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

OFFICIAL USE ONLYIDA/R2007-0252/1

October 11, 2007

Streamlined ProcedureFor meeting of

Board: Tuesday, October 30, 2007

FROM: Vice President and Corporate Secretary

Bolivia - Bolivia Land for Agricultural Development Project

Project Appraisal Document

Attached is the Project Appraisal Document regarding a proposed credit to the Republic of Bolivia for a Bolivia Land for Agricultural Development Project (IDA/R2007-0252). This project will be taken up at a meeting of the Executive Directors on Tuesday, October 30, 2007 under the Streamlined Procedure.

Distribution:

Executive Directors and AlternatesPresidentBank Group Senior ManagementVice Presidents, Bank, IFC and MIGADirectors and Department Heads, Bank, IFC and MIGA

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Document o f The World Bank

FOR OFFICIAL USE ONLY

Report No: 41 07 1 -BO

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT

IN THE AMOUNT OF SDR 9.8 MILLION (US$15 MILLION EQUIVALENT)

TO THE

REPUBLIC OF BOLIVIA

FOR A

LAND FOR AGRICULTURAL DEVELOPMENT PROJECT

September 27,2007

Sustainable Development Bolivia, Ecuador, Peru, Venezuela 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. I t s contents may not otherwise be disclosed without World Bank authorization.

CURRENCY EQUIVALENTS

(Exchange Rate Effective July 20, 2007)

BPRSP BDP CAD CAS CSCB CODAL CIDOB CSUTB

FMR GOB IF1 INRA IPDP MDRAMA

MFE NAFIBO PA PCU PIP PNAT PPF S I L SOE TOR

Currency Unit = Boliviano (BOB)

US$ = SDR1 7.87BOB = US$1

FISCAL YEAR January 1 - December31

ABBREVIATIONS AND ACRONYMS

Bolivia Poverty Reduction Strategy Paper Banco de Desarrollo Productivo (Productive Development Bank) Consejo Agrario Departamental (Departmental Rural Council) Country Assistance Strategy Confederacidn Sindical de Colonizadores de Bolivia (Labor Confederation o f Bolivian Colonizers) Consejo de Desarrollo Agrario Local (Local Rural Development Council) Confederaci6n de Pueblos Indigenas de Bolivia (Confederation o f Indigenous Peoples o f Bolivia) Confederacidn Sindical Unica de Trabajadores Campesinos de Bolivia (Unique Labor Confederation o f Rural Workers o f Bolivia) Financial Management Report Government o f Bolivia Institucidn Financiera Intermediaria (Institution for Financial Intermediation) Instituto Nacional de Reforma Agraria (National Land Reform Institute) Indigenous Peoples Development Plan Ministerio de Desarrollo Rural, Agricultura y Medio Ambiente (Ministry o f Rural Development, Agriculture and Environment) Microfinance Enterprise Nacional Financiera Boliviana S.A.M. Producers Association Project Coordinating Unit Project Investment Plan Proyecto Nacional de Administracidn de Tierras (National Land Administration Project) Project Preparation Facility Specific Investment Loan Statement o f Expenditures Terms o f Referente

Vice President: Pamela Cox Country ManagedDirector: Carlos Felipe Jaramillo

Sector Manager: Ethel Sennhauser Task Team Leader: Malcolm D. Childress

FOR OFFICIAL USE ONLY BOLIVIA

Land for Agricultural Development Project . CONTENTS

Page

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

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

Higher level objectives to which the project contributes .................................................... 3

1 . 2 . 3 .

B . PROJECT DESCRIPTION .................................................................................................. 4 . . 1 .

2 . 3 . 4 . 5 .

Lending instrument .............................................................................................................. 4 Project development objective and key indicators ............................................................. - 4 Project components .............................................................................................................. 5 Lessons learned and reflected in the project design ............................................................ 6

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

C. IMPLEMENTATION ........................................................................................................... 7 1 . 2 . 3 .

Partnership arrangements .................................................................................................... 7 Institutional and implementation arrangements .................................................................. 8 Monitoring and evaluation o f outcomeshesults and the land access question .................... 9

4 . Sustainability ....................................................................................................................... 9

Critical risks and possible controversial aspects ............................................................... 10

Credit conditions and covenants: ....................................................................................... 13

5 . 6 . * .

D . APPRAISAL SUMMARY .................................................................................................. 13 1 . Economic and financial analyses ....................................................................................... 13 2 . Technical. .......................................................................................................................... 14

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

4 . Social ................................................................................................................................. 16

5 . Environment ...................................................................................................................... 16

6 . Safeguard policies .............................................................................................................. 17

7 . Policy Exceptions and Readiness ...................................................................................... 17

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

Annex 1: Country and Sector or Program Background .......................................................... 18

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies .................. 23

Annex 3: Results Framework and Monitoring ......................................................................... 24

Annex 4: Detailed Project Description ...................................................................................... 27

Annex 5: Project Costs ................................................................................................................ 44

Annex 6: Implementation Arrangements .................................................................................. 45

Annex 7: Financial Management and Disbursement ............................................................... 50

Annex 8: Procurement Arrangements ...................................................................................... 61

Annex 10: Safeguard Policy Issues ............................................................................................. 77

Annex 11 . Executive Summary of Social Impact Study .......................................................... 82

Annex 12 . Social Assessment Consultation Matrix ................................................................ 103

Annex 13: Project Preparation and Supervision .................................................................... 132

Annex 14: Documents in the Project File ................................................................................ 133

Annex 15: Statement of Loans and Credits ............................................................................. 134

Annex 16: Country at a Glance ................................................................................................ 136

Annex 17: Map N o . IBRD 33374 .............................................................................................. 138

BOLIVIA

Source

BOLIVIA LAND FOR AGRICULTURAL DEVELOPMENT PROJECT.

PROJECT APPRAISAL DOCUMENT

LATIN AMERICA AND CARIBBEAN

LCSAR

Local Foreign Total

Date: September 27, 2007 Country Director: Carlos Felipe Jaramillo Sector Managermirector: Ethel SennhauserLaura Tuck administration (25%)

Team Leader: Malcolm D. Childress Sectors: General agriculture, fishing and forestry sector (75%);Sub-national government

Themes: Other rural development (P);Indigenous peoples (S) Environmental screening category: Partial Assessment Safeguard screening category: Limited impact

Project ID: PO87925

Lending Instrument: Specific Investment Loan

BORROWEIURECIPIENT INTERNATIONAL DEVELOPMENT ASSOCIATION Total:

Project Financing Data [ 3 Loan [XI Credit [ 3 Grant [ 3 Guarantee [ ] Other: Loan

0.63 0.00 0.63 15.00 0.00 15.00

15.63 0.00 15.63

For Loans/Credits/Others: Total Bank financing (US$m.): 15.00 ProDosed terms: Standard with 35 vears maturitv

[ ]Yes [XINO Does the project depart from the CAS in content or other significant respects? Ref. PAD A. 3 ~~ ~ ~~.

Does the project require any exceptions from Bank policies? Ref. PAD D. 7

I s approval for any policy exception sought from the Board? Does the project include any critical risks rated “substantial” or “high”? Re$ PAD C.5 Does the project meet the Regional criteria for readiness for implementation? Ref. PAD D. 7

[ ]Yes [XINO

[ ]Yes [XINO

[ X ]Yes [ ] No

[XIYes [ ] N o

Have these been approved by Bank management? [ ]Yes [ I N 0

Project development objective Ref. PAD B.2, Technical Annex 3 The development objective o f the proposed project i s to establish a decentralized beneficiary-driven land distribution mechanism that allows organized landless or poor farmers to acquire suitable agricultural lands and implement investment subprojects which puts them on a sustainable, higher-income, livelihood path. Project description [one-sentence summary of each component] Ref. PAD B.3.a, Technical Annex 4 The project has three components. The first component consists of a revolving line o f credit to finance land purchases. Productive Associations will be responsible for repayment o f the land acquisition loans and the acquired lands will serve as collateral (US$ 5. 2 million approximately). The second component i s for the provision o f matching grants for infrastructure and productive investments on the purchased lands (US$ 8.5 million approximately). The third component covers project management, technical assistance, and monitoring and evaluation (approximately US$ 2.0 million). Which safeguard policies are triggered, if any? Ref. PAD 0.6, Technical Annex 10 Environmental Assessment (OP/BP/GP 4.01) Natural Habitats (OP/BP 4.04) Indigenous Peoples (OD 4.20, being revised as OP 4.10) Forests (OP/BP 4.36)

Significant, non-standard conditions, if any, for: Ref. PAD C. 7 Board presentation: None Loadcredit effectiveness: There are two effectiveness conditions:

(a) the establishment of the accounting and financial management system for the project satisfactory

(b) the administration agreement between the Government and BDP (Productive Development to the Association;

Bank). Covenants applicable to project implementation:

(a) adoption o f the Operational Manual no later than three months after effectiveness; (b) appointment o f independent auditors no later than three months after effectiveness.

A. STRATEGIC CONTEXT AND RATIONALE

1. C o u n t r y and sector issues.

1. The administration o f President Evo Morales, elected in December 2005 with a clear majority o f votes and representing groups that have been excluded for centuries allied under the Movimiento a1 Socialismo (Movement to Socialism, MAS), provides Bolivia with an opportunity to build a more inclusive society. The new government faces numerous, serious development challenges. The history o f ethnic exclusion and control by a small elite has left Bolivia with a deeply fractured society afflicted by one o f the highest levels o f poverty and inequality in Latin America. Despite some improvements, social indicators in health, education, and access to basic services l ike water and sanitation continue to be low. Private investment and economic growth picked up in the 1 9 9 0 ~ ~ but have fallen again as a result o f the socio-political unrest o f the last few years and the current uncertain outlook pending the definition o f the new government’s approach in key sectors.

2. Although poverty in Bolivia transcends rural-urban divides, it remains particularly severe in rural area. In 2002, about 84 percent o f rural inhabitants (2.7 million) were income-poor and 67 percent (1.8 million) lived in extreme poverty. These groups have benefited l i t t l e from the exploitation o f natural resources in the past (silver, tin, oil and natural gas). Furthermore, the implementation o f the 1996 agrarian reform law has not lived up to expectations for addressing inequality in access to land, thus keeping the issue among the priorities for policy attention. Land distribution and access to productive resources are viewed as playing a key role in addressing inequality in Bolivia’s s t i l l largely rural economy. The issue i s an important plank in the program o f the MAS government. In November 2006, Congress passed Law No. 3545, (Ley de Reconduccidn Comunitaria de la Reforma Agraria-Law o f the Community-Based Redirection o f the Agrarian Refom) modifying the 1996 agrarian reform law in an effort to streamline i t s implementation and to facilitate a public acquisition process o f underutilized land. The Land for Agricultural Development project i s a complementary effort to the mechanisms established by the agrarian reform law which will provide access to land and productive resources through market transactions. Similarly, the Government i s launching a pilot mechanism (through the Bank-supported Rural Alliances Project) to support market opportunities for small-scale indigenous and peasant producers.

a. Sector-related Inter im Strategy goal supported by the project:

3. This project supports the Interim Strategy Note goal o f fostering jobs through growth in rural areas. If successful, the project wi l l directly addresses one o f the greatest sources o f popular discontent and political instability in Bolivia’s recent history and demonstrate a pathway for increased productivity and employment in areas o f high landlessness.

b. Sector issues to be addressed by the Project and strategic choices:

4. Bolivia faces two main challenges related to land tenure: (i) Access to productive land for traditionally excluded groups and (ii) land administration. To improve land access to lands, up to now Government has been relying on the traditional mechanisms o f allocating public land, either for free (dotacidn) or for a fee (adjudicacidn), and through planned settlements (asentamientos

1

hurnanos) on lands identified during the land title regularization (saneamiento) process, particularly on those lands reverted back to the public domain because they were illegally acquired or are not currently fulfilling an “economic and social” purpose. However, these programs have tended to be bureaucratic and slow, and have yielded fewer results than expected. After more than ten year o f implementation, the saneamiento process yielded 15,694 t i t les and certificates for 7.1 mi l l ion hectares (6.6 percent o f the total land area subject to regularization), more than hal f o f which were issued in 2004-2005. INRA has identified only 30,000 hectares o f public lands suitable for distribution, and much o f it is located in remote, high-cost areas. Furthermore, the lack o f progress in reverting ill-acquired lands and the virtually stagnant settlement policy (five settlements in 8 years) has led to increased frustration by indigenous and peasant groups. The new law 3545 i s expected to address some o f these issues, but i t s implementation will require a significant lead time and i t s provisions will not address the needs o f al l the landless and land poor groups, particularly the need for land access in locations near to existing settlements and public infrastructure, and the need to gain access to land and productive resources as an integrated package. Land access mechanisms which are demand-driven and work through the land market thus have an important place among a menu o f policies oriented to improving land access.

5. The Government’s intention i s to carry out a set o f activities to improve the access to productive land for landless and land-poor rural populations ut i l iz ing a variety o f mechanisms including: (i) the distribution o f public lands under communal tenure and management, including land reverted to state ownership based on illegality or non-compliance with the economic-social function, (ii) the expansion o f indigenous lands under communal tenure through the modality o f the TCO (Tierras Comunitarias de Origen-Community Lands o f Origin), (iii) the allocation o f public forest for community management and (iv) piloting o f a market-based approach for facilitating transfers o f private land and improving productivity and market linkages, through the Land for Agricultural Development Project. Thus, the project will support the government’s objectives o f reducing asset inequality, improving income-generating opportunities for the rural poor, and expediting land redistribution. Moreover, this project complements and builds upon Bank and other donor support to land issues, such as the National Land Administration Project (PNAT, PO06 197, closed June 2006) which focused on the t i t le regularization, institutional capacity building, conflict resolution, and identification o f public lands for resettlement and thus provided indirect support for land distribution.

6. The project will address the inter-related issues o f land access and land productivity which are constraints for broadly-based, poverty-reducing growth in the rural sector. The first issue i s the unequal distribution o f land and the underutilization o f land which i s a by-product o f the distributional pattern. While the eastern region o f the country has been experiencing rapid growth from soybeans, livestock, and other commodities, most o f these gains have been narrowly distributed. Significant areas o f good agricultural land in the private domain are underutilized, as owners have preferred to expand the agricultural frontier rather than make productive investments o n the land, or to hold some parcels o f land speculatively or to use as collateral for other investments. The project relies on a mechanism o f long-term loans for land acquisition accompanied by intensive technical assistance and matching grants for infrastructure and productive investments which in turn will increase land productivity and raise beneficiaries’ incomes.

2

2. Rationale for Bank involvement.

7. The Bank i s uniquely positioned to support Bol iv ia in launching a participatory, decentralized complementary mechanism for land access and productive investments by poor rural inhabitants, and area which has traditionally been viewed as complicated and risky and which other donors have never operated. The project has the potential to generated significant direct impact while also generating learning and demonstration effects about approaches to the land access problem. Through policy dialogue the Bank has retained a strong role as a reform catalyst, especially in politically sensitive and complex areas l ike decentralization. The Bank's commitment to land policy reform, land redistribution in favor o f the poor, and the INRA Law has been steadfast, dating back to 1992 with technical assistance and policy dialogue, in 1993 with support for the suspension o f arbitrary land grants and creation o f the Intervencidn process, and since 1997 for implementation o f the INRA law through the Land Administration Project (PNAT). In particular, for the past decade the Bank has been encouraging the Government to adopt more aggressive land redistribution measures, such as reverting ill-acquired lands through saneamiento for subsequent distribution to poor landless farmers and tighter enforcement o f land taxation, but results on this front were disappointing as cumbersome mechanisms, loopholes and inconsistent political commitment to the goal o f land access limited the impact o f the program for land distribution. The Bank has also been instrumental in mobilizing support from other donors, such as the Nordic Fund which co-financed PNAT. In parallel, other donors have financed saneamiento activities in various regions o f the country, al l o f which depend on institutional capacity o f INRA supported by PNAT.

8. The proposed project directly responds to the Government's specific requests, f i rst received by the Bank in August 2002, then ratified by the Mesa administration in January 2004 and reiterated by the M A S government in 2006 for launching a complementary mechanism for rural land access as a pilot. The Government has requested that the efforts be concentrated in the Department o f Santa Cruz, where resolution to land conflicts i s o f the highest priority. In particular, the Government i s targeting indigenous and peasant groups as project beneficiaries. The project i s limited in scope to three municipalities in order to focus the activity and use it as a learning process which will generate lessons for the larger land access, land policy and rural development issues which Bolivia faces.

3. Higher level objectives to which the project contributes.

9. The project contributes to the higher level goal o f rural poverty reduction in Bolivia. This goal will be accomplished by intermediate steps o f 1) Improved access to land; 2) Implementation o f productive investment subprojects to help consolidate the newly acquired farms; and 3) Generation o f an income stream from increased value o f agricultural production sufficient to pay for land and increase living standards. These results are contingent on critical assumptions about exogenous factors such as weather and global markets, and macroeconomic and political stability. They are also contingent on endogenous factors such as the timely delivery o f funds to the beneficiary associations, the quality o f technical assistance and the cohesiveness o f the associations.

3

B. PROJECT DESCRIPTION

1. Lending instrument.

10.

which (SIL).

Government has requested support for this project through a Specific Investment Loan The project i s a targeted investment operation with a clearly defined geographical focus demands the kind o f operational flexibility which would not be possible through a general

budgetary support instrument, for example. The project i s a pi lot in nature, but given i t s size and complexity, the expected results could not be achieved through a smaller instrument (e.g., a LIL).

2. Project development objective and key indicators.

11. The development objective o f the proposed project i s to establish a decentralized beneficiary-driven land access mechanism that allows organized landless or poor farmers to acquire suitable agricultural lands and implement investment subprojects which enable beneficiaries to enter into a sustainable, higher-income, livelihood path, in so doing generating knowledge about land access and land-related productive investments which contributes to addressing the issues nationally (see Table 1, Project Logical Framework).

Table 1. Project Logical Framework

Narrative Summary

Sector-related CAS Goal: Rural Poverty Alleviation

Project Development Objective:

To establish a beneficiary- driven and decentralized land access mechanism that allows organized landless or poor farmers to acquire suitable agricultural lands and implement investment subprojects which enables them to enter onto a sustainable, higher-

Key Performance Indicators Establishment o f decentralized, beneficiary- driven land access mechanism; 50% increase in family incomes of participating families, compared with control groups and pre-project levels

120 farms selected and acquired by productive associations (PA) via new mechanism

Local level decision- making and monitoring entities established and hnctioning in 3 selected municipalities

Monitoring system to assess the net economic

Monitoring and Evaluation Comparison o f project participants with non- participants using baseline and at least two periodic surveys

Project impact evaluation undertaken by MDRAMA with baseline assessment and follow-up study of witWwithout project populations focusing on (a) beneficiary selection and targeting and (b) income and production effects

Annual project reviews and supervision reports

Critical Assumptions

Data from project baseline and periodic surveys compatible with other national or regional LSMS-type data

Financial and social sustainability of land and productive investments

Adequate development o f implementation capacity by productive associations

Maintenance o f macroeconomic stability, for land to reflect real value and not be used as a speculative asset

4

income, livelihood path, in I benefits o f increased I

2,200 beneficiary families select, acquire and settle their own farms

Number and types o f infrastructure and productive investment subprojects (no targets or distribution set)

so doing generating knowledge about land access and land-related productive investments which contributes to addressing the issues nationally. outputs: Establishment o f family farms o f lands purchased by beneficiary associations

Implementation of eligible investments on new farms

Local level entities report to PCU monitoring and reporting

Final independent evaluation commissioned by MDRAMA

Systematic evaluation focused expansion options

agricultural production established

I

Timely and efficient flow of funds to associations

Effective targeting o f project funding to poor beneficiaries

Financial success and viability o f subprojects

12. It i s estimated that the proposed project would benefit 2,200 poor rural families, which represents roughly 20 percent o f the total number o f families nationwide which have existing requests for land allocations with the Government. Other programs are already planning to address a significant portion o f the remaining requests, but latent demand i s likely to continue to grow in the foreseeable future while the future availability o f public lands apt for agriculture remains unknown and contingent on the operation o f the saneamiento process and the allocation o f public forest areas. The proposed project will introduce an innovative mechanism whose basic concept and operational modalities have been shown to be effective in Brazil, Honduras and Mexico. In Bolivia it will be targeted to a part o f the country where conditions are most conducive to success-the eastern lowlands, which i s host to large tracts o f productive but underutilized land and the existence o f many large parcels for sale by financial institutions and private owners. These conditions are not generalized throughout the country, however, and this project will not reach the poorest municipalities o f Bol iv ia which are found in the Andean region. Rather, the project targets a mostly indigenous beneficiary group o f extremely poor people in one o f Bolivia’s most productive regions. Thus, the Government i s pursuing a land policy strategy o f multiple approaches to meet differentiated needs according to region and type o f land tenure.

13. There i s recognition within Government and c iv i l society that resettlement programs on the remaining public lands will not be available soon enough or in sufficient quantity to satisfy al l the varied and locally differentiated requirements for land access. Therefore, the proposed approach, which relies o n direct beneficiary participation and decentralized decision-making, has the potential to deliver good quality land to certain segments o f the poor faster and at less cost than the existing traditional mechanisms o f public land distribution. Government will continue to rely on other mechanisms to address the needs o f those sectors not targeted by the project.

3. Project components

14. The project has three components. The first component consists o f the financing o f land purchases and potentially long-term leases in the future through a l ine o f credit managed by the

5

Productive Development Bank and executed by local financial institutions. Productive Associations o f project beneficiaries wi l l be responsible for repayment o f the land acquisition loans and the acquired lands wi l l serve as collateral (US$ 5.2 mill ion approximately). The second component i s for the provision o f matching grants for infrastructure and productive investments on the acquired lands (US$ 8.5 million approximately). The third component covers project management, technical assistance, and monitoring and evaluation (US$ 2.0 million approximately). Government has requested that Bank funds be used for land acquisition under the first component. Under the Bank’s new expenditure eligibility policy (OP/BP 6.0), approved by the Board in April 2004, Bank Loan funds may be used for land acquisition. The ESSD/Legal Land Acquisition Committee established under the new policy has reviewed this project and endorsed the project’s proposal on January 6,2005.

1. Land Acquisition

Table 2. Summary Project Description

Costs (US%M) financing financing 5.22 33.0 5.22 100.0

I Component ]Indicative 1 % of Total IBank- 1% of Bank- I

2. Productive Investments, Technical Assistance 3. Project Management, M&E

Total Project Cost

8.46 53.5 7.83 92.6

1.95 12.3 1.95 100.0

15.63 100% 15.0 96%

4. Lessons learned and reflected in the project design.

15. The project concept and implementation modalities build on the positive and negative lessons learned from three similar projects in Brazil, Honduras, and Guatemala. A summary o f these i s presented in Table 3.

Table 3. Lessons Learned

Lessons learned

Beneficiaries should identify, negotiate for and acquire land themselves. Assumption o f a loan serves to (i) screen out uncommitted beneficiaries and (ii) force the group to make sound investment decisions.

~

Because land acquisition cannot be financed solely from agricultural profits (so-called “fundamental financing problem o f the poor”), infrastructure and productive investments need to be grant fmanced to generate an income stream sufficient to pay for the land (credit) and augment livelihoods.

Local level oversight o f beneficiary eligibility, viability o f productive projects, and reasonableness o f land price i s the most important level o f supervision.

Project design

Financing i s made available to a Productive Association to purchase land. The joint-liability loan i s secured by a mortgage on the farm. A local committee and the project PCU evaluate the land price and investment plan.

Each project has a matching grant component for productive investments and technical assistance. Investment subprojects are carefully reviewed by a local committee and the project PCU to ensure their economic viability. Grace period for loan repayment w i l l be 2 or 3 years.

A municipal level Council for Local Agrarian Development with local government and civi l society representatives w i l l review beneficiary eligibility, productive projects and land price and make recommendations on each proposal.

6

Do not centralize and direct the land purchase fund. Land identification and negotiation i s demand-driven and Make it a demand-driven mechanism. decentralized.

To ensure beneficiaries have a powerful incentive to bargain land prices down, keep land purchase and productive investments closely linked, and linked directly with technical assistance. Keep debt / equity ratios low (aim for at least 1 :2)

Productive Associations are offered a single “benefit amount” to cover land acquisition (through a loan), TA and investments (grants). Thus, every dollar saved from land acquisition results in (i) lower indebtedness and (ii) more fhds for investments. Also, investment funds begin to disburse immediately upon settlement.

5. Alternatives considered and reasons for rejection.

16. Alternative 1: Management of the program by INRA. Putting the project under the management o f INRA, was rejected because o f its poor track-record with past settlement programs, the risk o f over-centralizing the process, and the risk o f adding more complexity to the institution’s workload. Furthermore, while INRA has a mandate in land reform, it has no expertise in supporting farmers with commercial linkages and productive subprojects.

17. Alternative 2: Privatejnancing by banks. Involvement o f private bank financing (as i s the case in Honduras, for example) was actively sought by the project team because it would reduce moral hazard risks and potentially leverage a significant expansion o f the project scope. However, no private financial institution in the region was willing to participate, because providing long-term loans to low-income groups i s currently considered overly risky and unprofitable (high transaction costs). Thus, to address this systematic market failure, the proposed project will create a specific credit line for land acquisition purposes, with funds channeled through the Productive Development Bank and cooperating local financial institutions.

18. Alternative 3: Multiple regions. The team considered the option o f operating in both the eastern lowlands and one highland region. This alternative was also dropped, because launching an innovative and complex operation like this one will require initially substantial resources for implementation and monitoring, so restricting activities to one region increases chances o f success. If successful, an expansion to other regions would be considered in a second phase.

19. Alternative 4: Make the project a component of a rural investment project. The alternative o f making the project a component o f a more varied rural investment program was also explored. This alternative was not chosen because the specificity o f land purchase and the planning o f productive investments and assistance call for a dedicated technical and administrative apparatus.

C. IMPLEMENTATION

1. Partnership arrangements.

20. The development o f pro-poor initiatives requires involving the representatives o f the poor at the outset and throughout implementation. Project preparation worked closely with the main federations o f rural workers and indigenous peoples in the project zone to publicize the project,

7

organize potential beneficiaries and seek feedback on project implementation. These include the Confederacidn Sindical Unica de Trabajadores Campesinos de Bolivia (CSUTB), the Confederacidn Sindical de Colonizadores de Bolivia (CSCB), the Confederacidn de Pueblos Indigenas de Bolivia (CIDOB) and the Asociacidn de Pueblos Guarani (APG). Project preparation included municipal governments which agreed to participate in the Project through the Councils for Local Agrarian Development (CODAL). Local review o f productive projects and checks on land price and beneficiary eligibility wi l l be performed by the CODAL, comprised o f local government and representatives o f the above-mentioned organizations, other civil society organizations and representatives o f the PCU.

