Document of The World Bank

FOR OFFICIAL USE ONLY

Report No: 32080 - BO

PROJECT APPRAISAL DOCUMENT

O N A

PROPOSED CREDIT

IN THE AMOUNT OF SDR 18.90 M I L L I O N (US$28.4 M I L L I O N EQUIVALENT)

TO THE

REPUBLIC O F BOLIVIA

FOR A

RURAL ALLIANCES PROJECT

April 13,2005

Environmentally and Socially Sustainable Development Bolivia, Ecuador, Peru, Venezuela Country Management Unit Latin America and the Caribbean Region Office

This document has a restricted distribution and may be used b y recipients only in the performance of their official duties. I t s contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective March 3 1, 2005

8.36 = US$1 Currency Unit = Boliviano

US$1.50803 = SDR 1

CAS CBO CODEPE CUT ERR ENDAR FI FMR FONDESIF

FPS FRR GOB HIPC IPDP LIL M A C A M&E N G O NPV O D O M OP OTB PAR PDCR PIP PIU POA SIGMA S I L TOR U C N UDAPE

FISCAL YEAR January 1 - December 31

ABBREVIATIONS AND ACRONYMS

Country Assistance Strategy Community Based Organization Municipal Productive Councils Treasury’s Single Account Economic Rate o f Return National Rural Development Strategy Financial Institutions Financial Management Report Fund for the Development o f the Financial System and Support to the Productive Sector Productive and Social Investment Fund Financial Rate o f Return Government of Bol ivia f i g h l y Indebted Poor Countries Indigenous People Development Plan Learning and Innovation Loan Ministry of Peasant and Agricultural Affairs Monitoring and Evaluation Non-governmental Organization Net Present Value Operational Directive Operational Manual Operational Policy Territorial Association Rural Alliance Project Participatory Rural Investment Project Project Implementation Plan Project Implementing Unit Annual Operating Plan Integrated Management and Administrative Modernization System Specific Investment Loan Terms o f Reference National Coordination Unit Social Politics and Economic Analysis Unit

FOR OFFICIAL USE ONLY

UORs Regional Operational Units

Vice President: Pamela Cox Country ManagerDirector: Marcel0 Giugale

Task Team Leader: Ethel Sennhauser Sector Director / Sector Manager: John Redwood / Mark Cackler

This document has a restricted distribution and m a y be used by recipients only in the performance o f their official duties. I t s contents m a y not be otherwise disclosed without W o r l d Bank authorization.

BOLIVIA RURAL ALLIANCES PROJECT

CONTENTS

Page

A . STRATEGIC CONTEXT AND RATIONALE .................................................................. 3

1 . 2 . 3 .

Country and sector issues ......................................................................................................... 3

Rationale for Bank involvement .............................................................................................. 3

Higher level objectives to which the project contributes ......................................................... 4

B . PROJECT DESCRIPTION ................................................................................................. 4 1 . 2 . 3 . 4 . 5 .

Lending instrument .................................................................................................................. 4

Project components .................................................................................................................. 5 Project development objective and key indicators ................................................................... 4

Lessons learned and reflected in the project design ................................................................. 7

Alternatives considered and reasons for rejection .................................................................... 7

C . IMPLEMENTATION ........................................................................................................... 8 1 . 2 . 3 . 4 . Sustainability .......................................................................................................................... 12

5 . 6 .

Partnership arrangements ......................................................................................................... 8

Monitoring and evaluation o f outcomes/results ..................................................................... 11

Critical r isks and possible controversial aspects .................................................................... 12

Credit conditions and covenants ............................................................................................ 14

Institutional and implementation arrangements ....................................................................... 8

D . APPRAISAL SUMMARY .................................................................................................. 14 1 . Economic and financial analyses ........................................................................................... 14

2 . Technical ................................................................................................................................ 15

3 . Fiduciary ................................................................................................................................. 15

4 . Social ...................................................................................................................................... 16 5 . Environment ........................................................................................................................... 16

6 . Safeguard policies .................................................................................................................. 16

7 . Policy Exceptions and Readiness ........................................................................................... 18

Annex 1: Country and Sector or Program Background ......................................................... 19

Annex 2: M a j o r Related Projects Financed by the Bank and/or other Agencies ................. 22

Annex 3: Results Framework and Monitoring ......................................................................... 23

Annex 4: Detailed Project Description ...................................................................................... 30

Annex 5: Project Costs ................................................................................................................ 39

Annex 6: Implementation Arrangements ................................................................................. 40

Annex 7: Financial Management and Disbursement Arrangements ..................................... 48

Annex 8: Procurement Arrangements ...................................................................................... 53

Annex 9: Economic and Financial Analysis .............................................................................. 58

Annex 10: Safeguard Policy Issues ............................................................................................ 68

Annex 11: Project Beneficiaries ................................................................................................. 72

Annex 12: Social Analysis and Action Plan .............................................................................. 73

Annex 13: Project Preparation and Supervision ...................................................................... 82

Annex 14: Documents in the Project F i l e .................................................................................. 83

Annex 15: Statement of Loans and Credits .............................................................................. 84

Annex 16: Country at a Glance .................................................................................................. 86

Annex 17: M a p IBRD 33922 ..................................................................................................... 88

B O L I V I A

RURAL ALLIANCES

PROJECT APPRAISAL DOCUMENT

LATIN AMERICA AND CARIBBEAN

LCSER

Date: April 20,2005 Country Director: Marcel0 Giugale Sector ManagerAIirector: John Redwood

Team Leader: Ethel Sennhauser Sectors: General agriculture, fishing and forestry sector (70%);Agricultural extension and research (20%);Agricultural marketing and trade (10%)

Project ID: PO8305 1

Themes: Rural services and infrastructure (P);Rural markets (P);Rural policies and institutions (S) Environmental screening category: Partial Assessment

Lending Instrument: Specific Investment Loan Safeguard screening category: L imited impact

[ ] Loan [XI Credit [ ] Grant [ ] Guarantee [ ] Other:

For Loans/Credits/Others: Total Bank financing (US$m.): 28.40

Borrower: Republic o f Bol ivia

Responsible Agency: Ministry of Peasant Affairs and Agriculture Avenida Camacho 1471- Piso 2 L a Paz Bol iv ia

Estimated disbursements (Bank FY/US$m) ~

4nnual 1.41 Zumulative 1.41

FY 1 6 ~ ~

7 8 9 10 11 12 0 0 3.36 4.70 6.26 6.20 4.40 2.07 0.00 0.00 4.77 9.47 15.73 21.93 26.33 28.40 28.40 28.40

Project implementation period: Start September 15, 2005 End: September 15, 201 1 Expected effectiveness date: October 30, 2005 Expected closing date: September 30, 201 1 Does the project depart f rom the CAS in content or other significant respects? Ref. PAD A.3 Does the project require any exceptions from Bank policies?

[ ]Yes [XINO

Ref. PAD D. 7 Have these been approved by Bank management?

[ ]Yes [XINO [ ]Yes [ X ] N o

I s approval for any policy exception sought from the Board? Does the project include any critical r isks rated “substantial” or “high”? Ref. PAD C.5

[ ]Yes [XINO

[XIYes [ ] N o

[XIYes [ ] N o Does the project meet the Regional criteria for readiness for implementation? Ref. PAD 0 . 7 Project development objective Ref. PAD B.2, Technical Annex 3 The project objective i s to test a model to improve accessibility to markets for poor rural producers in selected sub-regions of the country. To achieve this, the project w i l l (i) promote strategic productive alliances between different economic players at the local level, (ii) empower rural producers through the strengthening o f self-managed grass-root organizations, (iii) increase ~-

access to productive assets and technology, and iv) promote more effective, responsive and accountable service organizations at the local level.

Y

Project description [one-sentence summary of each component] Ref. PAD B.3.a, Technical Annex 4 The project w i l l have three components: (a) institutional support, (b)implementation o f rural productive alliances, and (c) project management. Which safeguard policies are triggered, i f any? Ref. PAD D.6, Technical Annex 10 The project triggers the fol lowing safeguard policies: Environmental Assessment (OP/BP/GP 4.01), Natural Habitats (OPElP4.04) Pest Management (OPElP 4.09), Cultural Property (draft OP 4.11) Forests (OP/BP 4.36) and Indigenous People (OD 4.20) Significant, non-standard conditions, if any, for: Ref. PAD C.7 Board presentation: Loadcredit effectiveness: Supreme Decree signed and published. Constitution of the Project Coordination Unit Selection o f project staff. Adoption o f operational manual.

Covenants applicable to project implementation: (a)

financial evaluations and feasibility studies

Complete a MTR report to be made available to MTR mission Establish the project units at central and regional level and appoint consultants for

Review b y the Bank o f the first alliance and feasibility plans

(b)

(c)

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A. STRATEGIC CONTEXT AND RATIONALE 1. Country and sector issues

After the economic crisis of the 1980’s, Bolivia embarked on a path o f structural reforms which brought economic stability throughout the subsequent decade. The promotion o f rural growth and the increase in the incomes o f the poor were important goals of this process of reforms. The laws enacted during the 1990’s (Popular Participation Law o f 1994, Administrative Decentralization Law o f 1995, Municipalities Law o f 1999) established a set o f instruments to encourage peasant and indigenous rural production through the transfer o f resources to local governments for productive investments. The National Dialogue Law o f 2000 enhanced this policy framework by introducing new instruments to strengthen the incentives to local governments to support rural production: (a) the creation o f the Municipal Productive Councils (CODEPEs) at the municipal level; (b) the eligibility o f support to productive initiatives in the use o f Highly Indebted Poor Countries (HIPC 11) resources; and (c) the inclusion o f support for productive investments and public productive infrastructure in the Productive and Social Investment fund (FPS) menu under the National Compensation Policy.

Today, evidence shows that these reforms were not enough to contribute as expected to rural growth and increases in rural incomes. One of the consequences o f this outcome i s an increase in the social unrest within peasant and indigenous groups, with social conflicts exploding in rural areas during the last four years. The basis for these conflicts i s basically the perception that the enhanced opportunities in health and education provided by these reforms have not been similarly reflected in the improvements of rural incomes. Some o f the reasons responsible for this are: (a) the inclusion of conflicting incentives in the policies on municipal transfers, which did not provide for a clear differentiation between the equalization measures supporting social programs and the competition-based measures associated to economic promotion; (b) the emphasis o f rural production investment programs on supporting “the needs” instead o f “market opportunities” (tending to crowd-out private investments); and (c) the failure of not taking into account spatial differences in the reform process, and therefore not reflecting local realities and opportunities.

Following the social unrest o f October 2003, the Government o f Bolivia (GOB) i s highly committed to respond to the demand o f peasant and indigenous groups, particularly in relation to investments to support productive activities. For that, the government has convened a Third National Dialogue process with a focus on production, and has completed a draft National Rural Development Strategy (ENDAR) whose main objective i s to increase rural incomes and employment through the provision o f tools and knowledge to increase market accessibility in a sustainable way, and within a framework o f social and cultural equity. These two initiatives, and their main objectives, provide the framework for this project.

2. Rationale for Bank involvement

The Bank has a long history o f support to Bolivia. During the reform process o f the 9Os, Bolivia became a major focus o f Bank’s support in Latin America, and a model for macro economic and decentralization policies. The Bank’s assistance to this process o f reform has focused on several investment and adjustment operations, and in supporting the preparation o f the Poverty Reduction Strategy, whose principles are included in the National Dialogue Law o f 2000. During the last couple o f years, the Bank has also maintained a strong dialogue with the government in the preparation o f the ENDAR, and has been accompanying i t s national consultation process simultaneously with the preparation o f t h i s project.

The Bank’s contribution in Bolivia has also been instrumental in supporting rural development through a series of investment, technical assistance and sector work initiatives which have accompanied the process o f decentralization and rural production through the Rural Communities Development Project and the

Participatory Rural Investment Projects (P040085/P055233), and the Rural Productivity Study. More recently, the Bank has initiated a pilot operation to support productive initiatives o f indigenous groups, through the Indigenous Peoples Learning and Innovation Credit (LIL) (P057416). All o f these establish a solid rationale for justifying the Bank’s support to the objectives here proposed.

In addition, this project w i l l supplement the increasing efforts o f the rest o f the donor community in rural production and market accessibility, by complementing the support provided for productive chains with a project that promotes local market access opportunities which the communities themselves identify and propose: a local, bottom-up productive-development focus. Finally, the Bank has also an advantage as a donor in this area, as it can link the reforms supported by this project with overall policy discussions related to decentralization, pro-poor macroeconomic policies and investment climate, which the Bank i s also supporting through separate initiatives.

3. Higher level objectives to which the project contributes

The proposed project contributes to the overarching rural poverty reduction objectives o f the Nation’s and Bank’s strategic documents. First, the project reproduces almost exactly the overarching objective o f the ENDAR, and contributes primarily to four of i t s seven prioritized policies: (a) market development, enhanced productivity and competitiveness; (b) non-farm income opportunities; (c) improvement o f productive infrastructure; and (d) development and employment generation for peasants, indigenous groups and women. Second, the project i s also aligned with the objectives o f rural poverty reduction, rural growth and increase in rural income o f the Country Assistance Strategy (CAS), by promoting and supporting opportunities for income generation and improved market access for the poor. Third, the project also reflects the importance o f addressing regional development, as it i s based on a spatially differentiated approach reflecting regional differences in economic conditions and potential outcomes.

This project, originally planned at US$21 mill ion in the 2004 CAS, has been scaled up to include a subcomponent o f municipal subprojects. The additional IDA financing comes from the Social Sector Programmatic Development Policy Credit, scheduled for Board consideration in May 2005.

B. PROJECT D E S C R I P T I O N 1. Lending instrument

The project wi l l be a Specific Investment Loan (SIL) as i t proposes to support the creation and maintenance of economic and institutional infrastructure mainly through the creation o f and support to rural alliances, the establishment o f local institutional frameworks for economic development, and the determination of rules o f the game for supporting productive investments.

2. Project development objective and key indicators

The project’s objective i s to test a model to improve accessibility to markets for poor rural producers in selected sub-regions o f the country.

To achieve this, the project w i l l (i) promote productive alliances between different economic players at the local level; (ii) empower rural producers through the strengthening o f self-managed grass-root organizations; (iii) increase access to productive assets and technology; and (iv) promote more effective, responsive and accountable service organizations at the local level.

Key development indicators include: (i) income o f rural productive households; (ii) earned income by work day; (iii) number o f new employment generated; (iv) volume (quantity and price) sold by producer; (v) unit sale price of product, and (vi) the implementation o f the alliance model itself.

4

The proposed project i s a pilot that w i l l test the methodological model proposed in three geographical areas (one for each major eco-region o f the country) before i t s replication in other areas. I t s design includes a spatial analysis, undertaken as a response to the principle that rural strategies for poverty reduction need to incorporate geographically differentiated models, reflecting local realities and opportunities. Three areas were selected by this analysis: (a) the northern expansion zone o f Santa Cruz; (b) the Cochabamba valleys; and (c) the area around the Uyuni Salt Lake in Oruro and Potosi. The project contemplates the possibility o f expanding to a fourth area during i t s lifespan, if the experience during the first years o f implementation i s promising.

3. Project components

The project w i l l finance the following three components: (a) Institutional support; (b) Implementation of rural productive alliances; and (c) Project management. The costs and IDA contribution of each component are summarized in the following table.

Institutional Support Communication and dissemination Institutional facilitation

Capacity building for service providers and local government!

Implementation of Rural Productive Alliances Community Subprojects Municipal subprojects Finance enhancement incentives

Technical services Financial management Monitoring and evaluation

Note, Costs include contingencies

Component 1: Institutional Support

0.51 1.5 0.51 100 2.15 6.2 2.15 100 0.43 1.2 0.43 100 0.24 0.7 0.24 100 3.33 9.6 3.33 100

19.77 56.7 14.25 72 6.65 19.1 5.70 85 0.21 0.6 0.21 100

26.63 76.4 20.16 100

0.22 0.6 0.22 100 2.53 7.3 2.53 100 0.93 2.7 0.93 100 0.29 0.8 0.29 100 0.34 1.0 0.34 100 0.60 1.7 0.60 100

This component w i l l finance technical assistance and training to provide the institutional and organizational support needed for the creation o f productive alliances at the local level. The component w i l l give a particular focus to the development of the institutional capacity o f small producers to become partners in new marketing arrangements with the private sector. The component’s main outputs w i l l be the formation of rural productive alliances and the preparation o f viable alliance plans. To realize t h i s objective, the component w i l l (a) support the implementation o f a project dissemination campaign; (b)

support collective action and empower groups o f rural poor producers; (c) support the process of ca l l for proposals, the preparation o f pre-feasibility and feasibility studies and their evaluation and approval; and (d) assist with the organizational arrangements for the formalization o f the alliances.

The component has the following sub-components: (a) communication and dissemination, (b) institutional facilitation, (c) capacity building for service providers and local governments, and (d) appraisal of alliances. Specific objectives of each sub-component, as well as the activities supported by them, are described in Annex 4.

Component 2: Implementation of Rural Productive Alliances

The aim o f this component i s to provide support for the implementation o f the rural alliances prepared under component 1. The component’s main outputs w i l l be: (i) to have producers and their marketing partners working together efficiently and effectively in long term relations; (ii) an improved production by the rural poor producers to meet their new market requirements; (iii) adapted systems in the markets to work with the alliances’ small producers; and (iv) the ensured co-participation in alliance plans o f service providers and local governments. To achieve these outputs, the project w i l l finance, through co-financing, one or more of these potential alliance members: small producers, market agents andor local governments, This assistance w i l l be made available for one or more o f the following: (a) to co-finance the implementation of producer’s subprojects up to the storage stage; (b) to provide incentives that improve the prospect o f alliance members to obtain market-based credit or investment for the implementation o f subprojects which include post-production transformation and processing; (c) to co- finance local governments which decide to become alliance members in design and construction of public infrastructure aimed at supporting a local alliance in i t s productive goals; and (d) to provide incentives for supervision to market partners to mitigate the relatively higher costs and r i sks associated with entering into financing and marketing arrangements with small rural producers.

The component has the following sub-components: (a) farmer organizations sub-projects, (b) municipal subprojects, and (c) finance enhancement incentives.

The assistance provided by this component directly to producer organizations i s estimated to have an upward cap o f 12,500 Bolivianos (approximately U S $ 1,500) per household. This estimate i s based on the financial analysis of already existing alliances, and takes into account other incentives and subsidies in the rural sector.

Component 3: Project Management

This component’s outputs are the efficient and effective coordination o f the project and a M&E system which can measure the improved access to markets by poor producers, and growth in rural incomes. The component w i l l achieve this through financing the provision o f technical assistance, goods, equipment and incremental operating costs which w i l l support the establishment and operation o f a Project coordinating team in Ministry o f Peasant Affairs and Agriculture (MACA), the setting up and operation o f a management information system, the implementation o f monitoring, evaluation and learning arrangements, and the completion o f technical studies. The component w i l l also ensure that effective fiduciary arrangements are in place during implementation.

The component has the following sub-components: (a) studies, (b) technical services, (c) financial management, (d) monitoring and evaluation, (e) equipment, and (f) operating costs.

6

4. Lessons learned and reflected in the project design

The project wi l l build on lessons learned through existing rural projects in Bolivia, namely the PDCR I1 Project and the Indigenous Peoples Development LIL Project, projects from other bilateral and multilateral donors, and from Bank’s projects elsewhere in the region (Brazil Northeast projects, Colombia Rural Alliance Project). The most important lessons from these operations, which have impacted the design o f th is project, include:

The recognition that municipal transfers have not had the expected impacts on enhancing rural production, primarily due to an unclear differentiation o f programs supporting social and productive goals. The main achievements by municipal governments in the productive front have been in providing support for public infrastructure to support production, e.g. roads. The acceptance that the support to rural poor producers should be based on the identification o f market opportunities, and not only on satisfying “needs” or “demands” with unclear prospects of penetrating the market. The Indigenous LIL, in particular, has shown the importance of a priori identifying markets as opposed to just supporting the expansion o f production. Thus the project w i l l require demonstration o f pre-defined markets as one o f the eligibility criteria for the alliances. This combines the existing poverty and exclusion needs with an emphasis on opportunities. Organizations o f poor rural producers in Bolivia have limited capacities in management, business and administration. This, linked to social and cultural traditions to promote equity among members o f local organizations (versus efficiency and business competitiveness) have led to the inclusion in the project o f activities to build the capacity o f self-managed grass-root organizations in marketing and business, and the establishment o f eligibility criteria for potential beneficiaries to also operate under market and business rules. The recognition that to promote rural growth, supporting only agriculture production i s not enough. A Rural Productivity Study carried out by GOB with technical assistance from the World Bank has shown that almost 80% of the farmers in the highlands and valley regions are presently reducing their productivity and incomes because they are caught within a vicious circle o f land degradation- subdivisiodover exploitation o f the natural resource base and reduction in soil fertility. The wider approach of this project on rural production as a whole, including off-farm employment, i s aimed at addressing this. Bolivia has presently poor services and technical assistance in the rural sector, and the existing system has not been designed to support broad rural production opportunities identified at the local level. The project w i l l address this by allowing the producers to procure the TA themselves as part o f the alliance plan, and by providing support in the identification of service providers in Bolivia and abroad, as needed.

5. Alternatives considered and reasons for rejection

In the design o f this project, the following alternatives were considered, and rejected:

0 An agriculture technology project. This alternative was rejected because of i t s sectoral approach,

A project to support “municipios productivos” and promote rural production by channeling funds

not being fully consistent with the cross-sectoral, multidimensional and territorial principles of the country’s rural development strategies and policies.

through local governments. This was rejected due to previous experience with other projects supporting local governments, which show their limited capacity to promote productive investments, but also their overload with the activities they are directly responsible for. Local governments w i l l however be involved in the project through their participation and support to the alliance process.

0

7

0 A project to support community demands, based on community needs. The alternative to focus the project on producer groups (vis-h-vis the community as a whole) was favored due to the productive focus of the operation, and the experience showing that groups o f people with s i m i l a r interests work better when pursuing improved market accessibility goals.

C. IMPLEMENTATION 1. Partnership arrangements

Project preparation has been financed through a PHRD grant from Japan, with additional financing provided by the Swiss Development Cooperation agency in Bolivia. Given the interest of the donor community in responding to the demands o f the National Dialogue, the Bank and GOB have placed great emphasis in ensuring information and feedback from international agencies involved in rural development. There i s great interest in the testing o f the proposed mechanism for providing incentives to rural alliances, as well as innovations in direct financing for producer groups. I t i s expected that other donors may collaborate the government to replicate or scale up the project in other regions o f the country

2. Institutional and implementation arrangements

Implementing Agency: The Project w i l l be carried out by the Republic of Bolivia through the Ministry o f Peasant and Agricultural Affairs (MACA), under the oversight of a Council described below. Government’s role w i l l be limited to promotion and facilitation; activities w i l l be carried out by small producers and market agents involved in formal alliances partly financed through the Project.

