Assessing State Capacity Post-USAID in Central America: The Case of Guatemala, Honduras, and Costa Rica

Abstract

Facing drastic U.S. foreign aid cuts in 2025, including the termination of USAID, this research assesses the impact on state capacity in Central America, focusing on Guatemala, Honduras, and Costa Rica. It investigates how the withdrawal of governance funding affects state capacity in the region. Utilizing frameworks of aid dependency and state capacity, complemented by historical-institutional analysis, the study argues that USAID’s exit will probably influence nations in critical areas regarding governance, which had high pre-existing aid dependency and weaker institutions, namely Guatemala and Honduras. These cases reveal systemic vulnerabilities exacerbated by the funding shock. In contrast, Costa Rica, characterized by stronger state capacity and lower aid dependence, shows greater resilience. The findings underscore the critical link between international aid, endogenous state capacity, and deep-rooted institutional histories; highlighting the risks of external funding shocks for fragile states in the region, but with a minor incidence in stronger states of Central America.