2. Institutional and implementation arrangements.

21. Implementation Period. Five years, starting in January, 2008,

22. Implementation Arrangements. The project i s demand-driven. Beneficiaries wi l l obtain information about the project from regional organizations and local governments, organize Beneficiary Associations (BA) o f up to 30 eligible families, identify productive farmland and negotiate i t s purchase with the owner. The BA will submit a land acquisition proposal, along with a preliminary investment plan, to a Project Coordination Unit (PCU) established by the Ministry o f Rural Development, Agriculture and the Environment (MDRAMA), under the Vice- Ministry o f Lands, in the city o f Santa Cruz. The PCU wi l l review the proposal to ensure basic compliance with the project’s guidelines and procedures (detailed in the Operational Manual), including a field visit to the farm and beneficiaries. The PCU wi l l then submit the proposal to a local level decision-making body, the Council for Local Agrarian Development (CODAL), comprised o f municipal officials and representatives o f civil society in each participating municipality (Charagua, Mineros, and Pailon). This body wi l l verify the eligibility and prioritization criteria (of beneficiaries, lands, and investment subprojects); review the legal status o f the farm to be acquired; verify that the proposed price i s consistent with local market conditions; and verify other technical, environmental and social project requirements (detailed in the Operational Manual).

23. Land acquisition wi l l be financed through a fund created by MDRAMA and operated by the Productive Development Bank (Banco de Desarrollo Productivo, BDP), through one or more intermediary financial institutions (IFIs) operating in the project area. The IFIs will process the loan and enter into a mortgage loan agreement with the Beneficiary Association and then pay the seller o f the farm. Repayments will be sent from the IF1 back to BDP’s fund.

24. Once the land acquisition proposal i s approved, Beneficiary Associations wi l l become eligible to receive funding, on a matching-grant basis, for infrastructure and productive investment subprojects and technical assistance to settle on the farm and improve i t s productivity. Detailed investment subproject plans wi l l be reviewed by the PCU and the CODAL. Once approved, the Beneficiary Association will sign a subproject implementation agreement with the PCU. The first tranche o f the agreed implementation workplan will then be disbursed by the PCU (on behalf o f MDRAMA) for disbursement into the Beneficiary Association’s account at an eligible IFI.

8

25. The existing Department Agrarian Commission (CAD) in Santa Cruz, composed o f the Prefecture, INRA, private sector, and peasant and indigenous groups, will have the responsibility for sharing information and coordinating project activities with other related programs in the project areas and for reviewing the project’s annual workplan prepared by the PCU.

26. A targeted communications strategy will be implemented in the project areas, using various media, including informational meetings, simple language pamphlets, etc. to publicize the project’s aims and implementation modalities to potential beneficiaries. These will be revised to reflect actual experiences after the first year o f the project. External communications will also be addressed by MDRAMA in the form o f project reports.

27. The PCU will have overall project management and implementation responsibility. The PCU will manage the project’s fiscal account to cover i t s operational costs. It will also authorize disbursements for matching grants into BA accounts, prepare the documentation for disbursement requests from the Special Account into the BDP fund (for the land acquisition credit fund), and prepare the required documentation for MDRAMA’ s withdrawal applications to the Bank.

3. Monitoring and evaluation o f outcomes/results and the land access question.

28. Responsibility for monitoring and evaluation will rest with the PCU which will create a unit dedicated to monitoring, evaluation and policy studies. Relevant instruments will include progress reports with process, results and outcome indicators, a combination o f ex ante and ex post monitoring, independent impact evaluations and user surveys. A longitudinal impact evaluation based on household surveys and a quasi-experimental design i s foreseen. Participation o f c iv i l society organizations will be sought at al l stages. A series o f studies aimed at understanding the nature o f the land access issues and models o f small-holder agricultural on a national level will be undertaken which will assist the project to improve i t s procedures. Monitoring and evaluation results will feed back into Project decision-making to improve performance, and will serve as the basis for discussions o f the Advisory Committees.

29. Specifically, the system on monitoring indicators will cover: (a) Project management, including evaluation o f the efficiency o f service delivery and beneficiary satisfaction; (b) social and economic impact, by measuring changes in the following indicators o f beneficiary welfare, and market mobilization: (i) number o f poor beneficiaries receiving land; (ii) percentage o f female heads o f household among poor beneficiaries; (iii) impact o f land purchase on poverty reduction, in terms o f increased household incomes, (iv) default rates on formal credit granted to poor beneficiaries.

4. Sustainability.

30. The GOB i s fully committed to the proposed project, and explicitly requested the Bank to include the project in the Interim Strategy Note. The Cabinet has approved a Supreme Decree declaring the strategic importance o f the project and establishing i t s implementation modalities.

9

3 1. The sustainability o f the project hinges critically on establishing productive, financially viable productive subprojects on each piece o f land to be purchased, keeping costs down, and ensuring repayment o f loans. Project beneficiaries will work closely with pre-qualified technical assistance providers to choose productive activities which are agro-ecologically and economically viable and profitable in the current market context. The plans for these subprojects wi l l be reviewed at the local level and by the project's PCU. Costs wi l l be kept down by negotiating with financial intermediaries for the lowest cost possible o f administration, giving beneficiaries incentives to negotiate the lowest possible land prices, and using appropriate technologies. Repayment o f loans will be aided by incentives to beneficiaries and financial institutions for good repayment performance, and by innovative sanctions within groups for non- repayment. Studies carried out during project preparation demonstrate that productive subprojects can be identified which make sense in current market context and which are affordable under the financing parameters which the project can support in areas such as sesame, sugar cane, and livestock.

5, Critical risks and possible controversial aspects.

a. Critical R i s k s

32. The project entails substantial risks, both for project success and for the reputation o f the Bank. The risk o f inaction, however, (e.g., "why did the Bank not do more to help the Government address land inequality?") i s also substantial, given the importance o f land issues in Bolivia's overall poverty reduction efforts, ongoing social tension in the region, and the Bank's record o f assistance in this area. For these reasons the risks must be considered in light o f the overall land issue in Bolivia.

33. Risk that the project fails to adequately address the full set of land issues in Bolivia. Land issues in Bolivia have many dimensions. The project will address only one dimension o f this complex issue, namely, access to land already in the private domain for the benefit o f poor, mostly indigenous rural inhabitants in the eastern lowlands. This i s only one specific segment o f the overall land problem. The lack o f land tenure clarity and security i s another major set o f issues which are being addressed by the Instituto Nacional de Reforma Agraria (INRA). Land access through distribution o f public lands was supposed to be a by-product o f I N R A ' s saneamiento process, but very few such lands have been identified. The land which have been identified in this way to date are mostly remote and unsuitable for agricultural production. The Government i s now beginning new efforts to streamline the saneamiento process and identify larger quantities o f land which could be acquired by the state for distribution, based on the provisions o f Law 3545, but these initiatives have not yet entered implementation. It has also pledged to redouble efforts involving existing public lands, but most o f these are in forests and wi l l require development o f additional management plans to make them viable for distribution. The project thus occupies a specific, limited role within an overall menu o f land policy interventions being undertaken by government to address the full set o f land issues in the country.

34. Risk of encouraging land invasions. Land invasions in eastern Bolivia have essentially ceased since the MAS government took office. The expectation o f a robust public land

10

distribution program provides a clear alternative to invasions. The project therefore, runs l i t t l e risk o f encouraging invasions. The project will not carry out transactions on lands which have been invaded.

35. Risk that project beneficiaries wi l l not be able to repay land acquisition loans. The risk o f non-repayment can be separated into an ex-ante problem o f adverse selection o f beneficiaries, and an ex-post problem o f moral hazard in repayment incentives. The first part o f the problem wil l be addressed through stringent eligibility screening and selection o f (i) beneficiaries, (ii) lands suitable for acquisition and (iii) investment subprojects. Consultations and background studies including a social assessment suggest that demand will be strong, even with these stringent criteria. This project is not directly aimed at the "poorest o f the poor," although secondary employment opportunities generated by this project may benefit them as well. Rather, the project i s focused o n ''poor but potentially highly productive smallholder farmers" who are capable o f greatly increasing their productivity with the kind o f access to resources and technology provided by the project. Eligibility rules wil l screen out participants who have unpaid loans elsewhere. Rules will require a demonstration o f a viable, productive project with sufficient projected cash f low to pay for the land debt and generate additional household income. These projects will be presented by organized groups o f producers and reviewed by both a local committee and the project PCU. To address the ex-post issues (moral hazard), the project will invest heavily in technical assistance accompanying beneficiary groups (for at least 2 years). The terms o f the loan i t se l f and the inclusion o f a grant scheme to make productive investments also will aid repayment. The credits will be administered as commercial operations (avoiding the association o f government credit schemes with non-repayment), and other borrowing by beneficiaries will depend on good repayment records. Furthermore, as commercial farming in Santa Cruz demands establishment o f commercial relationships, beneficiaries will find it unwise not to pay their mortgages for fear o f loss o f some o f these commercial relations. Finally, peer pressure from joint liability within groups will spur repayment. While nothing can prevent the r isks o f exogenous shocks such as persistent climactic problems or natural disasters, these are sectoral risks which are not unique to the project and which underscore the need to create initial conditions with favorable debt to equity ratios.

36. Risk ofpoliticization of the project and risk ofproject favoring the wealthy. There i s also a risk o f operational paralysis due to politicization o f decision making process, either at the local or Department level, or corruption o f the project mechanisms to favor the politically connected, the wealthy or the powerful in the local context. While this risk i s real in the highly politicized local context, the project is designed to prevent it from happening. The project will have i t s own legal status and budget and be operated by a semi-autonomous PCU. The land purchase funds will be passed through a t rus t fund arrangement with an autonomous second-tier financial agency. Beneficiaries themselves will initiate project proposals and, therefore, the risk o f overt politicization o f the project at the local level i s minimized. Mutual monitoring by different sets o f stakeholders will be used to create transparency and accountability. This will be provided at three different levels o f checks and balances, 1) by a local committee o f representatives o f c iv i l society and municipal officials which will vet each proposed project for eligibility, land price reasonableness and the feasibility o f the productive project; 2) The PCU will review al l proposed projects recommended by the local commission, to ensure consistency with project's criteria and procedures; 3) A department level agrarian commission (with 50% Government and 50% civ i l society representation) will review the whole process.

11

37. Risk that demand is too little or too great. There i s also a risk that limited effective demand may yield too few results in the short-term, thus reducing the potential political benefits o f the project. This risk i s real; the project concept and implementing unit are new, and the beneficiary population i s large but relatively unorganized. Close monitoring should identify bottlenecks early on and make amendments to Operational Manual quickly. Credibility early on i s critical. Project preparation has already identified nearly thirty groups which intend to present proposals, however, so there i s confidence that from this universe o f initial demand good initial projects can be developed.

38. Conversely, there i s also a risk that successful results may in the medium term lead to massive demand from various regions, thus exerting unsustainable fiscal pressures to replicate the project elsewhere. This i s the kind o f risk which Brazil has faced and it resulted in an expanded program. But, Bolivia’s (and the Bank’s support) financial options are more limited than Brazil’s, so if results are encouraging, increased support from other donors wi l l be needed. There are strong indications that other donors, particularly bi-laterals would welcome the opportunity to partner with a successful project.

39. Bank’s reputation risk for involvement in the land sector. There i s also a risk that by the very involvement o f the Bank in the land sector, the Bank’s reputation could be damaged if the sector becomes conflictive because o f aggressive public land acquisition, politicization o f the land question within the regional issue, changes in the underlying property law framework in the Constitutional Assembly or localized actions. This risk i s mitigated by the nature o f the project which will not work with properties which are not held in clean, private t i t le and the project will not engage in activities related to public acquisitions (reversion or expropriation). The Development Credit Agreement will specify, as in many Bank operations, that the policy environment for carrying out the project must be satisfactory to the Bank and that disbursements may be halted if the policy environment i s unsatisfactory.

40. Risk that Financial Management Arrangements don ’t work well. Given the past history o f poorly performing projects in Bolivia, combined with the fact that under this project innovative financial mechanisms are being introduced, the project i s exposed to the possibility that certain financial transactions (particularly those related to community subprojects) may be manipulated. Therefore, particular attention wi l l be paid to initial financial audits and overall financial supervision.

41. Given these potential issues, the risks must be considered substantial (Risk Rating - S).

b. Controversial Aspects:

42. Attack by proponents of traditional land reform. A project o f this nature, inevitably will have some critics, particularly on ideological grounds, and indeed there i s a global critique o f land purchase programs by proponents o f traditional approaches. To mitigate this, during project preparation the key factor i s a participatory, transparent approach which clarifies the potential benefits and builds constituencies for the project in rural areas which the team has been working on. Consultations will continue to be held with the widest possible range o f rural stakeholders including various local rural workers and indigenous organizations, which have expressed great

12

interest and support. Once implementation begins, the beneficiaries and results on the ground will be the greatest defense against ideological attacks.

43. Heightened regional animosity. Another aspect o f the project’s political and reputational risks concerns the current climate o f increased polarization between eastern (“camba”) and western (“colla”) political and land-right claims. The project has a clear regional concentration in the east where there i s both a high demand for agricultural land and a large potential supply. Given this concentration, some groups may oppose it strictly due to regional animosities, independent o f i t s poverty-reduction, or indigenous-concentration merits. Extremist groups may claim the Bank i s supporting the less-poor indigenous groups in the Eastern part o f the country. This argument has some merit. But, other Bank programs are supporting Western poor indigenous groups. The project i s not intended for or viable among the poorest o f the poor in Western regions o f the country, but rather to address pressing needs which are solvable through this type o f project in the East and demonstrate a viable model which could be subsequently replicated elsewhere.

6. Credit conditions and covenants:

44. The B D P Administration Agreement will have to be signed for the project to become effective. The only covenant associated with the project i s that the accounting and financial management arrangements be established and found satisfactory to the Bank by date o f effectiveness.

D. APPRAISAL SUMMARY

1. Economic and financial analyses.

45. Because the project i s demand-driven, it is not known ex-ante which specific investment subprojects will be financed, and thus a precise economic and financial analysis for the project as a whole cannot be made. The estimated economic returns and financial flows are based on stylized investment sub-projects for each o f the proposed municipalities. These illustrative farm models al l show positive Net Present Values, positive cash flows over the repayment horizons, and Internal Rates o f Return (IRRs) o f between o f 12 percent and 25 percent. With plausible assumptions about the number and distribution o f these stylized models by municipality, this gives an aggregate N P V o f al l investment subprojects o f $17.65 mi l l ion and an IRR o f 16% (see Annex 9 for details).

46. The Supreme Decree for the project establishes a floor for the interest rate charged to beneficiaries (not less than the cost to Government from assuming the Bank credit). With an interest rate to the beneficiaries o f 8%, a repayment horizon o f 15 years, a grace period o f 3 years, administrative costs o f 5.5% (to establish a guarantee fund, and cover BDP and the financial intermediary costs), and a repayment rate o f 85%, it i s estimated that the revolving Line o f Credit created at BDP would gradually grow to a maximum o f $3.9 mi l l ion over a thirty-year period, after which i t would gradually decline. This projection could change (negatively) if repayment rates are lower than 85% or (positively) if they are higher and additional funds are deposited in the fund.

13

47. The project’s land purchase fund is a targeted, directed line o f credit which i s partly subsidized by the government. In the project context a directed credit o f this type i s justified because it substitutes for a missing market in long-term financing for poor rural inhabitants. If viable, the project intends to gradually lead the way for private financial institutions to enter this market. The l ine o f credit has no effects o f crowding out private financing because this i s precisely a market into which private finance i s currently reluctant to enter. With loan rates to be set in accordance with the rate o f the Bank-financed credit plus administrative costs and provision for a guarantee fund, the l ine o f credit i s subsidized by the Bolivian government to the extent that no additional risk premium i s being charged. In other words, a subsidy equivalent to the risk premia which would be charged by a private financial institution is being made. Local financial service providers will be chosen based on their track record and their ability to provide services in the project area. Bol iv ia has a good recent record o f encouraging a culture o f credit re-payment and Bolivian law on mortgage foreclosure is quite strict. There are clear rules o f the game explained in the Manual o f Operations for the approval o f beneficiary organizations, each o f which must be a registered, legal entity. In this regard, the project complies with the Bank’s Operational Policy 8.30 which sets out guidelines for lines o f credit (see Annex 4 and Addendum to Annex 4).

48. The project i s not expected to have a significant fiscal impact, either at the national or municipal level. With the new country financing parameters for Bol iv ia (approved in August, 2004), virtually al l expenditures will be 100% financed by the Bank loan, with a negligible impact on counterpart funding requirements. Since al l project beneficiaries are considered “small,” under current Bol ivian legislation, they are exempt from land taxes.

49. The Supreme Decree for the project requires that participating municipalities contribute at least 20% o f the total cost o f beneficiary investment sub-projects, primarily through infrastructure investments.

2. Technical.

50. The project features a simple design which i s based on lessons learned, positive and negative, from experience elsewhere in the region (Brazil, Honduras and Guatemala). Important lessons incorporated into the technical design include:

0 emphasis on small groups o f beneficiaries; 0 simple, locally-based procedures for sub-project approvals to encourage the

sustainability o f investments; 0 local decision-making to increase the transparency and ownership o f the project

while discouraging free-riding; tying o f the amount o f the loan for land acquisition to the amount o f matching grants for investment purposes; direct control o f resources to build ownership and empower beneficiaries

5 1. These principles have been incorporated into the Operational Manual.

14

3. Fiduciary

a. Procurement issues:

52. An assessment o f the capacity o f the Implementing Agency to implement procurement actions for the project has been carried out by the Bank o n March 1 1 , 2005 and updated on April 19, 2007. Although, most o f the issues and risks identified during the initial procurement capacity assessment have been taken care of, during the update o f the evaluation a set o f key issues and risks concerning procurement for implementation o f the project remain to be fully addressed during implementation: (i) given the large number o f expected subprojects, there i s the risk that the P C U would not be able to ensure that the procurement done under the subprojects would be done in a transparent way; (ii) lack o f land tenure clarity and security would impair the purchase o f land; and (iii) the PCU’s lack o f experience on procurement processes under Bank’s norms and procedures. An Action Plan was agreed to address these issues, mitigate the risks and to improve the implementation capacity o f the Agency.

b. Financial management issues:

53. A financial management assessment was originally performed in March, 2005. In view o f the changes that took place in government administration and other recently adopted policies, and legislation, the project implementation arrangements had to be updated; and therefore, an update o f the financial management assessment was performed in March, 2007. The updated assessment was performed in accordance with OP/BP 10.02 and the Manual “Financial Management Practices in World Bank - Financed Investment Operations”. It included both the on-going situation o f the PCU established within the Viceministry o f Land o f the Ministry o f Rural Development, Agriculture and Environment (MDRAMA) and the new conditions for the operation o f the land acquisition component, under the recently-created Productive Development Bank (here in after BDP).

54. Project complexity, innovation and associated risks call for a very robust and adequate financial management system, able to provide the Bank, the Borrower and other interested stakeholders, with accurate and timely information regarding project resources, expenditures and activities.

55. Both inherent risk and control risk have been rated as high. Downgrading the control risk to modest will be possible if the adequacy o f proposed financial management arrangements, especially related to disbursement mechanisms, can be tested and strengthened through the Project Preparation Facility (PPF) pi lot activities and if the P C U staff develop the required expertise to support project implementation. Other key issues to be evaluated under the PPF i s the proper and efficient operation o f the CODALs that will play a key role in the approval process, and the adequacy o f the disbursement mechanisms under different project components to timely propose any required adjustment.

56. In relation to BDP’s involvement, from the financial management perspective the current conditions can be considered acceptable, as BDP has inherited from N A F I B O the expertise and

15

the financial technology in terms o f internal regulations, structure and procedures to operate the financial intermediation function. However, those conditions can not be really isolated from the whole legal, institutional and even political context, in which the BDP will have to operate in. Under such conditions, it will be critical that a subsidiary Administration Agreement be entered into between MDRAMA and BDP, and be submitted to the Bank before effectiveness for the Bank’s review from the legal, institutional and operational perspective. Additionally, as NAFIBO completes i t s full juridical conversion to BDP, the signature o f the agreement should be included as an effectiveness condition. Further to the compliance with such requirement, project team will have to closely oversee BDP’s performance in terms o f project implementation, both under the PPF and during project implementation, to timely identify any adverse situation that may prevent BDP from complying with the conditions and responsibilities set in Administration Agreement.

57. O n the basis o f the progress reached so far and subject to the successful completion o f the actions described above, that will be respectively followed up to negotiations, board presentation and project effectiveness, the financial management arrangements can be considered acceptable to the Bank, as long as they can be supported by the adequate legal framework. Finally, it i s extremely important to note that monitoring and supervision o f the operation o f these arrangements will be essential to guarantee the adequacy o f the internal management system.

4. Social

58. A detailed social and cultural assessment (including a thorough consultation process) was carried out by the borrower as part o f project preparation (see Annexes 11 and 12 for a summary o f this assessment and table o f consultations).

a. Benefits and Target Population: The Project will increase the quality o f l i f e o f the families living o n the properties targeted by the decentralized formalization component. This will cover around 2,200 families. Beneficiaries will be mostly poor and very poor and approximately 75% will be indigenous. They are located in districts where poverty indicators, as measured by the lack o f “basic services” (access to potable water, education and health) are bad, although they are not the very worst in Bolivia. Because the bulk o f potential beneficiaries are Indigenous Peoples, the project itself has been designed in compliance with O D 4.20 (Indigenous Peoples) and stands instead o f a separate IPDP.

b. Key social issues relevant to the Project obiectives. and Proiect’s social development outcomes. The project directly addresses the social issues o f landlessness and poverty in the region, as well as the exclusion from economic opportunity o f many indigenous peoples. The project aims to provide land access and services to groups in situ or near to the beneficiaries current location o f residence. In indigenous communities, the project aims to orient productive investments in such a way that the community at large derives substantial benefits.

5. Environment

59. In accordance with the Bank’s Environmental Assessment Policy (OP 4.01) and this project’s Category B classification, an Environmental Assessment (EA) report has been drafted

16

by the Borrower, with copies sent to the Infoshop in Washington and publicly available in the offices o f the Ministry o f Sustainable Development in La Paz, Bolivia. The key environmental requirements outlined in the EA report are reflected in the Project’s Operational Manual.

6. Safeguard policies

Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP/GP 4.0 1) [XI [I Natural Habitats (OP/BP 4.04) [XI [I Pest Management (OP 4.09) [I [XI Cultural Property (OPN 1 1.03, being revised as OP 4.1 1) [X 1 Involuntary Resettlement (OP/BP 4.12) [I [XI Indigenous Peoples (OD 4.20, being revised as OP 4.10) [I Forests (OP/BP 4.36) [XI [I Safety o f Dams (OP/BP 4.37) [I [XI Projects in Disputed Areas (OP/BP/GP 7.60) [I [XI Projects on International Waterways (OP/BP/GP 7.50) [I [XI

[I

[X 1

7. Policy Exceptions and Readiness

60. The project complies with all applicable Bank policies, and no exceptions are sought. The Environmental Analysis and Social Assessment were disclosed in the country on April 6, 2005, and are available at IDA’S Infoshop. The Project will apply the new OP/BP 6.0 and the Bolivia Country Financing Parameters approved on August 18,2004.

61. Readiness: A set o f Supreme Decrees related to the project, establishing i t s implementation modalities wi l l be piloted in three municipalities has been approved by Cabinet and signed into law. An agreement with BDP for establishing the Line o f Credit has been reached. An Operational Manual i s ready and agreed with the Bank. Local development councils to review proposals have been established in each o f the three municipalities.

17

Annex 1: Country and Sector or Program Background

Bolivia: Land for Agricultural Development Project.

Current Situation

The administration o f President Evo Morales, elected in December 2005 with a clear majority o f votes and representing groups that have been excluded for centuries allied under the Movimiento a1 Socialismo, (Movement to Socialism, MAS), provides Bol iv ia with a mandate to build a more inclusive society. The new government faces numerous, serious development challenges. The history o f ethnic exclusion and control by a small elite has left Bol iv ia with a deeply fractured society afflicted by one o f the highest levels o f poverty and inequality in Latin America. Despite some improvements, social indicators in health, education, and access to basic services like water and sanitation continue to be low. Private investment and economic growth picked up in the 1 9 9 0 ~ ~ but have fallen again as a result o f the socio-political unrest o f the last few years and the current uncertain outlook pending the definition o f the new government’s approach in key sectors.

Although poverty in Bol iv ia transcends rural-urban divides, it remains particularly severe in rural In 2002 about 84 percent o f rural inhabitants (2.7 million) were income-poor and 67 percent (1.8 million) lived in extreme poverty. These groups have benefited l i t t l e from the exploitation o f natural resources in the past (silver, tin, o i l and natural gas). Furthermore, the implementation o f the 1996 agrarian reform law has not lived up to expectations for addressing inequality in access to land and keeping the issue among the priorities for policy attention. Land distribution and access to productive resources are viewed as playing a key role to play in addressing inequality in Bolivia’s s t i l l largely rural economy. The issue is an important plank in the program o f the MAS government. In October 2006 Congress passed a law modifying the 1996 agrarian reform law in an effort to streamline i t s execution and facilitate a public acquisition process o f underutilized land (the Ley de Reconduccion Comunitaria de la Reforma Agraria). The Land for Agricultural Development project i s a complementary effort to the mechanisms established by the agrarian reform law which will provide access to land through market transactions. Similarly, Government is launching a pi lot mechanism (through the Bank-supported Rural Alliances Project) to support market opportunities to small indigenous and peasant producers.

On the social side, one o f the priorities o f the MAS government’s program i s to respond to impatience with the levels o f inequality, which manifests particularly with respect to land distribution. The income distribution in Bolivia i s severely skewed to the l e f t (the distance o f the poor from the poverty l ine i s among the highest in the region), particularly in rural areas, making it more difficult for growth to bring about immediate significant declines in poverty. Moreover, income inequality increased over the 1990s and growth translated into even less poverty reduction than distribution-neutral growth. In a poor country l ike Bolivia, actions are needed to both sustain high levels o f economic growth and to aid the poor to benefit disproportionately from it. Indigenous groups feel that they have received little f rom the exploitation o f natural resources in the past, either in terms o f land, timber or minerals. General discontent has also fed by lack o f progress in income-related measures o f poverty. There has been progress in social

18

indicators, but it has been uneven and has not been perceived by disaffected groups as enough. This, combined with a l o w per capita GDP, contributes to the high poverty levels o f the country.

