[Federal Register Volume 70, Number 147 (Tuesday, August 2, 2005)]
[Notices]
[Pages 44422-44461]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-15216]



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Part II





Millennium Challenge Corporation





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Notice of Entering Into a Compact With the Government of Nicaragua; 
Notice

  Federal Register / Vol. 70, No. 147 / Tuesday, August 2, 2005 / 
Notices  

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MILLENNIUM CHALLENGE CORPORATION

[MCC FR 05-14]


Notice of Entering Into a Compact With the Government of the 
Republic of Nicaragua

AGENCY: Millennium Challenge Corporation.

ACTION: Notice.

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SUMMARY: In accordance with Section 610(b)(2) of the Millennium 
Challenge Act of 2003 (Pub. L. 108-199, Division D), the Millennium 
Challenge Corporation is publishing a detailed summary and text of the 
Millennium Challenge Compact between the United States of America, 
acting through the Millennium Challenge Corporation, and the Government 
of the Republic of Nicaragua. Representatives of the United States 
Government and the Republic of Nicaragua executed the Compact documents 
on July 14, 2005.

    Dated: July 28, 2005.
Jon A. Dyck,
Vice President & General Counsel, Millennium Challenge Corporation.

Summary of Millennium Challenge Compact With the Republic of Nicaragua

I. Introduction

    Once one of the faster-growing countries in Latin America, 
Nicaragua fell into a state of severe economic collapse in the 1980s 
and only began a process of slow macroeconomic recovery in the last few 
years. Looking toward the future, Nicaragua now has an opportunity to 
achieve growth by taking advantage of regional economic integration and 
trade openings. The recently-approved MCC program (``Program'') will 
help the country to build the necessary capacity to take full advantage 
of these opportunities.
    The Government of Nicaragua (GON) presented MCC with a strategy to 
achieve economic growth and poverty reduction by building the 
productive capacity of the departments of Le[oacute]n and Chinandega, a 
region with proven growth potential due to its fertile land and 
connection to international markets. After extensive consultations, the 
Nicaraguans identified insecure property rights, under-developed 
infrastructure, and low-value rural business activity as the greatest 
barriers to growth, and developed a proposal to address them with MCA 
assistance. The Program will contribute to improving the lives of the 
800,000 residents of Le[oacute]n and Chinandega by raising household 
incomes in the region and also will benefit the country by transforming 
the region into an engine of economic growth. The Program has three 
objectives:
     Increase investment by strengthening property rights in 
Le[oacute]n. (Property Regularization Project).
     Reduce transportation costs between Le[oacute]n and 
Chinandega and domestic, regional and global markets (Transportation 
Objective Project.
     Increase profits and wages of farms and enterprises in 
Le[oacute]n and Chinandega (Rural Business Development Project).
    The five-year, $175 million Compact will help Nicaragua accomplish 
these objectives as outlined below.

II. Program Overview and Impact

1. Property Regularization Project ($26.5 Million)
    Insecure property rights, high land transaction costs, and 
inefficient property registration services undermine enterprise 
development, investment, and rural income growth in Nicaragua. To 
address these problems, the GON is focusing on legal, judicial, and 
institutional reforms at the national level. At the regional level, the 
Property Regularization Project will expand to Le[oacute]n an existing 
World Bank project in Chinandega, Proyecto de Ordenamiento de la 
Propiedad (``PRODEP''), thereby leveraging PRODEP's implementation 
experience and structure. Combined, these efforts will lay the 
foundation for increasing investment and income.
    The Activities of this Project include:
     Institutional Capacity Building: Provide technical support 
to government institutions to implement and sustain tenure 
regularization reforms in Le[oacute]n.
     Cadastral Mapping: Conduct area-wide cadastral mapping in 
Le[oacute]n to obtain current property descriptions to be recorded in a 
geographic information system.
     Land Tenure Regularization: Clarify land tenure, resolve 
disputes, and improve formal documentation of property rights.
     Database Installation: Link municipal and national 
registry and cadastral databases.
     Protected Area Demarcation: Demarcate and legally validate 
the boundaries of four environmentally-sensitive protected areas, 
regularize land rights within the perimeter of each, and facilitate the 
adoption of land use management plans by occupants therein.
     Analysis and Communications: Fund short-term technical 
assistance, policy analysis and outreach to promote participation in, 
use and sustainability of the improved property registration system.
    Benefits: This Project will work to eliminate the institutional and 
regulatory barriers preventing productive investment in property in 
Le[oacute]n. Eliminating these barriers will contribute to improving 
the investment climate, increasing the asset value of land, reducing 
land-related social conflict, encouraging intelligent management of 
regional natural resources, and strengthening local government land use 
planning.
2. Transportation Project ($92.8 Million)
    High transportation costs are a significant constraint to economic 
growth, particularly for agriculture and small- and medium-sized rural 
businesses. The Pacific Corridor, important for trade between Nicaragua 
and its neighbors, links producers and consumers in Le[oacute]n and 
Chinandega to markets north in neighboring Honduras and El Salvador and 
south to Nicaragua's urban center.
    Activities under this Project include:
     N-I Road (segment of Pacific Corridor): Improve a 58-
kilometer segment of the Pacific Corridor between Nejapa and Izapa.
     Secondary Roads: Pave and upgrade key secondary routes to 
link rural producers to the primary road network.
     Technical Assistance: Provide technical assistance to the 
Ministry of Transportation and Infrastructure (MTI) and the Nicaraguan 
Road Maintenance Fund (Fondo de Mantenimiento Vial or FOMAV).
    Benefits: This Project will reduce transportation costs, stimulate 
economic development, and improve access to markets and social services 
for road users. This will help Nicaragua, Honduras, and El Salvador 
fully realize the benefits of DR-CAFTA. A sustainable road maintenance 
mechanism will safeguard the funding of road improvements and lengthen 
road lifespan.
3. Rural Business Development Project ($33.7 Million)
    Despite a comparative advantage in the production, processing and 
marketing of agricultural products, over 70 percent of the rural 
population in Le[oacute]n-Chinandega is poor. Producers, suppliers, 
service providers, processors, and marketing agents frequently work in 
isolation or are absent in the region. Women are less likely to 
participate in agricultural organizations, receive technical assistance 
or credit or plant higher profit-yielding crops, despite their 
significant presence as producers. The region also suffers from 
pronounced

[[Page 44423]]

deforestation and water supply constraints to farming and other 
productive activities, especially the poor communities in the northern 
highlands.
    The activities to be implemented under this Project include:
     Rural Business Development Services: Expand higher-profit 
agriculture and agribusiness by providing business development 
services, disseminating market information, developing improved 
production techniques, and managing the two Project Activities 
described below.
     Technical and Financial Assistance: To help small- and 
medium-sized farms and agribusiness transition to higher-profit 
activities, provide technical and financial assistance to these 
enterprises, including support that will directly offset certain costs 
of small farms; and
     Grants to Improve Water Supply for Farming and Forestry 
Production: Based on a watershed management action plan, provide grants 
to improve the water supply for irrigation and facilitate higher value, 
sustainable agriculture and forestry in the upper watershed areas of 
the region.
    Benefits: These activities will facilitate increases in the 
production of high-value goods and the profits and wages of farmers, 
agribusinesses and other non-farm businesses. These increases in 
profits and wages will translate into higher disposable incomes of 
families in the region, reducing the high incidence of poverty. In 
addition, these activities are expected to generate employment and 
contribute to a regional economy well-positioned to take advantage of 
national and international investment and market opportunities. Better 
water management will encourage more productive use of land and 
environmental sustainability, particularly for communities in the 
northern highlands.
4. Measuring Outcome and Impact ($3.3 Million)
    The overall objective of the Program is to increase income and 
reduce poverty in Le[oacute]n and Chinandega, and the Program's success 
will be measured by the increase in income of beneficiaries due to the 
Program. The Monitoring and Evaluation Plan will assess progress toward 
the achievement of the Compact's objectives and goal.
    By the end of the Property Regularization Project, an estimated 70 
percent of rural and 50 percent of urban properties (or ~43,000 land 
parcels) in Le[oacute]n will have more secure, registered titles. 
Thousands of disputes over property rights will be expected to have 
been successfully mediated and the costs in time and money of 
conducting property-related transactions are projected to have been 
reduced by 50 percent. Together, this more secure investment climate 
and more efficient registration system will encourage investment and 
environmental protection. Farmers who have their land titles 
regularized by the Project are expected to increase investment in land 
improvement by 32 percent over five years. All four protected areas in 
Le[oacute]n will be formally demarcated and occupant tenure will be 
regularized, allowing effective development and enforcement of land use 
management plans.
    Road upgrades will reduce transportation costs between the region 
and domestic, regional and international markets for an estimated 3,300 
current road users per day. Upgrading up to 100 kilometers of secondary 
roads is anticipated to reduce travel times and transport costs to 
markets and education and health services for rural communities. 
Improvements to the N-I road and the secondary roads are important for 
realizing the economic benefits outlined in the Rural Business 
Development Project as well as for stimulating new investments in 
Nicaragua as trade north from Managua to Honduras and El Salvador 
becomes more efficient and cost-effective.
    Thousands of farmers will directly benefit from the Rural Business 
Development Project by receiving help with transitioning into higher-
value agriculture. In addition, an estimated 7,000 jobs will be 
created. The additional profits and wages of farms generated as a 
result of the Rural Business Development Project are projected to total 
$30 million annually, beginning six years after the Project's 
initiation. To ensure that the benefits from the Project are long-term, 
the Project will facilitate linkages among different actors involved in 
rural business, such as distributors and processors, and build local 
capacity to link producers to market opportunities. In addition, 
thousands of hectares of currently arid land will have improved water 
supply and be under sustainable farm or forest production.
5. Program Management, Financial/Procurement Management, and Audit 
($18.8 Million)
    MCA-Nicaragua, a legal entity, will be established to implement the 
Compact and is the entity ultimately accountable for Program success. 
This entity will consist of an independent Board of Directors, with 
central government, local government, and civil society 
representatives, that will oversee the implementation of the Program. 
It will also include a technical secretariat staffed with full-time 
professional staff that will provide daily management of the 
implementation of the Program. In addition to having observer status on 
the MCA-Nicaragua Board, MCC will retain approval rights at a number of 
key decision points during implementation, including key steps in 
procurements, budgets for Project Activities, major re-disbursements 
and key personnel decisions.
    The Rural Business Project will be managed by competitively hired 
professional staff who will reside in an office (``Rural Office'') 
located in the region. For the Property Regularization Project, the 
Compact will fund additional staff and activities within the existing 
World Bank implementing unit (PRODEP). For the Transportation Project, 
management, construction, and supervision will be handled by 
competitively procured firms that will coordinate closely with the 
Nicaraguan Ministry of Transportation and Infrastructure.
    A competitively selected joint venture of international private-
sector accounting/consulting firms will serve as the Fiscal/Procurement 
Agent (Agent) for the Program. The Agent will provide professional 
services for (1) funds control, disbursement documentation and 
management, cash management and accounting; and (2) the planning, 
management and supervision of the procurement processes contemplated 
under the MCC Program.
    The Board of Directors will engage auditors to conduct both 
financial audits and compliance audits of all financial and procurement 
activities. For the first year of the Program, audits will be conducted 
every six months. For subsequent years, the MCC will consider whether 
audits should be conducted more or less frequently than every six 
months. An auditor will be competitively selected from a list of 
approved auditors to be provided by the MCC Inspector General.

III. Assessment

1. Economic Analysis
    The Property Regularization Project has an economic rate of return 
(ERR) of 29 percent. Clearer definition of property rights through 
improved land titles is expected to benefit the economy by increasing 
the private returns to investments on land, improving the ability to 
use land to leverage credit, reducing high costs of land-related 
transactions, and reducing the need for defensive expenditures to 
protect

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property rights. The preferred basis for estimating economic returns is 
to combine estimates of increases in land values (reflecting new 
economic benefits of having land) and savings in transactions costs.
    The ERR for the Transportation Project is estimated to be 13 
percent. This return is the weighted average of the returns for two 
activities: N-I Road (23 percent) and Secondary Roads (8 percent 
minimum). The economic benefits from the Transportation Project derive 
both from the direct benefits of reduced transportation costs and from 
the stimulus to new investment from lower transportation costs. The 
stimulation of new businesses and investments due to lower transport 
costs are more difficult to measure, but are likely to increase the 
economic benefits. Sectors whose ratio of transport costs to production 
price is relatively high, such as agriculture and agro-processing, are 
likely to receive new investments as a result of improved 
infrastructure. Additionally, improved transportation can have 
additional benefits through increased school enrollment and improved 
health outcomes. These indirect benefits have not been factored into 
the economic returns, so the ERR mentioned above is likely a 
conservative estimate of the gains from the Project.
    The ERR for the Rural Business Development Project is estimated to 
be 15 percent, calculated as a weighted average of its activities. The 
return to the Rural Business Development Office was estimated to be 18 
percent, based on projected costs, current crop profitability and 
employment generation. An estimated 7,000 new jobs will be generated as 
a result of this farm transition. The specific activities for the 
improvement of water supply for farming and forest production will be 
determined over the course of the Program. These activities, however, 
will be required to achieve at least a 10 percent economic rate of 
return.
2. Consultative Process
    The technical team charged with developing the MCA proposal held 
numerous meetings and work sessions in Managua and the country's 
regional departments with leaders in the political and private sectors, 
non-governmental organizations (NGOs), and various associations. Many 
of the consultations included Nicaragua's Local Development Council 
(LDCs)--representative bodies at the regional department level whose 
members are elected from the public and private sector and civil 
society. The technical team also spoke with local farm and women's 
cooperatives, local business associations, and NGOs about the Program's 
technical details.
    Nicaragua's consultative process for the MCA proposal resulted in 
three key outcomes: (1) A shift from a national to a regional focus, 
(2) the prioritization of proposal components, and (3) ongoing 
participation and ownership at the local level.
     As discussions at the national and regional level 
progressed about Nicaragua's constraints to economic growth and poverty 
reduction, stakeholders came to focus on the departments of Le[oacute]n 
and Chinandega, a region believed to have the greatest potential for 
economic growth as well as some of the most extreme poverty.
     The Le[oacute]n and Chinandega Development Councils--which 
collectively represent over 100 civil society, private sector, and 
local government organizations--provided crucial assistance to the GON 
technical team in developing and prioritizing the proposal components. 
The team also solicited feedback from other private sector and civil 
society organizations at the regional and national level.
     The GON technical team continues to involve the Local 
Development Councils and other local groups and expects them to play an 
important role in program oversight, including having representation on 
the Board of the MCA-Nicaragua governing entity, an organization that 
will be established specifically to implement and oversee the Program.
3. Government Commitment and Effectiveness
    The Program has received a significant level of government 
attention from the President of Nicaragua, Ministers and their staff. 
The GON has also committed to make reforms as part of the Compact. 
These reforms include passing and enacting several laws which relate to 
MCC qualification criteria and to the implementation of components of 
the Compact (e.g., road maintenance funding, new law governing tenure 
regularization, etc.).
4. Sustainability
    Sustainability of the Property Regularization Project will be 
derived from the extent to which people use the improved registration 
system and from the fiscal capacity of the registry, cadastre and 
titling services. The incentives for people to use and pay for services 
as well as the costs of services will be appropriate in the local 
context. Several recent policy reforms (e.g., new cadastre and registry 
laws) and proposed reforms (e.g., tenure regularization law) will bring 
about new institutional relationships and operational practices that 
will more effectively facilitate the process for keeping property 
records up-to-date. The GON's ability to maintain modern, computerized 
land records and maps and a well-trained staff will depend on both an 
adequate public budget and the GON's ability to set and collect fees 
for services. More accessible, reliable and efficient services will 
likely increase the willingness of users to use the system and to pay 
for services. The new registry law will provide an autonomous budget 
for the registry so that it can more rationally project its costs and 
revenues and set fees and budgets accordingly. This Project includes 
specific support for training, technical assistance and analysis of 
policy, fee structures and other measures to help ensure 
sustainability.
    The technical assistance activities in the Transportation Project 
will promote institutional sustainability as well as the policy reforms 
in the Compact. The Program will include conditions that have specific 
targets, by date, for funding escrows required for maintenance. In 
addition, the GON has agreed that if it has not satisfied its funding 
obligation by year two of the Project, certain elements of this Project 
will not be funded any further. The GON also expects municipalities to 
cover a significant portion of maintenance costs for the secondary 
roads.
    The Rural Business Development Project's primary objective is to 
increase the economic viability of farmers and agribusinesses in the 
region. Initially, a Rural Office will be established as a division or 
subsidiary of MCA-Nicaragua based on the view that the impacts must be 
sustainable. Selection criteria for activities funded under the Project 
will include their potential for self-sustainability. Expanded 
horticultural production will create economies of scale that reduce the 
unit costs of inputs and post-harvesting services. The Project is 
expected to improve rural access to finance through its financial 
literacy campaign and by promoting ``bankable'' business activities. 
The watershed management action plan will provide a basis for improving 
environmental sustainability of land uses throughout the region, and 
beneficiaries will be assisted in establishing business models that 
will pay the costs associated with maintaining investments over time.

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5. Environmental and Social Impacts
Property Regularization Project
    Overall, this Project is expected to be positive from an 
environmental and social point of view. PRODEP promotes the 
conservation of forests and other natural habitats directly through the 
strengthening of existing protected areas. A Project-specific 
environmental plan will be developed, similar to the plan in place for 
PRODEP's work in Chinandega, to monitor potential negative impacts. The 
Project also will (i) identify measures to facilitate increased access 
by poorer households to land via land markets, (ii) help advance gender 
equity in land tenure regularization to empower women property owners, 
and (iii) work to gain consensus on indigenous community land rights 
within the context of tenure regularization.
Transportation Project
    While the majority of the works under this Project will occur along 
existing rights-of-way, this Project qualifies as a significant 
rehabilitation. For some of the roads, this rehabilitation will 
fundamentally change the nature of the traffic, and therefore the 
impacts after construction. Comprehensive road-specific Environmental 
Impact Assessments (EIAs) have not yet been conducted; however, each of 
the roads to be improved under this Project will require completion of 
environmental analysis acceptable to MCC. The Project budget includes 
funds to conduct the requisite environmental analyses.
Rural Business Development Project
    Activities under this Project could potentially have adverse 
environmental impacts that are site-specific and largely mitigable. The 
Compact specifies the environmental review criteria for activities 
sponsored by the Project and describes the environmental sustainability 
principles for the agricultural and agribusiness technical assistance. 
The activity to improve watershed management, in particular, will have 
significant positive environmental impacts. Nicaragua has one of the 
highest rates of deforestation in the region, resulting in decreased 
soil productivity, significant erosion, and flooding. In addition, the 
Estero Real estuary in the region is one of the most important 
ecosystems in Central America and one of its most vulnerable. It is 
vital for shrimp production and as a sanctuary for migratory birds and 
endangered species, and serves as a natural flood control system. 
Improvement in soil conservation and reforestation in the Project area 
will positively benefit this sensitive ecosystem.
6. Donor Coordination
    The proposed Projects complement and supplement efforts by other 
donors. Nicaragua's Program calls for increasing rural incomes and 
financing infrastructure. USAID, USDA, the World Bank, the Inter-
American Development Bank (IDB), IFAD, NDF, UNDP, and other development 
agencies are all active in supporting various rural development 
activities. Work to upgrade the Nicaraguan Pacific Corridor is being 
funded by the World Bank, the Central American Bank for Economic 
Integration, and the Nordic Fund. In addition, the IDB and World Bank 
have funded projects to strengthen the capacity of MTI and the Road 
Maintenance Fund. Further coordination with the larger donor community 
will include participation by MCC in the Infrastructure and Rural 
Development Donor Coordinating committees chaired by the GON. The Rural 
Office also will assist farmers and agribusinesses in the region to 
gain information on and access to programs sponsored by other donors.

IV. Summary and Conclusion

    Nicaragua's MCC Program focuses on creating a regional engine for 
economic growth in the northwestern part of the country by transforming 
the rural business sector into a high-value, sustainable corridor that 
is primed for greater trade with regional and international markets. 
The Program complements economic growth strategies such as The 
Dominican Republic-Central America-United States Free Trade Agreement 
(DR-CAFTA) and enjoys broad support from civil society. The Property 
Regularization, Transportation, and Rural Business Development Projects 
will build the capacity of Le[oacute]n and Chinandega to accelerate the 
economic transformation from subsistence farming to a demand-driven, 
market-oriented, rural business zone. The combined effect of these 
three core Projects will have a positive impact on economic growth and 
poverty reduction in Nicaragua.

Millennium Challenge Compact Between the United States of America 
Acting Through the Millennium Challenge Corporation and the Government 
of the Republic of Nicaragua

Table of Contents

Article I. Purpose and Term
    Section 1.1 Objectives
    Section 1.2 Projects
    Section 1.3 Entry into Force; Compact Term
Article II. Funding and Resources
    Section 2.1 MCC Funding
    Section 2.2 Government Resources
    Section 2.3 Limitations on the Use or Treatment of MCC Funding
    Section 2.4 Incorporation; Notice; Clarification
    Section 2.5 Refunds; Violation
Article III. Implementation
    Section 3.1 Implementation Framework
    Section 3.2 Government Responsibilities
    Section 3.3 Government Deliveries
    Section 3.4 Government Assurances
    Section 3.5 Implementation Letters; Supplemental Agreements
    Section 3.6 Procurement; Awards of Assistance
    Section 3.7 Policy Performance; Policy Reforms
    Section 3.8 Records and Information; Access; Audits; Reviews
    Section 3.9 Insurance; Performance Guarantees; Indemnification 
Claims
    Section 3.10 Domestic Requirements
    Section 3.11 No Conflict
    Section 3.12 Reports
Article IV. Conditions Precedent; Deliveries
    Section 4.1 Conditions Prior to the Entry into Force and 
Deliveries
    Section 4.2 Conditions Precedent to MCC Disbursements or Re-
Disbursements
Article V. Final Clauses
    Section 5.1 Communications
    Section 5.2 Representatives
    Section 5.3 Amendments
    Section 5.4 Termination; Suspension
    Section 5.5 Privileges and Immunities; Bilateral Agreement
    Section 5.6 Attachments
    Section 5.7 Inconsistencies
    Section 5.8 Indemnification
    Section 5.9 Headings
    Section 5.10 Interpretation; Definitions
    Section 5.11 Signatures
    Section 5.12 Designation
    Section 5.13 Survival
    Section 5.14 Consultation
    Section 5.15 MCC Status
    Section 5.16 Language
    Section 5.17 Publicity; Information and Marking
Exhibit A: Compendium of Defined Terms
Exhibit B: List of Certain Supplemental Agreements
Annex I: Program Description
Schedule 1--Property Regularization Project
Schedule 2--Transportation Project
Schedule 3--Rural Business Competitiveness Project
Annex II: Summary of Multi-Year Financial Plan
Annex III: Description of the Monitoring and Evaluation Plan

Millennium Challenge Compact

    This Millennium Challenge Compact (the ``Compact'') is made between 
the United States of America, acting through the Millennium Challenge 
Corporation, a United States Government corporation (``MCC''), and the 
Government of the Republic of Nicaragua (the ``Government'') (referred 
to herein individually as a ``Party'' and collectively, the 
``Parties''). A compendium of capitalized terms

[[Page 44426]]

defined herein is included in Exhibit A attached hereto.

Recitals

    Whereas, MCC, acting through its Board of Directors, has selected 
the Republic of Nicaragua (``Nicaragua'') as eligible to present to MCC 
a proposal for the use of 2004 and 2005 Millennium Challenge Account 
(``MCA'') assistance to help facilitate poverty reduction through 
economic growth in Nicaragua;
    Whereas, the Government has carried out a consultative process with 
the country's private sector and civil society to outline the country's 
priorities for the use of MCA assistance and developed a proposal, 
which was submitted to MCC on October 25, 2004 (the ``Proposal'');
    Whereas, the Proposal focused on, among other things, improving the 
property rights, infrastructure and competitiveness of rural businesses 
in the Nicaraguan departments of Le[oacute]n and Chinandega (the 
``Le[oacute]n-Chinandega'');
    Whereas, MCC has evaluated the Proposal and related documents to 
determine whether the Proposal is consistent with core MCA principles 
and includes proposed activities and projects that will advance the 
progress of Nicaragua towards achieving economic growth and poverty 
reduction; and
    Whereas, based on MCC's evaluation of the Proposal and related 
documents and subsequent discussions and negotiations between the 
Parties, the Government and MCC determined to enter into this Compact 
to implement a program using MCC Funding to advance Nicaragua's 
progress towards economic growth and poverty reduction (the 
``Program'');
    Now, Therefore, in consideration of the foregoing and the mutual 
covenants and agreements set forth herein, the Parties hereby agree as 
follows:

Article I. Purpose and Term

Section 1.1 Objectives

    The overall objective of this Compact (the `` Program Objective'') 
is to increase income and reduce poverty in Le[oacute]n-Chinandega, 
which is key to advancing the goal of economic growth and poverty 
reduction in Nicaragua (the ``Compact Goal''). The Parties have 
identified the following project-level objectives (each, a ``Project 
Objective'' and together the ``Project Objectives'') to advance the 
Program Objective, each of which is described in more detail in the 
Annexes attached hereto:
    (a) Increase investment by strengthening property rights in 
Le[oacute]n (the ``Property Regularization Objective'');
    (b) Reduce transportation costs between Le[oacute]n-Chinandega and 
domestic, regional and global markets (the ``Transportation 
Objective''); and
    (c) Increase the value-added of farms and businesses in 
Le[oacute]n-Chinandega (the ``Rural Business Development Objective'').
    (The Program Objective and the individual Project Objectives are 
referred to herein collectively as the ``Objectives'' and each 
individually as an ``Objective''). The Government expects to achieve, 
and shall use its best efforts to ensure the achievement of, these 
Objectives during the Compact Term.

Section 1.2 Projects

    The Annexes attached hereto describe the specific projects and the 
policy reforms and other activities related thereto (each, a 
``Project'') that the Government will carry out, or cause to be carried 
out, in furtherance of this Compact to achieve the Objectives and the 
Compact Goal.

Section 1.3 Entry Into Force; Compact Term

    This Compact shall enter into force on the date of the last letter 
in an exchange of letters between the Principal Representatives of each 
Party confirming that all conditions set forth in Section 4.1 have been 
satisfied by the Government and MCC (such date, the ``Entry into 
Force''). This Compact shall remain in force for five (5) years from 
the Entry into Force, unless earlier terminated in accordance with 
Section 5.4 (the ``Compact Term'').

