Nicaragua - Rural Municipalities Project

Document of The World Bank Report No. 15562-NI STAFF APPRAISAL REPORT NICARAGUA RURAL MUNICIPALITIES PROJECT August 14, 1996 Central America Department Latin America and the Caribbean Regional Office  CURRENCY EQUIVALENTS Nicaraguan Cordoba 1.0 = US$0.1212 (April 1996) FISCAL YEAR January 1 to December 31 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS ABC Proposed Atlantic Biodiversity Corridor Project (GEF) AMUArIC Nicaraguan Association of Municipalities (Asociaci6n Nicaraguiense de Municipalidades) CAS Country Assistance Strategy CERAP Executive Committee fbr Public Sector Reform (Comite Ejecutiw para la Reforma de la Administraci6n Pzublica) CONAGRO National Agricultural Council (Comisi6n Nacional Agropecuaria) CSC Community Supervision Committee (Comite Comarcal de Apoyo y Supemvisi6n de Proyectos) DANIDA Danish International Development Agency ECODESMIC National Strategy for Conservation and Sustainable Development (Estrategia para la Conservaci6n y Desarrollo Sostenble en Nicaragua) EIA Environmental Impact Assessment (Evaluacion de Impacto Ambiental ELUP Regional Environment and Land Use Plan EOAT Strategy for Environment and Land Use Planning FAO Food and Agriculture Organization of the United Nations FINNIDA Finnish International Development Agency FIAHS Fund for Innovative Approaches in Human and Social Development FISE Nicarguan Social Emergency Investment Fund (Fondo de Inversion Social de Emergencia) GDP Gross Domestic Product GEF Global Environment Facility GON Government of Nicaragua GTZ German Agency for Technical Cooperation IAF Inter American Foundation IA Inter-community Assembly (Asamblea Intercomarcal) ICB International Competitive Bidding IDA International Development Association IDB Inter-Amnerican Development Bank IDF Institutional Development Fund IFAD International Fund for Agricultural Development INAA Nicaraguan Institute of Water and Sanitation (Instituto Nicaraguense de Acueductos y Alcantarillados)  INIFOM Nicaraguan Institute for Municipal Development (Instituto Nicaragfiense de Fomento Municxpa!) INRA Nicaraguan Institute of Agrarian Reform (Instituto Nicaragfiense de Reforma Agraria) INTA Nicaraguan Institute of Agriculture Technology (Instituto Nicaraguense de Tecnologla Agropecuaria) IREJNA Natural Resources Insttute (Instituto de Recursos Naturales) IPDP Indigenous People Development Plan IRA Institutional Restructuring Agreement (Acuerdo de Reestructuraci6n Institucional) LDC Local Development Committees LIB Limited International Bidding MAG Ministry of Agriculture and Livestock (Ministerio de Agnculturay Ganaderia) MARENA Ministry of Environment and Natural Resources (4inisteno del Ambiente y Recursos Naturales) MAS Ministry of Social Affhirs (WMinisterio de Asuntos Sociales) MCT Ministry of Construction and Transportation MEDE Ministry of Economy and Development (Winisterio de Economiay Desarrollo) MIFIN Ministry of Finance (Ministerio de Finanzas) MIP Municipal Investment Plan MTU (UTAM) Municipal Technical Unit (Unidad Tecnica Municipal) NBS National Biodiversity Strategy NCB National Competitive Bidding NEAP National Environmental Action Plan NGO Non-Government Organization PHRD Policy and Human Resources Development Fund NRDP (PNDR) National Rural Development Program (Programa Nacional de Desarollo Rural) PUG Project User Group RAAN North Atlantic Autonomous Region (Regi6n Autonoma del Atkintico Norte) RAAS South Atlantic Autonomous Region (Regi6n Aut6noma del Atklntico Sur) RRA Rapid Rural Appraisal RUTA Regional Unit for Technical Assistance for Central America Agriculture and Rural Development SA Special Account SDC (CSD) Sectoral Decentralization Commission of GON (Comision Sectorial de Descentralizaci6n) SDR Special Drawing Right SIDA Swedish Intemational Development Agency SOE Statement of Expenditures TFAP Tropical Forestry Action Plan TOR Terms of Reference USAID United States Agency for International Development UNDP United Nations Development Program   NICARAGUA RURAL MUNICIPALITIES PROJECT TABLE OF CONTENTS 1. BACKGROUND ....................................................1 A. PR OJECT ORIGiN ................................................... I B. EcoNoMIc AND SOCIAL CONTEXT ................................................... 3 C. LAND USE, RURAL POVERTY AND NATURAL RESOURCE DEGRADATION ............................................4 2. INSTITUTIONS AND POLICIES ................................................... 5 A. OVERALLRESPONSIBILITIES ...................................................5 B. SECTOR COORDrNATION ................................................... 6 C. NAT URAL RE SOURCES INSTITUTIONS AND POLICIES ................................................... 6 D. RURAL DECENTRALIZATION ............................................................................................................ 8 E. LOCAL CAPACITY .....................11 F. BANK GROUP LENDING IN NICARAGUA ............................................... 13 3. THE PROJECT ............................................... 13 A. PROJECT OBJECnVES ............................................... 13 B. PROJECT SUMMARY DESCRIPTION ............................................... 14 C. PROJECT DETAILED DESCRIPTION ................................................ 14 Rural Municipalities Development Component ................................................ 14 Natural Resources Policies And Institutions Component ............................................... 17 Atlantic Biodiversity Corridor Component (GEF) ............................................... 18 4. PROJECT JUSTIFICATION ................................................ 20 A. PROJECT BENEFICIARIES AND PARTICIPATION ................................................ 20 B. GEOGRAPHICAL COVERAGE ............................................... 2 1 C. COMPLEMENTARITY BETWEEN THE IDA AND GEF COMPONENTS ................................................ 22 D. LESSONS FROM PAST BANK LENDING ................................................ 23 E. RATIONALE FOR IDA AND GEF INVOLVEMENT ............................................... 25 F. BENEFICIARY SUPPORT ............................................... 28 5. PROJECT COSTS AND FINANCING PLAN ............................................... 28 A. PROJECT COSTS ............................................... 28 B. FINANCING PLAN ................................................ 29 C. RECURRENT COSTS ............................................... 29 6. PROJECT IMPLEMENTATION AND MANAGEMENT ............................................... 30 A, PROJECT IMPLEMENTATION .................................................................... 30 B. POVERTY TARGETING .................................... 37 C. IMPLEMENTATION SCHEDULE ..................................... 37 D. PROCUREMENT .................................... 38 E. DISBURSEMENTS .................................... 42 F. FINANCIAL CONTROLS, ACCOUNTS AND AUDITING .................................... 44 G. SUPERVISION, MONITORING AND EVALUATION ..................................... 46 7. EXPECTED BENEFITS AND RISKS .................................... 47 A. SOCIAL IMPACT ..................................... 47 B. ENVIRONMENTAL IMPACT ..................................... 49 C. ECONOMIC AND FISCAL IMPACTS ........................0......................... ... 50 D. SUSTAINABILITY ....................... 52  ii E.RisKs~~~~~~~~~~~~~~~~~~ .4 E . R ISKS .................................................................. ..................... 54 8. AGREEMENTS AND RECOMMENDATION ................................... 55 ANNEXES BACKGROUND ANNEx 1. THE POLICY AND INSTITUTIONAL CONTEXT FOR DECENTRALIZATION ANNEx 2. NATURAL RESOURCES ISSUES AND THE PROJECT AREA ANNEX 3. SOCIAL ASSESSMENT: POVERTY, GENDER AND INDIGENOUS ISSUES IN THE WESTERN REGION PROJECT DESCRIPTION ANNEX 4. PROJECT DESCRIPTION ANNEX 5. INDIGENOUS PEOPLES STRATEGY ANNEX 6. SUMMARY OF ENVIRONMENTAL ASSESSMENT AND MITIGATION PLAN ANNEX 7. PROJECT COSTS PROJECT MANAGEMENT ANNEx 8. PROJECT IMPLEMENTATION ARRANGEMENTS ANNEX 9. CONTENTS OF PROJECT IMPLEMENTATION PLAN, OPERATIONAL MANUAL AND TRAINING MANUAL ANNEX 10. PROJECT MONITORING REPORTING AND EVALUATION ANNEx 1 1. PROJECT SUPERVISION PROJECT ANALYSIS ANNEX 12. ECONOMIC IMPACTS OTHER INFORMATION ANNEX 13. REPORTS IN PROJECT FILE MAPS MAP IBRD 27444 NICARAGUA - PHYSIOGRAPHY MAP IBRD 27445 NICARAGUA - ADMINISTRATIVE DIVISIONS MAP IBRD 27446 NICARAGUA - AREAS OF POVERTY MAP IBRD 27447 NICARAGUA - NATURAL FOREST COVER MAP IBRD 27448 NICARAGUA - IDA PROJECT AND ASSOCIATED GEF PROJECT AREAS This report is based on an appraisal mission carried out in February/March 1996 and on a pre-appraisal mission carried out in August 1995. The Bank core team included Luis Constmntino (task manager), Hemando Garz6n (consultant, public finance), Douglas Graham (Biodiversity Specialist - GEF), Maurizio Guadagni (participation), Marta Molares-Halberg (legal), Valeria Pena (social assessment), Teresa Roncal (procurement and disbursements), Jorge Uquillas (indigenous peoples) and James Smyle (natural resources, RUTA II). The following Bank staff and international consultants participated in identification, preparation, pre-appraisal and appraisal missions and directly or indirectly contributed to this report: Mark Cackler (portfolio manager), Silvia Castro (financial analyst), Ken Chomitz (land use planning - GEF), Olga Corrales (consultant, environment), Maria Correia (consultant, gender), Mary Lizbeth Gonzalez (consultant, indigenous people), Silvio de Franco (consultant, institutions), Pablo Gutman (consultant, environuental economics), Gabriel Keynan (agricultural economics), Robin LeBreton (consultant, agriculture), Jorge Le6n (monitoring and evaluation, RUTA I), Kathy MacKinnon (biodiversity specialist - GEF), Juan Morelli (consultant FAO, costs and economic analysis), Jorge Otero (consultant, participation), Luis Olivas (agronomist, RUTA I), Cecile Ramsay (financial controls), Roque Roldan (consultant, indigenous law), Daan Vreugdenhil (consultant, protected areas), Thomas Wiens (economist) and Andy White (consultant, community development). Local project preparation coordinator is Mr. Eduardo Marin (Advisor, MARENA) and local project preparation advisors are Ms. Ana Soledad Roman (Executive Director, MNIFOM) and Mr. Denis Corrales (consultant, planning). The Country Department Director is Ms. Donna Dowsett-Coirolo and the Sector Leader is Mr. Mark Cackler.  iii NICARAGUA RURAL MUNICIPALITIES PROJECT CREDIT AND PROJ1ECT SUMMARY Borrower: Government of Nicaragua Implementing Agencies: Ministry of Environment and Natural Resources (MARENA) and Nicaraguan Institute for Municipal Development (INIFOM) Poverty Category: Program of Targeted Interventions Amount: SDR 20.9 million (UJS$30 million equivalent) Lending Terns: Standard IDA, with 40 year maturity Commitment Fee: Standard Financing Plan: See para. 5.2 Net Present Value: See para. 7.13 Associated GEF Project ID: NI-GE-41790 Maps: IBRD Nos. 27444, 27445, 27446, 27447 and 27448 Project Identification No.: NI-PA-7790   NICARAGUA RURAL MUNICIPALITIES' PROJECT 1. BACKGROUND A. PROJECT ORIGIN 1.1 In March 1994 the Government of Nicaragua requested IDA assistance in preparing a project that: (i) would have a large social impact on the poorest groups in the country's main agricultural region (Departments of Le6n and Chinandega in the Pacific region); and (ii) would address natural resource issues in this region and in the forest areas most threatened by agricultural expansion (Department of Rio San Juan, and portions of the Department of Chontales, and the Autonomous Regions of the South and North Atlantic). The proposed Departments and Regions had already been categorized as highest priority in the country's National Environmental Action Plan (NEAP), completed in 1993 and supported by IDA. 1.2 The National Agricultural Council's (CONAGRO) request for a project that would simultaneously tackle rural poverty and natural resources was consistent with IDA's country strategy. Nicaragua is the second poorest country in Latin America and poverty is essentially a rural phenomenon. The rural poor are located in areas of fragile natural resources. There is an intimate link between rural poverty and natural resource (environmental) degradation. Rural poverty is an immediate cause of natural resource degradation and natural resource degradation constrains the economic opportunities of the rural poor. Lagging rural investment in the heavily populated Pacific region is a factor underlying the increased migration to the especially fragile Atlantic region. 