USAID’s Approach to Poverty Reduction
The Case of Honduras
EVALUATION BRIEF NUMBER 5
Summary
Honduras, one of the poorest countries in
Latin America, has been focusing on strate￾gies to reconstruct and transform its econ￾omy after the devastating impact of Hurricane
Mitch in 1998. In 2001, the government completed
a Poverty Reduction Strategy Paper (PRSP) in
response to the World Bank and International
Monetary Fund’s heavily indebted poor country
(HIPC) initiative. USAID Honduras has operated a
program of about $31 million annually, excluding
an emergency supplement of $293 million provided
by Congress after Hurricane Mitch. The mission’s
program emphasized, in order of funding impor￾tance, health and education, economic growth and
natural resource management, decentralization and
municipal government, and democratic governance.
Annually, over half of the regular assistance monies
in the portfolio are allocated to the delivery of
health and education services to poor people. 
Two-thirds of the Hurricane Mitch reconstruction
program was allocated to the improvement of key
physical infrastructure.
This assessment examines the USAID Honduras
portfolio through the lens of the Evaluation Studies
Division’s conceptual framework for comparing
USAID’s sustainable development approach with the
poverty reduction paradigm evolving in the World
Bank, IMF, and other development aid agencies.
However, poverty reduction is not USAID’s overar￾ching goal. This assessment asks whether USAID is
nevertheless engaged in poverty reduction program￾ming, and whether it has modified its assistance
strategy to be consistent with the PRSP approach. It
also asks whether USAID Honduras has supported
the PRSP process, and whether the mission can
enhance the poverty reduction impact of its portfo￾lio. The assessment finds that in most respects
■ A high level of donor coordination is
important to poverty reduction efforts.
It can promote structural change,
facilitate policy reform, and improve
the quality of debate on such issues.
■ Without institutional and policy
reform, little economic growth can
take place. Though USAID Honduras
has focused on achieving poverty
reduction through economic growth,
the mission’s spending has been heavi￾ly oriented toward social service deliv￾ery. Congressional earmarks con￾tributed to increased allocations for
such activities, while the Agency’s
results management approach fostered
projects with short-term, measurable
results.
■ Selecting and tracking indicators that
directly measure the social and eco￾nomic dimensions of poverty would
help USAID to understand more fully
how its activities contribute to poverty
reduction. Including an “impact on
poverty” section in R4 narratives and
related reports would assist the task.
■ Poverty reduction strategies in Latin
America should give high priority to
strengthening the human capital of
poor households and increasing their
access to infrastructure and assets that
improve their entry to markets and
lower their transaction costs.
KEY IDEAS
MARCH 2003 BUREAU FOR POLICY AND PROGRAM COORDINATION PN-ACR-351
USAID’s focus on broad-based sustainable develop￾ment works effectively as a poverty reduction
approach.
More specifically, the assessment team finds that
■ USAID Honduras is one of the few Agency
management units that comes close to adopt￾ing poverty reduction as its overarching goal.
The mission maintained a strong emphasis on
economic policy reform, though over half of 
its portfolio supports the direct delivery of
social services.
■ USAID’s program is well focused on the poor,
especially in health and education, and incor￾porates many poverty reduction objectives. The
economic growth portfolio includes microen￾terprise initiatives that provide a safety net to
smooth the consumption of the poorest. The
municipal development and decentralization
program focuses on establishing new services 
in poor neighborhoods and supporting grass￾roots community groups. USAID also provides
key support to the country’s nascent civil 
society sector.
■ Honduras needs additional policy and institu￾tional reforms in many areas, particularly in
public sector salary policy, rule of law, and
modernization of the state. However, the mis￾sion’s portfolio is heavily skewed toward deliv￾ery of services, mainly due to congressional 
earmarks and the USAID results management
system. Earmarks make it difficult for program
officers to balance direct and indirect approach￾es to poverty reduction and resolve inconsisten￾cies between funding availability and program
needs. The results management system requires
project managers and program officers to pro￾vide quantifiable measurements of the results of
activities on a six-month or yearly basis. The
system is thus biased against longer-term policy
reform programs.
■ USAID played a key leadership role in the
development of the Honduras PRSP. While
most of the missions analyzed for this series
modified their programs in response to PRSPs,
the Honduras PRSP adopted many of USAID’s
programming goals. USAID played a critical
role in focusing the donor community and civil
society on the PRSP process. Allocating funds
to support the process, USAID further influ￾enced and shaped the PRSP in sectors where it
had a successful track record, notably, in demo￾cratic governance and decentralization, and
health and education. USAID also successfully
promoted the inclusion of economic policy
reform and anticorruption concerns into the
PRSP document.
■ Key to successful USAID involvement in the
PRSP has been the high level of donor coordi￾nation achieved in Honduras. Important fac￾tors were the leadership of individuals in the
U.S. country team and the donor community,
the impact of the special circumstances of hur￾ricane reconstruction on the preparation of the
PRSP, and the willingness of the Honduran
government to engage in a collaborative dia￾logue with donors. 
■ The recent Honduran experience illustrates the
2 Evaluation Brief No. 5
Jonathan Sleeper, Team Leader
PPC, Evaluation Studies Division
Clarence Zuvekas
Management Systems International 
J. Michele Guttmann
Management Systems International
John Thomas
Management Systems International 
PREPARED BY
Honduras needs additional policy and
institutional reforms in many areas,
particularly in public sector salary policy,
rule of law, and modernization of the state.
importance of regarding poverty as a multidi￾mensional concept. While income-based pover￾ty indicators show little improvement since
1990, some social indicators—especially those
for health status and access to potable water
and sanitation facilities—show significant gains.
This improvement in the human capital of
poor Honduran households will enable them to
achieve higher income levels over the long run.
However, successful achievement of sustainable
growth will require major legal, institutional,
and policy reforms.
Background
The World Bank, IMF, UN agencies, most
bilateral donors, and many developing
countries have now made poverty reduction
their overarching development goal. For HIPCs,
debt relief is linked to the development of a nation￾al PRSP. The multilateral development banks
regard the PRSP as the country’s focus document
that each member of the international donor com￾munity is expected to “buy into.” 
Despite international commitments by the U.S.
Government to poverty reduction, USAID’s guid￾ing principle for development assistance remains
sustainable development. Poverty reduction is not
an overarching goal; rather, it is an important and
desirable outcome of sustainable development.
What Is a Poverty Reduction
Approach?
A poverty reduction approach makes the reduction
of poverty the explicit, overarching goal of a devel￾opment agency. Program interventions are designed
around an analysis of who the poor are, where they
live, and what they do for a living. The approach
also examines whether the poor are net buyers or
sellers of food, labor, and services; what economic
and social problems they face; and the risks to
which they are most vulnerable.
There are conceptual differences between USAID’s
sustainable development approach and the new
poverty reduction approach.1 In comparison to a
sustainable development approach, a poverty reduc￾tion approach 
■ has poverty reduction as an overarching goal
■ pays greater attention to the measurement of
the specific poverty reduction impact of various
interventions
■ gives greater priority to health and education
services targeted to the poor 
■ gives mixed priority to economic growth; open￾ness to trade, investment, and information
flows; and agriculture 
■ gives greater attention to the explicit empower￾ment of the poor
■ is strongly concerned with mitigation of risks
faced by the poor (vulnerability) 
■ places greater emphasis on public sector institu￾tions as partners, as opposed to nongovernmen￾tal or private sector organizations
■ places greater emphasis on direct interventions
that target the poor as immediate beneficiaries,
and less on indirect approaches that emphasize
broader economic or policy environments 
■ is concerned with the coherence between
development and nondevelopment policies
pursued by the United States and other OECD
governments
USAID’s Approach to Poverty Reduction: The Case of Honduras 3
Successful achievement of sustainable
growth will require major legal,
institutional, and policy reforms.
