[Federal Register Volume 71, Number 244 (Wednesday, December 20, 2006)]
[Notices]
[Pages 76440-76486]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-21222]



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 Part II





Millennium Challenge Corporation





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Notice of Entering Into a Compact With the Government of the Republic 
of El Salvador; Notice

  Federal Register / Vol. 71, No. 244 / Wednesday, December 20, 2006 / 
Notices  

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 MILLENNIUM CHALLENGE CORPORATION

[MCC FR 06-21]


Notice of Entering Into a Compact With the Government of the 
Republic of El Salvador

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 (MCC) is publishing a summary and the complete 
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 El Salvador. Representatives of the 
United States Government and the Government of the Republic of El 
Salvador executed the Compact documents on November 29, 2006.

    Dated: December 8, 2006.
William G. Anderson Jr.,
Vice President & General Counsel (Acting), Millennium Challenge 
Corporation.

Summary of Millennium Challenge Compact With the Government of the 
Republic of El Salvador

I. Introduction

    In 1992, El Salvador entered into the peace accord that ended a 
decade of civil conflict. The conflict cost over 70,000 lives and left 
nearly two-thirds of the country's population in poverty. During the 
war, human capital formation lagged, public investment was deferred, 
and deterioration of the natural resource base accelerated. The 
northern zone of El Salvador (the ``Northern Zone'') fared the worst; 
its mountainous territory served as a primary staging ground for the 
conflict, thereby increasing violence and instability in the area and 
causing an exodus of large numbers of the region's inhabitants. Despite 
the significant national economic growth that followed the peace 
accord, progress has stagnated in recent years and the poverty rate in 
the Northern Zone (53 percent) remains higher than the national average 
(34 percent). Today, approximately 450,000 of the country's 2.33 
million poor people reside in the Northern Zone.
    Overcoming these obstacles and unifying the Northern Zone with the 
rest of the country have become national priorities. The Northern Zone 
serves as a primary source of water, energy, biodiversity and other key 
resources for El Salvador and neighboring countries in Central America. 
Halting, and indeed reversing, the deterioration of these resources, 
and ensuring more sustainable approaches to economic development, 
comprise strategic goals. The population of the Northern Zone requires 
a comprehensive development program to enable it to fully participate 
in El Salvador's growth, the benefits of regional integration, and the 
economic opportunities brought about by the recently signed Central 
America-Dominican Republic-United States Free Trade Agreement.
    The five-year, $460.94 million Compact provides an historic 
opportunity to fulfill these goals and transform El Salvador's economic 
development.

 II. Program Overview, Budget, and Impact

    The program supported by the Compact (the ``Program'') is comprised 
of three strategic and interdependent projects: (1) Human development; 
(2) productive development; and (3) connectivity.

                                        Multi-Year Financial Plan Summary
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                                                                         (USD millions)
                   Component                   -----------------------------------------------------------------
                                                  Year 1     Year 2     Year 3     Year 4     Year 5     Total
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Human Development Project.....................      $5.62     $23.18     $24.04     $21.02     $21.22     $95.07
Productive Development Project................      13.55      18.28      20.76      22.01      12.87      87.47
Connectivity Project..........................      16.44      82.79     111.58      18.80       3.95     233.56
Accountability................................       2.85       5.65       6.67       4.27       4.82      24.26
Program Administration........................       4.35       4.07       4.18       4.03       3.95      20.59
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    Total estimated MCC Contribution..........      42.82     133.97     167.22      70.12      46.81     460.94
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    The Program is projected to directly alleviate the poverty of over 
150,000 Salvadorans and enhance the livelihoods and welfare of over 
850,000 people in the target area. It is expected that as a result of 
the Program, incomes in the region will increase by 20 percent over the 
five-year term of the Program, and by 30 percent within ten years of 
the start of the Program.\1\ Increased investment, trade, and 
productivity in the Northern Zone are expected to have spillover 
benefits for the country as a whole, as well as for the entire Central 
American region.
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    \1\ Without the Program, income in the Northern Zone is expected 
to increase by only 2 percent over the period of the Program and by 
4 percent within 10 years of the start of the Program.
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A. Human Development Project
    This project is based on the foundations and ongoing work achieved 
in two existing Government of El Salvador (``GOES'') programs--the 
Solidarity Network and the National Education Plan 2021. It is divided 
into two broad activities:
     Education and Training will support both formal and non-
formal technical training programs, secondary and post-secondary 
technical and vocational education with related infrastructure and 
equipment; over 27,000 people will benefit directly; and
     Community Development will provide improved access to 
potable water systems for 90,000 people and improved sanitation 
services for over 50,000. Electricity coverage in the Northern Zone 
will increase from 70 percent to no less than 97 percent, benefiting 
235,000 individuals. Through construction and improvement of community 
infrastructure (e.g., tertiary roads, improved drainage, small bridges) 
over 130,000 people will have greater access to markets, employment, 
and facilities supporting health and education.

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B. Productive Development Project
    This project includes provision of technical assistance, training, 
and financial services to farmers to help them shift from basic grains 
to higher value crops and to micro, small and medium businesses to make 
efficient, productivity improving investments. It is expected to lead 
to increases in net income for 55,000 beneficiaries, and is organized 
into three activities:
     Production and Business Services will provide technical 
assistance to farmers and business development services to micro, small 
and medium enterprises, all on a cost-sharing basis;
     Investment Support will provide investment capital on 
market terms to competitively selected applicants for commercially-
viable activities by the private sector; and
     Financial Services will provide credit guarantees and 
technical assistance to financial institutions to generate increased 
lending activity by banks and non-bank financial institutions to 
farmers and rural enterprises. In addition, crop insurance will help 
mitigate risks for small producers in the Northern Zone.
C. Connectivity Project
    This project addresses the issue of the Northern Zone's physical 
isolation with two activities:
     The Northern Transnational Highway includes the design, 
construction, and rehabilitation of a 289-kilometer two-lane secondary 
road, forming a transportation corridor from Guatemala to Honduras 
across the Northern Zone of El Salvador. More than 80 percent of the 
highway span involves rehabilitation; new roads are expected to 
comprise approximately 50 kilometers; and
     The Connecting Road Network includes paving and 
improvement of 240 kilometers of unpaved roads that will enable 
increased access to markets, health, and education services, and 
integrate the Northern Zone with national and regional highway systems.
    Increased connectivity is expected to lead to new economic 
opportunities for rural households, lower transportation costs, and 
decrease travel times to markets and social service delivery points for 
upwards of 600,000 beneficiaries.

III. Program Management

    Through an act of its legislature, the GOES will create Fondo del 
Milenio (``FOMILENIO'') to serve as the accountable entity for the 
Program. FOMILENIO will be governed by an independent board of 
directors (the ``Board'') which will make strategic decisions, provide 
oversight, and ultimately be responsible for the results of the 
Program. The Board will be comprised of seven voting members--four 
members designated by GOES, one private-sector member, and two 
representatives of nongovernmental organizations. The Board also will 
benefit from the participation of an advisory council, consisting of 
members of the National Development Commission and other stakeholders. 
An executive director will manage the day-to-day activities of 
FOMILENIO and will be supported by key officers, technical staff, and 
administrative personnel.
    FOMILENIO will engage line ministries, other public agencies, a 
second-tier development bank, and contractors/consultants for direct 
execution of the Program activities. However, as the accountable 
entity, FOMILENIO will remain responsible for the successful 
implementation of the Program. The financial management unit within 
FOMILENIO and the Ministry of Finance will share the financial 
management responsibilities for the Program. FOMILENIO will utilize 
outside procurement and fiscal oversight agents. As a governmental 
entity, FOMILENIO will be subject to GOES audit requirements as well as 
audits required by the Compact.

IV. Other Highlights

A. Consultative Process
    The National Development Commission has led a public dialogue on a 
new vision for El Salvador's development. As a result of this dialogue, 
the National Development Commission produced a shared national 
development strategy, known as the Plan of the Nation, setting forth a 
vision for development of each of the five regions of El Salvador, 
including the Northern Zone. In response to the Plan of the Nation, and 
based on local, regional, and national level consultations, GOES 
created a plan for developing the Northern Zone (the ``Northern Zone 
Investment Plan'').
    To develop their proposal for Millennium Challenge Account 
(``MCA'') assistance, GOES refined the Northern Zone Investment Plan 
based on input received in a series of consultations with various 
stakeholders and interested parties. Consultations included local 
mayors, private-sector representatives, academic experts, international 
donors, multilateral development organizations, sector specialists, and 
the general public. In total, GOES held more than 50 formal workshops 
and informal discussions with over 2,200 Salvadorans. GOES, through 
FOMILENIO, plans to continue engaging civil society, local government, 
and other key constituencies in oversight and guidance through Program 
implementation. It will do this via private sector and civil society 
representation on the Board, and through ongoing participation by the 
National Development Commission, local mayoral commission, government 
representatives, and other stakeholders on FOMILENIO's Advisory 
Council.
B. GOES Commitment and Contribution to the Program
    GOES has demonstrated substantial commitment to the Compact 
development process since first becoming eligible for MCA assistance in 
November 2005. Under the guidance of a high-level oversight commission, 
and with the leadership of the executive director of the MCA-El 
Salvador team, GOES presented a comprehensive proposal just over five 
months after becoming eligible. The President and other high-level 
officials have been directly engaged in developing the Program, 
providing the political leadership necessary for its success. Recent 
progress on policy reform, and ongoing efforts by GOES to strengthen 
rule of law, administration of justice, and other relevant areas, 
contributed to El Salvador being re-selected as an MCA-eligible country 
in November of 2006.
    Pursuant to Section 609(b)(2) of MCC's legislation applicable to a 
lower middle income country receiving Compact funds, GOES will make an 
appropriate contribution, relative to its national budget and taking 
into account prevailing economic conditions, towards meeting the 
objectives of the Compact. The GOES contribution will be in addition to 
the government's spending allocated towards such objectives in the 
country's budget for the year immediately preceding the establishment 
of the Compact. GOES expects to make a qualifying contribution to the 
Northern Zone Investment Plan of approximately $327 million over the 
five-year term of the Compact. In addition, GOES invested over $1.7 
million in proposal preparation and has committed another approximately 
$9 million to fund up-front feasibility, design and environmental 
impact studies related to the Connectivity Project.
C. Sustainability
    MCC is requiring assurances from GOES that it will provide the 
staffing, equipment and other recurrent costs of new (and, in some 
cases, existing)

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facilities and infrastructure investments necessary for the 
sustainability of the Program. The education and training activity will 
include strong private-sector involvement and will engender local and 
civil society ownership. As part of the technical assistance activity, 
an assessment will be made of alternative revenue sources needed to 
cover recurring costs. These elements will support more sustainable 
impact of this activity.
    Selection criteria for the water and sanitation and community 
infrastructure activities under the Human Development Project will 
stipulate a minimum level of community contribution to investment in 
and maintenance of new infrastructure. Municipalities and/or community-
level entities will be responsible for system operation and 
maintenance. System designs will reflect lowest cost alternatives in 
order to reflect users' ability to pay tariffs for operation and 
maintenance costs. For the rural electrification and water and 
sanitation activities, user fees that correspond with system operation 
and maintenance needs will be applied.
    The Productive Development Project will provide support to 
encourage alliances, joint ventures, and other collaborations between 
more established enterprises and smaller/disadvantaged organizations 
and individuals. In addition to technical assistance provided to micro, 
small, and medium sized enterprises, support will be provided to 
financial institutions to enable them to better serve new clients. 
These activities are expected to accelerate start-up of productive 
activities, and improve prospects for success and sustainability.
    Sustainability of MCC investments in transportation infrastructure 
is contingent upon proper and effective road maintenance. El Salvador 
possesses substantial road maintenance capabilities in the Fondo de 
Conservaci[oacute]n Vial. Disbursement of MCC funding for the 
Connectivity Project will depend on the satisfaction of conditions 
related to road maintenance of all roads within the Connectivity 
Project for the life of such roads.
D. Environment and Social Impacts
    Environmental and social sustainability of the Program will be 
enhanced through oversight, ongoing public consultation and 
institutional capacity building. A strategic environmental assessment 
funded by the World Bank will be performed in the Northern Zone to 
address the project components and the need to strengthen land use 
plans. To address the lack of institutional capacity for effective 
monitoring and oversight, GOES will commit to increasing environmental 
staff in the implementing and regulatory entities and creating an 
inter-departmental task force, focused on the Northern Zone 
investments, in the Ministry of Environment and Natural Resources. GOES 
will also strengthen the environmental management system to help in the 
enforcement of land use plans and participation of Salvadoran 
communities in the sustainable management of natural resources. MCC is 
providing funding for training in environmental management to further 
improve the institutional capacity.
    The Connectivity Project is classified as Category A under MCC's 
Environmental Guidelines. An environmental impact assessment, 
environmental management plans, resettlement action plans, and HIV/AIDS 
awareness plans will be undertaken and funded by GOES. GOES and MCC 
also have conducted multiple consultations with non-governmental 
organizations in El Salvador and in the U.S. to review concerns and 
ensure they are adequately addressed in advance of implementation.
    As part of the Human Development Project, classified as Category B 
under MCC's Environmental Guidelines, the education and training 
activity will require a gender assessment to address issues of access 
and meaningful participation. The community development activity will 
require selection criteria for provision of community services that 
take into account environmental sensitivity and social impact 
considerations and site-specific environmental analysis as needed.
    The Productive Development Project, classified as Category D under 
MCC's Environmental Guidelines, will adhere to guidelines contained in 
an operations manual that defines environmental and social/gender 
requirements. Specifically, potentially adverse environmental impacts 
may result from new or expanded activities supported by the Project. To 
address these and other potential impacts, technical assistance will 
involve the dissemination of environmental sustainability principles, 
and selection criteria for eligible proposals will include 
environmental sensitivity and social impact considerations.
E. Donor, Multilateral, and Interagency Coordination
    The Program was developed in collaboration with a wide variety of 
donors and multilateral finance institutions. Several Program 
components will build upon activities pioneered by other donors (such 
as the Inter-American Development Bank's rural roads program, and the 
U.S. Agency for International Development's water and sanitation and 
rural productivity projects). MCC worked with the European Union and 
the Japanese International Cooperation Agency as it reviewed proposed 
transportation infrastructure activities. MCC also worked closely with 
the World Bank to ensure proper coordination on the strategic 
environmental assessment, and on matters related to land tenure, land 
administration, and protected areas management.
    To further advance understanding of the proposed Program, MCC held 
numerous meetings with representatives from various U.S. Government 
agencies. MCC looked primarily to USAID and the U.S. Department of 
State for information on the development context in El Salvador. For 
insight into the integrity of GOES financial management systems, MCC 
received detailed reviews and recommendations from USAID's Regional 
Inspector General's office in El Salvador. On specific technical 
issues, MCC met with specialists from the U.S. Department of 
Agriculture, Federal Highway Administration, Inter-American Foundation, 
U.S. Department of Justice, and the Army Corps of Engineers. MCC also 
held meetings with key representatives from the U.S. Commercial 
Service, U.S. Trade Representative, U.S. Trade and Development Agency, 
Export-Import Bank of the United States, and the Overseas Private 
Investment Corporation. These sessions provided useful context to the 
Compact development process and alerted MCC staff to potential 
challenges and opportunities for positive collaboration.

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

Table of Contents

Article I. Purpose and Term
    Section 1.1 Compact Goal; 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

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    Section 2.6 Bilateral Agreement
Article III. Implementation
    Section 3.1 Creation of the ``Fondo del Milenio''
    Section 3.2 Responsibilities
    Section 3.3 Fundamental Objectives
    Section 3.4 Board and Management Generally
    Section 3.5 Board
    Section 3.6 Executive Director
    Section 3.7 Patrimony and Budget
    Section 3.8 Oversight and Control
    Section 3.9 Audits
    Section 3.10 Reglamento
    Section 3.11 Implementation Framework
    Section 3.12 Government Responsibilities
    Section 3.13 Government Deliveries
    Section 3.14 Government Assurances
    Section 3.15 Implementation Letters; Supplemental Agreements
    Section 3.16 Procurement; Awards of Assistance
    Section 3.17 Policy Performance; Policy Reforms
    Section 3.18 Records and Information; Access; Audits; Reviews
    Section 3.19 Insurance; Performance Guarantees
    Section 3.20 Domestic Requirements
    Section 3.21 No Conflict
    Section 3.22 Reports
Article IV. Conditions Precedent; Deliveries
    Section 4.1 Conditions Prior to Entry Into Force and Deliveries
    Section 4.2 Conditions Precedent to MCC Disbursement 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
    Section 5.6 Attachments
    Section 5.7 Inconsistencies
    Section 5.8 Indemnification
    Section 5.9 Headings
    Section 5.10 Interpretation
    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: Definitions

Exhibit B: List of Certain Supplemental Agreements

    Schedule 2.1(a)(iii) Description of Compact Implementation 
Funding

Annex I: Program Description

    Schedule 1: Human Development Project
    Schedule 2: Productive Development Project
    Schedule 3: Connectivity Project

Annex II: Summary of Multi-Year Financial Plan

Annex III: Description of the M&E 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 El Salvador (the ``Government'') 
(referred to herein individually as a ``Party'' and collectively, the 
``Parties''). A compendium of capitalized terms defined herein is 
included in Exhibit A attached hereto.

Recitals

    Whereas, MCC, acting through its Board of Directors, has selected 
the Republic of El Salvador as eligible to present to MCC a proposal 
for the use of Millennium Challenge Account (``MCA'') assistance to 
help facilitate poverty reduction through economic growth in El 
Salvador;
    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 in May 2006 (the ``Proposal'');
    Whereas, the Proposal focused on interrelated objectives of 
supporting knowledge and skills development, expanding community 
infrastructure, developing productive potential, and improving 
connectivity in the northern zone of El Salvador (the ``Northern 
Zone'') as important national priorities to foster national integration 
and sustainable economic and social development;
    Whereas, MCC has evaluated the Proposal and related documents and 
determined that the Proposal is consistent with core MCA principles and 
includes a coherent structure of integrated activities that will 
advance the progress of El Salvador towards achieving lasting economic 
growth and poverty reduction;
    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 El Salvador's 
progress towards economic growth and poverty reduction (the 
``Program''); and
    Whereas, the Parties agree that the Government shall establish, in 
accordance with Article III and Annex I, Fondo del Milenio 
(``FOMILENIO''), the entity that shall be responsible for the oversight 
and management of the implementation of this Compact on behalf of the 
Government;
    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 Compact Goal; Objectives

    The goal of this Compact is to advance economic growth and poverty 
reduction in the Northern Zone of El Salvador (the ``Compact Goal''). 
The Parties have identified the following project-level objectives 
(collectively, the ``Objectives'') to advance the Compact Goal, each of 
which is described in more detail in the Annexes attached hereto:
    (a) Increase human and physical capital of residents of the 
Northern Zone to take advantage of employment and business 
opportunities (the ``Human Development Objective'');
    (b) Increase production and employment in the Northern Zone (the 
``Productive Development Objective''); and
    (c) Reduce travel cost and time within the Northern Zone, with the 
rest of country, and within the region (the ``Connectivity 
Objective'').
    The Government expects to achieve, and shall use its best efforts 
to ensure the achievement of, the Compact Goal and these Objectives 
during the Compact Term.

Section 1.2 Projects

    The Annexes attached hereto describe the component projects of the 
Program, 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 (i) each Party has completed its domestic 
requirements for entry into force of this Compact (including as set 
forth in Section 3.20) and (ii) all conditions set forth in Section 4.1 
have been satisfied by the Government and MCC (``Entry into Force''). 
This Compact shall remain in force for five (5) years from Entry into 
Force, unless earlier terminated in accordance with Section 5.4 (the 
``Compact Term''). Notwithstanding the foregoing, Sections 2.1(a)(iii), 
3.1 to 3.10, 3.16 and 3.20 shall provisionally apply prior to Entry 
into Force in accordance with the terms and conditions set forth in 
each such Section and shall remain in full force

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and effect throughout the Compact Term.

Article II. Funding and Resources

Section 2.1 MCC Funding

    (a) MCC's Contribution. MCC hereby grants to the Government, 
subject to the terms and conditions of this Compact, an amount not to 
exceed Four Hundred Sixty Million Nine Hundred and Forty Thousand 
United States Dollars (US $460,940,000) (``MCC Funding'') during the 
Compact Term to enable the Government to implement the Program and 
achieve the Objectives.
    (i) Subject to Sections 2.1(a)(ii), 2.2(b) and 5.4(b), the 
allocation of MCC Funding within the Program and among and within the 
component Projects shall be as generally described in Annex II or as 
otherwise agreed upon by the Parties from time to time.
    (ii) If at any time MCC determines that a condition precedent to an 
MCC Disbursement has not been satisfied, MCC may, upon written notice 
to the Government, reduce the total amount of MCC Funding by an amount 
equal to the amount estimated in the applicable Detailed Budget for the 
Program, Project, Project Activity or sub-activity for which such 
condition precedent has not been met. Upon the expiration or 
termination of this Compact, (A) any amount of MCC Funding not 
disbursed by MCC to the Government shall be automatically released from 
any obligation in connection with this Compact, and (B) any amounts of 
MCC Funding disbursed by MCC to the Government as provided in Section 
2.1(b)(i), but not re-disbursed as provided in Section 2.1(b)(ii) or 
otherwise incurred as permitted pursuant to Section 5.4(e) prior to the 
expiration or termination of this Compact, shall be returned to MCC in 
accordance with Section 2.5(a)(ii).
    (iii) Notwithstanding any other provision of this Compact and 
pursuant to the authority of Section 609(g) of the Millennium Challenge 
Act of 2003, as amended (the ``Act''), upon the conclusion of this 
Compact (and without regard to the satisfaction of all of the 
conditions for Entry into Force required under Section 1.3), MCC shall 
make available Nine Million Two Hundred and Eighteen Thousand United 
States Dollars (US$ 9,218,000) (``Compact Implementation Funding'') to 
facilitate certain aspects of Compact implementation as described in 
Schedule 2.1(a)(iii) attached hereto; provided, however, such Compact 
Implementation Funding shall be subject to (A) the limitations on the 
use or treatment of MCC Funding set forth in Section 2.3, as if such 
provision were in full force and effect, and (B) any other requirements 
for, and limitations on the use of, such Compact Implementation Funding 
as may be required by MCC in writing; provided, further, that any 
Compact Implementation Funding granted in accordance with this Section 
2.1(a)(iii) shall be included in, and not additional to, the total 
amount of MCC Funding; and provided, further, any obligation to provide 
such Compact Implementation Funding shall expire upon the expiration or 
termination of this Compact or five (5) years from the conclusion of 
this Compact, whichever occurs sooner and in accordance with Section 
5.4(e). Notwithstanding anything to the contrary in this Compact, this 
Section 2.1(a)(iii) shall provisionally apply, prior to Entry into 
Force, upon execution of this Compact by the Parties and ratification 
thereof by the Asamblea Legislativa and completion of the corresponding 
Publication Period, and this Section 2.1(a)(iii) shall remain in full 
force and effect throughout the Compact Term.
    (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 a Supplemental Agreement to be entered into 
by MCC, FOMILENIO and the Government (or a mutually acceptable 
Government Affiliate) setting forth the specific terms and conditions 
of MCC Disbursements and Re-Disbursements and the procurement policies 
and procedures for the Program (the ``Disbursement 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 the Disbursement Agreement or as otherwise provided in any 
other Supplemental Agreement.
    (c) Interest. Unless the Parties agree otherwise in writing, any 
interest or other earnings on MCC Funding that accrue (collectively, 
``Accrued Interest'') shall be held in a Permitted Account and shall 
accrue in accordance with the requirements for the accrual and 
treatment of Accrued Interest as specified in Annex I or any 
Supplemental Agreement. On at least 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 
Government account designated by MCC.
    (d) Currency. The Government shall ensure that all MCC Funding that 
is held in any Permitted Account shall be denominated in the currency 
of the United States of America (``United States Dollars'') prior to 
Re-Disbursement.

Section 2.2 Government Resources

    (a) In accordance with Section 609(b)(2) of the Act, the Government 
shall make a contribution towards meeting the Objectives of this 
Compact. Section 6 of Annex II identifies such contribution.
    (b) 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 effectively to 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.
    (c) If at any time during the Compact Term, the Government 
materially reallocates or reduces the allocation in its national budget 
or any other Salvadoran governmental authority at a departmental, 
municipal, regional or other jurisdictional level materially 
reallocates or reduces the allocation in 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 the 
reallocation or reduction. In the event that MCC independently 
determines upon review of the executed national annual budget that such 
a material reallocation or reduction of resources has occurred, MCC 
shall notify the Government and, following such notification, the 
Government shall provide a written explanation for such reallocation or 
reduction and MCC may (i) reduce, in its sole discretion, the total 
amount of MCC Funding or any MCC

[[Page 76445]]

Disbursement by an amount equal to the amount estimated in the 
applicable Detailed Budget for the activity for which funds were 
reduced or reallocated, or (ii) otherwise suspend or terminate MCC 
Funding in accordance with Section 5.4(b).
    (d) The Government shall use its best efforts to ensure that all 
MCC Funding is fully reflected and accounted for in the annual budget 
of the Republic of El Salvador on a multi-year basis.