1.3 Project preparation, financed by the Government of Japan, the Fund for Innovative Approaches in Human and Social Development (FIAHS), the Dutch Trust Fund and the Global Environment Facility (GEF) began in December 1994 and was carried out by a team of consultants under the supervision of the National Agricultural Council (CONAGRO), with assistance from the Regional Unit for Technical Assistance for Agriculture and Rural Development in Central America (RUTA III). An IDA pre-appraisal mission reviewed the project in August 1995, and the appraisal mission took place in February/March 1996. The term municipality is used throughout this report as a translation for the Spanish municipio. As used in most of Latin America the municipio refers to a geographical and admninistrative division that includes both urban and rural areas.  2 1.4 During preparation, the objectives of rural poverty reduction and improved natural resource management remained essentially unchanged, but it became very clear that these objectives could be met only if the project placed a strong emphasis on improving the capacity of local institutions in rural areas (municipal governments, local NGOs and community organizations) to develop coherent community and municipal investment plans within which viable subprojects could be designed and implemented. This view was supported by the following considerations: * Growing evidence from Bank projects in Latin America that decentralized rural development can be a successful strategy for reducing rural poverty. * Field assessments carried out during preparation indicating that local institutions have a clear understanding of the needs of rural populations and the priorities for natural resource management. * The lack of sustainable capacity in Nicaragua, at either the local or national level, to assist the rural poor, to apply and enforce natural resources policies, to manage protected areas, to ensure preservation of key biodiversity values or to deal with the serious issues of indigenous land tenure, especially in the Atlantic Region. * The on-going reform of local government, supported by IDA's Institutional Development Credit (Credit No. 2690-NI), the formation of the Sectoral Decentralization Commission (SDC), and the partial reform of the Constitution (June 1995) including fiscal decentralization and the proposed new Municipalities Law now in the National Assembly. 1.5 Given these factors, preparation focused strongly on the technical and institutional needs of local government to develop viable subprojects aimed at rural poverty alleviation and natural resource management. At the same time, it was recognized that rural decentralization does pose environmental risks. Local institutions do not easily internalize issues which extend beyond the local level. Therefore, project preparation continued to develop components which would address global, national and regional issues, as follows: * Global issues, of which conservation of biodiversity in the Atlantic is the most important, are to be addressed by an associated project which will be submitted to the GEF Council for funding by the end of 1996. * National issues are addressed through a technical assistance component designed to enable GON to carry out a coherent policy and institutional framework for natural resources and the environment.  3 Regional issues are addressed through an environment and land use planning and monitoring system included in the project. 1.6 Preparation of the associated GEF project started in November 1995, immediately after the National Assembly ratified the Convention on Biological Diversity. It is expected that the GEF proposal will be submitted to the GEF Council for endorsement before the end of 1996 and that appraisal will take place in early 1997. This timing is consistent with the proposed phasing of the project, which consists of three phases, the first two supported by IDA and the third phase supported by both IDA and GEF. The GEF supported activities are conceived as an integral part of phase 3 of the Rural Municipalities Project (paragraph 6.24). B. ECONOMIC AND SOCIAL CONTEXT 1.7 During the last four years the Nicaraguan economy has undergone a stabilization effort accompanied by a strong fiscal adjustment. Recently the economy has begun to turn around as demonstrated by a 3.3% GDP growth in 1994 and 4.2% in 1995 due in part to recovery of the agricultural sector. In the agricultural sector basic grains (corn, beans, rice and sorghum) account for approximately 40 percent of total agricultural GDP. A similar proportion of agricultural GDP is accounted for by livestock. The primary sector accounts for about 33% of total GDP. 1.8 From the outset the proposed project was seen as a means of alleviating rural poverty. Nicaragua is the second poorest country in Latin America. Per capita income in Nicaragua was halved during the 1980s to less than US$400 (World Bank, Review of Social Sector Issues, 1993). In 1993 infant mortality was over 70 per 1,000 live births and illiteracy affected over 20 percent of the population. According to the IDA's Poverty Assessment (1995), more than 50 percent of the population is below the poverty line and almost 20 percent below the extreme poverty line, defined as an inability to afford minimum calorie intake. These poverty statistics are far worse than for any other country in Central America. 19 In Nicaragua, as in most poor countries, the incidence of poverty is especially high in rural areas. A high proportion of the total population (41 percent) and of the poor (63 percent) and extremely poor (78%) lives in rural areas. Seventy six percent of the rural population are poor and 36 percent extremely poor, compared to 32 percent and 7 percent, respectively, for the urban population. Sanitary services are available to only 16 percent of the rural population, and drinking water to only 19 percent (UNDP, Report on Human Development, 1993). The poorest rural regions are Segovias and the Northern Region, followed by the Western Region. The lowest incidence of poverty is found in Managua and in parts of the relatively unpopulated Atlantic Region. 1.10 Economic growth, particularly in the rural sector, will help alleviate rural poverty. But the rural poverty problem is so serious and widespread in the country  4 that without specific initiatives targeted at reducing rural poverty it is unlikely that the conditions of the rural poor will improve for many years. C. LAND USE, RuRAL POVERTY AND NATURAL RESOURCE DEGRADATION 1.11 Nicaragua's natural resources are under increasing threats from expanded agriculture, livestock and forestry production in fragile areas. The country's total land area is approximately 12 million hectares, of which only 1.3 million hectares are considered arable. However the land area actually used for agriculture is almost 2 million hectares, far in excess of the sustainable potential. A further 4.4 million hectares of extremely poor quality land has been cleared for pasture. Another 2.6 mnillion hectares are classified as "production forests", but are mostly subject to unmanaged exploitation and few resource rents accrue to local communities. About 3.4 million hectares, or 28 percent of the national territory, mostly in the Atlantic zone, a region known for its pristine tropical rain forests and wetlands and the fragility of its soils, is untouched, except by the subsistence activities of indigenous communities. 1.12 In addition to problems caused by the expanding agricultural frontier, a major problem is the inappropriate use of those lands which have already been cleared, notably in the Pacific Zone and in the poor Northern Region. Rural areas are decapitalized due to lagging investment, deterioration of the physical capital and degradation of the natural capital. Farming and grazing systems tend to be extensive with low inputs of labor, fertilizer and water per unit of land. Livestock is reared on mostly unimproved pastures with stocking rates ranging from about I animal unit per hectare in the humid Atlantic Zone to 1.5 animal units per hectare in the sub-humid Pacific Zone. 1.13 Despite deep, fertile volcanic soils, in Nicaragua's Pacific Northwestern zone (Le6n and Chinandega) unemployment is high and land productivity low. This zone contains about 15 % of the total land area and 25% of the country's population with nearly 100 people/km2. In the target communities of Le6n and Chinandega, the available farming land can only sustain about one third of the population at current levels of technology. A typical farm household (of about 5.7 people living off a farm of fewer than 7 hectares) derives an income of about US$130 per capita, which is well below the extreme poverty line, and in one of the target areas of the project 31% of the population lives in households with fewer than 1.4 hectares (average income of US$220 per family per year) or with no land at all (9%). 1.14 In contrast, in the Atlantic zone soils are typical of the high rainfall humid tropics, i.e. highly weathered, acidic and of low fertility and there are also natural pine savannas of very poor soils and a complex system of wetlands. This zone contains almost 50 percent of the total land area of the country, but only 6 percent of its people with a density of only 3 people/km2. The majority of inhabitants of the Atlantic region  5 are indigenous (43%) and of African origin (15%) and the total population is about 250,000 people. 1.15 Traditionally, the Atlantic has been a zone of forest exploitation, mining, fisheries, limited migratory agriculture and indigenous subsistence activities, but this situation is changing. Recent years have seen a sharp rise in its population, as poor families have migrated from the Northern and Western region and as Government has sought land on which to settle ex-combatants. This has resulted in a high rate of forest clearing for subsistence farming, followed by expansion of extensive livestock operations, as farming has proven to be unsustainable. 1.16 The interaction of poverty and resource degradation is illustrated, not only by the destructive use of the Atlantic forests, but also by a high rate of soil erosion, which is a particular threat to sustainable agriculture in the Pacific zone. Nationally, 7.7 million hectares (64% of the country) are affected by erosion with 1.1 million hectares suffering from serious water erosion and 155,000 hectares, 27% of the best agricultural lands, subject to wind erosion. Adding to the pressure on land is the return of demobilized soldiers and refugees, of whom it is estimated that 250,000 will seek land in the near future. These new settlers will join the ranks of poor farmers in the hillsides of the Pacific, Northern and Segovia regions or will seek subsistence on the fragile lands of the Atlantic zone. 2. INSTITUTIONS AND POLICIES A. OVERALL RESPONSIBILITIES 2.1 Three different levels of government intervene in rural development and natural resource management. Nicaragua is divided into 141 municipalities. These municipalities are grouped in Regions and Departments, but these do not have administrative roles except for the two Autonomous Regions in the Atlantic.2 At the national level, the National Assembly has responsibility for elaborating decrees and laws, which may be initiated by legislators or by the President of the Republic, who may also publish executive decrees in administrative matters, regulate the laws and legislate by delegation of the National Assembly. The govermnents of the autonomous regions, North Atlantic Autonomous Region and South Atlantic Autonomous Region (RAAN and RAAS) have legal jurisdiction over the use of water, forests, community (indigenous) lands and their environmental protection. Through the Regional Councils regional governments issue "regional directives" (ordenanzas regionales) which regulate regional affairs. Municipal governrments legislate through 2 Regions and Departments were eliminated in the Partial Reform of the Constitution of 1995, with the exception of the Autonomous Regions of the Atlantic.  