Colombia - Country assistance strategy progress report

Document of The World Bank REPORT NO. 19805 COLOMBIA Country Assistance Strategy Progress Report November 1, 1999  CURRENCY EQUIVALENTS Exchange Rate Effective September 30, 1999 Currencv Unit = COP - Colombian Peso COP 1.00 = US$0.0004965 USS1.00 = COP'2014.00 FISCAL YEAR January 1 to December 31 WEIGHTS AND MEASURES Metric System ACRONYMS AND ABBREVIATIONS AAA Analytical and Advisory Activities CAF Corporaci6n Andina de Fomento CAS Country Assistance Strategy CDS City Development Strategy EERL Earthquake Emergency Recovery Loan EFF Extended Fund Facility ESW Economic and Sector Work FARC Fuerzas Armadas Revolucionarias de Colombia FOGAFIN Fondo de Garantfas Financieras FSAL Financial Sector Adjustment Loan GDP Gross Domestic Product GEF Global Environmental Facility IBRD International Bank for Reconstruction and Development IDB Inter-American Development Bank IDF Institutional Development Fund IFC International Finance Corporation IMF International Monetary Fund LIL Learning and Innovation Loan NIF Multilateral Investment Fund MIGA Multilateral Investment Guarantee Agency SME Small and Medium-sized Enterprises UNDP United Nations Development Program VAT Valued Added Tax Vice President David de Ferranti Director Andrds Solinano Country Team Leader David Yuravlivker Task Manager Connie Luff  THE REPUBLIC OF COLOMBIA COUNTRY ASSISTANCE STRATEGY PROGRESS REPORT TABLE OF CONTENTS INTRODUCTION AND EXECUTIVE SUMMARY .................................................................1 RECENT ECONOMIC DEVELOPMENTS .................................................................3 Macro-Economic Performance .................................................................3 External Environment .................................................................4 Macro-Economic Adjustment .................................................................5 IMF Program .................................................................5 Projections ................................................................. 7 FINANCIAL SECTOR FRAGILITY AND RESTRUCTURING POLICIES ........... .............8 POVERTY AND INEQUALITY - SOCIAL IMPACT OF ADJIUSTMENT AND CONFLICT .................................................................9 Social Protection and Social Safety Nets ........................................... ..................... 10 EARTHQUAKE RESPONSE ................................................................ 10 SUPPORTING THE PEACE PROCESS: SOCIAL AND DEVELOPMENTAL ASPECTS .................................................................1.1 GOOD GOVERNANCE AND TRANSPARENCY ................................................................ 13 Improving governance in Bank-financed projects ............................................................ 14 CHALLENGES AND PROGRESS IN IMPLEMENTING THE CAS ................................. 14 CAS Objective: Achieving Poverty Reduction and Social Development ............................... 14 Promoting Peace and Development ................................................................ 14 Promoting Rural Development ................................................................ 15 Developing Human Capital: Education ................................................................ 15 Health ................................................................ 15 CAS Objective: Achieving Sustainable Growth ................................................................ 16 Attaining Public Sector Responsiveness and Efficiency .................................................. 16 Improving Infrastructure Services ......................... ....................................... 16 Ensuring Sustainable Development .......................... ...................................... 16 CIVIL SOCIETY INVOLVEMENT IN THE BANK'S ASSISTANCE STRATEGY .......... 17 REVISED BANK GROUP COUNTRY PROGRAM ............................................................... 18 Portfolio Performance ................................................................ 18 Lending Services ................................................................ 19  IFC .. 20 MIGA.20 GEF.21 Non Lending Services .21 Partnership .22 IDB.22 IMF ................................. ... 23 CAF.23 EVALUATION OF RISKS AND REWARDS ................................. . 23 TEXT TABLES Table 1: Colombia Selected Economic Indicators .4 Table 2: Portfolio Management Indicators .18 ANNEXES Annex Al Key Economic & Program Indicators - change from Last CAS Annex A2 Colombia at a Glance Annex B2 Colombia - Selected Indicators of Bank Portfolio Performance and Management Annex B3 Colombia - Bank Group Program Summary, FY 1999-2001 Annex B4 Colombia - Summary of Nonlending Services Annex B6 Colombia - Key Economic Indicators Annex B7 Colombia - Key Exposure Indicators Annex B8 Colombia - Statement of IFC'S Portfolio Annex B8 Status of Bank Group Operations in Colombia Operations Portfolio Annex Cl Colombia - CAS Program Matrix MAP  THE REPUBLIC OF COLOMBIA COUNTRY ASSISTANCE STRATEGY PROGRESS REPORT INTRODUCTION AND EXECUTIVE SUMMARY 1. The last full Country Assistance Strategy (CAS) for Colombia was discussed by the Board on November 6, 1997 and we expect to present a new CAS to the Board in FY01. This progress report reviews recent political, economic and financial developments, and examines the progress achieved since the CAS. An update was deemed necessary due to changes in the international environment and to domestic developments. It also provides the opportunity to better align the Bank's strategy and instruments to the priorities of President Pastrana's Govenunent, which took office after the CAS was completed. The basic objectives and the overall thrust of the existing CAS remain valid, namely, the vital role of poverty reduction, social development, and sustainable growth. However, changes in the international and domestic environment warranted a reassessment of our lending program, in particular of the type and amount of lending. This progress report moves the assistance strategy to a high-case lending program that includes two adjustment operations. This movement is justified due to: (i) the need to cushion the adverse social impact of the economic recession on the poor and vulnerable, financial instability and internal conflict on the poor and vulnerable groups, and (ii) the Government's commitment to undertake a serious fiscal adjustment program and implement structural reforms to be supported by a formal IMF program, and the need to support the developmental aspects of the peace process (see paragraph 57). 2. Since taking office in August 1998, President Andres Pastrana's administration started to tackle serious challenges, including the launching of a highly ambitious and difficult peace initiative, a fiscal adjustment and financial restructuring program to restore economic stability, and the improvement of international relations. So far results have been mixed, with numerous setbacks in the peace process and complications in macroeconomic management due to a deeper than anticipated economic recession and deterioration in the financial sector. The Pastrana Administration has prepared a four- year National Development Plan' that places strong emphasis on building social capital as a key factor to enable Colombia to resolve its serious social conflict. This would entail devolving power to communities, improving access to public goods, promoting universal access to education and health, ensuring gender equality, and achieving peace. In order to implement the National Development Plan, the Government has developed a comprehensive strategy, the Plan Colombia, which outlines an approach to strengthen the peace process, control drug traffic, and reactivate the economy. The Plan Colombia will be partially financed through bilateral and multilateral financing, including the World Bank. The development priorities outlined in the National Development Plan and the Plan Colombia are fully consistent with the objectives identified in the 1997 CAS. The primary pillars of Colombia's national development strategy for 1998-2002 include: (i) achieving good govemance; (ii) building social capital; (iii) obtaining peace and development; and, (iv) reactivating macro-economic growth and employment.  -2 - 3. The CAS, following a participatory process that included open dialogue and effective consultations with Government leaders and civil society, identified the main objectives of poverty reduction, social development, and sustainable growth. These objectives were to be achieved by interventions in six strategic areas: (i) promoting peace and development; (ii) promoting rural development; (iii) developing human capital; (iv) attaining public sector responsiveness and efficiency; (v) improving infrastructure services; and, (vi) ensuring sustainable development. These key priorities have not changed and will continue to be supported by our lending program. However, due to changes in the international and domestic environment, we have adjusted our assistance strategy. Important changes have been partially driven by the international events that took place in late 1998 and early 1999 (i.e., the crisis in international credit markets and sharp drops in oil and coffee prices) that could not have been foreseen in the CAS, and the ensuing deterioration of general economic conditions and the domestic financial sector. The Colombian Government has responded to these developments by implementing a serious fiscal adjustment program, and strong reforms in the financial sector. The need to rebuild confidence in the macroeconomic management and secure external financing has led the Colombian authorities to request a formal IMF program - the first one since the 1960s. We will assist the Government's efforts with a Financial Sector Adjustment Loan to support the restructuring and strengthening of the financial sector. 4. As reported in the 1997 CAS, the incidence of poverty in Colombia had declined steadily, from an estimated 50 percent in 1964 to 20 percent in the mid-1990s. However, as a result of the economic crisis, the gains made in the area of poverty reduction have been eroded over the past two years. At the national level, the incidence of extreme poverty, which had continued its decline until 1997, to levels of under 18 percent, rose by over two percentage points to 20 percent in 1998. Moreover while rising unemployment has affected most Colombians, the poor, and in particular women and young people, have suffered more. For example, the poorest quintile of the population has an unemployment level of 25 percent, more than three times higher than that affecting the top quintile (7 percent). The rate of unemployment among the young between 15-19 years old is now 44.3 percent and among women 23.2 percent. The loss of employment has placed increased stress on the incomes of the poor, resulting in deferred health care and higher school dropout rates. 5. Thus, in order to alleviate the impact of the current economic crisis on the poor, the Government has identified the segments of the population that have been hit hardest by the crisis, including the unemployed poor, young entrants into the labor market, female heads of households, children, the elderly, and those displaced by the ongoing internal conflict. In response to the problems of these vulnerable groups, the Government is now designing programs, with the support of the Bank and IDB) to provide them with basic social services. Funding for this social safety net would amount 0.3 percent of GDP (about $300 million) annually over the next three years. The proposed programs and annual targets of the Government's social safety net program include: (i) training 60,000 youths for the job market; (ii) providing services to 150,000 children under seven years old through the creation of 10,000 day care centers; (iii) expanding primary school lunch programs to reach an additional 150,000 children; (iv) giving conditional grants to 50,000 families with secondary-school students, with the objective of keeping them in  -3 - school; (v) enrolling an additional 100,000 elderly in the health insurance system; (vi) establishing community kitchens to provide food for 100,000 persons in the poorest decile of the population; (vii) creating 80,000 temporary jobs through labor-intensive public works programs; and (viii) providing basic services, including water and sanitation, temporary housing, and health services, to about half a million people displaced by the armed conflict, over three years. At the same time, in order to reduce structural poverty, as well as to establish the basis for sustainable economic development, human capital will need to be expanded through continued efforts to improve systems for the provision of education and health services, with the goal of providing universal coverage in these areas. 6. In support of the Government's plans in the area of poverty reduction and provision of basic services, we are preparing two operations: one to address the impact of the crisis on the poor, supporting the immediate strengthening and expansion of the social safety net framework (e.g., protection of the vulnerable by creating jobs and training, low-income housing, and providing safe water and sanitation) and a second operation to address structural problems in the social sectors (e.g., education, health, social security, transfers to local governments, etc.). These operations will be prepared in close cooperation with the Colombian authorities, who took the lead in preparing the initial diagnostic of the problems as well as the list of potential components of these programs. In addition, we are preparing three studies with the collaboration of the Colombian Government: (i) a poverty update; (ii) an employment generation study; and, (iii) a review of existing social programs. The results of these reports will serve as the underpinnings for the above-mentioned operations. RECENT ECONOMIC DEVELOPMENTS 7. Macro-Economic Performance: The Colombian economy's performance has deteriorated sharply in the last three years: (i) the fiscal accounts of the non-financial public sector, which were roughly balanced in the early 1990s, showed a deficit of 3.7 percent of GDP in 1998 and an estimated 6 percent of GDP in 1999 (Table 1); (ii) GDP fell by 6.7 percent in the first half of 1999 as compared to the previous year; and (iii) the current account of the balance of payments reached a deficit of 5.7 percent of GDP in 1998, although it is expected to fall to just over 2 percent of GDP in 1999 due to a sharp decline in imports.2 Economic decline has been accompanied by a rapid increase in unemployment, which in urban areas stood at 20 percent in September 1999. However, after more than 20 years of annual inflation in the range of 20-30 percent, the Central Bank met its inflation targets in 1997-98. In 1999, it is expected to be below its initial target with projected inflation of 11 percent. Restoring fiscal balance is needed if Colombia's efforts at poverty reduction and more rapid medium-term growth are to be realized. It is also crucial for the resolution of problems in the financial sector. Since taking office in August 1998, the Government has taken several measures to deal with the fiscal problem (see below) and it has recently put together a stabilization program to be supported by an IMF Extended Fund Facility (EFF) for US$2.7 billion. 