[Federal Register Volume 72, Number 186 (Wednesday, September 26, 2007)]
[Notices]
[Pages 54680-54686]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 07-4752]


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MILLENNIUM CHALLENGE CORPORATION

[MCC FR 07-11]


Report on the Selection of Eligible Countries for Fiscal Year 
2008

AGENCY: Millennium Challenge Corporation.

ACTION: Notice.

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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'').

    Dated: September 21 2007.
Henry Pitney,
(Acting) Vice President & General Counsel, Millennium Challenge 
Corporation.

Report on the Selection of Eligible Countries for Fiscal Year 2008

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 (MCC) 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 and the opportunity to reduce 
poverty and generate economic growth in the country, will be eligible 
for MCA assistance during Fiscal Year 2008 (FY08). 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 FY08 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 specified legal prohibitions 
on assistance (section 608(a) of the Act);
    2. The criteria and methodology that the Board of Directors of MCC 
(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 ``MCA 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 ``MCA 
eligible countries'' for FY08, with justification for eligibility 
determination and selection for compact negotiation, including which of 
the MCA 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 FY08 MCA assistance.

Changes to the Criteria and Methodology for FY08

    MCC reviews all of its indicators annually to ensure the best 
measures are being used and, from time to time, recommends changes or 
refinements if MCC identifies better indicators or improved sources of 
data. MCC takes into account public comments received on the previous 
year's criteria and methodology and consults with a broad range of 
experts in the development community and within the U.S. Government. In 
assessing new indicators, MCC favors those that: (1) Are developed by 
an independent third party; (2) utilize objective and high quality data 
that rely upon an analytically rigorous methodology; (3) are publicly 
available; (4) have broad country coverage; (5) are comparable across 
countries; (6) have a clear theoretical or empirical link to economic 
growth and poverty reduction; (7) are policy linked (i.e., measure 
factors that governments can influence within a two to three year 
horizon); and (8) have broad consistency in results from year to year. 
There have been numerous noteworthy improvements to data quality and 
availability as a result of MCC's application of the indicators and the 
regular dialogue MCC has established with the indicator institutions. 
While improvements to the selection criteria are critical, MCC is also 
mindful of the need to provide countries with a fairly stable set of 
policy criteria to meet, if MCC is to create significant incentives for 
reform. This factor is also taken into account when MCC is considering 
indicator changes.
    Considering these factors and the input on the indicators during 
the FY07 public comment period, MCC has conducted extensive research 
and consultations with experts and relevant stakeholders in the 
development community. That input has been taken into account in 
creating the criteria and methodology for the selection of compact 
eligible countries for FY08.
1. Natural Resource Management Indicators
    MCC is incorporating two measures--a Natural Resource Management 
index and a Land Rights and Access index-- into the FY08 selection 
criteria and MCC Scorecard. In FY07, MCC concluded a public search for 
indicators to address MCC's congressional mandate of measuring ``a 
country's economic policies that promote sustainable management of 
natural resources.'' MCC's Board of Directors approved these indicators 
as supplemental information for the FY07 selection process and, for 
later consideration as part of the formal selection criteria in FY08. 
This gradual integration of the Natural Resource Management and Land 
Rights and Access indicators into the formal eligibility criteria was 
designed to provide adequate notice to compact, threshold and candidate 
countries of the new measures and their performance before the new 
indicators were formally adopted. Over the course of the last year, MCC 
brought the new indicators--and any relevant performance issues-- to 
the attention of candidate, threshold and compact countries. MCC also 
conducted extensive consultation on the appropriate placement of the 
indicators into the respective policy categories contained on the MCC 
Scorecard. A brief summary of the indicators follows; a detailed 
rationale for the adoption of these indicators can be found in the FY07 
Selection Criteria and Methodology Report.

Natural Resource Management Index

    The Natural Resource Management Index has four sub-component 
indicators and is jointly produced by the Center for International 
Earth Science Information Network (CIESIN) and the Yale Center for 
Environmental Law and Policy (YCLEP).
    <bullet> Eco-Region Protection: Produced by CIESIN, this component 
assesses whether countries are protecting at least 10 percent of all 
their biomes (e.g., deserts, tropical rainforests, grasslands, savannas 
and tundra). It is designed to capture the comprehensiveness of a 
government's commitment to habitat preservation and biodiversity 
protection. The World Wildlife Fund provides the underlying biome data, 
and