Project’s “Council”: The Council w i l l operate at the strategic level, providing guidance and oversight. I t i s expected that i t w i l l also serve as a forum for dialogue between the GOB and the private sector. I t w i l l be composed o f representatives of small producers, market agents and the business sector. On the government’s side, i t w i l l include representatives o f the ministr ies o f Economic Development , Popular Participation Sustainable Development, M A C A and the relevant prefectures. I t w i l l be presided by the Minister o f Agriculture. The composition and functions o f the Council are described in the Operational Manual (OM). The Council w i l l be established as a condition o f effectiveness.

At least 60% of the members w i l l come from the private sector.

MACA: M A C A through i t s Minister, wi l l assume the direction o f the project. The Minister w i l l approve the Annual Operating Plans (POA) and budget for the project, and w i l l supervise i t s implementation regularly through review o f periodic monitoring reports and audits. M A C A wi l l also be responsible for coordinating project activities within the sector and with the government. Project implementation w i l l be delegated to a project implementation unit.

Project Implementation Unit: A National Coordination Unit (UCN), reporting to MACA, with core fiduciary and technical staff w i l l be established in L a Paz. The U C N wi l l coordinate project execution through three Regional Operational Offices (UORs) located in each o f the 3 zones which make up the project’s area. Such units w i l l be staffed with key members to the satisfaction o f the Bank, and selected through an open and competitive process managed through an independent agent before project effectiveness’.

The U C N wi l l be responsible for overall implementation and w i l l coordinate with all the actors involved in the Project’s execution. I t w i l l approve the UORs’ POA and budget and w i l l supervise their operations.

Except for a core team of 3 people agreed with the Bank who w i l l serve as continuity between preparation and implementation and to ensure compliance with minimum fiduciary/safeguard requirements for staffing. I f replaced, this core team wi l l also be subject to the competitive selection process mentioned above.

8

The U C N wil l approve subprojects evaluated by the UORs and w i l l handle disbursements, accounting and record-keeping.

Producers

of total costs (a)

Alliance 1 Co-financing 2 20%

Alliance 2 Co-financing from the project for TA (b)

Alliance 3 Co-financing 2 20%

The three UORs wi l l establish offices in the chosen areas through inter-institutional agreements with the Prefectures where they are located, and w i l l coordinate their activities with the latter but w i l l report operationally to the UCN. The UORs wi l l handle key aspects o f the subproject cycle, starting with the promotion, facilitation and identification o f potential alliances; subproject ex ante evaluation (directly or though contracted agencies); field supervision; local coordination; and monitoring.

Market Agents Local Governments None None or co-financing in

accordance with rules for municipal transfers (around 15%)

None/ Co-financing None or co-financing in from the project for TA accordance with rules for (b) municipal transfers (around 15%) Co-financing from the None or co-financing in

Alliances: The core o f each alliance w i l l be composed of a group o f small producers and a market agent. They w i l l carry out a joint subproject but implementation w i l l be differentiated by for each actor. Once the subproject i s approved, the U C N wi l l sign a beneficiary agreement with alliance members receiving project assistance and w i l l transfer resources to carry-out the agreed activities. Producer organizations w i l l select technical assistance, and procure goods and works following the Bank’s community procurement guidelines. The UORs wi l l supervise the completion o f field activities and certify the results as a basis for the U C N to carry out direct disbursements to the bank accounts o f the beneficiaries. In those cases in which the market agents may also require funding, the project w i l l only provide them with technical assistance (under co-financing arrangements). Request for additional support from market agents w i l l be directed to rural financial institutions which w i l l provide them with reimbursable resources at their own costs and rules. Municipalities may be part of an alliance if they agree to provide a public investment to support the alliance plan e.g. rural roads spot improvement, water and sanitation services and infrastructures.

The project wi l l provide assistance to approximately 240-260 rural alliances selected through regional competitive processes. For the purposes of the project, the following three intervention models for these alliances have been considered2:

M o d e l 1: alliances where the project w i l l co-finance small producer groups (up to storage) to improve market accessibility M o d e l 2: alliances where the project w i l l support small producer groups (up to processing) to improve market accessibility M o d e l 3: alliances where the project w i l l support small producer groups and their market agents.

These models are however indicative, as the project i s designed with enough flexibility to adapt to other alliance models. This w i l l ensure a more responsive approach, where the project adapts to the alliances proposed and not vice-versa.

These models originate from the consultation process, and reflect the most common type o f alliances existing today in the project area.

9

o f total costs

Note: (a) Co-financing refers to co-financing grants of goods, works or services. @) Finance institutions wil l complement this assistance by providing financial support with their own resources

project for TA (b) accordance wi th rules for mun icba l transfers (around 15%)

The M A C A w i l l sign agreements with all alliance members to enable coordinated financing and implementation. Financial assistance wi l l be the responsibility o f each alliance partner in accordance with terms and conditions established in the agreement to be signed with the project (and related to market requirements) which w i l l be technically described in the alliance plan. A more detailed description o f the alliances, the intervention models proposed and their functioning can be found in Annex 4.

Operational Manual: The O M includes all processes, rules and regulations for the implementation o f all project components and the operation of the U C N and the UORs (project planning, monitoring, evaluation, institutional arrangements, environmental review, reporting, communication, human resources, risk, coordination, procurement, and financial management). Updates to the O M (expected through the l i f e o f the project, as lessons are built) wi l l require the no objection o f the Bank.

Project Implementation Plan (PIP): The Project Implementation Plan (PIP) w i l l be broken down into Annual Operational Plans (POA) and four sections: i) a description o f project activities to be executed during the time period; ii) a Gantt Chadproject schedule with timing o f activities, relationship with other activities, facilitating entity responsible; iii) a budget plan; iv) a training plan and, v) a procurement plan. The POA wi l l be the principal tool for coordination between the U C N and the UORs. The POAs wi l l be prepared by the UCN, approved by M A C A and presented to the Bank for no objection before the beginning o f the budget year.

Flow of funds: The project w i l l support, through differentiated mechanisms, one or more of the following beneficiaries: small poor producer groups, market agents and/or local governments (see fund flow scheme in Annex 6). The flow o f funds wi l l become available through the alliance process, that is, financial assistance w i l l not be provided to any of these actors separately, unless an alliance plan has been approved by the project. I t i s not mandatory for all these potential actors to receive assistance, their needs w i l l be determined through the alliance preparation process, and the assistance to be provided w i l l be that necessary and sufficient for the success of linking the producer groups to the market and the achievement o f economic profitability.

The flow o f funds wi l l be differentiated by actors according to the following basic elements:

(i) small producers and market agents wi l l receive grants on a cost-sharing basis to meet alliance goals and implement the activities described in their business plans. Resources w i l l be directly transferred to these groups through mechanisms described in the OM. The assistance to producer organizations wil l serve to finance technical assistance, goods and/or small works up to the harvesting stage, and only technical assistance for post-harvesting requirements3. The assistance to market agents w i l l serve to co- finance technical assistance services only. This support i s expected to partly pay for the incremental costs o f working with poor and less experienced business partners. Any additional need for financial support for market agents w i l l be sought by them through the regular financial market. In both cases the project w i l l transfer resources in tranches to the beneficiaries account, based on progress certified by a field supervisor working for the project. In the case o f the market agents, payments could also be made as partial reimbursements on eligible expenditures incurred directly by them. (ii) For local governments included in an approved alliance, a three party agreement w i l l be signed between themselves, MACA and the FPS. The local government w i l l transfer i t s counterpart resources to

Post-harvest investment activities wi l l not be eligible for grant assistance, to avoid creating unfair competition with those rural producers working in the more profitable transformation processes and which openly access the credit market.

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the counterpart account of the UCN. Disbursements w i l l be done directly from the U C N to the contractor based on progress certificates signed by a supervisor (hired by the local government and paid by the project), and certified and requested by the FPS. (iii) To enhance the possibility o f producers (post-harvesting stage) and market agents to access available private financing in the country, the project design includes (in addition to direct technical assistance for these beneficiaries) an incentive package for selected financial institutions within the project area to cover part of the incremental costs of servicing alliance members. The incentive package comprises a fixed amount to be paid for each financing line approved to alliance members, primarily to cover supervision and management costs of these new clients. The assistance to finance institutions w i l l be channeled through the FONDESIF, which wi l l be responsible for supervising th i s activity. Disbursements w i l l be made directly from the UCN, after the expenditure has been certified by FONDESIF.

The project w i l l have only one special account managed by the UCN. Disbursements w i l l take place directly from this unique account in the UCN, to maximize efficiency and respond rapidly to the needs of the alliance members.

3. Monitoring and evaluation of outcomes/results

Given the pilot nature o f the project, a comprehensive monitoring and evaluation framework was defined, and i t i s described in the OM. This framework takes into account that the M&E system w i l l be critical for piloting the model proposed, and for incorporating lessons learned and the results o f the regular monitoring into project implementation. The framework w i l l also ensure that these lessons are effectively disseminated to project beneficiaries and other stakeholders, so adjustments in implementation can be made at all organizational levels. Outcome, output and input indicators for the project are included in the Logical Framework and Results Framework in Annex 3. These indicators w i l l be disaggregated by different social groups and monitored, based on poverty levels, gender, ethnicity, location, and other relevant criteria. Baseline data for these indicators have been collected for project sites. The M&E system wi l l operate at the national, regional and the alliance level. At the national level, the M&E specialist in the U C N wi l l coordinate periodic M&E of inputs, outputs and outcomes o f the project as a whole including field and regional information sent from the UORs. This information w i l l be stored in an M&E system with geo-referencing to be designed at the beginning o f project implementation. At the regional level, information w i l l be collected and processed by operational and technical specialists, who have received training in M&E organized by the UCN. The main information gathered w i l l be data from field visits and alliance supervisions. At the local alliance level, alliance members themselves w i l l conduct part o f the M&E to build ownership and business s k i l l s and learn from past experiences. Alliance representatives w i l l also receive initial and on-going training in M&E to enable to conduct the task. The participatory approach i s a key level o f the M&E system: beneficiaries themselves not only keep track of how they are benefiting from the opportunities presented by the project, but also participate in the selection o f activities to be financed, the capacity building events they receive, and the generation of useful feedback for learning from implementation.

In addition to the above mentioned M&E system, which i s conducted by the project offices or by the beneficiaries themselves, an independent evaluation w i l l be conducted by an external agency at midterm review and project completion. The purpose o f t h i s i s to complement the existing in-house M&E system from an objective and fair standpoint, focusing on project impacts and also to include a control group in the evaluation process to gauge project impacts compared to non-beneficiaries o f the project.

For administrative purposes, the project w i l l maintain a financial management system which has been adopted and adjusted from other Bank projects. Under current local regulations, monitoring for project budgetary and accounting needs to be maintained in the Government Integrated Financial Management System (SIGMA), with the subsequent use o f Treasury Single Account (CUT). Given the constraints

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SIGMA may have to provide information classified by project component and cost category and allow the control of the special account in U S dollars, the financial management information system for the project complements the SIGMA by allowing the recording and control of procurement processes, issuance of payment orders and recording o f transactions by project component and category, both under local and foreign currency. The system also includes the preparation o f withdrawal applications and financial reports (including financial, procurement and physical progress information).

4. Sustainability

The borrower’s commitment to and ownership o f the project i s evident through the integral role of the project in the ENDAR, where the project’s principles are clearly reflected within the context of th i s strategy, the project w i l l assist in establishing a framework (rules, procedures) so that t h i s pilot can be scaled up in the future to other potential areas in the country and/or replicated by other donors.

The sustainability o f the project w i l l be promoted by: (a) a careful selection o f productive alliance plans to be financed. Given that, by definition, these

should be financially viable and environmentally and socially safe, alliances formed by the project are expected to continue after the initial support from the project. Alliances with no ensured purchasing arrangements, and with non viable financial rate o f return w i l l not be eligible for support;

(b) Co-financing o f project proceeds by beneficiaries o f at least 20% wi l l also contribute to ensuring ownership;

(c) Institutional sustainability o f these alliances w i l l be ensured by arrangements where all parties benefit, and nobody loses. Sustainability o f farmer organizations w i l l be promoted through the empowerment process;

(d) Finally, by ensuring that the project i s perfectly aligned with the new policy framework to support rural production (National Dialogue, ENDAR), the sustainability o f the model of this pilot project and the implementation arrangements proposed, w i l l also be ensured.

5. Critical risks and possible controversial aspects

The risks associated with this project are related to (i) i t s pilot nature, and (ii) country conditions. The project has been prepared amidst a moment o f widespread political conflict in the country, with discussions on regional autonomies, prefectural elections, and possible constitutional changes through the forthcoming Constitutional Assembly. Although the combination o f these risks leads to a project with overall risks rated as substantial, several measures were introduced in project design to mitigate their impacts on project outcomes and implementation. This risk matrix wi l l also be closely monitored during implementation and new adjustment measures introduced (if necessary) in response to the feedback of the monitoring and evaluation process and the developments associated with country conditions.

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Risk I Rating

Political instability impinges on MACA’s institutional capacity

Change in public commitment to I H policies that promote market accessibility for the poor through partnering and reaching out to the private sector.

H

Political instability and social unrest discourage private investments and slow down implementation

Economic opportunities at the local level are limited

Beneficiaries don’t have access to credit markets

H

S

S

Corruption in allocation o f project resources

S

Local resistance to private investments by “outsiders”

S

Resourceful groups may be better able to benefit from project benefits, increasing local inequality

Internal conflict within alliances based on different approaches to resource management and markets

Changes in municipal governments discontinue support to rural alliances.

Risk Mitigation Measure Strong involvement of campesino, indigenous and private sector stakeholders in project oversight and implementation.

Careful selection o f project areas to pilot the project in more “stable” regions and support to formation and implementation o f alliances.

Selection and periodic evaluation o f project personnel carried out by independent firm.

PIU personnel hired on basis o f merit, not political allegiance or personal relations, reducing incentives for breaking rules; M&E system operates in real time, permitting prompt identification o f concentration in resource allocation; subcontracting to private sector of ex ante evaluation activities; and ex post procurement audits.

Careful selection o f project areas based on prevalence of economic opportunities.

Assistance to simplified models o f alliances.

Technical assistance to improve the “bankability” of business plans and alliance members, and incentive package for financial institutions.

Ensure strong stakeholder involvement in all processes o f the project.

Establish clear and transparent rules in the selection process

Ensure membership i s open to women, indigenous groups and others, with targeted activities to ensure their participation.

Systematic consultations with local groups prior to forming alliances. Ensure productive activities and marketing are done in a manner consistent with local, cultural organization.

No planned municipal elections for most part o f implementation. The project provides for incentives to municipal governments who are wil l ing to support the alliances.

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6. Credit conditions and covenants

Financial Economic I NPV I FRR I NPV I ERR

Effectiveness Supreme Decree signed and published Constitution o f the U C N Selection o f project staff Adoption o f the Operational Manual

Alliance 1 Alliance 2

Disbursement Conditions For component 2: issuing o f strategic environmental license, and signature o f inter-institutional agreements with the prefectures (by region), FPS and FONDESIF (by subcomponent) and beneficiaries (for each subproject).

$33,544 23% $9,117 15% $11,933 16% $29,931 21%

Covenants applicable to implementation (a) Complete a mid-term review report to be made available before the mid-term evaluation mission, in

accordance with terms o f reference acceptable to the Bank. (b) Maintain the Council, the U C N and the UORs, appoint consultants for undertaking the financial

evaluations and select f i r m s for assisting in the preparation o f feasibility studies (c) Review by the Bank of the first alliance and feasibility plans

All iance 3 $131,173 30% $199,624 36% Municipal $76,420 26% $39,408 20% Subproject average 22% 25 % Weighted average 17% 16%

D. APPRAISAL SUMMARY 1. Economic and financial analyses

Given that the majority o f project funds wi l l be for subprojects which w i l l be based on locally identified and beneficiary initiated alliances through calls for proposals during project implementation and not pre- determined during project preparation, this analysis does not lend i tsel f to detailed ex-ante cost-benefit analysis. Although the major types and activities o f potential alliance proposals may be estimated from social assessments and experience of similar projects by other organizations, i t w i l l be the rural alliances themselves who w i l l ultimately determine the scope and mix o f investments. As an estimate, indicative models o f potential alliance opportunities were analyzed based on secondary information of similar enterprises in the same pre-selected regions as the project. However, more accurate and representative economic and financial estimates w i l l be generated during project start-up activities, with primary information from a larger sample o f alliance proposals.

The project i s expected to provide economic benefits for approximately 125,000 families o f poor rural producers l iving in the 54 municipalities which comprise the project area (see Annex 11 for further details on project beneficiaries). Main expected economic benefits o f subprojects are, increased market sales to existing and new markets, increased access to higher end markets, improved product quality, employment generation, production cost savings and reduction o f post harvest losses.

lels

Note: See Annex 9 for details

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Based on this preliminary analysis, average Economic NPV and ERR are: for alliance model 1, US$ 9,117 and 15% respectively; for alliance model 2, US$ 29,931 and 21% respectively; for alliance model 3, US$ 199,624 and 36% respectively; and for municipal subprojects, US$ 39,408 and 20-22% respectively. If other project costs (institutional support and project management components) are taken into account, the project weighted Economic NPV/US$ invested and IRR would be 0.2/US$ invested and 16% respectively. Since total project costs are approximately US$ 35 Mill ion, the project Economic NPV would be approximately US$ 5.9 Mill ion.

Average Financial NPV and ERR are: for alliance model 1, US$ 33,544 and 23% respectively; for alliance model 2, US$ 11,933 and 16% respectively; for alliance model 3, US$ 131,173 and 30% respectively; for municipal subprojects, US$76,420 and 26% respectively. If other project costs are taken into account, the project weighted Financial NPV/US$ invested and IRR would be 0.3/US$ invested and 17% respectively. With total project costs of US$ 35 Million, the project Financial NPV would be US$ 8.2 Mill ion.

2. Technical

The technical quality o f the alliance proposals w i l l be ensured by: (a) allowing producers to procure technical assistance from the public, community based organizations or the market itself if they choose so; (b) assisting producers during for the preparation o f pre-feasibility andor feasibility studies, while simultaneously building their capacity in businesdmarketing ski l ls ; (c) setting in motion an independent evaluation process for alliance plans, including beneficiaries, NGOs and the private sector; and (d) providing adequate information on capacities and specialities o f service providers within and outside the country.

3. Fiduciary

Procurement. The rural alliances component involves small sub-projects requiring procurement of works, goods and services, costing, in average, US$ 60,000 or equivalent. These sub-projects (including technical assistance, training, goods and minor civi l works) would be implemented by alliance members, following the Bank’s standard procurement methods. To ensure a good understanding o f procurement procedures amongst producer groups and other beneficiaries, qualified personnel w i l l be included in the project team at the central and regional level, and a continuous training program on procurement (including refreshment workshops and seminars) wi l l take place at regular intervals during the whole l i f e o f the project. A PIU’s Capacity Assessment on procurement was carried out and concluded that the implementation of procurement on this project i s average; a summary o f this assessment, along with key points o f the proposed Action Plan are given in Annex 8.

Financial Management. A financial management assessment was performed in accordance with OPBP 10.02 and the Guidelines for Assessment o f Financial Management Arrangements in World Bank Financed Projects. The purpose o f the assessment was to review the adequacy o f the proposed financial management arrangements, to provide the Bank, the Borrower and other interested stakeholders, with accurate and timely information regarding project resources, expenditures and activities.

The assessment concludes that inherent risks can be rated as moderate, while control risk i s high. The proposed arrangements in terms o f organization and staff, programming and budgeting, disbursement arrangements, accounting policies and procedures, information management systems, financial reporting and audit arrangements; strengthened in accordance with the agreed-upon action plan, were found acceptable to the Bank. However, it i s extremely important to note that monitoring and supervision of the

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operation o f such arrangements, as expected, w i l l be essential to guarantee the adequacy o f the financial management system. Details o f the assessment can be found in Annex 7.

4. Social

A comprehensive social assessment has been undertaken for the project, carried out by the Borrower. A summary o f this i s included as Annex 12.

The social assessment has combined attention to social safeguards with a broader analysis of social context, poverty aspects, and gender. I t has included a systematic consultation and participation process, based on an init ial stakeholder analysis. For each stakeholder group the studies have assessed characteristics, interests and stake in the project, level and type o f influence, consultation and participation framework, views and concerns, likely project impacts, as well as barriers, risks, and risk mitigation measures. The social assessment i s coordinated with other project components such as the communication strategy and the monitoring and evaluation system, with qualitative as well as quantitative indicators disaggregated by different groups (e.g. indigenous populations; gender aspects). In addition, the social assessment has focused on ensuring that equity considerations are incorporated into the eligibility criteria for membership in the rural alliances.

In terms o f social risk, the social assessment has identified potential risks both to local groups and r i sks to successful project outcomes caused by the social context. In the first category are issues such as possible increase in inequality if more resourceful groups benefit the most, and risks o f culturally damaging or inappropriate activities for indigenous groups. These and other r i sks are discussed in detail in the project documentation, with corresponding plans for reducing or mitigating the risks.

For the project as a whole, the World Bank’s Operational Directive O D 4.20 (Indigenous Peoples) applies, and the project has been designed to be culturally compatible with local customs and traditions, and to ensure that local, indigenous groups participate through a process o f informed consultation. Potential sub-projects that might entail involuntary displacement have been excluded from the l i s t of eligible investments; the Bank’s Operational Policy OP 4.12 (Involuntary Resettlement) therefore does not apply.

5. Environment

The project i s classified as a Category B project, requiring some type o f Environmental Analysis, but not a full-scale Environmental Assessment Study. No large-scale impacts are expected given the limited and locally-based nature o f project activities. The Environmental Analysis o f the project noted a range o f potential environmental impacts of small scale, primarily related to land use. On average however, the proposed project i s expected to be positive from an environmental standpoint, since i t w i l l promote the implementation of environmentally safe productive alliances, which, in some cases, w i l l even increase the returns from conservation (e.g. eco-tourism). An Environmental Manual (included in the Operational Manual) specifies the measures in which the project w i l l ensure that environmentally safe procedures are in place, and that any minor environmental impact w i l l be addressed through the implementation and monitoring o f the alliance plans. A summary o f the manual i s attached in Annex 10.

6. Safeguard policies

The project triggers six safeguard policies, five that are under the environmental assessment policy and the social safeguard on Indigenous Peoples O D 4.20.

In order to address the environmental issues, the borrower has undertaken an Environmental Assessment (the EA report i s available in the Info Shop). In addition to the potential impacts on forests and other

16

natural habitats, pest management, and cultural property, the principal environmental issues addressed by the EA report include soil conservation, irrigation, water management, water pollution (from agro- processing), crop genetic diversity, and possible over-exploitation o f wi ld products

The EA report addresses the expected induced environmental impacts o f forming productive rural alliances, as well as from civi l works such as road repairshpgrading and canals construction. The EA report specifies the measures by which the project would address these environmental safeguard issues. These measures include (i) a negative l i s t (Lista de Exclusion) of environmentally sensitive investments which would be ineligible for project support; (ii) subproject eligibility and prioritization criteria which favor environmentally benign or positive activities; (iii) an environmental screening checklist; (iv) environmental management recommendations by sub-sector; (v) an Environmental Mitigation Plan; (vi) detailed environmental management procedures for subprojects (including specific institutional responsibilities); (vii) environmental supervision, monitoring, and evaluation procedures, along with recommended indicators; (viii) management plans for non-timber forest products and other biological resources (to help prevent depletion or degradation); and (ix) a Pest Management Plan which promotes integrated pest management and restricts which substances could be financed or promoted under the project, consistent with the requirements of OP 4.09 (see Safeguard Policies Annex for further information).

