guatemala: country strategy with the idb (2001-2003)

INTER-AMERICAN DEVELOPMENT BANK

GUATEMALA

COUNTRY PAPER

APPROVED SEPTEMBER, 2001

CONTENTS

ABBREVIATIONS I.

INTRODUCTION .................................................................................................................. 1

GUATEMALA. STRATEGY SUMMARY ........................................................................................ 4 II.

SOCIOECONOMIC PROGRESS AND CHALLENGES ................................................................ 5 A. Economic overview................................................................................................... 5 • Fiscal Sector ......................................................................................................... 8 • Financial Sector ................................................................................................... 9 B. The social sectors .................................................................................................... 10 • Poverty................................................................................................................ 10 • Human Capital.................................................................................................... 11 • Health ................................................................................................................. 11 C. Governance ............................................................................................................. 12 • Public safety ....................................................................................................... 12 D. The government’s 2000-2004 agenda .................................................................... 12

III. THE BANK’S STRATEGY .................................................................................................. 14 A. Recent Bank support ............................................................................................... 14 • Accomplishments of the previous strategy........................................................ 14 • Portfolio performance ........................................................................................ 15 • Lessons learned .................................................................................................. 15 B. Poverty Reduction Strategy .................................................................................... 16 C. Proposed IDB strategy for 2001-2003.................................................................... 17 1. Economic growth, stability, and competitiveness .......................................... 18 a. The public finances .................................................................................. 18 b. Financial area ........................................................................................... 19 • Banking............................................................................................ 19 • Securities market ............................................................................. 20 • Pensions ........................................................................................... 20 c. Strengthening the productive sector......................................................... 21 • Agriculture and the rural economy.................................................. 21 • Tourism............................................................................................ 22 • Labor market.................................................................................... 23 d. Environmental sustainability.................................................................... 23 • Environment, natural disasters, and risk management.................... 23

D. E. F. G. H. I. J.

K.

e. Infrastructure ............................................................................................ 25 • Roads ............................................................................................... 25 • Maritime, air and rail infrastructure ................................................ 26 • Urban transit .................................................................................... 27 • Energy.............................................................................................. 27 • Telecommunications ....................................................................... 28 • Water and sanitation ........................................................................ 28 f. Microenterprise and small business.......................................................... 29 g. Integration and trade ................................................................................ 30 2. Equity, social protection, and human capital development ............................ 31 a. Ethnic diversity and multiculturalism................................................ 32 b. Education ........................................................................................... 32 c. Health ................................................................................................. 34 d. Housing.............................................................................................. 35 3. Modernization of the State and governance ................................................... 35 a. Strengthening democracy......................................................................... 36 b. Modernization of government ................................................................. 36 • Executive Branch............................................................................. 36 • Legislative Branch........................................................................... 36 • Judicial Branch ................................................................................ 37 c. Decentralization and municipal development.......................................... 37 • Decentralization............................................................................... 37 • Decentralization project................................................................... 37 • Municipal development................................................................... 37 • Current and proposed municipal projects........................................ 38 • Citizen security ................................................................................ 38 2001-2003 lending scenarios .................................................................................. 39 • High lending scenario...................................................................... 39 • Base-case scenario........................................................................... 40 Linkage between the operations program and the strategy .................................... 42 Implementation risks for the proposed strategy...................................................... 44 Monitoring and evaluation of outcomes ................................................................. 44 The Bank’s country exposure ................................................................................. 45 The Bank’s nonfinancial instruments ..................................................................... 45 Coordination with private-sector instruments ........................................................ 46 • Inter-American Investment Corporation ........................................ 46 • Private Sector Department .............................................................. 47 • Multilateral Investment Fund .......................................................... 47 Activities of and coordination with other cooperation agencies ............................ 48

IV. COUNTRY DIALOGUE AGENDA........................................................................................ 50

ANNEXES

Annex I Annex II Annex III Annex IV Annex V

Summary of Bank operations by strategy focus Loans in execution, nonreimbursable technical-cooperation operations, and ongoing MIF technical-cooperation projects Nonlending instruments in support of the strategy – Studies and seminars 2001-2002 technical-cooperation program and 2001 MIF projects Assistance from the international community

INFORMATION AVAILABLE IN RE2/OD3 FILES

1.

2.

3.

Integration challenges 2000-2004 Economic Policy Matrix 2000-2004 Social Policy Matrix

ABBREVIATIONS BANGUAT DECOPAZ EMPAGUA FIS FONDETEL FTAA GDP GTZ IBRD IGSS IIC IMF INFOM INGUAT IOM KfW MAGA MIF MINUGUA MSPAS OAS PRI PRS PRORIENTE UNDP USAID VAT VMCE WTO

Banco de Guatemala Community Development for Peace Empresa Municipal de Agua [Municipal Water Company] Fondo de Inversi贸n Social [Social Investment Fund] Fondo de Desarrollo de la Telefon铆a [Telephony Development Fund] Free Trade Area of the Americas gross domestic product German Development Cooperation International Bank for Reconstruction and Development Instituto Guatemalteco de Seguridad Social [Guatemalan Social Security Administration] Inter-American Investment Corporation International Monetary Fund Instituto de Fomento Municipal [Municipal Development Authority] Instituto Guatemalteco de Turismo [Guatemalan Tourism Board] International Organization for Migration German Financial Cooperation Agency Ministry of Agriculture Multilateral Investment Fund United Nations Human Rights Verification Mission in Guatemala Ministry of Health and Social Services Organization of American States (IDB) Private Sector Department Poverty Reduction Strategy Programa Desarrollo del Oriente [Eastern Development Program] United Nations Development Programme United States Agency for International Development value-added tax Office of the Deputy Minister for Integration and Trade World Trade Organization

I.

INTRODUCTION

1.1

Since the mid-1990s Guatemala has made considerable progress on a number of economic and social policy fronts. Its respectable average growth rate of around 4% has been fairly stable by Latin American standards. The country reined in the inflationary trends of the first part of that decade, the Peace Agreements were signed, and major strides were made toward consolidating democracy and advancing the national conciliation effort. Nevertheless, Guatemalans are patently dissatisfied with the state of the economy, the exclusion of vulnerable groups still on the economic sidelines, and the governance and security situation in the country.

1.2

Even with the economy’s reasonably strong performance, per capita income has risen only moderately (around 1.4%), even by Latin American standards, because the population is growing quickly. At this rate of economic growth it would take 58 years to double per capita income. The same goal could be accomplished in 22 years were the country to achieve sustained growth of 6%, the peace accord target.

Accelerating and sustaining economic growth is a formidable challenge given Guatemala’s low education and health indicators, meager aggregate investment rate (though public investment has been on the rise recently), and a saving rate that is among Latin America’s lowest. Compounding these circumstances are continuing high fiscal deficits and external imbalances that threaten the Guatemalan economy’s traditional stability.

1.3

Another serious problem is the vast number of people excluded by virtue of their social circumstances, ethnicity, or gender. Guatemala’s income distribution is heavily concentrated in the wealthiest 20%. The concentration of employment income is one of the most skewed in Latin America. Two of every three people are subsisting on earnings of under two dollars a day—one of the highest poverty rates in the region. The ethnic and structural roots of these income-distribution problems are evident in the poverty rate for indigenous groups, which is higher still: four of every five indigenous people are poor. Guatemala also is one of the few countries in Latin America in which the education gap between high- and low-income groups not only has not narrowed significantly but is actually widening.

1.4

A sign of governance problems in Guatemala is the public’s scant confidence in government institutions and the widespread perception that crime (and, to a lesser degree, corruption) is on the rise. Judged against international indicators, Guatemala’s most serious institutional weaknesses are a lack of respect for the law and corruption. According to these same yardsticks, Guatemala is below the Latin American average for efficient government service delivery, although it is above the average for the quality of its market regulatory frameworks, the exception being the financial sector. Among the root causes of the country’s institutional problems are political-system features such as the electoral system, rules and practices for political party operation, and weak checks and balances in the branches of government.

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1.5

The December 1996 Peace Agreements brought to an end a long, brutal chapter of armed conflict and set the stage for Guatemala to rewrite its economic and social agenda to build a better, more inclusive, and more prosperous nation. Though the country is firmly embarked on that path there still are enormous challenges ahead.

Close to half the economically active population is unemployed or underemployed, since the economy is not growing quickly enough to create jobs for the rising working-age population. Despite Guatemala’s resolute efforts to fulfill its peace accord pledges, additional measures are needed to achieve the targets. Perhaps the most important target is the one set for tax revenues, which should reach 12% of GDP by 2002. Tax intakes are still below the commitment levels (they represented only a 9,5% of GDP in 2000) and are a crucial source of funds to carry through on the Peace Agreement commitments. In May 2000 the government, the private sector, and civil society worked out a “Fiscal Pact”, a historic consensus on principles and pledges relating primarily to such issues as balanced budgets, tax revenues, and public spending and borrowing. However, a consensus has yet to be reached and congressional passage secured for a number of measures to flesh out the Fiscal Pact and achieve the agreed tax targets. Meanwhile, to enhance governance—still fragile in the wake of the civil strife and compounded by exclusion, particularly of ethnic groups—the country will need to forge a broad national consensus to be able to map out a viable development strategy.

1.6

The signing of the Peace Agreements unleashed expectations of major changes. At the first meeting of the Consultative Group for Guatemala, held at European Commission headquarters in Brussels in January 1997, the international donor community extended “offers” of aid topping US$2 billion for 1997-2000 to help implement the peace process. The international community reaffirmed its support for that process at the Group’s second meeting in October 1998, again in Brussels.

The preeminent issue on the agenda was the progress made on the Fiscal Pact and the need to achieve a tax-revenue target of 12% of GDP. Alfonso Portillo Cabrera, Guatemala’s president since early 2000, stated that implementation of the peace accord actions was a State policy, and underscored the importance of securing approval of principles and commitments for a Fiscal Pact.

1.7

This country paper is the fruit of a lengthy, intense economic and sectoral dialogue with the new Guatemalan authorities, launched following the elections. After those initial talks the Bank drafted a policy-dialogue paper titled “From the Peace Accords to Consolidation of Economic and Social Progress” which sums up various studies and analyses of keynotes for the country’s economic and social development. The paper identifies key challenges relating to economic growth, poverty reduction, strengthening and rehabilitation of physical infrastructure, sound natural-resources management, and improving governance. The paper along with a presentation on Guatemala’s macroeconomic and social situation was discussed at a high-level meeting in May 2000 between senior Guatemalan government and Bank officials. Out of that gathering came a request from President Portillo for the Bank to: (i) coordinate another meeting of the Consultative Group for Guatemala, and

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(ii) provide support for country authorities to draw up a Poverty Reduction Strategy. Guatemala would be the first non-HIPC country to produce such a strategy paper. Looking at the short, medium, and long range, the document will set out specific actions in every sector of the economy to achieve the charted objective.

It will include arrangements for periodic follow-up, evaluation, and monitoring of programs, actions, and commitments, as an integral part of the Strategy.

1.8

This country paper seeks to convey the circumstances and challenges described and discussed in the aforementioned papers. It also has been drafted so as to serve as a basis for the next Consultative Group meeting. Once the Poverty Reduction Strategy is prepared and approved by the Government of Guatemala, the guidelines, priorities, and goals that emerge from it will be incorporated into Bank programming and operations.

1.9

The Bank’s strategy for 2001-2003 will be to support government efforts to tackle the challenges of sustainable economic growth by way of concrete initiatives, with poverty reduction as a priority. The three major focuses for specific Bank actions in pursuit of its strategy are described below.

1.10

Economic growth, stability, and competitiveness: support the country’s moves to strengthen the public finances through effective Fiscal Pact implementation and financial sector reforms. Production-sector competitiveness will come in for special support, by way of science and technology development, job skills training, strengthening of microenterprise, infrastructure, and initiatives in the environmental, agricultural, and rural sectors.

1.11

Equity, social protection, and human capital development: continue with health and education sector reforms, including actions targeted to uprooted populations such as indigenous groups; strengthen the institutional framework of the housing sector, and support efforts to build local management capacity. Programs targeted to the poorest, such as the social safety net, literacy programs, and child development programs for children under 6 would come in for particular support.

1.12

Modernization of the State and governance: support for efforts to bolster democracy via the construction and implementation of the Democratic Governance Pact to strengthen civic participation; modernization of the Executive Branch; continued support for modernization of the Legislative Branch and strengthening of the justice system; support for decentralization and municipal development, and enhancing citizen security.

1.13

The figure on the next page summarizes the Bank’s strategy and shows how each strategy focus complements the other two and ties in with the overarching Bank strategy objective of reducing poverty.

Growth, stability, and competitiveness Fiscal strengthening, including Fiscal Pact implementation

Support for production sectors, particularly agriculture, microenterprise and small and mid-sized enterprise, tourism Modernize/strengthen factors markets and infrastructure

Modernize financial sector. Support regional integration

Improve institutional framework for environmental protection and make environmental policy more effective

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GUATEMALA. STRATEGY SUMMARY Poverty reduction

Equity, social protection, and human capital development Strengthen compliance with peace agreements and monitor achievement of their targets Support for health and education reforms

Support for child development and literacy Strengthening of institutional framework for housing sector

Programs targeted to the poorest: social safety net

Support for local management capacity

Modernization of the State and governance

Strengthening of democracy

Modernization of government: Executive and Legislative Branches, justice system

Support for decentralization and municipal development

Enhancement of citizen security

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II.

SOCIOECONOMIC PROGRESS AND CHALLENGES

2.1

Guatemala’s economic and social progress in recent years is closely tied in with the implementation of the Peace Agreement undertakings. The country now faces three key challenges: (a) rekindle economic growth, primarily through fiscal reforms, consolidation of finance-sector reforms, and a stepping up of growth in the production sector; (b) raise the standard of living of the poorest Guatemalans and excluded groups; and (c) improve governance and security.

A.

Economic overview

2.2

Guatemala’s macroeconomic picture was stable from the mid-1990s until 1997, thanks to the prudent fiscal and monetary policies in place. The economy was enjoying the fruits of financial reform, decontrolled exchange rates, trade liberalization, and the privatization of many public services or their opening up to competition. Over that interval the economy grew by 4% annually, on average; inflation came down to the single digits, the combined public-sector deficit held at below 1% of GDP, international reserve stocks rose by almost half, exports were up over 50%, and the balance-of-payments current account deficit stabilized at around 3.5% of GDP. However, the tax effort was still weak, the tax burden standing at 8.8% of GDP in 1997, slightly above the 1990-1997 average.

2.3

Macroeconomic conditions deteriorated in 1998 and 1999 with the advent of expansionary fiscal and monetary policies. Public spending began to soar, notably in the social sectors to carry through on the peace accord pledges. Since no further fiscal measures could be implemented, tax revenues could not be boosted concomitantly. The Central Bank continued its policy of reducing interest rates against a backdrop of widening fiscal deficits, lowered bank reserve requirements, and began to sell off reserves to combat the ensuing pressures on the quetzal.

Meanwhile, various financial institutions began to overlend and their portfolio quality deteriorated. The economy picked up temporarily in 1998 but the combined public-sector deficit climbed to 2.1% of GDP, foreign-currency reserves (not counting extraordinary privatization receipts) plummeted, the current-account deficit rose to 5.5% of GDP, and the quetzal lost 9% of its value.

2.4

In 1999, an even more expansionary fiscal policy coupled with shifting monetary policy and various external factors unleashed something approaching a financial crisis. The year began with a sharp downturn in the financial sector when savers and investors lost confidence in the domestic financial system and capital fled the country. The ensuing pressure on the exchange rate was heightened when falling sugar and coffee prices pushed down export revenues. The loss in confidence was exacerbated by a government decision in April 1999, preceding the elections, to use a portion of privatization proceeds to hike public spending by more than 2% of GDP. Toward the end of 1999 the quetzal lost 14% of its value despite repeated currency-market interventions by the monetary authority. Amidst uncertainty

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created by the November-December 1999 general elections and pressures on the exchange rate, the capital exodus continued. In late August the government began to tighten monetary and fiscal policy, restarting open-market operations and freezing uncommitted line items of the budget increment. By virtue of that policy shift, year-end 1999 reserve losses were limited to US$125 million and consumer price index increases to 4.9% (though underlying inflation—factoring out fruit and vegetable prices—rose to 8.4%). The public-sector deficit had widened to 2.9% of GDP, largely as a result of a 24% rise in spending. Annual GDP growth had edged down to 3.6%, in part because of crop damage caused by Hurricane Mitch, falling coffee prices, and a loss of confidence in economic policy management.

2.5

The new administration that took office in January 2000 announced that its priority would be to restore macroeconomic stability. In February the Guatemalan Congress approved a reduction in aggregate expenditure but left social spending untouched.

In March the new monetary authorities adopted a cohesive monetary program based on open-market operations, eschewing the use of international reserves as a monetary policy management avenue. They also resisted pressure to ease monetary policy, since the tax measures needed to achieve the fiscal targets had not been adopted. Promising moves in the fiscal area, such as the May 2000 signature of the Fiscal Pact, helped bolster confidence in the economy. During the first half of 2000 international reserves rose by more than US$570 million and the exchange rate stabilized at 7.75 quetzales to the dollar. In the latter half of the year short-term market interest rates became less volatile and began to trend down.

2.6

In the second half of 2000, as the government kept to its monetary policy designed to preserve macroeconomic stability, not all of the anticipated support on the fiscal policy side was forthcoming. Only part of the fiscal measures agreed on by business, public-sector, and civil society representatives in the June 2000 Political Agreement for Funding Peace were implemented and negotiations on the remaining measures were drawn out without result. Even though the public-finance management approach adopted had succeeded in lowering the fiscal deficit to 2.1% of GDP (1.9% including grants), stalled negotiations on the taxation issue dampened the impact of interest-rate cuts, created uncertainty as to the direction of economic policy, made private investors wary, and delayed preparations for an economic recovery plan. These factors, combined with low coffee prices and high oil prices contributed to the economic slowdown in the second half of the year.

Estimates put 2000 annual growth at 3.3%. The monetary authorities maintained fiscal discipline, with the inflation rate reaching 5.1% at the end of the year, close to the bottom of the 5%-7% target range. In addition interest and exchange rates stabilized and the international currency reserves gained US$650 million overall for 2000.

2.7

In the first months of 2001, the slowdown in economic growth continued within a stable macroeconomic context. Despite repeated efforts to implement the rest of the Fiscal Pact measures, the stalemate in the fiscal area persisted. This situation, which

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affects the country’s image and makes it difficult to attract investors, seems likely to worsen if an agreement is not reached, to the extent that the economic downturn is causing tax revenues to contract. Nevertheless, the monetary authorities acted with determination to attack problems in the financial sector: three insolvent banks were taken over, their deposits guaranteed, and their owners removed, despite the significant fiscal cost. The draft Bank Act and Banking Superintendency Act, which should lead to a significantly strengthened financial sector, were approved by the Monetary Board and sent to Congress for adoption. In early May, the Unrestricted Foreign Exchange Transaction Act—which allows the opening of foreign-currency denominated accounts and more generally authorizes the use of foreign currencies for any type of contract—was implemented, which should reduce the use of offshore banks.

