Honduras this week joined Nicaragua as the second country in Central America to lose U.S. development funding from the Millennium Challenge Corporation (MCC), following a decision Wednesday by the MCC's board of directors.

The MCC's board said in a statement from Washington, D.C., “given recent events in Honduras that are inconsistent with a commitment to democratic governance, MCC will terminate two planned activities in the transportation sector totaling approximately $11 million from its Compact with Honduras.”

As a result of the meeting, MCC reported that it will also put on hold approximately $4 million of its contribution for work on a Central American road project it funds along with the Central American Bank for Economic Integration (CABEI). 

MCC said it will keep up activities already under contract and will “continue to monitor the situation in Honduras in close coordination with the State Department and other U.S. government agencies.”

“Today's board meeting is a reminder that MCC funds are earned and not automatic,” said acting CEO Darius Mans.  “Good governance and accountability are at the heart of our poverty reduction programs, and governments that are inconsistent in these areas jeopardize not only MCC funding, but also the long-term impact that good policies can have on growth in their local economies.”

In broader terms, the MCC cancelation of $11 million to Honduras is only a fraction of its $215 million, five-year compact awarded to the country in 2005. The majority of that aid has already been contracted or spent on transportation and rural development projects. The main project was the CA-5 highway, an 83 kilometer, $88 million project.

In June, the MCC cut $64 million in development aid to Nicaragua over concerns about the country's democracy following the wide allegations of electoral fraud last year.

With the suspension of aid to Honduras and Nicaragua, the MCC has prematurely ended both its programs in “low income” Latin American countries. The MCC still has programs in Colombia and El Salvador, considered “lower-middle income countries.”