Ecuador - Guayaquil Urban Development Project

Documint of The World Bank FOR OFFICIAL USE ONLY Report No. 8262 PROJECT COMPLETION REPORT ECUADOR GUAYAQUIL URBAN DEVELOPMENT PROJECT (LOAN 1776-EC) DECEMBER 29, 1989 Infrastructure and Energy Operations Division Country Department IV Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their offcial duties. Its contents may not otherwise be disclosed without World Bank authorization.  Fiscal Year January 1 to December 31 Weights and Measures Metric System Glossary of Abbreviations BEDE - Banco de Desarrollo del Ecuador (Ecuadorian Development Bank) BEV - Banco Ecuatoriano de la Vivienda (Ecuadorian Housing Bank) BP - Banco del Pacifico (a Guayaquil commercial bank) CENAPIA - Centro Nacional de Pequena Industria y Artesania (National Small-Scale Enterprise and Artisan Center FONAPAR - Fondo Nacional de Participaciones (a national fund used to finance local government programs) IESS - Instituto Ecuatoriano de Seguro Social (Ecuadorian Social Security Institute) JUNAPLA - Junto Yxcional de Planificacion (National Planning Board) JNV - Junta Nacional de la Vivienda (National Housing Board)  FOR OMCIAL u ONLY THE WORLD BANK Washigton. D.C. 20433 U.S.A. Olece CA Dwettv.Cfls Opiatmo Evuatfon December 29, 1989 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Ecuador - Guayaquil Urban Development Project (Loan 1776-EC) Attached, for information, is a copy of a report entitled Project Completion Report on Ecuador - Guayaquil Urban Development Project (Loan 1776-EC)l prepared by the Latin America and the Caribbean Regional Office. No audit of this project has been made by the Operations Evaluation Department at this time. Attachment This dcument has a restricted distribution and may be used by recipients only in the performance or their official duties. Its contents may not otherwise be disclsed without World Dnlk authofition.  FOR OMCIAL USE ONLY ECUADOR PROJECT COMPLETION REPORT 7UAYAQUIL URBAN DEVELOPMENT PROJECT (LOAN 1776-EC) Table of Contents Page No. Preface ............................................ i Evaluation Summary ............................................ ii PART I: Main Findings and Lessons Learned by the Bank A. Project Identity ......................................1 - B. Background ...................................... 1 C. Project Objectives and Description ........................... 2 D. Project Design and Organization .............................. 3 E. Project Implementation ....................................... 6 F. Project Results ...................................... 8 G. Project Sustainability ...................................... 10 H. Bank Performance ............................................ 10 I. Borrower Performance ........................................ 11 J. Project Relationship ........................................ 12 K. Consulting Services ......................................... 12 L. Project Documentation and Data .............................. 13 PART II: Main Findings and Lessons Learned by the Borrower ......... 14 PART III: Basic Data 1. Related Bank Loans .......................................... 15 2. Project Timetable ........................................... 16 3. Loan Disbursements .......................................... 16 4. Project Implementation ...................................... 18 5. Project Cost and Financing .................................. 19 6. Project Results ............................................. 20 7. Status of Loan Covenants .................................... 22 8. Use of Bank Resources ....................................... 23 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not ctherwise be disclosed without World Bank authorization.  DCVADOR GVAYAQUIL URBAN D3VELOPVDNT PROJECT (LOMN 1776-XC) PROJECT COMPLCTION REPORT PREFACE This Project Completion Report (PCR) pertains to the Guayaquil Urban Development Project in Ecuador, for which a loan in the amount of US$31.0 million equivalent was approved on December 11, 1979. Loan 1776-SC closed two years behind schedule on June 30, 1987. The last disbursement was in February 1988. Total disbursements were US$25.8 million and US$5.2 million were cancelled. The PCR was prepared by the Infrastructure and Energy Operation Division of the Latin America and the Caribbean Region, Country Department IV (Preface, Evaluation Summary, Parts I and III). The Borrower prepared a draft in August 1988 following previous preparation guidelines for Project Completion Reports that incorporated inputs from all agencies involved in the project except CENAPIA. Preparation of this PCR began during the Bank's final project supervision mission in January 1989 and is based, inter-alia, on the Staff Appraisal Report; the Loan, Guarantee, and Project Agreements; supervision reports; correspondence between the Bank and the Borrower; and internal Bank memoranda and comments from participating agencies, such as Banco Ecuatoriano de la Vivienda (BEV) and the General Comptroller's office.  - ii - UhDOR GIJATQUDL MO3AN DNVELOPMWNT PROJECT (LOAN 1770-DC) PROJECT CCHPLETIOI REPORT EVALUATION SW3U&lY Introduction Tc meet its stated objectives of addressing shelter provision for the poor, in 1979 the then new Government launched an inadequately planned but massive, domestically-funded housing project in Guayaquil. At the same time, BEV/JNV (Banco Ecuatoriano de la Vivienda/Junta Nacional de la Vivienda) began aa overall reorientation of their programs toward lower- income clients. The Bank's loan (1776-EC) became effective on October 31, 1980. Under its terms the Central Bank, the Municipality of Guayaquil, CENAPIA, BEV, Jh3 and the Ministries and other agencies of the Borrower were responsible for implementation. Objectives The main objectives of the project were to initiate large-scale programs for employment generation and residential development for tow- income families while at the same time improving the Municipality's financial management. In addition BEV/JNV's institutional, technical, and financial capabilities were to be strengthened (para. 6). Iftlementation Experience As a consequence of the combined effects of (a) low interest offered on loans to microenterprises by private banks, (b) protracted bureaucratic procedures, (c) weak administrative capability, and (d) serious financial crisis ir. the Municipality, the implementation process was extremely deficient, particularly ir. the Municipality (para. 14-23). Results Project results were mixed in that: (a) it had a positive impact in promoting BEV/JNV as the lead institutions for the Housing Im.provement L:ans component--the most successfully implemented element; and (b) its aim to promote financial and managerial capabilit4es at the municipal level was a complete failure. (para 27-30). However, the project did generate a positive spinoff effect in that the BEV/JNV experience was built on in Loan 2135-EC: new housing operations were efficiently