2:45 P.M. EDT
MR. PRINCE: Welcome to the Washington Foreign Press Center. We're very happy today to have this special roundtable on the Millennium Challenge Corporation's Compact with Honduras.
Our briefer today is Paul Applegarth, the Chief Executive Officer of the Millennium Challenge Corporation. And I believe he'll have some opening remarks and then he will be pleased to take questions.
Mr. Applegarth.
MR. APPLEGARTH: I'm delighted to be here today. It's a good day for Millennium Challenge and I think an even better day for Honduras.
Today, the MCC Board approved our second Millennium Challenge grant. It's a $215 million compact with Honduras, which is the first among the MCA's eligible Latin American countries to receive a grant from MCC.
I should mention, I just spoke with President Maduro who was actually in a helicopter flying out to look at flood damage from the hurricane. And he said he was pleased that it turned into a tropical depression. Honduras suffered less damage than had been expected or feared -- no loss of life, some property damage, but I think on balance, it was better than what people were concerned about. I was calling with good news so I think it probably helped cheer him up so --
And why Honduras? Let me talk briefly about the Compact and I should also mention my colleagues here, John Wingle who was our Country Relations Officer on the team with Jonathan Brooks and you know Davy Kong, who's our Press Officer.
But 64 percent of Hondurans live in poverty. Our Millennium Challenge Compact with Honduras aims to reduce poverty and to promote growth by increasing the productivity and business skills of farmers and by reducing transportation costs between production centers to national, regional and global markets.
To accomplish these two objectives, Compact funds will be reinvested in a rural development project to increase production and a transportation project to get those products to market because it wouldn't do any good if you increase production if you can't go anywhere. This would help boost employment in light manufacturing companies as well.
MCC was delighted to have Honduras as our partner. Great credit goes to the people and Government of Honduras for their comprehensive, results-focused program targeted to improving the lives of the rural poor and for providing farmers access to markets.
Before getting into the specifics of the Honduras Compact, let me provide you again the basic background about Millennium Challenge. It was launched by President Bush and we were established early last year, about 16 months ago. The Millennium Challenge Account is a common sense approach to development. They recognize that sound policies and good governance are critical to poverty reduction and economic growth in developing countries. The underlying premise to this new approach to foreign assistance links greater contributions for developed nations, like the United States, to a greater responsibility for developing countries like Honduras.
This reflects two of those lessons in development: Countries must take responsibility for their own development and they must put good policies in place. Policies matter. Growth occurs fastest in countries that adopt and adhere to good policies. This is one of the core lessons of development. Countries must take ownership of their own path to development and the way you do it is to put good policies in place that promote poverty reduction and promote growth.
Foreign aid cannot develop a country. We've learned from the 50 years of development experience that corruption, bad policies, and weak governance will make aid ineffective. That successful assistance requires a strong partnership between the donor and the recipient, and programs work best when the countries themselves are accountable for their performance and results.
I think you know that we actually run a competition -- countries compete for assistance from us. In November, we chose 16 countries from a potential pool of 82. Honduras was a repeat performer from a selection in May. But by being in an exclusive group of countries selected, which was roughly the top 20 percent, Honduras gained the opportunity to tell us, the MCC, what Honduras's priorities for growth were. Not sort of a traditional model of a donor going to a [inaudible] country and saying, "You need this, we'll do it for you."
Instead, Honduras tells us, "We need this and we'll do it, will you help us?" With our help, Honduras consulted with its people, developed its priorities and determined how it measures success. It decided what results it wanted to achieve and designed detailed implementation plans.
The Compact today is a Honduran program, which MCC's money is helping them implement. In terms of specifics, the rural development project is focused on agricultural production. Honduras has a comparative advantage in horticultural products like peppers, corn, onions and vegetables. But despite that, Honduran farmers predominantly grow basic grains.
With a $72.2 million rural development project will improve the lives of the rural poor. By educating and training and equipping Honduran farmers with the skills needed to grow horticultural crops and take them to market so they'll be able to shift from very basic maize and grain production to much higher value products.
This will result in higher incomes for the farmers, their employees and communities. Just to give you a sense of it, if you're growing basic crops, grains in Honduras, the average income per hectare is about $500 per hectare from basic grains. If you grow peppers or onions or other kinds of vegetables, the income goes up between $2,000 to $4,000 per hectare. So simply the shift in products can increase the incomes of the poor by ten times.