6 "municipal directives" (ordenanzas municipales) in matters expressly stated in the National Municipalities Law. B. SECTOR COORDINATION 2.2 CONAGRO. The National Agricultural Council (CONAGRO) was created in 1993 by presidential decree to coordinate policies and activities in the rural sector. Since 1994 CONAGRO has grown in importance, having assumed the key role for rural development, coordinating the activities of the Ministry of Agriculture (MAG), the Institute of Natural Resources (IRENA, now assumed by a Ministry of Environment and Natural Resources -- MARENA), and the National Institutes of Agrarian Reform (INRA) and Agricultural Technology (INTA), with financing from the IDA Agricultural Technology and Land Management Project (Credit No. 2536- NI). CONAGRO has placed high on its agenda issues relating to the management of natural resources. CONAGRO also oversees the PNDR (Programa Nacional de Desarollo Rurat), which was recently created to coordinate an IDB financed project of the same name. C. NATURAL RESOURCES INSTITUTIONS AND POLICIES 2.3 MARENA. In January 1994, a new Ministry of Environment and Natural Resources (MARENA) was created out of the former IRENA by Presidential Decree 1-94. It now has the authority to: (i) coordinate and direct all public policy towards natural resources; (ii) promote sustainable use of natural resources; and (iii) propose laws, regulations, standards and strategies for sustainable use and protection of natural resources and the environment through participatory processes. 2.4 These changes in the institutional structure for natural resources are a step forward, but they do not in themselves change the fact that at the national level there is a severe lack of capacity to develop policy or to implement it. The principal needs in MARENA are the strengthening of the (i) unit for monitoring the use of natural resources or the observance of laws and regulations governing their use; (ii) unit for formulation and analysis of policies; (iii) unit in charge of tracking the implementation of international treaties on climate and the environment; and (iv) unit overseeing protected areas. In addition MARENA needs to develop (i) a strategy for dealing with indigenous peoples issues; and (ii) its capacity to oversee the process of land use and environmental planning. Finally, MARENA needs to assert its leadership in the sector by providing training and technical assistance to other institutions on environmental matters, in particular to: the National Assembly, charged with reviewing and approving all environmental and natural resources legislation; the judicial system (Supreme Court of Justice and the Attorney General's Office), charged with applying it; specialized police and armed forces, which play an important part in enforcement and which have already established agreements with MARENA for the monitoring of parks and biological reserves, control of illegal logging, control of illegal trade in wildlife, monitoring of turtle landings, and preventing and fighting forest fires; and  7 local governments which, given their expanding role in rural development and envirornment, need a clearer understanding of their competencies and obligations. 2.5 Legal Frameworlk The National Environmental Action Plan (NEAP) notes that the laws and policies governing ownership and use of natural resources are out- dated. Nicaragua inherited from the eighties a legal framework based on central planning and public ownership and control of natural resources which needs to be reformed. This legal framework is inconsistent with current GON's strategy of reducing the size of central government focusing its institutions on normative aspects, it is inconsistent with the thrust towards privatization of important sectors of the economy, and it is inconsistent with the rights of indigenous peoples and roles of Regional and Municipal Governments as expressed in the Constitution and Autonomy Law of 1987, the Partial Reform of the Constitution of 1995 and the proposed Municipalities Law. 2.6 Nicaragua has already made some progress in rationalizing the legal framework. Various laws are in draft form and proposals for laws covering forestry, fisheries, mining, energy and contaminants are under discussion in the National Assembly. A General Environmental Law was ratified in April 1996 covering a wide range of subjects including natural resources and land use planning, the creation of a National Environment Committee, an Environmental Fund and an Environment Unit in the General Attorney's Office, the creation of a National System of Protected Areas, the Environment Impact Assessment process and general guidelines on biodiversity, forests, wildlife, water, soils and mnineral resources. The law gives MARENA the main role in overseeing its implementation of the law and it also establishes new roles for municipal governments in particular in executing land use and natural resources plans and overseeing natural resources. 2.7 The General Environmental Law needs to be supplemented by complementary regulations. New laws governing natural resources not well covered in existing proposals (coastal zones, biodiversity, protected areas, soils and water) are also needed as are regulations for each law (forests, mines, fisheries, coastal zones, biodiversity, protected areas, soils, water, contaminants and energy) and support for enforcement. New laws and regulations should help clarify the rights and obligations of the private, social and public sectors as well as where local and regional governments responsibilities begin and central government responsibilities end. Significant conflict arises in the forestry and fishery sectors between local authorities and communities, who want to reap the benefits from natural resources in their areas, and natural resource users who capture most resource rents, but contribute little to local development. The rights of communities inside protected areas also need to be clarified and the inconsistencies between the rights of indigenous communities expressed in the Constitution of 1987 (amended in 1995) and Autonomy Law of 1987 and existing and proposed natural resources legislation need to be resolved. However, the technical capacity of GON to propose and regulate, and of the Assembly itself to  8 review these proposals and to legislate on them is limited and technical assistance is needed to support the legal and policy reform process. 2.8 Natural Resources Strategies. Government has made progress in developing a national strategy for the environment and natural resources. A National Forestry Action Plan (TFAP) was approved by Presidential Decree 246-92 on September 7, 1992. In the same decree, approval was given to the National Strategy for Conservation and Sustainable Development (ECODESNIC) and a Strategy for Environmental and Land Use Planning (EOAT). A National Environmental Action Plan (NEAP) was approved by Presidential Decree 261-93 on December 3, 1993. Together these plans provide a reasonable framework within which the following priorities have been established for investment and institutional development (Annex 2): (i) soil conservation, water resource management and forestry; (ii) targeting of resources to the Pacific Western Region, to the western part of the non-metropolitan Managua Region, to the Segovias and Northem Regions and to the Atlantic Region; (iii) integration of policy reform, coordinating the activities of the line ministry (MARENA), the National Assembly, and the judiciary and enforcing agencies; (iv) giving municipal governments and communities a say on how resources in their jurisdictions are utilized and managed, decentralizing implementation of projects to the municipal level; (v) participatory planning at the local level to guide public investment, and (vi) better targeting of the benefits of resource use to local communities. All of these aspects would be supported by the proposed project. MARENA has also issued a draft Biodiversity Strategy which is now undergoing a process of public consultation. This strategy assigns top priority to the conservation of a biological corridor in the Atlantic region which would be supported by the GEF component of the proposed project. D. RURAL DECENTRALIZATION 2.9 Rationale. Centralized public investment and natural resource management decisions are one of the problems in the rural sector. Many local rural institutions -- local governments, NGOs and community organizations -- are weak because until recently they have been side-stepped by public investment and natural resources programs managed from the center. Decentralization of responsibility for planning and investment decisions to the local level is extremely important for improving rural development programs and the situation of the rural poor because it makes more likely that genuine local development needs are met. Today this view is shared by the Government, NGOs and foreign donors and is consistent with the process of reform of central government institutions, which is being supported by IDA's Institutional Development Credit (Credit No. 2690-NI). The principles underlying current thinking on decentralization are that national priorities should be satisfied through broad thematic and zonal targeting of investment resources and that local mechanisms should be used for their specific disposition. In the few cases where "local choice" mechanisms through municipal government and communities have already been  9 functioning in Nicaragua the results have been generally positive. The GTZ/INIFOM (Municipal Autonomy Project/Proyecto de Fortalecimiento de la Autonomia Municipal) is one example, and the SIDAMINIFOM development programs for infrastructure and community works in periurban poverty zones are another. There is also an expanding body of evidence elsewhere on the advantages of decentralized rural development solutions, several of which are being supported by the World Bank in Latin America, for example, in Bolivia, Brazil, Colombia and Mexico. (See paragraphs 4.6 through 4.7 on lessons from experience). 2.10 Legal Framework. The foundation for local government action in local economic development has until now been the Municipal Law of 1988 (Ley de Municipios - Ley No. 40). This law authorizes local government to provide services and exercise administrative authority over: (i) environmental protection; (ii) regulation of urban development and land use; (iii) solid waste management; (iv) reforestation; (v) oversight of natural resource use and protection; and (vi) creation of mechanisms for popular participation in local decision-making. Several larger and/or better funded Municipal governments (e.g., Le6n, Chinandega, El Castillo) have begun to exercise these powers through the establishment of municipal environmental offices, employing technical specialists, and the creation of environmental and natural resource advisory committees. In a number of foreign donor-assisted projects as well, municipal governments are beginning to function in their expanded roles. 2.11 Constitutional Reform. The 1995 Constitutional Reform (Reforma Parcial de la Constituci6n) had important implications for local government. Key aspects of the constitutional reform include: (i) regions were eliminated as administrative units with the exception of the RAAS and RAAN; (ii) municipal governments were given broad responsibilities over socioeconornic (rural and urban) development within municipalities; (iii) municipal governments must now be consulted regarding natural resource use contracts in their jurisdictions; (iv) mayor, vice-mayor and councilors will all be elected directly for a period of four years; and (v) a percentage of the national budget will be transferred to those municipalities with lower resource mobilization potential. Following this reform of the Constitution, a new Municipalities Law currently being discussed by the National Assembly would, inter alia: regulate the election process; more clearly define competencies between municipal and central government; comrnit the GON to transfer a percentage of national public revenues to local governments according to pre-established formulas. IDA has maintained an active dialogue with the GON on the decentralization process in the context of the Institutional Development Credit (No. 2690-NI) and the preparation activities for the proposed Rural Municipalities Project. IDA has also financed technical assistance on decentralization and local public finance issues (see list of reports in project file in Annex 13).  