How U.S. Aid to El Salvador Could Miss Out

By Marcela Sanchez
Special to washingtonpost.com
Friday, December 8, 2006; 12:00 AM

WASHINGTON -- El Salvador has become the first low- to middle-income country to secure a grant from the Millennium Challenge Corporation, President Bush's foreign aid program designed to assist well-governed developing nations. With the $461 million grant, the United States is set to join Salvadoran immigrants in sending money south.

The grant may seem small relative to the aggregate $2.8 billion sent by immigrants in remittances last year, particularly since it will be divvied up over five years. But that doesn't mean Salvadorans here don't have some specific suggestions for the MCC, and a hope that the program could help them change the way remittances are affecting their country.

Salvadoran immigrants are frustrated that their cash isn't reaping more development rewards back home. Although remittances have proved to be a lifeline to thousands of families in extreme poverty, immigrant Salvadorans fear that the money is creating a culture of dependency in the home country.

Carlos Castro, a Salvadoran community leader and owner of a Hispanic specialty supermarket in Northern Virginia, regrets that El Salvador now has to import workers from other Central American countries because some Salvadorans don't see the need to work and rely instead on a monthly check from relatives abroad. He lamented further the corruptive consumerism that drives, for instance, a Salvadoran immigrant in the Washington area to fix a roof in the cold and snow just to pay for "a pair of the latest name-brand shoes" demanded by his kids back in El Salvador.

Salvadoran officials found similar complaints of consumerism and dependency as they met with Salvadorans across the United States, as part of a consultation process to gain public support for their MCC proposal. According to their records, there was a general sense that "it is time to put an end to that paternalistic mentality," and that their support should generate work, not just money to spend.

In other words, remittances are "neither 'manna from heaven' nor a substitute for sound development policies," as a recently released World Bank report concluded. In "Close to Home: The Development Impact of Remittances in Latin America," the World Bank found that if aid flows are consumed rather than invested, their impact on economic growth is nonexistent. This is certainly true for El Salvador -- the largest per capita recipient of remittances in Central America has had the lowest economic growth for at least four years.

To revert this negative trend, governments in recipient countries should, according to the World Bank, provide incentives for investment and promote human capital development. The MCC plan for El Salvador appears to follow this model as it aims to increase incomes in El Salvador's lagging northern zone -- the area of origin for most Salvadorans in this country -- through a combination of investments in education, public services, enterprise development and transportation infrastructure.

What's missing in this equation, say some critics, is a direct connection between the new development plan and the current flow of aid. The MCC philosophy, following the World Bank model, should help make remittances more productive by improving economic conditions back home, but it does not reach out to remittance-senders by design.

This seems to be a tremendous oversight and loss of opportunity. The $461 million grant will have an effect, but imagine the impact if the MCC could help leverage the billions sent annually from immigrants in the United States.

According to Manuel Orozco, remittance expert for the Inter-American Dialogue, a Washington-based think tank, the MCC-sponsored plan might have created investment portfolios for small-scale projects back home that immigrants could contribute to.

To a small degree, such investments have already begun. Collective or community initiatives, organized through hometown associations, are already investing about $3 million annually, mostly in educational and health projects.

Yet some members of hometown associations suspect that Salvadoran officials purposely locked them out of the MCC plan. Jaime Penate of Comunidades, which represents hometown associations formed by Salvadoran immigrants living in the Los Angeles area, said he was among the dozens invited by the Salvadoran government to hear about the MCC plan. But then he discovered that other Salvadoran officials were meeting in another room with big investors.

Nevertheless, some Salvadorans here aren't giving up on trying to tap MCC funds. Luis Felipe Romero, executive director of Comunidades Unidas Salvadorenas, the Washington area's equivalent of Penate's L.A. group, said he reached out to the Salvadoran foreign ministry with a proposal to use some MCC funding to launch a pilot program and is awaiting an answer. "We are going to continue working for El Salvador," he said, "if they take advantage of the opportunity to work with us we will welcome it."

Marcela Sanchez's e-mail address is desdewash@washpost.com.


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