Document of The World Bank FOROFFICIAL USEONLY Report No: 27771-HO PROJECTAPPRAISAL DOCUMENT ONA PROPOSEDCREDIT INTHEAMOUNT OFSDR 10.1MILLION (US$15.0MILLIONEQUIVALENT) TO THE REPUBLIC OF HONDURAS FORA NUESTRAS RAiCES PROJECT HumanDevelopment Sector Management Unit Central America Country Management Unit Latin America and the Caribbean Region This document has arestricteddistribution and may be used by recipientsonly inthe performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective February 4,2004) Currency Unit = Honduran Lempiras (HNL) 1L = US$0.06 US$l.OO = *L17.81 FISCALYEAR January 1 - December31 ABBREVIATIONS AND ACRONYMS CAS Country AssistanceStrategy CDD Community Driven Development CFAA Country Financial Accountability Assessment CMU Country ManagementUnit DO Development Objective ESA Economia, Sociedad, Ambiente-ESA Consultores FHIS Fondo Hondureiio de Inversidn Social FMR Financial Monitoring Report GNI Gross Net Income GOH Governmentof Honduras ICR Implementation Completion Report IDA International DevelopmentAssociation IDB InteramericanDevelopmentBank ILO International Labour Organization IP Implementation Progress IP Indigenous Peoples KFW KFWGroup (KfWBankengruppeinGerman) LAC LatinAmerica and the CaribbeanRegion MIS ManagementInformationSystem NR NuestrasRaices OED OperationsEvaluation Department PAPIN Programade Apoyo paraPueblosIndigenas y Negros PDO Project DevelopmentObjectives PEC OperationManual for Community Sub Projects PECINH ProyectosEjecutadospor Comunidades Indigenas y Negrasde Honduras PEDM Strategic Municipal DevelopmentPlans PIC Project Implementation Committee PPARs Project PerformanceAssessment Reports PRODDEL Decentralization and LocalDevelopmentProgram PRONEEAAH National Education Programfor Ethnic Groups inHonduras PRSP Poverty Reduction Strategy Paper REPEPIN Reduccidnde la PobrezaEnfocadaa PueblosIndigenasy Negros SEFIN Secretariade Finanzas SOPTRAVI Sistemade Obras Pdblicas, Transporte y Vivienda TA Technical Assistance TSC Tribunal Superior de Cuentas (Audit Court) UNDP The UnitedNations DevelopmentProgram Vice President: David de Ferranti Country ManagedDirector: Jane Armitage Sector Leader: HelenaRibe Task Team Leader: Andrea Vermehren HONDURAS FOROFFICIAL USEONLY NuestrasRaicesProgram CONTENTS A STRATEGICCONTEXTAND RATIONALE . .....................................................................Page1 1. Country and sector issues (for more detail. see Annex 1) ............................................... 1 2. Rationale for Bank involvement .................................................................................. 2 3. Higher level objectives to which the project contributes ................................................ 3 B PROJECTDESCRIPTION . ..................................................................................................... 4 1. Lending instrument .................................................................................................... 4 2. Project development objective andkey indicators ......................................................... 4 3. Project components .................................................................................................... 4 4. Lessons learned and reflected inthe project design ....................................................... 5 5. Alternatives considered and reasons for rejection .......................................................... 7 C IMPLEMENTATION . ..................................................................... ........................................ 7 1. Partnership arrangements ............................................................................................ 7 2. Institutional and implementation arrangements(for details see annex 6)......................... 7 3. Monitoring andevaluation of outcomes/results ............................................................. 9 4. Sustainability ............................................................................................................. 9 5. Critical risks and possible controversial aspects.......................................................... 10 6. Credit conditions and covenants ................................................................................ 12 D APPRAISALSUMMARY . ..................................................................................................... 12 1. Economic and financial analysis ................................................................................ 12 2. Technical ................................................................................................................. 12 3. Fiduciary ................................................................................................................. 12 4. Social ...................................................................................................................... 13 5. Environment............................................................................................................ 15 6. Safeguardpolicies .................................................................................................... 15 7. Policy Exceptions and Readiness ............................................................................... 16 This documenthas a restricteddistributionandmay be used by recipients only in the performance of their official duties Its contents may not be otherwise disclosed without World Bank authorization . . . Annexes Annex 1:Country andSector or Program Background .......................................................... 17 Annex 2: Major Related Projects Financed by the Bankand/or other Agencies ..................22 Annex 3: Results Framework andMonitoring ......................................................................... 24 Annex 4: Detailed Project Description ...................................................................................... 30 Annex 5: Project Costs................................................................................................................ 36 Annex 6: ImplementationArrangements .................................................................................. 37 Annex 7: FinancialManagement and Disbursement Arrangements ...................................... 40 Annex 8: Procurement ................................................................................................................ 47 Annex 9: Economic andFinancialAnalysis .............................................................................. 55 Annex 10: Safeguard Policy Issues ............................................................................................. 58 Annex 11: Project Preparation andSupervision ...................................................................... 62 Annex 12: Summary of Results from Ex post Evaluation ....................................................... 63 Annex 13: Documents inthe Project File .................................................................................. 65 Annex 14: Statement of Loans and Credits ............................................................................... 66 Annex 15: Country at a Glance .................................................................................................. 67 A. STRATEGICCONTEXTAND RATIONALE 1. Country andsector issues(for moredetail, see Annex 1) 1. Honduras is one of the poorest countries inLatin America and i s characterized by a highdegree of income disparity. With a per capita GrossNet Income (GNI) of US$920 in 2002, the country i s the thirdpoorest inLatinAmerica. Given its highincome inequality (the national Ginicoefficient is 0.6), poverty i s widespread. Nearly two-thirds of the populationi s poor and nearly half i s extremely poor.' 2. Indigenous and Afro-Honduran peoples number over 440,000 (7.2 percent of the total population) and consist of nine distinct ethnic groups (Lenca, Gm'funa, Miskito, Chorti, Pech, Tawahka, Tolupfin, English-speaking Black, and Nahoa). The ethnic communitiesare among the poorest inthe country, with much higher than averagerates of malnutritionand illiteracy and unsatisfied basic needs? The participation of these groups inthe democratic processesat the central and local government levels i s limited. A more active participation inthese government structures i s key to reducing poverty and improvingthe living conditions of Honduras' ethnic communities. 3. In2001, the Government of Honduras (GOH) presentedits Poverty ReductionStrategy Paper (PRSP), which seeks to reduce poverty by 24 percent during2001-2015 through a comprehensive set of measures or pillars, including: (1) accelerating equitable and sustainable economic growth; (2) reducing poverty in rural areas; (3) reducing urban poverty; (4) investing in human capital; (5) strengthening social protection for specific groups; and (6)guaranteeingthe sustainability of the strategy. 4. The objective of "Social Protection for Specific Groups" (pillar 5) i s to improve the living conditions of people inextreme poverty, particularly children, adolescents, senior citizens, women, persons with disabilities and ethnic groups, inorder to enable their social integration anddevelopment through equitable access to opportunities. The PRSPalso calls for programs and projects that support: (a) socio-economic development of ethnic communities, and (b) ethnic and ecological tourism. 5. Inorderto guaranteethesustainability ofthe strategy (pillar6),theGOHstressestheneedto decentralize and strengthen local development. Through the Decentralization and Local Development Program (PRODDEL), the GOHhas created an instrumentto implement this strategy, fostering the role of communities, local governments and local service providers inthe economic and social development processof the country. 6. As part of this strategy, the GOHhas strengthened its efforts to address the persistentproblems affecting the indigenous and Afro-Honduran peoples. It reactivatedthe National Cultural Council, createdthe Office of the Special Prosecutionfor Ethnic and Cultural Heritage, and promoted a process of sustainable human development through a variety of complementary programs and projects (see Annex 2). Other plannedpolicy measuresinclude the creation of the National Ethnic Council, which will define a national agendato facilitate coordinationof the programs benefiting ethnic communities, and bring national legislation in line with L O Convention 169 regarding indigenouspeoples, signed by Honduras, so its provisionscan be enforced. 'The extremepoor are those livingbelow the extremepoverty line, which is the cost of a food basket designed to meet basic nutritional needs. According to the HondurasCAS (pg. 4), "All Poor" in2002 represented63.3 percent of households and "Extremely Poor" 45.2 percentof households. ESA Consultores-Evaluacidn de ProyectoNuestrasRaices IV, Tegucigalpa, 2002. 1 2. Rationalefor Bank involvement 7. Duringthe Bank's Country AssistanceStrategy consultationsin2003, the GOHreiteratedits commitment to improving the livingconditions of the country's most vulnerable groups, particularly the ethnic communities, and askedthe Bank to continue its support to one of the most prominent and successful programs in this area, the NuestrusRuices (Our Roots) Program(NR),implementedby the Honduras Social Investment Fund(FHIS). 8. Since 1995, FHIS has implemented the Nuestras Raices Programto address the specific needs of ethnic communities. In 1997, the Bank was invitedto support the program. Duringits most recent phase (2000-2002), the NR Program invested US$13.6 million under the Bank-financed FHIS V Project inover 4,650 small-scale subprojects benefiting about 125,500 families inHonduras' ethnic communities. The proposed Nuestras Raices ProgramProject-self-standing for the first time-willbuildon the strengths of the previous phases and expand the program's coverage and impact. Through the NRProgram, the GOHseeks the Bank's support inimplementingthe PRSP's SocialProtectionandSpecific Groups pillar, and the GOH's efforts to strengthen local development, particularly of highly vulnerable, ethnic communities. 9. A recent ex-post evaluation of the NR Program, conducted by ESA Consultores, concluded that the program was very successfulin meetingits objectives (see Annex 12). The report noted that NR was highly effective intargeting its resourcesto benefit extremely poor communities and households. Seventy-three percent of beneficiary households were found to belongto the bottom three income categories (national average: 50 percent). Furthermore, the evaluation confirmed that the subprojects representedthe priorities identifiedby the communities and the programpromoted gender equity, with roughly equal male andfemale participation inthe ethnic groups. 10. The proposed operation will be processedas a "repeater project" due to the program's excellent track record, the GOH's commitment to improving and expanding the program as part of the PRSP implementation, and the Bank's experience with the program. Therefore, alternative programapproaches were not considered. However, some important changes to the previous design of the NRProgramhave been introducedand are described inthe following sections. 11. Other projects. The NRProgramis only one of the initiatives supported by the Bank in Honduras to improve the socio-economic development of indigenous andAfro-Honduran communities. Other Bank projects address complementary areas, such as landtitling, training of human resourcesin health, disaster prevention and mitigation, sustainable tourism, bilingual and intercultural education, and trainingat the IntibucgIndigenous Handcraft Center. However, these initiatives are not exclusively directed to indigenous communities, but are designed as components of larger programs (See Annex 2 for more detail). 12. Other projects financed by the internationalcommunity targeting indigenous and Afro-Honduran populations include the Inter-American Development Bank (1DB)-financed pilot project PAPIN(US$1.5 million IDB, US$l.3 million GOH, US$225,000 Canadian funds), which i s being implementedthrough the Ministry of the Interior and Justice inpartnership with the ethnic federations. Components include: ethno-engineering; indigenous law and gender; and monitoring and evaluation. A new IDBoperation called REPEPINwill provide financing (US$lO.O million in a first phase) for institutional strengthening of the ethnic federations, for productive activities benefitingethnic communities, and for improving human development services in indigenous areas. It i s very complementary to the NRproject and will finance institutional strengthening activities of the ethnic federations, human develop service delivery interventions, and income generating projects (see Annex 2 for a list of relevant projects). 2 13. Comparative advantage ofthe Bank's involvement. The Bank's long-term relationship with FHIS and the indigenous andAfro-Honduran federations and their peoples through FHISProjects with financing for NR (NR I1-US$6.4 million and NR IV - $13.6 million) exceeds that of other international agencies and i s key to the successfulimplementation of the program. Basic rules between FHIS, the Bank andthe ethnic federations on participationindecision-making, transparency and social auditing are well established. This strong foundation andtrust among all parties allows the Bankto strengthen-through new design features-the democratic relationship between the federations and their respective communities. Finally, due to the Bank's knowledgeof and FHIS' involvement with local governments, it was possible to establish, as part of the new NR design, a link between local governments and ethnic federations, which are historically competing forces. 3. Higher levelobjectivesto which the project contributes 14. The proposed Nuestras Raices Project will contribute to the country's higher-level objective of strengthening the social protection ofindigenous andAfro-Honduran communities by empowering them to manage and implementtheir own projects to improvetheir living conditions with respect for their ethnic identity. The project will provide ethnic communities with the opportunity to develop Strategic Ethnic Development Plans that will complement andfeed into the Strategic MunicipalDevelopment Plans (PlanesEstratkgicos de Desarrollo Municipal, PEDM),thus enablingthemto participate more equitably inthe local development planningprocess. 15. The Nuestras Raices Project also supports the higher-level objective of enhancing investment in humanand socialcapital. The project will providetraining to ethnic communities, federations, local facilitators and supervisors. Communities will be trained to formulate Strategic Ethnic Development Plans, plan andexecute subprojects, and administer funds and materials conferred to their Project Committees. 16. The project will provide communities and groups of communities with the opportunity to prioritize, design, manage, execute, monitor andevaluate subprojects that respond to urgent needs, regardlessof project size. As an important indirect effect, it will create temporary local employment opportunities for the participating communities and promote local contracting. It is expected that this will contribute to reduced rural poverty and increased equity between urban and rural areas. 17. The gender strategy of Nuestras Raices will continue to promoteequal opportunities for women and men through contractual services, training opportunities, and the selection of projects benefiting the most vulnerable segments of ethnic communities. 18. The environmental sustainability strategy of the Nuestras Raices Project will promote environmental awareness among beneficiaries, increase ethnic communities' knowledge about the application of environmental guidelines and regulations (forestry, water and sanitation, etc.), and address environmental issues duringproject implementationthrough mitigation and risk management measures agreed with andcarriedout by beneficiaries. 19. CAS objectives. The CAS objectives supported by the project are: (a) strengthening social protection for specific vulnerable groups; (b) reducing rural poverty; and (c) enhancing investment in human capital. The CAS states that a core strategic objective of pillar 5 of the PRSP is "to support Afro- Honduranand indigenous groups to develop their communities, inpart through the Bank-supported NuestrasRaicesPr~gram."~ This objective is entirely consistent with the overall CAS objective of Honduras: Country Assistance Strategy. Strengthening Social Protection for Specific Groups. Pg. 17 3 poverty reduction through addressingthe needs of one of most vulnerable groups as identifiedin the PRSP. B. PROJECTDESCRIPTION 1. Lendinginstrument 20. The GOHhas requesteda Specific Investment Loan since this flexible instrument is most appropriate for this type of project. 2. Project development objective andkey indicators 21. The project development objective is that indigenous and Afro-Honduran groups have increased participation inthe holistic development processes of their communities and their nation. This will be achieved by strengthening the communities' local capacity to buildsustainable organizations, development projects, and cultural identity. Progresstowards achieving this objective will be measured against the"fo1lowing outcome indicators: 0 At least 400 indigenous andAfro-Honduran Community DevelopmentPlans will be incorporated into Strategic Municipal Development Plans (PEDM). 0 At least 5 institutionsfinance part of the nine Strategic Ethnic DevelopmentPlans. 0 At least 50 municipalities will finance subprojects includedinthe Community Development Plans prepared by the indigenous and Afro-Honduran communities. 0 At least40 percent of the project's beneficiaries are women. 0 At least 70percent of the subprojectsfinanced will have sustainable maintenance systems in operation. 0 At least 70percent of subprojects are implementedinaccordance with the establishedparameters of time, quality andbudget. 0 Each of the 9 indigenous and Afro-Honduran peoples will have developed and implemented at least two cross-cutting subprojects that serve to strengthen the ethnic people as a whole (i.e. cultural, linguistic, historical). 22. Semi-annual progress reports and an ex-post evaluation will measurethe degreeto which these targets have been achieved. 3. Project components 23. The proposed project has three components and will have a duration of three years (see Annex 4 for more details): Component 1.Participatory Development Planningby Ethnic Group (US$0.49 million; IDA US$0.46 millionequivalent). 24. This component will support aprocessof participatory development planningamongthe indigenous and Afro-Honduran communities and the federations in order to: (a) train andprepare ethnic communities and their ethnic representationsto actively participate inthe local development planning process; (b) identify subprojects to be financed under Nuestras Rakes and other programs; and (c) encourage ethnic federations to work more closely with municipalities to leverage funds. Facilitators trained by the NR unit will assist approximately 2,000 communities to carry out a participatory community needs assessment andplanningprocess that will result in a Community Development Plan for 4 each community and a list of priority subprojects. The subprojects will be further prioritized in micro- regional meetings and, subsequently, at the level of each ethnic group, usinga fixed set of selection criteria (e.g. poverty, landtenure, significance). Eachof the nine ethnic groups will then prepare strategic development plans outlining the vision, mission, and strategic goals for its membership over a three to five year period. The development of the strategic plans will be ledby the ethnic federations, basedon an agreedparticipatory and democratic methodology, and will use already existing plans as a startingpoint if they are available. Aspects of these strategic development plans are expectedto feed into the national and municipal development plans. Environmental and gender aspects will continue to be an integral part of the planning methodology and will be addressedthrough the planningprocess. Component 2. Grantsfor Subprojects(US$13.8 million; IDA US$13.3 million equivalent). 25. This component will finance approximately 600-700 community-executed subprojects, each averaging $20,000. Subprojects will only be financed ifthey have beenprioritized through the participatory development planningprocess. The resources will be allocated proportionatelyamong the nine ethnic groups, basedupon the 2001 census data, while guaranteeing a minimumallocation for the five smallest ethnic groups. Projects will be executed by the ethnic communities, usinga Community DrivenDevelopment (CDD) methodology, outlined inthe program's Operational Manual (Projectos Ejecutadospor las ComunidadesIndigenasy Negras Hondureiias -PECINH) which addresses important gender and environmental aspects. Project funds will be transferred directly to a community-based Project ImplementationCommittee (PIC) with an elected leadership or, inthose cases where a committee already exists, confirmed, by the entire community. Component 3. Capacity Buildingand InstitutionalStrengthening(US$1.31million; IDA US$1.24 million equivalent). 