Honduras - Nutrition and Health Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 11235-Ho STAFF APPRAISAL REPORT REPUBLIC OF HONDURAS NUTRITION AND HEALTH PROJECT DECEMBER 14, 1992 Human Resources Operations Division Country Department II Latin America and the Caribbean Regional Office This docunient 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 EOUIVALENT UNITS T1q$l = 5.4 Honduras Lempiras (L) SDR 1.0 = US$1.4045 (October 1992) WEIGHTS AND MEASURES 1 Metric Ton (mt) = 1,000 kg 1 Kilometer (km) = 1,000 m GLOSSARY OF ACRONYMS AIDS Acquired Immunodeficiency Syndrome BFLH Breast-feeding League of Honduras BMI Maternal Child Coupon Program (Bono Materno Infantil) BMJF Women Head of Household Coupon Program (Bono Mujer Jefe de Familia) CACM Central American Common Market (Mercado Comun Centroamericano) CARE Cooperative for American Relief Everywhere (NGO) CBH Central Bank of Honduras CESAR Rural Health Center (Centro de Salud Rural) CESAMO Health Center with Physician (Centro de Salud con Medico) CONAMA National Environmental Commission (Comision Nacional del Medioambiente) EEC European Economic Community ESAC Energy Sector Adjustment Credit FHIS Honduran Social Investment Fund (Fondo Hondurelo de Inversidn Social, also "SIF") FHIS-I First Honduran Social Investment Fund Project FHIS-II Second Honduran Social Investment Fund Project GDP Gross Domestic Product GNP Gross National Product GOH Government of Honduras GPA Global Program on AIDS GPO General Procurement Office (Proveedurfa General de la Republica) HIV Human Immunodeficiency Retroviruses ICB International Competitive Bidding IDA International Development Association IDB Inter-American Development Bank IHSS Honduran Institute of Social Security (Instituto Hondurelo de Seguridad Social) JNBS National Social Welfare Board (Junta Nacional de Bienestar Social) JUNTA Local Water and Sanitation Board (Junta Administradora de Agua) LCB Local Competitive Bidding LSMS Living Standards Measurement Survey MOE Ministry of Education MOF Ministry of Finance MOH Ministry of Public Health NGO Non-Governmental Organization NLO NGO Liaison Office PAC Supplementary Food for Women and Children (Programa de Alimentacidn Complementaria) PAHO Pan-American Health Organization PHC Primary Health Care PRAF Family Assistance Program (Programa de Asignaci6n Familiar, also "FAP ) PRONASSA National Health Services Program SAC Structural Adjustment Credit SAL Structural Adjustment Loan SANAA National Water and Sewerage Service Company (Servicio Autonomo Nacional de Acueductos y Alcantarillados) SECPLAN National Planning Secretariat SCES Social Cabinet Executive Secretariat SDR Special Drawing Rights SOE Statement of Expenditure STD Sexually Transmitted Disease UN United Nations UNDP United Nations Development Programme UNICAP UNICEF Procurement and Assembly Center UNICEF United Nations International Children's Emergency Fund USAID U.S. Agency for International Development WFP World Food Program WHO World Health Organization FISCAL YEAR January I - December 31  FOR OMCIAL USE ONLY HONDIURAS NUTRITION AND H8ALTH PROJECT STAFF APPRAISAL R8PORT Table of Contents CREDIT AND PROJECT SUMMARY . . . . . . . . . . . . . . . . . . . . . . .iii BASIC DATA SHEET ... . . . . . . . . . . . . . . . . . . . . . . . . . vii I. THE ECONOMIC REFORM PROGRAM AND POVERTY ALLEVIATION . . . . . . . . . 1 A. The Economic Reform Program .1 B. Poverty in Honduras . . . . . . . . . . . . . . . . . . . . . 2 C. Government Strategy. 4 D. Bank and IDA Support .5 E. IDA Lending Strategy for the Social Sector . . . . . . . . . 6 F. Lessons Learned From Past Experience . . . . . . . . . . . . 7 G. Rationale for IDA Involvement. 9 II. THE NUTRITION AND HEALTH SECTORS .. 9 A. Nutrition Overview and Issues . . . . . . . . . . . . . . . . 9 B. Overview of the Health Sector and Issues . . . . . . . . . . 13 C. Sector Objectives and Strategy . . . . . . . . . . . . . . . 20 III. LESSONS FROM THE PRAF PILOT FOOD COUPON PROGRAMS . . . . . . . . . 23 A. Overview of the Programs .23 B. Evaluation Findings and Lessons Learned . . . . . . . . . . . 25 IV. THE PROJECT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 A. Origin of the Project .27 E. Objectives .27 C. Description .28 D. Lending Arrangements and Implementation . . . . . . . . . . . 36 E. Costs and Financing Plan .38 F. Procurement .41 G. Supervision and Reporting .44 H. Disbursements .45 I. Documentation of Expenditures . . . . . . . . . . . . . . . . 45 J. Accounts and Audits . . . . . . . . . . . . . . . . . . . . . 46 K. Annual Project Implementation Reviews . . . . . . . . . . . . 47 This report is based on the recommendations of an evaluation study of PRAF food coupons program undertaken in November 1991 (Report No. 10488-HO) and on the findings of an appraisal mission, which visited Honduras in July 1992. The mission was composed of Messrs./Mes. A.M. Sant'Anna, Task Manager, E. de Gaiffier A. (LA2HR), R. Bitran, A. Cajina, R. Jarquin, M.A. Roschke and F. Vio (CONS). Messrs./Mmes. Arriagada, de St. Antoine, Dorkin, and Nguyen contributed to the report at headquarters. Messrs. Rainer B. Steckhan (LA2DR) and Kye Woo Lee (LA2HR) are the Department Director and Division Chief, respectively, for this operation and Messrs./Mfes. F. Mardones, P. Musgrove and A. Dianderas (LATHR) are the Peer Revievers. This document his a restricted distribution and may be used by recipients only in the performance of their omcial duties. Its contents may not otherwise be disclosed without World Bank authorization.  V. BPNBFITS AND RISKS . . . . . . . . . . . . . . . . . . . . 48 A. Benefits ..........48 B. Risks . . . . . . . . . . . . . . . . . . . . . . .48 VI. AGRBDKUTS REACHED AND RCONATIXOU. . . . . . . . . . .49 A. Agreements Reached ................49 B. Recommendation . . . . . . . . . . . . . . . . . .52 1. Project Costs 2. Financing Plan 3. Disbursement Schedule 4. Project Area 5. Regional Organization of the Ministry of Health 6. Project Performanc Indicators 7. Annual Project Implementation Reviews 8. Impact of the PRAF Food Coupon Progrm_ 9. Improvements in the PRAF Food Coupon Program to be Implemented Under the Project 10. PRAF Food Coupon Programs: Targeting Criteria and Expansion Plan 11. PRAF Organizational Chart 12. Nutrition Education 13. Primary Health Care Centers 14. Human Resources Development of the NM 15. Basic Drugs for the Primary Helth Care Network 16. Environmental Health 17. Terms of Reference for Studies 18. Nutrition and Health Sector Policy Letter 19. Draft Outline of PRAF Operational Manual 20. Draft Outline of Water Supply and Sanitation Operational Manual 21. Selected Documents and Data Available in the Project File MAP: IBRD No. 24083  HONDURAS NUTRITION AND HEALTH PROJECT STAFF APPRAISAL REPORT CREDIT AND PROJECT SUMMARY Borrower: The Republic of Honduras Executina AQencies: The Ministry of Public Health (MOH) The Family Assistance Program (PRAF) Social Cabinet Executive Secretariat (SCES) Beneficiaries: Targeted poor groups in rural and urban marginal areas, particularly mothers and children under eight years of age, in the 13 departments with the highest malnutrition rates Amount: SDR17.8 million (US$25.0 million equivalent) Terms: Standard IDA terms with 40 years maturity, including 10 years of grace Proiect Obiectives: The proposed project would help achieve the following objectives: (a) protect groups particularly vulnerable to the economic adjustment process by channeling nutrition assistance to improve the nutrition status of children and pregnant and nursing women among the poorest segments of the population; (b) support the development and implementation of a longer-term nutrition 4ssistance strategy for Honduras; (c) reduce maternal, child, and infant mortality and morbidity rates by improving access to basic health services and safe water supply and sanitation, by improving the quality of services provided by the MOH, and by supporting health, nutrition, and family planning education activities; (d) strengthen the institutional capacity of the MOH, the PRAF and the SCES for sector planning, program formulation, monitoring, and evaluation, and improve efficiency in the procurement of drugs; and (e) control the spread of AIDS. Proiect Description: The project would provide for: (a) Expanding nutrition assistance and develoning a lonQer-term nutrition uolicv (US$32.2 million equivalent to 591 of total project cost) through: (i) formulation and implementation of a longer-term nutrition policy (0.21); (ii) expansion of the PRAF food coupon programs to about 255,000 poor, pregnant and nursing women, children under five, and primary school children in the 13 departments with the highest malnutrition rates (551); (iii) technical assistance to strengthen PRAF's institutional capacity to administer the program in the  iv project area (21); (iv) nutrition education for health staff, community workers and mothers focusing on breast-feeding, weaning and early childhood feeding practices (2%); and (v) annual nutrition censuses at public primary schools (1U); (b) Strenathenina the delivery of basic health services (US$16.7 million equivalent to 281 of total project cost) including: (i) rehabilitation of about 130 health care centers and construction of an estimated 30 additional health centers in priority rural areas where services are currently not available (71); (ii) improvement of MOH institutional capacity through additional staff, staff training, and supervision and institutional support to the project unit of the MOH (61); (iii) basic drugs for the primary health care network and technical assistance to improve the efficiency of pharmaceutical procurement (131); and (iv) support of the formulation and implementation of a medium-term national AIDS control program (41); (c) Improving environmental health (US$4.1 million equivalent to 71 of total project cost) through: (i) provision of rural water supply and sanitation supported by community participation, benefitting about 60,000 people in poor underserved communities in four departments (7.91); and (ii) a medical waste disposal training program (0.11); and (d) Monitoring. evaluation and auditing (US$1.2 million equivalent to 21 of total project cost) including institutional strengthening of the SCES. Benefits: The main benefits of the project would be to: (i) prevent a deterioration in the nutritional status of the population most at risk to the impact of the economic adjustment program, through the distribution of food coupons; (ii) support longer-term nutrition and health sector policy formulation and implementation; (iii) reduce maternal, child and infant mortality and morbidity rates by improving access to basic health services and safe water supplies and sanitation; (iv) increase the coverage and efficiency of primary education through increased enrollment and lower repetition and dropout rates; (v) improve poor children's capacity to learn through better nutrition and greater school attendance; (vi) strengthen the institutional capacity of the MOH, SCES and PRAF; and (vii) help curtail the spread of AIDS. Risks: The main risks associated with the project are: (i) management constraints affecting PRAF's operational capacity to administer expanded food coupon programs, and to adjust them to the Government's longer-term nutrition policy; the project would reduce this risk through institutional strengthening of PRAF; (ii) delays in improving the quality of basic health services in the project area due to institutional  v constraints facing the MOH; the project would reduce or eliminate this risk through institutional strengthening of the MOH, annual reviews of project implementation, and improved health and nutrition expenditure controls and budget planning at the MOH. Risks (i) and (ii) would also be addressed through close IDA supervision, especially in the food coupon program, which is a new area for the Bank group; and (iii) uncertain sustainability of the PRAF food coupon programs beyond project support; this risk would be reduced by: (a) assisting the GOH in securing donor participation for the formulation and implementation of a long-term national nutrition assistance strategy; and (b) attracting additional donor assistance for further support of the PRAF food coupon programs. ESTIMATED PROJECT COSTS:' Local Foreian Total US$ million I. NUTRITION ASSISTANCE A. Nutrition Policy 0.01 0.09 0.10 B. PRAF Food Coupons 21.00 9.00 30.00 C. PRAF Technical Assistance 0.35 0.61 0.96 D. Nutrition Education 0.44 0.29 0.73 E. Nutrition School Census 0.22 0.02 0.24 Subtotal 22.02 10.01 32.03 II. HEALTH SERVICES A. Primary Health Care Centers 1.47 1.58 3.05 B. Human Resources Development 2.68 0.05 2.73 C. Basic Drugs 0.63 5.83 6.46 D. AIDS Program 0.53 1.32 1.85 Subtotal 5.31 8.78 14.09 III. ENVIRONMENTAL HEALTH 2.08 1.10 3.18 IV. MONITORING. EVALUATION AND AUDITING 0.47 0.60 1.07 BASE COST 29.88 20.49 50.37 Physical Contingencies 0.32 0.25 0.57 Price Contingencies 2.16 1.13 3.29 TOTAL PROJECT COST 32.36 21.87 54.23 Net of taxes and duties.  vi FINANCING PLAN: Local Foreign Total US$ million Government of Honduras 9.45 1.78 11.23 Beneficiaries 0.69 0.29 0.98 IDA 12.06 12.94 25.00 USAID 1.80 1.20 3.00 World Food Program 6.00 4.00 10.00 UTNDP 0.14 0.19 0.33 UNICEF 0.11 0.00 0.11 PAHO 0.01 0.07 0.08 Other Donors 2.10 1.40 3.50Y' TOTAL FINANCING 32.36 21.87 54.23 ESTIMATED IDA DISBURSEMENTS: IDA Fiscal Year 199 1996 US$ million - Annual 4.8' 9.4 7.7 3.1 Cumulative 4.8 14.2 21.9 25.0 ECONOMIC RATE OF RETURN: Not applicable Y The GOH is pursuing discussions with donors interested in the project (see para. 4.15). Y Includes Special Account deposit of US$2.0 million.  vii 9tit Y r A. General Country Data GNP per capita 570 US$ (estimate) 1991 Population 5.1 Million (amt.) 1991 Projected Population Year 2000 6.3 Million B. Demoaranhic indicators Crude Death Rate (per 1,000 inh.) 6.8 Deaths 1991 Population Growth Rate 2.8 Percent (est.) 1991 Total Fertility Rate 5.2 Births 1990 Life Expectancy at Birth 66.3 Years 1991 Women aged 15-44 using contraceptives 29.7 Percent 1991 C. Basic Health Indicators Infant Mortality Rate (per 1,000 live births) 50.0 Deaths 1989 Mortality of Children 0-5 Caused by Diarrhea and Acute Reospiratory Infections 46.5 Percent 1987 Maternal Mortality Rate (per 100,000 live births) 221.0 Deaths 1990 Births Unattended by Health ItaUi 53.0 Percent 1991 Physicians (per 10,000 inh.) 4.1 Physicians 1991 Nurses (per 10,000 inh.) 1.5 urses 1991 Auxiliary Nurses (per 10,000 inh.) 10.0 Aux. Nurses 1991 MOH Expenditures as k of Total Current Expenditures 7.2 Percent 1991 MOH Expenditures as % of GDP 2.0 Percent 1991 D. Basic Nutrition Indicators Low Weight of Infants at Birth 20.0 Percent 1985 Children 0-5 malnourished (weight/age) 46.4 Percent 1990 Children 6-9 yru malnourished (height/age) 34.9 Percent 1991 Households Consumption of Food below 80t adequacy 49.1 Percent 1987 E. Environmental Health Lack of access to safe water supply 36.0 Percent 1989 rural areas: 52.0 Percent 1989 urban areas: 15.0 Percent 1989 Lack of access to adequate exreta disposal 38.0 Percent 1989 rural areas: 58.0 Percent 1989 urban areas: 11.0 Percent 1989  viii F. Basic Education Indicators Adult Illiteracy Rate 32.4 Percent 1988 Primary School Enrollment/Children 7-13 yr. 93.0 Percent 1991 Primary Education Repetition Rate 11.7 Percent 1991 Primary Education Completion Rate 30.6 Percent 1991 Primary Students per Teacher 37 Students 1989 NOR Expenditure as e of Total Current Expenditures 18.6 Percent 1990 MOE Expenditure as e of GDP 8.2 Percent 1990 Sources: SECPLAN, MOH, MOE, SCES, 1991 MOH Epidemiological and Health Survey. DEFINITIONS Crude Death Rate Number of deaths per 1,000 population in a given year. Infant Mortality Rate Number of deaths of infants under one year of age in a given year per 1,000 live births. Life Expectancy Rate Average number of years an infant would live if prevailing age/sex-specific mortality trends at the time of birth were to continue. Total Fertility Rate Average number of children who would be born alive to a woman during her lifetime if she were to pass through her child-bearing years conforming to the prevailing age-specific rates. Enrollment Rate Percentage of children of a given age group enrolled in schools at a particular level of education. Adult Illiteracy Rate Percentage of population aged 15 and over who cannot read or write. Completion Rate Ratio between the number of students exiting last grade of an education cycle and the number of students entering the first grade of the same education cycle.  HONDURAS NUTRITION AND HEALTH PROJECT STAFF APPRAISAL REPORT I. THE RCONOMIC REFORK PROGRAM AND POVERTY ALLEVIATION A. The Economic Reform Procram 1.1. Since March 1990, the Government of Honduras (GOH) has carried out a comprehensive economic stabilization and adjustment program designed to correct distortions resulting from past macroeconomic mismanagement and to lay the foundation for sustained economic growth over the medium-term. The stabilization program has focussed on increasing tax revenues, adjusting the exchange rate to reflect market trends, reducing public expenditures, increasing tariffs for major public enterprises, and reducing Central Bank financing of the fiscal deficit. The structural adjustment program has rested on five pillars: (i) a trade/tariff reform promoting the production of exportable and efficient import-substitution goods; (ii) a gradual liberalization of financial sector policies and regulations; (iii) administrative decontrol of agricultural pricing and marketing, including elimination of the public monopoly on the basic grains trade; (iv) public sector reforms in the areas of tax structure and administration, investment programming; and (v) public enterprise restructuring. At the sectoral level, the GOH expanded the reform program in late 1991 to the energy sector, with the objective of establishing a sound framework for energy policy formulation and regulatory functions, enhancing the efficiency and financial viability of the electricity subsector, and promoting greater competition in the petroleum (oil and gas) subsector through deregulation of pricing, distribution, and exploration activities. 1.2. Good macroeconomic performance during 1991 suggests that the economy is recovering from the 1990 recession and attests to the GOH's satisfactory implementation of the economic stabilization and adjustment programs described above. Gross domestic product (GDP) grew by 2.9% and agricultural output grew by 3.4% with strong increases in production of nontraditional agricultural commodities for the export market and maquila activities in the free trade zones. While encouraging, this GDP growth rate is only slightly below the population growth rate of about 2.8% per year, resulting in a decline of per capita GDP. The fiscal deficit was contained at about 3.5% of GDP (down from 8.4% in 1990), and inflation declined from about 11 during the fourth quarter of 1990 to 2% during the fourth quarter of 1991. In the same period private and public investment increased by 11.5% and 30.3%, respectively. 1.3. Implementation of the stabilization and adjustment program has had a mixed impact on different sectors of the economy and on rural and urban families. Liberalization of the exchange rate and decontrol of agricultural prices have increased income earning opportunities in agricultural and export- oriented activities (as well as in efficient import-substituting industries). Consequently, real incomes appear to be increasing for participants involved in these sub-sectors of the economy. These same factors, however, have increased hardships for urban dwellers and net consumers of food in rural  2 areas, who face higher prices for basic foods and other consumer commodities. Contraction of employment in the central government and publicly-owned enterprises has largely affected urban workers, as has the increase in tariffs for public utilities (water, sanitation, electricity, telephone), since these services are not widely available in rural areas. While severance payments have helped cushion the impact of layoffs and many affected workers have found employment in the private formal and informal sectors of the economy, the high levels of open unemployment and underemployment in Honduras at 4.6% and 30.1%, respectively, in 19911' have meant that families have often faced reductions in disposable income. 1.4. The combined impact of these factors on the real income of the poorest families has raised serious concerns that health and nutrition indicators may decline in the short-term, particularly among the vulnerable groups consisting of pregnant and nursing mothers and children under five. There is also concern that the welfare of children from poor families may deteriorate in other ways, resulting from increased pressure on parents to withdraw children from school and put them to work. The seriousness of such potential developments, when viewed against the background of Honduras' underlying chronic poverty, spurred the GOH to establish two innovative safety net programs in 1990: first, the Honduran Social Investment Fund (Fondo Iondureflo de Inversion Social, FHIS), which finances labor-intensive social and economic infrastructure, social services, and informal sector subprojects; and second, the Family Assistance Program (Programa de Asignacion Familiar, PRAF), which provides nutritional assistance via food coupons for the most vulnerable groups of the population. The dimensions of poverty in Honduras are explored in greater detail in the following section. B. Poverty in Honduras 1.5. Honduras, with an estimated population of 5.1 million in 1991, is one of the poorest countries in the Western Hemisphere. Its 1991 gross national product (GNP) per capita of US$570 is higher only than that of Haiti, Guyana, and Nicaragua. Fifty-seven percent of the population live in rural areas. The population of Tegucigalpa and San Pedro Sula, the largest cities in the country, are estimated at 600,000 and 340,000 inhabitants, respectively. Although social indicators have improved over the last 20 years, they are still very low: between 1972 and 1991, estimates of average life expectancy increased from 53.1 to 66.3 years and infant mortality declined from 124.9 to 50.0 per 1,000 lives births. Extreme poverty affects over 50 of the national population and nearly 80% of the rural population. The poverty problem is aggravated by the rapid population growth of about 2.8% per year, arising from high fertility rates (5.2 children per woman of childbearing age on a national scale, and over six children in rural areas in 1990), low levels of contraceptive use (60.8% in urban areas and 36.1% in rural areas in 1991), and low birth spacing, with 30% of births taking place in an interval of less than 24 months. 1.6. Health and nutrition indicators reflect the acute problems facing the Honduran poor: lack of sufficient income leading to inadequate diets, lack of sanitation (38% of households lack appropriate excreta disposal and 36% do not ' SECPLAN. Multipurpose Household Survey, May 1991. In urban areas, open employment and underemployment estimates were 7.6% and 25.2%, respectively.  3 have access to safe water), deficient coverage of the primary health care (PHC) system (which currently reaches approximately 601 of its target population), and ignorance about hygiene, correct nutritional practices and preventive health care. Infant mortality is due largely to diarrhea and acute respiratory infections. Maternal mortality is estimated to average 221 per 100,000 live births.k These indicators are much higher in rural areas and are subject to wide regional variations. For example, maternal mortality is estimated at above 340 per 100,000 in the three poorest health regions. Honduras has made significant progress in controlling transmissible diseases in recent years through intensive immunization campaigns. During the 1990-91 period, there were no reported cases of poliomyelitis, cholera or hemorrhagic dengue, and only a handful of cases of typhoid and measles. Nevertheless, the incidence of diarrhea, acute respiratory infections and malaria continue to be very high, and the recently observed explosive pattern of transmission of Human Immunodeficiency Retroviruses (HIV) and Acquired Immunodeficiency Syndrome (AIDS), is of epidemic proportions, particularly in the northwestern coastal region of the country (para. 2.14). 1.7. Nutritional deficiencies are a contributing factor in about 60* of infant deaths, and in 1990, an estimated 461 of children under five were estimated to be malnourished. By the time they enter primary school, 351 of children are stunted, a sequel of chronic undernutrition. Undernutrition is a major health problem of pregnant and nursing women: over half the women attending health centers suffered from mild or moderate anaemia and vitamin A deficiency. These national averages mask large regional disparities. For example, in the poorest regions the malnutrition rate for children under five is estimated to exceed 65%. 1.8. The status of education in Honduras is also critical. Although school enrollment indicators show good access to public schools (931 net enrollment), the country has a 321 adult illiteracy rate, and on average the population attains only 2.4 years of schooling. Repetition and dropout rates are high, with only 30W of those who enter first grade likely to reach sixth grade at the national level, and much worse in rural areas. Part of the reason for these low completion rates (particularly in rural areas) is that over 361 of primary schools offer less than six grades. Repetition in primary school is 201 and 121 in the first and second grades, respectively. The dropout rates average 3.71 and are 5.2* in first grade, reflecting a legacy of poor management and inappropriate resource allocation in the education sector, which has resulted in low internal efficiency of the education system in general, and of the primary level in particular. The primary education system, especially, suffers from a severe shortage of classrooms, deterioration of existing facilities, and a lack of textbooks, desks, and teaching materials. C. Government Strategy 1.9. The GOH's fundamental goals for poverty alleviation are to: (i) improve child and maternal survival; (ii) develop the human capabilities of the population; and (iii) enhance income earning opportunities for the lowest v The Honduran maternal mortality rate is only exceeded in Latin America by that of Haiti, estimated at 230 per 100,000 live births. See UNDP, HIuma Development Report. 1990.  4 income groups (Annex 18). To achieve these objectives, the GOH is implementing a two-pronged strategy in the social sectors. In the short-term, priority is being given to execution of the safety net programs managed by the FHIS and the PRAF, which are targeted to the most vulnerable members of society and are intended to prevent a deterioration in the already precarious living standards of the poorest groups during the adjustment period. Although these institutions are viewed as temporary,F and as providing a transitional instrument for responding rapidly to a critical poverty situation, their programs may be extended until the line ministries have been strengthened and project activities may be reintegrated into normal ministry operations. More generally, to protect social sector programs from the full impact of the austerity measures underway, it is the GOH's intention to at least maintain the share of social expenditures in the budget roughly constant in real terms, at one third of public spending and about 11i of GDP, during the remainder of this Administration ending in December 1993. In the medium-term, the need to expand the coverage and quality of basic social services is likely to demand higher budgetary allocations. However, the scale of such increase will depend partly on the extent to which the government is able to implement planned reforms to increase management efficiency and redirect scarce resources toward the country's neediest groups (para. 1.11). The Government's policy in nutrition and health is presented in its nutrition and health policy letter, satisfactory to IDA (Annex 18), which was presented at negotiations (para. 4.4(a)). 1.10. PHIS assistance includes rehabilitation of schools and health centers, construction of latrines and wells, provision of teaching materials and health supplies, training for social personnel, and credit for informal sector activities. The FHIS has worked closely with the Ministries of Public Health (MOH) and Education (MOE) and with local communities to ensure that these entities would provide staff and finance operating expenses and maintenance on a recurrent basis for social infrastructure rehabilitated or constructed with FHIS financing. Over the next three years, the GOH also plans to expand the food coupon program managed by the PRAF in collaboration with the MOH and MOE, to the poorest areas of Honduras. To optimize the nutritional impact of the food coupons among the target beneficiary population (poor pregnant and lactating women, primary school students, and children under five), program expansion would include strengthening the operations of primary health centers and primary schools and improving rural water supply and sanitation. The concept of integrating an improved PRAP food coupon program with provision of other basic social services, emerged from discussions between the Government and IDA based on an evaluation of the pilot phase of the food coupon program carried out by IDA under the Social Investment Fund Project (FHIS-I) (Cr. 2212-HO) (para. 3.5). The GOH has also created a Nongovernmental Organization (NGO) Liaison Office (NLO) to facilitate NGO activities in Honduras and to strengthen the partnership between the public sector and NGOs in addressing poverty problems. This initiative is being supported by IDA under the Second Social Investment Fund project (FHIS-II) (Cr. 2401-HO). 1.11. The GOH's strategy for the medium-term is to develop and implement a social sector reform program that would: (i) improve policy formulation, ' The original legal life of the FHIS ends in March 1994. The life of the PRAF was originally scheduled to end in January 1994. Congressional Decree No. 135.92, published November 14, 1992, extends PRAF's life indefinitely.  5 sector management, and program coordination in the social sectors; (ii) increase the efficiency and equity of social sector programs by shifting resources to PHC, basic education, and water supply and sanitation (particularly in rural areas); (iii) strengthen the institutional capacity of social sector line ministries; and (iv) review nutritional assistance programs to ensure that the most vulnerable groups benefit, efforts and resources are not duplicated, and that programs are as cost-effective and efficient as possible. To coordinate efforts on social sector policy formulation and programs, the GOH created the Social Cabinet and its Executive Secretariat (SCES) in 1991 (Annex 18). Work on developing such a broad sector reform program is currently underway with assistance from the Japanese Technical Assistance Grant Facility, administered by IDA. Social sector reform implementation has already started in several areas and would be supported by the proposed Nutrition and Health project (para. 4.2). As a result of these efforts, the GOH expects to be able to integrate, as much as possible, the experience and activities of the FHIS, the life span of which is limited (para. 2.15), into mainstream ministry programs. D. Bank and IDA SurDort 1.12. The Bank and IDA have supported the GOH's efforts to restructure and reactivate the economy through a combination of technical advice and financial assistance. Following the clearance of arrears to the Bank Group in late June 1990, a Second Structural Adjustment Loan (SAL II) of US$90 million was approved in September 1990, followed by a Structural Adjustment Credit (SAC) of SDR14.3 million in January 1991, and an Energy Sector Adjustment Credit (ESAC) of SDR37.95 million in October 1991. As a result of Honduras's classification as an IDA-only country in late 1991, the country became eligible for the IDA Reflow program for the first time in FY92, and a supplemental credit of SDR23.8 million, attached to the ESAC, was approved in November 1991. To date, the first two tranches of SAL II (totaling US$65 million), the SAC (SDR14.3 million), the first tranche of the ESAC (SDR15.0 million) and the supplemental IDA Reflow Credit (SDR23.8 million) have been disbursed. 1.13. IDA has also been actively involved in supporting the GOH's poverty alleviation efforts. In February 1991, the FHIS-I Credit of SDR14.3 million was approved to finance FHIS and other priority social sector project activities (PRAF pilot food coupon programs, Living Standards Measurement Survey (LSMS), sector planning). Following the successful implementation of FHIS-I, IDA approved the FHIS-II Credit of SDR7.1 million in June 1992, which became effective in November 1992. A water supply sector loan of US$19.6 million (Ln. 2421-HO), approved in 1984, has experienced delays in implementation. However, following clearance of arrears with the Bank and other co-financiers, this project has been restructured, its timetable re- phased, and implementation has now been re-initiated. E. IDA LendinQ Strateav for the Social Sector 1.14. The IDA sectoral lending strategy for poverty alleviation and human resource development is to support the implementation of safety net programs in the short-term while strengthening the institutional capacity of the line ministries and restructuring social programs to improve their efficiency and equity impact over the medium-term. The core poverty alleviation program to  6 achieve these objectives over the next two years consists of the FHIS-I and FHIS-II projects, the proposed Nutrition and Health project and accompanying sector report ("Review of the PRAF Food Coupon Programs" scheduled for discussion with the government in January 1993), and a possible social sector reform operation. In April 1991, the GOH requested IDA assistance to: (i) expand the PRAF food coupon programs, strengthen PHC services, and provide rural sanitation facilities in most underserved areas; and (ii) develop a social sector reform program to increase the efficiency and equity of social services, with particular attention to targeting public spending and improving the quality and sustainability of primary health, primary education, and nutritional assistance programs. This Government request is being processed through two operations: (i) the proposed Nutrition and Health project; and (ii) a social sector reform operation which is now under preparation for possible appraisal in FY94. 1.15. A second generation of poverty reduction and human resource development projects, building on this core program and a forthcoming Country Poverty Assessment, the latter in preparation, would be proposed for the post-1994 period for discussion with the incoming administration. This next generation of projects is likely to include sector investment operations in the health, education, and water supply sectors, emphasizing program development and implementation capacity for services required to improve Honduras's low social indicators. In parallel, IDA support for a reform program in the agricultural sector, currently beyond the negotiations stage, would help alleviate rural poverty through improved access to land and efficiency gains in the agricultural sector. 1.16. IDA support for FHIS-I and FHIS-II and for the proposed Nutrition and Health Project would clearly contribute to the short-term strategic objective of expanding an effective safety net for the very poor, and to the medium-term objective of strengthening line ministry capacity and targeting social spending. In the case of the MOH, the proposed project aims to strengthen preventive health services, access to nutrition information and family planning services, nutrition education (para. .6) and improved environmental health through rural water supply and sanitatic. '- -a. 4.7), working through the line ministry and its normal programs. The posbible social sector reform operation would focus on instilling more discipline in the social sector expenditure programming process, redeploying existing resources to increase efficiency and equity in social services delivery, supporting decentralization, cost-recovery programs, and service quality improvement. Follow-up investment operations in subsequent years would ensure additional service coverage expansion and consolidation of the institutional development gains over the longer-term. F. Lessons Learned From Past Exoerience 1.17. Since the proposed project would be IDA's first nutrition and health operation in Honduras, and the first instance of direct Bank Group support for nutrition assistance in the form of financing of food coupons, the review of past experience covered Bank- and IDA-financed health and nutrition projects completed in other countries as well as policy support through adjustment  7 operations. In the case of AIDS, although lending started only in the early 1990s, considerable experience has been accumulated since then.4 1.18. Lessons learned from successful pilot food coupon operations have been incorporated in the design of the PRAF food coupon program and are described in detail in Chapter III. In addition, other types of nutrition assistance experience have shown that successful projects are designed to: (a) target nutrition assistance to the poorest and most vulnerable groups at risk in order to prevent malnutrition; (b) combine nutrition interventions with health care and education to address the problems of illness and ignorance that contribute to malnutrition; (c) focus interventions on the earliest phases of infancy and childhood, including assistance to pregnant women, to improve the chances of reaching children before malnutrition might have caused permanent damage; (d) strengthen the internal efficiency of nutrition assistance programs, aiming at simple and stable logistics and transparent management; (e) ensure program sustainability by setting realistic spending targets, reliable financing arrangements and by establishing clear norms for phasing-out from the program those beneficiaries who no longer represent the group most at risk of malnutrition; and (f) provide a reliable basis for adjustments to program design that improve its impact on reducing malnutrition by monitoring and evaluating program outcomes on a systematic basis. 1.19. From successful health projects, the following lessons have been learned and were incorporated in the project design: (a) ensure strong and sustained support on the part of the borrower for preventive health care; (b) aim at a relatively simple project design; (c) build in project design the necessary flexibility for change during implementation, through reviews and revisions; (d) ensure the involvement of highly-qualified local staff; (e) provide for close supervision of project implementation; (f) combine direct primary health care interventions with strengthening local organizational and policy formulation capacity; and 4 The World Bank, "Population, Health, and Nutrition FY 1991 Sector Review" (Report No. WPS 890, April 1992). See also, "India: National AIDS Control Project", SAR Report No. 10165-IN, March 1992.  8 (g) improve program sustainability by providing assistance for: sector expenditure analysis and assessment of the cost of health services delivered; budget planning; and establishment of cost-recovery mechanisms on an affordable basis. 1.20. Lessons learned from international as well as Bank Group experience in helping control the spread of AIDS have been incorporated in the design of the AIDS component. These lessons include: (a) address the problem quickly, at the initial stages of the epidemic, when interventions have a higher benefit-cost ratio; (b) combine AIDS prevention measures with prevention and treatment of other sexually transmitted diseases (STDs); (c) design prevention strategies taking into account socio-cultural determinants of transmission behavior; (d) use mass media to increase awareness and focus on interpersonal contact techniques to promote change in behavior of the groups that are most a risk of contamination; and (e) mobilize broad-based support to implement the AIDS control strategy, involving educators, NGOs, religious groups, workers and employers, as well as health sector professionals. 1.21. Considering these lessons, the proposed project emphasizes a relatively simple design for nutrition, health and environmental health components. Project preparation was carried out by highly-qualified Honduran staff at the MOH, PRAF and SCES. Most of the local project preparation staff will continue to be involved in the project during implementation. Several of the specific elements of the project build upon previous Honduran experience, including: (a) PRAF's pilot food coupon programs helped design the nutrition assistance component (Chapter III and para. 4.4); (b) MOH experience of phase one (1980- 1988) and phase two (1988-1995) of a health sector project financed by the United States Agency for International Development (USAID) helped focus on the measures for strengthening the quality and coverage of primary health care, and delivering environmental health services in rural areas (paras. 4.6(a)- (c)); (c) MH experience with an emergency AIDS control program (1990-92), which succeeded in increasing awareness of the disease countrywide, helped design an improved and expanded AIDS control program for the medium-term (para. 4.6(d)); and (d) MOE experience with the 1987 and 1991 nutrition censuses of primary school children served as basis for the preparation of the nutrition school census subcomponent (para. 4.4(e)). 1.22. The project has a strong policy formulation and institutional strengthening focus, fully reflecting the Government's sector priorities, and setting the stage for long term sustainability. These goals would be achieved through: (a) the formulation of a long term nutrition policy (para. 4.4(a)); (b) streamlined nutrition and health sector management (paras. 