As part o f the social assessment for the project (see Social Assessment Annex), particular attention has been paid to the situation o f various indigenous groups. A majority o f the likely beneficiary population i s indigenous (70.4% of the target population), and the project as a whole i s therefore being designed in compliance both with the existing Operational Directive 4.20. No separate Indigenous People Development Plan (IPDP) has been prepared. This avoids parallelism and contributes to better integration of indigenous groups’ needs and concerns in the overall project design.

The social assessment identifies the measures through which the design o f the project i s avoiding adverse impacts on the local population. These include (i) the completion o f a detailed stakeholder analysis identifying vulnerable groups, their particular interests and stake in the project; (ii) a detailed consultation phase to ensure that project design reflects the priorities and views o f potential beneficiaries; (iii) an identification of potential social risks and preparation o f a risk mitigation plan, to ensure that mitigation measures have been incorporated in project design. Most common social risks include the poor capacity on business and management o f the producers, local conflicts among groups, lack o f internal governance rules in producer groups, and conflicts due to insufficient transparency in financial transactions; (iv) subproject eligibility and prioritization criteria which favors assistance to particularly vulnerable and poor groups; and (v) social supervision, monitoring and evaluation procedures (a set o f quantitative and qualitative social indicators have been developed to include in the project’s M&E system).

Following the policy which clearly states that “involuntary resettlement should be avoided where feasible, or minimized, exploring al l viable alternative project designs”, the project w i l l not finance activities that may lead to the involuntary taking o f land and that could entail “relocation or loss o f shelter; lost of assets or access to assets; or loss o f income sources or means o f livelihood, whether or not the affected persons must move to another location”. This condition has been explicitly stated in the eligibility criteria for financing o f specific sub projects and activities; i s included in the operational manual and w i l l be referred in the credit agreement. These criteria and the negative l i s t w i l l be applicable to both, the rural alliances of producers, intermediaries and buyers that want to apply for project funds as well as to the municipal funds that w i l l be invested in the execution o f minor infrastructure works. Therefore OPBP 4.12 w i l l not be triggered by the project.

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Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP/GP 4.01) [XI [I Natural Habitats (OP/BP 4.04) [XI [ I Pest Management (OP 4.09) [XI [ I Cultural Property (OPN 11.03, being revised as OP 4.11) [XI [ I Involuntary Resettlement (OP/BP 4.12) [ I [XI Indigenous Peoples (OD 4.20, being revised as OP 4.10) [XI [ I Forests (OP/BP 4.36) [XI [ I Safety o f Dams (OP/BP 4.37) [ I [XI Projects in Disputed Areas (OP/BP/GP 7.60)* [ I [XI Projects on International Waterways (OP/BP/GP 7.50) [ I [XI

7. Policy Exceptions and Readiness

The project complies with all applicable Bank's policies, and no exceptions are sought.

Readiness: A Project Operational Manual has been prepared and agreed with the Bank. The Supreme Decree o f the Project has been submitted to UDAPE with the endorsement of the Minister of Agriculture and Peasant Affairs. On Financial Management, the Borrower has made important progress in the implementation o f the agreed upon action plan and as o f the date o f negotiations the most critical actions have been completed.

* By supporting the proposed project, the Bank does not intend to prejudice thefinal determination of the parties' claims on the disputed areas

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Annex 1: Country and Sector or Program Background

In the 1990’s, having successfully stabilized the economy and defeated hyperinflation, Bolivia embarked on a series o f second-generation reforms which aimed to establish a foundation for economic growth and to improve the provision o f services for the population. The Law o f Popular Participation (LPP) was enacted in 1994, increasing the number o f municipalities from 24 to 312. The national government devolved key functions in health, education, basic sanitation and the promotion o f rural development to these municipalities while providing them with a fixed percentage o f revenues to be distributed through a formula based on population (coparticipacidn tributaria). The LPP also provided a framework for the empowerment o f campesino, indigenous and urban territorially-based organizations (OTBs), which constituted the vast majority of civi l society organizations in the country. After recognizing their juridical personality, the law established a set o f rights and duties for OTBs including the right to identify and prioritize municipal investments and increased control over the provision of social services. In a stroke, the LPP created a framework for inclusive governance and for bottom-up, demand-driven public investment at the local level.

Rural development policy in this context focused on realizing the promises o f this reform. Given that most o f the new municipalities were rural, the LPP gave an important boost to rural development i tself . The instruments chosen by the government, with important IDA and donor support, to implement the new policies were participatory planning, institutional strengthening o f local government and civi l society organizations, and the provision of financial incentives for municipalities to invest in infrastructure and production support services for the rural poor. At the outset, there was concern about the long-term sustainability o f rural municipalities, given that most have a narrow tax base and are highly dependent on transfers from the national government. Thus, the national government aimed to stimulate local economic growth by providing infrastructure, improving access to services and increasing the assets o f poor indigenous and campesino inhabitants.

I t soon became evident that i t was easier for municipal governments to build schools, hospitals and potable water systems than provide productive infrastructure and production support services. An attempt to improve the provision o f the latter through co financing from the national government by scaling up the Fondo de Desarrollo Campesino soon foundered because o f corruption, and has only recently began anew through the Fondo de Desarrollo Productivo y Social (FPS). Campesino and indigenous producers soon began to express increased disillusionment with the unfulfilled promises o f Popular Participation. I t was felt that providing rights over public investments and services to territorially-based organizations (OTBs) ended up marginalizing producers and their organizations from decision-making and from resources. The Second National Dialogue, which culminated with the enactment o f the Dialogue Law o f 2000 reflected these concerns. I t provided additional funding to municipalities (transferring 70% of HIPC I1 resources), widened their competences to explicitly include production infrastructure and services to producers, and gave rights to producer organizations to participate in the municipal planning process through the newly created CODEPEs. The Dialogue Law established a poverty-based formula to transfer HIPC I1 resources to municipalities. In addition, i t enacted a National Compensation Policy (PNC) which transfers additional resources based on the same formula to local governments through FPS. Both HIPC I1 and FPS resources could be invested in social or productive priorities, as defined in participatory planning. Overall, given the concentration o f poverty in the rural areas, rural municipalities benefited to a greater degree than urban ones.

The GOB simultaneously embarked on new attempts to stimulate rural growth through Local Economic Development (DEL) schemes and by a new focus on productive chains. Decentralization has had important effects over access to services in the rural areas; however, the vulnerability o f these reforms

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became exposed as soon as the economy slowed i t s rate of growth. Between 1999 and 2003, the Bolivian economy grew at an average rate o f 1.9% while the population grew at 2.8%. Fuelled by a feeling of renewed exclusion from the political system, discontent spilled out o f rural campesino and indigenous communities into ever growing protests which soon found growing echoes in the cities. Impatience with the pace o f poverty reduction underlies much o f the discontent. In spite o f carrying out a series of basic reforms since the 1980s, Bolivia’s growth has failed to make much o f a dent in poverty. The latest figures (REF to Poverty Assessment) show that 63% o f the population l ies below the poverty line and 37% lives in extreme poverty. In the rural areas, where 4 out o f every 10 Bolivians live, the situation i s even more dramatic: 82% o f the population lives below the poverty line and 60% of the rural poor find themselves in extreme poverty. At the turn o f the century, Bolivia entered a period o f political instability marked by the crisis o f the traditional political system and the resurgence of campesino and indigenous- based social movements and political parties. This crisis has called into question the role o f the private sector in the economy and the role of the state in the fight against poverty.

The present administration has carried out the Third National Dialogue. More than 70,000 people participated in workshops and discussions which began in every municipality, converged in every department and culminated in a national assembly. Producer organizations and economic issues formed the core o f the dialogue. Each municipality prioritized 3 areas for potential growth and, given the predominance of rural municipalities, most o f the priorities fall on agriculture and rural development. The demands o f producer organizations center in obtaining greater support for basic production and transformation through increased funding for technical assistance, production infrastructure and cheaper red it.^ At the municipal level, producers have requested that a portion o f the HIPC I1 funds, which are being transferred to local governments, be earmarked to respond to their needs.

There i s a growing recognition that the present institutional and financing arrangements do not serve to promote rural growth. In the f i r s t place, transfers to municipalities (coparticipaciones, HIPC and FPS resources) are done on an equalization basis; that is, they are intended to compensate for horizontal differences by leveling the playing field, but they also include efficiency objectives (promotion of economic activity). Mixed objectives have served to confuse the incentives to municipalities, which have to choose between allocating resources to public goods and to economic promotion. Not surprisingly, mayors have chosen to finance social investments, public infrastructure and, sometimes, collective goods (e.g. irrigation systems), which has left producers without proper support in spite of the promises underlying the LPP and the Dialogue Law.

Secondly, when investment has reached producer groups, i t has tended to finance the needs of producers rather than their market opportunities. Such investments have the unfortunate effect o f crowding out private initiatives (including those o f other campesino and indigenous producers) by artificially lowering costs. But, in the end, they often waste scarce public resources because the subsidized producers cannot compete for long in the market. Rural space i s littered with failed productive projects: rusting small processing plants, empty silos and underused irrigation infrastructure.

Thirdly, in a country as diverse as Bolivia, spatial differences need to be taken into account when devising instruments to promote rural growth and development. Approximately half o f the 16,000 indigenous and peasant communities o f the country are found in a situation o f high vulnerability with respect to their access to minimum food requirements. In the highlands o f Bolivia (altiplano and valleys) close to 80% of rural households find themselves in a vicious cycle o f land partition, extension and intensification of agricultural production on marginal lands, reduction o f animal fertilization of

Overall, the demands call for an increased role o f the state in the financing o f production support, but also include demands for changes in the political system, the judiciary and even in the Constitution.

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agricultural plots, and soil degradati~n.~ Livelihood strategies of most households encompass permanent or cyclical migration o f some or all members to the cities, colonization zones or out o f the country. Thus, in many areas, there are few opportunities for increasing incomes through agriculture and even local off- farm activities. Mechanisms to promote rural growth must take into account that opportunities are spatially differentiated, and that i t i s often impossible to improve rural incomes by direct support of economic activities in many communities.

During the Third National Dialogue, the government presented i t s draft National Strategy for Agricultural and Rural Development (ENDAR).' The objective o f the Strategy i s to increase rural employment and income by facilitating rural producers' access to markets. The ENDAR aims to tackle 3 key problems: difficulties in access to foreign markets, the small size o f the national market and the low competitiveness of rural producers. The government intends to come to a consensus on a new Poverty Reduction Strategy by bringing together the ENDAR, the results of the Dialogue and wider policy considerations. The present project intends to support the government o f Bolivia by piloting a mechanism to support the market opportunities o f small indigenous and campesino producers. The policy challenge consists of finding a way to channel scarce resources to help poor producers break out o f the poverty cycle by improving their links to the market. The mechanism would help the government to respond to the demands o f producers, while avoiding the pitfalls o f supporting production needs that have l i t t le chance of competing in the market or displacing more efficient producers. I t i s expected that the successful deployment o f a mechanism to finance rural alliances would allow the national government and municipalities to focus on the provision of public goods though transfers to sub national governments.

Mhs allh de las cifras. Productividad rural y manejo de recursos naturales en Bolivia. (Ministerio de Participacibn

The Bank provided some basic technical assisstance during the early phases of formulation of this policy proposal. Popular).

21

Annex 2: M a j o r Related Projects Financed by the Bank a n d o r other Agencies

Project Name

Rural Communities Development Project Participatory Rural Investment I1 Indigenous People Development Project Decentralized Infrastructure fo r Transformation Project Land fo r Agriculture Development Rura l Productive Support Make markets work fo r the poor PADER: Promotion fo r Rura l Economic Development Support to the quinoa productive chain

Financier

WB

WB

WB

WB

WB

BID

OECAS DFID

COSUDE-

COSUDE - M A C A

Dutch Government

Amount I IPDO

=I= US$4 m

I

preparation

U S $ 1 6 m

US$0.35 m

US$0.25 d y e a r

U S $ 3 - 4 m 7-

Closing date

Closed

2006

2005

2007

2010

2009

2006

2006

To be initiated in 2005 for 4 years

Sector Issue

Decentralization Institutional strengthening o f community groups and rural municipalities.

Rural growth - Institutional strengthening o f local actors - infrastructure financing Support to culturally-based productive initiatives o f indigenous groups.

Support to productive infrastructure, particularly energy and communications

Increase land availability for far mer s

Support to rural enterprises

Pilot on rural alliances

Promote public-private alliances for local economic development

Support to al l members of this productive chain to enhance production and markets

22

Annex 3: Results Framework and Monitoring

Sectoral Objectives in CAS and ENDAR Improve the economic inclusion o f the rural population in a framework o f social and cultural equity (ENDAR)

Promote rural growth (CAS)

Overall Project

P!-@-- Test a model to improve market access for poor rural producers in selected areas o f the country

I

identified with a viable

Logical Framework

Sectoral Indicators

Growth (%) in average income rural population

Impact Indicators

Alliance model implemented in pilot areas

Growth (%) in income of rural productive units

Increase (%) in income per day o f labor

# o f new wage-earning jobs generated

% increase in the volume marketed per rural productive unit

Increment (%) in sale price o f product

Output Indicators

# o f alliances identified with a viable plan

I# o f alliances supported in their xganization

Means of verification

[ational ,gricultural urvey, National ,gricultural Census

Means of Verification

Baseline by family farming category and monitoring o f productive variables

Means of Verification

Accreditation o f alliances and viable business plans

Evaluation reports o f the viable alliances

Critical Assumptions

4gricultural and nacroeconomic policies at iational level do not include jisincentives for rural farmers

Having small farmers actively involved and as beneficiaries ,f the agricultural market xonomy contributes toward improving their income and

Small farmers who are members o f the alliance improve their productive practices to better respond to market opportunities offered by purchasers

Critical Assumptions (from results to objectives)

Prices on nationall international agricultural markets do not collapse

Qualified “brokers” or “marketers” are available to work in rural areas

Existence o f potentially profitable market opportunities

N o political interference in the

23

I 1.1. Rural stakeholders understand

1 ________________-___ _-___-_ __------------- _- 1.2. Facilitating mechanisms to support farmers and the markets in the preparation o f their alliance plans established, and alliance plans completed

I .3. Facilitating mechanisms to support other alliance members established

1.4. Alliance plans ready for financing

I

agents working together efficiently and effectively

# o f dissemination and implementation campaigns

# o f participants in the call for bids

# o f identified alliances

# o f pre-investment agreements signed # o f pre-feasibility and feasibility studies supported

_ _ . . . . . . . . . . . . . . . . . . . . _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

# o f brokers contracted and # o f alliances working with brokers

# o f producer groups receiving organizational sufport Agreement with the FPS signed

____ ....................... - ________.

# o f feasibility studies o f public infrastructure to support production financed # o f alliance plans presented for pre- feasibility and feasibility

________________________________________.

# o f viable and selected alliances

# o f alliances financed

# o f financed alliances that have been effective (% of alliances increase their benefit b y 10% o f their amount)

# o f alliance members who received training in institutional strengthening for alliance operation

Reports on execution o f communication strategy

Registration o f participants in bidding acts Identification o f alliances demands __-_ __-_ _ _ _ _ ~ -_-_______________. Pre-investment contracts and studies for alliances

Contracts and monitoring reports

Agreements with institutions aiding alliances and feasibility studies

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Evaluation o f alliances in accordance with eligibility criteria

Reports on contracts to monitor the pre- investment o f alliances Alliances prioritized in accordance with available criteria and economic resources

Alliance monitoring report

Contracts, transfers and monitoring reports on the execution o f PAR services

selection o f the alliances Small farmers have access to :he media

Small producers identify themselves with the project proposals

._____________________________________ _-.__

Small farmers and their buyers have initiatives and willingness to establish alliances

The technical capacity existing in the market responds to the requests o f the alliances

Implementation procedures are flexible enough to support formal and informal agents

Existence o f efficient service providers available to alliances

Availability o f quality technical assistance

Market opportunities and alliances are profitable and equitable for al l members

Social stability

24

2.1. Organized farmers negotiate better and produce to meet the new market’s requirements

2.2. Other actors contributing to the alliance (local governments, NGOs, associations, other projects) have contributed to i t s operation

____-_______________~----~---------------. 2.3. Market agents with marketing systems adapted to work with the alliance’s poor producers

3. Project coordinated efficiently and effectively

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -----.

Components

Component 1 Institutional support 1.1. Communication and dissemination

1.2. Institutional cAm!!iEs ......................... ..........................................

Fair internal distribution mechanisms at the alliance level (reduction in dimarities) # o f groups o f organized farmers who are better able to negotiate their terms with the market (received training in business development)

Increase in the productiodproductivity o f alliance groducers # o f public infrastructure investment plans executed through local governments

__________________ _-___-__--_-_-__-___

# o f alliances requiring investment by local governments who obtained it Volume o f products purchased from small producers

________________________________________

Change in form o f

Decentralized operating unit i s functioning

Earme.?.t.a~d.a.r.?~e~--~ -___.

Monitoring and evaluation system functioning

Audits submitted on time and without observations

Information systems functioning

Input ~

US$3.33

US$ 0.51 In

Completion report o f alliances

Agreements with local governments and other actors

Budget execution by local governments and other contributors

Contracts with central and regional unit staff

Monitoring and evaluation reports Annual audit reports

Archives in central and regional units

Feedback survey b y beneficiaries

Means of Verification

1 communication strategy executed

# o f brokers hired ................................

_ _ _ _ _ _ __-_ ----------------- ~ ______________----------. There i s political willingness by local governments and 3ther actors to aid alliances.

Alliances have levels o f influence in decision making by local governments and other actors.

There i s motivation for the market agents to work with small farmers

Central and regional unit staff are duly selected

A project unit with the willingness to delegate calls for bids and selection o f zone offices

There i s continuity in project staff

Critical Assumptions (from components to results)

Counterpart funds available without delay

25

calls for bids Component 2 I US$20.16 m

approved # o f alliances

Implementation of rural production

2.1 Producer organizations

Counterpart funds available

3.1. Studies

3.2. Technical services 3.3. Financial

US$2.53 m US$0.93 m

management 3.4. Monitoring and I US$0.29 m

3.5. Equipment

3.6. Operating costs

evaluation

US$ 0.34 m

US$ 0.60 m

are members o f alliances # of production support projects co-financed # o f market agents who are members o f alliances __________________________________._______________________________________---------------

Counterpart guarantees to maintain quality standards in the selection o f the project’s professional staff

# o f studies to facilitate execution o f project # o f experts hired $ disbursed

# o f evaluation reports

monitoring information system $ spent in

26

Results Framework

PDO Test a model to improve market access for poor rural producers in selected areas o f the country

Intermediate Results One per Component

Component One: 1. Existence o f alliances identified with a viable action plan

Component Two: 2. Producers and the market working together efficiently and effectively

Component Three: 3. Project coordinated efficiently and effectively

Outcome Indicators Alliance model implemented in pilot areas

Growth (%) in income o f rural productive units

Increase (%) in income per day of labor

# o f new wage-earning jobs generated

% increase in the volume marketed per rural productive unit

Increment (%) in sale price o f product Results Indicators for Each

ComDonent # of alliances identified

# o f alliances supported in their organization

# o f alliances financed

# o f financed alliances that have been effective (% o f alliances increase their benefit b y 10% o f their amount)

# of alliance members who received training in institutional strengthening for alliance operation

Fair internal distribution mechanisms at the alliance level (reduction in dimarities) Decentralized operating unit i s functioning

Monitoring and evaluation system functioning

Audits submitted on time and without observations

Information systems functioning

Use of Outcome Information 3aseline by family farming category ind monitoring o f productive Jariables

Accreditation o f alliances and their viable business plans

Evaluation reports o f the viable alliances Alliances prioritized in accordance with available criteria and economic resources

Alliance monitoring report

Contracts, transfers and monitoring reports on the execution o f PAR services

Completion report o f alliances

Contracts with central and regional unit staff

Monitoring and evaluation reports Annual audit reports

Archives in central and regional units

Feedback survey by beneficiaries

27

e e

.C c

.r

t i E

e t

U c r r

5

rc U c

E : i b b 4

. . 0

L

IO I . . 0 . 0 0

0 0

b m t- m

0 0 2 2

0 3 m

0 0

0 0

I . 0 0

0 0

0 0

3 . . * I

00 1 % 00 I Q 0 %

0 N rri

x b)

2. > N 2.

2. 2. 3 2.

2. * - 2.

* > N *

z z 0 z

Annex 4: Detailed Project Description

Objective. The project’s objective i s to test a model to improve accessibility to markets for poor rural producers in selected sub-regions o f the country. To achieve this, the project w i l l (i) promote strategic productive alliances between different economic players at the local level; (ii) empower rural producers through the development o f self-managed grass-root organizations; (iii) increase access to productive assets and technology; and iv) promote more effective, responsive and accountable service organizations at the local level.

Components.

Component 1: Institutional Support (US$ 3.3 million) This component w i l l finance technical assistance and training to provide the institutional and organizational support needed for the creation o f productive alliances at the local level. The component w i l l give a particular focus to the development of the institutional capacity of small producers to become partners in new marketing arrangements with the private sector. The component’s main outputs w i l l be the formation o f rural productive alliances and the preparation o f viable alliance plans. To realize this objective, the component will, (a) support the implementation o f a project dissemination campaign; (b) support collective action and empower groups o f rural poor producers; (c) support the process o f call for proposals, the preparation o f pre-feasibility and feasibility studies and their evaluation and approval; and (d) assist with the organizational arrangements for the formalization o f the alliances.

The component has the following subcomponents:

(1) Communication and Dissemination: The objective o f the dissemination subcomponent i s to inform potential stakeholders about the scope and rules o f the game o f the project through use of local workshops and mass-media outlets. I t i s expected that poor producers, as a result o f these activities, would become aware o f the opportunities presented by the project and apply to i t with realistic expectations.

(2) Institutional Facilitation: The objective o f the empowerment subcomponent i s to enhance the institutional capacity o f producers groups to, (i) prepare alliance plans; (ii) improve their marketing and business sk i l l s ; (iii) strengthen their negotiating power with other members of the alliance and (iv) receive financial assistance, from the project or others. In addition to the empowerment process, the sub-component w i l l also directly finance the pre-feasibility and feasibility studies for eligible potential alliance members and provide training opportunities to other market agents on specific themes unique to working with small, rural andor indigenous producers.

(3) Capacity Building for Service Providers and Local Governments: The objective of the capacity building subcomponent i s to support the effectiveness o f the alliances by supporting peripheral agents, namely local governments and service providers. Specifically planned activities are, (i) training to local i.e. municipal government officials in familiarizing them with the alliance concept and processes; (ii) training to alliance service providers in project concept, fiduciary management, evaluation, organization strengthening, business management and environmental aspects; (iii) management o f an information system with a service provider database in the UORs, and searching for new service providers with relevant expertise.

