El Salvador, MCC's Fomilenio II: a framework for improvement
Through the five-year development plan known as Fomilenio II, the government of El Salvador and US government foreign aid agency Millennium Challenge Corporation (MCC) are implementing a series of actions to boost competiveness and create business opportunities in the Central American nation.
Fomilenio II outlines over US$365mn for programs that are aimed at fortifying El Salvador's regulatory framework, logistical infrastructure and the development of human capital.
And while regulatory overhauls are generally more complex areas, an open and collaborative constraint analysis between the MCC and the El Salvadorian government was considered paramount in identifying areas in need of improvement, MCC compact managing director Jonathon Brooks told BNamericas.
"What's really valuable about that process, among all the analytical work obviously, is that it helps put both the country, in this case El Salvador, and MCC on the same page about what the key things are that are preventing a country from developing its long-term economic platform," Brooks said.
The constraint analysis identified two areas challenging El Salvador's economic perspectives: crime and security and low productivity in the tradable sector.
Central to addressing the low productivity are required improvements to El Salvador's investment climate, an area where regulatory improvements can be make great changes, said Brooks.
"[Regulatory improvements] are not the only way [to improve investment climate], but one of the areas where companies often face problems when looking to make investments is the quality, the consistency and the transparency of the regulatory environment."
From the outset El Salvador has recognized the need to improve its investment climate and has committed to taking measures, and the government has even proposed the creation of a regulatory improvement body, Brooks added.
Complementary to the MCC's financial support, the aid agency's backing comes in three forms, said Brooks.
"On one hand, we're building the human infrastructure, the human underpinnings for competiveness, through the human capital project. We're deliberately working on the regulatory environment and other aspects to address some issues regarding the investment climate, but we're also building the physical infrastructure to enable El Salvador to be even more competitive," Brooks said.
Fomilenio II, which includes a US$277mn grant from the MCC and US$88mn in local counterpart funding, follows the success of the original Fomilenio compact between El Salvador and the MCC.
Fomilenio saw some US$461mn in investments that covered a range of sectors including electrification, water and sanitation, and a road connectivity project that resulted in the rehabilitation and construction of over 138km of highways in northern El Salvador, among other works.
This week BNamericas will look at key elements considered under Fomilenio II as part of a three-part series on the compact.
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