4.4(b) and 4.6(b); (c) improved targeting and beneficiary exit criteria for nutrition assistance (para. 4.4(b)); (d) combined health, education and environmental health interventions with nutrition assistance (paras. 4.4(b), 4.6(b)-(c) and 4.7); (e) mobilization of resources from the private sector through the  9 participation of NGOs (para. 4.4(d); and (f) improved cost-recovery for health services (para. 4.9(c)). 1.23. Project implementation flexibility is ensured through annual implementation reviews based on a set of performance and impact indicators (para. 4.9(b)). Coordination during implementation is ensured by the SC8S, facilitating monitoring, evaluation and reporting activities by PRAF and the MOH (para. 4.9). Strong support for the project was build during the PRAP pilot food coupon program implementation and has since been reinforced by more intense involvement of MOH regional and area departments, and by the participation of local NGOs. G. Rationale for IDA Involvement 1.24. IDA involvement in the proposed project follows the successful Maternal Child Coupon Program (BMI) pilot project (para. 3.4). The proposed project is consistent with IDA's country and social sector assistance strategy to support GOH efforts to alleviate poverty and prevent a deterioration in the nutritional status of the population most at risk to the impact of the economic adjustment program, while strengthening the administrative capacity of the line ministries (para. 1.14). Furthermore, the project would foster more efficient allocation of resources in the health and nutrition sectors, by helping redress the balance between preventive and curative health care (para. 4.16) and by promoting the rationalization of nutrition assistance on a sustainable basis (para. 4.4(a)). IDA support would also assist the GOH in its efforts to mobilize donor assistance to control the spread of HIV infection and AIDS, which represent a serious public health threat in Honduras (para. 4.6(d)). II. THE NUTRITION AND HEALTH SECTORS A. Nutrition Overview and Issues 2.1. The nutrition status among children under five shows a deteriorating trend in recent years despite the relatively high level of public spending allocated to nutrition assistance (para. 2.5). The number of children exhibiting symptoms of malnutrition (measured by weight/age) declined from 431 in 1966 to 381 in 1987, but increased in 1990 to reach 461 on average nationwide. 2.2. The major factors hampering the improvement of nutrition indicators in Honduras are: (i) inadequate diets; (ii) inadequate infant feeding practices; (iii) less than efficient nutrition assistance programs; (iv) inefficient nutrition education; and (v) lack of a coherent nutritional policy and strategy. 2.3. Inadeauate Diets. Despite improvements in availability of food over the last two decades, the diets of more than 62* of Hondurans fall significantly short of the minimum recommended calorie and protein intakes. The diet of 80* of Hondurans consists mainly of corn, beans, rice, plantains, and vegetable E' MOH, National Nutrition and Health Surveys for 1966, 1984, 1987, 1990 and 1991.  10 fats, with corn accounting for half the caloric intake in rural areas. This diet has varied little over the centuries until about ten years ago, when wheat became more readily available as a result of U.S. aid programs (wheat imports have increased 4001 since 1975). Honduras experienced a general improvement in its nutritional status throughout the 19709 and early 1980s, but this trend has slowed down as a result of mounting economic problems in the late 1980s. The ensuing food price increases, high unemployment, and lower per capita income have contributed to the deterioration in the nutritional status of large segments of the population, particularly women and children. From 1987 to 1990, malnutrition rates almost doubled among preschool children in the rural departments of Comayagua, Intibuca and La Paz and are reported to have increased by 271 in Tegucigalpa, reflecting the high vulnerability of the urban poor. 2.4. Inadeauate Infant Feeding Practices. Among infants, the malnutrition problem is compounded by inadequate breast-feeding practices. The United Nations International Children's Emergency Fund (UNICEF) estimates that 201 of infants are born with low birth weight. This level is considerably above the rate in countries at a similar level of development and reflects poor access to maternal and child health and nutrition services among the rural population.y Proper breast-feeding practices are very important to infant nutrition and also aid in birth spacing and in reducing diarrhea and respiratory diseases. Health experts recommend exclusive breast-feeding for a minimum of six months, followed by use of special weaning foods. The MOH 1990 epidemiological and health survey found that 231 of infants stopped breast- feeding before three months of age, and another 20* before the sixth month. Since then, the MOH has started to increase maternal education in breast- feeding and weaning practices offered through the PHC system, with assistance from USAID. This program would be expanded under the proposed project as pregnant and nursing mothers and health care staff would receive intensive training in breast-feeding practices (para. 4.4(d)). 2.5. Less than Efficient Nutrition Assistance Proarams. Honduras has relied on food aid since the 1950s. In 1991, an estimated US$16 million or 0.71 of the country's GDP was spent on nutrition assistance, including the amount of food aid monetized to finance the PRAF food coupon programs and the imputed value of food aid distributed in-kind, covering about 251 of the total population. Program sustainability is primarily dependent upon assistance from the donor community. The shares of each program in the total are: 121 for the school feeding program (US$1.9 million); 201 for the food-for-work program (US$3.1 million); 33% for programs providing Supplementary Food for women and Children (Programa de Alimentacldn Cooplementaria, PAC) (US$5.3 million); and 35% for PRAF food coupon programs (US$6.0 million). The food distributed either in-kind or in monetized form, has been provided by the World Food Program (WFP), USAID and the European Economic Community (BBC). The GOH contributes with logistics and administrative support. A brief description of each program is given below. (a) The school feedina oroaram, which began in 1959, benefitted approximately 484,200 primary school children in 1991, or about 521 of F In 1985, the percentage of underweight babies at birth was estimated at 151 in Bolivia and 171 in Haiti, two of the poorest countries in Latin America. See UNDP State of the World's Children, 1990.  11 the total population of the public school system, covering all departments except Tegucigalpa. The food ration, valued at about US$0.04 per student, consists of a snack of corn-soybean which is mixed with water and distributed daily for 160 school-days per year. Each portion provides 200 calories and eight grams of protein. The program is contemplating distribution of milk in addition, but milk donations have not been received during the last two years. The program is executed by MOE, and the Cooperative for American Relief Everywhere (CARE) provides administrative support for storage, control, distribution, and supervision of program operation at the local level. Food donations have been provided by USAID and, since 1980, also by the EEC. The sole criteria for beneficiary selection is enrollment in a public kindergarten or primary school. Approximately 0S of the parents of beneficiaries pay a monthly fee of one Lempira (L) to help cover operating costs. Program expenditures in 1991 are estimated at US$1.9 million. The basic shortcomings of this program are: (i) the very small size of the nutrition supplement provided (about 8% of the recommended daily caloric intake, and about 20% of the recommended daily protein intake); (ii) its relatively high operating costs estimated at about half the value of the subsidy; and (iii) lack of targeting of beneficiaries, except for the exclusion of Tegucigalpa. (b) The food-for-work program is the largest in terms of amount of food donated per beneficiary and covers some 85,600 families since 1991. This program is targeted to impoverished subsistence farming households and provides, in addition to food and employment, technical assistance, and cash remuneration equivalent to US$5 per day worked per person. work in a specific community development project is the basic condition of eligibility for this program across the country. Most of the food distributed (80%) is provided by the WFP. Under a separate program, USAID provides the balance through CARE. The GOH participates in program administration and logistical support. Administrative costs average more than 40% of total costs, raising the issue of program sustainability over the longer-term. (c) The Sui:plementarv Food for Women and Children program (PAC). The PAC was started with USAID and WFP support in the 1980s and currently covers approximately 173,000 women and children (61% are children aged 1-6 years, 37% are pregnant mothers, and 2% are volunteers who work in the program). The program is operated practically nationwide (16 of 18 departments), covering women and young children exhibiting symptoms of malnutrition. Food aid from USAID accounts for about 70% of the total and an additional 30* is provided by the WFP. Food is distributed every month at MOH health centers and hospitals and National Social Welfare Board (Junta Nacional de Bienestar Social, JNBS) early childhood centers. The weighted average of the monthly rations provide an estimated 500 calories/day and 19 grams of proteins/day per beneficiary, or approximately 25% of the daily minimum requirements. Rations vary slightly in composition and quantity, by donor, but the typical ration is uncooked and consists of cereal (corn and/or rice), beans, oil, and milk. For the portion of the program financed by USAID, CARE is responsible for procuring food, supervising transportation and storage at the central level and providing management support to the MOH. The NOH transports the food from the central storage facility to  12 distribution sites and MOH local staff package and distribute to the beneficiaries. The estimated average administrative cost of the PAC program is 30 of total program cost. The main issues affecting the efficiency of this program are; (i) unreliable targeting; (ii) difficult food distribution logistics; (iii) need for continued technical assistance from the donor community; and (iv) excessive use of local health staff time for program administration. (d) The PRAF food coupon programs. The GOH established the PRAF in March 1990. PRAF's operations began in May 1990 with a first pilot food coupon program, directed towards poor primary school children of women heads of households (Bono Mujer Jefe de Familia, BMJF), distributed through the MOE primary school network in seven departments. By the end of 1991 the BMJF benefitted about 120,000 school children, two times a year, with food coupons equivalent to US$37 per year for each child with a limit of three children per household. A second pilot food coupon program targeted to low income children under five and pregnant and nursing mothers (Bono Materno Infantil, BMI) was started in December 1990 with IDA support provided under the FHIS-I project. The BMI is distributed through MOH health centers on a monthly basis. By the end of 1991, the BMI covered 32 health centers in three departments, providing about 56,000 beneficiaries with monthly coupons equivalent to US$45 per year for each child and mother without limit per household. PRAF food coupons expenditures in 1991 amounted to about US$6.0 million equivalent. Administrative costs were estimated at 16', on average, for both programs.7' More details on the PRAF food coupons as well as an evaluation of these programs are provided in Chapter III. As discussed in that chapter, the PRAF food coupon programs, whose expansion would be supported under the proposed project, are a more cost-effective instrument for nutrition assistance than the programs that distribute food in-kind. The PRAF programs are not only more efficient in terms of logistics, but also better targeted and more transparent, and they provide complementary social services. 2.6. Insufficient Nutrition Education. Experience in developing countries shows that despite the prevalence of food-insecure families, well developed and operated nutrition education is effective to improve the nutritional status of the most vulnerable groups. In general, Honduras' nutrition programs have not sufficiently addressed such problems as delayed solid food supplementation and dietary management of diarrhea. Two additional priority areas requiring information are breast-feeding promotion (para. 2.4) and weaning food preparation and feeding practices for children aged 6 to 36 months, a high risk period for diarrhea and other infectious diseases to occur. These issues are addressed under the project's nutrition education component (para. 4.4(d)). 7' The PRAF food coupon programs are reviewed in detail in the report Republic of Honduras: Review of the PRAF Food Coupon Programs. World Bank, Report No. 10488-HO, dated May 12, 1992. See also Bitran, R.A. and Heinig, S.J., "Study of the Effect on Health Services Utilization of the Maternal and Child Food Coupon Program in Honduras." Report prepared for the World Bank by Abt Associates, Inc., Cambridge, MA: July 13, 1992.  13 2.7. Lack of a Coherent Nutritional Policy and Strateav. While nutrition has become an increasingly important component of poverty alleviation efforts in Honduras, nutrition activities have often been viewed as discrete interventions missing the synergistic benefits of a comprehensive approach and overlooking sustainability issues. Most existing programs suffer from inadequate coordination leading to overlapping of beneficiaries and poor complementarity with the delivery of health and education services, deficient targeting, high operational costs, and logistical bottlenecks. In addition, no periodical evaluation of program outcomes has been undertaken, limiting the GOH's capacity to decide on the best mix of nutrition interventions and their financial viability. The GOH is increasingly interested in developing an integrated approach to nutrition and recognizes the need to review the adequacy of existing assistance to improve efficiency and ensure long-term sustainability (Annex 18 and para. 2.15). These issues would be addressed under the proposed project through the development of a national nutrition policy and strategy establishing an integrated framework for nutrition assistance over the long-term (para. 4.4(a)), including improved monitoring of program outcomes (para. 4.9). B. Overview of the Health Sector and Issues 2.8. Structure of Health Services Provision. An estimated one-third of the population has no access to basic health services. The MOH is the major health services provider in the country, but covers only an estimated 60% of the population. The Honduran Institute of Social Security (Instituto Hondurezlo de Seguridad Social, IHSS) covers approximately 7% and the formal private sector another 3% of the Honduran population. Additional health services are provided by the JNBS, the Ministry of Labor's Occupational Health Department, and the military. The extent of care provided by traditional practice is unknown, but is believed to be significant considering that in 1991, more than half the mothers responding to the MOH Epidemiological Survey had their most recent delivery at home. The MOH is responsible for developing national health policy, establishing service norms, and planning, financing, and controlling the health services delivery system. The national health policy aims at extending coverage of basic health services to better serve the poorest regions, targeting population groups at higher risk of morbidity and mortality, emphasizing the reduction of preventable diseases and supporting quality of service provision and sustainability through more efficient management systems (Annex 18). 2.9. The NOH service system is composed of eight health regions and 36 administrative areas (Annex 5). During the 1986-1991 period, the MOH PHC network was expanded by approximately 15% and the hospital network by 24%. Services are delivered according to a hierarchical plan consisting of three levels of attention: (a) The PHC service level, consisting of: (i) community health workers including an estimated 8,500 midwives and health guardians; (ii) 530 rural health centers (Centros de Salud Rural, CESARs) staffed by an auxiliary nurse, a health promoter and, in some regions a malaria control worker, providing immunization, treatment of common diseases and preventive maternal-child services including monitoring of pregnancy and child development; and (iii) 200 health centers with physician (Centros de Salud con Medico, CESAMOs) staffed by a physician (usually a recent  14 graduate serving obligatory social service), a nurse, auxiliary nurses, health promoters, a laboratory technician, administrative personnel, and occasionally a dentist. The size, service structure, and number of staff of the CESAMOs vary according to the location and the size of the population served; they provide support to CESARs and a variety of preventive and curative ambulatory services including maternal and child care, health education, environmental sanitation, laboratory tests and sometimes odontology; (b) The secondary health care service level consists of: (i) 12 area hospitals, normally with 50 beds each; (ii) seven regional hospitals of various bed capacities; and (iii) three maternal and children's clinics. These area and regional hospitals offer services in general surgery, internal medicine, pediatrics, and obstetrics/gynecology; and (c) The tertiarv health care service level comprises seven national referral hospitals, including one maternal and children's hospital, a pulmonary disease hospital, two psychiatric facilities, and three general hospitals. 2.10. While the development of the public health system and expansion of water and sanitation and education services have been the main factors contributing to the health status improvements of the past two decades, the performance of the health system remains mixed. Despite the relatively high level of public funding allocated to the health sector (para. 2.13), much remains to be done to reduce the high level of mortality and morbidity due to endemic infectious diseases and childbearing through proper use of PHC services. The major issues facing the health sector are: (i) low coverage and poor quality of PHC services; (ii) poor maintenance and lack of equipment and supplies; (iii) inefficient management of resources at the MOH; and (iv) rapid progression of HIV infection and AIDS. 2.11. Low Coverage and Poor Oualitv of PHC Services is due to the combined effect of lack of access and poor quality of the services delivered, the latter leading to the under-utilization of existing facilities. (a) The lack of access results from an insufficient number of PHC facilities, less than optimal location of some of these facilities, and inefficient outreach. Location decisions have traditionally favored urban areas. The average distance from villages to the health centers in the poorest rural regions is about ten km, compared to less than two km in metropolitan areas. Inadequate outreach by health staff means that coverage is not extended to the smaller and more isolated villages. Lack of access to PHC services is compounded by very low water supply and sanitation service levels (para 1.6), particularly in the rural areas, where 52% of families lack water supply and 58% lack adequate sanitary facilities. In areas where water systems exist, the quality of the water is poor, as pollution is contaminating an alarming 75% of the drinking water supply. As a result, waterborne diseases and particularly diarrheal diseases remain the first cause of morbidity among children in Honduras. The recent cholera epidemic, although controlled through an intensive campaign by the MOH, remains a serious threat. These problems would be addressed under the proposed project through: (i) the rehabilitation and limited expansion of the PHC  i5 network in underserved rural areas; (ii) the provision and maintenance of safe water supplies and excreta disposal in underserved rural communities; and (iii) the development of priority criteria for selecting the location of new facilities (paras. 4.6(a) and 4.7(a)). (b) The poor aualitv of services leads directly to under-utilization of existing facilities. This has been confirmed by a survey of beneficiaries which showed that the main reason for the under- utilization of health centers was the poor quality of services, including the manner in which the poor are received and treated, the long waiting times and the shortage of drugs. The under-utilization of PHC facilities is reflected in the increased demand for health services generated in the districts where the BMI food coupon was introduced: the number of preventive care consultations increased, on average, by 1311 in participating facilities. Several factors contribute to the low quality of PHC services: (i) Inefficient service delivery results from the lack of an integrated health care model at MOH health centers. Although the MOH has developed all the necessary PHC service norms for priority subprograms, it has not emphasized the need to integrate program activities at the level of the health centers. As a result, service provision is fragmented according to program activities, causing users to receive less than the necessary care or make several visits in order to benefit from all the PHC programs; (ii) Insufficient PHC staff and inadeauate mix of staff are the next most important reasons for poor quality of service delivered. An estimated 191 of the MDH PHC facilities are closed for extended periods due to inefficient staff allocation. The CESARs are normally staffed by only one staff: an auxiliary nurse who performs administrative, training, and outreach activities besides PHC services. As the average size of the catchment area served by a CESAR is twice as large as the maximum 1,500 population that can be effectively served by one auxiliary nurse, a minimum of two auxiliary nurses per CESAR is necessary to provide adequate PHC service coverage in most locations. In addition, the rotation of temporary personnel is inefficiently managed, often leaving vacant critical staff positions, such as the physician serving the CESAMOs; (iii) Inadeauate staff training. The MOH in-service training programs offer approximately six weeks of training per year to professional nurses, five weeks of training per year to auxiliary nurses, and only occasional training for other categories of staff or community health volunteers. The current in-service training program is less than efficient because the contents of the training, which are designed centrally, do not properly respond to the specific health problems of each region; there is inadequate integration between training modules; programs are poorly scheduled causing facilities to be closed for extended periods of time due to absence of staff on training; and, as training is offered primarily to MOH staff, the potential of using community health volunteers to extend service coverage is lost;  16 (iv) Less than efficient suoervision. The actual practice of PHC services provision is seldom supervised at the level of health centers. MOH supervision guides are well developed but are normally applied in a centralized manner, giving little emphasis to on-site supervision, a pattern that weakens the link between in-service training and practice; and (v) The inefficient referral system hampers the quality of services delivered at PHC centers. The linkage that should exist between CESARs and CESAMOs and between these and the area hospitals to ensure prompt and appropriate attendance to patients requiring higher level care is often broken due to lack of means of communication and of periodical on-site supervision. The isolation of most CESARs is a disincentive for the population to use this level of service. These issues would be addressed under the project by: (i) fostering the organization of PHC services in an integrated model through training of staff at all levels and strengthening service supervision (para. 4.6(b)); (ii) establishing a revised staffing plan and providing for additional staff to be allocated to PHC services (para. 4.6(b)); (iii) supporting a study on hospital referrals by the Master's Program of the School of Public Health; and (iv) supporting community outreach and participation, including training of outreach workers and volunteers in the areas of environmental sanitation and nutrition education (paras. 4.4(d) and 4.7(a)). 2.12. Poor Maintenance and Lack of Eauioment and Supplies at PHC facilities further constrain service quality and access. Nationwide, over 100 PHC facilities (14% of the network) have been found to be in a state of physical deterioration, many of them without running water or sanitary facilities. A third of the facilities currently lack adequate refrigeration and 22% are in need of other basic equipment such as scales. Laboratory equipment has been improved with donor assistance in 65% of the CESAMOs where most laboratories are located, but there are serious deficiencies in laboratory supplies. Minimal communication networks need to be installed to improve referrals. Deferred maintenance of PHC facilities is due to: (i) lack of community involvement resulting from a centralized MDH maintenance system for equipment and vehicles that curtails local initiative; and (ii) inadequate MOH budgetary allocation for maintenance. To raise the physical plant and equipment of PHC facilities to minimum standards, a necessary element for service quality improvement, the proposed project would emphasize rehabilitation of existing health centers, replacement of basic equipment and in addition, establish a maintenance schedule and fund, managed at the local level with community participation (para. 4.6(a)). 2.13. Inefficient Management of Resources at MOH. Management improvements in the allocation of resources by the MOH are particularly needed in the areas of: (a) planning and budgeting health expenditures; (b) cost-recovery; (c) personnel management; and (d) drug supplies. The main issues facing the MOH management in these areas are the following: (a) Unbalanced Health Exxenditures. Despite sharp cuts in overall Government spending, health expenditures by the MOH have been sustained  17 at approximately 7% of total public sector expenditures in 1991 and 1992 and are projected to increase in real terms in 1993 to 8% of total government spending. The expenditure trend is positive and compares well with other countries with similar per capita income.v In addition, total sector financing has benefitted from increased external assistance, which reached nearly one-third of total public spending in health in 1990. Although the share of hospital expenditures has been declining slightly, from 48% in 1991 to an estimated 47% in 1992 and to a projected 46% in 1993, they still represent a high proportion of the MOH budget and show a strong curative care bias. At the same time, despite announced strong support for PHC from MOH (para. 1.9), PHC expenditures have remained at about one-third of the health budget in recent years, suggesting the need for budgetary increases to match primary health services priorities. The MOH is now in the position to correct its budgetary imbalances. That would require increasing hospital efficiency and cost-recovery in order to finance the expansion in PHC expenditures. In addition, the MOH needs to analyze its operating expenditures, aiming at more cost-effective performance. Recurrent costs, including salaries, account for an estimated 88% of the MOH expenditures. Of these recurrent costs, 53% consist of salaries, 17% of drugs and medical supplies, and 30% of other operating expenses. The proposed project would support the MDH efforts towards more efficient management of budgetary resources through strengthening the MOH planning department, assisting in the annual review of sector expenditures and budget (para. 4.6(b)), supporting the reform of the current cost-recovery system and its expansion system-wide (para. 4.9(c)), and improving drugs procurement practices (para 4.6(c)). (b) Insufficient Cost-Recoverv. The NOH started a pilot cost-recovery program in 1989 through user fees charged for curative services at hospitals and PHC facilities. The goal of the program is to recover 25% of the operating costs excluding salaries, i.e., almost 12% of total operating costs. AB an incentive for hospitals, 90% of funds recovered from user-fees are allowed to be retained at the facility level while 10% is forwarded to the MCH regional office. These cost-recovery measures have already produced positive results. Local retention percentages for PHC facilities are slightly lower than for hospitals.' In 1991, L6.9 million or 2.2% of total MOH recurrent expenditures were recovered, primarily by hospitals (the amount recovered by PHC facilities accounted for 25% of the total recovered). User fees recovered represented approximately 6% of recurrent expenditures, excluding salaries. Funds were used locally to purchase supplies and drugs, fuel, food, and to cover building maintenance. In support of the program, the MOH has developed a comprehensive computerized system of reporting user fees and revenues use, which represents an important Y For example, in Bolivia, where GDP per capita at US$630 in 1990 is about 10% above the Honduran level, health expenditures represented only 2.3% of total Central Government expenditures in 1990. World Bank, World Develonment Report. 1992. Comparable data for Haiti are unfortunately not available. F In accordance with Government Agreement No. 0232 of February 1990, which was part of the USAID-sponsored Health Sector II Project. The PHC facilities are allowed to retain only 75% of the funds collected and must remit 25% to the regional MOH office.  18 asset for further development of the system. Improvements are still needed in the areas of: (i) cost-recovery incentives tailored to PHC facilities, where preventive health services should be emphasized over curative services; (ii) cost-recovery agreements between MOH and IHSS for shared services; (iii) differential fees for privately insured patients; and (iv) an action plan to improve fees collection. The proposed project would address these issues through a detailed review of the cost-recovery situation and the development of an action plan aimed at improving and expanding the MOH cost-recovery system (para. 4.9(c)). (c) Less Than Efficient Personnel ManaQement. As a result of the budgetary imbalance and inadequate planning, management of health sector personnel is very deficient, especially with regard to: (i) the allocation by service level and geographic region; and (ii) the mix and level of skills. The MOH currently employs one professional nurse for every two physicians and the ratio of one professional nurse to seven auxiliary nurses is grossly inadequate to ensure appropriate care and supervision. The great majority of physicians serves the metropolitan areas while rural areas lack all categories of health staff. Although the MOH has started a training program to double the supply of nurses and other health technicians, it would not be sufficient and would still leave severe shortages for these categories of personnel. The proposed project would address these issues by strengthening the human resources department of the MOH in charge of personnel planning and training, and by allocating additional staff to underserved rural areas (para. 4.6(b)). (d) Scarcity of Drugs and Medical Supplies. PHC facilities suffer from chronic shortages of medicines and other consumable items needed in the performance of their functions. These shortages are a major complaint of the population and one of the first reasons cited for not using PHC facilities and giving preference to hospital services (para. 2.11(b)). Although with assistance from USAID improvements have been made in the MOH capacity to store, distribute and inventory drugs, at the local, regional, and central levels, serious inefficiencies still exist. The major factors that account for the scarcity of drugs include: (i) Inefficient procurement procedures that do not guarantee least-cost treatment protocols, delivery schedules that minimize length of storage, quality control, appropriate bidding packages, or timely supply of drugs. As a result, the 171 of the MOH budget spent on drugs buys approximately 30% to 40t less than would be the case if appropriate procurement procedures were used; (ii) Inadeauate budQetary allocation for drugs to be distributed to PHC facilities representing approximately one-half of the minimum requirements. Local drug requirements are determined through a comprehensive inventory control system, established by the MOH with assistance from USAID, which fairly accurately estimates the yearly demand. For 1992, the gap between projected demand and budgetary allocations was estimated at 42%; and  19 (iii) Low incentives for distribution of aeneric drugs throuah the private sector. The drugs offered through private sector pharmacies are predominantly brand names sold at relatively high prices. The small share of generic drugs in the private retail market is partly due to GOH regulations that provide little incentive for the marketing of generic drugs. In addition, the industry would need to improve its procurement, quality control and marketing strategies in order to significantly increase the share of generic drugs in the market and lower the average retail prices for essential drugs. The proposed project would increase the supply of drugs to PHC facilities and improve efficiency of procurement procedures for drugs and medical supplies at the MOH. In addition, during the first year of project implementation, a study of the private sector drug market would be carried out to explore the potential marketing of generic drugs through private pharmacies nationwide (para. 4.6(c)). 2.14. Rapid Progression of HIV Infection and AIDS. Recent data collected in Honduras point to a pattern of explosive epidemic in the spread of the HIV virus and AIDS, similar to the early patterns observed in some African countries that are severely affected by the economic, social, and health consequences of the disease. Population-based HIV prevalence and AIDS incidence rates in 1991 have progressed to levels that are among the highest in Latin America: notified cases translate into a prevalence rate of 12.4 per 100,000 inhabitants which is higher than the level reported in the U.S.A. (11.3 per 100,000). Data point to a very efficient heterosexual transmission pattern among high risk groups which is beginning to affect low risk groups. A contributing factor to the extent and efficiency of HIV transmission is the widespread presence of largely untreated sexually transmitted diseases (STDs). Experience in other developing countries has shown that a failure to address this public health threat carries the risk of permitting, over a period of a few years, the disease to grow to epidemic proportions. To strengthen its current AIDS control program, the MOH is preparing, with assistance from the Pan-American Health Organization (PAHO) and the World Health Organization (WHO), a Medium-term AIDS Control Program for the 1993-95 period, specifying the full range of control, prevention and treatment activities required to curb the spread of HIV infection and AIDS, at an estimated cost of US$5.0 million. This program would be presented by the GOH to the donor community in Tegucigalpa in December 1992. The proposed project would support about 40% of the program activities (para. 4.6(d)), approximately matching the government's contribution, and prospects of mobilizing the required additional assistance from grant sources, particularly from USAID and the Global Program on AIDS (GPA) are good. Complementing AIDS and STDs control activities, the project would support this program through: (i) incorporating into the protocols for prenatal care provisions for systematic detection and treatment of STDs that are a risk factor for HIV infection; (ii) ensuring that nutrition education contain modules directed to mothers infected with the HIV; and (iii) monitoring the implementation of the Medium-term AIDS Control Program (para. 4.6(d)).  20 C. Sector Obiectives and Strateav 2.15. Obiectives. The GOH objectives for the health and nutrition sectors (Annex 18) are to reduce malnutrition, mortality, morbidity levels and developing human resources capacity in general. The GOH strategy for the health and nutrition sector focuses on: (a) improving the nutrition status of the Honduran population by rationalizing and expanding nutrition assistance programs; (b) strengthening PHC services by improving the quality of services delivered, especially the mother and child PHC services, by extending the PHC network and related water and sanitation infrastructure, and by extending the coverage of the food coupon programs to attract vulnerable groups to use MOH facilities; (c) launching an AIDS control program; (d) increasing the efficiency of referral systems and specialized medical care; and (e) strengthening MOH's planning, budgeting, and evaluation capacity. 2.16. ImDroving the Nutrition Status of the Population. In October 1992, in support of the GOH nutrition policy objective of significantly reducing the incidence of malnutrition in Honduras, Congress has extended the legal life of the PRAF indefinitely. The programmed expansion of coverage of the PRAF food coupon programs will be targeted to the poorest and most vulnerable women and children, through the MOH and the MOE primary services network. In addition, complementary nutrition education programs at health care facilities and local communities will be carried out, and all existing nutrition assistance programs will be better coordinated and adjusted to increase their efficiency in addressing long-term nutrition assistance needs nationwide. 2.17. Strengthening PHC Services. For the period 1993-97, the MOH seeks to improve the quality of basic health services delivered by: (i) better defining the package of services to be offered, including renewed emphasis on family planning education and birth spacing, and better organizing health facility activities; (ii) providing in-service training and strengthening medical supervision in the skills needed for delivering PHC services efficiently and courteously; (iii) deploying a majority of newly trained paramedical personnel to PHC facilities; (iv) ensuring a more adequate supply of medicines, supplies and other essential inputs, commensurate with the proper operations of PHC facilities; and (v) rehabilitating and re-equipping existing PHC facilities to the minimum standards required for efficient delivery of the services expected of them. In addition, the MOH seeks to extend the coverage of the PHC system by constructing, equipping, staffing, and operating additional facilities in undeserved areas and constructing simple water supply and sanitation works with community support. Demand for primary health services by the most vulnerable groups of women and young children is expected to increase significantly in response to the expansion of the BMI food coupon program, thus ensuring high utilization of the improved PHC services provided by the MOH. 2.18. Launching an AIDS Control Program. To contain the risk of a full blown AIDS epidemic, the MOH intends to present to the international donor community an integrated AIDS program focussing on HIV/AIDS monitoring and prevention measures (para. 2.14). As part of this program, efforts will be made to detect and treat other STDs that constitute a major cofactor in the transmission rates of the HIV. Prevention measures would be expanded through: (i) community level education, mass communication and peer support; (ii) PHC  21 services in the context of prenatal care and control of STDs; and (iii) at the hospitals. 2.19. Increasing efficiency of referral and specialized medical care without increasing the level of public resources allocated to hospitals would be sought by the MOH through: (i) focusing hospital activities and resources on referral and specialized services and assigning to ambulatory and PHC facilities the simpler tasks of providing basic and preventive health care services; (ii) requiring all hospitals to meet the appropriate accreditation standards by 1994; (iii) granting hospitals increased financial autonomy and accountability; and (iv) generalizing cost-recovery at an affordable level. These programs are already underway. Their financial impact would be monitored in the context of redressing the intra-sectoral allocation of resources. 2.20. Strengthening MOH's planning, budqeting and evaluation capacity by: (i) assigning additional staff to the Planning Department and the Human Resources Division; (ii) improving resource allocation by carrying out systematic expenditure reviews and installing more efficient management information systems; (iii) evaluating the ongoing cost-recovery programs and preparing action plans for generalizing cost-recovery; (iv) strengthening the analytical capability of the planning department to evaluate policy and program impact using sample surveys and performance indicators; and (v) promoting greater participation of the private sector and NGOs in the provision of health and pharmaceutical services. 