The transportation project also comes out of a Honduran priority. They identified high transportation costs as a significant impediment to their economic growth, particularly for agriculture and light manufacturing. The cost of getting goods to market was really hurting their competitiveness and raising prices for their customers. The $125 million transportation project is targeted in improving the Central American Five north highway that links the Atlantic port-of-port portals to Pacific ports and major production centers in Honduras, El Salvador and Nicaragua.
The two stretches the MCC will fund will complete the upgrade of the CA five that has begun to run with financing from the World Bank and the Inter-American Development Bank. The specific results of the program results are to train farmers to adopt practices that will more than double the productivity of over 15,000 hectares.
As you know, Millennium Challenge focuses on results. We want to know what success will be before we undertake something. So we agree with Honduras how we're going to measure success. These are the measure that I'm talking about. And the Compact also includes detailed implementation plans, how we're going to get from here to there and what is the benchmark along the way. But one other objective -- it doubled the productivity over 15,000 hectares in rural hectares.
Second is to improve the world financial sectors so that farmers will have expanded access to credit and to do so by more than 20 percent.
Third, as I mentioned earlier, to really upgrade the last link of this major highway that links Honduras with not only other commercial centers in Honduras but also with Nicaragua and El Salvador and really helps to promote the economic integration of Central America.
And lastly, to upgrade about 1,500 kilometers of rural roads, to improve access to markets and social services for the poor in rural areas.
This Compact is also a very good example of donor coordination. The World Bank is building part of the major CA-5 road in the north. The Inter-American Development Bank is building it in the south. The middle is missing and neither the World Bank nor the IDB is able to provide funding in the short term to complete that. So Millennium Challenge has actually worked with both the World Bank and the IDB so that we can provide the final vital link between the two road segments and makes it -- their project work better is obviously very important for Honduras.
Secondly, I want to mention, because of the economic integration aspect for Central America, this is also very important for CAFTA and CAFTA is very important for this project. And if the countries, Honduras and the other countries in Central America are really going to get the best advantage from CAFTA, which opens up regional markets, which really allows greater access to markets. CAFTA should be passed and it will also enhance the benefits from this project.
Finally, I just wanted to put it in perspective, MCC has potential relationships with 30 countries with over 400 million people. These countries are some of the very poorest in the world, but they have good leadership. We try to pick the best-lead countries in the poorest parts of the world. After all, our mission is poverty reduction.
We're also dedicated to bringing the highest principles to the United States into our ongoing relationships internationally. Our mission is poverty reduction. We firmly believe that any government should allow its citizens to be able to pursue economic opportunities and enjoy the freedoms of democracy. In order for us to be able to identify the results in the investment we are making to the MCA, the United States is supporting countries who are striving to provide these freedoms and opportunities for their own people.
And with that, I'll open it up to your questions.
QUESTION: I would like to ask what do you think are the possibilities of reaching a compact with Nicaragua and Bolivia?
MR. APPLEGARTH: I think the prospects right now with Nicaragua look quite good. We are having excellent cooperation with Nicaragua. I think President Bolaños himself is very committed to have the Compact happen. As you probably know, the proposal from Nicaragua targeted some of the north, the poorest areas of Nicaragua and northwest area really to help bounce back. Some of the remnants of Hurricane Mitch are there. But these are areas that have been slow to bounce back. And the President and the consultative process of Nicaragua have said that these are priorities.
I spoke to President Bolaños last week, in fact, when he was in town. I had breakfast with him. And he just expressed to me his personal commitment, a belief at how important an MCA funding can be for what he's trying to achieve to help people in Nicaragua. As a result, I think things were quite good and I would hope that very soon we will be in a position to, first, approve a Compact within the Millennium Challenge and then present it to our board.
In the case of Bolivia, it's no secret that it's hard to focus [on MCA] right now within the Government. We stand ready when they're ready.
QUESTION: I have a question about the measurements and the benchmark. Who is in charge of measuring how this program is going in Honduras and in five years? Is it the government itself? Is it you?
MR. APPLEGARTH: We agree with the country how results will be measured and monitored. And because of the country's program, they have as big a stake of success or maybe in a bigger stake, you know, of being successful than we do. So that helps a lot in terms of the quality of monitoring and evaluation.
