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O R 221714Z DEC 08
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TO MCC COLLECTIVE IMMEDIATE
MCC THRESHOLD COLLECTIVE IMMEDIATE
MCC CANDIDATE COUNTRY COLLECTIVE IMMEDIATE
INFO ALL OECD CAPITALS COLLECTIVE
RUEHBS/USEU BRUSSELS
RUEHLMC/MCC WASHINGTON DC 0110
RUEATRS/TREASURY DEPT WASHINGTON DC 0036
RHEHNSC/NSC WASHINGTON DC 2334

UNCLAS SECTION 01 OF 06 STATE 133489 
 
SIPDIS 
ALSO FOR USAID (PDELP/JLANGE) 
USTR FOR EBRYAN 
TREASURY FOR BPELTON 
 
E.O. 12958: N/A 
TAGS: EAID PREL PGOV ETRD ECON KMCA MCC
SUBJECT: MILLENNIUM CHALLENGE CORPORATION (MCC) BOARD 
SELECTS COUNTRIES FOR FISCAL YEAR 2009 
 
¶1.  Action request for action addressees (FY09 MCA Compact 
Eligible and Threshold Eligible countries) in paragraph 11. 
 
¶2.  SUMMARY.  The Millennium Challenge Corporation's (MCC) 
Board of Directors met December 11, 2008, and selected three 
new countries -- Indonesia, Zambia, and Colombia -- as 
eligible for Millennium Challenge Account (MCA) Compact 
assistance for fiscal year 2009 (FY09).  The Board also 
selected one new country, Liberia, as well as a formerly 
Compact-eligible country Timor-Leste, as eligible for a 
Threshold program.  This cable provides guidance on the FY09 
MCC selection process as well as talking points for: 
 
-- all countries (paragraph 12), 
-- new Compact-eligible countries (paragraph 13), 
-- new Threshold countries (paragraph 14), 
-- Paraguay, which was reselected for a Stage II Threshold 
program (paragraph 15), 
-- countries currently implementing Compacts (paragraph 16), 
-- candidate countries not selected for FY09 (paragraph 17), 
and 
donor countries (paragraph 18). 
 
For additional talking points, please contact MCC.  Letters 
from MCC CEO Ambassador John Danilovich will be provided 
separately by email for delivery by Posts to heads of 
government of FY09 MCA Compact eligible and Threshold 
eligible countries.  During the December 11 Board meeting, 
the Board expressed ongoing concerns about policy performance 
in Armenia and suspended the Nicaragua Compact program due to 
policy concerns.  END SUMMARY. 
 
¶3.  MCC's Board of Directors met December 11, 2008, to select 
countries as eligible for MCA Compact and Threshold 
assistance for FY09.  The Board selected three new Compact 
eligible countries:  Indonesia, Zambia, and Colombia.  The 
Board also re-selected five countries that are developing but 
have not yet signed Compacts: Jordan, Malawi, Moldova, the 
Philippines, and Senegal.  The Board did not reselect three 
countries that were previously eligible to develop Compacts 
but had not yet finalized an agreement:  Bolivia, 
Timor-Leste, and Ukraine.  The Board selected Timor-Leste to 
participate in a Threshold program.  The MCC this year 
discontinued the practice of annually making eligibility 
determinations for countries with signed Compacts since MCC's 
legislation does not require reselection every year in order 
for countries already implementing their compacts to continue 
their programs. 
 
¶4.  The Board selected two countries as Threshold eligible: 
one new country, Liberia, and one formerly compact-eligible 
country, Timor-Leste.  The Board also reselected Paraguay for 
Stage II Threshold eligibility.  Paraguay was made eligible 
for Stage II assistance last year but has not yet signed an 
agreement and needs 2009 funds to continue program 
development.  The Board did not re-select Yemen for Threshold 
eligibility. 
 
BACKGROUND 
---------- 
 
¶5.  MCC supports programs that aim to reduce poverty and 
promote sustainable economic growth in the poorest countries 
of the world that have demonstrated a broad commitment to 
sound development policies.  This commitment is measured by 
performance on 17 independent, third-party indicators grouped 
into three broad policy categories: Ruling Justly, Investing 
in People, and Economic Freedom.  In determining eligibility, 
the Board considers whether a country performs above the 
median relative to its income-level peers on at least half of 
the indicators in each of the three categories and on the 
Corruption indicator.  The Board also weighs heavily 
countries, performance on the three democracy indicators 
(Political Rights, Civil Liberties, and Voice and 
Accountability).  To address limitations of the indicators -- 
including gaps, time lags, trends and other factors not 
adequately captured -- the Board takes into account 
supplemental quantitative and qualitative information. 
 