2 These ratios use the revised GDP series - the result of a recent revision of the National Accounts -- which for 1999 are about 15 percent higher than previous figures.  - 4 - 8. External Environment: Colombia's external environment also deteriorated substantially throughout 1998. The country was hit by severe negative shocks: (i) a trade shock due to the drop in oil and coffee prices, estimated at 1.5 percent of GDP; and (ii) events in international credit markets which have increased the cost of borrowing and decreased the availability of external finance for both the public and private sectors. Moreover, with the virtual closing of international credit markets to developing economies and the high cost of external credit, Colombian authorities have had to turn to the domestic market for additional financing, putting further pressure on domestic interest rates.3 Colombia's investment-grade status was recently downgraded by three major credit rating companies. This is a negative development for the country, which for many years was one of the few in Latin America that enjoyed wide access to internationcl credit markets and was able to draw on international funds to support the development of its economy. The downgrading could complicate external financing plans, and the Government is making efforts to ensure the availability of alternative sources of financing until it can return to international credit markets under satisfactory conditions. 9. The effect of adverse external shocks and the ensuing deterioration of domestic macroeconomic and security situation are thus behind the increase in Colombia's country risk, the drop in the domestic stock market and the increase in the cost of borrowing abroad. As Table 1 shows, the deterioration in the public sector accounts resulted largely from the steep increase in total expenditures, particularly in transfers to local governments, pensions and interest payments. The current account deficit, which in 1998 stood in the 5-6 percent of GDP range for the fourth consecutive year, reflected the imbalance in the fiscal accounts, the real appreciation of the currency, and the drop in oil and coffee prices that affected export revenues. Pressures on the currency over the past year, and most recently in June 1999, confirmed market concerns regarding the sustainability of Colombia's fiscal and external imbalances.4 However, there is an improvement in the current account in 1999, mainly because of the drop in imports due to the recession and also because of the increase in oil prices. Projected 1995 1996 1997 1998 1999 2000 2001 Real GDP Growth 5.2 2.0 2.8 0.6 -4.5 3.0 3.8 Inflation 19.5 21.6 17.7 16.7 11.0 10.0 8.0 NFPS balance/GDP -1.0 -2.4 -3.7 -3.7 -6.2 -3.6 -2.5 Total Revenues/GDP 26.1 27.8 27.8 27.0 27.4 27.5 27.5 Total Expenditures/GDP 27.1 30.2 31.5 30.7 33.6 31.1 30.0 Total Public Debt/GDP 21.1 22.1 29.2 29.4 33.6 33.9 33.6 Current Account balance/GDP -5.0 -4.8 -5.4 -5.7 -2.1 -2.5 -3.2 Public External Debt/GDP 15.0 14.9 15.7 18.5 23.3 24.5 24.8 Total External Debt/GDP 27.0 29.0 31.1 34.9 41.3 43.0 43.6 Sources: Banco de la Republica, Ministry of Finance, DNP, IMF, and World Bank. 3 The situation has since improved somewhat. Spreads which had reached about 950 basis points (bps) in September 1998, came down to 600 bps by end September 1999. 4 In late May/June 1998, following exchange rate pressures that started in the second half of 1997, there was a strong attack on the Colombian peso which cost the Central Bank around US$250 million. Altogether, the cumulative loss of net adjusted intemational reserves from August 1997 through December 1998 has been about US$1.8 billion.  10. Macro-Economic Adjustment: The Government has made reducing the fiscal deficit one of its key macroeconomic objectives. After taking office in August 1998, the Government took several revenue enhancing and expenditure reducing measures, including measures to fight tax evasion and smuggling, increasing gasoline surcharges, widening of the VAT base and improving tax collection, and cutting the operational costs of the Central Government. However, due to external trade shocks, sharply reduced tax revenues as a result of the economic downturn, and to the outlays needed to rebuild the areas affected by a devastating earthquake that hit the country in January and to shore-up the ailing financial sector, the deficit is projected to increase to about 6 percent of GDP this year.5 11. In order to achieve fiscal adjustment that is sustainable in the medium and longer term, the Government is complementing its stabilization measures with structural reforms in various areas of public finance. Within the context of the National Development Plan, in the first half of 1999 Congress approved legal amendments that would improve the fiscal situation in the medium term, including (i) reform of the resources and competencies of local governments (Law 60); (ii) increasing the efficiency of expenditure in education; (iii) changes in royalty allocations to attract private investment; and (iv) reforms to the Budget Law, to reduce earnarking and improve the allocation of local expenditures. In addition, Congress passed the Financial System Reform Law, which raises minimum capital requirements, and strenghtens the faculties of the Banking Superintendency and FOGAFIN. Proposals for additional structural reforms are being introduced in the July-December 1999 legislative session: (i) a law to rationalize public finances, and to curb their expansion: (ii) changes to continue the reform of social security, including elimination of several special regimes; (iii) measures to curtail the current expenditures of local governments; (iv) a constitutional amendment to save part of the transfers to local governments to finance local pension funds; and (v) a constitutional amendment that would freeze, in real terms, future transfers to local governments. The government has also submitted, for congressional approval, an austere budget for year 2000. To consolidate and expand these reforms, the Government has fused them into a comprehensive stabilization program that would be supported by the IMF. 12. IMF Program: Over the past year, the Government's stabilization and adjustment program has been regularly discussed with the IMF, which had been conducting semi-annual consultations with the Colombian authorities within the framework of enhanced surveillance. Nevertheless, the weakening of the country's economic situation and the wish to enhance the credibility of its economic policies, have prompted the Pastrana Administration to formally request an Extended Fund Facility (EFF) for US$2.7 billion. The program is centered on fiscal consolidation and structural reforms, including implementation of a plan to address the difficulties faced by the financial sector. Along with the reduction of the fiscal deficit, a cut in the external S The drop in tax revenues in 1999 was offset to some extent by the increase in fiscal revenues derived from oil, following the doubling of the oil price since the beginning of the year. It is expected, however, that oil production and revenues will decline starting next year, resulting in a relatively lower increase in total revenues than what is implied by the proposed fiscal package.  - 6 - current account deficit to levels that can be financed sustainability is also being sought. The program, which is expected to be presented to the IMF Board of Directors in December 1999, would be the country's first IMF loan since the 1960s. Implementation of the program requires strong fiscal discipline as well as passage by the Colombian Congress of fiscal and tax reform packages and the second round of structural reform measures described above. While a Congressional committee has approved the Government's 2000 budget, the passage of the fiscal, structural and tax reform packages may require intense negotiations, as it threatens the interests of strong groups, including municipal and departmental governments, teachers, etc. 13. The Central Bank shifted the exchange rate band on two occasions over the past year. In September 1998, an upward shift of the exchange rate band by 9 percent was announced. The ensuing depreciation of the peso resulted in a real devaluation of about 6 percent in 1998. Several fundamental changes in the past decade, however, including the opening of the economy in the early 1 990s, the high current account deficit over the past 4 years, the decline in export commodity prices, and the tightening of external credit suggested that the real exchange rate continued to be overvalued. These factors, and the country's worsening economic and security conditions, eventually led to mounting pressures on the currency. In June 1999, faced with a choice between continuing to increase interest rates or devalue the peso, the Central Bank opted for the latter, since higher interest rates would undermine the prospects of economic recovery. The mid- point of the band thus was raised (devalued) by 9 percent, its width increased from 14 percent to 20 percent, and its slope, or rate of devaluation, reduced to 10 percent from 13 percent, in accordance with the lower inflation targets. Pressure on the peso continued, however, costing the Central Bank around US$400 million in September 1999, and pushing the currency beyond the new ceiling of the band. Thus, on September 25"', the Banco de la Republica decided to abandon the exchange band regime, opting instead for a free float of the peso. Altogether, during the first nine months of 1999, the Colombian peso has undergone a 20 percent real devaluation. 14. The monetary policy of the Central Bank has aimed at several targets over the last few years, including lowering inflation, keeping the exchange rate within its band, and maintaining interest rates at levels that would encourage economic activity. These targets turned out to be contradictory at times, and lately the Central Bank has also had to take into account the impact of its policy on the deteriorating situation of banks and other financial institutions. The resulting cycle of tight and loose monetary policy, particularly the defense of the band when the exchange rate was attacked in 1998 and 1999 (see above) may have aggravated the recession this year. 15. Since the end of 1998, the Colombian authorities have taken concerted measures to bring down interest rates, whose reduction is seen as essential for any reactivation of the economy. The benchmark 90-day deposit rate has dropped from its peak of 37 percent in June 1998 to 18 percent in August 19996. Despite falling interest rates, 6 Real interest rates on deposits had risen from about 4 percent in the third quarter of 1997 to 18 percent in the last quarter of 1998. Annual real interest rates on loans increased from 14 percent to 26 percent. Although external shocks played a role, several domestic factors may have contributed to the increase in interest rates: (i) greater demand for credit by the public sector to finance the fiscal deficit; (ii) increased demand for credit by the private sector and financial institutions due to expectations of  however, lending has declined sharply. Banks are reluctant to lend under conditions of high credit risk, falling collateral prices and tightening liquidity conditions. Further reductions in real interest rates, and in spreads, can be achieved by continuing to pursue fiscal adjustment, and through the restructuring of the financial system as planned. 