Each of our MME plans is established with our partner country. It's built into the Compact and including the benchmarks for success. Normally, in addition to those things that are in the Compact itself, we monitor the monitors. But the lead responsibility is within the Compact itself and therefore rests with the country.
QUESTION: Okay. And what happened if the program doesn't go as you expect that it goes? Would there be a suspension of their disbursements, something happens or?
MR. APPLEGARTH: It depends on the circumstances. One of the advantages of setting your results and where you're trying to get, advancing where you're going is you can plan your path along the way. And if you start with the benchmarks and if you start to get off the benchmarks, then you can try to fix it and get back on it. So I think the implementers in the Honduras would see that and try to get back on, we try to help them.
Now, if it stays off track and either because maybe the government is really not committed to this or there's something fundamentally wrong with the way the program's working, then we would have to consider stopping disbursing. We are fiduciaries for the American taxpayer. We are investing U.S. tax dollars. We want to get a return on that investment. Not a financial return, but a growth return. We'd rather put the money -- and it's grant money -- we'd rather put the money in places where it's going to get a return and we don't want to waste it in places that it's not going to have an impact on poverty.
QUESTION: So with the grant money, they do not have to pay back?
MR. APPLEGARTH: No. You do not pay it back. It is all grant -- $215 million. But we view the money as an investment, an investment in poverty reduction. And we believe many of our partner countries consider it the same way. It's not how much the money costs you, it's a question of what do you get for it, even if it costs you a lot, you still need to get the maximum amount for it. The fact that it's free increases the benefits of the country, but you still should apply the same discipline in terms of trying to get the best return in terms of poverty reduction, in terms of economic growth.
QUESTION: So you first selected the countries… The countries that benefit with these grants they have to be poor, but they also have to have a democratic government and they also have to have a good set of policies and low levels of corruption. Those are the conditions that made Honduras be the first Latin American country in getting this money?
MR. APPLEGARTH: Well, you're absolutely correct. You obviously understand Millennium Challenge very well. But we are targeted on the poorest countries of the world. To even compete, to be on the candidate list right now, you have to have a per capita income below $1,450 -- less than $3 a day, okay, to even be in the list to compete, okay. And then among those countries, we take the top ones, the ones that do best, in terms of policies and you have to pass the corruption indicator, which we use two measures of corruption -- a World Bank indicator and a Transparency International indicator.
QUESTION: Okay.
MR. APPLEGARTH: I think it's important to note that we don't do the rankings. We want to make sure everybody understands that this is not a political decision. It really is a decision focused on good performance. The countries are doing their best to help their own people and to reduce poverty.
So we look at the indicator as a criteria, then we try to pick the best of them. There are only seven countries in Latin America that are under the per capita income ceiling. And clearly, Cuba does not meet our criteria for policies that lead to economic growth and to helping the poor [by] reducing poverty. Haiti, at this point, is not in a position to be selected.
Three of the seven are eligible: Honduras, Nicaragua, and Bolivia. And then the two others that are on the list, both Paraguay and Guyana are what we call "threshold countries." So it's quite unusual that out of the seven candidate countries, five would be selected to either be eligible or threshold. The reason Honduras was among the first is because once they were selected, they moved the most quickly to consult with their people, determine their priorities and they put a very good team in place to help develop plans and the objectives of the program.
QUESTION: Okay. How many grants do you offer every year?
MR. APPLEGARTH: We ran two competitions last year because we were not created until January. We were able to run one for what we call fiscal year 2004 and another one for 2005. I normally will run one a year. And so either in October or November, we'll be choosing countries again.
QUESTION: And you say if we don't have indicators for political openness and freedom --
MR. APPLEGARTH: If you go on our website, you can see all the indicators. [www.mcc.gov]
QUESTION: What indicators are --
MR. APPLEGARTH: And it also shows who does the indicators and also shows their methodology. We want everybody to understand this because we picked the indicators that are linked to policies that help reduce poverty. We want a government to adopt good policies. We measure good policy and measure their performance against good policy. We want the things that'll promote growth from poverty. So each of the indicators is on the website. You can look and see Honduras or Nicaragua, Bolivia. Who does the ranking, tallying, it's all there.
QUESTION: Okay. Great. Very good.
MR. APPLEGARTH: Thank you.
MR. PRINCE: Well, thank you very much.