1 Lynn Salinger and Dirck Stryker, Comparing and Evaluating Poverty
Reduction Approaches: USAID and the Evolving Poverty Reduction
Paradigm (Cambridge, MA: AIRD/CDIE, 2001) PN-CAN-169.
About This Study
This assessment is one of four country case studies
examining how USAID missions operate in coun￾tries where governments and the donor community
have shifted to the poverty reduction focus. The
purpose is not to evaluate USAID’s performance,
but the extent to which the Agency has an effective
poverty reduction approach—even though poverty
reduction is not its overarching development goal.
The assessment examines USAID’s participation in
the development of the PRSP in Honduras and
whether it modified its approach as a result. This
analysis aims to provide insights into the Agency’s
development strategy in countries that are focused
on poverty reduction.
The assessment asked the following questions:
■ Is USAID pursuing a different program strategy
in a country such as Honduras that is pursuing
a poverty reduction strategy?
■ To what extent is USAID’s approach consistent
with a poverty reduction approach?
■ What is USAID’s relationship to the country’s
PRSP process?
■ How have congressional earmarks affected
budget allocations? Have they helped or con￾strained the implementation of a poverty reduc￾tion approach?
The assessment team comprised a team leader from
the Evaluation Office of USAID’s Bureau for Policy
and Program Coordination, an economist, a public
health specialist, and a democracy expert. The team
conducted interviews with staff of USAID
Honduras and with representatives of the
Government of Honduras, other donor agencies,
and international financial institutions in
Honduras. The team also interviewed contracting
and cooperating partners of USAID and other
knowledgeable individuals. 
Recent Developments in
Honduras2
Economic Growth Trends
Honduras, one of the poorest countries in
the Latin American and Caribbean
region,3 has a long history of slow eco￾nomic growth. Occasional brief spurts of strong
economic performance have usually coincided with
high prices for coffee or bananas. Per capita GDP
declined during the “lost decade” of the 1980s, but
the decline was less than elsewhere in Central
America because of massive inflows of U.S. eco￾nomic and military assistance. This high level of
assistance kept the exchange rate stable and infla￾tion low, but it also allowed Honduras to incur
large fiscal deficits. These proved to be unsustain￾able once U.S. assistance began to fall, as the civil
wars in neighboring countries wound down in the
late 1980s and early 1990s.
In June 1990, Honduras reached an agreement
with its international creditors that allowed it to
clear debt-service arrears of approximately $250
million. As part of this agreement, the government
initiated major economic reform that included a
devaluation of the lempira, eventual adoption of a
controlled float based on an auction system for for￾eign exchange, trade liberalization, the elimination
of most interest-rate and price controls, and the
adoption of a broad agricultural modernization law.
Macroeconomic policy has been fairly good since
then. Annual inflation was reduced from nearly 30
percent in 1995 to about 7 percent in mid-2002.
The exchange rate experienced some real apprecia￾tion, but the Central Bank’s controlled float of the
4 Evaluation Brief No. 5
2 This section draws on Clarence Zuvekas Jr., “The Honduran Poverty
Reduction Strategy,” paper presented at the 23rd Annual Meeting of
the Middle Atlantic Council of Latin American Studies, Newark,
Delaware, 15–16 March 2002.
3 According to the World Bank’s World Development Indicators, in
2000 Honduras had a per capita GDP of $924 <www.worldbank.org/
data/countrydata/countrydata.html>. Within the Latin American and
Caribbean region, only Haiti and Nicaragua had lower figures.
However, Honduras ranks higher within the region on some health
and education indicators, and has achieved close to universal vacci￾nation of children against the major childhood diseases.
nominal exchange rate has been widely
accepted by the business community.
The fiscal deficit has generally been kept
within reasonable bounds. However,
sharp increases in public sector salaries,
especially for teachers and medical pro￾fessionals, remain a matter of concern.
The improved economic policy environ￾ment in the 1990s contributed positively
to economic growth. Prior to Hurricane
Mitch, GDP seemed headed for an aver￾age annual growth rate of about 4.2 per￾cent, or close to 1.5 percent per capita.4
The devastation caused by the 1998 hur￾ricane lowered average growth for the
decade to 3.2 percent, or 0.5 percent per
capita. The GDP growth rate in 2001 is
estimated to have been only 2.6 percent,
reflecting the country’s vulnerability to natural disas￾ters (drought) and unfavorable world economic
trends such as depressed coffee prices and the U.S.
recession. A somewhat lower growth rate was
expected in 2002.
However, it is worth noting that actual GDP
growth in the 1990s was probably somewhat high￾er than the reported figures. This is mainly because
maquila or assembly production— mostly of
apparel—is underestimated in the national
accounts. Value added by the rapidly growing sec￾tor grew from an estimated $10 million in 1990 to
$662 million in 2000. Honduras is now the lead￾ing Central American exporter of apparel to the
United States. 
Political Trends
Like many other Latin American countries,
Honduras has a history of frequent, irregular
changes of government, with the military often
playing a strong role in governmental affairs.
However, the last 20 years constituted a major break
from this pattern. Honduras began its democratiza￾tion process in 1981. Elections have been held every
four years since 1981, and most have been charac￾terized by a relatively high degree of fairness. The
two major political parties have alternated in power.
The political influence of the military has declined
steadily since the mid-1980s. The participation of
women in government has exhibited mixed trends
and remains especially weak in the legislature. In
February 2001, seven women were cabinet ministers
or in cabinet-level positions, but these advances do
not appear to have been sustained.
Civil society organizations in Honduras have been
subject to less repression than in some other
Central American countries. They have been gain￾ing strength, overcoming some past institutional
weaknesses and fragmented efforts. Although few
could be considered strong, civil society organiza￾tions have increased their collective efforts since
Hurricane Mitch and have gained a growing voice
in public policymaking.
Notwithstanding these and other positive steps,
Honduras still suffers from weak judicial and leg￾islative institutions, an inefficient executive branch,
and widespread corruption. The country has begun
to address corruption, in part because of growing
pressures from the international community and
Honduran civil society. Honduras’s ranking by
Transparency International has slowly improved—
USAID’s Approach to Poverty Reduction: The Case of Honduras 5
4 Though a GDP growth rate of 4.2 percent is not especially impres￾sive, this figure exceeded the average for the Latin American and
Caribbean region during the 1990s.
Hurricane Mitch caused an estimated economic loss of $3.8 billion to
Honduras. About two-thirds of $293 million in emergency supplemental funds
allocated to the reconstruction effort was spent on critical social and economic
infrastructure for poor people. Rather than service delivery, the reconstruction
program emphasized economic growth.
rising in 2001 to fifteenth among 18 Latin
American and Caribbean countries and tied for sev￾enty-first out of 91 countries worldwide.5
Trends in Poverty and Income
Inequality
The Honduran PRSP explicitly treats poverty as a
multidimensional concept, reflecting an interna￾tional consensus.6 A broad definition of poverty is
important for policy purposes, as such a definition
makes clear that a focus on economic growth and
rising average incomes does not attack all the root
causes of poverty. Though this focus is essential for
long-run poverty reduction efforts, non-income
dimensions of poverty and income inequality are
also important considerations. 
