Background Information on Millennium Challenge Corporation Fund and El Salvador

The MCC Board approved a second compact with El Salvador nine months ago, but its signing and entry into force have been delayed and new conditions demanded by the Obama administration that are inconsistent with the country’s development plan and with general MCC practice.

 

The MCC Board approved a $277 million compact for El Salvador on September 12, 2013, having named the country as eligible to develop a second compact in December of 2011. The first compact for $461 million – fully completed in September 2012 – was designed to reduce poverty through strategic investments in agricultural production, rural business development, transportation infrastructure, education and public services in the country’s northern region. The second compact is intended to improve the country’s competitiveness and productivity in international markets with a focus on the southern coastal region.

 

Signing of the new compact has been delayed on several occasions. Even before the compact negotiation was completed, the US Ambassador to El Salvador began asserting publicly that El Salvador’s eligibility for the second MCC compact hinged on the passage of the Public-Private Partnerships (P3) law. The US Embassy maintained this position and applied consistent public pressure to pass the P3 for the 18 month-period that it took for the Salvadoran legislature to debate and unanimously approve a revised version of the law on May 23, 2013.

 

Then, in subsequent media appearances following MCC board approval of the new compact, the US Embassy made reference to reforms being needed to the P3 law that took effect in June 2013, as well as to an anti-money laundering law, prior to MCC signing the compact and allowing its entry into force.

 

In December 2013, the Embassy announced that the compact signing would be delayed until after the Presidential elections on February 2, 2014. All three top candidates publicly committed in the Fall of 2013 to fully abide by and implement the compact if elected. The signing of the compact was nonetheless delayed, even following the run-off elections on March 9 in which Salvador Sánchez Cerén was elected as the country’s next president.

 

In late April 2014, the Salvadoran legislature approved a series of reforms to the P3 law that conformed to the key requirements emphasized by the MCC. Additionally, Salvadoran media has reported that progress is being made regarding reforms to the money laundering law.

 

However, in April, staff at the US Embassy revealed to the Salvadoran media the specifics of an entirely different set of requirements regarding the Central America Free Trade Agreement (CAFTA), including regarding activities that fall outside of the scope of the compact’s negotiation. According to citations in El Salvador’s major daily newspaper, the Salvadoran government must alter its procurement of seeds for the Family Agriculture Plan[1] in order for the second compact to be signed and enter into force.

 

The Family Agriculture Plan is a Salvadoran government program launched in 2011 to improve the livelihoods of over 325,000 small farmers living in poverty. One aspect of the program is to develop the domestic production of seeds in order to promote food security through self-sufficiency in basic grains. Support was provided to local farmers to produce maize and bean seeds that the government would distribute to farmers through the program as part of its packet of inputs the following year. President Funes inaugurated the program in the Bajo Lempa region – part of the southern coast where the new compact will focus – with the intention of becoming self-sufficient in seed production by 2014.

 

In December 2012, the Salvadoran legislature passed an amendment (decree 198) to government procurement law temporarily enabling the Ministry of Agriculture to purchase seeds directly from local producers through a streamlined procedure. The initiative was revised and renewed again in January 2014 (decree 603) and will expire at the end of the year. This temporary provision allowed producers who would otherwise be excluded from the bidding process due to their small size to participate.  Provisions were included to ensure transparency in the procurement process.

 

The amendment allowing small and medium-scale producers to participate in the bidding process has increased competition in the bidding process for this government contract. The funds assigned to the purchasing of seeds for the Family Agriculture Packets, estimated at $30 million per year, are now distributed among eighteen producers, instead of being dominated by a couple suppliers that previously held a monopoly on the contract, primarily Semillas Cristiani Burkhard (now owned by Monsanto).

 

The program has also been successful in terms of its goal to promote food security in El Salvador: the country is now producing 100% of the maize and bean seeds needed to meet its national domestic consumption requirements. The ability of the Salvadoran government to purchase from a variety of local producers is essential to this success.

 

Thus, the MCC is now conditioning the signing of a compact with El Salvador, approved by its Board nine months ago, on ending an important component of the government’s national food security program. This is inconsistent with US development policy as well as with MCC practice.  Agriculture and food security are not part of the activities included in the new compact and were not part of the compact negotiation. El Salvador has met the criteria originally established for the compact, and has gone further in responding to demands for additional reforms to its public-private partnership and anti-money laundering laws. Adding conditions that would undermine a government food security program should have no place in the MCC or US development assistance.

 


[1] La Prensa Gráfica, April 9, 2014 “Key actions remain for FOMILENIO II”

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