Founded in January 2004, MCC is a corporation established by act of Congress and owned by the U.S. government. Its stated goals are to reduce global poverty through the promotion of sustainable economic growth (MCC, 2008). MCC disburses an overall fund that Congress appropriates to countries selected by MCC for large-scale infrastructure, economic, and social development programs through in-country Millennium Challenge Accounts (MCA), and provides oversight and management support for each country. The congressional charter allows MCC to commit money upfront for multiyear programs, contract with non-U.S. firms, and work closely with recipient governments to design programs and monitoring and evaluation plans (Congressional Research Service, 2008).
MCCs approach to funding was envisioned as a transparent mechanism with a strict focus on accountability and results. The emphasis on transparency was intended to limit the influence on aid disbursement of shifting geopolitical agendas. To support this approach, MCC funds are untied aid, that is, free of country- or sector-specific earmarks determined by Congress. Given that geopolitical as well as humanitarian interests do have a role to play in U.S. foreign aid, the MCC approach is not intended for application to all foreign aid. Rather, it was designed to maximize the efficiency of aid efforts in a select group of high performing countries with demonstrated capacity to use resources effectively.
At the heart of MCCs focus on transparency and accountability, the corporation relies on a series of 17 key policy indicators to structure its process for selecting countries that will receive funding. These indicators were developed by independent third parties (for example, the World Bank and Freedom House), and fall into three broad categories, which are aligned with the Department of States Foreign Assistance Framework (U.S. Department of State 2007): (1) ruling justly, (2) investing in people, and (3) encouraging economic freedom. While the application of such indicators is a hallmark of MCCs approach and has been viewed as a good start by some (Radelet 2003, p. 166), critics have suggested that the indicators are less transparent than they might seem, pointing to methodological problems, questionable predictive and substantive value, and subjectivity (Chassy 2005).
Countries that demonstrate a minimum level of performance on the indicators are eligible for compact assistance; those that show improvement in the indicators but do not fully qualify for compact level assistance can be considered for threshold programs. MCC currently has compact or threshold programs in 38 countries. Compacts are typically funded for a five-year period, but if a country fails to maintain eligibility or meet benchmarks, MCC can withhold compact funds. Even with these requirements, the relatively long-term commitment of funds by MCC is cited as an advantage over more typical USG aid, which is typically subject to yearly congressional approval, potentially impeding the ability of recipient countries to develop and adhere to long-range plans. MCC threshold countries receive a lower level of assistance than compact countries, and for a shorter time period. Threshold assistance takes the form of small grants aimed at improving performance on the specific eligibility criteria that are not being met.