Document o f The World Bank

FOR OFFICIAL USE ONLY Report No: 42266-NI

PROJECT PAPER

ON A

PROPOSED CREDIT

IN THE AMOUNT OF SDR 10.7 MILLION (US$17 MILLION EQUIVALENT)

TO THE

REPUBLIC OF NICARAGUA

FOR A

HURRICANE FELIX EMERGENCY RECOVERY PROJECT

February 15,2008

Sustainable Development Central America Country Management Unit Latin America and the Caribbean Region

This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS (Exchange Rate Effective February 12,2008)

AAA AMUPCAN

CDC

CGAP CODE COREPRED

CPS cso EA EFA EL4 EMP FB S F A 0 FCR FISE F N I GEF GDP GoN GRAAN HFERP ICB IDA IDR IFR INAFOR INATEC INETER

INPESCA INTA INVUR

Currency Unit = Cordobas U S $ l = C$19.00

US$.OSO = C $ l

FISCAL YEAR January 1 - December 3 1

ABBREVIATIONS AND ACRONYMS

Analytical and Advisory Activities Association o f Pikinera Women o f the Nicaraguan Atlantic Coast (Asociacidn de Mujeres Pikineras de la Costa Atlantica Nicaraguense) Council for the Development o f the Caribbean Coast (Consejo de Desarrollo para la Costa Caribe) Consultative Group to Assist the Poor National Emergency Operations Center (Centro de Operaciones de Emergencia) Regional Committee for Disaster Prevention, Mitigation and Response (Comite' Regional para la Prevencidn, Mitigacidn y Atencidn de Desastres) Country Partnership Strategy Civi l Society Organization Environmental Assessment Education for All Environmental Impact Assessment Environment Management Plan Fixed Budget Selection Food and Agricultural Organization Rural Credit Fund (Fondo de Crbdito Rural) Nicaraguan Social Investment Fund (Fondo de Inversidn Social) Nicaraguan Financial Investment Agency (Fondo Nacional de Inversiones) Global Environment Facility Gross Domestic Product Government o f Nicaragua Government o f the North Atlantic Autonomous Region Hurricane Felix Emergency Recovery Project International Competitive Bidding International Development Association Rural Development Institute (Instituto de Desarrollo Rural) Interim Financial Report National Forestry Institute (Instituto Nacional Forestal) National Technological Institute (Instituto Nacional Tecnoldgico) National Institute for Territorial Studies (Instituto Nicaraguense de Estudios Territoriales) Nicaraguan Institute for the Fisheries Sector (Instituto Nicaraguense de la Pesca) Agricultural Technology Institute (Instituto Nacional de Tecnologia Agropecuaria) Rural and Urban National Housing Institute (Instituto de la Vivienda Urbana y Rural)

FOR OFFICIAL USE ONLY

MAGFOR MARENA

MIFIC

MINED MINREX MINSA MTI M&E NDVRP NGO PAC PCC PIU PPF QBS QCBS RAAN R A A S S A M SDC

SERENA

SIGAPRO

SINAPRED

SITINP

UCRESEP

UNDAC UNDP UTIP

Ministry o f Agriculture and Forestry (Ministerio Agropecuario y Forestal) Ministry o f Environment and Natural Resources (Ministerio del Medio Ambiente y Recursos Naturales) Ministry o f Development, Industry and Commerce (Ministerio de Fomento, Industria y Comercio) Ministry o f Education (Ministerio de Educacidn) Ministry o f Foreign Affairs (Ministerio de Relaciones Exteriores) Ministry o f Health (Ministerio de Salud) Ministry o f Transport and Infrastructure (Ministerio de Transporte e Infiaestructura) Monitoring and Evaluation Natural Disaster Vulnerability Reduction Project Non-Governmental Organization Project Advisory Committee Project Coordination Committee Project Implementation Unit Project Preparation Facility Quality-Based Selection Quality and Cost-Based Selection North Atlantic Autonomous Region (Regidn Autdnoma del Atldntico Norte) South Atlantic Autonomous Region (Regidn Autdnoma del Atldntico Sur) Secretariat o f Municipal Affairs - GRAAN (Secretaria de Asuntos Municipales) Secretariat for the Development o f the Caribbean Coast (Secretaria para e l Desarrollo de la Costa Caribe) Secretariat o f Natural Resources and Environment - GRAAN (Secretaria de Recursos Naturales y Ambiente) Project Financial Management Information System (Sistema de Informacidn Gerencial y Auditoria de Proyectos) National System for Disaster Prevention, Mitigation and Response (Sistema Nacional para la Prevencidn, Mitigacidn y Atencidn a Desastres) Secretariat o f Infrastructure, Transport and Public Investment - GRAAN (Secretaria de Infiaestructura, Transporte e Inversidn Pziblica) Public Sector Reform Coordination Unit (Unidad de Coordinacidn del Programa de Reforma y Modernizacidn del Sector Pziblico) United Nations Disaster and Coordination Team United Nations Development Program Public Investment Territorial Unit for RAAN (Unidad Territorial de Inversidn Pziblica)

Vice President: Pamela Cox Country Director: Laura Frigenti

Sector Director Laura Tuck

Task Team Leader: Enrique Pantoja Sector Manager: Ethel Sennhauser

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

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NICARAGUA HURRICANE FELIX EMERGENCY RECOVERY PROJECT

CONTENTS

Introduction ................................................................................................................ - 1

Emergency Challenge: Country and Regional Context. Emergency Response and Recovery Strategy ........................................................................................................ 2

Bank Response and Strategy ....................................................................................... 7

Appraisal o f Project Activities .................................................................................. 15

Implementation Arrangements and Financing Plan .................................................. 19

Project Risks and Mitigating Measures ..................................................................... 23

Terms and Conditions for Project Financing ............................................................. 27

List o f Annexes Annex 1 : Detailed Description o f Project Components .................................................... 28

Annex 2: Results Framework and Monitoring .................................................................. 42 Annex 3: Summary o f Estimated Project Costs ................................................................ 46 Annex 4: Financial Management and Disbursement Arrangements ................................ -48 Annex 5: Procurement Arrangements ............................................................................... 57 Annex 6: Implementation and Monitoring Arrangements ................................................ 62 Annex 7: Project Preparation and Appraisal Team Members ........................................... 66 Annex 8: Environmental and Social Safeguards Framework ............................................ 67 Annex 9: Documents in Project File .................................................................................. 77 Annex 10: Statement o f Loans and Credits ....................................................................... 78 Annex 1 1 : Country at a Glance ......................................................................................... 79 Annex 12: Country Map IBRD 35858R ............................................................................ 81

Annex 1A: Project Description o f Financial Sector Issues / Compliance with OP8.30 .... 35

NICARAGUA H u r r i c a n e Fel ix Emergency Recovery Project

Project ID(s): P108974 Hurricane Felix Emergency Recovery Project Proposed terms: Standard IDA terms with 40 years maturity Expected effectiveness date: M a y 30,2008 Borrower: Republic o f Nicaragua

Project Paper

Total Amount: SDR10.7 mi l l ion (US$17 mi l l ion equivalent) Expected implementation period: 4 years

Expected closing date: 05/30/20 12 Responsible agency: Government o f the North Atlantic Autonomous Region (GRAAN)

Date: February 15, 2008 Country Director: Laura Frigenti Sector Director: Laura Tuck Lending instrument: Emergency Recovery Credit

Source Local Borrower Total IDA 11.5 Trust Funds Total 11.5

Team Leader: Enrique Pantoja Sectors: General Agriculture, Fishing and Forestry Sector / Housing Themes: Rural Development / Disaster Management Environmental screening category: B Safeguard screening category: B

Foreign Total

5.5 17.0

5.5 17.0

Project ID (s): P108974 Hurricane Felix Emergency Recovery Project Type o f Operation: New Operation [ X ] Additional Financing [ ] Existing Financing (restructuring) [ ] Financing type: Loan [ ] Credit [ X ] IDAGrant[ ] Other [ ]

Development Objective: To support the sustainable recovery o f the communities affected by Hurricane Felix in the North Atlantic Autonomous Region (MAN) o f Nicaragua The project will seek to realize the development objective through the following activities:

1. Timely rehabilitation o f houses and implementation o f early recovery activities as identified by affected communities

2. Restoration, and potentially improvement, o f income levels o f affected fishing communities through sustainable and productive investments

3. Restoration o f the social and economic environment o f affected communities through the provision o f safer and culturally responsive housing and social infrastructure

4. Strengthening the institutional capacity o f the regional government to implement externally funded projects, and in general, to lead regional development efforts

Estimated disbursements (Bank FYAJS$m.) Total IDA 2008 2009 2010 2011 2012

5 5 4 2 1

Additional policy triggered

Does the emergency operation require any exceptions from Bank policies? Have these been approved by Bank management?

Are there any critical risks rated “substantial” or “high”?

What safeguard policies are triggered, if any?

Financial Intermediary Lending (OP/BP 8.30)

Yes [ ] N o [XI

Yes[ 1 N o [ 1 Yes[X] N o [ ]

Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Indigenous Peoples (OP/BP 4.10) Physical Cultural Resources (OP/BP 4.1 1)

I

Significant, non-standard conditions, if any: n/a

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NICARAGUA Hurr icane Fel ix Emergency Recovery Project

A. Introduct ion

1. This Project Paper seeks the approval o f the Executive Directors to provide an Emergency Recovery Credit in an amount o f SDR10.7 mi l l ion (US$17 mi l l ion equivalent) to the Republic o f Nicaragua for the proposed Hurricane Felix Emergency Recovery Project (HFERP). Consistent with OP/BP 8.00, the Credit would help finance the costs associated with the recovery o f communities in the North Atlantic Autonomous Region (RAAN) in the aftermath o f Hurricane Felix, a Category 5 storm that made landfall in this region on September 4, 2007.

2. Hurricane Felix’s effects were overwhelmingly fe l t by communities in RAAN, one o f the poorest regions in one o f the poorest countries in Latin America and the Caribbean. Close to 200,000 people, or about 60 percent o f RAAN’s population, were affected directly by the disaster. Housing and social infrastructure suffered major damages, including many schools, community centers and churches. Key sectors such as agriculture and fishery were greatly affected, while some forest areas, mangroves and coastal habitats suffered extensive damage. These impacts weigh particularly o n a region that has some o f the highest incidences o f poverty and malnutrition and lowest levels o f education and health in Nicaragua.

3. The proposed Project wil l respond to the situation by (i) ensuring timely restoration o f basic social and economic l i fe in the affected communities through implementation o f early rehabilitation and recovery activities; (ii) rehabilitating and improving the productive capacity and sustainability o f the small-scale fishery sector - the primary source o f income o f the affected coastal communities; and (iii) supporting the reconstruction o f housing and social infrastructure such as community centers, community churches, and small health clinics.

4. Considering the distinct social, cultural and development issues that characterize RAAN, the Government o f Nicaragua (GoN) has decided that the regional government will lead recovery efforts, including the implementation o f the proposed HFERP. This decision represents an excellent opportunity to promote decentralization and to ensure that the recovery process reflects the needs o f affected communities, most o f which are o f indigenous or ethnic origin, and that it i s advanced within the framework o f regional development efforts. To respond to this challenge effectively, the regional government needs institutional strengthening, which will be provided through the proposed Project.

5. Accordingly, the key expected outcomes o f the proposed Project are (i) timely rehabilitation o f houses and implementation o f other early recovery activities as identified by the affected communities; (ii) restoration, and potentially improvement, o f income levels o f affected fishing communities through sustainable and productive investments; (iii) restoration o f the social and economic environment o f affected communities through provision o f safer and culturally responsive housing and social infrastructure; and (iv) strengthening o f regional government’s capacity to implement externally funded projects, and in general, to lead regional development efforts.

6. Responding to the Government’s request, the Bank approved a Project Preparation Facility (PPF) o f US$5.0 million on December 19, 2007. The PPF wi l l be administered by an experienced agency, namely the Executive Secretariat o f the National System for Disaster Prevention, Mitigation and Response (SINAPRED), and wi l l help finance goods and services most urgently needed to respond to the disaster and to implement early rehabilitation and recovery activities. Importantly, the PPF wi l l also fund project preparation activities including technical and fiduciary capacity building to ensure readiness o f the regional government to start project implementation, and the preparation o f social, environmental, and other assessments in l ine with Bank safeguards, as well as related management plans.

B. and Recovery Strategy

Emergency Challenge: Country and Regional Context, Emergency Response

Country and Regional Context

7. Nicaragua, the second poorest country in Latin America after Haiti, i s one o f the most disaster-prone countries in the world due in part to i t s geographical location. Modest and highly variable GDP growth, reflecting the economy’s vulnerability to external shocks, such as natural disasters, has been hindering poverty reduction efforts. Hurricane Mitch, Nicaragua’s greatest disaster in recent history, struck in 1998, just when the country was beginning to overcome a lingering economic depression. Despite progress, between 2002 and 2006 the annual GDP growth averaged 3.2 percent or 1.3 percent in per capita terms. Poverty remains high with about 46 percent o f the country’s 5.5 million people living under the poverty line.

8. The RAAN, with approximately 308,000 inhabitants, covers almost 33,000 square kilometers o f the Atlantic coast region, the largest and the poorest o f the three distinct regions that comprise Nicaragua. The Atlantic coast region, which M A N shares with the South Atlantic Autonomous Region (RAAS), comprises about 43 percent o f the country’s territory but only 11 percent o f i t s population. About 60 percent o f the Atlantic Coast region’s total population - and almost 77 percent o f the rural population - lives in poverty. A large rainforest crossed by several large rivers covers the region, characterized by a hot and humid climate and a sparse yet multi-ethnic, multi-cultural and multi-lingual population, including many o f Miskito and Afro-Caribbean descent. Most o f the territory has a pattern o f communal land tenure, traditional institutions such as communal councils and assemblies, and well established processes o f community-based decision making. Given their distinct culture and history, both RAAN and RAAS have enjoyed partial autonomy since the mid 1980s. Table 1 below shows MAN’S vulnerability before the disaster.

9. Natural disasters - which have occurred at a rate o f one major disaster every two years over the last 100 years - have had a profound impact on Nicaragua and i t s vulnerable

’ The Executive Secretariat has been implementing satisfactorily the IDA-financed Natural Disaster Vulnerability Reduction Project since 2001. This project complements the proposed HFERP as it i s supporting, along with other donor initiatives, the strengthening o f SINAPRED as well as specific disaster risk mitigation activities at the local and regional levels. * The other two regions are the Pacific lowlands, where most o f the country’s population lives, and the North-Central Mountains.

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communities. In the past 10 years alone, disasters caused over 3,500 deaths and displaced or otherwise adversely affected in excess o f 1.35 mi l l ion people. These disasters have resulted in economic losses estimated to range between US$1.5 and US$3 billion. About 25 percent o f the country’s population, including most o f those living in the Caribbean Coast, faces the risk o f hurricanes and tropical storms. Over the past 20 years, in addition to Felix, the Nicaraguan Caribbean Coast has suffered the effects o f three major hurricanes - Joan (1988), C6sar (1996) and Beta (2005) - and numerous tropical storms. The high incidence o f poverty in Nicaragua has compounded the impact o f disasters, since the poorest have proven to be the least resilient and therefore the most adversely affected. Hurricane Felix is no exception.

Table 1 - Basic Data on the Northern Atlantic Autonomous Region W A N )

Population Percentage o f rural population Human Development Index (2005) Child mortality Chronic malnutrition in children under 5 General poverty (data for both RAAN and R A A S ) Percentage o f homes without access to drinking water Percentage o f homes without basic sanitation Percentage o f inhabited houses without electricity Roads in bad conditions

308,438 inhabitants 72% 0.466: Low 49 x 1,000 live births 24% Urban: 37.8% / Rural: 76.6% 40% 40.9% 76.10% 62%

Source: UNDP Flash Appeal, September 2007; Bank staff estimates based on 2005 Census

Hurr icane Felix

10. On September 4, 2007, a category-5 hurricane3 named Felix made landfall at 4:45 am local time 51 kilometers north o f RAAN’s capital Bilwi (Puerto Cabezas), near Barra Sandy Bay. Before making landfall, Hurricane Felix devastated the Cayos Miskitos, where it caused most o f the deaths4 After buffeting the coastal communities with winds o f 250 ludhour, Felix headed south-west into the country, leaving behind a 60-kilometers-width pathway o f destruction before entering Honduras through the Biosphere Reserve o f Bosawas. The most affected communities were located along the coast north and south o f Bilwi, downstream o f the Coco River (Municipality o f Waspam), and the area known as the mining triangle (municipalities o f Siuna, Bonanza and Rosita). Outside RAAN, two departamentos, Jinotega and Nueva Segovia, were affected on a smaller scale. W h i l e crossing MAN, Hurricane Felix produced up to 30 centimeters o f rain which caused floods along the region’s five main rivers and resulted in additional loss o f lives, homes and crops. Most people sought shelter in schools, community centers, and churches, which are central to community life.

1 1. According to official estimates, Hurricane Felix caused 102 deaths’ and directly affected close to 34,000 households (approximately 200,000 persons). The basic l i f e o f many

Saffir Simpson Scale The Cayos Miskitos i s one o f the richest areas for fisheries in Nicaragua (lobster and fish) and a unique marine ecosystem

that ensures food security and the economic livelihoods for roughly 30 indigenous communities in the Northern Coast o f RAAN.

As o f November 2007,133 persons were still considered missing.

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communities was disrupted by Felix as it destroyed over 10,000 houses and blew of f the roofs o f an additional 9,000, destroyed 20 churches and badly damaged an additional 37, and contaminated approximately 1 1,500 wells while destroying over 13,000 latrines. At the same time, Felix badly damaged or destroyed 84 public buildings, 107 schools, and 134 clinics o f various sizes. Transport, normally difficult, was disrupted as the storm damaged 994 km o f roads and many bridges, and lef t many fallen trees blocking most o f the roads and waterways in the region.

12. Agriculture and fisheries, two key economic sectors in the region, were badly affected. Fishing, s t i l l mainly a small-scale activity, i s the primary income for coastal communities. In 2006, the small-scale fisheries sector (or pesca artesanal) contributed to 78 percent o f total regional production. According to the World Food Program (WFP), fishing supplied income to 59 percent o f coastal households. A post-hurricane evaluation conducted by the Nicaraguan Institute for the Fisheries Sector (INPESCA) showed that the storm seriously disrupted extensive marine areas, uprooting mangroves and destroying entire fishing villages, causing the displacement o f at least 2,100 fishermen and 3,500 people associated with fisheries.6 Moreover, fishermen lost 366 small boats and 48,355 units o f fishing equipment (e.g., nets, traps). Importantly, more than 50 percent o f the lobster sampled by INPESCA after the storm was below the minimum size permissible for commercial capture.

13. The impact on the agricultural sector has serious implications for the food security o f many households. I t i s estimated that over 86,000 hectares o f agricultural land were damaged by the storm. Overall, most o f the crops under cultivation in the region were destroyed. The crops that suffered the most were rice, corn, tubers and roots (especially yucca), haricot, beans and various fruit trees. Losses to livestock reached 21 percent o f the region’s total. More specifically, farmers and households lost about 3,360 cows, 4,925 pigs and 21,500 domesticated fowls.

14. The hurricane affected 1.3 million hectares o f RAAN’s forest areas, o f which 477,000 were devastated. According to FAO’s assessment o f impacts to the forestry sector, about 12 million cubic meters o f potentially usable wood f e l l to the ground as a result o f the storm. With the existing wood processing capacity o f the country, it was estimated that less than 1 percent o f these resources could be salvaged. The great numbers o f fallen trees that remain in the area have increased the risk o f forest fires, especially in pine forest areas.

Institutional Capacity for Disaster Risk Management

15. Nicaragua established a National System for Disaster Prevention, Mitigation and Response (SINAPRED) in 2000.’ The System i s coordinated by an Executive Secretariat (SE) under the Office o f the Vice-presidency o f the Republic, and includes agencies and ministries with responsibilities in this area. Key entities include the National Institute for Territorial Studies (INETER), Ministry o f Agriculture and Forestry (MAGFOR), Ministry o f

Exploracion Evaluativa de 10s Cayos Miskitos Posterior a1 Paso del Huracan “Felix”. Bilwi, Septiembre 2007. ’ SINAPRED was created by Law 337. Subsequently, the regulatory framework required to apply and execute Law 337 was established (Decree 5312000) and the detailed responsibilities o f all entities comprising SINAPRED were officially assigned (Decree 98/2000).

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Environment and Natural Resources (MANNA) and Ministry o f Transport and Infrastructure (MTI). A National Committee, chaired by the President (or his delegate) provides policy and strategic guidance to SINAPRED. The System i s activated within the framework o f the National Emergency Response Plan operating at three levels - municipal, departmental (state-level) and regional.

16. As demonstrated by the response to Hurricane Felix and other recent disasters, the capacity o f SINAPRED continues to improve with support f rom the IDA-financed Natural Disaster Vulnerability Reduction Project (NDVRP, PO649 16) and other donor initiatives from, inter alia, UNDP, Government o f Japan, GTZ, and the Swiss Agency for Development and Cooperation. Through the NDVRP , the Executive Secretariat has promoted the integration o f disaster risk management into development planning, public investments and territorial planning. At the same time, SINAPRED has been strengthened with the creation o f numerous community-level hazard and risk management organizations and the identification, prioritization and execution o f various risk mitigation and emergency response activities throughout the country. Soon, as envisaged in the NDVRP, SINAPRED will also have a National Emergency Operations Center (CODE) in Managua. Further efforts are needed to improve overall coordination and capacity, disaster prevention and mitigation investments, information sharing among responsible agencies, and harmonization o f methodologies and approaches related to local disaster risk assessments and management plans.

Government Response

17. Shortly after Hurricane Felix made landfall on September 4, 2007, the GoN declared a state o f emergency in the M A N by which al l ministries, as wel l as local and regional government entities, were instructed by the National Emergency Committee to make available the necessary resources to respond to the disaster and help initiate rehabilitation activities as soon as possible. In l ine with the National Emergency Response Plan, the response was led by the Governor o f M A N , while the Regional Emergency Committee and municipal emergency committees were activated to coordinate the search and rescue and overall relief operations. Efforts were also focused on completing an assessment o f damage and needs that would allow for the preparation o f a recovery plan consistent with regional development priorities.

