Document of The World Bank FOR OFFICIAL USE ONLY Report No. 69229-GT INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT AND INTERNATIONAL FINANCE CORPORATION COUNTRY PARTNERSHIP STRATEGY FOR THE REPUBLIC OF GUATEMALA FOR THE PERIOD FY 2013-2016 August 17, 2012 Central America Country Management Unit Latin America and Caribbean Region The International Finance Corporation Latin America and Caribbean Region This document is being made publicly available prior to Board consideration. This does not imply a presumed outcome. This document may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank’s policy on Access to Information. The date of the last Country Assistance Strategy Progress Report for Guatemala was September 23, 2008 CURRENCY EQUIVALENTS [US$1.00 = 7.825 QZ (quetzales) (July 2012)] FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS AAA Analytical and advisory IMF International Monetary Fund services LAC Latin America and the ANC Agenda Nacional de Caribbean Competitividad (National MDGs Millennium Development Competitiveness Agenda) Goals CPS Country Partnership Strategy MIGA Multilateral Guarantee Agency CAT-DDO Catastrophic Risk Deferred MINDES Ministerio de Desarrollo Social Draw-Down Operation (Social Development Ministry) CEM Country Economic MSME Micro, small, and medium Memorandum enterprises C-GAC Country Governance and Anti- NGO Non-Governmental Corruption organization CoST Construction Sector NLTA Non-lending technical Transparency Initiative assistance CPR Country Assistance Strategy PFM Public financial management Progress Report PPP Public-private partnership CPS Country Partnership Strategy SAT Superintendencia de DPL Development Policy Lending Administración Tributaria DR-CAFTA Dominican Republic - Central (Superintendency of Tax America Free Trade Agreement Administration) EU European Union SEGEPLAN Secretaría de Planificación y FDI Foreign Direct Investment Planeación de la Presidencia FY Fiscal year (Presidential Planning GDP Gross domestic product Secretariat) GFDRR Global Facility for Disaster SIAF Sistema Integrado de Reduction and Recovery Administración Financiera GNI Gross national income (Integrated Financial IBRD International Bank for Management System) Reconstruction and SME Small and medium enterprise Development StAR Stolen Asset Recovery IDB Inter-American Development Initiative Bank UN United Nations IDF Institutional Development UNDP United Nations Development Fund Programme IEG Independent Evaluation Group VAT Value-added tax IFC International Finance WBG World Bank Group Corporation IBRD IFC Vice President Hasan Tuluy Bernie Shehan Country Director Carlos Felipe Jaramillo Jean-Philippe Prosper Country Manager Oscar Avalle Roberto Albisetti Task Managers Oscar Avalle and Andrea Kucey Eduardo Wallentin and Bernardo Rico COUNTRY PARTNERSHIP STRATEGY FOR GUATEMALA TABLE OF CONTENTS I.  INTRODUCTION.............................................................................................................. 1  II.  COUNTRY CONTEXT, RECENT DEVELOPMENTS AND OUTLOOK ................ 1  Political Developments ............................................................................................................... 1  Poverty and Inequality Profile .................................................................................................... 2  Economic Context, Recent Economic Developments and Growth Outlook .............................. 5  Impact of the of the 2008-2009 Global Crisis ........................................................................ 6  Economic Recovery ................................................................................................................ 7  Macroeconomic Outlook and Debt Sustainability .................................................................. 8  III.  GOVERNMENT PROGRAM AND DEVELOPMENT CHALLENGES ................. 10  Government Program ................................................................................................................ 10  Development Challenges .......................................................................................................... 11  IV.  WORLD BANK GROUP—GUATEMALA PARTNERSHIP STRATEGY ............. 16  Past World Bank Group Experience ......................................................................................... 16  Lessons Learned from the Prior Country Partnership Strategy (FY08-12) .............................. 16  Country Partnership Strategy: FY13-FY16 .............................................................................. 17  Principles of Engagement ..................................................................................................... 17  Strategic objectives and results areas .................................................................................... 18  Result Area 1. Create fiscal Space and improve transparency in the budgeting process .... 19  Results Area 2. Improved Results in Social Sectors ............................................................. 20  Results Area 1. Infrastructure and Logistics ......................................................................... 22  Results Area 2. Environment and Disaster Risk Management ............................................. 23  Results Area 3. Rural Development and SMEs ................................................................... 24  CPS Program FY13-16 ......................................................................................................... 27  Results Monitoring................................................................................................................ 28  Partnerships ........................................................................................................................... 28  Regional ................................................................................................................................ 29  V.  RISKS................................................................................................................................ 30  Map ................................................................................................................................................ back cover FIGURES Figure 1. Poverty Rates, Official Estimates (2000-2011) ............................................................................ 2  BOXES Box 1. The Indigenous Communities of Guatemala .................................................................................... 3  Box 2. Crime and Violence – Effects on Citizen Security ........................................................................... 5  Box 3. Logistics in Central America: The Path to Competitiveness........................................................... 13  Box 4. Impact of Natural Disasters on Guatemala ..................................................................................... 15  Box 5. Guatemala Country Survey FY13 – Overall Findings ................................................................... 30  TABLES Table 1. Millennium Development Goals in Guatemala* ........................................................................... 4 Table 2. Guatemala: Key Economic Indicators 2007-2011 ......................................................................... 6 Table 3. Guatemala: Medium Term Macroeconomic Outlook .................................................................... 8 Table 4. CPS Indicative Program FY13-16 ............................................................................................... 27 ANNEXES Annex 1. CPS Results Matrix ...................................................................................................................................... 32  Annex 2. CPS Completion Report ............................................................................................................................... 38  Annex 3. Donor Annex ............................................................................................................................................... 63  Annex 4. Trust Fund Overview .................................................................................................................................. 64  Annex 5. Gender Issues in Guatemala ........................................................................................................................ 65  Annex 6. Indigenous Peoples and Social Inclusion in Guatemala .............................................................................. 75  Annex 7. Guatemala at a Glance ................................................................................................................................ 77  Annex 8. Selected Indicators of Bank Portfolio Performance and Management ........................................................ 79  Annex 9. Guatemala Social Indicators ....................................................................................................................... 80  Annex 10. Guatemala Key Economic Indicators ......................................................................................................... 81  Annex 11. Guatemala Key Exposure Indicators .......................................................................................................... 83  Annex 12. IBRD/IDA and IFC Portfolio ..................................................................................................................... 84  Annex 13. Executive Summary of IDB Strategy for Guatemala ................................................................................. 85  ACKNOWLEDGEMENTS The World Bank Group greatly appreciates the close collaboration with the Government of Guatemala in the preparation of this Country Partnership Strategy. The World Bank Guatemala Country Teams contributions were critical to the production of this document. Special thanks go to several colleagues including Luis Alvaro Sanchez, Oscar Calvo, Fernando Paredes, Gregor Wolf, Sajitha Bashir, Trina Haque, Katherine Grau, Mauricio Garita, Olga Murcia, Bernardo Rico, Eduardo Cuevas, Chris Humphrey, Antonio Blasco, Karla Rodriguez, Mariela Alpirez, Monica Lehnhoff, Cesar Leon, Sabine Perrissin, Alma Hernandez and Sonia Molina. EXECUTIVE SUMMARY 1. Guatemala has a rich cultural heritage and considerable economic potential, but a challenging history of conflict and exclusion. The country has made progress in consolidating democratic institutions since the end of the 36 year civil war in the mid-1990s. Economic and social challenges remain, however, including achieving higher and more equitable growth. With 51 percent of its population living in poverty, Guatemala urgently needs to accelerate growth and ensure it is more inclusive. 2. The country is the largest economy in Central America with a GDP of US$46.9 billion (2011). A moderate long-term rate of economic growth of 3.3 percent between 2001 and 2011, has translated into a GNI per capita of US$2,741 (2010). However Guatemala is one of the most unequal countries in Latin America. Chronic malnutrition among children under five years of age reached 49.8 percent (2008/09), and is particularly pervasive among the indigenous population, who represent half the nation’s 14 million inhabitants. 3. To address development challenges, the Pérez Molina Administration, elected in November 2011, has outlined an ambitious reform agenda centered on three “pacts� to address: (i) fiscal reform; (ii) Zero Hunger (Hambre Cero); and (iii) security, peace and justice. The approval by Congress in February 2012 of a fiscal reform marks a historic achievement as it represents the first comprehensive reform of the tax system in twenty years. The Zero Hunger pact launched in March of 2012 has the target of reducing the incidence of malnutrition in children under the age of five over the next four years. The Pact for Security, Peace and Justice is critical given that rising levels of crime and violence represent an increasingly daunting development challenge. A further priority focus is on improving the nation’s competitiveness to promote more and better job opportunities, as delineated in the National Competitiveness Agenda 2012-2021. 4. The World Bank Group (WBG) is supporting the Government’s efforts to enhance the country’s long-term growth potential and move toward a more equitable society. This proposed Country Partnership Strategy (CPS) for FY13-16 includes two strategic objectives: (i) to strengthen public policies for social development; and (ii) to promote inclusive and sustainable economic growth. The themes of citizen security and gender are central to the country’s development and, as such, are mainstreamed into CPS activities. 5. In supporting the two strategic objectives and transversal themes, the World Bank and the IFC will rely on their comparative strengths. The Bank will build on its past engagement in promoting an efficient public sector with emphasis on improving results in the social sectors. The Bank and the IFC will work together with Government in a renewed effort to support competitiveness and sustainable growth. 6. This CPS sets out a new approach for the Bank’s engagement in Guatemala. The combination of a simpler design, modest objectives, emphasis on knowledge products, tight alignment with Government manifested priorities and close coordination with the Inter-American Development Bank (IDB) represents a departure from previous CPS strategies and draws heavily from lessons learned from past CPS implementation. In delivering results, the Bank will employ a suite of products and will determine specific instruments and sequencing as the dialogue with Government evolves. The WBG will also seek to strengthen its partnership with other development partners and stakeholders in support of the Government’s agenda. Regional initiatives, in particular with respect to citizen security and trade integration, also represent an 1 important Bank contribution to Guatemala. The Progress Report will provide the opportunity to take stock of this new approach, including the role of knowledge services, budget support and intensive use of non-lending technical assistance. 7. The WBG program is selective and includes a modest approach to results commensurate with the relatively small size of the Bank portfolio. The current portfolio will contribute to delivery of outcomes, particularly during the first half of the CPS period. The seven projects under implementation with around US$200 million of undisbursed funds will be a key driver of results, particularly under the first strategic objective. New lending, estimated at US$525 million, will further contribute to results through a mix of DPL, investment lending and possibly guarantees. Support for further fiscal strengthening and results-based budgeting will come through a DPL series of US$350 million for FY13 and FY14. 8. In line with a stronger focus on knowledge activities, WBG engagement emphasizes building national capacity to design and implement more effective social and economic policies. This will be done through strategic non-lending technical assistance packages in support of the key Government priorities that, jointly with the DPL program, will open new spaces of cooperation. The Progress Report will provide an opportunity to review this approach and fine- tune the results framework. 9. The CPS program design is informed by a candid discussion of risks. To address these risks, the Bank will intensify its dialogue with key stakeholders, including Congress, to minimize delays in effectiveness and will choose entry points for lending carefully. The Bank will also work closely with the IDB to address shared obstacles to implementation. Support for social assistance programs, including for better targeting and results, will help mitigate the impact of potential economic shocks and natural disasters on the poor. Finally, the CPS program takes first steps to mitigate the high costs that crime and violence exact on development. The CPS approach aligns its evolving strategy with the Government’s own vision to contain crime through the provision of better services and creation of opportunities, particularly for youth, thus complementing the work of other development partners, particularly the IDB, that follow the same strategic direction. 2 I. INTRODUCTION 1. Guatemala has a rich cultural heritage and considerable economic potential, but a challenging history of conflict and exclusion. The country is the largest economy in Central America with a GDP of US$46.9 billion (2011), a GNI per capita of US$2,741 (2010) and an average growth of 3.3 percent between 2001 and 2011. Economic performance has been relatively stable compared to the rest of Latin America, as a result of prudent macroeconomic policies. While the country has made progress in consolidating democratic institutions since the end of the 36-year civil war in the mid-1990s, shortfalls in responding to economic and social challenges, including crime and violence, and in achieving more equitable economic growth, have affected the population’s trust in the state’s capacity to deliver on its basic functions. 2. With 51 percent of its population living in poverty, Guatemala urgently needs to accelerate growth and ensure it is more inclusive. Despite its middle income status, Guatemala is one of the poorest and most unequal countries in Latin America, and social indicators are low compared to countries of similar income levels. Over half the population falls below the poverty line and the country ranks third lowest in Latin America, according to UNDP’s 2011 Human Development Index. Poverty and low social indicators are particularly troubling among the indigenous population, who represent half the nation’s 14 million inhabitants. 3. The Government and the World Bank Group (WBG) have agreed on a four-year program of engagement designed to help Guatemala enhance its long-term growth potential and move toward a more equitable society. This proposed Country Partnership Strategy (CPS) for FY13-16 supports government reform priorities to strengthen social development outcomes and reorient the country’s growth pattern to a more sustainable, inclusive trajectory. The themes of citizen security and governance, as well as gender, are central to the country’s development and will be mainstreamed into CPS activities. In line with a stronger focus on knowledge activities, WBG engagement emphasizes building national capacity to design and implement more effective social and economic policies. This CPS has been prepared jointly with IFC and was designed in close collaboration with the Inter-American Development Bank (IDB). II.COUNTRY CONTEXT, RECENT DEVELOPMENTS AND OUTLOOK Political Developments 4. Guatemala has made progress in building democratic institutions and consolidating peace since the signing of the Peace Accords in 1996, with regular elections and transfer of power between political parties. In recent years, the country has taken steps to ensure political stability, including the peaceful transition to the Government of Otto Pérez Molina in January 2012, following the administration of �lvaro Colom of the Unión Nacional de la Esperanza party. President Pérez Molina was elected on a platform emphasizing aggressive measures to address high levels of crime and violence, strengthen and institutionalize social programs, such as the conditional cash transfer Bono Seguro, and promote employment through competitiveness reforms, including increasing international trade and improving infrastructure. 1 5. The fragmented party system contributes to political inertia and weak legislative capacity. In Guatemala, no governing party has ever secured re-election, and the average life expectancy of a political party is only 7.6 years. More than 50 parties have been declared void since democratization in 1985 and, as a result, few legislators have prior parliamentary experience. This phenomenon exacerbates the Government’s weak technical capacity. More than 25 percent of congressional representatives have switched parties each year over the last decade on average; and more than 40 percent switched parties between 2004 and 2007. Volatility and fragmentation promotes short political time horizons and creates disincentives for long-term national planning beyond the single four-year elected term. 6. The political panorama remains challenged by institutional weakness and contested authority between the executive and legislative branches. The current Government’s party has the largest share in Congress, but only holds 62 out 158 seats. The absence of a majority in Congress poses a challenge for garnering political support for the administration’s public policy agenda. Despite the quick passage of the fiscal reform in early 2012, the subsequent paralysis of Congress has slowed the transition process and affected popular support for the new administration’s reform program, much of which has not yet materialized. The Government will need to overcome these collective action problems to effectively design and implement public policies for economic and social development. Poverty and Inequality Profile 7. Changes in poverty levels in the last decade were moderate, as the economic slowdown rolled back earlier gains. Between 2000 and 2006, poverty decreased by five percentage points in spite of low per capita growth. This positive trend reversed with poverty increasing almost three percentage points between 2006 and 2011 as the international crisis affected economic growth in Guatemala (Figure 1). Extreme poverty declined slightly from 15 percent of Guatemalans in 2000 and 2006 to about 13 percent in 2011, with gains in both rural and urban areas. However, extreme poverty is still widespread among the rural population, where 80 percent of the extreme poor live. Human opportunity indicators have risen, creating a solid foundation for future improvements. There is some evidence that social programs have protected the poorest, even in the face of declining remittances. Figure 1. Poverty Rates, Official Estimates (2000-2011) Overall Poverty Extreme Poverty 60 56.2 53.7 51.0 40 Percent 20 15.7 15.2 13.3 0 2000 2006 2011 Source: Living Standards Measurement Survey (2000, 2006 and 2011). 8. Rural poverty is higher than urban poverty, but the gap declined somewhat between 2006 and 2011. Poverty is higher in rural (72 percent) compared to urban (35 percent) areas. Overall poverty increased in the last five years, although less in rural areas. By 2011, out of the 56 percent of population with expenditures below the poverty line, 32.6 percent lived in urban 2 areas and 67.4 percent in rural areas. The depth and severity of poverty (measured by the poverty gap) are also higher in rural areas, although they decreased between 2006 and 2011 while remaining almost constant in urban areas. This suggests that consumption became more equally distributed among the poor in rural areas, which may reflect higher food prices benefitting those rural poor who were net sellers. 9. Indigenous people suffer from the highest poverty rates and have the lowest social indicators (See Box 1 and Annex 6). Just over half the population of Guatemala was poor in 2011, but among indigenous groups the poverty rate is 75 percent. This level has not changed significantly since 2000, while non-indigenous poverty rates dropped from 48 percent of the population in 2000 to 41 percent in 2011. Levels of extreme poverty are also higher for the indigenous population (22 percent compared to 7.6 for non-indigenous in 2011), although both rates have fallen in the last decade (down from 25 percent among the indigenous and 11.5 percent for the non-indigenous). Box 1. The Indigenous Communities of Guatemala Guatemala’s population is very culturally diverse, with one of the highest shares of indigenous peoples in Latin America. About 40 percent of Guatemalans, roughly 4.5 million people, self-identify as indigenous, surpassed only by Bolivia and about equal to Peru. The vast majority of indigenous people belong to one of approximately 25 Mayan languages still spoken in the country, and descend from the Mayan civilization that built numerous urban centres throughout Guatemala, Mexico, Honduras and Belize centuries before the Spanish conquest. Most Mayan-speaking communities are found in the western highlands. Smaller populations are found in the southern region of the Boca Costa, and increasingly in Guatemala City and other urban areas. The most common languages are Q'eqchi, Cakchiquel, Mam, Tzutujil and Achi (Maya). The Xinka are a distinct indigenous group mainly in the south-east of the country, whose language is not descended from the Mayan languages. The Garifuna people, who comprise 4 percent of the population, are an Afro-Caribbean ethnic group found also in Honduras and Belize, and live in villages on Guatemala’s Caribbean coast. Indigenous people in Guatemala have faced a long history of social and economic exclusion. During the civil war, many indigenous communities in the western highlands were caught in the conflict between the military and the armed insurgency, resulting in almost 200,000 deaths, thousands of disappearances and over a million displaced. The 1996 Peace Accords that ended the conflict formally recognized that Guatemala consists of four distinct ethnic groups—Maya, Xinka, Garifuna and Ladino—and also subscribed the country to the ILO’s Convention 169 relating to indigenous peoples. A national referendum was held in 1999 on incorporating certain rights specific to indigenous communities into the constitution, but it was defeated. Many human rights groups contend that despite legal protections, discriminatory practices still limit the participation of indigenous people in economic, social and political life. One area that has shown progress is bilingual education, with hundreds of programs in rural areas teaching children in their mother tongue. See also Annex 6. 10. Guatemala has made significant progress on inequality measures, although inequality remains high. The Gini coefficient for consumption inequality declined between 2000 and 2006 from 0.47 to 0.45, and then dropped steeply to 0.39 by 2011. The wealthiest 10 percent of the population had consumption levels more than 10 times higher than the poorest 10 percent, which is a marked improvement from the 18 times registered in 2000. 11. Progress toward achieving the Millennium Development Goals (MDGs) in Guatemala has been uneven, with some goals advancing rapidly and others lagging. Overall, Guatemala is close on reaching MDGs in infant mortality, access to prenatal healthcare, TB incidence rate and primary enrollment, but has to accelerate progress in primary education completion, gender gaps and maternal mortality (Table 1). One goal showing considerable improvement was the increase in net primary enrollment, which reached 95.8 percent by 2011, up by 24 percentage points in the last 20 years. As well, the share of students finishing primary 3 school rose 34 percentage points and the literacy rate 15 percentage points over the same time period. Guatemala reduced the infant mortality rate from 110 to 42 per 1,000 live births from 1987 to 2009 and the maternal mortality rate from 248 to 140 for every 100,000 live births. However these indicators are still above the Latin American average and the latter indicator is far from the goal of 62 per 100,000 live births. Progress improving healthcare can be observed in the reduction of malaria from 7.4 to 0.9 per 1,000 inhabitants between 2003 and 2009 and important improvements in HIV/AIDS, TB and vector-borne diseases. Efforts to improve the efficiency and coordination of social spending—supported by activities in this proposed CPS—would accelerate progress to meeting the MDGs. Table 1. Millennium Development Goals in Guatemala* Base line Most recent year Goal 2015 Target 1 Eradicate extreme poverty and hunger Multidimensional extreme poverty index 0.319 (2000) 0.219**** n.a Growth of GDP per employed person 0.01 (1991) 0.005**** n.a Prevalence of malnutrition, weight for age (% 55.2 (1995) 49.8* 10.9 children under 5 years old) Target 2 Achieve universal primary education Enrollment rate in primary (%) 71.6 (1991) 95.8*** n.a Completion rate of primary education (%) 43.7 (1991) 77.6** 100 Literacy rate (% of population 15-24 years old) 76 (1994) 91.1 **** 100 Target 3 Promote gender equality and women empowerment Ratio of women to men in higher education 0.88 (2000) 0.963**** 1 Proportion of women in legislature (%) 7 (1990) 12.6 **** n.a Target 4 Reduce infant mortality Infant mortality rate for children under 5 years 110 (1987) 42* 37 old (per 1,000 live births) Target 5 Improve maternal health Maternal mortality rate (per 100,000 live births) 248 (1989) 140++ 62 Births attended by qualified health personnel (% 29.2 (1987) 51.5* n.a of total) Target 6: Combat HIV/AIDS, malaria and other diseases Prevalence of AIDS (per 1,000 inhabitants) n.a 0.8** n.a Incidence rate of malaria (per 1,000 inhabitants) 7.4 (2003) 0.9** 2.2 Incidence rate of tuberculosis (%) 21.6 (2006) 23.3 ** 28 Tuberculosis cases detected and cured (%) 75.2 (2006) 78.3** 85 Target 7: Guarantee the sustainability of the environment Land covered by forests (% of land) 40 (1990) 36.3+ 33.7 Protected marine and land surface (%) 24 (1990) 31.8** 33 Population with access to improved water 63 (1990) 75.2**** 81.5 source (%) Population with access to improved sanitation 32 (1990) 55.8**** 66 services (%) Target 8: Promote a global partnership for development Debt services as percentage of fiscal revenue n.a 49 **** n.a Access to internet (% of population) 0.5 (2000) 14*** n.a + = 2006 ++ = 2007 * = 2008 ** = 2009 *** = 2010 **** = 2011 Sources: International Telecommunications Union (2010), Guatemala Telecommunications Superintendent (2010), UNGASS (2010), Ministry of Education (2010), Guatemala National Report on Human Development 2011-2012(p), Banco de Guatemala (2011), World Bank (2011) Note: * Selected sub-indicators included. (p) stands for preliminary data. The data obtained with the support from UNPD Human Development Report 2011-2012 is preliminary. (n.a) stands for not available. 