PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN...PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US$50.0 MILLION TO THE REPUBLIC OF GUATEMALA FOR A SECOND SOCIAL INVESTMENT

Document ofThe World Bank

Report No: 18244-GU

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED LOAN

IN THE AMOUNT OF US$50.0 MILLION

TO

THE REPUBLIC OF GUATEMALA

FOR A

SECOND SOCIAL INVESTMENT FUND PROJECT

October 26, 1998

Human Development Sector Management UnitCentral America Country Management UnitLatin America and the Caribbean Regional Office

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CURRENCY EQUIVALENTS(Exchange Rate Effective July 6, 1998)

Currency Unit = Guatemalan Quetzals (GTC)US$1.00 = $6.33 GTC

FISCAL YEARJanuary 1 - December 31

ABBREVIATIONS AND ACRONYMS

CAS Country Assistance StrategyCIDA Canadian International Development AgencyDECOPAZ IDB's Community Development for Peace ProjectERR Economic Rate of ReturnFIS Social Investment Fund (Fondo Inversion Social)FODIGUA Guatemalan Indigenous Development FundFONAPAZ National Peace Fund (Fondo Nacional para la Paz)FRR Financial Rate of ReturnGDP Gross Domestic ProductGNP Gross National ProductGOG Government of GuatemalaIBRD International Bank for Reconstruction and DevelopmentIDB Inter-American Development BankKfW German Institute for Reconstruction and DevelopmentLIB Limited International BiddingMIS Management Information SystemMAGA Ministry of AgricultureMOE Ministry of EducationMCTOP Ministry of Public WorksMOH Ministry of HealthNCB National Competitive BiddingNGO Non-Governmental OrganizationsNPV Net Present ValuePCU Project Coordinating UnitPOC Community Organization ProgramPIR Portfolio Implementation ReviewPRONADE National Program for Educational DevelopmentUNDP United Nations Development Program

Regional Vice President Shahid Javed BurkiCountry Director Donna Dowsett-CoiroloSector Director Xavier CollCountry Sector Leader Ana-Maria ArriagadaTask Manager Juliana Weissman

Guatemala

Second Social Investment Fund Project

CONTENTS

A. Project Development Objective Paye

I. Project development objective and key performance indicators I

B. Strategic Context

1. Sector-related CAS goal supported by the project 22. Main sector issues and Government strategy 33. Sector issues to be addressed by the project and strategic choices 3

C. Project Description Summary

1. Project components 42. Key policy and institutional reforms supported by the project 53. Benefits and target population 54. Institutional and implementation arrangements 6

D. Project Rationale

1. Project alternatives considered and reasons for rejection 72. Major related projects financed by the Bank and/or other development 8

agencies 83. Lessons learned and reflected in proposed project design 84. Indications of borrower commitment and ownership 95. Value added of Bank support in this project 9

E. Summary Project Analyses

1. Economic 92. Financial 103. Technical 104. Institutional 105. Social 116. Environmental assessment 117. Participatory approach 11

F. Sustainability and Risks

1. Sustainability 122. Critical risks 133. Possible controversial aspects 13

G. Main Loan Conditions

1. Negotiations conditions 142. Effectiveness conditions 143. Other 14

H. Readiness for Implementation 15

I. Compliance with Bank Policies 15

Annexes

Annex 1. Project Design Summary 16Annex 2. Detailed Project Description 22Annex 3. Estimated Project Costs 23Annex 4. Economic Analysis 24Annex 5. Financial Summary 26Annex 6. Procurement and Disbursement Arrangements 27

Table A. Estimated Loan Disbursements by Category and Procurement Method 29Table B. Project Costs by Procurement Arrangements 30Table C. Thresholds for Procurement Methods and Prior Review 31Table D. Allocation of Loan Proceeds 32Table E. Estimated Disbursements 33

Annex 7. Project Processing Budget and Schedule 34Annex 8. Documents in Project File 36Annex 9. Social Assessment and Indigenous Peoples Participation 37Annex 10. History and Accomplishments of the Guatemalan Social Investment Fund 41

Table 1. FIS Investments 1994-1997 42Table 2. Poverty Targeting of FIS Investments 42Table 3. FIS Investments (Approval) by Sector 43

Annex I1. Status of Bank Group Operations in Guatemala: 44IBRD Loans and IDA Credits in the Operations Portfolio 44Statement of IFC's Committed and Disbursed Portfolio 45

Annex 12. Guatemala at a Glance 46

Map

GuatemalaSecond Social Investment Fund Project

Project Appraisal Document

Latin America and the Caribbean Regional OfficeCentral America Department

Date: October 26, 1998 Task Manager: Juliana WeismannCountry Director: Donna Dowsett-Coirolo Sector Director: Xavier CollProject ID: GT-PE-40198 Sector: Social Program Objective Category: Poverty ReductionLending Instrument: Specific Investment Loan Program of Targeted Intervention: 0 Yes E Nco

Project Financing Data 3 Loan fj Credit El Guarantee Dj Other [Specify]

For Loans/Credits/Others:

Amount (US$m): US$50.0 millionProposed terms: [D Multicurrency Z Single currency, specify

Grace period (years): 5 0 Standard Variable F Fixed Z LIBOR-basedYears to maturity: 20Commitment fee: 0.75%

Service charge: 0.0%

Financing plan (US$m):Source Local Foreign Total

Government 7.0 0.0 7.0IBRD 48.5 1.5 50.0

Beneficiaries 7.0 0.0 7.0Total 62.5 1.5 64.0

Borrower: Republic of GuatemalaGuarantor:Responsible agency: Fondo de Inversion Social (FIS)

Estimated disbursements (Bank FY/US$M): 1999 2000 2001 2002 2003Annual 8.5 11.9 15.7 12.0 1.9

Cumulative 8.5 20.4 36.1 48.1 50.0

Project implementation period: 1999-2003 Expected effectiveness date: 1/01/99 Expected closing date: 6/30/03

OSD PAD Form: July 30, 1997

Project Appraisal Document Page 2Country: Guatemala Second Social Investment Fund Project

A: Project Development Objective

1. Project development objective and key performance indicators (see Annex 1):

The project would be the Bank's second loan to the Social Investment Fund (Fondo de Inversi6n Social, FIS). Itwould continue to support the Government's poverty alleviation efforts by targeting its investments to the poorestareas and population groups in the country, and contribute to participatory decision-making by strengthening thecapacity of community-based organizations and local governments to define problems, prioritize needs, plan andimplement small-scale community-based subprojects, and ensure sustainability by developing adequatearrangements for subproject operations and maintenance. The project would finance: (a) high priority social andeconomic infrastructure and complementary goods and services; (b) training and consultant assistance to supportcapacity building and project sustainability in the communities; and (c) strengthening of the central and regionaloffices of the FIS, closer coordination with local governments and line ministries, ex-post and impact evaluationsof completed subprojects and beneficiary assessments, and the development of a coherent framework for the socialsafety net. Progress toward these development objectives would be monitored and assessed according to the keyperformance indicators outlined in Annex 1.

The project satisfies the requirements of the Bank's O.D. 4.20 because of the intensive targeting of FIS resourcesto rural areas with a majority indigenous population, where poverty is most acute. Project progress, outcomes andimpact would be monitored and evaluated on a regular basis through the use of an agreed set of monitoringindicators related to the number, type and quality of subprojects financed by the project, beneficiary participationin the subproject cycle, and subproject processing times; subproject operations, community access to and use ofinfrastructure and services financed by the loan, and adequacy of arrangements for operations and maintenance.The impact of project investments would be measured using a number of social, economic and organizationalmeasures such as school enrollment, population coverage for selected basic health services, travel times to centersof economic activity such as markets and social services, number and type of economic activities in the beneficiarycommunities, participation of women in economic activities, and the number of community organizations,including local governments, NGOs, mothers' clubs, school parent associations, which are functioning in a sampleof the areas in which several subprojects have been financed over the course of the project.

B: Strategic Context

1. Sector-related Coun try Assistance Strategy (CAS)goal supported by the project (see Annex 1):CAS document number: 18036-GU Date of latest CAS discussion: 7/14/98

The objective of the CAS is to assist Guatemala in making peace stick by supporting efforts to form an inclusivenation. To this end, the CAS emphasizes support in two inter-linked development priorities directly related to theproposed project. First, building social cohesion and strengthen participatory decision-making by choosing,designing, and implementing subprojects in ways that foster inclusion through decentralized decision-making andimplementation, and informed participation of beneficiaries, while strengthening communities. Second, reducingpoverty and exclusion by concentrating lending targeting the social safety net to the poorest members of society.These priorities are being supported by a lending program that includes Basic Education Reform, Rural and MainRoads, Low-Income Barrios, Reconstruction and Local Development, a proposed Land Fund project (FY99) andthe proposed FIS II project. The FIS is one of the key actors in the social safety net because of its participatorydecision-making nature, and its ability to reach remote impoverished areas with priority small-scale investments insocial and economic infrastructure and services. It complements the work of the National Peace Fund(FONAPAZ) by reaching poor areas not included in the former conflict areas (ZONAPAZ).

2. Main sector issues and Government strategy:


Poverty. Guatemala has the second-worst GINI coefficient among 64 low-to-middle income countries, andwidespread poverty akin to that of much poorer nations. Poverty is concentrated in rural areas which are inhabitedpredominantly by indigenous groups, and is skewed toward women. It afflicts over 75 percent of the population,86 percent of the rural population, and 70 percent of female-headed households (49 percent of which are inextreme poverty). Geographic isolation and the effects of prolonged conflict on their assets and communitiescompound the poverty affecting rural people. Poverty in Guatemala stems in part from unequal access toproductive assets and chronic low investment in human capital. Credit is scarce for all but the largest producers.Although the current Government is reversing the trend, there has been a historic lack of public and privateinvestment in basic rural infrastructure - roads, communications, electricity, water and sanitation. Education andhealth have received less than half the regional average share of GDP for decades, and this spending has had anurban bias.

Government Strategy and Institutional Capacity. The key challenge for Guatemala is to sustain peace byending the exclusion that contributed to the conflict. To this end, reducing poverty, especially extreme poverty, iskey. The Government's development strategy, which takes into account the Peace Accords, recognizes that thisrequires an increase in spending for social programs (expenditures in social and institutional developmentprograms are expected to rise from 5 to 9 percent of GDP), more effective delivery of social services that are bettertargeted to the poorest, rapid improvements in infrastructure especially in rural areas, and clarification of landownership and tenure as well as functioning land markets and rural financial systems. The Government recognizesthe urgency of providing investments and services needed by the poor, especially in rural areas, and reversing thehistoric tendency to a centralized public sector. Compounding this condition is the sheer magnitude of the taskgiven widespread poverty in the country. In order to deliver programs quickly in the short term while sectoralreforms are being designed and implemented by the line ministries, the Government has established several socialfunds, including the FIS. The social funds have been able to channel resources quickly to the poor, especially tothe most needy rural areas, by financing small social and economic subprojects proposed by communities, localassociations, municipalities, and other groups. It is expected that by working directly with communities andmunicipalities, social funds will contribute to strengthening institutional capacity at the local level, which wouldprepare communities to assume some of the responsibilities now managed by line ministries.

While social funds in general, and the FIS in particular, are playing a key role as part of the Government to fulfillthe targets set by the Peace Agreements, more effort has to go into ensuring that the social funds contribute topoverty reduction in an effective and coordinated manner, and into determining their longer-run role relative to thatof the other agencies.

3. Sector issues to be addressed by the project and strategic choices:

The project would address the above-mentioned issues by expanding and improving social and economicinfrastructure, goods and services provided to the poorest communities, thus ensuring a more equitable allocationof social expenditures and contributing to capacity building, particularly of beneficiaries, local communities andsocial sector intermediary organizations. The project would have a particular focus on rural areas where most ofthe indigenous people live, which is consistent with the policies of the Bank. The Government's strategic planningfor poverty alleviation policies, strategies, objectives and performance and alternatives for the future role of theFIS, as well as the expected role of the other social funds, would be supported by the Bank and other donors. Thecontinued involvement of the Bank with the FIS would provide the means to tie the strategic planning exercise toissues of resource allocation, targeting, decentralization, and institutional development of implementation capacity.


C: Project Description Summary

The project's total cost is estimated at US$64.0 million. It would be implemented over a four-and a half yearperiod starting in FY99 and would have three components: (i) community-based subprojects; (ii) institutionstrengthening at the community level; and (iii) institutional development of the FIS.

1. Project components (see Annex 2for a detailed description and Annex 3for a detailed costbreakdown):

Component Cate2ory Cost Incl. % of Bank- % of Bank-Contineencies Total financin2 financin2

(US$M) (USSM)A. Community Subproiects: Physical 57.0 89 46.5 93Social and Economic Subprojects: The project wouldsupport community-based, demand-driven subprojects,including pre-investment feasibility studies, for small-scale infrastructure and services such as schools, healthposts, water supply, sanitation and latrines, bridges andaccess roads, cultural heritage projects and subprojectsrequested by communities other than those on a negativelist agreed with the Bank, all based on targeting andsubproject selection criteria and procedures set out inthe Operations Manual.