2.8

Table 1 summarizes the performance of Guatemala’s principal macroeconomic indicators.

Table 1 Guatemala. Key macroeconomic indicators 1995-2000

Macroeconomic indicators

1989-94 average

1995

1996

1997

1998

1999

2000pre

GDP (growth rate)

3.9

4.9

3.0

4.4

5.1

3.6

3.3

Year-end inflation (rate of increase)

21.2

8.6

10.8

7.1

7.5

4.9

5.1

Exports fob (US$ million)

1109

1991

2056

2391

2563

2493

2716

Imports cif (US$ million)

1865

3293

3146

3852

4651

4560

4893

Current-account balance (% of GDP)

-5.1

-3.9

-2.9

-3.5

-5.4

-5.5

-4.6

External debt (US$ million)

2307

2107

2074

2135

2368

2631

2570

External debt service (% of exports of goods and NFS) Net international reserves (months of imports)*

n.a.

14.3

10.9

16.5

14.4

17.7

19.0

1.3

1.8

2.0

2.2

2.8

2.6

3.8

Fiscal indicators

1990

1995

1996

1997

1998

1999

2000pre

Net tax burden (% of GDP)

6.9

7.9

8.7

8.8

8.9

9.4

9.5

Central government balance (% of GDP) -1.4 -0.6 -0.2 -0.9 -2.3 -2.8 -2.1 (excluding grants) Central government balance (% of GDP) n.a.

-0.5 -0.0 -0.8 -2.2 -2.7 1.9 (including grants) Combined public-sector balance (% of -2.5 -0.9 -0.1 -0.6 -2.1 -2.7 -2.2 GDP) Social expenditure (incl. social security) 3.6 4.3 4.2 5.3 6.8 7.3 7.0 (% of GDP) * Months of following-year imports of goods and services. Excludes claim on Nicaragua ($145 million, or 0.8% of GDP).

Sources: IMF, BANGUAT, MINFIN, IDB.

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Fiscal sector: Figure 1. Tax revenues Gráfico 1. IngresosTributarios Guatemala’s fiscal 12 accounts have become 11 less stable in recent Shortfall brecha years. Though the % 10 del government hiked 9 PI (Estim.) public spending in B 8 accordance with its 7 Peace Agreement 6 pledges, tax revenues 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 rose far more slowly Year Año than would have been Nota: Brecha en relaciónwith a la metapactadaen los Acuerdosde Paz (12%) Note: Shortfall respect to Peace Agreement target of % of GDP. needed to fulfill those commitments—the target having been a tax burden of 12% of GDP in 2000 (see Figure 1).

Consequently, the combined public-sector deficit increased yearly, from 0.1% of GDP in 1996 when the peace accords were signed to 2.9% of GDP in 1999.

Attempts in recent years to boost tax revenues or improve tax administration either failed or fell short of the tax-burden target, in part because of strong opposition from interest groups and a very weak compliance culture. As a result, though Guatemala’s net tax burden rose steadily between 1994 and 2000 (from 7% of GDP to 9.5% of GDP, as illustrated in Figure 1), it is still the lowest in Latin America.

Because of the tax-revenue shortfall, the 12% target originally set for 2000 had to be reprogrammed to 2002.

2.10

The cornerstone of the plan to raise the tax burden at least to the level prescribed in the Peace Agreements is the May 2000 Fiscal Pact. The Political Agreement for Funding the Peace signed the following month includes 27 measures organized into four areas: (a) across-the-board elimination of exemptions and special treatment; (b) an increase in personal and corporate income tax rates and other measures to make the tax system more progressive; (c) a VAT increase and other measures to yield needed funds; and (d) a series of administrative provisions to boost tax intakes and cut down on evasion.

2.11

Public spending rose sharply in 1998-99 (see Figure 2), reaching 13.8% of GDP compared to 9.5% of GDP in 1995. In 2000, public expenditure edged down to 13% of GDP as the government sought to resolidify the Figure 2. “Guatemala’s fiscal solidity is slipping: macroeconomic accounts. This expenditures have risen far more quickly than revenues” spending trend was driven mainly by the authorities’ resolve to honor Public spending Peace Agreement commitments Fiscal Balance that call for 50% growth in public spending as a percentage of GDP 15

0

14

-0.5

13

-1

12

-1.5

11

-2

10

-2.5

Fiscal revenues

9

-3

8

-3.5 1995

1996

1997

1998

1999

2000

Deficit % of GDP

Revenues and expenditures % of GDP

GDP of %

2.9

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between 1995 and 2000 in the health, education, and justice sectors and for citizen security, plus housing outlays several times larger than the previous level.

Most of these commitments were achieved in quantitative terms, housing being the notable exception. Outlays for physical infrastructure also rose substantially.

However, the hefty increase in amounts of public expenditure was not matched by improvements in quality of spending. Efforts to that end are essential to make government work more efficiently and change the perception that tax revenues are not being put to good use. If the Fiscal Pact commitments on public asset management and the tracking and controlling of government capital and current spending are implemented, the Pact can become part of the solution.

2.12

Financial sector: Guatemala’s financial sector fell into serious trouble in November 1998 when three major coffee exporters went bankrupt. What confidence remained in the system’s solidity slipped further in early 1999 with the closure of about a dozen financial institutions. The quetzal lost value, interest rates were very volatile, and monetary policy was changeable. The quality of bank loan portfolios deteriorated sharply: the ratio of past-due and delinquent loans to total loans outstanding increased 50% (from 7.9% in October 1998 to 12% in mid-2000, slipping back to 9.5% in late March 2001). This vulnerability became clear in the first quarter of 2001 when, as a result of nonfulfillment of commitments with BANGUAT, three banks were declared insolvent and taken over. The total cost of the takeover is estimated at US$325 million, of which only 10% is expected to be recovered. External developments also played some part in this downturn, notably the global financial crisis that curtailed net external lending flows to the private sector and worsened the terms of trade. The fact that the government was tightening its hitherto expansionary monetary policy at the time compounded the problem. The impact on bank lending portfolios spotlighted the financial system’s vulnerability.

2.13

At this time, prominent features of Guatemala’s banking system are maturity mismatches, a heavy concentration of lending within related business groups, loss provisions too low for banks’ nonperforming-loan totals, and capital bases barely above the required standard. The system’s regulatory framework is incomplete and permissive and there is no regulation at all of the securities market. The existence of a vast and busy informal sector (finance corporations and offshore banks) associated with regulated institutions makes the system less than transparent and complicates analyses of its situation. Regulated financial institutions are overseen by the Banking Superintendency which reports to the Currency Board; the Superintendency has no regulatory powers, these being reserved to the Currency Board.

2.14

A further problem is the lack of independent and stable monetary-policy implementation. Banco de Guatemala (BANGUAT) operates under the direction of the Currency Board whose members are the government’s economic authorities, representatives of the banking, business, and public university communities, and Members of Congress. With this institutional arrangement and the Board’s active

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input into BANGUAT executive decisions, monetary policy is not independently managed.

Guatemala has a very feeble securities market. In practice it is more a money market than a securities market, where private issues are typically debt securities in favor of companies related to the group that owns the stock-exchange seat. Short maturities and the lack of standardized public or private debt instruments are holding back the growth of a secondary market. The Securities Exchange is not regulated. The Securities and Commodities Market Registry in the Ministry of Economic Affairs has no regulatory or oversight function; it basically scrutinizes the over-the-counter market to make sure legal formalities are observed.

2.16

Financial-sector modernization is one of the government’s top priorities. Two key laws in that regard are in the legislative approval process: first, currently the Bank and Financial Groups Act, which is designed to streamline and bolster the financial system by modernizing its legal framework; and second, the Bank Supervision Act, under which the Banking Superintendency would be given greater operational autonomy and oversight capacity. In addition, two other bills are in the final stages of discussion by the Monetary Board: first, the Banco de Guatemala Act, which will define the central bank’s objectives more precisely and make BANGUAT operations more autonomous; the Securities Market Act, which includes stockexchange regulatory provisions. The Congress is expected to pass these four laws during the first half of 2001. It should also be noted that, in late 2000, the Unrestricted Foreign Exchange Transaction Act—which provides for free trading and contracting in foreign exchange—was approved, and will result in the establishment of the Institutional Foreign Exchange Market and Currency Exchange Offices. This law entered into force on 1 May 2001.

B.

The social sectors

2.17

Poverty: Despite a hefty increase in Figure 3. Poverty incidence by ethnic group government social expenditure, from (1998) 4.3% of GDP in 1995 to 7% in 2000, 100 Gr 81.6% Guatemala is still far poorer than 90 up 80 many other Latin American countries. o Etn 70 Fully 66% of Guatemalans are living 52.0% ico 60 in poverty, one of the highest del 50 Por 40 percentages in the region. Poverty in cen 30 taje 20 Guatemala is concentrated in rural 10 areas that are home to 60% of the 0 Indígenas NoNonindigenous Indigenous population. The most vulnerable Indígenas population segments, notably indigenous groups, are in particularly dire straits. Over three quarters (76%) of rural residents are poor—almost 82% of indigenous groups and 52% of nonindigenous rural dwellers (see Figure 3). Only Percentage of ethnic group

2.15

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30% of workers are part of the formal labor market and therefore are covered by the social safety net available to the mainstream workforce. Two features of social exclusion in Guatemala are its gender bias (a 41% illiteracy rate among adult women compared to 26% for men; maternal mortality rates more than double the Central American average) and ethnic bias (67% of indigenous children under 5 are malnourished, compared to 34% of nonindigenous children).

Guatemala’s rural population have been very much excluded from the fruits of progress. Taking households with unmet basic needs as a yardstick, the exclusion rate is typically two to three times higher in the countryside than in cities. This is the case even within the more advanced departments like Guatemala, where the overcrowding rate is 18% in urban households but 34% in rural households. Public social spending is heavily skewed toward the metropolitan region, which takes up close to 50% of aggregate social expenditure though less than 15% of its households have unmet basic needs and it accounts for barely 20% of the country’s total population. The income distribution is very top-heavy as well: the wealthiest 20% of Guatemalans receive 60% of total income, the poorest 20% a mere 3.7% share.

2.19

Human capital: Human capital investment has increased considerably, Figure 4. “Guatemala youth have more schooling than their parents, but their educational attainment notably for education, but is still still trails the rest of LAC” insufficient. Between 1995 and 1998 9 8 the percentage of primary-school-age 7 children who actually received primary 6 schooling climbed from 33% to 48% 5 (see Figure 4). Even so, Guatemalan 4 Guatemala youth are falling farther and farther 3 2 behind their counterparts elsewhere in 1 Latin America as far as educational 70 65 60 55 50 45 40 35 30 Age attainment is concerned. The Ministry of Education has made real progress in two key areas: (a) a new education service delivery model and improvements in coverage, retention, and quality—including expanding primary education in rural areas that have a high percentage of indigenous residents, and (b) formulation of education reform within the framework of the Peace Agreements.

Average years of schooling

2.18

LAC

Costa Rica

Honduras

Nicaragua

El Salvador

21

2.20

Health: Health budget expenditure as a percentage of GDP has risen in recent years, overshooting the peace accord target. Nevertheless, many rural residents still have scant access to health services because a heavy share of budget funds goes to the department of Guatemala and because of a lopsided distribution of spending between curative services and preventive health care. Moves now under way to modernize the health sector are expected to pave the way for improvements on these fronts. Among the significant modernization gains achieved thus far are the new Health Code in effect since 1998 and implementation of an “Integrated Health

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Care System” model. The Health Code gives both the State and civil society a say in policy design and implementation and promotes the deconcentrated and decentralized organization and administration of health programs and services.

C.

Governance

2.21

The quality of institutions and of the State institutional apparatus generally are greatly in need of improvement. Though democracy has taken root much remains to be done to achieve three fundamental objectives: (a) representation, meaning that the interests of all groups must be taken into account; (b) control over public institutions, which requires politicians and civil servants to pursue collective, not private, interests; and (c) participation, requiring expeditious, transparent mechanisms whereby a balance can be struck between societal interests. As the country advances toward these objectives it can help remedy problems of exclusion, corruption, and inefficiency. Guatemalans’ participation in the political process has traditionally been among the weakest in Latin America: a very high percentage of Guatemalans believe that voting accomplishes nothing. The electoral rules strongly favor private interests rather than political parties, with which very few people feel any sense of identification. Furthermore, since a new administration took office in January 2000 there is a need for technical training at the various levels of government. The separation of powers does little to create a balance between interests or sides, since the executive, legislative, and judicial branches have not operated sufficiently independently.

2.22

Public safety: Crime is a very serious problem in Guatemala, in the form of assaults, robberies, kidnappings, and other threats to public safety. One telling indicator is the large number of security officers—17,000 registered, 6,000 unregistered—employed by 132 security firms (52 of them registered). The number of firearm permits issued in 1998 was more than double the 1995 total of 16,000.

Youth gangs are another source of concern. Domestic violence against women and children is widespread, affecting 36% of women who live with a man. Expenditure on domestic security is 22% higher than the Peace Agreement target. A National Civil Police Force has been created, its operation grounded in the peace accord tenets, and more than 7,200 officers have been trained.

D.

The government’s 2000-2004 agenda

2.23

The aim of the Portillo administration’s program is to speed up modernization of the economy, break the pattern of impunity, and create a State that works well and operates by the rule of law. Other items on the government’s agenda are the pursuit of justice, security, and well-being, with an emphasis on decentralization, civil society participation, and poverty reduction.

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2.24

As a frame of reference to begin tackling these challenges the government drew up a 2000-2004 Economic Policy Matrix.1 The core objective is to spur stable, sustainable economic growth, with particular attention to the poorest and most excluded sectors, in the spirit of the Peace Agreements. The strategy objectives set out in the Matrix are: (i) couple disciplined fiscal policy with autonomous monetary policy to stabilize prices; (ii) preserve an enabling environment for investment; (iii) liberalize markets; (iv) spur competitiveness and efficiency gains, and (v) accelerate growth and raise the employment rate.

2.25

On the social-policy front the government’s general aim is to create conditions for lasting improvements in living standards, particularly of the poor and the excluded, and to honor its peace accord commitments. The new administration’s recently unveiled Social Policy Matrix2 maps out its priorities for social-sector initiatives.

This Matrix identifies actions, targets, and responsibilities for achieving the four key strategy objectives, which come down to the following: achieve genuine human development, reduce poverty, strengthen and broaden public participation, and foster decentralization. The thematic areas in which these four objectives will be pursued are education, health, housing, multiculturalism and intercultural communication, employment, gender, vulnerable groups, agriculture, the environment, transportation, and communications.

2.26

A Democratic Governance Pact is currently being drafted as well. This exercise is conceived as a dialogue to forge a consensus on a strategy for speeding up economic growth and combating poverty, in the framework of the Peace Agreements. The core democratic governance agenda is built around six priority action focuses: (i) citizen security, justice, demilitarization, and human rights; (ii) decentralization, rural development, and the environment; (iii) education reform; (iv) public participation and political reform; (v) integrated human development; and (vi) the Fiscal Pact. The underlying premise for consultations on the Governance Pact is that poverty rooted in inequity is a serious strategic threat to democratic governance and, consequently, reducing poverty must be the central focus around which the priority guidelines of the core agenda will be pursued and coordinated.

1

Available in the RE2/OD3 technical files.

2

Available in the RE2/OD3 technical files.

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III. THE BANK’S STRATEGY A.

Recent Bank support

3.1

Accomplishments of the previous strategy: Since 1996, the Bank’s strategy for its activities in Guatemala has been built around the Peace Agreement undertakings.

As identified in this strategy, some of the major challenges facing the country are: (i) making poor, indigenous, rural Guatemalans fuller partners in development; (ii) social services expansion and improvement; (iii) modernization of the State; and (iv) growth and development of the private production sectors.

3.2

Loan approvals in 1996-1999 (16 operations totaling US$683.9 million) were up 184% over the 1992-1995 figure of US$240.5 million. This substantial increase is attributable mostly to the government’s stronger emphasis on social programs to alleviate poverty and develop human capital, the launching of a sweeping program of reforms to modernize the State, and implementation of the peace accords. As well, the Bank approved a number of projects toward the end of 1998 and at the beginning of 1999 to provide relief and reconstruction assistance in the wake of Hurricane Mitch.

3.3

The social sectors accounted for most of what was achieved in 1996-1999, specifically in education, health and sanitation, social investment, community development, and microenterprise. Satisfactory progress was made on structural reforms, notably on divestment and privatizations. The railways and postal service were concessioned out and electricity and telecommunications companies were privatized. The Bank’s portfolio was in line with the strategy focuses and contained other projects that are assisting Guatemala to follow through on Peace Agreement commitments.

3.4

Also during this period, particular attention was focused on reducing the social exclusion of poor, indigenous, rural dwellers. The Bank’s program portfolio contributed to creating avenues to improve the social opportunities available to this population. Through social investment and support for the social sector reform process, access to social services was improved. The implementation of the Integrated Health Care System (SIAS) and the extension of coverage at the primary level made it possible for the inhabitants of remote areas to have greater access, particularly to mother and child services. In the education sector, progress was achieved in terms of giving consideration to the country’s ethnic and cultural diversity, through the process of curricular development and strengthening of intercultural bilingual education. Participatory programs involving community organization and civic training, supported the process of rebuilding the country’s social, physical, and human fabric., in particular for communities displaced by the armed conflict. The training on sociopolitical processes for indigenous women in marginal communities is also worthy of note.

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3.5

Portfolio performance: At 31 December 2000 the Bank’s lending portfolio consisted of 27 loans funding 23 projects, for a total of US$999.1 million. The 22 active loans came to US$728.7 million; 29.9% of their proceeds (US$218.1 million) was undisbursed. Five loans totaling US$270.4 million were awaiting signature. The rest of the Bank’s ongoing operations portfolio consisted of four small projects for US$1.96 million, four MIF loans for US$1.45 million for microenterprise support, 14 MIF technical-cooperation operations totaling US$15.1 million, and 40 regular technical-cooperation operations for US$14.7 million.

3.6

The Guatemala portfolio’s performance is satisfactory. With few exceptions, loans are being executed on schedule and the great majority are expected to fulfill their development objectives satisfactorily. Of the 22 active loans, 21 (96%) are rated likely or very likely to achieve their development objectives. Only one loan (4%) is rated unlikely to achieve its development objectives—the Petén sustainable development program (973/OC-GU and 974/OC-GU), and an action plan has already been devised to pick up its pace. Four projects were rated “Unsatisfactory” as to implementation progress: Municipal Development Program II (882/SF-GU), Housing Program (1048/OC-GU), fifth stage of the Rural Water Supply Program (836/SF-GU), and Chixoy River Watershed Management and Conservation Program. The Bank and Guatemalan authorities are working together to improve execution of these operations.

