Document of The World Bank FOR OFFICIAL. USE ONLY Report No, 8101-BO STAFF APPRAISAL REPORT BOLIVIA EASTERN LOWLANDS: NATURAL RESOURCE MANAGEMENT AND AGRICULTURAL PRODUCTION PROJECT Vo L- FEBRUARY 20, 1990 Country Department III 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 official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY AND EQUIVALENT UNITS Currency Unit - Boliviano (Bs) Exchange Rate Effective December 31, 1989 US$1.00 = Bs 3.00 US$0.33 = Bs 1.00 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS ADP - Agricultural Development Project ANAPO - National Association of Wheat and Oil Seed Producers BAB - Bolivian Agricultural Bank BCB - Central Bank of Bolivia CAO - Agricultural .hamber of Commerce for the Orient CIAT - Tropical Agri.ulture Research Center CIDOB - Organization of the Indigenous Peoples of the Bolivian Orient COMEX - Export Complex of ANAPO, Ltd. CORDECRUZ - Santa Cruz Regional Development Corporation ENFE - Boliv4an National Railway FEGASACRUZ - Livestock Federation of Santa Cruz FENCA - National Federation of Rice Cooperatives FINDESA - Santa Cruz Development Finance Corporation MACA - Ministry of Agriculture PROMASOR - Association of Maize and Sorghum Producers FISCAL YEAR January 1 - December 31 FOR OFFICIAL USE ONLY BOLIVIA EASTERN LOWLANDS: NATURAL RESOURCE MANAGEMENT AND AGRICULTURAL PRODUCTION PROJECT STAFF APPRAISAL REPORT Table of Contents Page Number I. CREDIT AND PROJECT SUMMARY .............................. 1 II. THE AGRICULTURAL SECTOR ................................ 4 Structure and Performance. 4 Land Policy Framework. 5 The Eastern Lowlands Region. 7 Potential for Sustained Agricultural Production and Export Growth in the Eastern Lowlands. 9 Bank/IDA Strategy in the Agricultural Sector and in the Eastern Lowlands .13 III. THE PROJECT ............................................. 14 Rationale for Bank/IDA Participation .................... 14 Project Objectives ...................................... 15 ..ojact Area ............................................ 15 Project Description ..................................... 16 Detailed Features ....................................... 16 Project Costs ........................................... 23 Project Financing ....................................... 23 Procurement .24 Disbursements ........................................... 24 Accounts and Audit ...................................... 25 Organization, Management and Implementation ............. 26 Project Monitoring and Evaluation ....................... 32 Project Benefits, Justification, and Risks .............. 32 Project Risks ........................................... 34 IV. AGREEMENTS TO BE REACHED AND RECOMMENDATION ............. 35 ANNEX 1 - Statistical Data Tables 1 to 16 ........................................ 39-60 ANNEX 2: Land Policy Framework ................................. 61 Tables 1 to 11 ........................................ 80-87 Map IBRD 21877 This document has a restricted distribution and may be used by recipient. only in the performance of their official duties. Its contents may not otherwise be disclosed withuut World Bank authorization. - ii - Page Number Proiect Implementation Annexes (Volume II) ANNEX 3: Natural Resource Planning and Management Component .... 1 Table 1 ............................................... 16 Appendix 1 to 10 ................... 22-40 Figure 1 .............................................. 41 ANNEX 4: Agricultural Production, Credit, Storage and Marketing & Related Issues . . 42 Appendix 1 ........................................ 57 Tables 1 to 15 ............. 60-75 ANNEX 5: Agricultural Extension Component ..76 Table 1 .............................................. . 86 Appendix 1 to 6 . . .............. 87-102 Chart 1 . . ............................................. 103 ANNEX 6: Agricultural Research Component ............ 104 Table I ............................................... . ..... 113 Appendix 1 ...................... 114 Chart 1 .................................. * ............ 137 ANNEX 7: Flow of Funds Under the Pro,ect ..................... 138 ANNEX 8: Santa Cruz Regional Development Corporation - CORDECRUZ ........................................... 140 ANNEX 9: Rural Roads Improvement and Maintenance Component ..... 143 Table 1 to 7 .......... .............................. 148-154 Map: IBRD 21886 .......................... 155 ANNEX 10: Componente Desarrollo de la Poblaci6n Nativa .......... 156 Table 1........................................... . 166 ANNEX 11: Selected Documents in the Project File .... ... 168 BOLIVIA EASTERN LOWLANDSs NATURAL RESOURCE MANAGEMENT AND AGRICULTURAL PRODUCTION PROJECT I. CREDIT AND PROJECT SUMMARY Borrower: The Republic of Bolivia Credit Amount: SDR 26.5 million (US$35.0 million equivalent) Terms: Standard, with 40 years maturity Onlending Terms: Maximum: interest rate to subborrowers: certificate of deposit rate of financial intermediaries; interest (rediscount) rate to financial intermediaries: six-month quoted LIBOR; spread to financial intermediaries: up to five percentage points. Foreign exchange risk would be borne by credit beneficiaries. Cross-currency risk would be borne by the Borrower. Cofinancing: Federal Republic of Germany, US$5.6 million equivalent Project Obiectives and Description: The project would assist the regional development of the Eastern Lowlands in the framework of the long-term preservation of its natural resource base. A Land Use Plan, which would be prepared, would include agroecological zoning and mapping and semi-detailed soil studies, and would incorporate the results o' several resource and subsector studies (water, foreetry, livestock, protected areas and indigenous lands) and measures for developing and protecting forest reserves and national parks, principally the Noel Kempf Mercado National Park. The project would consist of the following components: (a) natural resource planning and management; (b) agricultural production and marketing credit; (c) research; (d) agricultural extension; (e) rural road improvement and maintenance; (f) protection and development of indigenous peoples; and (g) administrative support. The project would also assist in introducing a market-based system for pricing public land. Preparation of the project has been supported by a Project Preparation Facility (PPF). Project Benefits and Risks: The project would assist in sustainably expanding, over a five-year period, annual soybean exports by about 200,000 ton, reduce imports of wheat by about 30,000 ton and provide the technological support for expanding the production of other crops. Accompanying this would be the preparation of a long-term Land Use Plan (including agroecological zoning, mapping, and soil studies), - 2 - identifying areas that should be set aside as reserves and natural parks for the preservation of wildlife and flora, introduction of improved agricultural technology for both subsistence and commercial farmer and protection of the cultural environmert of the "Ayoreosr indigenous people, while improving their standard of living, and helping them, and the Chiquitanos communities, to demarcate their tribal lands. This is a high risk project, but suited to the development role of IDA in helping to bring about sustainable agricultural development in harmony with the environmentally-fragile Eastern Lowlands of Bolivia. There are three main risks associated with the project: (a) demand side risks related to possible fluctuations in export prices, and the continued market for exports particularly for soya, the expected main crop. Export prices are beyond the control of the project, but the risks are reduced by the relative good prospects for soya prices and the fact that soya prices have been historically rather stable. Production levels to be supported under the project would be insignificant in the world market (less than 1Z); (b) supply side risks, i.e., sustainability of yields, production costs and transport costs. The project would minimize the risk by strengthening technology development and transfer to improve the efficiency and sustainability of crop production, and througn improvements in the rural transport system (including rural roads under the project and the railroad to the Brazilian border under IDA's Export Corridor Project). A credit risk fund would also be created to encourage financial intermediaries to lend to small farmers who do not havy acceptable collateral, but who are good project risks. These measures would also deepen the ability of the region to adapt to changing external market circumstances, thus further reducing long-term risk; and (c) the environmental risks that come from the competing demands for agricultural development within the resource-rich, yet fragile Eastern Lowlands. To minimize these risks, the project would limit the speed and direction of agricultural development, and frame it in the context of the rational Long-term development of the region's natural resources, by controlling the areas where cropping will take place, and the methods of land clearing and cultivation. -3- Estimated Costs: a/ Local Foreign Total ------(us$ million)----- Natural Resource Planning and Management 1.8 3.2 5.0 Agricultural and Marketing Credit 13.5 17.5 31.0 Research 1.3 0.9 2.2 Agricultural Extension 2.0 1.2 3.2 Rural Road Improvement and Maintenance 4.0 3.7 7.7 Support to Indigenous Peoples 0.5 0.3 0.8 Administrative Support 0.1 0.1 0.2 Project Preparation Facility 0.1 0.4 0.5 Base Cost 23.3 27.3 50.6 Physical Contingencies 0.8 0.7 1.5 Price Contingencies 1.4 1.1 2.5 TOTAL 25.5 29.1 54.6 al Includes US$1.9 million in taxes Financing Plan: GovernmentICORDECRUZ 6.6 -- 6.t Beneficiaries 3.7 __ 3.7 Financial Intermediaries 2.7 -- 2.7 CIAT 0.6 -- 0.6 Producers' Associations 0.4 -- 0.4 Federal Republic of Germany 1.8 3.8 5.6 IDA 9.8 25.2 35.0 TOTAL 25.6 29.0 54.6 Estimated Disb1trsements: FY 1990 1991 1992 1993 1994 1995 1996 1997 Annual .5 3.0 4.6 4.9 5.6 5.3 6.3 4.8 Cumulative .5 3.5 8.1 13.0 18.6 23.9 30.2 35.0 Economic Rate of Return: 18Z Mas: IBRD Nos. 21877 end 21886 (the latter in Annex 9) I. -4- II. THE AGRICULTURAL SECTOR Structure and Performance 2.01 Agriculture is the most important sector in Bolivia in teLms of its contribution to GDP, accounting 'Xr about 222 of total GDP in 1988, up from about 182 in 1978. It also accounts for abou'. 65Z of total employment. Growth rates of agriculture have shown wide yearly fluctuations during the 19809 ranging from a decline of 252 in 1983 to an increase of 192 in 1984.1 At about US$88 million in 1988, agricultural exports represent only about 152 of total country legal exports, but, excluding exports of natural gas and minerals (which combine for more than 802 of exports), agriculture represents over 802 of the country's remaining exports. Furthermore, apart from hydrocarbons, agriculture provides the most likely source of export expansion and income growth (income per capita in Bolivia, an IDA country, was US$570 in 1987) in the short and medium term. In 1988, over 80 of agricultural exports were concentrated in four major commodities: timber (23%), soya (222), leather (222) and coffee (172). Preliminary indications, following the 1989 crop season, is that soya will overtake timber as the largest single export commodity in value terms. Cotton and sugar, once the major agricultural exports in the country have declined drastically: sugar accounted for only 4Z of agricultural exports and there were no exports of cotton in 1988. 2.02 The total area cultivated nationwide during the main summer crop season (December-April) has varied between about 1.0 million and 1.4 million ha in recent years, declining to an estimated 1.1 million ha during the 1986-87 season. This is equivalent to about 12 of the total land area of the country. About 252 of the area planted in the main season is planted to a second crop during the winter season (May-October). Also, there is an additional 400,000 ha of improved pasture, total-ing between 1.75-2.0 million ha of cultivated land p.a., ineluding double-cropping. In terms of area planted, the structure of agriculture crop production is heavily biased towards the production of food crops with maize (280,000 ha), potatoes (125,000 ha), and wheat and rice (90,000 ha each) leading the way. In contrast, soya, cotton, sugarcane and coffee, the more prevalent commercial crops, combined accounted for only about 175,000 ha in 1987. 2.03 Over the past decade, and with the exception of soybeans, there have been no significant gains in crop productivity (yield). This has been attributed at least in part, to the low use of fertilizer. In some cases (potatoes, sugarcane) the reduction in yield has been considerable. Thus, without any considerable increase in area cropped and with stagnant yields, 1/ Overall, however, average agricultural growth rates have been disappointing in the 1980s, with the sector growing at a negative compounded annual rate of -1.52 from 1980-87 due partly to the jolt of international prices of the early 1980s and to the macroeconomic policies instituted by the Government. By comparison, in the period 1970-1979 the sector averaged a 4.12 annual growth rate. - 5 - the sector on the aggregate, has not shown any significant growth in production since the 1970s. Bolivia still imports about 80Z of its wheat (275,000 ton annually) and 601 cf its milk (200,000 ton annually). Much of these imports come through donations from EEC, VS and Argentina. Land Policy Framework 2.04 Agricultural land utilization in Bolivia has been shaped by the development strategy started in the 1950s, which included three combined efforts dealing with land tenure and uses (i) a broad Agrarian Reform was implemented in the highlands, more in response to large peasant mobilizations than as a planned economic strategy; (ii; directed (and spontaneous) colonization programs to the subtropical and tropical regions. These attempted to alleviate the demographic pressure on the traditional highland regions, promote the cultivation of certain labor-intensive crops like rice, and provide much needed labor for the new commercial farms at the time of harvest, especially of sugarcane and cotton, in the Eastern Lowlands; and (iii) finally, large-scale, somewhat more capital-intensive, agricultural enterprises were promoted in the Santa Cruz region through genercus Land grants and subsidized credit for the production of sugarcane, beef and cotton. 2. Land Pricing and Allocation Policv. Land pricing and a]location policy has been guided by the Agrarian Reform Law of 1953, shaping the pattern of land tenure and land use. Part I of the law states that all land, underground geological deposits, and bodies of water within the national boundaries belonig to the Bolivian Nation. Nevertheless, the law gives the State the right to allocate land and issue private titles to those who work the land directly, but it does not have any provisions that allow the State to sell land. Consequeutly, Bolivia does not have a land pricing policy, because public lands are not for sale--they are only subject to allocations to individuals, commercial enterprises, and other associations. Tenure is given to those willing to "improve" the land, which basically means to invest in land clearing and buildings for productive purposes. 2.06 Land concessions are given by the Government, and in the case of land granted under the Agrarian Reform Law, the land title cannot be sold or transferred unless authorized by the Institute of Agrarian Reform. The Institute of Colonization, under a separate law has often granted to colonizers title to land that had already been conceded by the Institute of Agrarian Reform (both institutions, incidentally, are part of the Ministry of Agriculture) without i.e., implementing a reposession process by the Agrarian Reform Institute to recover unutilized land. The problems in terms of titling are compounded by the f&ct that some people still hold title to land from the time of the colony, and that many beneficiaries under the Agrarian Reform Law have sold their land totally or partially to larger commercial farmers (even though this is illegal). These commercial farmers have registered their titles with notary publics and in some cases have proceeded to resell the land in lots, creating a proliferation of titles. The resulting multiplication of claims on the same land (in some provinces in Santa Cruz the total area of land registered is twice the size of the province) has made rural property unacceptable as collateral by the financial intermediaries. Not surprisingly, farmers, especially small farmers, are having great difficulty in obtaining credit. -6- 2.07 The absence of a land pricing and taxation (see below) policy has not yet led to unreasonable accumulation of land for speculative purposes or to deleterious deforestation of land areas (deforestation is primarily determined by the high cost of land clearing and therefore by the availability of credit). Large-scale land speculation has heretofore been precluded not only by the application of land ownership rules under the Agrarian Reform Law as indicated above, but also and predominantly by underlying economic reasons. In effect, the price of land depends on total supply and, on the demand side, on soil fertility, water availability and access to market infrastructure. In the case of the Eastern Lowlar.ds, 'and is plentiful, soil fertility and water availability information is by and large unavailable, and productive infrastructure to access markets is still rudimentary, especially beyond the Rio Grande. This means that in the undeveloped frontier regions, unimproved land without infrastructure has a very low marginal value. A policy of introducing land auctions in these areas would not be feasible because of lack of information on the true value of land and because the supply tends to be quite elastic. In areas 'rhere infrastiuzture development is taking place or has been targeted, however, a policy by the Government of land auctions or of land pricing based on emerger.t market indicato.as would make sense in order both to capture some of the "rents' that would otherwise accrue to private individuals who have the information on land characteristics and future infrastructure development (or who are in a position to affect it), and to ensure that owners would seek land's most prodactive use, i.e., the most efficient utilization of land. This would be true even after the recent introduction of land taxes. The need for such land pricing policy has been recognized by previous administrations who, as development has proceeded in the Eastern Lowlands, have attempted, unsuccevsfully so far, to change the current land al'location policy by allowing the State to issue land titles to commercial farmers subject to payment of a fee based on the market value of land. Under the proposed project, IDA would support the reintroduction of a land pricing law (para. 3.05). 