Providing Effective Economic Assistance to El Salvador and Honduras:

A Formidable Task

NSIAD-85-82: Published: Jul 3, 1985. Publicly Released: Jul 15, 1985.

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In response to a congressional request, GAO reviewed U.S. economic assistance programs in El Salvador and Honduras to determine whether: (1) this assistance could be absorbed and administered effectively; and (2) the United States has been able to influence these countries to undertake economic policy reforms to promote long-term stabilization and growth.

GAO found that: (1) the Governments of El Salvador and Honduras lack institutional expertise to effectively administer large and complex projects and funds to finance their share of project costs; (2) the Agency for International Development (AID) has chosen assistance delivery techniques which permit quick disbursement of economic assistance and minimize management burden; and (3) the effectiveness of economic assistance in El Salvador and Honduras depends largely on fundamental economic reforms. GAO also found that: (1) AID and the Department of State have not always included desired reforms in assistance agreements as planned and have disbursed funds even though required policy actions have not been taken; (2) AID has not been able to insist on more action because macroeconomic reform is not always the top U.S. priority; and (3) there is a need for more agreement on the degree to which U.S. balance-of-payments support should be used to bring about economic policy changes.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: The House Committee on Appropriations, in H.R. 99-747 dated August 5, 1986, expressed concern that AID had released ESF funds even though Honduras had not taken sufficient economic reform measures. The Committee requested a report on economic reform in Honduras before the fiscal year 1987 funds were obligated.

    Matter: In view of the uncertainties on the extent of congressional support for macroeconomic reform efforts, Congress should provide an explicit statement of the relative importance it attaches to improved economic policies in these countries.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: AID has analyzed El Salvador's and Honduras' balance-of-payments deficits given different policy scenarios. AID presented these analyses to appropriate congressional committees in January 1987.

    Recommendation: The Administrator, AID, in consultation with the Secretary of State, should make and present to Congress a detailed analysis of the estimated costs to finance future balance-of-payments deficits in El Salvador and Honduras in the absence of macroeconomic reforms, particularly exchange rate adjustments.

    Agency Affected: United States Agency for International Development

  2. Status: Closed - Implemented

    Comments: Interagency discussions on using U.S. balance-of-payments assistance to influence economic policy reform in El Salvador and Honduras are continuing. An agreement was reached regarding El Salvador in late 1985. AID, State, and other agencies conducted extensive consultations in February 1986 and reached agreement on a U.S. policy reform strategy for Honduras.

    Recommendation: The Secretary of State, in cooperation with the Administrator, AID, should initiate interagency discussions to reach more agreement on the degree to which balance-of-payments assistance should be used to influence economic reforms in El Salvador and Honduras. These discussions should include the Department of Treasury, the Office of Management and Budget, and other agencies, such as the Department of Defense, which have responsibility for U.S. programs in these countries.

    Agency Affected: Department of State


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