3.7

Fully 82% of the operations comprising the current portfolio were approved in 1995-2000. The two oldest are loans for the fifth stage of the Rural Water Supply Program (836/SF-GU) approved in 1990 and the Chixoy Watershed Management and Conservation Program (871/SF-GU) approved in 1991. The proceeds of the first of those loans are fully committed; the final disbursement under the second loan is currently being processed. Both operations have taken longer than scheduled chiefly because of changes in executing agencies. In the water supply program the Municipal Development Authority (INFOM) replaced the Ministry of Health as executing agency and the operation was reformulated in 1998. The Chixoy program was extremely complex and the executing unit invested a great deal of time on startup and coordination.

3.8

Over the past six years, annual disbursements have averaged US$95.4 million. In 2000, disbursements dropped to US$68 million but the net funds flow was negative since US$92 million worth of debt was repaid. The primary reasons for lower disbursement figures in virtually all programs were the dislocation caused by management-staff changes in most executing units after the January 2000 change in government and the cancellation of US$25 million in undisbursed proceeds of the infrastructure and investment sector reform program (1014/OC-GU).

3.9

Lessons learned: Although the performance of the portfolio in Guatemala has been satisfactory in general terms, the deterioration in performance (slowdown in

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implementation and disbursement rates) that occurred in 1999 and 2000 is worthy of note. In addition to the endemic weakness of the executing units and agencies, in 2000 the incoming administration focused on staff changes and on becoming familiar with operations and processes. In terms of lessons learned, this past experience has highlighted the need to: (i) maintain a flexible training capacity for executing units; and (ii) over the medium term, create a civil service that can assure continuity and efficiency in the workings of government.

B.

Poverty Reduction Strategy

3.10

During the May 2000 high-level meeting the Guatemalan authorities asked the Bank for support in developing a Poverty Reduction Strategy (PRS), as part of the government’s strategy objectives. This will entail a series of diagnostic assessments, drafting of basic guidelines, short-, medium-, and long-range action plans, and consultations with the local and international community. Through two technical-cooperation operations the Bank provided funding to help put together the strategy, including the crafting of basic guidelines based on the existing diagnostic assessment, the economic and social policy matrixes, and an international dialogue to share with the Guatemalan citizenry some concepts and recent successful experiences in key facets of strategies to reduce poverty and strengthen democratic governance, democracy, and civic participation. To complement these actions, the Bank is processing another technical cooperation operation to support the PRS directly. It includes interventions in the areas of rural economy, social safety net, civic participation and public safety, macroeconomic analysis with development of indicators, and monitoring. The end product of the PRS preparation exercise will be a flexible program tied to specific benchmarks. The strategy will likely be completed in late 2001. The Bank will use the PRS guidelines and benchmarks devised plus the strategy targets shown in Annex I as a guide to implementing its actions in the country. The PRS development timetable, including steps already completed, is presented in Table 2.

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Table 2 Poverty Reduction Strategy (PRS) Timetable (completed and scheduled activities) Activity

Date

• • •

IDB/government dialogue on the PRS development exercise IDB identifies funding sources for startup of SEGEPLAN Technical Unit (TU) Establishment of Presidential Commission and TU to develop the SRP

• • •

Appointment of a Bank technical team to support PRS development First TU–IDB meetings to put together a PRS development plan Logical Framework workshop with members of Presidential Commission, TU, and other government and civil society representatives to identify PRS core objectives

August 2000

• •

International Workshop on Poverty Reduction Strategies organized by TU Meeting between SEGEPLAN Secretary, IDB President, Region 2 Operations Manager and other Bank officials

October 2000

• • •

TU produces first draft of PRS TU starts work on a poverty map Mission of IDB rural development specialists, requested by SEGEPLAN

• •

TU produces paper “The Drama of Poverty in Guatemala” Meeting of the Bank with social-sector authorities and the President of Guatemala to discuss PRS issues

January 2001

• • •

Consultations with Regional Development Councils Preliminary poverty maps Interim PRS paper

March 2001

• •

Sectoral consultations with sectors (ministries, secretariats, funds) Harmonization and alignment with national budget

•

Revised interim PRS paper

•

Dialogue and harmonization of proposals with sector and Regional Development Councils

•

Final PRS paper

July 2000

November 2000

April – June 2001 June 2001 July-October 2001 December 2001

3.11

A cohesive poverty-reduction strategy needs to be underpinned by sustained economic growth, to provide a strong base for human-capital investment and to extend a social safety net to the most excluded and vulnerable groups. The strategy also will require bolstering democracy and public participation and the pursuit of more environmentally sustainable development. Another requisite will be further modernization of the State, particularly in the peace accord areas and other spheres in which State actions will reach the entire population, leaving none on the sidelines.

C.

Proposed IDB strategy for 2001-2003

3.12

The proposed Bank strategy fits within the framework of the Peace Agreements, its core objective being poverty reduction. In pursuit of that objective the Bank will concentrate on three strategy action lines: (a) promote sustainable economic growth and competitiveness; (b) support equity, social protection, and human capital development; and (c) help advance modernization of the State and strengthen governance.

3.13

The strategy focuses proposed in this country paper dovetail with the regional focuses in the Central America regional programming paper, namely: (i) sustainable development and natural-disaster prevention and mitigation; (ii) human

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development; (iii) institutions, in regard to the sharing of the benefits of integration; and (iv) strengthening of regional organizations. The Bank’s proposed country strategy for Guatemala reinforces the objectives of the first three regional focuses, while the fourth is less significant given its nature.

3.14

The matrix presented in Annex I summarizes the linkages existing between the Bank’s proposed strategy, the specific interventions of our current and future operations program, and the actions of the government and of other multilateral agencies and institutions. A detailed analysis of the strategy by focus and specific area is provided below. To the extent that the information generated thus far in the development and design of operations allows, detailed information is provided for some of the strategic areas in terms of the linkages between the operations program proposed in the lending and technical-cooperation scenarios and the Bank’s strategy. Section E contains a summary of these linkages. For the aforementioned strategic areas, information is also given on the complementarity, in relevant cases, between the activities of other donor agencies and the Bank’s program.

1. Economic growth, stability, and competitiveness

3.15

Fast and sustained economic growth is a sine qua non for poverty reduction in Guatemala. As was noted earlier, it would take 58 years to double per capita income if economic growth rates hold at 4%, as opposed to 22 years if the growth rate could reach and remain at 6% per annum. A necessary condition for strong economic growth is stable fiscal accounts with higher tax revenue prospects, to be able to sustain social-spending increases. Another requirement is a sound, reliable financial sector, to boost investment and help the production sectors grow. The following sections describe the current situation and actions needed to achieve those conditions, as well as initiatives directly targeted to the production sectors and environmental sustainability. a. The public finances

3.16

Fiscal situation: A central facet of Guatemala’s fiscal picture in recent years has been its low tax intake: the ratio of tax receipts to GDP is currently the lowest in Latin America. The country thus has been unable to sustain public spending levels.

Funding shortages have taken a particularly severe toll on social services and services for the most disadvantaged groups. Other results have been pressures on monetary policy, rising interest rates, and loss of investor confidence. So serious are these fiscal concerns that they were given a prominent place in the peace accords.

Remedying this problem will be essential for continued support from the international community and the prime condition for any kind of IMF arrangement particularly.

3.17

The May 2000 Fiscal Pact was a crucial step in achieving fiscal stability concordant with the Bank’s development strategy. The Pact is an agreement on principles and

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commitments relating to tax revenues, balanced budgets, a progressive tax system, control of public spending (protection of social spending), efficient and transparent tax administration, curtailing public debt (including monitoring and control of standby obligations and municipal indebtedness), management of public assets, decentralization, and evaluation and control of the fiscal system. Among the commitments set out in the final document are a tax burden of 12% of GDP in 2002, a deficit not exceeding 1% of GDP, on average, in 2001-2003, and creation of a Monitoring Commission for the Fiscal Pact’s implementation. In June 2000 the parties to the Pact signed the Political Agreement for Funding the Peace, which contains 27 specific tax-related measures and a timetable for the Pact’s implementation. It is anticipated that, with congressional approval of all these measures, the tax burden could approach 12% of GDP in 2002. The Congress passed some of these measures in late June, among them a hike in the maximum income tax rate from 25% to 31% and abolishment of a number of exemptions (yielding approximately 0.7% of GDP), but the measures related to boosting tax yields, including an increase in the VAT from 10% to 12% (yield: roughly 1.5% of GDP) and other lesser-impact initiatives have yet to be approved.

3.18

The Bank’s strategy is designed to work with the government on fulfilling Fiscal Pact commitments and measures in the Political Agreement. The Bank has already provided nonreimbursable technical-cooperation funding to support various phases in the Fiscal Pact. It now is proposing a comprehensive technical-cooperation agenda for the short and medium term. The aim in the short term is to help build analytical and monitoring capacity in the Monitoring Commission for implementation of the Fiscal Pact. In the medium term the Bank is proposing technical cooperation to modernize two areas—tax revenue intake and public spending. In the first area the object is to create a fiscal policy analysis unit, devise a real-property tax, and prepare and study alternative avenues for an overhaul of the tax system starting in 2003, as envisaged in the Fiscal Pact. On the public-spending side, which would have a heavier financial impact, the Bank would support institution-strengthening in the areas of control of current expenditure and the national public investment system. For the latter, the goal is to improve quality and step up the execution of government capital budgets to achieve the Fiscal Pact targets.

3.19

On 15 May 2001, the Bank approved technical-cooperation operation ATN/SF-7422-GU in the amount of US$150,000 to support the Finance Ministry in its efforts to reactivate the Fiscal Pact and propose the necessary tax adjustments. b. Financial area

3.20

Banking: The banking industry’s serious loan arrears and risk management problems and its incomplete and permissive regulatory framework were mentioned earlier in this paper. Though some piecemeal reforms have helped ease bottlenecks, the kind of comprehensive overhaul needed to remedy fundamental supervision,

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regulation, and market transparency problems has yet to be launched. With 35 banks operating in the country the market for bank services is glutted. In 1999 the government approved Bank Act improvements to address temporary liquidity problems in the sector, a loss of investor confidence, and the prospect of a number of bank failures. These productive moves were still not enough to truly modernize the sector, so new legislation is in the process of being approved to enable the authorities to thoroughly revamp the system. During the first months of 2001, in addition to processing the new regulatory framework, the government has taken significant steps to clean up the sector, such as the takeover of three banks experiencing problems.

3.21

Securities market: Guatemala’s securities market is more weakly regulated than its banking industry. Short maturities and the absence of standardized debt instruments are impeding the development of a secondary market. A busy over-the-counter market operating in tandem with the stock exchange handles corporate paper that is sold to the public. The country has no centralized securities depository and no uniform securities-handling practices. A securities market bill that establishes a new regulatory framework for the sector is being discussed in the Congress.

3.22

The Bank’s strategy in the financial sector is to continue its support for efforts to modernize and strengthen the banking industry and securities market so they can become the springboard for the kind of sustained economic growth Guatemala needs. The government has asked the Bank to process a finance sector reform loan, to be able to adhere to the current development strategy and modernize the sector.

The operation in question fits within the Bank’s country strategy. It would deepen the financial sector modernization process that the Bank supported in 1993 by way of Finance Sector Program I, which focused on first-generation reforms. A new securities-market law has been drafted with Bank technical assistance though MIF funding. This law will structure and thoroughly modernize the securities market, creating the Superintendency of Securities and procedures required to modernize this sector. The bill is currently being reviewed in congressional committees.

Negotiations are under way for the new sector operation (GU-0119) to be cofinanced by the World Bank. As a parallel measure, the MIF is processing a technical-cooperation operation in the amount of US$900,000 (TC-98-02-44-9) to strengthen the Superintendency of Banks with a view to enhancing the supervision it provides.

3.23

Pensions: There are three basic pension plans in Guatemala: the Disability, Old Age and Survivors plan administered by the Guatemalan Social Security Administration (IGSS), which covers private-sector employees and government contract employees; the Civil Servants Plan for public servants; and the Military Pension Administration that covers army officers and specialists. In 1998, 26% of the economically active population were covered by one of these plans.

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3.24

Though the IGSS is an autonomous agency, the Health Code places it under the Ministry of Health and Social Services. In part because its operations are so heavily centralized, the IGSS’s administrative processes have been weak and unstructured and its finances have not been solidly managed. In real terms, the old-age pension has lost a third of its purchasing power since 1985. A pension reform proposal in the works since 1997 would replace the current pay-as-you-go systems with individual capitalization accounts managed by private Pension Savings Fund Managers. Another feature of the proposal is a new Pension Superintendency.

3.25

The Bank is currently assisting the IGSS through US$3.4 million in funding for one component of the second stage of the Health Services Improvement Program. The aim is to bolster the IGSS health insurance function, furnishing technical assistance to improve its financial and services-contracting management so as to modernize its risk insurance function. c. Strengthening the productive sector

3.26

Agriculture and the rural economy: Agricultural commodity production accounts for a quarter of Guatemala’s GDP, close to 40% of all jobs, and two thirds of exports. If the production chains derived from primary commodities are factored in, farming occupies an even more prominent place. The country has a dual farming economy—a modern export-oriented sector producing coffee, sugar, bananas, fruit, and vegetables, and a traditional sector of mostly marginal farms that produce for the home market. Basic grains and meat products are typical outputs of these traditional farms, most of them small or mid-sized operations scattered across the country on marginal, low-yield land. Many of these farmers live in the country’s pockets of extreme rural poverty that are home to most of its indigenous population.

3.27

Underemployment is chronic in the agriculture sector, largely because subsistence farming is seasonal and farm land which was not very productive to begin with is yielding less and less. Rural dwellers are heavily reliant on natural resources not just for farm work but also for other goods and services (firewood, water, etc.).

Compounding this situation is a weak institutional environment, widespread rural poverty, insecure land tenure, few opportunities to boost farm income and even fewer chances of off-farm employment.

3.28

Against this backdrop, a country strategy must spur development of the rural economy, emphasizing investments and economic policies that can make the agrifood sector more competitive and making sure that such investments and policies go hand in hand with social policy actions targeted to the most vulnerable rural dwellers.

3.29

With that in mind, the Bank’s strategy focuses in the agriculture sector will be: (i) development and implementation of public policies to make the sector more competitive; (ii) strengthening of government delivery and/or funding of agrifood

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production support services as public goods, for instance in the food safety, quality, and technology spheres; (iii) infrastructure development for rural production and essential social services in rural areas, to lower transaction costs for families, uprooted populations, and rural microenterprises seeking access to markets, services, and information; and (iv) more sustainable natural-resources management, helping to bolster frameworks for regulating and managing the use, marketing, and valuation of environmental services and involving local communities more in these spheres and their management. The Bank is currently examining two watershed management projects, one rural and one for the upper Lempa River watershed.

3.30

The government recently signed the loan contract for a food and agriculture restructuring program. This is a key instrument for Bank support in the above-listed areas, through components for natural-resources valuation, water-resources management, technological innovation, food safety and quality, administration of trade rules, and simplification of export formalities. The Petén Sustainable Development Program is supporting natural-resources management and land-tenure regularization initiatives.

3.31

Tourism: Guatemala’s tourism revenues have climbed in recent years to nearly US$400 million. U.S. and European visitors account for almost half of tourist entries; 35% are from Central America. Hotel occupancy rates are still below the regional average, signaling a huge untapped potential. The government’s recently unveiled “Guatemalan Tourism Assessment and Strategy” contains guidelines and actions to: (a) generate foreign currency by increasing tourist numbers, lengthening the average stay and boosting per-person expenditure; (b) strengthen human resources by training local personnel to provide better service; (c) upgrade, expand, and diversify the country’s tourism infrastructure; and (d) develop sustainable tourism (ecotourism) and encourage local community microenterprises to become involved, the aim being to raise the income of receiving communities through microenterprise training for ecotourism and activities to foster local management of Guatemala’s archeological and cultural heritage.

3.32

The Bank is currently supporting a regional tourism program with Organización Mundo Maya (OMM) and the Guatemalan Tourism Board (INGUAT). The end product of this collaboration will be an investment plan to develop ecotourism and cultural tourism projects throughout Central America. (The OMM Technical Secretariat is based in INGUAT.) Another Bank-funded operation is the Petén Sustainable Development Program, which includes investments to safeguard that region’s cultural heritage.

3.33

The Bank’s strategy is to support activities to coordinate efforts and build partnerships between the public and private sectors in local communities and nongovernmental organizations. The aim is to help preserve the country’s natural and cultural resources and foster their rational use through tourism. Also envisaged

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is support for modernizing institutions and tightening intraregional cooperation to come up with uniform tourism concepts, standards, and policies.

3.34

Labor market: Informal businesses account for a huge share (70%) of jobs in Guatemala. Among the ranks of these workers, who fall outside the social safety net, are vulnerable groups such as migrants (coffee pickers, sugarcane cutters, cardamom gatherers, etc.), domestic employees, and child and elderly workers.

They have no labor exchange, no access to the kind of education that would give young people an entrée into the formal job market, and no training system geared to private-sector needs.

3.35

Two operations being supported by the Bank are a program to foster an open dialogue between the business community, union leaders, and the public sector on today’s globalizing economy and to build firm and lasting peace, and a program to modernize the region’s labor market, to be implemented by the Secretariat for Central American Economic Integration (SIECA), with which USAID has worked in the same sphere as the Bank-financed program. USAID has expressed interest in continuing to support job competitiveness programs.

3.36

The Bank’s strategy is to support activities to improve working and employment conditions in the areas of occupational health, training, education, etc. Other focuses of support should be institutional modernization of the sector authority, modernization of the labor market to better interface training, employment, and education, creation of labor exchanges, alternative dispute resolution avenues, and occupational health systems. Efforts also will be made to achieve greater intraregional cooperation, promoting more uniform labor policies and standards.

3.37

The Bank is currently studying a loan for US$10 million to support the Decentralization and Modernization Program of the Ministry of Labor and Social Security (GU-0158). Under a recently approved technical-cooperation operation (ATN/SF-7451-GU), immediate and specific activities will be carried out in the short term to restructure the ministry, consolidate the training and employment policy, strengthen the ministry’s Training and Employment Department, and organize an event to define the logical framework and operations manual for the future project. d. Environmental sustainability

3.38

Environment, natural disasters, and risk management: Guatemala’s many institutional and operational weaknesses in these areas have resulted in disjointed policies and overlapping functions that make sound environmental management an very difficult. The result is severe environmental degradation in the form of river and surface water pollution, biodiversity loss, and degraded farmland. These losses, coupled with rising population numbers, are leaving the country highly vulnerable to weather and geological events, putting the population and its production base at

- 24 -

risk. As a first step to coordinate environmental management the government created the Ministry of the Environment and Natural Resources and is reviewing the legal and institutional framework. Action is being taken in other ministries and in municipalities as well. The National Disaster Prevention Coordination Agency is working with other ministries, including the Ministry of Agriculture and Food, on disaster prevention and mitigation actions.