26. This component will finance capacity buildingof ethnic communities to leadtheir own development process, institutional strengthening of the Nuestras Raices Unit,located within FHIS, and monitoring andevaluation. The main capacity buildingactivities include training andtechnical assistance to the communities inparticipatory development planning, project identification, planning,execution, operation and maintenance, and funds and materials management.The Nuestras Raices Unit, as in previous phases, will be responsible for managing the project. It will coordinate closely with the ethnic federations, the community-level Project ImplementationCommittees (PICs), the locally-contracted Subproject Formulators andCommunity Facilitators, and the FHIS-contractedSupervisors and Inspectors. The NR Unit and the FHISEnvironmental Unit will closely coordinate the implementation of the project's EnvironmentalAction Planensure that environmental safeguards are observed. 27. The Operational Costsfor implementingthe project amount to US$ 1.1 millionand include FHIS staff costs as well as recurrent costs for offices, mobilization, equipment etc.. These funds would be provided as counterpart funds by the Government of Honduras. Inaddition, the Government of Honduras would provide US$0.5 million for financing of grants for subprojects. 4. Lessonslearnedandreflectedinthe project design 28. More Sustainable Subproject Investments.One of the findings of the ex-post evaluation was that the subprojectscamed out by the ethnic groups showed insufficient sustainability, mainly since the subproject paid only for labor costs and did not make funding available for materials or technical assistance. The new NR Project will fundboth materials and labor. Subprojects are expected to average $20,000 apiece, compared to less than $5,000 inpast phases. Inaddition, subproject proposals will include plans for financing operations and maintenance costs. 5 29. More Intensive and Ambitious Capacity-building at the Community Level. The ex-post evaluation also found that the training provided to local facilitators was not effective inpenetrating down to the working groups at the community-level, where it was most needed. For this project, since communities will be directly involved inmanaging subproject resources,capacity-building efforts will be intensifiedat the community-level. Communities will have access to funds to contract training and technical assistance support, both at the planning and implementation phases, in the form of a community facilitator or technician relevant to the subproject type. Inaddition, well-trained FHIS supervisors will visit subprojects regularly to ensure that the capacity-building, including environmentaland gender awareness, i s being translated into successfulproject managementby the Project Implementation Committees at the community-level. 30. Bridging the Growing Divide between EthnicFederations and Local Government.There seems to be an increasing divide between the representativesof the ethnic federations and local governments in some areas of the country. Previous phases of the NR Programwere carried out independent of local officials, who were, in some cases, not even informed about project plans. For this project, it was agreedthat the NR Program should complement not replace the local planning processes. The revised project design takes this lessoninto account by making sure that the planningprocess undertaken inthe ethnic communities i s compatible with the process carried out by the municipalities. Further, it requires that the Ethnic Development Plans developed under the programbe shared with the relevant local government authorities. It is hoped that these steps will help pave the way for increased trust and collaborationbetween the ethnic communities and the municipal government structures, which will lead to local governments incorporatingprojects and strategiesdefined through the ethnic planning process into their own development plans. 31. PromotingEthnic Unity. Inthe past, the NR Programworked with the ten ethnic federations of the nineethnic groups. Duringrecent years, however, several new ethnic federations have been created, totaling 14at present. Inorder to discourage further splintering of ethnic representations, it was agreed with the federations that the NRProgramwould only admit participation of one representation per ethnic group. Hence, nine representationsof the nine ethnic groups will participate inthe program, on behalf of all the ethnic peoples of Honduras. Another measuredesigned to promote unity within each ethnic group i s the allowance that up to 10percent of subproject funds may be used for activities designed to strengthenthe ethnic group as a whole. Each ethnic group will identify these activities intheir strategic development plan. 32. Past Performance inSector. The NRProgramhas invested inthe social protection of all indigenous and Afro-Honduran groups since 1995. Past performance of the NRcomponent of FHISI11 and IV Projects has beenrated as "Satisfactory" or "Highly Satisfactory." The 2002 OED evaluation Results of SelectedWorld Bank Interventions on the Indigenous andAfro-Caribbean Populations in Honduras, concluded that the NRProgramhad "provided substantial benefits to the IP(Indigenous Peoples) communities throughout the country. Government commitment and IPownership are high, makingthe sustainability of activities likely." Among OED's recommendations was the needto expand the subproject menu to respond to a broader range of needs and to increase trainingto communities. Both recommendations are reflectedinthe project design. 33. Despite OED's favorable review of the NRProgram, it also noted that there i s a need to improve coordination of the country's environmentaland indigenouspeoples' policies and regulations with local governments and beneficiaries. Inresponseto this, the project intends to build on the knowledge of existing municipal environmental unitsand involve them, as much as possible, during project implementation, where needed. Recently, the GOHhas increased its support to municipal environmental units, supported by its decentralization plan(PRODDEL). 6 5. Alternatives consideredand reasonsfor rejection 34. Followingthe recommendations of the GOH, and given the results from the ex-post and OED evaluations, the basic designof the NR Programwas preserved. Inaddition, as noted above, some improvements were introduced to enhance sustainability of subprojects, accountability and harmonization with local development efforts. Duringpreparation, consideration was given to two alternative design options as below: Option 1 would disburse funds through the municipalities to the ethnic groups to reinforce decentralization efforts and strengthen local governments. This approach was proposed by the FHISMinister to the ethnic representationsand soundly vetoed, due to the negative experience in the NR Program phases Iand 11when municipalities administered the program funds. However, it was agreedthat the project would include seminarsand workshops to promote communication and synergies between ethnic federations and municipal governments to pave the roadfor futurejoint work and more active participation of ethnic groups inthe local development process. * Option 2 would include a Financial Intermediation component to continue the promotion and creation of rural savings and credit mechanisms (cujus rurules) formedunder the Nuestras Rakes Programinprevious phases. However, it was agreed among the ethnic federations, FHIS, and the Bank to not include any "mandatory" savings and stop promotingthe creation of cujas rurales for the following reasons: (a) there is no legal framework in the country governing these cujus, (b) FHIS i s not the appropriate institution to carry on this work, and (c) the ethnic federations should not have a double function of being the political representation of the ethnic groups andmanagingcredit and savings funds. Any major effort to strengthen andbuildupthe cujus system would go beyond the project's comparative advantage. Instead, it was decided that FHIS would seek to engage other donors that are better suited to buildupthe cuju system, such as UNDP, which i s already supporting some ethnic federations on the topic. Specifically, UNDPwould support the consolidation of the cujus and assist them to establish a legal framework to regulate their operations. C. IMPLEMENTATION 1. Partnershiparrangements 35. Inthe past, the World Bank has beenthe major institution financing the NRProgram, apart from the GOH, which providedcounterpart funds, andthe beneficiary communities' contributions. Other partners haveparticipated including, the IDB, which providedfundingto NR (US$l.1million) to support the creation of micro-enterprises managedby ethnic communities andUNDPhas engagedin activities to strengthenthe most promisingof the approximately 3,500 cujus rurules financed duringearlier phases. 36. The IDB i s currently preparing REPEPIN, a new project that will largely complement the Nuestras Rakes Project (for more detail, see Annex 2). The IDB and World Bank task teams have been coordinating closely inthe preparation of both operations, and will continue to do so duringproject implementation, to ensurefull capitalization of expected synergies of both operations. 2. Institutional and implementationarrangements (for details see Annex 6) 37. As inthe past, FHIS will be the implementing agency for the project. Overall responsibilityfor this project will be with the Minister of FHIS and his staff. The Nuestras Rakes Unit will be responsible for coordinating and supervising project activities, and working with the various departmentsof FHIS to ensurethat the project evolves according to plan. The NR Unit will also be responsible for coordinating 7 and supervising project activities with different actors: nine ethnic representations, local community facilitators, local technical assistanceproviders, FHIS supervisors and inspectors, and community-level Project ImplementationCommittees. External experts will be contracted to audit and evaluate the program. 38. FHIS, which was createdby Law No. 12-90on February 22, 1990, has capital and administrative, technical and financial autonomy. A Board of Directors chaired by the President of the Republic oversees FHIS, which is ledby anExecutiveDirector, who hasthe rank of Minister.The NR Project is an integral part of FHIS' efforts to introduce community execution of projects. The Operational Manualthat will be used for the NRProgram i s very similar to the one usedfor all other subprojects implementedby communities and has benefited from the NRunit's experience in working with communities and transferring resourcesto them. Inthat respect, this new NR approach has contributedconsiderably to the cohesion of FHIS' operations and modalities. 39. Rationale.The institutional arrangements were selectedbasedon the experience with previous phases of the NR Program andon FHIS's and the Bank's experience with CDD inHonduras and elsewhere. FHIS has more than 10years of experience implementing donor-financed programs and subprojects efficiently andeffectively. The institution's annual expenditures average between US$35-40 million, thus FHIS i s the second largest implementing agency inthe country, following the Ministry of Transportation (SOPTRAVI). Financial managementand procurement units are well established and respective Bankguidelines are being followed without difficulty. The Nuestras Raices Unithas very experienced and motivated personnel. The NR component (US$13.0 million) under the FHIS V Project was implemented within one-and-a-half years, demonstrating the capacity of FHIS andthe NR unit to deliver efficiently andeffectively. 40. Inorder to carry out the project, it was agreedthat FHISwould strengthen the NRunitby recruiting membersto round out the team's skill base andprepare it to manage strategic development planning activities (Component 1) and the more diverse and higher value subproject portfolio under Component 2. Under the new community execution methodology, adequate training of the community- basedProject Implementation Committees to cany out their subprojects will be key to successful implementation. Community committees will be trained in project management and administration, including accounting, procurement of goods and materials, contractingof services, environmental aspects, maintenance, etc. 41. Flow of Funds.FHIS' financial managementstaff has gained sufficient experience inIDA credit disbursement procedures, both under "traditional" and FMR procedures. FHIS also has sufficient knowledge on proceduresfor disbursingcounterpart funds and other external resources. 42. Under the NuestrasRaices Project, funds for subprojects will be disbursed to communities to implement subprojects. This procedure will be regulated through the project's OperationalManual, which incorporates many of the experiences from other community-executed and FHIS-funded projects and includes the principles inthe Bank's Reference Guide: Fiduciary Managementfor Community Driven Development Projects (April 2002). Once a community subproject has been approved for funding, a portion of the approvedbudget will be advancedby FHIS to the Project Implementation Committee, in accordance with the subproject's disbursement plan. Subsequentdisbursements would be contingent upon progress made in subproject implementationand acceptable resource management andreporting. 43. Inorder to minimize delays inthe flow of funds to communities, FHIS will have access to a Special Account of FHIS, which will be maintained at the Central Bank of Honduras, and funds may be transferred to the localcurrency accounts managedby FHIS for further transfer to communities. Furthermore, in maintainingthe operation of bank accounts under the FHIS V Project, it was agreed that 8 FHIS would be permitted to utilize the Special Account 30 day Advance Procedure (for more detail, see Annex 7). 44. Financial audits for the project and FHIS will be carried out annually by external auditors, as per normal procedures with social fundprojects. FHIS' internal auditors will regularly audit a sample of subprojects andanalyze the application of the Operational Manual's procedures.Finally, biannual operational audits, carriedout by independent auditors, will audit communities' financial management, subproject implementation, as well as supervision andFHISarchiving. 3. Monitoringandevaluation of outcomes/results 45. Monitoringof project indicators in the Results Framework (Annex 3) will occur mainly through FHIS's well established Management Information System (MIS) which hasjust been updated and improvedconsiderably, and i s known to be of highquality. This systemwill be used to monitor Nuestras Rakes project implementation, including subproject execution progress.The system will have the capacity to generatereports that separate out the NR subprojects from the rest of FHIS portfolio, so that timely information will be available for project monitoring. Inaddition, FHIS is inthe processof revampingand adjusting its management reporting, basedon a revised set of key performance indicators. 46. FHIS and the ethnic federations will also conductjoint site visits and meetings to review progress inimplementingthe project, identify andaddress problems, and fine-tune the methodology to achieve improved project outcomes. 47. Duringthe last year of project implementation, anex-post evaluation will becarriedout, comparing not only the results of the 2002 ex-post evaluation with the new results, but adding important elementssuch as measuring social capital andthe effectiveness of the training and capacity building activities at the community level and communities' linkages andrelationshipwith local govemments. 4. Sustainability 48. BorrowerCommitment.The proposed Bank financing of this new operation respondsto a request from the GOH duringthe Bank's CAS consultations in 2003. The GOH's request was, inpart, motivated by demands from the ethnic representations for a continuationof the NR Program and also by the very positive results of the ex-post evaluation of the program. Since the NR operation is embeddedin the Government's implementationof the PRSP, it i s expected that ownership will continue to be highas long as there i s commitment to the PRSPprocess. Inprevious FHIS operations, the borrower's commitment to and ownership of the project has been rated `satisfactory' (see OED evaluation). The recent FHIS IV ICR rates the implementationof the NR component as "highly satisfactory" which was confirmedby OED. 49. CriticalFactors.Sustainability will be enhancedat several levels: 0 Subprojects. Inaddition to labor costs, the program will finance goods/materials and technical assistanceto ensure that projects are technically, environmentally and economically sound. Subproject plans will also be required to address long-term operations and maintenanceissues. 0 Communities. Community members will be trained inmanagingand implementingthe entire subproject, including project accounting. They will be able to purchase technical assistanceas neededandreceive orientation for community development planningwhich will enable and empower them in the future to participate more effectively in local development planning 9 processes. Communities will contribute incash andor in-kindto each subproject equivalent to 10percent of the subproject value. IndigenousFederations.The ethnic federations will be trained and guided inparticipatory strategic planning, which will provide them with a useful tool for future activities and planning exercises. They will also gain experience indelivering project-related services that benefit the communities they represent. 50. For the first time, the NR Program goes beyondthe implementationof subprojects by: (a) supporting communities andtheir ethnic representationsinpreparingethnic development plans that will define priorities and engage them inthe local development planningprocesses; (b) supporting training andtechnical assistanceactivities to strengthenthe community-based organizations directly to planand implement projects; and (c) financing entire subprojects, notjust the unskilled labor component. 5. Critical risks andpossible controversial aspects 51. Ethnic federations and local governments. Nuestras Raices i s definedas a programfor and run by the autochthonous peoples of Honduras and ownership of the program i s very highamong ethnic groups. The goal of bringingethnic groups closer to local governments (particularly through the strategic planning process) mightnot be easy to achieve given the resistance of ethnic groups and their representationsto work with local governments. This historical hesitance, which i s found in many countries, i s no doubt, inpart, the result of badexperiences, including duringprevious phases of the NR Program, when the municipal governments controlled and, in some cases, usedthe NRresourcesfor other purposes. The ethnic federations' hesitanceto collaborating with local government may also relate to political concerns about losing their influence and legitimacy achieved through the involvement with the project. Nonetheless, the ethnic federations have agreed to share the Ethnic Development Plansthey prepare with the relevant local government officials (and others). Likewise, ethnic communities will share their Community Development Plans with their respective local government authorities and others. To facilitate this process, the program is shaping the planningprocess and format to matchthat of the municipalplanningprocess. There i s a risk that a lack of responsiveness on the part of municipal governments will undermine the project's goal of increasingcollaboration between the ethnic 10 communitiesand local government authorities. FHIS has therefore intensified its communication with local governments about the NR Program and will serve as a facilitator between the two groups, building on its exhaustive work with local governments. The major risks that may affect the components are: 52. The proliferationof new ethnic federations. This reflects increasing divisions andcontroversies within ethnic groups. The participatory planningexercise for each ethnic group i s intended to counteract suchtendencies. While, in principle, the ethnic federations have acceptedthe idea that each ethnic group mustpresentaunified front when dealingwith the NRProgram, inreality, some difficulties may ariseas they work through the details of a sharedEthnic Development Plan with competing federations. Nonetheless, FHIS and the NR team have gained the trust and respect of the federations' leadership, which has madeit possible to work with the federations to resolve conflicts diplomatically inthe past and will continue to serve them well inthis new phase. 53. Increased complexity of subprojects. Inprevious phases of the NR Program, financingto communities was only provided for unskilled labor costs, and consequently, the subprojects financed were technically simple and easy to implementbasedon the knowledgeof each indigenous group. The proposed operation i s more demandingin that it intends to create more sustainableprojects, which will involve the introduction of new subproject types, new technologies, andnew procedures and rules (project accounting, external audits, etc.). These new, more complex subprojects will not only require that communities learn how to manage cash and material resources, but also to develop and implement realistic plans for covering the recurrent operating and maintenance costs. The ethnic federations are very positive about this new approach and do not foresee any difficulties. To minimize this risk, the project will clearly communicate the new approach to ethnic communities duringthe planningphaseand invest heavily inbuildingcapacity at the community level to ensure that targeted communities have the skills requiredto successfully implement, operate, and maintain these more complex subprojects. 54. Quality of Training. The success of the subprojects depends on the quality of training received by the communities andProject ImplementationCommittees at the community-level. This, inturn, dependsupon the project's success indevelopinga roster of qualified community facilitators and technically skilled specialists who are able to work in a culturally sensitive way with ethnic communities. Identifying qualified individuals and organizations to deliver training and technical assistancei s often a challenge. To mitigate this risk, the project includes resourcesto finance training of trainers as well as training of communities, which should enhancethe consistency of training content and quality across sites. 55. PossibleControversial Aspects. The project supports one of the most disadvantaged population groups of the one of the poorest countries inthe Latin America region. The highprofile of the NR Programinthe country, andthe highexpectations, particularly among ethnic federations pose a risk for the Bank, particularly ifconflicts among the ethnic federations or between the federations and local governments intensify. Inthe past, the NR Programwas carried out in parallel with the existing local development process.Now, the NR Programis designed to contribute to an increased integration of ethnic communities and local governments. This has already raised concerns among some representatives of ethnic federations who see this integration as a risk to their own status andthe social movement that they represent. 