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Testimony:

Before the Subcommittee on Africa and Global Health, Committee on 
Foreign Affairs, House of Representatives:

United States Government Accountability Office:

GAO:

For Release on Delivery Expected at 2:30 p.m. EDT:

Thursday, June 28, 2007:

Millennium Challenge Corporation:

Progress and Challenges with Compacts in Africa:

Statement of David B. Gootnick, Director International Affairs and 
Trade:

GAO-07-1049T:

GAO Highlights:

Highlights of GAO-07-1049T, a testimony to the Subcommittee on Africa 
and Global Health, Committee on Foreign Affairs, House of 
Representatives. 

Why GAO Did This Study:

In January 2004, Congress established the Millennium Challenge 
Corporation (MCC) to administer the Millennium Challenge Account for 
foreign assistance. MCC’s mission is to reduce poverty by supporting 
sustainable, transformative economic growth in partnership with 
developing countries that create and maintain sound policy 
environments. MCC signs compacts obligating funds for such projects 
with countries it selects as eligible for this assistance, according to 
criteria outlined in MCC’s authorizing legislation. Each compact has a 
maximum duration of 5 years. After signed compacts enter into force, 
MCC begins to disburse funds. For fiscal years 2004 to 2007, MCC 
received appropriations of almost $6 billion. MCC has obligated almost 
$3 billion for 11 compacts; $1.5 billion of this amount is for 5 
compacts in sub-Saharan Africa (Africa). 

This testimony examines (1) the pace of MCC’s initiation of compacts in 
Africa, (2) MCC projects and management structures in African countries 
with signed compacts, and (3) MCC’s progress in disbursing compact 
funds. In preparing this testimony, GAO drew from, and updated, 
previous reports on MCC’s compact development, obligations, 
implementation, management, and disbursements. 

What GAO Found:

For MCC’s five signed African compacts—with Madagascar, Cape Verde, 
Benin, Ghana, and Mali—progressing from eligibility selection to 
compact signature took between 12 and 31 months. All except the compact 
with Mali have entered into force—on average, about 5 months after 
compact signature. Of six other African countries that MCC identified 
as eligible for compact assistance, none have reached compact 
signature, although three have been eligible for more than 3 years. 
Overall, MCC has established, and obligated funds for, fewer compacts 
than projected.

MCC has budgeted about three-quarters of compact funding in Africa for 
transportation and other infrastructure projects (37 percent) and 
agriculture and rural development projects (39 percent). To provide 
oversight and accountability and facilitate stakeholder involvement, 
the countries have established management structures with several 
common components. GAO reported in July 2006 that Madagascar and Cape 
Verde did not fill key positions until months after entry into force 
and that this may limit achievement of compact objectives. According to 
MCC, key officials for subsequent compacts with Benin and Ghana were in 
place around the time of entry into force; key positions for Mali have 
not yet been filled.

MCC has disbursed compact funds in Africa more slowly than planned and, 
unless it can increase its rate of disbursements, may have large 
unexpended balances and uncompleted projects when the compacts expire. 
As of March 31, 2007, MCC had disbursed about $26 million (23 percent) 
of $113.9 million it planned to disburse by that date. The low rate of 
disbursement is most critical for Madagascar and Cape Verde, both in 
their second year of compact implementation. According to MCC, the 
unexpectedly slow disbursement reflects both its high standards for 
accountability and its initial overestimation of the countries’ 
capacities to meet those standards.

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-1049T].

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact David Gootnick at 202-512-
3149 or gootnickd@gao.gov.