3.39

The proposed Bank strategy will: (a) support environmental authorities’ efforts to modernize environmental management and strengthen environmental monitoring and protection at the central and regional level; (b) support actions to halt environmental deterioration in urban and rural areas, thereby substantially improving living conditions for the rural poor; (c) help develop local and municipal capacity to improve environmental quality; (d) support efforts to prevent and mitigate damage caused by natural disasters, to gradually leave Guatemala less vulnerable to such events; (e) support initiatives to prevent oil spills and fires; and (f) support urban planning in Guatemala City to keep settlements in high-risk areas to a minimum. As part of this strategy the Bank will support the management and strengthening of the Environment Ministry and a program to clean up Lake Amatitlán. Guatemala is benefiting from a number of Bank-funded regional technical-cooperation operations involving natural-disaster risk management.

3.40

A program is currently being prepared for sustainable development of the Lake Amatitlán basin (GU-0066) and includes watershed management and work with five municipalities to provide institutional strengthening in administration, finance, land registration, and re-engineering of its water and sewerage service units, which will lead ultimately to better management of the watershed’s resources.

3.41

The program for natural-resource management in Guatemala’s highland basins (GU-0133) will seek to: (a) strengthen local organizational capacity with a view to protecting the natural resource base, developing productive projects, and reducing vulnerability to natural disasters (US$6 million) at the level of the central and municipal governments and of community organizations by means of decentralization and training; (b) foster sustainable natural-resource management by supporting initiatives to re-engineer natural-resource management and production systems in rural communities (US$31 million) through support for organized small- and medium-scale producers by means of specific training programs and investments in community forestry management; and (c) design technical guidelines for paying for environmental services (US$2.6 million) by drafting plans to measure, monitor, and analyze the El Naranjo, Xayá-Pixcayá, and Pensativo/Upper Guacalate basins.

3.42

The Netherlands and UNDP are providing specific support for decentralization and and modernization of the Ministry of Agriculture and Food. GEF/UNDP is supporting efforts connected to the conservation and development of the Sarstún– Motagua Region. USAID is financing projects in the Motagua and Polochic river

- 25 -

basins. GTZ is supporting institutional strengthening activities for municipios in Verapaces in aspects directly related to natural resources and the environment. e. Infrastructure 3.43

Roads: Guatemala has approximately 14,000 kilometers of roads and highways.

About 4,500 kilometers are paved, 7,000 kilometers are unpaved, and 2,500 kilometers are rural earth roads. Just over 75% of the paved road network is now in good condition, compared to slightly under 30% in 1996. The two main reasons for these improvements are the creation and startup of a road maintenance fund of roughly US$80 million a year, executed by the Road Maintenance Unit, and rehabilitation and modernization work by the Roads Directorate that opened the door to private-sector involvement in maintaining and rehabilitating the national road network. Toll services and maintenance of the Palín-Escuintla freeway were successfully concessioned out in July 1998.

3.44

Key challenges in this area are to continue rehabilitating and maintaining major road corridors, expand the arterial highway system to remote areas and others that have poor market access (increase the number of municipal seats with paved access roads from 40% to 100%), and advance regional-integration efforts by way of interoceanic corridors linking the Pacific and Atlantic coasts (CA-09) and Central American pacific coastal areas (CA-02). There also are plans to encourage privatesector participation in road projects on routes such as Guatemala City—El Rancho (CA-09 North to the Atlantic) and the Metropolitan Area Beltway, these being slated for build-operate-transfer (BOT) contracts.

3.45

Government actions are focused on implementing the Roads Directorate’s 20002010 Road System Development Plan; strengthening the national road system, taking a Central American regional perspective, to make Guatemala’s economy more competitive and sustainable; continuing to modernize and restructure the sector, including heading up and coordinating all activities involving rural roads; and sponsoring and passing laws to ensure that the Road Maintenance Unit will be sustainable, giving it more autonomy, legal status, and its own assets.

3.46

The Bank’s strategy focus will be to help fund the country’s Road Sector Rehabilitation and Modernization Program to continue supporting the rehabilitation of major road corridors, expand the arterial highway network to remote rural areas and others with poor market access, and help Guatemala integrate more fully with its neighbors in the region.

3.47

The new operation under the second stage of the road rehabilitation and modernization program, funded partly with US$150 million from loan 1224/OC-GU (which is pending signature), will provide the government with continued support to rehabilitate and upgrade roughly 450 km of the principal road network and at least 350 km of rural roads in the departments of Quiché and

- 26 -

Huehuetenango, possibly extending them to other departments depending on available studies. The targeted road sections are included in the 2000-2010 Road System Development Plan. This new program will continue the support provided for institutional strengthening of various road sector agencies, including the Road Conservation Unit (COVIAL), road districts, and the General Roads Directorate.

3.48

Other international agencies active in this sector include the World Bank, JBIC, and the Central American Bank for Economic Integration (CABEI), which are supporting the strengthening of the road infrastructure sector through loans and technical assistance to finance rehabilitation and modernization programs.

3.49

Maritime, air, and rail infrastructure: Guatemala’s three largest commercial ports—Puerto Quetzal, Puerto Santo Tomás de Castilla, and Puerto Barrios—are in need of hefty capital investment to be able to keep pace with the modern, competitive maritime transport industry and its sophisticated technology needs. The government has concentrated on modernizing the legal and regulatory framework and subsector agencies. A program is needed to spur private-sector involvement in port construction, operation, and management, to make import and export cargo handling services more efficient and competitive.

3.50

Guatemala’s air transportation infrastructure consists of two international airports (La Aurora and Flores/Tikal), six paved runways, and about 400 dirt runways scattered throughout the country. Most air freight and passenger traffic comes through La Aurora, which reached its capacity several years ago. A new airport thus is needed to ensure efficient, competitive, and safe air transport. To strengthen civil aviation, the government has furnished resources and taken institutional measures to provide acceptable service and meet international standards governing equipment maintenance, facilities, and new technology recommended by the International Civil Aviation Organization.

3.51

Guatemala has about 1,000 kilometers of rail lines. In 1998 the government awarded a 50-year concession to a private company to rehabilitate and operate the nation’s railway network. The concessionaire has fulfilled part of its capital investment commitment by reconditioning the Guatemala City—Puerto Barrios line. This leaves two thirds of the rail system to be rehabilitated.

3.52

The Bank’s strategy aims in these subsectors are to: (a) spur private-sector involvement in the country’s three leading commercial ports, to keep pace with the demands and sophisticated technology requirements of today’s modern, competitive maritime transport industry; (b) promote private-sector participation in concession arrangements for La Aurora and Flores/Tikal international airports and possibly to relocate La Aurora; and (c) support the fulfillment of capital investment commitments in the railway-system concession agreement.

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3.53

Urban transit: Most of the country’s urban transit facilities are concentrated in Guatemala City and its metropolitan area. City transit services there are provided by private operators organized into cooperatives. Fares depend on how old the buses are, and have been publicly subsidized since the mid-1970s. One of the chief constraints for efficient transit service is the institutional weakness of the regulatory and oversight authority Empresa Metropolitana Reguladora del Transporte y Tránsito (EMETRA).

3.54

The Bank’s strategy for this sector is to support efforts to ensure the smooth flow of traffic in the metropolitan region. A technical-cooperation operation (ATN/FC-7349-GU) is under way with the Municipality of Guatemala City for a system to coordinate and manage the traffic-light network. Proceeds from loan 967/OC-GU, which was recently reformulated with the approval of the Bank’s Board of Executive Directors, will be used to finance grade crossings and other road work that will directly help to improve urban transit in the metropolitan region.

The operation also includes resources for training and modernization of the traffic police and EMETRA.

3.55

Spanish cooperation resources are being channeled to activities to improve urban transit in direct support of the municipalities of Guatemala City, Mixco, and Villanueva.

3.56

Energy: To tackle energy-sector development challenges, action is needed to: (a) strengthen the capacity of the Ministry of Energy and Mines and the National Electric Energy Commission to regulate and monitor compliance in the electric power industry; (b) increase oil, gas, and electricity use among the poorest population groups, particularly rural households; (c) strengthen management capacity in the oversight and compliance monitoring agencies so the Rural Electrification Program can achieve its objectives; (d) review the makeup and decision-making procedure of the Wholesale Market Administrator to prevent its being captured by any dominant market agent; (e) review the arrangement devised for transmission network expansion, to expedite needed strengthening moves; (f) work with independent power producers to resolve current problems with power purchase agreements (take-or-pay power and energy clauses) that may be impeding operation of the market and could stand in the way of the sustainability and enhanced economic efficiency objectives being pursued in the sector reforms; and (g) review the electricity pricing policy and rationalize the current subsidy scheme.

3.57

The Bank’s strategy focus for the electricity subsector is to support development and consolidation of reforms through a coordinated program using various loan and technical-cooperation facilities. Identified as prospective actions for support are: (a) fine-tuning of reforms, designing and implementing changes to remedy current sector problems; (b) promotion of private-sector projects to increase the number of electricity market agents, without excluding current agents, and spur competition in

- 28 -

the market through merchant plants; and (c) financing of a program to bring electricity to a large percentage of rural households.

3.58

Work is at the design stage for an operation to support the rural electrification program (GU-0126) in the amount of US$95 million, which will partly finance the US$350 million program being carried out by INDE in its post-privatization phase in an effort to bring electricity to most of the country’s rural residents. The Bank’s Private Sector Department is designing a US$50 million operation (GU-0151) to encourage private investment by increasing the number of operators in Guatemala’s power market. The Inter-American Investment Corporation has direct holdings in the Las Vacas River hydroelectric plant.

3.59

Telecommunications: The percentage of Guatemalans with access to telephone services is among the lowest in Central and Latin America. In 1996 there were 6.4 telephone lines per 100 population in urban areas and 0.09 lines in rural areas, for an average telephone density of 3 lines per 100 population—well below the Latin American 11-line average. Pursuant to the Telecommunications Act passed that same year, the Superintendency of Telecommunications (SIT) was created to regulate the telecommunications industry, with a new legal framework promoting competition and efficiency gains. But the SIT is not autonomous: it comes under the Ministry of Communications, Infrastructure, and Housing. The new law also created the Telephony Development Fund (FONDETEL), whose primary aim is to encourage private carriers to deliver telephone service to rural and low-income households by providing subsidies for qualifying projects. FONDETEL does not have the funds to satisfy the current demand for telephone services in the country.

In late 1998 the State telephone company GUATEL was privatized, 85% of its assets being sold to LUCA, S.A., as Telecomunicaciones de Guatemala (TELGUA). The other 15% stake comprises the current State company GUATEL, which owns mainly public and community telephone plant and equipment.

3.60

The Bank’s strategy for the telecommunications subsector is to support government actions with: (i) technical assistance to strengthen the industry regulator (SIT) to enforce interconnection rules so a competitive market can develop; (ii) technical assistance to GUATEL and FONDETEL; and (iii) fostering of private investment to improve telephone service for rural and low-income households.

3.61

Water and sanitation: This sector’s main problems fall into four broad categories: (a) an inadequate institutional framework and no clear planning policies or mechanisms; (b) service providers’ technical and administrative weaknesses that manifest themselves in project execution and system operation and maintenance problems; (c) services that are financially unsustainable because of tariff administration failings; and (d) scant user involvement. Compounding these larger problems is the absence of a policy on the part of service providers (municipalities) regarding the protection and maintenance of water sources or the treatment of sewage that is polluting rivers that may be used as water sources downstream.

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3.62

Guatemala lags behind the other Central American countries in developing an agenda for water and sanitation reform, which would need to be underpinned by the following principles: (a) separation of functions and assignment of responsibility for: (i) policy and planning, (ii) regulation, and (iii) service delivery by the various organizations; (b) technical and administrative strengthening of service providers; (c) creation of autonomous service providers for urban and rural areas, with scope for private-sector participation and with tariff systems that will ensure the sustainability of services; (d) an independent rate-setting mechanism that is fair to both service providers and users; and (e) development of mechanisms to elicit maximum community involvement in service delivery. The water and sanitation authorities are INFOM across the country and EMPAGUA (the municipal water utility) for the metropolitan area. The Bank is starting activities with both agencies to help institute reforms.

3.63

The Bank’s strategy focus in the water and sanitation sector will be to support sector reforms headed up by INFOM and EMPAGUA. A technical-cooperation operation to help design the sector’s regulatory framework is now being prepared.

In parallel with the reform plans, a loan operation is being prepared to bring service to underserved rural areas. A new operation with INFOM and an operation through UNEPAR to extend rural water and sanitation coverage (GU-0150, currently in preparation) provide for greater community participation in decision-making, which should translate into more involvement in and better use of the systems. The Bank also is looking at operations for the urban and metropolitan area, with a view to medium- and long-range support for the sector.

3.64

UNEPAR is currently negotiating a new operation with KfW to expand water and sanitation coverage in the rural milieu, using the methodology of the Bank’s new operation (GU-0150). Not only will this complement activities under the Bank’s operation, it will allow sector authorities to unify work criteria in these subsectors with a view to sector reform. f. Microenterprise and small business

3.65

There are an estimated 800,000 microenterprises and small businesses in Guatemala, giving work to over 50% of the economically active population. The most serious constraints for this area of the economy are its lack of: (a) an enabling regulatory framework for microenterprise and small business growth; (b) sustainable financial intermediation services; and (c) business development services to make the sector more competitive. The new administration is giving priority to support for microenterprises and small and mid-sized businesses and has created a Deputy Minister’s office for this sector in the Ministry of Economic Affairs. One item on the government’s agenda as set out in the Economic Matrix is to support and strengthen microenterprises and small and medium-sized businesses by leveraging financing, strengthening business development, and making technical support, training, and technological innovation available to such businesses.

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3.66

The Bank’s strategy is built on four pillars: (i) support for establishment of a regulatory framework that will help the sector grow; (ii) expansion of financial services; (iii) improvement and expansion of the supply of nonfinancial services, to boost human and social capital formation; and (iv) fostering and development of solid, sustainable institutions offering high-quality services. Operations currently under way are supporting global credit programs, institutional and policy development, social entrepreneurship, rural savings institutions for indigenous women, and a MIF line of activity to strengthen microfinance institutions. New operations are identified in close coordination with other donors through the International Cooperation Coordination Board set up for the microenterprise and small and mid-sized business sector in Guatemala. The hope is that, by implementing the Program for Institutional and Policy Development in Support of Microenterprises and Small and Mid-sized Businesses, the Bank will more clearly define its role in helping this sector advance. Depending on the outcome of the global credit program currently under way (886/SF-GU) and the studies being conducted under MIF technical-cooperation operation ATN/MT-6500-GU, a possible second credit operation for this sector may be examined. In light of the success of rural savings institutions for indigenous women, the Bank intends to continue promoting such ventures, including support for village banking. g. Integration and trade

3.67

By virtue of its geographic location and its economic-policy decision to join in various trade liberalization arrangements, Guatemala is among the countries best placed, by dint of their comparative advantages, to reap substantial benefits from integration processes. It is a signatory to the following pacts: Central American Common Market, Free Trade Agreements with Mexico and Chile together with El Salvador and Honduras, and the Caribbean Basin Initiative. Guatemala is currently engaged in trade talks on other arrangements (FTAA, WTO, and with Panama), and would need to bolster its negotiating capacity and its capacity to administer the agreements already in place.3

3.68

The country’s strategy is to continue monitoring existing trade agreements; develop physical integration infrastructure (highways, energy, telecommunications, ports, airports, customs services); strengthen, consolidate, and integrate banking systems and capital markets; and map out an information technology adoption strategy.

3.69

The Bank’s strategy is to support the strengthening and modernization of Guatemalan industry to make it more competitive and equip it to benefit in such areas as labor law, intellectual property rights, and expediting the commercialization and marketing of Guatemalan products. The Bank also will continue to support institution-strengthening for trade negotiations (including consensus-building mechanisms with the private sector and other segments of civil

3

An analysis of integration challenges is in the RE2/OD3 technical files.

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society), trade-agreement implementation and administration, and a review of investment-promotion policies and rules and export incentives. This strategy is consistent with the regional focuses set out in the Central America regional programming paper.

3.70

In May 2001, the Bank approved a US$5 million loan (GU-0152/1318/OC-GU) for institutional strengthening of the Office of the Deputy Minister for Foreign Trade under the Ministry for Economic Affairs. The loan’s main components seek to build high-level negotiating capacity in the ministry and accordingly will finance significant international training programs. This operation is one of the new facilities that the Bank has made available to the countries. The loan agreement is being analyzed by the Monetary Board prior to its submittal for legislative approval.

2. Equity, social protection, and human capital development

3.71

Guatemala’s income distribution is very uneven. The wealthiest population quintile receives 60% of all income, the poorest quintile less than 4%. Two of every three Guatemalans are living in poverty. Social exclusion is most pronounced in rural areas where a high percentage of the population is indigenous: eight of every ten indigenous people are subsisting below the poverty line. The country has no comprehensive social development policy. Because neither the quality nor the volume of social spending is adequate and spending is not carefully targeted, Guatemala’s human capital investment—measured in terms of education, health, nutrition, and child and youth development—is among the region’s lowest. Social spending increases in recent years have had little effect on social indicators.

Moreover, the poor and the marginalized are ill-equipped to absorb the changes wrought by trade liberalization, the demand for competitiveness, and globalization.

3.72

The Bank is currently providing support to Guatemala through operations and lines of activity for poverty alleviation, community development, social investment, a housing program and natural-disaster emergency program, social services expansion and improvement (health services, rural water supply, education reform), modernization of the State (program to improve living standards surveys), and development of the production sectors.

3.73

Poverty reduction should be the priority focus of the Bank’s strategy with Guatemala, affording support in areas that most affect poverty levels: (i) limited access to opportunity because of social exclusion practices and the scant productive assets in the hands of the poor; (ii) vulnerability to natural disasters and other adversity; (iii) the absence of a social safety net for the most vulnerable; and (iv) the lack of a consensus-based poverty reduction strategy.

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a. Ethnic diversity and multiculturalism 3.74

With 23 different languages and many different ethnic groups, Guatemala is a country of many cultures. About half the population is of indigenous extraction, including the Maya, Garífuna, and Xinca peoples. Indigenous groups are living below the poverty line and come up against exclusion in every facet of their lives.

They rank at the bottom of the scale of conventional socioeconomic indicators of well-being such as maternal and child mortality, educational attainment, infrastructure, and legal protection.

3.75

The Bank’s strategy aim is to support Guatemalan government programs to reduce poverty and carry through on the Peace Agreement commitments regarding indigenous peoples, reinvigorate rural communities in their traditional homelands through education, agricultural assistance, other productive activities, infrastructure, and strengthening of representative local and regional indigenous institutions. The Bank will also help identify ways of improving employment conditions for poor indigenous people, more and more of whom are now entering an array of job markets and finding themselves at a distinct disadvantage.