B. Community Trainin : The project would provide Institution 2.0 3.1 1.5 3training linked to individual subprojects to beneficiaries, Buildingstaff of line ministries, municipalities, in participatoryplanning, problem prioritization, subproject operationsand maintenance and environmental issues.

C. Institutional Development: Institution 5.0 7.8 1.5 3The project would support the decentralization of FIS Buildingoperations, training and consultant assistance infinancial and information management, participatory andstrategic planning, environmental concerns, communitymaintenance of subprojects, and efforts to increase theparticipation of women in FIS subprojects. The projectwould also finance one evaluation each year on impactevaluation comletion, annual procurement audits, amodest amount of equipment and vehicles for subprojectsupervision and quality control, central anddecentralized operations

Fee 0.5 0.1' 0.5 1.0

Total 64.0 100.0 50.0 100.0


2. Key policy and institutional reforms supported by the project:

The proposed project would contribute to the Government's poverty alleviation strategy and fulfillment of thePeace Accords by providing support to the line ministries in the provision of social and economic infrastructureand services to the rural areas. The FIS has demonstrated its ability to reach remote, under-served rural areaswhich have benefited from only limited public sector investments. The investments in small-scale community-based subprojects financed by the FIS complement the investments by the municipal governments and lineministries and contribute to the decentralization of the Government by building local capacity to identify problems,plan, execute and maintain subprojects. The emphasis on mutually-beneficial collective action, which is anessential ingredient of the FIS subproject cycle, is widely recognized as one of the most important building blocksof social capital.

3. Benefits and target population:

The benefits of the FIS project are expected to include expansion and improvement of social and economicinfrastructure and services in poor rural areas, stronger institutions and capacity to sustain them in poorcommunities, and an increase in income-generating activities. The target population for the FIS since its inceptionhas been the poor municipalities throughout the country, as identified on the basis of a poverty map developedduring the preparation of the first project. The 1994 population census and indicators of unsatisfied basic needshave been used to update the poverty map for the second project, and rank communities by poverty level. Fivepoverty rankings were established for the first project and have been maintained. A recent review of FISaccomplishments indicates that 49 percent of FIS resources has gone to communities in the two poorest categoriesand less than 4 percent has gone to the communities with the lowest levels of poverty (see Annexes 9 and 10).Indicative allocations of FIS resources have been made each year based on use of the poverty map. The FIStargeting strategy has now combined the concept of unsatisfied basic needs with a new concept of "graduation" forthose communities which have satisfied most of their basic needs in social and economic infrastructure. Thisstrategy will allow the FIS to target more of its resources to the poorest communities. In addition, the FIS willreinforce its community organizing efforts in the poorest microregions in order to compensate for the relativelylower capacity of the poorest communities to organize and present project proposals to the FIS.

The first project supported by the Bank used a subproject menu which focused primarily on the construction andrehabilitation of schools, health posts, water and sanitation systems, small roads and bridges, irrigation systems,and community health, food and nutrition, and basic education subprojects. The FIS has proposed the use of anegative list for the second project, which would give them greater flexibility to respond to the requests of thecommunities. A negative list has been prepared, and was agreed with the Bank at negotiations. The negative listincludes subprojects involving involuntary resettlement and subprojects that would contribute to the alteration ofwater flows or contamination of international waterways.

Beneficiary contributions for each FIS subproject are mandatory and usually consist of Labor (time spent in projectpreparation and solicitation, project preparation, provision and transportation of local materials, in difficultmountainous areas, and unskilled labor required for the project). Analysis of actual contributions indicates thatthey average 11 percent of project cost and sometimes exceed the amount originally estimated if all of these inputsare taken into account. FIS will review and revise its criteria to facilitate accounting for this contribution.However, the nature of these contributions makes it difficult to register them, and providing the documentationnormally required for the accounting system; therefore no formal registration in the financial and accountingrecords of the FIS will be required.


4. Institutional and implementation arrangements:

Implementation Period: 4.5 years, FY1999 to FY2003

Executing Agency: The FIS would be responsible for overall project management, including the promotion,appraisal, financing, approval and supervision of subprojects. The FIS is an autonomous government institutionwith independent legal and financial status. It was created by a Congressional Decree to invest in activities whichwould improve living conditions of the poor in rural Guatemala. The FIS has mobilized considerable support fromnational resources and the international community, and had approved projects with a total value of TJS$62 millionby 1997. The absorptive capacity of the FIS has increased rapidly during the past 12 months as a result ofmanagement improvements during 1997. The FIS was restructured into sector management units, additionalregional offices were created, and many administrative procedures were streamlined. The number of disbursementsrequired for small subprojects was reduced, and a less formal approach to local shopping was introduced. Thecombined disbursements on loans and grants financed by IDB, IBRD, KfW, OECF and OPEC now average aboutUS$6 million per month.

Improvements to be financed by the new project would include a decentralization strategy which aims to bring theFIS closer to the communities, reduce subproject processing time, accelerate subproject completion, increaseimplementation capacity and improve the productivity of central and regional offices by training central andregional offices staff to review and approve subprojects and manage procurement and subproject execution. Themanagement information system will be improved to support decentralization, as will the consultant and contractordata bank, updated regional unit price lists, and standardized subproject processing criteria and procedures. Thedecentralization process will begin in one regional office and extend gradually to others. Lessons learned in thefirst regional office will be used to modify the decentralization program as needed. The loan will financeinvestments in office equipment, training, and short term consultants, but not staff salaries, which will be paid withgovernment counterpart funds.

Project Coordination: Many of the subprojects identified by poor communities are traditionally supported by theMinistries of Health (MOH), Education (MOE), Agriculture (MAGA) and Communication, Transport and PublicWorks (MCTOP). FIS has interagency agreements with all of these to ensure that subprojects are appropriate anddo not duplicate ministry activities, and to ensure the line agency's ability commitment to fund recurrent costs notcovered by beneficiary communities. In addition, FIS has official agreements on coordination and cooperationwith the other social funds. FIS will continue to monitor the use of the agreements and identify other ways toensure effective interagency coordination with local governments, regional offices and NGOs. A regular review ofexperience will serve to identify problems and best practices. As part of the coordination effort led by the FIS, theBank will continue to cooperate with other donors on project preparation and supervision missions

Since signing the Peace Accords, FONAPAZ was given the mandate to work in the post-conflict areas. FONAPAZemphasized rapid response; and FIS developed a more comprehensive but lengthier project cycle. The lessonslearned have benefited both organizations. The FIS has streamlined its subproject cycle, reduced bottlenecks in theproject pipeline, and become more efficient and more participatory. Both organizations work in some of the sameareas of the country, where poverty alleviation and the implementation of the Peace Accords overlap. There isclose coordination in the division of responsibilities through continuous communication at all levels of operations.A definitive division of responsibility is unlikely because communities prefer to have the option of working withboth organizations. The new FIS targeting strategy takes into account the scope of the Basic Education Reform,Reconstruction and Local Development, and Rural Roads projects supported by the Bank, and the activities ofDECOPAZ, a project financed by the IDB, the Community Development project financed by the CanadianGovernment, the programs supported by the German Government in Alta and Baja Verapaz, and the activities ofthe other funds and donors.

Project Oversight: The Social Cabinet, headed by the Vice President of the Republic, ensures policy formulationand, among others, coordination of the FIS policies and programs with those of the other social sector entities in


the public sector. A five-member Board of Directors, with members appointed by the President of the Republic,provides oversight for FIS policies and operations. The adequacy of financial management arrangements in theFIS has been confirmed by a recent Bank review of the system and annual audit reports prepared for the first FISproject by an external auditor acceptable to the Bank. For the new project, the FIS will be expected to implementthe new reporting modules required for Bank projects. As soon as the LACI requirements have been met, the legaldocuments will have to be revised to reflect LACI's financial management condition.

Proiect Monitoring and Evaluation: The Bank will supervise project quality and performance of the FIS throughthe Resident Mission and regular (at least twice yearly) project supervision missions, one of which would be anannual implementation review. Supervision tasks would include the following: (a) a review of targeting andpromotion of subprojects and participation of women and all population groups; (b) subproject ex-post reviews,quality and distribution of the portfolio between and among categories, internal processing rates, project unit costsand procurement procedures, participation of communities, NGOs, and local governments, disposition of problemsubprojects; (c) progress of the training programs, decentralization of the FIS and improvements in the MIS; (d)review of terms of reference, technical assistance and completed training activities; (e) monitoring of performanceindicators agreed with the FIS; (f) coordination with line ministries, other social funds, and municipalgovernments; (g) other routine supervision and internal administration issues. The annual implementation reviewwould also discuss the proposed work program for the following year and proposed modifications in the FISprogram. The results of the annual evaluation of completed subprojects, beneficiary assessment and procurementaudit will be incorporated in the program of the FIS to improve performance. An impact evaluation at theconclusion of the project would be designed to measure the medium to longer term costs and benefits of the FISinvestments, based on the experience gained in the evaluation of the first project and experience with impactevaluations completed in other countries. Some of the key considerations of the impact evaluation are expected toinclude targeting, subproject sustainability, community participation, and poverty impact.

D: Project Rationale

1. Project alternatives considered and reasons for rejection:

A single larger loan to FONAPAZ was considered by the Bank as an alternative to a second loan to the FIS;however, this was ruled out because the FONAPAZ mandate extends only to the ZONAPAZ or former conflictareas of the country which are included in the Peace Accords. Alternatively, the project investments could havebeen managed by the respective line ministries. However, the capacity of the line ministries to manage numeroussmall-scale investments in remote rural areas remains limited. The FIS has a proven track record in responding to"bottom-up" demand and reaching isolated rural communities. The time required to respond to these demands isexpected to be reduced significantly as a result of the reorganization of the FIS and improved administrative andsubproject processing procedures introduced during the past eight months.


2. Major related proj ects financed by the Bank and/or other development agencies (completed, ongoingand planned):

Sector Issue Project Latest Supervision (Form 590)Ratings (Bank-financed projects)Implementation DevelopmentProgress (IP) ObjecStve (JeO)

Bank-financedExpansion of Education Coverage Basic Ed. Reform Project (US$33m) S S

Social Infrastructure Rehabilitation Social Investrnent Fund (US$20m) S S

lRoad Construction/Rehabilitation Rural and Main Roads (US$50m) Not yet EffectiveImproving Local Access to Credit Rural Financing Project PlannedInstitutional Strengthening Judicial Reform Project Not yet effectiveRehabilitation of Primary and Secondary and Regional Roads S SSecondary Roads Project (US$25m)Land Titling Land Fund Project Being prepared

Community Development and Reconstruction and Local Not yet effectiveReconstruction Development Project (US$30m)

Other development agenciesSocial Investment Fund Program OECF (US$31 .5m) OngoingSocial Investment Fund Project OPEC (US$4.5 m) OngoingSocial Investment Fund Project IDB (US$40m) OngoingCommunity Development Project DECOPAZ (IDB, US$50m) OngoingSocial Infrastructure Rehabilitation Rural Development (KfW, US$7m) OngoingCommunity Development Project Canadian Government (US$9m) OngoingRural Roads Rehabilitation Spanish Government (US$7m) PlannedDevelopment Program for the East FIS-PRORIENTE (IDB, US$90m) PlannedRoads Rehabilitation/Modernization IDB (US$100m) OngoingIP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory)

3. Lessons learned and reflected in the proposed project design:

The project design reflects the social fund experience in Latin America which has been discussed in recent WorldBank and IDB reports as well as the findings of the FIS annual review mission of May 1997. The World Bankreport stresses the need for social funds to: (i) focus on well-defined subprojects; (ii) be operationally efficient;(iii) obtain feedback from communities, beneficiaries, and coordinating agencies through monitoring andevaluation; (iv) be transparent and accountable; (v) ensure proper targeting; (vi) make adequate arrangements forsubproject sustainability. The IDB report found that the social investment funds are efficient, transparent, andrelatively free from political interference and helped to improve the living conditions of the poor through theprovision of social and economic infrastructure and services. They should not attempt to replace or supplant otherpublic sector entities; they should reinforce and assist the work of other state institutions. The IDB recommendedthat the social funds allocate more resources to training and community development, integrate environmentalconcerns in their operations, and give greater emphasis to the involvement of women.

The Bank's annual review mission in 1997 identified some areas which needed improvement in FIS operationsrelated to contracting, supervision, operation and maintenance of completed subprojects. These problems havebeen addressed through a detailed, time-based action plan. All of these issues have been discussed during projectpreparation and reflected in the project composition and the implementation plan. The project would incorporatean updated targeting mechanism, new environmental assessment procedures, streamlined subproject identification,


preparation, procurement and disbursement procedures, improved accounting for beneficiary contributions,community training for maintenance, and a greater focus on women. Beneficiary participation will be incorporatedin the entire subproject cycle, and a study of gender issues has identified way to increase the participation ofwomen in FIS activities. Decentralization and delegation of greater authority and responsibility to the regionaloffices is expected to increase responsiveness to beneficiaries and increase the efficiency of FIS operations.

4. Indications of borrower commitment and ownership:

Borrower commitment has been demonstrated by the timely implementation of the detailed corrective action planagreed on August 31, 1997. During the pre-appraisal mission, the Vice President and Minister of Finance of thecountry made explicit endorsements of the important role to be played by the FIS, and the office of the VicePresident made a commitment to seek extension of the FIS authorization to the year 2005 to ensure its continuityand provide sufficient time for the new project to be completed. The FIS managers have contracted a series ofstudies of NGOs, community banks, environment, procurement audit, ex-post evaluation of completed subprojectsand beneficiary assessment, whose findings and recommendations are being used to improve FIS policies andoperations.