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 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. The Government shall ensure that the Program, MCC 
Funding, Accrued Interest, and any other Program Asset shall be free 
from any taxes imposed under the laws currently or hereafter in effect 
in the Republic of El Salvador during the Compact Term. This exemption 
shall apply to any use of MCC Funding, Accrued Interest, and any other 
Program Asset, 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, withholdings 
and other levies (each, a ``Tax'' and collectively, ``Taxes''), 
including the following:
    (1) To the extent attributable to MCC Funding, income taxes and 
other taxes on profit or businesses imposed on organizations or 
entities 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 the Republic of El Salvador, municipal or departmental 
taxes, or any other tax, duty, charge or fee of whatever nature;
    (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 the Republic of El Salvador 
and who are present in the Republic of El Salvador for purposes of 
carrying out the Program and 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 the Republic of El 
Salvador, 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
    (4) Taxes or duties levied for 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 to, 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 collectively in this Section 2.3(e) as ``goods'') or funds 
introduced into, acquired in, used or disposed of in, or imported into 
or exported from, the Republic of El Salvador 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

[[Page 76446]]

Section 2.3(e), then the Government shall refund to MCC, to an account 
designated by MCC, the amount of such Tax payment within thirty (30) 
days (or such other period as may be agreed in writing by the Parties) 
after the date on which the Government is notified in writing, in 
accordance with procedures agreed to by the Parties, of such Tax levy 
and payment; provided, however, the Government shall apply national 
funds to satisfy its obligations under this Section 2.3(e)(iii) and no 
MCC Funding, Accrued Interest, or any assets, goods, or property (real, 
tangible, or intangible) purchased or financed in whole or in part 
(directly or indirectly) by MCC Funding (collectively, the ``Program 
Assets'') may be applied by the Government in satisfaction of its 
obligations under this paragraph.
    (iv) To implement this Section 2.3(e), the Government may, with the 
consent of MCC and through Implementation Letters, establish some or 
all of the following: (A) A mechanism pursuant to which the Government 
will simultaneously pay the VAT portion of any invoices to be paid, in 
whole or in part, by FOMILENIO; (B) a mechanism pursuant to which, for 
Salvadoran income tax purposes, all payments or transfers made by 
FOMILENIO with MCC Funding are not considered as ``income, profits, 
receipts or revenues'' for the recipients of such payments or transfers 
(renta excluida) and therefore are excluded from the definition of 
income and the monthly estimated income tax payments and from the 
withholding tax regime applicable to providers of goods and services; 
(C) a mechanism pursuant to which the Government will reimburse to MCC 
or FOMILENIO, as appropriate, on a regular and timely basis, Taxes paid 
contrary to the requirements of this Section 2.3(e) due to the 
impracticality of implementing such requirements with respect to 
certain types of Taxes or the amount of such Taxes not being 
susceptible to precise determination; (D) a mechanism for ensuring the 
tax-free importation, use and re-exportation of goods, services or 
personal belongings of individuals (including all providers of goods 
and services) described in Section 2.3(e)(i)(2); and (E) the provision 
by the Government of a tax-exemption certificate to qualified 
individuals. At MCC's request, the Parties shall memorialize, in a 
mutually acceptable Supplemental Agreement or Implementation Letter or 
other suitable document, the foregoing mechanisms and the Government 
shall take any other appropriate action to facilitate the 
administration of this Section 2.3(e). All payments made pursuant to 
this Section 2.3(e)(iv) shall be made with national funds.
    (f) Alteration. No MCC Funding, Accrued Interest or other Program 
Asset shall be subject to any impoundment, rescission, sequestration or 
any provision of law now or hereafter in effect in the Republic of El 
Salvador that would have the effect of requiring or allowing any 
impoundment, rescission or sequestration of any MCC Funding, Accrued 
Interest or other Program Asset. The Government shall ensure the due 
compliance and exact application thereof.
    (g) Liens or Encumbrances. No MCC Funding, Accrued Interest or 
other Program Asset shall be subject to any lien, attachment, 
enforcement of judgment, pledge, or encumbrance of any kind (each, a 
``Lien''), 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, if the Lien is not released within thirty (30) days of the 
imposition thereof, shall pay all amounts owed or take all other 
actions necessary to obtain such release; provided, however, that the 
Government shall apply national funds to satisfy its obligations under 
this Section 2.3(g) and no MCC Funding, Accrued Interest or other 
Program Asset may be applied by the Government in satisfaction of its 
obligations under this Section 2.3(g). The Government shall ensure the 
due compliance and exact application thereof.
    (h) Other Limitations. The Government shall ensure that the use or 
treatment of MCC Funding, Accrued Interest, and other Program Assets 
shall be 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, unless otherwise agreed by the Parties in writing, that any 
Program Assets and any services, facilities or works funded in whole or 
in part (directly or indirectly) by MCC Funding 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 (except for Supplemental Agreements with Providers defined 
in Section 2.4(b)(ii) below) to which MCC is not a party.
    (b) The Government shall ensure notification of all of the 
requirements set forth in Section 2.3 to any Provider and to all of 
such Provider's relevant officers, directors, employees, agents, 
representatives, Affiliates, and to any of such Provider's contractors, 
sub-contractors, grantees and sub-grantees of any Provider. The term 
``Provider'' shall mean (i) FOMILENIO, (ii) any Government Affiliate or 
Permitted Designee (other than FOMILENIO) that receives or utilizes any 
Program Assets in carrying out activities in furtherance of this 
Compact or (iii) any third party who receives at least US$ 50,000 in 
the aggregate of MCC Funding (other than employees of FOMILENIO) 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.
    (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 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. MCC shall 
use good faith efforts to respond timely to such notification for 
clarification.

Section 2.5 Refunds; Violation

    (a) Notwithstanding the availability to MCC, or the exercise by 
MCC, of any other remedies, including under international law, this 
Compact or any Supplemental Agreement:

[[Page 76447]]

    (i) If any amount of MCC Funding, Accrued Interest, or any other 
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, then MCC, upon written notice, may 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 other misused 
Program Asset, in United States Dollars, plus any interest that accrued 
or would have accrued thereon, within thirty (30) days after the 
Government is notified, whether by MCC or other duly authorized 
representative of the United States Government, 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 any other Program Asset may be applied by the 
Government in satisfaction of its obligations under this Section 
2.5(a)(i); and
    (ii) Upon the termination or suspension of all or any portion of 
this Compact or 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, to such account designated by 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; provided, however, 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.
    (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, then 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.

Section 2.6 Bilateral Agreement

    All MCC Funding shall be considered United States assistance under 
the General Agreement for Economic, Technical and Related Assistance 
between the Government of the United States of America and the 
Government of the Republic of El Salvador, dated June 16, 1962, as 
amended from time to time (the ``Bilateral Agreement''). If there are 
conflicts or inconsistencies between any parts of this Compact and the 
Bilateral Agreement, as either may be amended from time to time, the 
provisions of this Compact shall prevail over those of the Bilateral 
Agreement.

Article III. Implementation

Section 3.1 Creation of the ``Fondo del Milenio''

    The Government promptly shall take all necessary and appropriate 
actions to create, or cause to be created, pursuant to a legislative 
decree that develops the provisions of this Article III and is, in form 
and substance, mutually agreeable to the Parties (the ``Law Creating 
FOMILENIO''), an autonomous public entity, with technical character and 
of public interest, named the ``FONDO DEL MILENIO,'' hereinafter also 
known as ``FOMILENIO,'' for so long as there are pending activities, 
rights or obligations with respect to the Compact. FOMILENIO shall have 
legal capacity and with property of its own, with autonomy in the 
exercise of its functions, in the financial and administrative aspects 
as well as in its budget. Its domicile will be in the city of San 
Salvador, Republic of El Salvador but it will be able to establish 
branch offices anywhere in the Republic of El Salvador.

Section 3.2 Responsibilities

    FOMILENIO shall administer its resources efficiently and comply 
with all of the responsibilities and obligations designated and assumed 
by it (i) pursuant to this Compact and Supplemental Agreements, (ii) 
pursuant to the Governing Documents, (iii) in accordance with all 
applicable laws then in effect in El Salvador that do not contravene 
the provisions of this Compact, and (iv) in a timely and cost-effective 
manner and in conformity with sound technical, financial and management 
practices.

Section 3.3 Fundamental Objectives

    The fundamental objectives of FOMILENIO shall be the Compact Goal, 
the Human Development Objective, the Productive Development Objective 
and the Connectivity Objective.

Section 3.4 Board and Management Generally

    (a) FOMILENIO shall have: (i) A board of directors (the ``Board'') 
that shall be responsible for the oversight and supervision of all 
FOMILENIO's activities and shall ensure the execution of FOMILENIO's 
responsibilities and obligations set forth in this Compact and the 
Governing Documents, as well as the compliance of the obligations of 
the Government under this Compact, and (ii) a management unit (the 
``Management'') with day-to-day management responsibility for the 
implementation of this Compact.
    (b) The Board shall appoint, with the approval of MCC, an ad 
honorem Advisory Council (the ``Advisory Council''), which shall be 
independent from FOMILENIO. The composition, roles and responsibilities 
of the Advisory Council shall be those established in Annex I hereto 
and in accordance with the provisions of the Governing Documents.

Section 3.5 Board

    (a) Formation. The Board shall be formed, constituted, governed and 
operated in accordance with the terms set forth in this Compact, the 
Governing Documents, and the Supplemental Agreements.
    (b) Constitution. The Board shall consist of at least seven (7) but 
no more than eleven (11) voting members, and at least two (2) non-
voting observers. The Board members shall be designated in accordance 
with Section 3.5(e). One of the voting members designated by the 
Government in accordance with the Reglamento shall serve as the 
chairman of the Board (the ``Chair'') and legal representative of 
FOMILENIO.
    (c) Ad-honorem Membership. The Board members will exercise their 
functions ad-honorem; therefore, they will not receive any salary, 
wages or other compensations for their work relating to their 
membership on the Board.
    (d) No Delegation; Alternates. The members of the Board shall be 
prohibited from delegating their rights and responsibilities as members 
of the Board other than to their prior-appointed alternates who shall 
be permitted to vote on behalf of such primary member in the case of 
such primary member's absence.
    (e) Appointment of Board Members. The required minimum seven (7) 
voting members of the Board shall be chosen as follows: (i) Four (4) of 
the voting members of the Board, and each of their alternates, shall be 
designated by the Government, subject to the prior receipt

[[Page 76448]]

of a no-objection notice from MCC; (ii) one (1) of the voting members 
shall be a member of the private sector, and such member, and his/her 
alternate, shall be selected and appointed in accordance with the 
procedure set forth in the Reglamento; and (iii) two (2) of the voting 
members shall be representatives of NGOs, and such members, and each of 
their alternates, shall be selected and appointed in accordance with a 
process agreed upon by the Government and MCC. Initially, the voting 
members designated by the Government shall be: (i) The Technical 
Secretary of the President of the Republic of El Salvador; (ii) the 
Minister of Finance; (iii) the Minister of Foreign Affairs; and (iv) 
the Minister of Agriculture. The required minimum two non-voting 
observers of the Board shall be (i) a representative designated by MCC 
(the ``MCC Representative'') and (ii) the Minister of the Environment 
and Natural Resources. In the event that one of the NGO voting members 
is not from an environmentally focused NGO, an additional observer from 
such an organization, subject to the prior receipt of a no-objection 
notice from MCC, shall be appointed. Each non-voting observer shall be 
an ``Observer.'' The Reglamento shall set forth the procedures for 
selection of any additional Board members and any additional Observers 
and the procedures for any change of the Chair and any change in the 
composition of the Board.
    (f) Roles and Responsibilities of the Board. The Board shall:
    (i) Supervise and manage the Program and each of its component 
Projects and Project Activities;
    (ii) Approve the regulations, manuals, instructions, internal 
organization, expenses, budgets and procurements for the execution of 
the Program;
    (iii) Propose to the Government the Executive Decrees which may be 
necessary for the internal organization and operation of FOMILENIO;
    (iv) Approve, execute and implement the necessary Supplemental 
Agreements for the execution of the Program;
    (v) Appoint the Executive Director and define the Executive 
Director's role and responsibilities and delegate to the Executive 
Director the right to execute any agreement previously approved by the 
Board;
    (vi) Request MCC Disbursements that are necessary for the execution 
of the Program; and
    (vii) Carry out any other action that may have been granted by the 
Compact and the Executive Decree(s) specially created for the 
compliance and execution of the Program.

Section 3.6 Executive Director

    The Executive Director of FOMILENIO (the ``Executive Director'') 
shall have the power and authority delegated to the Executive Director 
by the Board.

Section 3.7 Patrimony and Budget

    The patrimony of FOMILENIO will be constituted through the grant of 
MCC Funding from the Government of the United States of America acting 
through MCC pursuant to this Compact. FOMILENIO will have a multi-
annual budget that will be approved as an extraordinary budget by the 
Legislative Assembly of El Salvador (the ``Asamblea Legislativa'').

Section 3.8 Oversight and Control

    FOMILENIO will be subject to oversight and control by the 
Comptroller of the Republic of El Salvador (Corte de Cuentas de la 
Rep[uacute]blica de El Salvador).

Section 3.9 Audits

    FOMILENIO will be subject to financial audits to verify the proper 
investment of its funds and patrimony. For this purpose, FOMILENIO will 
have an internal audit department appointed by the Board. FOMILENIO 
will also be subject to external financial controls in accordance with 
the Compact.

Section 3.10 Reglamento

    The President of the Republic of El Salvador shall issue the 
Executive Decree through which the management, operations, and internal 
organization, among other rules and regulations of FOMILENIO are 
developed and regulated (the ``Reglamento'') consistent with this 
Compact, including Annex I, and the Law Creating FOMILENIO. 
Notwithstanding anything to the contrary in this Compact, Sections 3.1 
through 3.10 shall provisionally apply, prior to Entry into Force, upon 
the execution of this Compact by the Parties and the ratification of 
this Compact by the Asamblea Legislativa and completion of the 
corresponding Publication Period, and this Section 3.10 shall remain in 
full force and effect throughout the Compact Term.

Section 3.11 Implementation Framework

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

Section 3.12 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 
the Supplemental Agreements, (ii) in accordance with all applicable 
laws then in effect in El Salvador, 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 family down to the fourth level of 
consanguinity or the second level of affinity, 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 
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 (including any Government

[[Page 76449]]

Responsibilities or any other responsibilities or obligations of the 
Government under this Compact or any Supplemental Agreement), or to 
exercise any rights of the Government under this Compact or any 
Supplemental Agreement, except as expressly provided herein or with the 
prior written consent of MCC; provided, however, the Government may 
designate FOMILENIO or, with the prior written consent of MCC, such 
other mutually acceptable persons or entities (each, a ``Permitted 
Designee'') 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, each in accordance with the terms and 
conditions set forth in this Compact, such Supplemental Agreement 
(referred to herein collectively as ``Designated Rights and 
Responsibilities''). 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 and the Supplemental Agreements, in accordance with this 
Section 3.12(c), then the Government shall (i) cause such person or 
entity to perform 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) ensure 
that such person or entity does not assign, delegate, or contract (or 
otherwise transfer) any of such Designated Rights and Responsibilities 
to any person or entity, and (iii) cause such person or entity to 
certify to MCC in writing that it will so perform such Designated 
Rights and Responsibilities 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 FOMILENIO, 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 FOMILENIO 
is modified, supplemented, unduly influenced or rescinded by any 
governmental authority, except by a non-appealable judicial decision, 
and (ii) the authority of FOMILENIO shall not be expanded, restricted, 
or otherwise modified, except in accordance with this Compact, any 
Governing Document or any other Supplemental Agreement between the 
Parties.
    (f) The Government shall ensure that all persons and entities 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 3.13 Government Deliveries

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

Section 3.14 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 
communicated to MCC by or on behalf of the Government on or after the 
date of the submission of the Proposal (i) are true, correct 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 implement effectively, or ensure 
the effective implementation of, the Program or any Project or 
otherwise to 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.
    (b) Unless otherwise disclosed in writing to MCC, the MCC Funding 
made available hereunder 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 Governmental Affiliate in connection with the 
procurement of goods, services or works 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 the Republic of El 
Salvador (subject to Section 2.3(e)) and consistent with the applicable 
requirement of the laws of El Salvador, 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 3.15 Implementation Letters; Supplemental Agreements

    (a) MCC may, from time to time, issue one or more letters 
consistent with this Compact 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 or instruments between (i) the Government (or any Government 
Affiliate or Permitted Designee) and MCC, (ii) MCC or the Government 
(or any Government Affiliate or Permitted Designee) and any Provider or 
Permitted Designee, or (iii) Providers where neither MCC nor the 
Government is a party, before, on or after Entry into Force (each, a 
``Supplemental Agreement''). The Government shall deliver, or cause to 
be delivered, to MCC within five (5) days of its request, or such other 
period as may be specified in the Disbursement Agreement, the execution 
copy of any Supplemental Agreement to which MCC is not a party.
    (c) The Government agrees to execute and deliver such further 
documents and instruments and to take such further actions as may be 
necessary or desirable and reasonably requested by MCC to

[[Page 76450]]

comply with this Compact, including Supplemental Agreements.

Section 3.16 Procurement; Awards of Assistance

    (a) Any procurement pursuant to this Compact or any of its 
Supplemental Agreements shall be governed by and consistent with the 
procurement guidelines (the ``Procurement Guidelines'') set forth in 
the Disbursement Agreement. Accordingly, neither the Ley de 
Adquisiciones y Contrataciones de la Administraci[oacute]n 
P[uacute]blica, its corresponding Executive Decree or any other laws or 
regulations of the Republic of El Salvador regarding procurements will 
apply thereto. The Government shall ensure that the procurement of all 
goods, services and works by the Government or any Provider in 
furtherance of this Compact will be conducted in accordance with the 
Procurement Guidelines. Such Procurement Guidelines shall include the 
following requirements:
    (i) Internationally accepted procurement rules with 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, services and works acquired in furtherance of this 
Compact, the nature and extent of solicitations of prospective 
suppliers of goods, services and works acquired in furtherance of this 
Compact, and the basis of award of contracts, grants and other 
agreements in furtherance of this Compact.
    (c) The Government shall use its best efforts to ensure that 
information, including solicitations, regarding procurement, grant and 
other agreement 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) The Government shall ensure that no goods, services or works 
that are funded in whole or in part (directly or indirectly) by MCC 
Funding are procured pursuant to orders or contracts firmly placed or 
entered into prior to Entry into Force, except as the Parties may 
otherwise agree in writing.
    (e) The Government shall ensure that FOMILENIO 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 MCC evidence of the adoption of the 
Procurement Guidelines by FOMILENIO 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 3.16 into all Supplemental Agreements 
between the Government, any Government Affiliate or 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.
    (g) Notwithstanding anything to the contrary in this Compact, this 
Section 3.16 shall provisionally apply, prior to Entry into Force, upon 
the execution of this Compact by the Parties and the ratification of 
this Compact by the Asamblea Legislativa and completion of the 
corresponding Publication Period, and this Section 3.16 shall remain in 
full force and effect throughout the Compact Term.

Section 3.17 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 to improve its level of performance under the 
policy criteria identified in Section 607 of the Act, and the MCA 
selection criteria and methodology published by MCC pursuant to Section 
607 of the Act from time to time (the ``MCA Eligibility Criteria'').

Section 3.18 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 3.18 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 3.22.
    (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, the use of 
all MCC Funding, including all costs incurred by the Government and the 
Providers in furtherance of this Compact, the receipt, acceptance and 
use of goods, services and works 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, services and works 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 documents required by this Compact or any Supplemental Agreement or 
reasonably requested by MCC upon reasonable notice (``Compact 
Records''). The Government shall maintain, and shall use its best 
efforts to ensure that FOMILENIO and 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 El Salvador. 
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 then-pending litigation, claims or audit findings or any 
statutory requirements.
    (c) Access. Upon the request of MCC, the Government, at all 
reasonable times, shall provide, or cause to be provided, to authorized 
representatives of MCC, the Inspector General, the United States 
Government Accountability Office, any auditor responsible for an audit 
contemplated herein or otherwise conducted in furtherance of this

[[Page 76451]]

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 (A) 
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 (B) Compact Records, including those 
of the Government or any Provider, relating to activities funded or 
undertaken in furtherance of, or otherwise relating to, this Compact. 
The Government 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. Except as the Parties may otherwise agree in 
writing, the Government, on at least a semi-annual basis, shall 
conduct, or cause to be conducted, financial audits of all MCC 
Disbursements and Re-Disbursements covering the period from the 
execution of the Compact until the earlier of the following December 31 
and June 30, and covering each six-month period thereafter ending 
December 31 and June 30, through 2012, in accordance with the following 
terms. As requested by MCC in writing, the Government shall use, or 
cause to be used, or select, or cause to be selected, an auditor named 
on the approved list of auditors in accordance with the Guidelines for 
Financial Audits Contracted by Foreign Recipients (the ``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 Audit Guidelines and be subject to 
quality assurance oversight by the Inspector General in accordance with 
such Audit Guidelines. Any such audit shall be completed and delivered 
to MCC no later than ninety (90) days after the first period to be 
audited and no later than ninety (90) days after each anniversary of 
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 twenty (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 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 (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) US$ 300,000 or more of MCC Funding in any 
FOMILENIO fiscal year or any other non-United States person or entity 
that receives (directly or indirectly) US$ 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) US$ 500,000 or more of MCC Funding in any FOMILENIO 
fiscal year or any other United States person or entity that receives 
(directly or indirectly) US$ 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 3.18, other 
than audits arranged for by MCC, no later than ninety (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 
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 3.18 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 3.18.
    (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 3.18 into all Supplemental Agreements 
between the Government, any Government Affiliate, any 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 non-profit organization 
domiciled in the United States, on the other hand;
    (ii) Paragraphs (a), (b), (c), (d)(ii), and (d)(viii) of this 
Section 3.18 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 3.18 into all Supplemental Agreements between a Government 
Party and a Covered Provider that is a non-profit organization 
domiciled in the United States.
    (f) Reviews or Evaluations. The Government shall conduct, or cause 
to be conducted, such performance reviews, data quality reviews, 
environmental and social 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

[[Page 76452]]

or evaluations required under this Compact, including as reflected in 
Exhibit A to Annex II, and in no event shall the Government be 
responsible for the costs of any such audits, reviews or evaluations 
from financial sources other than MCC Funding.

Section 3.19 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. FOMILENIO or the 
Implementing Entity, as applicable, shall be named as the payee on any 
such insurance and the beneficiary of any such guarantee, including 
performance bonds to the extent permissible under applicable laws 
unless otherwise agreed by the Parties. To the extent it is not named 
as the insured party, FOMILENIO shall be named as an additional insured 
on any such insurance or other guarantee, to the extent permissible 
under applicable laws unless otherwise agreed by the Parties. Upon 
MCC's request and to the extent permissible under applicable laws, 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 FOMILENIO and acceptable to MCC or as otherwise directed 
by MCC. To the extent FOMILENIO is held liable under any 
indemnification or other similar provision of any agreement between 
FOMILENIO, 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 
FOMILENIO any such obligation; provided, further, the Government shall 
apply national funds to satisfy its obligations under this Section 3.19 
and no MCC Funding, Accrued Interest, or other Program Asset may be 
applied by the Government in satisfaction of its obligations under this 
Section 3.19.

Section 3.20 Domestic Requirements

    The Government shall proceed in a timely manner to seek 
ratification of this Compact as necessary or required by the laws of El 
Salvador, or similar domestic requirement, in order that (a) this 
Compact shall be given the status of an international agreement, (b) no 
laws of El Salvador (other than the Constitution of El Salvador) now or 
hereafter in effect shall take precedence or prevail over this Compact 
during the Compact Term (or a longer period to the extent provisions of 
this Compact remain in force following the expiration of the Compact 
Term pursuant to Section 5.13), and (c) each of the provisions of this 
Compact (and each of the provisions of any Supplemental Agreement to 
which MCC is a party) is valid, binding and in full force and effect 
under the laws of El Salvador. The Government shall initiate such 
process promptly after the conclusion of this Compact. Notwithstanding 
anything to the contrary in this Compact, this Section 3.20 shall 
provisionally apply, prior to Entry into Force, upon the execution of 
this Compact by the Parties and the ratification of this Compact by the 
Asamblea Legislativa and completion of the corresponding Publication 
Period, and this Section 3.20 shall remain in full force and effect 
throughout the Compact Term.

Section 3.21 No Conflict

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

Section 3.22 Reports

    The Government shall provide, or cause to be provided, to MCC at 
least on each anniversary of 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) A description of the Program and each Project funded in 
furtherance of this Compact, including a detailed description of the 
objectives and measures for results of the Program and the Projects;
    (b) The progress made by the Republic of El Salvador toward 
achieving the Compact Goal and the Objectives;
    (c) A description of the extent to which MCC Funding has been 
effective in helping the Republic of El Salvador to achieve the Compact 
Goal and the Objectives;
    (d) A description of the coordination of MCC Funding with other 
United States foreign assistance and other related United States 
Government trade policies;
    (e) A description of the coordination of MCC Funding with 
assistance provided by other donor countries;
    (f) 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;
    (g) Any report or document required to be delivered to MCC under 
the Environmental Guidelines, any Audit Plan, or any Implementation 
Documents; and
    (h) Any other report, document or information requested by MCC or 
required by this Compact or any Supplemental Agreement.

Article IV. Conditions Precedent; Deliveries

Section 4.1 Conditions Prior to Entry into Force and Deliveries

    As conditions precedent to 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), 
a Permitted Designee, and MCC shall execute a Disbursement Agreement, 
which agreement shall be in full force and effect as of Entry into 
Force.
    (b) (i) The Government shall deliver one or more of the 
Supplemental Agreements or other documents identified in Exhibit B 
attached hereto, which agreements or other documents shall be fully 
executed by the parties thereto and in full force and effect, or (ii) 
the Government (or a mutually acceptable Government Affiliate), a 
Permitted Designee, and MCC shall execute one or more term sheets that 
set forth the material and principal terms and conditions that will be 
included in any such Supplemental Agreement or other documents that 
have not been entered into or have not become effective as of Entry 
into Force (the ``Supplemental Agreement Term Sheets'').
    (c) The Government shall deliver 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.
    (d) The Government shall deliver a certificate signed and dated by 
the Principal Representative of the Government, or such other duly

[[Page 76453]]

authorized representative of the Government acceptable to MCC, that:
    (i) Certifies the Government has completed all of its domestic 
requirements in order that (A) this Compact (and any Supplemental 
Agreement to which MCC is a party) shall be given the status of an 
international agreement, (B) no laws of El Salvador (other than the 
Constitution of El Salvador) now or hereafter in effect shall take 
precedence or prevail over this Compact (or any Supplemental Agreement 
to which MCC is a party) during the Compact Term (or a longer period to 
the extent provisions of this Compact remain in force following the 
Compact Term pursuant to Section 5.13), and (C) each of the provisions 
of this Compact (and each of the provisions of any Supplemental 
Agreement to which MCC is a party) shall be valid, binding and in full 
force and effect under the laws of El Salvador;
    (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 and the satisfaction 
of Section 3.20, which MCC may post on its web site or otherwise make 
publicly available; and
    (iii) (1) Certifies that the Asamblea Legislativa has passed the 
Law Creating FOMILENIO pursuant to Article III hereof, and that such 
law is in full force and effect in accordance with the laws of El 
Salvador, and (2) attaches thereto a copy of the Law Creating 
FOMILENIO, which MCC may post on its Web site or otherwise make 
publicly available.
    (e) MCC shall deliver 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 MCC 
other than the Principal Representative or any such Additional 
Representative.
    (f) The Government has not engaged subsequent to the conclusion of 
this Compact in any action or omission inconsistent with the MCA 
Eligibility Criteria, as determined by MCC in its sole discretion.

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) three (3) 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 
Operations (with a copy to the Vice President and General Counsel), 875 
Fifteenth Street, NW., Washington, DC 20005, United States of America, 
Facsimile: (202) 521-3700, Phone: (202) 521-3600, E-mail: 
[email protected] (Vice President for Operations); 
[email protected] (Vice President and General Counsel)
    To the Government:
    The Government of the Republic of El Salvador, Attention: 
Secretar[iacute]a T[eacute]cnica de la Presidencia, Casa Presidencial, 
Alameda Manuel Enrique Araujo 5500, San Salvador Republic of 
El Salvador, Facsimile: (503) 2248-9270, Phone: (503) 2248-9328, E-
mail: [email protected].
    With a copy to FOMILENIO:
    At an address, and to the attention of the person, to be designated 
in writing to MCC by the Government.
    Notwithstanding the foregoing, any audit report delivered pursuant 
to Section 3.18, 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, Technical Secretary 
of the Presidency, and MCC shall be represented by the individual 
holding the position of, or acting as, Vice President for Operations 
(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 and 
may change any Additional Representative, in either case, upon written 
notice to the other Party, which notice shall include the specimen 
signature of the new Principal Representative or Additional 
Representative, as applicable.

Section 5.3 Amendments

    The Parties may amend this Compact only by a written agreement 
signed by the Principal Representatives of the Parties and subject to 
the respective domestic approval requirements to which this Compact was 
subject.