STATE 00133489  002 OF 006 
 
 
 
¶6.  The Board also considers the opportunity for economic 
growth and poverty reduction and the availability of funds 
appropriated for MCC.  Regardless of the fiscal year of 
initial selection, there is no guarantee that any 
MCA-eligible country will reach a Compact agreement with MCC 
or will receive funding.  Compact finalization also depends 
on the quality of the country's program proposal and the 
funds available to MCC. 
 
¶7.  Candidate Countries: MCC's Board of Directors identified 
93 candidate countries for FY09 from which eligible countries 
could be selected and 11 countries that are not candidates 
due to statutory restrictions.  The 93 candidate countries 
identified for FY09 fall into two groups: 
 
-- Low Income Countries (LICs), defined as countries with a 
Gross National Income (GNI) per capita of $1,785 or less, and 
-- Lower Middle Income Countries (LMICs), defined as 
countries with a GNI per capita of $1,786-$3,705. 
 
Income group classification cutoffs are adjusted annually. 
There are 64 LIC candidates and 29 LMIC candidates this year. 
 The LMIC category was introduced in FY06 and is accompanied 
by a legislative restriction on funding; LMICs can only 
compete for up to 25% of compact funds in a given fiscal 
year.  Candidate countries are listed on the MCC website 
(www.mcc.gov). 
 
¶8.  New Compact eligible countries:  MCC will assign a point 
of contact in January to provide Posts with guidance on the 
Compact development process for FY09. 
 
¶9.  Threshold Programs:  Countries that have not been 
selected as Compact-eligible but are close to meeting the 
indicator criteria and have demonstrated a commitment to 
making the policy reforms necessary to qualify may be 
selected as eligible to participate in a Threshold Program. 
Threshold programs provide eligible countries with an 
opportunity to apply for financial support for reforms they 
propose that are intended to improve policy performance in 
areas where there are weaknesses, as evidenced in the 
indicators.  For more on Threshold programs, please see the 
relevant section on MCC,s website (www.mcc.gov).  Selection 
for a Threshold program does not bar countries from being 
considered for Compact eligibility.  Updated guidance on 
developing Threshold proposals for FY09 will be posted on 
MCC,s website shortly. 
 
¶10.  Armenia and Nicaragua:  The Board reiterated its 
concerns about the status of democratic governance in Armenia 
and underlined its expectations that the Government of 
Armenia fulfill commitments to implement substantive reforms. 
 The Board noted that it would again review Armenia's 
performance and examine continued collaboration with the 
country during its March meeting.  The Board voted to suspend 
assistance under the MCC Compact in Nicaragua because of 
actions taken by the Nicaraguan government that are 
inconsistent with MCC,s eligibility criteria.  MCC will 
therefore not approve disbursements for activities not 
already contracted by MCA-Nicaragua.  The political 
conditions leading up to, during, and following recent 
elections in Nicaragua were not consistent with MCC 
requirements that include a commitment to policies that 
promote political freedom and respect for civil liberties and 
the rule of law.  The Board called on Nicaragua to develop 
and implement a comprehensive set of measures to address 
concerns regarding the government's commitment to democratic 
principles.  The Board will review the response of the 
Nicaraguan government and determine subsequent actions at its 
next quarterly Board meeting in March 2009.  All posts may 
draw from this paragraph and a press release available on 
MCC,s website as background for discussions with host 
governments.  MCC will also make press guidance available to 
PAOs. 
 