Poverty and Land Access

Poverty in Bol iv ia i s mostly rural, and rural incomes are mostly land based. Land-based agricultural development has a direct role in poverty reduction in this context. Though significant progress has been made over the last 20 years, high levels o f poverty and social exclusion remain. Rural poverty in Bolivia i s attributable to economic development patterns and patterns o f asset distribution that have excluded widely-dispersed groups. There are approximately 660,000 agricultural units in Bolivia, 87 percent o f which are small agricultural units supporting 2.7 mi l l ion persons. These units occupy only 14 percent o f the arable land area, which i s indicative o f the magnitude o f smallholdings. Thirty-seven percent o f the small farmers are situated on the high plateau and occupy 6 percent o f the arable land area; 46 percent are located in the valleys and occupy 17 percent o f the area; 17 percent are situated in the lowlands, occupying 77 percent o f the arable land. Studies have indicated that more than 85 percent o f rural household income i s generated by agricultural production, although this level i s probably underestimated owing to the seasonal nature o f remunerated activities o f the rural population. More than 80 percent o f the population i s engaged in farming, ranching, and in some cases, hunting and fishing. In 1999, monetary income o f rural households was less than US$280 per person per year. A significant share o f rural household income i s derived from the sale o f agricultural products, and another substantial share i s accounted for by the value o f home consumption, remunerated work, and, last, transfer income from the State, nongovernmental agencies, and other households. Many indigenous people, especially in the lowlands, are living at a subsistence level, dependent on the production o f few basic commodities which provide their basic diet and which are augmented through hunting, fishing, and gathering activities.

For these reasons, Bolivia’s Poverty Reduction Strategy Paper (BPRSP) and the WB Interim Strategy Note recommend reorienting some public expenditure toward high-visibility programs that respond to underlying factors that led to social conflict, especially in sensitive geographical areas. Extreme poverty levels are highest in rural municipalities o f the high plateau [altiplano], particularly in the regions o f Northern Potosi, Chuquisaca, and L a Paz. Poverty levels are somewhat lower but st i l l acute in the municipalities o f Bolivia’s Eastern, Chaco, and Southern regions. These areas are highly unequal in terms o f landholding and income. The lowlands in the east are occupied by ethnic groups which migrated to the lowlands as part o f the colonization programs o f the 1960s and 1970s and their subsequent generations, by original indigenous peoples, such as the Guarani people, the Chiquitanos, the Moxeiios, and others dispersed al l across Amazonia and Chaco. These populations are poorly integrated with infrastructure and access to markets and are characterized by high levels o f extreme poverty. That land i s a binding constraint for many households in the area i s clear from the rate o f illegal occupation o f forest and protected areas for small-scale agriculture. The area i s also inhabited by a class o f ranchers and agro-industrialists who control a disproportionate quantity o f land resources.

Agricultural income i s largely dependent on production conditions and the market value o f the products. In general, Bol iv ia has a severe problem o f l o w yields and productivity, in addition to landlessness and land scarcity for low-wealth households. L o w yields are explained primarily by

19

the insufficient production infrastructure, low quality seeds and inputs, limited investment, and low productivity levels associated with an unskilled labor force. There has been no substantial increase in the yield indices for principal agricultural commodities in recent years. The small farming economy characterizing most rural areas has weak l i n k s with modernization, technological change, and profit distribution. The scant economic infrastructure i s an obstacle to rapid change on the part o f dispersed populations and makes larger scale investment unprofitable.

Agrarian Reform and the Need for Complementary Mechanisms of Land Access.

Access to agricultural land i s a long-standing historical problem in Bolivia. It was f i rs t addressed in 1953 with the country’s widely-known Agrarian Reform. But the problems addressed by the reform have resurfaced as Bolivia’s large rural sector has returned to a highly unequal distribution o f land resources.

Bolivia i s a huge country, but areas o f good arable land are limited. O f Bolivia’s total o f 110 million hectares, about half covered with forests and one third i s semi-desert or arid. About 8 million hectares can be classified as potentially productive for agriculture including pastures, but only about 2.2 million hectares o f this area ever been used for crop production. In most years the average area under cultivation i s about 1.4 million hectares.

The Bolivian Agrarian Reform Act o f 1953 mostly affected properties in the altiplano and valleys. In Bolivia, against the background o f serious social and political upheaval, an Agrarian Reform Act was passed in 1953 to be applied in the Andean areas which i s where most o f the large latifundia estates were found and which has the most dense peasant population. As a result o f this agrarian reform, the large estates were practically abolished and the lands broken up and distributed among the peasants and their communities. This agrarian reform distributed land massively in the Altiplano and highlands (about 600,000 farms covering some 25 to 30 million ha).

Colonization programs over last five decades (but concentrated during 1958- 1985) distributed between 3 million and 5 million hectares o f land in northern Santa Cruz, the Chapare region o f Cochabamba and the Alto Beni region to colonizers, most o f which originated in highland areas. Today, there are about 500,000 people in these colonization areas. Some o f these households are relatively well off, while others are very poor. Not all households wanting land received it.

In spite o f the successes o f the Agrarian Reform o f 1953 and the colonization programs o f the 1960s and 1 9 7 0 ~ ~ land concentration, and the lack o f access to land for new generations o f the landless, returned in the eastern part o f the country during the 1960s-1990s. A new version o f the large landholding system in the eastern part o f the country came into place during the 1960s- 1990s. During this period the country’s military dictatorships made large grants o f lands, principally in the eastern lowlands (Santa Cruz, Beni, Pando) as rewards for political loyalty and support. These land grants total around 30 million hectares. They have provided the land base for the expansion o f the cattle sector to 5-6 million heads, and the booms in soy, wheat, sugar cane and rice in the Santa Cruz area, making it the richest area o f Bolivia, but also the most unequal. The process o f reconcentration provoked increasing popular outrage. Discontent with the land holding issues reached a crest in 1993-1994, and popular pressure forced the

20

governments to take a new approach to solving the land question. This process culminated in the INRA Act (Law 1715).

The INRA Act (Law 17 15) came into force in October o f 1996, and was designed to both solve the problems o f insecure and unclear ownership o f land, and to identify underutilized land for redistribution and transfer it to those eligible to be beneficiaries o f the Agrarian Reform. The National Agrarian Reform Institute (INRA) i s in charge o f this process, and has made significant advances in the stage o f land regularization in a limited number o f areas in the country. As o f early 2005 13% o f the country had been fully regularized, while another 35% i s in process. Nevertheless, the regularization (saneamiento) process has advanced more systematically than the redistribution process which was originally intended to accompany mapping and regularization. The distribution process for indigenous lands (called TCOs for Tierras Comunitarias de Origen) has been the most far-reaching o f the distribution efforts under Law 17 15 to date with approximately 6 million hectares distributed, but much o f this land i s destined for forest reserve or i s unproductive, and it cannot be sold or mortgaged. The law on the Community Reconduction o f the Agrarian Reform o f October 2006 i s represents an attempt to address the implementation weaknesses o f the 1996 law.

Bolivia continues to face two main issues o f land-related inequality. The f i rst i s the huge inter- regional difference between the highland, western parts o f the country and the lowland, eastern parts. According to the 1987 agricultural census about 22 percent o f the rural population lives in the western highlands, with 14 percent o f country’s agricultural landholdings by area (1.6 million hectares). The western valleys are home to 60 percent o f the landholders in the country but amount to only 10 percent o f the agricultural land (1.1 million hectares). In contrast, the eastern lowlands contain only 18 percent o f landholders but account for 75 percent o f the land used for production (8.5 million hectares). There i s l i t t le more that can be done about these disparities in the short run, because the only solution i s massive inter-regional migration or further urban labor absorption. This west-to-east migration has already been happening for five decades, but i s constrained ecologically by undeveloped forest land in the east, and economically by the difficulty that poor, landless households have in buying or renting land from existing large landowners,

The second issue i s intra-regional inequity in land distribution. In selected regions-chiefly in northern Santa Cruz, east o f Rio Grande, along the Santa Cruz-Chapare corridor, and Southern Chaco regions--there are impoverished rural populations o f recent migrants in northern Santa Cruz or enclave Guarani and Chiquitano groups in the Chaco which live in areas where there i s plenty o f underutilized land owned by large landowners. For example, there are over 108,000 hectares o f agricultural land in foreclosure and awaiting sale by banks in Santa Cruz.

Given the paucity o f information it i s difficult to estimate the number o f landless and near landless people living in the area. Data from the National Statistical Service, however, on population and poverty sheds some light on the potential magnitude o f the issue. The projection o f economically active population in the rural parts o f the department o f Santa Cruz between the ages o f 20 and 49 i s estimated at 105,000 persons. Poverty figures for the department indicate that 38 percent o f the population i s below the poverty line. Therefore, it can safely be argued that at least 3 8 percent o f the rural economically active population i s poor, which would suggest a poor rural, economically active population o f about 40,000 in the department. Assuming that

21

each o f these i s a head o f households and that households contain 5 members, an estimated 8,000 rural households in the department could be considered poor. In a project designed to benefit 2,200 households, the relationship between the size o f the universe o f potential beneficiaries and the potential beneficiary pool i s quite high for a pi lot project o f this nature. In other words, local over-demand i s unlikely as long as the eligibility criteria are rigorously applied. In this way the project seeks to address the second problem of intra-regional inequalities and will likely benefit more than a quarter o f the poor rural households in the department. If successfulthe roject can be expected to be expanded to other regions o f the country.

Research done on agricultural land markets in the area suggests that they are active and fluid, but highly segmented. Large landowners buy and sell among themselves. Information flows to poorer households about land are weak and land taxes are poorly collected and enforced. Poorer households depend upon salaried labor or acquire land at the margins o f the law by encroaching into forest reserve areas. The significant number o f bank foreclosures, however, the wake o f over-expansion i s soy and other crops by large landholders, has resulted in a significant quantity o f good agricultural land becoming available to the market. This situation therefore represents a case for state intervention in the land market where a large group o f potential buyers (the landless and near landless) lack liquidity and technological know-how to acquire and operate lands which are falling out o f production by their current owners. Supply and demand are strong but the liquidity constraint i s preventing mutually desirable transactions from occurring. In other words, the market failure which the Project will address i s that latent demand for land cannot be converted into effective demand due to limited access to long-term financing by poor farmers.

These considerations raise the question o f the affordability o f land values. As expected, land values in the region are closely correlated with the productive potential o f land, which i s itself largely a product o f rainfall and soil moisture, whether the land i s free o f trees, and geographic location. This results in a striking dispersion in land values. In Mineros, the so-call Integrated Zone-land costs between $500 and $2000 per hectare for cleared land because o f the access to water, the possibility to obtain two harvests per year, and the proximity to processors including sugar refineries. In Pailon, on the other hand, where land receives less rainfall, land values are about hal f the level o f Mineros ($350-$550 per hectare). In Charagua, which i s the dry Chaco forest ecosystem and i s remote from Santa Cruz land sales values are astonishingly low, costing from $10 to $50 per hectare. Because o f their aridity, the lands in Charagua require several hectares per head o f cattle. At these price levels productive projects can yield sufficient cash f low to both pay for land purchase on credit and generate a surplus o f the operator, provided that the poor family has sufficient infrastructure and knowledge. At these price levels the regional impact on poverty reduction can be significant (see Annex 9). If successful the approach piloted by the project could be replicated in other regions.

22

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies

BOLIVIA: Land for Agricultural Development Project.

Project Name

Participatory

Financier Amount IPiDO

WB Ratings

Rural - 1

Rural Investment I 1 Indigenous People Development Project Decentralized

Investment I Participatory I WB I US$77.3 I s

mill.

WE3 US$4mill S

WE3 US$ 38,8 S

Support Make markets

Infrastructure for Transformation

OECAS DFID 0.35 mill

mill.

Promotion for Rural Economic Development

quinoa productive chain

Support to the

Project NationalLand I WE3 I US 28 mill. I S

MACA milVyear

Dutch 3 to 4 Goverment million.

Administration I I I Project Rural I BID I 16 mill Productive I COSUDE- I I

workforthe I I I poor PADER: I COSUDE- 10.25

Closing date

Closed

2006

2005

2007

2005

2009

2006

2006

To be initiated in 2005 for 4 years

Sector Issue

Decentralization - Municipal support

Decentralization - Municipal support

Productive support to indigenous groups

Support to productive infrastructure, particularly energy and communications

Support to land regularization

Support to rural enterprises

Pilot on rural alliances

Promote public-private alliances for local economic development

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

23

Annex 3: Results Framework and Monitoring BOLIVIA: Bolivia Land for Agricultural Development Project.

Results Framework

Narrative Summary

Rural Poverty Alleviation

Objective:

To establish a beneficiary- driven and decentralized land distribution mechanism that allows organized landless or poor farmers to acquire suitable agricultural lands and implement investment subprojects which puts them on a sustainable, higher-income, livelihood path.

outputs: Establishment o f family farms of lands purchased by beneficiary associations

Implementation of eligible investments on new farms

Systematic evaluation

:s Framework Key Performance Indicators 50% increase in family incomes of participating families, compared with control groups and pre- project levels

120 farms selected and acquired by productive associations (PA) via new mechanism

Local level decision- making and monitoring entities established and functioning in 3 selected municipalities

Monitoring system to assess the net economic benefits o f increased agricultural production established

2,200 beneficiary families select, acquire and settle their own farms

Number and types of infrastructure and productive investment subprojects (no targets or distribution set)

Monitoring and Evaluation Comparison o f project participants with non- participants using baseline and at least two periodic surveys

Project impact evaluation undertaken by MDRAMA with baseline assessment and follow-up study of witWwithout project populations focusing on (a) beneficiary selection and targeting and (b) income and production effects

Annual project reviews and supervision reports

Local level entities report to PCU monitoringand reporting

Final independent evaluation commissioned by MDRAMA

Critical Assumptions

Data from project baseline and periodic surveys compatible with other national or regional LSMS-type data

Financial and social sustainability o f land and productive investments

Adequate development of implementation capacity by productive associations

Maintenance of macroeconomic stability, for land to reflect real value and not be used as a speculative asset

Timely and efficient flow o f funds to associations

Effective targeting o f project funding to poor beneficiaries

Financial success and viability of subprojects

24

T-

t v)

K e p. i 3 e CI 0

D v

5 t 3 m m

I

Ip 3 0 I-

I 5 t

D 8

> > 0 m

=: 3

5 t 0 m

3 3 C > o

I

B

B

B

B

B

Annex 4: Detailed Project Description

BOLIVIA: Bolivia Land for Agricultural Development Project.

The project has three, inter-woven components o f land purchase, community investment, and project administration and monitoring. The three components are intended to operate simultaneously to accomplish the project’s objectives. These components are based on simple, “rules o f the game” which provide incentives for beneficiaries to negotiate the best price possible for land purchase, to make sound investments and to be able to re-pay the land purchase loans in a timely manner while improving household incomes. In the land acquisition and productive project, the beneficiary association is the leading actor which proposes, negotiates and finances the subproject with project assistance. For each beneficiary association, a maximum financing amount per family i s established in the Manual o f Operations. Up to certain limits, this maximum amount can be divided between land purchase expenditures and productive investment expenditure. In this way, the lower the land price negotiated, the more funds are available to the beneficiary association for investments. The basic financing parameters established in the project design are depicted in the following table:

Table 1. Basic Financing Parameters

Parameter Maximum overall financing available per family (for land acquisition and productive investment combined) Maximum percentage o f overall amount permissible for land acquisition Maximum amount o f productive investment financing for Technical Assistance Minimum beneficiary contribution in the value of productive investment subproject Land acquisition loan target interest rate to beneficiaries

I Maximum loan renavment Deriod I Loan repayment grace period

60%

10% I 20%

6-8%

15 vears I 3 years

27

Component 1. Land Acquisition Component (US$5.22 million)

The central component o f the project i s the financing o f land purchase by associations o f families o f low-income rural workers. This financing will be made in the form o f long- te rm (15 year) loans to associations through a rotating fund established by the project. About 41 percent o f the project financing will go to this component. The fund will make loans to legally-constituted associations constituted by 5-3 5 fami l ies per association. The loans will be made in the name o f the association and a mortgage on the land will serve as collateral. The specific parcel o f land to be bought will be a decision of the association, which will negotiate for i t directly with the owner and the specific amount to be financed will correspond to the negotiated price. The association will be joint ly responsible for the payment o f the loan. The loan will be administered by financial institutions with presence in the rural area as part o f a Land Fund established by the project and administered as a Trust Fund by NAFIBO S.A.M./BDP, government’s second-tier financial institution.

2. Productive Investments Component (US$8.46 million)

The second component o f the project i s support for productive investments on the land to generate an income stream sufficient for payment o f the land and improvement o f living standards. The component will finance production investment plans for projects such as sesame and garbanzo under small-scale irrigation (Pailon), sugar cane (Minero), soy beans (Pailon, Minero), and cattle (Charagua, Bajo koso). The component wil l finance these investments on a non-reimbursable basis, with a minimum o f twenty percent of the cost o f the investment sub-project provided by the association. The maximum amount per family to be financed will be less than $3,600. The component will operate on the basis o f authorized purchases o f goods and services which correspond directly to the investment plan prepared by the association with the project technicians and approved by both the C O D A L and the PCU o f the project.

3. Project Management, Monitoring and Evaluation Component ((US$1.95 million)

This component will carry out the coordination, administration and financial management o f the project. I t will be based in a project office established in Santa Cruz, with a staff o f technical personnel, and financial managers. I t will also be responsible for project monitoring and evaluation. The fol lowing diagram presents the structure o f the PCU,

28

with the beneficiary groups located at the top o f the chart to emphasize their role in initiating and requesting project support.

2. Productive investments

4. Project Management, Monitoring and Evaluation

Given the severe fiscal constraints that Government faces in the near future, it will

8.46 53 89

1.95 7 100

actively seek additional sources o f support for the project once the demonstrated to be viable.

Table 1. Summary Project Description

lcomponent /Indicative 1% o f Total 1% of Bank- ICosts (US%M)I lfinancing

1. Land purchase 15.22 140 1100

I I I

ITotal Proiect Cost 115.63 I100% 196%

concept i s

It i s expected that the project will benefit approximately 2,200 rural, low-income families, through land transfers that will total approximately 1 10,000 hectares, and will fulfill approximately 20 percent o f the total formal demands for land which have been filed with government. The project will operate exclusively in the department o f Santa Cruz, where both the demand for land, the potential supply i s there, and there are many opportunities o f successful productive projects.

Project Area. There are 9 mil l ion hectares defined as apt for agricultural activities defined in the Land Use Plans for the Department o f Santa Cruz. It is estimated that 30-40% o f these agricultural lands are subutilized or unutilized (deforested, in pastures or overgrown with brush). Background studies indicate that approximately 200,000-250,000 hectares o f these lands are currently available to the market with no need for any additional deforestation. The project itself i s expected to require approximately 1 10,000 hectares.

The initial implementation o f the project will operate in three zones in the Department o f Santa Cruz. These are Mineros, Pailon and Charagua. The project will locate facilitators in theses municipalities, will fully support the C O D A L in these municipalities, and will give priority to associations o f potential beneficiaries who reside in the municipality and

29

give priority to land purchased within the municipality. Background studies show both strong demand from indigenous and campesino groups in these municipalities and a supply o f land available to the market, including significant holdings under foreclosure by banks.

30

Annex 4A: Project Description of Financial Sector Issues and Compliance with OP8.30.

BOLIVIA: Land for Agricultural Development Project.

The purpose o f this annex i s to present the ways in which the project complies with OP 8.30, Financial Intermediation. This operational pol icy applies to the project, since a line o f credit and non-reimbursable grants are included in the design. This annex also reflects discussions with the Bank’s Latin America Region financial sector staff and a formal review meeting that reached an agreement on changes that would lead to compliance (May 10,2007).

The project seeks to use a financial lending mechanism as an instrument for targeted land redistribution activity which addresses a key constraint to poverty reduction. Project design takes fully into account the principle o f OP8.30 to ensure that there i s no adverse impact on the private financial sector and that the underlying causes o f the market failure which the project seeks to address are dealt with as much as possible in an operation o f this size and scope.

Operational Policy 8.30 (OP 8.30) applies because there i s lending to households and businesses and an obligation to repay. According to OP 8.30, it does not matter what kind o f financial intermediary i s involved, or wether the financial assistance i s provided in a l ine o f credit or another reimbursable form. Based on discussions and the documentation o f the project, the key elements o f OP 8.30 that apply include the following:

1. Coordination with the IFC 2. 3. 4.

5.

6.

7. Fiscal Transparency

Consideration o f the need for allocation o f directed credit A review o f financial sector policies and trends Interest rate regime and interest rates applied to financial transactions in the project Non-interest rate subsidies and onlending terms (to financial institutions, to end borrowers) Eligibility criteria for participating financial institutions and the second tier function

31

Coordination with IFC

This project has coordinated with the IFC and it has been agreed that the Bank should take the lead, since sector pol icy reforms and a sovereign guarantee are involved. During discussions, the IFC staff expressed a concern that the relationship with the new National Productive Development Bank (BDP) could lead to heavy state involvement in the financial sector. However, the Bank team explained that national requirements for t rust funds specify that N A F I B O and FODESIF are no longer options - and that their staff and systems have been absorbed into the BDP. It was agreed that the relationship with the BDP would be limited to trust fund administration.

Consideration of the need for allocation of directed credit

In terms o f OP 8.30, there are three questions about the financial sector’s present performance. First, what i s the justification (market failure) for the intervention? Second, what forces or practices are impeding the voluntary f low o f funds to the sector (in this case for land purchase and for investments in crops, animals, and land improvement)? Finally, what can be done under the project to address the impeding factors?

The Bolivian case i s a compelling one. The Bolivian financial sector and the rural economy suffer from mutually reinforcing market failures-ultimately due to historical asset inequalities in the allocation o f prime farmland and weak connections between smaller scale producers and markets for outputs and technology-which have made it impossible for the rural poor to access the financial sector for capital for land acquisition in any form. Smaller-scale producers stuck in l o w productivity farming systems without insurance pose high r isks and high costs to lenders who in turn fai l to provide capital at any feasible cost to these producers for major asset acquisition such as land. Many other would-be producers cannot access land for an agricultural livelihood and become trapped in a low-wage labor livelihood strategy. This set o f mutually reinforcing market failures perpetuates asset inequality in landholding and represses productivity improvements for potential “poor but efficient,” smallholders, leading to a cycle o f reproduction o f poverty. Without intervention in both the productive side, to solve market failures in technology, production and distribution, and on the financial side, to make capital available for land acquisition, the dynamics cannot change to a virtuous circle o f increasing productivity, lowered risks, and ultimately to a more productive smallholder sector and a more inclusive land market. This i s the fundamental justification for the project.

32

In the project context a directed credit o f this type is justified because it substitutes for a missing market in long-tern financing for poor rural inhabitants. If viable, the project intends to gradually lead the way for private financial institutions to enter this market by creating the mechanisms for identifying and preparing low-income fami l ies to successfully pay for land acquisition. The model i s identical to that being used successfully in Brazi l in the Land-Based Poverty Alleviation project. The l ine o f credit has no effects o f crowding out private financing because this is precisely a market into which private finance i s currently reluctant to enter.

The project will thus participate in a relatively small way in financial markets, with about $5 mil l ion in the land acquisition fund, essentially filling a gap in rural lending which has not been considered viable. The project will demonstrate the conditions under which land acquisition financing for the poor can work to accomplish land distribution goals which have been prioritized in the political process. It i s possible that the project will undertake a pi lot commercial approach to provide commercially priced access to credit for productive uses (animals, crops, and small scale land improvement) that would “crowd in” financial institutions (such as MFEs).

There are large potential benefits: the vicious circle o f land asset exclusion, a classic poverty trap, only needs to be overcome once in each local instance to change the long- term dynamics o f the system. In a situation o f compounding, multiple market failures creating these new dynamics requires that each o f the market failures be addressed simultaneously, and indeed each i s addressed in the project design.

A review offinancial sector policies and trends

While the project is not large enough to have a major impact on the financial sector, it does rely on financial institutions to provide services. In addition, the project would benefit from a risk-based position taken by the financial institutions in the future, thereby raising the likelihood o f sustainability by putting land use loans on a commercial basis. (This i s not to say that subsidies linked to land purchase would not be required in the long term - see discussion o n onlending t e r n s below).

The project i s involved with the financial sector through the use o f a lending mechanism to channel funds provided by the Government (and the project specifically) for land purchase or lease. Grant financing for land acquisition was rejected in project design because o f the problem it could create in generating an overly broad self-selection o f beneficiaries and the incentive problems associated with free goods. The project thus

33

proposes to use financial sector institutions instrumentally, as agents to supply funds and collect loan repayments as agents o f the government, managing the funds as trust funds (of f balance-sheet and with no credit risk to the financial institution).

The project will not by i t se l f lead to a competitive new l ine o f private financial sector business in smallholder land acquisition. This would be an unrealistic goal at this time as asset bases o f the poor in terms o f savings, human capital and equipment and the absence o f insurance coupled with poor access to productive technology and market chains are the fundamental problems which the project seeks to address. However, the project will demonstrate a politically feasible and socially beneficial approach to government- imposed land redistribution. This approach will do no harm to the financial sector, and could reinforce the rural credit culture. By demonstrating the viability o f the smallholder clients, particularly for crop, animal husbandry and land improvement, the project could help financial institutions to expand coverage to include potentially profitable rural clients in the future. In addition, the project would improve the profitability and lower the riskiness o f investments in smallholder activities by improving technology transfer and market access.

It i s reasonable to expect that the project will help solve the multiple market-failures surrounding the land market finance failure, particularly in the provision o f technology and linkages to output markets for key groups o f landless or land poor. The intention i s to effect asset redistribution in the locality which changes the income pathway o f the landless and land poor and therefore does not have to be repeated continuously. The relationship with the financial sector is therefore instrumental and program-specific, not systemic.

The Bolivian financial sector, without outside intervention, i s neither interested or able to provide lending for land acquisition by poor households in rural areas. A review o f a few salient facts about the financial sector helps to understand why this is so. In the f i rs t place, the Bolivian financial sector i s small and weakly capitalized, the exact opposite o f what would be necessary to begin to extend into new and risky lines o f business l ike rural land acquisition by poor borrowers. The Bolivian banking system i s small compared with other Latin American countries, a reflection o f the size and poverty o f the Bolivian economy. In the past few years, the banking sector, has suffered a number o f blows that caused capital flight, an increase in the levels o f credit defaults and a persistent shrinkage in the level o f outstanding loans. The crisis greatly weakened the business sector and the economy in general, significantly affecting the solvency and size o f the financial system, especially o f banks. In December 1998, the banking sector had $4.2bn in loans and

34

$3.5bn in bank deposits. In the first week o f June 2005, those figures were $2.5bn (-40%) and $2.6bn (-26%) respectively. Since 1998, more than $1 bi l l ion in bank deposits have been withdrawn, while credit defaults have increased nearly 250%, from 6.5% to 16.3%. Between 1998 and 2005 bank portfolios diminished by 40 percent, while those o f other financial entities increased by 27 percent. Foreign banks held on to their high share in the sector (50 percent) thanks to a consolidation in the early 1990s. Nonetheless, their portfolios also diminished due to the difficult economic situation, which, in turn, discouraged foreign investment.

