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Environment and Development
       in Latin America
      and the Caribbea,i
    The Role of the World Bank

                                                FOR      QPMEN1
                                  RECONSiRUC1\0N ANO ~E\:
                                             JUN I..   '1   l'1'1l

                                      SECTORAL LIBRARY
                                     INTERNATIONAL BANK




        Latin America and Caribbean Region
                 The World Bank
                Washington, D.C.
    This report has been prepared by John A. Dixon, Swaminathan Aiyer,
and Andrew N. Parker, under the general supervisionof HansP. Binswanger.
    Many people within the Bank provided helpful comments and contri-
butions, particularly those in the operations complex of the Latin America
and Caribbean Region. General assistance to the team was provided by
Laura Alvarez. The report was typed by Caroline Banton, desktoppingwas
by Eileen Hanlon, and editing by Stephanie Gerard. George Parakamannil
designed the cover.




                  '   '   )




o;   I   ,   r
                 'I
                            Foreword

Sustainable economic development and management of natural resources
are inseparable. In the countries of Latin America and the Caribbean, there
is a growing consciousness of the need to adopt policies and programs to
preserve the environment.
     In its lending and advice, the World Bank places a heavy emphasis on
the--environmental'"aspects·of'economie-devefopmen . Beyond ado·DUlR2'-_ __
                                                                  0




Spetfflt p0netes mr p1oct<1mes, tt lms sbatgtf1e11ed its 01gmtimfto1t mad
staff to address the environmental issues. It is helping borrowing countries
in the Region to prepare national environmental action plans. Over the past
two years alone, 35 Bank loans approved for Latin America and the
Caribbean included significant environmental components totaling nearly
$1.5 billion.
     This paper gives an account of the environmental issues faced by the
countries of the Region. It also illustrates the World Bank's work with
examples of what has been done in specific situations.
     The efforts to date are a mere beginning. Much needs to be done. The
World Bank expects to be a partner in the effort to attain sustainable
economic development in Latin America and the Caribbean.




                                                    S. Shahid Husain
                                                       Vice President
                                 Latin America and Caribbean Region




                                  iii
                              Contents

Introduction    l

1. Good Economic Policy Can Be Good Environmental Policy     6
 Poverty and Slow Growth Can Pollute and Degrade      7
 Subsidies Can..Be PoJlu ten   9
 Openness Can Reduce Pollution       12
 Better Health Requires Cleaner Water    13
 Saving the Environment Can Help the Economy       14
 Replacing Perverse Incentives with Appropriate Ones    15
2. Market-based Incentives and Regulations   20
 Market-based Incentives   20
 Command-and-control Measures       21
 Combining Regulations and Incentives    22
 Harmonizing Regulations with Incentives    25
 Using the Private Sector  25
3. Making the Right Choices    27
 Data to Establish Priorities and Raise Political Awareness 27
 Information and Analysis for Improved Environmental Assessment 28
 Analyzing Alternatives       31
 Seeking Cost-effective Interventions      33




                                    ti
4. Strengthening Institutional Capacity    35
 Strengthening Institutions  36
 Decentralizing and Improving Popular Participation         38
 New Policies for Forestry  40
 Minimizing Human Dislocation     41
 Amerindians      43

5. Global Issues and International Assistance     44
  Priorities and Funding    45
  More Data and Studies Are Needed      49
  Problems and Prospects for Global Cooperation        51

Annex. World Bank Funded Projects with Environmental Components
and GEF Funded Projects  53

Boxes

   1    Evolution of an Active Partnership      4
   2    Unintended Consequences of Regulations         17
   3    Saving Brazil's Rainforests    18
   4    Reducing Congestion and Pollution in Santiago      23
   5    Cost-effective Air Pollution Control in Mexico    24
   6    Carajas--Problems of Unanticipated Consequences       30
   7    Getting More Out of Less in Bogota       34
   8    Greening Haiti      39
   9    Hard Choices in Yacyreti      42
  10    Regional Cooperation for Cleaner Caribbean Waters      48




                                    vi
                            Introduction

Latin America and the Caribbean face environmental problems that
have attracted worldwide attention. Global interest has focused par-
ticularly on the loss of tropical rainforests. However, air and water
pollution directly affect far more people in the region. Latin America
has the largest rainforests and greatest biodiversity. It is also the most
urbanized and industrialized part of the developing world. More than
86 percent of people in Argentina and 74 percent in Brazil live in cities
    towns and ofthe_t           tciti.esintheworld1e                     ,
Buenos Aires and Sao PaµJ0;;;-are in this re~on, Latin America has the
urban pollution problems common to many OECD countries, as well as
the natural resource management problems found in much of Africa
and Asia. Finally, the region's extensive marine and coastal areas are
threatened by pollution, unplanned coastal development, agricultural
run-off and deforestation.
   In the past little was known about the value or fragility of ecosystems
in the region and the environmental costs of development projects were
often unforeseen or simply ignored. There was a false perception that
environmental concerns were luxuries for the rich which poor countries
could not yet afford. Inadequate policies and ill-designed projects
unwittingly inflicted much environmental damage.
  Today, the region fully recognizes the urgency of the environmental
issues. There are four major reasons for this. First, the knowledge that
has emerged from ecological studies and analyses has raised public
awareness. Second, it has been widely understood that air and water
pollutionarenotjustaestheticproblemsbutalsoimpairhealth,produc-
tivity and growth. Third, the strengthening of democratic institutions
in the region has empowered the people who suffer the consequences
of environmental degradation and has forced policymakers to pay
attention to their travails. There has been increased participation by
local communities in the design and implementation of development

                                    1
2                        ENVIRONMENf AND DEVELOPMENT IN LATIN AMERICA



projects. Fourth, the socio-political forces driving the new economic
policies are transforming environmental policies. The previous in-
ward-looking policies with their widespread controls and subsidies
proved to be a recipe for environmental degradation. Today's demo-
cratic regimes are working to integrate economic and environmental
policies into the overall management of their resources.
  The World Bank has become a major partner of countries in the
environmental arena. (For the purposes of this report, reference to the
World Bank includes the International Development Association.) For
as long as three decades, selected environmental issues have been an
integral part of World Bank operations. For example, lending to im-
prove the safety of drinking water started in 1962 with a loan to
Nicaragua. Policy and project interventions to enhance energy efficiency
have been important since the oil crisis of 1973. The first urban sites and
services projects, which assisted in upgrading poor urban neighbor-
hoods, were approved for Jamaica and El Salvador in 1974. The first
major resettlement effort was made in 1975 in the lower Sao Francisco
Polders Project in Brazil.
  Since the mid 1980s, the environmental agenda of the World Bank's
work has been broadened to encompass the full range of resource
management, conservation and pollution issues. Overall, the Bank has
recruited a strong environmental staff, which is integrating the envi-
ronmental dimension into Bank activities. The Bank is working with
countries to stimulate an integrated approach which incorporates
environmental considerations into economic policies, regulations and
project design.
  The World Bank's program includes analytical work on the environ-
mental issues of countries and of specific economic sectors. Where data
or analysis are insufficient, the Bank is mobilizing resources or providing
funds to generate the data needed to analyze difficult issues. It provides
financial support for policy reform programs, conservation and envi-
ronmental mitigation measures, and for the management of national
parks. The Inter-American Development Bank cofinances some of
these programs. This report illustrates through many examples the
different ways in which the World Bank collaborates with countries and
 AND THE CARIBBEAN: THE ROLE OF THE WORLD BANK                            3



supports their programs.
   Brazil, the host country for the 1992 United Nations Conference on
Environment and Development (UNCED), has made an especially
large effort in the environmental area. The World Bank's support for
the first comprehensive environmental project loan was extended to
Brazil in 1990, and the Bank's environment program in Brazil now
covers a broad spectrum (box 1). Partnership with the other countries
in the region has also been growing rapidly. Over the past two years
alone, 35 Bank loans approved for Latin America and the Caribbean
included significant environmental components totaling nearly $1.5
billion (see annex table 1). (In this report, all dollars are U.S. dollars.)
Several of these projects are fully devoted to environmental issues such
as environmental institution-building, forestry, and land use rational-
                    proJ        se o ma approva , seven are evo
enbrely to environmental issues, and another rune contam s1gruhcant
environmental components (see annex table 2). Free-standing loans for
environmental studies and the strengthening of environmental insti-
tutions are becoming particularly important. All World Bank projects
require an assessment of the impact they will have on the environment,
and have to incorporate appropriate protective measures.
  The World Bank is also helping administer important new interna-
tional initiatives: the Global Environmental Facility(GEF), the Montreal
Protocol Interim Trust Fund, and the Pilot Program to Preserve the
Brazilian Rainforest (the G-7 initiative), all of which provide funds to
address global ecological concerns. As a consequence, the region now
has significant, though by no means adequate, external funding for
environmental programs and projects. Nine projects to be financed by
the GEF have been approved or are in advanced stages of preparation
(see annex table 3), five of which concentrate on the administration of
national parks and the conservation of biodiversity, while the others
concentrate on issues of global warming.
  The UNCED meeting comes two decades after the Stockholm Con-
ference on the Human Environment, which launched the international
environmental movement. As an input into the UNCED debate, the
World Bank's recently published World Development Report 1992 (WDR)
4                              ENVIRONMENT AND DEVELOPMENI' IN LATIN AMERICA




    Box 1. Evolution of an Active Partnership

    The partnership between the countries of the region and the World Bank is best
    illustrated in the case of Brazil. Until 1987, World Bank support for environmental
    programs in Brazil consisted of an industrial air pollution control project and project
    components for safe drinking water, water pollution control, soil conservation,
    environmental mitigation in the Carajas iron ore project (see box 6), and resettlement
    components in dam projects. The first power sector loan, approved in 1986, included
    preparation of an environmental strategy and master plan for the sector.
          Worldwide interest in the preservation of the Amazon rainforest and other
    resource management issues elicited contradictory reactions in Brazil. Some groups
    viewed the international interest as an intrusion into the sovereignty of the nation.
    Other groups saw potential benefits for the Brazilian environmental program. Major
    policy issues were discussed between the government and the World Bank, such as
    the subsidization of livestock expansion in the Amazon. Preparation started on a
    number of environmental projects.
          Project preparation provided opportunities to study environmental priorities
    and issues in industrial pollution, water pollution, land management, and environ-
    mental institutions. Discussions involved local governments, NGOs, executing
    agencies, and state and federal officials. Analytical skills and the international
    comparative experience of the Bank staff were increasingly appreciated, and agree-
    ment was reached to study and analyze dispassionately the development options of
    the Amazon region, from both environmental and economic perspectives.
          The intense national and international debates set the stage for a major shift in
    the political priority given to environmental issues, which was reflected in Brazil's




focuses on the environment and development. This shorter report
draws on the themes of the WDRand shows their relevance for the Latin
America and Caribbean region. It does not repeat the in-depth analysis
of issues which the reader can find in the WDR. Instead, this report
illustrates the strategies and projects that countries are implementing in
partnership with the World Bank.
   The first section emphasizes that good economic policy frequently is
good environmental policy. While there are sometimes conflicts be-
tween economic and environmental objectives, there are a multitude of
opportunities to improve economic and environmental management
          AND THE CARIBBEAN: THE ROLE OF THE WORLD BANK                                           5




         new Constitution, ratified by the Federal Government in 1988. Yet full commitment
         to finance and implement the environmental agenda and to collaborate with the
         international community had to await the government of President Collor, which
         quickly accorded environmental issues and agencies a high priority.
               With the strong commitment of state and local governments, project appraisal
         and negotiations proceeded on a broad range of programs. Since the mid-1980s,
         environmental projects and project components totaling nearly $2 billion have been
         approved for Brazil or are under preparation. They cover the major resource
         management and urban environmental issues. They include the first free-standing
         environmental project in support of the Federal Environmental Protection Agency
         and the national parks system, resource management projects for the states of
         Rondonia and Mato Grosso, soil conservation projects for the states of Parana, Santa
         Catalina, Sao Paulo and Mato Grosso do Sul, two multi-state water sector moderniza-
         tion projects, an industrial pollution project in Sao Paulo, an environmental manage-
i::::=---mffll~.
                              ..                                  .
               ,.,,.-~.~~l'f)le{)lll11ptomlia.Juv.,'-ll1~b:-iodmnily.:J,:11X1,eciaa:lditbii0ill'lt8S!L-_...aaaa--
             .,.                                   ...            .              ,I

         for resettlement, urban water supply, sewer collection and treatment, industrial
         discharges and strengthening of the environmental capacity of implementing agen-
         cies.
               The developing partnership between Brazil and the international community is
         illustrated in the recent approval of the Pilot Program to Preserve the Brazilian
         Rainforest to which seven developed nations have pledged $250 million and which
         will be managed by the World Bank. A number of individual projects to be supported
         by this initiative are in preparation.




         simultaneously.
            Because experience suggests that governments need to use both
         market-based incentives and regulations, the second section discusses
         situations where incentives work best, where regulation is essential,
         and where the two need to be combined.
           The third section analy.zes how to set the right priorities, and how to
         choose policies and projects when there is a conflict between economic
         and environmental goals. In such cases, improved data and knowledge
         are essential, and benefit-cost analysis can help to assess the trade-offs.
         Where benefits are difficult to quantify (as with biodiversity), cost-
6                        ENVIRONMENT AND DEVELOPMENT IN LATIN AMERICA



effectiveness studies can identify the cheapest way of attaining a given
goal.
   The fourth section stresses the urgency of strengthening institutions
and improving people's participation in projects, which in the past has
often been negligible. Less than one-third of the region's countries has
adequate legislation in place, although legislation is currently being
prepared in many others. Even where legislation is adequate, it may not
have been translated into sector-specific regulations. The institutions
for policymaking are relatively developed in countries such as Brazil,
Mexico and Venezuela. But even in these countries enforcement
capacity is inadequate.
   The final section looks at what is being done in the region to address
global environmental issues, such as biodiversity and global warming.
It highlights the need for global finance to solve global problems.