30

(4) Appraisal of Alliances: The evaluation subcomponent aims to facilitate the evaluation of alliance proposals, assisted by external evaluators with relevant qualifications and independence to ensure that the allocation o f project resources i s done in an objective manner, and following pre-agreed evaluation criteria, also established in the OM. The subcomponent w i l l support activities in, (i) the publication of different project activities such as the results o f the call-for- proposals, pre-feasibility study, and feasibility study; and (ii) financial, social, environmental and technical evaluations o f alliances to be conducted with the participation o f external evaluators.

Component 2: Implementation of Rural Productive Alliances (US $20.16 million IDA, US$26.63 million total) The aim o f th is component i s to provide support for the implementation o f the rural alliances prepared under component 1. The component’s main outputs are, (i) to have producers and their marketing partners working together efficiently and effectively in long term relations; (ii) an improved production by the rural poor producers to meet their new market requirements; (iii) adapted systems in the markets to work with the alliances’ small producers; and (iv) the ensured co-participation in alliance plans o f service providers and local governments. To achieve these outputs, the project w i l l finance, through co-financing, one or more o f these potential alliance members: small producer groups, market agents and/or local governments. This assistance w i l l be made available for one or more o f the following: (a) to co-finance the implementation o f producer’s subprojects up to the storage stage; (b) to provide incentives that improve the prospect o f alliance members to obtain market-based credit or investment for the implementation of subprojects which include post-production transformation and processing; (c) to co-finance local governments which decide to become alliance members in design and construction o f public infrastructure aimed at supporting a local alliance in i t s productive goals; and (d) to provide technical assistance to market partners to mitigate the relatively higher costs and r i sks associated with entering into financing and marketing arrangements with small rural producers.

The component has the following subcomponents:

(1) Producer organizations Subprojects: The support provided by this subcomponent to the rural poor w i l l be co-managed by the beneficiaries themselves and w i l l be for a range o f purposes that they themselves consider most critical for accessing new market opportunities provided by the alliance. These might include, (i) on farm infrastructure such as minor irrigation canals, storage facilities, community centers for product processing and water harvesting structures; (ii) soil conservation measures such as terracing, land leveling and watershed treatments; (iii) goods such as equipment, tools, machinery, veterinary supplies, seeds and other vegetative material and agriculture inputs; and (iv) services and TA such as studies in market and marketing, information technology, surveys, laboratory tests, publicity, organic certification and other technical productive services.

The assistance provided by this component directly to producers i s estimated to have an upward cap o f 12,500 Bolivianos (approximately US$ 1,500) per household. This estimate i s based on a financial analysis o f already existing alliances by other organizations, and takes into account existing incentives and subsidies in the rural sector.

(2) Municipal Subprojects: The M A C A wi l l sign co-financing agreements with municipalities to support public infrastructure to assist the productive goals of an alliance. This w i l l be done through the Productive and Social Investment Fund (FPS) based on agreements between the local government and an alliance. This co-financing might include, among others, rural road spot improvement and provision o f water, gas, electricity or other utility services, but only when these

31

would be not only for the exclusive benefit o f the alliance members. The subcomponent also includes provisions for financing the operating costs of FPS.

(3) Finance Enhancement Incentives: This subcomponent w i l l complement activities financed under component 1 to (i) improve the credit-worthiness o f the rural producers themselves by capacity building and empowerment activities; and (ii) provide incentives to existing rural financial institutions to invest in otherwise non-creditworthy clients. These activities would target, in particular, mitigating barriers to credit and/or investment identified by producer associations, financial intermediaries, and other market actors. The incentives to financial institutions w i l l support the added costs o f post-investment supervision. The subcomponent also includes provisions for financing the operating costs o f FONDESIF.

Component 3: Project Management (US$ 4.91 million) This component’s outputs are the efficient and effective coordination o f the project and a M&E system which can measure the improved access to markets by poor producers, and the growth in rural incomes. The component w i l l achieve this through the provision of TA, goods, equipment and incremental operating costs which w i l l support the establishment and operation o f a Project Coordinating Team within MACA, the setting up and operation o f a management information system, the implementation of monitoring, evaluation and leaming arrangements, and the completion o f technical studies. The component wi l l also ensure that effective fiduciary arrangements are in place during implementation.

The component has the following subcomponents:

(I) Studies: The subcomponent w i l l support technical studies relevant to project objectives and activities during implementation. Exact themes wi l l be determined during implementation by the U C N and UORs but may include studies on market opportunities in rural areas, rural investment climate, social analysis o f beneficiaries and selection o f new regions to be added to the l i s t o f pre- selected project areas.

(2) Technical Services: This subcomponent aims to put in place an efficient and highly capable technical team in the central and regional project offices. I t w i l l support the placement of technical staff in the U C N (project coordinator, safeguard specialist, training specialist, and regional business specialists) and the UORs (regional operator, alliance officials, environmental specialist, and social specialist). These staff members w i l l be selected, contracted and evaluated annually by an independent, external human resource agency.

(3) Financial Management: The outcome o f this subcomponent i s the establishment of a functional, transparent, accountable and efficient financial management system for the project. Specifically, the subcomponent w i l l support, (i) placement o f a financial team in the U C N (financial manager, procurement specialist, disbursement specialist, and accountant) and the UORs (fiduciary specialists); and (ii) external and independent financial and procurement audits. The former w i l l be conducted annually and the latter in the second and fifth years of project implementation.

(4) Monitoring and Evaluation: The outcome o f this subcomponent i s the establishment of a functional, transparent, participatory and efficient M&E system for the project. The efforts w i l l be coordinated through the M&E specialist stationed in the UCN through, (i) a series o f workshops for alliance members and technical staff in the UORs; (ii) a performance feedback survey conducted by the beneficiaries on project staff performance and overall project

32

performance; and (iii) an external and independent evaluation conducted at the time o f mid-term review and project completion to complement the in-house M&E.

(5) Equipment: This subcomponent comprises o f the procurement of necessary goods for a smoothly functioning U C N and UORs such as office equipment, information technology equipment, environmental field equipment, and vehicles.

(6) Operating Costs: This subcomponent covers the basic operating costs necessary for a smoothly functioning U C N and UORs such as rent, equipment maintenance costs, insurance and utilities.

Key design principles. The design elements that w i l l be critical to the success o f th is operation are: (a) provision o f support to opportunities, not to needs; (b) simultaneous support to supply and demand, ensuring producers better access to markets and focusing producers’ efforts on “production with market demand”; (c) different transfer channels for public and private productive investments; (d) establishment of financial ceilings i.e. each group o f producers wi l l be eligible for a maximum financial ceiling calculated on the basis o f a limit by household, and associated with project guidelines in equity and support to the poor. The financial ceiling w i l l allow for a rational allocation of the project’s limited resources; and (e) determination of transparent rules of the game for access to resources, eligibility, approval, and prioritization of proposals.

Selection of project areas

A territorial approach (assisted by the use of a geographical information system) was followed in the selection of the pilot areas for the project, identifying areas with immediate potential for rural growth in the country (as compared to marginal areas in extreme poverty). The territorial approach led to the identification o f broad areas (provincial scalehegional scale), through a two- pronged approach which included (i) delimitation o f areas with rural growth potential which simultaneously require assistance for poverty reduction, and (ii) analysis of the areas identified in relation to their capacity to establish local productive alliances and to the limitations presented in their assets base. The first phase o f this approach employed variables such as variation of population between censuses (rural and urban), level and density o f poverty, and a negative l i s t including: urban centers above 50,000 people, extreme levels o f unsatisfied basic needs, and protected areas. The second phase utilized both geo-referenced and qualitative information, and included variables such as municipal functioning, availability o f public infrastructure supporting production (roads, electricity, etc.), status of the financial sector, social capital and local institutions, attractiveness for private sector investment and presence o f other donors/programs. The results o f the analytical process described identified several potential areas in the country, from which the three here proposed were prioritized. They are geographically represented in the map o f Annex 17 and summarized as follows: (a) the northern expansion zone o f Santa Cruz; (b) the Cochabamba valleys; and (c) the area around the Uyuni Salt Lake in Oruro and Potosi.

The proposed model: rural productive alliances

Definition. To comply with the proposed objective, the project design i s focused on the establishment and implementation o f rural productive alliances. A rural alliance i s defined as an “economic agreement between a group o f small rural producers and other economic actors, in which all contribute and gain, thus assuring the continuity o f the agreement in the medium and long term.”

33

Alliances constitute an innovative, effective strategy to deal with the lack o f access to markets. Alliances wi l l promote synergies and learning among members; produce innovative, relevant solutions; deliver concrete, significant results; increase availability, fairness, and productivity in the use o f resources; improve the future sustainability o f initiatives; facilitate the consolidation of institutions and more solid, sustainable relationships; and increase social capital in the rural sector.

Operational principles. Taking into account the diversity o f actors, regions, situations, and the project’s focus on support to opportunities, the intention i s to establish a flexible alliance model that allows the project to adjust to the requirements o f each particular business case. Alliances w i l l be local in nature, Le., they w i l l be identified in a bottom-up processes and not through the pre-selection of products or supply chains. Alliances are not limited to the agricultural sector and may be any economic activity conducted by rural poor people. Expected examples of non- agricultural economic activities supported by the alliances are eco-tourism activities, handicraft activities or rural service provision activities. Alliances may be established based on a variety o f formal agreements between small producers and market agents. As a minimum, they w i l l require a letter o f intention but may also be based on a medium-term purchase-sale contracts, improvised arrangements, or other types o f agreements between parties.

Intervention models. To emphasize the bottom-up and innovative nature o f the project concept and the expected dynamism created by the project in the rural sector, the project has been designed with enough flexibility to adapt to different alliance models. This flexibility in alliance model designs and arrangements w i l l be maintained throughout project implementation. However, for the purpose o f establishing the general principles of the project, and i t s rules o f the game, the following three general models have been considered: (i) Alliance model 1: alliances in which the project w i l l finance small producer organizations (until the post-production storage phase) to improve access to markets; (ii) Alliance model 2: alliances in which the project w i l l provide technical assistance to small producer organizatons (up to and including the post- production processing phase). This TA wi l l be oriented to business development, product enhancement, and improvements in their creditworthiness to access financing already available in the market, and (iii) Alliance model 3: alliances which support both small producer organizations and their market agents. In all three types of alliances the project may finance local governments which choose to become alliance members in design and construction o f public infrastructure aimed at supporting a local alliance in i t s productive goals.

The project w i l l sign agreements (covenants or contracts) with all parties simultaneously to enable co-financing. Financing w i l l be administered by each party under terms detailed in the agreement signed between the project and the alliance members.

Alliance model 1 (alliances in which the project will finance small producer organizations until the post-production storage phase). This simple model i s the one for which greatest demand i s expected during project implementation (approximately half o f all supported alliances). I t w i l l basically be focused on supporting organized small primary producers who are committed to increasing the quality and quantity o f their production to satisfy current market needs and to create new market opportunities for themselves. Producers should have a commitment for the purchase of their production. This alliance w i l l include the following areas o f intervention, (a) support to a region-based team o f brokers or marketers who w i l l promote and facilitate these productive alliances, responding to producers’ needs, facilitating their association with the market, and supporting them in the preparation o f alliance plans; and (b) national-level facilitation to finance the implementation o f these alliances following pre-agreed and defined rules of the game. Since these are simple alliances, the plans presented therein w i l l be in the form o f a final design, without the need to undergo a pre-feasibility phase.

34

Alliance model 2 (alliances in which the project will provide TA to small producer organizations (up to and including the post-production processing phase). This model targets producer groups who are also engaged in post-production processes such as commercialization or transformation. I t also targets non-agricultural producerhervice groups such as handicraft makers and rural tourism service providers. These groups who have expanded their income generating activities from production to post-production are expected to be more organized and market oriented. These activities, in addition, have a better rate o f return than the ones proposed in the model 1 above. Because in Bolivia the main problem o f rural small and medium businesses seems to be more lack o f creditworthiness than a poor supply for financing, this model aims at - rather than providing direct financial support- improving the access to rural finance through finance enhancement activities.

Alliance 1

Alliance 2

Since alliance plans for this type are expected to be more elaborate than for alliance model 1, planning w i l l be divided into a pre-feasibility study and a feasibility study, both o f which the project w i l l finance. The financial evaluation, w i l l be conducted by independent organizations contracted by the project. These organizations w i l l evaluate the financial soundness of the plan and either disqualify or qualify the plans specifying requirements to be fulfil led for the plan to be deemed sound for financing. As mentioned, the project itself w i l l not directly finance these proposed economic activities and w i l l rely on outside finance organizations to do so. Rather, the project will, (i) offer TA to the rural producerhervice groups for business development, product enhancement, and for increasing their creditworthiness such that they w i l l clear the threshold for credit eligibility o f outside finance organizations. The project w i l l also offer incentives to microfinance organizations to cover for incremental operating costs incurred by offering financing to these higher risk clients.

Producers Market Agents Co-financing 2 20% None o f total costs (a)

Co-financing from None/ Co-financing the project for T A (b) from the project for T A

@)

Alliance model 3 (alliances where the project will support small producer organizations and their market agents). This alliance model w i l l be aimed at simultaneous support to small producers (until the post-production storage phase) and the purchasers o f their products (technical assistance for quality control, adaptation o f purchasing systems, etc.). The justification for simultaneously supporting all members of the business alliance stems from the need to provide the market agents with incentives for the risks and incremental costs i t may incur by associating with disadvantaged producers. The selection criteria w i l l be the same for alliance model 1 for producers and alliance model 2 for market agents. Due to the higher coordination and business s k i l l s necessary for this type o f alliance to function properly, i t i s expected that less than 20 % o f all financed alliances w i l l be o f this type. These alliances would require both pre-feasibility and feasibility studies.

Alliance 3

Financing. The type o f financing that each actor w i l l receive in each alliance model i s summarized below:

Co-financing 2 20% o f total costs

Co-financing from the project for TA @)

Local Governments

accordance with rules municbal transfers (around 15%) None or co-financing in accordance with rules for municipal transfers (around 15%) None or co-financing in accordance with rules for municipal transfers (around 15%)

35

Note: (a) Co-financing refers to co-financing grants o f goods, works or services. @) Finance institutions will complement this assistance by providing financial support with their own resources

Alliance model 1 foresees that in most cases the project w i l l finance, by means o f co-financing grants, the producers’ requirements for technical assistance, small works, and equipment. The total counterpart contribution required from small producers should be at least 20% of the total value, including labor, local materials, and cash. The required counterpart levels may vary according to the type o f expenditure but wi l l never be lower than 10% in any category, and especially in the case o f purchases o f goods they must necessarily include monetary counterpart contributions o f at least 30%.

In models 2 and 3 the project may also finance market agents for technical assistance. Financial assistance for market agents and producers involved in transformation w i l l be sought from the financial market. The project wi l l facilitate the process o f accessing these financial lines through two mechanisms (a) provision o f direct TA to the recipient o f the assistance, to improve creditworthiness, and (b) provision o f TA to selected finance institutions in the project area, to pay for the incremental costs of supervising the new clients from the alliance.

When producers require support in their alliances for businesses that involve processing, they w i l l also be financed in a reimbursable manner according to the principles described in the above paragraph.

In cases where municipal investments are required to ensure the success o f any alliance, the project w i l l sign a co-financing agreement with the municipality for the execution o f the required work or service. The project may co-finance, among others, the timely improvement (not the opening) o f roads, the provision o f water, gas, or electricity, provided that the benefits of these works or services cannot be exclusively appropriated by the purchaser.

Below i s a summary table of various alliance models and their respective financing plans.

Producers 1 Markets I Local Governments Alliance model 1: alliances in which the project will finance small producers until the post- production storage phase Overall: at least 20 % beneficiary co-financing o f the total I 0 I *O,or - value, including labor, local materials, and cash. Counterpart levels vary according to the type o f expenditure but w i l l never be lower than 10% in any category: Goods: 2 30 % beneficiary co-financing, Works 2 20% beneficiary cofinancing, TA: 2 10 % beneficiary co- financing; Unskilled labor and locally available goods: 100 % beneficiary co-financing

* co-financing in accordance with rules for municipal transfers (around 15%)

36

Alliance model 2 alliances in which the project will provide TA to small producers (up to and including the post-production processing phase Support for technical assistance with at least 10% I * 0, or 1 * *O,or

* Support for technical assistance with at least 10% beneficiary co-

I financing

beneficiary co-financing * co-financing in accordance with rules for municipal transfers (around 15%)

.. technical assistance with at least 10% beneficiary co- financing

Y

Alliance model 3 alliances where the project will support small producers and their markets Overall: at least 20 % beneficiary co-financing o f the total I Support for I * 0, or

* co-financing in accordance with rules for municipal transfers (around 15%)

I

value, including labor, local materials, and cash. Counterpart levels vary according to the type o f expenditure but wi l l never be lower than 10% in any category: Goods: 2 30 % beneficiary co-financing, Works 2 20% beneficiary co-financing, TA: 2 10 % beneficiary co- financing; Unskilled labor and locally available goods: 100 % beneficiary co-financing

Selection of alliances.

The process of selecting alliances to be financed by the project w i l l include a process with three stages: (i) eligibility; (ii) evaluation of pre-feasibility and feasibility (viability); and (iii) prioritization (if the number o f viable alliances i s greater than the available number to be approved in each call for proposals).

Eligibility. Eligibility w i l l be sel f defined, as criteria w i l l be disseminated widely among potential project beneficiaries through the information dissemination campaign. Criteria for alliance eligibility include the following, producer members o f the alliance satisfying the eligibility criteria for potential beneficiaries; profitability o f proposals; minimum environmental and social impacts; not be part o f the negative list, involvement o f municipal counterpart funds for public infrastructure o f production services (if needed); assurance o f market (letter o f intent, medium-term sale-purchase contracts, improvised arrangements, or other types o f agreement between parties concerned); and legal recognition o f beneficiary entities.

Each alliance declared eligible w i l l have to agree to the following aspects, (a) accepting the responsibility to manage the activities specified in the alliance plan; (ii) agreeing to implement the plan in accordance with project rules and guidelines; and (iii) agreeing to use transparent procurement and administrative-financial system in accordance with the OM. If a municipality i s participating, i t must agree to: (i) facilitate the promotion o f the alliance; (ii) contribute i t s portion, if called for, in the form o f public infrastructure; and (iii) ensure that there w i l l be no social or environmental impacts on other members o f the community.

Evaluation. The evaluation process w i l l consist o f two stages, (a) pre-feasibility evaluation (for all alliance models); and (b) feasibility evaluation (for only alliance models 2 and 3). For both cases, the evaluation w i l l consist o f a financial evaluation and a technical evaluation (institutional, social, environmental, and economic). The financial evaluation w i l l be performed by external entities contracted for this purpose. The technical evaluation w i l l be performed by a team o f project and non project members, including beneficiaries, the private sector and NGOs, to determine the socio-environmental and technical viability and determine their prioritization prior to approval. Both evaluations w i l l take place at the regional level. Needless to say, the financial

37

evaluation w i l l not automatically determine the proposal’s approval since the proposal may not be considered viable from a technical and/or socio-environmental standpoint. The project w i l l also produce a l i s t o f non-eligible activities for financing to guide the preparation of plans.

Prioritization. When the number of proposals i s high, a prioritization process w i l l follow the evaluation stage to determine the final beneficiaries. Criteria for prioritization o f alliances include: degree o f municipal contributiodparticipation; level o f participation by women and indigenous peoples (giving preference to those alliances that benefit these segments of the population in greater proportion); level o f poor rural beneficiaries; positive environmental externalities; profitability; and degree of formalization in the purchase commitment.

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Annex 5: Project Costs

Local Foreign Total

$mil l ion $million $million Project Cost B y Component and/or Activi ty us us us

Institutional Support 3.05 0.00 3.05 Implementation of Rural Productive Alliances 20.34 3.48 23.83 Project management Total Baseline Cost

4.20 0.22 4.43 27.59 3.71 3 1.30

Physical Contingencies 0.00 0.00 0.00 Price Contingencies 3.53 0.04 3.57

Total Project Costs' 3 1.13 3.75 34.88 Interest durinE construction Total Financing Required 3 1.13 3.75 34.88

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Annex 6: Implementation Arrangements

General principles. The nature o f the project, with i t s objective o f facilitating economically sustainable rural productive alliances between producers and markets, implies the prior acknowledgment of the public sector’s limited role in their implementation. The implementation structure i s based on the following principles: (i) the public sector’s responsibilities are focused mainly on promotion and facilitation; (ii) the execution o f project activities i s decentralized to identified productive alliances; and (iii) the participation o f a wide range o f actors i s defined by means of a clear distribution o f roles and responsibilities, taking into consideration the capacities and specific s k i l l s of each party. These are:

1.

2.

3.

4.

The national public sector promotes and facilitates the establishment and implementation of alliances through the Rural Alliances Project.

Small producers produce goods and services in rural areas and are located in areas selected by the PAR. Goods and services may be agricultural or non-agricultural.

Market agents purchase goods and services from small producers in the rural area selected by the project.

Local governments support alliances through the construction of infrastructure in support of production. This infrastructure i s used not only by the alliance members but by the whole community. Municipal governments and Prefectures may also intervene in alliances as purchasers o f goods and services from small producers.

Prefectures, municipal governments, non-governmental organizations, and other institutions which may carry out complementary activities. They w i l l be called “contributors to alliances.”

Operational procedures define transparent rules of the game, clear eligibility criteria for the identification o f beneficiaries and the allocation of resources, an efficient f low o f funds and adequate monitoring and supervision arrangements. All o f these are spelled out in the OM.

Institutional relationships among actors

The project’s institutional relationship to support alliances i s marked by the flow o f services and resources i t w i l l channel for the success o f the business opportunities presented. The reach to producers, market agents and the municipal government i s independent but synchronized by the intervention of brokers, alliance officials of UROs and by business specialists o f UCN.

Small producers, according to the type o f alliance, may benefit from: (i) grants and their counterparts for the purpose o f financing productive subprojects channeled by the project; and (ii) credits or risk capital through financial Institutions. Incentives to these financial institutions to supervise financial assistance to alliance members w i l l be provided through FONDESIF:

Market agents may have access to project co-financing for technical assistance. Access to credit and/or risk capital w i l l be managed directly by themselves and may be, depending on the business plan, a pre-requisite for project financing.

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Municipal governments, as institutions contributing to alliances, may access donations with counterpart contributions through the FPS. The project w i l l require compliance with deadlines in the financing o f production support infrastructure.

All these institutional relationships are part o f an alliance plan, and members, contributors, and facilitators are in charge o f making i t work until the success o f the business i s achieved.

Institutions at the national level

The project w i l l be coordinated by the MACA, through the UCN. The organizational structure i s comprised o f the following authorities:

Project “Council” 0 MACA

U C N

Project “Council”. The project’s strategic, regulatory, and supervisory level w i l l be comprised o f members o f the Interministerial Committee; national representatives o f the small producers, purchasers, businessmen, Prefectures involved and the National Project Coordinator. Public sector representation w i l l be 40% and private sector 60%. I t w i l l be presided by the Minister of M A C A or his delegate and w i l l have the following principal duties: approving management guidelines, reviewing annual operating programs, execution reports and fiduciary documentation, providing all necessary support to the U C N so it can properly and efficiently carry out project coordination and administration, promoting the complementary integration o f project actions with other programs and projects, supervising the project’s compliance with defined objectives, targets, and regulations, and recommending regulations, strategies, and policies to facilitate project execution. The “Council” w i l l meet regularly twice a year during project implementation.

