MILLENNIUM CHALLENGE CORPORATION (MCC) BOARD

UNCLAS SECTION 01 OF 05 STATE 130865 SIPDIS ALSO FOR USAID (MELLIS) USTR FOR EBRYAN TREASURY FOR BPELTON E.O. 12958: N/A TAGS: EAID PREL PGOV ETRD ECON KMCA MCC SUBJECT: MILLENNIUM CHALLENGE CORPORATION (MCC) BOARD SELECTS COUNTRIES FOR FISCAL YEAR 2010 ¶1. This message contains an action request for action addressees (FY10 MCA Compact eligible countries) in paragraph ¶10. ¶2. SUMMARY. The Millennium Challenge Corporation,s (MCC) Board of Directors met December 9, 2009 to select countries as eligible for Millennium Challenge Account (MCA) Compact and Threshold Program assistance for fiscal year 2010 (FY10). For the first time, the Board considered current MCC partner countries that are nearing completion of their current Compacts for eligibility for second Compacts. No new countries were selected as Compact-eligible this year. The Board selected one current Compact country -- Cape Verde -- as eligible for a second MCA Compact. The Board also re-selected six countries that had been selected in a prior fiscal year and are developing but have not yet signed Compacts -- Indonesia, Jordan, Malawi, Moldova, the Philippines, and Zambia. No new countries were selected as Threshold-eligible. This cable provides guidance on the FY10 MCC selection process as well as talking points for: -- All countries (paragraph 11); -- Countries selected as eligible for second Compacts (paragraph 12); -- Countries currently implementing Compacts (paragraph 13); -- Countries currently implementing Threshold programs (paragraph 14); -- Candidate countries not selected for FY10 (paragraph 15); and -- Donor countries (paragraph 16). For additional talking points, please contact MCC at developmentpolicy@mcc.gov. Letters from MCC CEO Daniel Yohannes will be provided separately by email for delivery by Posts to heads of government of FY10 MCA Compact eligible countries. END SUMMARY. ¶3. Chaired by Secretary Clinton, MCC,s Board of Directors met December 9, 2009, to select countries as eligible for MCA Compact and Threshold Program assistance for FY10. No new countries were selected as Compact-eligible this year. The Board re-selected six countries that are developing but have not yet signed Compacts: Indonesia, Jordan, Malawi, Moldova, the Philippines, and Zambia. Last year, MCC discontinued the practice of annually making eligibility determinations for countries with signed Compacts. For the first time, the Board considered current MCC partner countries that are nearing completion of their current Compacts for eligibility for second Compacts. The Board selected one current Compact country ) Cape Verde ) as eligible for a second Compact. ¶4. The Board did not select any new countries as Threshold eligible. Countries with signed Threshold Program agreements do not need to be reselected each year. BACKGROUND -------------- ¶5. MCC supports programs that reduce poverty and promote sustainable economic growth in poor countries that have demonstrated a broad commitment to sound development policies. This commitment is measured predominantly by performance on 17 independent, third-party indicators grouped into three broad policy categories: Ruling Justly, Investing in People, and Economic Freedom. In determining eligibility, the Board considers whether a country performs above the median relative to its income-level peers on at least half of the indicators in each of the three categories, as well as on the &Control of Corruption8 indicator. The Board also weighs heavily countries, performance on the three democracy indicators (&Political Rights8, &Civil Liberties8, and &Voice and Accountability8). To address limitations of the indicators ) including gaps, time lags, and other factors not adequately captured in the indicators ) the Board also takes into account supplemental quantitative and qualitative information. ¶6. In addition to performance on the indicators, the Board STATE 00130865 002 OF 005 also considers the opportunity for economic growth and poverty reduction in a country, as well as the availability of funds appropriated for MCC. Regardless of the fiscal year of initial selection, there is no guarantee that any MCA-eligible country will complete a Compact agreement with MCC or receive funding. Compact finalization also depends on the quality of the country,s program proposal and the funds available to MCC. ¶7. Candidate Countries: In FY10, there were 87 candidate countries from which eligible countries could be selected, as well as 11 countries that meet the income parameters for candidacy but are not candidates due to statutory restrictions. The 87 candidate countries identified for FY10 fall into two groups: -- Low Income Countries (LICs),defined as countries with a Gross National Income (GNI) per capita of $1,855 or less, and -- Lower Middle Income Countries (LMICs),defined as countries with a GNI per capita of $1,856-$3,855. Income group classification cutoffs are adjusted annually. There are 56 LIC candidates and 31 LMIC candidates this year. The LMIC category was introduced in FY06 and is accompanied by a legislative restriction on funding; LMICs can only compete for up to 25% of compact funds in a given fiscal year. Candidate countries are listed on the MCC website (www.mcc.gov). ¶8. MCA Compact programs: A Compact is a multi-year agreement between MCC and an eligible country to fund specific programs targeted at reducing poverty and stimulating economic growth. These programs must be developed in consultation with a country's citizens, must be able to measure both economic growth and poverty reduction, and must be implemented, managed and maintained by the country. ¶9. Threshold Programs: Countries that have not been selected as Compact-eligible but are close to meeting the indicator criteria and have demonstrated a commitment to making the policy reforms necessary to qualify for Compact eligibility may be selected as eligible to participate in a Threshold program. Threshold programs provide eligible countries with an opportunity to apply for financial support for reforms they propose that are intended to