Lucia Elena Lainez, resident of El Astrillero, El Salvador with her green bean harvest. Photo: Tjarda Muller/Oxfam America.

Is it business as usual with last-minute aid conditionalities?

David Saldivar is a Policy and Advocacy Advisor on Oxfam America’s Aid Effectiveness team. 

Today the Government of El Salvador and the Millennium Challenge Corporation (MCC) will sign the second El Salvador compact approved by MCC’s board last year. The new compact invests in education, transportation infrastructure, and strengthening the financial climate – intended to help Salvadorans build the human capital to raise incomes and lower poverty.

It’s great to see MCC doubling down on success and reinforcing the “MCC effect.” The new compact reflects El Salvador’s successful implementation of a previous $460m compact with MCC funding, from 2007 to 2012. During that time FOMILENIO (Fondo del Milenio), the Salvadoran agency leading compact implementation, met or exceeded 18 of 21 measured targets. This created tens of thousands of new jobs for Salvadorans, increased the incomes of tens of thousands more, and brought education, reliable electricity, and water and sanitation services to many thousands of Salvadoran homes.

With this record of success, why was there such a delay between approval and signing of the new MCC El Salvador agreement? The short answer is that MCC and El Salvador’s joint accomplishments attracted other parties to the table. This can be a good thing. Oxfam believes success breeds success in development, which is why we urge the US government to adopt aid policies that build on the leadership and gains made by actors and leaders on the ground.

Here US agencies that are also MCC board members, such as the State Department, the Treasury Department, and the US Trade Representative, recognize that an MCC compact is more than just a bilateral foreign assistance agreement. It’s a breeding ground for good policy—transparently and accountably executed—that can create a positive feedback loop to unlock growth. Agencies see a new Salvadoran compact as an opportunity to advance additional policy goals. In this case, that meant adding more conditions for the Government of El Salvador to satisfy before signing, regarding the legal framework for public-private partnerships, the rule of law, and trade policy.

What is concerning about this scenario is that new, eleventh-hour conditions, unrelated to a compact’s content, risk interfering with the formula that served MCC and the Salvadoran people so well during the first compact. For example, the US Trade Representative sought to add a condition that would use the Salvadoran MCC compact as a trade enforcement mechanism, forcing changes to the country’s seed procurement system, which has enabled the government to supply resource-poor farmers with better quality and lower-priced corn and bean seeds. In fact, attaching new conditions after a compact has been negotiated and approved by the MCC board comes uncomfortably close to replicating the worst history of conditionality in development aid, where reforms aim mainly at donor interests, or become a box-checking exercise to release aid funds.

In a country like El Salvador, already recognized by MCC, not to mention the Partnership for Growth, for meeting standards of economic freedom, ruling justly, and investing in people, this makes little sense. The Salvadoran government has proven it is a reliable, capable partner, and has fully met its MCC commitments. This should not be the practice for the MCC going forward.