This is a joint post with Owen McCarthy.Last Thursday, December 15, the Millennium Challenge Corporation (MCC) board of directors convened for its annual meeting to select eligible countries for FY2012 MCC assistance. As a result (and largely in line with MCA Monitor predictions), the board selected Benin and El Salvador to develop second compacts, and selected Honduras and Nepal to develop threshold programs. In addition, the board reselected Georgia, Ghana, and Zambia to continue compact development and approved Cape Verde’s second compact.Second Compacts for Benin and El SalvadorBenin and El Salvador are FY2012’s newly compact eligible countries and will now begin developing second compacts. Both countries are notable for having passed the new indicators system while failing the old system (due to only passing one indicator in the Investing in People category). Under the new system, El Salvador passes 14 indicators and Benin passes 11 indicators.Benin completed its $307 million compact in October 2011. The compact focused on expanding the Port of Cotonou, promoting land security, and creating a more efficient judicial system. El Salvador is due to complete its $461 million compact in September 2012. As a part of the Partnership for Growth initiative, El Salvador recently signed a 2011-2015 Joint Country Action Plan with the U.S. government.Honduras and Nepal: Dwellers on the ThresholdAfter choosing no eligible countries for the revamped threshold program during last year’s meeting, the MCC board made two interesting selections this year: Honduras and Nepal. To recap: the new threshold program will use the same diagnostic tool as compacts – constraints-to-growth analysis – to identify and support targeted policy and institutional reforms. This is in contrast to the previous iteration of the threshold program which singularly focused on moving certain indicators from failing to passing.The MCA Monitor predicted a second compact for Honduras based on its exemplary first compact implementation record and its policy performance on the indicators test. Honduras passes 16 of 20 indicators on the new selection system but narrowly misses the control of corruption indicator, scoring in the 47th percentile. Presumably this is why the board elected to give Honduras a threshold program rather than a second compact.Awarding a threshold program to a country with a completed compact is new territory, but it also presents Honduras with a great opportunity. By undergoing the same analyses used in compact development, Honduras can take a rigorous approach to identifying and reforming policy areas that inhibit economic growth.Nepal is another notable threshold program choice considering it passes both indicators systems this year. The selection of Nepal is a signal that a major component of the revamped threshold program will be the partnership capability of a country. The threshold program will be a chance for the MCC and the government of Nepal to work together on a smaller-scale and will provide important insights into the country’s capacity for an expanded set of investments.Cape Verde the First Country to Embark on a Second CompactThe MCC board officially approved Cape Verde’s second compact, worth $66.2 million. Cape Verde was the first country to be made eligible for a second compact, in FY2010. Its second compact will focus on reforming the water, sanitation, and land management sectors. Cape Verde performed very well in the FY2012 indicators test, passing 14 of 20 indicators in the new system. Cape Verde’s first compact, worth $106 million, was completed in October 2010.
