Report on the Criteria and Methodology for Determining the Eligibility of Candidate Countries for Millennium Challenge Account Assistance in FY 2007, 54523-54528 [E6-15323]

Agencies

• Millennium Challenge Corporation

[Federal Register Volume 71, Number 179 (Friday, September 15, 2006)]
[Notices]
[Pages 54523-54528]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-15323]


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MILLENNIUM CHALLENGE CORPORATION

[MCC FR 06-15]


Report on the Criteria and Methodology for Determining the 
Eligibility of Candidate Countries for Millennium Challenge Account 
Assistance in FY 2007

AGENCY: Millennium Challenge Corporation.

ACTION: Notice.

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SUMMARY: Section 608(d) of the Millennium Challenge Act of 2003, Public 
Law 108-199 (Division D) requires the Millennium Challenge Corporation 
to publish a report that lists the countries determined by the Board of 
Directors of the Corporation to be eligible for assistance for Fiscal 
Year 2007. The report is set forth in full below.

    Dated: September 11, 2006.
William G. Anderson, Jr.,
Vice President & General Counsel (Acting), Millennium Challenge 
Corporation.

Report on the Criteria and Methodology for Determining the Eligibility 
of Candidate Countries for Millennium Challenge Account Assistance in 
FY 2007

Summary

    This report to Congress is provided in accordance with Section 
608(b) of the Millennium Challenge Act of 2003, 22 U.S.C.A. 7701, 
7707(b) (the ``Act'').
    The Act authorizes the provision of Millennium Challenge Account 
(MCA) assistance to countries that enter into Compacts with the United 
States to support policies and programs that advance the prospects of 
such countries achieving lasting economic growth and poverty reduction. 
The Act requires the Millennium Challenge Corporation (MCC) to take a 
number of steps in determining the countries that, based on their 
demonstrated commitment to just and democratic governance, economic 
freedom and investing in their people and the opportunity to reduce 
poverty and generate economic growth in the country, will be eligible 
for MCA assistance during Fiscal Year 2007 (FY07). These steps include 
the submission of reports to the congressional committees specified in 
the Act and the publication of Notices in the Federal Register that 
identify:
    1. The countries that are ``candidate countries'' for MCA 
assistance during FY07 based on their per-capita income levels and 
their eligibility to receive assistance under U.S. law, and countries 
that would be candidate countries but for specified legal prohibitions 
on assistance (Section 608(a) of the Act);
    2. The criteria and methodology that the Board of Directors of MCC 
(the ``Board'') will use to measure and evaluate the relative policy 
performance of the candidate countries consistent with the requirements 
of Section 607 of the Act in order to select ``MCA eligible countries'' 
from among the ``candidate countries'' (Section 608(b) of the Act); and
    3. The list of countries determined by the Board to be ``MCA 
eligible countries'' for FY07, with justification for eligibility 
determination and selection for compact negotiation, including which of 
the MCA eligible countries the Board will seek to enter into MCA 
compacts (Section 608(d) of the Act).
    This report sets out the criteria and methodology to be applied in 
determining eligibility for FY07 MCA assistance.

Changes to the Criteria and Methodology for FY07

    MCC has received constructive input on the indicators since the 
announcement of FY06's selection criteria and methodology. That input 
has been taken into account in creating the criteria and methodology 
for the selection of eligible countries for FY07.