improve policy performance in areas where there are weaknesses, as evidenced in the indicators. For more on Threshold programs please see the relevant section on MCC,s website (www.mcc.gov). ¶10. ACTION REQUESTED: All posts may draw on the background points in paragraph 11, as appropriate. -- MCC CEO Daniel Yohannes has notified the Ambassador of Cape Verde of the country,s eligibility and requests that Embassy Praia deliver the points in paragraph 12, along with a letter from CEO Yohannes informing the President of Cape Verde of the results. MCC will send the text of the letter to Post separately by e-mail. -- MCC has contacted Posts in reselected countries (Indonesia, Jordan, Malawi, Moldova, Philippines, and Zambia),and letters to the heads of state in each country regarding their reselection are forthcoming. MCC will provide additional country-specific talking points as needed. -- Posts in countries currently implementing Compacts may refer to the points in paragraph 13; Posts in countries currently implementing or developing Threshold programs may refer to the points in paragraph 14; and Posts in candidate countries that were not selected may draw on points in paragraph 15. MCC will provide additional country specific points as needed. -- Posts are also encouraged to deliver information about new country selections to donors, drawing on the general background information contained in paragraph 16. -- Questions from Posts or host governments regarding selection can be directed to MCC,s Office of Development Policy at developmentpolicy@mcc.gov or 202-521-3926. ¶11. BACKGROUND/GENERAL POINTS FOR ALL COUNTRIES: STATE 00130865 003 OF 005 -- The Board of Directors used data from 17 independent, third-party indicators to assess the degree to which the country,s political and economic policies serve to support broad-based, sustainable economic growth. The Board also took into account additional quantitative and qualitative information to adjust for gaps, time lags, or other weaknesses in the data to inform its eligibility determinations. The Board also considered MCC,s ability to impact and stimulate economic growth and poverty reduction in a country, as well as the availability of funds. -- MCC,s report to the U.S. Congress explaining the Board,s determination of MCA-eligible countries will be posted on MCC,s website (www.mcc.gov) in the next few days. -- The Board also reviewed the performance of MCC,s current Compact development partners. Countries that are developing Compacts but have not yet signed agreements were considered for reselection so that they could be eligible for 2010 funds and continue Compact development. The Board re-selected six countries to continue developing their Compacts: Indonesia, Jordan, Malawi, Moldova, the Philippines, and Zambia. -- The Millennium Challenge Corporation,s Board of Directors has selected one current Compact partner country -- Cape Verde -- as eligible to submit a proposal for a second MCA Compact, based on its performance on MCC,s ruling justly, economic freedom, and investing in people indicators. Selection for Compact eligibility is a recognition of Cape Verde for its policy performance in these three broad areas as well as its track record of performance implementing and achieving results under its current Compact. ¶12. ADDITIONAL POINTS FOR CAPE VERDE AS A COUNTRY ELIGIBLE FOR A SECOND COMPACT: -- Congratulations on being selected as eligible for MCA assistance for a second Compact. This is recognition of the good policies your government has put in place in the areas measured by MCC,s indicators as well as the progress your government has made to date implementing and achieving results under your current MCA Compact. -- A letter from MCC Chief Executive Officer Daniel Yohannes will provide official notification of selection and invite your country to submit a proposal for a second MCA Compact program. -- As before, while being selected is recognition of relatively good policy performance, assistance is not guaranteed and will be contingent on, among other things, continued strong policy performance (including, but not limited to, performance on MCC indicators),the successful implementation of your current Compact, the successful negotiation of a mutually agreeable second Compact between your country and MCC, the approval of that Compact by the MCC Board, and the availability of funds to MCC. ¶13. ADDITIONAL POINTS FOR COUNTRIES CURRENTLY IMPLEMENTING COMPACTS: -- MCC,s Board has decided that once MCC makes a commitment to a country through a signed, five-year Compact agreement, that country will no longer be subject to the annual re-selection process during the term of the Compact. -- However, MCC and its Board of Directors continue to evaluate closely each country,s policy performance throughout the life of the Compact. Once MCC has made a commitment to a country through a signed Compact, MCC will continue to work with that country as long as it does not demonstrate a pattern of actions inconsistent with the eligibility criteria (i.e. a &significant policy reversal8). -- If it is determined that a country has demonstrated a significant policy reversal, the Board can hold it accountable by applying the Suspension and Termination Policy. The Board has made such decisions in a number of recent cases. -- Countries interested in second Compacts, after the expiration of their current Compact, will need to be selected STATE 00130865 004 OF 005 as eligible for funding. The criteria for second Compact eligibility includes a combination of performance on MCC,s policy indicators and successful implementation of the first Compact. -- For Burkina Faso and Indonesia: Countries that do not meet the indicator criteria for the first time since their initial selection as Compact eligible, but that have not demonstrated a significant policy reversal, will receive an invitation from MCC to participate in the policy improvement process, a dialogue with MCC about performance on the indicators. More information on the policy improvement process for individual countries will be forthcoming. ¶14. ADDITIONAL