Millennium Challenge Corporation's Compact with Honduras

MR. PRINCE: Good afternoon and welcome to the Washington Foreign Press Center. We are very pleased to have a briefing today on the Millennium Challenge Compact with Honduras.

Our special speakers today are Ricardo Maduro, President of the Republic of Honduras, and Paul Applegarth, Chief Executive Officer of the Millennium Challenge Corporation.

MR. APPLEGARTH: Thank you, Dale. Mr. President, members of your administration, and I understand we have some government employees from overseas here today, as well as members of the press. It's a real pleasure for me to be here today with His Excellency President Maduro. This afternoon, we will sign a compact with Honduras. MCC is proud to work in partnership with the people and the Government of Honduras on this Compact. And congratulations on a program targeted at helping the poor.

Honduras — it will be our second Compact, again, a matter of congratulations, and the first in Latin America. With strong leadership from President Maduro, reducing poverty and creating economic growth was made a national priority. The Hondurans had a vision for their Compact proposal, they consulted with the people of Honduras and they put together a great team to execute on this mission.

Sixty-four percent of Hondurans live in poverty. The Millennium Challenge Compact with Honduras aims to reduce poverty and to promote growth by increasing the productivity and skills of farmers and reducing transportation cost between production centers to regional, national and global markets.

To accomplish these two objectives, Compact funds will be invested in a rural development project, to increase production, and a transportation project to get those products to market, which will also help boost employment in light manufacturing companies.

It should really benefit some of the poorest people of Honduras. It will help them transition from very basic grain production to much higher value added products, which will result in higher incomes for farmers and their communities. For example, if you are growing grains in Honduras, your average income per hectare is about $500 from basic grains.

Under this Compact, if you grow vegetables, your income will go up to between $2,000 and $4,000 per hectare — an increase of four to eight times, simply by the kind of crop diversification which this Compact will facilitate.

We can discuss the Honduras Compact in further detail during the question-answer period, but I would like to take a minute or so now to give you a brief overview of the Millennium Challenge.

Millennium Challenge was launched by President Bush and we were established last year in 2004. The Millennium Challenge Account is a common sense approach to development assistance that recognizes sound policies and good governance are critical to poverty reduction and economic growth in developing countries.

Our mission is poverty reduction. We want to make aid more effective. The underlying premise of this new approach to making aid more effective links greater contributions from developed countries to greater responsibility from developing countries. This reflects two of the lessons of development — countries must take responsibility for their own development and they must put good policies in place. Only a good policy environment will facilitate the kind of growth that we're talking about — that will really reduce poverty and help some of the poorest people in Honduras.

Growth occurs fastest in countries that adopt and adhere to good policies. This, as I mentioned, as one of the core lessons of development. Countries must take ownership of their own path to development and the way you do this is to put good policies in place that will promote poverty reduction and long-term sustainable growth.

Countries' responsibilities are also important for foreign aid cannot develop a country. We've learned from 50-years of development experience that corruption, bad policies, and weak governance will make aid ineffective. Successful assistance requires a strong partnership between donor and recipient. And programs work best when they are accountable for their performance and results.

As you know, we run a competition. In November, we had a candidate pool of about 82 countries. Being only 1 of 16 countries selected, Honduras gained the opportunity to tell us what its own priorities for growth were, which is not the traditional model of foreign assistance, which is "you need this and we'll do it for you." Instead, Honduras earned the opportunity to tell us what its priorities were.

With our help, Honduras consulted with its people, developed its priorities and determined how it measures success, what results it wanted to achieve, and designed and detailed the implementation plan to achieve them. This is a Honduran program that we're talking about today. And MCC's money is helping Honduras to implement it.

With that, I am now pleased to yield to our newest MCC partner, President Maduro.

(Applause.)

PRESIDENT MADURO: Thank you very much, Mr. Applegarth. Good afternoon to all of you, I'm very happy to be here with you. I think Mr. Applegarth has already been fairly clear as to what the program comprises. We can go into more details afterwards. But basically, two main functional lines — one is rural support program and another one has to do mainly with transportation facilities and access to market.