                 1. Good Economic Policy
             Can Be Good Environmental Policy

The earth is endangered as never before by urban pollution, the
degradation of forests and soils, and global threats such as the erosion
of the ozone layer and the greenhouse effect. Many environmental
problems have come in the wake of economic and population growth
and are sometimes attributed to them. In fact, the fault often lies with
policies that fail to take into account the costs of pollution and degrada-
tion and that sometimes provide perverse incentives that unwittingly
encourage the destruction of the natural resources on which growth
depends.
  Great intensity and passion surrounds many environmental debates
and policy choices. Sometimes this is because there are conflicts be-
tween environmental objectives and narrower economic goals. For
example, protecting a forest or coastal area may mean reduced employ-
ment and revenue from logging and shrimp aquaculture. In other
cases, air or water quality standards may require inefficient firms to
close down or may discourage new industries from opening. Priorities
must be set and difficult trade-offs considered. There are, however,
AND TI-IE CARIBBEAN: TI-IE ROLE OF TI-IE WORLD BANK                      7



many cases in which a policy change yields both economic and environ-
mental benefits. A first objective must be to seize these so-called "win-
win" opportunities, and these cases are discussed in this section.
  Even where it is possible to improve economic and environmental
management at the same time, the nature of environmental effects is
such that market forces alone will not produce satisfactory results. For
example, a polluting firm imposes an external cost on the population at
large without having to bear the cost itself. The market provides no
mechanism for those affected to participate in the decisions of the firm
and to force it to bear the cost and reduce its emissions. Emission
regulations or taxes must therefore be designed that shift the cost of
dealing with the pollution back to the firm. Proper design of regulations
or taxes requires the ability to measure and quantify the costs of
pollulion,    iffi"cutna: ope o ·sput .             so eqmre




Poverty and Slow Growth Can Pollute and Degrade

Environmental pressures are often aggravated by the persistence of
poverty. The examples below illustrate that poverty reduction helps
alleviate these pressures, although poverty reduction must be com-
bined with more specific environmental interventions to eliminate
them.
  In urban areas, the poor often settle in unsuitable areas, such as river
banks and steep-sloping land where it is very difficult to provide basic
infrastructure. Insufficient collection and treatment of wastes often
results in serious contamination of water sources used by a much larger
population. For example, at the Guarapiranga reservoir, which supplies
one-quarter of the water for the 14 million inhabitants of Sao Paulo,
thousands of squatters are causing serious contamination of the water
for the entire metropolitan population. To deal with this problem, state
governments in Brazil are implementing projects which provide basic
8                         ENVIRONMENf AND DEVELOPMENT IN LATIN AMERICA



infrastructure in suitable urban areas and resettle people to these areas.
The World Bank is supporting these efforts through the financing of
four projects which benefit six states.
  While the causes of deforestation are complex and many forest areas
are cleared by loggers and ranchers, who are not among the poor,
poverty has encouraged poor farmers to encroach on the rainfor~ts of
the Amawn. Unfortunately, many Amazonian soils cannot sustain
intensive agricultural methods. Small farmers and ranchers leave the
land after they have "mined" the soil nutrients and when yields have
started to decline; they clear yet more forest, only to repeat the extrac-
tive cycle through which the poverty problem is never resolved.
  This destructive cycle may not be inevitable, however. A project in
Yurimaguas, in Peru, shows that with sufficient inputs, a technical
solution exists for sustainable farming in this rainforest area. The
profitability of the system is not assured unless low-cost supplies of
lime and other nutrients are available and products can be sold to
nearby markets. Research is required to find out whether there are
other solutions based on pasture improvements and tree crops. Only
such research can reveal whether agriculture is economically and
ecologically sustainable on soils that have failed to sustain it in the past.
  In the Central American highlands of Guatemala, Honduras and
Nicaragua, population growth and poverty have driven poor farmers
to cut forests in search of more land and fuel. In the Caribbean, Haiti is
perhaps the most extreme example of this process; its once heavily
forested land is virtually denuded today. Such countries need better
economic policies to spur the economic growth that will create em-
ployment opportunities in non-farm sectors and relieve land pressures.
The World Bank is providing financial support to enable governments
to undertake such policy reforms and the accompanying public invest-
ments.
   Even middle-income countries need faster economic growth to finance
environmentally-sound investments. Slow growth can actually result
in increased pollution. Argentina had a good record in water supply
and sanitation in the 1970s when it spent $7 to $9 per capita per year on
these sectors. When its economy declined rapidly in the 1980s, invest-
AND 1HE CARIBBEAN: 1HE ROLE OF 1HE WORLD BANK                           9


ment in these sectors dropped to barely $1 per capita per year, insuffi-
cient to maintain even old systems. As a result, the country suffers from
much greater urban water pollution today.
  Population growth may not seem as much a problem inland-abundant
Latin America as in land-scarce Asia, but experience in the highlands
and the Amazon demonstrates that poor people rarely have access to
sufficient high-quality soils. Deforestation and soil degradation would
be less if population pressure were reduced. In the 1980s, annual
population growth was as high as 3.5 percent in Honduras, 3.2 percent
in Paraguay, 2.9 percent in Guatemala, and 2.7 percent in both Ecuador
and Bolivia. Meanwhile, it was only 1.3 percent in Jamaica and 1.4
percent in Argentina, showing that the problem is not equally severe
everywhere. Nevertheless, in a number of countries, reducing popula-
 'mrgrow              nmtegr              trategyt01                  --- - - - -




Subsidies Can Be Polluters

While subsidies can sometimes be used to achieve environmental
objectives, subsidies for water, power, fertilizers, and pesticides usu-
ally constitute poor policies that encourage excessive and inappropri-
ate use. Thus, subsidies frequently tum out to be the cause of much
environmental degradation.
  For example, in Mexico City water used to be supplied at a price that
implied an annual subsidy of $1 billion. This encouraged excessive
pumping, with the result that the water table has fallen by 80 meters,
aquifers are being compacted, and many parts of the city are sinking-
some places near the historic city center have sunk as much as eight
meters over the years. This has damaged the city's underground
infrastructure of pipes, cables and sewers, and it increases potential
earthquake damage. In effect, cheap water is helping to destroy the city.
Mexico, with World Bank finance, is investing in a scheme to bring more
water from outside the city and raise municipal water charges. Some
10                       ENVIRONMENf AND DEVELOPMENI' IN LATIN AMERICA



areas have been designated for recharging aquifers and are supposed
to be protected from encroachment, but squatters have frequently
occupied these grounds. Therefore, enforcement needs to be improved.
   By the early 1970s, most private power utilities in the region were
nationalized. Many subsidies were introduced by governments. Power
tariffs fell by 22 percent between 1972 and 1988 even though operating
costs rose 14 percent. Normally, electricity should be priced at the long-
run marginal cost, which is estimated to be between seven and nine
cents per kilowatt-hour in the region. In fact, between 1972 and 1988,
the average tariff dropped sharply from 6.3 cents to 4.9 cents per
kilowatt-hour. The lack of self-generated funds for utilities has led to
poor maintenance and insufficient investment, which in tum impose
further costs. According to a World Bank study, improved mainte-
nance could raise generating capacity by 10 to 20 percent, reducing the
need for fresh investment. A power efficiency program to reduce
technical losses may save another 10 to 15 percent in new generating
capacity. Poor efficiency also leads to higher fuel costs, which are $360
million a year higher than necessary in the region. Subsidized power
encourages excessive energy consumption and diverts scarce resources
to fund unnecessary new capacity. It also has adverse environmental
consequences in the form of increased emissions of pollutants and
greenhouse gases (in the case of thermal generation), and the unwar-
ranted submergence of land and forests, and the displacement of
people (in the case of new hydroelectric generation). Argentina, Hon-
duras, Jamaica and Mexico have adopted power sector policies that,
among other things, provide for setting power tariffs at the long-run
marginal cost and developing energy conservation programs. The
World Bank is assisting in the financing and implementation of these
programs.
  Subsidies for fuels encourage their overuse as well, causing addi-
tional pollution. Cheap gasoline and diesel fuel have encouraged
excessive vehicular use that pollutes the air in many cities of the region.
Emergency restrictions on vehicles are imposed in Sao Paulo, Santiago,
and Mexico Oty when air pollution reaches critical levels. Countries
such as Peru and Argentina are reducing or have abolished fuel
      AND TI-IE CARIBBEAN: TI-IE ROLE OF THE WORLD BANK                           11


      subsidies.
         However, such reforms carry political risks. Venezuela once had the
      cheapest gasoline in the western hemisphere, costing barely 30 cents
      per gallon, less than one-third the U.S. price. However, an attempt in
      1989 by the Venezuelan government to raise fuel prices contributed to
      riots. Similar riots had occurred in the Dominican Republic after a big
      rise in fuel prices there. This shows how politically difficult it is to raise
      prices sharply after having kept them artificially low for long periods.
      It is better to maintain real prices through frequent adjustments, as is the
      practice in several countries in the region, or to depoliticize them by
      leaving them to market forces.
         Subsidized electricity has led to excessive pumping of water for
      irrigation in many parts of Latin America, thereby depleting aquifers.
- -- ·- so·me-coast

      nently.
         In many countries of the region, irrigation water is priced so low, and
      the collection of charges is so poor, that revenues do not even cover
      operating costs. This encourages the overuse of water, which can lead
      to waterlogging and salinization. Revenue is insufficient to maintain
      canal systems or provide the drainage that is essential to prevent
      waterlogged areas from turning saline as the excess water evaporates.
      In the Rio Fuerte command area in Mexico, 80,000 hectares have turned
      saline, yields have fallen, and farmers have abandoned large parcels of
      land. Although all of this land cannot be reclaimed, the Rio Fuerte
      Irrigation Project supported by the World Bank has helped reduce
      waterlogging by lining secondary and tertiary canals and rehabilitating
      around 30,000 hectares of saline area by flushing the salts out of the soil.
      Under a new country-wide irrigation program, partly financed by the
      Bank, the construction of main and secondary drainage channels will
      reduce waterlogging. Mexico is also raising water charges to cover all
      operating and maintenance costs plus one-third of the capital costs.
        Cheap credit is another kind of subsidy. Subsidized credit for
      ranching has encouraged the conversion of forest areas into cattle
      ranches on soils that often cannot sustain them. The World Bank has
12                      ENVIRONMENT AND DEVELOPMENT IN LATIN AMERICA



supported government programs to end subsidies for ranching in
Brazil and in the Selva Lacandona, the last remaining rainforest in
Mexico. In the past, subsidized agricultural credit has also led to
overuse of pesticides and discouraged the adoption of integrated pest
management, which emphasizes improved management techniques
over pesticide applications. Cheap credit as well as subsidies have
encouraged the overuse of fertilizer, resulting in nutrient run-off that
can pollute groundwater. Mexico and Venezuela have phased out
fertilizer subsidies, and the reduction of credit subsidies by many
countries of the region will improve the climate for more rational
pesticide use.

Openness Can Reduce Pollution

Promoting sustainable economic growth in the region requires open
policies to encourage foreign investment and trade. These are some-
times thought to accelerate the sort of industrial development that leads
to pollution. Indeed, there are well-founded fears that polluting
industries will shift from rich to poor countries to take advantage of
weaker regulations in the latter. However, opposite forces are also at
work. A recent World Bank study suggests that openness, on balance,
may reduce pollution. An index of the pollution intensity of the
industrial mix in 25 Latin American countries was constructed using
data on the toxic intensity of U.S. industries. Analysis showed that
income growth led to higher pollution intensity but that pollution
intensity increased less in more open economies.
  Opennessmayreducepollutioninseveralways. Forexample,export
products must comply with the environmental guidelines of the im-
porting countries. The U.S. stations inspectors in both Chile and Mexico
to test fruits and vegetables for pesticide residues. German limits on the
dioxin content of paper have forced the pulp and paper industry in
Chile to change its processes and to treat effluents. Also, foreign firms,
under pressure from stockholders, often impose common international
standards wherever they invest and bring in new technologies that
already include cleaner processes. The foreign firms then press govern-
AND nm CARIBBEAN:    nm ROLE OF nm WORLD BANK                            13



ments to raise standards for local industries, too, to place all firms on an
equal footing.
    For years, Argentina aimed at self-sufficiency in petroleum products.
Yacimientos Petroliferos Fiscales (YPF}-a state-owned corporation-
refined most of the oil produced. Domestic firms relied almost wholly
on YPF for their supply of petroleum products. Regulations and a
distorted pricing mechanism meant that the private sector had little
incentive to increase oil exploration and production or to develop the
country's reserves of natural gas. Argenlina has now deregulated the
oil and gas sector, and domestic prices have risen to international levels.
Industries and utilities will substitute natural gas for fuel oil, reducing
particulate and carbon dioxide emissions. Many of YPF's heavily
polluting operations are being sold to the private sector, and it is hoped
     it ac:tditionaifore1gn mves en w1l ena e cons c on o more
ffi.odem fad.Imes with better thermal efhoency and polluhon control.
   These examples illustrate how open trade and investment policies
can help the environment while protection can increase pollution.
However, opening up can also encourage additional industry, mining,
logging, and other activities that put pressure on natural resources. The
answer is not to go to either extreme but to ensure, through a proper mix
of incentives and regulations, that any new activity is environmentally
sound.