Article II. Funding and Resources

Section 2.1 MCC Funding

    (a) MCC's Contribution. Subject to the terms and conditions herein, 
MCC shall grant to the Government an amount not to exceed One Hundred 
Seventy Five Million United States Dollars (USD $175,000,000) (``MCC 
Funding'') during the Compact Term to enable the Government to 
implement the Program and achieve the Objectives; provided, however, 
MCC may elect, in its sole discretion, to grant all or any portion of 
MCC Funding directly to an entity to be organized and established 
pursuant to Nicaraguan law and in accordance with Section 3(d) of Annex 
I and the Governance Agreement (``MCA-Nicaragua'') pursuant to a 
separate Supplemental Agreement (the ``Grant Agreement'') between MCC, 
the Government, and MCA-Nicaragua to enable the Government, through 
MCA-Nicaragua, to implement the Program and achieve the Objectives.
    (i) Subject to Sections 2.1(a)(ii), 2.2(b), and 5.4(b), the 
allocation of the MCC Funding within the Program and among and within 
the Projects shall be as generally described in Annex II or as 
otherwise agreed upon by the Parties from time to time.
    (ii) If at any time MCC determines that a condition precedent to an 
MCC Disbursement has not been satisfied, MCC may, upon written notice 
to the Government, reduce the total amount of MCC Funding by an amount 
equal to the amount estimated in the applicable Detailed Financial Plan 
for the Program or Project activity for which such condition precedent 
has not been met. Upon the expiration or termination of this Compact, 
(A) any amounts of MCC Funding not disbursed by MCC to the Government 
shall be automatically released from any obligation in connection with 
this Compact and (B) any amounts of MCC Funding disbursed by MCC to the 
Government as provided in Section 2.1(b)(i), but not re-disbursed as 
provided in Section 2.1(b)(ii) or otherwise incurred as permitted 
pursuant to Section 5.4(e) prior to the expiration or termination of 
this Compact, shall be returned to MCC in accordance with Section 
2.5(a)(ii).
    (b) Disbursements.
    (i) Disbursements of MCC Funding. MCC shall from time to time make 
disbursements of MCC Funding (each such disbursement, an ``MCC 
Disbursement'') to a Permitted Account or through such other mechanism 
agreed by the Parties under and in accordance with the procedures and 
requirements set forth in Annex I, the Disbursement Agreement or as 
otherwise provided in any other relevant Supplemental Agreement.
    (ii) Re-Disbursements of MCC Funding. The release of MCC Funding 
from a Permitted Account (each such release, a ``Re-Disbursement'') 
shall be made in accordance with the procedures and requirements set 
forth in Annex I, the Disbursement Agreement or as otherwise provided 
in any other relevant Supplemental Agreement.
    (c) Interest. Unless the Parties agree otherwise in writing, any 
interest or other earnings on MCC Funding that accrue or are earned 
(collectively, ``Accrued Interest'') shall be held in a Permitted 
Account and accrue or be earned in accordance with the requirements for 
the treatment of Accrued Interest as specified in Annex I or any 
relevant Supplemental Agreement. On a quarterly basis and upon the 
termination or expiration of this Compact, the Government shall return, 
or ensure the return of, all Accrued Interest to any United States

[[Page 44427]]

Government account designated by MCC.
    (d) Conversion; Exchange Rate. The Government shall ensure that all 
MCC Funding that is held in the Permitted Account(s) shall be 
denominated in the currency of the United States of America (``United 
States Dollars'') prior to Re-Disbursement; provided, that a certain 
portion of MCC Funding may be transferred to a Local Account and may be 
held in such Local Account in the currency of Nicaragua prior to Re-
Disbursement in accordance with the requirements of Annex I and any 
relevant Supplemental Agreement between the Parties. To the extent that 
any amount of MCC Funding held in United States Dollars must be 
converted into the currency of Nicaragua for any purpose, including for 
any Re-Disbursement or any transfer of MCC Funding into a Local 
Account, the Government shall ensure that such amount is converted 
consistent with Annex I, including the rate and manner set forth in 
Annex I, and the requirements of the Disbursement Agreement or any 
other Supplemental Agreement between the Parties.
    (e) Guidance. From time to time, MCC may provide guidance to the 
Government through Implementation Letters on the frequency, form and 
content of requests for MCC Disbursements and Re-Disbursements or any 
other matter relating to MCC Funding. The Government shall apply such 
guidance in implementing this Compact.

Section 2.2 Government Resources

    (a) Necessary Resources. The Government shall provide or cause to 
be provided such Government funds and other resources, and shall take 
or cause to be taken such actions, including obtaining all necessary 
approvals and consents, as are specified in this Compact or in any 
Supplemental Agreement to which the Government is a party or as are 
otherwise necessary and appropriate to effectively carry out the 
Government Responsibilities or other responsibilities or obligations of 
the Government under or in furtherance of this Compact during the 
Compact Term and through the completion of any post-Compact Term 
activities, audits or other responsibilities.
    (b) Reallocation; Allocation Reductions.
    (i) If at any time during the Compact Term, the Government 
materially reallocates or reduces the allocation in its national 
budget, or any other Nicaraguan governmental authority at a 
departmental, municipal, regional or other jurisdictional level 
materially reallocates or reduces the allocation of its respective 
budget, of the normal and expected resources that the Government or 
such other governmental authority, as applicable, would have otherwise 
received or budgeted, from external or domestic sources, for the 
activities contemplated herein, the Government shall notify MCC in 
writing within fifteen (15) days of such reallocation or reduction, 
such notification to contain information regarding the amount of the 
reallocation or reduction, the affected activities, and an explanation 
for such reallocation or reduction.
    (ii) If MCC determines, independently or otherwise, upon review of 
the executed national annual budget or budget of such other 
governmental authority, that such a material reallocation or reduction 
of resources has occurred, MCC shall notify the Government and, within 
fifteen (15) days after such notification, the Government shall 
provide, or cause to be provided, a written explanation for such 
reallocation or reduction.
    (iii) After reviewing such explanation, MCC may (A) reduce, in its 
sole discretion, the total amount of MCC Funding or any MCC 
Disbursement by an amount equal to the amount estimated in the 
applicable Detailed Financial Plan for the activity for which funds 
were reduced or reallocated or (B) otherwise suspend or terminate MCC 
Funding in accordance with Section 5.4(b).

Section 2.3 Limitations on the Use or Treatment of MCC Funding

    (a) Abortions and Involuntary Sterilizations. The Government shall 
ensure that MCC Funding shall not be used to undertake, fund or 
otherwise support any activity that is subject to prohibitions on use 
of funds contained in (i) paragraphs (1) through (3) of section 104(f) 
of the Foreign Assistance Act of 1961 (22 U.S.C. 2151b(f)(1)-(3)), a 
United States statute, which prohibitions shall apply to the same 
extent and in the same manner as such prohibitions apply to funds made 
available to carry out Part I of such Act; or (ii) any provision of law 
comparable to the eleventh and fourteenth provisos under the heading 
``Child Survival and Health Programs Fund'' of division E of Public Law 
108-7 (117 Stat. 162), a United States statute.
    (b) United States Job Loss or Displacement of Production. The 
Government shall ensure that MCC Funding shall not be used to 
undertake, fund or otherwise support any activity that is likely to 
cause a substantial loss of United States jobs or a substantial 
displacement of United States production, including:
    (i) Providing financial incentives to relocate a substantial number 
of United States jobs or cause a substantial displacement of production 
outside the United States;
    (ii) Supporting investment promotion missions or other travel to 
the United States with the intention of inducing United States firms to 
relocate a substantial number of United States jobs or a substantial 
amount of production outside the United States;
    (iii) Conducting feasibility studies, research services, studies, 
travel to or from the United States, or providing insurance or 
technical and management assistance, with the intention of inducing 
United States firms to relocate a substantial number of United States 
jobs or cause a substantial displacement of production outside the 
United States;
    (iv) Advertising in the United States to encourage United States 
firms to relocate a substantial number of United States jobs or cause a 
substantial displacement of production outside the United States;
    (v) Training workers for firms that intend to relocate a 
substantial number of United States jobs or cause a substantial 
displacement of production outside the United States;
    (vi) Supporting a United States office of an organization that 
offers incentives for United States firms to relocate a substantial 
number of United States jobs or cause a substantial displacement of 
production outside the United States; or
    (vii) Providing general budget support for an organization that 
engages in any activity prohibited above.
    (c) Military Assistance and Training. The Government shall ensure 
that MCC Funding shall not be used to undertake, fund or otherwise 
support the purchase or use of goods or services for military purposes, 
including military training, or to provide any assistance to the 
military, police, militia, national guard or other quasi-military 
organization or unit.
    (d) Prohibition of Assistance Relating to Environmental, Health or 
Safety Hazards. The Government shall ensure that MCC Funding shall not 
be used to undertake, fund or otherwise support any activity that is 
likely to cause a significant environmental, health, or safety hazard. 
Unless MCC and the Government agree otherwise in writing, the 
Government shall ensure that activities undertaken, funded, or 
otherwise supported in whole or in part (directly or indirectly) by MCC 
Funding comply with environmental guidelines delivered by MCC to the 
Government or posted by MCC on its Web site or otherwise publicly made 
available, as

[[Page 44428]]

such guidelines may be amended from time to time (the ``Environmental 
Guidelines''), including any definition of ``likely to cause a 
significant environmental, health, or safety hazard'' as may be set 
forth in such Environmental Guidelines.
    (e) Taxation.
    (i) Taxes, Budgetary Earmarking. As required by applicable United 
States law and in furtherance of the applicable requirement in the 
General Agreement for Economic, Technical and Related Assistance 
between the Government of the United States of America and the 
Government of Nicaragua, dated May 14, 1962, as amended from time to 
time (the ``Bilateral Agreement'') that assistance shall be exempt from 
taxes, the Government shall ensure that the Program, any Program 
Assets, MCC Funding and Accrued Interest shall be free from any and all 
taxes, budgetary earmarking, withholding, charges, allocations, and 
other obligations and contributions imposed under the laws currently or 
hereafter in effect in Nicaragua during the Compact Term. This 
exemption shall (A) be implemented in an administratively efficient 
manner consistent with the principles that MCC Funding will be used 
only to fund the Program and to achieve the Objectives and to avoid, 
where possible, double taxation of Providers, irrespective of their 
nationality and place of residence and (B) apply to any use of any 
Program Asset, MCC Funding and Accrued Interest, including any Exempt 
Uses, and to any work performed under or activities undertaken in 
furtherance of this Compact by any person or entity (including 
contractors and grantees) funded by MCC Funding, and shall apply to all 
taxes, tariffs, duties, and other levies (each, a ``Tax'' and 
collectively, ``Taxes''), including, except as otherwise provided 
herein:
    (1) To the extent attributable to MCC Funding, income taxes and 
other taxes on profit or businesses imposed on organizations or 
entities, other than nationals of Nicaragua, receiving MCC Funding, 
including taxes on the acquisition, ownership, rental, disposition or 
other use of real or personal property, taxes on investment or deposit 
requirements and currency controls in Nicaragua, or any other tax, 
duty, charge or fee of whatever nature, except fees for specific 
services rendered; for purposes of this Section 2.3(e)(i)(1), the term 
``national'' refers to organizations established under the laws 
currently or hereafter in effect in Nicaragua, other than MCA-Nicaragua 
or any other entity established solely for purposes of managing or 
overseeing the implementation of the Program or any wholly-owned 
subsidiaries, divisions, or Affiliates of entities not registered or 
established under the laws currently or hereafter in effect in 
Nicaragua;
    (2) Customs duties, tariffs, import and export taxes, or other 
levies on the importation, use and re-exportation of goods, services or 
the personal belongings and effects, including personally-owned 
automobiles, for Program use or the personal use of individuals who are 
neither citizens nor permanent residents of Nicaragua and who are 
present in Nicaragua for purposes of carrying out the Program or their 
family members, including all charges based on the value of such 
imported goods;
    (3) Taxes on the income or personal property of all individuals who 
are neither citizens nor permanent residents of Nicaragua, including 
income and social security taxes of all types and all taxes on the 
personal property owned by such individuals, to the extent such income 
or property are attributable to MCC Funding, and such individuals shall 
be accorded any special status required under Nicaraguan law to obtain 
the exemption to the taxes contemplated in this Section 2.3(e)(i)(3); 
and
    (4) Taxes or duties levied on the purchase of goods or services 
funded by MCC Funding, including sales taxes, tourism taxes, value-
added taxes (VAT), or other similar charges.
    (ii) This Section 2.3(e) shall apply, but is not limited to (A) any 
transaction, service, activity, contract, grant or other implementing 
agreement funded in whole or in part by MCC Funding; (B) any supplies, 
equipment, materials, property or other goods (referred to herein 
collectively as ``goods'') or funds introduced into, acquired in, used 
or disposed of in, or imported into or exported from, Nicaragua by MCC, 
or by any person or entity (including contractors and grantees) as part 
of, or in conjunction with, MCC Funding or the Program; (C) any 
contractor, grantee, or other organization carrying out activities 
funded in whole or in part by MCC Funding; and (D) any employee of such 
organizations (the uses set forth in clauses (A) through (D) are 
collectively referred to herein as ``Exempt Uses'').
    (iii) If a Tax has been levied and paid contrary to the 
requirements of this Section 2.3(e), whether inadvertently, due to the 
impracticality of implementation of this provision with respect to 
certain types or amounts of taxes, or otherwise, the Government shall 
refund promptly to MCC to an account designated by MCC the amount of 
such Tax in the currency of Nicaragua, within thirty (30) days (or such 
other period as may be agreed in writing by the Parties) after the 
Government is notified of such levy and tax payment; provided, however, 
the Government shall apply national funds to satisfy its obligations 
under this paragraph and no MCC Funding, Accrued Interest, or any 
assets, goods, or property (real, tangible, or intangible) purchased or 
financed in whole or in part by MCC Funding (``Program Assets'') may be 
applied by the Government in satisfaction of its obligations under this 
paragraph.
    (iv) The Parties shall memorialize in a mutually acceptable 
Implementation Letter or Supplemental Agreement or other suitable 
document the mechanisms for implementing this Section 2.3(e), including 
(A) a formula for determining refunds for Taxes paid, the amount of 
which is not susceptible to precise determination, (B) a mechanism for 
ensuring the tax-free importation, use, and re-exportation of goods, 
services, or the personal belongings of individuals (including all 
Providers) described in paragraph (i)(2) of this Section 2.3(e), and 
(C) any other appropriate Government action to facilitate the 
administration of this Section 2.3(e).
    (f) Alteration. The Government shall ensure that no MCC Funding, 
Accrued Interest, or Program Assets shall be subject to any 
impoundment, rescission, sequestration or any provision of law now or 
hereafter in effect in Nicaragua that would have the effect of 
requiring or allowing any impoundment, rescission or sequestration of 
any MCC Funding, Accrued Interest, or Program Asset.
    (g) Liens or Encumbrances. The Government shall ensure that no MCC 
Funding, Accrued Interest, or Program Assets shall be subject to any 
lien, attachment, enforcement of judgment, pledge, or encumbrance of 
any kind (each a ``Lien'') by any person or entity, including by any 
government entity, except with the prior approval of MCC in accordance 
with Section 3(c) of Annex I. In the event of the imposition of any 
Lien not so approved, the Government shall promptly seek the release of 
such Lien and shall pay any amounts owed to obtain such release; 
provided, however, the Government shall apply national funds to satisfy 
its obligations under this Section 2.3(g) and no MCC Funding, Accrued 
Interest, or Program Assets may be applied by the Government in 
satisfaction of its obligations under this Section 2.3(g).
    (h) Other Limitations. The Government shall ensure that the use or 
treatment of MCC Funding, Accrued Interest, and Program Assets shall be

[[Page 44429]]

subject to and in conformity with such other limitations (i) as 
required by the applicable law of the United States of America now or 
hereafter in effect during the Compact Term, (ii) as advisable under or 
required by applicable United States Government policies now or 
hereafter in effect during the Compact Term, or (iii) to which the 
Parties may otherwise agree in writing.
    (i) Utilization of Goods, Services and Works. The Government shall 
ensure that any Program Assets, services, facilities or works funded in 
whole or in part (directly or indirectly) by MCC Funding, unless 
otherwise agreed by the Parties in writing, shall be used solely in 
furtherance of this Compact.
    (j) Notification of Applicable Laws and Policies. MCC shall notify 
the Government of any applicable United States law or policy affecting 
the use or treatment of MCC Funding, whether or not specifically 
identified in this Section 2.3, and shall provide to the Government a 
copy of the text of any such applicable law and a written explanation 
of any such applicable policy.

Section 2.4 Incorporation; Notice; Clarification

    (a) The Government shall include, or ensure the inclusion of, all 
of the requirements set forth in Section 2.3 in all Supplemental 
Agreements to which MCC is not a party and shall use its best efforts 
to ensure that no such Supplemental Agreement is implemented in 
violation of the prohibitions set forth in Section 2.3.
    (b) The Government shall ensure notification of all of the 
requirements set forth in Section 2.3 to any Provider and all relevant 
officers, directors, employees, agents, representatives, Affiliates, 
contractors, sub-contractors, grantees, and sub-grantees of the 
Government or any Provider.
    (c) In the event the Government or any Provider requires 
clarification from MCC as to whether an activity contemplated to be 
undertaken in furtherance of this Compact violates or may violate any 
provision of Section 2.3, the Government shall notify, or ensure that 
such Provider notifies, MCC in writing and provide in such notification 
a detailed description of the activity in question. In such event, the 
Government shall not proceed, and shall use its best efforts to ensure 
that no relevant Provider proceeds, with such activity, and the 
Government shall ensure that no Re-Disbursements shall be made for such 
activity, until MCC advises the Government or such Provider in writing 
that the activity is permissible.

Section 2.5 Refunds; Violation

    (a) Notwithstanding the availability to MCC, or exercise by MCC of, 
any other remedies, including under international law, this Compact, or 
any Supplemental Agreement:
    (i) If any amount of MCC Funding or Accrued Interest, or any 
Program Asset, is used for any purpose prohibited under this Article II 
or otherwise in violation of any of the terms and conditions of this 
Compact, any guidance in any Implementation Letter, or any Supplemental 
Agreement between the Parties, MCC may, upon written notice, require 
the Government to repay promptly to MCC to an account designated by MCC 
or to others as MCC may direct the amount of such misused MCC Funding 
or Accrued Interest, or the cash equivalent of the value of any misused 
Program Asset, in United States Dollars, plus any interest that accrued 
or would have accrued thereon, within fifteen (15) days after the 
Government is notified (or such other period as may be agreed in 
writing by the Parties), whether by MCC or otherwise, of such 
prohibited use; provided, however, the Government shall apply national 
funds to satisfy its obligations under this Section 2.5(a)(i) and no 
MCC Funding, Accrued Interest, or Program Assets may be applied by the 
Government in satisfaction of its obligations under this Section 
2.5(a)(i); and
    (ii) If all or any portion of this Compact is terminated or 
suspended and upon the expiration of this Compact, the Government 
shall, subject to the requirements of Sections 5.4(e) and 5.4(f), 
refund, or ensure the refund, to MCC the amount of any MCC Funding, 
plus any Accrued Interest, promptly, but in no event later than thirty 
(30) days after the Government receives MCC's request for such refund 
(or such other period as may be agreed in writing by the Parties); 
provided, that if this Compact is terminated or suspended in part, MCC 
may request a refund for only the amount of MCC Funding, plus any 
Accrued Interest, then allocated to the terminated or suspended 
portion; provided, further, that any refund of MCC Funding or Accrued 
Interest shall be to such account(s) as designated by MCC.
    (b) Notwithstanding any other provision in this Compact or any 
other agreement to the contrary, MCC's right under this Section 2.5 for 
a refund shall continue during the Compact Term and for a period of (i) 
five (5) years thereafter or (ii) one (1) year after MCC receives 
actual knowledge of such violation, whichever is later.
    (c) If MCC determines that any activity or failure to act violates, 
or may violate, any Section in this Article II, MCC may refuse any 
further MCC Disbursements for or conditioned upon such activity, and 
may take any action to prevent any Re-Disbursement related to such 
activity.

Article III. Implementation

Section 3.1 Implementation Framework

    This Compact shall be implemented by the Parties in accordance with 
this Article III and as further specified in the Annexes and in 
relevant Supplemental Agreements.

Section 3.2 Government Responsibilities

    (a) The Government shall have principal responsibility for 
oversight and management of the implementation of the Program (i) in 
accordance with the terms and conditions specified in this Compact and 
relevant Supplemental Agreements, (ii) in accordance with all 
applicable laws then in effect in Nicaragua, and (iii) in a timely and 
cost-effective manner and in conformity with sound technical, financial 
and management practices (collectively, the ``Government 
Responsibilities''). Unless otherwise expressly provided, any reference 
to the Government Responsibilities or any other responsibilities or 
obligations of the Government herein shall be deemed to apply to any 
Government Affiliate and any of their respective directors, officers, 
employees, contractors, sub-contractors, grantees, sub-grantees, agents 
or representatives.
    (b) The Government shall ensure that no person or entity shall 
participate in the selection, award, administration, or oversight of a 
contract, grant or other benefit or transaction funded in whole or in 
part (directly or indirectly) by MCC Funding, in which (i) the entity, 
the person, members of the person's immediate family (defined as 
relationships within the fourth degree of consanguinity or affinity) or 
household or his or her business partners, or organizations controlled 
by or substantially involving such person or entity, has or have a 
direct or indirect financial or other interest or (ii) the person or 
entity is negotiating or has any arrangement concerning prospective 
employment, unless such person or entity has first disclosed in writing 
to the Government the conflict of interest and, following such 
disclosure, the Parties agree in writing to proceed

[[Page 44430]]

notwithstanding such conflict. The Government shall ensure that no 
person or entity involved in the selection, award, administration, 
oversight or implementation of any contract, grant or other benefit or 
transaction funded in whole or in part (directly or indirectly) by MCC 
Funding shall solicit or accept from, or offer to a third party, or 
seek or be promised directly or indirectly for itself or for another 
person or entity, any gift, gratuity, favor or benefit, other than 
items of de minimis value and otherwise consistent with such guidance 
as MCC may provide from time to time.
    (c) The Government shall not designate any person or entity, 
including any Government Affiliate, to implement, in whole or in part, 
this Compact or any Supplemental Agreement between the Parties 
(including any Government Responsibilities or any other 
responsibilities or obligations of the Government under this Compact or 
any Supplemental Agreement between the Parties), or to exercise any 
rights of the Government under this Compact or any Supplemental 
Agreement between the Parties, except as expressly provided herein or 
with the prior written consent of MCC; provided, however, the 
Government shall designate MCA-Nicaragua and may, with the prior 
written consent of MCC, designate such other mutually acceptable 
persons or entities, to implement some or all of the Government 
Responsibilities or any other responsibilities or obligations of the 
Government or to exercise any rights of the Government under this 
Compact or any Supplemental Agreement between the Parties (referred to 
herein collectively as ``Designated Rights and Responsibilities''), in 
accordance with the terms and conditions set forth in this Compact or 
such Supplemental Agreement (each, a ``Permitted Designee''). 
Notwithstanding any provision herein or any other agreement to the 
contrary, no such designation shall relieve the Government of such 
Designated Rights and Responsibilities, for which the Government shall 
retain ultimate responsibility. In the event that the Government 
designates any person or entity, including any Government Affiliate, to 
implement any portion of the Government Responsibilities or other 
responsibilities or obligations of the Government or to exercise any 
rights of the Government under this Compact or any Supplemental 
Agreement between the Parties in accordance with this Section 3.2(c), 
then the Government shall ensure that such person or entity (i) 
performs such Designated Rights and Responsibilities in the same manner 
and to the full extent to which the Government is obligated to perform 
such Designated Rights and Responsibilities, (ii) does not assign, 
delegate, or contract (or otherwise transfer) any of such Designated 
Rights and Responsibilities to any other person or entity and (iii) 
certifies to MCC in writing that it will so perform such Designated 
Rights and Responsibilities in accordance with this Compact and any 
other relevant Supplemental Agreement and will not assign, delegate, or 
contract (or otherwise transfer) any of such Designated Rights and 
Responsibilities to any person or entity without the prior written 
consent of MCC.
    (d) The Government shall, upon a request from MCC, execute, or 
ensure the execution of, an assignment to MCC of any cause of action 
which may accrue to the benefit of the Government, a Government 
Affiliate, or any Permitted Designee, including MCA-Nicaragua, in 
connection with or arising out of any activities funded in whole or in 
part (directly or indirectly) by MCC Funding.
    (e) The Government shall ensure that (i) no decision of MCA-
Nicaragua is modified, supplemented, unduly influenced or rescinded by 
any governmental authority, and (ii) the authority of MCA-Nicaragua 
shall not be expanded, restricted or otherwise modified, except in 
accordance with this Compact, applicable law, the Governance Agreement, 
the Governing Documents or any other Supplemental Agreement between the 
Parties.
    (f) The Government shall ensure that all persons and individuals 
that enter into agreements to provide goods, services or works under 
the Program or in furtherance of this Compact shall do so in accordance 
with the Procurement Guidelines and shall obtain all necessary 
immigration, business and other permits, licenses, consents, and 
approvals to enable them and their personnel to fully perform under 
such agreements.

Section 3.3 Government Deliveries

    The Government shall proceed, and cause others to proceed, in a 
timely manner to deliver to MCC all reports, documents or other 
deliveries required to be delivered by the Government under this 
Compact or any Supplemental Agreement between the Parties, in form and 
substance as set forth in this Compact or in any such Supplemental 
Agreement.

Section 3.4 Government Assurances

    The Government hereby provides the following assurances to MCC that 
as of the date this Compact is signed:
    (a) The information contained in the Proposal and any agreement, 
report, statement, communication, document or otherwise delivered or 
otherwise communicated to MCC by or on behalf of the Government on or 
after the date of the submission of the Proposal (i) are true, accurate 
and complete in all material respects and (ii) do not omit any fact 
known to the Government that if disclosed would (A) alter in any 
material respect the information delivered, (B) likely have a material 
adverse effect on the Government's ability to effectively implement, or 
ensure the effective implementation of, the Program or any Project or 
to otherwise carry out its responsibilities or obligations under or in 
furtherance of this Compact, or (C) have likely adversely affected 
MCC's determination to enter into this Compact or any Supplemental 
Agreement between the Parties.
    (b) The MCC Funding made available hereunder is not part of and is 
in addition to the normal and expected resources that the Government 
usually receives or budgets for the activities contemplated herein from 
external or domestic sources.
    (c) This Compact does not conflict and will not conflict with any 
international agreement or obligation to which the Government is a 
party or by which it is bound.
    (d) No payments have been (i) received by any official of the 
Government or any other government body in connection with the 
procurement of goods or services to be undertaken or funded in whole or 
in part (directly or indirectly) by MCC Funding, except fees, taxes, or 
similar payments legally established in Nicaragua (subject to Section 
2.3(e)) and consistent with applicable Nicaraguan law) or (ii) made to 
any third party, in connection with or in furtherance of this Compact, 
in violation of the United States Foreign Corrupt Practices Act of 
1977, as amended (15 U.S.C. 78a et seq.).

Section 3.5 Implementation Letters; Supplemental Agreements

    (a) MCC may, from time to time, issue one or more letters to 
furnish additional information or guidance to assist the Government in 
the implementation of this Compact (each, an ``Implementation 
Letter''). The Government shall apply such guidance in implementing 
this Compact.
    (b) The details of any funding, implementing and other arrangements 
in furtherance of this Compact may be memorialized in one or more 
agreements between (i) the Government

[[Page 44431]]

(or any Government Affiliate or Permitted Designee) and MCC, (ii) MCC 
and/or the Government (or any Government Affiliate or Permitted 
Designee) and any third party, including any of the Providers or 
Permitted Designees, or (iii) any third parties where neither MCC nor 
the Government is a party, before, on or after the Entry into Force 
(each, a ``Supplemental Agreement''). The Government shall deliver, or 
cause to be delivered, to MCC within five (5) days of its execution a 
copy of any Supplemental Agreement to which MCC is not a party.

Section 3.6 Procurement; Awards of Assistance

    (a) MCC Funding shall not be subject to applicable Nicaraguan 
procurement guidelines, including those established in Law 323, Ley de 
Contrataciones del Estado. The Government shall ensure that the 
procurement of all goods, services and works by the Government, MCA-
Nicaragua or any other Provider in furtherance of this Compact shall be 
consistent with the procurement guidelines (the ``Procurement 
Guidelines'') reflected in a Supplemental Agreement between the Parties 
(the ``Procurement Agreement''), which Procurement Guidelines shall 
include the following requirements:
    (i) Open, fair and competitive procedures are used in a transparent 
manner to solicit, award and administer contracts, grants, and other 
agreements and to procure goods, services and works;
    (ii) Solicitations for goods, services, and works shall be based 
upon a clear and accurate description of the goods, services or works 
to be acquired;
    (iii) Contracts shall be awarded only to qualified and capable 
contractors that have the capability and willingness to perform the 
contracts in accordance with the terms and conditions of the applicable 
contracts and on a cost effective and timely basis; and
    (iv) No more than a commercially reasonable price, as determined, 
for example, by a comparison of price quotations and market prices, 
shall be paid to procure goods, services, and works.
    (b) The Government shall maintain, and shall use its best efforts 
to ensure that all Providers maintain, records regarding the receipt 
and use of goods and services acquired in furtherance of this Compact, 
the nature and extent of solicitations of prospective suppliers of 
goods and services acquired in furtherance of this Compact, and the 
basis of award of contracts, grants and other agreements in furtherance 
of this Compact, for a period of ten years, or such other period as the 
Parties may otherwise agree in writing.
    (c) The Government shall use its best efforts to ensure that 
information, including solicitations, regarding procurement, grant and 
other agreement-related actions funded (or to be funded) in whole or in 
part (directly or indirectly) by MCC Funding shall be made publicly 
available in the manner outlined in the Procurement Guidelines or in 
any other manner agreed upon by the Parties in writing.
    (d) No goods, services or works may be funded in whole or in part 
(directly or indirectly) by MCC Funding which are procured pursuant to 
orders or contracts firmly placed or entered into prior to the Entry 
into Force, except as the Parties may otherwise agree in writing.
    (e) The Government shall ensure that MCA-Nicaragua and any other 
Permitted Designee follows, and uses its best efforts to ensure that 
all Providers follow, the Procurement Guidelines in procuring 
(including soliciting) goods, services and works and in awarding and 
administering contracts, grants and other agreements in furtherance of 
this Compact, and shall furnish to MCC evidence of the adoption of the 
Procurement Guidelines by MCA-Nicaragua no later than the time 
specified in the Disbursement Agreement.
    (f) The Government shall include, or ensure the inclusion of, the 
requirements of this Section 3.6 into all Supplemental Agreements 
between the Government, any Government Affiliate, MCA-Nicaragua or 
other Permitted Designee or any of their respective directors, 
officers, employees, Affiliates, contractors, sub-contractors, 
grantees, sub-grantees, representatives or agents, on the one hand, and 
a Provider, on the other hand.

