Eligibility Determinations

The Millennium Challenge Act requires that the MCC board base its  eligibility decisions, “to the maximum extent possible,” on objective and  quantifiable indicators of a country’s demonstrated commitment to the  criteria enumerated in the act. MCC is to sign compacts only with national governments. Finally, we found that reliance on the indicators  carried certain inherent limitations. MCC Used Quantitative Indicators and Judgment to Determine Eligibility

MCC used the 16 quantitative indicators, as well as the discretion implicit  in the Millennium Challenge Act, to select 17 countries as eligible for MCA  compact assistance for fiscal years 2004 and 2005 (see fig. Fiscal year 2005: In October 2004, the MCC board selected 16  countries as eligible for fiscal year 2005 funding. MCC Is Refining Its Compact Development Process

MCC has received compact proposals, concept papers, or both, from 16  countries; of these, it has approved a compact with one country and is  negotiating with four others. As part of this  process, MCC has identified elements of country program implementation  and fiscal accountability that can be adapted to eligible countries’ compact  objectives and institutional capacities. MCC’s $110 million compact with Madagascar,  averaging $27.5 million per year, would make it the country’s fifth largest  donor (see app. In addition, MCC is exploring ways—such as providing  grants—to facilitate compact development and implementation. MCC Is Taking Steps to Coordinate with Key Stakeholders

MCC has received advice and support from USAID, State, Treasury, and  USTR and has signed agreements with five U.S. agencies for program  implementation and technical assistance. MCC Is Consulting with Other Donors and Using Donor Expertise

MCC has received information and expertise from key multilateral and  bilateral donors in the United States and eligible countries. MCC Has Made Progress in Developing Management Structures but Has Not Completed Corporatewide Plans, Strategies, and Time Frames

Since starting up operations, MCC has made progress in developing key  administrative infrastructures that support its program implementation. MCC has also made progress in establishing corporatewide structures for  accountability, governance, internal control, and human capital  management, including establishing an audit and review capability through  its IG, adopting bylaws, providing ethics training to employees, and  expanding its permanent full-time staff. However, MCC has not yet  completed plans, strategies, and time frames needed to establish these  essential management structures on a corporatewide basis. We also provided the Departments of  State and Treasury, the U.S. Agency for International Development, and  the Office of the U.S. Trade Representative an opportunity to review a  draft of this statement for technical accuracy. Appendix I: Scope and Methodology

We reviewed MCC’s activities in its first 15 months of operations,  specifically its (1) process for determining country eligibility for fiscal  years 2004 and 2005, (2) progress in developing compacts, (3)  coordination with key stakeholders, and (4) establishment of management  structures and accountability mechanisms. We determined the data to be reliable for the purposes of  this study.
Why GAO Did This Study

In January 2004, Congress established the Millennium Challenge Corporation (MCC) to administer the Millennium Challenge Account. MCC's mission is to promote economic growth and reduce extreme poverty in developing countries. The act requires MCC to rely to the maximum extent possible on quantitative criteria in determining countries' eligibility for assistance. MCC will provide assistance primarily through compacts--agreements with country governments. MCC aims to be one of the top donors in countries with which it signs compacts. For fiscal years 2004 and 2005, Congress appropriated nearly $2.5 billion for the Millennium Challenge Corporation; for fiscal year 2006, the President is requesting $3 billion. GAO was asked to monitor MCC's (1) process for determining country eligibility, (2) progress in developing compacts, (3) coordination with key stakeholders, and (4) establishment of management structures and accountability mechanisms.

What GAO Found

For fiscal years 2004 and 2005, the MCC board used the quantitative criteria as well as judgment in determining 17 countries to be eligible for MCA compacts. Although MCC chose the indicators based in part on their public availability, our analysis showed that not all of the source data for the indicators were readily accessible. In addition, we found that reliance on the indicators carried certain inherent limitations, such as measurement uncertainty. Between August 2004 and March 2005, MCC received compact proposals, concept papers, or both, from 16 eligible countries. It signed a compact with Madagascar in April 2005 and is negotiating compacts with four countries. MCC's 4-year compact with Madagascar for $110 million would make it the country's fifth largest donor. MCC is continuing to refine its compact development process. In addition, MCC has identified elements of program implementation and fiscal accountability that can be adapted to eligible countries' compact objectives and institutional capacities. MCC is taking steps to coordinate with key stakeholders to use existing expertise and conduct outreach. The U.S. agencies on the MCC Board of Directors--USAID, the Departments of State and Treasury, and the Office of the U.S. Trade Representative--have provided resources and other assistance to MCC, and five U.S. agencies have agreed to provide technical assistance. Bilateral and multilateral donors are providing information and expertise. MCC is also consulting with nongovernmental organizations in the United States and abroad as part of its outreach activities. MCC has made progress in developing key administrative infrastructures that support its mission and operations. MCC has also made progress in establishing corporatewide structures for accountability, governance, internal control, and human capital management, including establishing an audit capability through its Inspector General, adopting bylaws, providing ethics training to employees, and expanding its permanent full-time staff. However, MCC has not yet completed comprehensive plans, strategies, and related time frames for establishing these essential management structures and accountability mechanisms on a corporatewide basis.