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the United Nations Environment Program World Conservation Monitoring 
Center--in partnership with the IUCN World Commission on Protected 
Areas and the World Database on Protected Areas Consortium-- provides 
the underlying data on protected areas.
    <bullet> Access to Improved Water: Produced by the World Health 
Organization (WHO) and the United Nations Children's Fund (UNICEF), 
this component measures the percentage of the population with access to 
at least 20 liters of water per person per day from an ``improved'' 
source (household connections, public standpipes, boreholes, protected 
dug wells, protected springs and rainwater collection) within one 
kilometer of the user's dwelling.
    <bullet> Access to Improved Sanitation: Produced by the WHO and 
UNICEF, this component measures the percentage of the population with 
access to facilities that hygienically separate human excreta from 
human, animal and insect contact. Such facilities include sewers or 
septic tanks, poor-flush latrines and simple pit or ventilated improved 
pit latrines, provided that they are not public.
    <bullet> Child Mortality (Ages 1-4): Produced by the Population 
Division of the United Nations Department of Economic and Social 
Affairs, this indicator measures the probability of a child dying 
between the ages of 1 and 4. Since the underlying causes of child 
mortality among 1-4 year olds are predominantly environmental, this 
indicator is considered to be an excellent proxy for environmental 
conditions.

Land Rights and Access Index

    The Land Rights and Access Index includes three indicators:
    <bullet> Access to Land: Produced by the International Fund for 
Agricultural Development (IFAD), this indicator assesses the extent to 
which the institutional, legal and market framework provides secure 
land tenure and equitable access to land in rural areas. It is made up 
of five subcomponents: (1) The extent to which the law guarantees 
secure tenure for land rights of the poor; (2) the extent to which the 
law guarantees secure land rights for women and other vulnerable 
groups; (3) the extent to which land is titled and registered; (4) the 
functioning of land markets; and (5) the extent to which government 
policies contribute to the sustainable management of common property 
resources.
    <bullet> Days to Register Property: Produced by the International 
Finance Corporation (IFC), this component measures how long it takes to 
register property in the capital city. The IFC records the full amount 
of time necessary when a business purchases land and a building, and to 
transfer the property title from the seller to the buyer so that the 
buyer can use the title for expanding business, as collateral in taking 
new loans, or, if necessary, to sell to another business.
    <bullet> Cost of Registering Property: Produced by the IFC, this 
component measures the cost to register property as a percentage of the 
value of the property in the capital city. The IFC records all of the 
costs that are incurred when a business purchases land and a building 
to transfer the property title from the seller to the buyer, so that 
the buyer can use it for expanding his business, as collateral in 
taking new loans, or, if necessary, to sell it to another business.

Placement of the Natural Resource Management Indicators

    Reflecting extensive public consultations about the placement of 
these indicators, MCC will place the Natural Resource Management index 
in the Investing in People category and the Land Rights and Access 
index in the Economic Freedom category. Investing in People means, 
among other things, investing in the assets required for a sustainable 
livelihood. The Natural Resource Management index measures whether 
governments are investing their resources in ways that will enable poor 
people, particularly poor women and children, to live healthy and 
productive lives. Land is also a crucial asset and a social safety net 
that poor people rely on to improve their well-being; however, the Land 
Rights and Access index also clearly captures a government's commitment 
to secure property rights and sound economic policy, which will 
strengthen the Economic Freedom category.

2. Combining the Time and Cost of Starting a Business Into a Single 
Index

    MCC will combine two existing International Finance Corporation 
(IFC) indicators--Days to Start a Business and Costs to Start a 
Business--with equal weight into one index called Business Start-Up. 
The creation of a single Business Start-Up index, in conjunction with 
the addition of the Land Rights and Access index to the Economic 
Freedom category, will strengthen the Economic Freedom category and 
enhance MCC's ability to better measure countries' overall economic 
policies.

Business Start-Up Index

    The Business Start-Up index is made up of two indicators produced 
by the IFC:
    <bullet> Days to Start a Business: This component measures the 
number of calendar days it takes to comply with all procedures that are 
officially required for an entrepreneur to start up and formally 
operate an industrial or commercial business. These include obtaining 
all necessary licenses and permits and completing any required 
notifications, verifications or inscriptions for the company and 
employees with relevant authorities.
    <bullet> Cost of Starting a Business: This component measures the 
cost of starting a business as a percentage of country's per capita 
income. The IFC records all procedures that are officially required for 
an entrepreneur to start up and formally operate an industrial or 
commercial business. These include obtaining all necessary licenses and 
permits and completing any required notifications, verifications or 
inscriptions for the company and employees with relevant authorities.