Section 5.4 Termination; Suspension

    (a) Subject to Section 2.5, 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, subject to Section 2.5, 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 any other Program 
Asset or continued implementation of this Compact would be in violation 
of applicable law or United States Government policy, whether now or 
hereafter in effect;
    (ii) The Government, any Provider, or any other third party 
receiving MCC Funding or using any Program Asset 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 El Salvador 
ineligible to receive United States economic

[[Page 76454]]

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 the Republic of El Salvador 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 covenants, obligations or 
responsibilities under this Compact or any Supplemental Agreement;
    (vi) An audit, review, report or any other document delivered in 
furtherance of this Compact or any Supplemental Agreement or any other 
evidence reveals that actual expenditures for the Program or any 
Project or any Project Activity were greater than the projected 
expenditure for such activities identified in the applicable Detailed 
Budget 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 effectively to 
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 Funding or using any other Program Asset, or any of their 
respective directors, officers, employees, Affiliates, contractors, 
sub-contractors, grantees, sub-grantees, 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 that: (A) 
materially and adversely affects, or is likely to materially and 
adversely affect, the ability of the Government or any other party to 
effectively implement, or ensure the effective implementation of, the 
Program or any Project or otherwise to 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 any of the 
Objectives will be achieved during the Compact Term; (C) materially and 
adversely affects any Program Asset or any Permitted Account; or (D) 
constitutes misconduct injurious to MCC, or constitutes a fraud or a 
felony, by the Government, any Government Affiliate, Permitted Designee 
or Provider, or any officer, director, employee, agent, representative, 
Affiliate, contractor, grantee, subcontractor or sub-grantee of any of 
the foregoing;
    (xi) The Government, any 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 or any Permitted 
Designee or Provider is a party;
    (xii) There has occurred a failure to meet a condition precedent or 
series of conditions precedent or any other requirements or conditions 
in connection with MCC Disbursement as set out in and in accordance 
with any Supplemental Agreement; or
    (xiii) Any MCC Funding, Accrued Interest or other Program Asset 
becomes subject to a Lien without the prior approval of MCC, and the 
Government fails to obtain the release of such Lien (utilizing national 
funds and not with MCC Funding, Accrued Interest or any other Program 
Asset) within thirty (30) days after the imposition of such Lien.
    (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 under this Section 5.4 to suspend or terminate 
this Compact or any MCC Funding 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 Disbursements and Re-Disbursements shall cease upon 
expiration, suspension, or termination of this Compact; provided, 
however, (i) reasonable expenditures for goods, services and works that 
are properly incurred under or in furtherance of this Compact before 
such expiration, suspension or termination of this Compact, and (ii) 
reasonable expenditures for goods and services (including certain 
administrative expenses) properly incurred in connection with the 
winding up of the Program within one hundred and twenty (120) days 
after such expiration, suspension or termination of this Compact may be 
paid from MCC Funding if (A) the request for such payment is properly 
submitted within ninety (90) days after such expiration, suspension or 
termination of this Compact, and (B) MCC had approved the making of 
such expenditure in writing in advance thereof.
    (f) Other than the payments permitted pursuant to Section 5.4(e), 
in the event of the suspension or termination of this Compact or any 
Supplemental Agreement, in whole or in part, the Government, shall 
suspend, at MCC's sole discretion, 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 any Program Assets be transferred to MCC if such Program Assets are 
in a deliverable state; provided, however, for any Program Asset 
partially purchased or funded (directly or indirectly) by MCC Funding, 
the Government shall reimburse to a United States Government account 
designated by MCC the cash equivalent of the portion of the value of 
such Program Asset, such value as determined by MCC.

[[Page 76455]]

    (h) Prior to the expiration of this Compact or upon the 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 FOMILENIO, (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), and (iii) any other matter related to the winding 
up of the Program and this Compact.

Section 5.5 Privileges and Immunities

    MCC is an agency of the Government of the United States of America 
and its personnel assigned to the Republic of El Salvador 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 the Republic of El Salvador, 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 the 
Republic of El Salvador.

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; and
    (ii) Any Attachments.
    (b) In the event of any conflict or inconsistency between this 
Compact and any Supplemental Agreement, 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 shall take precedence over a 
previously executed Supplemental Agreement. In the event of any 
inconsistency between a Supplemental Agreement and any component of the 
Implementation Documents, 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, 
FOMILENIO or any 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 other 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

    (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, FOMILENIO, 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 directors, officers, 
employees, Affiliates, contractors, sub-contractors, grantees, sub-
grantees, representatives or agents, 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) Defined terms importing the singular also include the plural, 
and vice versa.

Section 5.11 Signatures

    A signature to this Compact or an amendment to this Compact 
pursuant to Section 5.3 shall be delivered only as an original 
signature. With respect to all other signatures, a signature delivered 
by facsimile or electronic mail in accordance with Section 5.1 shall be 
deemed an original signature and shall be binding on the Party 
delivering such 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. Without limiting the foregoing, a 
signature on an audit report or a signature evidencing any modification 
identified in Section 2(a) and Section 4(a)(iv) of Annex I, Section 4 
of Annex II, or Section 5(d) of Annex III shall be followed by an 
original in overnight express mail.

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. MCC shall 
inform the Government of any such designation.

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 to 3.9 (the 
expiration of which shall be governed by the Law Creating FOMILENIO and 
the Reglamento), 3.12, 3.13, 3.14, 3.15, 3.18, 3.19 (for one year), 
3.22, 5.1, 5.2, 5.4(d), 5.4(e) (for one-hundred and twenty (120) 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.

[[Page 76456]]

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 twenty (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 forty-five (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 
Compact Goal in a timely and cost-effective manner and by the 
principles of international law. Any dispute arising under or related 
to this Compact shall be determined exclusively through the 
consultation mechanism set forth in this Section 5.14.

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 and 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 the 
Republic of El Salvador or any other jurisdiction and all disputes 
arising under or relating to this Compact shall be determined in 
accordance with Section 5.14.

Section 5.16 Language

    This Compact is prepared in English and in Spanish and both 
versions shall have equal validity.

Section 5.17 Publicity; Information and Marking

    The Government 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 
Web site operated by FOMILENIO (the ``FOMILENIO Web site''), 
identifying Program activity sites, and marking Program Assets; 
provided, however, 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 FOMILENIO Web site. MCC may post this Compact, and any 
amendments thereto, on the web site of MCC. MCC shall have the right to 
use any information or data provided in any report or document provided 
to MCC for the purpose of satisfying MCC reporting requirements or in 
any other manner.
    In Witness Whereof, the undersigned, duly authorized by their 
respective governments, have signed this Compact this 29th day of 
November, 2006 and this Compact shall enter into force in accordance 
with Section 1.3.
    Done at Washington, D.C. in English and Spanish.
    For the United States of America, acting through the Millennium 
Challenge Corporation, Name: John J. Danilovich, Title: Chief Executive 
Officer.
    For the Government of the Republic of El Salvador, Name: Eduardo 
Zablah Touche, Title: Technical Secretary to the Presidency of the 
Republic of El Salvador.

Exhibit A--Definitions

    The following compendium of capitalized terms that are used in this 
Compact 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 shall have the meaning set forth in Section 
2.1(c).
    Act shall have the meaning set forth in Section 2.1(a)(iii).
    Ad Hoc Evaluation shall have the meaning set forth in Section 3(b) 
of Annex III.
    Additional Representative shall have the meaning set forth in 
Section 5.2.
    Advisory Council shall have the meaning set forth in Section 
3.4(b).
    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.
    Asamblea Legislativa shall have the meaning set forth in Section 
3.7.
    Attachments shall have the meaning set forth in Section 5.6.
    Audit Guidelines shall have the meaning set forth in Section 
3.18(d)(i).
    Audit Plan shall have the meaning set forth in Section 
3.18(d)(iii).
    Auditor shall have the meaning set forth in Section 3(h) of Annex 
I.
    Auditor/Reviewer Agreement shall have the meaning set forth in 
Section 3(h) of Annex I.
    Bank means any bank holding a Permitted Account.
    Bank Agreement shall have the meaning set forth in Section 4(d) of 
Annex I.
    Beneficiaries shall have the meaning set forth in Section 2(a) of 
Annex III.
    Bilateral Agreement shall have the meaning set forth in Section 
2.6.
    BMI shall have the meaning set forth in Section 2 of Schedule 2 to 
Annex I.
    Board shall have the meaning set forth in Section 3.4(a).
    Chair shall have the meaning set forth in Section 3.5(b).
    Chalatenango Center shall have the meaning set forth in Section 
2(a)(ii)(1) of Schedule 1 to Annex I.
    Civil Members shall have the meaning set forth in Section 
3(d)(ii)(2)(A) of Annex I.
    Civil Society Stakeholders shall have the meaning set forth in 
Section 3(e)(iv) of Annex I.
    CND shall have the meaning set forth in Section 1(a) of Annex I.
    Compact shall have the meaning set forth in the Preamble.
    Compact Goal shall have the meaning set forth in Section 1.1.
    Compact Implementation Funding shall have the meaning set forth in 
Section 2.1(a)(iii).
    Compact Records shall have the meaning set forth in Section 
3.18(b).
    Compact Reports shall have the meaning set forth in Section 
3(d)(ii)(3)(C) of Annex I.
    Compact Term shall have the meaning set forth in Section 1.3.
    Community Development Activity shall have the meaning set forth in 
Section 2(b) of Schedule 1 to Annex I.

[[Page 76457]]

    Community Infrastructure Sub-Activity shall have the meaning set 
forth in Section 2(b)(iii) of Schedule 1 to Annex I.
    Connecting Roads Activity shall have the meaning set forth in 
Section 2(b) of Schedule 3 to Annex I.
    Connectivity Objective shall have the meaning set forth in Section 
1.1(c).
    Connectivity Project shall have the meaning set forth in the 
Preamble of Schedule 3 to Annex I.
    Covered Provider shall have the meaning set forth in Section 
3.18(d)(iv).
    DCA shall have the meaning set forth in Section 5 of Schedule 2 to 
Annex I.
    Designated Rights and Responsibilities shall have the meaning set 
forth in Section 3.12(c).
    Detailed Budget shall have the meaning set forth in Section 
4(a)(ii) of Annex I.
    DIGESTYC shall have the meaning set forth in Section 2(a) of Annex 
III.
    Disbursement Agreement shall have the meaning set forth Section 
2.1(b)(i).
    Education and Training Activity shall have the meaning set forth in 
Section 2(a) of Schedule 1 to Annex I.
    Education and Training Advisory Committee shall have the meaning 
set forth in Section 2(a) of Schedule 1 to Annex I.
    EHPM shall have the meaning set forth in Section 2(b) of Annex III.
    EIA shall have the meaning set forth in Section 6(b) of Annex I.
    EMP shall have the meaning set forth in Section 6(b) of Annex I.
    Entry into Force shall have the meaning set forth in Section 1.3.
    Environmental Guidelines shall have the meaning set forth in 
Section 2.3(d).
    Evaluation Component shall have the meaning set forth in Section 1 
of Annex III.
    Executive Decree means an executive decree issued by the President 
of El Salvador.
    Executive Director shall have the meaning set forth in Section 3.6.
    Exempt Uses shall have the meaning set forth in Section 2.3(e)(ii).
    Final Evaluation shall have the meaning set forth in Section 3(a) 
of Annex III.
    Financial Plan means collectively, the Multi-Year Financial Plan, 
each Detailed Budget and each amendment, supplement or other change 
thereto.
    Financial Plan Annex shall have the meaning set forth in the 
Preamble of Annex II.
    Financial Services Activity shall have the meaning set forth in 
Section 2(c) of Schedule 2 to Annex I.
    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)(i) of 
Annex I.
    Fiscal Agent Agreement shall have the meaning set forth in Section 
3(g)(i) of Annex I.
    Fiscal Oversight Agent shall have the meaning set forth in Section 
3(g)(ii) of Annex I.
    Fiscal Oversight Agreement shall have the meaning set forth in 
Section 3(g)(ii) of Annex I.
    FISDL shall have the meaning set forth in Section 2(b)(i) of 
Schedule 1 to Annex I.
    FOMILENIO shall have the meaning set forth in the Recitals.
    FOMILENIO Web site shall have the meaning set forth in Section 
5.17.
    Formal Technical Education Sub-Activity shall have the meaning set 
forth in Section 2(a)(ii) of Schedule 1 to Annex I.
    FOVIAL shall have the meaning set forth in Section 6 of Schedule 3 
to Annex I.
    GDP means gross domestic product.
    Goal Indicator shall have the meaning set forth in Section 2(a) of 
Annex III.
    Governing Documents shall have the meaning set forth in Section 
3(d)(i) of Annex I.
    Government shall have the meaning set forth in the Preamble.
    Government Affiliate means an Affiliate, ministry, bureau, 
department, agency, government corporation or any other entity 
chartered or established by the Government or any local government in 
El Salvador. References to Government Affiliate shall include any of 
their respective directors, officers, employees, affiliates, 
contractors, sub-contractors, grantees, sub-grantees, representatives, 
and agents.
    Government Members shall have the meaning set forth in Section 
3(d)(ii)(2)(A) of Annex I.
    Government Party shall have the meaning set forth in Section 
3.18(e)(i).
    Government Responsibilities shall have the meaning set forth in 
Section 3.12(a).
    Human Development Objective shall have the meaning set forth in 
Section 1.1(a).
    Human Development Project shall have the meaning set forth in the 
Preamble of Schedule 1 to Annex I.
    IADB shall have the meaning set forth in Section 4 of Schedule 1 to 
Annex I.
    Implementation Document shall have the meaning set forth in Section 
3(a) of Annex I.
    Implementation Letter shall have the meaning set forth in Section 
3.15(a).
    Implementing Entity shall have the meaning set forth in Section 
3(f) of Annex I.
    Implementing Entity Agreement shall have the meaning set forth in 
Section 3(f) of Annex I.
    Indicators shall have the meaning set forth in Section 2(a) of 
Annex III.
    Inspector General shall have the meaning set forth in Section 
3.18(d)(i).
    Investment Support Activity shall have the meaning set forth in 
Section 2(b) of Schedule 2 to Annex I.
    Law Creating FOMILENIO shall have the meaning set forth in Section 
3.1.
    Lien shall have the meaning set forth in Section 2.3(g).
    Local Account shall have the meaning set forth in Section 4(d)(ii) 
of Annex I.
    M&E shall have the meaning set forth in Section 3 of Annex I.
    M&E Annex shall have the meaning set forth in the Preamble of Annex 
III.
    M&E Plan shall have the meaning set forth in Section 2(d) of Annex 
I.
    Management shall have the meaning set forth in Section 3.4(a).
    MARN shall have the meaning set forth in Section 6(d) of Annex I.
    MARN Program Requirements shall have the meaning set forth in 
Section 6(g) of Annex I.
    Material Agreement shall have the meaning set forth in Section 
3(c)(i)(4) of Annex I.
    Material Re-Disbursement shall have the meaning set forth in 
Section 3(c)(i)(7) of Annex I.
    MCA shall have the meaning set forth in the Recitals.
    MCA Eligibility Criteria shall have the meaning set forth in 
Section 3.17.
    MCC shall have the meaning set forth in the Preamble.
    MCC Disbursement shall have the meaning set forth in Section 
2.1(b)(i).
    MCC Disbursement Request shall have the meaning set forth in 
Section 4(b) of Annex I.
    MCC Funding shall have the meaning set forth in Section 2.1(a).
    MCC Indemnified Party shall have the meaning set forth in Section 
5.8.
    MCC Representative shall have the meaning set forth in Section 
3.5(e).
    MEGATEC shall have the meaning set forth in Section 2(a) of Annex 
III.
    Monitoring Component shall have the meaning set forth in Section 1 
of Annex III.
    MOP shall have the meaning set forth in Section 4 of Schedule 3 to 
Annex I.
    Multi-Year Financial Plan shall have the meaning set forth in 
Section 4(a)(i) of Annex I.
    Multi-Year Financial Plan Summary shall have the meaning set forth 
in Section 1 of Annex II.
    Network of Connecting Roads or NCR shall have the meaning set forth 
in Section 2 of Schedule 3 to Annex I.
    NGOs means non-governmental organizations.

[[Page 76458]]

    Non-Formal Skills Development Sub-Activity shall have the meaning 
set forth in Section 2(a)(iii) of Schedule 1 to Annex I.
    Northern Transnational Highway or NTH shall have the meaning set 
forth in Section 2 of Schedule 3 to Annex I.
    Northern Transnational Highway Activity shall have the meaning set 
forth in Section 2(a) of Schedule 3 to Annex I.
    Northern Zone shall have the meaning set forth in the Recitals.
    Northern Zone Investment Plan shall have the meaning set forth in 
Section 1(a) of Annex I.
    O&M shall have the meaning set forth in Section 2(b)(i) of Schedule 
1 to Annex I.
    Objective Indicator shall have the meaning set forth in Section 
2(a) of Annex III.
    Objectives shall have the meaning set forth in Section 1.1.
    Observer shall have the meaning set forth in Section 3.5(e).
    Officer shall have the meaning set forth in Section 3(d)(iii)(1) of 
Annex I.
    Outcome Indicator shall have the meaning set forth in Section 2(a) 
of Annex III.
    Outcomes shall have the meaning set forth in Section 1 of Annex 
III.
    Output Indicator shall have the meaning set forth in Section 2(a) 
of Annex III.
    Party or Parties shall have the meaning set forth in the Preamble.
    PD Investment Committee shall have the meaning set forth in Section 
2 of Schedule 2 to Annex I.
    PD Operations Manual shall have the meaning set forth in Section 2 
of Schedule 2 to Annex I.
    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 
3.12(c).
    Plan of the Nation shall have the meaning set forth in Section 1(a) 
of Annex I.
    Pledge shall have the meaning set forth in Section 3(c)(i)(8) of 
Annex I.
    Principal Representative shall have the meaning set forth in 
Section 5.2.
    Procurement Agent shall have the meaning set forth in Section 3(i) 
of Annex I.
    Procurement Agent Agreement shall have the meaning set forth in 
Section 3(i) of Annex I.
    Procurement Guidelines shall have the meaning set forth in Section 
3.16(a).
    Procurement Plan shall have the meaning set forth in Section 3(i) 
of Annex I.
    Production and Business Services Activity shall have the meaning 
set forth in Section 2(a) of Schedule 2 to Annex I.
    Productive Development Objective shall have the meaning set forth 
in Section 1.1(b).
    Productive Development Project shall have the meaning set forth in 
the Preamble of Schedule 2 to Annex I.
    PROGARA shall have the meaning set forth in Section 2(c)(i)(1) of 
Schedule 2 to Annex I.
    Program shall have the meaning set forth in the Recitals.
    Program Annex shall have the meaning set forth in the Preamble of 
Annex I.
    Program Assets shall have the meaning set forth in Section 
2.3(e)(iii).
    Project shall have the meaning set forth in Section 1.2.
    Project Activity shall have the meaning set forth in Section 2(a) 
of Annex I.
    PRONORTE Service Providers shall have the meaning set forth in 
Section 2(a) of Schedule 2 to Annex I.
    Proposal shall have the meaning set forth in the Recitals.
    Provider shall have the meaning set forth in Section 2.4(b).
    Publication Period (Vacatio Legis) means the period of time 
commencing on the date of publication of the Compact in the Official 
Gazette of El Salvador and terminating on the eighth day thereafter.
    RAP shall have the meaning set forth in Section 6(b) of Annex I.
    Re-Disbursement shall have the meaning set forth in Section 
2.1(b)(ii).
    Reglamento shall have the meaning set forth in Section 3.10.
    Reviewer shall have the meaning set forth in Section 3(h) of Annex 
I.
    Rural Electrification Sub-Activity shall have the meaning set forth 
in Section 2(b)(ii) of Schedule 1 to Annex I.
    SEA shall have the meaning set forth in Section 6(a) of Annex I.
    SGR shall have the meaning set forth in Section 2(c)(i)(2) of 
Schedule 2 to Annex I.
    SIGET shall have the meaning set forth in Section 6 of Schedule 1 
to Annex I.
    SINAMA shall have the meaning set forth in Section 6(f) of Annex I.
    Special Account shall have the meaning set forth in Section 4(d)(i) 
of Annex I.
    Supplemental Agreement shall have the meaning set forth in Section 
3.15(b).
    Supplemental Agreement between the Parties means any agreement 
between MCC on the one hand, and the Government, any Government 
Affiliate or any Permitted Designee on the other hand.
    Supplemental Agreement Term Sheets shall have the meaning set forth 
in Section 4.1(b).
    Target shall have the meaning set forth in Section 2(a) of Annex 
III.
    Tax(es) shall have the meaning set forth in Section 2.3(e)(i).
    Technical Assistance Sub-Activity shall have the meaning set forth 
in Section 2(a)(i) of Schedule 1 to Annex I.
    UFI shall have the meaning set forth in Section 3(g)(i) of Annex I.
    USAID means the United States Agency for International Development.
    United States Dollars (US$ or $) shall have the meaning set forth 
in Section 2.1(d).
    United States Government means any branch, agency, bureau, 
government corporation, government chartered entity or other body of 
the Federal government of the United States.
    VAT shall have the meaning set forth in Section 2.3(e)(i)(4).
    Voting Members shall have the meaning set forth in Section 
3(d)(ii)(2)(A) of Annex I.
    Water and Sanitation Sub-Activity shall have the meaning set forth 
in Section 2(b)(i) of Schedule 1 to Annex I.
    Work Plan shall have the meaning set forth in Section 3(a) of Annex 
I.

Exhibit B--List of Certain Supplemental Agreements

    1. Procurement Agent Agreement.
    2. Implementing Entity Agreements.
    3. Bank Agreements.
    4. Fiscal Oversight Agreement.

Schedule 2.1(a)(iii)--Description of Compact Implementation Funding

Compact Implementation Funding

    The Compact Implementation Funding provided pursuant to Section 
2.1(a)(iii) shall support the following activities and expenditures in 
an amount not to exceed the amount specified in Section 2.1(a)(iii):
    (a) Payments for reasonable and normal staff salaries and 
administrative expenses of FOMILENIO (or mutually acceptable Government 
Affiliate) such as rent, equipment, information technology expenses and 
furniture;
    (b) Conduct fiscal and procurement administration activities;
    (c) A gender assessment in connection with the Human Development 
Project under Section 2(a) of Schedule 1 to Annex I;
    (d) Any design and supplemental environmental assessment (EIA, EMP 
or RAP studies) determined necessary by MCC in connection with the 
Connectivity Project;

[[Page 76459]]

    (e) Data collection in connection with M&E activities; and
    (f) Other Compact implementation expenses approved by MCC.

Annex I--Program Description

    This Annex I to the Compact (this ``Program Annex'') generally 
describes the Program that MCC Funding will support in El Salvador 
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 
FOMILENIO shall enter into the Disbursement Agreement, which agreement 
shall be in form and substance mutually satisfactory to the Parties, 
and signed by the Principal Representative of each Party (or in the 
case of a Government Affiliate, the principal representative of such 
Government Affiliate) and of FOMILENIO.
    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 used but not 
defined 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 
this Compact.

1. Background; Consultative Process

    (a) Background. Located in Central America, bordering the North 
Pacific Ocean, between Guatemala and Honduras, El Salvador is a country 
of approximately 6.9 million people. Approximately 35 percent of its 
population lives in poverty, with a high incidence of extreme poverty 
in rural areas. El Salvador's civil conflict of the 1980s cost the 
lives of over 70,000 Salvadorans and destroyed much of the country's 
infrastructure. The rural areas, particularly in the northern region of 
the country, were most affected. During those war years, human capital 
formation lagged, GDP declined, public investment was deferred, 
deterioration of the natural resource base accelerated, and migration 
to the United States increased. By the end of the 1980s, about two-
thirds of the Salvadoran population was living in poverty. In 1989, a 
new government embarked on a major stabilization and structural 
adjustment program and initiated peace negotiations, reaching a Peace 
Accord in early 1992. El Salvador has made substantial progress in 
improving its economic and social conditions and building its 
democratic institutions in the last 20 years; nonetheless, a 
significant portion of its population remains in poverty, without 
access to good jobs or basic social services, and continuing 
environmental deterioration poses risks for sustainable development.
    The Program focuses on the Northern Zone, a region that includes 
one-half of El Salvador's poorest municipalities, that suffered more 
than any other from the 1980s civil conflict, and that has substantial 
unrealized potential for sustainable development. The Northern Zone is 
also an important source of water, energy, biodiversity and 
environmental resources of El Salvador and Central America. The 
Objectives were designed to advance El Salvador's fulfillment of the 
broadly shared aspiration to unite the northern third of the national 
territory with the rest of the country and lift this isolated region's 
people out of poverty.
    During the past eight years, the non-partisan Commission for 
National Development (``CND'') has been leading a public dialogue on a 
new vision for El Salvador's development. CND was created by an 
Executive Decree in 1996, to foster such a new vision through a process 
of citizen participation. CND has produced a shared national 
development strategy setting forth a vision for development of each of 
the five regions of El Salvador, including the Northern Zone (the 
``Plan of the Nation''). In response to the Plan of the Nation and 
based on consultation with local governments, private enterprise and 
civil society, the Government developed a plan for developing the 
Northern Zone (the ``Northern Zone Investment Plan''), encompassing 
three major themes: (i) Strengthening human development; (ii) 
developing productive potential; and (iii) increasing physical 
connectivity. These three themes formulated the basis for the Proposal, 
with MCC Funding comprising a major portion of the funds necessary to 
achieve the goals of the Northern Zone Investment Plan.
    (b) Consultative Process. The Government's broad development 
strategy for the Northern Zone and the Northern Zone Investment Plan 
were a direct result of the extensive consultation process led by CND 
while developing the Plan of the Nation. To develop their Proposal, the 
Government refined the Northern Zone Investment Plan based on input 
received in a series of consultations with various stakeholders and 
interested parties, both within the Northern Zone and throughout the 
country, including with local mayors, private sector representatives, 
academic experts, international donors, multilateral development 
organizations, sector specialists and the general public. Building on 
the strong record of public participation in national development 
planning, CND utilized five different approaches to ensure fulfillment 
of MCC's requirements for a publicly-driven and widely-consulted 
development program: (i) General--town hall meetings held in major 
cities around the nation; (ii) Specialized--roundtable discussions with 
experts on gender, environment, connectivity, and other key topics; 
(iii) Territorial--consultations with municipal officials, community 
leaders, small producers, local NGOs, and other residents of the 
northern corridor of El Salvador; (iv) Interest Groups--consultations 
with private sector representatives, women, Salvadorans abroad, and 
entrepreneurs; and (v) Institutional--consultations with mayors, 
government officials, NGOs, and international cooperation agencies.
    The MCC-specific consultative process began in January 2006, and 
included more than 50 formal workshops and informal discussions with 
over 2,200 Salvadorans. The comments, concerns and suggestions of 
participants in these consultations are documented in the ``Final 
Report on the Consultative Process'' prepared by CND (available on the 
FOMILENIO Web site).
    The Government's consultative efforts regarding the Program are 
ongoing and will continue throughout the Compact Term. CND is 
responsible for executing the Government's consultation plan, which 
includes both formal and informal interaction with various stakeholders 
and interested parties, both within the Northern Zone and throughout 
the rest of the country. Following submission of the Proposal to MCC, 
the Government, with the assistance of CND, engaged in outreach efforts 
focused on disseminating information on Program goals and objectives 
and on the implementation process. Such outreach efforts are undertaken 
through consultation events as well as through the FOMILENIO Web site. 
Participants in such consultations are encouraged to remain actively 
engaged in oversight and implementation of the Program by defining 
their roles and responsibilities as stakeholders and coordinating a 
long-term schedule for future interaction.

