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Tuesday, June 16, 2009

U.S. partially terminates MCC assistance to Nicaragua

The Millennium Challenge Corporation (MCC) announced on Friday that it is partially terminating assistance to Nicaragua - specifically, $65 million of the original $175 million compact. This aid was originally suspended in December 2008, after the Chief Executive Officer of the MCC, along with the MCC Board of Directors, determined that the Government of Nicaragua had "engaged in a pattern of actions inconsistent with the criteria used to determine the eligibility of Nicaragua for MCC assistance." Basically, these "patterns of actions" were mostly referring to the controversy surrounding the fairness of the 2008 municipal elections in the country - with many national and international groups calling the elections fraudulent.

The Millennium Challenge Corporation is a U.S. Government corporation designed to help developing countries reach the Millennium Development Goals. For a country to be eligible to receive assistance, the MCC looks at multiple policy indicators that measure rule of law, investment in people, and economic freedom in the particular country. Nicaragua was one of the first countries to be deemed eligible for MCC assistance in 2004 (the official compact was signed in 2005), making the MCC the largest source of aid to Nicaragua among U.S. aid programs in the 2006-2008 period. However, an increase in corruption indicators over the past two years and the manner in which the 2008 municipal elections were carried out resulted in Nicaragua being deemed ineligible for further MCC assistance, according to a December 2008 press release announcing the initial suspension of aid to Nicaragua. (See past news coverage of the Nicaraguan municipal elections)

Nicaraguan President Daniel Ortega called the termination of $65 million in MCC assistance "disrespectful," according to CNN. He continued, saying that "President Barack Obama knows that the United States of today is not the United States of 30-40 years ago. Today, the U.S. cannot do whatever it wants, it no longer has moral force, even though it has the material force to do it. It has lost the support of the people in its warring adventures."

Venezuelan President Hugo Chávez has already stepped in and promised $50 million in assistance through the ALBA (Bolivarian Alliance of the Americas) Solidarity Fund in order to continue many of the projects that the MCC funds would have supported - including $12 million for property regularization programs, $18 million for the construction of the highway that leads to the "Bolivar's Supreme Dream Oil Refinery" and $16 million for two rural roads to provide improved access for rural producers to the market.

El Salvador and Honduras are the other countries in the region that receive MCC assistance, while Paraguay has received "Threshold Assistance" in the past (this assistance is aimed at helping a country improve their policy indicators in order to become eligible for MCC compact assistance) and Peru and Guyana have both signed "Threshold Agreements," yet assistance has not yet been allocated. Colombia has also been deemed eligible for "Compact Assistance" though no agreement has been signed. To see the amounts of MCC assistance allocated to countries in the region since 2005, check out the Just the Facts database.

Sunday, December 14, 2008

A deep cut in aid to Nicaragua

The Millennium Challenge Corporation (MCC) is a U.S. government economic-aid program begun during the first years of the Bush administration. It offers several-year "contracts" of aid to countries that meet a list of good governance criteria, then submit and receive approval for aid proposals. (See our MCC aid data here.)

In Latin America, only Honduras ($215 million [PDF]), Nicaragua ($175 million [PDF]), and El Salvador ($461 million [PDF]) have received MCC aid under several-year contracts. Paraguay and Guyana have received smaller amounts through single-year grants via what the MCC calls its "Threshold" program. The three countries that received MCC contract aid have seen a general decline in U.S. assistance through other, "traditional" U.S. economic-aid programs.

According to its contract, Nicaragua was scheduled to receive $47.5 million in MCC aid in 2009. On Thursday, however, the MCC announced that it was suspending Nicaragua's participation in the program due to concerns about the validity of recent local elections.

The Board also voted to suspend assistance for new activities under the $175 million MCC compact in Nicaragua because of actions taken by the Nicaraguan government that are inconsistent with MCC’s eligibility criteria. MCC will therefore not approve disbursements for activities not already contracted by MCA-Nicaragua. The political conditions leading up to, during, and following recent elections in Nicaragua were not consistent with MCC requirements that include a commitment to policies that promote political freedom and respect for civil liberties and the rule of law.

The Board called on Nicaragua to develop and implement a comprehensive set of measures to address concerns regarding the government’s commitment to democratic principles. The Board will review the response of the Nicaraguan government and determine subsequent actions at its next quarterly Board meeting in March 2009.

“The MCC model is based on aid with accountability and good governance. The Board determined that recent actions by the Nicaraguan government were inconsistent with MCC’s core principles and therefore had to take this difficult decision,” said Ambassador Danilovich. “Nicaragua’s compact with MCC benefits hundreds of thousands of poor Nicaraguans by providing better roads, property titles, and agricultural business support. For the sake of the poor of the country, we sincerely hope that the Nicaraguan government recommits to the principles of democracy and the rule of law so that MCC can reestablish what has been an effective partnership. It should be remembered that our partnership with Nicaragua is dedicated to both poverty reduction and good government policies.”

As a result of the MCC aid suspension, we estimate that U.S. assistance to the hemisphere's second-poorest country will plummet in 2009 to its lowest level, in nominal dollars, since 2001.