11 6. Credit conditions and covenants 56. There are four effectiveness conditions: a) that the Subsidiary Agreement has beenenteredinto between the Borrower andFHIS; b) that the Operational Manual, including an operating plan for the first year of Project implementation and a detailed procurement plan satisfactory to the Association, has been adopted and put into effect and the standard forms set forth in the Operational Manual are integratedinto MIS; c) that the financial auditors have beenproperly appointed; and d) that the guidelines for usingthe FHIS' contractors database have beenapproved by the Association. D. APPRAISAL SUMMARY 1. Economicandfinancialanalysis 57. The Nuestras Raices Project includes "framework" type subprojects, in which most of the major investments are not identified or designed before effectiveness; rather, what i s appraised ex-ante i s the mechanismfor delivering the outputs. Becauseof the demand-driven nature of this project, the specific social rate of return cannot be known ex-ante. The economic analysis assessesthe mechanisms and methodology inplace to ensurethat the subprojects implementedare part of a macro strategic development plan, which reflects the vision and needs of each one of the nine ethnic groups inHonduras. 58. The financial analysis shows that fiscal implicationsduringand after implementationare expected to be manageableand in general, no recurrent cost increasesare expected for the public sector. Operations and maintenance costs areexpected to be borne largely by communities in accordance with the subproject maintenanceplans agreedwith the beneficiaries before subproject implementation(see Annex 9 for more details). 2. Technical 59. FHIShas developed technical criteria for eachsubproject type, basedon existingnorms from the respective public agencies to ensuretechnical coherenceandcompatibility. These norms have been incorporated into FHIS's Operational Manuals and complementary guidelines. Technical appraisal for NR subprojects would follow this logic andbe undertaken by the FHIS Evaluation Department, which has qualifiedand experienced staff. Supervision of subproject implementationwould be carriedout intensively to ensurethat supervisors can advise communities in a timely manner. The supervisors will be trained specifically on socially, technically andculturally appropriate ways of working with ethnic communities. 3. Fiduciary 60. Financial Management (see Annex 7 for more details). The Country Financial Accountability Assessment (CFAA) was conducted in 2003 and the GOHi s currently finalizing the proposed action plan. The diagnostic work concluded that the quality of budget reportingby decentralized and deconcentrated agencies was inneedof improvement. The country specific risk has been assessedas high due the identified structural weaknesses inthe public financial management system, in spite of a generally sound and complete legal and governingframework for public financial management. The government has taken 12 active measuresto improve transparency and governance, and once these actions are completed, it i s expected that the specific risk assessment would be mitigated. 61. FHIS's experience with previous andcurrent IDA and other agency-financed projects has allowed it to develop a sound financial managementsystem to meet the Bank's minimumrequirements. The NR unit will rely on the existing financial managementdepartment within FHIS to handle all aspects of financial management andreporting. This department i s experienced inimplementingand managing Bank-financedprojects. 62. The project will advancethe majority of financing to communitiesfor community-led development. However, many communities have limited financial managementexperience. Thus, the project will invest heavily in buildingcapacity at the community-level. FHIS has the appropriate personnel, a sound Operational Manual for community-executed projects, as well as an excellent managementinformation systemto supervisecommunity financial managementcarefully. 63. Procurement. Bank-financed works, goods and consulting services will be procured in accordancewith World Bankprocedures. Project activities and procurement contracts not financed by the Bank would be procuredinaccordance with nationalregulation. The project inputs, estimated costs and procurement methods are summarized inTable A and A1 of Annex 8. 64. FHIS Will have responsibility for overall procurement management and will ensure that procurement procedures, criteria and documentation agreedwith the Bankare satisfactorily complied with, including procurement under subprojects implementedby the ethnic communities. Grant agreements betweenFHIS and the communities would stipulate these procurement responsibilities and procedures. FHIS i s staffed with a procurement department supported by procurement assistantsanda new director i s currently inthe process of being hired. 65. A Procurement Planhasbeenagreedfor the project. The Planwill beupdatedevery six months to reflect progress andchanges inprocurement processes.Any revisionshpdates inthe Procurement Plan would be agreed with the Bankprior to its implementation. The procedures usedfor each type of procurement would be consistent with those described inthe Credit Agreement and inthe PAD as well as with the stipulations of the Operational Manual. 66. All subprojects financed under the project will be community-executed and be procured under the Bank's "Community Participation" modality to allow for the participation of local communities, increase the utilization of local know-how and employ labor-intensive and other appropriate technologies, as stated inparagraph 3.15 of the Procurement Guidelines. The grant amounts areestimated at under US$50,000 equivalent. Any subproject over US$lOO,OOO would be subject to special approval by IDA. Other procurement modalities (for works, goods, etc.) are described inAnnex 8. 4. Social 67. The ethnic populations of Honduras have traditionally been marginalizedfrom mainstream Honduran society-they have been under-represented inpolitical institutions and, inturn, receive less than their fair share of public resources. One of the reasons the NR Programwas created was the perception that ethnic communities were not benefiting equally from public resources. Initially, the resources set aside for the NRProgramwere channeled through the mayors' offices. However, the ethnic federations, who had begun to play an increasingly active role indefending the rights of the ethnic communities, complained that this approach was not working. Inresponse, FHIS, in agreement with the Bank,beganchanneling project funds directly to ethnic communitiesduringthe last two FHIS projects. The proposed operation will continue to channel funds directly to the ethnic communities, but in parallel it will seek to reconstruct the linksbetween the ethnic communities and local governments inthe hopes 13 that, inthe future, these communities will have the skills and the authority to negotiate their fair share in the municipal planningprocess. 68. Some of the most important social issuesare: Differential access toproject benefits. The NRproject resources are earmarked for Honduras' ethnic communities, which suffer from much higher levels of poverty than non- ethnic communities, due to centuries of social and economic marginalization. 9 Adequacy of Targeting and Delivery Mechanisms. Resourceswill be allocated among the ethnic groups basedupon the 2001censusfigures. Very small ethnic groups will receive slightly more than their share to ensurethat they have enough fundingto implement at least a few subprojects. Funds will be allocated to ethnic communities within an ethnic group, through a democratic subproject prioritizationprocessdescribed in detail inAnnex 4. 69. Stakeholder Participation. The NR Programhas beencharacterized by a highly participatory approach duringall of its phases andfor its respect for cultural heritage. Decisions on all aspects of the program were madejointly among representations of the nine ethnic groups, FHIS, and the Bank. During the project preparation process, FHIS andthe Bank organized sevenplanningmeetings with the ethnic federations to ensure active involvement inthe design of the project. These sessions helped identify the modifications requiredinthis new phase andestablish the project objectives and components, the Logframe, and the Operating Manual. 70. The gender4roles andresponsibilities inethnic groups inHonduras are culturally specific andthe participationof men and women differs from one ethnic group to another. Since the overall objective of the NR Program i s to increase participation of the ethnic groups and their access to resources, it i s important to incorporate gender equity into the approach. Since its inception, the NR Programhas had a gender focus. Results from the ex-post evaluation showed 43 percent of women's participation in the general coverageof beneficiarie~.~ Buildingon prior gender practice inthe programand inconsultation with the ethnic groups, the NRteam developed a gender strategy6(see Annex 10). NR training programs, methodologies, and materials systematically incorporate gender to ensure that it i s addressedthroughout the project cycle. The Operational Manual determines the following measuresto ensure equal participationof men and women throughout the project cycle: (i) At least 40 percent of the participants in the community assembly that approves the community development plan must be women; (ii) least 25 at percent of subprojects must cater directly to women; (iii) project execution committee must include at the least 40 percent women, (iv) 50percent of payments for labor must be given to women; (v) equal "wages" must be paid for men and women; and (vi) supervisors must interview at least 50 percent women when they visit aproject. Equally, the monitoring and evaluation systemfor the project includes gender-specific indicators to While sex refers to the biological state of being male or female, gender refers to the social state of being a man or woman. Gender i s a variable -like class, ethnicity, nationality, and religion-used to "identify and measure differences inthe roles o f men and women, the activities they undertake, the responsibilities they have, the opportunities and constraints they face, and ultimately, their well-being. Gender is dynamic becausemen's and women's roles - as dictated by changing social and cultural norms and values - also vary over time'. Moser, C., Tomqvist, A., vanBronkhorst,B.1998.MainstreamingGender andDeveloDmentinthe World Bank. ProQressand Recommendations. The WorldBank. ESSD,WashingtonD.C. ESA Consultores, "Evaluacibn del Programa "Nuestras Rakes" -Etapa IV (January 2003). The gender strategy was developed incollaboration with PROGENIAL, the "Program for Gender Mainstreaming inWorld Bank-financed Projects in Central America" which was created by the World Bank`s LatinAmerica region in2000. 14 document changes over time. Finally, the NR team inFHIS will continue to include a gender specialist to ensure that gender is implemented throughout the project cycle. 71. Monitoringand Evaluation. The project will monitor the achievement of targets to measurethe success of the project in integratingethnic communities into the mainstreamHonduran society (see Annex 3). FHIS Supervisors will collect this data on an ongoing basis duringtheir project monitoring activities. The final impact evaluation will also review this data for a randomly selectedsample of beneficiarycommunities. 5. Environment 72. The Nuestras RaicesProject will promote environmental awareness among beneficiaries, increase ethnic communities' knowledge about the application of environmental guidelines and regulations (forestry, water and sanitation, etc.), and address environmental issuesduringproject implementation through mitigation and risk managementmeasures agreed with and carried out by beneficiaries. Inthe planned participatory development planningprocess (Component l), environmentalaspects will carefully be taken into account and awareness on environmental issues will be raised inethnic communities. 6. Safeguard policies Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP/GP4.01) [XI [ I Natural Habitats (OP/BP 4.04) [ I [ I Pest Management (OP 4.09) [ I [ I Cultural Property (OPN 1I.03, beingrevised as OP4.11) E l [ I Involuntary Resettlement (OPBP 4.12) [ I [ I Indigenous Peoples (OD 4.20, beingrevised as OP 4.10) [XI [ I Forests (OP/BP 4.36) [ I [ I Safety of Dams (OP/BP4.37) [ I [ I Projects inDisputed Areas (OP/BP/GP 7.60)* [ I [ I Projects on InternationalWaterways (OP/BP/GP 7.50) [ I [ I 73. The project i s classified as Category B for Environmental Assessment since small-scale infrastructure subprojects in sensitive areas will need to be environmentally assessed. The safeguard screening i s Sf since the project i s a social fund and involves CDD. The project, through its Operational Manual, has made appropriate provisions to address the environmental aspectsof project implementation. The project cycle includes all the necessaryprovisions to ensure that subprojects are carried out inan environmentally sound way. Training modules designed to support communities and other involved actors (supervisors, community facilitators, etc.) include environmental aspects.FHIS has presented an EnvironmentalAssessmentfor the project. The NRunit i s working with the FHIS's environmentalunit to ensure that FHIS's environmental standards are appliedto the NRProject. 74. The NR Project i s targeted entirely to indigenous and Afro-Honduran peoples, therefore the project itself i s considered to be an Indigenous Peoples Development Plan (JPDP) consistent with the O.D. 4.20 (or the revised O.D. 4.10). * By supporting theproposedproject, the Bank does not intend toprejudice thefinal determination of theparties' claims on the disputedareas 15 7. Policy ExceptionsandReadiness 75. The proposed operation i s ready for implementation basedon the followingcriteria: (a) financial managementand procurement arrangements are inplace; (b) the NR Uniti s inplace; (c) counterpart funds are inthe budget for this fiscal year; (d) the Procurement Plan hasbeenprepared andreviewedby the Bank; (e) all disclosure requirements are met; and (f)monitoringand evaluation systems are inplace and have been reviewed by the Bank. ,- A. Jane Armitage Team Leader CountryManager 16 Annex 1: Country and Sector or Program Background HONDURAS: Nuestras Raices Program 1. Honduras i s one of the poorest countries in LatinAmerica and is characterized by a highdegree of income disparity. With a per capita GNIof US$920 in 2002, the country is the thirdpoorest inLatin America. Given its highincome inequality (the national Gini coefficient is 0.6), poverty i s widespread. Nearly two-thirds of the populationi s poor and nearly half i s extremely poor.7To be able to approachthe MillenniumDevelopment Goal (MDG) of cuttingextreme poverty inhalf by 2015, Honduras will have to grow substantially faster than its historic growth performance, which has been among the least dynamic in Latin and Central America. Growth will not be enough given the unequal distribution of assets inthe country. More equitable and inclusivegrowth will be necessaryto reduce extreme poverty. EthnicGroup Population2001CensusData Percentof Total Ethnic Population Lenca 279,507 62 ToluDan 9.617 2 Pech 3,848 1 Chorti 34,453 8 Garifuna 46,448 10 English-speaking 12,370 3 Black Miskito 51,607 11 Tawahka 2,463 1 'The"extremely poor" are those living below the extreme poverty line, which is the cost o f a food basket designed to meet basic nutritional needs. According to the Honduras CAS (pg. 4), "All Poor" in 2002 represented 63.3 percent of Honduran households and "extremely poor" 45.2 percent of households. 'ESA Consultores -Evaluaci6n de Proyecto Nuestras Raices IV, Tegucigalpa, 2002. 17 Ethnic Group Population 2001 CensusData Percent of Total Ethnic Population Nahoas * * TOTAL 440,313 18 equitable access to opportunities. The proposed NuestrasRaices Project will provide participating communities with the opportunity to prioritize cost-effective projects likely to solve the most urgent needs affecting the above-mentioned groups. Moreover, the nine ethnic groups will have the opportunity to select cross-cutting (horizontal) projects that respond to cultural, patrimonial, legal, environmental, or gender problems affecting the entire ethnicity. 9. Inorder to guaranteethesustainability ofthe strategy(pillar6), theGOHstressestheneedto decentralize and strengthen local development, such i s with the "Decentralization and Local Development Program (PRODDEL)." Inthe same spirit, NRdecentralizes project managementto the Project ImplementingCommittees selectedby the beneficiary community to representit inthe administrationand managementof projects at the local level. The participation of ethnic communities in the local development planning process will further train communities to manage and implement their own projects thus improving their living conditions while preserving their identity. To accomplish this objective, the proposed project will seek opportunities to improve communications and restoretrust between federations and local governments, andbetween ethnic communities andmunicipal authorities. Since 1997, NR i s the programthat has createdthe platform of cooperation between the ethnic federations andthe government of Honduras. Other projects anddonors follow the same successful strategy. 10. The PRSPrefers to the limited capacity of local governments and communities for carrying out participatory planning, managing and monitoringprojects. Nuestras Raices' substantial contribution to reversethat situation will be the capacity buildingof 2,000 ethnic communitiesto carry out participatory planning, 600-700 of which will be implementingtheir own projects with the assistanceof aFacilitator, a social auditor, and contractors hired by the community itself. 11. The NuestrasRaices Project supports the higher-level PRSP objective of enhancing investment inhumanandsocial capital. The backbone of Nuestras Raices is the formation of human and social capital to promote self-development and cultural identity. The project will seek to strengthen the relationshipof ethnic groups with local governments. It will promote synergies with other Ministries, i.e. Education, Health, Tourism, Interior and Justice, to capitalize onjoint efforts to achieve CAS objectives. Finally, an MIS system, which buildson the M&Esystem used for the PRSP, will be implemented as a participatory tool for financial and social auditing of the project. 12. The PRSPcomments on the lack of income-generating opportunities among ethnic peoples. To contribute to solve that problem, an important benefit of the project i s the creation of local temporary employment opportunities for the participating communities. The Project Implementation Committee selectedby the community will be responsible for managing the subproject and for contractingtechnical assistance as needed. An open project menu with a standard negative list will provide ample opportunities to satisfy their priority needs. It i s expected that this will contribute to reduce the gap betweenurbanand rural poverty, andincreaseequity between those areas. Inthe past, as the CAS points out, income inequality betweenurban andrural areas increasedby 3 percentage points nationally from 1991to 1999. 13. The Ministry of Interior and Justice i s responsible for coordinatingpolicies andprojects related to political, cultural and socio-economic development of ethnic groups. As part of the Government's strategy to addressthe persistent problems affecting the indigenous and Afro-Honduran peoples,it has createdthe Office of the Special Prosecution for Ethnic and Cultural Heritage(Fiscalia de Etnias), andthe NationalEthnic Council (Consejo Nacional Indigena or CNI). The latter would define a national agendato facilitate coordinationof programs and projects benefiting ethnic communities, and bringing national legislation in line with the L O Convention 169 regarding indigenous people. The Nuestras Raices Project will also coordinate an institutional strengthening planfor the ethnic representations and project collaborators with the Ministry of Interior and Justice. Likewise, as inprevious phases, it will continue to coordinate closely with the Fiscalia de Etnias. 19 Contribution to CAS Objectives 14. The project is consistent with the 2003 Country Assistance Strategy (CAS) objectives, basedon the October 2001 PRSP. The CAS objectives supportedby the project are (i) strengthening social protection for specific vulnerable groups, (ii) reducing rural poverty, and (iii) enhancing investment in humancapital. The CAS statesthat acore strategicobjective of pillar5 of the PRSPis "to support Afro- Honduranandindigenous groups to develop their communities, inpart through the Bank-supported "Nuestras Raices" program."' This objective is entirely consistent with the overall CAS objective of poverty reduction through addressingthe needs of the ethnic communities, one of the most vulnerable groups as identified inthe PRSP. 15. As inprevious NRPrograms, one of the maincontributions of the new project will bethe enhancedinvestment inphysical, social and human capital of ethnic communities and their representations. With the full participationof men, women, elders and youths, the Nuestras Rakes Project will facilitate the establishment of approximately 2,000 community development plans which will be consolidated into regional plans to be merged finally into nine culturally-appropriate Strategic Ethnic Development Plans. The latter will include cross-cutting issues (education, health, environment, land tenure, gender) affecting the entire ethnic group, as well as individual community development plans. 16. According to the CAS, female-headedhouseholdshave per capita incomes that are 15 to 30 percent lower than male-headedhouseholds, suggestinglower humancapital and asset ownership of women. The gender strategy of NR will continue to promote equal opportunities for women and men through contractual services, trainingopportunities, and the selection of projects benefitingthe most vulnerable segments of ethnic communities. Rationale for Bank Involvement 17. Duringthe CAS consultations in2003, the GOHexpressedinterest inreceiving aWorld Bank Credit to continue financing the Nuestras Rakes Program. Given the proven success of the programand its compatibility with the country's development goals, the Bank agreedto finance the proposed US$lO.O million operation as a self-standing project. 