Since mid 2002, the system has experienced several runs on deposits, accompanied by capital flight. Runs on deposits have been closely linked to political and social instability. Though some entities have been affected more than others, the mass withdrawals have generally affected the entire system and therefore have not led to bank closures on account o f a lack o f liquidity. Neither have they created a systemic problem, due to the system’s high and growing liquidity and to the authorities’ sound need-based management. Nonetheless, bank deposits stabilize at a lower level with each such episode. As of June 2004, the amount o f deposits in the banking system was 75 percent of the December 2001 level and represented 80 percent for the financial system.

In June 2004, the downward trend in bank deposits started to reverse, although the system continued to experience occasional runs on deposits (in mid 2005 with the resignation o f President Mesa). The total portfolio also started to recover in 2005. Despite the recent increase in bank deposits, as o f September 2005, bank deposits were s t i l l 12 percent below their 2001 levels. Recovery o f deposits in the non-banking sector started sooner, in June 2002, above al l in regulated micro-finance enterprises (MFEs), which received a significant portion o f the banking system’s deposits (resulting in a reduction o f their funding costs). This led to an increase in the size and quality o f the MFEs’ portfolios despite the crisis.

The persistence o f a high default rate and the non-performing loan portfolio i s a fundamental weakness o f the financial system. In general, the rise in the non-performing loan portfolio was due to decreased profitability o f local companies owing to the economic recession o f 1999-2002. This effect was particularly relevant in the banking sector due to i t s high exposure to the corporate sector, and even greater for those banks that granted higher-risk loans during the economic upswing o f the early 1990s. At the same time, improved regulation and supervision o f financial entities allowed for greater recognition o f the portfolio in default. In September 2005, the default rate had fallen considerably but continued to be high (15 percent for banking entities and 6 percent for

35

non-bank entities). On the other hand, regulated MFEs continue to have the system’s best quality portfolios. The MFEs’ portfolio at risk (a measure equivalent to the default rate) i s less than 3 percent, one-quarter o f 2001 levels and half as much as during the crisis.

Portfolio rescheduling made it possible to temporarily defer bad debts, but their default rate has been increasing as their terms mature. The coverage o f provisions diminished, increasing capital at risk. The FERE portfolio restructuring program started in 2000 and reached i t s high point between 2002 and 2003 (in December 2002, 32 percent o f bank portfolios and 6 percent o f MFE portfolios were rescheduled). In August 2005, the high and s t i l l growing rate o f rescheduled portfolio default reached 27 percent for the banking sector and 6 percent for the MFEs. On the other hand, provision coverage levels on bank portfolios in default dropped to 73 percent in September 2005 (from 84 percent in December 2004). This reflects an increase in the default rate o f the rescheduled portfolio (from 19 to 26 percent in the same period) which negatively offset the May 2005 increase in provisions resulting from a strengthening o f the prudent ru les o f the Superintendency o f Banks and Financial Entities o f Bolivia (Superintendencia de Buncos y Entidades Financieras-SBEF). At the same time, capital at risk rose from 15 percent in December 2004 to 23 percent in September 2005, though with marked improvements for some banks. The estimated solvency o f the system, measured by the Coeficiente de Adecuacidn Patrirnonial-CAP, which i s the Bolivian equivalent o f the Capital Adequacy Ratio (CAR-a solvency index), held steady at 14.5 percent as o f September 2005 (one percentage point less than in December 2004). Nonetheless, the system’s “CAP” and, in particular, that o f certain banks, would be less if the provisions pending under the new rules were borne in mind as well as those for the rescheduled portfolio not yet deemed to be in default.

Liquidity has continued to grow since 1998 taking into account the withdrawal o f deposits and the shortage o f profitable businesses. In September 2005, liquidity was 30 percent o f total assets, 41 percent o f total deposits, and 75.5 percent o f short term deposits (demand deposits, savings accounts, and deposits with a term o f less than one year). On the other hand, the degree o f coverage o f the deposits without affecting the legal reserve position was 32 percent. An important part o f this liquidity i s invested in government bonds and in short-term deposits and investments abroad. In addition, financial entities have maintained important surpluses in cash in the Banco Central de Bolivia (BCB), above the required legal reserve (even after the recent increase o f the legal reserve requirement, see Section 111). In December 2004 this amounted to a 58 percent surplus in foreign currency and a 321 percent surplus in national currency (BCB, December 2004). Nonetheless, the high concentration o f the system’s deposits (greater

36

than in 2002) i s s t i l l worrisome. As o f November 2005, 518 accounts representing less than 1 percent o f the total number o f accounts) represented more than 26.3 percent o f the volume o f deposits.

In this situation Bolivian companies find that lack o f access to credit notably limits their growth. This observation i s consistent with the fact that credit provided by the financial sector to the private sector has not succeeded in recovering i t s pre-crisis level (33 percent o f GDP), given the slow recovery o f the business sector. The problem i s even greater for SMEs, since banks have tended to concentrate their credit in large (or medium-to-large) companies, while the MFEs target microenterprises (though they have recently also started to serve medium-sized companies).

For banks, the culture o f credit i s based on granting loans against real property guarantees, through overdrafts or trade loans, which limits credit for smaller-sized companies with l i t t l e access to such collateral. Other alternatives to bank trade loans, such as factoring, financial leasing, or securitization, have not been fully exploited to date, but could facilitate credit access in the Bolivian context, above al l for SMEs. With respect to the number o f branches, the non-bank entities (regulated MFEs) have the most coverage and the greatest increase since 1998, even in rural areas. In the banking sector, Banco Union (BUN) and Banco de Credit0 (a Peruvian bank) have the most branches (44 and 43, respectively) with participation in the rural zones (20 and 16 respectively), but s t i l l number less than the MFEs.

MFEs grant the most micro-credit, covering more customers than the banking sector as a whole. NGOs grant loans to 200,000 microenterprises (1.5 times the total number o f customers o f the banking sector). Regulated MFEs grant an even greater volume o f loans to microenterprise (250,000), though this figure has gone down since the crisis. In response to the crisis and intense competition, regulated MFEs have gradually shifted their target to larger businesses, and they have also reduced the interest rate they charge. Small loans (less than US$500) have gradually diminished as a percentage o f total loans provided by the regulated MFEs, amounting to 5.6 percent in June 2005. This i s partly due to small borrowers gradually taking on larger commitments, in accordance with the MFE practice o f granting larger loans each time the customer pays.

Interest rate regime and interest rates applied toJinancia1 transactions in the project

The rural expansion o f regulated MFEs has been limited by: (i) the subsidized rates offered by the Fund for the Development o f the Financial System and Support to the

37

Productive Sector (Fondo de Desarrollo del Sistema Financier0 y de Apoyo a1 Sector Productivo-FONDESIF); and (ii) increased difficulty in loan collections due to debt forgiveness proposals in the recent past. Although the MFEs (mostly NGOs) devote 60 percent o f their portfolio to the rural sector, the average balance o f US$572 i s not sufficient to satisfy the medium-term needs o f export-oriented farmers. Private Financial Funds (PFF), despite being predominantly urban, have helped improve farmers’ access to credit by offering them products adapted to their production cycles, in addition to credit for other rural activities. Distortions introduced by public sector programs targeting this area and social unrest in recent years have affected regulated financial entities’ ability to extend credit services in rural areas, while also restraining the growth o f non-regulated MFEs.

FONDESIF’s lower interest rates and i t s relatively lax conditions for granting credit have also limited the development o f non-regulated MFEs. FONDESIF’s disbursement criteria lack transparency and are exposed to political influences. This might discourage better financial performance and a truly corporate governance o f the NGOs, which depend on subsidized funds administered by FONDESIF. I t has also provoked a l o w leverage rate ( 1 . 6 ~ ~ insufficient to significantly increase their credit) and a greater exposure to exchange risks and volatility. As well, road blocks and other social unrest have lessened the interest in investing in the rural sector, since such conflicts raise the price o f loan collections and increase the volatility o f rural businesses (especially o f smaller ones).

For the project, the interest rate to the end borrower has been calculated on the basis of two components: (i) second tier intermediation through BDP and (ii) commercially oriented local level financial intermediation costs. For the intermediation o f financial resources, the project will establish a trust fund for the land acquisition component through B D P (which has absorbed NAFIBO). The cost o f operating the fund i s estimated to be between 0.7% and 2.0% o f the volume o f funds disbursed. The exact amount i s s t i l l subject to negotiation with BDP. With respect to the first-tier institution (IFIs), the entity or entities will be selected on the basis o f the BDP’s internal policies in accordance with Bank rules, through direct invitation. The BDP will enter into a service contract with the IFIs who will be responsible for the following activities:

0

0

0

0

Elaborate loan contracts for land acquisition by the beneficiary groups. Carry out the land transaction formalities with the Property Registry Disburse funds for land acquisition. Manage loan repayment and management o f guarantees including potential

38

foreclosures Report monthly on the loan portfolio 0

The selection o f beneficiaries and the conditions in the loan agreements will be established by the project with the beneficiary group according to the Operational Manual o f the Project. For the above services the first-tier IFIs will charge 1%-2% with an additional administrative charge o f 0.4% for repayment transactions including foreclosure, charged to the project budget and recovered from loan repayments.

The fol lowing three steps need to be taken for the financial intermediation to be feasible: The groups must plan the activities and disbursements o f the support resources for the production and the Project must carry out a strict fo l low up on the proper application o f the investment plan to ensure that it i s technically, environmentally, socially, and financially feasible; that a guarantee fund be created to mitigate the risks implied by every credit operation (equivalent to 2.5% o f the amount on-lent); and finally, the continuity o f the Credit Component through a rotating fund must be ensured so that continuous fol low up can be carried out on the credit operations and investment plans.

Non-interest rate subsidies and onlending terms (to financial institutions, to end borrowers)

I t i s important in this context to distinguish between the distortions introduced by public sector programs targeting this area (which have affected regulated financial entities’ ability to extend credit services in rural areas, while also restraining the growth o f non- regulated MFEs) and the market failures in the land market and financial services for land acquisition. Distortions have entered in credits for production and equipment, but lending for the land market has never existed from either public institutions or the non- regulated MFEs. The distortion in the financial sector which exists vis-a-vis the rural land market i s the size-bias in lending for rural land purchase to large, highly capitalized borrowers. Neither banks nor MFEs have entered into lending with low-income producers out o f a perception o f high costs in selecting borrowers and preparing and servicing loans and o f high risks o f repayment given the l o w init ial capitalization and technological gaps on the part o f producers. In the literature this issue i s called the “fundamental financing problem o f the poor.” The project i s designed explicitly to address it.

This problem i s overcome by subsidizing productive investments on the acquired land through a matching grant accompanying the land acquisition loan and making the loan

39

payment as affordable as possible to the households acquiring the land. It may be asked in this regard why grants for the entire land acquisition would not be preferable to lending, but the project, following best practice f rom Brazi l proposes a loan because the lending approach i s expected to filter out rent-seeking beneficiaries, creates incentives to improve productivity and creates the possibility for a rotating fund which broadens the scope o f impact. Selection o f beneficiaries and preparation o f productive projects will be handled on a demand -driven basis, with organized groups in the project area utilizing assistance from the Project Coordinating Unit to prepare proposals for land acquisition and viable productive projects which will be vetted by the PCU and a local development council. In this way viable projects will be pre-selected to the extent possible, lowering repayment risks.

With loan rates to be set in accordance with the rate o f the Bank-financed credit plus administrative costs and provision for a guarantee fund, the line o f credit i s subsidized by the Bolivian government to the extent that no additional risk premium i s being charged. In other words, a subsidy equivalent to the r isk premia which would be charged by a private financial institution i s being made. This mechanism i s not meant to be a direct subsidy on the interest rate - instead, it amounts to setting a price for a product and market that does not exist (long term financing o f land purchase).

The lending for land acquisition i s implici t ly subsidized because the government i s paying for the risk premia associated which would otherwise be required by the private financial institutions to make the lending operation profitable over the long-term. If the comparison i s made between interest rates o f 7% which the project foresees and market rates o f 14% for similarly guaranteed loans, a 50% subsidy i s implied. It should be noted, however, that this i s a highly speculative analysis because the private financial institutions are not currently engaged in this kind o f lending to low-income borrowers. Inf lat ion (estimated to be 4.3% for the twelve months ending June 30,2007) and potential currency devaluation wil l gradually reduce the purchasing power o f the funds as they are repaid in local currency. Therefore the fund wil l gradually decline in i t s capitalization.

To avoid decapitalization, the project will consider a pi lot operation for crop, animal husbandry and small scale land improvement, in which the MFEs and other participating eligible financial institutions use their liquidity to finance loans to producer groups. MFEs are under competitive pressure to expand beyond urban markets and several are actively seeking new rural clients (such as producer groups). Therefore, the MFEs could be interested in a commercial approach to rural financing that would build on initial project efforts.

40

Such clients may be attractive to MFEs. Field visits found that, despite the fact that the group o f fami l ies that were visited has a high level o f poverty, they have different credit experiences. Some groups o f medium-sized producers in Pailon have even had successful credit experiences with export companies and non-regulated entities. In Minero the Guaranis have a credit system to purchase plots o f land at the initiative o f the Captaincy, with good results in the recovery. Finally, in Charagua Norte beneficiaries also have had credit experiences with group cattle-raising activities.

Eligibility criteria for participating financial institutions, and the second tier function

Local financial service providers will be chosen based on their track record and their ability to provide services in the project area. Although not taking the credit risk on their balance sheets, the local financial institutions have incentives to actively monitor the loan repayments and work out problematic loans because their regulatory rating takes into account the quantity o f loans in arrears, because they have a financial incentive to continue to operate the project and because Bolivian law requires foreclosure and auction o f mortgages in arrears. Bol iv ia has a good recent record o f encouraging a culture o f credit re-payment and Bolivian law on mortgage foreclosure i s quite strict. There are clear rules o f the game explained in the Operational Manual for the approval o f beneficiary organizations, each o f which must be a registered, legal entity. In this regard the project complies with the Bank’s Operational Policy 8.30 which sets out guidelines for l ines o f credit.

The Land for Agricultural Development Project i s legally obligated under Bolivian law by i t s nature as a public-private transfer mechanism to channel i t s financial activity for land acquisition through BDP. The proper selection o f the institutional channel through which the credit funds will f low has both legal restrictions and implications for the interest rate for the final beneficiary. Legally, Supreme Decree No. 25338 o f 1999 establishes that al l resources for “micro-credits” that come from the State and those that originate from loans or donations from international cooperation agencies must be channeled through the second level entities called FONDESIF and NAFIBO (Article 2). As o f January 1, 2007 with the emission o f Supreme Decree 28999, the Bolivian government created the Productive Development Bank (Banco de Desarrollo Productivo, BDP) which essentially absorbs the entire operation o f NAFIBO. FONDESIF i s prevented by the same decree from undertaking any operation which is similar or parallel to BDP. BDP has so far maintained the same operational standards as NAFIBO, but concerns have been expressed that i t s new Board may be politicized and that the

41

institution may relax repayment standards for political reasons. Channeling funds for land acquisition through BDP would require a 1 percent administrative cost on the portfolio that i s placed. It requires an Administrative Agreement with the Project for i t s operation. The operation o f the trust fund for the line o f credit for land purchase must be channeled through BDP, given recent changes in national laws.

According to the data and extensive consultations carried out with representatives o f these institutions it was decided that the project’s credit resources will be administered by a Cooperative or an NGO. The entities that are present in the Project’s area o f influence are: (i) Cooperatives including L a Merced and San Gabriel, (ii) Financial NGOs including FONDECO, FADES-TRAPETROL and (iii) PFF PRODEM. Consultations with al l o f the above indicated that L a Merced, San Gabriel, and FADES are al l interested in carrying out the lending activities. The project will select a financial entity by means o f a Public Bid to receive expressions o f interest. In the event o f a pi lot operation for crop, animal and small scale land improvement activities on a commercial basis, additional MFEs and other financial services providers could express interest in the future.

These three financial institutions are very similar, providing a range o f lending to businesses and individuals in the Santa Cruz area including annual production credits to agricultural operations. They are relatively small, with loan portfolios o f between 10 and 20 mi l l ion dollars and capital between 2 and 5 mi l l ion dollars. Their total lending activity is about 50 mi l l ion dollars. Interest rates on their commercial loan products range from 12% to 26% depending on the source o f the finance, the amount o f the specific loan and the type o f collateral offered.

Flow o f funds models have been built with feasible rates both at the financial entity’s level and that of the different productive models. In the project’s financial background study it i s shown that, taking into account al l the aspects, from channeling the funds, to the sustainability o f the financial entity and the feasibility o f the projects to be implemented, an interest rate o f 7 % to the final beneficiaries is foreseen.

The recommended loan term i s 15 years and, depending upon the l ine o f business, up to 3 years o f grace can be included; it is also possible to even have one period where capital or interest i s not paid (the term o f the loan i s similar to housing finance). These terms permit repayment periods o f as l i t t l e as 10 years, but the flows are quite tight which, in variations o f income and/or production costs, could cause problems in repaying the debt. On the other hand, very long terms, such as 20 years, provide comfortable flows, but sacrifice a faster return on the resources to be able to benefit more families. The

42

economic and financial evaluations o f the cash flows, both at the national level and on the group level in general, are positive. There are indicators such as the N P V and the IRR that recommend the implementation o f the Project, except for some care that must be taken, such as the case o f the Charagua cattle modules. The Project’s N P V i s 17.6 mi l l ion dollars and the IRR i s 16 YO.

Because o f the riskiness o f the beneficiary population, the project intends to create a Fund for Risk Compensation which will be managed in an independent sub-account under regulations established by the Project Coordinating Unit (PCU). The PCU will authorize disbursements from this account on the basis o f technical issues such as floods or catastrophic crop failure.

Both beneficiaries and lenders have basic incentives to ensure repayment o f the loans based on the use o f the land as collateral. Beneficiaries expect to receive full, private, transferable title to the land in the case o f purchase and long-term use in the case the project also develops a leasing option. In the event o f foreclosure this wil l be forfeited. The concern has been raised that it may be dif f icult to foreclose on a state-sponsored land reform project, but this i s considered unlikely. The IFIs have no choice in the matter legally and are required to carry out foreclosure. What i s l ikely i s that other local groups could take over the areas o f groups in arrears. Demand i s expected to be strong by beneficiaries because o f the possibility o f acquiring land in full ownership. Land distributed from public sources, in contrast, is non-transferable and only permitted to be held in community title.

Fiscal Transparency

The project will be registered in the national budget as an externally-financed land access program corresponding to the Ministry o f Rural Development, Agriculture and Environment (MDRAMA). The project concept i s fully transparent, having been approved by the Cabinet o f the current government with a Supreme Decree. The loan i t se l f is handled by the Vice-Ministry o f Public Investment and External Financing within the Ministry o f Development Planning. The loan is conceived as a Specific Investment Loan and is made under IDA terms. There i s therefore a high degree o f fiscal transparency.

43

Annex 5: Project Costs

BOLIVIA: Bolivia Land for Agricultural Development Project.

Local Foreign Total

%million $million $million Project Cost By Component and/or Activity us us us

Component 1. Land Purchase 4.86 0.00 4.86 Component 2. Productive Investments 7.86 0.00 7.86 Component 3. Administration 1.75 0.00 1.75

Total Baseline Cost 14.47 0.00 14.47 Physical Contingencies 0.00 0.00 0.00 Price contingencies 1.16 0.00 1.16

Total Project Costs' 15.63 0.00 15.63

'Identifiable taxes and duties are US$ 0.3m, and the total project cost, net o f taxes, i s US$15.33m. Therefore, the share o f project cost net o f taxes i s 98%. Beneficiary contributions are estimated at $0.63m.

44

Annex 6: Implementation Arrangements BOLIVIA: Bolivia Land for Agricultural Development Project.

The implementation o f the project wi l l be the responsibility o f the Ministry o f Sustainable Development, through i t s Vice-ministry o f Lands. A Supreme Decree creates the legal basis for the project to act as a legal entity and gives the MDRAMA the authority to create the financing mechanisms for the project as well as the Project Coordinating Unit (PCU).

The project PCU will implement the project on a day-to-day basis from an office established in Santa Cruz. The PCU will operate autonomously on the basis o f the loan agreement, the project Operating Manual, the Financial Management Manual and the Procurement Manual prepared for the project. The PCU will report to the Vice-ministry o f Lands and each o f i t s annual workplans will be subject to approval by the Vice- ministry. In addition the Departmental Commission for Rural Development will review and approve the annual workplans o f the PCU.

To operate the Land Purchase Component, an agreement to create a l ine o f credit between MDRAMA and BDP will be made. BDP will, in turn, create trust fund agreements with one or more financial institutions with operation presence in the project areas to make and administer the loans, subject to supervision by BDP. BD will manage these funds as a trust fund, supervising the first-tier financial institutions, holding the repaid funds for new lending and assuring the integrity o f the fund.

Funds for the productive investment sub-projects which are non-reimbursable, will be transferred directly to the beneficiary associations accounts by the Project Coordination Unit. Beneficiary associations will be created at the initiative o f beneficiaries themselves, based on general information about the project, and detailed procedures which will be explained in training sessions and through manuals to interested groups.

The following diagram illustrates the flow o f funds and the institutional arrangements between the public and financial agencies implementing the project.

45

Diagram 1. Flow o f Funds.

World Bank (Credit Agreement with Ministry o f Finance)

Central Bank Special Account

BDP Admin. O f Land Fund (Trust Fund Contract with MDRAMA )

Coordinating Unit Prepare Loan and Investment Package with Beneficiary Association

Local Financial Institution: Mortgage registered; funds transferred to seller; Land to Beneficiary Associations (Agreement)

Investments (Non-reimburseable matching grants) Transferred to Beneficiary Association

Beneficiary Association Accounts for Investments and Loans

46

A set o f institutional agreements have been developed to regulate these arrangements. A subsidiary agreement between the Ministry o f Finance and MDRAMA will be established to give MDRAMA the ability to manage funds. MDRAMA and BDP in turn have entered into a agreement for the management o f the land purchase funds as a trust fund. MDRAMA i s the trustee and B D P i s the manager o f the trust. This arrangement assures provides a mechanism for the supervision and management o f the loans as they are repaid. The agreement makes BDP responsible for managing the trust, reporting on it, and for selecting and monitoring the first-tier financial institutions which will make loans to beneficiary associations using the trust fund. BDP will enter into agreements with the selected local financial intermediaries for making the loans to beneficiary organizations. Beneficiary organizations will enter into one agreement with the PCU for the association’s financing plan (credit and matching-grant). Standard credit contracts will be made between the first-tier financial institutions and the beneficiary associations for the land acquisition loans. The first-tier financial institutions will assist the beneficiary association in the mortgage and land sale transaction. Agreements will be made between the PCU and the participating municipal governments to stipulate the nature o f the support for the project by the municipal government and clarify the roles which the PCU will play.

In this institutional structure, the two bodies which carry out the screening and approval process for land acquisition and investments are the Project Coordination Unit and the CODAL. The PCU will assist beneficiary associations to prepare proposals for land acquisition and productive projects for submission to the CODAL. Based o n the proposal submitted according to standard formats the C O D A L will evaluate the eligibility o f the beneficiaries, the eligibility o f the land, the terms o f the sales contract and the viability o f the proposal. If it finds these acceptable, the C O D A L will issue a recommendation that the project be funded. This recommendation will trigger the P C U to finalize the financing plan with the beneficiary organization and permit the beneficiary organization and the financial intermediary to finalize a credit contract for the land purchase.

Funds will be transferred directly f rom the Special Account to BDP and from B D P to the first-tier financial institution to pay for the land acquisition. The beneficiary association will pay back the first-tier financial institution over time (maximum o f 15 years), and the first-tier financial institution will hold a mortgage for the land until it i s fully paid. At the same time as the land purchase i s realized, funds will be released in tranches to the beneficiary association’s bank account for expenditures for productive investments up to $10,000 in value. Larger investment sub-project expenditures will be paid for directly by the PCU on behalf o f the beneficiary association. Beneficiary associations will be

47

responsible for applying appropriate procurement practices and for prompt expenditure reporting and will receive training in each step o f the cycle from the representatives o f the PCU,

Local-level Institutional Arrangements.

The implementation o f the project wi l l be managed in a decentralized manner, through a PCU, and through Memoranda o f Understanding with the municipal governments o f Mineros, Pail6n and Charagua.

The project i s executed on a demand-driven basis by the beneficiaries-the indigenous and campesino agricultural workers who have no land or insufficient land to satisfy the basic needs o f their families, and their local organizations. The beneficiaries will execute the project through the organization o f producers’ associations which will present proposals for the financing o f land purchase and the realization o f productive investments on the land which they intend to acquire.

The project will strengthen (or, in some cases establish) a local decision-making body in each municipality through a Local Rural Development Council (Consejo de Desarrollo Agrario Local-CODAL) in which each proposal wi l l be reviewed to approve: 1) the eligibility o f the beneficiaries; 2) the eligibility o f the agricultural property to be acquired; 3) the financial proposal for acquiring the property, and a f i rs t draft o f the Community Investment Work Plan (Plan de Trabajo Productivo Comunitario-PTPC), in which i s defined, with support from the PCU, the basic l ines o f implementation o f productive activities on the land to be purchased. The CODAL will also assess the environmental soundness o f the proposal.

The CODAL constitutes the first institution which makes decisions in the implementation o f the Project, as it makes the initial approval o f proposals. In each municipality, the PCU i s the organ o f coordination and follow-up for the implementation o f the project, wi l l assure that all o f the procedural requirements are followed in the submission o f the proposal to the CODAL, as well as verifying in situ all o f the technical, social, environmental, legal and financial information. The PCU i s also responsible for assuring that the beneficiary association implements the planned project.

The CODAL i s comprised o f State representatives from the Department (Department o f Natural Resources), municipal officials, and organized civil society, essentially from the

48

rural labor confederations which are expected to sponsor the local groups. In this way the municipalities and the rural labor confederations are directly co-implementers o f the project with the MDRAMA through their membership in the CODAL.

At the Departmental level a Consultative Committee for Rural Development will be formed to accompany the project. It will be consulted periodically to provide feedback on the annual workplans, project and the project’s implementation. The Consultative Committee will make recommendations for improving workplans and for orienting the project for maximum effectiveness (for example, by providing information about lands available). The Consultative Committee will be created by, and is a subsidiary of, the Departmental Agrarian Council.

The project i s demand-driven and beneficiary-led. Beneficiaries will be the main actors in organizing and canying out the project. The PCU will strongly support the beneficiaries to play this role. In this sense he project will guarantee for all, particularly women and young people:

Support for understanding and filling in al l documentation related to land purchase and productive investment.

Assistance with elaborating, negotiating and executing formal contracts and agreements.

Assistance in the planning and deliberations o f the local level associations.