18. The Governor o f RAAN was supported by mayors, who led the emergency response in their respective communities. Distribution o f food and materials in each community was the responsibility o f local community leaders and judges. The national police force and the Nicaraguan army were responsible for ensuring safety and for providing the necessary logistics and resources to facilitate the airlift o f goods and personnel into the affected communities. The Ministry o f Health (MINSA) mobilized a total o f 27 medical brigades throughout the region.

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NGO and Donor Support

Source NGOs Other agencies and countries GoN through SINAPRED Total

19. Following the disaster, a number o f national and international NGOs provided humanitarian aid in food, medicine and cash. * The GoN also received bi-lateral logistical assistance for airlift operations to bring supplies to isolated areas. O n September 14, 2007, the United Nations launched a Flash Appeal - a request for funds to the international community to help cover the immediate needs o f affected communities. The appeal requested US$22.9 mi l l ion for immediate emergency relief and an additional US$16.4 mi l l ion for early recovery over the next six months. As o f December 10, 2007, US$18.8 mi l l ion were committed and US$9.1 mi l l ion were pledged to relief and recovery operations through UN Agencies.

Cash In-Kind Total 1 15,000 409,400 524,400 9,419,873 796,975 10,2 16,848 1 1,62 1,62 1 --- 11,621,621 21,156,494 1,206,375 22,362,869

20. carried out by SINAPRED, C iv i l Defense, U N D P and other agencies.

Table 1 shows the aid committed for ongoing emergency response efforts being

Table 2 - Financial Contribution to the Relief and Recovery Effort ($US)

Government Recovery Strategy

21. The GoN recognizes that the regional dimension o f Hurricane Felix requires a recovery strategy that i s responsive to the unique history and socio-cultural characteristics o f M A N . Accordingly, the Government decided to implement a recovery strategy that aims at promoting decentralization while building regional institutional capacity, mainstreaming disaster risk management in recovery and development activities, and ensuring that recovery activities help promote sustainable regional development and reflect community priorities. To ensure successful implementation o f the strategy, the regional government will lead the recovery process through broad-based consultation and participation o f affected communities, and in coordination with concerned central agencies. Importantly, the strategy i s anchored in a Regional Development Plan whose preparation has been led by the Caribbean Development Council (CDC). Based on a participatory process, the plan reflects RAAN's emerging development vision and objectives through four pillars: (i) environmental protection, (ii) social development, (iii) improved infrastructure, and (iv) promotion o f key productive sectors.

22. More concretely, the recovery strategy focuses on: (i) housing and social infrastructure rehabilitation and reconstruction; (ii) affected productive sectors, including agriculture and fisheries; (iii) forestry sector, including forest fire prevention, reforestation

* UNDP, ECHO, Telecoms Sin Fronteras and URACCAN assisted the regional government in establishing a website with information on rel ief and rehabilitation activities by organization. The web site address is:http://www.sigdesastre-raan.org/

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and salvaging o f fallen trees for housing reconstruction and other commercial uses. These components are grounded in the regional objective o f supporting rapid rehabilitation o f livelihoods while simultaneously fostering social and economic development.

C. Bank Response and Strategy

23. Soon after Hurricane Felix, a Bank team traveled to Nicaragua, visited the affected region, and initiated discussions on the proposed HFERP with the central and regional government, community representatives and donors such as U N D P and FAO.’ Preparation and Appraisal missions were carried out between September and December 2007, working closely with the Government o f RAAN (GRAAN) and central agencies assisting in project preparation and implementation, including, inter alia, the Executive Secretariat o f SINAPRED, INPESCA, the Secretariat for the Development o f the Caribbean Coast (SDC), the Rural and Urban National Housing Institute (INVUR), the Rural Credit Fund (FCR), the National Forestry Institute (INAFOR), and the Ministry o f Health (MINSA).

24. To accommodate the emergency recovery assistance within the country’s IDA envelope for FY08, the Bank and the Government agreed to cancel the Enhanced Competitiveness for International Market Integration Project (P092949, SDR 1 1.57 mi l l ion or US$17.0 mi l l ion equivalent). The Credit, approved by the Bank’s Board on August 24, 2006, was not yet effective when Hurricane Felix struck, and the changes in Government’s priorities would have most likely called for significant project restructuring. As such, i t was agreed with GoN that the canceled Credit’s funds would be reallocated to Nicaragua for the emergency operation, and that the Bank would continue to support private sector and financial sector activities in the country through a new operation focusing on small and medium enterprise (SME) development. As part o f the proposed emergency credit, the Government requested a PPF o f US$5.0 mi l l ion (the maximum amount allowed under OP/BP 8.00) from the Bank to ensure timely implementation o f early rehabilitation and recovery and to prepare the project.

25. In light o f the substantial recovery needs o f the MAN, the Bank’s strategy seeks to maximize emergency assistance by financing critical activities expected to have social and economic impacts in a relatively short period, and to which the Bank can also contribute with global knowledge and experience. Specifically, under the proposed HFERP, and in line with the Government’s recovery strategy, the Bank will support the reconstruction o f housing and social infrastructure, the recovery o f the small-scale fisheries sector to restore incomes o f fishermen and foster economic development, and the strengthening o f the regional government to implement externally-funded projects and lead development efforts in general.

26. In addition to the proposed HFERP, the Bank has ensured further support to the Government’s recovery strategy through the GEF-financed Corazon Transboundary Biosphere Reserve Project (P085488) and the Education for All (EFA) Trust Fund for Nicaragua (TF0573 1 1). Working with the regional government and INAFOR, assistance

See Aide Memoire - Preparation Mission for the Hurricane Felix Emergency Recovery Credit (September 18-23, 2007) available in IRIS and Project Files.

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through the Corazon Project will help revise the 2007-2008 Emergency Plan for Prevention and Control o f Forest Fires for M A N , promote community-based forestry management, and identify environmentally friendly options to salvage fallen trees. In coordination with the Ministry o f Education (MINED), EFA funds o f US$3.5 mi l l ion will be allocated to help reconstruct schools in the region. Currently, the IDA-financed Land Administration Project (PO5601 8) i s supporting titling and registration o f several o f the region’s indigenous territories. Beyond the emergency recovery phase, and consistent with the Government’s emphasis on fostering the development o f RAAN, several o f the projects under preparation include components or activities aimed at the region. These include the Rural Water and Sanitation Project and the SME Development Project.

27. Importantly, the Bank strategy builds on the ongoing efforts to strengthen the national capacity for disaster risk management and the Bank’s regional and global experience in emergency recovery assistance. The IDA-financed Natural Disaster Vulnerability Reduction Project mentioned above has been under implementation for several years, and the Government i s considering requesting additional financing to continue building capacity for SINAPRED and implementing disaster mitigation measures at the local and regional level. The proposed HFERP , moreover, would help the region withstand future disasters better through the provision o f sturdier housing and improved social infrastructure, including safer shelters and locations to warehouse emergency supplies, and improved communications equipment and disaster preparation in the small-scale fisheries sector.

Coordination with other Donors

28. The Bank strategy has been designed in coordination with other donors’ efforts. Specifically, Project design took into consideration early recovery activities planned by UNDP, FA0 and WFP. UNDP planned to support housing rehabilitation and reconstruction, temporary employment generation through reconstruction o f basic infrastructure, and institutional support to facilitate the implementation o f sustainable recovery efforts. In addition, FA0 planned to support the rehabilitation o f family gardens and the recovery o f basic livelihoods o f rural communities in RAAN’s protected areas; and WFP would implement Food-for-Work activities to assist affected communities while reconstructing small infrastructure.

29. Organization o f project beneficiaries will be helped by the ongoing Government o f Norway’s Support to the Fisheries Sector (US$1.5 million). In addition to organizing cooperatives in RAAN, this effort i s also helping prepare a gender strategy for the sector and the construction o f a communications center in Puerto Cabezas. Organization o f fishermen is also included in the ALBA Project (US$2.9 million) funded by the Government o f Venezuela.

30. The institutional strengthening programs for G U A N currently supported by UNDP and ASDI will also complement the Project’s activities and help in i t s implementation. GRAAN i s receiving assistance, among other things, to improve i t s information technology (IT) system through activities such as establishment o f an IT Unit, system design, and development o f a web page.

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3 1. Rehabilitation o f roads, which are critical for evacuation in hurricane-prone areas such as RAAN, i s being supported by Denmark - traditionally one o f the major donors in this sector and a strong partner o f the Bank's transport program. Denmark has been financing maintenance o f secondary roads and rehabilitation o f bridges and main roads, and advanced funds from the next two years o f i t s road program to cover emergency repairs after the hurricane. Denmark has also put in place a fund for road rehabilitation that i s managed in coordination with municipalities and the regional government. lo

Lessons Learned

32. The Bank has accumulated substantial regional and global experience in supporting post-disaster recovery. In Nicaragua, the Bank has experience from the emergency recovery assistance provided after Hurricane M i t ch in 1998 - an exceptional event which devastated the country as wel l as neighboring ones. l1 At the general level, experience shows that recovery i s essentially a development issue. Accordingly, a recovery program needs to consider the longer-term goals o f reducing disaster vulnerability while fostering sustainable development. The challenge has been to design such a program while ensuring that the required implementation capacity can be met to ensure timely rehabilitation o f affected communities. Operationally, this means that:

0 The design of emergency recovery operations should be relatively simple and flexible, while also reflecting the priorities of the affected area and communities, and the speciJic needs of women, the elderly and other vulnerable groups. The recovery program for the RAAN reflects the region's priorities, as outlined in the regional development plan, and has been developed with broad consultation o f the communities. Gender issues, at the same time, have been mainstreamed into the design o f the program.

0 Implementation arrangements should be straightforward and responsive to national decentralization efforts, balancing between the needs for regional and local leadership and for centralized accountability and coordination. The proposed HFERP provides a unique opportunity for the regional government to take the lead in the recovery process, while also strengthening i t s capacity for implementing future projects and leading development efforts. I t i s expected that this arrangement will facilitate the decision making process, and the integration o f community voices into the recovery process. To succeed, the regional government will count with the support o f experienced consultants and central agencies for technical and implementation support.

0 I n countries or areas prone to natural disasters, emergency recovery operations should strive to mainstream disaster mitigation in a socially and culturally responsive manner. The proposed HFERP focuses on rebuilding safer communities, with houses and

lo Water transportation i s also important in RAAN for regular communication and for evacuation and re l ie f during emergencies. A major project underway i s the completion of the inter-coastal canal between Bluefields and Puerto Cabezas. Most of it has been dug by hand, and only 24 kilometers remain to be completed. " Nicaragua Hurricane Emergency Project (Cr. 3858-NI, SDR 36.1 million), was approved on December 22, 1998 to provide quick disbursing support to finance urgently needed imports. For the specific lessons from this operation, see Implementation Completion Report (Report 2 1456) o f December 2000.

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buildings rehabilitated or reconstructed with improved construction standards that consider disaster risk as well as traditional housing designs.

The main challenge for emergency recovery operations is implementation, which increases the need for close supervision. Close management attention and adequate resources for supervision are required not only to ensure smooth implementation, but also timely provision o f global knowledge and experience.

C. The Proposed Emergency Recovery Project

Project Description

33. The Proposed Project will be financed through an IDA Emergency Recovery Credit o f SDR10.7 mi l l ion (US$17.0 mi l l ion equivalent), o f which US$S.O mi l l ion are being advanced through a PPF. The PPF will be administered by the Executive Secretariat o f SINAPRED in close coordination with the Government o f RAAN (GRAAN), which will implement the rest o f the proposed Project. The Bank will finance 100 percent o f eligible project expenditures.

Project Development Objective

34. The project development objective (PDO) i s to support the sustainable recovery o f the communities affected by Hurricane Felix in the North Atlantic Autonomous Region (RAAN) o f Nicaragua.

Summary o f Project Components

35. The PDO will be achieved through four components: (1) early recovery (US$5.0 million); (2) recovery o f the small-scale fisheries sector (US$6.3 million); (3) reconstruction o f housing and social infrastructure (US$5.4 million); and (4) institutional strengthening for project management, coordination and monitoring and evaluation (M&E) (US$0.3 million). These components are detailed below.

Component 1 - Early Recovery (US$5.0 million)

36. The objective o f this component i s to ensure timely implementation o f critical rehabilitation and recovery activities, as wel l as readiness o f the GRAAN to start project implementation. This component will be implemented by the Executive Secretariat o f SINAPRED, which will also manage the PPF. The Executive Secretariat will work in close coordination with GRAAN, and will receive technical support from INVUR, INPESCA, and the Ministry o f Agriculture and Forestry (MAGFOR). Specific sub-components include:

37. Sub-component 1. I - Provision of Early Reconstruction Materials (US$2.0 million). This sub-component will provide retroactive financing for materials (excluding food expenditures) and operating costs directly related to Hurricane Felix’s re l ie f and early disaster rehabilitation efforts.

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38. Sub-component 1.2 - Institutional Strengthening and Rehabilitation (US$3.0 million). This sub-component will finance the fol lowing activities: (a) Institutional strengthening o f GRAAN, including (i) fiduciary and technical support for project implementation start up and for leading the recovery process; (ii) project preparation, including carrying out o f social and environmental assessments and the development o f related management manuals required for the Project according to the applicable Bank safeguards; and carrying out o f workshops to disseminate information about the project and continue the consultation process; (b) Support to the Executive Secretariat o f SINAPRED for the implementation o f Component 1 and for helping GRAAN to get ready for project implementation; (c) Rehabilitation o f housing, primarily involving replacement o f zinc roofs and minor repairs, for approximately 2,800 poor families; (d) Early rehabilitation o f the agriculture sector through community-based seeds distribution; and (e) Early rehabilitation o f the small-scale fisheries sector through provision o f equipment (including outboard motors) and materials.

Component 2 - Recoverv o f Small-scale Fisheries Sector (US$6.3 million)

39. The objective o f this component i s to help restore, and potentially improve, the socio- economic conditions o f men and women engaged in the small-scale fisheries sector (pesca artesanal) in the region. This component will be implemented by GRAAN, with support from INPESCA, the National Technological Institute (INATEC), and the Rural Credit Fund (FCR). The component will directly benefit approximately 6,000 individuals as well as their families, and will have a general positive impact on the 19 coastal communities most affected by the hurricane. OP/BP 8.30 (Financial Intermediary Lending) i s triggered by the establishment o f a revolving fund under sub-component 2.1. Details on the revolving fund and compliance with this policy are provided in Annex 1A. Specific sub-components include:

40. Sub-component 2.1 - Rehabilitation of Small-Scale Fisheries Sector (US$5.0 million). This sub-component will help restore, and potentially improve, the incomes o f over 4,500 men and women engaged in the small-scale fisheries sector in the 19 most affected coastal communities. Based on intense consultations with affected communities and local authorities, i t was decided to rehabilitate the sector in a manner that promotes sustainable productivity improvements by diversifying from lobster and shrimp into hitherto unexploited fish species and by promoting new fishing practices. As agreed with potential beneficiaries, the recovery strategy for the sector should help (i) increase efficiency through culturally and technologically suitable options for small-scale fisheries activities; (ii) decrease health risks o f lobster capture through scuba diving by promoting capture with nasas; and (iii) foster social and cultural change through entrepreneurial practices that protect the health o f fishermen as well as marine resources and the environment in general. Accordingly, in addition to training and restoration o f fishing supplies, the Project would finance boats that are appropriate for small-scale fishing and are better equipped (including diesel engines, ice storage, and improved communication and navigation equipment.) O f a total o f 150 boats to be procured under the Project, 1 10 would be relatively small and the rest middle sized.

4 1, Specific activities under this sub-component include: (a) establishment o f a Revolving Fund to provide better, fwlly equipped boats and working capital to affected men

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and women to restart their fishing activities in a more productive and sustainable way. At present, access to financial services i s very limited in the region, and more critically in the small-scale fisheries sector. As such, the revolving fund, to be administered by FCR - an organization with experience in this type o f programs - will also facilitate continued access to credit to fishermen beyond the l i f e o f the Project (see Annex 1A for details on the revolving fund.) To participate in the credit program, beneficiaries wil l be organized in cooperatives, community associations (grupos solidarios comunitarios) and small family enterprises. The boats will be provided through the Project since these are not easily found in the regional market, and FCR will make them available to the eligible credit beneficiaries along with some initial working capital. A Manual for the management o f the revolving fund will be adopted by FCR, including inter alia, acceptable criteria for selection o f credit beneficiaries, interest rate regime and basic financing parameters for the loans, and indicators to monitor the sustainability o f the fund; (b) Provision o f technical assistance and training to project beneficiaries, to be delivered with support from INPESCA and INATEC. The training will cover, inter alia, new technologies, business administration, and marketing, as well as hurricane preparedness and response; and (c) Restoration o f fishing equipment and supplies to the affected men and women in the coastal communities, including those who do not participate in the credit program, to ensure a basic level o f rehabilitation.

42. Sub-Component 2.2 - Rehabilitation of Fish Processing Plant and related Facilities (US$l .O million). Under this sub-component, the Project will help restore income generation opportunities to women and in general improve sector productivity and the local economy. Accordingly, this sub-component includes: (a) the rehabilitation o f the Lamlaya Fish Processing Plant, along with a small shipyard and a community store for fishing supplies. Rehabilitation o f the plant and related facilities will include c iv i l works and restoration o f equipment and fishing supplies. In addition, the Project would finance the necessary feasibility, engineering, marketing and environmental studies; and (b) Credit to women affected by the hurricane, affiliated under the Association o f Pikinera Women o f the Nicaraguan Atlantic Coast (AMUPCAN) - which presently has close to 1,500 members - to give them the opportunity to operate the processing plant and related facilities. AMUPCAN’S members have experience on fish processing, although informal, from their work in the Cayos Miskitos. The credit line, to be administered also by FCR as part o f the revolving fund, would ensure that these women have sufficient working capital to re-start plant operations. Women will also be given expert advice - including through a Board o f Directors - technical assistance and training.

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43. Sub-Component 2.3 - Reconstruction of Small Infiastructure (US$0.3 million). This subcomponent includes the rehabilitation or reconstruction o f several community landing docks and small piers affected by the disaster, and that are critical to the functioning o f the small-scale fisheries sector in the region, and particularly in the 19 coastal communities targeted by the Project.

’ * AMUPCAN i s an association established in 2002 by women (known in the region as Pikineras) who were buying and processing lobster in the Cayos Mikitos in order to se l l i t in Bi lwi (Puerto Cabezas). AMUPCAN operates under a license given by the municipality o f Puerto Cabezas, in addition to certifications from the Territorial Authority o f Tawira and GRAAN.

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Component 3 - Reconstruction o f Housing and Social Infrastructure (US$5.4 million)

44. This Component aims to reestablish the social and economic environment o f affected communities through the provision o f safer and culturally responsive housing and social infrastructure. This component will be implemented by GRAAN with support from INVUR and MINSA. Specific sub-components include:

45. Sub-Component 3.1 - Reconstruction of Housing (US$2.5 million). Under this sub- component, the Project will benefit 500 families (approximately 3,500 people) in the communities o f Santa Martha and Sisin, where 100 percent o f the houses were destroyed by the hurricane. Consistent with the general housing reconstruction strategy for the region, houses will be reconstructed in wood and in traditional yet safer design applying new standards that consider disaster risk. Beneficiaries will participate fully in the reconstruction process, and will contribute with their labor in tasks that do not require specialized skil ls. This effort will serve as a model to be replicated in the rest o f the region regardless o f the source o f funding.

46. Sub-Component 3.2 - Reconstruction of Social Infrastructure (US$2.9 million). This sub-component includes: (a) the reconstruction o f community churches and community centers. The churches, which are central to community l i f e in the region, have been selected through consultation with the communities and the consensus o f religious leaders across the prevalent denominations. (b) The reconstruction o f small health clinics (including housing for the medical staff). In line with the regional health plan and the concerned municipalities, these clinics are strategically located to maximize access to health services, in this case for 80 communities (or over 30,000 people). All structures will be built to better standards and with adequate technical supervision, given especially that these are structures used by the locals as emergency shelters. Site analysis will be undertaken to ensure that the existing location i s not a hazard-prone area. The Project will also finance al l necessary site, design and environmental studies.

Component 4 - Institutional Strengthening for Pro-i ect Manapement. Coordination and Monitoring and Evaluation (M&E) (US$0.3 million)

47. The objective o f this component i s to strengthen the institutional capacity o f the GRAAN to implement the recovery emergency program, and in general, to lead regional development efforts. Instead o f establishing a separate Project Implementation Unit (PIU), project management will be fully integrated in the organizational structure o f the regional government. In addition to equipment, software and training, additional technical and fiduciary experts will be provided under this component to ensure that the implementation demands o f the Project are fully met. This component also includes financing for external audits and for the implementation o f the Project’s M&E system. Most o f the needed software and equipment, however, would be provided through the PPF. This component complements the assistance that GRAAN i s receiving, or expects to receive, from other donors.

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Expected Project Outcomes

48. The following outcomes are expected at the end o f the Project: (i) timely rehabilitation o f houses and implementation o f other early recovery activities as identified by the affected communities; (ii) restoration, and potentially improvement, o f income levels o f affected fishing communities through sustainable and productive investments; (iii) restoration o f the social and economic environment o f affected communities through provision o f safer and culturally responsive housing and social infrastructure; and (iv) strengthening o f regional government's capacity to implement externally funded projects, and in general, to lead regional development efforts. See Annex 2 for details on project outcome indicators.

Eligibility for Processing under OP/BP 8.00

49. The proposed Project responds to an urgent Government request for Bank assistance to help in the recovery from Hurricane Felix, an event that caused major adverse social and economic impacts in one o f the poorest regions o f the ~ o u n t r y . ' ~ The policy framework provided by OP/BP 8.00 allows the Bank to respond timely to this request, and importantly, to support early rehabilitation and recovery activities, as well as to start up implementation through the provision o f advance funding (through a PPF) and retroactive financing o f up to 40 percent o f the total Credit amount. Also consistent with OP/BP 8.00, the Project focuses on areas where the Bank has a comparative advantage and where it can provide global experience and knowledge, such as emergency recovery, livelihood restoration, and fisheries sector rehabilitation, among others.