2. Overview

    (a) Projects. The Parties have identified the interrelated, 
component Projects that the Government will implement, or cause to be 
implemented,

[[Page 76460]]

using MCC Funding to advance each Objective and the Compact Goal. Each 
component Project is generally described in the Schedules to this 
Program Annex. The Schedules to this Program Annex also identify one or 
more of the activities that will be undertaken in furtherance of each 
Project (each, a ``Project Activity'') as well as the various 
activities within each Project Activity. Notwithstanding anything to 
the contrary in this Compact, the Parties may agree to modify, amend, 
terminate or suspend these Projects or to create a new project by 
written agreement signed by the Principal Representative of each Party 
without amending this Compact; provided, however, any such modification 
or amendment of a Project or creation of a new project shall (i) be 
consistent with the Objectives; (ii) not cause the amount of MCC 
Funding to exceed the aggregate amount specified in Section 2.1 of this 
Compact; (iii) 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) not extend the 
Compact Term.
    (b) 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 implementation of the Program. The Government shall provide 
to MCC information on the population of the areas in which the Projects 
will be active, disaggregated by gender, income level and age. The 
Parties shall agree upon the description of the intended beneficiaries 
and the Parties will make publicly available a more detailed 
description of the intended beneficiaries of the Program, including 
publishing such description on the FOMILENIO Web site.
    (c) Civil Society. Civil society shall participate in overseeing 
the implementation of the Program through its representation on the 
Board and the Advisory Council, as provided in Section 3(d) and Section 
3(e), respectively, of this Program Annex. In addition, ongoing 
consultations with civil society regarding the manner in which each 
Project is being implemented will take place throughout the Compact 
Term.
    (d) Monitoring and Evaluation. Annex III generally describes the 
plan to measure and evaluate progress toward achievement of the Compact 
Goal and the Objectives (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 on, among other 
things, successful achievement of certain Targets as set forth in the 
M&E Plan.

3. Implementation Framework

    The implementation framework and the plan for ensuring adequate 
governance, oversight, management, monitoring and evaluation (``M&E'') 
and fiscal accountability for the use of MCC Funding is summarized 
below and in the Schedules attached to this Program Annex, and as may 
otherwise be agreed in writing by the Parties.
    (a) General. The elements of the implementation framework will be 
further described in the Supplemental Agreements and in a set of 
detailed documents for the implementation of the Program, consisting of 
(i) a Multi-Year Financial Plan, (ii) a Fiscal Accountability Plan, 
(iii) a Procurement Plan, (iv) an M&E Plan, and (v) a Work Plan (each, 
an ``Implementation Document''). FOMILENIO shall adopt each 
Implementation Document in accordance with the requirements and 
timeframe as may be specified in this Program Annex, Annex II, Annex 
III, the Disbursement Agreement or as may otherwise be agreed by the 
Parties from time to time. FOMILENIO may amend any Implementation 
Document without amending this Compact, provided, however, that any 
material amendment of such Implementation Document has been previously 
approved by MCC and is otherwise consistent with the requirements of 
this Compact and any Supplemental Agreement. By such time as may be 
specified in the Disbursement Agreement, or as may otherwise be agreed 
by the Parties from time to time, FOMILENIO shall adopt a work plan for 
the overall administration of the Program (the ``Work Plan''). The Work 
Plan shall set forth, with respect to (i) the administration of the 
Program, (ii) the monitoring and evaluation of the Program, and (iii) 
the implementation of each Project, the following: (1) Each activity to 
be undertaken or funded by MCC Funding (to the level of detail mutually 
acceptable to FOMILENIO and MCC), (2) the Detailed Budget, and (3) 
where appropriate, the allocation of roles and responsibilities for 
specific activities, other programmatic guidelines, performance 
requirements, targets, and other expectations related thereto.
    (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 or 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, to approve and 
promulgate the Law Creating FOMILENIO and to promulgate the Reglamento. 
FOMILENIO shall be a Permitted Designee and 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) The Government shall ensure that FOMILENIO is duly authorized 
and organized, sufficiently staffed and empowered to carry out fully 
the Designated Rights and Responsibilities. Without limiting the 
generality of the preceding sentence, FOMILENIO shall be organized, and 
have such roles and responsibilities, as described in Section 3(d) of 
this Program Annex and Sections 3.1 to 3.10 of this Compact and as 
provided in any other Governing Documents.
    (c) MCC.
    (i) Notwithstanding Section 3.11 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 Implementation Document (including each component thereto) 
and any material amendments and supplements thereto;
    (3) Any Audit Plan;
    (4) Agreements (i) between the Government and FOMILENIO; (ii) 
between the Government, a Government Affiliate, FOMILENIO or any other 
Permitted Designee, on the one hand, and any Provider or Affiliate of a 
Provider, on the other hand, which require such MCC approval under 
applicable law, the Disbursement Agreement, any Governing Document, or 
any other Supplemental Agreement;

[[Page 76461]]

or (iii) in which the Government, a Government Affiliate, FOMILENIO or 
any other Permitted Designee appoints, hires, or engages any of the 
following in furtherance of this Compact:
    (A) Auditor;
    (B) Reviewer;
    (C) Fiscal Agent;
    (D) Fiscal Oversight Agent;
    (E) Procurement Agent;
    (F) Bank;
    (G) Implementing Entity; and
    (H) A member of the Board (including any Observer), any Officer or 
any other key employee of FOMILENIO (including agreements involving the 
terms of any compensation for any such person).
    (Any agreement described in clause (i) through (iii) of this 
Section 3(c)(i)(4) of this Program Annex and any amendments and 
supplements thereto, each, a ``Material Agreement'');
    (5) Any material 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, FOMILENIO or any of their respective 
Affiliates;
    (7) Any Re-Disbursement that requires such MCC approval under 
applicable law, any Governing Document, or any other Supplemental 
Agreement (each, a ``Material Re-Disbursement'');
    (8) Any pledge of any MCC Funding or any Program Assets, or any 
guarantee, directly or indirectly, of any indebtedness (each, a 
``Pledge'');
    (9) Any Governing Document;
    (10) Any disposition, in whole or in part, liquidation, 
dissolution, winding up, reorganization or other change of (A) 
FOMILENIO, including any revocation or modification of or supplement to 
any Governing Document related thereto, or (B) any subsidiary or 
Affiliate of FOMILENIO;
    (11) Any change in character or location of any Permitted Account;
    (12) Formation or acquisition of any direct or indirect subsidiary, 
or other Affiliate, of FOMILENIO;
    (13) (A) Any change of any member of the Board (including any 
Observer), of the member serving as the Chair or in the composition or 
size of the Board, and the filling of any vacant seat of any member of 
the Board (including any Observer), (B) any change of any Officer or 
other key employee of FOMILENIO (as determined by MCC) or in the 
composition or size of the Management, and the filling of any vacant 
position of any Officer or other key employee of FOMILENIO (as 
determined by MCC), and (C) any material change in the composition or 
size of the Advisory Council;
    (14) Any decision by FOMILENIO to engage, to accept or to manage 
any funds from any donor agencies or organizations in addition to MCC 
Funding during the Compact Term;
    (15) Any decision to amend, supplement, replace, terminate, or 
otherwise change any of the foregoing; and
    (16) Any other activity, agreement, document or transaction 
requiring the approval of MCC in this Compact, applicable law, any 
Governing Document, the Disbursement Agreement, or any other 
Supplemental Agreement between the Parties.
    (ii) MCC shall have the authority to exercise its approval rights 
set forth in this Section 3(c) of this Program Annex 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, FOMILENIO 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 or no-objection rights under this Compact or any Supplemental 
Agreement shall not (A) diminish or otherwise affect the Government 
Responsibilities or any other obligations or responsibilities of the 
Government under this Compact or any Supplemental Agreement, (B) 
transfer any such obligations or responsibilities of the Government, or 
(C) otherwise subject MCC to any liability.
    (d) FOMILENIO.
    (i) General. FOMILENIO shall, as a Permitted Designee, be 
responsible for the oversight and management of the implementation of 
this Compact. FOMILENIO shall be governed by the provisions of this 
Compact, the Law Creating FOMILENIO, the Reglamento, and any other 
decree, legislation or regulation governing FOMILENIO (collectively, 
the ``Governing Documents'') and by applicable law. Each Governing 
Document shall be in form and substance satisfactory to MCC and the 
Government and based on the following principles:
    (1) The Government shall ensure that FOMILENIO shall not assign, 
delegate or contract any of the Designated Rights and Responsibilities 
without the prior written consent of the Government and MCC. FOMILENIO 
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, FOMILENIO 
shall consist of (A) a board of directors to oversee FOMILENIO's 
responsibilities and obligations under this Compact (including any 
Designated Rights and Responsibilities) and (B) a management unit to 
have overall management responsibility for the implementation of this 
Compact.
    (3) The Government shall ensure that the Governing Documents comply 
with the requirements set forth in this Program Annex.
    (ii) Board.
    (1) Formation. The Government shall ensure that the Board shall be 
formed, constituted, governed and operated in accordance with the terms 
and conditions set forth in the Compact, the Governing Documents and 
any Supplemental Agreement.
    (2) Composition. Unless otherwise agreed by the Parties in writing, 
the Board shall consist of at least seven (7) but no more than eleven 
(11) voting members and at least two (2) non-voting Observers.
    (A) The Board members designated by the Government shall be 
referred to herein as the ``Government Members.'' The other Board 
members shall be referred to herein as the ``Civil Members.'' 
Collectively, the Government Members and the Civil Members shall be 
referred to herein as the ``Voting Members.'' The non-voting Observers 
of the Board shall be the MCC Representative, and any other non-voting 
Observer designated from time to time.
    (B) A Government Member may be replaced by another government 
official from a ministry or other government body relevant to the 
Program activities pursuant to the Governing Documents, subject to the 
prior receipt of a no-objection notice from MCC (such replacement to be 
referred to thereafter as a Government Member).
    (C) Each Government Member position (other than the Chair) shall be 
filled by the individual, during the Compact Term, holding the office 
identified and all Government Members (including the Chair) shall serve 
in their capacity as the applicable Government officials and not in 
their personal capacity.
    (D) The Voting Members, by majority vote, may alter the size of the 
Board in accordance with the Governing Documents so long as the total 
does not exceed eleven (11) members.

[[Page 76462]]

    (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 the Governing Documents.
    (F) The Voting Members shall exercise their duties solely in 
accordance with the best interests of FOMILENIO, the Program, the 
Compact Goal and the Objectives, and shall not undertake any action 
that is contrary to those interests or would result in personal gain or 
a conflict of interest.
    (3) Roles and Responsibilities. The roles and responsibilities of 
the Board shall include the following:
    (A) The Board shall oversee the Management, the overall 
implementation of the Program, and the performance of the Designated 
Rights and Responsibilities.
    (B) Certain actions may be taken and certain agreements, documents 
or instruments executed and delivered, as the case may be, by FOMILENIO 
only upon the approval and authorization of the Board as provided under 
applicable law or as set forth in any Governing Document, including 
each MCC Disbursement Request, selection or termination of certain 
Providers and any Implementation Document.
    (C) The Chair, unless otherwise provided in the applicable 
Governing Documents or Supplemental Agreements, 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'') or 
any other documents or reports from time to time delivered to MCC by 
FOMILENIO (whether or not such documents or reports are required to be 
delivered to MCC), and that such documents or reports are true, correct 
and complete.
    (D) Without limiting the generality of the Designated Rights and 
Responsibilities that the Government may designate to FOMILENIO, and 
subject to MCC's contractual rights of approval as set forth in Section 
3(c) of this Program Annex, elsewhere in this Compact or any 
Supplemental Agreement, the Board shall have the exclusive authority as 
between the Board and the Management for all actions defined for the 
Board in any Governing Document and which are expressly designated 
therein as responsibilities that cannot be delegated further.
    (E) Meet with and exchange information with the Advisory Council, 
as contemplated in Section 3(e) of this Program Annex. Without limiting 
the generality of the foregoing, the Board shall take the Advisory 
Council's suggestions into consideration in connection with any 
amendment to the M&E Plan, pursuant to Section 5(b) of Annex III.
    (4) Indemnification of Observers. 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 El Salvador, to ensure that the Observers shall not be held 
personally liable for the actions or omissions of the Board or 
FOMILENIO. Pursuant to Section 5.5 and Section 5.8 of this Compact, the 
Government and FOMILENIO shall hold harmless the MCC Representative for 
any liability or action arising out of the MCC Representative's role as 
an 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 FOMILENIO. In matters arising 
under or relating to this Compact, the MCC Representative is not 
subject to the jurisdiction of the courts or any other governmental 
body of El Salvador. FOMILENIO shall provide a written waiver and 
acknowledgement that no fiduciary duty to FOMILENIO is owed by the MCC 
Representative.
    (iii) Management. Unless otherwise agreed in writing by the 
Parties, the Management shall report, through the Executive Director or 
other Officer as designated in any Governing Document, directly to the 
Board and shall have the composition, roles and responsibilities 
described below and set forth more particularly in the Governing 
Documents.
    (1) Composition. The Government shall ensure that the Management 
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 the Governing Documents, and from time 
to time in any Supplemental Agreement between the Parties, including 
the following: (A) Executive Director; (B) Deputy Executive Director; 
(C) Internal Auditor; (D) Legal Counsel; (E) Administrative Director; 
(F) Director of Technology and Information; (G) Director of Program 
Implementation, (H) Coordinator of the Human Development Component; (I) 
Coordinator of the Productive Development Component; (J) Coordinator of 
the Connectivity Component; (K) Director of the Procurement Program; 
(L) Director of Monitoring and Evaluation; (M) Financial and 
Institutional Director; (N) Director of Environmental and Social 
Impact; and (O) Director of Communications. Each person holding the 
position in any of the sub-clauses (A) through (O), and such other 
offices as may be created and designated in accordance with any 
Governing Document and any Supplemental Agreement, shall be referred to 
as an ``Officer.'' The Management shall be supported by appropriate 
administrative and support personnel consistent with the Detailed 
Budget for Program administration and any Implementation Document.
    (2) Appointment of Officers. The Executive Director shall be 
selected after an open and competitive recruitment and selection 
process, and appointed in accordance with the Governing Documents, 
which appointment shall be subject to MCC approval. Such appointment 
shall be further evidenced by such document as the Parties may agree. 
Unless otherwise specified in the Governing Documents, or any 
Supplemental Agreement between the Parties, the Officers of FOMILENIO 
other than the Executive Director shall be selected and hired by the 
Board after an open and competitive recruitment and selection process, 
and appointed in accordance with the Governing Documents, which 
appointment shall be subject to MCC approval. Such appointment shall be 
further evidenced by such document as the Parties may agree.
    (3) Roles and Responsibilities. The roles and responsibilities of 
the Management shall include:
    (A) The Management shall assist the Board in overseeing the 
implementation of the Program and shall have principal responsibility 
(subject to the direction and oversight of 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 Supplemental 
Agreement) for the overall management of the implementation of the 
Program.
    (B) Without limiting the foregoing general responsibilities or the 
generality of the Designated Rights and Responsibilities that the 
Government may designate to FOMILENIO, the Management shall develop 
each Implementation Document, oversee the implementation of the 
Projects, manage and coordinate monitoring and evaluation, ensure 
compliance with the

[[Page 76463]]

Fiscal Accountability Plan, and such other responsibilities as set out 
in the Governing Documents or otherwise delegated to the Management by 
the Board from time to time.
    (C) Appropriate Officers as designated in the Governing Documents 
shall have the authority to contract on behalf of FOMILENIO under any 
procurement undertaken in accordance with the Disbursement Agreement 
(including the Procurement Guidelines) in furtherance of the Program.
    (D) The Management 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 other actions, as provided in the 
Governing Documents.
    (e) Advisory Council.
    (i) Formation. The Government shall ensure the establishment of the 
Advisory Council by the Board, which Advisory Council shall be 
independent from FOLIMENIO and shall be established to the satisfaction 
of MCC. The Government shall take all steps necessary to establish the 
Advisory Council as soon as possible following the execution of this 
Compact.
    (ii) Composition. The Advisory Council shall be comprised, unless 
otherwise agreed by the Parties, of the following members: (A) Five 
representatives of CND; (B) three members of the Northern Zone mayoral 
council; and (C) a representative of Northern Zone civil society. The 
Government shall take all actions necessary and appropriate to ensure 
that the Advisory Council is established consistent with this Section 
3(e) of this Program Annex and as otherwise specified in the Governing 
Documents or otherwise agreed in writing by the Parties. The 
composition of the Advisory Council may be adjusted by agreement of the 
Parties from time to time to ensure, among other things, an adequate 
representation of the intended beneficiaries of the Program. Each 
member of the Advisory Council may appoint an alternate, approved by 
majority vote of the other members, to serve when the member is unable 
to participate in a meeting of the Advisory Council.
    (iii) Roles and Responsibilities. The Advisory Council shall be a 
mechanism to provide representatives of the private sector, civil 
society and local government the opportunity to provide advice and 
input to FOMILENIO regarding the implementation of this Compact. 
FOMILENIO shall provide to the Advisory Council such information and 
documents as it deems advisable, subject to appropriate treatment of 
such information and documents by the members of the Advisory Council. 
During each meeting of the Advisory Council, FOMILENIO shall present an 
update on the implementation of this Compact and progress towards 
achievement of the Objectives. The Advisory Council shall have an 
opportunity to provide regularly to FOMILENIO its views or 
recommendations on the performance and progress on the Projects and 
Project Activities, any Implementation Document, procurement, financial 
management or such other issues as may be presented from time to time 
to the Advisory Council or as otherwise raised by the Advisory Council.
    (iv) Meetings. The Advisory Council shall meet with the Board at 
least once every three months, as well as at such other periodic 
meetings as may be necessary or appropriate from time to time. The 
Advisory Council shall hold at least two general meetings per year, as 
well as such other periodic meetings as may be necessary or appropriate 
from time to time. Representatives of banking organizations, 
microfinance institutions, farmer associations, women's associations, 
chambers of commerce, anti-corruption associations and environmental 
and social organizations (``Civil Society Stakeholders''), among 
others, shall be provided timely advance notice of all such general 
meetings, invited to participate in all such meetings and afforded an 
opportunity during each such meeting to present their views or 
recommendations to the Advisory Council.
    (v) Accessibility; Transparency. The members of the Advisory 
Council shall be accessible to the beneficiaries they represent to 
receive the beneficiaries' comments or suggestions regarding the 
Program. The notices for, and the minutes (including the views or 
recommendations of Civil Society Stakeholders expressed) of all general 
meetings of, the Advisory Council shall be made public on the FOMILENIO 
Web site or otherwise (including television, radio and print) in a 
timely manner.
    (f) Implementing Entities. Subject to the terms and conditions of 
this Compact and any other Supplemental Agreement between the Parties, 
FOMILENIO may engage one or more (i) pre-determined ministries, bureaus 
or agencies of the Government based on their sector expertise, or (ii) 
government bodies, businesses, NGOs, vendors or contractors, selected 
according to the Procurement Guidelines, to implement and carry out any 
Project, Project Activity (or a component thereof), or any other 
activities to be carried out in furtherance of this Compact (each, an 
``Implementing Entity''). The Government shall ensure that FOMILENIO 
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 (including the payment of the Implementing Entity, 
if any) (an ``Implementing Entity Agreement''). An Implementing Entity 
shall report directly to the relevant Officer, as designated in the 
applicable Implementing Entity Agreement or as otherwise agreed by the 
Parties.
    (g) Fiscal Matters.
    (i) Fiscal Agent. The Government shall ensure that, pursuant to the 
Reglamento or any other Governing Document as necessary, FOMILENIO 
appoints its financial management unit (Unidad Financiera 
Institucional) (``UFI'') as its fiscal agent (a ``Fiscal Agent'') and 
grants to UFI all power and rights necessary to perform the function of 
the Fiscal Agent, as such are set forth herein, in the Fiscal 
Accountability Plan and in any Supplemental Agreement or Implementation 
Letter. The Fiscal Agent shall be responsible for, among other things: 
(1) Assisting FOMILENIO in preparing the Fiscal Accountability Plan; 
(2) ensuring and certifying that Re-Disbursements are properly 
authorized and documented in accordance with established control 
procedures set forth in the Disbursement Agreement and other 
Supplemental Agreements; (3) Re-Disbursement from, and cash management 
and account reconciliation of, any Permitted Account established and 
maintained for the purpose of receiving MCC Disbursements and making 
Re-Disbursements (to which the Fiscal Agent has sole signature 
authority); (4) providing applicable certifications for MCC 
Disbursement Requests; (5) maintaining and retaining proper accounting, 
records and document disaster recovery system of all MCC-funded 
financial transactions and certain other accounting functions; (6) 
producing reports on MCC Disbursements and Re-Disbursements (including 
any requests therefor) in accordance with established procedures set 
forth in the Disbursement Agreement, the Fiscal Accountability Plan, or 
any other Supplemental Agreements; (7) assisting in the preparation of 
budget development procedures; and (8) internal management of the 
Fiscal Agent operations. Upon the written request of MCC for UFI to be 
replaced as the Fiscal Agent, the Government shall ensure that 
FOMILENIO engages a new Fiscal

[[Page 76464]]

Agent, subject to approval by the Board and MCC; provided, however, 
that the Government shall ensure that UFI continue to perform its 
obligations as the Fiscal Agent until FOMILENIO has engaged a successor 
Fiscal Agent. In the event that a party other than UFI is the Fiscal 
Agent, upon the written request of MCC, the Government shall ensure 
that FOMILENIO terminates the Fiscal Agent, without any liability to 
MCC, and the Government shall ensure that FOMILENIO engages a new 
Fiscal Agent, subject to approval by the Board and MCC. The Government 
shall ensure that FOMILENIO enters into an agreement with each Fiscal 
Agent other than UFI, 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 
(each, a ``Fiscal Agent Agreement''). Such Fiscal Agent Agreement shall 
not be terminated until FOMILENIO has engaged a successor Fiscal Agent 
or as otherwise agreed by MCC in writing.
    (ii) Fiscal Oversight Agent. The Government shall ensure that 
FOMILENIO engages an agent through an international competitive process 
(the ``Fiscal Oversight Agent'') to carry out and certify certain 
financial management activities in furtherance of this Compact. The 
role and responsibilities of such Fiscal Oversight Agent and the 
criteria for selection of a Fiscal Oversight Agent shall be as set 
forth in the applicable Implementation Letter or Supplemental 
Agreement. The Government shall ensure that FOMILENIO enters into an 
agreement with the Fiscal Oversight Agent, in form and substance 
satisfactory to MCC, that sets forth (1) the roles and responsibilities 
of the Fiscal Oversight Agent with respect to the oversight of the 
Fiscal Agent and the monitoring and review of the Fiscal Agent's 
compliance with the Fiscal Accountability Plan; and (2) other 
appropriate terms and conditions, such as payment of the Fiscal 
Oversight Agent (the ``Fiscal Oversight Agreement'').
    (h) Auditors and Reviewers. The Government shall ensure that 
FOMILENIO carries out the Government's audit responsibilities as 
provided in sections 3.18(d), (e) and (f) of this Compact, including 
engaging one or more auditors (each, an ``Auditor'') required by 
section 3.18(d) of this Compact. As requested by MCC in writing from 
time to time, the Government shall ensure that FOMILENIO also engages 
(i) an independent reviewer to conduct reviews of performance and 
compliance under this Compact pursuant to section 3.18(f) of this 
Compact, which reviewer shall have the capacity to (1) conduct general 
reviews of performance or compliance, (2) conduct environmental audits, 
and (3) 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''). FOMILENIO shall select any such Auditor(s) and 
Reviewer(s) in accordance with any Governing Document or other 
Supplemental Agreement. The Government shall ensure that FOMILENIO 
enters into an agreement with each Auditor and each 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 3.18(d) of this Compact, such 
Auditor/Reviewer Agreement shall be effective no later than one hundred 
and twenty (120) days prior to the end of the relevant period to be 
audited; provided, however, if MCC 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 the date agreed by the Parties in writing.
    (i) Procurement Agent. The Government shall ensure that FOMILENIO 
engages one or more procurement agents through an international 
competitive process (each, a ``Procurement Agent'') to carry out and 
certify specified procurement activities in furtherance of this Compact 
on behalf of the Government, FOMILENIO, or the Implementing Entity. The 
roles and responsibilities of each 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 FOMILENIO enters into an agreement with 
each 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 (each, a ``Procurement Agent Agreement''). Any Procurement Agent 
shall adhere to the procurement standards set forth in the Disbursement 
Agreement and the Procurement Guidelines and ensure procurements are 
consistent with the procurement plan adopted by FOMILENIO pursuant to 
the Disbursement Agreement (the ``Procurement Plan''), unless FOMILENIO 
and MCC otherwise agree in writing.

4. Finances and Fiscal Accountability

    (a) Multi-Year Financial Plan; Detailed Budget.
    (i) Multi-Year Financial Plan. The multi-year financial plan for 
the Program, showing the estimated amount of MCC Funding allocable to 
each Project (and related Project Activities), the administration of 
the Program (and its components) and the monitoring and evaluation of 
the Program (the ``Multi-Year Financial Plan'') over the Compact Term 
on an annual basis, is summarized in Annex II to this Compact.
    (ii) Detailed Budget. During the Compact Term, the Government shall 
ensure that FOMILENIO timely delivers to MCC a detailed budget, at a 
level of detail and in a format acceptable to MCC, for the 
administration of the Program, the monitoring and evaluation of the 
Program, and the implementation of each Project (the ``Detailed 
Budget''). The Detailed Budget shall be a component of the Work Plan 
and shall be delivered by such time as specified in the Disbursement 
Agreement, or as may otherwise be agreed by the Parties.
    (iii) Expenditures. Unless the Parties otherwise agree in writing, 
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 shall be submitted for any 
activity or expenditure unless the expense for such activity or 
expenditure is provided for in the Detailed Budget, and unless 
uncommitted funds exist in the balance of the Detailed Budget for the 
relevant period.
    (iv) Modifications to Multi-Year Financial Plan or Detailed Budget. 
Notwithstanding anything to the contrary in this Compact, FOMILENIO may 
amend the Multi-Year Financial Plan, the Detailed Budget, or any 
component thereof (including any amendment that would reallocate the 
funds among the Projects, the Project Activities, or any activity under 
Program administration or M&E as shown in Annex II), without amending 
this Compact so long as FOMILENIO requests in writing and receives the 
approval of MCC for such amendment

[[Page 76465]]

and such amendment is consistent with the requirements of this Compact 
(including section 4 of Annex II), the Disbursement Agreement and any 
other Supplemental Agreement between the Parties. Any such amendment 
shall (1) be consistent with the Objectives and the Implementation 
Documents; (2) shall not materially adversely impact the applicable 
Project, Project Activity (or any component thereof), or any activity 
under Program administration or M&E as shown in Annex II; (3) shall not 
cause the amount of MCC Funding to exceed the aggregate amount 
specified in section 2.1(a) of this Compact; and (4) shall not cause 
the Government's obligations or responsibilities or overall 
contribution of resources to be less than as specified in section 
2.2(a) of this Compact, this Annex I or elsewhere in this Compact. Upon 
any such amendment, FOMILENIO shall deliver to MCC a revised Detailed 
Budget, together with a revised Multi-Year Financial Plan, reflecting 
such amendment, along with the next MCC Disbursement Request.
    (b) Disbursement and Re-Disbursement. The Disbursement Agreement, 
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 FOMILENIO 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, FOMILENIO 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 any Governing Document 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 and in any Governing 
Document and the 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, FOMILENIO 
shall adopt, as part of the Implementation Documents, a plan that 
identifies the principles, mechanisms and procedures 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, works and services for the accomplishment of the Objectives 
(the ``Fiscal Accountability Plan''). The Fiscal Accountability Plan 
shall set forth, among others, requirements with respect to the 
following matters: (i) Re-Disbursements, timely payment to vendors, 
cash management and account reconciliation; (ii) funds control and 
documentation; (iii) accounting standards and systems; (iv) content and 
timing of reports; (v) preparing budget development procedures and the 
Compact implementation budget; (vi) policies concerning records, 
document disaster recovery, public availability of all financial 
information and asset management; (vii) procurement and contracting 
practices; (viii) inventory control; (ix) the role of independent 
auditors; (x) the roles of fiscal agents and procurement agents; (xi) 
separation of duties and internal controls; and (xii) certifications, 
powers, authorities and delegations.
    (d) Permitted Accounts. The Government shall establish, or cause to 
be established, such accounts (each, a ``Permitted Account'' and, 
collectively, the ``Permitted Accounts'') as may be agreed by the 
Parties in writing from time to time, including:
    (i) A single, completely separate United States Dollar interest-
bearing account (the ``Special Account'') at the Central Reserve Bank 
of El Salvador to receive MCC Disbursements;
    (ii) An account at a commercial bank in El Salvador (the ``Local 
Account'') to which funds deposited in the Special Account will be 
transferred for the purpose of making Re-Disbursements; and
    (iii) Such other accounts in such banks 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 applicable 
Bank Agreement or otherwise. MCC shall have the right, among others, 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, for each Permitted Account, FOMILENIO enters into an agreement, 
satisfactory to MCC, with the applicable Bank that sets forth the 
signatory authority, access rights, anti-money laundering and anti-
terrorist financing provisions, and other terms related to the 
Permitted Account (each, a ``Bank Agreement'').