10 2.12 Fiscal Transfers3. The constitutional reform described above creates conditions under which the proposed project could be sustained, by guaranteeing disadvantaged municipalities a financial base on which to build their planning and implementation capacity. Fiscal transfers from central government to municipalities are currently insignificant (3% of total municipality revenues in 1994), and in their absence disadvantaged municipalities rely on programs of line agencies or specialized institutions such as the Nicaraguan Social Investment Fund (EISE), over which they have little control. In 1994, 74% of all municipal finance originated from taxes and fees, with the bulk coming from sales taxes and business registration fees. These taxes are predominantly collected in trading centers where businesses are located, usually cities and towns, which capture a disproportionate share of the country's local revenues. As a result of this bias, the fourteen more urbanized municipalities in the country, including 49 percent of the population, account for 75 percent of all municipal expenditures. The municipality of Managua alone, which has 24% of the Nicaraguan population, accounts for 42% of all municipal expenditures. While urban municipalities such as Le6n and Chinandega invest more than US$4.00 per capita per year and have total expenditures of more than US$20.00 per capita per year, the more rural ones invest less than US$0.50 per capita per year and have total expenditures of less than US$2.00 per capita per year. 2.13 Central Government Coordination of Municipal Affairs. The key institution in charge of municipal issues at the central government level is the Nicaraguan Institute for Municipal Development (INIFOM). INIFOM is a financially autonomous institution created by Decree No. 497 of March 2, 1990. It has clear objectives: to strengthen municipal govermment and to promote municipal development. Accordingly, INIFOM provides training and technical assistance to municipal govemments; is in charge of inter-institutional coordination between municipalities and central government agencies; carries out studies and research related to municipal issues; and channels centrally financed projects to municipalities. INIFOM is also the key institution coordinating the decentralization strategy of the govemment, the President of INIFOM being Chairman of the GON Sectoral Decentralization Commission (SDC). IN1FOM is an unique institution in Latin America. Its President has the rank of Minister and sits in cabinet meetings, but is chosen by and responds to a Board of Directors composed of 32 people, six chosen by the GON and the other 26 being elected mayors representing municipal governments. INIFOM is therefore an agency both of the GON and of the local governments and is the defacto representative of local governments at the cabinet level. This is INIFOM's main strength. A recent report done for IDA's Institutional Development 3 Details on municipal financing are in the background papers in the project file: (15) Hacienda Municipal y Decentralizacion"; (3) Capacidad lnstitucional de las Municipalidades"; (26) "A signaci6n y Recursos para Inversi6n Municipal"; and (44) Estudio de Diagnostico Institucional y Reestructuraci6n - INIFOM, Municipalidades".  I1 Credit4, which is supporting the strengthening of 1NIFOM, identified a series of weaknesses related to administrative functions and to the capacity to assist municipal governments, which are summarized in Annex 1 and which would be addressed by the Institutional Development Credit (Credit No. 2690-NI) cofinanced by the World Bank and DANIDA, and by the proposed project. E. LOCAL CAPACITY 2.14 Rural Development and Natural Resources. Municipal governments are being given ever increasing roles in economic activity, but for the most part have serious limitations in their ability in assuming those roles. In the proposed project regions, with several notable exceptions (e.g., Le6n, Chinandega) municipal governments do not have the technical capacity for rural development and natural resource planning and management. During project preparation a typology of municipalities was developed (Annex 1), based on the relationship between municipal capacity and revenues. Within the 32 project municipalities already selected for the proposed project, the capacity to assume increased responsibility over poverty, natural resource management and economic development ranges from "extremely limited" to "limited". Le6n is the only exception. And it is the only municipality with a medium-term, strategic development plan and with the administrative, managerial and technical capacity to implement it. After Le6n, the municipality of Chinandega is the most capable in terms of technical/administrative resources and financial status. The other municipal governments are generally weak financially, administratively and technically. Not unexpectedly, a negative correlation exists between the degree (and costs) of on-going environmental degradation and municipal government capacity. The smallest and poorest municipalities often are located in the more sensitive zones (e.g. near remaining forests, in upper watersheds, in coastal zones, etc). While these municipalities would tend to be of higher priority in the proposed project, they would also be the municipalities with the least capacity to assume responsibility for planning and managing the kind of investment envisaged under the project. 2.15 Financial Management. Adequate experience of financial management is only present in those municipalities which have been able to raise and manage substantial local revenues of their own. During preparation, an evaluation was carried out of the financial control systems in 32 municipalities proposed for the project. In each municipality procedures, staff qualifications, and practices were evaluated against the Bank's norms and guidelines contained in the Financial Accounting, Reporting and Auditing Handbook (FARAH). Of the 32 municipalities in the proposed project only Le6n and Chinandega met the FARAH criteria. The study was used to develop an indicator of financial management standards which is presented in Annex 1, Table Al.4 and Annex 10, Figure AlO. 1. The study also proposed an action plan, to be 4 "Estudio de Diagn6stico Institucionaly Reestructuraci6n - INIFOM, Municipalidades". In project file, see Annex 13.  12 supported by the project, to bring financial controls up tc Bank standards5. All project municipalities do have at least rudimentary financial accounting and control systems. About 70% of project municipalities have their defined organizational structure completely staffed. Some 40% of them have manuals of municipal government functions and 30% have terms-of-reference and manuals of procedures for municipal employees. All but one municipality maintains a set of books which are current, and the majority (80%) have contracted external, independent audits within the last three years. 2.16 Non-Government Organizations (NGOs). Supported by numerous donor programs, NGOs have assumed a key role as implementing agencies at the local level. The term NGO, as used in Nicaragua, refers to a wide range of organizations - public garden user groups, women's groups, farmers' cooperatives, religious groups, environmental advocacy groups, and donor focused organizations. The NGO movement has developed mainly where government is weakest, in particular in social, rural development and environmental activities, with most growth occurring between 1990 and 1992. Today, there are more than 300 NGOs in Nicaragua. Most are legally established. Most traditional NGOs have their own revenues from either government transfers, membership fees, charges for services or international funding. Some, more recently, have tended to rely on voluntary contributions and voluntary work. NGOs dependent on international funding tend to be fairly well equipped, while local ones are usually very weak. Nevertheless, collectively, the NGOs have assumed an important role in the rural landscape and have acquired a high visibility (see Annex 1 for more details on NGOs). 2.17 Community Organizations. There is a wide variety of participatory systems in Nicaragua, reflecting the recent history of the country, the political inclinations of local government and the influence of donor programs. The most basic unit for community participation in non-indigenous areas is the comarca, a non-administrative geographical unit with roughly 500 people. On average, there are 50 comarcas per municipality. In most comarcas there is an informal community assembly, the most important community decision structure. In some municipalities comarcas elect a community member to represent them at the municipal level or in inter-community assemblies. By law some of the municipal council meetings, and in particular those involving key budgetary decisions, are open to all the inhabitants of the municipality. Municipal councils also hold extended meetings where community representatives are invited to participate. The indigenous conmmunities in the project area (the Sutiabas in the Pacific and several groups in the Atlantic) maintain most of their traditional decision-making structures, but also participate in the non-indigenous structures where these are operational. A constraint to decentralization beyond the municipal level is the cumbersome process needed for communities or groups of individuals to achieve a legal status, which requires approval by the National Assembly. This constraint would be addressed by the proposed project. 5 "Evaluaci6n/Diagn6stico Contable de 32 Municipios, INIFOMy MARENA  13 F. BANK GROUP LENDING IN NICARAGUA 2.18 Cumulative Bank/IDA lending as of end-June 1996 totaled US$ 702 million for 28 Loans, 19 Credits, and 4 Supplementary IDA Reflow Credits. Of these, 28 Loans and 10 Credits were approved and fully disbursed by FY80, and 9 Credits and the 4 Supplementary Credits were approved during FY92-96. There have been three IFC operations that have been fully disbursed. The Board approved credits to support: an Economic Recovery Credit in FY92, a First Social Investment Fund in FY93, an Agricultural Technology and Land Management Project and a Health Sector Reform Project in FY94; an Education Project and an Institutional Development Credit in FY95 and a Second Social Investment Fund, a Second Economic Recovery Credit and a Roads Rehabilitation and Maintenance Project in FY96. Due to the break in project implementation in Nicaragua during the 1980s, there is relatively little recent experience from which to draw lessons on design or implementation. As far as can be judged to date, however, the experience has been generally good. As of December 1995 there were no problem projects in Nicaragua and four out of seven projects were rated highly satisfactory. The only project in the rural sector, the Agriculture Technology and Land Management Project, is rated highly satisfactory. 3. THE PROJECT A. PROJECT OBJECTWES 3.1 The main objectives of the proposed project are to reduce rural poverty and to improve natural resources management. These objectives can be narrowed down more specifically to the following: * To establish a mechanism based on municipal governments and community organizations for reducing rural poverty through rural investment in economic infrastructure, improved natural resource management and small-scale communal productive activities. * To ensure that central government institutions acquire the capacity to provide a coherent overall framework for natural resource policy making and enforcement, accounting for global, national and regional environmental priorities. * To promote the long-term integrity of a biological corridor along the Atlantic slope of Nicaragua, conserving key global biodiversity values.  