Mr. Chairman and Members of the Committee:

Thank you for the opportunity to discuss GAO's findings and 
observations regarding the Millennium Challenge Corporation's (MCC) 
activities and progress in sub-Saharan Africa.[Footnote 1]

In January 2004, Congress established MCC to administer the Millennium 
Challenge Account (MCA) for foreign assistance.[Footnote 2] MCC's 
mission is to reduce poverty by supporting sustainable, transformative 
economic growth in partnership with developing countries that create 
and maintain sound policy environments. In countries where it funds 
projects or activities, MCC expects to raise incomes and lift thousands 
out of poverty. For fiscal years 2004 to 2007, MCC received 
appropriations of almost $6 billion, about $5.1 billion of which has 
been set aside for compact assistance.[Footnote 3] MCC is currently 
working with 40 countries worldwide--either providing compact 
assistance or helping them become eligible for compact 
assistance[Footnote 4]--and had obligated almost $3 billion for 
compacts with 11 of these countries as of May 2007.

In 2006, we reported on MCC's implementation of its first compacts-- 
including compacts with Madagascar and Cape Verde--examining MCC's 
process for initiating the compacts and its management structures for 
implementing them.[Footnote 5] Today I will discuss MCC's activities in 
sub-Saharan Africa (Africa), where MCC has signed compacts with five 
countries and identified another six countries as eligible for 
assistance. Specifically, I will discuss (1) the pace of MCC's 
initiation of compacts in Africa, (2) MCC projects and management 
structures in African countries with signed compacts, and (3) MCC's 
progress in disbursing compact funds.

To address these objectives, we updated our previous reports as needed. 
We updated and summarized MCC's progress in initiating and implementing 
programs in Africa, using public documents available from the MCC Web 
site and the results of our previous reporting. Our analysis of MCC's 
obligations for compact assistance to African countries is based on a 
budget analysis that we conducted in February 2007. Our analysis of 
MCC's disbursements is based on a budget analysis that we conducted in 
May 2007, comparing MCC data about actual and planned disbursements 
from July 2005 through March 2007. We conducted our work for this 
testimony in June 2007 in accordance with generally accepted government 
auditing standards. (See app. I for further details of our scope and 
methodology.):

Summary:

The pace at which MCC has initiated compacts with African countries has 
varied. For the five signed compacts--with Madagascar, Cape Verde, 
Benin, Ghana, and Mali--progressing from eligibility selection to 
compact signature took between 12 and 31 months. Four of the compacts 
have entered into force--on average, about 5 months after compact 
signature. Of the six additional eligible African countries, none has 
reached compact signature, although three have been compact eligible 
for more than 3 years. In general, MCC's rate of establishing and 
obligating funds for new compacts has been slower than projected, with 
the result that MCC currently has more than $2 billion in unobligated 
funds set aside for compacts.

MCC's compact projects in Africa have emphasized transportation and 
agriculture and are to be implemented through country-run management 
structures. Approximately three-quarters of the compact funding in 
Africa has been budgeted for (1) transportation and other 
infrastructure projects (37 percent) and (2) agriculture and rural 
development projects (39 percent). To provide oversight and 
accountability and facilitate stakeholder involvement, the countries 
have established management structures with common components. The 
countries' management structures generally include a steering 
committee, responsible for compact oversight and results; a stakeholder 
committee, to advise the steering committee on compact implementation; 
and a management unit, principally responsible for compact management 
and implementation. As we reported in July 2006, Madagascar and Cape 
Verde--the first two African countries to sign compacts--did not fill 
key positions in their management structures until several months after 
entry into force, and this delay may limit their achievement of compact 
objectives. According to MCC, key management officials for subsequent 
compacts with Benin and Ghana were in place around the time of entry 
into force. Key positions for Mali, whose compact has not entered into 
force, have not yet been filled.

MCC has disbursed compact funds in Africa more slowly than planned and, 
unless it can make future disbursements more quickly, may have large 
unexpended balances and uncompleted projects when the compacts expire. 
According to MCC, its unexpectedly slow rates of disbursement have 
primarily reflected its high standards for program accountability and 
sustainability as well as its initial overestimation of partner country 
capacity to meet these standards. As of March 31, 2007, MCC had 
disbursed $26 million (23 percent) of the $113.9 million it had planned 
to disburse by that date. The slower-than-expected disbursement is most 
critical for Madagascar and Cape Verde, both in their second year of 
compact implementation.