12. The rising presence of crime and violence poses a growing threat to the country’s development potential in the region, and impacts Government’s capacity to reduce poverty. Crime and violence has risen dramatically in the post-conflict period. The homicide rate nearly doubled during the 2000s, from 24.2 per 100,000 inhabitants in 1999 to 47 in 2006. Although it 4 has since declined to 39 in 2011, it is still well above the Central American average of 29—itself the highest rate of any sub region in the world—and far higher than the world average of 6.9 per 100,000. With an annual average of 6,000 homicides per year, Guatemala now has the seventh highest homicide rate in the world. The country’s rising crime and violence rates impose a high developmental cost on both the individual and national level, and as a result has become a critical development issue facing the country (see Box 2). Box 2. Crime and Violence – Effects on Citizen Security Crime and violence has become the strongest destabilizing factor for political, social and economic life in Guatemala. Despite the end to the armed conflict, homicide rates have nearly doubled during the 2000s, from 24.2 per 100,000 in 1999 to 46.3 in 2009, with an average of 6000 homicides per year (equal to the number of homicides in the entire European Union, which has a population 36 times larger than Guatemala’s). According to a national report, UNDP sites that in Guatemala there is a 9 percent probability that a person does not live beyond 30 years of age. Victimization levels (including robbery, kidnapping, extortion, car theft etc.) are high and continue to rise. Overall victimization by violent crime rate was 23.3 percent in 2010 compared to 12.8 in 2004. Both the economic and human cost of rising crime and violence is staggering. When accounting for the costs in health, law enforcement, public security and personal damage, violence cost the country an estimated USD 2.4 billion, or 7.3 percent of GDP – more than double the cost of damage caused by Hurricane Stan. Businessmen identify crime as the prime obstacle to doing business. The drivers of crime and violence include the lucrative nature of drug trafficking and Guatemala’s prime geographic position as a transport country, and the deportation of transnational youth gang member from US prisons since the mid-1990s, which contribute to the proliferation of youth gangs in Guatemala. This situation is compounded by institutional weakness in law enforcement and the penal system, which have not been able to cope with the surge in violence. The civil war also contributed to making Guatemala the country with the highest estimated rate of gun ownership in Central America with approximately 16 guns per 100 people, significantly higher than El Salvador (7) and Honduras (6.2) whose homicides rates exceed Guatemala’s. The pattern of inequitable socio-economic development has also created an increasingly disaffected segment of the civilian population which is vulnerable to criminalization. Reducing violence and improving citizen security has been at the top of the policy agenda over the last three administrations. Yet despite these efforts, which include substantial budget increases for security (50 percent) and justice (30 percent) between 2006 and 2010, significant gains have been elusive. For instance, since 2009 homicide rates have been begun to decline (38.5 in 2011), but other crimes, such as robbery and assault, have risen; thus contributing to strong citizen perception of violence. Given the complexity of these issues and the recent examples of Colombia and Mexico, it is likely that the fight against crime will be exceedingly costly and long lasting. However, until this is obstacle is tackled and an integral solution is implemented, growth and development gains will remain in jeopardy. Economic Context, Recent Economic Developments and Growth Outlook 13. Economic growth has been stable but weak in the past two decades. Since 1990, real GDP growth per capita has averaged 1.2 percent, about three-quarters of a percentage point less than the rest of Latin America and the Caribbean and significantly less than other middle-income countries. Volatility was less than half the regional average, and the country experienced less of an economic decline during the recent crisis. Much of Guatemala’s relative stability can be attributed to prudent macroeconomic policies that have kept inflation and public debt manageable, while avoiding fiscal imbalances that have affected much of the region. 14. A low level of revenue mobilization has constrained the ability of the state to steer development and social policy. Guatemala has one of the lowest tax revenues in the region, and the lowest per capita spending on social sectors. At around 11 percent of GDP, Guatemala’s tax- to-GDP ratio is well below the Central American average of 13.3 percent, and far lower than the 19.2 percent average for all of Latin America. While other countries with low tax-to-GDP ratios, including Mexico and Panama, have significant non-tax revenue sources, Guatemala does not. 5 As a result, total central Government revenues have been below 13 percent of GDP in the past decade. Table 2: Guatemala: Key Economic Indicators 2007-2011 (percent of GDP, unless otherwise indicated) 2007 2008 2009 2010 2011 Income and Prices GDP growth (% change) 6.3 3.3 0.5 2.9 3.9 GDP per capita (% change) 3.7 0.8 -1.9 0.4 1.3 Inflation (cpi end of period % change) 8.7 9.4 -0.3 5.4 6.2 Investment and savings Gross domestic investment 20.8 16.4 13.1 13.9 13.6 Gross domestic savings 15.8 12.4 13.2 12.5 10.7 Central Government Total revenues and grants 13.0 12.1 11.2 11.4 11.8 Total tax revenues 12.1 11.3 10.3 10.4 11.0 Total expenditure 14.3 13.6 14.2 14.5 14.7 Current expenditure 9.9 9.9 10.7 11.0 11.0 Capital expenditure 4.4 3.7 3.5 3.6 3.7 Primary balance 0.0 -0.3 -1.7 -1.8 -1.3 Overall balance -1.4 -1.6 -3.1 -3.3 -2.8 Non Financial Public Sector Debt Total debt 21.3 20.1 22.9 24.1 24.1 O/w External 12.1 11.3 13.0 13.1 11.7 O/w Domestic 9.2 8.9 9.9 11.0 12.3 Balance of payments Current account balance -5.2 -4.3 0.0 -1.5 -3.1 Trade balance -16.1 -14.2 -8.9 -10.3 -10.6 Exports 20.5 20.0 19.3 20.6 22.4 Imports 36.6 34.3 28.2 31.0 33.0 Foreign direct investment 2.1 1.9 1.5 1.9 2.1 Remittances 12.3 11.3 10.5 10.1 9.4 Memorandum item: Nominal GDP (billions of quetzales) 261.8 295.9 308.0 333.1 365.1 Source: Ministry of Finance, Central Bank and IMF and World Bank staff estimates. Impact of the of the 2008-2009 Global Crisis 15. The global financial crisis, and in particular the U.S. recession, impacted the Guatemalan economy. Remittances dropped sharply in the wake of the 2008 crisis, in large part due to the economic slowdown in the U.S., which accounts for 91 percent of Guatemalan remittances. At 11 percent of GDP on average between 2006 and 2010, remittances have represented an important revenue source, especially for poorer households, accounting for 30 percent of household income for the poorest quintile. As a result of the sharp fall in remittances, the collapse in consumption and investment and reduced foreign demand, Guatemala’s GDP growth was 0.5 percent in 2009. The slowdowns affected all sectors, with manufacturing, construction and retail the most impacted. 6 16. Foreign direct investment (FDI) had been rising steadily prior to the 2008 crisis, and then fell sharply in 2009. FDI inflows increased from US$498 million in 2001 to US$754 million in 2008. The crisis led to a 20 percent decline in 2009. A quarter of FDI comes from the U.S., while another 55 percent is roughly equally divided between the UK, Spain, Canada, Mexico, Honduras and Brazil. FDI has been concentrated in the areas of food and beverages, textiles, retail and mining, and more recently in finance. 17. The slowdown in economic activities worsened the fiscal situation. As a consequence of the crisis, central government revenues dropped significantly while expenditures increased (Table 2). Tax revenues fell from 11.3 percent of GDP in 2008 to 10.3 percent in 2009, as the narrow tax base dropped significantly. During the crisis, revenue from VAT suffered due to lower imports and domestic demand. At the same time, the Government boosted expenditure in social sectors, which contributed to an increase in expenditures from 13.6 percent of GDP in 2008 to 14.2 in 2009. The overall fiscal deficit widened from 1.6 percent of GDP in 2008 to 3.1 percent in 2009 while the debt-to-GDP ratio rose from 20.1 to 22.9 percent. Economic Recovery 18. Economic growth recovered after 2009 and tax revenues improved. Guatemala’s GDP grew by 2.9 percent in 2010 and increased to 3.9 percent in 2011. Private consumption and a stable recovery of credit to the private sector since 2010 have been the main drivers of economic growth. 2010 also saw a recovery in FDI, which had been affected in 2009. Income tax revenues increased from 2.3 percent of GDP in 2010 to 2.8 percent in 2011. VAT and import tax revenues declined during 2009 and, although they have increased, they are still not at pre-crisis levels. Overall indirect tax revenues increased to 7.6 percent of GDP at the end of 2011 from 7.2 percent in 2009, driven by a rise in consumption. Total tax revenues increased to 11 percent of GDP in 2011 but are still below the 2001-2007 average of 11.6 percent. 19. Despite an increase in expenditures during the crisis, public debt levels remain reasonable. Since 2009 revenues have increased in line with economic recovery. However, government expenditure increased during the crisis in 2009, and in 2010 and 2011 in part due to finance reconstruction following a series of natural disasters.1 The increase in current expenditure was largely permanent and associated to the new social spending programs. Total expenditure increased from 13.6 percent of GDP in 2008 to 14.7 percent in 2011. Consequently, the overall fiscal deficit in 2011 reached 2.8 percent of GDP, above the pre-crisis level of 1.6 in 2008. Given this increase, public debt increased from 20.1 percent of GDP prior to 2008 to 24.3 percent in 2011, but still remains manageable. Domestic debt accounts for about half of total debt (12.3 percent of GDP), while the remainder is made up of loans from multilateral and bilateral creditors, as well as Eurobonds issued in 2003, 2004 and 2012. 20. The Government does not currently have an IMF program in place. The last Stand- By Arrangement (US$951 million) was treated as precautionary and was successfully completed in October 2010. While the Government does not currently foresee the need for a new IMF program, relations with the institution remain close. An Article IV mission was successfully completed in April 2012. The Staff Report stressed the importance of improving public 1 Between May and September 2010, Guatemala experienced a large volcanic eruption and a tropical storm, which caused an estimated US$1.6 billion (4 percent of GDP) in damages. 7 expenditure management, especially with a view to preparing for a potential new crisis. In the medium term, boosting economic growth and reducing poverty remain the main challenges. Macroeconomic Outlook and Debt Sustainability 21. The Guatemalan economy is likely to continue on a path to recovery, but remains vulnerable. Due to the uncertain dynamics of the U.S. and European economies and structural shortcomings, GDP is currently projected to grow by 3.1 percent in 2012 and 3.2 percent in 2013, down from 3.9 percent in 2011 (Table 3). Inflation increased to 6.2 percent in 2011, due to higher international commodity prices and the impact of natural disasters, but is likely to remain under control in the medium term. Following an expected drop in commodity prices, inflation is projected to be 5 percent in 2012 and remain around 4.2 for the 2013-2016 period. 22. Despite the 2009 recession, the financial system remains well-capitalized and liquid. After a substantial decrease as a result of the 2008 subprime crisis, credit to the private sector began to recover in 2011. Although credit growth rates are still below pre-crisis levels, they are now positive after a year of decreasing credit in 2010. Lending rates declined slightly at the beginning of 2010 but remained stable in 2011, pointing to a recovery of lending in the banking sector. At 14.7 percent, the capital adequacy ratio was higher in 2011 than before the 2008 crisis (13.6 percent in 2005), while the ratio of non-performing loans to total gross loans decreased to 2 percent by 2011. Liquidity in the financial sector has continued to improve since 2007, with liquid assets to deposits and short-term funding reaching 33.2 percent in 2010. 23. The current account deficit is expected to increase and then remain stable in the medium term. The current account posted a deficit of 3.1 percent of GDP in 2011, higher than the 1.5 percent reported in 2010. Exports have increased by 23 percent, driven by a recovery in import demand in the United States and higher coffee prices, while imports have grown by 20 percent in the same period. Tepid growth in the global economy is expected to halt the recovery in imports and exports in 2012 and 2013. Easing commodity prices would result in small deterioration of the trade balance during this period, due to the importance of agricultural commodities in Guatemala’s export basket. International capital flows are expected to remain broadly constant as a share of GDP. 24. Important tax policy and administrative measures in 2012 will have positive medium- and long-term impacts. Administrative measures aimed at improving tax collection, strengthening tax enforcement and fighting tax evasion have been implemented over the last few years. In addition, the significant tax policy reform which was enacted in February 2012 is expected to increase revenues by 1.3 percent of GDP by 2015. This will create fiscal space for additional spending on government priorities. Following the expected increase in revenues and a stable expenditure path, the overall fiscal deficit is projected to drop from 1.3 percent of GDP in 2011 to 0.7 percent in 2012 and 0.5 in 2013. 8 Table 3: Guatemala: Medium Term Macroeconomic Outlook (Percent of GDP, unless otherwise indicated) 2011 2012 2013 2014 2015 2016 2017 Income and Prices GDP growth (% change) 3.9 3.1 3.2 3.3 3.4 3.5 3.5 Inflation (cpi end of period % change) 6.2 5.0 4.5 4.2 4.0 4.0 4.0 Investment and savings Gross domestic investment 13.6 14.4 14.9 15.5 16.0 17.3 17.8 Gross domestic savings 10.7 11.0 11.3 11.8 12.3 13.5 14.1 Central Government Total revenues and grants 11.8 11.8 12.6 12.9 12.9 13.9 13.9 Total tax revenues 11.0 11.0 11.9 12.2 12.2 13.2 13.2 Total expenditures 14.7 14.1 14.7 14.8 14.8 15.6 15.5 Current expenditure 11.0 11.0 11.1 11.2 11.3 11.1 11.1 Capital expenditures 3.7 3.1 3.6 3.6 3.5 4.5 4.4 Primary balance -1.3 -0.7 -0.5 -0.2 -0.1 0.0 0.1 Overall balance -2.8 -2.4 -2.1 -1.9 -1.8 -1.7 -1.6 Non Financial Public Sector Debt Total debt 24.1 24.8 25.2 25.4 25.6 25.6 25.6 O/w External 11.7 12.6 12.9 12.5 12.1 11.7 11.3 O/w Domestic 12.3 12.2 12.3 12.9 13.5 13.9 14.2 Balance of Payments Current account balance -3.1 -3.5 -3.6 -3.7 -3.7 -3.7 -3.7 Trade balance -10.6 -10.7 -10.8 -10.9 -10.9 -10.9 -10.9 Exports of goods (f.o.b) 22.4 22.5 21.9 22.3 22.4 22.5 22.4 Imports of goods (f.o.b.) 33.0 33.1 33.2 33.3 33.3 33.4 33.4 Foreign direct investment 2.1 2.2 2.2 2.3 2.3 2.4 2.4 Remittances 9.4 9.2 9.1 9.1 9.2 9.2 9.2 Memorandum Item Nominal GDP (billions of quetzales) 365.1 395.1 427.3 460.8 496.5 535.2 576.1 Source: Ministry of Finance, Central Bank and IMF and World Bank staff estimates. NB. This table reflects a conservative estimate of the increase in tax revenues of around 0.9 percent of GDP due to the tax reform. Please see Table 4 below for a more detailed analysis of the impact of the tax reform. 25. A 2012 Eurobond issue was received positively by the international market. In May 2012, the Finance Ministry issued US$700 million in bonds in the international market at a rate of 5.75 percent, the first international issue since 2004. The global bond was given a BB+ rating from Fitch (one notch below investment grade). In recent years, Guatemala had relied heavily on the local bond market and multilateral and bilateral loans for financing. Under conservative assumptions, Guatemala’s public debt will remain sustainable in the medium term. While total public debt is projected to increase from 24.1 percent of GDP in 2011 to 25.6 percent in 2015, it is expected to stabilize below 26 percent thereafter. While the overall debt panorama is stable, it could be impacted by Government use of domestic floating debt, which is not fully transparent. 9 26. Long-term growth of 3 percent is not enough for Guatemala to make significant progress towards its development goals. Limited state capacity has been detrimental to long- term growth prospects as it has resulted in lower public investment, lack of modern infrastructure as well as limited spending in building up the human capital of the country. Efforts to create fiscal space by mobilizing more domestic sources of financing or revenues would help address this constraint. Investing in the first 1,000 days of a child’s life is critical to make a difference in terms of the potential for future growth and development. While other efforts to promote investment, including reaching a consensus on long-term planning and addressing binding constraints including security are important, without improving human capital from birth significant productivity gains will remain elusive. III. GOVERNMENT PROGRAM AND DEVELOPMENT CHALLENGES Government Program 27. The Pérez Molina administration has outlined an ambitious development agenda. The administration was elected on a platform based around five pillars: (i) Social Development; (ii) Competitive Economic Growth; (iii) Productive and Social Infrastructure for Development; (iv) Sustainable Rural Infrastructure for Development; and (v) Justice and Democratic Security. Since taking office, the Government has established a strategy to implement its development agenda through three “pacts� on: (i) fiscal reform; (ii) Zero Hunger (Hambre Cero); and (iii) security, peace and justice. A further priority focus is on improving the nation’s competitiveness to promote more and better job opportunities, as delineated in the National Competitiveness Agenda 2012-2021. 28. The fiscal reform presented to Congress and approved in February 2012 is an important milestone. It includes two key legislative initiatives. The first is an anti-evasion law that builds on an existing law to further strengthen the role of the tax authority (SAT) to control and audit VAT payments and personal income tax, and includes measures to reduce the informal economy by incorporating small VAT taxpayers into the system. The second legislative initiative is the first comprehensive tax policy reform approved since 1992, and includes reforms to both corporate and personal income tax, eliminates VAT credit, reduces deductions and includes transfer pricing. The law also includes reforms to the custom administration that require the application of regional regulations and strengthens the capacity of the customs authority to fight contraband and customs fraud. 29. The Zero Hunger Pact is the focal point of the Government’s social policy and addresses chronic childhood malnutrition. Although childhood malnutrition has long been an issue in Guatemala, this is the first time it has become the focus of a national dialogue. The Zero Hunger program launched in March of 2012 has the target of reducing the incidence of malnutrition in children under the age of five by 10 percent over the next four years. The Government has targeted municipalities that will receive training, microcredit and foodstuffs. In addition, the targeted municipalities are the priority beneficiaries of public sector infrastructure projects, principally roads, designed to promote economic development. There is an emphasis on the development of self-sustaining agricultural practices to improve nutrition in rural areas. Such support is vital to address poverty, particularly in rural areas. This broad program addresses 10 challenges in all five of the Government’s pillars. The Ministries of Social Development, Education, Health and the Secretariat for Food Security implement the program. 30. Addressing the high levels of crime and violence is the cornerstone of the administration’s strategy and is embodied in the Pact for Security, Peace and Justice. Announced in May 2012, it is the most recent of the three pacts and its objective is to reduce risk factors at all levels of society. Starting at the household level with Safe Homes, the pact focuses on preventing violence through ensuring basic needs (potable water, sanitation and electricity), and guaranteeing rights. The Safe Municipalities Plan focuses on improving the socioeconomic conditions of municipalities to promote social peace. The Government also plans to establish an observatory to improve monitoring of violence indicators. A special inter-institutional cabinet has been created to assist in implementation as well as a permanent civil society forum to provide feedback. The Government’s emphasis on prevention is seen as an important complement to its efforts on enforcement. Development Challenges 31. Successive administrations have struggled to deliver higher rates of economic growth, with limited success. With high poverty rates, the formal sector providing jobs for less than 40 percent of the labor force and the working age population projected to expand from 7.8 million in 2010 to 9 million in 2015, Guatemala urgently needs to accelerate its growth rate. It also needs to ensure that growth is inclusive to generate enough good quality jobs and narrow income disparities. Fully integrating the rural population in terms of economic opportunities and improving social outcomes remains a challenge. In the last two decades a number of initiatives have been launched to coordinate development but results have been slow to materialize. These initiatives, however, have not been embedded in a convincing long-term growth strategy that enjoys the backing of the powerful private sector and the taxpayers who would finance any expansion of the state’s role. 32. In order to stimulate growth and compete in the global economy, Guatemala will need to diversify markets and products into higher value-added manufacturing and services. Guatemala’s export structure has changed slowly over the last ten years, with an increasing importance of manufacturing industries, small growth in services and decreasing significance of agricultural exports. Nonetheless, the few changes in the top ten products exported by Guatemala in the last decade reflect a lack of innovation in business activities. Exports amounted to 23 percent of GDP in 2009, with exports of goods reaching US$10.6 billion in 202. Only 42 percent of commodity exports were manufactures, mostly labor-intensive low tech and low in domestic value-added, and export diversification is low. Between 2003 and 2008 Guatemala lost world market share in seven of its 10 top export market products. 33. The share of high and medium technology products has increased, driven by FDI locating in Guatemala to service the regional markets. More than 75 percent of Guatemalan manufactured exports are low to medium-low technology products, which are characterized by intensive use of labor with low skills and education level.3 In absolute terms, however, exports of high and medium-high technology are increasing, especially in fields related to pharmaceutical products and industrial chemicals, both sectors with strong presence of multinational enterprises in Guatemala. Many of these companies selected Guatemala to locate their regional 2 GDP in 2011 was $48.8 billion. Commodity exports were 21.7 percent of GDP. 3 See INCAE (2010). 11 manufacturing operations to export to other countries in the region. As a result, there is a significant differentiation of exports by destination market. Guatemala’s low-technology exports go to the U.S. (agricultural and maquila products) while a large share of exports of high and medium-high technology products go to neighboring Central American countries. 34. SMEs are responsible for net job creation—80 percent of formal employment is in firms with less than 20 workers—and limitations on their entry and growth impinge on employment. Start-ups face considerable bureaucratic obstacles. Guatemala ranked 97 in the World Bank’s Doing Business Survey for 2012 (down from 93 in 2011). Starting a new business and obtaining construction permits are especially problematic. The absence of a vibrant SME sector adversely affects the performance of both manufacturing and services sectors, particularly those catering to the needs of the tourism sector (the second-largest source of foreign exchange earnings). 35. Developing the agriculture sector in Guatemala has the potential to reduce poverty. Economic opportunities in rural areas are limited, especially in indigenous communities, due to low human capital, unequal land distribution, lack of credit and inadequate infrastructure. Two percent of productive farm units control 65 percent of arable land and indigenous peoples are much less likely to hold formal title to their lands, which limits their access to credit and finance. Rural transport infrastructure is very poor, isolating many communities from opportunities to market their produce, and few productive chains exist between agricultural producers and small business to add value and generate greater income in the poorest communities. There is significant potential to develop the agricultural sector for high value exports, which in turn would benefit small holders, including indigenous people, and promote job creation in agro- processing for example. The objective of the Inclusive-Green Growth (IGG) agenda is to increase the resilience capacity of the most vulnerable rural dwellers to cope with the impacts of climate change and external food price shocks. In addition, production of basic foodstuffs can be bolstered to improve resilience in the face of external food price shocks. 36. Electricity supply is insufficient and the costs are among the highest in region. The composition of the generation of energy in Guatemala is primarily hydroelectric (35 percent) and fuel-oil (32 percent). Reliability and the cost of service remain key issues. Access to electricity has deteriorated. One-quarter of companies interviewed for the 2003 Enterprise Survey indicated that access to electricity was a critical issue, but this percentage increased to 47 percent in 2006. Outages accounted for an average loss of 6.1 percent of sales in 2007. In rural areas, power outages cost up to 6.7 percent of sales and lasted an average of 37 hours per month, compared to eight hours in metropolitan areas. Price of electricity is also one of the highest in the region due to the high marginal costs of generation and due to the fact that Guatemala does not subsidize energy as heavily as other Central American countries, such as Nicaragua and Honduras. Currently there is a national debate ongoing on how to improve the energy matrix in order to respond to the increasing demand for energy. 37. Both for urban and rural populations, inadequate infrastructure and related services in key trade corridors are critical obstacles to moving merchandise from production areas to final destinations. Particularly burdensome are trade corridors from the agro-industry production areas to borders, airports and ports and from Guatemala City to borders, ports and airports. Complementary services such as cold chain infrastructure, warehousing and licensing remain inadequate, adding to logistic costs. Customs and border management is weak, with poor coordination among agencies (see Box 3). The most serious 12 logistics problem is the high level of insecurity on the roads. According to the World Bank’s Logistics Performance Index, Guatemala’s score has improved somewhat between 2007 and 2012, but is held back from faster improvement by inadequate infrastructure, the lowest sub- indicator for the LPI in each of the three years it has been calculated. Box 3. Logistics in Central America: The Path to Competitiveness A new World Bank regional study analyzes logistics in Central America and the impact in competitiveness from 2008-2001. The study indicates that the direct cost of security represents 3 to 4 percent of the total operating costs in trucking companies. From 2008 to 2011, security costs have increased in Central America, except in Costa Rica, with increases in Guatemala of 32 percent. Another issue driving up costs, according to the study, is empty backhauls—in Guatemala, 77 percent of truck trips return empty. Poor infrastructure in border crossing affects transportations costs; for example in the San Salvador-San José route idle time represents 69 percent of the total time (167 hours). An important challenge for the region is to match the infrastructure stock to increase regional competitiveness. For example, in Nicaragua only 9 percent of roads are paved, compared to 14 percent in Guatemala, 22 percent in Honduras and 43-54 percent in El Salvador, Panama and Costa Rica. The study identifies a series of policy recommendations that could improve the competitiveness of the region, including rigorous and informed planning, transparent project execution and more efficient operation of infrastructure resources. Source: World Bank 2012 38. The low level of trust among ordinary Guatemalans in their state’s ability to improve citizen security and transparently manage public resources is a critical obstacle to the country’s development prospects. Crime and violence are a constant preoccupation among the public, while high-profile cases of corruption and the perception of impunity undermine public confidence in judicial authorities. A 2010 Enterprise Survey of nearly 600 Guatemalan firms found crime, theft and disorder to be the highest-ranked obstacle to doing business, with corruption also reported as a top issue. Crime, violence, impunity and corruption are all mutually reinforcing, and are further accentuated by the increasing presence of organized crime groups, including narcotics traffickers, kidnapping and extortion rings and violent street gangs (maras). 39. Institutional shortcomings and limited demand from civil society continue to result in weak governance and impede anti-corruption efforts, despite some progress in recent years. The transparency of the budgeting process is compromised by frequent use of alternate vehicles to implement programs, like trust funds, NGOs and contracting under exception. Over 70 percent of public procurement is done through non-competitive methods. Furthermore, instituting the SIAF financial information system and the new Law of Access to Information (2009) have not led to a significant increase in demand for such information, despite efforts in training journalists, students and other key parts of civil society in the relevant legislation and the uses of these systems for carrying out social audits. 40. Guatemala has the highest child malnutrition rate in Latin America and the Caribbean and one of the highest in the world. Chronic malnutrition among children under five years of age reached 49.8 percent (2008/09), but rates are as high as 89 percent in some indigenous areas. This high rate has a direct impact on child mortality, as well as the intellectual and physical development of children – which in turn affects human capital development more broadly. Given the limited resource envelope, which is largely a function of low tax revenues, the effective and efficient use of the available resources is key for accelerating advances in human development outcomes in the coming years 41. The level and quality of human capital are extremely low. Those in the 25-65 year age group have less than five years of education on average. Only 7 percent of the population had more than 12 years of education in 2006 and just 8.6 percent of the labor force falls in the category of technical and professional workers. Teacher credentials are weak, with less than 13 10 percent of primary school instructors having a bachelor’s degree. Student performance has been declining: as of 2009, only 20 percent of 12th graders had satisfactory reading scores and 30 percent had satisfactory math scores, down from 40 percent and 50 percent respectively in 2007. The current education and social protection strategies have not addressed extreme income inequality, particularly between indigenous and non-indigenous populations. Well-designed and sustained policies in education and social protection could change the country’s growth trajectory, but will require additional resources. 42. Achieving a more gender equitable society in Guatemala remains a challenge. The country’s progress in this area is lagging both regionally and globally. According to the UNDP Development Report, the country ranks 109 out of 187 in the Gender Inequality Index, the lowest rank in Central America. In the three gender dimensions identified in the WDR 2012 on Gender and Inequality, women’s access to economic opportunities, endowments, and agency remain hindered. These disparities are particularly alarming in indigenous communities. 