USAID CBJ FY 2002: El Salvador

Summary: The strategic objective of expanded access and economic opportunities for poor rural families is a key component of the Mission Program Plan and provides important support to El Salvador in its efforts to promote economic growth, reduce rural poverty, and strengthen regional economic cooperation. Sustained growth will strengthen domestic markets, leading in turn to increased job creation, alleviation of rural poverty, and decreased pressure to migrate to the United States.

USAID's objective is to reduce rural poverty by increasing access to economic opportunities and markets. This will be accomplished by a) strengthening the policy environment for economic growth and for capital formation in rural areas; b) improving marketing, technology, and financial services to small and micro-enterprises; c) expanding access to secure land titles; d) supporting rural infrastructure; and e) developing human capacity needed to participate effectively in a market economy. Significant progress has been made in assisting El Salvador to address these constraints to rural development, although USAID will need to continue to support the Government of El Salvador (GOES ) in refining policy, expanding efforts to stimulate the economy, and investing in education.

Key Results: This Strategic Objective is on track and meeting expectations. It has made significant progress in meeting the targets planned for 2000 in increased access to credit and marketing services. Progress is within expected levels in the number of poor rural families with access to electricity and the number of rural children attending schools. The expansion of access to primary education is a key objective of the GOES, USAID, and other donors. In 2000, about 84% of rural children age 7-10 attended school, slightly below the planned target level of 84.7%. The availability of productive infrastructure in rural areas is increasing: 64% of rural households had electricity in 2000. USAID has intensified technical assistance to GOES in the reform of the energy sector to overcome delays in implementing the new mechanism for financing rural electrification. Rural borrowers increased from 31,532 in 1999 to 39,514 in 2000. This represents a 25% increase in the number of new rural borrowers of which 60% are women. Savings in these institutions have increased significantly, and commerical banks entered the sector for the first time. USAID exceeded its target for reaching rural producers with marketing and technical services. A cumulative total of 62,840 producers received services in 2000, of which 16,043 were women.

Performance and Prospects: USAID supported various NGOs and the GOES to reduce rural poverty. According to a national household survey, national poverty declined from 60.1% in 1992 to 41% in 2000. Urban poverty declined from 54% to 33% during that time. Supported by USAID activities in the 1980s and 1990s, urban poor families had better access to economic opportunities and social services, which significantly helped their ability to improve their lives and move out of poverty. While rural poverty rates declined less, they nevertheless fell a considerable 11%, from 66% in 1992 to 55% in 2000, owing to USAID efforts. The USAID strategy is showing success in many areas, such as access to secure land titles, financial services, electricity, and agricultural support. A USAID-funded rural poverty study indicated that non-farm incomes and accumulation of family assets grew by more than 40% between 1995 and 1999 during the implementation of this USAID objective. Now there is a need to sustain these qualitative improvements, as well as to rebuild physical infrastructure in the aftermath of the earthquake.

Policy (DA funds): To promote tax policy and municipal finance reform, USAID facilitated discussions among Salvadoran mayors, the Corporation of Municipalities in El Salvador (COMURES), and business associations. A national discussion on anti-trust laws and free competition led to development of a draft anti-trust law. The Superintendency of Banks, with USAID technical assistance, developed 30 initial regulations for supervising non-bank financial institutions aimed at guaranteeing their soundness and sustainability. With USAID assistance, the Ministry of Public Works (MOP) automated procedures to improve transparency.

To expand private markets, the GOES has developed and is implementing a rural electrification strategy with USAID technical assistance, This will intensify this year. The GOES moved further in reforming the energy sector to foster competition, increase efficiency and reduce costs, and attract new investments in this recently privatized market. This is being achieved through the development of new regulations and strengthening a newly created regulatory entity, the Electrical Energy Unit, within the Ministry of Economy.