MACA. The Ministry represents the project’s strategic management level, represented by the Minister o f MACA. I t w i l l have the following duties: articulating the execution of the policies and strategies o f the ENDAR in the project, in coordination with other sectoral programs and projects, delegating to the U C N the operational responsibility for execution7, approving the O M and i t s modifications, signing any inter-institutional agreements for project execution, approving the POA and ensuring the project’s budget registration, processing, together with UCN, amendments to the Credit Agreement, signing contracts with the National Project Coordinator, and reviewing annual evaluations.

The U C N established within the M A C A wi l l have the responsibility o f coordinating and administering the project at central and regional levels, with the following basic duties: coordinating with M A C A on matters that require special attention and action by the Government and the Bank, particularly with regard to amendments and the Credit Agreement; formulating operational guidelines and regulations with the objective o f improving project execution; being responsible for the project’s accounting and financial management, including management o f the Special Credit Account (in US dollars) and other project accounts; establishing the technical team o f the U C N and UORs and evaluating them annually, with the support o f an external agency specializing in staff selection; preparing POAs; managing, operating, and maintaining the M&E System, designing and implementing the project dissemination and communication strategy; disseminating, coordinating, monitoring, and evaluating the project; ensuring the operation of UORs, implementing, monitoring, and evaluating the experience o f rural alliances; transferring

specified in a subsidiary agreement and in the POA’s approval

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project resources to rural alliances for subproject execution; analyzing and approving subprojects presented by UORs; issuing invitations for the presentation of alliances; contracting the financial evaluation o f alliance plans and subprojects that form part o f alliance plans, contracting the Financial Agents and approving the OPS of the UORs. The U C N wi l l consist of a coordinator and both sectoral and territorial technical staff, selected through a competitive, transparent process carried out by a private agency specialized in this subject. Appointments w i l l be made by the MACA. Annual evaluations wi l l also be made by a private external agency8.

Financial Specialist Financial Analyst Disbursement Analyst

Functional structure of the National Coordination

-Monitoring and Planning Communications National

Coordinator

I I I I

Procurement Suecialist

Business specialist

I I I

Business specialist I I I I . I

a a I 1 Technical I a a a

a a .

I Assistanceb.. c a + . a a

a

a a

a

a a a a . a a a .

a a Safeguards a . a a a a a a a a a a a a a a:

a

a a a a . i

. a a . a a a

i

8

This wi l l have the exception o f a core team o f 3 people at the initiation o f the project, to ensure continuity between preparation and implementation, and compliance with the minimum fiduciary and safeguard requirements on staffing. This core staff w i l l be subject to annual evaluations, and if replaced, w i l l follow the competitive selection process mentioned above.

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National financial agent (FONDESIF). This w i l l be the project’s channel to transfer to the financial institutions the incentives (grants) for supervision o f the financial lines provided to alliance members.

Productive and Social Investment Fund (FPS). This w i l l be the project’s channel to supervise the co-financing o f the infrastructure in support o f production which can be required by the alliances (and when forming part o f the alliance plan). The FPS wi l l provide this assistance to the municipalities in accordance with i t s regulations and procedures.

Market Agents. Purchasers w i l l be individual and/or collective entities which purchase agricultural on non-agricultural goods or services from the producers for processing, re-sale, or consumption. They do not need to be located in the same area as the producer group. They wil l have the following functions: forming alliances with groups and organizations o f small producers to establish stable commercial relationships (not a simple commercial transaction and more than once); identifying demands for priority investments, for the alliances that they represent; in conjunction with the small producers’ organization, signing agreements with the UORs for project support, responsible for preparing outlines o f their productive alliances’ plans and subprojects, presenting all necessary and relevant documents for the implementation of plans and subprojects and for the execution o f their productive alliances; arranging financing with financial intermediaries, executing approved and agreed plans and subprojects, and administering, utilizing, and maintaining the acquired investments (if requested), and being responsible for the investment’s operation, maintenance, and future replacement.

Regional-level institutions

Regional Operational Units (UORs). These w i l l be the field units of the project, working under the supervision o f the UCN, and established after Inter-institutional Agreements with the respective prefectures. Each unit w i l l have technical and support structure to carry out project coordination and execution under the scope o f each region, with the following responsibilities: promoting and disseminating project guidelines in association with producers’ organizations, market agents, and contributors to alliances, in their respective regions, assisting producer organization with the necessary information to prepare alliance plans, receiving alliance proposals in accordance with eligibility criteria defined by the project, facilitating the evaluation o f alliance proposals (in conjunction with a team o f non-project staff including producers, NGOs and the market), contracting and supervising the work o f alliance facilitators and monitors (brokers), supervising the financial evaluation carried out by financial institutions, promoting the signing of agreements between small producers and purchasers to formalize alliances, coordinating the process of supervising the execution o f productive alliances’ plans and subprojects, coordinating and monitoring the execution o f alliances’ plans and the activities o f facilitating and monitoring alliances, contracted by small producers, preparing POAs, reports and M&E evaluations, implementing the project’s dissemination and communication strategy at regional and local levels, carrying out hiring processes in accordance with procedures and guidelines in the OM, evaluating and approving disbursement requests for the contracts i t carries out and external contracts that the project finances in i t s area o f influence, and providing documentation to support auditing processes. Each UOR wi l l consist o f an operator in charge, a technical staff o f “alliance officers” in charge of promoting alliances and the execution o f alliances’ plans, and an administrative staff in charge of the financial execution o f the UOR.

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Functional structure of the Regional Unit

. . -SocialSpecialist ........ .:. ............... .;. .............. f . . . . . . . . . . . . . 4 . . . . . . . Environmental . - Specialist ...........................................

Productive Promo tion

All iance Off icer All iance Off icer

. . .

Producers’ Organizations (PO). Producers’ organizations w i l l be legally established entities (with legal status and by-laws), that execute alliance subprojects financed by the project. The main duties o f the PO are: to establish alliances with market agents in stable commercial relationships (not a simple commercial transaction or more than once); to identify, through open consultations and agreement with their affiliates (small producers) the priority investment demands for the alliances they represent; to request project support for the financing o f their alliance plan and/or their subprojects; to sign agreements with UORs for project support, to prepare outlines o f the plans and subprojects o f their productive alliances, to prepare contracts and hire third parties to prepare outlines o f the plans, subprojects, studies, and agreements required for their execution, according to technical guidelines provided by the project; to process all necessary and relevant documents for the implementation and execution of their productive alliance’s plans and subprojects; to execute approved and agreed plans and subprojects, to administer, utilize, and maintain the acquired investments, and being responsible for the investment’s operation, maintenance, and future replacement; to manage with efficiency and to present clear, transparent accounts to project and i t s respective assembly, on all resources received and executed; to fi le al l documentation in support o f the process o f submitting accounts

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of financial resources for the plans and subprojects agreed with the project, and to facilitate any audit process for the project.

Market agents. Same as above, with the characteristics o f a regional presence.

Contributors to alliances. These are public or private institutions that contribute to alliances. Their returns are not always economic but might relate to strategic interests. Their participation enables the key objective of the alliance and the relationships between small producers and their markets. Alliance contributors may be: municipal governments, Prefectures, NGOs, international cooperation agencies, religious groups, providers o f services, goods, and inputs, etc. Their functions are: to contribute to alliances to ensure their success and sustainability; to identify demands for complementary investments and services for participating alliances; to request project support for the financing o f investments and services complementary to the alliance plan and/or i t s subprojects; to sign agreements with the UORs for project support; to prepare outlines and subprojects to contribute to productive alliances, i f needed, to hire third parties to prepare feasibility studies and to execute subprojects following the technical guidelines provided by the project; to execute approved and agreed subprojects, to administer, utilize, and maintain the acquired investments, and being responsible for the investment’s operation, maintenance, and future replacement; to manage with efficiency and to present clear, transparent accounts to PAR, on all resources received and executed; to f i le all documentation in support o f the process of submitting accounts of financial resources for subprojects agreed with PAR and to facilitate any audit process o f the project.

Financial institutions. These are FIs with presence in the field, in charge o f providing credit or risk capital to alliance members (with their own capital and under their conditions). They w i l l be hired by the UCN through a competitive process to provide evaluation services and may receive incentives to cover for incremental operating costs in managing financing for alliances. Their duties wi l l include providing financial assistance (own resources), financially evaluating alliance plans in their stages o f outlining (pre-feasibility) and final design (feasibility) in accordance with the Terms o f Reference described in the OM, and technical assistance in accordance with direct or indirect agreements with PAR .

Service providers. These are public and private institutions and individuals who offer the services needed to achieve the alliance’s objectives

Facilitators. Alliance facilitators are individual or collective, public or private entities with experience in the development and implementation o f productive projects and markets. These are agents which w i l l monitor the alliance’s formulation and i t s later implementation. Facilitators must represent the interests o f the alliances (and particularly the small producers) and should be accepted in the zone. Hehhe w i l l be responsible for: raising awareness about the project’s objectives and expectations among potential beneficiaries; mobilizing and supporting collective action for the formation o f producers’ organizations; facilitating the preparation, design, and implementation o f business plans for producers’ organizations and alliance members; supporting producers’ organizations in implementing their plans; and forming and formalizing rural productive alliances. Brokers w i l l be selected through a competitive process at the regional level, based on criteria established in the OM. Other facilitators wi l l be the alliance assistant (asistente de alianza) which w i l l have the following duties: managing the alliance and carrying training efforts so the producers’ organization can acquire such management capacity, overseeing alliance members during start-up, establishing indicators to monitor the alliance and applying them during i t s implementation, providing information on the utilization o f incentives, as well as o f the investments and activities

The most common facilitator w i l l be the broker.

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programmed with other resources, and promoting the application of the environmental and social plan by alliance members. The alliance assistant wi l l be hired by the producer group, and, if so desired by the producers, this responsibility can be performed by the broker too.

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4

. .

\ 2

\ \ I

................................

Annex 7: Financial Management and Disbursement Arrangements

A financial management assessment was performed in accordance with OP/BP 10.02 and the Guidelines for Assessment o f Financial Management Arrangements in World Bank Financed Projects. The evaluation was performed on site from February 4 to 16, 2005 and updated on field between March 15 and 19,2005

Executive Summary and Overall Conclusion.

Project complexity, innovation and other features related to i t s design, call for a very robust and adequate financial management system, able to provide the Bank, the Borrower and other interested stakeholders, with accurate and timely information regarding project resources, expenditures and activities.

Inherent risk has been rated as moderate and the control risk i s rated as high. Downgrading th i s rating w i l l depend on the implementation of the proposed action plan and successful operation of the financial management arrangements.

During appraisal, important progress has been made to complete and strengthen the design o f the financial management arrangements, that are being reflected in the Project Operational Manual, On the basis o f the review performed o f the progress reached so far and the actions that are being taken to complete the pending requirements, which w i l l be followed up during implementation, the financial management team concludes that the proposed financial management arrangements are acceptable to the Bank. However, i t i s extremely important to note that monitoring and supervision o f the operation o f such arrangements, as expected, w i l l be essential to guarantee the adequacy o f the financial management system.

Organization and Staff.

The core financial management and procurement team and positions have already been defined, both at central and regional level and they are adequately reflected in the PIU’s organizational structure. The key positions include a Finance Manager, supported by a disbursement analyst, and a Finance Analyst (accountant) at central level and; a Fiduciary Officer for each regional office. The TORS for these positions have been reviewed by the Bank and certain adjustments have been agreed in terms of qualifications required and functions assigned, mainly in relation to the Fiduciary Officers, who wi l l be providing direct support to the Producer Organizations.

Given the importance o f having highly qualified and experienced staff to ensure adequate operation of the financial management system and in order to guarantee stability and allow an independent selection process, all key project staff w i l l be financed with credit proceeds and wi l l be selected by an independent firm following Bank selection procedures before effectiveness.

Taking into account the fact that financial management staff w i l l only be hired after effectiveness, i t w i l l be essential that they are trained on financial management, internal control and disbursements arrangements defined for the project, in order to strengthen their capacities to carry out the project.

Programming and Budgeting.

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Programming and budget preparation wi l l actually follow local regulations issued by the Ministry o f Finance. The following issues w i l l need to be addressed in order to allow an adequate budgetary control: 1) timely preparation o f programming and budget, establishing a clear relation between them; 2) proper recording of the approved budget in the financial management system, not only following Government required classification (Partidas por objeto del gasto), but also a classification by project component and cost category; 3) timely recording o f commitments, payments and accruals as needed, to allow an adequate budget monitoring and also provide accurate information on project commitments for programming purposes.

The financial management assessment has identified some weaknesses identified in the preparation o f the budget, and processing o f i t s approval, including budget modifications at the country level. Such weaknesses together with the current fiscal constraints may actually become obstacles to register the project’s budget, at least for the required amounts. Such situation may also prevent the project from complying with i t s commitments, and i t w i l l require close monitoring from the Bank to anticipate any potential problems.

Disbursement Arrangements.

Given the project implementation arrangement and in view o f the s t i l l pending actions to complete and strengthen the financial management system, the FM team concludes that project does not have yet the capacity to use Report-based disbursement and i t w i l l therefore use traditional, transaction-based disbursements.

Disbursements to Productive alliances.

Payments to producer organizations wi l l be mainly made using a lump sum basis. Therefore, disbursements w i l l be made in one or several tranches on the basis o f physical progress reports, duly authorized and approved by the corresponding regional staff as a result o f in-site inspection. However, a combination of lump sum and actual expenditures may also be used for certain type o f subprojects (all reconciled).

Disbursements to market agents for the provision o f technical assistance w i l l be made for actual costs incurred.

Disbursement to municipal subprojects. The co-financing o f public productive infrastructure executed by participating municipalities, w i l l be processed by direct payments to contractors, upon receiving the progress certificate approved by FPS, the official invoice and evidence of payment o f the counterpart contributions.

Specific procedures for different funds flow arrangements to ultimate beneficiary are defined in the Operational Manual, and w i l l be reflected in the corresponding financing agreements. In al l cases, the PCU wi l l exercise i t s fiduciary and oversight role through i t s regional offices. For the incentive category, on the basis o f the reports issued by FONDESIF, the project w i l l be able to process cash transfers to financial institutions, using the CUT

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Allocation of Credit Proceeds

Expenditure Category Goods Special Services (a) Consultants’ services and training (including procurement/financial audits) Producer organization Subprojects

Amount (in US$ million) Financing percentage 0.35 100% 0.24 100%

6 100%

13.5 100% of the amounts disbursed by the borrower on account of the cost of goods, works and services under

Incentives under part B.3 of a subproject

0.2 100%

Special Account and Withdrawals

the Project Municipal subprojects

Operating costs (b) Unallocated TOTAL

To facilitate implementation, a Special Account in U S dollars w i l l be opened and maintained in the Central Bank o f Bolivia and payments w i l l be processed through the Single Treasury Account (CUT), following the arrangements established by the Viceministry o f Treasury with the banking system.

4.8 100% of the amounts disbursed by the borrower on account of the cost of goods, works and services under a subproject

1.7 100% 1.61 28.4

An Authorized Allocation (AA) for advances made into the Special Account has been established. in $ 2,000,.000.

Withdrawals from the Credit Account w i l l be made on the basis o f statements o f expenditures for the following expenditures: (a) contracts for goods costing less than $ 300,000 equivalent per contract, (b) contracts for works costing less than $ 750,000 equivalent per contract, (c) contracts for individual consultants costing less than $ 75,000 equivalent per contract; (d) contracts for consulting firms under contracts costing less than $ 200,000 equivalent per contract, (e) subprojects and (0 operating costs. These thresholds wi l l be adjusted on an annual basis following the prior review thresholds o f the procurement plan.

Retroactive financing

During negotiations, the borrower requested and the Bank agreed to include $ 1,000,000 equivalent for retroactive financing with respect o f payments made for eligible expenditures under categories (1) to (7) and after March 15, 2005

so

Accounting Policies and Procedures

Project transactions wi l l be recognized following the cash basis o f accounting, and it wi l l initially use the Chart o f Accounts issued by the General Accountant’s Office, adequately adapted to reflect project components and cost categories. Although Integrated Management and Administrative Modernization System (SIGMA) includes an accounting module, due to certain limitations o f such system, project financial statements w i l l need to be prepared from the ring- fenced integrated financial management system. The accounting manual, chart of accounts, and specific accounting policies for the control and registration o f counterpart contributions are also established as part o f the Operational Manual.

Information Management Systems

Under local regulations, the project wi l l use the SIGMA and the CUT to process all payments. However, given certain limitations SIGMA may have to provide specific information needs, a ring-fenced system that integrates budgeting, accounting procurement and a subproject module i s being implemented, on the basis of similar systems used for other Bank financed projects. The idea i s that this system wi l l allow the proper recording and control o f all subprojects financed by the project, including preparation of budgetary reports by project component, preparation of SOEs and Financial Monitoring Reports (FMRs).

Financial Reporting

The design o f the ring-fenced financial management system includes the automatic preparation of quarterly FMRs (at least procurement and financial sections). The minimum content should include: a) Sources and uses o f project resources and a statement o f investment by project component reporting the current quarter and the accumulated operations against ongoing plans; b) An output monitoring section that: (i) describes physical progress in the implementation o f the project, both cumulative and for the period covered by the report; and (ii) explains variances between the actual and previously forecast implementation targets; and , c) a procurement section setting forth the status o f procurement under the project and expenditures under contracts financed out o f the proceeds o f the loan, as o f the end o f the period covered by the report. Preliminary formats o f the reports have been included in the draft Operational Manual.

Financial reporting at community level.

Producer organizations wi l l be required to prepare simpli f ied financial reports, whose design and minimum content (sources o f funds, uses and cash balance) have been agreed and wi l l be reflected in the project Operational Manual. A model report would become part o f every financing agreement and organization members in charge o f f inancial management tasks wi l l receive specific training on preparations of reports.

Audit Arrangements

Project accounts w i l l be subject to annual external audit under TOR approved by the Bank. The auditor and audit standards applied should also be acceptable to the Bank. Audit cost would be covered by credit funds. Acceptable audit reports should be submitted to the Bank within the six months o f the end o f the Borrower’s fiscal year (December 3 1).

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The Bank’s audit guidelines wi l l be used by the Borrower in determining the format and content o f annual financial statements and in preparing the audit TORS which should be based on specific project circumstances and identified risks.

Financial Management Supervision during Implementation

Given the expanded scope of the project and the special arrangements defined for i t s implementation, supervision activities w i l l also need to be expanded to the financial operations of the regional offices, in addition to the review o f FMRs, annual review o f external audits. This supervision should also be supported immediately after effectiveness by a capacity building exercise with the Fiduciary staff at central and regional level.

Readiness for Implementation The Borrower has made important progress in the implementation of the agreed-upon action plan and as o f the date of appraisal most critical actions have been completed. On such basis, conditions o f effectiveness with regards to financial management are limited to the selection of staff. However, there are s t i l l some pending actions which implementation w i l l be follow-up in the period leading to negotiation and Board Presentation.

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Annex 8: Procurement Arrangements

A. General

Procurement for the proposed project would be carried out in accordance with the World Bank's "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated May 2004; and "Guidelines: Selection and Employment o f Consultants by World Bank Borrowers" dated May 2004, and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the Credit, the different procurement methods or consultant selection methods, the need for pre- qualification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank in the Procurement Plan. The Procurement Plan w i l l be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

Procurement of Works: Works procured under this project would include: Different types of infrastructure upon demand-driven subprojects for the possible alliances. The procurement wil l be done using the Bank's Standard Bidding Documents (SBD) for al l ICB and National SBD agreed with or satisfactory to the Bank. Procurement o f works using Shopping methods and procurement of works carried out by communities wi l l use standard documents acceptable to the Bank and w i l l de part o f Project Operational Manual. Details o f the later methods for procurement w i l l be found in Chapter 6 o f said Manual.

Procurement of Goods: Goods procured under this project would include: Vehicles, computers, office equipment and furniture for the National Coordination Unit and for the three Regional Operational Units; different type o f goods upon demand-driven subprojects for the possible alliances. The procurement w i l l be done using the Bank's SBD for all ICB and National SBD agreed with or satisfactory to the Bank. Procurement o f goods using Shopping methods and procurement of goods carried out by communities wi l l use standard documents acceptable to the Bank and w i l l de part o f Project Operational Manual. Details o f the later methods for procurement w i l l be found in Chapter 6 o f said Manual.

Procurement of non-consulting services: The Project would finance contracts for the provision of services other than consulting services for such training-related activities as workshops, seminars, consultation meetings, study tours for participating agency staff working in Project activities, and so forth. Expenses to be financed w i l l consist o f travel, subsistence, and per diems for trainers and trainees, registration fees, and training materials and the logistics for organizing training events. Under this category, the Project w i l l also finance dissemination and advertisement services on spot radio, the print media, and television for promotion o f competitive matching grants for execution o f subprojects. Non-consulting services would be procured with the use of either direct contracting or price comparison (shopping) procedures and the use of sample documents acceptable to the Bank for the latter.

Selection of Consultants: Contracts for employment o f f i r m s and individuals w i l l be procured for evaluation of subproject profiles and for proposals for several different studies and training, supervision of subprojects, monitoring and evaluation, project management services, hiring and evaluation o f National and Regional staff, project midterm and closing evaluation, development o f management information systems, and project financial and procurement audits. Short l i s t s of consultants for services estimated to cost less than $200,000 equivalent per contract may be

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composed entirely of national consultants in accordance with the provisions o f paragraph 2.7 of the Consultant Guidelines.

Operating Costs: Expenses on account o f Project management and monitoring, including office supplies; utilities; rent; communication expenses, including the telephone, the Intemet and fax; vehicles; office equipment and computer operation and maintenance; transport; travel; subsistence; per diems; supervision costs; and Project staff salaries would be financed as operating costs and procured using comparison procedures, whenever possible, using standard documents acceptable to the Bank. The operating cost category also includes amounts to be disbursed to FONDESIF and the FPS, to operate under the provisions included in the interinstitutional agreements between MACA- FONDESIF and MACA - FPS agreed with the Bank..

Others: The Project would finance demand-driven alliances subprojects using matching grants mechanisms. Subprojects would be evaluated and selected in accordance with specific evaluation criteria to be described in the Project Operational Manual. Subproject average size i s expected to be o f US$60,000 equivalent, with an average of 20 percent made available by participating communities as counterpart funds. Subproject may encompass consultant services, training expenses, small goods and very small works. Procurement of goods and works funded under subprojects would be carried out with the use o f Community Participation procedures following to the extent possible shopping procedures, as described in the Operations Manual.

The procurement procedures and SBDs to be used for each procurement method, as well as model contracts for works and goods procured, w i l l be presented in Chapter 6 o f the Project Operational Manual.

