Millennium Challenge Corp. poured millions into Honduras in months leading up to putsch

U.S. aid agency, established under Bush, seeks to promote “economic freedom”

The coup d'état that rocked Honduras in late June and removed democratically elected President Manuel Zelaya from office, sending him into exile in Costa Rica, was preceded by a multi-million dollar build-up of foreign aid from a U.S. agency that includes on its board of directors the president of the International Republican Institute as well as Secretary of State Hillary Clinton.

That taxpayer-funded agency, called the Millennium Challenge Corporation (MCC), oversees a multi-billion dollar foreign-aid fund called the Millennium Challenge Account. It was established in 2004 under the Bush administration as means of combating terrorism by funding development in poor nations under a strict neo-conservative free-trade model.

A review of publicly available financial records reveals that between April 1 and July 31 of this year, nearly $17 million in aid was disbursed to Honduras through the MCC program. That money flowed into Honduras after President Zelaya called for a national referendum in March to decide whether a ballot question should be included in that nation’s November 2009 general elections — which would have asked voters to decide if a national assembly should be convened to amend the Honduran constitution.

But Zelaya had fallen out of favor with the Honduran business class that controls the country well before that point. He was accused of becoming too intertwined with the agenda of Venezuelan President Hugo Chavez, a long-time nemesis of the Washington political class and Wall Street capital interests. That drift toward the left was marked by Zelaya’s decision to join the Chavez-led, Latin American-centered Bolivarian Alternative for the Americas (ALBA in its Spanish initials) — a move ratified by the Honduran Congress in October 2008.

At the time, media reports warned that Honduras’ decision to join ALBA might result in the MCC rescinding its five-year, $215 million aid compact with Honduras — inked in 2005. But it seems quite the opposite happened.

In fact, since Oct. 1, 2008, according to public records, a total of $45.3 million in MCC aid has been pumped into Honduras, representing 56 percent of all aid disbursed under the program through July 31 of this year. (Even though the MCC compact with Honduras calls for an aid package of $215 million to be distributed between 2005 and 2010, as of July 31, 2009, according to MCC records, a total of only $80.3 million in aid has been disbursed to the country — more than half, as mentioned, since October 2008.)

The MCC Honduras program is designed to fund agricultural and transportation projects that “will increase the productivity and business skills of farmers and their employees who operate small- and medium-sized farms, and will reduce transportation costs between targeted production centers and national, regional, and global markets,” according to the MCC’s description of the aid compact.

But a criticism of the MCC program is that, though designed in theory to help the poor, its programs actually do more to benefit the wealthy and business class.

A 2007 U.S. Government Accountability Office report focused on the MCC’s aid program in the South Pacific island nation of Vanuatu spells out that criticism:

MCC states that the [Vanuatu] compact is expected to benefit approximately 65,000 poor, rural inhabitants “living nearby and using the roads to access markets and social services.” According to the MCC’s underlying documentation, 57 percent of the compact’s monetary benefits will accrue to tourism services providers, transport providers, government workers, and local businesses and 43 percent of the benefits will go to the local population — that is, local producers, local consumers, and inhabitants of remote communities. However, MCC does not establish the proportion of local-population benefits that will go to the rural poor.

The MCC’s overtly neo-conservative, pro-oligarch underpinnings are further illuminated by its strongest proponents, including the conservative Heritage Foundation think tank.

From an article on the Heritage Foundation’s Web site:

The MCC has a number of advantages over traditional assistance. MCC programs encourage and allocate aid to countries that embrace policies linked to economic growth and development. The objective indicators used by the MCC to determine which countries will receive funding —"based on their performance in governing justly, investing in their citizens, and encouraging economic freedom" — mirror those used by The Heritage Foundation in preparing its Index of Economic Freedom.

Among the indicators established under MCC for providing, or continuing to provide, aid to a foreign nation, include: business start-ups, trade policy, fiscal policy, and land rights and access.

Whether the MCC’s approach to doling out taxpayers’ money is appropriate, or not, really is not the point in this case, however. The question here is why would a taxpayer-funded federal agency with a conservative, free-market/free-trade agenda suddenly start ramping up aid to Honduras after it’s president, Zelaya, clearly took a turn to the left toward Venezuela’s Chavez, a perceived arch-enemy of that conservative agenda?

One possible explanation is that the huge flow of MCC money into Honduras had nothing to do with the agency's objectives in Latin American and everything to do with its budget agenda in Washington.

MCC has a terrible track record of disbursing funds under its control — preferring instead to keep them stashed away in its own coffers. And so to overcome that image, it may have simply began rapidly ramping up disbursements to secure additional funding from Congress — the old trick of spending down your old budget to assure your new budget isn’t cut.

Sen. Patrick Leahy, D-Vermont, in a statement made on the Senate Floor in November 2008, seems to verify that this is, in fact, one possible scenario in play in the case of MCC.

From Leahy’s Floor statement justifying the Senate’s move to cut President Bush’s $2 billion funding request for MCC to $254 million for fiscal 2009:

We also considered the fact that Congress had appropriated $7.5 billion for the MCC, and by July 18 only $235 million had been disbursed of which a significant portion was for administrative expenses. While we made clear that we were not advocating faster disbursements, we do not support additional [foreign aid] compacts until more of the funds we have already appropriated produce sustainable results.