5. Value added of Bank support in this project:

The Bank has assisted the Government in identifying areas for improvement in FIS policies and operations and indesigning corrective measures, especially in community participation, women's participation, environmentalassessment procedures, contracting and supervision. As part of its dialogue with the Government on public sectorexpenditures, the Bank helped the Government to identify overlaps between the FIS programs and the activities ofthe other social funds to eliminate duplication of efforts, coordinate activities, and maximize the efficiency ofresource allocation. The Bank had provided comments and suggestions for the Terms of Reference for projectpreparation studies, made available international cross-country advice on the experience of FIS programselsewhere, especially in the LAC region, and had developed study tours and pre-project training for FIS staff. Inaddition, the Bank has actively promoted donor coordination and the adaptation of consistent approaches andpolicies with KfW, IDB, OECF, and OPEC.

E: Summary Project Analysis (Detailed assessments are in the project file, see Annex 8)

1. Economic (supported by Annex 4):

X Cost-Benefit Analysis; X Cost Effectiveness Analysis:

The social investment fund finances approximately 2,000 subprojects each year, and the composition of the projectportfolio varies each year according to the demand expressed by the beneficiaries. Because of this, it is impossibleto undertake a cost-benefit or cost-effectiveness analysis in advance. The project monitoring system is used todetermine the cost of individual subprojects, and aggregated to determine average cost per subproject type, andcost per beneficiary. Cost-effectiveness analyses may be applied to some subprojects such as rural roads andbridges, schools, and other subprojects which are also financed through other means to determine the relativeefficiency of financing these subproject through the social investment fund. Additional indicators such as the costper number of jobs created and businesses established can also be tested. The Bank recently initiated a review ofexperience to date in the economic analysis of social fund subprojects in an effort to improve the application ofeconomic analysis techniques to the community-based subprojects. The findings and recommendations of thestudy will be discussed with the FIS when the results become available in early 1999 with the expectation thatupdated economic analysis policies and practices will be introduced in the FIS as a result.


2. Financial (seeAnnex5): NPV=US$ N/A million; FRR= N/A

The project would finance the investment cost of cultural, social and economic infrastructure subprojects. Whereappropriate, subprojects will be expected to have an operations and maintenance plan with a simple financialanalysis of recurrent cost performed as part of the subproject appraisal process. The Bank would continue to workwith the FIS to review the experience with community banks and micro-credit activities in Guatemala and othercountries. Several recent studies of the experience of the community banks have identified issues andrecommendations which are being studied by the FIS in the expectation that they will be incorporated into the nextround of community bank programs. This program will continue to evolve based on experience gained inGuatemala and elsewhere in the development of microcredit programs. The Bank will support studies and trainingfor the banks, but will provide no financing for the credit activities of the banks.

3. Technical:

The FIS has developed technical criteria for each subproject type, based on existing norms from the respectivepublic agencies to ensure technical coherence and compatibility. These criteria have been updated and are beingincorporated in the revised Operations Manual, which will be used for all subprojects financed by the project.Work is ongoing for water and sanitation, rural roads and environmental assessment procedures, all of which arebeing reviewed by the Bank before they are incorporated in the revised Operations Manual. The FIS has adopted anegative list, agreed at negotiations, to enable communities to identify subprojects which are not included in thecurrent FIS subproject menu. These subprojects may require feasibility studies depending upon the nature of thesubproject. It is anticipated that cultural heritage subprojects will be included in this category.

4. Institutional:

The project would be managed by FIS through its central Headquarters in Guatemala City and through its 22departmental offices. A marked acceleration in the implementation and disbursement of the first project, whichoccurred after the implementation of the corrective action plan, indicates that the FIS capacity has increasedsignificantly during the past 12 months. The FIS has subsequently identified additional ways to become moreefficient. A strategy for decentralizing some of the subproject identification, evaluation, approval and supervisionfunctions to reduce subproject processing times and make the FIS more responsive at the regional and local levelswas developed and reviewed by the Bank during the pre-appraisal mission. Further work will be undertaken toclarify the division of responsibility between central and local govemments and beneficiary communities for theoperation and maintenance of completed subprojects, and will be reflected in the training activities financed by thenew project to strengthen community capacity. This is an ongoing effort which requires constant monitoring andmodification to adapt to local conditions. There is no single solution which will fit all subprojects.

Under the proposed new loan, subprojects requested by communities would be evaluated by the FIS and executedby local contractors or NGOs or communities which meet agreed eligibility criteria included in the OperationsManual. Training related to community strengthening, including the operation and maintenance of completedsubprojects, would be contracted out, primarily to NGOs. The FIS Operations Manual includes detailedinformation on all phases of the subproject cycle from identification, design, and community participation throughimplementation including technical and administrative supervision of ongoing works and arrangements forsubproject operations and maintenance. The manuals are currently being revised and updated. The completion ofthis revision and confirmation of no-objection to the Manual by the Bank will be a condition of loan effectiveness.Any future modifications to the existing Manual related to the implementation of this project will require a no-objection from the Bank before reimbursement for expenditures for project activities affected by the modificationscould be requested from the Bank.


5. Social:

During project preparation, emphasis was given to using the experience gained during the first phase of the FISoperation. The lessons learned are reflected in the reorganization of the FIS, the updating of the targetingmechanism, increased emphasis on community participation in the subproject cycle, and development of thedecentralization plan to bring the FIS closer to the communities it serves. As part of the evaluation of thisexperience, the FIS contracted an external ex-post evaluation of completed subprojects and beneficiary assessmentto learn more about community priorities and their experience with the FIS (see Annex 10). The evaluation isbeing used to increase participation, especially of the poorest communities, indigenous groups and women.Through the Programa de Organizaci6n Comunitaria (POC), the FIS developed beneficiary training in socialorganization to increase participation in the identification of needs, prioritization of investments, and operation andmaintenance of subprojects. Regular consultation with the communities and further training would be financed bythe project.

A study of gender issues was completed in October 1997. Some of its major findings included scarcity ofinfornation about the situation of women; design of FIS subprojects to benefit women, promote or improve thestatus of women; and lack of data on women's participation in the preparation, implementation or maintenance ofsubprojects, such as community banks; moreover, the subproject cycle did not always accommodate the interests ofsome groups of women. To address these issues, FIS used the POC to increase the participation of women. Earlyresults are good and FIS plans to use this methodology in other areas of the country. In addition, specificmonitoring indicators which measure women's participation will be included in the new project. The FIS willreview the subproject cycle and identify new approaches to facilitate women's participation. FIS staff are beingtrained to increase sensitivity to women's issues, more women are being recruited for the regional offices and inindigenous areas, and bilingual and multilingual staff are being increased.

6. EnvironmentalAssessment: Environmental Category L A 3 B E C

Justification/Rationale for categorv rating: The project would have no significant environmental risks.Subprojects which involve involuntary resettlement or that would contribute to the contamination or alteration ofwater flows of international waterways would not be financed by the Bank loan. Standard safety andenvironmental assessment procedures have been developed by FIS consultants. Participatory mechanisms arebeing proposed for use during subproject preparation to raise community awareness of environmental issues andensure their consideration in subproject design, implementation and operation.

Status of any other environmental studies: The Bank has reviewed the environmental evaluation criteria proposedfor the project and is providing technical assistance to update them to meet Bank standards and guidelines beforetheir inclusion in the updated Operations Manual. Capacity building activities would include community-basedorientation of beneficiaries to environmental issues and staff training in the use of environmental assessmentcriteria and community education activities.

Local groups and NGOs consulted: CARE, FAFIDESS, FUNDAP, Don Bosco, Talita Kumi, ASOPRODE,CODESAR, ADESPRO, NEUBA, ICOS, UNiFEM, local mayors, other political leaders, local staff of NGOs,representatives of community organizations and beneficiaries in Quetzaltenango, Totonicapan, San Marcos, ElQuiche, Coban, Alta Verapaz, Izabal, Chiquimula, and Jalapa.

7. Participatory approacha. Primary beneficiaries and other affected groups:

During project preparation, several studies were undertaken in an effort to understand better the contributions andparticipation of beneficiaries in general, and women in particular, in FIS subprojects, the role of NGOs and otherorganizations of civil society, and the potential for increased participation of beneficiaries in the protection of their


environment in the context of working with the FIS. These studies involved visits to communities, focus groups,individual interviews and other consultations with FIS staff in the center and the regions, with central and localgovernment officials, contractors who execute FIS subprojects. In addition, FIS has completed a beneficiaryassessment as part of the evaluation of experience to date. From this they are learning more about the priorities ofthe communities and their expectations of FIS in the future. The study of gender issues included visits to a numberof communities and from interviews with beneficiaries. FIS recognizes the difficulty of working with women andadapting its programs to the culture and characteristics of the indigenous groups and is working to increaseparticipation in these communities, especially of women. Additional work will be required to increase theconfidence of these communities in local capacity to improve living conditions and alleviate poverty. Diagnoses ofthe experience of organizations of civil society and the NGOs in Guatemala point to the need to involve thesegroups from the outset in problem diagnosis, prioritization of subprojects, and during all stages of the subprojectcycle, to simplify procedures. These findings have been reflected in the modified subproject cycle and updatedoperations manuals and in the training of beneficiaries and community groups which have been included in theproposed project.

b. Other key stakeholders:

Local government officials, including school teachers, community workers, staff and local contractors of theregional offices of the FIS, NGOs, and representatives of the private sector have also been consulted in the contextof the evaluation, beneficiary assessment, and project preparation. In addition, key organizations - the IDB, KfW,and representatives of the Canadian, Dutch, Japanese and Swedish governments - have been consulted.

F: Sustainability and Risks

1. Sustainability:

Subproject sustainability will be ensured through:(a) cooperation with the line ministries and updated agreements on their responsibility for the operation andmaintenance of some completed subprojects (as described in agreements between the FIS and those organizations);and (b) a comprehensive program of beneficiary training in social organization, operations and maintenance of allcompleted infrastructure subprojects, including the establishment of user groups/maintenance committees andprovision of a simple tool kit for water supply, and sanitation and access road subprojects and communitycommitment to contribute to the cost of operations and maintenance; and

Regarding the sustainability of FIS as an institution, the FIS legislation provides an authorization up to May 31,2001. The Government has emphasized repeatedly the importance of FIS in meeting the need for small-scaleinfrastructure in poor areas of the country, which would justify the extension of the FIS mandate. High-levelgovernment officials, including the Vice President of Guatemala and the Minister of Finance, have confirmed theintention of the Government to seek an extension of the FIS mandate to 2005.


2. Critical Risks (reflecting assumptions in the fourth column of Annex 1):Risk Risk Risk Minimization Measure

Rating

Annex 1. cell "from Outputs to Objective"

Political support for FIS and government M Prior to negotiations, the Bank received a letter from thecommitment to extend its authorization Government committing the Borrower to present to itsbeyond May 31, 2001. Congress a draft bill to amend the law and extend the

authorization of the FIS to 2005. The loan agreementcontains a dated covenant to provide for the presentationof the bill of law to the Congress and remedies ensure thatthe Government would make adequate arrangements forcarrying out the project beyond May, 2001 in the eventthat the law is not extended.

Possible lack of absorptive capacity of the M Strengthen FIS organization and management at theFIS central and regional levels, increase training and

orientation activities for FIS staff. Monitoring indicatorswould allow for close supervision of FIS performance totake corrective actions if needed.

Pressure to produce quantity at the expense M Ensure up-to-date Operations Manual, periodic staffof quality subprojects training and good, committed technical staff as well as

regular subproject monitoring and supervision.

Commitment to environmental issues. M Establishment of appropriate environmental assessmentmechanisms in Operations Manual, staff training andsupervision in the application of the guidelines, regularmonitoring of project portfolio and monitoring indicatorswhich require FIS staff to collect data regularly on the useof the guidelines.

Commitment of communities to maintenance M Substantial FIS staff effort and participation in theof completed subprojects including the preparation of these activities, regular feedback on theirassumption of responsibility for some effectiveness through subproject monitoring andoperations and maintenance costs, careful evaluation. Community training activities integrated withdesign of social participation and selection highly participatory subproject planning and executionof participants in operations and process in which the operation and maintenancemaintenance courses requirements are clearly spelled out prior to subproject

selection and the community trained to meet theOverall_____Risk____ Rating__ m requirements prior to subproject completion.Overall Risk Rating M

Risk Rating -H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk)

3. Possible ControversialAspects:

The extension of the FIS authorization to 2005 will require a two-thirds vote in the Congress. Because the FIS isworking at a national level with poor communities without regard to the politics of the poor areas, it is considered anational, multi-partisan program by the current Administration. For this reason, the Government is confident that


it will be able to obtain the two-thirds majority vote required by the Congress to extend the FIS mandate. TheBank has received a letter from the Office of the President of Guatemala which commits the Borrower to seek anextension of the FIS authorization to 2005. The loan agreement contains a dated covenant which provides for thepresentation to the Congress of the draft law to extend the FIS authorization. It also includes remedies in the formof suspension in the event that the Borrower does not make satisfactory arrangements to carry out the projectbeyond May 31, 2001.

