Summary

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.