3.76

A program is currently being designed to support the dissemination of interculturality (GU-0162) and will seek to: (a) foster knowledge of and mutual respect for the cultural heritage of Guatemala’s four ethnic groups; (b) open opportunities for indigenous residents in marginal areas of metropolitan Guatemala City to improve their living standards; and (c) support the rehabilitation of physical spaces and arrangements to manage intercultural promotion activities. A component is also included for institutional strengthening of the Ministry of Culture and Sports, which will oversee this operation. b. Education

3.77

Education is Guatemala’s preeminent social challenge. In 2000, 37% of Guatemalans aged 15 to 64 were illiterate.4 The average educational attainment of 5.5 years5 drops to 2.5 years for the indigenous population. Public spending on education is up in recent years (2.5% of GDP, compared to 1.7% in 1992) but still falls short of the peace accord targets. Owing to structural weaknesses in the sector, the limited funds available are not put to efficient use. Inequities in access to schooling and in the coverage and quality of education services leaves many Guatemalans on the sidelines, unable to share fully in the country’s progress.

4

National Literacy Commission (CONALFA): CONALFA en el Nuevo Milenio [CONALFA in the New Millennium], Management Report, January/November 2000. Guatemala City, September 2000.

5

Toward an Economic and Social Development Strategy for Guatemala – RES2000 (presentation at the meeting between Bank and senior Guatemalan government officials).

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3.78

Within the framework of the Peace Agreements the education sector has mapped out the guidelines of its 2002-2004 National Education Plan to address five broad policy areas: (a) increase the coverage of education services to guarantee equitable access; (b) build intercultural communication throughout the country and ensure bilingual intercultural education for municipalities in which 50% or more of the population are indigenous, through teacher professionalization and development; (c) guarantee education quality and excellence in the framework of the education reforms; (d) make the education system more democratic through modernization, deconcentration, and decentralization initiatives, as part of reform of the State; and (e) ensure that the education reform process is politically and institutionally sustainable.

3.79

The Bank’s four strategy focuses for education are: (i) education reform and capacity-building in sector institutions, so more can be spent on developing the sector, guided by a medium- and long-range plan; (ii) specific programs to broaden access to education and enhance the quality of education services and adapt them to intercultural communication and bilingual education requirements; (iii) phased execution of operations, tying successive stages to increases in institutions’ capital investment capacity; and (iv) close coordination with other international lending institutions.

3.80

The ARE II program (GU-0131), which is in the final stages of approval, is intended to improve the delivery of education-related services and make them more responsive. The Bank will finance activities to build institutions’ capacity to deliver services needed by the population, expand coverage, and enhance the quality of education. The program’s targets include: professional training for 15,500 basiccycle teachers in monolingual education in nine departments of the country; professional training for 4,400 basic-cycle teachers in intercultural bilingual education in the same nine departments; and training in local staff and investment management techniques for 22 departmental education offices.

3.81

The World Bank is supporting the expansion of coverage, assessment of educational performance, teacher training, and deconcentration of the Ministry of Education. USAID is providing funds for implementation of the Peace Agreements in the education area, specifically with regard to the evaluation of bilingual education, information technology, and basic literacy in the department of Quiché.

The European Union is supporting teacher training in the departments of Alta Verapaz, Baja Verapaz, and Izabal. KfW is supporting the expansion of coverage through the National Education Program. GTZ is providing support for initial training of bilingual teachers and modernization of the Ministry of Education.

UNICEF is participating in the development of curricula, texts, and educational materials, and in teacher training.

3.82

An innovative operation is being designed for the literacy and training workshops program (GU-0159), which focuses on the design, implementation, and evaluation

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of a pilot bilingual literacy project to strengthen programs to eradicate illiteracy in Guatemala. By 2003, the illiteracy rate is expected to be brought down to 20%. The pilot project will focus on two language groups (Q’eqchi’ and K’iché) in 28 municipios spread over four departments. An estimated 60,000 people will attend the workshops. c. Health 3.83

Guatemalans’ health status still compares unfavorably with other Latin American countries that are at a similar stage of development. Guatemala is at the early stage of epidemiological transition. Its maternal and child health indicators have improved gradually in the past 10 years, but infectious diseases and malnutrition still account for the bulk of the burden of disease.

3.84

In the mid-1990s the Guatemalan government was contending with four interrelated kinds of problems, all of which had (and continue to have) an impact on Guatemalans’ health status: (i) scant and unequal access to health services; (ii) a decline in the sector’s already-insufficient funding base; (iii) inefficient allocation of public spending; and (iv) inefficient use of resources in public agencies. To remedy these problems the Ministry of Health and Social Services (MSPAS) has been executing the Health Services Improvement Program.

3.85

The Bank’s strategy for the health sector is to help consolidate the sector reform launched in 1996. A new Bank operation approved in late 1999 will assist the MSPAS and IGSS in the following areas: (i) build capacity in the MSPAS to equip it for its regulatory and policy-setting functions; (ii) expand the coverage and improve the quality of basic health services for poor and indigenous people and, specifically, lower barriers to access to health services for these groups; (iii) modernize the process of contracting out health services to private providers; (iv) modernize the IGSS financial management area to improve health risk management; and (v) improve health services productivity and quality in at least seven pilot MSPAS hospitals.

3.86

Loan 1221/OC-GU, which is at the signature stage, seeks to enhance the population’s health status by expanding coverage of basic services, modernizing institutions, and making investments in maternal and child health. The program’s targets include providing basic healthcare packages to 500,000 new beneficiaries and implementing at seven national and regional referral hospitals a new management model for hospital management, human resources, financial management, and service delivery.

3.87

USAID is supporting actions to ensure the quality of reproductive health and comprehensive care for childhood diseases. GTZ is providing funds for inputs and essential drugs. The European Union is supporting human-resources training and

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the enhancement of health infrastructure. UNICEF is providing support for preventive health and health education. d. Housing 3.88

The challenge in the housing sector is to create an environment in which housing finance facilities can be improved, more money can be made available, particularly to middle-income Guatemalans, and more capital can be attracted to boost housing production and improve home financing terms. Because of the country’s lopsided income distribution, less than 12% of the population would qualify for mortgages.

The other 88% of urban dwellers that have no access to the formal lending market must resort to informal options and build their houses one stage at a time. The most serious challenges as far as this population segment are concerned are legalizing ownership, adjusting bylaws and standards in order to lower housing and subdivision costs, building efficient registry and cadastre systems, bringing infrastructure into low-income settlements, and easing access to microcredit for housing improvements. On the institutional side, central government housing regulators and policy-makers need to be strengthened and coordination between the various levels of government and the private sector needs to be tightened, to make initiatives in this sector more efficient.

3.89

Guatemala has launched sweeping housing reforms to move the government out of direct housing finance and construction, leaving it with the role of policy-setter, facilitator, and regulator. Subsidies are the key incentive for private investment in the sector. The Bank has worked with the Guatemalan government on the design and implementation of housing policies that take a comprehensive approach to enhancing equity and efficiency in this subsector and boosting investment in core housing for low-income groups.

3.90

The Bank’s strategy in this sector is to continue its support for the design of a policy to make for more equitable and efficient housing markets. A particular focus will be moves to improve the condition of core housing for low-income groups. The aforementioned policy also will address the need for new housing to be built in areas that are less prone to landslides, flooding, and earthquakes.

3.91

The Bank is reviewing a request from the country for the US$20 million in additional funding that was contemplated in loan 1048/OC-GU, which is currently in execution. This funding (GU-153) would mainly be intended to support major institutional strengthening as part of a comprehensive housing policy.

3. Modernization of the State and governance

3.92

A necessary condition for poverty reduction is efficient public institutions that earn the people’s trust and deliver essential services that are the State’s responsibility.

The first steps to modernize the workings of government were taken by the

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previous administration, which negotiated loan and technical-cooperation operations with the Bank for modernization of the customs service and justice system and for airport privatization. a. Strengthening democracy 3.93

To build a firm and lasting peace, Guatemalans need more avenues for input into the workings of government and modernization and strengthening of the rule of law. The Bank’s strategy in this regard will address the need to bolster democratic participation mechanisms by supporting electoral system reform (political parties, civic committees, electoral roll, identification document, etc.), and to strengthen institutional capacity of the National Electoral Commission. The identification document and electoral roll are currently being studied with a view to preparing a project with the National Electoral Commission and the Civil Registry (GU-0165).

Two specific focuses of support will be implementation of the Governance Pact and the work of the Peace Secretariat to verify fulfillment of the peace accords. b. Modernization of government

3.94

Executive Branch: The Bank’s strategy in this subsector will support the creation of a government procurement career service path and strengthening of strategic management in the Office of the President of the Republic. One key focus of support will be statistics development, to improve decision-making and management. The government will submit a request to the Bank in this connection when it has completed its analysis of priorities for statistics production and for revamping the institutional framework of the National Statistics Bureau.

3.95

Legislative Branch: The Bank’s strategy here is to fund a program to modernize this branch of government. The operation will include creation of a National Register of Statutes, startup of Regional Civic Education and Participation Centers, and strengthening of the legislative function through technical advisory assistance and legislative information and documentation systems.

3.96

In pursuit of this strategy, an operation in the amount of US$12 million is currently being prepared to support modernization of the National Congress (GU-0143). The program will seek mainly to strengthen the legislature’s technical and institutional capacity to perform effectively the functions of legislation, representation, and oversight. Greater legal security will be supported through the creation of a National Register of Statutes, and legislator productivity and better quality legislation will be supported through a program of legislative technical advisory assistance and the creation of new channels for citizen participation.

3.97

USAID and the World Bank are both providing specific support to the Congress through funding for the units for legislative and technical support and budget analysis. A legislative information system (GLIN) is about to be installed using

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grant funds from the World Bank. The Spanish agency has financed the installation of an electronic display system in the Congress. UNDP-MINUGUA are lending support by developing seminars and workshops.

3.98

Judicial Branch: The main focus of the Bank’s strategy will be support for government efforts to make the justice system more accessible for marginalized communities, targeting the rural population, indigenous communities, and women.

Support also will be provided to strengthen justice-system institutions. c. Decentralization and municipal development

3.99

Because government operations are so heavily centralized, public-service delivery is inefficient and there are patent gaps in service quality and coverage, particularly outside the metropolitan area. Moreover, government actions are not spread evenly among the regions, creating serious inequities and leaving sizable segments of the population, especially indigenous groups, outside the development mainstream.

3.100 Decentralization: The government established a Decentralization Council to put through the decentralization agenda that is one of its stated priorities. A number of government departments and agencies, among them the Health, Education, and Agriculture ministries, have put decentralization at the top of their list of concerns and are developing pilot plans for concrete initiatives. There may be a certain sense that these moves are not being coordinated by any body acknowledged as having leadership of the issue and that various government agencies seem to be vying to head up the public administration decentralization program. However, the government has appointed a Presidential Commissioner to coordinate the decentralization efforts.

3.101 Decentralization project: The country needs Bank technical assistance to work with the official counterpart on mapping out a decentralization strategy and implementing a system to coordinate the work of the various organizations involved in this issue, including the strengthening of the National Public Administration Institute. Other key decentralization issues that call for such support are regional disparities, transparency, and fiscal and administrative decentralization.

3.102 An FSO-funded technical-cooperation operation in the amount of US$300,000 is being prepared with a view to the preparation of operations related to the decentralization area. A separate operation is expected to be processed in the amount of US$75,000 to support a decentralization policy assistance program that would be financed out of CT/FONDOS. 3.103 Municipal development: One serious problem in the local government sphere is the institutional weaknesses in most Guatemalan municipalities. These shortcomings show up mainly in accounting and financial management and the operation and maintenance of municipal public services. Other problems are the

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lack of miscellaneous support systems for municipal training, financial management, performance monitoring and evaluation, and public information on municipal operations. On the positive side, the Mayors’ Coordination Board for Decentralization will be helping to coordinate activities having to do with municipalities.

3.104 Current and proposed municipal projects: The Bank has two operations under way in Guatemala to support municipal development: one for comprehensive development of the Guatemala City Metropolitan Area and the other for municipal government capacity-building and funding of municipal works via INFOM and the Social Investment Fund-PRORIENTE. The INFOM project has two phases: phase II of the municipal development program (GU-0134) is expected to be approved during this administration’s term (2002). Some new programs that should be envisaged are: (1) further implementation of integrated municipal financial systems; (2) a reform and investment project for mid-sized cities (20 cities of over 100,000 population), and (3) a training project for municipal professionals (in finance, engineering, and public administration) and creation of a municipal government career service, working with Guatemalan universities.

3.105 The aforementioned project GU-0134 includes a strong institutional-strengthening component that would help the municipalities participating in the program to build financial and administrative capacity and enhance their ability to prepare projects with community participation. A USAID program known as NEXUS is conducting institution-strengthening activities in 40 municipios. d. Citizen security 3.106 To help address serious concerns over domestic, youth, and adult violence and the threat to public safety presented by such crimes as kidnapping and drug trafficking, the Bank will support government moves to develop and implement comprehensive departmental security plans, in a framework worked out by consensus with stakeholders (government agencies, municipalities, civil society, etc.). The Bank is currently providing technical-cooperation funding for a study on the magnitude and cost of violence in Guatemala. The government also has requested Bank support for a domestic violence prevention program.

3.107 The Bank’s strategy will be to support a government initiative to develop a national civic coexistence program that seeks to reduce societal violence through alternatives to the coercive apparatus. This will entail prevention and rehabilitation actions focusing on youth and community involvement, built around mediation mechanisms for peaceful dispute resolution. It will not mean any scaling back of comprehensive government attention to issues of public safety and justice administration, in which the Bank is involved via the Program of Support for Justice System Reform (1120/OC-GU) (judicial branch, Public Prosecutor’s Office, Interior Ministry–Corrections System, and Public Defender’s Office.

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D.

2001-2003 lending scenarios

3.108 The lending scenarios presented in Table 3 were devised after examining projects in the Bank’s operations program, loans identified since the most recent programming mission (August 1998), and projects identified during the Bank’s meeting with senior officials of the new administration in 2000. Other factors considered were the country’s capacity to absorb funding (ratio of net flows from Bank operations to Guatemala’s total net external debt flows), the share of the national budget taken up by counterpart contributions for Bank operations, the political consensus, and executing agencies’ institutional capacity.

3.109 It is important to note that the degree to which either of the following two lending scenarios will be workable is their tie-in to Guatemala’s success in implementing the fiscal measures needed to achieve the peace accord target of a tax burden of 12% of GDP by 2002. If the government is not able to demonstrate that this target has been achieved, the Bank and the authorities would work out a lending program smaller than the base-case scenario presented here, sizing it in accordance with the country’s demonstrated fiscal effort.

3.110 In the base-case scenario, the estimated value of the operations for the 2001-2003 period comes to US$565.2 million. The high lending scenario provides for a possible increase of this amount to US$931.2 million. As is explained in detail in the next paragraph, whether or not the high-lending scenario projects become part of the Bank’s program will depend essentially on political decisions that would be needed in each case for Bank financing to be possible. In addition, for the 20012002 period, 16 technical cooperation operations are being prepared involving some US$5,24 million and five MIF operations amounting to US$5.6 million (see Annex IV).

3.111 High lending scenario: This scenario assumes all base-case scenario operations plus the projects listed for each year in the right-hand column of Table 3.

•

Finance sector program II (2001): Contingent on a series of concrete government measures including Fiscal Pact implementation and passage of various laws slated for presentation to the Congress in early 2001. If these steps are not taken in 2001 it is unlikely, from a political feasibility standpoint, that they would be taken in subsequent years.

•

Lake Amatitlán cleanup and management program and Lempa River basin management program: These will depend on institutional arrangements being duly devised.

•

Global microcredit program: Hinges in large measure on the implementation of planned finance-sector reforms.

- 40 -

•

Urban shantytown improvement program: Depends on the requisite political agreements being reached by the four municipal governments involved, whose term ends in 2003. If such agreements are not reached it is very unlikely that the program could be carried through in the period covered by this country paper.

•

Modernization of the State project: Approval of this project in 2002 will depend on the government’s having devised a strategy in 2001 for its decentralization policy and having decided which agency would be in charge of this program.

•

Supplementary housing program: Inclusion of this program in the operations program will depend on the outcomes and audits of the housing program currently under way.

•

Pension system program: Could be implemented only if the government makes a decision on pension reform by 2002. Without such a political decision within that timeframe the program would be postponed indefinitely.

3.112 Base-case scenario: The base-case lending scenario includes the operations most likely to be prepared in each of the years analyzed, with due regard to their complexity and the government’s absorption capacity. It assumes US$565.2 million in loan approvals in 2001-2003, US$330.2 million of them in fiscal years 2001 and 2002. These figures are indicative, since some high-scenario projects could move into the base-case scenario the following year if the institutional and political moves outlined in the preceding paragraph go forward.

- 41 -

Table 3. 2001-2003 lending scenarios 2001 Base-case scenario -

GU0164:

-

GU0131:

-

GU0152: GU0150: GU0133:

-

GU0143:

-

GU0159:

Strengthening procurement management (US$ 1.2 million) Support for education reform II (US$22 million) VMCE inst. strengthening (US$5 million) Rural water supply program (US$50 million) Natural resources management in priority watersheds. (US$40 million) Guatemalan Congress modernization program (US$12 million) Literacy program, phase I (US$10 million)

Subtotal: US$140.2 million

High scenario (in addition to the base-case scenario) GU0119: Finance sector program II (US$100 millionUS$200 million) GU0066: Lake Amatitlรกn cleanup and management (US$20 million) GU0149: Lempa River (Trifinio) watershed management (US$6 million)

Subtotal: US$126.0 million

2002 Base-case scenario -

GU n/n:

-

GU0156: GU0126: GU0157:

-

GU0162:

National Electoral Commission (US$6 million) Social protection program (US$30 million) Rural electrification program (US$95 million) Prog. support for Poverty Reduction Strategy, phase I (US$50 million) Promotion of indigenous culture (US$3 million)

Subtotal: US$184.0 million

-

High scenario (in addition to base-case scenario) GU0154: Global microcredit program II (US$20 million) GU0155: Urban shantytown improvement (US$60 million) GU n/n: Modernization of the State (US$40 million) GU0153: Supplem. housing program (US$20 million)

Subtotal: US$ 140.0 million

2003 Base-case scenario -

GU n/n:

-

GU0158: GU n/n: GU n/n:

-

GU0134: GU n/n:

Support for education reform III (US$40 million) Labor market program (US$20 million) Literacy program, phase II (US$30 million) Citizen security and civic coexistence (US$60 million) Municipal development (US$41 million) Support for Poverty Reduction Strategy, phase II (US$50 million)

Subtotal: US$241.0 million

-

GU n/n:

High scenario (in addition to base-case scenario) Pension system program (US$100 million)

Subtotal: US$100.0 million

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Table 3. 2001-2003 lending scenarios Continued

Other prospective projects, currently at the idea stage and being discussed with the authorities -

Local development of populations uprooted by the war Community daycare centers Housing program II Decentralization project Municipal Integrated Financial Systems project Mid-sized cities Promotion of youth development and participation in development processes Programs derived from the Poverty Reduction Strategy Support for government management-Policy management project Support for tourism in municipalities Institutional strengthening of the 22 Departmental Associations of Municipalities Water and sanitation program Urban/Metropolitan area water program

E.

