1 September 2004
Source: http://www.access.gpo.gov/su_docs/aces/fr-cont.html

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[Federal Register: August 31, 2004 (Volume 69, Number 168)]
[Notices]
[Page 53090-53093]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31au04-83]

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MILLENNIUM CHALLENGE CORPORATION

[MCC FR 04-09]


Report on the Criteria and Methodology for Determining the
Eligibility of Candidate Countries for Millennium Challenge Account
Assistance in FY 2005

AGENCY: Millennium Challenge Corporation.
SUMMARY: The Millennium Challenge Act of 2003, 22 U.S.C.A. 7701,
7707(b) (the ``Act'') authorizes the provision of assistance to
countries that enter into compacts with the United States to support
policies and programs that advance the prospects of such countries
achieving lasting economic growth and poverty reduction. The Act
requires the Millennium Challenge Corporation to take a number of steps
in determining the countries that, based on their demonstrated
commitment to just and democratic governance, economic freedom and
investing in their people, will be eligible countries for Millennium
Challenge Account (``MCA'') assistance during Fiscal Year 2005. These
steps include the publication of Notices in the Federal Register that
identify:
    1. The ``candidate countries'' for MCA assistance (section 608(a)
of the Act);
    2. The eligibility criteria and methodology that will be used to
choose ``eligible countries'' from among the ``candidate countries''
(section 608(b) of the Act); and
    3. The countries determined by the Board of Directors of the
Millennium Challenge Corporation to be ``eligible countries'' for
Fiscal Year 2005 and identify the countries on the list of eligible
countries with which the Board will seek to enter into compacts
(section 608 (d) of the Act).
    This Notice is the second of the three required Notices listed
above.
    Public Comment: For a thirty-day period beginning on the date of
publication of this notice in the Federal Register, the Millennium
Challenge Corporation will accept public comment on the eligibility
criteria and methodology contained in the report and will consider such
comment for purposes of determining eligible countries.

FOR FURTHER INFORMATION CONTACT: Public comments should be submitted
through the MCC Web site at http://www.mcc.gov or in writing addressed

to: Public Comment, Millennium Challenge Corporation, 1000 Wilson
Boulevard, Suite 1411, Arlington, VA 22209.
    Report: Report on the Criteria and Methodology for Determining the
Eligibility of Candidate Countries for Millennium Challenge Account
Assistance in FY 2005.
SUMMARY: This report to Congress is provided in accordance with section
608(b) of the Millennium Challenge Act of 2003, 22 U.S.C.A. 7701,
7707(b) (the ``Act'').
    The Act authorizes the provision of Millennium Challenge Account
(``MCA'') assistance to countries that enter into compacts with the
United States to support policies and programs that advance the
prospects of such countries achieving lasting economic growth and
poverty reduction. The Act requires the Millennium Challenge
Corporation to take a number of steps in determining the countries
that, based on their demonstrated commitment to just and democratic
governance, economic freedom and investing in their people, will be
eligible for MCA assistance during Fiscal Year 2005. These steps
include the submission of reports to the congressional committees
specified in the Act and the publication of Notices in the Federal
Register that identify:
    1. The countries that are ``candidate countries'' for MCA
assistance during

[[Page 53091]]

Fiscal Year 2005 based on their per-capita income levels and their
eligibility to receive assistance under U.S. law and countries that
would be candidate countries but for legal prohibitions on assistance
(section 608(a) of the Act);
    2. The criteria and methodology that the Board of Directors of the
Millennium Challenge Corporation (the ``Board'') will use to measure
and evaluate the relative policy performance of the candidate countries
consistent with the requirements of section 607 of the Act in order to
select ``eligible countries'' from among the ``candidate countries''
(section 608(b) of the Act); and
    3. The list of countries determined by the Board to be ``eligible
countries'' for Fiscal Year 2005, including which of the eligible
countries the Board will seek to enter into MCA compacts (section
608(d) of the Act).
    This report sets out the criteria and methodology to be applied in
determining eligibility for FY 2005 MCA assistance.