Potential Future Changes

    In addition to the changes identified in this Report, MCC will 
explore potential changes to the indicators for future years. MCC will 
continue to explore potential measures of educational quality for 
inclusion in the Investing in People category in future fiscal years.
    In FY07, MCC pursued an intensive research and consultation agenda 
to explore the possibility of adding a new education indicator to the 
Investing in People category. However, MCC was unable to identify an 
indicator that would significantly strengthen the selection criteria in 
FY08. Over the last fifteen years, much attention has been focused on 
enrolling and keeping more children in school, but not necessarily on 
enhancing the quality of education. With the support of the World Bank, 
USAID, UNESCO and others, efforts are currently underway to develop 
cross-country measures of the quality of education and learning 
outcomes. However, these efforts are still in a nascent stage and there 
are currently no education quality indicators that are viable for MCC 
purposes at this time. MCC will continue to monitor and support these 
efforts, with an eye towards adopting a measure of education quality in 
a future fiscal year.

Criteria and Methodology

    The Board will select eligible countries based on the following, 
among

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other factors: (1) Their overall performance in relation to their peers 
in three broad policy categories--Ruling Justly, Encouraging Economic 
Freedom and Investing in People; (2) the opportunity to reduce poverty 
and generate economic growth. 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 FY08, 
there will be two groups of candidate countries--low-income countries 
and lower middle-income countries. Low-income candidate countries refer 
to those countries that have a per capita income equal to or less than 
$1,735 and are not ineligible to receive United States economic 
assistance under part I of the Foreign Assistance Act of 1961 by reason 
of the application of any provision of the Foreign Assistance Act or 
any other provision of law. Lower middle-income candidate countries are 
those that have a per capita income between $1,736 and $3,595 and are 
not ineligible to receive United States economic assistance.
    The Board will make use of seventeen 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 FY08 assessment methodology under the 
three policy categories listed below.

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                                 Encouraging economic
         Ruling justly                  freedom                            Investing in people
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Civil Liberties...............  Inflation.............  Public Expenditure on Health.
Political Rights..............  Fiscal Policy.........  Public Expenditure on Primary Education.
Voice and Accountability......  Business Start-Up.....  Immunization Rates (DPT3 and Measles).
Government Effectiveness......  Trade Policy..........  Girls' Primary Education Completion.
Rule of Law...................  Regulatory Quality....  Natural Resoure Management.
Control of Corruption.........  Land Rights and Access
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    In making its determination of eligibility with respect to a 
particular candidate country, the Board will consider whether a country 
performs above the median in relation to its peers on at least half of 
the indicators in the Ruling Justly and Economic Freedom categories, 
above the median on at least three of the five indicators in the 
Investing in People category, and above the median on the Control of 
Corruption indicator. One exception to this methodology is that the 
median is not used for the Inflation indicator. Instead, to pass the 
Inflation indicator a country's inflation rate needs to be under a 
fixed ceiling of 15 percent. The Board will also take into 
consideration whether a country performs substantially below the median 
on any indicator (i.e. in the bottom 25th percentile) and has not taken 
appropriate measures to address this shortcoming. The indicator 
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 performance on the indicators and 
determining a final list of eligible countries.
    Where necessary, the Board may also take into account other 
quantitative and qualitative information (``supplemental information'') 
to determine whether a country performed satisfactorily in relation to 
its peers in a given category. 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. Until such data and/or indicators are 
developed, the Board may rely on additional data and qualitative 
information to assess policy performance. The Board may also consider 
whether any adjustments should be made for data gaps, lags, trends or 
other weaknesses in particular indicators. 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 consider how a 
country scores on Transparency International's Corruption Perceptions 
Index and the Global Integrity Index, as well as on the defined 
indicator.
    Compact eligible partners are accountable for maintaining and 
improving policy performance. MCC recognizes and expects that partner 
countries may not meet the formal eligibility criteria from time to 
time due to a number of common factors, such as changes in the peer-
group median; graduation into a new income category (e.g., from low 
income to lower middle income); numerical declines that are within the 
margin of error; slight declines in policy performance; revisions or 
corrections of data; the introduction of new sub-data sources; or 
changes in the indicators used to measure performance. MCC may suspend 
or terminate eligibility for a substantial decline in performance which 
is characterized by a pattern of events, or a single egregious event, 
that signal a significant policy reversal inconsistent with MCC's 
selection criteria. When making a decision to suspend or terminate 
eligibility, MCC will also consider the extent to which country 
partners are taking action to reverse significant declines in 
performance.
    As provided in the Act, following the determination of eligible 
countries, the Chief Executive Officer's report to Congress will set 
out the list of eligible countries, identify which of those countries 
the MCC will seek to enter into Compact negotiations, and include a 
justification for such eligibility determinations and selections for 
Compact negotiation.

