Brazil - Northeast Rural Poverty Alleviation Program Project for the States of Rio Grande do Norte, Piaui and Pernambuco

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-6979-BR MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON PROPOSED LOANS IN AMOUNTS EQUIVALENT TO US$24 MILLION, US$30 MILLION AND US$39 MILLION, RESPECTIVELY, TO THE STATES OF RIO GRANDE DO NORTE, PIAUI AND PERNAMBUCO WITH THE GUARANTEE OF THE FEDERATIVE REPUBLIC OF BRAZIL FOR A NORTHEAST RURAL POVERTY ALLEVIATION PROGRAM November 20, 1996 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS1' Currency Unit = Real (R$) R$1.00 = US$1.00 US$1.00 = R$1.00 FISCAL YEAR January I - December 31 WEIGHTS AND MEASURES The metric system has been used throughout the report. ACRONYMS APCR Small Rural Community Projects Component (Apoio As Pequenas Comunidades Rurais) CAS Country Assistance Strategy CODEC Project Coordinating Unit in the State of Rio Grande do Norte (Unidade Coordenadora do Projeto no Estado do Rio Grande do Norte) FAO/CP World Bank/FAO Cooperative Program FUMAC Municipal Community Schemes (Fundos Municipais de Apoio Comunitdrio) FUMAC-P Pilot Municipal Funds (Fundos Municipais de Apolo ComunitArio - Piloto) MC Municipal Council (Conselho Municipal) MIS Management Information System NGO Non-Governmental Organization (Organizaqdo Ndo-Governamental) NRDP Northeast Rural Development Program (Programa de Apoio ao Pequeno Produtor Rural do Nordeste) PAC State Community Schemes (Programas de Apoio Comunitdrios) PCU Project Coordinating Unit (Unidade Coordenadora do Projeto) PRORURAL Project Coordinating Unit in the State of Pernambuco (Unidade Coordenadora do Projeto no Estado de Pernambuco) SEPLAN State Secretariat of Planning and Finance (Secretaria do Planejamento e Finanqas) SETAS State Secretariat for Labor and Social Action (Secretaria de Trabalho e AgAo Social) As of July 1, 1996, date of appraisal. Vice President Shahid Javed Burki Director Gobind T. Nankani Division Chief Constance Bernard Staff Member Luis Coirolo FOR OFFICIAL USE ONLY BRAZIL NORTHEAST RURAL POVERTY ALLEVIATION PROGRAM RURAL POVERTY ALLEVIATION PROJECTS - RIO GRANDE DO NORTE PIAUf AND PERNAMBUCO LOANS AND PROJECTS SUMMARY Borrowers: States of Rio Grande do Norte, Piaui and Pernambuco Guarantor: Federative Republic of Brazil Implementing Agencies: Rio Grande do Norte: State Secretariat of Planning (SEPLAN), through CODEC, of the State Secretariat of Labor and Social Action (SETAS) Piaui: Project Coordinating Unit (PCU), of the State Secretariat of Planning Pernambuco: PRORURAL, of the State Secretariat of Planning (SEPLAN) Beneficiaries: Poor rural community associations, including beneficiary populations of some 520,000 (Rio Grande do Norte); 810,000 (Piaui); and 650,000 people (Pernambuco) Poverty: Program of Targeted Interventions. These three states contain a large proportion of the rural poor of the Northeast, a region which has the greatest incidence of poverty in Brazil. The projects employ a targeting methodology at the municipal and community levels to reach poor rural dwellers. Amounts: US$24 million equivalent (Rio Grande do Norte); US$30 million equivalent (Piaui); and US$39 million equivalent (Pernambuco) Terms: Repayable over 15 years, including five years of grace, at the Bank's standard variable interest rate Commitment Fee: 0.75% on undisbursed loan balances, beginning 60 days after signing, less any waiver Onlending Terms: Not applicable Financing Plan: See Schedules A-1 (Rio Grande do Norte); A-2 (Piauf); and A-3 (Pernambuco) Economic Rate of Return: Not applicable Staff Appraisal Reports: Report Nos. 15933-BR (Rio Grande do Norte); 15934-BR (Piaul); and 15935-BR (Pernambuco) Maps: IBRD Nos. 28068 (Rio Grande do Norte); 28071 (Piaui); and 28070 (Pernambuco) Project Identification Nos.: BR-PA-38896 (Rio Grande do Norte); BR-PA-43871 (Piauf); and BR-PA-42566 (Pernambuco) Ts document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed wihout World Bank authorization.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON PROPOSED LOANS TO THE STATES OF RIO GRANDE DO NORTE, PIAUi AND PERNAMBUCO WITH THE GUARANTEE OF THE FEDERATIVE REPUBLIC OF BRAZIL FOR A NORTHEAST RURAL POVERTY ALLEVIATION PROGRAM 1. I submit for your approval the following memorandum and recommendation on proposed loans to the States of Rio Grande do Norte, Piaui and Pernambuco, with the guarantee of the Federative Republic of Brazil, for the equivalent of US$24 million, US$30 million, and US$39 million, respectively, to help finance a Rural Poverty Alleviation Project in each state, under the Northeast Rural Poverty Alleviation Program. The loans would be at the Bank's standard variable interest rate with a maturity of 15 years, including five years of grace. 2. Background. Poverty in Brazil has a strong rural and regional dimension. About 50 percent of the poor live in rural areas, where the incidence of poverty is more than twice that of the large cities and urban centers. The Northeast Region has long constituted the largest single area of rural poverty, not only in Brazil but in all of Latin America. This Region, covering nine states and part of a tenth, accounts for about one-fifth of the total land area and 30 percent of Brazil's 148 million population (1993). More than half of all Brazilians living in poverty, and almost two-thirds of the country's rural poor, live in the Northeast where, according to a World Bank Poverty Assessment, annual per capita incomes of rural inhabitants reach only US$230 (less than one-tenth of the national average).' Among the underlying causes are the relatively poor resource base in large parts of the Northeast and variable agro-climatic conditions, which make these areas vulnerable to periodic droughts. Skewed access to land and the virtual absence of a functioning rural financial system for the poor are additional constraints. Northeast agriculture is characterized by low input use and slow rates of technology adoption. Productivity is low, with output per farm worker less than half that of other regions. Overall, Northeast agricultural GDP growth has been negligible since 1991. 3. Macroeconomic instability and chronic fiscal deficits for many years has undermined the effectiveness of the Government's efforts to address these poverty issues. The "inflation tax" penalized the poor disproportionately, and slow growth depressed rural employment and, hence, exacerbated poverty. Since the introduction of the Plano Real in July 1994, some degree of macroeconomic stability has been achieved, and inflation has been cut significantly. Nevertheless, stabilization has also implied a strong fiscal adjustment, with a tightening of government expenditures, high real interest rates and, hence, a deepening of the investment pause in the farm and rural sector. The consequences in terms of rural employment and social services clearly call for offsetting safety net actions. While successful macroeconomic adjustment in Brazil should promote longer-term economic growth, with benefits extending to rural areas, international experience suggests that targeted programs and policies for the socio-economic development of the poorest are an essential component of the adjustment process. 4. The Federal and State Governments have been involved since the early 1970s in financing programs to alleviate rural poverty in Northeast Brazil. The World Bank has been associated for many years with these efforts through its financing of a series of programs, including area-specific Brazil: A Poverty Assessment, Human Resources Operations Division, World Bank, Report No. '4323-BR, June 27, 1995. -2- and state rural development projects, various sectoral operations and a regional Northeast Rural Development Program (NRDP). The latter was established by the Brazilian Government in 1985 to reduce rural poverty and improve the living standards of small farm families in the Northeast. Under the NRDP, the Bank during 1985-87 approved ten individual state loans totaling US$826.7 million. 