Better Health Requires Cleaner Water

The purpose of development is to improve human welfare, and a vital
part of such welfare is improved health. Polluted water and air are
major causes of illness and death, imposing welfare costs on Mexico, for
instance, of an estimated $3 billion and $1 billion a year, respectively.
Measures to clean polluted air and water and improve sanitation would
help the economy and the environment.
  Experience in the region shows that the need for public investment in
water and sanitation is great. The World Bank is currently financing
water and sanitation projects in many countries in the region, including
Argentina, Bolivia, Brazil, Chile, Colombia, Mexico, Saint Lucia and
14                      ENVIRONMENf AND DEVELOPMENf IN LATIN AMERICA



Uruguay. Water charges should be increased to provide the funds for
new water supply and sewage treatment plants. Better institutions are
needed for metering and collecting water charges. In Caracas and
Mexico City, 30 percent of water connections are not even registered.
  Cost-effective ways can be found to ease different forms of pollution
at a fraction of the cost of providing state-of-the-art treatment. For
example,excessivewaterusecanbecutbyrehabilitatingold,inefficient
systems. In Uruguay, the city of Montevideo wanted to build a new
pipeline for water supply. Further study showed that the same results
could be achieved at less than half the cost by rehabilitating two old
water pipelines, a project the World Bank is helping to finance. Argen-
tina is now rehabilitating all its water companies in phases. This will
decrease wastage and so release additional supplies for poor slum areas
that today depend on polluted supplies.
  Effluent charges levied on polluting industries in Sao Paulo, Brazil,
have helped reduce its water demand 40 to 60 percent, releasing more
and cleaner water for households. Wastewater can be recycled, some-
times by harnessing private sector expertise and investment. Twenty-
six companies in Mexico City have banded together and made a success
of such a project. Chile uses private agents for meter reading, pipe
maintenance and billing and has been able to trim its workforce to only
3.5 employees per 1,000 connections, one-sixth the average for the
region.
  People's participation can help devise the most appropriate forms of
water supply and sanitation. In many cities in Brazil, households
cooperate in running a single sewer line right through a block of houses
instead of having separate connections for each house. This saves 20 to
30 percent in capital costs.

Saving the Environment Can Help the Economy

Currently, cholera epidemics are killing people in many countries in the
region. Cholera hits agricultural and marine exports, as buyers fear
contamination of produce, and it also damages tourism. According to
one estimate, a recent epidemic in Peru has cost the economy around $1
AND 1HE CARIBBEAN: 1HE ROLE OF 1HE WORLD BANK                          15


billion, more than three times what Peru invested in water supply and
sanitation during the entire 1980s.
  Valparaiso, in Chile, has long suffered from poor sanitation. Chile is
now investing in improved sewage disposal for the city, with World
Bank support. Apart from improving the welfare of hundreds of
thousands of urban dwellers, the project will provide insurance against
beach pollution, which now threatens the local tourism industry.
  Deforestation and intensive cultivation in southern Brazil have led to
soil erosion and heavy sedimentation of the Pararui river. Estimates
suggest that the life of the Itaipu hydroelectric reservoir, one of the
biggest in the world, has been significantly reduced. As one-quarter of
Paraguay's entire revenue comes from the Itaipu project, the country
will be hurt badly by the reduction in revenues associated with the




Replacing Perverse Incentives with Appropriate Ones

Many well-intentioned measures to promote growth, alleviate poverty,
or even protect the environment can end up damaging both the economy
and the environment. Policymakers often fail to realize that incentives
to solve one problem can induce another even worse than the first. In
particular, they often fail to anticipate the environmental consequences
of economi.c incentives.
   Some countries decree a uniform fuel price in an attempt to be fair to
all regions. This has relatively little adverse consequence in small
countries. However, in a large country such as Brazil, fuel distribution
costs to remote areas are high, especially in the rainforest, and these
remote areas should, therefore, pay the highest fuel prices. Brazil had
a uniform fuel price at one time, but this. resulted in a hidden fuel
subsidy that encouraged migration into the very areas where migration
needed to be discouraged. Brazil has now given up uniform fuel
16                      ENVIRONMENT AND DEVELOPMENf IN LATIN AMERICA



pricing.
   Mexico used not to levy any taxes at all on cars more than ten years
old. The aim was to help the poor who could not afford newer cars. This
unwittingly encouraged the increased use of old cars with the lowest
fuel~fficiency and highest pollution. The increased air pollution
harmed the health of many more poor people than benefited from the
tax break. Mexico has now abandoned this policy and instituted a tax.
(Box 2 describes similar unanticipated consequences that restricting the
use of cars to six days a week might have had.)
   Measures intended to protect the environment can end up destroying
it if incentives are inappropriate. Nicaragua and Honduras, in their
concern about reduction in their forest cover, decreed that all trees on
private land belonged to the government. In practice this ended the
incentive for any individual to plant trees and so they aggravated the
problem. It also encouraged people to fell trees on their land to make
a profit at the government's expense.
   Free access to forests, pastures, and seas can constitute a perverse
incentive to degrade these resources. Every logger, rancher, or fisher-
man has an incentive to maximize the exploitation of such resources,
but none has an incentive to replant trees and pasture or restock
depleted fish stocks. This leads to overfelling, overgrazing, and over-
fishing, all of which deplete the very natural resources that form the
livelihood of those who deplete them.
   A clear system of property rights is essential for providing incentives
to conserve renewable resources to ensure their sustainable exploita-
tion. If common lands are clearly the property of either individuals or
local communities, and if they have the legal right to exclude outsiders,
this provides an incentive to nurture these resources instead of "min-
ing'' them in unsustainable fashion. This helps avoid the degradation
that is common when there is open access for everybody.
   In many parts of Latin America and the Caribbean there are no
reliable land records, encroachment and land disputes are legion, and
enforcement is weak. The World Bank is now financing natural
resource management projects in several countries, including Brazil,
Bolivia, Costa Rica, and Paraguay, giving priority to the clarification of
 AND nm CARIBBEAN:       nm ROLE OF nm WORLD BANK                                          17




   Box 2. Unintended Consequences of Regulations

   Well-intentioned regulations can have unintended consequences and worsen
   instead of improving the environment. Air pollution in Mexico City is so serious
   that since November 1989 the government has prohibited cars and vans from
   operating one day every week. The measure temporarily reduced traffic congestion
   as well as pollution. But as the ban became permanent people began to seek ways
   of circumventing the ban.
     According to one survey, 39 percent of vehicle owners have purchased a second
   vehicle just to overcome the regulation. The number of new cars purchased in the
   metropolitan region has not accelerated greatly, but as many as 170,000cheap, old
   vehicles may have been purchased and brought in from the surrounding regions.
   Unfortunately, old cars tend to be much more polluting than new ones. Once a
   family has a second car, it uickly becomes used more than once a week. The
                                            ygoneup ter e ecree. Co d'iltlsliave
                                                 es onan po u on a                    ee
   achieved? The acceleration in gasoline consumption after the decree and the
   increase in air pollution suggests that this may indeed be the case. It might be
   better to rescind the ban as a permanent measure and to keep it only as a short-term
   emergency option.




land titles. Most of these projects include cadastral surveys to update
land records and demarcate areas for indigenous peoples.
   Public investments, such as roads, can create perverse incentives and
have often unwittingly provided access to areas with fragile soils.
Controlling road construction in such areas is a prerequisite for conser-
vation, since it is often difficult to control logging, ranching and
settlement once access roads have been built. Even where a paved road
is built only into areas with good soil, as was the case in parts of the state
of Rondonia in Brazil (box 3), local people may build dirt roads
branching off into the fragile soils. Controlling road construction by
both public and private agencies is essential. The Brazilian states of
Rondonia and Mato Grosso have adopted a development strategy that
sharply limits infrastructure development to areas with the highest
land quality, using agro-ecological zoning as the basis for such deci-
18                              ENVIRONMENT AND DEVELOPMENT IN LATIN AMERICA




     Box 3. Saving Brazil's Rainforests
     For two decades, deforestation in Brazil's Amazon region has been driven by
     inadequatepoliciesandinvestmentprograms and by poverty and population growth.
     Much of the resulting economic activity has not been self-sustaining, based instead on
     the extraction of trees, nutrients and minerals. Brazil is now adopting a new strategy
     for managing natural resources, aimed at preserving the remaining rainforest and its
     biodiversity, preventing encroachment into areas where Amerindians live, and
     encouraging environmentally sound agriculture.
           The Legal Amazon's deforested area increased from 3 million hectares in 1975 to
     60million hectares in 1988. Of the nine Amazonian states, Rondonia in the northwest
     suffered most. The deforestation began in the 1970s following the building ofnew dirt
     roads and the active promotion of immigrants. It gathered pace after the World Bank
     helped pave the highway to Porto Velho as part of a series of projects
     (POLONOROESTE) to develop the region. There was little knowledge of agricultural
     conditions, no regulations, and hardly any administration. The settlers logged and
     cleared the forests, planted crops, and grazed cattle.
           By the early 1980sit became dear that much of the agricultural development was
     on fragile soils. Yields dropped sharply, and small farmers and ranchers cleared yet
     more forest in a repetition of the cycle. The World Bank stopped lending for several
     Rondonian settlements, and Brazil and the Bank reviewed the lessons from this
     experience. They concluded that:
     •     data oollection was vital to establish which parts of the Amazon basin could
     sustain agriculture and which should be left untouched;
     •     faulty policies had created perverse economic incentives for people to destroy
     the forest;
     •     not enough attention had been paid to preserving the biodiversity of the
     rainforest or protecting the land rights of the Amerindians living in them;
     •     institutions to prevent environmental destruction and promote sustainable
     agriculture were ineffective; and
     •     centralized decisionmaking meant that projects were divorced from grassroots
     realities.
     F.ach of these problems was taclded in the preparation of the recently approved
     Natural Resource Management Project for Rondonia.
           Daui oollection ilnd 111111lysis. The World Bank financed satellite imagery that
     helped in mapping soils and provided the basis for rational land zoning. It turned out
     that of Rondonia's total area of 243 million hectares, only 2.6 million hectares could
     sustain annual cropping, while another 6.4 million hectares oould sustain perennial
     tree-crops, such as coffee and fruit. All development and public investment will be
          AND TifE CARIBBEAN: TifE ROLE OF TifE WORLD BANK                                             19



     limited to these sustainable regions, so that the remaining 15.3 million hectares can be
     kept under forest cover. A similar strategy is being prepared for Mato Grosso.
          Rmuroing peroerse incentires. Previously, the government gave big tax breaks to
     agricultural enterprises, and this encouraged businessmen to set up ranches simply
     to save taxes. Subsidized credits for cattle ranching encouraged this activity even
     when the real returns were negative. Land title for settlers was linked to the area of
     forest cleared and so encouraged felling. Many roads were built in areas of fragile soil,
     and immigrants were drawn into such areas simply because access was easier than in
     undeveloped areas with better soil. In the absence oflong-term credit for growing tree
     crops, farmers planted annual crops that were more damaging to fragile soils.
          Brazil has therefore sharply restricted fiscal incentives, subsidized credits, and
     road building in ecologically sensitive zones. Titles were banned in non-agricultural
     zones. Plans have been made to help rubber tappers and nut-gatherers market their
     produce, thus encouraging susminoblc forest cxploit11tion. Credit will now be
==-- prov1 oo or ee-crops.

              Protecting Amerindians and biodir,ersity. The demarcation of Indian reserves has
        been increased to 9,300 linear kilometers, enclosing 10.3 million hectares. Five state
        parks, one municipal park and two biological reserves will be created to protect
        endangered species.
              Strengthening institutions. Institutions at the federal, state and local levels are
        being reinforced to ensure greater awareness of problems, improved technical capac-
        ity, and stronger regulatory and participatory mechanisms. Rondonia's new consti-
        tution denies legal title to any settlers in prohibited zones.
              Decentralizing and improving popular participation. Under the newproject, Rondonia
        aims to decentralize decisionmaking and encourage local participation. A state
        council reviews the project's progress every month, as do commissions for each
        component of the project. NGOs are represented in the council as well as on the
        commissions and participatory forums have been constituted in each locality.
              Risks. Although land use zoning is a powerful tool for better planning public
        investments and for mobilizing public opinion to limit development in fragile zones,
        without rigorous enforcement private investors will still find it profitable to extract
        logs, minerals and nutrients from even the marginal zones. However, enforcement at
        the thinly populated frontier is difficult and costly. If the gains from extractive activity
        are large, it will be difficult to maintain strong local political support for the required
        enforcement. Information gathering, dissemination and participation in the decision
        process of all who are potentially affected will reduce these risks. But, much needs to
        be learned about the proper role of different government entities and mechanisms to
        achieve development with ecological balance.
20                        ENVIRONMENf AND DEVELOPMENI' IN LATIN AMERICA



sions. This strategy is supported by World Bank financed projects.
Road construction has also been sharply limited in the Selva Lacandona
area of Mexico under an action plan agreed with the Bank. In the Mexico
Forestry Development Project supported by the Bank, road investment
is limited to the rehabilitation of old roads, but even that will not be
done if the roads are close to virgin forests or genetically rich habitats.

      2. Market-based Incentives and Regulations

Two kinds of policies are needed to curb environmental damage.
Market-based policies tax or otherwise raise the cost of harmful activi-
ties and reward environmentally sound activities, and command-and-
control policies prohibit or limit undesirable activity through regula-
tion. Both shift environmental costs back to the firm or entity that
generated them. In some cases incentives work best; in other cases
regulatory controls are essential; and in many cases the two need to be
used in combination.