0 Assistance to ensure that each proposal i s taking into account the environmental norms associated with the project.

0

49

Annex 7: Financial Management and Disbursement

BOLIVIA: Bolivia Land for Agricultural Development Project

A financial management assessment was originally performed in March, 2005. In view o f the changes that took place in government administration and other recently adopted policies, and legislation, the project implementation arrangements had to be updated; and therefore, an update o f the financial management assessment was performed in March, 2007. The updated assessment was performed in accordance with OPBP 10.02 and the Manual “Financial Management Practices in World Bank - Financed Investment Operations”. I t included both the on-going situation o f the PCU established within the Viceministry o f Land o f the Ministry o f Rural Development, Agriculture and Environment (MDRAMA) and the new conditions for the operation o f the land acquisition component, under the newly created Productive Development Bank (here in after BDP).

Executive Summary and Overall Conclusion

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

Both, inherent risk and control risk have been rated as HIGH. Downgrading the control risk to modest would actually be possible if the adequacy o f proposed financial management arrangements, especially related to disbursement mechanisms can be tested and strengthened with the PPF pilot and if the PCU staff develop the required expertise, to support project implementation. Other key issues to be evaluated under the PPF i s the proper and efficient operation o f the CODALs that wi l l play a key role in the approval process, and the adequacy o f the disbursement mechanisms under different project components to timely proposed any required adjustment.

In relation to BDP’s involvement, from the financial management perspective the current conditions can be considered acceptable, as BDP has inherited from NAFIBO the expertise and the financial technology in terms o f internal regulations, structure and procedures to operate the financial intermediation function. However, those conditions can not be really isolated from the whole legal, institutional and even political context, in

50

which the BDP will have to operate in. Under such conditions, it will be critical that a draft subsidiary Administration Agreement to be entered into between MDRAMA and BDP be submitted to the Bank before negotiations for Bank’s review from the legal, institutional and operational perspective. Additionally, as NAFIBO completes i t s full juridical conversion to BDP, the signature o f the agreement should be included as an effectiveness condition. Further to the compliance with such requirement, project team will have to closely oversee BDP’s performance in terms o f project implementation, both under the PPF and during project implementation, to timely identify any adverse situation that may prevent B D P from complying with the conditions and responsibilities set in Administration Agreement.

Risk Risk Risk Mitigating Measure Incorporated Residual into Project Design Rating

O n the basis o f the progress reached so far and subject to the successful completion o f the actions described above, that will be respectively followed up to negotiations, board presentation and project effectiveness, the financial management arrangements can be considered acceptable to the Bank, as long as they can be supported by the adequate legal framework. Besides, i t i s extremely important to note that monitoring and supervision o f the operation o f such arrangements, as expected, will be essential to guarantee the adequacy o f the internal management system.

Condition of Negotiations, Board or Effectiveness (Y/N)

Summary of Financial Management Assessment

Bolivia’s country PFM risk rating i s substantial’. Main weaknesses identified are related to the uneven application of the legal framework, particularly with

1. Risk Assessment and mitigation

M Project would be implemented by a ring- Adjusted Operational fenced PCU, which staff would be financed Manual duly approved out of credit proceeds and which should and adopted by follow specific Bank’s selection procedures. MDRAMA before project Additionally, specific processes and implementation. procedures have been defined in an

’ 2004 CFAA

51

regard to financial reporting and the internal control environment. The situation within MDRAMA i s not really different, and i t might even become worse in view of the high staff turn-over that took place during the last vear.

organizational and operational tasks to be taken to complete the transformation o f NAFIBO into a Development Bank, including the definition o f the criteria to work with non- regulated IFIs

Severe salary reductions in the Bolivian public sector have seriously affected the ability to attract and maintain highly qualified professionals.

Entity level Various institutional issues, including the change o f Minister within the f r s t year o f administration, have affected MDRAMA’s capacity to efficiently define policies, strategies and timely make decisions, causing in some cases delays in projects’

M

M

Operational Manual, providing for adequate internal controls, and segregation o f duties.

Specific legal framework (Supreme Decree) setting for the enabling legislation for project implementation wi l l be required.

Selection o f project staff wi l l follow Bank selection procedures. Additionally, PCU’s salaries wi l l be financed by credit proceeds, and although the same government salary structure wi l l be used, having an external source o f financing may at least reduce the possibility o f staff turn-over.

As part o f the capacity building effort for strengthening the whole portfolio, project staff wi l l receive specific training on Bank’s policies and procedures.

Project Operational Manual that sets for clear processes and procedures needs to be approvedratified and adopted through the corresponding Ministerial Resolution to be issued by MDRAMA, by ratifying their agreement with the proposed arrangements.

The Subsidiary Administration Agreement to be entered into between MDRAMA and BDP wi l l be reviewed by the Bank from the legal, institutional and operational perspective.

Effectiveness (Y)

Project staff should be selected and contracted before project implementation begins. To the extent possible, selection o f key fiduciary staff should be subject to Bank’s prior review.

Operational Manual approved by MDRAMA before effectiveness.

Effectiveness (Y)

Draft agreement reviewed by the Bank before negotiations. Negotiations (Y) Agreement signed. Effectiveness (Y) Operation Manual

adjusted to reflect the procedures agreed for the operation o f the CAT component with the involvement o f the BDP.

52

I Effectiveness (Y)

M

Project level Project designs calls for the participation o f several external organizations such as local committees (CCODAs, CODALs), which in some cases may include the participation of civil society organizations, that are not clearly defined.

Project design includes decentralization o f funds flows, and interaction with low-capacity groups.

Project staff wi l l be trained and carefully evaluated during PPF pilot, to ensure they develop the required expertise to operate the fm arrangements as expected.

Low capacity in rural producerkommunity groups to manage funds.

CONTROL RISK Budgeting Accounting Internal control

Funds Flow may be delayed if arrangements within the BDP or IFIs do not operate as expected.

Financial Reporting

S

M

M

The Operational Manual presents an initial attempt to define roles and responsibilities for all external organizations involved in the project. However those roles need to be refined and further reviewed form the technical point o f view. During the PPF pilot, the participation o f those organizations needs to be carefully evaluated to propose any required adjustment. Specific simplified procedures have been designed by the PCU for the implementation o f the sub-projects, mainly in terms o f planning, disbursing (funds flow) and financial reporting for each component. Those arrangements are beingf reflected in the Operational Manual The project design includes some mechanisms to build capacity, including the provision o f technical assistance by project staff in the field. Simplified procedures, documents and reporting requirements are being defined. Close supervision during the PPF pilot wi l l also help to identify any required adjustments.

M

M

The funds flow arrangements have been simplified to the extent possible and they wi l l be tested during the PPF pilot to evaluate any bottlenecks that need to be overcome, mainly in relation to the authorization and approval processes. The core content of the financial reports has been agreed and the ring-fenced system wi l l allow the DreDaration o f the renorts.

Operation Manual adjusted and revised

project before effectiveness.

Effectiveness (Y)

Operational Manual ratified by MDRAMA

Effectiveness (Y)

Operational Manual ratified by MDRAMA

Effectiveness (Y)

F M processes and procedures wil l be reviewed during PPF pilot and adjusted as needed before project effectiveness.

The system should be installed and adjusted to the project needs before

53

Auditing

project effectiveness Effectiveness (Y) Audit TORS will be prepared and agreed with the Bank six moths after implementation begins.

Negotiations Agreement signed before Adequate reporting requirements wil l need

to be reflected in the agreement to be entered between MDRAMA and BDP. An audit firm will be selected within the six months after effectiveness in order to require interim visits, including field visits to beneficiaries to mainly review the adequacy and operation o f the internal control system.

M

2. Implementing entity

The overall project implementation wi l l rest with the Project Coordinating Unit (PCU) established by the Ministry o f Rural Development, Agriculture and Environment (MDRAMA) under i ts Viceminister o f Land. The PCU will start operation with the support of the Project Preparation Facility approved by the Bank, and just declared effective. As described in section C.2. o f this PAD, the operation o f the land acquisition component will require that the MDRAMA enters into a Subsidiary Administration Agreement with the Productive Development Bank (BDP), that i s being established by the Bolivian Government on the basis o f former NAFIBO (second- tier bank).

Organization and staff

The PCU will be established in the city o f Santa Cruz and it will be led by a Project Coordinator, supported from the fiduciary side by a Financial Management Specialist and a Procurement Specialist. In order to facilitate coordination with the central level, a Finance and Administrative Liaison wi l l be established within the Viceministry, to ensure timely coordination with the Ministry’s General Administrative Office, and other requirements, as needed. The core financial management tasks will also be supported by an accountant, an fm assistant and project facilitators in the field. Given the importance o f having highly qualified and experienced staff to ensure adequate operation o f the financial management system and in order to guarantee some level o f stability, all key project staff w i l l be financed with credit proceeds, although following the government’s current salary structure. With the effectiveness o f the PPF, project staff has recently been selected. Therefore, it wi l l be important that a strong capacity building effort be conducted to make sure staff are adequately prepared and trained to support the implementation o f the PPF pilot.

54

Given the decentralized scheme o f the project, it will be critical that the operation o f the agreed structure and mainly the coordination with the central level be carefully followed and evaluated within the first year, in order to propose any required adjustment.

3. Programming and Budgeting

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

4. Accounting Policies and Procedures

During the assessment, it was agreed that project transactions will be recognized fol lowing the cash basis o f accounting, and it will initially use the Chart o f Accounts issued by the General Accountant’s Office. With the support o f the ring-fenced system, the Government’s Chart o f Accounts will be complemented with a more functional classification in terms o f project components, sub-components and cost categories, as needed. Specific policies and accounting procedures have been defined in the Operational manual for the recording and control o f disbursements made to different sub-projects and the control and recording o f counterpart contributions.

In accordance with local regulations, project execution will also be recorded in SIGMA (Government’s integrated financial management system) following the adjustment entry mechanism. This modality basically obeys to the decentralized scheme o f the project. However, i t has also been agreed that once the appropriate arrangements are made for the use o f SIGMA in Santa Cruz, project transactions will be recorded on a real-time basis, fol lowing the same arrangements defined for other WB financed projects.

5. Information management systems

Given certain limitations SIGMA may have to provide all necessary information to the PCU needs, and the issues around the operation o f the Single Treasury Account (CUT)

55

described in section 9 below, it has been decided that project transactions would be recorded in a ring-fenced system. Such system, also used by other WB and IDB projects actually integrates a budgetary, accounting, procurement and a subproject module, allows keeping records both in local currency and US dollars, classified by component and cost category as necessary, recording o f cash and in-kind contributions, preparation o f withdrawal applications and IFRs. Following the effectiveness o f the PPF, the PCU needs to complete the installment o f the system and ensure the necessary training for recently hired project staff for the operation and proper use o f the system.

6. Procedures and internal control.

The PCU has prepared an Operational Manual that includes specific processes and procedures for the operation o f the CIC and C A T components, especially relating to disbursement mechanisms, counterpart contributions and financial management arrangements to be followed by the community/producer organizations, in terms o f record keeping, reporting requirements, and internal controls. However, the procedures set will need to be refined and/or adjusted as needed once other project related documents such as the agreement with the BDP for the C A T component are defined. Further to the specific FM functions, it i s critical that responsibilities, processes and procedures defined for the review and approval o f beneficiaries, land purchase proposals and sub-project plans are clearly defined, especially given the participation o f external organizations such as the CCODAs, CODALs, etc. The adequacy and efficiency o f those procedures need to be carefully and continuing evaluated both under the PPF and during project implementation.

7. Financial reporting

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

56

The PCU will be responsible for the issuance o f IFRs for the project as a whole, including the C A T component, and they will therefore require that BDP reports quarterly on the disbursements processed through the different IFIs. IFRs will be submitted to the Bank within the 45 days after the end o f each calendar quarter. The reporting arrangement should be reflected in the agreement to be entered into between the MDRAMA and BDP.

Financial reporting at producer/community organizations level

Simplified record keeping and accounting arrangements at the community level have been defined in the Operational Manual. With such instruments, Producer/community organizations will be required to prepare simplified financial reports, which design and minimum content (sources and uses o f funds and cash balance) have been agreed. A model o f the report would become part o f the financing agreement and organization members in charge o f financial management tasks will receive specific training for the preparation o f the reports,

8. Audit arrangements

In accordance with Bank policy, annual audit reports on project financial statements, including management letter should be submitted to the Bank, within six months o f the end o f Borrower’s fiscal year (December 31). The audit should be conducted by an independent audit firm acceptable to the Bank, and under terms o f reference approved by the World Bank. The scope o f the audit would include the review, on a sample basis, o f internal control and supporting documents at beneficiaries’ level, taking into consideration project specific circumstances, features and responding, as appropriate, to identified risks. Audit cost would be financed out o f credit proceeds and selection would fol low standard Bank procedures.

9, Flow of funds and disbursement arrangements

Considering the results o f the assessment, the following disbursement methods may be used to withdraw funds from the credit: (a) replenishment, (b) advance, and c) direct payments.

Under the Advance Method and to facilitate implementation, a Special Account (SA) in US dollars will be opened and maintained in the Central Bank o f Bol ivia in the name o f the project and it will be managed by the PCU. To process payments, the P C U will be

57

able to withdraw the required amount to a local currency bank account (fiscal account) from where payments to consultants/providers and transfers to the beneficiaries’ bank accounts would be made2. Funds deposited into the SA as advances, will fol low the Bank’s disbursement policies and procedures, as described in the financing agreement and Disbursement Letter.

The ceiling for advances to be made into the SA would be US$ 1.0 million, estimated to be sufficient for project execution for a period o f at least 4 months. I t i s expected that eligible expenditures paid out o f the SA be reported on a monthly basis. Supporting documentation for documenting project expenditures under advances and reimbursement method will be: statement o f expenditures (SOEs) and records for all expenditures above the thresholds3.

Beneficiaries ’ bank accounts. Each producer organization/ community will open and maintain a local currency bank account (saving account), exclusively opened to deposit their counterpart contribution, when it corresponds, and to receive credit proceeds for the implementation o f the community investments sub-project, under the CIC component. These accounts will be opened in the Intermediary Financial Institutions that will be selected by BDP following a criteria approved for similar operations. Therefore these institutions will need to fol low and comply with certain criteria to be established by BDP, for managing credit proceeds.

Disbursement arrangements under CA T component

Disbursements for the land purchase component would be channeled through Intermediary Financial Institutions (IFIs) operating in each project area that would enter into mortgage loan agreements with legally established producer/community organizations. Under current local regulations4 public funds addressed to support credit to the productive sector have to be chanelled through the recently created Productive Development Bank (BDP), a second-tier bank that together with MDRAMA and

Taking into account that the Intermediary Financial Institutions where beneficiaries’ accounts will be kept are not yet part o f the banking network used for the operation o f the Single Treasury Account (CUT), the project can not use the country’s payment mechanism.

The thresholds defined for procurement prior review are as follows: (a) contracts for goods costing more than U S $ 50,000 equivalent per contract; (b) contracts for works costing more than US$250,000 equivalent per contract; (c) contracts for individual consultants costing more than US$ 20,000 equivalent per contract; (d) contracts for consulting f i r m s under contracts costing more than $ 35,000 equivalent per contract.

Supreme Decree NO28999 dated January 1,2007

58

following specific regulations, would participate in the selection o f the IFIs that will be finally in charge o f channeling those public funds to targeted project beneficiaries once a thorough technical, legal and financial analysis i s performed by the PCU’s technical team and the C O D A L as per the procedures defined by in the Operational Manual.

I Expenditure category I Amount (in US$ million) I Financing percentage

However, credit proceeds would only be transferred to BDP and to the IFIs on the basis o f the disbursements programmed by each IFI, reflecting the operations (credits) approved by and which are ready to be disbursed. Therefore, no funds would be stocked in BDP or the IFIs.

1) Land Credit Facility 2) Investment Subnroiects

The exact mechanisms to be followed for disbursement o f credit proceeds under this component are being detailed in the Operational Manual and will be reflected in the corresponding agreements to be entered into between the different participating parties.

4.66 100 7.07 100

Disbursements under the Productive Investment component

Expenditure category 1) Land Credit Facility 2) Investment Subprojects

operating costs for Component 3 4) PPF 5) Unallocated

3) Goods works, consultants, and

Disbursements under this component would be managed by the PCU. Two disbursement methods have been adopted, a) a lump-sum basis, where disbursements will be made in one or several tranches on the basis o f physical progress reports, duly authorized and approved by the corresponding technical staff as a result o f in-site inspection; and b) disbursements based on actual expenditures for certain type o f sub-projects. A combination o f both methods may also be considered in certain cases.

Amount (in US$ million) Financing percentage 4.66 100 7.07 100

1.65 100 1 S O 100 0.12

Specific procedures for different funds f low arrangements to ultimate beneficiaries are defined in the Operational Manual, and will be reflected in the corresponding financing agreements. In al l cases, the PCU will exercise i t s fiduciary and oversight role through i t s technical and field staff.

3) Goods works, consultants, and operating costs for Component 3 4) PPF 5) Unallocated

Allocation of Credit Proceeds

1.65 100 1 S O 100 0.12

TOTAL 15.00

59

Financial management supervision during implementation

Considering the results o f the assessments, and the identified associated risks, it wi l l be critical that in addition to routine desk review o f IFRs and audited financial statements, at least during the first year, financial management supervision includes in-site visits to the Santa Cruz Office.

In-site visits would be focused on ensuring that financial management arrangements are operating as expected and that the PCU i s able to maintain adequate internal control arrangements. Supervision should also help to identify the need for further adjustments to the Operational Manual and or other coordination procedures.

Readiness for implementation

Although significant progress has been made since project preparation started, the recent changes related to the operation o f the land acquisition component with the involvement o f the recently created BDP, makes it necessary that Bank’s project team carefully reviews the draft Agreement between MDRAMA and BDP, to make sure that legal, institutional and operational arrangements are being adequately addressed. Additionally, the legal framework for project implementation needs to be updated to ensure consistency with other related regulations.

60

Annex 8: Procurement Arrangements

A) General

Procurement for the proposed project would be carried out in accordance with the World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits” dated May 2004; and “Guidelines: Selection and Employment o f Consultants by World Bank Borrowers” dated May 20044, and the provisions stipulated in the Legal Agreement. The general description o f various items under different expenditure category i s described below. For each contract to be financed by the Loan, the different procurement methods or consultant selection methods, the need for prequalification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank project team 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.

Procurement of Works: Works procured under this project, would include very small contracts for infrastructure upon demand o f the conformed family groups. They wil l be procured by communities using shopping procedures and standard documents acceptable to and agreed with the Bank and will be part of Project Operational Manual. Details of the above-mentioned methods for procurement will be found in Chapter 10 o f said Manual.

Procurement o f Goods: Goods procured under this project would include vehicles, computers, office equipment and furniture for the Project Coordination Unit (PCU) and different type of goods (seeds, tools, etc.) upon demand-driven subprojects for the conformed groups of families. The procurement will be done using Bank’s SBD for all ICB and National SDB agreed with and satisfactory to the Bank. Procurement of goods using Shopping methods and procurement of goods carried out by communities will use standard documents acceptable to and agreed with the Bank and will be part of Project Operational Manual. Details of the above-mentioned methods for procurement will be found in Chapter 9 o f said Manual.

Selection of Consultants: Contracts for employment of firms will include services for environment impact, land demand and land market, promotion and dissemination o f the project and project financial and procurement audits.

Contracts for employment o f individuals will include hiring o f the Technical Unit staff and technical assistance for the conformed groups of families. Short l is ts of consultants for services estimated to cost less than $100,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions o f paragraph 27.7 o f the Consultant Guidelines.

61

Operational Costs: Expenses on account o f Project management and monitoring, including office supplies; utilities; office rent, communication expenses, including telephone, Internet and fax services; maintenance of vehicles; office equipment and computer operation and maintenance; project supervision costs (travel, subsistence, per diem); and Project staff salaries will be financed as operating costs and procured using price comparison procedures, whenever possible, using standard documents acceptable to the Bank.

Others: The Project will finance demand-driven subprojects submitted by conformed group o f families and approved by the Project Coordinating Unit (PCU) using matching grants and credit mechanisms. I t i s foreseen that the families would receive financing of up to $6,000 per family (depending on the zone they reside), out of which, it i s estimated that 40% of the total amount will be used for land purchasing and the remaining 60% to improve the productivity capacity. Land will be purchased by the beneficiary families following direct contract procedures. For this, the families will organize Beneficiary Associations (BA) o f up to 30 families which will identify productive a farm and negotiate its purchase with the owner. The procedures to be followed for the purchase o f land are detailed in the Project Operational Manual (PMO).

Procurement of goods, works and technical assistance, financed through grants given to eligible groups o f families, will be carried out directly by the said beneficiary groups using, in most cases, Community Participation in Procurement procedures for goods and works, and Individual Consultants selection procedures for technical assistance services. The procurement procedures and SBDs to be used for each procurement method, as well as model contracts for works and goods procured will be part of Chapter 6 of the PMO.

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

Procurement activities will be carried out by the Project Coordinating Unit (PCU) based in Santa Cruz under the Vice ministry of Land (VML) within Ministry o f Rural Development.

An assessment o f the capacity o f the Implementing Agency to implement procurement actions for the project has been carried out by the Bank on March 11, 2005 and updated on April 19, 2007. The assessment reviewed the organizational structure for implementing the project and the interaction between the project’s staff responsible for procurement Officer and the Ministry’s relevant central unit for administration and finance.

Although, most o f the issues and risks identified during the initial procurement capacity assessment have been taken care of, during the update o f such evaluation some key issues and risks concerning procurement for implementation o f the project

62

remain, these are: (i) given the large number o f expected subprojects, there i s the risk that the PCU would not be able to ensure that the procurement done under the subprojects would be done in a transparent way; (ii) lack o f land tenure clarity and security would impair the purchase o f land; and (iii) the PCU’s lack o f experience on procurement processes under Bank’s norms and procedures..

Component 1 (CAT) o f the Project (Land Acquisition) will be implemented by the “Productive Development Bank (Banco de Desarrollo Productivo, PDP”, operated through intermediary financial institutions (IFIs) operating in the area. The PDP was established by Supreme Decree No. 28999 o f January 1, 2007, such establishment took place on the basis o f the former “Nacional Financiera Boliviana S.A.M. (NAFIBO S.A.M.). The mentioned Supreme Decree also established that FONDESIF’s programs be gradually absorbed by BDP. FONDESIF was initially the entity supposed to execute the CAT component, at the time o f project design. Therefore, PDP constitutes the only authorized entity to operate the CAT Component.

Since the BDP i s not exactly an implementing entity, but basically an operator for the financial intermediation; therefore, and no procurement activities are expected to be carried out by the entity, there was no need to carry out a Procurement Capacity Assessment. However, in case o f any procurement activity would occur, it i s agreed that procurement commercial practices acceptable to the Bank will be used.

Based on the above, the overall risk level o f the assessment i s HIGH. Below i s an Action Plan designed to mitigate the risks and to improve the implementation capacity o f the Agency.

63

Action

To hire an experienced (senior-level) procurement specialist under TOR acceptable for the Bank To design / include in the monitoring system a procurement module to monitor the procurement plan and the workflow o f the process and to produce reports (for ex-post reviews, audits). Information about the use of this system should be in the POM. The definition of a plan for a periodic supervision by the PCU o f the procurement processes carried out by the subprojects, including a model for the supervision reports. A procedure for filing and managing procurement records within the PCU and subprojects and its location. To prepare the Procurement Plan (General and for the first 12/18 months) Prepare standard bidding documents for Shopping and selection of consultants. Standard format for bid evaluation. TORS for the PU staff, selection of procurement Audits and Consultants for the supervision of works. Include in Annex 3 of the Credit Agreement: (i) the Special Provisions agreed for Bolivia; (ii) a requirement for the use of standard bidding documents agreed in advance with the Bank , (iii) all project procurement wil l be made following Bank Guidelines and agreed procedures Submit to the Bank Procurement Audit reports carried out by Independent Auditor

By whom

VML

PCU

PCU

PCU

Bank

PCU

By when

Signature

Signature

Negotiations

Appraisal

Negotiations

Negotiations

Six months after completions each year

Bank to review and comment

Draft of TORS and Expressions o f Interest bv negotiations

Y

Draft of the design, type o f reports, by negotiations

Draft o f the POM

Plan

Documents as part of the draft POM

Final Text

Report

Special Provisions

A. In addition to and without limitation on any other provision set forth in this Schedule or the Procurement Guidelines, the following rules shall govern al l procurement of goods and works under NCB:

64

1. 2.

A merit point system shall not be used in the pre-qualification o f bids. The award o f goods and works contracts shall be based exclusively on price and, whenever appropriate, shall also take into account factors similar to those referred to in paragraph 2.5 1 o f the Guidelines, provided, however, that the bid evaluation shall always be based on factors that can be quantified objectively, and the procedure for such quantification shall be disclosed in the invitation to bid.

3. The Borrower shall open all bids at the stipulated time and place in accordance with a procedure satisfactory to the Bank

4. The Borrower shall use a single envelope procedure. 5. Whenever there i s a discrepancy between the amounts in figures and in words o f a bid, the

amounts in words shall govern. 6. Except as the Bank shall otherwise agree, the bidding process shall not be declared void if

only three (3) bids or less have been submitted unless such bids have been determined not to be responsive. Any standards and technical specifications (quoted in the bidding documents) that are at least substantially equivalent to the national standards and technical specifications shall be acceptable.

8. Foreign bidders shall be allowed to participate. 9. Foreign bidders shall not be required to legalize any documentation related to their bids with

Bolivian authorities as a prerequisite for bidding. 10. No margin o f preference shall be granted for any particular category o f bidders. 1 1. The auction procedure (Puja Abierta) shall not be used. 12. In the event that a bidder whose bid was evaluated as the bid with the lowest evaluated price

withdraws i t s bid, the contract may be awarded to the second lowest responsive evaluated bid. 13. Foreign bidders shall not, as a condition for submitting bids, be required to enter into ajoint

venture agreement with local bidders. 14. No other procurement rules or regulations o f the Borrower's agencies or o f any state-owned

entity shall apply without the prior review and consent o f the Association.

7.

B. In addition to and without limitation on any other provisions set forth in this Schedule or the Consultant Guidelines, the following rules shall govern all procurement o f consultant services referred to in this Schedule: 1. As a condition for participating in the selection process, foreign consultants shall not be

required to enter into a joint venture agreement with local consultants, unless the conditions stated in paragraph 1.12 o f the Consultant Guidelines are met. As a condition for participating in the selection process, foreign consultants shall not be required to legalize their proposals or any documentation related to such proposals with Bolivian authorities. Foreign consultants shall not be required to be registered in the Borrower's National Registry o f Consultants (Registro Nacional de Consultoria).

2.

3.

C ) Procurement Plan

The Borrower, before Negotiations, should submit an updated version o f the procurement plan for project implementation, which will provide the basis for the procurement methods.

