Yemen and the Millennium Challenge CorporationFrom the Threshold to a Compact? [Archives:2007/1087/Business & Economy]

September 20 2007

By: Yemen Times Staff
On September 12th, 2007, the Millennium Challenge Corporation (MCC) has reinstated Yemen into the MCC's threshold program, on the bases that Yemen has aggressively and demonstrably worked to address areas in which its performance on the MCC selection indicators had deteriorated. MCC justifies Yemen's reinstatement as a result of “implementing a series of wide-ranging reforms.” Though not exhaustive, the brief descriptions below provide an overview of the reforms and commitments that have occurred or are in process since Yemen's suspension in November 2005.

These reforms, according to MCC, are in order to improve the performance of the country on 16 independent indicators, falling within three broad categories: ruling justly, investing in people, and promoting economic freedom. However, Yemen's performance on the 16 indicators has been less than praiseworthy, as indicated in the graph. In other words, Yemen fails to meet the minimum required for the majority of the indicators.

“But we are optimistic” says Mike Sarhan, director of the United States Agency for International Development in Yemen – the agency which will be implementing the Threshold Program, in a recent interview to Al-Seyasya newspaper, “The Threshold Program is designed to help countries improve their performance on the indicators towards the Compact, which ranges between US$ 500 – 600 million”.

Given the fact that US$ 600 million is equal to 4 percent of Yemen's GDP, this amount of money will have a large impact on the country's economy if used in an efficient manner, says economist Abdulaziz Al-Tarb: “Yemen should look at the Threshold Program as an investment which can yield gigantic returns to the country”

The US$ 20.6 million program will focus on assisting the Government of Yemen's efforts in a number of key areas, including judicial reform, elections, dispute resolution and improving the investment climate, with the hope that improvement in relative indicators will result in qualifying Yemen to the MCC Compact.

However, it is worth noting that Yemen, apart from East Timor, was the only threshold-eligible country which has not been awarded in spite of its application in 2004, This is simply because the 16 indicators upon which the decision to reinstate Yemen still do not show evidence of the government's reforms, yet the MCC board decided to ignore the indicators and reinstate Yemen attributing the decision to “tangible developments” which the MCC board felt.

Ironically, MCC's CEO Ambassador, John Danilovich, stated that Yemen has undertaken significant reforms since 2005, while emphasizing that freedom of expression, a trouble spot for the Yemeni government, is of great importance for the MCC and a deep concern for Ambassador Danilovich. The Irony is that Yemen had 8 green indicators in 2004, which have fallen dramatically to 2 green indicators in 2005. At the time Yemen was reinstated to the threshold program it had only 3 green indicators which points to the possibility that the MCC might have taken to take political expediency into consideration.

“Tangible Developments”:

According to the MCC, the Government of Yemen began implementing a series of wide-ranging reforms in early 2006, which justified the reinstatement decision. These reforms include:

– Expanding political rights, as evident in the September 2006 elections, which were more competitive and had international observers describing it as an open and genuine context, and a major milestone for Yemen's development.

– Expanding civil liberties through the temporary suspension of a controversial draft press law, as an attempt to control the freedom of media. In addition to allowing female participation in the judicial system.

– Control of corruption through the launch of an anti-corruption awareness campaign and the establishment of the Anti-corruption commission.

– Judicial reforms to establish rule of law, mainly the reshuffling of judges and placing a computerized case monitoring system for 25 courts as a pilot.

– Reform of civil service towards increased government effectiveness, as well as promoting transparency in government procurement and dealings.

– Increasing funding for the Health and Primary Education sectors.

– Reduction of the fiscal deficit as well as proposing a plan to reduce government expenditure and increase tax revenue.

– Reforms in customs authority and integrating WTO standards in preparation for WTO accession.

– Reducing tariff rates, time and cost for starting a business, and revising business-related regulations towards improving the business environment.

Future Expectations:

Yemen's threshold plan focuses on improving five indicators, namely the rule of law, control of corruption, increasing political rights, increasing government effectiveness. However, the implementation mechanism and the details of the plan explaining how exactly the government of Yemen is going to improve the indicators is still unannounced. We know that the threshold funds are going to come to Yemen through the United States Agency for International Development in Yemen, however, there are mixed expectations within the upcoming two years about the effect of the Threshold Plan on improving the indicators. Sara Rose of the MCA monitor stated: “Current data shows that Yemen will fail the same five of six indicators again this year, albeit with improvements in rule of law, political rights and civil liberties. Furthermore, based on partial updates and extrapolating from previous data, my best guess is that they have a shot at passing maybe 6 out of 17 indicators in FY2008. This is still a lower ratio than any other Threshold eligible country, but it is a marked improvement.”