18. Since 1995, the Honduras Social Investment Fund(FHIS) has implementedthe Nuestras Raices Programto address the specific needs of ethnic communities. In 1997, the Bankwas invited to support the program. Until 1999, the focus of NR was on community-based constructionand maintenance of rural access roads, pathways, and navigationcanals. Duringits most recent phase (2000-2002), the NR Program invested US$13.6 millionunder the FHIS V project for over 4,650 small-scale projects benefiting roughly 125,500 families living in Honduras' ethnic communities. Projects duringthis phase includedthe construction and maintenance of roads, social infrastructure, housingrehabilitation aimed at the eradication of the `chagas' disease, potable water, and, ina few cases, productive andcultural activities andtourism. A considerable portion of the credit funds was invested in the training of community facilitators, FHIS and ethnic liaisons, institutional strengthening of the ethnic federations, toolkits for the communities, and monitoring and Cvaluation activities. 19. The Nuestras Raices' methodologyinprevious phases was relatively simple. The program worked through the ethnic federations to organize groups at the community level. Each group identified a community project it wished to implement basedon its priorities. Most of the projects selectedwere labor intensive, since the programonly provided funds to cover labor costs. Each member of the group was paid for 15 days of labor, part of which was usedto strengthen an existing community-based savings and credit groups (caju rural) or to open a new one. The trainingand technical assistance delivered to the community groups were designed to stimulate the formation of cajas rurales. Approximately 3,000 cajas were createdand/or strengthenedwith previous Nuestras Raices Programs implementedby FHIS since 1995. Honduras: Country Assistance Strategy. Strengthening Social Protection for Specific Groups. Pg. 17. 20 20. The ex-postevaluationof the NRProgram, conducted by ESA Consultores in 2002, concluded that the program was very successfulin meeting its objectives (for more details, see Annex 12). The proposed project builds on the results and recommendations of this evaluation, as well as on the experience with the previous programs. The operation intends to take NR from a social assistance approach (cash payments for work) to a development orientation. Changesto the former concept include: the introduction of a participatory planningprocess with each ethnic group, which will feed into the municipal planningprocess presently underway inthe country; 9 the financing of more complex subprojects (CDD) to be executedby the communities; . 9 the introduction of a community-based accounting systemfor each subproject; and strengthening ethnic federations in a new role as service providers. 21. These changes are designedto achieve greatersustainability of the investments on several levels: Subprojects: Inadditionto labor costs, the programwill finance gooddmaterials and technical assistance to ensure that projects are technically, environmentally and economically . sound. Communities:Community memberswill betrainedto manageand implement the entire project, including project accounting. They will be able to purchasetechnical assistanceas needed andreceive orientation on strategic community planning, which will enable and empower them inthe future to participate more effectively in local development planning . processes. IndigenousFederations:The ethnic federations will be trained andguidedinparticipatory strategic planning, which will provide them with a usefultool for future activities and planning exercises. 22. The Bank`s long-termrelationshipwith FHIS andthe indigenous and Afro-Honduran federations and their peoples through previous FHIS Projects exceeds that of other internationalagencies and i s key to the successful implementation of the program. Basic rules between FHIS, the Bank and the ethnic federations on participationindecision-making, transparency and social auditing are well established. This strong foundation andtrust among all parties allows the Bank to strengthen-through new design features-the democratic relationship betweenthe federations andtheir respective communities. Finally, due to the Bank's knowledge of andFHIS' involvement with local governments, it was possible to establish, as part of the new NR design, a linkbetween local governments and ethnic federations, which historically have been competing forces. 21 Annex 2: Major RelatedProjects Financed by the Bankandor other Agencies HONDURAS: NuestrasRaicesProgram 1. The Nuestras RaicesProject is one of severalinitiatives supported by the Bank to improvethe socio-economic development of indigenous and Afro-Honduran communities. Other Bank projects address complementary areas, such as landmanagementand administration, health reform, road construction and improvement, sustainabletourism, community-based education, etc. The Nuestras Raices project i s part of an agendathat also includes projects such as: Related Projects sup orted by the WorldBank G ProjectName DO/IP Sector Issue Ratings Fourth Social ICR Continuation of the successful FHIS Program, Investment Fund Rating with supplemental financing for addressing needs Project S, from Hurricane Mitch confir med by OED Community-based US$41.5 M IDA DO-S Improve quality o f preschool and basic education EducationProject IP-s inrural areas. Intercultural Bilingual Education. (34970-HO) Continue collaboration of FHIS and PRONEEAAH-EIB at Ministrv of Education. FifthSocial DO-S Increase access to small-scale social and Investment Fund IP-s economic infrastructure. (34430-HO) Municipal decentralization/ CDD. Health System DO-S Reform o f Health System. Component 2 provides ReformProject IP-s opportunity to submit health proposals. (36400-HO) LandAdministration Program provide users with accurate information on (PO55991) arcels and land administration services. Mesoamerican US$12.22 M GEF Barrier Reef System (Mult-27739) Regional DO-S Sustainable tourism development based on the ~ Development of IP-S cultural and natural patrimony o f the Copan Cop611 Valley Valley and surroundings through the Honduras (37640-HO) Institute o f Tourism. Road Reconstruction DO-S Restore roads damaged by Hurricane Mitch. and Improvement IP-s (34320-HO) Rural Land DO-S Demarcation, cadastre, census of territories. Management Project IP-S Benefited indigenous territories belonging to 23 -PUR Tolupan tribes. Training on landrights done for (02940-HO) Pech in Colon and Olancho. Sustainable Coastal DO-S Develop and manage sustainable coastal tourism Tourism Project IP-s along North Coast mainland and offshore Bay (35581-HO) islands through learningiparticipatory process. Trade Facilitation and US$32.31 M I IDA DO-S Increase productivity of Honduran private sector Productivity IP-s comuetitiveness. 22 Relatedprojects by other international agencies include: 2. The Inter-AmericanDevelopmentBank(IDB).Inthe pastthree years, IDBhas funded interventions as part of the Poverty Reduction Strategy that are complementary to Nuestras Raices. In 2003, the IDB-funded NuestrasRaicesMicro-Enterprises Project was successfully implementedby FHIS. The IDB-funded "Programa de Apoyo para Pueblos Indigenas y Negros" (PAPIN, US$1.5 million IDB, US$1.3 million GOH, US$225,000 Canadianfunds) is being implemented through the Ministry of the Interior and Justice. 3. Inaddition, theIDBiscurrently preparingthe"Programa deReducciQ delaPobrezaEnfocadaa Pueblos Indigenas y Negros" (REPEPIN). An important objective of this project i s to support the Indigenous National Council whose role i s to coordinate all activities pertaining to indigenous and Afro- Honduranpeoples inthe country. The Ministry of the Interior andJustice i s the government counterpart andethnic federations are participatinginthe preparationof the operation. The project will consist of two phases, one for US$lO.O million (2005-2007), and a possible secondphase of US$20.0 million (2008- 2010). Three main components are: (1) Institutional Strengthening of indigenous organizations (local, regionalandnational level) and related Government Agencies; (2) implementationof projects designed to increaseproductivity and family income; (3) promotion of humandevelopment through interventions in health, education, and communications. The components of this project complement and enhancethe Nuestras Raices Project and both task teams are coordinatingproject preparation to achieve optimal synergies. 23 Annex 3: ResultsFramework and Monitoring HONDURAS: Nuestras RakesProgram ResultsFramework Outcome Indicators Use of Outcome Information At least 400 Ethnic Community Ifthis target is not achieved, it will indicate Honduran groups have Development Plans will be that the municipal governments continue to increasedparticipation in the incorporated into Municipal pay little attention to ethnic communities, not holistic development Development Plans. giving them equal access to public resources. processeso f their To minimize this risk, the F'HIS/NR team will communities and their nation. At least 5 institutions finance part need to encourage dialogue between the of the nine Strategic Ethnic mayors of the participating municipalities, the Development Plans. relevant sectoral ministries and the representations o f the ethnic groups to At least 50 municipalities will promote a more cooperative relationship. finance subprojects included in the Community Development Plans prepared by the indigenous and Afro-Honduran communities. At least 40 percent of the project's beneficiaries are women. At least 70percent of the Ifnot achieved within six months of subprojects financed will have subproject completion, it will indicate that sustainable maintenance systems there were serious flaws in the subproject inoperation. design and process. Furthermore, it will suggest the need to redesign the training At least 70percent of subprojects module on subproject operations and are implemented in accordance maintenance and improve the quality of the with the established parameters of community facilitators, either by providing time, quality and budget. additional training or by replacing them with consultants with a higher level of skills and Each of the 9 indigenous and experience. To minimize this risk,FHIS will Afro-Honduran peoples will have ensure that the training program for the developed and implemented at subproject formulators and community least two cross-cutting subprojects facilitators puts emphasis on the need to that serve to strengthen the ethnic anticipate and plan for the recurrent costs of people as a whole (i.e. cultural, operations and maintenance. linguistic, historical). Intermediate Results Use of Results Monitoring One per Component Participatory Development nic communities Ifthistarget is not fulfilled, itwill indicate Planning by Ethnic Groups will finalize development plans that there were significant weaknesses in the Eachof the nine indigenous for their villages, which will, in training and selection o f strategic planning 3r Afro-Honduran groups has turn, be incorporated in one of facilitators and inthe leadership provided by jeveloped its own Strategic nine Ethnic Development Plans. the organizations contracted to coordinate the Plan. strategic planning process. To minimize this 9 Strategic Development Plans risk, FHIS and the federations will develop a developed and being rigorous training program with high standards implemented. required for facilitator certification and supervise the planning process closely at each phase of the planning process. 24 At least40 percent of the participants in the community assembly, approving the plan, are women. Grantsfor Subprojects At least 500 community Ifsignificant progresstowards these targets Prioritized subprojects have subprojects have been has not been made within the first eighteen beensuccessfully successfully completed by ethnic months of the project, it would suggest the implemented and are being communities. need to make significant revisions in strategic managedand maintained planning process outlined inthe PEC Manual successfully benefiting poor At least 80 percent of the before it is applied in additional communities. communities with a communities report that the significant population of subproject financed by the project indigenous and Afro- was their top priority. Honduran people. At least 70 percent of the subprojects are benefiting communities in the bottom fifth of the poverty ranking scale. At least, 80 percent of the Ifthe first semi-annual audit showsthatthis subprojects included inthe audit target is not being met, the sections of the sample show no accounting Operational Manual describingfunds and problems. materials management at the community level needs to be reviewed and strengthened. These At least 20 percent o f community changes need to be incorporated into the residentshave participated in two training materials for the community or more of the nine community facilitators, who should be retrained and, in training modules. some cases, replaced by consultants with a better understanding of accounting. At least 25 percent of subproject 2ater directly to women. The Project Implementation Committees include at least 40 percent women. At least 50 percent of payments For labor are made to women. CapacityBuilding and 4t least 50 percent of the Ifthis indicator is not achieved within the first InstitutionalStrengthening Ieneficiaries have been trained in year of the project, it will suggest that FHIS Success in achieving the Zommunity development and the Ethnic Representations have fallen in outcomes and indicators for Ilanning, at least 40 percent o f the trap of focusing on the production of the project as a whole and for :rainedbeneficiaries are women. subprojects, rather than the more important aach of the other two goal of building human capital. To minimize :omponents will indicate that this risk, the NR project cycle has NRhas successfully incorporated key capacity-building targets that implemented this component. mustbe met inorder to move to the stage within the MIS system. i t least 50 percent of the external Ifthesetargets are notfulfilled withinthe first iupervisors contracted by FHIS to year o f the project, it will indicate that there iupervise these subprojects were significant weaknesses inthe training ,eceivean evaluation rating o f 50 and selection o f the facilitators, technical iercent or more, by men and assistanceproviders and the supervisors. To vomen. minimize this risk, FHIS and the federations will develop a rigorous training programfor 25 At least 60 percent of the each group with high standards required for ~ facilitators contracted by the participant certification and supervise them communities receive an evaluation closely as they carry out their responsibilities. rating o f 80 percent or more, by men and women. At least 60 percent of the technical assistanceproviders contracted by the communities receive an evaluation rating of 80 percent or more. The NR project cycle has been This will be required of FHIS as a condition incorporated inFHIS' overall of effectiveness. MIS. 26 A.angr ents r res1 ts monitoring - Ta es Dah Baseline YR2 YR3 YR4 Frequencyand --- Reports At least 400 Ethnic 0 Ethnic 150 150 100 Semi-Annual Community Community Progress Planning and DevelopmentPlans Development Reports EvaluationUnit will be incorporated Plans submittedby into Municipal incorporatedinto FHISto World DevelopmentPlans; Municipal Bank Development Plans --- At least 5 institutions 1 (FHIS) 2 2 1 Semi-Annual FederationsMIS FHIS-Nuestras finance part of the institution Progress Raicesunit nine StrategicEthnic financingthe Reports DevelopmentPlans. strategic plans. submittedby FHIS to World Bank At least 50 0 Community --- 20 20 10 Semi-Annual FHIS MIS FHIS - municipalitieswill subprojects Progress Planningand finance subprojects includedin Reports EvaluationUnit includedinthe Community submittedby Community Development FHIS to World DevelopmentPlans Plans financedby Bank prepared by the municipalities indigenousandAfro- Honduran communities. At least40 percent of 41 percentof > 9 0 % > Semi-Annual FHISMISand FHIS - the project's project 40% 40% Progress Final ex-post Planningand beneficiaries are beneficiariesare Reports supervision site EvaluationUnit women women (earlier submittedby visit report phases of NR) FHISto World Bank At least 70 percent of 0% of --- 50% 60% 70% Semi-Annual FHIS MISand FHIS- the subprojects subprojects Progress Final ex-post Planningand financed will have financed are Reports supervision site EvaluationUnit sustainable sustainable submittedby visit report maintenance systems FHIS to World inoperation --- Bank At least 70 percent of 0% of 50% 60% 70% subprojects are subprojects implementedin financedare accordance with the implemented Established parametersof time, quality andbudget. Eachof the 9 0 cross-cutting Semi-Annual indigenousand Afro- subprojects Progress finalex-post Planningand Honduranpeoples Reports will have developed submittedby visit report md implementedat FHISto World least two cross- Bank xtting subprojects .hat serveto strengthenthe ethnic Jeople as awhole j.e. cultural, 27 - T Data ting Outcome Baseline -- Frequencyand Responsibilities Reports DataCollection \ -- Component#1: -1500 ethnic 0 community 500 0 Semi-Annual MIS FHIS- communities will development Progress Planningand preparecommunity plansprepared. Reports EvaluationUnit development plans submittedby for their villages, FHIS to World which will, inturn, Bank beincorporatedin one of nineEthnic DevelopmentPlans; -9 StrategicPlans 0 Strategic plans 3 0 Semi-Annual Receipt of NuestrasRaices developedandbeing developed Progress StrategicPian Team implemented. Reports from each Ethnic submittedby Representation FHISto World Bank Component#2: -At least20 percent 0 % 0% 10% 20% Semi-Annual Workshop Workshop of community Progress Facilitator Facilitatorsand residentshave Reports Reports for each FHIS -Unidad participatedin two or submittedby communitylMIS de Planificacion moreof the nine FHIS to World y Evaluacion communitytraining Bank Tecnica modules. 0 community 200 200 200 Semi-Annual MIS FHIS -Unidad - At least 600 subprojects Progress de Planificacion community completed Reports y Evaluacion subprojectshave submittedby Tecnica beensuccessfully FHIS to World completedby ethnic Bank communities. NA 0 80% 80% Semi-Annual NuestrasRaices Nuestras Raices - At least 80 percent Progress Team- Team of the communities Reports Subproject reportthat the sub- submittedby Completion projectfinancedby FHISto World Checklist the projectwas their Bank top priority. NA 0 0 70% Ex-post Ex-post Consultingfirm - At least 70 percent Evaluation Evaluation contractedto of the subprojectsare Report Beneficiary conduct the ex- benefiting SurveyResults post evaluation communitiesin the bottomfifth of the povertyranking scale. NA 60% 60% 80% Semi-Annus Subproject Audit Firmcontracted Audit Reports Results to conduct audit -At least, 80 percent of the subprojects includedinthe audit 28 T ;et Vaes Data :ollection and Rep ting Outcome Baseline YR2 YR3 YR4 Responsibilities Indicators: -- DataCollection sampleshow no accountingproblems. NA 25% 25% 25% Ex-post Ex-post Consultingfirm Evaluation Evaluation contractedto -At least 25 percent Report Beneficiary conduct the ex- of subprojectsenter Survey Results postevaluation directly to women. NA 40% 40% 40% Ex-post Ex-post Consultingfirm Evaluation Evaluation contractedto -The Project Report Beneficiary conductthe ex- Implementation Survey Results postevaluation committeeinclude at least40 percent women. NA 50% 50% 50% Ex-post Ex-post Consultingfirm Evaluation Evaluation contractedto -At least 50 percent Report Beneficiary conductthe ex- of payments for labor Survey Results post evaluation are madeto women. --- Component#3: - At least50 percent NA 40% 40% 50% Annual Supervisor FHISPersonnel of the extemal Supervisor Evaluation Dept. supervisors Evaluations (by Results, MIS contractedby FHIS FHIS or by to supervisethese communities?) subprojectsreceive an evaluationrating of 50 percentor more, from menand women NA 50% 55% 60% Annual Community FHIS Personnel evaluationsof Facilitator Dept. - At least 60 % of the Community Evaluation facilitators Facilitators Results, MIS contractedby the communitiesreceive an evaluationrating of 80 percentor NA 50% 50% 60% Annual Technical FHISPersonnel more, from menand evaluationsof Assistance Dept. women. Technical Provider Assistance Evaluation - At least 60 % of the Providers Results, MIS technicalassistance providerscontracted by communities receiveevaluation ratingof 80 %or more, from men and women. 29 Annex 4: DetailedProject Description HONDURAS: Nuestras RakesProgram 1. Project Development and Key Indicators 1. The objective of the Nuestras Rakes Project is that indigenous and Afro-Honduran groups have increased participation inthe integrated development processes of their communities and their nation. This objective will be achieved by strengthening the communities' local capacity to buildsustainable organizations, development projects and cultural identity. To this end, the project will actively promoteinteractionbetweenthe ethnic communities, local governments and central government agencies and programs. Duringthe three-year project, Nuestras Raices will seek to strengthen the participation and influence of Honduras' ethnic groups inlocal developmentprocesses. The project will have three components, each described inmore detail below: Project Component 1.ParticipatoryDevelopment Planning by Ethnic Group US$0.49 million - 2. This component will support a processof participatory development planning amongthe indigenous andAfro-Honduran communities and the federations in order to: (a) train and prepareethnic communities and their ethnic representationsto actively participate inthe local development planning process; (b) identify subprojects to be financed under Nuestras Raices and other programs; and (c) encourage ethnic federations to work more closely with municipalities to leverage funds. 3. Approximately 2,000 community development plans will be generated, followingthe process described below. The project will finance the cost of a facilitator ineach community to help it to conduct a participatory needs assessment and planning processdesigned to identify and analyze problems, recommend solutions and prioritize activities and projects that could be financed under the NR project or other fundingoptions. The community development plans will include a history of the community, a mapping of socio-economic resources-past, present, andfuture-an inventory of the community's social capital, and a list of prioritized problems and suggestedsolutions. The "ethnic profiles" developed in 2001under aJapaneseGrant ("Indigenous PeoplesDevelopmentProject") and other existingcommunity development plans (if available) will serve as a starting point for this process. 