43. Disparities in social opportunities and outcomes reveal important gender gaps, particularly when ethnicity and geography are taken into account. While literacy rates are equal in cities, the gap between men and women in rural areas is quite significant—70 percent for men compared to only 57 percent for women. This difference is particularly stark when considering that Guatemala indigenous women are twice as likely to be illiterate than non- indigenous women. The boy-girl gender gap in the primary completion rate is 6.2 percentage points (2008), and the female-to-male ratio in secondary enrollment is 0.93 (2008) compared to a LAC average of 1.08. In Guatemala, reproductive health also lags behind the rest of the region. The maternal mortality rate in Guatemala is 120 per 100,000 live births (2008) whereas the regional rate is 80.4. Similarly, Guatemala’s contraceptive prevalence is significantly below that of its neighbors (54 percent versus 75 percent). Violence against women is also a major problem in Guatemala, with 60,000 cases of violence against women reported between 2008 and 2011. 44. Gender equality is important in its own right, but it also makes sense from an economic perspective. Women comprise 51 percent of Guatemala’s population yet their participation in the labor force is limited (48 percent versus 88 percent for men). Furthermore, women make up nearly three-quarters of the informal sector and perform the majority of non- remunerated labor, making it difficult to escape the circle of poverty. Formal sector wage gaps are still wide, with women earning 30 percent less than their male counterparts for equal work. There has been modest progress in this area, but it has not been significant for the poor. Wage inequality becomes most evident if differentiating for region and ethnic background. Indigenous women engaged in agricultural labor earn 27 percent less than their male indigenous counterparts, 37 percent less than non-indigenous women, and 50 percent less than non- indigenous men. 45. Social outcomes are especially troubling among the nation’s indigenous communities. The indigenous population is more likely to live in households with less than a complete primary education (88.6 percent compared to 64.2 percent among the non-indigenous in 2000), and only half of indigenous adults are literate compared to 80 percent of non- indigenous. Literacy rates are even more extreme by gender, at only 31 percent for rural indigenous women compared to 94 percent for urban men. While malnutrition affects half of Guatemalan children under five—already an extremely high level—it affects 70 percent of indigenous children, and up to 90 percent in some communities in the department of Huehuetenango. Only 5 percent of the indigenous have health coverage, in comparison with 14 18 percent of the non-indigenous, and only 19 percent of indigenous women’s births were attended by a doctor or nurse, compared to 57 percent for non-indigenous women. Underutilization of health services for cultural reasons contributes to this situation. 46. Guatemala faces major environmental challenges and is highly vulnerable to natural disasters. Water pollution is widespread, and currently five children die every day from water-borne diseases caused by poor-quality water and sanitation. Low drainage rates (11 percent in rural areas and 44.3 percent in urban areas) mean more than 1.5 billion cubic meters of untreated wastewater are poured into water and soil each year. The annual loss of 3.47 percent of the forest cover means Guatemala has among the highest deforestation rates in Latin America. A large percentage of this timber is exploited illegally, even if the forest is located within legally protected areas (at least 37 percent of deforestation). Guatemala also has one of the lowest urbanization rates in the region (50 percent) but is expected to converge to the regional average in the next 20 years. This represents an additional challenge in terms of putting in place policies, institutions and investments to make urban growth more inclusive and sustainable. It will also have implications for the country’s inequality challenges. Box 4. Impact of Natural Disasters on Guatemala Between 1980 and 2010, Guatemala experienced 67 major natural disaster events, which affected more than 4 million people and left over 4,000 people dead; with estimated total economic damages at US$3.4 billion. Major disasters have impacted Guatemala, including the 1976 earthquake, which resulted in more than 23,000 deaths and damages estimated at 17.9 percent of GDP; the passing of Hurricane Mitch in 1998, which caused estimated damages of 4.7 percent of GDP and 268 dead; Hurricane Stan, in 2005, had an economic impact estimated at 3.4 percent of GDP, killing at least 1,500 people; and the Tropical Storm Agatha and the simultaneous eruption of the Pacaya Volcano, in May 2010, followed by torrential rains that exacerbated the already fragile environmental and social conditions left by previous adverse natural events. The cumulative economic impact of TS Agatha and the eruption of the Pacaya Volcano are estimated at US$1.5 billion, with 235 people dead. Once again, In October 2011, Guatemala was hit by Tropical Depression (TD) 12E. Even though, from a meteorological perspective TD 12E was a minor event, it caused widespread flooding and landslides in Guatemala and the rest of Central America. The economic impact of TD 12E in Guatemala alone was estimated at US$333.2 million. 47. Guatemala has the fifth highest economic risk exposure to multiple hazards in the world, according to the World Bank’s Natural Disaster Hotspot study. Guatemala is located in one of the most volcano and seismically active regions in the planet. Over 80 percent of the country’s GDP is located in areas at risk (Box 4). Moreover, global climate change and increased climatic variability is likely to exacerbate the country’s exposure to floods, erosion, landslide, hurricanes and droughts, which will disproportionately affect the most vulnerable as they are the least able to hedge these risks. Without a conscious effort on behalf of the Government to link development with environmental sustainability, gains in growth will be precarious in the long run. 48. Compounding these challenges, the Government’s inability to generate revenue for much needed human capital and social development programs is a binding constraint. Government in Guatemala is small and weak, and public resources are not adequate to provide social services, infrastructure investments and public security. Reflecting historically weak fiscal capacity, Guatemala’s tax revenue stood at 11 percent of GDP in 2011, with social expenditures amounting to half that amount. A rigid budget structure makes it difficult to reallocate resources, and greater efficiency in the use of public funds is needed to maximize the impact of limited resources, as noted in the Bank’s 2012 Guatemala Public Expenditure Review (PER) and 2010 PEFA. Budget implementation is compromised by weak linkages between planning and budgeting as well as frequent use of alternate vehicles to execute the budget. Weak oversight and sanctions undermine control over budget allocations and floating debt, as well as the credibility 15 of fiscal targets, and make it difficult to assess the quality of expenditure and perform external audits. IV. WORLD BANK GROUP—GUATEMALA PARTNERSHIP STRATEGY Past World Bank Group Experience 49. The impact of the previous Country Partnership Strategy (FY09-12) fell below initial expectations, but it proved adaptable enough to help the Government weather a series of crises. Lack of congressional support impeded moving ahead with tax policy reforms and some planned investment projects. In part this underperformance was due to a series of crises faced by Guatemala during the previous administration—including rising food and fuel prices in 2008, the subsequent global financial crisis and several major natural disasters—as well as very low support for the Government within Congress. As well, some CPS goals may have been overly ambitious. Slow portfolio implementation as a result of lack of technical capacity and project restructuring in response to changing government priorities, affected delivery of results. 50. The CPS proved flexible enough to adapt and respond to Government needs. This included a shift in resources to social spending and counter-cyclical fiscal policy to face crises and providing quick resources to address natural disasters through the Development Policy Loan (DPL) with a Catastrophe Deferred Drawdown Option (CAT DDO). Some aspects of the planned program did show progress, including the Country Governance and Anti-Corruption (C- GAG) initiative, expansion of Integrated Financial Management System (Sistema Integrado de Administración Financiera—SIAF) and the e-procurement system Guatecompras, modernization of the tax authority, support to the Construction Sector Transparency Initiative (CoST), rehabilitation of rural roads and strengthened financial regulation. 51. During the last four years, IFC supported interventions to facilitate doing business in the country, which contributed to a private-sector led recovery from the 2008-2009 financial crisis. IFC supports the small and medium enterprise (SME) sector with a US$70 million equity investment in a leading financial institution that has grown its portfolio targeted to SMEs to more than US$100 million. In 2011, the client disbursed US$85 million of new loans that provide access to financial services to underserved regions and the rural indigenous population. Most recently the IFC invested $40 million and mobilized US$80 million for a regional telecom infrastructure company that will improve telecom coverage and lower costs for the telecommunications industry in the country and throughout Central America, and also supports a regional agro-business producer that provides thousands of employment opportunities in rural areas. In the same period, the IFC provided trade lines totaling US$272 million to three domestic banks in FY09-12, facilitating access to finance for consumers and enterprises during and after the crisis. Lessons Learned from the Prior Country Partnership Strategy (FY08-12) 52. Develop realistic assessments of the likelihood to deliver results and maintain a critical assessment of what has been achieved. A CPS should focus on thematic strategies with clear and realistic results. In considering the likelihood of achieving results, attention should go beyond formal government commitment to consider the factors that may block achieving the 16 results, such as the difficult political economy in Guatemala. Such realistic assessments will improve the quality of the results framework as well as the understanding of the risks that follow to facilitate taking remedies to ease them. The focus on themes rather than projects could also provide flexibility in terms of the suite of instruments selected. 53. A long history of implementation challenges has troubled the investment portfolio in Guatemala. Early engagement with the new Government may avoid high turnover of counterpart staff. The lack of institutional and operational capacity in Government makes training on Bank procedures, including particularly safeguards and procurement, a priority. A frank assessment of the potential institutional bottlenecks would also help at project design. Since this is a problem shared by the IDB, the two institutions should work together and explore alternative options to address implementation constraints through, for example, better project design and training of technical counterparts. Regular mini portfolio reviews to identify capacity constraints and provide technical assistance to address issues are also helpful. 54. Keep the program simple and selective. In line with the principle above, it is important to also be realistic about what can be achieved given the existing implementation capacity and country context. Experience has shown that overly complex projects which involve more than one implementing agency have had a poor track record of performance. The current CPS therefore proposes fewer operations in select areas where there is strong Government commitment and an implementation agency with a proven ability to manage Bank projects well. 55. The Bank should complement financing with a strong program on knowledge. The Bank should continue to foster a reputation for delivering high-quality knowledge products and technical assistance. In doing so, it is best to adopt a systematic approach to AAA through a thematic focus and annual planning exercise to agree with Government on priorities. The role of dissemination, and combining knowledge with other instruments, will also be an integral part of the knowledge program. The Bank can support the authorities in scaling up successful pilot initiatives through program budgeting. Country Partnership Strategy: FY13-FY16 56. The experience of the previous Bank strategy has yielded important lessons for the WBG program in Guatemala including the use of instruments and the measurement of the Bank’s impact. Building on that experience, this CPS will be guided by the following principles of engagement. Principles of Engagement 57. The CPS is aligned with Government priorities and endeavors to take account of the likelihood of implementation given the traditionally risky political environment, and therefore focus on areas of engagement with strong backing by the administration and broad support among different political parties and social groups. It will likewise focus on policy reform early on in the political cycle and on implementation thereafter. 58. This CPS is the product of a close collaboration with the IDB, in an effort to avoid overlap and maximize the impact of development interventions. At the request of the Government, the WBG and IDB are moving their collaboration beyond specific projects to the entire country engagement process, including joint strategy design, portfolio reviews and supervision missions. During implementation, cooperation will include frequent information exchanges and joint knowledge work, coordination on related policy-based operations and 17 possibly joint lending or non-lending operations, as appropriate. Efforts to improve portfolio implementation will receive special attention by both institutions, including developing alternative approaches that better fit the Guatemalan context. The experience will be evaluated at the mid-point of the CPS to assess results. 59. The Bank will seek to provide timely resources to the Government. The experience of the last CPS showed that the timely provision of resources to the budget helped the country deal with the impact of the global crisis and shift resources to social expenditure. The next CPS will prioritize budget support, including a CAT DDO, with attention to consolidating gains in the areas of public sector governance and effective delivery of social services. Bank support will coincide with the country’s own budget and decision-making process. 60. The WBG will explore alternative ways to support the Government. Given the continued difficulties in implementing investment operations, the Bank will explore alternative options that may include the intensive use of non-lending services to develop with the client new areas of engagement, especially in the areas of competitiveness, sustainable development and productive inclusion. To achieve results the Bank will employ a suite of available instruments. 61. The CPS includes a realistic and modest results framework to guide program design and implementation. The CPS will support the Government in monitoring the results framework. The program will be flexible as to how to achieve the results, especially in the newer areas of engagement. The Progress Report will provide an update on the mix of Bank instruments to be employed, and will re-define and CPS Outcomes as appropriate. Strategic objectives and results areas 62. This CPS sets out a new approach for the Bank’s engagement in Guatemala. The strategic framework is aligned with the Government’s development agenda, including fiscal reform, malnutrition, competitiveness and citizen security. Given past experience, the CPS program proposes a flexible business model that is synchronized with the country’s budget process to facilitate congressional approval. The program is selective and organized around two strategic objectives to: (i) Strengthen public policies for social development; and (ii) Promote inclusive and sustainable economic growth. In addition, two cross-sectional themes have been identified which are critical to achieving the above objectives: citizen security and gender. 63. In supporting the two strategic objectives and transversal themes, the World Bank and the IFC will rely on their comparative strengths. The Bank will build on its past engagement in promoting an efficient public sector with emphasis on improving results in the social sectors. The Bank and the IFC will work together to develop and strengthen an agenda to support competitiveness. In particular, the IFC, consistent with its mandate, will focus on the following four areas: inclusive growth; climate change; competitiveness and innovation; and regional integration. 64. The IDB strategy is both complementary and consistent with the WBG CPS. The indicative IDB Country Strategy focuses on rural development, including productive development and diversification of the rural economy, improving health and malnutrition outcomes in rural areas and access to services. A second area of focus is to improve 18 coordination of social policies and support efforts to rationalize social programs. The IDB will also continue its support on fiscal consolidation and tax administration, as well as on the citizen security agenda, which poses a growing challenge to the country. Cross-cutting issues include gender, indigenous peoples and environment and natural disaster mitigation. 65. The combination of a simpler design, modest objectives, tight alignment with Government manifested priorities and close coordination with the IDB represents a departure from previous CPS strategies. In this context, the current CPS represents a new model of engagement, which focuses on a few objective areas and leaves open the use of all Bank instrument to achieve results. It explicitly acknowledges that any lending will be frontloaded given the risks associated with Congressional approval of new projects at the end of the political cycle. The Progress Report will provide an opportunity to review this approach, including bundling options and specific Bank instruments, and fine tune the results framework accordingly. The paragraphs below detail the broad objectives and results areas to which this CPS will contribute, as well as a suite of traditional and new financial and other instruments to be employed. It also mentions specifically the role of the IDB in key CPS results areas. (i) Strengthen Public Policies for Social Development 66. Support under this pillar will help consolidate efforts since 1996 to improve the capacity of the state to deliver social development outcomes in an efficient and transparent manner. The Government is committed to this agenda as part of an effort to strengthen the presence of the state in protecting the citizens from risks and economic fluctuation, accelerate improvement in human capital and broaden inclusion. Work under this strategic objective bears on the concerns of the Government with social expenditure (including nutrition), and indirectly with security by bringing effective Government to the local level. It supports concrete Government initiatives such as Barrio Seguro which are targeted to the most vulnerable neighborhoods in the country. CPS results are organized around two areas: (i) create fiscal space for social expenditures while improving transparency to build confidence that money is well spent; and (ii) improve the targeting and efficiency of social expenditures for better results. Result Area 1. Create fiscal Space and improve transparency in the budgeting process 67. The support for strengthening capacity to mobilize internal resources seeks to further open fiscal space within the framework of a stable macroeconomic management. The Bank will use the Fiscal Space for Greater Opportunities DPL series to support the tax policy and tax administration initiatives of the Government. The CPS outcome is to bring the tax revenue collection to 12 percent of GDP by 2013 and maintain this level as a minimum. The administration’s efforts will include actions to ensure a fair enforcement of the tax law and reduce tax evasion of VAT. The increase in public revenues will allow for maintaining, if not expanding, social expenditures. The supporting DPL series has been closely coordinated with lending operations of the IDB related to fiscal policy. 68. Improvements in transparency and governance are likely to stem from efforts to strengthen the tax administration. Congress recently reformed the Tax Code and passed a new Customs Law. The first of these reinforces the authority of the Tax and Customs Administration’s (SAT) to control, audit, and sanction, which is intended to reduce evasion through improved auditing practices. An expected CPS Outcome in this area is to increase the number of audits of exports and imports by 25 percent by SAT, an agency that administers both tax and customs. 19 69. There will be continued attention to the improvement of the budget process. The Bank will maintain the policy dialogue with the Government to further strengthen public expenditure control and procurement efforts (Guatecompras) to promote fiscal savings, building on the findings of the 2012 Public Expenditure Review. In addition, to help guide ongoing public finance management reform a Public Expenditure and Financial Accountability (PEFA) study has been requested jointly with the IDB and the EU. The PEFA Update, expected for FY13, will set the basis for a strategy to further improve public financial management that identifies priority areas of attention. A CPS outcome for this intervention area will be articulated at the time of the Progress Report. 70. The CPS will continue to provide support to consolidate gains in expenditure transparency. Guatemala’s participation, implementation and successful execution of the Extractive Industry Transparency Initiative (EITI) will improve transparency in an industry historically vulnerable to corrupt practices. It is expected that by the time of the Progress Report Guatemala would have become a certified EITI member and that by the end of the CPS the country will be in compliance with reporting procedures. Greater transparency in the extractive industry will mitigate the problem of imperfect information, thus leveling the industry’s playing- field and promoting foreign direct investment in Guatemala. A recently signed multi-donor trust fund is supporting technical assistance to increase transparency and accountability in the management of the mining, oil and gas sectors. 71. The Bank will support the Government’s efforts to fight corruption. The Bank and the United Nations Office on Drugs and Crime (UNODC) have recently started supporting Guatemala with technical assistance in recovering assets in other countries under the Stolen Asset Recovery (StAR) Initiative. By tailoring training towards domestic practitioners (e.g., prosecutors, judges, fiscal intelligence units, investigators etc.) whose institutions have an interest and/or mandate to pursue stolen assets, StAR seeks to strengthen local capacity to recover assets and reduce impunity. The target outcome for the end of the CPS period is to strengthen the capacity of the Attorney General’s Office and the Supreme Court to recover assets through penal and civil actions. The Bank, with the support of a Dutch Trust Fund, will continue working with the Controller General’s office to improve auditing and reporting on the budget process. The Bank also remains ready to provide technical assistance to the Government’s efforts to institutionalize the successful pilot project under the Construction Sector Transparency Initiative (CoST). The IDB supports the transparency agenda through technical assistance to improve the country’s ability to combat money laundering in the financial system. Results Area 2. Improved Results in Social Sectors 72. The CPS will focus on assisting the Government to improve the effectiveness of social expenditures and its impact on results. The Bank will build on the institutional platform created by SIAF and support the Government’s focus on delivery of results, with emphasis on strengthening the monitoring and evaluation framework. The CPS Outcome is a results-based budgeting agreement with at least one line Ministry (e.g, health) that includes an operational monitoring and evaluation framework for priority health programs. 73. The support on results will include ensuring the sustainability of achievements of the ongoing health and nutrition and education interventions that are coming to an end during the CPS period. It is expected that gross lower secondary enrollment in targeted rural areas will not fall below 73 percent in the final year of the CPS period. Likewise in health, 20 gains in maternal and infant mortality will be maintained. In addition, it is expected that the availability of professional attention to expecting mothers will increase in the 83 priority municipalities identified by Government. To ensure the sustainability of health and education outcomes, the Bank will also provide support through the programmatic DPL and accompanying NLTA. 74. Several CPS activities will aid the design and implementation of the Government’s flagship Zero Hunger program as well as other social sector interventions. The proposed DPL series includes support for the development of the Zero Hunger program and a schedule of expansion to municipalities across the country over the next two years, with a targeting mechanism to prioritize those with the highest rates of malnutrition. The Government and the Bank are currently finalizing an NLTA for Zero Hunger, including a strategy for monitoring and evaluation. By the end of the CPS period, Zero Hunger is expected to be under implementation in 83 priority municipalities, providing at least 30 percent of the children less than 1 year old with appropriate growth promotion package of services for their age. Regarding food security, the ongoing Land Administration Project supports government efforts to implement guidelines on food security which were approved in May 2012 by the Committee of Food Security under the auspices of FAO.4 75. The Bank will support efforts to strengthen the Government’s coordination and articulation of social policies, including at the local level. The Ministry of Social Development (MIDES) was created in February 2012 to coordinate social policies across various ministries and public agencies. The Bank will provide support to improve targeting and maximize the impact of social assistance, including efforts to address food price spikes, if needed. A first step in that direction will be the creation of a unique beneficiary registry which is expected to be in operation by the end of the CPS period. Proposed technical assistance on Social Protection and Health will pilot the implementation of multiple coordinated social interventions in one or two communities. An expected CPS outcome, to be confirmed at the Progress Report, will focus on measuring targeting effectiveness of the social programs included in the unique beneficiary registry. The IDB is discussing the possibility of strengthening the Government’s coordination and articulation of social policies as part of a planned budget operation, and has a technical assistance operation under execution to strengthen Guatemala’s statistical capacity through the census. 76. The Bank will support the Barrio Seguro (Safe Neighborhood) program of social interventions for disadvantaged and unsafe neighborhoods, including the targeting strategy as well as its links to Zero Hunger and other social policies. The Barrio Seguro program coordinates the implementation of a variety of Government initiatives in high-risk communities. The support of the Bank will focus on building the capacity of these communities to stimulate private investment in basic services and housing for the poor as an important contribution to reduce incentives for crime and violence. For example, one ongoing initiative under Barrio Seguro is to foster youth leadership through the program Jovenes Protagonistas. It is expected that by the end of the CPS 20,000 participants will have been included in the program. The IDB is also exploring with the Government a comprehensive strategy to support neighborhood upgrading and this would be elaborated in collaboration with the Bank. 4 This is the “Voluntary Guidelines on the Responsible Governance of Tenure of Land, Fisheries and Forests in the context of national food security�. 21 (ii) Promote Inclusive and Sustainable Economic Growth 77. The WBG will support the Government’s efforts to give prominence to the competitiveness agenda, and endeavor to help set the country on a higher growth trajectory. In doing so, the WBG will build on past achievements, but, more importantly, will seek to accompany the Government in articulating a comprehensive competitiveness agenda that is both inclusive and sustainable. Given fiscal constraints, the increased revenues from fiscal efforts will primarily go to benefit the social sectors to build human capital. This will be a challenge for the other elements of the competitiveness agenda which will need to be financed with additional resources from within the budget or from more novel solutions, such as Public Private Partnerships (PPP). 78. In line with the lessons learned during the previous CPS period, improving growth requires a new approach to Bank engagement. During the CPS period the WBG will seek to improve outcomes through innovative project design and the use of a mix of instruments (i.e., analytical work, bringing together different stakeholders, support for PPPs and just-in-time technical advice). The IFC will lead the dialogue in this area of engagement in close collaboration with IBRD and MIGA. Within this strategic objective, Bank support is organized around the following results areas: (i) Infrastructure and Logistics; (ii) Environment and Disaster Risk Management; and (iii) Rural Development and SMEs. Results Area 1. Infrastructure and Logistics 79. Support for infrastructure will include a diagnostic of the current public-private partnership (PPP) framework and technical assistance to increase the capacity of public agencies to manage investment and maintenance. The latter may include advisory services for specific sectors. It is expected that by the end of the CPS period the country will have in place the institutions capable of negotiating, monitoring and improving performance of PPPs, including managing environmental and social safeguard considerations. In addition, the WBG will focus on the transport sector, supporting efforts to build PPP capacity and engage the private investment in this sector. By the Progress Report the priority interventions in transport will be determined by Government, including the areas of WBG engagement. 