16. Projections: As the projections presented in Table I show, the rate of GDP growth is expected to be negative 4.5 percent in 1999, the slowdown in economic activity has been longer and deeper than expected. In 2000 and thereafter - provided that stabilization and adjustment are maintained and that the external environment does not deteriorate - lower real interest rates and a more competitive exchange rate would lead to an expansion of private investment, exports, and GDP. As reactivation proceeds, inflationary pressures - which have dramatically declined, with inflation rates falling from their historical levels of near 20 percent to about 10 percent - may again be felt, although the Government and Central Bank intend to pursue policies to bring down inflation to single digits by 2001. The bulk of the fiscal adjustment is planned for 2000, when the deficit of the non-financial public sector would fall to 3.6 percent of GDP. This would be partially achieved through an increase in revenues resulting from the tax measures described above. On the expenditure side, larger interest payments would be offset by further cuts in Central Government investment and the wage bill. Starting in 2001, the fiscal adjustment would be achieved mainly through a reduction in operational expenditures as a result of structural reforms expected to be introduced this year. The objective of the Government is to end its 4-year term in 2002 with a fiscal deficit of about 1.5 percent of GDP. 17. The external accounts will be subject to competing pressures. On the one hand, they would improve as non-traditional exports respond to a more depreciated real exchange rate, and the cut in the fiscal deficit reduces domestic absorption. Also, a recovery in the trade balance could be further boosted by an upturn in the prices of oil and coffee. On the other hand, much of the improvement in the external balance is due to the decline in imports which would be reversed with any upturn in economic activity. The forecast is for a current account deficit of 2.5 percent of GDP for 2000, which is expected to increase to 3.2 percent in 2001. Nearly US$2.5 billion of reserves were used between August 1997 and September 1999 to defend the exchange rate band, but they still stood at a reasonable level of US$7850 million at the end of September, 1999. With respect to sources of financing, net Foreign Direct Investment (FDI), which has sharply declined from an average of $3.7 billion per year in 1997-98 to an estimated $200 million this year, is projected to reach $3.5 billion in year 2000 as a number of electricity and telecommunications companies are scheduled to be privatized (accounting for $2.8 billion of the total). Following these privatizations, FDI is projected to decline to an annual average of $1.5 billion in 2001-02. devaluation; (iii) an increase in the flow demand for funds due to distressed borrowing by both debtors and credit institutions; (iv) a decline in the supply of loanable funds due to a sustained decline in private savings in the 1990s; and (v) tighter monetary policy.  -8 - FINANCIAL SECTOR FRAGILITY AND RESTRUCTURING POLICIES 18. The combination of high real interest rates, sluggish economic activity and insufficient regulation, coupled with the crisis in international credit markets and the volatility of international capital flows which affected most emerging economies in 1998, have notably weakened the financial sector in the last 18 months. Real interest rates on bank loans stayed in the 15-30 percent range over a prolonged period during this time, stretching the payment capacity of even the healthiest companies and individual borrowers. 19. While all parts of the financial system have been affected by these developments, the impact on some parts of the system, such as the cooperatives, institutions engaged in housing and construction finance, and the smaller trade and financial institutions, has been particularly severe. Reflecting this, reported arrears in the banking system have grown from about 7 percent of the total loan portfolio at the end of 1996 to 14 percent by mid-1999. The state-owned financial institutions in particular exhibited major portfolio problems stemming from low efficiency, bureaucratic systems and occasional political interference in credit decisions, and need to be recapitalized, restructured, privatized or if necessary liquidated. Against this background, it became imperative for Colombia to further strengthen its monitoring and supervision of the banking system, and put in place a modem deposit insurance and problem bank resolution mechanism in order to facilitate a healthy longer-term development of the financial sector. 20. The Government has prepared and obtained congressional approval of a major reform of the financial sector legislation to put in place a modernization program. The focus of the reform will be on achieving effective enhancement of prudential norms, timely preventive and corrective actions by bank supervision authorities, and quick and efficient resolution of problem bank situations. Recently approved legislation also created a separate supervisory and deposit insurance system to improve the operation of cooperatives, which have been inadequately supervised and have lacked clarity in their operating rules. Through emergency measures declared in November 1998, the Government introduced a financial transactions tax whose revenues are being used to address some of the sector's immediate problems. These measures also provided for some debt relief to the most vulnerable group of housing finance recipients and depositors of cooperative institutions which should help reduce the problems associated with the poor quality of loan portfolios in these sectors. Other important structural measures which the Government is pursuing include options to restructure, privatize or close the other state-owned banks and previously intervened or "officialized" private financial institutions, and to improve the operation of the second-tier financial institutions. The Government also took decisive actions to intervene and/or close several small financial internediaries that became unviable. More recently, and due to the increasingly acute portfolio problems and consequent erosion of capital that became evident by mid-1999 in other segments of the system, the Government announced special support to facilitate recapitalization of institutions deemed to be viable but experiencing temporary capital inadequacy. The support is provided in the form of medium tern loans from FOGAFIN (Fondo de Garantias Financieras) to owners of those institutions that fully adjust their assets and capital to reflect the true economic value of their assets. The loans would be subject to strict collateral requirements, and would be available only to  - 9 - institutions which decide to adopt this course before the end of 1999 and which have submitted a satisfactory plan to restore financial viability in the medium term. 21. To support these reforms, the Bank is preparing a Financial Sector Adjustment Loan (FSAL) to support a comprehensive programn of financial structural reforms including: (i) passage of financial sector legislation and regulations to strengthen bank supervision and deposit insurance, to facilitate the recapitalization of viable banks, and to promote timely, fair and efficient resolution of solvency problems; (ii) institutional strengthening of the superintendency of Banks and the entity responsible for deposit insurance and bank resolution (FOGAFIN); (iii) restructuring, recapitalization, privatization and, if necessary, liquidation of state owned and "officialized" banks currently under public sector management; and, (iv) implementation of emergency measures to address the immediate impact on the financial system of problems related to the domestic macro-economy and the external environment. POVERTY AND INEQUALITY - SOCIAL IMPACT OF ADJUSTMENT AND CONFLICT 22. As reported in the 1997 CAS, the incidence of poverty had declined steadily, from an estimated 50 percent in 1964 to 20 percent in the mid-1990s. However, as a result of the economic crisis, the gains made in the area of poverty reduction in the early to mid- 1990s have been eroded over the past two years. Today, approximately 8 million Colombians have incomes below a nutritionally defined subsistence level, as opposed to 7 million reported in the CAS. At the national level, the incidence of extreme poverty, which had continued its decline until 1997, to levels of under 18 percent, rose by over two percentage points to 20 percent in 1998. Conditions in rural areas have deteriorated more than they have in the cities: the incidence of poverty in the countryside began to increase in 1996, and has risen by nearly seven percentage points between 1996 and 1998, reversing the gains made during the 1980s. In urban areas, the proportion of the extremely poor mirrors that of the country as a whole, declining until 1997 to historically low levels, but increasing substantially (2 percentage points) between 1997 and 1998. 23. Thus, although the economic, financial and security crisis, together with rising unemployment, have affected most Colombians, the poor have suffered more For example, while unemployment affects all social levels, it hits the poor hardest, especially the young and women. The poorest quintile of the population suffers from an unemployment level of 25 percent, three times higher than that affecting the wealthiest quintile (7 percent). The rate of unemployment among the young between 15-19 years old is now 44.3 percent and among women 23.2 percent.. The loss of employment places increased stress on the incomes of the poor, and can result in deferred health care, lower food consumption, higher school dropout rates and higher child labor rates. As a result of the rise in unemployment, the number of workers affiliated to the contributive health insurance system has declined by more than 25 percent during the last year, leaving several million people unprotected against health risks. In addition, enrollment in secondary schools fell by 3.5 percent at the national level between 1997 and 1998. It decreased at both private and public institutions: 40,000 students left public secondary schools, while private schools lost nearly 110,000 students over the same period.  - 10- 24. Social Protection and Social Safety Nets. In order to alleviate the impact of the current economic crisis on the poor, the government has identified the segments of the population that have been hit hardest by the crisis, including the unemployed poor, young entrants into the labor market, female heads of households, children, the elderly, and those displaced by the ongoing internal conflict; these people are mostly in the poorest two deciles of the population. In response to the problems of these vulnerable groups, the Government is now designing, together with the Bank and the IDB, programs to provide basic social services targeted to this population. Funding for this social safety net would arnount 0.3 percent of GDP (about $300 million) annually over the next three years. At the same time, in order to reduce structural poverty, as well as to establish the basis for sustainable economic development, hunan capital will need to be expanded through continued efforts to improve systems for the provision of education and health services. 25. The proposed prograrns and annual targets of the Government's social safety net program include: (i) training 60,000 youths for the job market; (ii) creating 10,000 centers to provide integrated day care services (Hogares Comunitarios de Bienestar) for 150,000 children under seven years old; (iii) expanding school lunch programs for primary school students, to reach an additional 150,000 children; (iv) giving conditional grants to 50,000 families with secondary-school students, with the objective of maintaining their enrollment in school; (v) enrolling an additional 100,000 elderly in the health insurance system; (vi) establishing community kitchens to provide food for 100,000 persons in the poorest decile of the population; (vii) creating 80,000 jobs through labor-intensive public works programs; and (viii) providing basic services, including water and sanitation, temporary housing, and health services, to about half a million people displaced by the armed conflict, over three years. 26. We are undertaking operational and analytical to support the Government's efforts to ameliorate the social impact of the current crisis on the poor. We are preparing two operations: one to support the immediate strengthening and expansion of the social safety net framework (e.g., protection of the vulnerable by creating jobs and training, low-income housing, and providing safe water and sanitation) and a second operation to address structural reforms in the social sectors (e.g., education, health, social security, transfers to local governments, etc.). In addition, we are preparing three studies with the collaboration of the Colombian Government: (i) a poverty update; (ii) an employment generation study; and, (iii) a review of existing social programs. The results of these reports will serve as the underpinnings for the above-mentioned operations. EARTHQUAKE RESPONSE 27. An earthquake struck Colombia's coffee region on January 25, 1999 causing devastating damage with estimates of 1,185 deaths, 8,000 injured and 150,000 people left homeless. Extensive damage of urban infrastructure has affected as many as 60,000 homes, roads, power distribution lines, water supply systems, natural gas pipelines, etc. Total damage is estimated to be approximately US$ 1.6 billion, with housing losses constituting about 70 percent of this amount. The most affected areas are Armenia, Pereira, La Tebaida and Calarca - all part of the coffee growing area. The Bank has worked closely with the multi-sectoral Colombian team and the IDB. In order to provide immediate assistance, we agreed with the Government to redirect the balances of four  - 11 - ongoing projects totaling about $93 million7. In addition, we are preparing an Emergency Recovery Loan to support the reconstruction effort. The Bank's support will (i) provide housing reconstruction and repair to families in the poorest strata; (ii) rehabilitate and retrofit damaged social and public infrastructure; (iii) improve the nation's capacity to handle natural disasters; and (iv) restore the social capital of communities; and, (v) finance project implementation costs. These programs have a clear social impact in terms of employment generation and low-income housing reconstruction. SUPPORTING THE PEACE PROCESS: SOCIAL AND DEVELOPMENTAL ASPECTS 28. The CAS identified restoring peace as the most significant developmental priority for Colombia. At that time, however, emphasis was placed on developing pilot interventions to address the socio-economic determinants of violence in a context where political negotiations with insurgent groups seemed improbable. As discussed below, significant progress has been achieved in our peace and development assistance. In addition, the Pastrana Administration, making peace its foremost objective, has requested new assistance that was not envisaged in the CAS. Although the road to peace has been rocky, and entails many risks, the potential rewards for Colombia are great and warrant Bank support of the process. 