Background:

The Millennium Challenge Act of 2003 requires MCC to select countries 
as eligible for MCA assistance each fiscal year.[Footnote 6] Countries 
with per capita income at or below a set threshold may be selected as 
eligible if they meet MCC indicator criteria and are not statutorily 
barred from receiving U.S. assistance.[Footnote 7] MCC has signed 
compacts with five countries in Africa and identified six other African 
countries as eligible for compact assistance (see fig. 1).

Figure 1: African Countries Receiving or Eligible for MCC Compact 
Assistance, as of June 2007:

[See PDF for image]

Source: GAO, based on MCC information; map (Map Resources); photos: 
GAO. 

Note: On June 16, 2006, MCC suspended Gambia from eligibility for 
assistance, citing a pattern of actions inconsistent with MCC's 
selection criteria, including documented evidence of human rights 
abuses and increased restrictions on political rights, civil liberties, 
and press freedom by the government, as well as worsening economic 
policies and anticorruption efforts.

[End of figure]

After MCC selects a country as compact eligible, the country may begin 
a four-phase process that can lead to a compact's entry into force (see 
fig. 2).

Figure 2: Summary of MCC Compact Development and Implementation Process 
as of June 2007:

[See PDF for image]

Source: GAO analysis of MCC data. 

[A] MCC must notify congressional appropriations committees 15 days 
prior to obligating funds.

[B] Compact negotiations begin after the MCC investment committee 
approves a consultation memorandum prepared by the MCC transaction 
team. The memorandum is based on the transaction team's determination 
that the country proposal has sufficient information to justify 
entering into negotiations with the country. MCC must consult with and 
report to the appropriate congressional committees 15 days prior to the 
start of compact negotiations.

[C] The MCC Board suspended Gambia's eligibility on June 16, 2006, 
citing a pattern of actions inconsistent with MCC's selection criteria.

[End of figure]

* Country proposal development. The eligible country is invited to 
submit a compact proposal, to be developed in consultation with members 
of civil society, including the private sector and nongovernmental 
organizations.

* MCC due diligence review. In conducting due diligence, MCC evaluates 
the eligible country's proposal against MCC criteria to ensure that 
proposed programs will be effective and funds will be well used.

* Compact negotiation and MCC approval. Following due diligence, MCC 
enters into compact negotiations with the eligible country. If compact 
negotiations are successful, the MCC Board of Directors[Footnote 8] may 
approve the compact, and MCC and the eligible country may sign it. Each 
signed compact includes a multiyear Financial Plan Summary that 
documents MCC's planned projects and disbursements by project in each 
compact year.

* MCC and compact country complete entry-into-force requirements. MCC's 
compact with each country identifies supplemental agreements that MCC 
and the country's accountable entity must complete before the compact 
can enter into force.

After a compact enters into force, MCC may begin disbursements and the 
country may begin implementing projects. The Millennium Challenge Act 
stipulates that a compact may last no longer than 5 years and that MCC 
may have only one compact with a country at a time. The compacts 
stipulate that, with limited exceptions, all funds must be spent during 
the term of the compact period.[Footnote 9]

MCC has obligated a total of about $1.5 billion as of May 2007 through 
its five compacts with African countries. The average size of these 
compacts is about $307 million, providing per capita assistance ranging 
from $6 to $222, or an average of $25 (see table 1).[Footnote 10] Four 
of MCC's compacts--with Benin, Cape Verde, Ghana, and Madagascar--have 
entered into force. According to MCC, two additional compacts, with 
Lesotho and Mozambique, are being brought before the MCC board at its 
meeting on June 27, 2007.[Footnote 11] The proposed amounts of these 
compacts are $362 million and $507 million, respectively.

Table 1: MCC Compacts with African Countries, as of June 25, 2007:

Country: Madagascar; Compact amount: $109.8 million; Compact amount per 
capita (2004 population): $6.

Country: Cape Verde; Compact amount: $110.1 million; Compact amount per 
capita (2004 population): $222.