I would like to go back and say that — to us — the Compact signifies basically two things: One, it's a recognition of some of the right steps and policies that we have implemented and reforms that will take us to be a more modern economy and a more solid democracy, which I think is fundamental.

And two, it's a foundation and a bridge that will allow us to be able to deliver some specific development — economic development, growth, job creation and especially in the poorest areas, which are the rural areas, which will allow us also to consolidate our democracy. I think one of the main challenges we all face in Latin America now is that most of us, or many of us, are poor countries and some of us are fairly new institutionally. In Honduras, democracy began in 1981 or at least sustained democracy with the last constitution — so our institutions are still fairly new, which means that our citizens don't really trust them yet completely and we have to deliver.

And I think one of the things that all of us are seeing is very high expectations but a very limited in capacity to be able to deliver on them. And if we don't have things like the Millennium Challenge Compact that we are getting at this time, to be able to deliver something specific in the short term and build this bridge, it's going to be more difficult for us to get to longer term and obviously, types of policies and CAFTA free trade agreements that will create the kind of prosperity that we need to make our economies grow in a sustained way, with high economic growth rates that will also be equitable.

Therefore, MCC for us represents a lot at just the right time. At a time when it's not a theory that we can lose democracy because of the fact that we don't deliver on promises. We're seeing what's happening in some South American countries and in Central America Nicaragua itself is having some problems. So I think that this kind of aid, which is based on results, is right. It's very significant and it's at just the right time.

For us, it represents a recognition of the right things, the sacrifices that Hondurans — Honduran society and the Government have jointly been able to do, the kind of reforms we have implemented and they've been in very broad areas. For example, in democratic institutions, we have strengthened the national electoral tribunal. We have separated the institution that has to do with the census for political participation. We just recently had the first primaries in the history of Honduras, where people voted separately for individual congressmen — before we used to vote separately for president and mayors, but not for congressmen. It used to be a state slate. In terms of fighting corruption, we eliminated immunity for all public functionaries. State purchases are being delegated to United Nations in the most sensitive areas. For example, all medicine purchases, all telecommunication purchases and others are done by United Nations. We delegate to them, we pay them a commission to do it for us. We have strengthened the national anti-corruption committee, made it into law, which it didn't have before. We audit all our state purchases with Price-Waterhouse, et cetera, et cetera, a series of reforms that have to do with that.

And in terms of economic liberties, we have implemented legislation what has to do with simplifying administrative procedures, getting rid of bottlenecks for creating companies, which by the way is also an important step in eliminating corruption. Normally, bottlenecks create possibilities, at least, for corruption. And of course, we have been opening the markets for freer trade.

I also think it's important to emphasize that freer trade is normally looked upon by interest groups and what producers are benefited and what producers are affected. And we seemed to forget that the ones that are most benefited are consumers. And one of the reasons, by the way, that your economy has done so well consistently is because you have a consumer mindset. We tend to have a producer mindset. By the way, there's a good book on this, it just came out called "The Power Productivity" if you want to read just about this kind of thing.

So in general, we have also been trying to make that change. That's a lot to do in four years. I have only seven months left as President. So all that we can hope for is that we've gone in the right direction and now in order to sustain that, we need to deliver and that's exactly what MCC is about — being able to deliver. And in this case, to the poorest, in the rural areas. That's where most of our poverty resides, or at least the deepest part of it.

And we're going to be targeting this specifically in the rural area, in programs to the small producers. People who have one, two, or three hectares of corn or bean production or coffee production. And they will have better access to markets through better roads, irrigation projects, technical support, better access to credit and all the things that they need in an integral way to be able to either become a more efficient producer of what they are already producing or be able to diversify their crops to get better income in the future.

This is just a brief introduction of some of what MCC means to us and what we've tried to design it. It was done through a very broad process of consultation with civil society. It has built into it a series of strategies and policies which will assure its transparency. For example, it has a five-member board — three government, two civil society. There are two observers from civil society. In addition to that, one permanent observer, which is placed by MCC directly in Honduras, which is resident in Honduras. Every procedure that we're using for purchasing will be World Bank procedures. Everything will be published on the Internet and be publicly known, all the tender procedures, the type — the way projects are being executed. And you know, their advance. So everything will be fully available at all times. So also the transparency element has been very key to us. I think that's, hopefully, a good enough interaction that I'm sure you'll have some questions.