2.0q Rural Land Tax. The recent introduction of a land tax is part of an overall process of restructuring of the Bolivian tax system. Because the process of Agrarian Reform was so politicized, rural landholdings have escaped almost all forms of taxation for over three decades. The current Tax on Rural Landholdings was created under Title IV, Chapter 1 of Law 843 and became effective on July 1, 1989. The main objective of the tax is to incorporace the large agricultural sector into the tax system. With a cot1tribution of 22Z to Bolivia's GDP in 1988, agriculture will become more and more important in the coming years as the country tries to diversify its exports. Therefore, although tax rates on rural properties are low, the coverage small (Annex 2) and the initial fiscal impact of the land tax minimal, the introduction of a rural land tax wi:.l be very important in terms of generating, for the first time, a comprehensive record of agricultural enterprises and landholdings that will be most useful in future development planning. Unlike Brazil, forested land is taxed well below the rates for agricultural land during the first five years of land ownership. Therefore, the tax system provides no incentive to deforestation in the short and medium term. Even in the long term, the effect of the land tax on deforestation should be small compared to the disincentive effect of the high cost of land clearing. Although the law was not specifically designed with the intent of discouraging land accumulation or speculation, this may be one of the most important effects of its implementation, together with a more rational use of the land. -7 - The Eastern Lowlands Region 2.09 General Characteristics. The Eastern Lowlands region is part of the Lowlands region of BoliviaZ and consists of the Department of Santa Cruz (Map IBRD 21877). The department covers practically all the eastern portion of the country and has a total area of 370,620 km2 or 342 of the land surface of Bolivia. The population of the department is over one million (about 18X of Bolivia's popilation) mainly concentrated in the so- called "integrated area" that inclu-s the provinces of Ibanez, Warnes, Sara, Ichilo and Santiesteban and the major cities of Santa Cruz and Montero, and it is limited to the east by the Rio Grande. This integrated region comprises less than 3? of the total area of the department but over 60X of the population. The rest of the department is sparsely populated and largely undeveloped with little transport and physical infrastructure, with the exception of some areas of colonization and foreign settlements, the areas of San Jose de Chiquitos, and those near the border with Brazil, served by the existing railroad Santa Cruz-Corumba. In the past five years, however, land pressure nas begun to be felt paxcicularly in the areas immediately east of the Rio Grande as a result of steady migratory flows and the agricultural potential of the area. This expansion eastwards seeking the natural (and cheapest) outlet of Santa Cruz to the Atlantic and the markets potentially offered by Brazil, has been enhanced by the 5iistence of the east-west railroad to Corumba, and the construction of the main trunk roads Santa Cruz-Pail6n-Los Troncos-Trinidad (the latter in the Beni Department) following a north-south directIon over the eastern margin of the Rio Grande, ani, Santa Cruz-Corumba. The latter road roughly parallels the railroad and, while not yet passable in all-weather conditions for its entire length, has provided added impetus to population movement and agricultural development in the area Pail6n-Tres Cruces and around San Jose de Chiquitos. 2.10 Climate. The average mean temperature is about 25C and with adequate moisture allows year round production of a variety of crups. Rainfall varies from about 700 mm annually in the south and east to about 1,800 mm in the north and west. About 70Z of the total falls during the summer months of November to Harch permitting production of a number of rainfed crops during this period. Areas receiving more than 1,100 mm annually generally have sufficient winter rainfall for production of a second (winter) crop which may be mat-e or wheat. Higher rainfall areas in the north have sufficient summer rainfall for rice and sufficient in winter for a reliable winter crop of soya. Despite the generally favorable moisture regime for rainfed production, there are periods of deficit and the timing of planting can be important. Wind is an important factor in evapotranspiration and erosion. 2/ The two other large geographic subdivisions of the country are the Highlands ("Altiplano"') and the Valleys. The Lowlands region includes the departments of Pando, Beni and Santa Cruz. - 8 - 2.11 Farm Structure in Santa Cruz. The rural population of Santa Cruz consists of about 420,000 rural inhabitants with 42,000 farm holdings covering 5.5 million ha. Because Santa Cruz since 1953 has been a location for resettlement of families from the Altiplano and elsewhere, the present population is heterogeneous, containing members from a variety of backgrounds. Out of the 42,000 holdings, 75Z are campesino plots of less than 50 ha, 16Z are of 50 to 100 ha, and 92 are of more than 100 ha but account for 82Z of the area allocated. The sector consists of about 33,000 smallholders with 20 to 50 ha each, 3,000 foreign settlers with 30 to 150 ha and 6,000 local commercial farmers the majority of whom are livestock farmers. 2.12 Agrological Characteristics and Agricultural Production. The Santa Cruz Regional Development Corporation (CORDECRUZ), taking into account soil, vegetation and climatic conditions has divided the department into three ecological units: (a) Subandean: (b) North and South Plains (Llanura Chaco Beniixna); and (c) Escudo Cristalino-Chiquitano (shield). In terms of land use capability, 32Z of the department (about 12 million ha) has been studied at "reconnaissance" level (1:100,000 or a sample of soil every 10 km), and mapped at a scale 1:250,000; 40% of these soils have shown agricultural potential (Class T.-IV soils), with 1.1 million ha (10% of the area surveyed) of Class I and II soils with unlimited land use capability. In total, an estimated 14 million ha are considered suitable for agriculture. However, the heterogeneity of soils open to question the reliability of such estimates until niore detailed soil itudies are carried out for the entire department. The data on soil suitability for agricultural purposes in the integrated area around the city of Santa Cruz (about 800,000 ha) are more reliable. These soils are sandy loams, varying from a high sand content (subject tc w4nd erosion) south of the city, to a progressively higher silt and clay content, north toward Montero and northwest toward Yapacani. Commercial farming has been traditionally located in the Santa Cruz-Montero area, but it has begun to expand rapidly in the areas east of the Rio Grande. Available 'reconnaissance' level soil studies of the area east of the Rio Grande, now being opened :y 7ommercial farmers, indicate that the soils are as good or better than those currently cultivated on the west bank of the Rio Grande: about 85Z of the approximately 500,000 ha immediately adjacent to and east of the Rio Grande and about 251 of the 1,000,000 ha in the area of San Jos6 Chiquitos are of Class I-IV. For purposes of agricultural development, however, more detailed soil studies of these areas (at a 1:25,000 scale) would be required to ensure the sustainability of agricultural production at the individual farm level. 2.13 Of the 14 million ha considered suitable for agriculture, onlys, about 280,000 ha were cropped in the "integrated' area of the Departmentof Santa Cruz during the 1986-87 season of which about 40,000 ha are believed to be cropped by small farmers using hand cultivation with family labor, and the balance under mechanized production systems. Since the early 19809, the cropped area has declined largely because of the reduction in areas planted to cotton and sugarcane. The data for 1988/89 suggest a reversal of this trend with about 305,000 ha planted. The main reason for this change is an additional 50,000 ha planted to soya, of which two thirds have come from land use intensification through qubstitution of fallow and less profitable crops, and about 15,000 ha from new land clearing. The - 9 - major crops in terms of area cropped in 1986/87 were soybeans (242), rice (18?), sugarcane (17Z), maize (16Z), yucca (7Z), fruits and vegetables (6Z), sorghum and cotton (3? each), wheat (2Z) and others (42). Santa Cruz accounts for 95Z of the total area planted to soya in Bolivia, over 602 of sugarcane and cotton, and over 50? of rice. 2.14 The dualism of the Santa Cruz region, with small-scale farming in settlement areas and in areas of spontaneous immigration coexisting with commercial farming, is evident in the structure of production. Maize, yuca, plantain, bananas, and rice are important subsistence crops in settlement areas and with newly arrived immigrants. The main commercial crops are sugarcane, rice, and soybeans. Cotton production, formerly an important export crop, has declined from a peak of 50,000 ha in 1975 to the current level of 9,000 ha, which only satisfies about 50Z of national demand. The area under sugarcane has declined from a peak of almost 70,000 ha in 1977 to 47,000 ha, while yields have remained low due to continuous cropping of the same area without using yield-increasing inputs and failure to replace rundown cane. Soybeans have become the most important crop, increasing from 10,000 ha in 1976 to 65,000 ha in 1987, and an estimated 110,000 ha in 1989. Wheat, sorghum and sunflower seed production is increasing in the Lowlands, primarily as winter crops in rotation with soybeans. Potential for Sustained Agricultural Production and Export Growth in the Eastern Lowlands 2.15 To date, Bolivia (and the Eastern Lowlands) has not achieved substantial sustainable agriculta.ral production and export growth (other than "illegal exports'), nor has it begun to seriously manage its natural resources. The lack of sustained agricultural production and export growth has been attributed to the political and economic instability prevalent in the past in Bolivia but also to limited export crop competitiveness resulting from poorly developed infrastructure, distance from the world markets, and weak support and administrative services. 2.16 While support services are less of a problem in the Eastern Lowlands, transport and infrastructure support for export commodities remain unreliable, time consuming and expensive, despite the increase in trade with Brazil and, through Brazil's Atlantic ports, with other overseas markets in recent years. There is also the expectation of further trade growth through river transport on the Paraguay/Parana waterway. In addition, the region's production and trade has been traditionally overdependent on one or two agricultural crops (cotton, sugarcane), and therefore susceptible to cyclical world price changes and market fluctuations. These factors have resulted in the drastic reduction of output levels in the traded commodities when profit margins, already relatively low due to high transport costs for inputs and outputs, declined further to levels which did not compensate for the inherent risks of agricultural production. Indeed, this reduction in profit margins and production levels occurred with cotton and sugarcane production in the Eastern Lowlands. International prices fell and costs increased due to reduced yields caused by loss of soil fertility or increased difficulty in weed and pest control. Nevertheless, in the absence of profitable - 10 - alternatives, this overdependence on one or two crops is likely to continue in the short and medium term. Apart from soya and, to some extent forest products, no other legal agricultural activities seem likely to result in a s1.gnificant expansion of agricultural exports. The prospects for soya, as the engine of growth of exports, are satisfactory at this stage: soya profitability at present and expected international prices appears acceptable and sustainable as the basis for continuing to expand production and export of this commodity beyond the 110,000 ha planted in the 1988/89 crop year. Moreover markets and prices of soya have traditionally been more stable than those of cotton and sugarcane. However, the constraints imposed by the physical environment of the country and the region, and their effects on costs will continue to impose a high level of risk to the production and export of soya which must not be underestimated. 2.17 Within these very real limitations, the potential for an increase in Bolivia's production and exports of agricultural products, and particularly of soya, has been enhanced by an appropriate policy environment and a number of recent developments: (a) the introduction of the tariff rebate certificate (CRA) adds 1OZ to the FOB (border) price received by exporters; in the case of soybeans, this is likely to Lmount to about US$17-22 a ton; (b) the opening of the grain port and storage facilities of Puerto Quijarro would reduce transport costs to the Atlantic by about US$15 a ton once regular barge service for bulk transport becomes available in 1990; (c) the construction of new grain storage facilities at Pail6n and Tres Cruces has reduced railway freight costs for exports of crops grown in these areas by about US$4-6 a ton; (d) the disposition of several large importers and trading companies located mainly in Brazil to import Bolivian soybean, which is considered of good quality; (e) the recent granting by Brazil of duty free entry status for a list of some 33 Bolivian products. These include soybeans in grain (100,000 ton), soybean and cotton cakes (50,000 ton), garlic (500 ton), unhusked corn, sorghum, black beans, other beans, maize flour, maize semolina, noodles and maize grits, and cotton lint (all unlimited); (f) the railway freight rate in Bolivia for exports has recently been reduced by 402 which still covers the railroad's full costs; (g) soybean price projections show the price of soybeans and soybean products remaining around the 1988/89 price levels in constant dollars terms through the year 2000; and (h) the small share of world soybean market that Bolivia could acquire under any realistic growth scenario would not have any significant impact on the market. The combined effect of all of these factors suggest that the profitability of growing soybeans for export offers considerable potential for Bolivia, especially when combined with wheat (or sorghum and sunflower seed) grown in the winter season as an import substitution crop. This rotation reduces the costs of land preparation and weeding for the summer crop (e.g. soybeans), thereby increasing profitability of the farmers. 