Country: Benin; Compact amount: $307.3 million; Compact amount per 
capita (2004 population): $38.

Country: Ghana; Compact amount: $547.0 million; Compact amount per 
capita (2004 population): $25.

Country: Mali; Compact amount: $460.8 million; Compact amount per 
capita (2004 population): $35.

Country: Total; Compact amount: $1,535.0 million; Compact amount per 
capita (2004 population): [Empty].

Country: Average; Compact amount: $307.0 million; Compact amount per 
capita (2004 population): $25.

Source: GAO analysis of MCC data.

[End of table]

MCC's Pace of Compact Initiation in Africa Has Varied:

The time involved in MCC's initiation of compacts with African 
countries has varied, with three countries remaining in the compact 
development process for more than 3 years without reaching compact 
signature. For the five African countries with signed compacts, 
progressing from eligibility selection to compact signature took from 
347 to 921 days, or about 12 to 31 months--an average of 633 days, or 
about 21 months. For the four compacts that have entered into force, 
achieving entry into force took an average of 158 days, or about 5 
months, from compact signature. For all MCC compacts, the process from 
eligibility to compact signature has taken an average of 567 days, or 
approximately 19 months, with an additional 167 days on average to 
entry into force. (See fig. 3.) MCC has not yet signed compacts with 
six additional African countries eligible for compact assistance-- 
Burkina Faso, Lesotho, Mozambique, Namibia, Senegal, and Tanzania. MCC 
completed due diligence for Lesotho and Mozambique on May 24 and June 
6, 2007, respectively. As of June 6, 2007, MCC was performing due 
diligence for the remaining four. Three of these six countries-- 
Lesotho, Mozambique, and Senegal--have been eligible since MCC's 
initial determination of eligible countries in May 2004.

Figure 3: Duration of Compact Development Process for Eligible African 
Countries with and without Signed Compacts, as of June 6, 2007:

[See PDF for image]

Source: GAO analysis of MCC data.

[A] As of June 6, 2007, the Mali compact had been signed for 205 days 
without entering into force.

[B] Average time to enter into force does not include countries that 
have not yet entered into force.

[C] Ten of the 11 countries with signed compacts became eligible during 
the first round of MCC country eligibility announcements in May 2004.

[D] According to MCC, it approved the Mozambique investment memo on 
June 6, 2007.

[End of figure]

Compact development does not operate on a fixed timetable or schedule. 
However, during 2005-2007, MCC's actual rate of establishing new 
compacts was slower than the rate projected by the corporation's annual 
budget requests. As a result, MCC's obligations for compact assistance 
have been substantially less than projected. MCC currently has more 
than $2 billion in unobligated funds set aside for compacts.

MCC Projects in Africa Emphasize Transportation and Agriculture, and 
Management Structures Have Been Established:

About three-quarters of MCC's compact funding in Africa supports 
transportation and agriculture projects. To implement and oversee the 
projects, the countries with compacts in force have established 
management structures with similar components. For MCC's first two 
African compacts, key management officials were not in place until 
months after entry into force, but such positions were filled before, 
or shortly after, the two subsequent African compacts entered into 
force.

Approximately 76 percent of MCC compact funding has been budgeted for 
(1) transportation and other infrastructure projects and (2) 
agricultural and rural development projects. (See fig. 4.) 
Specifically, about 37 percent ($575.2 million) of compact funding in 
Africa is allocated to transportation and other infrastructure, and 
about 39 percent ($605.4 million) is allocated to agriculture and rural 
development. MCC's six non-African compacts likewise obligate about 76 
percent for these two project categories, with 55 percent ($791.6 
million) for transportation and other infrastructure and 21 percent 
($299.1 million) for agriculture and rural development.

Figure 4: Types of MCC Compact Projects in African and Non-African 
Countries (dollars in millions):

[See PDF for image]

Source: GAO analysis of MCC data.