Section 3.7 Policy Performance; Policy Reforms

    In addition to the specific policy and legal reform commitments 
identified in Annex I and the Schedules thereto, the Government shall 
seek to maintain, and use its best efforts to improve, its level of 
performance under the policy criteria identified in Section 607 of the 
Millennium Challenge Act of 2003, as amended (the ``Act''), and the MCA 
selection criteria and methodology published by MCC pursuant to Section 
607 of the Act from time to time (``MCA Eligibility Criteria'').

Section 3.8 Records and Information; Access; Audits; Reviews

    (a) Reports and Information. The Government shall furnish to MCC, 
and shall use its best efforts to ensure that all Providers and any 
other third party receiving MCC Funding, as appropriate, furnish to the 
Government (and the Government shall provide to MCC), any records and 
other information required to be maintained under this Section 3.8 and 
such other information, documents and reports as may be necessary or 
appropriate for the Government to effectively carry out its obligations 
under this Compact, including under Section 3.12.
    (b) Government Books and Records. The Government shall maintain, 
and shall use its best efforts to ensure that all Providers maintain, 
accounting books, records, documents and other evidence relating to 
this Compact adequate to show, to the satisfaction of MCC, without 
limitation, the use of all MCC Funding, including all costs incurred by 
the Government and the Providers in furtherance of this Compact, the 
receipt and use of goods and services acquired in furtherance of this 
Compact by the Government and the Providers, agreed-upon cost sharing 
requirements, the nature and extent of solicitations of prospective 
suppliers of goods and services acquired by the Government and the 
Providers in furtherance of this Compact, the basis of award of 
Government and other contracts and orders in furtherance of this 
Compact, the overall progress of the implementation of the Program and 
any other documents required by this Compact or any Supplemental 
Agreement between the Parties or reasonably requested by MCC upon 
reasonable notice (``Compact Records''). The Government shall maintain, 
and shall use its best efforts to ensure that all Covered Providers 
maintain, Compact Records in accordance with generally accepted 
accounting principles prevailing in the United States, or at the 
Government's option and with the prior written approval by MCC, other 
accounting principles, such as those (i) prescribed by the 
International Accounting Standards Committee (an affiliate of the 
International Federation of Accountants) or (ii) then prevailing in 
Nicaragua. Compact Records shall be maintained for at least five (5) 
years after the end of the Compact Term or for such longer period, if 
any, required to resolve any litigation, claims or audit findings or 
any statutory requirements.
    (c) Access. The Government shall, at all reasonable times, permit, 
or cause to be permitted, authorized representatives of MCC, the 
Inspector General, the United States Government Accountability Office, 
any auditor responsible for an audit contemplated

[[Page 44432]]

herein or otherwise conducted in furtherance of this Compact, and any 
agents or representatives engaged by MCC or a Permitted Designee to 
conduct any assessment, review or evaluation of the Program, the 
opportunity to audit, review, evaluate or inspect activities funded, in 
whole or in part (directly or indirectly) by MCC Funding or undertaken 
in connection with the Program, the utilization of goods and services 
purchased or funded in whole or in part (directly or indirectly) by MCC 
Funding, and Compact Records, including of the Government or any 
Provider, relating to activities funded or undertaken in furtherance 
of, or otherwise relating to, this Compact, and shall use its best 
efforts to ensure access by MCC, the Inspector General, the United 
States Government Accountability Office or relevant auditor, reviewer 
or evaluator or their respective representatives or agents to all 
relevant directors, officers, employees, Affiliates, contractors, 
representatives and agents of the Government or any Provider.
    (d) Audits.
    (i) Government Audits. The Government shall, on at least an annual 
basis and as the Parties may otherwise agree in writing, conduct, or 
cause to be conducted, financial audits of all MCC Disbursements and 
Re-Disbursements during the year since the Entry into Force or since 
the prior anniversary of the Entry into Force in accordance with the 
following terms, except as the Parties may otherwise agree in writing. 
As requested by MCC in writing, the Government shall use, or cause to 
be used, an auditor named on the approved list of auditors in 
accordance with the Guidelines for Financial Audits Contracted by 
Foreign Recipients (``Audit Guidelines'') issued by the Inspector 
General of the United States Agency for International Development (the 
``Inspector General''), and as approved by MCC, to conduct such annual 
audits. Such audits shall be performed in accordance with such 
Guidelines and be subject to quality assurance oversight by the 
Inspector General in accordance with such Guidelines. An audit shall be 
completed and delivered to MCC no later than 90 days after the first 
period to be audited and no later than 90 days after each anniversary 
of the Entry into Force thereafter, or such other period as the Parties 
may otherwise agree in writing.
    (ii) Audits of U.S. Entities. The Government shall ensure that 
Supplemental Agreements between the Government or any Provider, on the 
one hand, and a United States non-profit organization, on the other 
hand, state that the United States organization is subject to the 
applicable audit requirements contained in OMB Circular A-133, 
notwithstanding any other provision of this Compact to the contrary. 
The Government shall ensure that Supplemental Agreements between the 
Government or any Provider, on the one hand, and a United States for-
profit Covered Provider, on the other hand, state that the United 
States organization is subject to audit by the cognizant United States 
Government agency, unless the Government and MCC agree otherwise in 
writing.
    (iii) Audit Plan. The Government shall submit, or cause to be 
submitted, to MCC, no later than 20 days prior to the date of its 
adoption, a plan, in accordance with the Audit Guidelines, for the 
audit of the expenditures of any Covered Providers, which audit plan, 
in form and substance as approved by MCC, the Government shall adopt, 
or cause to be adopted, no later than sixty (60) days prior to the end 
of the first period to be audited (such plan, the ``Audit Plan'').
    (iv) Covered Provider. A ``Covered Provider'' is (A) a non-United 
States Provider that receives (other than pursuant to a direct contract 
or agreement with MCC) USD $300,000 or more of MCC Funding in any MCA-
Nicaragua fiscal year or any other non-United States person or entity 
that receives (directly or indirectly) USD $300,000 or more of MCC 
Funding from any Provider in such fiscal year or (B) any United States 
Provider that receives (other than pursuant to a direct contract or 
agreement with MCC) USD $500,000 or more of MCC Funding in any MCA-
Nicaragua fiscal year or any other United States person or entity that 
receives (directly or indirectly) USD $500,000 or more of MCC Funding 
from any Provider in such fiscal year.
    (v) Corrective Actions. The Government shall use its best efforts 
to ensure that Covered Providers take, where necessary, appropriate and 
timely corrective actions in response to audits, consider whether a 
Covered Provider's audit necessitates adjustment of its own records, 
and require each such Covered Provider to permit independent auditors 
to have access to its records and financial statements as necessary.
    (vi) Audit Reports. The Government shall furnish, or use its best 
efforts to cause to be furnished, to MCC an audit report in a form 
satisfactory to MCC for each audit required by this Section 3.8, other 
than audits arranged for by MCC, no later than 90 days after the end of 
the period under audit, or such other time as may be agreed by the 
Parties from time to time.
    (vii) Other Providers. For Providers who receive MCC Funding under 
this Compact pursuant to direct contracts or agreements with MCC, MCC 
shall include appropriate audit requirements in such contracts or 
agreements and shall, on behalf of the Government, unless otherwise 
agreed by the Parties, conduct the follow-up activities with regard to 
the audit reports furnished pursuant to such requirements.
    (viii) Audit by MCC. MCC retains the right to perform, or cause to 
be performed, the audits required under this Section 3.8 by utilizing 
MCC Funding or other resources available to MCC for this purpose, and 
to audit, conduct a financial review, or otherwise ensure 
accountability of any Provider or any other third party receiving MCC 
Funding, regardless of the requirements of this Section 3.8.
    (e) Application to Providers. The Government shall include, or 
ensure the inclusion of, at a minimum, the requirements of:
    (i) Paragraphs (a), (b), (c), (d)(ii), (d)(iii), (d)(v), (d)(vi), 
and (d)(viii) of this Section 3.8 into all Supplemental Agreements 
between the Government, any Government Affiliate, MCA-Nicaragua, any 
other Permitted Designee or any of their respective directors, 
officers, employees, Affiliates, contractors, sub-contractors, 
grantees, sub-grantees, representatives or agents (each, a ``Government 
Party''), on the one hand, and a Covered Provider that is not a U.S. 
non-profit organization, on the other hand;
    (ii) Paragraphs (a), (b), (c), (d)(ii), and (d)(viii) of this 
Section 3.8 into all Supplemental Agreements between a Government Party 
and a Provider that does not meet the definition of a Covered Provider; 
and
    (iii) Paragraphs (a), (b), (c), (d)(ii), (d)(v) and (d)(viii) of 
this Section 3.8 into all Supplemental Agreements between a Government 
Party and a Covered Provider that is a U.S. non-profit organization.
    (f) Reviews or Evaluations. The Government shall conduct, or cause 
to be conducted, such performance reviews, data quality reviews, 
environmental audits, or program evaluations during the Compact Term or 
otherwise and in accordance with the M&E Plan or as otherwise agreed in 
writing by the Parties.
    (g) Cost of Audits, Reviews or Evaluations. MCC Funding may be used 
to fund the costs of any audits, reviews or evaluations required under 
this Compact, including as reflected on Exhibit A to Annex II, and in 
no event shall the Government be responsible for the costs of any such 
audits, reviews or

[[Page 44433]]

evaluations from financial sources other than MCC Funding.

Section 3.9 Insurance; Performance Guarantees; Indemnification Claims

    (a) Insurance; Performance Guarantees. The Government shall, to 
MCC's satisfaction, insure or cause to be insured all Program Assets, 
and shall obtain, or cause to be obtained, such other appropriate 
insurance and other protections to cover against risks or liabilities 
associated with the operations of the Program, including by requiring 
Providers to obtain adequate insurance and post adequate performance 
bonds or other guarantees. MCA-Nicaragua shall be named as the insured 
party on any such insurance and the beneficiary of any other such 
guarantee, including performance bonds. MCC shall be named as an 
additional insured on any such insurance or other guarantee, to the 
extent permissible under applicable laws. The Government shall ensure 
that any proceeds from claims paid under such insurance or any other 
form of guarantee shall be used to replace or repair any loss of 
Program Assets or to pursue the procurement of the covered goods, 
services, works, or otherwise; provided, however, at MCC's election, 
such proceeds shall be deposited in a Permitted Account as designated 
by MCA-Nicaragua and acceptable to MCC or as otherwise directed by MCC.
    (b) Indemnification Claims. To the extent MCA-Nicaragua is held 
liable under any indemnification or other similar provision of any 
agreement between MCA-Nicaragua, on the one hand, and any other 
Provider or other third party, on the other hand, the Government shall 
pay in full on behalf of MCA-Nicaragua any such obligation; provided, 
however, the Government shall apply national funds to satisfy its 
obligations under this Section 3.9 and no MCC Funding, Accrued Interest 
or Program Assets may be applied by the Government in satisfaction of 
its obligations under this Section 3.9. If the Government believes in 
good faith that such liability is not caused primarily by the 
negligence or misconduct of MCA-Nicaragua or another Government Party, 
the Government shall so notify MCC in writing within fifteen (15) 
business days after such belief is formed, which notice shall contain 
sufficient information for MCC to independently assess the accuracy of 
the Government's position. If, within fifteen (15) business days after 
receiving such notice, MCC determines, in its sole discretion, that 
such liability is not caused primarily by the negligence or misconduct 
of MCA-Nicaragua or another Government Party, MCC will authorize MCA-
Nicaragua, in writing, to use MCC Funding to fund such liability or 
refund to the Government the payment of the same.

Section 3.10 Domestic Requirements

    The Government shall proceed in a timely manner to seek any 
required approval of this Compact or similar domestic requirement, 
which process the Government shall initiate promptly after the 
conclusion of this Compact. The absence of any necessary approval of 
this Compact or noncompliance with any similar domestic requirement 
shall not prevent MCC from, or otherwise adversely affect MCC in, 
exercising of any of its rights under this Compact or any Supplemental 
Agreement. Notwithstanding anything to the contrary in this Compact, 
this Section 3.10 shall provisionally apply prior to the Entry into 
Force.

Section 3.11 No Conflict

    The Government shall undertake not to enter into any agreement or 
other arrangement or take any action in conflict with this Compact or 
any Supplemental Agreement during the Compact Term.

Section 3.12 Reports

    The Government shall provide, or cause to be provided, to MCC at 
least on each anniversary of the Entry into Force (or such other 
anniversary agreed by the Parties in writing), and otherwise within 
thirty (30) days of any written request by MCC, or as otherwise agreed 
in writing by the Parties, the following information:
    (a) The name of each entity to which MCC Funding has been provided;
    (b) The amount of MCC Funding provided to such entity;
    (c) A description of the Program and each Project funded in 
furtherance of this Compact, including:
    (i) A statement of whether the Program or any Project was solicited 
or unsolicited; and
    (ii) A detailed description of the objectives and measures for 
results of the Program or Project;
    (d) The progress made by Nicaragua toward achieving the Compact 
Goal and Objectives;
    (e) A description of the extent to which MCC Funding has been 
effective in helping Nicaragua to achieve the Compact Goal and 
Objectives;
    (f) A description of the coordination of MCC Funding with other 
United States foreign assistance and other related trade policies;
    (g) A description of the coordination of MCC Funding with 
assistance provided by other donor countries;
    (h) Any report, document or filing that the Government, any 
Government Affiliate or any Permitted Designee submits to any 
government body in connection with this Compact;
    (i) Any report or document required to be delivered to MCC under 
the Environmental Guidelines, any audit plan, or any component of the 
Implementation Plan; and
    (j) Any other report, document or information requested by MCC or 
required by this Compact or any Supplemental Agreement between the 
Parties.

Article IV. Conditions Precedent; Deliveries

Section 4.1 Conditions Prior to the Entry Into Force and Deliveries

    As conditions precedent to the Entry into Force, the Parties shall 
satisfy the conditions set forth in this Section 4.1.
    (a) The Government (or a mutually acceptable Government Affiliate) 
and MCC shall execute a Disbursement Agreement, which agreement shall 
be in full force and effect as of the Entry into Force.
    (b) The Government (or a mutually acceptable Government Affiliate) 
and MCC shall execute one or more term sheets that set forth the 
material and principal terms and conditions of each of the Supplemental 
Agreements identified in Exhibit B attached hereto (the ``Supplemental 
Agreement Term Sheets'').
    (c) The Government (or a mutually acceptable Government Affiliate) 
and MCC shall execute a Procurement Agreement, which agreement shall be 
in full force and effect as of the Entry into Force.
    (d) The Government shall deliver a certificate signed and dated by 
the Principal Representative of the Government that:
    (i) Certifies the Government has completed all of its domestic 
requirements for this Compact to be fully enforceable under Nicaraguan 
law;
    (ii) Attaches thereto, and certifies that such attachments are 
true, correct and complete copies of all decrees, legislation, 
regulations or other governmental documents relating to its domestic 
requirements for this Compact to enter into force, which MCC may post 
on its Web site or otherwise make publicly available; and
    (iii) Attaches a written statement as to the incumbency and 
specimen signature of the Principal Representative and each Additional 
Representative of the Government executing any document under this 
Compact, such written statement to be signed by a duly authorized 
official of the Government other than the Principal Representative or 
any such Additional Representative.

[[Page 44434]]

    (e) MCC shall deliver a certificate signed and dated by the 
Principal Representative of MCC that:
    (i) Certifies that MCC has completed its domestic requirements for 
this Compact to enter into force; and
    (ii) Attaches a written statement as to the incumbency and specimen 
signature of the Principal Representative and each Additional 
Representative of MCC executing any document under this Compact such 
written statement to be signed by a duly authorized official of the 
Government other than the Principal Representative or any such 
Additional Representative.

Section 4.2 Conditions Precedent to MCC Disbursements or Re-
Disbursements

    Prior to, and as condition precedent to, any MCC Disbursement or 
Re-Disbursement, the Government shall satisfy, or ensure the 
satisfaction of, all applicable conditions precedent in the 
Disbursement Agreement.

Article V. Final Clauses

Section 5.1 Communications

    Unless otherwise expressly stated in this Compact or otherwise 
agreed in writing by the Parties, any notice, certificate, request, 
report, document or other communication required, permitted, or 
submitted by either Party to the other under this Compact shall be: (a) 
In writing; (b) in English; and (c) deemed duly given: (i) Upon 
personal delivery to the Party to be notified; (ii) when sent by 
confirmed facsimile or electronic mail, if sent during normal business 
hours of the recipient Party, if not, then on the next business day; or 
(iii) two (2) business days after deposit with an internationally 
recognized overnight courier, specifying next day delivery, with 
written verification of receipt to the Party to be notified at the 
address indicated below, or at such other address as such Party may 
designate:
    To MCC:
    Millennium Challenge Corporation, Attention: Vice President for 
Country Programs (with a copy to the Vice President and General 
Counsel), 875 Fifteenth Street, NW., Washington, DC 20005, United 
States of America, Facsimile: +1 (202) 521-3700, Telephone: +1 (202) 
521-3600, e-mail: [email protected] (Vice President for 
Country Programs); [email protected] (Vice President and General 
Counsel)
    To the Government:
    Secretary of Coordination and Strategy of the Presidency, Casa 
Presidencial, Managua, Nicaragua, C.A.
    Notwithstanding the foregoing, any audit report delivered pursuant 
to Section 3.8, if delivered by facsimile or electronic mail, shall be 
followed by an original in overnight express mail. This Section 5.1 
shall not apply to the exchange of letters contemplated in Section 1.3 
or any amendments under Section 5.3.

Section 5.2 Representatives

    Unless otherwise agreed in writing by the Parties, for all purposes 
relevant to this Compact, the Government shall be represented by the 
individual holding the position of, or acting as, the Secretary of the 
Presidency of Nicaragua, and MCC shall be represented by the individual 
holding the position of, or acting as, Vice President for Country 
Relations (each, a ``Principal Representative''), each of whom, by 
written notice to the other Party, may designate one or more additional 
representatives (each, an ``Additional Representative'') for all 
purposes other than signing amendments to this Compact. The names of 
the Principal Representative and any Additional Representative of each 
of the Parties shall be provided, with specimen signatures, to the 
other Party, and the Parties may accept as duly authorized any 
instrument signed by such representatives relating to the 
implementation of this Compact, until receipt of written notice of 
revocation of their authority. A Party may change its Principal 
Representative to a new representative of equivalent or higher rank 
upon written notice to the other Party, which notice shall include the 
specimen signature of the new Principal Representative.

Section 5.3 Amendments

    The Parties may amend this Compact only by a written agreement 
signed by the Principal Representatives of the Parties.

Section 5.4 Termination; Suspension

    (a) Subject to Section 2.5 and paragraphs (e) through (h) of this 
Section 5.4, either Party may terminate this Compact in its entirety by 
giving the other Party thirty (30) days' written notice.
    (b) Notwithstanding any other provision of this Compact, including 
Section 2.1, or any Supplemental Agreement between the Parties, MCC may 
suspend or terminate this Compact or MCC Funding, in whole or in part, 
and any obligation or sub-obligation related thereto, upon giving the 
Government written notice, if MCC determines, in its sole discretion, 
that:
    (i) Any use or proposed use of MCC Funding or Program Assets or 
continued implementation of the Compact would be in violation of 
applicable law or U.S. Government policy, whether now or hereafter in 
effect;
    (ii) The Government, any Provider, or any other third party 
receiving MCC Funding or using Program Assets is engaged in activities 
that are contrary to the national security interests of the United 
States;
    (iii) The Government or any Permitted Designee has committed an act 
or omission or an event has occurred that would render Nicaragua 
ineligible to receive United States economic assistance under Part I of 
the Foreign Assistance Act of 1961, as amended (22 U.S.C. 2151 et 
seq.), by reason of the application of any provision of the Foreign 
Assistance Act of 1961 or any other provision of law;
    (iv) The Government or any Permitted Designee has engaged in a 
pattern of actions or omissions inconsistent with the MCA Eligibility 
Criteria, or there has occurred a significant decline in the 
performance of Nicaragua on one or more of the eligibility indicators 
contained therein;
    (v) The Government or any Provider has materially breached one or 
more of its assurances or any other covenants, obligations or 
responsibilities under this Compact or any Supplemental Agreement;
    (vi) An audit, review, report or any other document or other 
evidence reveals that actual expenditures for the Program or any 
Project or Project Activity were greater than the projected expenditure 
for such activities identified in the applicable Detailed Financial 
Plan or are projected to be greater than projected expenditures for 
such activities;
    (vii) If the Government (A) materially reallocates or reduces the 
allocation in its national budget or any other Government budget of the 
normal and expected resources that the Government would have otherwise 
received or budgeted, from external or domestic sources, for the 
activities contemplated herein, (B) fails to contribute or provide the 
amount, level, type and quality of resources required to effectively 
carry out the Government Responsibilities or any other responsibilities 
or obligations of the Government under or in furtherance of this 
Compact, or (C) fails to pay any of its obligations as required under 
this Compact or any Supplemental Agreement, including such obligations 
which shall be paid solely out of national funds;
    (viii) If the Government, any Provider, or any other third party 
receiving MCC

[[Page 44435]]

Funding or using Program Assets, or any of their respective directors, 
officers, employees, Affiliates, contractors, sub-contractors, grantee, 
sub-grantee, representatives or agents, is found to have been convicted 
of a narcotics offense or to have been engaged in drug trafficking;
    (ix) Any MCC Funding or Program Assets are applied (directly or 
indirectly) to the provision of resources and support to, individuals 
and organizations associated with terrorism, sex trafficking or 
prostitution;
    (x) An event or condition of any character has occurred, including 
any enactment or change of law, that: (A) Materially and adversely 
affects, or is likely to materially and adversely affect, the ability 
of the Government, MCA-Nicaragua or any other party to effectively 
implement, or ensure the effective implementation of, the Program or 
any Project or to otherwise carry out its responsibilities or 
obligations under or in furtherance of this Compact or any Supplemental 
Agreement or to perform its obligations under or in furtherance of this 
Compact or any Supplemental Agreement or to exercise its rights 
thereunder; (B) makes it improbable that the Objectives will be 
achieved during the Compact Term; (C) materially and adversely affects 
the Program, any Program Asset, or any Permitted Account; (D) 
constitutes misconduct injurious to MCC, or constitutes a fraud or a 
felony, by the Government, any Government Affiliate, MCA-Nicaragua or 
any other Permitted Designee, any other Provider, or any officer, 
director, employee, agent, representative, Affiliate, contractor, 
grantee, subcontractor or sub-grantee of any of the foregoing; or (E) 
materially contradicts, violates or otherwise conflicts with any 
provision in this Compact or any Supplemental Agreement;
    (xi) The Government, any Government Affiliate, MCA-Nicaragua or any 
other Permitted Designee, or any Provider has taken any action or 
omission or engaged in any activity in violation of, or inconsistent 
with, the requirements of this Compact or any Supplemental Agreement to 
which the Government, any Government Affiliate, MCA-Nicaragua or any 
other Permitted Designee, or any Provider is a party; or
    (xii) There has occurred a failure to meet a condition precedent or 
series of conditions precedent to, or any other requirements or 
conditions in connection with, an MCC Disbursement as set out in and in 
accordance with any Supplemental Agreement between the Parties.
    (c) MCC may reinstate any suspended or terminated MCC Funding under 
this Compact or any Supplemental Agreement if MCC determines, in its 
sole discretion, that the Government or other relevant party has 
demonstrated a commitment to correcting each condition for which MCC 
Funding was suspended or terminated.
    (d) The authority to suspend or terminate this Compact or any MCC 
Funding under this Section 5.4 includes the authority to suspend or 
terminate any obligations or sub-obligations relating to MCC Funding 
under any Supplemental Agreement without any liability to MCC 
whatsoever.
    (e) All MCC Funding shall terminate upon expiration or termination 
of the Compact Term; provided, however, reasonable expenditures for 
goods, services, and works that are properly incurred under or in 
furtherance of this Compact before expiration or termination of the 
Compact Term may be paid from MCC Funding, provided that the request 
for such payment is properly submitted within sixty (60) days after 
such expiration or termination.
    (f) Except for payments which the Parties are committed to make 
under noncancelable commitments entered into with third parties before 
such suspension or termination, the suspension or termination of this 
Compact or any Supplemental Agreement, in whole or in part, shall 
suspend, for the period of the suspension, or terminate, or ensure the 
suspension or termination of, as applicable, any obligation or sub-
obligation of the Parties to provide financial or other resources under 
this Compact or any Supplemental Agreement, or to the suspended or 
terminated portion of this Compact or such Supplemental Agreement, as 
applicable. In the event of such suspension or termination, the 
Government shall use its best efforts to suspend or terminate, or 
ensure the suspension or termination of, as applicable, all such 
noncancelable commitments related to the suspended or terminated MCC 
Funding. Any portion of this Compact or any such Supplemental Agreement 
that is not suspended or terminated shall remain in full force and 
effect.
    (g) Upon the full or partial suspension or termination of this 
Compact or any MCC Funding, MCC may, at its expense, direct that title 
to Program Assets be transferred to MCC if such Program Assets are in a 
deliverable state; provided, for any Program Asset(s) partially 
purchased or funded (directly or indirectly) by MCC Funding, the 
Government shall reimburse to a U.S. Government account designated by 
MCC the cash equivalent of the portion of the value of such Program 
Asset(s).
    (h) Prior to the expiration of this Compact or upon the effective 
termination of this Compact, the Parties shall consult in good faith 
with a view to reaching an agreement in writing on (i) the post-Compact 
Term treatment of MCA-Nicaragua, (ii) the process for ensuring the 
refunds of MCC Disbursements that have not yet been released from a 
Permitted Account through a valid Re-Disbursement or otherwise 
committed in accordance with Section 5.4(e), or (iii) any other matter 
related to the winding up of the Program and this Compact.

Section 5.5 Privileges and Immunities; Bilateral Agreement

    (a) MCC is an agency of the Government of the United States of 
America and its personnel assigned to Nicaragua will be notified 
pursuant to the Vienna Convention on Diplomatic Relations as members of 
the mission of the Embassy of the United States of America. The 
Government shall ensure that any personnel of MCC so notified, 
including individuals detailed to or contracted by MCC, and the members 
of the families of such personnel, while such personnel are performing 
duties in Nicaragua, shall enjoy the privileges and immunities that are 
enjoyed by a member of the United States Foreign Service, or the family 
of a member of the United States Foreign Service so notified, as 
appropriate, of comparable rank and salary of such personnel, if such 
personnel or the members of the families of such personnel are not a 
national of, or permanently resident in, Nicaragua.
    (b) All MCC Funding shall be considered United States assistance 
furnished under the Bilateral Agreement.

Section 5.6 Attachments

    Any annex, schedule, exhibit, table, appendix or other attachment 
expressly attached hereto (collectively, the ``Attachments'') is 
incorporated herein by reference and shall constitute an integral part 
of this Compact.

Section 5.7 Inconsistencies

    (a) Conflicts or inconsistencies between any parts of this Compact 
shall be resolved by applying the following descending order of 
precedence:
    (i) Articles I through V
    (ii) Any Attachments
    (b) In the event of any conflict or inconsistency between this 
Compact and any Supplemental Agreement

[[Page 44436]]

between the Parties, the terms of this Compact shall prevail. In the 
event of any conflict or inconsistency between any Supplemental 
Agreement between the Parties and any other Supplemental Agreement, the 
terms of the Supplemental Agreement between the Parties shall prevail. 
In the event of any conflict or inconsistency between Supplemental 
Agreements between any parties, the terms of a more recently executed 
Supplemental Agreement between such parties shall take precedence over 
a previously executed Supplemental Agreement between such parties. In 
the event of any inconsistency between a Supplemental Agreement between 
the Parties and any component of the Implementation Plan, the terms of 
the relevant Supplemental Agreement shall prevail.

Section 5.8 Indemnification

    The Government shall indemnify and hold MCC and any MCC officer, 
director, employee, Affiliate, contractor, agent or representative 
(each of MCC and any such persons, an ``MCC Indemnified Party'') 
harmless from and against, and shall compensate, reimburse and pay such 
MCC Indemnified Party for, any liability or other damages which (a) are 
directly or indirectly suffered or incurred by such MCC Indemnified 
Party or to which any MCC Indemnified Party may otherwise become 
subject, regardless of whether or not such damages relate to any third-
party claim, and (b) arise from or as a result of the negligence or 
willful misconduct of the Government, any Government Affiliate, MCA-
Nicaragua or any other Permitted Designee, directly or indirectly 
connected with, any activities (including acts or omissions) undertaken 
in furtherance of this Compact; provided, however, the Government shall 
apply national funds to satisfy its obligations under this Section 5.8 
and no MCC Funding, Accrued Interest, or Program Asset may be applied 
by the Government in satisfaction of its obligations under this Section 
5.8.

