MCC and the LMIC Conundrum

Next week the MCC Board will have the option of selecting lower-middle income countries (LMICs), along with the traditional group of lower-income countries. Yesterday at our public event on the MCC selection process for FY 2006, I argued two reasons why the Board should not select any LMICs for FY 2006.First, for the most part these countries have already graduated from most aid programs. They are three times richer, on average, than the low-income countries, and have much higher domestic savings, tax revenue, and access to private capital. While poverty persists in these countries, they have access to other funding, and our aid flows should go to those that need it most as long as they can use it well.Second, the budget resources are not there. In the original plan, the expansion to the LMICs would happen at the same time as the budget increased to $5 billion. For FY 2006 it appears that the MCC’s budget will be less than $2 billion, so it makes little sense to expand to the LMICs this year. It would be unfortunate if by including the LMICs, some of the deserving LICs received smaller compacts.The MCC's legislation stipulates that the Board must consider the LMICs for eligibility this year, but it does not stipulate that it must actually select any of them. The wisest course of action for the Board would be to not select any LMICs this year, and to reconsider the situation in FY2007 when, hopefully, funding is closer to the originally envisaged level.