[A] The Access to Markets Project in Benin is a major construction 
project at the Port of Cotonou and includes associated studies and 
institutional strengthening. The Mali compact includes the Bamako-Sénou 
Airport Improvement Project and an Industrial Park Project.

[B] The Irrigated Agriculture Project in Armenia includes the repair of 
irrigation infrastructure. The Alatona Irrigation Project in Mali 
includes planning and infrastructure, land allocation, and resettlement 
activities, among other items.

[C] Other programs include the Justice Program in Benin and the Human 
Development Project in El Salvador. The Benin program includes 
institutional strengthening and infrastructure components (construction 
of new courthouses). The El Salvador program includes Education and 
Training, and Community Development activities.

[End of figure]

Examples of MCC infrastructure and agriculture projects in Africa 
include the following:

* Infrastructure projects. Reconstruction of roads and the Port of 
Praia in Cape Verde, a major construction project at the Port of 
Cotonou in Benin, and the Bamako-Sénou Airport Improvement Project and 
an Industrial Park Project in Mali.

* Agriculture projects. Agricultural business centers and technical 
assistance in Madagascar and training and institutional strengthening 
programs in Mali and Ghana.

To implement compact projects, MCC directly hires a resident country 
director and a small staff for each country to serve as MCC's public 
face and to manage its relationship with the compact country. However, 
MCC gives the compact countries authority to manage and oversee their 
compact programs using MCC funds.[Footnote 12] Figure 5 shows the 
general structure that MCC's first three compact countries, including 
two in Africa, have established to provide oversight and management of 
their compact programs and to facilitate stakeholder input (see fig. 
5).[Footnote 13]

Figure 5: MCC Compact Country Oversight and Management Structure in the 
First Three Compact Countries:

[See PDF for image]

Source: GAO, based on MCC data. 

Note: This figure represents a composite of the Madagascar, Cape Verde, 
and Honduras oversight and management structures. However, in Honduras, 
stakeholder input is obtained through representatives on the steering 
committee, rather than through a stakeholder committee.

[End of figure] 

The three countries have generally included the following oversight and 
management entities in their structures:

* The steering committee represents the country government and 
interfaces directly with MCC. The committee is ultimately responsible 
for the oversight and results of the MCC compact, oversees management 
unit employees, and approves and signs off on key decisions and 
reporting to MCC.

* In Madagascar and Cape Verde, a stakeholder committee meets 
periodically to advise and inform the steering committee regarding 
compact implementation and to serve as the official liaison between 
interested parties and the steering committee.

* The management unit is directed by the steering committee and has 
principal responsibility for overall compact management and 
implementation, including financial management and procurement. The 
financial management and procurement functions may also be handled by 
an external fiscal agent or procurement agent. Together, the steering 
committee and the management unit form the "accountable 
entity."[Footnote 14]

We reported in July 2006 that key compact management positions remained 
unfilled after the Madagascar and Cape Verde compacts entered into 
force; the two countries did not hire key officials until several 
months after their compacts' entry into force in July and October 2005, 
respectively. This incomplete staffing at entry into force may limit 
the countries' ability to achieve their compact objectives within the 
fixed time period of the compacts.[Footnote 15] According to MCC, key 
positions at MCC's subsequent compacts with Benin and Ghana were filled 
prior to, or shortly after, entry into force. Key positions for the 
Mali compact, which has not entered into force, are not yet filled, but 
MCC expects to fill these positions in August 2007.

MCC Has Not Achieved Its Planned Rate of Disbursements:

MCC has disbursed compact funds in Africa more slowly than planned and, 
unless the rate of disbursements increases, may have large unexpended 
balances and uncompleted projects when the compacts expire.[Footnote 
16] To address this challenge, MCC officials report taking several 
steps to expedite program implementation and better match disbursements 
with projections.