4. Once the communities have completed their participatory needs assessment and planningprocess, subprojects will be prioritized inmicro-regional meetings involving20 communities each. Subprojects prioritizedby the micro-regions will be further screenedat the level of each ethnic group. Inboth cases, the selection criteria usedin the prioritization process led by a trained facilitator will include, inter alia, : Poverty level (Poorer is better) Sustainability (Longer i s better) Gender (More women i s better) Protection of the Environment (Higheri s better) Number of sectors favored (Higher i s better) Percentof Community Households that are Direct Beneficiaries (Higher i s better) Investment cost per capita (Lower is better) Length of Project Implementation Period (Shorter i s better) Community Contribution (Higher i s better) Distance from municipal center (Farther i s better) 30 5. Each Ethnic Development Plan will include a prioritized list of subprojects identified by their member communities as well as several "horizontal" subprojects that support activities beneficial to the ethnic people as a whole. Such projects will serveto strengthen social capital, to preserve linguistic and cultural heritage (organization of fairs and cultural events, construction of museums to house ethnic artifacts, etc.) and to address landrights issues and other issues of shared interest to the group. Each ethnic group may use upto ten percent of its fund allocation to support these subprojects, which will be identified ina meeting involving representativesof each micro-region. 6. The methodology for the strategic planningprocess has been carefully crafted and employs an integral community development approachinstead of a "project identification" focus. It will produce an important and useful instrument for ethnic communities to become actively involved inthe country's municipal development planningefforts. The project will strongly encourageeach ethnic group to share both its strategic and community development plan with local governments and to work with local governments so that their subprojectsbe integrated into the relevant Municipal Development Plans. In addition, it will serve communities structure andcommunicate their needs with other potential financiers (line ministries, local governments, NGOs, other donors, etc.). Finally, these plans will enable communities to monitor their development progress and provide an opportunity to continue the discussion about their development priorities. 7. The ethnic representationswill be contracted andtrained to guide the strategic planningprocess for the ethnic communities belongingto their ethnic group. For eight of the nine ethnic groups, NR will contract directly with the ethnic group's technical unit (UTEFIN)to leadthe strategic planningprocess for its member communities. Due to the large number of Lencacommunities, it will be necessaryto split upthe planningprocessesinto differentregions, and thus usecompetitive biddingto select the provider best able to lead the strategic planningprocess in each region. The planning process will be supervisedby the FHISLNR team as well as external supervisors who will receive specialized trainingto carry out this duty. 8. Each of the nine ethnic groups will then prepare a strategic development planoutlining the vision, mission, and strategic goals for its membership over a 3 to 5 year period. These plans will be developed basedon a culturally adaptedmethodology, which i s usedby Honduranlocal governments to develop Strategic Municipal Development Plans (PEDM). The strategic planning process starts at the community level. The results of this exercise are then elevated to the micro-regional level and finally consolidated into a Strategic Ethnic Development Planby each of the 9 ethnic peoples. Project Component 2. Grantsfor Subprojects US$13.8 million 9. Allocationof Funds among Ethnic Groups. An estimated $13.8 million will be invested in community-executed subprojects. These resourceswould be allocated proportionately among the nine ethnic groups, basedupon the 2001census data, while guaranteeing a minimumallocation for the five smallest ethnic groups and adjusting for the highcost of living in the Moskitiaand Bay Islands. The allocations appearing inthe table below were established indiscussion with the representatives of each ethnic group duringthe project planning workshop inComayagua. 31 Table: Honduras'EthnicPopulationsby Group" Ethnic Group Population Percent of Total Subproject Percent of 2001Census Ethnic Allocation Total Data Population Subproject Budget Lenca 279,507 62 $7,574,400 55 Tolupan 9,617 2 $301,100 2 Pech 3,848 1 $275,400 2 34,453 8 $893,500 7 ~ Chorti Garifma** 46,448 10 $1,572,600 12 English-speaking Black** 12,370 3 $455,600 3 Miskito** 51,607 11 $1.983,200 14 Tawahka ** 2,463 1 $441,600 3 Nahoas 9,254* 2 $302,600 2 TOTAL 449,567 100 $13,800,000*** 100 *The Nahoas were identified as mestizos by the census, since they have lost their language, and now only speak Spanish. According to FHIS calculations, the Nahoas are approximately 9,500 representing approximately 2% of Honduras' total ethnic population. ** The English-speaking Black communities will receive a cost of living adjustment o f 68 percent; the Tawahka, Pech, Miskito, and 30 percent of the Garifuna communities will receive a cost of living adjustment of 54 percent. *** $13.3 from IDA and the balance from Government Counterpart funding. 10. Project Formulation. Upon completion of the subproject prioritization process, communities whose subproject is among those selectedfor implementationwill contract a consultant to assist them with project formulation. These consultants must be selectedfrom a list of consultants trained and certifiedby FHIS. Subprojects will only be financed if they have been prioritized through a participatory development planningexercise. 11. Communities will be expected to finance, through cash or in-kindcontributions, at least 10 percent of their subproject's value. Community contributions will be equivalent to at least $1.380,000. No project minimumor maximum value will be established.Nonetheless, it i s expected that the average project value will be approximately $20,000,25 percent less than the FHIS average. Any type of community subproject (infrastructure, social assistance, productive, cultural heritage, etc.) will be eligible for financing, as long as it i s not includedon the negative menu outlined inthe OperationalManual. 12. Prior to submitting its subproject proposal, each community must select a Project Implementation Committee (PIC), whether it is the existingTribal Council or Committee of Elders or a newly-formed group created for subproject execution. In addition, each community will select an Oversight Committee that will help guaranteethe transparent management of subproject funds. Each committee will have a leadership that i s elected or, in those cases where the group already exists, confirmed, by the entire community. FHISwill not require that project committees have legal status; nonetheless, it will encourage each community to apply for legal status from the Ministry of Justice andGovernance. 13. ProjectAppraisal and Approval. Once formulated, the prioritized subprojects will be appraised inaccordancewith FHIS's technical criteria, such as: legal status of project site, constructionstandards, environmental standards, sector-specific regulations, internal rates of returnfor productive projects, etc. FHIS will also analyze the project budgets to ensure that they represent the best solution at the lowest cost. FHISevaluators (staff) will first conduct a desk review, and for those subprojects that pass, will loESA Consultores -Evaluaci6n de Proyecto Nuestras Raices IV, Tegucigalpa, 2002. 32 follow-up with a field visit, including a general assembly to discuss any project improvements deemed necessaryfor approval. Subprojects passingboth types of review will be approved. Communities, whose projects do not pass the review, will be given specific feedback on the improvements required and the opportunity to revise the project plan to pass the technical review within a one-month timeframe. 14. Contracting. Once a subproject has beenapproved, FHIS will preparea contract between FHIS and the Project Implementation Committee identified inthe project plan. It i s desirable, but not necessary that this committee has legal status. The contract will include fundingfor the subproject itself (goods, works, materials, etc.) as well as the training and technical assistancerequiredfor successful subproject implementation, all of which i s considered a grant to the community. The contract will clearly state that all tools, facilities, and other materials and assetsproduced by the project are property of the community. 15. As noted above, in additionto the community-level subprojects, ten percent of the subproject budget will support activities identifiedby each ethnic group to strengthen its cultural integrity. FHIS will require competitive biddingto select the contractors who will supply the goods and services includedin these cross-cutting subprojects. 16. Implementation, Procurement, Disbursement. Subprojects will be executedusinga CDD community contracting methodology inaccordance with FHIS's OperationalManual "Proyectos Ejecutados por la Comunidad (PEC)." Project funds will be transferred directly to the Project ImplementationCommittee Bank account intranches, or through other payment mechanismsdefined in the Operational Manual. Eachproject committee will select and contract a facilitator from a list of pre- qualified consultants to support it throughout the implementationphase. Ifnecessary, the project may also contract a technical specialist, such as a construction coordinator, to assist with technical aspects of project implementation. 17. The Project Implementation Committee(PIC), with vigilance from the Oversight Committee, will procure all goods and services required to implement the subproject in accordancewith Bank guidelines and outlined inthe PECManual. The PIC will also recruit andmanageall community labor required and ensurethat commitments for community contributions are fulfilled ina timely manner, so that all inputs are available when needed. 18. With help from their contracted Community Facilitator, the Community ProjectImplementation Committee (PIC) will be required to prepareregularprojectimplementationreportsupdating "HIS on progress implementing the approved project plan andjustifyingthe use of funds advanced by FHIS. The PIC will also be requiredto meet at least monthly with the entire community to report on progressinimplementing the approved subproject and to present a summary of subproject revenuesand expenditures. 19. The PIC must also ensurethat all infrastructure subprojects have a democratically elected and functioning OperationsandMaintenanceCommitteeby the time the subproject has beenfully implemented. Non-infrastructure subprojects, such as a community services subproject, may require an Operations Committee earlier to take responsibility for managingthe delivery of subproject services. 20. Supervisionofsubprojectimplementationwill be carriedout by a FHIS-contracted supervisor who will be required to visit the subproject every two weeks and more frequently, if necessary, to objectively assess the evolution of project implementation. Subsequentdisbursements will be authorized by FHIS basedupon subproject implementationprogress and the recommendations of the Supervisors. (More detail on the roles and responsibilities of each of these key actors i s includedinAnnex 6.) 33 Project Component 3. Capacity Buildingand Institutional Strengthening - US$1.31 million 21. This component will finance capacity buildingof ethnic communities to leadtheir own development process, institutional strengthening of the Nuestras Rakes team, locatedwithin FHIS, and monitoring and evaluation. The main capacity buildingactivities include training andtechnical assistance to the communities inparticipatory development planning, project identification, planning, execution, operation and maintenance, and funds and materials management. 22. Project Management: A small project unit locatedwithin FHIS will be responsible for managing the project, incoordination with the respective specialized FHIS departments (planning, procurement, financial management, evaluation, etc.). It will coordinate closely with the ethnic representations,the community-level Project Implementation Committees, the locally-contracted Community Facilitatorsand Technical Specialists, andthe FHIS-contracted Supervisors and Inspectors for the successful implemen- tation of the program. The role of each of these key actors is described more indetail in Annex 6. 23. Capacity Building in Planning and SubprojectImplementation: To strengthen the capacity of ethnic communitiesto implement their own subprojects, the Nuestras Rakes Programwill provide trainingand technical assistance to the communities inall aspects of subproject management. NR will trainandcertify a network of Community Facilitatorsineachof the followingtopics: Organizing and operating a democratic and efficient Project Implementation Committee; The role of women incommunity development; Selecting and managingcontractors; Monitoring the subproject implementationprogress; Managingsubproject funds and materials; Collecting, managing, and reporting community contributions; Reportingon subproject expenditures and implementationprogress; Protectingthe local environment; and Negotiation and conflict prevention. 24. The targeted communities will use a portion of their subproject budget to contract a Community Facilitator of their choice to replicate the trainingat the community level. NR will contract an NGOor a consulting firmto develop the curriculum and training materials and to deliver the training to candidates recruitedand screened by FHIS in coordination with representatives of each ethnic group. 25. Strengthen UnityAmong Ethnic Groups: NR will support the ethnic representatives intheir efforts to discourage further splinteringwithin their groups and forge new linkages across ethnic groups- within Honduras and internationally-around issues of shared interest. Specifically, NR will support travel, meeting, and workshop costs for the representatives of the nine ethnic groups for this purpose. 34 26. Monitoring and Evaluation: The program will be monitoredby FHIS' MIS and project indicators will be tracked at various stages of the project cycle. Local ethnic specialists trained by the Bankinmonitoring and evaluation of the implementation of the Poverty ReductionStrategy will be consulted as FHIS/NR fine-tunes its monitoringand evaluation strategy for this project. Inaddition, FHIS/NR will organize bi-monthly participatory monitoring activities that may involvejoint field visits by the nine ethnic representatives,the FHIS/NRstaff andprominent anthropologists and/or other academics to share experience, identify anddiscuss implementation progress, andpropose any necessary adjustments. Funds will be set aside for an external ex-post evaluation of the program, the results of which will be compared with those of the 2002 evaluation of the NuestrasRakes program. 27. Audits: The project will be includedinFHIS' annual financial audits. Inaddition, biannual operational audits (spot checks) will be carried out based on a randomly select sample of subprojects. The operational auditors will assess the quality of the completed subprojects, the accuracy of the community's bookkeeping andrecords, and the degree to which the procedures outlined inthe Operational Manual were followed. The auditors will also check that the FHIS' MIS has an up-to-date cost database for all the regions of the country. 28. The OperationalCosts for implementingthe project amount to US$ 1.1millionand include FHIS staff costs as well as recurrent costs for offices, mobilization, equipment etc.. These funds would be provided as counterpart funds by the Government of Honduras. Inaddition, the Government of Honduras would provide US$0.5 million for financing of grants for subprojects. 35 Annex 5: Project Costs HONDURAS: Nuestras RakesProgram Project Cost By Component and/or Activity Local Foreign Total US $million US $million US $million 1.DevelopPlanningby Ethnic Group 0.48 0.00 0.48 2. Grantsfor Sub-projects 12.20 1.30 13.50 3. Capacity Buildingand Institutional Strengthening .97 0.21 1.18 4. Operating Cost 1.10 0.00 1.10 Total Baseline Cost 14.75 1.51 16.26 PhysicalContingencies 0.32 0.03 0.35 Price Contingencies 0.08 0.01 0.09 Total Project Costs' 15.15 1.55 16.70 Interest duringconstruction 0.0 0.0 0.0 Front-endFee 0.0 0.0 0.0 Total Financing Required 15.15 1.55 16.70 36 Annex 6: ImplementationArrangements HONDURAS: NuestrasRaicesProgram 1. As inthe past, the Honduras SocialInvestment Fund(FHIS)will be the implementingagency for the project. Overall responsibility for this project will be with the Minister of FHIS andhis staff. The Nuestras Raices team will be responsible for coordinating and supervising project activities, and working with the various departmentsof FHIS to ensure that the project evolves according to plan. 2. FHISwas createdin 1990as adeconcentratedagency of limiteddurationto finance small-scale investments inpoor and marginalized communities. Since 1990, the government has extended and substantively modifiedthe institutional mandate of FHIS severaltimes, allowing the organization to respondto emergent needs (such as post-Mitch reconstruction) and extend its successful operations to more communities. 3. The most recent Congressional reforms of FHIS (Decreto 166-99 in 1999) extended the duration of FHISthrough 2012 and marked a new direction inits institutional orientation. This legislation explicitly calls for the restructuring of FHIS to support the process of decentralization and municipal capacity building.Specifically, FHIS i s to planandexecute the transfer of its operational, technical and financial functions to municipalities. 4. To support this effort, the Bank's current FHIS V Project includes a local institutional strengthening component that pilots activities in: participatory local planning, delegation of the FHIS project cycle to municipal governments and strengthening local systems for preventive maintenance. These activities represent a considerable departure from the centralized mode of previous FHIS operations and coincide with the preparation of two new Bank projects that touch on the same issue of local institutional capacity andthe traditional FHIS domain of small-scale civil works. A Boardof Directors chaired by the President of the Republic overseesFHIS, which i s ledby an ExecutiveDirector, who has the rank of Minister. 5. FHIS has more than 14 years experience implementingdonor-financed programs and subprojects efficiently and effectively. The institution's annual expenditures average between US$ 35-40 million, thus FHISis the secondlargestimplementingagency inthe country, followingthe Ministryof Transportation (SOPTRAVI). Financial managementand procurement unitsare well established and respective Bank guidelines are beingfollowed without major difficulty. 6. The NR unit in FHIS has experienced and motivatedpersonnel. The NR component under the FHIS V Project, totaling US$ 13.6 million, was implementedwithin one-and-a-half years, demonstrating the capacity of FHISand the NR team to be efficient and effective. The NR team is composed of five professionals, two technicians and two support staff. Inorder to carry out the new project, it was agreed that FHIS would recruit additional staff members with specific skills to complement the NR team and prepare it to manageparticipatory strategic planningactivities in Component 1and the more diverse and higher value subproject portfolio under Component 2. The cost of the NR team will be financed as part of the GOHcounterpart funding. 7. The NRteam will have the responsibility within FHIS to ensure that the project outlined inthis document i s implemented according to plan and basedon the guidelines set out inthe PEC Manual. They will take the lead role in coordinatingthe relationships with the representatives of the ethnic groups and all of FHIS's departments involved in the successful implementation of the project. These departments include Training, Procurement, Contracting, Finance and Administration, and Monitoringand Control. The NR unit will also coordinate with external partners to monitor the progress of activities financed by 37 other partners that are related to this project, but not includedas part of the project budget (ie. PAPINand REPEPJN, and the work on the legalframework of the rural credit and savings groups beingfinanced and led by UNDP). 8. NR will collaborate closely with eachof the following key players, whose roles and responsibilities are outlined below: 0 The representatives of each of the nineethnicgroups (whether it be a federation or confederation of federations representing the same ethnic group) will develop a Multi-year Strategic Plan and Annual Plansfor each of the years the project i s active. As explained in more detail above, these plans will be the basis for allocating project funds among communities within an ethnic group. NR will contract directly with the eight of the nine ethnic representationsto lead the strategic planningprocess within their group. Inthe case of the Lenca, given the large size of the contract, competitive biddingwill be usedto select a service provider. 0 The GeneralAssembly involving a majority of all indigenous or Afro-Honduran community residents (men and women) over 18 years of age i s the supreme authority ineachcommunity participating inthe NuestrasRaices Project. The Assembly will be responsible for all key decisions related to the community needs assessment andplanningprocess and for the successful implementationof subprojectsfinanced by FHIS. It will elect from among its members a Project ImplementationCommittee, which i s described inmore detail below, to which it will delegatethe day-to-day responsibilities of the needs assessment, planning, and project implementationprocess. 0 The Project Implementation Committees (PZCs) will have responsibility for leadingthe need assessment andplanningprocess, executing the community projects and managingproject funds. At least 40% of the PIC membersmust be women. While Nuestras Raices will encourageeach community to establish itself as a legalentity, it will not be a pre-requisite for receiving subproject funds. Alternative informal options acceptable both to the GOHandthe World Bank have been defined. The Community OversightCommitteeis a social control mechanism at the community level designed to ensure the transparency of the Project Implementation Committee's activities. The role of these two actors i s described in more detail inthe section on Component 2 and in the PEC Manual. 0 The CommunityFacilitator will initially be contracted to assist each targeted community in a participatory community needs assessment and project planning process.The community will select and contract the Community Facilitatorsfrom a list of consultants who have been trained and pre-qualified by FHIS for this purpose. FHIS will seek to recruit qualified Community Facilitators from the nine ethnic groups served by the NR Program. Later on, once a community project has been approved, a Community Facilitator may be contracted to provide training and technical assistance to the Project Implementation Committee and the Oversight Committee to ensure that the project i s implemented in accordance with the approved plan and the PECManual and that funds and materials are managed transparently. Duringthe project identificationandplanningphase, the cost of the Community Facilitator will be paid for by FHIS. Duringthe project implementation phase, the cost of the Community Facilitator will be included inthe approved subproject budget. 