5. Through 1993, with the exception of one component supporting small community projects (APCR), implementation of the NRDP lagged behind schedule, and performance in meeting basic program objectives was weak. In 1993, the NRDP was reformulated and transformed in its entirety into a community-based development program, drawing both on the successful experience of the APCR component and on the lessons learned with similar schemes elsewhere in Latin America. Performance has improved markedly. Rural communities are participating in the identification, financing and implementation of subprojects that meet their most pressing needs, increase their sense of project ownership, and have a much sharper focus on poverty alleviation. After nearly three years of reformulation, loan disbursements have accelerated rapidly compared with the original NRDP. Evaluation of the reformulated program indicates that it is providing a cost-effective mechanism for reaching poor rural communities with small-scale and low-cost investments which are having a significant socio-economic impact on recipients, through increased incomes, employment generation and improved quality of life. 6. The Brazilian administration is extremely concerned with the level of poverty in the country, particularly in the Northeast and its rural areas, and has declared the Northeast a priority area for public development programs. The cornerstone of the Federal Government's effort to combat poverty and hunger in Brazil is the Comunidade Soliddria program launched in early 1995, which provides a broad framework for the coordination of rural and urban poverty programs and projects, focusing on municipalities where poverty is most severe. Implementation is decentralized, stressing community self-help and local empowerment. The proposed Rural Poverty Alleviation Projects for Rio Grande do Norte, Piaui and Pernambuco are fully consistent with this strategy, parts of which draw heavily on the reformulated NRDP experience in Northeast Brazil. The current NRDP loans closed on December 31, 1995 for Rio Grande do Norte, and on June 30, 1996 for Piaui and Pernambuco. The Brazilian Government requested that the Bank prepare follow-up projects for the Northeastern States. The proposed projects in Rio Grande do Norte, Piaui and Pernambuco would be the second group of follow-on operations, succeeding the Rural Poverty Alleviation Projects for Bahia, Ceard and Sergipe which were approved by the Board on June 29, 1995 (Lns. 3917-BR, 3918-BR and 3919-BR). These three projects, which were declared effective this year, have so far disbursed US$12.1 million for the financing of some 760 subprojects, benefiting over 71,000 families. With another 1,600 subprojects in their respective pipelines, disbursements for each project should grow considerably by the end of calendar 1996. 7. As in the rest of the Northeast, poverty in the states of Rio Grande do Norte, Piaui and Pernambuco is closely correlated with rural location. The rural poor are primarily smallholders, tenants, sharecroppers and landless laborers, with a diverse range of income-earning activities in which production of subsistence crops predominates. Socio-economic indicators attest to the predicament of each State's rural population: (i) in Rio Grande do Norte, 90 percent of households have only precarious access to safe water, 54 percent of the adult population is illiterate, and 73 percent of heads of -3- households earn one minimum salary or less per month; (ii) in Piaui, these levels rise to 97 percent, 60 percent and 85 percent respectively; and (iii) in Pernambuco, the levels stand at 92 percent, 59 percent and 73 percent respectively. The State Governments' poverty alleviation strategies pursue the common aim of providing these rural poor with the socio-economic infrastructure and network of services necessary to improve their quality of life, and with income and employment opportunities. The development of sustainable income-generating alternatives to offset extended periods of low rainfall in the semi-arid regions of the states, and thereby to stem intermittently heavy migration to urban areas where rural poverty becomes urban, is an important supporting objective of these strategies. Recognizing the extent of the problem on the one hand, and their own financial constraints and the limited capacity of many state institutions on the other, the Governments plan to draw upon the community tradition in most rural areas to be the primary impetus for identification of needs and service delivery. 8. Project Objectives. The projects would assist the State Governments of Rio Grande do Norte, Piaui and Pernambuco to alleviate rural poverty and its consequences by: (a) providing basic social and economic infrastructure, and employment and income-generating opportunities for the rural poor; (b) decentralizing resource allocation and decision-making to local levels by supporting community-based municipal councils and beneficiary associations in investment planning and implementation; (c) providing a safety net for the rural poor during a period of macroeconomic reform and fiscal adjustment; and (d) leveraging resources mobilized at the community and municipal levels. The projects are expected to lay the groundwork for, and consolidate, participatory institutions and processes at the municipal and community levels. The projects would ensure that funds are targeted and reliably reach the poorest municipalities and communities. They would also expand the successful strategy of decentralization and participation tested under the reformulated NRDP, and promote decentralization of decision-making to municipal and local levels. 9. Project Description. The projects would provide matching grants to rural community associations to finance small-scale subprojects identified by these groups as investments that would improve community well-being. The process would be demand-driven. The types of investments likely to be financed include: rural water supply, local road improvements, small bridges, day care centers, school or health post rehabilitation, small-scale agro-processing such as rice or manioc mills, and minor irrigation works. Community subprojects would have cost limits of US$50,000 each, and would follow technical, economic, environmental and sustainability criteria established in the Project Operational Manual agreed between each State and the Bank. This manual is based on the Operational Manual already in use for the reformulated NRDP, with fine-tuning and additions to reflect lessons learned during the almost three years of implementation. Targeting will be based on a series of poverty-related criteria at the beneficiary, community and municipal levels. 10. The projects would have three main components: (a) Community Subprojects (90 percent of project base cost). This component would finance small-scale investments selected, implemented and subsequently operated and maintained by the beneficiaries. Three different delivery mechanisms would be used for screening, approval and management of funds: (i) Municipal Community Schemes (FUMAC, at least 58 percent of base costs), for which decision-making on subproject -4- selection will be delegated by the State Project Coordinating Unit (PCU) to project Municipal Councils (MCs), with community members and representatives of local civil society comprising at least 80 percent of Council membership, and the State PCU releasing the funds directly to the communities; (ii) Pilot Municipal Community Funds (FUMAC-P, at least 7 percent of base costs), under which the MCs would not only approve the subprojects submitted by rural communities but would also administer the funds on the basis of an annual budget envelope and annual operating plan agreed with the State PCU; and (iii) State Community Schemes (PAC, up to 25 percent of base costs) for which the State PCU would screen, approve and release funds for subprojects, interacting directly with communities. This approach would avoid placing at a disadvantage communities within municipalities which lack either the capacity or the political willingness to participate directly. The existence of PAC would also serve as an incentive to encourage local mayors to join FUMAC, because otherwise their communities would access project funds directly at the State level. It is expected that the need for the PAC subcomponent would diminish over the life of the projects, and that the FUMAC and FUMAC-P subcomponents would expand. Flexibility is built into the projects to allow for reallocation among subcomponents to accommodate these changes. (b) Institutional Development (5 percent of project base cost). Under a