5. Transparency; Accountability

    Transparency and accountability to MCC and to the beneficiaries are 
important aspects of the Program and the Projects. Without limiting the 
generality of the foregoing, and in an effort to achieve the goals of 
transparency and accountability, the Government shall ensure that 
FOMILENIO:
    (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 FOMILENIO;
    (b) Considers as a factor in its decision-making the 
recommendations of the Advisory Council;
    (c) Develops and maintains, in a timely, accurate and appropriately 
comprehensive manner, the FOMILENIO Web site that includes postings of 
information and documents in English and Spanish;
    (d) Posts on the FOMILENIO Web site, and otherwise makes publicly 
available via appropriate means (including television, radio and 
print), in the appropriate language the following documents or 
information from time to time:
    (i) This Compact;
    (ii) All minutes of the meetings of the Board and the meetings of 
the Advisory Council, unless otherwise agreed by the Parties;
    (iii) The M&E Plan, as amended from time to time, along with 
periodic reports on Program performance;
    (iv) Such financial information as may be required by this Compact, 
the Disbursement Agreement or any other Supplemental Agreement, or as 
may otherwise be agreed from time to time by the Parties;
    (v) All Compact Reports;

[[Page 76466]]

    (vi) All audit reports by an Auditor and any periodic reports or 
evaluations by a Reviewer;
    (vii) All relevant environmental impact assessments and supporting 
documents, and such other environmental documentation as MCC may 
request;
    (viii) A copy of the Disbursement Agreement, as amended from time 
to time;
    (ix) A copy of any document relating to the formation, organization 
and governance of FOMILENIO, including all Governing Documents, 
together with any amendments thereto; and
    (x) A copy of the Procurement Guidelines, any procurement policies 
or procedures and standard documents, certain information derived from 
each Procurement Plan (as specified in the Disbursement Agreement), and 
all bid requests and notifications of awarded contracts.

6. Environmental Accountability

    (a) The Government shall undertake and complete a strategic 
environmental assessment of the Northern Zone (the ``SEA'') as a 
condition precedent to certain MCC Disbursements as specified in the 
Disbursement Agreement, and in form and substance satisfactory to MCC.
    (b) The Government shall ensure that FOMILENIO (or any other 
Permitted Designee) (i) undertakes and completes any environmental 
impact assessments (each, an ``EIA''), environmental management plans 
(each, an ``EMP'') and resettlement action plans (each, a ``RAP''), 
each in form and substance satisfactory to MCC, and as required under 
the laws of El Salvador, the Environmental Guidelines, this Compact or 
any Supplemental Agreement or as otherwise required by MCC; and (ii) 
undertakes to implement any environmental and social mitigation 
measures identified in such assessments or plans to MCC's satisfaction.
    (c) The Government shall commit to fund all necessary costs of 
environmental mitigation (including costs of resettlement) not 
specifically provided for in the Detailed Budget for any Project.
    (d) By the time specified in the Disbursement Agreement, the 
Government shall ensure that the Department of Environment and Natural 
Resources (Ministerio del Medio Ambiente y Recursos Naturales or 
``MARN'') creates and fills at least one additional permanent staff 
position in each of the citizen participation, environmental 
assessment, and territorial organization units as described in a 
staffing plan that shall be acceptable to MCC. The Government shall 
provide sufficient resources to implement the staffing plan.
    (e) As specified in the Disbursement Agreement, the Government 
shall ensure that MARN establishes, and maintains throughout the 
Compact Term, an interdepartmental task force concerning the 
environmental aspects of the Human Development Project, the Productive 
Development Project and the Connectivity Project.
    (f) As specified in the Disbursement Agreement, the Government 
shall ensure that MARN strengthens the environmental management system 
in the Northern Zone as part of the Sistema Nacional de Gesti[oacute]n 
Ambiental (``SINAMA''). The municipal environmental units of SINAMA 
shall be capable of, among other activities, developing and enforcing 
municipal land-use planning ordinances consistent with the departmental 
territorial development plans and the Plan Nacional de Ordenamiento y 
Desarrollo Territorial. The Government shall provide appropriate 
resources to SINAMA as described in a strengthening plan acceptable to 
MCC.
    (g) The requirement set forth in paragraphs (d), (e) and (f) shall 
be referred to as the ``MARN Program Requirements.''

Schedule 1 to Annex I--Human Development Project

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

1. Background

    Despite progress made in recent years, significant numbers of El 
Salvador's poor still lack basic public services required for human 
development. This problem is particularly acute in the Northern Zone, 
where an estimated 25 percent of the population (roughly 225,000 
people) is not connected to water systems, over 20 percent (nearly 
200,000 people) is without improved sanitation services (e.g., 
latrines), and 28 percent (over 235,000 individuals) are without 
electricity service. Poor community infrastructure (e.g., impassable 
local roads) forces many rural poor to forgo opportunities to seek 
education, health care, or employment and thereby improve their 
livelihoods.
    Human development is also hampered by gaps and constraints in 
education and training. The average number of years of formal education 
in the Northern Zone stands at 3.7 years, compared to 5.6 years in the 
rest of the country. Fewer than one in ten children complete secondary 
schooling, and the quality of this education is poor. As a consequence, 
many youth opt to migrate to other countries or to large urban centers, 
where, lacking skills, they remain in poverty. The Government is 
currently implementing a national education development strategy, known 
as Plan 2021, intended to improve educational effectiveness, achieve 
universal secondary education, strengthen technical and technological 
education and promote the development of science and technology. For 
this plan to succeed, additional resources are required for the 
Northern Zone, especially in the realm of formal secondary technical 
schools and non-formal skills development training.

2. Summary of the Human Development Project and Related Projects 
Activities

    The Human Development Project is designed to increase knowledge and 
skills through education and skills development programs and to 
increase access to basic services and community infrastructure. MCC 
Funding will support the following Project Activities:
     Education and Training: To increase the quality and 
capacity of formal and non-formal vocational programs to enable these 
programs to absorb and train greater numbers of students and expand 
access to more at-risk youth and young adults.
     Community Development: To increase coverage of water 
supply and sanitation facilities and services, to provide near 
universal coverage of on and off-grid electricity, and to provide or 
improve community infrastructure to ensure local connectivity for poor 
communities in the Northern Zone.
    The M&E Plan (described in Annex III) will set forth anticipated 
results and, where appropriate, regular benchmarks that may be used to 
monitor the progress of the implementation of the Human Development 
Project. Performance against these benchmarks, as well as the overall 
impact of the Human 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 implementation of the 
Human Development Project. The expected results from, and the key 
benchmarks to measure progress on, the Human Development Project, as 
well as the

[[Page 76467]]

Project Activities undertaken or funded thereunder, are set forth in 
Annex III.
    Estimated amounts of MCC Funding for each Project Activity for the 
Human Development Project are identified in Annex II. Conditions 
precedent to each Project Activity under the Human Development Project, 
and the sequencing of such Project Activities, will be set forth in the 
Disbursement Agreement, any other Supplemental Agreements and the 
relevant Implementation Documents.
    The following summarizes each Project Activity under the Human 
Development Project:
    (a) Project Activity: Education and Training (the ``Education and 
Training Activity'')
    The Education and Training Activity seeks to increase education and 
skill levels of the Northern Zone's poor by expanding the quality of, 
and access to, vocational and technical education and training. It is 
comprised of three sub-activities: Technical assistance; formal 
technical education; and non-formal skills development.
    To ensure optimal execution, the Government shall ensure that an 
advisory committee, acceptable to MCC, is formed to provide advice, 
oversight, and corresponding recommendations to FOMILENIO and 
corresponding Implementing Entities regarding the Education and 
Training Activity (the ``Education and Training Advisory Committee''). 
The Education and Training Advisory Committee will include 
representatives from the private sector, NGOs, and local governments. 
Key donors supporting the education sector also will be invited to 
participate as needed, to ensure strong coordination and collaboration. 
Moreover, a gender assessment will be conducted under this Project 
Activity to address issues of access and meaningful participation and 
to inform Project Activity design and implementation, consistent with 
the outcomes of the SEA.
(i) Project Sub-Activity: Technical Assistance (the ``Technical 
Assistance Sub-Activity'')
    The Technical Assistance Sub-Activity will bolster capacity of 
institutions and organizations involved in policy, planning, and 
administration of education and training in the Northern Zone. MCC 
Funding will be used to procure the services of a long-term technical 
assistance provider that will support Implementing Entities in 
undertaking the following:
    (1) Conduct a diagnostic analysis, including a gender assessment, 
of current conditions in formal vocational education and non-formal 
training programs in the Northern Zone. The diagnostic will identify 
facilities and equipment needs, curricula and program design, criteria 
for selecting schools to be improved (which criteria must be approved 
by MCC), and other relevant parameters that will frame Compact 
interventions. Implementation plans will be developed based on the 
results of the diagnostic. MCC must approve implementation plans prior 
to commencing execution and effecting associated disbursements, as 
detailed in the Disbursement Agreement.
    (2) Conduct a study to identify the most appropriate and feasible 
measures to financially sustain innovations and programs supported by 
MCC under the Education and Training Activity. This study will include 
an assessment of augmenting the role of the private sector as 
vocational education training providers.
    (3) Support the formation, meetings, and activities of the 
Education and Training Advisory Committee. The Education and Training 
Advisory Committee also will provide support to design and monitor 
interventions to be implemented in the Formal Technical Education Sub-
Activity and the Non-Formal Skills Development Sub-Activity.
(ii) Project Sub-Activity: Formal Technical Education (the ``Formal 
Technical Education Sub-Activity'')
    The Formal Technical Education Sub-Activity aims to strengthen 
technical/vocational education institutions in the Northern Zone, so 
that more youth can gain marketable skills and thereby increase their 
opportunities for employment and income generation. The Ministry of 
Education will be the principal Implementing Entity for this Sub-
Activity. Specifically, MCC Funding will support the following:
    (1) Strengthen an existing post-secondary institute in Chalatenango 
(the ``Chalatenango Center'') to improve teacher skills, facilities, 
equipment, and curriculum resources to offer improved secondary and 
post-secondary courses to up to 1,100 students annually by the end of 
the Compact Term. Strengthening the Chalatenango Center will enable it 
to serve as a national hub for advanced technology training and a 
repository for instructional resources in thirty (30) or more career 
fields.
    (2) Support the strengthening of the Chalatenango Center to become 
a resource center for in-service and pre-service vocational teacher 
training, curriculum experimentation and other forms of resource 
development in support of the middle technical schools in the Northern 
Zone and throughout El Salvador. More than 5,000 teachers will benefit 
from in-service and pre-service training, participate in demonstration 
vocational training programs, and share resources and learning 
materials with schools throughout El Salvador.
    (3) Support the strengthening of approximately twenty (20) middle 
technical schools in key municipalities (selected based on the MCC-
approved criteria established under the Technical Assistance Sub-
Activity) with links to the other activities funded under the Program. 
This support will include: improving the array of degree granting and 
non-degree granting vocational training and skills courses for youth; 
training teachers in the use of advanced instructional technologies; 
linking formal education with private sector needs; capital 
improvements (laboratories and workshops); and purchasing needed 
equipment. Where feasible, MCC Funding for capital improvements will 
leverage funding from local governments, communities, private parties, 
neighborhood associations and other NGOs. It is expected that over 
9,000 students will benefit from this vocational training during the 
Compact Term and the quality of training delivered will be improved.
    (4) Establish a competitive scholarships program to reach 
deserving, yet poverty-stricken youth. The Implementing Entity for this 
program will be determined on a competitive basis. It is expected that 
over 3,600 scholarships will be granted with MCC Funding for post-
secondary and, primarily, middle technical school attendance under the 
Formal Technical Education Sub-Activity.
(iii) Project Sub-Activity: Non-Formal Skills Development (the ``Non-
Formal Skills Development Sub-Activity'')
    The Non-Formal Skills Development Sub-Activity will complement the 
Formal Technical Education Sub-Activity by supporting non-credit, short 
term and pre-employment training offerings. The Non-Formal Skills 
Development Sub-Activity will expand access to non-formal education and 
training activities to the poor, women, at-risk youth, and others who 
are unlikely or unable to attend the extended programs of the middle 
technical schools, whether because of family responsibilities or 
because of inadequate educational foundation. Training will foster 
networking and cooperation with area businesses, through internships, 
on-the-job training, and mentoring. Where feasible, this training will 
be linked with activities in the twenty (20) middle technical

[[Page 76468]]

schools related to the Formal Technical Education Sub-Activity.
    The Non-Formal Skills Development Sub-Activity will fund non-formal 
training activities throughout the Northern Zone. The Instituto 
Salvadore[ntilde]o de Formaci[oacute]n Profesional will manage the Non-
Formal Skills Development Sub-Activity through contracts with 
competitively selected service providers including private firms, NGOs, 
and other organizations qualified to deliver training services. 
Training programs and courses will be determined based on diagnostics 
and work plans developed in connection with the Technical Assistance 
Sub-Activity. Programs will focus on short-term, pre-employment 
training and market-based skills training, and other course modules 
that enable participants to obtain skills needed to improve their 
access to formal sector employment opportunities and/or contribute to 
the more efficient operation of new and existing micro, small and 
medium businesses. It is expected that approximately 13,000 at-risk 
youth, women and other disadvantaged Northern Zone residents will 
benefit from this skills development assistance.
(b) Project Activity: Community Development (the ``Community 
Development Activity'')
    The Community Development Activity aims to dramatically increase 
access of the Northern Zone's poor to basic public services and 
infrastructure. It is comprised of three sub-activities: water and 
sanitation infrastructure; rural electrification; and community 
infrastructure.
    For this Project Activity, the Government will ensure that 
appropriate environmental permits are obtained and requirements are met 
and that any involuntary resettlement issues are addressed according to 
the Environmental Guidelines and in compliance with the laws of El 
Salvador. This will include the implementation of environmental and 
social mitigation measures as identified in environmental assessments, 
or as otherwise may be appropriate, to include compensation for 
physical and economic displacement of individuals, residences and 
businesses affected by such rehabilitation and construction, consistent 
with the World Bank's Operational Policy on Involuntary Resettlement 
(OP 4.12). Feasibility, design and environmental assessment of Project 
Activities will be consistent with the outcomes of the SEA. MCC Funding 
will support training in environmental management.
(i) Project Sub-Activity: Water Supply and Sanitation Infrastructure 
(the ``Water and Sanitation Sub-Activity'')
    MCC Funding will enhance access to water systems for approximately 
90,000 and to improved sanitation services for approximately 50,000 of 
the poorest inhabitants in the Northern Zone. These services, which 
constitute basic human needs essential to supporting human and economic 
development, will result in significant benefits in terms of reduced 
incidence of disease caused by the currently sub-standard levels of 
water and sanitation service in the region. Beyond reduced mortality 
and morbidity, specific benefits include reduced expenditures on health 
care, increased attendance at school and work, and reduced time and 
cost spent seeking or purchasing water. The Water and Sanitation Sub-
Activity will be undertaken using a community-based approach that 
integrates infrastructure improvements with local capacity building to 
sustain the operation and maintenance of systems constructed, and that 
provides important community health education.
    Specifically, MCC Funding will support the following:
    (1) Feasibility studies, project designs, and environmental 
assessments for water supply and sanitation infrastructure, to include 
well drilling and pump tests, hydrogeological studies, water quality 
tests, appropriate watershed management plans, and site-specific EIAs, 
EMPs, and RAPs, as needed;
    (2) Construction of potable water systems meeting World Health 
Organization standards, or other standards acceptable to MCC, and 
sanitation systems (e.g., household latrines) in approximately twenty-
five (25) municipalities of the Northern Zone;
    (3) Technical assistance for community capacity building, to ensure 
system maintenance and sustainability (e.g., creation and training of 
local water management boards); and
    (4) Community education related to appropriate health and 
sanitation practices.
    A transparent and participatory project selection process will be 
used to prioritize execution of the water and sanitation projects to be 
supported with MCC Funding from among the more than 20 municipalities 
already identified by the Social Fund for Local Development 
(``FISDL''). Final project selection criteria, to be approved by MCC, 
will include: (i) Financial and economic viability; (ii) technical 
viability; (iii) environmental and social viability; and (iv) municipal 
and community demand and contribution to project development. 
Municipalities must contribute at least 10 percent of project cost and 
beneficiary communities must contribute at least an additional 10 
percent of project cost, in cash and/or in-kind. These criteria will be 
explicitly defined and published during final project design, prior to 
implementation.
    The Water and Sanitation Sub-Activity's development process is 
expected to include:
     A promotion phase, during which selection criteria will be 
developed, working relationships with municipalities will be 
established and specific needs will be further detailed, and the terms 
of municipality cost-share cash contribution and community cost share 
(cash and/or in-kind) will be defined.
     A feasibility phase, during which feasibility studies and 
environmental analyses will be performed in packages with technical 
support from FISDL.
     An execution phase, involving the development of design 
and bid packages by consultants; the execution of infrastructure and 
training components based on design and specifications; and the 
formation and training of any local health, environmental, and water 
boards.
     A post-construction sustainability or monitoring period 
including: legalization of water boards; further training and technical 
assistance for water boards and municipalities in system operation and 
maintenance (``O&M''), administration and financial management; 
transfer of the responsibility for the water systems to local water 
boards (where applicable); and water quality monitoring by the 
Government.
(ii) Project Sub-Activity: Rural Electrification (the ``Rural 
Electrification Sub-Activity'')
    The Rural Electrification Sub-Activity will extend electricity to 
at least 97 percent of the estimated 47,000 households in the Northern 
Zone that currently are not connected to local power distribution 
networks. Service will be provided to these households through, as 
appropriate for the household, investments in the extension of 
distribution networks, in individual household connections to the 
network, and in the supply of off-grid solar photovoltaic systems. MCC 
Funding will cover up to 85 percent of the projected investment in the 
electrification efforts, with contributions from the Government and the 
executing entities comprising the balance of at

[[Page 76469]]

least 15 percent. Access to electricity will result in immediate and 
significant financial savings to the beneficiaries, and is expected to 
increase household productivity significantly.
    Specifically, MCC Funding will support the following:
    (1) Feasibility, design, and environmental assessment to include 
site-specific EIAs, EMPs, and RAPs, as needed, for new distribution 
lines;
    (2) Construction of approximately 1,500 km of new distribution 
lines and the corresponding connection of approximately 21,000 
households to the expanded network;
    (3) Connection of approximately 25,000 households to existing 
networks via the construction of necessary low voltage extensions;
    (4) Investment in upgrading distribution networks as necessary to 
support the anticipated additional load on the system;
    (5) Installation of approximately 950 solar power systems and 
provision of technical assistance for the creation of community 
associations for the management of solar power system operations and 
maintenance; and
    (6) Contracting of a financial advisor by and at the expense of 
FOMILENIO to advise FOMILENIO on financial aspects and implications of 
the procurement process associated with the Rural Electrification Sub-
Activity, as needed.
    FOMILENIO must ensure that the Rural Electrification Sub-Activity 
is executed in a manner acceptable to MCC with the goals of minimizing 
capital subsidies while maximizing the number of beneficiaries, the 
quality of electric service provided, and the long-term sustainability 
of the implemented projects. FOMILENIO also must ensure that assets, 
obligations, and rights generated and/or conferred as a result of MCC 
Funding are handled in a manner acceptable to MCC, further details of 
which shall be defined in an Implementing Entity Agreement approved by 
MCC.
    FOMILENIO and the respective Implementing Entity will ensure that 
open and transparent bidding or auction mechanisms are used in the 
process of selecting parties to execute the design and implementation 
of rural electrification works. The financial advisor to be hired by 
FOMILENIO pursuant to clause (6) above will provide FOMILENIO and the 
Implementing Entity with independent third party advice aimed at 
optimizing tenders, auctions, or procurements to minimize the cost of 
proposed projects while ensuring successful implementation. This 
financial analyst will be engaged prior to finalization of procurement/
auction plans and during the execution of procurements/auctions, 
including direct participation in associated negotiations. This 
financial advisor will report directly to FOMILENIO's assigned key 
personnel, to ensure required levels of the advisor's independence and 
additional confidence in the integrity of associated transactions.
(iii) Project Sub-Activity: Community Infrastructure (the ``Community 
Infrastructure Sub-Activity'')
    A significant barrier to increased growth in the Northern Zone is 
that communities lack adequate connectivity to access markets, 
employment, and health care or education facilities. This lack of local 
infrastructure therefore hinders local economic growth and human 
development. The Community Infrastructure Sub-Activity will improve the 
connection among isolated communities and villages in the Northern Zone 
while ensuring sustainable management of natural resources.
    Specifically, MCC Funding will support the following:
    (1) Feasibility, design, and environmental assessment to include 
site-specific EIAs, EMPs, and RAPs, as needed, of community 
infrastructure development;
    (2) Rehabilitation and construction of community infrastructure 
such as small roads and drainage works, retaining walls, pedestrian 
crossings and small bridges; and
    (3) Technical assistance to communities and municipalities on 
infrastructure O&M.
    A transparent and participatory project selection process will be 
used to prioritize community infrastructure projects to be supported 
with MCC Funding from among the 170 or more candidate projects 
identified by FISDL in more than twenty (20) of the Northern Zone's 
poorest municipalities. Final project selection criteria, to be 
approved by MCC, will include: (i) Financial and economic viability; 
(ii) technical viability; (iii) environmental and social viability; and 
(iv) municipal and community demand and contribution to project 
development. The candidate projects/communities will be eligible and 
encouraged to apply for funding, through their municipalities. With 
regard to municipal and community demand and contribution to project 
development, a municipal contribution of at least 10 percent of project 
cost will be required as a cash set-aside for infrastructure O&M, along 
with a matching contribution from beneficiary communities of at least 
an additional 10 percent, in cash and/or in-kind.
    The Community Infrastructure Sub-Activity will employ a community-
based approach that integrates infrastructure improvements with local 
capacity building to sustain the operation and maintenance of community 
infrastructure developed. Projects will be packaged by location and/or 
type and contracted based on FISDL-approved design specifications, as 
appropriate. The infrastructure developed will become community assets, 
to be maintained by the municipalities.

3. Beneficiaries

    The Formal Technical Education Sub-Activity is expected to provide 
training to over 10,000 participants, and to 5,000 teachers. Priority 
groups will include the poor, women, youth at risk of migration or gang 
participation, unemployed persons (irrespective of age) and secondary 
school age youth. The Formal Technical Education Sub-Activity will 
equip these beneficiaries with skills to obtain work or generate more 
personal and family income, notably for girls and women.
    The flexible and short-term training provided under the Non-Formal 
Skills Development Sub-Activity is expected to benefit approximately 
13,000 persons. Such training will be industry or job-specific, and is 
intended to expand participants' employment opportunities and to 
improve participant's earning potential. More and better trained 
employees will provide the private and public sector with more 
productive workers, meet specific technology needs that are critical 
for economic advancement, and offer critical skills training to non-
traditional, at-risk youth and adults.
    The Community Development Activity is intended to transform 
economic conditions for currently poor households in the Northern Zone. 
The investments in the provision of basic services and community 
infrastructure will create more economic opportunities and raise 
productivity, while lowering the costs of water, sanitation, 
electricity, transportation, and other important services essential for 
improving the well-being of currently disadvantaged people. Household 
incomes of the poor will rise due to improved economic opportunities, 
health and reduction in the number of lost working or school days. The 
strategic infrastructure and basic services projects will contribute to 
increased productivity among the beneficiaries.
    The investments made under the Water and Sanitation Sub-Activity 
are

[[Page 76470]]

expected to benefit 90,000 or more rural residents (18,000 households) 
in the Northern Zone. Projects will be located in municipalities 
classified by poverty level and lack of coverage in water supply and 
sanitation.
    The Government estimates that over 47,000 rural households in the 
Northern Zone (roughly 25 percent of the population) lack electric 
service coverage and could receive service through the Rural 
Electrification Sub-Activity. It is proposed that approximately 25,000 
households will be connected to existing distribution networks, about 
21,000 will be connected to new, extended distribution networks (1,500 
km of new lines), and roughly 950 households in isolated communities or 
located near protected areas that will receive solar power systems. For 
the latter, community beneficiaries will be the association members or 
company owners. The associations' functions will include the local 
collection and administration of funds dedicated to O&M activities, the 
training of users in the use and maintenance of the solar power 
systems, and the solicitation of technical support from the Government.
    The Community Infrastructure Sub-Activity will benefit over 130,000 
residents (over 26,000 households) in over 20 municipalities in the 
Northern Zone. The beneficiaries of this effort will include the 
poorest households, such as those composed of under represented groups.

4. Donor Coordination; Role of Private Sector and Civil Society

    Activities supported under the Education Activity will interface 
with the principal strategies of the international donor community, and 
is in consonance with the national educational development plan, Plan 
2021, that receives support from major donors. Initial coordination 
meetings have been held with the World Bank, the Inter-American 
Development Bank (``IADB''), the European Union, the Japanese 
International Cooperation Agency and donor agencies within El 
Salvador's private sector. Private sector organizations are already 
intensely involved in the delivery of human resources development in El 
Salvador. The private business group FEPADE plays a major role in 
overseeing five vocational training facilities, and will be assigned a 
critical role in MCC funded operations.
    Several donors, including the German Development Bank, IADB, the 
European Union, and Luxemburg, support FISDL programs that invest in 
providing basic services (including water and sanitation) to 
communities throughout El Salvador. FISDL's Red Solidaria is the 
largest program, targeting the 100 poorest municipalities of El 
Salvador. Current plans across these programs include the investment of 
nearly US$ 30 million in the Northern Zone over the 2006 to 2011 
period. However, the Community Development Activity has targeted 
municipalities (among those deemed the poorest) where currently there 
are no plans for funding.
    The Community Infrastructure Sub-Activity will constitute an 
extension of Red Solidaria. In extending the reach of Red Solidaria 
efforts rather than overlapping with them, MCC Funding will be 
dedicated to projects and communities (among the poorest) where there 
are not existing plans or dedicated funds from other donors.
    Japan and the European Union are the primary donors already active 
in rural electrification in El Salvador. To ensure there is no overlap 
in funding with MCC, the Government, through MINEC, has indicated that 
US$ 6.6 millions from these two donors that had initially been planned 
for rural electrification programs in the Northern Zone will be 
redirected to municipalities outside the Northern Zone.
    Several national and international NGOs are active in water and 
sanitation in El Salvador, with experience in of the areas of project 
development, design, and implementation; these include CARE, Project 
Concern International, and Plan International. These organizations are 
eligible to submit proposals for and could potentially be selected to 
perform projects under the Water and Sanitation Sub-Activity.
    The World Bank is providing advisory and financial assistance to 
complete the SEA related to the Program, the first of its kind led by 
MARN.