65

Above-mentioned Procurement Plan wil l be available at the Bolivia CO, in the project’s database and in the Bank’s external website. The Procurement Plan wil l be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

(D) Frequency o f Procurement Supervision

In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment of the PCU has recommended yearly supervision missions to visit the field to carry out post review of procurement actions. The post review ratio i s one in 5 contracts for procurement o f goods and works and selection of consultants for employment o f f i r m s and individuals.

66

Attachment 1

1 2 Ref. Contract No. Description

Details o f the Procurement Arrangements involving international competition.

1.

(a) List o f contract Packages that w i l l be procured following ICB and Direct Contracting.

Goods, Works and Non-Consulting Services.

3 4 5 6 7 8 9 Estimated Procurement P-Q Domestic Review Expected

PriorFost Opening Cost Method Preference By Bank Bid Comments

1 2 Ref. Description o f No. Assignment

NONE

I Date I I NONE

3 4 5 6 7 Estimated Selection Review Expected

cost Method By Bank Proposals Comments (PriorPost) Submission

Date

(b) All contracts estimated to cost above $250,000 per contract for procurement o f works and $50,000 per contract for procurement o f goods and non-consulting services, regardless o f the procurement method used, as well as all Direct Contracting, wil l 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 international f i rms.

(b) Consulting services estimated to cost above $35,000 per contract and Single Source selection o f consultants (firms); and assignments estimated to cost above $20,000 per contract and single source selection o f individual consultants will be subject to prior review by the Bank.

(c) Short l is ts composed entirely o f national consultants: Short l is ts o f consultants for services estimated to cost less than $100,000 equivalent per contract may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines.

67

Annex 9: Economic and Financial Analysis BOLIVIA: Land for Agricultural Development Project.

The project’s economic analysis is based on illustrative models o f typical productive projects which will be implemented. These illustrative models show both financial and economic viability for the project. All the models show positive cash flows after initial investment periods, N e t Present Values and Internal Rates o f Return (IRR) equal or greater than 10%. Financial analysis shows that the initial returns in each o f the model are generally negative in the first year, which i s the primary reason for instituting a grace period on the loan repayment between one and three years..

Each scenario was calculated using minimal, medium and optimal assumptions about costs, output prices and yields. The results presented are al l based on the minimal scenarios, that is, the most pessimistic scenarios with respect to these parameters, with one exception which i s explained below. The models are based on 15 year land purchase repayment periods with annual interest rates o f 8%. In the models a one-year grace period i s assumed. The cattle models require a three-year grace period. Group size i s assumed to be twenty families. Foregone family labor income in other activities i s not considered because the assumption i s made that the agricultural project will be managed by two-three individuals receiving wages.

Model 1. Sugar Cane in Mineros Municipality.

The model assumes 80 hectares o f land at a purchase price o f $1,000 per hectare producing sugar cane which must be re-planted every five years and a discount rate o f 10 percent. The land purchase price i s included as a cost in year zero, and the residual value o f the land i s included as an equity credit in year fifteen. The initial scenario for this model is the following. Land purchase price: $80,000 (loan at 8% per annum). Establishment o f sugar cane, operating capital and TA: $63,350 (10% beneficiary contribution; 90% non-reimburseable). Total initial outlay: $143,350.

68

Table 1. Cash flows and indicators of return for sugar cane in Mineros. (US Dollars).

Period Net cash Discounted Cash Net cash flow flow Flow

I 0 1-143.350,OO I I -143.350.00 I 1 2 3

40.450,OO 2.022,50 36,772.73 34.530,OO 1.440,79 28,537.19 27.587,14 1.093,64 20,726.63

I 4 I 21.384,29 I 783,50 I 14,605.75 I

14 15

I 10.038.39 23.670.00 1 29.872,86 I l.X)Y-):;i 1

- 1

25.955,71 1.012,07 6.834,95 72.492,86 3.338,93 17.354,21

9.3 15.19 1 :: I 39.101,43 I 1.669,36 I

32.158.57 1.322.2 1

NPV 74.331.41 IRR 18,30%

Source: Project background study on productive models. .

The table demonstrates that the project has a positive N e t Present Value o f $74,331 and an Internal Rate o f Return o f 18.3 percent, making it i s a viable investment which can increase beneficiary income substantially while paying of f the land purchase. Cash flows for the group are positive except during the years when cane must be replanted, which means that part o f the net cash flow will have to be saved and deployed for replanting every fifth year as i s standard practice in sugar production.

The second model considers 80 hectares o f agricultural land in the Municipality o f Minero with two crops per year, one o f soy and one o f corn. It assumes twenty fami l ies in the association. In this model the initial scenario i s the following. Land price: $80,000 (loan at 8% per annum). Working capital, infrastructure and TA: $28,460 (10% beneficiary contribution, 90% non-reimburseable). Total initial outlay: $108,460.

69

Table 2. Cash flows and economic indicators for Soy-Corn M o d e l in

Net cash flow (Group)

Period

Mineros (US$)

Discounted Cash Flow

(Group)

Net cash flow (per family)

14 15

I 0 I -108,460 I I -108.460 I

32,165 1,322 8,470 1 12,622 5,345 26,961

1 4 1 27,594 I 1,094 I 18,847 I

I 8 I 29,422 1 1,185 I 13,725 I

99957 I 12 31,251 I 13 I 31.708 1.299 9.84

NPV 128,915 IRR 25.47%

The model demonstrates that the project i s economically and financially viable, with positive cash flows in every year, substantial net income increases for the individual beneficiaries. The N e t Present Value o f the project in the model i s $128,915 and the Internal Rate o f Return is 25.5 percent.

Model 3. Sesame and garbanzo production in Pailon.

The third model presents a scenario o f mixed sesame in the summer and legume (e.g. garbanzos) with complementary irrigation during winter assuming 60 hectares o f cultivated land and twenty families in the association. The table presents this medium- intensity scenario. The minimal scenario o f one crop per year is not recommendable. In this scenario the initial conditions are the following. Land price: $80,000 (loan at 8% per annum). Irrigation system, operating capital and TA: $1 12,195 (1 0% beneficiary contribution, 90% non-reimburseable).

70

Table 3. Cash flows and economic indicators for model of sesame-garbanzo en

Pailon

Net cash Net cash

(Group) (per family) Period now now

I 0 I -192.1951

I 4 I 25.0241 962

1.03 I I 26'852i 27.310 1.075 10 1.10:

1.141 1 :3 I 29.138 1.17: ~

14 29.595 1.19f 15 110.052 5.21(

Discounted Cash Flow

NPV 25.632 IRR 12%

The table shows that the net cash flows to beneficiaries are positive in each year, and that the project i s has a positive N e t Present Value o f $25,632 and an Internal Rate o f Return o f 12 percent.

Model 4. Cattle project in the Municipality of Charagua.

In the Municipality o f Charagua the productive options are relatively reduced, given the dry climate. Background studies confirmed that corn, yuca and beans are cultivated only for self-consumption. Cattle production in a highly extensive yet managed system, however, i s widely practiced in the dry Chaco ecosystem. This model i s based on 4000 hectares o f extensive range, with an initial herd o f 360 heads, and an association o f 20

71

families. The init ial conditions for this model are the following. Land price: $80,000 (loan at 8% per annum.); Cattle purchase, infrastructure and TA: $56,700 (10% beneficiary contribution, 90% non-reimbursable). Total ini t ial outlay: $136,000.

Table 4. Cash flows and economic indicators for model o f extensive cattle Production in Charagua.

Net cash flow Period Net cash Discounted Cash

Flow flow (per family) (Group)

1 0 I (136.700,00)1 I - 136.700,001

I 4 I 6.667,OO I I 4,553,651

I 8 I 19.806,75 I 657,001 9,239,991

I 10.4

The model o f extensive cattle raising does not have positive cash flows until the fourth year. By introducing milk production, which is considered under the medium scenario, it i s possible for the project to generate immediate positive cash flows. The model demonstrates a N e t Present Value which i s positive but small and an IRR o f 10 percent, but which could be improved significantly if the conservative parameters used are relaxed (Le., calving rates o f 50 percent initially going to 65 percent). Nevertheless, the cattle project also maintains and increases the asset value o f the cattle, which arrives at approximately $1 0,000 per family over the horizon o f the project.

The same models were calculated with higher interest rates for the land purchase, for example 15 percent. In these simulations net cash flows, while positive, became small

72

and economically unattractive. The analysis indicates that rates greater than 10% per year on the loan principle for land purchase make the project economically unattractive for the beneficiary.

1 Model 2: 1 Year I Model 1:Cane Corn

A projection o f the economic returns on the overall project can be obtained by replacing the nominal prices with shadow prices and making assumptions about the number o f subprojects to be carried out, and assuming a distribution o f the subprojects among the different productive models. In this projection it i s assumed that a total o f 120 subprojects will be carried out, distributed with forty percent in Mineros, forty percent in Pailon and twenty percent in Charagua. This projection is shown in Table 5. Summing up over al l the subprojects, the overall project shows a net present value of $17.65 mi l l ion and a internal rate o f return o f 16 percent.

Model 3: Sesame-Beans Model 4: Cattle Overall Project

Table 5. Projection of Overa l l Project Returns (US Dollars).

0 -328,735 I -271.150 I -951,275 I -710,775 I -2,203,072 1 2 3

-758,466 -601,748 -1,685,534 -1,660,388 -4,814,557 -459,077 -55,896 -1,435,875 -1,877,745 4,108,978 370,976 753,162 500,811 -144,598 1,290,249

I 4 I 298,421 I 755,214 I 756,769 I 195,778 I 1,749,586 I

1 8 I 330,861 I 670,998 I 672,379 I 475,094 I 1,921,351 1

73

The loans made for land acquisition will be made from a rotating fund which will be capitalized by the Bank loan. This fund i s expected to continue to operate after the l i f e o f the project and thus function as a long-term financing mechanism for land purchase. Table 6 presents an illustrative model o f the flows into and out o f the land purchase fund. The table demonstrates that the rotating fund will generate sufficient flows to continue to fund significant land purchases over a thirty-year planning horizon.

74

Annex 10: Safeguard Policy Issues

BOLIVIA: Bolivia Land for Agricultural Development Project.

In accordance with the Bank’s Environmental Assessment Policy (OP 4.01) and this project’s Category B classification, an Environmental Assessment (EA) report has been drafted by the Borrower, with copies sent to the InfoShop in Washington and publicly available in the offices o f the Ministry o f Sustainable Development in L a Paz, Bolivia. The key environmental requirements outlined in the EA report are reflected in the project’s Operational Manual.

Natural Habitats and Forests. The project’s three pi lot municipalities (Mineros, Pailon, and Charagua) al l have considerable areas o f native (primary and secondary) forests, with localized wetlands and other natural habitats. Mineros i s now about 40 percent forested; the balance i s cropland, pastures, and young second growth. Pailon i s still nearly 30 percent forested, with more than 30 percent in cultivation or deforested pasture, and the balance as second growth. Charagua i s roughly 75 percent covered by dry Chaco forest and related natural habitats.

The project can, and--if implemented as planned--will be carried out without significant deforestation or other natural habitat loss. In the case o f Mineros and Pailon, there i s an ample supply o f land which has previously been deforested (though not in anticipation o f this project) to meet the expected, project-facilitated demand for agricultural land by organized beneficiaries. In Pailon, up to 30,000 hectares (ha) could be acquired for agricultural development under this project; this compares with over 700,000 ha o f land which i s under crops, pasture, or second growth. In Mineros, some 10,500 ha could be acquired under the program, compared to more than 300,000 ha which have already been deforested. Land market study data collected during project preparation indicates that many o f the lands being offered for sale contain extensive deforested areas, so that additional deforestation would not be needed by program beneficiaries to carry out their planned agricultural or animal husbandry activities. Moreover, mechanized deforestation i s now quite expensive (US$250-450/ha) relative to land prices (roughly US$SOO/ha in Pailon and US$1000/ha in Mineros), so there i s presently strong economic incentive for program beneficiaries to carry out their agricultural activities on previously deforested lands.

In the special case o f Charagua, the principal production system on project-assisted lands will be extensive cattle ranching, using the locally-adapted, environmentally friendly ramoneo system in which the cattle browse on the Chaco forest vegetation, with no land clearing for pasture required. Essentially the only deforestation expected on project-assisted lands would be the relatively small patches (2-3 ha per family) o f subsistence crops, which supplement the cash income earned from cattle. Since the project might benefit up to 500 families in Charagua, the cumulative total could be as high as 1,500 hectares. However, in practice, it is l ikely to be lower because much o f the land chosen for subsistence agriculture will already have been cleared by the previous landowner. In any event, these agricultural clearings would be dispersed as small islands o f cultivation in a Chaco forest-dominated landscape; there would thus be no significant loss o f Chaco forest or associated natural habitats. The lands to be acquired in Charagua (from local, non-indigenous cattle ranchers who wish to sell) will be incorporated within the Isoso TCO (Indigenous Territory). Hunting (for subsistence, rather than for local markets) i s an

77

important part o f the traditional livelihoods o f the Icoceno Guarani indigenous people who would be acquiring lands in Charagua under this project. Unlike the case in Mineros and Pailon, no colonist migrants from outside the area would be eligible to receive lands in Charagua; this requirement wi l l be made explicit in the MO. The overall intensity o f this subsistence hunting i s not expected to change under the project, since the beneficiaries would be local indigenous people who already hunt. Human population densities in the Isoso TCO would remain fairly low, such that subsistence hunting i s expected to remain at generally sustainable levels. Overall, the project’s interventions in Charagua are expected to be environmentally benign, conserving most o f the existing natural forest cover and compatible with biodiversity conservation.

Critical Natural Habitats and Critical Forests (as defined in OP 4.04 and 4.36, respectively) are not known from Pailon. In Mineros, the only known such areas are the Chore and Guarayos Forest Reserves, which are excluded from project eligibility. In Charagua, the project area includes the Isoso TCO, which i s adjacent to the Kaa-Iya Gran Chaco National Park. The Isoso TCO also contains several areas o f high conservation value, namely the Nande Yari wetland and the Arenales de Guanacos (vegetated sand dunes). The lands to be acquired under the project would not be within these critical natural habitat areas.

The project i s likely to be beneficial from a forest conservation standpoint, by reducing the existing pressures by small farmers to colonize forested and protected areas. The project i s expected to address a significant 15-30 percent o f the existing demand for agricultural land in the Department o f Santa Cruz. In Mineros and Pailon, the project’s beneficiary farmers wi l l make use o f previously deforested lands o f high agricultural potential, without needing to clear additional forested land. In Charagua, project beneficiaries are expected to use environmentally friendly production systems that sustainably utilize the existing Chaco forest, with minimal land clearing for subsistence crops. Moreover, the project’s eligibility criteria for beneficiary farmers disqualify persons who knowingly settled within protected areas or Forest Reserves. Although this requirement might not always be feasible to enforce during project administration, it w i l l nonetheless send an important signal to land-seeking farmers that they can-and should--obtain agricultural lands legally, without invading protected areas.

Pest Management. Pest management issues are most prevalent in Mineros and Pailon, with commercial crops such as soy, sesame, rice, sugar cane, and cotton; they are much less significant in Charagua, where the dominant production system i s cattle ranching within the natural Chaco forest. The draft Pest Management Plan (PMP) comprises Chapter 15 o f the EA report. The PMP indicates that the technical assistance service providers for Mineros and Pailon wi l l formulate and carry out a plan for providing advice and training on integrated pest management and on safe pesticide handling and storage. This plan wi l l be refined during the PPF phase. In accordance with the Bank’s Pest Management Policy (OP 4.09), the PMP indicates that any pesticide procurement under the project will be submitted to the Bank for prior review. The PMP specifies that the project wi l l not procure highly hazardous compounds in the World Health Organization’s Classes IA and IB. The environmental monitoring o f pest management on beneficiary farms wi l l be coordinated by thePCU, as part o f their overall supervision o f compliance with Farm Management Plans (POPS, Planes de Ordenamiento Predial).

78

Cultural Property. According to the EA report, no important sites o f archaeological or historical interest are known from the rural lands which would be eligible for acquisition and development under the program. In the event that important cultural property i s discovered by beneficiaries after the land has been acquired, the POP would be amended to ensure that the site in question i s not disturbed by agricultural activities. Component 2 c iv i l works which would damage archaeological or historical sites are not eligible for project support. The environmental rules for contractors (EA, Chapters 9 and 13.5) specify chance finds procedures in the event that archaeological relics are uncovered during c iv i l works construction.

Soil Conservation. Soil erosion is a serious problem in much o f Santa Cruz, especially during windy periods. The project’s technical assistance to beneficiaries will cover the use o f sufficient trees as windbreaks, reduced tillage, and other soil conservation techniques. Eligible lands for acquisition or investments under the program will need to have suitable soils, as well as being consistent with the official Land Use Plan (PLUS) o f the Department o f Santa Cruz.

Environmental Management Plan:

The Environmental Management Plan for this project i s contained within Chapters 8-12, 14-15, and 18 o f the EA report. The key environmental criteria and procedures for project implementation are also contained within the Operational Manual. These criteria and procedures include:

a. Land Screening Criteria. Lands excluded from this program (ineligible for acquisition under Component 1 or investments under Component 2) include those (i) located within or adjacent to existing or proposed protected areas (including National Parks, Biological Reserves, Biosphere Reserves, National Reserves, and Integrated Management Areas) and Forest Reserves; (ii) containing known critical natural habitats (including Nande Yari and Arenales de Guanacos in Charagua); (iii) zoned for forestry or other non-agriculture, non-grazing land uses in the PLUS; (iv) parcels with more than 40 percent forest cover (except in Charagua); (v) deforested after January 1, 2005 (to avoid creating any perverse incentives for landowners to clear lands just to sel l them, notwithstanding current market conditions); (vi) containing important known archaeological, historical, religious, or sacred sites; (vii) with soils that are largely unsuited to the planned agriculture or ranching systems; or (viii) in flood-prone areas, where frequent crop losses would be l ikely without major new drainage works (which would be outside the scope o f this project). To facilitate the proper application o f these criteria during project implementation, the PCU will prepare maps o f each municipality, indicating the zones in which lands could not be acquired under the program (due to one or more o f the above restrictions). The specifications (scale, etc.) will be completed during the PPF phase and target date for completing these maps will be completed during negotiations.

b. Beneficiary Selection Criteria. The project’s eligibility criteria for beneficiary farmers explicitly disqualify persons who knowingly settled within protected areas or Forest Reserves.

Farm Management Plans. Each beneficiary group that acquires land under the program will be required (under Bolivian law, as wel l as the Operational Manual) to prepare a Farm Management

79

Plan (POP) that specifies the intended land uses and cultivation practices to be used in each portion o f the parcel. The PCU will review and approve each POP, as well as periodically supervise field implementation by the beneficiary farmers (who would suffer financial penalties for not following the POP closely enough). The PCU will not approve POPs which would imply the deforestation o f more than 5 percent o f the parcel to establish the intended production systems. The POP is thus an important tool for (i) protecting the remaining, forested portions o f land parcels acquired under the program; (ii) matching intended land uses to site-specific soil, slope, and drainage conditions; (iii) promoting good environmental practices, including soil conservation methods; and (iv) promoting integrated pest management and safe pesticide use, handling, and storage.

Investment Screening Criteria. The types o f Component 2 investments that cannot be financed under the program include (i) mechanized land clearing; (ii) new or improved roads through forests; (iii) dams 10 meters or higher; (iv) large-scale drainage or flood protection works; (v) aquaculture with ecologically risky non-native species; (vi) new irrigation areas larger than 200 ha per subproject; (vii) use o f highly toxic pesticides (World Health Organization Categories IA or IB); (viii) use o f wild species that are endangered or under strict legal protection; or (ix) works which would damage archaeological or historical sites.

Environmental Rules for Contractors. For the Component 2 land improvement c iv i l works (such as farm access roads and water systems), these environmental rules cover construction and maintenance practices (erosion control, waste disposal, pollution prevention, etc.), personal behavior (no hunting, wildl i fe capture, burning o f vegetation, etc.), chance finds procedures for cultural property, and financial penalties for non-compliance.

Environmental Monitoring. Environmental monitoring will be coordinated by the P C U , as an integral part o f the project's overall monitoring and evaluation activities. The EA report recommends that the environmental indicators to be used in such monitoring include (i) changes in forest cover and other land use changes on beneficiary farms (the needed data can be collected under the project's broader socio-economic impact monitoring, rather than requiring a separate study); (ii) proportion o f beneficiaries using pesticides, and those using I P M techniques; (iii) proportion o f beneficiaries using specified soil conservation or (in Charagua) range management techniques; and (iv) compliance by beneficiaries with POPs.

Environmental Responsibilities. A full-time environmental specialist will be hired in the PCU to oversee the environmental aspects o f the project. This specialist's responsibilities will include, inter alia, (i) ensuring compliance with the land and investment screening criteria, (ii) reviewing and verifying compliance with POPs; (iii) ensuring that the technical assistance provided to beneficiaries adequately incorporates environmental (including IPM) considerations; (iv) field supervision o f Component 2 investments and contractor activities; (v) providing environmental advice and arranging training (as needed) for PCU colleagues and service providers; and (vi) arranging and supervising environmental monitoring o f project impacts.

Public Consultation. In the course o f EA report preparation, a wide range o f stakeholders (including indigenous and other l ikely project beneficiaries, conservation NGOs, and local government officials) were consulted for their views about the environmental and other aspects

80

o f the project. The draft EA contains a partial l i s t o f the stakeholders consulted (see Annex 12). A particularly important finding from this consultation process i s that the Capitania de Alto y Bajo Isoso (CABI), an indigenous NGO with co-management responsibilities for the Kaa-Iya Gran Chaco National Park, i s highly supportive o f this project. The Kaa-Iya National Park superintendent (representing SERNAP , the Bolivian protected areas agency) also has no objection to the project and does not foresee any conflicts between the project and the park.

Indigenous Peoples (OD 4.20). The direct project beneficiaries would be predominantly indigenous peoples. In the case o f Isoso, the beneficiaries would be the native Izoceno (Guarani) indigenous group, who would further consolidate their existing TCO (indigenous reserve) by acquiring some o f the inholdings from non-indigenous cattle ranchers who would be willing sellers. In the case o f Minero and Pailon, the direct beneficiaries would largely consist o f colonists from highland indigenous (typically Quechua and Aymara) populations who migrated within the last 1-2 generations from the Bolivian altiplano and high valleys to the Santa Cruz lowlands. Thus, the PAD for this project will serve as the Indigenous Peoples Development Plan (IPDP) specified under OD 4.20. A summary o f the social and cultural assessment (Annex 11) carried out by the borrower will be disclosed in the Infoshop as well as in-country prior to appraisal.

A process of consultation has been carried out that includes the indigenous leadership, local authorities and stakeholders (a table depicting this process i s in Annex 10).

Involuntary Resettlement (OP 4.12). The criteria within the Project Operational Manual for screening o f eligible lands are expected to exclude all o f the possible scenarios for involuntary displacement (such as lands with squatters, resident laborers, or overlapping tit les or legal claims).

81

Annex 11. Executive Summary of Social Impact Study

Bolivia: Land for Agricultural Development Project.

EXECUTIVE SUMMARY SOCIAL AND CULTURAL STUDY

Viceministry of Land Ministry of Sustainable Development

SOCIAL ANALYSIS AND ACTION PLAN FOR THE LAND TENURE AND AGRARIAN DEVELOPMENT PROJECT

Introduction This summary describes social dimensions o f the Land Tenure and Agrarian Development Project as well as procedures that have been carried out in the development o f the studies and social evaluations within the framework o f a process seeking to generate a model complementary to those already existing on what concerns land distribution, bearing with it a process o f sustainable development and improvement in living conditions for participating beneficiaries.

Social consultations were made at all times with participation o f people involved at different levels; support documents such as l i s ts o f participants and notes taken during meetings are to be found among those attached to this summary and whose reading i s recommended to have an integral and global vision o f the work undertaken in the social area along the studies.

Social Objectives The project focus i s on campesino and indigenous young and poor families with land or with insufficient land, o f communities and municipalities o f the areas defined for project implementation. Aside from buying land, the project contemplates productive support. Socially, the following objectives are expected:

0 Poverty reduction: i s the main social objective o f the Project; to improve living conditions o f rural campesino and indigenous families through the access to land and support for production.

0 Equitable and fair access to land: objective o f the Project- to achieve poverty reduction.

main instrument -and at the same time

Social Inclusion: beneficiaries will improve their income and thus will become active participants in the economy, politics and the full exercise o f citizenship, with conditions equal to those o f the rest o f society.

82

0

a

0

0

Context

Consolidation and enforcement o f tenures: support for production will favor the consolidation o f tenures especially on what concerns Indigenous Territories (TCOs), favoring social equity. The tenure o f those poor campesino families, which do not have support for production and thus do not take advantage o f their land tenure, will be consolidated as well.

Productive Autonomy: promote the creation o f independent productive associations with the capability o f insertion into market systems.

Gender Impact: the Project pretends to favor women (heads o f households) in their right to the legal tenure o f land with gender equity.

Organizational strengthening: with training and assistance on management, organization and planning issues. This strengthening will enhance credibility o f the organizations and transparency in their management.

One o f the great challenges o f the Bolivian government to deepen and improve the results o f the agrarian reform, i s to create alternative or complementary mechanisms for the equitable access to the land o f poor indigenous and campesino families, since demand on land i s accumulated given that the mechanisms foreseen by the Agrarian L a w cannot fully satisfy such demand.

The agrarian reform process in the country has reached a critical point due to pressure that i t exerts in productive lands, given that fiscal land i s more and more scarce and i t s vocation i s greatly forestry. O n the other hand, there is a great unmet and accumulated need o f land on the part o f indigenous and campesino communities and small owners.

It i s necessary to seek complementary mechanisms -to that already existent- that are expeditious and allow the effective (productive) access to land on the part o f farmers that have no capital. The project falls within the 2015 Goals o f the United Nations, whose final objective i s based on the Strategy for the Poverty Reduction.

According to data handled by the INRA, 93% o f the land in Bolivia has property rights, be it in legal or illegal form, which implies a virtual absence o f productive land with agricultural vocation, aside from the existence o f a land market that i s irregular, skewed, unequitable and unfair. It i s therefore necessary for the State to intervene actively in i t s regulation and to control distortions.

Charts with information and data o f land in Bolivia, in the Santa Cruz Department, and in the municipalities o f project intervention (data obtained from INRA, August 2002) follow:

83

BOLIVIA: AREA DISTRIBUTED BY BENEFICIARY ACCORDING TO TYPE OF TENURE

Type of Tenure

Small Medium size

% Beneficiaries Area YO Area

279.523 32,48 5.043.204,4144 5,41 125.029 14.53 16.532.903.5278 17.74

BeneJciaries

Enterprise Campesino Lots Community Property T.C.O.