¶11.  ACTION REQUESTED:  All posts may draw on the background 
points in paragraph 12, as appropriate.  MCC CEO Ambassador 
John Danilovich has notified the Ambassadors of Indonesia, 
Zambia, Colombia, and Liberia, of their countries, 
eligibility and requests that Posts deliver the points in 
paragraph 13 (Indonesia, Zambia, and Colombia) and paragraph 
14 (Liberia, Timor-Leste), along with a letter from CEO 
 
STATE 00133489  003 OF 006 
 
 
Danilovich informing the leaders of these countries of the 
results.  MCC will send the text of the letter to each Post 
separately by email.  MCC has contacted Posts in reselected 
countries, and a letter to the head of state regarding their 
reselection is forthcoming.  MCC will also contact and send 
letters to countries previously selected as eligible to 
develop a Compact, but not selected this year (Bolivia and 
Ukraine), as well as to countries currently implementing 
Compacts.  MCC will provide additional country-specific 
talking points as needed.  Embassy Asuncion may refer to the 
Stage II Threshold program points in paragraph 15; Posts in 
countries currently implementing Compacts may refer to the 
points in paragraph 16; and Posts in candidate countries that 
were not selected may draw on points in paragraph 17.  MCC 
will provide additional country specific points as needed. 
Posts are encouraged to deliver information about new country 
selections to donors, drawing on the general background 
information contained in paragraph 18.  Questions from Posts 
or host governments regarding selection can be directed to 
MCC,s Office of Development Policy at 
developmentpolicy@mcc.gov or 202-521-3926. 
 
¶12.  BACKGROUND/GENERAL POINTS FOR ALL COUNTRIES: 
 
-- The Millennium Challenge Corporation's Board of Directors 
has selected three new countries -- Indonesia, Zambia, and 
Colombia -- as eligible to submit a proposal for MCA compact 
assistance for Fiscal Year 2009, based on their performance 
on democratic governance, economic freedom, and investing in 
people indicators.  Selection for Compact eligibility is a 
recognition of countries for their policy performance in 
these three broad areas. 
 
-- The Board of Directors used data from 17 independent, 
third-party indicators to assess the degree to which the 
country's political and economic policies serve to support 
broad-based, sustainable economic growth.  The Board also 
took into account additional quantitative and qualitative 
information to adjust for gaps, time lags, or other 
weaknesses in the data to inform its eligibility 
determinations.  The Board also considered MCC,s ability to 
impact and stimulate economic growth and poverty reduction in 
a country, as well as the availability of funds. 
 
-- MCC,s report to the U.S. Congress explaining the Board's 
determination of MCA-eligible countries will be posted on 
MCC,s website (www.mcc.gov) in the next few days. 
 
-- The Board also reviewed the performance of MCC,s current 
Compact development partners.  Countries that are developing 
Compacts but have not yet signed agreements were considered 
for reselection so that they could be eligible for 2009 funds 
and continue Compact negotiations.  The Board reselected five 
countries to continue developing their Compacts: Jordan, 
Malawi, Moldova, the Philippines, and Senegal. 
 
-- The Board did not reselect three countries that were 
previously Compact eligible: Bolivia, Timor-Leste, and 
Ukraine.  (Specific talking points can be made available upon 
request.) 
 
-- The Board also selected Liberia and Timor-Leste as 
eligible to submit a proposal for assistance under Threshold 
programs.  Threshold programs help countries that have not 
been selected as Compact-eligible but are close to qualifying 
and have demonstrated a commitment to address areas where 
they fall short on the indicators.  Paraguay, which was 
selected as eligible for a Stage II Threshold Program last 
year but has not yet signed an agreement, was reselected to 
continue developing its program. 
 
¶13.  ADDITIONAL POINTS FOR INDONESIA, ZAMBIA, AND COLOMBIA AS 
NEW MCA COMPACT ELIGIBLE COUNTRIES: 
 
-- Congratulations on being selected as eligible for MCA 
Compact assistance.  This is recognition of the good policies 
your government has put in place in the areas measured by 
MCC,s indicators and your country's commitment to ruling 
justly, investing in its people, and encouraging economic 
freedom.  Experience shows that good policies in these areas 
are important contributors to development success. 
 
-- A letter from MCC Chief Executive Officer Ambassador John 
 
STATE 00133489  004 OF 006 
 
 
¶J. Danilovich will provide official notification of selection 
and invite your country to submit a proposal for an MCA 
compact program. 
 
-- While being selected is recognition of relatively good 
policy performance, assistance is not guaranteed and will be 
contingent on, among other things, continued strong policy 
performance. 
 
-- including performance on MCC indicators, the successful 
negotiation of a mutually agreeable Compact between your 
country and MCC, approval of the Compact by the MCC Board, 
and the availability of funds to MCC. 
 
-- To help your country get a solid start, MCC will be in 
contact with your Ambassador in Washington to provide 
guidance on working with MCC and the specific steps to 
developing a Compact proposal for MCA funding. 
 