Still, income-based measures of poverty are an
appropriate starting point. A series of Honduran
poverty indicators, based on multipurpose house￾hold surveys, has been available annually since
1991. At first glance, the figures seem to show a
significant reduction in the incidence of poverty—
from 74.8 percent in 1991 to 64.5 percent in
2001. The actual reduction was probably signifi￾cantly less. First, the high 1991 figure was likely to
have been a temporary spike reflecting the release
of repressed inflation in 1990, when the lempira
was devalued and price controls eliminated or
reduced. Second, the reported rise in real incomes
after 1991 partially reflects improvements in the
measurement of income rather than an actual
increase.7
Extreme poverty—defined as insufficient income to
meet minimum nutritional requirements—report￾edly fell from 54.2 percent in 1991 to 47.4 percent
in 2001. Extreme poverty thus reportedly fell less
than overall poverty, and the actual reduction was
probably minimal. Extreme poverty in rural areas
fell initially, but in 2001 it was slightly higher—
60.5 percent—than the 59.9 percent rate in 1991.
Poverty in Honduras has also been defined in terms
of satisfaction of a set of six basic needs: potable
water, sanitary services, primary education, capacity
of the household to provide sustenance (a combina￾tion of education of the head of household and
employment), housing space (no overcrowding),
and housing quality. When so defined, Honduran
household surveys show greater progress in reduc￾ing the incidence of poverty.
The incidence of unsatisfied basic needs fell from
67 percent of households in 1990 to 48 percent in
1999. The percentage of households with two or
more unsatisfied basic needs fell from 42 to 22 over
the same period. The most progress occurred in
education and the least in the two housing indica￾tors. As with income-based indicators, these needs￾based indicators show poverty to be greater in rural
than in urban areas (58 percent and 37 percent,
respectively, in 1999).
Nutrition indicators provide a mixed picture of
recent trends. One disturbing set of data reports
that the incidence of undernourishment among
first graders, aged six and older, fell from 39.8 per￾cent in 1986 to 34.1 percent in 1990, but increased
to 40.6 percent in 1997.8 However, these data do
not provide a clear indication of whether nutrition￾al status actually deteriorated during the 1990s.
The data are difficult to relate to other poverty
indicators because nutritional status is determined
largely by food consumption and health during the
first few years of life. The data for 1997, the latest
available in this series, thus probably more closely
reflect conditions in the early 1990s.
Another set of data, from the USAID-supported
Demographic and Health Surveys (DHS) carried
out at five-year intervals, provides a more opti￾6 Evaluation Brief No. 5
5 Transparency International, “The 2001 Corruption Perceptions
Index” (Paris, Transparency International, June 27, 2001) <www.
transparency.org/documents/cpi/2001/cpi2001.html>.
6 World Bank, World Development Report 2000/2001: Attacking
Poverty (New York: Oxford University Press, 2001).
7 In making its own estimates of poverty, the World Bank has adjusted
household survey income figures downward to bring their growth in
line with GDP growth in the national accounts. However, to the
extent that GDP growth is understated, the World Bank’s adjustments
go too far.
8 República de Honduras, Estrategia para la reducción de la pobreza
(ERP) (Tegucigalpa, August 2001), 10–11 <www.imf.org/External/
NP/prsp/2001/hnd/01/index.htm>. 
mistic picture of recent trends in nutritional status.
These data show a steady improvement in the inci￾dence of childhood malnutrition—from 43 percent
in 1991 to 38 percent in 1996, and a further
reduction in 2001 to 32 percent.
Income inequality in Honduras is higher than aver￾age for Latin America—which, as a region, has the
greatest income inequality in the world. Estimates
of the Gini coefficient of income concentration
vary, but they are generally well above 0.50, which
is considered high. A slightly declining trend in
inequality was recorded between 1986 and 1996,
though the 1996 figure (0.55) remained very high.9
Given research findings that the difficulty of achiev￾ing poverty reduction increases with greater initial
income inequality,10 high Honduran Gini coeffi￾cients may help explain why modest economic
growth in the 1990s did little to reduce the inci￾dence of income-based poverty.
USAID and the PRSP Process
Honduras was declared eligible for debt relief under
the HIPC initiative after Hurricane Mitch caused
an estimated $3.8 billion in damage to the country’s
economy. In the aftermath, the international donor
community moved aggressively to help the govern￾ment develop a reconstruction program and to pro￾vide a mechanism—known as the G-15 group of
donors—for monitoring its implementation.
The donors established 13 sectoral working
groups—including one on economic growth and
poverty reduction—that began holding periodic
meetings with government and civil society. These
groups began to monitor implementation of the
PRSP once the reconstruction program got under￾way. Donors naturally transferred their attention to
the PRSP, since its policy framework resembled that
of the reconstruction program.
USAID was heavily involved in the PRSP working
groups dealing with macroeconomic policy and
poverty reduction, agriculture and natural
resources, justice, decentralization and municipal
development, education, health, and transparency
and governance. The Agency also financed consult￾ant services to the Ministry of the Presidency,
which directed the preparation of the PRSP.
USAID’s participation in the PRSP was character￾ized as having broadened the strategy’s long-term
vision and development content, including the
recognition that poverty reduction measures should
have priority over poverty alleviation activities.11
When asked whether and to what extent the PRSP
process affected USAID programming decisions,
interviewees consistently indicated that the reverse
occurred: the PRSP adopted many USAID pro￾gramming goals. The effect of the PRSP on USAID
programs was relatively slight because they already
reflected goals and objectives consistent with pover￾ty reduction.
USAID played a critical role, focusing the donor
community and civil society on participating in the
PRSP process. Further, USAID influenced and
shaped the PRSP in sectors such as administration
of justice and municipal development, where the
Agency had a successful track record. USAID also
influenced the incorporation of transparency and
anticorruption objectives and indicators into the
PRSP. The mission’s involvement facilitated public
discussion and debate to a degree that would not
have occurred in the past. 
Many representatives of other donors and
Government of Honduras entities told the evalua￾tion team that the United States played the most
important leadership role among the donors. The
USAID’s Approach to Poverty Reduction: The Case of Honduras 7
9 Quentin T. Wodon, Poverty and Policy in Latin America and the
Caribbean, World Bank Technical Paper No. 467 (Washington, DC:
World Bank, 2000), 39; Samuel Morley, The Income Distribution
Problem in Latin America and the Caribbean (Santiago, Chile: United
Nations Economic Commission for Latin America and the Caribbean,
2001). Data problems and other considerations suggest that actual
inequality may be somewhat lower than the 1996 calculation, but
the general picture of high inequality seems accurate. 
10 World Bank, World Development Report 2000/2001, 55–57 and
123–24; Klaus Deininger and Pedro Olinto Asset Distribution,
Inequality, and Growth, World Bank Working Paper 2375,
<http://econ.worldbank.org/docs/1128.pdf>; Martin Ravallion,
Growth, Inequality and Poverty: Looking Beyond Averages,
Development Research Group, World Bank, November 16, 2001
<www.worldbank.org/research/growth/pdfiles/growth_inequality_pove
rty.pdf>.
11 República de Honduras, Estrategia para la reducción de la pobreza,
55–56.
role of the U.S. ambassador was widely praised, as
was that of several USAID officers. Government
of Honduras officials were particularly impressed
that senior USAID officers took the time and
effort to attend civil society meetings in towns far
from the capital.
The final version of the PRSP was accepted by the
IMF and World Bank in October 2001. However,
as of mid-2002, Honduras had not become eligible
for full HIPC debt relief benefits because it had not
fully implemented its poverty reduction strategy. A
central problem was weak tax administration and
insufficient control over public sector salary increas￾es. Progress has also been slow on structural
reforms, including privatization and modernization
of the state. The change of government in January
2002 temporarily exacerbated these problems.