As of March 31, 2007, MCC had disbursed $26 million in compact funds to 
four African countries--23 percent of the $113.9 million that it 
intended to disburse by that date.[Footnote 17] (See table 2.):

Table 2: MCC Disbursements to African Countries through March 31, 2007:

(Dollars in millions): Country: Madagascar; (Dollars in millions): Date 
compact entered into force: Jul. 27, 2005; (Dollars in millions): 
Prorated planned disbursements: $59.40; (Dollars in millions): 
Cumulative actual disbursements: $14.47; (Dollars in millions): 
Percentage of planned disbursements actually disbursed: 24; (Dollars in 
millions): Percentage of compact elapsed: 42.

(Dollars in millions): Country: Cape Verde; (Dollars in millions): Date 
compact entered into force: Oct. 17, 2005; (Dollars in millions): 
Prorated planned disbursements: $30.07; (Dollars in millions): 
Cumulative actual disbursements: $7.53; (Dollars in millions): 
Percentage of planned disbursements actually disbursed: 25; (Dollars in 
millions): Percentage of compact elapsed: 28.

(Dollars in millions): Country: Benin; (Dollars in millions): Date 
compact entered into force: Oct. 6, 2006; (Dollars in millions): 
Prorated planned disbursements: $15.62; (Dollars in millions): 
Cumulative actual disbursements: $3.45; (Dollars in millions): 
Percentage of planned disbursements actually disbursed: 22; (Dollars in 
millions): Percentage of compact elapsed: 8.

(Dollars in millions): Country: Ghana; (Dollars in millions): Date 
compact entered into force: Feb. 16, 2007; (Dollars in millions): 
Prorated planned disbursements: $8.81; (Dollars in millions): 
Cumulative actual disbursements: $0.74; (Dollars in millions): 
Percentage of planned disbursements actually disbursed: 8; (Dollars in 
millions): Percentage of compact elapsed: 2.

(Dollars in millions): Country: Total; (Dollars in millions): Date 
compact entered into force: [Empty]; (Dollars in millions): Prorated 
planned disbursements: $113.90; (Dollars in millions): Cumulative 
actual disbursements: $26.19; (Dollars in millions): Percentage of 
planned disbursements actually disbursed: 23; (Dollars in millions): 
Percentage of compact elapsed: [Empty].

Source: GAO analysis of MCC data.

Note: Planned disbursements are prorated on an annual basis.

[End of table]

As table 2 shows, MCC's actual disbursement of compact funds has fallen 
substantially behind its planned disbursement, most critically for its 
compacts with Madagascar and Cape Verde, both in the second year of 
implementation. MCC's disbursement for Madagascar by month 20 of the 4- 
year implementation accounted for 24 percent of the planned 
disbursement, and its disbursement for Cape Verde by month 17 of the 5- 
year implementation accounted for 25 percent of the planned 
disbursement. Our analysis of MCC's overall compact disbursements 
suggests that unless it increases the rate of compact assistance 
disbursements in Africa and elsewhere, MCC could have significant 
obligated but undisbursed balances when the compacts expire. This 
implies that some Africa projects may not be completed by the end of 
the current compacts. If this occurs, MCC will miss opportunities to 
achieve its mission of poverty reduction through economic growth in 
compact countries.

According to MCC, its unexpectedly slow rates of disbursement have 
primarily reflected two factors: the need to maintain high standards 
for program accountability and sustainability, and its initial 
overestimation of partner country capacity to meet these standards. The 
countries' management structures are intended to ensure fiscal 
accountability; however, at the time of our 2006 report, some required 
elements of these procurement and fiscal accountability structures in 
Cape Verde and Madagascar were not yet in place. As of May 2007, MCC 
did not have mechanisms in place to address significant delays in its 
planned disbursements. However, MCC reports taking a number of steps to 
expedite program implementation and better match disbursements with 
projections, such as providing better guidance on compact development 
and implementation and improving its initial analysis of country 
capacity. MCC noted that disbursement rates do not fully capture its 
progress to date, in part because these rates do not reflect MCC 
activities such as policy reform and capacity building.

Mr. Chairman, this concludes my statement. I will be happy to answer 
any questions you or members of the subcommittee may have.