2.18 The potential expansion of agricultural production and exports in the Eastern Lowlands can be accomplished by either increasing producti-ity or the area under cultivation (or a combination of both). Even in the absence of fertilizer use in the production of agricultural comr;odities, the yields achieved in the relatively small part of the department that has been under cultivation to date have been satisfactory (for instance, sustained yields of about 2.0 ton/ha on average for soya). This has been attributed to a variety of favorable factorst improved varieties of - 11 - soybeans, wheat, maize, rice, cotton and beans have been selected and in some cases adapted by CIAT, the research institution, and are available in quantity from the Regional Seed Council or through import; producers' associations provide assistance to farmers for the distribution of seed and, in some cases, of other agricultural inputs, and together with CORDECRUZ (but to an insufficient extent), for extension services; k.d, in the case of the oil seeds and wheat producers' association (ANAPO), they also provide a marketing outlet by buying and exporting some of the farmers' output through a majority share in ANAPOICOMEX, an export company. The sustainability of yields is also predicated on the generally good quality and depth of the soils in the areas under cultivation. This has permitted some foreign settlers using appropriate cultivation practices, to crop many areas continuously over periods of up to 25 years without a significant decline in yields. Therefore, despite the negative experience of about 50,000 ha having become unsuitable for crop production due to inappropriate land clearing and cultivation practices (resulting in drainage problems, soil compaction and loss of fertility), present yields and current production levels could be slightly increased and maintained in areas of adequate soil quality by improving land clearing and cultivation practices (assisted by CIAT's research program), and strengthening the linkages to, and quality of extension services. The potential for large increase in yields, however, is limited by the lack of use of chemical fertilizers (an economic more than a technical issue). 2.19 With substantial yield increases difficult to obtain, the greatest potential for increasing production lies in rationally expanding the cultivated area into some of the 14 million ha considered suitable. soil- wise for agriculture. Within the department, an area of about 2.2 million ha which includes most of the Integrated Zone and selected areas of the Expansion Zona east of the Rio Grande, has been identified as having excellent agricultural potential. The size of this area would satisfy the short- to medium-term land needs for agricultural development of the region (Map IBRD 21877). Land capability and actual use in the identified areas is as follows: Land Capability and Actual Use in Selected Areas Soil Class Actual Use I to IV Crops Barbecho Forest - - - - - - - - - ha '000 - - - - - - - - - - Integrated 820 270 200 350 Expansion B1 430 100 70 260 Expansion B2 220 5 10 205 Totals 1,470 375 280 815 Lands termed lbarbecho" Are lands which have been abandoned from crop cultivation some time duri$u the last five years. In the Integrated Zone this area includes about 100,000 ha which have been cleared for mechanized cultivation and are now in various stages of reversion to secondary forest. An additional 100,000 ha are forest fallow, following slash-and-burn - 12 - cultivation, a process which will continue until settlers and small farmers are integrated into commercial agriculture, and gain access to the formal credit system. Of the 100,000 ha at one time used for mechanized production, about 50 have been abandoned because of fertility, drainage and soil compaction problems. These problems need to be investigated and viable means of rehabilitating these soils developed. The rest has been abandoned because the crops formerly grown became unprofitable. These areas have remained fallow for three main reasons: (a) finance to establish profitable crops was not available; (b) machinery for cultivation was not available in time for the entire area to be planted; and/or (c) there were no other profitable crops that could be grown until the development of the soybean market for Bolivia. A further 30,000 ha are still under cultivation in crops which are no longer profitable. Within the Expansion Zone 10,000 to 20,000 ha of mechanized cropland remain fallow for similar reasons. Development of these unused or underused lands already prepared for mechanized crop production, offer the best potential for immediate production increase and for highest profitability, since land clearing is by far the most expensive investment cost in the production function. Besides lands already cleared, there are a further 800,000 ha of primary or secondary forest, about 2ZO of which are in plots of land already allocated. 2.20 Bolivia needs to seek sources for agricultural production and export growth and income increases and the Eastern Lowlands offers promising short- and medium-term potential for increasing soya production and export. In the longer term other crops may develop through the expansion of the cultivated area. However, this potential is tempered by the reality of the physical constraints of the department, and the possible danger to the department's natural resource base and to the environment if the region's abundant and cheap agricultural land is not exploited rationally. Thus, any proposals to develop the agricultural potential of the Eastern Lowlands would need to ensure that the development takes place gradually, rationally and in the context of a well-planne,i long-term Land Use Plan for the region. It should include actions to improve the management of the natural resource base, mitigate/eliminate negative environmental effects, and make agricultural development sustainable. For the longer term, solutions also need to be sought for the following nation- wide constraints faced by the department and the sector: (a) lack of an adequate cadastre which is a serious deterrent to development by effectively eliminating rural property as a source of collateral for credit (this issue is being addressed through bilateral assistance and IDA's Economic Management Strengthening Operation - EMSO) and the abrence of an appropriate land price policy which when combined with low land taxes may lead to land accunulation and speculation in areas where infrastructure is available; (b) ag.icultural credit which, mostly for the reasons related to land policy indicated above, has been insufficient and inaccessible to many farmers who do not have urban guarantees; (c) agricultural extension services have been insufficient in level and quality; (d) agricultural research has been underfunded; (e) road infrastructure is inadequate; and (f) not enough attention has been paid to small farmers and indigenous people ard the role they should play in the development of the department and the jector. - 13 - Bank/IDA Strategy in the Agricultural Sector and in the Eastern Lowlands 2.21 Although, historically, legal agricultural exports have only once surpassed US$100 million (US$124 million, 1980), the emphasis and commitment of the Government to the agricultural sector reflects the important contribution of the sector to the achievement of economic reactivation and to increasing rural income per capita in Bolivia and its effects on unemployment reduction, diversification and growth of non- traditional exports, and the substitution of imported goods behind a uniform and low level of protection. This emphasis was supported by a series of 15 subsector studies of Bolivia's agricultural export commodities carried out by the IDB/JUNAC (Junta del Acuerdo de Cartagena) Foreign Trade Development Program in 1986, which estimated that in the medium term, Bolivia could potentially increase its annual agricultural exports to US$400 million of which forest products could account for US$200 million, livestock pLoducts for US$100 million and other products such as soybeans, coffee, cocoa, etc. for anothe2r US$100 million. A Bank's review (Bolivia- Regional Development Strategy for the Eastern Lowlands) of the potential for increasing exports in the short to medium run, was much less optimistic about the prospects for livestock and forestry exports; only soya in rotation with wheat, sorghum or suntlower seed appeared to offer a realistic 2ossibility in the short term. This has been the basis for the proposed opetation, which is designed to promote the sustainable expansion of soya pro4action and other crops and the rational use of the region's natural resources in the context of the long-term regional development of the Eastern Lowlands. 2.22 IDA's strategy in the agricultural sector and in the Eastern Lowlands reflects its support for the market- and private-sector-oriented agricultural development policy of the present Bolivian administration. This policy, in addition to the proposed operation, is embodied in the rationalization of the agricultural public sector institutions, especially the Ministry of Agriculture (MACA) and in the efforts to simultaneously increase agricultural productivity and incomes in the Altiplano and the Valley regions. The goal is t increase nationwide, the rational and environmentally-sound expansion of production of agricultural export and import-substitution commodities in order to obtain new sources of foreign exchange, thus improving the country's balance of payments. The longer- term strategy is to support the sector's objectives by redirecting public sector investment to strengthen the generation and transfer of agricultural technology, transport infrastructure (rural roads), marketing infrastructure and irrigation, especially small-scale works. 2.23 IDA's strategy in the sector for the medium term consists in assisting in: (a) the administrative, financial, and legal reorganization of MACA and the Bolivian Agricultural Bank (BAB) and laying the groundwork for streamlining and strengthening the remaining public sector institutions through the EMSO Project; and (b) expanding the production of export and import-substitution agricultural commodities in the context of the long- term rational utilization of the country's natural resources so as to promote a balanced and environmentally-sound development. The latter part of the strategy would be implemented, in the first instance, through three proposed projects, the Agricultural Development Project (ADP) which aims to increase small-farm production of promising export commodities in the Altiplano and Valley regions (coffee, quinua, wool, cocoa, wood, _ 14 - livestock), an Agricultural Research and Technology Transfer Project designed to develop and apply the technology needed for productivity increases in the Altiplano and Valley regions, and the proposed Eastern Lowlands: Natural Resource M gvement and Agricultural Production Project (which has been prepared con -cently with and is supported by some aspects of the recently approved IDA; Export Corridor Project). 2.24 A total of seven agriculture sector projects totalling US$48.2 million have been financed by the Bank/IDA to date in Bolivia, with the last having been approved in June 1979 (Omasuyos/Los Andes Rural Development Project for US$3.0 million). Three of Lhe projects were for livestock development, one was for general agriculture, and three were for rural development in the Altiplano. Overall, the record of these projects has been mixed, with some successful operations in earlier years (livestock and general agriculture). The more recent rural development projects have, on the other hand, faced serious implementation problems. As reported in the respective Project Completion Reports, implementation of these projects was adversely affected by general economic and political instability, shortage of local counterpart funds, changes in Government personnel, and, as a result of all the above, periodic suspension of Bank disbursements. These same problems, and the rapid deterioration of the Bolivian economy that took place beginning in 1982 impeded further processing of a proposed Bank agricultural development project in the Department of Santa Cruz (Santa Cruz Agricultural Development Project, Green Cover SAR, 1981). III. THE PROJECT Rationale for Bank/IDA Participation 3.01 Following the successful stabilization efforts embodied in the New Economic Policy, the Bank's strategy for Bolivia consists of assisting the Government in its efforts to increase growth and diversify productive activity (primarily through the private sector) and improve public sector administration. The Bank's participation in the proposed project is an integral part of IDA's strategy for Bolivia and for the agricultural sector in that it would help strengthen and consolidate the Government reactivation efforts. More specifically, IDA's involvement in the proposed project would support the expansion of non-traditional agricultural exports and import substitution activities to cushion the decline in export earnings from hydrocarbons and minerals and, together with the recently approved IDA's Export Corridor Project, support the long-term, rational development of the Eastern Lowlands. An important role of IDA would be to help ensure the sustainability of the production and export expansion in the Eastern Lowlands, the Jirgest and most promising area of still untapped agricultural potential in tne country by: (a) strengthening the supply- side response capacity of the agricultural sector (research, extension, credit, infrastructure); and (b) approaching the development of the area from a comprehensive, long-term regional perspective, where the natural resource base would be protected and developed in harmony with the environment. - 15 - Proiect Objectives 3.02 The major objectives of the project would be to: (a) assist in the rational long-term development of the Eastern Lowlands through the preparation and implementation of a long-term land use plan for the region which would encompass the results of agroecological zoning and mapping, soil studies, and several resource and subsector studies (water, forestry, livestock, protected areas and indigenous lands). The plan would give due consideration to the future sustainable expansion of agricultural production in an enviro,amentally-sound way and provide the mechanisms for directing and monitoring the implementation of such a plan. This would include mechanisms for the development and preservation of forest reserves and particularly the Noel Kempf Mercado National Park; (b) increase over a five-year period the production of profitable agricultural commodities and strengthen the balance of payments position of Bolivia by increasing annual exports of soybeans by about 200,000 ton, substituting annually for about 30,000 ton of wheat imports and provide the technological support for expanding production of other crops. This would be achieved by promoting the rational and sustainable expansion of the area for production of soya by about 70,000 ha and for wheat by about 30,000 ha; (c) develop the technology and credit mechanisms to increase and sustain commercial agriculture productivity and to raise family income of small subsistence farmers by using improved research and extension and agricultural practices and developing a pilot credit mechanism to enable small farmers to increase productivity by making the transition to mechanized agriculture; (d) improve the existing rural road and storage infrastructure; (e) introduce public land pric'ng policy so as to make more efficient use of land and limit land speculation; and (f) support the "Ayoreos" indigenous group (11 commminities totalling about 2,000 people spread along the railroad line over the area Santa Cruz-San Jose de Chiquitos) in their efforts to demarcate their tribal lands and improve their living conditions, and assisting the "Chiquitanos" in demarcation of their tribal lands. Project Area 3.03 The proposed project covers the entire Department of Santa Cruz (about 37 million ha). Within the department, the agricultural development and infrastructure components are to be concentrated in approximately 2.2 million ha in the areas around the axis Santa Cruz-Montero ("Integrated Zone"), those immediately east of the Rio Grande and adjacent to the Integrated Zone "Expansion Zone Bl" (Pail6n-Los Troncos-Tres Cruces), and in San Jose de Chiquitos ("Expansion Zone B2") (para. 2.19 and Map IBRD 21877). These areas have been selected based on: (a) the availability of soil information which indicates that a large proportion of the land is suitable for cultivation (1.5 million ha with soil Class I-IV but with less than 0.4 million ha now under cultivation); and (b) it is the area where agricultural production has traditionally taken place and/or where agricultural expansion has already started and where infrastructure is more readily available. New areas may be added upon review and approval of the Land Use Plan. - 16 - Project Description 3.04 The project would consist of the following compcosents: (a) natural resource planning and management; (b) agricultural production and marketing credit; (c) research; (d) agricultural extension; (e) rural road improvement and maintenance; (f) development of indigenous peoples and demarcation of their lands; and (g) administrative support. Preparatory work for the implementation of some of these components has been carried out under a Project Preparation Facility (PPF). The project would also address issues of land pricing policy. Detailed Features 3.05 Land Pricing Policy Reforms. Agricultural policy in Bolivia is largely market determined. Price distortions affecting agricultural commodities are therefore minimal. On the other hand, land titling and land concession mechanisms are not working properly (paras. 