14 B. PROJECT SUMMARY DESCRIPTION 3.2 To meet these objectives, the project would have three components: * Rural Municipalities Development (US$35.3 million including contingencies) would include: (i) institutional development of municipalities; (ii) institutional development of INIFOM, as the principal coordinating body; (iii) information, participation and training for communities and the local private sector; and (iv) grants for community and municipality subprojects. * Natural Resources Policies and Institutions (US$5.1 million including contingencies) would include: (i) institutional development in MARENA including policy making, enviromnent and land use planning and monitoring and protected area management; and (ii) an inter-institutional technical assistance program. * Atlantic Biodiversity Corridor (GEF)6 (to be determined, expected to be about US$10.0 million including contingencies) would seek to ensure environmentally sustainable land use within a biodiversity corridor and would include: (i) involvement of local communities, indigenous groups and municipal and regional governments in biodiversity management through communication, participation and training; (ii) land use and biodiversity planning, monitoring and evaluation; and (iii) a financial mechanism to promote the sustainability of the corridor and to finance; (a) protected area management; (b) biodiversity subprojects; and (c) demarcation of indigenous territories. C. PROJECT DETAILED DESCRIPTION RURAL MUNICIPALITIES DEVELOPMENT COMPONENT Institutional Development of Municipalities (US$5.8 million) 3.3 Activities. The project would finance minor equipment and works (office upgrading), consultants, training, seminars, workshops, study tours and other training expenses and incremental salaries and other recurrent costs to help: * Create/strengthen a Municipal Technical Unit in each eligible municipality composed of at least one project specialist, one participation specialist and one accountant/financial controller. 6 Although conceptually part of the same project, the GEF component would constitute a distinct financing operation processed and supervised separately from the IDA components.  15 * Technical assistance to and training of municipal staff in: (i) design and planning of rural development, natural resources and environment programs; (ii) community participation; (iii) the Subprojects cycle; (iv) municipal accounts, financial controls and monitoring and evaluation systems; and (iv) aspects of local government management including financial management, administration, procurement, personnel, accounting and auditing, legal, local revenue generation and cost recovery for maintenance activities. Institutional Development of INIFOM (US$3.3 million). 3.4 Activities. The project would finance minor office works, equipment, consultants, studies, training, seminars and workshops, study tours and incremental salaries and other recurrent costs for: * Establishment of a Component Implementation Unit in INIFOM including an implementation coordinator, a technical assistance and planning advisor, a participation and gender specialist, a procurement specialist, a disbursements specialist and an internal auditor. * Strengthening the Directorates of Planning, Technical Assistance, Projects, and Information and Technology Services, and the regional delegations, to improve INIFOM's capacity to implement the project. * Technical assistance for the design of: (i) a decentralization strategy; (ii) reform and regulation of the Municipalities Law, including a section on fiscal transfers for disadvantaged municipalities; (iii) proposals to facilitate the legalization of communities and their representative structures; (iv) a Municipal Workers Code; (v) study on the costs and benefits of decentralization and (vi) other unidentified studies as approved by IDA. CERAP (Executive Committee for Public Sector Reform) will be supported for the carrying out of (i), (ii) and (v). Information, Participation and Training for Communities and the Local Private Sector (US$2.8 million) 3.5 Activities. The project would finance consultants, training and training materials, dissemination materials, seminars, workshops, study tours and other training expenses, and travel expenses for: * Promoting and disseminating the project at the community level through town meetings, radio, TV, videos, written materials, other informal communication devices and seminars and workshops.  16 * Operating inter-community assemblies (IA), and community supervision committees (CSC) and participatory planning. (See Diagrams 1 and 2 in section 6, Annex 4, and Operational Manual for roles of these community structures). * Training selected community members, local NGOs and consultants in: (i) all aspects of the subproject cycle; (ii) participatory planning; (iii) technical aspects of natural resources and rural water subprojects; (iv) methodologies for technology transfer; and (v) subproject and fund administration. * Establishing and monitoring a registry of service providers at the municipal level. Grants for Community and Municipality Subprojects (US$ 23.4 million) 3.6 Activities. The project would finance small grants for eligible subprojects proposed for financing by groups of beneficiaries, legal representatives of rural communities, municipalities and groups of municipalities in the Pacific and Atlantic regions and approved by municipalities within a municipal financing ceiling (see para. 6.16) through a demand driven and participatory decision-making mechanism covering the following thematic areas: * Environment and natural resources, including investments in the control of spill-over effects of soil erosion, protection of water sources, control of wind-erosion, natural reserve protection, wetlands and mangrove protection and management, riparian management, control of agro- chemical pollution and control of water contamination. * Municipal infrastructure, including rehabilitation of municipal and community rural roads, bridges and related infrastructure, municipal markets, small water and sanitation and other subprojects to be maintained and operated by municipal governments. * Community infrastructure, including small irrigation and drainage works, community water supply, small processing, warehouses and distribution infrastructure and equipment, community roads and other subprojects to be maintained and operated by groups or communities of the rural poor. * Community productive subprojects for the rural poor, including collective soil and moisture conservation, reforestation, farm forestry, subsistence agriculture inputs, subsistence livestock inputs, wildlife farming, ecotourism, subsistence fishing inputs and micro-enterprises.  17 Capacity building, including technical and legal assistance, training, education, extension and applied research on all the above subproject categories, on operation, maintenance and cost-recovery aspects; orn other aspects of municipal and community management; and on the elaboration of community land demarcation proposals. NATURAL RESOURCES POLICIES AND INSTITUTIONS COMPONENT Institutional Development of MARENA (US$3.0 million) 3.7 Activities. The project would finance minor equipment, consultants, studies, training, seminars and workshops, study tours and other training expenses and incremental salaries and other recurrent costs for: * Establishment of a Project Implementation Unit in MARENA including an implementation coordinator, an indigenous peoples specialist, a procurement specialist and a disbursements specialist. * Strengthening the Directorate of Planning, Division of Policy and Planning, the Division of Inter-institutional Relations, the Division of Protected Areas and the regional delegations in project areas. * Preparation and dissemination of municipal and regional environmental and land use plans (ELUP) and a system for monitoring threats to natural resources and compliance with the plans with full involvement of regional and local governments and consultations and participation of indigenous and non-indigenous communities.' * Preparation, consultations, participation and dissemination related to legislative proposals, regulations and studies covering the following themes: (i) regulation of the General Environmental Law; (ii) proposal and regulation of a Protected Area and/or Biodiversity Law; (iii) proposal and regulation of a Forestry Law; (iv) contributions to the proposal and regulation of a Fishery Law; (v) initiatives for the harmonization of decentralization, natural resources and indigenous peoples legislation; (vi) analysis of relations between rural poverty and environmental degradation and other unidentified studies as approved by IDA. 7 The General Environmental Law of March 1996 assigns to MARENA and INETER the role of issuing norms covering these plans and to municipal governments the role of elaborating and executing them.  18 Inter-institutional Assistance Program (US$2.1 million) 3.8 Activities. The project would finance training, workshops, study tours, technical assistance and minor equipment for inter-institutional assistance to be provided by the Division of Inter-institutional Relations of MARENA to other agencies: (i) the National Assembly, in reviewing legislative proposals related to natural resources and environment; (ii) the Judiciary, by preparing trainers, curricula and training materials, and training of about sixty Supreme Court and other judges in environmental matters; (iii) the Office of the Attorney General, through the establishment of an Environmental Affairs Unit (created by the General Environmental Law of 1996); (iv) police environmental units, by preparing trainers, curricula and training materials on control of illegal logging, wildlife trade and contamination from mining and other industries; (v) army environmental units, by preparing trainers, curricula and training materials on monitoring of turtle landings in the Pacific, control of forest fires and monitoring of resource degradation and of protected areas; (vi) legal offices of central government agencies, through training and technical assistance in environmental and natural resources legislation and regulation; and (vii) thirty-two municipal governments, by preparing trainers, curricula and training materials, providing training in the role and responsibilities of municipalities in natural resource and environmental management, including local natural resource taxation and elaboration, use and monitoring of environment and land use plans. A detailed workplan for this program is in the Project Implementation Plan in the project files. ATLANTIC BIODIVERSITY CORRIDOR COMPONENr (GEF)8 3.9 During final preparation of this component a detailed environment and land use plan for the Atlantic region of Nicaragua will be finalized including a delineation of the biodiversity corridor and a proposal for the strategic use of resources in the Atlantic including protected areas, buffer zones, forest reserves, indigenous traditional territories and areas for economic development activities. This environment and land use plan referred to in this document as the ABC strategy would be the basis for defining kinds of subprojects to be promoted or excluded and source of financing, either the grants included under the rural municipalities development component or the grants included under the financing mechanism for the sustainability of the corridor discussed below. 8 Although conceptually part of the same project, the GEF component would be managed as a separate operation, with different timing, project documentation, legal agreements and supervision reports. The GEF component is still under preparation, is expected to be submitted for Board approval in FY98, and, if approved, implementation would start with phase 3 of the IDA components. The component description presented here is preliminary and could be changed during further preparation of the component.  