The FIS has developed a proposal for the decentralization of its activities and the reinforcement of the regionaloffices to improve implementation capacity and responsiveness to communities. The capacity of the regionaloffices is limited at present, but is expected to improve substantially during the second project. Thedecentralization of the FIS could provide lessons for the decentralization of other government entities and couldinfluence the pace and characteristics of other government decentralization initiatives.

G: Main Loan Conditions

1. Conditions of Effectiveness:

* A revised Operations Manual, including environmental assessment criteria, acceptable to the Bank will beadopted by the FIS;

* A Subsidiary Agreement between the Borrower and the FIS making the proceeds of the loan available to theFIS on terms acceptable to the Bank would be signed.

2. Other:

* The Government would provide the necessary counterpart funds to cover its share of the investmentsubprojects, and make adequate arrangements for the incremental recurrent costs of completed subprojects;

* FIS would furnish semi-annual Project Implementation Reports acceptable to the Bank;* FIS would conduct joint Annual Implementation Reviews with the Bank;* FIS would furnish Annual Operating Plans acceptable to the Bank;* FIS would maintain staff with qualifications and experience satisfactory to the Bank and inform the Bank of

changes in key staff;* FIS would contract each year an external ex-post evaluation of a representative sample of completed

subprojects and beneficiary assessment, as well as an impact evaluation at the conclusion of the project, allunder terms of reference satisfactory to the Bank, with the findings of each evaluation to be discussed with theBank during the Annual Implementation Review;

* FIS would contract annual financial and procurement audits and submit completed reports to the Bank forreview and comment.


H. Readiness for Implementation

F The engineering design documents for the first year's activities are complete and ready for the start of projectimplementation. [X] Not applicable.Z The procurement documents for the first year's activities are complete and ready for the start of projectimplementatior.Z The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality.Z The following items are lacking and are discussed under loan conditions (Section G):

Revised Operational Manual (condition of effectiveness)

1. Compliance with Bank Policies

3 This project complies with all applicable Bank policies.

' -/,Iu ia essm an> a~ ~sk Manager

/ -/ ~LCSHD

Donald Wink erActing Sector Director

LCSHD

Ian RgnnActing Country Director

LCC2C


Annex 1Project Design Summary

Guatemala: Second Social Investment Fund Project

Narrative Summary Key Performance Indicators Monitoring and Supervision Critical Assumptions and RisksCAS Objective: (CAS Objective to Bank Mission)

* Peace agreements arePoverty Alleviation a Percent of FIS resources * FIS Operational Manual sustained

invested in lowest quintile targeting mechanisms * Ability to actually reach thecommunities * Budget data and FIS share poorest

* Improve access of poor * Impact evaluation and * Project part of larger multi-communities to basic social beneficiary assessments sectoral effortand economic infrastructureand services

* Capacity building andsatisfactory arrangements forproject sustainability

Project Development and Global (Development Objectives to CASObjectives Objective)* Reach beneficiaries in the * Well-functioning poverty * Per FIS Operational Manual, * Ability to use better targeting

poorest regions targeting mechanism regular to reach poorest of the poorsupervision reports, training * Beneficiary's willingness to

* Contribute to a greater * Effective community activities, impact evaluation contribute/participatecommunity involvement in participation throughout the and beneficiary assessmentspoverty alleviation activities subproject cycle

* Increase access to schools, * MIS, supervision reports, * Adequate beneficiaryhealth posts, water supply and * Percentage of population impact evaluation participation and, thus,sanitation, as well as covered by minimum water ownership/operation andavailability of well- supply anid sanitation maintenance of subprojectsmaintained access roads facilities, as well as mileage

of available access roads

Contribute to an improved Reports on investment execution Quarterly reports, MOF and SIF * Avoid project duplication andnational public investment by 1/99; integration into IFML reports, training records dispersionsystem system of social fund investment * Improved coordination of

operations by 1/99; public project implementationemployees trained in projectevaluation by 6/99

Project Outputs (Outputs to DevelopmentObjectives)

* An efficient, transparent * Capability to better and faster * MIS (including key * Sufficient absorptive capacitydemand driven participatory handle subproject cycle performance indicators), audit of FIS (new programs andmechanism for financing through decentralized and supervision reports processes)basic infrastructure and operationsservices in the poorest * MIS, supervision reports * Sufficient impact of relativelyregions includes education * Number, size, and including key performance small program of supportand training, health, water performance of IOs indicators, audit andand sanitation, productive supervision reports * Avoidance of quantity at theinfrastructure and activities, * Number and amount of expense of qualityinfrastructure and materials, problem contracts and * Supervision reports and subprojectssome initial start-up costs completed subprojectsl/ activities of decentralized

offices


* Introduction of * MIS (including agreed * Commitment to* High technical quality and enviromnental assessment Key performance environmental issues

sustainability of mechanism indicators), MOE, MOM,subprojects MCTOP, beneficiary * Existence of proper policy

* Number and amount of assessments and impact and technical guidelines* Increased environmental infrastructure subprojects evaluation and advice from line

awareness and beneficiaries'J ministries and agencies..

* Meeting priority needs ineducation, health, watersupply and sanitation,bridges, access roads andother economicinfrastructure and services,in close policy andtechnical cooperation withthe line agencies

Project Inputs (Components) (Components to Outputs)

* Financing of small scale * Number and amount of * MIS (including agreed key * Community commitmenteconomic and social subprojects and performance indicators) to operation of completedinfrastructure, goods and beneficiaries by sector and and supervision reports subprojectsservices in poorest areas geographic area

* Training of central and * Supervision reports, * Careful design of courseslocal government agencies, * Type and number of evaluations and and selection ofFIS, NGOs and courses and participants beneficiary assessments participantsbeneficiaries in socialparticipation, operationand maintenance ofsubprojects

* Technical assistance for * Supervision reports, audit, * FIS management interestsupervision of subprojects, * Timely and effective monitoring, and evaluation in obtaining and usingexternal auditing, and implementation of these reports feedbackmonitoring and evaluation activities

i' Detailed numbers and amounts are provided and agreed in FIS' List of Key Performance Indicators (updated bi-annually), which isattached.

Page 18

Attachment to Annex 1SOCIAL INVESTMENT FUND

PERFORMANCE INDICATORS

IBRD - FIS Project

INDICATORW S ANNUAL GOALS1 Number and amount of requests declared Determines the effective demand for financing and % of number of projects: 70.0

eligible vs. Number of requests received. evaluates FIS's promotion capacity. % of amount of projects: 75.0

2 Number and amount of projects approved Determines the feasibility of effective demand for % of number of projects: 60.0by technical committee (feasible requests) financing and evaluates FIS's evaluation capacity. % of amount of projects: 60.0vs. Number of requests declared eligible.

3 Number and amount of projects contracted Determines FIS's project contracting capacity. % of number of projects: 60.0vs. Number of projects approved by % of amount of projects: 60.0technical committee.

4 Number and amount of projects initiated vs. Determines FIS's capacity to write advance checks % of number-of projects: 75.0Number of projects contracted. and give work initiation commands. % of amount of projects: 75.0

5 Number and amount of completed projects Determines FIS's project implementation capacity. % of number of projects: 60.0vs. Number of initiated projects. % of amount of projects: 60.0

6 Number and amount of projects with Determines the quality of the implementing staff and % of number of projects: 20.0delayed contracted implementation time vs. FIS's capacity to impose a fee due to uncompleted % of amount of projects: 20.0number and amount of projects in contracts.implementation.


= -IDICATOR PURPOSE ANNUAL GOALS7 Number and amount of projects in Determines the quality of FIS's implementing staff % of number of projects: 5.0

implementation that have been suspended and FIS's capacity of implementing execution % of amount of projects: 5.0vs. Number and amount of projects in finances.implementation.

8 Number and amount of completed projects Determines the capacity of FIS's cost system to % of number of projects: 10.0with an increase in contracted costs and determine the amounts of project contracting. % of amount of projects: 10.0number and amount of completed projects.

9 Productivity in FIS's project cycle: Determines the yield of staff responsible for Number projects by:A. Projects evaluated by sectoral manager. different stages of the project cycle in processing Evaluated/sectoral manager: 90B. Projects in implementation by external projects. Implementation/external supervisor: 15supervisor and monitoring manger. Implementation/monitoring manager: 60

10 Processing time for projects in project cycle: Determines time of FIS's response to social demands Average days between:number of average days between stages: in rural communities.A. Declared eligible-evaluated Declared eligible/evaluated: 60B. Evaluated-approved by committee Evaluated/approved by committee: 30C. Approved by committee-contracted Approved committee/contracted: 60D. Contracted-initiated Contracted/initiated: 30E. Initiated-completed Initiated/terminated: 180F. Completed-received Terminated/received: 45

11 Amount (total, advance payments) of Determines FIS's financial disbursement capacity % of disbursements:disbursements in the period and amount of with respect to processing of approved projects.projects: l Amounts contracted: 40.0A. Contracted Amounts in implementation: 60.0B. In implementation Amounts completed: 30.0,C . C om pleted__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

12 Average time lapse between signing of Determines FIS's capacity in the Areas of Number of days: 30contract and payment of advance Monitoring and Control and in the Area of Financing

and Administration.


-DICATOR N13 Average time between payment request for Determines FIS's capacity to meet needs in the Number of days: 45

advancement in work and payment for Areas of Monitoring and Control and in the Area ofrequisition of payment. Financing and Administration.

14 Amount of late disbursements according to Determines FIS's capacity to meet needs in the % of late payments: 20.0average established times and total of Areas of Monitoring and Control and in the Area ofcompleted disbursements. Financing and Administration.

15 Percentage of total amount of projects Determines the effectiveness of FIS's investment % poverty a: 20.0approved in each of the municipal poverty targeting. % poverty b: 20.0categories (a, b, c, d and e) % poverty c: 40.0

% poverty d: 12.0% povertvye: 8.0

16 Number and amount of projects approved in Detennines the effectiveness of FIS's investment % of number of projects: 15.0the micro-regions vs. number and amount of targeting. % of amount of projects: 15.0projects approved.

17 Number and amounts of projects approved Determines the effectiveness of FIS's investment % of number of projects: 30.0in indigenous municipalities vs. number and targeting with regard to ethnic groups. % of amount of projects: 30.0amount of projects approved.

18 Number and amounts of projects approved Determnines the effectiveness of FIS's investment % of number of projects: 15.0that are specifically oriented towards women targeting and verifies its gender policy. % of amount of projects: 15.0vs. number and amount of projectsapproved.

19 Number and amount of projects completed Verifies participation of stakeholders. % communities: 85.0according to intermediary organization: % csos: 5.0A. Community % municipalities: 10.0B. CSOs.

_ C. Municipality _


INDICATOR PURPOSE ANNUAL GOALS20 Contributions of beneficiaries in completed Verifies the cost estimation capacity of the Project % of projected and real monc contributions:

projects System and participation of stakeholders. 80.0A. Projected and real MONC contributions. % of projected and real contributions ofB. Projected and real contributions of local local materials: 80.0materials.

21 Amounts of local counterpart contributions Verifies the commitment and participation of % of local counterpart contributions: 8.0vs. total amount of projects. stakeholders.

22 Maximum proportion of projects contracted, Verifies FIS's capacity to administer the % a: 0.0by environmental category (a, b, c and d) environmental requirements of contracts. % b: 40.0

% c: 50.0% d: 10.0

23 Number of completed projects with negative Monitors the fulfillment of the environmental clause % Completed projects with negativeenvironmental impact vs. number of of contracts. environmental impact: 5.0completed projects.

24 Percentage of total of completed projects Monitors the fulfillment of the environmental clause % Completed projects that met thewhere the implementing staff have met the of contracts. environmental criteria: 95.0environmental criteria.

Page 22

Annex 2Project Description


Proiect Description

The total cost of the project is estimated at US$64.0 million, of which the Bank would finance US$50.0 million.The project would be implemented over a four-and a half year period starting in 1999, and would have threecomponents:

Project Component 1 - US$56.5 million - Community-Based Subproiects: (1) Social and EconomicSubproiects. The project would support a wide range of community-based demand-driven proposals including pre-investment feasibility studies for small-scale infrastructure and services subprojects, such as schools, health posts,water supply, sanitation and latrine systems, bridges and access roads, cultural heritage and productive activities.The subprojects described above and other subprojects agreed with the Bank will be financed based on targetingand selection criteria and procedures set out in the Operational Manual. Government counterpart funds would beused to finance salaries and other operating cost of the FIS. Government counterpart funds would be used tofinance salaries and other operating costs of the FIS.

Project Component 2 - US$2.0 million - Community Training. The project would provide training linked toindividual subprojects for beneficiaries, local staff of line ministries, municipalities, in participatory planning,problem identification, subproject prioritization, subproject implementation and supervision, subproject operationsand maintenance, cost recovery where appropriate, and environmental and gender issues.

