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Tuesday, May 20, 2008

Policy Performance Indicators at the Millennium Challenge Corporation

Results of an attendee poll at the 22nd ICGFM Conference show limited knowledge of the existence and processes of the Millennium Challenge Corporation (MCC).

Tom Kelly of the MCC admits that the mandate and processes are complex and that no one has been able to create a simple "elevator pitch".

Dr.Kelly points out that MCC cannot give enough money away to make an impact by itself. For example, the Philippines received more direct private aid in a year than the entire MCC budget. The MCC focuses on policy improvement to achieve economic growth.

MCC uses 17 different indicators in 3 categories to evaluate policy. The indicators are generated from outside the MCC from organizations that are not funded by the MCC creating an objective model. Although inprecise, Dr. Kelly suggested that the expression in a scorecard method has received significant currency in countries. For example, scorecard results are often used by business to determine whether to invest in countries.


Thomas Kelly said...

I want to thank the ICGFM for the opportunity to discuss how MCC uses quantitative indicators to assess country policy performance and take this opportunity to clarify some of the points raised in the blog entry.

MCC has a clear mandate: to reduce poverty through economic growth. MCC works with countries that have good policy performance in comparison to their peers. To select its partners, MCC uses a transparent system based on objective third party indictors. The indicators are publicly available and MCC provides a guide on its web site to how they are used in the country selection process: http://www.mcc.gov/documents/mcc-fy08-guidetoindicatorsandtheselectionprocess.pdf

Regarding the size of MCC assistance, MCC’s investments will have an impact by stimulating economic growth and reducing poverty. Donor financing alone will not eliminate poverty in a country if the policies are not conducive to economic growth. Good policies are the key to increasing investment, which is necessary to increasing long term economic growth and reducing poverty. MCC rewards those countries with good policy environments and provides an incentive for countries to improve their policy performance.

The indicator system that MCC uses is designed to help identify those countries that have good policies in place. The indicators are not used by MCC as a guide to design specific programmatic interventions; other, more disaggregated, indicators which are narrower in scope are better suited to this role. The indicators MCC uses give an overview of overall policy performance and do a good job in characterizing how countries perform.

Thomas Kelly
Director for Economic Policy at the Millennium Challenge Corporation

Ellsworth T. said...

How can you justify accepting only above average countries as eligible candidates? With this policy of rewarding better performers you’ll only expand the gap between the haves and the have-nots. The proposal that this will incentivize the development of better policy is inhumane. It is inappropriate to expect everyone to be above average, rather, the focus of the MCC should change to be more equitable and less discriminatory.

Wells C. said...

There are limited resources. The goal is to target countries where projects have the greatest potential for positive feedback and are least likely to be sapped by ineffective institutions. Importantly, a country’s per capita income is examined only to determine if it qualifies as a candidate (Low income category: <$1,735 and High income $1,735 – $3,595) and is not used for further discrimination. It is true that measures used by MCC, such as immunization rates, could indirectly reflect differences in per capita income within the groups. Measures such as public expenditure on healthcare and primary education have the potential to reflect income advantages, but are easily scaled to reflect a percentage of per capita income. It would also be possible to calculate a “disposable per-capita income” for each country, which subtracts from the GDP the costs of running a government and providing other services appropriate to the level of development such as roads and police. However, this would require increased subjectivity in determining appropriate expenditure. Additionally, this level of resolution is probably greater than is needed for the analyses MCC is performing.
This method is likely to be effective. While the funding MCC has at its disposal currently may be limited, other larger aid groups are likely to adopt similar quantification schemes after the MCC has proven the concept.