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O R 241403Z DEC 09
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TO MCC COMPACT COLLECTIVE IMMEDIATE
MCC THRESHOLD COLLECTIVE IMMEDIATE
MCC CANDIDATE COUNTRY COLLECTIVE IMMEDIATE
INFO ALL OECD CAPITALS COLLECTIVE
RHEHAAA/WHITE HOUSE WASHINGTON DC
RUEHBS/USEU BRUSSELS
RUEHLMC/MCC WASHINGTON DC 0125
RUEATRS/TREASURY DEPT WASHINGTON DC 0529

UNCLAS SECTION 01 OF 05 STATE 130865 
 
SIPDIS 
ALSO FOR USAID (MELLIS) 
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 2010 
 
¶1.  This message contains an action request for action 
addressees (FY10 MCA Compact eligible countries) in paragraph 
¶10. 
 
¶2.  SUMMARY.  The Millennium Challenge Corporation,s (MCC) 
Board of Directors met December 9, 2009 to select countries 
as eligible for Millennium Challenge Account (MCA) Compact 
and Threshold Program assistance for fiscal year 2010 (FY10). 
 For the first time, the Board considered current MCC partner 
countries that are nearing completion of their current 
Compacts for eligibility for second Compacts.  No new 
countries were selected as Compact-eligible this year.  The 
Board selected one current Compact country -- Cape Verde -- 
as eligible for a second MCA Compact.  The Board also 
re-selected six countries that had been selected in a prior 
fiscal year and are developing but have not yet signed 
Compacts -- Indonesia, Jordan, Malawi, Moldova, the 
Philippines, and Zambia.  No new countries were selected as 
Threshold-eligible.  This cable provides guidance on the FY10 
MCC selection process as well as talking points for: 
 
-- All countries (paragraph 11); 
-- Countries selected as eligible for second Compacts 
(paragraph 12); 
-- Countries currently implementing Compacts (paragraph 13); 
-- Countries currently implementing Threshold programs 
(paragraph 14); 
-- Candidate countries not selected for FY10 (paragraph 15); 
and 
-- Donor countries (paragraph 16). 
 
For additional talking points, please contact MCC at 
developmentpolicy@mcc.gov.  Letters from MCC CEO Daniel 
Yohannes will be provided separately by email for delivery by 
Posts to heads of government of FY10 MCA Compact eligible 
countries.  END SUMMARY. 
 
¶3.  Chaired by Secretary Clinton, MCC,s Board of Directors 
met December 9, 2009, to select countries as eligible for MCA 
Compact and Threshold Program assistance for FY10.  No new 
countries were selected as Compact-eligible this year.  The 
Board re-selected six countries that are developing but have 
not yet signed Compacts:  Indonesia, Jordan, Malawi, Moldova, 
the Philippines, and Zambia.  Last year, MCC discontinued the 
practice of annually making eligibility determinations for 
countries with signed Compacts.  For the first time, the 
Board considered current MCC partner countries that are 
nearing completion of their current Compacts for eligibility 
for second Compacts.  The Board selected one current Compact 
country ) Cape Verde ) as eligible for a second Compact. 
 
¶4.  The Board did not select any new countries as Threshold 
eligible.  Countries with signed Threshold Program agreements 
do not need to be reselected each year. 
 
BACKGROUND 
--------------------- 
 
¶5.  MCC supports programs that reduce poverty and promote 
sustainable economic growth in poor countries that have 
demonstrated a broad commitment to sound development 
policies.  This commitment is measured predominantly 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, as well as on 
the &Control of Corruption8 indicator.  The Board also 
weighs heavily countries, performance on the three democracy 
indicators (&Political Rights8, &Civil Liberties8, and 
&Voice and Accountability8).  To address limitations of the 
indicators ) including gaps, time lags, and other factors 
not adequately captured in the indicators ) the Board also 
takes into account supplemental quantitative and qualitative 
information. 
 
¶6.  In addition to performance on the indicators, the Board 
 
STATE 00130865  002 OF 005 
 
 
also considers the opportunity for economic growth and 
poverty reduction in a country, as well as 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 complete a Compact agreement with 
MCC or receive funding.  Compact finalization also depends on 
the quality of the country,s program proposal and the funds 
available to MCC. 
 
