Mexico - Municipal Strengthening Project

 Municipal strengthening project Report No: ; Type: Report/Evaluation Memorandum ; Country: Mexico; Region: Latin America And Caribbean; Sector: Urban Management; Major Sector: Urban Development; ProjectID: P007590 Mexico: Municipal Strengthening Project (Loan 2666-ME) The Implementation Completion Report (ICR) on the Mexico Municipal Strengthening project (Loan 2666-ME, approved in FY86) was prepared by the Latin America and the Caribbean Regional Office. There was no appendix contributed by the Borrower attached to the ICR. A report by the Borrower was received after the deadline for comments by the Region, thus it is not attached to the ICR. The ICR presents views consistent with the borrower's comments. The loan for US$40 million equivalent was approved on March 5, 1986, and closed in December 1994, as scheduled. A balance of US$0.3 million was canceled. The project was the fifth municipal development Bank operation in Mexico. It was developed in 1982 at the beginning of the country's decentralization process. The project's initial objective was to support the Government's strategy of strengthening municipal institutions, and to increase the efficiency of urban services delivery. The project, which intended to train federal and local government officials and provide a fund for municipal investments, lay dormant for five years. Subsequently, project objectives were revised twice. First, in response to a major explosion in Guadalajara in 1992, the project sought to finance Phase I of the post-disaster reconstruction effort, aimed at restoring adequate sanitary conditions in the affected areas as well as basic pedestrian and traffic flows. Second, the project was modified in 1993 to transfer funds, in the amount of US$19 million, to the ongoing Water and Sanitation Project (Loan 3271-ME); a PCR prepared on that project found the outcome marginally unsatisfactory, institutional development impact moderate, and sustainability uncertain. The implementation results for this project (Loan 2666- ME) were mixed. The original objectives were unrealistic, institutional arrangements were too complex, rivalry among agencies hindered implementation, and municipalities had cheaper sources of funds available. No training was implemented. Only the infrastructure component was executed, albeit to a minimum extent (US$1.8 million was disbursed). The revised objectives were better implemented. The objectives and institutional arrangements in the revised project were more focused than in the original project. Applying the lessons learned in the reconstruction project in Mexico after the earthquake of 1986, the implementation of Phase I of the Guadalajara reconstruction effort was successful: it took two months and used US$16.5 million. The ICR for Loan 2666-ME provides two sets of ratings for this project. It rates the project outcome against the original objectives as highly unsatisfactory, and the outcome of the revised project as highly satisfactory. Because the original objectives were not implemented, OED rates the project with respect to its revised objectives: outcome is rated as satisfactory, sustainability is rated as likely, and institutional development as negligible (as in the ICR). Bank performance is rated as unsatisfactory (as in the ICR): the supervision of the Guadalajara reconstruction component was adequate, but the Bank (i) failed to see that there was no demand for the origin-al project; (ii) provided deficient supervision; and (iii) failed to take corrective action for five years after loan effectiveness. The major lessons learned are: (i) the need for the Bank to first assess market demand, even when the market consists of public sector institutions; (ii) the importance for project design to deal with potential rivalry between agencies; and (iii) the importance of government commitment, which was absent originally but was very strong for the Guadalajara reconstruction effort. The quality of the ICR is satisfactory; however, its coverage of important topics is not always sufficient. Its evaluation of the complex institutional arrangements in the original objectives and prevention mechanisms in the revised version is weak. The section on future operation is also inadequate since it does not deal with the completed components of this project. The project may be audited with an emphasis on the portion of the project concerning the Guadalajara reconstruction.