Thank you very much.

MR. PRINCE: Thank you very much. We'll now go to the questions and answers. I'd like to remind the journalists to wait for the microphone and please identify yourself. Do you have a question? Yes, right here in the front row, please.

QUESTION: Thank you. Sonia Schott, Radio Valera, Venezuela. I just want to ask you, Mr. President, you briefly mentioned the fight against corruption. What are your concrete plans to fight and to prevent corruption in the country? Thank you.

PRESIDENT MADURO: Okay. I spoke about how to prevent corruption with the implementation of the MCC funds. Are you satisfied on that or would you like some more details? On the MCC specifically?

QUESTION: No, no, on your plan.

PRESIDENT MADURO: On general corruption. Okay. We think that corruption should be based — should be fought on at least two levels. One is the prosecution of people who are corrupt and two is the policies and the reforms, which are needed to reduce the motivation for corruption.

For example, I spoke about bottlenecks. Bottlenecks are a traditional motivation for corruption, in other words, bureaucratic trαmites [procedures], you know, which delay things. That's the best place where corrupt people will go in order to get paid off to do things quickly. Purchasing procurement, in general, has always been one of the sources of main corruption for our governments.

In Honduras for the first time in history, we decided to hire somebody to do purchases for us. So what we do is we take our money, for example, for telecommunications purchases, I think, the last three years — two, three, four hundred million dollars, maybe more at least? But around there, let's say many hundreds of millions of dollars and we put it in a bank account of the United Nations office in Honduras of UNDP and then they do absolutely everything. They design the qualifications for the bidding process. They receive the bids. They qualify the bids and the adjudicarte [adjudication]. And so they do the full, complete — there's been some criticism from some of the traditional buyers that felt that they were no longer able to manipulate it.

But generally speaking, even supposing that UNDP were to, you know, lack some capacity in one way or another or maybe even have an employee at one time or another that might have been corrupt himself, it’s far better than having it inside the government. They deal quickly with any mistakes they make and they're certainly more transparent and more professional, even if we have to pay a commission.

To give you an example, a purchase of medicines — a lot of medicines, which used to be done under the Social Security institutions, Seguro Social, in Honduras. We repeated it a year later in our government, just into my government and we got it for 30 percent less than the same purchase that had been done a year before, under the UNDP purchasing. There may have been some lowering of costs on some of the medicines, but I don't think that much. So it's been very obvious to us. That's one of the things.

The other thing we did was we eliminated immunity for public employees. Congressmen, myself, the President, magistrates of Supreme Court, judges, all have immunity in most of our governments. And in many cases, for legitimate reason, we want to be at least free from prosecution for decisions or opinions which we have which have to do with our work.

However, in the case of Honduras and many of our other countries, it's become a shield for corruption and for not complying with the letter of the law. It really has become a shield for impunity. And I had fought against that in my campaign. And we thought we would never be able to get it because, in fact, what it implied is we have to get congressmen to do away with their own immunity and that's kind of difficult and we were able to do it.

You know, public opinion — pressure was enough so that now nobody has immunity. I mean, I am subject to prosecution, just like a regular person. There's a procedure where the Supreme Court decides if, in fact, it is something significant so that then they proceed to go ahead and do the judgment under a normal system, but I am not in any way covered by immunity. And that's, I think, one of the first countries in Latin America that's done that.

The other things we've done are things like the Anti-Corruption Committee. It used to exist before in Honduras, but under a Presidential decree. We turned it into a law. And not only that, but we pulled out of our presence as a government in the committee. The committee no longer has government presence. It's full civil society. It's a law, so it's a permanent committee and it has total independence. And not only that, but under the law, they can call any public functionary to declare and give them information. By law, we must attend and we must give the information also.