Market-based Incentives

Market-based incentives are often a good way to change people's
behavior. Taxes on pollution can induce polluters to economize and
innovate in ways that benefit the whole economy. For instance, a tax on
industrial wastewater in Brazil has induced industries to reduce their
demand for water by almost half, thus releasing better water for
households. If the industries had been forced to relocate, they would
have had no incentive to reduce their water consumption or pollution,
while the costs of relocation would have been substantial.
  Market-based measures are often much easier to implement than
regulatory orders, especially when regulatory administration is weak.
Many countries have mandated emission checks to weed out polluting
vehicles, but these regulations are easily evaded, as are controls on
emissions by industries. However, neither car owners nor industries
can evade taxes on fuels, which therefore tend to be more effective in
changing undesirable behavior.
       AND nm CARIBBEAN:   nm ROLE OF nm WORLD BANK                         21


       Command,:md-control Measures

      Regulations are essential where proper markets do not exist. This is
      often the case when property rights are not clarified or enforced. Open,
      uncontrolled access to air, water, forests and fisheries encourages
      pollution and overuse. In such cases a regulatory framework is a
      necessary, though not sufficient, condition for a healthy environment.
      Many countries of the region are now enacting environmental laws to
      provide a regulatory framework.
        Market-based incentives are inappropriate when the potential risk to
      public health is severe. Merely taxing industries that dump toxic or
      nuclear waste is not good enough, since toxic waste can kill human
      beings and animal life. In such cases conunand measures accompanied
- -~ g                                                          ,. .,.-. .n',m~--=-
   !tote to tMa ana follow mstrucoons for nanaiing highly toxic pesaciaes,
      but not those who are uneducated. Even in a small country like
      Nicaragua, more than a thousand farmworkers suffer acute pesticide
      poisoning every year due to improper handling. There is a case for
      banning highly toxic pesticides in such countries. Better education on
      the safe use of pesticides and integrated pest management is also
      needed.
        Although command measures usually fail if they try to change the
      behavior of a large number of minor polluters, such measures can
      succeed where the number of polluters is small. In the early 1980s, the
      states of Cubatao and Sao Paulo in Brazil used World Bank resources to
      provide concessional finance to invest in emission control and enforce-
      ment. Air quality improved in Cubatao, where the main polluters were
      a small number of petrochemical and steel companies. However, air
      quality did not improve in Sao Paulo, a city of 12 million people, where
      vehicles are the main source of pollution. Brazil has now decided to
      limit the use of command-and-control to cities with a handful of
      polluting industries and resort to other measures where thousands of
      vehicles are the main problem.
22                      ENVIRONMENT AND DEVELOPMENf IN LATIN AMERICA



Combining Regulations and Incentives

Regulation alone will often fail, but so too will deregulation alone.
Regulations often need to be combined with incentives to produce good
results. In the 1970s the Chilean government deregulated public
transportation in Santiago, ending the public sector bus monopoly.
Deregulation encouraged people to buy cheaper, but more polluting,
secondhand buses. Air quality worsened dramatically an<;i improved
only after 1991 when the government banned the use of buses with pre-
1972 engines (box 4).
  Installing sufficient emission-control equipment on vehicles and
industrial plants to reduce air pollution substantially can be done, but
at a great cost. If fuel consumption is taxed as well, it will discourage
vehicular traffic and induce industries to economize on fuel, thereby
changing polluting behavior more cheaply than ct)mmand measures
would alone (box 5). Taxes and other charges also yield revenue that is
badly needed for a variety of projects to will help both the economy and
the environment.
  Chile has recently enacted legislation providing for "tradable pollu-
tion permits" for larger industries. The law sets a ceiling on the
permissible amount of pollution by each company and lets these rights
be traded. A company that reduces its emissions to zero can sell its
"pollution rights" to a company that may find it more economical to
buy these rights than to cut pollution. Tradable permits are a cost-
effective solution for reducing pollution in this case.
  Mexico is considering adopting a similar strategy for chlorofluoro-
carbons. These chemicals damage the ozone layer and are being phased
out in consonance with the Montreal Protocol. The phase-out program
reduces the production rights of each company year by year, and these
rights are tradable.
  In Costa Rica, both incentives and regulations are used to improve
forest management. The country has good forest laws and has desig-
nated protected corridors along roads in ecologically-sensitive areas.
However, conscious that weak enforcement agencies have been inef-
fective in the past, Costa Rica's government also offers farmers a
          AND THE CARIBBEAN: THE ROLE OF THE WORLD BANK                                             23




             Box 4. Reducing Congestion and Pollution in Santiago
             Chile is strengthening environmental institutions and developing stronger envi-
             ronmental laws. However, air pollution in Santiago needs immediate attention,
             and so a Special Commission for the Decontamination of the Metropolitan Region
             has been established. The biggest threat to health comes from the fine particulate
             matter, called PM10, that damages human lungs. In winter, air quality reaches
             "critical levels" as often as one day in six, and normal PMl Ostandards are violated
             daily.
           When Chile deregulated bus transport in the early 1970s, private operators
         imported thousands of cheap, old buses-major emitters of PMlO. They also
         increased traffic congestion in downtown Santiago since road access was free to
         all. In early 1991, Chile banned 2,600 buses with pre-1972 engines (constituting
         onp...fifth of the whole bus fleet). This reduced the number of winter day11 with
= = = t -,crfticaNevelpo       orrfr~               ~ {htghl!l'Tatnfa!t'Wa anothA        -;:::.:tj::::::::::11_ __


             bus operators. Its main features are:
               • more stringent emission standards for new buses and limits on the kinds of
             buses that operate on downtown routes;
               • the allocation of bus-transit rights downtown, on which a ceiling has been
             placed to check congestion and pollution; and
               • the auction of routes based on fares to be charged and the type of buses to be
             operated.
               The reforms, which have been supported by the Inter-American Development
             Bank, have helped speed up transit time, reduce congestion and pollution, and
             bring down fares. Although the number of buses has been limited, operators can
             complete more round trips because of reduced traffic congestion. The auction-
             cum-allocation system has reduced the average fare by one-tenth. It also yields
             revenue to finance improvements such as paving roads, which reduces dust
             pollution.




         subsidy of about $1,000 per hectare to reforest their land. This may be
         excessive. A World Bank study suggests that the average cost of
         reforestation is only about $850 per hectare, and other research suggests
         that 56 percent of the supposedly reforested land had never been
         deforested in the first place. The study also estimates that the cost of
         enforcing good forest management would be a small fraction of refor-
24                               FNVIRONMENI' AND DEVELOPMENT IN LATIN AMERICA




     Box 5. Cost-effective Air Pollution Control in Mexico

     Mexico Qty is one of the biggest and most polluted cities in the world. High
     mountains surrounding the city trap air pollutants, and thermal inversions further
     concentrate them. Emissions of particulate matter, ozone, and carbon monoxide
     frequently far exceed health-based norms. According to a World Bank study, air
     pollution imposes health oosts of more than $1 billion a year on the city.
       In 1982, the World Bank approved a $60 million project for industrial pollution
     control However, the debt crisis that hit the country meant there was little
     politicalinterestortrainedstaffforenforcingregulations,sotheBankcancelledthe
     loan after disbursing only $8.1 million. However, what survived was a network
     of automatic air monitoring stations. These produced devastating data on air
     quality that eventually led to public outcry.
       In Mexico Qty, vehicles are a major source of air pollution. There are three ways
     to reduce this pollution:
        • reduce the pollution per kilometer from each vehicle;
        • shift the passenger load to forms of transportation that pollute less; and
        • reduce overall travel.
       What is the most cost-effective combination of the three? A World Bank study
     indicated that oost-effective ways to reduce pollution from each vehicle are to
     convert high-use vehicles from gasoline to liquified petroleum gas and to recover
     vapors from gasoline stations. Emission standards have the most impact if initially
     imposed on high-use vehicles. Taxis drive about 10 times as much as the average
     car. Requiring old taxis to be replaced reduces emission from a taxi by 80 to 90
     percent.
       Taxation of gasoline is, however, immensely more effective than regulation for
     shifting passengers out of cars to less polluting modes, or for reducing overall
     travel demand Relying on regulations alone would cost $560 million to reduce
     vehicular emission by half. With a well-designed gasoline tax, the costs to achieve
     this objective could be reduced by nearly $100million. The tax would also generate
     revenue needed to implement some of the regulating measures.
       MexicoandtheBankarethusdiscussingstrategiesthatcombineregulationsand
     incentives. Since 1991, all new vehicles have had to be fitted with catalytic
     converters to cut emissions. However, so long as leaded gasoline remained 40
     percent cheaper than the unleaded variety, car-owners tended to use the former.
     The government hasnowreduced the price differential to 11 percent, and a further
     reduction of the differential rate would be desirable. Also, Japanese ro-finance is
     being used to increase capacity for producing unleaded gasoline. Finally, credit
     is to be given for the replacement of old, polluting taxis bynew, less-polluting ones.
 AND TIIE CARIBBEAN: TIIE ROLE OF TIIE WORLD BANK                      25


estation costs. This suggests that Costa Rica may find it cost-effective
to shift some of its emphasis from incentives to stronger enforcement.

Hannonizing Regulations with Incentives

Governments often use several policies to attain different ends.
Sometimes regulation aimed at one objective conflicts with incentives
provided for another objective. Brazil attempted to reduce overfishing
in the coastal waters off Bahia, while the government was subsidizing
new nylon nets to encourage fishing, thus resulting in overfishing. The
government needs to harmonize these two aims.
  At other times, regulations provide unintended incentives which
undennine the goal of the r ulation. Box 2 shows how..Prohibiting the
use of cars one day every week has reduced air Pollution and traffic
congestion in Mexico City only in the short run, because many people
bought older, more polluting vehicles as a second car.
  Many countries in the Amazon basin, notably Brazil, are adopting
zoning regulations to keep squatters off land that is unsuitable for
sustained agriculture. However, such zoning fails when the govern-
ment gives fiscal incentives and credit subsidies for farming the same
land. One solution is to abolish tax breaks and subsidies in prohibited
zones.

Using the Private Sedor

Although governments must often take the lead in improving the
environment, achievements will be greater with the participation of the
private sector. In many cases, private agencies accomplish tasks
quicker, cheaper and better than public sector agencies. Buenos Aires,
Caracas, Sao Paulo and Santiago are successfully using private agencies
for the collection of solid waste, for example. Some studies suggest that
public sector collection costs are 50 to 200 percent higher. Private
companies in Mexico City are treating wastewater from sewers and
supplying this water to industrial users at 75 percent of the price
charged by the public utility.
26                      ENVIRONMENT AND DEVELOPMENT IN LATIN AMERICA



  In many countries, environmental agencies have facilities for testing
samples of water, soil and air. In fact, much routine testing could be
contracted out to private laboratories that generally do the job more
cheaply. Mexico is encouraging the use of private laboratories by both
national and state agencies.
  Private agents have often proved more effective than the government
in afforestation as well. In Haiti, attempts to grow trees on government
or common land achieved little because the saplings were neglected.
Subsequently, a new approach financed by the U.S. Agency for Inter-
national Development (USAID) was tried, in which farmers were
assisted by NGOs in planting trees on their own land. The results
exceeded expectations, with many more families planting greater num-
bers of seedlings (box 8).
  Logging in public forests is often done in ways which impair subse-
quent regeneration. This is because loggers have little incentive to use
techniques that help the natural regeneration of the forest, and weak
enforcement means that unscrupulous contractors often cut more than
they are permitted. Chile has shown that plantation forests can be
grown profitably and in a sustainable manner by the private sector
through suitable regulations combined with tenurial security on forest
land and stable financial incentives. Industrial roundwood production
more than doubled between 1969 and 1989, enabling the country to
become a major exporter of industrial wood and paper. The Interna-
tional Finance Corporation (IFC), a World Bank agency that invests in
the private sector, is supporting a private company in Chile to grow
hardwood for conversion into plywood for export. The radiata pine, an
excellent raw material for paper, matures in around 25 years in Chile,
while it takes about 40 years in such countries as Sweden. Swedish
paper companies have now started investing in Chile, with support
from the IFC.
  However, although Chile has done well with private plantations of
non-native species such as pine and eucalyptus, it still has serious
problems with the management of its native forests. Insufficient
information about the uses of native species has resulted in a tendency
to clearcut these forests for woodchips and for conversion to exotic
AND THE CARIBBEAN: THE ROLE OF THE WORLD BANK                             27


species. Private market forces would lead to the rapid loss of much of
the native forest and, with it, the potential loss of important genetic
material. Recently, the government stopped a major woodchip project
in a native forest, and a proposed World Bank loan will support a
complete cadastre of existing forest resources.

                 3. Making the Right Choices

Many environmental problems in Latin America have been due to the
absence of environmental assessment (EA) of projects or policies.
Decisions were taken with little knowledge or understanding of their
environmental impact. The World Bank is now supporting efforts by
countries of the region to improve environmental assessment and the
ana ys1s o a temabve proJects an po 10es.
  There are three steps in this process. The first is the collection of data
to identify the nature and magnitude of problems and to raise public
awareness. The second step is to carry out an overall EA that will help
identify potential problems and solutions and lead to better project
design and policies. The third step is to use techniques such as benefit-
cost and cost-effectiveness analysis to make difficult choices.

Data to Establish Priorities and Raise Political Awareness

Environmental data and scientific research provide the raw material for
analysis to help identify important issues and set priorities. Informa-
tion also helps create public awareness of environmental issues and the
political will for action.
  In the past, lack of adequate data was responsible for environmen-
tally inappropriate actions. For example, had proper soil surveys been
carried out in the Amazon region, they would have informed
decisionmakers of the unsuitability o.f certain soils for settlement and
intensive agriculture (box 3). Environmental studies now taking place
in Bolivia, Brazil, Colombia, Ecuador and Paraguay are providing
information to improve land-use management. Both remote sensing
and ground surveys provide information for zoning land according to
28                       ENVIRONMENT AND DEVELOPMENT IN LATIN AMERICA



its most appropriate use. Such information can be used to plan
infrastructure investments and support land registration and titling.
   A satellite-based mapping of the reservoir area of the Itaipu darn on
the border of Paraguay and Brazil showed different rates of erosion in
Paraguay and Brazil-Paraguay, with much better vegetative cover,
had much less erosion. This information highlighted the urgency of
proper land management in Paraguay to stop erosion from increasing
to the levels Brazil was experiencing. A geographical information
system identified land suitable for agricultural development and land
that should not be disturbed.
   Valuable lessons can be learned from analysis carried out in other
countries as well. For example, environmental data from Mexico were
combined with data on U.S. dose-response relationships to estimate the
physical and economic costs of various environmental problems. The
study suggests that pollution priorities in Mexico may have been
misplaced and finds that polluted water imposes health costs three
times as high as polluted air, highlighting the need for much greater
priority for sanitation and clean water. It also showed that the health
costs oflead in the air were gradually declining relative to the costs from
ozone and especially particulate matters, which alone appear to cause
about $800 million in health damage a year.