implemented by these institutions with only minor implementation delays. In addition, expectations were that BEV's investment operations would complement prospective systemwide housing finance measures. Sustainability The project generally failed to have a strong institutional development effect on the Municipality of Guayaquil. Municipal performance was extremely weak, and revealing serious deficiencies as an implementing institution, did little to establish sustainable policies--especially for cost recovery--through its components (para. 35). BEV loans demunstrated the unsustainability of fixed interest rates in a highly unstable economy;  - lii - loans were made to housing beneficiaries at a fixed and insufficient interest rate, which due to high inflation made cost recovery virtually impossible (para. 35). FindiPe and Lessons Learned The project is a typical example of the early generation of urban projects: Too many components with weak implementing agencies and coordination arrangements. Interest rate controls exacerbated Ecuador's subsequent debt; inflation hindered project sustainability. An increased focus on realistic standards, cost recovery, and community participation is clearly vital for institutions concerned with urban development (para. 36). The generally mixed results of the project indicates the overriding importance of ensuring that: (a) more attention be paid at appraisal to diagnosing institutional deficiencies and capabilities, and in devising a realistic program for corrective action once these type of problems emerge; (b) supervision missions have a comprehensive understanding of the project development process, to ensure close follow-up c. proposed changes, improvements, and initiatives and subsequently appropriate evaluation and supervision of the project.  ECUADOR GUYAQUIL URBN DEVLLOPMCNT PROJCT (LOAN 1776-30) PROJECT COCLZTION LEPORT PART I: MAIN FINDINGS AND LESSONS LEARNED (Prepared by Bank) A. Project Identity Project Name: Guayaquil Urban Development Project Loan No. 1776-EC RVP Unit: LA4 - Infrastructure and Energy Division (LA4IE) Country: Ecuador Sector: Urban Subsectors: Housing, Small-Scale Enterprises, Municipal Services. B. Background Sector Development Objectives 1. Although these were not identified explicitly, the twin objectives of poverty alleviation and institutional and procedural development were guiding principles of the Bank's approach to the sector. Policy Context 2. A city characterized by widespread poverty and rapid population growth, largely resulting from immigration, Guayaqvtil is the center of Ecuador's commerce and industry, contributing approximately 502 of the GDP attributable to commerce, manufacturing and finance at the time of appraisal (1979). Its 1987 population was estimated at 1.6 million, with a growth rate of 42 - one of the more rapid in Latin America. 3. To incorporate the influx of population, the city expanded westwards through informal means into municipally-owned swampland (Suburbio), and privately-owned and municipal areas In the northern and southern (Guasmo) parts of Guayaquil. At appraisal, a substantial proportion of Guayaquil's households lacked adequate urban services and secure tenure. Inhospitable geography and a tropical climate, linked to inadequate infrastructure provision meant that the leading causes of death were enteritis and other diarrheic diseases. 4. Preliminary discussions on a possible poverty-oriented housing project in Guayaquil began with the Ecuadorian Housing Bank (BEV) in 1973. The dialogue expanded to the municipality in 1976. The planning for a possible project was then advanced under a feasibility study financed by the Bank in a Technical Assistance Project. The planning process was lengthy, due to poor capacity of the municipality, coupled with its unrealistic expectations (the original proposal was for a very large number of sites and services units and there were initial disagreements over design standards and cost recovery) and a series of changes in administration. In 1979, a new Government gave great priority to addressing the shelter situation of the poor, and immediately launched a poorly planned but massive domestically-funded housing project in Guayaquil. The shift in government policy also coincided with a change in orientation of BEV-JNV (Banco Ecuatoriano de la Vivienda/Junta Nacional de la Vivienda) towards the shelter needs of low-income groups in particular.  -2- Links to Macro-economy and Sector 5. Links were not explicitly described in project documentation, however the project concept fit well into the Bank's strategy of creating a better physical and social infrastructure base, strengthening implementation agencies and improving living conditions for the poor. C. Project Objectives and Description Project Objectives 6. The project was designed to initiate large-scale programs of employment generation and residential development for low-income families in Guayaquil, directly benefitting some 102 of Guayaquil's population. Its prime institutional and policy 'evelopment objectives were to: (a) expand the support given to very small scale enterprises by banks and the government's technical assistance agency; (b) strengthen the Municipality's efforts to serve low-income areas through the development of its technical capacity; improving its financial management and cost recovery practices; instituting more realistic development norms; and regularizing land tenure; and (c) give BEV increased experience in financing appropriate and affordable low income housing. Components 7. An integrated urban development effort, the project contained three sub-projects, i.e., support to small scale enterprises (212 of cost), services to low-income areas (47Z of cost) and housing loans (322 of cost). Specifically, the project included: (a) support to small-scale enterprises through the provision of some 6,400 loans to assist 5,200 artisans by expanding an existing line of credit for artisans from the commercial Banco del Pacifico; (b) squatter upgrading, through the provision of secure tenure, landfill and basic infrastructure, in the identified neighborhoods of Lotizacion Mapasingue and Guasmo North. The community was supposed to participate in the planning and implementation of upgrading. Improvements were to be affordable to more than 902 of the 3,600 families living in the two areas at that time. It also included basic service provision to existing industries; (c) serviced plots: provision of 3,700 new serviced plots (3,200 in Alegria and 500 in Floresta Pilot). The former were to be minimally serviced without superstructure, affordable to 86? of Guayaquil's population. Nine ha. of industrial land adjacent to the site was also to be serviced. On the second site, Floresta Pilot, BEV was to offer low-cost levels of service, affordable to 70-80? of the city's population; (d) a minimal amount of offsite infrastructure to service upgrading areas and new