Section 5.9 Headings

    The Section and Subsection headings used in this Compact are 
included for convenience only and are not to be considered in 
construing or interpreting this Compact.

Section 5.10 Interpretation; Definitions

    (a) Any reference to the term ``including'' in this Compact shall 
be deemed to mean ``including without limitation'' except as expressly 
provided otherwise.
    (b) Any reference to activities undertaken ``in furtherance of this 
Compact'' or similar language shall include activities undertaken by 
the Government, any Government Affiliate, any Permitted Designee, any 
Provider or any other third party receiving MCC Funding involved in 
carrying out the purposes of this Compact or any Supplemental 
Agreement, including their respective officers, directors, employees, 
Affiliates, contractors, grantees, sub-grantees, sub-contractors, 
agents or representatives, whether pursuant to the terms of this 
Compact, any Supplemental Agreement or otherwise.
    (c) References to ``day'' or ``days'' shall be calendar days unless 
provided otherwise.
    (d) The term ``U.S. Government'' shall mean any branch, agency, 
bureau, government corporation, government chartered entity or other 
body of the Federal government of the United States.
    (e) The term ``Affiliate'' of a party is a person or entity that 
controls, is controlled by, or is under the same control as the party 
in question, whether by ownership or by voting, financial or other 
power or means of influence.
    (f) The term ``Government Affiliate'' is an Affiliate, ministry, 
bureau, department, agency, government corporation or any other entity 
chartered or established by the Government.
    (g) The term ``Provider'' shall mean (i) MCA-Nicaragua, any 
Government Affiliate or any other Permitted Designee involved in any 
activities in furtherance of this Compact or (ii) any third party who 
receives at least USD $50,000 in the aggregate of MCC Funding (other 
than employees of MCA-Nicaragua) during the Compact Term or such other 
amount as the Parties may agree in writing, whether directly from MCC, 
indirectly through Re-Disbursements, or otherwise.
    (h) References to any Affiliate or Government Affiliate herein 
shall include any of their respective directors, officers, employees, 
affiliates, contractors, sub-contractors, grantees, sub-grantees, 
representatives, and agents.
    (i) Any references to ``Supplemental Agreement between the 
Parties'' shall mean any agreement between MCC on the one hand, and the 
Government or any Government Affiliate or Permitted Designee on the 
other hand.

Section 5.11 Signatures

    Other than a signature to this Compact or an amendment to this 
Compact pursuant to Section 5.3, a signature delivered by facsimile or 
electronic mail in accordance with Section 5.1 shall be deemed an 
original signature, and the Parties hereby waive any objection to such 
signature or to the validity of the underlying document, certificate, 
notice, instrument or agreement on the basis of the signature's legal 
effect, validity or enforceability solely because it is in facsimile or 
electronic form. Such signature shall be accepted by the receiving 
Party as an original signature and shall be binding on the Party 
delivering such signature.

Section 5.12 Designation

    MCC may designate any Affiliate, agent, or representative to 
implement, in whole or in part, its obligations, and exercise any of 
its rights, under this Compact or any Supplemental Agreement between 
the Parties.

Section 5.13 Survival

    Any Government Responsibilities, covenants, or obligations or other 
responsibilities to be performed by the Government after the Compact 
Term shall survive the termination or expiration of this Compact and 
expire in accordance with their respective terms. Notwithstanding the 
termination or expiration of this Compact, the following provisions 
shall remain in force: Sections 2.2, 2.3, 2.5, 3.2, 3.3, 3.4, 3.5, 3.8, 
3.9 (for one year), 3.12, 5.1, 5.2, 5.4(d), 5.4(e) (for sixty days), 
5.4(f), 5.4(g), 5.4(h), 5.5, 5.6, 5.7, 5.8, 5.9, 5.10, 5.11, 5.12, this 
Section 5.13, 5.14, and 5.15.

Section 5.14 Consultation

    Either Party may, at any time, request consultations relating to 
the interpretation or implementation of this Compact or any 
Supplemental Agreement between the Parties. Such consultations shall 
begin at the earliest possible date. The request for consultations 
shall designate a representative for the requesting Party with the 
authority to enter consultations and the other Party shall endeavor to 
designate a representative of equal or comparable rank. If such 
representatives are unable to resolve the matter within 20 days from 
the commencement of the consultations then each Party shall forward the 
consultation to the Principal Representative or such other 
representative of comparable or higher rank. The consultations shall 
last no longer than 45 days from date of commencement. If the matter is 
not resolved within such time period, either Party may terminate this 
Compact pursuant to Section 5.4(a). The Parties shall enter any such 
consultations guided by the principle of achieving the

[[Page 44437]]

Compact Goal in a timely and cost-effective manner.

Section 5.15 MCC Status

    MCC is a United States government corporation acting on behalf of 
the United States Government in the implementation of this Compact. As 
such, MCC has no liability under this Compact, is immune from any 
action or proceeding arising under or relating to this Compact and the 
Government hereby waives and releases all claims related to any such 
liability. In matters arising under or relating to this Compact, MCC is 
not subject to the jurisdiction of the courts or other body of 
Nicaragua.

Section 5.16 Language

    This Compact is prepared in English and in the event of any 
ambiguity or conflict between this official English version and any 
other version translated into any language for the convenience of the 
Parties, this official English version shall prevail.

Section 5.17 Publicity; Information and Marking

    The Parties shall give appropriate publicity to this Compact as a 
program to which the United States, through MCC, has contributed, 
including by posting this Compact, and any amendments thereto, on the 
MCC Web site and the MCA-Nicaragua Web site, identifying Program 
activity sites, and marking Program Assets; provided, any announcement, 
press release or statement regarding MCC or the fact that MCC is 
funding the Program or any other publicity materials referencing MCC, 
including the publicity described in this Section 5.17, shall be 
subject to prior approval by MCC and shall be consistent with any 
instructions provided by MCC from time to time in relevant 
Implementation Letters. Upon the termination or expiration of this 
Compact, MCC may request the removal of, and the Government shall, upon 
such request, remove, or cause the removal of, any such markings and 
any references to MCC in any publicity materials or on the MCA-
Nicaragua Web site.
    In Witness Whereof, the undersigned duly authorized by their 
respective governments, have signed this Compact this 14th day of July, 
2005 and this Compact shall enter into force in accordance with Section 
1.3.
    Done at Washington, DC, in the English language.
    For the Millennium Challenge Corporation, on Behalf of the United 
States of America, Name: Paul V. Applegarth. Title: Chief Executive 
Officer.
    For the Government of the Republic of Nicaragua.
    For the Government of the Republic of Nicaragua, Name: Norman Jose 
Caldera Cardenal.
    Title: Minister of Foreign Affairs.

Exhibit A--Compendium of Defined Terms

    The following compendium of capitalized terms that are used herein 
is provided for the convenience of the reader. To the extent that there 
is a conflict or inconsistency between the definitions in this Exhibit 
A and the definitions elsewhere in the text of this Compact, the 
definition elsewhere in this Compact shall prevail over the definition 
in this Exhibit A.
    Accrued Interest is any interest or other earnings on MCC Funding 
that accrues or are earned.
    Act means the Millennium Challenge Act of 2003, as amended.
    Activity Indicator is an Indicator of the M&E Plan that will 
measure the delivery of key goods and services in order to monitor the 
pace of Project Activity execution. A table of Activity Indicator 
definitions is set forth at Section 2(a)(iii) of Annex III.
    Additional Representative is a representative as may be designated 
by a Principal Representative, by written notice, for all purposes 
other than signing amendments to this Compact.
    Affiliate means the affiliate of a party, which is a person or 
entity that controls, is controlled by, or is under the same control as 
the party in question, whether by ownership or by voting, financial or 
other power or means of influence. References to Affiliate herein shall 
include any of their respective directors, officers, employees, 
affiliates, contractors, sub-contractors, grantees, sub-grantees, 
representatives, and agents.
    Atlantic Corridor is one of the main corridors of the International 
Network of Mesoamerican Highways that runs along the coast of the 
Atlantic Ocean.
    Attachments are any annex, schedule, exhibit, table, appendix or 
other attachment expressly attached to this Compact.
    Audit Guidelines means the ``Guidelines for Financial Audits 
Contracted by Foreign Recipients'' issued by the Inspector General of 
the United States Agency for International Development.
    Audit Plan means a plan, in accordance with the Audit Guidelines, 
for the audit of the expenditures of any Covered Providers, which audit 
plan, in the form and substance as approved by MCC, the Government 
shall adopt, or cause to be adopted, no later than sixty (60) days 
prior to the end of the first period to be audited.
    Auditor means the auditor(s) as described in, and engaged pursuant 
to, Section 3(h) of Annex I and as required by Section 3.8(d) of the 
Compact.
    Auditor/Reviewer Agreement is an agreement between MCA-Nicaragua 
and each Auditor or Reviewer, in form and substance satisfactory to 
MCC, that sets forth the roles and responsibilities of the Auditor or 
Reviewer with respect to the audit, review or evaluation, including 
access rights, required form and content of the applicable content of 
the applicable audit, review or evaluation and other terms and 
conditions such as payment of the Auditor or Reviewer.
    Bank(s) means any bank holding an account referenced in Section 
4(d) of Annex I.
    Bank Agreement means an agreement between MCA-Nicaragua and a Bank, 
satisfactory to MCC, that sets forth the signatory authority, access 
rights, anti-money laundering and anti-terrorist financing provisions, 
and other terms related to the Permitted Account.
    Baseline means the value of each Indicator prior to undertaking any 
activity that affects the value of such Indicator.
    Beneficiaries means the Nicaraguans who participate or are covered 
by the Program as identified in accordance with Annex I and further 
described in Section (2)(a) of Annex III.
    Bilateral Agreement means the General Agreement for Economic, 
Technical and Related Assistance between the Government of the United 
States of America and the Government of Nicaragua, dated May 14, 1962, 
as amended from time to time.
    Board means the independent board of directors of MCA-Nicaragua 
that oversees MCA-Nicaragua's responsibilities and obligations under 
this Compact (including any Designated Rights and Responsibilities) and 
further described in Section 3(d)(ii) of Annex I.
    Chairman means the Chairman of the board of directors of MCA-
Nicaragua.
    Civil Board Members are the two representatives drawn from among 
the Civil Observers to serve as voting members on the Board.
    Civil Observer(s) are representatives appointed by civil society 
organizations (as described in Section 3(d)(ii)(2)(B)(iii) of Annex I), 
which representatives cannot be a public official, to serve as 
Observers on the Board.
    Compact means the Millennium Challenge Compact made between the 
United States of America, acting through the Millennium Challenge

[[Page 44438]]

Corporation, and the Government of the Republic of Nicaragua.
    Compact Goal means advancing economic growth and poverty reduction 
in Nicaragua.
    Compact Records shall have the meaning set forth in Section 3.8(b).
    Compact Reports are any documents or reports delivered to MCC in 
satisfaction of the Government's reporting requirements under this 
Compact or any Supplemental Agreement between the Parties.
    Compact Term means that this Compact shall remain in force for five 
(5) years from the Entry into Force, unless earlier terminated in 
accordance with Section 5.4 of this Compact.
    Covered Provider means (i) A non-United States Provider that 
receives (other than pursuant to a direct contract or agreement with 
MCC) USD $300,000 or more of MCC Funding in any MCA-Nicaragua fiscal 
year or any other non-United States person or entity that receives 
(directly or indirectly) USD $300,000 or more of MCC Funding from any 
Provider in such fiscal year or (ii) any United States Provider that 
receives (other than pursuant to a direct contract or agreement with 
MCC) USD $500,000 or more of MCC Funding in any MCA-Nicaragua fiscal 
year or any other United States person or entity that receives 
(directly or indirectly) USD $500,000 or more of MCC Funding from any 
Provider in such fiscal year.
    Designated Rights and Responsibilities shall have the meaning set 
forth in Section 3.2(c).
    Detailed Financial Plan means the financial plans that specify, 
respectively, the annual and quarterly detailed budget and projected 
cash requirements for the Program and each Project (including 
monitoring, evaluation and administrative costs), projected both on a 
commitment and cash requirement basis.
    Disbursement Agreement is a Supplemental Agreement that MCC, the 
Government (or a mutually acceptable Government Affiliate) and MCA-
Nicaragua shall enter into that (i) further specifies the terms and 
conditions of any MCC Disbursements and Re-Disbursements, (ii) is in a 
form and substance mutually satisfactory to the Parties, and (iii) is 
signed by the Principal Representative of each Party (or in the case of 
the Government, the principal representative of the applicable 
Government Affiliate).
    DR-CAFTA means The Dominican Republic-Central America-United States 
Free Trade Agreement.
    Entry into Force means the entry into force of this Compact, which 
shall be on the date of the last letter in an exchange of letters 
between the Principal Representatives of each Party confirming that all 
conditions set forth in Section 4.1 have been satisfied by the 
Government and MCC.
    Environmental Guidelines means the environmental guidelines 
delivered by MCC to the Government or posted by MCC on its Web site or 
otherwise publicly made available, as such guidelines may be amended 
from time to time.
    ESI means Environmental and Social Impact.
    Evaluation Component means the component of the M&E Plan that 
specifies a methodology, process and timeline for the evaluation of 
planned, ongoing, or completed Project Activities to determine their 
efficiency, effectiveness, impact and sustainability.
    Exempt Uses means (i) any transaction, service, activity, contract, 
grant or other implementing agreement funded in whole or in part by MCC 
Funding; (ii) any supplies, equipment, materials, property or other 
goods (referred to collectively as ``goods'') or funds introduced into, 
acquired in, used or disposed of in, or imported into or exported from, 
Nicaragua by MCC, or by any person or entity (including contractors and 
grantees) as part of, or in conjunction with, MCC Funding or the 
Program; (iii) any contractor, grantee, or other organization carrying 
out activities funded in whole or in part by MCC Funding; and (iv) any 
employee of such organizations.
    Expected Income Gains means the increase in income that accrues to 
a group of Beneficiaries as a result of one or more Project Activities 
over a period of time.
    Final Evaluation shall have the meaning set forth in Section 3(a) 
of Annex III.
    Financial Plan means collectively, the Multi-Year Financial Plan 
and each Detailed Financial Plan and each amendment, supplement or 
other change thereto.
    Financial Plan Annex means Annex II of this Compact, which 
summarizes the Multi-Year Financial Plan for the Program.
    Fiscal Accountability Plan shall have the meaning set forth in 
Section 4(c) of Annex I.
    Fiscal Agent shall have the meaning set forth in Section 3(g) of 
Annex I.
    Fiscal Agent Agreement is an agreement between MCA-Nicaragua and 
each Fiscal Agent, in form and substance satisfactory to MCC, that sets 
forth the roles and responsibilities of the Fiscal Agent and other 
appropriate terms and conditions, such as payment of the Fiscal Agent.
    FOMAV means Nicaraguan Road Maintenance Fund or Fondo de 
Mantenimiento.
    General Director means the General Director of MCA-Nicaragua.
    Goal Indicator means the Compact Goal Indicator of the M&E Plan 
that will measure the impact of the Program on the incomes of the 
Beneficiaries. A table of Goal Indicator definitions is set forth at 
Section 2(a)(i) of Annex III.
    Governance Agreement means the governance agreement entered into by 
the Government and MCA-Nicaragua, in a form and substance satisfactory 
to MCC, on or before the time specified in the Disbursement Agreement 
and based on the principles found in Section 3(d)(i) to Annex I.
    Governing Document means any decree, legislation, regulation, 
contractual arrangement or other document establishing or governing 
MCA-Nicaragua, including the Governance Agreement.
    Government means the Government of the Republic of Nicaragua.
    Government Affiliate is an Affiliate, ministry, bureau, department, 
agency, government corporation or any other entity chartered or 
established by the Government. References to Government Affiliate shall 
include any of their respective directors, officers, employees, 
affiliates, contractors, sub-contractors, grantees, sub-grantees, 
representatives, and agents.
    Government Board Member(s) are the government members identified in 
Section 3(d)(ii)(2)(A)(i) of Annex I serving as voting members on the 
Board, and any replacements thereof.
    Government Observer(s) are the government representatives appointed 
by the ministries of (i) MAGFOR, (ii) MTI and (iii) MARENA to serve as 
Observers on the Board.
    Government Party means the Government, any Government Affiliate, 
MCA-Nicaragua, any other Permitted Designee or any of their respective 
directors, officers, employees, Affiliates, contractors, sub-
contractors, grantees, sub-grantees, representatives or agents.
    Government Responsibilities means the Government shall have 
principal responsibility for oversight and management of the 
implementation of the Program (i) in accordance with the terms and 
conditions specified in this Compact and relevant Supplemental 
Agreements, (ii) in accordance with all applicable laws then in effect 
in Nicaragua, and (iii) in a timely and cost-effective manner and in 
conformity with sound technical, financial and management practices.
    Grant Agreement means a separate Supplemental Agreement to be 
entered

[[Page 44439]]

into between MCC, the Government, and MCA-Nicaragua, wherein MCC shall 
grant to MCA-Nicaragua, an amount not to exceed one hundred seventy-
five million United States Dollars (USD $175,000,000) during the 
Compact Term to enable the Government, through MCA-Nicaragua, to 
implement the Program and achieve the Objectives.
    IDB means the Inter-American Development Bank.
    Implementation Letter is a letter that may be issued by MCC from 
time to time to furnish additional information or guidance to assist 
the Government in the implementation of this Compact.
    Implementation Plan is a detailed plan for the implementation of 
the Program and each Project, which will be memorialized in one or more 
documents and shall consist of: (i) A Financial Plan; (ii) Fiscal 
Accountability Plan; (iii) Procurement Plan; (iv) Program and Project 
Work Plans; and (v) M&E Plan.
    Implementing Entity means a Government Affiliate, nongovernmental 
organization or other public- or private-sector entity or person to 
implement and carry out the Projects or any other activities to be 
carried out in furtherance of this Compact.
    Implementing Entity Agreement is an agreement between MCA-Nicaragua 
(or the appropriate Outside Project Manager) and an Implementing 
Entity, in form and substance satisfactory to MCC, that sets forth the 
roles and responsibilities of such Implementing Entity and other 
appropriate terms and conditions, such as payment of the Implementing 
Entity.
    Indicators means the quantitative, objective and reliable data that 
the M&E Plan will use to measure the results of the Program.
    Inspector General means the Inspector General of the United States 
Agency for International Development.
    Le[oacute]n means the department of Le[oacute]n in Nicaragua.
    Le[oacute]n-Chinandega means the departments of Le[oacute]n and 
Chinandega in Nicaragua.
    Lien means any lien, attachment, enforcement of judgment, pledge, 
or encumbrance of any kind.
    Local Account is an interest-bearing local currency of Nicaragua 
Permitted Account at the Commercial Bank to which the Fiscal Agent may 
authorize transfer from any U.S. Dollar Permitted Account for the 
purpose of making Re-Disbursements payable in local currency.
    M&E means Monitoring and Evaluation.
    M&E Annex means Annex III of this Compact, which generally 
describes the components of the M&E Plan for the Program.
    M&E Plan means the plan to measure and evaluate progress toward 
achievement of the Compact Goal and Objectives of this Compact as 
generally described in Annex III.
    MAGFOR means the Ministry of Agriculture and Forestry.
    MARENA means the Ministry of the Environment and Natural Resources 
of Nicaragua.
    Material Agreement shall have the meaning set forth in Section 
3(c)(i)(4) of Annex I.
    Material Re-Disbursement means any Re-Disbursement that require MCC 
approval under applicable law, the Procurement Agreement, the 
Governance Agreement, any other Governing Document, or any other 
Supplemental Agreement.
    Material Terms of Reference means any terms of reference for the 
procurement of goods, services or works that require MCC approval under 
applicable law, the Procurement Agreement, the Governance Agreement, 
any other Governing Document, or any other Supplemental Agreement.
    Mayor Board Member means the mayor drawn from among the Mayor 
Observers.
    Mayor Observers means the mayor representatives elected pursuant to 
Section 3(d)(ii)(2)(B)(iv) of Annex I.
    MCA means the 2004 and 2005 Millennium Challenge Account.
    MCA Eligibility Criteria means the MCA selection criteria and 
methodology published by MCC pursuant to Section 607 of the Act from 
time to time.
    MCA-Nicaragua means an entity to be organized and established 
pursuant to Nicaraguan law and in accordance with Section 3(d) of Annex 
I and the Governance Agreement.
    MCA-Nicaragua Web site means the Web site operated by MCA-
Nicaragua.
    MCC means the Millennium Challenge Corporation.
    MCC Disbursement means the disbursement of MCC Funding by MCC to a 
Permitted Account or through such other mechanism agreed by the Parties 
as defined in and in accordance with Section 2.1(b)(i) of this Compact.
    MCC Disbursement Request means the applicable request that the 
Government and MCA-Nicaragua will jointly submit for an MCC 
Disbursement as may be specified in the Disbursement Agreement.
    MCC Funding means an amount not to exceed one hundred seventy-five 
million United States Dollars (USD $175,000,000).
    MCC Indemnified Party means MCC and any MCC officer, director, 
employee, Affiliate, contractor, agent or representative.
    MCC Representative is a representative appointed by MCC to serve as 
an Observer on the Board.
    Monitoring Component means the component of the M&E Plan that 
specifies how progress toward the Compact Goal, Objectives and Project 
Activities will be monitored.
    MTI means the Ministry of Transportation and Infrastructure.
    Multi-Year Financial Plan means the multi-year financial plan for 
the Program and for each Project, which is summarized in Annex II to 
this Compact.
    Multi-Year Financial Plan Summary is the Multi-Year Financial Plan 
summary attached to this Compact as Exhibit A of Annex II.
    N-I Road is a 58 kilometer stretch of road between Izapa and Nejapa 
on the outskirts of Managua.
    NDP means the National Development Plan (also known as the ``PRSP 
II'').
    Nicaragua means the Republic of Nicaragua.
    Objective(s) mean the Program Objective and the individual Project 
Objectives, collectively.
    Objective Indicator means the Indicator for each Objective that 
will measure the final results of the Projects in order to monitor 
their success in meeting each of the Objectives. A table of Objective 
Indicator definitions is set forth at Section 2(a)(ii) of Annex III.
    Observers means the non-voting observers of the Board.
    Officers shall have the meaning set forth in Section 3(d)(iii)(3) 
of Annex I.
    Outcome Indicator is an Indicator of the M&E Plan that will measure 
the intermediate results of goods and services delivered under the 
Project in order to provide an early measure of the likely impact of 
the Projects on the Objectives. A table of Outcome Indicator 
definitions is set forth at Section 2(a)(ii) of Annex III.
    Outside Project Manager means the qualified persons or entities 
engaged by the Technical Secretariat, on behalf of MCA-Nicaragua, to 
serve as outside project managers in accordance with Section 3(e) of 
Annex I.
    Pacific Corridor is one of the main corridors of the International 
Network of Mesoamerican Highways that runs along the Pacific Ocean.
    Parties means the United States, acting through MCC, and the 
Government, except as otherwise provided in Annex III.
    Party means (i) the United States, acting through MCC, or (ii) the 
Government.

[[Page 44440]]

    Permitted Account(s) shall have the meaning set forth in Section 
4(d) of Annex I.
    Permitted Designee shall have the meaning set forth in Section 
3.2(c).
    Pledge means any pledge of any MCC Funding or any Program Assets, 
or any guarantee directly or indirectly of any indebtedness.
    PPP means Plan Puebla-Panama, which is a plan to create a reliable 
Mesoamerican network of highways known as the International Network of 
Mesoamerican Highways.
    Principal Representative means (i) for the Government, the 
individual holding the position of, or acting as, the Secretary of the 
Presidency of Nicaragua, and (ii) for MCC, the individual holding the 
position of, or acting as, the Vice President for Country Relations.
    Procurement Agent(s) are the procurement agents that MCA-Nicaragua 
will engage to carry out and/or certify specified procurement 
activities in furtherance of this Compact on behalf of the Government, 
MCA-Nicaragua, any Outside Project Manager or Implementing Entity.
    Procurement Agent Agreement is the agreement that MCA-Nicaragua 
enters into with the Procurement Agent, in form and substance 
satisfactory to MCC, that sets forth the roles and responsibilities of 
the Procurement Agent with respect to the conduct, monitoring and 
review of procurements and other appropriate terms and conditions, such 
as payment of the Procurement Agent.
    Procurement Agreement is a Supplemental Agreement between the 
Parties, which includes the Procurement Guidelines, and governs the 
procurement of all goods, services and works by the Government or any 
Provider in furtherance of this Compact.
    Procurement Guidelines are the procurement guidelines reflected in 
the Procurement Agreement and shall include the requirements set forth 
in Section 3.6(a)(i-iv).
    Procurement Plan means a procurement plan adopted by MCA-Nicaragua, 
which shall forecast the upcoming eighteen-month procurement activities 
and be updated every six months.
    Procurement Supervisor(s) are the procurement supervisors that MCA-
Nicaragua shall engage to supervise specified procurement activities in 
furtherance of this Compact on behalf of the Government, MCA-Nicaragua, 
any Outside Project Manager or any Implementing Entity.
    Procurement Supervisor Agreement is the agreement that MCA-
Nicaragua shall enter into with the Procurement Supervisor, in form and 
substance satisfactory to MCC, that sets forth the roles and 
responsibilities of the Procurement Supervisor with respect to the 
conduct, monitoring and review of procurements and other appropriate 
terms and conditions, such as payment of the Procurement Supervisor.
    Program means the program to be implemented under this Compact, 
using MCC Funding to advance Nicaragua's progress towards economic 
growth and poverty reduction.
    Program Annex means Annex I to this Compact, which generally 
describes the Program that MCC Funding will support in Nicaragua during 
the Compact Term and the results to be achieved from the investment of 
MCC Funding.
    Program Assets means (i) MCC Funding, (ii) Accrued Interest, or 
(iii) any assets, goods, or property (real, tangible, or intangible) 
purchased or financed in whole or in part by MCC Funding.
    Program Objective means the overall objective of this Compact, 
which is to increase income and reduce poverty in Leon-Chinandega, 
which is key to advancing the Compact Goal.
    Project(s) are the specific projects and the policy reforms and 
other activities related thereto that the Government will carry out, or 
cause to be carried out, in furtherance of this Compact to achieve the 
Objectives and the Compact Goal.
    Project Activity means the activities that will be undertaken in 
furtherance of each Project as identified in the Schedules to Annex I.
    Project Objective(s) means the project-level objectives that will 
advance the Program Objective, each of which is described in more 
detail in the Annexes to this Compact.
    Project Specialist means the Infrastructure Specialist and the 
Rural Business Specialist.
    Property Regularization Objective means the Project Objective of 
this Compact to increase investment by strengthening property rights in 
Leon.
    Property Regularization Project is the Project described in 
Schedule 1 of Annex I, that the Parties intend to implement in 
furtherance of the Property Regularization Objective.
    Proposal is the proposal for use of MCA assistance submitted to MCC 
by the Government on October 25, 2004.
    Provider means (i) MCA-Nicaragua, any Government Affiliate or any 
other Permitted Designee involved in any activities in furtherance of 
this Compact or (ii) any third party who receives at least USD $50,000 
in the aggregate of MCC Funding (other than employees of MCA-Nicaragua) 
during the Compact Term or such other amount as the Parties may agree 
in writing, whether directly from MCC, indirectly through Re-
Disbursements, or otherwise.
    PRSP is the Poverty Reduction Strategy that Nicaragua began 
developing in 2001 to work toward the Heavily Indebted Poor Countries 
initiative.
    Re-Disbursement is the release of MCC Funding from a Permitted 
Account.
    Reviewer shall have the meaning set forth in Section 3(h) of Annex 
I.
    Rural Business Development Objective means the Project Objective of 
this Compact to increase the value-added of farms and businesses in 
Leon-Chinandega.
    Rural Business Development Project is the Project described in 
Schedule 3 of Annex I, that the Parties intend to implement in 
furtherance of the Rural Business Development Objective.
    Rural Office means the MCA-Nicaragua office that will be set up and 
equipped in Leon-Chinandega using MCC Funding to provide the services 
described in Section 2(a) of Schedule 3 of Annex I.
    Special Account means a single, completely separate U.S. Dollar 
interest-bearing Permitted Account at a commercial bank that is 
procured through a competitive process to receive MCC Disbursements.
    Supplemental Agreement is an agreement between (i) the Government 
(or any Government Affiliate or Permitted Designee) and MCC, (ii) MCC 
and/or the Government (or any Government Affiliate or Permitted 
Designee) and any third party, including any of the Providers or 
Permitted Designees, or (iii) any third parties where neither MCC nor 
the Government is a party, before, on or after the Entry into Force, 
which agreement memorializes details any funding, implementing and 
other arrangements in furtherance of this Compact.
    Supplemental Agreement between the Parties means any agreement 
between MCC on the one hand, and the Government or any Government 
Affiliate or Permitted Designee on the other hand.
    Supplemental Agreement Term Sheets means one or more term sheets 
that the Government (or mutually acceptable Government Affiliate) and 
MCC shall execute that set forth the material and principal terms and 
conditions of each of the Supplemental Agreements identified in Exhibit 
B attached to this Compact.
    Target is the one or more expected results of an Indicator that 
specifies the

[[Page 44441]]

expected value and the expected time by which that result will be 
achieved.
    Tax(es) shall have the meaning set forth in Section 2.3(e)(i).
    Technical Secretariat means a management team to have overall 
management responsibility for the implementation of this Compact and 
further described in Section 3(d)(iii) of Annex I.
    Transportation Objective means the Project Objective of this 
Compact to reduce transportation costs between Leon-Chinandega and 
domestic, regional and global markets.
    Transportation Project is the Project described in Schedule 2 of 
Annex I, that the Parties intend to implement in furtherance of the 
Transportation Objective.
    U.S. Government shall mean any branch, agency, bureau, government 
corporation, government chartered entity or other body of the Federal 
government of the United States.
    United States Dollars (USD) means the currency of the United States 
of America.
    Watershed Plan means the watershed management action plan as 
described in Section 2(c)(i) of Schedule 3 of Annex I.
    Work Plans means work plans for the overall administration of the 
Program and for each Project.