Linkage between the operations program and the strategy

3.113 The following table shows a summary of the Bank’s lending and technical cooperation operations program for the 2001-2003 period according to the strategic areas proposed for focusing the Bank’s action in Guatemala. The lending program includes all so-called high-lending scenario operations.

- 43 -

Table 4: Operations program by strategy focus, 2001-2003 Strategy focus

Economic growth, stability, and competitiveness

Lending program Number and title GU0119: Financial sector II GU0126: Rural electrification GU0154: Global microcredit II GU0133: Priority watershed sustainable management program GU0066: Lake Amatitlán cleanup GU0149: Upper Lempa-Trifinio watershed management GU0150: Rural water supply program GU0152: VMCE inst. strengthening GU0158: Labor market

TOTAL GU0157: Support for Poverty Reduction Strategy. phase I GU0131: Education reform II

Equity, social protection, and human capital development

GU n/n: Education reform III GU0153: Supplem. housing program GU0155: Urban shantytown improvement GU0156: Social protection program GU n/n: Pension system program GU0159: Literacy program, phase I GU0162: Promotion of indigenous culture GU n/n: Support for Poverty Reduction Strategy, phase II GU n/n: Literacy program, phase II TOTAL GU0143: Congress modernization program GU n/n: National Electoral Commission

Modernization of the State and governance

Technical cooperation program Amt. (Mill.)

100.0 95.0 20.0 40.0

Number and title TC9801483 National environmental strategy TC9811185 Pre.water and sanitation program TC9911124 Urban transit –Geographic information system TC9809164 Visión de Guatemala project

Amt. (Mill.)

0.67 0.68 0.15 0.15

20.0 6.0

TC9911039 Private social security contracting TC0033034 Production support, southern Quiché

2.00 0.25

50.0 5.0 20.0

TC0012055 Labor market program TC n/n Natural disasters AGA/GIS TC n/n Uniform property tax, phase III TC n/n Support for Medical Faculty TC0003025 Strengthening of elec. industry regulator TC0006010 Guatemala City private sector in sanitation services TC0006008 Support for Banco Internacional TOTAL TC9911073 Instructional materials Mayan teachers

0.23 0.15 0.15 0.15 1.50 0.60

TC0001028 Program to improve measurement of living standards TC0104003 Preparation PRE

0.64 0,75

TOTAL TC9802449 Strengthening of Banking Superintendency

1.49 1.2

TC9911175 Domestic violence prev. /eradication

0.10

356.0 50.0 22.0 40.0 20.0 60.0 30.0 100.0 10.0 3.0 50.0 30.0 415.0 12.0 6.0

0.30 6.98 0.10

GU n/n: Modernization of the State

40.0

TC9903054 Training for judges, phase II

0.15

GU n/n: Citizen security and civic coexistence

60.0

TC0101077 Exchange of parliamentary experiences

0.02

GU0134: Municipal development II

41.0

TC0012029 Women’s role in preserving democracy, phase II

0.75

GU n/n: Strengthening procurement mgt.

1.2

TC n/n MINFIN restructuring, phase III

0.15

TOTAL GRAND TOTAL

160.2 931.2

TOTAL GRAND TOTAL

3.114 It should be noted that all the Bank’s operations will continue—through their general approach or by means of specific components—to help reduce the social exclusion of poor, indigenous, rural Guatemalans. In particular, the Bank’s lending program proposes operations that will help reduce poverty and carry through on the Peace Agreement commitments regarding indigenous peoples (e.g., GU-0157,

2.57 10.85

- 44 -

Program to Support Implementation of the Poverty Reduction Strategy).

Investments to strengthen and improve the quality of bilingual education will be proposed (i.e., GU-0131, Education Reform Program II), as will initiatives aimed at rescuing, protecting, preserving, and restoring the cultural heritage of indigenous peoples (i.e., GU-0162, Program to Promote Indigenous Culture). The needs of the indigenous population residing in marginal zones on the outskirts of the Guatemala City metropolitan area will also be addressed through improvements in basic infrastructure as well as participatory processes and income-generating activities (GU-0155, Program to Combat Indigenous Urban Poverty).

F.

Implementation risks for the proposed strategy

3.115 In terms of funding amounts, the proposed operations program is in line with approval levels in recent years, but there are more operations and hence some risks.

The chief risk for the proposed strategy is there might not be sufficient treasury revenues to furnish the local counterpart funding envisaged, thereby jeopardizing the proposed operations. Such would be the case were the Fiscal Pact recommendations not to be implemented. However, there is a firm political commitment to see the vast majority of the projects carried through, in the framework of the Peace Agreements, and the authorities are currently negotiating tax changes to yield the requisite resources.

3.116 Another concern is that some operations are tied to reforms and other measures that will require endorsement and a consensus in the political arena and in civil society.

In the case of civil society such a consensus will hinge on the government’s credibility in its handling of public resources. It thus is important that the government maintain such credibility in its management of public affairs and that it work more closely with civil society, in order to secure expeditious approval for those operations.

3.117 Lastly, there are some risks on the operational side associated with executing agencies’ institutional weaknesses. There also could be considerable delays if the agencies’ new staff take a long time to learn their duties. To counter that risk the Bank is working with authorities of the different executing units on staff training programs for each, covering procurement, disbursements, and operations execution generally.

G.

Monitoring and evaluation of outcomes

3.118 To track the implementation of its country strategy the Bank will keep up a dialogue with the Guatemalan authorities and field programming and projectspecific missions (from identification missions through to administration missions).

The Country Office will perform its permanent monitoring function. To evaluate the strategy’s implementation, progress will be measured against benchmarks in the Summary of Strategy Actions (Annex I), coordinating with the Office of Evaluation

- 45 -

and Oversight. Among these benchmarks are: (a) the Peace Agreement targets; and (b) targets proposed in the government’s Social Policy Matrix. These indicators will be supplemented with those deriving from the Poverty Reduction Strategy.

H.

The Bank’s country exposure

3.119 Disbursements in 2001-2003 are expected to average US$128.3 million annually (up from the 1996-2000 average of US$95.4 million). According to the simulations run, the Bank’s proposed operations program in Guatemala would remain below the recommended exposure ceilings and thus would be financially viable (see Table 5).

Table 5. Financial projections and exposure (millions of U.S. dollars) PROJECTIONS Approvals Disbursements Amortization Net flow of principal Interest and fees Net cash flow EXPOSURE RATIOS IDB lending exposure (18%) IDB debt service / Exports of goods and NFS (8%) IDB balance outstanding / External public debt stock

I.

2001 239.0 115.0 42.1 72.9 67.0 5.9

2002 184.0 130.0 43.8 86.2 80.0 6.2

2003 241.0 140.0 55.8 84.2 93.8 -9.2

1.9 2.7 19.0

2.0 2.9 21.0

2.1 3.1 22.0

The Bank’s nonfinancial instruments

3.120 One form of Bank support for Guatemala since 1997 has been its coordination of Consultative Groups. There were Consultative Group meetings in Brussels that year and in 1998, and a follow-up meeting in Antigua, Guatemala, also in 1998. The Bank will be coordinating the next meeting as well, to be held in Guatemala in the second half of 2001. As it undertook to do during the recent high-level meeting with Guatemalan officials, the Bank is providing support for preparation of the Poverty Reduction Strategy, working with various government agencies and the rest of the international donor community. The Bank also will continue offering support, in the form of studies and policy papers, to see the Fiscal Pact commitments realized. Other activities include seminars on reform of the State and financial reform and studies on such issues as the cost of violence and poverty incidence (see Annex III). In the near term the Bank will be supporting efforts to shape the Fiscal Pact, through consultant support, seminars, and funding for dialogues with civil society. It should be noted that these programs are contingent on the availability of funds in the Bank’s budget.

- 46 -

3.121 As part of its strategy the Bank plans to deploy specific support instruments to strengthen the country dialogue. This includes missions and frequent consultations with Guatemalan authorities and executing agencies to improve portfolio performance and seek a consensus when preparing projects that will involve various institutional stakeholders. The studies and diagnostic assessments listed in Annex III will support the operations program and thereby help implement the Bank’s strategy.

J.

Coordination with private-sector instruments

3.122 One major challenge in the proposed strategy will be to step up the use of the Bank’s instruments for support to private enterprise, specifically to spur investment in the private sector and generate productive employment to strengthen the job market. To broaden the strategy’s impact, funding facilities of the Inter-American Investment Corporation, Private Sector Department, and Multilateral Investment Fund could be used.

3.123 Inter-American Investment Corporation (IIC): The IIC’s strategy for Guatemala centers on support to the country’s private sector. The IIC furnishes long-term finance for small and mid-sized enterprises, whether directly, by way of financial intermediaries operating in Guatemala, or combining those two lending modes.

Sectors targeted in Guatemala under the IIC’s 1999-2000 Central America strategy are agroindustry, energy generation and distribution, private infrastructure and public works concessions, tourism, and manufacturing.

3.124 After a recent IIC roadshow in Guatemala, potential projects were identified in the agroexport, power generation, tourism, and forestry development and wood products industries. The IIC’s Central America Regional Office is following up on these prospects, some of which are more fully developed than others.

3.125 Apart from direct lending, the IIC can offer Guatemalan small and mid-sized businesses two credit facilities: (1) for agricultural and agribusiness projects, the agency line of up to US$20 million signed recently with Latin American Agribusiness Development Corporation (LAAD), and (2) the line of credit arranged with Banco de Occidente S.A. for up to US$6 million, to fund smaller projects of companies in any sector that is eligible for IIC funding. Eligible small-scale ventures are being channeled through these two financial intermediaries.

3.126 A recently approved IIC direct-lending operation, structured as A and B loans for up to US$21 million to Hidroeléctrica Río Las Vacas, S.A., is helping that company develop a US$36.7 million 20-MW hydroelectric project near Guatemala City.

3.127 The IIC is working on three regional investment fund ventures that include Guatemala: (1) a mid-size-business growth fund; (2) a Central American fund to

- 47 -

strengthen the banking sector; and (3) a fund to invest in companies operating in or related to the health sector. One of these projects might be approved in 2000.

3.128 Private Sector Department (PRI): PRI’s strategy focus in Guatemala is infrastructure project finance, to help the private sector follow through on the government’s energy, water and sanitation, and transportation and communications objectives.

3.129 In the energy sector, PRI will target its support to electricity generation and distribution projects that can help open up the industry and create a new wholesale market.

3.130 As for water and sanitation, PRI has been working with Regional Operations Department 2 to create an enabling environment for private-sector involvement and ensure that privately sponsored projects are viable, given the sector’s institutional capacity and tariff schedules. A commercial and financial appraisal is currently being done of one candidate project. In the transportation sector, PRI proposes to offer support to concession-holders (e.g. airport concessionaires) after the concession contracts have been awarded. For urban roads and freeways, PRI would consider funding privately developed or joint public/private ventures provided they are shown to be viable and are concordant with the government’s policy for this sector.

3.131 In the telecommunications field, PRI has had discussions with private companies regarding projects to set up national fixed wireless telephony networks. These projects are being developed within Guatemala’s competitive telecommunications market.

3.132 PRI also is designing products to help develop local capital markets. During an IDB Group workshop in Guatemala in June 2000 PRI held preliminary meetings with Guatemalan financial corporations. PRI will continue to explore the possibility of Bank participation in developing suitable products, by way of guarantees or other financing facilities.

3.133 Multilateral Investment Fund (MIF): The MIF has nine operations totaling US$9.2 million in its Guatemala portfolio, US$4.1 million of which has been disbursed (see Annex IV). Guatemala also is benefiting from a number of regional projects designed to strengthen microenterprises by giving them access to financial and business development services and to help modernize the labor market. Targets of MIF support in 2000 are: making businesses more competitive by instituting international quality standards for the construction industry; supporting financial intermediaries that serve microenterprise; strengthening the Superintendency of Banking and Insurance; strengthening water sector regulation, and enhancing microenterprise and small business competitiveness, particularly in the tourism sector.

- 48 -

K.

Activities of and coordination with other cooperation agencies

3.134 Until 1995, international development cooperation flows to Guatemala were relatively modest, averaging US$140 million a year from 1990 to 1995. The bulk of this support came from multilateral loans and friendly countries. Guatemala also received technical-cooperation grants totaling about US$60 million a year, most of them channeled through nongovernmental organizations. In 1995 the country concluded funding agreements worth roughly US$408 million (US$73 million of it nonreimbursable) and received a total of US$172 million in disbursements.

3.135 From 1996 onward, as the international community welcomed the democratic process in Guatemala and provided substantial support for the peace accords, funding inflows rose dramatically. In 1996-1998 the country signed cooperation accords for US$2,386.6 million—US$742.2 million in bilateral assistance and US$1,644.2 million from multilateral institutions. As a share of the total, bilateral cooperation accounted for 31.1% and multilateral for 68.9%. Just over a third of the total (37.3%) was furnished under grant agreements signed by the government for 608 investment projects. Reimbursable financial assistance totaled US$1,931.4 million (80.9% of the total) and technical cooperation US$455.1 million (19.1%).

3.136 Aggregate disbursements in 1996-1999 were US$1,604.7 million— US$770.8 million from bilateral sources and US$833.9 million from multilateral agencies. Annual disbursements climbed steadily over that interval, from US$230.6 million in 1996 to US$493.6 million in 1999.

3.137 The Consultative Group of donor countries is the lead coordinator of international assistance for Guatemala, and will play a fundamental role in channeling external support for implementation of the Peace Agreements. Annex V provides a full description of the international assistance Guatemala has received since 1996.

3.138 The strategy proposed by the Bank and the operations program arising therefrom have been developed in coordination with the activities of other donors, which are described in detail in Annex I. In particular, the Peace Agreements serve as a guiding framework for international assistance and the Consultative Groups are important forums for coordinating and complementing efforts. In addition, there are other coordination mechanisms in place, such as the Donors Group that meets bimonthly with the Executive Branch (headed by the Vice President) and the Congress, or the Interagency Group that monitors the Social Investment Funds. The Planning Secretariat and the Public Credit Division of the Ministry of Finance also coordinate the activities and organize them thematically and geographically.

3.139 The IDB and the World Bank are making a special effort to complement each other by taking into account the comparative advantages of each institution stemming from past experience and areas of interest. For example, in the area of education,

- 49 -

the Bank is focusing on improving bilingual education and quality, while the World Bank is concentrating on expanding coverage. Geography is also a factor in the effort towards complementarity, in the case, for example, of teacher training.

- 50 -

IV. COUNTRY DIALOGUE AGENDA 4.1

The agenda for dialogue with the country should cover two broad areas. The dialogue with respect to programming and future interactions should be guided by: (i) the strategy proposed in this document; (ii) the Poverty Reduction Strategy being developed by Guatemala with Bank support; (iii) any problems pointed up in portfolio reviews and the solutions devised. However, in connection with this last point, it is also necessary to continue joint Bank-country efforts to improve execution of the operations already approved and to solve common and specific problems related to active loans. The following table summarizes the main items for dialogue with the Guatemalan government, broken down by strategic area.

Table 6 Main items for a dialogue with the Guatemalan government Item

Economic growth, stability, and competitiveness

Equity, social protection, and human capital

Modernization of the State and governance

Loan portfolio

Issues for discussion Support for Fiscal Pact implementation Support for regional integration Support for agricultural competitiveness and rural development Strengthening of tourism Strengthening of microenterprise and small business Amelioration of the urban and rural environment Institutional coordination in the environmental sphere Strengthening of the national statistics system Support for job skills training Modernizing infrastructure and delivery of associated services Support for science and technology development Financial system modernization Pursuing the Peace Agreement social targets (multicultural identity, eliminating discrimination and exclusion, education, health, housing, employment, access to ownership, support for the uprooted population, etc.)

Programs to support vulnerable groups Literacy program Support for design of a Poverty Reduction Strategy: access to/ownership/use of factors of production, factor markets, transfer policies, social organization Political impediments to poverty reduction Strengthening democracy Modernizing government (executive and legislative branches, justice system) Decentralization and municipal development Enhancing citizen security Discuss how meeting targets is contingent on political consensus on various issues Work out a realistic disbursement program with the government Discuss measures to strengthen executing units Come up with measures to shorten interval between approval and first disbursement

Annex I Page 1 of 3

SUMMARY OF BANK OPERATIONS BY STRATEGY FOCUS Government action

Other multilateral agencies

The Bank’s strategy

Bank actions

Expected outputs/outcomes

I. ECONOMIC GROWTH, STABILITY, AND COMPETITIVENESS • • • • • • • • •

Implement Fiscal Pact Modernize finance sector, including securities market Liberalize trade Protect consumers Step up economic growth Coordinate operations of environmental agencies Improve investment climate Expand and modernize infrastructure Strengthen privatized sectors by building solid regulatory agencies

• Finance sector evaluation program (IBRD and IMF) • Competitiveness program (IBRD) • Tourism support program (USAID, KfW) • Support for roads programs (OECF, OPEC, CABEI)

• Support Fiscal Pact implementation • Customs service modernization • Support regional integration • Modernize consumer protection • Support agricultural development and rural environmental protection • Strengthen tourism sector • Strengthen microenterprise and small business • Ameliorate the urban environment • Institutional coordination in environmental area • Strengthen national statistics system • Improve the land market • Modernize infrastructure and delivery of associated services • Improve natural-resources and watershed management

• Tax reform legislation passed and implemented; improved fiscal indicators Program of support for technology • New laws on financial intermediation innovation and Banking Superintendency Customs service strengthening (regulatory framework); new Infrastructure and investment reform Securities Market Law program • Consumer Protection Law passed Securities market • Tourism Plan implemented Agricultural production • New legal framework strengthening restructuring, Chixoy watershed the institutional framework for management, rural water supply; environmental protection and its Petén environment, Commodities implementation by the Secretariat for Exchange programs the Environment and Natural Mundo Maya tourism program Resources National microenterprise program; • New legal framework for National institutional development program Statistics Bureau approved and Metropolitan Area environment implemented program • Infrastructure availability indexes Road/highway modernization • Port services privatized programs I and II Technical cooperation operations (various)

Currently in progress • • • •

• • • • •

At the design stage • • • • • •

Finance sector program II CNE institution-strengthening Rural electrification program (PRI) Priority watersheds program Trifinio program Reforms of INFOM and EMPAGUA

Annex I Page 2 of 3

Government action

Other multilateral agencies

The Bank’s strategy

Bank actions

Expected outputs/outcomes

II. EQUITY, SOCIAL PROTECTION, AND HUMAN CAPITAL DEVELOPMENT • Commitment to develop Poverty • CABEI Housing Trust Fund Reduction Strategy • Broaden education coverage; • Revamp national education system bilingual education, teacher within framework of education training (Japan, Belgium, reform and Governance Pact Netherlands, World Bank, USAID, KfW, UNICEF, GTZ, • Improve Guatemalans’ health by OAS) increasing coverage efficiently and equitably • Increase housing production for the poor; institution-strengthening • Multiculturalism: strengthen the national identity in a framework of diversity, intercultural communication, and peaceable coexistence • Improve employment (number of jobs, working conditions) • Gender: Assure equality and equal opportunity for women • Vulnerable groups: strengthening, with due regard to cultural and ethnic uniqueness • Strengthen the rural population (production and organization), including private and indigenous land tenure

• Approximate the Peace Accord social targets (multicultural identity, elimination of discrimination and exclusion, education, health, housing, employment, access to ownership, etc.)

