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Cablegate: Mcc Requirements Key to Reducing Business Opening Time In

VZCZCXRO7409
RR RUEHLMC
DE RUEHTG #1295/01 2122232
ZNR UUUUU ZZH
R 312232Z JUL 07
FM AMEMBASSY TEGUCIGALPA
TO RUEHC/SECSTATE WASHDC 6487
RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC 0685
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 TEGUCIGALPA 001295

SIPDIS

SIPDIS

STATE FOR WHA/CEN ELIA TELLO AND WHA/EPSC LISA MARTILOTTA
COMMERCE FOR ITA DESK OFFICER MARK SIEGELMAN

E.O.12958: N/A
TAGS: ECIN ECON EIND PGOV DR CS HO
SUBJECT: MCC REQUIREMENTS KEY TO REDUCING BUSINESS OPENING TIME IN
CAFTA-DR COUNTRIES

REF: A: TEGUCIGALPA 1154

1.(U) Summary. While the key indicator of days to start a business
has shown a dramatic improvement in CAFTA-DR countries, one of the
untold stories is the influence of The Millennium Challenge
Corporation (MCC). As demonstrated by Honduras and the Dominican
Republic, MCC is acting as a strong motivator to improve key
indicators both before and after the implementation of reforms to
qualify for MCC contracts and entrance into CAFTA-DR. End Summary.

2.(U) During the negotiation and implementation process of CAFTA-DR,
the time needed to register and open a business -- as based on the
World Bank's Doing Business Index, one of the key indicators of
competitiveness -- has been dramatically reduced in most of the
treaty countries (ref A). During the same period, requirements for
several of these countries to meet MCC standards proved to be a
major motivating factor behind the improvements. Embassy Santo
Domingo and Embassy Tegucigalpa have incorporated additional
comments on the role of MCC in reducing the time it takes to
register and open a business in CAFTA-DR countries. (Note: Costa
Rica is not eligible for MCC funds due to its status as a
middle-income country, and therefore was not involved in this
cable.)

--------------------------------------------- ------
HONDURAS: BEST PERFORMANCE DURING MCC QUALIFICATION
--------------------------------------------- ------

3. (U) Honduras was the second country to qualify for MCC funds,
formally implementing the pact in July 2005. This was quickly
followed by the ratification of CAFTA-DR in April 2006. It was
during this key period in 2005 that Honduras made the greatest
progress of any Central American country in reducing the process
time to open a business, from 62 to 44 days (29 percent).
MCA-Honduras, the implementing agency for MCC, highlighted the
continued reduction to just 9 days in their first quarter 2007
report as evidence that the GOH is maintaining good performance on
the MCC selection criteria.

4. (U) Minister of the Presidency Yani Rosenthal highlighted the
role of this indicator in MCC and CAFTA negotiations. In a July
meeting on competitiveness hosted by Ambassador as follow-up to the
Americas Competitiveness Forum in Atlanta, Rosenthal cited the Doing
Business Index as the key metric for quality of business regulation.
He indicated that even before signing the MCC pact, the GOH was
aware that such a reduction was a selection criteria and has
continued to focus on improving the measure. MCC is currently
working with Honduras on reforming their Real Estate Law, which
according to Virgilio Umanzor of the Presidential Competitiveness
Commission will facilitate greater access to credit for (and perhaps
a rise in the creation of) small and medium enterprises.

--------------------------------------
DOMINCAN REPUBLIC:
IMPROVEMENTS MAINLY DUE TO MCC PROCESS
--------------------------------------

5.(U) In the Dominican Republic, the steps towards improving the
number of days to start a business have been directly linked to the
Dominican government's efforts both to qualify for the MCC and to
attract investment under CAFTA-DR. While the country still has a
long way to go before it qualifies for MCC assistance, the CAFTA-DR
treaty entered into force on March 1, 2007. Between 2006 and 2007,
the Dominican Republic realized a nearly 74 percent decrease in days
to start a business, dropping from 75 to just 20 days.

6. (U) In response to an MCC inquiry on Dominican efforts to qualify
for its assistance, the Dominican State Secretariat for Economy,
Planning, and Development released a report in July 2007 on its
progress to date in reforming the business registration process.
This report recapped the country's initiatives to qualify for MCC,
specifically noting the concern created by the country's low ranking
in the World Bank's Doing Business Index 2005 (114 out of 175
countries ranked). The Secretariat cited the Dominican Republic's
strong "desire to participate and be chosen by the MCC" as the main
impetus behind improving its standing.

7. (U) The lead agency responsible for implementing these reforms is
the National Competitiveness Council (CNC), which was created "to
continue the necessary reforms and push forward the formal
institutional commitment towards reaching the [MCC] program goals."
With financial support from the Inter-American Development Bank and
USAID, the CNC has developed a one-stop-shop pilot window, has
reduced the required steps to register a business from ten to seven,
and says it has reduced the time to register a business from 75 to
20 days. The CNC is currently addressing other necessary reforms,
including the modernization of the property registration process.

TEGUCIGALP 00001295 002 OF 002

8. (U) Comment. As with the CAFTA-DR treaty itself, MCC has helped
to reduce business registration and opening times in Central
American countries. MCC has proven a motivating factor when
preceding reforms -- as in Honduras -- and when offered as a
possible future carrot, as in the Dominican Republic. The
versatility and monetary rewards in the Millennium contracts have
helped to reinforce and complement the potential gains of CAFTA-DR,
and should help promote similar successes in future MCC eligible
countries. End comment.

9. (U) This cable was coordinated with Embassy Santo Domingo.


FORD

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