5. U.S. Agency for International Development

    Education has long been a priority of USAID; however, USAID 
projects primarily are focused on primary education, while MCC Funding 
will target the secondary, adult and tertiary sectors. The 
complementary work of MCC and USAID in support of education 
improvements in El Salvador offers strong opportunities for 
collaboration, especially in the area of teacher training, 
institutional strengthening and learning materials development.
    From 1997 to 2005, USAID was active in funding water and sanitation 
programs in El Salvador; however, current USAID activities do not focus 
specifically on water and sanitation. The specific model presented for 
MCC Funding under this Project is very similar to that successfully 
previously implemented by USAID through FISDL and local contractors. 
FOMILENIO will continue to dialogue with USAID to identify potential 
opportunities for coordination and adaptation of best-practices with 
respect to the Water and Sanitation Project.

6. Sustainability

    All aspects of the Education and Training Activity are being 
designed to install permanent capacities in key Salvadoran ministries 
and institutions. Investments in school strengthening and education 
infrastructure development will continue well after the Compact Term. 
All interventions under the Education and Training Activity are 
envisioned to serve multiple purposes and to broaden access to skills 
training by more vulnerable and at-risk populations. The MCC-supported 
program is expected to include strong private sector involvement, 
engender local and civil society ownership, and expand the range and 
quality of permanent instructional assets. These elements will lead to 
more sustainable impact, permitting an ever-growing number of youth and 
adults in the Northern Zone to access diverse and quality training 
after the Compact Term.
    Sustainability of the systems installed under the Water and 
Sanitation Sub-Activity will be supported in part by the inclusion of 
municipal and community contributions (cash and in-kind) totaling at 
least 20 percent of project costs. This requirement will help ensure 
that municipalities and communities have allocated resources for the 
maintenance of the infrastructure developed under the Community 
Development Activity, and that community demand is reflected in project 
selection. In addition, system designs will be developed in a manner 
that meets community needs and that leads to a tariff (committed to by 
user contract) that reflects local willingness to pay. Technical 
assistance will also be provided to communities in system use and 
management. Finally, the project implementation plan includes a period 
of post-construction monitoring and ongoing capacity building, 
including the training of newly established water boards in system O&M, 
and administration and financial management.
    The sustainability of the Rural Electrification Sub-Activity is 
largely based on the fact that the distribution companies executing 
network investments will, in accordance with Salvadoran law, recuperate 
O&M costs through the electricity tariff customers pay. This tariff, 
verified by the sector

[[Page 76471]]

regulator, the Superintendencia General de Electricidad y 
Telecomunicaciones (``SIGET''), also includes a network charge that 
incorporates O&M costs. Any and all capital investments funded by MCC 
will be excluded from the rate base used to calculate tariffs. The 
sustainability of this Rural Electrification Sub-Activity is further 
enhanced by providing MCC Funding for service to be installed between 
the extended distribution network and households connecting to it. This 
funding, covering part of the service extension costs (with the balance 
provided by the executing entities), will be available for the poorest 
households, ensuring their connection to the extended distribution 
network.
    In the case of the solar photovoltaic systems provided to isolated 
communities, sustainability is addressed by the feasibility study 
conducted before implementation, and by the provision of technical 
assistance to local community association or the company created to 
coordinate community participation and manage system operations. 
Private entities will provide system installation, as well as technical 
assistance. The community associations responsible for O&M will be 
legal entities registered with SIGET.
    The sustainability of projects executed under the Community 
Infrastructure Sub-Activity will be supported in part by the inclusion 
of municipal and community contributions (cash and in-kind) totaling at 
least 20 percent of project costs. This requirement will also help 
ensure that municipalities and communities will allocate resources for 
the maintenance of the infrastructure developed under the Community 
Infrastructure Sub-Activity, and that community demand is reflected in 
project selection. In addition, project design standards are to be 
developed in a manner that meets community needs and that leads to 
feasible O&M costs that reflect local willingness and contractual 
commitment to pay, thereby ensuring project sustainability.
    The environmental and social sustainability of the Human 
Development Project will be ensured through ongoing consultations with 
the public regarding the manner in which the Human Development Project 
is being implemented. The SEA will include an assessment of the 
activities within the Human Development Project. As necessary, 
environmental and social analyses (that also include an analysis of the 
gender impact) will be conducted, as part of the technical survey and 
design of Project Activities to evaluate the environmental and social 
impacts, cumulative impacts, and existence of economic and physical 
displacement, if any. The Governmental shall ensure that any waste 
generated by the Human Development Project is disposed of in accordance 
with appropriate waste management plans that conform to the laws of El 
Salvador and the Environmental Guidelines.
    For the Water and Sanitation Sub-Activity, evaluation of 
hydrological resources will be performed in coordination with MARN to 
ensure sustainability of the investments. Furthermore, the Government 
shall ensure, directly or through FOMILENIO (or other Permitted 
Designee), that environmental and social mitigation measures are 
developed and implemented for each Project Activity in accordance with 
the provisions of this Compact and any relevant Supplemental 
Agreements. FOMILENIO shall ensure that environmental and social 
assessment responsibilities are included in the bidding documents for 
the design or supervisory firms, construction firms, independent 
technical auditing firms and any project management advisors, as 
needed. In addition, any required EIAs, EMPs, and RAPs, in form and 
substance satisfactory to MCC, will be developed and implemented under 
the Project and monitored by FOMILENIO as necessary during 
implementation. Project Activities, for which MCC disburses funds, 
should be consistent with the outcomes of the SEA acceptable to MCC, 
must have all required environmental permits, and must be in compliance 
with applicable law. The Government shall fund any project-related 
environmental mitigation costs (including resettlement costs) that are 
not already covered by MCC Funding. The sustainability of the Human 
Development Project will be enhanced by institutional capacity building 
and training on environmental management.

7. Policy; Legal and Regulatory Reform; Government Actions

    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 Human Development 
Project, the satisfactory implementation of which will be conditions 
precedent to certain MCC Disbursements as provided in the Disbursement 
Agreement:
    (a) By the time specified in the Disbursement Agreement, the 
Government shall develop an appropriate watershed management plan(s) 
acceptable to MCC for the areas targeted by the Water and Sanitation 
Sub-Activity.
    (b) To the extent that MCC Funding is insufficient to meet the 
Outcome Indicator ``Population with electricity in the Northern Zone'' 
for the Rural Electrification Sub-Activity, the Government shall 
provide the necessary resources to meet such Outcome Indicator by the 
end of the Compact Term.
    (c) By the time specified in the Disbursement Agreement, the 
corresponding Implementing Entities shall present a staffing and 
equipment plan and implementation schedule, each acceptable to MCC, to 
manage the Community Development Activity. The plan shall ensure 
sufficient personnel and organizational structures dedicated to 
environmental, social, and technical disciplines.
    (d) The Government shall ensure that the relevant Implementing 
Entities for the Community Development Activity update and implement 
throughout the Compact Term their environmental policies, to the 
satisfaction of MCC.
    (e) The Government shall ensure that property rights in the 
Northern Zone will be strengthened by the formal registration of land 
rights and the modernization of the property registry and cadastre in 
areas affected by the Human Development Project. The Government shall 
ensure that land title issues are addressed to the satisfaction of MCC 
during the Compact Term.
    (f) The Government shall ensure that the MARN Program Requirements 
are satisfied as and when specified in Section 6 of Annex I to this 
Compact.
    (g) Currently, students without a primary school completion 
certificate are not permitted to apply for or enroll in middle 
technical schools in El Salvador. The Government shall ensure that this 
requirement is modified to allow individuals with no primary school 
completion certificate to enroll in selected continuing education and 
selected professional certificate (non-degree granting) programs.

8. Proposals

    Public solicitations for proposals are anticipated to procure 
goods, works and services, as appropriate, to implement all Project 
Activities under the Human Development Project. FOMILENIO will develop, 
subject to MCC approval, a process for consideration of all such 
proposals. Notwithstanding the foregoing, FOMILENIO may also consider, 
using a process developed subject to MCC approval, any unsolicited 
proposals it might receive.

[[Page 76472]]

Schedule 2 to Annex I--Productive Development Project

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

1. Background

    Of the 850,000 residents of the Northern Zone (12 percent of the 
national population), approximately 263,000 are economically active. 
Poverty is a common denominator among families in the region, where 
more than half of the households live in poverty and 50,000 households 
live in extreme poverty. The per capita monthly income of Northern Zone 
residents is 60 percent of the national average. The largely rural 
region is composed of 92 municipalities, most encompassing fewer than 
2,000 households. Unemployment is pervasive, affecting most age groups. 
In particular, the difficulties posed by unemployment among young 
people are aggravated by the lack of education resources in the region. 
With little hope for increased investment, productivity or employment 
in the Northern Zone, residents often see migration to the southern 
part of the country or to other countries as their best option to 
improve life for themselves and their families.
    Approximately 40 percent of the population of the Northern Zone is 
engaged in low-productivity activities, including the production of 
traditional crops (maize, beans, forage). Limited technical and 
business knowledge and limited access to financial resources have 
inhibited regional economic growth. Only two percent of loans in El 
Salvador are extended to inhabitants of the Northern Zone, of which 
only four percent are extended to the agricultural sector.
    Studies of El Salvador have found that increased income of rural 
households is most often attributable to access to markets for higher 
value goods and services, access to infrastructure, and remittances. 
The Productive Development Project seeks to increase the incomes of 
Northern Zone residents by providing technical assistance, training, 
and financial support to alleviate constraints to high quality 
production, increased productivity and access to investment capital. 
The Productive Development Project is intended to help the region jump-
start investment, particularly in activities that will benefit the poor 
and disadvantaged (with special focus on women and youth). Banking 
institutions in the Northern Zone also will be strengthened as a result 
of this Project.

2. Summary of Productive Development Project and Related Project 
Activities

    The Productive Development Project will assist with the development 
of profitable and sustainable productive business ventures, with a 
primary focus on assisting poor farmers shift to the cultivation of 
high-value crops, forestry, and animal products. Business development 
support for micro, small and medium enterprises in other sectors, 
including tourism and artisanry, will also be provided. The Government, 
through Banco Multisectorial de Inversiones (``BMI''), will be 
responsible for the implementation of all the Project Activities of the 
Productive Development Project, consistent with the outcomes of the 
SEA. The Government, through BMI, will prepare an operations manual 
(the ``PD Operations Manual'') with respect to the Productive 
Development Project, which must be approved by MCC and FOMILENIO. The 
PD Operations Manual shall include, among other things, the rules 
governing the delivery of subsidized in-kind (material inputs) and 
technical assistance and environmental and social/gender guidelines.
    MCC Funding will support the following Project Activities:
     Production and Business Services: To provide technical 
assistance to poor farmers to shift to high-value agricultural 
production and forestry strategies and to provide pre-investment 
studies and technical assistance for the development and implementation 
of business plans for Project beneficiaries located in the Northern 
Zone or greatly benefiting the Northern Zone population;
     Investment Support: To provide investment capital to 
competitively selected applicants for business activities located in 
and benefiting poor inhabitants of the Northern Zone; and
     Financial Services: To provide financial enhancements to 
support increased lending activity by banks and non-bank financial 
institutions in the Northern Zone.
    FOMILENIO will ensure the establishment of an independent 
investment committee (the ``PD Investment Committee'') to oversee and 
guide activities within the Production and Business Services Activity 
and the Investment Support Activity and, to the extent specified in the 
PD Operations Manual, the Financial Services Activity. The PD 
Investment Committee will be governed by and must adhere to the PD 
Operations Manual and will be composed of representatives agreed upon 
by MCC, FOMILENIO and BMI. The PD Investment Committee will review and 
make recommendations to FOMILENIO regarding the allocation and use of 
resources for the Production and Business Services Activity and the 
Investment Support Activity at various stages of the implementation 
process.
    The M&E Plan (described in Annex III) will set forth anticipated 
results and, where appropriate, regular benchmarks that may be used to 
monitor the progress of the implementation of the Productive 
Development Project. Performance against these benchmarks, as well as 
the overall impact of the Productive 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 
implementation of the Productive Development Project. The expected 
results from, and the key benchmarks to measure progress on, the 
Productive Development Project, as well as the Project Activities 
undertaken or funded thereunder, are set forth in Annex III.
    Estimated amounts of MCC Funding for each Project Activity for the 
Productive Development Project are identified in Annex II. Conditions 
precedent to each Project Activity under the Productive Development 
Project, and the sequencing of such Project Activities, shall be set 
forth in the Disbursement Agreement, other Supplemental Agreements or 
the relevant Implementation Documents.
    The following summarizes each Project Activity under the Productive 
Development Project:
(a) Project Activity: Production and Business Services (the 
``Production and Business Services Activity'')
    The programs within the Production and Business Services Activity 
are intended to help poor farmers, organizations and micro-, small, and 
medium enterprises that benefit poor inhabitants of the Northern Zone 
successfully transition to higher-profit activities, generating new 
investment, expanding markets and sales, and creating new jobs in ways 
that stimulate sustainable economic growth and poverty reduction. 
Through an international competitive process, FOMILENIO, with technical 
guidance from BMI, will contract with service

[[Page 76473]]

providers (the ``PRONORTE Service Providers'') to carry out the 
Production and Business Services Activity.
    Specifically, MCC Funding will support the following activities for 
poor farmers, organizations and micro, small, and medium enterprises 
that benefit poor inhabitants of the Northern Zone:
    (i) Investment Planning. The PRONORTE Service Provider will confirm 
assessments of high return investments, primarily in the agriculture 
sector. Other sectors will be considered, including tourism and 
artisanry. These assessments will be used to guide business plan 
development and technical assistance. The investment planning will: (a) 
Ensure all investments meet economic viability benchmarks; (b) 
determine the technical feasibility of the proposed activities; (c) 
assess the environmental sensitivity and social impact; and (d) propose 
a detailed strategy for outreach to target male and female 
beneficiaries in the Northern Zone.
    (ii) Assistance to Small Farm Enterprises. The primary focus of 
this activity is to transform on-farm productive practices of poor 
farmers by effecting a shift to high-value crops, forestry, and animal 
products. This objective will be pursued through two related 
mechanisms: the delivery of on-farm technical assistance by contracted 
extension services and the provision of material assistance. The 
outreach plans must be approved by MCC and must incorporate gender 
analysis. Technical assistance to farmers will likely include training 
in production management, application of best practices in agriculture 
(such as complying with sanitary and phytosanitary standards) and 
forestry (such as forest certification and reduced impact logging), 
post-harvest management, and market access information. In-kind 
assistance will include the provision of new crop material and, 
possibly, livestock, with a significant cost-share by all participants. 
One potential activity will be the development of forestry through 
investments in trees as on-farm productive assets for small and medium-
sized farms. This activity has additional benefits of soil 
conservation, strengthening natural resource management and providing 
potential opportunities for carbon credits. As with other assistance to 
farmers, this provision of in-kind assistance will be delivered with a 
significant cost-share by participants in the program. All technical 
assistance will be in compliance with Salvadoran laws and regulations 
and the Environmental Guidelines and will encourage farm enterprises to 
employ environmentally sustainable practices and will disseminate 
environmental sustainability principles that include guidance on the 
proper selection, use, storage, and disposal of pesticides. The 
PRONORTE Service Provider will ensure proper practices to minimize and 
mitigate the potential negative impacts of any significant land 
conversion. Any land acquisition and involuntary resettlement involved 
with this activity will be done in compliance with the World Bank's 
Operational Policy on Involuntary Resettlement (OP 4.12).
    (iii) Business Development Services. Based on PD Investment 
Committee guidance of focus areas, the PRONORTE Service Providers will 
undertake outreach and technical assistance and training to support the 
development of agribusiness and non-agricultural commercial activities, 
possibly including tourism and artisan products, as validated by the 
investment planning sub-activity. The objective will be to support the 
development of efficient, sustainable commercial activities that 
generate employment and raise rural incomes in the region. Limited 
assistance may be provided to other enterprises to develop valuable 
market linkages and networks with target individuals and organizations. 
The outreach plans must be approved by MCC and must incorporate gender 
analysis. Technical assistance to new or expanded commercial activities 
likely will include market access information, business plan 
development and legal assistance with land title registration. 
Technical assistance will encourage businesses to employ 
environmentally sustainable practices and will disseminate 
environmental sustainability principles. Support to commercial 
establishments will be delivered, to the extent possible, through 
private service providers and will include a significant element of 
cost-sharing by participating entrepreneurs, both of which are critical 
elements of a strategy to develop a sustainable business development 
sector.
(b) Project Activity: Investment Support (the ``Investment Support 
Activity'')
    To attract private investment in and various types of financing for 
high-value economic activities in the Northern Zone, the Investment 
Support Activity will utilize MCC Funding to support a demand-driven, 
competitive process to provide capital to critical investments required 
for successful operation of a business activity that is part of a value 
chain that will be located in and/or benefit poor inhabitants in the 
Northern Zone. The goal of the Investment Support Activity is to make 
investment capital available to poor individuals, and organizations 
that benefit poor inhabitants of the Northern Zone, who, due to 
insufficient collateral and lack of liquid assets, are not able to 
finance their investments. This investment support is intended to 
reduce poverty by enabling the creation of profitable and sustainable 
business activities that generate employment and significantly raise 
income.
    Specifically, MCC Funding will support the administration and 
funding of an investment support program providing investment capital 
for the development of competitively selected business proposals. The 
Government, through BMI, will implement the investment support program 
through a suitable vehicle managed by BMI and funded with grants from 
FOMILENIO.
    The Investment Support Activity will require potential proponents 
to make proposals to compete for support based on transparent criteria, 
including, without limitation, a fully developed business plan and the 
provision of a significant contribution either of their own or of their 
business partners' resources. These elements help ensure that resources 
are directed to the most promising business endeavors, encouraging 
alliances, joint ventures, and other forms of collaboration between 
more established enterprises and smaller/disadvantaged organizations 
and individuals in the Northern Zone. This also is expected to lead to 
faster start-up and increased chances of success and sustainability.
    Beneficiaries assisted in developing a business plan under the 
Production and Business Services Activity may submit those business 
plans for award consideration under the Investment Support Activity; 
however, investment support applications may also be submitted by 
candidates that have not received assistance under the Production and 
Business Services Activity or otherwise under the Productive 
Development Project.
    Proposals will be reviewed, ranked and recommended for approval by 
the PD Investment Committee. Minimum eligibility (pass/fail) criteria 
will be defined subject to MCC approval, including a minimum economic 
return threshold (returns must be higher than the rate defined in Annex 
III to this Compact), technical feasibility, and financial need. 
Proposals will be evaluated according to specified criteria approved by 
MCC, including criteria with respect to the following: (i) Financial 
rate of return; (ii) economic rate of return; (iii) co-investment 
level; (iv) environmental and social

[[Page 76474]]

considerations; (v) technical feasibility; and (vi) employment and 
other community impacts.
    The Investment Support Activity will be governed by and must adhere 
to rules and procedures documented in the PD Operations Manual. The 
capital investments made must be designed to be liquidated, whether by 
repurchase by the recipient, fulfillment of a note or contract, 
purchase by third parties, or in another manner, on terms appropriate 
for a capital investment as regards the size of planned liquidation 
payments, and as early as reasonably possible consistent with estimated 
cash flows of the business activity in which the investment is made, 
all according to terms established at the time of the award and in 
adherence to the principles outlined in the PD Operations Manual. At 
the conclusion of the second year of the Compact Term, an assessment 
will be made and appropriate changes enacted, if necessary, in the 
structure and funding of the Investment Support Activity.
    Prior to the end of the fourth year of the Compact Term, FOMILENIO 
and MCC must complete a plan for the disposition of financial assets 
generated by the Investment Support Activity. This plan must entail 
either a liquidation of assets or a program to be managed by a 
fiduciary agent. The selection of the liquidation agent or fiduciary 
agent must be completed no later than six months prior to the end of 
the Compact Term. No financial asset created under the Investment 
Support Activity during the Compact Term can have an original maturity 
that is later than the date that is nine years from the date of Entry 
Into Force. All financial assets must be liquidated or transferred (as 
per the aforementioned plan) prior to the date that is ten years after 
the date of Entry Into Force.
(c) Project Activity: Financial Services (the ``Financial Services 
Activity'')
    Regulated financial institutions in El Salvador have substantial 
liquidity, yet only a very small percentage of this liquidity is 
directed towards activities in the Northern Zone. The Financial 
Services Activity seeks to increase lending and access to credit and 
other financial services and to improve the risk profile of micro, 
small and medium producers and rural entrepreneurs in the Northern 
Zone.
    MCC Funding will support the following programs. The specific terms 
and conditions of MCC-supported sub-activities under the Financial 
Services Activity will be set forth in term sheets and other 
documentation relating to implementation, to be agreed upon by 
FOMILENIO and MCC.
    (i) Guarantee Funds. MCC Funding will support two guarantee 
programs, as follows:
    (1) FOMILENIO will establish a guarantee program, to be 
administered by the Government, through BMI, based upon the model of El 
Salvador's Programa de Garanta Agropecuaria (``PROGARA''), a 
governmental program managed by BMI which provides guarantees to 
farmers to facilitate access to credit and reduce credit risk for the 
participating financial institutions. To encourage the participation of 
financial intermediaries, MCC Funding will be used to pay commissions 
to financial intermediaries that guarantee loans incurred by producers 
in the vegetable, fruits and dairy sectors. In addition, MCC Funding 
will be used to establish a reserve to cover potential defaults of up 
to 50 percent of loan amount of participating medium size farmers and 
up to 70 percent of loan amounts for micro and small farmers.\1\ These 
levels will be reevaluated and adjusted as appropriate after the second 
year of the program.
---------------------------------------------------------------------------

    \1\ Micro, small and medium farmers, as defined in official 
Government statistics.
---------------------------------------------------------------------------

    (2) Sociedad de Garant[iacute]as Rec[iacute]procas (``SGR'') is a 
public-private entity providing bank or commercial loan guarantees for 
micro, small and medium scale enterprises, such as agroindustries, 
commercial entities, light manufacturing, tourism and other services 
which have been assessed and approved by SGR. These guarantees enable 
enterprises to be eligible to receive loans from participating banks or 
commercial lenders. MCC Funding will cover incremental SGR expenses 
associated with expanding the SGR guarantee program in the Northern 
Zone, as well as a reserve to increase SGR guarantee authority and 
cover potential defaults.
    With respect to the guarantee-related programs discussed in the 
preceding paragraphs (1) and (2), any amounts provided as a reserve 
will be transferred to and held in separate reserve accounts in 
accordance with a disbursement schedule and procedure agreed upon 
between FOMILENIO, MCC and the relevant Implementing Entity.
    Prior to the end of the fourth year of the Compact Term, FOMILENIO 
and MCC must complete a plan for the disposition of financial assets of 
these guarantee-related programs. This plan must entail either a 
liquidation of assets or a program to be managed by a fiduciary agent. 
The selection of the liquidation agent or fiduciary agent must be 
completed no later than six months prior to the end of the Compact 
Term. No loan guaranteed by these guarantee-related programs can have 
an original maturity that is later than the date that is nine years 
from the date of Entry Into Force. All financial assets must be 
liquidated or transferred (as per the aforementioned plan) prior to the 
date that is ten years after the date of Entry Into Force.
    (ii) Agricultural Insurance. MCC Funding will support a crop 
insurance program for vegetable farmers based in the Northern Zone. 
Term sheets will be developed by the Government, through, BMI with 
insurance companies interested in participating in this program. MCC 
Funding will cover up to 50 percent of the insurance premiums for 
first-time small vegetable farmers who participate directly in the 
technical assistance program under the Production and Business Services 
Activity or who have received a certification of good growing practices 
from the PRONORTE Service Providers. The payment will be phased out 
over time. An additional insurance premium support mechanism for small 
farmers in other sectors may be implemented but will be subject to the 
outcome of pre-investment studies.
    (1) Financial Intermediary Technical Assistance. MCC support will 
provide specialized, short-term technical assistance to bank, non-bank 
and non-governmental financial intermediaries in the Northern Zone that 
are working to expand rural finance and improve credit analysis, 
introduce new technologies into their service delivery, or develop 
specialized products (such as leasing, savings, or specialized 
agricultural credit products) that increase beneficiary access to 
financial services. Financial intermediaries desiring such assistance 
will apply on a competitive basis to the PRONORTE Service Providers. 
The PRONORTE Service Providers may also offer short training workshops 
on a cost-share basis for financial intermediary staff in order to 
strengthen financial services delivery capacity in the Northern Zone.

3. Beneficiaries

    The principal beneficiaries of the Productive Development Project 
are expected to be the 55,000 poor people employed in agriculture or 
non-farm activities including producers, and micro, small and medium 
companies. Agribusinesses and other micro, small and medium enterprises 
also will benefit from new or expanded market opportunities created 
under the Productive Development Project. Underrepresented groups such 
as small

[[Page 76475]]

farmers, women and youth will receive preference in the assessment of 
potential beneficiaries of the Investment Support Activity.

4. Donor Coordination; Role of Private Sector and Civil Society

    Loans and donations programmed by multilateral institutions in 2005 
for El Salvador totaled $128.61 million. Out of the planned and on-
going donor assistance to El Salvador, the amount targeted for the 
Northern Zone amounts to $43.5 million from multilateral donors: (a) 
World Bank--$20.1 million for Land Regularization Program; (b) 
International Fund for Agricultural Development--$10.8 million for 
agricultural development; (c) the Central American Bank for Economic 
Integration--$3.3 million for agricultural development; and (d) IADB--
$3.1 million for Environmental Management of the Lempa River Valley.
    MCC has consulted IADB on two projects with relevance to the 
Financial Services Activity. First, the IADB is expecting to approve a 
micro-finance project of $1.5 million. This IADB project will increase 
the resources available for on-lending from qualified intermediaries to 
micro and small enterprises. These intermediaries in turn will be 
eligible for participating in the PROGARA guarantee program, and 
therefore will have a ready source of funds available for lending to 
potential guarantees beneficiaries of the Financial Services Activity.
    Second, IADB has approved a regional technical assistance program 
for improving agricultural insurance programs in Central America. The 
program seeks to strengthen the regulatory and legal framework for 
agricultural insurance in the region; develop a platform to systematize 
climatologic information for risk analysis, and design innovative 
insurance products for agriculture. Although the Financial Services 
Activity will not be directly affected by this IADB project, the 
development of better risk analysis tools will be a positive factor for 
the growth of the agricultural insurance market in El Salvador.
    The World Bank is providing advisory and financial assistance to 
complete the SEA related to the Program, the first of its kind led by 
MARN.
    Bilateral assistance in the Northern Zone amounts to $30 million, 
comprised of assistance from the European Union ($24.7 million to 
support a bi-national program), GTZ ($800,000 for environmental 
management), and China, Japan and USAID ($3.5 million for agricultural 
development).
    Japan's recent four-year, $90 million loan activity for the Port of 
Cutuco is directly relevant to the Productive Development Project, as 
this investment will enhance the importance of the Northern Zone as a 
logistical corridor and source for labor and agricultural commodities.
    The Productive Development Project will complement ongoing donor 
activities by significantly increasing the amount of donor assistance 
dedicated to economic growth activities in the Northern Zone. Project 
implementers will participate in donor coordination through the 
existing mechanism and seek to work closely with all donor entities 
implementing activities in the Northern Zone.