Consistency with Country Partnership Strategy (CPS)

50. The proposed Project i s consistent with the FY08-12 Country Partnership Strategy for Nicaragua. The CPS recognizes the significant disaster risks faced by the country, and notes the assistance being provided by the World Bank for disaster risk management through ongoing AAA and the Natural Disaster Vulnerability Reduction Project (NDVRP). l4

Aligned with the latter, the proposed HFERP responds to the Bank's commitment, also noted in the CPS, to provide emergency recovery assistance if needed, while contributing to several o f the strategic objectives o f the CPS, which include: (i) reactivating the economy, stimulating productivity and competitiveness; (ii) human capital development by improving social equity and opportunity, (iii) infrastructure and sustainable development, and (iv) strengthening governance and accountability by modernizing state institutions and promoting citizen participation. Specifically, the proposed Credit would contribute to objectives (i), (iii) and (iv), by helping re-activate a key productive sector o f MAN, rebuild social infrastructure incorporating disaster risk mitigation measures, and partnering with the regional government for the first time while building i t s institutional capacity to implement externally-funded projects and lead development efforts.

l3 The official request from GoN was sent to the Bank on September 7, 2007, three days after declaring the State o f Emergency due to the disaster (Presidential Decree No.87-2007). l4 A Supplement to the FY08-12 CPS for Nicaragua (Report 41098) was distributed to the Bank's Board in October 2007, outlining the planned Bank emergency assistance, and placing this assistance within the framework o f the CPS.

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D. Appraisal o f Project Activities

Economic and Financial Analyses

5 1. Final economic and financial analyses o f the operation are not possible until studies for key investments have been completed, including for the fish processing plant, shipyard and community store. Preliminary analysis by INPESCA indicates that the plant rehabilitation i s a viable project that would produce a gross income o f US$3.1 mi l l ion in the f i rs t year and US$3.5 mi l l ion in the second year o f operations, assuming the plant is at 65 percent and 75 percent o f operating capacity, respectively. The corresponding operating costs would be US$2.6 mi l l ion for year 1 and US$3.0 mi l l ion for year 2.

52. As part o f the regional recovery strategy, Project design maximizes the economic impact o f reconstruction activities by giving opportunities for work and provision o f services and goods to locals. For example, INVUR has estimated that implementation o f Component 3 would generate close to 1,300 direct jobs and over 700 indirect jobs in the targeted communities, and that about 40 percent o f the estimated cost o f the component would be used to pay labor and reconstruction materials in the region.

Technical

53. The hurricane destroyed the roofs o f many houses and buildings, and caused structural damage to many others, including schools, community churches and other public buildings. After the disaster, it became evident that better, hazard-resistant building standards need to be promoted in the region. In l ine with disaster risk management good practices, the Project will help to “build back better” small structures such as houses, community churches, community centers, health clinics, and community docks and piers; and medium-sized structures such as the processing plant and shipyard. All these structures will be reconstructed following acceptable standards applying the new technical requirements that consider disaster risk, and environmental management measures according to their type. Close technical supervision will ensure that these structures are rebuilt to withstand disastrous events in the future. Special attention will be given to community churches and community centers since these traditionally double up as emergency shelters. Sites for these structures, as well as for the health clinics will be analyzed to ensure that the existing location is safe.

54. In addition to striving to provide safer structures, the Project will also support culturally responsive designs with traditional and preferably locally available materials. Housing and social infrastructure reconstruction will fol low a community-driven process, and in the case o f housing with labor contribution from the beneficiaries and guidance from experienced foremen and other skilled labor. Training will be provided to the skilled labor and communities to ensure that the recommended building practices and technical requirements are applied. I t i s expected that this process will be replicated across the region. Intense local involvement in the reconstruction process should help ensure the sustainability o f the capacity building on improved hazard-resistant techniques being promoted under the Project.

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Institutional

55. RAAN was given relative autonomy in 1987, along with RAAS. The Autonomy L a w (Law 28-1 987) recognized RAAN and M A S as distinct socio-cultural and territorial entities where the historical lands rights o f the indigenous people, afro-descendents and other ethnic communities are exercised. The communities o f RAAN (and RAAS) elect and form their own government and develop their respective socio-economic and cultural development strategies and programs. Specifically, the regional government (GRAAN) i s led by the Government Coordinator (also known as the Regional Governor) and a Regional Council comprised o f 45 members. Supporting the regional Governor are an Executive Director and a Chief o f Staff. Organizationally, GRAAN i s comprised o f 16 sector-specific and administrative secretariats. As detailed in Annex 8, communities in the region also have traditional institutions that are recognized by the Constitution and Autonomy Statute, such as Communal Councils, Community Assemblies, and the Territorial Assembly.

56. Although GRAAN has experience implementing some externally funded projects, i t s implementation capacity remains weak. As noted above, the Project will help in the institutional strengthening o f GRAAN through the provision o f fiduciary and technical expertise. Moreover, several key sector agencies such as INPESCA and INVUR will support GRAAN in project implementation. Co-execution agreements with GRAAN will clearly establish the supporting role o f these agencies as well as their commitment to have adequate capacity at the regional level to meet their responsibilities under the Project.

57. The Rural Credit Fund (FCR), which will administer the Project’s revolving fund, was created in 1998 (Law 294) to provide financial services to the rural sector. I t i s a non- profit, self-sufficient organization and as such does not receive funds from the national budget for i t s operations. Although FCR has been ascribed to the Nicaraguan Financial Investment Agency (FNI) since its creation - and thus has been governed by FNI’s Board o f Directors and Executive Committee - it has maintained its managerial authority and independence regarding i t s portfolio management. As it will do under the Project, FCR finances sustainable productive activities through cooperatives, producers associations and NGOs. FCR has incorporated a gender equity approach into i t s services through specific programs for women producers, including several in the Caribbean Coast.

58. FCR’s institutional assessment indicates that it has the capacity to manage the revolving fund under the Project. Recently, however, the Government created a new state retail bank, Banco de Foment0 Productivo. The law creating this bank mentions FCR, but it i s not clear whether the new bank would absorb the portfolio o f FCR. The experience o f retail banks in Nicaragua has not been very positive due to problems with credit allocation and portfolio management.15 The Government has given assurance that F C R will maintain i t s full managerial authority. As explained in Annex lA, the Bank will require written confirmation from G o N that this will be the case under the new law. In addition, the Financing Agreement will include a suspension clause that would serve the purpose o f protecting the revolving fund in case FCR were to lose i t s independence.

The previous state retail bank, BANADES, cost Nicaragua an estimated US$300 million over a five year period (loan

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losses from 1991 to 1996, without including the bank’s high operating costs).

Fiduciary

59. Fiduciary capacity o f both G U A N and the Executive Secretariat o f SINAPRED were assessed as part o f Project appraisal. The Executive Secretariat was selected to execute the PPF because o f its demonstrated capacity and experience regarding Bank-financed projects, as well as familiarity with disaster risk management issues. The GRAAN requires capacity strengthening and close supervision to ensure effective project implementation. Details on the fiduciary assessments and arrangements are presented in Annex 4 (financial management) and 5 (procurement).

60. Financial Management. The financial management capacity o f the Executive Secretariat was found to be satisfactory, while FM implementation risk was found to be moderate to substantial. Specifically, the Secretariat was found to be equipped with skilled personnel who have acceptable experience in Bank disbursement procedures, including the use o f the special account and therefore should easily be able to take on the duties o f implementing Component 1 (and administering the PPF).

61. The assessment o f GRAAN indicates that the init ial FM implementation risk i s substantial. GRAAN, through the Secretariat o f Finance (SF), already manages funds from international donors, but lacks capacity and experience to implement the proposed Project. As such, the FM assessment recommends measures to strengthen GRAAN’s institutional capacity and i t s internal control framework. These measures are part o f an agreed Action Plan, and include, inter alia, staff training, additional expert support for the Secretariat o f Finance and for the Internal Audit Unit, and provision o f software and equipment. As noted above, this support complements institutional strengthening initiatives funded by other donors.

62. GRAAN faces operational constraints including very l imited banking services in the region, and dif f icult connectivity with national budget management and other systems. Only two bank institutions provide services in the region (traditionally BANPRO, and very recently BANCENTRO). However, these banks only service the regional capital, Puerto Cabezas. Credit funds would be channeled through BANPRO for payments in the region, but options for direct payments to suppliers in Managua would also be available. Regarding system connectivity, the Bank has provided expert support to help GRAAN identify viable options to ensure readiness for project implementation.

63, Procurement. Procurement capacity o f the Executive Secretariat i s considered satisfactory. The procurement assessment o f GRAAN indicates that the initial risk o f procurement implementation i s high, and recommends several measures and an Action Plan. The latter emphasizes the probity aspects o f procurement and the capacity levels o f the additional staff to be hired to implement the Project. Specifically, the Plan requires training, additional expert support, and establishment o f acceptable procurement responsibilities and procedures (to be reflected in the Procurement Chapter o f the Operations Manual). Procurement o f contracting packages for works and goods will be GR4AN’s responsibility, but technical specifications will be prepared with support from the agencies with the relevant expertise.

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Safeguards

64. Overall, the Project i s expected to have positive social and environmental impacts. Nevertheless, as shown in Table 3, given the Project activities, Project area, and target population, several Bank safeguard policies are considered to be triggered by the Project. A social and environmental management framework i s presented in Annex 8. The Operations Manual will include detailed guidelines, procedures and requirements for environmental management under the Project.

Table 3 - Safeguard Policies Triggered by the Project

65. Environmental. The Project is considered Category “B” partial assessment and OP 4.01 i s triggered. In general, no large scale, significant and/or irreversible impacts are expected from project implementation. Most o f the works included in the project are o f a small-scale and would likely correspond more closely to a Category “C” impact rating. The Project will mainly support rehabilitation or reconstruction o f small structures such as houses, community centers and churches, community landing docks and piers, and small health clinics. Impacts resulting from these activities, such as dust, noise and rubble, are temporary. Once in operation, the processing plant and shipyard are likely to cause some localized environmental effects. In this case, an environmental permit f rom SERENA as well as a specific environmental impact assessment and an environmental management plan are required. For the small health clinics, acceptable solid waste management plans have been prepared by MINSA. Although no large or widespread excavation i s expected during the reconstruction activities, the Project triggers OP 4.1 1 and “chance find” procedures will be incorporated into project documents to avoid any negative impact on physical cultural resources.

66. The proposed activity to restore the income o f the men and women engaged in the small-scale fisheries sector requires close attention due to i t s potential effects o n the region’s marine resources. Although under the Project fishing would remain at sustainable levels, and the Project would help diminish pressure on shrimp and lobster resources, the long-term risk o f over-fishing remains, particularly considering the impact that the hurricane had on the region’s coastal ecosystem, estuaries and lagoons. A Plan to rehabilitate these ecosystems has been prepared by the Government and will be implemented in parallel to the Project. Simultaneously, monitoring and assessment o f marine ecosystems’ recovery will continue

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during the l i fe o f the Project to make sure that the recovery o f the small-scale fisheries sector i s indeed sustainable. Accordingly, OP/BP 4.04 has been triggered as a precaution.

67. Social. The Project has been prepared and will be implemented with the intensive participation o f al l affected communities, in keeping with its emphasis o n social inclusion and gender equity concerns. As an init ial phase o f the Project’s social assessment, indigenous leaders, women’s organizations, church representatives and local government authorities were invited to help identify the most urgent needs o f the communities, and to provide init ial guidance on criteria for the selection o f project beneficiaries and activities. During implementation, most rehabilitation and reconstruction activities will be undertaken with community participation and supervision. A communications strategy is being prepared to ensure that communities are wel l informed about the Project, its various programs, and the criteria for the selection o f beneficiaries.

68. The Project will not finance any activity requiring resettlement. Most works will consist o f rehabilitation or reconstruction o f small structures in their current locations. N o additional land i s needed for the rehabilitation o f the processing plant and shipyard. In the event that the taking o f land was considered necessary for safety or other reasons, selection o f the new site would fo l low a community consultation process. This would be facilitated by the accepted traditional practices for the allocation o f land for community or public structures that exist in most Project areas.

69. RAAN i s predominantly a multi-cultural and multi-ethnic region with a majority o f population o f indigenoudethnic origin. Given these characteristics, the entire project will be consistent and in full compliance with OP 4.10 (Indigenous Peoples), including, inter alia, identification o f beneficiaries and activities through broad-based consultations and mechanisms to ensure continued community participation during implementation. Over 98 percent o f the project beneficiaries wil l be indigenous community members (based on self- identification), regional and local government institutions are led and managed by indigenous/ethnic peoples, and local NGOs and c iv i l society organizations (CSOs) are also the representative bodies o f local indigenous/ethnic people. To understand and mitigate potential social risks, ethnic conflicts, gender inequities, and institutional weaknesses relevant to RAAN, a social assessment i s being completed.

Exceptions to Bank Policies

70. revised OP/BP 8.00. N o exceptions to Bank policies have been sought.

The project has been prepared as an Emergency Recovery Credit under the recently

E. Implementation Arrangements and Financing Plan

71. Overall project coordination will be under GRAAN. With support f rom relevant ministries and sector agencies, GRAAN will directly implement components 2, 3, and 4. The Executive Secretariat o f SINAPRED will implement Component 1 and execute the PPF, while FCR will administer the revolving fund under Component 2. See Annex 6 for details on implementation arrangements.

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Project Coordination and Management

72. The emergency recovery strategy, including the Project, will be coordinated and managed by GRAAN. The Governor will lead the coordination effort with the support o f two committees: A Project Coordination Committee, including key ministries and agencies such as the Executive Secretariat o f SINAPRED, MINSA, FCR, INPESCA, INVUR, MAGFOR, and CDC; and an Advisory Committee including SETEC, the Ministry o f Finance (MHCP), and the Ministry o f Foreign Affairs (MINREX).

73. Project management will be fully integrated into the institutional structure o f GRAAN. The Executive Director will be the Project Manager, while the Director o f Finance will be the Project FM Director and the Director o f Planning will be the Project Technical Director. This structure will be complemented with a Project Technical Coordinator that will help oversee project implementation. Each o f the Project directors will be supported by a Committee including qualified officials from the co-executing agencies. In addition, the FM Director will receive advisory services from the Executive Secretariat o f SINAPRED. Based on the fiduciary assessments and technical demands o f the various activities, the Regional Government’s Project team will also be strengthened with the technical and fiduciary expert support needed to ensure that GRAAN has adequate capacity to implement the Project.

Activity Implementation

74. In addition to the Executive Secretariat, activities under Component 1 will be supported by INVUR, INPESCA, and MAGFOR. To implement Component 2, G U N will be supported by INPESCA, and INPESCA will team up with I N A T E C to provide training to beneficiaries. Administration o f the revolving fund will be the responsibility o f FCR, with guidance from two committees, the Project Coordination Committee and a Credit Committee. The latter will be integrated by representatives f rom GRAAN, FCR, INPESCA, and a man and a woman representing the beneficiaries.

75. Implementation and supervision o f the rehabilitation o f housing under Component 1 and al l activities under Component 3 would be the responsibility o f the Secretariat o f Infrastructure, Transport and Public Investment (SITINP) o f GRAAN, with support f rom INVUR. To help coordinate this effort, GRAAN established an Inter-institutional Infrastructure Committee. This committee includes SITINP and the Secretariat o f Municipal Affairs (SAM) o f GRAAN, M A N Public Investment Unit (UTIP), the Municipality o f Puerto Cabezas, the Nicaraguan Municipal Development Institute (INIFOM), INVUR, and FISE. Moreover, Community Overseeing Committees will provide close fol low up in the reconstruction o f social infrastructure, while housing reconstruction will be a community- driven effort in partnership with local governments.

76. Operations Manual. The Operations Manual i s being prepared by the Executive Secretariat o f SINAPRED and GRAAN with support from expert consultants to ensure a clear delineation o f responsibilities and o f the implementation process o f the various Project components, sub-components and activities. The Manual will contain description o f technical procedures as well as financial procedures, budgeting, reporting and internal control procedures reflecting good practices and Bank requirements. I t will also describe the

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environmental procedures and consultation processes required to comply with Bank safeguards. The Manual will be ready by Credit effectiveness.

Project Supervision

77. As with most emergency recovery operations, the proposed Project i s a high risk operation with a potentially high development impact (see risks section below) requiring intense Bank supervision and sharing o f global experience and knowledge. In addition to i t s emergency nature, which requires rapid preparation under difficult circumstances, the Project faces further challenges given the characteristics o f the region, GRAAN’s l imited implementation experience and capacity, and the need to ensure sustainable results in a relative short time period. As such, and consistent with OP/BP 8.00, the Bank supervision team will provide close implementation support through frequent missions, close fol low up from team members from the local office, including fiduciary staff, sharing o f good practice experiences in similar contexts, and provision o f expert advice.

Project Costs and Bank Financing

78. Bank will finance 100 percent o f eligible expenditures under the Credit.

The estimated project costs and Bank financing are detailed in Table 4 below. The

Table 4 -Project Cost by Component and Sub-Component Total Bank % o f US$ m Financing Total

US$m Cost

1 - Early Recovery (PPF) 1.1 Provision o f Early Reconstruction Materials 1.2 Institutional Strengthening and Rehabilitation

2 - Recovery of Small-scale Fisheries Sector 2.1 Rehabilitation o f Small-scale Fisheries Sector 2.2 Rehabilitation of Fish Processing Plant 2.3 Reconstruction o f Small Infrastructure

5.0 5.0 29.4 2.0 2.0 3.0 3 .O

6.3 6.3 37.0 5.0 5.0 1 .o 1 .o 0.3 0.3

3 - Reconstruction of Housing and Social Infrastructure 5.4 5.4 31.8 3.1 Reconstruction o f Housing 2.5 2.5 3.2 Reconstruction o f Social Infrastructure 2.9 2.9

4 - Institutional Strengthening 0.3 0.3 1.8

Total Project Cost 17.0 17.0 100

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Financial Management and Disbursement Arrangements

79. The Executive Secretariat o f SINAPRED will administer the FM aspects o f Component 1, and o f the PPF. GRAAN, through i t s Secretariat o f Finance, will be responsible for FM aspects o f the rest o f Project components. Financial management tasks will include: (i) budget formulation and monitoring; (ii) cash f low management (including processing payments and submitting loan withdrawal applications to the Bank); (iii) maintenance o f accounting records, (iv) preparation o f in-year and year-end financial reports, (v) administration o f underlying information systems, and (vi) arranging for execution o f external audit.

Procurement Arrangements

80. Similarly to above, procurement under Component 1 and the PPF will be the responsibility o f the Executive Secretariat, while procurement for the rest o f components will be under the Procurement Unit o f GRAAN. Considering the risk assessment rating, the proposed prior review thresholds for the project are for contracts with equivalent value equal to o more than US$ 100,000 for goods, works and equal to or more than US$50,000 for consulting services with firms; and equal to or more than US$25,000 for individual consultants. All international competitive bidding (ICBs) and single source o f consulting services as well as direct contracting shall be prior reviewed by IDA regardless o f the amount involved. The size o f the sample for post-review will be 1 in 5 as average. This figure may be adjusted during project implementation depending on the performance o f GRAAN and the results o f the reviews.

Monitoring and Evaluation

8 1. The Project’s Monitoring and Evaluation (M&E) framework will be included in the Operations Manual. This framework has been developed taking into account that this i s an emergency operation where M&E o f results should be cost-efficient while providing sufficient basis to assess the impact o f recovery efforts in the affected communities. For example, given the region’s characteristics and post-disaster context o f the Project, establishing baselines may be dif f icult and costly. O n the other hand, given the Project’s focus on communities’ needs and priorities, it is necessary to provide social accountability mechanisms such as periodic surveys, consultation workshops, and offer the opportunity to CSOs to participate in project monitoring. In addition to Project funds, DFID has made available funds that could be used to support ini t ial social accountability activities.

82. The Executive Secretariat and the regional government will be responsible for the overall management and implementation o f the M&E framework, with support from key agencies such as INVUR, INPESCA and FCR. Component 4 includes financing for making the framework operational, including, inter alia, establishment and maintenance o f a beneficiaries’ database, field visits, surveys, consultation meetings, and independent studies and evaluations. The Bank will provide support through an M&E specialist that will be part o f the project supervision team.

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Project Implementation

83. The proposed HFERP will be implemented over four years, with an expected credit closing date o f M a y 30, 2012. The Bank i s already supporting the early rehabilitation efforts through the retroactive financing being provided through the PPF, while also ensuring adequate implementation start up. Given the need to ensure the rapid recovery o f the affected communities, the regional government plans to implement most activities by the third year o f the project.

F. Project Risks and Mitigating Measures

84. The proposed HFERP i s a high risk operation, with several initial high or substantial risks, and a residual substantial risk even after mitigation. If successfully implemented, however, the Project can deliver sustainable results. Table 3 presents the main risk factors identified and the proposed mitigation measures.

Risk Factors

Reputational

Political

Table 5 - Risk Factors and Mitigation Measures Description of Risk

The Project i s an emergency operation with high political profile and expectations from the regional government and local communities. As such, it requires a timely response from the Bank and the Government. Although the Project i s an emergency operation it also represents an opportunity to foster regional development. Demand for rapid results on the ground need to be balanced with efficiency, sustainability, quality and equity concerns.

Solidarity for affected people may be overshadowed by current political environment in the National Assembly, which could delay Project approval. Relationship between GRAAN and the central government has been difficult at times, which has

- Rating of Risk

Mitigation Measures

The emergency recovery program has been developed within the larger framework outlined in the regional development plan. Activities included in the Project reflect regional and local government’s consensus as well as community inputs. Project activities can be achieved within the Project timeframe, and outcomes sustained with the support of the central and regional governments. Project i s an emergency operation with broad- based support. GRAAN currently enjoys a good relationship with the central government. The Project will be in full implementation by

Rating of Residual Risk S

M to S

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Table 5 - Risk Factors and Mitigation Measures Risk Factors

Implementation

Institutional

Social

Description o f Risk

affected allocation and implementation o f development investments in the region. Although GRAAN has experience implementing some externally funded projects, i t s implementation capacity remains weak. Decision to not have a dedicated PIU, although beneficial to the institutional strengthening of GRAAN, enhances the implementation risk. Ministries and sector agencies have not traditionally played the supporting role proposed under the Project. In addition to coordination issues, some o f the key agencies will need to transfer some capacity to the region. Coordination with local NGOs also faces challenges due to the need to strengthen Government-NGO relationships.

