25740 Integrated Safeguards Data Sheet Section I - Basic Information Date ISDS Prepared/Updated: March 18, 2003 A. Basic Project Data (from PDS) I A l Project Statistics COUNTRY. Colombia PROJECT ID. P078869 PROJECT First Programmatic Financial Sector TTL John Pollner Adjustment Operation APPRAISAI, DATE: March 2003 IBRD AMOUNT ($m): 150 0 BOARD DATE April 24,2003 IDA AMOUNT ($m): MANAGING UNIT: LCCIC/LCSFF SECTOR: Financial LENDING INSTRUMENTS: Programmatic FSAL STATUS: Lending I.A.2. Proiect Obiectives The objective of the loan is to complete the clean up of the banking system as a result of the 1999-2001 crisis and to strengthen the government's capacity to manage and mitigate weaknesses in the financial system At the same time the objective is to prevent crisis contagion effects from neighboring countries or other exogenous events, by utilizing strong regulatory incentives for prudential management, market risk- sharing mechanisms and optimal supervisory powers to expeditiously contain any emerging risks in the financial system. The project also aims to strengthen and diversify the participation of the housing mortgage market as well as of non bank financial services and securities institutions in the financial system in order to implant a framework which provides more liquidity in the markets and diversifies the sources of finance for investors and actors in the real economy. At an institutional level, the objective will be to strengthen the capabilities and financial/supervisory institutions while strengthening the legislation to incorporate areas of corporate accountability, governance and risk management as key elements in the regulatory strategy. I A 3 Protect Description Banking Sector A key aspect of the proposed program is the design of a multi pronged effort to first dispose of the financial system's residual loan assets (or collateral) remaining from the interventions during the earlier crisis, by developing more agile and modern financial instruments and fiduciary arrangements to package assets according to credit rankings while making collateral liquidation procedures more agile and effective As part of this effort, the remaining intervened banks are expected to be divested and the largest second tier problem bank will be wound down. Simultaneously, prudential regulations and supervision would be strengthened to incorporate corporate governance rules, restrictions on related parties and consolidated economic group activities, as well as the development of a graduated sanctions regime to ensure corrective behavior by financial institutions. Housing Finance and Non Banzks: As part of mortgage market reform, the program will address the micro credit sector and promote further credit access through the development of credit instruments targeted to the micro housing sector. This includes providing market funding from banks to local finance companies for housing loans, and permitting banks to offer housing leases with conversion options. More importantly the securitization industry will be further developed to support bank asset sales, to provide more liquidity to the mortgage industry, and to help develop the capital markets Simultaneously, a reform of the capital requirements and risk management regulations applicable to insurance companies, trusts, and pension funds, will be implemented to ensure the solvency of these institutions which increasingly manage large sums of savings which are channeled into financial and real investments in the domestic economy. Capital Markets and Government Securities In additiun, a reform of the entire securities legislation will be conducted as part of the program's second phase, to promote a more agile development of the local capital market. This will involve reforming corporate governance and disclosure standards as well as fit-and-proper criteria for securities industry participants. At the same time a streamlining and adjusting of the benchmarks and exposure risks of the government debt market will take place to enable the creation of a reference yield curve and a regular issuance cycle which can support the development of the private fixed income securities market. Finally, given the unique environment in Colombia, the above reforms are supported by specialized measures to monitor and detect laundered money flows associated with the drug trade or terrorist activity I.A 4 Project Location: (Geographic location, information about the key environmental and social characteristics of the area and population likely to be affected, and proximnty to any protected areas, or sites or cntical natural habitats, or any other culturally or socially sensitive areas ) Bogota, Colombia Bl. Clheck Environmental Classification A [ ], B [ }, C lX], Fl [],TBD [ Conmments: The Project's nmain implemetization task is the strengthening and upgrading