Project Component 3 - US$5.0 million - Institutional Development. To improve the quality of subprojects andFIS responsiveness to beneficiary communities, the project would support consultancies and staff training topromote participatory planning, environmental concerns, community maintenance of subprojects and efforts toincrease the participation of women in FIS subprojects. The project would also finance the decentralization of theFIS, including training of the staff in 22 departmental offices, MIS improvements in support of decentralization,and related staff training; annual external ex-post reviews and procurement audits of completed subprojects,beneficiary assessments, and a project impact evaluation at the conclusion of the project; a modest amount of MISand other office equipment, and vehicles for subproject supervision and decentralized operations; and through FISand interagency coordination and collaboration with Bank-supported sector work on poverty. This will focus onthe identification of vulnerable groups, interagency coordination, monitoring and evaluation.

Front end Fee - US$0.5 million


Annex 3Estimated Project Costs


Project-Component Local Foreign Total-----------------------US $ million--------------------

A) Community- Based Subprojects 56.5 0.0 56.5B) Community Training 2.0 0.0 2.0C) Institutional Development 1.0 5.0

Total Baseline Cost 62.5 1.0 63.5Physical and Price Contingencies'

Front-end Fee 0.5 0.5Total Project Cost 62.5 1.5 64.0

There are no physical or price contingencies because the total number of subprojects financed by the project will bedetermined by the cost and number of subprojects requested, and will be based on the funds available.


Annex 4Economic Analysis


Methodology and Assumptions.

The demand-driven nature of the project implies that communities will determine the nature and scope of eachsubproject funded. Accordingly, neither benefits nor costs can be completely identified ex ante and it is notpossible to estimate an ex ante overall internal economic rate of return for the project as a whole norindividually for the potential subprojects. Subprojects to be funded under the proposed project would, ingeneral, be similar to those subprojects funded and completed by FIS since 1994. Project monitoring ofindividual subproject costs and the results of annual ex-post evaluation of completed subprojects would be usedto document project costs and benefits and internal cost-efficiency analyses could be made based on acomparison across regions of the relative cost and benefits of similar subprojects including cost perbeneficiary. The unit price system used to estimate the cost of individual subprojects by project type will beuseful in this analysis.

Complementarity among community subprojects makes a precise overall quantitative analysis (i.e., economicIRR calculation) difficult. The synergy created from the interactive effects of several subprojects within anymunicipality is difficult to capture and equally difficult to quantify. Similarly, spill-overs and spill-ins, in theform of incremental benefits or costs which are unintended, yet nonetheless result from the undertaking of thesubproject, must also be recognized in the economic analysis, but are both difficult to identify and quantify.

Community subprojects foster the creation of social capital. The demand-driven imperative of the subprojectsrequires that communities identify and prioritize their most pressing needs. The FIS project preparation staffwill assist the beneficiaries, NGOs and other contractors, local governments and local and state organizationsto examine subproject proposals to confirm their feasibility and verify their compatibility with overallcommunity development objectives. Members of the community will be expected to assume responsibility fora pre-defined percentage of the financing of each subproject, either in cash, in-kind, in labor or all three.Qualitative recognition of these benefits is vital to a full understanding of the social and economic impact ofthe individual subprojects. However, the benefits attained from reinforcing social capital in the beneficiarycommunities will not be easy to quantify within the framework of estimation of internal economic rates ofreturn. The analysis is complicated further by the difficulty of documenting community and beneficiarycontributions, many of which are in-kind labor and/or other services. The FIS has agreed to develop a morecomprehensive system for recording both planned and actual beneficiary contributions.

Economic Efficiency of Subprojects.

Infrastructure and social (including cultural heritage) subprojects will be analyzed under the least cost, bestalternative criteria. Several aspects of project design help to ensure that infrastructure and social subprojectsundertaken represent the least-cost, best alternative. First, the demand-driven nature of each subproject permitsscarce resources to flow where they are most needed, thereby improving efficiency in the allocation.Community participation and coordination with local governments and local organizations ensures that thechosen subproject is the best alternative for the local community. Second, the use of standard technicaldesigns, including unit cost parameters, for the most common type of subprojects ensures that least cost modelsare adopted and decreases search and information costs by providing communities with established patterns ofinitiating and completing a subproject. The FIS will continue to maintain and update its regional cost database. Third, the contracting procedures prescribed in the Operations Manual require local shopping orcompetitive bidding on the majority of subprojects; the FIS will solicit at least three bids for each subproject


and subsequently choose the least-cost bid. Finally, annual ex-post evaluations (including economicevaluations) of an agreed sample of subprojects would be conducted and their recommendations included in theannual project implementation reports and incorporated in the annual operating plan for the following year.


Annex 5Financial Summary


Implementation Period Operational Period1999 2000 2001 2002 2003 Total 2004 2005 2006 2007 2008

Project Costs (in US$ millions)Investment Costs 9.9 14.1 18.6 14.1 2.3 59 0.0Recurrent Costs 1.2 1.2 1.5 1.1 0 5 0.8 0.8 0.8 0.9 0.3

Total 11.1 15.3 20.1 15.2 2.3 64 0.3

Financing Sources (as % of totalproject costs)

IBRD 77 78 78 79 83 78 0 0 0 0 0Central Government 16 14 14 13 9 14

User Fees/Beneficiaries 7 8 8 8 9 8Total 100% 100% 100% 100% 100% 100%

Main assumptions: Beneficiaries will demonstrate commitment and ownership of the subprojects by financing asignificant portion of the operation and maintenance of the investments, which will guarantee their sustainability.Central and local government contributions which are subject to severe revenue-generating restrictions would bekept to a minimum and cannot be expected to exceed the overall percentage of counterpart funding. Theimplementation period will be four years with six additional months for disbursing on outstanding commitments.The FIS expects that they may commit and disburse the full loan at a faster rate, possibly in two years, depending onwhether other cooperating agencies actually approve loans which are currently being prepared and negotiated.

The FIS is expected to continue to receive financing from other international organizations, including IDB and KfW.Since all external co-financing is parallel rather than joint, no adverse effects on the Bank project would result if oneor the other of the external co-financing arrangements were to change. The Bank will monitor the overall amount ofcommitments from co-financiers as part of its project monitoring and supervision activities and will support the FISwhen requested to do so in its efforts to coordinate project supervision missions and work plans with other donors toensure consistency among programs and avoid duplication and overlap.

Other assumptions: Recurrent costs have been calculated on the basis of FIS recurrent expenditures to date. Theassumption is that the FIS will continue to be the executing agency throughout the project and the program will notbe transferred to another agency. It also assumes that there will be no major reorganization or change in the staffinglevel or character of FIS operations and that as regional offices are expanded, staff in the central office will bereduced proportionally so that FIS operating costs will not rise. These projections also assume that counterpartfinancing will be available, the financing of recurrent costs, which will be a condition of some subprojects, will beassured, and that personnel will be available to staff schools and health posts and other subprojects.


Annex 6Procurement and Disbursement Arrangements


Procurement

Procurement methods (see Table B). Procurement for the proposed project would be carried out inaccordance with the World Bank guidelines for the procurement of goods, works, and services usingstandard contract documents acceptable to the Bank: Guidelines: Procurement under IBRD Loans andIDA Credits, January 1995, revised January/August 1996 and September 1997; and Guidelines: Selectionand Employment of Consultants by World Bank Borrowers, January 1997, revised September 1997. TheFIS would manage all procurement actions under the project based on agreed procurement proceduresdescribed in the FIS Operations Manual.

Subprojects. The FIS would finance small subprojects in poor rural communities such as theconstruction and/or rehabilitation and equipment of primary schools, health posts, small agriculturalstorage facilities, water and sanitation systems including latrines, small bridges and feeder roads, andother subprojects which may be agreed between the Bank and the Borrower. Because of the small sizeand scattered location of the subprojects, no International Competitive Bidding (ICB) is anticipated. Theaverage cost of these subprojects is less than US$50,000 equivalent and many of them are located inremote rural areas. To the extent possible, contracts for works under subprojects would be grouped inpackages of US$150,000 equivalent or more. Works under subprojects costing more than US$150,000equivalent would be contracted using National Competitive Bidding procedures (NCB). Contractsestimated to cost between US$50,000 and US$150,000 equivalent, up to a total of US$ 20.0 millionequivalent, would be awarded on the basis of written quotations obtained by the FIS from at least threequalified bidders which are opened and evaluated simultaneously. In the case of contracts forsubprojects with an estimated cost of less than US$50,000 equivalent, up to a total of US$19.0 millionequivalent in remote rural locations, where the three quotation procedure described above is not feasible,direct contracting would be permitted either with the only available or interested contractor, a localNGO, or with the community as contractor provided that the community has the legal capacity to enterinto contracts or agreements. The provisions for Direct Contracting, Local Administration, orCommunity Participation outlined in Sections 3.07, 3.08, and 3.15 of the Procurement Guidelines wouldapply. In order to ensure fair pricing and cost efficiency, construction costs would be compared to aregional unit price system which is updated periodically.

Goods. Goods to be procured under the project that are not included in the subprojects described abovewould consist of vehicles, computers and other office equipment, education, promotion and trainingmaterials. Because of the small quantities of goods to be procured and the nature of these purchases, noICB is anticipated. Contracts for goods estimated to cost US$50,000 equivalent or more would beprocured using NCB procedures. International shopping would be used for procurement of computersand vehicles estimated to cost less than US$50,000, up to a total of US$0.3 million equivalent. Othergoods estimated to cost less than US$50,000 equivalent, up to a total of US$0.3 million equivalent,would be procured using national shopping on the basis of written quotations obtained from at least threequalified suppliers.

Consultant Services. Consultant services would be procured using IBRD Consultant Guidelines andstandard contracts reviewed and approved by the Bank. Contracts for consultant services for theinformation system, project monitoring and evaluation, external audit, and training programs would beawarded on the basis of Quality Cost-Based Selection (QCBS). Contracts for other consultant servicesfor limited assignments and others where teams of consultants are not required would be awarded toaccording to the provisions in Chapter V of the Consultant Guidelines. A plan for consultant services


would be included in the annual operating plan with draft terms of reference, the estimated cost of eachcontract and procurement method to be used.

Prior Review Thresholds. Prior review by IBRD would be required for: (a) procurement arrangementsdescribed in Appendix 1 of the Bank's Guidelines for Procurement under IBRD Loan and IDA Credits,January 1995, revised in January and August 1996 and September 1997; (b) the first two contracts eachyear for works estimated to cost more than US$500,000 equivalent, and the first two contracts for goodsestimated to cost more than US$100,000 equivalent; (c) all contracts for vehicles and computerequipment whose total cost exceeds US$100,000; and (d) for consultant services, all terms of reference,as well as all contracts for individual consultants which exceed US$25,000 equivalent, and all contractswith firms when the contract value exceeds US$50,000 equivalent. All other contracts would be subjectto ex-post review. Prior review of an estimated 30 percent is expected under these arrangements.Furthermore, audit arrangements for the project include annual ex-post evaluations of a sample ofapproximately 10 percent of completed subprojects and subproject procurement audits linked to theannual financial audits, both conducted by external auditors. In addition, Bank supervision missions anadsimilar project review procedures used by other donors such as IDB and KfW will complement theBank's review of procurement performance.

Disbursement

Allocation of Loan Proceeds (see Tables D & E). The proposed IBRD loan would be disbursed over aperiod of about four and a half years, to be completed by December 31, 2002. The project closing datewould be June 30, 2003 (i.e. six months after the completion date). Disbursements would be inaccordance with the guidelines set out in the IBRD disbursement handbook. Disbursements would bemade against the following categories of expenditure: (a) Subprojects (up to 84%); (b) Goods, includingvehicles and parts, computers, communications and other office equipment and related materials (100%of foreign expenditures and 75% of local expenditures); (c) technical assistance, training, workshops,study tours, audits and evaluations (100%). Retroactive financing of up to US$5.0 million equivalentwould be permitted for eligible expenditures in all categories incurred after June 5, 1998, since the earlierloan was fully disbursed in mid-1998, and a substantial pipeline of elegible subprojects has built up.

Use of Statements of Expenses (SOEs). Disbursements would be made on the basis of fulldocumentation for all expenditures made under contracts requiring prior review by the IBRD, asindicated in Table C; and contracts whose value would be raised above the prior review limits as a resultof amendments. For all other expenditures, disbursements would be made against SOEs for whichsupporting documents would be maintained by the FIS and made available on request to IBRD andextemal auditors for review.

Special Account. To facilitate project implementation, the Borrower would establish a special accountin the Bank of Guatemala with an initial deposit of US$3.3 million equivalent, corresponding to anaverage of four months' expenditures expected to be paid from the account. The Borrower will submitreplenishment applications on a monthly basis or when 25 percent of the authorized allocation has beenused, whichever occurs first. The replenishment applications will be supported by the necessarydocumentation: a bank statement of the special account and a reconciliation of the special accountagainst Bank records. The special account would be audited in conjunction with the annual financialaudit of the project.

Audits. FIS would have the records and accounts of the project for each fiscal year, including the specialaccount, audited by an independent and qualified external auditors in accordance with generally acceptedinternational auditing standards and procedures, under terms of reference satisfactory to the Bank.Certified copies of the audit reports would be furnished to the Bank no later than six months after the endof the FIS fiscal year. In addition, an annual procurement audit would be prepared by April 30 and


review the experience of the previous year. It would include a sample of subprojects in execution andcompleted by April each year, and would examine all aspects of the subproject cycle from identificationthrough completion. Auditors would review the individual contracts, ascertain compliance with theterms of the contracts and the Bank's procurement guidelines, inspect the progress of works andreconcile physical progress with expenses incurred.