sites; (e) administration: funds for operational costs of the Municipality's project unit were included, part of which was to initiate the computerization of the Registry of Property Office; (f) technical assistance, including consultants' services for detailed design, engineering tendering and supervision of construction; a study to improve the financial management of the Municipality, including debt collection, accounting and planning; monitoring and evaluation; and future project preparation; (g) community facilities were to be provided for upgrading  areas and serviced sites (5 primary schools, 3 health centers; 5 communal markets). In addition, land was to be reserved for nurseries, secondary schools, open spaces, end additional medical facilities over time; (h) community development: social promoters were to work with residents in project sites to initiate innovative programs similar to those used by the Fondo de Desarrollo del Sector Rural Marginal (FODERUMA) among the rural poor; grants and credits were to be provided for programs for training in the production of goods and services locally in demand, employment centers and other programs; (i) housing loans: some 9,700 small loans for improvement of old or construction of new housitng by BEV in the 4 areas serviced by the project, and to families with legal tenure in Suburbio and other low income areas of Guayaquil, with an average loan size of US$ 1,414; some technical assistance to BEV for long-term financial planning and titling assistance. The loan amount was US$ 31 million. D. Project Design and Organization At Appraisal 8. The project was conceived as a institutional development initiative with a three part approach: a) to orient concerned institutions to the options available to assist the poor; b) to improve institutional performance within the life of the project; and c) to pave the way for subsequent loans to continue this process. Implementing institutions were ab follows: 8.1 BEV/JNV: The provision of infrastructure for 500 sites and housing improvement loans in Floresta Pilot was the responsibility of BEV- JNV (sister organizations under one president, with BEV being responsible for banking and financial aspects, and JNV for national housing policy, construction and other technical aspects). A project unit with BEV and JNV staff was established, with its director reporting to the president of BEVIJNV. 8.2 Municipality: On the basis of its previous experience, the Municipality was thought at appraisal to be the most suitable institution for regularizing tenure, modifying official development norms, instituting cost recovery in upgrading areas and providing infrastructure. The primary responsibility of its Project Unit, established in December 1978, was to provide services to low income areas. At appraisal, the municipality was the implementing institution with the largest direct responsibility, accounting for direct implementation of 47Z of the investment cost of the project. 8.3 Central Bank: At the time of appraisal in 1978/79, Central Bank (CB) had recently assumed the role of innovator and promoter of poverty-oriented investment in Ecuador. Its Fondo de Desarrollo del Sector Rural Marginal (FODERUMA), established in early 1978, made community participation in planning and implementation an essential element in its methodology of project implementation. Also, about 75? of investments in  -4- community projects were to be recovered from thp ultimate beneficiaries. In response to government's su;gestion, CB was to enter urban marginal communities with a similar methodology, following initiatives undertaken jointly with UNICEF. During loan negotiations, it was agreed that CB would appoint a project coordinator acceptable to the Bank to facilitate a central reporting process, in addition to being responsible for community participation under the project, and for inter-institutienal coordination. 8.4 Banco del Pacifico (BDP!: Selected originally for its priority towards and good reputation among artisans and in view of its rapid grcwth (50X increase per annum over the 4 years preceding appraisal), BDP was chosen under the project to provide credit for small scale enterprises (artisans and micro-commerce and services) At appraisal, BDP stood second among Ecuador's 21 commercial banks, with the lowest arrears rate (3.6Z) of any, &nd 22Z of its lending directed to borrowers in government-designated priority sectors. The Guayaquil office was responsible for over 70? of its artisan lending nation wide. 8.5 CENAPIA: The Centro Nacional de la Promocion de la Pequefla 'ndustria y Artesania was created in 1975 to provide technical assistance to small industry and artisans. Though at appraisal CENAPIA was weak and understaffed in relation to its responsibilities, it was expected to be restructured anid expand its program shortly thereafter. In addition, it had close relationships with the Federacion Provincial de Artesanos del Guayas, which arranges for entrepreneurs in need of assistance to contact CENAP IA. 8.6 Ministries of Education & Health were to construct, operate and maintain primary schools and clinics in project sites, based on national planning standards, i.e., 2 schools in Alegria, 2 in Guasmo North and 1 in Mapasingue. Floresta Pilot was to be served by schools to be constructed in the larger Floresta development. Three health centers were aimilarly to be constructed and operated in each of the main project areas by the Ministry of Health, in coordination with community primary health care programs where these existed. At Loan Restructuring 9. In March 1984 the loan was restructured to facilitate disbursements (given the lack of institutional capacity of the Municipality to carry out project objectives) simultaneous with actions to extend the closing date, and to reassign funds to other components. The restructuring was oriented toward: a) scaling down the Municipality's works and increase those of BEV/JNV; b) eliminating most of the small-scale enterprise component, which was not functioning at all; c) increasing technical assistance to the Municipality to improve its financial and administrative capacities and procedures; and d) using a small amount of loan funds for infrastructure reconstruction following flooding in Guayaquil. In addition, at project restructuring, the Ministry of Public Works and the Ministry of Education retained roles commensurate with their usual responsibilities.  - 5 - 10. The overall loan amount of US$ 31 million remained unchanged. Completion was extended from December 31, 1984 to December 31, 1986, and closure of the loan from June 30 1985 to June 30, 1987, to accommodate the revised project implementation schedule. 