THE MILLENNIUM CHALLENGE ACCOUNT | Data.org

The Millennium Challenge Account
An innovative approach to development assistance

10.06

What is it?
The Millennium Challenge Account (MCA) is an innovative approach to foreign assistance that delivers substantial new resources to a carefully selected group of poor countries to support development and poverty reduction. The MCA was announced by President Bush in March 2002 and is administered by the Millennium Challenge Corporation (MCC), a new government corporation supervised by a Board of Directors composed of Cabinet level officers and representatives of civil society.

Why is it important?
The MCA offers a new commitment to fighting poverty through a new partnership with the developing world—if developing countries take the steps forward to help their people and fight corruption, then the U.S. will help fund their development priorities. The U.S. has the opportunity to make a real difference in these committed countries—but only if real resources are available.

How does it work?

Performance-based qualification—Initial eligibility for the MCA is based on income level. The MCC evaluates all eligible countries using a standard set of 16 indicators from independent sources to assess countries’ commitment and performance in three categories: ruling justly, establishing economic freedom, and investing in their people. Countries must score better than their peers on at least half of the indicators in each category (better than the “median” score of other countries) and MUST be above the median on the corruption indicator to qualify. Ultimately, the MCC board makes the final decision regarding qualification and may use additional sources of information in their deliberations.
Country ownership of compact—Once a country qualifies, it must prepare a “compact proposal” highlighting the priority areas for funding and the intended outcomes. The MCC acts as an investor, conducting due diligence and evaluating the rate of return on the political, social and economic bottom lines.
Results-oriented implementation—Compacts are signed between the MCC and the recipient country usually for a 3-5 year time period. Signed compacts lay out clear objectives, benchmarks to measure progress, and a plan for monitoring and evaluating results. Country programs that don’t yield results risk being suspended. For countries that do not qualify for MCA compact funding but have demonstrated strong commitment to improving their performance on the eligibility criteria, the MCC has designed a “threshold” program. The threshold program provides limited assistance to those countries that just miss full funding to help them address specific hurdles to full qualification.

Progress to date:
When announced, the President promised to begin funding the MCA in FY2004 and scale up to $5b in additional annual resources by FY2006. Four years after its announcement, the MCA is making steady progress but has not yet realized its potential in either substance or funding level.

So far, a total of $4.25b has been appropriated for the MCA: $1b in FY2004, $1.5b in FY2005 and $1.75b in FY2006. The FY2007 request was $3b but it is expected Congress will fund less.
There are a total of 23 countries qualified (including 2 lower-middle income countries) and 12 of them are in Africa.
There are a total of 18 threshold countries, 7 of which are in Africa.
There are still only 9 signed compacts totaling approximately $2.1b in commitments over 4-5 years—these include Benin, Cape Verde, Ghana and Madagascar. Two more countries are expected to be awarded compacts by the end of 2006, giving the MCC a total of 11 compacts valued at nearly $3b.