19.486 2,26 3 1.097.403,6092 33,37 4.026 0,47 23.880,9006 0,03

342.491 39,80 12.829.087,983 1 13,77 77.714 9,03 26.7 18,826,123 1 28,68

Bolivia: Area distributed by Beneficiary according to type of use of the tenure

No Data Total

12.358 1,44 93 1,485,2941 1 ,oo 860.627 100,OO 93,176,791,8523 100,oo

Total 1860.627 ~100,oo 193.176.791,8523 I100,OO Source: Agrarian Statistics. Land Tenure in Bol iv ia (1953-2002). 2002.

Use of the tenure Agriculture Stock Farming Mixed Others N o data

Santa Cruz: Area distributed from 1953 to 2002:

Beneficiaries %Beneficiaries Area %Area 382.265 44,42 9.058.076,5938 9,72 54.380 6,32 25,089,683,3226 26,93 405.262 47,09 49.385.569,3 80 1 53,OO 927 0 , l l 468.003,0806 0,50 17.793 2.07 9.175.459.4752 9.85

Period 1953-1958 1999-2002 Totals (1953-2002)

Santa Cruz: Area distributed according to type of tenure (1953-2002) I Types of Tenure I Beneficiaries I %Beneficiaries I Area Distributed I YO Area

Beneficiaries %Beneficiaries Area YO Area 1.013 0,70 95.3 79.7496 0,30 3 1.436 21,80 10.304.03 1,4999 28,70 17.137 144.162 35,905,056,2358 100

Small Medium size

54.75 1 38.00 2,252,459,4091 6.30 22.051 15.30 7.360.562,9385 20.50

84

Enterprise Campesino Lots Community tenure T.C.O. Without classification Total

11.140 7.70 18,892,283,2379 52.60 1.328 0.90 1.005,9934 0,oo 2 1.749 14.90 808.75 1.5325 2.30 3 1.653 22.00 6.243.079.3670 17.40 1.786 1.20 346.9 13,7574 1.00 144.162 100.00 35.905.056,2358 100.00

Use of the Tenure Beneficiaries %Beneficiaries Area Distributed Agriculture 49.389 34.30 2.564.339,7813 Stock Farming 12.507 8.70 11.004.697,5501

YO Area 7,lO 30,60

There are no disaggregated data on land tenure at the municipal level; a process o f land clean up i s being undertaken at present for agrarian tenures that will facilitate the elaboration o f pertinent reports during the course o f the PPF application for the Project. To date, 14% o f municipal area at Mineros has been cleaned up, 26% at Pailon and 32% at Charagua. Notwithstanding, if the following data i s taken into consideration, the majority o f potential beneficiaries do not have or have insufficient land. The following table has been elaborated with percentages:

Mixed Others Undetermined Total

75.72 52.50 14.240.693,8544 39,70 308 0.20 4 10.260,1164 1,lO 6.236 4.30 7.685.082.9336 2 1,40 144.162 100.00 35,905,056,2358 100,OO

Type of Worker Salaried Workers

According to the Municipal Development Plan, in Charagua, 85% o f fami l ies have community tenure and 15% individual tenure. At this municipality, indigenous populations have requested a total o f 1.722.323 has. as Indigenous Territory (TCO) which represents 23% o f the municipal area.

Type of Tenure Percentage No tenement 32%

At Mineros, community inhabitans acceded to land in different ways; 77% provided by the former Agrarian Reform National Council [Consejo Nacional de Reforma Agraria], 15% by direct procurement, 5% by spontaneous occupation and y 3% by inheritance. Land tenure and i ts legal aspect are somehow reflected in the award o f titles. At Mineros, 88% o f individual owners have Agrarian Reform titles, 8% have their t i t les being processed or not yet cleaned up, 4% do not have any document in support o f their land’s tenure. The majority o f the Guarani indigenous population, main beneficiary o f the project, does not have land and are salaried workers and day laborers for private enterprises or prosperous settlers (menonites and Westerners) (PDM 2003).

Agricultural worker Small owners

Small producers Medium sized producers Small community productive units

At Pail6n there are three types o f land tenure: urban and rural communities, a major part o f which bear definite urbanization signs and are the basis for the OTBs (Territorial Base Organizations) that have acquired their lands through a grant from the State or over time (which

Rental 5% Less than 10 has. 31% Larger than 10 to 40 has. 16%

4% 12%

Larger than 40 to 80 has. Between 2 and 5 Has.

85

i s denominated “campesino lots”) with tenures o f 0,5 to 70 hectares. On the other hand, there are the private small-medium tenures, medium sized and large whose owners normally reside in Santa Cruz and to which the menonite settlers are assimilated, with tenures o f 70 to 250 hectares. Finally, indigenous communities in the process o f obtention o f lands for collective use (this group i s out o f the project). (PDM, 2003)

Extensive Stock farming use with potential for Intensive Stock Farming Use Silviculture and grazing Use Limited Silvicultural and grazing farming Use

Concerning the use o f the land, municipalities selected for project implementation show a mostly agricultural vocation as i s detailed in the following tables:

1.883.357,211 26,32 39,101,457 0,55 12.349,433 0,17

222.839,256 3 , l l

Municipality o f Charagua: U s e o f land

Municipality of Mineros: Land use

Source: Land Usage Plan

86

Municipality o f Pail6n: Land Use

Source: Land Usage Plan

Pumpkin Total

Concerning types o f crops and production volumes, there i s the following data:

5.0 0.2 1 .o 3.674.5

Pail6n: Area by crop at the communities 1. CROPS I Hectares I Yield Tn/Ha I Total Prod. Tn/Ha

Source: Municipal Development Plan, 2003.

Mineros: Area by Crop at the communities

Source: FORTEMU Project, 2003.

87

This information is not registered at the Municipalitiy o f Charagua. However, it i s fair to say that the main crops, as stated in the MDP, are corn, sorgum, soy, sesame, vegetables, watermelon, yuca and potatoes; likewise, the average o f hectares cultivated per family i s 2,2 hectares and the product mostly grown i s corn; loss in the harvest i s up to 80.1% (Rapid Diagnosis o f Drought at the Bolivian Chaco region, M A C A and Ministry o f Defense 2004).

Municipality Charagua Mineros Pailon*

The following table has been elaborated on what concerns the destination o f production at the project intervention areas and using data from direct field observations, f rom interviews and the PDMs (Municipal Development Plans):

Self consumption Market 86% 14% 5% 95%

22% 78%

The project foresees to undertake a detailed study over the market and land tenure at the three municipalities under intervention, given that the information existing to date i s insufficient. It has not been considered appropriate to handle existing provincial data since it would skew reality at the municipalities.

Legal Framework The project i s covered by the national legal framework that seeks to improve productive and living conditions for indigenous and campesino communities, based in respect to social rights and the environment, in accordance with the following legal instruments:

The Political Constitution o f the State (C.P.E) acknowledges, respects and protects social, economic and cultural rights o f indigenous and campesino populations that live in the national territory, especially on what concerns their rights to land tenure, ensuring the use and sustainable utilization o f this resource. Likewise, the State acknowledges the right to productive and union associations, and the legal personality o f indigenous and campesino communities.

,

Article 134 o f the Constitution states: “Economic organization must essentially respond to social justice principles directed to ensuring al l inhabitants a living for human beings,” seeking the “Welfare o f the Bolivian population.” Likewise, “private initiative will receive incentive and cooperation f rom the State, whenever it contributes to the improvement o f the national economy” (article 144 C.P.E). Likewise, articles 165, 166,168, 173 o f the same legal document, establish that the State has the obligation to provide promotional loans to campesino populaltions in order to upgrade agricultural production. Likewise, the INRA L a w states that it i s the pol icy o f the Bolivian State to create a complementary mechanism to accede to land tenure, foreseen by L a w No 171 5.

88

Paragraph I11 o f Article 3 o f L a w No 2225 dated 3 1 July, 2001 , National Dialogue 2000, states that the Bolivian Strategy for Poverty Reduction acknowledges as i t s main beneficiaries the poor populations o f the country, with focus on women and particularly on indigenous communities and towns and marginal urban settlements. It i s important to articulate economic and productive actions that generate impact models in the national economy at the areas with more pressure over land.

Article 32" o f the Law on Popular Participation establishes that Executing Institutions should have as beneficiaries, among social subjects, directly or through intermediary organizations, the Territorial Based Organizations.

Supreme Decree No 27298 dated 20 December, 2003, created a financial l ine to be managed by the National Social and Productive Investment Fund- FPS, and instituted the legal precedent for the creation o f financial lines to be managed by intermediary financial organizations, as a direct transfer mechanism to productive indigenous and campesino communities.

L a w 1715 dated 18 October 1996 establishes two instruments for the State to grant lands to indigenous and campesino populations: i) distribution operates over land identified or reclaimed to the State through the free donation o f land to communities and lucrative award through public licitation; and ii) redistribution o f land that operates based on expropriation and subsequent award through public licitation.

Other legal provisions that frame the project:

Environmental Law o f 1992 ensures the use, management and conservation o f natural renewable resources in indigenous lands and enforces the evaluation o f environmental impacts o f projects that can affect indigenous communities.

In order to complete the legal framework, a Supreme Decree i s on the works to:

I. Approve the Land and Agrarian Development Project (PRO - TIERRAS - DA), whose objective i s to improve the living conditions o f l o w income indigenous and campesino families, through a complementary mechanism to accede land and productive and social support (community investments).

11. Approve a new l ine o f funding so that the Ministry o f Sustainable Development can channel public financial resources, through the Fund for the Development o f the Financial System and Support to the Productive Sector (NAFIBO/BDP), benefiting indigenous, campesino and native communities, as a rapid and effecient means o f direct transfer o f public financial resources to those communities acknowledged as the main beneficiaries o f the Bolivian Strategy for Poverty Reduction, L a w No 2235 dated 3 1 July, 200 1, o f the National Dialogue.

89

Project Areas: General Characteristics The area o f project intervention comprises 3 municipalities: Charagua, Pailon and Mineros. However, given the recent division o f the last municipality, social consultations were carried out at communities that now belong to neighboring municipalities (Fernhdez Alonzo and Saavedra).

Municipality

Charagua Pailon Mineros

As per the census carried out by the INE in 2001, rural and urban populations at these municipalities are distributed as follows:

% % Native High Low

lands lands

2.853 24.507 27.360 90,53 24.770 85 14 1 9.327 29.120 38.447 7 1,20 27.375 20 72 8

32.769 19.575 52.344 67,95 32.95 1 5 75 20

YO Total

indigenous Indigenous Population Population population

Urban Rural Total Population Population Population Indigenous

Urban Population Municipality

Annual Rural

20.789 27.915 6.96 8.79 18.976 I 45.853 I 5.08 I 0.78

A projection for the year 2005 has been made with these data which, as has been observed during field visits, coincides more with present reality:

These data support the classification made o f municipalities in regard to population dynamics:

0

0

Charagua: municipality that expels population due to difficult productive conditions. Pail6n: municipality in transition. Received population during the sixties and seventies with settlement plans -among those that o f the World Bank for Eastern Lowlands- i s becoming a municipality in transition and thus expelling population in the long range, in light o f production difficulties due to scarcity o f resources to address drought. Mineros: population data are enlightening showing a strong population pressure due to highly productive land that incentivates emigration for temporary work and the enlargement o f the agricultural frontier.

Social characteristics o f the project areas The project will be implemented at three municipalities o f the Santa Cruz Department that show social, economic and environmental differences. Immigrants o f diverse origin socially compose Pailon as well as Mineros: mainly High Lands Inter-Departmental migrations, natives o f the

90

region (guaranies, chiquitanos and guarayos) as well as foreign immigrants (menonites, Brazilians, Japanese, among others). Other important factors are the weather and the land, since at Mineros the soil i s ferti le and there i s constant rainfall, something that i s very irregular at Pail6n. On the contrary, at the Charagua Chaco, the tenure i s o f the community, mostly populated by the guarani indigenous population; land and weather factors are harder (semi arid region), with stock farming rather than agricultural vocation.

Thus, we find a Municipality that i s recipient o f population (Mineros), a municipality in social transition (Pail6n) and a municipality that expels manual labor to the integrated North (Charagua). In the case of Charagua, the intervention areas are Indigenous Territories (TCOs): North Charagua and the Low Isoso. TCOs are community tenures for indigenous populations; however, in the process of demarcation and awarding o f community tenures, the State respected the tenure rights o f the former land and private owners -to which the natives call Third Parties. These have remained with the more ferti le and large lands, in many instances limiting the productive capability o f the communities that grow demographically without the possibility o f giving productive land to young families, forcing population to abandon their own community lands, creating accelerated processes o f economic, social and cultural decay in these populations.

To address this situation, the project focuses on the support to the access to land o f young fami l ies in order to alleviate pressure on the agricultural frontier (Integrated North), to avoid more migrations and to consolidate indigenous tenures through land procurement and support to production.

Social Actors Social actors are all those that are going to benefit directly or indirectly from the project. The Pro-tierras-DA identified the following actors:

0 At the municipal level: Communities: community members and base organizations both indigenous and campesino (OTBs).

-

- Government and municipal instances. - Technical assistance enterprises. - Agricultural and cattle raising services.

At the departamental level: - Prefecture o f Santa Cruz. - - Technical assistance enterprises, - - Financial Institutions.

Departmental Agrarian Commission and institutions involved.

Agricultural and cattle raising services

0 At the nacional level: - INRA - Agrarian Superintendence - Ministry o f Sustainable Development.

91

Indigenous Populations Most o f the populations at which work i s to be undertaken in the intervention areas i s indigenous: quechua, guarani, aymara and chiquitana, among others.

The level o f acculturation at each one o f these groups i s variable; notwithstanding, all declare themselves indigenous by origin, with economic activities mainly in agriculture and stock farming.

Quechua and aymara natives, especially predominant at the municipalities o f Pail6n and Mineros (66% and 75% o f the indigenous populations respectively) preserve their native language, even though Spanish i s used more often even in the family context. Their relationship with Andean culture i s spiritual, and socially and economically organic.

Guarani indigenous, that are the majority at the municipality o f Charagua (85% o f the total) and minority at Mineros (20%), preserve their language through use in all contexts, although Spanish i s used freely. Language becomes the main mechanism o f cultural assertiveness, supported by other cultural forms that stay alive at indigenous communities, such as social and community structures, and a cosmovision that establishes special relationships with environment.

Chiquitano natives (approximately 20% at the municipality o f Pail6n from which they are natives) have suffered a strong acculturation process through many centuries. In most cases, Chiquitanos do not speak their language and there are scarcely trace o f cultural traditions o f which they have been destituted. Notwithstanding, they identify themselves as indigenous and are part o f the Chiquitana Indigenous Organization.

Likewise, municipalities o f Mineros and Pail6n are areas for settlement and their constitution as municipalities i s based on migrant populations through several programs in the decades o f the fi f t ies through the eighties. To date s t i l l experience more restricted but sustained migration flows, mainly at the municipality o f Mineros. Within these programs, many natives o f high lands, mostly o f quechua and aimara origin (departaments o f Chuquisaca, Tarija, Cochabamba, Oruro and Potosi, mainly from mining centers), as o f the sixties moved to low lands as a result o f the enhancement o f agroindustry in Santa Cruz and the guarani migration flows populated the Integrated North (Mineros).

The project has found the third and second generation o f the first settlers with recent migrants mainly at Mineros. To date, at the three municipalities, the land i s not sufficient for all their descendants who are forced to work as paid workers or day laborers. In many cases, at Pail6n and Charagua, this brings migration to the Integrated North because there i s more demand o f manual labor (harvest) although there are some that venture to seek land at areas at the agricultural frontier, adding in many cases to the moves o f the so called “landless,” and getting involved in illegal and violent situations.

At the Indigenous Territories (TCOs) o f the guaranies, although it may seem contradictory, there exists a de facto individual tenure o f the land that i s respected even through generations (is inherited) and the distribution o f those depends on the productive capability o f the family and not on the need due to family enlargement. This reality reflects that individualism has gained space

92

and thus it must be taken into account on what concerns productive associations; it i s not possible to work with extended and diverse groups, groups should be based on family ties or cultural ties.

Gender Relations One o f the social objectives o f the project seeks to favor women (heads o f households) with the right to the legal tenure o f land with gender equity. The project must place special attention on this point since during the studies it has been verified that, as has historically happened, women are displaced to the domestic context and have little influence on the rest o f political and social activities; the population o f single, abandoned, divorced mothers grows continuously. Female school desertion i s 70% larger than that for males (data obtained at fieldwork).

There are differences in gender relationships among natives coming from the high lands and those o f l o w lands. The quechua and aimara women are more participatory than guarani and chiquitano women in the decision-making and in power relations. O n the other hand, female natives coming from the high lands do not encircle their activities in the domestic context, being more active outside o f the home than those o f the l o w lands (peddlers, harvest for private owners, domestic employees, laundresses, etc.). In spite o f these differences, participation o f women in productive associations should be an aspect in which the project should put special attention since this participation i s not going to be considerable through their own initiative. This i s due to diverse circumstances that have been detected through fieldwork:

0

0

0

0

0

0

Cultural issues that relegate women to the domestic context. Their activities at home limit their availability at the time o f assuming other types o f activities. Many women do not make decisions by own initiative without their husbands’ consent. Higher illiteracy rate among women, in most cases due to desertion at basic education. Women, especially guaranies, speak their own language more fluently than Spanish. The lack o f documentation o f natives in Bol iv ia i s wel l known; this situation i s much more serious for women, which presents a barrier at the time o f exerting their rights for the legal tenure o f the land.

The following recommendations are made to address these difficulties and achieve gender equity in the activities and processes o f the Pro-tierras-DA:

0 To favor women associations (heads o f households) among their members.

0 To facilitate training courses for women in tasks that can be performed within productive associations in order to support their work and good functioning.

0 To include women in the rights to tenure entitlements over land to participate legally o f the benefits in equal conditions and not be devoid o f the same for eventual conditions - desertion, widowhood, divorce, etc. - that can terminate their couple status.

0 To promote campaigns for the provision o f 1.D.s that can be extended to al l those persons without a national identity document.

93

Social evaluation process Social evaluation has been a constant factor in the study process for the design o f the project which contemplated the direct and active participation at all times o f beneficiaries, this as part o f the methodological approach for the design and implementation o f the project. In this sense, 25 meetings have been held for presentation o f the project with indigenous and campesino organizations, 5 with municipal governments, and 12 with government institutions; likewise, 13 workshops were carried out for information feedback and endorsement for the implementation o f the project.

In order to make this approach effective, fieldwork at the intervention sites has been accompanied with surveys, talks, analytical workshops with multidisciplinary focus and direct participatory observation. The main needs, advantages, risks and impacts o f project implementation at the social level for the benefit or detriment o f possible beneficiaries and those external risks that can threaten the good development o f the project, have been identified.

Participation of and consultation with social actors In the phase o f studies and design o f the Pro-Tierras-DA, as previously stated, social actors have been involved at all times. Meetings and workshops with the actors involved have been carried out at all levels.

Meetings were carried out with government instances that are going to participate in the process: Prefecture o f Santa Cruz, Municipalities, Councils, Panels o f Dialogue and communities at the municipalities o f the intervention areas. Meetings have been held for the presentation o f projects at all communities and neighborhoods o f the municipalities from 22 September to 6 October 2004:

-

- Pail6n: Sinai, Nueva Belen, Rosal 1, Rosal Centro (with the attendance o f community members o f Nueva Esperanza) and 25 de Mayo. Mineros: Barrio Guarani and Barrio Cordillera, and communities in Betania, Puente Caimanes and Estancia Peta. Charagua Norte: Caipepe, Chorrito Alto, Chorrito Bajo, Taputa, Taputami. Bajo Isoso: at the communities o f Auki, Iyovi, Coropo, Aguaragua and Rancho Viejo, as well as an extended meeting with the captains o f the 14 communities in the area.

- -

At the governmental level meetings, their interest and commitment with the Project were ensured; at the communities o f settlers and natives, information was provided and obtained the authorization needed to initiate the study phase o f the Project and their initial suggestions to the proposed approach.

After conducting the studies and writing the reports, workshops were carried out for information feedback with the collaboration and management o f the Mayors o f the Municipalities (23 November 2004 at Pail6n; 24 November 2004 at Charagua; 25 November 2004 at Mineros). Representatives o f all communities at which work had been carried out and organizations o f civil society -stock farmers, cotton growers, unions o f agricultural workers, etc., atended; the information obtained was presented with subsequent discussion and the plenary for conclusions.

94

In Santa Cruz City (19 October 2004), an extended workshop took place for information feedback, atended again by representatives o f the communities, as well as government entities and those o f c iv i l organizations involved in the process (CAO, FEGASACRUZ, Federaci6n de Colonos, etc.)

Later (during the months o f November, January, February and March) meetings were held with the Captains o f guarani communities o f the High and L o w Isoso and Charagua Norte, as well as with the Guarani People Assembly and new meetings were held over the progress o f the Project at the different municipalities and with different social actors.

To finish the social consultations at the preparatory stage, field work i s planned at the intervention sites o f the project for information feedback and to explain the Manual o f Operations in order to enrich i t s content with the participants’ interventions and opinions, as well as to start their training on the steps they should fol low and requirements needed to become beneficiaries o f the Pro-tierras-DA.’

Summary of the consultation process The participatory and consultation process has developed -up to now- in two phases, the first prior to carrying out social studies and the second after them. This process contemplates a participatory methodology in the design as well as in the implementation o f the project with direct participation o f beneficiaries, decision-making falling on organized c iv i l society and the target population.

Prior to carrying out the f i rst meetings and field visits to the communities, secondary data was collected on the areas o f intervention and was afterwards validated with information obtained in fieldwork. The process o f data collection in consultations and social participation took place through meetings, analytical workshops, semi structured interviews and participatory direct observation; informal semi structured talks were held with key informants.

The second phase was undertaken through information feedback workshops at which the involvement o f participants was fundamental at al l times to enrich and modify studies, as wel l as for the elaboration o f the Manual o f Operations.

At workshops planned at municipalities during the current month o f March, the Manual o f Operations will be presented and group discussion sessions will be carried out as wel l as plenary meetings for questions and conclusions.

See annex o f social consultations specifying: dates, places, participants, key subjects, results, and l i s t o f participants to verify the number and identity o f participants at each one o f the activities.

Main recommendations and inputs to project design

For more information over the consultation process, see the annex on social consultations specifying: date, place, time, issues, participants and results o f the meetings.

95

The project design was modified due to the information feedback workshops and discussions thereof. A series o f conclusions and recommendations were reached that are important to take into account in Project implementation to ensure its good performance.

YO Indigenous native population Municipality

Beneficiaries: poor indigenous and campesino families

% YO High Lands L o w Lands

Beneficiaries are young indigenous and campesino families o f the communities and municipalities o f Mineros, Pail6n and Charagua and settlers coming from High and L o w Lands as well as indigenous native to the regions according to the following detail:

Charagua Pail6n Mineros

85 14 1 20 72 8

5 75 20

These must be indigenous and campesino families with minimum five years experience in agricultural work that do not possess land or have insufficient land. Because o f this, most o f them are salaried workers at enterprises and sugar cane factories in the vicinity, day laborers, especially at harvest time (sugar cane harvest), unskilled laborers, cowboys, tenants, etc. That i s to say that they perform agricultural activities in lands that they do not own.

I t will be an indispensable condition to have minimum 5 years o f agricultural experience and the same time o f residence at the community to facilitate entrenchment and social control.

To prioritize the access to land o f young families -being the head o f the household 18 to 35 years o f age- as wel l as that o f women whose participation should be direct and active facilitating training courses and including them in the legal rights o f tenure titles to the land in equal conditions.

To provide continuous legal assistance to mend problems o f this nature as well as technical assistance to add aggregate value and sustainability, contemplating internal and external markets and converting beneficiaries in active subjects o f the financial market - thus not dependent on other producers- through credits suitable to their means.

To consider a support unit for strengthening, leadership and management o f resources o f productive associations, since leaders are usually discredited through administrative issues, more so when they do not have the capacity to manage resources.

To foster the family composition o f associations given that this type o f alliances exists already in fact and beneficiaries express their doubts about the conformation o f mixed associations due to negative prior experiences.

To respect traditional mechanisms for empowerment. However, the creation o f bylaws i s recommended in order to form the institutions legal framework and promote rotation in order to avoid social conflicts and mismanagement o f resources.

96

To vary the amount levels o f the different components according to the characteristics o f the land and the needs for infrastructure o f the areas under intervention.

0 To seek control mechanisms to avoid politization o f the project this could affect the selection o f productive associations that apply to become beneficiaries.

To strengthen base campesino and indigenous organizations and seek consensus and dialogue with al l o f them, avoiding to foster conflict situations and to generate transparency in the process.

Project benefits for social actors Implementation o f the project will bring benefits for different social actors, for direct beneficiaries as wel l as for organizations and institutions that are part o f it.

Benefits

There are distinct benefits for those families without land and for those that have insufficient land:

1. Benefits for young indigenous and campesino families without land: 0 Land tenure. 0

0

0

0

0

0

Liberation from land jobbing. 0 Strengthened associate work. 0 Revalorization o f cultural identity.

Secure income and dignified life. Access to technological and financial resources. Small landholders with resources to work the land, innovating technology and productive models. Possibility o f adding aggregate value to part o f their products. Financial flows that allow improvements in economy, savings, investment, credit management. To become independent and se l f sufficient.

2. Benefits for indigenous and campesino fami l ies with insufficient land: Sufficient productive land. Sufficient income to ensure social and cultural reproduction o f the family unit and a dignified l i fe. Capacity for financial and technical investment. Strengthening and consolidation o f their tenures with capacity to make technological innovations and improve their productive systems. Not having dependents: children can integrate to work or the new resources could help them become independent. Possibility o f additing aggregate value to part o f their products. Hired technical support. Capability o f resource management.

97

0 Associated work that promotes community unity and helps in the growth o f internal markets.

Besides, this would lead to the achievement of the social objectives o f the project: 0 Poverty reduction. 0 Equitable and fair access to the land. 0 Social Inclusion. 0 Tenure consolidation and strengthening 0 Production autonomy. 0 Gender Impact. 0 Organizational Strengthening.

Institutions and organizations

- Benefits for the communities 0

0

0

0

0

0 Enhancement o f their economy 0 Access to internal markets.

Group formation and identification o f problems and options. Consolidation and/or enlargement o f their territories Access to technological and financial resources Improvement o f their living conditions. Strengthening their organic, administrative and financial capabilities.

- Benefits for indigenous organizations 0 Strengthening their capabilities. 0 Credibility.

- Benefits for municipalities 0

0 Improvement o f their infrastructure. 0

Growth and enhancement o f their economy.

Greater credibility within the local c iv i l society.

- Benefits for financial entities 0 Increased clientele. 0

0 Economic profit. Enhancement o f financial flows with important economic amounts.

- Benefits for agricultural and technical assistance organizations in the zone 0 Increased clientele. 0 Enhancement o f the market. 0 Local economy enhanced, which reverts in their benefit.

98

- BeneJits for the Santa Cruz Department and the national level.