11. The restructured roles of project institutions were as follows: 11.1 Municipality: Under the restructuring, upgrading works were eliminated; technical assistance to the institution strengthened; and the markets component reduced from 5 to 3 in line with the elimination of upgrading. In the Alegria site (the largest sites and services area in the project), the Municipality retained responsibility for building infrastructure, and BEV/JNV agreed to construct core houses. Community facilities were reduced (see Section F below): Schools were scaled down from 5 schools to 4; 3 health centers to 2, with redesign in the physical works to be completed by the Municipality. 11.2 BEV/JNV: This component was expanded to include 2,000 additional lots and core houses in Sauces VI and VIII; the credit program for low income housing was scaled down to more realistic objectives; and technical assistance to BEV for project preparation and capacity building was increased. 11.3 CENAPIA: Technical assistance from CENAPIA for small-scale enterprises was maintained, however, the funds initially intended for provision for credit to SSE were reassigned to other components. 11.4 Central Bank: The community development component was dropped in view of Central Bank's non-performance; however, the (,B retained the pro-forma role as project coordinator. 11.5 Ministry of Public Works: Its project unit was responsible for the construction of 2 pluvial drainage canals in Guasmo; upgrading 12 km of road; and the preparation of a master plan for drainage and sanitation in Guasmo. These works were identified as a flood reconstruction component, following serious floods affecting Guayaquil in 1983. 11.6 Ministries of Education and Health were still listed as executing agents for a reduced number of schools and health posts. The files show no serious discussions with them however, and there is little mention of their implementation capacity, the schedule of works etc. Evaluation of Project Design 12. As a multiple-component project with weak executing agencies, the project established project units in each of the agencies to carry out project works. These project units suffered from the problems usually associated with them -- a failure to properly orient the institution to its role and tasks, and a subsequent lack of understanding by the institutions of the project's aims. Moreover, the project units were negatively  -6- affected by the political and other problems affecting the implementing institutions; they suffered from insufficient autonomy, weak supervisory control from parent institutions, and a lack of counterpart funding. At appraisal, it was recognized that the municipality was chaotically administered, the staff poorly paid and disciplined. Political instability at the municipal level also led to a rapid succession of mayors and a lack of consistent policies. These weaknesses continued during the implementation of the project, and were a major reason for very deficient project implementation at the municipal level. 13. On the other hand, the design of the project was oriented toward "learning by doing." A mix of components and implementation agencies were used to obtain the project's poverty-oriented objectives. Some of these components failed (i.e., upgrading), while others succeeded (BEV implemented sites and services) and were able to increase their efforts through future projects. The project therefore provided different agencies with the opportunity to try out promising approaches which could be built upon in the future. E. Proiect Implementation 14. Project implementation was subject to a number of delays, taking eight years to implement (May 1979 - December 1987) instead of the expected five. Disbursements were slow from the beginning: for example, by the first quarter of 1983 only 9? of the loan had been disbursed, compared with an appraisal estimate of 68?, and no physical works at all had been initiated by the Municipality. 15. Support to small-scale enterprises: Due to lack of interest in offering loans to microenterprises (resulting from inadequate spreads) on the part of private banks, only Banco del Pacifico participated in this component, though it made only 97 loans during the period January-April 1982. It declined to continue its participation in 1982 because of rising costs and onerous bureaucratic dealings with the Central Bank. Even though the component was cut to US$120 thousand (from US$9.8 million) in the restructuring, only 51.6Z was used due to lack of counterpart funds. 16. The problem was compounded by a rapid fall in the exchange rate of the sucre to the US$; lack of information in CENAPIA on how to utilize the Central Bank's revolving fund; lengthy technical and administrative procedures in obtaining approvals from the Direccion Nacional del Personal and the Direccion Nacional de Presupuesto in the Ministry of Finance; and the poor quality and impact of CENAPIA which preferred classroom training to on-site technical assistance. From start to finish, this component realized 2000 technical assistance services to small-scale enterprises; 500 consultancy services to artisans; 50 training courses for a total of 2000 participants and a number of studies on possibilities for extension to new market investments. 17. Housing Improvement Loans: The most successful element in the project in terms of implementation and potential for cost recovery, the component offered BEV the opportunity to gain experience. This experience  was enlarged upon in two subsequent Bank loans to BEV for low-income housing (Loans 2135-EC and 2898-EC). However,the use of a fixed and low rate of interest was inappropriate given the high rate of inflation experienced during the project period (456? during the period from November 1979 - May 1988), leading to very high subsidies in real terms.1 18. Alegria Sites and Services: Works started in June 1985 with a programmed execution period of '6 months. Considerable 0' lays occurred in the implementation, and the site had not been comple -d at the closing date. The delays resulted from the Municipality's dispute with the contractor (the contractor eventually abandoned the work reportedly because he had not been paid and he lacked sufficient liquidity to effectively implement); design problems due to Alegria soil conditions; weak municipal finances and administration; lack of executive capacity of the project unit through lack of autonomy; restrictive municipal laws; a succession of weak mayors; weak administrators, and serious financial crises in the Municipality. At the time of the PCR mission, the municipality lacked the funds to finish the site. Although the housing units were constructed (by BEV), the infrastructure had hardly started, and about 200 families had already moved onto the site. The tenure of completed housing units in Alegria had still not been legalized by the Municipality at the time of the PCR mission, and sales prices of housing units cannot be fixed until tenure is granted (since BEV cannot complete its administrative procedures). Six months after the PCR mission, the site was almost completely occupied by squatters, who had completed rudimentary (and illegal) infrastructure on their own. Cost recovery is going to be difficult, if not impossible, given these circumstances. 