Natural Resource Management Indicators

    In the FY06 report, MCC signaled interest in finding a better 
measure of a country's demonstrated commitment to `` * * * economic 
policies that promote * * * the sustainable management of natural 
resources.'' To that end, MCC launched a public process, spearheaded by 
Governor Whitman, to seek broad input from the academic community, 
public and private sector practitioners, researchers at think tanks and 
NGOs. We conducted extensive consultations, hosted several public 
meetings and researched over 120 potential natural resource indicators. 
In June 2005, at a large meeting of experts co-hosted by The Brookings 
Institution, MCC announced a public ``call for ideas'' to seek 
suggestions for an indicator. We also assembled a group of economists 
and natural resources management experts to help us evaluate the ideas 
we received. Eight ideas were evaluated, and two received high ratings 
from both the evaluators and MCC staff: a Natural Resources Management 
index from Columbia University's Center for International Earth Science 
Information Network (CIESIN) and the Yale Center for Environmental Law 
and Policy (YCLEP) and an Access to Land indicator from the 
International Fund for Agricultural Development (IFAD). As a result of 
technical consultations with experts in the environmental and land 
communities, MCC explored modifications to the original submissions and 
determined that the two indices, with some modifications, measure 
separate aspects of natural resources management and, thus taken 
together, represent a more comprehensive measurement of this criteria 
(as well as other criteria noted below).
    To measure the sustainable management of natural resources for 
FY07, MCC has added the Natural Resources Management index and a Land 
Rights and Access index (IFAD's Access to Land indicator combined with 
the International Finance Corporation's (IFC's) Time and Cost of 
Property Registration indicators) as sources of supplemental 
information. MCC's Board will consider later this year incorporating 
natural resource management indicators as part of the formal selection 
matrix for the FY08 selection process. MCC strives for transparency and 
continuity between years in our selection process and the indicators in 
order to maximize the incentive effect of the country selection 
process. The addition of two new indicators is a significant 
modification of the overall evaluation of candidate country 
performance. By using these indicators as supplemental information for 
FY07, with full consideration later this year of formal adoption as 
selection indicators for FY08, MCC will provide notice to countries of 
their performance and an opportunity to learn how they are being 
measured. MCC will engage countries in a dialogue about performance and 
potential reforms in these areas and will encourage countries to seek 
feedback from the institutions that produce these indicators.
    It is important to recognize that all of MCC's indicators have 
limitations, including these two additional indicators. For example, 
the Eco-Region Protection indicator described below attempts to measure 
the breadth and comprehensiveness of a government's commitment to 
habitat preservation and biodiversity protection but does not measure 
the effectiveness of such efforts. Therefore, MCC will continue to

[[Page 54524]]

review these indicators and explore potential improvements that more 
effectively measure a government's commitment to sustainable natural 
resource management.

Natural Resources Management Index

    CIESIN and YCLEP's composite measure of environmental health and 
environmental protection is made up of four indicators described below.
     Eco-Region Protection: Produced by CIESIN, this component 
assesses whether countries are protecting at least 10 percent of all 
their biomes (e.g., deserts, tropical rainforests, grasslands, savannas 
and tundra). It is designed to capture the comprehensiveness of a 
government's commitment to habitat preservation and biodiversity 
protection. The World Wildlife Fund provides the underlying biome data, 
and the United Nations Environment Program World Conservation 
Monitoring Center--in partnership with the IUCN World Commission on 
Protected Areas and the World Database on Protected Areas Consortium--
provide the underlying data on protected areas.
     Access to Improved Water: Produced by the World Health 
Organization (WHO) and the United Nations Children's Fund (UNICEF), 
this component measures the percentage of the population with access to 