2.04-2.07 and Annex 2). This is a nationwide issue with serioup political and legal implications which cannot be resolved in the timetrame of the proposed project. However, to provide the basic information needed in order to address this issue, a detailed study of land titling and lard concessions in Bolivia will be carried out under TDA's Economic Management Strengthening Operation (EMSO). This would be supported under the proposed ptl.Ject by a study of selected areas of the Department of Santa Cruz into land ownership and occupancy patterns (para. 3.06). In addition, the recently introduced land tax law (July 1989) represents a vast improvement in that it will eventually ensure a more efficient use of land (para. 2.08 and Annex 2). It will, however, take time to test the effectiveness in the implementation of the tax law, and will be an important part of IDA's fiscal and policy dialogue with the Bolivian Government. Complementary reforms to be addressed under the project relate to land pricing policy. The Ministry of Agriculture in the previous Administration proposed a Rural Law, one of whose clauses would have changed the present land pricing system whereby land is conceded practically at zero or very low price While this policy was in keeping with the Agrarian Reform Law (para. Z.05), it could result in land hoarding and speculation, especially in areas where rural infrastructure is available. The possibility of land speculation is increased by the initial low land tax rates. Tne rural law proposed by the previous Ministry of Agriculture was not approved by the past legislature. During negotiations, the Borrower provided assurances that it would reintroduce legislation by December 31, 1990 designed to set market pricing for land distributed by the Government except that distributed to indigenous communities and farmers (ranging from 2 to 80 ha) and apply such pricing policies by December 31, 1991 (para. 4.01 (a)). 3.06 Project Preparation Facility (PPF). Under the PPF, soil capability studies and land use mapping have been carried out to establish the suitability of available land for sustainable agricultural development and the status of forest cover before the initiation of project and credit activities. Specific activities financed were: (a) the purchase of four - 17 - vehicles, hiring of local personnel and of consultants to assess the soil capability and land use potential (at a scale 1:25,000) and map (at a scale 1:50,000) two of the three proposed areas of agricultural development under the project (expansion areas Bl and B2--para. 3.03); (b) the assessment through satellite imagery of forest cover in the entire region to determine the situation of forest cover in 1989 prior to project start and to serve as a base for monitoring future land use and forest cover changes; tc) a limited land tenure assessment of the area Bl to develop through surveys a database to be used in the proposed Land Tenure Study under IDA's EMSO Project; (d) an assessment of the agrometeorological situation in the Eastern Lowlands; (e) a training program in Remote Sensing Data for staff of the Natural Resource Department of CORDECRUZ; and (f) administration and contingency costs. Total cost of the component at January 1, 1989 prices was US$525,000. The completion of the soil capability and land use assessment and mapping and the assessment of forest cover of the Eastern Lowlands would be a condition of disbursement of the credit component (paras. 3.22 and 4.03). 3.07 Natural Resource Planning and Management. Under this component, the project would finance: (a) the preparation of a comprehensive Land Use Plan for the region by December 31, 1991 to guide the future development of the department by determining the appropriate use and protection measures for its natural resource base, and the dissemination, through seminars and other means, of the findings of the Land Use Plan. The Land Use Plan would be based on the results of the agroecological zoning and mapping of the Department of Santa Cruz at a 1:250,000 scale, and of analytical and field studies to assess the potential and constraints of the forestry and livestock subsectors, water resources (including irrigation and drainage), and to demarcate protected areas and indigenous lands; (b) the periodic assessment of forest cover and the monitoring of the application of the Land Use Plan through region-wide surveys of the forest cover every two years and of selected area surveys in alternate years, starting with the 1989 assessment carried out under tihe PPF (para. 3.06) and through the work of an independent environmental modAtoring committee (para. 3.35); (c) the carrying out of detailed soil studies (at a scale 1:25,000) and mapping (at a scale 1:50,000) of up to 800,000 additional ha following completion of the Land Use Plan. These areas would be in addition to those studied and mapped for land suitability under the PPF (paras. 3.03 and 3.06); (d) investments for the protection of forest reserves and national parks, particularly the Noel Kempf Merca-do National Park, Amboro National prk- And Chore Forest Reserve, and training for managers of protected areas. In this first phase project, particular attention would be given to the largest of the parks, the Noel Kempf Mercado National Park for which financing would be provided for completing the demarcation of park boundaries, strengthening park administration and security, and carrying out studies on biodiversity, potential for tourism development, and management of the biological reserve Laguna La Bahia; and (e) the institutional strengthening of CORDECRUZ's natural resources capability by, as a first step, upgrading the Natural Resour:ces Section to a department (pending completion of an ongoing internal organization study in CORDECRUZ and the conclusion of the Land Use Study which would consider the advisability of further upgrading it to the level of a unit) and increasing by six the staff of the departmert. Financing would specifically be made available for: (i) the purchase of seven four-wheel vehicles, four trucks, - 18 - four microcomputers and other hardware to develop a geographic information system and software for such a system, limited agrometeorological equipment to improve subregional meteorological stations and establish a ncw one in Tres Cruces, field equipment and other miscellaneous custs (office equipment, materials, fields workers); (ii) the provision of about 165 months of foreign consultants and 45 months of local consultants to carry out the Land Use Plan (24 months), the agroecological zoning studies and maps (72 months) in about 62Z of the department that remains to be mapped for the preparation and implementation of the region's Land Use Plan, more detailed soil studies in areas where agricultural potential has bee.a identified (28 months), undertaking analytical studies (50 months), training suitable staff in wild land management ('5 months), improving the national parks and forest reserves management (13 months), and monitoring of the component by the environmental committee (8 months); (iii) the acquisition of satellite imagery, aerial photography and other materials to carry out the agroecological zoning for the entire department, the soil studies in selected areas of the department, and the annual forest cover surveys; (iv) conducting two seminars on the findings of the Land Use Plan; (v) conducting a study and if so warranted, establishing a wild lands training center; and (vi) hiring six incremental staff for CORDECRUZ's Natural Resource Department. Total cost of the component is estimated at US$5.0 million excluding contingencies, of which 642 would be in foreign exchange (Annex 1, Table 5 and knnex 3, Table 1). 3.08 During negotiations, assurances were obtained that: (a) the Land Use Plan for the department, including the delineation of national parks and reserves, would be submitted to IDA for review and comment by December 31, 1991 and that the Government would enact regulations pertaining co the enforcement of the Land Use Plan which, inter alia, would: (i) limit official credit for agricultural production to lands so zoned in the Land Use Plan; (ii) require the registration of all companies performing land clearing in the Department of Santa Cruz; (iii) require that only approved methods of land clearing are followed; and (iv) require that land clearing permits be obtained from the Natural Resource Department (NRD) of CORDEC'UZ for all land clearings and thereby prohibit anyone from undertaking or otherwise assisting through financing or other means, the clearing of land without such a permit; ane (b) development plans of CORDECRUZ would thenceforth be strictly in accordance with the Land Use Plan (para. 4.01 (b)). To further the controls on the direction and nature of development taking place in the Eastern Lowlands, the project would include provisions to control indiscriminate land clearing (some 20,000 ha/year have been cleared in the last two years and the process is continuing) by limiting land clearing to those areas identified by soil studies as being able to support sustainable agriculture. Assurances were therefore also obtained at negotiations that until the Land Use Plan becomes available: (c) the Government would not permit official credit from any source to be used for land clearing in the Eastern Lowlands unless the prospective subborrower presents to the financial intermediary an on- farm soil study approved by the NRD demonstrating that soils in the area to be cleared are of Type I through IV, and, if the farm has more than 100 ha, a farm plan for use of the entire farm also approved by NRD; and (d) IDA credit in the Eastern Lowlands would be limited to agricultural development taking place in the areas indicated in para. 3.03 and under the same conditions indicated in (c) above (para. 4.01 (c)). - 19 _ 3.09 The proposed project would also include an important component dealing with research into land rehabilitation, particularly those lands in the Integrated Zone affected by compaction or loss of fertility due to inappropriate cultivation techniques (para. 2.18) in order to keep the areas to be cleared to a minimum. Related to this would be the formal adoption by CORDECRUZ and subsequent refinement through research by CIAT of less soil-destructive techniques for land clearing and soil management. These would have to be followed by land clearing companies. While it nrast be acknowledged that such initiatives may not completely bring land clearing under control, it would contrcl indiscriminate large-scale clearing. This together with ar improved land pricing policy (para. 3.05), research and extension under the project (paras. 3.13 and 3.14) all directed towards achieving sustainable agriculture, wauld increasingly provide Government with the means to develop the agriculture potential of the Eastern Lowlands in harmony with the protection of the region's natural resources. This would be an important component to be monitored under the project as detailed in para. 3.35. 3.10 Agricultural Production and Credit. Credit demand under the project has been established on the basis of four farm models illustrating the expected type of agricultural development in the Eastern Lowlands (principally soybean in rotation with other crops) during the expected three-year implementation of the credit component. Credit would be made available to finance these and any other profitable agricultural crops (except livestock production) provided the credit request meets the conditions indicated in para. 3.08. Use of credit funds under this first operation would be limited to the Eastern LowlanXb (covering one third of the co,.-cry area) as this region will have the only effective environmental safeguards for the use of credit in Bolivia. It also has a better developed agricultural research and technology transfer systems resulting in the most productive use of the credit. These four illustrative farm models are: (a) a large-scale farm of about 500 ha in size, located in Expansion Zone Bl of -which about 480 ha would be planted to soya over a two-year period; (b) a commercial medium-scale farm of about 200 ha in size located in the Integrated Zone, which would intensify land use by switching from land in fallow or single crop to establishing about 80 ha of soya in rotation with wheat; (c) a small-scale mechanized farm (a group which v.uld include Mennonite farmers and Bolivian settlers) of about 50 ha in size on average, operating in any of the three arees selected for agricultural development under the project. The farm would produce soya on about 25 ha by primarily intensifying land that was in fallow or under other less profitable crops; and (d) a non-mechanized farm of about 20 ha in size located primarily in the integrated area. This model is representative of the thousands of settlers in organized settlements who have not been able to clear more than 1-2 ha of land per year and who cause many of the problems of fallow. Because of the lifficulties in convincing such farmers to change cultivation techniques and in obtaining credit, only a limited number of small farmers could be expected to adopt the type of cultivation to be promoted under the project. Small farmers adopting the technology would, as described in the model, develop some 10 ha of soya with the use of rented farm machinery. Annex 4 describes fully the credit component, including farm models and financial budgets for these models, project phasing and aggregated expected credit demand. Under these assumptions, - 20 - long- and short-term credit would be provided to about 60 large-scale commercial farmers (over 400 ha in farm size), 480 commercial medium-scale farmers (75-400 ha in farm size) and 880 small- and medium-scale farmers (less than 75 ha in farm size) including about 680 Mennonites, 120 local settlers with access to farm machinery and 80 non-mechanized farmers. The credit would finance investment and associated working capital for land preparation, the purchase of farm equipment and inputs for the expansion of the area planted to soybean, wheat (in rotation with soybean) and other crops by about 70,000 ha. Land clearing would not be financed under this project. On the basis of land availability, ownership patternE, pressure on land by new migrants ar.d new farmers and past experience, it is expected that the increase in area planted in the Eastern Lowlands under the project would be achieved by replacing less prcEitable crops on 15,000 ha, by bringing back into production about 30,000 ha now lying fallow and by introducing soya and wheat on about 25,000 ha of newly cleared land. For economic and environmental considerations, priority for financing crop expansion would be given to already cleared fallow areas and to areas planted to other non-profitable crops in the geographic sections of the department where conditions are suitable for sustainable agricultural production (para. 3.03). 3.11 Total agricultural cred.Lt demand net of repayments is expected to reach US$21.3 million over three years. Gross disbursements for credit would total US$51.0 million, of which about 19? is estimated to be used by large-scale farmers, 55? by medium-scale farmers and 26X by small-scale farmers. About 62? of the investment and working capital costs to be financed through credit would be foreign exchange (Annex 4, Table 12). Farmers' contribution to investment and production costs would be 20? for the large farmers, and 1OZ for small- and medium-size farmers. However, since large farmers would have to finance lsnd clearing from their own resources, their contribution to the farm's total investment cost -iouid reach about 66? (Annex 4, para. 7). 3.12 Storage and Marketing Credit. Long-term credit would be provided under the project to finance the expansion of grain storage by about 14,000 ton. Snirt-term credit would be used for the purchase of the incremental production resulting from the project. Between seasons, the repayments of this credit would be used to finance working capital for existing production of soya by small farmers who, not having access to formal credit channels, are being provided seeds and other inputs by non- credit intermediaries (including oil crushing firms and export intermediaries) at high interest rates and inflated input prices. Total credit demand is estimated at US$10.5 million, of which US$2.3 million would be for long-term credit (storage) and US$8.2 million to establish the revolving fund. About 22? of the investment and working capital costs would be foreign exchange (Annex 4, Table 12). 3.13 Research. Building on the technology and expertise already available in the Center for Tropical Agricultural Research (CIAT) in Santa Cruz, funds would be provided under the project to finance the construction cf an additional subregional research center in Pail6n, an area representative of the soybean production area, and the strengthening of CIAT's research programs in the areas of land clearing, soil drainage, soil rehabilitation and conservation, farming systems, plant protection, plant - 21 - improvement and farm mecharization. It would includa financing for: (a) capital investments for vehicles, equipment and buildings and other facilities for the research center in 100 ha (US$0.7 million); (b) 30 months of consultant assistanc.e in key areas relating to sustainability of agriculture, i.e., studies on soil drainage, compaction and rehabilitation, soil conservation measures to improve erosion control and soil fertility trials (6 months), farming systems research (6 months), plant pathology (6 months), agricultural farm machinery testing to limit soil compaction and improve land preparation (6 months) and plant protection control (6 months) (US$0.3 million); (c) training for extension staff and farmers (US$0.05 million); (d) hiring eleven new research staff to work on farming systems (4), soil research (3), varietal improvement (2), plant patnology (1), and farm mechanization (1), and other support staff (Us$0.9 million); and (e) other recurrent costs (US$0.2 million,. Total cost of the component excluding contingencies is estimated at US$2.2 million, of which about 39? would be foreign exchange (Annex 6, Table 1). 