19. Other Sites and Services: BEV/JNV completed sites and services at Floresta Pilot, as originally planned at appraisal, and Sauces VI and VII, as provided during the restructuring. 20. Community Facilities: Only two, Guasmo North and Mapasingue, of the five planned markets were constructed under the project However, those markets which were not built with project funds were locally financed by BEDE under its program of construction of 8 popular markets in Guayaquil's urban areas. Guasmo North was finished in April 1985, but it was not until mid/late 1988 that it was occupied, because beneficiaries would not pay rent for market posts. The construction of Mapasingue market started in January 1967, and finished in November the same year. It was occupied immediately and is functioning as planned (albeit with very low rents for posts: though the Municipality is aware of the need to increase rents for purposes of effective cost recovery, it is likely that the political will to implement future imposition of proposed increases will be low). 21. The planned five schools and three health centers were not implemented, due to lack of funds and a virtually total lack of interest and participation by the Ministries of Education and Health. 1 BEV is not longer using a fixed interest rate but dividends and adjustable rates with a view to eliminating subsidies.  -8- 22. Community Development: At appraisal, the Central Bank appeared the logical choice as implementing institution for community development, because of its work with FODERUMA. However its proposed national-level involvement in urban marginal areas never got off the ground, and CB was not prepared to take it on under the project alone. 23. Urban Improvements: The upgrading component planned at appraisal was never implemented, due to opposition from the selected communities and a lack of communication between the Municipality and the beneficiaries. In its original evaluation, the Bank over-estimated the possibilities for implementing improvements in Guasmo North, an area of urban conflicts with a population of some 300,000 including many immigrants. It was originally intended to carry out a pilot activity in a small area predisposed to repay investments, but the novelty of the project's concepts and the politicized character of the settlement precluded its implementation. (Listen to the People, a book reporting on a study financed by the World Bank, documents the way in which community leaders in the target neighborhood thwarted the implementation of the upgrading component for political purposes.) Moreover, procurement regulations were extremely weak and political will to follow through was at best lacking and questionable. 24. After the 1983 floods, emergency works and infill were implemented in 1983 in Guasmo North and South, Cisne II and Duran, at a cost of US$ 2.3 million. The Municipali y started implementation in 1985, concluding in early 1987. The participation of the Ministry of Public Works in the emergency works within its US$ 3.2 million loan allocation was timely, though not originally foreseen as part of this component. 25. Land Titles: Funds assigned for improving the system of the office of the Property Registrar of Guayaquil (Corte Superior de Justicia) were not used. However, 10,000 titles were legalized. Notwithstanding significant problems confronted in the execution of this component such as antiquated and inadequate regulations which did not provide the necessary guarantees of tenure or of fair pricing policies; and highly centralized and politicized decision-making processes, by October 1985 98X of the land was legalized. 26. Inter-Institutional Coordination was the responsibility of the Central Bank, but in reality it became little more than a financial conduit for the processing of project funds through the special account. The CB made little attempt to address its broader responsibility vis-a-vis the project, and had little access to decision-making levels of government, which resulted in sporadic operation. Some ad-hoc use was made of the Ecuadorian Development Bank (BEDE), which coordinated the input of various agencies in evaluating the project after completion. For the future, BEDE appears to be better placed to carry out a coordinator role. F. Project Results 27. The project has succeeded in establishing some needed principles of urban development for the poor, though some additional depth is still required. Despite being effectively converted into a housing operation  -9- when BEV assumed its larger role within the project following restructuring, an increased focus on realistic standards, cost recovery and community participation has become important in the thinking of institutions concerned with urban development, and they have been alerted to the alternatives to slum clearance. 28. The aim of institutional development was much less successfully achieved. The project was intended to have a strong institutional development effect on the Municipality of Guayaquil. This proved impossible. Guayaquil has a large population concentration and a strong desire for political and economic supremacy within Ecuador. Conflict with the national-level Government has been traditional. Thus, successive Central Governments have found it hard to implement its planned development in Guayaquil. Rapid and unplanned political changes of administration have meant sweeping personnel changes, with a resulting lack of institutional memory, and continuous periods of adjustment which are not fully overcome, resulting in decision-taking for the needs of the moment, rather than for sustained future development. 29. The small-scale enterprise component would have to be rated as a failure. It resulted in less than 100 loans and was abandoned early in the implementation process. However, the Bank has been able to finance a series of successful small-scale enterprise loans as a part of its work in the trade, finance and industrial sectors. Though these loans are for somewhat larger enterprises (Ecuadorian law defines small-scale enterprises as those with assets of US$50,000 equivalent and micro-enterprises as those with assets of US$6,000 equivalent), they provide increased incomes and employment for many of the people who are in the target group for this project. 30. The institution which benefitted most under the project and indeed the one responsible for its most successful element was BEV, whose housing loans have proved to be an efficient way of funding housing improvement in marginal sectors. BEV/JNV had strong leadership during project implementation. A successful and appropriate system of piso/techo (roof/floor) construction was tried out in Floresta Pilot, which allowed BEV to better finance Sauces VI and VIII housing units (slightly larger in size). IBRD and BEDE interventions in the form of financing and technical support allowed BEV to obtain two further Lank loans (Loans 2135 EC and 2898 EC).2 As a result of the project, BEV gained experience; its procedures were broadened beyond the purely physical; and a substantial number of loans were made to peripheral barrios lacking basic urban services. 