Services for Producers (DA funds): More agricultural and microenterprise producers enjoyed access to financial and marketing services. The number of male and female agricultural producers receiving marketing and technical assistance services exceeded expectations by more than 10%. These services are provided through an increasing number of secondary organizations which serve their constituents. These increased from 26 to 32, and seven organizations are now financially sustainable. The Equitable Rural Economic Growth Activity (CRECER) created a model partnership between the National Center for Agricultural Technology and private producer associations that enhanced agricultural productivity and farmers' marketing of basic grains. The Rural Financial Markets Activity assisted 11 institutions to provide financial services in rural areas. More than half of clients served by these institutions had loans of $300 or less, suggesting that they are reaching the poorest of the poor. A very significant milestone is that for the first time, these institutions include two commercial banks, which have started to serve the micro-enterprise sector and have reached almost a thousand clients in only four months. The CRECER project achieved impressive results in the past five years, increasing savings in 13 credit unions from $5.5 million to $24.5 million. This enhanced savings mobilization has important implications for institutional sustainability and client capability to deal with household income fluctuations. The Micro 2000 project successfully created the Salvadoran Microcredit Institution (ENLACE) aimed at subsistence-level microentrepreneurs. Client coverage through its four agencies was 10,000; of which 81% are women; 70% of loans are under $300, with an average loan size of only $132.

Land (DA funds): As of October 31, 2000, 25,887 property titles had been delivered for 75,012 hectares of land. The activity is on track to achieve its goals by the the end of fiscal year 2001 when 30,000 owners will have received individual titles for 86,015 hectares of land from 2,242 properties with previous pro indiviso (common) titles.

Small Scale Infrastructure (DA funds): The infrastructure activity met its targets. It financed 29 community projects (rural road improvements, bridge construction, water projects, schools and health units), benefiting 38,320 people in rural areas and increasing their access to markets and public services.

Education and Human Capacity Development (CSD funds): The Ministry of Education (MINED) is implementing educational reforms to further decentralize the educational system and improve its organizational efficiency to provide quality educational services. Significant progress was made in strengthening local capacity to conduct educational research which in turn led to policy reforms in MINED. The Social Sector Reform Activity was extended for nine months to help MINED reform the law to increase the efficiency, empowerment, and accountability of professional teachers. The Early Childhood and Family Education Activity successfully got the Salvadoran Institute for Protection of Minors, public and private institutions, families, and local governments to recognize the importance of early childhood education to rural areas, auguring well for future USAID work in that sector. USAID also provided 33 in-country training events for 6,619 participants, as well as training in the U.S. and in third countries for another 118 participants. These efforts were important for development of public and private partners and counterparts in such key development areas as girls education, state modernization, municipal development, rule of law, health sector reform, and waste management.

The $6.8 million in FY 2001 DA funds will be allocated as follows: $3.4 million to expand access to credit and secure savings by the poor through microfinance lending; $1.9 million to provide access to technical and marketing services for rural businesses and work with cooperatives and other rural organizations to promote the cultivation and marketing of high-value, non-traditional crops; $1.3 million to support policy reforms to privatize, decentralize and develop policy options so that rural poor participate in and benefit from a reactivated Salvadoran economy in the post-earthquake recovery period; and $200,000 to provide targeted training opportunities that support the overall strategy including cross-cutting issues such as regional integration, youth-at-risk and violence.

USAID will obligate $7.9 million ($5.4 million DA and $2.5 CSD) in FY 2002 funds. Within the $5.4 million for DA, (a) $3.0 million will go to continue expanding access to financial services by rural microenterprises, integrating small borrowers and savers into the formal financial system and extending the outreach of formal and informal institutions into rural areas; (b) $900,000 will help strengthen cooperatives and NGOs to deliver marketing and extension services to low income rural small producers that enhance productivity and income and promote sustainable resource management; and (c) $1.5 million will respond to community needs for small-scale infrastructure (roads, bridges, electrification), give rural families direct access to markets and services, and promote policy reforms for the development of competitive markets and broadened participation of rural poor in the benefits of growth. CSD funds ($2.5 million) will be used to ensure that rural poor families and children at-risk have access to quality basic educational services including training for basic education teachers and early childhood education.