2.21. ImDroving coordination among social sector agencies and programs The SCES was created in 1991, through Executive Agreement No. 841, with the basic objective of providing technical assistance to the Social Cabinet on human resources development. The SCES has two major functions which help the Government implement its social sector policy reforms: (i) it helps coordinate the Government's social sector policies and programs undertaken by various line ministries and agencies; and (ii) it monitors the achievements of the Government's targets for the social sectors, analyzes the effectiveness of social programs and provides feedback to the Social Cabinet. The Executive Secretary, who heads the SCES, is appointed by the President (Agreement No. 1708 of August 1991) and supervises a high-quality staff of six professionals, including an economist, lawyer, demographer, educator, public health specialist and financial analyst. Funding for the SCES has been provided by the Japanese Grant Facility, the United Nations Development Programme (UNDP) and UNICEF and, starting in FY93, budgetary support from the Office of the Presidency. Additional support to strengthen the SCES's institutional capacity would be provided under the proposed project (para. 4.9). 2.22. Improving coordination of water supolv and sanitation nrograms. Water supply and sanitation services, which directly impacts upon the health status of the population, also need improvements in coordination. Since the approval of the Health Code (Congressional Decree No. 65-91 of May, 1991) the GOH has taken a positive step towards promoting environmental health and, at the same time preserving natural resources. The code covers environmental sanitation dealing with water sources, storm runoff, sewage and excreta disposal, air contamination, solid wastes and housing. An MOH commission is presently working in the by-laws and on the procedures that would be used to enforce the Code. The sector institutions responsible for water supply and sanitation  22 services include the National Water and Sewerage Service Company (SANAA), the MOH through its Environmental Sanitation Division, and the Municipalities and the National Environmental Commission (CONAMA). Although the MOH is the agency with overall responsibility for setting the policies and operating norms for water supply and sanitation, the sector still lacks overall coordination and, sometimes, agencies exercise overlapping activities. The GOH recognizes the need to restructure the water supply and sanitation sector and to further promote its institutional development. To this end, the GOH plans to undertake a study in 1993 to analyze the main sector issues and to recommend appropriate solutions, taking into account the new municipal law. IDA intends to assist the GOH in its effort to promote improvements in service delivery and sector management through technical assistance to be provided under a technical assistance sector operation planned for FY93. The environmental health component under the proposed project, although in very small scale, addreeses the key issue of sector decentralization through local operation and maintenance of the systems built (para. 4.9 and Annexes 16 and 19). 2.23. StrenQthening monitoring and evaluation caoacitv. To permit systematic evaluation of the effectiveness of social spending by the public sector, the GOH has expanded its regular data collection program through the creation of special module to monitor the impact of its social programs on the welfare of the Honduran population. Specifically, the multiple purposes household survey has been expanded to incorporate a Living Standards Measurement Survey (LSMS), including key social variables and consumption patterns in addition to basic demographic, employment and income information, under the leadership of the Planning Ministry (SBCPLAN). This LSMS was introduced as a component under the FHIS-I project with support from IDA. Improvements to the LSMS are now being planned and would be completed by early 1993. In parallel, the SCES is focusing on analyzing available social indicators data and on sharpening the technical specification of indicators to measure performance of specific programs. These initiatives would be supported under the proposed project (para. 4.9 and Annex 6). 2.24. Fosterina Donor Coordination. The donor community has actively supported the GOH health and nutrition programs for several decades. The Inter-American Development Bank (IDB) has focused on expansion of PHC and hospital infrastructure, is presently financing the water supply and sanitation program of SANAA in urban and rural areas, and will further assist in the provision of social infrastructure through financing of the FHIS-II project. USAID is currently providing technical and financial assistance to the MOH and SANAA to support, strengthen and continue the process of extending coverage of efficient, sustainable and effective PHC and rural water and sanitation services with an emphasis on child survival through its Health Sector II project. As part of its health assistance program, USAID also supports the design and implementation of periodic health and nutrition surveys. In addition, USAID, WFP and BBC provide food in-kind for targeted nutrition assistance programs (para. 2.15). The BEC is also currently financing an extensive program of expansion of rural water supply and sanitation. A MOH hospital infrastructure and equipment project financed by the Government of Japan was recently completed and continued assistance from Japan is being provided for training programs for paramedical staff. Donations from the Government of Spain have enabled the MOH to replace medical equipment in older hospital facilities. United Nations (UN) agencies  23 including UNICEF, PAHO, WHO, and UNDP have continued to provide technical assistance to the MOH in the areas of policy planning and program development, training, computer systems, and epidemiological information systems. IDA's involvement through the proposed project would contribute to promote donor coordination in the nutrition and health sectors, especially by: (i) assisting the GOH in securing donor participation for the formulation and implementation of a long-term national nutrition assistance policy (para. 4.4(a)); (ii) attracting additional donor assistance for further support of the PRAF food coupon programs (para. 4.4(b)); and (iii) assisting the GOH in mobilizing additional resources to control the AIDS epidemic (paras. 2.14 and 4.6(b)). In parallel to the project, IDA would collaborate with the donor community in assisting the GOH's efforts to better coordinate water supply and sanitation sector investments and improve sector organization through a comprehensive sector study scheduled to commence in 1993 (Annex 18). III. LESSONS FROM THE PRAF PILOT FOOD COUPON PROGRAMS A. Overview of the Programs 3.1. The principal objectives of the PRAF food coupon programs are threefold: (i) to transfer income to low-income families most vulnerable to contractions in income; (ii) to reduce the incidence of malnutrition among young children, which has been increasing among children under five (para. 2.1); and (iii) to promote efficient use of public social services and expenditures, in particular, the services provided by health centers and primary schools. In 1991, the average number of MOH consultations was 0.6 per capita per annum, which is 601 below the applicable international norm. Furthermore, between 1982 and 1991, the growth rate for check-ups received by children under age one was below population growth, indicating a declining number of consultations per infant. Similarly, primary education left much room for improvement in both quantitative and qualitative terms: while primary school enrollments are high, outcomes are inadequate due to high dropout and repetition rates (para. 1.8). 3.2. PRAF was created on August 7, 1990, through Presidential Decree No. 1208-A and ratified by Congressional Decree 127-91 published on November 22, 1991. That law was amended by Congressional Decree No. 135-92 published on November 14, 1992, extending PRAF's legal life indefinitely. PRAP is constituted as a decentralized entity of the Presidency, with administrative, technical and financial autonomy to carry out the food coupon programs and women's training programs designed to assist the mother of children who benefit from the food coupon programs in generating income and being capable, through their own efforts, to have their children phased-out of the program. PRAF is headed by an Executive Director, appointed by the President, who is also a member of the Cabinet and responds directly to the President of the Republic. The current incumbent has had previous Cabinet position experience, having been Vice-Minister of Transport in the 1970s. He has been in his current position since the creation of the PRAF in 1990 and is a well respected personality in the country. PRAF's organization chart is presented in Annex 11. PRAF's permanent staff consists of 60 professional and technical personnel, most of them occupied in administering the food coupon programs. A management audit was undertaken by USAID in August 1991. The main recommendations, which have been implemented, were that PRAF improve: (i) its  24 accounting procedures; and (ii) its computerized management information systems. PRAF's managerial capacity will be strengthened in monitoring and evaluation and financial management (para. 3.6 and Annex 9). An experienced management information system (MIS) director was appointed in mid-1992 and is in the process of installing an appropriate MIS. Technical assistance will be provided under the project to strengthen the MIS (para. 4.4(c)). PRAF's financial management receives strong support from the Central Bank of Honduras (CBH). Under the project it will be further strengthened through technical assistance (para. 4.4(c)). The CBH retains the financial control of coupon emission and redemption while leaving to PRAF the administration of the coupon distribution through the banking system and local MOH and MOE personnel, as explained below (para. 3.3). 3.3. The logistics of the PRAF food coupon programs work as follows. PRAF prepares annual projections of BMJF and BMI coupons, in collaboration with the MOB and MOH, and presents these projections to the CBH. The CBH requests from the Ministry of Finance (MOF) the corresponding budget allocation to the PRAF special account and issues the coupons on security paper in L20 denominations with an expiration date of four months from issue date. This prevents coupons from remaining in the system as another monetary unit and ensures expenditure of the budget allocation. PRAF distributes the coupons through selected banking institutions with branches in the distribution area. Local staff from the MOE and MOH, supervised by PRAF, take the coupons from the banks to participating schools and health centers, where security boxes are provided to keep the coupons until distribution. Distribution occurs twice per year at primary schools and monthly at health centers. Beneficiaries use the coupons to buy food and other essential items at local retail stores. Retailers cash the coupons at local banks which, in turn, redeem them at the CBH. The CBH returns the voided coupons to PRAF with a statement of accounts. 3.4. Under the BMI (para. 2.5(d)) health centers' participation in the pilot program was based on: (i) poverty criteria; and (ii) geographic proximity to Tegucigalpa, to facilitate monitoring during the pilot phase. In December 1991, the BMI benefitted an estimated 13V of poor children under five and pregnant and nursing women at risk of malnutrition, financing about 201 of the value of their minimum food requirements. In collaboration with the PRAF, which has been responsible for the financial administration and evaluation of the program, the MOH has helped to define where the program would operate and its eligibility criteria. The pilot BMI program covered three low-income districts in Tegucigalpa, 11 municipalities in the department of Valle, and two municipalities in the department of Copan. In 1991, the total annual cost of the program per beneficiary was US$55, of which 23* represented PRAF's administrative costs. Economies of scale accruing during the programmed expansion of the BMI under the proposed project are expected to reduce the share of administrative costs to approximately 6* of the value of the subsidy (Annex 10). 3.5. In the BMJF program (para. 2.5(d)), local level MOE staff selected the beneficiaries based on a teachers' survey of their students' family income, family size, and parents' civil status. In December 1991, the BMJF benefitted about 561 of the children in grades one through three at risk of malnutrition, financing about 171 of the value of their minimum food requirements. PRAF has been responsible for the financial administration and evaluation of the BMJF program. Currently, the program covers 3,100 schools in seven of the 18  25 departments (Copan, Cortes, Choluteca, Francisco Morazan, Intibuca, Lempira, and Valle). In 1991, the total annual cost of program per beneficiary was US$43, of which 16% represented PRAF's administrative costs. B. Evaluation Findings and Lessons Learned 3.6. An evaluation undertaken under the FHIS-I project showed that the BMI is well-targeted and has had a positive impact on the income of families with pregnant and nursing women and children under five. In 1991, it transferred food coupons equivalent to US$1.4 million to low-income families. The program has led to increased use of health facilities and to a shift in the demand for health services towards preventive services, which are cost-effective and poverty oriented. The number of MOH consultations rose by 131* in participating facilities in 1991, compared to the same period in 1990 (Annex 8, Table 1). The BMJF is also well-targeted and has had a highly positive impact on income levels, and in 1991 transferred an estimated US$4.6 million equivalent food coupons to poor families. Thanks to its eligibility criteria, the program has had a malor imDact on primary school enrollments. In 1991, enrollments rates rose on average by about 12% in the participating departments, compared to a historic annual increase of 3%. Primary education performance has also improved in participating departments: in 1991, dropout rates declined on average by 1.3% to an average of 11.8, and repetition rates declined on average by 0.4% to an average of 3.2% compared to the previous year, whereas they remained at substantially the same levels elsewhere (Annex 8, Table 2). The targeting experience under the pilot program was used to determine the targeting criteria under the project (para. 4.4(b)). In particular, PRAF will apply simpler and standardized eligibility criteria and will improve the reliability of its targeting of the BMJF by using malnutrition rates rather than means assessment. 3.7. Initial apprehension that the food coupon programs might have a negative impact on inflation have been shown to be unfounded, as the size of the programs have been very small compared to the relevant national aggregates. 3.8. Similarly, the fear that the BMI might have a negative impact on family planning acceptance among poor rural women has proven to be inaccurate. In fact, the latest MOH epidemiological survey, conducted in 1991, shows declining fertility rates in rural areas including those covered by the BMI food coupon program. 3.9. However, the evaluation also found that both orograms still face some imolementation issues. While PRAF has already incorporated into its Operational Manual improvements to coupon distribution methods, it still needs to improve eligibility criteria and, in the case of the BMJF, the frequency of coupon distributions (para. 4.4(b)). There are also weaknesses in administrative capacity, especially monitoring and evaluation. In addition, the improved coverage rates in basic health and education service utilization call for complementary actions to be taken by the MOH and MOE to improve the quality of services offered as part of the GOH's social safety net. Under the proposed project, PRAF would improve the logistics for coupon distribution and its administrative procedures, including more frequent auditing, additional technical staff, and the information system (para. 4.4(c)).  26 3.10. As to the advantages and disadvantages of the channels used by PRAF for coupon distribution, the evaluation indicates that there should be a larger expansion of the BMI than of the BMJF, given the health benefit accruing from nutrition assistance provided to unborn and very young children who can be reached before exposure to malnutrition might have caused permanent damage. The BMJF, on the other hand, has had major impact on education through increased enrollment and additional education efficiency benefits are expected. Moreover, the MOE primary education network is wider in its coverage than the primary health network, and allows to cover a large proportion of the most vulnerable groups. Accordingly, under the proposed project, preference would be given to the expansion of the BMI (para. 4.4(b)), but the BMJF would remain a major channel for the PRAF. 3.11. In addition, the evaluation verified that the food coupon orograms are less costly to administer than nutrition assistance orograms that distribute food in-kind (para. 2.5). The much simpler logistics of coupon distribution through the banking system and its easy redemption through the food retail and banking networks make for much lower operating costs as a percentage of the subsidy provided than those incurred in operating food distribution in-kind. The latter requires intensive supervision for procuring and transporting commodities, packaging and distributing food rations, controlling for theft and food quality, and covering insurance on theft and spoilage. Also, the risk of food spoilage and contamination at centers where food is stored is rather large in view of the poor state of repair of most facilities. A preliminary estimate of the financial impact of monetizing food in-kind nutrition assistance programs and replacing them with the food coupon program indicates that as much as US$3.2 million could be saved each year in administrative costs. 3.12. The above comparison between the PRAF and other nutrition assistance programs has shown that soecific programs should be part of a comorehensive nutrition strateav, based on an evaluation of the sustainability and relative efficiency of existing programs, an analysis of the effects and longer-term impact of nutrition assistance and income generation activities, and a rationalization of different types of nutrition interventions to form a comprehensive strategy suitable for promoting efficient and technically and financially sustainable improvements in the nutritional status of the Honduran population (para. 4.4(a)). 3.13. The widespread acceptance of the oroarams by beneficiaries, implementing agencies, participating retailers, and banks is a clear indication that they have reached their primary objective of providing an efficient safety net for vulnerable groups that were affected by some of the economic adjustment measures. The benefits of the coupon programs have led donors to consider monetizing existing in-kind food aid programs am they reach their completion, particularly since the food coupon programs have not had inflationary effects. As a result, the project would have a significant involvement from other donors who would finance 31% of the total cost of the proposed project (paras. 4.13 and 4.17). 3.14. The PRAF pilot BMI program has shown the need to strengthen PHC services, especially of maternal and child health services, including family planning, to meet the increased demand for primary health services which has been generated by the food coupons distribution. This would be addressed  27 under the proposed project, which would help the MOH: (i) rehabilitate and expand PHC facilities including basic equipment and referral capacity (para. 4.6(a)); (ii) expand the provision of potable water and basic sanitation (para. 4.7(a)); (iii) allocate additional staff for preventive PHC services at the regional and local levels (para. 4.6(b)); (iv) strengthen technical personnel in key central functions (para 4.6(b)); (v) carry out in-service staff training programs (para. 4.6(b)); (vi) improve staff supervision (para. 4.6(b)); (vii) improve organization of health services and coupon distribution at participating health centers (paras. 4.6(a) and 4.6(b)); and (viii) ensure the supply of essential drugs and supplies at PHC facilities (para. 4.6(c)). IV. THE PROJECT A. Origin of the Proiect 4.1. The proposed project originates from: (i) the successful implementation of the PRAF pilot food coupon programs, started by the GOH in 1990 and supported by IDA as part of the FHIS-I project to prevent increases in malnutrition and deterioration of health status of the population during the economic adjustment period; and (ii) the urgent need recognized by the GOH and IDA, through the implementation of the BMI pilot food coupon program, to improve delivery of PHC services. B. Obiectives 4.2. The proposed project would help achieve the following objectives: (a) protect groups particularly vulnerable to the economic adjustment process by channeling nutrition assistance to improve the nutrition status of children and pregnant and nursing women among the poorest segments of the population; (b) support the development and implementation of a longer-term nutrition assistance strategy for Honduras; (c) reduce maternal, child and infant mortality and morbidity rates by improving access to basic health services and safe water supply and sanitation, by improving the quality of services provided by the MOH, and by supporting health, nutrition, and family planning education activities; (d) strengthen the institutional capacity of the MOH, the PRAF and the SCES for sector planning, program formulation, monitoring, evaluation, and improve efficiency in the procurement of drugs; and (e) control the spread of AIDS. C. Description 4.3. The project would have four components: (a) Exoandina Nutrition Assistance and Develodina a Longer-term Nutrition Policy (US$32.2 million equivalent to 59% of total project cost) through: (i) formulation and implementation of a longer-term nutrition policy (0.2%); (ii) expansion of food supplements through the PRAF food coupon programs to about 255,000 poor, pregnant and nursing women, children under five, and primary school children in the 13 departments with the highest malnutrition rates (55W); (iii) technical assistance to strengthen PRAF's institutional capacity to administer the program in the project area (2%); (iv) nutrition education for health staff, community workers and mothers focusing on breast-feeding, weaning  28 and early childhood feeding practices (2t); and (v) annual nutrition censuses at public primary schools (1i); (b) Strengthening the Delivery of Basic Health Services (US$16.7 million equivalent to 31% of total project cost) including: (i) rehabilitation of about 130 health care centers and construction of an estimated 30 additional health centers in priority rural areas where services are currently not available (7'); (ii) improvement of MOH institutional capacity through additional staff, staff training and supervision and institutional support to the project unit of the MOH (6W); (iii) incremental costs of drugs for the PHC network and technical assistance to improve the efficiency of pharmaceutical procurement (13%); and (iv) support of the formulation and implementation of a medium-term national AIDS control program (4W); (c) Improving Environmental Health (US$4.1 million equivalent to 7W of total project cost) through provision of: (i) rural water supply and rural sanitation supported by community participation, benefitting about 60,000 people in poor underserved communities in four departments (7.9%); and (ii) a medical waste disposal training program (0.1W); and (d) Monitoring. Evaluation, and Auditinq (US$1.2 million equivalent to 2W of total project cost) including institutional strengthening of the SCES. A more detailed description of the project components is provided below. 4.4. Exoansion of Nutrition Assistance (US$32.2 million including contingencies). This component would provide incentives for those most at risk of malnutrition to use PHC and primary education services to improve opportunities for sustainable human capital development. Specifically, the component would provide for: (a) Formulation and Implementation of a Longer-term Nutrition Poli (US$0.1 million). This subcomponent would finance consultants' services to assist the GOH in the preparation of a longer-term nutrition assistance strategy that would be discussed during the first annual project implementation review (para. 4.36), and subsequently be implemented by the GOH in collaboration with the donor community. The study would: (i) analyze the extent and causes of malnutrition in Honduras, review existing nutrition assistance programs, establish the priority modes of intervention and mechanisms to avoid overlap between programs, and make recommendations for specific program adjustments to improve program outcomes; (ii) formulate a national nutrition policy to guide implementation of nutrition assistance programs. This would include phasing-out or restructuring of some other existing nutrition assistance programs; and (iii) develop an action plan for policy implementation. The terms of reference for this study are presented in Annex 17. The subcomponent would be wholly financed by the proposed IDA Credit. At negotiations, the Borrower presented a signed letter to IDA describing its health and nutrition policies and declaring its commitment to the implementation of such policies, satisfactory to IDA (Annex 18). During neaotiations. agreement was reached that the Borrower. through the MOH, would: (i) formulate a lona-term nutrition  29 Policy and Dresent a draft policy statement to IDA by November 15. 1993: (ii) discuss that volicy with IDA durina the first annual review of vrolect imvlementation, no later than December 10. 1993: (iii) Preparg an action plan, satisfactory to IDA. to imr=ement the policy by Janua-v 31, 1994: (iv) commence the imlementation of the action plan immediately thereafter: and (vl complete the imwlementation of the action plan, in a manner satisfactory to IDA. by December 31, 1995 (para. 6.1(a)). (b) Exoansion of the PRAF Food Coupon Proqrams (US$30.0 million). This subcomponent would support a 44% expansion of the food coupon programs administered by PRAF, raising coverage from 25% to approximately 40% of the target group nationwide. PRAF would carry out the expansion in accordance with criteria and targets, agreed with IDA, included in its Operational Manual (Annex 19), described in the expansion plan for the food coupon programs (Annex 10). At negotiations, PRAF provided a draft Operational Manual, satisfactory to IDA. During negotiations. agreement was reached: {i) on PRAF's targeting criteria and expansion plan for the BMI and BMJF food coupon programs, satisfactory to IDA and that these criteria would be incorporated in PRAF's Operational Manual: and (ii) that PRAF would only modify its Operational Manual with prior IDA consultation and agreement (para. 6.1(b)). As a condition of effectiveness, a finalized Operational Manual, satisfactory to IDA. would have been approved and adopted bA PRAF (para. 6.2(a)). The expansion plan contemplates more than doubling the BMI coverage from about 56,000 in three departments to about 124,000 pregnant and nursing mothers and children under five, covering six additional departments. The BMJF, which currently has a higher coverage than the BMI, would be expanded at a slower rate of about 3W per year, from 120,200 to approximately 131,000, to cover eligible students entering the first grade in seven departments presently covered by the program. Those eligible to participate in the BMJF program would be students entering the first grade and showing symptoms of chronic malnutrition (stunting) measured by the national School Nutrition Census (para. 4.4(e)). PRAF would increase the frequency of BMJF distribution from two to four times a year to increase propensity of coupon use in purchasing food, as recommended by IDA (Annex 9). The expansion of the BMI food coupon program would be guided by the following criteria: departments and municipalities with a stunting rate above 40* would have priority; within priority municipalities, the poorest villages would be targeted based on lack of access to potable water and adequate sanitation; and in each village, all pregnant and nursing women and al_ children under five years of age would be eligible (Annex 10). The BMI expansion would not be carried out in the same departments covered by the BMJF to avoid further overlapping of benefits that occurred in the pilot stage. In accordance with PRAF's Operational Manual, the distribution of both the BMI and the BMJF would be made through the banking system. Attention would also be given to avoiding overlapping between the food coupons expansion and existing nutrition assistance programs that distribute food in-kind. The quarterly operational audit of the PRAF (para. 4.34) would ensure that any beneficiary overlapping that might occur would be immediately corrected by PRAF. During the life of the project, the share of the BMI would be increased from about 32% to nearly 45W of the total number of  30 beneficiaries. The proposed IDA Credit would finance US$6.0 million equivalent, or 20% of the estimated cost of the food coupon subcomponent. Regarding the maintenance of the value of the food coupons, should the consumer price index in Honduras rise more than 25%, PRAF would adjust the denomination of the coupons accordingly. (c) Technical Assistance to StrenQthen PRAF's Institutional Capacity (US$0.9 million). Under a technical assistance agreement, satisfactory to IDA, signed on April 30, 1992, UNDP would provide US$0.3 million towards the cost of consulting services, training, promotion activities, equipment and vehicles. IDA would provide an additional US$0.6 million over the life of the project. PRAF has already filled key positions with technical staff satisfactory to IDA and would, under the project, contract consulting services to further improve the quality and operational efficiency of the food coupon programs. In addition, the proposed IDA Credit would finance external auditing of the PRAF, including annual financial audits and quarterly operational audits (paras. 4.33-4.34). (d) Nutrition Education (US$0.9 million). The objective of this subcomponent is to train health staff and community workers in appropriate feeding practices that would ensure adequate nutrition for pregnant women, exclusive breast-feeding during the first six months of infants' lives and adequate weaning and feeding practices for children up to two years of age. The project would provide for: (i) training of MOH personnel; (ii) supervision and evaluation of the nutrition education program; (iii) basic equipment; and (iv) operations research on HIV transmission through breast-feeding. These activities would be carried out by the MOH in collaboration with the Breast-feeding League of Honduras (La Liga de la Lactancia Materna de Honduras, BFLH) and UNICEF (Annex 12). The proposed training is an essential element to enhance the quality of maternal and child health care provided by the MOH. It would also contribute to improved birth spacing, family planning acceptance, and control of STDs. The final beneficiaries would comprise about 128,000 pregnant women and over 100,000 children less than two years of age in four health regions in the project area. IDA would finance US$0.8 million of the estimated costs of the subcomponent, including all investment costs and a declining share of the recurrent MOH staff costs. Under parallel financing, UNICEF and USAID would finance the creation of a national network of nutrition counsellors at the village level and the establishment of a center for breast-feeding orientation and documentation by the BFLH. (e) Annual School Nutrition Census (US$0.3 million). This subcomponent would entail anthropometric measurement of all 6-9 year old students entering the first grade of public schools nationwide. The census, to be carried out annually, would be used to improve targeting of the PRAF BMJF food coupon program. The census would be implemented by the SCES, and would be wholly financed by IDA (Annex 17). 4.5. The cost of the expansion of the PRAF food coupon programs under the project includes the cost of the subsidy (94%), coupon emission (0.6%), banking costs (1i) and PRAF's overhead (4.4%). Thus, PRAF's direct administrative costs are estimated at 6% of total program expansion costs,  31 which is reasonable. This compared favorably with a median 9's administrative cost observed for 30 targeted social sector programs in Latin America in the 199OsLO. PRAF's overhead consists of: (i) program management; (ii) management information system; (iii) administrative costs associated with supervision of coupon distribution including counting and packaging coupons, vehicles and field staff; (iv) central office staff and equipment allocated to the food coupon programs; (v) public information services directed at final beneficiaries and local merchants; and (vi) program evaluation. The costs of technical assistance to PRAF are not included. Total disbursements are estimated at US$8.9 million in the first year, US$10.1 million in the second year, and US$11.0 million in the third year. IDA would finance US$6 million, equivalent to 20% of total program cost on a declining basis over the project implementation period (para. 4.16). Monetized in-kind food aid provided by USAID and WFP would finance US$13.0 million, equivalent to 43% of total program cost. The financing agreement between PRAF and the WFP, signed in August 1992, provides for an additional US$0.7 million to finance initial program expansion during 1992, which is not included in the project's financing plan. The GOH would finance US$7.5 million or 25% of total program cost. There is still a financing gap of US$3.5 million which is expected to be filled by additional contributions from the donor community (para. 4.15). 4.6. StrengtheninQ Delivery of Preventive Health Services (US$16.7 million). This component would comprise the following subcomponents: (a) Rehabilitation and Construction of PHC Centers (US$3.9 million), including: (i) rehabilitation and re-equipping of about 130 PHC centers in the project area; (ii) construction and equipping of 30 new centers in priority poverty areas not currently served; (iii) creation of a maintenance fund to be locally managed to cover routine maintenance of buildings, equipment and vehicles; (iv) a feasibility study for a radio communication network to improve referrals, test of the system with ten experimental stations during the first year of project implementation, and if successful, expansion of the network to an additional 30 stations in the following two years of project implementation. Terms of reference for this study are described in Annex 17; and (v) vehicles to be used in supervision of PHC services operation including preventive maintenance. In defining the scope of this component, priority was given to the rehabilitation of existing centers, given the pressing needs for extensive repairs facing the system and considering that rehabilitation has lower initial and incremental operating costs than new construction. The selection of centers to be rehabilitated under the project was made according to the following criteria: (i) centers to be located in the BMI project area; (ii) rehabilitation works not to exceed a limit equivalent to US$10,000 per center; and (iii) location in poor areas with high rates of malnutrition. For construction of centers, location would be determined according to: (i) priority areas in the BMI project area; (ii) underserved population in the catchment area ranging from 1,500 to 3,000 people, that is, corresponding to the service capacity of a CESAR; and (iii) five to ten km minimum distance to the nearest PHC centers. For new construction as well as for 1' The World Bank. "From Platitudes to Practice: Targeting Social Programs in Latin America" (2 Vols.). Report No. 10720-LAC. Washington, D.C. June 1992.  32 rehabilitation, the proposed solution would be the least-cost solution or the only alternative. Final designs are available for 32 centers already selected and programmed for rehabilitation in 1993. A preliminary selection of 70 additional centers to be rehabilitated has been done and final designs are underway. The location of new centers has been also identified in accordance with the selection criteria specified above. A prototype architectural design for the new CESARs has been developed, comprising two clinics and sanitary facilities within about 100 m2 floor area. The corresponding list of required medical and laboratory supplies has also been prepared (Division Files). IDA would finance US$3.5 million equivalent to 91% of the estimated cost of the component, and the balance would be financed by project beneficiaries. Community participation was estimated at 9% of the cost of construction and includes the cost of fences surrounding the PHC centers, some painting work and minor repairs (Annex 13). Durina negotiations. agreement was reached on the criteria for selection of health centers to be rehabilitated and for the location of health centers to be constructed (para. 6.1(c)(i)). (b) Improvement of MOH Institutional Caxacitv (US$3.4 million). This component is designed to improve the quality of basic health services provided by the MOH in the project area, strengthen MOH's capacity to administer these services and improve sector planning and budgeting. Specifically, the following would be provided: (i) additional health staff that would be allocated to primary health centers including approximately 28 physicians, 63 professional nurses, 168 auxiliary nurses, six laboratory technicians, six teaching staff for auxiliary nursing schools, and 40 health promoters; (ii) establishing of a Project Unit at the MOH Planning Department consisting of eight professional staff and four auxiliary staff; (iii) in-service training for all levels of staff engaged in the provision of basic health services in the project area; and (iv) strengthening of staff supervision (Annex 14). The incremental PHC staff would be allocated to the BMI project area, covering entire health areas (rather than restricted to the specific health centers where the food coupons would be distributed), so as to expand the institution building impact of the project to a wider segment of the MOH basic health system. The IDA Credit would finance US$2.4 million of the estimated cost of this component, including recurrent costs on a declining basis. The Borrower has already created and staffed the Project Unit and prepared training guides and materials satisfactory to IDA (Annex 14). Durina negotiations. aareement was reached on criteria for allocation of MOH's plan for incremental staffina in the BMI project area (para. 6.1(c) (ii)). Agreement was also reached that the MOH Proiect Unit would be headed by a aualified professional and assisted by aualified staff. satisfactory to IDA (para. 6.1(d)). (c) Basic Druas (US$7.2 million), including US$4.7 million of the proposed IDA Credit, would be used for the procurement of essential medicines for the PHC network. The MOH has already improved its capacity for inventory control, storage, and distribution of drugs in recent years, with assistance under USAID's Second Health Sector Project, but improvement needs to be made in procurement. Thus the urgent need to increase the efficiency of the resources allocated for  33 drugs by the MOH (Annex 15). This subcomponent would finance: (i) additional pharmaceutical drugs used by the MOH in the primary health services network nationwide; (ii) technical assistance and training to improve the procurement of drugs by the MOH; and (iii) a study to determine regulatory and other factors constraining the private marketing of generic drugs in Honduras, and recommend appropriate solutions, to be carried out during the first year of project implementation in accordance with terms of reference specified in Annex 17. The medicines to be financed by IDA would be procured from UNICEF (para. 4.22). During the first project implementation year improved procurement practices would be introduced by the MOH for all medicines, and technical assistance provided to the MOH throughout project implementation would ensure MOH's adoption of the improved procurement practices recommended by IDA. Proper use of medicines at PHC facilities would be ensured through staff training under the project (para. 4.6(b)). With support from the Japanese Grant Facility, training and computer equipment has been provided to the MOH during project preparation. The IDA Credit would finance US$4.8 million or 671 of the estimated cost of the subcomponent, including all investment costs and part of the recurrent costs of medicines on a declining basis, and the GOH would finance the balance. Durina necaotiations. aareement was reached that the Borrower would Dresent. no later than December 10 of each year, starting in December 1993, a schedule for the Drocurement of druas under the rroiect. satisfactorv to IDA (para. 6.1(e)). The Borrower has presented such a schedule for 1993, satisfactory to IDA. (d) AIDS Control Proaram (USS2.2 million). In response to the rapid increase in HIV infection and reported AIDS cases which have caused the GOH to declare a national emergency, this subcomponent would finance: (i) technical assistance for the preparation of a Medium-term AIDS Control Program for the 1993-1995 period; and (ii) the implementation of the AIDS Control Program. The activities to be financed under the project would be carried out by the MOH, comprise: technical assistance for preparing the final design of the Medium-term AIDS control program; medical and laboratory supplies, including medicines to treat sexually transmitted diseases and biosecurity supplies; NGO services and technical assistance to help promote behavioral change among high risk groups; specialized training for health staff; equipment for laboratory testing and blood bank control facilities; consulting services, including publicity services and preparation of information, education and communications materials. Technical assistance and financing for program preparation would be provided by PAHO/WHO. The program and financing plan would be presented to the donor community, in Tegucigalpa, before the end of 1992. The total cost of implementation of the three-year program is estimated at US$5.2 million. PAHO would provide US$0.08 million and the IDA Credit would provide US$2.1 million or 40% of estimated cost of program implementation. Additional support totalling US$3.0 million would be provided by the Government (US$2.0 million), USAID (US$0.7 million) and the GPA (US$0.3 million). A"A condition for disbursement for the AIDS Control Proaram. the Borrower would provide IDA with a satisfactory AIDS Control Proaram for the 1993- 1995 period and a financing plan. satisfactory to IDA. for the implementation of such vroaram (para. 6.3(a)). In addition, under the proposed project, operating procedures, staff training programs, and  34 information activities provided through the PHC network would incorporate appropriate preventive measures to detect the presence and slow the transmission of the HIV virus that causes AIDS. In particular, protocols for prenatal care would include provision for systematic detection and treatment of STDs that are a risk factor for HIV infection and a co-factor that increases the probability of infection several times. Nutrition education information would also contain modules directed to mothers infected with HIV and operations research on HIV transmission through breast-feeding. 