29. The Government's National Development Plan and the Plan Colombia define the social and economic components of the peace and development initiative. To finance the incremental funding requirements generated by the peace process, the Government has established a Peace Investment Fund which would receive resources from Peace Bonds and is to be managed by a board composed of both public and private sector representatives. In addition, the Government is seeking financing from multilateral and bilateral sources, including the Bank. 30. In support of the country dialogue and at the request of the Government, the Bank has produced a comprehensive report8 that confirms the causes of different types of violence, and identifies critical areas of policy intervention to foster peace. It is the first time that violence has been the subject of sector analysis, and as such is a pioneering approach to World Bank work. The report proposes a strategy divided into three levels which identifies the type of violence to be addressed, the priority groups to be targeted, and the potential interventions to be implemented at each level. This work has been recently published in Colombia along with studies on international experience of post conflict reconstruction and the structural determinants of conflict in Colombia. In addition, we are completing a participatory study on perceptions of violence by poor communities (see paragraph 62). 7 The Government of Colombia requested that the unspent balance of four loans be redirected to support the earthquake reconstruction. The four loans that have been amended are the Colombia- Municipal Health Services Project (Loan 3615-CO), Colombia-Secondary Education Project (Loan 3683-CO), Colombia-Agricultural Technology Development Project (Loan 3871-CO), and Colombia- Urban Environmental Management Project (Loan 3973-CO). s Violence in Colombia: Building Sustainable Peace and Social Capital (Report No. 18652-CO)  - 12 - 31. Among the peace components in the Development Plan, emphasis is placed on promoting development in rural areas that have been devastated by violent activity. Two specific initiatives are envisaged: 32. Special development plans in areas with low state presence and high levels of conflict. These plans are developed in a participatory manner, and their main objective is the building of social capital and local capacity. Key areas for investment would be those that improve productivity, human capital and infrastructure. These initiatives would build upon the lessons learned from the Bank-supported Magdalena Medio Regional Development Project. A similar initiative for the eco-region Sierra Nevada de Santa Marta, which is an eco-system of global significance as well as a conflictive region, will be supported by a Learning and Innovation Loan (LIL) and a Global Environmental Facility grant. 33. Alternative development for peasant communities involved in illicit crops, enlisting the participation and support of the insurgent groups. Some initiatives in these areas are supported by the Magdalena Medio Regional Development and the Peasant Enterprise Zones Projects. The Government has already requested the Bank Group's assistance to develop partnerships between the private sector, NGOs and peasant communities in conflict areas for the development of commercially viable agro-industrial ventures. A Productive Partnerships for Peace Project has been added to the lending program to finance this innovative initiative which could be a vehicle to improve the productivity of peasant communities. 34. The Government is also working on specific initiatives to reduce the levels of conflict, violence and poverty in urban areas. While it will continue to strengthen crime- control activities, strong emphasis will be placed on preventive, community-based initiatives aimed at reducing conflict in poor neighborhoods; such initiatives are supported by the Youth Development Project and the Judicial Reform Project. Analytical work has been undertaken by the Bank in partnership with Colombian research institutions and NGOs and will provide the basis for formulating specific interventions to promote social cooperation and cohesion in poor neighborhoods, which suffer the highest levels of conflict and violence. Recently, the Bank and the city of Cali started a City Development Strategy (CDS) exercise to identify critical areas for the city to emerge from its present economic and social crisis, and to identify feasible projects to support the strategy. Cali is the first CDS pilot for the Latin American Region. The process is highly participatory in terms of stakeholder involvement and civil society input. It will be supported by strong analytical studies and will include a financial plan to ensure sustainability. 35. The Government will undertake initiatives to mitigate the high social, economic and human costs endured by populations that have been displaced as a result of the conflict. Although there are no reliable figures, the estimates of displaced populations in need of some form of governmental assistance is in the range of 600,000 to 1,000,000 persons. We plan to continue with analytical work and the Social Reform Adjustment Loan to help address this problem.  - 13 - GOOD GOVERNANCE AND TRANSPARENCY 36. The National Development Plan acknowledges the serious consequences of corruption and outlines a strategy to attack both the structural weaknesses that facilitate rent-seeking and change patterns of behavior that accept corruption as customary in both the public and private sector. This strategy is based on three pillars that seek to: (i) ensure that a good example is set at the highest levels of govermnent; (ii) reduce corruption by increasing the efficiency of public institutions, protecting freedom of the press to act as a watchdog, clearly separating public powers and accountability, controlling public and private monopolies while fomenting greater competition; and, (iii) develop and implement incentives and controls to align the interests of the individual public servant with those of the community at large. A presidential council has been nominated to oversee the implantation of this strategy. 37. The Bank has made the issue of governance, including managing the peace process, a central element of its assistance strategy in Colombia. Colombia was one of the first countries to request Bank assistance in implementing an anti-corruption strategy. An anti-corruption IDF Grant, the first of its kind, is under implementation. It is financing studies of the systemic aspects of corruption in the Colombian public sector in general, as well as in-depth studies of two specific entities. The aim is to help the Government develop effective anti-corruption strategies. With the assistance of the Bank and Transparency International, the Government sponsored a major intemational workshop in August 1999 to discuss the effects of corruption on public institutions, to formulate strategies to combat corruption and to open discussion to civil society. Two of the studies financed by the IDF grant served as background material for the workshop. 38. Efforts to reduce overstaffing are being addressed under an IDB-sponsored Public Sector Reform Loan. The Bank has conducted sector work aimed at introducing results- oriented management practices in the public sector that will include a revision of the current budgetary and financial management practices. These two aspects are being addressed by an existing and up-coming Public Financial Management Projects. The new project will also deal with improvements in tax administration, a major source of corruption and mismanagement in the public sector. 39. The failure of the judiciary to provide an adequate system for conflict resolution is seen to be a major contributor to violence. The Bank has been requested to assist in the development and financing of a judicial reform program that would promote the modernization of the formal judicial system, as well as community justice formats that may increase access by the poor, particularly in the major urban centers. 40. Another important aspect of governance is the ongoing effort towards decentralization with implications for the implementation of national policies, institutional development at the local level, and the execution of Bank-financed projects. In order to deal with the limited responsiveness of state institutions to social priorities and needs, the Bank has strongly promoted the decentralization of key public functions to the municipal level. It has done so through sector work and participatory events, as well as in projects such as Antioquia and Pasto Education Projects, and a study on reforms to the existing transfer mechanisms to improve efficiency in the delivery of education and  - 14 - health at the municipal level. The Bank has also encouraged a direct dialogue and partnership with municipal institutions in the implementation of education development plans and promoted the development of autonomous, commercially oriented utilities through a recent municipal infrastructure operation. 41. In addition to supporting decentralization, the Bank has mainstreamed partnerships with communities, and with the public and private sectors (i.e. Magdalena Medio, Peasant Enterprise Zones, Youth Development, Rural Education, Partnership for Peace) as an alternative to the traditional state public investment approach. It has done so in two operations in areas of conflict where the executing entities are NGOs and where the main form of intervention is through partnerships. WB/GEF-supported operations in Colombia are also being developed with NGOs, decentralized regional corporations, and autonomous institutes, reinforcing the role of civil society in the Bank's assistance program. The Bank has also promoted better understanding and dissemination of the concept of partnerships through a very successful Partnerships to Eradicate Poverty program carried out by WBI and the Bank. This success is reflected in the fact that the present administration has made partnerships the principal mode of intervention in the implementation of human development strategies in the country. 42. Improving governance in Bank-financed projects: In addition to increasing partnerships with NGOs and the private sector in project management and decentralizing project activities, we have increased the responsibilities of Resident Mission staff for continuous monitoring of procurement and financial management. This effort will be complemented by capacity-building programs in the areas of results monitoring and evaluation, as well as social and environmental assessments to be financed by Japanese PHRD and IDF grants. In addition, we will use Strategic Compact Funds to respond to a recent Government request to assist in strengthening the procurement law to fight corruption. CHALLENGES AND PROGRESS IN IMPLEMENTING THE CAS 43. The CAS identified two main objectives: (i) poverty reduction and social development; and (ii) sustainable growth. These objectives were to be achieved by interventions in specific strategic areas and remain central to the Govermment's and Bank's agenda. However, due to the escalation of violence and the economic recession, progress in terms of poverty reduction and growth has been slow. As discussed above, in the context of the ongoing crisis, the Government has put greater emphasis on macro- management and financial sector restructuring, as well as on strengthening the social safety net to cushion the poor and vulnerable from the worst effects of the crisis. The challenges and progress in implementing the specific strategic areas defined in the CAS are discussed below and a detailed report on progress made in the Country Assistance Matrix can be found in Annex C 1. CAS Objective: Achieving Poverty Reduction and Social Development 44. Promoting Peace and Development: As mentioned above, the Bank has supported the development of three Learning and Innovation Loans (LILs) to devise effective strategies for addressing the socio-economic determinants of violence and  - 15 - conflict in Colombia. The Magdalena Medio Regional Development and Peasant Enterprise Zones projects are being carried out in areas where armed conflict is high, and both rely on communities as the driving force in defining and implementing development and peace initiatives. The Youth Development project addresses a target group that is both the key victim and the perpetrator of violence; it aims to put in place integrated services for youth in a selection of pilot municipalities. These projects have been very well received by the authorities and civil society, and have served as the basis for several elements of the National Development Plan. All three projects were approved at the end of FY98. They are being closely supervised and to the extent that they are successful, each would be followed by a more ambitious program loan. 45. Promoting Rural Development: Over the course of the past year, it has become increasingly evident that sustainable rural development and reduction of poverty will not be possible without establishing peace in the countryside. The Magdalena Medio, Peasant Reserves, and proposed Sierra Nevada LILs all tackle these issues in an integrated, multi-sectoral fashion within a specific geographic area. In addition, good progress has been made in preparing a Rural Education project to redress inequalities in access and quality of education in rural areas. Unfortunately, progress has been somewhat disappointing on the application of the new market-assisted land reform, due to increasing violence in rural areas and weaknesses of the land reform agency. Nevertheless, a concrete and positive result of work over the last year has been the development and testing in five municipalities of a methodology for the participatory design of productive investment projects for small farmers. Government plans to apply these techniques in the proposed Productive Partnerships for Peace Project. 46. Developing Human Capital: Education. The goals and priorities outlined in the CAS of expanding coverage and improving the quality of basic education remain valid. Achieving these goals is key to improving economic competitiveness and growth, reducing poverty and inequity in income distribution, and building a peaceful society. The new Government's development agenda reiterates these goals, with increased emphasis on the need to improve the equity of resource distribution from the central Government to decentralized entities and through emphasis on devolving increased authority to the school level. We have supported the development of decentralized provision of education services and are preparing a Rural Education Project designed to improve quality and coverage of basic and secondary education. The Antioquia and Pasto Education projects continue to support the deepening of the decentralization process in basic and secondary education, emphasizing the school and school community as the focal point of quality and efficiency improvement. 