decentralized implementation framework, capacity building of the various participating entities -- community associations, MCs and the PCU-- is central to project success. This component would support activities to help provide each group with the skills necessary to carry out its project responsibilities effectively. Technical assistance and training under the component would be packaged into five categories: (i) a basic introductory capacity-building program for MCs, organized by the PCU; (ii) specialized skills training for the PCU and MCs contracted with local experts, on topics such as environmental assessment, monitoring techniques and financial administration; (iii) technical assistance for participating communities, organized and contracted by the PCU and the MCs, and including community mobilization and organization, subproject preparation, and operation and maintenance; (iv) technical assistance for State reform, including consultant services and studies to identify strategic reforms in the State apparatus to improve its planning and management capacity and to address the inherent causes of its fiscal deficits; and (v) workshops and seminars for the MCs and beneficiary associations, to facilitate exchanges of experience. Potential service providers include NGOs, private extensionists, local consultants and universities. (c) Project Administration, Supervision, Monitoring and Evaluation (5 percent of project base cost). This component would finance incremental project coordination and supervision costs; a statewide information campaign about the project to all potential beneficiary communities to increase awareness, transparency and participation; and feedback on project performance and impact. It would support the establishment of a monitoring system, including the maintenance and use of a project Management Information System (MIS), drawing on the MIS in use for the reformulated NRDP. It would also finance consultant services to develop and implement studies to -5- evaluate the impact of community subprojects, including annual physical performance reviews, an assessment of community-based procurement, an implementation review of project performance at mid-term, and a comprehensive impact evaluation comparing baseline indicators at the start of the project with results at project completion. 11. Project Costs and Financing. For Rio Grande do Norte, the total project cost is estimated at US$32 million, of which the proposed loan would provide US$24 million, the State and municipal governments up to US$5.1 million, and beneficiary communities at least US$2.9 million. For Piauf, the total project cost is estimated at US$40 million, of which the proposed loan would provide US$30 million, the State and municipal governments up to US$6.4 million, and beneficiary communities at least US$3.6 million. For Pernambuco, the total project cost is estimated at US$52 million, of which the proposed loan would provide US$39 million, the State and municipal governments up to US$8.3 million, and beneficiary communities at least US$4.7 million. The State Governments are expected to meet their counterpart funding obligations. They have done so under the reformulated NRDP, with the help of municipal governments in the case of Piaui, and the annual project counterpart funding requirements for the new project would be equivalent to less than 1 percent of each State's total budget. The loans would disburse against 100 percent of expenditures for technical assistance, training and evaluation studies; 75 percent of expenditures for community subprojects; 50 percent of supervision costs (except salaries) and 20 percent of incremental project coordination costs (except salaries) and monitoring. Beneficiaries would provide a minimum of 10 percent of the total costs of community subprojects, and it is expected that municipal governments would also contribute toward the counterpart funding obligations. The estimated project costs and financing plan for each project are shown in Schedule A. The amounts and methods of procurement and disbursement and the proposed disbursement schedules are shown in Schedule B. A timetable of key processing events, the status of Bank Group operations in Brazil, and the country summary table are shown in Schedules C, D and E, respectively. The Staff Appraisal Reports, dated November 20, 1996, are being distributed separately. 12. Project Implementation. For the Rio Grande do Norte project, the State Secretariat of Labor and Social Action (SETAS) will carry out the project, under the coordination of the State Secretariat of Planning and Finance (SEPLAN), and will designate CODEC, a unit within SETAS, as Project Coordinating Unit (PCU). CODEC has been in charge of overseeing the implementation of NRDP and its Bank-financed predecessors since 1974. For the Piaui project, the former NRDP technical unit, an entity of the State Secretariat of Planning which has been overseeing the implementation of the NRDP and its Bank-financed predecessors since 1981, would be designated as the PCU and charged with overall responsibility for project coordination. For the Pernambuco project, the PCU would be PRORURAL, an entity under the State Secretariat of Planning which has been overseeing the implementation of the NRDP in Pernambuco since 1985. While the monitoring and supervision functions of the PCUs would be increased, their executive role would be reduced as many decision-making and implementation responsibilities would be with project Municipal Councils (MCs) under the FUMAC and FUMAC-P subcomponents. The recent reorganizations of CODEC, the Piaui PCU and PRORURAL reflect their new roles of coordinating project implementation and delegating responsibilities to the local level, in line with the community-based strategy of the reformulated NRDP and the proposed projects. Within the FUMAC and FUMAC-P subcomponents, the projects' MCs would be responsible for: (a) publicizing and promoting the projects in their areas; (b) prioritizing, through local consensus-building, community subproject proposals and screening them for approval; -6- (c) assisting the communities in subproject preparation and execution; and (d) monitoring and supervising implementation of the approved subprojects. Under FUMAC, the MCs will present subprojects which they have approved to the PCU for financing. Under FUMAC-P, the MCs will also manage the funds allocated to them on the basis of annual operating plans (POAs). The projects are expected to be completed by December 31, 2000, and their Closing Date is June 30, 2001. 13. Within this framework, the communities in each state would take the lead in proposing, preparing, implementing and maintaining subprojects. They would organize into legal associations (as required under Brazilian law), and would participate in financing the subprojects on the basis of cost- sharing arrangements defined in the Project Operational Manuals. Associations would receive technical assistance when requested. To ensure quality, the Operational Manuals would contain, inter alia, standard technical designs for the most common kinds of subprojects, model terms of reference for consultant contracts, guidelines for environmental assessment, a cost-sharing matrix and cost indicators for typical investments. Disbursement of funds for subproject implementation would be based on agreements (convgnios) between the community associations, the PCU and the MCs. Physical and financial progress would be monitored on-site by the PCU and MCs; the PCU would maintain the MIS and oversee accounting and auditing arrangements. The Bank's Recife Office would supervise progress through field visits to sample subprojects, access to the projects' MIS database, and review of monthly disbursement summaries. 