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MCC’s Selection Process:

Monitoring Government
Performance

Thomas Kelly
Senior Director, Economic Policy
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Millennium Challenge Corporation

• Fulfillment of Monterrey commitment to “provide

greater resources to countries taking greater
responsibility for their own development.”

• Established in law January 2004.

• Mandate is to “reduce poverty through

economic growth”.
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Based on Key Lessons of Aid

• Policies

• Country Ownership

• Results
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Policy Performance

• Aid is most effective when it reinforces good

governance, investments in people, and
economic freedom

• Why MCC was created - Reward and

Incentive

• Selective Program – one tool in USG toolbox

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Eligibility for MCC Programs

• Quantitative measures of policy performance

– Objective third party in indicator institutions
– 17 indicators in 3 categories
• Ruling Justly
• Investing in People
• Economic Freedom
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Country Selection: Policies Critical to

Growth & Poverty Reduction
Ruling Justly: A country’s commitment to…
– promote political pluralism,
– equality and the rule of law;
– respect for human and civil rights;
– private property rights;
– transparency and accountability of government;
– commitment to combating corruption
Investing In People: Investments in
– broad based education
– public health
– sustainable management of natural resources.
Encouraging Economic Freedom: economic policies that promote…
– trade
– macroeconomic stability
– private sector growth
– sustainable management of natural resources
– market forces
– respect for workers rights.
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Indicators: 3 Categories
Ruling Justly Economic Freedom Investing in People
Civil Liberties Business Start-Up Public Expenditure on Health as
percentage of GDP

Political Rights Inflation Immunization rates: DPT3 &

Measles

Voice & Accountability Fiscal Policy Public Expenditure on Primary

Education as percentage of
GDP

Government Effectiveness Trade Policy Girls Primary Education

Completion Rate

Rule of Law Regulatory Quality Natural Resource Management

Control of Corruption Land Rights and Access

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Citizen Experiences
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Selection Process

Process:
• 17 indicators, 3 categories
•2 income categories
• Indicator Score > median 
pass
• Pass > ½ indicators in each
category & control of corruption
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Indicator Category: Economic Freedom

Kenya FY08
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Indicator Category: Investing in People

Kenya FY08
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Indicator Category: Ruling Justly

Kenya FY08
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FY ’08: Countries in LIC and LMIC Income

Categories: 108
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FY ’08 Candidate Countries: 95

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FY ’08: Countries that pass all three

categories: 34
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FY ’08: Countries that pass all three

categories and Corruption: 25
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Threshold Program

• For countries that didn’t qualify but are close and moving
in the right direction

• This program focuses on the indicators the country does

not fulfill

• Ideally, a threshold country will become an eligible

country
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The Incentive Effect

• “In a short span of time…[by tracking very simple

indicators on investment climate]…you can see that the
Millennium Challenge Account has affected two dozen
countries… 24 countries in one way or another have come
to us and either have asked for ways to reform, have
already reformed, or would like to be bench-marked so
that they are considered for the Millennium Challenge
Account…. That is, in my view, quite a success.”

Simeon Djankov Manager of the Monitoring and Analysis Unit,

International Finance Corporation June 24, 2005
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Where Are We?

• 25 countries eligible for MCA Compacts.

16 Compacts signed and 9 others in the pipeline.

• About $5.5 billion committed to date for Compacts.

• 21 countries eligible for Threshold Program that aims to

help countries improve policies in areas where they fall
short so they might qualify in the future. 18 Threshold
programs approved to date for roughly $400 million.
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