80. The Bank will complement IFC’s activities to improve logistics, including roads, airports and ports, to facilitate economic activity. The Bank will provide support to assess the viability of airports, ports and related road structure as well as the development of a tourism master plan. This will be done in close cooperation with IDB and other partners. An additional item on the logistics agenda is to improve the operations in customs, where the country lags. The Government is aligning Guatemalan customs with the Uniform Central American Custom’s Code, which will not only strengthen regional integration but also improve capacity to combat contraband and customs fraud. The Bank will support the elaboration of regulations governing the new Customs Law. The vision for the long term is to build an integrated regional view of development linking the interior of the country—where the bulk of the population is located— with the region and the rest of the world. The CPS Outcome is to improve the availability and quality of supporting infrastructure for international trade as measured by the infrastructure component of the World Bank’s Logistics Performance Index. 22 81. The CPS will strengthen its engagement in improving housing and social infrastructure to improve economic opportunities and security in vulnerable areas. As mentioned above, the Bank will support the Barrio Seguro program through two pilots (Mancomunidad del Sur and in Guatemala City). These pilots include social infrastructure investments such as community centers offering daycare, play areas and sports courts, improved access streets or stairs, and services like water and sewage. These interventions can have a positive impact on economic competitiveness and social inclusion. To enhance South-South cooperation the Bank will promote exchanges with Bolivia, Honduras and Brazil along these lines. In urban housing, a trust fund-sponsored NLTA is building capacity for banks to use mortgage portfolios as collateral to secure credit lines, thus increasing resources available for lower-middle class families to purchase housing. In rural municipalities, the ongoing Economic Rural Development Project (PDER) has a component using participatory techniques to prioritize development plans. This process has already been successfully completed in 45 municipalities in 2011, and 100 more are targeted for 2012. Finally, the Bank is initiating a dialogue with the Government around issues of urban upgrading, including solid waste management. 82. Within the renewable energy space, investments are expected with private sector clients that won a recent Power Purchasing Agreement (PPA) bid coordinated by the energy sector regulator, CNEE. This would support a total of 210MW in new hydro capacity, equivalent to 14 percent of today’s energy demand in the country. This will be further complemented by other potential investments in a second round of PPA bids, targeting additional hydro capacity of 270MW. The two bidding processes will help the country replace 480MW of thermal energy produced with fuel oil plants by 2016, and in turn reduce the dependence of imported energy supplies and the country’s carbon footprint, as well as improve the competitiveness of the manufacturing sector with lower power prices. These investments will also take advantage of the regional electricity market (MER) that will come into operations in the next two years once the Central American Electrical Interconnection System (SIEPAC) system finished. Results Area 2. Environment and Disaster Risk Management 83. The Bank will bolster Government’s efforts to address major environmental challenges which have not received prominence in the past. Guatemala, despite having significant environmental and cultural assets that need to be protected, has been slow to focus on these issues. The Bank, through TA, will assist the Government on strategy formulation building on its international know-how and drawing from successful interventions in the region. A CPS Outcome will be defined at the time of the Progress Report. As part of the Economic Rural Development Project, the Bank is helping create and sustain supply chains with a specific focus on the sustainable use of natural resources such as precious hardwoods, in an effort to limit deforestation. By the end of the CPS it is expected that 105 supply chains with an environmental component will be in place. The Bank is also engaging in knowledge exchanges and capacity building with officials in SEGEPLAN, the Environment Ministry and the Ministry of Energy and Mines on the use and importance of WBG environmental safeguards, which is expected to inform not only WBG projects but also the broader public investment portfolio. 84. Support for enabling the country to respond effectively and quickly to natural disasters and to adapt to the impacts of climate change will be scaled up. Given that the current DPL with a CAT DDO is fully disbursed, the Bank stands ready to continue its support to the Government to build capacity to address, both institutionally and financially, the impact of 23 natural disasters, including potentially with a second operation. This support would build on the positive experience of the first CAT DDO Project which mainstreamed risk management methodologies into municipal and departmental development plans. A trust fund is also under implementation to support the creation of an agricultural insurance market to help rural producers manage natural disaster risks and the impact of climate change. The IDB is active in the area of climate change adaptation, with technical assistance loan on national strategy and in helping rural, indigenous communities adapt to changing climate patterns and a Policy Based Loan. Results Area 3. Rural Development and SMEs 85. The agenda of supporting rural development will continue to be the core of the IFC’s inclusive approach to development. Within agribusiness, the IFC invested US$100 million in a regional sugar company during FY09-12, targeted to the expansion of production, as well increase the co-generation and ethanol operations in the country and its regional subsidiaries. This investment has promoted regional integration in the sector and facilitated further south-south investments for the client, a major provider of employment opportunities in rural Guatemala. The IFC will continue to invest in agribusiness by broadening its investments to other competitive export-based commodities to generate employment in rural regions of Guatemala. 86. Promoting the growth of the small business sector is an important focus of WBG activity in the CPS, through direct investments, capacity building and creating a more amenable business environment. The Bank’s Enhancing Micro, Small and Medium Enterprise (MSME) Productivity Project is designed to stimulate the growth of MSMEs in selected value chains. This Project is not yet effective and hence the necessary surveys to establish adequate baselines and targets have not been undertaken. CAS outcomes will focus on stimulating the growth of MSMEs and increasing value. The quantitative indicator will be defined at the time of the Progress Report. IFC Support to SMEs will continue through a US$10 million newly formed private equity fund, which will focus on investment in health care, technology, light manufacturing and financial services sectors. In the financial sector the IFC will continue financing trade and supporting regional firms in south-south investments. Through the Sustainable Business Advisory services, the IFC will support capacity building of SMEs in selected supply chains. 87. The Bank and IFC are providing joint technical assistance to assist the Government in improving the environment for opening and operating new businesses. Following up on the successful efforts in FY11-12, technical assistance for ‘Doing Business’ improvements will similarly be strengthened, with a focus on supporting job creation through a competitive private sector. This support is being provided through a cooperation agreement to work in the area of business regulatory and institutional reform, to simplify business laws and regulations, strengthen institutions that implement them and reduce the gaps between laws and their implementation. Results in this area are expected to be a reduced number of procedures to open and operate a business, and a reduction in time and costs of transactions to deal with regulations. Measurement will be tracked through the MSME project and targeted subsections of the Doing Business Survey. CPS Outcomes focus on reducing barriers to opening a business and obtaining licenses. 24 88. The Bank will continue efforts to promote greater economic opportunities in rural areas, in coordination with the IDB. The CPS will continue to support outcomes to improve rural productivity and expand economic opportunities for very small farms, through ongoing Bank projects. The Bank’s ongoing Economic Rural Development Program—funded jointly with the IDB—is expected to deliver outcomes in rural productivity that will contribute to higher incomes and greater smallholder resilience. The Bank is also supporting the Government’s efforts to improve land administration and titling, which is expected to lead to greater satisfaction with land registration services and foster inclusiveness of women and indigenous communities. The two Bank operations mentioned above will close by the time of the Progress Report. Further WBG support will be tightly coordinated with the IDB, as rural development is likely to be one of the primary focus areas of the Country Strategy under discussion. The Bank is also planning to undertake a Country Social Analysis (CSA) which could include measures to specifically address indigenous people’s constraints, concerns and priorities. In addition, the Bank’s ongoing Land Project is tracking the inclusiveness of the land administration process in terms of women and indigenous communities. 89. The CPS will respond to the Government request to assist with developing the institutional framework needed to furnish adequate education and skills to meet the development challenges ahead. The ongoing Education Project supports the Government’s efforts to improve access to and quality of basic education services, particularly among rural and indigenous populations. (iii) Transversal Themes for Development Cross-Cutting Theme 1: Citizen Security 90. Support for the Government strategy on justice, security and crime runs through the WBG program. This support represents a first step in an area where the Bank has limited engagement in Guatemala. The approach therefore will support prevention in areas where the Bank has been present in the past, and undertake new activities as part of promoting experiments to assess alternative options of support. Strengthening the capacity of the State to mobilize resources and improve results effectiveness should help close key gaps in service delivery that weaken the legitimacy of the public sector. The NLTA on urban infrastructure will provide targeted support for the implementation of the Barrio Seguro agenda which improves the ability to deliver results at the local level from a variety of government programs. Barrio Seguro is an umbrella for programs that emphasize youth employment and training. The NLTA on Crime and Violence will take a more comprehensive approach and provide analytical support to the Government on its overall strategy to improve citizen security. The IDB and the World Bank will also consider undertaking a joint Public Expenditure Review (PER) on Security Expenditures.5 Finally, the overall focus of the CPS on inclusive growth is geared towards providing employment and training opportunities for youth. 91. Support to strengthening security at the municipal level may materialize in the form of investment lending during the CPS period. Ongoing south-south collaboration includes technical assistance in program development to adapt the Guatemalan setting to the experiences of the Barrios de Verdad (La Paz, Bolivia) and Barrio Ciudad (Honduras cities) projects, both supported by Bank lending. Dovetailing with this activity, the Bank is currently in discussions 5 This would build and expand on the Bank’s previous analytical work in the context of the 2012 PER. 25 with the Government to identify activities for Guatemala under the State and Peace-building Grant which could finance pilot activities to improve urban infrastructure in marginalized neighborhoods to make them safer and increase social inclusion. IDB is beginning implementation of a non-lending technical assistance project in support of reform to the national police force and has an investment project in the pipeline for 2014 to strengthen urban security and justice services. The Bank and the IDB are both supporting crime and violence in a subregional context, including support for a monitoring observatory as well as support to strengthen the regional Central American System of Integration (SICA). Cross-Cutting Theme 2: Gender 92. Gender considerations are mainstreamed into the Bank’s ongoing portfolio, notably the maternal health and rural development projects. Gender is a cross-cutting area for both the Bank and the IDB. The CPS, through its focus on improving the quality of public expenditures, will support the Government’s efforts to maintain or improve the gains in infant and maternal mortality, with the support of the ongoing Maternal Health Project which is nearing completion. The support of the rural development program is expected to increase rural income by strengthening supply chains, where 20 percent of beneficiaries are expected to be women. The program is also financing participatory municipal, departmental and regional development plans, with strong involvement of women. Due to the inclusive nature of the plan design, women's ideas, perspectives and demands are reflected in plans and in budgetary priorities. The Land Administration Project targets women and indigenous populations in cadastral surveying, land regularization, conflict resolution, titling, and registration. A gender indicator for the CPS program will track satisfaction with land registration services and access to eligible parcels of national lands.6 93. In addition, the Bank is committed to including gender indicators in all new operations. For example, the Small and Medium Enterprises Project, when effective, will include specific targets for increasing female micro-entrepreneurs. The agenda on security, particularly Barrio Seguro, considers as one of its main drivers of success, the ability to engage the participation of women and young, underemployed men, in the implementation of its programs. In this regard, south-south exchanges with Bolivia have emphasized the gender dimension with a focus on initiatives to provide daycare to promote workforce participation. In this context, a CPS milestone includes women's participation in consultations on prevention of gender-based violence prevention. To the extent possible, future DPL lending will also consider gender sensitive filters. 94. The Bank is also supporting the Government’s gender agenda through knowledge and events to raise public awareness of the challenges and opportunities in Guatemala. The work in Guatemala builds on the World Development Report (WDR) for 2012 on Gender and Inequality as well as the regional study, Una (R)evolución de género en marcha, that analyzes trends in female labor force participation over the past decade in Central America and makes recommendations on how to increase participation of women in the labor market. The work under the CPS also builds on a close cooperation with the UN System, in particular UN Women as well as with the Presidential Secretariat for Women (SEPREM). As a first step this collaboration materialized in two public events one launching the regional study on March 8, 6 Baseline under preparation as part of the Land Administration Project. 26 2012, and a second one in June 2012 focusing on female access to economic opportunities, with broad participation of civil society and public and private sector representatives. CPS Program FY13-16 95. Indicative country demand for the financial support component of the CPS period FY13-16 is estimated at US$525 million and could include a mix of DPL, investment lending and possibly guarantees. The program would be frontloaded in the first two years of the CPS period given the high risk of effectiveness delays towards the end of the political cycle in Guatemala. The Bank will increase its focus on implementation of the portfolio and accelerating disbursements towards the end of the CPS period, and undertaking the necessary analytical work and technical assistance to prepare the policy dialogue with the next administration. The FY13 program is firm with the US$200 million DPL. The lending program in FY14 will depend on government demand and how performance evolves in the course of the CPS period, and on IBRD’s lending capacity as well as demand from other borrowers. Table 4. CPS Indicative Program FY13-16 Strengthen Public Policies for Social Development Promote Inclusive and Sustainable Economic Growth Ongoing Maternal and Infant Mortality Project US$49m Rural Roads Project US$47m Portfolio Education Quality Project US$80m Support for Rural Economic Development US$30m Emergency Social Services Project US$100m Land Administration US$62m MSME Project US$32m (pending effectiveness) New Fiscal DPL Series (FY13 and FY14) US$200m and CAT DDO 2 (TBC) US$75m Lending US$150 million AAA/ Social Protection and Health NTLA Logistics and Transport NLTA (FY14) Convening Crime and Violence NLTA Urban Infrastructure Upgrading NLTA (FY13) services PEFA Update (FY13) Solid Waste Management NLTA (FY14) International Conference on Boosting Economic Growth (FY13) FSAP Update (FY14) Country Social Analysis (FY14) Trust Scaling Up Nutrition EITI Funds Strengthening of the Country Public Financial Institutional and Legal Framework for Crisis Risk Control Framework Management Pilot for Urban Infrastructure 96. The current portfolio will contribute to delivery of outcomes, particularly during the first half of the CPS period. The portfolio under implementation includes seven projects and commitments of US$400 million. Half of the portfolio is undisbursed and a little over 40 percent of the portfolio is at risk. Disbursements on the trust fund portfolio are also lagging. Trust funds are 65 percent undisbursed, which represents roughly US$18 million. The poor portfolio performance is due in part to structural factors in the country’s political and institutional system. Implementation typically slows during the political transition due to high levels of turnover in government officials and changing priorities in what is already a weak institutional environment. Effectiveness delays and difficulties due to inefficiencies and rigidities in the budgeting process further complicate portfolio performance. Project fiduciary risk is generally assessed as moderate for central, non-complex operations and substantial for multi- institutional, decentralized and more complex operations. 27 97. The Government has reviewed the Bank portfolio and suggested some simplification and restructuring that would help accelerate disbursements. The practice of periodic mini- Country Portfolio Performance Reviews (CPPRs) will continue and additional procurement and safeguard support will be provided for particularly complex operations. The Government has requested that all future loans be designed based on models that are simple and have been proven to work. Officials intend to maximize programmatic support through development policy lending in areas where there is sustained commitment to push forward reforms. 98. The CPS will also focus on building the role of the World Bank Group as a knowledge provider. Developing a relevant program of analytical work will be a key objective of the CPS as a provider of knowledge and convening services. While a reasonable amount of work has been done in this area, more efforts will be made to improve dissemination and create space for dialogue among different stakeholders in the country. Intense use will be made of NLTA in order to allow for different forms of dialogue with authorities and other stakeholders. The Bank will also improve coordination efforts with IDB and other partners to maximize the impact of our knowledge services. The Bank’s convening services will be used to bring stakeholders together to discuss critical issues, such as social inclusion, gender and crime and violence. The Bank will sponsor with local and regional partners, one large conference in Guatemala, starting in FY13 with an event on “Boosting Economic Growth in Guatemala�. Results Monitoring 99. This CPS proposes a streamlined approach to monitoring and evaluation. Given the limited size of the portfolio and selective nature of engagement, the design of the results matrix is realistic and consistent with a flexible program. This will require continuous follow-up which will be done as part of the portfolio review process. To the extent possible, any portfolio restructuring will include a breakdown by gender of key indicators. A challenge during the CPS period will be to develop mechanisms to track analytical work, technical assistance and conferences in such a way that the full impact of the Bank’s interventions may be measured. A monitoring and evaluation strategy will be defined in the medium term to better track results for these instruments. Partnerships 100. The WBG is collaborating with other Development Partners in key areas. In line with the principles of the Paris Declaration, the WBG participated in a series of consultations and coordination mechanisms with other bilateral and multilateral partners to exchange ideas and receive feedback on the proposed strategy. Other development actors responded positively to the interest of the WBG in establishing an ongoing dialogue to better coordinate efforts in Guatemala, both at the level of the CPS and specific issue areas and projects. The WBG, IMF and IDB participated in a full-day event in January of 2012 in which the incoming Government presented its action plan and requested support from multilateral institutions as well as an efficient division of labor. The IMF takes the lead on the financial sector, monetary policy and macro-fiscal issues, in the context of macroeconomic monitoring activities. The Bank participates and coordinates at the field level with other UN agencies through the UN Country Team (UNCT). In this context the Stolen Asset Recovery Initiative (StAR) is co-managed through the WBG and UNODC, and the WBG also works in concert with UN Women and others to promote the topic of gender. The Bank is also an active member of the G-13—a grouping of 13 bilateral and multilateral donors in Guatemala. In this regard the country organized a meeting 28 in June 2012 to coordinate the WBG’s activities and strategy with other donors, with the aim of strengthening complementarities and avoiding overlap. Regional 101. The CPS period will support the Guatemala program through several regional initiatives. In support of a greater integration of the Central American regional economy, the Bank will work with Guatemala to facilitate trade by reducing barriers between countries, for example customs procedures and border crossing standards. Additional initiatives include: (i) support for a Central American Private Sector Task Force; (ii) support to strengthen the public sector through a Regional Integration Training Program (launched in January 2011) and a Central American Leadership program with the INCAE Business School; (iii) support to the Central American Council of Ministers of Finance (COSEFIN) for the preparation of a Central America-DR Regional Investment Plan and a trade facilitation window; and (iv) support for the preparation of a Central American Disaster Risk policy. 102. Support on crime and violence will have a strong regional perspective. Bank support in this area centers on the Bank’s convening power, including analytical work and technical assistance, as well as participation and co-organization of high-level events in the region. In addition, the 2011 Security Conflict and Development World Development Report (WDR) and the regional study on Central America Crime and Violence are informing the regional debate on the topic with analytical work. The Bank is also contributing to the institutional strengthening of the regional institution responsible for the citizen security agenda in Central America (i.e., SICA) with financial resources from the Institutional Development Facility (IDF). Similarly the Bank, together with the IDB and other bilateral donors, is providing technical assistance to implement SICA's Regional Security Strategy. This includes the creation of a regional crime observatory (OBSICA) to generate comparable statistics on violent crimes across Central American countries. Through an IDF grant, the Bank is supporting the creation of Technical Units in Guatemala and Panama responsible for feeding information to OBSICA using the Regional Security Indicators System. Consultation process 103. The Bank organized two formal sessions of consultations as well as several informal gatherings with civil society and private sector groups as part of the process of designing the CPS. The purpose of the consultations was to hear reactions to proposed Bank activities and receive input on how the Bank might better promote development in Guatemala. The consultations—held on June 8, 2012 in Guatemala City and June 14, 2012 in Quetzaltenango— brought the Bank’s country team together with a wide variety of civil society representatives. Participants came from groups representing the private sector (SMEs and industry), women (women’s rights, productive associations, and political groups), indigenous communities, development and human rights NGOs, youth, religious organizations and universities, among others. Groups came not only from the two host cities, but also rural areas and other large towns. 104. Consultation participants were overall very supportive of the proposed areas of engagement contained in the CPS as well as the two cross-cutting themes, which is consistent with the findings of the Client Survey (Box 5). The topic of citizen security was a major topic of discussion, particularly in the Guatemala City consultation, with participants suggesting that the Bank become more involved in this area, especially in prevention-oriented 29 activities. The Bank-supported urban infrastructure upgrading efforts underway were seen as a positive step in this direction. Infrastructure, especially related to transportation, was a stronger focus of interest in Quetzaltenango, which is unsurprising considering this provincial city’s more remote location and the desire by the private sector operators and ordinary citizens to be better connected to the rest of the country and the region. The Bank and IFC’s proposals to support logistics and transport infrastructure were well received, although participants did call for more direct investments to the private sector. Areas that participants singled out as requiring more attention by the WBG—either through analysis or projects—included rural development and environmental protection, the justice sector, public university infrastructure and youth interventions, among others. Box 5. Guatemala Country Survey FY13 – Overall Findings The FY13 Guatemala Country Survey (CS) findings suggest strong alignment between domestic perceptions of key development priorities and the role of the Bank in the country. Generally, stakeholders in Guatemala seem optimistic about the direction of the country - 80 percent reported that the country is moving in the right direction. Among the development priorities identified, stakeholders indicate that poverty reduction is the most critical. Stakeholders also point to rural development (distinct from agricultural development) and basic education as vital to reducing poverty. Economic growth emerges as a top priority as well as promotion of job creation, foreign direct investment, and development in the energy sector. Pluralities of respondents recommend that the Bank should focus both financial and knowledge resources on the rural sector, followed by poverty, basic education and basic infrastructure, which shows strong alignment between priority development challenges and the perceived role of the Bank. The Bank is primarily valued for its financial resources and technical assistance. The CS findings suggest that relationships between the Bank and partners, stakeholders, and clients are strong. Views on how respectful the Bank is with clients are high, as are ratings on Bank collaboration with Government and other donors. Ratings related to technical aspects of the Bank’s operations in Guatemala, including Bank approvals and reviews, using country systems, implementation support, etc. are generally positive. The Bank receives a lower rating for alignment of its work with country priorities and whether the Bank supports programs that are realistic for Guatemala, its flexibility in the face of changing domestic circumstance, and most importantly, sustainability of results. Additionally, while stakeholders do not seem to question the quality of knowledge products, ratings on their use are disappointing. The CS finds that only two out of ten respondents say they use the Bank’s knowledge monthly, half reported ‘a few times a year’ and nearly a quarter responded ‘rarely.’ Going forward, this finding should be investigated to better understand why knowledge/research is being used infrequently and how products can be used in innovative ways to meet clients’ needs and ensure strong development results – particularly in light of how much respondents in Guatemala value technical assistance. V. RISKS 105. The high vulnerability of Guatemala to global shocks poses a major risk to the country, especially the poor. The strong economic link with the United States and the reliance of the poor on remittances from abroad, means that a slowdown in the global economy will lower the incomes of the poor disproportionately in an environment when many households have depleted their savings to cope with previous shocks. This has the potential to produce lasting effects in terms of human capital accumulation, such as withdrawing children from school. The CPS will contribute to the mitigation of this risk through support for social assistance programs, including for better targeting and results. 106. Rising international food prices are a concern given the potential impact on the poor and the most vulnerable sectors. Food stocks are lower than in previous years and the global economic recession has curtailed remittances, which have traditionally been an important mechanism for people to cope with poverty and hunger. The Government’s “Zero Hunger� Program is one of the main tools to implement integral development approaches to respond to hunger and food insecurity. While the likelihood of a significant direct fiscal impact of increasing food prices is limited, the Bank and the IDB are supporting the “Zero Hunger� 30 program, and together with the IMF, and together with the Government will assess the need for scaling up safety net programs, should food prices increase significantly in Guatemala. 107. Political uncertainty in Guatemala poses a risk to the implementation of the CPS program. Of particular concern is the recurrent gridlock between the executive and legislative branches and the corresponding impact on the approval prospects for multilateral lending. To address this risk, the Bank will choose entry points for Bank lending carefully, and intensify its dialogue with key stakeholders, including Congress. The Bank has also agreed with Government to present its lending as a package, in coordination with other partners such as the IDB, and align approval with the budget process. This strategy is expected to minimize delays in effectiveness. 