14. Project Sustainability. Expectations for sustainability of the proposed projects are quite good. The community-based subprojects would finance relatively small investments (such as simple water supply systems and improvements in local social and economic infrastructure) which can be maintained by the communities themselves, from both technical and financial standpoints. Experience with these activities under the NRDP, even prior to the 1993 reformulation, confirms this assessment. Equally important is the fact that client-driven subprojects, identified and implemented by the communities, have been shown to have a high degree of ownership by the beneficiary groups, which are therefore more willing to maintain project investments. Under the NRDP, a commitment by each community group concerning operation and maintenance was a condition for approval of subprojects, and formed part of the agreement signed with the association. Compliance has been good, and these same features have been built into the proposed projects. Finally, the formation and strengthening of MCs, piloted under the NRDP, has begun to improve local government participation. The institutional development component of the projects will further enhance this participation and thus foster longer- term project sustainability. 15. Lessons from Bank Experience. The lessons learned from the reformulated NRDP are borne out by the Bank's experience elsewhere in Latin America and other regions with similar community-based development programs. These are: (a) Decentralization of fiscal and investment decision-making from Federal to state and local governments ensures more efficient project administration. Decentralization of resource allocation and investment decisions to municipalities and communities should be accompanied by a clearly defined and well-disseminated system of incentives and penalties to discourage the misuse of funds; (b) Poverty targeting mechanisms should be simple, explicit and monitorable; be based on objective criteria; promote transparency and minimize political interference in project resource allocation; and ensure that project resources do reach the poorest communities; (c) Participation in the financing of subprojects generates a sense of ownership and a -7- willingness to share responsibility for the future operation and maintenance of project investments. Beneficiary participation in the selection, execution, supervision and financing of project investments ensures that investments respond to true, perceived needs, generate cost savings, and increase accountability at the local level; the organization of poor communities heightens their awareness of available programs and services, facilitates their participation and increases subproject cost- effectiveness; (d) Sustainability of project investments has greater potential when the municipalities and communities contribute to subproject financing in a cost-sharing arrangement and when there is increased beneficiary participation. For example, the participatory process introduced in the pilot Municipal Council component (FUMAC) of the reformulated NRDP has ensured better selection and prioritization of subprojects by beneficiaries. Sustainability is also fostered when communities themselves assume greater responsibilities and continue to voice their demands in a concrete fashion to influence public investment expenditure at the local level; (e) A widely disseminated and carefully designed publicity campaign is essential to ensure transparency and proper knowledge of the program's objectives and contents by all potential beneficiaries; (f) Technical assistance should be accessible to rural communities to enable them to identify, prepare and implement their own subprojects, thereby augmenting their capacity to compete for investment funds. Technical assistance should also be targeted to weaker municipalities to improve their planning, management and financial capacity; and, the quality of the PCU, whether it provides technical assistance directly or through partner entities, is a critical factor in project success and may entail the contracting of local and/or international organizations to strengthen its institutional capacity; (g) Standardization of subproject documents, technical designs and unit costs simplifies the subproject preparation and evaluation process, facilitates the procurement of goods and works, prevents overdesign and improves the quality of subprojects, thereby encouraging greater participation by poorer communities and reducing bottlenecks in the subproject cycle; (h) Supervision, both during and after subproject implementation, is an indispensable determinant of success and sustainability. It has to, be reinforced at all levels and involve local entities closest to the communities, particularly MCs and NGOs; and (i) A user-friendly monitoring and evaluation system facilitates the subproject evaluation process, provides feedback and necessary information to improve targeting and efficiency, and is an essential management and planning tool. These lessons from the NRDP and other similar Bank projects have been taken into account in the design of these Rural Poverty Alleviation Projects. 16. Rationale for Bank Involvement. The proposed projects are consistent with the Brazilian Government's broad strategy for poverty alleviation, as articulated in its Comunidade Soliddria program. They are also fully supportive of the Bank's Country Assistance Strategy (CAS) discussed by the Board on June 29, 1995, and updated in the CAS Progress Report discussed by the Board on June 20, 1996. The CAS identifies poverty reduction as the central objective of the Bank's assistance efforts in Brazil, and recognizes that policy dialogue and lending should be directed to the states, given their fundamental role in the provision of infrastructure and social services. The CAS recommends specific anti-poverty policies, particularly through the expansion of ongoing efforts to decentralize and shift expenditure and implementation responsibilities from the Federal Government to the States, municipalities and local communities. In accordance with the CAS Progress Report, and in reference to the strategy to be adopted for special assistance to poor states, the proposed loans will include funds for technical assistance to help the three States to further identify and implement appropriate reform programs to improve their fiscal situation. The proposed projects would thus make -8- a central contribution to meeting the Bank's overarching objective in Brazil. As the principal donor engaged in a long-term partnership with the Brazilian Government to address rural poverty issues in the Northeast, the Bank is particularly well placed to support this next phase of development initiatives for the Region. 17. Agreements Reached. During negotiations, the Bank reviewed complete drafts of the revised NRDP Operational Manuals for each state. Assurances were provided by the Borrowers that: (a) all project components would be carried out in accordance with the Project Operational Manuals; (b) a project information and monitoring system and reporting arrangements, satisfactory to the Bank, would be maintained throughout the project period; (c) a baseline impact evaluation study would be completed within one year of loan effectiveness, a Mid-Term Review of each project would be held at the end of the second year, and a full impact evaluation would be carried out at project completion; (d) proposed annual operating plans and budgets satisfactory to the Bank would be furnished to the Bank in October of each year, and final operating plans and budgets would be provided to the Bank within 30 days of approval by the Borrower's Legislative Assembly; (e) adequate and timely counterpart funding would be made available by the states for the projects; (f) procurement would be in accordance with procedures satisfactory to the Bank, and a study of procurement by community contracting would be carried out during the first year of each project and agreed recommendations adopted expeditiously; and (g) a Special Account in US Dollars would be established in a commercial bank by each state, and all project accounts would be audited annually in a manner satisfactory to the Bank, with certified copies of audited accounts and auditors' opinions submitted to the Bank within six months of the close of each project fiscal year. Conditions of loan effectiveness for each state would include: (a) adoption of the Project Operational Manual, including final models of agreements between the PCUs, MCs and community associations; (b) preparation of a statewide information campaign acceptable to the Bank; (c) for Rio Grande do Norte, signing of a satisfactory agreement between SEPLAN and SETAS governing project coordination and administration responsibilities; and (d) establishment of effective project monitoring and evaluation arrangements. 