1. Millennium Challenge Corporation Presentation to the International Consortium of Government Financial Managers May, 2005

2. Millennium Challenge Corporation   14 Months Old   Established in law January 2004   Mandate is Poverty Reduction Through Economic Growth

3. Based on Key Lessons of Aid   POLICIES MATTER   COUNTRY OWNERSHIP   RESULTS BASED

4. Policies Matter   Funding Alone Does Not Solve the Problem   Country Eligibility Based on Sixteen Independent Indicators   Candidate Pool is IDA Eligible Countries   Ruling Justly   Investing in People   Encouraging Economic Freedom

5. Policies Matter   17 Selected by MCC Board in FY 2004 and FY 2005 Armenia Benin Bolivia Cape Verde Georgia Ghana Honduras Lesotho Madagascar Mali Mongolia Morocco Mozambique Nicaragua Senegal Sri Lanka Vanuatu

6. Policies Matter   MCC Eligibility Intended to be an Incentive to Improve Policies   Threshold Program Reinforces this Objective   Threshold Countries ▪ ▪ Close on the Indicators ▪ ▪ Demonstrated Commitment to Reform   May Propose Funding to Specifically Improve on MCC Indicators

7. Policies Matter   13 Threshold Countries Selected by MCC Board in FY 2004 and FY 2005 Albania Burkina Faso East Timor Guyana Kenya Malawi Paraguay Philippines Sao Tome and Principe Tanzania Uganda Yemen Zambia

8. Country Ownership   Eligible Countries Submit Proposal for MCC Funding   Proposals – –Identify Obstacles to Poverty Reduction Through Economic Growth – –Identify Actions to Eliminate Obstacles – –Must be Measurable – –Must be Based On a Consultative Process

9. Results Based   Specific Objectives Built Into Compacts   Monitoring and Evaluation Integrated in Design of Compacts   Performance on the Indicators Must Continue

10. What is Fiscal Accountability?   The Processes and Entities Responsible for Managing MCC Funds   The Guidelines Governing Procurement   The Entities Responsible for Administering Procurements

11. Principles of Fiscal Accountability Mechanisms   Every Country is Unique, No Single Solution   Find a Solution That Best Serves Compact Objectives   Build Upon Existing Mechanisms When Possible   Leave Capacity In Place Wherever Possible   Solution Must Have Maximum Transparency, Integrity, and Accountability

12. MCC MCC REP GOVT $$ Audit PROJECT MANAGER 1 ACCOUNTABLE ENTITY PROJECT MANAGER 2 VENDOR BANK ACCOUNT PROCUREMENT AGENT FISCAL AGENT/ FUNDS CONTROL ELEMENTS OF FISCAL ACCOUNTABILITY 1 1 This diagram is for illustrative purposes only.

13. Illustrative Models Government Non-Government Accountable Entity – Fiscal Agent – Procurement Agent – Bank Account – Project Managers -- Prime Minister or Cabinet Ministry of Finance Ministry of finance Central Bank Line Ministries MCC Steering Committee Accounting Firm Private Implementer Commercial Bank NGOs

14. Common Elements   Financial and Procurement Information Available Publicly Through a Local MCC Website   Money Will be in Tranches   All MCC Programs Will Be Subject to External Audit   Role of the MCC Inspector General

15. Where is the MCC Today?   Sixteen Proposals Received   Due Diligence is Ongoing   $2.5 billion Appropriated To Date   Request for Additional $3 billion

16. Compact With Government of Madagascar Signed on 18 April 2005   $110 Million over 4 Years   Goal – Increase Investment In Rural Madagascar   Three Projects 1) 1)Land Tenure 2) 2)Financial Sector 3) 3)Agricultural Business Investment

17. Madagascar Compact Fiscal Accountability   MCA-Madagascar Established By GOM as Governing Body   Steering Committee Serves as Board, both Government and Non-Government Members   Professional Fiscal Agent and Procurement Agent Selected Through A Competitive Process   Procurement Guidelines Based on Madagascar Law

18. Upcoming MCC Activity   At Least 4 Additional Compacts Expected This Summer   More by the End of the Year   Threshold Programs Expected to Be Approved Starting This Summer