at least 20 liters of water per person per day from an ``improved'' 
source (household connections, public standpipes, boreholes, protected 
dug wells, protected springs and rainwater collection) within one 
kilometer of the user's dwelling.
     Access to Improved Sanitation: Produced by the WHO and 
UNICEF, this component measures the percentage of the population with 
access to facilities that hygienically separate human excreta from 
human, animal and insect contact. Such facilities include sewers or 
septic tanks, poor-flush latrines and simple pit or ventilated improved 
pit latrines, provided that they are not public.
     Child Mortality (Ages 1-4): Produced by the Population 
Division of the United Nations Department of Economic and Social 
Affairs, this indicator measures the probability of a child dying 
between the ages of 1 and 4. Since the underlying causes of child 
mortality among 1-4 year olds are predominantly environmental, this 
indicator is considered to be an excellent proxy for environmental 
conditions.
Why It Matters
    Eco-region protection is important for sustainable economic growth 
and poverty reduction because ecosystems provide essential services 
such as clean water, fresh air, healthy soils, livable climates and 
wild foods that underpin human welfare. The establishment of 
``protected areas'' constitutes a proven approach to preserving 
ecosystems. Studies show that, in the absence of a well-managed 
protected areas system, the environment inside and outside of protected 
areas tends to deteriorate. In addition, protected areas can generate a 
significant amount of income by providing opportunities for investments 
in tourism and bio-prospecting, generating debt relief through debt-
for-nature swaps and carbon credit arrangements, and attracting 
international conservation investments. Weak protection of ecosystems 
has a particularly damaging effect on poor people since they rely 
directly upon the resource base for food, fiber, fuel, shelter and 
water. The benefit-to-cost ratio of effective conservation of wild 
areas is estimated to exceed 100:1.
    Lack of access to clean water and sanitation services are two of 
the most important environmental threats to human health in the 
developing world. Every year, roughly 1.7 million lives and 54.2 
million ``life-years'' are lost to unsafe water and inadequate 
sanitation, and poor people disproportionately bear this burden. Access 
to these clean water and sanitation services affects economic growth 
and poverty reduction directly through the channels of improved health 
and higher total factor productivity. Lack of access to these basic 
services affects labor productivity by spreading diseases such as 
dengue, hepatitis A and E, cholera, dysentery and diarrheal diseases; 
encouraging the spread of malaria-infected mosquitoes; and making it 
difficult for people to retain food and nutrients. Poor people 
(disproportionately women and children) also spend a significant number 
of daylight hours fetching water, which further lowers levels of labor 
productivity. In addition, women and older children lose millions of 
working days caring for family members afflicted by water-borne 
diseases.
    A government's commitment to reducing child mortality among 1-4 
year-olds provides an excellent indication of its broader commitment to 
environmental health and environmental protection. Unlike infant 
mortality, the causes of child mortality among 1-4 year-olds are 
predominantly environmental. CIESIN and the YCLEP estimate that roughly 
80 percent of all of the deaths in the 1-4 age cohort are attributable 
to three factors: (1) Indoor air pollution; (2) unsafe water; and (3) 
unreliable sanitation. The direct economic impact of indoor air 
pollution and unsafe water and sanitation is staggering: 3.3 million 
lives and 92.7 million ``life-years'' are lost every year to these 
environmental health threats. Indoor air pollution, which is caused 
primarily by burning biomass, leads to acute respiratory infections 
(ARI), asthma, chronic obstructive pulmonary disease and a whole host 
of other health-related issues. Women and young children 
disproportionately bear this burden because they usually spend more 
time cooking and indoors. Yet with modest investments, these deaths and 
illnesses are completely preventable. Studies show that interventions 
such as dissemination of improved efficiency household stoves and 
public awareness campaigns about the importance of proper ventilation 
come at a very low cost and save lives. These interventions have also 
been shown to reduce unsustainable biomass harvesting.

