How a Technocratic Aid Program Holds Honduras Back
A statistical glitch means that Honduras remains locked out of the Millennium Challenge Corporation Fund
It’s 11.30 am on an October morning in the Hotel Maya, and for guests of the government’s anti-corruption conference, an early lunch. The interior of the hotel’s opulent conference centre juxtaposed sharply with the country outside where 74% of the population live in poverty and huge swathes of the north remained inundated in floodwaters following two particularly vicious tropical storms.
The aim of the get-together was ambitious: the Honduran government wants access to a pot of grant money controlled by the Millennium Challenge Corporation (MCC), an American foreign aid agency. The details are sketchy, but the government reckons that the corporation could plough hundreds of millions of dollars into civilian infrastructure investments which, if correct, would easily transform the MCC into Honduras’ largest source of development aid.
But the MCC doesn’t just give out cash. To gain access to funds, countries have to ‘pass’ at least 10 of 20 social, economic and political indicators selected by the fund. They also have to be judged by civil society experts as having acceptable levels of political freedom and a control of corruption. During the conference, Marcio Sierra, the government minister in charge of gaining access to the funds, made an impassioned plea. “We now have 27 strategies for fighting corruption … Honduras needs to regain its dignity after 12 years of dictatorship.”
Unfortunately, it was all for nought. On November 3rd, the MCC announced that, for another year at least, Honduras would not be eligible for funds. It failed 11 of the 20 indicators and corruption was too high. The government blamed the failure on ‘the illegal and illegitimate mandate of Juan Orlando Hernández (the former president)’ and said that under his previous administration, Honduras had entered a death spiral. Newspapers laid out the grim MCC scorecards in print: Control of Corruption: 6%, Government Effectiveness: 19%, Rule of Law: 6%.
The Journal’s Analysis
Neither the government nor Honduras’ media organisations seemed to dig into what the scores actually mean nor how they’re calculated. Anything more than a cursory examination reveals that the MCC’s system for awarding development aid is deeply flawed: Honduras’ failure to gain access to MCC funds is more to do with a statistical glitch than any kind of kamikaze nose dive set in motion by the last government.
The MCC’s scorecard system ranks countries in the same income group against each other. The scores are percentile ranks, a score of say 6% in corruption control indicates that 94% of other countries in the same income group are performing better. To ‘pass’ a scorecard, a given country has to be in the top 50% of that indicator when compared to its peer group countries. The aim is to quantify development outcomes, use funds to incentivise governments into practicing good policy, and also to avoid the quagmires associated with throwing millions of dollars towards corrupt regimes.
A decade ago, Honduras tended to score well on the MCC indicators, although its record on corruption has always been prickly. In 2012 however, this all changed. The cause was a slight rise in Honduras’ average annual income per person by $90 from $1,880 to $1,970. On the ground, the effects of this were illusory. Poverty rates hovered around 65% and 4 in 10 Hondurans still couldn’t afford to feed themselves. But the change in income was just enough to tip Honduras from the Low-Income Country basket into the Lower Middle-Income basket. As a result, the peer group of countries the MCC was using to compare Honduras’ performance, became better. Honduras’ percentile rank scores plummeted and have remained pretty low ever since.
That’s not to let the last government entirely off the hook. Looking at the data behind the scorecards used by the MCC, most of the indicators measured by the fund show stagnation. A bright spot is the fall in child mortality. On the flip side, political rights and civil liberties took significant hits. But denying access to aid because of statistical changes resulting from moving Honduras into a new country peer group seems like a crazy way to run a development aid program.
Helping Hand or Neoliberal Cage?
Beyond the glitchy technocratic methodology, there’s further reason to be skeptical of the MCC’s scorecards: some of the indicators used to award funds are, at best, questionable. Take the Trade Policy indicator which is a creation of The Heritage Foundation, a conservative think-tank that champions free trade and denies the existence of climate change. To score well, countries must slash their tariff and non-tariff barriers to trade, reflecting the foundation’s long-held ideology that neoliberal trading arrangements provide a development ladder to struggling poor economies. The argument conveniently ignores both that the United States made liberal use of trade barriers to promote its own development during its economic ascendency and that the centuries-long exploitation and export of Honduran resources by tax-shy multinational companies seems to have done little to turn Honduras into a prosperous economy.
The all-important corruption control indicator is also disappointing. With corruption being tough to measure, the index used by the MCC relies simply on the opinion of unnamed experts who give their views through a mix of surveys. Better than nothing, but hardly infallible. Then there’s the fiscal policy indicator which rewards ‘fiscal prudence’ and balanced budgets. While admirable in times of global economic prosperity, the context of the covid-19 pandemic leaves the indicator on shaky ground: rich countries borrowed lavishly to protect their citizens from the economic consequences of the pandemic, so requiring tight fiscal prudence from poor countries in exchange for aid seems sour.
Given the flaws, some Hondurans talk about the MCC through almost a conspiratorial lens, seeing it as just another tool used by Washington to lock poor countries into capitalist dependency. More likely, it’s an aid program with laudable aims but a flawed methodology that’s holding Honduras back. The MCC should review how it ranks countries to make sure that poor countries that scrape into the lower middle-income bracket like Honduras don’t lose access to funds, choose indicators that are more closely linked with good development outcomes, and reduce reliance on indexes that are based on opaque expert surveys. If the MCC genuinely can’t find worthy projects to support the development of the Honduran economy, it isn’t trying hard enough.