USAID Honduras’s
Strategic Approach 
Poverty Reduction as an
Overarching Goal
USAID Honduras is one of the very few
missions that come close to having poverty
reduction as an overarching goal.12 The
Honduras program has maintained a strong focus
on poverty reduction since at least 1996. Program
documents—such as the strategic plans of 1996–98
and 1998–2003, and, more recently, the concept
paper for the mission’s 2004–08 strategy—empha￾size broad-based economic growth and poverty
reduction rather than poverty alleviation.
Interviewees representing the donor community,
the Government of Honduras, and the private sec￾tor commented that USAID’s program was focused
on poverty reduction through its policy and institu￾tional reform efforts. 
Beginning in the 1990s, the mission began to
regard investment in the human capital of the poor
as more important for reducing poverty. More
recently, the portfolio added a very strong emphasis
on health activities. This reorientation coincided
with an increase in congressional earmarks for child
survival and disease programs, and a reduction in
funding for economic growth and policy reform
across the Bureau for Latin America and Caribbean
(LAC). While mission documentation still puts
emphasis on economic growth and policy reform,
in reality, the portfolio is now heavily focused on
the direct delivery of social services to poor people. 
Priority of Health and Education
Over half of the USAID portfolio is dedicated to
health and education activities (Table 1). This pro￾portion substantially exceeds the UNDP’s guideline
that 20 percent of donor country programs be allo￾cated to social services. It is therefore not surprising
that USAID is the leader in the health sector.
Health activities are well targeted to poor people,
especially in rural areas. The program focuses on
decentralization and sustainable services, providing
a key intervention package of immunizations, inte￾grated maternal and child health services, pediatric
emergency care, nutrition education, and family
planning. 
The education portfolio is also relatively well tar￾geted to poor people. About a third of poor young
Honduran males are pressured to become income
earners and drop out of school by the sixth grade.
Thus, the major focus of the USAID portfolio is
alternative primary education for illiterate adults
8 Evaluation Brief No. 5
Poverty Alleviation vs. Poverty Reduction
While often used interchangeably, poverty allevia￾tion and poverty reduction are not the same.
Poverty Alleviation Poverty Reduction
Relieves symptoms Attacks root causes
Short-run focus Long-run focus
Transitory effects Permanent effects
Consumption Investment
12 According to keyword analysis of R4s submitted by 101 USAID
management units for FY2001, only 11 use the words “poor” or
“poverty” in the titles of their strategic objectives, intermediate
results, or indicators. Only 14 did so in FY2002.
and youth, using interactive radio instruction. Half
the beneficiaries are women, 80 percent of whom
are mothers. USAID also funds other NGO-sup￾ported activities in vocational education. 
Priority of Economic Growth,
Agriculture, and Trade 
The economic growth, agriculture, and trade pro￾gram made up only 16 percent of USAID
Honduras’s regular portfolio (Table 1). Since the
inception of the mission’s strategic plan in 1997,
the objective of the program has been economic
growth that expands opportunities for the poor.
However, except for its work with microenterprise
and poor artisans, the program has little direct
focus on poor people or small farmers. Much of its
work is concerned with demand-driven assistance
to small and medium-sized businesses, and exten￾sion and marketing assistance for farmers exporting
nontraditional products.
The program also supports policy advocacy and
reform efforts at the national level. It links micro￾economic growth to policy reform and poverty
reduction by focusing on demand-driven enter￾prise, competitiveness, and awareness of the institu￾tional environment affecting transaction costs. The
program also connects its promotion of small busi￾nesses in secondary cities and rural areas with activ￾ities that build advocacy for specific policy or regu￾latory reforms that reduce transaction costs. One
example is support for the administrative simplifi￾cation law to permit more rapid registration of
businesses. The program recognizes that expanded
production increases the number of jobs, many at
the low skill levels of the poor.
Democratic Governance and
Decentralization
USAID is widely recognized by other donors and
government officials as being in the vanguard in
introducing programs in rule of law and decentral￾ization. These two programs make up 19 percent
of the total portfolio (Table 1). Anticorruption
USAID’s Approach to Poverty Reduction: The Case of Honduras 9
SO 1 Economic Growth and Poverty Reduction 25,324 16 
SO 2 Natural Resources and Biodiversity 13,032 8 
SO 3 Sustainable Family Health* 74,295 48 
SO 4 Democratic Governance 9,486 6 
SO 5 Hurricane Reconstruction Program** – –
SO 6 Basic Education and Vocational Skills 12,319 8 
SO 7 Effective Municipal Government 20,902 13 
Total 155,358 100 
Table 1. USAID Honduras Operating Year Budget Obligations, FY1997–FY2001 
(Five Years)
Strategic Objective ($000) Percentage
* Of the $27,000 Title II obligations, 80 percent are allocated to health programs and 20 percent to agricultural programs.
** Not included in total.
Vocational training for school dropouts is an important
component of USAID's poverty reduction strategy in Honduras. 
activities became an important element with the
monitoring of the Hurricane Mitch portfolio 
in 1998. 
The Honduran justice system historically has func￾tioned poorly and has failed to win the respect or
confidence of citizens. Wealthy Hondurans have
been able to manipulate or evade the system, while
the poor have had no effective defense or recourse.
Although aiding the poor was never a primary
objective, USAID’s rule-of-law efforts greatly
strengthened the involvement of civil society in
legal and judicial reform efforts, and have had
direct as well as indirect positive impacts on the
poor. These impacts have included
■ establishment of an independent Public
Ministry and specialized units to prosecute
crimes and protect public rights—such as 
those related to consumer, anticorruption, and
gender issues
■ creation of a public defender’s office to provide
legal counsel and representation to indigent
defendants
■ revisions to the Criminal Procedures Code to
protect individual rights and due process,
reduce the incidence of lengthy pretrial deten￾tions of primarily poor defendants, and increas￾ing transparency through oral public trials
■ passage of a constitutional amendment that
increases judicial independence
However, the mission has given relatively little
attention to improving the enforcement of 
property rights and commercial contracts. In 
these areas, institutional strengthening can 
contribute indirectly to poverty reduction by
accelerating economic growth.
The municipal development and decentralization
program is strongly focused on poor urban areas.
Activities include training of mayors, council mem￾bers, and community leaders; promoting decentral￾ization of government services; strengthening citizen
participation in local government; and improving
coverage of basic services, including establishment
of new services in poor neighborhoods. The pro￾gram also includes direct aid for training and capac￾ity building of grassroots community groups work￾ing with local governments in poor neighborhoods.
Hurricane Reconstruction Program
Hurricane Mitch caused an estimated economic loss
of $3.8 billion to Honduras in October 1998. In
1999, Congress allocated $293 million in emer￾gency supplemental funds to support reconstruc￾tion. USAID programmed about two-thirds of these
monies for critical social and economic infrastruc￾ture for poor people (Table 2). The remaining funds
were used for a wide variety of activities; most were
focused directly on poor families affected by the dis￾aster. Rather than service delivery, the reconstruc￾tion program emphasized economic growth. Its
funds were not burdened by earmarks requiring
health service delivery, as in the regular program. 
Of special note was the establishment of a concur￾rent audit facility in the Controller General’s
Office for the entire USAID-funded reconstruc￾tion effort. USAID also supported a program
mobilizing civil society to push for accountability
and transparency in government. Toward that end,
civil society organizations were able to publicly dis￾seminate the national budget for the first time, and
10 Evaluation Brief No. 5
Microenterprise programs commonly include loans to small
sewing ventures. Such programs help reduce the vulnerability of
poor people to economic downturns. USAID is by far the largest
donor in this sector in Honduras, reaching over 100,000 clients
in 2001.
the results of reconstruction program audits were
published on the internet. As a result of these
efforts, observers judge the corruption was much
less than in other Central American disasters.
