judged with an absolute threshold rather than a median.  To pass these indicators, a country must score above 17 for Political Rights and 25 for Civil Liberties.
• New Indicator for LMICs Only: The MCC made changes that will apply to lower middle income countries (LMICs) only in the Investing in People category.  A new Girls’ Secondary School Enrollment indicator will replace the Girls’ Primary Education Completion Rate indicator.  The Immunization Rates indicator will also now be judged on an absolute threshold of 90 percent for LMICs only.
• New Pass Half Overall Rule:  Emphasis on the MCC’s three hallmark categories is reduced; now a country must pass half of the indicators overall (instead of half in each category) and one indicator in each category.

Again, one goal of the selection process is to evaluate the policy performance of lower income countries and identify good policy performers.  On this, the changes to selection do much to improve the targeting of potential MCC partners. The new indicators focus on key constraints to economic growth, and the added dimensions will further expand the opportunity for policy discussion around these sectors.  The adoption of democratic rights absolute thresholds and a hard hurdle sends the message that countries must value the input and rights of their citizens, no matter the income level.But another goal of the selection process is to produce clear, simple scorecards for the MCC to use in policy dialogue with candidate countries.  The new rule specifying that a country must pass half of the indicators overall and one in each category muddies the MCC’s historic emphasis on a country’s ability to rule justly, invest in its people, and encourage economic freedom.  In an interview, MCC Board member Mark Green opposed the change, expressing concern that the new rule “will be perceived as a weakening of MCC’s commitments to all three of the core values that have been at the heart of this program since its birth.”Green was also disappointed in the process by which the sweeping changes were approved.  The MCC Board is still without two of its four public board members, meaning the Board accepted the change in selection without all of the statutorily designated Board members present. It is crucial that the administration fill these vacancies.  It (and the MCC) missed the chance to have a full MCC board weigh in on changes to the selection system, and selection decisions will only become more important at the upcoming December board meeting.With compact eligibility decisions only a few months away, how will the new system be implemented? To allow for a period of transition, the MCC will run both systems for FY2012 selection, but neither will be binding or dominant.  This means there will be clear winners and losers (those countries that pass or fail on both systems) and some countries who pass under one system but fail under the other.  The Board will use its discretion on these country cases but should be transparent in its decision-making about why it favored one system over another.Stay tuned for upcoming MCA Monitor analysis of how countries fare on the two hard hurdles and full FY2012 selection results.