Changes to the Criteria and Methodology for FY 2005

    MCC has received constructive input on the indicators since the
announcement of FY 2004's selection criteria and methodology. That
input has been taken into account in creating the criteria and
methodology for the selection of eligible countries for FY05. Since the
selection process for FY05 falls soon after the FY04 selection process,
MCC will not make far-reaching changes this year, as continuity is a
vital concept to the selection methodology. In addition, more time is
necessary to fully evaluate some potential changes, including the use
of additional or different policy indicators. This section describes
two changes in the policy indicators for the FY05 selection process.
This section also outlines some potential changes to the indicators
that will be explored for the FY06 process, in order to solicit
comments from the public and to provide countries an opportunity to
evaluate their performance in these areas prior to the possible
implementation of more substantial changes.
    We hope that by highlighting our intention to look for better and
more comprehensive indicators we will stimulate interest in improving
the available data. In assessing new indicators, we will favor those
that: (1) Are developed by an independent third party, (2) utilize
objective and high-quality data, (3) are analytically rigorous and
publicly available, (4) have broad country-coverage and are comparable
across countries, (5) have a clear theoretical or empirical link to
economic growth and poverty reduction, (6) are policy-linked, i.e.,
measure factors that governments can influence within a two to three
year horizon, and (7) have broad consistency in results from year to
year.
    A summary of the changes (and potential future changes) to the
selection criteria and methodology follows:

Economic Freedom

    Inflation: A new inflation rate of 15 percent will be used in FY05
(down from the 20 percent rate used in FY04), making it slightly more
difficult to pass and a more meaningful test of a country's economic
policies. MCC intends to consider a further reduction to 10 percent for
FY06.
    Management of Natural Resources: As indicated in the FY04 report to
Congress, MCC has been working with experts both inside and outside of
government to explore possible better measures in this area. MCC has
not yet identified a source of reliable, consistent data for assessing
the quality of a country's policies regarding the management of natural
resources. In order to identify an existing natural resources
management indicator or to stimulate development of a new indicator,
MCC intends to establish a working group, chaired by MCC Board Member
Christine Todd Whitman, to work with outside groups and experts to
establish criteria, and invite proposals, for such an indicator.
Pending the results of this work, the Board will rely on the
assessments described in the ``Criteria and Methodology'' section below
for the FY05 selection process.
    Trade Policy: The Trade Policy indicator is viewed by MCC as
valuable and no changes will be made for the FY05 selection process.
MCC intends, however, to conduct a thorough review over the next year
to explore whether a measure of trade barriers more closely linked to
growth is available.
    Entrepreneurial Environment: The Days to Start a Business indicator
is viewed by MCC as a valuable indicator of barriers to
entrepreneurship. In the future, MCC would like to move towards a more
comprehensive measure of a country's policies with respect to
encouraging entrepreneurship and private-sector ownership. As such, in
addition to continuing to use the Days to Start a Business indicator,
in the coming year MCC will be investigating the use of related
indicators, such as costs of starting businesses, time and costs of
enforcing contracts, time and costs of land registration, protection of
property rights, and the private sector's share of the economy.
    Investing in People: MCC has evaluated the indicators in the
Investing in People category and will substitute one indicator for
FY05.
    Girls' Primary Completion Rates: In FY05, we have substituted
Girl's Primary Completion Rates for Primary Completion Rates. We
believe that using completion rate data disaggregated by gender both
continues MCC's focus on the importance of countries investing in the
education of their people while better highlighting the importance of
the well-being of women and girls as contributors to a country's
economic growth and poverty reduction.
    MCC will continue to explore additional ways to measure investments
in people, particularly with respect to women and children, and
anticipates additional changes in FY06. MCC has, in conjunction with
outside experts, researched possible indicators measuring investments
in women's health, children's heath, girls' education, and public
health. We have identified several possible indicators, including
Skilled Attendants at Birth (a proxy for maternal mortality which
measures births attended by medically-trained midwifes, nurses or
doctors), which will be considered more closely for potential use in
FY06.

Criteria and Methodology

    The Board will select eligible countries based on their overall
performance in relation to their peers in three broad policy
categories: Ruling Justly, Encouraging Economic Freedom, and Investing
in People. Section 607 of the Act requires that the Board's
determination of eligibility be based ``to the maximum extent possible,
upon objective and quantifiable indicators of a country's demonstrated
commitment'' to the criteria set out in the Act. For FY 2005, candidate
countries are those countries that have a per capita income equal to or
less than $1465, and are not ineligible to receive United States
economic assistance.
    The Board will make use of sixteen indicators to assess policy
performance of individual countries (specific definitions of the
indicators and their sources are set out in Annex A). These indicators
are grouped for purposes of the assessment methodology under the three
policy categories as follows:

Ruling Justly

1. Civil Liberties
2. Political Rights
3. Voice and Accountability
4. Government Effectiveness
5. Rule of Law

[[Page 53092]]

6. Control of Corruption

Encouraging Economic Freedom

1. Country Credit Rating
2. 1-year Consumer Price Inflation
3. Fiscal Policy
4. Trade Policy
5. Regulatory Quality
6. Days to Start a Business