Exhibit B--List of Certain Supplemental Agreements

    1. Governance Agreement.
    2. Grant Agreement, if applicable.
    3. Fiscal Agent Agreement.
    4. Bank Agreement.

Annex I--Program Description

    This Annex I to the Compact (the ``Program Annex'') generally 
describes the Program that MCC Funding will support in Nicaragua during 
the Compact Term and the results to be achieved from the investment of 
MCC Funding. Prior to any MCC Disbursement or Re-Disbursement, 
including for the Projects described herein, MCC, the Government (or a 
mutually acceptable Government Affiliate) and MCA-Nicaragua shall enter 
into a Supplemental Agreement that (i) further specifies the terms and 
conditions of such MCC Disbursements and Re-Disbursements, (ii) is in a 
form and substance mutually satisfactory to the Parties, and (iii) is 
signed by the Principal Representative of each Party (or in the case of 
the Government, the principal representative of the applicable 
Government Affiliate) (the ``Disbursement Agreement''). Except as 
specifically provided herein, the Parties may amend this Program Annex 
only by written agreement signed by the Principal Representative of 
each Party. Each capitalized term in this Program Annex shall have the 
same meaning given such term elsewhere in this Compact. Unless 
otherwise expressly stated, each Section reference herein is to the 
relevant Section of the main body of the Compact.

1. Background; Consultative Process

    (a) Background. Nicaragua is one of the poorest countries in the 
Western Hemisphere. Over the last several decades, the country has 
experienced a dramatic rise and decline that has left approximately 70% 
of the country's rural population living in poverty. From 1958-1978, 
the country benefited from one of the stronger growth rates in Latin 
America, in part due to growth in agriculture in the northwestern part 
of the country. This period was followed by economic collapse from 
1979-1994 that sent the country back 50 years. As the economy began to 
slowly recover during the late 1990s, corruption, weakening of 
democratic institutions, and natural disasters (notably, Hurricane 
Mitch) hampered the country's road to recovery. Despite the lack of 
growth over the last two decades, Nicaragua has recently shown signs of 
macroeconomic recovery. The potential impact of The Dominican Republic-
Central America-United States Free Trade Agreement (``DR-CAFTA'') and a 
customs union agreement with Guatemala, Honduras, and El Salvador 
provide a unique opportunity for the country to accelerate economic 
growth.
    In 2001, Nicaragua began the process of developing a Poverty 
Reduction Strategy (``PRSP'') to work toward the Heavily Indebted Poor 
Countries initiative. This strategy had a social emphasis and focused 
on structural reforms, human capital investment, greater protection of 
vulnerable groups, institutional development, environmental and social 
protection, and decentralization. Consultations in 2002 began a process 
of re-evaluating country priorities to achieve poverty reduction by 
accelerating economic growth. As a result, the Government complemented 
its PRSP with a National Development Plan \1\ (``NDP'') that consisted 
of longer-term vision focused on productive development to accelerate 
growth and poverty reduction. The NDP was presented to the Nicaraguan 
consultative group in October 2003 and an updated draft is currently in 
circulation.
---------------------------------------------------------------------------

    \1\ The National Development Plan also is known as the ``PRSP 
II.''
---------------------------------------------------------------------------

    The objective of the NDP is ``sustained economic growth through 
local development and productive clusters, democratic governance with 
citizen participation, transparency and accountability, and 
modernization of the state.'' To accomplish this objective, the NDP 
emphasizes actions to improve the investment climate, to facilitate 
productive development by leveraging regional competitive potential, 
and to link the country to international markets. This includes an 
emphasis on improving human productivity, investing in productive 
infrastructure, and strengthening governance capabilities at the local 
level. The NDP served as the foundation from which the Government 
launched a broad consultative effort to develop the MCC Proposal.
    (b) Consultative Process. A diverse group of stakeholders at the 
national, regional, and municipal levels provided input during the 
development of Nicaragua's Proposal, building on the Government's PRSP/
NDP, which calls for strengthening local development and participation. 
The technical team charged with developing the Proposal held numerous 
meetings and work sessions in Managua and the country's regional 
departments with leaders in the political and private sectors, non-
governmental organizations (NGOs), and various associations. Many of 
the consultations included Nicaragua's Local Development Council 
(LDCs), representative bodies at the regional department level whose 
members are elected from the public and private sector and civil 
society.\2\ The LDCs were established to increase citizen participation 
in development planning. The technical team also spoke with local farm 
and women's cooperatives, local business associations, and NGOs about 
the Program's technical details.
---------------------------------------------------------------------------

    \2\ Each of Nicaragua's regions and autonomous zones has a local 
development council that the central government recognizes through 
the Citizen Participation Law passed in July 2004.
---------------------------------------------------------------------------

    Nicaragua's consultative process for the Proposal resulted in three 
key outcomes: (1) A shift from a national to a regional focus, (2) the 
prioritization of Proposal components, and (3) ongoing participation 
and ownership at the local level.
    (1) As discussions at the national and regional level progressed 
about Nicaragua's constraints to economic growth and poverty reduction, 
stakeholders came to focus on the departments of Leon and Chinandega, a 
region believed to have the greatest potential for economic growth as 
well as some of the most extreme poverty.

[[Page 44442]]

    (2) The Leon and Chinandega LDCs, which collectively represent over 
100 civil society, private sector, and local government organizations, 
provided crucial assistance to the Government's technical team in 
developing and prioritizing the Proposal components. The team also 
solicited feedback from other private sector and civil society 
organizations at the regional and national level. The high level of 
participation by these LDCs marks the first time the Government has 
bestowed this level of authority to a region and fulfills the 
fundamental vision of the PRSP/NDP to strengthen local capacity and 
participation.
    (3) The Government's technical team continues to involve the LDCs 
and other local groups and expects them to play an important role in 
program oversight, including having representation on the Board of 
Directors of MCA-Nicaragua.
    Nicaragua's Proposal focuses on creating a regional engine for 
economic growth in the northwestern part of the country (i.e., Leon-
Chinandega) by transforming the rural business sector there into a 
high-value, sustainable one linked to regional and global markets. The 
regional focus builds on three important themes from the NDP and 
consultative process:
     Improving the investment climate and creating jobs;
     Facilitating productive development by leveraging regional 
competitive potential; and
     Linking the country more closely to international markets 
(i.e., trade-led growth).
    The region encompassing Leon and Chinandega was a major engine for 
economic growth from 1958-1978 and today, benefits from the most 
fertile soil in the country, proximity to the country's Pacific coast 
port (Corinto) and Honduras' Atlantic coast port (Cortes), and a 
growing concentration of entrepreneurial capacity. Notwithstanding the 
region's potential, it suffers from serious constraints to economic 
growth and poverty reduction. Additionally, the northern mountainous 
part of the region and the peninsula of Cosiguina include some of the 
most extreme poverty in the country, where communities suffer from 
continuous land degradation, droughts, and isolation from domestic and 
international markets.
    After broad consultations with the private sector and NGOs, 
discussions with other donors, and extensive meetings with local 
development council members in the region, the Government and MCC have 
agreed to an integrated development Program that will focus on removing 
three major constraints to economic growth and poverty reduction: (i) 
Insecure property rights; (ii) under-developed transportation 
infrastructure; and (iii) low value-added rural business productivity.

2. Overview

    (a) Program Objectives. The Program involves a series of specific 
and complementary interventions that the Parties expect will achieve 
the Objectives and thus, advance the progress of Nicaragua towards the 
Compact Goal.
    (b) Projects. The Parties have identified, for each Objective, 
Projects that the Government will implement, or cause to be 
implemented, using MCC Funding. Each Project is described in the 
Schedules to this Program Annex. The Schedules to this Program Annex 
identify the activities that will be undertaken in furtherance of each 
Project (each, a ``Project Activity'') as well as the various 
activities within a Project Activity. Notwithstanding anything to the 
contrary in this Compact, the Parties may agree to amend, terminate or 
suspend these Projects or create a new project by written agreement 
signed by the Principal Representative of each Party without amending 
this Compact; provided, however, any such amendment of a Project or 
creation of a new project (i) is consistent with the Objectives; (ii) 
does not cause the amount of MCC Funding to exceed the aggregate amount 
specified in Section 2.1(a) of this Compact; (iii) does not cause the 
Government's responsibilities or contribution of resources to be less 
than specified in Section 2.2 of this Compact or elsewhere in this 
Compact; and (iv) does not extend the Compact Term. The activities of 
the Program generally will be undertaken in Leon-Chinandega.
    (c) Beneficiaries. The intended beneficiaries of each Project are 
described in the respective Schedule to this Program Annex and Annex 
III to the extent identified as of the date hereof. The intended 
beneficiaries shall be identified more precisely during the initial 
phases of the implementation of the Program. The Parties shall agree 
upon the description of the intended beneficiaries of the Program, and 
the Parties will make publicly available a more detailed description of 
these beneficiaries, including publishing such description on the MCA-
Nicaragua Web site.
    (d) Civil Society. Civil society shall participate in overseeing 
the implementation of the Program through its representation on, and as 
Observers to, the Board, as provided in Section 3(d) of this Program 
Annex. In addition, the Work Plans and/or Procurement Plans for each 
Project shall note the extent to which civil society will have a role 
in the implementation of a particular Project or Project Activity. 
Finally, members of civil society may be recipients of training or 
other public awareness programs that are integral to the Project 
Activities.
    (e) Monitoring and Evaluation. Annex III of this Compact generally 
describes the plan to measure and evaluate progress toward achievement 
of the Compact Goal and Objectives of this Compact (the ``M&E Plan''). 
As outlined in the Disbursement Agreement and other Supplemental 
Agreements, continued disbursement of MCC Funding under this Compact 
(whether as MCC Disbursements or Re-Disbursements) shall be contingent, 
among other things, on successful achievement of targets set forth in 
the M&E Plan.

3. Implementation Framework

    The implementation framework and the plan for ensuring adequate 
governance, oversight, management, monitoring, evaluation and fiscal 
accountability for the use of MCC Funding is summarized below and in 
the Schedules attached to this Program Annex, or as may otherwise be 
agreed in writing by the Parties.
    (a) General. The elements of the implementation framework will be 
further described in relevant Supplemental Agreements and in a detailed 
plan for the implementation of the Program and each Project (the 
``Implementation Plan''), which will be memorialized in one or more 
documents and shall consist of a Financial Plan, Fiscal Accountability 
Plan, Procurement Plan, Program and Project Work Plans, and M&E Plan. 
MCA-Nicaragua shall adopt each component of the Implementation Plan in 
accordance with the requirements and timeframe as may be specified in 
this Program Annex, the Disbursement Agreement or as may otherwise be 
agreed by the Parties from time to time. MCA-Nicaragua may amend the 
Implementation Plan or any component thereof without amending this 
Compact, provided any material amendment of the Implementation Plan or 
any component thereof has been approved by MCC and is otherwise 
consistent with the requirements of this Compact and any relevant 
Supplemental Agreement between the Parties. By such time as may be 
specified in the Disbursement Agreement or as may otherwise be agreed 
by the Parties from time to time,

[[Page 44443]]

MCA-Nicaragua shall adopt one or more work plans for the overall 
administration of the Program and for each Project (collectively, the 
``Work Plans''). The Work Plan(s) shall set forth the details of each 
activity to be undertaken or funded by MCC Funding as well as the 
allocation of roles and responsibilities for specific Project 
activities, or other programmatic guidelines, performance requirements, 
targets, or other expectations for a Project.
    (b) Government.
    (i) The Government shall promptly take all necessary and 
appropriate actions to carry out the Government Responsibilities and 
other obligations or responsibilities of the Government under and in 
furtherance of this Compact, including undertaking or pursuing such 
legal, legislative or regulatory actions, procedural changes and 
contractual arrangements as may be necessary or appropriate to achieve 
the Objectives, to successfully implement the Program, to designate any 
rights or responsibilities to any Permitted Designee, and to establish 
MCA-Nicaragua, which shall have the form, structure and other features 
to be determined and agreed upon by the Parties on or before the time 
specified in the Disbursement Agreement and which shall be responsible 
for the oversight and management of the implementation of this Compact 
on behalf of the Government. The Government shall promptly deliver to 
MCC certified copies of any documents, orders, decrees, laws or 
regulations evidencing such legal, legislative, regulatory, procedural, 
contractual or other actions.
    (ii) During the Compact Term, the Government shall ensure that MCA-
Nicaragua is duly authorized and organized, and sufficiently staffed 
and empowered, to fully carry out the Designated Rights and 
Responsibilities. Without limiting the generality of the preceding 
sentence, MCA-Nicaragua shall be organized, and have such roles and 
responsibilities, as described in Section 3(d) of this Program Annex 
and as provided in applicable law and in the Governance Agreement and 
any other Governing Documents; provided, however, the Government or 
another Permitted Designee may, subject to MCC approval, carry out any 
of the roles and responsibilities designated to be carried out by MCA-
Nicaragua and described in Section 3(d) of this Program Annex or 
elsewhere in this Program Annex, applicable law, the Governance 
Agreement, or any other Governing Document or Supplemental Agreement 
prior to and during the initial period of the establishment and 
staffing of MCA-Nicaragua, but in no event longer than the earlier of 
(i) the formation of the Board, establishment of MCA-Nicaragua 
(including the Technical Secretariat) and engagement of each of the 
Officers and (ii) six months from the Entry into Force, unless 
otherwise agreed by the Parties in writing.
    (c) MCC.
    (i) Notwithstanding Section 3.1 of this Compact or any provision in 
this Program Annex to the contrary, and except as may be otherwise 
agreed upon by the Parties from time to time, MCC must approve in 
writing each of the following transactions, activities, agreements and 
documents prior to the execution or carrying out of such transaction, 
activity, agreement or document and prior to MCC Disbursements or Re-
Disbursements in connection therewith:
    (1) MCC Disbursements;
    (2) Each component of the Financial Plan and any amendments and 
supplements thereto;
    (3) Any Audit Plan;
    (4) Agreements (i) between the Government and MCA-Nicaragua, (ii) 
between the Government, a Government Affiliate, MCA-Nicaragua or any 
other Permitted Designee, on the one hand, and any Provider or 
Affiliate of a Provider, on the other hand, (A) which require such MCC 
approval under applicable law, the Procurement Agreement, the 
Governance Agreement, any other Governing Document, or any other 
Supplemental Agreement, or (iii) in which the Government, Government 
Affiliate, MCA-Nicaragua or any other Permitted Designee appoints, 
hires or engages any of the following in furtherance of this Compact:
    (A) Auditor and Reviewer;
    (B) Fiscal Agent;
    (C) Bank;
    (D) Procurement Agent and Procurement Supervisor;
    (E) Outside Project Manager;
    (F) Implementing Entity; and
    (G) Director, Observer, Officer and/or other key employee or 
contractor of MCA-Nicaragua, including any compensation for such 
person. (Any agreement described in clause (i) through (iii) of this 
Section 3(c)(i)(4) and any amendments and supplements thereto, each, a 
``Material Agreement'');
    (5) Any modification, termination or suspension of a Material 
Agreement, or any action that would have the effect of such a 
modification, termination or suspension of a Material Agreement;
    (6) Any agreement that is (A) not at arm's length or (B) with a 
party related to the Government, MCA-Nicaragua, or any of their 
respective Affiliates;
    (7) Any Re-Disbursement (each, a ``Material Re-Disbursement'') that 
requires such MCC approval under applicable law, the Procurement 
Agreement, the Governance Agreement, any other Governing Document or 
any other Supplemental Agreement;
    (8) Any terms of reference for the procurement of goods, services 
or works that require such MCC approval under applicable law, the 
Procurement Agreement, the Governance Agreement, any other Governing 
Document or any other Supplemental Agreement (each, a ``Material Terms 
of Reference'');
    (9) The Implementation Plan, including each component plan thereto, 
and any material amendments and supplements to the Implementation Plan 
or any component thereto;
    (10) Any pledge of any MCC Funding or any Program Assets or any 
guarantee directly or indirectly of any indebtedness (each, a 
``Pledge'');
    (11) Any decree, legislation, regulation, contractual arrangement 
or other document establishing or governing MCA-Nicaragua, including 
the Governance Agreement (``Governing Document'');
    (12) Any disposition (in whole or in part), liquidation, 
dissolution, winding up, reorganization or other change of (A) MCA-
Nicaragua, including any revocation or modification of, or supplement 
to, any Governing Document related thereto, or (B) any subsidiary or 
Affiliate of MCA-Nicaragua;
    (13) Any change in character or location of any Permitted Account;
    (14) Formation or acquisition of any subsidiary (direct or 
indirect) or other Affiliate of MCA-Nicaragua;
    (15) Any (A) change of a Director, Observer, Officer or other key 
employee or contractor of MCA-Nicaragua, or in the composition of the 
Board, including approval of the nominee for Chairman, or (B) filling 
of any vacant seat of the Chairman, a Director or an Observer or vacant 
position of an Officer or other key employee or contractor of MCA-
Nicaragua;
    (16) The management information system to be developed and 
maintained by the Technical Secretariat of MCA-Nicaragua, and any 
material modifications to such system;
    (17) Any decision to amend, supplement, replace, terminate or 
otherwise change any of the foregoing; and
    (18) Any other activity, agreement, document or transaction 
requiring the approval of MCC in this Compact, applicable law, the 
Governance Agreement, any other Governing Document, the Procurement 
Agreement,

[[Page 44444]]

the Disbursement Agreement, or any other Supplemental Agreement between 
the Parties.
    The Chairman of the Board (the ``Chairman'') and/or the General 
Director of MCA-Nicaragua (the ``General Director'') or other 
designated Officer, as provided in applicable law and the Governance 
Agreement, shall certify any documents or reports delivered to MCC in 
satisfaction of the Government's reporting requirements under this 
Compact or any Supplemental Agreement between the Parties (the 
``Compact Reports'').
    (ii) MCC shall have the authority to exercise its approval rights 
set forth in this Section 3(c) in its sole discretion and independent 
of any participation or position taken by the MCC Representative at a 
meeting of the Board. MCC retains the right to revoke its approval of 
any matter, agreement or action if MCC concludes, in its sole 
discretion, that its approval was issued on the basis of incomplete, 
inaccurate or misleading information furnished by the Government, any 
Government Affiliate, MCA-Nicaragua or any other Permitted Designee. 
Notwithstanding any provision in this Compact or any Supplemental 
Agreement to the contrary, the exercise by MCC of its approval rights 
under this Compact or any Supplemental Agreement shall not (1) diminish 
or otherwise affect the Government Responsibilities or any other 
obligations or responsibilities of the Government under this Compact or 
any Supplemental Agreement, (2) transfer any such obligations or 
responsibilities of the Government, or (3) otherwise subject MCC to any 
liability.
    (d) MCA-Nicaragua.
    (i) General. Unless otherwise agreed by the Parties in writing, 
MCA-Nicaragua shall, as a Permitted Designee, be responsible for the 
oversight and management of the implementation of this Compact. MCA-
Nicaragua shall be governed by applicable law, a governance agreement 
to be entered into by the Government and MCA-Nicaragua, in a form and 
substance satisfactory to MCC, on or before the time specified in the 
Disbursement Agreement (``Governance Agreement''), and any other 
Governing Documents, based on the following principles:
    (1) The Government shall ensure that MCA-Nicaragua shall not 
assign, delegate or contract any of the Designated Rights and 
Responsibilities without the prior written consent of the Government 
and MCC. MCA-Nicaragua shall not establish any Affiliates or 
subsidiaries (direct or indirect) without the prior written consent of 
the Government and MCC.
    (2) Unless otherwise agreed by the Parties in writing, MCA-
Nicaragua shall consist of (a) an independent board of directors (the 
``Board'') to oversee MCA-Nicaragua's responsibilities and obligations 
under this Compact (including any Designated Rights and 
Responsibilities) and (b) a management team (the ``Technical 
Secretariat'') to have overall management responsibility for the 
implementation of this Compact.
    (ii) Board.
    (1) Formation. The Government shall ensure that the Board shall be 
formed, constituted, governed and operated in accordance with 
applicable law and the terms and conditions set forth in the Governance 
Agreement, any other applicable Governing Document, and any other 
relevant Supplemental Agreement.
    (2) Composition. Unless otherwise agreed by the Parties in writing, 
the Board shall consist of (i) seven voting members, one of whom shall 
be appointed the Chairman as provided in applicable law, the Governance 
Agreement or any other Governing Document and subject to MCC approval, 
and (ii) non-voting observers (the ``Observers'').
    (A) Unless otherwise agreed by the Parties in writing, the Board 
shall initially be composed of seven voting members as follows:
    (i) Four (4) minister- or secretary-level representatives of the 
Government (each, a ``Government Board Member''), each of whom shall be 
appointed by the President of the Republic of Nicaragua, which 
appointment shall be subject to MCC approval;
    (ii) Two (2) representatives drawn from among the Civil Observers 
(each, a ``Civil Board Member''); and
    (iii) One (1) mayor drawn from among the Mayor Observers (the 
``Mayor Board Member'').
    (B) The Observers shall be:
    (i) A representative (the ``MCC Representative'') appointed by MCC;
    (ii) A representative (each, a ``Government Observer'' appointed by 
each of the following Government ministries:
    a. The Ministry of Agriculture and Forestry (``MAGFOR'');
    b. The Ministry of Transportation and Infrastructure (``MTI''); and
    c. The Ministry of the Environment and Natural Resources of 
Nicaragua (``MARENA'');
    (iii) A representative (each, a ``Civil Observer'') appointed by 
each of the following civil society organizations, which representative 
cannot be a public official:
    a. Le[oacute]n Local Development Council;
    b. Chinandega Local Development Council;
    c. Two (2) other civil society organizations, the selection of 
which shall be subject to MCC approval; and
    d. Such other organization(s) to which the Parties mutually agree.
    (iv) Two (2) mayor representatives (each, a ``Mayor Observer''), 
one elected by all of the mayors of municipalities within the 
department of Le[oacute]n, and the other elected by all of the mayors 
of the municipalities within the department of Chinandega.
    (C) Each Government Board Member position shall be filled by the 
individual then holding the office identified, and such individuals 
shall serve in their capacity as the applicable Government official and 
not in their personal capacity. Each Government Board Member may be 
replaced by another government official of comparable rank from a 
ministry or other government body relevant to the Program activities, 
subject to approval by the Government and MCC. Each Mayor Observer may 
be replaced by another mayor elected by all of the mayors of 
municipalities within the department where such Mayor Observer is from.
    (D) The Parties shall mutually agree on the individual who shall 
initially fill the seat of Chairman and any person who subsequently 
serves as Chairman.
    (E) Each Observer shall have rights to attend all meetings of the 
Board, participate in the discussions of the Board, and receive all 
information and documents provided to the Board, together with any 
other rights of access to records, employees or facilities as would be 
granted to a member of the Board under applicable law, the Governance 
Agreement and any other Governing Document.
    (F) The Chairman, in the presence of the other Government Board 
Members and the MCC Representative, shall choose by lot the initial two 
(2) Civil Board Members from among the four (4) Civil Observers, who 
shall serve as voting members of the Board for two non-consecutive 
terms of fifteen (15) months each beginning on the Entry into Force and 
the day following the 30-month anniversary of the Entry into Force, 
respectively. The remaining two (2) Civil Observers shall serve as 
voting members of the Board for two non-consecutive terms of fifteen 
(15) months each beginning on the day following the expiration of the 
15-month anniversary of the Entry into Force and the day following the 
45-month anniversary of the Entry into Force, respectively. This 
Compact, applicable law, the Governance Agreement and relevant

[[Page 44445]]

Supplemental Agreements between the Parties shall govern the terms and 
conditions of the participation of the Civil Observers on the Board. 
For purposes of this paragraph and the next, a ``15-month'' term shall 
equal 457 days for terms 1 and 2 and 456 days for terms 3 and 4. If the 
Parties mutually agree to more than four (4) Civil Observers, the 
Parties shall determine a mutually acceptable manner for modifying the 
procedure for choosing the Civil Board Members to allow, to the extent 
practical, all Civil Observers an equal opportunity to serve as a Civil 
Board Member.
    (G) The Chairman, in the presence of the other Government Board 
Members and the MCC Representative, shall choose by lot the initial 
Mayor Board Member from among the two (2) Mayor Observers, who shall 
serve as a voting member of the Board for two non-consecutive terms of 
fifteen (15) months each beginning on the Entry into Force and the day 
following the 30-month anniversary of the Entry into Force, 
respectively. The other Mayor Observer shall serve as a voting member 
of the Board for two non-consecutive terms of fifteen (15) months each 
beginning on the day following the expiration of the 15-month 
anniversary of the Entry into Force and the day following the 45-month 
anniversary of the Entry into Force, respectively. This Compact, 
applicable law, the Governance Agreement and relevant Supplemental 
Agreements between the Parties shall govern the terms and conditions of 
the participation of the Mayor Observers on the Board. If the Parties 
mutually agree to more than two (2) Mayor Observers, the Parties shall 
determine a mutually acceptable manner for modifying the procedure for 
choosing the Mayor Board Members to allow, to the extent practical, all 
Mayor Observers an equal opportunity to serve as a Mayor Board Member.
    (3) Role and Responsibilities.
    (A) The Board shall oversee the Technical Secretariat, the overall 
implementation of the Program and the performance of the Designated 
Rights and Responsibilities.
    (B) Certain actions may be taken, and certain agreements and other 
documents and instruments may be executed and delivered, by MCA-
Nicaragua only upon the approval and authorization of the Board as 
provided under applicable law or as set forth in the Governance 
Agreement or any other Governing Document, including each MCC 
Disbursement Request, selection or termination of certain Providers, 
any component of the Implementation Plan, certain Re-Disbursements and 
certain terms of reference.
    (C) The Chairman shall certify the approval by the Board of all 
Compact Reports or any other documents or reports from time to time 
delivered to MCC by MCA-Nicaragua (whether or not such documents or 
reports are required to be delivered to MCC), and that such documents 
or reports are true, accurate and complete.
    (D) Without limiting the generality of the Designated Rights and 
Responsibilities that the Government may designate to MCA-Nicaragua, 
and subject to MCC's contractual rights of approval as set forth in 
Section 3(c) of this Program Annex or elsewhere in this Compact or any 
relevant Supplemental Agreement, the Board shall have the exclusive 
authority as between the Board and the Technical Secretariat for all 
actions defined for the Board under applicable law and in the 
Governance Agreement or any other Governing Document and which are 
expressly designated therein as responsibilities that cannot be 
delegated further.
    (4) Indemnification of MCC Representative. The Government shall 
ensure, at the Government's sole cost and expense, that appropriate 
insurance is obtained and appropriate indemnifications and other 
protections are provided, acceptable to MCC and to the fullest extent 
permitted under the laws of the Republic of Nicaragua, to ensure that 
Civil Board Members and Observers shall not be held personally liable 
for the actions or omissions of the Board. Pursuant to Section 5.5 and 
Section 5.8 of this Compact, the Government and MCA-Nicaragua shall 
hold harmless the MCC Representative for any liability or action 
arising out of the MCC Representative's role as a non-voting observer 
on the Board. The Government hereby waives and releases all claims 
related to any such liability and acknowledges that the MCC 
Representative has no fiduciary duty to MCA-Nicaragua. In matters 
arising under or relating to the Compact, the MCC Representative is not 
subject to the jurisdiction of the courts or other body of Nicaragua. 
MCA-Nicaragua shall provide a written waiver and acknowledgement that 
no fiduciary duty to MCA-Nicaragua is owed by the MCC Representative.
    (iii) Technical Secretariat. Unless otherwise agreed in writing by 
the Parties, the Technical Secretariat shall report, through the 
General Director or other Officer as designated in applicable law and 
the Governance Agreement, directly to the Board and shall have the 
composition, roles and responsibilities described below and set forth 
more particularly in applicable law and the Governance Agreement and 
any other Governing Document.
    (1) Appointment of General Director. The General Director of MCA-
Nicaragua shall be selected and hired by the Board after an open and 
competitive recruitment and selection process, which appointment shall 
be subject to MCC approval.
    (2) Appointment of Other Officers. Unless otherwise specified in 
the Government Agreement or any other Governing Document, the other 
Officers of MCA-Nicaragua shall be selected and hired by the General 
Director after an open and competitive recruitment and selection 
process, which appointment shall be subject to the approval of the 
Board and MCC.
    (3) Composition. The Government shall ensure that the Technical 
Secretariat shall be composed of qualified experts from the public or 
private sectors, including such offices and staff as may be necessary 
to carry out effectively its responsibilities, each with such powers 
and responsibilities as set forth in applicable law and the Governance 
Agreement, any Governing Document and from time to time in any 
Supplemental Agreement between the Parties, including the following: 
(i) General Director; (ii) Administration and Finance Director; (iii) 
Monitoring and Evaluation Director; (iv) Environmental and Social 
Impact Specialist, (v) Management Information Systems Director; (vi) 
Communications Director; and (vii) Infrastructure Specialist and Rural 
Business Specialist (each, a ``Project Specialist'') (the persons 
holding the positions in sub-clauses (i) through (vii) and such other 
offices as may be created and designated in accordance with the 
Governance Agreement and any other Supplemental Agreement between the 
Parties, shall be collectively referred to as ``Officers''). The 
Parties contemplate that for purposes of the initial period of 
operations, and in no event longer than six months, MCA-Nicaragua may 
appoint an acting General Director, subject to the prior approval of 
MCC; provided, during such period, the Board shall ratify the actions 
of such acting General Director and MCA-Nicaragua shall select a 
permanent General Director through a competitive selection process and 
subject to MCC prior approval in accordance with this Annex I.
    (4) Role and Responsibilities.
    (A) The Technical Secretariat shall assist the Board in overseeing 
the implementation of the Program and shall have principal 
responsibility (subject to the direction and oversight of