31. The project has had a positive spin-off effect in that a locally- based foundation, 'Plan Internacional" is financing upgrading through housing loans, working with the Mutualista of Guayaquil in Guasmo. 32. The estimated economic rate of return for the completed parts of the sites and services component of the project (about 602 of total revised project cost), not including Aiegria site, is 222 (see page 20). 2 BEDE's participation in project financing represented 3.8 percent of total investment (para. 43).  - 10 - 33. Some 7,902 housing loans were given by BEV (812 of the number programmed at appraisal). The average monthly income of loan beneficiaries was e/ 38,647. Some 802 of households living in "popular" housint in elsewhere in Guayaquil have incomes below this level however, indicating a rather higher beneficiary income than originally targeted at appraisal. 3607 housing units were built by BEV/JNV in Floresta, Sauces VI and VIII. In Alegria. the Municipality estimates that 1,800 families have benefitted directly under the project, together with a further 3,200 households indirectly benefitting from emergency works in marginal areas (the costs of which are not recoverable from project beneficiaries). 10,000 tenure titles have been legalized by the Municipality. Direct employment created through the sites and services component amounts to some 800-900 jobs in construction, and further indirect employment in housing construction through improvement loans. 34. The present administration is now giving greater attention to the process of producing mass housing, absorbing unskilled labor and addressing the major problem of unemployment in the country. The project had a positive impact on alleviating poverty both directly and indirectly, through the works carried out in Guasmo sector (estimated population 300,000) particularly through the construction of a penetrator road; for the households living on project sites; and for families benefitting from loans for the purchase of new housing and improvements to existing housing in Guasmo, Mapasingte, Duran and the Suburbio. G. Project Sustainability 35. The project had mixed results with regard to sustainability. The Municipality was not an effective implementor, and has done little to initiate sustainable policies, especially with regard to cost recovery in either the sites and services, upgrading, or markets components. The MOP implemented its component (identified at project restructuring) efficiently and correctly; however, it is not equipped to propose or implement cost recovery of any kind. The lack of cost recovery limits the sustainability of its involvement. BEV loans under the project to housing beneficiaries were made at a fixed and rather low (1O0 nominal) interest rate. Though this is not sustainable, this project was the first in a series of projects under which BEV became more aware of the need for cost recovery in real terms. Cost recovery improvements have been implemented under these follow-on efforts. H. Bank Performance 36. The project is a typical example of the early generation of urban pr3jects. It had many components and implementing agencies, and coordination arrangements were weak. In addition, the project's targets (number of units etc.) were over-ambitious, given the installed capacity of project institutions; final designs were not available in advance of implementation; and insufficient attention was given at appraisal to the sequence of provision of services: for example, BEV low-income housing was left unoccupied on completion - a contributing factor to squatter invasions. Although, in general, the 1985 restructuring improved implementation, the Bank made two major errors in agreeing to have the  - 11 - Municipality retain its responsibility for infrastructure provision for the Alegria site. First, as should have been foreseen at the time, the Municipality proved itself incapable of completing the site. And second, the Bank agreed to split responsibilities between BEVIJNV and the Municipality on the same site. As a result, the benefits of BEV/JNV's investments in core housing on the Alegria site are diminished by the infrastructure deficiencies and the impossibility of cost recovery caused by the Municipality of Guayaquil's non-performance. 37. Insufficient attention was given at appraisal to diagnosing the Municipality's deficiencies as an institution and in devising a realistic program for corrective action. At appraisal, the Municipality and the Bank misunderstood military maps that showed the elevation of Guasmo. As a consequence, the amount of landfill it would take to eliminate flooding was substantially underestimated. In fact, it turned out to be impossible to provide landfill and minimal services in Guasmo on a cost-recovery basis. The Municipality's shortcomings were easily apparent. It was underfinanced and limited by national law in its efforts to improve tax assessments and collections, it was overstaffed with poorly qualified personnel, and its political leaders had a short time horizon and consequent frequent staff turnover. Though a long-established, powerful institution, the Municipality of Guayaquil has historically been limited in its effectiveness. The Bank should have been more aware of its potential shortcomings in implementation, and to the extent possible, devised more effective ways of coming to grips with the institutional weaknesses which became apparent as * the project unfolded. 38. The Bank also did not supervise the project closely enough. Supervision missions recognized the need for institutional development, and a detailed institutional development program (concentrating on municipal finance and administration) was only devised during the restructuring mission. Subsequent missions failed to follow up on this initiative however, and their lack of attention was not helped by lack of interest on the part of the Municipality. To a certain extent, in part due to a succession of project officers being involved with the project, there was a lack of proper evaluation and supervision of the project on the part of the Bank. 39. The lack of interest in providing community facilities to project areas on the part of the Ministries of Health and Education is something which should have been foreseen at appraisal, given the general financial constraints of the country and the fact that no budget was provided under the project for implementation of this component. During supervision, the ministries should have been pressed harder to provide basic facilities on project sites. I. Borrower Performance 40. Overall, all the project units lacked administrative capacity, and most suffered from a lack of autonomy. BEV/JNV was however able to overcome this under a strong leadership from the top management of the  - 12. - institution, as well as the head of its project unit, during the latter part of the project period, when 702 of the implementation of its component was achieved. 