3.14 Agricultural Extension. The proposed project would finance the strengthening of the extension network of public and private agencies in the Department of Santa Cruz including CIAT's newly-created Department of Technology Transfer (DTT). The extension teams (involving about 5. personnel) of UPRA/PDR and producers' organizations: Asociaci6n Nacional de Productores de Oleaginosas (ANAPO), Federaci6n de Ganad-ros de Santa Cruz (FEGASACRUZj, Federaci6n Nacional de Cooperativas Arroceras (FENCA) avi Froductores de Maiz y Sorgo (PROMASOR). ANAPO, FEGASACRUZ, FENCA and PROMASOR would operate under the general coordination of DTT. The various extension teams would be responsible for providing extension services to their respective producer clientele. Capital investments totalling about US$1.0 million would provide! for 31 four-wheel drive vehicles and 22 motorcycles (US$0.4 millienj), 12 months of extension specialist consultant services and 68 months for overseas stdff training studies (US$0.5 million), and communications and other equipment (US$O.1 million). It would also finance five subject matter specialists, five area coordinators and a communications specialist for DTT, three extension directors for the producers' organizations and one for UPRA/PDR, five extension technicians for UPRA/PDR, and 13 for the producers' organizations (US$1.0 million'. In addition, funds would be provided for traveling allowances (US$0.3 million) and vehicles running costs, field demonstrations, etc. (US$0.9 million). Total cost of the component excluding contingencies is estimated at US$3.2 million, of which about 382 would be foreign exchange (Annex 1, Table 2). The Bank would finance 10O? z.E the investment costs and a declining percentage of recurrent costs of CIAT and UPRA/PDR as follows: 952, 90S, 85?, 80?, 50?, in Years 1 (1990) through 5 respectively. IDA would also finance incremental recurrent costs of the producers' organization but only over the first three years and with the following percentages: 95?, 90?, 752 (Annex 5). Disbursements, however, would be at only two rates: 90? and 50? for CIAT and UPRA/PDR and 90? and 75Z for the producers' organizations to permit a more even flow of IDA resources. 3.15 Rural Road Improvement and Maintenance. The project would finance the improvement of 100 km and "iaintenance of 200 km of existing rural roads. This is needed to permit truck and tractor access to agricultural - 22 - production areas for the transport of soybeans, wheat and other commodities (iacluding agricultural inputs) to the storage areas and to the existing transport infrastructure, i.e., the two main trunk roads Santa Cruz- Trinidad (north-south axis) and Santa Cruz-Corumba (east-west axis) and the rail heads in Pail6n and Tres Cruces over the railroad Santa Cruz-Corumba. Total cost of the component, excluding contingencies is estimated at US$7.6 million, US$4.5 million for road improvement, US$2.5 million for road maintenance and US$0.6 million for design and supervision consultants. About 47Z of project costs is in foreign exchange (Annex 9 and Map IBRD 21886). 3.16 IndiRenous Peoples. Under the project, this component would finance activities intended to improve the welfare and the standard of living of the approximately 2,000 Ayoreos in about 11 communities that inhabit the area between Santa Cruz and San Jose de Chiquitos, aid assist in the demarcation of indigenous lands for the Ayoreos and Chiquitanos communities (Annex 10). The following six subcomponents would be included: (a) community organization; (b) support for the demarcation of tribal lan0s; (c) training and secondary education; (d) social and productive infrastructure; (e) technical assistance; and (f) administrative support to the Central de los Indigenas del Oriente Boliviano (CIDOB), a grass-root indigenous organization as the implementing a6incy. Funds would be provided under the project to specifically finance: (i) the contracting of two local professionals (one anthropologist or social scientist, one agronomist) to support the Ayoreo component for the five years of the project. CIDOB would contribute an economist to the team from their existing staff (or volunteer). These professionals would be responsible for initiating activities related to subcomponents (a) and (b) above, and for the preparation of a detailed program of investments covering subcomponents (c) and (d), which would be prepared during the first year of the project, and implemented during the subsequent four years subject to approval by CIDOB, the Regional Commission and IDA of the consultants' proposal. Two additional professionals (an engineer and a social scientist, the latter on a part-time basis) would be hired for three years to support implementation of the two subcomponents (a) and (b) for the Chiquitano component; (ii) one year equivalent of short-term local consultant's time starting in Year 2 of the project to assist the two professionals and CIDOB in the implementation of specific segments of their investment proposals for the ayoreos, and the part-time services of a procurement agent; (iii) travel, per diem and other incidental expenses needed for assisting in the organization of the Ayoreos and Chiquitanos communities; (iv) the costs of training a group of about 24 male and female Ayoreos to become community promoters in mechanics, handicrafts and social services, and the cost of organizing about 16 training events for about 400 individuals covering a variety of topics, e.g. silviculture, health, agriculture, handcrafts; (v) carrying out a survey of the status of the health, sanitation, potable water and education situation in the Ayoreos communities and providing direct medical attention to the communities in Year 1 of the project; the construction, improvement and equipping over four years of up to eight health posts and the provision of better quality water and sanitation for about 2,000 individuals, and tha provision of productive infrastructure (two nurseries, 12 heads of cattle, six handcraft units, and 20 experimental plots in 200 ha of land); (vi) one small truck and two four-wheel vehicles for the use of the four professionals, and - 23 - other equipment; (vii) legal, cartographic, topographic and other services to establish land rights and demarcate triBal lands of the Ayoreos and Chiquitanos communities; and (viii) the incremental administrative expenses of CIDOB related to the component. Total component cost is estimated at US$0.8 million excluding contingencies, of which 35Z would be foreign exchange (Annex 1, Table 5). 3.17 Administrative Support. The project would partially finance the costs related to establishing the Project Unit under the regional commission and related administrative expenses in order to provide suitable managerial and administrative support to project implementation. The project would specifically finance the salary of the Executive Director for the five years of project implementation (US$150,000), one vehicle and office equipment (US$21,500) and administrative expenses (US$50,000). The rema'nLng staff of the Project Unit (two administrative assistants, one technical assistant and one secretary) would be detached from and paid for by CORDECRUZ. CORDECRUZ would also provide auditing services for the Project Unit free of charge. Total cost of the component excluding contingencies is estimated at US$221,500, of which 24Z would be foreign exchange (Annex 1, Table 5). Project Costs 3.18 Total project costs are estimated at US$54.6 million equivalent, including about US$0.5 million advanced to the Government through a Project Preparation Facility. The foreign exchange component amounts to US$29.0 million, or 53? (Annex 1, Table 1). The cost of the component was calculated using January 1, 1990 prices and includes physical contingencies of 15? for civil works, 10? for equipment and 52 for the remaining categories of expenditure. Expected price increases over the implementation period were computed using the Bank/IDA's projections for international inflation. Total project costs include about US$1.9 million of local and other taxes. Physical and price contingencies total US$4.0 million. Project Financing 3.19 The proposed IDA credit of US$35.0 million would finance about 64? of total project costs equivalent to 87Z of the project's incremental foreign exchange costs, and 382 of the local costs. The balance of project costs would be financed by the Government/CORDECRUZ (US$6.6 million equivalent, or about 12Z), project beneficiaries (US$3.6 million equivalent, or about 7Z), financial intermediaries, principally FINDESA through the rediscount facility at the Central Bank and its 1O0 contribution to approved loans (US$2.7 million equivalent, or about 5Z), CIAT (US$0.6 million equivalent or 12), producers' associations (US$0.4 million equivalent, or 1X) and the Federal Republic of Germany (US$5.6 million equivalent, or about 10?) (Annex 1, Table 2). The Republic of Bolivia would be the borrower and bear the cross currency exchange risk except for the credit component where the dollar exchange rate risk would be borne by the subborrowers. IDA credit funds would be channeled by the Government to the Central Bank for the credit component and to the Project - 24 - Unit under the Regional Commission in Santa Cruz for the remaining components through a Special Account. As a condition of disbursement of credit funds, the Government would sign subsidiary agreements with the Central Bank regulating the use, transfer, and conditions of credit funds for the credit components. In relation to the other project components, the Government through the Project Unit wculd manage the credit proceeds. Assurances were obtained that the Government would make annual allocations from the budget to provide adequate counterpart finan ing on the basis of the project's annual budget and make available such funds promptly as needed and would cause CORDECRUZ, CIAT and the producers' associations to provide their contribution to the financing plan of the project on the basis of the agreed schedule (para. 4.01 (d)). Procurement 3.20 The selection and appointment of consultants for studies and technical aRsistance would be consistent with the August 1981 Guidelines for the Use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency. Four-wheel drive vehicles, motorcycles and equipment valued at US$100,000 equivalent or above (amounting in total to US$2.4 million equivalent) would be procured through ICB in accordance with IDA's procurement guidelines. For purchases of personal computers and minor equipment (about US$70,000) and individual vehicles (US$58,000) valued at between US$35,000-100,000 equivalent, present Bolivian LCB procedures through procurement agents acceptable to IDA would be required. Other minor equipment valued at less than 'JS$35,000 equivalent each--in aggregate not to exceed US$300,000--would be purchased by each executing agency on the basis of price quotations from at least three eligible suppliers. Procurement of civil works estimated to cost individually above US$500,000 would be through ICB. Civil work contracts estimated to cost individually US$35,000 equivalent or more but less than US$500,000 would be procured under LCB procedures acceptable to IDA since they are unlikely to attract international firms. Civil work contracts estimated to cost less than US$55,000 each but in aggregate not to exceed US$500,000 equivalent, would be awarded on the basis of price quotations solicited from at least three qualified contractors. Procurement under credit for farm machinery and storage infrastructure contracts above US$25,000 equivalent would require soliciting at least three quotations from suppliers and contractors. It is estimated that all credit to beneficiaries would be below US$95,000 (Annex 4). At negotiations assurances were obtained that the Government would follow the procurement procedures outlined above and would submit to IDA for review and approval, before bids are invited and contracts awarded, all procurement documentation where contracts are above US$200,000 equivalent for goods and US$500,000 equivalent for civil works. The first two contracts for goods and for civil works, irrespective of their amounts, would also be reviewed by IDA before being awarded (para. 4.01 (e)). Annex 1, Tables 14 show the expected breakdown of procurement among ICB, LCB and other procurement procedures. Disbursements 3.21 The proposed IDA credit of US$35.0 million would be disbursed over 7-1/2 years, based on the standard disbursement profile for the - 25 - Agricultural Sector in Latin America, modified to take into account the existence of a PPF and of a Special Account. Disbursements would be made for 100Z of the IFI subloans face value (provided subloan requests meet the conditions outlined in para. 3.08), 1002 of the expenditures for consultants, 1002 of foreign expenditures for vehicles, equipment and training; 902 of expenditures for locally procured vehicles and equipment and training; 40? of expenditures for civil works for the improvement and mainteziance of rural roads and 902 for other civil works; and 652 of all recurrent costs for the research, extension, indigenous peoples and administrative support components expenditures (Annex 1, Table 16). All disbursements would be against statements of expenditures except for contracts exceeding US$500,000 equivalent for civil works and US$200,000 equivalent for goods, vehicles and equipment, for which submission of full documentation would be required in accordance with IDA guidelines. Retroactive financing of up to US$3.0 million for expenditures made after July 1, 1989, in accordance with Bank procurement guidelines, on account of all components has been included in the credit. The project would be expected to be completed by June 30, 1995. The Closing Date would be June 30, 1996. 3.22 As a condition of credit effectiveness, the Government would establish a Project Account in a financial institution in Santa Cruz to cover counterpart funding for eligible expenditures and would allocate from its budget at least US$0.4 million equivalent as its contribution to the financing of the first year of the project (para. 4.02 (a)). IDA would deposit an initial US$3.0 million in the Special Account upon receipt and approval of the withdrawal applications. Subsequent replenishments by IDA into the Special Account would follow normal procedures. Conditions of disbursement for the credit component would be thats (i) at least one Participating Agreement has been signed between the BkCB and one IFI (para. 3.29); and (ii) the soil studies of the areas Bl and B2 and the first region-wide survey of forest cover have been completed (paras. 3.06 and 4.03). Disbursements to any producers' organization would be conditioned to having entered into a contractual agreement with the Borrower (paras. 3.25 and 4.03). Accounts and Audit 3.23 eroject accounts would be maintained by the Project Unit under the Regional Commission in accordance with sound accounting principles and methods consistently applied. The Special Account, the Project Account, and statements of expenditures would be audited annually by the Comptroller General of Bolivia which has been found satisfactory by IDA or an acceptable private auditing firm. CORDECRUZ would be responsible for ensuring that executing agencies maintain separate records and accounts for expenditures related to their components acceptable to IDA and for the financial review of their accounts. At negotiations, assurances were obtained from the Borrower that the audited reports would be submitted by the Project Unit and the Central Bank within six months of the close of each fiscal year, starting with the audit reports for the fiscal year ending December 31, 1990 (para. 4.01 (f)). - 26 - Organization, Management and Implementation 3.24 The organization and management of the project would reflect the region-wide coverage of the project and the need to combine a strong regional perspective with suitable central Government representation and supervision. To achieve these aims, an -greement has been signed between MACA, CORDECRUZ, and CAO, forming a Regional Commission and vesting on it responsibility for overall coordination in Santa Cruz. The Commission is composed of the Director General of MACA in Santa Cruz (chairman), the President or General Manager of CORDECRUZ, and the President or General Manager of CAO (or in its absence the President or Manager of ANAPO) as voting members. Non-voting members would include representatives of all the executing agencies: CIAT. producers' associations, FINDESA, CDF and CIDOB. The Commission would meet every two months or more frequently at the request of any of its members or IDA. The Commission would delegate day-to-day administration of the projcct to a Project Unit which would be composed by an Executing Director, satisfactory to IDA, to be hired by the Commission and paid by the project. two administrative staff, responsible for administration, accounting and reporting, a technical staff, responsible for technical supervision of project execution (with the support of relevant units/departments in CORDECRUZ) and a secretary. CORDECRUZ's audit department would be responsible for ensuring appropriate financial review of the executing agencies. The staff would be assigned full-time to the project and paid for its entire duration by CORDECRUZ. The Project Unit would be located in CORDECRUZ. MACA would be the line ministry with responsibility for overall project supervision on behalf of the Central Government (para. 3.35). 