A Sneak Preview of MCC’s Annual Country Selection Process

MCC is expected to publish its annual country eligibility scorecards next week.  I always love this time of year.  While MCC’s annual selection process isn’t exactly new anymore, each year raises new issues and questions.  The perennial question--a fundamental question--is which countries are going to pass the indicator criteria?  Not all the data are publicly available yet, but some key indicators are.  As a preview, we ran the numbers on how countries stack up on the corruption and democracy “hard hurdle” indicators.  Based on this initial analysis, it looks like MCC will face a couple of difficult decisions.  First, what should it do about a country that’s finalizing a compact but doesn’t pass the corruption hurdle this year?  Second, is a country that passes the corruption hurdle for the first time a new contender for compact eligibility?

Each year, MCC publishes scorecards showing developing countries’ performance on 20 policy indicators in the areas of Ruling Justly, Investing in People, and Economic Freedom.  Indicator performance is one of the MCC Board’s primary considerations for deciding compact or threshold program eligibility.  As part of MCC’s criteria, there are two specific indicators that a country must pass (i.e., hard hurdles): a country must (1) score above the median on the Control of Corruption indicator (compared to its income group peers); and (2) score above a set threshold on at least one of two democracy indicators (either the Political Rights and/or the Civil Liberties indicators). 

Here’s what jumped out at us when we ran the numbers:

CONTROL OF CORRUPTION

Countries Developing Compacts: Arguably, passing MCC’s indicator criteria is most important for this group of countries.  It generally takes multiple years to develop an MCC compact, which means that countries must be re-selected each year until the process is finished.  Two countries that are currently developing compacts—Benin (second compact) and Sierra Leone (initial compact)—don’t pass the corruption hard hurdle.  Both miss by a hair: Benin is the median score and Sierra Leone is the next score down.  Now, it’s important to remember that year-to-year indicator performance can be somewhat volatile due to data noise or other factors, so changes in score don’t always imply a meaningful change in the policy environment.  Given this, MCC has usually chosen (rightly and rationally) not to penalize partner countries for a failing score that is more noise than signal. 

However, the timing makes this year’s scenario somewhat challenging.  Sierra Leone’s compact almost certainly won’t be ready in FY14, but Benin’s might be.  And only three times has MCC’s Board approved a compact for a country that didn’t pass Control of Corruption on its most recent scorecard (Georgia, in MCC's very early days, and the Philippines and Indonesia, which were sort of special situations).  I suspect that MCC is thinking hard about a few things, like what’s behind Benin going from a high to middling performer on the Control of Corruption indicator over the last few years?   Has there been a meaningful change in the anti-corruption environment?  And, more fundamentally, how important is it for MCC to signal that scorecard performance (especially in the area of corruption) is something MCC takes seriously while also needing to be largely predictable and rational in its dealings with partner countries?

Countries Implementing Compacts: Three compact implementation countries currently do not meet the Control of Corruption criteria: Indonesia, Moldova, and the Philippines.  This is not a critical issue.  Countries implementing compacts do not need to be re-selected, and a below-median score on the Control of Corruption indicator does not tend to trigger a conversation about suspension or termination.  Scorecards provide a pretty good comparative snapshot of a country’s policy performance, but they are not particularly well suited for ongoing policy monitoring. 

For the three countries in question, the data do not suggest some kind of policy deterioration.  They were all initially selected while in the low-income country category but subsequently graduated to the lower-middle income country category.  The latter consists of higher performers.  So, Indonesia, Moldova, and the Philippines aren’t scoring worse in an absolute sense; they’re just being held to a higher standard now.  How they perform in the lower-middle income category will matter for second compact eligibility, but that’s not a question until next year at the earliest, as Moldova’s compact winds down.

Other Countries of Interest: There are two countries which aren’t currently MCC-eligible whose performance on the Control of Corruption indicator stands out this year.  The first is Bangladesh, which performs just above the median on this indicator for the first time ever.  For the last two years, Bangladesh had met all the scorecard criteria except the Control of Corruption criteria, so if patterns hold, we may see a new contender for compact eligibility this year.  The other interesting country is Armenia, which passes the Control of Corruption indicator for the first time since FY07.  That said, Armenia, which completed an MCC compact in 2011, is probably not a prime pick for a second compact at this time.  Based on concerns around the conduct of elections in 2008, MCC put a temporary hold on compact activities and ultimately decided to cease funding one project.  Observers note that subsequent elections have been better, but Armenia still ranks pretty low on MCC’s Political Rights indicator.  

DEMOCRACY (POLITICAL RIGHTS/CIVIL LIBERTIES)

All MCC partner countries (compact and threshold program) pass the democracy hurdle.  This is not terribly surprising.  The institution of the hard hurdle for democracy in FY12 was really just a formalization of the MCC Board’s historical preference for selecting countries that performed well on at least one of those indicators.  Only two countries (Morocco and Jordan) ever missed the cut on both indicators the year in which they were selected as compact eligible.

GOING FORWARD

Watch this space in early December for: (1) deeper analysis of countries’ scorecard performance; (2) a discussion of other big MCC selection issues (second compacts, tight budget); and (3) the MCA Monitor’s annual predictions of which countries will be selected at the Board’s mid-December meeting.