Infonnation and Analysis for Improved Environmental Assessment

Environmental data are critical for the overall environmental assess-
ment of a project. An EA looks at the direct and indirect environmental
effects of a project and helps identify environmentally sound options,
which in turn helps avoid costly corrective measures that become
necessary in the wake of badly designed projects. Public disclosure of
an EA provides a valuable opportunity for public involvement in
project design. Ideally, this should involve those who will benefit from,
or would suffer from, a project.
  EA is a well-accepted practice in most developed countries but is only
now being introduced in the region. Many international agencies,
including the World Bank and the Inter-American Development Bank,
         AND TI-IE CARIBBEAN: TI-IE ROLE OF TI-IE WORLD BANK                   29


       now insist on EA. Multinational investors are also pressing govern-
       ments to clarify the "rules of the game" and their potential liability before
       they invest. Although some countries in the region, such as Brazil, have
       developed their own EA requirements, most still have a long way to go.
          EA can be expensive and take a year or more of the time of skilled
       technicians who are scarce in the region. The lack of legislation and
       administrative procedures can also be a barrier. These problems are
       being overcome gradually, and many World Bank loans now have
       components for strengthening EA capability and providing needed
       training and technical support. This often means requiring agencies to
       create, train, and equip in-house environmental management units.
          Not all projects need EAs; those aiming to reform financial systems or
       provide hecilth or educiition services are ohvious1y exempt. EAs are
'----- mos commoruyrequired1or inn-astructare da:ms, road: , ports);"a:~-           =---===a
       culture (which may involve land clearing or 1mgafion), aM iMustfy
       projects. (The annex to this report explains the classification of World
       Bank financed projects for EA purposes.)
          Even though the use of EA is still in its infancy in the region and at the
       World Bank, there have already been some successes. In Bolivia, EA led
       to design changes and the realignment of a gas pipeline to avoid ·
       protected areas and indigenous communities and to limit settlement
       and agricultural development in a fragile area. The Lower Guayas
       project in Ecuador, a flood prevention project, was redesigned as a
       result of the EA and discussions with local beneficiaries, to harmonize
       the interests of ecology, small farmers, and Amerindians.
          In the Pehuenche dam project in Chile, the EA showed the need to
       protect the rare Chilean Conure parrot, which is not found anywhere
       else. Part of the $1.1 million environmental program went toward
       protecting the parrot. Protection measures included a captive breeding
       program and the fencing of a nesting area near the dam construction
       site.
          An EA may not solve all problems in any case. The initial EA of the
       Carajas iron ore project in Brazil was competent but narrow (box 6).
       While accurately assessing and mitigating effects within the narrow
       corridor of the project area, it failed to consider the indirect effects on
30                              ENVIRONMENT AND DEVELOPMENT IN LATIN AMERICA




     Box 6. Carajas-Problems of Unanticipated Consequences

     The multi-billion dollar Carajas iron ore project, for which the World Bank
     approved a loan of $.30l million in 1982, developed massive iron ore reserves in the
     Carajas highlands of Brazil, some 550kilometers south of Belem. It was completed
     on time, achieved projected iron ore output, and addressed environmental issues
     successfully within the project area. However, it failed to anticipate important
     environmental side-effects in surrounding areas and has been subject to oonsider-
     able criticism.
       The Companhia Vale do Rio Doce (CVRD) - the state-owned oompany man-
     aging the project- contracted FUNAI (the Brazilian agency for Indian affairs) to
     implement the Amerindian component, most of which fell outside the project area.
     This involved demarcating lands to protect 14,000 Amerindians in an extensive
     area around the project area and improving living standards through education
     and health services. illegal squatters were also to be evicted.
       The project railroad provided improved access to the region and intensified the
     immigration that had begun in the mid-1970s. CVRD managed its own project
     area well, protecting the forests and Amerindians. But settlers established
     themselves on the periphery of the project zone, over which CVRD had no direct
     authority, causing extensive deforestation and encroachment onto Amerindian
     land. Because of institutional weaknesses, environmental zoning was not com-
     pleted in the periphery, and the demarcation of Amerindian reserves and the
     eviction of squatters is only now being oompleted. Four pig iron smelters were
     established, causing conrem that the charcoal they needed would be produced by
     felling rainforest trees. So far, however, negligible additional deforestation has
     taken place because the charcoal is being obtained from sawmill and agricultural
     crop residues. A recent decree obliges pig iron producers to become self-sufficient
     in wood supply. Strict enforcement of this decree will be crucial, as three
     additional pig iron smelters are under construction, and others may be built if pig
     iron markets improve.
       Brazil is preparing a follow-up project, with World Bank support, for preventing
     further degradation. The Carajas experience shows how countries of the region
     and the Bank are still learning-by-doing in environmental esessment. They have
     learned that in preparing a project they must take into account consequences
     outside the project zone and make sure that the institutions in the region are strong
     enough to deal with these consequences.
 AND THE CARIBBEAN: THE ROLE OF THE WORLD BANK                          31


surrounding regions, such as accelerated migration, deforestation and
unplanned urbanization.
   In Mexico, EAs were done belatedly for 30 irrigation projects already
designed and proposed for a joint World Bank-IDB loan. The EAs
revealed the need for extensive mitigating measures. In six cases, these
measures were so costly thattheprojects were abandoned. Had the EAs
been conducted earlier, improved project designs might have allowed
implementation of the abandoned projects.
   In a still-evolving project, the EA of the Yacyreta dam project, on the
border of Argentina and Paraguay, has shown the need for mitigating
measures to establish nature reserves and management systems for
local fish species and to reduce water-borne disease. An issue that has
been raised, however, is the level to which the reservoir will be filled.
  y owering e reservoir eve om 83 to 76 meters, e nu er o
additional people needing resettlement falls from 41,000 to about 7,000;
it is likely that other environmental impacts could be reduced propor-
tionately. However, energy production would be cut by one half which
makes this solution highly uneconomic.

Analyzing Alternatives

When considering the options for improved environmental manage-
ment, decisionmakers must consider the trade-offs, if any, between the
economic and environmental impacts of alternative projects and poli-
cies. The best way is to compare the benefits and costs of different
measures and choose the one with the largest net social benefit. In the
past, environmental costs and benefits were often ignored. It is essen-
tial to include both in all benefit-cost analyses from now on.
   Although the costs of preventive measures, such as wastewater
treatment or alternative project designs, are fairly easy to estimate,
placing a monetary value on the benefits from environmental improve-
ments is more difficult. It is often difficult to place monetary values on
factors such as human lives, or the value of an endangered specie. But
recent advances in valuation techniques mean that a wider array of
32                      ENVIRONMENT AND DEVELOPMENT IN LATIN AMERICA



environmental benefits can now be valued. For example, contingent
valuation methods (CVM) can be employed, which rely on direct
questioning of individuals to estimate values. These methods provide
a way of eliciting the affected people's preferences in the absence of
markets.
  In a proposed World Bank assisted project to tackle water pollution
in Sao Paulo, beneficiaries were asked what they would be willing to
pay for a variety of environmental services such as drainage, sewerage,
the creation of a new park, and general environmental protection.
Survey results revealed that people were willing to pay most for urban
sewerage, three times as much as for the next most important priority-
the creation of a park. This is a useful guide for setting priorities.
  World Bank studies have confirmed the general view that soil erosion
isamajorproblemin theregion,even when only the on-farm productivity
losses are considered. But their benefit-cost analyses have shown that
many large soil conservation projects and approaches are not worth-
while for the farmers. In countries as diverse as Haiti, Mexico and
Brazil, conventional programs to combat erosion have emphasized the
construction of terraces and other structures, often carried out as top-
down public works programs with additional employment objectives.
In country after country, farmers have failed to maintain these works,
suggesting that the programs do not yield the on-farm benefits claimed
for them. In Haiti, the Bank used benefit-cost analysis to analyze the
USAID-funded Maissade Watershed Management Project. The study
ranked different conservation techniques and confirmed that only the
simplest ones, such as contour ploughing and vegetative barriers, are
economic and that these are the only ones farmers will use. Terraces
and structures that required large labor inputs produced low returns
and were not adopted.
  Similar conclusions flow from other benefit-cost studies in Central
America and Mexico. The resulting modem approach to soil conserva-
tion relies first on increased soil cover, mainly through improved crop
vigor, increased cropping intensity, or mulching; second, on alternative
cultivation techniques such as contour ploughing, reduced tillage or
direct seeding; third, on low-cost vegetative contours; and only as a
AND   nm CARIBBEAN: nm ROLE OF nm WORLD BANK                             33



final resort does it rely on structural barriers or realignment of rural
roads. However, programs based on this approach require a thorough
understanding of local agriculture and shared knowledge between
farmers and technicians. Two projects supported by the World Bank in
Brazil are based on microcatchments, using community initiatives to
identify benefits and costs at the local level. The successful World
Neighbors' network in Central America similarly relies on strong
community involvement.

Seeking Cost-effective Interventions

In many cases it may be very difficult to place a monetary value on an
environmental benefit, such as saving livl'S or rotating biodiversit.Ya!
and in such cases a traditional benefit-cost analysis may not be the best
option. Instead, a cost-effectiveness analysis (CEA) can be used to find
the least-cost means of obtaining a chosen level of environmental
quality, whether it be hectares of rainforest preserved or improved life
expectancy. An increasing number of World Bank projects include this
type of analysis.
  Two examples of CEA are found in Colombia. The public power
utility is using an innovative approach to include environmental costs
in its effort to identify the least-cost options for generating electricity.
Since a benefit-cost analysis of alternative hydroelectric sites is not
possible, due to problems in valuing environmental impacts, the power
utility created an index, ranking each project on the basis of many
environmental indicators (e.g., forest area flooded, people resettled,
water quality, and sedimentation rates). This qualitative assessment of
environmental impacts is combined with conventional cost information
to eliminate those alternatives with high combined environmental and
conventional costs.
  Similarly, in the proposed World Bank funded Bogota Pollution
Abatement and Sanitation project, CEA led to the selection of a much
cheaper and more effective solution to water pollution than did the
original proposal (box 7). In Mexico, the proposed transport air quality
management project used CEA to estimate the cost of different mea-
34                               ENVIRONMENT AND DEVELOPMENI' IN LATIN AMERICA




     Box 7. Getting More Out of Less in Bogota

     The 6 million people of Bogota face a serious water pollution problem. They partly
     depend on the Bogota River, which flows through the city, for drinking water. But
     this river is also a disposal site for untreated sewage and industrial and toxic
     wastes. The river has become the most polluted in Colombia; it spreads disease,
     contaminates the crops that it irrigates, and damages sensitive wetlands. To
     correct this, the city first considered treating all sewage going into the river. This
     would have cost around $1.5 billion and would not have solved the problems of
     industrial and toxic waste or agricultural run-off. Nor could the city have afforded
     such a huge investment.
       The Colombian and Bogota authorities looked at the cost~fectiveness of other
     options, in consultation with the World Bank. Since their main concern was to
     protect the city's population from contaminated water, they came up with an
     alternative scheme using underground pipes to intercept wastes before they
     enteredtheriverandtocarrythesetoadumpingpoint30kilometersdownstream.
     This form of interception would divertalllcinds of waste-sewage, industrial and
     other toxic effluents-away from populated zones, greatly improving the quality
     of drinlcing water. It would also divert waste far away from irrigation canals near
     the city, thus benefiting local agriculture. There will be no reduction in the waste
     at the new dumping point 30 kilometers downstream, but this region is thinly
     populated; waterfalls help aerate and purify the water; and the Bogota River then
     enters the huge Magdalena River which has a flow 50 times larger, thus diluting
     pollutants further. Nevertheless, this constitutes an incomplete solution which
     will need improvements in the future; decisions on the level and location of
     treatment must be based on an assessment of expected benefits and costs.
       The interceptor option selected forms a major part of the Bogota River Pollution
     Abatement Project being prepared by the Bank. Other parts of the project include
     rehabilitatingtheexistingwatersupplyandsewerageinfrastructure,andstrength-
     ening the institutions in charge of water supplies. Implementing this strategy will
     eventuallycost$560million, whichisafractionoftheoriginalproposal. It will also
     permit the treatment of sewage and other wastes - before being discharged into
     the river - to take place at a later date.




sures (such as gas retrofits, emission standards for different sorts of
vehicles, and fuel taxes) to reduce air pollutants by one ton (box 4). This
helped suggest an efficient sequencing of air pollution control mea-
         AND 1HE CARIBBEAN: 1HE ROLE OF 1HE WORLD BANK                          35


        sures. Cost-effectiveness was also used to set priorities in wastewater
        treatment in Mexico.
          The region's needs for better environmental data, expanded EAs, and
        more complete analyses are enormous. Skilled analytic and scientific
        personnel are in short supply. Many World Bank loans are helping to
        meet these needs by supporting improved data collection, analysis,
        training on environmental assessment procedures, and expanded
        economic analysis for environmental issues.

                  4. Strengthening Institutional Capacity

    Environmental matters have only recently moved to the front of the
   ~- lie
==-~    _·.._ag~nda in the                                                  ~w
                              ·on ancl.a ro !IiateJnstitutlons_a.11 o.nL r..no ~......a;;----i
    being created. An informal survey of World Bank staff who have
    considerable knowledge of the capabilities of the environmental insti-
    tutions in the region showed that much remains to be done. Although
    30 percent of the 26 countries were felt to have adequate general
    environmental legislation, and another 50 percent were preparing
    legislation, only two countries were deemed to have adequate sector-
    specific regulations. A lack of specific regulations was compounded by
    generally weak, or inadequate, enforcement capacity and poorly devel-
    oped policymaking institutions, although over half the countries are
    developing such institutions. The large number of countries that are
    preparing laws, regulations and policy frameworks indicate the impor-
    tance now placed on environmental matters and the rapid pace of
   change. These changes will not come easily, however, but a number of
   countries have made promising starts, often with World Bank assis-
    tance.
      Improved environmental policies often take away the right to pollute
   or use natural resources from people who are often wealthy or politi-
   cally powerful. Political will is necessary to combat such interests and
   can be generated only if public awareness of environmental issues
   grows and forces changes in the political process. The participation of
   local communities in projects, the growing influence of NGOs, and the
   spread of democracy are all important forces for change.
36                       ENVIRONMENT AND DEVELOPMENT IN LATIN AMERICA



  Experience in the region, and elsewhere, suggests that institutions
need to be strengthened at several levels. Enacting adequate laws and
building strong national institutions is important, but it is just as
important to strengthen line agencies that implement policies as well as
regional institutions and municipalities. Decentralization of many
functions is vital also, and authority often needs to be transferred to the
local level to make use of local knowledge. The participation of local
committees and NGOs in project preparation and implementation is
also essential as they are most familiar with the grassroots realities. In
addition, private agents--farmers as well as businessmen-should be
relied on more heavily, too. Finally, special arrangements are needed
to protect the rights and way of life of Amerindians.