47. Health. A law enacted in 1993 mandates key reforms in the way health care services are organized, financed, and delivered. Significant progress in implementing the reforms has been achieved since 1995, but much remains to be done to ensure adequate and equitable coverage and sustainability of the system. Continued efforts are needed to increase affiliation to the social security system and reduce evasion of contributions. In addition, viability of the new system requires conversion from a supply-based subsidy system to one of subsidies to demand via explicit individual insurance-a transition that remains difficult. More efforts are needed to help convert public facilities into autonomous and financially independent entities, particularly for human resources and  - 16 - systems development (management information and medical quality assurance systems). We have supported this process through the Municipal Health Project and will explore the possibility of supporting additional efforts aimed at strengthening decentralized health systems. CAS Objective: Achieving Sustainable Growth 48. Attaining Public Sector Responsiveness and Efficiency: The Public Financial Management Project has introduced extensive improvements in the information systems of tax administration, to enhance its ability to monitor voluntary compliance and detect tax evasion. The project is also developing a comprehensive information system for customs administration. An integrated financial management system for budget execution at the central level is being tested. Significant improvements have also been made in various areas of expenditure management, such as macro-programming, budgeting, treasury, public credit and accounting. Initial steps to implement an innovative evaluation system throughout the central Government have been taken to promote results-oriented management. 49. Improving Infrastructure Services: Bank experience in the transportation sector has been highly positive with the Bank's supported Toll Road Concession Project, which became a best practice in Colombia, successful mobilization of private investors in major road projects, and the ongoing Bogota Urban Transport Project. Ongoing urban and water development projects, which emphasize institutional strengthening at the municipal level and private or market-based provision of decentralized services, have also had a positive impact, as in the case of the Urban Infrastructure Services Development Project. The recently approved Cartagena Water and Sewage Project will help the private sector provide clean water and sewage services in order to improve public health, sanitation and environmental problems, as well as support the economic development of Cartagena. We also intend to support the development of regional roads in priority areas within the Caribbean region, as well as rural and small cities water supply at the national level, with a special focus on private sector participation. This effort will be concentrated in the Caribbean region in the first phase. These projects may be designed as Adaptable Program Lending, which would allow for phasing of the development programs and incorporating learning from each phase into the subsequent ones. We would incorporate productive sector components into the projects through promotion of micro-enterprises which could provide services related to road and water sector development. The Bank has also supported a special initiative that has led the Government to manage, budget and account for the risk exposure associated with the liabilities accepted by the central Government in the area of infrastructure. This innovative work has led to the passage of special legislation that seeks to institutionalize and extend the application of this methodology to all sectors. 50. Ensuring Sustainable Development: Protection and Conservation of the Environment. Continued progress has been made under two ongoing loans to consolidate the new decentralized system for environmental management. The Natural Resource Management Program was able to title more than one million hectares to black communities on the Pacific Coast where most of Colombia's remaining primary tropical forest is located, a precursor to the preparation of community-based natural resource  - 17- management plans. The Urban Environmental Management Project has prepared enviromnental strategies and priority programs for major urban areas. Significant achievements include the design and implementation of (i) a water pollution charge program based on regionally negotiated targets for river basin clean-up and (ii) air pollution monitoring and management systems. Emphasis is also being placed on the assessment of environmental risks to the poor residing in illegal settlements on unstable slopes and floodplains. During the last year there has been a substantial increase in Bank-managed Global Environmental Facility (GEF) support to Colombia, including the approval of four grants for biodiversity conservation projects being developed by three NGOs and one research institute affiliated with the Ministry of Environment. A WB/GEF Medium Size Project, Sustainable Use of Biodiversity in the Western Slope of the Serrania del Baudo, was approved in late FY99. The objective of the project is to work with local communities to develop a consensus and strategy on land use within the eco-region which integrates conservation, sustainable use, and biodiversity-compatible economic development. 51. Violence in the countryside has severely limited the Government's ability to take an active role in protecting some important areas of biodiversity from encroachment and misuse by displaced peoples or those seeking illegal gains from the drug business. With support from the GEF, the Government is pursuing a policy of acting through partners who have developed a special relationship with stakeholders in a vulnerable area. Last year the first midsized grant to an NGO was approved, and three more are under preparation. The Bank and the Government are also exploring opportunities to protect ecosystems of internationally important biodiversity that stretch beyond Colombia's borders, encompassing the Andes and the Amazon basin, with Colombia's neighbors and other international organizations. Three full-sized GEF-financed projects are under preparation with the active participation of the local and international NGO communities. CIVIL SOCIETY INVOLVEMENT IN THE BANK'S ASSISTANCE STRATEGY 52. Consultations with civil society in the development of the CAS, and its substantial contribution to the definition of assistance priorities, marks a turning point in the Bank's relations with civil society groups in Colombia. In the development field, the Bank has been an active promoter of the concept of development alliances between the public and private sectors and civil society as an alternative to the traditional state intervention. This approach builds social capital and ensures sustainability of development interventions. Through a program sponsored by the WBI, the Bank initiated the Alliances for Development Program aimed at identifying and promoting successful partnerships for poverty reduction; a total of 280 partnerships have been identified. Thirty cases have been documented and disseminated through publications, media and regional workshops. The success in the dissemination of the partnership experience has led the new administration to adopt it as a key strategy in the Development Plan to promote human and social capital objectives. This Program, which is entering its third year, is being advanced by the Bank in partnership with a leading Colombian NGO and a network of regional universities. The Program is gradually changing its objectives from a focus on identification and reward of successful partnerships to establishing direct financial incentives for the growth and multiplication of these experiences. The concept of partnerships is having a profound impact on the design of Bank operations in Colombia.  - 18 - A growing number of Bank operations are making social capital and community participation the center of project design. Moreover, to ensure the horizontal interaction between the projects and their respective communities, the Government has in some cases delegated project execution to civil society organizations. This is the case of the Magdalena Medio Regional Development Project, and the Sierra Nevada Project (IBRD/GEF), as well as for the Serrania del Baudo, Mataven Forest, and Naya Corridor Projects (GEF). 53. Stronger ties with civil society organizations have also been evidenced by a permanent dialogue with NGOs. This has been particularly effective in the field of education (particularly in the formulation of rural education policies), justice, environment and, lately, as a result of the earthquake emergency, in low-income housing. A permanent and constructive dialogue with the NGO community has been a crucial factor in advancing the Bank's agenda for promoting peace and development, the foremost priority in the CAS. During the last two years, there has been an impressive build up of civil society organization and commitment related to the peace process. These organizations have a broad scope of action, including some involvement in the discussions with the guerrilla groups. The Bank and these organizations have agreed to collaborate in the construction of a development agenda dealing with the socio-economic determinants of violence in Colombia. This agenda, which is broader than the political violence issue, seeks to identify structural reforms to help overcome the prevailing social and economic exclusion affecting vast sectors of Colombian society. This is an effort that will help build stronger and permanent ties with an increasingly vibrant and committed civil society. REVISED BANK GROUP COUNTRY PROGRAM 54. Portfolio Performance: Implementation of the Portfolio Improvement Plan as presented in Annex D of the 1997 CAS has improved the quality of the portfolio in Colombia. The portfolio currently contains 20 projects, with net commitments of US$1.112 billion and an undisbursed balance of US$613 million. All projects are currently rated satisfactory for development objectives and implementation progress and no projects are considered to be at risk. The disbursement ratio9 was 29.5 in FY99, up from 20.2 in FY95. The proactivity index is 100 percent. Colombia has surpassed key portfolio performance indicators included in the CAS, as summarized in the table below. 7 gi , 4 9. 10. Colombia - 11. CAS Indicator 12. Indicator 7/1/96 Achieved 13. Disbursement Ratio 14. 20.2 15. 18.0 16. 29.5 17. No. of ProjectsatRisk 18. 7 19. 3 20. 0 21. No. of ProblemProjects 22. 4 23. 3 24. 0 25. Proactivity Indexa' 26. 57% 27. 64% 28. 100% 29. a?Percent of projects rated as problem projects 12 months earlier that have since been restructured, closed or upgraded. 9 Disbursements realized during the course of a year over the total undisbursed balance at the end of the year.  - 19- 55. The improvement in the portfolio can largely be attributed to a transition from projects that relied on implementation by centralized public entities to projects that are managed by decentralized, local levels of government. In addition, efforts have been made to introduce the participation of civil society in the formulation and implementation of development initiatives, leading to a high level of ownership and commitment to successful project implementation. In the infrastructure sector, project performance has improved due to the implementation of a strategy to shift from direct financing of ventures to activities that aim at strengthening the regulatory and institutional framework to enable private sector participation. 56. Lending Services: The CAS argued that the innovative nature of the Colombian program and Colombia's then ready access to international capital markets required a departure from specific performance indicators to define lending scenarios. Nonetheless, an indicative base-case IBRD lending program was envisaged of about US$300 million per year for FY98-00 and a high-case lending program of around US$450 million. This relatively low lending ceiling was determined by Colombia's preference to limit its IBRD borrowings. In FY98, five projects were approved for a total commitment of US$132.2 million. In FY99, US$142 million was committed for two operations. Seven operations are envisioned for FY00; the centerpieces of the lending program would be the proposed Financial Sector Adjustment Loan for US$500 million, the Earthquake Recovery Loan for about US$225 million, and the Social Safety Nets Project for US$100 million. The Cartagena Water and Sewage Project for US$85 was approved by the Board on July 20, 1999. Due to the FSAL and the Earthquake Recovery Loan, our lending program for FYOO would be about US$975 million. In FY01, we plan to present a Social Sectors Adjustment Loan for about US$150 million, as well as seven additional projects for a total amount of about US$335 million. The lending program for FY98-01, excluding the FSAL and the Earthquake Recovery Loan, is the base-case scenario, and including these operations the average for FY98-01 would be about US$395 million. 