In the wake of Leahy’s chastisement, the MCC, it can be aruged, took action to address its bloated books by ramping up disbursements under the aid program — resulting in some $45.3 million in MCC funds being disbursed to Honduras alone between Oct. 1, 2008, and July 31, 2009 — again, representing 56 percent of all funds disbursed under the MCC Honduras compact as of July 31 of this year.

But, there are some who might see a more cynical motive for the rapid unleashing of MCC funds in Honduras, given that it is a hard case to make that those funds would have been distributed if they were deemed to be assisting Zelaya’s perceived alliance with Chavez. Surely, the MCC could have ramped up its disbursements in other regions of the world outside Chavez' reach to address the concerns raised by Leahy, no?

Funding Change

Once MCC funds are provided to a foreign nation, such as Honduras, under the agency’s guidelines, the further distribution of that money is overseen and managed by the receiving county. In the case of Honduras, the entity in charge of spending the MCC funds (under the terms and reporting guidelines established by the MCC) is called MCA-Honduras — which is overseen by a board that includes presidential ministers from that nation.

A review of documents obtained from MCA-Honduras outlining its projections for future MCC funding reveals that a total of $28.5 million in MCC funds are slated for delivery between July and September 2009. And, for the following three quarters (through June 2010) the MCC is scheduled to disburse nearly $80 million in funding to MCA-Honduras under the Honduran foreign-aid compact.

That money, if it comes through, would go into the coffers of the putsch regime now in control of Honduras — assuming it remains behind the wheel of power. Whether by design or coincidence, that represents a hefty nest egg for the putsch leadership to tap — even if in violation of MCC rules — as those usurpers seek to ride out the worst of the world’s short-term memory over their illegal coup.

In addition, the $45 million in MCC funds already taken in since October 2008 surely gave a lift to the coup plotters — to the extent that not all of that money was actually distributed to grant targets within Honduras, or to the extent it was distributed to players in line with the coup regime’s interests.

A thorough accounting of what happened to those funds, vetted outside the MCC or the putsch Honduran government, seems to be in order given recent developments in that nation.

Now, there have been a few media reports indicating that some of the MCC funds targeted for Honduras post-coup are on hold — to the tune of $11 million, according to a report by The

But, based on a review of proceeding transcripts and press releases posted on the MCC Web site, the agency’s board has taken no official action, to date, to either suspend or terminate its Honduran foreign-aid compact — as the MCC has done recently in other cases where it has determined the receiving nations have violated the agency's rules.

For example, in early June, the MCC partially terminated its’ foreign-aid compact with Nicaragua after alleging that nation (which borders Honduras and has a left-leaning government) had violated the agency’s rules with respect to “economic freedom,” “democracy” and the “rule of law.” And in May, the MCC board terminated its compact with Madagascar in the wake of the coup in that nation.

Maybe a similar fate is in store for Honduras down the road, if the current coup regime fails to find a path to MCC-style democracy. But just how that will be judged by the MCC remains a mystery — other than it seems clear that democratic path will be good for business interests.

That pursuit by the MCC of a vibrant corporate-centered slant to democracy in Honduras (which by definition would be anti-Chavez in tone) seems to be a given, since the current board of the MCC includes not only Secretary of State Clinton and Secretary of the Treasury Timothy Geithner — both sensitive to Wall Street concerns — but also former Republican Sen. William Frist; venture capitalist Alan Patricof; and Lorne Craner, the president of the International Republican Institute — which is chaired by Republican Sen. John McCain.

The MCC board also includes the president of Catholic Relief Services, Ken Hackett. That is of note since the Catholic archbishop of Honduras, Oscar Andres Rodriguez Maradiaga, has been very vocal in his opposition to Zelaya. Archbishop Rodriquez Maradiaga has warned, as reported by the conservative American Spectator, that Zelaya’s return to power could lead to a “blood bath” and he has demanded that the Organization of American States investigate the alleged “illegal deeds” carried out under Zelaya’s administration — referring, it seems, to Zelaya’s call for a ballot referendum on the matter of convening a constitutional convention.

As Secretary Clinton put it (striking a more diplomatic note) when asked about the future of MCC funding at a press briefing on June 29, the day after the coup in Honduras played out (and first reactions are normally the most honest):

... Much of our [foreign] assistance is conditioned on the integrity of the democratic system. But if we were able to get to a status quo that returned to the rule of law and constitutional order within a relatively short period of time, I think that would be a good outcome.

So the end game for the putsch regime now headed by President Robert Micheletti and backed by the oligarchical business interests of Honduras must entail holding out until the nation’s general election in November. With those elections, the illegal regime, and the business oligarchs propping it up, can attempt to put the glossy sheen of the “status quo” and “rule of law” on their raw, undemocratic power grab.

Clinton and the MCC have invested a lot of political and economic capital, to date, in ensuring that is the outcome, it appears.

The civil society in Honduras now working nonviolently from below to assert authentic democracy — not linked to MCC or U.S. State Department preconditions — clearly sees a different landscape ahead.

The fate of Latin America, in many ways, will be revealed in that as yet undiscovered country.

Stay tuned….

MCC Spending Records for Honduras

• Fiscal 2009 First Quarter Disbursements

• Fiscal 2009 Second Quarter Disbursements

• Total Disbursements as of March 31, 2009

• Total Disbursements as of July 31, 2009

• MCA-Honduras Funding Disbursement Projections

Past stories in the Following the Money series

• Former U.S. Ambassador Roger Noriega hired to push Honduran putsch agenda

• Who's behind Lanny Davis’ putsch paycheck?



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