Access to information is needed to make demands
and to create awareness of basic rights to public
services. Transparency and accountability are key
to improving the lives of the poor. 
Monitoring the Impact on Poverty
Reduction
Although the Agency had significant input in the
development of poverty indicators during the
preparation of the PRSP, USAID does not formally
track the incidence of income-based poverty or any
other comprehensive indicator of poverty such as
unsatisfied basic needs or the UNDP’s Human
Development Index. However, as Table 3 shows,
USAID Honduras does monitor some aspects of
the poverty impact of its programs. 
■ Under Strategic Objective (SO)1, Access to
Productive Resources and Markets, the number
of persons benefiting from microfinance and
their capacity to repay loans provides indirect
evidence of poverty impact.
■ Under SO2, Watersheds, Forests, and
Protected Areas, no indicator measures any
aspect of poverty, although mission staff point￾ed out that well-implemented programs should
create jobs for the poor and protect their land
and other assets. 
■ Five of the six indicators under SO3 (health)
directly measure some aspect of health status
and can be considered as poverty indicators.
■ None of the indicators for SO4, Rule of Law
and Human Rights, measures any aspect of
poverty; most are concerned with the efficiency
of judicial processes.
■ The three indicators for SO6, Education and
Vocational Skills, do not distinguish poor from
nonpoor beneficiaries.
USAID’s Approach to Poverty Reduction: The Case of Honduras 11
Table 2. Hurricane Reconstruction Program Obligations, 1999 
Infrastructure ($000) Percentage
Rural and Urban Water and Sanitation 92,378
Rural and Urban Road and Bridge Construction 49,890
River Basin and Watershed Improvement 16,513
Municipal Construction in Poor Neighborhoods 15,161
School and Vocational Center Construction 7,850
Subtotal 181,792 62
Other
Agricultural Credit, Technology Transfer, and Policy Reform 47,193
Emergency Housing Construction 19,173
Vocational (Alternative Basic) Education 11,324
Support to PVOs (Technical Assistance and Services) 14,622
Microenterprise Lending 10,000
Subtotal 102,312 35
Transparency and Accountability (Concurrent Audit) 8,294 3
Total 292,398 100
■ Of the indicators for SO7, Municipal
Government, only the indicator dealing with
improved coverage of basic services can be 
considered a poverty indicator. 
Why monitor poverty reduction impact? While
most economic and social reforms may benefit the
poor at least proportionally to the general popula￾tion, they sometimes have negative effects on some
groups of poor families or benefit them less than
proportionally. In an ideal world, with good data
and adequate staffing and resources, USAID
Honduras would track such differential effects. 
In practice, such tracking is rarely feasible. Still,
USAID should be alert to the possibility that
reform measures may not always have the desired
12 Evaluation Brief No. 5
Expanded and Equitable
Access to Productive
Resources and Markets
Improved Management of
Watersheds, Forests, and
Protected Areas
Sustainable Improvement
in Family Health
Strengthened Rule of Law
and Respect for Human
Rights
Improved Opportunity to
Obtain Basic Education
and Vocational Skills
More Responsive and
Effective Municipal
Government
Table 3. USAID Honduras Performance Indicators by Strategic Objective (SO) 
Source: USAID Honduras Results Review & Resource Request, April, 2001. This document did not provide annual indicators for SO 5 (Hurricane
Reconstruction Program).
● annual value of private sector investment
● percent micro- and small enterprises receiving financial services from USAID
● percent portfolio at risk less than 30 days
● area under conservation programs
● number of protected areas under improved management
● number of municipal government and rural communities with key 
personnel trained
● number of improved watershed management units at municipal level
● percent quality rural water systems working
● percent children with adequate growth trends
● confirmed cases of malaria
● cure rate of treated tuberculosis cases
● HIV seroprevalence in commercial sex workers
● number of couple years of protection through reproductive health services
● number of criminal cases disposed of per judge per year in pilot courts
● number of Public Ministry cases successfully adjudicated by the court
● compliance with criminal case resolution timeframes for cases in 
pilot courts
● percent cases prosecuted and adjudicated by pilot courts
● progress in implementation of new criminal procedures code
● percent primary education students passing grade levels
● number of graduates from vocational training centers finding employment
● number of small municipalities strengthened
● percent increase in municipal income
● number of articipants in town meetings
● coverage of public services (sewage, etc.)
SO 2 SO 3 SO 4 SO 6 SO 7 SO 1
positive effects on poor populations and be pre￾pared to take corrective measures when qualitative
evidence suggests the need to reorient programs
toward the poor. 
Some USAID officers believed that establishing
poverty reduction indicators is not within their
program’s “manageable interest.” Though many
indicators are informally monitored by mission
staff, the feeling is that it is not necessary to formal￾ize them. Another argument against doing so is
that the mission has revised its performance indica￾tors too often in recent years, thus making it diffi￾cult to track how well strategic objectives are met
over the medium term. One approach to better
poverty tracking may be to include an “impact on
poverty” section in each of the SO narratives in the
mission’s R4 documents and related reports. 
Reducing the Vulnerability of 
the Poor
Under the poverty reduction approach, reducing
vulnerability emphasizes the establishment of per￾manent safety nets to lessen the impact on poor
people of disaster, economic downturn, or incapaci￾tation of breadwinners. USAID programs in this
area are traditionally limited to microenterprise
activities13 and P.L. 480 Title II humanitarian assis￾tance. In Honduras, USAID spent about $33.5
million over the five-year period—almost one-fifth
of the program—on Title II food assistance and
microenterprise lending programs that targeted the
most vulnerable households. 
The microenterprise program had an accumulated
loan portfolio of $32 million in 2001. It reached
over 100,000 clients, 79 percent of them women.
USAID is the largest donor in this sector, providing
substantial additional assistance to microenterprise
institutions in credit, organizational management,
and training. The largest of these, COVELO, reports
that 18 percent of its loans are for less than $100.
The Title II program reaches nearly 60,000 individ￾uals, or about 10 percent of the total population in
Lempira, La Paz, and Intibucá, the country’s three
poorest departments. In addition to food distribu￾tion to expectant mothers and those with those
children under the age of two, the program mone￾tizes about half the commodities to support agricul￾tural extension, access to health services, strength￾ened local government, and employment genera￾tion. The Title II food distribution system support￾ed by USAID can also respond quickly to natural
disasters, as demonstrated in the response to
Hurricane Mitch.
Role of Government
The poverty reduction approach explicitly recog￾nizes the value of public services to poor people.
The USAID program supports the provision of
government services at both national and municipal
levels, in some cases through direct assistance to the
government. For example, USAID channels about
$13 million per year—roughly 40 percent of its
annual portfolio—through the Ministry of Health,
which provides the majority of health services in
the country. This assistance supports a broad range
of activities aimed at improving the delivery of
health services to the rural and urban poor. 
In the area of municipal development and decentral￾ization, USAID has had a continuing and successful
relationship since the mid-1980s working with local
municipalities and related entities throughout
Honduras to improve delivery of municipal services
to poor people. Over the FY1997–2001 period,
USAID allocated about $14 million in P.L. 480 Title
III monetized funds, jointly programmed with the
Government of Honduras for several activities—
most notably, food policy reform.
The USAID portfolio in Honduras is relatively well
balanced among activities channeled through
national government entities, municipal govern￾ments, NGOs, and the private sector. Allocations
for NGO activities in some sectors might be con￾sidered low in comparison to other missions—for
example in West Africa—but this likely reflects
more effective governments in Latin America and
the absence of a well developed and organized civil
society to act as a counterpart in sectors such as
democratic advocacy.
