Over the last year, we’ve been posting quite a bit about the U.S. Millennium Challenge Corporation and its activities in El Salvador. This post is meant to provide some background information on the government institution and how it relates to our work.

Established by Congress in 2004 under the Bush administration, the Millennium Challenge Corporation (MCC) is an independent U.S. foreign aid agency that aims to make aid for global poverty reduction “smart” by incorporating measures to ensure greater transparency, accountability, and sustainability into the aid process. Unlike USAID, MCC doesn’t distribute emergency relief or food aid. It aims to promote development primarily by spurring economic growth, employing a more “businesslike” approach. You can think of MCC as a leaner, meaner version of USAID, with its own agenda.

MCC is much more selective about who receives aid. The entity supports global poverty reduction but prioritizes countries that demonstrate positive performance in indicators of governance, economic freedom, and citizen investment. Countries who meet these standards are eligible to receive compacts, large ($352 million on average), five-year aid packages. Threshold programs, which consist of smaller grants ($21 million on average) and typically last between two to three years, target countries not yet eligible for compacts but who are working towards satisfying the criteria.

Another notable aspect of the MCC is its emphasis on country ownership of the development process. Evidence-based policies and country ownership of development projects – as opposed to the prescriptive schemes that all too often characterize international aid – are the guiding principles of the MCC. Aid-seeking countries are responsible for engaging their citizens to identify development priorities and involving their experts to propose solutions. They must present an integrated development plan to the MCC in order to be awarded funding and then are in charge of administering the grant and implementing the planned projects. In this way developing countries take charge of their development.

El Salvador entered into its first five-year compact with the MCC in 2007. Fomilenio is the Salvadoran institution created to administer these MCC funds and projects in-country.  $461 million dollars were committed to projects in the northern region of the country, 40 percent of which went to improving transportation infrastructure along the Northern Transnational Highway. About 22 percent went to water and electricity systems projects and education initiatives and another 17 percent went to supporting farmers and small businesses.

A second compact, Fomilenio II, which would channel $277 million of investment into development projects primarily in El Salvador’s rural coastal zone where EcoViva and its partners also work, has yet to be signed. The MCC postponed the signing in late November of last year pending certain reforms and has indicated that the process would resume after the conclusion of the 2014 presidential elections. The signing is conditional on these reforms (also here) deemed necessary to improve the investment climate in El Salvador, most notably changes to a law governing public private partnerships (known as the P3 law) that was passed in May 2013.  The MCC is not alone in prioritizing business climate improvements.  Since the U.S. signed its “Partnership for Growth” with El Salvador in 2010, all U.S. foreign aid agencies in El Salvador must focus on two areas: alleviating violent crime and low performance in the export sector.

This piece by our Program and Policy Director Nathan Weller delves into how this second MCC compact with El Salvador could affect EcoViva’s and our partner organization’s work in the Bay of Jiquilisco. Community members and stakeholders are concerned that their proposals are no longer being considered for MCC funding, which instead is being channeled to select private enterprises. While Fomilenio II represents a valuable investment in the country’s economic development, the project risks shutting out important local actors such as our partners at the Mangrove Association, who have been successfully building a sustainable rural economy in the area for a long time now. It is for this reason that EcoViva will continue advocating for the inclusion of local voices in the planning process, so that MCC funding and its initiative have the best chance for success throughout the country’s unique, and vulnerable, coastal zone.