El Salvador's application to the Millennium Challenge Account

One of the primary foreign policy goals of the ARENA government in El Salvador is to obtain funding from the US Millennium Challenge Account. The Millennium Challenge Account is a US foreign aid program designed to provide funding for poverty reduction programs in developing countries.

El Salvador recently submitted its completed project application to the Millennium Challenge Corporation which oversees the account. The plan calls for MCA funds to be used to support development across the northern third of El Salvador. Here is a description on the Salvadoran government's website devoted to obtaining these funds:

The Commission'’s consultations have confirmed the existence of a broad consensus among Salvadorans that the integration of the Northern Zone into the mainstream of El SalvadorÂ's economic and social development is a national priority.

This region includes 92 municipalities that, together, make up one-third of the national territory. More than one-half of its households live in poverty; the 850,000 inhabitants have a per capita income almost 40 percent below the national average. Salvadorans living in the Northern Zone have less access to education and less access to basic services of water, sanitation and electricity than the national average. The Northern Zone is physically isolated from the rest of the country and from neighboring countries in Central America due to an inadequate road network, which also impedes transportation within the region.

At the same time, the Northern Zone is an important source of water, energy and biodiversity. It produces one-third of the country'’s electricity and one-third of the water supply for the San Salvador metropolitan area. The region is also a major producer of rice, fish and dairy products. It has considerable productive potential.

El Salvador's proposal calls for funds to be used in three areas: human development, productive development, and connectivity. The human development component involves expanded funding for Solidarity Net and for the government's national education plan. These funds would support additional investment in education and health resources in the municipalities in this region. The productive development portion involves funding for initiatives to support micro, small and medium sized businesses. These initiatives would include support for cooperative associations, credits and loans, and infrastructure improvements such as electrification and irrigation. The connectivity portion is the most expensive portion and calls for the construction of a northern transnational highway:

This component addresses the issue of the Northern Zone'’s physical isolation. Roads alone will not transform the Northern Zone into a region of prosperity and opportunity. But without improved transportation to, from and within the region, its people will remain trapped in a vicious circle of low human development, low productivity, and continued poverty.

The investment plan contemplates a transnational northern highway, consisting of a two-lane road of about 9.5 meters in width (including traffic lanes and shoulders), with a length of about 315 kilometers, together with a structural cohesion network of about 320 kilometers in connecting roads. Funding for this major effort will depend largely on MCA. The Government will also contribute part of the necessary financing, with support from the IDB. The construction will follow existing routes to the extent possible; more than 80 percent of the work will involve rehabilitation, pavement and other improvements rather than the construction of entirely new roads. When completed, the two-lane transnational northern highway will extend from Guatemala in the west to Honduras in the east, and will connect with roads to southern El Salvador as well as to the new Pacific Ocean port at La Union in El Salvador and the Caribbean ports in Guatemala (Puerto Barrios) and Honduras (Puerto Cortez).

The total amount of available funds which El Salvador seeks is $442 million. Of these funds, the government proposes to use $233.6 million for the highway and connector road improvements, $75.5 million for productive development, $106.8 million for human development, and $25.5 million for technical assistance.

In a recent radio address, Salvadoran president Tony Saca declared that the proposed project will benefit 850,000 persons in the northern third of the country. According to a report in today's La Prensa, the FMLN opposes use of MCA funds to build the transnational highway, but the center-left Democratic Change party supports the project.

The proposal for highway building is the most controversial part of the proposal. I wrote about the topic in 2005 where I criticized the Millennium Challenge Account as the "Millennium Road-building Account." Concerns have been raised that the highway will primarily benefit multinational corporations wanting a way to truck goods through Latin America and that the funds could better be used in other ways to promote poverty reduction. The Center for Global Development monitors the Millennium Challenge Account, and has this report from the SHARE Foundation, a solidarity organization which focuses on El Salvador:

1) Consultation Process: The consultation process was not conducted in its proper order: instead of the Saca Administration approaching civil society to consult on proposal ideas, it already had a proposal when it came to the consultations. At meetings with NGOs, it has presented its proposal for commentary. This is not our understanding of what the MCC intended "consultation" to look like, nor what authentic consultation really is. In spite of the Saca Administration's claim that consultations have been conducted since 1998 via the National Commission on Development, our partners wonder who has been part of that process aside from the private sector and a limited segment of civil society.

2) Poverty Impact Analysis: The majority of MCC funding will be used to build a highway in northern El Salvador. It is uncertain how the highway will help Salvadorans in the region move out of poverty, particularly small and medium-sized farmers who are threatened by rice and dairy imports from the US with CAFTA. Instead, we expect the highway to be used by multinationals. Growth alone is not enough: MCA countries must look at the distributional effects of that growth. We do not see evidence that this is being done in El Salvador, in spite of the well-phrased presentation offered by the Saca Administration.

3) Impact of the MCA on the budget process: We are concerned about the potential for MCA funds to replace core humanitarian funds in the US foreign aid budget."

Recently, when the US House of Representatives voted on appropriations for US foreign aid, Democratic congressman from Cleveland, Dennis Kucinich introduced an amendment to prevent MCA funds from being spent on building northerneran highway. That amendment was defeated.