Selection process o f beneficiaries for some o f the programs under the Project may not be sufficiently inclusive. Women given the opportunity to run the processing plant, and fishermen and women participating in the credit program to buy new boats, may not succeed if not given appropriate training and

- Rating o f Risk

H

S

M

Mitigation Measures

the time o f the next elections.

The Project will finance the necessary fiduciary and technical expertise to ensure that GRAAN meets implementation demands. As i s the practice for emergency operations, Bank supervision will be more intense than for regular projects. Implementation arrangements include a high-level Project Coordination Committee that includes key agencies. Clear co- execution agreements will be signed between the GRAAN and the supporting agencies, particularly INVUR, INPESCA, MAGFOR and FCR. Additionally, INPESCA’s regional capacity will be strengthened by transferring specialists from Managua for the Proiect’s duration Consistent with OPA3P4.10, project preparation included intense consultation and participation. Based on these consultations, the Project includes selection criteria for the different programs. A full Social Assessment i s being prepared, which will identify

Rating of Residual Risk

M

M

L

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Table 5 - Risk Factors and Mitigation Measures Risk Factors

Financial

Description of Risk

follow up support.

To be sustainable, the revolving fund needs to transition into commercial interest rates, in addition to having sound selection criteria for beneficiaries and allowing full recovery of administration costs by FCR. Managerial independence of FCR may be compromised if it looses i t s authority under the newly created state bank. On the other hand, the revolving fund may not be viable if technology options (e.g., the new larger boats) are not culturally appropriate for the target beneficiaries; and if beneficiaries’ repayment culture i s weak

Rating of Risk

S

!5

Mitigation Measures

mechanisms for participation and consultation during project implementation. Social audit mechanisms are included in the project, and the M&E system includes surveys o f beneficiaries’ satisfaction with the Project’s activities. The Project includes a follow up plan for the beneficiaries with expert advice, technical assistance and training To ensure compliance with OP8.30, the Bank has provided advice on the design of the revolving fund, including a microfinance expert working directly with FCR. Credit beneficiaries wi l l be well informed about their responsibilities regarding the loans through consultations, training and the Project’ s communications strategy. The Financing Agreement includes a suspension clause that should protect the revolving fund if FCR loses i t s independence. The Bank i s also financing an operation dealing with larger issues in the financial sector that wil l complement the

Rating of Residual Risk

M

Table 5 - Risk Factors and Mitigation Measures Risk Factors

Disasters

Fiduciary

Description of Risk

The region i s prone to hurricanes and related events such as heavy rains and floods, and faces increased risk of forest fires due to Felix. Occurrence o f a new disaster can undermine recovery progress and have direct effects on sustainability o f certain activities including the revolving fund

GRAAN i s unfamiliar with Bank FM and procurement policy and procedures. Limited number and inexperienced fiduciary staff with heavy work loads, including handling activities financed by other donors. Corruption i s a concern in the country, which increases the need for ensuring transparency and accountability o f GRAAN with respect to procurement and management of resources.

I

Rating of Risk

S

S to H

Mitigation Measures

revolving fund, and foster i t s long-term sustainability . Technology options are based on intense consultations with potential beneficiaries, and expert technical advice

Project design has mainstreamed disaster risk management into a l l activities. The Bank and other donors continue to support parallel efforts to strengthen SINAPRED. Beneficiaries will receive training to prepare and respond better to hurricanes, and FCR i s studying options to provide beneficiaries with access to micro- insurance GRAAN will contract additional fiduciary and Internal Audit consultants. GRAAN staff will receive training to ensure that the Project meets Bank FM and procurement requirements, including Anti-corruption Guidelines and other norms as set forth in the Operations Manual. SINAPRED and MHCP through its procurement unit (in the process o f absorbing UCRESEP’s experienced fiduciary staff) will provide assistance to the

Rating of Residual Risk

S

S

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Table 5 - Risk Factors and Mitigation Measures Risk Factors

Exploitation o f Marine Resources

Description of Risk

Although the Project promotes diversification into presently unexploited fish species, long-term over- exploitation o f marine resources could occur without adequate management o f these resources. Current expenditure on fisheries management i s very l o w and enforcement capacity weak.

Overall Project Risk

Rating of Risk

M

H

Mitigation Measures

Project. Fiduciary staff in the Country Off ice will fo l low up closely the project. Project includes social accountability mechanisms An Environmental Assessment and Environmental Management Plan will be prepared for the Project, including mechanisms to continue monitoring the recovery o f fish stocks and the exploitation o f marine resources. FA0 will also provide expert support in this area during project implementation. The Bank plans to support improvement in management o f marine resources through AAA

Rating of the risks on a four-point scale: High, Substantial, Moderate and Low, according to the pr occurrence and magnitude o f adverse impact

G. Terms and Conditions for Project Financing

Rating of Residual Risk

L

H lability o f

85. IDA standard terms o f 40 years maturity, including 10 years o f grace period.

The proposed project will be financed with an Emergency Recovery Credit under

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Annex 1: Detailed Description of Project Components Nicaragua: Hurr icane Felix Emergency Recovery Project

The project includes four components: (1) early recovery (US$5.0 million); (2) rehabilitation o f the small-scale fisheries sector (US$6.3 million); (3) reconstruction o f housing and social infrastructure (US$5.4 million); and (4) institutional strengthening for project management, coordination and monitoring and evaluation (M&E) (US$0.3 million).

Component 1 - Early Recovery (US$5.0 million)

The objective o f this component is to ensure timely implementation o f critical rehabilitation and recovery activities, as wel l as readiness o f GRAAN to start project implementation. This component, financed through the PPF , will be implemented by the Executive Secretariat o f SINAPRED in coordination with GRAAN. Specific sub-components o f this component include:

Sub-Component 1.1 - Provision o f Early Reconstruction Materials (US$2.0 million).

This sub-component will provide retroactive financing for materials and operating costs directly related to Hurricane Felix’s re l ie f and early disaster rehabilitation efforts, excluding food expenditures. These include, inter alia, (i) gas and gasoline (land vehicles and airplanes) used for transportation o f materials; and (ii) construction materials used for the rehabilitation o f houses and buildings.

Sub-Component 1 -2 - Institutional Strengthening and Rehabilitation (US$3 .O million).

This sub-component will finance the following activities:

(a) Institutional strengthening of GRAAN (US$O. 22 million). This activity includes (a) financing o f consultants, software, equipment, training and operational costs to provide fiduciary and technical support to the regional government to be ready for project implementation and to lead the recovery process, including through the Regional Committee for Disaster Prevention, Mit igation and Response (COREPRED). (b) Project preparation, including carrying out o f (i) the social and environmental assessments required for the Project in line with the applicable Bank safeguards, and preparation o f related project management manuals such as the Environmental Management Plan (EMP) and the Operations Manual; and (ii) workshops to disseminate information and continue consulting target communities about the Project, and particularly the init ial activities.

(3) Support to the Executive Secretariat of SINAPRED for the implementation of the PPF (US$O. 06 million). This activity will help finance consultants, software, equipment and operational costs to enable the Executive Secretariat to administer the PPF and help prepare GRAAN for project implementation.

(c) Rehabilitation of housing (US$2.43 million). Under this activity, GRAAN, with technical assistance from INVUR, will help approximately 2,800 poor fami l ies rehabilitate their houses primarily through provision o f improved zinc roofing and minor repairs. In

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coordination with other housing rehabilitation activities, the Project will focus on the affected municipalities o f Puerto Cabezas, Rosita, Bonanza, Prinzapolka and Waspam. Target families, selected in consultation with local governments and affected communities, will participate actively in the rehabilitation process and contribute with their labor. Eligibility criteria, to be listed in the Operations Manual, include, inter alia: (i) income level; (ii) official assessment confirming that the house was damaged by Hurricane Fel ix and that it can be safely rehabilitated; (iii) affected structure i s the only house o f the intended beneficiary; and (iv) willingness to participate in the rehabilitation process. The activity also includes community outreach and the preparation and dissemination o f a guide in local languages (Miskitu and Mayangna) explaining the self-building process with improved design and construction standards.

(d) Early rehabilitation of agriculture sector (US$O. 165 million). GUAN, assisted by MAGFOR - which has been implementing similar programs - will distribute inputs and seeds and provide technical assistance to 4,100 families to help rehabilitate family gardens and small farms and by extension help promote food self-sufficiency. The seeds to be distributed include traditional crops affected by the disaster such as plantain, yucca, malanga, ayote and quiquisque, among others.

(e) Early rehabilitation of fisheries sector (US$O. 125 million). This activity, to be implemented with the assistance o f INPESCA, will provide equipment (including small outboard motors) to affected families, giving priority to those living in the six most affected coastal communities. As i s the case with the previous activity, beneficiaries will be identified in consultation with communities and local governments.

Component 2 - Recovery o f Small-scale Fisheries Sector (US$6.3 million)

The objective o f this component i s to help restore, and potentially improve, the socio- economic conditions o f the men and women engaged in the small-scale fisheries sector (pesca artesanal). This component, to be implemented by G U A N with support from INPESCA and FCR, will focus on 19 coastal communities for which fishing i s the main income source and that were affected by the hurricane. Nine o f these communities are located in Puerto Cabezas, eight in Prinzapolka and two in Waspam. This component includes establishment o f a revolving fund, which triggers O P B P 8.30 (Financial Intermediary Lending). Further details on the revolving fund and compliance with this policy are given in Annex 1A.

86. The component is based on a sector-specific recovery strategy (available in Project files) based on intense consultations with affected communities and local authorities, and completed with technical assistance from INPESCA and FCR. As agreed with potential beneficiaries, the recovery strategy for the sector should help (i) increase efficiency through culturally and technologically suitable options for small-scale fisheries activities; (ii) decrease health risks o f lobster capture through scuba diving by promoting capture with nasas; and (iii) foster social and cultural change through more entrepreneurial practices that protect the health o f fishermen as well as marine resources and the environment in general. Accordingly, in addition to training and restoration o f fishing supplies, the Project would finance boats that are appropriate for small-scale fishing (i.e., less than 15 meters long) and

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are better equipped (including diesel engines, ice storage, and improved communication and navigation equipment.) O f a total o f 150 boats to be procured under the Project, 110 would be relatively small and the rest middle sized. The Component includes:

Sub-Component 2.1 - Rehabilitation o f Small-scale Fisheries Sector (US$5.0 million).

This sub-component aims to restore, and potentially improve, the incomes o f men and women engaged in the small-scale fisheries sector. As such, activities under the Project, which should benefit over 4,500 individuals and their families, will help promote fishing o f abundant yet s t i l l underexploited species in an efficient and sustainable manner, while diminishing pressure on shrimp and lobster resources. Adequate management o f marine resources will thus underpin the sector rehabilitation efforts, including close monitoring o f the post-disaster recovery o f these resources. Before the hurricane, the sector suffered from l o w productivity, limited technological and management capacity, dif f icult access to basic supplies, lack o f access to credit, and l imited infrastructure. The critical pre-disaster situation makes sector rehabilitation even more challenging, especially given that the affected communities do not have the means to restart their operations by themselves. In response to this challenge, specific activities under this sub-component are:

(a) Establishment of Revolving Fund (US$3. I O million). An additional objective o f this sub- component i s to establish a revolving fund to continue offering credit to the sector in future. The fund will be administered by FCR, which has experience in implementing this type o f programs in the country. Specifically, beneficiaries, organized in cooperatives, community associations (grupos solidarios comunitarios), and small family enterprises, will have access to credit to buy boats and have working capital to re-start their fishing activities in a more efficient and sustainable way. A total o f 150 new and fully equipped boats, including improved communications technology, would be acquired by G U A N since these are not readily available in the regional market.16 Subsequently, FCR will provide these boats to the eligible credit beneficiaries along with initial working capital, which i s estimated to be about US$1,800 for medium-sized boats and US$900 for small boats. It i s also estimated that a group o f beneficiaries would need to borrow US$60,000 for a medium-sized boat and US$6,000 for a small boat. As detailed in Sub-component 2.2, the revolving fund would also be established through the credit offered to women to operate the Lamlaya Processing Plant and related facilities. Further details on the revolving fund’s interest rate regime and basic financing parameters are included in Annex 1A.

The eligibility criteria for credit beneficiaries will be included in the Manual for the revolving fund to be adopted by FCR, and that i s a condition o f disbursement for the fund. The Manual will describe selection criteria for credit beneficiaries acceptable to IDA, ensuring that al l proposals are technically and financially viable. Such viability will be confirmed by the Project Coordination Committee and Credit Committee that will provide strategic and implementation guidance regarding the credit program. The Credit Committee will be integrated by representatives o f GRAAN, FCR, INPESCA, and a man and a woman representing the beneficiaries. The Project Coordination Committee will be integrated by

l6 The technical specifications for these boats, including 40 boats of 13.10 meters and 110 o f 8.53 meters, have been prepared by INPESCA.

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GRAAN, Executive Secretariat o f SINAPRED, MINSA, FCR, INPESCA, INVUR, MAGFOR, and CDC. This Committee wil l give final endorsement to the selection o f credit beneficiaries and the provision of basic equipment and supplies, and will oversee the setting up o f management for the fish processing plant and ancillary facilities. The Credit Committee will evaluate the credit applications and make the recommendations on eligible credit beneficiaries to the Project Coordination Committee.

Under this activity, the Project will promote the organization o f beneficiaries in coordination with efforts financed by other donors. Six cooperatives have already been created and legally registered, including one by women, three are in the process o f registration and five are in the final stages o f organizing themselves. These efforts have been funded by a Government o f Norway’s initiative - Support to the Fisheries Sector (US$1.5 million) - which i s also financing the preparation o f a gender strategy for the sector and the construction o f a communications center in Puerto Cabezas. Organization o f fishermen is also included in the ALBA Project (US$2.9 million) funded by the Government o f Venezuela.

(6) Technical assistance and training (US$O. 14 million). With support f rom INPESCA and INATEC, credit beneficiaries in al l 19 coastal communities will be given technical assistance and training regarding new technologies, fishing techniques, business administration, and marketing, among others. In addition, beneficiaries would receive training on hurricane preparedness and response. INPESCA has been working with INATEC in the preparation o f a culturally-responsive training program for the fisheries sector, and together these entities have delivered courses in other areas o f the country.” The training program has also been developed with assistance from the Xunta de Galicia’s regional effort for the professional development o f fishermen (US$0.2 mi l l ion for Nicaragua out o f US$1 .O mil l ion for Central America). Specifically, the training modules to be delivered under the Project would include, inter alia: (a) basic module, consisting o f basic survival skills, f i re prevention, f i rst aid help, social responsibility, and work safety; (b) fishing techniques module covering basic navigation skills, basic repairs and mechanics, fishing practices and techniques, fish preservation and conservation; and (c) managerial module, including, among other things, identification o f commercial fish species, quality control, processing, international standards, and marketing.

(c) Restoration of jshing equipment and supplies (US$l. 76 million). T o ensure the provision o f a basic level o f rehabilitation, fishing equipment and supplies will be given to affected families, including those that do not participate in the credit initiative. Beneficiaries o f this activity will be identified in consultation with communities and local governments.

Sub-Component 2.2 - Rehabilitation o f Fish Processing Plant and related Facilities (US$ 1 .O million).

Under this sub-component, the Project will help restore income generation opportunities o f women and improve sector productivity and the local economy. The main beneficiaries would be women who lost their income sources due to the devastating impact o f the

” INATEC i s an autonomous training institution established in 1991 (Presidential Decree No.3-91). INATEC’s objectives include (i) definition o f national policies for technical and professional capacity development; and (ii) administration, organization, planning and implementation o f professional development at the national level.

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hurricane in the Cayos Miskitos. Specifically, the Project will help finance the rehabilitation o f the Lamlaya Fish Processing Plant, along with a small shipyard and a community store for fishing supplies. The plant, owned by the Regional Government, was established in 1991, and operated for several years by a private concession. The Lamlaya Plant would complement the region’s processing capacity by specializing in fish processing, while providing incentives to fishermen to capture underexploited fish species. The other four processing plants operating in M A N are dedicated mainly to the shrimp and lobster market. Activities under this sub-component include:

(a) Rehabilitation of the processing plant and related facilities (US$0.5 million). This activity includes civil works to rehabilitate the structures and working areas, as well as restitution o f equipment for the Lamlaya Processing Plant and associated shipyard and small community store. I t also includes financing o f consultants to carry out feasibility studies, engineering designs, market studies, and environmental and other necessary management plans. It i s expected that the plant wi l l develop a capacity for processing 5,000 pounds o f fish per day, providing a market for the fish from the 19 communities affected by the hurricane. The shipyard w i l l offer services such as outboard motor, engine and boat repairs to serve the needs o f fishermen in the area, including those benefiting from the revolving fund. The community store will be the only one operating in the area, facilitating access to affordable fishing supplies and small spare parts.

(b) Provision of initial operating capital (US$O. 5 million). Affected women affiliated to the Association o f Pikinera Women o f the Nicaraguan Atlantic Coast (AMUPCAN), which presently has close to 1,500 members, wi l l be given the opportunity to operate the processing plant and related facilities. AMUPCAN wi l l sign a contract with G M A N to run the plant, shipyard and community store, and wi l l be given credit through the Project’s revolving fund to ensure that i t s members have sufficient working capital to re-start plant activities. FCR wi l l administer the credit under the same arrangements planned for the provision o f boats and working capital described above. This activity would complement support given to these women from other organizations such as the Rural Development Institute (IDR), which provided them with some equipment and supplies. Women would also be given expert advice, technical assistance and training to strengthen their managerial and marketing capacity. Moreover, the processing plant will have a Board o f Directors to advice on i ts management and operation, and to inform the Project Coordination Committee about the plant’s activities and financial standing.

Sub-Component 2.3 - Reconstruction o f Small Infrastructure (US$0.3 million). Under this sub-component, the Project would help rehabilitate or reconstruct several community landing docks and small piers affected by the disaster, and that are critical to the functioning o f the small-scale fisheries sector in M A N , and particularly in the 19 most affected coastal communities. The Project would also finance any necessary engineering designs, environmental studies and technical supervision.

Component 3 - Reconstruction o f Housing and Social Infrastructure (US5.4 million)

This component aims to reestablish the social and economic environment o f affected communities through the provision o f safer and culturally-responsive housing and social

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infrastructure. Improved building standards, reflected in a new technical manual for wind resistant structures, will be applied during the reconstruction process. This component will be implemented by GRAAN with support f rom INVUR and MINSA, and in coordination with local governments. It includes the fol lowing sub-components:

Sub-Component 3.1 - Reconstruction o f Housing (US$2.5 million)

Under this sub-component, the Project will benefit 500 families (approximately 3,500 people) in the communities o f Santa Martha and Skin located in the municipality o f Puerto Cabezas, which was one o f the most affected by the hurricane. In these two communities, 100 percent o f the houses were destroyed by the disaster. The communities were selected taking into account other housing reconstruction activities, the impact o f the disaster, the communities’ socio-economic characteristics, and access level since an additional objective i s to rapidly implement a community-driven reconstruction process that can be replicated across the region. This process will be detailed in the Operations Manual.

Specifically, a total o f 500 houses will be reconstructed in wood and in traditional, yet safer, design applying new standards that consider disaster risk. Beneficiaries wil l participate fully in the reconstruction process, and will contribute with their labor in tasks that not require specialized skil ls. Local skilled labor (including foremen, carpenters, etc.) will be contracted to do specialized work and guide the community, and will receive training along with community members on improved designs and construction techniques. Latrines and wells will be reconstructed through a parallel effort with participation o f local non-governmental organizations (NGOs). Overall technical supervision will remain the responsibility o f GRAAN, through the SITINP, and INVUR.

Sub-Component 3.2 - Reconstruction o f Social Infrastructure (US$2.9 million)

This sub-component includes the reconstruction o f community churches, community centers and small health clinics. All structures will be built to better standards and with adequate technical supervision, given especially that the churches and community centers are used by the locals as emergency shelters. The reconstruction process for these structures will be detailed in the Operations Manual. Specifically, the sub-component includes the fol lowing activities:

(a) Reconstruction of community churches and community centers (US$1.47 million). The Project will focus on damaged churches and community centers in selected communities o f the municipality o f Puerto Cabezas and Waspam. The churches, which are central to community l i fe in the region, have been selected through consultation with the communities and the consensus o f religious leaders across the prevalent denominations. While contractors will be hired to carry out the work, communities will participate actively during the process and invited to contribute with materials and/or labor. To this effect, an overseeing committee will be created in each o f the target communities. The structures will be o f reinforced masonry, and site analysis would be carried out to ensure that they are not reconstructed in unsafe locations. Design and engineering, as wel l as supervision, will also be financed under this activity.

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(6) Reconstruction of small health clinics (US$l. 43 million). Four small health clinics, including housing for medical staff, will be reconstructed under the Project. Consistent with the regional health sector plan and in agreement with the concerned municipalities, these clinics are strategically located to maximize access to health services, in this case for about 80 communities (or over 30,000 people). In addition to solid waste management plans, MINSA has established acceptable standards for the clinics, including their infrastructure which requires reliable water and energy systems, and a sanitary cell and small incinerator. The Project will finance the necessary site, design and environmental studies, works, equipment, and technical supervision.

Component 4 - Institutional Strengthening for Pro-iect Manaaement. Coordination and Monitoring and Evaluation (M&E) (US$0.3 million)

87. The objective o f this component i s to strengthen the institutional capacity o f the GRAAN to implement the recovery emergency program, and in general, to lead regional development efforts. Instead o f establishing a separate Project Implementation Unit (PIU), project implementation will be fully integrated in the organizational structure o f the regional government. In addition to equipment, software and training, additional technical and fiduciary experts will be provided under this component to ensure that the implementation demands o f the Project are fully met. Moreover, this component also includes financing for the required annual external audits and necessary surveys and support required to implement the Project’s M&E system. Most o f the needed software and equipment, however, would be provided through the PPF. This component complements the assistance that GRAAN i s receiving, or expected to receive from other donors.

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Annex 1A: Project Description o f Financial Sector Issues and Compliance with OP8.30 Nicaragua: Hurricane Felix Emergency Recovery Project

The purpose o f this annex i s to provide further details on the proposed revolving fund under the Credit, and present the ways in which it complies with OP8.30 (Financial Intermediary Lending). The Project seeks to provide credit to affected men and women engaged in the small-scale fisheries sector to help restore, and potentially improve, their income levels in a more productive and sustainable manner. In addition, the establishment o f the revolving fund would facilitate continued access to credit to the sector in the future. Project design aims to ensure that there will be no adverse impacts on the private financial sector and FCR, the institution that will administer the credit program.