Land Rights and Access Index

    The Land Rights and Access Index is made up of three indicators:
     Access to Land: Produced by IFAD, this indicator assesses 
the extent to which the institutional, legal and market framework 
provides secure land tenure and equitable access to land in rural 
areas. It is made up of five subcomponents: (1) The extent to which the 
law guarantees secure tenure for land rights of the poor; (2) the 
extent to which the law guarantees secure land rights for women and 
other vulnerable groups; (3) the extent to which land is titled and 
registered; (4) the functioning of land markets; and (5) the extent to 
which government policies contribute to the sustainable management of 
common property resources.
     Days to Register Property: Produced by the International 
Finance Corporation (IFC), this component measures how long it takes to 
register property in the capital city. The IFC records the full amount 
of time necessary when a business purchases land and a building, and to 
transfer the property title from the seller to the buyer so that the 
buyer can use the title for expanding business, as collateral in taking 
new loans, or, if necessary, to sell to another business.
     Cost of Registering Property: Produced by the IFC, this 
component measures the cost to register property as a percentage of the 
value of the property in the capital city. The IFC records all of the 
costs that are incurred when a

[[Page 54525]]

business purchases land and a building to transfer the property title 
from the seller to the buyer, so that the buyer can use it for 
expanding his business, as collateral in taking new loans, or, if 
necessary, to sell it to another business.
Why It Matters
    Secure land tenure is a critical component of sustainable natural 
resource management because those who lack clear ownership or use 
rights to their land are less likely to make long-term investments in 
land productivity and more likely to make short-term decisions with 
negative environmental impacts such as deforestation. In Ghana, for 
example, there is evidence that farmers are significantly more likely 
to make long-term investments in land by planting trees when their land 
rights are secure. Conversely, insecure land tenure can contribute to 
severe land degradation by encouraging the mining of soil fertility and 
organic matter, slash-and-burn agriculture and encroachment into 
ecologically sensitive areas. Studies show that land tenure insecurity 
has accelerated deforestation and a range of other unsustainable 
natural resource management practices in Latin America, Africa and 
Asia.
    In addition to cultivating a longer term perspective on land use, 
secure land tenure also eases the difficulty of establishing the 
systems of securitization that are necessary to deliver water and 
sanitation services; private companies and public utilities generally 
do not provide access to credit, water, sanitation, telephones or 
electricity unless the individuals requesting service possess a 
property title.
    Secure and formal land tenure and efficient title registration 
services also play a central role in the economic growth process by 
giving people long-term incentives to invest and save their income, 
enhancing access to essential public services, allowing for more 
productive use of time and money than protecting land rights, 
facilitating use of land as collateral for loans and contributing to 
social stability and local governance. These improvements also favor 
growth that is ``pro-poor'' because the benefits generally accrue to 
those who have not possessed such rights in the past and who are 
affected even more by high property registration costs in time and 
money. Land policy reform can be particularly meaningful for women. 
Research shows that when women have secure access to land and are able 
to exercise control over land assets, their ability to earn income is 
enhanced, household spending on healthcare, nutritious foods and 
children's education increase and human capital accumulation occurs at 
a faster rate. Women's ability to inherit and possess control rights to 
land also serves as a crucial social safety net.
    Consultations with the land policy community have revealed that, 
while IFAD's indicator places great emphasis on equitable access to 
land in rural areas, it does not fully address the efficiency of the 
property rights system and urban property issues. Therefore, MCC will 
combine IFAD's indicator with the IFC's time and cost of property 
registration indicators. The IFC indicators are compiled by means of a 
rigorous process of consultation with local experts, cross-checking 
with official sources, government officials and relevant stakeholders 
to ensure the accuracy of the information that is collected. These 
indicators are highly actionable and target the urban and peri-urban 
commercial and residential property areas not measured by the IFAD 
indicator. Non-rural land use is certainly important for poverty-
reducing economic growth, but the conversion of rural land to urban 
land is also important to sustainable natural resource management and 
sound land policy affects the quality of this process of land use 
change.

Placement of the Natural Resource Management Indices

    While MCC's authorizing legislation outlines the natural resource 
management indicator as a measure of economic policy in the economic 
freedom category, and the proposed indicators meet that criterion, MCC 
is considering eventual placement of both indicators in the Investing 
in People category as potentially the most appropriate. Investing in 
people means, among other characteristics, investing in the assets 
required for a sustainable livelihood. The Natural Resources Management 
index measures whether governments are investing their resources in 
ways that will enable poor people, particularly poor women and 
children, to live healthy and productive lives. The Access to Improved 
Water, Access to Improved Sanitation and Child Mortality subcomponents 
of this index are also responsive to MCC's legislative mandate of 
measuring a government's commitment to reducing child mortality. Land 
is a crucial asset and a social safety net that poor people rely on to 
improve their well-being. By measuring whether governments are 
improving their laws, policies and administrative practices to make 
land access more secure, the Land Rights and Access index will help MCC 
identify countries that are committed to investing in the 
entrepreneurship of their people and empowering people to more fully 
harness their skills and talents to improve their livelihoods. Access 
to land often determines whether or not the poor can earn enough income 
to survive and invest in their own futures. It is also important to 
note that the Land Rights and Access index explicitly addresses the 
issue of gender equality and qualifies as a measure of a government's 
commitment to investing in women (as outlined in MCC's authorizing 
legislation). Gender inequality has been an important component of MCC 
Compact development, and equitable access to land in particular has 
shown itself to be essential if all members of society are to benefit 
from economic growth. MCC's use of a Land Rights and Access index is 
also responsive to the broader legislative mandate that MCC, in all of 
its activities, ``take into account and assess the role of women and 
girls.''

Modification of Indicator Sources

    Due to improvements in data quality and availability, MCC has made 
several source changes to the FY07 selection criteria. Rather than 
relying on multiple sources for its Inflation indicator, MCC will rely 
exclusively on annual data reported in the International Monetary 
Fund's (IMF) World Economic Outlook (WEO) database. For Public 
Expenditure on Health, MCC will also substitute World Health 
Organization data for the data it has collected through national 
governments in previous years. Finally, for its Public Expenditure on 
Primary Education indicator, MCC will draw on the United Nations 
Educational, Scientific and Cultural Organization (UNESCO) as its 
primary source and self-reported data from national governments as a 
secondary source. Efforts are currently underway at UNESCO to improve 
country coverage, and MCC plans to discontinue use of self-reported 
country data as coverage expands.