57. As stated in the CAS, the movement to the high-case lending program is justified due to: (i) the Government's clear commitment to impose fiscal discipline and to implement structural reforms (to be supported by a formal IMF program); (ii) the need to support the developmental aspects of the peace process, and (iii) improved portfolio performance. Furthermore, this movement is warranted due to changes that could not have been envisioned in the CAS, including: (i) recent international financial instability and the resulting restricted access of Colombia to international capital markets; (ii) the need to cushion the adverse social impact of the economic recession and internal conflict on the most poor and vulnerable groups; and, (iii) the need to support the reconstruction of the coffee area devastated by the earthquake and to strengthen the banking system at a time of severe recession. Furthermore, the overall external debt exposure of Colombia is modest, and in recent years net disbursements from the Bank to the country have been negative. However, we will need to watch closely the key exposure indicators of the country, since the total outstanding debt as a fraction of GDP and the debt service ratio have increased substantially in the past three years (Annex B7). While these ratios are now fairly high only a small proportion of total debt is short-term (3.5 percent of public debt and about 20 percent of private debt in 1999), and international reserves are currently twice as large as total short term debt. At the same time, we will follow closely economic and political events in Colombia, given the substantial risks involved (see  -20 - paragraph 65) In particular, we will reassess the lending scenario if the fiscal stabilization program supported by the IMF goes off track and the program targets are not met. We will have the opportunity to evaluate the situation prior to the disbursement of the second tranche of the FSAL and before negotiating the Social Sectors Adjustment Loan. Also, if project implementation problems or increased violence and social unrest reduce our ability to work effectively in Colombia, we would move to the base-case or low-case scenario of US$300 or US$100 million, respectively. 58. IFC: Colombia was a pioneer in the development of private infrastructure, and IFC for a time had a high level of activity there, notably with one of the first toll roads financed by the Corporation, as well as in the financial sector. IFC's activity declined with Colombia's investment grade sovereign rating and its easy access to private capital through 1997. Subsequently an, adverse macroeconomic situation inhibited private investment activity, with private investment to GDP falling to one of the lowest levels in the region (less than 10 percent of GDP). IFC investment in Colombia increased markedly in FY99, to $85 million. 59. IFC's strategy is to extend its assistance to the Colombian private sector with a continued focus on: (i) financial markets; (ii) infrastructure; and (iii) selective direct investments in manufacturing and services. IFC is currently most active in tile financial sector, with FY99 investments supporting broader development of the leasing sub-sector, to broaden capital markets and facilitate access to capital for SMEs (Small & Medium Enterprises). These include $25 million in a Panamanian leasing company targeted at Colombia. In FY99 IFC provided additional support for SMEs, along with institution- building and strengthening, through a $25 million credit line and $25 million equity investment for Colombia's leading development finance company, Corfinsura. IFC is also seeking to assist Colombia in housing finance, through advisory support for the development of a secondary mortgage market, and in establishment of independent private equity funds. In infrastructure, another toll road operation (Buga-Tulua-La Paila) was recently disbursed, and another is under consideration. An advanced proposal for sub-sovereign financing in the water sector was dropped due to difficulties in creating an appropriate regulatory framework with the municipal authorities. In other sectors, natural resources, manufacturing, and services, the current difficulties faced by the banking sector, along with uncertainties about Colombia's access to international capital markets, make it likelier that firms which have had other alternatives to IFC for long-term capital will once again require the Corporation's assistance. IFC therefore expects to see renewed activity in other sectors, including retailing, agribusiness and energy, where a number of proposals are in advanced stages of preparation. 60. MIGA: Colombia became a full member of MIGA in November 30, 1995. As of June 30, 1999, MIGA's exposure in Colombia amounts to US$155 million, of which 63 percent is in infrastructure, 23 percent in mining, and 15 percent in the financial sector, for a total of 5 Contracts of Guarantee. Four contracts were issued in FY97, and one in FY99. MIGA's activities in Colombia are expected to increase in the near future given the fact that one definitive application in the agricultural sector, and 22 preliminary applications are presently registered (three in the financial sector, three in infrastructure, one in telecommunication, two in manufacturing, eight in the power sector, and five in  - 21 - the oil sector). MIGA's guarantee's program is ready to support projects in sectors where foreign private financing is potentially feasible or needed. 61. GEF: The Government, working with civil society, has identified biodiversity conservation priorities and a strategy to address these goals. The Bank is assisting Colombian organizations to address priorities within the national biodiversity strategy, and as a result, the WB/GEF program has experienced substantial growth during FY98- 99. The first GEF Medium Sized project for Colombia was approved in FY99 ($0.73 million), and a number of projects related to ecosystem protection and sustainable resource use are under preparation for expected approval in FYOO-O1. Specifically, three medium sized projects are now under preparation, of which two will be executed by NGOs and the third by a regional corporation (Community Based Management of the Naya Corridor, Conservation and Sustainable Development of the Mataven Forest, and Conservation and Sustainable Use of the Caribbean Archipelago). This will support the Government's policy of acting through partners who have developed a special relationship with stakeholders in vulnerable ecological areas. The Bank is also working with non-governmental partners to develop two full size GEF operations to protect ecosystems of international biological importance, in the Andes and the Sierra Nevada de Santa Marta. A third project concept, regional in scope, is at the early stages of identification with Colombia and its neighbors (Ecuador, Peru, Brazil), to address sustainable approaches to managing a significant international river basin in the Amazon (Management Program for the Putumayo River Basin). GEF grant funding support through the World Bank during FYOO-01 for these initiatives is expected to reach about $26 million. New initiatives related to biodiversity conservation and climate change mitigation may be identified during FYOO-01. 62. Non-lending Services: The Bank's role as a knowledge institution has been important in Colombia. As mentioned earlier, the Bank has supported the developmental dimensions of the peace process by producing sector work and analysis that will contribute to the country's efforts to address the problem of violence. As part of our analytical work on peace and development, three studies were commissioned: one on the international experience of post conflict reconstruction and lessons for Colombia; one on the various forms of violence and their impact on social capital and one on the structural determinants of conflict in Colombia. Various events with civil society groups have been organized to discuss the conclusions and recommendations of these essays. Given the interest in this work, we discussed with the Government the possibility of publishing a book in Spanish and they enthusiastically concurred. President Pastrana has written a prologue to the book and we expect it to be published shortly. To complement this work, we are completing a participatory study on perceptions of violence by poor communities. This study will focus on three types of violence faced by the poor: (i) social (intra- family/household violence); (ii) economic (violence caused by drug consumption, unemployment, and displacement; (iii) political (violence caused by paramilitary groups and guerrillas). In addition, a set of Policy Notes that cover priority development issues identified by the Colombian authorities and civil society during the preparation of the CAS were produced to serve as the basis for extensive discussions with the new Government. The notes deal specifically with the following issues: (i) achieving peace and reducing the overall level of violence; (ii) restoring high rates of economic growth and reducing unemployment while maintaining fiscal sustainability; (iii) obtaining good  - 22 - governance and judicial reform; (iv) implementing decentralization and local participation in the education and health sectors; (v) developing and reducing poverty in rural areas; and (vi) attracting maximum private sector investment in the infrastructure and energy sectors. We have also completed, in close cooperation with the National Planning department (DNP), a study on longer-term fiscal sustainability which looks at the assets, liabilities, and net worth of the public sector. This empirical study was carried out by a team from DNP, and its results were discussed in specialized publications and in the Colombia press. 63. The Bank is now preparing, jointly with the Government, AAA (Analytical and Advisory Activities) on a number of topics of interest to both sides, to strengthen our policy dialogue and as the analytical underpinning of forthcoming operations. Two education studies are being undertaken to capture the lessons learned from the Antioquia and Pasto Education operations, and to explore avenues to reach territorial governments directly, without entailing a significant credit risk for the central Government. Continued emphasis is placed on promoting quality improvement through the development of an evaluation system that would incorporate an academic assessment component based on a pilot experience carried out under the Bank-supported Secondary Education Project. Also, as mentioned above, we are undertaking analytical work to assist the Government in identifying the groups that suffer the most from the economic crisis, as well as those who will bear the brunt of fiscal austerity measures. To that effect, we are starting joint work with government to produce a Social Sector Assessment, a Poverty Update, and an Employment Generation study. This work will assist the Government in identifying programs (both existing and potential) that would help soften the impact of the current crisis on vulnerable groups. The conclusions of these analytical tasks will feed into our planned Social Safety Nets Project and the Social Sectors Adjustment Loan. To complement these tasks, a Gender Portfolio Review will be carried out in consultation with government and civil society. We are also carrying out a three-country study on regional trade integration, to identify the remaining agenda for trade policy reform and, as mentioned above, the Bank is helping the government through an Anti-corruption IDF Grant in its efforts to fight corruption. Finally, a study is being carried out to assess the potential for reductions in emissions of greenhouse gases and the capacity for sequatration of carbon. This study will also design the required institutional and regulatory reforms to enable the use of the Clean Development Mechanism in Colombia. 64. Partnerships: (a) IDB: There is close collaboration in our activities, sometimes leading to parallel or co-financed operations as in the case of the Regulatory Reform Technical Assistance Project and the Municipal Development Project. The Earthquake Recovery Loan has been designed closely with the IDB, including a combined identification mission. Assistance to the social safety net program has also been designed in close collaboration with the IDB which has committed US$250 million to the program. The proposed IBRD financial sector adjustment operation has been prepared in close partnership with the IDB which has committed about US$1 billion in fast- disbursement loans comprised of three operations: one in the electric sector which was approved in December 1998 for US$350 million,  - 23 - another in public sector restructuring which was approved in January 1999 for US$500 million and the third in the financial sector for US$100 million to be completed by October 1999. (b) IMF: As mentioned above, a program of US$2.7 billion has been announced, pending approval by the IMF Board of Directors. This program includes a provision that would allow spending of about US$300 million per year for three years on new social safety programs, which would be financed by multilaterals. (c) CAF: The proposed IBRD FSAL has been prepared in collaboration with the CAF which has committed US$100 million to contribute to the strengthening of the financial sector. EVALUATION OF RISKS AND REWARDS 65. This assistance program involves the following internal and external risks: (i) the external environment might not improve as anticipated; (ii) the economic recession might be deeper and longer than expected, leading to increased unemployment and social unrest, and resulting in a political environment in which fiscal measures might be difficult to implement; (iii) several privatizations of electricity and telecom companies, planned for 2000, may be delayed; (iv) the peace process may stall; (v) violence could escalate (vi) the Fund program may prove difficult to implement due to labor union resistance to reform measures; and, (vii) some fiscal and financial sector reform measures may be delayed by Congress. In the event that these risks materialize, we would scale down our lending program, focusing primarily on social and poverty alleviation (see paragraph 57). However, the rewards of implementing the program justify taking some risks and we believe that the program could help mitigate these risks, in particular the potential adverse impact on the poor. Our proposed Financial Sector Adjustment Loan sets the stage for a more solid financial sector and complements the macroeconomic stabilization program supported by the IMF, thereby increasing the ability of the economy to withstand extemal shocks by contributing to