18. Project Benefits. The proposed projects would improve the quality of life for some 2 million people (or about 400,000 families) in the rural areas of Rio Grande do Norte, Piaui and Pernambuco by providing improved access to water supply and other basic infrastructure and services, and by increasing their production, incomes and employment. Project-financed rural water supply and minor irrigation works will be particularly important in reducing vulnerability to drought. Productive subprojects will provide a vehicle for financing improvements in input use and technology, thus raising productivity and incomes. Female community members will benefit directly from water supply subprojects as well as several types of productive and social subprojects, e.g., day care centers, which enable them to seek employment and contribute to family cash incomes. The projects will provide a safety net for some of the poorest segments of the States' rural population, who will likely be affected by constrained public investments and services during the period of continuing fiscal adjustment and macroeconomic reform. Another important project benefit will be the strengthening of the capacity of poor municipalities and communities to define and address priority needs, and to plan and execute development projects. It is also expected that the proposed projects will have a similar impact in terms of mobilizing additional community and municipal resources, as has the reformulated NRDP (thus far some 15 percent of resources invested by the projects under this former program), thereby improving -9- the longer-term sustainability of investments. Finally, as a result of benefits from the projects which lead to an overall improvement in community well-being and capacity to save, it is expected that a number of beneficiary communities will graduate from the projects and gain access to alternative sources of financing. 19. Environmental Aspects. The proposed projects have been classified as "B". Given their relatively small size and nature, most community subprojects would not have a significant impact on the environment. The projects would, however, ensure proper environmental screening and enforcement measures to mitigate any negative environmental effects that certain types of productive or infrastructure investments could produce. The three State PCUs have access to technical expertise in environmental matters for additional assistance. The Operational Manuals would specify environmental criteria, screening procedures and enforcement mechanisms to be followed. 20. Poverty and Program Objective Categories. The proposed projects are part of the Bank's Program of Targeted Interventions. The Northeast Region has the greatest incidence of poverty in Brazil, and Rio Grande do Norte, Piauf and Pernambuco together contain a large proportion of the poor in the Northeast. The projects employ a targeting methodology at the beneficiary, community and municipal levels, which takes into account poverty-related criteria and other key parameters to ensure that the projects' resources reach, in each state, those communities with the highest concentration of rural poor. 21. Participatory Approach. The projects' emphasis on beneficiary participation in the identification, implementation, financing and management of local subprojects is consonant with anti- poverty policies based on community mobilization. Beneficiaries' views have influenced the design of the new projects. First, several studies assessed, inter alia, popular participation under the NRDP and its 1993 reformulation, surveying beneficiaries to determine the impact and lessons of the community- based approach. Second, supervision of the ongoing NRDP has involved meeting with municipal and State officials, mayors, members of project Municipal Councils, NGOs and other entities for their suggestions concerning needed improvements. The stress on participation is likely to bolster sustainability and strengthen the capacity of poor communities to take the lead in formulating and implementing their own development agendas. 22. Project Risks. Bank experience in Latin America and elsewhere suggests that the main sources of risk for this type of program arise from: (a) irregular counterpart funding, which can erode community confidence and interest in participating; (b) technical weaknesses and inadequate supervision of large numbers of widely dispersed subprojects; (c) mistargeting of program resources; and (d) undue political interference which can have the corollary effect of depressing local initiative and community involvement. The funding risk will be mitigated by several distinguishing features of the projects. The Bank loans will be made directly to the States, thereby eliminating the disbursement delays previously encountered at the Federal level. Cost sharing of 75 percent will minimize the overall counterpart funding obligation of the States. In addition, counterpart funding responsibilities would be shared to a large extent by the municipalities, decreasing the relative proportion of the States' own participation, and beneficiary contributions will further reduce public counterpart requirements. The projects will also help address the States' fiscal deficits with technical assistance for administrative reforms, thereby reducing the risk of counterpart funding difficulties. Finally, and perhaps most - 10 - importantly, the strong sense of ownership by the States, municipalities and communities should help to protect project counterpart funding during the process of allocating scarce budget resources. The risks of overdesign and weak supervision at the subproject level would be substantially reduced with the establishment of standard technical designs and cost criteria for the most common types of subprojects, and a reinforced institutional strengthening component with specific resources allocated to technical assistance for community associations. Increased delegation of supervision responsibilities by the States to Municipal Councils and contracted public and non-governmental agencies, will increase supervision coverage and will minimize the risk of mistargeting of program resources. In addition, the project design has introduced a system of strong operational disincentives against mistargeting and other departures from project guidelines. Finally, an information campaign targeted to potential beneficiaries, and the expansion of the FUMAC and FUMAC-P programs, will stimulate greater community participation and increase transparency in the selection of subprojects, thereby working against negative political influence in the allocation of project resources. 23. Recommendation. I am satisfied that the proposed loans would comply with the Articles of Agreement of the Bank, and I recommend that the Executive Directors approve them. James D. Wolfensohn President by Caio Koch-Weser Attachments Washington, D.C. November 20, 1996 Schedule A-1 BRAZIL RURAL POVERTY ALLEVIATION PROJECT - RIO GRANDE DO NORTE Estimated Project Costs and Financing Plan Local Foreign Total ------------------ (US$ Million) ------------------ ESTIMATED COSTS A. Community Subprojects 1. FUMAC 16.5 4.8 21.3 2. FUMAC-P 3.3 1.0 4.3 3. PAC 2.2 0.6 2.8 Subtotal 22.0 6.4 28.4 B. Institutional Development 0.9 0.7 1.6 C. Project Administration, Supervision 1.3 0.3 1.6 Monitoring and Evaluation Total Baseline Costs 24.2 7.4 31.6 - Physical Contingencies 0.2 0.1 0.3 - Price Contingencies 0.1 0.0 0.1 Total Project Costs 24.5 7.5 32.0 FINANCING PLAN State and Municipal Governments 5.1 -- 5.1' Beneficiaries 2.9 -- 2.9 World Bank 16.5 7.5 24.0 Total 24.5 7.5 32.0 a/ Including US$1.0 million in local taxes. Schedule A-2 BRAZIL RURAL POVERTY ALLEVIATION PROJECT - PIAUI Estimated Project Costs and Financing Plan Local Foreign Total ------------------ (US$ Million) ------------------ ESTIMATED COSTS A. Community Subprojects 1. FUMAC 18.1 4.9 23.0 2. FUMAC-P 2.2 0.6 2.8 3. PAC 7.6 2.0 9.6 Subtotal 27.9 7.5 35.4 B. Institutional Development 1.1 0.9 2.0 C. Project Administration, Supervision 1.6 0.4 2.0 Monitoring and Evaluation Total Baseline Costs 30.6 8.8 39.4 - Physical Contingencies 0.3 0.1 0.4 - Price Contingencies 0.1 0.1 0.2 Total Project Costs 31.0 9.0 40.0 FINANCING PLAN State and Municipal Governments 6.4 -- 6.4 Beneficiaries 3.6 -- 3.6 World Bank 21.0 9.0 30.0 Total 31.0 9.0 40.0 