A. Background

Nicaragua’s banking sector, which suffered a crisis in 2000-200 1 , continues to be highly concentrated and oriented to corporate clients and off-shore activity. Under these circumstances, and despite their importance to the national economy, micro-enterprises and small businesses continue to face barriers to access credit and other financial services. Access to credit for individuals, small enterprises or associations in RAAN, a relatively remote region, i s even more constrained. Given a strong urban bias, this situation i s dramatically reflected in the fact that only 8 percent o f the financial sector’s credit costumers in Nicaragua live in departments outside Managua. RAAN i s currently served by two banks (traditionally BANPRO , and very recently BANCENTRO). These banks, however, only have branches in Bilwi (Puerto Cabezas) to cover the entire region.

Alternatively, financial services from micro-finance institutions (MFIs) emerged during the 1990s - with donor support that increased substantially after Hurricane M i t ch in 1998 - without regulation from the financial market. Since 2001, three NGOs specializing in microfinance have become the first regulated entities dedicated to cater the needs o f the micro-enterprise and small business sector. Many unregulated entities, including NGOs and cooperatives have also been created, some o f them affiliated under the Nicaraguan Association o f Microfinance Institutions. l8 These NGOs usually lend above market rates because they tend to have higher operating and financing costs. Importantly, the rapid expansion o f micro-credit services, which has followed the geographic distribution o f the population, has almost bypassed the Atlantic Coast region. There are a few organizations, however, that are offering services in RAAN. CARUNA, for instance, has had offices for over ten years in several municipalities in RAAN, including Rosita, Siuna and Bonanza. More recently, C A R U N A opened an office in Bilwi, and will soon open another one in W a s p h .

The Rural Credit Fund (FCR)

FCR, which will administer the Project’s revolving fund, was created in 1998 (Law 294) to provide financial services to the rural sector. It is a non-profit, self-sufficient organization

’’ The 21 NGOs and cooperatives affiliated to ASOMIF had a combined portfolio o f US$179 million and 308,000 loans in 2006.

35

and as such does not receive funds from the national budget for i t s operations. FCR has been ascribed to the Nicaraguan Financial Investment Agency (FNI) since i t s creation, and has accordingly been governed by FNI’s Board o f Directors and Executive Committee. Nevertheless, FCR has maintained i t s managerial authority and independence regarding the management o f i t s portfolio. As it will do under the Project, FCR finances sustainable productive activities through cooperatives, producers associations and NGOs. FCR has incorporated a gender equity approach into i t s services through specific programs for women producers, including several in the Caribbean Coast.

FCR’s institutional assessment indicates that it has the capacity to manage the revolving fund under the Project. Recently, however, the Government created a new state retail bank, Banco de Foment0 Productivo. The law creating this bank mentions FCR, but it i s not clear whether the new bank would absorb the portfolio o f FCR. The experience o f state retail banks in Nicaragua has not been very positive due to problems with credit allocation and portfolio management.lg The Government has given assurance that FCR will maintain i t s full managerial authority. To mitigate this risk, however, the Bank wil l require written confirmation from GoN that this will be the case under the new law. In addition, the Financing Agreement will include a suspension clause that would serve the purpose o f protecting the project’s revolving fund in case FCR were to lose i t s independence.

B. Coordination with IFC

The Bank project team and FCR met with IFC during project preparation and appraisal to ensure coordination with i t s ongoing and planned activities in the country and particularly M A N . IFC has been focusing on providing advisory services to the forestry sector, including developing models in the Atlantic Coast for community forestry, and there are no plans, due to investment constraints, to expand into other sectors, including small-scale fisheries,

C. Consideration o f the Need for Allocation o f Directed Credit

Hurricane Felix devastated the small-scale fisheries sector in RAAN, one o f the key economic sectors for the region and central to the livelihood o f coastal communities. Before the disaster, the sector was characterized by l o w productivity, limited technological and management capacity, difficult access to basic supplies, lack o f value added, dif f icult access to markets and limited infrastructure. The disaster made this situation even more critical. Access to credit has historically been beyond the reach o f fishing communities in the region. In addition to l o w productivity, most people in the sector are smaller scale producers making a living in a remote and highly vulnerable coastline, thus representing high risks and high costs to predominantly risk-averse lenders. Moreover, even if lenders were to take the risk, other characteristics o f the sector would make it difficult to actually provide credit. These are lack o f acceptable collateral (land, for example, i s mainly communally owned and cannot be mortgaged), high transaction costs, small loan amounts, lack o f documentation by the

’’ The previous state retail bank, BANADES, cost Nicaragua an estimated US$300 million over a five year period (loan losses from 1991 to 1996, without including the bank’s high operating costs).

36

small enterprises or associations to support credit applications, and inadequate capacities to cater to the sector, including financial products.

In the context o f the operation, a directed credit o f this type would be justified on the basis that it provides for a missing market in long-term financing for poor men and women that were affected by a disaster, and in the medium to long term allows maximizing the resources o f the IDA Credit to improve access to and impact o f financial services to the poor. The revolving fund would allow fostering the sector’s recovery in a more productive and sustainable way by focusing initially in the 19 most affected coastal communities, which lack the means to finance i t s own recovery. The revolving fund has also an important gender dimension that would help empower women economically. In addition, through the revolving fund, beneficiaries o f both genders would have access to improved technology (such as improved boats and equipment) not readily available in the regional market, and that existing programs would not find feasible to implement.

The proposed eligibility criteria for choosing beneficiaries will be reflected in the Manual for the revolving fund prepared by FCR. This manual, which i s a condition o f disbursement for the revolving fund, will ensure adequately loan use and timely repayment through criteria for selecting borrowers that consider credit-worthiness, including through examining cash-flow o f prospective borrowers.

D. Financial Sector Policy and Trends

Macroeconomic Framework

The overall macroeconomic framework in the country i s stable. During 2007, the f i rst year o f the new government, Nicaragua’s macroeconomic performance remained broadly favorable. Recent macroeconomic estimates suggest that economic growth in 2007 was somewhat lower than expected but st i l l good (3.8 percent versus 4.2 percent), although the annual inflation was considerably higher than projected (16 percent versus 7.3 percent). These outcomes, however, did not result from a weakening macroeconomic pol icy stance. They are rather largely attributable to several external shocks, including Hurricane Felix, an unusually heavy rainy season, and rapidly rising international prices o f basic grains and fuels. Continued improvement in growth and lower inflation (down to single digits) are expected in the medium term, underpinned by steady export growth, a favorable investment environment supported by CAFTA, and stabilizing o i l prices2’ Several vulnerabilities persist, stemming inter alia from the level o f public debt and high dollarization in the financial sector. The macroeconomic framework should be further strengthened with progress on reforms in the fiscal, energy and financial sectors aimed at fostering growth, promoting fiscal consolidation and increasing poverty-reducing spending.21

’ O A possible economic recession in the United States could, however, hamper the projected economic growth for 2008. ” Nicaragua has a PRGF agreement with the IMF that supports the continued implementation o f prudent fiscal and monetary policies. This program builds on the progress made by the country in ensuring macroeconomic stability and increasing poverty reduction spending without compromising debt sustainability.

37

Sectoral Framework

The country’s financial sector has become stronger and more consolidated in recent years. Credit to the private sector expanded rapidly after the reintroduction o f private banks in the early 1 9 9 0 ~ ~ although it suffered a set back with the banking crisis o f 2000-0 1. After a series o f mergers and acquisitions the financial sector is becoming more consolidated, growing significantly in the last few years. Recently, a new credit registry and a new private credit bureau have been established.22 Nevertheless, dollarization is considerably high, and as o f the end o f 2007,66 percent o f deposits were denominated in dollars.

The financial sector i s dominated by seven private domestic commercial banks and two private finance companies, which together provided credit to the private sector in an amount equal to 29 percent o f GDP in 2005. As noted above, access to finance is general1 limited, and long and medium term financing, especially for SMEs, i s largely unavai1able:’Credit i s mostly given for consumer loans (credit cards, mortgages, vehicles), and to a lesser degree towards the agricultural and industrial sectors. Access to banking services i s not readily available to a large share o f the population, as indicated by the relatively l o w ratio o f bank deposits to GDP (35 percent in 2005). In parallel, the microfinance sector has expanded by 26 percent per year since 1999, reaching about 350,000 clients by the end o f 2006.

As noted by CGAP, Nicaragua s t i l l lacks a strategy to build an inclusive financial system. The proliferation o f public second tier funding facilities has undermined the Government’s capacity to establish an effective policy for the financial sector and contributed to an inefficient fragmentation at the micro-level. The approximately 300 microfinance providers, 55 second-tier funding sources, and inconsistent sector policies make it difficult to improve the efficiency and general viability o f the financial system. In addition, Government’s presence among second tier financial institutions creates the risk o f ad hoc decisions based on political expediency or unsustainable goals. A recent example in Nicaragua was the forced restructuring o f loans to coffee growers in 2002, which undermined the credit culture and financial standing o f the microfinance institutions servicing this sector. As detailed below, to help address larger financial sector issues, the Bank has been supporting the Broad Based Access to Financial Services Project (P077826).

T h e Proposed Project and the Financial Sector

Specifically, the Project i s involved in the financial sector through the use o f a lending mechanism to channel funds provided by G o N (through the IDA Credit). However, the Project will initially participate in a relatively small way in the financial market, as the total contribution to the revolving fund would be approximately US$3.50 million. Rather than systemic, the relationship with the financial sector i s mainly instrumental and program- specific.

22 In part thanks to this progress, Nicaragua has improved i ts ranking in the category of “Getting Credit” in the Doing Business Report. In the 2007 report, Nicaragua ranked 48‘h in this category, which i s average for a Latin American country. 23 To facilitate credit access to SMEs, the Government plans to create a guarantee fund that wi l l partially cover the risk that formal financial institutions face when providing loans to SMEs that do not have collateral or sufficient qualifications to be considered suitable clients.

38

I t i s not likely, then, that as currently envisaged, the revolving fund will have a substantial impact on the financial sector. I t is expected that the fund will facilitate access to credit in a sustainable manner to a presently underserved region and sector o f the population. Indeed, the Nicaraguan financial sector i s neither interested nor able to provide lending for the recovery o f the small-scale fisheries sector, let alone to help improve i t s productivity and sustainability in the medium to long term. The revolving fund would also provide experience that could have demonstration effects. O n the other hand, the option o f providing grants to the affected families was rejected considering past experiences related to the incentive issues associated with free goods (Le., lack o f ownership on the part o f beneficiaries that led to lack o f maintenance, etc.), particularly in the context o f emergency recovery operations. Importantly, grant financing would not have provided the opportunity to maximize the impact o f the IDA Credit by establishing a sustainable line o f credit for poor men and women engaged in the sector.

With respect to larger financial sector issues, the proposed Project will be complemented by the IDA-financed Broad Based Access to Financial Services Project (US$7.0 mi l l ion equivalent). This project i s successfully helping to address issues o f microfinance outreach, financial infrastructure, and development o f policy frameworks in Nicaragua and the region.24 The Project’s objective i s “to improve access to financial services provided by sound, profitable financial institutions for low-income households and micro and small businesses.” Among other things, this project i s supporting the improvement o f regulation and supervision o f microfinance and credit information, and helping to monitor demand and supply o f financial services as wel l as improving access to sustainable and efficient financial services. Since this project already fulfills the need under OP8.30 to engage the government in a policy dialogue on sustainable microfinance, it has been agreed that the proposed HFERP does not need to work at this level or duplicate efforts.

E. Fund

Interest Rate Regime and Interest Rates Applied to the Project’s Revolving

In line with the objectives o f the revolving fund, the interest rate has been structured to facilitate recovery o f affected target communities, while ensuring long-term sustainability o f the fund and FCR, the second t ier financial institution administering the program. As such, the emergency part o f the credit line will be limited in time, and the program would transition into a commercial rate. This strategy would provide beneficiaries with sufficient time to re- start their fishing activities and achieve a sustained income stream, and allow FCR to establish a viable revolving fund and eventually allow commercial financial intermediation. The interest rate also takes into account that second tier institutions should price their funding above the cost o f mobilizing savings to help promote savings-based MFIs.

The average lending interest rate in Nicaragua in 2006 was 11.58 percent (according to ECLAC and EIU.) Inflation in Nicaragua in 2006, as measured by the percent change in the consumer price index, was about 9.14 percent. As noted above, the rate o f inflation i s estimated to be about 16 percent for 2007, although it i s expected to be lower in 2008. Given the rate o f inflation, both the deposit and lending rates are low. Specifically, the

24 For a full description o f the project, see the Project Appraisal Document (PAD), Report no. 28603-NI.

39

deposit interest rate in 2006 was 4.87 percent and the savings interest rate was approximately 3.2 percent. The deposit interest rate i s expected to be greater than 5 percent in 2007.25

Parameter Average financing available per group, including purchasing o f boat and working capital Loan interest rate

Payments Loan repayment period Loan reDavment grace Deriod

Keeping in mind the above figures, the interest rate to the end borrower has been calculated on the basis o f (i) initial financial intermediation through FCR; and (ii) graduation o f the revolving fund towards a commercially-based interest rate. Specifically, after the initial loans to buy boats and for working capital, the repayments will help establish the revolving fund (after a grace period o f six months during which credit beneficiaries do not pay interest). As it will be established in the Subsidiary Agreement to be signed between FCR and GRAAN, GRAAN will assume the credit risk. Table 1 below summarizes the basic financing parameters o f the revolving fund.

Value US$6 1,800 (medium-sized boats) US$6,900 (small boats) First six months (grace period) Initial round o f “emergency loans”: 5% Afterwards: a positive interest rate that ensures future sustainability of the fund (plus 2% admin costs & 1% commission) Principal plus interest monthly Up to 5 years Six months

Table 1 - Basic Financing Parameters

During the emergency recovery phase, the interest rate for credit beneficiaries will be o f 5 percent (plus a commission o f 1 percent for FCR.) All clients will be informed in written form that the subsequent loans will have a commercial interest rate. After these initial loans, the revolving fund will only provide financing for working capital and in commercial terms. In other words, markets rate will apply to the loans (with transparent subsidies such as training, insurance, and assistance to prepare proposals).

The interest rate after the emergency recovery phase will consider the official inflation rate and actual administrative and supervision costs o f FCR related to the revolving fund. This interest rate will also take into account the rate charged by FCR in the loans provided under the credit programs implemented with FCR’s own funds.

The administrative cost to be charged by FCR (currently established at 2 percent) will be assessed during the Project’s Mid-Term Review (or at the latest 18 months after Credit effectiveness) to establish if this cost i s adequate, and agree o n an adjustment if needed. It i s noted that the 2 percent o f administrative cost i s complemented with a commission o f 1

25 The deposit interest rate refers to the average rate for demand, time, and savings deposits. The savings rate refers only to savings deposits.

40

percent. Moreover, FCR i s managing other credit programs in the region, and will take advantage o f economies o f scale to reduce administrative costs across the board.

Monitoring o f the Revolving Fund’s Sustainability

Selected indicators to assess the fund’s sustainability will be included in the Manual o f the revolving fund. These indicators will include, inter alia, the repayment rate, fund capitalization, and index o f allocated loans.

FCR’s Delivery Capacity of the Credit Program

FCR has allocated resources to establish i t s presence in the region. In addition, the Broad Based Access Project will provide support to FCR for system development and staff training for the new office in Bilwi. This assistance will also help reduce the start up costs o f the revolving fund

F. Additional Issues

The boats to be provided under the credit program will serve as guarantees for the loans since they are productive and re-sellable assets. In addition to credit, FCR intends to offer l i f e and equipment insurance to help mitigate the co-variant risk faced by initial borrowers due to the region’s high vulnerability to hurricanes. As described in Annex 1, the Project will also provide credit beneficiaries with technical assistance and training on new technologies, fishing techniques, business administration, and marketing, as well as on hurricane preparedness and response.

The revolving fund wil l provide credit in-kind through the purchase o f both small and medium fully-equipped boats because these boats are not available at competitive prices in M A N . The medium-sized boats will be purchased by G U N through international shopping (although national and regional firms can compete), and the small boats through NCB. The savings in the procurement o f the boats will be passed on to the credit beneficiaries. The actual cost o f the boat i s what will be used as the basis o f the loan value.

Credit beneficiaries will be informed about their responsibilities under the revolving fund. Also, a high degree o f transparency will be promoted by making sure that up-to-date records are kept indicating which clients are receiving each type o f product. FCR i s aware that beneficiaries receiving donated supplies under the Project may be inclined to treat the in-kind loan o f the boat as a donation. To mitigate these risks, the Project’s Social Assessment and Communications Strategy will include measures to ensure that beneficiaries have been 1

informed and consulted about the project and the selection criteria for beneficiaries, and that they understand their commitments. The close fol low up to be provided to credit beneficiaries, along with training, will provide opportunities to continue fostering a repayment culture while ensuring that beneficiaries succeed in their efforts to restart their fishing activities in a more productive and sustainable manner.

41

Annex 2: Results Framework and Monitoring Nicaragua: Hurricane Felix Emergency Recovery Credit

Project Development Objective To support the sustainable :ecovery o f the communities 3ffected by Hurricane Felix in the North Atlantic Autonomous Region (MAN) of Nicaragua

Intermediate Outcomes per Component Component 1: Early Recovery Activities (PPF) Objective: timely implementation o f critical rehabilitation and recovery activities, as well as readiness o f GRAAN to start project implementation Component 2: Recovery of the small-scale Fisheries Sector Objective: To help restore, and potentially improve, the socio- economic conditions o f the men and women engaged in the small- scale fisheries sector

~

'roiect Outcome Indicators Income o f fishermen and women participating in the Project i s restored or improved At least 120% increase in sustainable fish production in the region by end o f project (from pre-disaster levels) At least 40% of beneficiaries receiving boats and fishing equipment and supplies under the Project are women At least 3,200 families living in houses rehabilitated or reconstructed to safer standards under the Project At least 40 affected communities given access to safer buildings for emergency - .

shelter through the Project [ntermediate Outcome [ndicators D At least 2,800 affected

families have their houses rehabilitated under the Project by August 15,2008

D 100% of Component 1 implemented by August 15, 2008

At least 40 associations and 110 small family enterprises with new boats and fishing equipment and supplies by end o f project A sustainable revolving fund established in FCR by end o f project to provide credit to small-scale fisheries sector Fish processing plant, shipyard and community store operated successfully by end of project At least 80% (out o f 6,000) of direct beneficiaries, and 80% of female beneficiaries are satisfied with the sector rehabilitation efforts under the Project

Use of Outcome Information To review, as appropriate, Regional Development Plan To evaluate impact of recovery investments To assess impact on small- scale fisheries sector To assess gender equity efforts

Use of Intermediate Outcome Monitoring

To assess effectiveness of early rehabilitation / recovery activities

To assess effectiveness of fisheries sector recovery strategy, and revise its implementation accordingly To allow for social auditing of the Project

42

~

Intermediate Outcomes per Component Component 3: Reconstruction of Housing and Social Infrastructure Objective: t o reestablish the social and economic environment o f affected communities through the provision o f safer and culturally-responsive housing and social infrastructure

Component 4: Institutional Strengthening for Project Management, Coordination and M&E Objective: t o strengthen the ’

institutional capacity o f GRAAN to implement the recovery emergency program, and in general, to lead regional development efforts.

Intermediate Outcome Indicators e At least 80 communities

benefiting f rom small health clinics reconstructed under the Project

benefit ing from community centers reconstructed under the Project

e At least 80% o f target families are satisfied with the rehabilitation and reconstruction activities financed under the Project

e Regional government has adequate capacity to prepare and implement externally-

e At least 25 communities

Use of Intermediate Outcome Monitoring

To assess effectiveness o f reconstruction efforts

0 To al low for social auditing o f the Project

e To measure progress on institutional strengthening an identi fy evolving HR, training

financed projects (as I and technological needs

43

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Annex 3: Summary o f Estimated Project Costs Nicaragua: Hurricane Felix Emergency Recovery Project

Table 1 - Project Costs by Component, Sub-Component and Activity Total Bank % of

(US% m) Financing Total

.................................................................................................................................................................................................................................................. Component 1 - Early Recovery (PPF) 5.00 5.00 29.4

1.1 Provision of Early Reconstruction Materials 2.00

1.2 Institutional Strengthening and Rehabilitation 3.00 0.22

(b) Support to the Executive Secretariat o f SINAPRED 0.06 (c) Rehabilitation o f Housing 2.43 (d) Early Rehabilitation o f Agriculture Sector 0.165 (e) Early Rehabilitation o f Small-scale Fisheries Sector 0.125

(a) Institutional Strengthening o f GRAAN

Component 2 - Recovery of Small Scale Fisheries Sector 6.30 6.30 37.0

2.1 Rehabilitation of Small-scale Fisheries Sector ..................................................................................................................................................................................................................................................

5.00 3.10 0.14 1.76

(a) Establishment o f Revolving Fund (b) Technical Assistance and Training (c) Restoration o f Fishing Equipment and Supplies

2.2 Rehabilitation of Fish Processing Plant and Related Facilities

(a) Rehabilitation o f Processing Plant and Facilities (b) Provision o f Init ial Working Capital (c) Reconstruction o f Small Infrastructure

1.30

0.50 0.50 0.30

Component 3 - Reconstruction of Housing and Social 5.40 5.40 31.8 Infrastructure 3.1 Reconstruction of Housing 2.50

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

3.2 Reconstruction of Social Infrastructure 2.90 1.47 1.43

(a) Reconstruction o f Community Churches and Centers (b) Reconstruction o f Small Health Clinics

.................................................................................... ......................................................................... Component 4 - Institutional Strengthening for Project 0.30 0.30 1.8 Management, Coordination and M&E ...............................................................................................................................................................................................................................................