4.7. Improving Environmental Health (US$4.1 million). In support of the MCH mandate to provide water and sanitation in rural areas, this component would benefit approximately 60,000 villagers with water supply systems and latrines in currently underserved villages in four departments in the project area that exhibit the lowest water and sanitation service levels (Annex 16). Specifically, the component would provide: (a) Rural Water Suogly and Sanitation through: (i) 40 gravity water systems; (ii) 300 dug shallow wells with hand pumps; (iii) tools for the community to operate and maintain the system; (iv) installation of 10,000 latrines of the pit and water-sealed types; (v) a program of community promotion to beneficiary communities, including their participation in project construction, establishment of local water boards, operation and maintenance of the systems, and protection of water sources; and (vi) engineering studies to prepare a second stage of a water and sanitation component for construction during the second half of the proposed project; and (b) Medical Waste Disposal Training Prooram tailored for PHC facilities (Annex 17). 4.8. For water supply and sanitation (Annex 16), the component establishes services levels that each community may choose from in accordance to its willingness to pay for the services. At any level, the final design would be the least-cost solution or the only alternative. As the MOH mandate limits provision of water supply to small rural communities between 200 and 2,000 inhabitants, only villages with this size population would be contemplated under this component. The eligibility criteria for village selection include: (i) demonstrated intent and readiness, on the part of the community to form a Local Water and Sanitation Board (Junta Administradora de Agua, JUNTA) to take responsibility for the operation and maintenance of the system; (ii) surface water sources available by gravity or ground water for well development, available at shallow depth of no more than 25 meters; in both cases, ease of development would be an important consideration; (iii) community agreement that latrines would be installed in rural homes simultaneously with the water works; and (iv) location near all-weather or dry-weather roads, or alternatively, provision of substantial community input for the transportation of materials. Care would also be taken to assure that the communities are not listed in the portfolios of other ongoing water supply and sanitation programs. Duringy negotiations, acrreement was reached on the criteria for selecting localities for the construction of water suvvlv and sanitation svstW_& (para. 6.1(c) (iii)). Each JUNTA would be formed in accordance with the legal pre-requisites established by the regulations for local water and sanitation boards approved by SANAA in 1991 and would be registered as a  35 private entity under the Ministry of Interior. The MDH would expedite the granting of legal status to the JUNTAB by serving as intermediary to process applications at the Ministry of Interior. Each JUNTA would adopt a Water and Sanitation Operational Manual, containing the administrative, technical and financial criteria to be followed in operating and maintaining local water supply and sanitation systems, including levying and collecting user fees sufficient to cover system's operations and maintenance (Annex 20). Durin negotiations. agreement was reached that the MOR would take all necessary steps to set tariffs for the water supplv and sanitation services to bo charged by each JUNTA to the users of these services, at levels sufficient to cover the overation and maintenance costs of such systems (para. 6.1(f)). The JUNTA Water and Sanitation Operational Manual and models of the legal documents whereby the MOH would transfer ownership, operation, and maintenance of the system to the JUNTA, have been prepared by the MOH and are satisfactory to IDA. During negotiations. agreement was reached that: (i) vrior to the initiation of the works of any water sur,ly and sanitation subnrolects: (a) the MOH would enter into a contract with the JUNTA correspondina to the village where such subproiect will be located: (b) each contract shall be on terms and conditions satisfactory to IDA. includina. inter alia. those set forth in the Water and Sanitation Operational Manual: and (c) the MOH shall take all necessary steps for the exDeditious arantina of leaal status to each JUNTA; and (ii) the Water and Sanitation Overational Manual would not be amended without Drior IDA aareement (para. 6.1(g)). The MOH would supervise the operation and finances of the JUNTA and perform periodical tests on the quality of the water through its regional administration, carrying out remedial action, when necessary. Durina neaotiations. aareement was reached that the MOH would supervise the operation and finances of the JUNTAs and test the aualitv of the water, at least oc a year. no later than March 31 of each year and cause or take remedial action. if necessarv. startina in March 1994 (para. 6.1(h)). Coordination between the water supply and sanitation activities carried out by the MOH, the JUNTAs, the municipalities and SANAA would be analyzed under a sector study proposed by the GOH (Annex 18) that would be supported by IDA. Relevant sector issues could be addressed under a future sector operation for which the GOH has requested IDA support. AS"a condition of effectiveness, the Water SunmlV and Sanitation Operational Manual, satisfactorv to IDA. would have been armroved and adopted by the MOH (para. 6.2(b)). 4.9. Monitoring, Evaluation. Auditing. Studies and Institutional Strengthening of the SCES (US$1.2 million). In addition to coordinating the execution of the annual school nutrition censuses (para. 4.4(e)), the SCES would coordinate the implementation of the project, in accordance with performance indicators satisfactory to IDA, carry out monthly meetings during the implementation of the project with MOH and PRAF to update said monitoring and evaluation indicators, and report periodically to IDA. The institutional capacity of SCES would be ensured by its staff of six professionals, which would be strengthened, under the project, by the contracting of a financial analyst satisfactory to IDA, and the purchasing of adequate computer and communications systems and one vehicle. Under this component, to be wholly financed by the proposed IDA Credit, the following activities would be carried out:  36 (a) External auditing of the accounts and other financial records and statements of the project, including those for the Special Account and of PRAF, to be contracted by MOH and by PRAF (paras. 4.33-4.35); (b) Monitoring and evaluation of the implementation of the project, including annual project implementation reviews to be carried out by MOH and PRAF in accordance with project performance indicators satisfactory to IDA (para. 4.36); (c) A study to assess the MOH's system for recovering costs of health services (paras 1.22 and 2.13(b)), focusing on: (i) the incentives that need to be provided for increasing cost-recovery; (ii) the development of equitable and affordable cost-recovery schedules; and (iii) the expansion of an improved cost-recovery system nationwide; the terms of reference for this study are described in Annex 17. Durina negotiations. aareement was reached that MOR would: {) carry out a study of cost-recovery of health services by no later than December 10, 1993: (ii) discuss the recommendations of the study with IDA during the first project imnlementation review: and {iii) prepare an action vlan. satisfactory to IDA. to imwlement these recommendations by January 31. 1994: aoreement was also reached that the MON would commence imvlementation immediately thereafter. for completion by December 10. 199 (para. 6.1(i)); and (d) Operations research by MOH to study specific mother and child health care and nutrition problems relevant to the outcomes of the project; priority topics would include referral system for health services; local information systems; service quality indicators; and sentinel sites to measure changes in health status of the population over time (para. 2.11(b) and Annex 17). 4.10. During negotiations, agreement was reached that the SCES would contract, by January 31, 1993, a financial analyst and the necessary technical staff to strengthen its institutional capacitv (para. 6.1(j)). D. Lending Arrangements and Imolementation 4.11. The proceeds of the Credit (US$25.0 million equivalent) would be lent to the Republic of Honduras, which would pass on US$6.0 million (about 24% of the total Credit) as a grant to PRAF to implement the food coupon programs and US$0.6 million for the institutional strengthening of PRAP. Of the remaining Credit proceeds, about US$6.5 million would be used by the MWH to rehabilitate and/or build primary health facilities and rural water supply and sanitation systems, US$6.6 million would support incremental MOH expenditures on for drugs, additional staff and institutional development, US$2.1 million would support the implementation of the MOH AIDS Control Program, and US$3.2 million would be used for technical assistance, complementary nutrition activities, monitoring, evaluation, auditing, studies and institutional strengthening of the SCES. Recurrent costs, including the costs of providing food coupons, drugs and salaries, would be financed by IDA on a declining basis over the life of the project. As a condition of effectiveness, a Subsidiary Agreement for making the funds available by the Borrower to PRAF. satisfactory to IDA, would have been entered into and authorized (para. 6.2(c)).  37 4.12. The project would be implemented over a three-year period by PRAF, MOH, and SCES. These three institutions have the capacity to implement the project and would be strengthened under the project (paras. 4.4(c), 4.6(b) and 4.9(b)). Specific implementation arrangements would be as follows: (a) The PRAF would: (i) implement the food coupon programs (para. 4.4(b)); (ii) receive technical assistance to strengthen its institutional capacity to administer its programs (para. 4.4(c)); and (iii) contract annual financial audits and quarterly operational audits with external private auditors, acceptable to IDA (paras. 4.9(a) and 4.32-4.34). At necotations. aareement was reached that PRAF would carrv out the vrovision of food supiplements, throuah food coupons, with due diligence and efficiency and in conformity with annro3riate administrative. public health. technical. manaaerial and financial practices, and in accordance with the PRAF Owerational Manual. satisfactorv to IDA (para. 6.1(k)). A law extending the life of the PRAF indefinitely has been passed (Decree No. 135-92 of October 1992) and was published in the Official Gazette on November 14, 1992; (b) The MOH would implement: (i) the formulation and implementation of a longer-term nutrition policy (para. 4.4(a)); (ii) nutrition education (para. 4.4(d)); (iii) health services (para. 4.6); and (iv) environmental health components (para. 4.7), through a Project Unit already established in the Planning Department (para 4.6(b)). To assist in the implementation of the rehabilitation and construction of PHC centers (para. 4.6(a)), the MOH would enter into an agreement with the FHIS to delegate the administration of civil works pertaining to that subcomponent. FHIS would charge MOH a 3% fee over the value of the civil works contracts, which corresponds to the average supervision cost for infrastructure subprojects under the FHIS-I project. PHIS would administer the works in close collaboration with the MOH Project Unit and regional management, to ensure maximum community participation. In the event that FHIS would be phased out in 1984, the MOH would assume full responsibility for managing the contracts for the remaining works through the National Health Services Program (PRONASSA). To assist in the implementation of the nutrition education component, the MOH would secure technical assistance from the BFLH and UNICEF (para. 4.4(d) and Annex 12). For the procurement of drugs to be financed by the proposed IDA Credit, the MOH would enter into a purchasing agreement with UNICEF and implement the component in accordance with the procurement schedule established under the project. For the procurement of the remaining drugs to be financed under the project, agreement has been reached between IDA and the MOH for the provision of technical assistance for improving MOH's methods of procurement through a consulting contract with a firm of specialized international consultants. The MOH would also be responsible for carrying out all the studies contemplated under the project (paras. 4.9 (c) and 4.9 (d)), in accordance with terms of reference satisfactory to IDA (Annex 17). An agreement between the NOH, the BFLH and UNICEF, to support the implementation of the nutrition education component, has been signed. As a condition of effectiveness, the aareement between the MOH and FHIS for administration of civil works under the proiect would have been siacned (para. 6.2(d)). As a condition for disbursement for the druars comonent. a purchasina aareement between  38 MOR and UNICEF for the vrocurement of druag financed by IDA, satisfactory to IDA, would have been sioned (para. 6.3(b)); and (c) The I= would be strengthened under the project and would: (i) implement the annual school nutrition censuses (para. 4.4(e)); (ii) coordinate project implementation in accordance with performance indicators satisfactory to IDA, through monthly meetings with MOH and PRAF and annual project implementation reviews (paras. 4.9(b) and 4.36)); (iii) present periodical reports to IDA (para. 4.29); and (iv) contract additional staff to improve its institutional capacity (para. 4.10). E. Costs and Financing Plan 4.13. Total project cost, net of taxes and tariffs, expressed in June 1992 prices, is estimated at US$54.2 million equivalent. Foreign exchange costs (US$21.9 million) represent 401 of the total project cost. Detailed costs estimates and financing plan are shown in Tables 4.1 and 4.2 below, respectively, and in Annexes 1 and 2, respectively. 4.14. Project cost estimates include physical contingencies calculated at 10l for civil works and 5 for equipment based on final engineering for the subprojects to be constructed during the first year of project implementation; price contingencies applicable to foreign exchange costs, estimated according to the average forecasted for 1991-2000 in US dollar terms, or about 3.91 per year; and local price contingencies, estimated based on forecasted local inflation rates of 8a, 61, and 41 for 1993, 1994, and 1995, respectively. The estimated costs of financing primary health care centers include 21 for engineering and administration costs, 101 for physical contingencies in civil works and 5* in medical, laboratory and communications equipment and 7% in recurrent maintenance costs. The estimated cost of the environmental health, water supply and sanitation subcomponent includes 61 engineering and administration costs and 101 physical contingencies. Community participation in that subcomponent is estimated at 231 of construction costs, in accordance with regional wages and contribution in local materials. The average investment base cost for both water and sanitation services is estimated at US$56 per housing unit and the average operating cost is estimated at US$9 per year per housing unit. Neither physical nor price contingencies were applied to the food coupons component since any increase in the individual cost of coupons would be reflected in a reduced number of coupons. The costs of technical assistance, which would finance consultants and studies, are based on the average cost of technical assistance provided by UN agencies in Honduras.  39 Table 4.1: PROJECT COST SUMhARY BY COMPONENT1J Local Foreicrn Total US$ million I. NUTRITION ASSISTANCE A. Nutrition Policy 0.01 0.09 0.10 B. PRAF Food Coupons 21.00 9.00 30.00 C. PRAP Technical Assistance 0.35 0.61 0.96 D. Nutrition Education 0.44 0.29 0.73 E. Nutrition School Census 0.22 0.02 0.24 Subtotal 22.02 10.01 32.03 II. HEALTH SERVICES A. Primary Health Care Centers 1.47 1.58 3.05 B. Human Resources Development 2.68 0.05 2.73 C. Basic Drugs 0.63 5.83 6.46 D. AIDS Program 0.53 1.32 1.85 Subtotal 5.31 8.78 14.09 III. ENVIRONMENTAL HEALTH 2.08 1.10 3.18 IV. MONITORING. EVALUATION AND AUDITING 0.47 0.60 1.07 BASE COST 29.88 20.49 50.37 Physical Contingencies 0.32 0.25 0.57 Price Contingencies 2.16 1.13 3.29 TOTAL PROJECT COST 32.36 21.87 54.23 Table 4.2: FINANCING PLAN (US$ 000) Local Foreiain Total US$ million Government of Honduras 9.45 1.78 11.23 Beneficiaries 0.69 0.29 0.98 IDA 12.06 12.94 25.00 USAID 1.80 1.20 3.00 World Food Program 6.00 4.00 10.00 UNDP 0.14 0.19 0.33 UNICEF 0.11 0.00 0.11 PAHO 0.01 0.07 0.08 Other Donors 2.10 1.40 3.50 TOTAL FINANCING 32.36 21.87 54.23 4.15. The proposed IDA credit of SDR17.8 million (US$25.0 million equivalent) would finance 46% of total project cost. Project beneficiaries would contribute approximately 2% of total project cost. The Borrower's U/ Net of taxes and duties. I The GOH is pursuing discussion with donors interested in the project (see para. 4.15).  40 contribution would be US$11.2 million or 21% of total project cost, and would finance part of the PRAF and the MOH' s recurrent costs during project implementation. The project includes a large proportion of food coupon costs. As these are recurrent costs, a large portion of these costs would be financed by the Borrower to ensure sustainability. Financing arrangements totalling US$13.5 million have already been signed (US$3.0 million equivalent from USAID (BSF); US$10.0 million equivalent from WFP; US$0.33 million equivalent from UNDP; US$0.11 million equivalent from UNICEF; and US$0.08 million equivalent from PAHO). There remains a financing gap of US$3.5 million for which the GOH is seeking financing from donors which have expressed interest in the project. The GOH will make its best efforts to obtain by September 30, 1993 loans or grants in an aggregate amount equivalent to US$3.5 million to assist PRAF in the financing of the food coupon component of the project. During negotiations, agreement was reached that. in the event the Borrower is not able to obtain additional financing in the amount of US$3.5 million by September 30. 1993, the Borrower will provide in its 1995 annual budget, in addition to the corresponding amounts set forth in Dara. 4.16. an amount in Lem=iras eauivalent to US$3.5 million, as incremental countervart funds for the PRAF food coupon comoonent of the vroiect (para. 6.1(1)). A a condition of effectiveness. agreements for total financing of US$13.5 million from other donors. satisfactory to IDA. would have been sianed (para. 6.2(e)). 4.16. Incremental Recurrent Costs. The proposed IDA Credit would finance about 20* of the recurring costs of the PRAF food coupon programs and 64% of the MOH incremental recurrent expenditures for basic drugs and salaries on a declining basis as indicated in the proposed schedule of withdrawals of the proceeds of the Credit (Annex 3). During the first year of project implementation, incremental recurrent expenditures of the MOH, including those expenditures financed by IDA, would represent 4.4% of the MOH total budget (estimated at US$67.6 million equivalent in 1992); in the second year, 1.2% of the estimated MOH budget; and in the last year of project implementation, less than 1 of the estimated MOH budget. The proposed increment in MOH recurrent expenditures should not pose a problem because the GOH plans to increase the share of MOH budget in Central Government expenditures from 6.6% in 1992 to 8.0% in 1993, which would suffice for the incremental recurrent expenditures generated by the project. Furthermore, the incremental recurrent expenditures generated by the project would contribute to the increase in the share of non- salary recurrent expenditures, particularly of drugs, from 17% to over 20% of MOH recurrent expenditures, and redress the balance between preventive and curative health care. This shift in resource allocation is essential to supply urgently needed drug supplies to meet the minimum requirement of the PHC network. The partial financing of PRAF food coupons is justified because: (i) IDA's participation would promote institution and policy improvements in the sector; (ii) Honduras' budget resources are scarce; and (iii) the program clearly has a productive purpose as it would help restore the productive labor resources of Honduras by reducing malnutrition. The PRAF incremental recurrent expenditures for food coupons would increase during the first year of project implementation by 24%, followed by a 17% increase in the second year and a 12.5% increase in the third year of project implementation. GOH financing would follow the schedule in Table 4.3 below:  41 Table 4.3: GOH FINANCING OF INCREMBNTAL RECURRENT COSTS (US$ million) 199 1294 199 TOTAL PRAF Food Coupons 1.14 2.64 3.72 7.50 MOH Basic DrugsW -.- 0.59 1.79 2.38 MOH Salaries & Maintenance 0.35 1.00 1.35 TOTAL 1.14 3.58 6.51 11.23 Incremental recurrent expenditurs, including USS2.4 million in foreign exchange for the procurement of basic drugs. During negotiations. agreement was reached that the Borrower would make the following incremental allocations in its annual budgets: {i) US$2.0 million in 1993, US$2.5 million in 1994. and US$3.0 million in 1995 for PPAF food coupons: (ii) for MOH basic drugs. US$0.59 million in 1994 and US$1.79 million in 1995 for MOH basic drugs: and {iii) US$0.35 million in 1994. and US$1.00 million in 1995 for MOR salaries and maintenance (para. 6.1(m)). 4.17. Although GOH participation in financing the PRAF food coupon incremental recurrent expenditures would rise from US$2.0 million in the first year to US$3.0 million in the third year, excluding USAID funds, the sustainability of the program over the longer-term would depend, to a large extent, on continued donor financing. The IDB, USAID and the WFP were approached and expressed interest in principle in providing assistance to the PRAF food coupon programs for 1996 and beyond. Potential for longer-term financing commitments would include: (i) US$30.0 million from the IDB on soft loan terms, scheduled for IDB's 1994-1998 lending programs; (ii) US$10.0 million equivalent in monetized food aid from the WFP as a follow-on grant to its current assistance to PRAF; and (iii) a larger share of monetized food aid from USAID after 1995, the amount of which would be based on PRAF's food coupon program performance under the project. The GOH expects the PRAF's food coupon programs to be sustained for as long as there is need for nutrition assistance in Honduras. Program design would be modified based on the GOH long-term nutrition policy that would be formulated under the project. F. Procurement 4.18. A recent assessment by IDA of Honduras' procurement procedures and regulations indicates that they are not fully compatible with Bank Group procurement guidelines and policy. To resolve conflicts between local legislation and IDA's procurement guidelines, the following procurement provisions would be included in the legal documents: (a) For works and goods to be orocured under Local Competitive Bidding (LCB) procedures: (i) contracts should be awarded to the lowest evaluated bid; (ii) foreign firms should be allowed to bid without prior registration and should not be required to have a local agent, or associate themselves with local firms; (iii) foreign firms should not be required to certify that, in their country of origin, Honduran firms are allowed to participate under equal terms for contracting; (iv) in calculating the lowest evaluated bid, there should be no requirement to take into consideration the financial cost of foreign expenditures; (v) there should be no preferences to award contracts to Honduran firms other than that accorded to members of the Central American Common  42 Market (Mercado Comun Centroamericano - CACM) (para. 4.21), and (vi) no slicing of contract amounts will be permitted for the sole purpose of reducing contract price amounts; (b) For Consultants' services: (i) foreign consultants shall be allowed to participate freely in the selection process even if local consultants shall be available for the concerned services, and (ii) no registration with national associations shall be imposed on foreign consultants employed by foreign contractors or consultants and no mandatory association with local firms shall be required; and, In addition, to safeguard propriety in contracting and facilitate procurement procedures, standard bidding documents, satisfactory to IDA, would be used during project implementation for all methods of procurement. 4.19. The procurement plan for the project is shown in Table 4.4 below: Table 4.4: METHODS OF PROCUREMENT (USS MILLION) PROCUREMENT METHOD CATEGORY ICB T LCB | OTHER NIF TOTAL Equipment and Vehicles 0.9 2.0 0.5Y 3.4 (0.9) (2.0) (0.5) (3.4) Basic Drugs 4. 7F 2.3 7.0 (4.7) (4.7) Food Coupons 6. 0' 24.0 30.0 (6.0) (6.0) Civil Works 1.6 2.8f 1.0 5.4 (1.6) (2.8) (4.4) Consultants 4. 6' 0.5 5.1 (4.6) (4.6) Salaries 1. 92 1.4 3.3 (1.9) (1.9) TOTAL 0.9 3.6 20.5 29.2 54.2 (0.9) (3.6) (20.5 (25. 0) Notes: Figures in parentheses are the amounts estimcted to be financed by IDA. NIP - Not IDA Financed. Shopping. Procured from UNICEF. f' Not subject to procurement. F Consultants, training and other service contracts procured under procedures acceptable to DA. 4.20. Civil Works for rehabilitation and construction of health facilities and water supply and sanitation systems, totalling US$5.4 million, would be procured under the special procedures instituted for the FHIS and agreed with IDA. The average contract amount is estimated at US$20,000, with the largest mingle subproject costing less than US$100,000, and procurement by international competitive bidding (ICB) is not expected. The special procurement procedures instituted for the FHIS are as follows: (i) for civil works contracts valued below US$50,000, up to an aggregate amount of USS2.0  43 million, local shopping requiring at least three quotations would apply; (ii) for some project components in remote locations, direct contracting would be applied under exceptional circumstances, consistent with para. 3.5(f) of the IDA Procurement Guidelines; direct contracting would also apply in cases where only one offer would be available, and to ensure fair pricing, the system of regional standard unit prices developed by the FHIS and updated periodically, would be used as basis for direct price negotiations with the contractor; this system of contracting would apply for contracts not exceeding US$35,000, up to an aggregate amount of US$0.87 million; and (iii) for civil works contracts valued at between US$50,000 and US$100,000, local competitive bidding (LCB) would apply. 4.21. Goods: Vehicles would be procured in packages valued not less than US$100,000 through ICB. Health-related equipment would be grouped, to the extent possible, in bid packages valued at US$100,000 or more, and procured also through ICB. Packages of similar equipment valued between US$25,000 and US$100,000, up to an aggregate amount of US$2.0 million, would be procured through LCB procedures acceptable to IDA. Contracts for miscellaneous equipment items valued less than US$25,000 would be awarded on the basis of comparison of price quotations solicited from at least three suppliers in an aggregate not to exceed US$0.5 million. For purposes of bid evaluation under ICB, manufacturers from the CACM, including Honduras, may be granted a margin of preference in accordance with IDA guidelines. 4.22. Basic Druas financed by IDA would be separated from other drug procurement under the project and would be procured from UNICEF's stock of essential drugs held at the UNICEF Procurement and Assembly Center (UNICAP) warehouse in Copenhagen. This procurement procedure is justified because Honduras does not have, at present, the capacity to package drugs for local distribution and this deficiency curtails the country's access to economies accruing from bulk purchases of generic drugs. Basic drugs not financed by IDA would be procured by the MOH. Technical assistance would be provided under the project to improve MOH's procurement methods. During the first year of project implementation, an assessment would be made regarding the desirability and legal feasibility of procuring all drugs consumed by the MOH from UNICEF. Technical assistance, staff training, and improved computer capabilities would be provided under the project to the MOH, to help strengthen its procurement capacity (para. 4.7(c)). Special efforts would be made under the project to train the MOH in: (i) grouping drugs in homogeneous bidding packages; (ii) scheduling procurement and delivery dates in a timely manner to meet consumption requirements while minimizing length of storage; and (iii) improving the coordination between the MOH, the MOF, and the CBH by establishing clearly defined schedules of procurement for basic drugs. 4.23. Food coupons, expected to total US$30.0 million, would not be subject to special procurement regulations. Each beneficiary would receive a coupon of about US$3.70 equivalent per month and use it to purchase food in participating private or public stores of their choice. No food in bulk would be purchased or distributed by the GOH under the project. Guarantees that food coupons would only be used by the beneficiaries to purchase food would not be requested under the project. This is not necessary (and would be virtually impossible to monitor) because experience during the pilot program has shown that beneficiaries use about 83t of the coupons' value to purchase  44 food.LY The balance is used for purchasing basic items essential to poor families such as school supplies, shoes and medicines. Coupon use would be monitored during project implementation through interviews with merchants in the project area. Experience during the pilot program has shown that, to a large extent, the beneficiaries use the coupons to purchase food from local retail stores. 4.24. Consultants would be selected by the Borrower in accordance with IDA guidelines for the use of consultants, up to an aggregate amount of US$4.6 million. Taxes paid by foreign consultants on the foreign currency portion of their contracts would be borne or refunded by the Borrower. IDA would review terms of references, letter of invitation, proposal evaluation and contracts for all consultant assignments. Standard contract documents would be developed for the hiring of consultants. The total amount of contracts for consultants' services under the project is estimated at US$5.1 million. 4.25. Salaries and maintenance expenditures, expected to total US$3.3 million, would not be subject to special procurement regulations. 4.26. Review by IDA. IDA would review procurement documentation for: (i) all contracts subject to ICB; (ii) the purchase agreement with UNICEF for the supply of drugs; (iii) the first two LCB contracts for goods and works respectively, regardless of their amount; and (iv) all consultants' contracts. The proposed prior review arrangements are expected to cover about 50% of goods and works contracts financed by IDA, which is considered acceptable for this type of project and given the safeguard provided by the auditing arrangements (paras. 4.32-4.35). All other contract for goods and works would be subject to ex-post review by IDA during field supervision, on a random basis. G. Supervision and Reporting 4.27. Technical and financial reporting under the project would be carried out by the PRAF and the MOH under the coordination of the SCES based on project performance indicators satisfactory to IDA (Annex 6). The SCES would hold monthly meetings with PRAF and the MOH for purposes of updating project implementation performance indicators. Duriny negotiations, agreement was reached that SCES would: (i) coordinate the imolementation of the vroiect. and (ii) hold monthly meetings with PRAF and the MOH to update Droiect verformance indicators (para. 6.1 (n)). Agreement was also reached that the SCES would submit to IDA. no later than March 31 and September 30 of each year: (i) a report concerninc the vrocress in the imlementation of the pro;ect in accordance with the yerformance indicators satisfactorx to IDA; ancd {ii) a financial report which shall reflect: [a] for the semester precedincj the date of presentation of the report, a comparison between funds committed and funds used in carzvinca out the prolect. and the funds used on recurrent costs under the proiect; and lb) a financina plan. satisfactozv to IDA, to be applied to the semester following the date of presentation of the report. (para. 6.1(o)). 23' See UNO y UNO Consultores. "Las que Trabajan Mas Para Ganar Menos: Las Mujeres y la Crisis en los Noventa". Tegucigalpa: UNO, August 1991.  45 4.28. The proposed project would require about 25 staffweeks of supervision per year. The supervision team would be a combination of IDA staff and consultants with experience in the implementation of nutrition and health projects in Latin America. Their main areas of expertise would be project management, nutrition, PHC services, engineering, and finance. In addition, the annual project implementation reviews, which would rely on a similar team of experts, would require approximately 5 staffweeks. H. Disbursements 4.29. The proposed IDA Credit would be disbursed over a three-year period. Annex 3 presents the allocation of loan proceeds and estimated schedule of disbursements. The expected disbursement profile for the proposed project (Annex 3) is considerably faster than the average profile for social sector investment projects financed by the Bank and IDA in the Latin America and the Caribbean Region. Nevertheless, the proposed disbursement schedule is considered justified in view of: (i) implementation of the health services and environment health components would benefit from thorough preparation and would be partly assisted by the FHIS, which has a track record of fast disbursements; (ii) implementation of the food coupon program can be expected to be on schedule; and (iii) implementation of studies and technical assistance would be closely monitored by IDA. The project completion date would be September 30, 1996 and the closing date would be June 30, 1997. 4.30. Disbursements would be made against the following categories of expenditures: (a) PRAF Food Coupons: 34% up to an aggregate amount of US$3.0 million equivalent; 20% up to an aggregate amount of US$5.0 million equivalent; and 9% thereafter; (b) Basic Drugs: 100% up to an aggregate amount of US$2.0 million equivalent; 75% up to an aggregate amount of US$3.6 million equivalent; and 30% thereafter; (c) Civil Works: 100% of eligible expenditures; (d) Eauipment and Vehicles: 100% of eligible expenditures; (e) Consultants' Services for technical assistance to PRAF, MOH, and SCES and for training: 100% of eligible expenditures; (f) Salaries of the MOH: 100% of local expenses up to an aggregate amount of US$0.7 million equivalent; 75% of local expenses up to an aggregate amount of US$1.3 million equivalent; and 30t of local expenses thereafter. Disbursement would not be made against local maintenance expenditures except for preventive maintenance for vehicles during the warranty period. As indicated in the schedule of withdrawals of the proceeds of the Credit (Annex 3), disbursement categories would be subdivided into three sets, to differentiate the expenditures incurred by the each of the three project executing agencies. I. Documentation of Expenditures 4.31. Withdrawal applications for goods and services with a contract value of US$20,000 or more would be supported by full documentation. Contracts of less than US$20,000 and disbursements against expenses not undertaken by contract, including food coupons and salaries, would be made on the basis of Statements of Expenditure (SOEs), for which supporting documents would be maintained by the PRAF and the MOH and would be made available for IDA review. A Special Account of US$2.0 million would be opened in the CBH under the proposed project and CBH staff assigned to make payments from the Special Account would do so promptly, after confirming the accuracy of invoices and SOEs supporting the withdrawal claim. Documentation forwarded to IDA for disbursement  46 (including SOEs, invoices, and supporting documentation) would cover a number of subcomponents whose aggregate sum would be at least US$0.1 million. J. Accounts and Audits 4.32. The financial accounts of PRAF have been closely verified by the CBH. In addition, PRAF was audited by private external auditors for the period ending June 30, 1991. A management audit was also undertaken by USAID and its recommendations have been implemented (para. 3.2). 4.33. Under the proposed project, PRAF would be audited by private independent external auditors, acceptable to IDA, who would undertake annual audits of PRAF. PRAF's first annual audits would cover the period July 1, 1991 to December 31, 1992, with the audit to be completed no later than March 31, 1993. No later than six months after the end of each fiscal year, the Borrower would submit an audit report on the Special Account and would cause PRAF to submit to IDA certified copies of audit reports on: (i) balance sheets, income statements, and auditor's opinion of financial statements; (ii) SOEs; and (iii) an analysis of whether internal controls in place are adequate to minimize the possibility of misuse of food coupons' resources or other improprieties. 4.34. In addition, to ensure full transparency of PRAF's operations under the project, the auditors would undertake special quarterly audits of PRAF's operations on the basis of acceptable accounting norms and procedures. This type of auditing, which has been successfully used under the FHIS-I and FHIS- II projects, combines financial auditing with physical inspections of coupon distribution operations in the field. The auditors would examine a sample of PRAF's food coupon distribution operations and ascertain: (i) whether the conditionalities agreed with IDA regarding eligibility criteria, number of coupons per beneficiary, and frequency of coupon distribution are being complied with; (ii) would reconcile the physical progress of coupon distribution with the number of coupons issued and financial expenses incurred; and (iii) would ascertain the adequacy of PRAF's overhead covering the food coupon program administration. Quarterly reports would focus on operations where errors have been detected and would provide an opinion on whether all other operations examined were carried out in accordance with PRAF's Operational Manual approved by IDA. Quarterly reports would be sent to IDA, no later than two months after each quarter, and an annual summary would be send to IDA, no later than six months after the end of each fiscal year. During negotiations, acareement was reached that PRAF would contract vrivate. independent external auditors. acceDtable to IDA. to carry out: {i) the audit of PRAF operations from July 1. 1991 throuah December 31, 1992: (ii) subseauent annual audits of PRAF operations. to be submitted no later than six months after the end of each fiscal year: and (iii) sDecial auarterlv audits of PRAF operations. no later than three months after the end of each auarter (para. 6.1(p)). 4.35. The Borrower, through MOH, would contract private, external auditors, satisfactory to IDA, to perform annual audits of the records, accounts and financial statements of the project, including those for the Special Account, for each fiscal year. Certified copies of audit reports would be sent to IDA, as soon as available, but in any case no later than six month after the end of each fiscal year. The MOH would also furnish IDA with other information  47 concerning records, accounts, and financial statements of the project, as IDA shall request from time to time. The terms of reference for these auditing contracts would require prior approval by IDA. Durina neaotiations, aareement was reached that the MOH would contract private, Independent external auditors, acceptable to IDA. to carry out annual audits of the records and accounts of the pro-ect, including those for the Special Account, and would present said audit report to IDA, no later than six months after the end of each fiscal year (para. 6.1(q)). In addition, for the civil works under the project, which would be administered by the FHIS (para. 4.12(b)), quarterly operational audit procedures, established for the FHIS, would apply. K. Annual Proiect Imylementation Reviews 4.36. The Government and IDA would conduct annual project implementation reviews in accordance with the terms of reference detailed in Annex 7. These reviews would be coordinated by the SCES and would take place during the second week of December of each year, starting no later than December 10, 1993. The focus of the annual review would be on the progress in the execution of the project, the achievements of the project objectives, and on compliance with the GOH's nutrition and health policies. The annual reviews would cover all four components of the project, i.e. for: (i) nutrition assistance; (ii) health services; (iii) environmental health; and (iv) monitoring, evaluation, studies and auditing. The progress of each project component would be assessed based on a set of performance and impact project indicators, satisfactory to IDA (Annex 7). The results of these annual reviews would be discussed with IDA and, on the basis of this, the SCES would coordinate the preparation of an action plan satisfactory to IDA, for the following project year, incorporating, as appropriate, remedial actions recommended by IDA during the annual review to ensure the efficient execution of the project. The SCES would present the action plan to IDA no later than January 31 of each year. The plan would be implemented by the PRAF, MOH, and SCES in a manner satisfactory to IDA according to the timetable specifying in the plan. During negotiations, aareement was reached that the Borrower would: (I) undertake annual groiect implementation reviews no later than December 10 of each year in collaboration with IDA} (ii) Dregare an action glan. acceptable to IDA, by January 31 following each annual review; and (iii) thereafter implement the action olan in accordance with the timetable included in the plan. Should this action plan not be implemented satisfactorily, IDA may refrain from further disbursements (para. 6.1(r)). 