POINTS FOR COUNTRIES CURRENTLY IMPLEMENTING OR DEVELOPING THRESHOLD PROGRAMS: -- MCC,s Board has decided that once MCC makes a commitment to a country through a signed, Threshold Program agreement, that country will no longer be subject to the re-selection process during the term of the agreement. -- However, MCC and its Board of Directors continue to evaluate closely each country,s policy performance throughout the term of the agreement. MCC will continue to work with a country implementing a Threshold program as long as it does not demonstrate a pattern of actions inconsistent with the eligibility criteria (i.e. a &significant policy reversal8). -- If it is determined that a country has demonstrated a significant policy reversal, the Board can hold it accountable by applying the Suspension and Termination Policy. The Board has made such decisions in a number of cases. -- For Liberia and Timor-Leste: Your country,s Threshold program will be funded using funds from fiscal year 2009, the year your country was initially selected as Threshold-eligible, so it did not require reselection by the Board this year. MCC looks forward to continuing to develop a Threshold country program with your country. ¶15. ADDITIONAL POINTS FOR MCA CANDIDATE COUNTRIES NOT SELECTED AS ELIGIBLE FOR MCA ASSISTANCE FOR FY10: -- MCC is built on the premise that aid is most effective when it reinforces good governance, investments in health, education, the environment, and economic freedom. We believe sound policies are key to encouraging domestic and foreign investment and increased trade -- the real engines of economic growth. -- MCC is committed to supporting those countries that are themselves committed to good governance, sound micro- and macroeconomic policies that support the development of the private sector, and investments in their populations, as these policies create favorable conditions for sustainable economic growth. -- The selection of eligible countries was based on countries, policy performance in these areas. The indicators were used to provide a measure of countries, policies and whether the government has created the conditions that are linked to broad-based sustainable economic growth. (NOTE FOR POSTS: Embassies may wish to customize the preceding talking points by looking at the country-by-country scorecards on the MCC website. If specific talking points are required, please contact MCC.) -- The MCC Board,s decision applies only to U.S. assistance under the Millennium Challenge Account (MCA),not to assistance provided by other U.S. agencies, including the U.S. Agency for International Development (USAID). -- In order to qualify for MCA assistance in future years, countries would need to focus on their efforts to improve policies which support ruling justly, economic freedom, and social investments, as measured by MCC,s 17 policy indicators. STATE 00130865 005 OF 005 (IF RAISED: Points for use with Albania and Georgia.) -- The MCC Board made special note at its December 9 meeting of the positive performance of Albania and Georgia as MCC partners. -- MCC signed a second Threshold program with Albania last October ) worth over $15.7 million ) to support anti-corruption activities. Albania has made significant progress as an economic reformer and now passes MCC,s indicator criteria as a lower middle income country. -- Likewise, Georgia has been a consistent economic reformer and has made great strides to reduce poverty through its $393.5 million Compact. Georgia has 18 months remaining in the term of its Compact and may be considered by the Board for a second Compact at a later date. ¶16. ADDITIONAL POINTS FOR DONORS (for use with donors in eligible countries and by Posts in donor countries): -- MCC is providing all countries selected as eligible for MCA Compact assistance for FY10 with an official letter notifying them of their selection. For Cape Verde, which was selected for second Compact eligibility, the letter will invite the country to submit a proposal for an MCA Compact concept paper. Countries selected in a prior fiscal year that were re-selected to continue Compact development will be advised of their continuing eligibility but do not need to submit a new concept paper. -- MCC will also provide guidance on the MCA proposal and the process and expectations for developing a second Compact. -- MCA assistance is not guaranteed but will be contingent on continued strong policy performance, the successful completion of any current MCA Compacts (if applicable),the successful negotiation of a mutually agreeable Compact between the eligible country and MCC, approval of the Compact by the MCC Board, and the availability of funds to MCC. -- The quality of the country,s MCA proposal -- including, among other factors, how well the country has demonstrated the relationship between the proposed priority areas and economic growth and poverty reduction, the quality of the consultative process that informed its development, and commitment to continued policy improvement relevant to the proposed MCA program -- will influence the speed with which a Compact can be negotiated and the amount and timing of any MCA assistance, as well as any recommendation to the Board to approve a Compact. -- Coordination with other donors is a priority for MCC. MCA-eligible countries will bear the responsibility, in the first instance, for ensuring that MCA programs are well coordinated with the efforts of other donors and their own budgetary expenditures. All Compact proposals will be required to describe the relationship between the proposed MCA-program and the activities of other donors and the host government itself. MCC will work directly with other donors to ensure that this coordination is working. -- We look forward to opportunities to discuss MCC with donor representatives in capitals, MCA countries, and Washington. Questions from bilateral and multilateral donors may be directed to Tom Kelly, Acting Managing Director for Development Policy and the Threshold Program, kellyTJ@mcc.gov. ¶17. The Department and MCC appreciate Posts, support of the MCC program. CLINTON