Strengthening Institutions

An essential first step is to enact laws and regulations that provide a
framework for environmental protection. Mexico, for example, has the
Ley General del Equilibria Ecologico y la Protecci6n al Ambiente, which
establishes the broad policy framework. Less than one-third of the
countries in the region, however, have adequate legislation, although
most are enacting appropriate laws.
   Despite establishing new environmental institutions in many coun-
tries, it is often necessary to build initially on existing institutional
structures. It is usually desirable to separate regulation, including the
setting of broad policies, from the implementation of those policies. In
Chile, for example, the National Commission for the Environment
(CONAMA) is taking the lead in developing the legal policy framework
while relying on units in the sectoral ministries, such as mining and
forestry, for the implementation of new policies.
   Strengthening national institutions has proven to be a slow and
difficult process. One of the first World Bank loans to strengthen such
institutions, made to Brazil in 1990, has been delayed by fiscal and
administrative problems in Brazil, which make it difficult to attract and
retain staff and allocate counterpart funds. These problems also exist
        AND TI-IE CARIBBEAN: TI-IE ROLE OF TI-IE WORLD :SANK             37


        in other countries.
          Strong institutions require professional environmental managers
        who must be properly trained and enjoy job security even when
        governments change. In Bolivia, for example, changes in government
        used to result in wholesale changes in government staff, breaking
        continuity and ensuring a weak management structure. Now Bolivia is
        making major efforts to create a responsive civil service, and an Envi-
        ronmental Technical Assistance project funded by the World Bank will
        support this effort.
          Adequate finance is a continuing problem. Because environmental
        agencies are new and politically weak, they tend to be underfunded or
        dependent on foreign resources. This creates uncertainty about long-
        term programs and, again, difficulty in retaining highly qualified staff.
"'-----"' ex1co s official env1ronmen a agency-              -had 1 s budge·---==:::i
        slashed m ffie second halt of the 1980s, resulbng m staff cuts and
        inadequate resources to meet its legislated responsibilities. Recent
        World Bank assistance to SEDUE, which is now being incorporated into
        a new ministry, has helped increase its core budget substantially. The
        Bank loan supports both national and state level activities, including
        EA training, regional studies, enhanced monitoring, improved labora-
        tory facilities and economic studies of environmental issues. A separate
       grant from the Global Environment Facility is supporting improved
       management for a number of protected areas.
          Discussions are at an advanced stage on similar loans to other
       countries, including Bolivia, Chile, and Ecuador. In Chile, the World
       Bank loan will support the collection of data and environmental assess-
       ment training at the national level as well as funds for environmental
       units in the mining, forestry, and industrial sectors.
          Important though such international resources are, domestic re-
       sources must be allocated to meet both capital and recurrent costs.
       Publicawarenessand the creation of political will are needed to support
       stable and increased levels of budgetary support. Popular participation
       in projects can play an important role in increasing public awareness.
38                       ENVIRONMENf AND DEVELOPMENT IN LATIN AMERICA



Decentralizing and Improving Popular Participation

Although there are certain tasks best handled at the national level-
setting broad policy guidelines, for example, or determining norms and
standards-it is usually more efficient to decentralize both decision-
making, and monitoring and enforcement as much as possible. Decen-
tralization will not happen without planning since it goes against the
strong tendency to centralize responsibilities and resources at the
national level. Decentralization and popular participation are closely
linked. The advantage of decentralization is that it can tap local
knowledge and energies. In reforesting Haiti, rapid advances were
made only after tree selection and planting were done by farmers (box
8). In designing local irrigation in Mexico and farm credit in Chile,
beneficiary participation yielded important improvements. The World
Bank is supporting local participation in flood control and agricultural
development in Ecuador, rural investment in Colombia, and poverty
assistance in Chilean municipalities.
   Popular participation serves several functions. It widens the debate
over national priorities, serves as a useful check on inappropriate
projects, and helps improve project design and implementation. Expe-
rience with tree-plantinginHaiti and with land management in Rondonia
show both the benefits of popular participation and the costs of ignor-
ing it.
   In fact, a good example of decentralization and popular participation
is the new Rondonia Natural Resource Management project in Brazil.
A state council, presided over by the governor, is responsible for the
overall guidance of the project as well as the approval of annual
budgets. The council includes the state planning secretariat, the
implementing state and federal agencies, various local associations,
and representatives of NGOs. The NGOs have formed an organization
that has participated in project preparation and resolved a number of
difficult issues, including the choice ofland to be reserved for extractive
activities by rubber tappers. Conflicting groups have an incentive to
sort out their disputes so that projects go ahead and to make innovative
suggestions on how to get the most out of local resources. The annual
AND 1HE CARIBBEAN: THE ROLE OF THE WORLD BANK                                            39




   Box 8. Greening Haiti

   Haiti was once a green and heavily forested country. Today it is denuded, an
   environmental disaster. Forests have been cleared for cultivation and for making
   charcoal. Regulations to curb deforestation are non-existent or unenforced.
     Many past attempts to rectify the damage have failed because they depended on
   a weak administration and did not have the appropriate incentives. Attempts to
   grow trees on government and common land failed because nobody had an
   incentive to protect the trees and everybody had an incentive to cut them. Starting
   in 1981, a new approach was tried, supported by the U.S. Agency for International
   Development. The main strategies of this approach are:
     Use prir,ate agencies and NGOs. Tree planting on private farmland using NGOs as
   extension agents was encouraged. Local people were allowed to choose local fast-
   growing 11pe<iffi and WRl'fl dirl'<ily involved in tht> projt>ct. By 19119, about 50
   milhona'ee seealirlgsliaaoeen itriliuTeatomore than'"200;000ramwes, anc11r----.i.= = = •

   targets.
     In parallel, a project supported by the World Bank and other international
   agencies supported a new forestry service and the protection and management of
   the largest remaining forest reserve in Haiti. A recently approved second project
   extends these approaches and also usesNGOs for soil conservation and extension.
     Reduce the demand for wood. It is not enough to grow more trees; excessive demand
   for wood needs to be curbed. Charcoal is underpriced since there are hardly any
   enforceable curbs on felling, and it is overused because charcoal-burning stoves
   are thermally inefficient. The new project, which is being financed by the World
   Bank, aims to popularize efficient charcoal stoves, to be manufactured and sold by
   private agencies and NGOs; these should cut consumption by 10 percent. In
   addition, research is being done to identify the best way of curbing free access to
   trees.




IndependentEvaluationCommitteeincludesmembersfromtheNGOs,
and it will analyze the progress of the project. The very act of partici-
pation has now strengthened local NGOs, which have a much better
feel for local issues than do international NGOs. This suggests that
democracy and the empowerment of people are good for the envi-
ronment.
40                          ENVIRONMENT AND DEVELOPMENI' IN LATIN AMERICA



  However, efficient decentralization is not easy. Where national
institutions are weak and lack people with skills, local institutions may
be even weaker and need considerable upgrading. Besides, environ-
mental regulations, which are designed to curb pollution or access to
resources by people who may be powerful locally, may induce such
powerful interests to evade laws or to exert more control over local
institutions. Popular participation can diminish such problems. In any
case, NGOs, farmers and other beneficiary groups need training and
skill upgrading, and provisions for this are beginning to be made in
areas such as Rondonia.
  These lessons have led to changes in the way the World Bank
develops and implements projects. Three examples-forestry projects,
the resettlement of displaced people and Amerindian issues-illustrate
the challenges and complexities of melding environmental, social, and
economic concerns.

New Policies for Forestry

Many forestry projects have fared poorly in the past. A review of World
Bank experience suggests that this was due mainly to inadequate
policies that created perverse incentives and to weak institutional
capacity. The on-going Mexico Forestry Development project high-
lights the need for institutional strengthening and coordination. It aims
to improve the management of the temperate oak and pine forests in the
Sierra Madre, which have been degraded by improper logging over the
past 100 years, and has components to improve forest management and
promote social development of the indigenous people. Although ap-
proved more than two years ago, disbursements are virtually at a
standstill, awaiting completion of the comprehensive environmental
information that is a prerequisite for disbursement.
  The World Bank's recently published Forest Sector Policy Paper sug-
gests that future strategy should not focus just on specific reforestation,
forest management, and utilization projects but should help countries
adopt appropriate policies and build a strong institutional framework
for policy analysis, project design, and implementation. The Bank will
 AND   nm CARIBBEAN: nm ROLE OF nm WORLD BANK                          41



promote the participation of local people and the private sector in long-
term forest management and will rely on environmentally-sound for-
estry conservation and development plans. It will call for social,
economic and environmental assessments of the forests being consid-
ered for commercial utilization and will support the major conservation
schemes to protect biodiversity and the livelihood of forest dwellers.
Finally, under no circumstances will the World Bank Group finance
logging in primary rainforests.
  The World Bank is currently supporting studies and project prepara-
tion in Argentina, Colombia and Costa Rica, to prepare broad-based
forestry projects with strong institutions and good policy frameworks.

Minimizing Human Dislocation

The process of development sometimes displaces people. The numbers
may range from a handful, in the case of highway expansion, to
thousands, in the case of dam construction. Governments and lending
institutions must ensure that the economic and social condition of
displaced persons is as good as or better than before they were moved.
World Bank policy requires that resettlement details be worked out
before any investments are made.
   Large dams in the region have received worldwide attention because
of their environmental and social impacts. These include the flooding
of rainforests (in the Amazon), the loss of habitat for endangered
species (in Brazil and Chile), and the flooding of white-water rapids (in
Chile). How these issues affect project design and implementation in
the specific case of the Yacyreta project is discussed in box 9. From the
early 1970s onwards, up to 300,000 people affected by World Bank
financed projects in Latin America have had to be moved. The largest
resettlement efforts have been in Brazil.
  Resettlement and other environmental problems can be handled
properly. In Mexico, for example, the resettlement of people displaced
by the Aguamilpa and Zimapan dams, about 1,000 and 2,500 people
respectively, is going well. Resettled families are receiving a minimum
of two hectares of irrigated land for each hectare lost as well as
42                               ENVIRONMENT AND DEVELOPMENT IN LATIN AMERICA



replacement housing and infrastructure, which they did not have
before, including electricity, potable water, schools, clinics, and com-



     Box 9. Hard Choices in Yacyreta

     The Yacyreta Project is already at an advanced stage of construction, with works
     about 80 percent completed. Nine thousand people have already been resettled,
     and fish passage facilities and navigation locks have begun operating. Because of
     relatively flat terrain, theYacyreta Project has a low ratio ofh ydropower generated
     per land area flooded. The reservoir created by the dam causes the partial flooding
     of two large towns in an otherwise sparsely populated region.
       Today, the only option to reduce flooding would be to lower the operating level
     of the reservoir. The original design calls for operation at 8.3 meters (above mean
     sea level). Lowering the operating level by seven meters would reduce the number
     of additional people that could be resettled from 41,000 to 7,000, cut the flooding
     area in half, and sharply reduce potential water quality problems.
       However, this would also cut the energy production by one-half. A benefit-cost
     analysis showed that operating at full capacity is justified economically because
     the extra power can easily pay for all of the extra costs (over $500 million) of
     infrastructure, relocation, resettlement, land acquisition, and environmental pro-
     tection and mitigating measures. This option is also much more cost-effective than
     any alternative source of electricity, such as the Atucha II nuclear power plant,
     which is to be completed after Yacyreta's commissioning.
       Current plans,.therefore, call for a phased program in which the reservoir will
     operate at 76 meters initially, and the level will be gradually increased to 83 meters
     as revenues from the sale of electricity to Argentina permit the execution of the
     resettlement program.
       This scheduling also allows for careful planning and implementation of the
     project's resettlement program, which at its completion will have involved the
     relocation of 50,000 people to new neighborhoods or to farmlands nearby. It also
     facilitates the implementation of an array of environmental mitigating measures,
     the most important of which are the setting aside of compensatory protected areas
     of about 800 square kilometers; providing potable water and sewerage systems for
     the two affected cities; cleaning up urban refuse dumps before flooding; monitor-
     ing and treating water-related diseases; building a barrage on the Arroyo Aguapey
     to avoid the flooding of about 400 square kilometers; saving cultural property; and
     protecting fish. The timing and amounts of water releases from the dam will take
     public health and other important environmental objectives into account.
 AND 1HE CARIBBEAN: 1HE ROLE OF 1HE WORLD BANK                           43



munitymeeting halls. In other places, resettlement has not gone as well.
In Brazil the Itaparica Resettlement and Irrigation project is the World
Bank's first stand-alone resettlement project, aiming to resettle 5,300
rural families and 2,800 urban families. Although urban resettlement
appears to be progressing as planned, construction of the irrigation
system for the displaced rural people is behind schedule because of
serious institutional weaknesses and shortfalls in budget allocations.
The irrigation system has a long gestation period, is costly, and may not
have been the best rehabilitation option. In this case, final rehabilitation
costs may reach $80,000 per family.