5. U.S. Agency for International Development

    USAID is presently the largest bilateral donor to El Salvador 
($34.23 million). MCC coordinated closely with USAID staff in 
determining the feasibility of the Productive Development Project and 
will continue such collaboration during Compact implementation, 
particularly in connection with USAID's work in the following four 
strategic areas:
    (a) Export Promotion. USAID's ExPro project trains micro, small and 
medium enterprises, mostly outside of the Northern Zone, in business 
and export management. Collaboration related to certain components of 
the Productive Development Project and the ExPro project are likely, 
particularly with respect to training efforts, strategic planning, 
business venture brokering, and participation in international trade 
fairs.
    (b) Artisan Development. This USAID program assists artisans, a 
significant number of which reside in the Northern Zone, with improved 
design techniques, business management training, increased sales 
opportunities through international buyer missions and regional sales 
promotion events.
    (c) Agriculture Diversification. This USAID project encourages 
diversification of coffee production to the production of specialty 
coffees and horticultural products through technical assistance.
    (d) Financial Services. The Financial Services Activity will 
benefit from two phases of a USAID project that strengthened micro-
finance institutions in the poorest areas of El Salvador: (i) FOMIR, a 
project considered highly successful, contributed to the improvement of 
the quality, availability and variety of micro-finance products offered 
throughout the country; many of these micro-finance institutions will 
be eligible for using the guarantee mechanisms in the MCC-funded 
agricultural guarantee program available under the Financial Services 
Activity, thereby expanding the reach of the FOMIR program into the 
rural areas; and (ii) a recently initiated USAID program to assist 
regulated banks in offering better service and products to small and 
medium enterprises; this USAID program will improve services provided 
by banks to small and medium enterprises; the Financial Services 
Activity will benefit from this new interest in small and medium 
enterprises, especially in the SGR guarantee program, which utilizes 
the regulated banking sector as intermediaries for its guarantees.
    In addition, USAID has a newly established, active Development 
Credit Authority (``DCA'') guarantee program in El Salvador. The 
program will be working with two banks, ProCredit and Banco 
Salvadore[ntilde]o. The DCA program is not limited in terms of 
geography, so it is expected that most of the guarantees will be 
concentrated in the major metropolitan areas of the country. For that 
reason, and because of the limited number of banks participating in the 
DCA program, it is not expected that the MCC guarantee programs and the 
USAID guarantee program of the Financial Services Activity will have 
much overlap during project execution.

6. Sustainability

    The environmental and social sustainability of the Productive 
Development Project will be assured through ongoing consultations with 
the public regarding the manner in which the Productive Development 
Project is being implemented. The activities funded under the 
Productive Development Project will be consistent with the outcomes of 
the SEA. Any land acquisition and involuntary resettlement required for 
the Productive Development Project will be consistent with the World 
Bank's Operational Policy on Involuntary Resettlement (OP 4.12). 
Throughout the Compact Term, the Government shall ensure, directly or 
through FOMILENIO (or other Permitted Designee), that requisite 
environmental, social, and gender analyses are conducted, as needed, as 
part of the technical survey and design of the Project Activities and 
that environmental and social mitigation measures are developed and 
implemented in accordance with the provisions of this Compact and 
related Supplemental Agreements. In connection with Productive

[[Page 76476]]

Development Project procurements, FOMILENIO will ensure that 
environmental and social assessment responsibilities are included in 
the bidding documents for the design or supervisory firms, the 
construction firms, the independent technical auditing firms and any 
project management advisors. In addition, any required EIAs, EMPs, and 
RAPs, in form and substance satisfactory to MCC, will be developed and 
implemented under the Project. FOMILENIO will require environmental 
monitoring of the subprojects and submittal to MCC of periodic reports 
on the implementation of the environmental procedures and environmental 
performance. Subprojects, for which MCC disburses funds, must have all 
environmental permits required by Salvadoran law. The sustainability of 
the Productive Development Project will be enhanced by institutional 
capacity building and training on environmental management.
    The competitive selection process of Investment Support Activity 
incorporates the MCC goal of sustainability. Evaluations based on 
business plan feasibility will increase the likelihood of financial 
sustainability beyond the Compact Term and will support motivated 
entrepreneurs and promising business endeavors. Such evaluations also 
will take into consideration (a) competitive co-investment in order to 
leverage private investment and ensure commitment on behalf of 
beneficiaries; and (b) the environmental and social safeguards to 
ensure sustainable use of the natural resource base and consideration 
of social dynamics.
    Additionally, the recipients under the Investment Support Activity 
will receive customized technical assistance to encourage (a) the 
adoption of sound technical and business management practices for the 
development and operation of the investment; and (b) the establishment 
of legal entities and financial mechanisms necessary to provide 
maintenance, replacement and improvement of investments over time. 
Technical training of producers and technical experts also will improve 
the human resource base, thereby improving the quality of local 
services provided along targeted value chains.
    The Financial Services Activity has been designed to be financially 
sustainable at the end of the Compact Term. In the two guarantee 
programs, MCC Funding will be used principally to increase the 
guarantee authority by creating a reserve that would earn income until 
the funds are needed for losses under the program. As long as the 
losses are contained at a manageable level, these MCC resources will 
remain when the Compact expires, and could be used to capitalize the 
guarantee funds permanently or for some other use. The relatively small 
amount of MCC Funding that could be considered expenses are the 
financial incentives for the intermediaries, in the case of the MCC-
funded agricultural guarantee program, and the incremental expenses for 
starting up and promoting the guarantee program in the northern region, 
in the case of SGR. In both of these cases, the payments may be 
discontinued after three years, when it is expected that the critical 
mass will be reached to permit reaching operational break-even for the 
guarantee programs. From that point, the normal charges for commissions 
and fees would be sufficient to cover the expenses of the guarantee 
programs.
    The agricultural insurance program will pay up to 50 percent of the 
premiums for insuring selected vegetable crops. This program will test 
the ability of the producers and insurance companies to reach 
appropriate and affordable levels of premiums according to the losses 
incurred over a reasonable period of time. This ability will be 
assisted by the aforementioned IADB project, which is intended to 
strengthen all aspects of the agricultural insurance industry.

7. Policy; Legal and Regulatory Reform; Government Actions

    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 Productive Development 
Project, the satisfactory implementation of which will be conditions 
precedent to certain MCC Disbursements as provided in the Disbursement 
Agreement:
    (a) The Government shall ensure that property rights in the 
Northern Zone will be strengthened by the formal registration of land 
rights and the modernization of the property registry and cadastre in 
municipalities and/or departments benefiting directly from the 
Productive Development Project. The Government shall ensure, and MCC 
will monitor, that land title issues are addressed to the satisfaction 
of MCC during the Compact Term.
    (b) The Government shall ensure that the MARN Program Requirements 
are satisfied as and when specified in Section 6 of Annex I to this 
Compact.
    (c) The Government shall ensure that BMI creates the proper 
financial instruments and mechanisms to implement the Investment 
Support Activity.

8. Proposals

    Public solicitations for proposals are anticipated to procure 
goods, works and services, as appropriate, to implement all Project 
Activities under the Productive Development Project. FOMILENIO will 
develop, subject to MCC approval, a process for consideration of all 
such proposals. Notwithstanding the foregoing, FOMILENIO may also 
consider, using a process developed subject to MCC approval, any 
unsolicited proposals it might receive.

Schedule 3 to Annex I--Connectivity Project

    This Schedule 3 generally describes and summarizes the key elements 
of the project that the Parties intend to implement in furtherance of 
the Connectivity Objective (the ``Connectivity Project''). Additional 
details regarding the implementation of the Connectivity Project will 
be included in the Implementation Documents and in relevant 
Supplemental Agreements.

1. Background

    The Connectivity Project addresses the issue of the Northern Zone's 
physical isolation in an attempt to fully integrate this region into 
the development plans of El Salvador. The isolation of the Northern 
Zone is an impediment to its development and a contributor to the 
widespread poverty that affects more than half of households in the 
Northern Zone. Improving transportation connectivity in the Northern 
Zone will stimulate human and productive development by reducing the 
time and cost of travel, facilitating access to markets, encouraging 
regional development and productive land use, attracting investment, 
and improving access to health and education services.
    Current road conditions and, in some places, the lack of roads have 
contributed to the isolation of the Northern Zone. With the 
Connectivity Project, 57 municipal capitals within El Salvador will be 
linked by a reliable, paved road. Currently, 23 of the 57 
municipalities have only unpaved dirt roads. During periods of heavy 
rain, the current roads--especially unpaved roads--can become 
impassable. In the Northern Zone, many neighboring communities do not 
have direct, reliable transport routes connecting them, so community 
members must travel great distances, or over difficult conditions, to 
access services or markets in neighboring communities. The Connectivity 
Project will provide

[[Page 76477]]

significantly greater access that will alleviate these difficulties as 
well as decrease travel time and vehicle operation and maintenance 
costs.

2. Summary of Connectivity Project and Related Project Activities

    The Connectivity Project will apply MCC Funding to the completion 
of a two-lane transnational highway across the Northern Zone (the 
``Northern Transnational Highway'' or ``NTH''), which will serve as a 
transport artery within the Northern Zone and will augment 
international connectivity through two new border crossings, one with 
Honduras in the east and one with Guatemala in the west. In addition, 
the Connectivity Project will fund improvements to a strategic network 
of connecting roads (the ``Network of Connecting Roads'' or ``NCR''). 
The Network of Connecting Roads will provide reliable paved roads to 
foster the connection of remote municipalities and rural villages of 
the Northern Zone with the NTH and other regional and national traffic 
routes.
    MCC Funding will support the following Project Activities:
     Northern Transnational Highway: To design and construct 
openings of approximately 50 km of secondary \1\ roads; to improve 
approximately 160 km to secondary road standards; and to rehabilitate 
approximately 80 km to secondary road standards;\2\ and
---------------------------------------------------------------------------

    \1\ ``Secondary'' roads are composed of a paved traveled way of 
two 3.25 m wide lanes (6.50 m traveled way) and 1.5 m wide 
shoulders, and include surface drainage.
    \2\ The work to be performed on the NTH and the NCR can be 
classified by the following standard descriptions: (i) 
``improvement'' means that the geometric characteristics of an 
existing road are changed to raise the standards of the road; this 
type of work implies widening of lanes, adding or widening 
shoulders, increasing the minimum radius of curvature, decreasing 
maximum slopes and paving unpaved roads; (ii) ``Rehabilitation'' 
means that the general geometric characteristics, except width, of 
an existing paved road are maintained; this work requires improving 
pavement surface or pavement structure or drainage; and (iii) 
``opening'' a new road means that no road exists; in connection with 
such work cuts often occur on the slopes in mountainous zones and 
significant modification of the topography often occurs, at least 
within the area of influence of the road.
---------------------------------------------------------------------------

     Network of Connecting Roads: To improve approximately 240 
km to modified tertiary road \3\ standards.
---------------------------------------------------------------------------

    \3\ ``Modified tertiary roads'' are roads that have a paved 
traveled way of 6.0 m and 1.0 m shoulders, and include drainage 
structures. These modified tertiary roads will contribute greatly to 
improving mobility in the Northern Zone and to the success of the 
Human Development Project and Productive Development Project.
---------------------------------------------------------------------------

    The M&E Plan (described in Annex III) will set forth anticipated 
results and, where appropriate, regular benchmarks that may be used to 
monitor the progress of the implementation of the Connectivity Project. 
Performance against these benchmarks, as well as the overall impact of 
the Connectivity 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 implementation of the Connectivity 
Project. The expected results from, and the key benchmarks to measure 
progress on, the Connectivity Project, as well as the Project 
Activities undertaken or funded thereunder, are set forth in Annex III.
    Estimated amounts of MCC Funding for each Project Activity for the 
Connectivity Project are identified in Annex II. Conditions precedent 
to each Project Activity under the Connectivity Project, and the 
sequencing of such Project Activities, shall be set forth in the 
Disbursement Agreement, other Supplemental Agreements or the relevant 
Implementation Documents.
    The following summarizes each Project Activity under the 
Connectivity Project:
(a) Project Activity: Northern Transnational Highway (the ``Northern 
Transnational Highway Activity'')
    The Northern Transnational Highway will provide contiguous and 
reliable access to communities in the Northern Zone, as well as to main 
transport corridors, thereby enabling the Northern Zone to participate 
more fully in the national and regional economy. When completed, the 
NTH will extend across El Salvador from Guatemala in the west to 
Honduras in the east, and will connect with roads to southern El 
Salvador, to the new Pacific Ocean port at La Union in eastern El 
Salvador and to the Caribbean ports in Guatemala (Puerto Barrios) and 
Honduras (Puerto Cortez). Primarily, the NTH will follow a course of 
existing roads; with only 50 km of new roads needed to connect the 
different sections of road to form a continuous transnational paved 
surface.
    As El Salvador increases its participation in international and 
regional markets through the Central America-Dominican Republic-United 
States Free Trade Agreement (CAFTA-DR) and Plan Puebla-Panam[aacute] 
activities, the NTH will provide valuable access to a wider range of 
opportunities for the communities of the Northern Zone. Reliable and 
efficient transportation schemes are essential to El Salvador's 
participation in international and regional markets, and especially 
essential to small, local producers and suppliers. Currently, the 
Northern Zone has neither a reliable nor an efficient transport route 
for the goods and services of the communities in the Northern Zone. The 
Northern Transnational Highway Activity will provide wide-ranging 
benefits, including helping produce to arrive at markets undamaged and 
in a timely manner, allowing efficient access of public services such 
as ambulances and public transportation, and reducing vehicle operation 
and maintenance costs.
    Subject to modifications based on findings of the feasibility 
study, the NTH can be described by road segments, as follows:

------------------------------------------------------------------------
                                                                 Length
                       Segments of NTH                            (km)
------------------------------------------------------------------------
La Virgen (El Salvador--Guatemala border)--Nueva Concepcion..       56.3
Chalatenango--Nuevo Eden de San Juan.........................       99.3
Nuevo Eden de San Juan--Oscicala.............................       62.9
Oscicala--Concepci[oacute]n de Oriente (El Salvador--Honduras       72.4
 border).....................................................
                                                              ----------
    Total....................................................      290.8
------------------------------------------------------------------------

    Specifically, MCC Funding will support the following:
    (i) Design; environmental assessment, as needed (to include, if 
necessary, supplemental EIAs, EMPs, and RAPs); and construction 
activities for the opening, improvement, or rehabilitation of 
approximately 290 km of the NTH;
    (ii) Implementation of environmental and social mitigation measures 
as identified in the EIA, or as otherwise may be appropriate, to 
include compensation for physical and economic displacement of 
individuals, residences and businesses affected by such rehabilitation 
and construction, consistent with the World Bank's Operational Policy 
on Involuntary Resettlement (OP 4.12), and implementation of HIV/AIDS 
awareness plans satisfactory to MCC;
    (iii) Design and construction of drainage structures, as may be 
required;
    (iv) Design and construction of all necessary new bridges and 
rehabilitation of existing bridge structures, as may be required;
    (v) Posting of signage and incorporating other safety improvements;
    (vi) Project management, supervision and auditing of such 
improvements and upgrades; and
    (vii) Training in environmental management.

[[Page 76478]]

(b) Project Activity: Strategic Network of Connecting Roads (the 
``Connecting Roads Activity'')
    Under current conditions, many rural roads in the Northern Zone are 
virtually impassable without a four-wheel drive vehicle. In addition, 
considering the high rainfall and flooding levels common in the region, 
these roads are not only inefficient, but also dangerous.
    By improving approximately 240 km of primarily dirt roads to 
modified tertiary road status, the Connecting Roads Activity will 
connect vast rural areas of the Northern Zone with the NTH and with the 
existing paved road network. The improvement of connecting roads will 
improve transportation linkage and reduce transportation costs and 
time. Northern Zone residents will have mobility within their hometowns 
and will have access to territories beyond their usual boundaries.
    Subject to modifications based on findings of the feasibility 
study, NCR can be described by road segments, as follows:

------------------------------------------------------------------------
                                                                 Length
                        Road segments                             (km)
------------------------------------------------------------------------
VT1: San Jos[eacute] Cancasque--Potonico--Cerr[oacute]n            23.04
 Grande--Jutiapa--Tejutepeque y Ramal........................
VT4: Ilobasco--Presa 5 de Noviembre..........................       32.4
VT8: S. Miguel de Mercedes--S. Antonio Los Ranchos--Potonico.      14.93
VT16: Nombre de Jes[uacute]s--Arcatao........................      16.87
VT5: Masahuat--Santa Rosa Guachipil[iacute]n.................      12.25
VT6: Nueva Concepci[oacute]n--Texistepeque...................      27.29
VT7: San Fernando--Dulce Nombre de Mar[iacute]a..............         31
VT11: San Francisco Moraz[aacute]n--Tejutla--El                    15.03
 Para[iacute]so..............................................
VT2: Sesori--Et. SAM31E (Nuevo Ed[eacute]n de San Juan)......       15.3
VT3: Anamor[oacute]s--Lislique...............................        8.5
VT13: Perqu[iacute]n--Paso del Mono..........................      13.17
VT15: CA:7--Arambala--Joateca................................       17.8
VT17: SAM33, Cant[oacute]n El Carrizal--San Antonio..........       7.15
VT18: MOR13W, San Sim[oacute]n--San Isidro...................       3.65
                                                              ----------
    Total....................................................     238.38
------------------------------------------------------------------------

    Specifically, MCC Funding will support the following:
    (i) Design; environmental assessment, as needed (to include, if 
necessary, supplemental EIAs, EMPs, and RAPs); and construction 
activities for the improvement of approximately 240 km of the NCR;
    (ii) Implementation of environmental and social mitigation measures 
as identified in the EIA, or as otherwise may be appropriate, to 
include compensation for physical and economic displacement of 
individuals, residences and businesses affected by such rehabilitation 
and construction, consistent with the World Bank's Operational Policy 
on Involuntary Resettlement (OP 4.12), and implementation of HIV/AIDS 
awareness plans satisfactory to MCC;
    (iii) Design and construction of drainage structures, as may be 
required;
    (iv) Design and construction of all necessary new bridges and 
rehabilitation of existing bridge structures, as may be required;
    (v) Posting of signage and incorporating other safety improvements;
    (vi) Project management, supervision and auditing of such 
improvements and upgrades; and
    (vii) Training in environmental management.

3. Beneficiaries

    The direct and immediate beneficiaries of the Connectivity Project 
will be the inhabitants of the Northern Zone, which covers an area of 
7,500 square kilometers, over one-third of the national territory. 
Approximately 600,000 inhabitants of the Northern Zone are estimated to 
benefit, 52 percent of which are women. In addition, Salvadorans beyond 
the Northern Zone's boundaries will benefit from the integration of the 
Northern Zone and its people into a sustainable development process for 
El Salvador and the Central American region. The improvements to the 
road network in the Northern Zone will contribute to improving life in 
six departments of the country.

4. Donor Coordination; Role of Civil Society

    The Connectivity Project forms an integral part of an international 
effort to improve the road network of El Salvador. The total estimated 
cost of planned improvements to the network is approximately $331 
million. The Government has petitioned the multilateral development 
banks and bilateral donor community for cooperation in this effort. 
IADB and the European Union are expected to provide substantial 
assistance to complement the activities of the Government and the 
activities funded by MCC. The World Bank is providing advisory and 
financial assistance to complete the SEA related to the Program, the 
first of its kind led by MARN.
    In developing the Connectivity Project, MCC held coordination 
meetings with many in the donor community. MCC provided information on 
the proposed projects and gathered important information regarding the 
relationship between the Government and the donor organizations, as 
well as the planned donor activity. The interventions financed by other 
entities do not conflict with the Connectivity Project. Rather, they 
contribute to create a more comprehensive road network, by 
incorporating roads that connect to the NTH or roads of the NCR to 
smaller towns.
    The consultations conducted by CND revealed broad interest in 
addressing the Northern Zone's isolation and limited connectivity. 
Diverse segments of Salvadoran population and institutions agree on the 
importance of the Connectivity Project in integrating the Northern Zone 
and fostering regional and national development.
    Civil society will play a vital role in the overall success and 
sustainability of the Connectivity Project. Primarily as independent 
agents, NGOs, community organizations, and local environmental units 
are expected to aid in the informal monitoring of construction 
activities and post-construction activity along the NTH and the NCR. 
Ongoing public consultation by the Ministry of Public Works (``MOP'') 
and MARN will provide the avenue for public discourse and consultation 
regarding the design,

[[Page 76479]]

environmental assessment, and implementation of Project Activities 
throughout the Compact Term.

5. U.S. Agency for International Development

    USAID currently does not focus specifically on road network 
interventions in El Salvador. However, FOMILENIO will continue to 
dialogue with USAID to identify potential opportunities for 
coordination with respect to the Connectivity Project. MCC has 
consulted with USAID throughout the due diligence process on HIV/AIDS-
related concerns. USAID does fund several regional HIV/AIDS prevention 
initiatives that have offices and activities in El Salvador. These 
include Proyecto AccionSIDA de Centroamerica and the Pan American 
Social Marketing Organization. With increased access in the Northern 
Zone due to these Project Activities and the inevitable influx of 
construction workers to the Northern Zone, these programs may provide 
essential services to the communities of the Northern Zone in 
conjunction with the activities of the Connectivity Project.

6. Sustainability

    MOP is the principal institution responsible for the effective and 
sustainable management of the road network in El Salvador. As such, MOP 
plays a central role in coordinating and regulating the activities of 
Fondo de Conservaci[oacute]n Vial (``FOVIAL''), an autonomous entity 
established in 2000 by the Government. FOVIAL will conduct periodic and 
routine maintenance on the roads constructed under the Connectivity 
Project.
    FOVIAL is funded by a mandated surcharge of 20 cents per gallon of 
fuel sold. An extensive campaign, which includes distribution of 
brochures, newspapers inserts, television and radio announcements, is 
continuously conducted to explain to Salvadorans the use and benefits 
of this fuel surcharge.
    The environmental and social sustainability of the Connectivity 
Project will be assured through ongoing consultations with the public 
regarding the manner in which the Connectivity Project is being 
implemented. In addition, the SEA conducted for the Northern Zone will 
include an assessment of the Project Activities within the Connectivity 
Project. Throughout the Compact Term, the Government will ensure, 
directly or through FOMILENIO (or other Permitted Designee), that 
environmental and social mitigation measures are developed and 
implemented for the Project in accordance with the provisions of this 
Compact and any relevant Supplemental Agreements. FOMILENIO will 
monitor the implementation of the mitigation measures, as necessary, 
during implementation. In connection with Connectivity Project 
procurements, FOMILENIO will ensure that environmental and social 
assessment responsibilities are included in the bidding documents for 
the design or supervisory firms, the construction firms, the 
independent technical auditing firms and any project management 
advisors. Any MCC Disbursements for construction related to the 
Connectivity Project will be contingent upon completion of the EIA, 
EMPs, any required RAPs and HIV/AIDS awareness plans and issuance of 
environmental permits, as needed, or any Government statutory 
requirements, satisfactory to MCC. The sustainability of the 
Connectivity Project will be enhanced by institutional capacity 
building and training on environmental management.

7. Policy; Legal and Regulatory Reform; Government Actions

    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 Connectivity Project, 
the satisfactory implementation of which will be conditions precedent 
to certain MCC Disbursements as provided in the Disbursement Agreement:
    (a) The Government shall ensure that MOP prepares and implements a 
staffing and equipment plan, acceptable to MCC, to enhance MOP's 
capabilities for managing the Connectivity Project. To the extent not 
covered by MCC Funding allocated for such purpose in the Financial 
Plan, the Government shall provide the resources necessary for MOP to 
implement the staffing and equipment plan as further specified in the 
Disbursement Agreement.
    (b) By the time specified in the Disbursement Agreement, the 
Government shall ensure that MOP creates and fills at least three 
additional permanent staff positions in MOP's environmental management 
sub-unit as described in the staffing plan described in paragraph (a) 
above. The environmental management sub-unit shall serve as the MOP 
representative concerning environmental aspects of the Connectivity 
Project and other environmental management activities of MOP. The 
Government shall provide appropriate resources to MOP for such 
permanent staff positions.
    (c) By the time specified in the Disbursement Agreement, the 
Government shall prepare, and shall submit to MCC, a detailed 
maintenance plan acceptable to MCC for all roads included in the 
Connectivity Project. Such maintenance plan shall set forth, with 
respect to all roads included in the Connectivity Project, the schedule 
of and the budget requirements for both routine and periodic 
maintenance of all such roads during the Compact Term and thereafter 
for the life of such roads. All such maintenance shall be undertaken as 
part of FOVIAL's general maintenance program for the national road 
network. The Government shall provide adequate funding for all such 
maintenance of the roads included in the Connectivity Project during 
the Compact Term; thereafter, the Government expects to provide 
adequate funding for all such maintenance of the roads included in the 
Connectivity Project for the remaining life of such roads.
    (d) By the time specified in the Disbursement Agreement, the 
Government shall ensure that an implementation plan acceptable to MCC 
for sustainable border control measures at all new border crossings is 
prepared in coordination with the Bureau for International Narcotics 
and Law Enforcement Affairs, the Department of Homeland Security and 
the Drug Enforcement Agency at the U.S. Embassy.
    (e) The Government shall ensure that MOP updates its bridge 
management system for the monitoring and maintenance tracking of all 
bridge structures included in the national road network. By the time 
specified in the Disbursement Agreement, MOP shall provide a bridge 
replacement or rehabilitation plan acceptable to MCC for the existing 
bridges of the Northern Zone road network that are outside of the NTH 
and NCR and are identified as unsafe. The Government shall provide 
adequate funding for completion of construction activities to replace 
or rehabilitate the unsafe bridges identified in such plan by the end 
of the fourth year of this Compact.
    (f) The Government shall conduct, at its own expense, an EIA, a 
feasibility study, and partial design activities, to include the 
development of EMPs, any required RAPs, and HIV/AIDS awareness plans to 
be implemented under the Connectivity Project, each to the satisfaction 
of MCC. The EIA, which is part of the feasibility and design study, 
will determine the environmental, social, and gender impacts; 
cumulative and induced impacts; and existence of economic and physical 
displacement, if any. Further, to the extent possible, the EIA and

[[Page 76480]]

design activities will be consistent with the outcomes of the SEA. Any 
required RAPs will be developed and implemented in compliance with the 
World Bank's Operational Policy on Involuntary Resettlement (OP 4.12).
    (g) The Government shall provide assurance that all new bridge 
projects resulting from the feasibility study and final design of the 
NTH and the NCR will receive adequate funding for completion if the 
resulting costs exceed the total amount allocated in this Compact for 
the Connectivity Project.
    (h) The Government shall ensure that property rights in the 
Northern Zone will be strengthened by the formal registration of land 
rights and the modernization of the property registry and cadastre in 
areas adjacent to the corridor of the roads improved under the 
Connectivity Project. The Government shall ensure that land title 
issues are addressed to the satisfaction of MCC during the Compact 
Term.
    (i) The Government shall ensure that the MARN Program Requirements 
are satisfied as and when specified in Section 6 of Annex I.

Annex II--Summary of Multi-Year Financial Plan

    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. Unless otherwise 
expressly stated, each Section reference herein is to the relevant 
Section of the main body of 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, FOMILENIO will adopt, subject to MCC 
approval, a Multi-Year Financial Plan that includes, in addition to the 
multi-year summary of estimated MCC Funding and the Government's 
contribution of funds and resources, an estimated draw-down rate for 
the first year of the Compact Term based on the achievement of 
performance milestones, as appropriate, and the satisfaction or waiver 
of conditions precedent. Each year, at least thirty (30) days prior to 
the anniversary of Entry into Force, the Parties shall mutually agree 
in writing to a Detailed Budget for the upcoming year of the Program, 
which shall include a more detailed budget 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 Multi-Year Financial Plan and each Detailed Budget shall be 
implemented by FOMILENIO, consistent with the approval and oversight 
rights of MCC and the Government as provided in this Compact, the 
Governing Documents and the Disbursement Agreement.

3. MCC Contribution

    The Multi-Year Financial Plan Summary identifies the estimated 
annual contribution of MCC Funding for Program administration, M&E and 
each Project.