GAO Contacts and Staff Acknowledgments:

For questions regarding this testimony, please contact David B. 
Gootnick at (202) 512-3149. Other key contributors to this statement 
were Emil Friberg (Assistant Director), Tracy Guerrero, Reid Lowe, Mike 
Rohrback, Mona Sehgal, and Michael Simon. David Dornisch, C. Etana 
Finkler, Ernie Jackson, Marc Molino, and Jena Sinkfield provided 
technical assistance.

[End of section]

Appendix I: Objectives, Scope, and Methodology:

This testimony discusses (1) the pace of the Millennium Challenge 
Corporation's (MCC) initiation of compacts in sub-Saharan Africa 
(Africa), (2) MCC's projects and management structures in African 
countries with signed compacts, and (3) MCC's progress in disbursing 
compact funds.

To determine the status of MCC's initiation of compacts in Africa, we 
determined the length of the compact development process based on our 
previous reporting and MCC's status reports on eligible countries, 
which include the dates these countries completed key milestones in the 
process. We quantified the duration of the development process for 
MCC's individual compacts as well as the average length of the process 
for its compacts in African and non-African countries.

To describe MCC's compact projects, we relied primarily on our previous 
reporting on MCC,[Footnote 18] updating it to include more recent 
compacts. We identified compact project types across broad categories 
and calculated total funding for each category to determine the general 
focus of MCC compact assistance in African and non-African countries. 
In describing MCC's management structures, we summarized our previous 
reporting on MCC's first three compacts, including those for two 
countries in Africa. We also summarized an MCC report on the status of 
its management staffing in Africa.

To analyze the pace of MCC's disbursements for the countries with 
compacts in force, we compared MCC data for actual and planned 
disbursements from July 2005 through March 2007. For this analysis, we 
used MCC's assumption that compact funds are disbursed evenly 
throughout the compact implementation year. Because MCC's compacts are 
at varying stages of implementation, we prorated planned disbursements 
on an annual basis for each country based on the number of months the 
compact was in force.[Footnote 19]

MCC provided technical comments on a draft of this testimony and we 
have incorporated their comments as appropriate.

We conducted our work for this testimony during June 2007 in accordance 
with generally accepted government auditing standards. We also followed 
generally accepted government auditing standards for the published GAO 
reports on which this testimony is partly based.

FOOTNOTES

[1] Sub-Saharan Africa does not include the additional MCC-eligible 
country of Morocco.

[2] Millennium Challenge Act of 2003, Public Law 108-199, Division D, 
Title VI of the Consolidated Appropriations Act, 2004. Title II, 
Division D of this act established the MCA for MCC appropriations.

[3] An MCC compact is an agreement between the U.S. government, acting 
through MCC, and the government of a country eligible for MCC 
assistance. Other funds are used for MCC's threshold country program, 
administrative expenses, due diligence, monitoring and evaluation, and 
other costs.

[4] MCC uses criteria outlined in the Millennium Challenge Act to 
select countries as eligible for compact assistance. In general, MCC 
selects as eligible countries that are not barred from receiving U.S. 
assistance; that meet income criteria; and that also meet criteria for 
ruling justly, encouraging economic freedom, investing in people, and 
combating corruption.

[5] GAO, Millennium Challenge Corporation: Compact Implementation 
Structures Are Being Established; Framework for Measuring Results Needs 
Improvement, GAO-06-805 (Washington, D.C.: July 28, 2006). Previous GAO 
work summarized MCC's progress in its first year of operations and in 
making awards for compact assistance. See GAO, Millennium Challenge 
Corporation: Progress Made on Key Challenges in First Year of 
Operations, GAO-05-455T (Washington, D.C.: Apr. 26, 2005) and GAO-05-
625T (Washington, D.C.: Apr. 27, 2005); Analysis of Future Millennium 
Challenge Corporation Obligations, GAO-06-466R (Washington, D.C.: Feb. 
21, 2006). 