108. Crime and violence remains a serious issue and exacts a high cost on development. Security concerns, combined with institutional weaknesses, are a destabilizing factor for political, social and economic life in Guatemala. The Bank’s approach to mitigate this risk is to align its evolving strategy with the Government’s own vision to contain crime through the provision of better services and the creation of opportunities, particularly for youth. The work with other development partners, particularly the IDB, follows the same strategic direction. The Bank recognizes that behind the rise in insecurity are strong forces that may not easily be contained in the short term and hence the task of improving security is likely to extend beyond this CPS. 109. Guatemala is highly vulnerable to natural disasters. Guatemala is one of five countries in the world most affected by floods, hurricanes and earthquakes (see Box 4). Major climatic or seismic disasters had a significant economic and fiscal impact over the life of the last CPS, and can often delay the Government’s program as funding must be diverted to support emergency efforts. The Government has made some progress in disaster management and preparedness, and the focus on social protection programs, particularly for the most vulnerable, is an important tool to help the poor withstand recurring shocks. 110. Guatemala remains a difficult implementation environment for both the Bank and the IDB. Historically, the portfolio of investment loans has suffered due to delays in approval, changes in Government priorities following political transitions, high mobility of technical personnel and a low capacity for implementation, particularly in terms of managing Bank procedures and safeguards. To mitigate this risk, the Bank and the IDB are committed to adopting innovative solutions in order to address obstacles to implementation and improve delivery of results. 31 Annex 1. CPS Results Matrix Bank Program (and Country Development Goals Issues and Obstacles CPS Outcomes Milestones Partners) (i) Strengthen Public Policies for Social Development Results Area 1. Create fiscal space and improve the budgeting process A visible and effective Government Resource mobilization 1. Strengthen tax administration Increase in the number of audits of exports DPL Series for effective and tax policy as measured by and imports, including ex-post verifications, (FY13, FY14) development has been a maintaining the tax revenue to by 25 percent continuous challenge in GDP ratio at or above 12 Baseline: 346 (2011) IDB Guatemala and featured percent Target: 519 (2013) in the 1996 Peace Accords. The recent Baseline 11 percent in (2011) Tax information exchange agreements signed tax reform is an Target: 12 percent (2013) with seven countries important first step to Baseline: 0 (2011) address this challenge Target: 7 (2013) but political obstacles 2. Strategy to continue improving PEFA Update Completed DPL Series may arise during Public Financial Management PEFA Update (FY13) implementation. under implementation (results Strategy to improve quality of Public Comptroller General’s to be set at the time of the Financial Management completed Office Strengthening Guatemala has over the Progress Report) (TF, FY10) last 15 years been Strengthening of the working in improving 3. Guatemala compliant with Guatemala officially certified as EITI member Country Public the management of the EITI reporting procedures as Financial Control budget and has set the verified by the regular Framework (TF, basis for these efforts to reporting process. FY10) contribute to a more Bank Executed effective public sector. EITI Implementation The challenge moving (TF, FY12) forward is to link the IDB, IMF, EU advances of the past to 4. Capacity of the Attorney Training provided to District Attorney StAR Country a more results-based General’s Office and the General’s office and Supreme Court on Engagement budget approach. Supreme Court to recover International Best Practice for asset recovery (TF, FY 12) assets through penal and civil Transparency of the actions is strengthened Dutch Trust Fund public sector has improved but it remains an obstacle in critical areas for the engagement of the private sector, such as in the management of natural resources where clear and transparent 32 Bank Program (and Country Development Goals Issues and Obstacles CPS Outcomes Milestones Partners) rules would help. Results Area 2. Improved Results in Social Sectors A visible and effective Government A major obstacle to an 5. Improving the quality and Framework to monitor and evaluate the DPL Series effective Government transparency of public implementation of priority health programs has traditionally been expenditure as measured by the (vaccinations, malnutrition and infant and Guatemalan Health the ability of past establishment of at least one maternal mortality) is in place. and Social protection Governments to results-based budgeting pilot (NLTA FY13) allocate resources to (e.g, Ministry of Health) that MIDES has established the National System priority areas. Progress includes an operational of Social Information, including the Unique Support to Barrio was made during the monitoring and evaluation Beneficiary Registry (baseline 2011 = 0; Seguro (Pilot Program last administration in framework for priority health target 2013 = 3 (Bono Seguro, Jóvenes in Guatemala City and increasing social programs. Protagonistas and Bolsa Segura), all of which Mancomunidad del expenditures. The will be fully operational. Sur) (NLTA FY13) challenge is to 6. Maintain educational System of Scholarship for students that Education Quality and strengthen the capacity achievements reached by the comply with attendance requirements is in Secondary Education to target assistance to Progress Report place for targeted municipalities Project (ongoing) the most needed and to transform pilot Number of schools that offer the accelerated initiatives into strong Primary Education Program: (i) in budget programs. Monolingual Modality; (ii) in Bilingual Modality. In addition, the capacity Baseline: 72 (2011) of the country to track Target: 150 (2014) key development outcomes on a regular Lower secondary gross enrollment rate in basis remains weak, as targeted municipalities increases Baseline: well as the ability to 67% (2010) evaluate the impact of Target: 73% (2014) their efforts. 9th grate completion rates increases by 5 percentage Baseline 37% (2011) Target: 42% (2014) 33 Bank Program (and Country Development Goals Issues and Obstacles CPS Outcomes Milestones Partners) Crime and violence 7. Reduce maternal mortality. Mechanisms are in place to track the effective Maternal and Infant represents an Percentage of women in 83 use of budgetary resources allocated to health Health and Nutrition increasingly daunting prioritized municipalities who and nutrition. Project (ongoing) development challenge, are attended to during labor in which will require facilities by the Ministry of The Government has adopted a targeting DPL series resources and improved Public Health and Social mechanism for the Zero Hunger Program targeting of Assistance by qualified prioritizing municipalities with the highest NLTA on Social expenditures in a tight providers levels of chronic malnutrition. Protection and Health budgetary environment. Baseline: 0 Target: 25% (2015) Zero Hunger Program offices have been established in municipalities with the highest 8. Improve nutritional status of levels of chronic malnutrition young children: Percentage of Baseline: 0 (2011) children less than 1 year old in Target: 30 (2013) 83 prioritized municipalities who receive the appropriate growth promotion package of services for their age which include eight weight check-ups, one height check-up, one treatment of micronutrients and vitamin A Baseline: 0 Target: 30 % (2015) 9. Targeting effectiveness of the Tools and systems developed to assess the DPL Series social programs included in targeting effectiveness of the social programs Unique Beneficiary Registry according to different criteria (poverty, NLTA on Social improves (PR to establish malnutrition, violence). As measured, for Protection and Health baseline and target) example, by a Poverty Map. 10. Effectiveness of the Barrio Barrio Seguro programs (Jovenes NLTA on Social Seguro has been consolidated Protagonistas, Bolsa Segura, Beca Segura) Protection and Health Baseline: 0 (2012) are in place and being implemented. NLTA on Crime and Target: 20,000 participants in Violence Jovenes Protagonistas Housing Law Ordinance is approved. Building Capacity to Stimulate Private Investment in Basic Services and Housing for the Poor (TF, FY09) 34 Bank Program (and Country Development Goals Issues and Obstacles CPS Outcomes Milestones Partners) (ii) Promote inclusive and sustainable economic growth Results Area 1. Infrastructure and Logistics Improve connectivity within Public resources 11. Institutions in place capable of Identification of priority areas for PPP Bank and IFC Guatemala, as well as access to global available for investment negotiating, monitoring and engagement in the transport sector (IFC) technical assistance markets in infrastructure are improving performance of extremely limited, PPPs as measured by the Tourism Master Plan developed, including Logistics and given the low levels of launching of at least one PPP recommendations on airport, seaport and land Transport NLTA revenue mobilization access to tourism sites. and the priority given to social expenditures. Infrastructure Multimodal Plan to interconnect ports and airports. Innovative financing 12. Facilitate international trade by Logistics plan, including infrastructure, to Support to the mechanisms are improving the availability and improve foreign trade logistics and Government of necessary if Guatemala quality of supporting competitiveness, designed. Guatemala to Develop is to remove key infrastructure as measured by a Logistics Strategic infrastructure the infrastructure component of Plan bottlenecks for the World Bank’s Logistics (NLTA, FY13) development. Performance Index Baseline: 2.51 (2012) These bottlenecks are Target: 2.7 (2016) particularly handicapping the 13. Reduce barriers to business as Strategy in place to improve the business potential for Guatemala measured by climate to accelerate growth (a) the cost of opening a and access international business markets. The barriers Baseline: 52.5% of income per to doing business capita (2012) remain high as Target: 37% (2016) confirmed by Bank (b) cost of obtaining analytical work and construction licenses international rankings. Baseline: 541.7% of per capita income ( 2012) Target: 250% (2016) 14. Urban infrastructure developed Design of the Urban Infrastructure Strategy in Support to the in three of the municipalities the municipality of Mancomunidad del Sur Development of based on Barrio Seguro Mancomunidad del Strategy Sur (NLTA, FY13) 35 Bank Program (and Country Development Goals Issues and Obstacles CPS Outcomes Milestones Partners) Results Area 2. Environment and Disaster Risk Management Strengthen capacity to respond to Guatemala is one of the 15. By the end of the CPS it is Rural Economic natural disasters and climate change top five countries in the expected that 105 supply Development Project threats as a foundation for sustainable world with the highest chains with an environmental (ongoing) development exposure to natural component will be in place. disasters. The capacity CAT DDO (ongoing) of Government to 16. SEGEPLAN implements a Natural disaster risk management policy Trust Fund respond quickly has methodology for the updated and harmonized with other been traditionally weak incorporation of disaster risk Government investment programs. translating into management in new public heightened risks for the investment. poor and vulnerable. Recent progress needs to be followed up. The country remains vulnerable to environment degradation and future development efforts will need to pay close attention to sustainability, particularly in rural areas. Results Area 3. Rural Development and SMEs Promote inclusive rural development Guatemala remains a 17. Stimulate the growth of micro, Number of producers (men and women) Enhancing Micro, and create opportunities for rural highly rural economy small and medium enterprises participating in project supported training and Small and medium SMEs with limited integration Baseline: 0 outreach programs. (PDER Project) Enterprises into the national and Target: 18,000 producers with Baseline: Target 20 percent female Productivity Project global markets. improved sales and value participation (ongoing) Likewise the potential added (MSME Project) of the SME sector to Target: 70 percent of producers Promoting Clean drive development has are women Production through not been fully utilized Value Chains in given the many barriers 18. 20 percent value increase per Guatemala that exist for small unit in respective value chains. (TF, FY 12) firms. Baseline TBD at Progress Report (MSME Project) 36 Bank Program (and Country Development Goals Issues and Obstacles CPS Outcomes Milestones Partners) 19. Rural incomes increase as Number of partnerships developed with Rural Economic measured by: agribusiness Development Project Increase of total sales of the Baseline: 130 (2011) (ongoing) rural productive supply chain Target: 300 (2013) partnerships by US$50 million Land Administration during 2009-2016. II (ongoing) 20. Satisfactory rating by at least The technological platform that includes 75% of users of RIC’s Public RIC’s Public Registry is assessed Registry (and by at least 50% satisfactorily regarding its logistical, physical, of female users and indigenous and data security. population). 60% of parcels in national lands identified as eligible are regularized by FONTIERRAS, of which at least 50% benefit women and 50% benefit indigenous people. Inform policy debate on the development of a public-private strategy to create a dynamic agricultural and livestock insurance market. Agricultural Insurance Market Development (TF, FY11) 37 Annex 2. CPS Completion Report Country: Guatemala CPS Coverage: FY09-FY12 Date of Progress Report: August 11, 2010 (I) Summary of the findings of the self evaluation 1. This Completion Report evaluates the delivery of the Guatemala FY09-FY12 CPS as amended by the FY11 Progress Report. The CPS was implemented in difficult economic and political circumstances. The executive power never had the support of the Congress; insecurity increased driven by the rising influence of the drug trade; and, several shocks hit the economy, including climate-related natural disasters. These developments led to a challenging governability, security and macroeconomic situation with subsequent social consequences. The Government managed to maintain macro-stability and to soften the shock on growth while increasing social expenditures and protecting the most poor. The WBG used the flexibility incorporated in the design of the CPS to adjust its strategy to the changing circumstances, shifting resources to support mild counter-cyclical fiscal policy and to strengthen social expenditure. Project implementation, however, remained slow with a high percentage of the portfolio at risk. The Completion Report rates Bank and IFC performance as moderately satisfactory. Delivery of CAS outcomes as revised in the Progress Report was good across the board; however, the impact on development outcomes was limited, particularly in the area of competiveness. Progress on governance was made but will require sustained efforts in the future in order to achieve its full development impact. The rating for the achievement of results is moderately satisfactory. (II) Progress made toward achieving country level goals 2. Since 2008, Guatemala has been hit by subsequent external shocks including a food and fuel crisis and severe natural disasters. The impact of the 2008 global food and fuel crisis was exacerbated in 2009 by a drought that led to famines and harvest losses of up to 90 percent of certain crops; with over 4,000 communities at risk of acute malnutrition In 2010, the subsequent Pacaya Volcano eruption, tropical Storm Agatha and torrential rains from May to September led to widespread floods, landslides and evacuations. Over 500,000 Guatemalans suffered direct damages from these disasters, with low-income, rural and vulnerable groups disproportionately affected. Conservative estimates place the financial costs of the damages and losses at about 4 percent of GDP (approximately USD 1.6 billion). The recent E12 tropical depression of 2011 left over 22,000 houses damaged and the road system in ruin. Commerce and agriculture were among the sectors most affected, causing decreases in economic productivity and increased food insecurity for more than 40,000 families. 3. The economic situation was compounded by the global economic crisis in 2008 which led to a slowdown in economic growth. Recessions in key trading, investment, finance and remittances source countries – most notably the United States and Mexico – contributed to a significant decline in exports (6.6 percent), foreign direct investment (26.3 percent), remittances (9.6 percent), and international credit lines to domestic banks (25 percent) in 2009. Surges in demand for sugar, coffee and cardamom exports, as well as a moderate counter-cyclical fiscal stimulus – the deficit of the non-financial public sector increased from 0.7 percent of GDP in 38 2008 to 2.8 percent of GDP in 2009 – helped cushion the impact of the crisis. Real GDP growth declined to 0.6 percent in 2009 – the worst performance in two decades. 4. Since 2010, the Guatemalan economy has experienced a moderate recovery. With the improvement in the international situation, GDP growth increased to 2.8 percent in 2010, and 3.8 percent over 2011, underpinned by buoyant exports and domestic demand. Driven by international energy and food prices, inflation went up in mid-2011 to 7.6 percent from 5.4 percent at the end of 2010, but has come down within the 3.5-5.5 percent range, which is the target of the Central Bank. In 2011, the Government tightened fiscal policy reducing the deficit of the central Government to 2.8 percent of GDP from 3.3 percent in 2010 and maintaining the public debt broadly stable at 24.2 percent of GDP, up from 20.2 percent in 2008. The financial sector remains stable, with adequate levels of liquidity and capital. Although the current account deficit widened, a larger surplus in the capital account meant that net international reserves remained at comfortable levels. The country’s external position is solidly backed by gross international reserves of US$6.4 billion. The economic outlook is generally positive. Real GDP growth is expected to improve moderately to 3.1 in 2012. 5. Despite the recent adverse effects generated by the global economic crisis, Guatemala’s external debt rating is just shy of investment grade. Moody's rates Guatemala’s foreign currency Government bonds Ba1, with a stable outlook.7 In supporting the rating, Moody's cited a stable macroeconomic environment supported by prudent fiscal and monetary policies, a manageable debt burden and limited roll-over risk plus multilateral funding support. It also noted the debt-to-GDP ratio of 23 percent low compared to 45 percent for similarly rated countries. It stressed, however, that Guatemala’s economy has lagged in growth compared to similarly rated sovereigns, and pointed that an average GDP growth since 2003 of 3.6 percent was not enough to make significant inroads on the country's large social and infrastructure needs. 6. The Government increased social expenditure over the CPS period. The Government undertook, as part of its development program, efforts to enhance and protect social expenditures, including the initiation of a flagship Conditional Cash Transfer (CCT) program. Since its launch in 2008, the coverage of the program has been expanded to 307 out of 333 municipalities, benefiting over 949,500 families. The CCT “Mi Familia Progresa� expanded more rapidly than any program of its kind in the region; currently 22 percent of the Guatemalans are recipients of the program’s benefits. The program is, similar to several other social programs, managed by the Council for Social Cohesion and located at the Office of the President. It has been criticized for alleged links to electoral politics, poor transparency and a lack of sufficient supply-side response to the enhanced demand for education and health services.8 Driven by the expanding CCT and rural development programs, social expenditures increased from 4.4 percent (2008) to 5.3 percent (2010) of GDP contributing to the growth in the fiscal deficit. 7. Progress has been made in reducing absolute poverty and improving access to health, education and nutrition. The incidence of absolute poverty came down during the CPS period; with a steeper decrease in poverty in urban areas. The latest estimate is that the Gini 7 Fitch Ratings has the Central American nation at BB-plus, equal to Moody's rating. Guatemala is rated BB by Standard & Poor's, one notch below Moody's. 8 A December 2010 study placed the country’s CCT program 9 out of 16 in Latin American in terms of transparency and access to information. 39 coefficient of income concentration has decreased as well. According to the 2012 UNDP Human Development Report, health and education indicators have improved in Guatemala since 2008. However, the country still ranks below the average in the region—at the bottom in Latin America, along with Nicaragua and Haiti. 8. Crime and violence are on the rise. The increase in crime and insecurity in Guatemala is notable. The rise in homicides has continued unabated, reaching 47 per 100,000 in 2009 – 6.2 percent and 50 percent above the 2008 and 2004 levels respectively. Not surprisingly, 78 percent of Guatemalans consider it the principal problem in the country. The Government’s measures to strengthen justice and security forces included the extension of the mandate of the UN’s International Commission against Impunity in Guatemala (CICIG), the training of over 5,500 new police officers in 2008-09 (more than in 2004-2008 combined), and the removal of 1,700 police officers on grounds of corruption. In addition, Guatemala has joined other Central American countries to address jointly the challenges of crime, violence and insecurity. On a positive note, Guatemala is the only country in the northern triangle where homicide rates have persistently decreased since 2009. Still, assaults and other indicators driving citizen perceptions about insecurity remain high. 9. The difficult political environment prevented faster advances in much needed structural reforms. A good example has been the tortuous path of increasing tax revenues and the difficulties in passing a tax policy reform. The new Government that came in 2012 was able to get a tax reform approved in part because it had a de facto majority in Congress and negotiated several measures with the private sector. Lack of needed reforms to improve competitiveness has translated into low international rankings for Guatemala in doing business and limits the capacity of the Government and the private sector to profit from the country’s assets, including its sound macro-management, access to regional markets, superb natural resources, and an entrepreneurial culture. In a nutshell, while Guatemala has made progress in moving toward democracy and building institutions after a 36 year civil war, much remains to be done in generating the foundations for strong broad-based economic growth. (III) Highlights of the detailed evaluation of program performance 10. This evaluation follows the general structure of the CPS pillars, namely— (i) Enhancing Fundamentals; (ii) Sustainable Growth and Productivity; and (iii) Expanding Opportunities for Vulnerable Groups. Annex Table #1 provides a detailed stock taking of the results proposed in the CPS and revised by the Progress Report. The main finding is that although delivery of results as adjusted by the Progress Report was relatively good, the impact of the program on the higher level development outcomes fell short of original expectations. Enhancing Fundamentals 11. The ‘Enhancing Fundamentals’ pillar sought to maintain macroeconomic stability, while expanding fiscal space for priority spending, and improving governance and transparency. Delivery of results under this pillar was mixed. As noted, the country maintained macroeconomic stability without compromising its debt position or the international rating of its paper. However, it was not possible to expand the fiscal space as hoped and the increase in social spending shifted the composition of public expenditures towards consumption at the cost of investment. At the same time, Bank operations did provide crucial support to a range of country- 40 level achievements in economic management and governance, with repercussions for the country’s resilience and macroeconomic stability during the economic crisis. Progress was made in several governance-related areas, driven in part by the fact that the country was a CGAC pilot. However, these gains have yet to have a full development impact as measured by global indicators as pointed to by IEG in its review of the Integrated Financial Management III ICR. IEG notes that “while the scale of reforms has been considerable, it is difficult to see evidence of improved overall Governmental effectiveness.� The IEG review suggests that “it is possible that a much longer time span is needed before improved processes translate into outcomes.� Persistence would then be needed to ensure institutional reforms bear fruit over the medium and long term. 12. It was not possible to expand the fiscal space given the difficult internal and external environments. While the country maintained macro-economic stability, the contribution of the CPS program to this achievement was limited. The center of the CPS effort was on increasing fiscal space with the support of the DPL series approved in 2008 (First and Second Programmatic Fiscal and Institutional DPLs). The series is now completed and the achievement of outcomes has been rated as moderately satisfactory by the team ICR and its IEG review. As the tax reform that the DPL was intended to support did not passed, the original revenue targets were revised in the DPL and by the Progress Report. The revised targets were not met either, even if by a small percentage. As the Government undertook a mild anti-cyclical fiscal policy to face the crisis, public consumption expenditures rose from slightly over 9 percent of GDP in 2008 to close to 11 percent for 2011. Even if public investment dropped somewhat from 4.5 percent in 2008 to 3.8 percent of GDP in 2011, the fiscal deficit expanded and with it the ratio of public debt to GDP. 13. The incoming Government in 2012 passed a long-awaited tax reform. After a long history of failed attempts at tax reform, the incoming Government obtained approval a tax reform. The tax reform comprises two laws: Law 4-2012 (Ley Anti-Evasion II) and Law 10- 2012. It is comprehensive, covering corporate and personal income tax, registration of vehicles, credit from VAT, dividends, transfer pricing, and a number of simplification issues. The overall revenue impact is expected to be roughly 1 percentage point of GDP by 2013. The main impact is expected to be under the personal income tax, as a number of exemptions have been removed (e.g., until now individuals could claim the amount of VAT from their purchases as a credit against their income tax liability). Corporate income tax rates will be reduced progressively from 31 to 25 percent but dividends will be taxed at 5 percent and, crucially, a number of deductions are removed so the overall take from corporate income is expected to increase. The tax reform also enhances the enforcement powers of the tax and customs administration agency (SAT). 14. Progress in improving governance in the public sector (fiscal) continued. The most notable advances in public sector reform include the expansion of the country’s public financial management system (SIAF), the expansion of its e-procurement system (Guatecompras), the modernization of its tax administration agency (SAT) and the strengthening of financial sector supervision and transparency. Driven by the financial management TA project, SIAF and Guatecompras have improved transparency at all levels of Government. SIAFMUNI has been expanded to all 333 municipalities in the country. The supporting TA project has been 41 completed, with achievement of outcomes rated as satisfactory by both the team and IEG. This risk to development outcomes, however, has been judged significant by IEG. 15. The quality of financial sector institutions has improved as well. The DPL series approved in 2008 (First and Second Programmatic Fiscal and Institutional DPLs) helped tighten financial sector regulation, specifically the drafting and implementation of a new manual of risk- based supervision. The resulting improved financial conglomerate supervision, a crisis simulation exercise and revised international accounting standards for the country’s Central Bank, among others, contributed to the sector’s stability during the crisis while enhancing its transparency over the long haul. The banking sector also benefited from IFC financing for domestic banks as well as Bank technical assistance through the Financial Sector Reform and Strengthening (FIRST) initiative and a previous Financial Sector TA loan. The sector’s improving health enabled IFC to commit US$409.7 million to three private Guatemalan banks both in trade finance guarantees and long-term loans during the FY09-FY12 CPS period. 16. As a CGAC pilot country during FY09-11, Guatemala benefited from additional resources to address critical GAC shortcomings. These resources developed joint priorities with the GoG, which was a receptive and an interested counterpart. Resources were targeted to areas critical to increase the GAC impact of the Bank portfolio and engage a diverse array of State and non-State (or civil society) actors. Key activities included: (a) the creation for Guatemala’s Congress of a new website that informs citizens about the work of their elected deputies; (b) a cell-phone-based beneficiary survey of the country’s CCT program whose innovative methodology was subsequently disseminated in an LCR; (c) the ‘SIAF Mirror’ program that trained over 100 members of specialized CSOs in social audits using the Bank- financed SIAF and GUATECOMPRAS systems; and (d) assessments of the use of extra- budgetary accounts and the executive’s internal audit function following best practices that served, in the first case, as a basis for a new regulatory framework. The GAC agenda also benefited from a US$2.2m Trust Fund to strengthen Guatemala’s Comptroller General’s Office. In particular, this TF is helping strengthen: (i) the country’s public financial control framework; (ii) the methodology used for specialized non-financial audits as well as staff capacity; (iii) the essential institutional functions of the Comptroller General’s Office and (iv) civil society oversight of public financial management, following-up on a smaller-scale CGAC pilot social audit activity. 