USAID CBJ FY 2002: Central American Regional

Summary: Central American cities and communities are marked by the concentration of economic wealth and activities and of social and educational opportunities in the capital and largest cities. Rapid urban growth, triggered by the influx of refugees from war-torn rural zones, has created an imbalance further exacerbated by state intervention that impeded the growth of the competitive advantage of secondary and smaller cities. In Central America, a "first generation" of decentralization and local government efforts has addressed the goals of: political decentralization and attempts at increasing citizen participation; administrative decentralization, aiming at devolution of responsibilities to local government entities; fiscal decentralization, in which national budgetary transfers, local taxes, and fee-for-service models have been addressed in a variety of ways, continues this evolution. Building the capacity at the local level, particularly local government, to plan and finance sustainable and environmentally friendly economic development programs is the primary focus of this strategy. Full success will require a combination of political will, financial autonomy, citizen participation and knowledge, and institutional support rarely found at one place at one time. With rapid urban growth trends continuing for the foreseeable future in Central America, national governments and donor organizations are increasingly concerned with how to meet growing demands for services by citizens, in the context of limited financial resources.

USAID, operating through the Regional Urban Development Office for Latin America and the Caribbean (RUDO/LAC) now located in Guatemala, has developed a five-year strategy for strengthened municipal finance systems for local governments in Central America which builds on RUDO's experience in infrastructure finance and concentrated the use of credit programs on municipal or local level infrastructure projects.

The strategy focuses on the improvement in local government resource management and planning, but also legal reforms, expansion of banking regulations to address specific municipal finance instruments, possible development of a secondary market, and universally accepted means of evaluating municipal credit. Projects will be driven by local planning processes, with technical assistance to package the financing proposals to social investment funds and banks for long-term funding.

Activities fall into two primary categories: 1) improving the credit quality of local governments, which will require stronger financial management and planning and maximization of locally-generated resources; and 2) mobilizing domestic capital for urban infrastructure and services, through credit market practices, and by reforming the social investment funds so that their resources are utilized in a manner that complements the credit markets.

Key Results: The strategic objective will be achieved by: 1) promoting credit quality standards for local governments; 2) increasing local government access to capital markets; and 3) promoting private sector participation in local services and infrastructure.

Performance and Prospects: USAID is in the early procurement stages of this objective and implementation will begin later in 2001.

Other Donor Programs: The Inter-American Development Bank (IDB) has approved a loan that will provide support for internal reforms to the National Institute for Municipal Development in Guatemala (INFOM) and the municipal investment fund for Guatemala. The USAID program will work to broaden the context of these reform efforts, leveraging IDB and other donor funds to address broader municipal finance issues in Guatemala. Similar efforts by the IDB are underway in Honduras. Other donors, such as the GTZ and Swiss Cooperation have expressed strong interest in USAID's proposed municipal finance programs.

Principal Contractors, Grantees, or Agencies: Development partners in the region will include regional partners such as the Central American Bank for Economic Integration (CABEI) and the Federation of Municipalities of the Central American Isthmus (FEMICA), as well as national organizations like the Municipal Association of Honduras (AHMON). Implementing partners under grants and/or contracts will be determined.

Central America Program: 596-007

U.S. Financing

(In thousands of dollars)

	Obligations		Expenditures		Unliquidated
Through September 30, 1999	0	DA	0	DA	0	DA
	0	CSD	0	CSD	0	CSD
	0	ESF	0	ESF	0	ESF
	0	SEED	0	SEED	0	SEED
	0	FSA	0	FSA	0	FSA
	0	DFA	0	DFA	0	DFA
Fiscal Year 2000	0	DA	0	DA
	0	CSD	0	CSD
	0	ESF	0	ESF
	0	SEED	0	SEED
	0	FSA	0	FSA
	0	DFA	0	DFA
Through September 30, 2000	0	DA	0	DA	0	DA
	0	CSD	0	CSD	0	CSD
	0	ESF	0	ESF	0	ESF
	0	SEED	0	SEED	0	SEED
	0	FSA	0	FSA	0	FSA
	0	DFA	0	DFA	0	DFA
Prior Year Unobligated Funds*	0	DA
	0	CSD
	0	ESF
	0	SEED
	0	FSA
	0	DFA
Planned Fiscal Year 2001 NOA	0	DA
	0	CSD
	0	ESF
	0	SEED
	0	FSA
	0	DFA
Total Planned Fiscal Year 2001	0	DA
	0	CSD
	0	ESF
	0	SEED
	0	FSA
	0	DFA
			Future Obligations		Est. Total Cost
Proposed Fiscal Year 2002 NOA	200	DA	1,300	DA	1,500	DA
	0	CSD	0	CSD	0	CSD
	0	ESF	0	ESF	0	ESF
	0	SEED	0	SEED	0	SEED
	0	FSA	0	FSA	0	FSA
	0	DFA	0	DFA	0	DFA

Central American Regional

Activity Data Sheet

Central America Program: 596-007

U.S. Financing