-- Development of the MCA proposal is your responsibility. 
The ultimate success of our partnership depends in part on 
your commitment of human, financial and technical resources 
to develop a quality proposal. 
 
-- MCC will evaluate your proposal based on its contribution 
to economic growth and poverty reduction, the quality of the 
consultative process that informed its development, 
commitments to policy improvements relevant to the proposed 
MCA-program, and other factors.  MCC encourages a continuous 
dialogue between MCC and your country's counterparts 
throughout the proposal and Compact development process. 
 
-- MCC representatives look forward to discussing all of 
these issues during an upcoming trip to your country to 
discuss the program with a broad range of stakeholders both 
within and outside government. 
 
¶14.  ADDITIONAL POINTS FOR LIBERIA AND TIMOR-LESTE AS NEW 
THRESHOLD COUNTRIES: 
 
-- MCC is built on the premise that aid is most effective 
when it reinforces sound political, economic, and social 
policies.  We believe sound policies are key to encouraging 
domestic and foreign investment and increased trade -- the 
real engines of economic growth. 
 
-- MCC is committed to supporting those countries that are 
themselves committed to good governance, sound micro- and 
macroeconomic policies that support the development of the 
private sector, and investments in their people, including 
health, education, and sound natural resource management, as 
these policies create favorable conditions for sustainable 
economic growth. 
 
-- The selection of eligible countries for Threshold programs 
was based on performance in these areas.  The indicators were 
used to provide a measure of countries, policies and whether 
the government has created the conditions that are linked to 
broad-based sustainable economic growth. 
 
-- Liberia and Timor-Leste have been selected as eligible to 
participate in Threshold programs.  A letter from MCC Chief 
Executive Officer Ambassador John J. Danilovich will provide 
official notification of your selection for a Threshold 
program. 
 
-- Threshold programs are for countries that do not meet the 
indicator criteria for MCA Compact eligibility but are close 
to doing so and have demonstrated a commitment to addressing 
the policy areas where there are weaknesses.  These programs 
provide financial support to bolster those reform efforts in 
order to help you qualify for future MCA compact eligibility. 
 
-- Please identify a point of contact within your government 
with whom MCC can correspond and provide greater information 
about Threshold programs by January 31.  Please notify 
Threshold Programs Managing Director Monica Kladakis (tel: 
202-521-3923, email: KladakisMV@mcc.gov) at MCC as soon as 
this point of contact has been identified. 
 
¶15.  ADDITIONAL POINTS FOR PARAGUAY: 
 
-- MCC is committed to supporting those countries that are 
 
STATE 00133489  005 OF 006 
 
 
themselves committed to good governance, sound micro- and 
macroeconomic policies that support the development of the 
private sector, and investments in their populations, as 
these policies create favorable conditions for sustainable 
economic growth. 
 
-- Although Paraguay is not yet Compact eligible, we commend 
you for the progress made on your Threshold program.  Last 
year, the Board decided to continue supporting Paraguay's 
reform efforts by inviting it to submit a Stage II Threshold 
Country Plan (TCP). 
 
-- The Stage II TCP submitted by the Government of Paraguay 
in September is currently under review.  We look forward to 
our continuing partnership. 
 
¶16.  ADDITIONAL POINTS FOR COUNTRIES CURRENTLY IMPLEMENTING 
COMPACTS: 
 
-- MCC,s Board has decided that once MCC makes a commitment 
to a country through a signed, five-year Compact agreement, 
MCC will no longer select this country as eligible on an 
annual basis during the term of the Compact. 
 
-- However, MCC and its Board of Directors continue to 
closely evaluate each country's policy performance throughout 
the life of the Compact.  Once MCC has made a commitment to a 
country through a signed Compact, MCC will continue to work 
with that country as long as it does not demonstrate a 
pattern of actions inconsistent with the eligibility criteria 
(i.e., a &significant policy reversal8). 
 
-- If it is determined that a country has demonstrated a 
significant policy reversal, the Board can hold it 
accountable by applying the Suspension and Termination 
Policy. 
 
-- Countries interested in second Compacts, after the 
expiration of their current Compact, will need to be selected 
as eligible for funding.  While the specific criteria upon 
which countries will be evaluated for second Compact 
eligibility have not yet been finalized, they will likely 
entail a combination of policy performance and successful 
implementation of the first Compact. 
 
