When Honduras signed its first compact with the Millennium Challenge Corp. in 2005, the funding totaled $205 million. This time around, the country plagued by corruption scandals and coup plots in previous years would get a maximum of $15.6 million.
That’s because MCC approved last month a threshold program with Honduras instead of a second compact as was the case of Cape Verde and which Benin, El Salvador, Georgia and Ghana are considered eligible for.
This year, MCC has allowed the latter four countries to continue developing another compact after it concluded they have performed well in maintaining their first compacts.
“The program’s activities aim to improve public financial management and improve the efficiency and transparency of public-private partnerships,” the aid agency said in a statement.
“The two program activities were determined after the government of Honduras and MCC worked closely with the private sector, ministries and civil society to identify the binding constraints to economic growth in Honduras,” it added.
Honduras is the first to receive assistance from MCC under its new threshold program guidelines, where countries eligible for threshold assistance would focus on reforming binding constraints to development instead of trying to move indicator scores.
MCC allows countries for another compact if they maintain strong performance in the areas of justice, economic freedom and human capital investment after completing their prior compacts.
Honduras’ 2006 scorecard showed the country then met MCC indicators on ruling justly, encouraging economic freedom and investing in its people.
This year, Honduras’ justice and governance performance has worsened. In particular, Honduras’ control of corruption is weak.
Two years ago, MCC decided against approving another compact with Honduras amid allegations of corruption committed under the administration of former President Manuel Zelaya, who was ousted in a 2009 coup.
In the months that followed, Honduras police was rocked by corruption scandals, leading to arrests of 176 police officers. Last year, Honduras set up an anti-corruption body to try rogue officials in the judicial system and police.
Also last year, Honduras was perceived to be one of the most corrupt nations, ranking 133 out of 176 countries and territories in a Transparency International survey. On a scale of 0 to 100, with 100 being the least perceived corrupt, Honduras obtained a score of 28.
Apart from issues of corruption, the U.S. Government Accountability Office previously raised concerns as to whether projects implemented under the Honduras compact were sustainable. MCC was able to construct only about half of the planned highway and all re-scoped secondary roads by the end of the compact, according to GAO.