MCC FY10 Selection Round: A New CEO, No New Countries, but Second Compacts Enter the Arena

This is a joint posting with Casey DunningIn its seventh round of selecting countries eligible to apply for assistance (and the first for the Obama administration), the MCC Board welcomed its new CEO and faced a decision tree with an awful lot of branches.  And each branch seemed to have unknown variables:  Would countries sustain eligibility? What final FY10 appropriations would it receive? Would Congress provide a short-term legislative fix for graduates?  What to do about the trends that show graduation will continue, putting most of the better performers in the lower-middle income category (LMIC), capped at 25% of resources?  Would Congress ever allow concurrent compact authority?  What is the right balance between selecting new countries vs. implementing existing compacts?   As the first set of compact countries near completion of their compacts, should it select them for a follow-on (second) compact?  And then there always seems to be a case that challenges whether the MCC should be used as a purely diplomatic carrot.  In the end, the Board navigated well all of the various pressures, adding no new countries to the existing pool but re-selecting those in the midst of compact preparation and selecting one country as eligible to prepare the first-ever second compact.  Here are the headlines, along with our thoughts and comparison to our predictions: 

• No new countries: selectivity or what? No new countries were added into the compact or threshold program pipeline this year.  We would love to say it was a decision to prioritize the implementation of compacts already underway.  And perhaps it was a bit of that.  But we suspect it was based more on two other issues:  uncertainty over the legislative fix for the Philippines and Indonesia that graduated into the LMIC pool, and the waning stock of good-bets in the low-income (LIC) pool.  On the former, the FY10 appropriations conference report, released the same morning as the Board meeting, provided some comfort that the short-term fix to allow graduates to access funding from their original selection round income pool would come.  (Indeed, the final bill, with the provision, passed Sunday.)  On the latter, we had predicted that the Board would look at selecting either Guyana or Rwanda, each of which have consistently passed the indicators test but each of which also have issues that make them less than ideal.  (Read our paper for background on all these issues.)  As much as we don’t like to be “wrong,” we believe the Board made the right choice and hope that the new CEO and his management team undertake a selection methodology re-think next year.  
• Second compacts enter the arena.  Compact country Cape Verde was re-selected as eligible for a second compact due to both its policy improvements and good compact implementation.  The MCC team stressed at its public outreach meeting that second compacts are not automatic and in fact are more difficult to attain as both the indicators and implementation performance are taken into consideration.  We had predicted that in addition to Cape Verde, Georgia would also be selected as eligible to prepare a second compact.  The Board appears to have pushed the Georgia decision to next year’s selection round given that it is not as close to finishing its first compact as Cape Verde.
• Keeping hope alive: six countries re-selected to compete for compact funding.  Indonesia, Malawi, Moldova, the Philippines, Zambia and Jordan will be allowed to continue compact preparations already underway.  Moldova’s compact, already approved by the Board but not yet signed, will use FY09 funds.  Best bets for getting to the FY10 funding finish line are Jordan, Malawi, and the Philippines.  Indonesia and Zambia are still in the early stages of compact development.
• What’s up with Colombia?  We know that Colombia was “legally not part of the Board’s discussion,” as relayed by the MCC team at the outreach meeting, because it graduated out of candidacy. But it appears that the legislative fix in the FY10 appropriations conference report would also apply not just to the Philippines and Indonesia having access to LIC resources but Colombia having access to LMIC resources for a three-year period.  The language is such: “that a MCC candidate country selected as an eligible country in FY2009 …that is transitioning out of one of the income categories…shall retain its candidacy status at the lower income category for purposes of setting compact funding levels for the fiscal year of its transition and the two subsequent fiscal years.”  So, just a heads-up that, technically, the Board could now add in Colombia. 
• Impact of graduates on the model.  There was not much discussion on the selection of the Philippines and Indonesia at the outreach meeting, but presumably it was a hot topic at the Board meeting itself.  The selection of these countries is deserved, but it makes the issue of what to do about country graduates all the more pressing, both in terms of budget and what it means to “pass” the indicators’ test.  (See our paper for more details.)
• Will politics encroach on the MCC model?  As we noted in our event launching our FY10 selection predictions paper, “keep your eye on Bolivia discussions.” We suspect that Bolivia was discussed at the Board meeting in terms of providing a carrot for them to align themselves more with the U.S. than Hugo Chavez.  After all, Bolivia continues to squarely pass the indicators test.  That is precisely why we categorized it as “borderline” in our paper.  While we are not privy to the Board deliberations, nor was it discussed at the outreach meeting, it appears that the Board recognized the many actions of the Bolivian government not captured in the data that are inconsistent with MCC principles and would impact the ability to successfully implement a compact.  Other USG funding accounts are available for purely diplomatic objectives.
• Mongolia’s compact gets a face-lift:  The Board voted to restructure Mongolia’s compact, approving an energy and a roads project in lieu of an originally-approved national rail project that Mongolia determined wouldn’t be feasible.  Is this a good thing?  On the one hand, the restructuring is a testament to the MCC’s ability to be a flexible and adaptable partner, presuming the new components received the same rigor of due-diligence the original components received.  On the other hand, does this set a precedent that countries are entitled to the over-all envelope of resources once approved?  We know the MCC has suspended and terminated compact components, which eases concern on the latter, and MCC staff stressed at the outreach meeting that extensive due-diligence of the new components and their impact on achieving compact outcomes in the original time-frame was conducted.
• Alas, another suspension.  The Board regrettably but appropriately voted to suspend Niger’s $23 million Threshold program due to actions inconsistent with MCC principles and eligibility criteria.  (Niger’s President Mamadou Tandja is seeking an unconstitutional third term.)  The orderly wind-down is effective immediately and the program looks to be closed out by the end of this month.

And perhaps the biggest headline of all is that we got our first peek at CEO Daniel Yohannes in action.  He gave opening remarks and fielded questions at the MCC’s post-Board meeting outreach event.  Clearly excited about being at the helm of the MCC and advancing its mission, Yohannes paid particular note to encouraging innovation within the MCC model, fostering private sector investment in partner countries, and highlighting results achieved by the MCC thus far.  He also referenced the ongoing PSD-7 in the White House and the QDDR in the State Department, and the MCC’s important role in the Administration’s global development reviews.  The Rethinking U.S. Foreign Assistance team is looking forward to working with him and his new team!