.................................................................................................................................................................................................................................................. Total Project Cost 17.0 17.0 100

Table 2 - Project Cost by Component, Local and Foreign Project Cost by Component Local Foreign Total

US$m US$m US$m

Component 1 - Early Recovery (PPF) 3.5 1.5 5.0

Component 2 - Recovery o f Small Scale Fisheries 3.3 3 .O 6.3 Sector

Social Infrastructure Component 4 - Institutional Strengthening for 0.3 _ _ 0.3 Project Management, Coordination and M&E

Component 3 - Reconstruction o f Housing and 4.4 1 .o 5.4

................................................................................................................................................................................................................................................................?� 11.5 5.5 17.0 ..................................................................... ................................. ............................................................................................................................... Total Project Costs(*

(*) Including contingencies

47

Annex 4: Financial Management and Disbursement Arrangements Nicaragua Hurricane Felix Emergency Recovery Project

Source OPS

A financial management assessment was carried out to determine FM implementation risk and help establish adequate FM arrangements for the proposed Credit, including the PPF. Based on the assessment, recommendations and complementary actions have been provided to ensure that the Project i s implemented within a sound fiduciary environment in compliance with Bank requirements.

Amount 80,000

The Executive Secretariat o f SINAPRED will implement Component 1 and administer the PPF, while GRAAN will implement the rest o f Project components. They will be the two implementing agencies under the Credit, each one with a Designated Account, with independent accounting records, financial reporting, Disbursement Applications and external audits. A Subsidiary Agreement to be signed between GoN and GRAAN will delegate authority to GRAAN to have the second Designated Account.

Given the emergency nature o f the operation and the limited capacity o f GRAAN, this assessment aims to help establish essential FM controls and arrangements that are simple, flexible and easy to monitor. Simultaneously, recommendations and proposed actions strive to ensure that associated FM implementation risks are adequately mitigated, and that GRAAN and the Executive Secretariat will be able to provide timely and reliable information o n project resources, expenditures and activities. It i s noted that the Executive Secretariat (SINAPRED) i s already implementing the Bank-financed Natural Disaster Vulnerability Reduction Project (NDVRP, PO6491 6), and has a satisfactory FM rating according to assessments performed throughout 2007, most recently between November 16 and 17.

A. Government o f RAAN (GRAA N)

GRAAN has relative experience managing some small amounts o f external donor funds (see Table l), but has never implemented a Bank-financed project or a project o f this magnitude. The FM assessment identified several institutional weaknesses and operational constrains faced by GRAAN. The incremental work load brought by the Credit will require increased operational capacity in the Secretariat o f Finance and the Internal Audit Unit. Accordingly, an Action Plan, detailed below, has been agreed with GRAAN to help strengthen i t s financial management capacity.

Table 1 External Funds Administered by GRAAN ($US)

OXFAM France IDB Denmark BCIE-PNUD

500,000 368,000 200,000 500,000 250.000

48

G U A N also faces constrains regarding banking services. Currently, the whole region i s served by two banks (traditionally BANPRO, and very recently BANCENTRO), which only have branches in Puerto Cabezas, the regional capital. Credit funds would be channeled through BANPRO in Puerto Cabezas for payments in the region, and options to make direct payments to suppliers in Managua will be available.

Staffing

Currently, the staff in the Secretariat o f Finance includes a Financial Director, a General Accountant and three Assistants. As noted above, this staff has no direct experience with Bank-financed projects, although over the last few years they have been managing externally-funded initiatives and become familiar with their procedures. Before effectiveness, and with financing from the Project, GRAAN will contract a Disbursement Officer and a General Accountant with experience in Bank-financed projects. In addition, GRAAN will contract an Internal Control Specialist to enforce the DAI Office o f the GRAAN. Specialized training for the staff dealing with FM and disbursements will be delivered once the additional personnel are in place.

Accounting System

GRAAN will use the Project Financial Management Information System (SIGFAPRO) (also being used by the Executive Secretariat o f SINAPRED) and will report based on cash basis. SIGFAPRO will be implemented over the next two months for the accounting record o f the other projects. Meanwhile, GRAAN will use a basic accounting system to record and report the financial operations.

SIGFAPRO is hosted by MHCP, and includes modules for planning, budgeting, procurement, treasury, accounting, and reporting. Monitoring and evaluation o f physical and financial progress will be done using M S Project.

Pro-iect Financial Reporting. O n a quarterly basis, GRAAN will prepare and submit to the Bank Interim Financial Reports (IFRs) containing: (i) Statement o f Sources and Uses o f Funds (with expenditures classified by disbursement category) and Cash Balances; (ii) Statement o f Budget Execution (with expenditures classified by subcomponent); along with the reconciliation o f the segregated account with project records and with the Budgetary execution in SIGFA. The IFRs will be submitted to the Bank not later than 45 days after the end o f each quarter. This review will enhance FM supervision, enabling a periodic control over project accounts that will complement the planned supervisions, thus helping to mitigate fiduciary risk.

External Audit

An external, independent, private firm acceptable to the Bank will be contracted not later than six months after Credit effectiveness to cover Components 2, 3, and 4 o f the Credit execution. The reports will cover the calendar year and the f i rst wil l be irregular to include any portion o f the funds executed in 2007. The fiscal period i s the calendar year. The audited financial statements shall be presented to the Bank not later than six months o f the end o f the

49

fiscal period that coincide with the calendar year. The Terms o f Reference (TOR) o f the external audit would require carrying out at least two preliminary visits to the project during each implementation year.

Audit Report 1) Project Financial Statements 2) Special Opinions

Summary Reports (UIFRs) (used for disbursement purposes) 0 Designated Account (Special Account)

Social Audit and Monitoring

Due Date June 30 June 30 June 30

June 30

The Project M&E will include social auditing and monitoring by beneficiaries and civil society organizations (CSOs) to ensure transparency and accountability. Carrying out o f an accountability workshop with beneficiaries and stakeholders has been proposed to map the demands regarding accountability and promote consensus on social accountability mechanisms.

Internal Control

The Secretariat o f Finance i s subject to the control o f the Internal Audit Department o f GRAAN and the Country’s General Comptroller (Contraloria General de la Republica), and i s periodically subjected to internal audit work. Under international standards, a specific internal audit plan with quarterly reports would be conducted with the coordination and supervision o f the IA Unit.

Flow o f funds

For this part o f the Credit, GRAAN wi l l use a Designated Account (DA) in dollars, under traditional mechanism o f replenishment by SOE method, with a proposed ceiling o f US$1,200,000, and wi l l also make use o f direct payments and reimbursements. The segregated account wi l l be located at the Central Bank o f Nicaragua under the control o f Treasury from where the funds wi l l be transferred to the GRAAN’s operative account (Fondo Rotatorio) to finance expenditures made or to be made within 30 days. The limit for this advance i s 5 percent o f the given annual budget. The option o f GRAAN ordering Treasury to make direct payments to suppliers i s also available.

Under the Credit, the following disbursement methods may be used: 0 Reimbursement 0 Advances 0 Direct payment

Financing Categories: Consistent with the flexibility envisioned in OPBP 8 .OO, the financing options identified are:

50

0

Bank financing up to 100 percent o f eligible project expenditures, including recurrent and local costs and taxes; Retroactive financing up to 40 percent for payments made by the borrower up to 12 months prior to the expected date o f signing o f the financing agreement

Given OP8.00, approved May 10, 2005, 100 percent Bank financing i s proposed for the Credit.

The proposed Categories to be financed are as follow:

Table 3 - CI

Expenditure Category

(1) Goods, works, consultants’ services, non- consultant services, Training and operating Costs for Part 1 o f the Project

(2) Goods, works, consultants’ services, non- consultant services, Training and operating Costs for the Project (except for Parts 2.A and 2.C o f the Project)

(3) Working capital under Part 2.A o f the Project (Revolving fund)

(4) Goods, works, consultants’ services and non- consultant services for Part 2.C o f the Project (rehabilitation o f Lamlaya Plant, shipyard and small community store)

(5) Project Preparation Facility

lit Proceeds Amount o f the

Credit Allocated (in SDR million)

3.15

3.65

0.45

0.30

3.15

Total I 10.70

Percentage of Expenditures to be

Financed 100%

100%

100%

100%

100%

I

B. Credit Rural Fund (Revolving Fund)

FCR will administer the revolving fund to be established under Component 2 o f the Project. In compliance with OP8.30, an institutional assessment o f FCR has already been conducted and FCR found to be a suitable financial intermediary to administer the Revolving Fund (RF). In addition, a Management Manual will be completed by FCR as a condition o f disbursement for the fund, which will include the fund’s Operational Rules (Reglamento Operativo). The Manual will require the no objection o f the Bank supervision team, including the F M specialist.

51

For control purposes, the Revolving Fund (RF) to be administered by FCR should have two commercial bank segregated accounts: one specifically designated for the l ine o f credit (is the one that receives funds from the Designated Account) and the other one for the amortization and repayments. A monthly reconciliation o f each account i s required. Disbursements to the RF will be quarterly and in local currency (Cordobas). SOE will be customized identifying the beneficiary contract and type o f credit. The signing o f the agreement GRAAN-FCR i s a condition o f disbursement for the RF.

Risk

C. Risk Assessment and Mitigation

Risk Risk Mitigating Measures Rating

Risk Rating

Budgeting, Accounting, S Internal Control Funds Flow S

Financial Reporting, S Auditing

Overall FM risk i s rated as Substantial. The FM design, which includes a series o f additional measures, responds to the identified risk and proposes a suitable supervision strategy. The adequacy o f FM arrangements would be continuously monitored during project supervision, and adjustments made when necessary to ensure fiduciary compliance. Table 4 presents the risk assessment and mitigating measures incorporated into Project design and the FM implementation arrangements.

Implementation o f SIGFAPRO

Segregated account in dollars, under traditional mechanism o f replenishment by SOE method

0 Quarterly Reports. Accountability workshops with project beneficiaries and

Table 4 - Risk Assessment and Mitigation Measures

FM Risk civil society in the region.

S

Country Level Entity Level Project Level

M to S M S

Provision of software, computers and equipment Add Financial Specialist and Internal Auditor Consultants under the Secretariat of Finances and IA Unit Prepare chapter on FM procedures to be included in the Operations Manual Relevant staff to attend specific FM & Disbursement training Contract external audit for the entire implementation period o f the project

52

Financial Management Action Plan

Action

1. Contract Financial Specialist and Internal Auditor Consultants 2. Finalize the modifications to the FM section o f the Operations Manual 3. Finalize draft TORS for External Audit 4. Implement SIGFAPRO

5 . Contract external auditors, based on short l i s t satisfactory to the Bank for the entire

An Action Plan has been agreed with GRAAN to ensure that adequate FM systems are in place before implementation begins. The detailed activities are presented in Table 5.

Responsible Completion Datez6

Secretariat o f February, 2008

SF-GRAAN March, 2008

SF-GRAAN February, 2008

Entity

Finance-GRAAN

DEGETECEF- March, 2008

SF-GRAAN March, 2008 GRAAN

Table 5 - Action Plan for GRAAN

implementation period o f the project. 6. Provide specific training in FM & World Bank February-March, Disbursements: for project FM Staff I2008 1

D. SINAPRED (Component 1 and PPF)

Risk Assessment and Mitigation

As mentioned in the FM assessment o f the NDVRP, the risk with respect to the Executive Secretariat i s considered to be Modest to Substantial. For Component 1 and PPF administration, the DAF o f the Executive Secretariat will use the same organizational structure, staff - although additional staff may be considered - financial system, internal audit, funds flow, and Project financial reporting designed in the FM assessment o f the NVRP. The Secretariat’s personnel already have experience with Bank disbursement procedures, including use o f the designated account.

Accounting System

The Secretariat will use SIGFAPRO and will report based on cash basis. SIGFAPRO i s currently used by SINAPRED for the accounting record o f other projects.

Pro-iect Financial Reporting. On a quarterly basis, SINAPRED will prepare and submit to the Bank Interim Financial Reports (IFRs) containing: (i) Statement o f Sources and Uses o f Funds (with expenditures classified by disbursement category) and Cash Balances; (ii) Statement o f Budget Execution (with expenditures classified by subcomponent); along with the reconciliation o f the segregated account with project records and with the Budgetary

26 This column presents the estimated completion date, and i s not an indication o f legal conditions.

53

execution in SIGFA. The IFRs will be submitted to the Bank not later than 45 days after the end o f each quarter. This review will enhance FM supervision, enabling periodic control over project accounts which combined with regular supervisions will help mitigate fiduciary risk.

1) Project Financial Statements 2) Special Opinions

External Audit

Due Date June 30 June 30

An external, independent private firm acceptable to the Bank will be contracted during the f i rs t three months o f the operation to cover the entire PPF and Component 1 execution. The audited financial statements shall be presented to the Bank not later than six months o f the end o f the fiscal period that coincide with the calendar year.

0 Summary Reports (UIFRs) (used for disbursement purposes) 0 Designated Account (Special Account)

Internal Control

June 30

June 30

SINAPRED i s periodically subject to internal audit work as it i s under the purview o f the Internal Audit Department o f the Office o f the President o f Nicaragua and SA1 (General Comptroler - Contraloria General de la Repziblica). A review o f previous audits indicates that SINAPRED has a good compliance record addressing the recommendations o f the internal auditors.

Flow of funds

For Component 1, the Executive Secretariat o f SINAPRED will use a segregated account in dollars, under traditional mechanism o f replenishment by SOE method, with a proposed ceiling o f US$ 1,000,000. I t will also make use o f direct payments and reimbursements as in the case o f the retroactive financing. The segregated account will be located in the Central Bank o f Nicaragua under the control o f the Treasury f rom where the funds will be transferred to SINAPRED’s operative account (Fondo Rotatorio) to finance expenditures made or to be made within 30 days. The limit for this advance i s 5 percent o f the given annual budget. The option o f SINAPRED ordering the Treasure to make direct payments to suppliers i s also available.

The following disbursement methods may be used: 0 Reimbursement 0 Advances

Direct payment

54

Financing; Categories: Consistent with the flexibility envisioned in OP 8.00, the financing options identified are:

Expenditure Category

(1) Goods and Operating Costs under Part A

0 Bank financing up to 100 percent o f project expenditures, including recurrent and local costs and taxes; Retroactive financing up to 40 percent for payments made by the borrower up to 12 months prior to the expected date o f signing o f the financing agreement (US$2 million under the PPF)

Amount o f the PPF Percentage of Allocated Expenditures to be

(in US$ million) Financed 2.0 100 Yo

Project Preparation Facility (PPF). The proposed categories to be financed under the PPF are as follows:

Total 5 .O

(retroactive financing)

(2) Goods, works, consultants’services, Training and Operating Costs under Part B

3 .O 100 %

The PPF fimds wi l l be included in the budget for 2008.

D. Supervision Strategy

Initial project supervision will be intense, with at least two missions during the f i rst semester o f implementation. Moreover, fiduciary staff o f the Country Office will provide close support to the institutional strengthening process o f GRAAN, and rapid follow up to GRAAN’s needs for F M guidance and support. Table 8 shows details o f the FM supervision strategy.

55

Table 8 - FM supervision Strategy

Type Timing Visit Two times f i rst

Mechanism 0 bj ec tives Integrating project team supervision Review FM system. Special

semester. Later twice per year.

IFR Review

Audit Review

missions.

Quarterly. Also Over the IFR submitted to the Quarterly reports Bank. consistency and from Internal Audit Consultant Annually Over the Audit Report submitted to Review Audit Report.

Review FMR information

reconciliation o f accounts.

the Bank

Account Reconciliation. Uses o f funds. Follow up on External Audit recommendations / issues raised. Review staffing.

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Annex 5: Procurement Arrangements Nicaragua: Hurricane Felix Emergency Recovery Project

A. General

Procurement for the proposed project would be carried out in accordance with the World Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits" dated M a y 2004, revised in 2006; and "Guidelines: Selection and Employment o f Consultants by World Bank Borrowers'' dated M a y 2004, revised in 2006, and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the Credit, procurement methods or consultant selection methods, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

The Bank will advance US$5.0 mi l l ion through a PPF, o f which (a) US$2.0 mi l l ion will provide retroactive finance for materials (excluding food expenditures) and operating costs related to Hurricane Felix's relief and early disaster rehabilitation efforts; and (b) US$3 mi l l ion will finance institutional strengthening and rehabilitation o f housing (mainly re- roofing and minor repairs) and early rehabilitation o f the agricultural and small fisheries sectors. Part (b) o f the PPF will be done in accordance to procurement procedures acceptable to the Bank, and therefore, it will subject to prior review.

Procurement o f Works: There will be small and medium works procured under this project. I t involves rehabilitation and reconstruction o f small piers and community landing docks, community churches, community centers and small health clinics. I t also includes rehabilitation o f a fish processing plant and related shipyard and community fishing supply store.

Procurement of Goods: Goods procured under this project would include: construction materials, fishing boats, equipment and supplies, motors, fuel products, ice plant, ice containers, electric plant, solar panels, medical equipment, health clinic equipment, compressors, machinery and tools, computers and office equipment, vehicles, and agricultural items. Procurement will be done using the Bank's SBD for al l I C B and National SBD, agreed with or satisfactory to the Bank. Contracts for goods estimated to cost less than US$25,000 per contract, may be procured using the Shopping (National/International) procedures based on a model request for quotations satisfactory to the Bank.

Selection o f Consultants: Consultant services procured under this project are expected to include technical assistance and expertise, promotion services for communities, project monitoring and evaluation, project financial audits and supervision o f activities and community organization activities.

57

Short l i s ts o f consultants for services estimated to cost less than US$lOO,OOO equivalent per contract may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines.

Non-Consulting Services: These services include transportation o f materials and printing o f manuals and other similar materials.

Selection o f Training Providers: Training providers can be individual trainers/consultants, NGOs, public training institutions, universities and training firms. A technical evaluation committee will review the quality o f the proposal based on predefined criteria (eligibility criteria, curriculum, prior training experience and performance, training facilities, and training needs). The contracting will be done using a standard contract agreed with or satisfactory to the Bank.

Operating Costs: Operational cost such as expenditures for project administration, salaries o f non-permanent staff, utilities/communication, field visits, fuel, mechanical services and products processing labor will be financed by the credit. N o operating costs related to the fish processing plant, shipyard and small community fishing supply store will be financed under the Credit.

B. Assessment o f the agency’s capacity to implement procurement

Procurement activities for Component 1 will be carried out under the responsibility and oversight o f the Executive Secretariat o f SINAPRED, and the activities under the rest o f Components under the Government o f M A N (GUAN). The Executive Secretariat o f SINAPRED has been implementing the Bank-financed Natural Disaster Vulnerability Reduction Project since 2001. As reflected in the NDVRP’s ISRs, Bank procurement specialists consider the Executive Secretariat’s performance satisfactory.

A procurement capacity assessment o f GRAAN’s Procurement Unit, under the Secretariat o f Administration, was carried out on November 20, 2007. This unit was created on November 23, 2005, and i s currently handling seven projects financed by the Government o f Sweden, UNICEF, GTZ and GoN.

In the case o f GRAAN, the review o f randomly selected activities revealed that the methods used were the National Competitive Bidding, Shopping and direct contracting based on the registry system. This last method imposes a restriction upon interested suppliers/contractors as they have to register in order to participate in the bidding process. The review also revealed that the price o f the bid i s published - two elements that are not acceptable to the Bank. All procurement processes are presently approved by the regional Governor.

Staffing: At present only one person is responsible for the procurement o f project activities. Under the Credit, capacity will be increased with an additional procurement person.

Procurement Risk. Considering the issues above, the overall project procurement risk i s l&&. The risk would be mitigated with the implementation o f the recommended measures

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and an Action Plan (detailed below) that emphasizes the probity aspects o f procurement and the capacity levels o f the additional staff to be hired to help implement the project.

Action Plan

Action Timeframe

1 Project Launch workshop on Bank- After negotiations financed procurement to address project implementation as well as procurement arrangements, Bank procurement guidelines and procedures and client connection.

2 Submission o f the Operations Manual. Credit effectiveness Manual should be adjusted and submitted to the Bank for review, and no objection should be issued. This Manual should include a procurement chapter with details on responsibilities to carry out the procurement, including signing o f the contracts for each o f the project activities.

3 Contract an experienced procurement After negotiations person for the project.

4 Agree o n bidding documents to be used on N C B for procurement o f goods and works. for each category

After Negotiations or before the first activity

during the approval o f the Specific Procurement Plan

5 Training in procurement By effectiveness

Prior review thresholds and supervision plan. Considering the risk assessment rating, the proposed prior review thresholds for the project are for contracts with equivalent value equal to o more than US$ 100,000 for goods, works and equal to or more than US$50,000 for consulting services with f i rms; and equal to or more than US$25,000 for individual consultants. All ICBs and single source o f consulting services as well as direct contracting shall be prior reviewed by the Association regardless o f the amount involved.

The size o f the sample for post-review will be 1 in 5 as average. This figure may be adjusted during project implementation depending on the performance o f the agency and the results o f the reviews.

Procurement Plan. A procurement plan will be prepared for the project and will form the basis for procurement. The Plan will be updated every six months to reflect changes in the procurement process. The procedures used for each type o f procurement would be consistent with those described in the Credit Agreement, in the Project Paper as well as with the

59

stipulations o f the Operations Manual. The revisionshpdates in the Procurement Plan would be agreed with the Association prior to i t s implementation.

1 1 2

D. Frequency of Procurement Supervision

3 4 1 5 1 6 7 8 9

In addition to the prior review supervision to be carried out from the Association’s office, the capacity assessment o f the Implementing Agency has recommended two post-review missions for the f i rst two years o f project implementation.

Ref. No.

E. Details o f the Procurement Arrangements Involving International Competition

Contract Estimated Procureme P-Q Domestic Review Expected Comments (Description) Cost (US$) nt Preference by Bank Bid-

Date Method (yesho) (Prior / Post) Opening

Fishing 2,400,000 I C B No N Y boats

1. Goods and Works, (a) List o f contract packages to be procured following I C B and direct contracting:

(b) Contracts estimated to cost above US$lOO,OOO for goods and non-consulting services per contract and al l direct contracting will be subject to prior review by the Bank.

2. Consulting Services. (a) L i s t o f consulting assignments with short-list o f potential international f i rms.

(b) Consultancy services by f i r m s estimated to cost the equivalent or more than U S $ 50,000 per contract, single source selection o f consultants (firms), and individual consultants for assignments estimated to cost the equivalent or more than US$25,000 will be subject to prior review by the Association.