Investing in People

1. Public Expenditures on Health as Percent of GDP
2. Immunization Rates: DPT3 and Measles
3. Public Primary Education Spending as Percent of GDP
4. Girls Primary Education Completion Rate
    In making its determination of eligibility with respect to a
particular candidate country, the Board will consider whether such
country performs above the median in relation to its peers on at least
half of the indicators in each of the three policy categories and above
the median on the corruption indicator. One exception to this
methodology is that the median is not used for the inflation indicator.
Instead, to pass the indicator, a country's inflation rate needs to be
under a fixed ceiling of 15%. The indicators methodology will be the
predominant basis for determining which countries will be eligible for
MCA assistance. In addition, the Board may exercise discretion in
evaluating and translating the indicators into a final list of eligible
countries. In this respect, the Board may also consider whether any
adjustments should be made for data gaps, lags, trends, or other
weaknesses in particular indicators. Likewise, the Board may deem a
country ineligible if it performs substantially below average on any
indicator and has not taken appropriate measures to address this
shortcoming.
    Where necessary, the Board may also take into account other data
and quantitative information as well as qualitative information to
determine whether a country performed satisfactorily in relation to its
peers in a given category. As provided in the Act, the CEO's report to
Congress setting out the list of eligible countries and which of those
countries the MCC will seek to enter into Compact negotiations will
include a justification for such eligibility determinations and
selections for Compact negotiation.
    There are elements of the criteria set out in the Act for which
there is either limited quantitative information (e.g., rights of
people with disabilities) or no well-developed performance indicator
(e.g., sustainable management of natural resources). Until such data
and/or indicators are developed, in assessing performance in these
areas the Board may rely on supplemental data and qualitative
information. For example, the State Department Human Rights report
contains qualitative information to make an assessment on a variety of
criteria outlined by Congress, such as the rights of people with
disabilities, the treatment of women and children, worker rights, and
human rights. Similarly, as additional information in the area of
corruption, the Board may also consider how the country scores on
Transparency International's Corruption Perceptions Index.
    The Board's assessment of a country's commitment to economic
policies that promote the sustainable management of natural resources
may make use of quantitative and qualitative information such as access
to sanitation, deforestation, conservation of land and marine
resources, land tenure institutions, and protection of threatened and
endangered species. The MCC will continue to consult with experts and
work to refine this approach over time, including by creating a working
group that will establish and make public criteria for the indicator
and continue to explore existing data with the objective of finding a
suitable indicator.

Relationship to Legislative Criteria

    Within each policy category, the Act sets out a number of specific
selection criteria. As indicated above, a set of objective and
quantifiable policy indicators is being used to establish eligibility
for MCA assistance and measure the relative performance by candidate
countries against these criteria. The Board's approach to determining
eligibility ensures that performance against each of these criteria is
assessed by at least one of the sixteen objective indicators. Most are
addressed by multiple indicators. The specific indicators used to
measure each of the criteria set out in the Act are as follows:
    Section 607(b)(1): Just and democratic governance, including a
demonstrated commitment to--
    (A) promote political pluralism, equality, and the rule of law:
Indicators--Political Rights, Civil Liberties, Voice and Accountability
and Rule of Law.
    (B) respect human and civil rights, including the rights of people
with disabilities; Indicators--Political Rights and Civil Liberties.
    (C) protect private property rights; Indicators--Civil Liberties,
Regulatory Quality and Rule of Law.
    (D) encourage transparency and accountability of government; and
Indicators--Political Rights, Civil Liberties, Voice and
Accountability, and Government Effectiveness.
    (E) combat corruption; Indicators--Civil Liberties and Control of
Corruption.
    Where necessary the Board will also draw on supplemental data and
qualitative information, including: the State Department's Human Rights
Report and Transparency International Corruption Perception's Index.
    Section 607(b)(2): Economic freedom, including a demonstrated
commitment to economic policies that--
    (A) encourage citizens and firms to participate in global trade and
international capital markets; Indicators--Country Credit Rating,
Fiscal Policy, Inflation, Trade Policy, and Regulatory Quality.
    (B) promote private sector growth and the sustainable management of
natural resources; Indicators--Inflation, Days to Start a Business,
Fiscal Policy, and Regulatory Quality.
    (C) strengthen market forces in the economy; and Indicators--Fiscal
Policy, Inflation, and Regulatory Quality.
    (D) respect worker rights, including the right to form labor
unions; and Indicators--Civil Liberties.
    Where necessary the Board will also draw on supplemental data and
qualitative information including: the State Department's Human Rights
Report, access to sanitation, deforestation, conservation of land and
marine resources, land tenure institutions, and protection of
threatened and endangered species.
    Section 607(b)(3): Investments in the people of such country,
particularly women and children, including programs that--
    (A) promote broad-based primary education; and Indicators--Girls'
Primary Education Completion Rate and Public Spending on Primary
Education.
    (B) strengthen and build capacity to provide quality public health
and reduce child mortality. Indicators--Immunization and Public
Spending on Health.