3.25 Project implementation would be the responsibility of CORDECRUZ, CIAT, producers' associations, CIDOB, and various financial intermediaries. CORDECRUZ, specifically, would be responsible for implementing the natural resource management component through its Natural Resource Department, some elements of the extension component through UPRA and the rural road improvement and maintenance component through its Infrastructure Unit. The Central Bank and various financial intermediaries would channel the funds from the agricultural and storage credit components. CIAT would be responsible for research and technology transfer, UPRA of CORDECRUZ and the four producers' organizations (ANAPO. PROMASOR, FENCA and FEGASACRUZ) for the extension component, and CIDOB for implementing the indigenous peoples component. The reorganization of the Regional Commission to reflect the organization, management and implementation procedures under the project and regulating the accounts of the project, and the finalization of the subsidiary agreements between the Borrower and CIAT, CORDECRUZ and CIDOB would be conditions of credit effectiveness (para. 4.02 (b)). Finalizing subsidiary agreements between the Borrower and each individual producers' organization would be a condition of disbursement to each of them (paras. 3.22 and 4.03). 3.26 Natural Resource Planning and Management. The various elements of the natural resource component would be the responsibility of CORDECRUZ's Natural Resource Department with support from the Forestry Development Corporation (CDF) of MACA. Six new staff would be added to the Natural Resource Department (one natural resource specialist, one land use planner, - 27 - one environmental assessment specialist, one anthropologist or sociologist, one conservation biologist, and one forester or watershed management specialist). This staff would be incorporated into the department by June 30, 1990. Draft terms of reference for the 165 months of foreign consultants aBd 45 months of local consultants to be hired under the project to permit CORDECRUZ to carry out its incremental responsibilities to implement this component, have already been prepared (Annex 3). Final terms of reference would be prepared and the consultants, with qualifications acceptable to IDA, hired by June 30, 1990 and the Land Use Plan completed by December 31, 1991. The two area-wide forest cover surveys and the two partial surveys to assist in the preparation and monitoring implementation of the Land Use Plan, would be carried out by CORDECRUZ annually by December 31 starting December 31, 1991. Assurances in regard to the above were obtained at negotiations (paras. 4.01 (g) and (h)). 3.27 Credit. IDA funds for the credit component would be channelled through the Central Bank of Bolivia (Banco Central de Bolivia-BCB), which is the institution managing all foreign lines of development credit. BCB distributes such credit to eligible intermediary financial institutions (IFIs) through a rediscounting mechanism. Since February 1990, maximum interest rate to subborrowers for all internal and external development credit lines managed by BCB, including IDA funds under this project, would be a variable rate equivalent to the weighted average nominal interest rate paid by each IFI on certificates of deposit they issue (presently 13.52 to 14Z) and adju'sted semiannually. In the case of IFIs not authorized to issue certif:,.cates of deposit, the interest rate would be equal to the weighted average of the nominal interest rates paid by all IFIs on certificates of deposit as calculated and published by the Central Bank. The Central Bank would charge the IFIs a rediscount rate equal to the six- month quoted LIBOR rate (presently around 8.22). The IFIs would be allowed a spread not to exceed five percentage points. At present interest rates, and projected inflation rates in Bolivia, interest rates would be positive in real terms. Subborrowers would carry the foreign exchange risk of the credit component since loan repayments and interest payments are indexed to the exchange rate prevailing at the time of payment. The Borrower would carry the cross-currency risk. Draft guidelines and procedures for the line of credit have been prepared (Annex 4, Apppendix 1). The terms of credit above represent an improvement over the previous structure, i.e., interest rates set on the basis of the "Bolivian" LIBOR (average LIBOR of three years), plus a maximum of five points for the IFIs, plus one point for the Central Bank. The new structure has eliminated the OBoliviane LIBOR and substituted the real LIBOR (six-month quoted LIBOR). The one percentage point to the Central Bank has also been eliminated. Furthermore, the new structure aligns closer to Bolivian market rates and makes the system more flexible. The issue of the remaining caps in the system (maximum spread, maximum interest rates) would be addressed in a proposed Financial Sector Loan II. Thus, the administrative arrangements, policies and credit terms for the credit component in this project fit well into the Bank's strategy for gradually reforming the Bolivian financial system, which has included technical assistance to strengthen banking supervision, improve the operation of the Central Bank, and restructure the major public sector banks, and financial assistance to improve the soundness of the commercial banking system. - 28 - 3.28 A pilot mechanism would be tested under the project to facilitate the change to mechanized cultivation practices by small farmers and break the vicious cycle of slash-and-burn agriculture and near-subsistence farm incomes. Under the scheme, the farmers would be provided with technological packages, technical assistance and supervised credit to lower the risk to IFIs of providing credit to small farmers to levels which the financial intermediaries may consider acceptable given the spread proposed. However, since these farmers so far have been unable to gain access to credit because of low incomes and problems of land tenure and titling, a permanent "risk fund" would be constituted by June 30, 1990 to partially cover the credit risk of small farmers defined as those with 50 ha of land or less (only about 80 of the total expected 1.500 farmers under the project, however, fall under this category). The fund would be financed by 32 of the LIBOR spread. The risk fund would be limited to bona-fide small farmers who have satisfied all other loan conditions (quality of soils as indicated by the Land Use Plan, extension, etc.) but cannot produce title. The 3Z provided by the Central Banks from its margin, i.e., at least the six-month quoted LIBOR. is not a subsidy since these farmers will pay the same interest rate as all other beneficiaries f the credit line, and the risk for all the loan amount would remain with the intermediary financial institution. This 3? contribution would be calculated only on this "small farmers" portfolio which would undergo careful scrutiny, and the proceeds would remain in the Central Bank, in a special interest-bearing account set up in the name of each respective IFI. The IFI shall be allowed to draw on this account for unpaid loans (or part of loans and/or interest) only after it has exhausted, to the Central Bank's satisfaction, all means of recovery but only up to 80? of the loan face value and interest and within the limit of funds available in this risk fund. There would remain considerable financial risk to the IFIs if 'small farmers" loan application are not properly examined, investigated in the field and adequately supervised. This pilot approach which combines supervised credit, technical assistance and the "risk fund" would be closely monitored. Should it prove successful and cost efficient (i.e., be replicable), it could be expanded in the future to cover more small farmers while the basic but very difficult issue of land titling is addressed and/or the Government proposes a nation-wide guarantee system, acceptable to IDA. Assurances were obtained at negotiations that the "risk fund" would be constituted by the BCB by June 30, 1990 (para. 4.01 (i)). Adoption by BCB of the terms, norms and procedures, acceptable to IDA, that would guide the rediscount credit line and the signing of an agreement between the Government and BCB for the use of the credit funds would be conditions of effectiveness (para. 4.02 (c)). 3.29 The IFI eligibility criteria set by BCB are strict, and ar. designed to limit the risks involved in the relationship between the IFIs and their customers. The project would rely on FINDESA, a public sector financial intermediary for implementation of the production and marketing credit components with other interested public and private financial intermediaries also having access to funds rediscounted through the Central Bank as the apex facility, provided they meet the BCB criteria as IFIs and they are acceptable to IDA. The BCB would enter into Participating Agreements with the IFIs in accordance with the terms and conditions of the credit line. Threshhold for free-limit subloanE is US$75,000 after the first three have been approved by IDA. Terminal dete of approval of - 29 - subloans is June 30, 1995. Onlending terms are indicated in Annex 4. The Central Bank would prepare semi-annual progress reports on the credit component by March 31 and September 30 of each year, starting in March 31, 1990, which would be submitted to IDA and copied to MACA and the Regional Commission (pa-a. 3.35). 3.30 Research. CIAT would be responsible for research under the project under the general guidance of its Board of Directors which comprises private and public sector institutions; i.e. MACA, CORDECRUZ (which provides upwards of 80Z of CIAT's budget), the University of Santa Cruz, and CAO. The eleven incremental research scientists and other support staff to be engaged under the project would be hired by June 30, 1990 and would be assigned to the research centers of CIAT (including the new one at Pail6n to be financed under the proposed project) as follows: Saavedra (one soil, one plant pathologist, one plant improvement spec.ialists, onle farm systems), Pailon (ore soil. one plant improvement. one farming eystems and one farm mechanization specialists), San Pedro (one farming systems specialist), Southern Zone (one farming systems and ore L soil specialists). Assurances were obtained at negotiations that the consultants and the 11 incremental research staff, with qualifications acceptable to IDA, would be hired, under the terms of reference indicated in Annex 6, Appendix 1 by June 30, 1990 (para. 4.01 (j)). Terms of reference, acceptable to IDA, for the 30 staff-months of consultants to be contracted and the five-year research program and 19O9 operational research plan satisfactory to IDA, have been prepared by CIAT. In addition, agreement was obtained at negotiations that CIAT would prepare and submit to IDA (through the Project Unit) by October 1 of each year starting October 31, 1990, annual operational research plans, together with their progress evaluation of the previous year research plan (para. 4.01 (k)). 3.31 Agricultural Extension. Overall responsibility for the operational and organizational aspects of agricultural extension under the project would lie with the newly-created Department of Technology Transfer (DTT) in CIAT which would be responsible for technology transfer and linkages between research and extension agents. However, administrative responsibility for the extension agents would continue to rest with UPRA in CORDECRUZ, and with the producers' associations (Annex 5). In the context of the existing technology transfer agreement between CORDECRUZ, CAO, CIAT and MACA, the procedures, roles and responsibilities of each entity and the contribution of each entity to the financing of the extension component and, in the cast of CIAT, the research component also, would be specified in the agreements which would be signed between the Regionel Commission and the implementing agencies as a condition of credit effectiveness (para. 3.25). NGOs involved in agricultural production and extension would also receive technical information on request from CIAT, but their relationship would not be a contractual one. The staff of the DTT in CIAT would be considerably increased to discharge their new responsibilities: five subject matter specialists (one for soybean/wheat agronomy, one for maize/rice agronomy, one livestock production/pasture management, one soil management, and one plant protection), five area coordinators (one for each research center of CIAT) and a communications specialist would be hired by June 30, 1990. The subject matter specialists would be responsible for backstopping field extensionists and their supervisors; they would also carry out verification trials on the applicability of new research findings - 30 - under different farm management systems. The zone coordinators would be responsible for regular training of the field extension teams in their zones with che support of the communications specialist, whote responsibility would include the preparation of appropriate video material. The project would also finance increasing the staff of: (a) the three main producers' associations ANAPO, PROMASOR, and FEGASACRUZ by 14 people, of which three extension directors (one for each association) and 11 extension agents; (b) FENCA by two extension agents; and (c) the staff of UPRA in CORDECRUZ with one extension director and five extensioa agents. This additional staff would also be hired by June 30, 1990. Assurances in regard to the hiring of additional staff by CIAT, CORDECRUZ and the producers' associations by .he agreed dates were obtained at negotiations (para. 4.01 (1)). The extension teams of UPRA (and the NGOs) would concentrate their work mainly on small- and medium-scale farmers while the teams of the producers associations would work primarily with large-scale commercial producers. A special effort would be made to reach the special producer groups (particularly t4ennoaltes) in the extension programs of TYPRA ansd ANAPO. In order to strengthen the oxtension program. agreemer.t was obtained at negotiations that CIAT would by June 30, 1990 hire a consultant in extension methodology and orgauization, with qualifications satisfactory to IDA to assist DTT (para. 4.01 (m)). Terms of reference satisfactorv to IDA have been drawn b, CIAT. The consultant would also assist in the preparation of an extension manual setting forth the procedures and organization of the extension system. It would be expected that the normal operation of an extension team would consist of one technical supervisor and two to five extensionists which would work with producer groups consisting of 12 to 20 farmers. They would visit these groups regularly and on a fixed schedule. The technical supervisors would visit the extensionists in the field and, together with the zone coordinator at CIAT, would be responsible for weekly training meetings of his team. A draft five-year training program by CIAT for teams leaders, extensionists and faruers, and refresher courses for the subject matter specialists has been prepared (Annex 5). The final five-year training program and the 1991 operational training plan would be prepared by CIAT with the assistance of the extension consultant and submitted to the Project Unit by October 31, 1990. Thereafter, yearly operational training programs would be submitted to IDA (through the Project Unit) no later than October 1 of each year. Assurances in this regard were obtained at negotiations (para. 4.01 (k)). 3.32 Rural Road Improvement and Maintenance. CORDECRUZ through its Engineering Unit (Department of Road Infrastructure) would be responsible for rural roads design, reconstruction and maintenance. Road reconstruction and rehabilitation would be carried out by contractors; engineering designs and supervision of maintenance would be carried out by consultants. A detailed five-year program for the component and the detailed description of the roads to be improved yearly, satisfactory to IDA, has been prepared (Annex 9). Annual operational work would be prepared by CORDECRUZ and submitted to IDA (through the Project Unit) by October 1 of each year starting October 1, 1990. Assurances to this effect were obtained at negotiations (para. 4.01 (n)). 