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

2

F. Threshold for Procurement Methods and Prior Review (in US$ thousands)

Goods and Non- consulting services

Expenditure Category 7

3 3.A

3 .B

Works

l l

Consultant Services Firms

Individuals

Control Value (Threshold)

>100,000 <100,000 <25 > loo >50 4 0 0 <25

>50 6 0 Regardless o f Value

>25 <25

Regardless o f Value

Procurement Method

ICB NCB 3 Quotations ICB NCB Shopping

QCBS, LCS,CQS,QBS Idem

Single Source

Comparison o f 3 CVS Chapter V o f Guidelines

Single Source

Contracts Subject to Prior All First Two First Two All All First two

All TOR(by TTL) All

All (by TTL) TOR (by TTL)

All (by TTL)

Note: QCBS = Quality-and Cost-Based Selection LCS = Least-Cost Selection CQS = Consultant's Qualification (Firms) QBS = Quality-Based Selection

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Annex 6: Implementation and Monitoring Arrangements Nicaragua: Hurricane Felix Emergency Recovery Credit

The emergency recovery strategy, including the Project, will be coordinated by GRAAN. GRAAN will implement Components 2, 3 and 4 directly. The Executive Secretariat o f SINAPRED will implement Component 1 (and execute the PPF) and FCR will administer the revolving fund under Component 2. The key agencies providing support to the Project are INVUR, M A G F O R and MINSA (Components 1 and 3), and INPESCA and INATEC (Component 2).

A. Project Coordination and Management

The region’s Governor (officially known as the Regional Government Coordinator) will lead the coordination effort with the support o f two committees:

Project Coordination Committee (PCC) chaired by the Governor and integrated by the minister or director (or their delegates) o f the Executive Secretariat o f SINAPRED, MINSA, FCR, INPESCA, INVUR, MAGFOR, and CDC. The PCC will provide overall strategic and policy guidance to the Project, promoting transparency and aicountability o f project activities while ensuring inter-institutional coordination and collaboration. Some specific functions o f this committee will be (i) to maximize opportunities for inter- institutional collaboration, including fostering consensus between co-executing agencies and providing guidance to individual agencies’ role in the Project; (ii) to oversee the implementation o f challenging activities such as the revolving fund.

Project Advisory Committee (PAC) including senior officials from SETEC, the Ministry o f Finance (MHCP), and the Ministry o f Foreign Affairs (MINREX). The P A C will help GRAAN with overall project fol low up, general budgetary matters, and technical or critical issues affecting the Project.

As shown in Figure 1 below, project management will be fully integrated into the institutional structure o f GRAAN. The Executive Director will be the Project Manager, while the Director o f the Finance Secretariat will be the Project FM Director and the Director o f the Planning Secretariat will be the Project Technical Director. This structure will be complemented with a Project Technical Coordinator that will help the Project Manager oversee project implementation.

The Technical Director will be supported by a Technical Committee and the FM Director by a Financial Management Committee including qualified officials from the co-executing agencies. The FM Director will also receive advisory services from the Executive Secretariat o f SINAPRED. Based on the fiduciary assessments and technical demands o f the various activities, the Regional Government’s Project team will be strengthened with the technical and fiduciary expert support needed to ensure that GRAAN has adequate capacity to implement the Project. All o f GRAAN’s secretariats will contribute to project implementation as needed. However, in addition to the Planning, Administration and

62

Finance secretariats, SITINP and SERENA will play key roles regarding technical and environmental issues, respectively.

Project Coordination Committee

MINSA, FCR, INPESCA, INVUR, MAGFOR, CDC

(Governor o f RAAN) Overall Coordinator and President o f PCC

GRAAN, ES-SINAPRED,

Figure 1 - Project Coordination and Implementation Arrangements

Advisory Committee: SETEC, MHCP, MINREX.

Credit Committee: -Project Coordinator -FCR -INPESCA -Fishermen’s Rep. -Women’s Rep.

Technical Committee (GUAN, Co-Executing agencies)

Project Manager ( G U N Executive

Director)

Project Technical Coordinator

Technical Director ( G U A N Director o f Planning)

I Technical support

1

Financial Director ( G U A N Director o f Finance)

I

F-t support

r

Financial Management Committee (GUAN, Co-Executing Agencies)

Implementation:

63

B. Activity Implementation

Component 1

The Executive Secretariat o f SINAPRED will implement Component 1 , coordinated by G U A N and supported by the relevant co-executing agencies. Specifically, housing reconstruction (mainly re-roofing and minor repairs) will be supported by INVUR, early rehabilitation o f the agriculture sector (focusing on distribution o f seed and other inputs) by MAGFOR, and early rehabilitation o f the small-scale fisheries sector (including provision o f small outboard motors) by INPESCA. Supervision o f the rehabilitation o f housing under Component 1 would be the responsibility o f SITINP o f GRAAN, with support from INVUR.

Component 2

GRAAN wi l l implement Component 2 with support from INPESCA, and INPESCA will team up with INATEC to provide training to project beneficiaries. To ensure effective provision o f technical and supervision support to GRAAN during project implementation, INPESCA has established a regional office in Puerto Cabezas. This office includes specialists on the fisheries sector, in addition to the Monitoring and Control Director, which INPESCA agreed to transfer to the region for the duration o f the project.

The Revolving Fund The revolving fund will be administered by FCR, in close coordination with GRAAN and INPESCA. Decisions regarding the revolving fund wi l l taken by the Credit Committee, and the Project Coordination Committee. The Credit Committee will be integrated by representatives o f GRAAN, FCR, INPESCA and a man and a woman representing the beneficiaries.

Component 3

Implementation o f activities under Component 3 wi l l be the responsibility o f SITINP o f GRAAN, with support from INVUR. To help coordinate this effort, GRAAN established an Inter-institutional Infrastructure Committee. This committee includes SITINP and the Secretariat o f Municipal Affairs (SAM) o f GRAAN, RAAN Public Investment Unit (UTIP), the Municipality o f Puerto Cabezas, the Nicaraguan Municipal Development Institute (INIFOM), INVUR, and FISE.

Housing reconstruction will be a community-driven effort in partnership with local governments. In the case o f social infrastructure, Community Overseeing Committees wi l l be established to provide close follow up to the reconstruction works.

B. Monitoring and Evaluation

The Project’s Monitoring and Evaluation (M&E) framework will be detailed in the Operations Manual. This framework has been developed taking into account that this i s an emergency operation where M&E o f results should be cost efficient while providing sufficient basis to assess the impact o f recovery efforts in the affected communities. For example, given the region’s characteristics and post-disaster context o f the Project,

64

establishing baselines may be difficult and costly. O n the other hand, given the Project’s focus on communities’ needs and priorities, it i s essential to provide means for social auditing through periodic surveys and consultation meetings.

GRAAN, through the Secretariat o f Planning, will be responsible for the overall management and implementation o f the M&E framework, with support from key agencies such as INVUR, INPESCA and FCR. Component 4 includes financing for making the framework operational, including, inter alia, establishment and maintenance o f a beneficiaries’ database, field visits, surveys, consultation meetings, and independent studies or evaluations. The Bank will provide support through an M&E Specialist who will be part o f the project supervision team.

Regarding monitoring o f marine resources, a key baseline to be established is the post- hurricane state o f fish stocks o f f the coast o f affected areas. Results from the assessments conducted by INPESCA and FA0 would be useful inputs.

Design o f the database o f beneficiaries, a key tool for project monitoring, will be started soon. It should be ready by the start o f project implementation, initially containing available information from government and other sources, including the assessment o f disaster impacts. The database should contain basic social and economic information, as wel l as expected activities and benefits relevant to each group o f beneficiaries. Any major information gaps will be addressed by visiting the specific community.

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Annex 7: Project Preparation and Appraisal Team Members Nicaragua: Hurricane Felix Emergency Recovery Project

Name Title / Specialty Unit

Enrique Pantoja Alejandro Alcala August0 Garcia Carlos F. Siezar Coleen Littlejohn Enrique A. Roman Gabriela Vaz Rodrigues Joaquin Tor0 Josefina Stubbs Kennan W. Rapp Ketty Morales M ia Overall Mary Lisbeth Gonzalez Mary Lou M. Veizaga Patricia de la Fuente Hoyes Teresa M. Roncal

Consultants German Escobar Gisela Durand Joel Zamora Cortes Julio Ricardo Hernandez Manuel Besterrechea Margarita Arguello Osmar E. Velasco Reyna Garcia Sunita Varada

Peer Reviewers Jelena Pantelic A.D.C. Godavitarne Keeran Keleher Michael Arbuckle

Michael Goldberg

Sr. Land Administration Specialist, TTL Counsel Sr. SD Operations Officer Sr. Project Officer Sr. Operations Officer Financial Management Specialist Junior Professional Associate Hazard Risk Management Specialist Sr. Social Development Specialist Safeguard Specialist Language Program Assistant Junior Professional Associate Sr. Social Development Specialist Procurement Analyst Sr. Finance Officer Operations Analyst

Project Management Systems Costing and Project Management Indigenous Peoples Microcredit and revolving funds Environment and Natural Resources Project Coordination and Design Post-Disaster Reconstruction Organizational Development Microcredit

Disaster Risk Management Emergency Recovery Operations Fisheries Fisheries

Compliance with OP/BP 8.30

LCSAR LEGLA LCCSD LCCNI LCCNI LCSFM LCSAR LCSUW LCSSO LCSSA LCSAR LCSSD LCSSO LCSPT LOAFC LCSAR

LCSAR LCSUW LCCNI LCSAR LCSAR LCSAR LCSUW LCSAR PRMPR

AFMCF EASCS ARD ARD

LCSPF

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Annex 8: Environmental and Social Safeguards Framework Nicaragua: Hurr icane Felix Emergency Recovery Project

The proposed Project should have positive social and environmental impacts if the recovery o f affected communities is sustainable, and their resilience in the face o f future disasters i s increased. Many o f these communities faced difficult conditions before the disaster, and ideally, an emergency recovery process based on “building back better” should result in measurable improvements at a l l levels. In this context, it is critical for the Project to deal effectively with any environmental and social issue raised by project activities while also taking into account the general challenges faced by the region in this respect.

A. Environment

The Project i s considered Category B partial Assessment and OP 4.01 (Environmental Management) i s triggered. An Environmental Assessment (EA) and Environmental Management Plan (EMP) will be prepared to ensure that environmental safeguard issues are adequately dealt with during Project implementation. Both documents will be part o f the Operations Manual.

Project Location and M a i n Physical Characteristics

The Project will focus on the affected municipalities and communities o f RAAN, whose territory includes 33,000 square kilometers o f Nicaragua’s Atlantic coast region. The Atlantic region, which RAAN shares with M A S , comprises about 43 percent o f the country’s territory and 11 percent o f i t s population. A large rainforest crossed by several large rivers covers the region, characterized by a hot and humid climate and a sparse yet multi-ethnic, multi-cultural and multi-lingual population.

The environment in the region has been under increasing pressure due to the advance o f the agricultural frontier, deterioration o f the quality o f many forests due to selective exploitation o f commercial trees, and generalized lack o f natural resources management. Hurricane Felix had substantial impacts o n the vulnerable regional environment. I t devastated almost 500,000 hectares o f regional forest, leaving many trees on the ground, as wel l as large areas o f the region’s coastal ecosystem, estuaries and lagoons. In particular, before making landfall, it hit hard the Cayos Miskitos, one o f the richest areas for fisheries in Nicaragua (lobster and fish) and a unique marine ecosystem that ensures food security and the economic livelihoods for roughly 30 indigenous communities on the Northern Coast o f the RAAN.

The Project will cover the six most affected municipalities (out o f the total o f eight that constitute the region): Puerto Cabezas, Rosita, Siuna, Bonanza, Prinzapolka and Waspam. 27 However, the bulk o f Project activities will benefit selected communities o f Puerto Cabezas, the most affected municipality. Component 2 will directly benefit the 19 coastal communities affected by Felix, o f which nine are located in Puerto Cabezas, eight in Prinzapolka and two in Waspam.28 Priority wil l be given to the six most affected communities, a l l o f which are

27 The other two municipalities are Waslala and Mulukuku. 28 These communities include, in Puerto Cabezas: Sandy Bay (with 10 sub-communities), Dakura, Awastara, Pahara, Krukira, Tuapi, Bilwi, Karata, and Wawa-bar; in Prinzapolka: Prinzapolka, Kuanwatla, Ariswatla, Layasiksa, Walpasixa,

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located in Puerto Cabezas. Under Component 3, reconstruction o f housing will benefit two communities, while reconstruction o f community churches five communities. All these communities are also in Puerto Cabezas.

Legal and Institutional Framework

Environmental management in Nicaragua i s legally framed by the General Environmental and Natural Resources L a w (1 996) and the Organization, Competencies and Responsibilities for the Executive Power Law (1998).29 For the Project, it i s also relevant to consider the Fishing and Aquaculture L a w (2004), which regulates exploitation o f marine resources. The existing legal framework gives the responsibility for environmental conservation and protection to MARENA (although some hnctions are delegated to the regional level through SERENA). Among other things, MARENA grants environmental permits, including the preparation o f an Environmental Impact Assessment (EIA) which requires consideration o f disaster risk and vulnerability. Responsibility for the promotion o f sustainable land use and management o f forest resources i s shared between MARENA and MAGFOR. An important area for the Project i s under the Ministry o f Development, Industry and Commerce (MIFIC), which grants permits for natural resource use including marine resources. Sector agencies such as the Agricultural Technology Institute (INTA) and INAFOR, and the regional Secretariat o f Natural Resources and Environment (SERENA) and municipal environmental management units, are operationally relevant to the project.

Safeguard Issues and Potential Environmental Impacts

Analysis o f Proiect Activities and Works The Project mainly includes small-scale c iv i l works to be executed in already settled and mainly rural areas. Under Component 1 , housing rehabilitation involves replacement o f zinc roofs and minor repairs, while housing reconstruction under Component 2 will be based on traditional design and materials. In both cases, safer building standards that consider disaster risk will be applied, and a community-driven process will be followed. As such, i t will be the beneficiaries themselves who will drive the process, and contribute with their labor under the guidance o f trained foremen and other skilled labor. The process will help implement a model to be replicated across the region. Component 3 includes small rehabilitation and reconstruction works o f social infrastructure, namely, community centers and churches, community landing docks and piers, and small health clinics. These works will be executed by local contractors applying safer standards. These contractors will also receive training on safer standards while communities wil l help oversee the process. Under Component 2, the Project includes medium civ i l works to rehabilitate the Lamlaya Fish Processing Plant and ancillary facilities including a shipyard and small community fishing supplies store. All the rehabilitation works will be done within the current area occupied by the existing structures and their working areas.

Haulover, Wounta, and Kukalaya; and in WaspBm: Bismuna and Cab0 Gracias. The six most affected coastal communities are Sandy Bay, Dakura, Awastara, Pahara, Krukira, and Tuapi. *’ Several Executive Decrees have enhanced the legal framework over time, including, among others, the Decree establishing the System for Environmental Impact Assessment.

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Component 2 includes support to the small-scale fisheries sector to help restore the income o f men and women living in the 19 affected coastal communities. The activity i s based on assessments by INPESCA and intense consultation with potential beneficiaries o f both genders. If successful, it would make the sector’s production more efficient and sustainable by increasing the capture o f several abundant fish species, while reducing pressure o n shrimp and lobster resources.

Anticipated Environmental Impacts In general, no large scale, significant and/or irreversible impacts are expected from project implementation. As described above, most o f the works included in the project are o f a small scale and would likely correspond more closely to a Category “C” impact rating. The potential environmental effects generated by the reconstruction o f the houses and small social infrastructure are l ikely to result principally from the disposal o f rubble and other byproducts o f construction. Future operation o f the five small health clinics, however, poses some environmental risk as they will offer small surgery and natal care services. To address this, MINSA has prepared acceptable plans for the management o f solid waste (including medical wastes) and standards for the construction o f each clinic, which would include a sanitary cell and small incinerator.

The rehabilitation works o f the fish processing plant and related facilities will produce rubble, dust and noise. However, this impact will be temporary and minimal as only three families l ive close by to the plant. Future impacts include solid and liquid waste and odor emissions. Before the rehabilitation works can start, GRAAN, as the Project’s Implementing Agency, i s required to obtain an environmental permit from SERENA before works can start. SERENA also requires an environmental impact assessment and an environmental management plan that addresses these and related issues. Such documents will be available for review and clearance o f the Bank.

The proposed activity to restore the incomes o f affected fishermen and women requires close attention due to i t s potential effects o n the region’s marine resources. The small-scale fisheries sector represent 75 percent o f total marine resources captured in MAN, equivalent to over 2.3 mi l l ion pounds in 2006 (the rest o f regional production, or 656,000 pounds i s considered the result o f industrial fishing). According to recent assessments, the Nicaraguan Caribbean Coast has the potential to produce 12 mi l l ion pounds per year. Although under the Project fishing would st i l l remain substantially below any level that would threaten the sector’s sustainability, the long-term risk o f over-fishing remains, particularly considering the impact that the hurricane had on the region’s coastal ecosystem, estuaries and lagoons. Post- hurricane assessments indicate a severe depletion o f marine l i fe ’s stocks, which INPESCA and other relevant agencies are closely monitoring. The Government’s emergency recovery strategy includes the preparation and implementation o f a plan to rehabilitate al l affected ecosystems o f the region. The Food and Agricultural Organization (FAO) has also prepared several post-hurricane assessments and studies. Evaluation o f the way the ecosystem i s recuperating from the hurricane’s impact will continue over the l i f e o f the project. Specifically, the EA will consult on, and then incorporate, measures to reduce the risk o f over-fishing in the long term, including that which could come from the shift in emphasis from shellfish to finfish.

69

Screening The initial screening o f works to be included under the Project indicates that the majority falls within the threshold o f Category “C.” As noted above, the fish processing plant and shipyard will require a specific EIA and EMP. The final screening o f works will be reflected in the Project’s EA and acceptable procedures to deal with any potential effects reflected in the Operations Manual.

At this stage, it has been agreed that the Project wil l not include rehabilitation and reconstruction works when: 0

0 Works require resettlement Works are located in protected areas

Works are located in high hazard-risk areas

B. Social

The Project triggers O P B P 4.10 (Indigenous Peoples). Given the social characteristics o f the Project area (detailed below), the majority o f Project beneficiaries would be indigenous people. As such, the Project would be in full compliance with OP/BP 4.10 in so far as the measures to counteract potential adverse impacts on and provide culturally compatible benefits to targeted indigenous community members as described in this Project Paper. The Project has been prepared following intense community consultations that correspond to the first phase o f the required Social Assessment. These consultations have helped to establish a framework for continuous consultation and participation during project implementation. The final Social Assessment will take the form o f a report that documents the overall consultation process and identifies, among other things, the measures that will be implemented to address potential social risks, ethnic conflicts, gender inequities, and institutional weaknesses relevant to the Project’s stakeholders and the region in general. In addition, a communications strategy i s being prepared to ensure that communities are well informed about the Project, i t s various programs, and the criteria for the selection o f beneficiaries. The Social Assessment will also confirm the broad support that exists among targeted communities for the proposed project activities.

Local Capacity Building The Project would contribute to strengthen the local economy by building local capacities. Technical and financial support would be provided to help rehabilitate the shipyard and fishing supply community store to ensure affordable access to boat repairs as wel l as fishing equipment and supplies. Simultaneously, the revolving fund would seek to build the entrepreneurial ski l ls o f men and women while promoting diversification o f products and capture o f previously unexploited fish species and applying international quality control standards to facilitate access to markets.

Characteristics o f Target Communities

M A N , the general Project area, is predominantly a multi-cultural and multi-ethnic region with a majority o f population o f indigenous/ethnic origin. Given these characteristics, based on self-identification, over 98 per cent o f the project beneficiaries will be indigenous peoples, regional and local government institutions are led and managed by indigenoudethnic people,

70

and local NGOs and CSOs are also the representative bodies o f local indigenoudethnic people.

Siuna

Mulukuku Waslala Total

According to recent estimates, RAAN and R A A S concentrate the majority o f indigenous population o f the country, which stands at 8.2 percent o f total population. Most o f these communities are highly vulnerable socially and economically, particularly given that M A N and RAAS have the highest levels o f poverty and extreme poverty in Nicaragua. As shown in Table 1 below, it i s estimated that o f the 308,438 inhabitants o f MAN, 56.64 percent are mestizos, 36.18 percent Miskitus, 5.93 percent Sumu-Mayangna3’ and 1.15 percent Creoles. The Miskitu live in about 300 communities across six o f the region’s municipalities, although mainly concentrated in Puerto Cabezas, W a s p h and Prinzapolka. The Sumu-Mayangna i s the second largest indigenous group in the Nicaraguan Caribbean Coast. It i s divided into (i) the Panamakha, located in the municipalities o f Siuna, Bonanza y Waspan, (ii) the Tawahka, located in the municipality o f Rosita along the Bambana River, and (iii) the Ulwas, who concentrate in the communities o f Karawala and Kara in RAAS. The Creoles are a black group who speaks English, concentrated in Bilwi. Finally, the mestizos, who started to arrive in RAAN in the middle o f the last century to work in banana plantations and gold mining, are more widespread, although with some concentration in Siuna, Waslala, Rosita, and to a lesser extent in Bonanza.

18,205 2,812 102 4,328 80,387 5,040 15,9 98,7% 0,6% 0,1% 0,6%

79,342 470 80 482 Na na na Na Na Na Na

47,068 1,329 35,4 100 308,438 32,820 994 56,64?40 36,18% 1,15% 5,93%

174,598 111,511 3,506 18,270

Target Communities under Component 2

The rapid socio-economic analysis conducted in the 19 most affected coastal communities indicates that the majority o f the population i s Miskitu. In many communities, women are more numerous than men, and in general are fully engaged in the economic activities o f the community. Average income level per month among people engaged in the fisheries sector

30 The name Sumu, from Miskitu origin, seems to be a derogatory term that means “uncivilized indian” and therefore it i s currently rejected by many members of this people, who prefer the name Mayangna, which means “We.”

71

in these communities would be between US$lOO to US$300. Table 2 below summarizes the main characteristics o f these communities.

