Country brand & the Millennium Challange Account
The Philippine government has applied for $748.21 million in aid for five development projects under the Millennium Challenge Account (MCA) created by the U.S. Congress and former President George W. Bush in 2004. MCA was developed to provide funding for programs that contribute to the reduction of poverty through sustainable economic growth in developing countries.
The fund is administered by an independent U.S. government agency, the Millennium Challenge Corporation (MCC). MCC is managed by a chief executive officer overseen by a board composed of five high-level government officials such as the Secretary of State and four private-sector executives appointed by the President and confirmed by the U.S. Senate. So far, MCC has signed Compacts totaling $6.3 billion with 18 countries.
Although the Philippines is not among those 18 countries, it is among 26 countries that are eligible for funding under MCA by virtue of low per capita income. MCC has not signed a Compact with the Philippines because government has fallen short of meeting a set of good governance criteria that must be met to receive funding. However, the Philippines and 19 other criteria-challenged countries have received $440 million in assistance under the MCC’s Threshold Program (One country, Burkina Faso, has graduated from the Threshold Program.). This runner-up program was developed, according to the MCC 2009 Scorebook, for countries that “demonstrate a significant commitment to meeting the eligibility criteria but fall short in only some policy areas.”
The MCC criteria used to determine whether a developing country will aid are organized into three categories: Ruling Justly, Investing in People, and Encouraging Economic Freedom. In Southeast Asia, Indonesia, Philippines, and Thailand are all eligible for MCA funding, but none of these countries have signed Compacts with MCC because they fall short in meeting MCC good governance criteria. Indonesia and the Philippines have received funding under the Threshold Program.
Every year, MCC contracts third-party researchers to compile country scorecards that show how well countries that qualify for MCA funding meet or fail to meet the MCC good governance criteria. Countries like Indonesia and the Philippines with per capita incomes of $1,650 and $1,620, respectively, are classified as lower income countries and desperately need development aid. Thailand, with a per capita income of $3,400, is considered a lower middle income country, and is somewhat less desperate, perhaps explaining why it hasn’t entered the Threshold Program. Incidentally, 20 years ago, Thailand and Philippines per capita income were roughly at par.
Where does the Philippines fall short? According to the 2009 Scorecard the Philippines scores reasonably well in terms of Economic Freedom, scoring above the median in all sub-criteria, such as fiscal policy, trade policy, and ease of starting a business (Although there are way too many hurdles, contradictory rules, and much too much time required to set up a business in the Philippines, it’s still harder to start a business in at least half the other countries whose people are poor enough to be included in the program.). By comparison, Indonesia falls short in land rights and business startup, and Thailand in trade policy.
The Philippines does less well in the other criteria. There are two red flags for Investing in People. The Philippines falls below the median in health and primary education expenditures. Obviously, a country can’t be productive if its people are not healthy and educated. Interestingly, Thailand with a significantly higher per capita income also falls below the median in these two categories. But it has a significantly smaller population: 63 million against the Philippines’ 86 million. Twenty years ago, these countries’ populations were roughly at par. Indonesia, with 223 million people, spends more on education, scoring above the median, but falls short in health and immunization expenditures.
When it comes to Ruling Justly, the Philippines does reasonably well in all criteria compared to other developing countries except in control of corruption. In the Philippines, corruption is worse than in more than half of the 26 countries eligible for MCA funding. The significance of that shortfall becomes apparent when we examine the scorecards of Indonesia and Thailand. Both countries received scores above the median in the control of corruption sub-category. Among the three Southeast Asian countries eligible for MCA funding, the Philippines is perceived to be the most corrupt. And in Indochina, even Vietnam scores above the median in control of corruption.
While Thailand fared poorly in three out of six sub-criteria under Ruling Justly – political rights, civil liberties, and voice and accountability – Indonesia was green lighted in all sub-criteria. What these scorecards tell us is that when control of corruption goes out of control, its effect is parasitic: growth is stunted and potential is not realized. And others understand that because it becomes a fixture of the country brand. Thailand’s race past the Philippines over two decades proves the point.