17. In line with the Bank’s governance strategy note, ‘Guatemala’s C-GAC Experience’, country- and project-level GAC activities complemented Bank sectoral interventions. Priority focus has been given to sectors prone to corruption. Starting in FY10, a policy dialogue on transparency in the procurement of pharmaceuticals (Guatemala faces the highest end-user prices in Central America) included a rapid assessment of the current national procurement mechanisms for medicines and a report laying out medium-term policy options and short-term interventions to improve accountability and efficiency. In FY11, this engagement was expanded with CGAC funds to assist the Government in the strengthening of the classification and technical specifications of pharmaceuticals in the tendering process and the monitoring of purchasing prices of pharmaceuticals over time, based on south-south exchange and international best practice. Moreover, Guatemala was one of the eight pilot countries in the world to participate in the CoST Initiative which focuses on improving transparency in the construction 42 sector and making sure that resources are used properly and quality outputs are delivered. The grant supporting this initiative has come to an end, but the Government has informed the Bank that it will continue CoST with its own funds. Most recently, the Bank has been assisting the Government with the country’s incorporation in the Extractive Industry Transparency Initiative (EITI). 18. Capacity building activities further strengthened these governance interventions. A ‘Capacity Building for Indigenous People and Local NGOs in the Western Altiplano’ grant complemented the Bank-financed Rural Economic Development and Land Administration II projects to help build capacity in organizational and economic activities among indigenous communities towards creating better job opportunities, improving incomes and increasing access to infrastructure. A ‘Improving Economic Diversification and Governance for Sustainable Community Livelihoods in Petén’ grant is seeking to strengthen the capacity of community- based organizations and enterprises in Petén to implement community-based natural resource management initiatives; and a ‘Building capacity to stimulate private investment in basic services and housing for the poor in Guatemala’ grant seeks to transform the “Fideicomiso de Inversión Fondo Hipotecario Para La Vivienda� (FHV) into a liquidity and guarantee facility to stimulate private investment in housing. Sustainable Growth and Productivity 19. The Sustainable Growth and Productivity pillar focused on strengthening the investment climate, rural development and productivity, sustainable energy, and natural disaster risk management. Expected results included, among others, increased foreign and domestic investment, an increased range of financial services available for rural producers and households, improved farmer access to markets, sustainable sources of energy, improved rural telecommunications, and reduced vulnerability to natural disasters. 20. During the CPS period the competiveness rankings of the country do not show major improvements. The IFC ranking on the quality of Doing Business ranks Guatemala at 97 in 2012, lower than in 2011, and slightly below the average for Latin America and the Caribbean, but ahead of the three countries in the Central America region (El Salvador, Costa Rica and Honduras). Over the last five years, Doing Business reports significant improvements in institutions that facilitate access to credit and those for registering property. But, in some areas (starting a business, dealing with construction permits, and protecting investors) Guatemala ranks remarkably low. The World Competitiveness Report score has remained constant since 2009 (84 in 2012), with low rankings in institutions, health and primary education and higher education. Crime and corruption are seen as the major roadblocks to doing business. Other similar rankings show either no or limited progress. The ratio of total investment to GDP is now lower than in 2007, as is Foreign Direct Investment (FDI), mostly due to the crisis. The link between global outcomes and the CPS interventions was weak; in part, because the CPS interventions were small and punctual and generated limited synergies. The economic and political crisis and the natural catastrophes within the CPS period affected delivery; but, progress was made in building the capacity to respond rapidly to natural calamities. 43 Box 1. Building capacity to respond to national calamities To respond to the financial shock caused by the passing of Tropical Storm Agatha and the eruption of the Pacaya Volcano, the Government of Guatemala disbursed the whole amount of the DPL with CAT DDO on June 2010. The DPL with CAT DDO instrument provided a quick source of liquidity after the ratification by the National Congress of the Presidential Decree that declared the national state of emergency (Estado de CalamidadPública). Although the whole amount of the Guatemala DPL with a CAT DDO loan has been disbursed, the Government maintains its commitment with, and continues making progress toward implementing its DRM program. The operation supported the following results: Prior Action  Proposed outcomes by  and Action  Proposed Outputs by 2012  Achievements  2012  Areas  Expansion of meteorological,  Data from INSIVUMEH and  The target was met. Meteorological network  hydrometric and seismic  the vulnerability analysis is  has been updated in 55%, Hydrometric  monitoring network from the  being used to prioritize  network in 54%, Seismic network in 29%  Improving risk  February 2009 level of monitoring  public investments.  identification  stations to 56% in meteorological,  and monitoring  56% in hydrometric and 29% in  seismic networks.                                     Baseline: 0 modern equipment  20 public buildings with  INSIVUMEH is using the  The Target was met. 20 public facilities were  vulnerability analysis.  expanded monitoring  reported by CONRED.     networks and  strengthening its capacity  for more accurate alerts.  Risk Mapping of 10 municipalities    The target was met. 10 municipalities.  Baseline: 0  Enhancement of local DRM capacity by  supporting the development of municipal risk     maps for 10 municipalities, located within 30%  of the country’s priority watersheds, according  to their levels of flooding and landslide risks   SEGEPLAN and SE�CONRED have  SE_CONRED and SEGEPLAN  1 report. Comment: The National DRM Platform  Strengthening  produced 3 annual reports on the  are mainstreaming disaster  issued, on July 2010, the bi�annual HFA  institutions and  progress on the implementation of  risk management  progress report  planning  the National Program for Disaster  considerations in key  capacity for risk  Reduction and Prevention.  sectoral plans with respect  management  Baseline: 0  to capacity building,  training, and investments.  SEGEPLAN will have developed the  10 municipalities are  2 instruments developed.                                            instruments, applying the  screening public and  Comment:  SEGEPLAN developed: legally�    methodology, for inclusion of  private investments for  binding guidelines for incorporating DRM  disaster risk management in  more effective disaster risk  considerations into public investments, and into  investments.  management.  national/municipal land use planning  processes  20% of urban areas have  Guatemala city has incorporated disaster risk  incorporated disaster risk  management in their territorial planning and     management in their territorial  other secondary cities are under the same  planning.                                     process. Comment: to be verified during the  Baseline: 0  Project ICR.   60 schools rebuilt to seismic  SE�CONRED has inspected  More than 60 school facilities built/rebuilt.  standards and based on risk  all new schools  Comment: In the aftermath of Tropical Storm  assessments validated by SE� construction to ensure  Agatha, SE�CONRED was responsible for  Investing to  CONRED.  conformity to seismic  verifying that the 60+ schools, representing  reduce risk  standards.  13% of the total of 484 affected educational  facilities, were rebuilt or retrofitted in  compliance with the current seismic norms.  Construction plans for new public  New public buildings meet  Partial advances. The Government National  building meet seismic standards.  the terms of improved  DRM Board approved on March 2010, the  Baseline: 0  building standards.  guidelines that clarify the authority for     enforcing the country’s seismic building code in  public and private investments.   Implementation to be verified in Project ICR.   Minister of Finance has developed  Ministry of Finance has  Target was met: object of expenditure budget  an indicator to track budget  increased capacity to  classifier has been designed with institutional  appropriation for disaster risk  monitor public sector  training. Comment: MEF’s Technical Division of     management.                                investment in disaster risk  Budget adopted the budget classifier as a  Baseline: 0  reduction.  requirement to be incorporated in all public  investments.  In accordance with the PNPMD the  Ministry of Finance has  Partial advances. Increased understanding of  Ministry of Finance has completed:  improved response  the Government’s contingent  liability  by  Developing risk  Analysis of fiscal exposure to  capacity to mobilize  developing hazard vulnerability assessments for  financing  adverse natural events. Assessed  resources in case of  a selected group of government buildings  strategies  the contingent liability.  44 disasters.   Drafted the risk financing strategy.     Baseline: 0  21. CPS projects and AAA under this pillar delivered on their commitments as per the Progress Report. The notable IBRD-supported achievements in the competitiveness realm include: (i) reduction in the number of steps to apply for a construction license to 19 and enhanced legal rights for creditors9, with IFC support ; (ii) improved access to markets for rural producers through the creation of 128 new productive supply partnerships benefitting around 11,600 indigenous farmers, with the support of the rural economic development project, (iii) a cadastral surveying process, currently underway in seventeen municipalities, under the land administration project, and (iv) the rehabilitation of 736 kms of rural and feeder roads under the Roads Project. In addition, the World Bank prepared a Country Economic Memorandum analyzing the country’s crucial SME sector (‘Let 10,000 Firms Bloom’.) The CEM served as the technical basis for the design of the FY11 SME Development IL operation.10 22. In addition, the CPS supported successful efforts to strengthen the capacity of the country to manage the impact of natural disasters. The support came mainly through a Disaster Risk Management Development Policy Loan with a Catastrophe Deferred Drawdown Option (CAT DDO). The support has been quite effective in building institutions and in financing response to disasters. Box 1 recounts in details the achievements under this project. The CAT DDO, in conjunction with a joint post-disaster needs assessment, has facilitated an informed and appropriate Government response to the damages caused by the mid-2010 Pacaya eruption and tropical storm Agatha. Moreover, productive rural infrastructure damaged by the natural disasters is being reconstructed through funding from the Rural Economic Development Project. Municipal plans were also developed in 318 municipalities which included projects to stimulate local growth. Additional Bank assistance to strengthen disaster risk management, including the CAPRA Platform and support from GFDRR grants, has been forthcoming. Financial aid towards keeping the level of public expenditure was provided thru the DPL support. 23. IFC’s Advisory Services supported this pillar through two private sector projects and 1 municipal project aimed at increasing productivity and competitiveness. In the agribusiness sector, a second project was started in 2011 with IFC’s global client ECOM, focused on helping 269 coffee producers implement sustainable farming practices, and earn sustainability premiums for their produce. In the microfinance sector, IFC supported Fundea’s transformation from a not-for-profit to a regulated financial entity. The advisory services project included a gap analysis on the current situation of the institution to determine areas that needed strengthening. IFC’s Advisory Services also supported a feasibility study to present to financial regulators and prospective investors. In the municipal sector, IFC advised four municipalities on ways to significantly reduce the number of days needed to issue a construction license, indirectly supporting the construction and housing sectors in these regions. 9 In this area, Guatemala posts its best rating in Doing Business 2012---place 8th in the world. 10 The CEM focused on the small and medium enterprise sector given its contribution to GDP and employment. SME’s contribute 40% of GDP and 85% of employment (2009). According to the State of the Region Report 80% of employment is in firms with less than 20 employees (2008). The AAA provided information on the potential binding constraints for the SMEs and besides contributing to the design of the SME project, it had an impact on the design of the new Government’s “Competitiveness Agenda�. 45 ‘Expanding Opportunities’ 24. The ‘Expanding Opportunities’ pillar sought to enhance opportunities for vulnerable and at-risk groups through improving access to, and use of, social programs. The CPS program sought to contribute to this objective by: (i) increasing effectiveness of the CCT program by improving institutional and implementation arrangements, including monitoring and evaluation mechanisms; (ii) expanding access to quality education among the poor and indigenous; (iii) improving and expanding access to health and nutrition services, with a special focus on maternal and child health; and (iv) expanding services and investments in other areas that would maximize the impact of the CCT program (i.e. rural roads, and electricity). Expected results included, among others, increased gross completion rates in primary school, increased access to public services (electricity, among others) and reduced chronic malnutrition among children. 25. The country’s social protection system has been strengthened, with the initiation and rapid expansion of the country’s CCT program. The support to the country’s CCT program, for instance, has helped to foster conditionality compliance, with 2010 compliance rates reaching over 92.3 percent and 95.3 percent for education and health respectively. The program covered around 35 percent of the population. 11 It should be noted that the involvement of the Bank was limited to a technical dialogue as the operation intended to support this initiative was dropped due to difficulties obtaining approval in Congress. 26. In parallel, access to education has been expanded with Bank support. Delivery of the results set for education has been good. The lower secondary Gross Enrollment rate (GER) in the poorest 196 municipalities increased from 41 percent in 2007 to 54.1 percent in 2011. Enrollment of main indigenous groups in 9th grade increased by 70 percent from 2007 to 2011, far above the targeted increase of 25 percent. Completion rates in primary schools went from 67 percent in 2007 to 81 percent in 2011. The contribution of the Bank has come through the Education Quality and Secondary Education Project. The success was due in part to the opening of targeted telesecundarias in poor areas; the approach benefited especially indigenous communities. 27. Support in health is showing positive results. The Maternal and Infant Health and Nutrition Project (2006) is helping reduce the gap in maternal and infant health and nutrition indicators in rural and predominantly indigenous municipalities. As of 2011, the percentage increase in the number of institutional births (38%), percentage of women receiving postnatal care ten days after giving birth (35%), the percentage reduction in the indigenous to non indigenous maternal mortality ratio (approximately 50%) have surpassed their end of Project targets. The percentage of children in growth monitoring and weighing sessions in participating communities has increased from 0 percent at the start of Project to 75 percent in 2011. The percentage of women who received at least one prenatal control has increased from 54.2 percent at the beginning of the project to 87 percent in 2011. The Project has renovated and equipped 33 out of 38 health centers, of which 29 are already functional. Other notable achievements include the development a multi-cultural communication strategy to promote health and maternal-child nutrition (to date materials have been translated into 7 indigenous languages), and the 11 See Helena Lavinas ad Miguel Sekely evaluation of Mi Familia Progresa prepared for PNUD Guatemala Julio 2011. 46 establishment of a Communications Resources Bank which is available to all local agencies working on maternal-child health issues. The Project has also facilitated culturally sensitive training for health staff and has been strengthening facility level staff evaluations regarding key care maternal-child care protocols, e.g. post-delivery practices. It has also provided training and technical support to communities to strengthen their capacity to evaluate the performance of their own AINM-C activities using a few simple indicators.12 28. The Bank provided additional support to maintain the levels of social expenditure. The Emergency Support for Social Services loan contributed to the maintenance of basic health and education services in an environment of fiscal strain. The loan, which was approved by the Bank’s Board in December 2010 and by the Guatemalan Congress in November 2011, provided US$100 million in quick-disbursing financing to help maintain the number of teachers and health workers providing basic services in the country’s poorest municipalities. However, the delay in Congressional approval meant that the first disbursement could only take place in late CY2011. (IV) Review of Bank’s performance 29. The FY09-12 CPS was aligned with the main strategic direction of the Government program. The CPS pillars reflected the Government’s pro-poor agenda as well as WBG’s areas of comparative advantage. The CPS design drew on the lessons learned from the previous CAS. It provided alignment with the political cycle. It included fewer but larger investment loans, and foresaw a sequence of the DPLs aligned with the budget cycle to facilitate implementation and provide the financial leeway to pursue fiscal reform while allowing for pro-poor expenditures. A natural disaster CAT-DDO strengthened the country’s resistance to natural disasters. To better align the program to Government priorities, the team undertook a thorough restructuring of the portfolio under implementation. The lending program was harmonized with other development partners and complemented by a mix of non-lending instruments, based on alignment with the CPS pillars and rationalization to maximize the cumulative impact of the portfolio. The 2010 CPS-PR confirmed the areas of engagements, but revised the results framework to reflect changed circumstances and progress towards CPS objectives. 30. With hindsight, the CPS design contained some weak points. First, it set itself lofty goals difficult to reach with the small program in place. Some examples include the intended increase in the fiscal space that was linked to a tax reform, the capacity to improve competitiveness and address governance challenges. Second, although the CPS restructured projects to better align them with the Government strategy, in some areas the interventions were too disconnected and lacked the necessary synergy to impact the country’s higher level outcomes. This was particularly the case in the area of competitiveness under the second pillar. Third, the CAS design could have heeded better the political risks that were present given the lack control of the Government in parliament. In this difficult political environment, the CPS design did try doing things differently, such as a focus on DPLs and the Emergency Social Sector Investment Loan, but it was not enough to significantly improve impact. 12 The Infant Health and Nutrition Project supported undertaking a nutrition survey in 2010/2011 in the target areas of the project. The survey allowed setting reliable benchmarks to replace previous estimates. This means however that the impact of the Bank project will not be known until a follow-up nutritional status survey is conducted in 2013. 47 31. The delivery of the overall amount of resources during the CPS period was in line with the original expectations, but composition of the program was changed to address the emerging circumstances. During the CPS period, commitments delivered were US$884.5 million dollars, slightly below the US$905 million originally estimated. The resources allocated through budgeted support operations increased from US$500 million projects to US$650 delivered, to allow the country to carry out a pro-cyclical fiscal policy during the crisis. Given difficulties with advancing a tax reform, the CPS Progress Report dropped a foreseen fiscal DPL and, adjusting, the instrument, delivered a fast-disbursing operation focused on the social sectors and providing much-needed fiscal space in the aftermath of the global crisis and natural disasters. The operation, however, was blocked in Congress, and the delay in effectiveness required a six month extension. The Expanding Opportunities operation was not delivered due to a lack of support in Congress. The Energy loan envisioned at the time of the Progress Report was also not delivered. IFC committed US$495.66 million in the CPS period and an additional US$100 million in mobilized funds contributed by IFC’s investment partners. In addition IFC committed US$50 million and an additional US$80 million in mobilized funds in regional companies based in Guatemala. Financing was channeled primarily to financial institutions (56 percent), the real sector (8 percent), and infrastructure (35 percent), which includes regional companies based in Guatemala. 32. Similar to the lending program, the non-lending program was adjusted to focus on more urgent Government priorities and strengthen the country’s crisis response. Notable crisis-response adjustments included the ‘Financial Crisis Preparedness’ (FCP) TA and the ‘Human Capital and Social Policies to Support Job Creation in Central America’ study. Adjustments to focus on more urgent Government priorities revolved primarily around the governance and economic area, including the initiation of the CoST, and Financial Sector Reform (FIRST)13 initiatives, support to the Comptroller General’s Office, a study on pharmaceuticals, a regional CAFTA-DR trade study and a credit bureau assessment under the Western Hemisphere Credit Reporting Initiative. To accommodate the new priorities, the Country Social Analysis and the National Environment Plan for Sustainable Development study were canceled. The CPS also placed a great deal of emphasis on improving governance through a strong transparency agenda, which was mostly supported through analytical work and trust- fund activities. In hindsight, while the quality of the AAA program over the CPS period was good, more efforts could have been made to stimulate debate and facilitate exchange of ideas on key priorities in the area of governance and competitiveness. 33. Portfolio Performance. Currently there are seven projects under implementation representing a commitment of US$400 million. Half of the portfolio is undisbursed and a little over 40 percent of the portfolio is at risk. Disbursements on the trust fund portfolio are also lagging. Trust Funds are 65 percent undisbursed, roughly US$18 million. The poor portfolio performance is due in part to structural factors in the country’s political and institutional system. Implementation lagged during the political transition due to the high turnover in Government officials and a weak institutional environment. Most projects in the portfolio were restructured to meet the changing Government priorities, which also added to delays, particularly in the first 13 Guatemala has been the first Central American country to commit to the implementation of the FIRST initiative. 48 half of the CPS. Furthermore effectiveness delays due to the complicated political environment also affected portfolio performance. In addition, despite the long-term involvement of the Bank in Guatemala, limited institutional knowledge about Bank procedures introduces implementation constraints due to the high mobility of the scarce technical personnel available in the country. IDB shares similar implementation issues and challenges in disbursing resources. 34. The portfolio by the end of this CPS is likely to have a limited impact on the results for the next CPS because, of the 7 projects three will close in the next 12 months. The CAT DDO has been fully disbursed. The MSME project is not yet effective. Despite the limited impact of projects expected on results, the present situation provides an opportunity to chart a new agenda with Guatemala addressing some of the limitations with investment lending and focusing on developmental impact. Trust Funds (TF) have played an important role in mobilizing additional resources to support critical interventions, such as in the area of governance. While the Bank has a relatively limited trust fund portfolio, the activities are well aligned with the portfolio and overall priorities defined in the CPS, especially to advance selected topics in governance and develop pilot activities. 35. The IFC’s program focused on four key domestic economic sectors – banking, agribusiness, sustainable energy and telecommunications. IFC’s cumulative investment commitments from US$37 million (FY07-08) to US$234 million (FY09-10), thus providing important counter-cyclical financing during the crisis. In the financial sector, the IFC provided $331.8 million in trade lines, making Guatemala one of LAC’s most active markets for this product. IFC committed an additional US$72.4 million in long-term funding to a locally-owned bank to support its growth strategy and market penetration, particularly in the SME sector. Within agri-business, the IFC invested $91 million in the sugar sector to expand the sugar, co- generation and ethanol operations in the country. In addition to increasing output, these investments helped support over 40,000 jobs at two companies. In the telecommunications sector, a US$135 million operation is helping a mobile phone operator serve 700,000 additional mobile subscribers while increasing coverage in frontier regions and underserved rural areas. In addition, the IFC continues to seek to drive investments in renewable energy and help diversify generation, in particular in hydro and co-generation projects. Annex III provides a description of each of the projects in IFC’s current portfolio. 36. Coordination with other donors. Cooperation between the World Bank and the IDB has been strong. The Rural Development Project is a co-financed operation with the IDB and at the Government’s request both institutions restructured the Project to meet the needs following the damage caused by tropical storm Agatha. Both the WB and IDB use the same procedure mechanisms for disbursement and procurement and supervise the project jointly. Both institutions, along with the IMF, are providing technical assistance for public debt management. Mutual support and coordination in the area of gender has led to a fruitful work relation with the UN and other development agencies which have benefitted the WBG’s investment in the area of gender. 37. The World Bank has been active in helping the Central American Region develop a regional platform that will facilitate addressing the challenges of crime and violence. The Bank has been instrumental in positioning crime and violence as a regional development issue. 49 Prepared under SICA (the Regional Central American System of Integration) auspices a Bank- accompanied regional crime and violence summit met in Guatemala in June 2011. The well- represented summit concluded that the high level of crime is the primary development challenge that the region faces. In the summit, the Governments of the region presented a joint strategy on public safety, including an action plan with costed activities for donor financing, and a monitoring mechanism for follow up. The Bank has also been undertaking consultations with civil society, the private sector and Government representatives in each of its country offices in Central America to identify priorities for regional coordination in crime and violence policies. (IV) Ratings14 38. The Completion Report rates the WBG performance as moderately satisfactory. The WBG was prompt to support the country during the crisis through budget support and technical assistance, which complemented the country’s efforts to increase social spending while safeguarding macroeconomic stability. However, project implementation problems continued and the design of the strategy, while aligned with the objectives announced by Government, was not sufficiently mindful of the risks to the achievement of results, particularly in light of the Bank’s track record in Guatemala. AAA dissemination could have been more forceful in line with the aim of the building the reputation of the Bank as a knowledge provider. IFC played a critical countercyclical role. Its commitments to Guatemala hit a record $204.6 million in FY09, six times more than the average for previous years. These guarantees and loans, have performed well and supported nearly 50,000 private sector jobs. 39. The Completion report rates the achievement of results as moderately satisfactory. CAS outcome results as redefined by the Progress Report were, for the most part, achieved or partially achieved. Notable achievements include the use of the CAT-DDO, improved service of health and education and a greater and more focused work on governance. There were a few shortcomings, though. The targeted ratio of tax revenues to GDP was unmet, even after the downward revision introduced by the Progress Report in line with the changes in the results framework of the supporting DPL. The required legal framework to improve revenue collection was approved as the new Government came in (2012) and the expectation is that revenue collection will increase relative to GDP (2013). Project restructuring and slow project implementation affected the delivery of results, and the Progress Report was adjusted as a result. The portfolio at the end of the CPS is expected to have a limited impact on results for the next period; however, it provides an opportunity to chart a new agenda with Guatemala for the future. (V) Key lessons and suggestions for the new CPS 40. Develop realistic assessments of the likelihood to deliver results and, at the same time, maintain a critical assessment of what has been achieved. A CPS should focus on thematic strategies with clear and realistic results. In considering the likelihood of achieving results, attention should go beyond formal Government commitment to consider the factors that may block achieving the results, such as the difficult political economy in Guatemala. Such realistic assessments will improve the quality of the results framework as well as the 14 The Completion Report rates the achievements of results in line with the guidelines set by OPCS which states the evaluation should be based on the CAS outcomes and not on the country's broader development goals. 