B. Assessment of the agency’s capacity to implement procurement

The National Coordination Unit (UCN) w i l l carry out procurement activities. The agency i s staffed by, in a first level, a National Coordinator; in a second level, a Planning and Monitoring Specialist, a Communications Specialist, two Business Specialists, an Environment Specialist, a Social Specialist, a Capacity Building and Technical Assistance Specialist, a Procurement Specialist and a Finance Manager; in a third level, and under the Financial Manager, a Financial Annalist and a Disbursements Assistant. This Unit w i l l also have the assistance o f a Secretary and a Driverhlessenger. The UCNPAR w i l l perform the implementation of the Project under the oversight o f a Special Council conformed by representatives of the private sector and National Ministries concerned with economic development policy. Said Council, w i l l operate at the strategic level, providing guidance and oversight; i t i s also expected that i t wi l l serve as a forum for dialogue between the Government and the private sector. U C N has already contracted a well seasoned Procurement Specialist who has a considerable experience due, mainly, to direct involvement in Bank-financed projects, and who w i l l be responsible o f procurement planning and coordination o f procurement processes inside the National Coordination Unit and w i l l monitor, supervise and provide technical assistance to the Regional Operational Units and Alliances in management o f procurement processes. The National Coordinator as well as the Planning and Monitoring Specialist are already contracted, and the rest o f the U C N and the UORs personnel w i l l be selected through an open and competitive process managed by ‘an independent agent before Credit effectiveness.

An assessment o f the capacity o f the Implementing Agency to implement procurement actions for the project has been carried out by Alvaro Larrea, Procurement Specialist, on February 2005. The assessment reviewed the organizational structure for implementing the project and the

54

interaction between the project’s staff responsible for procurement Officer and the Ministry’s relevant central unit for administration and finance.

1 1 2

The key issues and risks concerning procurement for implementation of the project have been identified and include: (i) a suitable organizational structure not yet implemented at the UCN, (ii) the risk o f not knowing upfront the staff that wi l l work at the U C N and UORs, and (iii) the lack of an integrated project information system to carry out monitoring, control and progress reporting tasks and to enable an efficient project coordination and decision-making. The corrective measures which have been agreed are (i) approval of the Project Operational Manual which w i l l include the final organizational structure, Terms of Reference, roles, responsibilities and lines o f reporting for all the U C N and UORs personnel, standard documents to use for the procurement of goods, works and services, and the selection o f consulting f i r m s and individuals under all the procurement and selection methods to be used in project implementation before Credit negotiation; (ii) all UNC and UORs staff that i s not already contracted w i l l be hired after an open and competitive process conducted by an independent firm before Credit effectiveness; and (iii) implementation of an integrated project management information system with the capability o f recording timely information and keeping track of procurement and FM related transactions carried out by the PCU and executing agencies before Credit effectiveness. A detailed Action Plan, which was the result o f the above-mentioned Capacity Assessment, was presented to the PCU and i t i s under current implementation.

3 4 1 5 1 6 7 8 9

The overall project risk for procurement i s AVERAGE.

Ref. No.

C. Procurement Plan

Contract Estimated Procurement P-Q Domestic Review Expected Comments (Description) cost Method Preference by Bank Bid-Opening

NONE (yesho) (Prior / Post) Date

The Borrower, submitted a procurement plan for project implementation on March 23, 2005, which provides the basis for the procurement methods. This plan has been agreed between the Borrower and the Project Team and has been cleared by the Bank; said Procurement Plan w i l l be available at the Bolivia Country Office, in the project’s database and in the Bank’s external website. The Procurement Plan w i l l be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

D. Frequency of Procurement Supervision

In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment o f the Implementing Agency has recommended yearly supervision missions to visit the field to carry out post review of procurement actions.

E. Details of the Procurement Arrangements Involving International Competition

1. Goods, Works, and Non Consulting Services

(a) L i s t o f contract packages to be procured following ICB and direct contracting:

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(b) All contracts estimated to cost above US$750,000 equivalent per contract for procurement of works and above US$300,000 equivalent per contract for procurement o f goods and non- consulting services, regardless o f the procurement method used, the first two contracts awarded under National Competitive Bidding, Shopping and Community Participation in procurement procedures and a l l direct contracting w i l l be subject to prior review by the Bank.

1

2. Consulting Services

2 3 4 5 6 7

(a) List o f consulting assignments with short-list of international firms.

Ref. No. Description of Estimated Selection Review Expected Comments Assignment cost Method by Bank Proposals

(Prior / Submission Post) Date

Category Procurement Method

1 NONE I

Contract Value (CV) Threshold

(b) Consultancy services estimated to cost above US$200,000 per contract and single source selection o f consultants (f i rms); and assignments estimated to cost above US$75,000 per contract and single source selection o f consultants (individuals) w i l l be subject to prior review by the Bank.

1. Works:

(c) Short l i s t s composed entirely o f national consultants: Short l i s t s of consultants for services estimated to cost less than US$200,000 equivalent per contract, may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines.

(US$ Thousands) ICB C V >= 3,000

3. Procurement Methods Thresholds

2. Goods:

3. Consulting Services:

The procurement methods thresholds for this project are presented below:

Subprojects) I C B cv >= 200 N C B 200 > CV >= 50 National Shopping 50 > C V

cv < 20 Subprojects) Community Participation (Alliances

N C B Price Comparison (PSW) Community Participation (Alliances

3,000 > CV >= 250 250 > C V C V < 50

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3.1 Firms: QCBS QCBS, CQS, FBS, LCS

cv >= 100 cv < 100

I C

Procurement audit:

Procurement records w i l l be audited each fiscal year b y independent procurement experts, and the results o f such audits w i l l be sent to the Bank no later than four months after the end of each such year.

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Annex 9: Economic and Financial Analysis

Indicators

Cost Benefit Analysis

Present Value o f Flows in Base-line Scenario Economic Analvsis Financial Analvsis

Net Benefits

Internal Rate of Return

US$5.9 Mi l l ion US$8.2 Mi l l ion 16% 17%

Introduction

The proposed project focuses on producer organizations and empowerment, capacity building, and producer partnerships originated at the local level. Active groups o f rural poor are expected to enhance their capacity to articulate better with market demands and conditions and negotiate with other market players, markets are expected to tap into the benefits o f working with these small producers, and local governments are expected to contribute to local production efforts through public investments.

Aside from i t s development objectives, the project i s expected to address certain market failures present in the rural sector in Bolivia. First o f all, the project expects to address the issue o f lack o f input market information (e.g. agricultural extension service) available to rural producers by organizing information o f service availability and serving as a clearing house to facilitate the access o f rural producers to these service providers available domestically in other countries within the region. Secondly, the project addresses the issue o f low creditworthiness of rural producers due to such factors as geographical remoteness, inability to use small parcel land as collateral due to a domestic law, lack o f legal status o f producer groups etc. To address this issue, the project provides incentives for rural financial institutions by financing the incremental cost in evaluating and supervising rural producers and financing to the rural producer groups themselves in enhancing their creditworthiness.

Given that the project w i l l support locally identified opportunities, i t does not lend itself to detailed ex-ante cost-benefit analysis. Although the major types o f alliance proposals are known from social assessments and experience o f other projects, i t wi l l be the rural alliances themselves who w i l l ultimately determine the scope and mix o f investments. To obtain a broad picture, indicative models o f potential alliance opportunities were analyzed, based on secondary information. However, more accurate and representative economic and financial estimates w i l l be generated during project start-up activities, with primary information from a larger sample of alliance proposals.

The project w i l l mainly finance goods and services in the form o f matching grants, to small producer groups and, if necessary, to non-producers who engage in business relations with them through alliances. B y facilitating the provision o f productive goods such as collectively owned machinery, post harvest facilities or technical assistance to small rural producers, the project expects to improve production volume and/or quality, expand market opportunities and ultimately increase the welfare o f small rural producers. To achieve this goal, cooperation and involvement o f other economic players e.g. market buyers and local governments, i s important. Thus the

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project w i l l support non-producers to encourage further collaboration, offsetting any additional costs o f initiating or expanding business with new small producer groups

Subproject Cycle

Rural alliances among producers and other economic agents w i l l be basically supported through investment subprojects. The subproject cycle involves four stages, namely pre-investment, execution, operation and evaluation. The pre-investment stage involves: promotion, identification o f rural alliances, participatory preparation o f subproject pre-feasibility studies, preliminary appraisal, detailed preparation of subproject feasibility studies; appraisal o f feasibility studies and approval. The execution stage involves: subproject contract agreements, disbursements, procurement, works, financial accounting, supervisionhechnical follow-up, and implementation completion report preparation. The operation stage involves the regular or recurrent service and operation o f executed investments. The monitoring stage involves perception/opinion assessment of subproject partners/participants regarding subproject effects and likely impacts.

Eligible Investments

As previously described, eligible rural alliances w i l l be o f three types. Model 1 alliances are those where the project co-finances small producers (up to storage) to improve market accessibility. Model 1 alliances includes activities such as increased agricultural production, increased productive capacity o f natural resources, economic diversification, and enhanced production quality. Producers participating in these alliances are not generally subject to income tax. Model 2 alliances are those where the project supports small producers (up to processing) to improve market accessibility. Model 2 alliances include activities such as eco/agro-tourism, agricultural service provision, production and processing/marketing o f agricultural goods. Model 3 alliances are those where the project supports small producers and their market partners. Model 3 alliance includes activities such as production and processing/marketing o f agricultural goods. Partners involved in model 2 and 3 alliances are generally subject to income tax. Additionally, the project w i l l support investments executed by Municipalities, directly or indirectly related to above- mentioned rural alliances. These municipal subprojects involve public and community investments such as rehabilitation o f rural roads, and provision o f public services.

Ex-ante Evaluation

As stated above, indicative models o f potential alliance opportunities were analyzed based on secondary information. Indicative economic, financial and fiscal impact estimates were obtained. Economic feasibility analysis considered two scenarios o f labor costs: a basic scenario at market wages, and an adjusted scenario at 70% of market wages’. Estimated parameters include: incremental annual net benefitdincome; incremental labor; Net Present Value (NPV) o f benefit flows (at a 12% annual discount rate); and Internal Rate of Retum (IRR). Financial feasibility analysis essentially excludes in-kind contributions (such as family labor) and includes taxes. To avoid misleading financial conclusions, project subsidies were not excluded from investment cost figures. Fiscal impact analysis essentially considers a 13% Value Added Tax (VAT) for end- Users (primary activities performed by model 1 alliances and municipal subprojects) and a Net- Income Tax o f 25% (secondary and tertiary activities performed by model 2 and 3 alliances). The results o f the analysis are shown in Tables 1, 2, 3 and 4. Analyzed indicative models were suggested by active financial institutions and on-going development projects. Subproject benefits included essentially: increased market sales, increased production for family consumption, cost

Shadow price established by the National Evaluation System for Public Investments in Bolivia.

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savings and reduction o f post-harvest losses. Subproject costs included purchased goods and services, contracted labor and family labor. Flows of net benefits were calculated for 15 years, considering the expected l i f e of main investment items.

Indicative subproject models for model 1 alliances include:

Production of Organic Quinoa. Relevant for Uyuni Salt Lake Influence Zone. Quinoa market demands large size grain varieties, which grow in this salt lake ecologic zone. Appropriate technology for organic production o f quinoa has been developed by subproject participants. Potential participants have long experience ifi quinoa production. They have well-established relationship with a quinoa export firm. Potential participants are 30 families, legally associated. Total area involved i s 180 Ha. Average crop area increase would be 6Hdfamily. Increased annual family labor i s 2,700 persoddays. Subproject investment costs are US$45,000 or US$15OO/family, mainly incremental working capital (including 20% contribution of potential participants). Expected annual increase o f net economic benefits i s US$12,600-15,000 or US$420-500/family, depending on the opportunity cost of labor. Expected annual increase o f net financial income i s US$20,700 or US$69O/family. Annual VAT paid i s US$ 4,300. Economic NPV i s US$10,400-22500 or US$350-750/family. Economic IRR i s 27-42%. Financial NPV i s US$50,700 or US$1,7OO/family. Financial IRR i s 82% (family labor cost excluded). NPV of fiscal impact i s US$25,700. If crop losses are incorporated every 5 years due to water scarcity cycles, economic NPV would be US$(24,500- 12,400). Negative Economic IRR. Financial NPV would be US$l5,800 and financial IRR, 56%. Fiscal NPV unchanged.

Recovery of Natural Resource Production Capacity and Diversification. Relevant for Cochabamba Valleys. Subproject aimed to recover soil, water resources and vegetation in upper micro watersheds, and agroforestry development. Annual crops such as potatoes, beans, onion and vegetables, are foreseen. Perennial crops include alfalfa, forest and fruit tree plantations. On- farm investments include absorption terraces, slow formation terraces, water infiltration and deviation canals, and forest plantations. Technical Assistance (TA) i s foreseen on soil and water management, integrated pest control, organization strengthening and marketing. Production i s partly consumed on-farm and partly sold in local markets. Potential participants are 24 families. There are 12 Ha for agroforestry. Increased annual family labor i s 60 persoddays, since labor saving activities are incorporated. Estimated investment costs are US$36,000 or US$15OO/family (including 20% contribution o f potential participants). Expected annual increase o f net economic benefits i s US$5,700-5,800 or US$24O/family. Expected annual increase of net financial income i s US$5,900 or US$25O/family. Annual VAT paid i s US$500. Economic NPV i s US$2,600-3,000 or US$l10-12O/family. Financial NPV i s US$4,500 or US$19O/family. Economic IRR i s 14%. Financial IRR i s 15%. NPV of fiscal impact i s US$6,600. If partial crop losses are incorporated every 5 years due to water scarcity cycles, economic NPV would be US$(6,100-5,800). Economic IRR, 8%. Financial NPV, US$(3,300) and financial IRR, 9%. Fiscal NPV unchanged.

Agricultural Production Increase through Irrigation and Diversification. Relevant for Cochabamba Valleys. Model was conceived averaging similar existing cases. Investments include river control works, regulation and recollection deposits, water distribution system, TA for system management and maintenance, TA on organization strengthening, marketing and production. There i s production increase o f potatoes, beans, pees and peanuts, and diversification with onion, tomatoes and new varieties o f potatoes. Production i s partly consumed on-farm and partly sold in local markets. Potential participants are 60-70 families, formally associated. Around 40 Ha are involved. Increased annual family labor i s 1,600 persoddays. Estimated investment costs US$160,000 or US$2,5OO/family (including 20% contribution o f potential participants). Expected annual increase o f net economic benefits i s US$5,700-5,800 or US$24O/family.

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Expected annual increase o f net financial income i s US$5,900 or US$25O/family. Annual VAT paid i s US$700. Economic NPV i s US$2,600-3,000 or US$llO-l2O/family. Financial NPV i s US$4,500 or US$19O/family. Economic IRR i s 13-14%. Financial IRR i s 17%. NPV of fiscal impact i s US$19,800.

Indicative subproject models for model 2 alliances include:

Ecotourism. Relevant for Santa Cruz Northern Expansion Zone. Subproject would take place nearby a National Park, and coffee production areas. Community subproject was conceived based on larger touristic network development initiative. Investments include lodging infrastructure; equipment, solar energy system, potable water supply, rural road improvement, improvement o f community housing, training and TA on service and marketing. Existing regional infrastructure does not satisfy current national and international touristic demand. Increased annual community labor i s marginal. Potential participants are 10 families from the community. Estimated investment costs are US$23,500 or US$2,3OO/family (including at least 20% contribution of potential participants). Expected annual increase of net economic benefits i s US$4,500 or US$45O/family. Expected annual increase of net financial income i s US$3,400 or US$34O/family. Income tax paid i s US$l,lOO. Economic NPV i s US$1,600-1,700 or US$160-170/family. Financial NPV i s US$(3,900). NPV o f fiscal impact i s US7,400. Economic IRR i s 13%. Financial IRR i s 8%.

Production and Marketing of Lemon and Vegetables. Relevant for Uyuni Salt Lake Influence Zone. This i s an integrated subproject aimed at diversifying agricultural production and improving marketing. Lemon i s the major with-project activity, whereas maize i s the major without-project activity. Producers’ income increases as lemon tree plantation develops. Subproject was conceived based on a larger inter-community initiative. Investment costs include lemon tree plantations, inputs for vegetable production, TA and practical training in lemordvegetables production, post-harvest and processing, start-up capital and TA for establishment o f a marketing/production support association, and irrigation infrastructure. Increased annual family labor i s not more than 360 persoddays, since there i s a crop change. There are 40 families involved. Estimated investment costs are US$75,400 or US$1,9OO/family (including 60% contribution o f potential participants i.e. producers and processing/marketing firms). Expected annual increase o f net economic benefits i s US$37,300-37,600 or US$930- 94O/family. Expected annual increase o f net financial income i s US$28,000 or US$7OO/family. Income tax paid i s US$9,300. Economic NPV i s US$58,200-59,300 or US$1,5OO/family. Financial NPV i s US$27,800 or US$69O/family. Economic IRR i s 22%. Financial IRR i s 17%. NPV of fiscal impact i s US$37,100.

Indicative subproject models for model 3 alliances include:

Processing and Marketing of Quinoa. Relevant for Uyuni Salt Lake Influence Zone. Quinoa producers and processing/marketing firm have formed an alliance. Alliance based subproject i s aimed to consolidate the production, processing and marketing o f certified quinoa from the salt lake zone. Investment costs include TA and incremental working capital for producers, and equipment for processing/packing plant in production gathering/marketing locality. Current market outlets are major Bolivian cities and Peru. Subproject allies intend to export certified production to U S and European markets. Increased annual labor i s around 270 persoddays. There are 30 families initially involved. Estimated investment costs are US$23,000 or US$77O/family (including 60% contribution o f potential participants i.e. producers and processing/marketing firm). Expected annual increase o f net economic benefits i s US$18,000-18,200 or US$600- 6lO/family. Expected annual increase o f net financial income i s US$13,500 or US$45O/family.

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Income tax paid i s US$4,500. Economic NPV i s US$50,800-5 1,800 or US$1,7OO/family. Financial NPV i s US$23,400 or US$l,lOO/family. Economic IRR i s 37%. Financial IRR i s 30%. NPV of fiscal impact i s US$20,100. If partial crop losses are incorporated every 5 years due to water scarcity cycles, economic NPV would be US$38,700-39,500. Economic IRR would be 32%. Financial NPV would be US$24,400 and financial IRR, 26%. Fiscal NPV would be US17,lOO.

Processing and Marketing of Natural Health and Food Products. Relevant for Santa Cruz Northern Expansion Zone. Producers and processing/marketing firm have well-established relationships. Subproject i s aimed at improving product quality, by adjusting production processes and processing facilities in line with IS09000:2000 norms. Subproject partners intend to: consolidate their presence in both local markets and UsEuropean markets; and improve management practices. Major processed natural/ecologic products include cosmetics and health products based on natural plants. Investment costs include: TA and increased working capital for producers, storage infrastructure, equipment and machinery, I S 0 certification and product promotion. Increased annual labor i s around 2,300 persoddays. There are 80 families involved. Estimated investment costs are US$145,000 or US$l,SOO/family (including at least 20% contribution o f potential participants). Expected annual increase o f net economic benefits i s US$150,000-152,000 or US$1,9OO/family. Expected annual increase of net financial income i s US$112,500 or US$1,4OO/family. Income tax paid i s US$37,500. Economic NPV i s US$350,000- 355,000 or US$4,4OO/family. Financial NPV i s US$230,000 or US$2,9OO/family. Economic IRR i s 36%. Financial IRR i s 29%. NPV of fiscal impact i s US$133,000.

Indicative subprojects executed by Municipalities include:

Rehabilitation of Rural Roads. Relevant for Cochabamba Valleys. Subproject i s aimed to benefit several communities with access to a 15-Km road. Major benefits include improved access to communities, improved transportation opportunities, reduced transportation costs, reduction o f post-harvest losses, and eventually increased agricultural production and economic activity. Investment costs include road improvements by sections: road leveling, gravel filling/paving; small bridges, and protectioddrainage works. Likely benefits and road operatiodmaintenance costs were estimated. Around 900 families would benefit. Estimated investment costs are US$l55,000 or US$16O/family (including at least 15% contribution o f municipal government). Expected annual increase o f net economic benefits i s US$26,400-26,600 or US$3O/family. Increased annual VAT of US$1,500 would be paid on inputs required for road maintenance and increased production. Economic NPV i s US$l7,800-19,100 or US$2O/family. Economic IRR i s 14-15%. NPV of fiscal impact i s US$24,500.

Recovery of Grassland Production Capacity. Relevant for Uyuni Salt Lake Influence Zone. Subproject i s aimed to increase income o f highland communities with camelidae (mainly llama), by improving pasture production capacity o f communal lands. Investment costs include TA for organization strengthening and management, infrastructure and works for recovery o f degraded areas, renovation o f pasture areas, and TA and training for improved pasture and herd management. Around 460 beneficiary families would be involved. Increased annual family labor i s around 4,200 persoddays. Estimated investment costs are US$50,400 or US$1 lO/family (including at least 15% contribution o f municipal government). Expected annual increase o f net economic benefits i s US$19,200-23,000 or US$40-50/family. Increased annual VAT of US$3,000 paid on inputs required for pasture maintenance. Economic NPV i s US$6 1,000-82,000 or US$130-180/family. Economic IRR i s 33-39%. NPV of fiscal impact i s US$21,700.

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Project Estimates

Economic Analysis. As shown in Table 1 and 2, average Economic NPV and IRR are: for model 1 alliances, US$9,000-16,500 and 15-17% respectively; for model 2 alliances, US$30,000- 30,500 and 21% respectively; for model 3 alliances, US$200,000-203,000 and 36% respectively; for municipal subprojects, US$40,000-50,000 and 20-2296 respectively. The weighted Economic NPV/US$ invested in rural alliances and IRR (based on the estimated proportion o f investment resources across alliance types in project costs) would be: 0.6-0.7/US$ invested and 22-24% respectively. Crop failure every 5 years in sensitive subproject models would reduce above parameters to: 0.4-0.5/US$ invested and 20-22%. In turn, if other project costs (around US$8.2 Mi l l ion for institutional support and project management) are taken into account, the project weighted Economic NPV/US$ invested and IRR would be 0.2-0.3/US$ invested and 16-17% respectively. If total project costs are around US$31 Mill ion, project economic NPV would be US$5.9-7.8 Million.

Financial Analysis. As shown in Table 3, average Financial NPV and IRR are: for model 1 alliances, US$33,500 and 23% respectively; for model 2 alliances, US$11,900 and 16% respectively; for model 3 alliances, US$13 1,000 and 30% respectively; for municipal subprojects, US$76,400 and 26% respectively. The weighted Financial NPV/US$ invested in rural alliances and IRR (relative to budgeted investment resources across alliance types) would be: 0.7/US$ invested and 25% respectively. Crop failure every 5 years in sensitive subproject models would reduce above parameters to: O.S/US$ invested and 23%. In turn, if other project costs (mentioned above) are considered, the project weighted Financial NPV/US$ invested and IRR would be 0.3/US$ invested and 17% respectively. If total project costs are around US$31 Mill ion, project financial NPV would be US$8.2 Million .

Fiscal Impact. As shown in Table 4, average Fiscal NPV is: for model 1 alliances, US$17,500; for model 2 alliances, US$22,200; for model 3 alliances, US$76,500; for municipal subprojects, US$23,000. The weighted Fiscal NPV/US$ invested in rural alliances (relative weight as stated above) would be 0.3/US$ invested. If subproject investments are around US$23 Mill ion, aggregate fiscal impact (in NPV terms) would be US$5.8 Million. This could partially compensate US$8.2 Mi l l ion o f other project costs, potentially leaving a fiscal deficit o f US$2.4 Mill ion.