Amerindians

Amerindian populations are found in almost all countries in Central
and South America, and are threatened by the movement of settlers into
their habitat. They are losing the hundreds of hectares per head they
need for their livelihood as mixed hunter-gatherers and horticulturalists.
Furthermore, they have little immunity to the diseases introduced by
the settlers. The problem is particularly acute in the greater Amazon
where roads, mines, and agriculture have opened areas that were
traditionally inaccessible. The unique problems of Amerindian popu-
lations are the focus of a World Bank policy document. The policy
requires all Bank projects that affect Amerindians to include an indig-
enous development plan to address specific Amerindian issues, includ-
ing the protection of land rights. The countries of the region now
recognize the need to create large indigenous areas and, with Bank
support, are beginning to codify the legal rights of Amerindians to
prevent others from usurping their traditional lands. Special social
services are being introduced to counteract health or social problems
arising from contact with settlers.
  Brazil has a large and scattered Amerindian population and has
increased its attention to Amerindian issues. It has altered its contro-
versial POLONOROESTE program to regularize and demarcate 9.9
million hectares of Amerindian reserves and has done the same with
another 3.2 million hectares in the Carajas region. Large areas have also
44                      ENVIRONMENI' AND DEVELOPMENI' IN LATIN AMERICA



been demarcated in Bolivia, Colombia, Ecuador, Paraguay, and Peru. A
recent World Bank review of these projects had three major findings.
First, much progress has been made in securing Amerindian land
rights. Second, the primary obstacles to successful land regularization
have been an inadequate legal framework and institutional weaknesses,
includingpoorpreparationof Amerindian components in Bank projects.
Third, land regularization must be linked through research, technical
assistance and training programs to the promotion of sustainable
development activities that build on indigenous knowledge and
practices.
  The three issues-forestry, resettlement and Amerindian issues-are
particularly complicated and difficult. It is no accident that World Bank
staff spend more than the usual amount of time and resources to design
and supervise these projects. Although progress has been made, the
remaining challenge is large. Continued attention to developing,
understanding and institutionally strengthening both the countries
and the Bank is, therefore, essential.

      5. Global Issues and International Assistance

Most environmental problems arise within individual countries and
have to be solved there. But some problems, such as acid rain and the
pollution and sedimentation of international rivers, spill across bor-
ders. Other problems are global in their dimensions, affecting all
countries. As discussed more fully in the WDR 1992, the four major
global issues that have received the most international attention are:
loss of biodiversity, global warming, pollution of international waters,
and the emission of chlorofluorocarbons (CFCs).
  Biodiversity is being lost through the extinction of species as their
natural habitat shrinks as a consequence of logging, mining and the
advancement of agriculture. The interest in biodiversity in Latin
America is especially great because of the large areas of rainforest that
remain but are under pressure.
  The global climate may be changed in catastrophic ways by the
accumulation in the atmosphere of gases that act as a heat trap. This so-
AND 1HE CARIBBEAN: 1HE ROLE OF 1HE WORLD BANK                          45


called greenhouse effect could lead to global climatic warming and an
increase in the sea level, which could inundate large coastal areas. The
main greenhouse gas is carbon dioxide, generated by burning carbon-
rich fuels and clearing forests that otherwise lock up carbon in the form
of wood. The OECD countries, because of the size of their economies
have, of course, higher emissions of greenhouse gases than countries of
the developing world.
  International waters, marine life and coral reefs become polluted by
oil spills, the dumping of wastes, and other undesirable activities.
  The emission of CFCs is eroding the ozone layer in the upper
atmosphere which blocks harmful ultra-violet rays from the sun. The
continued erosion of the layer will mean increased ultra-violet radia-
tion and hence an increase in skin cancer.

Prionties and Funding

While global issues are near the top of the agenda for some international
NGOs, other issues such as access to clean water and air are often
considered more important by national governments. Given the bud-
get constraints of most governments of the Latin America and Carib-
bean region, there are simply no resources for conservation projects that
have more global than local significance. It is more appropriate for
national issues to be financed by local resources and for global issues to
be financed mainly, but not exclusively, through international support.
However, in many cases, projects that tackle local environmental
problems also have a significant effect on global issues. By improving
their energy efficiency, for example, countries of the region will reduce
emissions of greenhouse gas, thereby improving both the local economy
and the global environment.
  The Global Environment Facility (GEF) is a three-year experiment
that provides grants for projects dealing with the four key global issues
identified above. Set up in 1991, the GEF receives funds from three
sources. First is a core fund of $800 million pledged by 24 countries
(nine of them in the developing world). Second are several concessional
cofinancing arrangements totaling $300 million. Third, around $200
46                      ENVIRONMENf AND DEVELOPMENf IN LATIN AMERICA



million is also available from the Interim Trust Fund of the Montreal
Protocol on phasing out CFCs. The United Nations Development
Programme provides technical assistance for the GEF and implements
some of its projects; the United Nations Environment Programme
provides the secretariat and other expertise; and the World Bank is
responsible for overall administration and project implementation.
(Annex table 3 lists GEF projects being implemented in the region with
World Bank staff support.)
   Anothernew experiment is the Pilot Program to Conserve the Brazilian
Rainforest, set up with financing from the seven richest industrialized
countries (G-7). This fund will have about $250 million to finance
conservation projects and special studies in the Amazon basin, includ-
ing demarcation of indigenous reserves and demonstration projects of
grassroots organizations to provide sustainable development. For
example, most countries of the region are increasing the number of
natural protected areas, national parks, and indigenous areas, using
both national and international financial resources. Brazil, the country
with the greatest level of biodiversity in the world, established 123
conservation areas in 1989 but lacked sufficient legal protection against
encroachment or the funds to police the protected areas. The GEF is
now proposing to fund 50 of these high-priority areas and aims to
convert them into model conservation units.
   Another new approach is to exchange foreign debt for improved local
resource management. The first debt-for-nature swap took place in
1987, when $650,000 of Bolivian debt was written-off and diverted to
finance the management and protection of the Beni Biological Reserve
and Chimanes Forest Reserve. Bolivia is a country of unusually high
biodiversity, with 18,000 plant species and over 1,200 bird species.
Forests and grasslands in neighboring countries have been greatly
reduced, thus increasing the importance of biodiversity in Bolivia.
   Permitting unsustainable farming in fragile soils in humid rainforests
is poor economic policy. Conserving such areas automatically con-
serves biodiversity, too, and reduces the greenhouse effect by keeping
carbon locked up in forests. It also helps protect the culture and way of
life of Amerindians in the forest, and stems soil erosion and river
AND nm CARIBBEAN:   nm ROLE OF nm WORID BANK                             47


sedimentation. Zoning regulations and economic incentives that keep
settlers off ecologically sensitive areas help the local economy, the local
environment and the global environment simultaneously. Because
settlers will lose in the short-run, even though they will be better off in
the long-run, incentives or other short-term measures are needed to
implement these policies.
   The blue, sparkling waters of the Caribbean have made tourism the
economic mainstay of many islands. But the solid waste generated by
local populations and by tourists threatens the very beaches and waters
thattourism thrives on. Box lOoutlinesa projectthat theGEFishelping
to finance that will help stem this pollution. It will also help to develop
tourism.
   National parks that contain endangered species have considerable
potenti or' ecotounsm, w 1              s ong     n n ect . cotounsm
helps provide incomeopportunitiesfor local people, gives them a stake
in ensuring the survival of fragile areas, and raises revenue, thus
providing badly-needed finance for conservation. However, poorly
managed ecotourism can endanger natural wonders as well. An
example concerns the world famous Galapagos National Park in Ecua-
dor. In terms of species diversity, the inner seas of the Galapagos
islands constitute the world's second biggest marine reserve. Tourism
has encouraged an influx of immigrants into the Galapagos Islands, and
the local population is growing at an unsustainable 8.5 percent annu-
ally. The consequent pollution threatens the ecosystem. The greater the
number of people entering the park, the higher is the danger they will
accidentally bring in organisms that damage the fragile ecosystem.
Institutions for conserving the area are weak. Tourist fees are well
below what the market will bear, and only 20 percent of such revenue
is retained for the operation and maintenance of the park.
   TheGEFis now funding a project to help the Galapagos National Park
plus six others in Ecuador that are regarded by experts as "parks in
peril." The project will help strengthen institutions, delimit sensitive
areas, train conservationists and tour operators, and design a new
system for collecting fees and controlling the influx of tourists and
immigrants. The new system will be designed to maximize revenue
48                              ENVIRONMENT AND DEVELOPMENT IN LATIN AMERICA




     Box 10. Regional Cooperation for Cleaner Caribbean Waters

     Tourism is the lifeblood of the small islands constituting the Organi7.ation of
     Eastern Caribbean States (OECS). Cruise ships carry vacationers from island to
     island in the course of their week-long cruises. The island stops are brief, allowing
     for the loading of supplies and the removal of garbage, and giving passengers a
     day in porl Although the passengers leave behind some money, they also leave
     behind large quantities of waste, which, along with locally generated waste, now
     threatens both the land and sea environment.
       The inadequate public infrastructure of the small island nations is not equipped
     to handle domestic and ship-borne wastes properly. The appropriate policy
     response would be to raise port fees for ships, thus raising enough money to
     handle wastes. But each country is afraid that if it increases its fees unilaterally,
     cruise ships will switch to other islands with lower fees. Qearly, joint action is
     needed, without which the problem will get worse and the beaches and clear
     waters will suffer.
       The OECS nations, working with the World Bank, have developed a Regional
     Environmental Project to tackle both ship-borne and local wastes. The total project
     could cost as much as S60million, of which about one-third will be sought from the
     Global Environment Facility under its protection-of-international-waters compo-
     nent. A similar project is being developed for the wider Caribbean, which focuses
     on wastes from ships. Since the costs of cleaning up are being assisted by the world
     community, these island nations do not have to fear losing their competitive
     advantage to other ports. The islands, oceans and tourists will all emerge as
     winners.




from a safe tourist volume that will not threaten the environment and
will ensure that enough of these fees are retained for conservation and
maintenance.
  Other ways also need to be found of using wildlife resources to
generate income and revenue. A World Bank assisted project for
national parks in Mexico will help build nesting shelters for endangered
turtles and examine whether commercial turtle breeding is feasible.
  While most of the GEF funding is used to protect biodiversity, the
AND nm CARIBBEAN:    nm ROLE OF nm WORLD BANK                            49


GEF is also funding the development of technologies that will curb the
demand for fossil fuels. One project in Brazil will establish facilities for
biomass gasification and power production from sugarcane waste and
woodchips. The use of sugarcane waste to generate electricity is
already well established in Hawaii. This could reduce the use of fossil
fuels in other cane-growing countries of the region. Another GEF
project under preparation in Mexico proposes the mass replacement of
standard incandescent bulbs with power-saving fluorescent ones. In
Jamaica, GEF support is also proposed for an energy-efficiency demon-
stration project.

More Data and Studies Are Needed

Current knowledge of the extent of and dangers to biodiversity is
limited and needs enhancement. The same is true of our knowledge of
global warming and depletion of the ozone layer. Several conservation
projects, including those funded by the GEF and proposed by the G-7,
have components for the collection of baseline data to monitor how the
environmental situation is evolving and for research to help establish
the most effective forms of intervention.
  Improved knowledge is vital for getting priorities right and diverting
scarce funds from low-priority to high-priority projects. Improved data
and analysis have enabled Bolivia to switch resources from areas of
lesser biodiversity to the most biodiverse and fragile ones. Studies have
revealed that the Alto Madidi and El Chaco regions of Bolivia have
extraordinary biodiversity, and these will now be designated protected
areas. In Ecuador, too, a close look has led to the inclusion of several
important but neglected areas in the GEF conservation project. For
example, few administrators or tour operators knew about the tre-
mendous diversity of fish species in the Yasumi region in Ecuador, or
that the Cotachi-Cayapas reserve, also in Ecuador, has 40-60 percent of
plant species endemic, making it one of the most important areas for
biodiversity in the world. The GEF is funding studies in the six national
parks of Ecuador to find the best ways to harmonize conservation with
50                        ENVIRONMENT AND DEVELOPMENT IN LATIN AMERICA



the interests of small farmers and Amerindians, and with tourism.
Similar studies are being funded by the GEF along the Patagonian coast
in Argentina. This area has a unique ecosystem boasting the world's
largest population of Patagonian sea lions, the only growing popula-
tion of southern elephant seals, the largest population of endangered
right whales, and Magellanic penguins. This ecosystem is in danger
because it borders on one of the finest and fastest-growing fishing zones
in the world. In consequence, the population in coastal towns is
doubling every few years; Puerto Madryn, for instance, has grown from
9,000 to 46,000 inhabitants in 20 years. These towns are polluting the
seas with untreated sewage, and coastal oil wells are aggravating the
damage. Meanwhile, tourists flock to see the spectacular breeding
grounds of elephant seals and sea lions and to catch a glimpse of
endangered right whales and killer whales. The new GEF studies will
help design policies and institutions that enable fishing, mineral extrac-
tion, and ecotourism to take place in harmony with environmental
conservation. Without urgent action on this front, ecological damage
could be enormous.
  The longest barrier reef in the western hemisphere lies along the
eastern coast of Belize and Mexico. In Belize it forms a complex of
coastal lagoons, extensive seagrass beds, over 400 sand and mangrove
cays, and three coral atolls. The reef is essential for the survival of a host
of local fish and plant species, endangered animals such as manatees
and marine turtles, and several bird and crocodile species. It is one of
the most biodiverse marine systems in the world and attracts many
immigrants and tourists, who now endanger the ecosystem. Mangrove
forests are disappearing, reefs are suffering damage by divers, fragile
cays are suffering from thedumpingof wastes, and fishing has exceeded
sustainable limits. The GEF is funding a project to increase understand-
ing of the ecosystems of the Belize reef and suggest the best ways to
protect it; investigate the pharmaceutical potential of its many species;
help zone the reef so that economic development can take place without
killing the ecosystem; and promote participation by local communities
in future development to forge a consensus on sustainable activities.