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 seventeen objective indicators. Most 
are addressed by multiple indicators. The specific indicators used to 
measure each of the criteria set out in the Act are listed below.
    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.

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    (C) Protect private property rights;
    Indicators--Civil Liberties, Regulatory Quality, Rule of Law and 
and Land Rights and Access.
    (D) Encourage transparency and accountability of government; and
    Indicators--Political Rights, Civil Liberties, Voice and 
Accountability, Control of Corruption, and Government Effectiveness.
    (E) Combat corruption;
    Indicators--Civil Liberties, Rule of Law, and Control of 
Corruption.
    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--Fiscal Policy, Inflation, Trade Policy, Business Start-
Up, and Regulatory Quality.
    (B) Promote private sector growth and the sustainable management of 
natural resources;
    Indicators--Inflation, Business Start-Up, Fiscal Policy, Land 
Rights and Access, Natural Resource Management, and Regulatory Quality.
    (C) Strengthen market forces in the economy; and
    Indicators--Fiscal Policy, Inflation, Trade Policy, Business Start-
Up, and Regulatory Quality.
    (D) Respect worker rights, including the right to form labor 
unions;
    Indicators--Civil Liberties and Voice and Accountability.
    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 (B) strengthen and build capacity to 
provide quality public health and reduce child mortality. 
    Indicators--Girls' Primary Education Completion, Public Expenditure 
on Primary Education, Immunization Rates, Public Expenditure on Health, 
and Natural Resources Management.
    Where necessary, the Board will also draw on supplemental data and 
qualitative information, including the State Department's Human Rights 
Report, Transparency International's Corruption Perceptions Index, and 
the Global Integrity Index.

Annex A: Indicator Definitions

    The following 17 indicators will be used to measure candidate 
countries' demonstrated commitment 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 reduction of 
poverty; and thus provide a sound environment for the use of MCA funds. 
The indicators are not goals in 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 economic growth and poverty reduction, the 
number of countries they cover, their transparency and availability and 
their relative soundness and objectivity. Where possible, the 
indicators are 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 each 
country 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 nonviolent 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. 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: The 
International Monetary Fund's World Economic Outlook (WEO) database.
    2. Fiscal Policy: The overall budget deficit divided by GDP, 
averaged over a three-year period. The data for this measure is 
provided directly by the recipient government and cross-checked with 
other sources and made publicly available to try to ensure consistency 
across countries. Source: National Governments and the International 
Monetary Fund's World Economic Outlook (WEO) database.
    3. Business Start-Up: An index that rates countries on: The time 
and cost of complying with all procedures officially required for an 
entrepreneur to start up and formally operate an industrial or 
commercial business. Source: International Finance Corporation.
    4. Trade Policy: A measure of a country's openness to international 
trade based on weighted average tariff rates and non-tariff barriers to 
trade. Source: The Heritage Foundation's Index of Economic Freedom.
    5. Regulatory Quality: An index of surveys that rates each country 
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.
    6. Land Rights and Access: An index that rates countries on: The 
extent to which the institutional, legal, and market framework provide 
secure land tenure and equitable access to land in rural areas and the 
time and cost of property registration in urban and peri-urban areas. 
Source: The International Fund for Agricultural Development (IFAD) and 
the International Finance Corporation.

Investing in People

    1. Public Expenditure on Health: Total expenditures by government 
at all levels on health divided by GDP. Source: The World Health 
Organization (WHO).
    2. Immunization Rates: 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 of primary education divided 
by GDP. Source: The United Nations Educational, Scientific

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and Cultural Organization (UNESCO) and 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 the United Nations Educational, 
Scientific and Cultural Organization (UNESCO).
    5. Natural Resource Management: An index made up of four 
indicators: eco-region protection, access to improved water, access to 
improved sanitation, and child mortality within the 1-4 age cohort. 
Source: The Center for International Earth Science Information Network 
(CIESIN) and the Yale Center for Environmental Law and Policy (YCLEP).
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Appendix B Sample Country Scorecard
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[FR Doc. 07-4752 Filed 9-25-07; 8:45 am]
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