FIS Financial Management Systems and Conversion to the LACI Disbursement System. FIS has acomprehensive budget and accounting system which provides detailed information by cost category andproject component. The system is designed to satisfy government accounting requirements, but does notautomatically generate project financial statements, which must be prepared separately. An accountingmodule which generates project financial statements was developed and implemented in June, 1998 forthe IDB project, and will be extended to the new Bank project within three months after effectiveness.The FIS has satisfied the financial audit covenant of the first project, and audit reports for the first FISproject indicate that the financial management system is satisfactory. The FIS will implement a newprocedure to document community contributions which will be reviewed with the Ministry of Financeand external auditors.

Annex 6, Table A: Estimated Loan Disbursements by Category and Fiscal Year(In Bank Fiscal Years and millions of US$ equivalent)

Annual Disbursements by FY 99 FY 00 FY 01 FY 02 FY 03 In millions and as %Fiscal Year of Total Loan

Community-Based 7.0 11.3 15.0 11.3 1.9 46.5 93SubprojectsCommunity Trainina 0.3 0.3 0.4 0.5 0.0 1.5 3Institutional Development 0.7 0.3 0.3 0.2 0.0 1.5 3Fee 0.5 0.0 0.0 0.0 0.0 0.0 1

Cumulative Disbursements 8.5 20.4 36.1 48.1 50 50(As % of loan total) 17 40.8 72.2 96.2 100% 100%


Annex 6, Table B: Project Costs by Procurement Arrangements(in US$ millions)

Expenditure Category Procurement Method Total Cost(including

contingencies)c

NCB Othera N.B.FbCommunity Subproiects 5.5 51.0 - 56.5

(4.5) (42.0) (46.5)

Goods -- 0.6 -- 0.6(0.6) -- (0.6)

Technical Assistance & Trainin2 -- 2.4 0.8 3.2(2.4) -- (2.4)

FIS Operational Costs -- -- 3.2 3.2

Total 5.5 54.0 4.0 63.5(4.5) (45.0) -- (49.5)

a. Community subprojects, shopping and direct contracting; Goods, national and international shopping; Technicalassistance = consultant servicesb N.B.F. = Not Bank-financed

c. Excluding fee of US$0.5 million


Annex 6, Table C: Thresholds for Procurement Methods and Prior Review

Expenditure Contract Value Procurement Contracts Subject toCategory (Threshold) Method Prior Review / Estimated

Total Value Subject toPrior Review'

CommunitySubproiects(Works and related <US$50,000 National Shopping First two contracts eachgoods) and Direct year exceeding

Contracting US$500,000/US4.0 million

>US$50,000- International and<150,000 National Shopping

(quotations from 3competitive bidders)

>US$150,000 NCB

Goods(other than thoseunder communityprojects)Other than computers >US$50,000 (NCB) First two contracts eachand vehicles <US$50,000 (National Shopping) year exceeding

US$ 1 00,000/US$800,000

Computers and >US$50,000 NCB All contracts exceedingvehicles <US$50,000 (International US$100,000/US$500,000

Shopping)

Consultants ServicesInformation system, QCBS and individual All individual contractsproject monitoring and consultants >US$25,000, and allevaluation, external contracts for firmsaudit, and training >US$50,000/US$700,000programs

Other services Selection Based onQCBS

Estimated total value of contracts subject to prior review: US$6.0 million (12percent)

Prior review by IBRD would be required for procurement arrangements described in Appendix 1, paragraph Iof the IBRD Procurement Guidelines, in addition to those described here.


Annex 6, Table D: Allocation of Loan Proceeds

Expenditure Category Amount in US$ Financingmillion Percentage

Community Subprojects: 46.5 Up to 84% of thetotal subproject cost

Small social and economic infrastructuresubprojects, including equipment, technicalservices

Goods: Vehicles, equipment and goods not 0.6 100% of foreignincluded in the Community Subproiects. expenditures

75% of localexpenditures

Community Training: 1.5 100%

Institutional Development of FIS 0.9 100%

Fee .5Total 50.0


ANNEX 6, TABLE EEstimated disbursements

By component/expenditure categories / and financing source by fiscal yearIn US$ million

PROJECT COMPONENTS 1999 2000 2001 2002 2003 TOTALExpenditure CategoriesA. COMMUNITY SUBPROJECTS

A. 1 Community SubprojectsIBRD 7.0 11.3 15.0 11.3 1.9 46.5Government of Guatemala 0.8 1.2 1.6 1.2 0.2 5.0Beneficiaries 0.8 1.2 1.6 1.2 0.2 5.0TOTAL 8.6 13.7 18.2 13.7 2.3 56.5

B. COMMUNITY TRAININGB. I Technical Assistance, Training and

Workshops .IBRD 0.3 0.3 0.4 0.5 1.5Government of Guatemala 0.1 0.1 0.1 0.2 0.5Beneficiaries 0.0 0.0 0.0 0.0 0.0TOTAL 0.4 0.4 0.5 0.7 2.0

C. INSTITUTIONAL DEVELOPMENTCl. Goods _

IBRD 0.5 0.1 0.0 0.0 0.6Government of Guatemala 0.0 0.0 0.0 0.0 0.0Beneficiaries 0.0 0.0 0.0 0.0 0.0TOTAL 0.5 0.1 0.0 0.0 0.6

C.2 FIS Operational Cost l


C.3 Technical Assistance, Training andWorkshops


Fee IBRD 0.5 0.5

-FINANCING; SOURCE:IBRD 8.5 11.9 15.7 12.0 1.9 50.0Government of Guatemala 1.8 2.2 2.8 2.0 0.2 9.0Beneficiaries 0.8 1.2 1.6 1.2 0.2 5.0

-TOTAL 11.1 15.3 20.1 15.2 2.3 64.0


Annex 7Project Processing Budget and Schedule


A. Project Budget (US$) Planned Actual(At final PCD stage)

US$40 million US$50 million

B. Project Schedule Planned Actual(At final PCD stage)

Time taken to prepare the project (months) 13 13First Bank mission (identification) departure 5/97 5/97Pre-appraisal mission departure 6/98 6/98Negotiations 9/98 10/98Planned Date of Effectiveness 3/99 1/99

Prepared by: FIS

Preparation assistance: PHRD grant (TF 025492)

Bank staff who worked on the project included:

Mana2ement Team:Charles Griffin Lead Specialist for Social Protection, LCSHDAna-Maria Arriagada Country Sector Leader, LCSHD/LCC2CJose-Roberto Lopez-Calix Resident Representative, LCCGUSally Zeijlon Country Officer, LCC2C

Core Team:Juliana Weissman Task Manager/Sr. Operations Officer, LCSHDWillem Struben Task Mgr. to 10/97, Sr. Operations Officer, LCSHDLaura Frigenti Peer Reviewer/Economist, AFTIIGita Gopal Peer Reviewer/Operations Officer, AFTH4Julie Van Domelen Peer Reviewer/SIF Specialist, HDDMario Marroquin NGO Specialist, LCCGUSteve Maber Water & Sanitation Engineer, LCCHNKarla McEvoy Environmental Specialist, LCSHDLerick Kebeck Project Assistant, LCSHDSarah Quinn Project Assistant, LCSHDAracelly Woodall Project Costing and financing, LCSHDReynaldo Pastor Lawyer, LEGLAMaria Lucy Giraldo Procurement Specialist, LCSHD


Technical Suvoort and/or Review:

Michael Fowler Country Disbursement Officer, LOAELJaime Roman Principal Procurement Specialist, LCOPREfraim Jimenez Procurement Specialist, LCOPRWilliam Partridge Lead Social Development Specialist, ESSDJuan Martinez Social Specialist, ESSDMaria Elena Castro Sociologist, ESSDFlorencia Castro-Leal Economist, PRMPOEveling Bermudez Cultural Heritage Issues, ESDVPCarlos Chamorro ProcurementMartin Ochoa Environmental IssuesHilda Caldera Community DevelopmentJoke Oranje WID/Social AssessmentElisabeth Kiorboe Beneficiary AssessmentAnna Webb AdministrationEmesto Betancourt Organizational ManagementArnoldo Caraccioli EngineeringErasmo Vargas FinanceCarlos Lacayo PlanningHans Haan Community BanksSven Hertel Roads EngineeringBank Teams working on various projects in Sector issues

Guatemala.


Annex 8Documents in the Project File*


A. Project Implementation Plan

B. Operational documents and analysis provided by FISDocumento Bdsico del Proyecto, Segunda Operaci6n del Banco Mundial. Guatemala, May 26, 1998.Informe de Resultados - BIRF, Acumulado al 30 de abril de 1998. Guatemala, May 4, 1998.Informe Ejecutivo de Producci6n, Gerencias Operativasy Sedes Departamentales, Periodo Enero -

Abril 1998. Guatemala, May 14, 1998.Decentralizaci6n de las Subsedes Departamentales. June 1998.Hallazgos, Analysis y Resultados del Marco Operativo de las Relaciones del Fondo de Inversion Social

con las Organizaciones de la Sociedad Civil. Guatemala, January 1998.Anexo a la Propuesta Tecnica Aumento de la Eficienciay Calidad en la Gesti6n del Fondo de Inversi6n

SociaL Guatemala, February 1998.Plan de Accion Inmediata del 30 de Abril al 31 de Diciembre de 1997. $ Guatemala, August 1997.Plan de Acci6n Inmediata, Informe de Avance al 15 de Octubre de 1997. Guatemala, November 1997.Presentaci6n Bancos Comunales. May 1998.Control y Seguimiento de Proyectos en Fase de Ejecuci6n.Instructivo para Supervisores de Proyectos de Infraestructura del Fondo de Inversion Social.

C. Studies provided by other sourcesEstudio de Impacto Socialy Econ6mico del Programa de Bancos Comunales del FISy su Expansion

en Guatemala, Reporte Final Cuantitativo, Generis Latina. Guatemala, January - March 1998.CARE Guatemala Information Booklet: General Information, Women's Village Banking Program, FIS

Report. November 1995.Perfil de Las Organizaciones No Gubernamentales en Guatemala. Foro deCoordinaciones de ONG de

Guatemala Guatemala, 1998.

Informe de Evaluaci6n Anual y Preparatoria. Arnold Caracciolo M., Consultant. Guatemala, May 4,1997.

Informe de Revision T&enica Carlos Lacayo, Consultant. May 1997.Estudio del Papel de la Mujer en los Proyectos FIS, Informe General. Joke Orange, DHV Consultants.

October 10, 1997.M6dulo Ambientalpara las Comunidades. Hilda Caldera, Consultant. Guatemala, April 1998.Evaluaci6n de Procedimientos, Criterios Ambientales, y Mecanismos de Evaluaci6n Ambiental

Utilizados por el Fondo de Inversi6n Social. Martin Ochoa, Consultant. Guatemala, March 1998.Sistema de Monitoreo CalidadAmbiental de las Inversiones del Fondo de Inversi6n Social. Martin

Ochoa, Consultant. Guatemala, March 1998.La Relevancia y la Efectividad de los Proyectos del FIS desde la Perspectiva de los Beneficiarios y de

los Agentes Ejecutores. Elisabeth Kiorboe, Consultant. May 3, 1997.


Annex 9Social Assessment and Indigenous Peoples Participation


Socioeconomic Conditions of Target Population

Social assessment has been an integral element of the ongoing efforts of the FIS to increasecommunity participation and improve targeting and subproject quality. These efforts have beenadvanced by several assessments and studies undertaken during the preparation of the project (see Annex8). The findings are consistent with other social assessments which have been completed for otherprojects in Guatemala. Educational attainment of the poor population over fifteen years of age inGuatemala is lower, at less than two years, than in any other country in the region, and the illiteracy ratein rural areas, at 66 percent, is the highest. The inadequate coverage of the health system is demonstratedby the high infant mortality rate and low vaccination rates that result in periodic epidemics ofcontrollable communicable diseases.

The living conditions and the nature of the problems faced by poor communities do not vary withdifferences in language and cultural heritage however these problems are exacerbated by the social andcultural isolation experienced by the indigenous groups because of language and cultural differences.The higher prevalence of poverty found in the indigenous communities when compared to non-indigenous population groups is one of the key indicators of their disadvantaged status in Guatemala.Guatemala's indigenous population represents almost 70 percent of the poorest income quintile and only8 percent of the highest. Children who live in the indigenous regions and whose mothers have noeducation experience malnutrition rates which are forty percent higher than in urban areas.

Women are twice as likely to be poor as men and rural women, particularly those in indigenouscommunities, are among the most disadvantaged citizens of Guatemala. They often work 18 - 20 hours aday in agriculture, child care, food preparation, gathering fuel wood and water, and other related work inthe house and on the farm. They have lower levels of educational attainment than men and are highlydependant on their fathers and husbands for contact with the world outside their homes and immediatecommunity of relatives and friends. Although some programs such as improved stoves, health andnutrition services, training of midwives and community banks are directed to women, the FIS has onlyrecently begun to develop a strategy to increase the participation of women in FIS subprojects and toinclude women in community-based training activities beyond those mentioned above.