offinancial sector regulation to ensure solvency of banks, mortgagefinance inistitutions, insurance companies and securities dealers. C. Safeguard Policies Triggered (fromn PDS) Click on Policy name for bricf summary of objcctivcs, triggcrs and requirements Click on Policy referencc number for full policy I Cl Table on applicability Yes No TBD Environmental Assessment (OP/BP/GP 4.01) [ ] [X] I ] Forestry (OP/GP 4.36) [] [X] [] Natural Habitats (OP/BP 4.04) [ ] [X] [] Safety of Dams (OP/BP 4.37) [] [X] [1 Pest Management (OP 4 09) [ ] X] [1 Involuntary Resettlement (OD 4.30) [ r X] [ 1 Indigenous Peoples (OD 4.20) [ ] X] [ Cultural Property (OPN 11.03) [ ] [X] El Projects in Disputed Areas (OPIBP/GP 7 60) [ [X] [] Projects on International Waterways (OP/BP/GP 7.50) ] [ X] [ By supporting the proposed project, the Batik does /iot intend to prejudice the final determnination of the parties' clainis on the disputed areas Section II - Key Safeguard Issues and Their Management Il.D. Summary of Key Safeguard Issues Please fill in all relevant questions If information is not available, descnbe steps to be taken to obtain necessary data II.D. I a. Describe any safeguard issues and impacts associated with the proposed project Identify and describe any potential large scale, significant and/or irreversible impacts. None foreseen. II.D lb Describe any potential cumulative impacts due to application of more than one safeguard policy or due to multiple project component. Project is for policy reform in the financial sector, therefore, no impacts foreseen 11 D Ic Describe any potential long term impacts due to anticipated future activities in the project area. None with respect to environmental/social issues, except positive aspects with respect to providing credit access to underserved segments of the population. 1I.D.2. In light of 1, describe the proposed treatment of alternatives (if required) Not applicable. Il.D.3. Describe arrangement for the borrower to address safeguard issues Not applicable It D 4 Identify the key stakeholders and describe the mechanisms for consultation and disclosure on safeguard policies, with an emphasis on potentially affected people Not applhcable E. Safeguards Classification (select oee). Category is determined by the highest Impact In any poecy. Or on basis of cumulative Impacts from multiple safeguards. Whenever an individual safeguard policy Is tnggered the provisions of that porecy apply. [ ] Si. - Significant, cumulative and/or irreversible impacts; or significant technical and institutional risks in management of one or more safeguard areas I o S2c - One or more safeguard policies are tnggered, but effects are limited In their impact and are tecslnicalm and insutoPaionalli manageable [X I SI - No safegJuaTd Issues I Sr - Fmtancial intermediary projects, social development funds, community driven development or similar projects which require a safeguard framework or progranutmatic approach to address safeguard Isstues F. Disclosure Requirements Expected Date Actual Date Envl,roitunetitalAssessient/tAnaly,sis/Maniagentent Playt. Date of receipt by the Bank . J./1. . . /... or N/A [ X] Date of "in-country" disclosure I. 1 1 . . . or N/A [ X] Date of submission to InfoShop . I.. / .. ./ ... or N/A [X1 For category A projects, date of distrnbuting the Executive Summary of the EA to the Executive Directors ././.1.1 .J.. 1/ .. orN/A X J Resettlemnent A ction Plan/Framnework- Date of receipt by the Bank . IJ.. 1... or N/A [X ] Date of '"In-country" disclosure ./ I I. / . or N/A[ X I Date of submission to InfoShop J. ./ . . I. .11.. or N/A [X ] Indigenous Peoples Development Plan/Framework Date of receipt by the Bank . I 1 . / I or N/A [ X] Date of "in-country" disclosure ...1 1. .. .1 or N/A [ X ] Date of submission to InfoShop .. . I ..1 . or N/A [ X I Pest Managemenzt Plan Date of receipt by the Bank /... 1 1 or N/A [X] Date ot "in-country" disclosure ... / . . or N/A [X] Date of submission to InfoShop .. 1 . ... .1 or N/A f X I Dam Safety Managemetit Plan: Date of receipt by the Bank .../ . / . ... 1 or N/A [XI Date of "in-country" disclosure .. / ./ . ... / / or N/A [ X ] Date of submission to InfoShop .. .1 . . 1.. or N/A [X] If in-country disclosure of any of the above documents is not expected, please explain why Prolect does not affecilcover any of the safeguard aspects Signed and submitted by: Name / Date Task Team Leader' John Poilne 3/20/03 Project Sateguards Specialist 1: (Rl Project Safeguards Specialist 2: Project Safeguards Specialist 3. Approved by: Nanze Date Regional Safeguards Coordinator Juan David Quintero 3/20/03 Comments Sector Manager Fernan,o Montes-Negret .3/20/03 Comments: I Concur Ff i /u FPAJ\J N/A Not Available By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas (this disclaimer appears only for projects triggering OP/BP 8 60)