4. Modifications

    The Parties recognize that the anticipated distribution of MCC 
Funding between and among the various activities for Program 
administration, M&E, the Projects and the 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, as 
provided in Section 4(a)(iv) of Annex I, the Parties may, upon 
agreement of the Parties in writing and without amending this Compact, 
change the designations and allocations of funds among the Projects, 
the Project Activities, or any activity under Program administration or 
M&E, or between a Project identified as of Entry into Force and a new 
project; provided, however, that such reallocation (a) is consistent 
with the Objectives and the Implementation Documents, (b) shall not 
materially adversely impact the applicable Project, Project Activity 
(or any component thereof), or any activity under Program 
administration or M&E as specified in this Annex II, (c) shall not 
cause the amount of MCC Funding to exceed the aggregate amount 
specified in Section 2.1(a) of this Compact, and (d) shall not cause 
the Government's obligations or 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.

5. Conditions Precedent; Sequencing

    MCC Funding will be disbursed in tranches. The obligation of MCC to 
approve MCC Disbursements for the Program is subject to satisfactory 
progress in achieving the Objectives and to the fulfillment or waiver 
of any conditions precedent specified in the Disbursement Agreement for 
the relevant activity under the Program. The sequencing of Project 
Activities or sub-activities and other aspects of how the Parties 
intend the Program to be implemented will be set forth in the 
Implementation Documents, including the Work Plan for the Program (and 
each component thereof), and MCC Disbursements and Re-Disbursements 
will be made consistent with such sequencing.

6. Government Contribution

    During the Compact Term, the Government shall make an appropriate 
contribution, relative to its national budget and taking into account 
prevailing economic conditions, toward meeting the Objectives of this 
Compact. Such contribution shall be in addition to the Government's 
spending allocated toward such Objectives in its budget for the year 
immediately preceding the establishment of this Compact. The Government 
has developed the Northern Zone Investment Plan, which includes 
anticipated contributions from the Government's national budget, as 
well as MCC Funding and other international contributions. According to 
the Northern Zone Investment Plan, the Government anticipates making 
contributions from its national budget of approximately US$ 327 million 
over the Compact Term, including: (i) Approximately US$ 100 million 
toward the Human Development Objective; (ii) approximately US$ 180 
million toward the Productive Development Objective; and (iii) US$ 46 
million toward the Connectivity Objective. The Government's 
contribution remains subject to any legal requirements in El Salvador 
for the budgeting and appropriation of such contribution, including 
approval of the Government's annual budget by the Asamblea Legislativa. 
The Government's contribution may include in-kind and financial 
contributions (including obligations of the Government on any debt 
incurred toward meeting the Objectives) that the Government shall make 
in the satisfaction of the Government Responsibilities. The Parties may 
set forth in appropriate Supplemental Agreements certain requirements 
regarding the Government's contribution, which requirements may be 
conditions precedent to MCC Disbursements.

[[Page 76481]]



                                  Exhibit A.--Multi-Year Financial Plan Summary
                                                 [Millions US$]
----------------------------------------------------------------------------------------------------------------
                   Component                      Year 1     Year 2     Year 3     Year 4     Year 5     Total
----------------------------------------------------------------------------------------------------------------
1. Human Development Project..................
    A. Education and Training Activity........      $2.91      $9.53      $7.15      $4.24      $3.88     $27.71
    B. Community Development Activity.........       2.71      13.65      16.89      16.78      17.34      67.37
                                               -----------------------------------------------------------------
        Sub-Total.............................       5.62      23.18      24.04      21.02      21.22      95.07
----------------------------------------------------------------------------------------------------------------
2. Productive Development Project.............
    A. Production and Business Services              9.53      11.94      12.04      13.63       9.77      56.92
     Activity.................................
    B. Investment Support Activity............  .........       4.20       7.35       7.35       2.10      21.00
    C. Financial Services Activity............       4.02       2.14       1.36       1.02       1.00       9.54
                                               -----------------------------------------------------------------
        Sub-Total.............................      13.55      18.28      20.76      22.01      12.87      87.47
----------------------------------------------------------------------------------------------------------------
3. Connectivity Project.......................
    A. Northern Transnational Highway Activity      15.09      52.88      57.85      11.93       2.21     139.95
    B. Connecting Roads Activity..............       1.36      29.91      53.73       6.87       1.74      93.61
                                               -----------------------------------------------------------------
        Sub-Total.............................      16.44      82.79     111.58      18.80       3.95     233.56
----------------------------------------------------------------------------------------------------------------
4. Accountability.............................
    A. Monitoring and Evaluation..............       1.61       1.38       1.30       2.12       3.47       9.88
    B. Audit..................................       0.45       1.51       1.89       0.77       0.50       5.11
    C. Fiscal and Procurement Oversight.......       0.79       2.77       3.48       1.38       0.85       9.27
                                               -----------------------------------------------------------------
        Sub-Total.............................       2.85       5.65       6.67       4.27       4.82      24.26
----------------------------------------------------------------------------------------------------------------
5. Program Administration.....................       4.35       4.07       4.18       4.03       3.95      20.59
                                               -----------------------------------------------------------------
            Total Estimated Amount of MCC           42.82     133.97     167.22      70.12      46.81     460.94
             Funding..........................
----------------------------------------------------------------------------------------------------------------

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. Except as 
defined in this M&E Annex, each capitalized term in this M&E Annex 
shall have the same meaning given such term elsewhere in this Compact.

1. Overview

    MCC and the Government (or a mutually acceptable Government 
Affiliate or Permitted Designee) shall formulate, agree to and the 
Government shall implement, or cause to be implemented, an M&E Plan 
that specifies (a) how progress toward the Compact Goal, Objectives, 
and the intermediate results of each Project and Project Activity set 
forth in this M&E Annex (the ``Outcomes'') will be monitored (the 
``Monitoring Component''); (b) a methodology, process and timeline for 
the evaluation of planned, ongoing, or completed Projects and Project 
Activities to determine their efficiency, effectiveness, impact and 
sustainability (the ``Evaluation Component''); and (c) 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 FOMILENIO Web site and elsewhere.

2. Monitoring Component

    To monitor progress toward the achievement of the Compact Goal, 
Objectives, and Outcomes, 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 FOMILENIO, 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 each 
result will be achieved (each, a ``Target''). In addition to the 
targets contained in this Annex, annual and quarterly targets will be 
included in the M&E Plan, as appropriate. The M&E Plan will measure and 
report on Indicators at four levels. First, the Indicators for the 
Compact Goal (each, a ``Goal Indicator'') will measure the impact of 
the overall Program and each Project. Second, the Indicators for each 
Objective (each, an ``Objective Indicator'') will measure the final 
results of the Projects to monitor their success in meeting each of the 
Objectives, including results for the intended beneficiaries identified 
in accordance with Annex I (collectively, the ``Beneficiaries''). 
Third, intermediate Indicators (each, an ``Outcome Indicator'') will 
measure the intermediate results achieved under each of the Project 
Activities to provide an early measure of the likely impact of the 
Project Activities. A fourth level of Indicators (each, an ``Output 
Indicator'') will be included in the M&E Plan to measure the direct 
outputs of the Project Activities. All Indicators will be disaggregated 
by gender, income level and age, to the extent practicable. Subject to 
prior written approval from MCC, FOMILENIO may add Indicators or refine 
the Targets of existing Indicators.

[[Page 76482]]



             Goal Indicators and Definitions for the Program
------------------------------------------------------------------------
            Goal Indicators
------------------------------------------------------------------------
Poverty rate in the Northern Zone......  Percentage of residents of the
                                          Northern Zone whose income
                                          falls below the poverty line
                                          as calculated by the General
                                          Directorate for Statistics and
                                          Census (``DIGESTYC'').
Annual per capita income of Program      Average annual per capita
 beneficiaries in the Northern Zone.      income of Program
                                          beneficiaries in the Northern
                                          Zone.
Gross domestic product (GDP) of the      A special study shall be
 Northern Zone.                           contracted by FOMILENIO to
                                          develop a methodology to
                                          calculate GDP for the Northern
                                          Zone.
------------------------------------------------------------------------


           Compact Goal Baselines and Targets for the Program
------------------------------------------------------------------------
      Goal Indicators \1\           2004         Year 5        Year 10
------------------------------------------------------------------------
Poverty rate in the Northern
 Zone.
    With the Program..........  53%           41%           34%
    Without the Program.......  53%           52%           51%
Annual per capita income of
 Program beneficiaries in the
 Northern Zone \2\.
    With the Program..........  $720          $884 \3\      $978 \4\
    Without the Program.......  $720          $736          $748
Gross domestic product of the   TBD \5\       TBD           TBD
 Northern Zone.
------------------------------------------------------------------------
\1\ The targets for the Goal Indicators may be revised during
  implementation after more data is collected on poverty and income in
  the Northern Zone.
\2\ The targets is in constant 2004 prices. The deflator will be the
  Consumer Price Index as calculated by DIGESTYC.
\3\ This is a 20% increase in income with the Program compared to the
  ``without the Program'' scenario.
\4\ This is a 30% increase in income with the Program compared to the
  ``without the Program'' scenario.
\5\ The baseline and targets for this Goal Indicator will be determined
  after the special study to develop a methodology for calculating the
  Goal Indicator is conducted and the methodology has been approved by
  MCC.


 Human Development Project Indicators and Definitions Project Activity:
                         Education and Training
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Goal Indicators:
    Incremental income of graduates    Percentage of increase in yearly
     of the Chalatenango Center.        income earned by graduates of
                                        the Chalatenango Center compared
                                        to graduates of 12th grade.
    Incremental income of graduates    Percentage of increase in yearly
     of middle technical schools.       income earned by graduates of
                                        middle technical schools
                                        compared to graduates of 9th
                                        grade.
Objective Indicators:
    Employment rate of graduates of    Percentage of graduates of the
     the Chalatenango Center.           Chalatenango Center (functioning
                                        as a MEGATEC institute) employed
                                        in field of study one year after
                                        graduation.
    Employment rate of graduates of    Percentage of graduates of middle
     middle technical schools.          technical schools remodeled by
                                        the Project Activity employed in
                                        field of study one year after
                                        graduation.
Outcome Indicators:
    Students of the Chalatenango       Total number of students enrolled
     Center.                            in the Chalatenango Center
                                        (functioning as a MEGATEC
                                        institute).
    Students of middle technical       Total number of students enrolled
     schools.                           in the middle technical schools
                                        included in the Project
                                        Activity.
    Students of non-formal training..  Number of students who
                                        participate in non-formal
                                        training as part of the Project
                                        Activity.
------------------------------------------------------------------------


    Human Development Project Baselines and Targets Project Activity:
                         Education and Training
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Goal Indicators....................  .................  Year 5
Incremental income of graduates of   .................  42%
 the Chalatenango Center.
Incremental income of graduates of   .................  37%
 middle technical schools.
Objective Indicators...............  2005               Year 5
Employment rate of graduates of the  n.a.\6\            70% \7\
 Chalatenango Center.
Employment rate of graduates of      50%                50% \8\
 middle technical schools.
Outcome Indicators.................  2005               Year 5
Students of the Chalatenango Center  0                  1,100
 (not cumulative).
Students of middle technical         6,000 \9\          9,000
 schools (not cumulative).
Students of non-formal training      0                  13,000
 (cumulative).
------------------------------------------------------------------------
\6\ The baseline is not available because the Chalatenango Center does
  not currently function as an institute in the Government's MEGATEC
  Network initiative which was established to expand and strengthen
  secondary technical education and post-secondary education
  (``MEGATEC'').
\7\ The target is to achieve at least the same level of employment as a
  similar program in El Salvador.
\8\ The target is to achieve at least the same level of employment as
  currently achieved by middle technical schools in El Salvador on
  average.
\9\ The baseline is representative of the schools that will be included
  in the Project Activity. After the schools have been selected, the
  baseline will be updated.


 Human Development Project Indicators and Definitions Project Activity:
                          Community Development
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Goal Indicators:

[[Page 76483]]

 
    Increase in income of water and    Percentage increase in income of
     sanitation beneficiaries.          households receiving water and
                                        sanitation investments.
    Increase in income of              Percentage increase in income of
     electrification beneficiaries.     households who received
                                        connections to the electrical
                                        grid.
    Increase in income of community    Increase in income of households
     infrastructure beneficiaries       located close to community
     \10\.                              infrastructure.
Objective Indicators:
    Cost of water....................  Price of water per cubic meter
                                        for beneficiaries that buy water
                                        before the Project Activity.
    Water consumption................  Number of cubic meters of water
                                        per month paid for by project
                                        beneficiaries.
    Time collecting water............  Hours per week spent collecting
                                        water by Project households.
    Reduction in the incidence of      Number of times a year
     water-borne diseases.              beneficiaries are sick with
                                        intestinal parasitism, diarrhea
                                        and infectious gastroenteritis.
    Reduction in days of school or     Reduction of the number of days
     work missed as a result of water-  of school or work missed per
     borne diseases.                    year as a result of intestinal
                                        parasitism, diarrhea or
                                        infectious gastroenteritis per
                                        beneficiary.
    Cost of electricity..............  Price of electricity per kilowatt-
                                        hour for beneficiaries.
    Electricity consumption..........  Number of kilowatt-hours per
                                        month consumed on average by
                                        rural households connected to
                                        the electricity network by the
                                        Project Activity.
------------------------------------------------------------------------
\10\ Community infrastructure refers to the construction of small,
  strategic projects in the Northern Zone such as feeder roads and
  associated drainage systems.


 Human Development Project Indicators and Definitions Project Activity:
                          Community Development
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Time saved accessing education and     Reduction in minutes per working
 health centers.                        day dedicated to accessing
                                        education and health centers by
                                        beneficiaries of the Community
                                        Infrastructure Sub-Activity.
Outcome Indicators:
    Population with water in the       Number of households with access
     Northern Zone.                     to water (within the household,
                                        outside the household, from a
                                        neighbor, from a public faucet,
                                        or from a well) divided by total
                                        number of households in the
                                        Northern Zone.
    Population with basic sanitation   Number of households with access
     in the Northern Zone.              to either private sewage
                                        drainage systems, latrines or
                                        septic tanks divided by total
                                        number of households in the
                                        Northern Zone.
    Population with electricity in     Number of households with a
     the Northern Zone.                 private electricity connection
                                        divided by the total number of
                                        households in the Northern Zone.
    Population benefiting from         Number of beneficiaries from the
     community infrastructure \11\.     Community Infrastructure Sub-
                                        Activity.
------------------------------------------------------------------------
\11\ Community infrastructure refers to the construction of small,
  strategic projects in the Northern Zone such as feeder roads and
  associated drainage systems.


    Human Development Project Baselines and Targets Project Activity:
                          Community Development
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Goal Indicators:                     .................  Year 5 \12\
    Increase in income of water and  .................  10%
     sanitation beneficiaries.
    Increase in income of            .................  15%
     electrification beneficiaries.
    Increase in income of community  .................  5%
     infrastructure beneficiaries.
Objective Indicators:                2004               Year 5 \13\
    Cost of water (US$ per m3)\14\.  $3.00              $0.43 \15\
    Water consumption (m3).........  3.3                18
    Time collecting water (hours     30                 14
     per week per household).
    Reduction in the incidence of    0                  1.5
     water-borne diseases (times
     per year per person).
    Reduction in days of school or   0                  7
     work missed as a result of
     water-borne diseases (days per
     year per person).
    Cost of electricity (per         $2.57              $0.20
     kilowatt-hour)\16\.
    Electricity consumption          3                  50
     (kilowatt-hours per month).
    Time saved accessing education   0                  20
     and health centers (minutes
     per working day per
     beneficiary).
Outcome Indicators:                  2004               Year 5
    Population with water in the     75%                85%
     Northern Zone \17\ (%).
    Population with basic            74%                80%
     sanitation in the Northern
     Zone \18\ (%).
------------------------------------------------------------------------
\12\ These targets correspond to one year after a household has received
  the Project intervention.
\13\ These targets correspond to one year after a household has received
  the Project intervention.
\14\ The target is in constant 2004 prices. The deflator will be the
  Consumer Price Index as calculated by DIGESTYC.
\15\ The target is based on the cost of distribution only.
\16\ The target is in constant 2004 prices. The deflator will be the
  Consumer Price Index as calculated by DIGESTYC.
\17\ The targets for this indicator may be revised after the completion
  of the Population Census in 2007.
\18\ The targets for this indicator may be revised after the completion
  of the Population Census in 2007.


    Human Development Project Baselines and Targets Project Activity:
                          Community Development
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Population with electricity in the   72%                97%
 Northern Zone \19\ (%).
Population benefiting from           0                  131,000
 community infrastructure
 (cumulative people).
------------------------------------------------------------------------
\19\ The targets for this indicator may be revised after the completion
  of the Population Census in 2007.


[[Page 76484]]


        Productive Development Project Indicators and Definitions
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Goal Indicators:
    Increase in income of Productive   Average percentage increase in
     Development beneficiaries.         annual income of project
                                        beneficiaries.
Objective Indicators:
    Economic rate of return (ERR)....  The definition and methodology
                                        for calculating the ERR will be
                                        set forth in the PD Operations
                                        Manual and will be consistent
                                        with MCC's Guidelines for
                                        Economic Analysis.
    Employment created...............  Number of full-time equivalent
                                        jobs created as a result of the
                                        Project.
Outcome Indicators:
    Investment in productive chains    Spending of MCC Funding and
     by selected beneficiaries.         counterpart contributions on
                                        inputs, equipment and
                                        infrastructure as laid out in
                                        business plans over the Compact
                                        Term.
------------------------------------------------------------------------


          Productive Development Project Baselines and Targets
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Goal Indicators:                     .................  Year 5
    Increase in income of            .................  15% \20\
     Productive Development
     beneficiaries (%).
    Objective Indicators...........  2006               Year 5
    Economic rate of return (%)      .................  14% \22\
     \21\.
    Employment created (number of    0                  9,000 \23\
     jobs).
Outcome Indicators:                  2004               Year 5
    Investment in productive chains  0                  $80,000 \25\
     by selected beneficiaries
     (Thousands of US$) \24\.
------------------------------------------------------------------------
\20\ The target is based on the productive sectors that will increase
  income within the 5 years of the Compact Term. By year 10 the annual
  increase in income is expected to be 50% based on the productive
  sectors that will increase income by year 10.
\21\ The economic rate of return will be monitored annually.
\22\ The target, which is based on the sectors included in the pre-
  Compact economic analysis, is the same for every year.
\23\ The target is based on the sectors that were included in the pre-
  Compact economic analysis.
\24\ The target is in constant 2004 prices. The deflator will be the
  Consumer Price Index as calculated by DIGESTYC.
\25\ The target is based on the sectors that were included in the pre-
  Compact economic analysis.


             Connectivity Project Indicators and Definitions
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Goal Indicators:
    Increase in income of households   Increase in income of households
     near the Northern Transnational    within 2 km of the Northern
     Highway.                           Transnational Highway
    Increase in income of households   Increase in income of households
     near the Network of Connecting     within 2 km of the Network of
     Roads.                             Connecting Roads
    Land prices along the Northern     Average price of land 2 km on
     Transnational Highway.             either side of the Northern
                                        Transnational Highway (weighted
                                        average of all road sections to
                                        be opened or improved)
    Land prices along the Network of   Average price of land 2 km on
     Connecting Roads.                  either side of the Network of
                                        Connecting Roads (average of all
                                        road sections to be improved)
Objective Indicators:
    Travel time from Guatemala to      Number of hours required to
     Honduras through the Northern      travel from Guatemala to
     Zone.                              Honduras through the Northern
                                        Zone
    Vehicle operating costs on the     Cost per vehicle (pick-up truck)
     Northern Transnational Highway.    per km of combustibles,
                                        lubricants, tires, depreciation,
                                        maintenance and repair for
                                        travel on the Northern
                                        Transnational Highway
    Vehicle operating costs on the     Cost per vehicle (pick-up truck)
     Network of Connecting Roads.       per km of combustibles,
                                        lubricants, tires, depreciation,
                                        maintenance and repair for
                                        travel in the Network of
                                        Connecting Roads from baseline
    Annual average daily traffic on    Average number of vehicles that
     the Northern Transnational         transit the Northern
     Highway.                           Transnational Highway daily
    Annual average daily traffic on    Average number of vehicles that
     the Network of Connecting Roads.   transit the Network of
                                        Connecting Roads daily
Outcome Indicators:
    Average International road         Weighted average IRI of the
     Roughness Index (IRI) of the       entire Northern Transnational
     Northern Transnational Highway.    Highway
    Average IRI of the Network of      Weighted average IRI of the
     Connecting Roads.                  Network of Connecting Roads
------------------------------------------------------------------------


               Connectivity Project Baselines and Targets
------------------------------------------------------------------------
            Goal Indicators                 2006           Year 5
------------------------------------------------------------------------
Increase in income of households near    .........  6%
 the Northern Transnational Highway.
Increase in income of households near    .........  5%
 the Network of Connecting Roads.
Land prices along the Northern               $3.22  $3.40 \28\
 Transnational Highway (US$ per m\2\)         \27\
 \26\.
Land prices along the Network of             $1.86  $1.95 \31\
 Connecting Roads (US$ per m\2\) \29\.        \30\
------------------------------------------------------------------------
\26\ The target is in constant 2006 prices. The deflator will be the
  Consumer Price Index as calculated by DIGESTYC.
\27\ The baseline is from 2006. The baseline will be confirmed by the
  feasibility study. The target may be revised if there is a revision to
  the baseline.
\28\ The target is based on a conservative increase in land prices that
  was included in the pre-Compact economic analysis. The projected
  increase in price varies by type of road intervention and the target
  is a weighted average of all road segments.
\29\ The target is in constant 2006 prices. The deflator will be the
  Consumer Price Index as calculated by DIGESTYC.
\30\ The baseline is from 2006. The baseline will be confirmed by the
  feasibility study. The target may be revised if there is a revision to
  the baseline.

[[Page 76485]]

 
\31\ The target is based on a conservative increase in land prices that
  was included in the pre-Compact economic analysis. The projected
  increase in price varies by type of road intervention and the target
  is a weighted average of all road segments.


                Connectivity Project Baselines and Targets
------------------------------------------------------------------------
      Objective indicators               2006               Year 5
------------------------------------------------------------------------
Travel time from Guatemala to     17 hours..........  8 hours 30 minutes
 Honduras through the Northern
 Zone (hours).
Vehicle operating costs on the    $0.38.............  $0.28
 Northern Transnational Highway
 (US$ per pick-up truck per
 km)\32\.
Vehicle operating costs on the    $0.42.............  $0.24
 Network of Connecting Roads
 (US$ per pick-up truck per km)
 \33\.
Annual average daily traffic on   379...............  436
 the Northern Transnational
 Highway (vehicles per day).
Annual average daily traffic on   204...............  226
 the Network of Connecting Roads
 (vehicles per day).
Outcome Indicators..............  2006..............  Year 5
Average International road        10.2..............  2.7
 Roughness Index (IRI) of the
 Northern Transnational Highway
 (m/km).
Average IRI of the Network of     12.1..............  2.7
 Connecting Roads (m/km).
------------------------------------------------------------------------
\32\ The target is in constant 2006 prices. The deflator will be the
  Consumer Price Index as calculated by DIGESTYC.
\33\ The target is in constant 2006 prices. The deflator will be the
  Consumer Price Index as calculated by DIGESTYC.

    (b) Data Collection and Reporting. DIGESTYC shall provide 
monitoring information to FOMILENIO from the annual Household Survey 
for Multiple Purposes (Encuesta de Hogares de Propositos Multiples, 
``EHPM''). MCC Funding will increase the number of households included 
in the EHPM sample in the Northern Zone; provided, however, that the 
Government shall ensure that DIGESTYC continues to include the 
necessary number of households in the EHPM sample for the Northern Zone 
as required in the M&E Plan. The M&E Plan shall establish guidelines 
for additional data collection and a reporting framework, including a 
schedule of Program reporting and responsible parties.
    The Management shall conduct regular assessments of program 
performance to inform FOMILENIO and 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 FOMILENIO, FOMILENIO shall promptly deliver such 
reports to MCC along with any other related documents, as specified in 
the M&E Plan or as may be requested from time to time by MCC.
    (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 FOMILENIO 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 
of the M&E Plan shall contain a methodology, process and timeline for 
collecting and analyzing data in order to assess planned, ongoing, or 
completed Project Activities to determine their efficiency, 
effectiveness, impact and sustainability. The evaluations should use 
state-of-the-art methods for addressing selection bias. The Government 
shall implement, or cause to be implemented, surveys to collect 
longitudinal data on both Beneficiary and non-Beneficiary households. 
The Evaluation Component shall contain two types of reports, Final 
Evaluations and Ad Hoc Evaluations, and shall be finalized before any 
MCC Disbursement or Re-Disbursement for specific Program activities or 
Project Activities.
    (a) Final Evaluation. FOMILENIO, in connection with MCC's request 
to the Government pursuant to Section 3(h) of Annex I, shall engage an 
independent evaluator to conduct an evaluation at the expiration or 
termination of the Compact Term (``Final Evaluation''). The Final 
Evaluation must at a minimum (i) evaluate the efficiency and 
effectiveness of the Program; (ii) estimate, quantitatively and in a 
statistically valid way, the causal relationship between the Compact 
Goal (to the extent possible), the Objectives and Outcomes; (iii) 
determine if, and analyze the reasons why, the Compact Goal, Objectives 
and Outcomes were or were not achieved; (iv) identify positive and 
negative unintended results of the Program; (v) provide lessons learned 
that may be applied to similar projects; (vi) assess the likelihood 
that results will be sustained over time; and (vii) any other guidance 
and direction that will be provided in the M&E Plan. To the extent 
engaged by FOMILENIO, such independent evaluator shall enter into an 
Auditor/Reviewer Agreement with FOMILENIO in accordance with Annex I.
    (b) Ad Hoc Evaluations. Either MCC or FOMILENIO 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 (each, an ``Ad Hoc Evaluation''). If FOMILENIO engages an 
evaluator for an Ad Hoc Evaluation, the evaluator will be an externally 
contracted independent source selected by FOMILENIO, 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. If FOMILENIO 
requires an ad hoc 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 seeking funding from other donors, no MCC Funding or 
FOMILENIO resources may be applied to such evaluation or

[[Page 76486]]

special study without MCC's prior written approval.

4. Other Components of the M&E Plan

    In addition to the Monitoring Component and the Evaluation 
Component, the M&E Plan shall include the following components for the 
Program, Projects and Project Activities, 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.
    (b) Assumptions and Risks. Any assumptions and risks external to 
the Program that underlie the accomplishment of the Compact Goal, 
Objectives, and Outcomes; provided, however, such assumptions and risks 
shall not excuse performance of the Parties, unless otherwise expressly 
agreed to in writing by the Parties.

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 Governing Documents, and any 
relevant Supplemental Agreement.
    (b) Advisory Council. The completed portions of the M&E Plan will 
be presented to the Advisory Council at the Advisory Council's initial 
meetings, and any amendments or modifications thereto or any additional 
components of the M&E Plan will be presented to the Advisory Council at 
appropriate subsequent meetings of the Advisory Council. The Advisory 
Council will have opportunity to present its suggestions to the M&E 
Plan, which the Board shall take into consideration in its review of 
any amendments to the M&E Plan during the Compact Term.
    (c) MCC Disbursement and Re-Disbursement for a Project Activity. 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.
    (d) Modifications. Notwithstanding anything to the contrary in this 
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, however, that 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. E6-21222 Filed 12-19-06; 8:45 am]
BILLING CODE 9211-03-P