0 A Project Formulator, trained to formulate subprojects to meet allFHIS requirements, will be selectedfrom a list of pre-qualified consultants and contracted by the community to assist it inthe processof completing the subproject proposal. This activity will be done inclose collaboration with the Community Assembly and the Project Implementation Committee, 38 which will needto give final approval to the proposal, before it i s submitted to FHIS for approval. 0 The Technical Specialists,like the Community Facilitators, will be available to the participatingcommunities both duringthe project identification and implementationphases. They will offer technical input to ensure the quality of the project design and plan and, once a project has been approved, to ensure that technical standards are met duringthe implementation phase. These costs will be charged to the NR Consultant line duringthe project-planningphase andincluded as part of the subproject budget duringthe implementation phase. FHIS will assign each approved project a FHIS-contracted Supervisor, who will visit the project at least once every two weeks to verify the progress stated inproject reports and approve the disbursement of additional subproject funds, basedupon an acceptable advance of the subproject. 0 The Supervisors will report to a full-time FHIS Inspector. The cost of the Supervisors will be charged to the NR Project consultant line, while the cost of the Inspector will be financed out of government counterpart funding. 39 Annex 7: FinancialManagement andDisbursement Arrangements HONDURAS: NuestrasRaicesProgram 1. Country Issues.The Country FinancialAccountability Assessment (CFAA) was conducted in 2003 and the GOH i s currently working to finalize the proposed action plan. The diagnostic work concluded that the quality of budget reporting by decentralized and deconcentrated agencies was in need of improvement, and that inthe interim, disaggregatedbudget execution reports would be requiredto permit for greater participation inbudget monitoring and evaluation, andto further facilitate poverty reduction expenditure tracking. 2. StrengthsandWeaknesses.FHIS has establisheda strong administrativeunit with many years of experience implementingandmanaging Bank-financed projects. The unitalso has receivedtraining as recently as August 2003, and is well versedinthe recent policy changes affectingproject financial management. 3. Additionally, FHIS has experience in managing programs similar to Nuestras Raices (this was a component under the FHIS V Project), and has inplace the appropriate personnel to supervise community financial management. 4. The project will advance the majority of financing to community for community-led development, however many communities have never managedan amount of financing as significant as this project purports. 5. CountryRisk. The country-specific risk(country risk assessment was includedunder the CFAA in2003) has beenassessedas high due the identified structural weaknessesinthe public financial managementsystem, in spite of a generally sound and complete legal and governingframework for public financial management.The GOH has taken active measures to improve transparency and governance, and once these actions are completed, it i s envisioned that the specific risk assessment would be mitigated. Additionally, the GOHi s contemplating a series of further actions to improve the public oversight mechanisms and fiscal classificationto permit greater social involvement in the analysis of public investment. Risk assessment(projectrisk) 6. Inherentrisk. Inherent riskis the susceptibility of project funds not beingusedas intended, if we assume that there were no internal controls. Inpart becauseof the politicized nature of the FHIS, andthe poor rating of Honduras inTransparency International's Corruption index, inherent risk i s considered to be high. 7. Controlrisk.As described inthe InternalControls section, adequatefinancial managemendinternal control arrangementsare inplace to provide reasonable assurancethat misuse of funds would beprevented or detected andcorrected on atimely basis. Even so, the control riskis moderate. 8. Detectionrisk.Given the combination of inherent and control rkks,acceptable levels of detection riskneedto be lower, so as to reduce the overall risk level. The call for quarterly internal and external audit reports aims at this objective. 40 ImplementingEntity 9. FHIS' organizational chart i s inthe project files. Eachmain department i s headedby a Director that reports to the Minister of FHIS. Principal administrative unitsare: Financial Management: Incharge of finances, accounting, financial reporting, and treasury for subprojects. Contracting: Responsible for procurement and contracting of services for subprojects and other major procurement processes. Administration: Incharge of humanresources management, operational expenses and transportation. 10. Since the early 1990s, FHIS has beenthe principal Government agency for financing small-scale civil works inthe social sectors. IDA, incooperation with other donors (mainly IDB and KfW), has supported FHISthrough four credits, includingthe ongoing FHIS V Project (Cr. 3118-HO). This project was the first inthe Central America Country Management Unit to be certified for FMR-based disbursementsby the World Bank. 11. Through their participation in previous andongoing projects, FHIS' financial managementstaff members have gained substantial experience (5-10 years) to properly fulfill their tasks. Moreover, they possess pertinent professional background and receive competitive compensation. 12. Training.Financial managementstaff membershave received World Banktrainingin Procurement and Disbursement, and most recently received training at the August 2003 (project) fiduciary workshop held inTegucigalpa). Furthermore, FHIS staff also i s knowledgeable with the Bank's Guidelines on Financial Monitoring Reports and the Guidelines and Terms of Reference for Audits of Projects with Financing by the WorldBank in LCR. 13. Humanresourcesmanagement.A study camed out by a consultant in 1999found that, while experienced and capable personnel have beencontracted, the human resources managementfunction FHIS-wide presentssome weaknesses, such as: incompleteuse of position classifications, salary gaps, proceduresfor recruitment and personnel evaluation not being followed, and lack of a formal training program. The risk of political influence in hiringdecisions was also identified. 14. The study proposed a series of recommendations to overcome the above-mentioned weaknesses and the following documents were produced: Manual descriptivo de clases depuestos, Manual de evaluacidn del desempeiio,Plan de capacitacidn y desarrollo, Manual y Normas de reclutamiento y seleccidn, Manual de valoracidn depuestos, y Plan de Remuneraciones. InternalControls 15. OperationalManual.FHIS recently engageda consultant to update FHIS' Operational Manual. The manual now includes for proceduresrelevant to "new" components @e., those substantially different from the ones inthe ongoingFHIS V Project), such as those to be financedunder the Nuestras Raices Program. The manual has beenpresentedanddistributed to pertinent staff. Its contents will needto be updatedperiodically (to remain current with changes in delivery platforms for development aid) and fulfillment with its conditions monitored regularly (e.g., external audits would include selective reviews of compliance with the procedures established inthe manual). 16. Inaddition to the Operational Manual, norms and procedures exist for the main administrative departments(e.g., Accounting, Contracting, Personnel, Travel Expenses, etc.). 41 17. Segregation of dutiesandlevelsof approval. Subprojects are processedin accordance with a detailed series of steps known as the Project Cycle, which includes all stages from receipt of proposals for subprojects untiltheir closure. The Project Cycle i s supported by a comprehensive management information system (MIS) that allows for processing of subprojects inaccordance with the procedures and approval levels established. 18. For key decision-making steps in the Project Cycle, various Committees have beenestablished, such as: Project Evaluation, Award of Contracts, and Registration of Contractors. Even so, there is still inadequate segregation of functions, such as the Director for Control and Monitoring (who oversees contractors' performance) participates in the award andregistration committees. It was recommended that, while Control andMonitoring should report regularly on negligent contractors and contributeto the creation of a "black list," it should not participate inaward decisions. 19. Handling of complaints. Inorder to help promote the idea of "social controllership," a unit was recently created to handle complaints received from the communities. However, its structure and procedures have not beenformalized yet. This task needs to be completed, so as to provide for an independent, documented, and timely processingof community allegations. 20. Bank accounts. Severalaccountshavebeen openedfor the managingof funds relatingto each programFHIS executes. Under the ongoingFHIS V Project, a Special Account for credit funds i s held at the Central Bankand managedby the Secretary of Finance (SEFIN). Actual payments are made from FHIS' operational accountsheld incommercialbanks. Signatories to these accounts are the FHIS Minister inconjunction with one of five authorized Directors. The bank account reconciliationsare timely prepared on a monthly basis. 21. Fixed assets. A detailed subsidiary record of assets is kept up-to-date inthe accounting system. It identifies each good, its inventory number, location, responsible employee, and cost (properly reconciled to the accounting balance). It i s supported by signed forms confirming receipt of goods. Flow of funds 22. FHIS's financial managementstaff have gained sufficient experience inIDA credit disbursement procedures, both under "traditional" and FMR methods and experience has also been acquired on procedures for disbursing of counterpart funds and other external resources. 23. Under the NuestrasRakes Project, more than 80 percent of the funds will be disbursed to communities to exclusively implement subproject prioritized incommunity development and strategic ethnic plans. FHIS has already developed a thorough OperationalManualfor the project, which has been reviewedby the Bank, and which has incorporated many of the experiences from prior community and FHIS funded projects, and relies heavily on the principles inthe Bank Reference Guide: Fiduciary Managementfor Community Driven Development Projects (April 2002). 24. Inorder to minimizedelays inthe flow of funds to communities, FHIS will have access to the Special Account, which will be maintained at the Central Bank of Honduras, and funds may be transferred to the local currency accounts managed by FHIS for further transfer to communities. Furthermore, in maintainingthe operation of bank accounts under the FHIS V project, it is proposed that FHISwould bepermitted to utilizethe Special Account 30day Advance Procedure. 42 Planning, budgetingandfinancial reporting 25. Plans and budgets. Communities will preparetheir own development plans, and inaddition will undergo a self-diagnostic assessment to evaluate their capacity to managethe finances. The results of the self diagnostic will also determine the sequencingandtiming of capacity building training sessions, which will cover the general areas of planning, resourcemanagement, supervision, monitoring and evaluation. 26. The annual operational plani s basedon the approved programs submitted by the communities, and will include government counterpart contribution, community contributions, and Bank financing. The aggregation of these plans will be summarized inbasic budgetary andphysical figures for submission to the Ministry of Finance (SEFTN) (and subsequentlyto the Congress), and will follow the budget nomenclature issued by the Vice Ministry of Budgeting. 27. FHIS' sophisticated MISprovides the basis neededfor tracking project activities and financial information, including stages inthe Project Cycle. The same system linksthe accounting andbudgeting modules so as to allow for preparation of the financial section of quarterly FinancialMonitoring Reports (FMRs). Dueto the experience that FHIS has accumulated with the two most recent Bank financed projects, the general format for FMRswill remainthe same. However, it will be essentialthat FHIS regularly report section 2 (output monitoring) and include a listingof subprojects classified by region or indigenous grouping; and section 3 (procurement), to report a summary of procurement executed by the communities, even though these contracts will most probably fall below the prior review threshold. Bank supervision and independent ex-post review (including independent audits) will be greatly facilitatedby regular reportingthe community basedprocurement. 28. Financialreports. The basic financial statements and supplementary financial information are prepared on a monthly basis for discussion by FHIS management, but meetings are not part of a formal schedule. Although FMRsare preparedquarterly, these have not yet been used as a managementtool per se. Given these circumstances, FHIS was advised of the need to establish formal procedures for distribution, review, analysis and approval of the monthly, quarterly and annual project management information (including FMRs). - Accounting system 29. Chartof accounts. The current chart of accountscomplies with minimumBank guidelines, as it allows for the classification of expenditures by disbursement category, project component and source of funds. It also provides for reportingbudgetary execution interms of governmental requirements. 30. Accounting records. Transactions are recordedin a timely way in the system, so that financial statementscan be issuedwithin 10days of the cut-off date. Supporting documents are properly filed and maintained in a room createdexclusively for that purpose. Such documents are maintained for a minimum period of five years in accordancewith local norms. 31. Accounting software. The computerized system was developed internally by FHIS. The software includes enough functions to properly manage and track accounting records and produce financial reports inaccordancewith Bank requirements. 32. Despite the above, data provided inthe FMRs have included certain inaccuracies, mainly as a consequenceof the linkages with the accounting module. These matters have been widely discussedwith FHISand afinal version of the FMRswas agreed. Furthermore, nationalfunds relatedto the project will be maintained separately (both interms of bank account and accounting records) from other funds and the 43 accounting-FMR linkages will be revised so that the FMRs only reflect those funds relating exclusively to the project. 33. Other enhancementsincluded in the MIS Action Plan are: (i) multi-currency capability; (ii) implementation of FMR section 2; (iii) upgrading of the procurement module; (iv) preparation of user manuals; and(v) decentralization of the Project Cycle. Internaland ExternalAudits Auditor is appointedby the Tribunal Superior de Cuentas (TSC -Audit Court). The TSC is the auxiliary 34. Internal Audit. Inaccordancewith the General Public Administration Law, FHIS's Internal branch of the Congress that constitutes Honduras' Supreme Audit Institution. Along with public sector internal auditors, it i s incharge of ex-post fiscal control and audit functions inthe public sector. 35. Among its responsibilities, the TSC must present the annual report to the Congress within 40 days after the end of the year. On the other hand, the Internal Auditors report directly to the TSC and present biannual summaries of activities performed, and their annual work plans. 36. To help ensure independence, the Internal Audit unitsare not allowed to participate inany administrative, approval, accounting, or decision-making processes inthe entities. However, they do not have the benefit of budgetary independencethat the TSC enjoys. 37. Recent internal audit reports show some deficiencies inthe physical implementationand/or documentation of subprojects. Other administrative issues have also been identified, like some instances of noncompliance with the Operational Manual of Labor. 38. Eventhough the (new) TSC Law requires Government officials to carry on the actions requiredto overcome weaknesses reported by the TSC, the process needed to enforce this requirement takes substantial time, thus preventingits efficient implementation. To help with this situation, it was recommended that FHIS managementimplement formal procedures for following up on internal audit reports. Moreover, the Bank would requesta copy of the quarterly reports the InternalAuditor must present to FHIS' Board of Directors in accordance with article 22 of the FHIS Law. 39. ExternalAudit. FHIS has taken steps to prevent some quality issuesthat were raised with its previous external auditor. The short list of firms andTerms of Reference for the audit of the ongoing FHIS V Project have been prepared and considered acceptable to the Bank. Inaddition to the regular financial audit requirements, the external auditors will be required to perform an operational review of a sample of subprojects. This review will consider issues such as compliance with financiaYprocurement clauses of the credit agreementand physicalimplementation, and compliance with the ManualPEC. 40. During2002, the external auditors performedquarterly subproject visits andreported accordingly (for the FHIS V Project), inaddition to the legally required annual audit report. For Nuestras Raices, similar audit arrangements would be inplace, with biannual subproject visits by the auditors. The auditors would need to be properly appointed before the effectiveness date. The annual audit would be requiredto be submitted to the Bank no later than 4 months after the end of the fiscal year (January -December). Disbursementarrangements Method. Since adequate FM capacity and procedures are in place (see para. 61), including report-based disbursement experience (see para.4l), and per agreement with FHIS, credit proceeds will be withdrawn 44 on a quarterly basis under the report-based disbursement method. Duringproject implementation, FHIS will (a) sustain satisfactory FMarrangements to be verified through project supervision; (b) submit FMRs consistent with the form, content and due date agreed with the Bank; and (c) submit acceptable Audit Reports by their due date. IfFHIS does not continue to meet these criteria duringproject implementation, the method will be changedto transaction-baseddisbursementsonly (provided the Bank does not suspend disbursements because of non-compliance with the obligation to maintainan adequateFMsystem). Special Account. FHIS will open and maintain a Special Account inUS Dollars inthe Central Bankto be used exclusively for deposits and withdrawals of credit proceeds for eligible expenditures. After the conditions of effectiveness and disbursement have been met, and the Special Account has been opened, FHIS will submit the first disbursement request (Form 1903B) to the Bank, together with the project's expenditure forecast for the next six months. For subsequent withdrawals, FHIS will submit Form 1903B to the Bank, along with the FMRfor the quarter just ended. Disbursement schedule. Credit Allocated % of (USD) Expenditures Category to be Financed (1) Goods 220,000 100% of foreign expenditures and 88% of local expenditures (2) Services a) Consultants, including audits 930,000 98% b) Other services 160,000 100%of foreign expenditures and 88% of local expenditures (3) Payments madeto 12,300,000 100% Beneficiaries by FHIS as Sub-projects Grants (4) Training 390,000 100% (5) Unallocated 1,000,000 TOTAL 15,000,000 45 Retroactive financing 41. An amount of upto US$ 1.5 million will be made available for retroactive financing of eligible expenditures incurredbetween project appraisal and effectiveness. 46 Annex 8: Procurement - HONDURAS: Nuestras RaicesProgram 1. This section describesthe procurement arrangementsunder the Honduras: Nuestras Raices Project. Bank-financedworks and goods contracts will be procuredinaccordancewith the World Bank Guidelines: Procurementunder IBRD Loans and IDA credits, dated January 1995,revised in January I999 (henceforth referred to as Procurement Guidelines). Bank financed contracts for consultingservices will be awarded followingthe World Bank Guidelines Selectionand Employmentof Consultantsby WorldBank Borrowers, dated January 1997,revised September 1997,January 1999and May 2002 (henceforth referred to as Consultant Guidelines). Project activities and procurement contracts not financed by the Bank would be procured inaccordancewith nationalregulation. The project inputs, estimated costs and procurement methodsunder the project are summarized inTable A and Al. Procurement Responsibilities 2. FHIS will have responsibility for overall procurement management and will ensure that procurement procedures, criteriaand documentation agreed with the Bank are satisfactorily complied with. This will include procurement under subprojects implementedby the Recipients of the Project and their intermediaries, such as indigenous groups/federations, NGOs, etc. These responsibilities are described inAnnex 4 and developed infurther detail inthe Operational Manual. Grant agreements between FHIS and the communities would stipulate these procurement responsibilities and procedures. FHIS is staffed with aProcurementunitsupported by procurement assistantsandheadedby a Director of Contracting. 3. A Project Launch Seminar will be scheduledafter Boardapprovaland will include aprocurement refresher workshop for relevant FHIS personnel. Beneficiary representatives will receive procurement trainingbefore subproject implementation. ProcurementPlan 4. A draft Procurement Planhas beenprepared for the project and will form the basis for procurement. The Plan, which i s part of the Operational Manual, will be updated every six months to reflect changes inprocurement process, which could significantly affect the timely and successful implementation of the project. The procedures used for each type of procurement would be consistent with those described inthe Credit Agreement and inthe PAD as well as with the stipulations of the Operational Manual. The revisiondupdates inthe Procurement planwould be agreed with the Bank prior to its implementation. 47 Table A: Project Costs by ProcurementArrangements (US$ million equivalent) Procurement Method ExpenditureCategory ICB NCB Other N.B.F." Total Cost 1. Subprojects (Community 13.30b' 0.50 13.80 ParticipationProcurement) (13.30) (0.00) (13.30) 2. Goods 0.24'' 0.24 (0.22) (0.22) 3. ConsultingServices 1.ood/ 1.oo (0.95) (0.95) 4. Other Services 0.1.5@ 0.15 (0.14) (0.14) 5. Training O.4le' 0.41 (0.39) (0.39) 6. OperatingCosts 1.IOW 1.10 (0.0) (0.0) Total 15.10 1.60 16.70 (15.00) (0.00) (15.OO) Note: Figures may not add up due to rounding. Figures in parenthesisare the amounts o f the Credit. a/NBF- NonBank Financed. b'Subprojects will consist of Works, Goods and Services up to an aggregate amount o f US$ 13.80equivalent. Minor Civil Works (MCW) contracts of less than $50,000 per contract will be awarded on the basis of quotations obtained from three qualified domestic contractors in responseto a written invitation. Goods contracts under $50,000 per contract will be procured through National Shopping and subproject services under $50,000 per contract will be awarded through a competitive selection process. Direct contracting may be used for goods contracts under $5,000. 