-- For Benin, Cape Verde, El Salvador, Georgia, Madagascar, 
Mali, Morocco, Mozambique, Namibia, and Vanuatu:  Countries 
that do not meet the indicator criteria, but have not 
demonstrated a significant policy reversal will receive an 
invitation from MCC to participate or continue participation 
in the policy improvement process.  Countries participating 
in the policy improvement process are asked to develop and 
implement a forward-looking action plan that outlines the 
steps they plan to take to improve performance on certain 
policy criteria.  They then are expected to periodically 
report on progress made on the plan. 
 
¶17.  ADDITIONAL POINTS FOR COUNTRIES NOT ELIGIBLE FOR MCA 
ASSISTANCE FOR FY09: 
 
-- MCC is built on the premise that aid is most effective 
when it reinforces good governance, investments in health, 
education, environment, and economic freedom.  We believe 
sound policies are key to encouraging domestic and foreign 
investment and increased trade -- the real engines of 
economic growth. 
 
-- MCC is committed to supporting those countries that are 
themselves committed to good governance, sound micro- and 
macroeconomic policies that support the development of the 
private sector, and investments in their populations, as 
these policies create favorable conditions for sustainable 
economic growth. 
 
-- The selection of eligible countries was based on 
performance in these areas.  The indicators were used to 
provide a measure of countries, policies and whether the 
government has created the conditions that are linked to 
broad-based sustainable economic growth.  (Embassies may wish 
to customize this talking point by looking at the 
country-by-country scorecards on the MCC website.  If 
specific talking points are required, please contact MCC.) 
 
 
STATE 00133489  006 OF 006 
 
 
-- The MCC Board's decision applies only to U.S. assistance 
under the Millennium Challenge Account (MCA), not to 
assistance provided by other U.S. agencies, including the 
Agency for International Development (USAID). 
 
-- In order to qualify for MCA assistance in future years, 
countries would need to focus on their efforts to improve 
policies which support ruling justly, economic freedom, and 
investments in their people, as measured by MCC,s 17 policy 
indicators. 
 
¶18.  ADDITIONAL POINTS FOR DONORS (for use with donors in 
eligible countries and by Posts in donor countries): 
 
-- MCC is providing all MCA Compact eligible and Threshold 
program countries with an official letter notifying them of 
their selection.  The letter to newly eligible countries will 
invite them to submit a proposal for an MCA Compact or a 
Threshold program concept paper, as applicable, and advise 
them of MCC,s intention to travel to these countries. 
 
-- MCC will also provide guidance on the MCA proposal and 
Compact development process. Guidance documents are available 
on the MCC website (www.mcc.gov). 
 
-- MCA assistance is not guaranteed but will be contingent on 
continued strong policy performance, the successful 
negotiation of a mutually agreeable Compact between the 
eligible country and MCC, approval of the Compact by the MCC 
Board, and the availability of funds to MCC. 
 
-- The quality of the country's MCA proposal -- including, 
among other factors, how well the country has demonstrated 
the relationship between the proposed priority areas and 
economic growth and poverty reduction, the quality of the 
consultative process that informed its development, and 
commitment to continued policy improvement relevant to the 
proposed MCA program -- will influence the speed with which a 
Compact can be negotiated and the amount and timing of any 
MCA assistance, as well as any recommendation to the Board to 
approve a Compact. 
 
-- Coordination with other donors is a priority for MCC. 
MCA-eligible countries will bear the responsibility, in the 
first instance, for ensuring that MCA programs are well 
coordinated with the efforts of other donors and their own 
budgetary expenditures.  All Compact proposals will be 
required to describe the relationship between the proposed 
MCA-program and the activities of other donors and the host 
government itself.  MCC will work directly with other donors 
to ensure that this coordination is working. 
 
-- In addition, outreach to and the involvement of various 
stakeholders is a critical part of the MCC process.  During 
visits to newly eligible countries, MCC teams hope to meet 
with representatives of central, regional, and local 
governments of host countries as well as parliamentarians and 
opposition leaders, civil society, the business sector, and 
bilateral and multilateral donors. 
 
-- We look forward to opportunities to discuss MCC with donor 
representatives in capitals, MCA countries, and Washington. 
Questions from bilateral and multilateral donors may be 
directed to MCC,s Managing Director for Donor and 
Multilateral Relations, Richard Morford, at MorfordRA@mcc.gov. 
RICE