So it's a series of these kinds of steps where we attack corruption at the base level by doing away with some of the motivations or things which are normally subject to corruption. Secondly, by creating legislation and reforming institutions that have to do with that — auditing, et cetera. And then thirdly, by going after corrupt people. In Honduras, we had 14 financial institutions which had gone broke in the eight years prior to my government. I think it was six banks and 14 financing companies. There had been one accusation around those — the breaking of those companies, which cost us 3.6 billion lempiras.

We have done 83 accusations. We have six people in jail and we have two pending extraditions. So we've also gone after the people. Just recently, we had a problem with some visas which were issued illegally — supposedly, have been consultative visas, especially for people from some Arab countries, Colombia and some others. They were issued without the proper authorization. The head of the immigration department in Honduras is in jail. He's been accused. He's under judicial proceedings and we fired over 70 people in the Immigration Department.

So we're fighting it on both ends. It's not enough to do the circus act of getting the important person with handcuffs to go to jail. You must also fight the basis of it and that means institutional legal reform, procedural reform to help to get rid of it in the long term.

QUESTION: Laura Bonilla, Agence France Presse, AFP. My first question is for both of you. It seems like $215 million, it's not a lot of money, at least for the U.S. So I wanted to know if you mainly consider this symbolic or if for Honduras it's a lot of money or what?

And then the second one for the President is you say that poor markets — I'm sorry — poor farmers will have better access to markets. But if CAFTA is not approved by Congress, the markets will be closed, at least here in the U.S., so how do you regard that?

PRESIDENT MADURO: Well, I think CAFTA should be approved, first, obviously. $215 million is a lot of money for Honduras. And it's also about seven times the normal level of U.S. aid per year to Honduras, if I'm not mistaken. We have about $30 million a year. It's a very significant amount of money. Our GDP is about $7 billion, so that's about 3 percent of GDP as one program. That's a lot of money and it will go a long ways. It's ten times what I need for a school lunch program per year for one million children. It's about equivalent to the total foreign aid per year we get from all countries put together. So it is a lot of money for Honduras. I don't know if you would like to add something to that, Mr. Applegarth.

MR. APPLEGARTH: Well, I'm glad to hear you say that, Mr. President. Actually, it's a lot of money from the United States taxpayers, too. But the point is that Honduras earned the opportunity to get this sum of money by putting in place the kind of policies to say the money is going to be used well. And what we in the Millennium Challenge are trying to do is to focus a lot of money on those countries that have demonstrated that they're ready to make some tough decisions in fighting corruption and opening the economy up and investing in health and education.

So we are selective. We only pick about 20 percent of the countries in the competition to find the very best partners, so you would find the partners who will use the money the best, in the ways they see as best, that they have chosen are their national priorities as the most important things for reducing poverty, promoting growth and then having picked a good partner and identified a good program, we do try to put a lot of money into it.

QUESTION: Question for Mr. Applegarth. Yes. Nestor Ikeda, an Associated Press reporter for Latin America. $215 million and it's maybe around $43 million per year. And I understand that some years probably Honduras is not going to receive the $43 million of the average. Probably one year it's going to be less and the next year more. What are the criteria for the implementation in terms of this figure?

And the second question is what is next for Latin America with the Millennium Challenge Account?

MR. APPLEGARTH: Well, the first question is in terms of criteria, as I mentioned earlier, the program is focused on increasing agricultural production in some of the poorest areas of Honduras and then improving transportation to help those products get to market. And the detailed implementation plans are part of the Compact program and some of the money will go faster or slower or it'll be as the program needs it. And so there will be some years where the average disbursements differ. But the point is it'll be as the program proceeds.

One of the important things about Millennium Challenge is its predictability. In other words, when we enter into a Compact for five years, all the money is there up front. And so Honduras knows, as long as it continues to perform along the details of the plan, meet benchmarks that we have both agreed on the best way to get to the long-term objectives of the program, the money will be there and be there when it's needed.

In terms of the future for Latin America, I hope and expect we'll be making another announcement fairly soon about another Compact. But that's another press conference and another press release. Today — right now, is Honduras.

QUESTION: Thank you very much.

MR. APPLEGARTH: Thank you.

PRESIDENT MADURO: Thank you.