ICRR 10484
                                                                                               Report Number : ICRR10484
                    ICR Review
                    Operations Evaluation Department




1. Project Data :
             OEDID :
             OEDID:     C2540
         Project ID :   P007377
      Project Name :    Agriculture Sector Adjustment Credit
            Country :   Honduras
             Sector :   Agriculture Adjustment
       L/C Number :     C2540-HO
  Partners involved :   Inter American Development Bank
       Prepared by :    Madhur Gautam, OEDST
      Reviewed by : Hernan Levy
    Group Manager : Gregory K. Ingram
       Date Posted : 08/09/1999

2. Project Objectives, Financing, Costs and Components :
Objectives : To support the Government of Honduras' (GOH) medium-term Agricultural Modernization and
Development Program, and to consolidate the reforms supported under the Second Structural Adjustment Loan and
Credit (SAL II, Loan 3257-HO and Credit 22208-HO) in agricultural trade, pricing policy, grain marketing and rural
finance.
Components : (a) improve land use by supporting modifications to the Agrarian Reform Law to secure property
rights, supporting the development of property markets and consolidating the process of agrarian reform; (b) laying
the basis for sustainable management of the country's rich forest resources by improving forest property rights and
reorienting the public forestry sector toward the protection and management of forests and promotion of forest
biodiversity conservation; and (c) improve sector planning and coordination by strengthening and making better use
of the budgeting process.
Project costs and financing : The Agricultural Sector Adjustment Credit (AGSAC) was approved in September, 1993,
in the amount of US$62.1 million, with two reflows attached to the first and second tranches for US$ 29.4 million and
US$29.3 million, respectively. The original closing date was extended by two years and the credit closed in June,
1997, with total disbursements of US$120.8 million. The Inter-American Development Bank provided US$ 30 million
as cofinancing.

3. Achievement of Relevant Objectives :
The program succeeded in substantially achieving many of its objectives and expected benefits . The reforms
contributed to the improved agricultural performance by establishing clearer market signals, allocating resources
towards the tradable sector, expansion of non -agricultural exports, and improving employment and purchasing
power of the rural population. Substantial gains were made in land titling; the forestry program helped improve
institutional efficiency, strengthening the political and legal framework, increasing stakeholder participation in
management, and improved transparency in the marketing of wood products . Although the Public Administration and
Expenditure Action Plan was implemented, improvements in sector planning and coordination were not fully
achieved for lack of adequate weight given to Ministry of Agriculture's budget recommendations by the Ministry of
Finance. The objectives of the Rural Financial Sector Action Plan were not satisfactorily achieved .

4. Significant Achievements :
Significant reforms sectoral policies leading to improved performance of the agricultural sector; institutionalization of
land property rights and the development of land markets; consolidation of the process of agrarian reforms;
restructuring of the Honduran Forestry Development Corporation; preparation of management plans for 350,000 Ha
of national forests; public auction of forest resources; improvement of forest property rights .

5. Significant Shortcomings :
Failure to take advantage of the Public Administration Action Plan developed to improve the planning and
coordination of the Ministry of Agriculture; failure to make much progress on improving the efficiency of rural financial
intermediation or improving the access of the small farmers to credit facilities .
6. Ratings :               ICR                   OED Review                Reason for Disagreement /Comments
               Outcome : Satisfactory            Marginally Satisfactory   The ICR rates the project marginally
                                                                           satisfactory in the text.
    Institutional Dev .:   Partial               Modest                    same
        Sustainability :   Uncertain             Uncertain
   Bank Performance :      Satisfactory          Satisfactory
      Borrower Perf .:     Satisfactory          Satisfactory
       Quality of ICR :                          Satisfactory


7. Lessons of Broad Applicability :
1. Adjustment programs do not earmark funds to cover the incremental costs of implementing reforms . In projects
with components entailing incremental operating costs, especially in countries with severe fiscal problems, adequate
resources for the concerned agencies should be ensured .
2. Operations using innovative and technically complex tools, and projects addressing challenging institutional
issues require a realistic assessment of their implementation time frame and borrower's technical capacity for a
reasonable chance of success .
3. Adjustment operations can lay the policy framework for follow -up investment operations, as demonstrated by this
project with respect to land administration and forestry components (AGSAC was followed up by the Rural Land
Management Project and the links between the two have been rated as best -practice by QAG).

8. Audit Recommended?            Yes      No

9. Comments on Quality of ICR :
A frank and objective assessment of the project's performance .