macro stability and higher rates of economic growth. Further, the emphasis of our lending program on safety nets and the social sectors should help ease social tensions in the short term and contribute to the reduction of poverty in the medium and longer term. The financial support from the multilaterals and our dialogue with Government and civil society should help harness domestic support to implement the necessary reforms. Our assistance would contribute to the development of physical, human and social capital and, as the structural determinants of conflict start to be tackled, would help lay a solid foundation for peace and development in Colombia. James D. Wolfensohn President Date: October 29, 1999 Sven Sandstrom Managing Director  , t F s s~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~  Anney Al Page I of I Key Economic & Program Indicators - Change from Last CAS Forecast in Last CAS Actuald Current CAS Forecastd Economy (Cl) 1997a 1998b 1999b 2000b 1995c 1996c 1997c 1998a l999b 2000b Growth rates (%) GDP 2.4 4.2 4.0 3.2 5.2 2.0 2.8 0.6 -4.5 3.0 Exports 4.7 12.4 10.6 1.1 14.0 5.6 8.9 -5.2 8.9 9.2 Imports 5.9 3.0 4.2 1.7 17.1 4.1 11.6 -5.0 -25.2 12.6 Inflation (%) 18.5 18.0 17.0 16.0 19.5 21.6 17.7 16.7 11.0 10.0 National accounts (% GDP) Current account balance -4.8 -4.2 -3.7 -4.1 -4.7 -5.0 -5.2 -5.7 -2.1 -2.5 Gross investment 20.5 19.6 18.8 19.2 22.4 18.9 23.0 22.3 18.9 19.6 Public finance (% GDP) Fiscal balance -3.6 -2.4 -1.7 -1.4 -1.0 -2.4 -3.7 -3.7 -6.2 -2.5 Foreign financing 1.2 0.9 0.6 1.9 1.7 -0.1 Intemational reserves 6.1 5.2 4.7 4.4 5.2 5.7 5.0 5.1 5.4 5.2 (as months of imports) Program (Bank's FY) FY97a FY98b FY9gb Fyoob Fy95c FY96c FY97d FY98b FY99b FYOOb Lending ($ million) 345.0 375.0 550.0 62.0 479.3 27.5 132.2 142.0 955.0 Gross disbursements ($ million) 265.3 372.3 404.7 238.0 152.0 145.6 185.0 221.2 518.0 a. Estimated year b. Projected year c. Actual outcome d. Actual Series and Current Forecasts use the latest available GDP series, calculated using a new methodology. Forecasts in the last CAS used the old methodology. Please note that GDP series using the new methodology are being regularly revised. e. World Bank User \\StreetTalk\Projects@Files@LAC\PROJECTS\GENERAL\LCC4C\COLOMBIA\CASPFY99\ANNEXES\AIANNEX.DOC 09/24/99 6:07 PM Template created by the Operations Information System (OIS) on 10/29/99  Colombia at a glance 9/3/99 Latin Lower- POVERTY and SOCIAL America middle- Colombia & Carib. income Development diamond* 1998 Population, mid-year (millions) 40.8 502 908 Life expectancy GNP per capita (Atlas method, US$) 2,600 3,940 1,710 GNP (Atlas method, US$ billions) 106.1 1,978 1,557 T Average annual growth, 1992-98 Population (%/6) 1.9 1.6 1.1 GNP Labor force (9/%) 2.7 2.3 1.5 GNP Gross per primary Most recent estimate (latest year available, 1992-98; capita enrollment Poverty (% of population below national poverty line) 21 Urban population (% of total population) 74 75 58 Life expectancy at birlth (years) 70 70 68 1 Infant mortality (per 1,000 live births) 24 32 38 Child malnutrition (% of children under 5) 8 8 .. Access to safe water Access to safe water (% of population) 75 75 75 Illiteracy (% ofpopulation age 15+) 9 13 14 Gross primary enrollment (% of school-age population) 113 113 103 Colombia Male 113 .. 105 Lower-middle-income group Female 112 .. 100 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1977 1987 1997 1998 Economic rastos* GDP (US$ billions) 19.5 36.4 108.8 109.4 Gross domestic investment/GDP 18.7 19.1 23.0 22.3 Trade Exports of goods and services/GDP 16.9 17.0 13.9 13.9 Gross domestic savings/GDP 22.3 23.1 18.0 16.6 Gross national savings/GDP 21.1 21.2 17.8 16.5 Current account balance/GDP 1.9 -0.1 -5.2 -5.7 Domestic Interest payments/GDP 0.8 3.7 1.5 1.6 Investment Total debt/GDP 26.0 46.8 31.1 33.0 Savings Total debt servicelexports 10.7 39.1 47.3 48.5 Present value of debt/GDP .. .. 31.9 35.0 Present value of debt/exports .. .. 235.0 268.0 Indebtedness 1977-87 1988-98 1997 1998 1999-03 (average annual growth) GDP 3.4 4.0 3.1 0.6 3.6 Colombia GNP per capita 0.7 2.6 1.1 -1.3 1.7 Lower-middte-income group Exports of goods and services 5.0 7.1 8.9 -5.2 8.3 STRUCTURE of the ECONOMY 1977 1987 1997 1998 Growth rates of output and Investment I/%) (% of GOP) 90 Agriculture 25.0 17.4 14.1 14.5 Industry 30.3 34.8 29.0 27.1 30 Manufacturing 23.9 20.3 14.2 13.8 Services 44.7 47.8 57.0 58.4 10 Private consumption 70.0 68.2 65.8 67.2 -1092 93 94 95 95 97 98 General government consumption 7.7 8.7 16.2 16.3 -GDI - -GDP Imports of goods and services 13.3 12.9 19.4 19.6 (average annual growth) '1977-87 1988-98 1997 1998 Growth rates of exports and imports (%) Agriculture 2.5 1.7 0.2 0.6 T Industry 4.1 2.3 1.3 -2.3 4 0 Manufacturing 2.5 1.7 2.5 0.0 27 Services 3.4 5.7 3.6 2.4 Private consumption 2.9 4.0 3.7 1.9 o3.j1 General government consumption 5.1 7.6 23.7 -14.9 93 94 95 95 97 8 Gross domestic investment 2.3 14.0 3.5 -13 Imports of goods and services 2.5 16.0 4.4 1.5 Exports *Imports Gross national product 2.9 3.9 3.1 -2.5 Note: 1998 data are preliminary estimates. The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete.  Colombia PRICES and GOVERNMENT FINANCE 1977 1987 1997 1998 Inflation (%) Domestic prices 3 (% change) - Consumer prices 32.7 23.3 18.6 18.7 20 Implicit GDP deflator 29.2 23.4 17.0 17.5 Government finance (% of GDP, incfudes current grants) ot Current revenue 22 2 27.7 27.6 93 94 95 9s 97 98 Current budget balance 5 5 6.5 5.7 -GDP deflator -CPI Overall surplus/deficit 0.0 -3.8 -3.7 7 TRADE US$ mllions) 1977 1987 1997 1998 | Export and import levels (USS millions) (US$ millions) I Total exports (fob) 2,660 5,254 12,057 11,358 19,000 Coffee 1,498 1,633 2,259 1,915 14vD TD Hydrocarbons 105 1,342 2,707 2,387 12,000 4_ Manufactures 1,025 1,556 5,293 5,614 10000 Total imports (cif) 1,970 3,793 14,409 14,835 m mo* Food 1,728 4i00 _ Fuel and energy 136 148 240 2,000 Capital goods 664 1,381 5,561 5,680 9 93 94 95ge97 9 Export price index(1995=100) 6 26 126 112 9 Import price index(1995=100) 3 26 123 116 mExports flImports Terms of trade (1995=100) 178 103 102 96 BALANCE of PAYMENTS 1977 1987 1997 1998 Currentaccountbalanceto GDP ratio (US$ millions) Exports of goods and services 3,378 6,421 14,238 13,339 3- Imports of goods and services 2,736 5,751 18,399 17,468 2 Resource balance 642 670 -4,161 -4,129 1 Net income -313 -1,692 -2,371 -2,187 - 9 Net current transfers 49 1,001 640 407 -2 Current account balance 378 -21 -5,892 -5,909 4* Financing items (net) -1,280 43 5,982 4,454 Changes in net reserves 902 -22 -90 1,455 -7 - Memo: Reserves including gold (US$ millions) .. .. 9,611 8,397 Conversion rate (DEC, localVUS$) 36.8 242.6 1,141.0 1,426.5 EXTERNAL DEBT and RESOURCE FLOWS 1977 1987 1997 1998 (US$ millions) 1 Composition of total debt, 1997 (USS millions) Total debt outstanding and disbursed 5,053 17,023 33,865 36,064 IBRD 716 4,111 1,723 1,740 IDA 22 17 10 9 G:5.7S9 A 1,723 G: 5,759 B 10 Total debt service 379 2,830 7,131 6,853 _ D 4,417 IBRD 93 618 573 IDA 0 1 1 r I1,538 Composition of net resource flows Official grants 15 18 85 Official creditors 65 232 -456 Private creditors 121 -318 4,053 Foreign direct investment 5,574 3,192 Portfolio equity 593 -286 F: 20,418 World Bank program A - IBRD E - Bsiateral Commitments 281 150 28 132 8 - IDA D - Other multilateral F - Private Disbursements 85 395 147 185 c - IMF G - Short-term Principal repayments 41 279 380 232 Netflows 45 116 -233 -47 Interest payments 53 268 150 115 Net transfers -8 -152 -383 -162 Development Economics 913/99  CAS Annex B2 Generated: 10/29/99 Colombia - Selected Indicators of Bank Portfolio Performance and Management Indicator 1996 1997 1998 1999 Portfolio Assessment Number of Projects under implementationa 22 21 23 20 Average implementation period (years)b 4.03 4.18 3.60 3.31 Percent of problem projects" C by number 22.73 14.29 0.00 0.00 by amount 27.58 13.39 0.00 0.00 Percent of projects at riska d by number 10.53 16.67 5.56 0.00 by amount 20.67 15.49 2.06 0.00 Disbursement ratio (%)' 20.27 15.20 20.80 29.53 Portfolio Management CPPR during the year (yes/no) YES YES YES YES Supervision resources (total US$) 992.58 1,312.24 1,212.16 993.90 Average Supervision (US$/project) 45.12 62.49 52.70 49.69 Memorandum item Since FY80 Last five FYs Projects evaluated by OED by number 88 37 by amount (US$ millions) 6995.39 4163.00 Percent rated U or HU by number 25.29 33.33 by amount 26.20 36.07 a. As shown in the Annual Report on Portfolio Performance (except for current FY) b. Average age of projects in the Bank's country portfolio. c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP). d. As defined under the Portfolio Improvement Program. e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the beginning of the year: investment projects only. Generated by the Operations Informnation System (OIS)  CAS Annex B3 Colombia - Bank Group Program Summary, FY 1998-2001 Proposed IBRD/IDA Base-Case Lending Program, FY 1998-2001' Strategic rewards' Implementationb FY Project US$(M) (HIMIL) risks (H/M/L) 1998 ANTIOQUIA EDUCATION 40.0 H M PASTO EDUCATION 7.2 H M URBAN INFRASTRUCTURE 75.0 H M MAGDALENA MEDIO 5.0 H H PEASANT ENTERPRISE 5.0 H H Subtotal 132.2 1999 TOLL ROAD CONCESSION 137.0 H L YOUTH DEVELOPMENT 5.0 H H Subtotal 142.0 2000 CARTAGENA WTR & SEWE 85.0 H M EARTHQUAKE RECOVERY 225.0 H H FINAN.SECTOR ADJUST. 500.0 H L PUBLIC F1N'L MGMT II 40.0 H L SIERRA NEVADA PROJEC 5.0 H H SOCIAL SAFETY NETS 100.0 H M RURAL EDUCATION 20.0 M M Subtotal 975.0 2001 SOCIAL SECTORS ADJUSTMENT 150.0 H M HUMN CAP DEVT 30.0 M L JUDICIAL REFORM 5.0 H H CARIBE LOW INCOME REG TRANS 50.0 H M PARTNERSHIP FOR PEAC (S) 40.0 H M WATER SECTOR PARTNER 60.0 H L Subtotal 335.0 Total FY98-01 1,584.2 a. This table presents the proposed prograrn for the next three fiscal years. b. For each project, indicate whether the strategic rewards and implementation risks are expected to be high (H), moderate (M), or low (L). Generated by the Operations Information System (OIS) on 10/29/99  Annex B4 Page 1 of 1 Colombia-Summary of Nonlending Services Product Completion FY Cost (US$000) Audiencea Objectivet ESW Recent completions Policy Notes FY98 36.7 G, B KG, PS Water Sector FY98 34.0 G, D, B KG, PS Long-term Fiscal Sustainability FY99 35.0 G, D, B KG, PS Peace and Development - phase I FY99 59.8 G, B KG, PD Underway National Clean Dev. Mechanism FY00 20.0 G, D, B PS Peace and Development - ptiase II FY00 50.0 G, B KG, PD Cali City Development FY00 25.0 G, B, PS KG, PD, PS Decentralized Education Management FY00 35.0 G, B KG, PD, PS Education Strategy FY00 16,7 G, B KG, PS Employment Generation FY00 60.0 G, B, P KG, PS Planned Gender Porffolio Review FY00 45.0 G, B, D HG, PD, PS Growth Recovery FY01 90.0 G, B KG, PD, PS Poverty Assessment FY01 100.0 G, B, P KG, PD, PS Regulatory Issues & Options FY01 30.0 G, B KG, PS Improving Public Expenditure Efficiency FY01 45.0 G, B KG, PS Social Sector Review FY01 58.3 G, B, P KG, PD, PS a. Government, donor, Bank, public dissemination. b. Knowledge generation, public debate, problem-solving. Template created by the Op. r t ions Information System (OIS) on 11/01/99  Annex B6 Page 1 of 3 Colombia - Key Economic Indicators Actual Estimate Projected Indicator 1994 1995 1996 1997 1998 1999 2000 2001 2002 National accounts (as % GDP at current market prices) Gross domestic product 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Agriculturea 14.8 14.5 14.0 14.1 14.5 14.5 14.5 14.5 14.5 Industrya 29.1 29.0 29.0 29.0 27.1 27.1 27.0 27.0 27.0 Servicesa 56.1 56.5 56.9 57.0 58.4 58.4 58.5 58.5 58.5 Total Consumption 74.5 74.2 77.8 77.0 77.7 81.1 80.4 80.0 79.3 Gross domestic 25.5 25.8 22.2 23.0 22.3 18.9 19.6 20.0 20.7 investment Government investment 7.4 8.8 10.2 10.0 8.2 8.3 7.7 7.1 6.1 Private investment 18.1 17.0 12.0 13.0 14.0 10.6 11.9 12.9 14.7 (includes increase in stocks) Exports (GNFS)b 15.0 14.5 14.2 13.9 13.9 14.6 15.7 17.1 17.8 Imports(GNFS) 20.9 21.0 19.1 19.4 19.6 14.3 15.6 17.4 18.0 Gross domestic savings 19.6 19.4 18.3 18.0 16.6 12.6 13.9 15.8 17.5 Gross national savings' 21.1 20.8 17.3 17.6 16.5 14.5 15.4 17.0 18.0 Memorandum items Gross domestic product 79939.5 92505.6 99351.6 102432 95964 91645.6 94395.0 977982.0 102685.2 (US$ million at current prices) Gross national product per 2330.0 2350.0 2410.0 2600.0 2600.0 2240.0 2200.0 2130.0 2190.0 capita (US$, Atlas method) Real annual growth rates (%) Gross domestic product at 5.8% 5.2% 2.0% 3.1% 0.6% -4.5% 3.0% 3.8% 4.8% market prices Gross Domestic Income 8.5% 5.2% 2.0% 5.9% -2.4% -3.0% 2.3% 4.3% 5.2% Real annual per capita growth rates (%/o, calculated from 1975 prices) Grossdomestic product at 3.9% 3.2% 0.1% 0.1% -1.1% -5.2% 0.1% 2.4% 3.4% market prices Total consumption 5.4% 3.5% 1.4% 3.6% -1.1% -3.0% -1.8% 0.7% 3.4% Private consumption 4.0% 2.8% 0.1% -0.2% -1.2% -3.8% 0.3% 1.3% 3.8% (Continued)  Annex B6 Page 2 of 3 Colombia - Key Economic Indicators (Continued) Actual Estimate Projected Indicator 1994 1995 1996 1997 1998 1999 2000 2001 2002 Balance of Payments (US$m) Exports (GNFS)b 11960.8 13765.3 14414.6 14238.0 13339.0 13352.8 14718.8 16704.4 18276.6 Merchandise FOB 8748.5 10222.4 10634.5 12057.0 11358.0 12377.0 13519.0 13662.0 14376.0 Imports (GNFS)b 13948.3 16199.1 16282.7 18399.0 17468.0 13074.8 14680.8 17040.4 18462.6 Merchandise FOB 11040.0 12920.9 12755.5 14771.0 14029.0 10503.0 11823.0 12323.0 12803.0 Resource balance -1987.5 -2433.8 -1868.1 -4161.0 -4129.0 278.0 38.0 -336.0 -186.0 Net current transfers 862.4 678.6 488.9 640.0 480.0 545.0 506.0 517.0 527.0 (including official current transfers) Current account balance -3262.8 -4381.8 -4788.4 -5892.0 -5909.0 -1843.0 -2151.0 -2783.0 -2828.0 (after official capital grants) Net private foreign direct 1515.5 2217.1 3487.4 4892.0 2509.0 174.0 3498.0 1722.0 1420.0 investnent Long-term loans (net) 1707.7 1575.3 2116.4 3169.0 1753.0 1197.0 390.0 395.0 628.0 Official -467.2 -423.0 -96.8 877.0 1538.0 1781.0 550.0 257.0 508.0 Private 2174.9 1998.3 2213.2 2292.0 215.0 -584.0 -160.0 139.0 121.0 Other capital (net, including -127.4 241.4 -2297.4 -2428.0 355.3 -13.4 355.1 502.2 -209.6 errors and omissions) Change in reservesd 167.0 348.0 1482.0 -30.1 -1374.0 -721.0 426.0 255.0 271.0 Memorandum items Resource balance (% of -2.5% -2.6% -1.9% -4.1% -4.3% 0.3% 0.0% -0.3% -0.2% GDP at current market prices) Real annual growth rates (1975 prices) Merchandise exports 4.8% 16.8% 4.0% 13.4% -5.2% 8.9% 9.2% 1.1% 5.2% (FOB) Primary Manufactures .. .. .. .. .. .. .. Merchandise imports 18.9% 17.1% 4.1% 11.6% -5.0% -25.2% 12.6% 4.2% 3.9% (CIF) Public finance (as % of GDP at current market prices)e Total revenues 25.8% 26.1% 27.8% 27.8% 27.0% 27.4% 27.5% 27.5% 27.6% Total expenditures 21.4% 27.1% 30.2% 31.5% 30.7% 33.6% 31.1% 30.0% 29.2% (Continued)  Annex B6 Page 3 of 3 Colombia - Key Economic Indicators (Continued) Actual Estimate Projected Indicator 1994 1995 1996 1997 1998 1999 2000 2001 2002 Current account surplus(+) -5.8 -5.0 -4.8 -5.4 -5.7 -2.1 -2.5 -3.2 -3.2 or deficit (-) Capital expenditure 5.6 8.8 10.0 10.4 8.7 9.3 8.8 8.4 7.3 Foreign financing -1.8 1.2 0.9 0.6 2.0 1.7 -0.1 1.3 0.9 Monetary indicators M2/GDP (at current market 19.6 19.1 19.4 22.9 23.4 32.3 31.3 32.3 33.3 prices) GrowthofM2(%3 39.7 21.7 24.4 41.9 21.0 54.0 11.1 18.3 18.4 Private sector credit growth / 76.4 80.4 73.4 79.2 77.6 83.2 82.0 82.0 82.0 total credit growth (%) Price indices (1975 = 100) Merchandiseexportprice 93.7 104.5 105.7 109.7 97.5 97.8 97.6 100.8 103.6 index Merchandise import price 110.0 118.5 118.2 125.4 118.6 119.3 122.3 125.5 128.6 index Merchandise terms of trade 85.1 88.2 89.4 87.5 82.3 82.0 79.8 80.3 80.6 index Real exchange rate 98.6 100.0 107.2 119.2 104.8 119.9 121.6 130.0 135.4 (US$/LCU)f Real interest rates on deposits 10.8% 5.0% 5.3% 14.7% Consumer price index 22.6% 20.9% 20.2% 18.6% 16.7% 11.0% 10.0% 8.0% 6.0% (% growth rate) GDP deflator 24.8% 18.9% 19.5% 17.0% 17.5% 10.5% 10.9% 8.8% 7.0% (% growth rate) a. GDP components are estimated at factor cost. b. "GNFS" denotes "goods and nonfactor services." c. Includes net unrequited transfers excluding official capital grants. d. Includes use of IMF resources. e. NFPS Revenues and Expenditures, including Privatization revenues and transfers to the Private Sector. f. "LCU" denotes "local currency units." An increase in US$/LCU denotes appreciation.  