'Subprojectfor Grants will also include payments for labor costs under community arrangements. Goods FHISfNuestras Rakes consisting o f furniture, computer and office equipment procured through 'shopping. Printing and reproduction o f materials may also be procured under the shopping method. Consultant services as detailed in Table Al. g/Other services suchas participatory monitoring, auto-diagnostics and other communitylfederations involvement services. Project related costs and expenses for study tours, seminars, workshops and other training activities including travel, accommodations, per diem, etc, for participants as well as cost for premises where training is held. f'salaryand other expenditures o f FHIS procured according to national procedures. 48 CommunitvParticipationinProcurement 5. ProcurementunderDemand-DrivenSubprojects(CommunityParticipation).The nature and composition o f subprojects financed under the Project is described inAnnex 4. All subprojects will be demand-driven initiatives (aggregate amount $13.80 equivalent). Indigenous and Afro-Hondurans communities throughout Honduras are expectedto submit proposals for grant fundingusingresources providedunder the Project. Subprojects' proposals will follow criteria specified inthe Operational Manual, which provides a negative list of types of subprojects not eligible for fundingunder the project. Intheinterestofcertainspecific socialobjectives oftheProject, itisdesirabletocallfor theparticipation of local communities and NGOs, increase the utilization of local know-how and employ labor-intensive and other appropriate technologies as statedinparagraph 3.15 in the "Guidelines". 6. About 600 subproject proposals are expected to be received and processedby the FHIS/NR duringimplementation.The criteria for the preparation, appraisal and approval of these subproject grants by the FHIS/NR are described inAnnex 4 andthe OperationalManual.The grant amounts are estimated at under US$50,000 equivalent (average subproject i s estimated at US$20,000). Subproject proposals may include minor works, small quantities of goods, minor technical expertisehervices, or any combination of these elements. The composition, dispersed origin and implementationtiming of the approved subprojects do not make it feasible or practical to aggregateor consolidate the small procurement items inthese grants into largepackages suitable for InternationalCompetitive Bidding (ICB) or National Competitive Bidding (NCB) by a centralized procurement unit.Minorworks may be procured under lump sum, fixed price contracts awarded on the basis of quotations obtained from at least three qualified domestic contractors in responseto a written invitation. Ingeneral it is expectedthat the community will contribute with labor/technical knowledge as well as materials and goods. Goods packagesmay be procuredthrough Shoppingprocedures and awarded on the basis of comparison of quotations obtained from at least three domestic suppliers inresponseto a written invitation. In exceptional cases, goods up to an amount not to exceed US$5,000 equivalent per Grant may, be procured through direct contractingprocedures with prior agreement with FHIS/NR, if the value of direct contracting i s above US$5,000 it will require Bank's prior review. Minorservicescontracts under subprojects would be procured usingcompetitive selection procedures. Sample biddingdocuments developed inthe LAC Region would be adaptedfor these procurement procedures. These procurement proceduresfor subprojects are described indetail inthe OperationalManual, and will be set forth inthe Grant Agreements betweenthe FHIS and the Communities. Goods 7. Goods procured for the FHIS/NRand used for its operations will be financed by the Bank. These items consist of a limitedquantity of office equipment, computer equipment andoff-the-shelf software, and vehicles, as well as miscellaneous supplies for the operations of the FHIS/NR. Printingservices are also to be procured under the project. Such procurement will be undertaken as follows: (a) Shoppingfor packagesestimated at less than US$50,000 basedon comparingquotations solicited from at least three qualified suppliers. (b) for contracts above US$50,000 and below US$ 150,000 NationalCompetitive Biddingprocedureswill beused. ConsultingServicesandOther Services 8. Consulting Services contracts will consist of, but are not limitedto, development of strategic plans for the federations, evaluation ex-post of the programs, auditing services, implementation of strategies and design of training. 49 9. Contracts for the services of the federations will consist of participatory monitoring, diagnostics and other community involved services not included in the cost of the subproject as well as promotion and visualization services. These services will be contracted as per the stipulations of the Operational Manual. They are small value contracts and expected to be awarded to the qualified members of the federations. Quality and Cost Based Selection (QCBS) may be used for the larger contracts for strategic planning and the evaluation ex-post. Least Cost Selection (LCS) would be usedfor the auditing services. Consultants Qualifications (CQ) may be usedfor the smaller strategic plans where there is enough competition within the federation, and for the Visualization of the Program. Sole Source (SS) will beusedfor the strategic plans of the federations that becauseof its remoteness, size of population and languagesrequirements, does not merit competition. OtherServices Servicescontracted to the Federations (SCF) will consist of participatory monitoring, promotion of the program or other related services. These services may be contracted to qualified individuals or groups within the federations as the case may be. Proceduresand sample contractdagreements are contained in the Operational Manual and in accordance with paragraph 3.19 of the Consultant Guidelines. Individual 10. Specialized advisory services (engineering, agriculture, anthropologist or others relatedto the programs) providedby individual consultants will be selectedon the basis of their qualifications for the assignment comparingCVs inresponseto an advertisement, and according to the provisions of the paragraphs 5.1 through 5.4 of the Consultant's Guidelines. Training 11. Includes expenditures for cost of travel, accommodations and per diem incurred by trainees and other participants in connection with the training/workshops as well as fees charged by academic or other institutions. Training services include, but are not limitedto, training of trainers for participatory planning process, to develop and cany out the strategic plans, training for sound implementation of approved subprojects as well as capacity buildingfor FHISNRand stakeholders. Operational Costs 12. Salaries for the FHISNRpersonnel and operational costs would be government financed and procured through regular GOHprocedures. Custom Duties and Taxes 13. All goods specifically importedfor the project will be subject to the payments of customduties and local value addedtaxes. Works contracts are likewise subject to taxes (percentage built into the contract price). Consultingfirms and individual consultants are also liable for the applicable taxes. The aggregate value of taxes under the project i s estimated at US 0.1 million. All duties and taxes are paid from the Government contribution. 50 Annex 8,Table AI :Consultant SelectionArrangements (optional) (in US millionequivalent) (0.14) (0.07) (0.21) (0.15) Note: QCBS = Quality- and Cost-Based Selection QBS =Quality-based Selection SFB =Selection under aFixedBudget LCS =Least-Cost Selection CQ =Selection BasedonConsultants' Qualifications SS =Sole Source Selection Other = Selection of individual consultants (per Section V of Consultants Guidelines), CommercialPractices, etc. N.B.F.=Not Bank-financed. Figures in parenthesisare the amounts to be financed by the Bank credit. CapacitvAssessment ofthe Agency to ImplementProcurement: ActionPlanfor Strengtheningthe FHIS/NRCapacityto Implement Procurement 14. The NuestrasRaices Project was developed from the Mi component which was successfully implemented under the Fourth and Fifth Social Investment FundProjects. Therefore this project i s considered a repeaterproject and does not merit a new capacity assessment. FHIS has been implementing subprojects with nearly the same organization since 2001. With the appointment of a new general manager, FHIS is undergoinga positiverestructuringof its organization for a more agile implementation of the programs that FHIS manages. Since most of the procurement under the project will be carried out by the indigenous communities, the role of FHISNR is more of a facilitator and advisor to the communities. FHIS is inthe processof recruiting a ContractingDirector (Director de Contratacih) with extensive experienceinprocurement under subprojects. The following action plan has been agreed: 15. The Director of the Procurement unit (Director de Contratacibn) has been hired and i s inplace as a condition of negotiations. An advertisement was placed inthe local newspaper andevaluation of the qualifiedcandidates was completed by the end of February. 16. The Operational Manual has beenprepared and a draft has beenreviewedby the Bank. Compliance and coordination with the Credit Agreement will needto be ensured. 51 17. A ProjectLaunch seminarwill be organized before June 2004, with a special segment on the procurement arrangements under the project. 18. Additional seminars on procurement issues will be organized by the FHISLNRunit throughout the life of the project, to keep the communities updatedon the different processesand guidelines under their specific subprojects. Review bv the Bank of Procurement Decisions Prior Bank review would be required before final decisions on contract awards are made on Bank- financed activities, for the following procurement actions: Subproject grants:The first three grants regardlessof value will be subject to prior review by the Bank, for consistency with the agreedcriteria. Under these subprojects, the Bank will also conduct aprior review of the following contracts procured by the grant recipients: -small works: the first contract and all works contracts above US$50,000; -goods:the first goods contract and all goods contracts above US$50,000 per contract; as well as any direct contracting above US $5,000; -consultant services: the first three contracts. Procurement by the FHIS/NR: -training: the proposed annual spending program for training . -consultant services: (a) all contracts with firms of US$lOO,OOO andabove; (b) all contracts with individuals of US$50,000 and above; and (c) Fullreview of RFP, technical and financial evaluation and the contract for the provision of audit services selectedin accordance with Least Cost selection method and all contracts under single source selection regardlessof value. Terms of Reference for all assignmentswill be subject for prior review regardlessof value. -goods: (a) the first contract procured through NCB and the first under Shopping. 19. Ex-post review of all other contracts will be carried out by Bank supervision missions. Table C summarizes applicable procurement procedures and review requirements. Ex-post reviews on a random basis would also be undertaken by the FHISLNR and the Bank, of the procurement carried out by the Recipients inthe process of implementingtheir subprojects. 52 Annex 8, Table B: Thresholdsfor ProcurementMethodsand Prior Review US $ thousands US$ millions 1. Works ICB None expected NCB None expected Three Quotations Above US$50,000 2. Goods ICB None expected NCB Firstcontract Shopping Above US$50,000 3. Consultants Firms >loo QCBS All < 100 QCBS, LCS, CQ None (Post Review), TORSonly Individuals >50 See Section V of All (TOR, contract, Guidelines cv> c 50 Review of TOR only Other Services >50 See Section 3.19 of All the Guidelines e 50 INone (Post Review) Overall ProcurementRisk Assessment: High Average ~ Low Frequencyof procurementsupervisionmissionsproposed: One every 6 month(s) (includesspecial procurementsupervisionfor post-review) reviewing a sample of 1 in 5 contractssigned. 53 Table C: NCB Shopping Small 3ther Methods Percentage ~ I C B Summary of Works of credit Procurement amount Activities subject to Section 1: prior Procurement review Review Subvroiects ?ara.3.15 of Procurement hidelines. thresholds MCW under [ndividual and 650,000 aggregate 3oods under 550,000 Servicesunder E50,OOO kggregate: $ 13.80 million Goods Procurement Above Below $50,000 Lhresholds: $50,000 [ndividual and Aggregate: aggregate $300,000 Prior Review First First contract and First 3 Grants contract all contract for And the first 3 Subprojects :ontracts for above $50,000 services under Direct the subprojects :ontracting for goods above $5.000 QBCS QB Least Cost Consultant Single- Individual (firms) Qualificatio Source Consultants ns Consultants $0.39 <0:15 million $0.08 $0.22 $0.16 million Prior Review Full Full review All TORs Full review All TORs review TOR, TOR,qualifi qualification cations anc S and contract foi contract for all all assignment assignments contracts Above above $100,000 $50,000 Ex-post Review Ex-post review mechanism: Review carried out in accordance with Para. 4 of Appendix 1 of the Bank's Guidelines and reviews during supervision missions. 54 Annex 9: Economic andFinancialAnalysis HONDURAS: Nuestras RaicesProgram Economic Analysis 1. The Nuestras RaicesProject includes "framework" type projects, that is, those inwhich most of the major investments are not identified or designed before credit effectiveness; rather, what i s appraised ex-ante i s the mechanism for deliveringthe outputs. Becauseof the demand-driven nature of Nuestras Raices, the specific social rate of return cannot be knownex-ante. This economic analysis assesses the mechanisms and methodology in place to ensure that the subprojects implemented are part of a macro strategic development plan which reflects the vision and needs of each one of the nine ethnic groups in Honduras. Economic Analysis of the Nuestras RaicesProgram as a Delivery Mechanism of the Micro-planning Strategy 2. At the macrolevel, the local planningprocess inHonduras iscarriedout by municipalities.Given that local governments do not always respond to the needs of ethnic groups, the proposed project usestwo mechanisms to reach the disadvantagedethnic peoples: (i) through the micro- and macro-planning processes; and(ii) through the actual implementationof their Ethnic Development Plans which are informed by RegionalEthnic Development Plans andEthnic Community Development Plans. 3. Strategic planning i s a mechanism geared towards integrated planningwithin eachethnic group, preserving its culture and identity. Strategic Development Plans may include subprojects involving infrastructure as well as other aspects of social and economic development. The processof elaboration of the above-mentioned development plans will serve three economic purposes: (a) it will prepare communitiesto participate in and benefit from the annualhi-annual municipal planningprocesses; (b) it will implement approximately 600- 700priority subprojects; and (c) it will leave the Community Development Plans inthe hands of the beneficiaries and provide them with managerial skills to capture other public and private investments. 4. For the purpose of cultural sensitivity, the planning processwill be carried out by the Technical Unitsof ethnic federations representing the nine ethnic peoples (Lenca,Tawahka, Chorti, English- speaking Black, Miskito, Tolupanes, Pech, Nahoa, and Garifuna) following participatory procedures which legitimize the process. 5. Inaccordancewith the project's Operational Manual, an ex-ante appraisal of all the Nuestras Raices subprojects selectedfor implementationwill be conducted. Technical and social ex-ante evaluation i s basedon the participatory diagnostic analysis executed a priori. 6. Some technical aspects determiningthe feasibility of the investment are: (i) number of beneficiaries; (ii) and education infrastructure follows norms for operation and maintenance health dictated by the corresponding line ministries which must guaranteea sustainable operation; (iii) legal tenure of the land on which the project will be built; (iv) vulnerability and riskof natural disasters; (v) approximate cost, to compare it with the linea de corte; (vi) incase of water and sanitation subprojects, the appropriate technical and environmental feasibility studies will be needed; and (vii) community commitment and financial proofof intended maintenance. 7. Subproject selection criteria is not basedentirely on cost but rather on its social impact and ability to respond to specific needs, as decided by beneficiaries. The total cost per subproject should only exceed 55 US$50,000 inexceptionalcases (e.g. horizontalsubprojects). All subproject types are eligible for funding except for those inthe "negative list" includedinthe project's Operational Manual (chapter 2, e.g. cemeteries, guns, drugs). 8. Several social mechanismsfor screeningprojects will be undertaken to ensurethat they are social and economically justified. These mechanismsare described inthe Nuestras Raices Operational Manual, chapters 3 and 4. Several criteria for project selection includes: (i)the subproject must benefit the entire community; (ii) the subproject has been identifiedand prioritized by the community assembly and i s part of the community development plan; (iii) the subproject does not depend on other projects for its efficient operation; (iv) the community must be willing to contribute 10percent or more of the total cost of the subproject incash or inkind; and (v) the location of the project i s accessibleby the beneficiary community. analysis, financial soundness, community participation, environmentalimpact and sustainability.The 9. Both a desk anda field appraisal will cover the technical and social feasibility, economic selection of the Committee (or Association, or Cooperative) responsible for project implementationwill be carried out by the community basedon a set of a priori-established criteria. The Nuestras Raices Programi s responsible for training such Committees inproject management and administration and ensuring its institutional soundness. 10. Project funds will be disbursed directly to restricted accounts open at a Bank under the name of Project ImplementationCommittee, or through other payment procedures. General norms and procedures for transferring of resources and submission of financial reports are described inchapter 12 of the Operational Manual. 11. The economic soundness of Nuestras Raices subprojects will be monitoredthrough: (i) FHIS's MIS andtracking of project indicators at various stages of the projects cycle; and (ii) FHIS's annual financial audits. Inaddition, biannualoperational audits (spot checks) will be carried out based on a randomly selected sample of subprojects. FinancialAnalysis: 12. Public sector expenditure in Honduras representsapproximately 30 percent (excluding central government wages and salaries) of the GDP (2002, CAS). However, accordingto the ECLACreport (December 2003)", Honduras' per capita social expenditures are the lowest inLatin America ($57 pp in 1997), and only respond to 7.4 percent of the PIB.Although the largest annual public investment is in education ($32 per capita) and health ($16 per capita), even in these sectors, Honduras' deficit of education inrural areas is as highas 29.3 percent for the population in general and over 40 percent for ethnic groups. Among these groups, illiteracy runs as highas 46 percent for the Tolupan (Census 2001). Social spendingprograms fall short of covering basic needsparticularly in remote rural areas where the bulkof the ethnic groups live. 13. Fiscal implications, both duringand after implementation of the project, are expected to be manageable.Fiscal implications duringproject implementation would include: (a) covering the administrative costs of FHIS,particularly the Nuestras Raices unit, over the project period; and (b) partial financing of subprojects. The GOHcounterpart requirement for the Nuestras Raices Project over the three-year implementation period is estimated at US$1,2 million or 8% of total project costs. The law I'Naciones Unidas. Comisi6n Econ6mica para AmCrica Latina y el Caribe - CEPAL. Pobreza y Vulnerabilidad Social: Mercado de Trabajo e Inversi6n Social en el Istmo Centroamericano a Inicios del Milenio. LC/MEX/L.586. 22 de diciembre de 2003. 56 establishing FHIS specifies that the budget of the fundi s guaranteedby Government funds once the project i s approved by Congress. 14. Inthe case that communities prioritizethe financing of social and economic infrastructure, these would be coordinatedwith the respective line ministries and be replacements so that, ingeneral, no additionalrecurrentcosts would becreated.For those exceptional subprojects that entail an increasein Government expenditures on recurrent costs, prior endorsement of the subproject by the relevant line ministry would continue to berequired. Such inter-institutionalcoordinationhas considerably improved duringrecent years so that the financial implicationsare manageable. 15. Contributionsfrom communitieswho receive grants for subprojects arecalculated at twelve percent (incash or inkind) of the total cost of each community subproject, basedon previous experience with Nuestras Raices andother FHISprojects which indicate that such contribution tends to exceed 20 percent. 16. Operationandmaintenance(O&M) of completed subprojects is estimated to average 2 percent of investment costs, which is expectedto bome largely by communities (inaccordance with subproject maintenance plans developed basedon the trainingcommunities receive inO&M issues). Operation and maintenance of subprojects are important criteria for subproject selection. These issues will be discussed prior to subproject implementationwith each eligible community and agreementswill be madeas part of the grant agreement on how to operate and maintainthe project. FHIS/NR will assess the institutional capacity of the Project ImplementationCommittees to carry out the subprojects andto ensure subsequent financial and technical sustainability of subprojects.As the Committees are able to procure and contract goods and services locally, a positive impact on savings i s expected. Communities are trained to use savings for purposes agreedon by the community group, including a maintenance fund or enhancementof the project itself. 57 Annex 10: Safeguard Policy Issues HONDURAS: NuestrasRaicesProgram 1.SOCIAL SAFEGUARDS Social Analysis 1. The Nuestras RaicesProject is targeted entirely to indigenous and Afro-Honduran peoples, therefore the project itself i s considered to be an Indigenous Peoples Development Plan (IPDP) consistent with the O.D. 4.20 (or the revised O.D. 4.10). 