Targeting

The FIS has updated its poverty map in order to target its investments more closely to the mostvulnerable population groups in the country. Targeting has shifted from the use of a poverty line to anindex of unsatisfied basic needs because the latter method, using 1994 census data, permits the FIS to usevery specific disaggregated information on living conditions - housing, access to water and sanitation,basic education and economic dependency levels - in each of the country's 330 municipalities andachieve a precision which is not possible using a poverty line. A weighted index was created to rankmunicipalities by poverty level which identifies the most deprived communities within each municipality.The proportion of the country's poor population which lives in each area serves as the basis for the initialdistribution of FIS resources each year. This methodology will be accompanied by a policy of"graduating" those communities which have already satisfied certain basic needs such as health, waterand sanitation and basic education. This will permit the FIS to shift an increasing proportion of itsresources to those communities which are having most difficulty moving out of poverty.


Participation and Community Organization2

Participation of the community throughout the subproject cycle has been uneven and varies fromregion to region depending on the stage of advancement in community organization achieved at the locallevel. Isolation and especially poor roads make community participation more difficult in areas such asAlta and Baja Verapaz and Quiche. Women's participation is also very limited, particularly in decision-making; it is not traditional for women to participate in or speak out at community meetings. Theirisolation is increased in cases where they speak only a native language and/or are illiterate.

Community participation in problem identification and definition of priorities though joint decision-making is often influenced by the level of support provided by intermediary agencies such as NGOs,municipalities, the church etc.. Difficulties encountered in attempting to comply with FIS technical andfinancial requirements for subproject preparation may have biased some communities towards theselection of less complex subprojects which may not be their real priority. Up to 1998, 60-70 percent ofFIS's investments were allocated to subprojects of low complexity such as school construction andequipment.

Beneficiary Contributions

The communities contribute materials and unskilled labor during subproject execution; however,they have no control over subproject executors or supervisors who are contracted by the FIS. Manycommunities are not aware of their right to reject works which are not satisfactory. Communitycontributions to subprojects financed by the FIS have been estimated at an average of about 11 percent oftotal investment costs, however, empirical evidence indicates that the contribution rate is much higher.The recording of actual contributions has not been accurate and complete. Moreover, accounting forcommunity contributions does not include community expenditures on subproject preparation (trips,papers, etc.) nor women's labor when they substitute for men. The FIS procedures for recording andincluding community contributions will be reviewed and improved under the new project.

Project Sustainability

Participation in subproject operations and maintenance can be problematic, particularly whenarrangements for subproject sustainability have not been agreed during project preparation. Communitiesoften need training in order to be able to assume responsibility for operations and maintenance. Thistraining needs to be coordinated with a more intensive effort to build community organizations whichendure. In order to receive FIS financing, communities have constituted an organization with temporarylegal status called an EFIS3. This mechanism has been used for administrative convenience but has hadlimited impact on community organization; in some cases, it has overlapped with and even weakenedexisting organizations. The Community Organization Program (POC) created by the FIS to supportcommunity organization and enhance participation is helping to improve this situation. The Unit incharge of the program is supporting the process for the EFIS to transform into permanent legal entitiesand keep operating after individual subprojects have been completed. There are an estimated 2,500 EFISwith legal status and about 19,000 grassroots organizations all over the country so there is tremendouspotential to strength local governance through these existing entities.

Social Strategy

2 From "La Relevancia y la Efectividad de los Proyectos del FIS desde la perspectiva de los beneficiarios y de losagentes ejecutores", May, 1997, Elizabeth Kiorbe.3 Entidad del Fondo de Inversion Social -Organization of the Social Investrment Fund which is given legal status.


FIS is now involved in the final stages of an effort to: (i) simplify procedures for the entiresubproject cycle (new operations manuals are being finalized); (ii) continue to target poor rural areas andincrease the involvement of women and youth through new initiatives; (iii) broaden the subproject menuto allow communities greater discretion in their prioritization and selection of subprojects which reflectlocal conditions and respond to local needs; and (iv) strengthen community organization to enhancecommunity participation and subproject sustainability and ensure that existing community organizations.attain permanent legal status. These activities which are designed to enhance the participation ofindigenous and non-indigenous community groups in the formulation, implementation and evaluation ofnational, regional and local development plans which may affect them directly are consistent with theBank's O.D. 4.20 and the Intemational Labor Organization Accord Number 169. They are alsoconsistent with the Country Assistance Strategy and the Govemment's approach to poverty alleviation.

Institutional Development and Participation Plan for Indigenous People, Women and Youth

The institutional development program in support of strengthening community participation,increased participation of women and indigenous groups and efficiency improvements will have severalthrusts. The simplification of the subproject identification and preparation procedures outlined in thenew Operations Manuals will facilitate the participation of the poorest communities (primarilyindigenous groups) that have limited institutional capacity and subproject design skills. Manuals fortraining in subproject operations and sustainability will help local communities to continue theircapacity-building after the subproject execution phase has ended. Subprojects which are targetedspecifically to women such as midwifery training, organization of women for school feeding programs,improved stoves and public laundries and training programs for the institutional development of women'scommunity organizations will receive special attention from the FIS.

The decentralization of the FIS will delegate more decision-making authority to the regional offices,intensify the involvement of communities with regional, rather than central offices and staff of the FISand reduce the amount of time each subproject is in the pipeline. It will allow the regional offices torespond to local conditions including language and cultural differences in the indigenous communitiesand coordinate with local govemments more closely.

Staff recruitment efforts in the indigenous areas now give priority to bilingual and multilingual staff(including women) who have the potential to improve relations with the indigenous groups and increasethe participation of indigenous women. The open subproject menu will allow communities andsubgroups within communities such as women and youth to identify subprojects that are of particularinterest to them.

In addition, the project will support workshops for FIS staff, community-based training of women'sgroups to help them achieve a sustainable level of autonomy in the management of the affairs of theirvarious organizations, identification and testing of new instruments to promote the participation ofwomen based on experience in other countries, visits by FIS staff to successful programs in othercountries, construction of a map for targeting community training efforts in each region that providesinformation on the capacity levels of local organizations, and exchanges of ideas and information withother institutions in Guatemala.

The young people of Guatemala have been badly affected by the long civil war that reducedopportunities for education and employment. The poor and indigenous youth in rural areas areparticularly affected. Several FIS programs such as self-employment, training centers and support forsmall businesses have benefited young adults. However, there is a need to do much more; therefore FISwill design a strategy to target youth specifically as part of the project.


Inter-institutional coordination will permit the FIS to achieve a multiplier effect by ensuring that FISinvestments complement rather than overlap with or duplicate those of the local governments, lineministries, and NGOs and increasing their participation in the FIS subproject cycle by developingagreements with them on regional and community work plans and subproject supervision andmaintenance arrangements. Project monitoring and evaluation indicators will be used to measureprogress in increasing the participation of women and youth, in reaching and working effectively withindigenous groups and communities and making inter-institutional coordination agreements operable.

The Role of the NGOs

Presently there are in Guatemala around 300 umbrella-organizations integrated in nine consortia thathave developed strong institutions with capacity to promote and develop their own projects. Since 1992the umbrella-NGOs have established a third tier organization, the Guatemalan NGOs CoordinationForum (El Foro). This entity has gained a strategic position in the political and economic life of thecountry. Until recently most NGOs concentrated on human rights issues particularly in Alta Verapaz,Huehuetenango, El Quiche and San Marcos, the departments most affected by the civil war violence.

More recently NGOs involved in economic development have expanded their work to includeactivities in education, health, agriculture, environment, water and sanitation, etc. Almost 90 percent ofthese NGOs received financing from international agencies. Only 98 organizations recognized claimed tohave access to national resources; and only 34 claimed to have received resources from social funds andmunicipal funds. In the case of FIS this relationship has been very slow to develop because according toits mandate, it has the capacity to create its own direct executors, the EFIS (FIS enterprises). However,NGOs can play a more important role in the future providing local support to train communities andenhance grassroots organizations.


Annex 10History and Accomplishments of the Guatemalan Social Investment Fund


This annex provides a brief summary of the history and accomplishments to date of the GuatemalanSocial Investment Fund (Fondo de Inversion Social - FIS).

Background

The Fund is an autonomous institution of the Guatemalan government with independent legal andfinancial status. It was created by Congressional Decree No. 13-93 on May 4, 1993 for a duration ofeight years for the purpose of investing in activities which would improve the living conditions of thepoor population of rural Guatemala. In order to accomplish this, the Fund has mobilized resources fromthe national and international community and targeted its investments to subprojects which satisfy thebasic needs of rural Guatemalan communities. The World Bank supported the establishment of the fundwith a US$20 million loan which was approved by the Board of Directors in November, 1992.

The Fund is governed by a five-person Board of Directors and managed by an Executive Directorwho is appointed by the President of the Republic. The Fund was originally organized along the lines ofthe subproject cycle, with departments of promotion, evaluation, subproject implementation, control andfollow-up but this created problems of discontinuity and lack of coordination as subprojects movedthrough the subproject cycle. In 1997, a reorganization established six new departments along sectorlines - water and sanitation, education, health, social infrastructure, productive subprojects andenvironment. Each department follows subprojects from identification through completion, thusensuring continuity, technical support and quality control which is well-coordinated and consistentthroughout the subproject cycle.

As the portfolio of the FIS has grown, it has become increasingly difficult to manage all aspects of itsoperations from FIS Headquarters in Guatemala City. In 1997, ten new departmental offices were addedto the existing eight, additional staff were recruited, and plans were developed to modify operatingprocedures in order to alleviate the congestion which had developed in the main offices, reduce thedelays in response time to requests from communities, and delegate more authority and responsibility tothe regional offices. Procurement, contract management and eventually, subproject approval functionswill be delegated to the regional offices. These decentralization efforts will be supported by the projectfinancing for equipment, training and technical assistance.

Accomplishments to Date

The Fund began to identify and prepare subprojects in 1993 and its portfolio has been growingsteadily ever since. Annual investments have increased from US$1.5 million in 1994 to US$23.5 millionin 1997. By the end of 1997, 3,593 subprojects with a total value of US$45.5 million had beencompleted. Approximately three million Guatemalans have benefited from the investments of the Fund.

Education subprojects have dominated the portfolio with support for primary school construction andrehabilitation, equipment and materials. More than 1700 classrooms have been built, in addition toschool offices, kitchens and sanitary facilities. Equipment purchased includes desks, tables, chairs,kitchen equipment, blackboards and text books in Spanish and in indigenous languages. Support forcommunity-based pre-primary, non-formal and literacy programs has also been provided. The FISpiloted a community-based pre-primary and primary education program in rural areas which in 1996


became the Ministry of Education's central strategy for expanding the coverage of education services inrural areas (PRONADE - National Community-Managed Program for Educational Development). Morethan 15,000 teachers have received training with FIS resources.

Water and sanitation subprojects have benefited more than 25,000 families and more than 10,000latrines have been constructed. During 1997, the FIS expanded its assistance to the health sector; 674health posts were equipped, 45 new posts were constructed, more than 500 midwives and healthpromoters were trained and provided with basic equipment, 17 community pharmacies were organizedand provided with an initial supply of medicines. Other subprojects financed include small rural bridgesand access roads, and more than 40,000 improved cooking stoves, which use half as much wood astraditional stoves. Environmental subprojects in solid waste management, agro-forestry and alternativeuses of energy have recently been added to the subproject portfolio in response to community demand.

The Fund is working with community banks in the poorest communities in an effort to provideopportunities for women to move from subsistence to market by helping them to develop their marketing,money management and entrepreneurial skill through small scale productive activities which most oftenbegin as home-based enterprises. In the two years that the FIS has supported community banks, theyhave financed, through NGOs, 73 banks. Other productive subprojects include storage for agriculturalproducts and small scale irrigation systems.

Table 1. FIS Investments 1994-1997

Year 1994 1995 1996 1997 1994-1997Amount (mn. Quetzales) 9.60 58.80 106.10 140.90 315.40Amount (mn. US $)' 1.55 9.48 17.11 22.58 50.87Source: FIS, Staff Calculations.I Note: US$ equivalent calculated according to World Bank Dec. 1997 monthly average exchange rate.

Table 2. Poverty Targeting of FIS Investments

Total % of TotalPoverty No. Investment Investment Community No. % of

Ranking' Projects Amounte Amount2 Contributions Beneficiaries Beneficiaries(Completed) (Completed)

A - Extreme 704 43,659,675 16.03 4,993,935 568,103 13.50B - Severe 1,161 87,234,200 32.04 11,625,392 1,118,884 26.60C - Medium 1,037 80,934,374 29.73 8,708,253 1,541,949 36.65D - Relative 590 49,984,443 18.36 6,327,990 854,665 20.32E - Low 101 10,436,609 3.83 1,416,951 123,381 2.93TOTAL 3,593 272,249,301 100.00 33,072,522 4,206,982 100.00Source: FIS, Staff Calculationsl FIS's targeting system is based on a classification of municipalities into five poverty categories, according to the results of aformula incorporating key social indicators: (i) housing density (persons per room); (ii) quality of housing; (iii) access to basicsanitation services; (iv) access to potable water supply; (v) access to primary education;and (vi) dependency.2 Amounts refer to original Quetzal values.