Annex B7 Page 1 of 1 Colombia - Key Exposure Indicators Actual Estimate Projected Indicator 1994 1995 1996 1997 1998 1999 2000 2001 2002 Total debt outstanding and 21940 25048 28900 33575 36084 36034 36969 37919 38946 disbursed (TDO) (US$m)a Net disbursements (US$m)a 2660 2896 4397 6617 3633 3446 2368 2706 2779 Total debt service (TDS) 5570 4345 5401 7131 6853 7645 8260 9786 10202 (US$m)a Debt and debt service indicators (04/) TDO/XGSb 169.5 167.7 190.5 235.0 268.0 237.1 222.7 225.1 221.5 TDO/GDP 27.4 27.1 29.1 31.9 35.0 41.3 43.0 43.6 44.3 TDS/XGS 43.0 29.1 35.6 47.3 48.5 50.3 49.8 58.1 58.0 Concessional/TDO 4.3 3.9 3.3 2.7 2.7 2.6 2.5 2.3 2.1 IBRD exposure indicators (%) IBRDDS/publicDS 31.8 19.1 18.2 21.0 15.4 14.0 16.8 14.6 22.8 Preferred creditor DS/public 52.0 32.7 34.2 42.0 34.0 30.9 34.7 30.3 50.6 DS (%/.)C IBRD DSIXGS 8.1 4.0 3.4 3.8 2.8 3.0 2.9 2.4 1.8 IBRD TDO (US$m)d 2629 2548 2177 1723 1749 1677 1477 1264 1092 Of which present value of guarantees (US$m) Share of IBRD portfolio (%) .. .. .. .. .. .. IDA TDO (US$m)d 12 11 10 10 9 8 7 7 6 IFC (US$m) Loans Equity and quasi-equity /c MIGA MIGA guarantees (US$m) a. Includes public and publicly guaranteed debt, private nonguaranteed, use of IMF credits and net short- term capital. b. "XGS" denotes exports of goods and services, including workers' remittances. c. Preferred creditors are defined as IBRD, IDA, the regional multilateral development banks, the IMF, and the Bank for International Settlements. d. Includes present value of guarantees. e. Includes equity and quasi-equity types of both loan and equity instruments.  CAS Annex B8 Colombia STATEMENT OF IFC's Committed and Disbursed Portfolio As of 3 1-May-99 (In US Dollar Millions) Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1963/90 Coltejer 6.32 0.00 0.00 0.00 6.32 0.00 0.00 0.00 1969/85/88/93/95 CF del Valle 0.00 7.43 0.00 0.00 0.00 7.43 0.00 0.00 1977/89/92/94/96 Promigas 12.53 1.13 0.00 36.05 12.53 1.13 0.00 36.05 1981/85/87/89/91192/94 Leasing Bolivar 4.00 0.00 0.00 0.00 4.00 0.00 0.00 0.00 1987 PRODESAL 0.00 .59 0.00 0.00 0.00 .59 0.00 0.00 1990/92 ODC 2.89 0.00 0.00 6.77 2.89 0.00 0.00 6.77 1994195 Corfinansa 0.00 1.43 0.00 0.00 0.00 1.43 0.00 0.00 1995 Corfmsura 13.06 0.00 0.00 0.00 13.06 0.00 0.00 0.00 1995/97 Icollantas 11.00 0.00 0.00 0.00 11.00 0.00 0.00 0.00 1996 Proyectos 9.94 5.00 0.00 0.00 4.46 5.00 0.00 0.00 1997 Suleasing 30.00 0.00 0.00 0.00 7.43 0.00 0.00 0.00 1999 Surenting 0.00 5.10 0.00 0.00 0.00 1.36 0.00 0.00 Total Portfolio: 89.74 20.68 0.00 42.82 61.69 16.94 0.00 42.82 Approvals Pending Commitment Loan Equity Quasi Partic 1999 CORFINSURA 25.00 0.00 25.00 0.00 Total Pending Commitment: 25.00 0.00 25.00 0.00 Generated by the Operations Information System (OIS) on 10/29/99  CAS Annex B8 Generated: 10/29/99 Status of Bank Group Operations in Colombia Operations Portfolio Difference Between expected Original Amount in US$ Millions and actual Last PSR Fiscal disbursements a/ Supervision Rating b/ Project ID Year Borrower Purpose IBRD IDA Cancel. Undisb. Orig Frm Rev'd Dev Obj Imp Prog Number of Closed Projects: 131 Active Projects CO-PE-6852 1991 GOVT OF COLOMBIA MUNIC DEVT 60.00 0.00 0.00 5.05 5.05 0.00 S S CO-PE-6854 1993 GOV OF COLOMBIA IA MUNICIPAL HEALTH SER 50.00 0.00 0.00 30.30 27.29 19.29 S S CO-PE-6889 1994 GOVERMT OF COLOMBIA PUBLIC FINANCIAL MAN 30.00 0.00 0.00 4.60 4.60 0.00 S S CO-PE-6868 1994 GOV OF COLOMBIA NATURAL RESOURCE MAN 39.00 0.00 0.00 17.81 10.82 10.37 S S CO-PE-6866 1994 GOV. OF COLOMBIA SECONDARY EDUC 90.00 0.00 0.00 54.99 43.26 11.52 S S CO-PE-6893 1995 GOVERNMENT OF COLOMBIA ENERGY TA 11.00 0.00 0.00 3.55 3.55 0.00 HS S CO-PE-6880 1995 GOVERNMENT OF CLM AGRICULTURE TECHNOLO 51.00 0.00 0.00 37.30 21.00 0.00 S S CO-PE-39291 1996 GOVERNMENT OF COLOMBIA URBAN ENVIRONMENT TA 20.00 0.00 0.00 12.99 10.97 0.00 S S CO-PE-6894 1996 GOVERNMENT SANTAFE I (WTR/SUPPL 145.00 0.00 0.00 89.87 66.20 0.00 S S CO-PE-6887 1996 GOVT OF COLOMBIA POWER MARKET DEVELOP 249.30 0.00 0.00 67.26 29.18 16.52 HS S CO-PE-6872 1996 BOGOTA DISTRICT GOVERNMEN URBAN TRNSPRT 65.00 0.00 0.00 42.93 26.95 4.75 S S CO-PE-40102 1997 GOVT OF COLOMBIA REG.REF.TA 12.50 0.00 0.00 11.69 4.70 0.00 S S CO-PE-6884 1997 GOVERNMENT OF COLOMBIA FIN MRKTS DEV TA 15.00 0.00 0.00 13.37 6.87 0.00 S S CO-PE-53243 1998 MINHACIENDA PEASANT ENTERPRISE Z 5.00 0.00 0.00 4.59 .29 0.00 S S CO-PE-46112 1998 GOVERNMENT OF COLOMBIA PASTO EDUCATION 7.20 0.00 0.00 5.89 1.19 0.00 S S CO-PE-46031 1998 GOVERNMENT MAGDALENA MEDIO 5.00 0.00 0.00 3.38 .13 0.00 S S CO-PE-6891 1998 GOV OF COLOMBIA ANTIOQUIA EDUCATION 40.00 0.00 0.00 38.74 3.64 0.00 S S CO-PE-6861 1998 FINDETER URBAN INFRASTRUCTURE 75.00 0.00 0.00 70.32 .32 0.00 S S CO-PE-50576 1999 GOVERNMENT YDUTH DEVELOPMENT 5.00 0.00 0.00 4.79 .79 0,00 S S CO-PE-39082 1999 INVIAS TOLL ROAD CONCESSION 137.10 0.00 0.00 100.00 40.00 0.00 S S Total 1,112.10 0.00 0.00 619.42 306.80 62,45 Active Projects Closed Projects Total Total Disbursed (IBRD and IDA): 492.68 6,910.67 7,403.35 of which has been repaid: 17.35 5,659.71 5,677.06 Total now held by IBRD and IDA: 1,094.75 1,251.39 2,346.14 Amount sold : 0.00 50.99 50.99 Of which repaid : 0.00 50.99 50.99 Total Undisbursed : 619.42 0.00 619.42 a. Intended disbursements to date minus actual disbursements to date as projected at appraisal. b. Following the FY94 Annual Review of Portfolio performance (ARPP), a letter based system was introduced (HS = highly Satisfactory, S = satisfactory, U = unsatisfactory, IHU highly unsatisfactory): see proposed Improvements in Project and Portfolio Performance Rating Methodology (SecM94-901), August 23, 1994. Note: Disbursement data is updated at the end of the first week of the month. Generated by the Operations Information System (OIS) Page I * ,  Annex Cl Page I of 15 Colombia-CAS Program Matrix OVERARCHING DEVELOPMENT OBJECTIVE: Attain sustainable development with continuous reduction of poverty and imWrovement of social conditions in an environment of peace STRATEGIC DEVELOPMENT OBJECTIVE: REDUCING VIOLENCE Strategy/Actions Progress Benchmarks Instruments Status Colombia/IBRD Status IBRD/IFC/EDI Develop a comprehensive public policy that includes * Critical areas of policy (sectoral and . Green cover consultations in Bogota on e ESW to analyze roots and * Grey Cover ESW on first-priority sectoral initiatives whose overall impact social participation) identified through ESW, 'Violence in Colombia: Building consequences of violence (98) 'Violence in Colombia: may contribute to create an environment conducive to ESW and other lending services. sustainable peace and social capital; six Building sustainable civic coexistence and peace and to promote its background studies commissioned by peace and implementation in a consistent and sustainable way. leading authorities in field. Development' Completed. In areas where there is low presence of state * Progress in policy implementation. * New Government started negotiations institutions, a major initiative should consist in the towards effecting peace process. e Intemational Conference on * Conference organized building of public institutionality with a high degree Violence in Colombia (98) with speakers such as of participation from the interested communities and * Evidence of increased commitment of . Civil society at center of peace process. Mary Robinson and civil society actors. relevant social actors with peace and cancelled at last social coexistence policies. moment by President Develop capacity to deal with conflict resolution Pastrana. through pacific means at the local level: (1) promote * Main cities experience solution of * IDB Project approved the use of alteirative mechanisms in confl hot conflicts through alternative * Development and Peace Project * Approved June 1998 resolution; (2) reduce elements of risk (e.g. alcohol, mechanisms. for the Magdalena Medio (98) and now in arms); (3) enhance security in urban areas; and (4) implementation phase. develop a common language among public agencies the goveent and the civil society towards the * Municipalities of Matgdalena Medio . Ongoing process to resolve process * Project to support public/private . After IDB Project definition of an agenda for peace. experience the solution of conflicts Prjctosprtubi/ive AfrIDPoet through alternative mechanisms (ustice sector initiatives to reduce approval, government houses, community peace-makers). urban violence in BogotA, changed request to Medellfn, Cali and Pereira community-based * Number of training programs on * Consortio in Magdalena Medio playing a (99) * peace project. altemative mechanisms for conflict central role in peaceful resolution of resolution in many regions of the conflict. * IDF to support creation of * Support for alternative country. training center on Alternative dispute resolution Dispute Resolution mechanisms integrated into the design (98) ofjustice project.  Annex Cl Page 2 of 15 STRATEGIC DEVELOPMENT OBJECTIVE: REDUCING VIOLENCE Progress Benchmarks Instruments Status Strategy/Actions Colombia/IBRD Status IBRDILFCIEDI Change cultural values and taboos with respect to . New operations include specific * IDF/JGF to study cultural . Research on violence/peace: (I) reduce public acceptance of the activities that reinforce in a cross aspects of violence and perception of adverse consequences of violence on living standards; sectoral manner the issue of peace and implement change strategy to violence in urban and (2) increase the acceptance of institutional civil coexistence in Colombia. recover social awareness and areas under study. channels for conflict resolution. control mechanisms (99). Strengthen professionalism in the police force and their links with local communities with the objective . Development of schemes to be * Ongoing - derived of developing institutions of security and civil included in various projects to from ESW on coexistence. promote community partnership violence. and support the values and taboos change with respect to violence and peace (e.g. education, health, youth, ICBF, natural resource management, land reform) Strengthen the judicial system. * Improvements in the public' s * Project to strengthen the . Under preparation perception on the quality ofjustice. judicial system (01) * Decrease in the periods of processing before Colombian Courts.  Annex Cl Page 3 of 15 STRA TEGICDEVELOPMENT OBJECTIVE: PROMOTING RURAL DEVELOPMENT Strategy/Actions Progress Benchmarks Instruments Status Colombia/IBRD Status IBRD/IFC/EDI Adopt appropriate incentive framework for the . Informal ESW and Policy Note on . Discussed with new agriculture sector: remove support mechanisms that Rural Development policy (98) government and inhibit competitiveness and are not well targeted to published in Bank the poor. Report 1834-CO. Through land reform, attain a more equitable land . Land reform plans implemented in * Pilot program of market-assisted and * EDI FICONG (LAC NGO Poverty . Completed distribution and increase efficiency of land use 40 municipalities. reform successfully implemented in 5 Network) (98) through productive projects. municipalities. * Magdalena Medio Program (98) * LIL approved in . Generation of 6,000 minimum * Methodology for market-assisted land FY98; currently salaries (hypothesis: 2,000 farms). reform as developed under the pilot effective and under adopted as an Operational Directive by implementation. INCORA and applied in 14 additional municipalities. . Government requested Bank support in FY98 for a pilot operation to assist in the establishment of Peasant Enterprise Zones as provided for under the 1994 Land Reform Law. Improve capacity to generate, transfer and adopt * Agricultural research and technology . Agricultural Technology (impl.) a Mid-term review technologies that increase productivity and transfer has been modernized by (9/98) found good sustainability of small farmer (campesino) putting in place a demand driven progress and impact. agriculture. competitive system. * Magdalena Medio Project (98) . 10 community sponsored projects under preparation. . Small Scale Irrigation (Impl.) * Completed ICR Promote productivity employment by small, rural No.18051. businesses.