50 understanding of the risks that follow, thus facilitating taking remedies to ease them. The focus on themes rather than projects will provide flexibility with the regard to the instruments selected. 41. Keep simple and selective. In line with the principle above, it is important to also be realistic about what can be achieved given the existing implementation capacity and country context. Experience has shown that overly complex projects which involve more than one implementing agency have had a poor track record of performance. The current CPS therefore proposes fewer operations in select areas where there is strong Government demand and an implementation agency with a proven ability to manage Bank projects well. 42. The Bank should complement financing with a strong program on knowledge. The Bank should continue to foster a reputation for delivering high quality knowledge products and technical assistance. In doing so, it is best to adopt a systematic approach to AAA through a thematic focus and annual business plans to agree with Government on priorities. In addition, the Bank can support the authorities in scaling up successful pilot initiatives through program budgeting. 43. A long history of implementation challenges has troubled the investment portfolio in Guatemala. Early engagement with the new Government may avoid high turnover of counterpart staff. The lack of technical capacity in Government makes training on Bank procedures, including particularly safeguards and procurement, a priority. Since this is a problem shared by the IDB, it would be advisable for the two institutions to work together and explore alternative options to address implementation constraints through, for example, better project design and training of technical counterparts. 44. The Bank and IFC should continue integrating their strategies both during initial CPS discussions and throughout the program’s life. IBRD and IFC cooperation would deliver improved results, as well as enhancing the quality of services to their public and private sector clients. IFC can play an important leadership role in supporting effort to improve productivity and enhance competitiveness. 45. The Bank could further consolidate the work on governance, while assisting with a more focused attention on competitiveness. Since 1996, the Bank has supported a strategy to improve budget processes, transparency and civil society oversight. Great progress has been made in putting in place laws, organizations, and training people. Despite these efforts, Guatemala remains weak on governance, transparency and effectiveness. The next CPS should focus on consolidating gains to build the reputation of Government and enhance its legitimacy. It is relevant to note that Guatemala’s global ranking on competitiveness and governance did not improve during the CPS period calling for an increased effort to understand the linkages between program outputs and development outcomes.15 46. The next CPS should explore ways to help the country address the challenges of the rising insecurity. One option is to work within regional context. A successful regional approach to crime and violence will require enhancing the capacity of SICA. Additionally, a successful 15 As already reported, these rankings include the Global Competitiveness and the Doing Business report. A similar point is made by IEG on its review of the ICR for the Integrated Financial Management III. 51 program must take into account the idiosyncrasies of each CA country to ensure that efforts and activities are appropriate given the different levels of political commitment and capacity that are present in each country. Therefore, a complementary option is also needed to develop multi- sectoral responses, focused on prevention involving cooperation and coordination with local actors and the international community. The Bank should also use its convening power systematically to rally the interest of other development partners around financing initiatives in areas which the Bank does not have a comparative advantage (i.e, strengthening of police force, prisons, judicial system etc.). 52 Table 1. Summary of CAS Program Self-evaluation CAS Status and Lending Lessons Outcome/Cluster Evaluation Summary and Non-lending Activities that contributed of Outcomes and to the outcome Outcome Indicators Enhancing Economic Fundamentals The fiscal deficit does Achieved DPL Series (FY09, FY10) Guatemala was hit by both internal and external not rise above 3 2.7 percent (2008-2011) Emergency Support for Social Services (FY11) shocks during the CPS period which had an impact percent of GDP, on on the macro situation which could not be average, for the CPS predicted. The Bank provided support and period as priority financing during the crisis and also in response to social spending disasters with an Emergency Investment Loan increases Baseline which helped to mobilize financing quickly. 1.4% (2007) The CPS still achieved fiscal targets, in part Tax collection does not Not Achieved DPL Series (FY09,FY10) because the Government was conservative, cutting fall below 11% of 10.8 percent (2008-2011) back on investment and making adjustments in line GDP, on average, over The small deviation is due to with tax revenues. Targets on debt levels were also CPS period the crisis. In 2011 the ratio met but spending remains low (lowest in region as was 11.0 percent, while in a share of GDP on a per/capita basis). Baseline 12.3% (2007) 2008 it was 11.3 percent. The The political aspect of the tax reform was baseline for 2007, 12.3 underestimated. While there was a fairly broad percent, was the highest in the consensus for a reform proposal among history of country technicians, it did not get through Congress and instead was approved under the new administration. Moving forward, the Bank should look for areas of engagement where there is a strong commitment and where it has a good understanding of the political economy. The PER under preparation includes a political economy analysis to facilitate identification of areas for sustained reforms in public finance. Improvements in the Achieved. Completed supervision of implementation of enhanced financial supervision or regular conglomerates: (i) supervision of all risk profiles completed under the new manual of risk implementation of basked supervision. enhanced supervision Consolidated supervision of the majority of risk completed in 5 largest 53 CAS Status and Lending Lessons Outcome/Cluster Evaluation Summary and Non-lending Activities that contributed of Outcomes and to the outcome Outcome Indicators profiles under the new financial groups that represent manual of risk based about 75% of the financial and consolidated assets of the system. supervision completed in at least half of the financial groups by assets. Baseline 0 Enhanced transparency Achieved. Results informed DPL Series Modernization of PFM processes and practices and governance in the budgeting was implemented in SIAF III AF (2008) require further effort as countries move towards public sector through all ministries for the advanced stages in the reform process. sustained formulation of 2011 budget. Implementing result-based budgeting techniques strengthening of public Refinement of indicators for proved complex and not necessarily necessary in financial management the draft 2012 budget has all cases. Gradual approaches and replication of and procurement as prioritized the identification pilot programs and best practices seem to be the measured by: (i) the and inclusion of at least two right way to optimize the impact of these reforms. introduction of results- indicators (mission critical, based budgeting; and measurable, and linked to top Similarly, public procurement systems are complex (ii) e-procurement Government priorities) in the by nature. Adopting electronic-based platforms capabilities in the ministries of Interior, requires strong engagement not only from public SIAF and Education, and Health. The sector regulatory entities and line units, but also GUATECOMPRAS draft budget specifically from users and stakeholders in the private sector. systems respectively. prohibits transfers from those Gradual and sequenced approach is also advised in Baseline 0 programs that are supporting this area. attainment of those indicators. The process is undergoing and the Government is committed to expand this methodology to other programs and sectors in a gradual manner. Partially achieved. Transactional capabilities of GUATECOMPRAS have been increased and more attributes are underway. An electronic bidding module for 54 CAS Status and Lending Lessons Outcome/Cluster Evaluation Summary and Non-lending Activities that contributed of Outcomes and to the outcome Outcome Indicators single source contracting modalities has been implemented; GUATECOMPRAS portal with linkages to SNIP and CDP has been enhanced; and the vendors’ registration module has been implemented. Strengthened Achieved. 100% of SIAF III AF (2008) Sub-national PFM is a challenge for many reasons municipal municipalities are using SIAF including the uneven level of institutional capacity Government’s systems: SICOIN GL by the several types of users. Adaptable ICT financial management implemented in 303 instruments, adequate technical support, and (simplified financial municipalities; 5 adequate incentives including the joint work by the management system municipalities are using finance regulatory entity (Ministry of Finance) and implemented in all SICOIN WEB; and 25 are the superior auditing entity (Comptroller’s Office) municipalities). using SIAFMUNI. SICOIN proved to be a critical combination for a successful Baseline: 256 of 333 WEB used by largest implementation of this reform in Guatemala. municipalities (2008) municipalities to report results Continued support is still needed to make this of financial operations tracked success sustainable. by more sophisticated 24 PFM systems (e.g. SAP). SIAFMUNI still used by municipalities which prefer to maintain financial records within their own servers rather than SICOIN GL, a “cloud- computing� approach where such data is maintained within the MOF, even though all financial transactions are reported to the MOF and CGC. Enhanced transparency Achieved. Organization of VCs for lessons learned CoST’s implementation benefited from high-level in the public Baseline study published. exchanges with CoST counterparts in the Gov support and ownership from the beginning construction sector, as Multi-sectoral group (MSG) Philippines and Zambia (both pilot countries) (i.e. Colom’s administration.) 55 CAS Status and Lending Lessons Outcome/Cluster Evaluation Summary and Non-lending Activities that contributed of Outcomes and to the outcome Outcome Indicators measured by the (public, private sectors and as well as the CoST Secretariat in London. implementation of the civil society) established and Translation of CoST international guidelines Sound legal basis and methodology. 27 of the 31 Construction Sector meeting regularly. into Spanish and adaption of templates to indicators that CoST measures were backed up by Transparency Initiative 2 rounds of the Assurance Guatemalan context. Participation of domestic law, not to mention the Law of Access to Baseline 0 process and public disclosure representative of the CoST Guatemala MSG in Information. At the time of its implementation, events completed, which show CoST International Advisory Group Meeting in Guatemala had a working e-procurement system, marginal increases in Ethiopia in April 2010. TA support from the which improved the efficiency and quality of the disclosure of certain CMU. assurance process. The internationally tested CoST institutions (i.e. CIV). methodology guaranteed orientation to the MSG members in implementation. Pilot is complete. Pilot implementation is the fastest MSG structure matters. Small group (6 instead of and lowest cost compared to 10 like other pilot countries) avoids lengthy the 7 other pilot countries. consensus building exercises. Only a 1/3 of the MSG is the public sector, which helps promote continuity and avoid institutional memory loss during periods of high public sector turnover. Implementation was accelerated through TA provided by the CMU (i.e. supervision, managing finances). Plans for institutional sustainability need to part of the pilot initiative. Sustainable Growth and Productivity The number of steps Achieved. Regional and Country ICA required to apply for a 19 steps (2012) IFC TA support for one-stop shop for construction license construction licenses falls to 22. Baseline 31 (2007) Improved farmer Achieved. 128 new PDER Became effective during elections and the new access to markets productive supply chain administration delayed implementation for 20 through establishment partnerships under operation. months to restructure the project. The project has and operation of 120 suffered with too many implementing agencies and additional marketing Not achieved. 11,684 project implementation arrangements had to restructure. arrangements between beneficiaries through 56 CAS Status and Lending Lessons Outcome/Cluster Evaluation Summary and Non-lending Activities that contributed of Outcomes and to the outcome Outcome Indicators farmers and the private productive alliances. The lesson is that complicated implementation commercial sector with several agencies does not work. benefiting 15,000 rural farmers Baseline 0 Increased coverage of Component cancelled. PDER During the delays related to effectiveness and rural implementation the private sector took this over. telecommunications Government conducted a After Agatha the Government cancelled and needs: (i) at study which concluded that redirecting funds to rebuilding the rural bridges least 70% coverage of most of the indicators were destroyed. rural covered by private investment. telephony needs in Resources were reallocated to The lesson is that priorities can dramatically shift communities of over attend the reconstruction of following long delays of effectiveness. 400 inhabitants; (ii) bridges damaged by Tropical 50% of all Cabeceras Storm Agatha –May 2010 Municipales have internet access Baseline: (i) 40% of rural telephone needs are covered; (ii) 20% of Cabeceras Municipales have internet access Increased access to Likely to have been Second Rural and Main Roads Project (2003) secondary and Achieved or Partially primary roads for Achieved PDER targeted populations Estimate to be confirmed as (in Huehuetenango and part of ongoing Impact San Marcos) Evaluation. So far 736 km of Baseline: A target roads have been improved population of 400,000 through Instituto de Fomento benefits from Municipal (INFOM). Of these increased road access 674km are rural roads and 62 secondary roads. Maintenance programs are in place (9) and complementary pedestrian 57 CAS Status and Lending Lessons Outcome/Cluster Evaluation Summary and Non-lending Activities that contributed of Outcomes and to the outcome Outcome Indicators bridges (78) have been constructed. Improved investment Achieved PDER (2006) allocation at the 321 municipal plans. territorial level 19 departmental plans. through participatory 3 Regional plans. development planning 8.42% of projects registered in municipalities and with municipal sponsorship in departments the 2012 National Budget and Baseline 0 in the National Investment System. Reduce the country's Achieved CAT DDO (FY09) Although the whole amount of the DPL with a vulnerability to The National Program for Trust Fund – Institutional and Legal CAT DDO loan has been disbursed, the GoGT adverse natural Disaster Reduction 2009-2011 Framework for Crisis Management continues making progress in implementing its events through the was implemented and DRM program. implementation of the currently the Government, GFDRR TF094228 2009 -2011 National with support from key Guatemala Scientific Information Program to Key Government agencies are establishing a Program for Disaster stakeholders, is developing a support municipal risk sensitive planning, dialogue to define a process aimed at developing a Risk reduction DRM strategy for 2012-2017, GFDRR TF097158 comprehensive disaster risk financing strategy. Baseline: no National that incorporates lessons Post-Disaster Needs Assessment (Pacaya & Program for Disaster learned. The country has Agatha) 2010 The new administration is defining its National Risk Reduction and no taken important steps to Strategy for Natural Disaster Mitigation 2012- National Policy for reduce its vulnerability to GFDRR TF11063 2017, Disaster Risk adverse natural events, and Central America: Post-Disaster Needs Management will continue this process. Assessment (TD 12E) 2011 Expanding Opportunities (Social Cohesion Program) Reduced inequality in Partially Achieved Education Quality and Secondary Education targeted 81.42% (2010) (2007) municipalities16 through increased Gross Completion Rates (GCR) in primary school from 67% (2007) to 84% 16 130 most vulnerable municipalities as defined by the vulnerability index designed by the Planning Secretary (SEGEPLAN) 58 CAS Status and Lending Lessons Outcome/Cluster Evaluation Summary and Non-lending Activities that contributed of Outcomes and to the outcome Outcome Indicators (2012) Increased lower Achieved Education Quality and Secondary Education secondary Gross 54.10% (2011) (2007) Enrollment Rate (GER) in poor rural areas17 from 41% (2007) to 51% (2012) Increased enrollment Achieved in 9th grade by at least Overall increase of 70% 25 % from 2007 to 2012 for the following indigenous groups: Baseline: (2007 total enrollment per indigenous group) (i) Quiché: 9201 (i) 14,287 (ii) Mam: 3369 (ii) 6,623 (iii) Cakchiquel: 7111 (iii) 10,601 (iv) Queqchi: 4688 (iv) 9,968 Improved maternal Achieved. 38% in Nov. 2011, Maternal and Infant Health and Nutrition Despite facing administrative and financial and infant surpassing end of Project (2006) challenges (e.g. delays in payments, spending health in the target of 26.4% ceilings set by the MOF, limits on trainings geographic areas of Additional missions deployed to help improve conducted in large venues such as hotels), it helps intervention, through: b) Improved but not yet the health referral system, ensuring that to have a stable and resourceful Project Team to a) increasing achieved. While the community leaders, household decision makers move the Project forward. For example the Project institutional deliveries indigenous to non-indigenous including husbands and mothers-in law, and created e-learning modules to minimize travel and by 20% and b) child mortality ratio decreased mid-wives are also aware of the importance of other related costs for training workshops when the reducing the ratio of from 1.4 in 2008 to 1.3 in timely referrals. . Community consultations Ministry of Health limited trainings in large venues indigenous to non 2009, it is still more than the were held to ensure that the facilities were also such as hotels. However, even a very good Project indigenous baseline of 1.2 in 2007.*to be culturally responsive, especially with regard to team can only go so far and the Government’s role infant mortality by confirmed by PCU indigenous practices. in ensuring timely release of funds and signing of 10% contracts is critical. Baseline: (a) 22.% ; (b) 1.2 It is essential to engage other community 17 Poor rural areas are defined as the 196 poorest municipalities. 59 CAS Status and Lending Lessons Outcome/Cluster Evaluation Summary and Non-lending Activities that contributed of Outcomes and to the outcome Outcome Indicators members- aside from the main target population of young children and women of reproductive age - because they also influence health and nutrition behavior including when and where to seek care. Reduced chronic Pending final nutritional status Maternal and Infant Health and Nutrition Develop and deliver key messages on behavioral malnutrition survey which will be (2006) change on health and nutrition that are simple and among children conducted in 2013. consistent and at the same time culturally sensitive younger than 2 Additional technical missions deployed for the given Guatemala’s multi-ethnic environment. years of age in targeted Community based Integrated Care for Children municipalities. and Women (AINM-C) component to Find ways to ensure sustainability of interventions Indicators: strengthen community based monitoring despite changes in Government priorities. Due to percent of children activities using simple indicators. the Government’s strategy to progressively shift under 2 with service provision of AINM-C from NGOs to MOH height for age < -2Z in Videoconferences arranged for South to South staff with the support of community educators and geographic areas of exchanges between the Panama and Guatemala also because the Project no longer has funds to intervention Project Teams, as well as between the contract NGOs, the Project team is collaborating decreased by 10% Guatemala Team and NGOs such as Merci with the MOH team, particularly the Extension of Baseline 72.4 % Corps to exchange experiences in providing Coverage Program to improve the linkages health and nutrition services and improving between health staff and community educators to communications materials. deliver AINM-C. In 2012, the Project is financing 49 community educators while the Government is responsible for financing 22 community educators The Project has been promoting the active to ensure continuity of AINM activities in 9 involvement of communities (making efforts to municipalities and 216 communities. It is hoped also include fathers and midwives) in that the Government will assume responsibility for monitoring and promoting health and nutrition the rest of the community educators when the activities for women and children. Project ends and consider financing NGOs in areas previously financed by the Project that do not yet have any health facilities. 60 Table 2. Planned Lending Program and Actual Deliveries CAS Plans (FY09-12) Status FY Project US$(M) US$(M) 2009 DPL1 Fiscal and Institutional 200 DPL1 Fiscal and Institutional 200 2009 CAT DDO 85 CAT DDO 85 2009 Markets for Sustainable Energy 65 Dropped 2010 DPL2 Fiscal/Institutional/Governance 200 DPL2 350 Fiscal/Institutional/Governance 2010 Rural Infrastructure and Expanding 220 Rural Infrastructure and Expanding 114.50 Opportunities: CCT Opportunities: CCT18 Subtotal FY2009-10 770 Subtotal FY2009-10 749.50 Progress Report Plans (Sept 2011) Status 2011 DPL3 100 Dropped - replaced with Emergency Project 2011 SME Development Project 35 SME Development 35 Additional Actual Projects: Emergency Support for Social 100 Services 2012 Subtotal FY2011-12 135 Subtotal FY2011-12 135 Total FY2009-12 905 Total FY2009-12 884.50 18 This project was later cancelled following long delays in Congress. 61 Table 3: IBRD Trust Fund Portfolio Net Funds Effective Grant Disbursed % Program End Disb. Trust Fund Name Amount to Date Disbursed Source Date Date Enhance Transparency and Accountability in 300.00 266.37 88.79% SFLAC 4/1/2010 4/30/2012 Guatemala's Construction Sector Guatemala: Scaling Up 110.00 45.93 41.75% SUN 12/1/2009 5/31/2012 Nutrition Guatemala, Institutional and Legal Framework for 144.16 0.28 0% FIRST 07/11/11 07/30/12 Crisis Management Guatemala - Strengthening of the 55.45 2.14 3.85% FS-LCR 1/25/2010 10/30/2012 Country Public Financial Control Framework Reducing Inequality through Land 200.0 58.44 29.22% TFESSD 07/24/11 12/31/12 Regularization Empowering Guatemala’s Indigenous Communities to Secure 199.97 99.98 50% DM 07/01/11 12/31/12 Climate Change Resilience Project Guatemala: EITI 85.00 56.91 66.95% EITI 3/28/2011 2/22/2013 Implementation Building Capacity to Stimulate Private Investment in Basic 248.68 100.00 40% IDF 5/26/2010 11/26/2013 Services and Housing for the Poor Contraloría general de 2,238.36 350.10 16% FS-LCR 10/27/2009 12/30/2013 cuentas Total 3,671.60 981.15 26.72% 62 Annex 3. Donor Annex Table 1 – Principal Areas of Activity by Donor Sector/Thematic Areas Natural Risk management Democratic Development Public Sector and Public Municipal Development Economic Development Water and Sanitation Security and Justice and Reconstruction Rural development Social Protection Infrastructure Environment Education Finance Partner Health European Community x x x x x x x x x x x Germany x x x x x Spain x x x x x x x x x x Sweden x x x x Japan x x x x x x x x Netherlands x x USAID x x x x United Nations x UNDP x x x x x x x x x x OAS x x x IDB x x x x x x x x x x x World Bank x x x x x x x x x 63 Annex 4. Trust Fund Overview Trust Fund Completion FY (Millions US$) Guatemala: 10150 Institutional FY13 0.144 And legal Framework for Crisis Management Reducing Inequality through FY13 0.2 Land Regularization Civil Society Organizations FY13 0.09 Guatemala Extractive Industry Initiative (EITI) Promoting Clean Production FY13 0.110 Through Value Chains in Guatemala PDF – Guatemala: El Canada FY13 7.501 43MW Hydroelectric Project Agriculture Insurance Market FY13 0.45345 Development StAR – Country Engagement FY13 0.1 Strengthening the Comptroller FY13 2.238 General Building Capacity to Stimulate FY13 0.24868 Private Investment in Basic Services and Housing for the Poor Empowering Guatemala’s FY13 0.2 Indigenous Communities to Secure Climate Change Resilience Project EITI Implementation FY13 0.145 Strengthening of the Country’s FY 14 0.55 Public Financial Control Framework Strengthening Resilience FY16 2.507 Capacity of Peasant and 64 Annex 5. Gender Issues in Guatemala 1. Guatemala—despite some improvements over the last decade—continues to lag behind other countries in the region with regards to gender equality in particular in rural and indigenous areas. 2. Guatemalan women lag behind their male counterparts in endowments, economic opportunities and voice and agency. And even more so, Guatemala is worse off than the very large majority of other countries in the region. As pointed out in the USAID Gender Assessment 2009: “The inequality appears to be perpetuated by a vicious cycle whereby the marginalization of women contributes to low levels of education, poor health, and low earnings, which in turn generates dependency and feeds back into marginalization. Dependency results in low levels of self-esteem, lack of understanding of rights and resources, and reluctance or inability to act independently. The dependence is reinforced by high levels and general acceptance of violence against women.� 3. Gender issues in Guatemala must necessarily be analyzed at the intersection between gender and ethnicity as well as gender and urban versus rural residence. According to USAID 2009, indigenous groups in Guatemala (including Mayan, Xinka, and Garifuna groups) account for approximately 43% of the population. In terms of indicators of health, education, poverty, access to social services and justice, as well as political participation, rural and indigenous women are the most disadvantaged segment of the population. There are thus limitations to this note, given that data disaggregated by sex and ethnicity was not available for all dimensions of gender equality discussed in this note. 4. The share of female-headed households increased over the last years. From 2000 to 2006 there was an increase of 4.1 percentage points of household headed by females, from 14.7 to 18.8 percent: almost one in five households in Guatemala reported a woman as the head of the house19. Interestingly (and most probably due to the higher probability of receiving remittances), female-headed households are less likely to be poor if compared to male-headed households: While 53.4% of male-headed households were poor and 16.7% were extremely poor in 2006 this compares to only 40.8% and 16.7% respectively of female-headed households20. Endowments21 Education 5. In contrast to what has been observed for the majority of countries in LAC, in Guatemala the gender education gap favors boys. This gap has been shrinking but it is still larger than for lower-middle income countries. 6. The female-to-male enrollment ratio in primary education in 2010 was 0.95, slightly farther from parity than other countries in the region (Costa Rica 0.98, El Salvador 0.96, and LAC average 0.97). The boy-girl gender gap in the primary completion rate however stands at 19 World Bank 2009a. 20 Ibd. 21 All data in this note stem from WDI (access July 3rd 2012). 65 6.2 percentage points (2008), meaning that boys are more likely to finish primary school if compared to girls. This also differs from the trend in the region (boy girl gap: in LAC -1.0, in El Salvador -3.4, in Mexico -1.1). While the number of girls and boys out of primary school has clearly gone down since 2000 (152.089 girls versus 92.826 boys), a gender gap can still be observed (27139 girls versus 4558 boys in 2010). 7. Girls are also disadvantaged in enrollment in secondary schooling: The female-to-male ratio for Guatemala is 0.93 (2010). LAC average is 1.08, thus showing a gap in secondary schooling that favors girls. In comparison to Guatemala, both El Salvador and Costa Rica show a slight gap favoring girls (1.02 and 1.05 respectively). Honduras is an outstanding case with a large gender gap – here the female to male ratio is 1.26 (2008) highlighting the problem of boys’ underachievement in schooling. 8. Women in Guatemala also have less years of schooling if compared to men (5.5 years for females and 5.7 years for males (Vakis, Munoz and Coello 2011)). It is noteworthy though that both annual growth rates for females and males have been higher if compared to other countries in Central America (2.9% for females and 2.7% for males). 9. According to the WDR 2012, adolescent girls and boys in Guatemala both report lack of money and lack of interest as important reasons for not being enrolled in school. But among 13- to 24-year-olds, 33% of girls that are not enrolled said household responsibilities were the main reason and 56% of boys listed work outside the home as the core reason (also mentioned by another 18% of girls) (WDR 2012, citing Hallman and others 200722). This clearly shows how gender stereotypes have an impact on women´s and girls´ opportunities in the country. 10. In tertiary education, the female-to-male enrollment ratio shows almost parity 0.99 (2007) – while in most countries in Latin America, women are more likely to be enrolled in tertiary education if compared to their male counterparts (compare for instance El Salvador 1.16 and LAC average of 1.28). 11. Literacy rates for youths (88.77% for boys versus 84.32% for girls, 2009) also underline the lower educational outcomes for girls in the country. Here again, Guatemala goes against the regional trend: Generally girls show higher literacy rates in LAC if compared to boys (see for instance literacy rates: 98.6% for girls versus 97.7% for boys in Costa Rica; 95.05% for girls versus 92.69% for boys, Honduras). The gender gap is even larger when looking at adult literacy rates—adult women clearly lag behind men in Guatemala (literacy rates: 80.02% for men compared to 69.48% for women in 2009). Female literacy rates are not only low compared to male ones, but also extremely low if compared to those of women in the other LAC countries: Literacy rates amongst female adults: Guatemala 69.48% (2009), Nicaragua 77.92% (2005), Costa Rica 96.27% (2009), Honduras 83.45% (2007). There are huge discrepancies in literacy when considering gender and geographic location: In cities, the gap between men and women is small (89.5% for men and 86% for women) but in rural areas 70% of men but only 57% of the women are literate (USAID 2009). Moreover, indigenous women in Guatemala are twice as 22 Hallman, Kelly, Sara Peracca, Jennifer Catino, and Marta Julia Ruiz. 2007. “Indigenous Girls in Guatemala: Poverty and Location.