2. The elements usedfor the social analysis of this project included: (a) the results of the ex-post evaluation of the previous projects (NR IV and V), carried out in 2002; and (b) a series of seven 1to 5- day workshops with the indigenous and Afro Honduran representations indifferent parts of the country, as part of project preparation. The ex-post evaluation included a household survey of beneficiary and non- beneficiary households andfocus groups with direct beneficiaries and interviews with stakeholders, to measure social and economic impact. The evaluation was used to identify strengths and weaknesses of the program, capitalize on lessonslearned, re-evaluate development priorities with participants, and set out a long-term planof interventions for indigenous and Afro-Honduran peoples. 3. Seven project preparation workshops were carried out betweenJuly 2003 to January 2004, with the participation of the nine ethnic representations, FHIS,and frequent Bank presence, as follows: -. July 2003: Discussion of results of Nuestras Raices ex-post evaluation and lessons learned. Tegucigalpa. August and September2003: Informed consultation on Nuestras RaicesV objectives and strategies.Tegucigalpa. October 2003: Discussion of the program's philosophical andconceptual framework, basic principles and conceptsof project design. L aEsperanza, Intibuch. = October and November 2003: Elaboration of PECManual by O M Task Force. = January 2004: Revisions of PECINHManualand review of project design, legaland operational guidelines, and logical framework. Siguatepeque, Comayagua. 4. Duringprojectpreparation, the representations of ethnic groups participated inevery step of the project design. After every workshop, the delegates of each group consulted with their respective assemblies. Inorder to develop the Operational Manual (OM), that would be acceptable and culturally adaptedto the needs of the ethnic groups, an "OM Commission" was created, made up of nine representativesof the ethnic federations. This commission worked out the details of the O M with a local consultant. Inthe sixth workshop, it was agreed that further adaptation of the methodologicalguidelines and forms may be neededto satisfy language and logistics requirements of each group. Beneficiarieswill continue to participate through implementation, monitoring and evaluationof the project. Identification of Risks 5. Given the participatory nature of project preparation, the safeguards-relatedrisks have been minimized, but needto be continuously monitoredduringproject. For instance: 6. Proliferation offederutions. To support the unity of the ethnic representations, atripartite (FHIS, ethnic federations, Bank team) decision was made to maintain `one representation per ethnic group' for 58 the purposesof the Nuestras Raices Project. This strategy also supports efforts of the ethnic peoples for the future reconfiguration of the latent Confederation of Autochthonous Peoples of Honduras (CONPAH). 7. Legal status agreement. Following the Bank's Fiduciary Managementfor Community-Driven Development Projects: A Reference Guide (May 2002), and in agreement with all involved parties, the "legal status" of the Project ImplementationCommittees (PIC) will be an option-encouraged and facilitated by the project-but not a requirement. Consistent with the OD 4.20, communities will be encouragedto select already existing organizations that fulfill minimalrequirements as the PIC for the purposesof the project, instead of creating new ones. Gender Equity12 8. The gender roles and responsibilities inethnic groups inHonduras are culturally specific and the participation of men and women differ from one ethnic group to another. Since the overall objective of the Nuestras Raices Program i s to increase participationof the ethnic groups and their access to resources, it i s important to integrate gender equity into the approach. Since its inception, the NR Programhas had a gender focus. Results from the ex-post evaluation showed women made up 43 percent of the general coverage of benefi~iaries.'~ 9. Buildingon past gender practice inthe programandinconsultationwith the ethnic groups, the Nuestras Raices team developed a gender strategy with the objective to14: (a) Ensure equal participationof men and women at the beneficiary level-targeting women in some ethnic groups where they often have beenexcludedinthe past (Mayas, Chortis, Pech) and men where they have beenexcluded inthe past (Garifuna andMiskito); (b) Address gender inthe capacity-buildingefforts that cut across programactivities (at all levels), thereby supporting equal participation of men and women inthe training of human resources. This would support the activities throughout the project cycle from design through monitoring and evaluation with a goal of 50 percent participation of women and 50 percent participationof men inall programactivities; and (c) Address gender specific needs-this would include leadership training for women on a variety of issues including community leadership, project management, as members of the implementationcommittee, and managerial positions. l2 While sex refers to the biological state of being male or female, gender refers to the social state of being a manor woman. Gender is a variable-like class, ethnicity, nationality, and religion- usedto "identify and measure differences in the roles of men and women, the activities they undertake,the responsibilities they have, the opportunities andconstraintsthey face, and ultimately, their well-being. Gender is dynamic becausemen's and women's roles-as dictated by changing social and cultural normsand values-also vary over time'. Moser, C., Tornqvist,A,, van Bronkhorst, B.1998. Mainstreaming Gender andDevelopmentinthe World Bar& Progressand Recommendations.The World Bank, ESSD,WashingtonD.C. l3 ESA Consultores,"Evaluacion del Programa"Nuestras Raices" -Etapa IV (January 2003). l4 genderstrategywasdevelopedincollaborationwith"ProgramforGenderMainstreaminginWorldBank- The financedProjectsin CentralAmerica-PROGENIAL" which was createdby the World BanksLatinAmerica region in 2000. The purpose of the programis to addressthe challengesrelated to gender equality and equity in the sub- region by providing targeted technical assistanceto 38 governmentprojects benefiting from World Bank financing. PROGENIAL has beenfunded by a Japan Policy and HumanResourcesDevelopment (PHRD) Grant (2000-03) and is at present sponsored by the Bank - NetherlandsPartnership'swindow for Capacity building (2003-2005). 59 10. Consequently, training programs, methodologies and materials will incorporate gender systematically to ensure that gender i s addressed throughout the project cycle. Equally, the monitoring and evaluation systemfor the project includes gender specific indicators to document changes over time. Finally, the NR team inFHIS will continue to include a gender specialist to ensure that gender i s implementedthroughout the project cycle. 2. ENVIRONMENTAL SAFEGUARDS 11. The projecthasbeenclassifiedas CategoryBwithsafeguardscreeningcategoryof Sf. Even though the Nuestras Rakes Project has beenconceived to contribute to the development of indigenous and Afro-Honduran communities, empowering them to manage and implement their own projects to improve their living conditions, the possibility to finance small-scale infrastructure in sensitive areas mightcause potentially adverseenvironmental impacts. 12. The identification of subprojects will be carriedout through a participatory development planning process, which includes training modules to increaseenvironmental awareness. The project will allow communities to select subprojects in accordanceto their priorities, only restricted by a "negative" list of subprojects which are not eligible for financing. Communities are expected to identify, among others, small vertical infrastructuresubprojects (reconstructionhehabilitation of schools, healthcenters, small markets), water and sanitation services(reconstruction/ rehabilitation of piped systems, poweredor hand water pumps, latrines, septic tanks), domestic solid waste management subprojects, as well as environmental and risk managementinfrastructure, activities and services (forestation, reforestation, erosion control, flood prevention), or environment friendly productive projects (environment friendly coffee mills, waste water reuse, etc.). Given the nature of these subprojects, it i s expected that negative environmental impacts would be site-specific due to the nature of the respective subproject. 13. EnvironmentalInstrumentsincludedinthe OperationalManual.The projectpreparation team reviewedthe scope and instruments for environmental assessment incorporated inthe PEC Operations Manual. Reviews includedcomparison with existing SocialFundEnvironmental guidelines and the FHIS environmentalcriteria for project assessment. It is concluded that the PEC Operations Manual includes the necessary steps to ensurethat environmental assessment issues are adequately addressedinthe subproject cycle. These are: Environmentalprotectionpolicyoutlined throughout the OperationalManual.The O M clearly states the environmental protection will be enforcedthroughout the different possible interventions financed by the NR Project, including community training, enforcing environmental norms and standardsavailable in the country. Communities will select and appoint, as part of their responsibilities for managinggrant funds, an environmentalwatch man ("vigilante ambiental") who will be trained under the project and who will be responsible for the subprojects environmentalaudit ("contraloria ambiental"). e EnvironmentalMonitoringIndicators.Basedon FHIS's already existingandtestedex-ante andex-post evaluation criteriafor water and sanitation, environmental indicators for subproject appraisal will be applied duringthe respective project cycle stages and will be included inthe ex post monitoring and inthe final project evaluation. e Community trainingmodulesthat accompany the implementation of the subprojects are designedto raise environmental awarenessand protect the environment. Three out of nine community training modules address environmental issues such as sustainability and mitigation measures, and environmental risk management. 60 0 Environmentaltopics addressed throughout the project cycle. The environmental assessment of subproject i s integrated inthe pre-appraisal and appraisal stages of the sub project cycle. The methodology used to elaboratethe community development plans will help communities identify their environmental surroundings and environmental issues associated with any chosen subprojects. The design and evaluation phase of the subprojects will ensure that environmentally soundprojects are prepared, and that environmental mitigation and risk managementmeasures are included where necessary. Subproject supervision and monitoring will ensure the implementation of training modules and mitigation measures defined inthe subproject design. Post-construction monitoring will reinforcethe community's environmental sustainability commitments, and if needed, the project will finance additional training (the maintenancetraining module addresses environmental sustainability in three sessions: ElFuturo de la Comunidad, ElUs0 y el MantenimientoPreventivo and Comunidad y la Protecci6n de su Ambiente). 14. Implementationarrangements. The NRteam and FHIS Environmental Unit (FHIS UGA) will coordinate for the preparation of training modules and to carry out the environmentalinstruments designed for subproject appraisal and monitoring. The PEC Operational Manual incorporates instruments that will be employed as part of the implementationprocess of the NR Program, which can be adjusted in accordancewith the subproject's needs. Inaddition, the NRteam, with support from FHIS's UGA, will coordinate, when possible, with the municipal environmental unitsinthe environmentalassessment of subprojects andinthe monitoringof the mitigation measures financed by the program. 15. Nuestras Rakes Program Environmental Action Plan(EAP). The project's EAPdeveloped by FHIS identifies the costs of activities associatedwith the capacity building, translation and reproduction of materials, and monitoring costs requiredfor adequately addressing environmental aspects of the project. 61 Annex 11: ProjectPreparationandSupervision HONDURAS: NuestrasRaicesProgram Planned Actual PCNreview September 8,2003 Initial PIDto PIC February 19,2004 Initial ISDS to PIC February 19,2004 Appraisal March 8,2004 Negotiations March 8,2004 Board/RVP approval May 4,2004 Planneddate of effectiveness September 15,2004 Planned date of mid-termreview December, 2005 Planned closing date May 31,2008 Key institutions responsible for preparation of the project: Fondo Hondurefiode Inversidn Social (FHIS) Bank staff and consultants who worked on the project included: Name Title Unit Andrea Vermehren Sr. Social Protection Specialist & LCSHD Team Leader Helena Ribe Country Sector Leader LCSHD PilarE.Gonzalez Country Counsel LEGLA FabiolaAltimari Consultant LEGLA Rajeev Swami Financial Mgmt. Specialist LCOAA Evelyn Villatoro Sr. Procurement Specialist LCOPR Catherine Gibbons Social Development Specialist LCSHD Ximena Traa-Valarezo Social Evaluation Specialist LCSHD R e d Rodriguez Social FundSpecialist LCSHD Martin Ochoa Water & Sanitation Specialist EWDAN PatriciaOma Language ProgramAssistant LCSHD Bank funds expendedto date on project preparation: 1. Bank resources: 50,000 2. Trust funds: $0 3. Total: 50,000 Estimated Approval and Supervision costs: 1. Remaining coststo approval: $25,000 2. Estimatedannual supervision cost: US$80,000 62 Annex 12: Summaryof Resultsfrom ExpostEvaluation HONDURAS: NuestrasRaicesProgram 1. An ex post evaluation of the NuestrasRaices(NR)program, conducted by ESA Consultores, concluded that the NR programwas very successfulinmeetingits objectives. More specifically, it presentedthe following findings: 2. Program Strengths: 9 TheNuestrasRaiceswas highly effectiveintargeting its resourcestobenefitextremely poor communities and households. 73percent of beneficiary households belong to the bottomthree income categories (national average: 50%). 9 The EthnicFederationswere effectiveinpromotingtheprogramintheethnic communities andthe programservedto increasetheir legitimacy and buildtheir managementcapacity. 9 The evaluation confirmedthat theprojects selectedrepresentedtheprioritiesidentifiedbythe communities. It also found that 76percent of the community members interviewed felt that they had or would benefit from the project implemented. 9 Theproject was effectiveinexecuting small-scale projects that satisfiedcommunity needsfor social and economic infrastructure. 9 Theprogramwas effectiveinputtingcashinthe handsof the groupmembersandin promotingthe culture of savings, with 56 percent of the groups organizingCajas Rurales. 9 The projectpromotedgenderequity, with male andfemale participation inthe groups roughly equal and women representing 41 percent of the Caja membership and60 percent of the Caja elected leadership. 3. The evaluation also noted some aspects of the program that required strengthening. 4. Weaknesseswerefound in thefollowing areas: 9 There was nofundingavailable for project materials. Thislimitedcommunitiesto implementingprojects that requiredonly labor and were, inturn, less sustainable. k Thetrainingprovidedto coordinators for dissemination amongworking groups was not effective in penetratingdown to the local community level, where it was needed. 9 Thecommunities' understandingoftheCajaRuralmanagement was insufficient. 5. To buildon the strengths of the programand addressthese short-comings, the evaluation team made the followingrecommendations: 9 Continue tousethe targeting strategythat hasprovenhighlyeffective inreachingextremely poor households. 9 Allow investments inlarger scaleinfrastructure projects (increase amount assignedper group). 9 Transformthe programto acommunity-based investment anddevelopment program. 9 Allow thecommunities touseaportionof the resourcestopurchasematerialsandtechnical assistance to carry out more complex and better quality projects. 9 ThroughtheEthnic Federations,promotethe concept of donatedcommunitylaborfor project execution and maintenance.Provide training and, possibly, resources (tools, etc.) for project maintenance. 63 > The training strategy should be revised so that it serves to buildthe self-management capacities of the communities. On-goingtechnical assistance should be provided to the communities as they progress through each phase of the project cycle. 9 Rethinkthe cajaruralcomponent, while buildinguponthe foundations that have already been > established. Promote the creation of regional level cajas to achieve greater economies of scale andto facilitate the delivery of training and technical assistance. 9 Promotetheinvolvementof anorganization that is specialized inmicrofinanceto strengthen the caja ruralcomponent of the program 64 Annex 13: Documents inthe Project File HONDURAS: Nuestras Raices Program 1. OperationalManualfor "Proyectos Ejecutados por laComunidad" (Draft), Honduras, August 13, 2003 - FHIS 2. Impact EvaluationReport, May 19,2003 - ESA Consultants 3. Expert Report on "Cajas Rurales / Microfinance", June 2-14, 2003 - Norah Becerra 4. OED EvaluationNuestras Raices as part of the Evaluationof the OD 4.20 -Summary Report: Results of SelectedWorld Bank Interventions on the Indigenous and Afro Caribbean Populations inHonduras 5. Report on Gender on Nuestras Raices, Agosto 2003 - PROGENIALand FHIS 6. Nuestras Rakes - Spectrum (article) 7. "Thinking Out Loud", EmpoweringAutochthonous Peoples inHonduras with Knowledge and Mechanisms for Social Auditing: The Nuestras Raices (Our Roots) Program- Ximena Traa- Valarezo / World Bank, Washington D.C. and Jorge Rodriguez/ FHIS, Honduras 8. Summary of Workshop with Ethnic Federations, August 2003 - Aide-Memoire, Annex 1 9. Project Appraisal Document for the Honduras FifthSocial Investment Fund, Washington D.C., November 20, 2000 - Report No. 21355-HO / World Bank 10.Pobrezay Vulnerabilidad Social: Mercadode Trabajo e Inversi6nSocialen el Istmo Centroamericano a Inicios del Milenio, Naciones Unidas, December 22, 2003 - CEPAL 65 Annex 14: Statement of Loansand Credits HONDURAS: NuestrasRakesProgram Difference between expected and actual Original Amount inUS$Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev'd PO40177 2003 HNFinancialSector TechnicalAssistance 0.00 9.90 0.00 0.00 0.00 10.09 0.00 0.00 PO81172 2003 HNRegionalDevinthe CopanValley 0.00 12.00 0.00 0.00 0.00 12.10 0.00 0.00 PO57859 2002 HNSUSTCOASTALTOURISM 0.00 5.00 0.00 0.00 0.00 4.17 1.30 1.97 PROJECT(LIL) PO53575 2002 HN-HEALTHSYSTEMREFORM 0.00 27.10 0.00 0.00 0.00 28.48 -1.52 0.00 PROJECT PO60785 2001 HNECONOMIC & ".MANAGEMENT 0.00 19.00 0.00 0.00 0.00 12.69 14.53 0.00 PROJECT PO07397 2001 HNCOMMUNITY-BASED EDUCATION 0.00 41.50 0.00 0.00 0.00 37.38 15.42 0.00 PROJECT PO64895 2001 HNFIFTHSOCIAL INVESTMENT 0.00 60.00 0.00 0.00 0.00 23.86 -1.37 0.00 FUNDPROJECT PO73035 2001 HNAccess to LandPilot(PACTA) 0.00 8.00 0.00 0.00 0.00 6.45 3.52 0.00 PO57538 2001 HNROADRECONSTRUCTIONAND 0.00 66.50 0.00 0.00 0.00 42.18 3.33 0.00 IMPROVEMENT PO64913 2000 HNEMERGDISASTERMGMT (TAL) 0.00 10.82 0.00 0.00 0.00 7.18 0.94 0.00 PO57350 1999 HNPROFUTURO 0.00 8.30 0.00 0.00 0.00 3.78 -0.49 3.41 PO44343 1998 GEFHN-BIODIVERSITY 0.00 0.00 0.00 7.00 0.00 2.44 7 00 0.00 CONSERVATION PO07398 1997 HNRURALLAND MGMT 0.00 34.00 0.00 0.00 0.00 0.74 -5.43 -5.42 Total: 0.00 302.12 0.00 7.00 0.00 191.54 37.23 - 0.04 HONDURAS STATEMENTOFIFC's Heldand DisbursedPortfolio Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 1998 CaminoRealPlaz 1.07 0.00 0.00 0.00 7.07 0.00 0.00 0.00 Elcosa 0.00 0.63 0.00 0.00 0.00 0.63 0.00 0.00 0195 1986199 Granjas Marinas 4.50 0.00 0.00 0.00 4.50 0.00 0.00 0.00 Total portfilio: 11.57 0.63 0.00 0.00 11.57 0.63 0.00 0.00 Approvals PendingCommitment FY Approval Company Loan Equity Quasi Partic. Total pendingcommitment: 0.00 0.00 0.00 0.00 66 Annex 15: Countryat a Glance HONDURAS: NuestrasRakesProgram Latin Lower- POVERTY and SOCIAL America middle- Honduras &Carib. income )evelopment diamond* 2002 (millions) 68 527 spn Lifeexpectancy method, US$) 3280 1,390 GNI(Atlas method, US$tntlions) 1,727 3,352 Average annual growth, 1996-02 T Population ("A) 26 15 10 Laborforce(%) 37 22 12 3NI Gross )er primary M o s t recent estimate (latest year available, 1996-02) :apita nroliment 5 76 49 66 71 69 1 31 27 30 %ofchildrenunder5) n 9 Access to imDrovedwater source 86 86 24 n 106 -Honduras x)5 _ _ Lower-middle-incomegroup 107 1982 1992 2001 2.9 3.4 141 260 30.5 25.9 29.8 P O 8.0 5.9 15.8 -7.9 -7.5 3.8 47 5 lt38 78.9 .. .. 493 102.0 Indebtedness ~ H o n d u r a s STRUCTURE of the ECONOMY I 1982 1992 2001 2002 Growth of investment and GDP (%) ("'%ofGDP) I Agriculture 21.6 20.4 t3.7 10 Industry 24.4 29.6 315 5 Manufacturing 14.7 V.8 20.3 0 Services 53.9 50.0 54.8 Privateconsumption 75.0 69.4 72.3 -5 Generalgovernmentconsumption t3.1 115 x3.8 Importsof goods andservices 28.1 36.6 54.9 -GDI &GDP 1982-92 1992-02 2o02 (averageannualgrowth) Growth of exports and imports ( O h ) Agriculture 3.5 15 -0.9 M Industry 3.5 3.2 16 5 Manufacturing 4.1 4.1 5.2, 0 Services 3.0 3.6 4.5 ...... -5 Private consumption 3.0 2.9 3.8 - -10 Generalgovernment consumption 2.4 4.6 11.3 .... - .15 Gross domestic investment 9.0 3.9 -3.9 Imports of goods andservices 4.1 3.3 3.6 -Exports -Imports 67 Honduras PRICES and GOVERNMENT FINANCE 1982 1992 2001 2002 Domestic prices Inflation (%) I (%change) Consumer prices 8.8 9.7 8.1 ImplicitGDP deflator 44 9.1 8.6 7.3 Government finance ("A of GDP, includes currentgrants) Current revenue u 5 n.7 18.2 19.7 97 98 99 w 01 Current budget balance -15 16 -0.4 0.3 Overallsumlus/deficit -x3 1 -3.8 -8.1 -7.0 -GDPdeflatOr -CPI TRADE 1982 1992 2001 2002 (US5 millions) Export and import levels (US$ mill.) Total exports (fob) 677 833 1,379 1,435 Bananas 2 8 256 204 Coffee 153 147 161 Manufactures Total imports (cif) 739 1,086 2,997 2,979 2.645 Food 134 a4 480 Fuelandenergy 167 161 402 I I Capitalgoods 115 201 867 904 0 Ewort priceindex(1995=X)O) 81 90 89 96 97 98 99 00 01 Importpriceindex(?395=X)O) 79 110 x)9 Exports Imports T e n s of trade (?395=X)O) x)3 82 82 O2 BALANCE of PAYMENTS 1982 1992 2001 2002 (US5 millions) Current account balance to GDP (%) Exportsof goods and sewices 767 1,002 2,447 2,584 0 Imports of goods andsewices 823 1234 3,5P 3,621 1 Resource balance -56 -232 -1,064 -1,037 -2 Net income -202 -169 -141 -e9 -3 Net currenttransfers n 63 550 603 -4 -5 Current account balance -228 -258 -325 -6 Financingitems (net) 144 299 405 .-8 -7 Changes innet reserves 84 -41 -80 -60 -9 Memo: Resewes includinggold (US5 millions) 299 1386 l,U2 Conversion rate (DEC, local/US$) 2.0 5.5 15.5 16.4 EXTERNAL DEBT and RESOURCE FLOWS 1982 1992 2001 2002 (US5 millions) Somposition of 2002 debt (US$ mill. Total debt outstanding anddisbursed 1,844 3,893 5,050 5,395 IBRD 2 7 489 P8 x)5 IDA 79 m2 901 to14 Totaldebt sewice 244 377 343 4x) IBRD 21 89 8 33 IDA 1 2 x) U Compositionof net resourceflow Officialgrants 34 162 8 7 Official creditors 163 221 209 69 PrivatecredRors 1 -16 -69 4 3 Foreigndirect investment 14 48 8 5 Portfolio equity 0 0 0 World Bank program Commitments 30 54 201 27 - iBRD Disbursements 51 63 98 51 4 E- Bilateral I IDA . D Other mitilateral F Private Principalrepayments 7 47 9 28 ~ ;-IMF G Short-terr -- 68 MAP SECTION A