Municipality / Community

Population Share of Indigenous / Total Number Share o f Ethnic Group Directly Women in the

Engaged in the Sector

Municipality o f Puerto Cabezas 1. Sandy Bay I 19,500 1 Miskitu 96%; Mestizo I 1,027 I 10%

15, Layasiksa 16. Walpasixa

17. Haulover

18. Wounta (includes 2 communities) 19. Kukalaya

I (includes 10 sub- I 1 3%; Creole 0.9%; I I I

1,650 (55% women) Mostly Miskitu 56 ma. 1,600 92% Miskitu; 5.4% 112 12.5%

800 Miskitu 90%; Mestizo 130 27.7%

Wounta Bar: 1,800 Mostly Miskitu 161 (in Wounta 34.78% (60% women) Bar) Haulover: 1,100 1,000 Mostly Miskitu n.a n.a

Mestizo; 2.6% Creole

9.7%; Creole 2.3%

Direct beneficiaries o f Component 2 would be about 4,500 men and women engaged in small-scale fishing and who were adversely affected by the hurricane. In addition, the component would benefit women who were acopiadoras - they used to buy and process lobster in the Cayos Miskitos, but lost this income generation opportunity due to the disaster. These women are affiliated under the Association o f Pikinera Women o f the Nicaraguan Atlantic Coast (AMUPCAN) (see Box 1 below for additional details).

72

Box 1 - Association of Pikinera Women of the Nicaraguan Atlantic Coast (AMUPCAN) AMUPCAN i s an association created in 2002 by women (known in the region as Pikineras) who were buying and processing lobster in the Cayos Miskitos to se l l it in Bilwi (Puerto Cabezas). These women decided to organize themselves in the face o f a potential prohibition to their commercial activities. As per the Civ i l Society Participatory Law (Law 479, AMUPCAN operates legally as a

l community-based association through a license provided by the municipality o f Puerto Cabezas. In addition, AMUPCAN has been certified by the Tawira Territorial Authority (that covers 12 coastal communities, including the Cayos Miskitos) and the Government o f RAAN. AMUPCAN has a Board o f Directors o f eight members, including a President, a Vice President, a Treasurer, and a Secretary. Presently, AMUPCAN has about 1,500 members, most o f whom are Miskitas who live and work in the coastal communities o f M A N .

Indicador Caribbean Coast Country Maternal Mortality (per 100,000) 293 RAANl144 RAAS 83 Illiteracy Rate (for 10 years and up): 3 1.2 % men 21.7 % (a) Men and Women 3 1.6% women 20.4 % (b) Women (rural vs. urban areas) 44 % rural 31.9 %

20 % urban 12.0 % Life Expectancy o f Women 68 years 72 years Fertilitv Rate 6.1 RAANI4.6 RAAS 3.9 Use o f Birth Control by Women Access to safe or drinking water (Implies that 80% o f women invest 5 years o f their l i fe carrying water)

3 5 % (RAAN) 19.7 %

8 % (Siuna y Rosita)

67 % 58.7 %

73

Consultation and Participatory Mechanisms

The Project will use as consultation mechanisms those characteristic o f the indigenous communities living in the Project area, including those established under the Autonomous Regional Law.31

Indigenous Peodes. The Constitution o f the Republic o f Nicaragua recognizes indigenous territories and their communities as autonomous and subject to collective rights. The Constitution also recognizes the territories’ community-based organizations and decision- making mechanisms as the basis to organize their society culturally and politically, and to manage natural resources.

Indigenous communities in RAAN have several decision making mechanisms, including: (a) the Community Council, integrated by traditional community leaders, which i s in charge o f key decisions when the Communal Assembly i s in recess; (b) the Communal Assembly, which i s the maximum authority in and legal representative o f the indigenous and ethnic communities; and (c) the Territorial Assembly, the maximum authority in the territory, elected on the basis o f communities’ traditional processes and customary law.

Central and Regional Institutional Framework Four institutional levels interact at the regional level: at the f i rs t level are the indigenous communities and comarcas campesinas, with the traditional structures o f decision making and o f electing leaders and representatives discussed above. At the second level are the municipalities with their respective authorities (mayor and municipal council) elected every four years.32 The third level i s constituted by the region and i t s governmental entities: the Regional Government and the Regional Council (with 45 members) that elects the Government Coordinator (or Regional Governor). These authorities are also elected every four years. The fourth level i s the central government.

Three consultation and participatory mechanisms are available at the local level: the Development Municipal Council, Development Territorial Councils, and Community Development Councils. These development councils are complemented by the Regional Development Committee (CODER), which has the mandate to coordinate program planning and implementation and foster community participation.

The Regional Council has established mesas paritarias sectoriales to facilitate consensus on sectoral objectives, strategies and policies. 33 These mesas bring together the central government, multi and bilateral donors, and sector agencies from various government levels. The Council for the Development o f the Caribbean Coast (CDC), a coordination mechanism created by the current administration, includes leaders and/or representatives f rom

3 ’ The Statute o f Autonomy for the Two Autonomous Regions o f the Nicaraguan Caribbean Coast (Law 28 of 1987) recognizes the political and legal rights o f the indigenous peoples and ethnic communities o f the Project area. 32 The legal framework establishes that in the autonomous regions municipal authorities must respect the communal property rights and traditional and formal authorities of indigenous and ethnic communities located within their jurisdiction. 33 The following sectoral mesas are active in RAAN: forestry and agriculture, environment, health, and education, while infrastructure and finance are being organized.

74

indigenous and ethnic communities, as well as social, religious and community organizations.

C. Other Safeguard Issues

Other safeguard issues relevant to the project include resettlement and physical cultural resources.

Involuntary Resettlement OP/BP 4.12 i s not triggered since the Project will not finance any activity requiring resettlement. Most works will consist o f rehabilitation or reconstruction o f small structures in their current locations, while no additional land i s needed for the rehabilitation o f the processing plant and shipyard. If for reasons related to disaster risk, territorial planning or a community decision, a new location for a small structure were necessary, the selection process for the new site will be done with community participation and agreement, in coordination with the concerned local government. This represents not just the most practical option, but also the most culturally compatible one because in most Project areas the land i s communally owned (even though not al l land has been demarcated or titled) and accepted traditional practices for the allocation o f land for social infrastructure already exist.

Physical Cultural Resources The Project does not require deep or large excavations. As such, it is not expected to have any negative impact on physical cultural resources, such as movable or immovable objects, sites, structures, groups of structures, natural features or landscapes with archeological, paleontological, historical, architectural, religious, aesthetic, or other cultural significance. Nevertheless, this policy i s triggered because the nature o f the works, as wel l as the areas were they will be implemented in s t i l l makes it possible for such resources to be turned up accidentally. Accordingly, the Operations Manual will incorporate procedures for handling “chance finds” in which, among other things, a project activity will be stopped if any material i s found that may be considered to have some historical or cultural significance, and an appropriate Project official will be notified. The area in which the material was found will be marked and the evidence preserved for analysis. The work will not continue if a cultural resource i s found.

D. Safeguard Preparation and Supervision Plan

As per OP 8.00 (Rapid Response to Crises and Emergencies), emergency recovery operations are subject to accelerated, consolidated, and simplified procedures and streamlined ex-ante requirements. As such, preparation o f required assessments i s phased into the early stages o f project implementation, while safeguard supervision is intensified. Accordingly, an environmental assessment (EA) and environmental management plan (EMP), as well as a social assessment (SA), are being prepared for the Project, following the processes described below.

75

Environment

As summarized in this Annex, a brief environmental analysis o f project components and activities was undertaken during appraisal, in coordination with the regional government. Terms o f Reference (TOR) for the EA and EMP have been prepared, and funds provided under the PPF for their preparation. These documents will be part o f the Operations Manual, which will also describe detailed procedures for the fulfil lment and enforcement o f environmental management requirements related to the different types o f works to be executed under the Project. Rehabilitation activities for the processing plant and shipyard will not start until the specific environmental impact assessment and management plan have been completed and received the Bank’s no objection.

Social An initial analysis o f Project stakeholders, institutional framework and social characteristics o f the Project area was conducted during appraisal, and summarized in this Annex. The Project’s Social Assessment i s being undertaken in two phases. The first phase was conducted during Project appraisal through intensive community consultations. Under the leadership o f the regional and central government, indigenous leaders, women’s organizations, church representatives and local government authorities were invited to help identify the most urgent needs o f the communities, and to provide init ial guidance on criteria for the selection o f project beneficiaries and activities. The second phase will consist o f a full-fledged social assessment to be undertaken during the next months to inform the implementation o f Components 2 and 3. TORS for this assessment have been prepared and funds also made available under the PPF.

Supervision Supervision o f safeguards will be conducted by both the Bank’s project team and GRAAN, supported by SERENA and monitored by MARENA and I N A F O R when applicable. The Bank team will work closely with the Technical Coordinator and the Director o f Planning o f GRAAN during the design phases o f the works. During these phases, environmental classifications will be confirmed and procedures applied as established in the Operations Manual.

During the execution o f works, the environmental officer o f the M A N and the Planning Director (in his role o f Project’s Technical Director) will conduct environmental inspections and oversight to ensure compliance. The Bank team will make site inspections as needed to ensure that environmental management requirements are being enforced. Acceptance o f completed works will be managed by the Director o f Planning, who will report on environmental compliance in the semi-annual project progress reports sent to the Bank for review.

In the course o f i t s site inspections, the Bank team will also ensure that beneficiaries o f both genders and al l ethnic groups are being consulted and participating in key decisions and activities. The team will furthermore assess the role and participation o f communities in overseeing, monitoring and evaluating (social auditing) works and impacts related to the recovery activities.

76

Annex 9: Documents in Project Fi le Nicaragua: Hurr icane Felix Emergency Recovery Project

Government Documents

Consejo de Desarrollo de la Costa Caribe. 2007. Plan Nacional de Desarrollo de la Costa Caribe de Nicaragua.

INPESCA. September 2007. Exploracion Evaluativa de 10s Cayos Miskitos Posterior a1 Paso del Huracan “Felix”.

INPESCA. December 2007. Propuesta para e l Apoyo a1 Sector Productivo Pesquero de M A N .

Specialized / International Sources

Inter-American Development Bank. July 2007. Nicaragua: Analisis Ambiental de Pais.

United Nations. September 2007. Nicaragua Hurricane Felix Flash Appeal

World Food Program. July 2005. Food Security and Livelihoods in the Autonomous Atlantic Regions

W o r l d Bank Documents

Ayuda Memoria. Mision de Preparacion del Proyecto, 18 a1 23 de septiembre, 2007.

Ayuda Memoria. Mision de Preparacibn del Proyecto, 19 a1 23 de noviembre, 2007

Setter Agreement No. 45960. Advance for Preparation o f Hurricane Felix Emergency Recovery Project. December 2007

External Institucional Evaluacion del Fondo de Credit0 Rural. World Bank. 2007

Microfinance and Disaster Risk Management: Experiences and Lessons Learned. World Bank. 2002.

77

Annex 10: Statement o f Loans and Credits

Nicaragua: Hurricane Felix Emergency Recovery Credit

Original Amount in US$ Millions

Difference between expected and actual

disbursements

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

PO89989 2006 NI Rural Telecom 0.00 7.00 0.00 0.00 0.00 7.22 2.06 0.00 PO87046 2006 NI 2nd Agricultural Technology Project 0.00 12.00 0.00 0.00 0.00 6.56 -1.84 0.00 PO83952 2006 NI (CRL) Roads Rehab & Maintenance I V 0.00 60.00 0.00 0.00 0.00 55.55 11.29 0.00 PO78991 2005 NI - (AF’L2)HEALTH SECTOR I1 0.00 11.00 0.00 0.00 0.00 3.73 0.24 0.00 PO78990 2005 NI -EDUCATION 0.00 15.00 0.00 0.00 0.00 8.35 5.69 0.00 PO78891 2004 NI PUBLIC SECTOR TA 0.00 23.50 0.00 0.00 0.00 5.25 3.05 0.00 PO77826 2004 NI Broad-Based Access to Finan Services 0.00 7.00 0.00 0.00 0.00 6.10 4.02 0.58 PO75 194 2003 NI Off-Grid Rural Electrification 0.00 0.00 0.00 4.02 0.00 2.87 3.83 2.96 PO73246 2003 NI Offgrid Rural Electrification (PERZA) 0.00 12.00 0.00 0.00 0.00 5.49 3.76 2.15 PO56018 2002 NI LAND ADMINISTRATION PROJECT 0.00 32.60 0.00 0.00 0.00 17.95 8.58 -3.31 PO64916 2001 NI Natural Disaster Vulnerability Reduc 0.00 13.50 0.00 0.00 0.00 1.56 -0.26 -0.26

Total: 0.00 193.60 0.00 4.02 0.00 120.63 40.42 2.12

NICARAGUA STATEMENT OF IFC’s

Held and Disbursed Portfolio In Millions o f U S Dollars

Corn m itted Disbursed

IFC IFC

FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic.

2004 Confia 3.50 0.00 0.00 0.00 3.50 0.00 0.00 0.00 2006 FINDESA 2.00 0.00 3.00 0.00 0.00 0.00 0.00 0.00

International. .. 10.00 0.00 0.00 0.00 10.00 0.00 0.00 0.00 1999 SEF Dicegsa 0.08 0.00 0.00 0.00 0.08 0.00 0.00 0.00

Total portfolio: 15.58 0.00 3.00 0.00 13.58 0.00 0.00 0.00

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic

Total pending commitment: 0.00 0.00 0.00 0.00

78

Annex 11: Country at a Glance

Nicaragua: Hurricane Felix Emergency Recovery Credit POVERTY and SOCIAL

La t in Lower. Amer l ca mlddle.

Nicaragua (L Carlb. I n c o m e 2006 Population, mid-year (miiiions) 5.2 GNI per capita (Alias method, US$) 980 GNI (Allas method, US$ billions) 5.1

Average annual growth, 2000.06

Population (Yd 11 Laborforce (w 2.3

M o s t recen t es t ima te ( l a tes t year aval lable, 2000-06)

Poverty (%of populalion belo wnalionalpovertyiine) Urban population (%of lolalpopuialion) 59 Life expectancyat birth (pars) 70 Infant mortality (perlOOOlive births) 30 Chiidmalnutrition (%of children under5j 0 Access to an improved water source (%ofpopulation) 79 Literacy (%ofpopulationage 159 77 Gross primary enrollment (%of schooi-age population) 112

Male i-3 Female 10

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1986 1996

GDP (US$ billions) 2.9 3.3 Gross capital fonnationlGDP 6.9 25.8 Exports of goods and serviceslGDP 12.8 20.0 Gross domestic savingsIGDP 6.8 6.5 Gross national savingsIGDP 6.6 13

Current account baianceiGDP -24.5 -24.9 Interest paymentsIGDP 0.7 2 2 Total debtiGDP 234.6 79.5 Total debt service/exports 14.3 26.4 Present value of debtIGDP Present valueof debtiexports

1986-96 1996-06 2006 (average annual gmvdh) GDP 0.8 3.7 4 3 GDP percapita -16 2.3 3.6 Evor ts of goods and services 2.4 6.7 9.5

556 4,767 2,650

13 2 1

76 73 26

91 90 16 PO 16

2006

4 9 29 6 29 1 -0 1 143

-15 4 0 9

0 5 9 6 7

413 77 5

2,276 2,037 4,635

0.9 14

47 71 31 13 81 89 i-3 17 in

2006

5.3 29.4 31.1 -0.5 0 .3

-8.1

2006 2006-10

3.7 4.5 17 14

a.5 7.6

l e v e l o p m e n t diamond'

Life expectancy

GNI Gross per primary capita enrollment

Access to improvedwatersource

-Nicaragua Lowr-middie-income group

i c o n o m l c ra t l os '

Trade

Capital formation

Domestic savings

Indebtedness

-Nicaragua ~ Lo wr-middie-inco me group

STRUCTURE o f t he E C O N O M Y

(%of GDP) Agriculture Industry

Services M anufactunng

1986 1996

26.6 25.0 42.9 27.1 35.4 18.0 58.4 50.5

Household final consumption expenditure .. 82.9 General gov't final consumption expenditure 912 0 .6 Imports of goods and services 20.8 39.2

(average annualgrovdhj ~griculture industry

Services Manufactunng

1986-96 1996-06

-0.3 3.8 -2.4 4.5 -3.8 4.7 0.8 4.1

Household final consumption expenditure 6 6 4 1 General gov't final consumption expenditure -15 1 2 0

Imports of goods and services 17 5 2 Gross capital formation 12 O B

2006

8 . 1 29.9 18.7 56.1

88.9 112

56.6

ZOO6

3.9 5.7 6.5 3.7

3.5 1.0

5.6 6.2

2006

8 7 29 5 6 5 56 3

88 6 119

610

2006

4 2 2 5 5 3 4 6

3 5 5 7

-0 5 6 1

Growth o f cap i ta l and GDP (Oh) I 10

0

- 10 -20

I -GCF b G D P I

Growth o f exports and Impor t8 (Oh)

20 T

10

0

Note 2006 data are preliminary estimates This table was producedfrom the Development Economics LDB database 'Thediamonds showfourkey indicators in thecountry(in bold) compared with its income-groupaverage If data are missing thediamondwll

be incomplete

79

Nicaragua

P R I C E S and G O V E R N M E N T F INANCE

Domest lc pr lces (%change) Consumer pnces implicit GDP deflator

Government f h a n c e (%of GDP indudes current grants) Current revenue Current budget balance Overall surplusldeficit

T R A D E

(US$ miilions) Totalexports (fob)

Coffee Shrimpand lobster Manufactures

Total imports (cif) Food Fuel and energy Capital goods

Export pnce index(2000=WO) Import pnce index(2000=00) Terms of trade (200O=WO)

B A L A N C E o f P A Y M E N T S

(US$ millions) Exports of goods and services Imports of goods and sewices Resource balance

Net income Net current transfers

Current account balance

Financing items (net) Changes in net reserves

M e m o : Reserves including gold (US$ millions) Conversion rate (DEC, loca//US%)

1986

600.0 2815

1986

248 la

9 33

756 98

127 218

0 0

0 6

I986

277 836

-559

-149 0

-708

505 203

3.02E-8

E X T E R N A L DEBT and RESOURCE FLOWS

(US$ millions) Total debt outstanding and disbursed

1986

6,771 iBRD 200 IDA 60

Total debt SeNlCe 40 IBRD 0 IDA 0

Compositionof net resource flows Official grants 61 Official creditors 766 Pnvate creditors 6 Foreign direct investment (net inflows) 0 Portfolio equity(net inflows) 0

Commitments 0 Disbursements 0 P nncipal repayments 0 Net flows 0 Interest payments 0 Net transfers 0

Worid Bank program

~

1996

116 9.6

17.2 3.8

-2.4

1996

467 1'5 75

0 7 1,154 241 176

290

72 65 la

1996

723 1375 -652

-324 150

-826

879 -53

8 7 8.4

1996

5,961 44

335

2 8 22

4

6 8 a 5 -4

9 0 0

61 69 18 51 8

43

2005

9.4 9.4

18.1 4.4

-5.2

Z O O 5

664 f26 86

423 2,623

640 544 509

0 7 156 87

2005

1960 3,404 -1444

-P7 824

-747

793 -46

727 '5.7

2 0 0 5

5.144 0

1,06

172 0 7

468 '54

17 241

0

11 63

0 63

7 56

2006

0 6

8 8 3 4

-3 9

2006

1027 201 86

490 2 988

735 681 550

152 176 86

2006

2 3 8 3 905 -1586

-124 856

-855

986 - 0 2

922 176

2006

0 256

0 a

0 52 5

47 5

42

Inflation (Oh] 15

10

5 I'j -GDPddlator -CPi

Export and Import leve ls (US$ mlll.) '"""TI 3,000

2,000

1.000

0

Current account balance to G D P (Oh)

0

5

.10

-15

.20 I

1-25 1

/Composl t lon o f 2005 debt (US$ mill.]

~ 0: 538

A . IBRD E. Bildasl E. IDA D . Other mlti ldasl F . Private C-IMF G - Short4eri

Note: This table was producedfrom the Development Economics LDB database. 9/28/07

80

Annex 12: Country Map Nicaragua: Hurr icane Felix Emergency Recovery Project

81

4 Sept.4 Sept.

5 Sept.5 Sept.

4 Sept.

5 Sept.

BilwiBilwi

WASPAMWASPAM

BONANZABONANZA

SUINASUINA

WASLALAWASLALA

ROSITAROSITA

PUERTOPUERTOCABEZASCABEZAS

PRINZAPOLKAPRINZAPOLKA

MULUKUKUMULUKUKU

REGIREGIÓN AUTN AUTÓNOMANOMADEL ATLÁNTICO NORTEDEL ATLÁNTICO NORTEJINOTEGAJINOTEGANUEVANUEVA

SEGOVIASEGOVIA

ManaguaManagua

TegucigalpaTegucigalpa BilwiTegucigalpa

Managua

ELSALVADOR

N I C A R A G U A

H O N D U R A S

C O S TA R I C A

REGIÓN AUTÓNOMADEL ATLÁNTICO NORTE

REGIÓNAUTÓNOMA

DEL ATLÁNTICO SUR

CHONTALES

BOACO

MATAGALPA

JINOTEGANUEVASEGOVIA

ESTELÍ

MADRIZ

LÉON

MANAGUA

CHINANDEGA

MASAYA

GRANADA

CARAZO

RIVASRÍO

SAN JUAN

WASPAM

BONANZA

SUINA

MULUKUKUWASLALA

ROSITA

PUERTOCABEZAS

PRINZAPOLKA

P A C I F I C O C E A N

C a r i b b e a n

S e a

85°W

85°W15°N 15°N

Area of map

HONDURAS

NICARAGUAEL SALVADOR

GUATEMALA

MEXICO BELIZE

COSTARICA

P A N A M A

COLOMBIA

JAMAICA

P A C I F I C

O C E A N

C a r i b b e a n

S e a14°

10°

90° 86° 82°

10°

14°

18°18°

78°

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.

CENTRAL AMERICA

EMERGENCY PROJECT

AFFECTED COUNTRIES

AFFECTED AREAS

RIVERS

MAIN TOWNS/VILLAGES

DEPARTMENT CAPITALS

NATIONAL CAPITALS

MUNICIPALITY BOUNDARIES

DEPARTMENT BOUNDARIES

INTERNATIONAL BOUNDARIES

HURRICANE FELIX TRACK:

TROPICAL DEPRESSION

TROPICAL STORM

CATEGORY 1 HURRICANE

CATEGORY 2 HURRICANE

CATEGORY 3 HURRICANE

CATEGORY 4 HURRICANE

CATEGORY 5 HURRICANE

IBRD 35858R

JANUARY 2008

Sources: UNCS, SALB, Global Discovery, Reliefweb.

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150 225 300 Kilometers