Including US$1.3 million in local taxes. Schedule A-3 BRAZIL RURAL POVERTY ALLEVIATION PROJECT - PERNAMBUCO Estimated Project Costs and Financing Plan Local Foreign Total ------------------ (US$ Million) ------------------ ESTIMATED COSTS A. Community Subprojects 1. FUMAC 23.3 6.0 29.3 2. FUMAC-P 3.2 0.8 4.0 3. PAC 10.3 2.6 12.9 Subtotal 36.8 9.4 46.2 B. Institutional Development 1.4 1.2 2.6 C. Project Administration, Supervision 2.1 0.5 2.6 Monitoring and Evaluation Total Baseline Costs 40.3 11.1 51.4 - Physical Contingencies 0.3 0.1 0.4 - Price Contingencies 0.1 0.1 0.2 Total Project Costs 40.7 11.3- 52.0 FINANCING PLAN State and Municipal Governments 8.3 -- 8.3 Beneficiaries 4.7 -- 4.7 World Bank 27.7 11.3 39.0 Total 40.7 11.3 52.0 a/ Including US$1.7 million in local taxes. Schedule B-I BRAZIL RURAL POVERTY ALLEVIATION PROJECT - RIO GRANDE DO NORTE Procurement Methods, Allocation of Loan Proceeds, and Disbursements!' PROCUREMENT METHODS: (US$ million) National Competitive Local Direct Category Bidding Shopping Contracting Other Total 1. Civil Works 1.4 0.8 14.4 16.62/ (1.1) (0.6) (10.7) (12.4) 2. Goods and Materials 0.7 11.6 12.321 (0.5) (8.6) (9.1) 3. Consulting Services and 3.1 3.1 Project Administration (2.5) (2.5) Totals 1.4 1.5 25.8 3.1 32.0 (1.1) (1.1) (19.3) (2.5) (24.0) Note: Amounts in parentheses reflect Bank financing. ALLOCATION OF LOAN PROCEEDS: Amount Category (US$ Equivalent) % of Expenditures to be Financed (1) Grants (a) FUMAC Grants 15,900,000 75 percent of the respective Community Subproject (b) FUMAC-P Grants 3,200,000 (c) PAC Grants 2,100,000 (2) Consulting services and training for 2,000,000 100 percent Parts B and C of the Project (3) Administrative costs 100,000 20 percent (4) Project Supervision 400,000 50 percent (5) Unallocated 300,000 Total 24,000,000 ESTIMATED BANK DISBURSEMENTS: Bank Fiscal Year 1997 1998 1999 2000 2001 ---------------------------(US$ million) - ----------- Annual 3.031 4.9 6.2 6.7 3.2 Cumulative 3.0 7.9 14.1 20.8 24.0 / Totals include taxes and contingencies. /1 Community subprojects. / Including the authorized allocation of US$2.0 million into the Special Account. Schedule B-2 BRAZIL RURAL POVERTY ALLEVIATION PROJECT - PIAUI Procurement Methods, Allocation of Loan Proceeds, and Disbursements' PROCUREMENT METHODS: (US$ million) National Competitive Local Direct Category Bidding ShoDping Contracting Other Total 1. Civil Works 2.0 0.8 18.0 20.82/ (1.5) (0.6) (13.6) (15.7) 2. Goods and Materials 0.8 14.4 15.22/ (0.6) (10.9) (11.5) 3. Consulting Services and 4.0 4.0 Project Administration (2.8) (2.8) Totals 2.0 1.6 32.4 4.0 40.0 (1.5) (1.2) (24.5) (2.8) (30.0) Note: Amounts in parentheses reflect Bank financing. ALLOCATION OF LOAN PROCEEDS: Amount Category (US$ Equivalent) % of Expenditures to be FInanced (1) Grants (a) FUMAC Grants 17,300,000 75 percent of the respective Community Subproject (b) FUMAC-P Grants 2,100,000 (c) PAC Grants 7,200,000 (2) Consulting services and training for 2,400,000 100 percent Parts B and C of the Project (3) Administrative costs 100,000 20 percent (4) Project Supervision 500,000 50 percent (5) Unallocated 400,000 Total 30,000,000 ESTIMATED BANK DISBURSEMENTS: Bank Fiscal Year 1997 1998 1999 2000 2001 (US$ million) Annual 4.03' 6.5 7.6 7.9 4.0 Cumulative 4.0 10.5 18.1 26.0 30.0 I/ Totals include taxes and contingencies. 2/ Community subprojects. Including the authorized allocation of US$2.5 million into the Special Account. Schedule B-3 BRAZIL RURAL POVERTY ALLEVIATION PROJECT - PERNAMBUCO Procurement Methods, Allocation of Loan Proceeds, and Disbursements' PROCUREMENT METHODS: (US$ million) National Competitive Local Direct Category Bidding Shping ContractinK Other Total 1. Civil Works 2.2 1.1 23.2 26.52/ (1.7) (0.9) (17.4) (20.0) 2. Goods and Materials 1.1 18.5 19.62/ (0.9) (14.0) (14.9) 3. Consulting Services and 5.9 5.9 Project Administration (4.1) (4.1) Totals 2.2 2.2 41.7 5.9 52.0 (1.7) (1.8) (31.4) (4.1) (39.0) Note: Amounts in parentheses reflect Bank financing. ALLOCATION OF LOAN PROCEEDS: Amount Category (US$ Equivalent) % of Expenditures to be Financed (1) Grants (a) FUMAC Grants 22,000,000 75 percent of the respective Community Subproject (b) FUMAC-P Grants 3,000,000 (c) PAC Grants 9,700,000 (2) Consulting services and training for 3,100,000 100 percent Parts B and C of the Project (3) Administrative costs 200,000 20 percent (4) Project Supervision 700,000 50 percent (5) Unallocated 300,000 Total 39,000,000 ESTIMATED BANK DISBURSEMENTS: Bank Fiscal Year 1997 1998 1999 2000 2001 (US$ million) Annual 5.7 9.4 10.2 9.4 4.3 Cumulative 5.7 15.1 25.3 34.7 39.0 I/ Totals include taxes and contingencies. 2/ Community subprojects. Including the authorized allocation of US$3.5 million into the Special Account. Schedule C BRAZIL RURAL POVERTY ALLEVIATION PROJECTS STATES OF RIO GRANDE DO NORTE, PIAUI AND PERNAMBUCO Timetable of Key Project Processing Events 1. Preparation Period: Eight months 2. Prepared by: States of Rio Grande do Norte, Piaui and Pernambuco with assistance from FAO/CP 3. First IBRD Mission: October 1995 4. Appraisal Mission: June 1996 5. Negotiations: October 1996 6. Planned Dates of Effectiveness: March 1997 7. List of Relevant Project Completion PAR: Second Bahia Rural Development Reports (PCRs) and Project Audit Project (2269-BR), Report No. 13931, Reports (PARs): January 1995. PCR: Ceard Second Rural Development Project (1924-BR), Report No. 8380, February 1990. PCR: Maranhdo Rural Development Project (2177-BR), Report No. 10506, June 1992. PCR: Sergipe Rural Development Project (1714-BR), Report No. 6776, May 1987. PAR: Minas Gerais/CearA Rural Development Projects (1924-BR), Report No. 10636, May 1992. PAR: Piaui Rural Development Project (2015-BR), Report No. 9700, June 1991 Status of Bank Group Operations in Brazil IBRD Loans and IDA Credits in the Operations Portfolio (as of October 31, 1996) Difference Original Amount in US$ Millions Between actual Loan or Fiscal and expected Project ID Credit No. Year Borrower Purpose IBRD IDA Cancellations Undisbursed Disbursements a/ Number of Closed Loans/credits: 180 BR-PA-6367 L26810 1986 FEDERAL REPUBLIC OF BRAZI SALVADOR METRO DEVT 55.00 0.00 18.39 4.63 23.02 BR-PA-6392 L28640 1987 GOVERNMENT OF BRAZIL LVSTK DISEASE CNTL 51.00 0.00 10.00 .67 10.67 BR-PA-6431 L28100 1987 FEDERAL REPUBLIC OF BRAZI SKILLS FORMATION 74.50 0.00 58.90 1.22 60.12 BR-PA-6360 L29500 1988 GOVERNMENT OF BRAZIL IRR SUB-SECTOR 195.00 0.00 26.00 4.83 30.83 BR-PA-6422 L26950 1988 STATE OF MINAS GERAIS, BR MINAS GER'S FRSTRY 48.50 0.00 8.00 2.70 10.70 BR-PA-6437 L29830 1988 FEDERAL REPUBLIC OF BRAZI W&S/PROSANEAR 80.00 0.00 0.00 2.01 2.01 BR-PA-6370 L30130 1989 FEDERATIVE REPUBLIC OF BR NE IRRI JAIBA 71.00 0.00 0.00 10.91 9.24 BR-PA-6407 L31020 1989 SABESP WATER SCTR SAO PAULO 280.00 0.00 0.00 29.49 29.49 BR-PA-6414 L30430 1989 COMGAS, SAO PAULO NTRL GAS DIST 94.00 0.00 0.00 27.34 27.34 BR-PA-6448 L30180 1989 STATE OF PARANA LND MGMT I-PARANA 63.00 0.00 0.00 3.90 3.90 BR-PA-6403 L31350 1990 FEDERATIVE REPUBLIC OF BR NE BASIC HLTH SRV II 267.00 0.00 50.00 58.06 108.06 BR-PA-6442 L28831 1990 ELETROBRAS ITAPARICA 100.00 0.00 0.00 9.08 41.08 BR-PA-6444 L31690 1990 FEDERATIVE REPUBLIC OF BR HWY MGMT AND REHAB 310.00 0.00 40.00 15.15 55.15 BR-PA-6446 L31730 1990 FEDERATIVE REPUBLIC OF BR NAT ENVIRONMT 117.00 0.00 0.00 51.14 51.14 BR-PA-6453 L31700 1990 FEDERATIVE REPUBLIC OF BR NE IRRIG I 210.00 0.00 69.00 94.67 163.67 BR-PA-6473 L31600 1990 STATE OF SANTA CATARINA LND MGMT II-S. CATAR 33.00 0.00 0.00 11.55 9.55 BR-PA-6364 L33750 1991 STATE OF SAO PAULO INNOV BASIC ED 245.00 0.00 0.00 149.22 139.49 BR-PA-6483 L32690 1991 GOVERNMENT SCIENCE RESEARCH&TRN 150.00 0.00 10.00 12.12 22.12 BR-PA-6492 133760 1991 PETROBRAS BRAZT HYDROCARBN TRNSP/PRO 260.00 0.00 0.00 91.44 91.44 BR-PA-6368 L34420 1992 GOVERNMENT WATER SECTOR MODERNI 250.00 0.00 0.00 157.99 127.91 BR-PA-6379 134570 1992 GOB BRAZI METRO TRANSP.SPAULO 126.00 0.00 0.00 36.53 38.53 BR-PA-6454 L34440 1992 GOB RONDONIA NTRL RES. M 167.00 0.00 0.00 62.07 43.40 BR-PA-6495 L34800 1992 GOB BRAZI NATL IND POLLUTN 50.00 0.00 0.00 35.70 35.70 BR-PA-6505 L34920 1992 GOVERNMENT OF BRAZIL MATO GROSSO NAT RES 205.00 0.00 0.00 128.61 108.28 BR-PA-6378 L35470 1993 STATE GOVERNMENTS STATE HWY MGMT 50.00 0.00 0.00 18.61 7.99 BR-PA-6378 L35480 1993 STATE GOVERNMENTS STATE HWY MGMT 38.00 0.00 18.00 12.85 -7.15 