19 Involvement of Local Communities, Indigenous Groups, NGOs and Governments in Biodiversity Management 3.10 Activities. The project would finance consultants and training for: (i) disseminating information on project activities among indigenous and non-indigenous communities in the Atlantic region and involving them in project implementation; (ii) training indigenous and non-indigenous communities in sustainable biodiversity use and protection; (iii) assisting indigenous communities in pursuing formal recognition for their land and natural resources rights; (iv) training and technical assistance to municipal and regional governments for the implementation of the ABC strategy; and (v) training of central government agencies on the ABC strategy. Biodiversity Planning, Information, Monitoring and Evaluation 3.11 Activities. The project would finance equipment, consultants, studies, workshops, training and dissemination materials, travel expenses and incremental salaries and other recurrent costs for (i) continued land use planning within the ABC; (ii) implementing a biodiversity monitoring system in coordination with communities and local and regional governments to warn of threats to biodiversity; and (iii) establishing a system for evaluating potential impacts on the ABC of development activities (such as roads and other infrastructure and logging, mining and fishing concessions) and for proposing and enforcing mitigating measures. Subprojects for Biodiversity Conservation and Sustainable Use9 3.12 Activities. The project would finance (i) equipment, consultants, training, workshops, seminars, studies and study tours for the establishment and operating costs of a financial mechanism to promote the long-term sustainability of the ABC and ensure coordination between the programs supported by different agencies; and (ii) grants for sub-projects covering the following themes: * Management of protected areas, including protection investments, management plans and recurrent costs related to the maintenance of the protected areas of Bosawas, Cayos Miskitos, Indio-Maiz, Cerro Silva and Wawashan. * Subprojects of sustainable use of biodiversity submitted by indigenous and non-indigenous communities, municipalities, NGOs and the private sector for areas included in the ABC in a way similar to the matching grants described under the Rural Municipalities Component. Matching grants would only finance subprojects that have a clear positive impact on biodiversity and the integrity of the ABC, including training and technical assistance for communities in biodiversity protection and sustainable uses, 9 The nature of the financing mechanism will be defined during preparation of this component.  20 demarcation of key areas, biodiversity monitoring and inventories, vigilance systems, environmental education, ecotourism, sustainable uses of biodiversity, etc. These subprojects could be financed as quid pro quo agreements, whereby the recipient commits to sustainable resource use and conservation practices in exchange for support for their development needs. More traditional community development projects not specifically tied to biodiversity would be eligible for financing under the Rural Municipalities Component. Subprojects, submitted by indigenous communities, for demarcation of indigenous lands or territories which include biologically important habitats. 4. PROJECT JUSTIFICATION A. PROJECT BENEFICIARIES AND PARTICIPATION 4.1 Beneficiaries. The main project beneficiaries are communities of rural poor within municipalities of the Western (Le6n and Chinandega) and Atlantic regions, including indigenous communities, who would receive grants for community development projects prioritized by them. Through the project these conmmunities would be able to play a more important role in planning and investment decisions at the level of municipal governments. Other beneficiaries would include municipal governments which would receive technical assistance to run municipal affairs and which would approve and finance subprojects prioritized by communities, and NGOs and local private sector service providers, which would receive training and assist communities and local governments with the design and implementation of subprojects. Government institutions would benefit from technical assistance to strengthen their normative role in decentralization and natural resources. The entire Nicaraguan society would benefit from improved management of natural resources. Finally the world would benefit from biodiversity conservation in the Atlantic slope of Nicaragua. 4.2 Participation. Project design included a large number of participatory events involving local communities, local governments, NGOs and central government agencies. One key objective of the project is to strengthen participatory mechanisms at the level of local governments to increase the ability of the rural poor to voice their demands and of local governments to meet them. Project preparation included and implementation would include the following categories of activities to foster participation: * Information Sharing: seven workshops and many meetings took place during preparation in the Departments of Le6n and Chinandega in the Pacific region and of San Carlos, Bluefields and Nueva Guinea in the  21 Atlantic region. More than 94 different organizations, including 32 municipal governments and more than 50 NGOs, participated. During implementation the project would continue to be widely disseminated among eligible beneficiaries using appropriate technologies (paragraphs 3.5 and 3.10). * Consultation: a process of consultations with beneficiaries has been going on since project identification, regarding project design, investment priorities and local decision-making mechanisms. Social Assessments that included rapid rural appraisal of target populations (indigenous and non- indigenous) were carried out as part of preparation for the proposed project. An Indigenous Peoples Development Plan for the communities of the Atlantic region is well advanced as part of the preparation for the Atlantic Biodiversity Corridor Component (GEF). The results of the Social Assessment are summarized in Annex 3, and the Indigenous Peoples Strategy to be supported by the project is summarized in Annex 5. On-going consultations with beneficiaries to monitor the extent to which the project is reaching them have been programmed during implementation. 3 Participation in implementation is one key project objective that focuses on strengthening local decision-making structures: the Intercommunity Assembly made up of representatives of comarcas and indigenous communities within a municipality; and the Community Supervision Committee to increase the local accountability of municipal governments. Furthermore, technical assistance to GON agencies will include strengthening the process of local participation and consultations regarding policy matters and the Project Implementation Unit in INIFOM and MARENA, the Division of Interinstitutional Relations of MARENA and the Municipal Technical Units would include participation specialists. * Ownership will be promoted because most local investments will be chosen, implemented and operated by the beneficiaries themselves. B. GEOGRAPHICAL COVERAGE 4.3 The project would concentrate on the Western Region (90% of local investments) and the Atlantic Region (10% of local investments). First, these were the two priority regions identified by CONAGRO and they are also priority regions in the National Environmental Action Plan. Second, Leon and Chinandega is a region of high population density, unemployment and poverty, and also the region with the highest agricultural potentiallo. Thus, the project is likely to have a large social impact 0 See the following project preparation documents in the project file: (I) Descripci6n del Area del Proyecto; (27) Ordenamiento Ambiental del Territorio; (5) Caracterizaci6n Econ6mica,  22 in the region. Third, in Le6n and Chinandega there is a relatively well-developed local administrative capacity, NGOs and legally established community structures (associations, cooperatives, etc.)"'. Moreover GON views this project as a pilot for the proposed fiscal transfers to disadvantaged municipalities contemplated in the 1995 Constitution. Those fiscal transfers (block grants) would, if and when the new Municipalities Law is enacted, benefit the 141 municipalities in the country and it is important for GON to develop a working model of decentralized decision-making mechanisms in a smaller number of municipalities to be later extended to the rest of the country. Local governments and communities are much weaker in the Segovias and Northern regions, where most of the extremely poor are located, and those regions would not serve well for a model to be replicated. Fourth, in Segovias and Northern regions there are already other donor projects, including two large IDB projects focused on rural poverty and development (the PNDR and the recently-approved Watershed Management Project). Finally, the project also extends to the Atlantic because of the richness of its biological heritage, and the need to include Atlantic municipalities in the capacity building and decentralization process, while at the same time securing the conservation of critical global biodiversity values. C. COMPLEMENTARITY BETWEEN THE IDA AND GEF COMPONENTS 4.4 The two IDA components, rural municipalities development and natural resources policies and institutions, and the GEF component, Atlantic Biodiversity Corridor, are all critical for achieving the project's interdependent objectives of reducing rural poverty and improving natural resources management, including conservation of biodiversity in the Atlantic. F First the project would focus institutionally on strengthening the capacity of rural municipal governments and communities to identify, design, approve and manage eligible investments. In light of the current process of reform of the state supported by IDA's Institutional Development Credit (Credit No. 2690-NI) which is helping increase the quality and efficiency of public services through restructuring and rationalization of central government institutions and improve the financial and personnel management systems, the use of decentralized mechanisms for channeling local investments is necessary. This strategy is also consistent with the Bank's experience elsewhere with rural poverty projects and with the expanding the role of local government in the Nicaraguan economy. However decentralization needs to be accompanied by the strengthening of the normative and enforcement role of central governrment over natural Le6n-Chinandega; (6) Uso Potencial y Actual de la Tierra, Le6n y Chinandega; (7) Recursos Naturales Renovables, Le6n-Chinandega. See the following project preparation documents in the project file: (3) Capacidad Institucional de las Municipalidades; (4) Caracterizaci6n deAlgunas ONGs; (11) Evaluaci6n Social en los Departamentos de Le6n y Chinandega.  