Potential Future Changes

    MCC reviews all of its indicators annually to ensure the best 
measures are being used and may, from time to time, recommend changes 
or refinements if MCC identifies better indicators or improved sources 
of data. MCC takes into account public comments received on the 
previous year's criteria and methodology and consult with a broad range 
of experts in the development community and within the U.S. Government. 
In assessing new indicators, MCC favors those that: (1) Are developed 
by an independent third

[[Page 54526]]

party; (2) utilize objective, analytically rigorous and high-quality 
data; (3) are publicly available; (4) have broad country-coverage; (5) 
are comparable across countries; (6) have a clear theoretical or 
empirical link to economic growth and poverty reduction; (7) are 
policy-linked (i.e., measure factors that governments can influence 
within a two- to three-year horizon); and (8) have broad consistency in 
results from year to year. There have been numerous noteworthy 
improvements to data quality and availability to current indicators as 
a result of MCC's application of the indicators and the regular 
dialogue MCC has established with the indicator institutions.
    In addition to the changes identified in this Report, MCC will 
explore additional changes to the indicators for the FY08 process. For 
example, in the FY06 Report, MCC signaled its interest in a more 
comprehensive measure of trade barriers. MCC has not yet identified a 
more comprehensive measure with good country coverage and which is 
publicly available, but several new indicators of tariff and non-tariff 
barriers are under development. The Heritage Foundation, for instance, 
plans to make significant revisions to its Trade Policy indicator in 
order to better account for non-tariff barriers such as quotas, 
voluntary export restraints, import bans, import and export taxes, 
import and export subsidies, import and export licensing requirements 
and the red tape involved with each stage of importing and exporting. 
MCC hopes that by highlighting our intention to look for better and 
more comprehensive indicators MCC will stimulate interest in improving 
the available data.

Criteria and Methodology

    The Board will select eligible countries based on the following, 
among other factors: (1) Their overall performance in relation to their 
peers in three broad policy categories--Ruling Justly, Encouraging 
Economic Freedom and Investing in People; and (2) the opportunity to 
reduce poverty and generate economic growth. Section 607 of the Act 
requires that the Board's determination of eligibility be based ``to 
the maximum extent possible, upon objective and quantifiable indicators 
of a country's demonstrated commitment'' to the criteria set out in the 
Act. For FY07, there will be two groups of candidate countries--low-
income countries and lower middle-income countries. Low-income 
candidate countries refer to those countries that have a per capita 
income equal to or less than $1,675 and are not ineligible to receive 
United States economic assistance under part I of the Foreign 
Assistance Act of 1961 by reason of the application of any provision of 
the Foreign Assistance Act or any other provision of law. Lower middle-
income candidate countries are those that have a per capita income 
between $1,676-$3,465 and are not ineligible to receive United States 
economic assistance.
    The Board will make use of sixteen indicators to assess policy 
performance of individual countries (specific definitions of the 
indicators and their sources are set out in Annex A). These indicators 
are grouped for purposes of the FY07 assessment methodology under the 
three policy categories listed below.

------------------------------------------------------------------------
                                      Encouraging        Investing in
          Ruling justly            economic freedom         people
------------------------------------------------------------------------
1. Civil Liberties..............  1. Cost of          1. Public
                                   Starting a          Expenditure on
                                   Business.           Health.
2. Political Rights.............  2. Inflation......  2. Public
                                                       Expenditure on
                                                       Primary
                                                       Education.
3. Voice and Accountability.....  3. Fiscal Policy..  3. Immunization
                                                       Rates (DPT3 and
                                                       Measles).
4. Government Effectiveness.....  4. Trade Policy...  4. Girls' Primary
                                                       Education
                                                       Completion.
5. Rule of Law..................  5. Regulatory
                                   Quality.
6. Control of Corruption........  6. Days to Start a
                                   Business.
------------------------------------------------------------------------