BR-PA-6427 L i010 1993 MIN. OF EDUCATION N NE DASIC EDUC IT 212.00 0.00 0.00 123.30 67.88 BR-PA-6540 L35540 1993 MINAS GERAIS ST. WTR Q/PLN(MINAS GERA 145.00 0.00 0.00 95.83 90.60 BR-PA-6541 L35030 1993 S.PAULO/PARANA STS. WTR Q/PLN(SP/PARANA) 9.00 0.00 0.00 8.30 7.96 BR-PA-6541 135040 1993 S.PAULO/PARANA STS. WTR Q/PLN(SP/PARANA) 119.00 0.00 0.00 83.34 78.10 BR-PA-6541 L35050 1993 S.PAULO/PARANA STS. WTR Q/PLN(SP/PARANA) 117.00 0.00 0.00 84.51 79.40 BR-PA-6547 L36330 1993 FED.REP.OF BRAZIL METRO TRANSP. RIO 128.50 0.00 0.00 79.48 64.66 BR-PA-6452 L36630 1994 MINISTRY OF EDUCATION NE BASIC EDUC III 206.60 0.00 0.00 141.49 58.54 BR-PA-6522 L37670 1994 ST.OF ESPIRITO SANTO ESP.SANTO WATER 154.00 0.00 0.00 137.50 66.70 BR-PA-6524 L36390 1994 ST.OF MINAS GERAIS MINAS MNC.DEVELOPMT 150.00 0.00 0.00 117.86 64.86 BR-PA-6543 L37330 1994 GOVERNMENT M. GERAIS BASIC EDUC 150.00 0.00 0.00 121.82 31.B2 BR-PA-6546 L36590 1994 GOVERNMENT AIDS CONTROL 160.00 0.00 0.00 48.67 -10.71 BR-PA-6555 L37130 1994 STATE GOVTS STE HWY MGT II 54.00 0.00 18.00 28,42 17.90 BR-PA-6555 L37140 1994 STATE GOVTS STE HWY MGT 11 87.00 0.00 0.00 41.46 -45.54 BR-PA-6555 L37150 1994 STATE GOVTS STE HWY MGT II 79.00 0.00 18.00 47.10 -13.90 BR-PA-6558 L37660 1994 REPUBLIC OF BRAZIL PARANA BASIC EDUC 96.00 0.00 0.00 82.46 26.51 BR-PA-35717 L39170 1995 GOVT OF BRAZIL RURAL POV. (BAHIA) 105.00 0.00 0.00 85.46 3.13 BR-PA-38882 1,39150 1995 FED REPUBIJC OF [RAZIL [1CIFE M.TSP 102.00 0.100 0.00 102.00 17.50 Bk-PA-3BB84 1,39180 1995 GOVT OF HRAZ1L RURAL POV.- CEARA 0, 00 0.00 0.00 67.50 10.00 BR-PA-38885 L39190 1995 GOVT OF BRAZIL RURAL POV.-SERGIPE 36.00 0.00 0.00 30.42 1.95 BR-PA-6436 L37890 1995 STATE OF CEARA ZIL CEARA UR.DV/WATER CO 140.00 0.00 0.00 126.04 33.04 BR-PA-6564 L39160 1995 FED REPUBLIC/BRAZIL BELO H 4.TSP 99.00 0.00 0.00 93.94 13.26 BR-PA-37828 L40600 1996 STATE OF PARANA (PR)R.POVERTY 175.00 0,00 0.00 175.00 3.33 r BR-PA-40028 L40460 1996 FEDERATIVE REPUBLIC OF BR RAILWAYS RESTRUCTURG 350.00 0.00 0.00 350.00 86.67 BR-PA-6512 L39240 1996 CVRD ENV/CONS(CVRD) 50.00 0.00 0.00 42.05 -.28 BR-PA-6554 L40470 1996 FED. REP. OF BRAZIL HLTH SCTR REFORM 300.00 0.00 0.00 300.00 5.00 Total 6,884.10 0.00 344.29 3,648.46 Active Loans Closed Loans Total Total Disbursed (IBRD and IDA): 2,891.35 13,789.58 16,680.93 of which has been repaid: 459.39 10,919.43 11,378.82 Total now held by IBRD and IDA: 6,080.42 2,978.59 9,059.01 Amount sold : 0.00 45.83 45.83 Of which repaid . 0.00 45.83 45.83 Total Undisbursed : 3,648.46 108.45 3,756.91 a. Intended disbursements to date minus actual disbursements to date as projected at appraisal. b. Rating of 1-4: see OD 13.05. Annex 02. Preparation of Implementation Sununary (Form 590). Following the FY94 Annual Review of Portfolio performance (ARPP), a letter based system will be used (HS = highly Satisfactory, S = satisfactory, U = unsatisfactory, HU highly unsatisfactory) : see proposed Improvements in Project and Portfolio Performance Rating Methodology (SecM94-901), August 23, 1994. c. Following the FY94 ARPP, "Implementation Progress" will be reported here. U) (8 Schedule D Brazil STATEMENTOF IFC's Committed and Disbursed Portfolio As of 07/31/96 In Millions US Dollars Committed Disbursed ---------IFC- ----------IFC- --- FY Company Loan Equity Quasi Partic Loan Equity Quasi Partic Approval 1966 Catarinense 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1969 Catarinense 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1973 CODEMIN 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1975 Oxiteno NE 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1978 CODEMIN 0.00 3.94 0.00 0.00 0.00 3.94 0.00 0.00 1980 DENPASA .38 1.00 0.00 0.00 .38 .96 0.00 0.00 1980 Ipiranga 0.00 5.32 0.00 0.00 0.00 5.32 0.00 0.00 1980 OPP 0.00 1.64 0.00 0.00 0.00 1.64 0.00 0.00 1981 Brasilpar 0.00 .04 0.00 0.00 0.00 .04 0.00 0.00 1981 COBRAPE .70 0.00 0.00 0.00 .70 0.00 0.00 0.00 1982 Cimento Caue 0.00 3.26 0.00 0.00 0.00 3.26 0.00 0.00 1982 PISA 0.00 2.50 0.00 0.00 0.00 2.50 0.00 0.00 1983 CODEMIN 0.00 .40 0.00 0.00 0.00 .40 0.00 0.00 1983 SOCOCO 0.00 0.00 2.50 0.00 0.00 0.00 2.50 0.00 1984 PISA 0.00 1.40 0.00 0.00 0.00 1.40 0.00 0.00 1986 Cimento Caue 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1986 PISA 5.50 0.00 0.00 0.00 5.50 0.00 0.00 0.00 1987 AMCEL 1.40 0.00 0.00 0.00 1.40 0.00 0.00 0.00 1987 Duratex .28 0.00 0.00 .70 .28 0.00 0.00 .70 1987 Ipiranga 0.00 1.00 0.00 0.00 0.00 1.00 0.00 0.00 1987 MBR 1,43 0.00 0.00 0.00 1.43 0.00 0.00 0.00 1987 Perdigao 0.00 10.00 0.00 0.00 0.00 10.00 0.00 0.00 1987 SP Alpargatas 3.20 0.00 0.00 .80 3.20 0.00 0.00 .80 1988 OPP 2.80 0.00 0.00 1.20 2.80 0.00 0.00 1.20 1988 Unibanco 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1989 Catarinense 2.31 0.00 0.00 0.00 2.31 0.00 0.00 0.00 1989 COPENE 13.64 0.00 0.00 0.00 13.64 0.00 0.00 0.00 1989 ELUMA 4.44 0.00 5.00 0.00 4.44 0.00 5.00 0.00 1989 Politeno 5.90 0.00 0.00 0.00 5.90 0.00 0.00 0.00 1990 Bahia Sul 22.86 15.00 0.00 0.00 22.86 15.00 0.00 0.00 1990 ENGEPOL 1.97 0.00 0.00 0.00 1.97 0.00 0.00 0.00 1990 Ripasa 10.00 5.00 0.00 0.00 10.00 5.00 0.00 0.00 1991 Bahia Sul 0.00 5.97 0.00 0.00 0.00 5.97 0.00 0.00 1991 Bradesco-AL 26.03 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1991 Bradesco-Bahia 7.50 0.00 0.00 0.00 7.50 0.00 0.00 0.00 1991 Bradesco-Eucatex 7.50 0.00 0.00 0.00 7.50 0.00 0.00 0.00 1991 Bradesco-Petrofl 7.50 0.00 0.00 0.00 7.50 0.00 0.00 0.00 1991 Bradesco-Romi 3.57 0.00 0.00 0.00 3.57 0.00 0.00 0.00 1991 Rhodia-Ster 12.86 5.95 0.00 0.00 12.86 5.95 0.00 0.00 1992 Bahia Sul 0.00 0.00 0.00 20.00 0.00 0.00 0.00 20.00 1992 Brazil Inv, Fund 0.00 3.00 0.00 0.00 0.00 3.00 0.00 0.00 1992 CRP-Caderi 0.00 2.00 0.00 0.00 0.00 .75 0.00 0.00 1992 DENPASA .20 0.00 .12 0.00 .20 0.00 .05 0.00 1992 MBR 16.43 0.00 10.00 20.57 16.43 0.00 10.00 20.57 Schedule E Brazil at a glance Latin Upper- POVERTY and SOCIAL America middle- Brazil & Carib. income Development diamond* Population mid-1995 (millions) 161.6 480 440 GNP per capita 1995 (US$) 3,620 3,300 4,300 Life expectancy GNP 1995 (billions US$) 5846 1,584 1,892 Average annual growth, 1990-95 Population (%) 1.7 1.8 1.7 GNP Gross Labor force (%) 1.9 2.4 2.1 prmr per primary Most recent estimate (latest year available since 1989) capita enrollment Poverty: headcount index (% of population) 17 Urban population (% of tata! population) 78 74 74 Life expectancy at birth (years) 67 68 69 Infant mortality (per 1,000 live births) 55 41 36 Access to safe water Child malnutrition (% of children Lnder 5) 18 Access to safe water (% of population) 92 81 89 Illiteracy (% of population age 15+) 17 13 13 Gross primary enrollment (% of school-age population) 111 110 107 Brazil Male .-. ._ Upper-middle-income group Female KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1975 1985 1994 1995 GDP (billions USS) 121.7 222.9 554.6 675.0 Economic ratios* Gross domestic investment/GDP 26.8 19.2 20.8 21.9 Exports of goods and non-factor services.'GOP 7.5 12.2 8.1 6.8 Openness of economy Gross domestic savings/GDP 22.9 24.4 22.4 21.1 Gross national savings/GDP 21.4 19.0 20.6 19.4 Current account balance/GDP -5.8 -0.2 -0.2 -2.6 Interest payments/GDP 1.7 3.3 0.9 1.2 Savings Investment Total debt/GDP 22.5 47.2 27.2 23.3 Total debt servicelexports 43.5 39.1 31.8 40.7 Present value of debt/GDP .. .. 25.2 Present value of debtlexports .. .. 