23 resources and the environment. The natural resources sectors are plagued by environmental externalities that spill over the boundaries of local jurisdictions and local institutions are not suited for dealing with them. A clear policy and institutional framework needs to be put in place to minimize these environmental risks. * Second the IDA components would contribute to the Atlantic Biodiversity Corridor: (i) channeling rural development investments and agricultural intensification to the heavily populated Pacific region, thereby reducing the causes leading to out-migration and expansion of the agricultural frontier into the lowly populated Atlantic region; (ii) preparing critical legislation on natural resource use and environment and supporting the enforcement of existing and new legislation when enacted; (iii) through legislative proposals, legal analyses and studies proposing and helping clarify responsibilities over natural resource management between GON and autonomous governments and indigenous communities of the Atlantic region; (iv) strengthening the protected area system (SINAP) and the institutional capacity of the Division of Protected Areas of MARENA, charged with its management; and (v) training and strengthening Atlantic municipal governments in environmental planning and monitoring and in providing services to indigenous communities and increasing community participation. * Third the GEF supported activities would complement the IDA components by: (i) identifying priority areas for conservation and sustainable use in the Atlantic to guide local public spending (the ABC strategy); (ii) establishing sustainable mechanisms, including for biodiversity protection, biodiversity monitoring and biodiversity impact assessment procedures to ensure that local investment decisions adequately internalize global biodiversity concerns related to the ABC; (iii) financing local projects in the ABC related to global biodiversity benefits; (iv) training local governments and indigenous and non- indigenous communities in methodologies and technologies consistent with the overall objective of improved natural resource management including biodiversity conservation; and (v) as part of the Indigenous Peoples Development Plan developing the legislative framework for effective application of the indigenous peoples constitutional rights. D. LESSONS FROM PAST BANK LENDING 4.5 Beneficiary Participation. There is considerable accumulated experience in the LAC region on demand-driven development activities, which would be the basis for the proposed project. A recent Bank review on this type of project in Latin  24 America'2 reported that: (i) by encouraging the active involvement of community groups, such projects are much more likely to meet the community's needs than if they are chosen to reflect the priorities of a government agency; (ii) once the communities develop a sense of ownership of a project, they are willing to share in its costs and to ensure its maintenance; and (iii) once a community group is given responsibility for implementing a project that it has helped to design, it shows a great interest in ensuring that the private contractor executing the project does so well and honestly. 4.6 Rural Decentralization. Experience of decentralized rural development initiatives in Brazil, Bolivia, Colombia and Mexico has been positive. A recent dissemination note"3 lists the following positive features: (i) local governments have proven to be effective in identifying and implementing micro-projects; (ii) decentralization has improved the response time of local governments to community needs; (iii) local government action has improved transparency and accountability; (iv) local governments have often been more effective in targeting the poor by involving communities in project selection; and (v) in some cases, local governments have been effective in raising local revenue. (See Section 7E for a discussion of risks of decentralization and Section 7C for a discussion of costs and benefits of decentralization). 4.7 A study that reviewed the rules governing three Demand-driven Rural Investment Funds'4 is under completion by LATAD"5. It compares three projects implemented long enough to have a track record--Colombia's Fondo DRI, Brazil's PAC/FUMAC, and Mexico's Solidaridad programs--and explores the extent to which a carefully-devised rule and incentive structure can replace central control and centrally-imposed constraints, while assuring that "caudillismo" and "clientelismo" will not become ascendant. The study demonstrates the wide range of possible solutions that can be designed to foster accountability and efficiency, and highlights the need for flexible rules that are grounded in the realities of local circumstances and can be redesigned based on local experience. Specifically, the lessons learned from the comparative analysis of these projects are: (i) A gradual process of increasing decentralization allows individual municipalities to take control of the various aspects of rural development, enhancing community participation. (ii) Targeting mechanisms 12 Glaessner, Philip, Kye Woo Lee, Anna Maria Sant'Anna and Jean Jacques de St. Antoine. 1994. Poverty Alleviation and Social Development Funds: The Latin American Experience, World Bank Discussion Papers 261, Washington, D.C. 13 Aiyar, Swaminathan, Andrew Parker and Johan van Zyl. 1995. How Well Has Decentralization Workedfor Rurtal Development? Dissemination Note No 2, Agriculture & Natural Resources Department, World Bank, Washington, DC. 14 DRIFs are distinguished from social fund-type projects in that they specifically aim to target rural populations and support activities that are more oriented towards productive infrastructure and/or natural resources management. 15 Tom Wiens and Maurizio Guadagni. The Design of Rules for Demand-Driven Rural Investment Funds: the Latin American Experience. LATAD Studies on Decentralization, 1996. Draft.  25 should be carefully designed both among and within municipalities. For example, the differentiation of cofinancing requirements according to the income level of municipalities--requiring a lower cofinancing from poorer municipalities--helps improving poverty targeting. (iii) The enforcement of a complex set of rules is essential but problematic. Therefore, particular emphasis should be given to dissemination, monitoring, and enforcement. These lessons were incorporated in the design of the proposed project. 4.8 Biodiversity Protection. The design and preparation of the proposed project has drawn on lessons derived from World Bank experience in implementing biodiversity projects. World Bank support to parks and protected areas has grown rapidly over the last five years. The Bank's IBRD/IDA portfolio of biodiversity related activities for FY92-95 includes some 27 projects with a total loan/credit value of US$ 287 million. In addition, the Bank has implemented 31 GEF biodiversity projects worldwide, for which the GEF participants have allocated $244 million between FY 92-95. A recent World Bank report, Mainstreaming Biodiversity in Development: a World Bank Assistance Strategyfor Implementing the Convention on Biologzcal Diversity, highlights some of the key factors contributing to successful project implementation. These include: institutional strengthening, participation of local stakeholders, financial sustainability, flexible and iterative processes, and decentralized management of protected areas. 4.9 To date there have been no GEF projects in Nicaragua, but experiences of bilateral financed projects in the Atlantic region, by DANIDA and the Netherlands in the South Atlantic and GTZ and USAID in Bosawas in the North Atlantic, confirm these lessons. These projects have found that small farmer training for the adoption of appropriate technologies is the single most cost efficient intervention for environmental protection in the region. They also found that assistance to indigenous communities for the recognition of their lands and natural resources rights are an essential condition for project success where indigenous communities are present. Other highly successful activities include community development activities, such as schools, which help to stabilize migrant populations, support for land titling for small farmers, support on environmental matters to local govemments and to regionally based representatives of the central govemment, and support to inter-institutional and NGO coordinating mechanisms. The proposed project includes components and measures that attempt to incorporate these lessons learned. E. RATIONALE FOR IDA AND GEF INVOLVEMENT 4.10 Consistency with CAS. The Country Assistance Strategy (CAS) for Nicaragua, presented to the Board on May 27, 1994 (Report No. P-6340-NI), has the following four key objectives: (i) reviving growth; (ii) reforming the public sector and strengthening institutional capacity; (iii) improving environmental and natural resource management; and (iv) alleviating poverty and investing in human capital. The proposed project is consistent with these four objectives.  26 * First, it would help foster economic growth by providing for public and private investment in rural areas, targeting investments towards the country's most productive agricultural region and the most heavily populated. * Second, it would assist in the reform of public sector institutions involved in natural resource management, strengthen municipal governments and emphasize decentralization of investment decisions and project implementation. GON views the local decision-making mechanism to be supported by the project as a pilot to be replicated in other municipalities with the implementation of the fiscal transfers mechanism for disadvantaged municipalities included in the Partial Reform of the Constitution of June 1995 and in the proposed Municipalities Law in the National Assembly. * Third, it would improve environmental and natural resource management through assistance for policy reform and specific subproject investments. The associated GEF component, in particular, would support conservation and sustainable use of biodiversity in the Atlantic Corridor. * Finally, it would assist in alleviating rural poverty and in improving the skills of rural people and of local institutions that serve them. The project would also meet a number of specific recommendations for the rural sector of the recent Poverty Assessment for Nicaragua (Report No. 14038-NI), specifically: (i) strengthening sector implementation capacity at the national and local levels; (ii) promoting agricultural growth by removing information, marketing and infrastructure constraints; and (iii) strengthening agricultural research, training and extension services. 4.11 Consistency with GEF Strategies. The proposed GEF component is consistent with the guidance from the First and Second Conferences of the Parties (COP I and COP2) as it would: address in situ conservation; include capacity building; strengthen conservation, management, and sustainable use of ecosystems and habitats, including coastal and marine ecosystems and mountain regions; strengthen the involvement of local and indigenous peoples; and integrate social dimensions, including those related to poverty. The proposed GEF component would also be responsive to the objectives stated for the GEF Operational Program targeted to forest ecosystems (operational program 2) and is part of a specific GEF sub-program focused on Meso America that aims to protect a biological corridor from Mexico to Colombia. Related projects are currently under preparation in Honduras and Panama. 4.12 Consistency with Other IDA Operations. The project would complement four on-going IDA operations that support development of the rural sector, namely: (i) the Institutional Development Credit (Credit No. 2690-NI), (ii) the First and (iii)  27 Second Social Investment Funds (FISE) (Credits No. 2934-NI and 2767-NI); and (iv) the Agricultural Technology and Land Management Project (Credit No. 2536-NI). * The Institutional Development Credit (Credit 2690-NI) focuses on supporting CERAP (Executive Committee for the Reform of the Public Sector) and streamlining and improving management of GON agencies through organizational reform, reduction of superfluous personnel and programs and strengthening of management functions. Both MARENA and INIFOM are included in the group of first six institutions to be reformed and have recently negotiated Institutional Reform Agreements (IRA) that would lay the ground rules for these institutions to receive financial assistance. The proposed project would complement this Credit by focusing on strengthening the technical functions of those institutions, which are not covered by the IRAs, and by advancing the decentralization process, which is one of CERAP's objectives. * The FISE, which is supported by both IDA (FISE I, Credit No. 2434-NI, and FISE II, Credit No. 2767-NI), the IDB and other donors, started in 1993, and so far a high proportion (52 percent) of its investments has covered social infrastructure (schools, health clinics, etc.), and only 0.2 percent has been directed towards the environment. The proposed project would be highly complementary, in that it would focus on technical assistance, natural resources and the environment, productive activities and economic infrastructure in poor rural communities and it would place special emphasis on strengthening local institutions -- municipal governments, NGOs and communities. In the long-term, this process should help provide a sustainable alternative to the FISE for channeling local investments. * The Agricultural Technology and Land Management Project (Credit No. 2536-NI) focuses on agricultural research, extension and land titling on a national scale for both small farmers and indigenous communities. The land titling activities for small farmers are critical for the success of the proposed project because more secure property rights would contribute to reducing rural poverty by facilitating local investments. The land titling activities for indigenous communities would help conserve natural resources in indigenous lands and slow down the advance of the agricultural frontier in the Atlantic. The proposed project would complement this by supporting applied extension in natural resources matters targeted at small farmers and by providing additional resources in a demand driven fashion to assist with the demarcation of indigenous territories, subjects which are not well covered in the on-going project. 