Regulation o f land markets.

Poverty reduction and hence reduction o f social conflicts. Reduction o f land pressure and land jobbing.

Participation o f social actors during project implementation

The project methodological approach contemplates the direct and active participation o f social actors in the design as well as in the implementation o f the project. Direct participation mechanisms are:

Training in different areas. Analytical workshops and meetings. Participatory monitoring and evaluation. Diffusion o f Project information in several languages. CODAL: Council for the Local Agrarian Development, with the participation o f representative o f different sectors o f civil society with decision-making capacity in the f i rs t instance. CCODDA: Departmental Consultative Council for Agrarian Development, which discusses and guides policies, monitors implementation and recommends adjustments. CCONADA: National Consultative Council for Agrarian Development, performing the same functions as the Departmental one. ,

Consultation mechanisms and instances wi l l ensure the continuous participation o f social actors and wi l l facilitate management transparency and credibility.

Potential R i s k s Two important risks have been identified from which other negative outcomes are derived:

1. Credit default o Different social conflicts could arise, as a consequence o f credit default from any o f

the productive associations’ members: - - - -

Internal conflicts within the productive association. Possible forced eviction o f defaulters. Loss o f credibility for the associations and their sponsor organizations. Distrust generated at financial institutions with the rest o f beneficiaries, which could mean denial o f funding to new associations.

o As a consequence o f a collective agreement for credit default the following could happen: - - - -

Internal conflicts at the municipality. Possible eviction by force from the lands. Risking the implementation o f the Project in the country. Weakening the State capacity to implement public policies on land tenure and support to the poorest.

99

2. Project politization. This risk could detract Project goals. I t has to be noted that there are constant l o w intensity conflicts among leaders o f different campesino, settlers and natives’ organizations and that these could use the project as a weapon for mutual attack or even attack to the Government. If this should happen, the most serious consequences would be:

- Generation and encouragement o f conflicts among organizations and

- communities. Discredit o f the project, the World Bank and the Bolivian Government.

3. Inequity at the communities. Preferential support to fami l ies o f young men and women with no land or insufficient land, could generate internal imbalances if we do not know how to handle a more equitable distribution with multiplying effects for the process at the interior o f communities and municipalities.

It should be noted that the problem o f land tenure in Bolivia i s complicated and polarizes many interests. Thus, l o w intensity conflicts amung different sectors: public, private, enterprises, large owners, settlers, campesino, indigenous, etc. are continuous and sometimes derive in focused violence, which does not mean that this i s a generalized situation. These conflicts will accompany the project in al l phases; however, the Pro- tierras-DA has foreseen mechanisms so that these tensions do not interfere in i t s implementation. Nevertheless, the existente o f these problems i s the justification for the Project.

Mechanisms to prevent risks are:

1. O n what concerns credit default, create agreements to favor beneficiaries, as long as interest rates and payment periods are customized and on line with their possibilities. Likewise, provide the necessary productive support to facilitate success in their agricultural activities, which ensures income.

On the other hand, the five years support with technical assistance to the productive capabilities o f beneficiary groups, will allow the premature detection o f this trend and the possibility to control it, aside from other options to resolve defaults:

a) Replace the members that are not in agreement with commitments. b) Credit overhaul. c) Land rentals d) Partial sale o f the tenure.

2. O n what concerns Project politization, talks and meetings have been held with polarized groups that have different interests over the land tenure issue. The endorsement o f al l organizations involved has been obtained. Relationships are going to be maintained during implementation.

The project will have a communications and diffusion component that will explain mechanisms and regulations, risks and benefits o f the project, based on lessons learned in project implementation.

100

Besides, in order to avoid any type o f ruling and political control, proposals undergo social control from civil society and the State and the technical endorsement o f the UT.

Being this a project funded by the World Bank, safeguard operational policies that affect, in this case, indigenous populations, cultural property and involuntary resettlement should be dealt with.

Impacts on indigenous populations As has been stated, most o f the project’s beneficiaries (72% approximately) are indigenous, a reason why this safeguard has special importance. Working groups have suffered, in large or lesser degrees, acculturation processes that have been assimilated to the campesino world and to the logic o f the productive subsistence unit as well as to the market in very bad conditions, even within the Indigenous Territories (TCOs) and therefore respond to the profile o f the Pro-tierras- DA beneficiaries.

Responding to the safeguard, in the design as well as in the implementation phases, it i s contemplated that:

1. They do not suffer adverse effects and that their dignity and human rights are respected. 2. They wi l l receive benefits culturally and socially compatible with their ways o f living. 3. They participate in sustainable development processes that respect their traditions and

cosmovision. 4. They participate actively and directly in the Project design and implementation processes.

The preparation o f a Plan for the Development o f Indigenous Populations i s not considered necessary since most o f the project’s beneficiaries are indigenous populations and, besides, because they are not isolated indigenous populations and in the project design the necessary measures have already been taken to incorporate the mandates o f the DO 4.20.

Cultural Property OPN 11.03 abides by the definition o f the United Nations o f the term “cultural property,” o f which we cite the following: “. . .sites having archeological (prehistoric) paleontological, historical, religious, and unique natural values”.

The only area o f intervention in which we will find sacred places that have to do with Nature i s the Indigenous Territory o f guaranties (TCO) in Bajo Isoso. This has to do with water, forests and mountains. There are certain sacred places, worshipped by isoseiio guaranies that due to religious beliefs are prohibited for human beings. Main places are the lagoons, highlighting those o f Yande Yari, or Mother Lagoon, forests and mountains: San Miguel, La Serrania de Guanaco and Serrania de Charagua.

Notwithstanding, there are guarani beliefs and internal mechanisms that will impede that the project could induce -without this being the intention- the creation o f human settlements in sacred areas, thus the cultural properties o f the guarani isoseiio people wi l l remain protected.

Likewise, the Manual for Project Operations explicitly requires that consultations be made at the sites to make sure that land that i s eligible does not have cultural properties.

101

Involuntary Resettlement As stated in the first point o f this safeguard: “involuntary resettlement under development projects, if unmitigated, often gives rise to severe economic, social, and environmental risks”. Meaning that many times development projects end up being harmful to people involved in them, in spite o f not having been potential beneficiaries at the beginning.

Project PRO-tierras-DA, considers the purchase by beneficiaries o f private agricultural properties for production. It has to be noted that in the implementation area there are sufficient tenures which qualify for procurement and in which there are no human settlements, meaning that no involuntary population resettlements will have to be undertaken.

Because o f this, it has been considered unnecessary to contemplate mitigation measures presented by this operational policy, being these respected and complied with by default.

Likewise, the Manual for Project Operations explicitly prohibits the approval o f a proposal in territories with human settlements.

Monitoring and Evaluation The monitoring and evaluation system i s a crosscutting activity in the whole process o f conception and implementation o f the project, more so when we initiate the project through a pi lot phase. Due to i t s nature, the project has the methodology o f direct participation of beneficiaries in design and implementation; in this sense, it is essential for the process to measure social and technical learning, as well as be aware at al l times o f the beneficiaries’ performance and if programming i s adjusted to their conditions.

Monitoring o f activities, processes, results and impacts achieved should be permanently reflected upon and adjusted during Project implementation. To establish indicators, we will use quantitative and qualitative data. These data will serve to feed into the information system, which, in turn, will feedback continuous evaluations among the team, beneficiaries and institutions involved.

The Monitoring and Evaluation System i s in the design process and will be finished during the stage o f PPF implementation.

102

3 W

a,

8 2 0

g9 a

3 N

I . I I

I I

0

IA 0

I I I

I?

0 0

00

m t-4-

Q 8

m

I I I

m

W

i 0

E

3

Y V W

a 'd C

'?

0 c! 2

I I I

j

I vl d

x 0

0 hl hl

2 \

m

x c? 2 0

..

00

I I I

Iz

cc 0

vl 0 0

0 Q

2 - .

I I I

I I

d

v-l 0 0

I I

I I

v-l

3 3

I I I

0 4 41

IA 0 0

hl Q e m hl

3 0

1

El

ed 0 El ed

.I Y

Y Y v)

U

.I

I

.I

a G 4

I I

I I

m

0 0 2

rg 0 0 x e 00 CY

In 0 0

m hl 0

Q e

I I I

W 0 m El

I I

I I I I

I I

m \o

I I I

I I

Q\ m

I I I I I

I I

i i

i i

i 3 3

I I I

I I

N N

I I I

I I

r- vl

d 0 0 Q 2 .. 3

0

t-

I 1 1

I 1

1

c

. vl 0

00

I

I I I

I I I

wl r 4

wl

00 p: 3

d 0 0 Q m

3 - -. cu

I I

I I I

m m

0 'I! 2

wl 0 0

cu Q B 2

I I I I

I I I

I-

O ?? s:

I I I

I I

0 0 i c

I I I I I

I I

I I I I I l

I I

li! 3

I I I t I 1 1 I

I I I I

I I I I

I I

0 0 2

I I I I I I I

I

I I I I I

N N b

0

3 0 3 3

I

0

In 0

I I I I

m a , 8 s

I I

3

t-4

a, G

0 0 3 ,.-

l-

I I I

= a , 8 s

I I

c!

1 a

I

I I I l

I I

s

I I

I I

v, N

8 0 Q I

I . In N

Q) 0 ep k

I I

I

I

1-1 . In A 0

I I I I I I I I I

I

I rJ

I

0 c) a 'E 0

0 c

c)

V

I

a 8 m

rr 0

.C E >

I

I I I

I I I I

I I I

B c? 0

3

3 \

d c\l

I 1 1

I I 1

0 0 2

I I I I I

I I I

I 1 I

W

I 1 I I I

I I I

m b

4- 0

I ( I I I I

I I I

1 l- 0

N

I I I I

m 0 0

0 CJ

2 3 . m

I I I I

I I

w s .@

I I I

I

W

P) s ii;

i F

P) c)

B t l

I I

m r

I I

0 0 E:

N

/

-If

-t ----I-- +

1

Annex 13: Project Preparation and Supervision

BOLIVIA: Bolivia Land f o r Agricultural Development Project.

Planned Actual PCN review February 2004 February 10,2004 Initial PID to PIC February 10 2004 February 10,2004 Initial ISDS to PIC February 10 2004 February 10,2004 Appraisal December 2004 April 20,2005 Negotiations August 2007 August 2 1 , 2007 BoardRVP approval October 2007 October 30,2007 Planned date o f effectiveness January 2008 Planned date o f mid-term review June 20 10 Planned closing date June 2013

Key institutions responsible for preparation o f the project: Ministry o f Rural Development, Agriculture and Environment (Viceministry o f Lands), Ministry o f Development Planning (Viceministry for Public Investment and External Financing).

Bank staff and consultants who worked on the project included:

Name Title Unit Malcolm Childress Sr. Land Admin. Specialist LCSAR Jorge A. MuAoz George Ledec Alonso Zarzar David Tuchschneider Patricia M c Kenzie Lourdes Linares Luis Schwarz Miriam Cespedes Alvaro Larrea Michael Goldberg Solange Alialli Fabiola Altimari Rolande Pryce Teresa M. Roncal Leila Diana Sarauis

Sr. Land Admin. Specialist Sr. Environmental Specialist

Sr. Social Development Specialist Sr. Rural Development Specialist

Sr. Financial Specialist Financial Specialist Financial Specialist Procurement Officer

Procurement Specialist Financial Sector Specialist

Lawyer Lawyer Lawyer

Operations Analyst Project Assistant

LCSAR LCSEN LCSEO LCSAR LCSFM LCSFM LCSFM LCSPT LCSPT LCOPR LEGLA LEGLA LEGLA LCSAR LCSAR

Bank funds expended to date on project preparation: 1. Bank resources: $1 55,920 2. Trust funds: $0 3. Total: $155,920

Estimated Approval and Supervision costs: 1. Remaining costs to approval: $20,000 2. Estimated annual supervision cost: $80,000 (plus additional FAOCP)

132

Annex 14: Documents in the Project File BOLIVIA: Bolivia Land for Agricultural Development Project.

Government Documents

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

Law 1715 Law 3545 Supreme Decree 28 160 Supreme Decree 28495 Land Market Background Study Technical Assistance Background Study Financial-Economic Background Study Production Models Background Study Operational Manual

Safeguard Documents

1 1. Environmental Study 12. Social Assessment

World Bank Documents

13, Financial Management Capacity Assessment 14. Procurement Capacity Assessment and Update

133

Annex 15: Statement o f Loans and Credits

BOLIVIA: Bolivia Land for Agricultural Development Project.

Difference between expected and actual

disbursements Original Amount in US$ Millions

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

PO82781 PO73367 PO68968 PO74212 PO57416

PO60474 PO65902

PO55230 PO62790 PO40085

PO57396

PO06204 PO06197

2004 2003 2002 200 1 200 1

2001 2000

1999 1999 1998

1998

1998 1995

BO First Programmatic Bank and Corporate BO Decent Infras for Rur Transformation BO Road Rehab. & Maintenance Project BO-Health Sector Reform APL I1

PROJECT (LIL) GEF BO-Sustainability o f Protected Areas BO HYDROCARBON SECT. SOC. & ENVlRM.(LIL)

BO-INDIGENOUS PEOPLES DEVT

BO ABAPO-CAMlRI HIGHWAY BO INST REF (OLD CIV S) BO PART RURAL INVESTMENT PROJECT BO REGULATORY REF. & PRIVATIZATION (TA) BO- EDUCATION QUALITY BO LAND ADMINISTRATION

15.00 0.00 0.00 0.00 0.00

0.00 0.00

0.00 0.00 0.00

0.00

0.00 0.00

15.00 0.00 0.00 0.00 21.00 19.85 0.00 20.00 0.00 0.00 0.00 21.56 14.01 0.00 77.00 0.00 0.00 0.00 67.15 36.68 0.00 35.00 0.00 0.00 0.00 25.28 -16.50 0.00 5.00 0.00 0.00 2.20 2.76 4.01 0.00

0.00 0.00 15.00 0.00 5.70 2.09 0.00 4.80 0.00 0.00 0.00 2.64 2.40 0.00

88.00 0.00 0.00 0.00 12.17 8.18 0.92 32.00 0.00 0.00 0.00 7.87 2.56 5.80 62.80 0.00 0.00 3.33 34.57 33.52 6.32

20.00 0.00 0.00 0.00 4.34 3.62 0.00

75.00 0.00 0.00 0.00 3.72 4.52 0.00 20.40 0.00 0.00 0.00 3.94 -1.36 3.51

Total: 15.00 455.00 0.00 15.00 5.53 212.70 113.58 16.55

BOLIVIA STATEMENT OF IFC’s

Held and Disbursed Portfolio In Millions o f U S Dollars

Committed Disbursed

IFC IFC

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

1995/98 BISA 0.00 0.46 0.00 0.00 0.00 0.46 0.00 0.00 2003 Banco Sol 5.50 0.00 0.00 0.00 5.50 0.00 0.00 0.00 1999 CBTl 0.00 0.00 0.83 0.00 0.00 0.00 0.83 0.00 1994/00 COMSUR 1.25 0.00 0.00 0.00 1.25 0.00 0.00 0.00 200 1 /03 Caja Los Andes 8.00 0.00 0.00 0.00 8.00 0.00 0.00 0.00 199110 1 Central Aguirre 1.99 0.00 0.00 0.00 1.46 0.00 0.00 0.00 1999 Electropaz 19.90 0.00 0.00 0.00 19.90 0.00 0.00 0.00 2003 FIE 2.19 0.00 0.00 0.00 2.19 0.00 0.00 0.00 1993 GENEX 0.23 0.00 0.00 0.00 0.23 0.00 0.00 0.00 1999 Illimani 4.61 1 .oo 0.00 0.00 4.61 1 .oo 0.00 0.00 1996 Mercantil-BOL 2.14 0.00 0.00 0.00 2.14 0.00 0.00 0.00

Minera 0.00 3.40 0.00 0.00 0.00 3.40 0.00 0.00

134

2003 PRODEM 3.00 0.00 0.00 0.00 3.00 0.00 0.00 0.00 2003 TDE S.A. 15.00 0.00 15.00 0.00 15.00 0.00 15.00 0.00

TFSA 0.00 4.44 0.00 0.00 0.00 4.44 0.00 0.00 TRECO 0.00 2.94 0.00 0.00 0.00 2.94 0.00 0.00

2001 Telecel Bolivia 5.56 0.00 5.00 4.29 5.56 0.00 5.00 4.29

Total portfolio: 69.37 12.24 20.83 4.29 68.84 12.24 20.83 4.29

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic.

2005 Gasyrg 0.05 0.00 0.00 0.10 2001 PQB 0.01 0.00 0.00 0.00

Total pending commitment: 0.06 0.00 0.00 0.10

135

Annex 16: Country at a Glance BOLIVIA: Bolivia Land for Agricultural Development Project.

POVERTY a n d S O C I A L Lat in Lower -

Amer ica midd le - B o l l v i a & Carib. I n c o m e

2003 Population, m id-year (millions) 9.0 GNi per capita (Atlas method, US$) 890 GNi (Atlas method, US$ billions) 8.0

Average annua l growth, 1997-03

Population (%) 2.2 Laborforce (%) 2.6

M o s t recent e s t l m a t e ( l a t e s t year aval iabie, 1997.03)

Poverty (%of population belo wnational po veflyline) 63 Urban population (%of totalpopulation) 63 Life expectancyat birth (years) e4 infant mortality (per 1000iive births) 58 Child malnutrition (%of children under5) 6 Access to an improvedwater source (%ofpopulation) 83 illiteracy (%ofpopulation age !5+J 0 Gross primaryenrollment (%ofschool-age population) 114

Male 114 Female 10

KEY ECONOMIC R A T i O S a n d L O N G - T E R M T R E N D S

1983 1993

GDP (US$ billions) 2.7 5.7 Gross domestic investment1GDP 0 2 16.6 Exports of goods and serviceslGDP 28.3 59.1 Gross domestic savingslGDP l l .5 7.3 Gross national savings1GDP B2 7.6

Current account balance1GDP -5.7 -7.3 Interest payments1GDP 7.7 2.2 Total debt1GDP 152.3 75.1 Total debt servicelexports 51.2 36.7 Present value o f debtlGDP Present value of debtlexports

1983.93 1993-03 2002

GDP 2.3 3 2 2.8 GDP percapita 0.0 0.8 0.5

(average annualgrouth)

534 3260 1741

15 2.1

77 71 28

66 11

P 9 Dl P 6

2002

7.8 14.7 2 19 9.6 119

-4.4 13

82.4 28.4 23.1

07.5

2,655 1,480

3,934

0.9 12

50 89 32

81 D n? 10

n

in

2003

8 .O

215 8 .O 9.1

.14 l.Q

59.1 319

n o

2003 2003-07

2.5 3.6 0.5 1.8

STRUCTURE o f the E C O N O M Y

(%of GDP) Agriculture industry

Services

Private consumption General government consumption Imports of goods and services

Manufacturing

(average annualgmuth) Agriculture Industry

Services

Private consumption General government consumption Gross domestic investment Imports of goods and services

Manufacturing

1983 1993

20.7 B.3 42.3 34.2 9 . 8 18.8

37.0 49.5

73.5 79.4 9.0 D.4

24.0 28.4

1983-93 1993-03

2.6 2.4 1.4 3.3

2.2 3.0 2.1 3.6

2.9 3.2 -1.2 3.1 5.2 15 8.0 3.9

2002

14.6 33.3 15.0 52.1

74.8 15.4

26.9

2002

0.6 4.2 2.2 2.3

15 3.3 0.5 7.7

2003

14.6 33.2 14 .7

52.2

77.4 14.5

24.4

2003

3 .O 2.5 0.9 3.3

0.9 -0.4

-22.7 -7.1

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

Life expectancy

r

GNI Gross per primary capita nroilment

Access to improved water source

- B o livia I - Lo wer-middle-income group

E c o n o m i c ra t ios '

Trade

T

Indebtedness

-Bolivia ~ Lower-middle-income group

G r o w t h o f inves tment and G D P (%)

40

20

0

-20

-40

-GDI -GDP

G r o w t h o f expor ts and i m p o r t s (%)

30 T

20

10

0

- 10 -20

136

Bo liv ia P R I C E S a n d G O V E R N M E N T F I N A N C E

D o m e s t i c p r l c e s (%change) Consumer prices 328.4 Implicit GDP deflator 265.2

1983

G o v e r n m e n t f lnance (%of GDP, includes current grants) Current revenue Current budget balance Overall surpiusideficit

T R A D E

(US$ millions) Total exports (fob)

Hydrocabons-gas Soya Manufactures

Total imports @if) Food Fuel and energy Capital goods

Export price index (S95=00) Import price index(S95-WO) Terms o f trade (S95=WO)

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

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

Net income Net current transfers

1983

755 33 58

577

4 222

188 57

296

1983

852 686 187

-425 D6

Current account balance -152

Financing items (net) Changes in net reserves

441 -286

M e m o : Reserves including gold (US$ millions) 243 Conversion rate (DEC, locaVUSS) 4.70E-4

E X T E R N A L D E B T and RESOURCE FLOWS

(US$ millions) Total debt outstanding and disbursed

1983

4,069 IB RD 2 0 IDA 92

Total debt service IBRD IDA

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

World Bank program Commitments Disbursements Principal repayments

461 23

1

01 76

-30 U 0

0 D D

1993

9.3 6.6

22.7 3.1

-6.1

1993

7 0 119 56

219 1 7 7

44 52

456

91 94 97

1993

894 1,347 -452

-205 2 38

-418

601 -182

495 4.3

1993

4,307 9 9 547

334 35 6

175 182

11 I24

0

51 68 25

2 0 0 2

2.4 2.7

24.8 -0.4 -8.9

2 0 0 2

1299

88 267

1,770 75 83

454

88 99 90

ni

2 0 0 2

1534 2,049

-515

-202 369

-347

71 275

807 7.2

2 0 0 2

4,867 0

1321

476 0

15

591 228 -75 677

0

77 a 4

7

2 0 0 3

3.8 7.2

23.5 -0.6 -7.9

2 0 0 3

1,479

1,675

90 D 2 89

2 0 0 3

1,720 1,959 -239

-262 387

-lu 9 8 -14

843 7.7

2 0 0 3

4,739 0

1,362

593 0

26

86 -185

0 58 18

I I n f l a t i o n (Oh) I

98 99 00 01 02 03

-GDP deflator -CPI

Expor t and i m p o r t ieve ls (US$ mill.)

2,500 T

I 97 98 99 00 01 02 03

w Exports 0 Imports

I Cur ren t a c c o u n t balance t o G D P (Oh)

0

-2

-4

-8

8

- 10

C o m p o s i t i o n o f 2 0 0 3 debt (US$ mill.)

I G: 370

I D 1.883

A - IBRD E - Bilateral B . IDA D. Other multilatwai F - Private

G - Short-tern 1 C - I M F

137

Annex 17: Map No. IBRD 33374 BOLIVIA: Bolivia Land for Agricultural Development Project.

138

P O T O SP O T O S ÍÍ

TTA R I J AA R I J A

S A N TS A N TA C R U ZA C R U ZC O C H A B A M B AC O C H A B A M B A

O R U R OO R U R O

L A PL A PA ZA Z

B E N IB E N I

PPA N D OA N D O

CC HH UU QQ UU II SS AA CC AA

AsunciAsuncióónn

RiberaltaRiberalta

PuerPuerto Heathto Heath

PuerPuertotoAcostaAcosta

MagdalenaMagdalena

ReyesReyes

ApoloApoloSan BorjaSan Borja

CaranaviCaranavi

VViachaiachaGuaquiGuaqui

Santa AnaSanta Ana

UyuniUyuni

VVilla Montesilla Montes

CarCarniriniri

AiquileAiquile

MonteroMontero

AscenciAscencióónn

ConcepciConcepcióónnSan IgnacioSan Ignacio

San JosSan Joséé de Chiquitos de Chiquitos

RoborRoboréé

Las PetasLas Petas

SantaSantaAnaAna

PuerPuertotoSuSuáárezrez

TTarabucoarabuco

YYucuibaucuibaVViljaziljazóónn

TTrinidadrinidad

CobijaCobija

Santa CruzSanta Cruz

PotosPotosíí

TTarijaarija

CochabambaCochabamba

SucreSucre

OruroOruro

LA PLA PAZAZ

CCoo

rr ddii ll ll ee

rrOO

cccc

ii ddee

nntt aa

ll

CCoo rr dd ii ll ll ee rr

CCee nn

tt rr aall GG

rr aa nnCC hh aa cc oo

P O T O S Í

TA R I J A

S A N TA C R U ZC O C H A B A M B A

O R U R O

L A PA Z

B E N I

PA N D O

C H U Q U I S A C A

Asunción

Riberalta

Puerto Heath

PuertoAcosta

Magdalena

Reyes

ApoloSan Borja

Caranavi

ViachaGuaqui

Santa Ana

Uyuni

Villa Montes

Carniri

Aiquile

Montero

Ascención

ConcepciónSan Ignacio

San José de Chiquitos

Roboré

Las Petas

SantaAna

PuertoSuárez

Tarabuco

YucuibaViljazón

Trinidad

Cobija

Santa Cruz

Potosí

Tarija

Cochabamba

Sucre

Oruro

LA PAZ

C H I L E

P E R U

A R G E N T I N A

PA R A G U AY

B R A Z I L

Yacuma

Madrede Dios

Abunã

Madidi

Paraguá

SanM

ar t ín

Ape

re

Yata

Mam

oré

Salar deUyuni

Banados delIzozog

Salar deCoipasa

LagoPoopo

Lago deSan Luis

LagoRogaguado

LagoRogagua

LagoTi t icaca

LagoHuai tunas

Desaguadero

Quiquibey

I c hoa

Chapare

I chi lo

Beni

Gran

d e (Guapay)

Yapacani

S an

Miguel

B lanco

Guaporé

ayaliP

oya

mocli

P

ednarG

zepíLe d

Paci

f ic

Oce

an

To Puno

To Porto Velho

To CampoGrande

To Iquique

To Calama

To Abra Pampa

To San Ramón de

la Neueva Orán

To Tartagal

To Mariscal

Estigarribia

To Arica

Co

r di l l e

rO

cc

i de

nt a

l

Co r d i l l e r

Ce n

t r al G

r a nC h a c o

Nevada Sajama(6,542 m)

NevadaIllimani(6,462 m)

NevadaIllampu(6,362 m)

70°W

70°W 65°W

65°W

60°W

60°W

20°S 20°S

15°S 15°S

10°S

Miles

BOLIVIA

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.

0 50 100

0 50 100 Miles

150 Kilometers

IBRD 33374

SEPTEMBER 2004

BOLIVIASELECTED CITIES AND TOWNS

DEPARTMENT CAPITALS

NATIONAL CAPITAL

RIVERS

MAIN ROADS

RAILROADS

DEPARTMENT BOUNDARIES

INTERNATIONAL BOUNDARIES