[[Page 44446]]

the Board and subject to MCC's contractual rights of approval as set 
forth in Section 3(c) of this Program Annex or elsewhere in this 
Compact or any relevant Supplemental Agreement) for the overall 
management of the implementation of the Program.
    (B) Without limiting the foregoing general responsibilities or the 
generality of Designated Rights and Responsibilities that the 
Government may designate to MCA-Nicaragua, the Technical Secretariat 
shall develop the components of the Implementation Plan, oversee the 
implementation of the Projects, manage and coordinate monitoring and 
evaluation, maintain internal accounting records, conduct and oversee 
certain procurements, and perform such other responsibilities as set 
forth in applicable law and the Governance Agreement or delegated to 
the Technical Secretariat by the Board from time to time.
    (C) The Technical Secretariat shall have the obligation and right 
to approve certain actions and documents or agreements, including 
certain Re-Disbursements, MCC Disbursement Requests, Compact Reports, 
certain human resources decisions, and certain procurement actions, as 
provided in applicable law and the Governance Agreement.
    (e) Outside Project Manager. The Technical Secretariat shall have 
the authority to engage qualified persons or entities to serve as 
outside project managers (each, an ``Outside Project Manager'') in the 
event that it is advisable to do so for the proper and efficient day-
to-day management of a Project; provided, however, that the appointment 
or engagement of any Outside Project Manager after a competitive 
selection process shall be subject to approval by the Board and MCC 
prior to such appointment or engagement. Upon Board approval, the 
Technical Secretariat, on behalf of MCA-Nicaragua, may delegate, 
assign, or contract to the Outside Project Managers such duties and 
responsibilities as it deems appropriate with respect to the management 
of the Implementing Entities and the implementation of the specific 
Projects or Project Activities; and provided, further, that the 
Technical Secretariat shall remain accountable for those duties and 
responsibilities and all reports delivered by the Outside Project 
Manager notwithstanding any such delegation, assignment or contract and 
the Outside Project Manager shall be subject to the oversight of the 
Fiscal Agent and Procurement Agent. The Board may, independent of any 
request from the Technical Secretariat, determine that it is advisable 
to engage one or more Outside Project Managers and instruct the 
Technical Secretariat or, where appropriate, a Procurement Agent to 
commence and conduct the competitive selection process for such Outside 
Project Manager.
    (f) Implementing Entities. Subject to the terms and conditions of 
this Compact and any other Supplemental Agreement between the Parties, 
MCA-Nicaragua may provide MCC Funding, directly or indirectly through 
an Outside Project Manager, to one or more Government Affiliates or to 
one or more nongovernmental organization or other public-or private-
sector entities or persons to implement and carry out the Projects or 
any other activities to be carried out in furtherance of this Compact 
(each, an ``Implementing Entity''). The Government shall ensure that 
MCA-Nicaragua (or the appropriate Outside Project Manager) enters into 
an agreement with each Implementing Entity, in form and substance 
satisfactory to MCC, that sets forth the roles and responsibilities of 
such Implementing Entity and other appropriate terms and conditions, 
such as payment of the Implementing Entity (the ``Implementing Entity 
Agreement''). An Implementing Entity shall report directly to the 
Technical Secretariat or Outside Project Manager, as designated in the 
applicable Implementing Entity Agreement or as otherwise agreed by the 
Parties.
    (g) Fiscal Agent. The Government shall ensure that MCA-Nicaragua 
engages one or more fiscal agents (each, a ``Fiscal Agent''), who shall 
be responsible for, among other things: (i) Ensuring and certifying 
that Re-Disbursements are properly authorized and documented in 
accordance with established control procedures set forth in the 
Disbursement Agreement, the Fiscal Agent Agreement and other relevant 
Supplemental Agreements; (ii) Re-Disbursement and cash management, 
including instructing a Bank to make Re-Disbursements from a Permitted 
Account (to which the Fiscal Agent has sole signature authority), 
following applicable certification by the Fiscal Agent; (iii) providing 
applicable certifications for MCC Disbursement Requests; (iv) 
maintaining proper accounting of all MCC Funding financial transactions 
and certain other accounting functions; (v) producing reports on MCC 
Disbursements and Re-Disbursements (including any requests therefore) 
in accordance with established procedures set forth in the Disbursement 
Agreement, the Fiscal Agent Agreement or any other relevant 
Supplemental Agreements; (vi) funds control; and (vii) procurement 
functions, as may be specified from time to time. Upon the written 
request of MCC, the Government shall ensure that MCA-Nicaragua 
terminates a Fiscal Agent, without any liability to MCC, and the 
Government shall ensure that MCA-Nicaragua engages a new Fiscal Agent, 
subject to the approval by the Board and MCC. The Government shall 
ensure that MCA-Nicaragua enters into an agreement with each Fiscal 
Agent, in form and substance satisfactory to MCC, that sets forth the 
roles and responsibilities of the Fiscal Agent and other appropriate 
terms and conditions, such as payment of the Fiscal Agent (``Fiscal 
Agent Agreement'').
    (h) Auditors and Reviewers. The Government shall ensure that MCA-
Nicaragua carries out the Government's audit responsibilities as 
provided in Sections 3.8(d), (e) and (f) of this Compact, including 
engaging one or more auditors (each, an ``Auditor'') required by 
Section 3.8(d) of this Compact. As requested by MCC in writing from 
time to time, the Government shall ensure that MCA-Nicaragua also 
engages (i) an independent reviewer to conduct reviews of performance 
and compliance under this Compact pursuant to Section 3.8(f) of this 
Compact, which reviewer shall have the capacity to (A) conduct general 
reviews of performance or compliance, (B) conduct environmental audits, 
and (C) conduct data quality assessments in accordance with the M&E 
Plan, as described more fully in Annex III, and/or (ii) an independent 
evaluator to assess performance as required under the M&E Plan (each, a 
``Reviewer''). MCA-Nicaragua shall select the Auditor(s) or Reviewers 
in accordance with the Governance Agreement, any other Governing 
Document or other relevant Supplemental Agreement. The Government shall 
ensure that MCA-Nicaragua enters into an agreement with each Auditor or 
Reviewer, in form and substance satisfactory to MCC, that sets forth 
the roles and responsibilities of the Auditor or Reviewer with respect 
to the audit, review or evaluation, including access rights, required 
form and content of the applicable audit, review or evaluation and 
other appropriate terms and conditions such as payment of the Auditor 
or Reviewer (the ``Auditor/Reviewer Agreement''). In the case of a 
financial audit required by Section 3.8(f) of this Compact, such 
Auditor/Reviewer Agreement shall be effective no later than 120 days 
prior to the end of the relevant fiscal year or other period to be 
audited; provided, however, if MCC

[[Page 44447]]

requires concurrent audits of financial information or reviews of 
performance and compliance under this Compact, then such Auditor/
Reviewer Agreement shall be effective no later than a date agreed by 
the Parties in writing.
    (i) Procurement Agent. If requested by MCC, the Government shall 
ensure that MCA-Nicaragua engages one or more procurement agents (each, 
a ``Procurement Agent'') to carry out and/or certify specified 
procurement activities in furtherance of this Compact on behalf of the 
Government, MCA-Nicaragua, any Outside Project Manager or Implementing 
Entity. The role and responsibilities of such Procurement Agent and the 
criteria for selection of a Procurement Agent shall be as set forth in 
the applicable Implementation Letter or Supplemental Agreement. The 
Government shall ensure that MCA-Nicaragua enters into an agreement 
with the Procurement Agent, in form and substance satisfactory to MCC, 
that sets forth the roles and responsibilities of the Procurement Agent 
with respect to the conduct, monitoring and review of procurements and 
other appropriate terms and conditions, such as payment of the 
Procurement Agent (the ``Procurement Agent Agreement''). Any 
Procurement Agent shall adhere to the procurement standards set forth 
in the Procurement Agreement and Procurement Guidelines and ensure 
procurements are consistent with the procurement plan (the 
``Procurement Plan'') adopted by MCA-Nicaragua, which plan shall 
forecast the upcoming eighteen month procurement activities and be 
updated every six months.
    (j) Procurement Supervisor. If requested by MCC, the Government 
shall ensure that MCA-Nicaragua engages one or more procurement 
supervisors (each, a ``Procurement Supervisor'') to supervise specified 
procurement activities in furtherance of this Compact on behalf of the 
Government, MCA-Nicaragua, any Outside Project Manager or any 
Implementing Entity. The role and responsibilities of such Procurement 
Supervisor and the criteria for selection of a Procurement Supervisor 
shall be as set forth in the applicable Implementation Letter or 
Supplemental Agreement. The Government shall ensure that MCA-Nicaragua 
enters into an agreement with the Procurement Supervisor, in form and 
substance satisfactory to MCC, that sets forth the roles and 
responsibilities of the Procurement Supervisor with respect to the 
conduct, monitoring and review of procurements and other appropriate 
terms and conditions, such as payment of the Procurement Supervisor 
(the ``Procurement Supervisor Agreement''). Any Procurement Supervisor 
shall ensure that the procurement standards set forth in the 
Procurement Guidelines are adhered to and ensure procurements are 
consistent with the Procurement Plan.

4. Finances and Fiscal Accountability

    (a) Financial Plan.
    (i) Multi-Year Financial Plan. The multi-year financial plan for 
the Program and for each Project (the ``Multi-Year Financial Plan'') is 
summarized in Annex II to this Compact.
    (ii) Detailed Financial Plan. During the Compact Term, the 
Government shall ensure that MCA-Nicaragua delivers to MCC timely 
financial plans that specify, respectively, the annual and quarterly 
detailed budget and projected cash requirements for the Program and 
each Project (including monitoring, evaluation and administrative 
costs), projected both on a commitment and cash requirement basis (each 
a ``Detailed Financial Plan''). Each Detailed Financial Plan shall be 
delivered by such time as specified in the Disbursement Agreement or as 
may otherwise be agreed by the Parties. The Multi-Year Financial Plan 
and each Detailed Financial Plan and each amendment, supplement or 
other change thereto are collectively, the ``Financial Plan.''
    (iii) Expenditures. No financial commitment involving MCC Funding 
shall be made, no obligation of MCC Funding shall be incurred, and no 
Re-Disbursement shall be made or MCC Disbursement Request submitted for 
any activity or expenditure, unless the expense is provided for in the 
Detailed Financial Plan and unless uncommitted funds exist in the 
balance of the Detailed Financial Plan for the relevant period or 
unless the Parties otherwise agree in writing.
    (iv) Modifications to Financial Plan. Notwithstanding anything to 
the contrary in this Compact, MCA-Nicaragua may amend or supplement the 
Financial Plan or any component thereof without amending this Compact, 
provided any material amendment or supplement has been approved by MCC 
and is otherwise consistent with the requirements of this Compact and 
any relevant Supplemental Agreement between the Parties.
    (b) Disbursement and Re-Disbursement. The Disbursement Agreement 
(and disbursement schedules thereto), as amended from time to time, 
shall specify the terms, conditions and procedures on which MCC 
Disbursements and Re-Disbursements shall be made. The obligation of MCC 
to make MCC Disbursements or approve Re-Disbursements is subject to the 
fulfillment, waiver or deferral of any such terms and conditions. The 
Government and MCA-Nicaragua shall jointly submit the applicable 
request for an MCC Disbursement (the ``MCC Disbursement Request'') as 
may be specified in the Disbursement Agreement. MCC will make MCC 
Disbursements in tranches to a Permitted Account from time to time as 
provided in the Disbursement Agreement or as may otherwise be agreed by 
the Parties, subject to Program requirements and performance by the 
Government, MCA-Nicaragua and other relevant parties in furtherance of 
this Compact. Re-Disbursements will be made from time to time based on 
requests by an authorized representative of the appropriate party 
designated for the size and type of Re-Disbursement in accordance with 
the Governance Agreement and Disbursement Agreement; provided, however, 
unless otherwise agreed by the Parties in writing, no Re-Disbursement 
shall be made unless and until the written approvals specified herein 
or in the Governance Agreement and Disbursement Agreement for such Re-
Disbursement have been obtained and delivered to the Fiscal Agent.
    (c) Fiscal Accountability Plan. By such time as specified in the 
Disbursement Agreement or as otherwise agreed by the Parties, MCA-
Nicaragua shall adopt as part of the Implementation Plan a fiscal 
accountability plan that identifies the principles and mechanisms to 
ensure appropriate fiscal accountability for the use of MCC Funding 
provided under this Compact, including the process to ensure that open, 
fair, and competitive procedures will be used in a transparent manner 
in the administration of grants or cooperative agreements and the 
procurement of goods and services for the accomplishment of the 
Objectives (the ``Fiscal Accountability Plan''). The Fiscal 
Accountability Plan shall set forth, among other things, requirements 
with respect to the following matters: (i) Funds control and 
documentation; (ii) separation of duties and internal controls; (iii) 
accounting standards and systems; (iv) content and timing of reports; 
(v) policies concerning public availability of all financial 
information; (vi) cash management practices; (vii) procurement and 
contracting practices, including timely payment to vendors; (viii) the 
role of independent auditors; and (ix) the roles of fiscal agents and 
procurement agents.

[[Page 44448]]

    (d) Permitted Accounts. The Government shall establish, or cause to 
be established, such accounts (each, a ``Permitted Account,'' and 
collectively ``Permitted Accounts'') as may be agreed by the Parties in 
writing from time to time, including:
    (i) A single, completely separate U.S. Dollar interest-bearing 
account (the ``Special Account'') at a commercial bank that is procured 
through a competitive process to receive MCC Disbursements;
    (ii) If necessary, an interest-bearing local currency of Nicaragua 
account (the ``Local Account'') at the Commercial Bank to which the 
Fiscal Agent may authorize transfer from any U.S. Dollar Permitted 
Account for the purpose of making Re-Disbursements payable in local 
currency; and
    (iii) Such other interest-bearing accounts to receive MCC 
Disbursements in such bank as the Parties mutually agree upon in 
writing.
    No other funds shall be commingled in a Permitted Account other 
than MCC Funding and Accrued Interest thereon. All MCC Funding held in 
an interest-bearing Permitted Account shall earn interest at a rate of 
no less than such amount as the Parties may agree in the respective 
Bank Agreement or otherwise. MCC shall have the right, among other 
things, to view any Permitted Account statements and activity directly 
on-line, where feasible, or at such other frequency as the Parties may 
otherwise agree. By such time as shall be specified in the Disbursement 
Agreement or as otherwise agreed by the Parties, the Government shall 
ensure that MCA-Nicaragua enters into an agreement with each Bank, 
respectively, satisfactory to MCC, that sets forth the signatory 
authority, access rights, anti-money laundering and anti-terrorist 
financing provisions, and other terms related to the Permitted Account, 
respectively (each a ``Bank Agreement''). For purposes of this Compact, 
any bank holding an account referenced in Section 4(d) of this Program 
Annex are each a ``Bank'' and, are collectively referred to as the 
``Banks.''
    (e) Currency Exchange. The Bank shall convert MCC Funding to the 
currency of Nicaragua at a rate to which the Parties mutually agree 
with the Bank in the Bank Agreement.

5. Transparency; Accountability

    Transparency and accountability to MCC and to the beneficiaries are 
important aspects of the Program and Projects. Without limiting the 
generality of the foregoing, in an effort to achieve the goals of 
transparency and accountability, the Government shall ensure that MCA-
Nicaragua:
    (a) Establishes an e-mail suggestion box as well as a means for 
other written comments that interested persons may use to communicate 
ideas, suggestions or feedback to MCA-Nicaragua;
    (b) Considers as a factor in its decision-making the 
recommendations of the Observers, particularly in MCA-Nicaragua's 
deliberations over pending key Technical Secretariat decisions and key 
Board decisions as shall be specified in applicable law, the Governance 
Agreement and any other Governing Document;
    (c) Develops and maintains a Web site (the ``MCA-Nicaragua Web 
site'') in a timely, accurate and appropriately comprehensive manner, 
such MCA-Nicaragua Web site to include postings of information and 
documents in English and Spanish; and
    (d) Posts on the MCA-Nicaragua Web site and otherwise makes 
publicly available from time to time the following documents or 
information, including by posting on the MCA-Nicaragua Web site, with 
links to and from the official Web site of the Government (http://www.presidencia.gob.ni) and the Web site of the Embassy of Nicaragua in 
the United States (http://managua.usembassy.gov):
    (i) All minutes of the meetings of the Board;
    (ii) The M&E Plan, as amended from time to time, along with 
periodic reports on Program performance;
    (iii) All relevant Environmental Impact Assessments and supporting 
documents;
    (iv) Such financial information as may be required by this Compact 
or as may otherwise be agreed from time to time by the Parties;
    (v) All Compact Reports;
    (vi) All audit reports by an Auditor and any periodic reports or 
evaluations by a Reviewer;
    (vii) A copy of the Disbursement Agreement, as amended from time to 
time;
    (viii) A copy of the Procurement Agreement (including Procurement 
Guidelines), Procurement Plan, procurement policies and standard 
documents, bid requests and awarded contracts; and
    (ix) A copy of any documents related to the formation, organization 
and governance of MCA-Nicaragua, including the Governance Agreement and 
any other Governing Documents, and any amendments thereto.

Schedule 1 to Annex I--Property Regularization Project

    This Schedule 1 generally describes and summarizes the key elements 
of a property regularization project that the Parties intend to 
implement in furtherance of the Property Regularization Objective (the 
``Property Regularization Project''). Additional details regarding the 
implementation of the Property Regularization Project will be included 
in the Implementation Plan and in relevant Supplemental Agreements.

1. Background

    Insecure property rights and high transaction costs in Nicaragua's 
land market and property registration system restrict enterprise 
development, investment and income growth, particularly in rural areas. 
The shortcomings of Nicaragua's ineffective property registration 
system are evidenced by the fact that more than sixty percent of all 
land in Nicaragua is estimated to lack adequate property records. This 
lack of secure property rights impedes national and international 
sources of investment and finance, hindering entrepreneurship and 
household asset growth. Land tenure insecurity also is an obstacle to 
investment in public infrastructure such as streets, electricity, and 
water and waste services. In recent years, the Government has taken 
steps to implement a systematic approach to land title regularization 
and to advance institutional and legal reforms, including new cadastre 
and property registration laws that will, if implemented properly, 
create a platform for significant progress in this area. Recent studies 
supported by the World Bank show that regularizing property rights in 
Nicaragua through land titling and property registration has been 
associated with a 30% increase in asset values and a 10% increase in 
the probability of landholders undertaking additional investments in 
that property. With support from the World Bank and Nordic Development 
Fund, the Government also has initiated work to modernize the property 
registration system to clarify rights and to update records so that 
beneficiaries in the Departments of Chinandega, Esteli and Madriz will 
have accurate and registered land titles. MCC Funding will be used to 
expand these reforms and strengthen property rights in the Department 
of Leon (``Leon'') through the Project Activities described below.

[[Page 44449]]

2. Summary of Project Activities

    The Property Regularization Project is designed to increase 
investment by strengthening property rights in Leon. The key activities 
of the Property Regularization Project include:
     Institutional Capacity Building. Provide technical support 
to government institutions to implement and sustain tenure 
regularization reforms in Leon.
     Cadastral Mapping. Conduct area-wide cadastral mapping in 
Leon to obtain current property descriptions to be recorded in a 
geographic information system.
     Land Tenure Regularization. Clarify land tenure, resolve 
disputes, and improve formal documentation of property rights.
     Database Installation. Link municipal and national 
registry and cadastral databases by installing the Integrated System of 
Cadastral and Registration Information (SIICAR) in Leon.
     Protected Area Demarcation. Demarcate and legally validate 
the boundaries of four environmentally-sensitive protected areas, 
regularize land rights within the perimeter of each, and facilitate the 
adoption of land use management plans by occupants therein.
     Analysis and Communications. Fund short-term technical 
assistance, policy analysis and outreach to promote participation in, 
the use and the sustainability of the improved property registration 
system.
    The M&E Plan (described in Annex III) will set forth anticipated 
results and, where appropriate, regular benchmarks that may be used to 
monitor implementation progress. Performance against these benchmarks 
and the overall impact of the Property Regularization Project will be 
assessed and reported at the intervals to be specified in the M&E Plan 
or as otherwise agreed by the Parties from time to time. The Parties 
expect that additional indicators will be identified during the 
implementation of the Property Regularization Project.
    The following summarizes the contemplated Property Regularization 
Project Activities:
(a) Activity: Institutional Capacity Building
    To build the capacity of government institutions in Le[oacute]n for 
recording property rights and providing related services for property 
transactions in Le[oacute]n, MCC Funding will be used to:
    (i) Expand the technical and administrative capacity of the 
Technical Secretariat of Proyecto de Ordenamiento de la Propiedad 
(PRODEP)\3\ by hiring staff, procuring equipment and funding other 
operational expenses necessary to implement activities (b)-(d) below;
---------------------------------------------------------------------------

    \3\ PRODEP, constituted by decree as a technical secretariat of 
the Ministry of Finance and Public Credit, was developed, and is 
supported, by the World Bank. PRODEP is responsible for, among other 
things, implementing donor programs to modernize Nicaragua's land 
registry and cadastral systems and to regularize land rights.
---------------------------------------------------------------------------

    (ii) Provide technical assistance and training to registry and 
cadastral officials and technical staff hired or assigned to work on 
the Project; and
    (iii) To the extent necessary to implement activities (b)-(d) 
below, locate, equip and staff (1) the Le[oacute]n regional offices of 
the property registry, the cadastre, the office of alternative conflict 
resolution, the land titling agency, several municipal governments and 
(2) the national cadastre office in Managua.
(b) Activity: Cadastral Mapping
    To provide an accurate and current physical description of all 
property in Le[oacute]n, MCC Funding will be used to:
    (i) Clarify municipal and urban administrative boundaries;
    (ii) Prepare base maps on which parcel boundaries will be 
demarcated;
    (iii) Perform parcel-by-parcel demarcation and mapping; and
    (iv) Publish mapping results to enable owners and occupants to 
review demarcated parcel boundaries and request clarification and/or 
corrections, if needed.
(c) Activity: Land Tenure Regularization
    To achieve accurate, registered and secure land titles or other 
valid property records for property owners in Le[oacute]n, MCC Funding 
will support:
    (i) The gathering of legal and other information about each parcel, 
training of fieldwork teams, and consultation with local authorities in 
Le[oacute]n;
    (ii) A promotion and information campaign to educate Le[oacute]n 
residents about the benefits of participating in the regularization 
process; and
    (iii) Administrative and legal actions to facilitate land title 
clarification and registration and conflict mediation.
(d) Activity: Database Installation
    To integrate physical and legal descriptions of property and to 
develop a land information system, MCC Funding will be used for:
    (i) Procurement and installation of SIICAR, a modern network of 
interconnected registry and cadastral databases that link 
municipalities in Le[oacute]n to other databases;
    (ii) Initial operation of SIICAR in Le[oacute]n, including quality 
control; and
    (iii) Technical assistance and training on the use of SIICAR in 
Le[oacute]n.
(e) Activity: Protected Area Demarcation
    To enable the protection of environmentally sensitive areas and 
regularize land rights within such areas, MCC Funding will be used to:
    (i) Demarcate and legally record the boundaries of four (4) 
environmentally-sensitive protected areas in Le[oacute]n;
    (ii) Provide assistance to communities to implement land use 
management plans for the protected areas;
    (iii) Conduct outreach and education regarding these activities; 
and
    (iv) Coordinate and supervise sub-activities (i)-(iii) above.
(f) Activity: Analysis and Communications
    MCC Funding will support the development of policies, strategies 
and technical measures to promote participation in, and the use and 
sustainability of, the improved property registration system, 
including:
    (i) Implementation of a communications strategy about the overall 
objectives and approach of the Project;
    (ii) Final development and implementation of PRODEP's draft gender 
strategy to improve awareness of women's rights in the regularization 
process;
    (iii) Further development, in consultation with local communities, 
of a property tax strategy to prevent inappropriate taxation of 
regularized property rights and to improve municipal land tax 
administration;
    (iv) Analysis of the impact of an improved property registration 
system on land markets;
    (v) Clarification of the land tenure situation in the indigenous 
community in Le[oacute]n and development of an appropriate approach to 
land tenure regularization in this community;
    (vi) Development of a Project environmental plan to monitor 
potential negative impacts of the Project; and
    (vii) Analysis of other potential administrative, technical and/or 
policy reforms related to topics such as secured lending, mechanisms 
for land acquisition and access, financial sustainability of the 
modernized registry and cadastre, and a national land policy framework.
    The expected results from, and the key benchmarks to measure 
progress on, these activities are set forth in Annex III.

3. Beneficiaries

    The Property Regularization Project will directly benefit anyone 
who has a

[[Page 44450]]

property interest in land in Le[oacute]n and particularly the poor, who 
historically have had a limited ability to resolve land tenure 
irregularities. The Parties anticipate that roughly 40% of the 
beneficiaries of the Project will be women who, jointly or 
independently, have land rights. Residents and businesses in the area 
will benefit from an improved investment climate resulting from 
increased land tenure security and lower property-related transaction 
costs.