    In making its determination of eligibility with respect to a 
particular candidate country, the Board will consider whether a country 
performs above the median in relation to its peers on at least half of 
the indicators in each of the three policy categories and above the 
median on the corruption indicator. One exception to this methodology 
is that the median is not used for the Inflation indicator. Instead, to 
pass the Inflation indicator a country's inflation rate needs to be 
under a fixed ceiling of 15 percent. The indicator methodology will be 
the predominant basis for determining which countries will be eligible 
for MCA assistance. In addition, the Board may exercise discretion in 
evaluating and translating the indicators into a final list of eligible 
countries. In this respect, the Board may also consider whether any 
adjustments should be made for data gaps, lags, trends or other 
weaknesses in particular indicators. Likewise, the Board may deem a 
country ineligible if it performs substantially below the median on any 
indicator and has not taken appropriate measures to address this 
shortcoming.
    Where necessary, the Board may also take into account other 
quantitative and qualitative information to determine whether a country 
performed satisfactorily in relation to its peers in a given category. 
As provided in the Act, the Chief Executive Officer's report to 
Congress setting out the list of eligible countries and identifying 
which of those countries the MCC will seek to enter into Compact 
negotiations with will include a justification for such eligibility 
determinations and selections for Compact negotiation.
    There are elements of the criteria set out in the Act for which 
there is either limited quantitative information (e.g., rights of 
people with disabilities) or no well-developed performance indicator. 
Until such data and/or indicators are developed, the Board may rely on 
supplemental data and qualitative information to assess policy 
performance. For example, the State Department Human Rights report 
contains qualitative information to make an assessment on a variety of 
criteria outlined by Congress, such as the rights of people with 
disabilities, the treatment of women and children, worker rights and 
human rights. Similarly, as additional information in the area of 
corruption, the Board may consider how a country scores on Transparency 
International's Corruption Perceptions Index as well as on the defined 
indicator.

Relationship to Legislative Criteria

    Within each policy category, the Act sets out a number of specific 
selection criteria. As indicated above, a set of objective and 
quantifiable policy indicators is being used to establish eligibility 
for MCA assistance and measure the relative performance by candidate 
countries against these criteria. The Board's approach to determining 
eligibility ensures that performance against each of these criteria is 
assessed by at least one of the sixteen objective indicators. Most are 
addressed by multiple indicators. The specific indicators used to 
measure each

[[Page 54527]]

of the criteria set out in the Act are listed below.
    Section 607(b)(1): Just and democratic governance, including a 
demonstrated commitment to:
    (A) Promote political pluralism, equality and the rule of law; 
Indicators--Political Rights, Civil Liberties, Voice and Accountability 
and Rule of Law.
    (B) Respect human and civil rights, including the rights of people 
with disabilities; Indicators--Political Rights and Civil Liberties.
    (C) Protect private property rights; Indicators--Civil Liberties, 
Regulatory Quality, Rule of Law and Land Rights and Access.
    (D) Encourage transparency and accountability of government; and 
Indicators--Political Rights, Civil Liberties, Voice and Accountability 
and Government Effectiveness.
    (E) Combat corruption; Indicators--Civil Liberties and Control of 
Corruption.
    Section 607(b)(2): Economic freedom, including a demonstrated 
commitment to economic policies that:
    (A) Encourage citizens and firms to participate in global trade and 
international capital markets; Indicators--Fiscal Policy, Inflation, 
Trade Policy and Regulatory Quality
    (B) Promote private sector growth and the sustainable management of 
natural resources; Indicators--Inflation, Days to Start a Business, 
Cost of Starting a Business, Fiscal Policy and Regulatory Quality.
    (C) Strengthen market forces in the economy; and Indicators--Fiscal 
Policy, Inflation and Regulatory Quality.
    (D) Respect worker rights, including the right to form labor 
unions; Indicators--Civil Liberties and Voice and Accountability.
    Section 607(b)(3): Investments in the people of such country, 
particularly women and children, including programs that:
    (A) Promote broad-based primary education and
    (B) Strengthen and build capacity to provide quality public health 
and reduce child mortality. Indicators--Girls' Primary Education 
Completion, Public Expenditure on Primary Education, Immunization 
Rates, Public Expenditure on Health.
    Where necessary the Board will also draw on supplemental data and 
qualitative information, including Natural Resources Management (CIESIN 
& YCLEP) and Land Rights and Access (IFAD and IFC) indices, the State 
Department's Human Rights Report and Transparency International's 
Corruption Perception's Index.