276.3 Indebtedness 1975-84 1985-95 1994 1995 1996-04 (average annual growth) - Brazil GOP 3.0 1.5 5.8 4.2 5.3 GNP per capita 0.2 -0.1 3.7 3.7 3.8 Upper-middle-income group Exports of goods and nfs 10.4 6.2 7.7 -0.4 6.2 STRUCTURE of the ECONOMY 1975 1985 1994 1995 (% of GOP) Growth rates of output and investment (%) Agriculture 12.1 11.5 12.7 12.8 10T Industry 40.2 45.3 38.7 38.4 s Manufacturing 30.3 33.7 25.2 24.8 Services 47.7 43.1 48.7 48.8 -s 93 94 95 Private consumption 66.5 65.8 61.1 62.1 -la General government consumption 10.6 9.9 16.5 16.8 Imports of goods ano non-factor services 11.5 7.1 6.5 7.6 G0J -0-GOP 1975-84 1985-95 1994 1995 (average annual growth) Growth rates of exports and imports (%) Agriculture 4.2 2.3 7.6 5.9 40 Industry 3.0 -0.5 7.1 2.0 Manufacturing 2.6 -0.9 5.5 1.6 20 Services 2.9 3.0 4.4 5.7 Private consumption 4.3 1.9 7.2 7.9 a General government consumption 0.8 2.3 -1.0 2.4 91 93 94 95 Gross domestic investment -3 2 0.2 8.5 9.2 -2 Imports of goods and non-factor services -3.7 9.0 15.4 37.3 Exports Gross national product 2.5 1.7 6.2 3.8 Note: 1995 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. Schedule D Committed Disbursed FY Company Loan Equity Quasi Partic Loan Equity Quasi Partic Approval 1992 TRIKEM 0.00 12.86 0.00 0.00 0.00 12.86 0.00 0.00 1993 BACELL 14.00 10.70 0.00 32.40 14.00 10.70 0.00 32.40 1993 CEBRACTEX 3.60 4.00 0.00 0.00 3.60 4.00 0.00 0.00 1993 CEVAL 25.93 10.00 0.00 1.57 25.93 10.00 0.00 1.57 1993 Macedo Alimentos 20.83 0.00 0.00 0.00 20.83 0.00 0.00 0.00 1993 TRIKEM 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1993 Votorantim 18.14 0.00 0.00 1.57 18.14 0.00 0.00 1.57 1994 CHAPECO 10.00 0.00 0.00 0.00 10.00 0.00 0.00 0.00 1994 GAVEA 10.94 0.00 5.50 0.00 10.94 0.00 5.50 0.00 1994 GP Capital 0.00 19.51 0.00 0.00 0.00 14.40 0.00 0.00 1994 Para Pigmentos 30.00 9.00 0.00 35.00 25.50 8.14 0.00 29.75 1994 Portobello 17.00 5.00 0.00 0.00 14.00 5.00 0.00 0.00 1994 S.A.I.C.C. 0.00 5.00 0.00 0.00 0.00 4.85 0.00 0.00 1994 Sadia 26.00 10.00 0.00 1.86 26.00 10.00 0.00 1.86 1994 Unibanco 25.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1995 Bradesco-Hering 7.50 0.00 0.00 0.00 7.50 0.00 0.00 0.00 1995 Brahma - BRA 35.00 0.00 0.00 123.00 35.00 0.00 0.00 123.00 1995 Cambuhy/MC 28.13 0.00 0.00 0.00 28.13 0.00 0.00 0.00 1995 Globocabo 35.00 10.00 0.00 118.00 35.00 10.00 0.00 108.00 1995 Lojas Americana 28.00 0.00 5.00 20.00 0.00 0.00 0.00 0.00 1995 LATASA - Brazil 19.67 0.00 0.00 4.50 19.67 0.00 0.00 4.50 1995 Politeno Ind. 19.00 0.00 0.00 0.00 19.00 0.00 0.00 0.00 1995 Rhodiaco/PTA 30.00 0.00 0.00 30.00 30.00 0.00 0.00 30.00 1995 Sadia 0.00 0.00 0.00 56.36 0.00 0.00 0.00 56.36 1996 CEVAL 35.00 0.00 10.00 130.00 35.00 0.00 10.00 130.00 1996 CHAPECO 15.00 0.00 0.00 5.00 15.00 0.00 0.00 5.00 1996 Globocabo 0.00 8.06 0.00 0.00 0.00 8.06 0.00 0.00 1996 Lightel 25.00 10.00 0.00 0.00 25.00 10.00 0.00 0.00 1996 Mallory 8.00 3.96 0.00 0.00 0.00 3.96 0.00 0.00 1996 MBR 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1996 Oxiteno NE 30.00 0.00 0.00 0.00 30.00 0.00 0.00 0.00 1996 Perdigao 35.00 0.00 0.00 20.00 35.00 0.00 0.00 20.00 1996 S.A.I.C.C. 0.00 2.85 6.87 0.00 0.00 2.85 6.87 0.00 1997 Sucorrico 15.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Pending Commitments 1996 * AGUAS LIMEIRA 17.00 1.00 0.00 23.00 1996 * BANCO LIBERAL 10.00 0.00 0.00 0.00 1996 * BRADESCO CL 40.00 0.00 0.00 60.00 1996 * CTBC 25.00 0.00 0.00 0.00 1996 * DURATEX II 30.00 0.00 0.00 70.00 1996 * GLOBOCABO II 0.00 0.00 0.00 38.00 1997 * NOVA DUTRA 35.00 0.00 0.00 70.00 1996 * RHODIA-STER RI 2 0.00 .25 0.00 0.00 1995 * RHODIA-STER-RI 0.00 .70 0.00 0.00 1997 * SP ALPARGATAS II 25.00 0.00 5.00 30.00 1996 * TIGRE 25.00 0.00 5.00 30.00 Brazil PRICES and GOVERNMENT FINANCE 1975 1985 1994 1995 Domestic prices Inflation (%) (% change) 3,000 Consumer prices 29.1 226.9 2,668.6 66.0 2m Implicit GOP deflator 33.9 231.7 2,284.0 67.4 1,000 Government finance (% of GOP) a Current revenue' .. .. 24.6 29.7 90 91 92 93 94 95 Current budget balance2 .. .. 5.2 0.4 GDP det ---CPI Overall surplus/deficit3 .. .. 1.3 -5.0 TRADE 1975 1985 1994 1995 (millions US$) Export and import levels (mill. USS) Total exports (fob) .. 25,638 43.563 46,506 so.ooo Coffee .. 2,607 1,942 2,850 Other food .. 2,545 1,851 2,100 Manufactures .. 13,356 26,844 27,081 Total imports (cif) .. 13,153 33,133 49,663 2ooo Food .. .. 4,740 7,500 Fuel and energy .. 6,176 4,695 5,103 Capital goods .. 2,480 11,906 18,200 o Export price index (1987=100) .. 97 116 121 a9 go 91 92 93 94 9s Import price index (1987=100) .. 79 139 148 Exports imports Terms of trade (1987=100) .. 123 84 82 BALANCE of PAYMENTS 1976 1986 1994 1996 (millions US$) Current account balance to GDP ratio (%) Exports of goods and non-factor services 9,418 27,713 44,966 47,846 2 Imports of goods and non-factor services 14,323 16,928 36,187 53,516 Resource balance -4,905 10,785 8,779 -5,670 Net factor income -2,106 -11,213 -12,580 -15,246 Net current transfers 0 0 2,597 3,513 L.. 9 92 93 Current account balance, before official transfers -7,011 -428 -1,203 -17.404 Financing items (net) 5,946 1,842 8,203 30,450 Changes in net reserves 1,065 -1,414 -7,000 -13,046 Memo: Reserves including gold (mill. US$) 4,166 11,618 39,463 53,704 Conversion rate (local/US$) 3.0E-12 2.3E-09 0.6 0.9 EXTERNAL DEBT and RESOURCE FLOWS 1975 1985 1994 1995 (millions US$) Composition of total debt, 1995 (mill. USS) Total debt outstanding and disbursed 27,329 105,187 151,104 157,397 A C IBRO 1,045 5,274 6,311 6,038 6038 142 IDA 0 0 0 0 G 38596 2676 E Total debt service 4,319 11,471 16,114 21,199 204 9 IBRO 98 796 1,883 1,868 2 IDA 0 0 0 0 Composition of net resource flows Official grants 9 34 69 65 Official creditors 1,059 935 -2,116 -1,181 Private creditors 4,213 149 3,717 867 Foreign direct investment 1,302 1,348 3,072 3,100 Portfolio equity 0 0 5,082 2,976 89526 World Bank program Commitments 538 1,525 1,024 404 A - IBRD E - Bilateral Disbursements 249 765 640 838 B-IDA D - Other multilateral F - Private Principal repayments 26 405 1,346 1,377 C - IMF G - Short-term Net flows 224 359 -706 -539 ___ _j Interest payments 72 391 537 491 Net transfers 152 -32 -1,243 -1,030 International Economics Department 8/20/96 Tax revenue. 2 Primary budget balance. Operational budget balance. -r г о � v ш и а а �  IIBRD 28068 3$ 37° 36 35 STATE BOUNA£5 GUYANA VENEZUELA SURINAME R4EGONBCUNDAE5 BRAZIL RURAL POVERTY ALLEVIATION PROJECT 0GVNA RIO GRANDE DO NORTE AREA- } ~~~~OF MAP ''Aen.\s BRA Z l - PERU Sr d. M.l Gun WRASILIAT -¾BOLIVIA CHILE knd.- ATLANTIC S ARGENTINA P - Al 3~aadzerrl URUGUAY Upaern An,- 500 0 Poru å- d,Goçl i -'R no caaubesd.A~rn. NATAL C E A R M-b, R a d0T".9 sB org e B o, ,010o T "" PElu Pr * - Sevna an PauDosFeros lmno Flran o Jscemo gr F e r n - C a m p a R-do nd ov - Joðo~~c PCso d.cem Curr. sý sarnh. asn -~P IWd.003l 2 , 0 o09,00 S0o0Bnt93AnNön OWBS AlxNd, i FA- ACruza A ca. dos~se DBn ts. SATc ON ES S, S B EN SEMI ARIDSb R EGIAO DO SEMI-ARIDO COASTAL FOREST- ZONA 0A MATA A S a"-0 1 0 3 0 5 - - - IAN ROADSL I I I I I i 0 SELECTED CITIES AND TOWNS KJMrR 9 STATE CAPITAI A,A --••-- STATE BOUNDARIES38373635 NOVEMBER 1996  _. 44 f43° 42° 41. VENAZUELA GN NO~FA ATLANTIC OCEAN ENZULA SUR1NAM BEGo ~ARE >o FRENCH o 2GULANA ~ AREA OF MAP - ~~1. trC-rm PERU - CHiLE)BMARANHÄ BO VIA Z L S BRA RUARGENTINA AL A A T~ \ URUGUAYý P. Ceh PIAUmI ..1 ROC E A R E BRAZ L Fr-Jos ARURAL POVERTY ALLEVIATION PROJECT AdTERESI B IA UÍ C SPlT URTA Ab.Lag d. P'Iu AREA EXCLUJED FROM IHE PROJEC AVERAGE ANNUALRA IN MILIHETERSe ellMATIC ZONES SEM1-ARJD B-rrOur S-ntcr REGJAO DOSEM ARWDO M P LOWER PARNAIBA RIVER ALEY -y REG~ODMEDMO iXOPARNABA d. dP d. ¯ SAVNNAH Aga ro REGÃODOS CERRAD0S .. mdMulal - --- M IN R~AD Swo Fr,n- c P'-n ~,o SELECIED CITIES AND TOWNS d. P STATE CAPITAL nd" - - STATE BOUNDARIES o s 5 -dã d. ui oCo- o P. x A ° 0BO.Po . /* An nio lerumenhaRPAcBUC **8. Frani_c CG."n. d. N.. P- der-oGr-d. U' unr ..M d.P-a M.rco • ~~~ S.e -i mpos e lo'Jos Ribeiro ...'' , dP p Goç C-ä /- d~ d. P-;i an d. Cannd eoi Grand Mende d2h B"- S Jood. P- Lago d. Ba0 d. P-eu a-" N- 0PERNAMBU1CO R-&o . . deP i • i ,* ·s RGdnç~ o- FPlr CM- Y B A H l Alo Kä~MEERS 46°45" 44' 43" 42-  IBRD 28070 ~¯¯' TE sOLNDARES GUYANA BRAZIL VENEZUELA SURINAME REGODNBUDARES - - RNA~oE RURAL POVERTY ALLEVIATION PROJECT 0 \, ' 8OVNDaRIs 8 FRENCH PERNAMBUCO GUIANA AREA EXCLUDED FROM TSE PROJECT -Ž50ISOHYETS INMM B R A. Z I L U9C095 -R C~M I ZONES5 A REA SEMI AR D PER OF MAP REGIAO DO SEMI-ARDO TRANSImKNAL ZONE BRAS1UA AGRESTE COASTAL FOREST BOUVIA ZONA DA MATA - \ MAIN ROADS -r O SELECTEDCITIES C ILE REGIONAL OFFICES ATLANTIG ( STATECAPITAL ARGENTINA OCEAN \ EUGUA - STATE BOUNDARIES " P URUGUAY 4100' 400'2 40°00 39°30' 3930' 890' 38 00' 37"30' . 37 00' 3630' 3600 35°30 35'00' ..C E A R A P A R A ÍB Ac. T 7 30 \ Eg ba1r 7'30'- mpu Ab C- PIA UI cOi 5 Ma e oraio. .."'...'.. S AL P 1pisum FE guaro Ageraç Ouricuri see a verd '" .°' cru- Lq-A P -'lo et Sl er Mi,rnd,ba C 6d ld, Psmb ECIFE da8 ViVria d - c- -.". d.. Poc Br-.. Gd5. S a to C r T r a o voB n C r U r / B e z s GG o Ge o p *A0o C., ...å b." Arover e PSoa o Fl 5 ' --St Mar aRpr da Boa Vý . .. F, - k-.rb. OT~fP , 9-Ir. - I G rnhunsreo c B A H I A 0' C oaP ln ooaoa•,.- GJséd. 9 00 - °0ó Reservor - 1,1 3 0"'"'. ATL.ANTIC KILOMETERS -A L. A G 0 A S OCEAN -'10 - 010, -1. 000' 39'30' 39°00' 38°30, 38",0 37ý30' 37'00' 36°30' 3? 01 35-30' 35'00' NOCvEmSER 1996  e n