4. Coordination With USAID and Other Donors

    USAID[bs]Nicaragua does not currently fund work on 
property rights regularization in Nicaragua. In the recent past, the 
mission supported policy-related research on land market development 
and on property registration with the Nicaraguan Ministry of 
Agriculture and the Inter-American Institute for Cooperation on 
Agriculture. USAID in Washington (Bureau for Latin America and the 
Caribbean) supports the exchange of information to help countries in 
the region achieve property registration goals set at the Summit of the 
Americas and has engaged with the Government of Nicaragua as part of 
this effort. The extension of PRODEP under this Compact complements 
USAID/Nicaragua's economic growth programs to diversify the rural 
sector in Nicaragua.
    Despite past interventions by the World Bank, Inter-American 
Development Bank, USAID, Danish International Development Agency, 
United Nations Development Programme and other donors, Nicaragua still 
faces serious land tenure problems. To address these problems, the 
Government, through PRODEP, seeks to improve the legal and 
institutional framework for property rights. To strengthen consensus 
for reforms, PRODEP benefits from an inter-ministerial advisory 
committee.
    Current funding from the World Bank and the Nordic Development Fund 
has allowed PRODEP to operate its program in Chinandega (in addition to 
Estel[iacute] and Madriz). Additional funding is required to meet the 
pressing property regularization needs of Le[oacute]n to facilitate 
achievement of the Compact Goal. The Property Regularization Project 
will complement World Bank and Nordic Development Fund programs by 
providing the funds necessary for PRODEP to expand its efforts and 
operate in Le[oacute]n. Finally, MCC-supported monitoring and 
evaluation will complement efforts to track progress in Nicaragua on 
land tenure security and land market development indicators that are 
currently under development with European Union support.

5. Sustainability

    The sustainability of the Project's results depends on the extent 
to which people use the improved registration system and fiscal 
capacity of the registry, cadastre and titling services. The incentives 
for people to use and pay for services as well as the quality and costs 
of services will need to be appropriate to the local context. Several 
recent policy reforms that have been formally adopted (e.g., new 
cadastre and registry laws) or that are in process of being adopted 
(e.g., tenure regularization law) will bring about new institutional 
relationships and operational practices that will more effectively 
facilitate the process for keeping property records up-to-date. The 
Government's ability to maintain modern, computerized land records and 
maps and a well-trained staff will depend on both an adequate public 
budget and the Government's ability to set and collect fees for 
services. The World Bank suggests that incorporating up-to-date records 
for the 70% of all properties that are currently either unregistered or 
incorrectly registered will create a vastly expanded number of users. 
More accessible, reliable and efficient services will likely increase 
the willingness of these users to use the system and to pay for 
services. The new registry law will provide an autonomous budget for 
the registry so that it can more rationally project its costs and 
revenues and set fees and budget accordingly. The Project includes 
specific support for training, technical assistance and analysis of 
policy, fee structures and other measures to help ensure 
sustainability.

6. Policy and Legal Reform

    (a) Performance Criteria.
    The Parties have identified the following policy, legal and 
regulatory reforms and actions that the Government shall pursue in 
support, and to reach the full benefits, of the Property Regularization 
Project, the satisfactory implementation of which will be conditions 
precedent to certain MCC Disbursements as provided in the Disbursement 
Agreement:
    (i) Legislation that modernizes tenure regularization and clarifies 
the legal basis for solving irregularities in tenure regularization;
    (ii) Measures to safeguard the Project from any laws, regulations 
or policies that may undermine the results of the Project, including 
those that (i) undermine private land ownership or impede transparent, 
clear transfer of land title, (ii) result in inappropriate taxation of 
regularized property rights, (iii) constitute political manipulation 
during the tenure regularization process, and (iv) result from the 
inappropriate or illegitimate use of supplementary titles (titulo 
supletorio); and
    (iii) Legislation that maintains the integrity of the four (4) 
environmentally-sensitive protected areas in Le[oacute]n demarcated 
under the Project.
    (b) Indicative Goals.
    To improve its level of performance under the policy criteria 
identified in Section 607 of the Act and the MCA Eligibility Criteria, 
the Government will pursue the following legislative and policy 
reforms:
    (i) Legal, regulatory and administrative reforms to improve access 
to secured lending, including relevant aspects of the legal, regulatory 
and administrative framework for secured transactions.

Schedule 2 to Annex I--Transportation Project

    This Schedule 2 generally describes and summarizes the key elements 
of a transportation project that the Parties intend to implement in 
furtherance of the Transportation Objective (the ``Transportation 
Project''). Additional details regarding the implementation of the 
Transportation Project will be included in the Implementation Plan and 
in relevant Supplemental Agreements.

1. Background

    High transportation costs are a significant impediment to economic 
growth in Nicaragua. Even as regional commercial agendas such as DR-
CAFTA promise to create a more competitive environment for trade, the 
cost and efficiency of the country's transportation network continues 
to hold back its true productive capacity. With an average truck speed 
of 20 kilometers per hour, this inadequate infrastructure has driven 
transportation costs in the region to twice that of comparable 
transportation costs in the United States.
    Consequently, the PRSP and NDP propose an ambitious plan to 
strengthen the Nicaraguan transportation network. This fits within the 
broader strategy developed in the Plan Puebla-Panama (``PPP'') to 
create a reliable Mesoamerican network of highways known as the 
International Network of Mesoamerican Highways. This network comprises 
two main corridors on the Atlantic and the Pacific (the ``Atlantic 
Corridor'' and ``Pacific Corridor,''

[[Page 44451]]

respectively) and a series of complementary routes. Under this 
initiative, member countries have pledged to work toward harmonizing 
transportation regulations and standards, modernizing customs 
procedures and border crossings, and strengthening airport security. 
The Atlantic and Pacific Corridors are vital to the integration of 
Central America and will have a significant economic impact on this 
region by creating an efficient connection between the production 
centers in Central America and major port facilities on the Atlantic 
and Pacific Oceans.
    The 3,150 kilometer Pacific Corridor links Mexico, Guatemala, 
Honduras, El Salvador, Nicaragua, Costa Rica and Panama. In Nicaragua, 
the Pacific Corridor connects the Honduran border at Guasaule to the 
Costa Rican border and major production and consumption centers in and 
around the cities of Managua, Leon and Chinandega. The World Bank, the 
Central American Bank for Economic Integration, and the Nordic 
Development Fund have financed the construction of a modern 
transportation route from the Honduran border to the town of Izapa, 
approximately 58 kilometers from the capital of Managua. This remaining 
58 kilometer stretch of road between Izapa and Nejapa (the ``N-I 
Road'') on the outskirts of Managua is the final section needed to 
create an effective trade corridor linking producers and consumers in 
Managua to markets north in neighboring Honduras and El Salvador and 
linking producers in Leon and Chinandega to Managua and markets south. 
The current poor condition of the N-I Road has forced commercial 
traffic to be routed through highly populated centers along Lake 
Managua, negatively impacting service levels, maintenance, and safety.
    Many productive areas in Nicaragua are connected to the main road 
arteries by unpaved secondary roads, whose uneven surfaces prohibit 
rapid transit, cause high vehicle operating costs, and damage 
transported goods, thereby undermining the competitiveness of the 
producers who must use them. These roads are also expensive to 
maintain, requiring periodic re-grading following the rainy season. For 
these reasons, the paving of selective secondary roads is a sound 
investment which contributes to the economic potential of the areas 
they serve.

2. Summary of Project Activities

    The Transportation Project is designed to reduce transportation 
costs between Nicaraguan production centers and national, regional and 
global markets. The key activities of the Transportation Project 
include:
     N-I Road. The improvement of the 58 kilometer N-I Road.
     Secondary Roads. The upgrade of key secondary routes to 
improve the access of rural communities to domestic, regional and 
global markets.
     Technical Assistance. The provision of technical 
assistance to MTI and the Nicaraguan Road Maintenance Fund (Fondo de 
Mantenimiento or ``FOMAV'').
    The M&E Plan (described in Annex III) will set forth anticipated 
results and, where appropriate, regular benchmarks that may be used to 
monitor implementation progress. Performance against these benchmarks 
and the overall impact of the Transportation Project will be assessed 
and reported at the intervals to be specified in the M&E Plan or as 
otherwise agreed by the Parties from time to time. The Parties expect 
that additional indicators will be identified during the implementation 
of the Transportation Project.
    The following summarizes the contemplated Transportation Project 
Activities.
(a) Activity: N-I Road
    MCC Funding will support the following activities in connection 
with the improvements to the N-I Road:
    (i) Final feasibility study, environmental impact assessment, and 
design;
    (ii) Construction along the N-I Road, including building (A) 
appropriate base, sub-base and drainage structures, (B) a high-quality 
paved surface, and (C) entrance and exit lanes in appropriate places;
    (iii)Environmental mitigation measures, as may be appropriate;
    (iv) Signage and other safety improvements;
    (v) Supervision of construction activities; and
    (vi) Compensation for individuals, residences and businesses 
affected by the rehabilitation of the N-I Road consistent with the 
World Bank Policy on Involuntary Resettlement.
(b) Activity: Secondary Roads
    MCC Funding will fund the paving of key secondary roads with the 
most cost-effective and appropriate surfacing technique, which roads 
will be selected from among a portfolio of proposed roads by MCA-
Nicaragua, with MCC approval, subject to the conditions that each 
selected road must:
    (i) Have been included in the medium-term investment plan of MTI;
    (ii) Be located in Leon and/or Chinandega;
    (iii) Conform to the Environmental Guidelines;
    (iv) Conform to the World Bank policy on Involuntary Resettlement, 
where relevant;
    (v) Be fully designed to the satisfaction of MCA-Nicaragua and MCC 
and have technical construction plans that are capable of being 
completed during the Compact Term;
    (vi) Reasonably conform to the priorities of the local development 
councils in Leon and Chinandega;
    (vii) Be properly documented to the satisfaction of MCA-Nicaragua 
and MCC, including a description of the location of the proposed road, 
the type of construction, the estimated cost, a technical and economic 
assessment, land acquisition required, and the status of any necessary 
environmental permits and other requisite licenses; and
    (viii) Be projected ex ante to achieve an economic rate of return 
of not less than eight percent (8%), computed on the basis of a benefit 
stream from decreased vehicle operating costs.
(c) Activity: Technical Assistance to MTI and FOMAV
    MCC Funding will fund technical assistance to build the sustainable 
operational capacity of MTI and FOMAV, an autonomous agency that was 
created within MTI in 2000 with funding from the World Bank and the 
Inter-American Development Bank (``IDB''). FOMAV is primarily 
responsible for all Nicaraguan maintainable roads, as classified by 
MTI.
    The expected results from, and the key benchmarks to measure 
progress on, these activities are set forth in Annex III.

3. Beneficiaries

    The principal beneficiaries of the Transportation Project are 
expected to be (i) users of the improved roads, due to decreased 
transportation costs to markets and social service delivery points 
(e.g., hospitals, schools), and (ii) employees and owners of urban and 
rural businesses that rely on the Nicaraguan road network. The 
Transportation Project also promises to have a significant economic 
impact in the greater Central American region since it constitutes a 
key component of the Pacific Corridor.

4. Coordination With USAID and Other Donors

    (a) Coordination during Project Development. In developing the 
Transportation Project, the Parties investigated the work of the donors 
described below in an effort to ensure that the Transportation Project

[[Page 44452]]

complements, and does not duplicate, replace or harm such work.
    A national plan for transport developed by MTI serves as the basis 
for donor-funded road projects in Nicaragua. A number of multi-lateral 
and bilateral donors and lenders are active in the sector--IDB, World 
Bank, Central American Bank for Economic Integration, Denmark, Spain, 
and Japan, among others.
    The World Bank is in the process of preparing its fourth loan 
related to the Nicaraguan road sector, which is expected to total an 
additional $70-75 million. In addition to funding civil works for 
construction and maintenance of highways, the Bank has funded training 
of MTI and micro-enterprises to perform road maintenance. The Bank's 
Program for Sustainable Institutional Strengthening of the Road Sector 
seeks to institutionally strengthen MTI to improve the quality of road 
construction, the reliability of resources allocated to the sector, 
road safety, and environmental management. A proposed World Bank loan 
is expected to include conditions relating to road maintenance, local 
counterpart funds, and social studies.
    In 2003, the World Bank and IDB began funding FOMAV to strengthen 
its capacity and to better ensure the sustainability of road 
investments. IDB is conditioning new projects under its ongoing PPP 
Highway Project to Promote Competitiveness on the Government's 
contributing money to FOMAV. In addition, IDB chairs, along with the 
Minister of Transport and Infrastructure, the Infrastructure 
Coordinating Council, a body that coordinates infrastructure policies 
and donor activities in Nicaragua.
    (b) Coordination during Project Implementation. In an effort to 
ensure that the Compact activities are adequately coordinated with the 
activities of other donors and financial institutions involved in road 
funding in Nicaragua, the Parties and other donors will coordinate in 
the construction of various sections of the Pacific Corridor, including 
drafting clauses into their agreements to ensure regular meetings to 
conduct oversight and to monitor progress.

5. Sustainability

    The implementation of the Transportation Project is designed to 
support the development of local capacity by providing Nicaraguan 
professionals and institutions with experience in implementing the 
Program, while maintaining tight fiduciary risk controls. This design 
is expected to add to Nicaragua's soft infrastructure--the human 
capital base that is essential for the successful design, management 
and oversight of public and private projects. While most procurement 
for the Transportation Project will be managed by a private firm that 
will be selected through an international competitive bidding process, 
local staff will be involved in each step of the process.
    Both the World Bank and IDB have, in recent years, funded programs 
to build the capacity of MTI to manage the transportation sector, make 
sound transportation investments (e.g., analytical capabilities, 
economic evaluation, etc.), provide maintenance, and expand the 
participation of the private sector in providing transportation 
services (e.g., maintenance contracting). Under this Project, MCC will 
provide additional technical assistance to MTI and FOMAV to build upon 
these earlier donor efforts.
    Effective road maintenance will be the key to financial 
sustainability of the Transportation Project. The present condition of 
many primary and secondary roads in Nicaragua is below most acceptable 
standards due primarily to a lack of adequate funding and the lack of 
proper maintenance standards. Although FOMAV has not secured funds for 
2006 or beyond to discharge its road maintenance responsibilities, MTI 
and the Ministry of Finance are considering several proposals to create 
permanent funding for FOMAV, and the Government has agreed to fund road 
maintenance in the amount of $15 million in year 2006, increasing to 
$35 million in year 2010. Funding from MCC for the Transportation 
Project shall depend on the satisfaction of conditions for ongoing road 
maintenance and the funding thereof set forth in relevant Supplemental 
Agreements.
    The key to ensuring environmental and social sustainability of the 
Program and this Project is ongoing public consultation to ensure 
optimal design and implementation and to ensure full country-ownership 
of the Program. The Technical Secretariat will include an Environmental 
and Social Impact (``ESI'') Specialist whose job will be to ensure that 
environmental and social mitigation measures (including resettlement 
and gender issues) are followed for all Project Activities in 
accordance with the provisions set forth in the Compact and other 
documents. The ESI Specialist also will serve as the point of contact 
for comments and concerns of Project-affected parties regarding the 
implementation of all segments of the Compact, and lead the effort to 
find feasible resolutions to those problems. The ESI Specialist will 
convene periodic public meetings to provide implementation updates and 
to identify and address public concerns.

6. Policy and Legal Reform

    The Parties have identified the following policy, legal and 
regulatory reforms and actions that the Government shall pursue in 
support, and to reach the full benefits, of the Transportation Project, 
the satisfactory implementation of which will be conditions precedent 
to certain MCC Disbursements as provided in the Disbursement Agreement:
    (a) Legislation to ensure sustainable maintenance of the national 
road network, including adequate funding. Funding targets will be 
agreed upon in the Disbursement Agreement, and shall include adequate 
funding to FOMAV for road maintenance in accordance with generally 
accepted technical standards.
    (b) Local governments to provide adequate funding for sustainable 
maintenance of the secondary roads that MCC Funding is used to improve. 
Funding targets will be agreed upon in the Disbursement Agreement, and 
shall include adequate funding for road maintenance in accordance with 
generally accepted technical standards.
    (c) Legislation on national road safety and enforcement of such 
legislation.

Schedule 3 to Annex I--Rural Business Development Project

    This Schedule 3 describes and summarizes the key elements of a 
rural business development project that the Parties intend to implement 
in furtherance of the Rural Business Development Objective (the ``Rural 
Business Development Project''). Additional details regarding the 
implementation of the Rural Business Development Project will be 
included in the Implementation Plan and in relevant Supplemental 
Agreements.

1. Background

    Despite a comparative advantage in the production, processing and 
marketing of agricultural products, more than 70% of the rural 
population in Leon-Chinandega is poor. Producers, suppliers, service 
providers, processors, and marketing agents frequently work in 
isolation or are absent in the region. Women generally are less likely 
than men to participate in agricultural organizations, receive 
technical assistance or credit or plant higher profit-yielding crops, 
despite their significant presence as producers. The region also 
suffers from pronounced deforestation and inadequate irrigation for 
farming and other productive activities, especially the poor

[[Page 44453]]

communities in the Northern Highlands and in the peninsula of 
Cosiguina.
    The Rural Business Development Project will support services that 
help develop higher-profit agriculture and agribusiness enterprises. 
The Project will particularly focus on reaching poor farmers who 
require more help in making the transition into these businesses. In 
addition, the Project will help sustain these enterprises by linking 
and coordinating businesses throughout the farm to market value chain--
producers, entrepreneurs, buyers, service providers, and investors. 
Investments in public goods such as applied research and investment 
promotion promise to attract investment and expand productivity in the 
region. Grants will support activities to improve water supply to 
facilitate higher-value, sustainable agriculture and forestry in the 
upper watershed areas of the region. This will help poor families that 
live in the degraded upper watersheds and, in the long term, protect 
business developed downstream from damages caused by environmental 
degradation on the hillsides.

2. Summary of Project Activities

    MCC Funding will be used to increase profits and wages in farms and 
non-farm businesses in Leon-Chinandega through the following 
activities:
     Rural Business Development Services. Expand higher-profit 
agriculture and agribusiness by providing business development 
services, disseminating market information, developing improved 
production techniques, and managing the two Project Activities 
described below;
     Technical and Financial Assistance. To help small- and 
medium-size farms and agribusinesses transition to higher-profit 
activities, provide technical and financial assistance to these 
enterprises, including support that will directly offset certain costs 
of small farms; and
     Grants to Improve Water Supply for Farming and Forest 
Production. Based on a watershed management action plan, provide grants 
to improve the water supply for irrigation and facilitate higher value, 
sustainable agriculture and forestry in the upper watershed areas of 
the region.
    The M&E Plan (described in Annex III) will set forth anticipated 
results and, where appropriate, regular benchmarks that may be used to 
monitor implementation progress. Performance against these benchmarks 
and the overall impact of the Rural Business Development Project will 
be assessed and reported at the intervals to be specified in the M&E 
Plan or as otherwise agreed by the Parties from time to time. The 
Parties expect that additional indicators will be identified during 
Project implementation. Estimated amounts of MCC Funding for each 
Project Activity for the Rural Business Development Project are 
identified in Annex II of this Compact. The following summarizes the 
planned Rural Business Development Project Activities.
(a) Activity: Rural Business Development Services
    To assist farms and businesses in developing higher-profit 
enterprises, MCC Funding will be used to support rural business 
development services that MCA-Nicaragua provides in Leon-Chinandega, 
subject to review and approval by MCC. In addition to setting up and 
equipping an office of MCA-Nicaragua in Leon-Chinandega (the ``Rural 
Office'') that will provide these services, MCC funds will support the 
following Rural Office activities:
    (i) Collection and dissemination of information about market demand 
for products that could be supplied from Leon-Chinandega and 
identification of farms and businesses that could produce these 
products;
    (ii) Development of business plans for farmers and other businesses 
(including women-owned enterprises) to meet such market demand, which 
plans will identify, among other things, the technical and financial 
requirements needed to implement such plans and a specific 
implementation strategy and timeframe for doing so;
    (iii) Based on the experience and needs of the farms and businesses 
supported by the Project, development of policy reform recommendations 
needed to help these enterprises grow into higher-profit enterprises;
    (iv) Promotion of investment in Leon-Chinandega by (A) stimulating 
interest in the region's resources and geographic location, including 
through a promotional campaign directed by a specialized public private 
agency, Pro-Nicaragua, (B) providing investor services, and (C) 
coordinating with other donor program;
    (v) Improvement of production techniques through research and 
development projects outsourced to local and international universities 
and research institutions;
    (vi) Monitoring the performance of farms and other businesses that 
receive assistance from the Rural Office;
    (vii) Management of Project Activities (b) and (c) below by the 
Rural Office's expert staff and consultants; and
    (viii) Implementation of a gender strategy developed prior to the 
implementation of Project Activity (b) below.
    The Rural Office will provide the services related to information 
dissemination and business plan development to farmers and other 
businesses without cost.
(b) Activity: Technical and Financial Assistance
    To help farmers and other businesses successfully transition to 
higher-profit activities, MCC Funding will help selected small farms 
and businesses to obtain specific technical assistance (e.g., agronomic 
and business assistance) and funding needed to successfully execute 
their businesses plans developed in coordination with the Rural Office. 
Technical assistance will include, among other things, training in 
complying with sanitary and phytosanitary standards, certification 
documentation and bioterrorism regulations, and ensure that businesses 
employ environmentally sustainable agricultural practices.
    A review committee composed of key Rural Office staff and 
specialists from MCA-Nicaragua (including the Rural Business, ESI and 
Monitoring and Evaluation Specialists) will (i) develop criteria for 
selecting recipients of technical and financial assistance prior to any 
MCC Disbursement for the Project, subject to MCC approval, and (ii) 
make selections based on such criteria.
    The Rural Office will identify independent contractors through a 
competitive selection process to provide the technical assistance 
funded under this Project Activity. The Rural Office will directly 
finance or assist selected farms and businesses to obtain financing 
through a network of financial institutions and other donor programs 
operating in the region.
(c) Activity: Grants To Improve Water Supply for Farming and Forest 
Production
    To improve the supply of water for irrigation and encourage 
producers to transition to more environmentally sustainable land use in 
the upper watershed areas of Leon-Chinandega, MCC funds will support:
    (i) Preparation of a watershed management action plan (the 
``Watershed Plan'') by a water and natural resource specialist that the 
Rural Office will employ and an implementing entity that the Rural 
Office engages through a competitive selection process. The Watershed 
Plan, which the Rural Office will adopt, subject to MCA-Nicaragua and 
MCC approval, will, among other things:

[[Page 44454]]

    (1) Analyze the watershed in Leon-Chinandega;
    (2) Prioritize sites and potential investments to address problems 
that cause water deficiencies, flooding, erosion and other water-
related issues in the region; and
    (3) Identify (A) potential risks to other parts of the watershed 
that may result from these investments and (B) proposed measures to 
mitigate these risks.
    (ii) Based on the Watershed Plan, an implementing entity that the 
Rural Office engages through a competitive selection process will 
solicit proposals for projects in the following investment areas, which 
proposals can either be funded by grants using MCC Funding or developed 
for funding by other donors:
    (1) Investments in site-specific, small-scale irrigation schemes, 
soil conservation structures, reforestation activities and other water 
management measures; and/or
    (2) Investments in higher value farming and/or forestry in this 
region. Proposed grants will be supported only if they (A) specifically 
fit within the Watershed Plan, (B) clearly demonstrate the potential to 
increase income in the community where the investment will be made, and 
(C) meet an investment criteria of at least a ten percent (10%) 
economic rate of return and an acceptable financial rate of return (at 
least eight percent (8%). The implementing entity will select the 
projects to be supported with MCC Funding, subject to the approval of 
the review committee described in Section 2(b) above, MCA-Nicaragua and 
MCC.
    To ensure sustainability of the investments made with MCC Funding, 
the implementing entity will assist grant recipients to (i) build 
community support for a proposed investment, (ii) adopt sound business 
management practices for the development and operation of the 
investment, and (iii) establish the legal entities and financial 
mechanisms necessary to provide for maintenance, replacement and 
improvement of investments over time.
    The expected results from, and the key benchmarks to measure 
progress on, these activities are set forth in Annex III.

3. Beneficiaries

    The principal direct Project beneficiaries are expected to be 
relatively poor households employed in agriculture or with small farms. 
Agribusinesses and other micro-, small- and medium-sized enterprises 
also will benefit from new or expanded market opportunities created 
under the Project. The Project Activities related to grants for 
improving water supply will expand income growth benefits to some of 
the poorest households in the region while protecting agricultural 
enterprises from future resource degradation.

4. Coordination With USAID and Other Donors

    (a) USAID. The Rural Office and USAID will coordinate in four 
strategic areas:
    (i) Business development activities. The objectives of MCC- and 
USAID-supported agribusiness development activities are similar. Both 
will support technical assistance to help beneficiaries develop better 
business operations, overcome constraints to competitiveness, and work 
toward strengthening the linkages in the value chain. However, USAID's 
agribusiness development projects are national in scope while the MCC 
Project will focus intensively on Le[oacute]n-Chinandega. MCC and USAID 
will coordinate closely to ensure their programs operate in a 
complementary fashion and benefit the largest possible number of 
farmers and agro-entrepreneurs. Together, U.S. Government efforts will 
offer a wider array of services and impact a larger client-base by 
encouraging implementing partners to coordinate effectively.
    (ii) Development Credit Authority (DCA). The DCA guarantee program 
encourages banks to lend for the types of agricultural and agribusiness 
enterprises that will be supported by the Project. The Rural Office 
staff will engage financial institutions that qualify for the DCA 
program by encouraging Project farmers and agribusinesses with 
``bankable'' business activities to take advantage of financial 
services from such financial institutions.
    (iii) Advocacy for Policy Reform. The Rural Office will channel 
priority policy reform issues from Le[oacute]n-Chinandega into national 
dialogue through USAID's partners, thereby magnifying USAID policy 
reform efforts.
    (iv) SPS Capacity Building (SPSCB). USAID is supporting USDA to 
help the Government develop a national fee-based SPS certification 
system for a variety of agricultural products such as meats, dairy, 
seafood, poultry, fruits and vegetables. The SPSCB will be a strong 
Rural Office partner in building up regional capacity in these areas 
and increasing the region's export capacity.
    MCC, USAID and other U.S. Government agencies will ensure ongoing 
coordination and optimization of U.S. Government funding by calling on 
their implementing partners to coordinate activity implementation plans 
and by continuing to participate in efforts like the trade capacity 
building process established in support of DR-CAFTA.
    (b) Other Donors. Japan, Sweden, Denmark, other Nordic and European 
countries, the European Union, the Inter-American Development Bank and 
the World Bank support projects that complement the Rural Business 
Development Project, such as grants for productive infrastructure 
(rural roads, electrification, irrigation, reforestation, etc.), 
competitiveness of the agricultural and light manufacturing sector, and 
trade capacity building. The Rural Office will strive to improve 
operational-level coordination among donor programs in the region in 
relation to rural business development. Specifically, close 
collaboration with the IDB's ``Rural Productive Infrastructure'' and 
``POSAF'' programs could help improve access to financing for the Rural 
Office's clientele. The World Bank's nation-wide technical assistance 
project could help strengthen national institutions and expand 
technical assistance to agriculture.

5. Sustainability

    The Rural Office's primary objective is to increase the economic 
viability of farmers and agribusinesses in Le[oacute]n-Chinandega. 
Initially, the Rural Office will be established as a subsidiary entity 
to MCA-Nicaragua based on the view that the impacts, rather than the 
Rural Office itself, must be sustainable. Selection criteria for 
activities funded under the Project will include potential for self-
sustaining business models. Similarly, expanded horticultural 
production will create economies of scale that reduce the unit costs of 
inputs and post-harvesting services. The Project is expected to improve 
rural access to finance through its financial literacy campaign and by 
promoting ``bankable'' business activities. As bankers understand the 
profit potential of new demand from Program farmers, they are likely to 
respond by developing the financial products and services needed.
    A sustainable capacity to produce and market products from the 
region with relatively high earning potential will remain even if the 
Rural Office itself does not remain in operation at the end of the 
Compact Term. The Rural Office itself, however, may become a 
sustainable operation if its services fill a market demand.
    The watershed management action plan will provide a basis for 
improving environmental sustainability of land uses throughout the 
region. The grants to improve water supply will not only allow more 
rural households to engage in higher value activities promoted by

[[Page 44455]]

the Rural Office, but will also contribute to the sustainability of 
farming and forest production throughout the region over the long term. 
Beneficiaries will be assisted in establishing business models that 
will pay costs associated with maintaining investments over time.
    Environmental and social sustainability of the Program will be 
achieved through ongoing public consultation to ensure optimal design 
and implementation and to ensure full country-ownership of the Program. 
The ESI Specialist within MCA-Nicaragua will ensure that environmental 
and social mitigation measures (including for gender issues) are 
followed for all Project Activities in accordance with the provisions 
set forth in the Compact and other documents.