• Creation of an integrated social focus • Support design of a poverty reduction strategy: access to/ ownership of/use of factors of production; factor markets; transfer policies and social organization

• Education reform program I in progress, program II in preparation • Poverty alleviation programs (DECOPAZ, PRORIENTE, housing program, naturaldisaster emergency program) • Health sector program I and II • Technical cooperation to support development of the Poverty Reduction Strategy • National microenterprise program • Supplementary housing program

• Peace Agreement targets • Benchmark targets proposed in the Social Policy Matrix (Annex VIII) • Design and implementation of vulnerability and social progress indicators, updated • Education reform implemented • Health reform • Poverty Reduction Strategy devised and implemented

Annex I Page 3 of 3

Government action

Other multilateral agencies

The Bank’s strategy

Bank actions

Expected outputs/outcomes

III. MODERNIZATION OF THE STATE AND GOVERNANCE • • •

Governance Pact proposal • Design of modernization of the State and decentralization project Municipal development

GTZ: Pilot Decentralization Plan

• •

• •

Strengthening of democracy Modernization of government (Executive and Legislative Branches, justice system) Decentralization and municipal development Enhancing citizen security

• • • • • •

Program of support for justice-sector reform Municipal development program, second stage Municipal sector development program, first phase (pending) DECOPAZ Legislative Branch modernization program Modernization of the State and decentralization project (in preparation)

• • • • •

Democratic Governance Pact signed and implemented Justice sector reforms implemented Modernization of the State and decentralization project implemented New municipal bylaws adopted System of municipal performance indicators created, including public information

Guatemala: Loans in execution at 31 December 2000 (US$000) Loan contract number

Project title

Approva l date

Final disburseme nt deadline

Current amount

Disburse d

Undisburse d balance

Performance DO

IP

AS

P

U

HP

HP

U

HP

A. ACTIVE LOANS 836/SF-GU

Rural water supply systems, stage V

17.01.90

02.10.01

32,800

28,792

4,008

871/SF-GU

Chixoy River watershed management and conservation

11.12.91

07.03.01

14,400

14,272

128

882/SF-GU

Municipal development, stage II

25.03.92

02.02.01

40,500

31,732

8,768

P

U

HP

886/SF-GU

National Microenterprise Program

06.05.92

14.03.02

10,000

7,635

2,365

HP

HS

HP

828/OC-GU

Strengthening of customs system

04.11.94

31.08.01

1,400

1,082

318

P

S

HP

Road system rehabilitation and modernization

27.09.95

13.09.00

150,000

142,408

7,592

P

S

HP

891/OC-GU

Improvement of health services

04.10.95

13.04.01

13,555

13,257

298

P

S

HP

943/OC-GU

Social Investment Fund

31.07.96

30.12.00

42,300

40,449

1,851

P

S

HP

Community Development for Peace

13.11.96

21.01.01

50,000

40,237

9,673

P

S

HP

PetĂŠn sustainable development

26.11.96

10.09.01

19,800

1,809

17,991

LP

VU

LP

Infrastructure and investment sector reform program

25.06.97

20.10.00

82,567

80,583

1,984

P

S

HP

1048/OCGU

Housing program

04.09.97

14.03.02

60,000

50,952

9,048

P

U

HP

1054/OCGU

Support for education reform

12.11.97

18.09.01

15,360

9,591

5,769

P

S

HP

Preinvestment for Peace

10.06.98

11.12.02

8,000

1,392

6,608

P

S

HP

883/OC-GU 884/OC-GU

968/OC-GU 984/SF-GU 973/OC-GU 974/OC-GU 1014/OCGU 1015/OCGU

1106/OCGU

1120/OCGU

Program of support for justice sector reform

12.08.98

14.03.03

25,000

3,750

21,250

P

S

HP

1147/OCGU

Natural-disaster emergency

18.11.98

22.01.02

40,000

37,228

2,772

HP

HS

HP

1153/OCGU

Restructuring of agrifood production

07.12.98

26.03.05

33,000

1,254

31,746

P

S

HP

1162/OCGU

Soc.Investment PRORIENTE

16.12.98

18.10.03

90,000

4,110

85,890

P

S

HP

Fund-

TOTAL ACTIVE LOANS

B. LOANS AWAITING SIGNATURE 967/OC-GU

Metrop. Guatemala City environment program

13.11.96

n.a.

34,800

0

34,800

*

*

*

1207/OCGU

Technology development program

13.10.99

n.a.

10,700

0

10,700

*

*

*

1217/OCGU

Municipal development

03.11.99

n.a.

19,532

0

19,532

*

*

*

1221/OCGU

Health services improvement II

17.11.99

n.a.

55,400

0

55,400

*

*

*

1224/OCGU

Road system rehabilitation and modernization II

23.11.99

n.a.

150,000

0

150,000

*

*

*

999,114

510,533

TOTAL LOANS AWAITING SIGNATURE TOTAL LOAN PORTFOLIO

488,581

DO (Fulfillment of Development Objectives): HP = High Probability, P=Probable, LP=Low Probability, I=Improbable IP (Implementation Progress): HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, VU=Very Unsatisfactory

* Loan contract not signed

Nonreimbursable Technical Cooperation at 31 December 2000 (US$000) Operation No.

ATN/SF-4610-RG

Project title

Eradication of onchocerciasis

Eligibility date

Final disbursemen t deadline

01.MAY.96

07.DEC.01

Current amount 500

Disbursed

319

Balance

184 181

ATN/TF-4610-GU

Eradication of onchocerciasis

01.MAY.00

07.SEP.01

3,500

2,872

817 628

ATN/SF-4676-GU

International Conservation

25.AUG.95

09.SEP.01

226

169

57

ATN/SF-5542-GU

Group C&D Plan

02.JUN.97

31.DEC.00

476

365

111

ATN/CF-5601-GU

DECOPAZ

16.MAR.97

21 JAN.01

1,000

981

19

ATN/NS-5652-GU

Assistance to young mothers

07.MAY.98

27.MAR.01

149

94

55

ATN/SF-5718-GU

Services for children in difficult circumstances

04.SEP.98

27.JUN.01

580

369

211

ATN/NO-5991-GU

Rural women’s role in democracy

15.JUL.98

07.JUL.01

1,168

903

265

ATN/NS-6004-GU

Education improvement market

11.JUN.98

12.JAN.01

60

60

0

ATN/NF-6045-GU

Support for FEDECOCAGUA

19.JAN.99

23.JUL.02

200

141

59

ATN/EM-6095-GU

Support for FAFIDESS

24.NOV.99

29.SEP.02

161

70

91

ATN/JF-6181-GU

PRORIENTE

09.APR.99

23.NOV.00

1,000

773

227

ATN/SF-6203-GU

Macro. maintenance policies

06.MAR.00

15.SEP.01

150

98

52

ATN/NF-6266-GU

MINFINANZAS restructuring

16.JUN.99

29.JAN.01

150

150

0

ATN/SF-6269-GU

Support for Cooperativa Chajulense

17.FEB.99

03.DEC.02

150

65

85

ATN/SF-6294-GU

Study of magnitude and cost of violence

16.APR.99

05.JAN.01

120

106

14

Labor market development

27.APR.99

29.SEP.00

150

140

10

ATN/SF-6324-GU

Legislative/justice training

02.AUG.99

05.JUN.01

30

30

0

ATN/SF-6329-GU

Legal support for III Congress

10.JUN.99

24.MAR.01

150

150

0

ATN/SF-6455-GU

Support for CONCYT

11.OCT.99

02.MAR.01

80

62

18

ATN/SF-6627-RG

Mundo Maya

21.OCT.99

31.DEC.01

148

47

100

ATN/JF-6645-GU

Support for education reform II

15.DEC.99

15.MAY.01

500

98

402

ATN/SF-6660-GU

Foreign trade statistics

13.JAN.00

25.JUL.01

100

91

9

ATN/SC-6667-RG

Support for tourism, Mundo Maya

25.NOV.99

31.DEC.01

145

38

107

ATN/SF-6728-GU

File clearing

14.FEB.00

28.FEB.01

75

75

0

Support for Organización Mundo Maya

12.OCT.00

28.MAR.02

1,291

64

1,227

ATN/SF-6812-GU

Establishment of uniform property tax, phase II

19.JUN.00

03.MAY.01

150

123

27

ATN/SF-6818-GU

Support for Fiscal Pact, phase II

02.FEB.00

11.NOV.00

150

125

25

ATN/SF-6313-GU

ATN/SF/JF-6782-RG

ATN/EM-6820-GU

Support for FUNDEMI

n.a..

28.JAN.04

159

0

159

ATN/SF-6830-GU

MINFINANZAS restructuring II

14.JUN.00

11.MAR.01

150

65

85

ATN/KB-7008-GU

Diagnostic assessment tariff recovery

n.a.

10.MAY.01

85

25

60

ATN/SF-7009-GU

Dirección de Crédito Público

n.a.

18.MAY.01

150

50

100

ATN/NS-7070-GU

Internal dialogue on poverty and democratic governance

n.a..

n.a.

71

30

41

ATN/SF-7088-GU

Support for Poverty Reduction Strategy

n.a.

n.a.

150

75

75

ATN/SF-7097-GU

File clearing II

n.a.

n.a.

100

0

100

ATN/JF-7100-GU

Quetzaltenango m. sewerage plan

n.a.

n.a.

585

0

585

ATN/SF-7177-GU

Water sector reform

n.a.

n.a.

250

0

250

ATN/SF-7195-RG

Accreditation Engineering Schools

n.a.

n.a.

150

0

150

ATN/SF-7211-GU

Control of State assets

n.a.

n.a.

150

0

150

ATN/SF-7282-GU

Natural resources management

n.a.

n.a.

100

0

100

14,659

8,834

5,824

TOTAL NONREIMBURSABLE TECHNICAL COOPERATION

Active Mif Technical-Cooperation Operations at 31 December 2000 (US$000) Contract No.

Project title

Approval date

Final disburseme nt deadline

Current amount

Disbursed

Balance

ATN/MH-5736GU

Technical training rural areas

29.10.97

18.10.01

2,000

1,141

859

ATN/MH-5783GU

Support for Securities Register

10.12.97

06.30.01

930

930

0

ATN/MH-5978GU

Labor market modernization

08.11.98

04.03.03

4,000

726

3,274

ATN/ME-5911GU

Development of agroexports

01.04.98

14.05.02

1,500

588

912

ATN/MT-6210GU

Alternative dispute resolution methods

29.10.98

05.06.01

450

410

40

ATN/ME-6260GU

Strengthening of banks

19.11.99

26.10.02

1.025

135

890

ATN/ME-6343-

Inst. strengthening. Génesis

24.01.99

19.03.01

300

100

200

GU

Empresarial

ATN/ME-6355RG

E-marketing of craft products

12.03.99

03.03.02

605

180

425

ATN/MT-6500GU

Development of microindustries and small and mid-sized industrial enterprises

12.05.99

03.09.01

900

90

810

ATN/ME-6537GU

Support for business services

02.06.99

15.03.04

1,585

153

1,432

ATN/MT-6664GU

Support for Bolsa Agropecuaria, S.A.

21.09.99

27.01.03

428

25

403

ATN/MH-6721RG

Development of SME entrepreneurs

27.10.99

n.a.

600

0

600

ATN/ME-7179GU

Inst. strengthening BANCAFE

n.a.

n.a.

254

0

254

ATN/ME-7268GU

Promotion of tourism industry

n.a.

n.a.

520

0

520

15,097

4,478

10,619

TOTAL

Annex III Page 1 of 1

NONLENDING PRODUCTS IN SUPPORT OF THE STRATEGY Studies and seminars

2001 -

Seminar on comparative experiences with reforms of the State

-

Seminar on parliamentary oversight

-

International dialogue on poverty and democratic governance

-

Incidence and causes of poverty and inequality

-

Magnitude and cost of violence

2002

-

Diagnostic assessment: Literacy and job skills training

-

Diagnostic assessment: Local development for populations displaced by the war

-

Diagnostic assessment: Formation of civic and cultural values

-

Diagnostic assessment: Housing sector

-

Diagnostic assessment: Pension system

Annex IV Page 1 of 1

GUATEMALA: 2001-2002 TECHNICAL COOPERATION PROGRAM Number

Title

Amount (US$million)

Status

Priority operations for 2001 TC9811185

Water and sanitation project, preparation

0.68

TC preparation

TC9801483

National environment strategy

0.67

TC preparation

TC0001028

Living standards improvement program

0.64

TC preparation

TC9911124

Geographic information system for urban transportation

0.15

TC preparation

TC9903054

Training for judges, phase II

0.15

TC preparation

TC9809164

Visión de Guatemala project

0.15

TC preparation

TC9911175

Prevention and eradication of domestic violence

0.10

TC preparation

TC9911073

Audiovisual instructional materials Mayan teachers

0.10

TC preparation

TC003034

Support for production activation, southern Quiché

0.25

TC preparation

TC0101077

Exchange of parliamentary experiences

0.02

TC preparation

TC0012029

Women’s role in preserving democracy, phase II

0.75

TC preparation

TC0012055

Preparation of labor market program – REG

0.23

TC preparation

TC0104003

Preparation of poverty reduction strategy

0.75

TC preparation

TC n/n

Support for Medical School

0.15

TC preparation

TC n/n

Uniform property tax, phase III

0.15

TC preparation

TC n/n

Natural disasters Min. Agriculture/GIS

0.15

TC preparation

TC n/n

MINFINANZAS restructuring, phase III

0.15

TC preparation

GRAND TOTAL

4.49

GUATEMALA: 2000-2001 MIF OPERATIONS Number

Title

Amount (US$million)

Status

2.00

MIF preparation

Priority operations for 2001 TC9911039

Private contracting, social security

TC0003025

Strengthening of electric power regulator

1.50

MIF preparation

TC9802449

Strengthening of Superintendency of Banking and Insurance

1.20

MIF preparation

TC0006010

Guatemala City, private sector sanitation service delivery

0.60

MIF preparation

TC0006018

Inst. strengthening Banco Internacional

0.30

MIF preparation

GRAND TOTAL

5.60

Annex V Page 1 of 12

SUPPORT FROM THE INTERNATIONAL COMMUNITY International assistance prior to 1995 Until 1995, international development cooperation flows to Guatemala were relatively modest, averaging US$140 million a year in lending from multilateral agencies and friendly countries from 1990 to 1995. The country also received technical-cooperation grants totaling about US$60 million a year, the bulk of them channeled through nongovernmental organizations. As of 1995 the volume of support began to climb: that year, Guatemala received roughly US$408 million, US$73 million of it nonreimbursable assistance.

International cooperation agreements signed and disbursed between 1996 and 1999 Over this interval Guatemala signed cooperation accords for US$2,386.6 million— US$742.4 million in bilateral assistance (31.1% of the total) and US$1,644.2 million from multilateral institutions (68.9%). Just over a third (37.3%, US$889.7 million) was furnished under nonreimbursable cooperation agreements signed by the government for 608 investment projects. Financial assistance totaled US$1,931.4 million (80.9% of the total) and technical cooperation US$455.1 million (19.1%).

Aggregate disbursements over this period were US$1,604.7 million—US$770.8 million in bilateral finance and US$833.9 million from multilateral agencies. Annual disbursements climbed steadily, from US$230.6 million in 1996 to US$493.6 million in 1999.

Sources of international assistance, 1996-1999 Bilateral: Guatemala’s leading bilateral-assistance partner was the United States, which supplied US$260.9 million or 35.1% of total bilateral support. It was followed by Japan with US$138.9 million and China with US$124.6 million. Together these three sources accounted for 70.6% of all bilateral funding flows to Guatemala.

The United States also contributed the most nonreimbursable bilateral support, at US$241.6 million (40% of total bilateral grant monies). Japan with US$138.9 million and Sweden with US$59.4 million came next, with percentage shares of 23% and 9.8%, respectively.

The bulk of reimbursable bilateral support came from the Republic of China on Taiwan, with 70.6% of the total furnished in 1996-1999 (US$98.1 million), followed by the United States with US$19.4 million, Germany with US$11.4 million, and the Venezuelan Investment Fund with US$10 million in funding agreements concluded. Assistance from other countries was in the form of grants.

Multilateral: Agreements totaling US$1,644.2 million were executed with multilateral organizations, 82.6% in loans and the 17.4% balance in nonreimbursable cooperation. The IDB led the list, its US$653.2 million in support accounting for 39.7% of the multilateral total. Following it were the Central American Bank for Economic Integration (CABEI) with

Annex V Page 2 of 12

US$361.4 million (22% of the total) and the International Bank for Reconstruction and Development (IBRD) with US$332.9 million (20.2%) (see Table 1).

The European Union led the way in grant funding with pledges of US$115.6 million. The next largest sources were the World Food Programme with US$49.3 million and the United Nations Development Programme with US$32.1 million, including funds under administration.

International cooperation programs, 1996-1999 The Guatemalan government’s program priorities for international cooperation during its term in office were (i) the Peace Program, (ii) other government programs, and (iii) the Hurricane Mitch reconstruction program. The top national priority was the Peace Program, to which 75.2% of all cooperation funding was targeted; other government programs came in for 21.7% of the total and the Hurricane Mitch relief and reconstruction program received 3.1%.

Guatemala arranged US$1,184.1 million in multilateral financial support for the Peace Program (72% of total multilateral cooperation), US$411.4 million for other government programs, and US$48.7 million for the Hurricane Mitch reconstruction program. The percentage breakdown was similar for bilateral funding: 82.2% for projects in support of the Peace Program, 14.4% for other government programs, and the balance for the Hurricane Mitch reconstruction effort.

The following is the sectoral breakdown of international assistance to Guatemala over this interval: multisectoral 26.7%, transportation 18%, administration and general services 13.7%, education, science and culture 7.7%, and other sectors 33.9% (see Table 2).