                                              '
AND 1HE CARIBBEAN: 1HE ROLE OF 1HE WORID BANK                             51


Problems and Prospects for Global Cooperation

Troublesome issues can come up when the volume of foreign assistance
for environmental projects is much larger than local funding. When the
execution of such projects is entrusted to foreign NGOs who command
more resources than the country's own officials, questions arise about
priorities, sovereignty and accountability. Some developing countries
resent being told what to do to solve problems such as global warming
that have been caused largely by the huge energy consumption of
OECD countries. They prefer to use their scarce public funds to address
pressing domestic environmental issues.
   There are no easy answers to such questions, although there are some
general princi lcs regarding global aid. First, financing for solving
                                                                    __.,....;;....-==-'
 oca pro6 ems must general y come rom nattona sources. So vmg
local problems, such as increasing energy efficiency, will also contrih=
ute to solving global problems, such as the greenhouse effect. But in
some cases-biodiversity being a case in point-a large part of the
benefits of developing country actions will go to the developed coun-
tries, which therefore should be expected to contribute financially to
their solution. Such financing for global issues needs to be viewed as a
transfer from developed countries for the export of global services
provided by the developing countries. This implies that such financing
should come as grants or highly concessional loans, as in the case of the
GEF. It should not be confused with economic aid and should thus
constitute extra money separate from the budgetary accounts of donor
countries.
   Second, the financing needs in terms of global environmental concerns
are enormous. Donors have tended to finance projects here and there
rather than commit themselves to long-term programs, nor have they
paid attention to the maintenance needs of conservation projects. Since
the cost of conservation is perennial, financial support must be perennial,
too. This calls for a new strategy on the part of donors. They must work
out and implement long-term plans, which would provide financing on
a continuing basis for programs that include maintenance, and they
52                       ENVIRONMENT AND DEVELOPMENT IN LATIN AMERICA



must also improve aid coordination among themselves to reduce
duplication and waste. This would make better use of funds, which
may never be enough to cope fully with the immensity of the challenge
in any case.
  Finally, the developed countries must do more to reduce threats to the
global environment that result from their own prodigious use of
energy. They need to encourage the invention and use of new technolo-
gies that conserve energy and look for viable ways to replace fossil fuels
with renewable energy, such as solar energy. They need to develop
cheaper and more efficient forms of pollution control. The development
of economic substitutes for the CFCs used in aerosol cans (banned in
1977) shows that a cleaner world need not cost more money, but
certainly needs more well-directed effort.
AND nm CARIBBEAN: nm ROLE OF 1HE WORID BANK                              53



                          Annex.
                World Bank Funded Projects
              with Environmental Components,
                  and GEF Funded Projects

The World Bank finances a wide range of development projects, often
with significant environmental components. The three tables in this
Annex show World Bank projects in the region that are either totally
devoted to environmental issues or have environmental components
within them. Also included are GEF-funded projects and programs
being carried out under the Montreal Protocol.
   A 1989 World Bank policy document on environmental assessment
delineates four categories of projects for the urposes of environmental
assessmenf(EAl. ot pro,ects              an         yaremostcommo y
required for major infrastructure projects such as dams, roads, or ports.
Such projects are generally classified as A projects and require a full EA.
Category B projects, which include projects with significant on-lending
components or small-scale agricultural development projects, have
some environmental impact, and although a full EA is not required,
some environmental analysis is. Category C projects include many
education, health, or research sector projects and require neither an EA
nor environmental analysis. A fourth category (D) was initially estab-
lished for environmental projects. In the 1991 revision of the Bank's EA
policy,thiscategorywasabolishedandenvironmentalprojectsarenow
classified according to one of the three other categories.
54                             ENVIRONMENI' AND DEVELOPMENf IN LATIN AMERICA



Annex table 1. World Bank Financed Projects with Environmental


                                                                    Ent1ironmmtill
                                                                     11Ssessmmt
Country      Project 7111,ne                                          Clllegory

Argentina    Agricultural Services and lnsititutional Development         C
             Project
Argentina    Hydrocarbon Sector F.ngineering Loan                         B
Argentina    Water Supply and Sewerage Sector Project                     B
Bolivia      F.astern Lowlands: Natural Resource Management               D
             and Agricultural Production Project
Bolivia      Major Gties Water and Sewerage Rehabilitation                B
             Project
Brazil       Electricity Transmission and Conservation Project            B
Brazil       ltaparica Resettlement and Irrigation Project,               D
             Supplemental Loan

Brazil       National F.nvironment Project                                D
Brazil       National Irrigation Program: Northeast Irrigation I          C
             Project
Brazil       Rondonia Natural Resource Management Project                 D

Brazil       Sao Paulo Metropolitan Transport Decentralization            B
             Project

Brazil       Water Sector Modernization Project                           B
Chile        Second Valparaiso Water and Sewerage Project                 B

Chile        Transport Infrastructure Project                             B
Colombia     Industrial Restructuring and Development Project             B
Colombia     Rural Development Investment Program                         B


Colombia     Third National Roads Project                                 B
Costa Rica   Agricultural Sector Investment and Institutional             B
             Development Project
F.cuador     Lower Guyuas Flood Control Project                           A
F.cuador     Rural Development Project                                    B
Haiti        Forestry and F.nvironmental Protection Project               D
AND Tiffi CARIBBEAN: Tiffi ROLE OF Tiffi WORID BANK                               55



Components Approved during 1990-92 •

  Total         Value of
  project     moircmmD1tal
   costs       component     EnoircmmD1tal aspects cooertd under project
($ million)    ($ million)   (mlw of World Blink lo,in, $ million)

    82.7           9.5        Fisheries J'ellOurce evaluation; fisheries
                              institutional development (3.3.0)
    40.1          0.8         Environmental studies a8.0)
   1413          16.8         Institutional development; studies (70.6)
    54.6          8.0         Natural resouce planning ~d management;
                              research; support to indigenous people (35.0)
    57.0           13         National component for institutional
                              development (35.0)
 3,851':9         4.2        "Energy conserva on
   &BJ          819.7
                             with construction of Itaparica dam, but include
                             infrastructure and agricultural development (100.0)
   166.4        1463         Institutional development; ecosystem protection (117.0)
   465.0           1.4       Environmental protection measures a10.0)

   228.9         57.3        2.orting; extractive reserves; Amerindians;
                             institutional strengthening (167.0)
   281.0                     No sped.fie environmental component, but project
                             report estimates environmental impact of project in
                             terms of environmental oosts avoided (125.6)
   .500.0         8.0        Institutional strengthening aso.O)
   141.5         44.8        Infrastructure for pollution control; institutional
                             improvements (50.0)
   134.8          1.1        Monitoring and control; standards (71.0)
   .500.0         2.0        Environmental pollution oontrol aoo.O)
   100.0         13.2        Watershed management and envirorunental protection;
                             training and community organization; institutional
                             stregthening (30.0)
   414.0          6.0        Road safety a66.0>
    70.0         27.2        Institutional development; land titling (41.0)

    97.5          3.6        Institutional strengthening; studies (59.0)
   112.7          0.9        Institutional development (84.0)
    29.0         29.0        Total project costs (26.1)
56                            ENVIRONMENT AND DEVELOPMENT IN LATIN AMERICA



Annex table 1 (con't)


                                                                     EnTJironmmfQI
                                                                      11Ssessmmt
Country                 Project ,uim,:                                  auegory

Honduras                Energy Sector Adjustment Program                   B
Jamaica                 Agricultural Sector Adjustment Loan                C
Mexico                  Agricultural Technology Project                    C
Mexico                  Decentralization and Regional Development          B
                        Project for the Disadvantaged States

Mexico                  Environmental Project                              C


Mexico                  Irrigation and Drainage Sector Project             B

Mexico                  Mining Sector Restructuring Project                B
Mexico                  Tran!lmission and Distribution Project             C
Mexico                  Water Supply and Sanitation Sector Project         D
Paraguay                Land Use Rationali7.ation Project                  C
Saint Kitts and Nevis   Agricultural Development Support Project
Saintlucia              Water Supply Project
Trinidad and Tobago     Business Expansion and Industrial                  B
                        Restructuring Project
Venezuela               Agricultural Sector Investment Project             B

                        'IOTAL

a. The Inter-American Development Bank participates in some of these loans by
providing co-finance or funding pilot projects.
.. = Not available.
AND nm CARIBBEAN: nm ROLE OF nm WORID BANK                                        57




   TotJll       Valwof
  project     mvmmmentJu
   costs       component     E,rviromnmtJll upects arotrtd uruler project
($ million)    ($ million)   (Nlue of World &l,rk I01111, $ million)

   310.6          0.1        Environmental protection regulations (50.6)
    55.0          0.1        Pesticide use study (25.0)
   300.0         11.7        Institutional development (150.0)
 1,362.7         61.1        Environment and cultural patrimony;
                             Action Plan for Selva Lacandona;
                             institutional development (350.0)
   126.6        126.6        Protected areas program; Air and water pollution
                             cmtro]; institutional deYelopment; regulatory
                             framework (50.0)
 1,245.0         49.0        Measures tor mlBgaHon ol pollution; lnstltum
                             development; studies (400.0)
   436.5          0.4        Training (200)
 7,127.4          3.0        Studies (450.0)
   650.9         29.0        Studies; pilot pollution control (300.0)
    41.1         41.1        Total project ccsts (29.0)
     43           0.9        Land cadastre; institutional development (1.5)
    40.5          2.0        Environmental programs; land purchase (7.7)
    49.5          0.7        Institutional development;
                             pollution standards (27.0)
   900.0         88.2        Land cadastre; institutional strengthening (300.0)

20,768.2       1,445.0
58                          ENVIRONMENT AND DEVELOPMENI' IN LATIN AMERICA



Annex table 2. Projects with Environmental Components in Preparation



Country      Project ume                                      Milin focus

Bolivia      Environmental Technical Assistance               Technical assistance
Bolivia      Power/Gas Pipeline                               Investment project
Brazil       Environmental Conservation and Rehabilitation    Investment project
Brazil       Mato Grosso Natural Resource Management          Natural resource mangement

Brazil       National Industrial Pollution Control            Pollution control investments
Brazil       Water Qllality and Pollution Control
             (Parana and Siio Paulo)                          Pollution control
Brazil       Water Quality and Pollution Control
             (Minas Gerais)                                   Pollution control
Chile        Environmental Institutions Development           Institutional development
Chile        Irrigation Development                           Rehabilitation &c development
Chile        Small Farmer Services                            Technology development
Colombia     Bogota Pollution Abatement and Sanitation        Pollution control
Colombia     Forestry and Environmental Protection            Investments
Ecuador      Environmental Technical Assistance               Technical assistance
Honduras     Agricultural Sector Loan                         Sector reform
Mexico       Mexico Oty Transport Air Quality Management      Pollution reform
Venezuela    Low-inoome Barrios Improvement                   Infrastructure

a. The Inter-American Development Bank participates in some of these loans by
providing co-finance or funding pilot projects
tbd: To be decided
 AND   nm CARIBBEAN: nm ROLE OF nm WORID BANK                              59



 Proposed for World Bank Funding•

Enriironmmt41l
 i,ssessmmt
  Clltegory      Environmental aspects covered under project

       C         Institutional development.
       A         Institutional development; studies; infrastructure
       B         Pollution control; reforestation; studies
       B         Forestry conservation; zoning and land tenure;
                 institutional development
       D         Pollution control equipment; technical assistance

       A         Institutional development; studies; infrastructure

                 fiistttutioriaFdevelopment;-studies;infrastructare- - = = = = = = = - -
                 k.slitalfo11al de. ciopa.c:.t
      A          Institutional development; water rights
      B          Land titling; institutional development
      A          Infrastructure; institutional development
     tbd         Watershed protection; biodiversity; reforestation
      C          Institutional development
      B          Land tenure.
       C         Institutional development; studies; technical assistance
       B         Institutional development; studies.
60                              ENVIRONMENf AND DEVELOPMENI' IN LATIN AMERICA



Annex table 3. Global Environment Facility- and Montreal Protocol Projects

Global Environment Facility Projects Implemented by the World Bank


                                                                              Type of
Country              Project ,um,e                                            project b

Projects iipproved
Brazil               National Conservation Units                                BIO
Mexico               Biodiversity Conservation                                  BIO
Mexico               Ozone Pilot Recycling Project                              GW
Peru                 Trust Fund for Conservation Units                          BIO

Projects under prqNITlltion
Bolivia              Biodiversity Conservation Project                          BIO
F.cuador             ENDFSA/BOTROSA Afforestation Project                       GW
funded]
F.cuador             Biodiversity Protection                                    BIO
Mexico               High Efficiency Lighting Pilot Project                     GW
Mexico               Ozone Protection Policy                                    GW

Projects in the pipeline
Brazil               Bioma'IS Gasification and Gas Turbine Power Generation     GW
Jamaica              Demand-Si.de Management                                    GW
Paraguay             Biodiversity Protection                                    BIO
Caribbean Basin      OECS                                                       1W
Caribbean Basin      Wider Caribbean Ports Waste Disposal                       1W

Montreal Protocol Projects

Country of operiition            Project siu ($ million)

Brazil                                    15
Chile                                      1
F.cuador                                   4
Mexico                                     4
Venezuela                                 10

a. The UN Development Program is also implementing a number of GEF
projects, which are not included here.
  AND TI-IE CARIBBEAN: TI-IE ROLE OF TI-IE WORLD BANK                                  61




     Touil
    project        Financed
     costs          byGEF
  ($ million)     ($ million)      Associtued World &nk project


     30.0            30.0          National Environment Project
     30.0            30.0          Mexico Environment Project
      0.2             0.2          Free-standing
      8.5             4.0          Free-standing



     12.0             4.5          Environmental Technical Assistance Project
     IZO              2.0          ENDFSA/BOTROSA Afforestation Project [IFC

     12.0             4.5         Technical Assistance for Environmental Management
     10.0            10.0         Power Sector Loan
                      4.0         Free-standing



    70.0            23.0          To be determined
                     3.8          Free-standing
     2.0             2.0          Free-standing
    26.6            19.5          Infrastructure project
     5.0             5.0          Free-standing




b. Projects are classified according to three main areas: biodiversity (BIO), global
warming (GW), and international waters (IW).
.. = Not available.