4.37. Proiect Sustainability. Health and environmental health services provided under the project would be sustained over time through: (i) collection of fees by local water boards (JUNTAS) to ensure operations and maintenance of water and sanitation services, and setting up of user charges by local health units to cover part of their operating costs; (ii) budgetary provisions to ensure appropriate funding for recurrent primary health care expenditures, to be reviewed in annual project reviews; and (iiL) improvements in procurement of essential drugs to permit meeting minimum requirements at lower cost. Sustainability of nutrition assistance would be ensured through: (i) increased participation of the Government in program funding over the project life; (ii) clear targeting and exit criteria that would limit the number of program beneficiaries; (iii) mobilization of additional resources for the PRAF food coupon program from the donor community to sustain the program beyond the life of the project; and (iv) implementation of a long-term nutrition assistance policy.  48 V. BENEFITS AND RISKS A. Benefits 5.1. The main benefits of the project would be to help: (i) prevent a deterioration in the nutritional status of the population most at risk as a result of the economic adjustment program, through the distribution of food coupons; (ii) support longer-term nutrition and health sector policy formulation and implementation; (iii) reduce maternal, child and infant mortality and morbidity rates by improving access to basic health services and safe water supplies and sanitation; (iv) increase the coverage and efficiency of primary education through increased enrollment and lower repetition and dropout rates; (v) improve poor children's capacity to learn through better nutrition and greater school attendance; (vi) strengthen the institutional capacity of the MOH, SCES and PRAF; and (vii) curtail the spread of AIDS. 5.2. Environmental Effects. The project would have a positive impact on the environment by increasing the supply of potable water and basic sanitation albeit on a relatively small scale, and would have an environmental rating of B. Environmental protection would be addressed by the project through: (i) protection of water sources serving the water supply systems built; (ii) use of standard safety procedures in all project works involving rehabilitation, installation, and operation of medical equipment; and (iii) safe handling of hazardous medical wastes and materials (such as disposable needles or blood- contaminated products) ensured through training and supervision of health staff. 5.3. Support for Women. The beneficiaries of the proposed project would be pregnant and nursing women in low-income households at risk of malnutrition and mothers of children attending grades one to three of primary school in the project area. In total, an estimated 120,000 women would benefit directly from the project. The types of benefits that would be expected from the project include: (i) income transfer in the form of food coupons that would increase women's resources to purchase food and better feed themselves and their family; (ii) improved nutrition, which would contribute to reduce infant and child morbidity and mortality; and (iii) increased access to preventive health services, especially nutrition and family planning education, comprehensive prenatal and postnatal care, scheduled screening and treatment for risk factors, and proper guidance as to the benefits of breast-feeding. As a result of the project, women would improve their chances to avoid high- risk pregnancies, gain adequate weight during pregnancy, have safer deliveries at hospitals or at home assisted by trained midwives, thus minimizing the chance of having low-weight babies with poor survival prospects. Ultimately, project impact would be reflected in lower maternal mortality rates. These expected benefits accruing to women through the implementation of the proposed project would go a long way in improving women's welfare status and the conditions for their participation in the Honduran development process. B. Risks 5.4. The main risks associated with the project are: (i) management constraints affecting PRAF's operational capacity to administer expanded food coupon programs, and to adjust them to the Government's longer-term nutrition  49 policy; the project would reduce this risk through institutional strengthening of PRAF; (ii) delays in improving the quality of basic health services in the project area due to institutional constraints faced by the MOH; the project would reduce or eliminate this risk through institutional strengthening of the MOH, annual reviews of project implementation, and improved health and nutrition expenditure controls and budget planning at the MOH. Risks (i) and (ii) would also be addressed through close IDA supervision, especially in the food coupon program, which is a new area for the Bank group; and (iii) uncertain sustainability of the PRAF food coupon programs beyond project support; this risk would be reduced by: (a) assisting the GOH in securing donor participation for the formulation and implementation of a long-term national nutrition assistance strategy; and (b) attracting additional donor assistance for further support of the PRAF food coupon programs. VI. AGREEMENTS REACHED AND RECOMMBNDATION A. Agreements Reached 6.1. During negotiations, agreement was reached: (a) that the Borrower, through the MOH, would: (i) formulate a long- term nutrition policy and present a draft policy statement to IDA by November 15, 1993; (ii) discuss that policy with IDA during the first annual review of project implementation, no later than December 10, 1993; (iii) prepare an action plan, satisfactory to IDA, to implement the policy by January 31, 1994; (iv) commence the implementation of the action plan immediately thereafter; and (v) complete the implementation of the action plan, in a manner satisfactory to IDA, by December 31, 1995 (para. 4.4(a)); (b) (i) on PRAF's targeting criteria and expansion plan for the BMI and BMJF food coupon programs, satisfactory to IDA and that these criteria would be incorporated in PRAF's Operational Manual; and (ii) that PRAF would only modify its Operational Manual with prior IDA consultation and agreement (para. 4.4(b)); (c) On the criteria for: (i) Selection of health centers to be rehabilitated and for the location of health centers to be constructed (para. 4.6(a)); (ii) Allocation of MOH's plan for incremental staffing in the BM1 project area (para. 4.6(b)); and (iii) Selecting localities for the construction of water supply and sanitation systems (para. 4.8); (d) that the MOH Project Unit would be headed by a qualified professional and assisted by qualified staff, satisfactory to IDA (para. 4.6(b));  50 (e) that the Borrower would present, no later than December 10 of each year, starting in December 1993, a schedule for the procurement of drugs under the project, satisfactory to IDA (para. 4.6(c)); (f) that the MOH would take all necessary steps to set tariffs for the water supply and sanitation services to be charged by each JUNTA to the users of these services, at levels sufficient to cover the operation and maintenance costs of such systems (para. 4.8); (g) that: (i) prior to the initiation of the works of any water supply and sanitation subprojects: (a) the MOH would enter into a contract with the JUNTA corresponding to the village where such subproject will be located; (b) each contract shall be on terms and conditions satisfactory to IDA, including, inter alia, those set forth in the Water and Sanitation Operational Manual; and (c) the MOH shall take all necessary steps for the expeditious granting of legal status to each JUNTA; and (ii) the Water and Sanitation Operational Manual would not be amended without prior IDA agreement (para. 4.8); (h) that the MOH would supervise the operation and finances of the JUNTAs and test the quality of the water, at least once a year, no later than March 31 of each year and cause or take remedial action, if necessary, starting in March 1994 (para. 4.8); (i) that MOH would: (i) carry out a study of cost-recovery of health services by no later than December 10, 1993; (ii) discuss the recommendations of the study with IDA during the first project implementation review; and (iii) prepare an action plan, satisfactory to IDA, to implement these recommendations by January 31, 1994; agreement was also reached that the MOH would commence implementation immediately thereafter, for completion by December 10, 1995 (para. 4.9(c)); (j) that the SCES would contract, by January 31, 1993, a financial analyst and the necessary technical staff to strengthen its institutional capacity (para. 4.10); (k) that PRAF would carry out the provision of food supplements, through food coupons, with due diligence and efficiency and in conformity with appropriate administrative, public health, technical, managerial and financial practices, and in accordance with the PRAF Operational Manual, satisfactory to IDA (para. 4.12(a)); (1) that, in the event the Borrower is not able to obtain additional financing in the amount of US$3.5 million by September 30, 1993, the Borrower will provide in its 1995 annual budget, in addition to the corresponding amounts set forth in para. 4.16, an amount in Lempiras equivalent to US$3.5 million, as incremental counterpart funds for the PRAF food coupon component of the project (para. 4.15);  51 (m) that the Borrower would make the following incremental allocations in its annual budgets: (i) US$2.0 million in 1993, US$2.5 million in 1994, and US$3.0 million in 1995 for PRAF food coupons; (ii) for NOH basic drugs, US$0.59 million in 1994 and US$1.79 million in 1995 for MDH basic drugs; and (iii) US$0.35 million in 1994, and US$1.00 million in 1995 for MOH salaries and maintenance (para. 4.16); (n) that SCES would: (i) coordinate the implementation of the project, and (ii) hold monthly meetings with PRAF and the MOH to update project performance indicators (para. 4.27); (o) that the SCBS would submit to IDA, no later than March 31 and September 30 of each year: (i) a report concerning the progress in the implementation of the project in accordance with the performance indicators satisfactory to IDA; and (ii) a financial report which shall reflect: [a] for the semester preceding the date of presentation of the report, a comparison between funds committed and funds used in carrying out the project, and the funds used on recurrent costs under the project; and [b] a financing plan, satisfactory to IDA, to be applied to the semester following the date of presentation of the report. The outline for the reports and plan would be agreed upon during negotiations. (para. 4.27); (p) that PRAF would contract private, independent external auditors, acceptable to IDA, to carry out: (i) the audit of PRAF operations from July 1, 1991 through December 31, 1992; (ii) subsequent annual audits of PRAF operations, to be submitted no later than six months after the end of each fiscal year; and (iii) special quarterly audits of PRAP operations, no later than three months after the end of each quarter (para. 4.34); (q) that the MOH would contract private, independent external auditors, acceptable to IDA, to carry out annual audits of the records and accounts of the project, including those for the Special Account, and would present said audit report to IDA, no later than six months after the end of the fiscal year (para. 4.35); and (r) that the Borrower would: (i) undertake annual project implementation reviews no later than December 10 of each year in collaboration with IDA; (ii) prepare an action plan, acceptable to IDA, by January 31 following each annual review; and (iii) thereafter implement the action plan in accordance with the timetable included in the plan. Should this action plan not be implemented satisfactorily, IDA may refrain from further disbursements (para. 4.36). 6.2. The conditions of effectiveness would be that: (a) a finalized Operational Manual, satisfactory to IDA, would have been approved and adopted by PRAF (para. 4.4(b));  52 (b) the Water Supply and Sanitation Operational Manual, satisfactory to IDA, would have been approved and adopted by the MOH (para. 4.8); (c) a Subsidiary Agreement for making the funds available by the Borrower to PRAF, satisfactory to IDA, would have been entered into and authorized (para. 4.11); (d) the agreement between the MOH and PHIS for administration of civil works under the project would have been signed (para. 4.12(b)); and (e) agreements for total financing of US$13.5 million from other donors, satisfactory to IDA, would have been signed (para. 4.15). 6.3. The conditions for disbursement would be that: (a) for the AIDS Control Program, the Borrower would provide IDA with a satisfactory AIDS Control Program for the 1993-1995 period and a financing plan, satisfactory to IDA, for the implementation of such program (para. 4.6(d)); and (b) for the drugs component, a purchasing agreement between MOH and UNICEF for the procurement of drugs financed by IDA, satisfactory to IDA would have been signed (para. 4.12(b)). B. Recommendati 6.4. Subject to the above assurances and conditions, the proposed project would constitute a suitable basis for an IDA Credit of SDR17.8 million (US$25.0 million equivalent) to the Republic of Honduras on standard IDA terms with 40 years maturity, including 10 years of grace.  - 53 - HONqDURAS NUTRITION AND HEALTH PROJECT LIST OF ANNEXES 1. Project Costs 2. Financing Plan 3. Disbursement Schedule 4. Project Area 5. Regional Organization of the Ministry of Health 6. Project Performance Indicators 7. Annual Project Implementation Reviews 8. Impact of the PRAF Food Coupon Programs 9. Improvements in the PRAF Food Coupon Programs to be Implemented Under the Project 10. PRAF Food Coupon Programs: Targeting Criteria and Expansion Plan 11. PRAF Organizational Chart 12. Nutrition Education 13. Primary Health Care Centers 14. Human Resources Development of the MOH 15. Basic Drugs for the Primary Health Care Network 16. Environmental Health 17. Terms of Reference for Studies 18. Nutrition and Health Sector Policy Letter 19. Draft Outline of PRAF Operational Manual 20. Draft Outline of Water Supply and Sanitation Operational Manual 21. Selected Documents and Data Available in the Project File  - 54 - [This page left blank)  -55- Annex PROJECT COSTS HONDURAS NUTRITION AND HEALTH PROJECT TOTAL PROJECT COST ESTIMATES BY COMPONENT (US$ MILLION) FOREIGN EXCHANGE | OF BASE AMOUNT AMOUN COSTS I. NUTRITION ASSISTANCE A. NUTRITION POLICY 0.10 90.0 0.09 0.2 B. PRAF FOOD COUPONS 30.00 30.0 9.00 59.6 C. PRAP TECHNICAL ASSISTANCE 0.96 64.0 0.61 1.9 D. NUTRITION EDUCATION 0.73 39.7 0.29 1.5 E. NUTRITION SCHOOL CENSUS 0.24 10.0 0.02 0.5 II. HEALTH SERVICES A. PRIMARY HEALTH CARE CENTERS 3.05 51.9 1.58 6.1 B. HUMAN RESOURCES DEVELOPMENT 2.73 1.8 0.05 5.4 C. BASIC DRUGS 6.46 90.3 5.83 12.8 D. AIDS PROGRAM 1.85 71.2 1.32 3.7 III. ENVIRONMENTAL HEALTH 3.18 34.5 1.10 6.3 IV. MONITORING, EVALUATION, 1.07 56.2 0.60 2.1 AUDITING TOTAL BASELINE COSTS 50.37 40.7 20.5 100.00 PHYSICAL CONTINGENCIES 0.57 44.4 0.25 1.10 PRICE CONTINGENCIES 3.29 34.4 1.13 6.50 TOTAL PROJECT COST 54.23 40.3 21.87 107.70  - 56 - Annex 1 PROJECT COSTS PROJECT COSTS BY COMPONENT BY YEAR (US$ MILLION) [ |7 1993 1994 1995 TOTAL I. NUTRITION ASSISTANCE A. NUTRITION POLICY 0.10 0.00 0.00 0.10 B. PRAF FOOD COUPONS 8.90 10.10 11.00 30.00 C. PRAF TECHNICAL ASSISTANCE 0.68 0.17 0.11 0.95 D. NUTRITION EDUCATION 0.32 0.23 0.18 0.73 E. NUTRITION SCHOOL CENSUS 0.08 0.08 0.08 0.24 II. HEALTH SERVICES A. PRIMARY HEALTH CARE CENTERS 0.88 1.27 0.90 3.05 B. HUMAN RESOURCES DEVELOPMENT 0.79 0.90 1.04 2.73 C. BASIC DRUGS 2.10 2.13 2.23 6.46 D. AIDS PROGRAM 0.08 0.89 0.88 1.85 III. ENVIRONMENTAL HEALTH 1.17 1.09 0.91 3.17 IV. MONITORING, EVALUATION, 0.33 0.38 0.36 1.07 AUDITING * TOTAL BASELINE COSTS 15.43 17.25 17.69 50.37 PHYSICAL CONTINGENCIES 0.18 0.22 0.17 0.57 PRICE CONTINGENCIES 0.63 1.18 1.48 3.29 TOTAL PROJECT COST 16.24 18.64 19.34 54.23  - 57 - FINANCING PLAN HONDURAS NUTRITION AND HEALTH PROJECT FINANCING PLAN (USS 000) || OF TOTAL FOREIGN EXCHANGE AMOUNT PROJECT l COST AMOUNT GOH 11.23 20.7 15.8 1.78 BENEFICIARIES 0.98 1.8 29.6 0.29 IDA 25.00 46.1 51.8 12.94 WFP 10.00 18.4 40.0 4.00 USAID 3.00 5.5 40.0 1.20 UNDP 0.33 0.6 57.6 0.19 UNICEF 0.11 0.2 0.0 0.00 PAHO 0.08 0.1 87.5 0.07 FINANCING GAP 3.50 6.5 40.0 1.40 TOTAL 54.23 100.0 40.3 21.871 FINANCING PLAN BY COMPONENT (US$ 000) ENVIRON- MONITORING, NUTRITION HEALTH MENTAL EVALUATION, TOTAL ] SERVICES HEALTH AUDITING GOH 7.59 3.64 0.00 0.00 11.23 BENEFICIARIES 0.00 0.15 0.83 0.00 0.98 IDA 7.80 12.79 3.17 1.24 25.00 WFP 10.00 0.00 0.00 0.00 10.00 USAID 3.00 0.00 0.00 0.00 3.00 UNDP 0.33 0.00 0.00 0.00 0.33 UNICEF 0.00 0.00 0.11 0.00 0.11 PAHO 0.00 0.08 0.00 0.00 0.08 FINANCING GAP 3.50 0.00 0.00 0.00 3.50 TOTAL 32.22 16.66 4.11 1.24 54.23  - 58Annex 2 FINANCING PLAN FINANCING PLAN BY YEAR (US$ 000) 1993 1994 1995 TOTAL GOH 2.02 3.43 5.78 11.23 BENEFICIARIES 0.31 0.33 0.34 0.98 IDA 9.66 9.11 6.22 25.00 WFP 2.90 4.60 2.50 10.00 USAID 1.00 1.00 1.00 3.00 UNDP" 0.27 0.06 0.00 0.33 UNICEF"' 0.00 0.11 0.00 0.11 PAHOl 0.08 0.00 0.00 0.08 FINANCING GAP 0.00 0.00 3.50 3.50 TOTAL 16.24 18.64 19.34 54.23 " Project financing by UNDP, UNICEF, and PAHO disbursed in 1992 are shown as 1993 disbursements  -59 - Annex 3 DISBURSEMENT SCHEDULE HONDURAS NUTRITION AND HEALTH PROJECT DISBURS29wNTS WITHDRAWALS OF THE PROCEEDS OF THE CREDIT AMOUNT OF THE CATEGORY LOAN ALLOCATED i OF EXPENDITURES (EXPRESSED IN TO BE FINANCED SDR EQUIVALENT) (1) Food 4,270,000 34% of local expenditures up to an Supplements aggregate amount of SDR2,130,000; 20% of local expenditures up to an aggregate amount of SDR3,550,000; and 9% of local expenditures thereafter (2) Medicines 3,050,000 100% up to an aggregate amount of SDR1,420,000; 75* up to an aggregate amount of SDR2,560,000; and 30% thereafter (3) Civil Works 2,840,000 100l (4) Equipment, tools, and Vehicles PRAF 200,000 100% MOH 1,500,000 100% SCES 30,000 100l (5) Consultants' Services!' PRAF 380,000 100l MOH 2,140,000 100% SCES 290,000 100% (6) Salaries 1,140,000 100% of local expenses up to an aggregate amount of SDR500,000; 75% of local expenses up to an aggregate amount of SDR930,000; and 30% of local expenses thereafter Unallocated 1,960,000 Total 17,800,000 ' Includes consultants' services for technical assistance, training, and studies.  - 60 - Annex 3 DISBURSEMENT SCHEDULE DISBURSEMENT SCHEDULE (US$ MILLION) IDA DISBURSED DISB. AS FISCAL SEMESTER DURING CUMULATIVE PERCENTAGE BALANCE OF YEAR ENDING SEMESTER AMOUNT OF TOTAL CREDIT 93 June 30, 1993 4.83" 4.83 19.3 20.17 Dec. 31, 1993 4.83 9.66 38.6 15.34 94 June 30, 1994 4.55 14.21 56.8 10.79 Dec. 31, 1994 4.55 18.76 75.0 6.24 1 95 June 30, 1995 3.12 21.88 87.5 3.12 96 Dec. 31, 1995 3.12 25.00 100.0 0.00 Includes the initial deposit of US$2.0 million to the Special Account.  - 61 - Annex 4 PROJECT AREA HONDURAS NUTRITION AND HEALTH PROJECT PROJECT AREA MALNUTRITION INDICATORS 1991, 1992 HEALTH DEPARTMENT UNDERWEIGHT STUNTING ESTIMATED BMJF=A REGION < 5 YRS 6-9 YRS POPULATION 1991 (i) 1991 (e) 1992 BMI=B 4 Choluteca 50.4 28.2 346,833 A 2 Comayagua 67.3 39.1 274,959 B 5 Copan 62.0 49.7 257,695 A,B 3 Cortez 45.8 25.9 770,858 A 1 El Paraiso 49.5 32.5 298,625 B 0 Fco Morazan 30.6 24.8 955,113 A,B 2 Intibuca 67.3 61.8 142,602 A 2 La Paz 67.3 51.7 121,086 B 5 Lempira 62.0 61.5 201,510 A 5 Ocotepeque 62.0 41.6 84,942 B 7 Olancho 42.5 31.6 327,761 B 3 Santa Barbara 45.8 47.7 318,614 A,B 4 Valle 50.4 28.6 147,320 A,B Sources: MOE, 1991 National Nutrition Census; MOH, 1991 National Epidemiological and Health Survey; SECPLAN, R. Hernandez Cruz, "Honduras: Population Projections 1988-2050", April 1992. it For children aged 0-4 years, malnutrition rate is based on weight for age, including light, moderate, and severe symptoms of malnutrition. Health Region rates are applied to specific departments. For children aged 6-9 years, attending the 1st grade, chronic malnutrition is measured as -2 standard deviations from the median height for age of the reference population.  - 62 - Annex 5 REGIONAL ORGANIZATION HONDURAS OF THE MOH NUTRITION AND HBALTH PROJECT REGIONAL ORGANIZATION OF THE MINISTRY OF HEALTH The organization of the MOH by Health Region does not exactly match the country's departmental division, since it takes into account epidemiological zones and accessibility. The approximate correspondence between the two sets of geographic divisions is as follows: HEALTH REGION DEPARTMENT NUMBER l________________ ____________________________I MMUNICIPALITIES 0 Francisco Morazan 3 of 35 Metropolitan 1 El Paraiso 22 of 22 Francisco Morazan 28 of 35 2 Comayagua 28 of 28 Intibuca 18 of 19 La Paz 16 of 22 3 Cortes 16 of 16 Santa Barbara 28 of 30 Yoro 9 of 12 4 Choluteca 21 of 21 Francisco Morazan 4 of 35 La Paz 6of 22 Valle 11 of 11 5 Copan 24 of 24 Intibuca 1 of 19 Lempira 28 of 28 l_______________ Ocotepeque 16 of 16 6 Atlantida 9 of 9 Colon 11 of 11 Islas de la Bahia 4 of 4 Olancho 1 of 24 l _______________ Yoro 3 of 12 7 Olancho 23 of 24 8 Gracias a Dios 2 of 2  - 63 - Annex 6 PROJECT PERFORMANCE HONDURAS INDICATORS NUTRITION AND HEALTH PROJECT PROJECT PERFORMANCE INDICATORS A. PROJECT IMPLEMENTATION TARGETS Activities Start Date End Date I Unit | 1993 1994 | 1995 | Total NUTRITION A8SISTANCE Draft Nutrition Policy 03101/93 12/10/93 | r _____ Nutrition Action Plan 12/15/93 01/31/94 Nutrition Policy Implementation 02101/94 12/31/95 Percent 50 100 100 FAP technical assistance 03/31/93 12/31/96 Percent 70 88 100 100 BMI beneficiaries No. 85300 108000 124200 317500 BMJF beneficiaries No. 123700 127400 131300 382400 Nutrition staff training 03/31193 12131/96 Trainees 1779 3565 5170 10604 Annual nutrition census Date 02/15193 02/15/94 02/16/96 HEALTH SERVICES Rehabilitation health centers 03131/93 12/31/96 Centers 32 49 49 130 Health centers built/equipped 03/31/93 12/31/95 Centers 0 15 15 30 Radio communication 03/31/93 12/31/95 Stations 10 1 5 15 40 Vehicles for supervision 03/31/93 06/30/93 Vehicles 21 21 Health staff training courses: 03/31/93 12/31/95 Courses Food coupon administration 7 4 11 New staff 8 3 3 14 Supervisory nurses a 3 9 Auxiliary nurses 10 4 2 16 Health promoters 1 1 Supervision of health centers 03/31/93 12/31/95 Visits 800 1000 1000 2800 Incremental staff hired: 03/31/93 03/31/95 No.staff Physicians 23 6 0 28 Nurses 43 0 10 53 Auxiliary nurses 88 30 50 168 Health promoters 40 0 0 40 Nursing instructors 6 0 0 6 Laboratory techniciens 5 0 0 5 MOH Project Unit 01/31/93 12/31/95 No.staff 8 8 8 8 Procurement of medicines: MOH/UNICEF agreement 03/31/93 12/31/95 GPO technical assistance 03131/93 12131/95 Annual procurement schedule Date 12/10/92 12/10/93 12/10/94 AIDS Program: Action plan 1993-1995 03/31/93 Financing plan 1993-1996 03/31/93 Implementation 03/31/93 12/31/95 Percent 30 75 100 100 Annual evaluation Date 12/10/93 12/10/93 12/10/96 Implementation cost recovery system 03101/94 12/31/95 Percent 50 100  - 64 - Annex 6 PROJECT PERFORMANCE INDICATORS Activities Start Date I End Date I Unit 1993 | 1994 | 1996 Total ENVIRONMENTAL HEALTH Water Supply Localities 43 41 61 145 JUNTAs established JUNTAS 43 41 61 145 Latrines built Latrines 3100 2800 4100 10000 MOH supervision Date 03/31/94 03/31/95 Medical waste manual 03/31/93 08/15/93 Staff training by department 09/16/93 12/31/95 Depts. 2 4 3 9 STUDIES FAP institutional evaluation 03/31/93 11/30/93 FAP food coupon evaluation 03/31/93 12/10/95 Percent 60 75 100 Cost recovery of health services 03/31/93 12/10/93 Reports 11/15/93 11/15/94 11/15/96 Operations research in public health 05/31/93 11/15/95 HIV transmission via breast milk 03/31193 12/10/95 Private sector generic drugs supply 03/31/93 08/31/93 B. PROJECT OUTCOME INDICATORS Key Impact Indicators Target Groups in the Project Area and Baseline and Time Countrywide Series NUTRMON, HEALTH & POPULATION Malnutrition prevalence (weight for age) Children under 5 1990 1993-1995 Stunting prevalence (height for age) School children aged 6-9 years Infant mortality per 1,000 live births Children under 1 year Children mortality per 1,000 live births Children under 5 Low birth weigh per 100,000 live births Newborns Maternal mortality per 100,000 live births Women Mortality due to diarrheal disease per 1,000 deaths Children under 5; children 5-12; total Percent births attended by health staff over total live births Total births Percent households with potable water Total households Percent households with latrines/sewerage Total households Contraceptive prevalence (all methods) Women aged 15-49 in union Total fertility rate Births per women PRIMARY EDUCATION Gross primary school enrollment Male and Female Children 1990 1993-1995 Net primary school enrollment Male and Female Children aged 6-12 Dropout rate All primary school students Repetition rate All primary school students AIDS Percent HIV positive test results Risk group. and Total population by 1990 1993-1995 Prevalence of sexually transmitted diseases sex, age, region Number reported AIDS cases per 100,000 population Total population by sex, age, region Distribution AIDS cases by transmission mode Total population by sex, age, region Total population by sex, age, region  - 65 - Annex 7 ANNUAL PROJECT HONDURAS IMPLEM8NTATION REVIEWS NUTRITION AND HRALTH PROJECT ANNUAL PROJECT IMPLEMENTATION REVIRWS Obiectives 1. The purposes of the annual project implementation reviews are to: (i) evaluate project performance during implementation; (ii) provide management with immediate feed-back on project achievements as well as on areas needing improvement; (iii) justify and orient eventual changes in project design; (iv) document the status of project execution thoroughly for the benefit of the Borrower and the financing agencies; and (v) assess compliance with the Borrower's nutrition and health policies. Upon completion of each review, the Borrower shall carry out or cause to carry out an action plan covering corrective measures satisfactory to the Association. General Agenda for Annual Project Imolementation Reviews 2. Each review would include: (i) a detailed analysis of the previous year's performance, attainment of targets, utilization of budgetary allocations, functioning of implementation arrangements, main implementation issues and proposals to overcome them; (ii) review and approval of the work plan, targets and budget for the following year; (iii) adjustments to project design and implementation schedule; (iv) progress in the FAP food coupon program evaluation study (which is part of the long-term nutrition policy (item 3(a) below)), and status of funding for the FAP beyond the life of the project; (v) procurement and credit disbursements; (vii) share of social sector expenditures in the central government budget; and (viii) interim evaluation of the AIDS control program. Special Tonics for the First Annual Project Imolementation Review 3. During the first annual project implementation review, analytical work and policy discussions would be focused on the following topics: (a) Lone-Term Nutrition Policy including: (i) discussion of a draft long-term nutrition policy, agreement on an action plan and financing plan for its implementation; and (ii) institutional analysis of FAP and recommendations for adjustments to FAP's food coupon programs that may emerge from such analysis; (b) Cost-Recovery for Health Services including: (i) discussion of the assessment of the existing cost recovery system; (ii) recommendations for system improvement; and (iii) action plan to implement improvements in the cost recovery system during the 1994-1995 period; (c) Cost-Recovery for Water Supplv and Sanitation Services including technical and financial performance of the JUNTAS in ensuring satisfactory operations and maintenance of systems built; (d) Review of Social Sector Expenditures including: (i) discussion of the analysis of social sector budget allocations and  - 66 - Annex 7 ANNUAL PROJECT IMPTLEMNTATION REVIEWS expenditures funded by the Japanese Grant Agreement dated Marc 14, 1991; and (ii) recommendations for adjustments in public expenditures and budget procedures, including social sector share of central government budget; (e) Amendment to the SIF Aareement for the administration of civil works given prospects of termination (or extension) of the life of the SIF in March 31, 1994; (f) Studies including: (i) performance of pilot radio communications stations and decision on possible expansion of radio communications network; (ii) agreement on measures to be taken regarding the supply of generic drugs by the private sector; (iii) evaluation of the results of operations research carried out by the Master Program in Public Health of the National Autonomous University of Honduras and agreement of the research project for the following year; and (iv) recommendations for improvements in the procurement of drugs by the MOH. Special Topics for the Second Annual Proiect Implementation Review 4. During the second project implementation review, analytical work and policy discussions would be focused on the following topics: (a) Nutrition including: (i) benefits accruing for the nutrition education program; (ii) progress in the implementation of the long-term nutrition policy and assessment of the inter- relationships between the FAP food coupons program and other forms of nutrition assistance; (b) Primary health care including: (i) progress in adopting an integrated primary health care model for service delivery; (ii) action plan for the implementation of the recommendations from the study on referral systems linking primary health care facilities and hospitals based on or resulting from the study on such systems carried out under Part D.1 of the Project; (c) Environmental Health including: (i) evaluation of the level of protection of water sources and the quality of the water serving the communities were water systems were built; (ii) introduction of adequate medical waste disposal procedures in primary health care facilities; (d) Social Sector Expenditures including a review of the adequacy of central government budgetary allocations for the social sectors; and, (e) Studies including an evaluation of the quality of the operations research carried out by the Master Program in Public Health of the National Autonomous University of Honduras and agreement of  - 67 - Annex 7 ANNUAL PROJECT IMPLBMBNTATION RBVIBWS the research project for the following year, under Part D.1 of the Project. Special Topics for the Third Annual Prolect Imolementation Review 5. The third Project implementation review would focus on the evaluation of the impacts of the project on nutrition and health status and on lessons learned from project implementation. In addition, agreements would be reached regarding the preparation of the project completion report by the Borrower. Specifically, the following topics would be discussed: (a) Nutrition including: (i) observed trends in child and maternal nutrition indicators in the project area and countrywide; (ii) coverage of nutrition programs in relation to the population at risk of malnutrition, by program and recommended adjustments to program size and targeting criteria; (iii) special report on beneficiaries that "graduate" from the FAP food coupons program and (iv) priority nutrition assistance needs, including the FAP food coupon program, for the 1996-1998 period; (b) Health including: (i) observed trends in child and maternal health indicators; (ii) quality of services delivered at primary health care centers; (iii) performance of referral systems; (iv) performance of plant and equipment maintenance; (v) performance of cost recovery system for health services; (vi) special report on the availability of basic drugs at PHC facilities nation- wide; and (vii) priority needs for public health services during the 1996-1998 period; (c) Environmental Health including: (i) status of operation and repair of systems build under the project and performance of cost recovery system; (ii) priority needs for water supply and sanitation services in rural areas for the 1996-1998 period; (d) Study of HIV transmission through breast milk carried out under Part A.1 of the Project, recommendations to ensure safety of milk banks, and action plan to implement these recommendations; (e) Proiect Comoletion Report: a work plan for the project completion report, to be prepared by the Borrower, would be discussed and agreed upon with IDA. Organization 6. Schedule. The annual reviews consist of a period of about one week during which project monitoring and evaluation data would be reviewed and special topics requiring management action would be addressed in detail. The annual review procedure consists of an initial period of approximately two weeks when specialists contracted by the Borrower collect data and review information assembled by the Borrower, focusing on technical, administrative, and financial aspects of the project. Field visits to the project areas would be part of this process. Following this fact-finding period, the review team would analyze the information collected, review progress against original  - 68 - Annex 7 ANNUAL PROJECT IMPLEMBNTATION REVIEWS targets, and prepare a brief report highlighting strengths and weaknesses and making recommendations for management action. The annual review team then joins the project management to discuss its findings and recommendations, and arrive at concrete agreements regarding targets to be reached and changes to be made in project management and implementation. The Borrower's annual review report would be presented at the annual review meetings, which would take place not later than December 10 of each year. The action plan for the following your would be presented by the Borrower to the Association by January 31 of each year, and implementation actions recommended in the plan would commence immediately thereafter, in accordance with the calendar approved in each action plan. 7. Review Team. The composition of the mid-term review team should include: (i) an engineer to review health and water supply and sanitation infrastructure; (ii) a nutritionist to review the food coupons program, the nutrition education program, and the implementation of the long-term integrated nutrition assistance program; (iii) a public health specialist to review progress in health indicators and quality of primary health care service delivery, including application of an integrated primary health care service model; (iv) a human resources specialist to review health staff training and supervision programs; (v) a management specialist, with experience in management information systems, financial analysis, and procurement, to review the administrative and financial aspects of the project; (vi) an economist with extensive experience in project impact analysis, to review the impact of- the project based on a sample survey and other data; and (vii) a statistician to assist in assembling and processing data. S. Sources of Data. The reviews would use data from administrative sources routinely collected by the MOH, FAP, and the Ministry of Education; vital statistics; national epidemiological and health surveys; national height/age census of first year primary students; living standard measurement surveys; and national multi-purpose household surveys. In addition, the reviews would use special nutrition and health studies conducted by public and/or private agencies, and a longitudinal study of a small sample of beneficiaries of the BMI and the BMJF food coupons program, to be financed under the project.  -69 - Annex 8 IMPACT OF THE PRAF PROGRAMS HONDURAS NUTRITION AND HEALTH PROJECT IMYACT OF THE PRAF FOOD COUPON PROGRAM A. On Healt Table 1. PERCENT CHANGE IN CONSULTATIONS FOR 23 HEALTH CENTERS PARTICIPATING IN THE BMI (1991 COMPARBD TO 1990) CONSULTATION URBAN CENTERS RURAL CENTERS TOTAL BY CATEGORY (e) (e) (e) Children under < 5 132 171 155 New Pregnancies 108 11 46 Old Pregnancies 99 60 79 Post-Childbirth 56 6 34 Family Planning 6 -25 -8 TOTAL INFANT/MATERNAL 119 140 131 Source: Eduardo S. Atalah, "Evaluaci6n del Proyecto Piloto - Bono Materno Infantil en Honduras" (World Bank, September 1991). B. On Education Table 2. PERCENT CHANGE IN ENROLLMENT. REPETITION. AND DROPOUT RATES FOR 7 DEPARTMENTS PARTICIPATING IN THE BMJF ENROLLMENT REPETITION DROPOUT DEPARTMENT (I) ( ) (pi) 1990 1991 1990 1991 1990 1991 Copan 1.7 6.8 12.2 11.7 4.1 3.4 Cortes 1.3 4.0 11.6 11.0 2.5 4.0 Choluteca 1.4 5.2 13.5 12.3 4.8 4.3 Fco. Morazan 2.1 3.5 14.1 12.5 2.8 3.0 Intibuca 2.3 22.7 14.2 12.1 3.5 2.6 Lempira 1.4 27.2 13.9 13.4 3.4 2.1 Valle 1.8 11.7 12.6 9.9 4.2 2.8 TOTAL 1.7 11.6 13.1 11.8 3.6 3.2 Source: Ministry of Education, February 1992.  - 70 - Annex 9 IMPROVEMENTS TO PRAF HONDURAS UNDER THE PROJECT NUTRITION AND HEALTH PROJECT IMPROVEMENTS IN THE PRAF FOOD COUPON PROGRAMS TO BE IMPLSMENTED UNDER THE PROJECT 1. The PRAF food coupon programs were evaluated by IDA on occasion of the mid-term review of the FHIS-I Project. The evaluation found the programs generally sound by made a number of recommendations for program improvements. These recommendations were incorporated in the design of the proposed project and are described below. 2. Based on this initial success and considering the large unmet need for nutrition assistance in Honduras, the Government now plans to expand the PRAF food coupon program and is appealing to the donor community for financing. Nation-wide, the potential needy beneficiaries of the PRAF food coupon program are estimated at approximately 211,000 primary school children in grades 1-3 and 430,000 children under five and pregnant and lactating mothers at risk of malnutrition. The Government is contemplating an expansion of the program over a three year period under the proposed project, benefitting on average 255,000 poor children and pregnant and nursing mothers (Annex 11). Under this plan, the two programs would reach from 25 percent at present to about 40 percent of their combined target population three years later. 3. For this program to be successful, during the implementation of the proposed project, the Government needs to: (i) increase PRAF's administrative capacity; (ii) strengthen primary health care; (iii) strengthen primary education; (iv) provide the required resources to sustain the program; and (v) define a longer-term nutrition strategy aimed at ensuring the sustainability of the food coupon program, its expansion on a national scale, and the rationalization of food distribution programs, in a comprehensive, long-term strategy to reduce malnutrition. 