Ideas to Action:

Independent research for global prosperity

X

US Development Policy

Feed

Earlier this week, MCC signed a new threshold program with the government of Guatemala. The $28 million program is only the second program to be signed since MCC refocused and restructured its threshold program nearly five years ago. I have frequently raised some big questions about the new model of the threshold program (see here, here, here, and here)—essentially, I don’t think it serves its stated purpose of helping countries become compact eligible. That existential issue aside, there are some noteworthy things about Guatemala’s new threshold program, many of which reflect improvements made to the program as part of the new model.

First of all, why Guatemala?

Guatemala is a reasonable choice for a threshold program. MCC bases its decisions for compact eligibility largely on countries’ performance on a scorecard of 20 policy indicators. The threshold program is for select countries that are “close” to passing (or just pass) the minimum set of indicators, and Guatemala fits this criteria nicely, falling just short of a full pass. Not only that, the country has demonstrated remarkable improvement over the years, going from passing only 5-6 indicators in MCC’s early years to consistently passing 10-12 in the last several years. There are likely some rule of law concerns, particularly about the level of crime and violence in Guatemala (it has the 5th highest homicide rate worldwide and crime is the most problematic factor for doing business). But MCC is likely using the threshold program in part to see if these issues hamper the effectiveness of its partnership, should Guatemala have prospects for compact eligibility in the future.

What’s the program going to do?

The Guatemala program has two parts:

  1. The Resource Mobilization Project ($5.8 million) promotes efficiency in the tax and customs administration and supports the government’s efforts to design and implement public-private partnerships in infrastructure.
  2. The Education Project ($19.7 million) supports programs to improve teaching quality in secondary education and build the effectiveness of vocational/technical education. The objective of these programs is to prepare students to better meet labor market demands (an inadequately educated workforce is a top-five constraint to doing business in Guatemala).

What’s new and noteworthy?

There are a few things about the program that are worth highlighting:

  • It’s focused on growth and the private sector. MCC’s objective is to reduce poverty through economic growth, but the early threshold programs didn’t have this as an explicit goal. In contrast, the design of all new threshold programs is based on the results of a constraints to growth analysis, similar to the kind that informs the focus of MCC compacts. Alleviating these constraints should help remove barriers to increased private-sector activity. Guatemala’s constraints analysis isn’t publicly available (it should be), but the threshold program seems well-targeted to some of the findings. In addition, if implemented as planned, the program will directly link to private investment by helping bring one or more public-private infrastructure partnerships to market.
  • The country is leading implementation. USAID implemented nearly all of the early threshold programs. The Guatemala program, on the other hand, will be managed by a Guatemalan government entity. Of course, the US government isn’t entirely hands-off. MCC will provide oversight and the US Treasury will implement part of the resource mobilization project. But MCC is increasingly applying its founding principle of promoting country ownership to its threshold programs.
  • It’s in Latin America. The Guatemala program is one of just three active programs in Latin America (Honduras has a threshold program and El Salvador is implementing its second compact). MCC’s presence in Latin America is not necessarily disproportionately low. In fact, Latin American countries are only 10 percent of MCC’s candidate pool (most countries in the region are too high income) but they make up 15 percent of the number of active compact and threshold programs. Still a new program in Latin America is likely of interest to those eager to see MCC expand its operations in the region.

Disclaimer

CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.