USAID’s Approach to Poverty Reduction: The Case of Honduras 13
13 The primary impact of microenterprise lending is to minimize 
vulnerability. World Bank, World Development Report 2000/2001.
Environmental Activities
USAID’s approach to environmental sustainability
has emphasized global environmental concerns:
biodiversity, sustainable urbanization, energy use,
and local resource management. The evolving
poverty reduction paradigm, however, seeks to inte￾grate environmental concerns with sustainable
livelihood strategies for the poor. Donors adopting
this focus will differ significantly in their emphasis
on environmental sustainability.14
Environmental activities in USAID Honduras’s
recent programming and strategy documents are
focused on sustainable development. Neither the
2001 R4 document nor the proposed strategy for
FY 2004–08 makes an explicit linkage between such
activities and the livelihood of poor households. 
A reference to job creation is an implicit linkage.
Activities under the environmental portfolio may
be of more than proportional benefit to the poor.
Poor families are more likely to live in environmen￾tally threatened areas and locations highly vulnera￾ble to natural disasters. The results framework,
however, does not make clear the extent to which
activities are targeted to poor communities.
Indirect vs. Direct Approaches
Overview
The distinction between indirect and direct
approaches to combating poverty was defined by
Jagdish Bhagwati: the indirect approach uses
resources to accelerate growth and raise the living
standards of the poor, creating income and con￾sumption in the process. By contrast, the direct
route provides consumption through public expendi￾tures on minimum needs-oriented education, hous￾ing, nutritional supplements, and health.15 This dis￾tinction is similar to that between poverty reduction
and poverty alleviation; in both cases, the dividing
line between the two concepts may be blurred.16
USAID’s portfolio in Honduras includes substan￾tial indirect activities that promote policy and insti￾tutional reform. These are strongly supported by
program documentation giving priority to poverty
reduction measures that stimulate long-term eco￾nomic growth. However, the largest share of the
mission’s non-Mitch resources was designated for
health programs focused on direct delivery of serv￾ices to poor people. Nevertheless, several
Government of Honduras officials told the evalua￾tion team that USAID’s indirect programs have had
more impact than its direct programs. 
Health and Education
While the health portfolio is mostly focused on
direct delivery of services to poor people, USAID
also supports important work in policy reform.
About 5 percent of its annual health budget is
devoted to policy initiatives focusing on the decen￾tralization of the Ministry of Health, primary and
preventive healthcare, and reform of a regressive
user fee system that penalizes the rural poor.17
Some policy reform progress has been made, but
the unfinished agenda is long. While open to the
idea of decentralization to the municipal level, the
Ministry of Health continues to support a bloated
headquarters staff who perpetuate a “top-down”
delivery system. The ministry still favors secondary
and tertiary curative care over preventive and pri￾mary healthcare measures that would reduce the
load on higher-level health facilities. Few resources
are left for the smaller primary care health units,
despite evidence that even the poorest population
segments would pay more for good quality services.
Another problem is a 1997 law guaranteeing steep
annual salary increases. It permitted Ministry of
Health personnel costs to grow from 38 percent of
the total budget in 1996 to 61 percent in 2000, a
proportion that will continue to increase if the
demands of doctors’ and nurses’ unions are met.
Decentralization and more reliance on the private
sector would allow the Ministry of Health to focus
more on setting policy and developing regulations
14 Evaluation Brief No. 5
14 Salinger and Stryker 2001.
15 Jagdish Bhagwati, “Poverty and Public Policy,” World Development,
16, 5 (1988), 539.
16 Direct expenditures on education, for example, are at least in part
investments in human capital that indirectly accelerate economic
growth. Indirect, growth-promoting investments in rural roads would
be considered as direct benefits by farmers who live along such roads.
17 John L. Fiedler and Javier Suazo, “Ministry of Health User Fees,
Equity, and Decentralization: Lessons from Honduras,” unpublished
paper, 2001.
while maintaining a safety net for the poorest
Hondurans. One health policy professional estimat￾ed that up to 20 percent of the health portfolio
could be devoted to health policy, but most agreed
that a perceptible increase in political will is
required to make such an investment worthwhile.
When the political will to adopt policy reform is
weak but aid funding is abundant, USAID officers
focus on service delivery, especially when develop￾ment results must be quantified and measured
annually. As one senior officer stated, “We have so
much money available for health programs that we
use it on service delivery. Instead, we need to
improve how the system functions. But you don’t
need policy changes to achieve your results when
you can finance it all. When you have fewer
resources, you look for levers; when you have lots
of money, you do direct service delivery.”
In response to an improved climate for reform,
USAID’s education portfolio is gradually shifting
from financing service delivery to supporting the
development of new curricula based on revised edu￾cational standards as well as other quality reforms. 
In the past, USAID provided participant train￾ing—overseas scholarships—to young Hondurans
who would assume policymaking positions in gov￾ernment. This kind of training is an important
indirect program that donors can support in coun￾tries that have not yet developed the political will
to adopt important policy reforms.18 However,
USAID Honduras decreased funding for scholar￾ships due to budget cuts in the bilateral program
in the mid-1990s.19 The evaluation team noted
that several young Hondurans in key policymaking
positions in the government were graduates of
USAID’s program. One of them said, “The
USAID participant scholarship program in the
1980s and early 1990s was very important—
I know a mountain of people who have U.S. 
master’s degrees and are now in decisionmaking
positions. Why was this program stopped?”
Economic Growth
The policy component of the mission’s economic
growth program was conceived in 1994 to provide
technical assistance that would help the Honduran
government understand the importance of macro￾economic policy reform and structural adjustment,
and how policy reform can improve economic 
performance and reduce poverty. USAID support
was made available in response to a perceived reduc￾tion in technical assistance provided as part of the
conditionality requirements of IMF and World
Bank loans.
The program supported a policy analysis unit in the
government, carried out studies, and provided tech￾nical advice across a broad range of topics in mone￾tary, exchange-rate, and fiscal policy; labor market
policy; trade policy; and establishing an outward￾oriented investment climate. Other policy areas
tackled by the program included financial market
regulation, investment incentives, national income
accounts, agriculture (land titling), mining, tourism,
and light manufacturing. The program also assisted
the development of the hurricane reconstruction
plan and the PRSP. Government of Honduras offi￾cials praised its high quality and timely advice.
Despite this support, policy and institutional
reforms are incomplete in key areas. The apprecia￾tion of the real effective exchange rate needs to be
USAID’s Approach to Poverty Reduction: The Case of Honduras 15
USAID supports the delivery of health services through Ministry
of Health clinics such as this one. However progress in moving
the Ministry of Health toward primary preventive care—which is
more oriented towards poor people—has been very difficult.
18 World Bank, Assessing Aid: What Works, What Doesn’t, and Why
(New York: Oxford University Press for the World Bank, 1998).
19 In July 1996, USAID substantially reduced the Agency-wide 
number of education officers.
halted to avoid further adverse effects on exports.
Increasing competitiveness requires financial sector
reforms, including strengthening bank supervision
and prudential regulation, reducing inefficiencies in
bank operations, improving the investment climate
for foreign banks, and promoting bank mergers.
Despite significant progress in reducing tariffs,
there is scope for further lowering trade barriers
and eliminating discretionary actions such as
embargoes on basic grains exports and nontariff
obstacles to imports. Reform of restrictive laws and
regulations limiting part-time work and dismissal
of workers would encourage more investment.
Other key reform areas for accelerating economic
growth, and therefore poverty reduction, include
the following. 