¶7.  Candidate Countries: In FY10, there were 87 candidate 
countries from which eligible countries could be selected, as 
well as 11 countries that meet the income parameters for 
candidacy but are not candidates due to statutory 
restrictions.  The 87 candidate countries identified for FY10 
fall into two groups: 
 
-- Low Income Countries (LICs), defined as countries with a 
Gross National Income (GNI) per capita of $1,855 or less, and 
-- Lower Middle Income Countries (LMICs), defined as 
countries with a GNI per capita of $1,856-$3,855. 
 
Income group classification cutoffs are adjusted annually. 
There are 56 LIC candidates and 31 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.  MCA Compact programs: A Compact is a multi-year agreement 
between MCC and an eligible country to fund specific programs 
targeted at reducing poverty and stimulating economic growth. 
These programs must be developed in consultation with a 
country's citizens, must be able to measure both economic 
growth and poverty reduction, and must be implemented, 
managed and maintained by the country. 
 
¶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 for Compact 
eligibility 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). 
 
¶10.  ACTION REQUESTED:  All posts may draw on the background 
points in paragraph 11, as appropriate. 
 
--  MCC CEO Daniel Yohannes has notified the Ambassador of 
Cape Verde of the country,s eligibility and requests that 
Embassy Praia deliver the points in paragraph 12, along with 
a letter from CEO Yohannes informing the President of Cape 
Verde of the results.  MCC will send the text of the letter 
to Post separately by e-mail. 
 
--  MCC has contacted Posts in reselected countries 
(Indonesia, Jordan, Malawi, Moldova, Philippines, and 
Zambia), and  letters to the heads of state in each country 
regarding their reselection are forthcoming.  MCC will 
provide additional country-specific talking points as needed. 
 
-- Posts in countries currently implementing Compacts may 
refer to the points in paragraph 13; Posts in countries 
currently implementing or developing Threshold programs may 
refer to the points in paragraph 14; and Posts in candidate 
countries that were not selected may draw on points in 
paragraph 15.  MCC will provide additional country specific 
points as needed. 
 
-- Posts are also encouraged to deliver information about new 
country selections to donors, drawing on the general 
background information contained in paragraph 16. 
 
-- 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. 
 
¶11.  BACKGROUND/GENERAL POINTS FOR ALL COUNTRIES: 
 
 
STATE 00130865  003 OF 005 
 
 
-- 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 2010 funds 
and continue Compact development.  The Board re-selected six 
countries to continue developing their Compacts: Indonesia, 
Jordan, Malawi, Moldova, the Philippines, and Zambia. 
 
-- The Millennium Challenge Corporation,s Board of Directors 
has selected one current Compact partner country -- Cape 
Verde -- as eligible to submit a proposal for a second MCA 
Compact, based on its performance on MCC,s ruling justly, 
economic freedom, and investing in people indicators. 
Selection for Compact eligibility is a recognition of Cape 
Verde for its policy performance in these three broad areas 
as well as its track record of performance implementing and 
achieving results under its current Compact. 
 
¶12.  ADDITIONAL POINTS FOR CAPE VERDE AS A COUNTRY ELIGIBLE 
FOR A SECOND COMPACT: 
 
-- Congratulations on being selected as eligible for MCA 
assistance for a second Compact.  This is recognition of the 
good policies your government has put in place in the areas 
measured by MCC,s indicators as well as the progress your 
government has made to date implementing and achieving 
results under your current MCA Compact. 
 
-- A letter from MCC Chief Executive Officer Daniel Yohannes 
will provide official notification of selection and invite 
your country to submit a proposal for a second MCA Compact 
program. 
 
-- As before, 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, but not 
limited to, performance on MCC indicators), the successful 
implementation of your current Compact, the successful 
negotiation of a mutually agreeable second Compact between 
your country and MCC, the approval of that Compact by the MCC 
Board, and the availability of funds to MCC. 
 
¶13.  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, 
that country will no longer be subject to the annual 
re-selection process during the term of the Compact. 
 