On the operational side, 16.1% of international cooperation received was executed with the Social Funds, 72.2% with Guatemalan ministries, and 11.7% with NGOs. Priority focuses for multilateral and bilateral agencies This section outlines current priority action focuses of the leading multilateral and bilateral agencies.1 Areas of international cooperation are classified into six “governance focuses� defined by the Guatemalan government in March 2000: (i) citizen security, justice, demilitarization, and human rights; (ii) decentralization, rural development, and the environment; (iii) education; (iv) civic participation and political reform; (v) integrated human development, and (vi) the Fiscal Pact.

1

In terms of cooperation volumes arranged in the last five years.

Annex V Page 3 of 12

Bilateral sources United States The following are the current U.S. assistance focuses: •

Citizen security, justice, demilitarization, and human rights: program to support implementation of the Peace Agreements (US$25 million budgeted for 2000) and participatory democracy program (US$3 million budgeted for 2000).

•

Integrated human development: programs to improve rural women’s and children’s health (US$6.5 million disbursed in 1997-1999) and to reduce poverty and enhance food security in selected rural areas, the latter including a food donation program (US$51 million disbursed in 1997-1999).

•

Decentralization, rural development, and the environment: program for sustainable natural-resources management, biodiversity conservation, and reducing vulnerability to disasters.

•

Education: program to improve education in rural areas.

Japan The main focuses of Japanese assistance are: •

Decentralization, rural development, and the environment: rural socioeconomic infrastructure improvement program (US$22.5 million disbursed in 1996-1999); water treatment plant rehabilitation project outside the Guatemala City Metropolitan Area (US$3.5 million disbursed in 1999); water treatment plant rehabilitation project outside the Metropolitan Area (US$5.8 million disbursed in 1999).

•

Integrated human development: Examples: basic infrastructure improvement programs (e.g. Guatemala City groundwater program—US$12 million disbursed in 1996-1999); communications and transportation programs (e.g. a project to rehabilitate main and rural roads, currently being negotiated, which envisages US$49.8 million in reimbursable funding); programs for natural-disaster relief and aid to small and mid-sized producers.

China The third-largest source of bilateral finance from 1996 to 1999, China targeted its support mainly to rural development projects (agriculture and fisheries, small and mid-sized enterprises) and environmental projects (forest management).

Sweden Sweden ranked fourth as a bilateral assistance source in 1996-1999. Its priority focuses were:

Annex V Page 4 of 12

•

Citizen security, justice, demilitarization, and human rights: numerous programs to assist in reintegration and in Peace Agreement implementation, for instance: program of support for the United Nations Human Rights Verification Mission in Guatemala (MINUGUA), with US$3.9 million disbursed through 1999; program to support implementation of the land strategy (US$2 million disbursed up to 1999); program to assist in the return of refugees (US$600 thousand disbursed); children’s rights program (US$700 thousand disbursed).

•

Decentralization, rural development, and the environment: water and sanitation programs (US$1.7 million disbursed) and cadastre and registry programs (US$1.1 million disbursed through 1999).

•

Education: bilingual literacy programs.

•

Integrated human development: Examples: health sector reform program (US$1.3 million disbursed); HIV/AIDS program (US$500 thousand disbursed).

Other bilateral sources Spain has focused its support on rural development, education, and integrated human development and on implementation of the Peace Agreements. Germany has targeted decentralization and municipal development, education, social infrastructure (a particular focus), and fostering of small and mid-sized enterprises. Denmark and Norway concentrated their support on human rights issues and rural development.

Multilateral sources CABEI The focuses of current CABEI-funded projects are as follows: •

Decentralization, rural development, and the environment: basic and rural sanitation programs; integrated rural community development programs (US$13.7 million disbursed through 1999); infrastructure, machinery, and equipment programs (US$12.3 million disbursed through 1999); irrigation, drainage, and soil conservation programs such as the integrated development program in areas with irrigation and drainage potential (US$5 million).

•

Construction, improvement, and expansion of road and highway sections.

IBRD Ongoing World Bank-financed projects are concentrated in the following areas: •

Education: Basic education project II (US$14 million disbursed), education reform project (US$14.2 million disbursed in 1996-1999), and basic education project III.

Annex V Page 5 of 12

•

Justice: Judicial reform project (US$2.3 million disbursed), and modernization of the State, for instance with the Integrated Financial Management System (SIAF II) project (1996-1999 disbursements of US$4.4 million).

•

Fiscal area: programs to boost tax revenue intakes, such as the Tax Administration Superintendency project (US$2.2 million disbursed) and the program to strengthen municipalities to administer the uniform property tax (US$480 thousand disbursed).

•

Integrated human development: programs to finance the Social Investment Fund (US$20 million disbursed in 1996-1999); infrastructure programs such as the secondary and rural road rehabilitation project (US$17.6 million disbursed), and cadastre and registry programs, among them the Petén land administration, registration, and cadastre program (US$2.1 million disbursed).

•

Decentralization, rural development, and the environment: Examples: reconstruction and local development in San Marcos and Huehuetenango (US$2 million disbursed); financial markets program in rural areas (US$370 thousand disbursed over the last two years).

European Union EU focuses are: •

Citizen security, justice, demilitarization, and human rights: various programs, including operations to support the national civil police force (US$1.3 million disbursed), strengthen human rights in the peace process (US$300 thousand), and reintegrate ex-combatants.

•

Decentralization, rural development, and the environment: rural socioeconomic reactivation programs and community development programs, e.g. rural development programs in Huehuetenango (US$2.4 million disbursed) and Coatepeque (US$2.8 million disbursed).

•

Integrated human development: integrated public health program (US$2.3 million disbursed); program to support health sector reform (US$2.3 million disbursed).

Other multilateral organizations Assistance from the World Food Programme (WFP) and United Nations Development Programme (UNDP) is nonreimbursable. The WFP offers technical cooperation and funding for infrastructure construction damaged during the civil strife and for soil and water conservation and agroforestry projects for subsistence farmers in depressed areas. UNDP’s technical cooperation is concentrated in areas of integrated human development (indigenous peoples program, support for education reform, programs with a gender approach); modernization and strengthening of the democratic state (programs to support implementation of the land strategy in the framework of the Peace Agreements; design and

Annex V Page 6 of 12

implementation of the decentralization and modernization of the State strategy); and postconflict reintegration and demobilization and sustainable growth in production.

Type of source/ Source Bilateral Belgium Canada Chile China Denmark France Germany Japan Korea Netherlands Norway Spain Sweden Switzerland United Kingdom

Total Amount % 742,376,637 100.00 -

# 11

-

-

5

2,413,840

0.40

5

Reimbursable Nonreimbursable Amount % # Amount % # 138,908,571 100.00 361 603,468,066 100.00 372

2,413,840

Total Amount 742,376,637

Annex V Page 7 of 12

# 372 0.33

Table 1 Technical # Amount 172 189,246,583 2,413,840

Financial Amount 553,130,054 5

# 200 754,320

19,884,000

2

8

1,659,520

3.29

3

19,884,000

124,680,000

8

5

17,373,162

-

4.40

10

644,769

-

26,580,000

2.88

2

17,277,126

-

3,871,000

5

17,373,162

0.11

5

138,936,913

2.68

2

98,100,000 70.62

10

644,769

0.97

35

1,030,000

19,884,000

16,013,000

-

2

5,848,555

2

34,648,660

8

6

-

-

35 138,936,913 23.02

4

0.17

39

9,972,682

30,021 -

-

8.23

1,030,000

5.74

8

43,786,264

7

124,680,000 16.79

-

11,428,571

-

2

34,648,660

1.65

63

59,405,759

0.00

2.34

-

-

-

39

9,972,682

7.26

79

1,197,000

30,021

17,373,162

0.09

1

-

-

8

43,786,264

9.84

3

100,000

1

30,021 11

644,769

2.33

-

-

59,405,759

0.20

1

-

1 3,580,000 10

17,277,126

-

-

-

1,197,000

0.02

-

2 15,808,162 2

138,936,913 18.72

21

-

-

-

3

100,000

6

121,100,000 6 644,769

5

0.14

-

-

1

79

63

-

-

0.00

9 1,565,000 2 5,848,555

35

1,030,000

1,030,000

-

-

30,021

4 4 23,698,709

2

2

1

11,428,571 14

-

4.67

-

1 115,238,204 -

34,648,660

25

5,940,786

63

-

39

10,588,438

4

43,771,264

79

1,197,000 100,000

8.00

24,060,222

14 4,031,896

62

28,829,457

3

59,405,759

1.34

4

15,000

33

-

1

-

9,972,682

1

30,576,302

-

-

0.16

8

46

1,197,000

-

-

5.90

3

100,000

0.01

43,786,264

1

Annex V Page 8 of 12

Type of source/ Source

Table 1

Total Amount

1,644,247,271

#

Nonreimbursable Amount %

45 1,357,997,208 100.00 247 286,250,063 100.00 292

361,395,100

#

14

115,582,134

Reimbursable Amount %

35

3,643,858

#

10

332,926,000

%

24

653,202,000

Total Amount

1.27

35 115,582,134 40.38

1

3,643,858

1.72

54

#

-

10

4,926,000

4.26

1

16,621,167

Technical Amount 260,996,441 35.16 10,000,000 1.35

-

-

12,182,000

-

15

10,991,478

#

1,644,247,271 100.00

13

-

14

-

5.81

11

14,500,000

Financial Amount 99 1

361,395,100 21.98

-

328,000,000 24.15

36

16,621,167

3.84

3

4,670,300

# 15 292

7.03

-

641,020,000 47.20

10,991,478

-

23

United States

206 266,013,222 14

115,582,134

0.22

10

1.04

15

-

1.63

32,127,582

Multilateral

260,996,441 10,000,000

228,587,123 10,000,000

1,079,000 35

3,643,858

18

14,161,108

-

11

4,670,300

49

1,979,021

99 1

84 1 1,378,234,049 1 12,782,213 10

332,926,000 20.25

1

-

-

-

32,127,582 11.22

21

3,185,039

96 241,616,441 40.04 -

86 360,316,100 14 3,643,858 24

653,202,000 39.73

-

-

1.07

23

0.69

17

19,380,000 13.95 10,000,000 7.20

13 102,799,921 10 71,226,000

54

1.01

-

14,500,000

-

49

1,979,021

1.11

3 1

CABEI 21 18 57,882,000

16,621,167

0.67

3

-

-

21

3,185,039

32,409,318 -

EU 261,700,000 38

15

10,991,478

0.88

-

-

-

17

Venezuela-FIV

FAO 6 595,320,000

975,833

11

14,500,000

0.28

-

-

-

0.38

IBRD 16 14,161,108 7

10,851,478

3

4,670,300

1.95

-

-

1,079,000

IDB 1 15,645,334 10

-

23

32,127,582

0.12

-

360,316,100 26.53

IFAD 8 140,000

-

4,670,300

49

1,979,021

0.19

14,161,108

IOM 1 14,500,000

23

31,793,226

21

3,185,039

-

OAS 3

-

47

1,823,323

17

0.86

OPEC -

334,356

19

833,507

14,161,108

PAHO 2

155,698

5

1

UNDP 2

2,351,532

-

UNESCO

12

-

UNFPA

30,000,400

Technical Amount 8 38,452,084

# 6

Financial Amount 10,810,000 50,000,000

#

1 4407 10,000,000

Type of source/ Source

WFP IBRD 1308

UNICEF

CABEI 286 61,931,364,103

378 455,259,805

GRAND TOTAL

#

Table 1

-

-

-

7

8

#

-

50,000,000

Reimbursable Amount %

1.82 -

#

30,000,400 3.00 4407

%

8 49,262,084 50,000,000

Total Amount

7

10,000,000

1308

56 61,496,905,779

Annex V Page 9 of 12

30,000,400

Total Amount

8

49,262,084 50,000,000

#

30,000,400 10.48

7 4407

Nonreimbursable Amount %

49,262,084 17.21

10,000,000

664 62,386,623,908

1308

608 889,718,129

10,000,000 664 62,386,623,908

Nonreimbursable

Table 2. International cooperation 1996-1999 by source, sector, and form of assistance Cooperation agreements signed, U.S. dollar amounts, and number of projects Reimbursable

Total

%

Total

Amount

Technical

%

100

Financial

#

742,376,637

#

%

80,822,847 10.89

Administration and general services Defense and domestic security

11

0

- 0.00

82,584,091 14.93

3

2

3,742,000 1.98

182,965 0.10

2

6

3

15,728,571

82,148,779

0.39

2.12

0

0

0

Amount

Amount

100 372

19,747,410 2.66

#

80,822,847 13.39 112

361 603,468,066

16

4,689,604 0.63

%

100

112

19,747,410 3.27

3

Finance Housing and urban development Mining and hydrocarbons

8 - 0.00

1

0 0.00

2,879,077

Amount

138,908,571

0

16

4,689,604 0.78

29,398,543 3.96

#

0

0

3

12

66,000 0.01

Agriculture Industry and commerce 0 78,406,779 14.18

0

3

1

% 100 11

0

0

9,398,543 1.56

1

103,906,478 14.00

Tourism 5

15,728,571 2.84

233,077 0.12

12.62

Amount

0

0

11

66,000 0.01

20

184,600 0.02

#

10.89

0

20,000,000 14.40

1

84,526,478 14.01

10

182,965 0.02

Transport 2

1

93,716,925

%

80,822,847

2.66

0

0

18

184,600 0.03

3

Amount

38,095,280 20.13 112 19,747,410

0.63

19,380,000 13.95

9

182,965 0.03

82,148,779 11.07

#

Annex V Page 10 of 12

Economic sector

17,280,810 9.13 16

4,689,604

1

0

3

6

15,728,571 2.12

Communication

2,646,000 0.48

20,413,603 10.79 38

0

742,376,637

42,727,567 7.72 63

3

3.96

0

0

0

12,148,779 2.01

2

2,879,077 0.39

2

73,303,322 13.25 11

4.92

100 372

2,466,600 0.45 10 1,039,604 0.55

29,398,543

0.01

0

2

4,300,000 0.71

3

93,716,925 12.62

27

36,559,739

100 172 189,246,583

49

1 1,420,670 0.75 12

66,000

2

70,000,000 50.39

1

2,879,077 0.48

38

36,559,739 4.92

2,948,389 1.56 10

553,130,054

6 3,650,000 0.66 4

1

14.00

1

11,428,571 8.23

3

79,616,925 13.19

10

3

200

2 27,977,873 5.06

66,000 0.03

103,906,478

0.02

0

0

37

36,559,739 6.06

33,611,350 6.08

Bilateral

8 1

21,322,387 11.27 20

184,600

0.02

4

14,100,000 10.15

10

7

0

- 0.00 9

184,600 0.10 10

182,965

11.07

1

0

Energy Health and soc. services Labor and social insurance

Financial

Technical

Total #

Nonreimbursable

Annex V Page 11 of 12

Total

Amount

%

#

%

Amount

%

#

Reimbursable Amount

%

#

Amount

%

Amount

#

Amount

%

#

Economic sector

59,161,637 7.97

0

67

7.97

59,161,637 9.80

59,161,637

67

14,373,327 7.60 67

0

44,788,310 8.10 37 0

0

30 4.64

34,421,934 4.64

34,421,934

12

190,385 0.10 12

34,421,934 5.70

2

0

12

34,231,549 6.19

0

0

10 2.28

0

Education, science and culture Water and sanitation 16,894,899

16,894,899 2.28

2,347,800 1.24 11

4,000,000 2.88

11

2

1

16,894,899 2.80

14,547,099 2.63

21.80

11

9 161,866,629

0

Environment 65,405,686 34.56 46

161,866,629 21.80

96,460,943 17.44 22

46

24

45 157,866,629 26.16

Multisectoral

71,393,300 5.18 5

3

150,618,871 10.93 73

270,930 0.00

2,124,000 0.01

3,300,000 0.01

4

5

5

96,774,278 0.36 92

65,989,417

60,694,660

2,124,000

74,693,300

247,393,149

0.02

4.01

3.69

0.13

4.54

8

0

2

1

0

1

15.05 11

150,000,000

0

11

336,045,100 24.7

0

53,971,000 3.97

60,000,000 4.42

0

33,000,000 2.43

198,000,000 14.6

1

2

2

3

16

3

5

4

81

18,000 0.01

575,000

0.2

11,960,000 4.18

263,800 0.09

4.2

694,660 0.24

2,124,000 0.74

41,693,300 14.6

49,393,149 17.3

1

3

10

3

18

4

5

5

92

18,000 0.001

150,575,000 9.158

348,005,100 21.17

263,800 0.016

65,989,417 4.013

60,694,660 3.691

2,124,000 0.129

74,693,300 4.543

247,393,149 15.05

100

19

- 0.00 2

12,018,417 0.05 18

263,800

21.17

1

0

100 292 1,644,247,271

2

60,423,730 4.38

3

348,005,100

9.16

0

247 286,250,063

0

53,971,000 3.92 16

1,150,000 0.00 10

150,575,000

0.00

100

2

3

3

18,000

100 45 1,357,997,208

2

- 0.00

1

575,000 0.00

1

100 292 1,644,247,271

86 1,378,234,049

Finance Housing and urban development

0

346,855,100 25.17

2

18,000 0.00

100 206 266,013,222

Multilateral Administration and general services Defense and domestic security

Agriculture Industry and commerce 9

150,000,000 10.88

1

0

0

Transport 1

- 0.00

12,018,417

Communications 0

263,800 0.00

Energy

0

Financial

- 0.00

2

Technical

3,324,300 0.01

Total

Reimbursable

Nonreimbursable

Total

Amount

%

#

%

Amount

%

#

#

Amount

#

72,161,991 4.389

%

%

41

Amount

#

47,161,991 16.5

Amount

%

40

3,324,300 0.202

Amount

25,000,000 1.84

2

124,693,122 7.584

#

Annex V Page 12 of 12

Economic sector 1

3,324,300 1.16

50

4.39

2

76,333,122 26.7

72,161,991

0

48

29,445,026 0.11 41 0

48,360,000 3.56

42,716,965 3.10 30 0.20

2

11 3,324,300 7.58

52,574,932 0.20 47

0

2 124,693,122

50,200,639 0.19 50

8,819,900 0.536

74,492,483 5.40 38

4

12

6,819,900 2.38

8,819,900

2

4

2,000,000 0.15

6,819,900 0.03

2

2

0.54

2,000,000 0.15

8,564,000 0.521

2

7

Health and soc. services Labor and social insurance Education, science and culture Water and sanitation

1,454,000 0.51

0.52

5

8,564,000

7,110,000 0.52

7

2

7,154,000 0.03

476,927,532 29.01

6

47

1,410,000 0.10

32,416,424 11.3

1

33

Environment

444,511,108 32.7

### 22

424,352,600

56 1,496,905,779

29.01 14

25

664 2,386,623,908

476,927,532

Multisectoral

140 378 455,259,805

664 2,386,623,908

286 1,931,364,103

608 889,718,129

GRAND TOTAL

MIF, IIC, PRI, AND TECHNICAL-COOPERATION PROGRAMS