4.13 The project would also complement the Roads Rehabilitation and Maintenance Project (Credit No. 2871-NI), recently approved by the World Bank, and which aims  28 at strengthening the institutions that are responsible for road transport in Nicaragua and rehabilitating the Chinandega-Izapa section of the trunk road connecting Nicaragua with Honduras and Costa Rica, which is in the proposed project main region. This portfolio of projects in combination with the currently proposed one would attack not only the social manifestations of rural poverty (poor health services, sanitation, education), but also its root cause, the lack of technical, managerial and financial capacity at the local level which underlies much of the rural poverty in the country and the inappropriate and destructive use of productive resources. 4.14 Consistency with Other Donor Activities. There has been relatively little leadership in Nicaragua on the matter of donor coordination. However, it is clear that the proposed project and the on-going IDB/IFAD-financed National Rural Development Program (PNDR) are central to the GON efforts to address rural poverty. The PNDR is a newly-created institution through an IDB project which will concentrate its efforts on the Central Region, providing finance primarily for irrigation, drainage and economic infrastructure including road rehabilitation. The proposed IDA project would complement the PNDR in that it focuses on a region of the country not covered by the PNDR and delegates most decision-making to local institutions. The proposed project would also support the expansion of successful operations piloted by bilateral donors and NGOs summarized in Annex 1, if these projects are deemed top priority by communities or municipalities and are included in municipal plans. The proposed project would also make use of successful approaches to local government strengthening supported on a pilot scale by SIDA, GTZ and USAID. F. BENEFICIARY SUPPORT 4.15 There is evidence of strong support for this proposal. In the workshops carried out in five departments and 32 municipalities and including NGOs and community representatives, participants presented a portfolio of un-funded projects or project ideas of US$31 million, with 38 percent for "green" environmental protection, 26 percent for productive projects of poor farmers, 25 percent for rural infrastructure and 12 percent for training, research and extension. Past failures in micro-project implementation were attributed by participants to a lack of trained personnel and to a lack of adequate financial management, both of which are key constraints to be addressed by the proposed project. 5. PROJECT COSTS AND FINANCING PLAN A. PROJECT COSTS 5.1 The total project cost (excluding the proposed GEF component) is estimated at US$40.4 million equivalent, including incremental recurrent costs and contingencies and duties and taxes (US$9.8 million). Base costs are US$38.7 million and contingencies are US$1.7 million. Project costs are estimated at March 1996 prices.  29 The foreign exchange component would be US$5.9 million. The main expenditure categories would be goods, works, operating costs (operation and maintenance and incremental salaries), consultant services, grants for subprojects, training, refunding of Project Preparation Advance and unallocated. Cost tables are presented in Annex 7. The costs of the proposed GEF component would be finalized during preparation and appraisal but are currently estimated at US$10.0 million. GEF funding of US$7.0 million is currently estimated to cover the incremental costs of the project and US$3.0 million would be co-financed by a donor. B. FINANCING PLAN 5.2 The proposed IDA credit of US$30 million equivalent would finance 74.2 percent of total project costs (excluding taxes and duties) over an implementation period of 5 years. It would cover 96 percent of foreign costs and 71 percent of local costs. Local cost financing is justified on account of the high proportion of total costs accounted for by local expenditures and because of the severe fiscal constraints on central and municipal governments. At negotiations, assurances were obtained that US$3.2 million (7.9 percent of the total project costs) would be made available by the GON over the project period as counterpart funding as follows: $243 million in 1997, $534 million in 1998, $672 million in 1999, $807 million in 2000 and $943 million in 2001. Other local funding would be met from the following sources: municipal governments, US$2.8 million (6.8 percent of total project costs); and private beneficiaries (farmers groups, legally established communities, NGOs), US$4.4 million (10.9 percent). The complete financing plan is shown in Annex 7. C. RECURRENT COSTS 5.3 Incremental recurrent costs increase from about US$1.3 million during the first year of the project to about US$1.7 million during the last year and following years. Most recurrent costs are associated with the salaries of the staff of the Municipal Technical Units (US$0.6 million to US$1.0 million per year). The salaries of the Municipal Technical Units of weaker municipalities (type C) would be financed through the GON budget until the proposed fiscal transfers to disadvantaged municipalities become effective. Maintenance and operation cost of subprojects would be financed through municipal budgets or contributions of beneficiaries. These incremental costs would be covered by a combination of IDA financing on a declining basis during the project period, GON counterpart funds, increased local resource mobilization and the proposed fiscal transfers that are expected to be in place before the project's end.  30 6. PROJECT IMPLEMENTATION AND MANAGEMENT A. PROJECT IMPLEMENTATION. Central Government 6.1 Steering Committee. The project's Steering Committee would include the Minister of Agriculture, representing CONAGRO, the Minister of Finance, the Minister of MARENA and the President of INIFOM. The Project's Steering Committee would meet four times a year to: (i) review the project's progress; (ii) discuss and take action on any development or natural resources issues related to the project; (iii) coordinate project activities and other donor and GON programs in natural resources management, rural poverty and rural development; and (iv) support project implementation activities through its line agencies and representatives at the regional level, if requested. 6.2 INIFOM. INIFOM would be responsible for the implementation of the Rural Municipalities Development Component. Its specific responsibilities would include: * Managing relations with IDA, CONAGRO and MIFIN; ensuring that (i) administrative tasks are performed and reporting related to the project accounts, disbursement applications and audits are carried out; (ii) legal agreements with implementing municipalities are observed in the implementation of the component; (iii) adequate counterpart funding is provided in GON' s budget; (iv) funds are being used for their intended purposes; (v) agreed procurement procedures are being followed; (vi) and periodic reports are prepared. * Assisting municipalities with the planning and subproject cycle; overseeing agreements with municipal governments for the execution of specific subprojects; approving and disbursing against municipal plans; operating the monitoring and evaluation system; conducting procurement on behalf of municipal governments; supervising sample projects and municipal plans; appraising subprojects and/or involving line agencies or consultants in the appraisal of subprojects beyond the thresholds; approving subprojects delegating such approval to municipalities under conditions stipulated in the Operational Manual; and making decisions regarding increases in the project approval thresholds of municipal governments. * Designing TORs and supervising consultants for the various training and technical assistance programs under the component, including assisting municipalities set up the Municipal Technical Units; designing  31 and supervising technical assistance requested by municipalities on aspects of municipal management; promoting the project with communities and training community leaders and professionals; pre- qualifying NGOs and consultants; maintaining updated rosters and making them available to municipalities; and assisting the Decentralization Commission of GON. To simplify the technical assistance tasks, most would be bundled together into a small number of contracts covering the following three themes: (i) recruitment and training of MTUs and assistance to municipalities with the financial control and monitoring and evaluation systems; (ii) promoting the project and community structures and participatory planning; and (iii) training of NGOs and professionals and certification of professionals. Because INIFOM is not a specialized institution it would consult with GON' s line agencies on aspects related to the training programs and appraisal of sub-projects beyond the thresholds. 6.3 INIIFOM Project Implementation Unit. To enable INIFOM to perform those functions, a Project Implementation Unit would be set up in INIFOM in charge of liaison with IDA and coordinating activities among the various Directorates of INIFOM involved in project implementation. The INIFOM Project Implementation Unit would include: the Director of Planning, a Technical Support Group formed by staff from the Directorates of Projects, Technical Assistance, Financing and Administration and Regional Delegations of Le6n and San Carlos and other regional delegations as new regions join the project; and six staff/consultants: implementation coordinator, planning and technical assistance advisor, participation and gender advisor, disbursements and accounting officer, procurement officer and internal auditor and two support staff: secretary and driver. INIFOM's staff working on project implementation would be located in the various Directorates and would coordinate project activities through the Technical Support Group. 6.4 MARENA. MARENA would be responsible for the implementation of the Natural Resources Policy and Institutions Component and the proposed Atlantic Biodiversity Corridor Component (GEF). Its specific responsibilities would include: Managing relations with IDA, CONAGRO and MIFIN. This would involve ensuring that administrative tasks are performed and reporting related to the project accounts, reimbursement applications and audit. It would also involve ensuring that agreements, if any, with beneficiary institutions of the Interinstitutional Assistance Program are being observed, that adequate counterpart funding is provided in GON's budget, that funds are being used for their intended purposes, that agreed procurement procedures are being followed and that periodic reports are prepared.  32 * Executing all the activities of the Natural Resources Component including designing TORs and supervising consultants for the various training and technical assistance programs, elaborating environmental and land use plans and involving municipal and regional governments in the process, disseminating and monitoring them, drafting legislation and holding public consultations to discuss the proposals, and supervising studies on natural resources policy matters. To simplify the technical assistance tasks these would be bundled together into a small number of contracts covering the following themes: (i) strengthening the Directorate of Planning and Protected Areas of MARENA; (ii) environmental and land use planning and monitoring; and (iii) the inter- institutional assistance program.