■ Reduction of the fiscal deficit—The greatest
need is for a sound public sector salary policy
that will slow the unsustainable rates of
increase of the last five years, particularly for
teachers and medical professionals. Improved
tax administration and a reduction in the
number of exemptions are the most promising
ways to increase revenues. 
■ Modernization of the state—The World Bank
and the Inter-American Development Bank
have been supporting reforms in this area, but
progress has been slow. Problems such as those
in the Ministry of Health are widespread: gov￾ernment ministries and agencies remain general￾ly overstaffed, inefficient, and lacking in mana￾gerial, administrative, and technical skills.
Cumbersome administrative procedures add to
firms’ transaction costs.
■ Social security reform—Honduras’s various pub￾lic pension schemes are either technically bank￾rupt or moving in that direction. Legalization
and proper supervision of private pension
schemes would promote more savings and
strengthen the country’s weak capital markets.
■ Privatization—Honduras’s public enterprises
are inefficient and the government’s fiscal prob￾lem severely limits needed investments in infra￾structure, especially electric power, telecommu￾nications, and ports. Improvement of infra￾structure will lower transaction costs for those
producing for domestic and export markets and
accelerate economic growth.
■ The maquila sector—The rapid growth of this
sector since 1990 has been beneficial, but a
long-term strategy is needed to transform it
into a manufacturing sector that makes greater
use of skilled labor, locally produced raw mate￾rials, and other inputs.
Democratic Governance
The establishment of a credible and reliable rule of
law was consistently cited by respondents as one of
the most urgent and necessary development goals
for Honduras. USAID was universally recognized
as having played the most prominent and influen￾tial role in the sector. It introduced the administra￾tion of justice as a public policy issue, one that
eventually aroused the interest and involvement of
other donors.
As in the rest of Latin America, the democratic
governance program in Honduras originated out of
concern for human rights, crime, corruption, and
problems related to the transfer of political authori￾ty from military to civilian regimes. The program
therefore focuses on political and human rights,
legal and judicial reform, and the criminal process.
Poverty is not its focal point; neither are the legal
institutions that support the market. 
In spite of modest funding levels, the program is
having a substantial impact. In particular, USAID￾supported activities promoting long-term legal and
judicial reform are of great indirect benefit to the
poor—those primarily harmed by a legal system
that restricts economic growth opportunities and
that powerful elites manipulate to their advantage.
The interests of the poor are served by increasing
judicial independence. They also benefit from
improving the operation of the system-including the
reform of procedures that allow them to be dispro￾portionately punished for criminal infractions.
The lack of a predictable, reliable, and transparent
16 Evaluation Brief No. 5
justice system as a whole (an enabling environ￾ment) is perceived as a serious deterrent to invest￾ment and economic growth in Honduras. The mis￾sion has done good long-term work on broad sys￾temic reforms, primarily in the criminal arena.
Much of this experience and expertise might be
applied to the civil realm to promote transparency,
civil procedural reforms, and specific rule-of-law
reforms relating to investment and growth—such
as those affecting property rights (land tenure and
intellectual property) and contract enforcement.
An Unfinished Agenda
Why should USAID be concerned with policy
issues? USAID is the largest bilateral donor in
Honduras and plays a leading role in donor coordi￾nation. Unlike other donors, USAID has main￾tained its strategic emphasis on broad-based sus￾tainable growth rather than adopting the narrower
goal of poverty reduction. One could say that
USAID’s development-strategy “niche” is concern
with the enabling environment for poverty reduc￾tion and economic growth rather than poverty
reduction per se. Yet the allocation of portfolio
monies to economic growth and policy reform has
been proportionately less every year. To a large
extent, this has happened because earmarks push
USAID toward poverty alleviation programs rather
than sustainable development.
Some believe that the political will for policy reform
is weak in Honduras and that no one reads the poli￾cy papers produced under USAID’s policy reform
project. However, a recent World Bank document
recommends that donors in countries like Honduras
should concentrate on activities that might support
reform in the long run. These include overseas
scholarships, dissemination of ideas about policy
reform and development, and stimulation of debate
in civil society.20 The now-discontinued USAID par￾ticipant training program produced positive results.
The mission’s more recent efforts to strengthen civil
society’s ability to exert pressure for government
transparency should also have high payoffs. In sum￾mary, the case for providing greater support for poli￾cy reform efforts is strong. 
The Issue of Earmarks 
Despite the prominence given in strategy docu￾ments to economic growth, since 1995 USAID
Honduras’s program allocations have progressively
decreased in this area and increased in health, pop￾ulation, and education (Table 4). Since 1999, the
increase in the health portfolio has been driven by
earmarks for child survival and disease activities.
Currently, over half the mission’s resources are allo￾cated to the direct delivery of health and education
services to poor people. Economic growth and poli￾cy reform activities have not only decreased, but
over half the economic growth monies have gone to
microenterprise earmarks since 1999. 
Earmarking is also a concern within the health and
education sectors. In its 2002 annual report, USAID
Honduras was worried that increased funding for
HIV/AIDS, driven by congressional earmarks, would
result in major cuts in child survival and population
funding. This reduction threatened to require
USAID to reduce its support for key components of
its successful maternal and child health and family
planning programs, as well as its support for health
reforms that would most benefit poor people.
Although Honduras has about half of the
HIV/AIDS cases in Central America, mission offi￾cers expressed concern about the country’s absorp￾tive capacity for HIV/AIDS funds, including the
$40.4 million (for five years) allocated by the
Global AIDS Fund. Concerns were also expressed
that additional HIV/AIDS earmarks made it diffi￾cult to meet the growing needs of the mission’s reg￾ular family planning and child survival programs.
One senior US official said
Earmarks are a terrible hindrance. I strongly
support USAID family planning, but historical￾ly we have been flooded with that kind of
money. The best contraceptive that I know of is
education for young women. But the only way
you can get Congress to pass the foreign aid
bill, which is very unpopular, is to permit them
to put in their pet project. If I had two dollars
to invest in Honduras, I would put one dollar
in education and one dollar in rule of law.
USAID’s Approach to Poverty Reduction: The Case of Honduras 17
20 World Bank, Assessing Aid, 1998.
The Results
Management System
Besides the system of earmarks,
another problem contributing to
USAID’s unwillingness to devote
more funding for policy reform is
the reporting requirement under
the “management for results” sys￾tem adopted by the Agency in
1996. Under this system, USAID
project managers and program
officers need to provide quantifi￾able measurements of results from
project and program activities on
a six-month or yearly basis. 
Policy Coherence
U.S. trade policies are in less conflict with develop￾ment goals in Honduras than is the case in other
countries. Honduras benefits from preferential
access to the U.S. market under the Caribbean
Basin Initiative and NAFTA-parity legislation.
Nevertheless, a few important Honduran prod￾ucts—notably sugar—do not enjoy these benefits.
More significant in their impact on the Honduran
economy are the large subsidies received by U.S.
farmers. These subsidies tend to depress Honduran
prices of basic grains and other commodities. While
poor urban households in Honduras tend to bene￾fit from these price effects, the opposite is true of
the poor rural households who grow a large share
of the country’s basic grains. U.S. food aid pro￾grams tend to have similar effects.
