Separating the Baby from the Bathwater: Evaluating the Millennium Challenge Corporation :
(Pathfinder Foundation (PF) held a panel discussion with the participation of an eminent group of panelists. Speaking at the occasion Bernard Goonetilleke, Chairman of PF made the following observations.)
The Millennium Challenge Corporation (MCC) is a US institution that provides economic assistance in the form of grants to developing countries through a competitive selection process that demonstrates positive performance in three broad areas. MCC determines country eligibility through a series of quantitative, third-party indicators, that assess policy performance. These indicators fall into three broad areas -
· Ruling justly;
· Investing in people, and
· Fostering economic freedom.
A Country selection process moves chronologically through a number of steps: (i) candidate countries are identified, (ii) their eligibility criteria are formulated and applied, and (iii) compact and threshold program-eligible countries are selected.
For the purpose of funding, MCC divides candidate countries between lower income and lower-middle income groups, with no more than 25% of compact assistance being provided to the lower income group. Candidate countries are determined by the World Bank’s classifications for these two groups. For the FY 2017 per capita Gross National Income (GNI) of $3,955 was taken as the cut off figure. As a result, there was a pool of 83 countries that became eligible for the FY 2018.
In August 2017, MCC transmitted to the US Congress its annual notification of candidate countries for the FY 2018. The revised version listed 66 lower-income countries and 9 lower-middle-income countries, and Sri Lanka was among those 9 LMIC’s, (which status we passed soon thereafter and became an Upper Middle-Income country).
Becoming eligible for MCC funding is a long-drawn-out process. Sri Lanka first became eligible for a Compact worth app. $450 m during the first year of operation in 2004, along with 17 other countries. However, after doing some spade work, the MCC Board eliminated Sri Lanka from the 2008 selection process, because of the resurgent separatist conflict since 2006, and the government response thereto, that would have made a Compact problematic. Over the years, many countries exited the MCC process in similar fashion, due to their inability to meet the selection criteria.
However, given the changed environment during the past several years, Sri Lanka was once again included in the listing in the selection round held in December 2017, for the following year. Among the other counties that became eligible, along with Sri Lanka for 2018 were Burkina Faso Lesotho, Senegal, Timor-Leste, Mongolia, Sri Lanka and Tunisia. In fact, Burkina Faso, Senegal and Mongolia were seeking to be selected for the second time.
I might add that since 2004, 33 compacts have been signed with 29 countries by African, Latin American, Asian and some other countries, which had resulted in grants amounting to 14 billion US dollars. Interestingly, of these, only 4 were from Asia, viz. Mongolia (2007), the Philippines (2010), Jordan (2010) and Nepal (2017). In the case of Nepal, the targeted area was low energy supply and high cost of energy transportation.
Coming under the two income groups by itself will not be sufficient to qualify for grants. From time to time, MCC updates its selection criteria, and once that is done, it publishes a scorecard of the performance of the countries concerned.
For most performance indicators, each country is judged against its peers in its income group, requiring a score, just above the median to pass that indicator. For several of the indicators, there is an absolute threshold that must be met, in order to pass that indicator. Those include, an “inflation rate” under 15%, “political rights” requiring a score above 17%, and “civil liberties” requiring a score above 25%; and for Lower-Middle-Income countries, an “immunization coverage” of above 90%. To be eligible, countries are required to pass at least half of the total number of performance indicators.
Thus, over the years,a number of selected countries, were unable to benefit from MCC grants due to various factors, including their failure to adhere to democratic practices, corruption and political tension.
There is a particular reason why the Pathfinder Foundation decided to engage in this exercise. As you may be aware, there have been considerable discussion and debate on the merits and demerits of the two projects. Bearing in mind the fact that the single objective of MCC is to reduce poverty through economic growth—which allows it to pursue development objectives in a targeted manner, the intention of the Pathfinder Foundation is to subject the proposed compact with MCC and the two projects to scrutiny.
There is a saying attributed to St. Jerome contained in a letter sent by him to the Ephesians, dating back to 400 AD, in which he said ‘Noli equi dentes inspicere donati’’. The $ 480 million that would be disbursed under the compact is a grant from the American taxpayer’s money and what we are doing today is exactly the opposite of what St. Jerome said, i.e. we are ‘examining the teeth of a gift horse’. And I might add, the Pathfinder Foundation is doing that for the sake of transparency. Taking into consideration the current debate in Sri Lanka and the publicity that the Compact with the Millennium Challenge Corporation has received in the media, the Pathfinder Foundation believes a public discussion would shed light to the issues concerned. ‘Separating the Baby from the Bathwater Evaluating the Millennium Challenge Corporation – Sri Lanka Compact’ is to provide the public at large an opportunity to better understand the Compact and its impact on Sri Lanka