-- However, MCC and its Board of Directors continue to 
evaluate closely 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.  The Board has made such decisions in a number of 
recent cases. 
 
-- Countries interested in second Compacts, after the 
expiration of their current Compact, will need to be selected 
 
STATE 00130865  004 OF 005 
 
 
as eligible for funding.  The criteria for second Compact 
eligibility includes a combination of performance on MCC,s 
policy indicators and successful implementation of the first 
Compact. 
 
-- For Burkina Faso and Indonesia:  Countries that do not 
meet the indicator criteria for the first time since their 
initial selection as Compact eligible, but that have not 
demonstrated a significant policy reversal, will receive an 
invitation from MCC to participate in the policy improvement 
process, a dialogue with MCC about performance on the 
indicators.  More information on the policy improvement 
process for individual countries will be forthcoming. 
 
¶14.  ADDITIONAL POINTS FOR COUNTRIES CURRENTLY IMPLEMENTING 
OR DEVELOPING THRESHOLD PROGRAMS: 
 
-- MCC,s Board has decided that once MCC makes a commitment 
to a country through a signed, Threshold Program agreement, 
that country will no longer be subject to the re-selection 
process during the term of the agreement. 
 
-- However, MCC and its Board of Directors continue to 
evaluate closely each country,s policy performance 
throughout the term of the agreement.  MCC will continue to 
work with a country implementing a Threshold program 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.  The Board has made such decisions in a number of 
cases. 
 
-- For Liberia and Timor-Leste:  Your country,s Threshold 
program will be funded using funds from fiscal year 2009, the 
year your country was initially selected as 
Threshold-eligible, so it did not require reselection by the 
Board this year.  MCC looks forward to continuing to develop 
a Threshold country program with your country. 
 
¶15.  ADDITIONAL POINTS FOR MCA CANDIDATE COUNTRIES NOT 
SELECTED AS ELIGIBLE FOR MCA ASSISTANCE FOR FY10: 
 
-- MCC is built on the premise that aid is most effective 
when it reinforces good governance, investments in health, 
education, the 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 
countries, policy 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. 
 
(NOTE FOR POSTS:  Embassies may wish to customize the 
preceding talking points by looking at the country-by-country 
scorecards on the MCC website.  If specific talking points 
are required, please contact MCC.) 
 
-- 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 
U.S. 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 
social investments, as measured by MCC,s 17 policy 
indicators. 
 
 
STATE 00130865  005 OF 005 
 
 
(IF RAISED:  Points for use with Albania and Georgia.) 
 
-- The MCC Board made special note at its December 9 meeting 
of the positive performance of Albania and Georgia as MCC 
partners. 
 
-- MCC signed a second Threshold program with Albania last 
October ) worth over $15.7 million ) to support 
anti-corruption activities.  Albania has made significant 
progress as an economic reformer and now passes MCC,s 
indicator criteria as a lower middle income country. 
 
-- Likewise, Georgia has been a consistent economic reformer 
and has made great strides to reduce poverty through its 
$393.5 million Compact.  Georgia has 18 months remaining in 
the term of its Compact and may be considered by the Board 
for a second Compact at a later date. 
 
¶16.  ADDITIONAL POINTS FOR DONORS (for use with donors in 
eligible countries and by Posts in donor countries): 
 
-- MCC is providing all countries selected as eligible for 
MCA Compact assistance for FY10 with an official letter 
notifying them of their selection.  For Cape Verde, which was 
selected for second Compact eligibility, the letter will 
invite the country to submit a proposal for an MCA Compact 
concept paper.  Countries selected in a prior fiscal year 
that were re-selected to continue Compact development will be 
advised of their continuing eligibility but do not need to 
submit a new concept paper. 
 
-- MCC will also provide guidance on the MCA proposal and the 
process and expectations for developing a second Compact. 
 
-- MCA assistance is not guaranteed but will be contingent on 
continued strong policy performance, the successful 
completion of any current MCA Compacts (if applicable), 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. 
 
-- 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 Tom Kelly, Acting Managing Director for 
Development Policy and the Threshold Program, kellyTJ@mcc.gov. 
 
¶17.  The Department and MCC appreciate Posts, support of the 
MCC program. 
CLINTON