4. Based on this review, the following recommendations are made to help achieve these objectives: (a) Develop a long-term nutritional straterv. The Government of Honduras needs to develop a long-term nutrition assistance strategy based on an evaluation of how the coupon programs could be sustained over time, an analysis of the effects and longer term impacts of nutrition assistance and income generating activities, and a rationalization of different types of nutrition interventions to form a comprehensive long-term nutrition program capable of promoting efficient and technically and financially sustainable improvements in the nutrition status of the Honduran population. (b) Improve PRAF's Administrative Capabilities. The evaluation of the pilot program, the USAID management audit of PRAF and an analysis of PRAF's administrative practices and organization structure have shown that PRAF needs to improve its administrative capacity to properly manage the food coupon program. For this, the following priority actions are recommended: (i) Strengthen the Food Coupon Distribution Network through the use of private banks, in addition to the Central  - 71 - Annex 9 IMPROVEMENTS TO PRAF UNDER THE PROJECT Bank network at present, to transfer the coupons from the Central Bank to local areas, where MOE and MOH local staff can collect the coupons and distribute them to the final beneficiaries; (ii) SimDlify and Standardize Eliuibility Criteria using the malnutrition rates measured by the National School Nutrition Census as targeting criteria for both the BMI and the BMJF; this Census should be carried-out every year; (iii) Increase Freauencv of BMJF Coupon Distribution to more than twice a year, to maximize its use for food purchase and encourage school attendance, from 2 to 3 times per year; (iv) Strengthen PRAF's monitoring and evaluation caDacity and carry-out impact evaluations. The PRAF should increase efforts to evaluate the impact of the two food coupon programs on nutrition, health and school performance indicators. In addition, household surveys should be undertaken to determine the impact of the food coupons on family expenditures; (v) Strengthen PRAP's auditing function. The PRAF needs to ensure full transparency of the program through more frequent and better auditing. It is recommended that PRAF establish an internal auditing unit and contract with external auditors the concurrent audit of its accounts and programs; (vi) Imurove coordination with oarticipating agencies. In order to improve program efficiency, PRAF will need to establish better coordinating mechanisms with participating institutions, including the Central Bank, private banks, the MOH, MOE and merchant groups; (vii) Contract additional technical staff to fill key functions such as legal counsel, financial analysis, monitoring and evaluation, auditing, inter-agency coordination, and invest in additional computer and office equipment; (viii) Imnrove the Amolication of the Bligibility Criteria. For both the BMI and the BMJF, the beneficiary selection process should be improved and an appeals system established for families who believe that they are unjustly excluded from either program. The malnutrition rate measured annually by the Nutrition School Census should be used to determine the eligibility of new first graders to participate in the BMJF program. Likewise, the same census provides malnutrition rates by municipality and these should be used by the MOH to determine priority municipalities for the BMI expansion. Within high priority municipalities, the MOH should select the poorest villages within the catchment area of health centers for participation in the BMI. To reduce the occurrence of ad hoc rationing in the BMI, community members should be more formally involved in the inscription process to ensure that mothers and children not residing in the selected villages do not participate. In addition, to ensure that all qualified beneficiaries may participate, the PRAF, in coordination with  - 72 - Annex 9 IMPROVEMNTS TO PRAF UNDER THE PROJECT the MOH should allocate additional coupons to be issued only where the situation demands it. Finally, in order to ensure more equitable distribution of the coupon benefits, the PRAF's information system should control for double registration in both the BMJF and BMI programs in the municipalities of three departments where both programs operate simultaneously; where double coverage occurs, preference should be given to continue the BMI program. (ix) Establish procedures for re-certification of beneficiaries (or exit criteria). PRAF food coupon beneficiaries are selected for one-year benefits. A necessary complement to this regulation is the establishment of procedures in the Operations Manual of PRAF to review beneficiary certification at the beginning of each year. The following exit criteria will be included in the PRAF Operational Manual concerning: The BMI: [a] mothers who are no longer pregnant or nursing children aged less than 6 months; [b] children who become 5 years old; and [c] mothers and children who no longer inhabit poor neighborhoods and villages; The BMJF: [a] children who drop out of school; lb] children who are promoted to the 4th grade of primary school; and [c] children who transfer to schools not covered by the BMJF program. (x) Sustain the purchasing oower of the couoon. In real terms, the value of the assistance provided by the PRAF food coupons has been declining as a result of the declining purchasing power of the coupon which has a fixed nominal value in Lempiras. Thus, consideration should be given to periodically adjusting the value of the food coupon in order to maintain the desired level of subsidy of the household food budget. Adjustment of the food coupon value, to safeguard its purchasing power relative to the date of appraisal of the project in July 1992, would be made in accordance with annual reviews of the fluctuations of the Honduran consumer price index. Adjustment measures may include either emission of smaller denomination coupons or redefinition of the standard coupon denomination. (xi) ExDand coverage in rural areas. All future expansion of the BMI should occur in rural areas, where approximately 75 percent of the target population lives. (c) Strengthen Primary Health Care Services. The experience with the BMI program has highlighted the need for improvement of health service delivery by the MOH as well as better organization of the coupon distribution. There is need to increase the capacity of health centers to respond adequately to the increasing demand for health services generated by the food coupon program. An estimated 70 percent of the health centers are in a state of disrepair and should be rehabilitated. Some are too small and need to be expanded. There is also a need for a  73 - Annex 9 IMPROVEMENTS TO PRAF UNDER THE PROJECT modest expansion of the network in the poorest regions, to serve the currently isolated population groups. In addition, there is lack of medicines and supplies, basic equipment and insufficient staffing, particularly trained nurses, auxiliary nurses, and health promoters. Auxiliary health staff need additional training to properly identify pregnancy and malnutrition risks. Besides improvement of physical plant, equipment materials and pharmaceutical supplies, the MOH should: (i) Allocate additional staff at the regional. area. and local levels and strengthen human resources in key central functions. The composition and quantity of additional health staff should be determined based on actual productivity and taking into account expect increases in the demand for health services generated by the food coupon program; in addition, the MOH should improve the ratio of nurses per doctor, and supervisory nurses per auxiliary nurse in the project area; (ii) Establish Staff Training Programs. MOH staff participating in the program, including doctors, supervisors, professional nurses, auxiliary nurses and health promoters should receive on-the-job training designed to improve the quality of service delivered by all staff categories. These training programs should focus on maternal and child care, epidemiological surveillance, patient risk assessment, planning and administration of health services at the local level, health education, family planning, nutrition education, monitoring and evaluation, and community participation. Special care should be given to integrate the operation of the BMI with the delivery of primary health care services at the local level; (iii) Strengthen staff suoervision. Training and performance should be systematically reinforced by periodic supervision of health personnel performance at the local level. A system of staff performance review should be created and linked to salary incentives; (iv) Imxrove Organization of Coupon Distribution to Final Beneficiaries. To reduce waiting time in the health centers, local MOH staff should respect the Ministry's consultation norms and monthly visits should not be required of healthy children and mothers. The BMI coupon distribution process needs to be standardized and streamlined to improve patient flow. Furthermore, the coupon should be distributed immediately following the completion of the required check-up, and the mother should not have to return a second time or wait several hours to receive the coupon. To reduce the time demands on health center staff, community volunteers should be recruited to help in coupon distribution; and (v) Increase Coordination between PRAF and MOH. The level of adequate administrative support from the PRAF to the Ministry of Health should be increased. (d) Strengthen Primary Education. The BMJF made evident the need for complementary actions on the part of the MOE to enhance the impact  - 74 - Annex 9 IMPROVEMSNTS TO PRAF UNDER THE PROJECT of the food coupon program on primary school enrollment and efficiency. Efforts in this direction have started, as the Honduran Social Investment Fund (FHIS) has financed 857 primary and pre-primary school projects during 1990-91, including school rehabilitation, expansion, and new facilities. The FHIS also supported another 172 education projects involving repair and construction of school furniture. Additional efforts by the MOE will be required to ensure that the increased enrollment generated by the food coupon program will not exceed teacher capacity, and that primary schools have the supplies and the physical conditions to accommodate the added students.  75 -annex 10 PRAF TARGETING CRITERIA HONDURAS AND EXPANSION NUTRITION AND HEALTH PROJECT PRAP FOOD COUPONS PROGRAMS: TARGETING CRITERIA AND EXPANSION PLAN Criteria for Taraetina Benefits: Women Head of Children enrolled in grades 1-3 of primary education Household Coupon who are at risk of malnutrition. Expansion of this Program (BMJF): subprogram will cover children entering the first grade of primary school as identified by the MOE annual nutrition census (height/age) in eight departments. In addition, at participating schools where the results of the annual nutrition census show an incidence of malnutrition equal or higher than 60%, all first grade entrants would be considered beneficiaries of the BMJF. Maternal Child Children under five years of age, pregnant mothers, Coupon Program and mothers nursing children aged less than 6 months, (BMI): in the poorest villages at municipalities where average malnutrition index is above 40% as measured by school nutrition census in six departments with the highest average malnutrition index. Nutrition The project would finance the nutrition censuses of Census: children aged 6-9 years old enrolled in the first grade of primary schools nationwide. The MOE would carry out these census under the supervision of the SCES. COVERAGE: The BMI expansion will take place only in those municipalities where there is no program for distributing food in kind, and no BMJF food coupon program. Table 1. NUMBER OF BENEFICIARIES BY SUBPROGRAM BY YEAR PROJECT YEARS SUBPROGRAM CURRBNT (%) 1993 1994 T1995 1 TOTALL (%) BNJF 120,118 68 123,722 127,425 131,250 382,400 55 BMI 57,535 32 85,335 108,056 124,190 317,581 45 TOTAL 177,653 100 209,060 235,481 255,440 699,981 100 Table 2. TOTAL COST BY SUBPROGRAM & BY YEAR (US$ 000) PROJECT YEARS SUBPROGRAM : 1993 1994 1995 TOTAL _ BNJF 4,949 5,097 5,250 15,296 43 BMi 3,951 5,003 5,750 14,704 57J TOTAL 8,900 10,100 11,000 30,000 100  - 76 - Annex 10 PRAF TARGETING CRITERIA AND EXPANSION Table 3. UNIT COSTS BY SUBPROGRAM. YEAR. AND BENEFICIARY [ COSTS ILI BMJF | BMI COSTS L | _US$ | L US$ |__ Subsidy " 200.00 37.04 93 240.00 44.44 96 Emission 2/ 3.20 0.59 1 3.84 0.71 2 Administration 3/ 12.80 2.37 6 6.16 1.14 2 TOTAL Q 216.00 40.00 100 250.00 46.30 100 | Distribution per year 4 12 Coupons per Year 10 12 The denomination of the coupons is L20 (US$3.70) and would be adjusted in case the consumer price index in Honduras changes by 30% or more. Estimated as follows: number of coupons per year x LO.12 to cover printing costs, plus 1 of the cost of the subsidy to cover banking costs. For the BMJF food coupon program, administrative costs would increase by about four times, due to an increase from two to four in the number of times the coupons are distributed per year. For both programs, the average overhead cost is estimated at 5.7%, including emission and administration costs. For a three-year expansion plan these costs are estimated as follows: BMJF (7.41V * US$15.3 million = US$1.13 million); BMI (4.0* * US$14.7 million = US$0.59 million); total (US$1.72 million/US$30.0 million = 5.73%). Table 4. FINANCING PLAN (US$ 000) SOURCE PROJECT YEARS FINANCING 1993 1994 1995 TOTAL | e GOH 1,142 2,642 3,716 7,500 25.0 IDA 3,000 2,000 1,000 6,000 20.0 USAID 1,000 1,000 1,000 3,000 10.0 WFP 3,758 4,458 1,784 10,000 33.3 OTHER DONORS 0 0 3,500 3,500 12.0 (UNIDENTIFIED) l TOTAL T 8,900 | 10,100 11,000 T 30=000 =0lo  - 77 - annex 11 PRAF ORGANIZATIONAL CHART HONDURAS NUTRITION AND HEALTH PROJECT Presidency Executive Director Executive Internal Committee Auditor Procurement --- -.. . ....... Legal Advisorl Committee Edvisor Public Technical Relations |---- -- -------------- . Advisor Monitoring & Fnance Administration Evaluation Director Dirctor Director [vatl1*don MIS Cfl~ ontrAccount- Budget Trasur Personnel Gnal Food Coupon occupational Schol-Bag Training Director Directr | Director BMI bMJF Marketing  - 78 - Annex 12 NUTRITION EDUCATION HOINDURAS NUTRITION AND HEALTH PROJECT NUTRITION EDUCATION 1. Obiectives. This component aims to train health personnel and community volunteers to ensure that they know the practical and theoretical skills necessary to ensure adequate diet for the pregnant woman, exclusive breast- feeding during the first six months of life and an adequate complementary diet for the child less than two years old. This component is a basic element of the practical focus of integrated mother-child care that the MDH is now promoting. Its implementation will help improve the nutritional condition of the mother and child during a critical period of their lives, which will reduce the risk of morbidity and morality associated with malnutrition, and will improve the health of women of reproductive age. 2. Target GrouD. The direct beneficiaries of the proposed measures are approximately 128,000 pregnant women and 112,000 children under two years of agree in health regions 3, 4, 5, and Metropolitan.) In addition, approximately 5,000 people would be trained in appropriate feeding practices, including an estimated 685 health personnel, 5,250 community workers and 1,600 nutrition counselors. Health personnel will benefit from training in the use of natural and inexpensive nutritional technology, and public health institutions will save by spending less on artificial milk, bottle-feeding, medicine, and having fewer visits for morbidity. 3. Description. As part of the Health and Nutrition Project, this component will finance a nutrition education program with emphasis on nursing mothers. The contents of the training program would include: (a) nutrition requirements of pregnant women; (b) nutrition requirements of nursing mothers; (c) appropriate breast-feeding practices; (d) appropriate weaning practices; (d) nutrition requirements of young children; (e) importance of micronutrient supplements; (f) use of contraceptives; and (g) appropriate maintenance of equipment. All these areas would be covered in the training program described below. (a) Training health Dersonnel including doctors, professional nurses, auxiliary nurses, health promoters, community volunteers, and hospital managers and administrators through: (i) the preparation and execution of a training plan for health region three and Metropolitan and later for regions 4 and 5, including the new hospitals and all centers at other levels of care with a strong component on work methodology with community participation; (ii) creation of two (2) training centers at the level of the two national hospitals, in which health personnel and the graduates in residency receive the training necessary in hospital practices and clinical management of lactating mothers; (iii) staffing the hospitals and health centers of four health regions to carry out the support breast-feeding and early childhood nutrition activities; and (iv) preparing and introduction of teaching modules in breast-feeding in the study program of the Faculty of Medical Sciences. Health personnel training will include information on the use and the importance of contraceptive practices during the post-natal As defined in Annex 5.  -79 - Annex 12 NUTRITION EDUCATION period, to achieve and adequate spacing between pregnancies, which will contribute to maintained the mother and child in satisfactory nutritional conditions. (b) Supervision and evaluation which will permit documenting the experience in the process of developing the nutrition education and breast-feeding component at the community and institutional levels, and evaluate the completion of the "Ten Steps Toward a Happy Natural Infant Feeding" recommended by the World Health Organization and UNICEF in the public hospitals, in order that they are used as feed-back; and (c) Operations research, focusing on a study of HIV transmission through mother's milk, which would be used as an element to support the development nutritional education activities, breast-feeding and control of the quality of hospital milk banks. 4. Implementation. The component will be executed by the Ministry of Public Health in collaboration with a specialist in NGO, the Breast-Feeding League of Honduras (BFLH) and UNICEF, over a 3-year period under a technical assistance agreement satisfactory to IDA. Activities will begin in Regions 3 and Metropolitan (1993-95), followed by Regions 4 and 5 (1994-95). Under parallel financing, carried out through the same NGO, training will be expanded to the village level through a national system of breast-feeding counselors and to support adequate feeding practices for mothers, infants and small children under age 2. This parallel program also contemplates the creation of a Center for Orientation and Documentation in breast-feeding. This center will contribute to the training and up-dating of health personnel, share practical information with the public and in particular with lactating mothers, supporting exclusively breast-feeding and adequate weaning practices, and contributing to the formulation of a national strategy for nutrition and maternal lactation. Parallel financing will provided by USAID and UNICEF. 5. Estimated Costs. The cost of this component is estimated at US$0.9 million, including contingencies, as follows: 1993 1994 1995 Total A. Training 44.5 69.6 37.0 151.1 B. Equipment 191.0 111.5 0.0 302.5 C. Tech.Ast. 68.6 94.3 73.3 236.2 D. Salaries 53.0 52.5 29.4 135.0 Total 357.1 363.0 208.4 928.5 6. The proposed IDA credit would finance US$0.8 million and the Government US$0.1 million. IDA financing for salaries would be on a declining basis, as follows: 100% of local expenses in the first year, 75* of local expenses in the second year, and 30% of local expenses thereafter.  - 80 - Annex 13 PRIMARY HEALTH CARE CENTERS HONDURAS NUTRITION AND HEALTH PROJECT PRIMARY HEALTH CARE CENTERS The Primary Infrastructure ComDonent 1. The obiectives of the component are to: (a) improve quality in the delivery of rural health services; (b) obtain operational benefits from adequate physical facilities; and (c) contribute to the development of a comprehensive primary health and nutrition program to reach the poorest population living in rural communities. 2. Criteria for Selection of PHC Centers. The selection criteria awards priority to the rehabilitation of existing centers. This criteria is based on pressing rehabilitation needs and economic reasons. Rehabilitation has lower initial and incremental operating costs than new construction. Specifically, the criteria for selection of centers are the following: (a) Rehabilitation: (i) existing centers at departments where the BMI program is expanded (BMI project area, Annex 5); (ii) rehabilitation works should not exceed an limit equivalent to US$10,000 per center, except in justified cases; (iii) those center that are out of operation due to poor physical condition; and (iv) those located in depressed areas with high morbidity and malnutrition. In cases that the BMI program is absent, the remaining criteria will prevail. (b) New centers: location would be determined as follows: (i) in priority areas in which the BMI program plans to expand; (ii) in a catchment area of around 1,500 to 3,000 people: and (iii) at a minimum distance to the nearest health center of 5 to 10 km. (c) For either new works are for rehabilitation, the proposed solution would be the least cost solution or the only alternative. 3. Description. The component includes: (a) the rehabilitation of about 130 PHC facilities; (b) the construction of 30 new CESARs; (c) medical, radio and laboratory equipment to properly operate these facilities; (d) a fund for routine maintenance of buildings, equipment and vehicles to be established and capitalized by the MOH for use at the Health Region level; (e) feasibility study of a radio communications network, test with 10 stations, and subsequent expansion with an additional 30 stations; and (f) vehicles (16) to facilitate supervision of operation of PHC services.  -8S1A- _nex 13 PRIMARY HEALTH CARS CR1IBRS Cost of the Comwonent 4. The component cost is estimated at US$3.4 million as of june 30, 1990 prices with price contingencies. The cost is based on updated prices in list of quantities of 32 final rehabilitation designs in the metropolitan area and in the departments of Valle and Copan. The estimated cost includes 10* for engineering and administration costs, 10* for physical contingencies in civil works and 5% in medical and laboratory equipment. Community participation was estimated at 9% of the cost of construction and includes the cost of fences, some painting work and minor repairs. Proiect Preparation 5. At appraisal, 32 centers had final designs and are programmed for construction in 1993. A preliminary selection of sites was done to rehabilitate 70 additional centers and continue with field surveys and designs. The selection of about 20 new centers has also been preliminarily selected. A prototype of a new CESAR with about 100 square meters to house two clinics is under design. A list of medical, radio communications and laboratory equipment has been prepared to equip the centers under the project. Proiect ImDlementation 6. The component would be implemented by the Project Unit with the assistance of the Programa Nacional de Servicios de Salud (PRONASSA). PRONASSA is a vertical unit of the NOH in charged of the construction and repair of hospital and primary health facilities. It also supplies medical equipment to hospitals. Presently, PRONASSA carries out an investment program under IDB and AID financing. These programs have contributed to improve PRONASSA's operational performance in construction management and supervision. 7. A civil engineer from the MOH Project Unit is acting as coordinator to prepare the component. The duties of the coordinator would be to: (a) identify and select the centers in accordance with established criteria; (b) appraise the physical condition of centers for rehabilitation; (c) supervise the design work by private consultants; (d) prepare annual plans for design and construction; (d) coordinate activities between FHIS and the Health Regions; (e) prepare and review specification and list of quantities for construction contracts; and (f) plan in advance operational conditions so that the centers undergoing rehabilitation may continue providing services during construction. 8. The component would be implemented over a period of three years. Plans are underway to execute work during 1993 for rehabilitation of the first 32 centers in the metropolitan area and departments of Valle and Copan. The remaining works would be implemented in 1994 and 1995. The MDH intends to retain the services of FHIS as an intermediary to administer a great portion of the civil work contracts. The remaining initiatives would be carried out by PRONASSA when the activities of FHIS phased out. 9. FHIS tarticipation. The MDH would enter into an agreement with PHIS to delegate in FHIS the administration of part of the civil works under this component. This agreement is presently under negotiation between the parties and scheduled to be signed as a condition of credit effectiveness. PHIS would  - 82 - Annex 13 PRIMARY HEALTH CARE CENTERS charge a 3% fee on the delegated portion of the component cost. The 3% administrative fee that would be charged by FHIS to the MOH corresponds to the average supervision cost for social infrastructure subprojects, recorded under the FHIS-I project. It would work out in close collaboration with the Project Unit and the Health Regions. In the event that FHIS be phased out in 1994, the MOH project unit, through PRONASSA, would assume full responsibility in managing the contracts for the remaining civil works. 10. Community Participation. The component would have community support mainly in preventive maintenance of physical facilities. The promotion work would point to the creation of a community fund for preventive maintenance. About 25 promoters would work exclusively in promoting project activities, including maintenance of PHC facilities, health education, water supply and sanitation and the food program. A 2-month course for about 40 promoters would be launched on October 1992 so that they would be in the field before the proposed IDA credit becomes effective. 11. Annual Reviews. IDA and the MOH would perform annual reviews of the program. At these occasions. MOH would adjust the work program to fit with the integrated criteria of delivery services and with lessons learned during the previous year. The choice of initiating works for new centers or expanding the rehabilitation of existing centers would be made at the time of the annual review. The construction of new centers would be conditioned to the improvement in the delivery of health services in the primary system.  - 83 - Anln 14 HUMAN RBSOURCBS 1iQIEMA DEVELOPMNWT OF MNM NUTRITION AND HEALTH PROJECT HUMAN RESOURCES DEVELOPMENT OF THE NOH I. Obiectives 1. The Government's health sector policy (Annex 18) has, as one of its main objectives, the improvement of the quality and efficiency of primary health services. To achieve this objective, the MOH gives high priority to the development of human resources for the sector and stresses the importance of appropriate deployment of personnel within the MOH structure, according to need and skill-profile. Based on this policy directive, this component would help improve primary health services through: (a) strengthening of the Planning Department and the Human Resources Division at the central level; (b) promoting the technical and administrative development of health personnel in the project area; (c) strengthening supervision of basic health services. II. Description 2. Strengthening of the Planning Office and the Human Resources Division 3. The MOH has adopted the policy of administrative decentralized for the provision of basic health services, with special emphasis on the local health systems. At the central level, the implementation of this policy requires the administrative modernization of key units, particularly of the Planning Department, and improvement of their planning capacity to institutionalize the reform and introduce new functions at the central, regional and local levels. Administrative decentralization also requires that the MOH Human Resources Division develop the necessary leadership capacity to carry out the planning process for the allocation of human resources in accordance with the new policy. 4. The Human Resources Division is responsible for coordinating all personnel planning, development, monitoring, training, supervision and evaluation activities in the 8 health regions. Coordination of these activities should occur at both the central and the regional levels in order to incorporate in the training and supervision plans and strategies a solution to problems and specific requirements of basic health services at the local levels. 5. In response to these needs, the proposed project aims at: (i) strengthening the planning and administrative functions at central level; (ii) carrying out in-service training and supervision of human resources; (iii) developing analytical capabilities to improve planning and allocation of human resources using appropriate information systems as basis for decision-making and improvement of the institutional coordination mechanisms.  - 84 - Annex 14 HUMAN RESOURCES DEVELOPMENT OF MOH 6. The strategies that would be used to achieve these goals comprise: (a) recruitment of additional staff to strengthen the Planning Department and the Human Resources Division; (b) organization of seminars on methodological development in planning, programming, and budgeting; (c) preparation of special studies on human resources development in the project areas, aiming particularly at gathering information on staff selection criteria, distribution, productivity, and quality of care provided; (d) organization of working groups for critical analysis of the studies and preparation of new proposals; (e) provision of technical assistance to improve the analytical capability and the use of computerized information systems; (f) organization of workshops to develop methodological strategies for the leaders of the training and supervision process at the central and regional levels. B. Technical and Administrative DeveloDment of Health Personnel in the Proiect Areas 7. The oblectives of the in-service training to be provided by the proposed project are to: Ci) strengthen the administration of basic health services in the health regions; (ii) improve the technical capability of health personnel as to the content and strategies to be applied in the provision of basic health care services, with emphasis on maternal and child care, family planning, nutrition, epidemiology, pharmacology, environmental sanitation and endemic diseases prevention programs in order to provide more timely and better quality services; (iii) integrate the BMI food coupon program with the activities of the maternal and child care, nutrition and community education programs; (iv) train health professionals in social participation and communication strategies between users and providers; (v) broaden knowledge and improve supervision techniques of the local and regional level staff through interdisciplinary training teams that would assist in identifying training needs, encouraging productivity, improving the quality of services and promoting on the job learning; (vi) develop service programs in the project area that address priority local health problems identified during the supervision process. 8. The staff to be trained would be that allocated to the project area, comprising: (i) in the CESAMOs (health centers with a physician) an estimated 100 general physicians responsible for health care, administration and supervision; and an estimated 100 professional nurses responsible for health care, administration and supervision; (ii) in the CESARs (rural health centers) an estimated 500 auxiliary nurses responsible for basic health services and some 160 health promoters in charged of environmental health development and community organization.  * 85 - Annex 14 HUMAN RESOURCES DEVELOPMENT OF MOH 9. The training oroqram proposed comprises, in the first year of the proposed project, the following training events: 6 orientation sessions for new staff (2 of them for professional level staff and 4 for auxiliary nurses), 5 training sessions for professional staff on administration of the BMI program; 6 training sessions for professional staff responsible for supervision at the regional and area levels; 3 training sessions for auxiliary nurses on appropriate use of drugs, and one training course for health promoters. In addition to the formal training events auxiliary nurses and supervision teams would participate in training activities through monthly meetings that would be organized at the seat of the health areas and regions. Taking into account the MOH policy of administrative decentralization, the responsibility for staff training would be assigned to the health regions. 10. The methodolocv proposed for in-service training aims at promoting the better linkages between the training program and the health needs specific to each particular region. Regional health needs would be identified through health situation analyses and manifested demand from local health staff that would take place during supervision, thus promoting the integration of in- service training with the supervision process ("supervision capacitante"). It is expected that this approach would improve the contents of both in-service training and supervision. Specifically, the monthly meetings of the supervising teams with the auxiliary nurses would provide the occasion for join analysis of training need and for the periodical changes in the training contents in response to changing local health conditions. 11. The proposed contents of the training program, developed on the basis of the analysis of identified needs for the metropolitan regions 4 and 5, are the following: (a) Orientation session for Drofessional staff to familiarize the new staff with the organization and administration of health services and the strategies adopted by the health system to respond to the regions' health problems; the subjects for the professional group include the structure and organization of the health system, planning and administration of services, strategies to achieve efficiency, efficacy and quality in the provision of services, the comprehensive care approach, the role of epidemiology, and the programs for the priority groups with emphasis in the maternal-child health care; (b) Orientation session for auxiliary nurses covering: organization of the national health system, the administrative responsibility in the different levels of care, the CESAR as a component of the local health system, the functions and activities of assistant personnel within a CESAR, the health-disease process and identification of priority groups for the care process, identification and prioritization of risk factors for each priority group and the epidemiology surveillance system, child health and growth and development care, immunization, food and nutrition. Comprehensive care for women, the reproductive and obstetric risks, contraceptive methods, pregnancy control, food and nutrition during and after birth. Social participation strategies and health education programs.  - 86 - Annex 14 HUMAN RESOURCES DEVELOPMENT OF MOH (c) Orientation session for SUoervisorv teams. The contents of which were prepared on the basis of the evaluation of the health actions undertaken in 1991, of training needs identified by the professionals and based on the conclusion of a supervision workshop carried out in April 1992 with those responsible for supervision in the BMI pilot areas. The session would focus on: (1) diaano.is of the health situation, identification of health profiles for different population groups, analysis of the relationship between priority groups, services to be provided and the assignment of resources, epidemiological monitoring and surveillance, the risk approach in maternal-child care, the interventions made and the respective responses; (2) service administration, including programming and administration of the maternal child care and BMI food coupon activities; (3) risk determination and related to control actions in the women's program, with special emphasis on the detection and control of sexually transmitted diseases with an indication to the physicians regarding the need of examination for the early detection of uterine cervical cancer (which corresponds to 80O of the cancer cases in women in Honduras) and tuberculosis, which tends to increase rapidly as a result of the spread of AIDS; in addition, there will be discussions on the service's organization measures for AIDS detection activities whose heterosexual characteristics spreads the disease to the maternal-child group; (4) communitv education, covering aspects related to disease control, prevention and community participation; (5) methods of supervision including strategies and programming, monitoring and evaluation, communication and interaction with users and continuing education strategies will be presented and discussed at the monthly meetings; emphasis will be giving to communication and interaction between health providers and users that would require a special commitment from the supervisory team to change the present practices of ill treatment, which is one of the reasons for low service demand. (d) In-service training for auxiliary nurses. Training will take place in the project area with support from the MOH central level staff, and under the direct responsibility of the regional supervisors. The contents for the woman and child programs are practically the same as those for the supervisors with special emphasis on the prevention and control techniques that can be carried out at the assistant level. with respect to women's care, it will be insisted that patients showing signs and symptoms that may lead to suspect uterine cervical cancer or AIDS be referred to the CESAMO. The training content gives priority to conunuity education with respect to the area's serious health problems and includes social participation and local participation program modalities. Auxiliary nurses would also receive specific training on appropriate handling and rational use of drugs to respond to problems identified at the CESAR level both on the administrative management and the provision of drugs to patients, and would be advised of environmentally safe disposal of waste.  - 87 - Annex 14 HUMAN RESOURCES DEVELOPMENT OF MOH (e) Training session on administration of the BMI for health staff. The content of this session oriented toward CESAMO Directors, physicians and professional nurses covering the objectives of the BMI within the context of the project, and the procedures, programming and distribution of the food coupons in the health centers. The Planning Department is currently revising the manual and the text used in the BMI pilot project stage in collaboration with PRAF. (f) Course for health oromoters. The objective of this course is to train, over a period of 60 days, 40 health promoters that will support the implementation of the rural water supply and sanitation component and other community organization actions of the proposed project. The course presents specific techniques for community organization, basic sanitation including solid waste disposal systems, water supply, installation and maintenance of water pumps, operation and maintenance of water systems and latrines, epidemiology principles and vector control, food control, development of community maps, and planning of sanitation and supply activities. C. Strengthening of the Suoervision System 12. The purpose of strengthening the supervision system is to improve efficiency and quality in staff performance. The MOH will strengthen the supervision process especially at the local and area levels through mechanisms that integrate supervision to the training process and strategic surveillance of health services. 13. The supervision model prepared by the MOH will be implemented with the revisions and changes made by the different regions with respect to the specific problems of each area and the needs derived thereof. The model translates into two basic supervision instruments for each region: one for supervising CESARs and one for supervising CESAMOs. The training-supervision approach adopted by the MOH aims at (i) the control of the technical- administrative activities and, (ii) through the priority problem identification technique, the development of the analytical and interpretation capability of the health situation to reevaluate goals, strategies and established norms and their relation and adjustment to the identified needs. 14. Supervision would be carried out in two phases: the first one includes the field supervision practice itself; the second would take place through the monthly meetings among supervisors and those supervised during which programming and execution would be examined; problems would be discussed and decisions would be made, guidelines would be prepared and there would be participation in a continuing education process. 15. The content of this process, that will be monitored through the supervision practice itself, is described in the "Proposal for Training Supervisors" prepared by the MOH and available in the project file. Similarly, as part of the educational responsibility of the local level supervisor, the content related to the training of auxiliary nurses would be developed by the supervisor during the monthly meetings with the help of  - 88 - Annex 14 HUMAN RESOURCES DEVELOPMENT OF MOH manuals and supplemented with individualized study in the participating health centers. 16. Each region would present its annual and quarterly supervision plans in which the components of the general plan will be included, establishing activity priorities based on problems or priority needs. 17. The health regions, divided into health areas and localities, will program: (a) the supervision visits by CESAMO (8 visit days per year) and CBSAR (12 visit days per year); (b) the monthly meetings in the health regions for area supervisors; and (c) the monthly meetings in the area headquarters for auxiliary nurses. At the same time, the MOH central level staff would make visits every three months to the region, area or locality to monitor and evaluate the supervision process in accordance with the priority of the following service program components: (i) comprehensive care; (ii) health services and SBI administration; (iii) continuing education; and (iv) community participation. The results would be discussed with the regional level staff responsible for supervision and would be communicated to the corresponding divisions at the central level to feedback decisions on health policies, the standardization process and the surveillance system. 18. Proopsed Sunervision Scheme for the Local Level. Each CESAR would receive 12 supervision days per year and would send one auxiliary nurse to the monthly supervision meetings. The second auxiliary nurse allocated to the C-SAR would remain at the center so as not discontinue services provision. The auxiliary nurse participating in the meeting would be responsible for coimunicating to his colleague the work content and proposals. The two auxiliary nurses would alternate at attending the monthly meetings and the supervisor would ensure that communication mechanisms between them function well, through monitoring actions at the CESAR and at the monthly meetings. For CESARs where only one auxiliary nurse works, participation in the meetings would depend upon arrangements being made by the area director to provide a substitute for the day's work. 19. The monthly sutervision meetinas for auxiliarv nurses would focus on assessing performance of the following activities: i) analysis of activity reports and CESAR production data; (ii) detection of needs in relation to the available resources; (iii) coverage problems; (iv) care, disease prevention and control problems; (v) analysis of the community education program and self-administered community projects with health proposals; and (vi) training activities in which the proposed content in the training program for auxiliary nurses is itemized. At the monthly sunervision meetings for the area sunervision teams, at the region level, the following activities would take place: (i) analysis of the problems detected in the areas; (ii) planning of supervision activities on the basis of identified problems; and (iii) identification of training activities that complement the training session for supervisory staff.  -89 - Annex 14 HUMAN RESOURCES DEVELOPMENT OF MOH 20. Strategies for Staff Technical-Administrative Development and for Strengthening of the Suwervision Process. The basic strategies proposed include: (a) organization and development of a multidisciplinary group at the central and regional levels under the coordination of the Human Resources Division to plan and conduct the training and supervision processes; (b) meetings of the central level group to design strategies of comprehensive programming with the Maternal-Child, Nutrition, Epidemiology, Sanitation and Human Resources subprograms; (c) technical assistance from PAHO in the programming of the specific contents in the Maternal-Child, Epidemiology and Sanitation subprogram; (d) working meetings of the central level team with the different regional teams to identify the needs and jointly develop supervision programs; (e) strengthening of the cooperation with the National University through joint activities in the Human Resources area. The Master's program in Public Health, that is being jointly developed by the National University and the MOH could support the technical and administrative development of public health staff; (f) follow-on seminars and evaluation of the training and supervision processes involving central and regional level staff; (g) production of training materials (2 manuals, training evaluation and monitoring guidelines) and improvement of the existing training instruments, as needed. 21. Cost of Supervision and Training Activities. The proposed project would finance the training events, the production of materials, part of the fuel (gasoline) costs, and the per diem for the supervision visits and the monthly meetings estimated at US$354,200, to be wholly financed by the proposed IDA credit. D. Additional Human Resources 22. On the basis of the inventory of health personnel needs carried out in the metropolitan regions 4 and 5, the need to hire additional staff for primary health care services was verified. 23. Allocation criteria for auxiliary nurses. The need for recruitment of additional staff is related to the expansion of the BMI and, in addition, responds to a more general criteria stating that (i) two auxiliary nurses should staff each CESAR to achieve coverage and improve care quality and to avoid closing the locale during days of community work, vacations and leave,  - 90 - Annex 14 HUMAN RESOURCES DEVELOPMENT OF MOH and (ii) health personnel allocation should be based on the size of the population within the catchment area of each facility, taking into account the conditions of accessibility. 24. Allocation of auxiliary nurses in PHC health facilities servina very small localities. The CESARs serving localities of less than 1,500 inhabitants would be staffed with only one auxiliary nurse, since the level of demand for PHC services would not justify the allocation of two staff. However, as auxiliary nurses have to leave their post periodically to attend training or otherwise be on leave, provisions need to be made to ensure that these smaller PCH facilities remain open during the absence of the auxiliary nurse. Thus, a number of substitute auxiliary nurses would be made available at the health area headquarters, ready to take over the functions of auxiliary nurses on leave at the smaller CESARs, as needed. 25. Allocation criteria for professional nurses. With respect to professional nurses for the supervision process, the criteria emphasizes the need to strengthen the supervision process in the areas. The Human Resources Division indicated that one supervisory nurse for each five CESARs was enough for ensuring efficient supervision. 26. Allocation criteria for medical staff. Additional medical staff is needed in the poorest health regions, especially at the area level which tends to depend, almost exclusively, on young physicians assigned to do their obligatory social service duty, who tend to remain in the system for only one year. Allocation of physicians is also dependent upon the population distribution and the health situation of the area compared with the available number of doctors. 27. Addition criteria for staff allocation. The inventory of staff needs should also consider situations in which it is necessary to reorganize the services in response changes in the demand, with better distribution of human resources, as for example in the case of the upgrading of a CESAR into a CESAMO. 28. Allocation of staff to trainina schools for auxiliary nurses. The proposed project would also strengthen the teaching capability of three auxiliary nurses' training schools in the regions, financing the salaries of six additional teachers. 29. Allocation of additional laboratory staff. Given the high priority assigned to the prevention of endemic diseases, particularly AIDS/STD, additional laboratory staff would be needed. The specific allocation of the additional laboratory personnel would be determined by the Human Resources Division, based on the design of the AIDS/STD prevention program and on the inventory of existing human resources. 30. Allocation of staff at the central level. It is necessary to strengthen, at the central level, the Planning Department which is responsible for the general coordination of the proposed project, and the Human Resources Division which currently does not have enough staff to carry out all the functions and activities it has been assigned.  - 91 - Annex 14 HUMAN RESOURCES DEVELOPMENT OF MOH 31. Cost of Additional Staff for the MDH. The proposed project would finance the costs of hiring staff for the Project Unit at the central level and of three specialists for the Human Resources Division. The cost of consultants to be hired for the Project Unit is estimated at US$238,500, and would be wholly financed by the proposed IDA credit. Incremental expenditures for hiring staff to be allocated to the PHC network in the project area are estimated at US$2.8 million, of which the proposed IDA credit would finance US$1.8 million on a declining basis.  - 92 - Annex 15 BASIC DRUGS FOR HONDURAS THE PHC NETWORK NUTRITION AND HEALTH PROJECT BASIC DRUGS FOR THE PRIMARY HEALTH CARE NETWORK A. Current Procurement Practices 1. The MOH budget for procurement of drugs in 1991 was about L.54.3 million, or about US$10.0 million equivalent, of which about US$3.5 million was allocated for drugs to be distributed to the PHC network. The MOH budget comprises the purchase of pharmaceutical products for its 33 administrative units throughout the country (8 regions and 32 hospitals). The MOH has a basic table (Cuadro Basico de Medicamentos) of 375 pharmaceutical products, all generic. Quantities required of each item in this list are updated yearly, based on quarterly inventory reports prepared by every administrative unit. This amount may increase in 1992 by 15% to 20%. 2. About 80% of the drug purchases are made at the central level and the other 20% at the unit level. Honduran law permits any purchase of less than L30,000 (about US$6,000) to be done using the shopping method, obtaining at least three prices from registered suppliers. This applies at both the central and unit levels. Purchases above the L30,000 threshold must be made by public bid. This is usually done by the GPO, but under the project a pharmaceutical procurement unit in the MOH, serving MOH and the IHSS, would be responsible for drug procurement. In an emergency such as an epidemic, the GPO or the MOH is authorized by presidential decree to purchase specific drugs using a private bid or the shopping method. 3. Administrative health units are allowed to buy up to about 20% of their needs using the shopping method via purchase orders of under L30,000 to solve shortfalls of drugs at certain times, mainly resulting from bad planning, bureaucratic delays, lack of funds and distribution problems. Unfortunately, the unit prices obtained by those shopping purchases are from about 20% to 150W more expensive than when purchasing through competitive bidding. The shopping method costs the MOH about L2.5 million per year and it is precisely by using this method that many of the alleged abnormalities occur. 4. Once a year, each of the 33 administrative units at the MOH prepares a list of its pharmaceutical requirements. These lists are sent to MOH headquarters where the Pharmacy Division analyzes the technical specifications (including composition, size, form, and presentation). The MOH financial/budget department reviews the estimated costs and compares it with the available funds in the MOH budget. The approved list is then compared with the inventory of the MOH central warehouse (Almacen Central), before it is sent to the central procurement unit, currently the GPO. 5. The request by MOH is analyzed by the GPO Pharmacy Division, which reviews the specifications and quantities in order to complete the technical aspects of the bidding documents. The GPO legal department prepares the general, administrative, and legal specifications of these documents. Once the bidding document is ready for sale to the bidders, the MOH, MOF, and the CBH are advised. The CBH has a critical role since it must reserve the foreign exchange needed for an international bid. This is an area which has often produced delays in the process of drug procurement.  -93 - Annex 15 BASIC DRUGS FOR THE PHC NETWORK 6. ICB bids are announced in the local press and sent to the embassies. After proposals are received, they are carefully analyzed by the GPO, with assistance from MOH personnel. By law, the award should go to the bidder offering the lowest price bid. Once the award decision is taken, the winner is advised and a PO is issued to him after he has presented the specific performance bond. Usually, the order is the only legal document given to the suppliers. 7. The MOH would take over from the GPO the procurement of drugs. Under the new institutional arrangements, the MOH's procurement capacity would have to be strengthened in its technical, financial, and accounting aspects. Technical assistance would be provided under the project to help MOH establish efficient ICB and LCB procurement methods for pharmaceutical products (para. 4.12). 8. Pharmaceutical products in Honduras were formerly bought in bulk form and repackaged. This was later abandoned because of complications in the repackaging process, especially contamination in handling. An assessment by IDA during project appraisal concluded that Honduras does not have, at present, the capacity to package eseential drugs for public sector consumption. B. Main Procurement Issues 9. The main problems in the process of procurement of pharmaceutical products in Honduras seems to be of an administrative and financial nature. The proceSs takes too long, sometimes the shipped/delivered product is not the same as that specified in the bidding document, and the Central Bank often delays the process because of lack of foreign exchange. There is also more frequent use of the shopping method in cases where packaging of purchases for LCB or ICB would have been preferable, as they would have reduced the cost of drugs. The main complaint about the GPO's performance is that it takes too long to complete drug purchases. 10. The GPO usually does one large ICB and one LCB per year for drug procurement. The two procurements done in 1991 took about 10 months from the time the MOH requested the products until the suppliers began to deliver. The documents were reasonably well done and could easily be amended to comply with IDA's procurement guidelines. However, they do not provide for effective contract packaging. A single bid included a total of 175 different items for which quotations were requested. Since products were not arranged in lots, many proposals were received, some for only a few items, increasing the difficulties of bid comparisons. This approach encouraged the participation of the very small suppliers but discouraged the participation of the big and well know pharmaceutical suppliers, generally resulting in bids higher than average international prices. 11. Concerns were expressed about the quality of Honduras drugs procured for the public sector. There does not seem to be a technically qualified laboratory to inspect the products properly. Recently, import requirements for drugs were changed. Foreign products are no longer required to be registered in Honduras, but they must have a certificate of free sale in the country of origin. Drugs to be procured under the project, financed by IDA,  - 94 - BASIC DRUGS FOR THE PHC NETWORK would be procured from UNICRF, which ensures satisfactory quality standards without need for pre-shipment inspections. 12. None of the agencies dealing with procurement have any experience with IDA procurement guidelines, although they have had some experience with IDB- financed purchases. The GPO's Chief lawyer indicated that Articles No. 16-21 of the Honduran Constitution allow for the local procurement law to be adjusted to International Financial Institutions guidelines, in the case of internationally funded procurement. C. Procurement of Essential Drua r the Proco ad Prolect 13. The procurement of essential drugs to be financed under the proposed project represent a relatively small fraction of the total annual requirements of the MOH (para. 20). However, the project would provide the means for achieving overall improvements in the drugs' purchasing system, both through institutional strengthening and through introduction of more efficient procurement practices. 14. Essential drugs to be financed by IDA under the proposed project, would be procured from UNICEF. The reasons why the GOH would not be given the responsibility for handling IDA-financed procurement of essential drugs are the following: (a) the GOH still needs institutional strengthening either at GPO or at MOH; (b) the drugs to be procured are essential generic drugs whose relative price varies significantly depending on packaging requirements: prices for bulk purchases are significantly lower than for packaged supplies; and (c) considering that Honduras does not presently have the capacity for packaging drugs and controlling their quality (as has been demonstrated in the past when packaging was attempted by the NOH), the best available option to ensure the lowest price is to utilize the procurement and packaging facilities of UNICEF. Procurement from UNICEF involves: (i) UNICEF procures essential generic drugs in bulk, according to procurement procedures satisfactory to IDA, using pre-qualified laboratories that ensure their quality as suppliers; (ii) UNICEF pre-packages these drugs at the UNIPAC facility in Copenhagen, according to the specifications provided by the NOH; and (iii) UNICEF schedules shipments annually, according to supply schedules specified by the MOH. This procedure has been successfully used in other Bank and IDA financed project, as for example in Nigeria. 15. The procurement of essential drugs that would be financed by the GOH under the project, would be done by ICQ through the MOM, with technical assistance from international consultants satisfactory to IDA. Funds would be provided for pre-shipment inspections by independent laboratories, acceptable to IDA, to ensure conformance with quantity, quality and packaging standards set out in the bidding documents. Technical assistance and staff training would be provided to the NOH to improve the efficiency of the procurement of drugs through standardized bidding documents and contract award procedures, improved bid packaging, and computerixed control of the procurement process. Attention would be given to improving contract packaging into lots that will encourage better competition and simplify bid evaluations. Special attention would also be given to assisting the MOH in shortening the time required for the procurement process, improving coordination with the NOF and the Central Bank to ensure the timely availability of foreign exchange for contract  -95 - Annex 15 BASIC DRUGS FOR THE PHC NETWORK payments. During the first year of project implementation, consideration would be given to the desirability of procuring all essential drugs required by the MOH and the IHSS from UNICEF. D. Description of the ComDonent 16. The proposed project would finance: (a) essential drugs procured from UNICEF for the primary health care system of the MOH nationwide, on a declining basis; and (b) consultants' services to provide technical assistance to the GOH to improve the efficiency of the procurement process and accompany the ICB procurement yearly during project implementation. ESTIMATED BASS COSTS OF MOH ESSENTIAL DRUGS (US$ MILLION) | LEV8L OF SERVICES USING ESSENTIAL DRUGS__ PHC HOSPITALS TOTAL PERCENTAGE Base Year (1992): 3.5 6.5 10.0 100.0 Proiect Years: Total 5.5 6.5 12.0 100.0 Project 2.0 0.0 2.0 16.7 IDA 2.0 0.0 2.0 16.7 1994 Total 5.6 6.5 12.1 100.0 Project 2.1 0.0 2.1 17.4 IDA 1.6 0.0 1.6 13.0 Total 5.7 6.5 12.2 100.0 Project 2.2 0.0 2.2 18.0 IDA 0.7 0.0 0.7 5.4 (a) Essential Druas. The procurement of drugs to be financed under the proposed project would increase the amount of drugs procured for the PHC network countrywide from an estimated US$3.5 million in 1992 to US$5.5 million in 1993, US$5.6 million in 1994, and US$5.7 million in 1995. Project costs for this component reflect only the costs of the incremental drugs purchased, and assumes that the MOH budget would continue to cover a minimum of US$3.5 million for PHC drugs, throughout project implementation. Thus the total cost of this component, before contingencies, is estimated at US$6.3 million of which the proposed IDA credit would finance approximately 66% (US$4.2 million) on a declining basis: 100I up to an aggregated amount of US$2.0 million; 75% up to an aggregated amount of US$3.6 million; and 30% thereafter. Based on these estimates, the proposed project would finance approximately 18t of the total MOH supply of medicines for the public health sector and about 38% of the supply used in PHC services. Similarly, the proposed IDA credit would cover approximately 17% of all NH drugs in 1993, 13% in 1994, and 5 in 1995. These figures are summarized below:  - 96 - Annex 15 BASIC DRUGS FOR THE PHC NETWORK (b) Technical Assistance. As agreed between IDA and the GOH during project preparation, the technical assistance would be provided to the MOH in two phases. Phase A, financed by the Japanese Grant Agreement of March 14, 1991, was completed during project preparation and consisted of a 5-day training curse by two international consultants selected by IDA, for 20 participants, including 15 from the GPO and 5 from the MDH division of pharmacy. During their stay in Honduras, the consultants helped specify the additional computer equipment and software requirements to improve efficiency of drug procurement, and funds from the Japanese Grant Facility were allocated to procure the necessary equipment. Phase two, to be financed under the project, would consist of: (c) training of MOH staff in the use of the computer equipment for drug procurement purposes, estimated at about $21,600; (d) three-year technical assistance to MOH, comprising approximately 20 staff/days per year, estimated at $117,000, focusing on: - preparation of standard bidding documents for ICB for drugs; - preparation of annual ICB procurement, including technical specifications to be included in the bidding documents; bid evaluation methodology; bid award recommendations; contract adjudication; monitoring of contract fulfillment; and inter-agency coordination between the MOH, Ministry of Finance, and the Central Bank of Honduras.  - 97 - _ann-s 1 ENVIRONMENTAL HEALTH HLONDURAS NUTRITION AND HEALTH PROJECT ENVIRONMENTRA LTH Current Water Supplv and Sanitation Service Levels 1. Water supply and sanitation service levels, in 1989, in Honduras were reported as follows: POPULATION SERVED Total Urban Rural Ttail glU= Rural (Thousand Inhabitants) (Percentage Served) Water Suoolv Internal Plumbing & Yard Taps 2936 1760 1176 59 so 42 Standpipe 278 110 168 6 5 6 Total Water 3214 1870 1344 64 85 48 Sanitation Water-borne Systems 1440 1188 252 28 54 9 Latrines or Septic Tanks 1694 770 924 34 35 33 TOTAL SANITATION 3134 1958 1176 62 89 42 . 2. The largest unserved gap is in the rural areas, where the majority of the population still uses contaminated water sources and inadequate sanitation practices. Water service is highly rationed especially during the dry season. Tegucigalpa and other major urban centers are only partially served with water-borne sewerage. Rural water systems are also highly rationed in part because of poor promotion. Environmental Asoects 3. Intense deforestation of watersheds has gradually impaired the quantity and quality of the surface water resources. Urban areas, including Tegucigalpa, that depend mostly on surface supplies suffer from declining dry weather flows. Water quality is low. An estimated 751 of the water supply is degraded by turbidity and pollution. This situation has created a competition for water leading to indiscriminate water uses due to lack of regulation and control over water resources. The environmental impact is more acute in rural areas where soil fertility is declining and stream pollution on the rise. 4. The responsibility for protecting the environment is fragmented among several policy leading agencies including the National Environmental Commission (CONANA), the MOH, the Ministry of Agriculture, and SRCPLAN. CONAMA is now coordinating national environmental efforts but it lacks the resources to do an effective job. The Health Code decree 65-91 of May 1991 is a positive step to preserve natural resources to ensure public health and general welfare. An MOH commission is presently working on its by-laws. Sector Organization 5. The sector is composed primarily of the Servicio Nacional de Agua y Alcantarillado (SANAA), the Ministry of Health (MOH) through its Division  - 98 - Annex 16 ENVIRONMENTAL HEALTH Saneamiento and the Municipalities. Other agencies that promote water and sanitation development are the Banco Municipal and the FHIS. The Secretaria de Planificaci6n (SECPLAN) appraises and approves investment plans and coordinates sector agencies. Overall, the sector lacks coordination and is sometime duplicitous. An institutional overview of sector agencies is as follows: (a) SANAA is responsible for providing water and sanitation services to communities with more than 500 people. It is an autonomous public entity headed by a seven member board presided by the Minister of Public Health. (b) The Municivalities, 289 in total, are responsible, by virtue of a Municipal Law of January 1991, for all their basic services. This means, inter alia, building, operating and maintaining water, sewerage and drainage systems. In response to this law, SANAA plans to gradually divest the water and sewerage systems it currently owns to the respective municipalities. Some 1,000 systems have already been transferred. (c) MOH works through its Sanitation Division in rural water and sanitation in communities of 2000 and less. Its main functions are normative, including: supervision of sanitary norms, design reviews, construction supervision, water quality control and coordination with other sector agencies. Sector Operational Issues 6. A brief diagnosis of sector issues summarizes as follows: (a) absence of a leadership to take initiatives for sector development; (b) lack of policies for sector investment and operational efficiency; (c) lack of coordination among public and private agencies; (d) weak institutional and financial performance; (e) lack of an information system on operational assets, service levels and water sources; and (f) low levels of community promotion. These issues are addressed in the project, within the sphere of responsibility of the MOH, through enhanced cost-recovery activities, appropriate supervision and intensive community participation initiatives. The Rural Water SuDoly and Sanitation SubcomDonent 7. The water and sanitation component would help address the lack of water supply and sanitation in rural areas. Communities would be organized as private entities with legal status to manage their systems. The component would be implemented in the departments of Choluteca, Valle, Intibuca and Lempira with the lowest water and sanitation coverage and where the actions of other programs are limited. Overall, the rural population suffers from a high incidence of water-borne diseases and prevalent malnutrition. The component has been designed under a criteria of simple systems based on gravity supply, shallow dug wells with hand-pumps, and latrines. 8. Obiectives. The component would: (a) contribute to the development of a comprehensive primary health and nutrition program focused on the poorest  99- hAnnx 16 ZNVIROf3NTAL HBALTH population living in rural communities; (b) organize the communities as legal entities and help them undertake system construction, operation and maintenance; and (c) strengthen operational and supervision capabilities of the health regions to help rural communities properly manage rural water supplies and sanitation schemes. 9. Service Levels. The component would provide a service level that communities could choose according to their willingness to contribute. Other factors affecting service levels include the degree of house dispersion and water sources limitations. The service level options that would be offered are: (a) for water supply: (i) wells with hand-pump; (ii) water system with public standpipes; and (iii) water systems with patio connections; and (b) for sanitation: (i) dry latrines; (ii) water-seal latrines; and (iii) septic tanks. 10. At any level, the final design has to be the least cost solution or the only alternative. 11. Criteria for Selection of Communities. The NOH has the responsibility to: (a) formulate the national sanitary policy and oversee its implementation, which it does through the application of the Health Code of May 1991; and (b) supply small rural communities of 200 to 2,000 inhabitants, with basic water supply and latrines. Thus, under the proposed project, the environmental health component, to be implemented by the MDH, would benefit only rural communities with population between 200 and 2,000 inhabitants. Among these, subprojects would be located in specific communities selected according to the following criteria: (a) The community has to demonstrate its intent and readiness to form a Local Water and Sanitation Board (Juntas Administradoras de Agua, JUNTAs) to take responsibility for the construction, operation and maintenance of the systems. This requires community commitment and ability to contribute, in-kind or cash (land, labor, and materials) to construction and to pay an adequate fee for water use and system operation and maintenance; (b) Communities with poor sanitation and health (prevalence of gastroenteritis, parasitosis, cholera, and other water related diseases); (c) Surface water sources available by gravity or, for well development, ground water must be available at shallow depth of up to 25 meters; in both cases, ease of development would be an important consideration; (d) Communities must agree that latrines would be installed in rural homes simultaneously with the waterworks; in shallow well development, latrines would be installed in houses to be serve by the wells; and,  - 100 - Annex 16 ENVIRONMENTAL HEALTH (e) Communities generally located nearby all-weather or dry-weather roads; in some instances of lack of nearby roads, the community would play an important role in implementing the project since they would be asked to transport materials from the nearest town to the site. In the process of selecting communities for inclusion in the proposed project, the MOH would take care to assure that the communities are not listed in the portfolios of other ongoing or proposed programs. 12. Design Criteria (a) The target population for each village is the population in the next 15 years, at the region's rate; for villages with limited water sources, the design period may be 10 years or be based on public standpipes instead of patio connections; (b) The per capita consumption in liters per day for users with access to: (i) Hand-pumps 20 (ii) Water systems with standpipes 30 (iii) Water systems with patio connections 60 (c) Factors of average daily demand (i) Maximum day 1.3 (ii) Maximum hour 2.3 (d) Storage (% of daily demand) 35 (e) Minimum pressure in meters 5 13. Description. The proposed component would be flexible in project scope within the above criteria. It includes the construction of the following facilities: (a) approximately 40 gravity water systems (30 with patio connections and 10 with public standpipes; (b) about 300 dug shallow wells with hand-pumps; (c) nearly 10,000 latrines of the pit and water-seal types; (d) tools for community's operation and maintenance; (e) a program of community promotion to the beneficiary communities, including their participation in project construction, operation and maintenance of the systems and protection of water sources; (f) engineering studies to prepare a second stage of a water and sanitation component within a second health and sanitation project; and (g) medical waste disposal at PHC facilities, including situation analysis and development of a training module for PHC staff; the terms of reference for this study are presented in Annex 17. 14. CoaDonent Cost. The estimated component cost is US$4.11 million, including price contingencies, including: (a) US$4.08 million for water supply and sanitation; and (b) US$0.03 million for preparation of a medical  - 101 - Annex 16 ENVIRONMENTAL HEALTH waste training manual. The costs for the water supply and sanitation subcomponent are based on final design prices of 11 water systems and updated cost of modular designs for dug wells and latrines. The estimated cost includes 6' engineering and administration costs and a 10% physical contingency. Community participation was estimated at 20% of the cost of construction, in accordance with regional wages and contribution in local materials. The average current cost for both water and sanitation systems results in a per capita for water and sanitation services of US$56. The component also includes a US$0.1 million for engineering studies for second stage water and sanitation rural development, to be financed by UNICEF as a grant to MOH. 15. Imolementation This component would be executed by the MOH Project Unit with the assistance of the Sanitation Division in accordance with a Water and Supply and Sanitation Manual satisfactory to IDA. A sanitary engineer from the Project Unit has been assigned to be coordinator for this component. The duties of the coordinator would be to: (a) promote the continuity of community identification through the Health Region's promoters; (b) supervise the design work by private consultants; (c) prepare plans for designs, construction and community promotion; (d) prepare a training course for the promoters involved in promoting the component; (e) coordinate engineering studies for a second stage project and prepare progress reports of the component; (f) contract and supervise subproject construction; and (g) oversee the preparation of the medical waste disposal study. 16. Health Region Participation. The Health Regions would have responsibility for community promotion. A crew of 15 trained promoters would work in selected communities under the direction of the head regional promoter. Promoters would: (a) preselect prospective communities in accordance with selection criteria; (b) organize a JUNTA in selected communities; (c) assist the JUNTA in meeting MOH requirements; (d) impart on- the-job health education on hygiene practices and use of latrines; and (e) serve as intermediary between the community and the Project Unit. 17. A two-month course for about 40 promoters would be launched in Choluteca in October of 1992 so that they would be in the field before the credit becomes effective. The project would provide a modest financial facility to mobilize the promoters to the villages. An operational manual of the component has been prepared and would be available to the promoters. 18. Cormunity Promotion. A community promoter would visit each community to discuss health needs and survey available water resources. If the village is chosen to be part of the project a consultant would be sent to the field to study the least cost solution and estimate the system cost. The health promoter would organize a JUNTA. A construction aareement would be signed between the MOH and JUNTA before the initiation of construction works. After the works have been completed, a transfer agreement would also be signed by which the MOH transfers the property of all assets and lands and right-of-ways to the committee. 19. Legal Status of JUNTAs. The MOH has agreed to expedite the legal status of the local boards by serving as an intermediary to process their applications to the Ministry of Interior (Ministerio de Gobernaci6n). The MOH's legal department would take charge of this processing and contacts have  - 102 - Annex 16 ENVIRONMENTAL HEALTH been made with Gobernaci6n. SCES would exert supervision of the legal process. It has already prepared the legal prerequisites that need to be sent to the Ministry of Interior for approval. The MOH has agreed that the legal status of community boards would be a condition to signed the construction contract. In special cases, the NOH would allow that the legal status be obtained during the construction period and before the transfer of the systems to the communities. 20. Operation and Maintenance. Under the transfer agreement, the community would commit to operate and maintain the system and to charge a monthly fee to beneficiary families to pay for expenses, as well as to create a small reserve for expansion. Decree 100-90 authorizes local boards to set tariffs with a charge of L4.00 per month per house connection. Local tariffs would be adjusted periodically to ensure coverage of the cost of operation and maintenance requirements of each local system. The JUNTA would follow operational and accounting procedures as set forth in the MOH's manual for operation and provision of services. The MOH would periodically supervise the operation, but not less than once a year. Control of the Oualitv of the Water 21. The MOH, through its Health Regions, would be responsible for testing the quality of the water supplied by the systems built under the project. These tests would be carried out at least once a year, no later than March 31 of each year. The MOH would also be responsible for taking any remedial action as necessary to ensure adequate quality of the water supplied. Medical Waste Disposal Subcomponent 22. To address the need of appropriate disposal of medical waste, including contaminated waste such as used needles, the NDH would contract consultant's services to: (i) carry out a review of current waste disposal conditions at PHC centers in the project area; and (ii) prepare training instruments that would be used to train PHC staff on appropriate medical waste disposal practices. The terms of reference for this study are presented in Annex 17.  - 103 - Annex 17 TERMS OF REFERENCE HONDURAS FOR STUDIES NUTRITION AND HEALTH PROJECT TERMS OF REFERENCE FOR STUDIES These terms of reference were discussed and agreed upon during negotiations. The terms of reference for the long-term nutrition policy (item A below) and for the cost-recovery of MOH health services (item B below) are attached to the legal documents as a Supplemental Letter to the Credit Agreement. A. LONG-TERM NUTRITION POLICY 1. Objective. The objective of this study is to formulate a comprehensive long term nutrition policy capable of promoting efficient, technically and financially sustainable improvements in the nutrition status of the Honduran population. 2. Terms of Reference (a) Nutrition Trends (i) Prevalence of nutritional deficiencies by type, population category, socioeconomic group, region, and other relevant categories. Cross-sectional data for the latest year available, and time series when feasible; (ii) Analysis of major nutritional problems facing Honduras and of target groups for interventions; identification of key variables and vulnerable groups to be addressed to resolve the problem; (iii) Analysis of food security issues in the context of aggregate macroeconomic policies; (iv) Analysis of food aid policies of the Government and of major donors, and impact of these on the design of nutrition program; description of prospects for future aid flows and constraints on their utilization; and (v) Analysis of patterns of food insecurity and compensating strategies used at the household level. (b) Nutrition and Food Aid Program (i) Background, objectives and brief description of each program in terms of: (1) program objectives, including scale and mix of types of nutrition/food assistance; (2) number, classification and distribution of intended and actual beneficiaries (coverage ratios); (3) target groups and targeting mechanisms used for beneficiary selection; (4) mechanisms used for delivering assistance and criteria linked to selection of these mechanisms; (5) linkages of main delivery mechanism to other nutrition promoting activities; (6) coverage, total and unit costs, and program financing arrangements; (7) design and actual impact on nutrition problems of target beneficiaries; and (8)  - 104 - Annex 17 TERMS OF REFERENCE FOR STUDIES implementing agencies and degree of community and beneficiary participation; (ii) Analysis, taking into account the interactive impact of poverty, illness and ignorance on nutritional status, of coverage and nutritional impacts on selected vulnerable groups, of the existing nutrition assistance programs; identification of problems of efficiency and distributive fairness in current programs' coverage patterns; in particular, analysis of the extent of overlapping which might exist between nutrition assistance programs, and the extent to which programs detract from the central objective of reducing malnutrition; (iii) Analysis of institutional arrangements for the provision of nutrition assistance, including public/private mix, and identification of issues related to institutional arrangements and support from non-governmental agencies; (iv) Institutional analysis of FAP; and (v) Analysis of sources of data related to nutrition, especially, anthropometric measurements and measurements used in child growth monitoring, regarding: (1) validity and reliability of the collection of basic weight, height and age data by the MOH at primary health care facilities; (2) methods of data processing and the flow of data from the local to the central level of the M0H; (3) capacity for data analysis at the local, regional and central levels of the NDH and FAP, and their utilization in decision-making; and (4) feedback of findings to the local level aimed at improvements in nutrition assistance and maternal and child health care. (c) Recommendations for a lona term nutrition oolicv (i) Recommendations to improve coverage of vulnerable groups fairly and efficiently through the implementation of nutrition assistance programs, including recommendations to better coordinate public and private nutritional services, and to eliminate undue overlaps of benefits among programs; (ii) Recommendations on nutrition education programs; (iii) Recommendations for coordinating food aid programs with delivery of other social services that interact strongly on nutritional outcomes: (1) primary health care services, especially maternal and child health care; (2) day-care, pre-school and primary education; and (3) community development programs; (iv) Recommendations for policy adjustments in other complementary sectors to provide a satisfactory and enabling environment for reducing the incidence of moderate and severe malnutrition; these complementary sectors are: (1) environmental health, including water supply and sanitation; (2) food commodities regulations, inspection and  - 105 - Annex 17 TERMS OF REFERENCE FOR STUDIES marketing/advertizing practices; (3) diarrhea and intestinal parasite control programs; and (4) community social services; and (v) Recommendations for adjusting externally assisted food aid and food coupon programs with the long term nutrition policy. (d) Evaluation of the FAP food coupon vrogram comprising of an analysis of the impact of the food coupon program on maternal and child health status, improvement of which is the main objective of the proposed project. Data for this evaluation would be collected from the Project Area and from a comparable non-project area that would be used as control. The evaluation would focus on determining the program's impacts on: (i) the nutrition status of pregnant women, including weight gains during pregnancy; (ii) maternal mortality; (iii) frequency of low weight baby-births; and (iv) weight and height of children, including school and preschool children. 