Annex A: Indicator Definitions

    The following 16 indicators will be used to measure candidate
countries' adherence to the criteria found in Section 607(b) of the
Act. The indicators are intended to assess the degree to which the
political and economic conditions in a country serve to promote broad-
based sustainable economic growth and thus provide a sound environment
for the use of MCA funds. The indicators are not goals in

[[Page 53093]]

themselves; rather, they measure policies that are necessary conditions
for a country to achieve broad-based sustainable economic growth. The
indicators were selected based on their relationship to growth and
poverty reduction, the number of countries they cover, their
transparency and availability, and their relative soundness and
objectivity. Where possible, the indicators rely on indices of
performance developed by independent sources.
    Ruling Justly:
    (1) Civil Liberties: A panel of independent experts rates countries
on: freedom of expression, association and organizational rights, rule
of law and human rights, and personal autonomy and economic rights.
Source: Freedom House.
    (2) Political Rights: A panel of independent experts rates
countries on: the prevalence of free and fair elections of officials
with real power; the ability of citizens to form political parties that
may compete fairly in elections; freedom from domination by the
military, foreign powers, totalitarian parties, religious hierarchies
and economic oligarchies; and the political rights of minority groups.
Source: Freedom House.
    (3) Voice and Accountability: An index of surveys that rates
countries on: ability of institutions to protect civil liberties, the
extent to which citizens of a country, are able to participate in the
selection of governments, and the independence of the media. Source:
World Bank Institute.
    (4) Government Effectiveness: An index of surveys that rates
countries on: the quality of public service provision, civil services'
competency and independence from political pressures, and the
government's ability to plan and implement sound policies. Source:
World Bank Institute.
    (5) Rule of Law: An index of surveys that rates countries on: the
extent to which the public has confidence in and abides by rules of
society; incidence of violent and non-violent crime; effectiveness and
predictability of the judiciary; and the enforceability of contracts.
Source: World Bank Institute.
    (6) Control of Corruption: An index of surveys that rates countries
on: The frequency of ``additional payments to get things done,'' the
effects of corruption on the business environment, ``grand corruption''
in the political arena and the tendency of elites to engage in ``state
capture.'' Source: World Bank Institute.

Encouraging Economic Freedom

    (1) Country Credit Rating: A semi-annual survey of bankers' and
fund managers' perceptions of a country's risk of default. Source:
Institutional Investor Magazine.
    (2) Inflation: The most recent 12 month change in consumer prices
as reported in the IMF's International Financial Statistics or in
another public forum by the relevant national monetary authorities.
Source: Multiple.
    (3) Fiscal Policy: The overall budget deficit divided by GDP,
averaged over a three-year period. The data for this measure is being
provided directly by the recipient government and will be cross checked
with other sources and made publicly available to try to ensure
consistency across countries. Source: National Governments and IMF WEO.
    (4) Days to Start a Business: The Private Sector Advisory Service
of the World Bank Group works with local lawyers and other
professionals to examine specific regulations that impact business
investment. One of their studies measures how many days it takes to
open a new business. Source: World Bank.
    (5) Trade Policy: A measure of a country's openness to
international trade based on average tariff rates and non-tariff
barriers to trade. Source: The Heritage Foundation's Index of Economic
Freedom.
    (6) Regulatory Quality Rating: An index of surveys that rates
countries on: the burden of regulations on business, price controls,
the government's role in the economy, foreign investment regulation and
many other areas. Source: World Bank Institute.

Investing in People

    (1) Public Expenditure on Health: Total expenditures by government
at all levels on health divided by GDP. Source: National Governments.
    (2) Immunization: The average of DPT3 and measles immunization
rates for the most recent year available. Source: The World Health
Organization WHO.
    (3) Total Public Expenditure on Primary Education: Total
expenditures by government at all levels on primary education divided
by GDP. Source: National Governments.
    (4) Girls' Primary Completion Rate: The number of female students
completing primary education divided by the population in the relevant
age cohort. Source: World Bank and UNESCO.

    Dated: August 26, 2004.
Paul V. Applegarth,
Chief Executive Officer, Millennium Challenge Corporation.
[FR Doc. 04-19859 Filed 8-30-04; 8:45 am]

BILLING CODE 9210-01-P