3.33 Indigenous Peoples. Institutional responsibility for implementation of this component would belong to the Central de los Indigenas del Oriente Boliviano (CIDOB) (Annex 10). Funds would be made - 31 - available to them from the Project Unit in accordance with a contract to be formalized as a condition of credit effectiveness (para. 3.Z5). CIDOB would: (a) implement the project, including the provision of administrative support to the field teams and consultants; (b) monitor implementation; and (c) prepare and submit to the Project Unit for onward transmission tc IDA annual reports on project progress. It wo Id be expected that the first year of the project would serve to help organize the communities, provide urgent health assistance, prepare in detail the investment and other activities to be implemented during the remaining four years of the project and initiate the socio-economic surveys of the Ayoreos and Chiquitanos communities as a basis for land demarcation. To this effect, two anthropologists (or social scientists), one on a part-time basis, an agronomist, and an engineer, satisfactory to IDA, would be hired by CIDOB no later than October 1, 1990, who together with an economist who would be detailed full-time by CIDOB by the same date, would initiate these activities and prepare by June 30, 1991 a detailed feasibility study and action plan. He would be assisted, as needed, by external and local consultants for specific technical aspects. The action plan would include the training program, and the social and productive infrastructure for the Ayoreos communities to be financed with funde provided for these purposes under the project. Disbursement of such funds would start in Year 2 of the project (1991) and be subject to previous approval by the Regional Cummission and IDA of the feasibility study. Activities related to the two subcomponents "organization of the community" arnd "support for the demarcation of tribal lands of the Ayoreos" would start in Year 1 and would be initiated by the three professionals with the support of specialized staff in CIDOB. Assurances were obtained at negotiations that by October 1, 1990 the four professionals would be hired and that CIDOB would detail an economist to work full-time in the implementation of the Ayoreo and Chiquitano component, and that they would prepare by June 30, 1991 and submit to IDA (through the Project Unit) for approval a detailed feasibility study and action plan for the Ayoreo component. No works would be financed under this component unless the above referred study and action plan have been approved by IDA (para. 4.01 (o)). 3.34. Administrative Support. The Executive Director of the Project Unit would be selected by the Regional Commission from a short list of three candidates with the approval of IDA. Assurances were obtained during negotiations that the Project Unit would be established as a condition of effectiveness (para. 4.02 (d)). The remaining staff of the Project Unit (two administrative assistants, one technical assistant and one secretary) would be attached to the Unit for the duration of the project from existing staff of CORDECRUZ and, while paid by CORDECRUZ, they would be considered for all purposes as staff of the Project Unit (para. 3.24). Final selection of the candidates would be the responsibility of the Executive Director from a short list presented by CORDECRUZ. The Government provided assurances at negotiations that it would cause CORDECRUZ to provide space and logistical support and to detail the staff to the Project Unit under the conditions described above by June 30, 1990, and that the Project Unit would be staffed with managers and personnel with qualifications and experience satisfactory to IDA (para. 4.01 (p)). - 32 - Project Monitoring and Evaluation 3.35. Responsibility for managing the project, rests with the Project Unit under the Regional Commission. The Project Unit would be responsible for submitting to the Regional Commission for onward transmission to MACA and IDA, consolidated six-monthly progress reports for all the components except for the progress report of the credit component which would be prepared and submitted by the Central Bank by the same dates to IDA and MACA and to the Regional Commmission by March 31 and September 30 of each year beginning in 1990 (para. 3.29), annual consolidated work programs by October 31 of each year starting October 31, 1990 and a project evaluation report six months after the project's closing date. Assurances to this effect were obtained at negotiations (para. 4.01 (q)). MACA through its Planning Department would monitor project implementation on behalf of the Central Government to ensure appropriate coordination between all the Government entities and take actions required to achieve the overall project obiectives. The Planning Department would report jointly to the Vice-Minister for N4atural Resources and che Vice-Minister for AgricuLtural Production. In addition, in view of the importance of the environmental aspects of the project, the potential conflict between development and conservation interests, and the need to be able to identify and correct problems during project implementation, the project would include provision for some US$0.1 million for the Vice Ministry for Natural Resources of MACA to establish an independent environmental committee to monitor and assess the project's progress in achieving its objectives. At negotiations, an assurance was obtained that the Government would establish such an environmental committee by September 30, 1990 to monitor and provide annual assessments with recommendations for improvement. Such assessment reports would be submitted concurrently to MACA, the Regional Commi.ssion and IDA by March 31 of each year, starting on March 31, 1991 and would serve as the basis for an annual meeting between the Government, the Regional Commission and IDA to review project progress and the effects on the environment (para. 4.01 (r)). Project Benefits, Justification, and Risks 3.36 Benefits and Justification. The major benefits of the project would be of two types. First, the project would help rationalize the long- term development of the Eastern Lowlands by developing a long-term Land Use Plan for the region, introducing better land-clearing methods and cultural practices, and demarcating and improving the management of the areas to be maintained as reserves and national parks, especially the Noel Kempf Mercado National Park, thereby contributing to the preservation of the natural habitat of the region's flora and fauna. It would also assist in defending the land rights and improving the standard of living of the 8Ayoreos" native group and in demarcating the land rights of the 'Chiquitanos". Second, the project would over a five-year period help expand the annual production oft (a) soybean by about 200,000 ton, most of which would be exported as grain, some substituting for production of less profitable maize, sugarcane and cotton; (b) wheat by about 30,000 ton; and (c) marginally, of rice and other crops (Annex 4, Table 13). The total annual inc..remental value of farm production is expected to reach - 33 - US$45 million. The expansion of exports and reduction of required imports would provide direct balance of payments relief through a substantial increase/savings of foreign exchange, estimated at about US$52.6 millior in the year of full production (1993) equivalent to about 532 of total agricultural exports in 1988. The project would also assist the Government efforts in improving the agricultural policy environment for suttainable agricultural development, especially in regard to land pricing and expand credit coverage to about 1,350 small- and medium-scale farmers without (or with insufficient) access to credit and therefore denied the benefits of advanced agricultural technology, inputs and mechanization. 3.37 The project is well justified in financial and economic teruis and by its effects on protecting the natural resources of the Eastern Lowlands. Financial rates of return from the illustrative farm models range from 33Z for Model 1 to above 502 for the remainder (since they include no long-term investment costs). The economic rate of rettrn for the project is about 18?. Domestic resource cost studies conducted by FAO indicate that Bolivia's comparative advantage in soybean production cans be sustained up to an international price equivalent of US$126 per ton, or a drop of 361 ftom present economic prices. 3.38 Prices, Production and Marketing. In response to an appropriate policy environment, price formation is transparent and agricultural inputs are readily available. Farmgate prices for project outputs (soybeans, wheat) and inputs are based on international prices, with the exception of sugar, but even the latter's price is not significantly distorted. (a) Soybeans have been traditionally produced mostly for the local oil crushing industry. Henceforth, however, and barring capacity expansion by the millers, most of the increased production of soybean would be for export in the form of grain. Of the expected production of about 220,000 ton in the 1989 summer crop, 170,000 ton are destined to the locai crushing industry (which is expected to export about 100,000 tcn in the form of soymeal) and the rest or 50,000 ton will be exported in grain. Farmgate prices for soybeans are arrived at by deducting transport, handling and export costs from the FOB. price at the port of Paranagua, Brazil. Soybeans are almost exciusively exported to Europe through European and Brazilian exporters. Given the small share of Bolivian exports as a percentage of total world trade in soybeans, marketing and export of soybeans up to a level of 500,000 ton annually, is not expected to pose major difficulties especially in view oi present contractual arrangements and the potential interest by some Jepanese trading firms (Annex 4); (b) Wheat is produced for domestic consumption, although incentives to producers are reduced by US PL-480 wheat donations, and by smuggling from Argentina. Sources for domestic consumption of wheat in the country (about 360,000 ton/year) are imported from Argentina (58Z), donated (39Z) and produced domestically (3?). Incremental production under the project is expected to amount to 30,000 ton annually, or no more than 10Z of total domestic consumption. Farmgate prices for wheat in Santa Cruz are arrived by the two flour mills by deducting transport and a discount for gluten content to CIF prices; - 34 - (c) Sugar is produced for domestic consumption and a very small percentage (3-42 of total production) is exnorted to fulfill the US quota. Santa Cruz production covers about 70Z of total domestic consumption. The area devoted to sugarcane has declined from a peak of 60,000 ha in 1978 to about 37,800 ha in 1989. Productivity has remained low by world standards at about 50 ton/ha, with a 12? average sugar content. Farmgs8e prices are set by the producer's association CONALCA, (the National Sugarcane Council), at less than border price levels. However, CONALCA has a 57.2Z participation in the final sugar production (the sugar mills possess the rest), and th y jointly fix the nationwide price. Therefore, CONALCA is able to distribute the profit back to the producers after sale of the final product which maintains final producer price close to the equivalent border level; and (d) Inputs (farm chemicals, machinery and implements) are priced by adding to the import prices the cost of transport, duties, local taxes, handling aud profits. Prices used in the economic analysis of this project are based on financial prices minus transfers (alocal taxes, duties and financing charges). Project Risks 3.39 Having emphasized the critical importance and need for this project in Bolivia, it must equally be emphasized that it is a high :i.sk project. Some risks are inimical to the physical environmental and general low level of institutional development of Bolivia (which largely explain why Bolivia has not acquired a tradition as an agricultural export producing country). Even the Eastern Lowlands, despite being the area of greatest export potential in Bolivia, has yet to experience a sustained rapid growth of legal agricultural exports. More specifically, the risks of the proposed project fall into two main groups. First, there are risks related to the possible inability to sustain the increased levels of agricultural production and export expected under the project because of agronomic and economic considerations that may affect the long-term profitability of soya, or other possible export crops. Second, there are potential risks to the natural resource base and the environment of the region unless the expansion of agricultural production and exports takes place r&tionally. 3.40 The sustainability of soya or other export crops from the perspective of its profitability, depends, on the demand side, on the price of the product in world markets and the existence of a market. Markets, at present and forecasted levels of export exist, but no control on prices can be exercised by Bolivia as a price taker. However, soya prices tend to fluctuate less than other export crops, and the long-term projections for the commodity indicate that price is expected to maintain adequate levels. But profitability is also a function of the supply side, i.e., yields, production costs, and transport costs. The project would minimize the risk on the supply side by helping increase and sustain yields through ensuring - 35 - that only land of adequate quality is developed, strengthening agricultural research and extension, and improving land clearing methods, cultural practices, seeds and the rural road system. The recently appro,ed IDA's Export Corridor Project would also help improve the efficiency of the railroad and help reduce cost and time of transport (although the reliability of river transport through the Paraguay/Parana system ic yet to be fully established). On the credit side, a credit risk fund would be created to encourage financial intermediaries to lend to small and medium farmers who do not have acceptable collateral, but who are good project risks. These measures would also deepen the ability of the agricultural sector to adapt to changing externdl market circumstances and permit the transition, should soya falter, to the production and export of other crops (which would also be eligible for financing under the project). 3.41 The potential risk to the natural resource base and environment of the Eastern Lowlands is a function, in part, of the region's own development potential and wealth of land resources. Unfortunately, some development in the region has followed extensive land use patterns with improper clearing and cultural practices. This has resulted in some areas being abandoned due to drainage problems and weed infestation. The project has been designed to address these risks, and indeed to direct and control the pace of agricultural development of the region, l-imiting it to a small area of about 70,000 ha over a three-year period within an area of about 2 million ha (the latter of which represents only 6Z of the region's total area). Furthermore, most of this expansion of production would take place in areas already under agricultural use and would be financed under the project only if the specific areas proposed for agricultural production have sustainable qualities, improved land clearing methods are followed and if a satisfactory farm plan is prepared for farms of over 100 ha in size. 3.42 As a second, and more fundamental step, the project will provide the means to control the speed, direction and type of future development, and ensure the long-term sustainability of agricultural production by producing an agroecological zoning map as part of a general Land Use Plan of the department. The plan will serve to direct development to those areas where agricultural production is sustainable and to identify areas that should be set aside as forest reserves and national parks for the preservation of wildlife and flora in its native habitat. The project would also specifically support the development and protection of the Noel Kempf Mercado National Park and other parks. Measures would be adopted to improve the standard of living of the "Ayoreos' native peoples in the Eastern Lowlands in a form and speed best suited to their own perceived interests, and to demarcate the tribal lands of the Ayoreos and Chiquitanos communities. The Government and all the regional authorities support the introduction and enforcement of these measures as a means of minimizing the risk to the envirou-nent. The strong conditionality proposed under the project (paras. 