3. OrQanization and Timetable. The study would be carried out over a period of 6 months and would require an estimated 10 months of consultants' services, estimated at US$100,000, which would be wholly financed by the proposed IDA credit. The terms of reference for this consulting assignment have been confirmed at negotiations; choice of consultants and contract signature would be completed by March 31, 1993; execution of the assignment would be completed by November 15, 1993; discussion of policy recommendations would take place during the first annual review by December 10, 1993; the implementation plan would be completed by January 15, 1994; and implementation would commence immediately thereafter and would be completed by December 31, 1995. The consultants' team, including a food security economist, and nutrition specialists, would travel to Honduras twice for a three-week period, to collect data in the field. Based on the analysis of the data collected, the consultants' team would prepare a comprehensive report, including recommendation, to be presented to the Government and to the donor community. During a third trip, the consultants' team would lead a two or three day workshop to discuss the policy recommendations. The study would be coordinated by the MOH. B. COST-RECOVERY OF MOH HEALTH SERVICES 4. Background. The MOH started a pilot cost-recovery program in 1989 through user fees charged for curative services at hospitals and PHC facilities with the objective of recovering 25k of the operating costs (excluding salaries), that is, almost 12% of total operating costs. The MOH has developed a sophisticated management information system to control revenues recovered and their use by local facilities. This information system is a major asset for the proposed study. The major issues affecting the performance of this cost recovery system are: (a) the incentive for  - 106 - Annex 17 TERMS OF REFERENCE FOR STUDIES recovering costs provided by local retention of most of the costs recovered by 1OH facilities may be revoked by the GOH, once the agreement signed with USAID expires in 1995; (b) a preliminary analysis of the performance of the MOH cost recovery system indicates that: (i) cost recovery incentives need to be tailored to PHC facilities, because only curative services are charged while PHC services are predominantly preventive; (ii) cost recovery agreements between MOH and the Honduran Social Security Institute for shared services, are not in place; (iii) differential fees for privately insured patients have not been established; and (iv) the MOH needs an action plan to improve performance and expand coverage of its cost recovery system. 5. Obiectives. The proposed study aims at providing the MOH with the necessary management tools to maximize cost recovery at hospitals and primary health care facilities while expanding access and use of primary health care services, and guiding the MOH in the implementation of a more equitable and efficient system nationwide. 6. Terms of Reference Phase I - Diacnosis (a) Institutional Analysis; (i) Legal framework and regulations governing cost recovery of health services; (ii) Inter-institutional framework (MOH and the Honduran Social Security Institute) and its implications for the MOH cost recovery system; and (iii) Insurance systems, including private systems, and their implications for the MOH cost recovery system; (b) Analysis of the MOH Present Cost Recovery System; (i) Basic characteristics; (ii) Performance at the hospital service level; (iii) Performance at the PHC service level; (iv) Structure of user fees and its equity impact; (v) Analysis of cost recovery performance at the level of health regions; (vi) Main inefficiencies of the current system; and (vii) Constraints to system reform. (c) Presentation of Preliminary Report; Phase I - Recommendations (i) Recommendations for system reform; (ii) Cost benefit analysis of proposed reform;  -107 - Annex 17 TERMS OF REFERENCE FOR STUDIES (iii) Specification of cost recovery targets by health regions, distinguishing between hospital and PHC services; and (iv) Technical, material and financial requirements for the implementation of the proposed reforms. (d) Presentation of Final Phase I Report; (e) Workshop to discuss the report and reach agreement on policy reform and implementation plan; Phase II - Implementation (f) Pilot implementation in 2 or 3 health regions; (g) Review of the results of the pilot implementation, and adjustments to the system; and (h) Program for expanding the cost recovery system nationwide. 7. Organization and Timetable. The activities under this study to be carried out by the MOH include a fist phase directed at assessing the situation and recommending measures to improve the present cost recovery system, and a second phase when the recommendations of the study would be implemented in two or three health regions. The study would be conducted by specialized consultants (either individuals, or firm) over a period of three years. During the first year, the Phase I study program would be completed. During the second and third year, implementation of the improved cost recovery system would take place in the health regions. The proposed study is estimated to require approximately 38 months of consultants' services, estimated to cost US$380,000, and would be wholly financed by the proposed IDA credit. The terms of reference for this consulting assignment have been confirmed at negotiations; choice of consultants and contract signature would be completed by March 31, 1993; execution of the assignment would be completed by December 10, 1993; discussion of policy recommendations would take place during the first annual project implementation review; the action plan would be completed by January 31, 1994; implementation and technical assistance to support implementation, would commence immediately thereafter and would be completed by December 31, 1995. C. Medical Waste Disposal Study and Trainina Module 8. Backoround. A preliminary evaluation of the conditions under which biosecurity equipment and materials and their final disposal is handled at the MOH PHC facilities, indicates lack of safe disposal methods and facilities. For disposal purposes, medical waste is not separated from common solid waste and is dumped in the same unprotected garbage pile. In CESAMOs that have laboratories, test vessels are disposed off in common garbage cans. The poor often retrieve syringes from these garbage cans for resale, some are used as toys by children, and even used cotton balls are retrieved from the garbage by alcoholics. Moreover, most health staff do not have access to biosecurity materials such as rubber gloves and masks. Clearly, there are serious environmental and health threats associated with the inadequate medical waste disposal practices in MOH primary health care facilities.  - 108 - Annex 17 TERMS OF REFERENCE FOR STUDIES 9. Obiectives. The proposed study would help achieve the following objectives: (a) Analyze the conditions under which medical waste is disposed off at the MOH PHC facilities, and estimate the needs for biosecurity materials, equipment and building repairs and their investment and recurrent costs, to ensure adequate protection to staff and patients and safe disposal of medical waste; (b) prepare a training manual, tailored to auxiliary nurses and laboratory technicians, on biosecurity norms for handling and disposing of hazardous materials, including techniques for collection, transport and final disposal of medical waste; and (c) design and implementation of a training program for auxiliary nurses, laboratory technicians and waste collection and disposal personnel. 10. Activities. The study would involve three specialists during approximately 4 months, or 12 months of consultants' services, and would be conducted in three phases, comprising the following activities: Phase I - Diacrnosis specifying for primary health care facilities: (a) needs for biosecurity materials, equipment and building repairs to ensure adequate protection to staff and patients and safe disposal of medical waste: (b) procedures to improve the system of collection and disposal of medical waste at the CESAMOs; (c) cost estimates (investment and recurrent costs) for the execution of civil works, installation of equipment, and provision of biosecurity materials; Phase II - Development of a Training Manual. Organization of a working group consisting of an specialist in biosecurity materials, a public health specialist and a cytologist to: (d) analyze, based on site inspections, the handling and disposal of medical waste, health personnel practice, and local behavior patterns associated with the handling of medical waste; (e) define the functions and activities of the staff responsible for handling medical disposal equipment, and the internal and external collection and disposal of medical waste; (f) prepare a training manual on disposal of medical waste, comprising: (i) description of contents of the training program; (ii) program format; (iii) didactic materials; and (iv) practical examples of adequate handling and disposal of medical waste; (g) presentation of a preliminary report and training manual;  - 109 - Annex 17 TERMS OF REFERENCE FOR STUDIES Phase III - Review and Imolementation (h) the training manual would be submitted for validation to two or three specialist who would not have taken part in the study; (i) test of the first version of the manual in primary health care facilities located in the project area, with staff responsible for handling hazardous materials and disposing of medical waste, and review of the manual; and (j) preparation and implementation of a training program for health area supervisors on the use of the manual at the primary health care facilities, and how to incorporate the manual in the regular training program for primary health care staff. 11. Organization and Timetable. The study and training manual would be contracted by MOH to local consultants, satisfactory to IDA, involving approximately 12 months of consulting services at an estimated cost of US$34,000, to be wholly financed by the proposed IDA credit. The terms of reference for this consulting assignment have been confirmed at negotiations; choice of consultants and contract signature would be completed by March 31, 1993; execution of the assignment would be completed by August 15, 1993; and training would commence by September 15, 1993 and continue thereafter. D. Operations Research 12. Obiective. Implement specific studies on maternal and child health care and nutrition programs in the project area (para. 12) in order to design specific options for improvements. 13. Priority Topics. A preliminary list of priority topics would be as follows: (a) The information system at the local level (CESAR and CESAMO), including rationalization and simplification of the forms which are used by auxiliary personnel, of the registration of data, of data flows from the facility to higher levels of MOH administration, development of data analysis capabilities; development of information feedback arrangements reaching the local level, and procedures for using the data for decision-making at all levels of the MOH administrative system; (b) Referral system from CESARs and CESAMOs to the health area and area hospitals, focusing on birth attendants' referrals, communications, transportation and resolution capacity at the health area level (emergency rooms, maternities, blood banks and surgery facilities); (c) Indicator(s) for better measuring the integration of the delivery of primary health care services at the CESARs and CESAMOs; (d) Impact analysis of the institutional capacity of FAP to address nutrition problems; and (e) Use of sentinel sites to measure changes over time, through impact indicators (such as infant mortality rate, maternal mortality  - 110 - Annex 17 TERMS OF REFERENCE FOR STUDIES rate, nutrition status, low birth weight rate), and to monitor linkages between impact indicators and other performance indicators, such as access to primary health care services by mothers and children, percentage of children immunized, availability of essential drugs, and accessibility of referral institutions. 14. Organization and Timetable. The operations research proposed would be carried out by the MOH during the three years of project implementation, through the Master's Program of the School of Public Health of the National Autonomous University of Honduras. Master students would be assigned specific topics to research at health areas with which they are most familiar. This formula offers reasonable assurances of success, for the following reasons: (a) most of the students in the Master's Program are chief of health areas, including the areas that are part of the proposed project; (b) students would continue to perform their MOH functions during the course, and (c) students are required to continue in their present functions, once they graduate. Priority for assignment of topics would be given to those aspects of the primary health care system that are not working properly at the present time. The MOH would be responsible for entering into a consulting contract with the University, and for supervising the operations research activates. The contract between the University and MOH would be signed by May 31, 1993; the annual study program would be approved by MOH in consultation with IDA during the annual project implementation reviews; research activities would be carried out between April 1 and October 31 of each year; and technical reports on each study would be presented by November 15 of each year. 15. Cost estimates. The cost of the operations research to be carried out under the proposed project is estimated at US$150,000 and would be wholly financed by IDA. E. Study of the SupplV of Generic Drugs through the Private Sector 16. Background. In the private pharmacies of Honduras, the predominant type of drugs offered for sale are brand-name drugs, which are sold at relatively high prices. Typically, the private pharmacies have few lower-income clients. To date, generic drugs constitute a very small share of total drugs sold by private pharmacies. This situation would need to be changed if the private pharmaceutic sector were to effectively contribute to improving the health status of the majority of Hondurans who cannot afford brand-name drugs. 17. Oblectives. The study aims at increasing access, for the majority of the population, to essential drugs that are of high quality and low price, through the analysis of ways in which the private pharmaceutic sector would increase its procurement and distribution of generic drugs throughout the country. 18. Terms of Reference. The study would focus on the following constraints to the marketing of generic drugs by the private pharmaceutical retail industry: (a) legal and regulatory; (b) organizational; (c) marketing;  - 111 - Annex 17 TERMS OF REFERENCE FOR STUDIES (d) economic; (e) financial; (f) information on suppliers; (g) quality control safeguards; and (h) procurement methods. 19. Reporting. The consultants engaged for this study would: (a) prepare a preliminary report for discussion with the Cooperative of Private Pharmaceutical Product Retailers at the end of the 6th month of the study, (b) incorporate their comments, and (c) present a final report at the end of the 7th month of the study. 20. Organization and Timetable. Consultants' services would be contracted by the MOH to provide technical assistance to the Cooperative of Private Pharmaceutical Product Retailers, aiming at producing specific recommendations for the expansion of private supply of generic drugs through the local retail market. The study would require approximately 8 months of consultants' services. The cost of these consultants' services was estimated at US$72,000 and would be wholly financed by IDA. The terms of reference for this consulting assignment have been confirmed at negotiations; choice of consultants and contract signature would be completed by March 31, 1993; execution would commence immediately thereafter and a final report would be presented by August 31, 1993; discussion of policy recommendations would take place during the first annual implementation review, when measures to be taken would be approved by the MOH in consultation with IDA. F. Technical Assistance to the Ministrv of Health (NOH) for the Procurement of Drugs. The terms of reference for this consultant assignment is presented in Annex 15, Section D. G. Radio Communications Feasibility Study and Pilot Program 21. Background. The MOH network of primary health care facilities is devoid of means of communication, particularly in the rural area, lacking both transportation and telecommunications. This circumstance precludes primary health care staff to: (i) efficiently refer cases to higher level MOH facilities, and (ii) receive guidance when facing emergency situations. This communication gap could be bridged through the use of radio communications at relatively low cost. The MOH has already successfully experienced the use of radio communications during the emergency campaign to control the cholera epidemic. The Red Cross of Honduras has had extensive experience with radio communications and equip all its ambulances with a packet-radio. Both of these experiences augur well for the introduction of radio communications at the CESAR and CESAMO facilities of the MOH. 22. Obiectives. The feasibility study of radio communications services the MOH network of primary health care facilities in the project area that lack telephones, aims at: (i) determine what type of equipment would best suit the needs of these facilities; (ii) design the appropriate network to operate the system; (iii) specify maintenance arrangements needed to keep the system in good operating conditions; (iv) design a training program for auxiliary nurses to operate the system; (v) analyze the costs and benefits of the recommended system, and estimate the component of recurrent costs; (vi) install a pilot  - 112 - Annex 17 TERMS OF REFERENCE FOR STUDIES radio network consisting of 10 stations and one hub-station, to test the system in practice; (vii) assess the results of the pilot experience; and (viii) design the expansion of the system to an additional 30 local stations and the required number of hubs. 23. Scope of Work. The work would be performed in four phases, schedule as follows: Phases I, II and III, during the first year of project implementation; Phase IV during the second and third year of project implementation. The estimated number of stations to be installed by year is: 10 in the first year, 15 in the second year and 15 in the third year. The activities to be carried out in each phase include: Phase I - Feasibility Study (a) Information needs analysis; (b) Hardware selection and procurement; (c) Network design; (d) Legal authorizations, export licenses; Phase II - System Integration and Testing: Pilot Network of 10 Stations (e) Technical assistance for system installation; (f) Training of local operating and maintenance staff; (g) Supervision of initial operation; Phase III - Assessment of Pilot Exoeriment (h) System performance evaluation; (i) Preliminary design of network expansion; Phase IV - Installation of Expanded Network of 30 Stations (j) Detailed design of network; (k) Procurement of hardware; (1) Installation; (m) Training of local staff for operation and maintenance; and (n) System's integration and testing. 24. Reoortin . Following the completion of each phase, the consultant would present a progress report to MOH. In addition, at the end of Phase III, the consultant would present a comprehensive report on the results of the experimental stations, for discussion during the first annual project implementation review. 25. Choice of Consultant. A specialized NGO would be contracted to prepare the feasibility study, conduct the pilot experiment, its assessment, and install the expanded network. The Government has agreed to contract The Volunteers in Technical Assistance (VITA), of Arlington, Virginia, to carry out these activities. VITA has extensive experience in communication  - 113 - Annex 17 TERMS OF REFERENCE FOR STUDIES technologies applied to the health sector, including radio, telephone, and computerized satellite communications. VITA's experience in developing countries is impressive, including in two Central American countries. Its list of completed and on-going projects includes: Argentina, Cuba, Djibouti, Gambia, Ghana, Guatemala, Indonesia, Jamaica, Kenya, Mozambique, Nicaragua, Nigeria, Pakistan, Philippines, Sierra Leone, Sudan, Somalia, Tanzania, Uganda, Zaire, Zambia and Zimbabwe. VITA's expertise in packet-radio communications has been successfully tested in the Sudan, where it installed a six-station solar-powered packet radio network linking a number of health centers; in Ethiopia, where it assisted CARE in helping solve field communications problems during the 1985 famine relief efforts; and in Jamaica, following Hurricane Gilbert, in 1988, where VITA helped establish a packet- radio network for Jamaica's Office of Disaster Preparedness. 26. Organization and Timetable. VITA would be contracted by MOH, as part of the proposed project, to prepare the feasibility study, provide initial technical assistance and training for installation of the pilot network, assess the results of the pilot experiment, design the expansion of the network, and provide technical assistance and training for the expanded network. Overall, the work is estimated to require about 16 staff/months. The cost of the study, including equipment for the pilot stations, was estimated at US$160,000 that would be wholly financed by IDA. The cost of equipment for the expanded network is estimated at US$0.3 million for 30 additional stations, and is included in the project cost tables as part of equipment for primary health care centers and would be wholly financed by the proposed IDA credit. The terms of reference and the choice of consultants for this consulting assignment was confirmed at negotiations; the consultant's contract would be signed by March 31, 1993; the feasibility study would be completed by June 30, 1993; a pilot network of ten stations would have been installed by September 15, 1993; an evaluation of the pilot network would be completed by December 10, 1993; MOH would decide on the expansion of the network to comprise an additional 30 stations, in consultation with IDA during the first annual project implementation review; if the decision is positive, procurement of the hardware for the expansion of the network would have been carried out by MOH immediately thereafter; and installation of the additional stations would be completed at least by the following dates: 15 additional stations by December 31, 1994 and all 30 additional stations by December 31, 1995. H. School Nutrition Censuses 27. The Ministry of Education has conducted nutrition censuses of first grade primary school students aged 6-9 years in 1987 and 1991, with technical assistance form the Institute of Nutrition for Central America and Panama. The Ministry of Education presently has all the necessary expertise to conduct such censuses without further technical assistance. Under the proposed project, the SCES would be responsible for the implementation of annual school nutrition censuses carried out by the Ministry of Education. The cost of conducting three nationwide school nutrition census is estimated at US$270,000, to be wholly financed by the proposed IDA credit.  - 114 - Annx 18- NUTRITION AND HEALTH HONDURAS SECTOR POLICY LETTER NUTRITION AND HEALTH PROJECT SECRETARIA DE HACIENDA Y CREDlTO PUBLICO REPUBLICA DE HONOURAS S-226 Tegucigalpa, D.C. Novenber 18, 1992 No Mr. Lewis T. Preston President The World Bank 1818 H. Street. N.W. Washington, D.C., 20433 Dear Mr. Preston: 1. Since 1990, the Government of Honduras has started a comprehensive program to support human resources in parallel with its structural adjustment program. In the short term, priority has been given to poverty alleviation through the execution of the safety net programs managed by the Honduran Social Investment Fund (SIF) and the Family Assistance Program (FAP). These programs are targeted to the most vulnerable members of society and are intended to prevent a deterioration in the already precarious living standards of the poorest groups during the adjustment period. Through the SIF and FAP programs, the Government has been able to respond rapidly to a critical poverty situation, until the ministry line have been strengthened and project activities may be reintegrated into normal ministry operations. More generally, to protect social sector programs from the full impact of the austerity measures underway, it is the Government's intention to at least maintain the share of social expenditures in the budget roughly constant in real terms, at one-third of public spending and about 11% of GDP, during the remainder of this Administration ending in December 1993. To assist in the transition to the next Administration, during 1993, the Government plans to undertake- a comprehensive review of social sector expenditures, with support from the Japanese Grant Facility. Based on the results of this review, we will recommend to the next Administration a social sector adjustment operation that will include appropriate budgetary reforms and adjustments to the share of social sector expenditures, in support of a long-term program of human resources development. 2. SIF assistance is viewed as temporary, and is scheduled to end by March 1994. Program activities include financing for rehabilitation of schools and health centers, construction of latrines and wells, provision of teaching materials and health supplies, training for social personnel, and credit for informal  - 115 - Annex 18 NUTRITION AND HEALTH HONDURAS SECTOR POLICY LETTER NUTRITION AND HEALTH PROJECT SECRETARIA DE HACIENDA Y CREDITO PUBLICO REPUBLICA DE HONDURAS TegucigaJpa, D.C. November 18, 1992 No S-226 sector activities. The SIF has worked closely with the Ministries of Health (MOH) and Education (MOE) and with local communities to ensure that these entities would provide staff and finance operating expenses and maintenance on a recurrent basis for social infrastructure rehabilitated or constructed with SIF. financing. To date, approximately 3,415 subprojects have been financed through the SIF for a total cost of US$56,4 million, and an additional 2,500 subprojects are planned for 1993. In parallel to the SIF program, nutrition assistance is being provided to the most vulnerable groups at risk of malnutrition through the FAP food coupon program. FAP's assistance is given, in collaboration with the MOH and MOE, through the targeted distribution of food coupons to poor, pregnant and nursing women, poor primary school attenders, and poor children under five. To date this program has benefitted approximately 160,000 women and children in the poorest areas of Honduras with highest malnutrition rates. The program has worked well and it is the Government's intention to expand it with donor support. 3. To consolidate the achievements in the nutrition and health sectors recorded during the first three years of this Administration, the Government of Honduras has decided to place special emphasis on policy reforms and rationalization measures that are still needed to improve sector efficiency. Three main areas will be covered. First, the Government will promote food security and provide nutrition assistance to the most vulnerable groups by consolidating FAP's achievements in the short term and designing and implementing a long-term nutrition policy. Second, it will increase accessibility to public health services, with renewed emphasis on primary health care services. And third, it will expand the supply of potable water and basic sanitation services to rural areas and in marginal urban areas that are not currently served. Through these reforms, the Government expects to redirect scarce resources toward the country's neediest groups and achieve economies that will help improve social services. The purpose of this letter is to present the Government's policies in nutrition, public health, water and sanitation, which have a direct incidence on health. It also presents the monitoring system incorporated in the Government's program to measure progress, including the impact of social programs on the welfare of Honduran families.  - 116 - Annox 8l* NUTRITION AND HEALTH HONDURAS SECTOR POLICY LETTER NUTRITION AND HEALTH PROJECT SECRETARIA DE HACIENDA Y CREDITO PUBLICO REPUBLICA DE HONDURAS S-226 Tegucigalpa, D.C. Noverber 18, 1992-o... No.22.. Nutritional Services 4. The Government plans to improve and expand nutrition assistance provided by FAP and the MOH by: (a) expanding the FAP food coupon program to at least 250,000 beneficiaries per year, including young children and pregnant and nursing mothers at risk of malnutrition by 1995; (b) strengthening the links between nutrition assistance and the provision of basic health and education services; and (c) expanding nutrition education programs through the MOH, including education on breast feeding, weaning practices and feeding of small children at public health facilities and at the community level, in collaboration with local non- governmental organizations. 5. Given the magnitude of the need for nutrition assistance in the country, significant reduction in malnutrition can only be achieved through the implementation of a long-term program. For that reason, the life of FAP, originally limited to four years, was extended indefinitely by Congress in October 1992. There is also the need to enaure complementarily between the FAP food coupon program and other in-kind food distribution programs, review the efficiency of these programs and ensure that their targeting is adequate. To that effect, by November 15, 1993, the Government will prepare a draft long-term national nutrition policy to: (i) asseas the optimal mix of nutrition interventions, and place emphasis on the most efficient programs; (ii) review to what extent monetization of food aid currently distributed in-kind could be increased; (iii) conaolidate the institutional framework for the delivery of nutritional services, by strengthening PRAF's administrative capacity to manage an expanded food coupon program; (iv) improve coordination among donor institutions providing nutrition asaistance ; and (v) ensure the long-term sustainability of targeted nutrition assistance programs through progressive increase of the Government's share in program financing for discussion with the Association. Implementation of this long-term nutrition policy will commence on February 1, 1994. 6. During the 1993-1995 period, the Government will continue its efforts to mobilize additional funding from the donor community to help suatain the FAP food coupon programs beyond the life of the proposed Nutrition and Health Project, thus ensuring the sustainability of these programs and the implementations of its  - 117 - ^.ug 18 NUTRITION AND HEALTH HONDUR\ SECTOR POLICY LETTER NUTRITION AND HEALTH PROJECT SECRETARIA DE HACIENDA Y CREDITO PUBLICO REPUBLICA DE HONDURAS rcguciKalPa, D.C. November 18, 1992 No.S-226. nutrition policy over the long term. Specifically, the Government plans to pursue initial discussions with: (i) the Inter-American Development Bank regarding a US$30.0 million soft loan to assist the FAP programs; (ii) the World Food Program regarding a follow-up grant of US$10.0 million equivalent in monetized food aid; and (iii) the rJnited States Agency for International Development, regarding the possible monetization of a larger share of its food aid to Honduras. Public Health Services 7. To address the health problems facing the Honduran population of the short and medium-term, the Government has started to take a number of measures to strengthen the MOH institutional capacity in the areas of personnel administration, financial management, and management of pharmaceutical supplies. The Government will aloo introduce specific reforms in the delivery of hospital and primary health care services, carrying out specific studies upon which these reforms would be based, as necessary. Finally, the Government will improve the MOH system of epidemiological surveillance to further reduce the incidence of transmissible diseases. This sector's specific objectives are described below. (a) Tncreese the efficiency of the MOH ersonnel administration. by: (a) increasing the number of nurses, dentists, microbiologists and masters in public health by 1995, in order to improve the mix of human resources in the sector; (b) expanding the supply of auxiliary nurses and health technicians, including laboratory, X-Ray, anesthesiology, and environmental health promoters trained each year by the MOH, stabilizing the number of graduated auxiliary nurees at 600 per year by 1993; (c) modernizing and intensifying in-service training programs; td) further develop the computerized personnel registry system; (e)continuing to reallocate personnel according to service priority needs and individual skills; and (f) proceed to evaluate the MOH system of personnel administration in the context of the new Law of Modernization of the State; (b) Tncrease the efficiency of the MOH financial Adminintration through: (a) further decentralization of the budgetary  - 118 - Annex 18 NUTRITION AND HEALTH HONDURAS SECTOR POLICY LETTER NUTRITION AND HEALTH PROJECT SECRETARIA DE HACIENDA Y CREDITO PUBLICO REPUBLICA DE HONDURAS Tegucigalpa, D.C. November 18, 195Z - No.. S.-226. process, by expanding the management information system (MIS) to include the modules pertaining to financial administration, administration of materials and pharmaceutical supplies, and administration of personnel at the region and central level; (b) preparation and implementation of a budgetary reform for the MOH; (c) rationalization of personnel compensation policy through implementation of salary adJustments conducive to reducing the gap between doctors' salaries and those paid for nursing and auxiliary nursing services have been introduced in 1992 and incorporated in the 1992 MOH budget; (d) evaluation of the performance of the cost recovery system and preparation of an action plan to introduce improvements in such system by December 6, 1993 and implementation of such plan during 1994- 1995; (e) extension of the computerized system of productivity control, resources and costs, developed for 9 hospitals to all 26 hospitals of the country by 1994; (c) rncreame nccessibilitv and auality of Drimarv health care services (PHC) provided by the MOH. through: (a) consolidation of local planning and community participation; (b) implementation of the new supervision system that combines field supervision with group meetings by 1993; (c) implementation of an integrated service delivery model in parallel with quality improvements; (d) increases in the number of staff allocated to PHC services by posting one additional auxiliary nurse at each CESAR serving more than 1,500 people and by allocating a permanent doctor. to each CESAMO; and (e) improvement in the efficiency of referral and counter-referral systems through better communication links between service units at all levels; (d) Imorove the gualitv and efficiency of hobDital services. through: (a) extension of the system of aelf-evaluation and accreditation from 10 to 26 hospitals; (b) completion of the program of repairs on buildings and auxiliary facilities by 1993; (c) preparation and implementation of a systematic hospital maintenance plan, including supply of necessary spare parts for fixed and mobile equipment and vehicles; (d) strengthening of systems aimed at improving hospital productivity, particularly accreditation, cost control, and  - 119 - NUTRITION AND HEALTH HONDURAS SECTOR POLICY LETTER NUTRITION AND HEALTH PROJECT SECRETARIA DE HACIENDA Y CREDITO PUBLICO REPUBLICA DE HONDURAS Tegucigalpa, D.C. November 18, 1992 No.S226 cost recovery; and (e) periodic revision and adjustment to staff training programs; (e) Tmorove the Drovision of medicinea And health siruvlies nationwide through: (a) applying rigorously the new Sanitary Codes for the control of pharmaceutical products that are imported, produced, or sold in the country; (b) increasing the proportion of generic drugs over total drugs procured by the public sector; and (c) promote the production of critical health supplies within the country; this is planned to be implemented by 1994; (f) Consolidate and exoand the MOH svstem of e2idemiological surveillAnce through expansion of the computerized system of epidemiological surveillance to all areas of the variouas health regions of the country; (g) Continue Ane exnend tht- cntrol of trmnsmih1gl diseese- through intensification of control activities targeted to diseases that account for the highest incidence of morbidity and mortality, especially diarrhea, acute respiratory infections, malaria, tuberculosis and sexually transmitted diseases, particularly AIDS; and, (h) Mobilize mmunity D tinn for health through further decentralization of health and nutrition services at the regional and municipal levels, directly involving local communities. Water SuD1pY and Sanitation Services B. The three main institutions active in the water supply and sanitation sector are the National Water and Sewerage Service Company (SANMAA), the MOH and the municipalities. Through SANAA, the Government plans to continue improving and expanding coverage of water supply and sewerage services in urban areas, aiming at achieving the following physical targets during the 1993-95 period; (a) completion of water production works associated with the Tegucigalpa dam; (b) improvement of water treatment facilities in Tegucigalpa; (c) improvement of the water distribution network in Tegucigalpa to expand coverage, reduce A^  - 120 - Annex 18 NUTRITION AND HEALTH HONDURAS SECTOR POLICY LETTER NUTRITION AND HEALTH PROJECT SECRETARIA DE HACIENDA Y CREDITO PUBLICO REPUBLICA DE HONDURAS Tegucigalpa, D.C. Noventer 18, 1992 No. X.-226 losses and ensure appropriate quality control standards; (d) completion of water supply systems that were initiated in 5 intermediary cities and preparation of engineering designs for an additional 20 cities; and (e) completion of sewerage works in one medium-sized city. 9. The National Water and sewerage Service Company's (SANAA) medium-term investment policy is supported by the parallel development of the sector's institutional organization through administrative decentralization, whereby the operation and maintenance of the water supply and sewerage systems is transferred to local entities, either municipalities or Local Water Boards (Juntas Admnistradoras de Agua - JUNTAS), based on legal instruments already in place that ensure adequate cost recovery and organization at the local level. 10. Through the MOH, the Government plans to expand the supply of rural potable water and sanitation services with community participation by: (a)construction of simple water supply systems, shallow wells, latrines, septic tanks and small sewerage systems in priority rural and marginal urban areas currently unserved, benefitting and additional 300,000 inhabitants by December 31, 1995; (b) intensification of education and promotion activities focusing on environmental health; (c) improvement in the quality of the water of existing systems through water treatment and periodical teats; and (d) continuing training local JUNTAS to recover costs from the beneficiaries ensuring uninterrupted service operation and maintenance. 11. The municipalities are progreasively taking over from SANAA the responsibility for building, operating and maintaining their water, sewerage and drainage systems. Formally, responsibility for basic services has been transferred to local governments through a Municipal Law approved by Congress in 1991. In practice, over a thousand water systems and some 40 sewerage systems have already been transferred to municipal authorities for operation and maintenance. The Government plans to continue this decentralization process at the same time it provides the necessary technical assistance to strengthen local capacity to administer and operate the syatems. 12. However, the sector still lacks overall coordination and,  - 121 - Ann&x IS NUTRITION AND HEALTH HONlDURAS SECTOR POLICY LETTER NUTRITION AND HEALTH PROJECT SECRETARIA DE HACIENDA Y CREDITO PUBLICO REPUBLICA DE HONDURAS Tegucigalpa, D.C. 18, 1992 NoS-226 sometimes, agencies exerciae overlapping activities. Thus, the Government recognizes the need to restructure the water supply and sanitation sector and to further promote its institutional development. To this end, in 1993, the Government Plans to undertake a study to analyze the main sector iasues, decide on appropriate solutions, taking into account the new municipal law by December 31, 1993, and start implementing appropriate measures by February 1., 1994. Specifically, the study would focus on: (a) the sector organization; (b) the policies that guide' the supply of potable water and sewerage services, including criteria for ensuring protection of critical watersheds and attention to downatream water quality; (c) the aector investment policies; (d) the atrategy and appropriate mechanisma for the transfer of water and saewerage syatems to the municipalities; (e) the development and implementation of more efficient financial. accounting, collections and auditing systems, and (f) establishment of norms regulating cost recovery for water and sewerage services throughout the country ao aa to guarantee efficiency and financial stability in the sector. In parallel, the National Water and Sewerage Service Company will continue ita program to improve its central administration, especially in the financial and commercial managerial areas, completing the updating of users' registry, and improving medium level managerial staff through in-service training. Monitoring Syetem to Meaurpe Progress in SociAl Service Delivery 13. The Government of Honduras haa expanded its regular data collection program through the creation of special module to monitor the impact of its social programs on the welfare of the Honduran population. Specifically, the multiple purposes household survey has been expanded to incorporate a Living Standards Measurement Survey, including key social variables and consumption patterna in addition to basic demographic, employment and income information. This survey was introduced as a component under the SIF-I project with aupport from IDA. At present, improvements are needed to effectively tranaform the survey into a useful monitoring tool to aosist the Government in adjuating its social sector policies according to measurable reaulta. Improvements will be introduced to strengthen data reliability and analysis and disseminate survey results more broadly, specifically, data  - 122 - AnneX 18 NUTRITION AND HEALTH HONDURAS SECTOR POLICY LETTER NUTRITION AND HEALTH PROJECT SECRETARIA DE HACIENDA Y CREDITO PUBLICO REPUBLICA DE HONDURAS Tegucigalpa, D.C. No.