Possible Adjustments to Plans: The earthquakes which struck El Salvador in January and February 2001 caused tremendous damage to rural areas, destroying homes, small and micro-businesses, municipal and farmer markets, rural schools, and critical infrastructure services (i.e., water, electricity, roads) in 40% of the country. Overall damage is estimated at over $2.0 billion. The massive destruction, loss of private assets of rural poor families, and the loss of critical public assets servicing the rural poor reduces these families' access to economic opportunities, thus pushing them further into poverty. The planned results and achievements for next year will likely be lower, as emphasis shifts to restoring pre-earthquake access to services. As implementers and beneficiaries concentrate on rebuilding, this objective will require some adjustments to re-establish access to critical services, increase economic opportunities for affected families, and refocus efforts to revitalize the economy. USAID will reassess its policy activities and concentrate on priority issues related to economic reactivation and poverty mitigation. The micro-finance lending activities will strengthen institutional capacity to service client needs and manage loans, as well as address weakened repayment capacity of these clients. In basic education, including early childhood education, the initial emphasis will be on the reconstruction of rural schools and childcare centers to ensure that rural poor families and children at-risk have access to quality basic educational services.

Other Donor Programs: USAID works closely with other donors across the economic growth portfolio. Main donors include the Inter-American Development Bank (IDB), the World Bank, the United Nations Development Programme (UNDP), the United Nations Children's Fund (UNICEF), the Central American Bank for Economic Integration (CABEI), and the German aid agency (GTZ).

Principal Contractors, Grantees, or Agencies The main U.S. contractors include DevTech Systems, PA Consultants, Barents Group, Development Alternatives, Inc., and Development Associates. USAID also has a university linkage with the Metropolitan Community College of Omaha, Nebraska. It works with several key U. S. private voluntary organizations (PVOs), including Catholic Relief Services (CRS), the Cooperative League of the USA (CLUSA), Enterprise Works Worldwide, Technoserve, and Save the Children. Local collaborators include foundations and NGOs, such as the Salvadoran Foundation for Managerial Development (FUSADES), FundaUngo, and the Managerial Foundation for Educational Development (FEPADE).

FY 2002 Performance Table

El Salvador: 519-001

U.S. Financing

(In thousands of dollars)

	Obligations		Expenditures		Unliquidated
Through September 30, 1999	33,040	DA	15,148	DA	17,892	DA
	6,652	CSD	1,834	CSD	4,818	CSD
	39,162	ESF	38,059	ESF	1,103	ESF
	0	SEED	0	SEED	0	SEED
	0	FSA	0	FSA	0	FSA
	0	DFA	0	DFA	0	DFA
Fiscal Year 2000	7,361	DA	11,518	DA
	3,350	CSD	2,222	CSD
	0	ESF	1,006	ESF
	0	SEED	0	SEED
	0	FSA	0	FSA
	0	DFA	0	DFA
Through September 30, 2000	40,401	DA	26,666	DA	13,735	DA
	10,002	CSD	4,056	CSD	5,946	CSD
	39,162	ESF	39,065	ESF	97	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	6,779	DA
	0	CSD
	0	ESF
	0	SEED
	0	FSA
	0	DFA
Total Planned Fiscal Year 2001	6,779	DA
	0	CSD
	0	ESF
	0	SEED
	0	FSA
	0	DFA
			Future Obligations		Est. Total Cost
Proposed Fiscal Year 2002 NOA	5,431	DA	2,370	DA	54,981	DA
	2,465	CSD	3,971	CSD	16,438	CSD
	0	ESF	0	ESF	39,162	ESF
	0	SEED	0	SEED	0	SEED
	0	FSA	0	FSA	0	FSA
	0	DFA	0	DFA	0	DFA

El Salvador

Activity Data Sheet

FY 2002 Performance Table

El Salvador: 519-001

U.S. Financing