Annex A: Indicator Definitions

    The following 16 indicators will be used to measure candidate 
countries' demonstrated commitment to the criteria found in Section 
607(b) of the Act. The indicators are intended to assess the degree to 
which the political and economic conditions in a country serve to 
promote broad-based sustainable economic growth and reduction of 
poverty; and thus provide a sound environment for the use of MCA funds. 
The indicators are not goals in themselves; rather they measure 
policies that are necessary conditions for a country to achieve broad-
based sustainable economic growth. The indicators were selected based 
on their relationship to economic growth and poverty reduction, the 
number of countries they cover, their transparency and availability and 
their relative soundness and objectivity. Where possible, the 
indicators are developed by independent sources.

Ruling Justly

    1. Civil Liberties: A panel of independent experts rates countries 
on: freedom of expression; association and organizational rights; rule 
of law and human rights; and personal autonomy and economic rights. 
Source: Freedom House.
    2. Political Rights: A panel of independent experts rates countries 
on: the prevalence of free and fair elections of officials with real 
power; the ability of citizens to form political parties that may 
compete fairly in elections; freedom from domination by the military, 
foreign powers, totalitarian parties, religious hierarchies and 
economic oligarchies; and the political rights of minority groups. 
Source: Freedom House.
    3. Voice and Accountability: An index of surveys that rates 
countries on: ability of institutions to protect civil liberties; the 
extent to which citizens of a country are able to participate in the 
selection of governments; and the independence of the media. Source: 
World Bank Institute.
    4. Government Effectiveness: An index of surveys that rates each 
country on: the quality of public service provision; civil services' 
competency and independence from political pressures; and the 
government's ability to plan and implement sound policies. Source: 
World Bank Institute.
    5. Rule of Law: An index of surveys that rates countries on: the 
extent to which the public has confidence in and abides by rules of 
society; incidence of violent and nonviolent crime; effectiveness and 
predictability of the judiciary; and the enforceability of contracts. 
Source: World Bank Institute.
    6. Control of Corruption: An index of surveys that rates countries 
on: the frequency of ``additional payments to get things done;'' the 
effects of corruption on the business environment; ``grand corruption'' 
in the political arena; and the tendency of elites to engage in ``state 
capture.'' Source: World Bank Institute.

Encouraging Economic Freedom

    1. Cost of Starting a Business: The Private Sector Advisory Service 
of the World Bank Group works with local lawyers and other 
professionals to examine specific regulations that impact business 
investment. One of their studies measures the cost of starting a new 
business as a percentage of per capita income. Source: World Bank 
Group.
    2. Inflation: The most recent 12-month change in consumer prices as 
reported in the IMF's International Financial Statistics or in another 
public forum by the relevant national monetary authorities. Source: The 
International Monetary Fund's World Economic Outlook (WEO) database.
    3. Fiscal Policy: The overall budget deficit divided by GDP, 
averaged over a three-year period. The data for this measure is being 
provided directly by the recipient government and will be cross-checked 
with other sources and made publicly available to try to ensure 
consistency across countries. Source: National Governments and the 
International Monetary Fund's World Economic Outlook (WEO) database.
    4. Days to Start a Business: The Private Sector Advisory Service of 
the World Bank Group works with local lawyers and other professionals 
to examine specific regulations that impact business investment. One of 
their studies measures how many days it takes to open a new business. 
Source: World Bank Group.
    5. Trade Policy: A measure of a country's openness to international 
trade based on average tariff rates and nontariff barriers to trade. 
Source: The Heritage Foundation's Index of Economic Freedom.
    6. Regulatory Quality: An index of surveys that rates each country 
on: the burden of regulations on business; price controls; the 
government's role in the economy; foreign investment regulation; and 
many other areas. Source: World Bank Institute.

Investing in People

    1. Public Expenditure on Health: Total expenditures by government 
at all levels on health divided by GDP.

[[Page 54528]]

Source: The World Health Organization (WHO).
    2. Immunization: The average of DPT3 and measles immunization rates 
for the most recent year available. Source: The World Health 
Organization (WHO).
    3. Total Public Expenditure on Primary Education: Total 
expenditures by government at all levels of primary education divided 
by GDP. Source: The United Nations Educational, Scientific and Cultural 
Organization (UNESCO) and National Governments.
    4. Girls' Primary Completion Rate: The number of female students 
completing primary education divided by the population in the relevant 
age cohort. Source: World Bank and the United Nations Educational, 
Scientific and Cultural Organization (UNESCO).

 [FR Doc. E6-15323 Filed 9-14-06; 8:45 am]
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