A deep cut in aid to Nicaragua

Latin America and the Caribbean

The Millennium Challenge Corporation (MCC) is a U.S. government economic-aid program begun during the first years of the Bush administration. It offers several-year "contracts" of aid to countries that meet a list of good governance criteria, then submit and receive approval for aid proposals. (See our MCC aid data here.)

In Latin America, only Honduras ($215 million [PDF]), Nicaragua ($175 million [PDF]), and El Salvador ($461 million [PDF]) have received MCC aid under several-year contracts. Paraguay and Guyana have received smaller amounts through single-year grants via what the MCC calls its "Threshold" program. The three countries that received MCC contract aid have seen a general decline in U.S. assistance through other, "traditional" U.S. economic-aid programs.

According to its contract, Nicaragua was scheduled to receive $47.5 million in MCC aid in 2009. On Thursday, however, the MCC announced that it was suspending Nicaragua's participation in the program due to concerns about the validity of recent local elections.

The Board also voted to suspend assistance for new activities under the $175 million MCC compact in Nicaragua because of actions taken by the Nicaraguan government that are inconsistent with MCC’s eligibility criteria. MCC will therefore not approve disbursements for activities not already contracted by MCA-Nicaragua. The political conditions leading up to, during, and following recent elections in Nicaragua were not consistent with MCC requirements that include a commitment to policies that promote political freedom and respect for civil liberties and the rule of law.

The Board called on Nicaragua to develop and implement a comprehensive set of measures to address concerns regarding the government’s commitment to democratic principles. The Board will review the response of the Nicaraguan government and determine subsequent actions at its next quarterly Board meeting in March 2009.

“The MCC model is based on aid with accountability and good governance. The Board determined that recent actions by the Nicaraguan government were inconsistent with MCC’s core principles and therefore had to take this difficult decision,” said Ambassador Danilovich. “Nicaragua’s compact with MCC benefits hundreds of thousands of poor Nicaraguans by providing better roads, property titles, and agricultural business support. For the sake of the poor of the country, we sincerely hope that the Nicaraguan government recommits to the principles of democracy and the rule of law so that MCC can reestablish what has been an effective partnership. It should be remembered that our partnership with Nicaragua is dedicated to both poverty reduction and good government policies.”

As a result of the MCC aid suspension, we estimate that U.S. assistance to the hemisphere's second-poorest country will plummet in 2009 to its lowest level, in nominal dollars, since 2001.