41. An additional problem was the effective division between Quito and Guayaquil which exists between central and local government, and main and subsidiary branches of institutions. This negatively affected the performance oc the Central Bank, BEV, CENAPIA, and the Municipality. 42. CENAPIA did not appreciate the potential benefits to it from an IBRD loan. Regarding the credit component to small enterprises, the high administrative costs on small loans and the distance of project sites from Banco del Pacifico's offices made administration difficult, as did the nature of Guayaquil's mobile and shifting population, which does not lend itself to continuity. 43. The Central Bank was really not equipped to be the project's coordinator, and it is questionable whether the Bank should have selected it for this role: having chosen it, and seen its rather inadequate performance, the coordinating role should have subsequently been changed to an institution with more of a stake in the success of the project, and better equipped to carry it out, such as BEDE (which of course did not exist at the time of appraisal). Created in 1981, BEDE financed part of the project as one of its first loans and was designated secretary of the regulating organization for external credits in 1984, undertaking some of the physical and financial supervision of the project. 44. The Municipality's performance in this regard has already been discussed. Its project unit suffered from a lack of autonomy, and whereas the structure of BEV allowed it to function when the flow of counterpart funds was interrupted, the Municipality was unable to withstand financial strain, and implementation suffered as a result. 45. The Ministry of Public Works' unit performed well, in part due to its direct structure as part of the main Ministry. It had financial, administrative and operational independence, with a consequent positive influence on implementation of the works under its charge, which were executed with greater agility than by other project units. J. Project Relationship 46. During the PCR mission a number of project institutions indicated a desire to have seen the Bank take a more active supervisory role as overseer and motivator of project implementation. Though the Bank should have bs,en more assiduous in its supervisory role, it could not have compensated for the lack of development of an institutional memory among project institutions. K. Consulting Services 47. The financial management study of the Municipality carried out by CORPEC was only partially completed. A diagnosis of the Municipality's  - 13 - financial situation was carried out, and the consultants suggested the implementation of 5 financial administration projects, including an analysis of all municipal ordinances; modernization of its administration; computerization; and the creation of global municipal administration manuals. Terms of reference for a financial diagnosis were produced by the Instituto Brasileiro de Administracion Municipal, but these were not acted upon. 48. An evaluation of the squatter upgrading at Guasmo utilizing participant-observation methodology was impaemented by a consultant from the Bank, and has since been published as a book. An examination of how to improve development standards was carried out in 1983; engineering and urban development consultancies were carried out in Alegria in 1982; as were studies on the level of feasibility of sites and services and a pre- feasibility study of employment generation in 1983. Consultants' performance was satisfactory. 49. The HOP supervised a technical study for further sanitary and infrastructure improvements in Guasmo. Once the study was completed, however, there is no evidence that it was read or acted upon by any of the relevant authorities. 50. BEV received technical and administrative consultancy services which functioned satisfactorily, particularly in the area of launching a publicity program. L. Project Documentation and Data 51. The legal agreements and SAR were clear and well-written; however their usefulness war limited given the extended length of time it took to complete the project and the changing conditions in Ecuador during that period. 52. The data relevant to the production of the PCR were readily available, both in Bank project files and from the Borrower who made good use of available data in its own project completion report.  - 14 - PAR? TI - MAIN FINDINGS AND LESSONS LEARNED (Prepared by Borrower) 1. Followizg the old guidelines for preparation of Project Completion Reports (PCI), BIDE (Ecuadorian Development Bank) prepared a draft PCR in Augpst 1988, which incorporated the inputs of the agencies involved in the project, escept CEUPIA. This draft PCR was used as part of the basis for the preparation of this PCR. 2:-- Given the time elapsed since closing of the loan. it is proposed that Part SS should not be prepared.  - 15 - PAW Ill. - BASIC DATA 1. R.A7D UAW LOAM Loan Your of TItte Purpevv Approvel Status CG_mnte 6-006-8 Pre-lnv.eteent etudle;t 08/1977 Co"leted 117S5 a ] iton Lon effective In Institutional devolop- nt March 97ti. Cloelne delayed by meslstence to FI3AM and the a years. De plt Initial Sederian coneulttng industry. difficulties all coepenente *ers IgIeewntd. oaod progree In Inmtitutioenl devolopmnt of FiNARE. 2185-EC To m*u It In financing the 06/04/82 Cloed dJt.?7 Million tAon effective In construction of low-Income 1y 198i; cleoing date 08/80/87. housing and comnity faciltle . Scope expanded an Dec. 84 to provlelon of credits and baslc Include sub-loans for flood Infrestruture In urbcn settlo_unt. affected area. Further expenleon end strengthen BEV and the J*N. In July 67 to 06/80/US for oerthqualt reconstructIon earks. 28W9FEC Incrmlng production of lo- 01/12/88 Ongoln ttiO mliI Ion Lan *ffcti vs incas. hlauing; Iprove reaurce 09/80/88; expected closing date mabillastimn and *llocatIon In thc 12/81/98; housing sector; strengthening of expected coepl-tlon date 06/80/90. fInencs,l admi* nsltrative end Project lIplemntatlon undor y productive efficiency of EV/MV; after disruption due to pre- end and fostering private contricter/ poet-eletlon ectivitles. developers' participation.  - 16 - 2. PROJECT TIMETABLE -----------------------------------------------------------------__----------__ Item Date Planned Revised Actual --------------------------------------------------------------------__-------__ Identification 08/77 Oe/78-12/78 Preparation 10/77-11177 11/77 Appraisal Mission 11/26/78-12/14/78 Loan Negotiations 10/15/79-10/23/79 Board Approval 12/11/79 Loan Signature 05/09/80 Loan Effectiveness 10/31/80 Loan Closing 06/30/1985 06/30/86 & 12131/86 06/30/87 Loan Completion 12/31/84 06/30/86 12/31/86 ------------------------------------------------------------------__---------__ 3. LOAN DISBURSEMENTS 3.1 Snmmary of Disbursements --------------_---------------------------------------------__---------------__ Sum Assigned US$ million 2 used disbursed --------------------------------------------------------------__-------------__ Municipality Executing Unit 7,930.0 4,693.5 59 BIRF-BEV 18,910.0 18,777.7 99 J,IRF-MOP 3,370.0 2,243.5 67 CENAPIA 120.0 69.3 58 EDUCATION MINISTRY 170.0 _ UNALLOCATED 500.0 TOTAL 31,000.0 25,783.9 83  - 17 _ Date of Final Disbursements February 19881/ Time Line: 1979 80 81 82 83 84 85 86 87 88 -----------------------------------------------------------------------__----__ Municipality ----------------- BIRFIBEV _________ CENAPIA ---------------- MOP ----- 1/ Account remained opened beyond closing date because initial deposit to the Special Account was not fully recovered until that date. 8.2 Cumulative Estimated and Actual Wlsbursemnte (US$ ml lI l on) Bank FY 1980 1961 1982 1983 1964 1986 1988 1967 1998 Appraisal 0.4 6.9 14.8 28.8 29.3 81.0 - - - Actual - 0.8 2.2 8.0 8.8 6.0 16.3 22.1 26.8  - 18 - 4. PROJECT ZHPLEMENTATION Indicators Appraisal Actual Estimate Estimate (# of Beneficiaries) (# of Beneficiaries) -----------------------------------------------------------__----------------__ a) Sites and Services 3,700 Households 5,407 Households b) Upgrading areas 6,400 Households 3,200 Households c) Small-scale Enterprise 5,000 New Jobs 4,500 New Jobs d) Housing Loans 9,700 Loans 7,902 Loans -------------------------------------------------------------------------__--__ TOTAL BENEFICIARIES 24,800 21,009 c) Community Facilities - Schools 5 Units - Health Centers 3 Units - Markets 5 Units 2 d) Urban Development - Housing Loans 9,700 7,902 - Titles 10,000  - 19 - 5. PROJECT COSTS AND FINANCING A. Estimated and Actual Project Costs ---------------------------------------------------------------__--------- Appraisal Actual (US$ million) (2) (US$m) (X) ------------------------------------------------------------------__------ Support to Small Scale Enterprises 10.8 21 0.17 1.6 Services to Low Income Areas 24.2 47 22.7 93.8 Housing Loans 16.6 32 14.1 84.9 TOTAL 51.6 100 37.0 71.7 ----------------------------------------------------------------------__-- The exchange rate used at appraisal was s/ 25=US$ 1, whereas the average actual value between April 1981 and March 1988 was e/ 114-US$l. Inflation ran at 4562 during the period November 1979 and March 1988. W. Sources of Funding Appraisal Actual (US$ million) (No Data Available) Support Services Housing TOTAL to SSE's to LIG's Loans -----------------------------------------------------------------__------- IBRD 4.3 15.5 11.2 31.0 Govt. 0.3 0.9 - 1.2 Banco del 2.7 - - 2.7 Pacifico SSE Revolv. 2.2 - 2.2 Fund SSE's 1.3 - - 1.3 BEV - 0.4 5.4 5.8 Municip. - 7.4 - 7.4 TOT---------------10.8-----------24-------2-----16.6-----------51------_6- TOTAL 10.8 24.2 16.6 51.6  - 20 - 6. PROJECT RESULTS A. Direct Benefits Indicators Appraisal Actual Estimate Estimate -----------------------------------------------------------__---_-________ a) Beneficiaries 24,800 21,009 b) Job Generation 16,000 (1) 5,400 c) Revenue Effect 17-192 22.42 d) Poverty Impact 162 (2) 8.02 (2) ----------------------------------------------------------_----------_-__- 11 Estimated as a total of owners and workers to be involved in participating enterprises and employment generation expected from construction works. 2/ New housing among the lowest 502 of income distribution. B. Economic Impact Appraisal Actual Estimate (At Final Devt.) ----------------------------------------------------------------__-------- Economic Rate of Return Sites & services 17-192 222 Underlying Assumptions: The rate of return used in the PCR has been calculated from BEV sites only. No ERR was calculated for the Municipality's component since it was not completed and part of its allocation was utilized in works not originally included. The final sale price of some Alegria units had still not been finalized at the time of the PCR mission as agreement had not been reached on it between BEV and the Municipality; the changing rate of inflation prevailing at that time meant that final costs could not accurately be determined; and the greater part of Block B had been invaded by squatters. The rate of return calculations assume that: i) the investments made during the period 1981-87 have been converted into December 1987 prices; ii) the number of units is equal to the number of housing loans given, and that no distinction has been made between loans for the purchase of new housing and housing improvements; iii) the gains per unit for the year 1981 have been modified in conformity with the annual variation in the consumer price index; iv) an allowance of 32 of the capital value has been made for depreciation and maintenance of the houses; v) the income per unit has been calculated by subtracting the loan repayment from the imputed annual rent OR on the basis of increases in rental values. Comments: BEV's outgoings on interest and amortization of the loans from IBRD and BEDE have not been included in the rate of return calculations, which would further reduce its percentage.  - 21 - C. Financial Impact Not Relevant. D. Studies Purpose as Defined at Impact Appraisal Status of Study Studies 1. Finance & To improve its Implemented management of financial 1982. Municipality management. 2. Monitoring & Contracted; not evaluation (municipal.) implemented. 3. Future project Not implemented. preparation (municipal.) 4. Review of To facilitate Implemented Municipality's upgrading & 1983. urban devt. regs. sites & services 4. Master Plan for Implemented. drainage, Guasmo S. Anthropological Implemented. study of Guasmo 6. Feasibility studies Implemented. for sites & services; prefeasibility study for employment generation. Comments: 1. The Municipality did little to mobilize consultants for production of a work program, through a coordinator for the study was designated. The study was dropped at the Municipality's request because of the length of time required to complete it. The Bank was asked to consider its inclusion under a future project. 4. The Master Plan for drainage in Guasmo experienced difficulties in execution, principally because of coordination problems between the Ministry of Public Works and the Municipality (Empresa de Alcantarillado de Guayaquil). I  - 22 - 7. LOAN COVENANTS Status of Special Covenants In the Loon Agreements Loan Agreement Section Comments 8.01 (a) The Borrower to carry out the project Continuing coupterpart funding with th- participation of project probl"e affected components entitles and provide funds, etc. on * of Municipality of Oumyaquil. timly basis. 3.02 (a) Borrower to cause Municipality to Managemnt problems slowed maintain adequately staffed project lmplemntation progr