In 2004, based on its strong performance on MCC’s selection indicators, Honduras became one of the first countries to be selected for a compact with MCC. Despite the devastation of Hurricane Mitch in 1998, Honduras had a window of opportunity to capitalize on the democratic reforms of the 1980s, the economic liberalization of the mid-1990s, increases in regional integration, trade liberalization and the promise of the Central American Free Trade Agreement. In its efforts to ensure growth in its rural areas, Honduras recognized the need to enhance agricultural development and linkages between its large rural population and its markets.
As one of MCC’s first partnerships, the Honduras Compact predates MCC’s use of the constraints analysis in the compact development process.[[Beginning in 2009, MCC began undertaking constraints analyses based on the Hausmann, Rodrik, and Velasco diagnostic method in the preliminary analysis phase of each compact.]] As such, project areas were identified and proposed by the GoH, in consultation with civil society, the private sector, and the donor community, based on review and identification of high-priority, unfunded objectives of the Honduran Poverty Reduction Strategy (PRS, 2001) that would contribute to economic growth.
Together, the GoH and MCC agreed that the program would focus on helping small-scale farmers become small-scale entrepreneurs through training to improve their farm productivity, providing assistance to access new markets, and increasing opportunities to access credit products. In addition, by reducing transportation costs through improvements in road networks, the program sought to improve market access and foster greater market integration.
The compact was national in scope and did not prescribe a geographic focus. The Transportation Project and Rural Development Project activities were implemented in locations across the country that met the conditions for investment.
Under the MCC country ownership model, MCC’s country counterparts are responsible for implementing MCC-funded programs. Partner governments establish accountable entities typically known as Millennium Challenge Accounts (MCAs) to manage implementation for compact projects. In Honduras, MCA-Honduras (MCA-H) was created soon after signing the compact to implement the country’s programs.
Following the compact end date, a co-financing arrangement with the Central American Bank for Economic Integration (CABEI) allowed MCA-H to continue its operations to complete works on Segment 1 of Highway CA-5. In March 2012, the GoH requested to have the MCA-H act as an implementing unit for other GoH projects that were consistent with the compact objectives. Given the demonstrated effectiveness, standards and transparency of the MCC model, the GoH decided to continue to operate the MCA-H Program Management Unit, renaming it INVEST-Honduras. INVEST-Honduras continues to implement strategic projects and programs. INVEST-Honduras is recognized for its effective and transparent management of international and national funds. Under the leadership of INVEST-Honduras, projects have been implemented with funding from USAID, the World Bank, the Inter-American Development Bank, among others.
On August 29, 2013, MCC and the GoH signed a $15.6 million Threshold Program Agreement. The program focused on improving the transparency and efficiency of public financial management and public-private partnerships (PPPs) by providing technical assistance to key government institutions. It aimed to save the government money, improve service delivery, and reduce corruption through operationalizing best practices for budget and treasury management; streamlining procurement; strengthening auditing capacity; providing grants for civil society oversight; and augmenting capability of PPP professionals. MCA-Honduras managed the program on behalf of the GoH. The program closed in August 2019, and additional information can be found on MCC’s website.
At a Glance
- Original Amount at Compact Signing:
$215,000,000 - De-obligated amount:
$10,000,000 (due to partial termination) - Revised compact budget:
$205,000,000 - Amount spent:
$204,015,014
- Signed:
June 14, 2005 - Entry Into Force:
September 30, 2005 - Closed:
September 30, 2010
Estimated benefits correspond to 100 percent of originally obligated compact funds, where cost-benefit analyses were conducted. Beneficiaries were identified as all residents of farming households targeted by the Rural Development Project and all households within 5 kilometers of the improved roads:
- $1,707,401[[Beneficiaries at signing, closeout beneficiary counts not updated.]]Estimated beneficiaries at the time of signing over 20 years
- $269,369,232[[Net benefits refer to discounted benefits minus discounted costs. These are net benefits at compact signing. Closeout ERRs for the Transportation Project were not fully completed, therefore total net benefits at closeout could not be calculated.]]Estimated net benefits at the time of signing over 20 years