A month after the MCC signed its first compact with Madagascar, the Board of Directors has approved a compact with Honduras. The five-year $215 million compact approved on May 20 aims to boost rural development and revamp a weak transportation infrastructure.A $72.2 million rural development component aims to strengthen Honduran farmers' skills to grow and market their crops, particularly horticultural products. According to the proposal, farmers lack both the technical skills and infrastructure that horticulture requires. Poor road infrastructure and limited access to credit has resulted in high transportation costs, stifling economic growth.The compact allocates $125.7 million to a transportation project that will build a section of a major highway and a network of feeder roads. The goal is to increase the flow of goods and people between ports on the Atlantic and Pacific and production centers in Honduras, El Salvador and Nicaragua.If properly implemented, the investment could spur economic growth in the entire sub-region. For instance, neighboring Nicaragua, also an MCA eligible country, considered Honduras development program in its proposal design.The grant will support the Honduras Poverty Reduction Strategy Paper, which aims to raise real GDP growth to at least 4.5 percent annually (from 3 percent in 2003) and lower the poverty rate by 1.6 percent a year on a sustainable basis. Forty-four percent of the population survive on less than two dollars a day.The initial proposal asked for $257.5 million for investment in infrastructure, education, governance and finance over four years. It is not clear how the proposal evolved from the earlier version. MCA observers were similarly perplexed about the evolution of Madagascar proposal.The grant for Honduras' compact is almost twice as big as Madagascar's $110 million. In Madagascar, a projected annual disbursement of $27.5 million would make the MCC the fifth largest donor. With a yearly average disbursement of $43 million, the MCC is the fourth largest donor in Honduras. This funding level may be insufficient to create the incentive for reforms President Bush envisioned when he announced the program in March of 2002.According to Board Chair Condoleezza Rice and CEO Paul Applegarth, Nicaragua, Cape Verde and Georgia are in the final stages of compact negotiations and the MCC will be voting on their proposals in the next couple of months. Will these compacts reflect the original boldness of MCA vision?As the MCC faces greater scrutiny and a tough fight in Congress for scarce foreign aid dollars, the organization needs to show results. What do you think of the Honduras compact? Will it help the MCA live up to its promise?
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