4.01-4.02) would further ensure the implementation of the measures. IV. AGREEMENTS TO BE REACHED AND RECOMMENDATION 4.01 During negotiations, agreements were reached with the Borrower on the following: - 36 - (a) the Government would reintroduce legislation in Congress by December 31, 1990 designed to set market pricing for land distributed by the Government except that distributed to indigenous groups and small farmers and apply such pricing policies by December 31, 1991 (para. 3.05); (b) the Government would cause CORDECRUZ to: (i) prepare and submit to IDA for review and comment by December 31, 1991, the Land Use Plan for the Eastern Lowlands, including the delineation of national parks and reserves, and enact regulations pertaining to the enforcement of the Land Use Plan; and (ii) ensure that development plans prepared thereafter would be in strict accordance with the Land Use Plan (para. 3.08); (c) until the Land Use Plan for the Eastern Lowlands is adopted with approval from IDA: (i) no official agricultural credif from any source managed by the Central Bank would be given for land clearing in the Eastern Lowlands, unless the prospective subborrower presents an on-farm soil study approved by the Natural Rpesource Department (NRD) of CORDECRUZ demonstrating that farm soils of quality ,-IV and, if the farm has nore than 100 ha, a farm plan also approved by NRD; and (ii) IDA credit would be limited to agricultural development taking place in the areas identified in para. 3.03 and to the same cor.ditions indicated under (i) in para. 3.08; (d) the Government would make annual allocations from the budget t' provide adequate counterpart financing on the basis of the project's annual budget and make available su_h funds promptly as needed and would cause CORDECRUZ, CIAT and the producers' associations to provide their contribution to the financing plan of the project on the basis of the agreed schedule (para. 3.19); (e) the Government would follow the procurement procedures outlined in para. 3.20; (f) audited reports for the Special Account, the Project Account, and statements of expenditures would be submitted by the Project Unit (PU) and the Central Bank within six months of the close of each fiscal year starting with the audit reports for the fiscal year ending December 31, 1990 (para. 3.23); (g) final terms of reference for the consultants for the preparation of the Land Use Plan would be prepared and the consultants hired by June 30, 1990. Six additional staff would be incorporated into the Natural Resource Department of CORDECRUZ by June 30, 1990 (para. 3.26); (h) the Government would cause CORDECRUZ to carry out two complete area-wide forest cover surveys by December 31, 1991 and December 31, 1993, and two partial forest cover surveys by December 31, 1992 and December 31, 1994 (para. 3.26); - 37 - (i) BCB would constitute a risk fund by June 30, 1990 with terms and conditions satisfactory to IDA (para. 3.28); (j) the five research consultants under terms of reference satisfactory to IDA and the eleven incremental research scientists in CIAT, with qualifications satisfactory to IDA, would be hired by June 30, 1990 (para. 3.30); (k) CIAT would submit to IDA (through the PU) by October 31, 1990 the final five-year extension training program; CIAT would also submit by October 1 of each year, starting October 1, 1990, annual operational research plans, together with a progress evaluation of the previous year research plan, and annual operational exteLjion training plans (parus. 3.30 and 3.31); (1) CIAT, CORDECRUZ and the producers' associations would hire the incremental extension staff by June 30, 1990 (para. 3.31); (m) the extension consultant would be hired by CIAT by June 30, 1990 (para. 3.31); (n) CORDECRUZ would prepare and submit to IDA (through the PU) annual operational plans for road improvement and maintenance by October 1 of each year commencing October 1, 1990 (para. 3.32); (o) the four professionals for the indigenous peoples component would be hired by October 1, 1990 and they would prepare and submit to IDA (through the PU) for approval a detailed feasibility study with an action plan for the implementation of the ayoreo indigenous peoples component by June 30, 1991. No works would be financed unless the study and action plan have been completed (para. 3.33); (p) CORDECRUZ would detail two administrative assistants, one technical assistant and one secretary to the PU for the duration of the project by June 30, 1990. They would be paid by CORDECRUZ but would be functionally responsible to the Executive Director of the PU. The staff would be selected by the Executive Director from a short list provided by CORDECRUZ. The PU would be staffed with managers and personnel with qualifications and experience satisfactory to IDA (para. 3.34); (q) the PU would submit to IDA six-monthly project progress of all the components (except credit which would be submitted by the Central Bank with copy to MACA and to the Regional Commission) by March 31 and September 30 of each year, starting in March 31, 1990, annual consolidated work programs by October 31 of each year, starting October 31, 1990, and a project evaluation report six months after the project's closing date (paras. 3.35); and (r) the Government through the Vice Ministry of Natural Resources of MACA would establish an independent Environmental Committee which would be established by September 30, 1990 to provide an independent monitoring and assessment of progress in achieving l - 38 - project objectives. The assessment reports would be submitted concurrently to MACA, the Regional Commission and IDA by March 31 of each year, starting on March 31, 1991, and would serve as the basis for an annual meeting to review project progress and the i effects on the environment (para. 3.35). 4.02 Conditions of Effectiveness of the credit would be: (a) the Government would establish a Project Account, in a financial institution in Santa Cruz to cover counterpart funding for eligible expenditures. The Government would allocate from its budget at least US$0.4 million equivalent as its contribution to financing the first year of the project (para. 3.22); (b) the Government has reorganized in form and substance satisfactory to IDA the Regional Commission, and contractual agreements have been signed between the Borrower and CIAT, CORDECRUZ and CIDOB (para. 3.25); (c) the Central Ba*ik (BCB) has adopted the terms, norms, and procedures that would guide the rediscount credit line included under the project, and the Government has entered into an agreement with BCB for the use of the credit funds (para. 3.28); and (d) a PU would be established (para. 3.34). 4.03 Conditions of Credit Dnisbursement for the Credit Component would be that: (i) the soil studies of the areas BE and B2 and the first region- wide survey of forest cover have been completed (paras. 3.06 and 3.22); and (ii) at least one Participating Agreement has been signed between the BCB and one IFI. A condition of credit disbursement for eligible expenditures incurred by each individual producers' organization would be that they have signed their respective subsidiary agreements with the Borrower (paras. 3.22 and 3.25). 4.04 Subject to the above, the project provides a suitable basis for an IDA credit to the Republic of Bolivia for SDR 26.5 million (US$35.0 million equivalent), the terms would be standard, with 40 years maturity. -39- ANE1 SOLIVIA EASTERN LOWLANDS: NATURAL RESOURCE MANAGEMENT AND AGRICULTURAL PRODUCTION PROJEC-i Summary Accounts Cost Summary S5 us$ 1 Total ________________________ -_____-------------------_---------------------- 7 Foreign Base Local Foreiln Total Local Foreign Total Exchange Costa I. INVESTldT COST A. CREDIT 1. AGRICULTUAL DEVEL.I'EW 25.821.800.0 4S,080,700.0 70,902,000.0 8,607,100.0 15,028,900.0 23,684,000.0 63.6 46.7 2. STORAGE CAPACITY 971,400.0 8.885.600.0 4,857.000.0 823,600.0 1,295.200.0 1,619.000.0 60.0 3.2 S. KM88TD4 CRDIT 18,718.600.0 3,428,400.0 17,142,000.0 4,571,200.0 1,142,800.0 5.714.000.0 20.0 11.3 _ .. . . _~- - -- -- -- -- --- - ...... _- -- -- -- -- - -- - - - - - - - -- _- _ - _ --- Sub-Total 40,806,300.0 82,894.700.0 92.901,000.0 13,802,100.0 17,484,900.0 30.987,000.0 86.4 61.2 0. CONSULTANTS 1. EXTERAL CONSULTANTS 1,416,000.0 5,894.000.0 6,810.000.0 472,000.0 1,798,000.0 2,270,000.0 79.2 4.5 2. LOCAL CONSLTANTS 1,722.900.0 0.0 1,722,900.0 574,800.0 0.0 574,800.0 0.0 1.1 Sub-Total 8.138.900.0 s.894,000.0 8.882.900.0 1,046,800.0 1,798.000.0 2.844,800.0 88.2 5.8 C. SITDOS 221,817.8 1.884232.5 1,8S0,80.0 78,772.S 528,077.5 601,850.0 87.7 1.2 D. OTHER DO NSOs S,821,150.0 8,886,880.0 6,676,800.0 1,107,080.0 1,118,450.0 2,228,500.0 80.8 4.4 E. CIVL WWS 7,957,800.0 7,957.800.0 18,915,600.0 2,652.600.0 2,652,600.0 8,305,200.0 80.0 10..1 F. .VG3IIC AS *O DWUIP 1. VeBICES 805,875.0 1,940,625.0 2,446,500.0 168,625.0 648,875.0 s1s,S80.0 79.8 1.6 2. EfIPUl 544,650.0 1.822,880.0 2,867,000.0 181,50.0 607,450.0 789,000.0 71.0 1.6 Sub-Total 1.050,525.0 8,762,975.0 4,818,s5o.0 380,175.0 1.254,525.0 1,604,500.0 78.2 8.2 0. TRAIING 177,177.0 2,016,868.0 2,198,640.0 89,059.0 672,121.0 781,180.0 91.9 1.4 _ ~~~- - - - - - -- - -- - -- - -- - -- _- -- - - -- -- - -- - ___ _ _ Total INVESINI COSTS 88,878,169.5 78,465,420.5 152,888,590.0 18,791,058.5 25,488,47.5 44,279,530.0 57.8 87.5 II. RCEE:T COSTS A. SAURI N ALLOWANCES 1. SALARIS 7,264,500.0 0.0 7,264,500.0 2,421,500.0 0.0 2,421,50.0 0.0 4.8 2. TRVAE ALLOWANCE 1,000,850.0 82,650.0 1,088,000.0 833,450.0 17,550.0 851,000.0 S.0 O.7 Sub-Totel 8,254,650.0 52,650.0 6,817,500.0 2,764,9s0.0 17,550.0 2,772,500.0 0.6 5.8 B. VOIHCLE & ERW9 KADNCew 5,921,670.0 4.42,680.0 10,&44,S00.0 1,978,890.0 1,474,210.0 8,448,100.0 42.6 6.6 C. OFICE SUPPULI A PUBLICATIOS 92,925.0 28,775.0 871,700.0 80,975.0 92,925.0 128,900.0 75.0 0.2 Total RE1UM84 COSTS 14,279,448.0 4,754,055.0 19,033,500.0 4,759,615.0 1SS4,685.0 6,844,S00.0 25.0 12.5 Toatl BSELIE COSTS 70,652,614.5 61,219.475.5 151,872,090.0 23,550,871.5 27,078,18.5 50,624,080.0 58.5 100.0 Physical Contingencie 2,259,530.4 2,259,724.1 4,499,254.5 753,176.8 746,574.7 1,499,751.5 49.8 8.0 Price Contingencies 4,149,588.2 8,405,902.7 7,565,485.9 1,368,194.4 1,185,500.9 2,516,495.8 45.1 5.0 Total FROJCT COSTS 77,061,728.1 68,655.102.8 168,926,880.4 2s,867,242.7 28,955,084.1 54,642,276.8 58.0 107.9 Source: Annex 1, Table 6 through 18. BOLIVIA EASTERN LOLANDS: NATURAL RESOURCE MANAGEMENT AND ACRICUL)URAL PRODUCTION PROJECT Proiect Financing (US, '000) Project Financial Producers' Covornment Cofinancing B neficlaries Intermediaries CIAT Associations CORDECRUZ Entities */ IDA Total Amount S AmAmounAon Amount X Amount X Amount X Amount X Amount X Natural Resoure Ulpt. 809.8 b/ 6 5,647.7 9t 6,957.6 100 Production A MUrketing 3,827.8 12 2,734.0 9 24,605.7 79 30,967.0 100 Reserch 497.3 19 234.8 ? 9 1,908.4 72 2,640.6 100 Agricultural Extension 117.8 8 486.6 11 320.2 5 8 2,961.2 77 3,835.8 100 I. Rural Roads 6,640.1 / 60 3,774.9 40 9,415.0 100 Indigenous Peoples 49.8 6 968.7 95 1,018.0 100 Proj et PreFaration Facility 18.9 8 625.0 97 548.9 100 Adslnlstrativy Support 8.5 8 266.1 97 264.6 100 TOTAL 3,627.8 7 2,734.0 5 615.1 1 438.6 1 6,581.6 12 5,647.7 10 35,00.0 64 64,642.8 100 a, Federal Republic of Germiany Taxesm f Taxes equal USS188.4; contributlon by CORDECRUZ to extension cost Is teUS11.s. Taxes equal USM924.4 tD t - BOLIVIA EASTERN LOWLANDS:NArJRAL RESOURCE MANAGEMENT AND AG. PRODUCTION PROJECT Summry Account by Project Component usl Rural Natural Prod,Sto Ag. Roads Indigeno Projoct Administ Resource rag.Akt Extensio Improvem us Preparat rative PAMqt 9 Credit Reserch n ent Peoples ion F. Support I. INVESTMENT COSTS A. CREDIT 1. AGRICULTURAL DEVELOPMENT 6.9 28684.9 0.6 6.90 6.6 6.6 6.6 .0 2. STORAGE CAPACITY 6.9 1619.6 0.0 0.0 0.0 0.6 6.6 6.6 8. MARKETING CREDIT 0.9 6714.0 9.6 9.0 6.0 6.6 0.6 6.6 ;-;- --__--- ---- _ ____ -------- -- Sub-total 6. 030s7.6 6.6 0.6 6.9 6.6 9.6 6.6 B. CONSULTANTS 1. EXTERNAL CONSULTANTS 1569.6 6.9 8o.9 1260. 0.6 6.6 296.6 6.6 2. LOCAL CONSULTANTS 1706 9.6 9.6 6.6 6.6 826.8 78.6 0.6 --___- -- - - - - -- _ _ ----- __ --- __ ----- - -- - - -- Sub-total 1780.6 6.9 866.0 120.0 6.6 826.8 a88.6 6.6 C. STUDIES 847.8 0.6 6.9 6.0 1509. 17.6 87. oe.6 0. OTHER EXPENSES 2102.9 6.9 89.0 9 18.6 6. 26.6 69.6 6.o E. CIVIL WORKS 8.0 9.6 128.2 0.6 4986.0 149.0 6.6 6.6 F. VEHICLES AND EQUIPMENT 1. VEHICLES 243.0 6.9 116.5 411.5 6.6 89.6 0.6 11.5 2. EqUIPMENT 148.0 6.6 476.0 68.6 6.6 96.6 9.6 1060 Sub-total a89.6 6.9 586.6 474.6 9.6 184.0 6.6 21.5 0. TRAINING 266.0 6.9 50.0 840.0 6.6 66.2 20.6 6.6 _ ---__ ___ _ _ _ __ _ _ _ ---- __----_----- -_ Total INVESTMENT COSTS 4878.2 30997.0 1688.7 956.6 6186.6 718.6 525.6 21.6 II. RECURRENT COSTS A. SALARIES AND ALLOWANCES 1. SALARIES 120.0 6.9 989.0 1181.9 0.6 .6.6 8.6 1f.0 2. TRAVEL ALLOWANCE 6.6 6.9 6.6 824.0 6.6 27.9 6.6 0.0 Sub-total 120.0 9.6 989.0 1566.0 6.6 58.5 6.6 10. 0 8. VEHICLEAEPMT MAINTENANCE 7.2 6.6 190.0 697.0 2498.4 65 6 0.0 fl O 6> C. OFFICE SUPPLIES AND PU8L. 2.4 6.9 21.5 60.0 6.6 6.9 6.6 60.0 60 cr Total RECURRENT COSTS 129.6 6.6 1160.6 2252.0 2498.4 114.9 6.6 200.0 0 Total BASELINE COSTS 667.8 39967.0 2239.2 826 7620.4 92.86 526.9 221.6 Physical Contingecies 276.6 9.o 164.6 218.7 762.8 66.6 e 00 12.1 Price Contingencies 674.2 060 286.7 414.6 1023.7 119.4 18.9 36.9 Total PROJECT COSTS 5967.6 38967.6 2640.5 8835.8 9415.6 1918.0 643.9 264.6 Taxes 309.8 0.0 234.8 188.4 924.4 49.3 6.2 8.S Foreign Exchange 3791.7 17464.9 102.0 1438.4 4438.2 8s6.6 376.1 84.6 Values scaled by 1000.0 Source: Annex 1, Tables 6 through 13 BOLIVIA EASTERN LOWLANDS:NATURAL RESOURCE MANAGEMENT AND AG. PRODUCTION PROJECT Sumary Account by Project Component us$ Physical Price Contingencies Contingencies Tots I N Amount N Amount 1. DlVESTMENT COSTS A. CREDIT 1. ACRICULTURAL DEVELOPMLNT 28684.0 0.0 0.0 0.0 0.0 2. STORAGE CAPACITY 1619.0 0.0 0.0 0.0 0.0 8. MARKETING CREDIT S714.0 0.0 6.0 0.0 0.0 Sub-total 89967. 00 0. 0 0.0 0.0 B. CONSULTANTS 1. EXTERNAL CONSULTANTS 2270.0 4.4 99.0 7.7 175.6 2. LOCAL CONSULTANTS 574.3 4.8 24.8 12.2 70.1 Sub-total 2844.3 4.4 123.8 8.6 246.7 C. STUDIES 601.8 5.6 33.2 10.2 61.4 D. OTHER EXPENSES 2225.5 5.0 116.3 15.8 851.9 E. CIVIL WORKS 6890.2 10.3 546.8 11.0 58l.9 F. VEHICLES AND EQUIPMENT 1. VCHICLES 816.5 19.6 81.5 4.8 84.7 2. EqUIPMENT 789.0 10.0 78.9 8.8 69.3 Sub-total 1604.5 16.0 166.4 6.5 194.6 G. TRAINING 731.2 4.9 86.6 16.1 117.6 Total INVESTMENT COSTS 44279.5 2.3 1010.1 3.3 1461.6 II. RECURRENT COSTS A. SALARIES AND ALLOWANCES 1. SALARIES 2421.6 5.0 121.1 14.9 859.8 2. TRAVEL ALLOWANCE 851.0 6.0 17.6 14.9 62.3 Sub-total 272.5 5.6 188.6 14.9 412.9 i B. VENICLEAEIPMT MAINTNACE 844s.1 10.0 844.8 18.2 626.1 0o1 C. OFFICE SUPPLIES AND PUML. 128.9 5.9 6.2 15.1 18.8 5 Total RECURRENT COSTS 6344.5 7.7 489.6 16.7 1116.9 '4- 0 Total BASELDIE COSTS 5924.0 8.6 1499.8 5.6 2618.5 Phyolcal Contingencli 1499.8 Price Contingencles 2618.6 7.1 177.7 Total PROJECT COSTS S4642.8 8.1 1677.5 4.6 2618.5 Taxes 1720.8 8.8 142.6 Foreign E.ehngep 296s.0 2.9 828.7 Values scaled by 1000.0 BOLIVA EASTERN LOWLANDSNATURAL RESOURCE MANAGEMENT AND AG. PROOUCTION PROJECT usl Suary Accounts by Year ba" Cost Foreign Exchange so 91 92 98 94 Total X Amount I. DnISTME COSTS A. CREDIT 1. AGRICULTURAL DEVELOPMENT 8418.0 6968.6 8248.6 6.6 6.e 28684.0 6C.6 15626.9 2. STORAGE CAPACIm 487.6 579.0 603.0 0.0 6.0 16s9.0 86.6 1295.2 S. MARKETDIG CREDIT 1654.0 1998.0 2062.0 e.6 0.6 5714.0 20.0 1142.8 Sub-total 16s56.6 9645.0 16918.0 0.0 6.6 8967.6 56.4 17464.9 B. CONSLLTANTS 1. EXTERNAL CONStLTANTS 1290.6 766.0 6.6 286.6 6.6 2276.0 79.2 1799.0 2. LOCAL CONSULTANTS 178.5 186.7 107.7 76.7 75.7 574.8 6.6 6.0 Sub-total 1468.5 086.7 107.7 855.7 75.7 2844.8 63.2 1798.0 C. STUDIES 867.8 160.5 56.6 92.5 56.5 601.6 87.7 528.1 0. OThE EXPENSES 834.5 865.6 21.8 1484.1 19.5 2225.6 50.8 1119.4 E. CIVIL WORKS 1178.7 2584.2 1481.7 86.7 78.7 5806.2 56.6 2652.6 F. VEHICLES AND EqUIPMENT 1. VEHICLES 795.5 6.6 26.0 o.6 9.6 815.5 79.8 646.9 w 2. EJIPMIENT 441.6 188.0 72.6 11s.8 0.0 789.0 77.0 667.4 Sub-total 1256.5 188.6 92.6 118.6 0.6 1604.5 78.2 1254.3 0. TRAINING 76.0 182.1 226.4 196.4 106.4 731.2 91.9 672.1 Total INVESTMEN COSTS 15170.0 18362.1 12848.1 2283.4 380.8 67.6 26488.5 II. RECWRRENT COSTS N. SALARIES AND ALLOWNCES 1. SALARIES 496.1 495.1 495.1 489.1 488.1 2421.5 0.0 0.0 2. TRAVEL ALLOWANCE 71.e 72.6 72.0 6s.6 68.6 861.6 5.0 17.6 Subtotal 566.1 667.1 567.1 586.1 586.1 2772.6 6.6 17.5 I. VEICE*MT MAINTENANCE 891.9 496.1 756.5 963.8 968.8 8443.1 42.8 1474.2 J. OFFICE SUPPUES AND PUBL. 24.8 24.8 25.1 25.1 25.1 128.9 75.0 92.9 Total RECURRENT COSTS 981.8 1681.5 1842.7 1469.6 1409.6 6844.5 25.0 1684.7 Total BASELINE COSTS 81611. 1478.8 14185.8 8752.9 196.8 56a24.0 58.5 27678.2 Physical Contlngencles 412.1 421.0 286.2 246.4 141.1 1499.8 49.8 748.6 Price Contingencies 218.0 586.2 510.5 776.6 478.2 2618.6 46.1 118.8 Total PRECT COSTS 10781.4 15690.8 14976.5 4778.9 2419.6 54342. 58.0 289.6. Taxes 449.8 467.4 868.4 846.0 158.7 1726.8 6.6 6.6 0 Foreign Exchange 9610.1 8416.8 7888.8 2282.6 869.7 28955.0 166.0 268955.6 Values ScaIs4 by 1666.0 11/8/1989 17:18 -44- ANNEX 1 Table 4 BOLIVIA Page 2 of 2 EASTERN LOWLAV.OS:NATURAL RESOURCE MANAGEMENT AND AG. PRODUCTION PROJECT Summary Accounts by Year Totale Including Contingencies usl ------------------------------------------------------- 90 91 92 93 94 Total I. INVESTMENT COSTS ____________________ A. CREDIT 1. AGRICULTURAL DEVELOPMENT 8418.0 6988.0 8248.0 0.0 0.0 23884.0 2. STORAGE CAPACITY 437.0 679.0 683.0 0.0 0.0 1819.0 8. MARKETING CREDIT 1664.0 1998.0 2082.0 0.0 0.0 6714.0 Sub-Total 10609.0 9546.0 10913.0 0.0 0.0 30967.0 8. CONSULTANTS 1. EXTERNAL CONSULTANTS 1388.2 806.8 0.0 351.1 0.0 2544.6 2. LOCAL CONSULTANTS 190.1 167.8 129.0 94.4 98.4 689.2 Sub-Total 1678.4 982.6 129.0 446.5 98.4 8218.8 C. STUDIES 888.1 116.6 60.6 116.0 68.i 898.5 D. OTHER EXPENSES 416.7 421.1 26.2 1798.1 26.6 2687.6 E. CIVIL WORKS 1344.5 3057.4 1804.6 116.4 110.1 6483.0 F. VEHICLES AND EQUIPMENT 1. VEHICLES 906.6 0.0 26.2 0.0 0.0 931.7 2. EQUIPMENr 525.4 166.8 90.8 166.0 0.0 937.2 Sub-Total 1431.9 166.8 115.8 155.0 0.0 1869.0 G. TRAINING 76.1 161.9 271.9 246.2 139.2 * 84.4 ----------------------------------------------------- Total INVESTMENT COSTS 16698.7 14419.9 13821.0 2877.2 489.4 46761.2 TI. RECURRENT COSTS A. SALARIES AND ALLOWANCES 1. SALARIES 638.6 689.6 694.6 586.9 612.7 2902.4 2. TRAVEL ALLOWANCE 77.2 82.8 88.6 856. 89.0 420.8 Sub-Total 615.8 652.4 681.1 672.2 701.7 8828.2 8. VEHICLEAEQPMT MAINTENANCE 445.5 590.6 944.8 1198.1 1246.8 4419.0 C. OFFICE SUPPLIES AND PUBL. 26.4 28.0 80.1 81.6 32.9 148.9
Groupe de la Banque mondiale · Staff Appraisal Report
Bolivia - Eastern Lowlands : Natural Resource Management and Agricultural Production Project (Vol. 1 of 2) : Main report
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