Table 3. FIS Investments (Approval) by Sector

Sector 1994 1995 1996 19971 TotalsEducation

Amount (Quetzal Thousands) 10.1 105.7 79.4 118.8 314% 45.5 70.5 41.8 40.4 47.9Water Supply & SanitationAmount (Quetzal Thousands) 3.5 8.6 41.8 67.2 121.1% _ 15.8 5.7 22.0 22.9 18.5OtherAmount (Quetzal Thousands) 8.6 35.6 68.7 107.8 220.8% 38.7 23.7 36.2 36.7 33.7TotalAmount (Quetzal Thousands) 22.2 149.9 189.9 293.8 655.8% 100.0 100.00 100.0 100.0 100.0

Source: FIS: Informe de Resultados Enero - Septiembre 1997, Staff Calculations.Data as of September 1997.


Annex 11Status of Bank Group Operations in Guatemala


IBRD Loans and IDA Credits in the Operations Portfolio

Difference Betweenexpected

Original Amount in USS Millions and actualLoan or Fiscal disbursements

Project ID Credit No. Year Borrower PurposeIBRD IDA Cancell- Un-disbursed Orig Revisef

ations From

No. of Closed Loans/credits: 21

Active LoansGT-PE-35737 1BRD42600 1998 REPUB. OF RURAL & MAIN ROADS 66.70 0.00 0.00 66.70 0.00 0.00

GUATEMALAGT-PE48654 IBRD42250 1998 TAX ADMIN. TAL 28.20 0.00 0.00 28.20 0.00 0.00GT-PE48657 IBRD42690 1998 GOV.OFGUATEMALA INTEGFINMGMTII 15.70 0.00 0.00 15.70 0.00 0.00GT-PE48756 IBRD41490 1997 REPUB.DE PRIVPRTCPTNINFR 13.00 0.00 0.00 13.00 1.40 0.00

GUATEMALA TAGT-PE-7223 IBRD41670 1997 REPUB. OF BASIC ED. REFORM 33.00 0.00 0.00 33.00 1.17 0.00

GUATEMALAGT-PE-7213 IBRD38950 1995 REPUB.OF INTEGFINANMGT 9.40 0.00 0.00 2.00 -1.64 0.00

GUATEMALAGT-PE-7220 IBRD35340 1993 GOV. OF GUATEMALA SOCIAL INV FUND 20.00 0.00 0.00 5.14 5.15 2.15GT-PE-7199 IBRD30030 1989 GOV. OF GUATEMALA BASIC ED 30.00 0.00 11.21 3.25 14.45 3.24GT-PE-7205 IBRD30020 1989 REPUB.OF SCNDRY&REG RD RHB 31.50 0.00 5.92 10.15 16.05 3.89

GUATEMALA (MIN. 0

Total 247.50 0.00 17.13 177.14 36.58 9.28

Active Loans Closed Loans TotalTotal Disbursed (IBRD and IDA): 53.22 508.31 561.53

ofwhich has been repaid: 3.16 358.03 361.19Total now held by IBRD and IDA: 227.21 150.28 377.49Amount sold : 0.00 5.76 5.76

Of which repaid : 0.00 5.76 5.76Total Undisbursed 177.14 0.00 177.14

a. Intended disbursements to date minus actual disbursements to date as projected at appraisal.b. Rating of -4: see OD 13.05. Annex D2. Preparation of Implementation Sumnary (Form 590). Following the FY94 Annual Review of Portfolio perfornance

(ARPP), a letter based system will be used (HS - highly Sadsfactory, S - satisfactory, U - unsatisfactory, HU = highly unsatisfactory): see proposed Improvementsin Project and Portfolio Performance Rating Methodology (SecM94-901), August 23, 1994.

Note: Disbursement data is updated at the end of the first week of the month.


Statement of IFC'sCommitted and Disbursed Portfolio

As of 31 -Aug. 1998(In US Dollar Millions)

Committed DisbursedIFC IFC

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic1993 Vigua 7.56 0.00 0.00 0.00 7.56 0.00 0.00 0.001993/96 Puerto Quetzal 7.08 0.00 3.96 23.90 7.08 0.00 3.96 23.901994 Fabrigas 4.50 0.00 1.00 0.00 4.50 0.00 1.00 0.001996 Pantaleon 18.75 0.00 0.00 0.00 18.75 0.00 0.00 0.001997 Aceros 18.00 0.00 0.00 14.00 18.00 0.00 0.00 0.00

Total Portfolio: 55.89 0.00 4.96 37.90 55.89 0.00 4.96 23.90

Approvals Pending Commitment

Loan Equity Quasi Partic

1997 ORZUNIL 14.50 2.30 0.00 13.001997 SIDEGUA BLINC 0.00 0.00 0.00 7.00

Total Pending Commitment: 14.50 2.30 0.00 20.00


Annex 12

Guatemala at a glance 8/28/97

Latin Lower-POVERTY and SOCIAL America middle-

Guatemala & Carlb. Income Development diamond'

Population mid-1996 (millions) 10.9 485 1,125GNP per capita 1996 fUSs) 1,470 3,710 1,750 Life expectancyGNP 1996 (oillionS US*) 16.0 1,799 1,967

Average annual growth, 1990-96

Popuiation (%) 2.9 1.7 1.4 / GoLaoor torce (%) 3.5 2.3 1.8 GNP Grosr

per primaryMost recent estimate (latest year available since 1989) capita enrollment

Poverty. neadcount inclex (% orpopulatbon)Urban population (% or total populatton) 42 74 56Lite expectancy at birtn (years) 66 69 67intant mortality (per 1,000 iive birtns) 44 37 41 Access to safe waterChila mainutrition (% orcrvlacren unaer5)Access to sate water (% otpopulation) 64 80 78liiteracy (% orpopulation age 15+) 44 13 Guatemala

Gross primary enrollment (% ot scnool-age population) 84 110 104Male 89 ,, 105 Lower-middle-income groupFemale 78 .. 101

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1975 1985 1995 1996

GULl' (billons US$) 3.6 9.7 14.8 15.7 Economic ratiosGross domestic investment/GDP 16.1 11.5 14.9 13.7 Openness of economyExports of goods and services/GDP 21.7 11.9 19.3 18.9Gross domestic savings/GDP 14.3 10.5 8.8 8.5Gross national savings/GDP 14.6 8.9 11.0 10.8

Current account balance/GDP -1.8 -2.5 -4.0 -2.9Interest payments/GDP 0.3 1.2 0.9 0.7 Savings InvestmentTotal debtlGDP 8.8 27.3 22.2 19.9Total debt service/exports 4.4 27.9 11.9 9.7Present value of debtGDP .. .. 18.9Present value of debt/exports .. . .. .. Indebtedness

1975-85 1986-96 1995 1996 1997-05(average annujal growth) - GuatemalaGDP 1.9 3.9 4.9 3.1 4.5 Lower-middle-income groupGNP per capita -0.9 0.6 0.2 3.0 2.5Exports of goods and services -1.9 5.7 13.7 7.7 5.8

STRUCTURE of the ECONOMY1975 1985 1996 1996

(% of GDP) Growth rates of output and investment I%)Agriculture .. .. 23.9 24.8 40

Industry .. . 18.9 19.3 30 Manufacturing .. .. 14.8 14.7 20

Services .. .. 57.2 55.9 110, 91 92 93 94 9 5_

Private consumption 78.9 82.6 85.7 86.1 -20 -General government consumption 6.9 7.0 5.5 5.4 - GDI - D--GOPImports of goods and services 23.5 13.0 25.5 24.1

1975-85 1986-96 1995 1996(average annual growth) Growth rates of exports and imports (%)Agriculture 1.2 3.2 3.6 2.5 40

Industry 2.1 3.6 4.8 2.9Manufacturing 2.1 2.6 3.2 1.9 20

Services 2.3 4.4 5.6 0.8

Private consumption 2.2 4.1 5.2 3.8 rGeneral government consumpton 4.7 3.4 1.3 2.5 I 92 93 94 95 96Gross domestic investment -3.7 8.o -2.9 -12.2 -201Imports of goods and services -5.7 10.8 7.6 0.2 -Ex orts ImportsGross national product 1.9 3.6 3.1 12.1

Note: 1996 data are preiiminary estimates. Figures in italics are for years other than those specified.- The diamonds show four key indicators in the country (in oldl) compared with its income-group average. If data are missing, the diamond will

be incomplete.


PRICES and GOVERNMENT FINANCE1975 1985 1995 1996

Domestkprices Inpaon (%)(% change) 60Consumer prices 13.2 18.6 8.4 10.4ImplicitGDP deflator 13.1 18.8 8.5 9.1

Govemmentfinance(% of GDP) 0Current revenue .. .. 11.7 11.2 91 92 93 94 95 96

Current budget balance .. .. 2.9 2.4 - GDP def. O CPIOverall surplus/defict .. .. 0.0 -0.6

TRADE1975 1985 1995 1996

(millions US$) Export and import levels (mill. US$)Total exports (fob) .. 1,060 2,156 2,224 4o000

Coffee .. 452 576 516Sugar .. 44 246 224 3,000Manufactures .. .. 603 649

Total imports (dfl) 1,175 3,292 3,323 2000Food .. 85 607 645Fuel and energy .. 262 287 338 10Capital goods .. 197 832 813 _________________

txpon price index (1987=100) . 115 127 122 90 9i 92 93 94 95 96

import price index(1987=100) 87 106 107 0Exports ilmportsIerms ottrade (1987=100) .. 132 119 113

BALANCE of PAYMENTS1975 1985 1995 1996

(millions US$) Current account balance to GDP ratio (%)Exports of goods and services 783 1,161 2,800 2,975 oImports of goods and services 860 1,257 3,727 3,788 9o 91 92 93 94 95 90

Resource balance -78 -96 -928 -813 -2|

Net income -66 -170 -159 -99Net current transfers 78 19 491 456 -4

Current account balance, 68

before official capital transfers -65 -247 -595 -456

Financing items (net) 169 354 438 590Changes in net reserves -104 -107 157 -134 -10

Memo:Reserves including gold (mill. Us) 353 472 783 948

oronversion rate (local/USt) 1.0 1.2 5.8 6.1

EXTERNAL DEBT and RESOURCE FLOWS1975 1985 1995 1996

(millions US$) Composition of total debt 1996 (mill. USS$Total debt outstanding and disbursed 322 2,656 3,275 3,132

IBRD 39 225 158 200 AIDA 0 0 0 0 G 200

Total debt service 35 335 342 340 5 0IBRD 4 24 54 27 FIDA 0 0 0 0 121

Composition of net resource flows DOfficiai grants 3 27 105 65 `1a16Official creditors 23 139 -21Private creditors 27 2 10Foreign direct investment 80 62 75 80 EPortfolio equity 0 0 0 0 1105

World Bank programCommitments 28 45 0 9 E - BilateralDisbursements 7 49 13 69 B - DA D- Other muljlaterai F - PrivatePrincipal repayments 1 13 40 13 C -IMF G - Short-termmNet flows 6 36 -26 56Interest payments 3 11 14 14Net transfers 3 24 -40 42

Development Economics 8/28/97

MAP SECTION

IBRD 29959

~ :. ' G . .f -y.CUBA' 90, 880

GUATEMALA

LEVEL OF RURAL POVERTY f--LMEXICO S BELtZE 0 5 MILES

\r- <.o25 50 75 100

\?rztemojfCi ®i) I § HONDURA5/.- @ 0 50 100 150

EL SAL A5 -,CNICARAGUA 180 KILOMETERS 18°

rr*9',,r\ I t h4S. _ _ _ _ _ _ _-_ _ _ _ - - - - - - -- ti

? .<- , - C COWeRICA\/,, .. -I

920 _ 'This map men prod-ced by the I ,

Map Design Unit of The Ward Bank. -_The boundories, colors, den-mieotons _ ,.

and anyother information shown onthismap do not imply, on the port of The , !I BE LI ZEWorld Book Group, any judgment on itz6the legolstotus of any territory,, anyendorsement or acceptance of such 6 t . -- -boundories. P E 7T E iN < j

.~ M X Co o '2- M E X I C O 0g- ,C !2't "

_ _ _ _ - X ) 16' %- f

-16' / -'\ 7/7 ----- - i_ _6-

/ - ,, > -0 A LCJA I E AZ L

_J ( 3 4 JAtAtA.< A ,2lt

/ - 'Vji *f H C -u 0-- ,r-020'i

RUA POVRT IN GUATMAL oo< - _- '~

00A~ TOJ2 4BN?0~

_ - HIGH NATIONA CAPIAL '< c ; HONDURAS

A~- /1-- City R IER 0\~

0 J~o'~ NJUTOO PA

140 141 Q~w~

RURAL POVERTY IN GUATEMALA{MAY 21, 1998):ELS VA O

1EXTREME____SEVERE

HIGHK MEDIUM ~~~~~~ NATIONAL CAPITAL0

LOW----- MUNICIPALITY BOUNDARIES

NO RURALDEPARTMENT BOUNDARIES

Povertyclassification is basedl son key ITRAINLBUDREsocia ndicators (see Annexn IO) - -ITRAINLBUDRE

92' 9'880

OCTOBER 1998