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I ! i f I

Y i I E E I

!

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C r e i r i i 3

L t

A n n e x 10: Safeguard Policy Issues

The project triggers six safeguard policies. In order to address the issues raised by these policies, the following instruments and provisions have been built into the project design and the operational manual.

Environmental Safeguards

Environmental Assessment (OP 4.01) In accordance with the Category B assigned to th i s project, an Environmental Assessment (EA) report has been produced. A revised EA report has been sent to the World Bank’s Info Shop prior to the start o f appraisal. Copies o f the report are also available to interested members o f the public in the national (La Paz) office and the web site o f MACA. In addition to the potential impacts on forests and other natural habitats, pest management, and cultural property (all discussed separately below), the principal environmental issues addressed by the EA report include soil conservation, irrigation, water management, water pollution (from agro-processing), crop genetic diversity, and possible over-exploitation of wild products.

Natural Habitats (OP 4.04) and Forests (OP 4.36) In the Santa Cruz and Cochabamba project areas, the expansion o f croplands or pastures-possibly induced by the rural alliances or other project effects-could result in deforestation (of humid or dry forests). In the highlands around the Uyuni Salt Lake, project-induced cropland expansion or pasture intensification could convert or degrade puna grasslands and adjacent wetlands. On the other hand, some types o f rural alliances (such as eco-tourism and gathering o f non-timber forest products) could effectively promote natural habitat conservation by rural producers.

Pest Management (OP 4.09) Some project-supported agricultural activities are likely to involve pest management and pesticide safety issues, whether or not pesticides are actually procured under the project.

Cultural ProDerty (OPN 1 1.03) Some rural alliances involving tourism could benefit from, and perhaps help protect or restore important archaeological, historical, or other cultural property. Conversely, poorly-managed tourism could damage fragile sites or objects o f cultural interest. Civi l works such as roads and irrigation canals could possibly uncover significant cultural property.

Addressing environmental issues

The EA report addresses the expected induced environmental impacts o f forming productive rural alliances, as well as from c iv i l works such as road repairshpgrading and canals construction. The EA report specifies the measures by which the project would address these environmental safeguard issues. These measures include (i) a negative l i s t (Lista de Exclusion) o f environmentally sensitive investments which would be ineligible for project support, including subprojects involving significant deforestation, dams 10 meters or higher, reservoirs exceeding 100 hectares, new irrigation command areas exceeding 200 hectares, new roads, road improvements in forested and protected areas, etc.; (ii) subproject eligibility and prioritization criteria which favor environmentally benign or positive activities; (iii) environmental screening checklist; (iv) environmental management recommendations by sub-sector; (v) Environmental Mitigation Plan (when needed); (vi) detailed environmental management procedures for subprojects (including specific institutional responsibilities); (vii) environmental supervision, monitoring, and evaluation procedures, along with recommended indicators; (viii) management plans for non-timber forest products and other biological resources (to help prevent depletion or degradation); and (ix) a Pest

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Management Plan which promotes integrated pest management and restricts which substances could be financed or promoted under the project, consistent with the requirements o f OP 4.09.

Summary of Environmental Manual

The Environmental Manual i s the tool to guide the activities o f the project for the sustainable management o f the natural resources and the environmental conservation within the area o f intervention.

Objective: The manual’s objectives are (i) to identify and apply appropriate measures for the prevention, mitigation or compensation o f negative environmental impacts that may arise from project interventions, (ii) to facilitate the application, monitoring and evaluation of these measures during the planning, pre- investment, investment, operation and closing o f sub-projects implemented by the alliances.

Principles and policies: The principles which rule the environmental manual are: (i) to promote the social and technical empowerment o f producers, not only to achieve a good environmental management, but also to have a long term satisfactory business relationship with the market agents, (ii) to articulate the alliances within the framework of local livelihood strategies, taking into account the perception o f the producers, their capacities and limitations, (iii) to orient productive initiatives towards the improvement of the productive systems in terms of sustainability and ecological efficiency, with positive impacts on food security and ecosystem conservation.

Environmental process during project implementation: The process w i l l be developed during the cycle of the subproject presented by the alliance. I t i s a simple process because of the instruments which have been developed both for the preparation o f the environmental component o f the plan and for i t s evaluation. The process o f environmental management has also been facilitated by the preparation o f a negative l ist , which excludes for project support activities o f sensible or highly negative environmental impacts, activities with complex mitigation plans or cumbersome environmental monitoring. Eligibil i ty includes projects in Category 3 o f the Environmental Control and Prevention Rules (GOB), category B o f the World Bank, and Category 4 o f the Environmental Rules for the Manufacturing Industrial Sector (GOB).

The manual includes a series of instruments which w i l l serve to identify and prioritize potential environmental impacts and to establish mitigation measures necessary to control them. There are three types o f instruments: (i) those who interact with other social, technical or economic instruments, (ii) those for the environmental assessment o f the alliance plans, and (iii) the Pest Management Plan. Capacity building and technical assistance aspects have also been included.

The environmental assessment includes three steps: (i) assessment o f opportunities, (ii) assessment of environmental pre-feasibility, and (iii) assessment o f environmental feasibility. For all o f these the manual includes specific forms and guidelines for the alliance sub-plans applying to the producers, the market agents, and/or the local governments participating with them.

Environmental specialists w i l l be placed both at the National and Regional levels. The role of the national specialist w i l l be to ensure that appropriate training i s taking place, and that the instruments are adjusted as needed. He/she wi l l also validate the environmental assessments and follow up the environmental monitoring. The regional specialists w i l l be responsible for the pre-feasibility and feasibility environmental assessments, conducting field trips as appropriate. He/she w i l l also be responsible for the monitoring o f the environmental plans in the alliances.

The most relevant environmental instruments included in the manual are:

1. Environmental check out l i s t

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2. Matrix to assess environmental impacts 3. Form for the pre-feasibility environmental evaluation 4. Specific environmental guidelines 5. Mitigation Plan 6. Environmental monitoring plan 7. Plan for the management o f biological resources 8. Form for the feasibility environmental evaluation 9. Form for environmental monitoring 10. Form for field assessment.

Social Safeguards

Indigenous Peoples (OD 4.20) As part o f the social assessment for the project (see Social Assessment Annex), particular attention has been paid to the situation o f various indigenous groups. A majority o f the likely beneficiary population i s indigenous (70.4% of the target population), and the project as a whole i s therefore being designed in compliance both with the existing Operational Directive 4.20 and the draft Operational Policy 4.10. N o separate IPDP has been prepared. This avoids parallelism and contributes to better integration of indigenous groups’ needs and concerns in the overall project design. In addition to indigenous groups, studies and consultation processes with corresponding project activities or mechanisms for involvement or targeting are also done in relation to other groups such as women, non-indigenous peasants and producers, merchants and intermediaries, as well as organized interest groups such as transport workers, NGOs, and government agencies. Gender aspects are being systematically considered and addressed, but are not the focus o f this summary on safeguard issues.

Involuntary Resettlement (OP/BP 4.12) Following the spirit o f the policy which clearly states that “involuntary resettlement should be avoided where feasible, or minimized, exploring all viable alternative project designs”, the project wi l l not finance activities that may lead to the involuntary taking o f land and that could entail “relocation or loss of shelter; lost of assets or access to assets; or loss of income sources or means o f livelihood, whether or not the affected persons must move to another location”. This condition has been incorporated into the project plans and explicitly stated in the eligibility criteria for financing o f specific sub projects and activities. Therefore OP/BP 4.12 w i l l not be triggered by the project.

Addressing social issues

A social assessment has been prepared by the borrower, and has been disclosed before appraisal (an abridged version i s in the Social Assessment Annex). The assessment identifies the measures through which the design o f the project i s avoiding adverse impacts on the local population. These include (i) the completion of a detailed stakeholder analysis identifying vulnerable groups, their particular interests and stake in the project; (ii) a detailed consultation phase to ensure that project design reflects the priorities and views o f potential beneficiaries; (iii) an identification o f potential social r isks and preparation o f a risk mitigation plan, to ensure that mitigation measures have been incorporated in project design. Most common social r isks include the poor capacity on business and management o f the producers, local conflicts among groups, lack of internal governance rules in producer groups, and conflicts due to insufficient transparency in financial transactions; (iv) subproject eligibility and prioritization criteria which favors assistance to particularly vulnerable and poor groups; and (v) social supervision, monitoring and evaluation procedures (a set o f quantitative and qualitative social indicators have been developed to include in the project’s M&E system).

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Extensive stakeholder consultation took place during project preparation, and w i l l continue through implementation. Particularly vulnerable groups, such as women and indigenous peoples, were specifically targeted. This included six consultation workshops held in all the three regions (Salar de Uyuni, Santa Cruz, and Cochabamba), which comprised two stages: (i) three workshops focused on discussing the project concept, i t s development objectives and eliciting suggestions, and (ii) three other workshops were held to present the proposed project components and discuss how best to implement and develop partnerships, as well as potential risks and how to avoid or mitigate them. A comprehensive set o f recommendations was gathered from stakeholders’ feedback (see the Social Assessment Annex). Workshops were conducted in Spanish and local languages. These were held between December 2004 and January 2005 and a total of 198 participants were consulted. In addition, a set of baseline studies done through structured interviews and questionnaires has collected and analyzed socio-economic data as an input to the social and environmental assessments. In addition to these primary sources of data and inputs from stakeholders, secondary sources and existing studies, project reports etc. have been reviewed to ensure appropriate design and targeting in terms o f indigenous groups’ needs and priorities, and mitigation o f environmental impacts. Finally, it i s worth mentioning that project consultations are coordinated with the national process related to Bolivia’s Poverty Reduction Strategy, in particular the “Dialog0 Nacional Bolivia Productiva”.

In order to ensure reaching out Indigenous Peoples the project includes a communication strategy that w i l l make use of written materials as well as radio messages in the vernacular languages spoken in each region where the project w i l l be implemented. Specific workshops w i l l be carried out to deal with topics o f interest to Indigenous Peoples, beyond the capacity building the project w i l l support for business development. These w i l l include workshops on indigenous cosmologies, local values, the role of women and the market economy. As well as workshops to expose potential non-indigenous partners to the views and understandings o f Indigenous Peoples approaches to making business. Ferias or development markets places w i l l be set up to attract potential partners and present them the market potentials of Indigenous Peoples management o f natural resources. Finally, to address potential conflicts, “mesas de concertacion” wi l l be set up to address and resolve conflicts between potential partners.

In order to avoid the triggering o f the Bank’s Resettlement Policy, the project i s including a set of criteria for eligibility o f sub projects which w i l l prevent the financing o f sub projects that require the involuntary taking o f land and i t s potential for relocation or loss o f assets. These criteria are included in the operational manual and w i l l be referred in the loan agreement. The criteria also include a negative l i s t of activities that could trigger the policy and that the project w i l l not support. These criteria and the negative l i s t w i l l be applicable to both, the rural alliances o f producers, intermediaries and buyers that want to apply for project funds as well as to the municipal funds that w i l l be invested in the execution o f minor infrastructure works.

Borrower’s capacity

The Borrower’s capacity to address environmental and social issues appears to be adequate in terms of the written criteria and procedures in the EA report and Social Assessment (which are part o f the Project Operational Manual). Appropriate arrangements for staffing are included in the operational manual, and environmental and social training programs have been included in project design to ensure also appropriate capacity in project beneficiaries. .

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Annex 11: Project Beneficiaries

The target population o f this project includes approximately 125,000 families o f poor rural producers l iving in the 54 municipalities which comprise the project area". In average, 70.4% of the target population has been self identified as "indigenous". From this overall target population, i t i s expected that the project w i l l directly benefit 8,400 families who w i l l receive direct support for productive investments and 18.000 families who w i l l receive indirect assistance (through the local governments) for public infrastructure to assist this production. As such, the beneficiaries w i l l be approximately 20% of the overall target population". Beneficiaries wi l l be self-selected following a set o f criteria discussed in the OM and briefly summarized below:

Criteria for beneficiary selection (tentative) They include:

J

J

J

J

J

J

Poor producers from the 54 municipalities o f the project area, and living in centers with less than 2000 inhabitants Producers must be already associated, and with any type o f legal recognition12, or have the intention o f being formalized as a producers' group13 At least one member of the household of each beneficiary with primary education up to 3rd grade approved, or participating in adult education programs. At least two years of experience in the activity proposed for the alliance, or, alternatively, willingness to participate in training and reorientation programs for the development of the new activity. Adherence to project rules on co-financing transparency, responsibility to adhere to compromises and contracts, and financial management Will ingness to work under business and market criteria

The focus of the project in poor rural producers, Project preparation has taken into account several mechanisms to ensure that project benefits w i l l be primarily targeted to the poor. They include (a) selecting as project areas those with high density o f poverty; (b) working on market opportunities defined at the local level, and by the same beneficiaries; (c) including support to empower organizations o f rural poor producers; (d) supporting the market and service agents in their reorientation efforts to increase their partnering with the rural poor; (e) establishing clear ru les o f the game for the selection and prioritization o f beneficiaries, favoring the poor, indigenous and women; and (f) providing direct transfers to producer organizations through decentralized and competitive mechanisms (more than 40% o f the total project costs w i l l be direct transfers to producer groups, and w i l l be directly managed by them in accordance with the projects' operational rules. Another 40% o f project costs w i l l also be directed to these groups, through improvements in public infrastructure assisting production and through support to market agents, to increase their levels of purchase to these groups).

lo Approximately 530,000 people. Rural population i s defined as a person l iving in municipalities with less than 2,000 inhabitants.

l2 Limited responsibility society, Anonymous society, Accidental society, Cooperative, Association, Territorial Association (OTB) etc l3 Formalization i s not a requirement to apply, but i s to receive financial assistance.

This comprises 6.5% o f direct beneficiaries and 14% o f indirect beneficiaries.

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Annex 12: Social Analysis and Action Plan

Introduction This annex describes how the Proyecto Alianzas Rurales addresses the social dimensions of improved production, market opportunities and livelihoods for the rural poor. I t i s based on an extensive set o f studies and consultations, and summarizes how different groups are expected to benefit from the project, and how they w i l l participate in different ways. Copies of the full reports and detailed documentation of the consultation process are available on request from the National Coordination Unit (UCN). Summaries o f key findings and information about the project w i l l be disseminated through the Regional Operational Offices (UORs) in Spanish as well as in local languages (Quechua, Aymara, Besiro, Guarayo, Ayoreo, Guarani).

This summary note discusses the background and legal framework; social diversity and gender issues; participation and mechanisms for beneficiary involvement; potential risks; and monitoring and evaluation systems. I t also summarizes aspects related to the World Banks social safeguard policies.

Overall project objective and structure The PAR i s a pilot project which has been designed to increase incomes through strengthened productivity and improved access to markets among the rural poor. I t w i l l do so by supporting rural alliances between different economic players.

Three areas have been selected for the project: (i) the northern expansion zone o f Santa Cruz, (ii) the Cochabamba valleys, and (iii) the area around the Uyuni Salt Lake in Oruro and Potosi. The project has three components: (1) Institutional support, (2) Implementation o f rural productive alliances, and (3) Project management.

Social objectives The project i s targeted at small producers and market agents. I t i s intended to directly benefit the members o f the productive alliances and their families, and more indirectly the members of the communities and municipalities where there wi l l be productive infrastructure investments.

From a social perspective, the project objectives can be summarized as follows:

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Opportunity: Improved assets and earnings for rural poor producers through better market and credit opportunities. Social inclusion: Equity in benefits for traditionally excluded groups such as indigenous groups and women, with culturally appropriate activities and interventions. Empowerment: Effective and meaningful participation o f local producer groups in planning, implementation and monitoring o f productive activities and marketing Accountability: Improved accountability to the rural poor with improvements in the efficiency, transparency and quality o f services and support from institutions such as local government and NGOs; and improved internal accountability and transparency within the rural alliances.

Social Assessment Process A comprehensive social assessment has been undertaken for the project. This provided the basis for the analysis o f the social context; a comprehensive consultation and participation process; and systematic integration o f social aspects in the project's design and proposed implementation mechanisms. The social assessment identified and strengthened opportunities for different social groups including indigenous groups, women, and the rural poor. I t also assessed whether there are potential social r isks that may affect the project or local groups.

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The social assessment was based on primary data sources such as interviews, group discussions, surveys, and consultation workshops, as well as secondary data sources such as existing studies, project reports, etc. to ensure an appropriate design based on needs, opportunities, and risks for the expected project beneficiaries.

Context The project responds directly to Bolivia's development priorities. I t focuses on productive activities and marketing; providing income and employment for the rural poor. This has been recognized as an area needing greater attention, to complement the strong focus in recent years on social services in health and education.

Legal framework National laws and policies provide a clear framework for targeted support to vulnerable groups, and to recognizing the rights and entitlements of indigenous peoples. A number of laws have been passed since the Indigenous March in 1990, recognizing rights to cultural identity, control o f natural resources, and political representation and participation:

The 1994 Constitucion Politica del Estado established that the nation has a multiethnic and multicultural character, and recognized the legal rights of indigenous communities. I t also recognized these groups' right to local conflict resolution; administrative authority in certain areas; and the right to control above- ground natural resources.

Other relevant laws consistent with these principles address the following topics:

Environment (1992). This law guarantees the use, management and conservation o f renewable natural resources on indigenous lands, and mandates environmental impact assessments in areas affecting indigenous groups.

People's Participation (1994). This law establishes that among various stakeholder groups, indigenous communities or their leadership control various functions related to public administration.

Education Reform (1994). Through this law, cultural values are recognized and the goal o f having an education which i s multicultural and bilingual i s established.

Other laws establishing rights o f control o f resources and decision-making for indigenous groups include the Law on Indigenous Funds (Ley del Fondo Indigena) o f 1995; the Forestry Law of 1996; and the Agrarian Reform Law o f 1996.

Dialog0 Nacional In addition to the legal framework mentioned above, the PAR i s based on principles and recommendations which have emerged from the Bolivian National Productive Dialogue (DNBP) and the National Strategy o f Rural Agricultural Development (ENDAR).

The DNBP has an integrated vision o f development. I t addresses both productive and social aspects, and incorporates crosscutting themes through the Integrated Productive Strategies (EPI). I t aims to improve on Bolivia's Poverty Reduction Strategy (EBRP), with targeting and prioritization o f public and private investments in the productive sphere. I t addresses the demands raised through regional consultations, such as improved infrastructure and development o f markets.

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Based on these consultations, the Government developed the ENDAR. This strategy aims to provide all rural producers and economic actors with the means and knowledge necessary for sustainable and competitive participation in markets. The Ministry o f Peasant and Agricultural Affairs (MACA) i s responsible for the implementation o f the ENDAR. The central objective in the implementation i s to support rural producers' ability to participate in internal and external markets, with the overall aims of improving incomes and food security, and reducing rural poverty. This focus on productivity, competitiveness and sustainability i s pursued within a framework o f social and cultural equity.

Participation and consultations with key stakeholder groups During the preparation o f the PAR, systematic discussions and consultations with large numbers of stakeholders were conducted, building on the processes and priorities described above. This was informed by an initial stakeholder analysis, undertaken as part o f the social assessment.

Stakeholder groups Stakeholders are those who are expected to benefit or be affected by the project, as well as those who are relevant for the successful implementation o f the project and who have an interest, or stake, in the project outcomes.

The stakeholder groups identified in the PAR include:

1. 2. 3. 4. 5 . 6. 7. 8. 9.

Municipal governments Local economic organizations (OEs) Vulnerable groups such as women, indigenous groups, and the rural poor. Indigenous organizations Rural agrarian unions Intermediaries, firms, and others who acquire products from the rural producers Consumers and buyers NGOs, development agencies and financial institutions Government agencies and programs aimed at productive development

Having identified the relevant groups, a process o f consultation and engagement with each has been undertaken, as described in the next section. Additionally, for each stakeholder group the analysis for the project has identified and documented several key issues, such as:

e e

e

e

e e

e

e

e e

e

Relevant characteristics Interests and stake in the project Level and type o f influence Consultation and participation during project preparation Views and recommendations Expected results and outcomes Opportunities and resources Barriers and r isks Risk mitigation measures Proposed consultation and participation during project implementation Indicators, monitoring and evaluation issues related to the group

Overview of process The participation and consultation process includes two phases: during project preparation, as inputs to planning and designs and to provide transparent information about the project, and during the project implementation period.

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During the project preparation, the consultation process consisted o f (i) structured and unstructured interviews with various informants representing different stakeholder groups, and (ii) formal workshops. The interviews were largely conducted as part o f a comprehensive socio-economic survey, but other, more informal interviews with key informants were also conducted.

The workshops were organized in two stages: An input stage, to ascertain general views and recommendations about the project concept and how to achieve the overall objectives; and a feedback stage once the preliminary design was completed, seeking comments, feedback, and advice on opportunities and risks. Both kinds of workshops were organized in each o f the three proposed project regions, totaling six workshops in all. They were conducted both in Spanish and in local languages, during the months o f December 2004 and January 2005. A total of 198 persons representing local economic associations, NGOs, Mancomunidades, buyers, and local government participated.

A detailed summary o f each workshop with activities, participants and recommendations, i s available as part of the social assessment documentation.

Key recommendations and inputs to project design The studies, discussions and workshops highlighted a large number o f issues and recommendations. All o f these were considered by the project planning team, and a large number of them were incorporated into the project design and plans. Among many others, these include:

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Provide technical assistance and financial support to the microenterprises and alliances during the lifetime o f the project Provide assistance in accessing appropriate technology Provide assistance in accessing external markets Consider both economic and social eligibility criteria for the members o f the alliances Provide assistance for non-formal organizations towards organization and obtaining legal recognition Stress employment generation and not only IRR [TZR] as economic and financial indicators Eligible members should be poor people with potential for economic resource generation; Give priority to female headed households, indigenous groups, and other vulnerable groups Provide capacity building in areas of commerce and production for small producers Provide technical personnel and assistance throughout the project period, preferably skilled indigenous or other local personnel Provide support towards consensus building and dialogue between different groups and organizations such as indigenous groups, unions, etc. Ensure transparency and honesty in the process Ensure that there are clear sanctions against those who violate the rules

There were also some recommendations that were not incorporated. They included reducing or lowering the eligibility criteria for membership (discarded in order to ensure capacity and entrepreneurship); lowering interest rates further than realistic and viable; and expanding the project to additional areas (the project i s a pilot and needs to have focused and limited areas o f intervention; this may be scaled up and expanded in future phases if the results are satisfactory).

Social characteristics of the project area The focus on productive activities and improved incomes takes place within a framework o f social and cultural equity. As noted above, the project w i l l be implemented in three sub-regions o f the country. These exhibit considerable differences in terms o f economic opportunity, ethnic composition of local populations, gender relations, environmental concerns, and other aspects. The project takes account o f

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these differences, and places particular emphasis on the involvement o f the rural poor, indigenous groups, and women.