� In Exclusion, Gender and Education: Case Studies from the Developing World, ed. Lewis Maureen and Marlaine Lockheed. Washington, DC: Center for Global Development. 66 likely to be illiterate than non-indigenous women (WDR 2012). USAID 2009 also states that a third of rural indigenous women are unable to communicate and read in Spanish which limits their mobility, as well as their access to labor markets and public services. However, the World Bank Poverty Assessment 2009 states that gender, economic and indigenous gaps in literacy have been shrinking over the last decade. Health 12. The indicators for sexual and reproductive health are among the lowest in the Latin America and Caribbean region. Guatemala still has very high fertility rates; it is one of the four countries worldwide that have fertility rates above 4 (4.05 births per woman) and are outside Sub-Saharan Africa (WDR 2012)—compared to other countries in the region (such as Costa Rica: 1.8 or Nicaragua: 2.67) and the average for the region (2.2). 13. It is worrisome that the maternal mortality ratio is still very high at 120 (modeled estimate, per 100,000 live births, 2010) which is clearly above the average for the region (80.42, 2010). To compare, El Salvador (81) and Honduras (100) show lower rates and Costa Rica is doing much better with a rate of 44. 14. The rate of births attended by skilled staff increased to 51.4% in 2009 from 41.4% in 2002, but it is still clearly below the average rate for the LAC region (89%). Similarly, the contraceptive prevalence rate increased to 54.1% in 2009 from 43.3% in 2002 but still lags behind the average rate for the region (74.64% in 2010, compare also El Salvador: 72.5% in 2008). 15. According to USAID 2009, similar as for education indicators, there are huge discrepancies in health indicators if comparing rural versus urban areas: While in 2005, the maternal mortality rate was 122 deaths/100,000 live births on average, yet in the northern rural departments, the average rate was 175, and in Alta Verapaz, 266. In urban areas, 72% of the births were attended by trained medical personnel compared to only 32% in rural areas. Economic Opportunities 16. In Guatemala female labor force participation was 48.8% in 2010; this is similar to average rates for Central America, and shows a steep increase from 41.9% in 2000. Male labor force participation was 88.3% in 2010; resulting in a ratio of female to male labor participation rate of 0.55 in 2010. 17. The Duncan index for occupational segregation in Guatemala stands at 0.47 and, noteworthy, this has been increasing by 1.8% annually. Out of all Central American Countries, Guatemala and Panama are the only examples where segregation has been increasing.23 18. Central America as a whole has relatively high levels of informality – but Guatemala shows the highest rates of all Central American countries with 73.1% of all females and 62.9%24 of males working in the informal sector (compare for example to Honduras: 61.4% for females 23 Vakis 2011 24 Data updated from latest SEDLAC - data for 2004. 67 versus 53.7% for males (2007); Mexico: 54.5% versus 44.0% (2008); Nicaragua: 48.8% versus 47.0% (2006))25. 19. Self-employment and microenterprise employment are the most important sources of remunerated work for poor women in most Central American countries. Close to 40 % of employed women are self-employed in Guatemala (similar to Honduras, Nicaragua and El Salvador). Female self-employment levels have been increasing at a slow pace, similar to male self-employment rates26. 20. World Bank 2009b shows evidence from a Special Household Survey Module in Guatemala (2006): While increased education raises the probability of men becoming entrepreneurs, it diminishes the chances of entrepreneurship for women. An additional year of schooling makes a woman more than 0.3 percent less likely to work as an entrepreneur, while it increases the probability of a man becoming an entrepreneur by almost 0.3 percent. This gender difference, albeit small, may signal that entrepreneurship in Guatemala is not a preferred option by educated women, in contrast to men. 21. Similarly, household wealth reduces the chance of women being self-employed entrepreneurs. The opposite is found for men. This reinforces the idea that for many women, entrepreneurship is not a preferred option, and those who have the means are less likely to undertake it. 22. Another difference when observing female-owned and male-owned firms: 67 percent of female entrepreneurs in Guatemala have no employees (self-employed), while 57 percent of men entrepreneurs are self-employed. There are relatively similar percentages of micro firms (between 2 and 4 employees) owned by men and women. For businesses with more than 5 employees, the gender difference is significant. They represent 7 percent of all male-owned businesses and less than 2 percent of female-owned firms.27 23. A report cited by Vakis suggests that only 11% of Guatemalan households with microenterprises reported having received credit, compared to 23% in Nicaragua and 29% in Panama (Tejerina and Westley, 2007). Women micro-entrepreneurs were even less likely to have received credit: only 5% in Guatemala. Another report shows that, over a five-year period, Guatemalan microenterprises operated by female entrepreneurs were more stable than those operated by men: Drop-out rates from the credit program were much lower among female entrepreneurs, as were rates of transition back into the non-entrepreneurial labor market and foreign emigration (Wydick, 2002). On average, female-owned enterprises continued to grow in terms of hired labor, albeit slowly, while growth in male enterprises was slightly negative five years after microfinance borrowing: 25 Definition 1: Informal=salaried workers in small firms, non-professional self-employed and zero-income workers 26 Vakis 2011 27 World Bank 2009b 68 Predicted Increase in Employees by Age of Entrepreneurs (by Gender) 24. Regarding the reduction of earning gaps that has been shown in the Central America gender study (Vakis 2011) as trend common in the CA countries – it has to be noted that Guatemala has been amongst the best performers, together with El Salvador and Honduras: Gender Earning Gaps Over the Decade (Ratio of Male to Female Earnings) Source: SEDLAC and World Bank 69 25. Women contribute up to 40 percent of the total income generated in Central America, a figure that has increased over the past decade. These trends have been widespread across the region, with some variation. In Guatemala, women’s share of total income was 34 percent (2006) and has increased annually by 1 percent28. 26. Trends regarding dynamics along welfare distribution: In Guatemala (as in Honduras and Nicaragua), women above the 80th percentile of the distribution have entered the labor force faster than men and poorer women. In fact, labor force participation (LFP) among poor women has declined in these three countries. This contrasts with Costa Rica, El Salvador and Panama where women in the poorest households have made the most progress over the decade. Consistent with the results for LFP, the analysis of earnings gaps along the welfare distribution suggests heterogeneous performances. In Guatemala and Costa Rica, the earnings gaps reduced the fastest among the less poor – in El Salvador, Honduras, Nicaragua and Panama instead, poor women experienced the largest gains in earnings. Therefore, Guatemala is the only country where poor women experienced reductions in LFP and a widening earnings gap29. 27. There is a clear division of tasks and spheres when comparing women and men in Guatemala. While women are almost exclusively responsible for housework and child care, men are mostly responsible for market work—86 percent of housework and child care is done by women and 28 percent of market work is done by men (WDR 2012, team estimates based on time use surveys). Also, 31 percent of urban and 52 percent of women in rural areas have no income on their own (ECLAC 2007), as compared to 32 percent of women in LAC on average. 28. According to the OECD there are no legal restrictions on women’s access to land, but the percentage of female landowners is extremely low. When land is allotted to a household, it is registered under the name of both spouses. However, when it is allotted to an individual, women benefit in only 10 percent of cases. The Government has established special programs to improve women’s access to land and correct the current imbalance in favor of men (OECD, SIGI). 29. Several characteristics distinguish female-owned firms from male-owned firms in LAC: Female-owned firms tend to be concentrated in fewer economic sectors than male-owned firms, operating mainly in the commerce, services and manufacturing sectors. This is also true in Guatemala where more than 70 percent of businesswomen who are employers are in the commerce sector Agency 30. Besides endowments and economic opportunities, agency is the third dimension of gender equality according to the WDR 2012. It is there defined as follows: “By agency we mean an individual’s (or group’s) ability to make effective choices and to transform those choices into desired outcomes. Agency can be understood as the process through which women and men use their endowments and take advantage of economic 28 Vakis, Munoz and Coello 2011 29 Ibid 70 opportunities to achieve desired outcomes. Thus, agency is key to understanding how gender outcomes emerge and why they are equal or unequal�. (WDR 12) 31. This shows that women’s agency influences their ability to build human capital and pursue economic opportunities. Women’s agency also matters for the welfare of their children. Agency, or a lack thereof, can manifest itself in many different ways, certainly in female political participation, gender-based violence, and teenage pregnancy. Legal and institutional Framework 32. Article 4 of the 1985 Constitution of Guatemala upholds the principle of ‘equality for all individuals’. In 2002, the Penal Code was amended by decree to criminalize discrimination. Still, the OECD points out that “Gender-related legislation seems to be applied in few cases and strong patriarchal traditions persist in the judicial administration�30. 33. Also, there are legislative restrictions to married women’s rights. Article 255 of the Civil Code stipulates that “when the husband and wife hold joint parental authority over minors, the husband must represent the minor and administer his or her property� (OECD, SIGI). 34. The two principal Government institutions for gender and women’s issues are the Secretaría Presidencial de la Mujer (SEPREM) and the Defensoría de la Mujer Indígena (DEMI). 35. SEPREM advises on and coordinates public policy and is responsible for promoting the development of Guatemalan women and the fostering of a democratic culture. It operates under the direct supervision of the President of the Republic and is the highest executive body responsible for issues related to the advancement of women and the mainstreaming of gender equity. It is very active and participates in the general, social and rural development cabinets. The Presidential Secretary for Women, as head of SEPREM, has the rank of Minister of State (CEDAW 2007). In 2007, SEPREM issued the 2008-2023 Política Nacional de Promoción y Desarrollo Integral de La Mujer, identifying four strategic spheres for action (political/cultural, economic, social, and institutional) to “promote the participation of women of diverse ethnic and cultural identities in support of national development, assuring the full exercise of their individual and collective rights, to strengthen democratic and intercultural coexistence.� The policy identifies ten global pillars for intervention: equity in socio-political participation; cultural identity; economic development; workforce; natural resources, land, and housing; and justice; as well as the eradication of violence, discrimination, and racism against women; holistic health services; education with attention to gender and cultural identity; and strengthening of institutional mechanisms for the advancement of women31. 36. The Office for the Defense of Indigenous Women’s Rights (DEMI) was formed as a part of the Peace Accords and has been converted into a department of thePresidency of the Republic, with administrative, technical and financial management capacity. Its task is to address 30 OECD, SIGI 31 USAID 2009 71 the particular situations of vulnerability, lack of protection and discrimination faced by indigenous women. The institution has been encouraging in supporting indigenous women to speak out about the injustices and offenses they encounter and to pursue action through the court system. 37. National Coordinating Office for the Prevention of Domestic Violence and Violence against Women (CONAPREVI): To fulfill the obligation of the State of Guatemala to implement and follow the provisions of CEDAW, CONAPREVI was set up by law to coordinate, advise on and promote public policies for preventing, tackling, punishing and eradicating domestic violence and violence against women. This State agency is made up of the public sector bodies and institutions responsible for tackling violence against women and civil society: (1) the President of the Republic, represented by SEPREM; (2) the Attorney General of the Republic or his representative; (3) the President of the judiciary or his representative; (4) the President of the Board of Directors of the National Statistical Institute; (5) a representative of the Program for the Prevention and Eradication of Domestic Violence (PROPEVI); and, representing the women’s movement, three delegated members of the Network for Non-Violence against Women. CONAPREVI leads the implementation of the National Plan for the Prevention and Eradication of Domestic Violence and Violence against Women (PLANOVI 2004-2014) (CEDAW 2007). Political Participation 38. Overall, women are under-represented at all levels of Government in Guatemala. The percentage of parliamentary seats occupied by women increased to 12% in 2010 (2008-2012 administration), and up to 13.9% under the current administration32 so that Guatemala has now reached the level of lower-middle income countries (13.9%) – however it still lags behind if compared to LAC average (24%). The rate is also lower than in its neighboring countries, for instance Nicaragua (18.5%), and clearly below one of the LAC champion in political participation of women, Costa Rica (36.8%). 39. Notably though, the political representation at the local level is very low with only 1.8% of mayors and 8.8% of town council members being female (ECLAC, 2009). Adolescent Fertility 40. Guatemala’s adolescent fertility rate has been slowly decreasing for the past 10 years to reach 104.3 in 2010; however this is still very high compared to the LAC region average rate (71.7, 2010). Nicaragua has a higher rate at 110 but the rate in Honduras for instance is lower at 90. The law prohibits marriage for those below 18 years without parental authorization. The incidence of early marriage is high: a 2004 United Nations report estimated that 26% of girls between 15 and 19 years of age were or had been married. Violence against Women 41. Femicide is one of the most critical gender problems facing women in Guatemala and is cited in several sources (including USAID, WHO, ECLAC etc.): “In recent years the term 32 Based on information from www.congreso.gob.gt 72 ‘feminicide’ or ‘femicide’ has gained common usage in designating the murders of women for gender reasons, although this is a debated issue and consensus has not yet been reached on use of the term for legislative ends. However, agreement has been reached that this form of violence— seen at its most terrifying in Mexico and Guatemala—must be eliminated� (ECLAC 2007). 42. To combat the critical issue of (deadly) violence against women, the Commission on Femicide was formally established in March 2006. It is made up of delegates from the legislative, executive and judicial branches and representatives of human rights and security institutions and the Public Prosecutor’s Office. Its coordination was delegated to SEPREM. 43. Data for the first half of 2012 (January-June) shows an 11.5 percent decline in the number of women killed, down from 381 from January-June 2011, to 337 in 2012 (INACIF 2012). Of those deaths, 65 percent of these women were killed by a firearm. Violence against women is more prevalent in urban areas, especially for women living in poverty. 44. The legal structure in place to criminalize violence against women and to provide the basis for prosecuting these cases includes: Ley Contra la Violencia Intrafamiliar (Law against Intra-family Violence), Ley Contra el Femicidio y Otras Formas de Violencia Contra la Mujer (Law against Femicide and Other Forms of Violence against Women), Ley para Prevenir, Sancionar y Erradicar la Violencia Intrafamiliar (Law to Prevent, Sanction, and Eradicate Domestic Violence) and the Código Penal (Penal Code). However, OECD cites that violence against women is prohibited by law, but is not punishable by a prison sentence (OECD, SIGI). There are heavy constraints to penalize the perpetrators: Domestic violence can lead to legal proceedings only if visible traces of the abuse remain on the victim for at least 10 days. Another very worrisome provision is the fact that rapists are exempt from prosecution in Guatemala if they are married to their victim and the Penal Code lays down the criterion that women must be “honest� to be considered victims (OECD, SIGI, 2011). These provisions pose severe constraints to women’s rights and access to justice. 45. There have been some positive trends in addressing domestic violence in 2012 to date. In a stronger attempt to enforce the Law Against Femicide and Other Forms of Violence Against Women, more domestic violence cases have resulted in the offending spouse being sent to jail in preventative detention. The Director of Strategy at the Public Ministry said that the populations in jails have been growing for these reasons. Over the past year, there is also evidence that more female police officers and judges are being used to help female victims. 46. While the Government has a system of services for victims in place this same one is concentrated in the Guatemala City area. The reforms regarding the increased access to justice are thus not reaching the rest of the country and gender-based and intra-familiar violence are not sufficiently addressed, especially in rural areas. Discussions with representatives from Government and civil society also suggest that a large share of women are unaware of their rights and avenues to access the judicial system. 73 Crime and Violence 47. Studies find that males commit crimes and are incarcerated for them more than females. This is particularly true for violent crimes. More males are also victims of crime. Whereas 337 women were killed in Guatemala during the first 6 months of 2012 (January-June), 2,559 men were killed. Of these male deaths, 79 percent of victims were killed by a firearm. 48. According to the Central American and Caribbean Commission of Police Chiefs (World Bank 2011b) 14,000 persons are estimated to be members of 434 gangs. A study conducted by the Office of the Attorney General for Human Rights (Procuradoría de Derechos Humanos) which analyzed the causes of death for youth ages 25 and under for the period of July 2002- August 2003, found that 27 percent of these deaths were caused by gang-member attacks on non- gang youths (WB 2011b). Gender and Gangs 49. In general, because 90 percent of the core members of the gangs are young men, the relationship of young women to the gangs and the effect of gender relations on the gang activities have received little attention33. The 2006 USAID Gang Assessment for Central America asserts that the role of females in male-dominated gangs is subordinate and that sexual exploitation by male gang members is common. According to ex-gang members young women substantially out-number young men in the “support network� that surrounds the core members. These networks are made up of female family members and girlfriends who may serve as runners and messengers. Although the Gang Assessment asserts that “young men are both more likely to be victims of gang violence, as well as perpetrators�, gang connections also have been shown to be a factor in the increased murder of women.34 33 USAID Central America Gang Assessment 2006 34 USAID suggests more direct investigation and attention needs to be given to the role of women in the gangs. 74 Annex 6. Indigenous Peoples and Social Inclusion in Guatemala 1. Indigenous Peoples. The majority of indigenous peoples in Guatemala are of Mayan descent and are dispersed throughout the country with the largest populations in rural departments north and west of Guatemala City, most notably Quiché, Alta Verapaz, Sololá, Totonicapán, Quetzaltenango and Huehuetengango. They are identified by language, with Quiche, Cakchiquel, Mam (Maya), Tzutujil, Achi, and Pokoman being the most common of the approximately 26 indigenous languages spoken. Indigenous groups moved to smaller land plots in higher elevations and were subject to indentured labor on foreign-held lands in the “encomienda� land system. Over time, the decreasing size of their land plots has forced indigenous Guatemalans into wage labor on non-indigenous owned lands. Today, less than one percent of agricultural producers control 75 percent of the best land in Guatemala. Indigenous peoples find wage labor through seasonal migration. 2. Peace Accords Implementation. Major progress has been made in addressing the concerns of the indigenous population and implementing the 1996 Peace Accords. Governments have supported the cadastral system and the inclusion of indigenous peoples in demarcation of protected areas ensuring that they are not affected by any restriction of access to natural resources. The prospects for continued stability in Guatemala are very good. Still, land tenure remains a challenge issue in Guatemala. Several surveys report that indigenous peoples continue to perceive that they are excluded from access to basic services, public health and education as well as land. Recent United Nations reports indicate efforts are needed to ensure that indigenous peoples are informed, consulted and properly included in the development process. The social inclusion and participation of indigenous peoples in the economic and political development process will contribute to political stability and increase the odds of continued transformation of the economy and society. 3. Social and Political Organization. Activities to promote the inclusion of indigenous peoples can follow a systematic process of consultation and participation as the Guatemalan indigenous peoples are well organized at community and at national level. As a result of the Peace Accords their organizations created a third level political organization (national-umbrella). The Guatemala National Revolutionary Unit (URNG), formerly an umbrella organization of guerilla groups, evolved into a conventional political party by 1998. The indigenous peoples are also represented by the National Assembly of Representatives of the Mayan People and the National Council of Mayan Peoples. In 2004, attempting to present a unified front to the Guatemala Government, the National Assembly entered into dialogue with the National Council of Mayan Peoples. Labor and land rights are represented by the National Federation of Peasant Organizations (CNOC) and the Equality Committee on Indigenous People's Land Rights. A number of small NGOs, most notably the Mutual Support Group (GAM) and Families of Guatemalan Disappeared (FAMDEGUA), have also emerged to lobby for the prosecution of human rights abuses and to locate persons dead and missing since the civil war. In 2004, the Guatemalan Association of Mayan Lawyers was created to help select judges and defend the rights of indigenous peoples. 75 4. International support. The UN peacekeeping mission to Guatemala (MINGUA) has made a great contribution providing overseeing to the process of implementing the Peace Accords, facilitating the dialogue between the URNG and the Government. The World Bank and other organizations such as Latin American Human Rights Association, the Commission for the Defense of Human Rights in Central America (CODEHUCA), the International Indian Treaty Council and Amnesty International have supported indigenous peoples and their organizations in land administration, education and in constitutional reform and judicial access. However, despite the achievements this agenda is still very challenging and it needs continuo and sustained strategic support. 76 Annex 7. Guatemala at a Glance 77 78 Annex 8. Selected Indicators of Bank Portfolio Performance and Management 79 Annex 9. Guatemala Social Indicators 80 Annex 10. Guatemala Key Economic Indicators 81 82 Annex 11. Guatemala Key Exposure Indicators Actual Estimated Projected Indicator 2007 2008 2009 2010 2011 2012 2013 2014 Total debt outstanding and 14,570 14,771 13,764 14,340 14,716 15,133 15,525 16,596 disbursed (TDO) (US$m)a Net disbursements (US$m)a 1,704 28 -85 529 314 417 392 1,071 Total debt service (TDS) 1,773 1,756 1,684 1,587 2,977 2,522 2,390 2,566 (US$m)a Debt and debt service indicators (%) TDO/XGSb 124.4 126.1 117.5 122.4 125.6 129.2 132.5 141.7 TDO/GDP 42.7 37.7 36.5 34.7 31.4 30.5 29.2 29.2 TDS/XGS 15.1 15.0 14.4 13.5 25.4 21.5 20.4 21.9 Concessional/TDO 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 IBRD exposure indicators (%) IBRD DS/public DS 4.3 6.1 6.7 7.9 3.7 4.4 4.9 4.8 IBRD DS/XGS 0.6 0.9 1.0 1.1 0.9 0.9 1.0 1.0 IBRD TDO (US$m)d 740 806 1,112 1,372 1,390 1,341 1,518 1,480 Of which present value of guarantees (US$m) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Share of IBRD portfolio (%) 0.6 0.7 1.0 1.2 1.3 1.3 1.5 1.5 IDA TDO (US$m)d 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 IFC (US$m) Loans 46 61 109 120 102 153 Equity and quasi-equity /c 49 78 93 94 83 Annex 12. IBRD/IDA and IFC Portfolio 84 Annex 13. Executive Summary of IDB Strategy for Guatemala Country Context In recent years, Guatemala has experienced moderate economic growth, however with stagnation in GDP per capita. At the same time, poverty has increased and large disparities between the rural and the urban areas remain. These disparities are driven mainly by the existing gaps in access to i) health services and education, ii) social and productive infrastructure and iii) income generation opportunities. In addition, there are three constraints to development at a country level: the institutional framework, the fiscal framework and the ethnic and gender inequity. The IDB in The IDB is the main source of external financing in Guatemala and one of the main sources of Guatemala technical assistance. The IDB’s support has focused on the following i) Fiscal and Municipal Management (20%), ii) Social Protection (17.7%), iii) Capital Markets and Financial Institutions (11.6%) and iv) Transport (10. 3%). The current portfolio comprises 18 loans for a total available amount of US$562.6 million, 24 operations of the Multilateral Investment Fund worth US$8.8 million and 38 technical cooperation interventions worth US$8.9 million. The loan portfolio with sovereign guarantee focuses on the following sectors: Education (23.5% of the total available amount), Environment and Natural Disasters (19.9%), Health (14%), Water and Sanitation (13.3%), Energy (9.6%) and Commerce (9.3%). The IDB Strategy The IDB strategy 2012-2016 for Guatemala (EBGU) aims to improve the living conditions of the 2012-2016 Guatemalan population, specifically those in the rural areas. The main areas for intervention of the EBGU will be: Social Protection, Citizen Security and Violence Prevention, Fiscal and Municipal Management, and Rural Development (focusing on health, productive development and transportation). The rural development issues will be addressed under a territorial - multisectoral approach. Additionally, the IDB will be working on cross-cutting topics such as: environment, climate change and natural disasters, and indigenous population and gender. Moreover, the EBGU will promote regional integration, especially in the transport and energy sectors. Social protection, citizen security and violence prevention (i.e Barrios Seguros), fiscal and municipal management, productive development and transport will be areas of close collaboration with the World Bank. 85 Strategy The IDB plans to implement their country strategy under an integrated, multisectoral, Implementation decentralized approach and with a community-based emphasis, addressing Guatemala´s needs through a combination of instruments and with a particular focus on proper project scale. In parallel, the Bank plans to continue strengthening the design, implementation and monitoring of programs and to concentrate loan approvals in the first years of the EBGU. The EBGU has been elaborated closely with the World Bank and this collaboration will continue in the implementation phase. Risks The principal risks that the EBGU faces are the potential delays concerning parliamentary ratification of operations and the slow rhythm of execution in investment projects, all of which might restrict the impact of IDB´s intervention. Various activities are planned to mitigate these risks, including i) simplifying the design of operations (i.e. scale, execution mode and identification of best execution units), ii) emphasize synchronization of interventions with the Government’s planning and national budget cycle, and iii) engage with the Government in strengthening the technical capacity of the execution units. 86 IBRD 33413R1 91°W 90°W 89°W 88°W G UATEMA LA SELECTED CITIES AND TOWNS DEPARTMENT CAPITALS NATIONAL CAPITAL M E X I CO RIVERS GUATEMALA PAN AMERICAN HIGHWAY MAIN ROADS 18°N 18°N RAILROADS DEPARTMENT BOUNDARIES Paxbán INTERNATIONAL BOUNDARIES 92°W Carmelita n Pedro P E T É N Sa Tikal El Naranjo Melchor L. Petén Itzá de Mencos BELIZE 17°N 17°N Flores Mopán Usum ac La Libertad i nt M EXI C O a To Tuxtla Gutiérrez n sió Pa Sayaxché lá q ui ha ac M Gulf Salinas San Luis of n Honduras cué 16°N Can 16°N n Sarstún Ixcá Barillas iyú Modesto Lívingston Ch Méndez uz Puerto HUEHUETENANGO A L TA V E R A PA Z ta Cr San Barrios . Cahabón Sierra de I Z A B A L QUICHÉ á Mts ele Chajul Cham Ca habón El Estor L. de S gu Izabal Morales a Cob Cobán Huehuetenango Polochic Sier egro N Los Amates SAN ra d e lo Mot agu a MARCOS s Ch u BAJA VERAPAZ Tajumulco TOTONICAPAN Santa Cruz a c ú s Z A C A PA Salam Salamá 15°N (4220 m) Quich Del Quiché EL 15°N San Marcos Totonicap Totonicapán Motagua PROGRESO Zacapa To To S El Progresso O Tonalá O i e G El Progreso AN NG Suchia Quetzaltenango Sololá Solol GUATEMALA Chiquimula EN Tr NA LL AT r SOLOL� SOLOL Chimaltenango Z a CHIQUIMULA TE ET te Jalapa HO NDUR AS AL QU Mazatenango L.Atitlan GUATEMALA JALAPA SACATE- Antigua Esquipulas IM Retalhuleu M CH Ocós a d PEQUEZ Guatemala Z UE RETALHULEU r e Q PE Cuilapa Jutiapa TE Escuintla Champerico I CH JUTIAPA SU SANTA ESCUINTLA ROSA 14°N 14°N Sipacate San José Las Lisas SA LVA DO R EL SALVADO 0 20 40 60 Kilometers To La Unión 0 10 20 30 40 50 Miles To La Unión This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information PA CIFIC O CEA N shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. 13°N 13°N 92°W 91°W 90°W 89°W 88°W NOVEMBER 2006