[6] The Millennium Challenge Act also authorizes a limited amount of 
assistance to certain candidate countries to help them become eligible 
for MCA assistance; this assistance is referred to as MCC's threshold 
program. Threshold candidate countries must (1) meet the requirements 
for MCA candidacy and (2) demonstrate a significant commitment to 
meeting the act's eligibility criteria but fail to meet those criteria. 
We have not analyzed MCC's work with threshold countries.

[7] MCC uses 16 indicators divided into three categories: Ruling 
Justly, Encouraging Economic Freedom, and Investing in People. To be 
eligible for MCA assistance, countries must score above the median 
relative to their peers on at least half of the indicators in each 
category and above the median on the indicator for combating 
corruption. 

[8] MCC is a government corporation, managed by a Chief Executive 
Officer (CEO) whom the President appoints with the advice and consent 
of the Senate, and is overseen by a Board of Directors. The Secretary 
of State serves as board chair, and the Secretary of the Treasury 
serves as vice-chair. Other board members are the U.S. Trade 
Representative, the Administrator of the U.S. Agency for International 
Development (USAID), the CEO of MCC, and up to four Senate-confirmed 
public members who are appointed by the President from lists of 
individuals submitted by congressional leadership.

[9] MCC compacts signed as of May 2007 contain language stipulating 
that all disbursements and redisbursements shall cease upon expiration, 
suspension, or termination of a compact provided that reasonable 
expenditures for goods, services, and works properly incurred under or 
in furtherance of these compacts before the compact term expires or is 
terminated may be paid from MCC funding. In addition, signed compacts 
contain language providing that when a compact expires or is 
terminated, any funding not disbursed by MCC is automatically released 
from any obligation in connection with that compact.

[10] Overall, MCC's 11 compacts as of May 2007 provide an average of 
$34 per capita.

[11] In February 2007, we estimated the rate of MCC's future 
obligations, including those in Africa, under two scenarios. In the 
first scenario, using MCC's projected amount and rate of compact awards 
as stated in its 2008 congressional budget justification ($485 million 
at 1.5 compacts per quarter), we estimated that MCC would obligate the 
balance of its 2004-2007 appropriations set aside for compact 
assistance ($2.1 billion) by the fourth quarter of 2007 and the $3 
billion requested for 2008 by the fourth quarter of that year. In the 
second scenario, using MCC's historical amount and rate of compact 
awards ($271 million at about 1.2 compacts per quarter), we estimated 
that the corporation would obligate the balance of its 2004-2007 
appropriations by the fourth quarter of 2008 and the $3 billion 
requested for 2008 by the fourth quarter of 2010.

[12] According to MCC, three of MCC's five Resident Country Director 
positions in Africa are currently filled. The Benin position was filled 
from March 2006 to May 2007 and MCC is currently seeking to hire a 
replacement. The Ghana position has not yet been filled, but MCC 
expects the selected candidate to arrive in country in August 2007.

[13] The countries' oversight structures have most elements in common, 
but countries have the flexibility to design the structures to fit 
their needs.

[14] MCC refers to the accountable entity by combining "MCA" and the 
country's name--for example, "MCA-Madagascar."

[15] In October 2005, after the signature of its first six compacts, 
MCC adopted a policy implementing the authority given it by section 
609(g) of the Millennium Challenge Act of 2003 to make grants to 
facilitate the development and implementation of compacts. MCC's policy 
includes a provision where, if certain conditions are met, it may fund 
an eligible country's request for "management support payments" for 
salaries, rent, and equipment for the country's MCA technical team 
prior to compact signature.

[16] MCC disbursements provide funds to the accountable entity of a 
compact country. The accountable entity then redisburses funds for 
program activities.

[17] Overall, through March 2007, MCC had disbursed 26 percent of the 
$257.6 million that it had planned to disburse for the nine compacts 
that had entered into force by that date.

[18] GAO-06-805 

[19] In practice, MCC approves disbursements on a quarterly basis and 
disburses compact funds in monthly payments according to the terms of 
the quarterly approval.

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