Lessons Learned
The PRSP Process and Donor Coordination
Donor coordination, especially strong in Honduras
since Hurricane Mitch, can play a key role in facili￾tating policy reform, promoting structural change,
and facilitating contacts between government and
civil society. While the pace of policy reform and
structural change in Honduras has not been fast,
effective donor coordination through the G-15
mechanism has probably accelerated these processes
and laid the groundwork for future gains by
improving the quality of the public debate on these
issues. The international donor community has
effectively promoted contacts between government
18 Evaluation Brief No. 5
Table 4. Congressional Earmarks, 1995–2002. Allocations to Economic Growth (EG);
Population, Health, Nutrition, and Education (PHNE); and Child Survival & Disease (CSD)
1996 1997 1998 1999 2000 2001 2002 
Source: USAID congressional presentations
1995
Economic Growth 19,285 16,567 5,922 4,832 3,790 6,489 4,310 4,833
PHNE 9,320 10,071 13,338 12,338 8,758 14,474 12,016 9,412
CSD – – – – 6,540 7,250 8,440 8,800
Total PHNE 9,320 10,071 13,338 12,338 15,298 21,724 20,456 18,212
Total EG & PHNE 28,605 26,638 19,260 17,170 19,088 28,213 24,766 23,045
0
10000
20000
30000
40000
1995 1996 1997 1998 1999 2000 2001 2002
Population, Health, Nutrition, and Education
Economic Growth
Fiscal Years 
$000
Congressional Earmarks, 
Economic Growth & PHNE—USAID Honduras
1
Source: Table 4
and civil society, which have increased significantly
since 1998.
In Honduras, USAID was often the lead donor in
the PRSP process. In particular, the Agency played
a key role in getting important issues of anticorrup￾tion and decentralization into the document.
Important factors in this success included the lead￾ership of individuals in the U.S. country team and
the donor community, the impact of the special cir￾cumstances of hurricane reconstruction on the
preparation of the PRSP, and the willingness of the
Honduran government to engage in a collaborative
dialogue with donors. Whether these circumstances
will remain favorable is not clear. The effectiveness
of donor coordination is not constant over time
within any particular country and often depends
upon particular individuals. For example, most sur￾vey respondents strongly felt that the departure of
the U.S. ambassador in September 2002 would cre￾ate a major leadership void in the donor communi￾ty. Hurricane Mitch reconstruction activities were
winding down and some members of the donor
community were uncertain about the commitment
to donor coordination and civil society participa￾tion by the new Honduran administration that
took office in January 2002. USAID—and the U.S.
foreign policy community generally—should recog￾nize the importance of effective donor coordination
and should strive to maintain its recent high level.
Poverty Reduction vs. Poverty Alleviation
Since 1996, USAID Honduras has had a strong
focus on poverty reduction achieved by economic
growth. The balance appeared to be good between
direct delivery of services and indirect programs sup￾porting the enabling environment for economic
growth. However, in terms of actual dollars spent
over the 1995–2002 period, the mission’s portfolio
(excluding hurricane reconstruction) evolved into a
program heavily oriented toward social service deliv￾ery. Fewer aid dollars supported economic growth.
Half the economic growth monies went to microen￾terprise support—most of which represents poverty
alleviation rather than poverty reduction. One might
say that USAID’s approach to poverty reduction
looks better on paper than in practice, since issues of
economic policy reform have taken a back seat.
Two main factors brought about this change: con￾gressional earmarks and the results management
approach. Over the last five years, earmarks for
child survival and disease have driven the increase in
allocations to health and population activities.
Because the results management approach requires
measurable, quantifiable indicators every six months
or every year, officers are encouraged to design proj￾ects with short-term, measurable results. The results
of longer-term policy reform programs are more dif￾ficult to measure. Sustainability and policy reform
issues in the health sector also received short shrift.
Other factors may have contributed. One was the
adoption of what was largely a poverty alleviation
approach in the LAC Bureau during the Clinton
administration.21 Another was the Agency-wide
reduction in the number of economic growth and
USAID’s Approach to Poverty Reduction: The Case of Honduras 19
USAID Officers Comment on
Policy Reform
I can’t give you results in one year. USAID is not geared
for policy reforms. How can USAID balance long-term
work with policy reform with our short-term preoccupa￾tion with getting results every six months? What can I do
when half of our economic growth money is earmarked for
microenterprise, in a country facing so many institutional
problems and a poor environment for economic growth?
Agriculture Officer
It’s easier to measure numbers of microenterprise loans to
poor people. What do we get out of policy reform? Over
the short term, papers and discussions and not much else.
As indicators, these don’t look good in the R4.
Program Officer
In order to maintain political momentum of a policy proj￾ect in USAID, you have to have accomplished a central
objective or a major achievement, like ‘we destroyed the
high-government-wage regulations’ or ‘we drove down
interest rates.’ Otherwise, you end up with 20 different
things that you have done, like seminars on this and poli￾cy papers on that; but all of them don’t add up to much
in the current results-reporting scheme.
USAID Contractor
2
21 Daniel J. Plunkett and Lynn Salinger, A Case Study of the United
States Agency for International Development, DAC Informal Network
on Poverty Reduction Scoping Study (Cambridge, MA: Associates for
International Resources and Development, January 1999), 21–22;
USAID/LAC, FY 99 Trends Analysis: Economic Growth Area
(Washington, DC: USAID, June 1999).
20 Evaluation Brief No. 5
education officers. Further, USAID’s level of con￾cern with policy reform in Honduras may have
been outstripped by the apparent increase of such
structural problems as increased crime and the fail￾ure to confront the government wage problem.
Tracking Poverty Indicators
The Honduran experience of the last decade illus￾trates the importance of regarding poverty as multi￾dimensional. Though income-based poverty indica￾tors showed little improvement over this period,
some social indicators showed significant gains, espe￾cially those for health status and access to potable
water and sanitation facilities. These social indicators
reveal an improvement in the human capital of poor
Honduran households, and thus their ability to
achieve higher income levels. Over the long term,
greater improvements in education indicators—
including those that reflect quality—will be especial￾ly important for poverty reduction in Honduras.
USAID could benefit by being more explicit about
how its activities in Honduras contribute to poverty
reduction. One way to do this is to select indicators
that more directly measure the various dimensions
of poverty and to track comprehensive indicators
such as the income-based incidence of poverty.
Another approach to better poverty tracking is to
include an “impact on poverty” section in each SO
narrative in R4 documents and related reports. 
Income Distribution and Poverty Reduction
The Honduran case study supports recent findings
that poverty reduction through macroeconomic
economic growth is more difficult the greater the
initial inequality in the distribution of income.
Accordingly, any long-term poverty reduction strat￾egy should give high priority to targeted activities
that strengthen the human capital of poor house￾holds, increase their access to productive assets, and
provide infrastructure that improves their access to
markets and lowers their transaction costs. Donor
support for such activities would enhance the effec￾tiveness of economic growth in reducing poverty.
About this publication: IBI–International Business Initiatives furnished editorial and production assistance for this publication. More detailed
data and analysis are available in this publication’s companion piece, which is listed in the box above.
To order copies or download: These documents can be ordered from USAID’s Development Experience Clearinghouse (DEC). To 
download, go to www.dec.org and enter PN-ACR-351 as the document identification number in the search box. The DEC may also be 
contacted at 1611 N. Kent St., Ste. 200, Arlington, VA 22209; tel 703-351-4006; fax 703-351-4039; email docorder@dec.cdie.org.
Photo credits: Photo credits: Page 5, USAID; Page 9, USAID; Page 10, Frank Spangler, World View Images; Page 15, David Magurian, 
Inter-American Development Bank.
Evaluation Briefs on USAID’s Approach to 
Poverty Reduction 
Honduras (PN-ACR-351)
Mali (PN-ACR-352)
Romania (PN-ACR-353)
Uganda (PN-ACR-354)
PPC Evaluation Working Papers on USAID’s
Approach to Poverty Reduction 
Honduras (PN-ACR-481)
Mali (PN-ACR-482)
Uganda (PN-ACR-483)
Evaluation Briefs provide summaries of key findings. Evaluation Working
Papers provide additional background information and data.
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