Project areas: Overall characteristics The project area covers 54 municipalities. These have been chosen based on high incidence of poverty combined with economic potential. The population in the three zones totals 1,05 1,860 inhabitants. Of these, 51.6% are men, and 48.4% are women. The higher proportion o f men i s explained by a higher level o f male in-migration to the areas, based on perceived economic opportunity and potential. In total, there are 234,496 households in the project area. A more detailed description of the targeted population o f the project i s summarized in Annex 11.

Indigenous groups Within this population, there i s an extraordinarily high degree of social, ethnic, economic and organizational diversity. Broadly speaking, non-indigenous groups are economically more advanced and have a closer integration with the markets. However, the majority (70.4%) of the population in the proposed project areas i s indigenous, and the project overall has been designed to ensure that i t i s consistent and compatible with indigenous culture, values, and economic and political organization.

The percentages o f indigenous groups vary by zones: In Tierras Bajas it i s as low as 44%; in Valles 77.3%, and in Salar 89.9%. The indigenous groups are distributed as follows: Quechas 49.4%, Aymara 15.5%, Chiquitanos 2.696, and others 2.9%, including Guarayos, Ayoreos, Uru Chipaya and Uru Murato.

Across these ethnic groups, i t i s useful to distinguish broadly between non-traditional and traditional groups. The non-traditional groups, mainly l iv ing in Valles, the Altiplano, and Tierras Bajas as more recent colonizers, are characterized by processes o f language change and mestization [mestisuje], and productive activities oriented towards the market. The more traditional groups maintain culture and language more closely, and their productive activities tend to more towards subsistence. Many of them hunt, fish or gather on a part time or full time basis, and their agricultural plots are rotated in forest areas. Decision making and political organization tends to be different: The non-traditional groups are more closely linked with the union movement, and make decisions by voting in assemblies, while the traditional groups arrive at decisions through consensus.

In terms o f control over productive resources, there i s no individual ownership o f land within the TCOs and the TCs; the project therefore has to engage the group or community collectively rather than through individual economic actors, and decisions w i l l have to be approved by the community at large. The project w i l l also have to adapt to the social norms o f solidarity and mutual complementarity, as opposed to internal competition.

Gender relations As part o f the overall social assessment, an analysis of gender relations and the role o f women has been undertaken. The project aims to benefit women and promote a greater degree o f social and economic equity between men and women.

The studies show that while women participate in many economic organizations, they are disadvantaged compared with the men in terms o f decision making, control over resources, and access to economic benefits, based on several issues:

0

More women than men are fluent only in their native language, and less able to negotiate in the market Illiteracy rates are higher among women

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Formal ownership o f land and other assets tends to be in the name o f men rather than women, making it harder for women to access credit and other opportunities Women frequently lack formal identity papers, making i t harder for them to meet eligibility criteria for various development opportunities Women are generally more constrained than men in terms o f available time for new activities; most o f them are responsible for household activities in addition to economic activities, and perceived negligence o f their household duties may lead to criticism or even violence In some cases economic empowerment o f women i s perceived by men as a threat to their identity, and reactions such as violence, withdrawal and alcoholism are not uncommon

0

These are all issues which w i l l be taken into consideration through consultations with men and women in terms of project involvement.

However, the analysis and consultations also shows that women have advantages and s k i l l s that are positive in the context of this project and provide opportunities for involvement:

0 Women's economic activities are often innovative Women frequently utilize natural resources better than men and are more concerned with sustainability o f the resource base

0 There i s a large body o f evidence which shows that women are more conscientious than men in fulfil l ing obligations, for example in repayment o f micro-credit

Additionally, there i s already a limited number o f organizations in the project areas with female-only membership, with good potential for participation in the project.

In seeking to strengthen women's role as economic and social actors, and promoting equity in opportunity and outcomes, the project w i l l take these constraints and opportunities into account in different ways, such as:

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Capacity building and s k i l l s promotion among women Targeted technical assistance and credit to women Ensure that lack o f formal title to lapd w i l l not exclude women from participating in the project Assist women in obtaining formal identity papers Assist informal women's economic organizations in strengthening their organizations

Expected project benefits by stakeholder groups The project preparation has identified likely benefits for the involved stakeholders, both for the directly affected beneficiaries as well as incentives for participating organizations and institutions:

Beneficiaries For the direct beneficiaries, expected benefits and impacts include:

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0

0 Increase in employment 0 Improved productive infrastructure 0

0

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Improved incomes and reduction in rural poverty Strengthened productivity, competitiveness, and access to markets

Reduced transaction costs, particularly for women Increase in prestige and reduced discrimination o f women and indigenous groups Capacity building, collective learning, and empowerment

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0

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Improved access to public services Improved transparency in project implementation

Among indigenous groups and organizations, other positive impacts include:

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Consolidation o f rights to natural resources and products More sustainable utilization o f natural resources Greater recognition and social prestige through economic activities Promotion o f knowledge and respect for local culture, for example through handicrafts and cultural tourism

Ins ti tutions and organizations Among other stakeholder groups, key benefits and incentives from the project include:

For municipal governments:

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Increased resources towards productive infrastructure Increase in economic growth and activity of the area Increase in credibility and support from rural producers

For regional unions of municipal governments rmancomunidades I:

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Improved access to technical and other resources Increase in legitimacy and credibility through support to productive alliances

For transportation workers rtransportistasl:

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Access to larger volumes o f goods and reduction in cost and time More stable and predictable contracts with producers Improvements in roads and other infrastructure

For financial institutions:

0 Increase in client base 0

0

Improved returns to investments and credit Reduced transaction costs through working with alliances rather than individuals

For partner NGOs:

0 Improved access to resources 0 Improved legitimacy within their area o f operations

Project implementation: Ongoing involvement of stakeholders The process o f consultation and participation involving beneficiaries and other key stakeholder groups wi l l continue throughout the project implementation period. This w i l l be done in several different ways, including:

0 Participatory monitoring and evaluation 0 Workshops and meetings

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Awareness campaigns and training Dissemination of project information in different languages, through different media

Sensibility campaigns for buyers and consumers

This process i s summarized in the project's Relationship and Communication Strategy (ERC). This describes how information flows and consultation processes w i l l be adapted to the different stakeholder groups' needs and socio-cultural position. Transparent and timely information w i l l promote equity of opportunity in decision making about activities, and contribute to empowerment and a stronger negotiation position for the poor with others within the rural alliances.

Potential risks The social assessment has identified potential r i sks to the project from the social context, as well as potential r isks to local groups caused by the project itself. In this latter group are issues such as possible increase in inequality if more resourceful groups benefit more than the poor and vulnerable; capture of project benefits by local leaders or elites; increases in gender based violence; and risks o f culturally damaging or inappropriate activities for indigenous groups. There i s also a potential risk o f land loss or displacement caused by infrastructure works (see the section below on resettlement).

Potential risks to the project outcomes include:

Conflicting interests between organizations o f producers and exporters "Dependency syndrome" among project beneficiaries expecting a paternalistic role from the State Lack o f political support in some areas for productive investments Productive alliances may benefit the wealthier rather than the small and poor producers Eligibility criteria for membership may exclude the poorer among the producers Opposition from some NGOs who may lose control over resources or clients Internal divisions and tensions within the alliances Conflicts over land tenure and control, such as demands for TCO from private properties, may generate conflicts between peasants and indigenous groups on one hand, and private producers and entrepreneurs on the other

Apart from these issues, there are also national level r i sks o f social and political instability.

These risks are discussed in detail in the project documents, and measures are proposed to avoid, reduce or mitigate the risks.

The World Bank i s expected to finance the project, and certain procedural requirements based on World Bank policies apply. Two of these are related to social risks and vulnerability: the safeguard policies related to Indigenous Peoples and Involuntary Resettlement.

Impacts on indigenous peoples As discussed above, a majority o f the likely project beneficiaries are indigenous groups. The World Bank's Operational Directive 4.20, on Indigenous Peoples, therefore applies to the project as a whole. As a consequence the project i s being designed in accordance with the guidelines outlined in OD 4.20 as well as with the more comprehensive framework outlined in the new draft Operational Policy 4.10, to ensure that (i) no adverse impacts on indigenous groups w i l l take place as a result o f the project; (ii) project benefits are culturally compatible with local customs and traditions; and (iii) indigenous groups participate in project preparations and implementation through a process o f informed consultation.

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No separate Indigenous Peoples' Development Plan (IPDP) i s prepared for the project, since the relevant measures to benefit indigenous groups and avoid adverse impacts are integrated into the overall project design and implementation process.

Involuntary or forced resettlement The World Banks Operational Policy 4.12 makes i t a requirement that people who are forced to lose land or land based assets, or who lose access to livelihoods as a result of land acquisition are entitled to compensation and assistance, in order to improve or at least regain their previous standard of living.

In this project infrastructure investments could potentially affect some people negatively through physical or economic displacement. However, it has been agreed that the project w i l l not finance activities that would cause involuntary displacement. All transactions involving land w i l l be made on the basis of community consultations and documented, voluntary contributions. Unless the land contributions are made based on free choice without coercion, proposed investments w i l l be considered ineligible for project financing. Guidance for how to assess and document this i s provided in the Operational Manual. Based on this approach, the World Banks Operational Policy on Involuntary Resettlement does not apply in the project.

Monitoring and evaluation Because the project i s a pilot, the planned monitoring and evaluation system i s key to learning and to making the necessary adjustments during implementation. Activities and processes, as well as results and impacts w i l l be monitored, supervised, and evaluated throughout the project implementation process. Indicators and data gathered w i l l be o f both quantitative and qualitative kinds, and the information and analysis w i l l be disaggregated by key stakeholder groups: by gender, poverty level, locality, level of education, ethnicity, and other criteria. The information w i l l be compared with baseline survey data, to measure progress and results for different groups. The structured surveys w i l l be combined with case studies and more participatory methods o f monitoring, to capture not just increases in incomes but also aspects such as improvements in empowerment and accountability.

The system o f monitoring and evaluation i s described in more detail in the project documentation.

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Annex 13: Project Preparation and Supervision

Planned Actual PCN review 04/29/04 04/26/04 Initial PID to PIC Initial ISDS to PIC Appraisal Negotiations Board/RVP approval Planned date o f effectiveness Planned date o f mid-term review

04/30/04 04/30/04 03/17/05 0411 1/05 05/26/05 10/30/05 091 15/08

05/06/04 05/06/04 03/15/05 041 13/05

Planned closing date 09/15/11

Key institutions responsible for preparation of the project: Ministerio de Asuntos Campesinos y Agropecuarios Avenida Camacho 1471 Piso 2, L a Paz, Bolivia L ic . Victor Barrios, Ministro, Tel591 2 2203980 - 2367968, Fax 591 2 2375919

Bank staff and consultants who worked on the project included:

Ethel Sennhauser Rural Development Specialist LCSER David Tuchschneider Institutional Specialist - LCSER

Yurie Tanimichi Reidar Kvam Alonso Zarzar Ruth Llanos Dino Francescutti Marianela Zeballos George Ledec Alvaro Larrea Lourdes Linares Marta Molares-Halberg Maria Donoso Clark Vladimir Pary Musa Asad Pierre Rondot K. Ravenelle Smith

Decentralization Economist Social Analysis Specialist Anthropologist - Safeguards Civ i l SOC. - Communicats Economist Country Officer Environment Specialist Procurement Specialist Financial Management Legal Counsel Sector Leader Rural Infrastructure. Financial Aspects Farmer Org. Specialist Team Assistant

LCSER SDV LCSEO LCCBO FA0 LCCBO LCSEN LCOPR LCOAA LEGLA LCSES LCCBO LCSES ARD LCSES

Rocio Recalde Team Assistant LCCBO

Bank funds expended to date on project preparation: 1. Bank resources: US$62,613 FY 2004, US$ 176,707 FY 2005 2. Trust funds: PHRD TF 053152 ($594,857) , CTF TF 030571 ($41,950.37) Estimated Approval and Supervision costs: 1. Remaining costs to approval: $25,000 Estimated annual supervision cost: $95,000

82

Annex 14: Documents in the Project File

(a) Project Preparation Documents supported b y the PHRD a. b.

d. e. f. g* h. i.

k. 1.

C.

j.

Social Analysis and Social Action Plan Environmental Analysis and Action Plan, Pest Management Plan Institutional Analysis Expenditure Review of Productive Investments Study Baseline Study and M&E system Local Economic Development Study Productive Rural Infrastructure Assessment Financial management Rural micro finance services Market opportunities study Communications Strategy

(a) Studies Requested by Project Team a. b.

(b) Others a. b.

d. e. f. g. h. i.

k. 1.

C.

j.

LoEal Investment Climate Study Financial Flows Study

Bolivia National Rural Development Strategy Country Assistance Strategy for the Republic of Bolivia (26838-BO) Project Concept Note Project Information Data Sheet (PCN Stage) Integrated Safeguards Data Sheet (PCN Stage) Project Appraisal Document Project Information Data Sheet (PAD Stage) Integrated Safeguards Data Sheet (PAD Stage) Credit Agreement Project Agreement Detailed project cost tables Procurement Plan

83

Annex 15: Statement of Loans and Credits

Difference between expected and actual

disbursements Original Amount in US$ Millions

Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm.Rev’d

PO82781 2004

PO73367 2003

PO68968 2002

PO74212 2001

PO57416 2001

PO60474 2001

PO65902 2000

PO55230 1999

PO62790 1999

PO40085 1998

PO57396 1998

PO06204 1998

PO06197 1995

Bolivia First Programmatic Bank and Corp

Bo1:Decent Infras for Rur Transformation

BO Road Rehab. & Maintenance Project

BO-Health Sector Reform APL I1

BO-INDIGENOUS PEOPLES DEVT PROJECT (LIL) GEF BO-Sustainability of Protected Areas

BO HYDROCARBON SECT. SOC. & ENVIRM.(LIL)

BO ABAPO-CAMRI HIGHWAY

BO INST REF (OLD CIV S)

BO PART RURAL INVESTMENT PROJECT

BO REGULATORY REF. & PRIVATIZATION (TA) BO- EDUCATION QUALITY

BO LAND ADMINISTRATION

Total:

15.00 15.00 0.00 0.00 0.00 30.34 10.00 0.00

0.00 20.00 0.00 0.00 0.00 21.44 10.26 0.00 0.00 77.00 0.00 0.00 0.00 66.96 29.15 0.00

0.00 35.00 0.00 0.00 0.00 29.61 -10.56 0.00

0.00 5.00 0.00 0.00 0.00 4.88 4.12 0.00

0.00 0.00 0.00 15.00 0.00 5.86 2.07 0.00

0.00 4.80 0.00 0.00 0.00 2.67 2.58 0.00

0.00 88.00 0.00 0.00 0.00 15.65 12.42 2.05

0.00 32.00 0.00 0.00 0.00 8.20 3.27 3.58 0.00 62.80 0.00 0.00 3.33 35.59 36.14 4.94

0.00 20.00 0.00 ’ 0.00 0.00 5.27 4.76 0.00

0.00 75.00 0.00 0.00 0.00 4.36 5.38 0.00

0.00 20.40 0.00 0.00 0.00 3.85 -1.22 2.66

15.00 455.00 0.00 15.00 3.33 234.68 108.37 13.23

STATEMENT OF IFC’s Held and Disbursed Portfolio

In Millions of U S Dollars

Committed Disbursed

FY Approval Company

IFC IFC Loan Equity Quasi Partic. Loan Equity Quasi Partic

1995/98

2003

1999

1994/00

1999/0 1/03

199 1/0 1

1999

2003

1993

1999

1996

2003

2003

BISA

Banco Sol

CBTI

COMSUR

Caja L o s Andes

Central Aguirre

Electropaz

FIE

GENEX

Illimani

Mercantil-BOL

Minera

PRODEM

TDE S.A.

0.00

6.00

0.00

2.50

8.00

2.05

19.90

2.50 0.24

4.61

2.86

0.00

3.00

15.00

0.46

0.00 0.00

0.00 0.00 0.00

0.00 0.00

0.00

1 .oo 0.00 3.40

0.00

0.00

0.00

0.00 0.83

0.00 0.00 0.00

0.00 0.00

0.00

0.00

0.00 0.00 0.00

15.00

0.00 0.00

0.00 6.00

0.00 0.00

0.00 2.50

0.00 8.00

0.00 1.53

0.00 19.90

0.00 2.50

0.00 0.24

0.00 4.61

0.00 2.86

0.00 0.00

0.00 3.00

0.00 15.00

0.46

0.00

0.00 0.00

0.00 0.00 0.00

0.00

0.00

1 .oo 0.00

3.40

0.00 0.00

0.00

0.00

0.83

0.00

0.00 0.00

0.00 0.00

0.00

0.00

0.00

0.00

0.00

15.00

0.00

0.00

0.00

0.00 0.00

0.00 0.00

0.00

0.00

0.00

0.00

0.00

0.00 0.00

TFSA 0.00 4.44 0.00 0.00 0.00 4.44 0.00 0.00

TRECO 0.00 2.94 0.00 0.00 0.00 2.94 0.00 0.00 2001 Telecel Bolivia 5.56 0.00 5.00 4.29 5.56 0.00 5.00 4.29

Total portfolio: 72.22 12.24 20.83 4.29 71.70 12.24 20.83 4.29

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic.

2005 Gasyrg 0.05 0.00 0.00 0.10

2001 PQB 0.01 0.00 0.00 0.00

Total pending commitment: 0.06 0.00 0.00 0.10

85

Annex 16: Country at a Glance

POVERTY and SOCIAL Lat in Lower-

Amerlca mlddle- Bo l i v ia & Carlb. Income

2003 Po puiat io n, m id-year (miiiions) GNI per capita (Atlas method, US$) GNI (Atlas method, US$ billions)

9.0 890 8.0

Average annual growth, 1997-03

Population 1%) 2.2 Laborforce (77) 2.6

M o s t recent es t lmate ( la tes t year available, 1997-03)

83 Urban population (%of totalpopulation) 63 Life expectancyat birth (years) 64 Infant mortaiity(per 1OOOiive births) 56

8 83

Poverty (%of population below nationaipo vertyiine)

Child malnutrition (%of children under5) Access to an improvedwater source (%ofpopulation) Illiteracy (%ofpopulationage E+) 13 Gross primaryenrollment (%of school-age population) 114

Male 114 Female 113

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1983 1993

GDP (US$ billions) 2.7 5.7 Gross domestic investmentlGDP 132 16.6 Exports of goods and serviceslGDP 28.3 8.1 Gross domestic savingslGDP 7 .5 7.3 Gross national savingslGDP 162 7.8

Current account balancelGD P -5.7 -7.3 Interest paynentslGDP 7.7 2.2 Total debt/GDP 152.3 75.1 Total debt servicelexports 512 36.7 Present value of debtIGDP Present value of debtlexports

1983-93 1993-03 2002 (average annualgrowth) GDP 2.3 3 2 2.8 GDP Dercaoita 0.0 0.8 0.5

534 3,260 1,741

1.5 2.1

77 71 28

86 11

E 9 131 2 6

2002

7.8 14.7 219 9.8 119

-4.4 1.3

62.4 28.4 23.1

n7.5

2,655 1,480

3,934

0.9 12

50 69 32

81 0 lE 113 111

n

2003

8 .O 11.0 21.5 8 .O 9.1

-1.4 1.9

59.1 31.9

2003 2003-07

2.5 3.8 0.5 1.8

STRUCTURE o f the ECONOMY

("7 o f GDP) Agriculture Industry

Services

Private consumption General government consumption imports of goods and services

Manufacturing

(average annuaigro wth) Agriculture Industry

Services

Private consumption General government consumption Gross domestic investment Imports of goods andservices

Manufacturing

1983 1993

20.7 16.3 42.3 34.2 E.8 18.8 37.0 49.5

73.5 79.4 9.0 13.4

24.0 28.4

1983-93 1993-03

2.8 2.4 1.4 3.3

2 2 3.0 2.1 3.8

2.9 3.2 -12 3.1 5 2 1.5 8.0 3.9

2002 2003

14.6 14.6 33.3 332 15.0 14.7 52.1 522

74.8 77.4 15.4 14.5 26.9 24.4

2002 2003

0.6 3.0 4.2 2.5

2.3 3.3

1.5 0.9 3.3 -0.4 0.5 -22.7 7.7 -7.1

2.2 0.9

l eve iopmen t diamond'

Life ewectancy

T

>NI Gross )er primary :apita nrollment

1

Access to improved Water source

- *. Boifvfa Lower-middle-income group

Economic rat ios '

Trade

T Iomestic savings

1

Indebtedness

Growth of Inves tment and GDP ( O h )

40 T

Growth o f expor ts and impor t s ( O h )

30 T

86

Bo1 iv ia PRICES and GOVERNMENT FINANCE

Domestic prices (%change) Consumer prices 328.4 Implicit GDP deflator 2652

Government finance (%of GDP. includes current grants) Current revenue Current budget balance Overall surplusldeficit

1983

TRADE

(US$ millionsj Totalexports (fob)

Hydro carbons-gas Soya Manufactures

Total imports (cif) Food Fuel and energy Capital goods

Export price index(1995=WOj Import price index (W95=WO) Terms of trade (W95=WO)

BALANCE o f P A Y M E N T S

(US$ millions) ~xpor ts ofgoodsandservices Imports o f goods and services Resource balance

Net income Net current transfers

1983

755 33 58

577

4 222

E8 57

296

1983

852 686 8 7

-425 0 6

Current account balance -152

Financing items (net) Changes in net reserves

441 -288

Memo: Reserves including gold (US$ millionsj 243 Conversion rate (DEC, locaVUS$) 4.70E-4

EXTERNAL DEBT and RESOURCE FLOWS

(US$ millions) Total debt outstanding and disbursed

1983

4,069 IBRD 2 0 IDA 92

Total debt service IB RD IDA

Composition of net resource flows Official grants Official creditors Private creditors Foreign direct investment Portfolio equity

World Bank program Commitments Disbursements Principal repayments

461 23

1

0 1 76

-30 0 0

0 t3 x)

1993

9.3 6.6

22.7 3.1

-6.1

1993

7x) 19 56

2 8 I n 7

44 52

456

91 94 97

1993

894 1,347 -452

-205 238

- 4 8

601 -182

495 4.3

1993

4,307 129

547

334 35 6

n 5 8 2

11 P 4

0

51 66 25

2002

2.4 2.7

24.8 -0.4 -8.9

2002

1299 111 68

267 1,770

75 83

454

88 99 90

2002

1,534 2,049

-515

-202 369

-347

71 275

807 7.2

2002

4,867 0

1,321

476 0 15

591 228 -75 677

0

77 a 4

7

2003

3.8 7.2

23.5 -0.6 -7.9

2003

1,479

1,675

90 0 2 89

2003

1,720 1,959 -239

-262 387

-10

0 8 -14

843 7.7

2003

4,739 0

1,362

593 0

26

86 -185

0 58 16

1 Export and import levels (US$ mill.)

12.500 T I 2 000

1500

1000

500

0

I O3 I 97 98 99 00 01 02

a h p o r t s m lnports

Current account balance to GDP ( O h ) I

I 1 Composit ion o f 2003 debt (US$ mill.)

0: 370 I

D 1,883

E- Bilateral F - Private ~ ;:ID D - Other rmltilateral

C - I M F G - Short-ter

87