6. Policy and Legal Reform

    (a) Performance Criteria. The Parties have identified the following 
policy, legal and regulatory reforms and actions that the Government 
shall pursue in support, and to reach the full benefits, of the Rural 
Business Development Project, the satisfactory implementation of which 
will be conditions precedent to certain MCC Disbursements as provided 
in the Disbursement Agreement:
    (i) Continue with customs union and tariff harmonization with other 
Central American countries; and
    (ii) Expedite the approval procedures for the importation of seeds 
for planting.
    (b) Indicative Goals. To improve its level of performance under the 
policy criteria identified in Section 607 of the Act and the MCA 
Eligibility Criteria, the Government will pursue the following 
legislative and policy reforms:
    (i) Improvement in bankruptcy laws so that creditors and debtors 
have predictable, equitable and transparent mechanisms for resolving 
creditor claims;
    (ii) Improvement in the efficiency and predictability of contract 
enforcement, including by enacting effective alternative dispute 
resolution mechanisms; and
    (iii) Legislation governing pledges of moveable and real property 
collateral so that (among other things):
    (1) Such laws are updated, particularly to eliminate uncertainty 
and unnecessarily formalistic requirements;
    (2) In the case of moveable property, the law allows for notice-
based perfection of security interests through the filing of a general 
description of collateral in an easily-accessible centralized registry; 
and
    (3) Such laws allow for enforcement of security interests through 
extra-judicial self-help and by speedy and reliable judicial processes.
    The Government also will consider such other of legal or policy 
reforms that the Rural Office identifies as needed to improve 
competitiveness of its potential clients and their access to credit.

Annex II--Financial Plan Summary

    This Annex II to the Compact (the ``Financial Plan Annex'') 
summarizes the Multi-Year Financial Plan for the Program. Each 
capitalized term in this Financial Plan Annex shall have the same 
meaning given such term elsewhere in this Compact.
    1. General. A multi-year financial plan summary (``Multi-Year 
Financial Plan Summary'') is attached hereto as Exhibit A. By such time 
as specified in the Disbursement Agreement, MCA-Nicaragua will adopt, 
subject to MCC approval, a Multi-Year Financial Plan that includes, in 
addition to the multi-year summary of anticipated estimated MCC Funding 
and the Government's contribution of funds and resources, an estimated 
draw-down rate for the first year of the Compact based on the 
achievement of performance milestones, as appropriate, and the 
satisfaction or waiver of conditions precedent. Each year, at least 30 
days prior to the anniversary of the Entry Into Force, the Parties 
shall mutually agree in writing to a Detailed Financial Plan for the 
upcoming year of the Program, which shall include a more detailed plan 
for such year, taking into account the status of the Program at such 
time and making any necessary adjustments to the Multi-Year Financial 
Plan.
    2. Implementation and Oversight. The Financial Plan shall be 
implemented by MCA-Nicaragua, consistent with the approval and 
oversight rights of MCC and the Government as provided in this Compact, 
the Governance Agreement and the Disbursement Agreement.\4\
---------------------------------------------------------------------------

    \4\ The role of civil society in the implementation of the 
Compact (including through participation on the Board of Directors), 
the responsibilities of the Government and MCC in achieving the 
Objectives, and the process for the identification of beneficiaries 
are addressed elsewhere in this Compact and therefore are not 
repeated here.
---------------------------------------------------------------------------

    3. Estimated Contributions of the Parties. The Multi-Year Financial 
Plan Summary identifies the estimated annual contribution of MCC 
Funding for Program administration, monitoring and evaluation, and each 
Project. The Government's contribution of resources to Program 
administration, monitoring and evaluation, and each Project shall 
consist of (i) ``in-kind'' contributions in the form of Government 
Responsibilities and any other obligations and responsibilities of the 
Government identified in the Compact, including contributions 
identified in the notes to the Multi-Year Financial Plan Summary, (ii) 
such other contributions or amounts as identified in notes to the 
Multi-Year Financial Plan Summary, and (iii) such other contributions 
or amounts as may be identified in relevant Supplemental Agreements 
between the Parties or as may otherwise be agreed by the Parties; 
provided, in no event shall the Government's contribution of resources 
be less than the amount, level, type and quality of resources required 
to effectively carry out the Government Responsibilities or any other 
responsibilities or obligations of the Government under or in 
furtherance of this Compact.
    4. Modifications. The Parties recognize that the anticipated 
distribution of MCC Funding between and among the various Program 
activities and Project Activities will likely require adjustment from 
time to time during the Compact Term. In order to preserve flexibility 
in the administration of the Program, the Parties may, upon agreement 
of the Parties in writing and without amending the Compact, change the 
designations and allocations of funds between Program administration 
and a Project, between one Project and another Project, between 
different activities within a Project, or between a Project identified 
as of the entry into force of this Compact and a new Project, without 
amending the Compact; provided, however, that such reallocation (i) is 
consistent with the Objectives, (ii) does not cause the amount of MCC 
Funding to exceed the aggregate amount specified in Section 2.1(a) of 
this Compact, (iii) does not cause the Government's obligations, 
responsibilities or overall contribution of resources to be less than 
specified in Section 2.2(a) of this Compact, this Annex II or elsewhere 
in the Compact, and (iv) does not extend the Compact Term.
    5. Conditions Precedent; Sequencing. MCC Funding will be disbursed 
in tranches. The obligation of MCC to approve MCC Disbursements and 
Material Re-Disbursements for the Program and each Project is subject 
to satisfactory progress in achieving the Objectives and on the 
fulfillment or waiver of any conditions precedent specified in the 
Disbursement Agreement for the relevant Program activity, Project or 
Project Activity. The sequencing of Project Activities and other 
aspects of how the Parties intend the Projects to be implemented will 
be set forth in the Implementation Plan, including Work Plans for the 
applicable

[[Page 44456]]

Project, and MCC Disbursements and Re-Disbursements will be disbursed 
consistent with that sequencing.
[GRAPHIC] [TIFF OMITTED] TN02AU05.014

Exhibit A: Notes

    \1\ Costs are based on U.S. Army Corp of Engineers' assessment 
using a ``rough order of magnitude'' (ROM) cost estimate which 
includes all feasibility studies and designs, construction 
(including bridges/drainage), procurement, and contingencies. MCC 
Funding will be disbursed only upon satisfaction of (i) completion 
of a detailed Project management plan and coordination plan by MCA-
Nicaragua in conjunction with the Infrastructure Specialist, and 
(ii) other conditions set out in the Disbursement Agreement.
    \2\ Actual costs for construction of N-I Road will need to be 
fully developed during the feasibility stage of Project execution. 
Initial funds will be disbursed for design and feasibility studies. 
However, funds for construction will only be disbursed upon 
satisfaction of conditions for road maintenance as set forth in 
relevant Supplemental Agreements.
    \3\ Secondary road cost estimates are based on three candidate 
roads that are typical of the secondary roads that could be funded 
under the Compact. Actual roads funded may be different based on 
selection criteria, but the total amount allotted to this Project 
Activity is capped. Local governments shall dedicate adequate 
funding for sustainable road maintenance for the secondary roads in 
their jurisdictions as set forth in the Disbursement Agreement.
    \4\ Amounts shown are U.S. Dollars in millions.
    \5\ Although most Project Activities will take place from Year 1 
through Year 4 (except for roads), the five-year Compact Term will 
allow additional time to ensure that Project Activities are 
completed. Monitoring and Evaluation will continue after the 
completion of the Project Activities.
    \6\ These amounts will be disbursed only upon satisfaction of 
obtaining requisite approvals by a review committee within the Rural 
Office and MCC as set forth in the Disbursement Agreement.
    \7\ The Government will provide in-kind contributions in the 
form of staff time and resources towards data collection and other 
monitoring and evaluation functions.

[[Page 44457]]

    \8\ The Government will provide in-kind contributions in the 
form of staff time and resources to work toward the expected results 
of this Project.

Annex III--Description of the M&E Plan

    This Annex III to the Compact (the ``M&E Annex'') generally 
describes the components of the M&E Plan for the Program. Each 
capitalized term used but not defined in this M&E Annex shall have the 
same meaning given such term elsewhere in this Compact; provided, 
however, that the term ``Parties'' in this M&E Annex shall mean MCC and 
the Government (or a mutually acceptable Government Affiliate or 
Permitted Designee).

1. Overview

    The Parties shall formulate, agree to, and the Government shall 
implement, or cause to be implemented, an M&E Plan that specifies (i) 
how progress toward the Compact Goal, Objectives and Project Activities 
will be monitored (the ``Monitoring Component''), (ii) a methodology, 
process and timeline for the evaluation of planned, ongoing, or 
completed Project Activities to determine their efficiency, 
effectiveness, impact and sustainability (the ``Evaluation 
Component''), and (iii) other components of the M&E Plan described 
below. Information regarding the Program's performance, including the 
M&E Plan, and any amendments or modifications thereto, as well as 
periodically-generated reports, will be made publicly available on the 
MCA-Nicaragua Web site and elsewhere.

2. Monitoring Component

    To monitor progress toward the achievement of the Project 
Activities, the Objectives and the Compact Goal, the Monitoring 
Component of the M&E Plan shall identify (a) the Indicators, (b) the 
party or parties responsible, the timeline, and the instrument for 
collecting data and reporting on each Indicator to MCA-Nicaragua, and 
(c) the method by which the reported data will be validated.
    (a) Indicators. The M&E Plan shall measure the results of the 
Program using quantitative, objective and reliable data 
(``Indicators''). Each Indicator will have one or more expected results 
that specify the expected value and the expected time by which that 
result will be achieved (``Target''). The M&E Plan will measure and 
report four types of Indicators. First, the Compact Goal Indicators 
(each, a ``Goal Indicator'') will measure the impact of the Program on 
the incomes of Nicaraguans who participate or are covered by the 
Program (collectively, ``Beneficiaries''). Second, Objective Indicators 
(each, an ``Objective Indicator'') will measure the final results of 
the Projects in order to monitor their success in meeting the 
Objectives. Third, Outcome Indicators (each, an ``Outcome Indicator'') 
will measure the intermediate results of goods and services delivered 
under each Project in order to provide an early measure of the likely 
impact of the Projects on the Objectives. Fourth, Project Activity 
Indicators (each, an ``Activity Indicator'') will measure the delivery 
of key goods and services in order to monitor the pace of Project 
Activity execution. For each Outcome Indicator, Objective Indicator, 
and Goal Indicator, the M&E Plan shall define a strategy for obtaining 
and verifying the value of such Indicator prior to undertaking any 
activity that affects the value of such Indicator (such value, a 
``Baseline''). All Indicators will be disaggregated by gender, income 
level and age, to the extent practicable.
    (i) Goal Indicator. The M&E Plan shall contain the Goal Indicators 
listed in the table below. The Project Activities undertaken by the 
Program are expected to increase the incomes of Beneficiaries. The 
increase in income that accrues to a group of Beneficiaries as a result 
of one or more Project Activities over a period of time constitutes 
expected income gains (``Expected Income Gains''). The M&E Plan shall 
contain Goal Indicators that shall measure the change in the income of 
Beneficiaries attributable to the relevant Projects. MCA-Nicaragua, 
with approval from MCC, must define a methodology for estimating an 
Expected Income Gain prior to the disbursement of funds for any Project 
Activity that may influence that Expected Income Gain. Such a 
methodology should measure the difference between the actual income of 
Beneficiaries and the estimated value of what their income would have 
been without the Program.

                           Compact Goal: Increased Economic Growth and Reduced Poverty
----------------------------------------------------------------------------------------------------------------
      Indicators  (All Year numbers are in millions of USD)           Year 5          Year 6          Year 10
----------------------------------------------------------------------------------------------------------------
Total Expected Income Gains.....................................          $20.94          $48.22          $51.91
Expected Income Gains of N-I Road Upgrade \1\...................           $5.73           $6.96           $9.86
    Beneficiaries: Users of roads and employees of businesses
     that use roads.............................................
Expected Income Gains of Secondary Roads Upgrade \2\............           $8.59           $7.73           $5.07
    Beneficiaries: Communities surrounding secondary roads and
     users of roads.............................................
Expected Income Gains of Property Regularization \3\............           $3.88           $3.96           $4.21
    Beneficiaries: Recipients of registered regularized titles..
Expected Income Gains of Rural Business Development \4\.........  ..............          $24.52          $27.73
    Beneficiaries: Program businesses and employees of program
     farmers and businesses.....................................
Expected Income Gains of Rural Business Development \5\.........           $2.73           $5.05           $5.05
    Beneficiaries: Employees of businesses in value chain.......
Expected Income gains of Improvement of Water Supply for Farming
 and Forest Production \6\......................................    This will be estimated at the end of Year 1
                                                                   after completion of the Watershed Management
                                                                      Action Plan. All projects financed will
                                                                   require a minimum economic rate of return of
                                                                  10% and an acceptable financial rate of return
                                                                                  (at least 8%).
    Beneficiaries: Communities sourrounding water supply
     project(s).................................................
----------------------------------------------------------------------------------------------------------------
 \1\ For the N-I Road, the expected income gains are derived from savings due to reduced vehicle operating costs
  and travel time.
\2\ For secondary road upgrading, the expected income gains are calculated based on costs of $30 million per
  year in years 1 and 2, and benefits beginning in year 2, with a minimum return of 8% and annual depreciation
  of 10%. This estimate will be revised at the end of Year 1 when the roads selected are confirmed and all
  design studies and environmental assessments are completed. Income gains are derived from savings due to
  reduced vehicle operating costs and travel time.
\3\ Expected income gains are defined as annual increase in property value per manzana * the number of manzanas
  registered.

[[Page 44458]]

 
\4\ Expected income gains are defined as the increase in Value Added to the Firm, calculated as profits + labor
  costs, per manzana of a typical horticulture crop minus the value added per manzana of cattle grazing (US$100)
  * number of manzanas harvesting this typical horticulture crop. A typical horticulture crop is defined as the
  average of plantain, cashew and organic sesame, crops suitable for Nicaragua. Reporting on this indicator does
  not begin until Year 6, because tree crops do not produce yields for at least three years after planting.
\5\ Expected income gains are defined as Value Added from Employment, calculated as an average annual wage rate
  of $500 * the number of jobs created * 0.5 (0.5 = discount for wages earned of those previously employed).
\6\ Expected income gains will be determined when the specific improvement of water supply activities are
  specified, and will require a minimum economic rate of return of 10%. Specific improvement of water supply
  activities are expected to be determined by the end of Year 1.

    (ii) Outcome and Objective Indicators. The M&E Plan shall contain 
the Objective and Outcome Indicators listed in the table below. MCA-
Nicaragua, subject to prior written approval from MCC, may only add 
Objective and Outcome Indicators or refine the Targets of existing 
Objective and Outcome Indicators prior to any MCC Disbursement or Re-
Disbursement for any Project or Project Activity that may influence 
that Indicator, unless the Parties otherwise agree in writing.

                                                           Property Regularization Project \1\
                                            [Objective: Increase investment by strengthening property rights]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                    Baseline \2\       Year 1             Year 2                Year 3                Year 4                Year 5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Objective Level Indicators
 (Metric of Project success
 observable by end of Compact.)
    Value of investment on land..             TBD  ..............  ....................  16% over baseline...  ....................  32% over baseline
    Value of land (urban) \3\....         $519.00         $529.54  $540.30.............  $551.28.............  $562.47.............  $573.90
    Value of land (rural) \3\....         $404.00         $412.21  $420.58.............  $429.12.............  $437.84.............  $446.74
Outcome Level Indicators
(Early indicators of Project
 Activities impact on
 objectives.)
    Time to conduct a land                65 days  ..............  15.9% decrease from   29.3% decrease from   40.5% decrease from   50% decrease from
     transaction \4\.                                               baseline.             baseline.             baseline.             baseline.
    Full cost to conduct a land             6.50%  ..............  25% decrease from     ....................  ....................  50% decrease from
     transaction 4, 5.                                              baseline.                                                         baseline.
    Perception of tenure security             TBD  ..............  30% increase over     ....................  ....................  50% increase over
                                                                    baseline.                                                         baseline.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes to Property Regularization Project Table:
\1\ Information in this table is based on survey data from the World Bank PRODEP Project in Nicaragua.
\2\ Final baselines will be established during the initial implementation of the Project.
\3\ Values are reported in constant U.S. Dollars.
\4\ Baselines for time and cost to conduct a land transaction are preliminary.
\5\ Cost to conduct a land transaction targets are expressed as a percent of the value of the transaction.


                                                                 Transportation Project
                     [Objective: Reduce transportation costs between Leon and Chinandega and national, regional and global markets]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                   Baseline                                 Year 5                                Year 10
--------------------------------------------------------------------------------------------------------------------------------------------------------
Objective Level Indicators (Metric
 of Project success observable by
 end of Compact.)
    Annual average daily traffic    R1 2,146..............................  R1 2,639.............................  R1 3,416
     volume \1, 2.
                                    R2 1,156..............................  R2 1,422.............................  R2 1,841
                                    Secondary Roads: TBD..................  Secondary Roads: TBD.................  Secondary Roads: TBD.
    Gap between farm-gate price     TBD...................................  .....................................  .....................................
     and free-on-board price \3\.
    Price of basket of goods \4\..  TBD...................................  .....................................  .....................................
Outcome Level Indicators (Early
 indicators of Project Activities
 impact on objectives.)
    Cost per journey (Travel time)  Secondary Roads: TBD..................  Secondary Roads: TBD.................  Secondary Roads: TBD
     \5\.
    Cost per journey                R1 7.2................................  R1 2.4...............................  R1 2.7
     (International roughness
     index) \6\.
                                    R2 8.3................................  R2 2.4...............................  R2 2.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes to Transportation Project Table:
\1\ R1 and R2 represent different sections of the N-I Road being upgraded.
\2\ This information will be a requirement of the secondary roads proposals submitted to the Program. Information will be verified as part of the
  secondary roads selection process, prior to disbursement of Project funds.
\3\ Farm-gate prices and free-on-board prices will depend on type of crop grown and will be confirmed by implementing entity(ies) as part of reporting
  requirements.
\4\ Price of basket of goods will depend on where secondary roads are upgraded and will be determined when secondary roads are selected.

[[Page 44459]]

 
\5\ Secondary roads.
\6\ N-I Road.


                                                           Rural Business Development Project
                                      [Objective: Increase the value added of farms and enterprises in the region]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                   Baseline \1\       Year 1             Year 2                Year 3                Year 4                Year 5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Objective Level Indicators
 (Metric of Project success
 observable by end of Compact):
    Number of program                          0  ..............  720.................  1,800...............  3,090...............  4,720
     businesses, including
     farms, engaged in higher
     profit businesses by year
     end.
    Number of program manzanas                 0  ..............  5 manzanas per Farm.  5 manzanas per Farm.  5 manzanas per Farm.  5 manzanas per Farm.
     transitioned to higher-
     value crops by year end.
    Annual percentage increase                 0  ..............  17%.................  17%.................  17%.................  17%
     in value added of clients
     of business center \2\.
    Number of jobs created......               0  ..............  250.................  1,750...............  3,850...............  7,000
    Number of program manzanas                 0  ..............  1,500...............  4,000...............  7,750...............  10,000
     harvesting higher-value
     crops or reforesting under
     improvement of water supply
     activities \3\.
Outcome Level Indicators (Early
 indicators of Project
 Activities impact on
 objectives):
    Number of business plans                   0             790  1,340...............  1,830...............  2,280...............  300
     prepared by clients with
     assistance of Rural
     Business Center (year end)
     \4\.
    Dollars of new investment in
     Le[oacute]n and Chinandega.
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes to Rural Business Development Project Table:
\1\ Baseline data for each Indicator will be verified prior to undertaking any activity that affects the value of such Indicator.
\2\ Annual percentage increase will be calculated against the baseline value added of client business activity, as reported on intake survey.
\3\ These numbers will be revised at the end of Year 1 after completion of the Watershed Management Action Plan.
\4\ Project will not work with any new businesses in Year 5.

    (iii) Activity Indicators. Prior to the disbursement of MCC Funding 
for any Project Activity, the Implementing Entity of that Project 
Activity must propose a set of Activity Indicators that is approved in 
writing by its Project Manager, MCA-Nicaragua and MCC. The M&E Plan 
shall be amended to reflect the addition of such Indicators. The table 
below shows a notional list of Activity Indicators that the M&E Plan 
may contain.

                                                             Property Regularization Project
--------------------------------------------------------------------------------------------------------------------------------------------------------
                Activity Level Indicators                     Year 1          Year 2          Year 3          Year 4          Year 5           Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Property Regularization:
    Automated registry-cadastre database installed......             25%             75%  ..............  ..............  ..............            100%
    Number of parcels with a registered title, rural and           1,000           8,754           7,400           3,846  ..............          21,000
     urban (total of 21,000 and 22,000, rural and urban,             978           8,250           7,272           5,500                          22,000
     respectively)......................................
    Protected areas demarcated..........................             0.4             3.6  ..............  ..............  ..............               4
    Number of protected area management plans                          1               1               1               1  ..............               4
     implemented........................................
    Number of conflicts resolved by program mediation...             500           2,000           1,500  ..............  ..............           4,000
    Number of manzanas covered by cadastral mapping.....         172,288         394,000         174,286  ..............  ..............         740,574
--------------------------------------------------------------------------------------------------------------------------------------------------------


                                             Transportation Project
----------------------------------------------------------------------------------------------------------------
        Activity Level Indictors             Year 3                 Year 5                       Total
----------------------------------------------------------------------------------------------------------------
N-I Road:
    Kilometers of road upgraded........               0  58.........................  58
Secondary Roads \1\:
    Kilometers of road upgraded........  ..............  Up to 100..................  Up to 100
----------------------------------------------------------------------------------------------------------------
Notes to Transportation Project Table:
\1\ Kilometers of secondary roads upgraded will be confirmed by the end of Year 1, when design studies and
  environmental assessments are completed.


[[Page 44460]]


                                                           Rural Business Development Project
--------------------------------------------------------------------------------------------------------------------------------------------------------
        Activity Level Indicators                      Year 1                 Year 2          Year 3          Year 4          Year 5           Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Rural Business Development Centers:
    Value of TA and support services       $344,081.....................      $1,376,323      $2,064,485      $3,096,728  ..............      $6,881,617
     delivered to program businesses \1\.
Improvement of Water Supply for Farming
 and Forest Production \2\:
    Watershed Management Action Plan.....  Completed.
    Funds disbursed for improvement of     .............................       1,770,000       2,950,000       4,425,000       2,655,000     11,800,000
     water supply for farming and forest
     production projects.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes to Rural Business Development Project Table:
\1\ This indicator will be disaggregated by source of funding, including MCA-Nicaragua.
\2\ Indicators will be verified at the end of Year 1, after the Watershed Management Action Plan is completed and projects are developed.

    (b) Data Collection and Reporting. The M&E Plan shall establish 
guidelines for data collection and a reporting framework, including a 
schedule of Program reporting and responsible parties. The Technical 
Secretariat shall conduct regular assessments of program performance to 
inform MCA-Nicaragua, Project Managers and the MCC of progress under 
the Program and to alert these parties to any problems. These 
assessments will report the actual results compared to the Targets on 
the Indicators referenced in the Monitoring Component, explain 
deviations between these actual results and Targets, and in general, 
serve as a management tool for implementation of the Program. With 
respect to any data or reports received by MCA-Nicaragua, MCA-Nicaragua 
shall promptly deliver such reports to MCC along with any other related 
documents, as specified in this Annex III or as may be requested from 
time to time by MCC. With respect to the Rural Business Development 
Project, the Rural Business Development Center will conduct intake 
surveys to establish baselines for value added of either farms or firms 
or value chains. With the assistance of an on-site data quality 
reviewer, the Center will track the same information over time and use 
this information for performance evaluations and managing the resources 
of the Center.
    (c) Data Quality Reviews. From time to time, as determined in the 
M&E Plan or as otherwise requested by MCC, the quality of the data 
gathered through the M&E Plan shall be reviewed to ensure that data 
reported are as valid, reliable, and timely as resources will allow. 
The objective of any data quality review will be to verify the quality 
and the consistency of performance data across different implementation 
units and reporting institutions. Such data quality reviews also will 
serve to identify where those levels of quality are not possible, given 
the realities of data collection. The data quality reviewer shall enter 
into an Auditor/Reviewer Agreement with MCA-Nicaragua in accordance 
with Annex I.

3. Evaluation Component

    The Program shall be evaluated on the extent to which the 
interventions contribute to the Compact Goal. The Evaluation Component 
shall contain a methodology, process, and timeline for analyzing data 
in order to assess planned, ongoing, or completed Project Activities to 
determine their efficiency, effectiveness, impact, and sustainability. 
This component should use state-of-the-art methods for addressing 
selection bias and should make provisions for collecting data from both 
treatment and control groups, where practicable. The Evaluation 
Component, which shall contain two types of reports, (a) a Final 
Evaluation and (b) Ad Hoc Evaluations, shall be finalized prior to any 
MCC Disbursement or Re-Disbursement for specific Project Activities.
    (a) Final Evaluation. MCA-Nicaragua, with the prior written 
approval of MCC, may engage an independent evaluator to conduct an 
evaluation at the expiration or termination of the Compact Term 
(``Final Evaluation'') at MCC's election, MCC may engage such 
independent evaluator. The Final Evaluation must at a minimum (i) 
evaluate the efficiency and effectiveness of the Project Activities; 
(ii) estimate, in a statistically valid way, the causal relationship 
between the Projects and the Compact Goal; (iii) determine if and 
analyze the reasons why the Compact Goal was or was not achieved; (iv) 
identify positive and negative unintended results of the Program; (v) 
provide lessons learned that may be applied to similar projects; and 
(vi) assess the likelihood that results will be sustained over time. To 
the extent engaged by MCA-Nicaragua, such independent evaluator shall 
enter into an Auditor/Reviewer Agreement with MCA-Nicaragua in 
accordance with Annex I.
    (b) Ad Hoc Evaluations. Either MCC or MCA-Nicaragua may request ad 
hoc or interim evaluations or special studies of Projects, Project 
Activities, or the Program as a whole prior to the expiration of the 
Compact Term. If MCA-Nicaragua engages an evaluator, the evaluator will 
be an externally contracted independent source selected by MCA-
Nicaragua, subject to the prior written approval of MCC, following a 
tender in accordance with the Procurement Guidelines, and otherwise in 
accordance with any relevant Implementation Letter or Supplemental 
Agreement. The cost of an independent evaluation or special study may 
be paid from MCC Funding. If MCA-Nicaragua requires an independent 
evaluation or special study at the request of the Government for any 
reason, including for the purpose of contesting an MCC determination 
with respect to a Project or Project Activity or to seek funding from 
other donors, no MCC Funding or MCA-Nicaragua resources may be applied 
to such evaluation or independent study without MCC's prior written 
approval.

4. Other Components of the M&E Plan

    In addition to the Monitoring and Evaluation Components, the M&E 
Plan shall include the following components for the Program and each 
Project and Project Activity, including, where appropriate, roles and 
responsibilities of the relevant parties and Providers:
    (a) Costs. A detailed cost estimate for all components of the M&E 
Plan Plan.
    (b) Assumptions and Risks. Any assumptions and risks external to 
the Program that underlie the accomplishment of the Objectives; 
provided, however, such assumptions and risks shall not excuse 
performance of the Parties, unless otherwise expressly agreed to in 
writing by the Parties.

[[Page 44461]]

5. Implementation of the M&E Plan

    (a) Approval and Implementation. The approval and implementation of 
the M&E Plan, as amended from time to time, shall be in accordance with 
the Program Annex, this M&E Annex, the Governance Agreement, and any 
other relevant Supplemental Agreement.
    (b) MCC Disbursement and Re-Disbursement for a Project Activity. 
Unless the Parties otherwise agree in writing, prior to, and as a 
condition precedent to, any initial MCC Disbursement or Re-Disbursement 
with respect to a certain Project or Project Activities, the baseline 
data or report with respect to such Project or Project Activity, as 
applicable and as specified in the Disbursement Agreement, must be 
completed in form and substance satisfactory to MCC. As a condition to 
each MCC Disbursement or Re-Disbursement, there shall be satisfactory 
progress on the M&E Plan for the relevant Project or Project Activity, 
and substantial compliance with the M&E Plan, including any reporting 
requirements, as further specified in the Disbursement Agreement.
    (c) Modifications. Notwithstanding anything to the contrary in the 
Compact, including the requirements of this M&E Annex, MCC and the 
Government (or a mutually acceptable Government Affiliate or Permitted 
Designee) may modify or amend the M&E Plan or any component thereof, 
including those elements described herein, without amending the 
Compact; provided, any such modification or amendment of the M&E Plan 
has been approved by MCC in writing and is otherwise consistent with 
the requirements of this Compact and any relevant Supplemental 
Agreement between the Parties.

[FR Doc. 05-15216 Filed 8-1-05; 8:45 am]
BILLING CODE 9210-01-P